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WPP cancels dividend and share buybacks amid Covid-19 pandemic

By Josh White

Date: Tuesday 31 Mar 2020

WPP cancels dividend and share buybacks amid Covid-19 pandemic

(Sharecast News) - WPP updated the market on its trading in light of the Covid-19 coronavirus pandemic on Tuesday, reporting that for the first two months of 2020, excluding Greater China, group like-for-like revenue less pass-through costs was up 0.4%.
The FTSE 100 advertising conglomerate said that in the Greater China region, which accounts for about 7% of revenue less pass-through costs, the impact from the outbreak led to a 16.1% fall in like-for-like revenue less pass-through costs over the two-month period.

For WPP as a whole, like-for-like revenue less pass-through costs was down 0.6%, in line with its expectations and the guidance set in its preliminary results on 27 February.

In the United States, it said it saw an improvement in the rate of decline from 2019, with revenue less pass-through costs down 0.9% in the first two months, compared to a decline in the second half of 2019 of 4.4%.

"Our overall new business performance was very strong, with a number of key wins including Intel, Hasbro and Discover, and retentions including BBVA," the board said in its statement.

In China, despite the "significant" slowdown in economic activity and the closure of its offices, WPP said its people had responded "extraordinarily well" to the "unprecedented" challenges, adding that it had successfully continued to work on client projects.

At the peak of the crisis in China, almost all of its colleagues were working remotely, but as health restrictions were now being lifted, 55% of the local workforce is back in its offices.

In March, the company said it had started to see a range of different responses from clients globally, depending on the client sector, country and agency services.

"In the short term, media spend has largely remained committed, or diverted to alternative channels, although we have seen an increasing volume of cancellations.

"Project and retained work has continued in most sectors, but activity has begun to decline.

"New business pitches continue where the process was already underway, albeit we have less certainty over our future pipeline."

In some markets, WPP said it was seeing additional demand in its PR and specialist communications businesses.

As a result, it was expecting performance in March in markets experiencing significant Covid-19 outbreaks to be weaker than in January and February, impacted by government restrictions on movement and the consequent reduction in economic activity.

As it entered the second quarter, the firm said it was "clear" that the impact of the pandemic on the business would increase, but said it was not possible at the current stage to quantify the depth or duration of the impact.

As a result, it confirmed it was withdrawing its guidance for the 2020 financial year, and would provide an update when appropriate.

WPP said it had a "strong" balance sheet and "good" liquidity, noting tha over the last two years, it had raised about ?3.2bn from its disposals programme, selling 50 businesses and investments.

As at 31 December, the company had cash of ?3bn and total liquidity, including undrawn credit facilities, of ?4.8bn.

Net debt was ?1.5bn , down from ?4bn a year earlier, and the firm;s year-end net debt-to-headline EBITDA ratio was 0.8x.

Its covenants, which relate to its $2.5bn revolving credit facility, were more than 3.5x net debt-to-EBITDA and more than 5x EBITDA-to-net interest.

Its bond portfolio at the 2019 year-end had an average maturity of 8.2 years, with only a May 2020 €250m eurobond due in the next two years.

"Given the significant uncertainty over the coming months, we are taking prudent action now to maintain our liquidity and ensure that we emerge from this global crisis strong, secure, and ready to meet the continuing needs of our clients, shareholders and other stakeholders."

The board had thus decided to suspend the ?950m share buyback programme, funded by proceeds from the Kantar transaction, with immediate effect.

Since December, it had completed ?330m of the programme.

In addition, the board said it was suspending the 2019 final dividend of 37.3p per share, which was due to be proposed at the annual general meeting in June.

Those two actions together would preserve around ?1.1bnof cash, and the directors said they would continue to review the status of the 2019 dividend.

WPP explained that most of its costs were variable in nature, confirming that it had started a review of its costs to protect profitability, where possible, from a decline in revenue.

At the same time, it said it wanted to protect its people "as much as possible", as well as its ability to serve clients and grow when markets recovered.

"The immediate actions we have taken include freezing new hires, reviewing freelance expenditure, stopping discretionary costs, including travel and hotels and the costs of award shows, and postponing planned salary increases for 2020."

In addition, members of the WPP executive committee, as well as the board, have committed to taking a 20% reduction in their salaries or fees for an initial period of three months.

The company said it expected those measures to generate total in-year savings for 2020 of between ?700m and ?800m.

In addition, it said it was making a detailed assessment of further actions to reduce costs subject to the impact of the virus on its business over the coming weeks and months.

Finally, WPP said it had also reviewed its capital expenditure budgets for 2020, and looked at opportunities to improve working capital.

It said it had identified savings of more than ?100m in property and IT capital expenditure against an initial 2020 budget of around ?400m.

On working capital, it had a standing weekly management process to review cash outflows and receipts to monitor its position.

WPP said it was continuing to work closely with its clients to ensure timely payment for the services it had provided in line with contractual commitments.

On media, it added it was working with clients and vendors to maintain the settlement flow, explaining that should it see any deterioration in payment from its media clients, it would take appropriate action to manage its cash position.

"The actions we have taken in the last 18 months to streamline and simplify WPP, together with raising ?3.2bn in asset disposals, have put WPP in a strong financial position," said chief executive officer Mark Read.

"It is clear that the companies in the strongest financial position will be best placed to protect their people, serve their clients and benefit their shareholders during a period of great uncertainty, which is why we are taking the steps we are outlining today.

"Across WPP we now have close to 95% of our people working effectively and productively away from their offices."

Read said he was "very proud" of the response from the firm's people, who he said were "looking out for each other" and "going the extra mile" for clients.

"At the same time, we are supporting many governments and international health organisations on communications programmes to limit the impact of COVID-19 on our communities.

"The important role we are playing in helping our clients navigate a difficult time gives us great confidence in the long-term future of the company."

At 0843 BST, shares in WPP were up 5.66% at 545p.


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