Following the withdrawal of guidance for 2020 due to significant uncertainty over immediate outlook, WPP is mopping up billions in cash by suspending dividends, dropping a share buyback and slashing costs including salaries to ensure the world’s largest advertising company gets through the coronavirus crisis.
The company, with its major markets going into isolation, has launched its own lockdown to hoard as much cash as it can to carrying the business through the expected lean times of the pandemic.
Strong balance sheet supported by further immediate action to maintain liquidity: buyback and 2019 final dividend suspended given current uncertainty; final dividend will remain under review. Additional measures taken to manage cash flow and profitability include reduction in costs and capital expenditure, and tight controls on working capital.
Update issued by WPP said, “Over the last two years, we have raised approximately £3.2 billion from our disposals programme, selling 50 businesses and investments.As at 31 December 2019 we had cash of £3.0 billion and total liquidity, including undrawn credit facilities, of £4.8 billion. Net debt was £1.5 billion, down from £4.0 billion a year earlier.”
“To maintain its liquidity, the WPP Board has decided to suspend the £950 million share buyback, funded by proceeds from the Kantar transaction, with immediate effect. In addition, the Board has suspended the 2019 final dividend of 37.3 pence per share, which was due to be proposed at the AGM in June 2020. These two actions together will preserve approximately £1.1 billion of cash. “ added WPP statement.
As part of WPP’s Cost reduction measures, it has commenced a review of costs to protect profitability.The immediate actions taken by WPP 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 anticipate these measures will generate total in-year savings for 2020 of £700 – 800 million. WPP is also making a detailed assessment of further actions to reduce cost subject to the impact of the virus on our business over the coming weeks and months.
As part of its Cash conservation measures, WPP also reviewed its capital expenditure budgets for 2020 and identified savings in excess of £100 million in property and IT capital expenditure against an initial 2020 budget of around £400 million. On working capital, it has a standing weekly management process to review cash outflows and receipts to monitor our position. On media, WPP is working with clients and vendors to maintain the settlement flow. In case of any deterioration in payment from the media clients, WPP is prepared to take appropriate action to manage our cash position.
WPP will issue its trading update for the first quarter of 2020 on 29 April 2020.
