WPP falls 15% in Q2 as creative holds up better than media during Covid-19

WPP reported a 15.1% slump in net sales during the second quarter as Covid-19 took a toll on the group, which recorded a £2.6 billion ($3.4 billion) half-year loss, chiefly from writing down the historic value of Y&R.

The 15.1% decline in like-for-like revenue less pass-through costs, the company’s preferred measure, was “better than our expectations”, according to chief executive Mark Read.

It meant WPP was roughly in the mid-range of its peers in terms of organic revenue during the April-June quarter – behind Interpublic (down 9.9%) and Publicis Groupe (-13%), but ahead of Havas (-18.3%), Dentsu Aegis Network (-20%) and Omnicom (-23%).

WPP saw some improvement in July, compared to Q2, with revenues down 9.2%.

Read said: “Assuming there is no second wave nor major lockdowns, the second quarter is expected to be the toughest period of the year, although we remain cautious on the speed of recovery.”

Revenue decline varied by geography and discipline in the second quarter. North America was down 10.2%, the UK 23.3%, western Europe 18.8% and the rest of the world 14.8%.

WPP reports revenues for its creative and media agencies together under the banner of global integrated agencies and indicated that creative performed better than media.

VMLY&R was “the best-performing integrated agency, reflecting its improving business momentum since the [internal] merger” of VML and Y&R in 2018, WPP said.

“Wunderman Thompson also performed better than the segment as a whole, again benefiting from the creation of an integrated agency. Hogarth, our specialist production business, experienced strong demand for its services.”

Group M, whose agencies include Essence, MediaCom, Mindshare and Wavemaker, “underperformed” because of “the closer correlation of its revenue to client media expenditure.”

Staff cuts

WPP, the world’s biggest ad agency group by staff numbers, has made redundancies, frozen hiring and reduced other costs since the Covid-19 outbreak went global at the end of February.

Headcount fell by 5,000, or nearly 5%, to 101,000 between January and June—“a combination of voluntary leavers whose roles were not replaced as part of the hiring freeze, and redundancies”, the company said, adding: “Wherever possible, the preservation of our workforce continues to be a priority.”

The main areas of cost reduction were in travel and discretionary expenditure (down 47%), property costs (fall of 5%) and staff costs (dropping 5%), according to the financial results.

In a sign of the continued disruption to normal working practices caused by social distancing, WPP disclosed that “the latest level of office-based working in our main markets” is just 1% in the US, 3% in the UK, 17% in Germany, 77% in China and 0% in India.

Y&R writedown

Like-for-like revenue less pass-through costs for the six months from January to June fell 9.5% to £4.7 billion and operating margin dropped to 8.2%.

WPP posted the £2.6bn pre-tax loss for the half-year because of “impairments” of £2.7 billion, chiefly due to “historical acquisitions whose carrying values have been reassessed in light of the impact of Covid-19”, because growth rates will be lower in future.

The “majority” of those acquisitions relate to the purchase of the Y&R group for $4.7 billion in 2000—one of the biggest takeovers in advertising history at the top of the market during the dot-com bubble.

In a sign of relative financial health, WPP said it would pay a half-year dividend, after cancelling the end-of-year dividend for the 2019 financial year.

WPP shares rose more than 4%, but remain down a third from before Covid-19.