20-F/A 1 d101631d20fa.htm 20-F/A 20-F/A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F/A

(Amendment No.1)

 

(Mark One)

 

  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended 31 December 2019

 

OR

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report                 

 

For the transition period from                  to                 

 

 

Commission file number 001-38303

 

WPP plc

(Exact Name of Registrant as specified in its charter)

 

Jersey

(Jurisdiction of incorporation or organization)

 

Sea Containers, 18 Upper Ground

London, United Kingdom, SE1 9GL

(Address of principal executive offices)

 

Andrea Harris

Group Chief Counsel

Sea Containers, 18 Upper Ground, London, United Kingdom, SE1 9GL

Telephone: +44(0) 20 7282 4600

E-mail: andrea.harris@wpp.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

  

Trading Symbol (s)

  

Name of each exchange on which registered

Ordinary Shares of 10p each

American Depositary Shares, each

representing five Ordinary Shares (ADSs)

  

WPP

WPP

  

London Stock Exchange

New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

 

Not applicable

 

(Title of Class)

 

Not applicable

 

(Title of Class)


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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

None

 

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

At December 31, 2019, the number of outstanding ordinary shares was 1,328,167,813 which included at such date ordinary shares represented by 15,699,064 ADSs.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

YES  ☒    NO  ☐

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

YES  ☐    NO  ☒

 

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES  ☒    NO  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

YES  ☒    NO  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Emerging growth company

 

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

    The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ☐

   International Financial Reporting Standards as issued by the
International Accounting Standards Board  ☒
   Other  ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17  ☐    Item 18  ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

YES  ☐    NO  ☒

 

 

 


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TABLE OF CONTENTS

 

     Page  

EXPLANATORY NOTE

     1  

FORWARD – LOOKING STATEMENTS

     2  

Part I

     2  

  Item 1

  

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     2  

  Item 2

  

OFFER STATISTICS AND EXPECTED TIMETABLE

     2  

  Item 3

  

KEY INFORMATION

     3  
   A   

Selected Financial Data

     3  
   B   

Capitalization and Indebtedness

     5  
   C   

Reasons for the Offer and Use of Proceeds

     5  
   D   

Risk Factors

     6  

  Item 4

  

INFORMATION ON THE COMPANY

     9  
   A   

History and Development of the Company

     10  
   B   

Business Overview

     11  
   C   

Organizational Structure

     17  
   D   

Property, Plant and Equipment

     17  

  Item 4A

  

UNRESOLVED STAFF COMMENTS

     18  

  Item 5

  

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     18  
   A   

Operating Results

     18  
   B   

Liquidity and Capital Resources

     26  
   C   

Research and Development, Patents and Licenses, etc.

     30  
   D   

Trend Information

     30  
   E   

Off-Balance Sheet Arrangements

     31  
   F   

Tabular Disclosure of Contractual Obligations

     31  

  Item 6

  

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     42  
   A   

Directors and Senior Management

     42  
   B   

Compensation

     44  
   C   

Board Practices

     48  
   D   

Employees

     56  
   E    Share Ownership      57  

  Item 7

  

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     58  
   A   

Major Shareholders

     58  
   B   

Related Party Transactions

     59  
   C   

Interests of Experts and Counsel

     59  

  Item 8

  

FINANCIAL INFORMATION

     59  
   A   

Consolidated Statements and Other Financial Information

     59  
   B   

Significant Changes

     59  

  Item 9

  

THE OFFER AND LISTING

     60  
   A   

Offer and Listing Details

     60  
   B   

Plan of Distribution

     60  
   C   

Markets

     60  
   D   

Selling Shareholders

     60  
   E   

Dilution

     60  
   F   

Expenses of the Issue

     60  


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     Page  

  Item 10

  

ADDITIONAL INFORMATION

     60  
   A   

Share Capital

     60  
   B   

Memorandum and Articles of Association

     60  
   C   

Material Contracts

     60  
   D   

Exchange Controls

     64  
   E   

Taxation

     64  
   F   

Dividends and Paying Agents

     70  
   G   

Statements by Experts

     70  
   H   

Documents on Display

     70  
   I   

Subsidiary Information

     70  

  Item 11

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     71  

  Item 12

  

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     71  
   A   

Debt Securities

     71  
   B   

Warrants and Rights

     71  
   C   

Other Securities

     71  
   D   

American Depositary Shares

     72  

Part II

     74  

  Item 13

  

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     74  

  Item 14

  

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     74  

  Item 15

  

CONTROLS AND PROCEDURES

     74  

  Item 16A

  

AUDIT COMMITTEE FINANCIAL EXPERT

     78  

  Item 16B

  

CODE OF ETHICS

     78  

  Item 16C

  

PRINCIPAL ACCOUNTANT FEES AND SERVICES

     79  

  Item 16D

  

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     79  

  Item 16E

  

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     80  

  Item 16F

  

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

     80  

  Item 16G

  

CORPORATE GOVERNANCE

     80  

  Item 16H

  

MINE SAFETY DISCLOSURE

     81  

Part III

     81  

  Item 17

  

FINANCIAL STATEMENTS

     81  

  Item 18

  

FINANCIAL STATEMENTS

     82  

  Item 19

  

EXHIBITS

     82  


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Explanatory Note

 

This Amendment on Form 20-F/A is being filed by WPP plc (“the Company”) as Amendment No. 1 (this “Amendment”) to its annual report on Form 20-F for the fiscal year ended 31 December 2019 (the “Original Filing”) originally filed with the Securities and Exchange Commission (the “SEC”) on 30 April 2020 (the “Original Filing Date”). As indicated on our Form 6-K furnished to the SEC on 14 December 2020, it was determined that the Company’s previously issued financial statements for the years ended 31 December 2019, 2018 and 2017 contained errors with respect to certain aspects of the application of IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement, resulting in the incorrect presentation of the Company’s notional cash pooling arrangements on the balance sheet and the inappropriate deferral of foreign exchange movements in the Company’s translation reserve due to the inappropriate application of hedge accounting in respect of non-derivative financial instruments, respectively. We have also determined that the discount rate used in the calculation of the present value of the expected cash outflows in respect of put option agreements and payments due to vendors (earnout agreements) did not fully reflect the risk in the associated cash flows.

 

To correct these errors, in this Amendment we are restating our consolidated balance sheets as at 31 December 2019, 2018 and 2017, and our consolidated statements of income, comprehensive income, and changes in equity for the years ended 31 December 2019, 2018 and 2017. The consolidated balance sheet as at 31 December 2017 has been included and restated in this Amendment to comply with the requirements of IFRS as a result of the restatement. The consolidated financial statements as at and for the years ended 31 December 2019, 2018 and 2017 are collectively referred to as the “Restated Financial Statements”. The adjustments to correct the notional cash pooling matters were limited to balance sheet adjustments in both cash and short-term deposits and bank overdrafts, bonds and bank loans that result in an aggregate increase in both of £8.337 billion, £8.423 billion and £9.460 billion in the Company’s consolidated balance sheets as at 31 December 2019, 2018 and 2017, respectively. The adjustments to correct the net investment hedging matters have resulted in reclassifying exchange adjustments on foreign currency net investments within the Company’s consolidated statement of comprehensive income to be reported together with revaluation of financial instruments on the face of the Company’s consolidated income statement as revaluation and retranslation of financial instruments and separately disclosed in the notes to the consolidated financial statements, amounting to a £245.7 million gain, £205.1 million loss and £194.6 million gain for the years ended 31 December 2019, 2018 and 2017, respectively. Corresponding adjustments to other reserves and retained earnings on the Company’s consolidated balance sheets and statements of changes in equity were made. This change also reduced the opening retained earnings balance as at 1 January 2017 by £506.9 million with a corresponding increase in other reserves. The adjustments to correct the put option and payments due to vendors (earnout) discount rate have resulted in adjustments to the Company’s consolidated balance sheet, decreasing trade and other payables (current and non-current liabilities) by £32.4 million, £47.9 million and £82.6 million as at 31 December 2019, 2018 and 2017, respectively; increasing other reserves by £59.6 million, £51.5 million and £45.1 million as at 31 December 2019, 2018 and 2017, respectively; and decreasing intangible assets: goodwill by £60.1 million, £70.2 million and £78.3 million as at 31 December 2019, 2018 and 2017, respectively. The Company’s consolidated income statement has also been adjusted to reflect charges to revaluation and retranslation of financial instruments of £13.5 million, £40.6 million and £47.5 million for the years ended 31 December 2019, 2018 and 2017, respectively and a £7.4 million reduction in the goodwill impairment charge for the year ended 31 December 2018. Corresponding adjustments to retained earnings on the Company’s consolidated balance sheets and statements of changes in equity were made. These changes also increased the opening retained earnings balance as at 1 January 2017 by £6.8 million. These adjustments are described more fully in the accounting policies discussion and notes 3, 6, 14 and 27 of the accompanying consolidated financial statements.

 

In addition to the Restated Financial Statements, this amendment is being filed to amend Items 3A “Key information – Selected Financial Data”, 3D “Key Information – Risk Factors – Internal control over financial reporting”, 5 “Operating and Financial Review and Prospects”, 6 “Directors, Senior Management and Employees – C. Board Practices – Audit Committee – Financial reporting and significant financial judgements – Goodwill impairments”, 6 “Directors, Senior Management and Employees – C. Board Practices – Audit Committee – Internal financial control”, 15 “Controls and Procedures”, 18 “Financial Statements”, and 19 “Exhibits”, in each case, solely to make appropriate changes to reflect the corrections made in the Restated Financial Statements, the effects of those corrections and other related matters. As described more fully in Item 15, as a result of the filing of the Restated Financial Statements, our management has updated its assessments as

 

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of 31 December 2019 of our disclosure controls and procedures and our internal control over financial reporting and the bases for why neither was effective as at 31 December 2019. This Amendment also includes currently dated certifications from our Principal Executive Officer and Principal Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and amended reports of our independent registered public accounting firm relating to the audit of the Restated Financial Statements and of the effectiveness of our internal control over financial reporting. We have made no other changes to our Original Filing, and the other Items and disclosures included in this Amendment are included for the convenience of the reader only and have not been updated to reflect events occurring after the Original Filing Date. Accordingly, except as expressly modified to reflect the impact of the corrections made in the Restated Financial Statements, this Amendment continues to speak only as of the Original Filing Date.

 

Since this Amendment restates the financial information for the 2018 and 2017 fiscal years, we do not intend to amend our previously filed Annual Reports on Form 20-F for periods ended prior to 31 December 2019. As a result, you should rely upon the Restated Financial Statements contained in this Amendment with respect to such prior fiscal years. In addition, we are furnishing a Form 6-K/A to similarly restate our condensed consolidated balance sheets as at 30 June 2020 and 2019 and 31 December 2019, and our condensed consolidated statements of income, comprehensive income, changes in equity for the six months ended 30 June 2020 and 2019 and the year ended 31 December 2019. Please refer to that report for further detail and review the Original Filing and this Amendment together with that report.

 

Forward-Looking Statements

 

In connection with the provisions of the Private Securities Litigation Reform Act of 1995 (the Reform Act), the Company (as defined below) may include forward-looking statements (as defined in the Reform Act) in oral or written public statements issued by or on behalf of the Company. These forward-looking statements may include, among other things, plans, objectives, projections and anticipated future economic performance based on assumptions and the like that are subject to risks and uncertainties. As such, actual results or outcomes may differ materially from those discussed in the forward-looking statements. Important factors which may cause actual results to differ include but are not limited to: the unanticipated loss of a material client or key personnel, delays or reductions in client advertising budgets, shifts in industry rates of compensation, regulatory compliance costs or litigation, natural disasters or acts of terrorism, the Company’s exposure to changes in the values of major currencies other than the UK pound sterling (because a substantial portion of its revenues are derived and costs incurred outside of the United Kingdom) and the overall level of economic activity in the Company’s major markets (which varies depending on, among other things, regional, national and international political and economic conditions and government regulations in the world’s advertising markets). In addition, you should consider the risks described in Item 3D, captioned “Risk Factors,” which could also cause actual results to differ from forward-looking information. In light of these and other uncertainties, the forward-looking statements included in this document should not be regarded as a representation by the Company that the Company’s plans and objectives will be achieved.

 

The Company undertakes no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

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ITEM 3. KEY INFORMATION

 

Overview

 

WPP plc and its subsidiaries (WPP) is a leading worldwide creative transformation organisation offering national and multinational clients a comprehensive range of communications, experience, commerce and technology services. At 31 December 2019, the Group, excluding associates, had 106,786 employees. For the year ended 31 December 2019, the Group had revenue of £13,234.1 million and operating profit of £1,295.9 million.

 

Unless the context otherwise requires, the terms “Company”, “Group” and “Registrant” as used herein shall also mean WPP.

 

A. Selected Financial Data

 

The selected financial data should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated financial statements of the Company, including the notes thereto.

 

The selected income statement data for each of the years ended 31 December 2019, 2018 and 2017 and the selected balance sheet data as at 31 December 2019 and 2018 are derived from the consolidated financial statements of the Company that appear elsewhere in this Form 20-F/A. The selected financial data for prior periods is derived from unaudited consolidated financial statements of the Company. The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

The reporting currency of the Group is the UK pound sterling and the selected financial data has been prepared on this basis.

 

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Selected Consolidated Income Statement Data

 

      Year ended 31 December  
     

20191,2

£m

   

20181,3

£m

   

20171,3,4

£m

   

20161,4

£m

   

20151

£m

 

Continuing operations:

                                        

Revenue

     13,234.1       13,046.7       13,146.4       14,887.3       12,235.2  

Operating profit

     1,295.9       1,245.3       1,577.9       2,063.1       1,632.0  

Profit for the year from continuing operations

     939.3       763.3       1,811.0       786.8       1,354.7  

Profit for the year

     950.1       901.1       2,059.4       786.8       1,354.7  

Share information:

                                        

Earnings per ordinary share from continuing and discontinued operations:

          

Basic

     68.5  p      66.1  p      155.7  p      61.6  p      105.1  p 

Diluted

     67.9  p      65.4  p      153.9  p      60.7  p      103.2  p 

Earnings per ordinary share from continuing operations:

          

Basic

     68.8  p      56.0  p      136.9  p      61.6  p      105.1  p 

Diluted

     68.2  p      55.4  p      135.3  p      60.7  p      103.2  p 

Earnings per ADS5 from continuing operations:

          

Basic

     344.0  p      280.0  p      684.5  p      308.0  p      525.5  p 

Diluted

     341.0  p      277.0  p      676.5  p      303.5  p      516.0  p 

Dividends per ordinary share

     60.00  p      60.00  p      59.75  p      48.33  p      42.49  p 

Dividends per ADS (US dollars)6

     393.88  ¢      391.87  ¢      397.23  ¢      352.41  ¢      340.57  ¢ 

1  Figures have been restated as described in the accounting policies section of the consolidated financial statements. Figures for 2016 and 2015 have not been restated to reflect the impact of the change in the discount rate used in the calculation of the present value of the expected cash outflows in respect of put option agreements and payments due to vendors (earnout agreements).

2  The impact of the adoption of IFRS 16 Leases from 1 January 2019 is described in the accounting policies section of the consolidated financial statements. No restatement has been made in prior years.

3  Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements. No restatement has been made in 2016 or 2015.

4  2017 and 2016 figures were restated for the adoption of IFRS 15 Revenue from Contracts with Customers in the 2018 Form 20-F. No restatement was made in 2015.

5  Basic and diluted earnings per American Depositary Share (ADS) have been calculated using the same method as earnings per share, multiplied by a factor of five.

6  These figures have been translated for convenience purposes only, using the approximate average exchange rates of US$1.2765 to pound sterling for the year 2019 (2018: US$1.3351, 2017: US$1.2887, 2016: US$1.3547, 2015: US$1.5288). This conversion should not be construed as a representation that the pound sterling amounts actually represent, or could be converted into, US dollars at the rates indicated.

   

   

   

   

   

   

 

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Selected Consolidated Balance Sheet Data

 

      At 31 December  
     

20191,4

£m

    

20181,2,4

£m

    

20171,3

£m

    

20161,3

£m

    

20151

£m

 

Total assets

     39,605.4        42,220.1        43,044.1        41,046.5        36,744.7  

Net assets

     8,415.8        9,784.3        9,960.5        9,812.2        8,015.8  

Called-up share capital

     132.8        133.3        133.3        133.2        132.9  

Number of shares (in millions)

     1,328.2        1,332.7        1,332.5        1,331.9        1,329.4  

1   Figures have been restated as described in the accounting policies section of the consolidated financial statements. Figures for 2016 and 2015 have not been restated to reflect the impact of the change in the discount rate used in the calculation of the present value of the expected cash outflows in respect of put option agreements and payments due to vendors (earnout agreements).

2   The impact of the adoption of IFRS 16 Leases from 1 January 2019 is described in the accounting policies section of the consolidated financial statements. No restatement has been made in prior years.

3   IFRS 9 Financial Instruments was adopted from 1 January 2018. No restatement has been made for years prior to 2018.

4   2017 and 2016 figures were restated for the adoption of IFRS 15 Revenue from Contracts with Customers in the 2018 Form 20-F. No restatement was made in 2015.

    

    

    

    

 

Dividends

 

Dividends on the Company’s ordinary shares, when paid, are paid to share owners as of a record date, which is fixed by the Company. The following table sets forth the amounts of interim or first interim, final or second interim and total dividends paid on the Company’s ordinary shares in respect of each fiscal year indicated. In the United States, the Company’s ordinary shares are represented by ADSs, which are evidenced by American Depositary Receipts (ADRs) or held in book-entry form. The Group uses the terms ‘ADS’ and ‘ADR’ interchangeably.

 

The dividends are also shown translated into US cents per ADS using the approximate average rates as shown on page 3, for each year presented.

 

             Pence per ordinary share               US cents per ADS  
In respect of the year ended 31 December:   

Interim

or First

Interim

    

Final or

Second

Interim

     Total     

Interim

or First

Interim

    

Final or

Second

Interim

     Total  

2015

     15.91        28.78        44.69        121.62        219.99        341.61  

2016

     19.55        37.05        56.60        132.42        250.96        383.38  

2017

     22.70        37.30        60.00        146.27        240.34        386.61  

2018

     22.70        37.30        60.00        151.53        249.00        400.53  

2019

     22.70               22.70        144.88               144.88  

 

The 2019 interim dividend was paid on 4 November 2019 to share owners on the register at 4 October 2019. Given the significant uncertainty over the coming months of the impact of Covid-19, we are taking prudent action now to maintain our liquidity and ensure that we emerge from this global crisis strong, secure and ready to meet the continuing needs of our clients, shareholders and other stakeholders. Therefore, the Board is suspending the 2019 final dividend of 37.30 pence per share, which was due to be proposed at the 2020 Annual General Meeting (AGM).

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

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D. Risk Factors

 

The Company is subject to a variety of possible risks that could adversely impact its revenues, results of operations, reputation or financial condition. Some of these risks relate to the industries in which the Company operates while others are more specific to the Company. The table below sets out principal risks the Company has identified that could adversely affect it. See also the discussion of Forward-Looking Statements preceding Item 1.

 

   
Principal risk    Potential impact
Covid-19 Pandemic     

The coronavirus pandemic is adversely affecting and is expected to continue to adversely affect our business, revenues, results of operations, financial condition and prospects.

 

  

While we expect the impacts of Covid-19 to have an adverse effect on our business, financial condition and results of operations, we are unable to predict the extent or nature or duration of these impacts at this time.

 

Strategic risks     

The failure to successfully complete the three-year strategic plan to return the business to growth by the end of 2021 and simplify our structure.

  

A failure or delay in completing the transformation plan and/or returning the business to growth, may have a material adverse effect on our market share and our business, revenues, results of operations, financial condition or prospects. The Covid-19 pandemic is impacting the implementation of the transformation plan, and we cannot predict the extent or duration of the impact.

 

Operational risks     
Clients     

We compete for clients in a highly-competitive industry which has been evolving and undergoing structural change and is being adversely impacted by the Covid-19 pandemic. Client loss to competitors or as a consequence of client consolidation, insolvency or a reduction in marketing budgets due to recessionary economic conditions or a shift in client spending would have a material adverse effect on our market share, business, revenues, results of operations, financial condition and prospects.

 

  

The competitive landscape in our industry is constantly evolving and the role of traditional agencies is being challenged. Competitors include multinational advertising and marketing communication groups, marketing services companies, database marketing information and measurement, social media and professional services and consultants and consulting internet companies.

 

Client contracts can generally be terminated on 90 days’ notice or are on an assignment basis and clients put their business up for competitive review from time to time. The ability to attract new clients and to retain or increase the amount of work from existing clients may be impacted if we fail to react quickly enough to changes in the market and to evolve our structure, and by loss of reputation, and may be limited by clients’ policies on conflicts of interest.

 

There are a range of different impacts on our clients globally as a consequence of the Covid-19 pandemic. In the short-term media spend has largely remained committed or diverted to alternative channels but there is an increasing volume of cancellations. Project and retained work have continued in most sectors but activity has begun to decline. New business pitches continue where the process was already underway, but there is increased uncertainty in the future pipeline. In the past, clients have responded to weak economic and financial conditions by reducing or shifting their marketing budgets which are easier to reduce in the short term than their other operating expenses. The risk of client loss or reduction in marketing budgets has increased significantly.

 

We receive a significant portion of our revenues from a limited number of large clients and the net loss of one or more of these clients could have a material adverse effect on our prospects, business, financial condition and results of operations.   

A relatively small number of clients contribute a significant percentage of our consolidated revenues. Our 10 largest clients accounted for 15% of revenues in the year ended 31 December 2019. Clients can reduce their marketing spend, terminate contracts, or cancel projects on short notice. The loss of one or more of our largest clients, if not replaced by new accounts or an increase in business from existing clients, would adversely affect our financial condition.

 

 

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Principal risk    Potential impact
People, culture and succession     

Our performance could be adversely affected if we do not react quickly enough to changes in our market and fail to attract, develop and retain key creative, commercial and management talent, or are unable to retain and incentivise key talent as a consequence of the cost saving actions implemented to maintain liquidity during the Covid-19 pandemic and reduction in economic activity.

 

  

We are highly dependent on the talent, creative abilities and technical skills of our people as well as their relationships with clients. We are vulnerable to the loss of people to competitors (traditional and emerging) and clients, leading to disruption to the business.

 

To maintain our liquidity position through the current crisis, cost reduction measures have already been taken which impact our people include freezing new hires, postponing salary increases for 2020 and reducing salaries or fees for the Board, Executive Committee, CEO and senior employees. Further additional measures including reduced working hours or severances will also be required which may lead to challenges in retaining and attracting key talent during this period of disruption and at the beginning of a recovery.

 

Cyber and information security     

We are undertaking a series of IT transformation programmes to support the Group’s strategic plan and a failure or delay in implementing the IT programmes may have a material adverse effect on its business, revenues, results of operations, financial conditions or prospects. The Group is reliant on third parties for the performance of a significant portion of our worldwide information technology and operations functions. A failure to provide these functions could have an adverse effect on our business. During the transformation, we are still reliant on legacy systems which could restrict our ability to change rapidly.

 

A cyber-attack could result in disruption to one or more of our businesses or the security of data being compromised.

 

  

We may be subject to investigative or enforcement action or legal claims or incur fines, damages, or costs and client loss if we fail to adequately protect data. A system breakdown or intrusion could have a material adverse effect on our business, revenues, results of operations, financial condition or prospects and have an impact on long-term reputation and lead to client loss.

 

Nearly 95% of the Group’s people are working remotely as a consequence of the Covid-19 pandemic which has the potential to increase the risk of compromised data security and cyber-attacks.

Financial risks     
Credit risk     
We are subject to credit risk through the default of a client or other counterparty.   

We are generally paid in arrears for our services. Invoices are typically payable within 30 to 60 days.

 

We commit to media and production purchases on behalf of some of our clients as principal or agent depending on the client and market circumstances. If a client is unable to pay sums due, media and production companies may look to us to pay those amounts and there could be an adverse effect on our working capital and operating cash flow.

 

A significant number of our clients and suppliers are adversely financially impacted by the Covid-19 pandemic and economic inactivity across markets in periods of lockdown. Clients may seek to renegotiate payment terms, ask for discounts or fail to honour their payment obligations which would have an adverse impact on our working capital and operating cash flow.

 

Internal controls     
Our performance could be adversely impacted if we fail to ensure adequate internal control procedures are in place.   

Failure to ensure that our businesses have robust control environments, or that the services we provide and trading activities within the Group are compliant with client obligations, could adversely impact client relationships and business volumes and revenues.

 

 

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Principal risk    Potential impact
Internal control over financial reporting     

The Group has identified material weaknesses in its internal control over financial reporting that, if not properly remediated, could adversely affect its results of operations, investor confidence in the Group and the market price of its ADSs.

 

  

As disclosed in Part II, Item 15 of this Form 20-F/A, in connection with the Group’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2019, the Group has identified material weaknesses in its internal control over financial reporting with respect to management’s review of the impairment assessment of intangible assets and goodwill, specifically the selection of appropriate discount rates for use in the impairment calculations and the determination of the appropriateness of the cash flow periods and associated discounting in the impairment calculation; the design and implementation of internal controls to ensure that the complex accounting matters and judgements are assessed against the requirements of IFRS; monitoring changes in the applicable accounting standards and interpretations or changes in the underlying business on a timely basis; and our net investment hedging arrangements, concerning the eligibility of hedging relationships under IFRS, the adequacy and maintenance of contemporaneous documentation of the application of hedge accounting, and the review of the impact of changes in internal financing structures on such hedging relationships. As a result of such material weaknesses, the Group concluded that its internal control over financial reporting was not effective. Certain of these material weaknesses resulted in the restatement of our consolidated financial statements as of and for the years ended 31 December 2019, 2018 and 2017, as further described in Part II, Item 15 of this Form 20-F/A.

 

As further described in Part II, Item 15 of this Form 20-F/A, the Group is currently taking actions to design and implement remediation plans to address the material weaknesses. If remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses in internal control are discovered or occur in the future, the Group’s ability to accurately record, process and report financial information and consequently, its ability to prepare financial statements within required time periods, could be adversely affected. In addition, the Group may be unable to maintain compliance with the federal securities laws and NYSE listing requirements regarding the timely filing of periodic reports. Any of the foregoing could cause investors to lose confidence in the reliability of the Group’s financial reporting, which could have a negative effect on the trading price of the Group’s ADSs.

 

   
Compliance risks      
Data Privacy     

We are subject to strict data protection and privacy legislation in the jurisdictions in which we operate and rely extensively on information technology systems. We store, transmit and rely on critical and sensitive data such as strategic plans, personally identifiable information and trade secrets. Security of this type of data is exposed to escalating external threats that are increasing in sophistication, as well as internal data breaches.

 

Existing and new data protection laws, GDPR and the CCPA and legislation in the markets in which we operate concerning user privacy, use of personal information, consent and online tracking may restrict some of our activities and increase costs. Privacy regulators have continued to underline the obligation on businesses to ensure continued compliance with data privacy legislation during the Covid-19 pandemic.

 

 

  

We may be subject to investigative or enforcement action or legal claims or incur fines, damages, or costs and client loss if we fail to adequately protect data or observe privacy legislation in every instance. A system breakdown or intrusion could have a material adverse effect on our business, revenues, results of operations, financial condition or prospects.

 

Governments and public health officials have mandated precautions to mitigate the spread of Covid-19 including lock-downs and remote working. Nearly 95% of our people are working which has the potential to increase the risk of compromised data securities.

 

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Principal risk    Potential impact
   
Compliance risks      
Taxation     
We may be subject to regulations restricting our activities or effecting changes in taxation.   

Changes in local or international tax rules, for example as a consequence of the financial support programmes being implemented by governments during the Covid-19 crisis, changes arising from the application of existing rules, or challenges by tax or competition authorities, for example, the European Commission’s State Aid decision into the Group Financing Exemption in the UK CFC rules, may expose us to significant additional tax liabilities or impact the carrying value of our deferred tax assets, which would affect the future tax charge.

 

Regulatory     
We are subject to strict anti-corruption, anti-bribery and anti-trust legislation and enforcement in the countries in which we operate.   

We operate in a number of markets where the corruption risk has been identified as high by groups such as Transparency International. Failure to comply or to create a culture opposed to corruption or failing to instil business practices that prevent corruption could expose us to civil and criminal sanctions.

 

Sanctions     
We are subject to the laws of the US, the EU and other jurisdictions that impose sanctions and regulate the supply of services to certain countries.   

Failure to comply with these laws could expose us to civil and criminal penalties including fines and the imposition of economic sanctions against us and reputational damage and withdrawal of banking facilities which could materially impact our results.

 

Civil liabilities or judgements against the Company or its directors or officers based on United States federal or state securities laws may not be enforceable in the United States or in England and Wales or in Jersey.   

The Company is a public limited company incorporated under the laws of Jersey. Some of the Company’s directors and officers reside outside of the United States. In addition, a substantial portion of the directly owned assets of the Company are located outside of the United States. As a result, it may be difficult or impossible for investors to effect service of process within the United States against the Company or its directors and officers or to enforce against them any of the judgements, including those obtained in original actions or in actions to enforce judgements of the U.S. courts, predicated upon the civil liability provisions of the federal or state securities laws of the United States.

 

Emerging risks     
Increased frequency of extreme weather and climate-related natural disasters.   

This includes storms, flooding, wildfires and water and heat stress which can damage our buildings, jeopardise the safety of our people and significantly disrupt our operations. At present 9% of our headcount are located in countries at “extreme” risk from the physical impacts of climate change in the next 30 years.

 

Increased reputational risk associated with working on environmentally detrimental client briefs.   

As consumer consciousness around climate change rises, our sector is seeing increased scrutiny for our role in contributing to consumption. Our clients seek expert partners who can give recommendations that take into account stakeholder concerns around climate change.

 

Additionally, WPP serves some clients whose business models are under increased scrutiny. This creates both a reputational and related financial risk for WPP if we are not rigorous in our content standards as we grow our sustainability-related services.

 

 

ITEM 4. INFORMATION ON THE COMPANY

 

WPP’s is a leading worldwide creative transformation organisation offering national and multinational clients a comprehensive range of communications, experience, commerce and technology services. The Company provides these services through a number of established global, multinational and national operating companies that are organised into three reportable segments. The largest reportable segment is Global Integrated Agencies, which accounted for approximately 77% of the Company’s revenues in 2019. The remaining 23% of our revenues were derived from the reportable segments of Public Relations and Specialist Agencies. Excluding associates, the Company currently employs over 106,000 full-time people in 112 countries.

 

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The Company’s ordinary shares are admitted to the Official List of the UK Listing Authority and trade on the London Stock Exchange and American Depositary Shares (which are evidenced by ADRs or held in book-entry form) representing deposited ordinary shares are listed on the New York Stock Exchange (NYSE). At 31 December 2019 the Company had a market capitalisation of approximately £13.410 billion.

 

The Company’s executive office is located at Sea Containers, 18 Upper Ground, London, United Kingdom, SE1 9GL, Tel:+44 (0)20 7282 4600 and its registered office is located at Queensway House, Hilgrove Street, St Helier, Jersey JE1 IES.

 

A. History and Development of the Company

 

WPP plc was incorporated in Jersey on 25 October 2012 under the name WPP 2012 plc.

 

On 2 January 2013, under a scheme of arrangement between WPP 2012 Limited (formerly known as WPP plc), (Old WPP), the former holding company of the Group, and its share owners pursuant to Article 125 of the Companies (Jersey) Law 1991, and as sanctioned by the Royal Court of Jersey (the Jersey Court), a Jersey incorporated and United Kingdom tax resident company, WPP 2012 plc became the new parent company of the WPP Group and adopted the name WPP plc. Under the scheme of arrangement, all the issued shares in Old WPP were cancelled and the same number of new shares were issued to WPP plc in consideration for the allotment to share owners of one share in WPP plc for each share in Old WPP held on the record date, 31 December 2012. Citibank, N.A., depositary for the ADSs representing Old WPP shares, cancelled Old WPP ADSs held in book-entry uncertificated form in the direct registration system maintained by it and issued ADSs representing shares of WPP plc in book entry uncertificated form in the direct registration system maintained by it to the holders. Holders of certificated ADSs, or ADRs, of Old WPP were entitled to receive ADSs of WPP plc upon surrender of the Old WPP ADSs, or ADRs, to the Depositary. Each Old WPP ADS represented five shares of Old WPP and each WPP plc ADS represents five shares of WPP plc.

 

Pursuant to Rule 12g-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act), WPP plc succeeded to Old WPP’s registration and periodic reporting obligations under the Exchange Act.

 

Old WPP was incorporated in Jersey on 12 September 2008 and became the holding company of the WPP Group on 19 November 2008 when the company now known as WPP 2008 Limited, the prior holding company of the WPP Group which was incorporated in England and Wales, completed a reorganisation of its capital and corporate structure. WPP 2008 Limited had become the holding company of the Group on 25 October 2005 when the company now known as WPP 2005 Limited, the original holding company of the WPP Group, completed a reorganisation of its capital and corporate structure. WPP 2005 Limited was incorporated and registered in England and Wales in 1971 and is a private limited company under the Companies Act 1985, and until 1985 operated as a manufacturer and distributor of wire and plastic products. In 1985, new investors acquired a significant interest in WPP and changed the strategic direction of the Company from being a wire and plastic products manufacturer and distributor to being a multinational communications services organisation. Since then, the Company has grown both organically and by the acquisition of companies, most significantly the acquisitions of J. Walter Thompson Group, Inc. (now known as J. Walter Thompson Company LLC) in 1987, The Ogilvy Group, Inc. (now known as The Ogilvy Group LLC) in 1989, Young & Rubicam Inc. (now known as Young & Rubicam LLC) in 2000, Tempus Group plc (Tempus) in 2001, Cordiant Communications Group plc (Cordiant) in 2003, Grey Global Group, LLC (Grey) in 2005, 24/7 Real Media Inc (now known as Xaxis LLC) in 2007, Taylor Nelson Sofres plc (TNS) in 2008, AKQA Holdings, Inc. (AKQA) in 2012, IBOPE Participações Ltda (IBOPE) in 2015, Triad Digital Media, LLC and the merger of most of the Group’s Australian and New Zealand assets with STW Communications Group Limited in Australia (re-named WPP AUNZ) in 2016. During 2018, the Company focused on simplifying its organisation with the completion of the merger of VML and Y&R to create VMLY&R as well as the merger of Burson-Marsteller and Cohn & Wolfe to create Burson Cohn & Wolfe. The merger of Wunderman and J. Walter Thompson to create Wunderman Thompson began at the end of 2018 and was finalized in 2019. In July 2019, the Company entered into an agreement to sell 60% of the Kantar group to Bain Capital Private Equity. The transaction was completed with respect to the sale of approximately 90% of

 

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the Kantar group in December 2019. Completion of the sale of the remaining approximately 10% of the Kantar group is expected to occur in 2020.

 

The Company received £1,917.0 million and £440.3 million and spent £228.8 million related to acquisitions and disposals in 2019, 2018 and 2017, respectively, including proceeds on disposal of investments and subsidiaries, payments in respect of earnout payments resulting from acquisitions in prior years and net of cash and cash equivalents disposed. For the same periods, cash spent on purchases of property, plant and equipment and other intangible assets was £394.1 million, £375.2 million and £326.2 million, respectively, and cash spent on share repurchases and buybacks was £43.8 million, £207.1 million and £504.2 million, respectively.

 

The Company is subject to the informational requirements of the Exchange Act. In accordance with these requirements, the Company files reports and other information with the United States Securities and Exchange Commission. You may read and copy any materials filed with the SEC at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC. The Company’s Form 20-F is also available on the Company’s website, www.wpp.com.

 

B. Business Overview

 

Introduction

 

Certain Non-GAAP measures included in this business overview and in the operating and financial review and prospects have been derived from amounts calculated in accordance with IFRS but are not themselves IFRS measures. They should not be viewed in isolation as alternatives to the equivalent IFRS measure, rather they should be read in conjunction with the equivalent IFRS measure. These include constant currency, pro-forma (‘like-for-like’), headline operating profit, headline PBIT (Profit Before Interest and Taxation), headline PBT (Profit Before Taxation), billings, free cash flow and net debt and average net debt, which we define, explain the use of and reconcile to the nearest IFRS measure on pages 32 to 35.

 

Management believes that these measures are both useful and necessary to present herein because they are used by management for internal performance analyses; the presentation of these measures facilitates comparability with other companies, although management’s measures may not be calculated in the same way as similarly titled measures reported by other companies; and these measures are useful in connection with discussions with the investment community.

 

The Company is a leading worldwide creative transformation organisation offering national and multinational clients a comprehensive range of communications, experience, commerce and technology services.

 

A key element of our strategy is to align our technology capabilities more closely with our creative expertise, and to simplify WPP through the creation of fewer, stronger, integrated agencies. Recent restructuring actions, including the mergers of VMLY&R and Wunderman Thompson, the One Ogilvy strategy and the reorganization of our specialist healthcare agencies, mean that certain units have been reclassified between the previously reported sectors. As a result, several businesses that were reported within Public Relations & Public Affairs, and Brand Consulting, Health & Wellness and Specialist Communications, have been merged with entities within Advertising & Media Investment Management (AMIM). These include Wunderman Thompson, VMLY&R, Ogilvy PR and OgilvyOne. Additionally, the US healthcare companies have been re-aligned with strong agency partners within AMIM, and Burson Marsteller and Cohn & Wolfe have been merged to form Burson Cohn & Wolfe. Furthermore, WPP completed the transaction to sell a 60% stake in Kantar to Bain Capital Private Equity in December 2019.

 

As a consequence of these moves, which reflect changes in the way we manage the business and report internally, WPP is now organized into three sectors – Global Integrated Agencies; Public Relations; and Specialist Agencies. Kantar, representing materially all of the Data Investment Management segment of the Group, is now excluded from the sector analysis as it is classified as discontinued operations. This change only affects the business sector reporting structure of the results; there is no change to the Group-level financial statements or geographical segmentation.

 

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Global Integrated Agencies

 

WPP’s integrated agency networks include Ogilvy, VMLY&R, Wunderman Thompson, Grey, GroupM and Hogarth. Among the principal functions of these agencies are the planning and creation of marketing, branding campaigns, design and production of advertisements across all media, and media buying services including strategy & business development, media investment, data & technology and content.

 

Public Relations

 

WPP’s public relations companies advise clients who are seeking to communicate with a range of stakeholders from consumers to governments and the business and financial communities. They include WPP’s public relations specialists, Burson Cohn & Wolfe and Hill+Knowlton Strategies, as previously reported but excluding Ogilvy PR which now sits within Global Integrated Agencies as part of Ogilvy.

 

Specialist Agencies

 

Specialist agencies represent WPP’s other agencies that specialise in certain areas, whether by region or range of services. They include AKQA, GTB, Geometry, WPP Brand Consulting and Commarco.

 

The following tables show, for the last three fiscal years, reported revenue and revenue less pass-through costs from continuing operations attributable to each reportable segment in which the Company operates.

 

Revenue1    2019      20182      20172  
      £m     

% of

total

     £m     

% of

total

     £m     

% of

total

 

Global Integrated Agencies

     10,205.2        77.1        9,930.7        76.1        10,028.6        76.3  

Public Relations

     956.5        7.2        931.7        7.1        915.0        7.0  

Specialist Agencies

     2,072.4        15.7        2,184.3        16.8        2,202.8        16.7  

Total

     13,234.1        100.0        13,046.7        100.0        13,146.4        100.0  
1    

Intersegment sales have not been separately disclosed as they are not material.

2   

Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements. As a result, Data Investment Management is now excluded from the segment analysis.

 

Revenue less pass-through costs1    2019      20182      20172  
      £m     

% of

total

     £m     

% of

total

     £m     

% of

total

 

Global Integrated Agencies

       8,108.1          74.7          8,070.8          74.2          8,315.3          74.6  

Public Relations

     898.0        8.3        879.9        8.1        864.3        7.8  

Specialist Agencies

     1,840.4          17.0          1,925.0          17.7          1,964.3          17.6  
1    

Revenue less pass-through costs is revenue less media and other pass-through costs. Pass-through costs comprise fees paid to external suppliers where they are engaged to perform part or all of a specific project and are charged directly to clients, predominantly media costs. See note 3 to the consolidated financial statements for more details of the pass-through costs.

2   

Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements. As a result, Data Investment Management is now excluded from the segment analysis.

 

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The following tables show, for the last three fiscal years, reported revenue and revenue less pass-through costs from continuing operations attributable to each geographic area in which the Company operates and demonstrates the Company’s regional diversity.

 

Revenue1    2019      20183      20173  
      £m     

% of

total

     £m     

% of

total

     £m     

% of

total

 

North America2

     4,854.7        36.7        4,851.7        37.2        5,083.5        38.7  

United Kingdom

     1,797.1        13.6        1,785.6        13.7        1,737.4        13.2  

Western Continental Europe

     2,628.8        19.8        2,589.6        19.8        2,455.7        18.7  

Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe

     3,953.5        29.9        3,819.8        29.3        3,869.8        29.4  

Total

     13,234.1        100.0        13,046.7        100.0        13,146.4        100.0  
1    

Intersegment sales have not been separately disclosed as they are not material.

2   

North America includes the US with revenue of £4,576.5 million (2018: £4,576.1 million, 2017: £4,782.0 million).

3   

Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements.

 

Revenue less pass-through costs1    2019      20183      20173  
      £m     

% of

total

     £m     

% of

total

     £m     

% of

total

 

North America2

       4,034.3        37.2          4,059.7        37.3        4,335.2        38.9  

United Kingdom

     1,390.1        12.8        1,393.8        12.8        1390.0        12.5  

Western Continental Europe

     2,176.4        20.1        2,182.9        20.1        2,063.7        18.5  

Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe

       3,245.7        29.9          3,239.3          29.8          3,355.0          30.1  
1    

Revenue less pass-through costs is revenue less media and other pass-through costs. Pass-through costs comprise fees paid to external suppliers where they are engaged to perform part or all of a specific project and are charged directly to clients, predominantly media costs. See note 3 to the consolidated financial statements for more details of the pass-through costs.

2   

North America includes the US with revenue less pass-through costs of £3,806.3 million (2018: £3,836.0 million, 2017: £4,089.9 million).

3   

Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements.

 

WPP Head Office

 

The central functions of WPP, with principal offices in London and New York, are to develop the strategy of the Company, coordinate the provision of services to cross-Company clients, perform a range of cross-Company functions in areas such as new business, talent recruitment and development, training, IT, finance, audit, legal affairs, mergers & acquisitions (M&A), property, sustainability, investor relations and communications, promote best practice in areas such as our agencies’ approach to diversity and inclusion, drive operating efficiencies and monitor the financial performance of WPP’s operating companies.

 

Our strategy

 

When we launched our new strategy in December 2018, we described it as one of radical evolution. Radical because we needed to take decisive action to stabilise the Company and reposition it for growth; an evolution because ours is a talent business, and we need to transform at a deliberate pace – taking our people and clients with us on the journey.

 

In 2019 we laid the groundwork by making major structural changes to the Company. We implemented the mergers announced in the second half of 2018, creating fewer, stronger agency brands. We have completed more than 50 disposals in the past two years – the most significant being the sale of 60% of Kantar to Bain Capital.

 

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Our strategy focuses on growth. The savings from restructuring our business will allow us to increase investment in the areas that will drive top-line growth in the future: creativity, technology and talent.

 

The five elements of our corporate strategy are:

 

   

Vision & Offer. A vision developed with our people and clients and a refreshed, more contemporary offer to meet the needs of our clients in a rapidly changing market.

 

   

Creativity. A renewed commitment to creativity, WPP’s most important competitive advantage.

 

   

Data & Technology. Harnessing the strength of our marketing and advertising technology, and unique partnerships with technology firms, for the benefit of clients.

 

   

Simpler Structure. Reducing complexity and making sure our clients can access the best resources from across the Company.

 

   

People & Culture. Investment in our people, our culture and a new set of values to ensure WPP is the natural home for the best and brightest talent.

 

Sustainability

 

Our clients look to us for the insight, expertise and creativity to balance these interconnected pressures and communicate their purpose effectively and authentically. Our own sustainability strategy helps us to meet changing client expectations with strong and credible propositions, while reducing risks and creating a resilient business for the long term.

 

Our sustainability strategy supports all five elements of our corporate strategy, which we launched in late 2018. Below sets out the most material ways in which sustainability supports our strategy.

 

   

Vision & Offer.

A growing number of clients are grappling with sustainability challenges and looking to articulate the purpose of their brands. They look for partners who share their sustainability values and aspirations. Our commitment to responsible and sustainable business practices helps us to broaden and deepen these partnerships, and to meet the growing expectations and sustainability requirements in client procurement processes.

 

   

Creativity.

Social investment: Our pro bono work can make a significant difference to charities and non-governmental organisations (NGOs), enabling our partners to raise awareness and funds, recruit members, and achieve campaign objectives. Pro bono work benefits our business too, providing rewarding creative opportunities for our people that often result in award-winning campaigns that raise the profile of our companies.

 

Inclusive and diverse teams: Creativity thrives on diversity of background and thought. This makes having an inclusive and diverse workplace essential to our long-term business success. We want all of our people to feel valued and able to fulfil their potential, regardless of gender, ethnicity, age or disability.

 

   

Data & Technology.

Privacy and data ethics: Data – including consumer data – can play an essential role in our work for clients. Data security and privacy are increasingly high-profile topics for regulators, consumers and our clients. We have a responsibility to look after this data carefully, to collect data only when needed and with consent where required, and to store and transfer data securely.

 

   

Simpler Structure.

Greener office space: Our work to simplify our structure and consolidate our office space is driving a positive impact on our energy use and carbon footprint. We are reducing the overall number of offices

 

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we occupy, moving to Campus locations that use green building standards and reduce our impact, help us to use space more efficiently and encourage collaboration between our companies.

 

   

People & Culture.

Shared values across our business and supply chain: Strong employment policies, investment in skills and inclusive working practices help us recruit, motivate and develop the talented people we need to serve our clients in all disciplines across our locations. Selecting suppliers and partners who adopt standards consistent with our own can reduce costs, improve efficiency and protect our reputation.

 

Clients

 

   

1 in 5 of our top 50 clients have made commitments to carbon neutrality. 80% of our top 50 client leads have discussed sustainability with their clients.

 

People

 

   

We spent £38.7 million on training in 2019.

 

   

At year-end 2019, women comprised 37% of the WPP Board and Executive leadership roles, 50% of Senior Managers, and 55% of total employees.

 

Environment

 

   

In 2019, WPP committed to take the ‘plastic’ out of ‘Wire and Plastic Products’ by:

    phasing out plastics that cannot be reused, recycled or composted across all of our 3,000+ agency offices and campuses worldwide by the end of 2020;
    signing up to the New Plastics Economy Global Commitment led by UN Environment and the Ellen MacArthur Foundation which aims to unite businesses, governments and other stakeholders behind a common vision for a plastics system that works; and
    pledging to work with clients and partners to drive consumer change at scale.

 

   

Our scope 1 and 2 market-based emissions per full-time employee for 2019 were 0.60 tonnes of CO2e, a 21% reduction from 2018.

 

Social investment

 

   

Our pro bono work was worth £10.6 million in 2019 for clients including UN Women and WildAid. We also made cash donations to charities of £5.2 million, resulting in a social investment worth £15.8 million. This is equivalent to 1.3% of profit before tax.

 

   

WPP media agencies negotiated free media space worth £18.9 million on behalf of pro bono clients, 1.56% of profit before tax.

 

Clients

 

The Group works with 348 of the Fortune Global 500, all 30 of the Dow Jones 30, 70 of the NASDAQ 100, and 69 of the FTSE 100.

 

The Company’s 10 largest clients accounted for 15% of the Company’s revenues in the year ended 31 December 2019. No client of the Company represented more than 5% of the Company’s aggregate revenues in 2019. The Group’s companies have maintained long-standing relationships with many of their clients, with an average length of relationship for the top 10 clients of approximately 50 years.

 

Government Regulation

 

From time to time, governments, government agencies and industry self-regulatory bodies in the United States, European Union and other countries in which the Company operates have adopted statutes, regulations, and rulings that directly or indirectly affect the form, content, and scheduling of advertising, public relations and

 

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public affairs, and market research, or otherwise limit the scope of the activities of the Company and its clients. Some of the foregoing relate to privacy and data protection and general considerations such as truthfulness, substantiation and interpretation of claims made, comparative advertising, relative responsibilities of clients and advertising, public relations and public affairs firms, and registration of public relations and public affairs firms’ representation of foreign governments.

 

There has been a trend towards expansion of specific rules, prohibitions, media restrictions, labeling disclosures and warning requirements with respect to advertising for certain products, such as over-the-counter drugs and pharmaceuticals, cigarettes, food and certain alcoholic beverages, and to certain groups, such as children. Though the Company does not expect any existing or proposed regulations to have a material adverse impact on the Company’s business, the Company is unable to estimate the effect on its future operations of the application of existing statutes or regulations or the extent or nature of future regulatory action.

 

IT

 

The IT transformation programmes will underpin our three-year strategic plan and enhance our data security.

 

Since the launch of the WPP Data Privacy and Security Charter in 2018 we have issued incremental updates to reflect regulatory and best practice changes as well as to reflect changes to our business. The Charter helps us communicate our approach to data to our people and clients, setting out core principles for responsible data management through our Data Code of Conduct, our IT security, privacy and social media policies, and our security standards (which are based on ISO 27001).

 

Our Group Chief Privacy Officer leads our work on privacy, supported by our Data Protection Officer. Together, they provide practical guidance and support to our agencies on data ethics, ensure that privacy risks are well understood across the business, help us prepare for relevant new regulation, and promote best practices.

 

Our networks and companies have appointed privacy leads to oversee the implementation of our policies at a local level. They report progress via our Group Chief Counsel and Group Chief Privacy Officer.

 

Our company-wide audit programme includes controls reflecting the technical and organisational measures in place to protect data as well as specific data privacy controls. Our internal audit team runs a rolling-programme of audits across our companies to review privacy risks and practices using these controls.

 

Suppliers who collect, manage or store employee, consumer or client data on behalf of WPP, our companies and our clients must have the right data security and privacy standards in place. We conduct due diligence on data suppliers and embed privacy requirements in our supplier contracts.

 

We develop principles on privacy and data protection and compliance with local laws. We implemented extensive training ahead of General Data Protection Regulation (GDPR) implementation in 2018 and the roll out of a GDPR toolkit to assist our people to prepare for implementation and will do the same as new legislation is adopted in other markets.

 

We monitor and log our network and systems and keep raising our people’s security awareness through our WPP Safer Data training and mock phishing attacks.

 

Our Safer Data platform continues to be enhanced and is a resource well used across the group. The platform provides information, guidance and resources to help our people understand privacy risks and to apply our policies to their work. The platform also includes our regulatory toolkits for GDPR, California Consumer Privacy Act (CCPA) and Brazil’s Lei Geral de Proteção de Dados (LGPD), model data protection contract clauses, privacy impact assessment tools, policy templates and other topic-specific or jurisdiction-specific guidance and resources.

 

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We will relaunch our mandatory global Privacy and Data Security Awareness online training in 2020. There will be updates to both the style and content of the training, making it more engaging and relevant and ensuring our people are well-trained in our data responsibilities as a company and in their individual roles. Our team also continues to run face-to-face training to reflect specific topics or regulations, for example we have trained over 1,000 of our employees on the new CCPA.

 

We use our Data Health Checker to review privacy risks and data security practices in our businesses. This provides us with insight into how data is used, stored and transferred and helps to identify any parts of the business that need further support on data practices. The results show us that the majority of our companies continue to have measures in place that meet or exceed their level of privacy risk (the average risk score is 2.14, where 5 is the maximum risk score). Of those companies surveyed, 80% have a dedicated privacy lead.

 

C. Organizational Structure

 

The Company’s business comprises the provision of creative transformation services on a national, multinational and global basis. It operates out of over 3,000 offices in 112 countries (including associates). For a list of the Company’s principal subsidiary undertakings and their country of incorporation see Exhibit 8.1 to this Form 20-F.

 

D. Property, Plant and Equipment

 

The majority of the Company’s properties are leased, although certain properties which are used mainly for office space are owned. In the United States the sole owned property was the 214,000 square foot VMLY&R office condominium for their headquarters located at 3 Columbus Circle in New York, New York, which was sold and converted to a leased location in Q1 2019 in addition to 160,000 of square feet of space already leased. Other owned properties are in Latin America (principally in Argentina, Brazil, Chile, Mexico, Peru and Puerto Rico), Asia (India and China) and in Europe (Spain and UK). Principal leased properties, which include office space at the following locations:

 

Location   Use    Approximate
square footage
 

3 World Trade Center, New York, NY

  GroupM, Mindshare, Wavemaker, Mediacom, Essence, Xaxis, Kinetic, WPP      690,000  

636 Eleventh Avenue, New York, NY

  Ogilvy, Geometry, MJM, Hogarth, BDG      564,000  

399 Heng Feng Road, Zhabei, Shanghai

  Ogilvy, GroupM, Wavemaker, Mediacom, Mindshare, Geometry, Hill+Knowlton Strategies, Global Team Blue, Sudler MDS, Burson Cohn & Wolfe, Peclars, Hogarth, Wunderman Thompson, Superunion, Kinetic      488,000  
Calle de Ríos Rosas, 26, Madrid   GroupM, Grey, WPP Health & Wellness, Ogilvy, Hill+Knowlton Strategies, Burson Cohn & Wolfe, Axicom, WPP, Lambie Nairn, Finance +, Superunion, SCPF, VMLY&R, Wunderman Thompson      382,402  
The Orb Adjacent to JW Marriott Sahar, Chatrapati Shivaji International Airport, Andheri East, Mumbai   GroupM, Wavemaker, Mindshare, Mediacom, Kinetic, Ogilvy, Grey, Wunderman Thompson, Hill+Knowlton Strategies, Fitch, Landor, VMLY&R, Genesis Burson Cohn & Wolfe, WPP      375,000  
3 Columbus Circle, New York, NY   VMLY&R, Midas Exchange, Berlin Cameron, CMI, Taxi, Red Fuse, Finsbury, Fitch, WPP Health      374,000  

200 Fifth Avenue and 23 West 23rd Street, New York, NY

  Grey, Burson Cohn & Wolfe, Landor, Finance +, GCI Health, SJR, Townhouse      349,000  

Tower B, DLF Cyber Park, Gurugram

  GroupM, Wavemaker, Mindshare, Mediacom, Ogilvy, Wunderman Thompson, Hogarth, Grey, Global Team Blue, AKQA, ADK, WPP (Q4 2020 Occupancy)      340,000  

222 Merchandise Mart / 350 N Orleans, Chicago IL

  Ogilvy, Wunderman Thompson, Geometry, Global Team Blue, GroupM, Burson Cohn & Wolfe, Hill+Knowlton Strategies, The Futures Company, Kinetic      277,400  

333 North Green Street, Chicago, IL

  Burson Cohn & Wolfe, Branding, Geometry, GroupM, Hill+Knowlton Strategies, Kinetic, Ogilvy, VMLY&R, Wunderman Thompson, Hogarth, WBA      265,108  

 

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Location   Use    Approximate
square footage
 

125 Queens Quay, Toronto

  GroupM, Ogilvy, Wunderman Thompson, VMLY&R, Grey, Hill+Knowlton Strategies (Estimated Q4 2021 Occupancy)      258,053  

Sea Containers House, Upper Ground, London SE1

  Ogilvy, Wavemaker, WPP      226,000  

550 Town Center Drive, Dearborn, MI

  Global Team Blue, PRISM, Burrows, POSSIBLE, VMLY&R      217,900  

 

The Company considers its properties, owned or leased, to be in good condition and generally suitable and adequate for the purposes for which they are used. At 31 December 2019, the fixed asset value (cost less depreciation) representing land, freehold buildings and leasehold buildings as reflected in the Company’s consolidated financial statements was £661.8 million.

 

In 2019, 25% of our floorspace was certified to advanced sustainability standards such as Leadership in Energy and Environmental Design (LEED) and Building Research Establishment Environmental Assessment Method (BREEAM), meeting our 2020 target a year early.

 

In 2019, we opened five new Campuses in Helsinki, Bucharest, Amsterdam, Madrid and Mumbai, bringing our total to 16 WPP Campuses across four continents. We will continue to develop Campus co-locations to house our agencies in major cities, which deliver world-class working environments and increased efficiencies. Before the end of 2020, we will open a further three campuses and aim to have 75,000 people in 60 Campus locations worldwide by 2023.

 

See note 13 to the consolidated financial statements for a schedule by years of lease payments as at 31 December 2019.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

As introduced on page 11, certain Non-GAAP measures are included in the operating and financial review and prospects.

 

A. Operating Results

 

Overview

 

WPP is a creative transformation company with a service offering that allows us to meet the present and future needs of our clients. Our business model is client-centric, and we leverage resource and skills across our internal structures to provide the best possible service. The Company offers services in three reportable segments:

 

   

Global Integrated Agencies;

 

   

Public Relations

 

   

Specialist Agencies

 

In 2019, approximately 77% of the Company’s consolidated revenues from continuing operations were derived from Global Integrated Agencies, with the remaining 23% of its revenues being derived from the remaining two segments.

 

The following discussion is based on the Company’s audited consolidated financial statements beginning on page F-1 of this report. The Group’s consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.

 

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We presented the strategy in December 2018. Our vision was to become a creative transformation company, one that combined outstanding human talent and imagination with expertise in technology and data, and behaved not as a financial conglomerate or group of separate businesses, but as a unified whole.

 

We defined a new purpose – to use the power of creativity to build better futures for our people, clients and communities. And we set new financial targets to allow us to invest in the long-term health of our business and deliver sustainable growth for our shareholders. The progress in 2019 is outlined below.

 

   

Vision & Offer. Won significant client assignments based on new offer. Increased investment in faster-growth areas of offer: experience, commerce and technology. Strong presence at events celebrating creativity, innovation and technology. Launched WPP iQ, a new online space for the best insight and industry intelligence from across the Company.

 

   

Creativity. Recruitment of high-profile creative leaders, including six key hires in the United States. Strong performance at Cannes, including five Grand Prix, one Titanium Lion, 17 Gold, 59 Silver and 107 Bronze. Continued demonstration of creative firepower with four spots at Super Bowl 2020.

 

   

Data & Technology. Established the WPP technology team and cross-agency Technology Council. Developed 360° partner programmes with all our key technology partners (Adobe, Amazon, Facebook, Google, IBM, Microsoft and Salesforce). Rationalised our internal product development strategy.

 

   

Simpler Structure. Clients: Appointed 17 Global Client Leaders to head up our most important client relationships; Won 18 new major global accounts; and Expanded almost half of our existing top-50 client relationships. Companies: Sale of 60% share in Kantar; 22 disposals of non-core businesses; and 100 local office mergers and 80 business unit closures. Countries: Established our WPP Campus strategic vision; and Opened new Campuses in Helsinki, Bucharest, Madrid, Amsterdam and Mumbai.

 

   

People & Culture. Programme to promote new values across the Company. Reinvigorated creative recruiting and hiring experience. Enhanced our employee experience with more defined and supported career paths. Developed more inclusive policies and benefits for employees.

 

The share price increased by 26% in 2019, closing at 1,066.5 pence at year end. Since then it has declined to 545.0 pence, down 49%, at 24 April 2020. Dividends in respect of 2019 are 22.7 pence, a decrease from 60.0 pence in respect of 2018. Given the significant uncertainty over the coming months due to Covid-19, as previously discussed, the Board is suspending the 2019 final dividend of 37.3 pence per share.

 

Continuing operations

 

Revenue was up 1.4% at £13.234 billion. Revenue on a constant currency basis was up 0.2% compared with last year, the difference to the reportable number reflecting the weakness of the pound sterling against most currencies, particularly in the first half of the year. On a like-for-like basis, which excludes the impact of currency and acquisitions, revenue was flat. Billings were £53.059 billion, down 0.3%, down 1.4% in constant currency and down 1.0% like-for-like.

 

The Group’s revenue is more weighted to the second half of the year across all regions and sectors, and, particularly, in the faster growing markets of Asia Pacific and Latin America. As a result, headline operating profit continue to be skewed to the second half of the year, with the Group earning approximately 40% of its headline operating profit in the first half and 60% in the second half.

 

Operating profit was up 4.1% to £1.296 billion from £1.245 billion, up 4.9% in constant currency. Headline operating profit was down 5.5% to £1.561 billion, from £1.651 billion and down 5.6% in constant currency. The implementation of IFRS 16 on 1 January 2019 resulted in an increase to operating profit of £61 million.

 

Profit before interest and tax was up 2.7% to £1.311 billion from £1.276 billion. Headline PBIT for 2019 was down 5.8% to £1.623 billion, from £1.723 billion and down 6.0% in constant currencies.

 

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Profit before tax was up 19.1% to £1.214 billion from £1.019 billion. In constant currencies, profit before tax was up by 19.4%. Headline profit before tax was down 11.7% to £1.363 billion from £1.543 billion. The difference between profit before tax and headline profit before tax reflecting principally the £153 million of restructuring and transformation costs and £48 million of goodwill impairment charges.

 

Profit after tax was up 23.1% to £0.939 billion from £0.763 billion. In constant currencies, profit after tax was up 22.7%.

 

Profits attributable to shareholders was up 23.2% to £0.860 billion from £0.698 billion, again reflecting principally the £153 million of restructuring and transformation costs and £48 million of goodwill impairment. In constant currencies, profits attributable to shareholders was up 22.8%.

 

Diluted earnings per share was up 23.1% to 68.2p from 55.4p and was up 22.9% in constant currencies.

 

Net cash inflow from operating activities increased to £1.851 billion in the year from £1.694 billion in 2018. In 2019, operating profit was £1.580 billion, depreciation, amortisation and goodwill impairment £734 million, non-cash share-based incentive charges £71 million, working capital and provisions inflow £350 million, net interest paid £190 million, tax paid £536 million, lease liabilities (including interest) paid £355 million, capital expenditure £394 million, earnout payments £130 million and other net cash outflows £86 million. Free cash flow was, therefore, an inflow £1.044 billion. This free cash flow was enhanced by £2.221 billion in net cash acquisition payments and disposal proceeds (of which £1.971 billion was the Kantar disposal net of cash disposed and costs, and £250 million of net income from other disposal proceeds net of acquisition payments) and absorbed by £44 million in share buybacks and £750 million in dividends. This resulted in a net cash inflow of £2.471 billion.

 

Debt financing was £12.845 billion at 31 December 2019, compared to £15.083 billion at 31 December 2018. Average net debt in 2019 was £4.282 billion, compared to £5.025 billion in 2018, at 2019 exchange rates. On 31 December 2019 net debt was £1.540 billion, against £4.017 billion on 31 December 2018, a decrease of £2.477 billion (a decrease of £2.313 billion at 2019 exchange rates). The reduced period end debt figure reflects the benefit of £1.971 billion proceeds in relation to the disposal of 60% of the Group’s interest in Phase 1 of the Kantar business.

 

Discontinued operations

 

As a result of the Kantar sale, the Group has classified Kantar as held for sale under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations which is as described in the accounting policies section of the consolidated financial statements. As Kantar classifies as held for sale under IFRS 5, the profit for the year is presented as discontinued operations on the income statement. The decrease in profit for the year from £138 million in 2018 to £11 million in 2019 primarily reflects the goodwill impairment on classification as held for sale of £95 million and the tax expense on the disposal of £157 million, partially offset by the gain on sale of £74 million.

 

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Segment performance

 

Performance of the Group’s businesses is reviewed by management based on headline operating profit. A table showing these amounts by reportable segment and geographical area for each of the three years ended 31 December 2019, 2018 and 2017 is presented in note 2 to the consolidated financial statements. To supplement the reportable segment information presented in note 2 to the consolidated financial statements, the following tables give details of revenue growth and revenue less pass-through costs growth by geographical area and reportable segment on a reported, constant currency, and like-for-like basis. Headline operating profit and headline operating profit margin by reportable segment are also provided below.

 

Geographical area

 

Revenue Analysis                                            
     

Reported

revenue

change %+/(-)

   

Constant

currency

revenue

change %+/(-)

   

Like-for-like

revenue

change %+/(-)

 
      2019      20181     2019     20181     2019     20181  

North America

     0.1        (4.6     (4.1     (1.4     (5.0     (2.5

United Kingdom

     0.6        2.8       0.6       2.8       1.8       1.8  

Western Continental Europe

     1.5        5.5       2.9       5.8       1.5       3.2  

Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe

     3.5        (1.3     3.6       3.5       4.7       4.8  

Total Group

     1.4        (0.8     0.2       2.1       0.0       1.3  
  1    

Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements.

 

 

Revenue less pass-through costs analysis                                     
     

Reported

revenue

less pass-
through costs1
change %+/(-)

   

Constant
currency

revenue

less pass-
through costs1
change %+/(-)

   

Like-for-like
revenue

less pass-
through costs1
change %+/(-)

 
      2019     20182     2019     20182     2019     20182  

North America

     (0.6     (6.4     (4.7     (3.1     (5.7     (3.9

United Kingdom

     (0.3     0.3       (0.3     0.3       0.3       (0.2

Western Continental Europe

     (0.3     5.8       1.0       6.0       0.7       3.4  

Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe

     0.2       (3.4     0.4       1.6       1.4       2.2  
  1    

Revenue less pass-through costs is revenue less media and other pass-through costs. Pass-through costs comprise fees paid to external suppliers where they are engaged to perform part or all of a specific project and are charged directly to clients. See note 3 to the consolidated financial statements for more details of the pass-through costs.

 
  2   

Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements.

 

 

North America constant currency revenue less pass-through costs was down 4.7% in the year and down 5.7% like-for-like, with a significant improvement in the second half. Revenue less pass through costs was down 4.0% in the second half on a like-for-like basis compared to down 7.3% in the first half as the negative effect of some of the 2018 client assignment losses started to ease.

 

United Kingdom constant currency revenue less pass-through costs was down 0.3% in the year and up 0.3% on a like-for-like basis, with the Group’s global integrated agencies and particularly GroupM performing less well in the second half of the year, partly offset by a significant improvement in the Group’s specialist public relations businesses.

 

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Western Continental Europe constant currency revenue less pass-through costs grew 1.0% in the year with like-for-like up 0.7%, the second strongest performing region. Germany was significantly stronger in the second half of the year, partly offset by a softening in France, Italy and the Netherlands.

 

In Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, on a constant currency basis, revenue less pass-through costs growth in the region was 0.4% for the year with like-for-like growth 1.4%, the strongest performing region. Like-for-like growth improved in the second half to 1.8%, compared to 1.1% in the first half, with Africa & the Middle East improving significantly, partly offset by a slight softening in Asia Pacific and Latin America.

 

Reportable Segments

 

Revenue Analysis                                      
     

Reported

revenue

change %+/(-)

   

Constant

currency

revenue

change %+/(-)

    

Like-for-like

revenue

change %+/(-)

 
      2019     20181     2019     20181      2019     20181  

Global Integrated Agencies

     2.8       (1.0     1.5       1.9        1.4       1.4  

Public Relations

     2.7       1.8       0.5       4.7        (0.7     4.0  

Specialist Agencies

     (5.1     (0.8     (6.2     1.8        (5.9     (0.2

Total Group

     1.4       (0.8     0.2       2.1        0.0       1.3  
  1    

Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements.

 

 

Revenue less pass-through costs analysis                                     
     

Reported

revenue

less pass-

through  costs1
change %+/(-)

   

Constant
currency

revenue

less pass-
through costs1
change %+/(-)

   

Like-for-like
revenue

less pass-
through costs1

change %+/(-)

 
      2019     20182     2019     20182     2019     20182  

Global Integrated Agencies

     0.5       (2.9     (0.7     (0.1     (0.7     (0.3

Public Relations

     2.1       1.8       (0.1     4.7       (1.0     4.2  

Specialist Agencies

     (4.4     (2.0     (5.6     0.7       (5.6     (1.7
  1   

Revenue less pass-through costs is revenue less media and other pass-through costs. Pass-through costs comprise fees paid to external suppliers where they are engaged to perform part or all of a specific project and are charged directly to clients. See note 3 to the consolidated financial statements for more details of the pass-through costs.

 
  2   

Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements.

 

 

Headline operating profit analysis   20191     2018     2017  
     £m    

Headline

operating
profit

margin2

%

    £m    

Headline

operating
profit

margin2, 3

%

    £m    

Headline

operating
profit

margin2, 3

%

 

Global Integrated Agencies

    1,219.5       15.0       1,228.2       15.2       1,321.3       15.9  

Public Relations

    140.6       15.7       139.2       15.8       123.5       14.3  

Specialist Agencies

    200.5       10.9       283.8       14.7       348.3       17.7  

Total Group

    1,560.6               1,651.2               1,793.1          
  1    

IFRS 16 Leases was adopted from 1 January 2019 as described in the accounting policies section of the consolidated financial statements. No restatement has been made in prior years.

 
  2  

Headline operating profit margin is calculated as headline operating profit as a percentage of revenue less pass-through costs.

 
  3  

Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements.

 

 

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Like-for-like revenue less pass-through costs in the Group’s global integrated agencies was down 0.7% in the year, making it the strongest performing sector. There was a significant improvement in the second half of the year, with like-for-like growth of 0.3% compared to down 1.8% in the first half. Grey, Ogilvy, Wunderman Thompson and VMLY&R improved in the second half, partly offset by lower growth in GroupM. As a result, headline operating profit was down £8.7 million from £1,228.2 million for the year ended 2018 to £1,219.5 million for the year ended 2019.

 

Like-for-like revenue less pass-through costs in the Group’s public relations businesses was down 1.0% in the year, with a significant improvement in the second half, down 0.4% on a like-for-like basis compared to down 1.5% in the first half. The Group’s specialist public relations businesses Finsbury, Glover Park, Hering Schuppener, Buchanan and Clarion performed particularly strongly in the second half of the year. As a result of the above, headline operating profit was up £1.4 million from £139.2 million for the year ended 2018 to £140.6 million for the year ended 2019.

 

In the Group’s specialist agencies, like-for-like revenue less pass-through costs was down 5.6% in the year, as the Group’s specialist brand consulting, advertising and direct, interactive and ecommerce businesses came under pressure, particularly in North America, Western Continental Europe and Asia Pacific. The Group’s specialist agencies include the specialist global Ford agency, GTB, and performance reflects the loss of the omnichannel work in the second half of 2018. As a result, headline operating profit was down £83.3 million from £283.8 million for the year ended 2018 to £200.5 million for the year ended 2019.

 

2019 compared with 2018

 

The financial results for 2019 are based on the Group’s continuing operations and the results of Kantar are presented separately as discontinued operations. The 2017 and 2018 reported numbers have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements, to reflect this change.

 

Revenues

 

Revenue was up 1.4% at £13.234 billion. Revenue on a constant currency basis was up 0.2% compared with last year, the difference to the reportable number reflecting the weakness of the pound sterling against most currencies, particularly in the first half of the year. On a like-for-like basis, which excludes the impact of currency and acquisitions, revenue was flat.

 

Costs of services, general and administrative costs

 

Costs of services increased by 2.5% in 2019 to £10,825.1 million from £10,559.1 million in 2018.

 

General and administrative costs decreased by 10.4% to £1,113.1 million from £1,242.3 million in 2018, principally in relation to decrease in goodwill impairment, decrease in amortisation and impairment of acquired intangible assets and lower IT costs, partly offset by a gain on disposal of investment in 2018 that did not repeat in 2019.

 

Staff costs increased by 2.0% to £7,090.6 million from £6,950.6 million in 2018. Staff costs, excluding incentives (short- and long-term incentives and cost of share-based incentives), increased by 2.4%. Incentive payments of £294 million were 15.8% of headline operating profit before incentives, a similar level to £311 million or 15.9% in 2018.

 

On a like-for-like basis, the average number of people in the Group, excluding associates, in 2019 was 106,508 compared to 106,555 in 2018. On the same basis, the total number of people, excluding associates, at 31 December 2019 was 106,786 compared to 105,900 at 31 December 2018, an increase of 0.8%.

 

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As outlined at the investor day on 11 December 2018, we have undertaken a strategic review of our operations. As part of that review, restructuring actions have been taken to right-size underperforming businesses, address high-cost severance markets and simplify operational structures. This has included the merger, closure or sale of a number of WPP’s operating companies. It also includes transformation costs with respect to strategic initiatives like co-locations in major cities, IT transformation and shared services.

 

In 2019, the Group recorded £121 million of restructuring and transformation costs in relation to this plan, in addition to the £212 million in 2018. Of this £333 million total, £220 million relates to actions with a cash cost, with £158 million paid to date – the balance to be paid in 2020 and beyond. Total restructuring and transformation costs in 2019 of £153 million comprise the £121 million above and £32 million of other costs, primarily relating to the continuing global IT transformation programme.

 

These exceptional costs of £153 million and £48 million of associate company exceptional losses have been partly offset by exceptional gains of £58 million, primarily relating to the gain on the sale of the Group’s investment in Chime.

 

This gives a net exceptional loss of £143 million and compares with a net exceptional loss in 2018 of £70 million.

 

Profit before interest and taxation

 

Profit before interest and tax was up 2.7% to £1.311 billion from £1.276 billion. Headline PBIT for 2019 was down 5.8% to £1.623 billion, from £1.723 billion and down 6.0% in constant currencies.

 

Finance and investment income, finance costs and revaluation and retranslation of financial instruments

 

Net finance costs, finance and investment income less finance costs (excluding the revaluation and retranslation of financial instruments), were £260 million compared with £180 million in 2018, an increase of £80 million. This primarily reflects additional interest expense related to lease liabilities of £100 million following the adoption of IFRS 16. Revaluation and retranslation of financial instruments resulted in a gain of £163.8 million in 2019 and a loss of £76.3 million in 2018.

 

Taxation

 

The Group’s tax rate on profit before tax was 22.6% in 2019 against 25.1% in 2018.

 

The difference in the rate in 2019 was principally due to the revaluation and retranslation of financial instruments not being tax deductible. Given the Group’s geographic mix of profits and the changing international tax environment, the tax rate is expected to increase slightly over the next few years.

 

Profit for the year

 

Profit after tax was up 23.1% to £0.939 billion from £0.763 billion. In constant currencies, profit after tax was up 22.7%. Profits attributable to shareholders was up 23.2% to £0.860 billion from £0.698 billion, again reflecting principally the £153 million of restructuring and transformation costs and £48 million of goodwill impairment. In constant currencies, profits attributable to shareholders was up 22.8%.

 

2018 compared with 2017

 

Revenues

 

Reported revenue was down 0.8% at £13,046.7 million. Revenue on a constant currency basis was up 2.1% compared with 2017, the difference to the reportable number reflecting the strength of the pound sterling against most currencies, particularly in the first half of the year. On a like-for-like basis, which excludes the impact of currency and acquisitions, revenue was up 1.3%.

 

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Costs of services, general and administrative costs

 

Costs of services increased by 0.7% in 2018 to £10,559.1 million from £10,481.6 million in 2017.

 

General and administrative costs increased by 14.3% to £1,242.3 million from £1,086.9 million in 2017, principally in relation to an increase in the provision for bad debts and higher IT costs.

 

Staff costs decreased by 1.6% to £6,950.6 million from £7,065.1 million. Staff costs, excluding incentives (short- and long-term incentives and cost of share-based incentives), decreased by 1.9%. Incentive payments of £311.3 million were 15.9% of headline operating profit before incentives compared with £294.8 million or 14.1% in 2017. Achievement of target, at an individual Company level, generally generates 15% of headline PBIT, excluding share of results of associates (excluding exceptional gains/losses), before bonus as an incentive pool and 20% at maximum.

 

On a like-for-like basis, the average number of people in the Group, excluding associates, in 2018 was 133,903 compared to 135,521 in 2017, a decrease of 1.2%. On the same basis, the total number of people, excluding associates, at 31 December 2018 was 134,281 compared to 135,187 at 31 December 2017, a decrease of 906 or 0.7%.

 

As outlined in the investor day on 11 December 2018, we have undertaken a strategic review of our operations. As part of that review, restructuring actions have been taken to right-size underperforming businesses, address high cost severance markets and simplify operational structures. This has included the merger of a number of WPP’s operating companies. It also includes transformation costs with respect to strategic initiatives like co-locations in major cities, IT transformation and shared services.

 

In 2018, restructuring and transformation costs of £265.5 million comprise £179.7 million of restructuring costs and £85.8 million of transformation costs with respect to strategic initiatives including co-locations in major cities, IT transformation and shared services. In the fourth quarter of 2018, £212.3 million of restructuring and transformation costs were incurred in relation to the strategic review of the Group’s operations. The remaining £53.2 million primarily relates to restructuring costs recorded in the first half of 2018 and transformation costs in relation to the IT transformation programme.

 

These exceptional costs of £265.5 million and £41.5 million of associate company exceptional losses have been partly offset by exceptional gains of £237.9 million, primarily relating to the gain on the sale of the Group’s investment in Globant S.A.

 

This gives a net exceptional loss of £69.1 million and compares with a net exceptional loss in 2017 of £49.5 million.

 

Profit before interest and taxation

 

As a result of the above, profit before interest and tax was down 23.9% to £1.276 billion from £1.676 billion. Headline PBIT was down 8.8% to £1.723 billion, from £1.890 billion.

 

Finance and investment income, finance costs and revaluation and retranslation of financial instruments

 

Finance income increased to £98.9 million in 2018 from £89.0 million in 2017. Finance costs increased to £279.1 million in 2018 from £261.9 million in 2017. Therefore, net finance costs were £180.2 million, compared with £ 172.9 million in 2017, an increase of £7.3 million. This is due to the higher dollar interest rates. Revaluation and retranslation of financial instruments resulted in a loss of £76.3 million in 2018 and a gain of £391.0 million in 2017.

 

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Taxation

 

The Group’s tax rate on profit before tax was 25.1% in 2018 against 4.4% in 2017.

 

The difference in the rate in 2017 was principally due to an exceptional tax credit in 2017, primarily relating to the re-measurement of deferred tax liabilities following US tax reform. Given the Group’s geographic mix of profits and the changing international tax environment, the tax rate is expected to increase slightly over the next few years.

 

Profit for the year

 

Profit after tax fell by 57.9% to £0.763 billion from £1.811 billion. Profits attributable to shareholders fell 59.6% to £0.698 million from £1.727 million, again reflecting principally the £265.5 million of restructuring and transformation costs and £176.5 million of goodwill impairment. Diluted earnings per share fell by 59.1% to 55.4p from 135.3p.

 

B. Liquidity and Capital Resources

 

General—The primary sources of funds for the Group are cash generated from operations and funds available under its credit facilities. The primary uses of cash funds in recent years have been for debt service and repayment, capital expenditures, acquisitions, share repurchases and cancellations and dividends. For a breakdown of the Company’s sources and uses of cash and for the Company’s liquidity risk management see the “Consolidated Cash Flow Statement” and note 26, which are included as part of the Company’s consolidated financial statements in Item 18 of this Report.

 

2019 was a foundational year for WPP’s new strategy, driving structural and cultural change: Through mergers formed Wunderman Thompson and VMLY&R to create fewer, stronger agency brands and simplified the Company with the disposal of non-core businesses – easier to manage and a better proposition for clients; Creating multi-agency Campuses worldwide to enhance collaboration and provide a better working environment; and Investing in central WPP teams such as people, technology and marketing & growth to provide greater support to operating companies. We aim to have 75,000 of our people in WPP Campuses by 2023.

 

WPP is well-capitalised and cash-generative. The disposal programme has simplified WPP and reduced debt to the lower end of target range. WPP has raised over £3.2 billion from over 50 disposals and more than 80 non-core business closures in the past two years. The Group has continued strong cash generation to fund investment. As at 31 December 2019 we had cash of £2.7 billion comprised of £11.3 billion of cash and short-term deposits and £8.6 billion of bank overdrafts. Total liquidity, including undrawn credit facilities, was £4.8 billion.

 

Funds returned to shareholders in 2019 totaled £794 million, including dividends and share buybacks. In 2019, 4.6 million shares, or 0.4% of the issued share capital, were purchased at a cost of £44 million. All of these shares were purchased in the fourth quarter.

 

The Group’s liquidity is affected primarily by the working capital flows associated with its media buying activities on behalf of clients. The working capital movements relate primarily to the Group’s billings. Billings comprise the gross amounts billed to clients in respect of commission-based/fee-based income together with the total of other fees earned. In 2019, billings were £53.1 billion, or 4.0 times the revenue of the Group. The inflows and outflows associated with media buying activity therefore represent significant cash flow within each month of the year and are forecast and re-forecast on a regular basis throughout the year by the Group’s treasury staff so as to ensure that there is continuing coverage of peak requirements through committed borrowing facilities from the Group’s bankers and other sources.

 

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Liquidity risk management—The Group manages liquidity risk by ensuring continuity and flexibility of funding even in difficult market conditions. Undrawn committed borrowing facilities are maintained in excess of peak net-borrowing levels and debt maturities are closely monitored. Targets for debt less cash position are set on an annual basis and, to assist in meeting this, working capital targets are set for all the Group’s major operations. See additional discussion on liquidity risk in note 26 to the consolidated financial statements.

 

Debt

 

The Company’s borrowings consist of bonds and revolving credit facilities, details on the Company’s borrowings are provided in note 10 to the consolidated financial statements.

 

The Group has a five-year Revolving Credit Facility of $2.5 billion due March 2024. Borrowings under the Revolving Credit Facility are governed by certain financial covenants based on the results and financial position of the Group, including requirements that (i) the interest coverage ratio for each financial period equal or exceed 5.0 to 1 and (ii) the ratio of borrowed funds to earnings before interest, taxes, depreciation and amortisation at 30 June and 31 December in each year shall not exceed 3.5 to 1, both covenants are defined in the relevant agreement. The Group is in compliance with both covenants. On 14 February 2020, the lending banks approved extending the maturity for a further year to March 2025.

 

The Group also has a one-year Revolving Credit Facility of A$150 million due June 2020 and a three-year Revolving Credit Facility of A$270 million due June 2021. Borrowings under these facilities are governed by certain financial covenants based on the results and financial position of WPP AUNZ, including requirements that (i) the interest coverage ratio for each financial period equal or exceed 4.0 to 1 and (ii) the ratio of borrowed funds to earnings before interest, taxes, depreciation and amortisation at 30 June and 31 December in each year shall not exceed 3.0 to 1, both covenants are defined in the relevant agreement. The Group is in compliance with both covenants.

 

Hedging of financial instruments—The Group’s policy on interest rate and foreign exchange rate management sets out the instruments and methods available to hedge interest and currency risk exposures and the control procedures in place to ensure effectiveness. The Group uses derivative financial instruments to reduce exposure to foreign exchange risk and interest rate movements. The Group does not hold or issue derivative financial instruments for speculative purposes.

 

In 2019, operating profit of continuing and discontinued operations was £1.580 billion, depreciation, amortisation and goodwill impairment £734 million, non-cash share-based incentive charges £71 million, working capital and provisions inflow £350 million, net interest paid £190 million, tax paid £536 million, lease liabilities (including interest) paid £355 million, capital expenditure £394 million, earnout payments £130 million and other net cash outflows £86 million. Free cash flow was, therefore, an inflow of £1.044 billion. This free cash inflow was enhanced by £2.221 billion in net cash acquisition payments and disposal proceeds (of which £1.971 billion was the Kantar disposal net of cash disposed and costs, and £250 million of net income from other disposal proceeds net of acquisition payments) and absorbed by £44 million in share buybacks and £750 million in dividends. This resulted in a net cash inflow of £2.471 billion.

 

On 31 December 2019, debt financing was £12.845 billion against £15.083 billion on 31 December 2018, a decrease of £2.238 billion. On 31 December 2019 net debt was £1.540 billion, against £4.017 billion on 31 December 2018, a decrease of £2.477 billion (a decrease of £2.313 billion at 2019 exchange rates). The reduced period end debt figure reflects the benefit of £1.971 billion proceeds in relation to the disposal of 60% of the Group’s interest in Phase 1 of the Kantar business. Average net debt in 2019 was £4.282 billion, compared to £5.025 billion in 2018, at 2019 exchange rates.

 

Refer to Item 5F for details on the Company’s material commitments for capital expenditures at 31 December 2019.

 

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Given the significant uncertainty of Covid-19 over the coming months, we are taking prudent action now to maintain our liquidity and ensure that we emerge from this global crisis strong, secure, and ready to meet the continuing needs of our clients, shareholders and other stakeholders. The Board has therefore decided to suspend the £950 million share buyback, funded by proceeds from the Kantar transaction. Since December 2019, we have completed £330 million of the programme. In addition, the Board is suspending the 2019 final dividend of 37.3 pence per share, which was due to be proposed at the 2020 AGM. These two actions together will preserve approximately £1.1 billion of cash. The Board will continue to review the status of the 2019 dividend.

 

Most of our costs are variable in nature. We have commenced a review of our costs to protect profitability, where possible, from a decline in revenue. At the same time, we want to protect our people as much as possible, as well as our ability to serve clients and grow when markets recover. The immediate actions we have taken 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.

 

We anticipate these measures will generate total in-year savings for 2020 of £700 – 800 million. In addition, we are 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.

 

We have also reviewed our capital expenditure budgets for 2020 and looked at opportunities to improve working capital. We have 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, we have a standing weekly management process to review cash outflows and receipts to monitor our position. We are continuing to work closely with our clients to ensure timely payment for the services we have provided in line with contractual commitments. On media, we are working with clients and vendors to maintain the settlement flow. Should we see any deterioration in payment from our media clients we will take appropriate action to manage our cash position.

 

Going concern

 

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Operating Results on pages 18 to 26 and Risk Factors on pages 5 to 8. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial statements and the notes to the financial statements include the company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Company’s forecasts and projections, taking account of (i) reasonably possible declines in revenue less pass through costs; and (ii) remote declines in revenue less pass-through costs for stress-testing purposes as a consequence of the Covid-19 pandemic from April 2020 onwards compared to 2019, considering the Group’s bank covenant and liquidity headroom taking into account the suspension of share buybacks and the final dividend of 2019 and cost mitigation actions which are and which could be implemented, show that the Company and the Group would be able to operate with appropriate liquidity and within its banking covenants and be able to meet its liabilities as they fall due. The Company modelled a range of revenue less pass through costs declines from 15% to over 35%. The Directors therefore have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

 

This section is included in the 2019 WPP Annual Report posted on the Company’s website at www.wpp.com/investors pursuant to UK requirements and is provided in this Form 20-F as supplemental information. This Annual Report on Form 20-F does not incorporate by reference information on the Company’s website. The 2019 WPP Annual Report will be furnished to the SEC on Form 6-K.

 

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Summarised financial information about Guarantors and Issuers of Guaranteed Securities

 

WPP Finance 2010 has in issue $500 million of 3.625% bonds due September 2022, $93 million ($28 million was repaid in 2018 and $179 million was repaid in 2019 from the $300 million initially issued) of 5.125% bonds due September 2042 and $812 million of 4.75% bonds due November 2021 (repaid in full on December 27, 2019) with WPP plc as parent guarantor and WPP Air 1, WPP 2008 Limited, WPP 2005 Limited, WPP 2012 Limited and WPP Jubilee Limited as subsidiary guarantors.

 

For the year ended 31 December 2019, £m

 

     

WPP Finance 2010

(issuer), WPP plc

and Subsidiary

Guarantors

 

Continuing operations

        

Revenue

      

Costs of services

      

Gross profit

      

Loss for the year from continuing operations

     (200.8

Loss for the year

     (200.8

 

     

WPP Finance 2010
(issuer), WPP plc

and Subsidiary
Guarantors

 

Due from Non-Guarantors-long term

     198.2  

Non-current assets

     320.1  

Due from Non-Guarantors-short term

     137.6  

Current assets

     1,215.7  

Due to Non-Guarantors-short term

     (11,310.2

Current Liabilities

     (14,377.5

Due to Non-Guarantors-long term

     (7,182.3

Non-current liabilities

     (8,490.5

 

WPP Finance 2010 has in issue $750 million of 3.750% bonds due September 2024 and $220 million ($50 million was repaid in 2018 and $230 million was repaid in 2019 from the $500 million initially issued) of 5.625% bonds due November 2043, with WPP plc as parent guarantor and WPP Jubilee Limited and WPP 2005 Limited as subsidiary guarantors.

 

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For the year ended 31 December 2019, £m

 

     

WPP Finance 2010

(issuer), WPP plc
and Subsidiary
Guarantors

 

Continuing operations

        

Revenue

      

Costs of services

      

Gross profit

      

Loss for the year from continuing operations

     (200.8

Loss for the year

     (200.8

 

     

WPP Finance 2010

(issuer), WPP plc
and Subsidiary
Guarantors

 

Due from Non-Guarantors-long term

     198.2  

Non-current assets

     320.1  

Due from Non-Guarantors-short term

     310.7  

Current assets

     1,384.9  

Due to Non-Guarantors-short term

     (11,310.9

Current Liabilities

     (14,378.1

Due to Non-Guarantors-long term

     (7,182.3

Non-current liabilities

     (8,490.5

 

The issuer and guarantors of the bonds (issuer and subsidiary guarantors are 100% owned by WPP plc) are consolidated subsidiaries of WPP plc and are each subject to the reporting requirements under section 15(d) of the Securities Exchange Act of 1934. The summarized financial information for WPP Finance 2010 and the guarantors is presented on a combined basis and prepared in accordance with IFRS as issued by the IASB and is intended to provide investors with meaningful financial information, and is provided pursuant to the early adoption of Rule 13-01 of Regulation S-X which allows for alternative financial disclosures or narrative disclosures in lieu of the separate financial statements of WPP Finance 2010 and the guarantors. The financial information presented is that of the issuers and guarantors of the guaranteed security, and the financial information of non-issuer and non-guarantor subsidiaries has been excluded.

 

In the event that WPP Finance 2010 fails to pay the holders of the securities, thereby requiring WPP plc, WPP Air 1, WPP 2008 Limited, WPP 2005 Limited, WPP 2012 Limited or WPP Jubilee Limited to make payment pursuant to the terms of their full and unconditional, and joint and several guarantee of those securities, there is no impediment to WPP plc, WPP Air 1, WPP 2008 Limited, WPP 2005 Limited, WPP 2012 Limited or WPP Jubilee Limited obtaining reimbursement for any such payments from WPP Finance 2010.

 

C. Research and Development, Patents and Licenses, etc.

 

Not applicable.

 

D. Trend Information

 

The discussion below and in the rest of this Item 5 includes forward-looking statements regarding plans, objectives, projections and anticipated future performance based on assumptions that are subject to risks and uncertainties. As such, actual results or outcomes may differ materially from those discussed in the forward-looking statements. See “Forward-Looking Statements” preceding Item 1 in this annual report.

 

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It is clear that the impact of Covid-19 on the business will be significant but it is not possible at this stage to quantify the depth or duration of the impact. As a result, we have withdrawn our previously issued guidance for the 2020 financial year.

 

Revenue from continuing operations in the first quarter of 2020 was £2.847 billion, down 4.9% compared with the same period last year on a reported basis and down 4.6% on a constant currency basis. Like-for-like revenue was down 3.8% compared with last year.

 

E. Off-Balance Sheet Arrangements

 

None.

 

F. Tabular Disclosure of Contractual Obligations

 

The following summarises the Company’s estimated contractual obligations at 31 December 2019, and the effect such obligations are expected to have on its liquidity and cash flows in the future periods. Certain obligations presented below held by one subsidiary of the Company may be guaranteed by another subsidiary in the ordinary course of business.

 

              Payments due in  
£m    Total      2020      2021      2022      2023      2024     

Beyond

2024

 

Debt financing under the Revolving Credit Facility and in relation to unsecured loan notes1

 

Eurobonds

     2,624.2        211.6               211.6        634.9               1,566.1  

Sterling bonds

     400.0                                           400.0  

US$ bonds

     1,178.3                      377.0               565.5        235.8  

Bank revolvers

     101.7        5.3        96.4                              

Subtotal

     4,304.2        216.9        96.4        588.6        634.9        565.5        2,201.9  

Interest payable

     1,039.1        107.9        107.6        103.5        91.4        68.7        560.0  

Total

     5,343.3        324.8        204.0        692.1        726.3        634.2        2,761.9  

Lease liabilities2

     3,002.5        385.9        384.0        335.4        283.0        220.5        1,393.7  

Capital commitments3

     165.0        107.3        22.7        2.4        32.6                

Investment commitments3

     21.8        21.8                                     

Financial derivatives

     21.5        4.8        6.6        5.6        5.5        5.5        (6.5

Estimated obligations under acquisition earnouts and put option agreements

     448.3        219.1        51.8        80.5        29.6        32.6        34.7  

Total contractual obligations

     9,002.4        1,063.7        669.1        1,116.0        1,077.0        892.8        4,183.8  

 

1    

In addition to debt financing under the Revolving Credit Facility and in relation to unsecured loan notes, the Company had short-term overdrafts at 31 December 2019 of £8,572.4 million. The Group’s net debt at 31 December 2019 was £1,539.6 million and is analysed in Item 5B.

2   

In addition to the lease liabilities, the total committed future cash flow for leases not yet commenced at 31 December 2019 is £558.0 million. In 2019, variable lease expenses were £74.2 million which primarily include real estate taxes and insurance costs.

3   

Capital and investment commitments include commitments contracted, but not provided for in respect of property, plant and equipment and in respect of interests in associates and other investments, respectively.

 

The Company expects to make annual contributions to its funded defined benefit plans, as determined in line with local conditions and practices. Contributions in respect of unfunded plans are paid as they fall due. The total contributions (for funded plans) and benefit payments (for unfunded plans) paid for 2019 amounted to £37.1 million (2018: £44.9 million, 2017: £68.2 million). Employer contributions and benefit payments in 2020 are expected to be approximately £25 million. Projections for years after 2020 are subject to a number of factors, including future asset performance and changes in assumptions which mean the Company is unable to make sufficiently reliable estimations of future contributions.

 

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Table of Contents

Non-GAAP Information

 

As introduced on page 10, the following metrics are the Group’s Non-GAAP measures.

 

Constant currency

 

The Company’s reporting currency is the UK pound sterling. However, the Company’s significant international operations give rise to fluctuations in foreign exchange rates. To neutralize foreign exchange impact and illustrate the underlying change in revenue, profit and other relevant financial statement line items from one year to the next, the Company has adopted the practice of discussing results in both reportable currency (local currency results translated into pounds sterling at the prevailing foreign exchange rate) and constant currency.

 

The Group uses US dollar-based, constant currency models to measure performance. These are calculated by applying budgeted 2019 exchange rates to local currency reported results for the current and prior year. This gives a US dollar-denominated income statement which excludes any variances attributable to foreign exchange rate movements.

 

Pro-forma (‘like-for-like’)

 

Management believes that discussing like-for-like contributes to the understanding of the Company’s performance and trends because it allows for meaningful comparisons of current year to that of prior years.

 

Pro-forma comparisons are calculated as follows: current year, constant currency actual results (which include acquisitions from the relevant date of completion) are compared with prior year, constant currency actual results, adjusted to include the results of acquisitions for the commensurate period in the prior year. The Group uses the terms ‘pro-forma’ and ‘like-for-like’ interchangeably.

 

The following table reconciles reported revenue growth for 2019 and 2018 to like-for-like revenue for the same period.

 

Continuing operations    Revenue  
      £m         

2017 Reportable1

     13,146          

Impact of exchange rate changes

     (372     (2.9%

Changes in scope of consolidation

     103       0.8%  

Like-for-like growth

     170       1.3%  

2018 Reportable1

     13,047       (0.8%

Impact of exchange rate changes

     165       1.2%  

Changes in scope of consolidation

     22       0.2%  

Like-for-like growth

            

2019 Reportable

     13,234       1.4%  

1  Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements.

   

 

Headline operating profit

 

Headline operating profit is one of the measures that management uses to assess the performance of the business.

 

Headline operating profit is calculated as operating profit before gains/losses on disposal of investments and subsidiaries, investment write-downs, goodwill impairment and other goodwill write-downs, amortisation and impairment of acquired intangible assets, restructuring and transformation costs, litigation settlement, gain on sale of freehold property in New York and gains/losses on remeasurement of equity interests arising from a change in scope of ownership.

 

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A tabular reconciliation of operating profit to headline operating profit is provided in note 32 to the consolidated financial statements.

 

Headline PBIT

 

Headline PBIT is one of the metrics that management uses to assess the performance of the business.

 

Headline PBIT is calculated as profit before finance income/costs and revaluation and retranslation of financial instruments, taxation, gains/losses on disposal of investments and subsidiaries, investment write-downs, goodwill impairment and other goodwill write-downs, amortisation and impairment of acquired intangible assets, restructuring and transformation costs, litigation settlement, gain on sale of freehold property in New York, share of exceptional gains/losses of associates and gains/losses on remeasurement of equity interests arising from a change in scope of ownership.

 

A tabular reconciliation of profit before interest and taxation to headline PBIT is shown below.

 

Continuing operations    Year ended 31 December  
     

20191

£m

   

20182

£m

   

20172

£m

 

Profit before interest and taxation

     1,310.6       1,275.8       1,675.9  

Amortisation and impairment of acquired intangible assets

     121.5       201.8       138.0  

Goodwill impairment

     47.7       176.5       27.1  

Gains on disposal of investments and subsidiaries

     (40.4     (237.9     (98.7

(Gains)/losses on remeasurement of equity interests arising from a change in scope of ownership

     (0.4     (2.0     0.3  

Investment write-downs

     7.5       2.0       91.7  

Restructuring and transformation costs

     153.5       265.5       56.8  

Share of exceptional losses/(gains) of associates

     47.8       41.5       (0.6

Litigation settlement

     (16.8            

Gain on sale of freehold property in New York

     (7.9            

Headline PBIT

     1,623.1       1,723.2       1,890.5  

1  The impact of the adoption of IFRS 16 Leases from 1 January 2019 is described in the accounting policies section of the consolidated financial statements. No restatement has been made in prior years.

2  Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements.

   

   

 

Headline PBT

 

Headline PBT is one of the metrics that management uses to assess the performance of the business.

 

Headline PBT is calculated as profit before taxation, gains/losses on disposal of investments and subsidiaries, investment write-downs, goodwill impairment and other goodwill write-downs, amortisation and impairment of acquired intangible assets, restructuring and transformation costs, litigation settlement, gain on sale of freehold property in New York, share of exceptional gains/losses of associates, gains/losses arising from the revaluation and retranslation of financial instruments, and gains/losses on remeasurement of equity interests arising from a change in scope of ownership.

 

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A tabular reconciliation of profit before taxation to headline PBT is shown below.

 

Continuing operations    Year ended 31 December  
     

20191,2

£m

   

20181,3

£m

   

20171,3

£m

 

Profit before taxation

     1,214.3       1,019.3       1,894.0  

Amortisation and impairment of acquired intangible assets

     121.5       201.8       138.0  

Goodwill impairment

     47.7       176.5       27.1  

Gains on disposal of investments and subsidiaries

     (40.4     (237.9     (98.7

(Gains)/losses on remeasurement of equity interests arising from a change in scope of ownership

     (0.4     (2.0     0.3  

Investment write-downs

     7.5       2.0       91.7  

Restructuring and transformation costs

     153.5       265.5       56.8  

Share of exceptional losses/(gains) of associates

     47.8       41.5       (0.6

Litigation settlement

     (16.8            

Gain on sale of freehold property in New York

     (7.9            

Revaluation and retranslation of financial instruments

     (163.8     76.3       (391.0

Headline PBT

     1,363.0       1,543.0       1,717.6  

1  Figures have been restated to be in accordance with IAS 39 Financial Instruments: Recognition and Measurement, as described in the accounting policies of the consolidated financial statements.

2  The impact of the adoption of IFRS 16 Leases from 1 January 2019 is described in the accounting policies section of the consolidated financial statements. No restatement has been made in prior years.

3  Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements.

   

   

   

 

Billings

 

Billings is one of the metrics that management uses to assess the performance of the business.

 

Billings comprise the gross amounts billed to clients in respect of commission-based/fee-based income together with the total of other fees earned.

 

Free cash flow

 

The Group bases its internal cash flow objectives on free cash flow. Management believes free cash flow is meaningful to investors because it is the measure of the Company’s funds available for acquisition related payments, dividends to shareholders, share repurchases and debt repayment. The purpose of presenting free cash flow is to indicate the ongoing cash generation within the control of the Group after taking account of the necessary cash expenditures of maintaining the capital and operating structure of the Group (in the form of payments of interest, corporate taxation and capital expenditure). This computation may not be comparable to that of similarly titled measures presented by other companies.

 

Free cash flow is calculated as net cash flow from operating activities plus proceeds from the issue of shares and payments on early settlement of bonds, less earnout payments, purchases of property, plant and equipment, purchases of other intangible assets, repayment of lease liabilities and dividends paid to non-controlling interests in subsidiary undertakings.

 

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A tabular reconciliation of net cash inflow from operating activities to free cash flow is shown below.

 

      Year ended 31 December  
     

2019

£m

   

20181

£m

   

20171

£m

 

Net cash inflow from operating activities

     1,850.5       1,693.8       1,408.1  

Payment on early settlement of bonds

     63.4              

Share option proceeds

     0.6       1.2       6.4  

Earnout payments

     (130.2     (120.2     (199.1

Purchases of property, plant and equipment

     (339.3     (314.8     (288.9

Purchases of other intangible assets (including capitalised computer software)

     (54.8     (60.4     (37.3

Repayment of lease liabilities

     (249.8            

Dividends paid to non-controlling interests in subsidiary undertakings

     (96.2     (106.2     (87.8

Free cash flow

     1,044.2       1,093.4       801.4  

1  Prior year free cash flow have been re-presented to exclude proceeds on disposal of property, plant, and equipment.

   

 

Net debt and average net debt

 

Management believes that net debt and average net debt are appropriate and meaningful measures of the debt levels within the Group. This is because of the seasonal swings in our working capital generally, and those resulting from our media buying activities on behalf of our clients in particular, together with the fact that we choose for commercial reasons to locate the debt of the Group in particular countries and leave cash resources in others—though our cash resources could be used to repay the debt concerned.

 

Net debt at a period end is calculated as the sum of the net borrowings of the Group, derived from the cash ledgers and accounts in the balance sheet. Average net debt is calculated as the average daily net borrowings of the Group. Net debt excludes lease liabilities.

 

The following table is an analysis of net debt:

 

     

20191

£m

   

20181

£m

   

20171

£m

 

Cash and short-term deposits

     11,305.7       11,065.8       11,851.0  

Bank overdraft, bonds and bank loans due within one year

     (8,798.0     (9,447.7     (10,083.7

Bonds and bank loans due after one year

     (4,047.3     (5,634.8     (6,250.4

Net debt

     (1,539.6     (4,016.7     (4,483.1

1  Figures have been restated to be in accordance with IAS 32 Financial Instruments: Presentation, as described in the accounting policies section of the consolidated financial statements.

   

 

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Use of Estimates

 

The preparation of consolidated financial statements requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

 

Critical Accounting Policies

 

The Company’s consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. A summary of the Group’s principal accounting policies is provided in the Accounting Policies section of the consolidated financial statements. The Company believes certain of these accounting policies are particularly critical to understand the more significant judgements and estimates used in the preparation of its consolidated financial statements. Therefore, we have prepared the following supplemental discussion of critical accounting policies, which should be read together with our consolidated financial statements and notes thereto.

 

Goodwill and other intangibles

 

The Company has a significant amount of goodwill and other intangible assets. In accordance with the Group’s accounting policy, the carrying values of goodwill and intangible assets with indefinite useful lives are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

 

The impairment review is undertaken annually on 30 September. Under IFRS, an impairment charge is required for both goodwill and other indefinite-lived assets when the carrying amount exceeds the ‘recoverable amount’, defined as the higher of fair value less costs to sell and value in use. The review assessed whether the carrying value of goodwill and intangible assets with indefinite useful lives was supported by the value in use determined as the net present value of future cash flows.

 

Due to a significant number of cash-generating units, the impairment test was performed in two steps. In the first step, the recoverable amount was calculated for each cash-generating unit using a conservative pre-tax discount rate, which was above the range of rates calculated for each of the global networks, and assumed a long-term growth rate of 3.0% (2018: 3.0%). For smaller cash-generating units that operate primarily in a particular region where we calculated a discount rate to be higher than the conservative rate, that higher discount rate was used in the impairment test. Management have made the judgement that the long-term growth rate does not exceed the long-term average growth rate for the industry.

 

The recoverable amount was then compared to the carrying amount. Cash-generating units where the recoverable amount exceeded the carrying amount by a considerable margin were not considered to be impaired. Those cash-generating units where the recoverable amount did not exceed the carrying amount or where the recoverable amount exceeded the carrying amount by less than 25% were then further reviewed in the second step.

 

In the second step, the cash-generating units were retested for impairment using more specific assumptions. This included using a cash-generating unit specific pre-tax discount rate and management forecasts for a projection period of up to five years, followed by an assumed long-term growth rate. If the recoverable amount using the more specific assumptions did not exceed the carrying value of a cash-generating unit, an impairment charge was recorded.

 

Pre-tax discount rates were calculated for the geographic regions in which the cash-generating units operate based on market assessments of the weighted average cost of capital. These assessments considered the time-value of money and risks specific to the asset for which the future cash flow estimates had not been adjusted.

 

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Discount rates for each of the cash generating units that operate globally were based on a weighting of the regional rates by its geographic distribution of cash flows. As stated above, the cash-generating units were initially tested for impairment in the first step above the range using a conservative discount rate.

 

Our approach in determining the recoverable amount utilises a discounted cash flow methodology, which necessarily involves making numerous estimates and assumptions regarding revenue growth, operating margins, appropriate discount rates and working capital requirements. The key assumptions used for estimating cash flow projections in the Group’s impairment testing are those relating to revenue growth and operating margin. The key assumptions take account of the businesses’ expectations for the projection period. These expectations consider the macroeconomic environment, industry and market conditions, the unit’s historical performance and any other circumstances particular to the unit, such as business strategy and client mix.

 

These estimates will likely differ from future actual results of operations and cash flows, and it is possible that these differences could be material. In addition, judgements are applied in determining the level of cash-generating unit identified for impairment testing and the criteria used to determine which assets should be aggregated. A difference in testing levels could affect whether an impairment is recorded and the extent of impairment loss.

 

Changes in our business activities or structure may also result in additional changes to the level of testing in future periods. Further, future events could cause the Group to conclude that impairment indicators exist and that the asset values associated with a given operation have become impaired. The recoverable amount of goodwill represents valuations as at 31 December 2019 and does not consider the impact of the emergence and spread of the Covid-19 virus. Given the adverse impact of the Covid-19 pandemic on the global economy and the likely revenue declines that are expected as a result, there is an increased likelihood of impairments to goodwill and other indefinite lived intangible assets in future reporting periods. At the current time, given the level of uncertainty, such impact has not been quantified and any resulting impairment loss could have a material impact on the Group’s financial condition and results of operations.

 

Historically our impairment losses have resulted from a specific event, condition or circumstance in one of our companies, such as the loss of a significant client. As a result, changes in the assumptions used in our impairment model have not had a significant effect on the impairment charges recognised and a reasonably possible change in assumptions would not lead to a significant impairment. The carrying value of goodwill and other intangible assets will continue to be reviewed at least annually for impairment and adjusted down to the recoverable amount if required.

 

Acquisition accounting

 

The Group accounts for acquisitions in accordance with IFRS 3 ‘Business Combinations’. IFRS 3 requires the acquiree’s identifiable assets, liabilities and contingent liabilities (other than non-current assets or disposal groups held for sale) to be recognised at fair value at acquisition date. In assessing fair value at acquisition date, management make their best estimate of the likely outcome where the fair value of an asset or liability may be contingent on a future event. In certain instances, the underlying transaction giving rise to an estimate may not be resolved until some years after the acquisition date. IFRS 3 requires the release to profit of any acquisition reserves which subsequently become excess in the same way as any excess costs over those provided at acquisition date are charged to profit. At each period end, management assess provisions and other balances established in respect of acquisitions for their continued probability of occurrence and amend the relevant value accordingly through the consolidated income statement or as an adjustment to goodwill as appropriate under IFRS 3. Goodwill arising from acquisitions represents the value of synergies with our existing portfolio of businesses and skilled staff to deliver services to our clients.

 

Future anticipated payments to vendors in respect of contingent consideration (earnout agreements) are initially recorded at fair value which is the present value of the expected cash outflows of the obligations. The obligations

 

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are dependent on the future financial performance of the interests acquired (typically over a four- to five-year period following the year of acquisition) and assume the operating companies improve profits in line with Directors’ estimates. The Directors derive their estimates from internal business plans together with financial due diligence performed in connection with the acquisition. Subsequent adjustments to the fair value are recorded in the consolidated income statement within revaluation and retranslation of financial instruments. A summary of earnout related obligations included in trade and other payables is shown in note 20 to the consolidated financial statements.

 

WPP has also entered into option agreements that allow the Group’s equity partners to require the Group to purchase a non-controlling interest. These agreements are treated as derivatives over equity instruments and are recorded in the consolidated balance sheet initially at the present value of the redemption amount in accordance with IAS 32 Financial Instruments: Presentation and subsequently measured at fair value in accordance with IFRS 9 Financial Instruments. The movement in the fair value is recognised as income or expense within revaluation and retranslation of financial instruments in the consolidated income statement.

 

Actual performance may differ from the assumptions used resulting in amounts ultimately paid out with respect to these earnout and option agreements at more or less than the recorded liabilities. Estimates are required regarding growth rates in deriving future financial performance and discount rates to be applied when measuring the liabilities for earnout and option agreements. The assumptions and sensitivity to changes in these assumptions is shown in note 27 to the consolidated financial statements.

 

Revenue recognition

 

The Group is a leading worldwide creative transformation organisation offering national and multinational clients a comprehensive range of communications, experience, commerce and technology services. Contracts often involve multiple agencies offering different services in different countries. As such, the terms of local, regional and global contracts can vary to meet client needs and regulatory requirements. Consistent with the industry, contracts are typically short-term in nature and tend to be cancellable by either party with 90 days’ notice.

 

The Group is generally entitled to payment for work performed to date. The Group is generally paid in arrears for its services. Invoices are typically payable within 30 to 60 days. Revenue comprises commissions and fees earned in respect of amounts billed and is stated exclusive of VAT, sales taxes and trade discounts. Pass-through costs comprise fees paid to external suppliers when they are engaged to perform part or all of a specific project and are charged directly to clients, predominantly media and data collection costs. Costs to obtain a contract are typically expensed as incurred as the contracts are generally short-term in nature.

 

In most instances, promised services in a contract are not considered distinct or represent a series of services that are substantially the same with the same pattern of transfer to the customer and, as such, are accounted for as a single performance obligation. However, where there are contracts with services that are capable of being distinct, are distinct within the context of the contract, and are accounted for as separate performance obligations, revenue is allocated to each of the performance obligations based on relative standalone selling prices.

 

Revenue is recognised when a performance obligation is satisfied, in accordance with the terms of the contractual arrangement. Typically, performance obligations are satisfied over time as services are rendered. Revenue recognised over time is based on the proportion of the level of service performed. Either an input method or an output method, depending on the particular arrangement, is used to measure progress for each performance obligation. For most fee arrangements, costs incurred are used as an objective input measure of performance. The primary input of substantially all work performed under these arrangements is labour. There is normally a direct relationship between costs incurred and the proportion of the contract performed to date. In other circumstances relevant output measures, such as the achievement of any project milestones stipulated in the contract, are used to assess proportional performance.

 

For our retainer arrangements, we have a stand ready obligation to perform services on an ongoing basis over the life of the contract. The scope of these arrangements are broad and generally are not reconcilable to another input

 

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or output criteria. In these instances, revenue is recognised using a time-based method resulting in straight-line revenue recognition.

 

The amount of revenue recognised depends on whether we act as an agent or as a principal. Certain arrangements with our clients are such that our responsibility is to arrange for a third party to provide a specified good or service to the client. In these cases we are acting as an agent as we do not control the relevant good or service before it is transferred to the client. When we act as an agent, the revenue recorded is the net amount retained. Costs incurred with external suppliers (such as production costs and media suppliers) are excluded from revenue and recorded as work in progress until billed.

 

The Group acts as principal when we control the specified good or service prior to transfer. When the Group acts as a principal (such as when supplying in-house production services, events and branding), the revenue recorded is the gross amount billed. Billings related to out-of-pocket costs such as travel are also recognised at the gross amount billed with a corresponding amount recorded as an expense. Further details on revenue recognition are detailed by sector below:

 

Global Integrated Agencies

 

Revenue is typically derived from integrated product offerings including media placements and creative services. Revenue may consist of various arrangements involving commissions, fees, incentive-based revenue or a combination of the three, as agreed upon with each client. Revenue for commissions on purchased media is typically recognised at the point in time the media is run.

 

The Group receives volume rebates from certain suppliers for transactions entered into on behalf of clients that, based on the terms of the relevant contracts and local law, are either remitted to clients or retained by the Group. If amounts are passed on to clients they are recorded as liabilities until settled or, if retained by the Group, are recorded as revenue when earned.

 

Variable incentive-based revenue typically comprises both quantitative and qualitative elements. Incentive compensation is estimated using the most likely amount and is included in revenue up to the amount that is highly probable not to result in a significant reversal of cumulative revenue recognised. The Group recognises incentive revenue as the related performance obligation is satisfied.

 

Public Relations and Specialist Agencies

 

Revenue for these services is typically derived from retainer fees and fees for services to be performed subject to specific agreement. Most revenue under these arrangements is earned over time, in accordance with the terms of the contractual arrangement.

 

Discontinued Operations (Data Investment Management)

 

Revenue for market research services is typically recognised over time based on input measures. For certain performance obligations, output measures such as the percentage of interviews completed, percentage of reports delivered to a client and the achievement of any project milestones stipulated in the contract are used to measure progress. While most of the studies provided in connection with the Group’s market research contracts are undertaken in response to an individual client’s or group of clients’ specifications, in certain instances a study may be developed as an off-the-shelf product offering sold to a broad client base. For these transactions, revenue is recognised when the product is delivered. When the terms of the transaction provide for licensing the right to access a product on a subscription basis, revenue is recognised over the subscription period, typically on a straight-line basis.

 

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Deferred consideration on the Kantar disposal

 

As per the terms of the Kantar disposal, deferred consideration consisted of amounts expected to be received in future periods on satisfaction of certain conditions and the deferral of consideration against services to be provided to Kantar in the future, as detailed in note 12 to the consolidated financial statement. Estimates are required in determining amounts to be received and the value of services to be provided, taking into account uncertainty in the ultimate timing and resolution of each of these. The sensitivity to these estimates is specific to each individual circumstance and no individual estimate is expected to result in a material change to the amount recognised.

 

Non-current assets held for sale and discontinued operations

 

Under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations where certain conditions are met, an asset or disposal group that is for sale should be recognised as “held for sale”. An entity should classify a disposal group as held for sale if the carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale must be highly probable. Such assets are measured at the lower of carrying amount and fair value less costs to sell, and are not depreciated or amortised, excluding certain assets that are carried at fair value under IFRS 5. Furthermore, when an associate is classified as held for sale, equity accounting ceases.

 

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The profit or loss from a discontinued operation is shown as a single amount on the face of the income statement and the comparatives and related notes restated accordingly. This represents total post-tax profit of the disposal group for the whole of the financial year including any post-tax gain or loss on the measurement of fair value less costs to sell, as well as the post-tax loss on sale of the disposal group. Assets and liabilities classified as held for sale are shown as a separate line on the balance sheet.

 

Retirement benefit costs

 

Pension costs are assessed in accordance with the advice of local independent qualified actuaries. The latest full actuarial valuations for the various plans were carried out at various dates in the last three years. These valuations have been updated by the local actuaries to 31 December 2019.

 

The Group’s policy is to close existing defined benefit plans to new members. This has been implemented across a significant number of pension plans. As a result, these plans generally have an ageing membership population. In accordance with IAS 19, Defined Benefit Plans, the actuarial calculations have been carried out using the projected unit credit method. In these circumstances, use of this method implies that the contribution rate implicit in the current service cost will increase in future years.

 

There are a number of areas in the pension accounting that involve judgements made by management based on the advice of qualified advisors. These include establishing the discount rates, rate of increase in salaries and pensions in payment, inflation and mortality assumptions. A sensitivity analysis for each significant actuarial assumption is shown in note 24 to the consolidated financial statements.

 

Most of the Group’s pension plan assets are held by its plans in the UK and North America. Management considers the types of investment classes in which the pension plan assets are invested. The types of investment classes are determined by economic and market conditions and in consideration of specific asset class risk.

 

Management periodically commissions detailed asset and liability studies performed by third-party professional investment advisors and actuaries that generate probability-adjusted expected future returns on those assets.

 

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These studies also project the estimated future pension payments and evaluate the efficiency of the allocation of the pension plan assets into various investment categories.

 

Taxation

 

Corporate taxes are payable on taxable profits at current rates. The tax expense represents the sum of the tax currently payable and deferred tax.

 

The Group is subject to corporate taxes in a number of different jurisdictions and judgement is required in determining the appropriate provision for transactions where the ultimate tax determination is uncertain. In such circumstances, the Group recognises liabilities for anticipated taxes based on the best information available and where the anticipated liability is both probable and estimable, liabilities are classified as current. Any interest and penalties accrued are included in corporate income taxes both in the consolidated income statement and balance sheet. Where the final outcome of such matters differs from the amount recorded, any differences may impact the income tax and deferred tax provisions in the period in which the final determination is made.

 

We record deferred tax assets and liabilities using tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on enacted, or substantively enacted legislation, for the effect of temporary differences between book and tax bases of assets and liabilities. Currently we have deferred tax assets resulting from operating loss carryforwards and deductible temporary differences, all of which could reduce taxable income in the future. The main factors that we consider include:

 

   

the future earnings potential determined through the use of internal forecasts;

 

   

the cumulative losses in recent years;

 

   

the various jurisdictions in which the potential deferred tax assets arise;

 

   

the history of losses carried forward and other tax assets expiring;

 

   

the timing of future reversal of taxable temporary differences;

 

   

the expiry period associated with the deferred tax assets; and

 

   

the nature of the income that can be used to realise the deferred tax asset.

 

If it is probable that some portion of these assets will not be realised, then no asset is recognised in relation to that portion.

 

If market conditions improve and future results of operations exceed our current expectations, our existing recognised deferred tax assets may be adjusted, resulting in future tax benefits. Alternatively, if market conditions deteriorate further or future results of operations are less than expected, future assessments may result in a determination that some or all of the deferred tax assets are not realisable. As a result, all or a portion of the deferred tax assets may need to be reversed.

 

New IFRS Accounting Pronouncements

 

See page F-5 of the consolidated financial statements for a description of new IFRS accounting pronouncements.

 

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ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Senior Management

 

The Directors and Executive Officers of the Company are as follows:

 

Roberto Quarta, Age 70: Chairman. Roberto Quarta was appointed as a Director on 1 January 2015 and became Chairman on 9 June 2015. Roberto has extensive and diverse experience in corporate governance and global commerce. He is Partner and Chairman of Clayton, Dubilier & Rice Europe, a private equity firm, which allows him to bring valuable perspective to WPP, particularly when evaluating acquisitions and new business opportunities. Roberto has an in-depth understanding of differing global governance requirements having served on the boards of a number of UK and international companies, including as Chairman of BBA Group plc, IMI plc and Rexel SA and as Non-Executive Director of BAE Systems plc, Equant NV and Foster Wheeler AG.

 

Other current appointments: Chairman, Smith & Nephew plc.

 

Mark Read, Age 53: Chief Executive Officer. Mark Read was appointed as an Executive Director and Chief Executive Officer on 3 September 2018. Mark has held multiple leadership positions at WPP, having first joined the Company in 1989. As Head of Strategy and then CEO of WPP Digital he was responsible for WPP’s first moves into technology. Earlier in his career, he co-founded internet start-up WebRewards and specialised in media and marketing as a principal at consultancy Booz Allen & Hamilton. In 2015, he became Global CEO of Wunderman, which he transformed into one of the world’s leading creative, data and technology agencies. Mark is regularly named among the world’s top digital influencers. He is the Chairman of the Natural History Museum Digital Council and was recognised as a HERoes Champion of Women in Business in 2018 and 2019.

 

Paul Richardson, Age 62: Group Finance Director. Paul Richardson became Group Finance Director of WPP in 1996 after four years as Director of Treasury. Paul is responsible for the Company’s worldwide functions in finance, information technology, procurement, property, treasury, taxation, internal audit and sustainability. Paul is a chartered accountant and fellow of the Association of Corporate Treasurers. Paul will retire from the Board on 1 May 2020.

 

Nicole Seligman, Age 63: Senior Independent Director, Non-Executive Director. Nicole Seligman was appointed as a Director on 1 January 2014. Nicole is a global business leader and an internationally recognised lawyer. She brings to the Board analytical skills, in-depth knowledge of public company corporate governance and a comprehensive understanding of media and business issues. Nicole was previously President of Sony Entertainment, Inc. and global General Counsel for Sony Corporation. Prior to that, as a partner at law firm Williams & Connolly, Nicole represented key public figures and major media and other companies in complex litigation.

 

Other current appointments: Non-Executive Director, ViacomCBS Inc. Non-Executive Director, Far Point Acquisition Corporation. Non-Executive Director, MeiraGTx Holdings plc.

 

Jacques Aigrain, Age 65: Non-Executive Director. Jacques Aigrain was appointed as a Director on 13 May 2013. Jacques brings business, corporate finance and governance expertise to his role on the Board of WPP. Currently a Senior Advisor at Warburg Pincus LLP, from 2001 to 2009 he was a member of the Executive Committee of Swiss Re AG. Prior to Swiss Re, he spent 20 years with JPMorgan Chase. Jacques was previously Chairman of LCH Clearnet Group Ltd, a Director of the Qatar Financial Center Authorities and a Supervisory Board Member of Lufthansa AG and Swiss International Airlines AG.

 

Other current appointments: Chairman, LyondellBasell NV. Non-Executive Director, London Stock Exchange Group plc. Chairman, Singular SAU.

 

Tarek Farahat, Age 55: Non-Executive Director. Tarek Farahat was appointed as a Director on 11 October 2016. Tarek has extensive leadership and brand-building experience gained in leading businesses in the

 

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Americas, Europe, Middle East and Africa. He worked for Procter & Gamble for over 26 years in Europe, the Middle East and Latin America, leading multi-billion-dollar businesses for the company. His last position at Procter & Gamble was President of Procter & Gamble Latin America and member of the Global Leadership Council. Tarek was previously Chairman of the board of JBS S.A. and a board member of Pilgrims Pride Corporation and Alpargatas. Tarek is currently a strategic advisor, consultant and partner for companies in the consumer goods and healthcare sectors.

 

Sir John Hood, Age 68: Non-Executive Director. Sir John Hood was appointed as a Director on 1 January 2014. Sir John brings deep knowledge and experience of international business to the Board, and provides analytical rigour arising from his leadership roles in higher education and research. He has held advisory roles for the New Zealand and British governments and has served as a Non-Executive Director of British and New Zealand based enterprises. He was formerly Vice Chancellor of the University of Oxford and the University of Auckland.

 

Other current appointments: President and CEO, Robertson Foundation. Non-Executive Director, Aurora Energy Research. Non-Executive Director, The Blackstone Group Inc.

 

Daniela Riccardi, Age 60: Non-Executive Director. Daniela Riccardi was appointed as a Director on 12 September 2013. A senior FMCG, retail and fashion products executive, Daniela is a recognised leader in business development and branding. She is currently CEO of Baccarat, the international luxury goods company, and was previously CEO of Diesel Group. Daniela has substantial global business experience, having spent 25 years at Procter & Gamble in senior management roles around the world – including Vice President of Procter & Gamble Colombia, Mexico and Venezuela, Vice President and General Manager of Procter & Gamble Eastern Europe & Russia and President of Procter & Gamble Greater China.

 

Other current appointments: CEO, Baccarat. Non-Executive Director, Kering. Non-Executive Director, Comité Colbert.

 

Cindy Rose OBE, Age 54: Non-Executive Director. Cindy Rose was appointed as a Director on 1 April 2019. A high-profile leader in the technology and media sectors, Cindy has a deep understanding of the role of technology in business transformation. As Microsoft UK CEO since 2016, she is responsible for Microsoft’s product, service and support offerings across the UK. Prior to Microsoft, she was Managing Director of the UK Consumer division at Vodafone where she led the expansion of its retail store estate from 350 to over 500 stores. Before Vodafone, Cindy was Executive Director of Digital Entertainment at Virgin Media. She also spent 15 years at The Walt Disney Company, ultimately as SVP & Managing Director of Disney Interactive Media Group.

 

Sally Susman, Age 58: Non-Executive Director. Sally Susman was appointed as a Director on 13 May 2013. Sally brings expertise in communications, public affairs, governance and strategy to the Board. She is Executive Vice President, Chief Corporate Affairs Officer for Pfizer, the world’s largest biopharmaceutical company. She also heads Pfizer’s corporate responsibility group and plays a key role in shaping policy initiatives. Before joining Pfizer in 2007, Sally was EVP of Global Communications at Estée Lauder, where she directed global corporate affairs strategy and served as a member of the Executive Committee. Sally previously held several senior corporate affairs posts at American Express, in both London and the United States.

 

Other current appointments: Co-Chair, International Rescue Committee.

 

Solomon D. (Sol) Trujillo, Age 68: Non-Executive Director. Solomon D. (Sol) Trujillo was appointed as a Director on 12 October 2010. An international business executive with three decades of leading high-cap global companies in the United States, Europe and Asia Pacific, Sol has wide board and corporate governance experience in the technology, media and digital sectors. Sol has managed operations in over 25 countries from Europe and North America to China, Australasia, Africa and the Middle East. He is a Senior Advisor to Bain & Company and Chairman of Trujillo Group LLC, which manages investments and examines emerging trends in the broader digital space.

 

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Other current appointments: Director, Western Union. Chairman, Silk Road Telecommunications.

 

Keith Weed, Age 58: Non-Executive Director. Keith Weed was appointed as a Director on 1 November 2019. Keith has a deep understanding of WPP’s business, the ways in which technology is transforming marketing and the sectors in which WPP operates. Keith was named the World’s Most Influential Chief Marketing Officer by Forbes in 2017, 2018 and 2019, and Global Marketer of the Year 2017 by the World Federation of Advertisers. He received The Drum’s Lifetime Achievement Award in 2018 and was inducted into the Marketing Hall of Fame in 2019. From 2010 to 2019, Keith was Chief Marketing and Communications Officer at Unilever, a role that included creating and leading Unilever’s ground-breaking sustainability programme.

 

Other current appointments: Board member, Business in the Community. Board member, Grange Park Opera. President, the UK Advertising Association.

 

Jasmine Whitbread, Age 56: Non-Executive Director. Jasmine Whitbread was appointed as a Director on 1 September 2019. Jasmine’s experience spans marketing, technology, finance, media, telecommunications and not-for-profit organisations. Jasmine brings this breadth of perspective and knowledge of many of WPP’s client sectors to the Board. Jasmine is currently Chief Executive of London First. Between 2005 and 2015, Jasmine worked for Save the Children, from 2010, as International Chief Executive Officer. In this role, Jasmine led the merger of 14 separate organisations into one management line of 15,000 people across seven regions and 60 countries. Jasmine began her career in international marketing in the technology sector. Jasmine has previously served as a Non-Executive Director of BT Group plc.

 

Other current appointments: Non-Executive Director, Standard Chartered plc.

 

Sandrine Dufour, Age 53: Non-Executive Director. Sandrine Dufour since year-end was appointed as a Director on 3 February 2020. Sandrine brings deep financial expertise gained in global companies and strong strategic capability to the Board. Sandrine has executive leadership experience in the telecommunications, entertainment and media industries and an enthusiasm for cultural, technological and business transformation. Sandrine is currently Chief Financial Officer of Proximus. Prior to Proximus, Sandrine held a number of leadership roles at Vivendi, in France and in the United States, across its entertainment and telecommunications business, covering areas including finance and strategy, M&A, innovation and transformation. Sandrine has held non-executive director roles, most recently at Solocal Group. Sandrine will become CFO of UCB on 1 July 2020.

 

John Rogers, Age 51: Chief Financial Officer Designate. John Rogers since year-end became Chief Financial Officer Designate of WPP in February 2020, joining from J Sainsbury plc where he was Chief Executive Officer of Argos, leading its integration into the Sainsbury’s business and its digital transformation into one of the UK’s leading online retailers. He was previously the Chief Financial Officer of J Sainsbury plc, responsible for its business strategy, new business development, Sainsbury’s Online and Sainsbury’s Bank, in addition to its core finance functions. John is a member of The Prince’s Advisory Council for Accounting for Sustainability. He also recently sat on the Retail Sector Council, which acts as a point of liaison between the UK Government and retail sector.

 

Other current appointments: Non-Executive Director, Travis Perkins plc.

 

The independence of each Non-Executive Director is assessed annually by the Board under the UK Corporate Governance Code which applies in respect of WPP’s primary listing on the London Stock Exchange. The Board has confirmed that all of the Non-Executive Directors standing for election and re-election at the 2020 AGM continue to demonstrate the characteristics of independence.

 

B. Compensation

 

Directors’ Compensation

 

For the fiscal year ended 31 December 2019 the aggregate compensation paid by WPP to all directors and officers of WPP as a group for services in all capacities was £8.3 million. Such compensation was paid by WPP

 

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and its subsidiaries primarily in the form of salaries, performance-related bonuses, other benefits and deferred share awards. The sum of £0.5 million was set aside and paid in the last fiscal year to provide pension benefits for directors and officers of WPP.

 

Executive Directors’ total compensation received

 

Single total figure of remuneration

 

2019    Base salary      Benefits3      Pension4     

Short-term

  incentive5

    

Long-term

Incentive6

     Total annual
compensation
 
      £000      £000      £000     

Cash

£000

    

Deferred

£000

     £000      £000  

Mark Read

     975        35        171        805        537        71        2,594  

Paul Richardson1,2

     840        67        252        670        —          201        2,030  
1    

Paul Richardson’s base salary figure is denominated in US dollars other than his fee for his directorship of WPP plc which amounts to £100,000 which, per above, has been converted at an exchange rate of $1.2765 to £1.

2   

Any US dollar amounts received in 2019 have been converted into pound sterling at an exchange rate of $1.2765 to £1.

3   

Benefits are fixed non-itemised allowance enabling executives to procure benefits to enable them to undertake their role and ensure their wellbeing and security. This allowance excludes the disclosable value of expenses related directly to attendance at Board meetings that would be chargeable to UK income tax. The expenses for Mark Read were £2,442 and for Paul Richardson were £7,626.

4   

Pension is provided by way of contribution to a defined contribution retirement arrangement, or as a cash allowance, determined as a percentage of base salary. Contributions/allowances are as follows (as % of base salary): CEO—20% and CFO—30%. Mark Read was awarded an allowance of 20% less employer’s national insurance contribution of 13.8% resulting in a net pension contribution of 17.6%

5   

In respect of the 2019 short-term incentive awards, 40% of the total award achieved by Mark Read will be delivered in the form of shares as an Executive Share Award (ESA) with a two-year deferral period. Paul Richardson, who retires on 1 May 2020, is not eligible to receive the ESA portion of his short-term incentive plan (STIP). The STIP shown in the table for Paul Richardson represents only the cash element, 60% of the total. Cash bonuses and ESAs are subject to both malus and clawback provisions.

6   

This is the value of the 2015 Executive Performance Share Plan (EPSP) awards which vested in 2019 assessed over a five-year period. None of the value of vested awards above is attributable to share price appreciation.

 

Vesting of 2015 – 2019 EPSP awards

 

Vesting of the 2015 EPSP awards was dependent on performance against three measures, all assessed over a five-year period, which include relative Total Shareholder Returns (TSR), Earnings Per Share (EPS) growth and average annual Return On Equity (ROE).

 

     

Number of shares

awarded

     Additional
shares in
respect of
dividend
accrual
     Number of shares
vesting
     Share/ADR price
on vesting
    

Value of
vested

2015-2019
EPSP awards
000

 

Mark Read

     65,910        2,097        11,845      £ 6.0000      £ 71  

Paul Richardson1

     37,970        1,217        6,832      $ 37.48095      $ 256  
1    

Paul Richardson’s EPSP awards were granted in the form of ADRs.

 

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Outstanding share-based awards

 

Executive Share Awards (ESAs) held by Executive Directors

 

All Executive Share Awards or Performance Share Awards (PSA) granted under the Restricted Stock Plan and its successor, the WPP Stock Plan 2018, are made on the basis of satisfaction of previous performance conditions and are subject to continuous employment until the vesting date. Mark Read received ESAs and PSA awards prior to his appointment as Executive Director. Unless otherwise noted, awards are made in the form of WPP ordinary shares.

 

           

Grant

date

   

Share/ADR

price on

grant date

   

No. of

Shares/ADRs

granted2

   

Face

value

on grant

date

0003

   

Additional

shares

granted

in lieu of

dividends

   

Total

shares

vesting

   

Vesting

date

   

Shares/
ADR

price on

vesting

   

Value

on vesting

000

 

Mark Read

    2016 PSA       06.06.17       £17.2050       25,573       £440       2,553       28,126       10.03.19       £8.5458       £240  
      2017 PSA       12.06.18       £12.3800       38,317       £474       —         —         10.03.20       —         —    
      2018 ESA       30.05.19       £9.4840       62,834       £596       —         —         06.03.21       —         —    

Paul Richardson1

    2016 ESA       06.06.17       $110.7600       9,280       $1,028       933       10,213       06.03.19     $ 57.3447       $586  
      2018 ESA       30.05.19       $60.06       2,847       $171       —         —         06.03.21       —         —    
1    

Paul Richardson’s ESAs were granted in respect of ADRs.

2   

Dividend shares will be due on these awards.

3   

Face value has been calculated using the average closing share price for the trading day preceding the date of grant (as set out in the table).

 

Mark Read received awards prior to his appointment as CEO under the management incentive plans. In addition, he received awards on his appointment as joint-COO in April 2018. While the Board decided on the appointment of the next CEO, a special one-off award was made recognising the importance and scale of the additional responsibilities that were being undertaken. Each award is subject to continuous employment and malus and clawback and was made under the Restricted Stock Plan and the WPP Stock Plan 2018.

 

         

Grant

date

   

Share/ADR

price on

grant date

   

No. of

Shares

/ADRs

granted2

   

Face

value

on grant

date

0003

   

Additional

shares

granted

in lieu of

dividends

   

Total

shares

vesting

   

Vesting

date

   

Shares/ADR

price on

vesting

   

Value

on vesting

000

 

Mark Read

  Leaders 2016     28.11.16       £17.0550       8,795       £150       1,477       10,272       15.11.19       £9.8378       £101  
  Leaders 2017     04.12.17       £13.0850       11,463       £150       —         —         15.11.20       —         —    
  Special award1     12.06.18       £12.3800       40,387       £500       2,300       42,687       01.05.19     £ 9.6800       £413  
    Special award1     12.06.18       £12.3800       80,774       £1,000       —         —        

01.05.20 and

01.05.21

 

 

    —         —    
1    

The first tranche of the one-off special award vested on 1 May 2019. The remaining two tranches will vest in equal parts on 1 May 2020 and 1 May 2021.

2   

Dividend shares will be due on these awards.

3   

Face value has been calculated using the average closing share price for the trading day preceding the date of grant (as set out in the table).

 

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Long-term incentive plans – EPSP

 

The following table summarises all of the awards outstanding under the EPSP.

 

     Grant
date
   

Performance

period

   

Shares/
ADR

price on

grant date

   

Maximum

number of nil

cost options over

shares/ADRs

awarded2

    During 2019  
 

Options

vested/

(lapsed)

   

Additional

dividend

shares

   

Options

exercised

   

Maximum number

of nil cost options

over shares/ADRs

at 31 December 2019

 

Mark Read

    09.06.15       01.01.15-31.12.19     £ 15.1720       65,910       —         —         —         65,910  
      28.11.16       01.01.16-31.12.20     £ 17.0520       58,644       —         —         —         58,644  
      04.12.17       01.01.17-31.12.21     £ 12.9110       106,498       —         —         —         106,498  
      06.12.18       01.01.18-31.12.22     £ 8.6040       396,617       —         —         —         396,617  
      24.09.19       01.01.19-31.12.23     £ 10.0350       340,059       —         —         —         340,059  

Paul Richardson1

    09.06.15       01.01.15-31.12.19     $ 115.8800       37,970       —         —         —         37,970  
      28.11.16       01.01.16-31.12.20     $ 105.9309       41,536       —         —         —         41,536  
      04.12.17       01.01.17-31.12.21     $ 86.9138       36,933       —         —         —         36,933  
      06.12.18       01.01.18-31.12.22     $ 55.2631       58,628       —         —         —         58,628  
      24.09.19       01.01.19-31.12.23     $ 62.6530       51,593       —         —         —         51,593  
1    

Paul Richardson’s EPSP awards were granted in respect of ADRs.

2   

Dividend shares will be due on these awards.

 

Non-Executive Directors’ total compensation received

 

The single total figure of compensation table below details fee payments received by the Non-Executive Directors while they held a position on the Board.

 

     

Fees

£000

 
      2019  

Roberto Quarta

     500  

Jacques Aigrain

     145  

Tarek Farahat

     105  

Sir John Hood

     125  

Ruigang Li1

     44  

Daniela Riccardi

     95  

Cindy Rose2

     79  

Nicole Seligman

     145  

Sally Susman

     98  

Sol Trujillo

     105  

Keith Weed3

     17  

Jasmine Whitbread4

     37  
1    

Ruigang Li retired from the Board on 12 June 2019.

2   

Cindy Rose was appointed to the Board on 1 April 2019.

3   

Keith Weed was appointed to the Board on 1 November 2019.

4   

Jasmine Whitbread was appointed to the Board on 1 September 2019.

 

Past directors

 

Since his retirement from the Board, Timothy Shriver has been appointed as a consultant advising the Company on certain client relationships. He received a payment of £155,267 in 2019 for his consultancy services.

 

Sir Martin Sorrell left the Company in April 2018. His outstanding share awards granted under the Executive Performance Share Plan (EPSP) have been prorated to reflect his service period and will vest to the extent that

 

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performance conditions are achieved. The table below sets out details of the 2015 award that vested on 12 March 2020 based on performance achieved.

 

      Plan     

Number of shares

awarded

     Additional
shares in
respect of
dividend
accrual
     Number of shares
vesting
     Share price
on vesting
    

Value of
vested

2015-2019
EPSP awards
000

 

Sir Martin Sorrell

     2015 EPSP        738,267        15,270        86,243      £ 6.0000      £ 517  

 

The full Directors’ Compensation Policy can be found at www.wpp.com/investors/corporate-governance. This Annual Report on Form 20-F does not incorporate by reference information on the Company’s website.

 

C. Board Practices

 

Board attendance table  
     

Board

(scheduled

meetings)

    

Board

(unscheduled

meetings) 1

    

Audit

Committee

    

Compensation

Committee

 

Roberto Quarta

     6/6        4/4                 7/7  

Mark Read

     6/6        4/4                    

Paul Richardson

     6/6        4/4                    

Jacques Aigrain

     6/6        4/4        9/9        7/7  

Tarek Farahat

     6/6        3/4        9/9           

Sir John Hood

     6/6        4/4                 7/7  

Daniela Riccardi

     6/6        3/4                    

Cindy Rose OBE – appointed on 1 April 2019

     4/4        3/4        4/5           

Nicole Seligman

     6/6        4/4                 7/7  

Sally Susman

     6/6        3/4                    

Solomon D. (Sol) Trujillo

     6/6        4/4        8/9           

Keith Weed – appointed on 1 November 2019

     1/1                             

Jasmine Whitbread – appointed on 1&nbs