WPP released its third-quarter earnings on Wednesday showing an improvement over the previous quarter, yet continued losses.
While new business grew to US $1.6 billion, the advertising and communications giant saw major revenue decline as the effects of the Covid-19 pandemic continued to pummel the industry.
The Chinese and Indian markets were the biggest losers with losses of 16.7% and 16.3% respectively.
“WPP continues to demonstrate its resilience in a challenging market,” said Mark Read, Chief Executive Officer of WPP.
“We have maintained our new business momentum as clients seek out our creativity and our skills in media, technology, data, and e-commerce. This month, Uber joined a growing list of major assignment wins that includes Alibaba, Dell, HSBC, Intel, Unilever, and Whirlpool, and we continue to lead the new business rankings. We have also renewed and expanded our relationship with Walgreens Boots Alliance to encompass its data- and technology-driven marketing strategy.
“Given the tightening of COVID restrictions around the world and uncertainty in the global economic outlook, we remain cautious about the pace of recovery. It is important that we maintain our strong financial position and we are on track to achieve cost savings towards the upper end of our £700-800 million target.”
Revenue in the third quarter was down 9.8% at £3.0 billion. On a constant currency basis, revenue was down 5.9% year-on-year. Net changes from acquisitions and disposals had a negative impact of 0.4% on growth, leading to a like-for-like performance, excluding the impact of currency and acquisitions, of -5.5%.
Revenue less pass-through costs in the third quarter was down 11.9% year-on-year to £2.4 billion, and down 8.0% on a constant currency basis. Excluding the impact of acquisitions and disposals, like-for-like growth was -7.6%. All regions and business segments witnessed an improving trend over the second quarter.
North America like-for-like revenue less pass-through costs was down 5.1% in the third quarter, compared to a decline of 10.2% in the second quarter, with a steady improvement in the US and a very strong recovery in Canada driven by new business. In the US, VMLY&R continued to grow year-on-year, and GroupM recovered quickly, in line with client media spend.
United Kingdom like-for-like revenue less pass-through costs was down 6.5% in the third quarter, a significant improvement on the second quarter (-23.3%), which was affected by an extensive economic lockdown. GroupM returned to growth, but our integrated creative agencies have been slower to recover so far.
Western Continental Europe like-for-like revenue less pass-through costs was down 5.5%, compared to a decline of 18.8% in the second quarter. Germany recovered to be nearly flat year-on-year, and France, Italy and Spain all significantly improved on the second quarter. Growth in Denmark accelerated.
Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe like-for-like revenue less pass-through costs was down 12.5%, a steady recovery from the second quarter (-14.8%). All regions improved their performance, with Central & Eastern Europe relatively better than the other regions.
WPP reports that progress in the third quarter on both the recovery in activity and cost management had been ahead of expectations, yet that they remain cautious about the speed of recovery as they track further waves of the pandemic and government responses. If there are no widespread lockdowns in any of their major markets for the rest of the year, they expect full-year like-for-like revenue less pass-through costs to be within the current range of analysts’ forecasts of -8.5% to -10.7%, and headline operating margin to be within the current range of analysts’ forecasts of 11.4% to 12.5%. The previous ranges, given at the time of their first-half results on 27 August 2020, were -10.0% to -11.5% and 10.4% to 12.5% respectively.
“Our people have done a superb job in serving our clients, largely working from home, but the events of 2020 have of course created new pressures for everyone. We have increased our investment in employee support services, with a particular focus on mental health and wellbeing, and this will be an ongoing priority for our leadership,” said Read.
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