IPG profits tumble 127% for Q2 as holding group concedes there’s more cost cutting to come
IPG – the holding group responsible for agencies including Initiative, Mullen Lowe, R/GA and UM – is the next global giant to reveal how the COVID-19 pandemic and ensuing economic downturn has hit its agencies and clients.
Overnight, the group revealed a loss attributable to shareholders for the second quarter of 2020 of US$45.6m, down from a profit of US$169.5m last year – a decline of 126.9%.
CEO Michael Roth conceded that the group’s cost-cutting measures might not be over yet.
“With our review continuing, we anticipate that we will take additional strategic actions in the second half of the year geared towards further structural cost reductions. These additional actions are expected to result in a second-half restructure expense in the range of US$90m to US$110m,” he said on a call to investors overnight.
IPG’s financials for Q2 2020 (Click to enlarge)
The recovery’s trajectory also isn’t clear, he said, as usual reference points for marketing spend had been destroyed, and the pandemic made predictions and outlooks challenging.
“The environment remains unclear for as long as COVID is a threat to everyday life,” Roth said. “As a result, visibility to revenue remains challenging, and client decision-making difficult to forecast. Even the usual points of reference in marketing and media such as back-to-school, the global sports calendar, media inventory in the holiday season have not come into focus.”
Unlike rival international holding group, Omnicom – which released its results earlier this week and said Q2 would likely be the bottom of its poor performance – Roth posited that this quarter wasn’t as bad as the industry may have been anticipating.
IPG’s revenue change by region (Click to enlarge)
“If you look at the results for the quarter, when I said that we thought the second quarter was going to be the worst, the good news is that the second quarter wasn’t as bad as we thought it was going to be. So that’s a positive,” he said in response to a question from investors.
Net revenue for the quarter was down 12.8% from US$2.13bn to US$1.85bn.
Roth said in a rapidly-developing recession the group had taken the necessary actions to reduce expenses – including furloughs, layoffs and salary reductions.
For Q1 and Q2 combined, net revenue was US$3.83bn, down 7.4% from US$4.13bn for the first half of 2019.
Detailed financial results for Q1 and Q2 (Click to enlarge)
The net income available to IPG shareholders was a loss of US$40.9m, down from a profit of US$161.5m last year. This amounts to a 102.2% decline.
Roth said he’s confident in the strength of IPG’s model and the competitiveness of its offering.
Our Australian leadership has communicated clearly at all times. We are all in this together in partnership with our clients. Very proud to work at Mediabrands and could not ask for greater clarity. Mark Coad’s leadership and care continues to be outstanding.
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Is this not a further indication the media agency business model is broken? Without keeping score it certainly feels like IPG has been one of the more successful holding companies over the past 12 months.
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