Economic domino effect takes its toll on advertising giant WWP
31 March 2020, Written by David Simmons
With the Australian economy slowing down, especially with regard to retail and other businesses deemed 'non-essential', work is drying up for those dependant on promoting goods and services.
One of Australia's largest creative advertising agencies WWP AUNZ (ASX: WWP) has felt the impact of the coronavirus financial crisis as dominos tumble nationwide.
While the company says it is still too early to have a conclusive view as to the consequences of Covid-19, WWP has put in place measures to stem the flow of cash.
WWP has already cancelled its 2019 final and special dividends in light of Covid-19 as many of the company's clients have reduced marketing and communications expenditure for the financial year.
"The extent of their reduced expenditure is still unfolding but we draw some confidence from the increased communications work we are undertaking for a select number of our high-quality clients across sectors such as government, financial services, insurance, and FMCG, in response to the immediate demands of consumers and change in consumer behaviours," says WWP.
The company has put certain plans into gear to realise immediate cost reductions including:
"These actions may change as we gain further clarity over the depth and timing of the COVID-19 financial impact," says WWP.
The company is also hoping to ensure that it has sufficient liquidity and covenant headroom to manage a variety of possible financial scenarios.
At 31 December 2019 WWP had over $300 million of liquidity in the form of undrawn facilities of $228 million plus $74.8 million in cash.
WWP's term debt facility of $270 million does not mature until June 2021 and the company has a rolling $150 million 364 day working capital facility which was only drawn to $10 million at 31 December 2019.
"Whilst we do not at this stage have clarity on the Company's earnings outlook for FY2020, it is our view that our 2019 year-end conservative leverage position, the pre-emptive and prudent decision to cancel the dividend on 24 March 2020, and the cost control actionsput the company in a sound position to weather the current, known impacts of the COVID-19 crisis," says WWP.
Updated at 12:16PM AEDT on 31 March 2020.
Author: David Simmons