WPP faces potential $10m loss for H1 2020, plans $70m cost savings with pay cuts and redundancies
WPP AUNZ’s net sales fell 22% in April, resulting in a predicted EBIT of “between breakeven and [a] $10m loss for the first half of 2020”, CEO Jens Monsees has revealed during the company’s annual general meeting this morning.
Monsees is, however, confident that “our strategy is exactly where we need to be to benefit in the post COVID-19 new norm” and said $70m in cost savings will largely be achieved through pay cuts – which were rolled out to the entire team on a voluntary basis last month – and “partly, also redundancies where necessary”.
Monsees presenting at the AGM
A portion of the $70m in savings will be permanent, with employees’ salaries and hours set to return to normal, “but not before our revenues have been restored,” chair Robert Mactier explained.
Monsees added that selective redundancies and reduced facility costs will mean that a “big, remaining chunk of it [the $70m in savings] will stay for the future after COVID-19”.
“There are too many uncertainties to provide a full year outlook at this point in time,” he said in his presentation. “We are focussed on what we can control, which are costs, and we expect to see the benefit of our initiatives in this area coming through in the second half.
“We are a people business, and staff costs are our biggest cost. So you will see the majority of this operating cost reduction involves pulling levers to reduce staff costs.”
The April figures have led to an expected “significant negative impact on our earnings in the second quarter”, Monsees admitted.
Mactier added that when the company’s “disappointing” and “not acceptable”, $227.57m statutory net loss was posted in February, “we had not truly understood the magnitude of the government’s response to the crisis and what it would mean for consumers, our ability to work and the business models of many of our clients.”
But with 96% of WPP’s local workforce working from home, Mactier thanked Monsees for his leadership given the turbulence he’s experienced so early in his tenure, and chief operating officer John Steedman, who acted as interim CEO and has now become Monsees’ “trusted confidant and partner”.
“There is no doubt that Jens’ breadth of digital and marketing experience and seniority within a very large global organisation was unrivalled compared to the other candidates that we reviewed,” Mactier said, praising the CEO chosen “unanimous[ly]”.
“The Board is very impressed with Jens’ strategic vision for the company. He is driving significant change in how we operate to enable us to truly respond to the changing needs of our clients, the working environment desired by our talented employees and to capitalise on our scale and breadth to deliver a market leading service and win market share.”
Yesterday, Monsees announced the launch of WPP’s Centre of Excellence as part of his strategic overhaul, and the company renewed its $150m working capital facility.
Chair Robert Mactier
Mactier also acknowledged that “unequivocally, these are the most challenging and uncertain times that any of us have experienced”.
“The financial pressures, changes to business models, changes to consumer habits, changes to our ability to work… the list goes on. This environment is like nothing any of us have ever had to deal with,” he said.
“Against this backdrop, we took the very difficult decision to cancel our ordinary and special dividend payments and also to ask our directors, leadership team, and employees to volunteer for pay cuts and reduced working hours.
“We are continuing to review further changes and cost reduction measures to right size the business for the current environment but also to ensure we come out the other end as a stronger and more efficient business.
“Given the changes in the economic and operating environment since we released our 2019 results, I don’t think it makes sense to dwell further on the historical performance but rather maintain an unwavering forward-looking focus and driving significant change in our go to market operating model.”
Paul Richardson is stepping down from the board after 20 years, with global chief financial officer of Wunderman Thompson, Diane Holland, replacing him. Graham Cubbin will also step down from the board this year.
“Further, it is intended that we will continue a program of renewing the Independent Board Directors, including myself, in a timeframe and sequence that will ensure a transfer of corporate history and maximum support for Jens as he executes his strategy,” Mactier said.
He added that the COVID-19 crisis has cemented that selling Kantar was the right decision.
“The sale delivered an attractive valuation and has provided a more conservative financial starting point from which we can respond to the crisis, survive, and indeed prosper when many of our competitors might come under more significant financial pressure,” he said.
Brittney Rigby was Mumbrella's deputy managing editor - news and analysis. She left Mumbrella in April 2021.
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