UK, Australia, Iceland governments help ad agency M&C Saatchi weather COVID-19 impact

·Head of Yahoo Finance UK
·3-min read
Guests at the 'Capturing The Rainbow' exhibition launch at M&C Saatchi in London, England, on 26 June 2019. Photo: Joe Maher/Getty Images
Guests at the 'Capturing The Rainbow' exhibition launch at M&C Saatchi in London, England, on 26 June 2019. Photo: Joe Maher/Getty Images

Advertising agency M&C Saatchi (SAA.L) revealed that it has secured major assignments from a number of governments across the world, helping it weather the impact from the coronavirus pandemic.

The group, worth £56.5m ($69.3m) in market capitalisation, said in a trading update on Tuesday, “even during the lockdown period, we have continued to engage with clients and have successfully secured a number of new client assignments including the UK government, Australia government, Iceland Tourism and others.

“Our companies have shown considerable agility in adapting their business and client servicing to the unprecedented pressures of recent months.”

According to the World Economic Forum (WEF), ad spends are down 9% on average across Europe, with Germany and France falling by 7% and 12% respectively, as companies slash marketing budgets to weather the storm.

READ MORE: How diversity and inclusion during COVID-19 has flipped a key element of advertising

M&C Saatchi said results in the first two months of 2020 was “in line with the board's expectations” and “since that date, although COVID-19 has affected the business worldwide, results from April and May were not quite as severe as we had first expected.

“In addition, the early actions we have taken to reduce costs and access government support programmes across the world have protected the group from the most severe effects of the crisis to date. However, it is still too early for us to predict with any certainty the likely impact of the economic slowdown on full year 2020 results.”

It added that the group has “a solid balance sheet and as at 23 June had total cash of £52m” and is also seeking additional funding — it calls “headroom” — through the UK government's Coronavirus Large Business Interruption Loan Scheme (CLBILS) for the period to 31 July 2021.

READ MORE: Coronavirus: UK economy shrank more than thought at start of 2020

“We anticipate a favourable outcome from these discussions which we expect will be agreed in July. The additional headroom from the CLBILS facility is not expected to be drawn under anticipated trading scenarios, but the board believes it to be prudent at this stage to secure the extra headroom,” it said.

The advertising industry is likely to be hit further in 2020. It is a common “rule of thumb” in the advertising industry that ad spend tracks any rise or fall in GDP.

On Tuesday, the Office for National Statistics (ONS) said that UK GDP contracted by 2.2% between January and the end of March 2020. This is the worst slump for the UK economy since 2008 — before the full effects of the COVID-19 pandemic had even hit.

The UK is forecast to experience the most severe downturn out of any developed economy as a result of the COVID-19 pandemic and subsequent lockdown. EY Item Club, a highly regarded City forecaster, expects the UK economy will not fully recover from the impact until 2023.

Meanwhile, the International Monetary Fund (IMF) said the UK economy is likely to shrink by 10.2% this year.

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