WPP’s profit before tax drops 68.5% in first half, ‘better than anticipated’ net sales down 14.3%

WPP AUNZ has recorded a 68.5% drop in headline profit before tax – from $26.9m to $8.5m – and a 61.5% decline in headline earnings before interest and tax (EBIT) – from $34.6m to $13.3m – in its half-year results. Headline profit after tax fell 70.4% to $4.7m.

It’s better than the potential $10m loss WPP AUNZ flagged in May, but indicative of the way COVID-19 has eaten away at the regional arm of the world’s largest holding company, as it has the rest of the industry.

Monsees presenting at the WPP AGM earlier this year

Net sales were down 14.3% to $296m – “higher and better than anticipated”, according to CFO Chris Rollinson  – and advertising bookings were down 24%. But this drop in net sales was an improvement on a 24% market drop, due to a “diversified regional footprint, quality client portfolio and our leading creative solutions,” said chief executive Jens Monsees.

Net sales by quarter. Click to enlarge

Among the group’s media and creative agencies – which include Mediacom, White Grey, Mindshare, Wavemaker, and Wunderman Thompson – net sales fell 12%, due to the cancellation or deferral or client spend in response to COVID-19.

The PR division’s decline of 20.8% was attributed to client losses from last year, while the training, events, and experiential companies – collectively known as the ‘specialist communications’ division – experienced a 14.6% slide, due to event restrictions. Large format productions dropped 49.1%.

Each segment’s net sales performance. Click to enlarge

The better-than-expected results were chalked up to a $70m cost savings program, and the help of government subsidies. The company revealed that it has received $6m in government subsidies, and already achieved $28m of its projected $70m in cost savings in the first half, partly driven by WPP staffers participating in a voluntary program involving a ‘menu’ of options including pay cuts and reduced hours.

The business is on track to achieving the $70m in savings, and delivered an 18% cost reduction from the first to second quarter – the salary cuts were implemented in Q2. A portion of that $70m will be permanent cost savings, thanks to redundancies and a reduction in facility costs, the company previously confirmed.

The holding group also announced it expects those savings to increase to $80-$100m in 2021, when compared to 2019.

“I am encouraged to report a financial result that is in line with recent guidance and better than our original projection of a breakeven to $10m EBIT loss forecast,” said Monsees, announcing the results.

“As a business and as individuals, WPP AUNZ has stepped up to the challenge. I am proud of how our employees have responded, with agility and flexibility to the changing environment.”

WPP said the salary cuts implemented in the second quarter have begun to have an effect, with June and July profitable, and up year-on-year. The second quarter, down 21.5%, is expected to be the worst.

Rollinson said the group is forecasting net sales on weekly basis, and is anticipating client spend will climb in the second half.

Monsees added that “we are operating in an environment that changes almost daily. Our response so far gives me confidence we can continue to adapt”.

“What we are sure of is that digital transformation and maintaining consumer engagement has never been more critical for our clients,” he said.

“In these areas, we offer clients the best and most creative end-to-end marketing and communications services.

“We enter the second half of the year with a positive view. Clients continue to invest in marketing and communications … Our business is in good health, with strong cash collection and reduced debt levels versus the previous year. We have the financial stability and flexibility in our business to continue to execute our strategy and drive growth.”

WPP’s results dropped this morning. Click to enlarge

As at 30 June, the business’ net debt was $138.7m, down from $326m the year prior, and dividends remain on hold. Given the ongoing economic uncertainty due to the pandemic, WPP said it would not provide an earnings guidance for the rest of the 2020 financial year.

Earlier this week, ahead of the results’ release, WPP extended its $420m debt facilities.

The debt facilities are spread across a syndicate of four banks, and include a $270m three year facility and a $150m rolling annual working capital facility. The extension sees the maturity of the $270m facility extended from June 2021 to August 2023. The $150m working capital facility was renewed in May from June 2020 to June 2021, and has now been renewed again to August 2021.

The transformation strategy Monsees began to roll out when he stepped into the role includes the establishment of a Centre of Excellence, and the installation of ‘campus leaders‘ who are responsible for each city’s output, across agencies.

“We are spot on with our strategy,” Monsees said. “We accelerated some of our transformation initiatives. As a result, we are now ahead of our internal strategy roadmap, with over half of the 2020 deliverables now completed.

“In the last six months, we closely partnered with clients, bringing fresh insights and new digital and creative solutions. It means we now have client leaders in place for our top clients and dedicated sector experts to ensure our whole business can tap into the deep knowledge we have built up over the years within our brands.”

He added that New Zealand’s outpost is now profitable after a loss last year, following a restructure.

“We have a new leadership team in place and our brands have been brought together into the one campus,” the CEO said. “The experience and success in New Zealand so far means we are constantly learning from our progress and improving our broader group strategy.”

WPP will provide an update to investors in late October, once the third quarter’s results are in. Investors did not ask questions on this morning’s briefing call.


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