ANNUAL REPORT
& ACCOUNTS 2019
WHO WE ARE
WPP IS A CREATIVE
TRANSFORMATION
COMPANY. WE USE
THE POWER OF
CREATIVITY TO BUILD
BETTER FUTURES FOR
OUR PEOPLE, CLIENTS
AND COMMUNITIES.
STRATEGIC REPORT
Covid-19
Chief Executive’s statement
At a glance
Our business model
Investment case
Where we are
The market
Our strategy
Delivering on our strategy
Jeremy Bullmore’s essay
Remembering two industry greats
Financial review
Sustainability
Assessing and managing our risks
CORPORATE GOVERNANCE
Chairman’s letter
Our Board
Our Executive Committee
Corporate governance report
Sustainability Committee report
2
3
8
9
10
12
14
16
18
48
50
52
58
80
94
96
98
100
107
Nomination and Governance Committee report 108
Audit Committee report
Compliance with the Code
Compensation Committee report
FINANCIAL STATEMENTS
Accounting policies
Consolidated financial statements
109
112
114
140
147
Notes to the consolidated financial statements
152
Company financial statements
Notes to the Company financial statements
Independent auditor’s report
ADDITIONAL INFORMATION
Taskforce on Climate-related
Financial Disclosures
Other statutory information
Five-year summary
Information for shareholders
Financial glossary
Where to find us
182
185
187
196
198
201
202
204
206
1
To learn more see
wpp.com
WPP ANNUAL REPORT 2019 COVID-19
The coronavirus pandemic has touched all our lives.
At WPP our first priority is the wellbeing of our people
and doing what we can to limit the impact of the virus
on society. Our second is continuity of service for our
clients. We have thrown ourselves into achieving
both objectives.
To ensure the safety of employees and
to help reduce transmission, we moved
to a global policy of managed remote
working in mid-March, and at the time of
writing approximately 95% of our people
worldwide are working from home. Across
the world, our agencies are providing
NGOs, governments and clients with
communications and other services – often
on a pro bono basis – to help fight Covid-19.
The companies in the strongest financial
position will be best placed to protect their
people, serve their clients and benefit their
shareholders during and beyond this period
of deep uncertainty. At the end of March
we announced a number of measures
designed to minimise the impact of any
downturn on our employees and ensure
the Company is well prepared to weather
the storm.
First, we suspended our share buyback
scheme and our 2019 final dividend so that
our balance sheet and cash position are
as healthy as possible. Second, the WPP
Board and Executive Committee took a
voluntary 20% cut in their fees or salary
for an initial period of three months.
And third, we began a comprehensive
programme of cost reduction and cash
conservation measures.
We have also modelled a range of revenue
declines resulting from the pandemic and,
in the most extreme scenarios tested,
considered further actions that could be
taken to mitigate the impact on cash flow
and ensure additional liquidity.
Most of the content of this Annual Report
was produced before the outbreak became
the global pandemic it is today, at a very
different time for our business and for the
world as a whole. We debated whether we
should radically change the report in light
of this, but decided against it. First, because
we want it to stand as an accurate record
of 2019, and second because we believe
our strategy remains the correct one.
The changes we have made in WPP over
the last year or so have made the Company
more resilient and more future-facing. We
have fewer, stronger agency brands, and
a much simpler structure that is easier for
clients to navigate and easier for us to
manage. We have significantly reduced our
debt through the sale of a majority stake in
Kantar, meaning we are in a much stronger
financial position than we were when I
became CEO. And we are committed to our
vision of WPP as a creative transformation
company that brings together human
brilliance and technological expertise to
deliver results for our clients. The events
of recent weeks and months call for us
to accelerate rather than slow the pace
of our own transformation.
When we come through the current
situation, the world will have been changed
in ways that we cannot fully anticipate yet.
But the demand from our clients for the
creativity and ingenuity possessed by the
people who work at WPP and across our
industry will be greater than ever. I am in
no doubt about that.
What we do plays a vital role in driving
and sustaining the wider economic
activity that societies need to function.
Every country will need to stimulate that
activity when they move into the
recovery phase.
So, while I am concerned about the
wellbeing of our people, I am confident
in the future of WPP.
I would like to take this opportunity
to express my deep gratitude for the
extraordinary effort, resilience and
kindness of WPP employees all over the
world, whose support for one another
and commitment to their clients has
been truly inspirational. I am very proud
of all of them.
Mark Read
29 April 2020
2
STRATEGIC REPORT WPP ANNUAL REPORT 2019 CHIEF EXECUTIVE’S
STATEMENT
“ I AM MORE CONFIDENT
THAN EVER OF THE
ENDURING DEMAND
FOR OUR SERVICES.”
In 2019 we made good progress
in implementing our new strategy
for WPP.
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.
Our clients are our lifeblood, and we
placed them at the centre of every part
of our strategy:
– a new vision and contemporary offer to
meet the needs of modern marketing;
– increased investment in creativity, the
spark that makes for truly great work;
– harnessing our strengths in data and
technology, including our unique
partnerships with the world’s leading
technology firms, for the benefit of clients;
– a simpler structure that makes it easier for
our clients to understand and access our
talent and resources; and
– investment in our culture, to ensure WPP
and our agencies are the natural home
for the industry’s brightest talent.
We describe our progress in each of
these areas from page 18 but, in summary,
we were encouraged by the positive
momentum within the business in 2019.
3
STRATEGIC REPORTWPP ANNUAL REPORT 2019 STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT
STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT
“ WE WANT OUR PEOPLE
TO FEEL PROUD TO BE
PART OF WPP.”
4
A FOUNDATIONAL YEAR
2019 was the foundational year for our new
strategy – one in which we stabilised and
began to rejuvenate the Company. We said
we would begin the journey to return WPP
to growth, simplify our business and reduce
our debt and, thanks to the hard work of our
people all around the world, we met each
of these goals.
That said, WPP began to under-perform its
peers in the first quarter of 2017. From the
outset we said it would take time to return
the Company to sustainable growth, and
progress towards that goal would not be
linear. 2019 was the first of a three-year
turnaround plan and, of course, the
coronavirus pandemic has subsequently
had its own major impact.
PLATFORM FOR GROWTH
We have made a number of major
structural changes within WPP to set
us up for future success.
The mergers announced in the second
half of 2018 that created our two newest
agencies – VMLY&R and Wunderman
Thompson – were finalised during 2019.
We now have fewer, stronger agency
brands that are better positioned to grow.
We announced the sale of 60% of Kantar
to Bain Capital in July 2019 and completed
the majority of the transaction in December,
earlier than expected. The disposal achieved
our objective of strengthening our balance
sheet by reducing debt to the lower end
of the target range.
Organic growth1 in 2019 was -1.6% (-1.2%
including Kantar), in line with the guidance
we provided in December 2018. The second
half was stronger than the first, with
performance improving globally and in
the United States, our largest market.
Headline operating margin was 14.4%,
down 1.2 margin points like-for-like (down
0.9 margin points including Kantar) as a result
of challenges in our specialist agencies and
investment for future growth.
The new partnership with Bain Capital
means that we will benefit from the future
growth of Kantar, and our clients will
continue to benefit from its services.
It was a successful year for new business,
reflecting clients’ positive reaction to our
new approach. Just as importantly, we
retained and grew business with existing
clients, who place a high value on the
longevity of our relationships and how
deeply we understand their businesses.
I am more confident than ever of the
enduring demand for our services –
especially as we expand our offer in
high-growth areas. Clients continue to seek
out our ideas, our creativity and our ability to
combine our skills in every discipline – from
advertising, media and public relations to
technology, experience and commerce.
Few companies are better placed to help
clients navigate a dynamic and complex
marketing landscape.
Reported profit before tax fell by 21.9%,
reflecting an exceptional gain in 2018 that
was not repeated in 2019 and a charge
on the revaluation of financial instruments
(versus a credit in 2018). Net working
capital improved by £350 million.
Year-end net debt fell from £4.017 billion
in 2018 to £1.540 billion.
It is clear that the impact of Covid-19 on our
business in the current financial year will be
significant but it is not possible at this stage
to quantify the depth or duration of that
impact. As a result, at the end of March we
took the decision to withdraw our guidance
for the 2020 financial year.
1
Organic growth defined as like-for-like revenue less
pass-through costs growth. A definition of revenue less
pass-through costs can be found on page 205.
WPP ANNUAL REPORT 2019
CHIEF EXECUTIVE’S STATEMENT
CHIEF EXECUTIVE’S STATEMENT
AWARDS IN 2019
Most effective holding company
for the eighth consecutive year
Number one holding company
in WARC Effective 100 ranking
189
Total awards
87
Total awards
82
Total awards
89
Total awards
Our people, teams and agencies produce
work of exceptional quality – work that wins
awards not only for its artistry but, most
importantly, for its effectiveness in delivering
results for clients. You will find examples
throughout this report.
We signed up to the Valuable500, a global
initiative designed to put disability on the
boardroom agenda, and 12 WPP leaders
were named in the HERoes and Yahoo!
Finance list of role models for women
and champions of gender diversity.
We welcomed new leaders to many of our
agency networks, and we enhanced central
WPP teams such as people, technology and
marketing to provide greater support to our
operating companies. We also formed WPP’s
first Executive Committee, consisting of the
leaders of our largest agencies and central
corporate functions.
A NEW CULTURE
One of WPP’s most important roles is to be
a supportive platform for our agency brands
and the brilliant work that they do for our
clients. We want our people to feel proud to
be part of WPP, as well as the agencies who
employ them directly.
Every WPP workplace should be open,
inclusive and collaborative: somewhere
to do your best work, and to make a
difference. Having defined our purpose of
building better futures, we have begun to
pursue that aim with real determination
and clarity.
We are investing in WPP Campuses around
the world – state-of-the-art buildings that are
great places for our people to work and
learn, that bring together our different
agencies under one roof, foster cooperation
between them and champion creativity.
We are working hard to become an ever-more
inclusive and diverse organisation, and making
progress. The proportion of women on our
Board has increased from 33% in 2018 to 40%
today, and we are aiming for parity soon.
Although we have work to do to meet our
commitment to achieve parity at the most
senior executive level, women now make up
50% of our senior managers, compared to 49%
in 2018. We were included in the Bloomberg
Gender-Equality Index for the second year
running, and the 2019 Hampton-Alexander
Review of FTSE Women Leaders placed
WPP at 12th in the FTSE 100.
We are placing ever-greater emphasis on
the impact of what we do beyond the purely
commercial – from our pro bono work for
NGOs, charities and international bodies and
our social contribution to the phasing out of
single-use plastic within our offices. During
the year our carbon emissions per employee
fell by 21%, and our use of renewable energy
rose to 35%, with all of the electricity we
used in the United States purchased from
renewable sources.
We have established our first Sustainability
Committee at Board level to continue to
drive improvements in our environmental
and wider sustainability performance. To
attract and retain the most talented people,
we need to be an organisation that is a
leader in every sense.
Our Company has been built by truly great
people, and in 2019 we said goodbye to two
of the greatest. We pay tribute to Lester
Wunderman and Harold Burson on pages
50 and 51. Both Harold and Lester brought
inspiration, originality and pioneering spirit
to the organisations they founded and to
WPP as a whole.
I would like to thank all the amazing people
within our Company who carry that spirit
forward, and the many thousands of WPP
alumni around the world who have played
their own important part in our success.
Mark Read
Chief Executive Officer
29 April 2020
5
STRATEGIC REPORTWPP ANNUAL REPORT 2019
FIGHTING
CORONAVIRUS
WITH CREATIVITY
AGENCY
MULTIPLE WPP COMPANIES
CLIENT
WORLD HEALTH ORGANIZATION
Communication is a critical part of the World
Health Organization’s strategy in the fight against
Covid-19, as it works with governments, partners
and stakeholders to encourage people to stay at
home and adopt safe behaviours.
WPP is supporting the WHO on a pro bono
basis by producing global and regional public
awareness campaigns to help limit the spread
of the coronavirus and its impact on society.
The partnership leverages the scale of our global
resources, expertise and talent to assist the WHO
in directly reaching the public with its life-saving
communications. It involves a number of different
WPP agencies, including Grey, GroupM, Hogarth,
Hill+Knowlton, Inca, Motion Content Group,
Ogilvy, Wavemaker and WPP Scangroup.
At the time of writing, global media partners
including Al-Jazeera, Amazon, CNBC, CNN,
Disney, Fox/National Geographic, Sky, Teads and
Verizon (sourced by GroupM and Wavemaker)
have donated more than $20 million in media
to support this effort.
The work shown here is a film from Grey New
York called Five Heroic Acts, which stresses the
importance of social distancing.
More examples of what WPP and our
companies are doing to help – working with
clients, governments and NGOs – can be
found on our website, wpp.com.
6
STRATEGIC REPORT WPP ANNUAL REPORT 2019 7
STRATEGIC REPORTWPP ANNUAL REPORT 2019 AT A GLANCE
OUR GLOBAL BRANDS
AKQA
BCW
Finsbury
Geometry
Grey
GroupM
– Essence
– MediaCom
– Mindshare
– Wavemaker
– Xaxis
GTB
Hill+Knowlton
Strategies
Hogarth
Landor
Ogilvy
Superunion
VMLY&R
Wunderman Thompson
KEY FACTS
AND FIGURES
106,000+
people
112
countries
Quoted on the London
Stock Exchange and
the New York Stock
Exchange
Clients include
348
of the Fortune
Global 500
All 30
of the Dow
Jones 30
70
of the
NASDAQ 100
69
of the
FTSE 100
£53.1bn
Billings*
(2018: £53.2bn)
£13.2bn
Revenue*
(2018: £13.0bn)
£10.8bn
Revenue less pass‑through costs*
(2018: £10.9bn)
Gold
in the EcoVadis CSR rating
for the fifth year in a row
0.60tCO2e
Carbon emissions per
person from building
energy use (scope 1 and 2)*
(2018: 0.76tCO2e)
35%
Electricity purchased
from renewable sources*
(2018: 32%)
Leader
in the Bloomberg Gender‑
Equality Index for the
second year in a row
40%
Women on
our Board
(2018: 33%)
12th
in the FTSE 100 Rankings
for Women on Boards,
Hampton‑Alexander
Review 2019
10th
in The Responsibility100
Index, which measures
the commitment to social,
environmental and ethical
objectives of FTSE 100
companies
50%
Women in senior
management*
(2018: 49%)
1.60%
Social investment as a
percentage of reported
profit before tax*
(2018: 1.35%)
* Continuing operations,
with 2018 figures restated.
8
STRATEGIC REPORT WPP ANNUAL REPORT 2019 OUR BUSINESS MODEL
WPP IS
A CREATIVE
TRANSFORMATION
COMPANY
We build better futures for our
clients through an integrated
offer of communications,
experience, commerce and
technology.
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. WPP works with
348 of the Fortune Global 500, all 30 of the Dow
Jones 30 and 70 of the NASDAQ 100.
We are committed to the principles of sustainability
in business, through our assignments for clients,
our substantial pro bono work and the management
of our own operations. We aim to build better
futures not only for our people and clients but our
wider communities.
We focus on revenue less pass-through costs as
a reflection of top-line performance. 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 and data collection costs.
Our networks and agencies operate in all major
global markets, offering a range of services across
four key areas: communications, experience,
commerce and technology. Each of these areas
is critical to success for modern marketing.
By bringing them together WPP can meet clients’
needs as they react to the changing marketplace
and complex social, economic and environmental
pressures, while expanding our own business in
high-growth sectors.
Revenues are principally derived from fees for
services on a rate per hour or per project basis.
Client engagements include fixed-fee contracts,
retainer agreements and commissions on media
placements. Some client arrangements include
performance incentive provisions designed to
link revenue to quantitative and qualitative goals.
Our people are our most important assets and
our ability to attract and retain diverse talent
is a critical element of our competitiveness.
Compensation and incentives are aimed at making
WPP a home for the best and brightest, and are
aligned with our strategy for growth. Our delivery
model is based on an increasingly flexible cost
structure, with the use of consultants, freelancers
and incentives allowing the Company to respond
to any market volatility.
Our transformation programme, encompassing
a new vision and offer, a simplified structure
including a consistent shared service infrastructure
and the development of Campus co-locations,
investments in creativity, technology and talent,
and a new emphasis on building the Company’s
culture, will enhance WPP’s proposition to
clients and drive top-line growth.
9
STRATEGIC REPORTWPP ANNUAL REPORT 2019
STRATEGIC REPORT
INVESTMENT CASE
INVESTMENT CASE
In an industry undergoing significant change,
WPP has distinctive assets and a clearly
differentiated strategy for growth.
1
2
3
THE WORLD’S NUMBER
ONE MARKETING
SERVICES BUSINESS
– Long-term track record of organic
growth and successful M&A
– Business model and services
constantly evolving to reflect
changes in the market
– Extended offer to clients targeting
high-growth areas of experience,
commerce and technology
MARKET-LEADING
SHARE IN MEDIA
UNRIVALLED
GEOGRAPHICAL REACH
– Media buying at scale, providing value
and high-quality inventory to clients
– Present in over 100 markets around
the world
– Ability to deliver integrated
– Attractive combination of well-established,
campaigns globally across traditional
and digital platforms
– Significant source of data and insights
to maximise campaign impact
highly profitable markets such as the
United States and UK, and faster-growing
economies including India and Brazil
– Good balance of global and local clients
Global client list including
348 of the Fortune 500
and 69 of the FTSE 100
17%
of global media‑buying market
share (40% in the UK, 13% in the United States)
Source: COMvergence
Market forecast to grow
3-4% annually to 2024
Source: GroupM, This Year, Next Year: December 2019
(pre Covid-19 impact)
35%
of revenue less
pass‑through costs
from the United
States (2019)
13%
of revenue less
pass‑through costs
from the UK (2019)
10%
9%
like‑for‑like growth
in revenue less
pass‑through costs
in India (2019)
like‑for‑like growth
in revenue less
pass‑through costs
in Brazil (2019)
10
WPP ANNUAL REPORT 2019 INVESTMENT CASE
4
5
6
CLOSE ALIGNMENT TO
THE WORLD’S MAJOR
GROWTH BUSINESSES
NEW STRATEGY DRIVING
STRUCTURAL AND
CULTURAL CHANGE
WELL-CAPITALISED
AND CASH-GENERATIVE
– Technology increasingly driving growth
in advertising spend and underpinning
services to clients
– Strategic partnerships with Adobe,
Alibaba, Facebook, Google, IBM,
Microsoft, Salesforce and Tencent
– Technology client base growing strongly
– Significant West Coast presence
10%
like‑for‑like revenue growth from technology
companies in our top 200 clients (2019)
Top three
partner for Adobe and Salesforce worldwide
Number one
buyer of media on Google and Facebook
– Through mergers formed Wunderman
– Disposal programme has simplified
WPP and reduced debt to lower end
of target range
– Continued strong cash generation
to fund investment
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
– Investing in central WPP teams such as
people, technology and marketing &
growth to provide greater support to
operating companies
75,000
>£3.2bn
of our people in WPP Campuses by 2023
raised from disposals in past two years
>50
disposals and more than 80 non‑core
business closures in past two years
11
STRATEGIC REPORTWPP ANNUAL REPORT 2019
WHERE WE ARE
WPP companies operate in
112 countries. Here we show
our presence by region in terms
of revenue and headcount.
NORTH
AMERICA
£4.9BN
23,000
LATIN
AMERICA
£0.7BN
11,000
Revenues
Denote the collective figure for all
WPP companies in a given region
or country.
People
Denotes the number of people
employed by WPP companies in
a given region or country.
As at 31 December 2019.
12
STRATEGIC REPORT WPP ANNUAL REPORT 2019
WHERE WE ARE
UNITED
KINGDOM
£1.8BN
11,000
WESTERN
CONTINENTAL
EUROPE
£2.6BN
21,000
CENTRAL
& EASTERN
EUROPE
£0.3BN
5,000
AFRICA
& MIDDLE
EAST
£0.4BN
6,000
ASIA
PACIFIC
£2.6BN
29,000
13
STRATEGIC REPORTWPP ANNUAL REPORT 2019
THE MARKET
Marketing and technology are colliding.
Agencies need strengths
in data and technology
– as well as creativity
Clients want our creativity more than ever,
and they are seeking services beyond our
traditional strengths in communications.
Agencies in the industry perceived to be
lacking in contemporary skills in areas such as
data, technology, experience and commerce
have come under significant pressure.
Clients need a trusted
partner to navigate
technological disruption
Every industry, from automotive and
packaged goods to drinks and financial
services, is facing structural change driven
by technology. Organisations are looking to
agencies to help them navigate this disruption.
Marketing technologies
bring opportunities and
new competition
The alignment of CMOs and CIOs to build
and operate marketing technologies brings
new opportunities for our business as well
as competition from consultants. Agencies
are now promoting their consulting and
technology capabilities more effectively
alongside their creative offerings.
76%
of Chief Marketing Officers say
their decisions are now being
driven by data
Source: Gartner, Annual CMO Spend Survey
2019-2020
TRANSACTIONS
59%
41%
Digital
In‑store
Source: Bond Internet Trends 2019
14%
of Chief Marketing Officers now
cite IT as a “top supporter”
within their organisations – the
most highly cited department
Source: Gartner, Annual CMO Spend Survey
2019-2020
Competition for top
talent and attention
While their direct competitive threat to
the marketing services industry has been
overstated, technology firms are vying
with agencies for talent and the attention
of clients.
“OUR PEOPLE
WILL DRIVE
OUR STRATEGY.”
Mark Read
Chief Executive Officer
Trust and transparency
are paramount
New platforms are changing the way people
interact with technology. Privacy, data and
security breaches and the issue of fake news
have damaged trust between organisations
and the public. The industry needs to work
hard to restore that trust.
64%
of internet users are concerned
about how their personal data is
being used by companies
Source: Global Web Index
14
STRATEGIC REPORT WPP ANNUAL REPORT 2019 THE MARKET
This collision creates significant
opportunities for companies like WPP.
WPP is already one of the most
forward-looking and tech-enabled
companies in our industry. We have
many of the world’s leading creative,
data and technology agencies, four of
which were named as industry leaders
in the influential Gartner Magic Quadrant
study. We are the largest partner to
the world’s leading media and
technology companies. We invest
almost $7 billion a year with Google
on behalf of our clients, and almost
$3 billion with Facebook.
Our marketing technology operation
consists of 7,000 experts worldwide,
and we have strong, growing
relationships with our clients’ Chief
Information Officers, as well as the Chief
Marketing Officers. As we increasingly
put technology at the heart of what we
do, we are well positioned to capture
the opportunities of the changing
market, and to help our clients navigate
the technology-driven disruption they
are facing.
Market trends are driving our industry towards high-growth areas. These
are reflected in our future-facing offer of communications, experience,
commerce and technology (see page 19), each of which is critical to
success for modern marketing.
ESTIMATED GLOBAL MARKET
$1tn
market
$600-900bn
market by 2022
COMMUNICATIONS
EXPERIENCE | COMMERCE | TECHNOLOGY
2-3%
growth
5-15%
growth
Source: GroupM forecast (pre Covid-19 impact)
15
STRATEGIC REPORTWPP ANNUAL REPORT 2019
OUR STRATEGY
Radical
evolution:
a strategy
for growth
We are one year into
our three-year plan
to drive sustainable
top-line growth.
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.
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.
16
STRATEGIC REPORT WPP ANNUAL REPORT 2019 OUR STRATEGY
Our approach to sustainability
aligns with our strategy.
See page 61
VISION
& OFFER
Read more from page 18
CREATIVITY
Read more from page 24
DATA &
TECHNOLOGY
Read more from page 30
SIMPLER
STRUCTURE
Read more from page 36
PEOPLE &
CULTURE
Read more from page 44
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.
A renewed commitment
to creativity, WPP’s
most important
competitive advantage.
Harnessing the strength
of our marketing and
advertising technology,
and unique partnerships
with technology firms,
for the benefit of clients.
Reducing complexity
and making sure our
clients can access the
best resources from
across the Company.
Investment in our people,
culture and values to
ensure WPP is the natural
home for the best and
brightest talent.
17
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STRATEGIC REPORT OUR STRATEGY
VISION & OFFER
We are a creative
transformation company.
“ THE NEW WPP IS
PURPOSEFUL, DRIVEN
AND VISIBLE ON THE
WORLD STAGE.”
Mark Read
Chief Executive Officer
Progress in 2019
– 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
industry intelligence from
across the Company
Focus for 2020
– Accelerate the delivery of our
new offer
– Deliver an always-on marketing
and growth model to respond
in real-time to our clients
– Create a connected CMO
community
How we are delivering on our strategy
CREATIVITY POWERED BY
TECHNOLOGY
WPP’s vision is to be a creative
transformation company, using the power
of creativity to build better futures for our
people, clients and communities. 2019
was the year this inspiring vision and our
modern new offer was rolled out to our
clients and the industry.
Our simpler, more progressive offer covers
four areas: communications, experience,
commerce and technology. Each of these is
critical to the success of modern marketing
and will expand WPP’s own business in
high-growth areas. The last year has
seen many of our largest existing clients
– including Ford, Google and Coca-Cola –
and new clients asking us for new services
in these future-facing areas and responding
positively to our proposition of creativity
powered by technology.
BUILDING OUR BRAND
A strong and visible WPP brand will
complement and support our strong
agency brands within the Company. For
the first time, WPP hosted spaces at the
Cannes Lions Festival of Creativity and the
Consumer Electronics Show (CES), creating
new platforms for our people, agencies
and partners to showcase original thinking
and extraordinary work.
As a founding partner of the Institute for
Real Growth, we are offering leading
marketers unique insights, plus exclusive
learning and development programmes to
drive the future growth of their business.
We also launched a new home for our
thought leadership online. WPP iQ
showcases the best thinking and industry
intelligence from across the Company and
its agencies.
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WPP ANNUAL REPORT 2019
OUR STRATEGY
OUR OFFER TO CLIENTS
COMMUNICATIONS
EXPERIENCE
COMMERCE
TECHNOLOGY
We create powerful
ideas based on deep
insights to connect
brands’ messaging with
audiences in meaningful
ways and channels at
meaningful moments
We build seamless
experiences to make
brands part of people’s
lives – creating more
memorable engagement
and driving better
business results
We make it easy for our
clients to sell within the
complex ecosystem of
where and how their
customers want to buy
We leverage our global
technology partnerships
and unique scaled
platforms and capabilities
to build technology and
data solutions fit for our
clients’ needs
19
STRATEGIC REPORTWPP ANNUAL REPORT 2019
STRATEGIC REPORT OUR STRATEGY
VISION & OFFER
AN OPEN,
CONFIDENT
AND FORWARD-
LOOKING
COMPANY
WPP presented its new, revitalised brand
at the 2019 Cannes Lions Festival of Creativity
through its first-ever physical presence at
the event.
The WPP Beach provided a platform to
showcase the creativity of WPP’s agencies
and the extraordinary work they do for
clients – as well as present an open,
confident and forward-looking company
to the industry.
It was the place to hear from leading thinkers
and business executives, with wide-ranging
talks from Unilever CEO Alan Jope, Facebook’s
Sheryl Sandberg, Snap founder Evan Spiegel,
Reddit CEO Steve Huffman, Microsoft’s
Corporate VP of Brand, Advertising &
Research, Kathleen Hall and 21st Century Fox’s
Lachlan Murdoch. A packed-out Palais des
Festivals also saw WPP share a stage with
its client Wendy’s for a discussion on how
VMLY&R transformed the brand into a social
media phenomenon.
WPP demonstrated its industry leadership
on important issues by launching new
initiatives at the festival, including committing
to phasing out single-use plastics in its
offices and Campuses worldwide and an
industry-wide programme to address
the problem of harmful content online.
The WPP Beach had as its centrepiece what
Campaign magazine called a “stunning
installation” based on the WPP logo.
51%
WPP’s share of voice in
Cannes vs its competitors
on social media
By impressions on Twitter and
LinkedIn, during 2019 Cannes Lions
Festival of Creativity, 17-21 June
20
WPP ANNUAL REPORT 2019
OUR STRATEGY
STRATEGIC REPORT
“ A STRONG WPP
BRAND CAN DELIVER
VALUE ACROSS THE
WHOLE COMPANY.”
Laurent Ezekiel
Chief Marketing & Growth Officer
WPP ANNUAL REPORT 2019
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STRATEGIC REPORT OUR STRATEGY
VISION & OFFER
AUTHENTIC
BEAUTY
AGENCY
MINDSHARE
CLIENT
DOVE (UNILEVER)
70% of women do not feel represented
in the images they see every day. Dove,
long champions of real beauty, wanted
advertising to depict real women. Women
that would be recognisable. Dove took
action to create the world’s first publicly
accessible photo library, created by
women and non-binary individuals,
designed to shatter beauty stereotypes.
Mindshare formed a ground-breaking
partnership with publishing house Hearst
in the United States, integrating images
from Project #ShowUs into authentic,
relatable content for Cosmopolitan, Elle,
Marie Claire, Harper’s Bazaar and more.
The mission to better represent women
in media came to life as magazines
replaced photoshoots with Project
#ShowUs images, highlighting stories of
the women in the collection and showing
the importance of self-expression.
There have been over 40,000 social
media mentions of the campaign which
has reached more than 20 million women
across the United States. A survey showed
nine in ten agreed that Dove inspires
women to feel more confident about
the way they look – and just as many
agreed Dove shows that diversity and
representation is possible in media.
Project #ShowUs continues to empower
women, changing how – and where –
women see themselves in the world.
20m+
women reached
across the
United States
40,000+
social media posts
in response to the
campaign
22
WPP ANNUAL REPORT 2019
OUR STRATEGY
WPP ANNUAL REPORT 2019
23
STRATEGIC REPORT
STRATEGIC REPORT OUR STRATEGY
CREATIVITY
Our most important competitive advantage
is being able to respond to our clients’
needs with creativity and imagination.
How we are delivering on our strategy
REINVENTING CREATIVITY
The creativity of our people – the power
of their ideas to deliver results for clients –
is what makes WPP special and what
differentiates us from other professional
services firms. WPP has great creative
strengths, but we must continue to invest
in talent and reinvent creativity on an
ever-broader canvas. We also need to
apply technology more effectively to
enhance our creative capabilities at scale.
Progress in 2019
– 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
Last year we announced a renewed
commitment to and investment in creativity
and creative leadership. In the first year,
this has enabled us to attract new
world-class talent, with significant hires
across key markets.
Focus for 2020
– Use the power of creativity
to support clients, NGOs
and governments during
the Covid-19 crisis
– Recruit leading creative
talent, particularly in the
United States
– Develop learning
programmes that keep
our creative leaders
innovating in a rapidly
changing landscape
– Enable creative talent
to move more seamlessly
across the Company
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WPP ANNUAL REPORT 2019
OUR STRATEGY
STRATEGIC REPORT
INFINITE IN
MOOD AND
EXPRESSION
AGENCY
SUPERUNION LONDON
CLIENT
BBC TWO
BBC Two is a runway for the boldest and most
risk-taking programming, with stories that
surprise you at every turn. This brand, created
in collaboration with BBC Creative and over a
dozen renowned digital artists from around the
world, puts diverse, contrasting emotions at
the heart of the viewer’s experience through
dynamic animations. Infinite in mood and
expression, and every bit as unpredictable as
the cutting-edge content either side of it.
Winner
Cannes Lions, D&AD, New York
Festivals and Art Directors
Club New York
WPP ANNUAL REPORT 2019
25
STRATEGIC REPORT OUR STRATEGY
CREATIVITY
26
WPP ANNUAL REPORT 2019
OUR STRATEGY
STRATEGIC REPORT
CREATIVE
ACTIVISM
AGENCY
SCHOLZ & FRIENDS
CLIENT
THE FEMALE COMPANY
In Germany, tampons and other female
sanitary products attract the top value
added tax rate of 19% while many luxury
goods – like truffles and oil paintings –
are taxed with the reduced rate of 7%.
The so-called tampon tax has already
been abolished in some countries.
The Female Company, an online shop that
sells organic female sanitary products,
decided to take on the discriminatory tax.
To gain attention for the tampon tax with
media, influencers and politicians, Scholz
& Friends outsmarted the tax law with the
law itself.
The agency packaged tampons in books
which are also taxed with the reduced rate
of 7%. But The Tampon Book is much more
than smart packaging that hacked the
German tax system. The Tampon Book
contains 45 pages with bold illustrations and
empowering stories about menstruation,
taboos and feminism and successfully
promoted a petition that urged the German
Parliament to discuss the abolition of the
tampon tax.
It was subsequently announced that the
reduced VAT rate will be charged for female
sanitary products, and this became law in
January 2020.
Winner
Cannes Grand Prix
and four Lions
10,000
copies of the book sold
April‑October 2019
27
WPP ANNUAL REPORT 2019
STRATEGIC REPORT OUR STRATEGY
CREATIVITY
DNA
DISCOUNTS
AGENCY
OGILVY
CLIENT
AEROMEXICO
Aeromexico wants everyone to know
there are no borders within us. And while
the United States is the top destination
for people flying from Mexico, Mexico is
far from the top destination for people
flying from the United States.
Ogilvy worked with the commercial airline
to change that and set out to prove, for
many people, Mexico is not just a place on
the other side of the border. The agency
visited Wharton in Texas and interviewed
people who said they would never go to
Mexico. It was not their “cup of tea”, with
one person, Bill, saying he likes tequila and
burritos – but does not like Mexico.
People with Mexican heritage in the United
States are on the rise – even if many do
not realise it. Ogilvy gave DNA tests to
their interviewees and offered discounted
flights based on their percentage of
Mexican descent: the more Mexican they
were, the greater the discount. The results
shifted perspectives. Bill discovers he is
18% Mexican, entitling him to 18% off
flights; he boasts that this is 3.6% better
than his wife’s result.
With limited budget, the agency focused
on social media and delivered 1.6 billion
impressions including media coverage in
The New York Times and TIME, as well as
on broadcast networks including Fox News
and CNN. The campaign was a viral hit.
1.6bn
earned media
impressions
January 2019
33.7%
increase in ticket sales
from the United States
to Mexico
In January 2019 vs average
monthly revenue in 2018
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WPP ANNUAL REPORT 2019
OUR STRATEGY
STRATEGIC REPORT
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WPP ANNUAL REPORT 2019
STRATEGIC REPORT OUR STRATEGY
DATA
& TECHNOLOGY
We are using technology to harness
our collective intelligence, ingenuity
and scale for the benefit of our clients.
“TECHNOLOGY
HELPS US SOLVE
THE COMPLEXITY
OF MODERN
MARKETING.”
Stephan Pretorius
Chief Technology Officer
How we are delivering on our strategy
DRIVING INNOVATION
Our technology strategy came to life
in 2019. We established the central
WPP technology team to manage our
technology partnerships, product and
data portfolio, and technology skills
acceleration; we created a WPP
Technology Council to increase
collaboration and knowledge transfer
between our agency technology leaders;
and we delivered technology innovation
in areas as diverse as creative AI,
campaign optimisation and market
simulation for clients around the world.
Progress in 2019
– 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
Focus for 2020
– Launch and drive adoption
of WPP OPEN, a business
platform to share the best
technology and data
innovations from across
the Company
– Accelerate our AI and creative
technology skills development
– Increase our joint go-to-
market activity with partners
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WPP ANNUAL REPORT 2019
OUR STRATEGY
OUR UNIQUE APPROACH
SCALED GLOBAL
PARTNERSHIPS
Leveraging our
partnerships with
the world’s leading
technology
companies to create
differentiated
offerings and grow
our capability
DISTRIBUTED
INNOVATION
Stimulating innovation
to occur in a structured
way in all our agencies
WPP OPEN
The development of
WPP OPEN, a business
platform to make
the best data and
technology solutions
from across WPP
and our partners
available to all
DEEP
SPECIALISATION
Continuing to enhance
our specialised
technical capabilities
in advertising and
marketing technology
31
STRATEGIC REPORTWPP ANNUAL REPORT 2019
STRATEGIC REPORT OUR STRATEGY
DATA & TECHNOLOGY
lemon
ginger
32
WPP ANNUAL REPORT 2019
OUR STRATEGY
Key words relating to
Recipes
Hey Google, add ginger
to my shopping list.
Learn more
Lemon and ginger friands
for dessert tonight
Learn more
HUMAN
CREATIVITY
MEETS
ARTIFICIAL
INTELLIGENCE
AGENCY
ESSENCE
CLIENT
GOOGLE
How do you create personalised online
ads that do not use personal data?
Through combining smart copywriting with
AI language and image recognition, Essence
and Google are pioneering a future where
ads can be relevant, meaningful and helpful
for consumers – free of any privacy concerns.
Essence invented a new way to target
specific web pages with specific ads at
scale using Google Marketing Platform.
Codenamed “Project Pegasus”, this
approach uses machine learning to analyse
page content and context, using publisher
data instead of user data. An automated
process powers the production of thousands
of creative options, each customised to be
relevant to every article on a publisher’s
website in a brand-safe way.
The agency’s first Pegasus-powered
campaign was for Google Home. It served
thousands of dynamic ads that demonstrated
how Google’s smart speakers can be used in
environments directly related to the content
on the page.
In 2019, campaigns using Pegasus to
promote Google products demonstrated
the effectiveness of this approach, driving
a 5.2% increase in purchase consideration
and a 5.1% increase in category
understanding where generic ads
drove no uplift.
5.2%
5.1%
increase in purchase
consideration
increase in category
understanding
33
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STRATEGIC REPORT OUR STRATEGY
DATA & TECHNOLOGY
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WPP ANNUAL REPORT 2019
OUR STRATEGY
STRATEGIC REPORT
A GAME
CHANGER
AGENCY
VMLY&R
CLIENT
WENDY’S
Fortnite is a global-gaming phenomenon
with an estimated 250 million players and
one of the largest audiences on streaming
site Twitch. The potential for brands is
significant, but most are left tweeting about
it from the sidelines or paying significant
sums for in-game sponsorships – that is until
VMLY&R developed a game-changing
campaign for Wendy’s.
When Fortnite introduced a new game
mode called Food Fight, pitting Team
Burger against Team Pizza, VMLY&R picked
up a controller and found an organic way
into the game. The agency created a
digital avatar that looked suspiciously like
Wendy’s namesake.
Subverting the game’s objective of killing
other players, this red-hooded character
set out to destroy Team Burger’s freezers –
again and again – and through this action
took Wendy’s message of “fresh, never
frozen beef” into the game and spread it
far and wide.
By recording and streaming footage of
a Wendy’s-based character destroying
freezers, the fast-food chain successfully
penetrated not just the gaming community,
but also live-streaming platforms, social
media and mainstream media outlets.
The success of the campaign led to it being
awarded the Social & Influencer Grand Prix
at the Cannes Lions Festival of Creativity.
1.5m
minutes watched
119%
increase in mentions of
Wendy’s across all platforms
(Facebook, Instagram,
Twitter, YouTube)
Winner
Cannes Grand Prix and eight Lions
WPP ANNUAL REPORT 2019
35
STRATEGIC REPORT OUR STRATEGY
SIMPLER STRUCTURE
CLIENTS
The new WPP is built around the
needs of clients.
“CLIENT-CENTRICITY
KEEPS US FOCUSED
AND FRESH.”
Lindsay Pattison
Chief Client Officer
How we are delivering on our strategy
ACCESS TO THE BEST OF WPP
Client-centricity runs through every aspect
of our strategy. It means simplifying our
structure, building solutions tailored to
clients, and making available our best talent
and cutting-edge capabilities – all in service
of client growth and satisfaction.
Many of our clients have Global Client
Leaders assigned to ensure easy and expert
access to the breadth and depth of WPP.
They play a critical role in setting our clients
up for success in the modern marketing
world, delivering our expanded offer of
communications, experience, commerce
and technology (see page 19).
Progress in 2019
– Appointed 17 Global Client
Leaders to head up our most
important client relationships
– Won 18 new major global
accounts
– Expanded almost half of our
existing top-50 client
relationships
Focus for 2020
– Support clients and help
them chart a course through
the Covid-19 pandemic
– Establish a best-in-class
customer feedback
satisfaction system
– Continue to strengthen central
resources for high-impact
engagements, including more
resource in the United States
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WPP ANNUAL REPORT 2019
OUR STRATEGY
COMPANIES
Our streamlined company structure
delivers what our clients need.
How we are delivering on our strategy
A SIMPLIFIED PORTFOLIO
The mergers to create VMLY&R and
Wunderman Thompson combined brilliant
creativity, expertise in data and sophisticated
technology skills. These are the capabilities
that our clients demand – and we can deliver
them through single, joined-up companies
that work on a global scale.
The sale of 60% of Kantar to Bain Capital
in 2019 further simplified our business.
Our partnership with Bain Capital means
we will participate in the growth of Kantar
and allows our clients to continue to benefit
from its services. This transaction largely
completed our disposal programme set
out in last year’s Annual Report.
Progress in 2019
– Sale of 60% share in Kantar
– 22 disposals of non-core
businesses
– 100 local office mergers and
80 business unit closures
Focus for 2020
– Deliver cost-reduction and
cash-conservation measures
to address the impact of
Covid-19
– Develop single approaches
to technology, finance and
people functions across
the Company
“WPP TODAY IS
SIMPLER, EASIER TO
MANAGE AND EASIER
FOR OUR CLIENTS TO
NAVIGATE.”
Andrew Scott
Chief Operating Officer
WPP ANNUAL REPORT 2019
37
STRATEGIC REPORTWPP ANNUAL REPORT 2019
STRATEGIC REPORT OUR STRATEGY
SIMPLER STRUCTURE
A SEAMLESS
EXPERIENCE
AGENCIES
GTB, VMLY&R, BURROWS,
OGILVY AND COGNIFIDE
CLIENT
FORD
The Mustang Mach-E was the first significant
ecommerce release for Ford and this global
launch came with a deadline that depended
on collaboration across our agencies.
Ford needed a seamless experience – to turn
the anticipation of Mach-E into reality – for a
vehicle that would not physically exist at the
time of launch.
What started as an exploration to simply
extend the existing online experience soon
became a holistic global approach. Through
a series of design sprints, involving the client,
we demonstrated that ecommerce had to
be considered as part of the full customer
experience. The output was a strategy
with three recommendations: ecommerce
integrated into the entire online journey;
tools to support and guide customers
to the right vehicle; and the ability to
purchase whenever is right for them,
on their personal ecommerce journey.
With a hard launch deadline approaching,
co-location with Ford IT was critical
to delivery.
GTB, VMLY&R, Ogilvy and Cognifide in
Europe and North America created a Global
Design Delivery Process, with Burrows
leading visualisation. This meant designs
were delivered to Ford’s developers by
a combined international agency team.
We were collectively responsible for
bringing the Mach-E to launch – selling
the aesthetic and innovation before the
vehicle itself had even been built.
38
WPP ANNUAL REPORT 2019
OUR STRATEGY
STRATEGIC REPORT
WPP ANNUAL REPORT 2019
39
STRATEGIC REPORT OUR STRATEGY
SIMPLER STRUCTURE
COUNTRIES
Our country strategy is designed
to leverage our collective
strengths in important markets.
How we are delivering on our strategy
WORLD-CLASS WORKING
ENVIRONMENTS
Our Campus programme is central to
our country-level integration strategy.
WPP Campuses provide our people with
outstanding environments that allow them
to do their best work; they foster an open,
inclusive and collaborative culture; they
help to simplify our structure; they cement
our leadership position in key country
markets; and they provide our clients with
a tangible expression of WPP’s integrated,
agile, tech-enabled offer.
In 2019, we opened five new Campuses:
in Helsinki, Bucharest, Amsterdam, Madrid
and Mumbai, bringing our total to 16 WPP
Campuses across four continents. Before
the end of 2020, we will open a further
three Campuses and we aim to have 75,000
people in 60 Campus locations worldwide
by 2023.
Progress in 2019
– Established our WPP
Campus strategic vision
– Opened new Campuses in
Helsinki, Bucharest, Madrid,
Amsterdam and Mumbai
Focus for 2020
– Ensure safe workspaces when
people return to offices after
Covid-19 lockdowns
– Activate a collaborative WPP
Campus culture that facilitates
extraordinary work
– Open new Campuses in
Gurugram, Hong Kong
and Chicago
“WPP CAMPUSES
INSPIRE OUR
PEOPLE TO COME
TOGETHER TO DO
THEIR BEST, MOST
CREATIVE WORK.”
Ranjana Singh
Indonesia and Vietnam
Country Manager
40
WPP ANNUAL REPORT 2019
OUR STRATEGY
STRATEGIC REPORT
CLIENTS, COUNTRIES AND COMPANIES
Proportion of total WPP revenue
less pass-through costs
TOP 20
COUNTRIES
86%
TOP 10
COMPANIES
88%
TOP 30
CLIENTS
27%
WPP ANNUAL REPORT 2019
41
STRATEGIC REPORT OUR STRATEGY
SIMPLER STRUCTURE
INTEGRATED,
COLLABORATIVE
AND CREATIVE
CAMPUS
AMSTERDAM
At the beginning of 2019, WPP had 1,500 people
in Amsterdam operating across 11 different
locations in the city. Today, our people and
their agencies are housed in a single modern
workplace – Amsteldok.
Refurbished by WPP’s architectural and design
consultancy BDG, the previously derelict building
has been transformed into a vibrant 19,000m2
working environment that will act as both an
innovative office and community space.
The office building was Europe’s largest when
it was completed in 1973 by renowned architect
Huig Aart Maaskant. Located on the river Amstel,
the striking, box-stacked structure is a new
centre of creativity in the heart of Amsterdam,
complete with renovated roof terraces,
a business lounge and an event space.
Each WPP Campus is designed to provide
world-class spaces that bring together our
people and agencies in one location,
encouraging greater collaboration and
giving clients easier access to all of WPP’s
talent and expertise.
Winner
FX International Design Awards 2019
BREEAM
Very Good certification standard
42
WPP ANNUAL REPORT 2019
OUR STRATEGY
STRATEGIC REPORT
“ A FABULOUS GIFT
FOR THE CITY.”
Femke Halsema
Mayor of Amsterdam
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WPP ANNUAL REPORT 2019
STRATEGIC REPORT OUR STRATEGY
PEOPLE & CULTURE
Openness, optimism and a
commitment to extraordinary work.
“WE ARE TAKING
ACTION TO REALISE
THE FULL POTENTIAL
OF OUR PEOPLE
BY CREATING OPEN
AND INCLUSIVE
WORKPLACES THAT
CAN DRIVE BUSINESS
SUCCESS.”
Jacqui Canney
Chief People Officer
How we are delivering on our strategy
ATTRACTING AND RETAINING
THE BEST TALENT
We believe greater inclusion, diversity
and gender balance leads to more rewarding
and successful workplaces. Our core values
of open, optimistic and extraordinary are
being woven into the fabric of our
organisation, enabling WPP to continue
to attract and retain the best talent.
We are actively engaging with our
people to break down barriers and nurture
environments where everyone can connect,
collaborate, learn and grow. In 2019, we
implemented changes to make it easier
for talent to progress across WPP and its
agencies – so we are one true company
not a collection of separate businesses.
Progress in 2019
– 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
Focus for 2020
– Prioritise employee wellbeing
and safety during and beyond
the coronavirus pandemic
– Increase productivity and
delivery of services to clients
– Drive inclusivity and diversity
through early career
programmes
– Develop a talent pipeline of
next generation leaders
– Enhance data-driven talent
decisions based on
transparent and consistent
delivery of services
44
WPP ANNUAL REPORT 2019
OUR STRATEGY
OUR VALUES
OPEN
We are inclusive and
collaborative
We encourage the free
exchange of ideas
We respect and celebrate
diverse views
We are open-minded: to new
ideas, new partnerships, new
ways of working
OPTIMISTIC
We believe in the power of
creativity, technology and talent
to create better futures for our
people, clients and communities
We approach all that we do with
confidence: to try the new and
to seek the unexpected
EXTRAORDINARY
We are stronger together:
through collaboration we
achieve the amazing
We are creative leaders and
pioneers of our industry
We deliver extraordinary
every day
45
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STRATEGIC REPORT OUR STRATEGY
PEOPLE & CULTURE
UNPACK THE
PROBLEM
WPP has committed to phasing out
single-use plastics in its 3,000-plus agency
offices and Campuses worldwide. While
there is much we can do as a business, our
people recognise the wider role we can play
in helping our clients to transition to a world
where plastic is reused and recycled. As
a creative company, we also understand
the power our work has to influence
consumers to change their behaviour.
The Company held its first “Unpack the
Problem” hackathon, an event that brought
together people from across WPP’s agencies
to dedicate two days to exploring the role of
creativity and technology in tackling plastic
pollution. In partnership with A Plastic Planet
and with data from Pinterest, our people
used their collective brainpower to develop
new solutions to pitch to a panel of judges.
The creative solutions were ambitious,
scalable and had a measurable impact. Ideas
included tools designed to help ecommerce
sites make it easier for their consumers to
make sustainable purchase decisions, and
an agency with a mission to support clients
with their plastic pollution commitments.
The winning team, who designed a new
“green” ecommerce search filter, now has
an opportunity to transform their idea into
an actionable solution to help reduce the
impact of plastic on our planet.
35
people from 17 agencies
producing five creative solutions
46
WPP ANNUAL REPORT 2019
OUR STRATEGY
STRATEGIC REPORT
47
WPP ANNUAL REPORT 2019
L et’s begin by eliminating.
When we talk about creativity
in marketing communications,
we’re not talking about paintings,
plays or poetry. Creativity in
marketing uses exactly the same
tools as the fine arts do – words,
images, sound – but unlike the fine
arts, all creativity in marketing
exists for an agreed purpose. It is
expected to have an effect on its
audience: on their knowledge, on
their feelings, on their behaviour.
It is expected not only to pay for
itself but to return more than its
cost to its sponsor.
That’s the only class of creativity that
concerns us here. But how do we recognise
it? For years we’ve ducked the question
by sub-contracting the identification of
creativity to the judges of creative awards
ceremonies: if it gets an award for creativity,
it’s obviously creative. But that’s not really
good enough. Creativity in our world existed
long before creative awards came into
being. We ought to know exactly what it is
that we value so highly, why we’re right to
do so and how to encourage more of it.
Many years ago, according to advertising
folklore, an agency copywriter, walking on
Madison Avenue, encountered a beggar. The
man held a sign which read, “I am blind.” The
upturned cap at his feet was almost empty.
The copywriter gently reached for the card,
took out his pen, added three words, returned
the card to the beggar and resumed his
walk. Two hours later, he returned.
The beggar hadn’t moved but his upturned
cap was no longer almost empty. It contained
a handsome pile of nickels and dimes and
even a few dollar bills. The card, as amended
by the copywriter, now read, “It’s Spring –
and I am blind.”
“ I’M NOT ENTIRELY
SURE WHAT IT IS
BUT I DO KNOW
I WANT IT.”
A FOOLHARDY ATTEMPT
TO DE-MYSTIFY THAT
PRECIOUS PROPERTY
WE CALL CREATIVITY
BY JEREMY BULLMORE
48
STRATEGIC REPORT WPP ANNUAL REPORT 2019 JEREMY BULLMORE’S ESSAY
STRATEGIC REPORT
STRATEGIC REPORT
in-store display, influencers or news items.
Whether your parents used that brand – or
didn’t – can have an effect on how you feel
about that brand.
The art of creating a strong and distinctive
brand is first to determine what precise set
of characteristics you believe, realistically,
will make that brand most attractive to
which defined set of people; and then to
create the associations – the clues, the
stimuli – that will trigger those target
responses in the minds of those people.
This process demands a high degree of both
discipline and creativity. Brand positioning
must make competitive sense; so you need
to know not just how people currently feel
about your own brand but how they feel
about all other brands in the same sector.
The interpretation of the necessary research,
if it is to illuminate a path to the future rather
than simply deliver a snapshot of the present,
demands imagination (one outstanding
agency planner has said that she not only reads
research findings, she tries to smell them).
be implicit. Again, the audience is being
invited to participate; to absorb subconsciously
the significance of the idea, or the story, or
the music, or the choice of celebrity. Even
the choice of media can, of itself, contribute
to a brand’s personality.
This is how brands are built, become salient,
acquire a kind of fame, make their presence
felt. And, as a result, earn loyalty, command
a fair price, resist competition and reliably
deliver profit in the years ahead. But as any
publicist will tell you, for fame to be sustained,
the subject must be kept in the public eye
or that fame will fade. For the majority of
brands, already enjoying an earned position,
the role for creativity is primarily one of
brand maintenance. A company would never
question the need for a maintenance budget
to protect its tangible assets. The case for a
maintenance budget for its brands is equally
compelling – and one that only creativity
can deliver.
When the ideal brand responses have been
identified and conditionally agreed, already
an imaginative act, it’s time for invention
(it’s seldom quite so linear; often the right
strategy emerges gradually as the process
of invention goes through phases of trial and
error). The search is not so much for explicit
propositions or messages; the most effective
factors that affect brand reputation tend to
Jeremy Bullmore is a former Chairman of
J. Walter Thompson London. He has also
been a Non-Executive Director of WPP and
a member of its Advisory Board. He has
been described by Campaign magazine
as “quite possibly the most admired man
in advertising” and “Adland’s greatest
philosopher.” Marketing magazine simply
observed: “When Mr Bullmore speaks,
the world listens.”
WILLING COLLABORATION
The process of thought that the copywriter
went through would have been familiar to
any good advertising agency. What’s the
objective? To increase the beggar’s takings
from passers-by. What’s the strategy? To
remind passers-by of the deprivations that
the blind suffer. So far, so simple. The
copywriter could have written: “I am blind –
so I can’t see what you can see.” That would
have met the brief all right – but it wouldn’t
have pulled in the dollars.
Instead, he did what talented communicators,
through intuition and training, instinctively
do. Based on his understanding of human
nature, he sought for an idea that would act
as a spur, as a stimulus, that would conjure an
immediate, rich and intense response in the
minds of those passers-by.
Unlike the clumsy alternative, “It’s Spring” is
incomplete: its full significance is imagined
and supplied by the onlooker. And all the
evidence suggests that, in any form of
communication, the more you can entice
your subjects into willing collaboration, the
more successful that communication will be.
Through its sheer efficiency, this kind of
creativity makes marketing money go
further. It may not always look “creative” and
may seldom win creative awards, but it’s
worth a lot more than a piece of silverware.
And it’s particularly valuable when seeking an
immediate response – or “brand activation”
to use the jargon. “It’s Spring” activated a lot
of people to take immediate action.
BRAND-BUILDING
Brand-building calls for a different form of
creativity; though the term needs a bit of
sceptical interrogation (see later).
It’s well-established that successful brands
offer their users more than pure function.
Successful brands have personalities,
images, reputations: people can be fond of
brands; can unselfconsciously describe them
as “friendly” or “bossy” or “generous”. These
characteristics are created in people’s minds
as a result of a multitude of brand associations
that are absorbed at a very low level of
consciousness. Satisfaction with function is
clearly paramount. Other associations may
be advertisements, packaging, sponsorship,
WPP ANNUAL REPORT 2019
49
STRATEGIC REPORT
REMEMBERING TWO
INDUSTRY GREATS
Lester Wunderman, Chairman Emeritus and
founder of Wunderman, the original and largest
direct marketing agency, died on 9 January 2019
in New York. He was 98.
A
trailblazer in the advertising industry,
Mr Wunderman launched a new kind
of advertising agency in 1958 – one
that focused on delivering sales for its
clients. That agency concept caught on and
led to the creation of today’s trillion-dollar
direct marketing industry. The visionary
marketing techniques he conceived and
perfected over his long and brilliant career
transformed the advertising industry and
continue to shape the interactive marketplace.
In an address at Massachusetts Institute of
Technology in 1967 he identified, defined
and set the foundation for today’s direct
marketing industry, earning the title of
“The Father of Direct Marketing”.
While he left the helm of Wunderman in
1998, he reported to work every day at the
agency’s offices, where he often met with
clients, executives and interns alike. He was
revered and respected throughout WPP.
In the same year, he served at the behest
of President Lyndon Johnson to champion
usage and acceptance of the fledgling U.S.
Postal Service’s Zip Code.
Mr Wunderman is fondly remembered by
Sue, whom he married in 1975, his son Marc
and daughter Karen, and three stepchildren,
Patrick, James and Thomas.
A New Yorker throughout his life,
Mr Wunderman was born in 1920 in the
Bronx. After an apprenticeship served
at several agencies, he joined Maxwell
Sackheim & Company in 1947, where he
became executive vice president. In 1958,
he founded Wunderman, Ricotta & Kline,
subsequently known as Wunderman.
Mr Wunderman received many awards
from the industry, including Hall of Fame
designations from the Direct Marketing
Association and the American Advertising
Federation. He received the Golden Apple
from the Direct Marketing Club of New
York and Marketing EDGE’s Lifetime
Achievement Award, while TIME heralded
Mr Wunderman as one of the “Great
Pitchmen over the Years”.
50
WPP ANNUAL REPORT 2019
REMEMBERING TWO INDUSTRY GREATS
Harold Burson, the 20th century’s most
influential PR figure and founder of
Burson-Marsteller, died on 10 January
2020 at the age of 98.
A
leading figure in the transformation of
public relations into a global business,
Mr Burson was a counsellor to and
confidant of chief executive officers and
government leaders across the world. In
1999, a survey by PRWeek named Mr Burson
as “the century’s most influential PR figure”.
Born in 1921 in Memphis, Tennessee, he
enrolled at the University of Mississippi aged
15, covering his tuition as a stringer for the
Memphis Commercial Appeal. He enlisted in
the United States Army in 1943, and in 1945
was assigned to the news staff of the
American Forces Network to report on the
Nuremburg Trial. He was the only reporter
to obtain an interview during the trial with
Associate Justice Robert H. Jackson, the
chief American prosecutor. Mr Burson is
believed to have been the last living reporter
who covered the historic event.
Following his discharge from the army in
1946, he opened his first public relations
firm in New York in “a tiny nook in a
client’s office”.
In 1952 Mr Burson met William A. Marsteller,
with whom his name was linked by a hyphen
for 65 years. The affiliation with Mr Marsteller
developed into a new company, Burson-
Marsteller, which opened in 1953 and offered
“integrated communications services” to
business-to-business clients. By 1983,
Burson-Marsteller was the world’s largest
public relations firm.
He received numerous industry accolades,
and sits in the Hall of Fame of the Public
Relations Society of America, the Arthur W.
Page Society, PRWeek, PR News and the
Institute of Public Relations. He also shares a
place in the Humes High School Hall of Fame
in Memphis with Elvis Presley.
After he stepped down as Chief Executive
Officer of Burson-Marsteller in 1988, Mr
Burson continued to be an engaged and
inspirational presence within the firm that
carries his name, and across WPP as a whole.
Mr Burson was married to Bette for one
month short of 63 years and is survived by
his two sons, Scott and Mark, as well as
five grandchildren.
51
STRATEGIC REPORTWPP ANNUAL REPORT 2019
FINANCIAL
REVIEW
REVIEW OF RESULTS
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.
Reported billings were £53.059 billion, down
0.3%, down 1.4% in constant currency and
down 1.0% like-for-like.
Reported 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.
Reported revenue less pass-through costs
was down 0.3%, down 1.5% in constant
currency and down 1.6% like-for-like, within
the guidance range of -1.5% to -2.0%
re-confirmed in October 2019. In the second
half, like-for-like revenue was up 0.9%, a
significant improvement from the first half of
down 0.9%, with North America, the United
Kingdom and Western Continental Europe
improving, partly offset by Asia Pacific,
Latin America, Africa & the Middle East
and Central & Eastern Europe which were
slower. On the same basis, revenue less
pass-through costs in the second half was
down 0.7%, a significant improvement
over the first half which was down 2.5%,
with North America, Western Continental
Europe and Asia Pacific, Latin America,
Africa & the Middle East and Central &
Eastern Europe stronger.
OPERATING PROFITABILITY
Reported profit before tax fell by 21.9%
to £982 million from £1.258 billion, the
difference between the headline and
reported figures reflecting principally
the £153 million of restructuring and
transformation costs and £48 million of
goodwill impairment charges. In constant
currencies, reported profit before tax fell
by 22.3%.
Reported profit after tax fell by 29.4% to
£707 million from £1.002 billion. In constant
currencies, profits after tax fell 30.3%.
Headline EBITDA was down 5.3% to £1.830
billion, from £1.933 billion the previous year
and down 5.6% in constant currency. 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, profitability and margin
continue to be skewed to the second half
of the year, with the Group earning
approximately 40% of its profits in the first
half and 60% in the second half. Headline
operating profit for 2019 was down 5.5% to
£1.561 billion, from £1.651 billion and down
5.6% in constant currencies.
Headline operating margin1 was down
0.8 margin points to 14.4%, down 0.6 margin
points in constant currency and down
1.2 margin points like-for-like. The difference
between the constant currency and
like-for-like margin reflects the impact of
IFRS 16 Leases. The Group’s operating margin
of 14.4% is after charging £43 million of
severance costs, compared with £30 million
in 2018 and £294 million of incentive
payments, which were 15.8% of operating
profit before incentives, a similar level to
the £311 million or 15.9% in 2018.
The Group’s headline operating margin,
excluding all incentives2 and income from
associates, was 17.1%, down 0.9 margin
points, compared with 18.0% last year.
The Group’s staff costs to revenue less
pass-through costs ratio, including severance
and incentives, increased by 1.5 margin
points to 65.4% compared to 63.9% 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%.
Notes
1
Headline operating profit (excluding income from associates)
as a percentage of revenue less pass-through costs.
2 Short- and long-term incentives and the cost of
share-based incentives.
KEY PERFORMANCE INDICATORS (2019)
-1.6%
Like‑for‑like revenue less
pass‑through costs growth
(2018: -0.2%)
14.4%
Headline operating margin
(2018: 15.2%)
89.3%
Free cash flow conversion1
(2018: 80.2%)
This Strategic report should be read in conjunction with pages 94-137 and pages 198-203. The Group’s key performance indicators are discussed in further detail in this report.
This Strategic report includes figures and ratios that are not readily available from the financial statements. Management believes that these non-GAAP measures, including constant
currency and like-for-like growth, and headline profit measures, are both useful and necessary to better understand the Group’s results. Where required, details of how these have
been arrived at are shown in note 32 to the financial statements and are defined in the glossary on pages 204 and 205.
Note
1
Free cash flow conversion is the ratio of free cash flow to headline earnings. Free cash flow is after earnouts and changes in working capital and before new acquisition
spend, disposals and shareholder distributions. Free cash flow conversion represents total continuing and discontinued operations.
52
STRATEGIC REPORT WPP ANNUAL REPORT 2019 FINANCIAL REVIEW
STRATEGIC REPORT
EXCEPTIONAL GAINS AND
RESTRUCTURING AND
TRANSFORMATION COSTS
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.
DISCONTINUED OPERATIONS
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.
INTEREST AND TAXES
Net finance costs (excluding the revaluation
of financial instruments and interest expense
on lease liabilities) were £160 million,
compared with £180 million in 2018,
a decrease of £20 million.
The headline tax rate was 22.0% (2018:
20.7%) and on reported profit before tax was
28.0% (2018: 20.4%). The difference in the
reported tax rate in 2019 was principally due
to the revaluation 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.
EARNINGS
Headline profit before tax was down 11.7%
to £1.363 billion from £1.543 billion, and down
11.6% in constant currencies.
Profits attributable to shareholders fell
33.0% to £628 million from £937 million,
again reflecting principally the £153 million
of restructuring and transformation costs
and £48 million of goodwill impairment.
In constant currencies, profits attributable
to shareholders fell by 33.8%.
Headline diluted earnings per share, for
continuing and discontinued operations, fell
by 14.2% to 92.7p from 108.0p. In constant
currencies, earnings per share on the same
basis fell by 14.9%. Reported diluted earnings
per share, on the same basis, fell by 41.3% to
49.5p from 84.3p and decreased 42.3% in
constant currencies.
REGIONAL REVIEW
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% on the first half as
the negative effect of some of the 2018
client assignment losses started to ease.
REVENUE LESS PASS-THROUGH COSTS GROWTH V 2018
%
-1.6
Like-for-like
Acquisitions
FX
Reported
+0.1
+1.2
-0.3
53
WPP ANNUAL REPORT 2019
STRATEGIC REPORT FINANCIAL REVIEW
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.
REVENUE ANALYSIS
£ million
N. America
United Kingdom
W. Cont. Europe
AP, LA, AME, CEE4
Total Group
2019
4,855
1,797
2,629
3,953
13,234
∆ reported
0.1%
0.6%
1.5%
3.5%
1.4%
∆ constant1
-4.1%
0.6%
2.9%
3.6%
0.2%
∆ LFL2
-5.0%
1.8%
1.5%
4.7%
0.0%
∆ LFL
-5.7%
0.3%
0.7%
1.4%
‑1.6%
20183
4,852
1,785
2,590
3,820
13,047
2018
4,060
1,394
2,183
3,239
10,876
REVENUE LESS PASS-THROUGH COSTS ANALYSIS
£ million
N. America
United Kingdom
W. Cont. Europe
AP, LA, AME, CEE
Total Group
2019
4,034
1,390
2,177
3,246
10,847
∆ reported
-0.6%
-0.3%
-0.3%
0.2%
‑0.3%
∆ constant
-4.7%
-0.3%
1.0%
0.4%
‑1.5%
HEADLINE OPERATING PROFIT ANALYSIS
£ million
N. America
United Kingdom
W. Cont. Europe
AP, LA, AME, CEE
Total Group
2019
662
188
262
449
1,561
% margin*
16.4%
13.6%
12.0%
13.8%
14.4%
2018
711
180
289
471
1,651
% margin*
17.5%
12.9%
13.3%
14.6%
15.2%
* Headline operating profit as a percentage of revenue less pass-through costs.
Notes
1 Percentage change at constant currency exchange rates.
2 Like-for-like growth at constant currency exchange rates and excluding the effects of acquisitions and disposals.
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 Group’s accounting policies.
4 Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe.
REVENUE LESS PASS-THROUGH COSTS GROWTH BY REGION V 2018
%
North America
United Kingdom
-0.6
Western Continental Europe
Asia Pacific, Latin America, Africa & the
Middle East and Central & Eastern Europe
Total
-0.3
-0.3
-0.3
+0.2
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.
54
WPP ANNUAL REPORT 2019
FINANCIAL REVIEW
STRATEGIC REPORT
BUSINESS SECTOR REVIEW
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.
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.
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.
REVENUE ANALYSIS
£ million
Global Integrated Agencies
Public Relations
Specialist Agencies
Total Group
2019
10,205
957
2,072
13,234
∆ reported
2.8%
2.7%
-5.1%
1.4%
∆ constant1
1.5%
0.5%
-6.2%
0.2%
REVENUE LESS PASS-THROUGH COSTS ANALYSIS
£ million
Global Integrated Agencies
Public Relations
Specialist Agencies
Total Group
2019
8,108
898
1,841
10,847
∆ reported
0.5%
2.1%
-4.4%
‑0.3%
∆ constant
-0.7%
-0.1%
-5.6%
‑1.5%
∆ LFL2
1.4%
-0.7%
-5.9%
0.0%
∆ LFL
-0.7%
-1.0%
-5.6%
‑1.6%
20183
9,931
932
2,184
13,047
2018
8,071
880
1,925
10,876
HEADLINE OPERATING PROFIT ANALYSIS
£ million
Global Integrated Agencies
Public Relations
Specialist Agencies
Total Group
2019
1,220
141
200
1,561
% margin*
15.0%
15.7%
10.9%
14.4%
2018
1,228
139
284
1,651
% margin*
15.2%
15.8%
14.7%
15.2%
* Headline operating profit as a percentage of revenue less pass-through costs.
Notes
1 Percentage change at constant currency exchange rates.
2 Like-for-like growth at constant currency exchange rates and excluding the effects of acquisitions and disposals.
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 Group’s accounting policies.
REVENUE LESS PASS-THROUGH COSTS BY BUSINESS V 2018
%
Global Integrated Agencies
Public Relations
Specialist Agencies
-4.4
Total
-0.3
+0.5
+2.1
55
WPP ANNUAL REPORT 2019
STRATEGIC REPORT FINANCIAL REVIEW
CASH FLOW HIGHLIGHTS
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
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.
Free cash flow conversion1 in 2019 was 89%
(2018: 80%).
Note
1
Free cash flow conversion is the ratio of free cash flow to
headline earnings. Free cash flow is after earnouts and
changes in working capital and before new acquisition spend,
disposals and shareholder distributions.
BALANCE SHEET HIGHLIGHTS
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.
RETURN OF FUNDS TO SHAREHOLDERS
Funds returned to shareholders in 2019
totalled £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.
OUTLOOK
FINANCIAL GUIDANCE
We have made good progress with our
three-year strategy during 2019, creating
a simpler business, making significant
investments for future growth and
strengthening our balance sheet. Our
financial performance in the second half
of the year showed an encouraging
improvement over the first half.
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. Revenue less pass-through costs was
£2.366 billion, down 4.3% on a reported
basis, down 4.0% in constant currency and
down 3.3% like-for-like. In March, like-for-like
revenue less pass-through costs was down
7.9% as the impact of Covid-19 began to be
felt more widely across our business.
BALANCE SHEET, LIQUIDITY
AND HEADROOM
WPP has a strong balance sheet and good
liquidity. Over the last two years, we have
raised approximately £3.2 billion from our
disposals programme, selling 50 businesses
and investments.
As at 31 December 2019 we had cash of
£3.0 billion and total liquidity, including
undrawn credit facilities, of £4.8 billion.
Net debt was £1.5 billion, down from
£4.0 billion a year earlier. Our year-end
net debt/headline EBITDA ratio was 0.8x,
compared to 2.1x the previous year.
NET DEBT
£ million
4,483
4,131
4,017
3,211
1,540
2015
2016
2017
2018
2019
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WPP ANNUAL REPORT 2019
FINANCIAL REVIEW
STRATEGIC REPORT
Our covenants, which relate to our $2.5
billion revolving credit facility, are <3.5x net
debt/EBITDA and >5x EBITDA/net interest.
Our bond portfolio at the 2019 year-end had
an average maturity of 8.2 years, with only
a May 2020 €250 million Eurobond due in the
next two years.
Given the significant uncertainty 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 has suspended 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.
COST REDUCTION MEASURES
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.
CASH CONSERVATION MEASURES
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.
For more information on our
strategy see pages 16‑47
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WPP ANNUAL REPORT 2019
SUSTAINABILITY
At WPP we use the power
of creativity to build better
futures for our people, clients
and communities.
WHY SUSTAINABILITY MATTERS
As the last decade drew to a close, the
World Meteorological Organization
confirmed it was the warmest on
record. Australia experienced its hottest,
driest year, leading to devastating bush
fires, while the Indonesian capital
Jakarta saw deadly floods caused by the
heaviest rainfall since records began.
Climate activism continues to grow as
people demand change. More and more
companies across sectors see both the
opportunities and the imperative to act.
Consumers and investors increasingly
expect businesses to act with
purpose and offer inclusive and
sustainable products.
There is increasing evidence that
sustainable business drives profit
and long-term value – sustainable
investment assets were valued at
$30 trillion in 2018, up a third from
20161, while companies with long-term
strategies are outperforming their
peers financially2.
Meanwhile, the United Nations’ Decade
of Action to 2030 will see accelerated
efforts to end poverty, inequality and
environmental harm, and deliver the
Sustainable Development Goals. More
than ever, sustainable business models
are needed that will enable society to
survive and thrive in the new decade
and beyond.
Our clients must navigate complex
social, environmental and economic
pressures against a backdrop of skills
shortages, demographic shifts, political
uncertainty, and a consumer base
increasingly impatient for change.
“OUR INDUSTRY HAS
A RESPONSIBILITY TO
USE OUR POWERS FOR
GOOD – TO INFLUENCE
NORMS AND CHANGE
BEHAVIOUR. WE CAN’T
WAIT FOR OTHERS
TO ACT: IT’S UP TO US
TO LEAD THE WAY.”
Andrea Harris
Group Chief Counsel
and Head of Sustainability
1 Global Sustainable Investment Alliance 2018 Global Sustainable
Investment Review.
2 Harvard Business Review.
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STRATEGIC REPORTWPP ANNUAL REPORT 2019 SUSTAINABILITY
SHUT DOWN
TO OPEN UP
AGENCIES
VMLY&R AND WAVEMAKER
CLIENT
GAZETA.PL
When liberal news portal Gazeta.pl wanted to start
a national debate in Poland about everyday sexism
and gender inequalities, they turned to VMLY&R
and Wavemaker for help. The agencies suggested
they team up with MasterCard and BNP Paribas to
buy Twój Weekend (Your Weekend), one of Poland’s
longest-running and most-read adult magazines.
And then close it down. Before they shut it down,
the team reimagined its last issue, The Women’s
Issue, filling regular sections and columns with
content on gender portrayal, sexism, equal rights
and more. The project was supported by an
advertising campaign, including outdoor, media,
cinema, radio, press, social media and online.
4.5m
organic reach
25m
media
impressions
Winner
Cannes Titanium Lion, Grand Prix,
and three bronze Lions
59
STRATEGIC REPORTWPP ANNUAL REPORT 2019
STRATEGIC REPORT SUSTAINABILITY
We continue to support our
clients as evidence mounts
of the need for sustainable
innovation and growth.
OUR RESPONSE
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.
SUSTAINABILITY AND OUR STRATEGY
Our sustainability strategy supports all five
elements of our corporate strategy, which
we launched in late 2018. The table opposite
sets out the most material ways in which
sustainability supports our strategy.
UNITED NATIONS SUSTAINABLE
DEVELOPMENT GOALS (SDGs)
We support the UN SDGs as a framework
for government agencies, civil society, the
private sector and citizens to work together
to create a more sustainable future.
We have analysed the 17 Global Goals and
the 169 targets which sit behind them to
identify those which are most relevant for
our business. To learn more about the Goals
we believe we can make the most significant
contribution towards, see page 11 of our full
Sustainability Report 2019, available as a
PDF download.
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WPP ANNUAL REPORT 2019
SUSTAINABILITY
STRATEGIC REPORT
STRATEGIC ELEMENT
SUSTAINABILITY STRATEGY
VISION
& OFFER
CREATIVITY
DATA &
TECHNOLOGY
SIMPLER
STRUCTURE
A STRONGER OFFER FOR OUR CLIENTS
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.
A stronger offer
for our clients,
see page 64
Transparency and trust,
see pages 76 and 77
SOCIAL INVESTMENT
Our pro bono work can make a significant
difference to charities and 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.
Social investment,
see page 66
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.
Attracting and
retaining talent,
see pages 68‑70
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.
Privacy and data
ethics, see page 78
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 we occupy and
moving to Campus locations that: use green
building standards; reduce our impact; help us
to use space more efficiently; and encourage
collaboration between our companies.
Environment,
see page 72
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.
Attracting and
retaining talent,
see pages 68‑70
Supply chain,
see page 74
A NOTE ON OUR SUSTAINABILITY DATA
During 2019 we agreed the sale of 60% of Kantar
to Bain Capital. To ensure comparability to 2019
figures, which exclude Kantar, prior year figures
have been restated. 2018 figures, and 2017’s
where provided, have been restated in sections
highlighted with the symbol K .
For our full review of our sustainability
activities and outcomes, download our
Sustainability Report 2019.
wpp.com/sustainability
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WPP ANNUAL REPORT 2019
STRATEGIC REPORT SUSTAINABILITY
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WPP ANNUAL REPORT 2019
SUSTAINABILITY
STRATEGIC REPORT
STRENGTH
IN NUMBERS
AGENCY
SANTO BUENOS AIRES
CLIENT
SPRITE
Sprite wanted to show Gen Z that there
should not be any topics they feel too
uncomfortable to talk about. So Santo
launched You Are Not Alone, a series of
forums on Reddit where young people can
express their feelings on issues that make
them feel isolated. To get the conversation
started, Santo asked influencers to share
their own experiences to show people
they are not alone.
80%
increase in positive
sentiment
300%
increase in
free media
20x
more consumer
engagement than
previously
November 2019
WPP ANNUAL REPORT 2019
63
STRATEGIC REPORT SUSTAINABILITY
PUTTING SUSTAINABILITY
AT THE HEART OF OUR
OFFER FOR CLIENTS
The work we do for our clients reaches billions
of people each year, presenting our greatest
opportunity to create positive change.
Our clients must balance a complex set
of social and environmental challenges
with changing consumer expectations
and constant technological developments.
While challenging, today’s landscape also
offers major opportunities to create new
markets for more inclusive and sustainable
products and services.
WORK WITH IMPACT
In response, our clients increasingly aspire to
generate a lasting positive impact through
their brands and look to us to help them
express and enhance that impact through
brand purpose and strategy, communications
and marketing. The breadth and depth of our
expertise means we can offer clients the
latest technology alongside the creativity
and sustainability expertise needed to
inspire consumers and help shift behaviour
to more sustainable norms.
This work is of growing importance to WPP.
We are already engaging with corporate,
government and NGO clients on issues
ranging from plastic waste to human rights
during the development of brand strategies
or campaigns.
For example, in November, Mindshare’s 7,000
people spent the agency’s 22nd anniversary
connecting with the scale and urgency of
the climate crisis and how through their
work they could be part of the solution
with #ChangeTheBrief, an invitation for the
advertising industry to use its skills to tackle
the issue. #ChangeTheBrief is about creating
work which answers the “Now” brief, but also
the “Future” brief, to encourage the attitudes,
lifestyles and behaviours which are consistent
with a transition to a carbon-free world.
As part of Mindshare Day, the network
took live briefs from Unilever to generate
#ChangeTheBrief ideas.
Recognising our clients’ growing focus on
sustainable products and practices, we
continue to strengthen our offer to ensure
we can provide our clients with the best
support and the expertise they need to do
well by doing good.
COMPLIANCE WITH MARKETING
STANDARDS
Marketing is powerful – it can change
attitudes and behaviour. It is critical that we
apply high ethical standards to our work to
ensure those changes are for the better. We
work hard to maintain high standards and
strong compliance in areas such as ethics,
human rights, privacy and data security.
We require that all the work our companies
produce for clients complies with all relevant
legal requirements, codes of practice and
marketing standards. There are occasional
complaints made about campaigns we have
worked on, and some of these are upheld
by marketing standards authorities. Our
companies take action where needed to
prevent a recurrence.
Our agencies have policies and processes
to mitigate against online advertising
appearing on sites with illegal, illicit or
unsuitable content.
ETHICAL DECISIONS IN OUR WORK
We have a review and referral process for
work that may present an ethical risk, such as
work for government clients, work relating to
sensitive products or marketing to children.
Before our people can accept potentially
sensitive work, they must elevate the
decision to the most senior person in the
relevant office and then to the most senior
WPP executive in the country concerned,
who will decide if further referral to a global
WPP executive is required. This referral
process is covered in our How We Behave
online training, which will contain a new
sustainability module from 2020 onwards.
Our companies also have copy-checking
and clearance processes for the legal team
to review campaigns before publication.
These processes have strict requirements
in highly regulated sectors such as
pharmaceutical marketing.
In 2019, WPP established Risk Committees
with the aims of ensuring accountability at
both the enterprise and network level and
to review, monitor and advise on risk and
compliance throughout all of our businesses
and markets. Duties include providing reports
and insights on current risk exposures,
identifying new risk types and tracking
and pro-actively addressing any breaches
of risk limits.
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
For more examples of our client and pro bono work
to address social and environmental issues,
download our Sustainability Report 2019.
wpp.com/sustainability
64
WPP ANNUAL REPORT 2019
SUSTAINABILITY
STRATEGIC REPORT
LEADING THE
CHARGE
AGENCY
FAMOUSGREY
CLIENT
VOLVO
Volvo asked FamousGrey to help
them answer this question: what is
the use of driving electric if you do
not charge your car with green
energy? To help meet this challenge,
the agency created Volts by Volvo,
a new energy contract for homes
which provides 100% green
electricity, so that drivers are not
only using electric cars, but also
charging them with green energy.
And with the energy generated from
both wind and solar and provided by
green energy expert Eneco, the result
is clear: no impact, zero emissions.
7.5m
Belgians reached
(population 11 million)
71%
said they would
re‑evaluate their
electricity contract in a
post‑campaign survey
1 in 4
drivers of electric cars
engaged with the Volts
by Volvo platform
April 2019-January 2020
WPP ANNUAL REPORT 2019
65
STRATEGIC REPORT SUSTAINABILITY
SOCIAL
INVESTMENT
Charities and non-governmental organisations
(NGOs) do vital work, often with limited resources.
We can help boost their impact by providing
communications and creative services on a
pro bono basis (for little or no fee).
This work is mutually rewarding. While
enabling our voluntary sector clients to
raise money and awareness, recruit
members, and achieve campaign objectives,
pro bono work also provides opportunities
for our people to work on fulfilling and often
award-winning campaigns that raise the
profile of our companies.
WHAT WE GAVE IN 2019 K
Our pro bono work was worth £10.6 million
in 2019 (2018: £11.3 million), for clients
including UN Women and WildAid.
We also made cash donations to charities of
£5.2 million (2018: £5.7 million). This resulted
in a total social investment of £15.8 million
(2018: £17.0 million), equivalent to 1.60% of
reported pre-tax profits (2018: 1.35%).
WPP media agencies negotiated free media
space worth £18.9 million on behalf of pro
bono clients (2018: £23.8 million), making
our total social contribution for the year
£34.7 million (2018: £40.8 million).
VOLUNTEERING K
In addition to providing donations and pro
bono services, we encourage our people
to volunteer their time. Half of our companies
have formal volunteering policies in place
(2018: 41%), and 61% (2018: 54%) organised
volunteering activities for their people
during 2019. For example, VMLY&R
celebrated its first anniversary in September
by closing all 82 offices so its 6,500 people
could volunteer to support their local
communities, a celebration that will be
repeated each year.
SOCIAL IMPACT
Our support helps charities and NGOs to
continue and grow their work in critical areas
such as improving health and education,
reducing inequality and protecting human
rights. Pro bono work is often worth more
than an equivalent cash donation as it raises
awareness of our partners’ work while
helping to increase donations, recruit
members, change behaviour and achieve
campaign goals. We have conducted
research to quantify this wider impact.
Our most recent analysis shows that in 2019
our pro bono work created wider social
benefits worth £92 million (2018: £91 million).
This includes, for example, the impact of
charities being able to improve health and
wellbeing in communities. Adding in our
charitable donations and free media space as
well as our pro bono work, the wider social
benefits created in 2019 were worth an
estimated £291 million (2018: £331 million).
COMMON GROUND INITIATIVE
Good communications are essential to bring
about the shift in attitudes and behaviour
needed to end extreme poverty, inequality
and climate change by 2030. Common
Ground is a collaboration between the
world’s six largest advertising and marketing
services groups and the United Nations,
created to serve that purpose.
We work directly with the UN through our
Common Ground initiative, partnering with
UN Women to tackle gender inequality.
The greatest contribution we can make
towards the SDGs is through our client and
pro bono work.
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WPP ANNUAL REPORT 2019
£92m
wider social
benefits created
by pro bono work
in 2019
£291m
wider social
benefits from
pro bono work,
charitable
donations and free
media space in 2019
Read our Quantifying our impacts report and see
more examples of our pro bono work in our
Sustainability Report 2019.
wpp.com/sustainability
SUSTAINABILITY
STRATEGIC REPORT
CODE OF
CONSCIENCE
AGENCY
AKQA
CLIENT
NGOs WORLDWIDE
A third of the world's protected
nature reserves are under threat, with
illegal deforestation a leading cause.
Alongside a group of global NGOs,
AKQA launched Code of Conscience:
open source software that restricts
the use of heavy-duty vehicles in
protected areas. The code is available
for free and, for the first time, gives
heavy-duty vehicle manufacturers the
opportunity to be part of the solution
to illegal deforestation. An invitation
comprising the Code of Conscience
chip embedded in a wooden
sculpture of an endangered animal
has been sent to the CEOs of the
world’s top-ten construction
equipment manufacturers, with a
vision for all new machines to leave
the factory with Code of Conscience
pre-installed.
10
manufacturers
sent the code
2
countries considering
making the code law
100+
coverage in over 100 countries,
sparking positive change
WPP ANNUAL REPORT 2019
67
STRATEGIC REPORT SUSTAINABILITY
ATTRACTING AND
RETAINING TALENT
The insights, creativity, and expertise of our people
are what bring our clients to our door. Our success
depends on hiring and retaining the brightest, most
forward-thinking people with the best and most
original ideas.
ENGAGEMENT AND FEEDBACK K
We use formal and informal mechanisms to
assess and improve employee engagement
and satisfaction.
Employee surveys help us assess and act on
engagement and satisfaction levels. In 2020,
we will launch our first Company-wide
employee survey. We conducted the first
inclusion survey in the UK this year and are
currently analysing the results.
The vast majority (95%) of our companies
carry out exit interviews with leavers, which
often provide helpful feedback on our
culture and practices.
To ensure our Board understands the views
of our employees on WPP’s purpose, values
and strategy, in 2019 we established our first
People Forum in the UK. Sponsored by our
UK Country Manager, the Forum has
representatives from across our UK business
who gather feedback from their agencies
to feed up to the WPP Board. The Board also
consults the Forum on key people issues. In
2020, we will roll out an India People Forum
representing employees from Mumbai, Delhi
and Bangalore.
SKILLS, TRAINING AND DEVELOPMENT K
By investing in training and development,
we strengthen our creative, technical and
leadership skills. Providing our people
with opportunities for training and for
professional and personal development
also helps keep them engaged in their
work and with the Company.
In 2019, we spent £38.7 million on training
(2018: £36.6 million) and 66% of our people
took part in an average 11 hours of formal
training per person. In addition, almost
60,000 people accessed online courses
through LinkedIn Learning (previously
Lynda.com), which provides access to
thousands of courses via desktop or
mobile devices.
We follow up with training participants to
assess the effectiveness of a course and
whether it has helped improve performance
at work.
Development needs are assessed during
a formal appraisal process. In 2019, 86%
(2018: 87%) of our people had a formal
appraisal, including 360-degree appraisals
for 65% (2018: 66%) of executive leaders
and 64% (2018: 66%) of senior managers.
Our people can find new roles within our
companies in the UK, China and Singapore
using our online job board, Springboard.
In 2019, 24% (2018: 23%) of vacancies were
filled by people already working within
the Company.
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WPP ANNUAL REPORT 2019
SUSTAINABILITY
STRATEGIC REPORT
GENDER BALANCE K
Our overall workforce has an equal gender
balance and 50% of our senior managers are
women (2018: 49%). During the year the
proportion of women in executive leadership
roles increased slightly to 37% (2018: 36%). At
Board level, the proportion of women is 40%,
compared with 33% in 2018 and a FTSE 100
average of 32.4%. We aim to reach parity.
In 2019, WPP joined the 30% Club, a
campaign group of Chairs and CEOs taking
action to increase gender diversity on
boards and management teams to a
minimum of 30% female representation.
We remain a committed signatory of the
Women’s Empowerment Principles, a guide
for businesses on how to empower women in
the workplace, marketplace and community.
We are also a proud partner of UN Women,
which is a significant beneficiary of our pro
bono work.
Our WPP Stella network expanded to France
and the United States in 2019, in addition to
being active in India, Italy, Mexico, South
Africa, Taiwan and the UK. It aims to tackle
barriers that may prevent women progressing
to the most senior roles. It runs events,
networking opportunities, coaching and
training and maintains a speaker database
to raise the internal and external profile of
our senior women.
GENDER DIVERSITY
Board and Executive
37% (1,513)
36% (1,452)
Senior Managers
63% (2,577)
2019
64% (2,614)
2018
50% (8,689)
50% (8,578)
2019
49% (8,474)
51% (8,792)
2018
All other employees
57% (47,625)
43% (36,118)
2019
56% (47,131)
44% (36,630)
2018
Total employees
55% (57,827)
45% (47,273)
2019
54% (57,057)
46% (48,036)
2018
Female
Male
AGE DIVERSITY
19 or under <1%
20–29 37%
30–39 37%
40–49 17%
50–59 7%
60 and over 1%
LABOUR RELATIONS K
We support the rights of our people to join
trade unions and to bargain collectively,
although trade union membership is not
particularly widespread in our industry.
In 2019, around 5% of our employees were
either members of a trade union or covered
by a collective bargaining agreement (2018:
6%). We held 1,507 consultations with works
councils, mainly in Europe (2018: 476).
We have made around 3,500 redundancies
as part of our transformation programme, as
we merge and restructure some agencies
and as a result of changes in our client base.
We aim to support affected people through
our employee assistance programmes.
INCLUSION AND DIVERSITY
Different backgrounds and perspectives are
what drive creativity. A diverse and inclusive
workplace is essential to our daily work and
our long-term success. We work hard to
make all our people feel valued and fulfilled
at work, regardless of gender, ethnicity, age
or disability.
WPP does not tolerate harassment, sexual
harassment, discrimination or offensive
behaviour of any kind. We select and promote
our people based on their qualifications and
merit, without discrimination or concern for
factors such as race, religion, national origin,
colour, sex, sexual orientation, gender
identity or expression, age, or disability.
Our Code of Business Conduct sets out this
commitment, applies to all our people and is
available on our website, in our Policy Book
and on our intranet. Our online ethics
training, How We Behave, covers diversity
and unconscious bias.
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WPP ANNUAL REPORT 2019
STRATEGIC REPORT SUSTAINABILITY
DAYS LOST DUE TO SICKNESS
3.9
3.1
3.8
417,707
404,381
330,264
2017
2018
2019
Days lost due to sickness
Days lost per person
HEALTH, SAFETY AND WELLBEING K
Supporting our people’s physical and mental
health and wellbeing is good for our people
and good for business. The main health and
safety hazards in our business are work-
related stress and ergonomic injuries. 71% of
our companies employ someone responsible
for health and safety management
(2018: 78%). There were no work-related
fatalities in 2019.
The range of programmes on offer in our
businesses include fitness facilities and
subsidised gym memberships; health and
nutrition services, including health insurance
and medical assessments; counselling and
employee assistance services; and ergonomic
risk assessments and specialist equipment.
MENTAL HEALTH
Work-related stress is one of our main
– and growing – health and safety hazards.
Though having good policies and procedures
in place for managing mental-health issues
is important, we also need a working culture
where people feel able to discuss concerns
and seek support. In countries where very
long working hours are the norm, our
companies need to take additional measures.
These can include overtime restrictions
and monthly management reviews of
overtime worked.
DISABILITY
We recruit, select and promote our people
on the basis of their qualifications, relevant
experience, and merit, without discrimination
or concern for disability. Candidates are
assessed objectively against the requirements
of the job, taking account of any reasonable
adjustments that may be required for
candidates with a disability. For people
who develop a disability during their
employment, we make adjustments to their
working environment or other employment
arrangements wherever possible, within a
reasonable time frame and in consultation
with the employee.
As an inclusive business we have signed
up to the Valuable500, a global initiative
that is putting disability on the boardroom
agenda and celebrating inclusion among
500 influential businesses. As part of our
commitment, we launched our new
Inclusive Experience Practice, which helps
brands to reach and be relevant to the
widest market possible by making their
communications, products and services
inclusive and accessible.
FLEXIBLE WORKING AND
PARENTAL LEAVE K
Flexible working can make work accessible
to a broader pool of talent, including parents
and people with caring responsibilities,
helping to create a more diverse and engaged
workforce. We estimate 24% of our workforce
had flexible working arrangements in place
in 2019, such as part-time working, flexible
hours and home working, as well as career
breaks and sabbaticals (2018: 25%).
More than half (55%) of our companies offer
parental leave benefits that exceed local
legal requirements (2018: 48%).
To learn more about our programmes, including
information about our training programmes and
our development programmes that support our
senior and mid-level women, download our
Sustainability Report 2019.
wpp.com/sustainability
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WPP ANNUAL REPORT 2019
SUSTAINABILITY
STRATEGIC REPORT
INTO THE
SPOTLIGHT
AGENCY
WUNDERMAN THOMPSON
CLIENT
LUX (UNILEVER)
Despite changing attitudes towards
women and work in Saudi Arabia,
only 16% of the workforce is female.
The Unilever brand Lux turned to
Wunderman Thompson to highlight
women when people searched online
for male-dominated jobs.
The agency launched
#IntoTheSpotlight on International
Women’s Day and used paid search
results on Google to profile leading
women in the relevant fields. Linking
to content on Mira, a joint venture
between Unilever and Vice, this
meant when someone searched for
“photographers” it took the user to
videos and information about leading
fashion photographer Huda Beydoun.
15-20%
increase in inquiries
for the featured
professionals
870,000
people reached
across Saudi Arabia
on International
Women’s Day 2019
71
STRATEGIC REPORTWPP ANNUAL REPORT 2019
STRATEGIC REPORT SUSTAINABILITY
ENVIRONMENT
We support urgent action to tackle the
climate crisis and aim for net zero carbon
emissions in our Campuses by 2025.
OUR CLIMATE STRATEGY K
We recognise the major threat that climate
change and environmental degradation pose
to global social and economic development.
We support urgent action to tackle the
climate crisis through the Paris Agreement.
Our environmental management
programmes are reducing our carbon
emissions and broader environmental
impact, while helping us to identify and
mitigate climate-related risk. These
programmes reduce costs and business
risks, while meeting our clients’ and
colleagues’ expectations.
TASKFORCE ON CLIMATE-RELATED
FINANCIAL DISCLOSURES
We support the Taskforce on Climate-related
Financial Disclosures (TCFD) and are
developing our disclosures in line with its
recommendations. The TCFD seeks to
encourage businesses to disclose climate-
related risks and opportunities and is
structured around four themes: governance,
strategy, risk management, and metrics
and targets.
For our second TCFD disclosure, see pages 196
and 197.
For our carbon emissions statement, see page 199.
In 2019, 25% of our floorspace was certified
to advanced sustainability standards such as
LEED and BREEAM, meeting our 2020 target
a year early.
CIRCULAR ECONOMY
In 2019, WPP committed to take the “plastic”
out of “Wire and Plastic Products” (the
original name of the Company) 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.
Phasing out single-use plastics across our
offices is an ambitious goal but our greatest
impact is through our client work. We have
worked with more than 60 clients to help
them reduce their own single-use plastics use,
on briefs ranging from product and
packaging design and innovation to consumer
engagement and behaviour change.
PERFORMANCE SUMMARY
SCOPE 1 AND 2 (MARKET BASED)
TONNES CO2e EMISSIONS PER PERSON
K
CARBON OFFSETS PURCHASED
tCO2e
2.0
1.5
1.0
0.5
Headcount intensity
Target headcount intensity
89,518 85,459
65,014
0.60
4.87
0.41
ELECTRICITY FROM RENEWABLE
SOURCES
%
K
100
32
35
26
07
11
15
19
23
27
30
2017
2018
2019
Our scope 1 and 2 market-based emissions for 2019
were 0.60tCO2e/head, a 21% reduction from 2018.
Our carbon intensity per £1 million revenue was
4.87 tCO2e/head, a 22% reduction since 2018.
Since 2007 we have purchased and permanently
retired 1.55 million carbon credits to offset our
carbon emissions from air travel. We offset 100%
of our air travel emissions in 2019.
2017
2018
2019 2025
target
We increased the percentage of electricity purchased
from renewable sources to 35% (2018: 32%), making
substantial progress towards our 50% target.
TARGETS AND COMMITMENTS
0.41
tonnes of CO2e per employee by
2030, a 50% reduction from 2017
Net zero
carbon emissions in our
Campuses by 2025
100%
renewable electricity by 2025
in line with RE100
100%
of emissions from air travel offset
through the purchase of high‑quality
carbon credits since 2011
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WPP ANNUAL REPORT 2019
SUSTAINABILITY
STRATEGIC REPORT
CHALLENGING
MEATY NORMS
AGENCY
DAVID
CLIENT
BURGER KING
In the United States, animal farming
is responsible for half of the carbon
emissions released into the
atmosphere, even if it is only
responsible for 3% of the calories in
our diet (LCA Impossible Foods 2019).
When Burger King wanted to reduce
the environmental impact of the
Whopper, they turned to DAVID
to help get meat-eaters to try
something new. The Impossible
Whopper looks, smells and tastes
just like a Whopper should, but the
plant-based patty delivers that same
great Whopper taste with an 89%
drop in carbon emissions. It is almost
impossible to believe that helping
the planet could taste so good.
13bn
impressions
10yrs
best‑selling
product launch
in 10 years
$140m
in earned media
89%
reduction in GHG
emissions achieved
by each Impossible
Whopper compared
to meat‑based
equivalents
April 2019
To learn more about our approach
to environmental management,
our full performance and our approach
to carbon emissions accounting,
download our Sustainability
Report 2019.
wpp.com/sustainability
EVERYDAY
CLIMATE ACTION
AGENCY
H+K STRATEGIES
CLIENT
DOCONOMY
When Swedish fintech Doconomy
wanted to find an innovative solution
to addressing the climate crisis, they
turned to H+K Strategies. Alongside
RBK Communication, H+K helped
them create DO Black: a credit card
with a carbon emission limit, which
stops you from overspending not
based on available funds but on the
impact caused by your consumption.
It blocks transactions exceeding the
CO2 limit, disables the credit card and
notifies the cardholder, giving people
a real feel for their carbon footprint.
$100m
in earned media
80+
banks and credit card companies
discussing collaboration
10,000+
registered users
in Sweden
Winner
Cannes Grand Prix and a silver Lion
April 2019-January 2020
73
WPP ANNUAL REPORT 2019
STRATEGIC REPORT SUSTAINABILITY
SUPPLY CHAIN
We expect the companies we work with to meet
high ethical, human rights, workplace and
environmental standards. However, with over
130,000 companies in our supply chain, some risks
will remain. We endeavour to mitigate these risks.
Our Group procurement team is led by our
new Chief Procurement Officer and manages
centrally negotiated contracts with preferred
suppliers. A significant proportion of
additional procurement is delivered through
contracts negotiated by budget holders
within our operating companies.
In 2019, we commissioned an independent
consultancy to assess the maturity of our
supply chain management policies and
processes. Following this evaluation, our
Chief Procurement Officer is leading a
complex programme of activities designed
to evaluate and implement a modernised
procurement ecosystem and infrastructure.
Working with Group Procurement, the
sustainability team is conducting an
exploratory project on how to embed new
controls and processes to develop a more
mature responsible sourcing programme.
SOURCING STANDARDS
Our expectations of suppliers are set out
in our Supplier Code Of Conduct, which
includes requirements relating to labour
practices (such as anti-harassment and
discrimination, and health and safety), human
rights (including modern slavery issues such
as child, forced or bonded labour), social
impacts (such as anti-bribery and corruption)
as well as other sustainability issues.
Our Code requires suppliers to apply similar
standards to companies within their own
supply chain.
SUPPLIER SELECTION
We evaluate potential new suppliers on
factors such as assurance of supply, quality,
service, cost, innovation and sustainability.
To continue to strengthen our due diligence,
in 2019 we completed the roll-out of two
additional supplier pre-selection
questionnaires across 12 of our largest
markets. Any “flags” raised in this process
are immediately sent to the global
sustainability team for investigation before
any further onboarding takes place.
Our most direct impact on human rights
is as a major employer. We recognise the
rights of our people, including those relating
to freedom of association and collective
bargaining, and we do not tolerate harassment
or any form of forced, compulsory or child
labour. Human rights are included in the
ethics training completed by all employees,
which we updated during the year as part
of a wider commitment.
See attracting and retaining talent, from page 68
SUPPLIER DIVERSITY
We work with many small and diverse
suppliers and this can be a source of new
ideas and creativity. In the United States,
around 1.6% of spend (2018: 2.1%) is
with certified diverse suppliers including
women- and minority-owned businesses.
HUMAN RIGHTS
Respect for human rights is a fundamental
principle for WPP. We aim to prevent,
identify and address any negative impacts
on human rights associated with our
business activities.
We look for opportunities to promote human
rights, in areas such as our pro bono work.
Our Human Rights Policy Statement
summarises our approach. It reflects
international standards and principles,
including the International Bill of Human
Rights, the UN Guiding Principles on Business
and Human Rights, the International Labour
Organization’s Declaration on Fundamental
Principles and Rights at Work and the
Children’s Rights and Business Principles.
We are a member of the United Nations
Global Compact and report progress against
its 10 principles annually.
We work with clients to manage any human
rights risks from marketing campaigns, for
example by protecting children’s rights in
relation to marketing. WPP companies will
not undertake work designed to mislead on
human rights issues.
MODERN SLAVERY
We do not tolerate any form of modern
slavery in our business or supply chain.
WPP recognises the prevalence of modern
slavery across all countries. We aim to
implement appropriate measures to mitigate
the risk of it occurring, either in our own
operations or those of our partners. To this
end, we are working with a transnational
crime consultant to help us re-evaluate our
approach to managing modern slavery risks
within our supply chain.
In 2019, we updated our Global Supplier
Agreement to include a specific clause
relating to modern slavery.
To learn more about our Supplier Code of Conduct,
Human Rights Policy, and Modern Slavery Act
Transparency Statement see:
wpp.com/sustainability/
policies-and-resources
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WPP ANNUAL REPORT 2019
SUSTAINABILITY
THE POWER OF
PEN ON PAPER
AGENCY
GREY
CLIENT
AMNESTY
INTERNATIONAL
Amnesty International wanted to
show Indonesians that a single
signature can make a big impact.
So Grey created Signature, a poster
series chronicling the role petitions
can play in ending human rights
violations such as child marriage and
gender-based violence, and calling
for Indonesians to take action by
putting pen to paper.
25%
increase in signature
pledges to Amnesty
International
Indonesia
October-December 2019
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STRATEGIC REPORTWPP ANNUAL REPORT 2019
STRATEGIC REPORT SUSTAINABILITY
TRANSPARENCY
AND TRUST
We can reduce risks to our business and
clients by establishing clear policies and
procedures in areas such as data security,
ethical conduct, supply chain management,
and human rights, and by being transparent
about our progress.
OUR CODE OF CONDUCT
Our policy framework and training set
clear ethical standards for our people
and companies.
The WPP Code of Business Conduct
summarises our principles and the key
policies that apply to everyone at WPP.
It is underpinned by more detailed policies
on anti-bribery and corruption, hospitality
and gifts, facilitation payments, the use
of third-party advisors, human rights and
sustainability. In 2019, we implemented
a new Disability Policy.
We require our people to take our online
ethics training, How We Behave, on joining
and then on a regular basis, including after
each update (at least every two to three
years). Topics include diversity, human rights,
conflicts of interest and avoiding misleading
work. More than 57,000 employees
completed the training in 2019. In 2020,
How We Behave will be refreshed and new
modules will be introduced on sustainability
and business integrity.
Our online training on anti-bribery and
corruption covers the requirements of the
Foreign Corrupt Practices Act and UK Bribery
Act, including issues such as hospitality and
gifts, facilitation payments and the use of
third-party advisors.
57,000+
people completed ethics
training in 2019
MANAGEMENT AND COMPLIANCE
Our Group Chief Counsel and Head of
Sustainability oversees our approach to
ethics and compliance. Senior managers
in all our companies and our business and
supplier partners are asked to sign a copy
of the WPP Code of Business Conduct each
year to confirm they will comply with its
principles. Our newly established Board-level
Sustainability Committee and Executive
Committee sustainability working group
provide additional oversight and guidance
on any ethical issues that may arise.
Our people can report concerns or
suspected cases of misconduct
confidentially through our independently
managed Right to Speak facility, which is
overseen by our legal and business integrity
team departments and is available via phone
or email in local languages. We publicise the
facility in induction packs, on our intranet,
in the WPP Policy Book and via our ethics
training. In 2019, we received 361 reports
(2018: 200) via Right to Speak, all of which
were followed up, investigated where
appropriate by our legal, business integrity
and internal audit teams, and reported to
the Audit Committee.
ASSOCIATES, AFFILIATES AND
ACQUISITIONS
We expect associate companies (those in
which we hold a minority stake) and affiliate
companies (preferred partners to whom
we may refer business) to adopt ethical
standards that are consistent with our own.
Our due diligence process for acquisitions
and expansion into new markets includes a
review of ethical risks including those relating
to bribery and corruption, human rights or
ethical issues associated with client work.
We identify any specific human rights risks
associated with different countries of
operation, using sources such as the
Transparency International Corruption Index,
Human Rights Watch country reports and
government guidance.
Acquired businesses must adopt our
policies and their people must undertake
our ethics training within a month of joining
WPP. This is agreed in an integration plan
before the acquisition is finalised, and we
monitor progress.
PUBLIC POLICY
Most of our public policy activity is work
that our public affairs businesses carry out
for clients, including direct lobbying of
public officials and influencing public
opinion. On occasion, we also advocate
on issues that affect our business.
We believe that business can make a
valuable contribution to public policy
debate, but that to protect the public
interest it is important to conduct all
lobbying with integrity and transparency.
The majority of work undertaken by our
public affairs companies takes place in the
United States and the EU, although many
clients are multinational businesses
operating in many countries.
OUR STANDARDS
Our Code of Business Conduct and our
Political Activities and Engagement Policy
govern our political activities, and both are
available on our website. These documents
commit us to acting ethically in all aspects of
our business and to maintaining the highest
standards of honesty and integrity. Political
activities in particular should be conducted
legally, ethically and transparently and all
related communication should be honest,
factual and accurate. Our policies apply to
all companies and employees at all levels.
Many of our companies are members of
professional organisations and abide by
their codes of conduct. Examples include
the UK Association of Professional Political
Consultants (APPC), and the European Public
Affairs Consultancies’ Association (EPACA).
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WPP ANNUAL REPORT 2019
SUSTAINABILITY
STRATEGIC REPORT
Our companies contribute to public policy
debate in areas where they have expertise and
a special interest. Our digital and research
companies, for example, are involved in
privacy and data protection issues.
WPP companies must implement clear
procedures for employing serving or former
politicians, including a six-month “cooling-
off” period for people joining WPP from
public office or the public sector.
MEMBERSHIP OF TRADE ASSOCIATIONS
We are members of trade associations,
industry groups and membership
organisations which undertake lobbying
activity on behalf of their members. We
select organisations with priorities and
values aligned with our own and with robust
governance processes. WPP companies
must nominate a senior manager to manage
and oversee trade association relationships.
Memberships are listed in our Sustainability
Report 2019.
WPP companies comply with all applicable
laws and regulations governing the
disclosure of public affairs activities. In the
United States, this includes the Lobby
Disclosure Act and the Foreign Agent
Registration Act, which are designed to
achieve transparency on client representation
and require lobby firms to register the names
of clients on whose behalf they contact
legislators or executive branch personnel.
A number of our companies are listed on
the voluntary EU Transparency Register of
lobbying activities.
Our companies in the United States whose
sole or primary business is lobbying have
representatives of both major political
parties among senior management.
We will not undertake work that is intended
to mislead and always seek to identify the
underlying client before taking on work. We
do not knowingly represent “front groups”
which purport to be independent campaign
groups but are in fact controlled by another
organisation for the purpose of misleading.
Our Group Chief Counsel and Head of
Sustainability has responsibility for developing
and implementing our political activity
policy and public reporting procedures.
The CEO and CFO in each country or region
are responsible for implementing our policy
at the local level.
Any third parties conducting political
activities on behalf of WPP or its companies
must comply with our Political Activities
and Engagement Policy. Third parties are
required to complete the WPP ethics training
or equivalent within their own organisation.
POLITICAL CONTRIBUTIONS
WPP companies are not permitted to make
direct cash donations. Other political
donations can only be made with the prior
written approval of a WPP executive
director. Donations must be reported to
WPP legal before they are made, to confirm
they comply with this policy and to obtain
the necessary approvals.
POLITICAL ACTION COMMITTEES
In countries where it is consistent with
applicable law, individuals working at WPP
companies may make personal voluntary
political contributions directly to candidates
for office. Several of our businesses,
including Burson Cohn & Wolfe/Prime Policy
and Glover Park Group, also maintain political
action committees (PACs) which accept
voluntary donations from their people to
support political candidates. In 2019, these
PACs made disbursements worth $128,295
(data from fec.gov).
LOBBYING AND POLITICAL ADVOCACY
We occasionally contribute to the debate on
public policy issues relevant to our business,
sometimes through our public affairs
companies.
We advocate on sustainability issues,
through partnerships such as the Common
Ground initiative in support of the UN
Sustainable Development Goals. In 2019,
Demet İkiler, WPP Country Manager for
Turkey and EMEA CEO of GroupM, joined the
local board of the UN Global Compact with
responsibility for diversity and inclusion.
Karen Blackett OBE, WPP UK Country
Manager, serves as the UK Government’s
Race at Work Champion, supporting the
Race at Work Charter.
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WPP ANNUAL REPORT 2019
STRATEGIC REPORT SUSTAINABILITY
PRIVACY AND
DATA ETHICS
More than ever, data underpins, drives
and contributes to the work that we do
for our clients. We use the term “data” in
its broadest sense, to include client data,
consumer data, and all information and data
related to the operating of our businesses.
We require all our people to operate in line
with our Data Code of Conduct. This contains
the underlying principles that: WPP, its
companies and its people are committed to
the responsible collection, management, use
and protection of data; and we recognise our
obligations to all stakeholders, including
shareholders, clients, our own people,
suppliers and consumers.
We focus on building our people’s awareness
and knowledge so everyone understands
and takes responsibility for data privacy and
security. We have robust standards and
governance processes in place to reduce
risks and comply with regulation. We partner
with clients, peers and industry organisations
to promote best practice.
In 2020, the focus will continue to increase
on data ethics, artificial intelligence and
machine learning, and privacy by design,
particularly as the availability and possible
applications of data increase across all areas
of our business.
POLICIES AND GOVERNANCE
Since the launch of the WPP Data Privacy and
Security Charter in 2018, we have issued
incremental updates to reflect regulatory
changes and best practices, as well as
changes to our business. For example, the
Charter now includes an Artificial Intelligence
Statement to guide our people on its use.
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).
78
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.
AUDIT AND DUE DILIGENCE
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.
TRAINING AND ENGAGEMENT
We continue to enhance our Safer Data
platform, which is a well-used resource
across the Group. The platform provides
information, guidance and resources to help
our people understand privacy risks and to
apply our policies in their work.
The platform also includes our regulatory
toolkits for GDPR, CCPA and LGPD, model
data protection contract clauses, privacy
impact assessment tools, policy templates
and other topic- or jurisdiction-specific
guidance and resources.
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 California Consumer
Privacy Act.
We work with clients to share insights and
privacy best practices, demonstrating how
we apply these across the Group and in the
work we undertake for them. Our people
have access to a range of resources to
support them in these conversations, and our
Data Privacy and Security Charter is written
in a way that can be shared with clients.
As regulations continue to evolve, we
partner with clients, industry organisations
and peer companies on privacy and data
protection issues, particularly with advertising
bodies in the regions in which we operate
such as the Internet Advertising Bureau (IAB)
in Europe and the United States, and the UK
Advertising Association.
DATA HEALTH CHECKER
We use our Data Health Checker to review
privacy risks and data security practices in
our businesses. This provides 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 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.
WPP ANNUAL REPORT 2019
SUSTAINABILITY
STRATEGIC REPORT
OUR APPROACH
TO SUSTAINABILITY
NON-FINANCIAL
INFORMATION STATEMENT
This section provides information
required by regulation in relation to:
– environmental matters (page 72
and TCFD Statement, pages 196
and 197);
– our people (pages 68-70);
– social matters (page 66);
– human rights (page 74); and
– corruption and bribery (page 76).
In addition, other related information
can be found as follows:
– business model (page 9);
– principal risks and how they are
managed (pages 80-91); and
– non-financial key performance
indicators (page 8).
We are included in the FTSE4Good Index and
participate in the CDP Climate benchmark,
receiving a rating of B in 2019 (2018: A-. For
an explanation of this change, see
Sustainability Report, page 39).
OUR MATERIALITY PROCESS
Our first formal materiality assessment in
2014 included interviews with clients,
investors, NGOs, and sustainable business
experts, as well as senior executives in our
Company functions and our operating
companies. We carried out further reviews
in 2016 and 2017. In 2019, we updated our
materiality assessment in light of our new
corporate strategy (see Sustainability
Report, pages 57 and 58).
ABOUT OUR REPORTING
Data included in this review is for the
calendar year 2019 and covers all subsidiaries
of the Company. Some key environmental
and people data is verified by Bureau Veritas,
an independent assurance provider (see
Sustainability Report page 59).
EMBEDDING SUSTAINABILITY IN OUR
COMPANIES
WPP sets the sustainability policy for the
Group with every company responsible for
implementation. We have a clear policy
framework through our Code of Business
Conduct, Sustainability Policy, Supplier Code
of Conduct, Data Privacy and Security
Charter, Human Rights Policy Statement and
other policies included in the WPP Policy
Book. We track progress using our social and
environmental key performance indicators.
Our internal sustainability advisors are
working to ensure consistent implementation
of our standards. In 2019, we ran training for
our top 200 global leaders on sustainability
as a lever for innovation and growth. We also
piloted an online resource hub to share best
practice across our companies and
encourage collaboration.
STAKEHOLDER ENGAGEMENT
Dialogue with our stakeholders including
our people, clients and investors provides
valuable feedback and insight into
sustainability risks and opportunities,
for our Company and our clients.
Most stakeholder engagement takes place
in the course of doing business. We also
carry out more formal research as part of
our materiality process. We work with clients
on sustainability issues (see page 64).
Information on employee engagement is
on page 68.
INVESTOR ENGAGEMENT
Our involvement with investors, rating
agencies and benchmarking organisations
on sustainability during 2019 included:
Bloomberg Gender-Equality Index; CDP;
Ecovadis; Ethibel; Euronext Vigeo Europe;
FTSE Russell; Human Rights Campaign
Foundation’s 2018 Corporate Equality Index;
ISS Data Verification; MSCI Research Inc;
Sustainalytics; Thomson Reuters D&I index;
Trucost; and Workforce Disclosure
Initiative (WDI).
To find further details, data,
our materiality analysis and
case studies, download our full
Sustainability Report 2019.
wpp.com/sustainability
79
WPP ANNUAL REPORT 2019
STRATEGIC REPORT
ASSESSING AND
MANAGING OUR RISKS
The success of our strategic objectives,
as discussed in this report, depends to a
significant extent on the steps we are able
to take to respond to the impact of the
Covid-19 pandemic on the Group and how
we recognise and address the other current
and emerging risks and uncertainties we
face as a business. The extent of the
impact of Covid-19 will depend on future
developments which are highly uncertain
and cannot be predicted.
The Board, assisted by the Audit Committee,
has oversight and responsibility for our internal
control system which is structured through
our three lines of defence model and
delivered through our risk governance
framework, business integrity programme,
culture based upon the principles set out in
our Code of Conduct and our approach to
risk management.
The system of controls described below is
designed to manage and mitigate, but may
not eliminate, the risk of failure to achieve
our strategic objectives and is not an
absolute assurance against material
misstatement or loss.
RISK GOVERNANCE FRAMEWORK AND
BUSINESS INTEGRITY PROGRAMME
A key element of our risk governance
framework is our Risk Committees. Each
network has a global Risk Committee
chaired by the CEO and with key senior
managers participating to ensure that
leadership has a full understanding of the
risks across businesses and the remediation
steps required from time to time in certain
markets. We also have a WPP Risk Committee
which has oversight over all network Risk
Committees and itself reports into the
Audit Committee.
The Board has reviewed the design and
effectiveness of this system during the year
and up to the date of this report and carried
out a robust assessment of the impact of
the Covid-19 pandemic, along with other
principal risks that are currently impacting
or could impact our business.
The agenda of the Risk Committees is to
review, monitor and advise on: compliance
with laws, regulations, internal procedures,
and industry standards, including anti-bribery
and corruption matters; the implementation
of our compliance framework (including
setting clear standards and reporting lines
for the accurate and timely monitoring
of exposures and certain risk types of
importance); compliance policies and
practices; and risks that present themselves
throughout each network. This agenda is
topped by our business integrity programme
and tailed by our control environment.
In order to carry out their duties
comprehensively, each Risk Committee
has secure access to a central pool of data
from their network that is crucial to the
ability to recognise and monitor a full risk
and compliance picture; this includes
internal audit reports, SOX results, general
computing controls results, whistleblowing
data and the results of our annual
assessment of business integrity risk.
WPP’S RISK GOVERNANCE FRAMEWORK
Our business integrity programme is integral
to ensuring that the policies, procedures and
control environment set by the Board is
understood and worked within across all
geographies and markets. It is produced by
mapping resources, systems and processes
against WPP’s risk appetite (which the
business integrity function helps the Board
and WPP Risk Committee to set), governance
WPP’S RISK GOVERNANCE FRAMEWORK
BUSINESS INTEGRITY PROGRAMME
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80
INTERNAL AUDIT
FINDINGS
SOX
RESULTS
CENERAL
COMPUTING
CONTROLS
WHISTLEBLOWING
BUSINESS
INTEGRITY RISK
ASSESSMENT
CONTROL ENVIRONMENT
WPP ANNUAL REPORT 2019
ASSESSING AND MANAGING OUR RISKS
STRATEGIC REPORT
requirements and regulator expectations
and then crafting actions from the results
for both the business integrity team and
the Risk Committees.
Actions for the business integrity team focus
on tackling root causes of risk and include:
– in respect of resources, bolstering
messages and examples from leadership
(including the Risk Committees) with
communications, training sessions,
workshops and practical guidance for our
people and providing “on the ground”
support for day to day queries from
our networks;
– in respect of systems, advising on the
implementation of WPP’s policies,
procedures and controls (including around
internal reporting and approvals) and
providing a compliance lens for the design
and structure of our enterprise resource
planning (ERP) environment; and
– in terms of processes, conducting an
annual assessment of business integrity
risk, monitoring dynamic data feeds
(including our financials, internal audit
findings and SOX results), reviewing and
investigating whistleblowing reports
and tracking remediation efforts.
POLICIES, PROCEDURES AND CULTURE
The quality and competence of our people,
their integrity, ethics and behaviour, and
the culture embedded within our businesses
are all vital to the maintenance of our system
of internal control which is maintained
and reviewed in accordance with the UK
Corporate Governance Code and FRC
guidance on risk management and
internal control.
In order to help our people make the right
decisions, we provide a number of tools.
The baseline reference of our policies and
procedures is set out in our Policy Book,
internal control bulletins and accounting
guidelines. To communicate these
effectively, we require all employees to
complete an online training course upon
joining and at regular intervals which
WPP’S BUSINESS INTEGRITY PROGRAMME
OUR RISK APPETITE
GOVERNANCE REQUIREMENTS
REGULATOR EXPECTATIONS
RESOURCES
Our people – everyone is accountable
Leadership
Communications, training and guidance
“On the ground” support
SYSTEMS
ERP environment
Policies, procedures and controls
Financial reporting
Internal reporting and approvals
PROCESSES
Business integrity risk assessment
Monitoring dynamic data feeds
Whistleblowing
Know your client and due diligence
Certifications
Remediation – and root causes
Disciplinary measures and incentives
includes How We Behave, Anti-Bribery &
Corruption and Privacy & Data Security
Awareness modules. In addition, we top
up the online resource with in-person
training sessions, workshops and daily
support on the ground from our regional
compliance directors and managers.
The business integrity function also
houses an e-library of practical guides
and compliance FAQs.
The core of our Policy Book is our Code
of Business Conduct, which is regularly
reviewed by the Board and sets out the
principal obligations of all of our people.
As a company and as individuals we have
a collective responsibility to behave in the
right way, to live up to our values and to
conduct our business with integrity. Our
Code outlines the commitments we make to
each other, our business partners, and others
with a stake in what we do. The principles
of the Code are embedded in our training
courses and workshops and our senior
managers are required to sign it each year.
Our Anti-Bribery & Corruption Policy
prohibits any form of bribery across the
Group and is supported by the Advisor
Payment Policy which restricts the use of
advisors and details the due diligence that
must be undertaken in the limited cases
where advisors may be used. Our gifts and
entertainment policy sets limits on values
that may be given or received, supported
in each company by a gift register.
Our Code of Conduct for suppliers replicates
all of these obligations in our supply chain.
Our Policy Book also includes required
practices in many operational, tax, legal
and human resource areas.
The application of our policies and
procedures is monitored within each
company and by the internal audit, legal
and business integrity functions. Breaches
are investigated by our legal and business
integrity teams and, where appropriate,
external advisors.
The Compensation Committee continues
to review how the Group’s performance
rewards support the risk management and
internal control systems.
81
WPP ANNUAL REPORT 2019
STRATEGIC REPORT ASSESSING AND MANAGING OUR RISKS
RIGHT TO SPEAK
WPP’s Code of Conduct sets out our
responsibilities to our people, partners
and shareholders to act ethically and with
integrity. We want to embed a culture of
integrity and transparency and one in which
our people recognise that doing the right
thing is good business.
RISK IMPACT FROM RIGHT TO SPEAK
REPORTS 2019
All Right to Speak reports are received
by the Group Chief Counsel and General
Counsel, Corporate Risk. Each report is
logged, investigated and tracked through
to a conclusion including any remediation
or follow-up actions that might be required.
Part of this culture is making sure that our
people have confidence to speak up and
raise concerns with their managers or
supporting teams or through their employee
forums or our Right to Speak hotline (which
is confidential and allows for anonymity)
if they experience or are concerned about
behaviour which conflicts with our Code.
Reports are also analysed for risk impact and
root causes. Learnings generated from this
analysis are converted into recommendations
including for training sessions, workshops
and practical resources by WPP’s business
integrity function and then implemented
together with the support and input of the
Risk Committees.
WPP is continuously raising awareness of
these channels to our people and other
stakeholders and as a result there has been
a steady increase in the number of reports
received over the past few years. In 2019,
a total of 361 reports were received via the
Right to Speak hotline. The most commonly
raised concerns were about respect in the
workplace and protection of WPP’s assets.
The nature of each report, action taken and
outcome is reported to the Audit Committee
and the approach and process are reviewed
by the auditors.
WPP is committed to providing a safe and
confidential way for people with genuine
concerns to raise them, and to do so without
fear of reprisals. WPP does not tolerate any
retaliatory behaviour against individuals
reporting concerns and is equally committed
to preserving the anonymity of an individual
who makes a report and does not wish to
have their identity revealed.
The consequences for misconduct or
retaliation range from individual performance
management, training for a business or an
office and one-on-one training or coaching
for an individual through to staff relocation
and staff dismissal.
FINANCIAL REPORTING
Each company annually updates a three-year
strategic plan, which incorporates financial
objectives. These are reviewed by executive
management and are agreed with the Chief
Executive of the relevant company.
We operate a rigorous procedure for the
development of company budgets, which
build up the Group’s budget. During the final
quarter of each financial year, operating
companies prepare detailed budgets for the
following year for Group review. The Group’s
budget is reviewed by the Board before
being adopted formally. Company results are
reported monthly and are reviewed locally,
regionally and globally by the business
groups and by Group management on a
consolidated basis and ultimately by the
Board. The results are compared to budget
and the previous year, with full-year forecasts
prepared and updated quarterly throughout
the year.
At each year-end, all companies supply their
full-year financial results. This information is
consolidated to allow the Group to present
the necessary disclosures for International
Financial Reporting Standards (IFRS) as
adopted by the European Union and issued
by the International Accounting Standards
Board (IASB).
The Disclosure Committee gives further
assurance that publicly released information is
free from material omission or misstatement.
TOTAL NUMBER OF RIGHT TO
SPEAK REPORTS
RISK IMPACT FROM RIGHT TO SPEAK REPORTS
RISK IMPACT FROM RIGHT TO SPEAK REPORTS
%
%
361
200
107
2017
2018
2019
People
Financial
Legal & regulatory
Strategic
Operational
Clients
Data security &
IT resilience
14.1%
9.5%
3.2%
1.8%
1.5%
0.1%
69.8%
82
WPP ANNUAL REPORT 2019
ASSESSING AND MANAGING OUR RISKS
RISK MANAGEMENT
We use a “three lines of defence” model
in relation to risk management:
1. COMPANY REVIEWS
Each company undertakes monthly and
quarterly procedures and day-to-day
management activities to review their
operations and business risks, supported
by our policies, training and guidance on
required internal controls over financial
reporting and monitoring controls and
reviews within their network.
In addition, our companies must maintain
and update documentation of their internal
controls and processes. This documentation
incorporates an analysis of business risks,
detailed control activities and monitoring,
together with IT and financial controls and
controls over security of data and the
provision of timely and reliable information
to management.
The information collated feeds up to each
network’s Risk Committee which uses it to
assess and monitor current risk exposures,
identify new risk types and set future risk
strategy as well as compile it into a report
and insights for the WPP Risk Committee
and executive management.
In 2020 the Company also established a
Risk and Controls Group to drive continuous
improvement in the Group’s control
environment. The new function will focus
on internal financial controls, risk appetite
controls and controls in change programmes.
3. INTERNAL AUDIT AND AUDIT
COMMITTEE OVERSIGHT
The internal audit function, with Audit
Committee oversight and external resource
as required, provides an independent review
of risk management and internal control via
internal audits and management of the
testing programme for SOX.
2. EXECUTIVE MANAGEMENT REVIEWS
The company reviews are formally
communicated to executive management
in monthly reports and quarterly review
meetings and, in turn, to the Board. At each
Board meeting, the management team
presents a business review of each of the
operations, including an assessment of the
risks in each business, and details of any
change in the risk profile since the last
Board meeting.
The business review includes the possibility
of winning or losing major business;
succession and the addition or loss of a key
employee; regulatory changes; sustainability,
including risks relating to marketing ethics,
privacy, diversity and employment; political
instability; and changes in accounting or
corporate governance practice. To add to
this, the Board has tasked the WPP Risk
Committee with the evolution of our
enterprise risk management process and
the implementation of new technology for
monitoring and tracking risks across all
businesses and markets. This new platform is
due to be rolled out through 2020 alongside
refreshed risk appetite statements, drivers
and tolerances which were reviewed by the
Audit Committee during 2019. The resulting
risk dashboard and map will feed into the
regular risk discussions of the Audit
Committee and the regular risk discussions
of the Board.
LINES OF DEFENCE
FIRST LINE OF DEFENCE
Functions that own and manage risk
SECOND LINE OF DEFENCE
Functions that oversee or specialise in
risk management and business integrity
THIRD LINE OF DEFENCE
Functions that provide independent
assurance, above all internal audit
THE NEWLY ESTABLISHED RISK AND CONTROLS
GROUP IS PART OF OUR SECOND LINE OF
DEFENCE.
OVERARCHING GOALS
– Driving continuous improvement in the
Company’s control environment through
strengthening ownership and accountability
for internal controls by CEOs and CFOs at all
levels of the organisation
– Driving culture change throughout the
Company and improving understanding of
internal controls
– Providing training and development as to
“what good looks like” in relation to controls
and demonstrating the value of good controls
throughout the Company
83
STRATEGIC REPORTWPP ANNUAL REPORT 2019
STRATEGIC REPORT ASSESSING AND MANAGING OUR RISKS
VIABILITY STATEMENT
RISK ASSESSMENT
ASSESSMENT OF PROSPECTS
An understanding of the Group’s business
model and strategy detailed on pages 9 and
16 is central to understanding its prospects.
– the Company’s ability to cover interest
payments on the Group’s debt, to issue
bonds and refinance bonds as they fall
due given the potential impact of
Covid-19.
The Group’s business model, transformation
programme and diversification across
marketing services businesses which operate
in 112 countries, with a broad spectrum of
clients, technology partners and suppliers
and track record of setting up new
businesses, are all relevant to any
consideration of prospects and viability.
The Directors assess the Group’s prospects
on a regular basis through the financial
reporting and planning process, the business
reviews at each Board meeting, quarterly
reviews of our businesses by the executive
team and ongoing reviews of the Group’s
profitability, cash flows and funding
requirements. The Board has considered
the longer-term risks and opportunities for
the Group discussed in the Strategic Report
and the potential impact of competition for
talent and competition from consulting firms,
technological disruption, climate change and
regulation. The Board has also considered
the impact of the Covid-19 pandemic which
is adversely affecting and is expected to
continue to adversely affect our business and
our clients’ and suppliers’ businesses across
all of the countries in which we operate.
The Group has experienced and expects
to continue to experience unpredictable
reductions in demand for our services from
clients in sectors impacted by the pandemic.
VIABILITY STATEMENT
The Directors’ assessment of the Group’s
viability for the next three years has been
made taking account of:
– Covid-19
– the uncertainty of the consequences
and duration of the Covid-19 pandemic
and mitigation strategies being
mandated by governments in impacted
countries; the adverse financial impact
already being experienced by the
Group, disruption to clients’ economic
activity and client financial pressures
and the impact on our people caused
by Covid-19;
– the ongoing reviews, reduction in
pitch activity as a consequence of
Covid-19 short-term notice periods or
assignment nature of many of the client
engagements; the volatility of global
economic conditions and impact of a
global recession as a consequence of
the Covid-19 pandemic; and
– Other ongoing matters
– the Group’s current position and
prospects;
– the ongoing transformation programme
updated in this report;
– the changes taking place in our industry;
– the long-term impact of technological
disruption; and
– the ongoing simplification of the Group
structure and improving integrated
service offering to clients.
This period has been chosen as it extends one
year beyond our three-year transformation
programme and strategic plan and aligns
with our three-year budget process and
reflects the Board’s best estimate of the
future viability of the Company. In testing the
viability of the Company, we have undertaken
a robust scenario assessment of the principal
risks which could threaten the viability or
existence of the Company. The potential
impact of Brexit has been considered and it
is not deemed to have a significant impact
on this assessment. In the scenario modelling
of the principal risks, we have stress tested
our forecast cash flows to reflect a range
of possible adverse effects of the Covid-19
pandemic on our business, clients and
people and the potential impact of one or
more of the Group’s other principal risks
occurring and leading to client loss, loss of
reputation, contract breach, our inability
to win new business, and the impact of
revenue less pass-through costs decline.
The Company’s forecasts and projections
took 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; and considered the
Group’s bank covenants and liquidity
headroom including the suspension of share
buybacks and the final dividend in 2019 and
cost mitigation actions being implemented.
The Company modelled a range of revenue
less pass-through cost declines from 15% to
over 35%. In the most extreme scenarios
tested, the Directors have considered the
further actions that could be taken to
mitigate negative cash flow impact and
ensure additional liquidity. The Directors
have assumed that the Company will be able
to refinance existing bonds and that trading
conditions will stabilise in 2021 and, as a
result, the Company will continue to operate
in accordance with its bank covenants.
However the long-term viability of the
Company could be impacted by other as yet
unforeseen risks and the mitigating actions
that have been put in place in respect of the
principal risks, could turn out to be less
effective than intended.
Having assessed the current position of the
Company, its prospects and principal risks
and taking into account the assumptions
above, the Board has determined that they
have a reasonable expectation that the
Company will be able to continue in
operation and meet its liabilities as they
fall due over a period of three years from
1 January 2020.
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 Financial review on pages 52-57
and Principal risks and uncertainties on
pages 85-91. 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
cost 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.
84
WPP ANNUAL REPORT 2019
ASSESSING AND MANAGING OUR RISKS
STRATEGIC REPORT
PRINCIPAL RISKS AND
UNCERTAINTIES
The Board has carried out a robust assessment of the principal risks and uncertainties affecting the Group and
the markets we operate in and strategic decisions taken by the Board as at 31 December 2019 and up to the date
of this report including the adverse effects of the Covid-19 pandemic and which are described in the table on the
following pages.
PRINCIPAL RISK
COVID-19 PANDEMIC
POTENTIAL IMPACT
HOW IT IS MANAGED AND REFLECTED
IN OUR STRATEGIC PRIORITIES
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 implementing 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.
KEY
Increased risk
No change from last year
Reduced risk
New risk in 2019
A strong balance sheet, supported further
by action to maintain liquidity including the
suspension of share buybacks and the 2019 final
dividend. Cost reduction and cash conservation
measures including freezing of new hires, 20%
salary and fee sacrifice for CEO, Board, Executive
Committee members and employees earning
above certain thresholds, savings on property
and IT capex. Constant monitoring of working
capital position.
Close to 95% of our people are remote working
and maintaining services to our clients and using
creativity to support clients to adjust their
communications, and support governments and
NGOs in mitigating the impact of Covid-19.
Board oversight of the implementation of the
strategic plan and regular briefings on the
Group’s response to the Covid-19 pandemic.
The Executive Committee formed in 2019
regularly reviews progress against the strategic
plan and actions required to deliver against the
plan and convenes regularly to discuss the Group’s
response to and implementation of the measures
highlighted above to mitigate the impact of the
Covid-19 pandemic on the Group’s operations,
people, clients and financial condition.
The impact of the pandemic and focus on
managing cost and changes in ways of working
will accelerate aspects of the transformation as
we move faster towards a simplified company
structure and enhanced use of technology by
our people as a consequence of adapting to
remote working.
85
WPP ANNUAL REPORT 2019
STRATEGIC REPORT ASSESSING AND MANAGING OUR RISKS
POTENTIAL IMPACT
HOW IT IS MANAGED AND REFLECTED
IN OUR STRATEGIC PRIORITIES
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.
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.
Three-year transformation plan commenced in
December 2018. Emphasis on providing faster,
more agile and more effectively integrated
solutions for our clients.
Simplifying our organisational structure such as
the disposal of 60% of our interest in Kantar and
the disposal of non-core minority holdings.
Launch of further Campus co-locations including
in Mumbai, Amsterdam and Madrid. Embedding
data and technology more deeply into our offer
to clients.
Board focus on the importance of a positive and
inclusive culture across our business to attract
and retain talent and clients. Creation of a team
focused on culture, diversity and inclusion across
the Group.
Continuous improvement of our creative
capability and reputation of our businesses.
The development and implementation of senior
leadership incentives to align more closely with
our strategy and performance.
Business review at every Board, Management and
Executive Committee meeting to identify client
loss. During the Covid-19 pandemic, a weekly
update to the management team on the status of
the Group’s major clients and upcoming pitches
for potential new clients. Continuous engagement
with our clients and suppliers through this period
of uncertainty and reduction in economic activity.
Increased flexibility in the cost structure
(including incentives, consultants and
freelancers).
Business review at every Board meeting and
regular engagement at executive level with
our clients.
PRINCIPAL RISK
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.
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.
86
WPP ANNUAL REPORT 2019
ASSESSING AND MANAGING OUR RISKS
STRATEGIC REPORT
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.
HOW IT IS MANAGED AND REFLECTED
IN OUR STRATEGIC PRIORITIES
Our incentive plans are structured to provide
retention value, for example by paying part of
annual incentives in shares that vest two years
after grant date.
We are working across the businesses to embed
collaboration and investing in training and
development to retain and attract talented
people. The investment in co-located Campus
properties is increasing the co-operation across
our companies and provides extremely attractive
and motivating working environments.
Succession planning for the Chief Executive
Officer, the Chief Financial Officer and key
executives of the Company is undertaken by
the Board and Nomination and Governance
Committee on a regular basis and a pool of
potential internal and external candidates
identified in emergency and planned scenarios.
Compensation Committee oversight for the
Group’s incentive plans and compensation.
Our first priority during the Covid-19 pandemic is
the safety and welfare of our people and seeking
to protect them as much as possible as well as the
ability to serve clients and win new business as
markets recover.
The IT transformation programmes will underpin
our three-year strategic plan and enhance our
data security.
There is a rolling programme to retire servers
across the Group and move to cloud solutions.
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. Heightened focus on monitoring
our network and systems and raising awareness of
the potential for phishing and other cyber-attacks
during the period of remote working and an
increased focus on our control environment.
87
WPP ANNUAL REPORT 2019
STRATEGIC REPORT ASSESSING AND MANAGING OUR RISKS
PRINCIPAL RISK
FINANCIAL RISKS
POTENTIAL IMPACT
HOW IT IS MANAGED AND REFLECTED
IN OUR STRATEGIC PRIORITIES
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.
Evaluating and monitoring clients’ ongoing
creditworthiness and in some cases requiring
credit insurance or payments in advance.
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.
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.
We are working closely with our clients during
this period of economic uncertainty to ensure
timely payment of services in line with contractual
commitments and with vendors to maintain the
settlement flow on media.
Our treasury position and compliance with
lending covenants is a recurring agenda item for
the Audit Committee and Board.
Increased management processes to manage
working capital and review cash outflows and
receipts during the Covid-19 pandemic.
Transparency and contract compliance are
embedded through the networks and reinforced
by audits at a WPP and network level.
Regular monitoring of key performance indicators
for trading are undertaken to identify trends and
issues. An authorisation matrix on inventory
trading is agreed with the Company and the
Audit Committee.
A new controls function has been established in
2020 to review and enhance controls across the
Group. We have issued renewed guidance to
our businesses of the need to focus on controls
through the period of remote working as a
consequence of the Covid-19 pandemic.
INTERNAL CONTROLS
Our performance could be adversely impacted
if we failed to ensure adequate internal control
procedures are in place.
KEY
Increased risk
No change from last year
Reduced risk
New risk in 2019
88
WPP ANNUAL REPORT 2019
ASSESSING AND MANAGING OUR RISKS
STRATEGIC REPORT
PRINCIPAL RISK
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 CPPA 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.
POTENTIAL IMPACT
HOW IT IS MANAGED AND REFLECTED
IN OUR STRATEGIC PRIORITIES
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
remotely which has the potential to increase
the risk of compromised data security.
We develop principles on privacy and data
protection and compliance with local laws.
We implemented extensive training ahead of
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.
A Chief Privacy Officer and Data Protection
Officer have been appointed at the Company and
Data Protection Officers are in place at a number
of our companies.
Our people must take Privacy & Data Security
Awareness training and understand the WPP Data
Code of Conduct and WPP policies on data
privacy and security.
The Data Health Checker survey is performed
annually to understand the scale and breadth
of data we collect so the level of risk associated
with this can be assessed.
We have issued renewed guidance to our
businesses of the need to focus on controls
and privacy legislation through the period of
remote working as a consequence of the
Covid-19 pandemic.
WPP ANNUAL REPORT 2019
89
STRATEGIC REPORT ASSESSING AND MANAGING OUR RISKS
PRINCIPAL RISK
POTENTIAL IMPACT
TAXATION
We may be subject to regulations restricting our
activities or effecting changes in taxation.
REGULATORY
We are subject to strict anti-corruption,
anti-bribery and anti-trust legislation and
enforcement in the countries in which
we operate.
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.
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.
90
HOW IT IS MANAGED AND REFLECTED
IN OUR STRATEGIC PRIORITIES
We actively monitor any proposed regulatory or
statutory changes and consult with government
agencies and regulatory bodies where possible
on such proposed changes.
Annual briefings to the Audit Committee of
significant changes in tax laws and their application
and regular briefings to executive management.
We engage advisors and legal counsel to obtain
opinions on tax legislation and principles.
Online and in-country ethics, anti-bribery,
corruption and anti-trust training on a Group-wide
basis to raise awareness and seek compliance with
our Code of Conduct and the Anti-Bribery &
Corruption Policy.
Formation of our internal business integrity
function to ensure compliance with our codes and
policies and remediation of any breaches of policy.
Renewed communication of the Right to Speak
confidential, independently operated helpline for
our people and stakeholders to raise any potential
breaches of our Code and policies, which are
investigated and reported to the Audit Committee
on a regular basis.
Due diligence on acquisitions and on selecting and
appointing suppliers and restrictions on the use of
third-party consultants in connection with any
client pitches. Rolling programme of creating
shared financial services in the markets in which
we operate and the creation of a new controls
function in 2020.
The establishment during 2019 of Risk Committees
at WPP and across the networks to monitor risk
and compliance through all of our businesses and
the enhancement of our business integrity
programme across our markets.
Gift and hospitality register and approvals process.
Online training to raise awareness and seek
compliance and updates to our companies
on any new sanctions.
Regular briefings to the Audit Committee and
constant monitoring by the WPP legal team with
assistance from external advisors of the
sanctions regimes.
WPP ANNUAL REPORT 2019
ASSESSING AND MANAGING OUR RISKS
PRINCIPAL RISK
EMERGING RISKS
Increased frequency of extreme weather
and climate-related natural disasters.
Increased reputational risk associated with
working on environmentally detrimental
client briefs.
POTENTIAL IMPACT
HOW IT IS MANAGED AND REFLECTED
IN OUR STRATEGIC PRIORITIES
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.
Our strategy of co-locating our people in WPP
Campuses is enabling us to centralise emergency
preparedness procedures. It will also enable us
to more efficiently deploy climate mitigation
measures. We intend to further explore the
exposure of our assets to the physical impacts
of climate change using the IPCC’s RCPs utilising
a 2c scenario analysis.
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.
Our climate crisis training will ensure that our
people recognise the importance of our sector’s
role in addressing the climate crisis. It will be part
of a broader sustainability training programme
which we will run in multiple markets with
localised content in key regions.
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.
We are also developing internal tools to help our
people identify environmentally harmful briefs.
These tools will embed climate-related issues
within existing content-review procedures across
the organisation.
KEY
Increased risk
No change from last year
Reduced risk
New risk in 2019
91
STRATEGIC REPORTWPP ANNUAL REPORT 2019
92
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019 CORPORATE
GOVERNANCE
Chairman’s letter
Our Board
Our Executive Committee
Corporate governance report
Sustainability Committee report
Nomination and Governance
Committee report
Audit Committee report
Compliance with the Code
Compensation Committee report
94
96
98
100
107
108
109
112
114
93
WPP ANNUAL REPORT 2019
CHAIRMAN’S
LETTER
This 2019 Annual Report by definition deals
primarily with events that took place before
the coronavirus outbreak.
As we look back at 2019, the consistent
theme was the Company's delivery against
its stated goals and the progress of the
three-year transformation plan.
In the first year of the new strategy, WPP met
the financial guidance it set at the Investor Day
in December 2018, achieved its restructuring
targets and – with a more streamlined
portfolio and refreshed offer to clients – made
sure it was in the right shape for the future.
The Company’s renewed focus on creativity,
technology and talent was rewarded with
a steady stream of new business wins,
followed by Intel at the start of this year,
as clients responded positively to WPP’s
new offer and approach.
Notable events included the successful
completion of the Kantar transaction – ahead
of schedule – which reduced WPP’s leverage
to the lower end of the target range. Net
debt at the year-end was £1.540 billion,
down £2.313 billion from the beginning of
the year in constant currency as a result
of disposals and strong cash generation.
In these uncertain times, we find considerable
reassurance in the strength of our balance
sheet following the Kantar sale, and the
underlying strength of our business following
the restructuring of the last 18 months or so.
Since my appointment as Chairman, we
have proactively reviewed the Board’s
non-executive membership to ensure that it
has the expertise, diversity and experience
required to support the transformation and
success of WPP.
In the last year we have made several new
appointments and at our 2020 Annual
General Meeting we will say farewell to
a number of long-serving directors.
Sol Trujillo has served on the Board for
nine years and will not be standing for
re-election. His international experience
gained over three decades as chief executive
of global companies has been of great value
to WPP, as have his contributions as a
member of the Audit Committee.
REMEMBERING GORDON STEVENS
Gordon Stevens, Chairman of WPP 1992-96,
died on 10 September 2019, aged 93.
Mr Stevens, as a young director of a
Unilever subsidiary, commissioned, in
1955, the first-ever television commercial
aired in the UK. Many years later, having
been Director of Marketing for the
Unilever Group, he was Chairman of
Unilever United States in which role he
gave his crucial support to WPP’s
acquisition of J. Walter Thompson.
After retiring from Unilever, Mr Stevens
was offered the chairmanship of WPP
when it was facing a major restructuring
after a significant fall in its share price. Mr
Stevens accepted the challenge, against
the recommendation of many of his
friends and former colleagues, and helped
to persuade the institutional shareholders
to back the Company. By the time of his
retirement, aged 70, WPP’s share price
had increased over five-fold.
He was a man of exceptional experience:
deceptively shrewd and boundlessly
good-natured. We remember Mr Stevens
with respect, gratitude, and much affection.
94
The terrible human cost and economic impact
of the coronavirus pandemic means we are
looking at everything through a new lens.
As our Chief Executive’s opening statement
in this report makes clear, our people have
responded magnificently to the crisis,
displaying great resilience, dedication and
concern for their colleagues. On behalf of
the Board, I would like to thank them all.
WPP and its agencies have done what they
can to help fight the spread of the disease and
support national and international institutions,
including working on a pro bono basis with
the World Health Organization to deliver
campaigns around the world.
We have also taken a number of steps to
secure the position of the Company, and
minimise the financial effects of the pandemic
on our people, including suspending the share
buyback programme and final dividend,
reducing costs and introducing a voluntary
salary sacrifice scheme for the Board,
Executive Committee and other senior leaders.
The Board and executive team is working
hard to serve the interests of all our
stakeholders, and constantly reviewing the
actions necessary to ensure the continued
strength of the Company.
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019 CHAIRMAN’S LETTER
CORPORATE GOVERNANCE
Sir John Hood has brought his knowledge and
experience of international business and higher
education to the Board since 2014. As Chair
of the Compensation Committee Sir John has
overseen a comprehensive re-evaluation of the
Directors’ Compensation Policy alongside
extensive consultation with shareholders.
He will also stand down at the AGM.
Since Daniela Riccardi, CEO of international
luxury goods company Baccarat, joined the
Board in 2013, WPP has benefited from her
wealth of expertise in global FMCG, retail and
fashion businesses. She has been a valued
member of the Nomination and Governance
Committee and one of our Non-Executive
Directors responsible for engagement with our
people. She, too, will not stand for re-election.
We thank Sol, Sir John and Daniela for their
service and contribution to WPP.
We also say goodbye to two other
longstanding colleagues.
of J Sainsbury plc from 2010 to 2016,
responsible for business strategy, new
business development, Sainsbury’s Online,
operational efficiency and Sainsbury’s
Bank, in addition to core finance functions.
Our new Non-Executive Directors bring
valuable new skills to the Board, in addition
to those we need to replace as other
directors conclude their terms.
The most recent appointee, Sandrine
Dufour, provides important sectoral insight
and expertise from her background in
telecommunications, entertainment and
media. Sandrine, who joined the Board in
February 2020, will become Executive
Vice President and Chief Financial Officer
of UCB, the global biopharmaceutical
company, on 1 July 2020. Until then she is
Chief Financial Officer of Proximus, the
Belgian telecommunications company. Prior
to that she held various senior roles at Vivendi.
Sandrine has joined our Audit Committee.
Paul Richardson’s retirement from WPP was
announced towards the end of 2018. He
kindly agreed to stay on until the publication
of this Annual Report, and to facilitate the
handover to his successor as Chief Financial
Officer, John Rogers.
Paul has made a very significant contribution
to WPP’s success over nearly three decades
with the Company, and he leaves with our
best wishes and thanks.
During 2019, we were joined by Cindy Rose
OBE, CEO of Microsoft UK where she has
responsibility for all of the company’s
product, service and support offerings.
Cindy is one of the technology industry’s
leading figures, with extensive experience of
consumer businesses and technology-driven
transformation. Cindy has held leadership
roles at Vodafone, Virgin Media and The Walt
Disney Company. She is also a member of our
Audit Committee.
Our Company Secretary, Marie Capes, who
has been with WPP since its earliest days,
decided in 2019 that she would step down
from her current roles in 2020. The hallmark
of her 34 years with WPP has been her
complete dedication to the Company, and
both the Board and the executive team
would like to express their gratitude for
everything she has done.
Marie hands over to new Company Secretary
Balbir Kelly-Bisla, who joined us in April from
William Hill plc where she held the same role.
We welcomed John Rogers to the Board in
February. He was previously Chief Executive
Officer of Sainsbury’s Argos, where he led
the digital transformation of one of the
UK’s leading technology-driven businesses.
Before that he was Chief Financial Officer
Jasmine Whitbread began her career in
international marketing in the technology
sector before taking leadership roles at
Oxfam and Save the Children, where she
revitalised one of the UK’s most established
charities before taking on the role of
International CEO. She is currently Chief
Executive of London First and a Non-
Executive Director of Standard Chartered
plc. Jasmine joined our Compensation and
Sustainability Committees.
Keith Weed, one of the world’s most
influential and respected marketers, brings
deep understanding of our business and how
it is being changed by technology. His most
recent executive role was Chief Marketing
and Communications Officer of Unilever,
which included leading the company’s
ground-breaking sustainability programme.
Keith is co-Chair of our new Sustainability
Committee with Sally Susman.
The establishment of our first committee
dedicated to sustainability at Board level
underlines the fact that it has never been more
important to our business – or to our clients,
shareholders and stakeholders as a whole.
The new committee will consider the impact
of WPP’s own operations and our agencies’
work for clients, and assess the Company’s
progress against the new targets set out in
the 2019 Sustainability Report. WPP starts
from a strong foundation, as a recognised
leader in its sector. Our CEO outlines our
performance over the last year in the
introduction to this Annual Report.
WPP’s new leadership team has placed
a strong emphasis on the importance of
purpose and a positive and values-led
culture. Part of that is a commitment to
ensure inclusive and diverse teams
throughout the business, and the Board
needs to set the standard in that regard.
I am pleased to report that the proportion
of female directors has risen from 33% at the
time of my last letter to 40% as I write this.
Our ambition is that the figure will reach
parity in the short term.
This is an important sign of our priorities as a
company and our direction of travel, even as
there remains work to do to create a more
equal organisation at every level.
Any business that wants to be an employer of
choice for outstanding people needs to display
leadership and progress in these areas, and
outstanding people are the reason clients
continue to seek out and value our services.
As ever, the Board is very grateful for their
commitment and their talent. What they do
will be in high demand as societies and
economies recover from the present crisis.
Roberto Quarta
Chairman
29 April 2020
95
WPP ANNUAL REPORT 2019
OUR BOARD
CHANGES TO THE BOARD
DURING THE YEAR:
Ruigang Li – retired from the
Board on 12 June 2019
Cindy Rose OBE – appointed to
the Board on 1 April 2019
Jasmine Whitbread – appointed
to the Board on 1 September 2019
Keith Weed – appointed to the
Board on 1 November 2019
COMMITTEE
MEMBERSHIP KEY
Audit
Compensation
Nomination and Governance
Sustainability
Committee Chairman
For full biographical details of
our Board members, please see
wpp.com/about/our‑leadership
ROBERTO QUARTA
CHAIRMAN
Appointed: 1 January 2015
(Chairman 9 June 2015)
Nationality: Italian and American
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
CHIEF EXECUTIVE OFFICER
Appointed: 3 September 2018
Nationality: British
PAUL RICHARDSON
GROUP FINANCE DIRECTOR
Appointed: 1996
Nationality: British and American
Paul 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.
Other current appointments:
None.
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.
Other current appointments:
None.
NICOLE SELIGMAN
SENIOR INDEPENDENT DIRECTOR,
NON-EXECUTIVE DIRECTOR
Appointed: 1 January 2014
Nationality: American
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
NON-EXECUTIVE DIRECTOR
Appointed: 13 May 2013
Nationality: Swiss and French
TAREK FARAHAT
NON-EXECUTIVE DIRECTOR
Appointed: 11 October 2016
Nationality: Brazilian and Egyptian
SIR JOHN HOOD
NON-EXECUTIVE DIRECTOR
Appointed: 1 January 2014
Nationality: New Zealander
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 has extensive leadership and
brand-building experience gained in
leading businesses in the 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.
Other current appointments:
None.
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.
96
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
OUR BOARD
DANIELA RICCARDI
NON-EXECUTIVE DIRECTOR
Appointed: 12 September 2013
Nationality: Italian
CINDY ROSE OBE
NON-EXECUTIVE DIRECTOR
Appointed: 1 April 2019
Nationality: British and American
SALLY SUSMAN
NON-EXECUTIVE DIRECTOR
Appointed: 13 May 2013
Nationality: American
SOLOMON D. (SOL) TRUJILLO
NON-EXECUTIVE DIRECTOR
Appointed: 12 October 2010
Nationality: American
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.
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.
Other current appointments:
None.
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.
Other current appointments:
Director, Western Union. Chairman,
Silk Road Telecommunications.
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.
DIRECTOR APPOINTMENTS
SINCE YEAR-END
KEITH WEED
NON-EXECUTIVE DIRECTOR
Appointed: 1 November 2019
Nationality: British
JASMINE WHITBREAD
NON-EXECUTIVE DIRECTOR
Appointed: 1 September 2019
Nationality: British and Swiss
SANDRINE DUFOUR
NON-EXECUTIVE DIRECTOR
Appointed: 3 February 2020
Nationality: French
JOHN ROGERS
CHIEF FINANCIAL OFFICER DESIGNATE
Appointed: 3 February 2020
Nationality: British
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’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 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.
Other current appointments:
None.
John 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.
97
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
OUR EXECUTIVE COMMITTEE
The Executive Committee of WPP is responsible for
leading the Company and executing its strategy.
Its members lead WPP’s largest operating companies
and central corporate functions.
MARK READ
CHIEF EXECUTIVE OFFICER
JOHN ROGERS
CHIEF FINANCIAL OFFICER DESIGNATE
AJAZ AHMED
CHIEF EXECUTIVE OFFICER, AKQA
Biography can be found on page 96.
Biography can be found on page 97.
Ajaz is the founder and CEO of AKQA,
which became part of WPP in 2012.
Recognised as a creative pioneer,
AKQA has won over 50 Agency of the
Year awards.
STEPHEN ALLAN
WORLDWIDE CHAIRMAN AND CHIEF
EXECUTIVE OFFICER, MEDIACOM
Stephen became Worldwide CEO and
Chairman of MediaCom in 2008. Under
his leadership the agency has grown into
one of the world’s top media networks.
JACQUI CANNEY
CHIEF PEOPLE OFFICER
Jacqui joined WPP in 2019 from Walmart,
where she served as Chief People
Officer, having previously worked at
Accenture. She is responsible for all
elements of WPP’s people strategy.
JON COOK
GLOBAL CHIEF EXECUTIVE OFFICER,
VMLY&R
Jon has led VMLY&R since its formation
in 2018 as WPP’s new global brand and
customer experience agency. He was
formerly Global CEO of VML, which he
joined in 1996.
MEL EDWARDS
GLOBAL CHIEF EXECUTIVE OFFICER,
WUNDERMAN THOMPSON
Mel was appointed as CEO of the newly
formed Wunderman Thompson in 2018,
having previously been the Global CEO
of Wunderman. She joined Wunderman
as UK CEO in 2012.
NICK EMERY
GLOBAL CHIEF EXECUTIVE OFFICER,
MINDSHARE
Nick co-founded Mindshare in 1997.
The agency is the current Cannes Lions
Media Network of the Year and number
one agency network in the WARC
Media 100.
LAURENT EZEKIEL
CHIEF MARKETING
& GROWTH OFFICER
Laurent became WPP’s first Chief
Marketing & Growth Officer in 2019.
He joined from Publicis where he was
President of Digitas, North America &
International and Client Leader for GSK.
RICHARD GLASSON
GLOBAL CHIEF EXECUTIVE OFFICER,
HOGARTH
Richard became CEO of Hogarth
Worldwide in 2016, having joined
the marketing implementation
agency in 2011. His prior role was
CEO of Gyro International, the B2B
marketing specialist.
ANDREA HARRIS
GROUP CHIEF COUNSEL AND
HEAD OF SUSTAINABILITY
Andrea was appointed as Group Chief
Counsel in 2005 having joined WPP
in 1996. In 2017 she also became the
Company’s Head of Sustainability.
MICHAEL HOUSTON
GLOBAL CHIEF EXECUTIVE OFFICER,
GREY
Grey is among the industry’s
most-awarded creative agencies.
Michael became CEO of Grey
Group in 2017, after roles including
Global President and CEO of Grey
North America.
98
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
OUR EXECUTIVE COMMITTEE
DONNA IMPERATO
GLOBAL CHIEF EXECUTIVE OFFICER,
BCW (BURSON COHN & WOLFE)
Appointed CEO of the newly formed
Burson Cohn & Wolfe in 2018, Donna
was previously CEO of Cohn & Wolfe.
BCW is one of the world’s largest
full-service communications agencies.
TOBY JENNER
GLOBAL CHIEF EXECUTIVE OFFICER,
WAVEMAKER
Toby was named CEO of global media
network Wavemaker in 2019. He was
previously Worldwide Chief Operating
Officer of MediaCom, where he spent
11 years in a range of senior roles.
CHRISTIAN JUHL
GLOBAL CHIEF EXECUTIVE OFFICER,
GROUPM
GroupM is the world’s largest media
investment group and home to WPP’s
media agencies. Formerly Global CEO
of Essence, Christian was appointed
CEO of GroupM in 2019.
LINDSAY PATTISON
CHIEF CLIENT OFFICER
Lindsay became Chief Client Officer
of WPP in 2018. Prior roles include
Chief Transformation Officer of WPP
and Global CEO of Maxus, which she
joined as UK CEO in 2009.
STEPHAN PRETORIUS
CHIEF TECHNOLOGY OFFICER
ANDREW SCOTT
CHIEF OPERATING OFFICER
Stephan was appointed as WPP’s first
CTO in 2018. Before that he was UK
Group CEO and Global CTO of
Wunderman, having joined the
company in 2016.
Andrew joined WPP in 1999 as Director
of Corporate Development. He held a
number of other senior roles including
Chief Operating Officer for Europe
before being appointed COO in 2018.
JOHN SEIFERT
WORLDWIDE CHIEF EXECUTIVE
OFFICER, OGILVY
John is a 40-year veteran of Ogilvy,
one of the world’s most celebrated
agencies. He was appointed Worldwide
CEO in 2016 after leading the agency’s
North American operations.
99
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
CORPORATE
GOVERNANCE REPORT
The WPP Board is committed
to ensuring there is a strong
and effective system of
corporate governance in
place to support the
successful execution of
the Company’s strategy.
OUR GOVERNANCE STRUCTURE
BOARD
Report from page 94
AUDIT
COMMITTEE
Report from
page 109
NOMINATION &
GOVERNANCE
COMMITTEE
COMPENSATION
COMMITTEE
SUSTAINABILITY
COMMITTEE
Report on
page 108
Report from
page 114
Report on
page 107
DISCLOSURE
COMMITTEE
EXECUTIVE
COMMITTEE
BOARD ATTENDANCE TABLE: 2019
Roberto Quarta
Mark Read
Paul Richardson
Jacques Aigrain
Tarek Farahat
Sir John Hood
Daniela Riccardi
Cindy Rose OBE – appointed on 1 April 2019
Nicole Seligman
Sally Susman
Solomon D. (Sol) Trujillo
Keith Weed – appointed on 1 November 2019
Jasmine Whitbread – appointed on 1 September 2019
Former Directors who served for part of the year
Ruigang Li – retired on 12 June 2019
Board
Nomination and
Governance Committee
(Scheduled
meetings)
(Unscheduled
meetings)1
Audit
Committee
Compensation
Committee
(Scheduled
meetings)
(Unscheduled
meetings)
Sustainability
Committee2
6/6
6/6
6/6
6/6
6/6
6/6
6/6
4/4
6/6
6/6
6/6
1/1
2/2
0/3
4/4
4/4
4/4
4/4
3/4
4/4
3/4
3/4
4/4
3/4
4/4
1/1
0/1
7/7
5/5
1/1
9/9
9/9
4/5
8/9
7/7
7/7
7/7
2/2
0/1
1/1
1/1
5/5
5/5
4/5
0/3
1/1
1/1
1/1
1 Additional unscheduled meetings of the Board took place in relation to the sale of 60% of Kantar.
2 The Sustainability Committee was established on 12 December 2019.
100
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
COMPOSITION
AND DIVERSITY
ENSURING A
BALANCED BOARD
The composition of the Board and its
Committees is under regular review and
the range of skills and capabilities at Board
level is assessed for relevance to the
execution of our transformation and strategy.
Cultural and gender diversity, expertise in
important markets such as China, and
experience in technology, ecommerce and
finance are key requirements for future
Non-Executive Directors.
DIVERSITY
The Board’s policy on diversity commits
WPP to increasing diversity across the
Company and supports the development
and promotion of all talented individuals.
As at the date of this report, women
comprised 40% of the WPP Board and 50%
of Non-Executive Directors including the
Senior Independent Director.
INDEPENDENCE AND
RE-ELECTION TO THE BOARD
The independence, effectiveness and
commitment of each of the Non-Executive
Directors have been reviewed by the
Nomination and Governance Committee
and as part of the Board evaluation detailed
on page 103. We were satisfied with the
contributions and time commitment of all
the Non-Executive Directors during the year.
The Committee was confident that each of
the Non-Executive Directors remains
independent and will be in a position to
discharge their duties and responsibilities in
the coming year. With the exception of Sol
Trujillo, Sir John Hood, Daniela Riccardi and
Paul Richardson who are retiring from the
Board and Sandrine Dufour, John Rogers,
Keith Weed and Jasmine Whitbread whose
appointments are being ratified for the
first time, all the Directors will stand for
re-election at the 2020 AGM with the
support of the Board.
OUR BOARD – A DIVERSE MIX OF SKILLS, EXPERIENCE AND KNOWLEDGE*
SKILLS
13
12
12
9
8
5
TENURE
Corporate
governance
Finance
FMCG
Global
media &
advertising
Private
equity
Technology
GEOGRAPHICAL EXPERIENCE
GENDER
15
13
13
9
9
8
• 0-3 years / 6
• 3-6 years / 2
• 6-9 years / 5
• 9+ years / 2
• Male / 9
• Female / 6
Africa &
Middle
East
Asia
Pacific
Europe
International
Latin
America
North
America
* Information as at the date of this report
101
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019 SUCCESSION
PLANNING
As noted in last year’s Annual Report, during
late 2018, Paul Richardson, Group Finance
Director, informed the Board that he
planned to retire. A subcommittee of
the Nomination and Governance Committee
oversaw the search for his successor, with
the assistance of Spencer Stuart Associates.
John Rogers, formerly CEO of Sainsbury's
Argos, was appointed to replace Paul
Richardson as a consequence of the search
process. John joined the Board as CFO
Designate on 3 February 2020 and will take
over from Paul Richardson as Chief Financial
Officer at the beginning of May 2020.
A key focus of the Nomination and
Governance Committee has been on Board
refreshment. The outcome of this process
resulted in the Committee recommending
the appointment of four new Non-Executive
Directors to the Board. The Board agreed
with the Committee’s recommendations
and Cindy Rose, Keith Weed, Jasmine
Whitbread and Sandrine Dufour were
appointed to the Board.
For further details on the succession planning
subcommittee and Non-Executive Director
succession planning, see our Nomination and
Governance Committee report on page 108.
PROCESS OF APPOINTING THE NEW CHIEF FINANCIAL OFFICER
SETTING ROLE
REQUIREMENTS
IDENTIFYING
CANDIDATES
PROCESS
RECRUITMENT
With input from the
Board, shareholders,
clients and senior
management, a
subcommittee of
the Nomination and
Governance Committee
prepared a detailed
specification for the
role of Chief Financial
Officer, identifying
the skills, knowledge,
experience and
attributes required.
Spencer Stuart
Associates assisted
with the search for
candidates and
prepared a shortlist
of internal and external
candidates most suited
to the role specification.
The subcommittee
reviewed the shortlist
and identified a number
of candidates for
interview. Interviews
were conducted by
members of the
executive team and
the subcommittee,
focused on each
candidate’s skills and
experience for the role.
It was concluded after
an extensive search
process that John
Rogers was the
strongest candidate
and had the skills and
experience to support
the implementation of
the transformation plan.
The Board agreed with
the subcommittee's
recommendation.
PROCESS FOR REFRESHING THE NON-EXECUTIVE DIRECTORS ON THE BOARD
SETTING ROLE
REQUIREMENTS
IDENTIFYING
CANDIDATES
PROCESS
RECRUITMENT
The Nomination and
Governance Committee
prepared detailed
specifications for the
skills, knowledge,
experience and
attributes required
for new Non-Executive
Directors to join
the Board.
Russell Reynolds
undertook an extensive
search process to
identify potential
candidates in the
external market.
The Nomination and
Governance Committee
met frequently and
extensively discussed
the merits of the
candidates and
interviewed those with
the most potential.
The Committee identified
a number of candidates
through 2019 who would
bring new skills to the
Board, refresh the
Committees and provide
succession plans for the
Chairs of Committee
and candidates for the
new Sustainability
Committee.
INDUCTION AND TRAINING
INDUCTION FOR NEW
NON-EXECUTIVE DIRECTORS
The new Non-Executive Directors
received tailored induction programmes
relevant to their roles on the Board and
Committees they joined. These induction
programmes included meetings with senior
management and members of the Executive
Committee, access to historical minutes
and Board materials, visits to some of our
businesses and meetings with external
advisors including the Auditors and
Company brokers.
PROFESSIONAL DEVELOPMENT
AND DIRECTOR TRAINING
In 2019, in addition to the regular
presentations from the management teams
of our businesses on developments in our
sector and use of technology, the Board
received bespoke training sessions on the
corporate governance rules in the UK and
the United States, with a specific focus on
independence and managing conflicts
of interest.
BOARD INDUCTION
On completion of the induction programme,
all new Directors should have sufficient
knowledge and understanding of the
business to enable them to effectively
contribute to strategic discussions and
oversight of the operations and the work
of the Committees they are joining.
102
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019 BOARD PERFORMANCE
EVALUATION
2018 BOARD EVALUATION PROCESS
During 2018 the Board performance
evaluation was externally facilitated by Dr
Long of Boardroom Review Limited, who has
no other connection with the Company or
individual directors. Dr Long identified three
key recommendations for 2019. Progress
against each recommendation has been
assessed as part of our internal Board
effectiveness review.
KEY RECOMMENDATIONS FOR 2019
PROGRESS DURING 2019
BOARD COMPOSITION
The Board’s contribution is dependent on its
ability to add strategic relevance, diversity of
perspective and governance expertise. The
Board should constantly evolve its skills mix.
SUPPORTING THE TRANSFORMATION
Continuous level of domain knowledge and
visibility of the changing landscape.
CONTINUED FOCUS
ON THE RISK FRAMEWORK
The transformation will demand continued
focus on risk, enterprise resilience and the
global compliance framework from
the Board and its Committees.
BOARD COMPOSITION
Four new Non-Executive Directors have been
appointed to the Board and John Rogers has
joined the Board as CFO Designate.
SUPPORTING THE TRANSFORMATION
The changes made to the Board and
Committee composition in 2019 have
enhanced domain knowledge.
CONTINUED FOCUS
ON THE RISK FRAMEWORK
The focus and enhancements being made to
the risk framework are set out on pages 80-83.
KEY AREAS OF FOCUS
CULTURE
SUSTAINABILITY
SHAREHOLDER
AND STAKEHOLDER
COMMUNICATION
ENGAGEMENT
WITH STRATEGY
INDUCTION AND
DEVELOPMENT
RISK MANAGEMENT
AND INTERNAL
CONTROL
2019 BOARD EVALUATION PROCESS
The Board performance evaluation in 2019
was internally facilitated by Nicole Seligman,
Senior Independent Director. The 2019
review comprised a questionnaire
completed by each director which drew
on the recommendations of Dr Long in
2018 and the issues dealt with by the Board
and Committees throughout the year. The
questionnaire was reviewed with Dr Long.
Nicole Seligman then conducted individual
discussions with each Board member and
discussed the performance of the Chairman
and the Chairs of the respective Committees.
The outcome of the questionnaire and the
discussions were shared with the Chairman
and the findings were also discussed by the
full Board in March 2020.
The key areas of focus and recommendations
for 2020 are as set out opposite.
EVALUATION OF THE CHAIRMAN
The performance evaluation found that
following the CFO succession process,
the Chairman continues to transition the
Board through a period of change and
transformation and has developed a
supportive relationship with the new CEO.
There are constructive relationships between
the Chairman, the Senior Independent
Director and the Committee Chairs and in
collaboration with the CEO, the Chairman is
redeveloping the Board’s way of working.
OUTCOMES
The Board has effective leadership in place,
with strong support for and relationships
between the Chairman, CEO, the Senior
Independent Director and Committee Chairs.
The Board has been going through a process
of refreshment, focusing on succession
for the CFO, and membership of the
Committees including the formation of the
new Sustainability Committee, and is very
much engaged with the strategic process
and transformation plan. There is continued
focus on business integrity, culture,
sustainability, cyber security, data privacy
and the risk and control framework.
KEY RECOMMENDATIONS FOR 2020
TRANSFORMATION AND SIMPLIFICATION
Continued focus on domain knowledge for the
Board and new members, understanding the
evolving landscape and process of
transformation.
FOCUS ON THE RISK FRAMEWORK
Continued focus on risk and risk appetite,
enterprise resilience, business integrity and
culture and the controls framework from the
Board and its Committees.
BOARD MODUS OPERANDI
Ensuring the Board continues to evolve how it
functions and its skills mix and how it engages
with stakeholders.
103
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019 HOW OUR
BOARD ENGAGES
OUR APPROACH TO ENGAGEMENT
The success of our business is dependent
upon our ability to understand and respond
to the needs of the various stakeholders
connected with WPP. When making
decisions, our Board considers which course
of action best leads to the success of the
Company over the long term, which requires
an understanding of how our decisions
impact these stakeholder groups.
Decisions of the Board are taken after
receiving reports from management on
issues concerning our stakeholders and after
discussing the impact of that decision on
our employees, clients, partners, investors,
governments and regulators where relevant,
reflecting what are referred to as Section 172
duties. These duties derive from UK
legislation, which WPP is not subject to
being incorporated in Jersey. Nonetheless,
as described in this section, WPP’s Board
has had regard to the matters described
in Section 172.
A CHANGING STAKEHOLDER
ENVIRONMENT
As our industry continues to change, so too
has the way in which we interact with our
stakeholders. The line that separates client,
stakeholder, partner and competitor has
become increasingly blurred, as they are all
interconnected. Google is a client, supplier
and partner, for example.
Will you still get access to Kantar’s data?
Yes. There is significant overlap between
Kantar’s customer base and the rest of WPP,
and our agencies will continue to use Kantar
where appropriate to inform their work
for clients.
How did you decide on the split of proceeds
between debt reduction and returning
funds to shareholders?
We were keen to strike a balance between
reducing debt to a level which would
insulate us from any downturn in the
economic cycle, while also giving us
flexibility to invest if opportunities arise,
and limiting the impact of the transaction on
headline earnings per share. We consulted
widely with shareholders, the significant
majority of whom have been very supportive
of the split.
TOP CONSIDERATIONS
1
2
3
What is the financial impact of the
Kantar transaction?
Financial leverage is reduced to the low end
of WPP’s target range of 1.5-1.75x average
net debt/EBITDA for 2020, a year ahead of
the target date. The £950m share buyback
programme announced in December 2019
and suspended in March 2020, as a
consequence of Covid-19, would partially
mitigate the impact of the transaction
on headline earnings per share.
4
5
Why are you reducing your exposure to
data when some of your competitors are
increasing theirs?
Kantar is a different type of data business to
the assets that our peers have been acquiring,
so the value of the comparison is limited. Our
focus is on combining multiple relevant data
sources (for example, our clients’ customer
data, and data from third-party platforms
such as Google and Facebook) to help
clients run effective campaigns. We don’t
need to own data to do this, and ownership
of some data is becoming increasingly
regulated and complex.
Why have you retained a 40% stake?
The 40% stake allows us to share in any
future upside in valuation in Kantar, and was
also an attractive structure for Bain Capital,
who value the ongoing partnership. It also
provides continuity for our clients.
ENGAGEMENT IN ACTION
KANTAR SALE
The Chairman, CEO, CFO and COO, as well
as members of the investor relations team,
regularly discussed the rationale for the
Kantar transaction with investors, as well as
the potential allocation of proceeds between
debt reduction and a return to shareholders.
In addition, investors were invited to outline
their own preference between a special
dividend and some form of share buyback.
Consultations and meetings also took place
in relation to the transaction with the largest
clients of the Group and with suppliers
impacted by the disposal and with works
councils representing employees of Kantar
in a number of jurisdictions.
99.99%
shareholder vote approving
sale of 60% of Kantar business
at a General Meeting held on
24 October 2019
104
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
HOW OUR BOARD ENGAGES
OUR ENGAGEMENT DURING 2019
The following table summarises our key stakeholders, as well as the engagement that has been undertaken across the business during the year:
STAKEHOLDER GROUP
HOW WE ENGAGED IN 2019
SHAREHOLDERS
Engagement with our shareholders is an ongoing
process. In 2019 as we implemented the first year
of our new strategy and the disposal of 60% of
Kantar, we have engaged with major shareholders
and analysts at meetings with our Chairman,
Committee Chairs, CEO, COO and our investor
relations team, at our investor day, AGM, EGM and
through webcasts and ongoing email exchanges.
The presentations remain on our website, together
with updates on our progress.
We have held meetings with major shareholders in
relation to the use of the proceeds of sale of Kantar
and in relation to the Compensation Policy to be
considered by shareholders at the 2020 AGM.
We have attended meetings with shareholders in
major cities in the UK, US and Europe and attended
all the major conferences in our sector.
Our 2019 AGM and EGM were both well attended,
and all proposed resolutions passed. Each
shareholder meeting gave our shareholders the
opportunity to pose questions directly to the Board.
We provided live webcasts of our AGM, EGM and
investor day which allowed for engagement by all
shareholders, regardless of location.
Our investor relations team responded to daily
questions from shareholders and analysts and we
have listed some of these on page 104.
CLIENTS AND PARTNERS
Our clients are in many cases also our partners
providing services to our Company and may also
be our competitors. We are constantly engaging
through our Client Team Leaders, our respective
CEOs, participation in collaborative training, our
unconference event Stream, joint sustainability and
pro bono initiatives and on shared policy initiatives
such as the Business Against Slavery forum.
During the year this included client presentations
at our Board meetings and client participation in
events, such as our WPP investor day and strategy
conference. Our people participated in multiple
events with Adobe, Microsoft, Amazon and Google
during the year focused on new products and
workflow innovation.
The issues we engaged with our clients and
partners on in 2019 included the disposal of 60% of
Kantar, our new strategy and the changes taking
place in our market and understanding the changes
taking place in our clients’ and suppliers’ markets,
our preparations for and impact of the CPPA and
our SAFER DATA training, the issues raised by Brexit
for our Company and people and the due diligence
undertaken on our supply chain, diversity and
inclusion, transparency in our media businesses,
brand safety and sustainability initiatives including
the single-use plastics initiative.
GOVERNMENT/NGOs/REGULATORS
We engage with governments, regulators and
NGOs to inform the policy frameworks that affect
our Company, clients, investments and competitive
environment and support our strategic goals.
We are a founding member of the Business Against
Slavery Forum in conjunction with the Modern
Slavery Unit at the UK Home Office and
participated in the forum throughout the year.
We work directly with the UN through our
Common Ground initiative, partnering with UN
Women to tackle gender inequality, and with the
UN Framework Convention on Climate Change
(UNFCCC) to encourage people from around the
world to take action on climate change.
During the year WPP signed up to the New Plastics
Economy Global Commitment led by UN
Environment and the Ellen MacArthur Foundation
(EMF), and is supporting EMF to drive greater
awareness of the circular economy. For more
information on our work with NGOs, see page 66.
For examples of our pro bono work, see pages 6,
67 and 75.
We responded to numerous government
consultations including, in the UK, the CMA Market
Study into Online Platforms.
INDEXES/TRADING ASSOCIATIONS
We have representatives on our industry bodies
in the markets in which we operate who engaged
on issues that affect our people, clients and
competitors. We contributed during the year
to indexes that provide meaningful data on
governance and policy issues.
We are members of the IPA in the UK and the
4A’s in the US and engaged on topics such as
transparency in media trading and brand safety.
We participated in the Business Disability Forum,
Business in the Community and the CBI.
We also participated in the Corporate
Equality Index and the Corporate Political
Engagement Index.
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CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
HOW OUR BOARD ENGAGES
OUR ENGAGEMENT DURING 2019 CONTINUED
STAKEHOLDER GROUP
HOW WE ENGAGED IN 2019
PEOPLE
We depend on the talent, creative abilities and
technical skills of our people. To attract and
retain the best and most forward-thinking talent,
we are focused on embedding our new culture,
improving diversity and inclusion and investing in
skills and creativity.
We use formal and informal mechanisms to
assess and improve employee engagement
and satisfaction.
Employee surveys help us assess and act on
engagement and satisfaction levels. In 2020, we will
launch our first Company-wide employee survey.
People forums are one example, which were
piloted in 2019 in the UK. The views and ideas
raised through these forums are shared with
our Non-Executive Directors responsible
for workforce engagement. See below for
more details.
The vast majority (95%) of our companies carry out
exit interviews with leavers, which often provide
helpful feedback on our culture and practices.
Across our operating companies, sustainability
enthusiasts are creating Green Teams to embed
sustainability initiatives in their companies and
driving change in their office.
In 2020, we will roll out an India People
Forum representing employees from
Mumbai, Delhi and Bangalore.
Sally Susman stepped down from her role
as one of the Non-Executive Directors
responsible for engaging with the Forum in
December 2019 when she became co-Chair
of the Sustainability Committee and Cindy
Rose has been elected to this role.
PEOPLE FORUMS
To ensure our Board understands the views
of our employees on WPP’s purpose, values
and strategy, in 2019 we established our first
People Forum in the UK. Sponsored by our
UK Country Manager, the Forum has
representatives from across our UK business
who gather feedback from their agencies to
feed up to the WPP Board. The Board also
consults the Forum on key people issues.
The UK People Forum met three times during
the year. In its first meeting, the Forum
identified the top priorities for employees,
which included "creating cultures where
all talent can thrive" (top priority) and
"sustainability" (third priority). As a direct
result of feedback through this Forum, we
are piloting a new Sustainability Knowledge
Hub to share best practice and foster
collaboration on sustainability issues across
our agencies. We also launched the single-use
plastics initiative (see page 72) and developed
resources in collaboration with the Forum.
TOP THREE PRIORITIES
IDENTIFIED BY EMPLOYEES
1
Creating cultures where
all talent can thrive
2
Flexible working
3
Sustainability
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CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
SUSTAINABILITY
COMMITTEE REPORT
Our newest Committee held its first
meeting on 12 December 2019
Committee members:
– Sally Susman (co-Chair)
– Keith Weed (co-Chair)
– Jasmine Whitbread
Key responsibilities
– Understanding the sustainability
challenges and opportunities for
the Group
– Engaging with stakeholders
– Assessing the Group’s current
strategy footprint, identifying
materiality and reviewing
sustainability targets and
commitments
PACKAGING REINVENTED
Costa Rica produces 560 tons of
plastic waste a day. Geometry
asked eco-activists to share
photos of products with
unnecessary layers of plastic on
social media and challenged
young product designers to
create sustainable alternatives
that save time, money, and our
planet, publishing solutions
online for companies to access
and implement.
At our meeting in December we also
reviewed the single-use plastics policy
launched by the Group in 2019, to phase out
plastics that cannot be renewed, recycled
or composted across all the Group’s 3000+
offices and Campuses by the end of 2020.
In addition to the policy, the Committee
also reviewed the seven-step action plan
produced by the Company, a playbook to
embed the policy and audit plan to be
adopted by the Group companies to
support the policy.
The Committee members all bring a great
depth of knowledge and experience in the
area of ESG and sustainability and we are
very much looking forward to our new role
for the Company.
Sally Susman
Co-Chairs of the
Sustainability Committee
29 April 2020
Keith Weed
DEAR SHAREHOLDER
The world is changing around us more
quickly than ever before with significant
risks and opportunities for our business
and for those of our clients. While changes
in technology have been rapid and highly
impactful and attracted considerable Board
focus, there have also been rapid changes
in the area of ESG and sustainability.
The WPP Sustainability Committee has been
formed to give increased focus in this area
for the Board and the Group, to strive to
meet the expectations of our stakeholders
(from our clients, investors and people to
NGOs, consumers and society at large), as
well as to ensure we are managing our risks
and taking advantage of the opportunities.
We held our first meeting in December 2019
at which we adopted the terms of reference
and agreed the scope of work for the
Committee for 2020. The Sustainability
Committee will first gain an understanding
of the breadth of sustainability work already
in progress across the business and will then
identify what is material in forming WPP’s
sustainability strategy and review the KPIs
to help measure effectiveness of delivery.
That workstream has already begun with
an in-depth review of the workstreams in
January 2020. The sustainability section
on pages 58-79 sets out the new carbon and
renewable targets the Group has set this
year, which are net zero carbon emissions in
our Campuses by 2025 and 100% renewable
electricity by 2025, as well as the target, set
in 2017, of 0.41 tonnes CO2e per employee
by 2030.
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CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
NOMINATION AND
GOVERNANCE COMMITTEE REPORT
Committee members:
– Roberto Quarta (Chairman)
– Ruigang Li (retired 12 June 2019)
– Daniela Riccardi
– Nicole Seligman
– Sally Susman
Highlights
– Chief Financial Officer
appointment
– Appointment of four Non-
Executive Directors including
a successor to become Chair of
the Compensation Committee
– Focus on Board composition
and succession to support the
transformation plan
– First reports received from
and engagement with the
UK People Forum
Key responsibilities
– Evaluates Board composition
and ensures Board diversity and
a balance of skills
– Reviews executive succession
plans to maintain continuity of
skilled resource
– Oversees matters relating to
corporate governance
NON-EXECUTIVE DIRECTOR
APPOINTMENT PROCESS
STEP 1
Engage with search consultancy
and provide them with a search
specification
STEP 2
Shortlisting candidates
by Committee
STEP 3
Interview process with
Committee members and
Chief Executive Officer
STEP 4
Recommendation to the Board
on the chosen candidate
STEP 5
Appointment terms drafted
and agreed with the
selected candidate
108
DEAR SHAREHOLDER
The focus of the work of the Committee
in 2019 has been the recruitment and
appointment of the Chief Financial Officer,
the appointment of four new Non-Executive
Directors, including a successor as Chair of
the Compensation Committee.
BOARD AND COMMITTEE CHANGES
2019 was the first full year of transformation
for the Company and as part of our ongoing
succession planning for the Board, a number
of changes have taken place during 2019.
Three of our long-standing Non-Executive
Directors, Sol Trujillo, Sir John Hood and
Daniela Riccardi, will not stand for re-election
at the AGM in 2020. Jasmine Whitbread
will succeed Sir John Hood as Chair of the
Compensation Committee following the AGM.
We established a separate Sustainability
Committee in December 2019. Sally Susman
and Keith Weed were elected as co-Chairs
and Jasmine Whitbread was elected as a
member of this new Committee, all bringing
a great depth of experience in sustainability.
COMMITTEE EFFECTIVENESS
The Board performance evaluation this year
concluded that the Committee is operating
effectively and has continued to manage a
significant level of change in the Board to
ensure an enhanced mix of skills for the
Board and its Committees.
DIRECTOR APPOINTMENT PROCESS
The Committee adopts a formal and
transparent process when recruiting Directors
with due regard to the skills, knowledge and
level of experience required including
geographic experience and diversity.
EXECUTIVE DIRECTOR
The Committee established a succession
planning subcommittee comprising me as
Chairman, Nicole Seligman, Jacques Aigrain
and Sally Susman to assist with the
recruitment of the new Chief Financial
Officer. Spencer Stuart Associates assisted
the Company in the recruitment process
and is independent of the Company.
who have the skills and experience to align
the Board’s composition with the Company’s
strategic objectives and transformation plan
whilst increasing our diversity.
SUCCESSION PLANNING
In addition to succession planning for Board
roles, the Committee received presentations
from the Chief Executive Officer and Chief
People Officer on succession planning for
senior management to support the
transformation plan. The Committee
monitors a schedule on the length of tenure,
skills, experience and diversity of the Board.
PEOPLE FORUMS
The Committee received the minutes of the
three UK People Forum Meetings during the
year and Daniela Riccardi attended one of
the meetings to discuss issues raised and
engage with the members of the UK People
Forum on diversity and inclusion and the
implementation of the transformation
programme across the Group.
Sally Susman stepped down from her role
as one of the Non-Executive Directors
responsible for workforce engagement in
December 2019 when she became co-Chair
of the Sustainability Committee and Cindy
Rose has been elected to this role.
ACTION PLAN
For 2020 the Committee plans to continue to
look to enhance the cultural diversity and skills
balance on the Board and review succession
plans for key roles across the business, as
well as employee engagement through the
establishment of additional People Forums
in different markets across the Group.
GOVERNANCE
The Committee oversees the governance
agenda on behalf of the Board and received
updates on corporate governance
developments and the sustainability strategy
during the year and has considered the
impact of those developments and strategy
on the Company.
NON-EXECUTIVE DIRECTORS
Russell Reynolds, who are also independent
of the Company, assisted the Committee
during the search process for new Non-
Executive Directors, to find those candidates
Roberto Quarta
Chairman of the Nomination
and Governance Committee
29 April 2020
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019 AUDIT COMMITTEE
REPORT
Committee Members in 2019
– Jacques Aigrain (Chairman)
– Tarek Farahat
– Cindy Rose OBE (appointed
1 April 2019)
– Solomon D. (Sol) Trujillo
Highlights in 2019
– Monitored the financial information
provided to shareholders on the
disposal of 60% of Kantar and
reviewed the related significant
financial reporting judgements
– Monitored the development of the
Group’s risk management framework
including the formation of the
Company’s business integrity
function and the roll out of enterprise
and network level Risk Committees
– Carried out an in-depth review of the
Group’s internal financial control
system, with a focus on monitoring
remediation and compliance with
Section 404 of SOX
– Considered the change in the Group’s
reported operating segments and
monitored compliance with IFRS 8
Operating Segments
– Reviewed the implementation of IFRS
16 Leases from 1 January 2019
Key responsibilities
– Monitors the integrity of financial
information provided to
shareholders, including the review
of significant financial reporting
judgements
– Reviews the integrity, adequacy and
effectiveness of the Group’s internal
financial controls and the internal
control and risk management
systems, including the risk
management framework and related
compliance activities
– Monitors and reviews the
effectiveness of the Group’s internal
audit function
– Reviews the effectiveness of the
external audit process and reviews
and monitors the independence and
objectivity of the external auditors
DEAR SHAREHOLDER
I am pleased to present the Audit Committee
report which reviews the Committee’s work
and focus over the past year.
MEETINGS
The Committee held nine meetings during
2019, which were attended by Deloitte LLP
(the Company’s external auditors,
“Deloitte”), the Company’s Chairman, the
Senior Independent Director, the Group
Finance Director, the Chief Executive Officer,
the Chief Operating Officer, the Director of
Internal Audit, the Group Chief Counsel, the
Group Chief Accountant and the Company
Secretary. Individual attendance by the
Committee members during 2019 is set out
in the table on page 100.
The Committee held separate private
meetings with Deloitte, the Director of
Internal Audit, the Group Chief Counsel, the
Chief Executive Officer and the Group
Finance Director. The Committee Chairman
held pre-meetings with Deloitte and regular
meetings with the Company’s Directors of
Internal Audit, Tax and Treasury and the
Group Chief Counsel. The Committee
Chairman has an ongoing dialogue with the
Group Finance Director, the Group Chief
Accountant, the Director of Internal Audit
and the Director of Tax and reports to the
Board, as a separate agenda item, on the
activities of the Committee at the following
Board meeting.
COMMITTEE RESPONSIBILITIES AND
HOW THEY WERE DISCHARGED IN 2019
The Committee’s responsibilities are set out
in its terms of reference. The Committee’s
key responsibilities are as follows:
– monitoring the integrity of the Group’s
financial statements and formal
announcements relating to the Company’s
financial performance, reviewing
significant financial reporting judgements
and disclosures;
– monitoring and reviewing the Group’s
internal financial, operational and
compliance controls and internal control
system. Overseeing the Group’s
compliance with Section 404 of SOX;
– reviewing and monitoring the activities
and effectiveness of the Group’s internal
audit function. Reviewing and approving
the WPP Internal Audit charter;
– reviewing and monitoring the Company’s
risk management framework. Assisting the
Board in carrying out a robust assessment
of emerging and principal risks.
Overseeing the Group’s risk exposure and
risk strategy;
– reviewing the effectiveness of the external
audit process, reviewing and monitoring
the independence and objectivity of
Deloitte. Reviewing and approving
Deloitte’s terms of engagement and
remuneration;
– monitoring applicable accounting and
legal reporting requirements, including all
relevant regulations of the FCA, the SEC,
the NYSE and the Jersey Financial Services
Commission and the UK Corporate
Governance Code;
– reviewing the Company’s systems and
controls for ethical behaviour, the matters
reported on the Group’s Right to Speak
helpline and the investigations and actions
undertaken by the Group in response;
– reviewing the Group Treasury policy,
focusing on debtors, working capital
and cash management;
– reviewing reports on any material litigation
or regulatory reviews involving Group
companies;
– reviewing the Group’s acquisitions
strategy, earn-out payment liabilities and
integration processes; and
– reviewing the Group’s tax position and
UK tax strategy.
FAIR, BALANCED AND
UNDERSTANDABLE
A subcommittee of the Board including
members of the Committee examined
whether the Annual Report taken as a whole
was fair, balanced and understandable and
provided the information necessary for
shareholders to assess the Group’s position,
performance, business model and strategy.
The subcommittee received an early final
draft of the Annual Report for review and
comment and verification notes and
confirmation from the Disclosure Committee
relating to the composition of the Annual
Report. The Board subsequently considered
the Annual Report as a whole and discussed
the Annual Report’s tone, balance and
language for compliance with these
standards. The Board’s statement on the
Annual Report is on page 200.
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CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019 CORPORATE GOVERNANCE AUDIT COMMITTEE REPORT
FINANCIAL REPORTING AND SIGNIFICANT FINANCIAL JUDGEMENTS
Key accounting judgements made by management were reported to and examined by the Committee and discussed with management and
Deloitte. The Committee considered the following significant financial reporting judgements in relation to the financial statements:
AREA OF FOCUS
ACTIONS TAKEN/CONCLUSION
Kantar: IFRS 5 Non‑current Assets Held for Sale
and Discontinued Operations
The judgements made in relation to the
accounting and reporting implications of
the Kantar disposal.
The Committee considered management’s ongoing assessment of the conditions that must be satisfied in
order to conclude a disposal group is “held for sale”. The Committee monitored progress of the transaction
during 2019 and management’s continued application of the guidance. The Committee was satisfied with
management’s conclusion as to when the Kantar group classified as "held for sale". The Committee reviewed
management’s judgements in relation to the key accounting and disclosure impacts of the transaction.
Kantar: disposal accounting
The calculations of the loss on disposal of the
Kantar group.
The Committee reviewed the judgements made by management in accounting for the disposal of the
Kantar group. The Committee considered and discussed the related accounting disclosures with
management and Deloitte and concluded that these were appropriate.
IFRS 8 Operating Segments
The review of the Group’s reported operating
segments and compliance with IFRS 8.
The Committee considered management’s proposed changes to the Group’s reported operating segments
and challenged management’s approach and assessment of the criteria under IFRS 8 Operating Segments.
The Committee received further comprehensive reports from management and from Deloitte. The
Committee was satisfied with management’s final recommendations and the outcome of the review.
IFRS 16 Leases
The review of the Group's implementation of IFRS 16.
The Committee received reports from management concerning the adoption of IFRS 16 from 1 January
2019 and the impact on the financial statements. The Committee reviewed the judgements made by
management in the application of IFRS 16 and was satisfied that these were appropriate.
Goodwill impairments
Judgements in relation to goodwill
impairment testing.
The Committee challenged the appropriateness of the assumptions used by management in the
goodwill impairment assessment model, with a particular focus on the discount rate and growth
assumptions. A material weakness has been identified which management are remediating with
oversight from the Committee. Management are changing the approach to determining inputs with
respect to the discount rates used in impairment assessments and establishing a review process over
inputs and the overall discount rate methodology. The identified material weakness has not resulted
in a material misstatement in the year ended 31 December 2019 or in any prior years.
Investments
The valuations of non-controlled investments
and unlisted associates.
The Committee examined management’s valuations, based on forecasts, recent third-party investment,
external transactions and/or other available information such as industry valuation multiples. The
Committee considered Deloitte’s sample testing of the valuations and agreed that the valuations were
appropriate based on the information available to the Group.
Earnout liabilities
The accuracy of forecasting potential future earnout
payments due under acquisition agreements.
The Committee considered management’s forecasts and reviewed the testing undertaken by Deloitte.
The Committee was satisfied that liabilities for potential future earnout payments have been accounted
for appropriately.
Working capital provisions
The valuation of year-end provisions in respect of
working capital.
The Committee received regular briefings on management’s approach in assessing the level of exposure
across the Group. The Committee considered Deloitte’s audit procedures in this area. The Committee
concluded that management’s approach was appropriate.
Remuneration
Accounting for the judgemental elements of
remuneration.
The Committee reviewed the assumptions applied by management in relation to judgemental elements
of remuneration, including pensions, bonus accrual, severances and share based payments and agreed
that these are reasonable.
Taxation
The judgements made in respect of tax.
The Group Tax Director presented to the Committee in December 2019. The Committee considered
management’s assumptions, in particular in relation to the level of central tax provisions, and believes
that the level of central tax provisions is reasonable.
Going concern
The going concern assessment and viability
statement.
The Committee reviewed the range of scenarios modelled by management given the inherent
uncertainty caused by Covid-19 and the cost mitigation actions available to management including the
suspension of the share buybacks and 2019 final dividend. The Committee assessed management’s view
that the likelihood of declines of over 35% of revenue less pass-through costs from April 2020 was
remote. The Committee has considered and concurs with management’s going concern, viability and
forecasting assumptions, as set out on page 84.
Restructuring and transformation costs
Recognition of restructuring and
transformation costs.
The Committee reviewed management’s key accounting judgements and procedures relating to
restructuring and transformation costs and the testing carried out by Deloitte. The Committee was satisfied
with the quantum of costs recognised in 2019 and the presentation of such costs in the financial statements.
110
WPP ANNUAL REPORT 2019
AUDIT COMMITTEE REPORT
CORPORATE GOVERNANCE
EXTERNAL AUDIT
Deloitte has been the Group’s auditors
since 2002. The lead audit partner rotates
every five years. The latest rotation took
effect during 2019 when Robert Topley
replaced Richard Muschamp as the Group’s
lead audit partner, in respect of accounting
periods commencing from 1 January 2019.
The Committee oversaw the completion
of the lead audit partner transition process
during 2019. In 2019, the effectiveness of
the external audit process was evaluated
through the Committee’s ongoing review
of the external audit planning process and
discussions with key members of the Group’s
finance team. The Committee considered
the Audit Quality Review’s 2018/19 Audit
Quality Inspection Report on Deloitte and
the actions taken by Deloitte to address the
findings in that report. The 2019 evaluations
concluded that there continued to be a
good quality audit process and constructive
challenge where necessary to ensure
balanced reporting. The Committee held
private meetings with Deloitte and the
Committee Chairman met privately with
Deloitte before each meeting. The
Committee continues to be satisfied with
the performance of Deloitte and confirms
that Deloitte continues to be objective and
independent. The Committee recommends
the reappointment of Deloitte at the
2020 AGM.
The Committee considered the Group’s
position on its audit services contract in the
context of the regulations concerning the
audit market. Although there is no immediate
intention to tender the audit contract, the
Company will re-tender at the latest by the
2022 year-end in compliance with the
transitional arrangements for competitive
tender that require mandatory rotation after
the 2023 fiscal year-end.
The Company confirms that it has complied
with the Competition and Markets Authority
final order on mandatory tendering and
Audit Committee responsibilities.
INTERNAL AUDIT
The annual internal audit plan, including
the list of units for internal audit review,
is approved by the Committee at the
beginning of the financial year. Progress
against the plan is monitored throughout the
year and any significant changes to the plan
require Committee approval. Significant
issues identified within internal audit reports
are considered in detail by the Committee
along with the remediation plans to resolve
those issues. The Committee regularly
considers the level of internal audit resource
to ensure it is appropriate to provide the
right level of assurance over the principal
risks and controls throughout the Group.
The Committee Chairman holds regular
update meetings with the Director of
Internal Audit, to ensure the internal audit
function has adequate standing, is free from
management restrictions and has direct
access to the Committee if required.
INTERNAL FINANCIAL CONTROL
The Committee carried out an in-depth
review of the Group’s internal financial
control system, with a focus on monitoring,
remediation and compliance with Section
404 of SOX. A material weakness has been
identified and management are changing
the approach to determining inputs with
respect to the discount rates used in
impairment assessments and establishing a
review process over inputs and the overall
discount rate methodology. The identified
material weakness has not resulted in a
material misstatement in the year ended
31 December 2019 or in any prior years.
NON-AUDIT FEES
The Committee has a policy regarding
non-audit services that may be provided by
Deloitte, which was most recently updated
in April 2020. The policy prohibits certain
categories of work in line with relevant
guidance on independence, such as the FRC
Ethical Standard and rules issued by the SEC.
The prohibited categories of work include
advice on remuneration and on tax services
being provided by Deloitte and a general
default to an alternative provider elsewhere
subject to adherence to regulations. Other
categories of work may be provided by
Deloitte if appropriate and if pre-approved
by the Committee, either as individual
assignments or as aggregate amounts for
specified categories of services. All fees are
summarised periodically for the Committee
to assess the aggregate value of non-audit
fees against audit fees. The level of fees for
2019 is shown in note 3 to the financial
statements on page 154.
COMMITTEE COMPOSITION
AND EVALUATION
The Committee and its members were
formally assessed by the Nomination and
Governance Committee as part of the review
of Committee composition in 2019 and as
part of the Board evaluation process
described on page 103 for their technical
suitability to be members and also for the
Committee’s overall effectiveness. The Board
has designated the Committee Chairman as
the Committee’s financial expert for
Sarbanes-Oxley Act (SOX) purposes and
together with Tarek Farahat as having recent
and relevant financial experience for the
purposes of the UK Corporate Governance
Code and competence in accounting or
audit for the purposes of DTR 7.1. The
members of the Committee are considered
by the Board to be independent and (when
considered as a whole) have competence
relevant to the sectors in which the
Company operates, and have financial
experience as set out on pages 96 and 97.
Sandrine Dufour has been appointed as an
additional member of the Committee with
effect from 3 February 2020. Sandrine is
currently Chief Financial Officer of Proximus
and will become CFO of UCB on 1 July 2020.
Sandrine has recent and relevant financial
experience for the purposes of the UK
Corporate Governance Code and
competence in accounting or audit for
the purposes of DTR 7.1.
TERMS OF REFERENCE
The Committee’s terms of reference are
adopted by the Board and reviewed annually
by the Committee, most recently on 19
March 2020. A copy of the Committee’s
terms of reference is available on the
Company’s website at wpp.com/investors/
corporate-governance.
Jacques Aigrain
Chairman of the Audit Committee
29 April 2020
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WPP ANNUAL REPORT 2019
COMPLIANCE WITH THE CODE
This statement of compliance summarises how
the Company has implemented the principles
and provisions of the 2018 UK Corporate
Governance Code (the Code). The Code is
available at www.frc.org.uk.
The Board considers that WPP complied in all material respects with the principles and
provisions of the Code during 2019 except that we recognise that we have not complied fully
with Provision 41 to engage with the workforce on alignment of executive pay with the wider
Company pay policy nor Provision 38 in aligning Executive Director pension payments with
the wider workforce. Both of these provisions will be addressed in 2020. The information
provided below and on the next page sets out how the Company has applied the principles
of the Code. In addition, we have included information in relation to those provisions in the
Code that contain an explicit disclosure requirement.
1. BOARD LEADERSHIP AND COMPANY PURPOSE
2. DIVISION OF RESPONSIBILITIES
5. REMUNERATION
A. BOARD’S ROLE
The Board is responsible to shareholders for the
Company’s financial and operational performance
and risk management, and the culture embedded
across the Group, and is collectively responsible
for promoting the long-term success of the
Company. There is a formal schedule of matters
reserved to the Board which is published on the
Company’s website. The key focus of the Board’s
activities in 2019 have been oversight of the
implementation of the three year transformation
plan with considerable time devoted to the
disposal of 60% of Kantar, board succession for
both Non-Executive Directors and the new Chief
Financial Officer, risk and controls as described on
page 80 and the progress of embedding the right
culture across the Group as described on pages 44
and 45 and in the Chief Executive’s statement on
page 3.
B. PURPOSE AND CULTURE
The Company’s new purpose, values and
standards were a fundamental part of the Group’s
transformation strategy announced in December
2018 and the Board is committed to championing
and embedding these across the Group. The Board
receives regular reports from the Chief People
Officer on progress on delivering our new culture
characterised by the values of openness, optimism
and a commitment to extraordinary work, which is
described is on page 45. In addition, the Audit
Committee receives reports from the Head of
Business Integrity on the Right to Speak reports
received and how many of those relate to culture
or behavioural issues and the cultural issues
identified in the risk assessment conducted in 2019
across the Group and the actions to be taken to
address the risks identified.
C. RESOURCES AND CONTROLS
The Board is responsible to shareholders for the
Company’s financial and operational performance
and risk management. Matters delegated to the
Chief Executive and Chief Financial Officer include
managing the Group’s business in line with the
transformation plan and risk governance framework.
The WPP Risk Committee established in 2019
together with the Risk Committees set up across
the businesses also in 2019 assist the Board in the
oversight and mitigation of risks to which the Group
is or may be exposed. Further information about
the Group’s risk management can be found on
page 80 including the details of the new business
integrity function and the controls function.
D. STAKEHOLDER ENGAGEMENT
The relationship with shareholders, potential
shareholders and investment analysts is given
high priority by the Company as detailed on
pages 104 and 105.
The Company has a well-developed and
continuous programme to address the needs
of shareholders, investment institutions and
analysts for a regular flow of information about
the Company, its strategy, performance and
competitive position. Given the wide geographic
distribution of the Company’s current and potential
shareholders, this programme includes regular
visits to investors, particularly by the Chief
Executive Officer, the Chief Financial Officer and
the Group Investor Relations Director, in the UK,
Continental Europe and the major financial centres
in North America and also in Asia Pacific and Latin
America. The Company’s Chairman meets with
investors and regularly consults with investors’
governance representatives and advisory bodies.
The Company provides a preliminary announcement,
an interim management statement at the end of
the first and third quarters that includes a trading
update, an interim report at half year and a trading
update and presentation at the AGM.
E. WORKFORCE ENGAGEMENT
To ensure the Board engages with the people
working within the Group across 112 jurisdictions
and multiple businesses and understands their
views on WPP’s purpose, values and strategy,
the Board has adopted a number of engagement
methods. The first People Forum was established
in the UK in 2019 with the support of our UK
Country Manager and further forums will be
established in other countries starting with
India in 2020. The Board has designated two
of the Non-Executive Directors to be responsible
for engaging with our people and ensure their
voice is heard in the Board and for attending
meetings of the forums. The Board receives
regular reports from these Non-Executive Directors
and further details can be found on page 106. The
Chief Executive held the first Global Town Hall in
2019 and in 2020 WPP will launch the first
Group-wide survey.
F. THE ROLE OF THE CHAIRMAN
The Board is chaired by Roberto Quarta, who chairs
the Nomination and Governance Committee and
is a member of the Compensation Committee.
The Chairman attended all meetings of the Audit
Committee during 2019 at the invitation of its
Chairman. The Chairman provides the leadership
of the Board and is the main point of contact
between the Board and the CEO. The Chairman
represents the Board in discussions with
shareholders and investor bodies, ensures that
systems are in place to provide Directors with
timely and accurate information, represents the
Company in external meetings, and is also
responsible for the Board governance principles.
The Chairman has led the ongoing emphasis on
management development and CEO and senior
management succession planning.
G. COMPOSITION OF THE BOARD
As at the date of this report, the Board is
composed of 15 Directors. Three current members
are Executive Directors and 12, including the
Chairman, are Non-Executive Directors. As
discussed on page 101 each of the Non-Executive
Directors is considered to be independent by
the Nomination and Governance Committee.
Responsibility for the development and
implementation of Company policy and strategy
and for day-to-day management issues is
delegated by the Board to the Chief Executive
Officer and Chief Financial Officer. The list of
matters reserved to the Board can be downloaded
from wpp.com/investors/corporate-governance.
With only specific exceptions to ensure Board
continuity, Non-Executive Directors shall not stand
for re-election after they have served for the
period of their independence, as determined by
applicable UK and US standards, which is nine
years. Three long-serving Non-Executive Directors
Solomon Trujillo, Sir John Hood and Daniela Riccardi
will not stand for re-election at the 2020 AGM.
H. ROLE OF NON-EXECUTIVE DIRECTORS
The Non-Executive Directors provide constructive
challenge and assistance to the Chief Executive
Officer in developing the Company’s strategy.
The Senior Independent Director is Nicole
Seligman who is available to shareholders and
acts as a sounding board for the Chairman and as
an intermediary for the other Directors with the
Chairman, when necessary. The Senior Independent
Director’s role includes responsibility for the
Chairman’s appraisal and succession and this year
the Board evaluation process. Nicole Seligman was
appointed to the Board in January 2014 and is a
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CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
1. BOARD LEADERSHIP AND COMPANY PURPOSE
2. DIVISION OF RESPONSIBILITIES
COMPLIANCE WITH THE CODE
5. REMUNERATION
P. REMUNERATION POLICIES AND PRACTICES
The Company’s compensation policy is designed
to attract the best talent and ensure people are
rewarded fairly and competitively. The policy sets
out a reward structure that looks at the short,
medium and long term and is designed to promote
sustainable performance aligned with shareholder
interests. Shareholders approved the Directors’
Compensation Policy at the 2017 AGM and this is
available on the Company’s website.
Q. PROCEDURE FOR DEVELOPING
REMUNERATION POLICY
The Compensation Committee is responsible for
setting and managing the compensation of all
Executive Directors. Controls and procedures are
in place to manage compensation of all other
employees in the Group. Refer to the Compensation
Committee report on pages 114-137 for details of the
work of the Compensation Committee during 2019.
R. EXERCISING INDEPENDENT JUDGEMENT
The Compensation Committee is composed of
five Non-Executive Directors who meet both with
and without management present and who seek
where appropriate, independent advice from
Towers Watson and external lawyers, to ensure
independent judgement. The Compensation
Committee determines remuneration outcomes
by assessing executive performance against
performance criteria which are set out in the
Compensation Committee report on pages 114-137.
member of the Compensation Committee and
the Nomination and Governance Committee.
As the Senior Independent Director, Ms Seligman
customarily attends the Audit Committee meetings
at the invitation of the Chairman of that Committee.
Letters of appointment for Non-Executive Directors
do not set out a fixed time commitment for Board
attendance and duties but give an indication of the
likely time required. It is anticipated that the time
required by Directors will fluctuate depending on
the demands of the business and other events.
Details of 2019 Board attendance at Board and
Committee meetings are set out on page 100.
3. COMPOSITION, SUCCESSION
AND EVALUATION
J. APPOINTMENTS TO THE BOARD
The Nomination and Governance Committee
leads the process for appointments to the Board
and makes recommendations to the Board. The
Nomination and Governance Committee is chaired
by the Chairman of the Board and comprises only
Non-Executive Directors. The terms of reference
of the Nomination and Governance Committee
are available on the Company’s website at
wpp.com/investors/corporate-governance.
During 2019, three Non-Executive Directors were
appointed to the Board, Cindy Rose OBE on 1 April
2019, Jasmine Whitbread on 1 September 2019
and Keith Weed on 1 November 2019. In addition,
Sandrine Dufour was appointed to the Board as
a Non-Executive Director and John Rogers was
appointed as Chief Financial Officer Designate and
elected to the Board on 3 February 2020. For more
details on the appointment process refer to the
Nomination and Governance Committee report on
page 108. Three Non-Executive Directors will be
retiring at the AGM in 2020 and Paul Richardson will
retire from the Company on 1 May 2020, following
which the Board will be composed of 11 Directors.
The independence of each Non-Executive Director
is assessed annually by the Board. 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.
K. SKILLS, EXPERIENCE AND KNOWLEDGE OF THE
BOARD AND ITS COMMITTEES
The Non-Executive and Executive Directors have a
diverse range of skills, experience and backgrounds.
As detailed in their biographies on pages 96 and 97,
the Directors work across the globe in media and
advertising, investment banking and investment
management, pharmaceuticals, logistics and
bioenergy, FMCG, international management
consulting, private equity and angel investing,
business education, manufacturing, consumer
products and retail management, internet start-ups,
government and non-profit organisations. The Board
is committed to ensuring that all appointments to
the Board are made on merit and after a thorough
recruitment process as detailed on page 108 and
with due regard for diversity and inclusion.
L. BOARD EVALUATION
Nicole Seligman, the Senior Independent Director,
has conducted an internal evaluation of the
effectiveness of the Board in 2019, building on
the work of Dr Tracy Long of Boardroom Review
Limited, an external facilitator with no connection
to WPP, who was engaged to lead the Board
effectiveness evaluation in 2018. More information
on the evaluation is on page 103.
4. AUDIT, RISK AND INTERNAL CONTROL
M. INTERNAL AND EXTERNAL AUDIT
The Audit Committee monitors the independence
and effectiveness of the internal audit function and
external auditors and receives regular reports from
each at the Audit Committee meetings and reports
back to the Board at each Board meeting. Refer to
the Audit Committee report on pages 109-111 for
details of the work of the Audit Committee during
2019. Details of the Company’s internal audit
function are included on page 83.
N. FAIR, BALANCED AND UNDERSTANDABLE
ASSESSMENT
The Board is responsible for the presentation of
a fair, balanced and understandable assessment
of the Company’s position and prospects, within
the Annual Report as well as in all publicly available
financial information. We have an appropriate
system in place to meet this responsibility. See
page 109 for further information.
O. RISK MANAGEMENT AND INTERNAL CONTROL
FRAMEWORK
The Board is responsible for aligning the risk
appetite of the Group with the long-term
strategic objectives, taking into account the
principal and emerging risks faced by the Group.
See pages 80-83 for further details of our risk
management framework.
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CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
LETTER FROM THE CHAIRMAN OF
THE COMPENSATION COMMITTEE
“ THE COMMITTEE’S KEY
FOCUS IS TO ENSURE OUR
COMPENSATION STRUCTURE
ALIGNS THE INTERESTS
OF EXECUTIVES TO THOSE
OF OUR SHAREHOLDERS
AND IS IMPLEMENTED FAIRLY
AND RESPONSIBLY.”
Sir John Hood
Chairman of the
Compensation Committee
Committee Members in 2019
– Sir John Hood (Chairman)
– Jacques Aigrain
– Roberto Quarta
– Nicole Seligman
– Jasmine Whitbread
(appointed 1 September 2019)
Highlights
– Reviewing the Directors'
Compensation Policy
– Proposing changes to ensure
alignment with strategy and
changes to the UK Corporate
Governance Code
– Consultation with our
shareholders
Key responsibilities
– Aligning compensation to
business strategy and
shareholder interests
– Setting measures and targets
for the incentive plans
– Ensuring that our practice
aligns with corporate
governance standards
To learn more see
wpp.com/about/
corporate‑governance
114
DEAR SHAREHOLDER,
I am pleased to present the Directors’
Compensation report for the financial year
ended 31 December 2019. In my introductory
letter I describe the key items considered by
the Committee during the year, including the
review of our Compensation Policy, annual
short- and long-term incentive outcomes,
and Executive Director appointment and
departure terms.
The Company issued on 31 March 2020 an
update on the impact of Covid-19 on the
Company and the measures taken to protect
our employees, clients and the financial
position of the business. Included within
the announcement was a plan to cut costs
and this included a decision for the Board,
as well as members of the WPP Executive
Committee, to take a 20% reduction in their
salaries or fees for an initial period of three
months. These have been implemented
effective 1 April 2020.
In line with the three-year life cycle, a new
Directors’ Compensation Policy is being put
forward to a binding shareholder vote at our
2020 AGM. On the following pages, I have
set out our new Compensation Policy and
our Annual report on compensation for 2019,
which explains how we implemented the
Policy previously approved by shareholders,
as well as how we intend to implement the
new Compensation Policy if approved at the
AGM. The Annual report on compensation will
be subject to an advisory shareholder vote.
CHANGES TO THE DIRECTORS’
COMPENSATION POLICY
During 2019 the Committee spent a
considerable amount of time debating the
changes that were needed to the Directors'
Compensation Policy. Our focus was on
ensuring that it was aligned with the new
WPP strategy and provided the right tools
to enable the Company to attract and retain
the quality of talent required in this complex
organisation. We were also committed to
ensuring our new Compensation Policy
adheres to the principles of good
governance as set out in the UK Corporate
Governance Code. The changes to the
policy, on which we have consulted with our
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019 COMPENSATION COMMITTEE REPORT
Paul will be succeeded by John Rogers,
who joined the Company in January 2020
and was appointed to the Board as Chief
Financial Officer Designate on 3 February
2020. John was appointed on a competitive
salary package in line with our Policy, that
we disclosed on the announcement of
his appointment.
This is my last letter and report to
shareholders of WPP as I will be stepping
down at the AGM. During my tenure, with the
support of my fellow Committee members,
I believe we have addressed the many
challenges that have been presented to us
and are now in a position where we have a
policy and set of plans that meet the highest
levels of UK corporate governance. I am
handing over the chair to Jasmine Whitbread
who has been a member of our Committee
during the last year and brings considerable
relevant experience to the role.
I would like to take the opportunity to
acknowledge and thank my fellow
Committee members, management and
advisors for their support during my period
as Committee Chairman.
Sir John Hood
Chairman of the
Compensation Committee
29 April 2020
shareholders, are set out in summary and
detail later in the report. There are some
important changes to which I would like to
draw your attention.
For many years, WPP has utilised a long-term
incentive plan based on a five-year
performance and vesting period. In recent
years it has become clear that a five-year
performance period was poorly aligned to
the business cycle and speed of change
within our industry. It has lost some of its
effectiveness as an incentive to motivate
management and was unattractive to new
hires. We are therefore proposing to adopt
the more commonly used UK approach of a
performance share plan with a three-year
performance period followed by a two-year
holding period for the vested shares. While
making this change, we have also taken
the opportunity to review the performance
measures to ensure they align to the WPP
strategy. For 2020, we will assess
performance using three measures: total
shareholder return (TSR), return on invested
capital (ROIC) and cumulative free cash
flow (CFCF).
The effects of the Covid-19 virus on our
business are not yet clear but it will have
a material adverse impact on our financial
results. We are therefore taking the unusual
step of not, at this stage, setting out the
financial targets for the ROIC and CFCF
measures which would be set using 2020
financial forecasts. However, shareholders
will be consulted on the targets before any
awards are granted later in the year when
the situation is clearer.
The other key changes we are proposing
respond to the enhancements in the
Corporate Governance Code and the
developments in the UK market with the
inclusion of a stronger set of malus and
clawback conditions providing the Committee
with much broader powers, the formal
inclusion of post-employment shareholding
requirements and the alignment of the
executive directors’ pension provision with
that of the wider UK workforce.
PAY FOR PERFORMANCE 2019
WPP operates an annual short-term incentive
plan that is strongly aligned to performance,
measured against targets set at the start of
the year, for revenue, margin and profit.
In 2019, the first complete year under the
leadership of Mark Read who, with his
management team, started implementing
the transformation strategy that he set out
to shareholders in late 2018, the executives
produced a strong performance in
challenging market conditions.
The individual strategic objectives of the
executives, which covered a range of business
priorities including the sale of a majority
share of Kantar, further strengthening of
financial controls and efficiencies, and people,
culture and diversity, were successfully
delivered and these are reflected in the STIP
outcomes set out in detail in the report.
The 2015 Executive Performance Share Plan
(EPSP) award completed its five-year
performance period at the end of the
financial year. Over the performance period,
our TSR and earnings per share (EPS)
performance were below the targets that we
had set resulting in a zero-vesting result for
those performance elements. The return on
equity (ROE) target was met resulting in a
modest vesting level and small payout to
the executives.
BOARD CHANGES
As previously announced, Paul Richardson
will step down from the Board and his
position as Group Finance Director with
effect from 1 May 2020. The Committee
has agreed that Paul will be treated in
accordance with the Policy and will be paid
his salary, pension and benefits up to his
leaving date. In addition, he will be paid for
his outstanding holiday entitlement. He will
be ineligible for any STIP in 2020 and also for
the 2019 deferred share bonus award. His
outstanding share awards will be prorated,
and to the extent performance targets are
achieved, will vest on the scheduled vesting
dates. Paul will be required to hold shares
equal to 300% of his salary for one year
post-retirement and 150% of his salary for
the second year.
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CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
COMPENSATION
AT A GLANCE
GROUP FINANCIAL PERFORMANCE MEASURES 2019
LIKE-FOR-LIKE HEADLINE PBT GROWTH
%
HEADLINE OPERATING MARGIN
IMPROVEMENT
%
LIKE-FOR-LIKE GROWTH IN REVENUE LESS
PASS-THROUGH COSTS
%
Actual
-8.5
Threshold
-10%
Target
-5%
Maximum
0%
Threshold
-1.5%
Actual
-1
Target
-1%
Actual
-1.3
Maximum
0%
Threshold
-3.0%
Target
-1.75%
Maximum
-0.5%
LONG-TERM PERFORMANCE
WPP Total Shareholder Return (TSR)
%
20Y
10Y
5Y
1Y
FTSE 100
S&P 500
WPP
135
115
35
14
319
363
116
22
131
160
(4)
27
(4)
27
Source: DataStream. TSR calculated up until 31 December 2019.
LONG-TERM (EPSP) PERFORMANCE MEASURES
%
Actual
40
0% (of max)
Actual
EPS
Threshold
50% outperformance
Maximum
90% outperformance
1.24
Nil
0
Threshold
7
Actual
42
0% (of max)
ROE
Threshold
50% outperformance
Maximum
90% outperformance
Nil
0
TSR*
(common
currency)
TSR*
(local
currency)
Nil
0
Nil
0
* Outperformance of peer group
116
131
160
0% (of max)
Maximum
14
Actual
44%
(of max)
15.91
Threshold
15
Maximum
18
WPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
TOTAL COMPENSATION 2019
£000
Mark Read*
2019
2018
965
2,594
Paul Richardson
2019
2018
2,030
2,125
0
1,000
2,000
3,000
4,000
0
1,000
2,000
3,000
4,000
• Fixed, consisting of base salary, benefits and pension
• Short-term incentives (STIP)
• Long-term incentives Executive Performance Share Plan (EPSP)
* Mark Read was appointed as CEO on 3 September 2018 and his total compensation
for 2018 reflects his time in role.
HOW WE WILL IMPLEMENT OUR PROPOSED COMPENSATION POLICY IN 2020
Policy
2020
2021
2022
2023
2024
Implementation for 2020
Base salary
Typically 24-month review period, with
flexibility for annual review if appropriate
Benefits
Pension
A fixed benefits allowance will be
provided as an alternative to the provision
of itemised benefits, to be used at the
executive’s discretion
Pension is provided by way of a contribution
to a defined contribution arrangement,
or a cash allowance, determined as a
percentage of base salary
Short‑term
incentives
– 75%-100% financial
– 0%-25% individual strategic objectives
– One-year performance period
– 60% cash, at least 40% deferred
into WPP shares (two years)
Long‑term
incentives
– TSR, ROIC and Cumulative
Free Cash Flow
– Three-year performance period
– Two-year holding period
Mark Read: £975,000*
John Rogers: £740,000*
* Salaries will be reduced by 20% for
an initial period of three months
from 1 April as a result of the
impact of Covid-19.
Mark Read: £35,000
John Rogers: £30,000
Mark Read*: 17.6%
John Rogers: 10%
* To be reduced during the policy
period as part of plans to align
executive pensions with the
wider workforce.
Mark Read: 0-250%
John Rogers: 0-225%
75% financial and 25%
non-financial targets
Cash
Deferred shares
Performance period
Holding period
Mark Read: 0-350%
John Rogers: 0-300%
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CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
DIRECTORS' COMPENSATION
POLICY
This section of the report sets out the Directors’
Compensation Policy which shareholders will be
asked to approve at the 2020 AGM. Until this time,
the Policy approved by shareholders on
7 June 2017 will continue to apply.
SUMMARY OF PROPOSED CHANGES TO THE DIRECTORS' COMPENSATION POLICY
ELEMENT OF COMPENSATION
PROPOSED CHANGES
● Base salary
● Benefits
● Pension
The new policy allows for flexibility to review base salaries on an annual basis rather than biennially if the Committee
deems this appropriate. The Compensation Committee will also have the discretion to realign base salary over a phased
period for new Board appointments whose starting salary is below the competitive market level.
The inclusion of a £100,000 Director fee has been removed. This was a legacy arrangement applicable to Paul Richardson only.
The annual fixed benefits allowance has been reduced from £200,000 for the CEO and £85,000 for the CFO to a maximum
of £50,000 for all executives.
Following the provisions in the new UK Corporate Governance Code to align executive pensions with those of the wider
workforce, we have reduced the pension provision available to new Executive Directors to 10%. This level has been
applied to the newly appointed Chief Financial Officer. Over the course of the next policy period, the CEO’s contribution
will be phased down to this level. During 2020, as far as practicable, the average maximum pension contribution available
to employees across the UK will be increased to 10% from the current average rate of 5% to ensure alignment.
● Short‑term incentive plan
The overall quantum of the short-term incentive plan has been reduced from a maximum of 400% of base salary for the CEO
and 250% of base salary for other directors to a maximum of 250% of base salary for all executives. The target incentive is
50% of maximum for all directors. A significant proportion of the STIP will continue to be deferred into shares for a period
of two years. Performance measures and targets are reviewed annually to ensure they align with current business priorities.
● Long‑term incentive plan –
Executive Performance Share
Plan (EPSP)
Structure:
The performance period for the EPSP has been reduced from five years, to three years combined with a two-year holding
period. The change in performance period is designed to enhance alignment to Company business strategy and improve
the effectiveness of the plan to attract, retain and motivate executives. The overall five-year holding period maintains the
long-term alignment with shareholders that is a critical feature of the policy.
Current
Five-year performance period
Proposed
Three-year performance period
Two-year holding period
Performance measures:
The current EPSP financial measures of EPS and ROE will be replaced with cumulative free cash flow (CFCF) and return
on invested capital (ROIC). These measures have been chosen on the basis that they are closely aligned with the WPP
strategy to ensure long-term efficiency, profitability and cash generation. In addition, the TSR peer group will be reviewed
to reflect the current key competitors of the Company.
Current
TSR
Proposed
TSR
EPS
ROE
Cumulative Free Cash Flow Return on Invested Capital
Quantum:
The new policy proposes a reduction in maximum from 975% of base salary to 400% of base salary. The maximum level will
be used in exceptional circumstances only. The threshold vesting level will increase from 15% to 20%.
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WPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
OVERVIEW OF OTHER CHANGES TO POLICY
POLICY AREA
PROPOSED CHANGES
● Post‑employment
shareholding requirements
Post-employment shareholding requirements will be formally introduced requiring Executive Directors to hold 100% of
their shareholding requirement for the first year following departure, reducing to 50% for the second year. The post-
employment requirement was set taking into account the level of the shareholding requirement for the CEO and CFO
at 600% and 300% respectively which is considerably higher than typical UK market norms.
● ● Malus and clawback
A standalone malus and clawback policy has been implemented which applies to all the incentive plans. The policy
includes a broad list of events in which malus and clawback may be applied and a defined decision-making process. The
Compensation Committee have far-reaching powers to ensure they can use judgement in a broad range of circumstances.
Appointments to the Board
The aggregate maximum level of ongoing variable compensation that can be awarded to a newly appointed Executive
Director has been reduced from 8 times to 6.5 times base salary. This aligns with changes to limits on short- and long-term
incentive levels.
GUIDING PRINCIPLES
Our Directors’ Compensation Policy is designed in the context of the UK Corporate Governance Code to attract and retain best-in-class talent and incentivise
Directors to deliver growth, creativity and outstanding performance, thereby producing long-term value for shareholders.
The WPP Directors’ Compensation Policy is determined by the following guiding principles:
PERFORMANCE-
DRIVEN
REWARD
COMPETITIVENESS
LONG-TERM
ALIGNMENT WITH
SHAREHOLDER
INTERESTS
ALIGNMENT TO
WPP STRATEGY
AND VALUES
Our compensation structure has a high proportion
of performance-based variable compensation.
Fixed pay / 29%
STIP / 29%
EPSP/ 42%
Value of CEO's compensation
package at target
Director compensation is designed to attract and retain
best-in-class talent.
Director pay packages have a large portion paid in the form of
shares linked to strategically aligned performance measures.
Directors have significant share ownership requirements both
during and post-employment.
Our incentive plans are structured in a way that drives
performance in line with strategy and promotes long-term
alignment with shareholders.
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CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
DIRECTORS' COMPENSATION POLICY
ALIGNING INCENTIVE PLANS WITH STRATEGY
Performance measures are selected to align to the immediate and long-term business strategic priorities appropriate at the time.
Headline operating profit
Strategy for growth, simplification, collaboration
Short-term
incentive plan
Operating profit margin improvement
Simplification of operating structure
Organic growth
Strategy for growth, creativity, value-enhancing customer proposition
Relative TSR
Improving competitive position against peers
Long-term
incentive plan (EPSP)
ROIC
Long-term efficiency, profitability, debt management
Cumulative free cash flow
Long-term cash generation
CONSIDERATIONS TAKEN INTO ACCOUNT WHEN SETTING
OUR DIRECTORS’ COMPENSATION POLICY
EMPLOYMENT CONDITIONS AT WPP
We have set the WPP Directors’ Compensation Policy in the context
of the policies and practices that apply to the wider workforce.
SHAREHOLDER VIEWS
The Committee has consulted with key shareholders throughout
the development of the updated Directors’ Compensation Policy.
The feedback received during these conversations was valuable and
was among the factors that informed the decisions made by the
Committee. WPP has worked diligently to listen to all views and
create a policy that is both acceptable to shareholders as well as
attractive to and likely to retain Executive Directors. WPP continues
to engage openly with shareholders and institutional investors to
discuss matters relating to compensation.
PROPOSED NEW POLICY
FIXED ELEMENTS OF COMPENSATION
COMPONENT, PURPOSE
AND LINK TO STRATEGY
OPERATION
● Base salary
To maintain package
competitiveness and
reflect skills and
experience; to enable
recruitment and retention.
Base salary is typically reviewed every two years but may be reviewed annually if the
Committee deems appropriate.
The Committee may realign base salary over a phased period for new Board appointees
who start on a lower-than-market salary.
Salary levels and increases take into consideration:
– salary increases awarded across the Group
– individual performance
– levels in other companies of similar size, scope and complexity.
OPPORTUNITY
Increases for executives will usually
be aligned to the wider workforce
which will reflect the performance
of the Company, individual and local
economic factors.
Increases above the normal level
may be made to take into account
special circumstances such as:
– increase in the nature or scope
of the role
– to reflect development in a role
such as in the case of an
executive appointed at a
below-market salary.
The fixed annual allowance will be reviewed periodically by the Committee and any
changes will be effective for the next fiscal year. The allowance is set with regard to
the individual concerned and the role they undertake.
The maximum benefit allowance
payable is £50,000.
Should the executive be required to move to a different country, a relocation benefit
may be provided in addition to the usual benefit allowance.
● Benefits
Provide an annual fixed
and non-itemised
allowance, to enable the
executive to procure
benefits to enable them
to undertake their role and
ensure their wellbeing
and security.
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WPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
COMPONENT, PURPOSE
AND LINK TO STRATEGY
OPERATION
OPPORTUNITY
● Pensions
To enable provision for
retirement benefits.
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.
Executive Director: 10% of
base salary.
Current:
CEO – 20% of base salary less
Employer's NIC (17.6% net)
reducing to 10% over the 2020
to 2022 Policy period.
CFO – 10% of base salary.
VARIABLE ELEMENTS OF COMPENSATION
COMPONENT, PURPOSE
AND LINK TO STRATEGY
OPERATION
OPPORTUNITY
PERFORMANCE
● Short‑term incentive plan
(STIP)
– Cash bonus
– Executive Share Award
Targets are set early in the year. The Committee
determines the extent to which these targets have
been achieved at the end of the year based on
the performance.
(ESA)
The STIP is delivered as follows:
Maximum opportunity
– 250% of base salary
Target opportunity
– 50% of the maximum
opportunity
To drive the achievement
of strategic priorities for
the financial year and to
motivate, retain and reward
executives over the short
and medium term.
The ESA element of the
incentive aligns executives
with shareholder interests.
● Long‑term incentive plan
– Executive Performance
Share Plan (EPSP)
To drive the achievement
of long-term strategic
priorities, to aid retention
and to align executive and
shareholder interests over
the long term.
– at least 40% of the STIP pay-out is delivered in the
form of conditional deferred shares (ESA) which
will be released after a period of two years.
Less than the maximum
opportunity may be applied
to executives.
– the Committee has discretion to adjust the
formulaic bonus outcomes both upwards and
downwards (including to zero) if it is determined
that performance has been impacted by
unforeseen circumstances and the outcome is not
reflective of the underlying company performance.
– STIP is subject to the malus and clawback policy.
The EPSP comprises a grant of performance share
awards which will vest subject to the achievement
of performance conditions.
The EPSP has a performance period of three
years, followed by a two-year holding period of
the vested shares.
The Committee has the discretion to adjust the
formulaic outcome of the award to ensure that
vesting reflects underlying Company performance
and value creation for share owners.
EPSP is subject to the malus and clawback policy.
Dividends will accrue on the
ESA during the deferral period.
Maximum opportunity
– 400% of base salary
Less than the maximum
opportunity may be applied
to executives.
Dividends will accrue on awards
during the performance period.
Executive Directors and other members of the
senior management team are subject to share
ownership guidelines which seek to reinforce
the WPP principle of alignment of management’s
interests with those of shareholders.
● Shareholding requirements
To align the interests of
Executive Directors with
shareholders.
Executive Directors are
required to hold 100%
of their shareholding
requirement for a period
of one year following
cessation of employment,
reducing to 50% for a
second year.
Chief Executive Officer:
600% of base salary.
Chief Financial Officer:
300% of base salary.
Minimum for any other new
executive appointed to the
Board: 200% of base salary.
Executive Directors will be
permitted a period of seven
years from the date of their
appointment to achieve the
guideline level.
Performance measures and targets
are reviewed and set annually to
ensure continued strategic
alignment.
Financial measures may represent
a minimum of 75% of the award and
a maximum of 100%.
Individual strategic or non-financial
objectives may represent up to 25%
of the award.
Vesting of the EPSP is subject to
the achievement of demanding
performance targets.
Performance measures are set by
the Committee and may be a mix of
market, financial and non-financial
measures. In 2020 the measures will
be relative TSR, ROIC and
cumulative free cash flow.
Threshold performance will
produce an award of 20% of the
award granted and increase on a
sliding scale to 100% for maximum
performance achievement.
Full details of the awards are in the
Annual report on compensation.
If an Executive Director fails to
achieve the required levels of share
ownership, the Committee will
decide what remedial action or
penalty is appropriate. This may
involve a reduction in future share
awards or requiring the director to
purchase shares in the market to
meet the ownership guidelines.
If the Executive Director fails to
maintain their shareholding
requirement post-employment,
this may result in a reduction of
outstanding awards.
121
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
DIRECTORS' COMPENSATION POLICY
NOTES TO THE POLICY TABLE
Plan rules
Copies of the various plan rules are available for
inspection at the Company’s registered office and
head office.
The Directors’ Compensation Policy table for
Executive Directors provides a summary of the key
provisions relating to their ongoing operation.
The Committee has the authority to ensure that any
awards being granted, vested or lapsed are treated
in accordance with the plan rules which are more
extensive than the summary set out in the table.
Selection of performance measures
Performance measures are selected by the
Committee based on their alignment with
strategic priorities and the key metrics used
across the business.
STIP
STIP measures are reviewed annually by the
Committee taking into account business
performance and priorities. The performance
targets for the STIP are set to incentivise
year-on-year growth and to reward strong,
sustainable performance. Strategic targets are
based upon the annual business priorities. The
Committee is of the view that the targets for the
STIP are commercially sensitive and it would be
detrimental to the Company to disclose them in
advance of or during the relevant performance
period. The Committee will disclose those targets
at the end of the relevant performance period in
that year’s Annual Report, if those targets are
no longer commercially sensitive.
EPSP
The EPSP performance measures are selected to
complement the annual STIP measures and capture
the longer-term performance of the Company.
Cumulative free cash flow is a measure that is
important for both management and our
shareholders, capturing growth in revenue and
profitability. Return on invested capital is similarly
important and provides a positive counterbalance
and risk management mechanism through the focus
on both growth and capital efficiencies. With the
inclusion of relative TSR, the plan also takes account
of shareholder views of how WPP has performed
relative to the companies in the peer group.
Operational targets under the EPSP are set taking
into account a combination of factors, but primarily
internal forecasts, analysts expectations and
historical performance relative to budgets.
Relative TSR targets are set to ensure they are
stretching and require out-performance of half of
our peer group before any reward is triggered.
Cascade to WPP Group pay policy
As well as setting the policy for the Executive
Directors, the Committee is also responsible for
managing the compensation of the Executive
Committee and the Company Secretary.
Compensation packages for these individuals are
normally reviewed every 18-24 months. As is the
case for Executive Directors, the WPP Group pay
policy ensures a clear and direct link between the
performance of the Group or relevant operating
company and compensation. Substantial use of
performance-driven compensation not only
ensures the continued alignment of the interests
of shareholders and senior individuals within the
Group, but also enables the Group to attract, retain
and motivate the talented people upon whom our
success depends.
Stock Plan 2018
The WPP plc Stock Plan 2018 is used to satisfy
awards under the short-term incentive plans
(including ESAs) as well as to grant awards to
management under the WPP Leaders, Partners and
High Potential programme. In this programme,
awards are made to participants that vest three
years after grant, provided the participant is still
employed within the Group.
Executive Directors, and other senior management
employees, receive part of their annual bonus
entitlement as a deferred share award (ESA) under
the Stock Plan 2018. Executive Directors are
ineligible to participate in any other aspect of
the management share award programme, other
than in relation to awards granted prior to
appointment or in relation to awards granted
to buy-out previous awards on appointment.
Share Option Plan 2015
The WPP plc Share Option Plan 2015 is an
all-employee plan that makes annual grants of
stock options to employees with two years of
service who work in wholly-owned subsidiaries.
This plan replaced the legacy Worldwide
Ownership Plan.
The WPP plc Share Option Plan 2015 has the
capability to make grants of executive share options.
ILLUSTRATIONS OF TOTAL COMPENSATION
The charts below provide an illustration of the potential future total remuneration of the Executive Directors. Four scenarios of potential
outcomes are provided based on the assumptions set out in the notes below the charts. The charts are reflective of the pay policy that is
being presented for approval at the 2020 AGM.
COMPENSATION SCENARIOS
£000
Mark Read (CEO)
Fixed
pay
100%
1,182
John Rogers (CFO DESIGNATE)
Fixed
pay
100%
844
Target
29%
29%
42%
4,107
Target
30%
30% 40%
2,787
Maximum
17%
35%
48%
7,032
Maximum
18%
35%
47%
4,729
Maximum
including
share price
appreciation
13%
30%
38%
19%
8,738
Maximum
including
share price
appreciation
14%
29%
38%
19%
5,839
• Fixed, consisting of base salary, benefits and pension
• Short-term incentives (STIP)
• Long-term incentives (EPSP)
• 50% share price appreciation
122
WPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
NOTES TO THE COMPENSATION SCENARIO CHARTS
The scenarios in the charts on the previous page have been calculated based on the following assumptions:
Fixed pay
Target
Consists of base salary, benefits and pension
Base salary reflects current levels
Pension reflects current levels
Assumes target STIP of 50% of maximum
Assumes EPSP vesting of 50% of maximum
Maximum excluding any share price growth
Assumes maximum STIP and maximum EPSP
Maximum including 50% share price growth
Assumes maximum STIP, maximum EPSP and 50% share price appreciation on the EPSP element of the package
Otherwise base salary, benefits and pension
allowance are payable as per the notice
period and the Committee will have the
power to make phased payments that would
be reduced or stopped if alternative
employment is taken up.
TERMS SPECIFIC TO INTERNAL
APPOINTMENTS
The Committee can honour any pre-existing
commitments if an internal candidate is
appointed to the Board.
APPOINTMENTS TO THE BOARD
This section sets out details with respect to
the appointment of a new Executive Director
to the Board of WPP, whether it is an external
or internal appointment.
FIXED COMPENSATION
Base salary will be set considering a range
of factors, including the profile and prior
experience of the candidate, internal
relativities, cost and external market data.
If base salary is set at a lower initial level,
contingent on individual performance, the
Committee retains the discretion to realign
the base salary over a phased period of
one to three years following appointment,
which may result in an exceptional rate of
annualised increase in excess of that set
out in the policy table.
Other elements of fixed pay will be set in
accordance with the policy table. A new
appointment may require the Committee to
rely on the authorised discretion (as set out
on page 120) to make payments related to
relocation, for example, in order to facilitate
the appointment.
ONGOING VARIABLE COMPENSATION
The Committee will seek to pay only that
level of reward necessary to recruit the
exceptional talent needed to lead such a
complex global group. The actual level of
incentive offered will be dependent on the
role and existing package of the candidate.
The aggregate maximum face value for
annual short- and long-term variable
compensation will be 6.5 times base salary.
The Committee retains the discretion to
make awards on recruitment, within the
policy limits, to provide an immediate
alignment of interest with the interests of
shareholders.
BUY-OUT AWARDS
The Committee may consider buying-out
compensation entitlements that the
individual has had to forfeit by accepting the
appointment. The structure and value of the
awards will be informed by the structure and
value of those entitlements being forfeited,
and the performance targets, time horizon
and method of payment will be set in an
appropriate manner at the discretion of
the Committee.
The intention of the Committee is that any
award will take the form of WPP shares and will
be subject to performance as far as possible.
An announcement of the director’s
appointment, detailing the incumbent’s
compensation will be made on a timely basis
through a regulatory information service and
posted on the Company’s website.
SERVICE CONTRACTS
The following terms will apply for any new
executive role appointed to the Board in
the future:
– executives will normally be appointed on a
notice period of up to 12 months, although
the Committee retains the discretion to
appoint an external candidate on a notice
period of up to 24 months reducing on a
rolling basis to 12 months (such that after
12 months’ service the notice period would
have reverted to the standard 12 months).
– at the Committee’s discretion, any
payment in lieu of notice will be restricted
to base salary, benefits and pension. On
termination, entitlements will lapse when
classified as a bad leaver (defined within
the incentive plans).
123
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
DIRECTORS' COMPENSATION POLICY
SERVICE CONTRACTS
The Company’s policy on Executive Directors’
service contracts is that they should be on a
rolling basis without a specific end date.
The effective dates and notice periods under
the current Executive Directors’ service
contracts are shown in this table:
Name
Mark Read
John Rogers
Effective from
3 September 2018
27 January 2020
Notice period
12 months
12 months
The Executive Directors’ service contracts are available for inspection at the Company’s registered office and head office
LOSS OF OFFICE PROVISIONS
FIXED COMPENSATION ELEMENTS
As noted above, the service contracts of executives provide for notice to be given
on termination.
The fixed compensation elements of the contract will continue to be paid in respect of any
notice period. There are no provisions relating to payment in lieu of notice. If an Executive
Director is placed on garden leave, the Committee retains the discretion to settle benefits in
the form of cash. The Executive Directors are entitled to compensation for any accrued and
unused holiday although, to the extent it is possible and in shareholder interests, the
Committee will encourage Executive Directors to use their leave entitlements prior to the
end of their notice period. Except in respect of any remaining notice period, no aspect of
any Executive Director’s fixed compensation is payable on termination of employment.
SHORT- AND LONG-TERM COMPENSATION ELEMENTS
If the Executive Director is dismissed for cause, there is not an entitlement to a STIP award,
and any unvested share-based awards will lapse. Otherwise, the table below summarises the
relevant provisions from the Directors’ service contracts (cash bonus) and the plan rules (ESA
and EPSP), which apply in other leaver scenarios. As noted on page 122, the Committee has
the authority to ensure that any awards that vest or lapse are treated in accordance with the
plan rules, which are more extensive than the summary set out in the table below.
Cash bonus
The Executive Directors are entitled to receive their bonus for any particular year
provided they are employed on the last date of the performance period.
ESA
EPSP
Provided the Executive Director is a Good Leaver, unvested awards will be reduced on
a time pro-rata basis and paid on the vesting date.
– The award will lapse if the Executive Director leaves during the first year of a
performance period.
– Provided the Executive Director is a Good Leaver, awards will vest subject to
performance at the end of the performance period and time pro-rating. Awards will
be paid on the normal date.
– In exceptional circumstances, the Compensation Committee may determine that an
award will vest on a different basis.
– Generally, in the event of death, the performance conditions are to be assessed as
at the date of death. However, the Committee retains the discretion to deal with an
award due to a deceased executive on any other basis that it considers appropriate.
– Awards will vest immediately on a change-of-control subject to performance and
time pro-rating will be applied unless it is agreed by the Committee and the
relevant Executive Director that the outstanding awards are exchanged for
equivalent new awards.
OTHER COMMITTEE DISCRETIONS NOT SET OUT ABOVE
Leaver status: the Committee has the discretion to determine an executive’s leaver
classification considering the guidance set out within the relevant plan rules.
Settlement agreements: the Committee is authorised to reach settlement agreements with
departing executives, informed by the default position set out above.
124
WPP ANNUAL REPORT 2019 COMPENSATION COMMITTEE REPORT
EXTERNAL APPOINTMENTS
Executive Directors are permitted to serve as non-executives on the boards of other organisations. If the Company is a shareholder
in that organisation, non-executive fees for those roles are waived. However, if the Company is not a shareholder in that organisation,
any non-executive fees can be retained by the office holder.
DIRECTORS’ COMPENSATION POLICY TABLE – CHAIRMAN AND NON-EXECUTIVE DIRECTORS
The following table sets out details of the ongoing compensation elements for WPP’s Chairman and Non-Executive Directors. No element
of pay is performance-linked.
Base fees
To reflect the skills and
experience and time
required to undertake
the role.
Fees are reviewed at least every two years and consider the skills, experience and time
required to undertake the role, as well as fee levels in similarly-sized UK companies.
The Chairman and Non-Executive Directors receive a "base fee" in connection with their
appointment to the Board.
Additional fees
To reflect the additional time
required in any additional
duties for the Company.
Non-Executive Directors are eligible to receive additional fees in respect of serving as:
– Senior Independent Director
– Chairman of a Board Committee
– Member of a Board Committee
– Consultancy fees in respect of other work that falls outside the remit of their role for
the Company.
An overall cap on all non-executive
fees, excluding consultancy fees,
will apply consistent with the
prevailing and shareholder-
approved limit in the Articles
of Association.
An overall cap on all non-executive
fees, excluding consultancy fees,
will apply consistent with the
prevailing and shareholder-
approved limit in the Articles
of Association.
Consultancy fees will be set on
a discretionary basis, taking account
of the nature of the role and
time required.
Benefits and allowances
To enable the Chairman and
Non-Executive Directors to
undertake their roles.
The Company will reimburse the Chairman and Non-Executive Directors for all reasonable
and properly documented expenses incurred in performing their duties of office.
The Company may provide additional allowance to facilitate the operation of the Board
such as a travel allowance for attendance at international meetings.
Benefits and allowances for the
Chairman will be set at a level that
the Committee feels is required for
the performance of the role.
In the event that the reimbursement of these expenses gives rise to a personal tax liability
for the Chairman or Non-Executive Director, the Company retains the discretion to meet
this cost (including, where appropriate, costs in relation to tax advice and filing).
While not currently offered, the Company retains the discretion to pay additional benefits
to the Chairman including, but not limited to, use of car, office space and secretarial support.
OTHER CHAIRMAN AND NON-
EXECUTIVE DIRECTOR POLICIES
LETTERS OF APPOINTMENT FOR THE
CHAIRMAN AND NON-EXECUTIVE
DIRECTORS
Letters of appointment have a one- to
two-month notice period and there are
no payments due on loss of office.
APPOINTMENTS TO THE BOARD
Letters of appointment will be consistent
with the current terms as set out in this
Annual Report. The Chairman and Non-
Executive Directors are not eligible to
receive any variable pay. Fees for any new
Non-Executive Directors will be consistent
with the operating policy at their time of
appointment. In respect of the appointment
of a new Chairman, the Committee has the
discretion to set fees considering a range
of factors including the profile and prior
experience of the candidate and external
market data.
PAYMENTS IN EXCEPTIONAL
CIRCUMSTANCES
In unforeseen and exceptional circumstances,
the Committee retains the discretion to
make emergency payments which might
not otherwise be covered by this policy.
The Committee will not use this power to
exceed the recruitment policy limit, nor will
awards be made in excess of the limits set
out in the Directors’ Compensation Policy
table. An example of such an exceptional
circumstance could be the untimely death
of a director, requiring another director to
take on an interim role until a permanent
replacement is found.
125
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
ANNUAL REPORT
ON COMPENSATION
This section of the report sets out details
of how the Directors' Compensation Policy
was implemented in 2019. We start by
setting out the details of the operation of
the Compensation Committee and then
present a summary of the 2019 Director
compensation together with a summary
of pay across the Group.
Payments have been made in accordance
with the previously approved Directors’
Compensation Policy, approved by
shareholders at the 2017 AGM. The
information included in this section has
been audited where stated.
We are presenting an updated Directors’
Compensation Policy for approval by
shareholders at the 2020 AGM.
GOVERNANCE IN RELATION
TO COMPENSATION
During 2019, the Compensation Committee
met seven times on a formal basis, with
additional informal meetings held as needed
to deal with ad hoc matters. A table of Board
and Committee attendance can be found on
page 100.
The Committee members have no personal
financial interest (other than as a shareholder
as disclosed on page 135) in the matters
to be decided by the Committee, potential
conflicts of interest arising from cross-
directorships, or day-to-day involvement in
running the Group’s businesses. The terms of
reference for the Compensation Committee
are available on the Company’s website, and
will be on display at the AGM, as set out in
the Notice of AGM.
ADVISORS TO THE
COMPENSATION COMMITTEE
The Compensation Committee regularly
consults with Group executives. The
Committee invites certain individuals to
attend meetings, including the Chief
Executive Officer (who is not present when
matters relating to his own compensation or
contracts are discussed and decided), the
Company Secretary, the Chief People Officer
and the Worldwide Compensation & Benefits
Director. The latter two individuals provide a
perspective on information reviewed by the
Committee and are a conduit for requests for
information and analysis from the Company’s
external advisors.
EXTERNAL ADVISORS
The Committee retains Willis Towers Watson
(WTW) to act as independent advisors.
They provide advice to the Compensation
Committee and work with management on
matters related to our compensation policy
and practices. They are a member of the
Remuneration Consultants Group and have
signed the code of conduct relating to the
provision of advice in the UK. Considering
this, and the level and nature of the service
received, the Committee remains satisfied
that the advice is objective and independent.
WTW provides limited other services at a
Group level and some of our operating
companies engage them as advisors at a
local level. In 2019, WTW received fees of
£218,746 in relation to the provision of advice
to the Committee. The Committee receives
external legal advice, where required, to
assist it in carrying out its duties.
CHANGES IN EXECUTIVE DIRECTORS
Paul Richardson will retire from the Company
with effect from 1 May 2020. He will be
succeeded by John Rogers, who joined the
Company on 27 January 2020 as Chief
Financial Officer Designate.
STATEMENT OF SHAREHOLDER VOTING
The result of the shareholder vote at the Company’s 2019 AGM in respect of the 2018 Compensation Committee Report is set out below along
with the result of the vote on the Directors' Compensation Policy at the 2017 AGM:
Voting outcome for 2018 Compensation Committee Report (At 2019 AGM)
VOTES FOR
Number
908,298,510
VOTES AGAINST
%
Number
93.65%
61,541,791
%
6.35%
VOTES CAST
Number
969,840,301
VOTES WITHHELD
Number
159,807
Resolution
To approve the
Compensation
Committee Report
Voting outcome for 2017 Compensation Policy (At 2017 AGM, when the current policy was approved)
Resolution
To approve the
Compensation Policy
VOTES FOR
Number
869,083,431
VOTES AGAINST
VOTES CAST
VOTES WITHHELD
%
Number
91.71
78,532,980
%
8.29
Number
947,616,411
Number
17,339,998
To learn more see
wpp.com/about/
corporate‑governance
126
WPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
EXECUTIVE DIRECTORS’ TOTAL COMPENSATION RECEIVED (AUDITED)
Single total figure of remuneration
Mark Read1
Paul Richardson2,3
Short-term incentive £000
Base
salary
£000
975
325
840
808
Benefits
£000
Pension
£000
35
12
67
64
171
57
252
243
Cash
805
146
670
192
Deferred
537
98
–
128
Long-term
incentive4
£000
Total annual
remuneration
£000
71
327
201
690
2,594
965
2,030
2,125
2019
2018
2019
2018
1 Mark Read was appointed as CEO on 3 September 2018 and his 2018 salary and benefits reflect his time in role.
2 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. There has been no change in base salary over 2019 and the differences between the 2019 and 2018 values is due to a change in exchange rates.
3 Paul Richardson was not awarded the ESA portion of his bonus as, in accordance with the plan rules, it would lapse due to his retirement date.
4 None of the value of vested awards above is attributable to share price appreciation.
FIXED ELEMENTS OF REMUNERATION (AUDITED)
BASE SALARY
As part of his contractual salary,
Paul Richardson received a fee of
£100,000 for his directorship of WPP plc.
Paul Richardson’s base salary has
not changed since 2013.
Mark Read
Paul Richardson1
Effective date
3 September 2018
Contractual
salary
000
£975
1 July 2013
$945 and £100
Base salary
received
in 2019
000
£975
$1,073
1 The director’s fee for Paul Richardson has been converted into US dollars at a rate of $1.2765 to £1.
BENEFITS
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 (£1,666 in 2018) and for Paul
Richardson were £7,626 (£7,625 in 2018).
PENSION
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%.
Mark Read
Paul Richardson
Mark Read
Paul Richardson
2019
Benefits
000
£35
$85
Contractual
pension
(% of base salary)
20
30
2019
Pension
£000
171
252
127
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
ANNUAL REPORT ON COMPENSATION
SHORT-TERM INCENTIVE (AUDITED)
2019 SHORT-TERM INCENTIVE PLAN OUTCOME (PERCENTAGES EXPRESSED RELATIVE TO BASE SALARY)
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 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.
Annual short-term
incentive received
%
to financial objectives
%
Paul Richardson
Mark Read
Attributed
138
133
96
78
Attributed
to personal
objectives
%
60
37
Total 2019
short-term
incentives
£000
1,341
670
PERFORMANCE AGAINST 2019 FINANCIAL OBJECTIVES (70% OF THE AWARD)
Performance against all financial objectives is calculated on a pro forma ("like-for-like") basis other than headline operating margin which is
calculated on a constant currency basis. The key financial short-term incentive plan objectives for both of the Executive Directors provide a
robust basis for assessing financial achievement.
Like for like headline PBT growth
Headline operating margin
Like for like growth in revenue
less pass-through costs
1/3
1/3
1/3
Weight
Threshold
-10.00%
-1.50%
Target
-5.00%
-1.00%
Stretch
0.00%
0.00%
Actual1
-8.50%
-1.00%
-3.00%
-1.75%
-0.50%
-1.30%
Vesting2
Mark Read
Paul Richardson
As a % of
stretch
As a % of
target
As a % of
stretch
As a % of
target
15%
50%
68%
30%
100%
136%
20%
66%
78%
30%
100%
119%
1 Performance measures are based on adjusted results for the Group for the year ended 31 December 2019, including Kantar for the period it was owned by the Group.
2 The different vesting percentages are due to the CEO bonus equating to 50% at target and CFO 66% at target.
PERFORMANCE AGAINST 2019 INDIVIDUAL STRATEGIC OBJECTIVES (30% OF THE AWARD)
Executive Director
Mark Read
Personal measures 2019 (30%)
Business simplification,
leadership team renewal,
people, diversity
Core asset disposals
Paul Richardson
Working capital management
Controls and
compliance improvement
Transition to the new CFO
Clarification of measures
– Take opportunities to simplify the business with additional
consolidation, disposals and restructuring where appropriate
– Push forward with the refreshment and strengthening of
business leadership. Further develop the culture and diversity
of the workforce
Sale of Kantar in accordance with guidance given to the Board.
Optimise the financial terms of the deal and seek shareholder
support for the terms agreed. Bring proposals for the distribution
of proceeds to the Board and implement as approved
Year-on-year improvement in overall Company leverage ratio as set
out to investors driven by disposals, debt and NWC management
Controls and compliance improvements
including the cascade down the organisation
Transitioning to the new finance structure including streamlining
the team in preparation for the new CFO
Maximum
potential
(% of base salary)
Award received
(% of maximum)
75
80
75
50
Mark Read made substantial progress in 2019 in implementing the strategy he set out to shareholders in late 2018. The highlight was the
disposal of the majority share in Kantar as well as the disposal of several other businesses that were not core to the Group. During the year
numerous management changes were made to strengthen the leadership of the organisation, our client teams and creative capability.
The Committee felt that Mark had produced a very strong performance in all areas.
Paul Richardson was judged to have achieved reasonable progress against his personal goals with good performance in improving the net
working capital position and strengthening our accounting compliance processes. Paul has worked to ensure a smooth transition of
responsibilities to the new Chief Financial Officer.
128
WPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
CORPORATE GOVERNANCE
SHORT-TERM INCENTIVE WEIGHTINGS AND MEASURES FOR 2020
The Committee has reviewed the performance objectives for 2020 to ensure continued alignment with Company strategy. In 2020, because
of the uncertainty surrounding the impact on the business of Covid-19, while the focus will remain on revenue growth and profitability,
additional measures will be adopted to measure the effectiveness of management in minimising any adverse impact on the Group. Further
detail will be provided in next year’s Annual Report. The Committee is of the view that the targets for the STIP are commercially sensitive and
it would be detrimental to the Company to disclose them in advance of, or during, the relevant performance period. To the extent targets are
no longer commercially sensitive they will be disclosed at the end of the relevant performance period in that year’s Annual Report, as we have
done in previous years.
LONG-TERM INCENTIVES (AUDITED)
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:
– WPP’s relative TSR, measured in common and local currency, against a custom group of WPP’s comparators (Dentsu, GfK, Havas,
Interpublic, Ipsos, Nielsen, Omnicom and Publicis), weighted by their respective market capitalisation;
– Compound annual growth in headline EPS; and
– Average return on equity.
Over the five-year performance period:
– WPP’s TSR outperformed 40% of the weighted peer group on a common currency basis and 42% on a local currency basis. This resulted in
zero vesting for that element.
– The compound annual growth rate in headline EPS was 1.24%. This achievement fell below the threshold performance level and resulted in
zero vesting for this element.
– The Group delivered return on equity of 15.9%, resulting in vesting at 44.4% for that element.
In aggregate, WPP’s performance against the three measures resulted in an overall achievement of 14.8% of the maximum award.
Performance Measure
Relative TSR (common currency)
Relative TSR (local currency)
EPS growth
Average ROE
Total vesting (% of maximum)
Weighting
%
%
Threshold
Maximum
Actual
%
% of maximum
achieved
50% of
weighted peer
group
outperformed
90% of
weighted peer
group
outperformed
7.0
10.0
14.0
14.0
1/3
1/3
1/3
40
42
1.24
15.9
0
0
0
44.4
14.8
Number of
shares awarded
Additional
shares in respect
of dividend
accrual
Mark Read
Paul Richardson1
65,910
37,970
2,097
1,217
1 Paul Richardson's EPSP awards were granted in the form of ADRs.
Number of
shares vesting
11,845
6,832
Share price
on vesting
£6.0000
$37.48095
Value of vested
2015-2019
EPSP awards
000
£71
$256
129
WPP ANNUAL REPORT 2019
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
ANNUAL REPORT ON COMPENSATION
LONG-TERM INCENTIVES (AUDITED) CONTINUED
2019 EPSP AWARDS GRANTED
In 2019, the Executive Directors were granted awards under the EPSP. Prior to grant, the Committee undertook extensive discussions in relation
to the performance conditions to be used for future awards. The primary concern was that the current financial performance measures (EPS and
ROE) and their associated performance goals, which were prescribed in the Compensation Policy, no longer aligned to current and forecast
financial performance of the Company. The Committee felt that the performance measures would need to be amended in order for the EPSP
to remain an effective method of incentivising and retaining management. Following consultation with key shareholders representing over
a third of our issued share capital, it was decided that the awards would be made utilising relative TSR as the only performance condition.
However, the Committee felt it essential that the awards have a ROIC underpin in order to ensure alignment to the underlying financial
performance of the Company. The underpin condition requires that vesting of the awards is conditional on the average annual ROIC, over the
five-year performance period, being at least 7.5%.
This change in performance measure is for the 2019 award only. The new Directors’ Compensation Policy includes a revised EPSP with a
different structure and new performance measures that align to the current WPP strategy. If the policy is approved at the 2020 AGM, future
EPSP awards will be made according to this policy.
The table below summarises the awards granted and the performance conditions against which participants will be measured.
Awards granted in 2019
Mark Read
Paul Richardson
Performance Measure
Weight
Nature
Performance zone (threshold to maximum)
Payout
Basis and level of award
(% of salary)
Award
over
Number of
interests awarded
350
300
Ordinary shares
ADRs
340,059
51,593
Face value at
date of grant1
000
£3,412
$3,232
Total Shareholder Return (TSR)
100%
Relative to peers
50% to 90% of peer group outperformed
Below threshold: 0% of award vests
Threshold: 15% of award vests
Maximum or above: 100% of award vests
Straight-line vesting between threshold
and maximum
Vesting is subject to an underpin defined as:
average annual ROIC of 7.5% over the performance
period. The Committee have discretion to
determine whether the vesting level is a fair
reflection of underlying performance.
1 Face value is calculated based on the five-day average share price preceding the date of award (£10.035 for ordinary shares and $62.653 for ADRS).
As in previous years, WPP’s TSR performance is compared to companies representing our most relevant, listed global competitors, weighted
by market capitalisation. For 2019 EPSP awards, the comparator group comprised Dentsu, Interpublic, Ipsos, Nielsen, Omnicom and Publicis.
TSR performance is calculated on a market capitalisation-weighted basis in both common and local currency (weighted equally). Using a dual
basis ensures that the interests of both local and international investors are reflected in the performance measures.
EPSP MEASURES AND TARGETS FOR 2020
The Committee has proposed a new Directors’ Compensation Policy, including a restructured EPSP more closely aligned to WPP strategy.
The effects of Covid-19 on our business are not yet clear but it will have a material adverse impact on our financial results. We are therefore
taking the unusual step of not, at this stage, setting out the financial targets for the ROIC and Free Cash Flow measures that would be set
using 2020 financial forecasts. However, assuming the policy is approved, the Compensation Committee will consult with shareholders on
the proposed targets before any awards are granted later in the year, when the situation is clearer.
130
WPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
CORPORATE GOVERNANCE
ALIGNING PAY AND PERFORMANCE
As set out in the Directors’ Compensation Policy, the Committee’s objective is to align variable compensation with the key strategic priorities
of WPP, maximising the dynamic between pay and performance.
This dynamic is contingent upon the Committee setting challenging targets each year. The following graph and table demonstrate the
relationship between pay and performance over the last 10 years for the CEO. With respect to 2018, the pay for both the current and previous
CEO are included, as separate sets of data.
HISTORICAL TSR PERFORMANCE1
Value of hypothetical £100 holding
500
400
300
200
100
0
WPP
FTSE 100
£239
£204
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: DataStream Return Index
CEO total compensation (£000)2
Year-on-year change in CEO total
compensation (%)
Short-term incentive award against
maximum (%)
Long-term incentive award against maximum
(%)
Change in annual TSR (%)3
Change in five-year TSR (%)4
2010
11,597
2011
11,941
2012
2013
2014
2015
2016
2017
2018
MSS5
17,543
29,846
42,704
70,409
48,148
13,930
3,085
61
95
83
32
37
3
77
46
(13)
13
47
62
86
38
45
70
82
87
56
241
43
72
100
3
172
65
86
100
18
135
(32)
60
100
19
210
(71)
0
73
(20)
96
(78)
0
33
(33)
(1)
2018
MR5
965
n/a
30
33
(33)
(1)
2019
2,594
1696
55
15
27
(4)
1 Growth in the value of a hypothetical £100 holding of WPP ordinary shares over 10 years against an equivalent holding in the FTSE 100 (the broad market equity index of which WPP is a constituent)
based on one-month average of trading day values. Source: DataStream.
2 Calculated using the single figure methodology.
3 TSR calculated using a one-month trading day average, consistent with the data shown in the graph.
4 TSR calculated using a six-month averaging period, consistent with the calculation methodology under EPSP.
5 Sir Martin Sorrell (MSS) left the company on 14 April 2018; Mark Read (MR) was appointed as CEO from 3 September 2018.
6 Mark Read was appointed to the role of CEO in September 2018. The year-on-year change has been calculated based on the total compensation for this four-month period.
WPP ANNUAL REPORT 2019
131
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
ANNUAL REPORT ON COMPENSATION
RELATIVE IMPORTANCE OF SPEND ON PAY
The following table sets out the percentage change in total staff costs, headcount, dividends and share buybacks.
Total staff costs (continuing operations)
Headcount – average over year
Dividends and share buybacks
2019
2018
% change
£7,090.6m
£6,950.6m
132,823
£794.3m
133,903
£954.5m
2.0
(0.8)
(16.8)
RELATIVE CHANGE IN PAY FOR THE CHIEF EXECUTIVE OFFICER
The following required table summarises the change in the CEO’s base salary, taxable benefits and annual bonus, compared to that of full-time
employees within the Group. The current CEO was appointed in September 2018. In order to provide a meaningful comparison, his salary and
benefits for 2018 have been adjusted such that they reflect the amounts which would have been paid if he had been in role for the full year. He
received no salary increase or increase to his benefits allowance.
Chief Executive Officer
All Employees 1,2
Base
salary
%
0
0.8
UK taxable
benefits
%
0
5.9
Annual
bonus
%
4503
(2.4)
1 The All Employees numbers for the change in base salary, taxable benefits and annual bonus have been calculated based on the annual average amount received.
2 Considering the worldwide structure and size of the Group and given the need to calculate benefits on the basis that an individual is resident in the UK for tax purposes, collating data on all employees
was not practicable. As a result, the population for taxable benefits consists of UK employees only.
3 Mark Read was appointed to the role of CEO in September 2018. The 2018 annual bonus used to calculate the change in annual bonus for the CEO pertains to this four-month period only.
CEO PAY RATIO
The ratios shown in the table below compare the total remuneration of the CEO (as shown in the single figure table on page 127) to the
remuneration of the median UK employee and those at the lower and upper quartile.
Year
2019
Total remuneration
Methodology used 25th percentile pay ratio 50th percentile pay ratio
1:55
Option B
1:79
75th percentile pay ratio
1:34
Given the complexity of WPP and the number of payrolls used across the UK Group, Option B was the most appropriate methodology to use
to determine the CEO pay ratio. We believe this approach provides accurate information and representation of the ratios. The latest data
collected as part of gender pay reporting was used, with a snapshot date of 5 April 2019. The ratio has been computed taking into account the
pay and benefits of over 14,000 UK employees, other than the role of the CEO. Where an employee works part-time, fixed pay, benefits, and
any variable pay were adjusted, where appropriate, to reflect full-time equivalent remuneration. The 25th, 50th and 75th percentile employees
were determined based on this adjusted data. Total remuneration for 2019 was calculated using single figure table methodology for these
employees in order to provide a meaningful comparison with the CEO. We are satisfied that the median pay ratio is consistent with the
remuneration policies for our UK workforce taken as a whole and our objective of delivering market competitive pay for each role.
The salary and total pay and benefits for the 25th, 50th and 75th percentile employees are shown in the table below:
Year
2019
Salary
Methodology used 25th percentile pay ratio 50th percentile pay ratio
£44,739
Option B
£31,000
Total pay and benefits
Option B
£32,636
£46,975
75th percentile
pay ratio
£70,000
£77,416
The pay ratio reflects how the structure and approach to remuneration changes with increased seniority and accountability within the Group
and is therefore consistent with pay, reward and progression policies. The CEO’s pay is significantly weighted towards performance-related
pay with a focus on aligning with long-term performance and the interests of shareholders. The ratio will therefore fluctuate depending on the
financial performance of the Group and share price movements.
132
WPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
NON-EXECUTIVE DIRECTORS’ FEES
The fees due to Non-Executive Directors were reviewed and increased in 2018. The Chairman's fee was reviewed and increased effective
July 2019. The fees are shown in the table below:
Chairman
Non-Executive Director
Senior Independent Director
Chairmanship of Audit or Compensation Committee
Chairmanship of Nomination and Governance Committee
Chairmanship of Sustainability Committee1
Member of Audit or Compensation Committee
Member of Nomination and Governance Committee
Member of Sustainability Committee
1 The Sustainability Committee is currently co-chaired. Each Chair receives a £15,000 fee.
£000
525
85
30
40
15
15
20
10
10
NON-EXECUTIVE DIRECTORS’ TOTAL COMPENSATION RECEIVED (AUDITED)
The single figure table below details fee payments received by the Non-Executive Directors while they held a position on the Board.
During both 2018 and 2019, the Company met the cost (including national insurance and income tax, where relevant) of expenses incurred
by the Non-Executive Directors in performing their duties of office, in accordance with the policy set out above.
In 2019, the disclosable value of the expenses that would be chargeable to UK income tax totalled £80,304 (including £35,820 of national
insurance and income tax, where relevant).
Roberto Quarta
Jacques Aigrain
Tarek Farahat
Sir John Hood
Ruigang Li1
Daniela Riccardi
Cindy Rose2
Nicole Seligman
Sally Susman
Sol Trujillo
Keith Weed3
Jasmine Whitbread4
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 the 1 September 2019.
Fees
£000
2019
500
145
105
125
44
95
79
145
98
105
17
37
2018
475
138
98
118
88
88
n/a
130
88
98
n/a
n/a
133
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
ANNUAL REPORT ON COMPENSATION
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 performance conditions are achieved. The table below sets
out details of the 2015 award that vested on 12 March 2020 based on performance achieved (see page 129 for detail).
Sir Martin Sorrell
2015 EPSP
738,267
15,270
86,243
Plan
Number of
shares awarded
Additional share
in respect of
dividend accrual
Number of
shares vesting
Share price
on vesting
£6.0000
Value of vested
2015-2019 EPSP
awards 000
£517
EXECUTIVE DIRECTORS’ INTERESTS (AUDITED)
Executive Directors’ interests in the Company’s ordinary share capital are shown in the following table. Other than as disclosed in this table,
no Executive Director had any interest in any contract of significance with the Group during the year. Each Executive Director has a technical
interest as an employee and potential beneficiary in shares in the Company held under the Employee Share Ownership Plan Trusts (ESOPs).
More specifically, the Executive Directors have potential interests in shares related to the outstanding awards under the EPSP and outstanding
ESAs. As at 31 December 2019, the Company’s ESOPs (which are entirely independent of the Company and have waived their rights to receive
dividends) held in total 9,219,837 shares in the Company (14,820,994 in 2018).
Director
Mark Read
Paul Richardson
At 31 December 2019
At 29 April 2020
At 31 December 2019
At 29 April 2020
Total
beneficial
interests
196,789
251,643
1,068,240
1,080,145
Shares without
performance
conditions
(unvested)1,2
Shares with
performance
conditions
(unvested)3,4
193,388
155,071
14,235
14,235
967,728
901,818
1,133,300
943,450
Total
unvested
shares
1,161,116
1,056,889
1,147,535
957,685
1 For Mark Read shares due pursuant to the 2017 Performance Share and 2018 Executive Share awards, 2017 Leaders awards and 2018 Retention awards and for Paul Richardson, the 2018 Executive Share award.
Full details of these awards can be found on pages 135 and 136. Additional dividend shares will be due on vesting.
2 As noted in footnote 1 above, less 2017 Performance Share award, which vested on 10 March 2020 (full details can be found on page 135).
3 Maximum number of shares due on vesting pursuant to the outstanding EPSP awards, full details of which can be found on page 136. Additional dividend shares will be due on vesting.
4 As noted in footnote 3 above, less the maximum due under the 2015 EPSP award, which vested on 12 March 2020 (full details can be found on page 129).
SHARE OWNERSHIP REQUIREMENTS
As detailed in the Directors’ Compensation Policy, the Executive Directors are required to achieve a minimum level of share ownership of
WPP shares. The CEO and Group Finance Director are required to hold shares to the value of 600% and 300% of base salary respectively.
As at 31 December 2019, the Chief Executive Officer held shares to the value of 215% of his base salary. He has seven years from the date
appointed to the CEO role in which to reach required level. At the same date Paul Richardson significantly exceeded his requirement and held
shares to the value of 1,356% of his base salary. He will be required to maintain his share ownership requirement of 300% of base salary in the
year following his retirement and 150% of base salary for the second year.
134
WPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
NON-EXECUTIVE DIRECTORS’ INTERESTS (AUDITED)
Non-Executive Directors’ interests in the Company’s ordinary share capital are shown in the following table. Except as disclosed in this table,
no Non-Executive Director had any interest in any contract of significance with the Group during the year.
Non-Executive Director
Roberto Quarta
Jacques Aigrain
Tarek Farahat
Sir John Hood
Ruigang Li1
Daniela Riccardi
Cindy Rose2
Nicole Seligman
Sally Susman
Sol Trujillo
Keith Weed3
Jasmine Whitbread4
Total interests at
31 December 2019
Total interests at
29 April 2020
87,500
34,000
3,775
3,000
4,000
4,100
8,000
8,750
5,000
10,000
2,161
–
87,500
34,000
3,775
3,000
n/a
4,100
8,000
8,750
5,000
10,000
2,161
3,330
1 Ruigang Li retired from the Board on 12 June 2019. The information disclosed reflects his total interest at this date.
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 the 1 September 2019.
OUTSTANDING SHARE-BASED AWARDS
EXECUTIVE SHARE AWARDS (ESAs) HELD BY EXECUTIVE DIRECTORS
All Executive Share Awards (ESA) 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 ESA and PSA awards prior to his appointment as Executive Director. Unless otherwise noted, awards are
made in the form of WPP ordinary shares.
Mark Read
Paul Richardson1
Grant date
Share/ADR
price on
grant date
06.06.17
£17.2050
12.06.18
£12.3800
30.05.19
£9.4840
06.06.17
$110.7600
30.05.19
$60.06
2016 PSA
2017 PSA
2018 ESA
2016 ESA
2018 ESA
No. of
shares/
ADRs
granted2
25,573
38,317
62,834
9,280
2,847
Face value on
grant date
0003
Additional
shares
granted in
lieu of
dividends
Total shares
vesting
Vesting date
£440
£474
£596
$1,028
$171
2,553
28,126
10.03.19
10.03.20
06.03.21
–
–
–
–
933
–
10,213
06.03.19
$57.3447
–
06.03.21
–
Shares/ADR
price on
vesting
£8.5458
–
–
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).
Value on
vesting
000
£240
–
–
$586
–
135
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
CORPORATE GOVERNANCE COMPENSATION COMMITTEE REPORT
ANNUAL REPORT ON COMPENSATION
OUTSTANDING SHARE-BASED AWARDS CONTINUED
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.
Mark Read
Leaders 2016
28.11.16
£17.0550
Grant
date
Share/ADR
price on
grant date
04.12.17
£13.0850
No. of
shares/
ADRs
granted2
8,795
11,463
Face value on
grant date
0003
£150
£150
Additional
shares
granted in
lieu of
dividends
1,477
–
Total shares
vesting
Vesting date
10,272
–
15.11.19
15.11.20
Leaders 2017
Special
award1
Special
award1
12.06.18
£12.3800
40,387
£500
2,300
42,687
12.06.18
£12.3800
80,774
£1,000
–
–
01.05.19
01.05.20
and
01.05.21
Shares/ADR
price on
vesting
£9.8378
–
£9.6800
Value on
vesting 000
£101
–
£413
–
–
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).
LONG-TERM INCENTIVE PLANS – EXECUTIVE PERFORMANCE SHARE PLAN
The following table summarises all of the awards outstanding under the Executive Performance Share Plan.
Mark Read
Paul Richardson1
During 2019
Grant date
Performance period
Shares/ADR
price on grant
date
Maximum
number of nil
cost options
over shares/
ADRs awarded2
Options
vested/(lapsed)
Additional
dividend shares
Options
exercised
09.06.15
28.11.16
04.12.17
06.12.18
24.09.19
09.06.15
28.11.16
04.12.17
06.12.18
24.09.19
01.01.15-31.12.19
01.01.16-31.12.20
01.01.17-31.12.21
01.01.18-31.12.22
01.01.19-31.12.23
01.01.15-31.12.19
01.01.16-31.12.20
01.01.17-31.12.21
01.01.18-31.12.22
01.01.19-31.12.23
£15.1720
£17.0520
£12.9110
£8.6040
£10.0350
$115.8800
$105.9309
$86.9138
$55.2631
$62.6530
65,910
58,644
106,498
396,617
340,059
37,970
41,536
36,933
58,628
51,593
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Maximum number
of nil cost options
over shares/ADRs
at 31 December
2019
65,910
58,644
106,498
396,617
340,059
37,970
41,536
36,933
58,628
51,593
1 Paul Richardson’s EPSP awards were granted in respect of ADRs.
2 Dividend shares will be due on these awards.
Full details of the 2019 EPSP award, including performance measures and targets, can be found on page 130.
136
WPP ANNUAL REPORT 2019
COMPENSATION COMMITTEE REPORT
IMPLEMENTATION OF REWARD POLICY FOR MANAGEMENT OUTSIDE THE BOARD
As part of its review of the Directors’ Compensation Policy during 2019, the Committee took into consideration the compensation
arrangements of the wider workforce to ensure that the new policy was aligned and reflective of the terms offered to other employees.
The Committee places significant value on the views of employees and has established appropriate mechanisms to capture them.
The Company uses share-based compensation programmes to incentivise and retain employees, recruit new talent and encourage
a strong ownership culture among employees. The use of the core share plans in 2019 is described below.
WPP STOCK PLAN 2018 (WSP)
The WPP Leaders, Partners and High Potential programme made awards under the WSP to about 1,400 of our key executives in 2019.
Awards vest three years after grant, provided the participant is still employed within the Group. In addition, senior executives have part
of their annual bonus paid in the form of executive or performance share awards that vest two years after grant.
The Executive Directors do not participate in any aspect of the WSP except for the deferred share bonus award. All awards granted under
the WSP are subject to malus and clawback conditions.
WPP SHARE OPTION PLAN 2015
During 2019, the WPP Share Option Plan 2015 was used to make awards to over 38,000 employees. By 31 December 2019, options under
this plan, and its predecessor, the Worldwide Ownership Plan, had been granted to approximately 187,000 employees over 95 million
shares since March 1997.
While the Share Option Plan provides the authority to make executive option awards, in addition to all employee awards, no awards were
granted in 2019. The Executive Directors do not participate in this plan.
SHARE INCENTIVE DILUTION FOR 2009 TO 2019
The share incentive dilution level, measured on a 10-year rolling basis, was at 3.3% at 31 December 2019 (2018: 3.4%). It is intended that
awards under all plans, other than share options, will all be satisfied with purchased shares held either in the ESOPs or in treasury.
Sir John Hood
Chairman of the Compensation Committee
on behalf of the Board of Directors of WPP plc
29 April 2020
137
CORPORATE GOVERNANCEWPP ANNUAL REPORT 2019
FINANCIAL STATEMENTS
138
138
WPP ANNUAL REPORT 2019
WPP ANNUAL REPORT 2019
FINANCIAL
STATEMENTS
Accounting policies
Consolidated financial statements
140
147
Notes to the consolidated financial statements
152
Company financial statements
182
Notes to the Company financial statements
185
Independent auditor's report
187
WPP ANNUAL REPORT 2019
139139
WPP ANNUAL REPORT 2019
ACCOUNTING POLICIES
The consolidated financial statements of WPP plc and its subsidiaries
(the Group) for the year ended 31 December 2019 have been prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted
by the European Union as they apply to the financial statements of the Group
for the year ended 31 December 2019.
The Group’s financial statements have also been prepared in accordance
with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
BASIS OF PREPARATION
The consolidated financial statements have been prepared under the historical
cost convention, except for the revaluation of certain financial instruments and
held for sale assets. The financial statements have been prepared using the
going concern basis of accounting. The principal accounting policies are set
out below.
BASIS OF CONSOLIDATION
The consolidated financial statements include the results of the Company
and all its subsidiary undertakings made up to the same accounting date.
All intra-Group balances, transactions, income and expenses are eliminated
in full on consolidation. The results of subsidiary undertakings acquired or
disposed of during the period are included or excluded from the consolidated
income statement from the effective date of acquisition or disposal.
NEW IFRS ACCOUNTING PRONOUNCEMENTS
In the current year, the following Standards and Interpretations became
effective:
– IFRS 16 Leases; and
– IFRIC 23 Uncertainty over Income Tax Treatments.
IMPACT OF THE ADOPTION OF IFRS 16 LEASES
IFRS 16 is effective from 1 January 2019. The standard eliminates the
classification of leases as either operating or finance leases and introduces
a single accounting model. Lessees are required to recognise a right-of-use
asset and related lease liability for their operating leases and show
depreciation of leased assets and interest on lease liabilities separately in the
income statement. IFRS 16 requires the Group to recognise substantially all
of its operating leases on the balance sheet.
The Group adopted IFRS 16 effective 1 January 2019 on a modified
retrospective basis and applied the standard retrospectively with the
cumulative effect of initially applying the standard recognised at the date of
initial application as an adjustment to retained earnings. Accordingly, prior
year financial information has not been restated and will continue to be
reported under IAS 17 Leases. The right-of-use asset and lease liability have
initially been measured at the present value of the remaining lease payments,
with the right-of-use asset being subject to certain adjustments. For certain
leases the right-of-use asset was measured as if the standard had been applied
from the lease commencement date and for others the right-of-use asset was
set equal to the lease liability.
When applying IFRS 16, the Group has applied the following practical
expedients on transition date:
– Reliance on the previous identification of a lease (as provided by IAS 17)
for all contracts that existed on the date of initial application;
– Reliance on previous assessments on whether leases are onerous instead
of performing an impairment review;
– Exclusion of initial direct costs from the measurement of the right-of-use
asset at the date of initial application;
– The accounting for operating leases with a remaining lease term of less
than 12 months as at 1 January 2019 as short-term leases; and
– The use of hindsight, such as in determining the lease term if the contract
contains options to extend or terminate the lease.
The right-of-use asset and lease liability recorded on the consolidated
balance sheet as of 1 January 2019 were £1,895.1 million and £2,326.2 million,
respectively. There was a reduction in other creditors of £233.5 million and
property provisions of £68.7 million with regard to amounts related to
property leases, including deferred rent and tenant improvement allowances,
which are now recognised in the right-of-use asset. These movements resulted
in a decrease to retained earnings of £128.9 million and the recognition of a
deferred tax asset of £27.8 million on this movement.
For the year ended 31 December 2019, depreciation of the right-of-use asset
and recognition of interest on the lease liability in the consolidated income
statement replaced amounts recognised as rent expense under IAS 17.
The implementation of IFRS 16 on 1 January 2019 resulted in an increase to
reported and headline operating profit (as defined in note 32) of £61.0 million
and a subsequent increase to operating profit margin of 0.6 margin points
along with increased interest and a decrease to all earnings per share
measures of 1.8p.
The following table reconciles the opening balance for the lease liabilities
as at 1 January 2019 based upon the operating lease obligations as at
31 December 2018:
£m
Operating lease commitments at 31 December 2018
Short-term and low-value leases not included in lease liabilities
Extension options reasonably certain to be exercised
Signed leases not yet commenced
Gross lease liabilities at 1 January 2019
Effect of discounting
Lease liabilities at 1 January 2019
3,628.2
(73.8)
115.1
(598.1)
3,071.4
(745.2)
2,326.2
The weighted average discount rate was 5.4% at 1 January 2019.
IMPACT OF THE ADOPTION OF IFRIC 23 UNCERTAINTY OVER
INCOME TAX TREATMENTS
IFRIC 23 clarifies the accounting for uncertainties in income tax and is effective
from 1 January 2019. There has been no impact to our financial statements as
a result of the adoption of IFRIC 23.
At the date of authorisation of these financial statements, the following
amendments to standards, which have not been applied in these financial
statements, were in issue but not yet effective:
– Impact of Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39
and IFRS 7).
IMPACT OF INTEREST RATE BENCHMARK REFORM
The amendments issued by the IASB, Interest Rate Benchmark Reform
(Amendments to IFRS 9, IAS 39 and IFRS 7), are mandatory and are effective from
1 January 2020. They provide relief on specific aspects of pre-replacement
issues that impact hedge accounting, whereby entities applying hedge
accounting requirements will be able to assume that the interest rate
benchmark on which the hedged cash flows and cash flows of the hedging
instrument are based are not altered as a result of Interest Rate Benchmark
Reform. The Group does not consider that these amendments will have a
significant impact on the financial statements as they provide relief for the
possible effects of the uncertainty arising from interest rate benchmark reform.
140
FINANCIAL STATEMENTS ACCOUNTING POLICIESWPP ANNUAL REPORT 2019 GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets comprise goodwill, certain acquired separable corporate
brand names, acquired customer relationships, acquired proprietary tools
and capitalised computer software not integral to a related item of hardware.
Goodwill represents the excess of fair value attributed to investments in
businesses or subsidiary undertakings over the fair value of the underlying
net assets, including intangible assets, at the date of their acquisition.
Goodwill impairment reviews are undertaken annually or more frequently
if events or changes in circumstances indicate a potential impairment.
The carrying value of goodwill is compared to the recoverable amount,
defined as the higher of fair value less costs to sell and value in use. The net
present value of future cash flows is derived from the underlying assets using
a projection period of up to five years for each cash-generating unit. After the
projection period, a steady growth rate representing an appropriate long-term
growth rate for the industry is applied. Any impairment is recognised
immediately as an expense and is not subsequently reversed.
Corporate brand names, customer relationships and proprietary tools
acquired as part of acquisitions of businesses are capitalised separately from
goodwill as intangible assets if their value can be measured reliably on initial
recognition and it is probable that the expected future economic benefits
that are attributable to the asset will flow to the Group.
Certain corporate brands of the Group are considered to have an indefinite
economic life because of the institutional nature of the corporate brand
names, their proven ability to maintain market leadership and profitable
operations over long periods of time and the Group’s commitment to develop
and enhance their value. The carrying value of these intangible assets is
reviewed at least annually for impairment and adjusted to the recoverable
amount if required.
Amortisation is provided at rates calculated to write off the cost less estimated
residual value of each asset on a straight-line basis over its estimated useful life
as follows:
– Brand names (with finite lives) – 10-20 years.
– Customer-related intangibles – 3-10 years.
– Other proprietary tools – 3-10 years.
– Other (including capitalised computer software) – 3-5 years.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are shown at cost less accumulated
depreciation and any provision for impairment with the exception of freehold
land which is not depreciated. The Group assesses the carrying value of its
property, plant and equipment to determine if any impairment has occurred.
Where this indicates that an asset may be impaired, the Group applies the
requirements of IAS 36 Impairment of Assets in assessing the carrying amount
of the asset. This process includes comparing its recoverable amount with its
carrying value. Depreciation is provided at rates calculated to write off the
cost less estimated residual value of each asset on a straight-line basis over
its estimated useful life, as follows:
– Freehold buildings – 50 years.
– Leasehold land and buildings – over the term of the lease or life of the
asset, if shorter.
– Fixtures, fittings and equipment – 3-10 years.
– Computer equipment – 3-5 years.
INTERESTS IN ASSOCIATES AND JOINT VENTURES
An associate is an entity over which the Group has significant influence.
In certain circumstances, significant influence may be represented by factors
other than ownership and voting rights, such as representation on the Board
of Directors.
The Group’s share of the profits less losses of associate undertakings net of
tax, interest and non-controlling interests is included in the consolidated
income statement and the Group’s share of net assets is shown within
interests in associates in the consolidated balance sheet. The Group’s share
of the profits less losses and net assets is based on current information
produced by the undertakings, adjusted to conform with the accounting
policies of the Group.
The Group assesses the carrying value of its associate undertakings to
determine if any impairment has occurred. Where this indicates that an
investment may be impaired, the Group applies the requirements of IAS 36
in assessing the carrying amount of the investment. This process includes
comparing its recoverable amount with its carrying value. The recoverable
amount is defined as the higher of fair value less costs to sell and value in use.
The Group accounts for joint venture investments under the equity method
which is consistent with the Group’s treatment of associates.
CONTINGENT CONSIDERATION
Contingent consideration is accounted for in accordance with IFRS 3 Business
Combinations. Contingent consideration only applies to situations where
contingent payments are not dependent on future employment of vendors
and any such payments are expensed when they relate to future employment.
OTHER INVESTMENTS
Certain equity investments are designated as either fair value through other
comprehensive income or fair value through profit or loss. Movements in
fair value through profit or loss are recorded in the consolidated income
statement within revaluation of financial instruments.
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 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 of financial instruments.
The Group generally elects to classify equity investments as fair value through
other comprehensive income where the Group forms a strategic partnership
with the investee.
141
FINANCIAL STATEMENTSACCOUNTING POLICIESWPP ANNUAL REPORT 2019 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.
ACCRUED AND DEFERRED INCOME
Accrued income is a contract asset and is recognised when a performance
obligation has been satisfied but has not yet been billed. Contract assets are
transferred to receivables when the right to consideration is unconditional
and billed per the terms of the contractual agreement.
In certain cases, payments are received from customers or amounts are billed
with an unconditional right to receive consideration prior to satisfaction of
performance obligations and recognised as deferred income. These balances
are considered contract liabilities and are typically related to prepayments for
third-party expenses that are incurred shortly after billing.
TRADE RECEIVABLES AND WORK IN PROGRESS
Trade receivables are stated net of provisions for bad and doubtful debts.
Work in progress includes outlays incurred on behalf of clients, including
production costs, and other third-party costs that have not yet been billed
and are considered receivables under IFRS 15 Revenue from Contracts
with Customers.
EXPECTED CREDIT LOSSES
The Group has applied the simplified approach to measuring expected credit
losses, as permitted by IFRS 9. Therefore the Group does not track changes
in credit risk, but recognises a loss allowance based on the financial asset's
lifetime expected credit loss.
Under IFRS 9 Financial Instruments, the expected credit losses are measured
as the difference between the asset’s gross carrying amount and the present
value of estimated future cash flows discounted at the financial asset’s original
effective interest rate. Given the short-term nature of the Group’s trade
receivables, work in progress and accrued income, which are mainly due from
large national or multinational companies, the Group assessment of expected
credit losses includes provisions for specific clients and receivables where the
contractual cash flow is deemed at risk. Additional provisions are made based
on the assessment of recoverability of aged receivables, where the following
criteria are met:
– 100% of the asset aged over one year;
– 50% of the asset aged between 180 days and one year; and
– sufficient evidence of recoverability is not evident.
Estimated future cash flows represent expectations as at 31 December 2019 and
do not consider the impact of the emergence and spread of the Covid-19 virus.
Further details on provisions for bad and doubtful debts are provided in
note 18.
FOREIGN CURRENCY AND INTEREST RATE HEDGING
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.
Derivatives are initially recognised at fair value at the date a derivative
contract is entered into and are subsequently remeasured to their fair value
at each balance sheet date. The resulting gain or loss is recognised in profit or
loss immediately unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in profit or loss
depends on the nature of the hedge relationship.
At the inception of the hedge relationship, the entity documents the
relationship between the hedging instrument and hedged item, along with
its risk management objectives and its strategy for undertaking various hedge
transactions. Furthermore, at the inception of the hedge and on an ongoing
basis, the Group documents whether the hedging instrument that is used in
a hedging relationship is highly effective in offsetting changes in fair values
or cash flows of the hedged item.
Note 27 contains details of the fair values of the derivative instruments used
for hedging purposes.
Changes in the fair value of derivatives that are designated and qualify as
fair value hedges are recorded in profit or loss immediately, together with
any changes in the fair value of the hedged item that is attributable to the
hedged risk.
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow or net investment hedges is recognised in
other comprehensive income and deferred in equity. The gain or loss relating
to the ineffective portion is recognised immediately in profit or loss. Amounts
deferred in equity are recycled in profit or loss in the periods when the
hedged item is recognised in profit or loss. However, when the forecast
transaction that is hedged results in the recognition of a non-financial asset or
a non-financial liability, the gains and losses previously deferred in equity are
transferred from equity and included in the initial measurement of the cost of
the asset or liability.
142
FINANCIAL STATEMENTS ACCOUNTING POLICIESWPP ANNUAL REPORT 2019 Hedge accounting is discontinued when the hedging instrument expires or
is sold, terminated, exercised, or no longer qualifies for hedge accounting.
At that time, any cumulative gain or loss on the hedging instrument recognised
in equity is retained in equity until the forecast transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative gain or loss
recognised in equity is transferred to net profit or loss for the period.
Derivatives embedded in other financial instruments or other host contracts
are treated as separate derivatives when their risks and characteristics are
not closely related to those of host contracts and the host contracts are not
carried at fair value with unrealised gains or losses reported in the
consolidated income statement.
LIABILITIES IN RESPECT OF OPTION AGREEMENTS
Option agreements that allow the Group’s equity partners to require the
Group to purchase a non-controlling interest 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 of financial instruments
in the consolidated income statement.
DERECOGNITION OF FINANCIAL LIABILITIES
In accordance with IFRS 9 Financial Instruments, a financial liability of the
Group is only released to the consolidated income statement when the
underlying legal obligation is extinguished.
DEBT
Interest-bearing debt is recorded at the proceeds received, net of direct
issue costs.
BORROWING COSTS
Finance costs of borrowing are recognised in the consolidated income
statement over the term of those borrowings.
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 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.
143
FINANCIAL STATEMENTSACCOUNTING POLICIESWPP ANNUAL REPORT 2019 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.
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.
The tax laws that apply to the Group’s subsidiaries may be amended by the
relevant tax authorities. Such potential amendments are regularly monitored
and adjustments are made to the Group’s tax liabilities and deferred tax assets
and liabilities where necessary.
The tax currently payable is based on taxable profit for the year. Taxable profit
differs from net profit as reported in the consolidated income statement
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial statements
and the corresponding tax bases used in the computation of taxable profit,
and is accounted for using the balance sheet liability method. Deferred tax
liabilities are recognised for all taxable temporary differences unless specifically
excepted by IAS 12 Income Taxes. Deferred tax is charged or credited in the
consolidated income statement, except when it relates to items charged or
credited to other comprehensive income or directly to equity, in which case
the deferred tax is also dealt with in other comprehensive income or equity.
Deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised, which can require the use of accounting estimation
and the exercise of judgement. Such assets and liabilities are not recognised
if the temporary difference arises from the initial recognition of goodwill or
other assets and liabilities (other than in a business combination) in a
transaction that affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities are recognised for taxable temporary differences arising
on investments in subsidiaries and associates, and interests in joint ventures,
except where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse
in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable
right to set off current tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net basis.
Deferred tax is calculated at the 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.
RETIREMENT BENEFIT COSTS
The Group accounts for retirement benefit costs in accordance with IAS 19
Employee Benefits.
For defined contribution plans, contributions are charged to the consolidated
income statement as payable in respect of the accounting period.
For defined benefit plans the amounts charged to operating profit are the
current service costs, past service costs, administrative expenses and gains
and losses on settlements and curtailments. They are included as part of staff
costs. Past service costs are recognised immediately in the consolidated
income statement when the related plan amendment occurs. Net interest
expense is calculated by applying the discount rate to the recognised overall
surplus or deficit in the plan.
Actuarial gains and losses are recognised immediately in the consolidated
statement of comprehensive income.
Where defined benefit plans are funded, the assets of the plan are held
separately from those of the Group, in separate independently managed
funds. Pension plan assets are measured at fair value and liabilities are
measured on an actuarial basis using the projected unit method and
discounted at a rate equivalent to the current rate of return on a high-quality
corporate bond of equivalent currency and term to the plan liabilities.
The actuarial valuations are obtained at least triennially and are updated at
each balance sheet date.
Recognition of a surplus in a defined benefit plan is limited based on the
economic gain the Company is expected to benefit from in the future by
means of a refund or reduction in future contributions to the plan, in
accordance with IAS 19.
PROVISIONS FOR LIABILITIES AND CHARGES
Provisions comprise liabilities where there is uncertainty about the timing of
settlement, but where a reliable estimate can be made of the amount. These
include provisions for other property-related liabilities. Also included are other
provisions, such as certain long-term employee benefits and legal claims,
where the likelihood of settlement is considered probable.
LEASES
The Group has adopted IFRS 16 Leases from 1 January 2019. The Group leases
most of its offices in cities where it operates. Other lease contracts include
office equipment and motor vehicles.
At inception of a contract, the Group assesses whether a contract is,
or contains, a lease based on whether the contract conveys the right to
control the use of an identified asset for a period of time in exchange
for consideration.
144
FINANCIAL STATEMENTS ACCOUNTING POLICIESWPP ANNUAL REPORT 2019 The Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The right-of-use asset is initially measured based on the
initial amount of the lease liability adjusted for any lease payments made at or
before the commencement date, plus any initial direct costs incurred, less any
lease incentives received. The assets are depreciated over the lease term
using the straight-line method. The lease term includes periods covered by
an option to extend if the Group is reasonably certain to exercise that option.
Right-of-use assets are reviewed for indicators of impairment.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily determined,
the Group’s incremental borrowing rate for the same term as the underlying
lease. Lease payments included in the measurement of lease liabilities
comprise fixed payments less any lease incentives receivable and variable
lease payments that depend on an index or a rate as at the commencement
date. Lease modifications result in remeasurement of the lease liability.
Depreciation is recognised in both costs of services and general and
administrative costs and interest expense is recognised under finance costs
in the consolidated income statement.
The Group has elected to use the exemption not to recognise right-of-use
assets and lease liabilities for short-term leases that have a lease term of 12
months or less and leases of low-value assets (under $5,000). The payments
associated with these leases are recognised as cost of services and general
and administrative costs on a straight-line basis over the lease term.
£41.0 million (2018: £105.8 million) and an increase in other intangibles of
£7.1 million (2018: £19.5 million). The impact on other non-monetary assets
and liabilities and the impact on the Group’s income statement in the year
were immaterial.
SHARE-BASED PAYMENTS
The Group issues equity-settled share-based payments (including share
options) to certain employees and accounts for these awards in accordance
with IFRS 2 Share-Based Payment. Equity-settled share-based payments are
measured at fair value (excluding the effect of non-market-based vesting
conditions) at the date of grant. Details regarding the fair value of equity
settled share-based transactions are set out in notes 23 and 28.
The fair value determined at the grant date is recognised in the consolidated
income statement as an expense on a straight-line basis over the relevant
vesting period, based on the Group’s estimate of the number of shares
that will ultimately vest and adjusted for the effect of non-market-based
vesting conditions.
CRITICAL JUDGEMENTS AND ESTIMATION UNCERTAINTY
IN APPLYING ACCOUNTING POLICIES
Management is required to make key decisions and judgements whilst
acknowledging there is estimation uncertainty in the process of applying the
Group’s accounting policies. These estimates and judgements are reviewed
on an ongoing basis. Where judgement has been applied or estimation
uncertainty exists, the key factors taken into consideration are disclosed in the
accounting policies and the appropriate note in these financial statements.
In 2018 and 2017 leases were accounted for per IAS 17 Leases. The following
policies were applicable:
The most significant areas of estimation uncertainty include:
– Goodwill: the discounted cash flow methodology employed by the
Group when testing for goodwill impairment requires estimates regarding
revenue growth, operating margins, discount rates and working capital
requirements. Further details of the methodology, discount rates, long-term
growth rates and estimates used in relation to the goodwill impairment are
set out in note 14.
– Payments due to vendors (earnout agreements) and liabilities in respect
of put options: estimates are required regarding growth rates in deriving
future financial performance and discount rates to be applied when
measuring the liabilities for earnouts and put options. Further details on
growth rates and discount rates and the sensitivity to these estimates
are set out in note 27.
– Provision for post-employment benefits: estimates are required in the
accounting for defined benefit pension plans, including establishing
discount rates, rates of increase in salaries and pensions in payment,
inflation and mortality assumptions. These estimates are made by
management based on the advice of qualified advisors. Details of the
assumptions used and the sensitivity of the benefit obligation to these
assumptions are set out in note 24.
– 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. 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.
– Taxation: Estimates are required in determining whether a provision is
required and, the amount of taxes that will be due, particularly given the
many countries in which the Group operates. Where the final tax outcome is
different from the amounts recorded then such differences may expose the
Group to additional tax liabilities or impact the carrying value of deferred
tax assets, which would affect the future tax charge. Further details on the
tax charge, corporate income tax payable and deferred tax balances are set
out in the income statement, balance sheet and notes 7 and 17.
FINANCE LEASES
Assets held under finance leases are recognised as assets of the Group at the
inception of the lease at the lower of their fair value and the present value of
the minimum lease payments. Depreciation on leased assets is charged to the
consolidated income statement on the same basis as owned assets. Leasing
payments are treated as consisting of capital and interest elements and the
interest is charged to the consolidated income statement as it is incurred.
OPERATING LEASES
Operating lease rentals are charged to the consolidated income statement
on a straight-line basis over the lease term. Any premium or discount on the
acquisition of a lease is spread over the life of the lease on a straight-line basis.
TRANSLATION OF FOREIGN CURRENCIES
Foreign currency transactions arising from normal trading activities are
recorded at the rates in effect at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the year-end are translated
at the year-end exchange rate. Foreign currency gains and losses are credited
or charged to the consolidated income statement as they arise.
The income statements of foreign subsidiary undertakings are translated
into pounds sterling at average exchange rates and the year-end net assets
of these companies are translated at year-end exchange rates.
Exchange differences arising from retranslation of the opening net assets and
on foreign currency borrowings (to the extent that they hedge the Group’s
investment in such operations) are reported in the consolidated statement
of comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and translated
at the closing rate.
HYPERINFLATION IN ARGENTINA
During 2019 and 2018, Argentina was designated as a hyperinflationary
economy and the financial statements of the Group’s subsidiaries in Argentina
have been adjusted for the effects of inflation in accordance with IAS 29
Financial Reporting in Hyperinflationary Economies.
IAS 29 requires that the income statement is adjusted for inflation in the
period and translated at the year-end foreign exchange rate and that
non-monetary assets and liabilities on the balance sheet are restated to
reflect the change in purchasing power caused by inflation from the date
of initial recognition. In 2019, this resulted in an increase in goodwill of
145
FINANCIAL STATEMENTSACCOUNTING POLICIESWPP ANNUAL REPORT 2019 The most significant areas of judgements include:
– Revenue recognition: judgement is required regarding the timing of
recognition, particularly in relation to media volume income with regards
to whether it is required to be passed back to the client and in assessing
progress on performance obligations where revenue is recognised over
time. Further details are set out in the accounting policy.
– Non-current assets held for sale and discontinued operations: judgement
is required in determining the timing of classification of the Group's Kantar
business as held for sale, particularly with the timing of the held for sale
classification. Further details are set out in note 12.
DIRECTORS’ RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
– the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
– the Strategic report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties they face.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
company and enable them to ensure that the financial statements comply
with the Companies (Jersey) Law 1991.
Mark Read
Chief Executive Officer
29 April 2020
Paul Richardson
Group Finance Director
146
FINANCIAL STATEMENTS ACCOUNTING POLICIESWPP ANNUAL REPORT 2019
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
Continuing operations
Billings2
Revenue
Costs of services
Gross profit
General and administrative costs
Operating profit
Share of results of associates
Profit before interest and taxation
Finance and investment income
Finance costs
Revaluation of financial instruments
Profit before taxation
Taxation
Profit for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations
Profit for the year
Attributable to
Equity holders of the parent:
Continuing operations
Discontinued operations
Non-controlling interests:
Continuing operations
Discontinued operations
Earnings per share from continuing and discontinued operations
Basic earnings per ordinary share
Diluted earnings per ordinary share
Earnings per share from continuing operations
Basic earnings per ordinary share
Diluted earnings per ordinary share
Continuing operations
Revenue less pass‑through costs
Headline operating profit
Headline operating profit margin
Headline PBT
Notes
2019
£m
20181
£m
20171
£m
53,059.0
53,219.7
52,915.4
13,234.1
(10,825.1)
2,409.0
(1,113.1)
1,295.9
14.7
1,310.6
99.0
(359.1)
(68.4)
982.1
(275.0)
707.1
13,046.7
(10,559.1)
2,487.6
(1,249.7)
1,237.9
30.5
1,268.4
98.9
(279.1)
169.4
1,257.6
(256.0)
1,001.6
13,146.4
(10,481.6)
2,664.8
(1,086.9)
1,577.9
98.0
1,675.9
89.0
(261.9)
243.9
1,746.9
(83.0)
1,663.9
2
3
3
4
6
6
6
7
12
10.8
137.8
248.4
717.9
1,139.4
1,912.3
627.9
(3.8)
624.1
79.2
14.6
93.8
717.9
49.9p
49.5p
50.2p
49.8p
936.5
126.4
1,062.9
65.1
11.4
76.5
1,139.4
1,579.5
237.1
1,816.6
84.4
11.3
95.7
1,912.3
85.2p
84.3p
144.0p
142.4p
75.1p
74.3p
125.2p
123.8p
9
9
9
9
2, 32
2, 32
2, 32
32
10,846.5
1,560.6
14.4%
1,363.0
10,875.7
1,651.2
15.2%
1,543.0
11,143.9
1,793.1
16.1%
1,717.6
Notes
The accompanying notes form an integral part of this consolidated income statement.
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.
2 Billings is defined on page 204.
147
FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
Profit for the year
Items that may be reclassified subsequently to profit or loss
Exchange adjustments on foreign currency net investments
Exchange adjustments recycled to the income statement on disposal of discontinued operations
Gain on revaluation of available for sale investments
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss)/gain on defined benefit pension plans
Deferred tax on defined benefit pension plans
Movements on equity investments held at fair value through other comprehensive income
Other comprehensive loss for the year
Total comprehensive (loss)/income for the year
Attributable to
Equity holders of the parent:
Continuing operations
Discontinued operations
Non-controlling interests:
Continuing operations
Discontinued operations
2019
£m
717.9
(379.4)
(284.0)
–
2018
£m
2017
£m
1,139.4
1,912.3
78.9
(465.2)
–
–
(663.4)
78.9
(36.6)
6.4
(141.4)
(171.6)
(835.0)
(117.1)
193.5
(386.4)
(192.9)
61.9
13.9
75.8
8.9
(0.7)
(247.9)
(239.7)
(160.8)
978.6
730.9
162.2
893.1
73.8
11.7
85.5
–
32.1
(433.1)
17.0
(24.6)
–
(7.6)
(440.7)
1,471.6
1,252.9
142.7
1,395.6
65.2
10.8
76.0
Note
The accompanying notes form an integral part of this consolidated statement of comprehensive income.
(117.1)
978.6
1,471.6
148
FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
Net cash inflow from operating activities
Investing activities
Acquisitions
Disposal of investments and subsidiaries
Purchases of property, plant and equipment
Purchases of other intangible assets (including capitalised computer software)
Proceeds on disposal of property, plant and equipment
Net cash inflow/(outflow) from investing activities
Financing activities
Repayment of lease liabilities
Share option proceeds
Cash consideration for non-controlling interests
Share repurchases and buybacks
Net (decrease)/increase in borrowings
Financing and share issue costs
Equity dividends paid
Dividends paid to non-controlling interests in subsidiary undertakings
Net cash outflow from financing activities
Net increase in cash and cash equivalents
Translation of cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents including cash held in disposal group at end of year
Cash and cash equivalents held in disposal group presented as held for sale
Notes
2019
£m
2018
£m
2017
£m
11
11
11
11
11
11
1,850.5
1,693.8
1,408.1
(161.3)
2,141.0
(339.3)
(54.8)
174.0
1,759.6
(249.8)
0.6
(62.7)
(43.8)
(1,713.2)
(6.4)
(750.5)
(96.2)
(283.7)
833.9
(314.8)
(60.4)
9.5
184.5
–
1.2
(109.9)
(207.1)
(440.6)
(3.8)
(747.4)
(106.2)
(2,922.0)
(1,613.8)
688.1
(89.7)
2,201.2
2,799.6
(66.3)
264.5
(61.5)
1,998.2
2,201.2
–
(477.5)
296.0
(288.9)
(37.3)
8.0
(499.7)
–
6.4
(47.3)
(504.2)
599.6
(0.8)
(751.5)
(87.8)
(785.6)
122.8
(27.2)
1,902.6
1,998.2
–
Cash and cash equivalents at end of year
11
2,733.3
2,201.2
1,998.2
Reconciliation of net cash flow to movement in net debt
Net increase in cash and cash equivalents
Cash outflow/(inflow) from decrease/(increase) in debt financing
Other movements
Translation differences
Movement of net debt in the year
Net debt at beginning of year
Net debt including net debt in disposal group at end of year
Net debt in disposal group
Net debt at end of year
Note
The accompanying notes form an integral part of this consolidated cash flow statement.
688.1
1,719.6
(32.5)
168.2
2,543.4
(4,016.7)
(1,473.3)
(66.3)
264.5
444.4
(1.4)
(241.1)
466.4
(4,483.1)
(4,016.7)
–
122.8
(598.8)
(1.9)
125.3
(352.6)
(4,130.5)
(4,483.1)
–
10
(1,539.6)
(4,016.7)
(4,483.1)
149
FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2019
Non‑current assets
Intangible assets:
Goodwill
Other
Property, plant and equipment
Right-of-use assets
Interests in associates and joint ventures
Other investments
Deferred tax assets
Trade and other receivables
Current assets
Corporate income tax recoverable
Trade and other receivables
Cash and short-term deposits
Assets classified as held for sale
Current liabilities
Trade and other payables
Corporate income tax payable
Short-term lease liabilities
Bank overdrafts, bonds and bank loans
Liabilities associated with assets classified as held for sale
Net current liabilities
Total assets less current liabilities
Non‑current liabilities
Bonds and bank loans
Trade and other payables
Deferred tax liabilities
Provision for post-employment benefits
Provisions for liabilities and charges
Long-term lease liabilities
Net assets
Equity
Called-up share capital
Share premium account
Other reserves
Own shares
Retained earnings
Equity shareholders’ funds
Non-controlling interests
Total equity
Note
The accompanying notes form an integral part of this consolidated balance sheet.
The financial statements were approved by the Board of Directors and authorised for issue on 29 April 2020.
Signed on behalf of the Board:
Mark Read
Chief Executive Officer
Paul Richardson
Group Finance Director
150
Notes
2019
£m
2018
£m
14
14
15
13
16
16
17
18
10,170.7
13,202.8
1,468.8
876.0
1,734.5
813.0
498.3
187.9
137.6
1,842.0
1,083.0
–
796.8
666.7
153.0
180.0
15,886.8
17,924.3
165.4
18
11,822.3
2,969.0
198.7
13,101.5
2,643.2
14,956.7
15,943.4
12
485.3
–
15,442.0
15,943.4
19
13
21
12
21
20
17
24
22
13
28
29
(14,186.8)
(15,038.4)
(499.9)
(302.2)
(461.3)
(545.9)
–
(1,025.1)
(15,450.2)
(16,609.4)
(170.4)
–
(15,620.6)
(16,609.4)
(178.6)
(666.0)
15,708.2
17,258.3
(4,047.3)
(5,634.8)
(483.3)
(379.8)
(159.0)
(247.8)
(1,947.5)
(7,264.7)
8,443.5
132.8
570.3
(501.2)
(841.4)
(479.5)
(184.3)
(311.7)
–
(7,451.7)
9,806.6
133.3
569.7
393.5
(1,178.7)
(1,255.7)
9,048.9
8,072.1
371.4
8,443.5
9,541.4
9,382.2
424.4
9,806.6
FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
Balance at 1 January 2018
Ordinary shares issued
Treasury share additions
Treasury share allocations
Profit for the year
Exchange adjustments on foreign currency net investments
Movements on equity investments held at fair value through
other comprehensive income
Actuarial gain on defined benefit pension plans
Deferred tax on defined benefit pension plans
Other comprehensive income/(loss)
Total comprehensive income
Dividends paid
Non-cash share-based incentive plans (including share options)
Tax adjustment on share-based payments
Net movement in own shares held by ESOP Trusts
Recognition/remeasurement of financial instruments
Acquisition of subsidiaries2
Balance at 31 December 2018
Accounting policy change (IFRS 16)3
Deferred tax on accounting policy change (IFRS 16)3
Called-up
share
capital
£m
Share
premium
account
£m
Other
reserves1
£m
Own
shares
£m
Retained
earnings
£m
Total
equity
shareholders’
funds
£m
Non-
controlling
interests
£m
Total
£m
133.3
568.5
354.3
(1,171.1)
9,602.3
9,487.3
468.8
9,956.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
69.9
–
–
–
69.9
69.9
–
–
–
–
(30.7)
–
–
(104.3)
1.5
–
–
–
–
–
–
–
–
–
–
18.2
–
–
–
–
(1.5)
1.2
(104.3)
–
1,062.9
1,062.9
–
69.9
(247.9)
(247.9)
8.9
(0.7)
(239.7)
823.2
(747.4)
84.8
(1.2)
(121.0)
10.3
(108.1)
8.9
(0.7)
(169.8)
893.1
(747.4)
84.8
(1.2)
(102.8)
(20.4)
(108.1)
–
–
–
76.5
9.0
–
–
–
9.0
85.5
1.2
(104.3)
–
1,139.4
78.9
(247.9)
8.9
(0.7)
(160.8)
978.6
(106.2)
(853.6)
–
–
–
–
(23.7)
84.8
(1.2)
(102.8)
(20.4)
(131.8)
133.3
569.7
393.5
(1,255.7)
9,541.4
9,382.2
424.4
9,806.6
–
–
–
–
–
–
–
–
(128.9)
27.8
(128.9)
27.8
–
–
(128.9)
27.8
Revised balance at 1 January 2019
133.3
569.7
393.5
(1,255.7)
9,440.3
9,281.1
424.4
9,705.5
Ordinary shares issued
Share cancellations
Treasury share allocations
Profit for the year
Exchange adjustments on foreign currency net investments
Exchange adjustments recycled to the income statement on disposal
of discontinued operations
Movements on equity investments held at fair value through
other comprehensive income
Actuarial loss on defined benefit pension plans
Deferred tax on defined benefit pension plans
Other comprehensive loss
Total comprehensive (loss)/income
Dividends paid
Non-cash share-based incentive plans (including share options)
Tax adjustment on share-based payments
Net movement in own shares held by ESOP Trusts
Recognition/remeasurement of financial instruments
Share purchases – close period commitments4
Acquisition of subsidiaries2
Balance at 31 December 2019
–
(0.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
–
–
(361.4)
(284.0)
–
–
–
(645.4)
(645.4)
–
–
–
–
2.5
(252.3)
–
–
–
1.0
–
–
–
–
–
–
–
–
–
–
–
76.0
–
–
–
–
(47.7)
(1.0)
624.1
–
–
(141.4)
(36.6)
6.4
(171.6)
452.5
(750.5)
71.4
3.1
(76.0)
13.1
–
(56.3)
0.6
(47.7)
–
624.1
(361.4)
(284.0)
(141.4)
(36.6)
6.4
(817.0)
(192.9)
(750.5)
71.4
3.1
–
15.6
(252.3)
(56.3)
–
–
–
93.8
(18.0)
–
–
–
–
(18.0)
75.8
(96.2)
–
–
–
–
–
(32.6)
0.6
(47.7)
–
717.9
(379.4)
(284.0)
(141.4)
(36.6)
6.4
(835.0)
(117.1)
(846.7)
71.4
3.1
–
15.6
(252.3)
(88.9)
132.8
570.3
(501.2)
(1,178.7)
9,048.9
8,072.1
371.4
8,443.5
Notes
The accompanying notes form an integral part of this consolidated statement of changes in equity.
1 Other reserves are analysed in note 29.
2 Acquisition of subsidiaries represents movements in retained earnings and non-controlling interests arising from changes in ownership of existing subsidiaries and recognition of non-controlling interests
on new acquisitions.
3 The impact of the adoption of IFRS 16 Leases from 1 January 2019 is described in the accounting policies.
4 During 2019, the Company entered into an arrangement with a third party to conduct share buybacks on its behalf in the close period commencing on 2 January 2020 and ending on 27 February 2020, in
accordance with UK listing rules. The commitment resulting from this agreement constitutes a liability at 31 December 2019, which is included in Trade and other payables: amounts falling due within one
year and has been recognised as a movement in equity.
151
FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
1. GENERAL INFORMATION
WPP plc is a company incorporated in Jersey. The address of the registered office is Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES and the address
of the principal executive office is Sea Containers, 18 Upper Ground, London, United Kingdom, SE1 9GL. The nature of the Group’s operations and its principal
activities are set out in note 2. These consolidated financial statements are presented in pounds sterling.
2. SEGMENT INFORMATION
The Group is a leading worldwide creative transformation organisation offering national and multinational clients a comprehensive range of communications,
experience, commerce and technology services. Substantially all of the Group’s revenue is from contracts with customers.
Recent restructuring actions, including the mergers of VMLY&R and Wunderman Thompson, the One Ogilvy strategy and the reorganisation of our specialist
healthcare agencies, mean that certain units have been reclassified between the previously reported sectors. In order to take account of these changes, the
internal reporting of the Group used by the Chief Executive Officer (the Chief Operating Decision Maker) to review performance and allocate resources has also
changed. The Group has therefore reassessed its segment information under IFRS 8 Operating Segments. In assessing the Group’s reportable segments, the
Directors have considered the similar economic characteristics of certain operating segments, their shared client base and the similar nature of their products
or services, amongst other factors. As a result, the Group is now organised into three reportable segments – Global Integrated Agencies; Public Relations; and
Specialist Agencies. The Data Investment Management segment is now excluded from the segment analysis as it is classified as discontinued operations.
Comparatives have been restated.
Reportable segments
Reported contributions were as follows:
Continuing operations – Income statement
2019
Global Integrated Agencies5
Public Relations6
Specialist Agencies7
20188
Global Integrated Agencies5
Public Relations6
Specialist Agencies7
20178
Global Integrated Agencies5
Public Relations6
Specialist Agencies7
Revenue less
pass-through
costs2
£m
Headline
operating
profit3
£m
Headline
operating
profit
margin4
8,108.1
898.0
1,840.4
10,846.5
8,070.8
879.9
1,925.0
10,875.7
8,315.3
864.3
1,964.3
11,143.9
1,219.5
140.6
200.5
1,560.6
1,228.2
139.2
283.8
1,651.2
1,321.3
123.5
348.3
1,793.1
15.0%
15.7%
10.9%
14.4%
15.2%
15.8%
14.7%
15.2%
15.9%
14.3%
17.7%
16.1%
Revenue1
£m
10,205.2
956.5
2,072.4
13,234.1
9,930.7
931.7
2,184.3
13,046.7
10,028.6
915.0
2,202.8
13,146.4
Notes
1 Intersegment sales have not been separately disclosed as they are not material.
2 Revenue less pass-through costs is defined in note 32.
3 A reconciliation from reported operating profit to headline operating profit is provided in note 32.
4 Headline operating profit margin is defined in note 32.
5 Global Integrated Agencies includes all of Grey, GroupM, Hogarth, Ogilvy, VMLY&R and Wunderman Thompson.
6 Public Relations represents the Group’s specialists in this area and remains as previously reported but excludes Ogilvy PR which now sits within Global Integrated Agencies as part of Ogilvy.
7 Specialist Agencies represent the Group’s other agencies that specialise in certain areas, whether by region or range of services.
8 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. As a result Data Investment
Management is now excluded from the segment analysis.
152
WPP ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Continuing operations – Other information
2019
Global Integrated Agencies
Public Relations
Specialist Agencies3
20184
Global Integrated Agencies
Public Relations
Specialist Agencies3
20174
Global Integrated Agencies
Public Relations
Specialist Agencies3
Share-based
payments
£m
Capital
additions1
£m
Depreciation
and
amortisation2
£m
Goodwill
impairment
£m
Share of
results of
associates
£m
Interests in
associates and
joint ventures
£m
54.3
4.6
7.1
66.0
59.5
7.1
11.7
78.3
77.8
7.2
13.3
98.3
265.6
17.5
46.7
329.8
255.6
12.5
45.9
314.0
214.3
9.5
47.2
271.0
392.8
31.5
84.0
508.3
159.1
10.8
39.4
209.3
157.1
9.8
42.2
209.1
4.8
–
42.9
47.7
148.0
–
35.9
183.9
–
7.5
19.6
27.1
17.0
(0.3)
(2.0)
14.7
25.4
1.3
3.8
30.5
16.2
0.9
80.9
98.0
164.2
5.5
643.3
813.0
175.1
6.2
615.5
796.8
179.9
5.6
879.7
1,065.2
Notes
1 Capital additions include purchases of property, plant and equipment and other intangible assets (including capitalised computer software).
2 Depreciation of property, plant and equipment, depreciation of right-of-use assets and amortisation of other intangible assets.
3 Specialist Agencies includes the Kantar associate and amounts previously reported under the Data Investment Management segment.
4 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.
Contributions by geographical area were as follows:
Continuing operations
Revenue2
North America3
United Kingdom
Western Continental Europe
Asia Pacific, Latin America,
Africa & Middle East and
Central & Eastern Europe
Revenue less pass‑through costs4
North America3
United Kingdom
Western Continental Europe
Asia Pacific, Latin America,
Africa & Middle East and
Central & Eastern Europe
Headline operating profit4
North America3
United Kingdom
Western Continental Europe
Asia Pacific, Latin America,
Africa & Middle East and
Central & Eastern Europe
2019
£m
20181
£m
20171
£m
Continuing operations
2019
Margin
20181
Margin
20171
Margin
4,854.7
4,851.7
5,083.5
North America
1,797.1
1,785.6
1,737.4
United Kingdom
Headline operating profit margin2
Western Continental Europe
Asia Pacific, Latin America,
Africa & Middle East and
Central & Eastern Europe
16.4%
13.6%
12.0%
17.5%
12.9%
13.3%
18.8%
15.7%
12.1%
13.8%
14.6%
15.2%
2,628.8
2,589.6
2,455.7
3,953.5
3,819.8
3,869.8
13,234.1
13,046.7
13,146.4
4,034.3
4,059.7
4,335.2
1,390.1
1,393.8
1,390.0
2,176.4
2,182.9
2,063.7
3,245.7
3,239.3
3,355.0
10,846.5
10,875.7
11,143.9
662.0
188.5
261.5
710.6
179.6
289.4
816.3
218.1
249.8
448.6
471.6
1,560.6
1,651.2
508.9
1,793.1
Notes
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.
2 Headline operating profit margin is defined in note 32.
Continuing operations
Non‑current assets1
North America2
United Kingdom
Western Continental Europe
Asia Pacific, Latin America, Africa &
Middle East and Central & Eastern Europe
2019
£m
2018
£m
6,833.1
7,269.7
1,754.6
2,079.2
3,429.8
4,385.6
3,681.4
4,028.4
15,698.9
17,762.9
Notes
1 Non-current assets excluding financial instruments and deferred tax.
2 North America includes the United States with non-current assets of £6,373.9 million
(2018: £6,791.9 million).
Notes
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.
2 Intersegment sales have not been separately disclosed as they are not material.
3 North America includes the United States with revenue of £4,576.5 million (2018: £4,576.1 million,
2017: £4,782.0 million), revenue less pass-through costs of £3,806.3 million (2018: £3,836.0 million,
2017: £4,089.9 million) and headline operating profit of £620.6 million (2018: £674.4 million,
2017: £773.5 million).
4 Revenue less pass-through costs, headline operating profit and headline operating profit margin
are defined in note 32.
WPP ANNUAL REPORT 2019
153
3. COSTS OF SERVICES AND GENERAL
AND ADMINISTRATIVE COSTS
Continuing operations
Costs of services
2019
£m
20181
£m
20171
£m
10,825.1
10,559.1
10,481.6
General and administrative costs
1,113.1
1,249.7
1,086.9
11,938.2 11,808.8
11,568.5
Costs of services and general and administrative costs include:
Continuing operations
Staff costs (note 5)
Establishment costs
Media pass-through costs
Other costs of services and general
and administrative costs2
2019
£m
20181
£m
20171
£m
7,090.6
6,950.6
7,065.1
672.9
756.6
769.5
1,656.2
1,458.0
1,429.4
2,518.5
2,643.6
2,304.5
11,938.2 11,808.8
11,568.5
Other costs of services and general and administrative costs include:
Continuing operations
Goodwill impairment (note 14)
Investment write-downs
Restructuring and transformation costs
Litigation settlement
Gain on sale of freehold property in New York
Amortisation and impairment of acquired
intangible assets
Amortisation of other intangible assets
Depreciation of property, plant
and equipment
Depreciation of right-of-use assets
Losses on sale of property, plant
and equipment
Gains on disposal of investments
and subsidiaries
(Gains)/losses on remeasurement of equity
interests arising from a change in scope of
ownership
Net foreign exchange losses/(gains)
Short-term lease expense
Low-value lease expense
2019
£m
47.7
7.5
153.5
(16.8)
(7.9)
121.5
21.2
185.5
301.6
3.2
20181
£m
183.9
2.0
265.5
–
–
20171
£m
27.1
91.7
56.8
–
–
201.8
20.7
138.0
20.1
188.6
189.0
–
0.6
–
1.2
(40.4)
(237.9)
(98.7)
(0.4)
6.1
83.8
2.9
(2.0)
(13.0)
–
–
0.3
8.0
–
–
Notes
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.
2 Other costs of services and general and administrative costs include £731.4 million
(2018: £713.0 million, 2017: £573.1 million) of other pass-through costs.
In 2019, operating profit includes credits totalling £26.9 million (2018:
£25.6 million, 2017: £40.9 million) relating to the release of excess provisions
and other balances established in respect of acquisitions completed prior to
2018. Further details of the Group’s approach to acquisition reserves, as
required by IFRS 3 Business Combinations, are given in note 30.
Amortisation and impairment of acquired intangibles in 2019 includes an
impairment charge in the year of £26.5 million (2018: £89.1 million, 2017:
£6.0 million) in regard to certain brand names that are no longer in use and
customer relationships where the underlying clients have been lost.
Investment write-downs of £91.7 million in 2017 include £53.1 million in relation
to comScore Inc., which had not released any financial statements in relation
to its 2015, 2016 or 2017 results due to an internal investigation by their Audit
Committee. In 2017, the market value of comScore Inc. fell below the Group’s
carrying value. Other investment write-downs relate to certain non-core
minority investments in the United States where forecast financial
performance and/or liquidity issues indicate a permanent decline in the
recoverability of the Group’s investment.
Gains on disposal of investments and subsidiaries of £40.4 million in 2019
include a gain of £28.6 million on the disposal of the Group’s interest in Chime.
Gains on disposal of investments and subsidiaries of £237.9 million in 2018
include a gain of £185.3 million on the disposal of the Group’s interest in
Globant S.A. Gains in 2017 of £98.7 million include £92.3 million on the sale of
the Group’s interest in Asatsu-DK Inc following its acquisition by Bain Capital.
In 2019, restructuring and transformation costs of £153.5 million comprise
£116.3 million of restructuring costs and £37.2 million transformation costs
with respect to strategic initiatives including co-locations in major cities, IT
transformation and shared services. Restructuring and transformation costs of
£121.1 million are in relation to the continuing restructuring plan, first outlined
at the Investor Day in December 2018. As part of that plan, restructuring
actions have been taken to right-size under-performing businesses, address
high cost severance markets and simplify operational structures. Further
restructuring and transformation costs will be incurred in 2020 and 2021.
The remaining £32.4 million primarily comprises transformation costs in
relation to the continuing global IT transformation programme.
In 2018, restructuring and transformation costs of £265.5 million comprise
£179.7 million of restructuring costs and £85.8 million 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.
In 2017, restructuring and transformation costs of £56.8 million predominantly
comprise £33.7 million of severance costs arising from a structural assessment
of certain of the Group’s operations, primarily in the mature markets; and
£12.8 million of costs resulting from the project to transform and rationalise
the Group’s IT services and infrastructure including costs relating to the
cyber attack in June 2017.
In 2019, the Group received £16.8 million in settlement of a class action lawsuit
against Comscore Inc. for providing materially false and misleading
information regarding their company and its financial performance.
In March 2019, the Group entered into a sale and leaseback agreement for its
office space at 3 Columbus Circle in New York. The Group sold the freehold
for proceeds of £159.0 million and simultaneously entered into a 15-year lease.
The net gain recognised from the sale and leaseback is £7.9 million.
Auditors’ remuneration:
Fees payable to the Company’s auditors for the
audit of the Company’s annual accounts
The audit of the Company’s subsidiaries pursuant to
legislation
Other services pursuant to legislation
Fees payable to the auditors pursuant to
legislation
2019
£m
2018
£m
2017
£m
1.5
1.4
1.4
28.0
5.0
25.21
4.2
20.7
4.0
34.5
30.8
26.1
–
–
8.2
8.2
–
0.1
4.7
4.8
0.1
0.1
4.6
4.8
42.7
35.6
30.9
In 2019, the goodwill impairment charge of £47.7 million (2018: £183.9 million,
2017: £27.1 million) relates to a number of under-performing businesses in the
Group. In certain markets, the impact of current local economic conditions and
trading circumstances on these businesses is sufficiently severe to indicate
impairment to the carrying value of goodwill. In 2018, the goodwill impairment
charge primarily relates to a charge of £148.0 million on VMLY&R.
Tax advisory services
Tax compliance services
Other services2
Total non‑audit fees
Total fees
Note
1 Includes a true-up of £3.5 million.
2 Other services include audits for earnout purposes.
154
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 4. SHARE OF RESULTS OF ASSOCIATES
Share of results of associates include:
Continuing operations
Share of profit before interest and taxation
Share of exceptional (losses)/gains
Share of interest and non-controlling interests
Share of taxation
20191
£m
99.2
(47.8)
(19.4)
(17.3)
14.7
20182
£m
110.8
(41.5)
(15.1)
(23.7)
30.5
20172
£m
129.7
0.6
(12.6)
(19.7)
98.0
Notes
1 From 5 December 2019 approximately 90% of the Kantar business is treated as a 40% associate
following the completion of the transaction outlined in note 12.
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.
5. OUR PEOPLE
Our staff numbers, including the Kantar disposal group, averaged 132,823 for
the year ended 31 December 2019 against 133,903 in 2018 and 134,428 in 2017.
Their geographical distribution was as follows:
North America
United Kingdom
Western Continental Europe
Asia Pacific, Latin America, Africa &
Middle East and Central & Eastern Europe
2019
2018
2017
25,008 25,990 27,399
14,192
14,331
14,197
26,973 26,825 25,700
66,650 66,757
67,132
132,823 133,903 134,428
Their reportable segment distribution was as follows:
Global Integrated Agencies
Data Investment Management
Public Relations
Specialist Agencies
2019
2017
2018
82,295 83,015
81,537
26,325 27,813 28,014
6,899
6,891
17,978
16,184
132,823 133,903 134,428
6,890
17,313
6. FINANCE AND INVESTMENT INCOME, FINANCE COSTS
AND REVALUATION OF FINANCIAL INSTRUMENTS
Finance and investment income includes:
Continuing operations
Income from equity investments
Interest income
Finance costs include:
Continuing operations
Net interest expense on pension plans
Interest on other long-term employee benefits
Interest expense and similar charges2
Interest expense related to lease liabilities
Revaluation of financial instruments include:
Continuing operations
Movements in fair value of treasury instruments
Premium on the early repayment of bonds
Revaluation of investments held at fair value
through profit or loss
Revaluation of put options over
non-controlling interests
Revaluation of payments due to vendors
(earnout agreements)
2019
£m
18.3
80.7
99.0
20181
£m
15.2
83.7
98.9
20171
£m
16.7
72.3
89.0
2019
£m
3.5
3.9
252.0
99.7
359.1
20181
£m
3.6
3.5
272.0
–
279.1
20171
£m
5.4
3.3
253.2
–
261.9
2019
£m
0.4
(63.4)
20181
£m
(11.0)
–
20171
£m
0.4
–
9.1
67.8
–
(13.5)
34.4
51.4
(1.0)
(68.4)
78.2
169.4
192.1
243.9
Notes
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.
2 Interest expense and similar charges are payable on bank overdrafts, bonds and bank loans
At the end of 2019, staff numbers were 106,786 (2018: 134,281, 2017: 134,413).
held at amortised cost.
Staff costs include:
Continuing operations
Wages and salaries
Cash-based incentive plans
Share-based incentive plans
Social security costs
Pension costs
Severance
Other staff costs2
2019
£m
20181
£m
20171
£m
4,946.2 4,828.0 4,937.5
196.5
233.0
98.3
78.3
580.8
579.0
161.3
160.9
36.8
30.0
1,046.8 1,041.4 1,053.9
7,090.6 6,950.6 7,065.1
227.6
66.0
591.7
169.7
42.6
Staff cost to revenue less pass-through costs3 ratio
65.4% 63.9% 63.4%
Notes
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.
2 Freelance and temporary staff costs are included in other staff costs.
3 Revenue less pass-through costs is defined in note 32.
Included above are charges of £2.0 million, excluding revision to prior year
awards, (2018: £2.0 million, 2017: £12.3 million) for share-based incentive plans
in respect of key management personnel (who comprise the Directors of the
Group). Further details of compensation for key management personnel are
disclosed on pages 114-137.
The majority of the Group’s long-term debt is represented by $1,563 million
of US dollar bonds at an average interest rate of 4.06%, €3,100 million of
Eurobonds at an average interest rate of 1.82% and £400 million of Sterling
bonds at an average interest rate of 2.88%.
Average borrowings under the US Dollar Revolving Credit Facilities (note 10)
amounted to the equivalent of $72 million at an average interest rate of 1.11%
(2018: $125 million at an average interest rate of 0.96%).
Average borrowings under the Australian Dollar Revolving Credit Facilities,
amounted to A$310 million at an average rate of 2.95% (2018: A$439 million
at an average rate of 3.27%).
Average borrowings under the US Commercial Paper Programme for 2019
amounted to $41 million at an average interest rate of 2.46% inclusive of margin
(2018: $540 million at an average interest rate of 2.28% inclusive of margin).
Average borrowings under the Euro Commercial Paper Programme for 2019
amounted to £255 million at an average interest rate of 1.16% inclusive of
currency swaps (2018: £nil).
155
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 The calculation of the headline tax rate is as follows:
Continuing operations
Headline PBT2
Tax charge
Tax (charge)/credit relating to gains on
disposal of investments and subsidiaries
Tax credit relating to gain on sale of
freehold property in New York
Tax charge relating to litigation settlement
Deferred tax impact of the amortisation
of acquired intangible assets and other
goodwill items
Tax credit relating to restructuring
and transformation costs
Tax impact of US tax reform
Deferred tax relating to gains on
disposal of investments and subsidiaries
Headline tax charge
Headline tax rate
2019
£m
20181
£m
1,363.0 1,543.0
256.0
275.0
20171
£m
1,717.6
83.0
(6.9)
(0.8)
2.1
0.5
(4.2)
–
–
–
–
13.3
12.9
31.8
29.2
–
41.1
11.6
10.0
191.5
0.2
(0.7)
(7.3)
318.6
320.1
299.6
22.0% 20.7% 18.5%
Notes
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.
2 Headline PBT is defined in note 32.
FACTORS AFFECTING THE TAX CHARGE IN FUTURE YEARS
Given the Group’s geographic mix of profits and the changing international
tax environment, the headline tax rate is expected to increase slightly over
the next few years.
The tax charge may also be affected by the impact of acquisitions, disposals
and other corporate restructurings, the resolution of open tax issues, and the
ability to use brought forward tax losses. 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.
The Group does not currently expect any material additional charges, or
credits, to arise in respect of these matters, beyond the amounts already
provided. Liabilities relating to these open and judgemental matters are based
upon estimates of whether additional taxes will be due after taking into
account external advice where appropriate. Where the final tax outcome of
these matters is different from the amounts which were initially recorded then
such differences will impact the current and deferred income tax assets and
liabilities in the period in which such determination is made.
TAX RISK MANAGEMENT
We maintain constructive engagement with the tax authorities and relevant
government representatives, as well as active engagement with a wide range
of international companies and business organisations with similar issues. We
engage advisors and legal counsel to obtain opinions on tax legislation and
principles. We have a Tax Risk Management Strategy in place which sets out
the controls established and our assessment procedures for decision-making
and how we monitor tax risk. We monitor proposed changes in taxation
legislation and ensure these are taken into account when we consider our
future business plans. Our Directors are informed by management of any tax
law changes, the nature and status of any significant ongoing tax audits, and
other developments that could materially affect the Group's tax position.
7. TAXATION
The tax rate on reported PBT was 28.0% (2018: 20.4%, 2017: 4.8%). The headline
tax rate was 22.0% (2018: 20.7%, 2017: 18.5%).
The tax charge comprises:
Continuing operations
Corporation tax
Current year
Prior years
Deferred tax
Current year
Prior years
Tax charge
2019
£m
20181
£m
20171
£m
423.0
(63.4)
359.6
404.2
(108.1)
296.1
383.0
(97.2)
285.8
(78.3)
(6.3)
(84.6)
275.0
(41.5)
1.4
(40.1)
256.0
(207.4)
4.6
(202.8)
83.0
The corporation tax credit for prior years in 2019, 2018 and 2017, mainly
comprises the release of a number of provisions following the resolution
of tax matters in various countries.
The tax charge for the year can be reconciled to profit before taxation in the
consolidated income statement as follows:
Continuing operations
Profit before taxation
Tax at the corporation tax rate of 19.0%2
Tax effect of share of results of associates
Irrecoverable withholding taxes
Items that are not deductible/(taxable)
in determining taxable profit
Effect of different tax rates in subsidiaries
operating in other jurisdictions
US Transition Tax related to unremitted
foreign earnings
Effect of change in US tax rate on deferred
tax balances
Origination and reversal on unrecognised
temporary differences
Tax losses not recognised or utilised in the year
Utilisation of tax losses not previously recognised
Recognition of temporary differences
not previously recognised
Net release of prior year provisions in relation
to acquired businesses
Other prior year adjustments
Tax charge
Effective tax rate on profit before tax
2019
£m
982.1
186.6
(2.7)
44.7
20181
£m
20171
£m
1,257.6 1,746.9
336.3
(18.8)
31.6
238.9
(5.8)
48.9
96.0
22.0
(10.7)
77.1
71.2
95.2
–
–
(4.6)
20.1
–
(211.6)
(3.4)
13.2
(42.7)
5.1
19.9
(25.5)
(18.9)
32.5
(10.4)
(24.1)
(7.4)
(69.7)
(20.4)
(19.9)
(86.3)
(49.8)
256.0
275.0
28.0% 20.4%
(15.0)
(77.6)
83.0
4.8%
Notes
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.
2 As the Group is subject to the tax rates of more than one country, it has chosen to present
its reconciliation of the tax charge using the UK corporation tax rate of 19.0% (2018: 19.0%,
2017: 19.25%).
The headline tax charge excludes the impact of items that are excluded from
headline PBT and excludes the deferred tax impact of the amortisation of
acquired intangible assets and other goodwill items as these will only reverse
in the event of future disposals of those assets, in which case any accounting
gain or loss would be excluded from headline profits.
156
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 8. ORDINARY DIVIDENDS
Amounts recognised as distributions to equity holders in the year:
DILUTED EPS
The calculation of diluted reported and headline EPS is as follows:
Per share
2018 Final dividend
2019 Interim dividend
Per ADR1
2018 Final dividend
2019 Interim dividend
2019
2018
2017
Pence per share
37.30p 37.30p
22.70p 22.70p
60.00p 60.00p
37.05p
22.70p
59.75p
2019
2018
2017
Cents per ADR
249.00¢ 240.34¢ 250.96¢
144.88¢ 151.53¢ 146.27¢
393.88¢ 391.87¢ 397.23¢
2019
£m
466.4
284.1
750.5
2019
$m
622.8
362.6
985.4
2018
£m
464.6
282.8
747.4
2018
$m
598.7
377.6
976.3
2017
£m
467.2
284.3
751.5
2017
$m
632.9
366.4
999.3
Note
1 These figures have been translated for convenience purposes only, using the approximate
average rate for the year of US$1.2765 (2018: US$1.3351, 2017: US$1.2887). 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.
Given the significant uncertainty 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. Therefore, the Board is
suspending the 2019 final dividend of 37.3 pence per share, which was due
to be proposed at the 2020 AGM.
The payment of dividends will not have any tax consequences for the Group.
9. EARNINGS PER SHARE
BASIC EPS
The calculation of basic reported and headline EPS is as follows:
Continuing operations
Reported earnings1 (£m)
Headline earnings (£m) (note 32)
Weighted average shares used in basic
EPS calculation (m)
Reported EPS
Headline EPS
Discontinued operations
Reported earnings1 (£m)
Headline earnings (£m) (note 12)
Weighted average shares used in basic
EPS calculation (m)
Reported EPS
Headline EPS
Continued and discontinued operations
Reported earnings1 (£m)
Headline earnings (£m)
Weighted average shares used in basic
EPS calculation (m)
Reported EPS
Headline EPS
2019
627.9
984.2
2018
2017
936.5 1,579.5
1,314.6
1,153.1
1,250.0 1,247.8
1,261.1
75.1p 125.2p
92.4p 104.2p
50.2p
78.7p
2019
(3.8)
184.5
2018
126.4
209.6
2017
237.1
221.9
1,250.0 1,247.8
10.1p
16.8p
(0.3p)
14.8p
1,261.1
18.8p
17.6p
2018
2019
624.1
2017
1,062.9 1,816.6
1,168.7 1,362.7 1,536.5
1,250.0 1,247.8
1,261.1
85.2p 144.0p
49.9p
93.5p 109.2p 121.8p
Note
1 Reported earnings is equivalent to profit for the year attributable to equity holders of the parent.
Continuing operations
Diluted reported earnings (£m)
Diluted headline earnings (£m)
Weighted average shares used in diluted
EPS calculation (m)
Diluted reported EPS
Diluted headline EPS
Discontinued operations
Diluted reported earnings (£m)
Diluted headline earnings (£m)
Weighted average shares used in diluted
EPS calculation (m)
Diluted reported EPS
Diluted headline EPS
Continued and discontinued operations
Diluted reported earnings (£m)
Diluted headline earnings (£m)
Weighted average shares used in diluted
EPS calculation (m)
Diluted reported EPS
Diluted headline EPS
2019
627.9
984.2
2018
2017
936.5 1,579.5
1,314.6
1,153.1
1,260.6 1,261.2 1,275.8
74.3p 123.8p
91.4p 103.0p
49.8p
78.1p
2019
(3.8)
184.5
2018
126.4
209.6
2017
237.1
221.9
1,260.6 1,261.2 1,275.8
18.6p
10.0p
17.4p
16.6p
(0.3p)
14.6p
2018
2019
624.1
2017
1,062.9 1,816.6
1,168.7 1,362.7 1,536.5
1,260.6 1,261.2 1,275.8
84.3p 142.4p
49.5p
92.7p 108.0p 120.4p
Diluted EPS has been calculated based on the diluted reported and diluted
headline earnings amounts above. At 31 December 2019, options to purchase
19.3 million ordinary shares (2018: 16.9 million, 2017: 8.2 million) were outstanding,
but were excluded from the computation of diluted earnings per share because
the exercise prices of these options were greater than the average market price
of the Group’s shares and, therefore, their inclusion would have been accretive.
A reconciliation between the shares used in calculating basic and diluted EPS
is as follows:
Average shares used in basic EPS calculation
Dilutive share options outstanding
Other potentially issuable shares
Shares used in diluted EPS calculation
2019
m
2018
m
1,250.0 1,247.8
1.6
11.8
2017
m
1,261.1
1.8
12.9
1,260.6 1,261.2 1,275.8
0.3
10.3
At 31 December 2019 there were 1,328,167,813 (2018: 1,332,678,227, 2017:
1,332,511,552) ordinary shares in issue, including 70,787,730 treasury shares
(2018: 70,854,553, 2017: 62,578,938).
157
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 10. SOURCES OF FINANCE
The following table summarises the equity and debt financing of the Group,
and changes during the year:
The following table is an analysis of future anticipated cash flows in relation to
the Group’s debt, on an undiscounted basis which, therefore, differs from the
fair value and carrying value:
Analysis of changes in financing
Beginning of year
Ordinary shares issued
Share cancellations
Net decrease in drawings on bank
loans and corporate bonds
Amortisation of financing costs included
in debt
Changes in fair value due to
hedging arrangements
Other movements
Exchange adjustments
End of year
Shares
Debt
2019
£m
703.0
0.6
(0.5)
2018
£m
701.8
1.2
–
2019
£m
2018
£m
6,217.9 6,481.3
–
–
–
–
–
–
–
–
(1,713.2)
(440.6)
10.3
7.7
–
–
–
703.1
–
–
–
703.0
14.3
1.5
(257.9)
(9.9)
(0.2)
179.6
4,272.9 6,217.9
Note
The table above excludes bank overdrafts which fall within cash and cash equivalents for the
purposes of the consolidated cash flow statement.
SHARES
At 31 December 2019, the Company’s share base was entirely composed
of ordinary equity share capital and share premium of £703.1 million
(2018: £703.0 million), further details of which are disclosed in note 28.
DEBT
US$ bonds The Group has in issue $500 million of 3.625% bonds due
September 2022, $750 million of 3.75% bonds due September 2024, $93 million
of 5.125% bonds due September 2042 and $220 million of 5.625% bonds due
November 2043.
Eurobonds The Group has in issue €750 million of 3.00% bonds due
November 2023, €500 million of 1.375% bonds due March 2025, €750 million
of 2.25% bonds due September 2026, €600 million of 1.625% bonds due March
2030, €250 million of Floating Rate Notes carrying a coupon of 3m EURIBOR +
0.32% due May 2020 and €250 million of Floating Rate Notes carrying a
coupon of 3m EURIBOR +0.45% due March 2022.
Sterling bonds The Group has in issue £400 million of 2.875% bonds due
September 2046.
Revolving Credit Facility The Group has a five-year Revolving Credit Facility
of $2.5 billion due March 2024, signed in March 2019. The Group’s borrowing
under these facilities, which are drawn down predominantly in pounds
sterling, averaged the equivalent of $72 million in 2019. In June 2018, the
Group's subsidiary, WPP AUNZ entered into a A$150 million Revolving Credit
Facility due June 2019 and a A$370 million Revolving Credit Facility due June
2021. In May 2019, the A$150 million Revolving Credit Facility was extended to
June 2020. In December 2019, the A$370 million Revolving Credit Facility was
reduced to A$270 million due June 2021. The Group’s borrowings under the
Australian dollar facilities which were drawn down in Australian dollars and
New Zealand dollars, averaged the equivalent of A$310 million in 2019.
The Group had available undrawn committed credit facilities of
£2,005.6 million at 31 December 2019 (2018: £2,074.7 million).
Borrowings under the $2.5 billion Revolving Credit Facility are governed by
certain financial covenants based on the results and financial position of the
Group. Borrowings under the A$150 million Revolving Credit Facility and the
A$270 million Revolving Credit Facility are governed by certain financial
covenants based on the results and financial position of WPP AUNZ.
The $2.5 billion Revolving Credit Facility, due March 2024, includes terms
which require the consent of the majority of the lenders if a proposed merger
or consolidation of the Company would alter its legal personality or identity.
On 14 February 2020, the lending banks approved an extension of the term
of the Revolving Credit Facility to March 2025.
COMMERCIAL PAPER PROGRAMMES
The Group operates commercial paper programmes using its Revolving Credit
Facility as a backstop. The average US commercial paper outstanding in 2019 was
$41 million (2018: $540 million). The average Euro commercial paper outstanding
in 2019 was £255 million (2018: £nil) inclusive of the effect of currency swaps.
There was no US or Euro Commercial Paper outstanding at 31 December 2019.
158
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
Debt financing (including interest) under the Revolving
Credit Facility and in relation to unsecured loan notes
Short-term overdrafts – within one year
Future anticipated cash flows
Effect of discounting/financing rates
Debt financing
Cash and short-term deposits
Net debt
2019
£m
(324.8)
(204.0)
(692.1)
(726.3)
(634.2)
(2,761.9)
2018
£m
(748.4)
(596.8)
(937.1)
(742.5)
(786.8)
(4,199.7)
(5,343.3)
(235.7)
(5,579.0)
1,070.4
(4,508.6)
2,969.0
(1,539.6)
(8,011.3)
(442.0)
(8,453.3)
1,793.4
(6,659.9)
2,643.2
(4,016.7)
Analysis of fixed and floating rate debt by currency including the effect of
interest rate and cross-currency swaps:
2019
Currency
$
£
€
– fixed
– fixed
– fixed
– floating
Other
2018
Currency
$
– fixed
– floating
– fixed
– fixed
– floating
£
€
Other
£m
Fixed
rate1
Floating
basis
Period
(months)1
1,178.2
844.1
1,777.7
423.3
49.6
4,272.9
n/a
4.06
n/a
2.73
n/a
2.34
n/a EURIBOR
n/a
n/a
95
188
82
16
n/a
£m
Fixed
rate1
Floating
basis
Period
(months)1
1,154.8
1,029.6
1,044.1
2,425.9
449.2
114.3
6,217.9
n/a
4.58
LIBOR
n/a
n/a
3.43
n/a
1.99
n/a EURIBOR
n/a
n/a
181
n/a
232
75
n/a
n/a
Note
1 Weighted average. These rates do not include the effect of gains on interest rate swap
terminations that are written to income over the life of the original instrument.
The following table is an analysis of future undiscounted anticipated cash flows
in relation to the Group’s financial derivatives, which include interest rate swaps,
forward contracts and other foreign exchange swaps assuming interest rates
and foreign exchange rates as at 31 December:
2019
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
2018
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
Financial liabilities
Receivable
£m
107.8
10.9
6.2
6.1
6.1
456.3
593.4
Payable
£m
113.6
17.5
11.8
11.6
11.6
449.8
615.9
Financial assets
Receivable
£m
45.0
–
–
–
–
–
45.0
Payable
£m
44.0
–
–
–
–
–
44.0
Financial liabilities
Receivable
£m
221.9
45.3
685.3
406.6
–
–
1,359.1
Payable
£m
229.3
50.0
688.4
408.5
–
–
1,376.2
Financial assets
Receivable
£m
120.6
6.5
6.4
6.5
6.6
498.2
644.8
Payable
£m
124.6
11.8
11.5
11.6
11.6
461.4
632.5
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 11. ANALYSIS OF CASH FLOWS
The following tables analyse the items included within the main cash flow
headings on page 149.
Share repurchases and buybacks:
Net cash from operating activities:
Profit for the year
Taxation
Revaluation of financial instruments
Finance costs
Finance and investment income
Share of results of associates
Goodwill impairment on classification as held for
sale
Gain on sale of discontinued operations
Attributable tax expense on sale of discontinued
operations
Operating profit of continuing
and discontinued operations
Adjustments for
Non-cash share-based incentive plans (including
share options)
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Impairment of goodwill
Amortisation and impairment of acquired
intangible assets
Amortisation of other intangible assets
Investment write-downs
Gains on disposal of investments and subsidiaries
(Gains)/losses on remeasurement of equity
interests arising from a change in scope of
ownership
Gain on sale of freehold property in New York
Losses on sale of property, plant and equipment
Operating cash flow before movements
in working capital and provisions
Decrease/(increase) in trade receivables and
accrued income
Increase/(decrease) in trade payables and
deferred income
Increase in other receivables
Decrease in other payables – short-term
Increase in other payables – long-term
Increase/(decrease) in provisions
Cash generated by operations
Corporation and overseas tax paid
Payment on early settlement of bonds
Interest and similar charges paid
Interest paid on lease liabilities
Interest received
Investment income
Dividends from associates
Net cash inflow from operating activities
Acquisitions and disposals:
2019
£m
717.9
353.8
77.8
376.4
(102.6)
(21.2)
94.5
(73.8)
157.4
2018
£m
2017
£m
1,139.4 1,912.3
197.0
323.9
(262.2)
(172.9)
269.8
289.3
(95.2)
(104.8)
(113.5)
(43.5)
–
–
–
–
–
–
1,580.2 1,431.4 1,908.2
71.4
203.2
317.9
47.7
84.8
225.1
–
183.9
135.6
29.6
7.5
(45.1)
280.0
38.7
2.0
(235.5)
105.0
230.7
–
27.1
195.1
36.3
95.9
(129.0)
(0.4)
(7.9)
3.2
(2.0)
–
0.6
0.3
–
1.1
2,342.9 2,009.0 2,470.7
159.0
(298.9)
(90.4)
500.9
(52.9)
(31.8)
0.4
48.0
394.7
(263.8)
(16.4)
53.7
23.1
(170.8)
(110.6)
(122.8)
20.1
(57.3)
2,693.2 2,174.7 1,938.9
(424.7)
–
(246.6)
–
76.9
16.8
46.8
1,850.5 1,693.8 1,408.1
(536.0)
(63.4)
(270.6)
(105.1)
80.8
18.3
33.3
(383.6)
–
(252.8)
–
90.4
15.4
49.7
Initial cash consideration
Cash and cash equivalents acquired
Earnout payments
Purchase of other investments (including associates)
Acquisitions
Proceeds on disposal of investments
and subsidiaries1
Cash and cash equivalents disposed
Disposals of investments and subsidiaries
Cash consideration for non-controlling interests
Net acquisition payments and disposal proceeds
2019
£m
(3.9)
–
(130.2)
(27.2)
(161.3)
2,468.5
(327.5)
2,141.0
(62.7)
1,917.0
2018
£m
(126.7)
11.3
(120.2)
(48.1)
(283.7)
849.0
(15.1)
833.9
(109.9)
440.3
2017
£m
(214.8)
28.9
(199.1)
(92.5)
(477.5)
296.0
–
296.0
(47.3)
(228.8)
Note
1 Proceeds on disposal of investments and subsidiaries includes return of capital from investments
in associates.
Purchase of own shares by ESOP Trusts
Shares purchased into treasury
Net cash outflow
Net (decrease)/increase in borrowings:
(Decrease)/increase in drawings on bank loans
Repayment of €600 million bonds
Repayment of $812 million bonds
Partial repayment of $272 million bonds
Partial repayment of $450 million bonds
Repayment of £200 million bonds
Proceeds from issue of €250 million bonds
Proceeds from issue of €500 million bonds
Repayment of €252 million bonds
Repayment of £400 million bonds
Net cash (outflow)/inflow
Cash and cash equivalents:
Cash at bank and in hand
Short-term bank deposits
Overdrafts1
2019
£m
–
(43.8)
(43.8)
2018
£m
(102.8)
(104.3)
(207.1)
2017
£m
(214.6)
(289.6)
(504.2)
2019
£m
(70.6)
(512.7)
(618.8)
(135.4)
(176.2)
(199.5)
–
–
–
–
(1,713.2)
2018
£m
(819.3)
–
–
(20.8)
(37.3)
–
218.8
438.0
(220.0)
–
(440.6)
2017
£m
785.6
–
–
–
–
–
214.0
–
–
(400.0)
599.6
2018
£m
2019
£m
2017
£m
2,105.4 2,010.8 2,049.6
341.8
632.4
(393.2)
(442.0)
2,733.3 2,201.2 1,998.2
863.6
(235.7)
Note
1 Bank overdrafts are included in cash and cash equivalents because they form an integral part
of the Group’s cash management.
The Group considers that the carrying amount of cash and cash equivalents
approximates their fair value.
12. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
In July 2019, the Group announced the proposed sale of its Kantar business to
Bain Capital. On 5 December 2019 the first stage of the transaction completed,
consisting of approximately 90% of the Kantar group, with consideration of
£2,140.2 million after tax and disposal costs. The sale involved the Group
disposing of the Kantar business and holding 40% equity stakes post-transaction
which are treated as associates. This generated a pre-tax gain of £73.8 million,
tax charge of £157.4 million and goodwill impairment of £94.5 million for the
Group. The remaining stages of the transaction are expected to complete in
2020 with further consideration expected to be approximately £200 million
after tax and disposal costs.
As outlined in the accounting policies, the criterion of a highly probable sale
was met on 9 July 2019, following Board approval of the disposal of Kantar
to Bain Capital, representing the date at which the appropriate level of
management was committed to a plan to sell the disposal group. The Kantar
disposal group therefore became held for sale on this date.
The Kantar group (both the portion that has been disposed of by year end
and the portion that is expected to be disposed of in 2020) is classified as
a discontinued operation under IFRS 5 as it forms a separate major line
of business and there was a single co-ordinated plan to dispose of it. Kantar
represents materially all of the Data Investment Management segment of
the Group.
As at 31 December 2019 the remaining portion of the company not yet sold
is disclosed as held for sale.
159
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 Headline operating profit margin before and after share of results of associates:
£m
Revenue less pass‑
through costs
Headline operating
profit
Share of results of
associates (excluding
exceptional gains/losses)1
Headline PBIT
Margin
2019 Margin
2018 Margin
2017
1,806.6
1,950.9
2,025.7
17.0% 307.7
15.9%
310.9
17.8%
361.3
6.2
17.4% 313.9
16.6%
13.2
324.1
15.3
18.6% 376.6
Note
1 Under IFRS 5, when an associate is classified as held for sale, equity accounting will cease. This means
that there is no share of results of associates recognised for the Kantar group from 9 July 2019.
Calculation of headline EBITDA:
Headline PBIT (as above)
Depreciation of property, plant and equipment1
Amortisation of other intangible assets1
Headline EBITDA (including depreciation
of right‑of‑use assets)
Depreciation of right-of-use assets1
Headline EBITDA
2019
£m
313.9
17.7
8.4
2018
£m
324.1
36.5
18.0
2017
£m
376.6
41.7
16.2
340.0
16.3
356.3
378.6
–
378.6
434.5
–
434.5
Note
1 Under IFRS 5, non-current assets are not depreciated or amortised whilst classified as held for
sale. This means that there is no depreciation or amortisation recognised for the Kantar group
from 9 July 2019.
Reconciliation of profit before taxation to headline PBT and headline earnings:
Profit before taxation
Amortisation and impairment of acquired
intangible assets1
(Gains)/losses on disposal of investments
and subsidiaries
Investment write downs
Restructuring and transformation costs
Share of exceptional (gains)/losses of associates1
Revaluation of financial instruments
Headline PBT
Headline tax charge2
Headline non-controlling interests
Headline earnings
2019
£m
267.7
2018
£m
205.7
2017
£m
362.4
14.1
78.2
57.1
(4.7)
–
14.0
(0.3)
9.4
300.2
(101.1)
(14.6)
184.5
2.4
–
36.8
0.2
(3.5)
319.8
(98.8)
(11.4)
209.6
(30.3)
4.2
–
(0.2)
(18.3)
374.9
(141.7)
(11.3)
221.9
Notes
1 Under IFRS 5, non-current assets are not amortised whilst classified as held for sale. In addition,
when an associate is classified as held for sale, equity accounting will cease. This means that
there is no amortisation or share of results of associates recognised for the Kantar group from
9 July 2019.
2 Headline tax consists of the attributable tax expense of £78.8 million (2018: £67.9 million, 2017:
£114.0 million) excluding £22.1 million (2018: £17.2 million, 2017: £13.2 million) tax credit in relation to
the amortisation of acquired intangible assets, £1.9 million (2018: £11.0 million, 2017: £nil) tax credit
relating to restructuring and transformation costs, £1.7 million (2018: £nil, 2017: £nil) deferred tax
charge relating to interests in associates and joint ventures and in prior years, a tax credit in
relation to the impact of the US tax reform (2018: £2.7 million, 2017: £14.5 million).
Further details of these alternative measures of performance can be found in
note 32.
12. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
CONTINUED
Results of the discontinued operations, which have been included in profit for
the year, were as follows:
Revenue
Costs of services
Gross profit
General and administrative costs
Operating profit
Share of results of associates
Profit before interest and taxation
Finance income
Finance costs
Revaluation of financial instruments
Profit before taxation
Attributable tax expense
Profit after taxation
2018
£m
2019
£m
2017
£m
2,387.5 2,555.7 2,657.8
(1,951.5) (2,104.4) (2,147.4)
510.4
451.3
(180.1)
(257.8)
330.3
193.5
15.5
13.0
345.8
206.5
6.2
5.4
(7.9)
(9.7)
18.3
3.5
362.4
205.7
(114.0)
(67.9)
248.4
137.8
436.0
(151.7)
284.3
6.5
290.8
3.6
(17.3)
(9.4)
267.7
(78.8)
188.9
Goodwill impairment on classification
as held for sale1
Gain on sale of discontinued operations
Attributable tax expense on sale
of discontinued operations
(94.5)
73.8
(157.4)
–
–
–
–
–
–
Net gain attributable to discontinued operations
10.8
137.8
248.4
Attributable to
Equity holders of the parent
Non-controlling interests
(3.8)
14.6
10.8
126.4
11.4
137.8
237.1
11.3
248.4
Note
1 Goodwill impairment of £94.5 million arose from the assessment of fair value less costs to sell
under IFRS 5.
For the year ended 31 December 2019, the Kantar group contributed
£322.9 million (2018: £292.5 million, 2017: £378.4 million) to the Group’s net
operating cash flows, paid £53.2 million (2018: £59.5 million, 2017: £67.8 million)
in respect of investing activities and paid £27.2 million (2018: £7.9 million,
2017: £9.1 million) in respect of financing activities.
Reconciliation of revenue to revenue less pass-through costs:
Revenue
Data collection pass-through costs
Revenue less pass‑through costs
2018
£m
2019
£m
2017
£m
2,387.5 2,555.7 2,657.8
(604.8)
(632.1)
1,806.6 1,950.9 2,025.7
(580.9)
Reconciliation of operating profit to headline operating profit:
Operating profit
Amortisation and impairment of acquired
intangible assets1
(Gains)/losses on disposal of investments
and subsidiaries
Investment write downs
Restructuring and transformation costs
Headline operating profit
2019
£m
284.3
2018
£m
193.5
2017
£m
330.3
14.1
78.2
57.1
(4.7)
–
14.0
307.7
2.4
–
36.8
310.9
(30.3)
4.2
–
361.3
Note
1 Under IFRS 5, non-current assets are not amortised whilst classified as held for sale. This means
that there is no amortisation recognised for the Kantar group from 9 July 2019.
160
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 The gain on sale of discontinued operations disposed by 31 December 2019 is
calculated as follows:
The major classes of assets and liabilities comprising the operations classified
as held for sale at 31 December 2019 are as follows:
Intangible assets (including goodwill)
Property, plant and equipment
Right-of-use assets
Interests in associates and joint ventures
Other investments
Deferred tax assets
Corporate income tax recoverable
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Corporate income tax payable
Lease liabilities
Deferred tax liabilities
Provisions for post-employment benefits
Provisions for liabilities and charges
Net assets
Non-controlling interests
Net assets excluding non‑controlling interests
Consideration received in cash and cash equivalents
Re-investment in equity stake1
Transaction costs
Deferred consideration2
Total consideration received
Loss on sale before exchange adjustments
Exchange adjustments recycled to the income statement
Gain on sale of discontinued operation
2019
£m
2,410.0
115.7
103.5
92.3
11.5
44.1
49.8
748.8
324.9
(839.8)
(48.2)
(106.3)
(98.6)
(26.7)
(22.4)
2,758.6
(19.1)
2,739.5
2,352.1
231.7
(56.1)
1.6
2,529.3
(210.2)
284.0
73.8
Notes
1 Re-investment in equity stake represents the value of the Group’s 40% stake in the new Kantar
group as part of the disposal.
2 Deferred consideration is made up of £79.6 million expected to be received in future periods on
the satisfaction of certain conditions and the deferral of £78.0 million consideration against services
the Group will supply to Kantar on favourable terms in the future. The conditions expected to be
met in the future include the settlement of ongoing legal cases, realisation of the value of certain
investments and the utilisation of certain tax losses and allowances. There was uncertainty at the
date of disposal in regard to the ultimate resolution of these items and estimates of amounts due
to be received were required to be made; there were no individually material estimates. Future
services provided by the Group to Kantar arose through the negotiation of Transition Service
Arrangements, as is customary for a disposal of this magnitude. The Group will support Kantar for
a period of up to 4 years, primarily in the area of IT, on terms which are favourable to the disposal
group. As such, an element of consideration has been deferred and will be recognised as the
services are provided.
Non‑current assets
Intangible assets:
Goodwill
Other
Property, plant and equipment
Right-of-use assets
Interests in associates and joint ventures
Other investments
Deferred tax assets
Trade and other receivables
Current assets
Corporate income tax recoverable
Trade and other receivables
Cash and short-term deposits
Total assets classified as held for sale
Current liabilities
Trade and other payables
Corporate income tax payable
Bank overdrafts
Short-term lease liabilities
Non‑current liabilities
Trade and other payables
Deferred tax liabilities
Provisions for post-employment benefits
Provisions for liabilities and charges
Long-term lease liabilities
2019
£m
155.4
5.9
12.8
25.7
4.6
0.6
5.9
2.6
213.5
15.9
189.4
66.5
271.8
485.3
(130.4)
(3.8)
(0.2)
(3.9)
(138.3)
(1.3)
(1.2)
(8.5)
(0.6)
(20.5)
(32.1)
Total liabilities associated with assets classified as held for sale
(170.4)
Net assets of disposal group
314.9
On 27 February 2020, the second stage of the Kantar transaction completed,
consisting of approximately 4% of the Kantar Group, with cash consideration
received of £136.7 million. The remaining stages of the transaction are
expected to complete in 2020.
161
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 13. LEASES
The movements in the year ended 31 December 2019 were as follows:
The maturity of lease liabilities at 31 December 2019 were as follows:
Right‑of‑use assets
1 January 2019
Additions
Transfers to net investment in subleases1
Disposals
Depreciation of right-of-use assets
Transfer to disposal group classified
as held for sale
31 December 2019
Land and
buildings
£m
1,862.5
348.1
(37.6)
(31.0)
(301.5)
Plant and
machinery
£m
32.6
16.5
–
(0.6)
(16.4)
Total
£m
1,895.1
364.6
(37.6)
(31.6)
(317.9)
(134.4)
1,706.1
(3.7)
28.4
(138.1)
1,734.5
Note
1 The sublease of certain office space is classified as a finance lease and relates primarily to Kantar
business units that were sold. The Company de-recognised the right-of-use asset (to the extent
that it is subject to the sublease) and recognised the net investment in subleases, which is
included within trade and other receivables. No other disclosures are deemed necessary as it is
not material.
Lease liabilities
1 January 2019
Additions
Interest expense related to lease liabilities
Disposals
Repayment of lease liabilities (including interest)
Transfer to disposal group classified
as held for sale
31 December 2019
Land and
buildings
£m
2,294.4
325.9
101.5
(27.5)
(326.2)
(144.7)
2,223.4
Plant and
machinery
£m
Total
£m
31.8 2,326.2
338.2
12.3
102.7
1.2
(27.7)
(0.2)
(341.1)
(14.9)
(148.6)
(3.9)
26.3 2,249.7
The following table shows the breakdown of the lease expense between
amounts charged to operating profit and amounts charged to finance costs:
Continuing operations
Depreciation of right-of-use assets:
Land and buildings
Plant and machinery
Short-term lease expense
Low-value lease expense
Variable lease expense
Sublease income
Charge to operating profit
Interest expense related to lease liabilities
Charge to profit before taxation for leases
2019
£m
(286.5)
(15.1)
(83.8)
(2.9)
(74.2)
17.5
(445.0)
(99.7)
(544.7)
Variable lease payments primarily include real estate taxes and insurance costs.
Period ending 31 December
2020
2021
2022
2023
2024
Later years
Effect of discounting
Lease liability at 31 December 2019
Short-term lease liability
Long-term lease liability
2019
£m
385.9
384.0
335.4
283.0
220.5
1,393.7
3,002.5
(752.8)
2,249.7
302.2
1,947.5
The total committed future cash flows for leases not yet commenced at
31 December 2019 is £558.0 million.
The Group does not face a significant liquidity risk with regard to its lease
liabilities. Refer to note 26 for management of liquidity risk.
14. INTANGIBLE ASSETS
GOODWILL
The movements in 2019 and 2018 were as follows:
Cost
1 January 2018
Additions1
Revision of earnout estimates
Exchange adjustments
31 December 2018
Additions1
Revision of earnout estimates
Disposals
Transfer to disposal group classified as held for sale
Exchange adjustments
31 December 2019
Accumulated impairment losses and write‑downs
1 January 2018
Impairment losses for the year
Exchange adjustments
31 December 2018
Impairment on classification as held for sale2
Impairment losses for the year
Transfer to disposal group classified as held for sale
Exchange adjustments
31 December 2019
Net book value
31 December 2019
31 December 2018
1 January 2017
£m
13,675.3
154.4
(68.3)
368.1
14,129.5
8.5
(14.3)
(18.6)
(2,729.1)
(419.9)
10,956.1
722.4
183.9
20.4
926.7
70.9
47.7
(230.6)
(29.3)
785.4
10,170.7
13,202.8
12,952.9
Notes
1 Additions represent goodwill arising on the acquisition of subsidiary undertakings including the
effect of any revisions to fair value adjustments that had been determined provisionally at the
immediately preceding balance sheet date, as permitted by IFRS 3 Business Combinations.
The effect of such revisions was not material in either year presented.
2 Goodwill impairment of £70.9 million arose from the assessment of fair value less costs to sell
of the Kantar group on classification as held for sale under IFRS 5.
162
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 OTHER INTANGIBLE ASSETS
The movements in 2019 and 2018 were as follows:
Cash-generating units with significant goodwill and brands with an indefinite
useful life as at 31 December are:
Cost
1 January 2018
Additions
Disposals
New acquisitions
Other movements1
Exchange adjustments
31 December 2018
Additions
Disposals
New acquisitions
Other movements
Exchange adjustments
Transfer to disposal group classified
as held for sale
31 December 2019
Amortisation and impairment
1 January 2018
Charge for the year
Disposals
Other movements
Exchange adjustments
31 December 2018
Charge for the year
Disposals
Other movements
Exchange adjustments
Transfer to disposal group classified
as held for sale
31 December 2019
Net book value
31 December 2019
31 December 2018
1 January 2018
Brands
with an
indefinite
useful life
£m
1,081.3
–
–
–
–
51.5
1,132.8
–
–
–
(41.4)
Acquired
intangibles
£m
Other
£m
Total
£m
2,547.8
–
(0.9)
40.3
2.9
19.9
2,610.0
–
(3.4)
3.5
–
(28.2)
411.5 4,040.6
60.4
60.4
(38.2)
(37.3)
40.3
–
(4.5)
(7.4)
81.5
10.1
4,180.1
437.3
43.2
43.2
(44.4)
(41.0)
3.5
–
(1.4)
(1.4)
(79.5)
(9.9)
–
1,091.4
(979.0)
1,602.9
(1,094.9)
(115.9)
312.3 3,006.6
–
–
–
–
–
–
13.2
–
–
–
–
13.2
1,718.7
275.8
(0.7)
–
21.4
2,015.2
116.8
(1.6)
–
(15.2)
303.5 2,022.2
314.5
(28.0)
(1.9)
31.3
2,338.1
159.6
(39.3)
2.6
(24.3)
38.7
(27.3)
(1.9)
9.9
322.9
29.6
(37.7)
2.6
(9.1)
(835.9)
(63.0)
1,279.3 245.3
(898.9)
1,537.8
1,078.2
1,132.8
1,081.3
323.6
594.8
829.1
67.0 1,468.8
1,842.0
114.4
108.0 2,018.4
Note
1 Other movements in acquired intangibles include revisions to fair value adjustments arising on the
acquisition of subsidiary undertakings that had been determined provisionally at the immediately
preceding balance sheet date, as permitted by IFRS 3 Business Combinations.
GroupM
Kantar
Wunderman Thompson
VMLY&R
Ogilvy
Burson Cohn & Wolfe
Other
Total goodwill
Goodwill
2019
£m
2,936.0
–
2,138.9
901.0
762.9
741.4
2,690.5
10,170.7
2018
£m
2,942.9
2,522.9
2,118.8
930.4
618.7
714.0
3,355.1
13,202.8
Brands with an
indefinite useful life
2019
£m
–
–
409.7
199.1
211.1
130.2
128.1
1,078.2
2018
£m
–
–
424.8
206.6
219.1
135.4
146.9
1,132.8
Other goodwill represents goodwill on a large number of cash-generating
units, none of which is individually significant in comparison to the total
carrying value of goodwill.
Separately identifiable brands with an indefinite life are carried at historical
cost in accordance with the Group’s accounting policy for intangible assets.
The carrying values of the other brands with an indefinite useful life are not
individually significant in comparison with the total carrying value of brands
with an indefinite useful life.
Acquired intangible assets at net book value at 31 December 2019 include
brand names of £218.6 million (2018: £361.2 million), customer-related
intangibles of £100.6 million (2018: £220.6 million), and other assets (including
proprietary tools) of £4.4 million (2018: £13.0 million).
The total amortisation and impairment of acquired intangible assets of
£121.5 million (2018: £201.8 million) includes an impairment charge of
£26.5 million (2018: £89.1 million) comprising £21.4 million in regard to certain
brand names that are no longer in use, including £13.2 million for brands with
an indefinite life and £5.1 million in regard to customer relationships where
the underlying clients have been lost. £13.2 million of the impairment charge
relates to the Public Relations segment, £13.0 million of the impairment charge
relates to the Global Integrated Agencies segment, and £0.3 million relates
to the Specialist Agencies segment. In addition, the total amortisation
and impairment of acquired intangible assets includes £5.6 million (2018:
£3.7 million) in relation to associates.
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.
163
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 14. INTANGIBLE ASSETS CONTINUED
The impairment review is undertaken annually on 30 September. The goodwill
impairment charge of £47.7 million (2018: £183.9 million) relates to a number of
under-performing businesses in the Group. In certain markets, the impact of
local economic conditions and trading circumstances on these businesses was
sufficiently severe to indicate impairment to the carrying value of goodwill.
In 2018, the goodwill impairment charge primarily relates to a charge of
£148.0 million on VMLY&R with the remaining £35.9 million relating to a number
of under-performing businesses in the Group.
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 of 8.5% (2018: 9.0%), and assumed a long-term growth rate of 3.0%
(2018: 3.0%). The pre-tax discount rate of 8.5% was above the range of rates
calculated for each of the global networks and for smaller cash-generating
units that operate primarily in a particular region where we calculated a
discount rate to be higher than 8.5%, 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
of 3.0% (2018: 3.0%). 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, giving a range of pre-tax discount rates from 4.1% to
13.6% (2018: 6.2% to 16.3%).
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, ranging from 6.3% to 7.4% (2018: 8.0% to 8.7%). The cash-
generating units were initially tested for impairment in the first step using
a conservative discount rate of 8.5% (2018: 9.0%).
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.
164
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.
15. PROPERTY, PLANT AND EQUIPMENT
The movements in 2019 and 2018 were as follows:
Freehold
buildings
£m
Leasehold
buildings
£m
Land
£m
Fixtures,
fittings and
equipment
£m
Computer
equipment
£m
Total
£m
Cost
1 January 2018
Additions
New acquisitions
Disposals
Exchange adjustments
31 December 2018
Additions
New acquisitions
Disposals
Transfer to disposal
group classified as
held for sale
Exchange adjustments
31 December 2019
Depreciation
1 January 2018
Charge for the year
Disposals
Exchange adjustments
31 December 2018
Charge for the year
Disposals
Transfer to disposal
group classified as
held for sale
Exchange adjustments
31 December 2019
Net book value
31 December 2019
31 December 2018
1 January 2018
37.1
–
–
–
–
37.1
–
–
–
118.8
17.7
0.1
–
(1.1)
135.5
33.7
–
(109.0)
1,081.8
161.4
0.9
(83.5)
41.8
1,202.4
158.5
–
(167.3)
(2.8)
–
34.3
(17.1)
(16.9)
26.2
(98.1)
(46.7)
1,048.8
–
–
–
–
–
–
–
–
–
–
28.5
3.1
–
(4.5)
27.1
1.5
(7.2)
(15.6)
(1.6)
4.2
526.1
91.5
(74.6)
24.3
567.3
79.9
(129.9)
(56.1)
(17.9)
443.3
377.2
49.9
1.2
(62.9)
9.9
375.3
35.0
0.1
(68.3)
(115.2)
(14.5)
212.4
236.9
44.4
(58.0)
6.4
229.7
36.3
(59.9)
(81.7)
(13.2)
111.2
85.8
0.9
(109.3)
10.0
703.0 2,317.9
314.8
3.1
(255.7)
60.6
690.4 2,440.7
294.9
0.1
(420.9)
67.7
–
(76.3)
(464.7)
(231.5)
(26.4)
(104.5)
423.9 1,745.6
86.1
(107.9)
8.5
546.9 1,338.4
225.1
(240.5)
34.7
533.6 1,357.7
185.5
(271.5)
67.8
(74.5)
(192.6)
(23.4)
310.9
(346.0)
(56.1)
869.6
34.3
37.1
37.1
22.0
108.4
90.3
605.5
635.1
555.7
101.2
145.6
140.3
113.0
876.0
156.8 1,083.0
979.5
156.1
At 31 December 2019, capital commitments contracted, but not provided
for in respect of property, plant and equipment, were £165.0 million
(2018: £28.4 million). The increase is due to a number of significant property
developments in North America, UK and Western Continental Europe.
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 16. INTERESTS IN ASSOCIATES, JOINT VENTURES AND OTHER
INVESTMENTS
The movements in 2019 and 2018 were as follows:
The Group’s principal associates and joint ventures at 31 December 2019
included:
1 January 2018
Additions
Share of results of associate undertakings
Dividends
Other movements
Reclassification from other investments to associates
Exchange adjustments
Disposals
Reclassification to subsidiaries
Revaluation of other investments through profit or loss
Revaluation of other investments through other
comprehensive income
Amortisation of other intangible assets
Write-downs
31 December 2018
Additions
Share of results of associate undertakings
Dividends
Other movements
Exchange adjustments
Disposals
Reclassification to subsidiaries
Revaluation of other investments through profit or loss
Revaluation of other investments through other
comprehensive income
Amortisation of other intangible assets
Transfer to disposal group classified as held for sale
Write-downs
31 December 2019
Interests in
associates
and joint
ventures
£m
1,065.2
16.7
43.5
(49.7)
1.2
0.3
12.9
(304.0)
16.9
–
Other
investments
£m
1,153.5
35.0
–
–
–
(0.3)
–
(341.7)
–
68.1
–
(4.2)
(2.0)
796.8
236.6
21.2
(33.3)
1.2
(35.5)
(51.5)
(0.3)
–
–
(5.6)
(109.1)
(7.5)
813.0
(247.9)
–
–
666.7
18.3
–
–
–
–
(42.3)
–
9.1
(141.4)
–
(12.1)
–
498.3
The investments included above as "other investments" represent investments
in equity securities that present the Group with opportunity for return through
dividend income and trading gains. They have no fixed maturity or coupon
rate. The fair values of the listed securities are based on quoted market prices.
For unlisted securities, where market value is not available, the Group has
estimated relevant fair values on the basis of publicly available information
from outside sources.
The carrying values of the Group’s associates and joint ventures are reviewed
for impairment in accordance with the Group’s accounting policies.
The fair value of other investments represents valuations as at 31 December
2019 and does not consider the impact of the emergence and spread of the
Covid-19 virus.
Barrows Design and Manufacturing (Pty) Limited
Dat Viet VAC Media Corporation
GIIR Inc.
Haworth Marketing & Media Company
High Co SA
Joye Media SL1
Nanjing Yindu Ogilvy Advertising Co. Ltd
Smollan Holdings (Pty) Ltd
Summer (BC) JVCo S.à r.l.2
Summer (BC) US JVCo SCSp2
%
owned
35.0
30.0
30.0
49.0
34.1
22.5
49.0
24.8
40.0
40.0
Country of
incorporation
South Africa
Vietnam
Korea
USA
France
Spain
China
South Africa
Luxembourg
Luxembourg
Notes
1 Representing the Group's interest in Imagina.
2 Representing the Group's interest in Kantar split between the United States and rest of world.
The market value of the Group’s shares in its principal listed associate
undertakings at 31 December 2019 was as follows: GIIR Inc: £21.2 million,
and High Co SA: £39.4 million (2018: GIIR Inc: £26.3 million and High Co SA:
£30.3 million). The carrying value (including goodwill and other intangibles)
of these equity interests in the Group’s consolidated balance sheet at
31 December 2019 was as follows: GIIR Inc: £37.7 million and High Co SA:
£35.4 million (2018: GIIR Inc: £46.8 million and High Co SA: £37.1 million).
Where the market value of the Group’s listed associates is less than the
carrying value, an impairment review is performed utilising the discounted
cash flow methodology discussed in note 14, which represents the value
in use.
The Group’s investments in its principal associate undertakings are
represented by ordinary shares.
SUMMARISED FINANCIAL INFORMATION
The following tables present a summary of the aggregate financial
performance and net asset position of the Group’s associate undertakings and
joint ventures. These have been estimated and converted, where appropriate,
to an IFRS presentation based on information provided by the relevant
companies at 31 December 2019.
Income statement
Revenue
Operating profit
Profit before taxation
Profit for the year
Balance sheet
Assets
Liabilities
Net assets
2019
£m
2018
£m
2017
£m
3,619.1
365.6
(385.9)
(429.6)
3,685.8
378.4
194.7
118.1
3,800.8
440.4
381.9
312.5
8,855.1
(6,765.7)
2,089.4
2,940.9
(1,570.6)
1,370.3
3,192.9
(1,633.7)
1,559.2
The application of equity accounting is ordinarily discontinued when the
investment is reduced to zero and additional losses are not provided for
unless the Group has guaranteed obligations of the investee or is otherwise
committed to provide further financial support for the investee.
At 31 December 2019, capital commitments contracted, but not provided for,
in respect of interests in associates and other investments were £21.8 million
(2018: £31.4 million).
165
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 17. DEFERRED TAX
The Group's deferred tax assets and liabilities are measured at the end of each
period in accordance with IAS 12 Income Taxes. The recognition of deferred
tax assets is determined by reference to the Group's estimate of recoverability,
using models where appropriate to forecast future taxable profits.
Deferred tax assets have only been recognised for territories where the Group
considers that it is probable that all or a portion of the deferred tax assets will
be realised. 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.
Certain deferred tax assets and liabilities have been offset as they relate to the same tax group. The following is the analysis of the deferred tax balances for
financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
Gross
2019
£m
430.9
(622.8)
(191.9)
Offset
2019
£m
(243.0)
243.0
–
As
reported
2019
£m
187.9
(379.8)
(191.9)
Gross
2018
£m
412.0
(738.5)
(326.5)
Offset
2018
£m
As
reported
2018
£m
(259.0)
153.0
259.0
–
(479.5)
(326.5)
The following are the major gross deferred tax assets recognised by the Group and movements thereon in 2019 and 2018:
Deferred
compensation
£m
Accounting
provisions
and accruals
£m
Retirement
benefit
obligations
£m
Property,
plant and
equipment
£m
Tax losses
and credits
£m
Share-based
payments
£m
Restructuring
provisions
£m
Other
temporary
differences
£m
1 January 2018
Acquisition of subsidiaries
Credit/(charge) to income
Charge to other comprehensive income
Charge to equity
Exchange differences
31 December 2018
(Charge)/credit to income
Charge to other comprehensive income
Credit to equity
Transfer to disposal group
classified as held for sale
Exchange differences
31 December 2019
53.5
–
4.7
–
–
3.4
61.6
(1.7)
–
–
(4.2)
(2.2)
53.5
84.9
–
13.0
–
–
3.5
101.4
10.2
–
–
(19.2)
(5.0)
87.4
75.6
–
(11.2)
(0.2)
–
4.3
68.5
6.7
(3.2)
–
(12.3)
(2.2)
57.5
68.4
–
(20.6)
–
–
0.1
47.9
19.4
–
27.8
(13.6)
3.2
84.7
72.7
–
(8.9)
–
–
3.3
67.1
24.2
–
–
(3.0)
(2.0)
86.3
33.0
–
(15.3)
–
(1.6)
0.7
16.8
2.9
–
3.1
(0.7)
(0.6)
21.5
5.8
–
10.7
–
–
0.8
17.3
12.5
–
–
(3.4)
(0.6)
25.8
17.9
2.0
11.0
–
–
0.5
31.4
(16.6)
–
–
0.1
(0.7)
14.2
Total
£m
411.8
2.0
(16.6)
(0.2)
(1.6)
16.6
412.0
57.6
(3.2)
30.9
(56.3)
(10.1)
430.9
Other temporary differences comprise a number of items including tax deductible goodwill, none of which is individually significant to the Group's consolidated
balance sheet. At 31 December 2019 the balance related to temporary differences in relation to revenue adjustments, tax deductible goodwill, fair value
adjustments, and other temporary differences.
166
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019
In addition the Group has recognised the following gross deferred tax liabilities and movements thereon in 2019 and 2018:
1 January 2018
Acquisition of subsidiaries
(Credit)/charge to income
Charge to other comprehensive income
Exchange differences
31 December 2018
Acquisition of subsidiaries
(Credit)/charge to income
Credit to other comprehensive income
Transfer to disposal group classified as held for sale
Exchange differences
31 December 2019
Brands
and other
intangibles
£m
Associate
earnings
£m
489.2
10.7
(68.8)
–
7.5
438.6
0.8
(31.2)
–
(46.6)
(9.3)
352.3
21.6
–
(3.9)
–
(0.1)
17.6
–
68.6
–
(7.9)
(1.8)
76.5
Goodwill
£m
140.4
–
31.8
–
10.1
182.3
–
10.3
–
(51.7)
(5.5)
135.4
Property,
plant and
equipment
£m
Financial
instruments
£m
Other
temporary
differences
£m
Total
£m
21.2
–
(0.3)
–
1.3
22.2
–
(22.2)
–
–
–
–
36.2
–
(0.9)
–
4.6
39.9
–
(0.7)
–
–
(2.3)
36.9
56.6
765.2
–
10.7
(20.7)
(62.8)
0.5
1.5
0.5
24.9
37.9
738.5
–
(6.7)
(9.6)
0.8
18.1
(9.6)
0.6
(105.6)
(0.5)
(19.4)
21.7
622.8
At the balance sheet date, the Group has gross tax losses and other temporary
differences of £6,475.6 million (2018: £6,638.6 million) available for offset
against future profits. Deferred tax assets have been recognised in respect of
the tax benefit of £1,856.6 million (2018: £1,763.4 million) of such tax losses and
other temporary differences. No deferred tax asset has been recognised in
respect of the remaining £4,619.0 million (2018: £4,875.2 million) of losses and
other temporary differences as the Group considers that there will not be
enough taxable profits in the entities concerned such that any additional
asset could be considered recoverable. Included in the total unrecognised
temporary differences are losses of £60.7 million (2018: £46.4 million) that will
expire within 1-10 years, and £4,437.6 million (2018: £4,572.6 million) of losses
that may be carried forward indefinitely.
At the balance sheet date, the aggregate amount of the temporary differences
in relation to the investment in subsidiaries for which deferred tax liabilities have
not been recognised was £2,165.3 million (2018: £1,768.5 million). No liability
has been recognised in respect of these differences because the Group is in a
position to control the timing of the reversal of the temporary differences and
the Group considers that it is probable that such differences will not reverse in
the foreseeable future.
167
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 18. TRADE AND OTHER RECEIVABLES
The following are included in trade and other receivables:
Amounts falling due within one year
Trade receivables (net of bad debt provision)
Work in progress
VAT and sales taxes recoverable
Prepayments
Accrued income
Fair value of derivatives
Other debtors
2019
£m
2018
£m
7,007.6 8,062.2
349.5
212.7
287.1
366.5
264.2
287.3
3,292.7
3,541.2
1.4
1.3
671.3
578.8
11,822.3 13,101.5
The ageing of trade receivables and other financial assets by due date is
as follows:
Days past due
Carrying
amount at
31 December
2019
£m
Not past
due
£m
0-30
days
£m
31-90
days
£m
91-180
days
£m
181
days-
1 year
£m
Greater
than
1 year
£m
7,007.6 5,553.3
934.9 341.0
92.1
22.4
63.9
582.5
357.6
129.9
48.3
16.2
5.2
7,590.1
5,910.9 1,064.8 389.3 108.3
27.6
25.3
89.2
2019
Trade receivables
Other financial
assets
Days past due
2018
Trade receivables
Other financial
assets
Carrying
amount at
31 December
2018
£m
8,062.2
Not past
due
£m
31-90
days
£m
5,873.7 1,370.7 549.1
0-30
days
£m
91-180
days
£m
128.3
181
days-
1 year
£m
75.6
Greater
than
1 year
£m
64.8
551.7
8.6
8,613.9 6,298.6 1,432.0 563.3 136.9
424.9
14.2
61.3
7.7
83.3
35.0
99.8
Other financial assets are included in other debtors.
Past due amounts are not impaired where collection is considered likely.
Bad debt provisions
At beginning of year
New acquisitions
Charged to the income statement
Released to the income statement
Exchange adjustments
Transfer to disposal group classified as held for sale
Utilisations and other movements
At end of year
2019
£m
2018
£m
116.6
5.0
45.4
(19.0)
(4.1)
(8.9)
(23.3)
111.7
91.3
1.5
66.7
(11.6)
2.1
–
(33.4)
116.6
The allowance for bad and doubtful debts is equivalent to 1.6% (2018: 1.4%)
of gross trade accounts receivables.
Impairment losses on work in progress and accrued income were immaterial
for the years presented.
The Group considers that the carrying amount of trade and other receivables
approximates their fair value.
19. TRADE AND OTHER PAYABLES: AMOUNTS FALLING DUE WITHIN
ONE YEAR
The following are included in trade and other payables falling due within
one year:
Trade payables
Deferred income
Payments due to vendors (earnout agreements)
Liabilities in respect of put option agreements with
vendors
Fair value of derivatives
Share repurchases – close period commitments1
Other creditors and accruals
2019
£m
2018
£m
10,112.1 10,524.3
1,253.6
1,024.6
148.2
142.4
36.8
75.4
2.6
1.5
–
252.3
3,072.9
2,578.5
14,186.8 15,038.4
Note
1 During 2019, the Company entered into an arrangement with a third party to conduct share
buybacks on its behalf in the close period commencing on 2 January 2020 and ending on 27
February 2020, in accordance with UK listing rules. The commitment resulting from this
agreement constitutes a liability at 31 December 2019, which is included in Trade and other
payables: amounts falling due within one year and has been recognised as a movement in equity.
2019
£m
2018
£m
The Group considers that the carrying amount of trade and other payables
approximates their fair value.
Amounts falling due after more than one year
Prepayments
Accrued income
Fair value of derivatives
Other debtors
2.2
–
–
135.4
137.6
3.0
16.5
8.4
152.1
180.0
The Group has applied the practical expedient permitted by IFRS 15 to not
disclose the transaction price allocated to performance obligations unsatisfied
(or partially unsatisfied) as of the end of the reporting period as contracts
typically have an original expected duration of a year or less.
168
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 20. TRADE AND OTHER PAYABLES: AMOUNTS FALLING DUE AFTER
MORE THAN ONE YEAR
The following are included in trade and other payables falling due after more
than one year:
21. BANK OVERDRAFTS, BONDS AND BANK LOANS
Amounts falling due within one year:
Payments due to vendors (earnout agreements)
Liabilities in respect of put option agreements with vendors
Fair value of derivatives
Other creditors and accruals
2019
£m
111.4
151.4
21.2
199.3
483.3
2018
£m
266.5
205.2
14.2
355.5
841.4
The Group considers that the carrying amount of trade and other payables
approximates their fair value.
The following tables set out payments due to vendors, comprising
contingent consideration and the Directors’ best estimates of future
earnout-related obligations:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
At beginning of year
Earnouts paid
New acquisitions
Revision of estimates taken to goodwill (note 14)
Revaluation of payments due to vendors
Transfer to disposal group classified as held for sale
Exchange adjustments
At end of year
2019
£m
142.4
36.9
37.5
14.8
9.7
12.5
253.8
2019
£m
414.7
(130.0)
9.6
(14.3)
1.1
(11.5)
(15.8)
253.8
2018
£m
148.2
140.2
38.5
50.3
20.4
17.1
414.7
2018
£m
630.7
(120.2)
48.6
(68.3)
(82.6)
–
6.5
414.7
As of 31 December 2019, the potential undiscounted amount of future payments
that could be required under the earnout agreements for acquisitions completed
in the current year and for all earnout agreements ranges from £nil to £14 million
(2018: £nil to £179 million) and £nil to £1,110 million (2018: £nil to £1,960 million),
respectively. The decrease in the maximum potential undiscounted amount of
future payments for all earnout agreements is due to earnout arrangements
that have completed and payments made on active arrangements during the
year, disposal related to the Kantar sale and exchange adjustments, partially
offset by earnout arrangements related to new acquisitions.
Bank overdrafts
Corporate bonds and bank loans
2018
2019
£m
£m
442.0
235.7
583.1
225.6
461.3 1,025.1
The Group considers that the carrying amount of bank overdrafts
approximates their fair value.
Amounts falling due after more than one year:
Corporate bonds and bank loans
2019
£m
2018
£m
4,047.3 5,634.8
The Group estimates that the fair value of corporate bonds is £4,439.8 million
at 31 December 2019 (2018: £5,965.7 million). The fair values of the corporate
bonds are based on quoted market prices.
The Group considers that the carrying amount of bank loans of £110.4 million
(2018: £186.8 million) approximates their fair value.
The corporate bonds, bank loans and overdrafts included within liabilities fall
due for repayment as follows:
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
2019
£m
2018
£m
461.3 1,025.1
423.8
96.4
761.0
590.4
609.8
632.1
670.1
554.3
3,170.1
2,174.1
4,508.6 6,659.9
22. PROVISIONS FOR LIABILITIES AND CHARGES
The movements in 2019 and 2018 were as follows:
1 January 2018
Charged to the income statement1
Acquisitions2
Utilised
Released to the income statement
Other movements
Exchange adjustments
31 December 2018
Charged to the income statement
Acquisitions2
Utilised
Released to the income statement
Other movements3
Transfer to disposal group classified as held for sale
Exchange adjustments
31 December 2019
Property
£m
52.6
72.1
0.5
(5.7)
(5.7)
2.0
2.9
118.7
39.5
–
(1.2)
(10.3)
(58.4)
(6.2)
(0.6)
81.5
Other
£m
176.4
13.9
8.3
(20.1)
(4.6)
10.9
8.2
193.0
7.6
0.7
(12.2)
(6.9)
9.2
(18.4)
(6.7)
166.3
Total
£m
229.0
86.0
8.8
(25.8)
(10.3)
12.9
11.1
311.7
47.1
0.7
(13.4)
(17.2)
(49.2)
(24.6)
(7.3)
247.8
Notes
1 Amounts charged to the income statement in 2018 include £50.6 million in regard to
transformation costs with respect to the strategic initiative of co-locations in major cities.
2 Acquisitions include £0.7 million (2018: £8.4 million) of provisions arising from revisions to fair value
adjustments related to the acquisition of subsidiary undertakings that had been determined
provisionally at the immediately preceding balance sheet date, as permitted by IFRS 3 Business
Combinations.
3 Other movements include transfers of property provisions related to property leases which are
now recognised in right-of-use assets, increases of certain property-related liabilities and certain
long-term employee benefits.
The Company and various of its subsidiaries are, from time to time, parties to
legal proceedings and claims which arise in the ordinary course of business.
The Directors do not anticipate that the outcome of these proceedings and
claims will have a material adverse effect on the Group’s financial position or
on the results of its operations.
169
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 23. SHARE-BASED PAYMENTS
Charges for share-based incentive plans were as follows:
Continuing operations
Share-based payments
2019
£m
66.0
20181
£m
78.3
20171
£m
98.3
Note
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.
Share-based payments comprise charges for stock options and restricted
stock awards to employees of the Group.
As of 31 December 2019, there was £140.7 million (2018: £146.0 million) of total
unrecognised compensation cost related to the Group’s restricted stock plans.
That cost is expected to be recognised over an average period of one to
two years.
Further information on stock options is provided in note 28.
RESTRICTED STOCK PLANS
The Group operates a number of equity-settled share incentive schemes, in
most cases satisfied by the delivery of stock from one of the Group’s ESOP
Trusts. The most significant current schemes are as follows:
EXECUTIVE PERFORMANCE SHARE PLAN (EPSP)
This scheme is intended to reward and incentivise the most senior executives
of the Group. The performance period is five complete financial years,
commencing with the financial year in which the award is granted. The vest
date will usually be in the March following the end of the five-year
performance period. Vesting is conditional on continued employment
throughout the vesting period.
The 2019 EPSP awards are subject to a relative TSR performance condition,
with a Return on Invested Capital (ROIC) underpin. TSR performance will
be compared to companies representing the most relevant, listed global
competitors, with performance below median resulting in zero vesting.
Performance between median and upper decile provides for a vesting
opportunity of between 15% and 100%. The awards will vest subject to
a ROIC underpin of an average of 7.5% over the performance period.
The Compensation Committee has an overriding discretion to determine
the extent to which the award will vest.
For EPSP awards granted between 2013 and 2018 there are three performance
criteria, each constituting one-third of the vesting value, and each measured
over this five-year period:
(i) TSR against a comparator group of companies. Threshold performance
(equating to ranking in the 50th percentile of the comparator group) will
result in 20% vesting of the part of the award dependent on TSR. The
maximum vest of 100% will arise if performance ranks in the 90th
percentile, with a sliding scale of vesting for performance between
threshold and maximum.
(ii) Headline diluted earnings per share. Threshold performance (7% compound
annual growth) will again result in a 20% vest. Maximum performance of
14% compound annual growth will give rise to a 100% vest, with a sliding
vesting scale for performance between threshold and maximum.
(iii) Return on equity (ROE). Average annual ROE defined as headline diluted
EPS divided by the balance sheet value per share of shareholders’ equity.
Threshold performance ranges between 10-14% average annual ROE and
maximum performance ranges between 14-18%, with a sliding scale in
between. Threshold again gives rise to a 20% vest, 100% for maximum,
with a sliding scale in between.
PERFORMANCE SHARE AWARDS (PSA)
Conditional stock awards made under the PSA are dependent upon annual
performance targets, typically based on one or more of: operating profit,
profit before taxation and operating margin. Grants are made in the year
following the year of performance measurement, and vest two years after
grant date provided the individual concerned is continually employed by the
Group throughout this time.
LEADERS, PARTNERS AND HIGH POTENTIAL GROUP
This scheme makes annual conditional stock awards to approximately 1,500
key executives of the Group. Vesting is conditional on continued employment
over the three-year vesting period.
VALUATION METHODOLOGY
For all of these schemes, the valuation methodology is based upon fair value
on grant date, which is determined by the market price on that date or the
application of a Black-Scholes model, depending upon the characteristics of
the scheme concerned. The assumptions underlying the Black-Scholes model
are detailed in note 28, including details of assumed dividend yields. Market
price on any given day is obtained from external, publicly available sources.
MARKET/NON-MARKET CONDITIONS
Most share-based plans are subject to non-market performance conditions,
such as margin or growth targets, as well as continued employment. EPSP
is subject to a number of performance conditions, including TSR, a market-
based condition.
For schemes without market-based performance conditions, the valuation
methodology above is applied and, at each year-end, the relevant accrual for
each grant is revised, if appropriate, to take account of any changes in
estimate of the likely number of shares expected to vest.
For schemes with market-based performance conditions, the probability
of satisfying these conditions is assessed at grant date through a statistical
model (such as the Monte Carlo model) and applied to the fair value. This initial
valuation remains fixed throughout the life of the relevant plan, irrespective
of the actual outcome in terms of performance. Where a lapse occurs due to
cessation of employment, the cumulative charge taken to date is reversed.
Movement on ordinary shares granted for significant restricted stock plans:
Non-
vested
1 January
2019
number
m
6.7
2.3
9.1
Granted
number
m
Lapsed
number
m
Vested
number
m
Non‑
vested 31
December
2019
number
m
4.2
1.7
4.1
(1.3)
(0.8)
(0.4)
(1.0)
(1.9)
(2.0)
8.8
2.6
9.3
1,363p
989p
1,334p
1,265p
1,198p
1,437p
926p
1,210p
1,572p
1,081p
1,154p
909p
1,076p
1,551p
974p
Executive Performance
Share Plan (EPSP)
Performance Share
Awards (PSA)
Leaders, Partners and
High Potential Group
Weighted average fair
value (pence per share)
Executive Performance
Share Plan (EPSP)
Performance Share
Awards (PSA)
Leaders, Partners and
High Potential Group
The total fair value of shares vested for all the Group’s restricted stock plans
during the year ended 31 December 2019 was £90.8 million (2018: £107.2 million,
2017: £114.8 million).
170
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 24. PROVISION FOR POST-EMPLOYMENT BENEFITS
Companies within the Group operate a large number of pension plans, the
forms and benefits of which vary with conditions and practices in the countries
concerned. The Group’s pension costs are analysed as follows:
Continuing operations
Defined contribution plans
Defined benefit plans charge to operating profit
Pension costs (note 5)
Net interest expense on pension plans (note 6)
2019
£m
154.9
14.8
169.7
3.5
173.2
20181
£m
146.7
14.2
160.9
3.6
164.5
20171
£m
149.5
11.8
161.3
5.4
166.7
Note
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.
DEFINED BENEFIT PLANS
The pension costs are assessed in accordance with the advice of local
independent qualified actuaries. The latest full actuarial valuations for the
various pension 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. Valuations are as at 31 December 2019 and do not consider the impact of
the emergence and spread of the Covid-19 virus.
The Group’s policy is to close existing defined benefit plans to new members.
This has been implemented across a significant number of the pension plans.
Contributions to funded plans are 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.
(A) ASSUMPTIONS
There are a number of areas in pension accounting that involve estimates
made by management based on advice of qualified advisors. These include
establishing the discount rates, rates of increase in salaries and pensions in
payment, inflation, and mortality assumptions. The main weighted average
assumptions used for the actuarial valuations at 31 December are shown in
the following table:
For the Group’s pension plans, the plans’ assets are invested with the
objective of being able to meet current and future benefit payment needs
while controlling balance sheet volatility and future contributions. Pension
plan assets are invested with a number of investment managers, and assets
are diversified among equities, bonds, insured annuities, property and cash or
other liquid investments. The primary use of bonds as an investment class is to
match the anticipated cash flows from the plans to pay pensions. The Group is
invested in high-quality corporate and government bonds which share similar
risk characteristics and are of equivalent currency and term to the plan
liabilities. Various insurance policies have also been bought historically to
provide a more exact match for the cash flows, including a match for the
actual mortality of specific plan members. These insurance policies effectively
provide protection against both investment fluctuations and longevity risks.
The strategic target allocation varies among the individual plans.
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.
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.
At 31 December 2019, the life expectancies underlying the value of the accrued
liabilities for the main defined benefit pension plans operated by the Group
were as follows:
Years life expectancy after age 65
Current pensioners
(at age 65) – male
Current pensioners
(at age 65) – female
Future pensioners
(current age 45)
– male
Future pensioners
(current age 45)
– female
All
plans
North
America
Western
Continental
UK
Europe Other1
22.2
21.9
23.1
20.8
14.0
23.7
23.3
24.1
23.9
17.4
23.8
23.4
24.7
23.2
14.0
25.4
24.9
25.9
26.0
17.4
2019
% pa
2018
% pa
2017
% pa
2016
% pa
Note
1 Includes Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe.
UK
Discount rate1
Rate of increase in salaries2
Rate of increase in pensions in payment
Inflation
North America
Discount rate1
Rate of increase in salaries
Inflation
Western Continental Europe
Discount rate1
Rate of increase in salaries
Rate of increase in pensions in payment
Inflation
Asia Pacific, Latin America, Africa &
Middle East and Central & Eastern Europe
Discount rate1
Rate of increase in salaries
Inflation
2.0
n/a
4.4
2.6
3.0
3.0
n/a
1.2
2.2
1.8
1.7
4.6
6.1
3.7
2.8
n/a
4.3
2.8
4.1
3.0
n/a
2.0
2.3
1.2
1.7
5.0
5.8
3.6
2.4
n/a
4.1
2.7
3.5
3.1
4.0
1.9
1.9
1.2
1.7
4.2
5.5
4.0
2.5
3.5
4.1
2.8
3.8
3.1
4.0
1.7
2.0
1.3
1.7
4.2
5.9
4.0
Notes
1 Discount rates are based on high-quality corporate bond yields. In countries where there is no
deep market in corporate bonds, the discount rate assumption has been set with regard to the
yield on long-term government bonds.
2 The salary assumptions are no longer applicable to the UK as the plans were either frozen or
bought out since 2017. Active participants will not accrue additional benefits for future services
under these plans.
The life expectancies after age 65 at 31 December 2018 were 22.2 years and
23.9 years for male and female current pensioners (at age 65) respectively, and
24.0 years and 25.7 years for male and female future pensioners (current age
45), respectively.
In the determination of mortality assumptions, management uses the most
up-to-date mortality tables available in each country.
The following table provides information on the weighted average duration of
the defined benefit pension obligations and the distribution of the timing of
benefit payments for the next 10 years. The duration corresponds to the
weighted average length of the underlying cash flows.
All
plans
North
America
Western
Continental
UK
Europe Other1
11.2
Weighted average duration of the
defined benefit obligation (years)
Expected benefit payments over
the next 10 years (£m)
Benefits expected to be paid within
12 months
51.4
Benefits expected to be paid in 2021 45.4
Benefits expected to be paid in 2022
46.9
Benefits expected to be paid in 2023 44.4
42.3
Benefits expected to be paid in 2024
Benefits expected to be paid in the
next five years
216.1
9.1
13.8
12.7
8.5
25.1
24.5
26.0
22.3
20.9
15.8
12.6
12.7
12.9
13.0
5.8
5.5
5.8
5.7
5.6
4.7
2.8
2.4
3.5
2.8
94.7
67.1
32.6
21.7
Note
1 Includes Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe.
171
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 24. PROVISION FOR POST-EMPLOYMENT BENEFITS CONTINUED
The following table presents a sensitivity analysis for each significant actuarial
assumption showing how the defined benefit obligation would have been
affected by changes in the relevant actuarial assumption that were reasonably
possible at the balance sheet date. This sensitivity analysis applies to the
defined benefit obligation only and not to the net defined benefit pension
liability in its entirety, the measurement of which is driven by a number of
factors including, in addition to the assumptions below, the fair value of
plan assets.
The sensitivity analyses are based on a change in one assumption while
holding all other assumptions constant so that interdependencies between
the assumptions are excluded. The methodology applied is consistent with
that used to determine the recognised defined benefit obligation. The
sensitivity analysis for inflation is not shown as it is an underlying assumption
to build the pension and salary increase assumptions. Changing the inflation
assumption on its own without changing the salary or pension assumptions
will not result in a significant change in pension liabilities.
Sensitivity analysis of significant actuarial assumptions
Discount rate
Increase by 25 basis points:
Increase/(decrease) in
benefit obligation
2018
£m
2019
£m
UK
North America
Western Continental Europe
Other1
Decrease by 25 basis points:
UK
North America
Western Continental Europe
Other1
Rate of increase in salaries
Increase by 25 basis points:
Western Continental Europe
Other1
Decrease by 25 basis points:
Western Continental Europe
Other1
Rate of increase in pensions in payment
Increase by 25 basis points:
UK
Western Continental Europe
Decrease by 25 basis points:
UK
Western Continental Europe
Life expectancy
Increase in longevity by one additional year:
UK
North America
Western Continental Europe
(8.2)
(7.5)
(3.8)
(0.7)
8.5
7.7
3.9
0.7
0.8
0.6
(0.8)
(0.6)
0.7
1.9
(0.6)
(1.9)
11.7
5.9
4.3
(9.8)
(8.8)
(8.7)
(0.7)
10.3
9.1
9.3
0.7
1.3
0.7
(1.2)
(0.6)
1.3
5.3
(0.8)
(5.0)
13.6
5.7
6.9
Note
1 Includes Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe.
(B) ASSETS AND LIABILITIES
At 31 December, the fair value of the assets in the pension plans, and the
assessed present value of the liabilities in the pension plans are shown in the
following table:
Equities
Bonds
Insured annuities1
Property
Cash
Other
Total fair value of assets
Present value of liabilities
Deficit in the plans
Irrecoverable surplus
Net liability2
Plans in surplus
Plans in deficit
2019
£m
55.5
%
9.1
272.5 44.8
39.3
239.1
0.1
0.7
2.9
17.7
3.8
23.0
608.5 100.0
(767.5)
(159.0)
–
(159.0)
20.6
(179.6)
2018
£m
76.5
544.9
90.9
0.9
31.1
96.3
%
9.1
64.8
10.8
0.1
3.7
11.5
840.6 100.0
2017
£m
124.6
520.0
178.5
1.3
9.9
95.7
%
13.4
55.9
19.2
0.1
1.1
10.3
930.0 100.0
(1,024.0)
(183.4)
(0.9)
(184.3)
42.8
(227.1)
(1,135.4)
(205.4)
(0.9)
(206.3)
43.9
(250.2)
Notes
1 The increase in 2019 from 2018 in the amount of assets held in insured annuities is attributable to
the completion of buy-in transactions during 2019 for certain UK plans. The invested assets for
these plans, as at 31 December 2018 consisted of a mixture of equities, bonds, cash and other
assets, were transferred to an insurance company and, in accordance with IAS 19, all assets for
these plans are now classified as insured annuities.
2 The related deferred tax asset is discussed in note 17.
All plan assets have quoted prices in active markets with the exception of
insured annuities and other assets.
Surplus/(deficit) in plans by region
UK
North America
Western Continental Europe
Asia Pacific, Latin America, Africa & Middle East and
Central & Eastern Europe
Deficit in the plans
2019
£m
0.3
(45.2)
(79.4)
2018
£m
33.7
(68.7)
(104.6)
2017
£m
31.5
(89.2)
(107.7)
(34.7)
(159.0)
(43.8)
(183.4)
(40.0)
(205.4)
Some of the Group’s defined benefit plans are unfunded (or largely unfunded)
by common custom and practice in certain jurisdictions. In the case of these
unfunded plans, the benefit payments are made as and when they fall due.
Pre-funding of these plans would not be typical business practice.
The following table shows the split of the deficit at 31 December between
funded and unfunded pension plans.
2019
Surplus/
(deficit)
£m
2019
Present
value of
liabilities
£m
2018
Surplus/
(deficit)
£m
2018
Present
value of
liabilities
£m
2017
Surplus/
(deficit)
£m
2017
Present
value of
liabilities
£m
0.3
12.8
(247.6)
(286.2)
33.7
(4.6)
(290.5)
(375.3)
31.5
(21.4)
(387.5)
(385.4)
(33.3)
(77.6)
(35.8)
(168.4)
(37.9)
(173.3)
(3.6)
(20.9)
(6.6)
(19.7)
(4.2)
(15.8)
(23.8)
(632.3)
(13.3)
(853.9)
(32.0)
(962.0)
(58.0)
(58.0)
(64.1)
(64.1)
(67.8)
(67.8)
(46.1)
(46.1)
(68.8)
(68.8)
(69.8)
(69.8)
(31.1)
(31.1)
(37.2)
(37.2)
(35.8)
(35.8)
(135.2)
(135.2)
(170.1)
(170.1)
(173.4)
(173.4)
(159.0)
(767.5)
(183.4)
(1,024.0)
(205.4)
(1,135.4)
Funded plans by region
UK
North America
Western Continental
Europe
Asia Pacific, Latin
America, Africa &
Middle East and Central
& Eastern Europe
Deficit/liabilities in the
funded plans
Unfunded plans
by region
North America
Western Continental
Europe
Asia Pacific, Latin
America, Africa &
Middle East and Central
& Eastern Europe
Deficit/liabilities in the
unfunded plans
Deficit/liabilities in
the plans
In accordance with IAS 19, plans that are wholly or partially funded are
considered funded plans.
172
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 (C) PENSION EXPENSE
The following table shows the breakdown of the pension expense between
amounts charged to operating profit and amounts charged to finance costs:
(E) MOVEMENT IN PLAN ASSETS
The following table shows an analysis of the movement in the pension plan
assets for each accounting period:
Continuing operations
Service cost2
Administrative expenses
Charge to operating profit
Net interest expense on pension plans
Charge to profit before taxation for defined
benefit plans
2019
£m
12.9
1.9
14.8
3.5
20181
£m
12.0
2.2
14.2
3.6
20171
£m
9.4
2.4
11.8
5.4
18.3
17.8
17.2
Notes
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.
2 Includes current service cost, past service costs related to plan amendments and (gain)/loss on
settlements and curtailments
The following table shows the breakdown of amounts recognised in the
consolidated statement of comprehensive income (OCI):
Return on plan assets (excluding interest income)
Changes in demographic assumptions underlying
the present value of the plan liabilities
Changes in financial assumptions underlying the
present value of the plan liabilities
Experience gain arising on the plan liabilities
Actuarial (loss)/gain recognised in OCI
2019
£m
16.7
2018
£m
(43.9)
2017
£m
13.4
(64.3)
5.1
(36.6)
45.2
3.8
8.9
(17.0)
7.9
17.0
(D) MOVEMENT IN PLAN LIABILITIES
The following table shows an analysis of the movement in the pension plan
liabilities for each accounting period:
Plan liabilities at beginning of year
Service cost1
Interest cost
Actuarial (gain)/loss:
2018
£m
2019
£m
2017
£m
1,024.0 1,135.4 1,209.8
13.0
32.9
14.9
26.2
15.5
30.7
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Benefits paid2
(Gain)/loss due to exchange rate movements
Settlement payments3
Transfer to disposal group classified as held for sale
Other 4
Plan liabilities at end of year
(5.9)
64.3
(5.1)
(140.8)
(22.7)
(47.4)
(148.0)
8.0
(12.7)
(3.8)
17.0
(45.2)
(7.9)
(3.8)
(79.7)
(75.6)
(36.4)
30.0
(1.2)
(70.4)
–
–
0.6
11.2
767.5 1,024.0 1,135.4
Notes
1 Includes current service cost, past service costs related to plan amendments and (gain)/loss on
settlements and curtailments.
2 In 2019, there was an amendment to a US defined benefit plan that allowed certain participants to
receive immediate lump sum pay-outs, which totalled £69.7 million.
3 In 2019 and 2018, the Group completed the transfer of the defined benefit obligations for certain UK
plans to an insurer resulting in £47.1 million and £70.4 million, respectively, in settlement payments.
4 Other includes acquisitions, disposals, plan participants’ contributions and reclassifications. The
reclassifications represent certain of the Group’s defined benefit plans which are included in this
note for the first time in the periods presented.
5.9
3.8
12.7
The reclassifications represent certain of the Group’s defined benefit plans which are included
in this note for the first time in the periods presented.
Fair value of plan assets at beginning of year
Interest income on plan assets
Return on plan assets (excluding interest income)
Employer contributions
Benefits paid1
(Loss)/gain due to exchange rate movements
Settlement payments2
Administrative expenses
Transfer to disposal group classified as held for sale
Other3
Fair value of plan assets at end of year
Actual return on plan assets
2019
£m
840.6
22.4
16.7
37.1
(140.8)
(15.7)
(47.4)
(2.1)
(111.1)
8.8
608.5
39.1
2018
£m
930.0
26.3
(43.9)
44.9
(75.6)
23.0
(70.4)
(3.4)
–
9.7
840.6
(17.6)
2017
£m
934.2
26.6
13.4
68.2
(79.7)
(28.7)
(1.2)
(3.1)
–
0.3
930.0
40.0
Notes
1 In 2019, there was an amendment to a US defined benefit plan that allowed certain participants
to receive immediate lump sum pay-outs, which totalled £69.7 million.
2 In 2019 and 2018, the Group completed the transfer of the defined benefit obligations for certain UK
plans to an insurer resulting in £47.1 million and £70.4 million, respectively, in settlement payments.
3 Other includes acquisitions, disposals, plan participants’ contributions and reclassifications.
25. EVENTS AFTER THE REPORTING PERIOD
In the period since 31 December 2019, the emergence and spread of Covid-19
has impacted the Group and its clients. The coronavirus pandemic is adversely
affecting and is expected to continue to adversely affect our business,
revenues, results of operations, financial condition and prospects.
The Group has approximately £2.0 billion of undrawn credit facilities at
31 December 2019 and has supported this by further action to maintain
liquidity, including the suspension of share buybacks and the 2019 final
dividend. On working capital, we are constantly reviewing 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. Cost reduction and cash conservation measures
have also been taken, including the freezing of new hires, 20% salary and fee
sacrifice for the CEO, Board members, Executive committee members and
employees earning above certain thresholds. Additionally, savings have been
identified on property and IT capital expenditure.
Close to 95% of our people are remote working and maintaining services to our
clients and using creativity to support clients to adjust their communications,
and support governments and NGOs in mitigating the impact of Covid-19.
26. RISK MANAGEMENT POLICIES
FOREIGN CURRENCY RISK
The Group’s results in pounds sterling are subject to fluctuation as a result
of exchange rate movements. The Group does not hedge this translation
exposure to its earnings but does hedge the currency element of its net assets
using foreign currency borrowings, cross-currency swaps and forward foreign
exchange contracts.
The Group effects these currency net asset hedges by borrowing in the same
currencies as the operating (or "functional") currencies of its main operating
units. The majority of the Group’s debt is therefore denominated in US dollars,
pounds sterling and euros. The Group’s borrowings at 31 December 2019
were primarily made up of $1,563 million, £844 million and €2,600 million
(2018: $2,784 million, £1,044 million and €3,200 million). The Group’s average
gross debt during the course of 2019 was $2,509 million, £947 million and
€3,128 million (2018: $3,377 million, £1,039 million and €3,202 million).
The Group’s operations conduct the majority of their activities in their own
local currency and consequently the Group has no significant transactional
foreign exchange exposures arising from its operations. Any significant
cross-border trading exposures are hedged by the use of forward foreign-
exchange contracts. No speculative foreign exchange trading is undertaken.
173
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 26. RISK MANAGEMENT POLICIES CONTINUED
INTEREST RATE RISK
The Group is exposed to interest rate risk on both interest-bearing assets and
interest-bearing liabilities. The Group has a policy of actively managing its
interest rate risk exposure while recognising that fixing rates on all its debt
eliminates the possibility of benefiting from rate reductions and similarly, having
all its debt at floating rates unduly exposes the Group to increases in rates.
Including the effect of interest rate and cross-currency swaps, 100% of the
year-end US dollar debt is at fixed rates averaging 4.06% for an average period
of 95 months; 100% of the sterling debt is at a fixed rate of 2.73% for an average
period of 188 months; 80.8% of the euro debt is at fixed rates averaging 2.34%
for an average period of 82 months and 19.2% of the euro debt is at floating
rates averaging 0.06% for an average of 16 months.
GOING CONCERN AND LIQUIDITY RISK
In considering going concern and liquidity risk, the Directors have reviewed
the Group’s future cash requirements and earnings projections. The Directors
believe these forecasts have been prepared on a prudent basis and have also
considered the impact of a range of potential changes to trading performance.
The Company’s forecasts and projections, taking account of (i) reasonably
possible declines in revenue less pass-through costs; (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; and
considering the Group's bank covenant and liquidity headroom taking into
account the suspension of share buybacks and the final dividend in 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 have concluded that the
Group should be able to operate within its current facilities and comply with
its banking covenants for the foreseeable future and therefore believe it is
appropriate to prepare the financial statements of the Group on a going
concern basis. The potential impact of Brexit has been considered and is
not deemed to have a significant effect on this assessment.
At 31 December 2019, the Group has access to £6.3 billion of committed facilities with maturity dates spread over the years 2020 to 2046 as illustrated below:
£ bonds £400m (2.875% 2046)
US bond $220m (5.625% 2043)
US bond $93m (5.125% 2042)
Eurobonds €600m (1.625% 2030)
Eurobonds €750m (2.25% 2026)
Eurobonds €500m (1.375% 2025)
US bond $750m (3.75% 2024)
Bank revolver ($2,500m 2024)
Eurobonds €750m (3.0% 2023)
US bond $500m (3.625% 2022)
Eurobonds €250m (3m EURIBOR + 0.45% 2022)
Bank revolver (A$150m ’20, A$270m 2021)
Eurobonds €250m (3m EURIBOR + 0.32% 2020)
Total committed facilities available
Drawn down facilities at 31 December 2019
Undrawn committed credit facilities
Drawn down facilities at 31 December 2019
Net cash at 31 December 2019
Other adjustments
Net debt at 31 December 2019
2020
£m
2021
£m
2022
£m
2023
£m
2024+
£m
400.0
165.8
70.0
507.9
634.9
423.3
565.5
1,884.9
634.9
377.0
211.6
79.4
211.6
291.0
216.9
143.0
143.0
96.4
588.6
588.6
634.9
634.9
4,652.3
2,767.4
400.0
165.8
70.0
507.9
634.9
423.3
565.5
1,884.9
634.9
377.0
211.6
222.4
211.6
6,309.8
4,304.2
2,005.6
4,304.2
(2,733.3)
(31.3)
1,539.6
Given the strong cash generation of the business, its debt maturity profile and
available facilities, the Directors believe the Group has sufficient liquidity to
match its requirements for the foreseeable future.
TREASURY ACTIVITIES
Treasury activity is managed centrally from London, New York and Hong Kong,
and is principally concerned with the monitoring of working capital, managing
external and internal funding requirements and the monitoring and
management of financial market risks, in particular interest rate and foreign
exchange exposures.
The treasury operation is not a profit centre and its activities are carried out in
accordance with policies approved by the Board of Directors and subject to
regular review and audit.
CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that entities in the Group will be able
to continue as a going concern while maximising the return to stakeholders
through the optimisation of the debt and equity balance. The capital structure
of the Group consists of debt, which includes the borrowings disclosed in note
10, cash and cash equivalents and equity attributable to equity holders of the
parent, comprising issued capital, reserves and retained earnings as disclosed
in the consolidated statement of changes in equity and in notes 28 and 29.
Given the significant uncertainty over the coming months generated by the
emergence and spread of Covid-19, the Group continues to monitor its capital
structure. Our bond portfolio at the 31 December 2019 had an average maturity
of 8.2 years, with only a May 2020 €250 million Eurobond due in the next
two years.
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 average net debt are set on an
annual basis and, to assist in meeting this, working capital targets are set for
all the Group’s major operations.
174
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 CREDIT RISK
The Group’s principal financial assets are cash and short-term deposits, trade
and other receivables and investments, the carrying values of which represent
the Group’s maximum exposure to credit risk in relation to financial assets, as
shown in note 27.
The Group’s credit risk is primarily attributable to its trade receivables. The
majority of the Group’s trade receivables are due from large national or
multinational companies where the risk of default is considered low. The
amounts presented in the consolidated balance sheet are net of allowances
for doubtful receivables, estimated by the Group’s management based on
expected losses, prior experience and their assessment of the current
economic environment. A relatively small number of clients make up a
significant percentage of the Group’s debtors, but no single client represents
more than 5% of total trade receivables as at 31 December 2019.
The credit risk on liquid funds and derivative financial instruments is limited
because the counterparties are banks with high credit ratings assigned by
international credit-rating agencies or banks that have been financed by
their government.
A relatively small number of clients contribute a significant percentage of
the Group’s consolidated revenues. The Group’s clients generally are able to
reduce advertising and marketing spending or cancel projects at any time
for any reason. There can be no assurance that any of the Group’s clients will
continue to utilise the Group’s services to the same extent, or at all, in the
future. 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.
Following the emergence and spread of Covid-19 in 2020, the Group continues
to work closely with our clients to ensure timely payment for the services we
have provided in line with contractual commitments. The Group constantly
reviewing cash outflows and receipts to monitor our position.
SENSITIVITY ANALYSIS
The following sensitivity analysis addresses the effect of currency and interest
rate risks on the Group’s financial instruments. The analysis assumes that all
hedges are highly effective.
CURRENCY RISK
A 10% weakening of sterling against the Group’s major currencies would result
in the following losses, which would be posted directly to equity. These losses
would arise on the retranslation of foreign currency denominated borrowings
and derivatives designated as effective net investment hedges of overseas net
assets. These losses would be partially offset in equity by a corresponding
gain arising on the retranslation of the related hedged foreign currency net
assets. A 10% strengthening of sterling would have an equal and opposite
effect. There are no other material foreign exchange exposures which would
create gains or losses to the functional reporting currencies of individual
entities in the Group.
US dollar
Euro
2019
£m
125.2
162.5
2018
£m
192.2
232.5
INTEREST RATE RISK
A one percentage point increase in market interest rates for all currencies
in which the Group had cash and borrowings at 31 December 2019 would
increase profit before tax by approximately £22.6 million (2018: £7.2 million).
A one percentage decrease in market interest rates would have an equal and
opposite effect. This has been calculated by applying the interest rate change
to the Group’s variable rate cash and borrowings.
27. FINANCIAL INSTRUMENTS
CURRENCY DERIVATIVES
The Group utilises currency derivatives to hedge significant future transactions
and cash flows and the exchange risk arising on translation of the Group’s
investments in foreign operations. The Group is a party to a variety of foreign
currency derivatives in the management of its exchange rate exposures.
The instruments purchased are primarily denominated in the currencies of the
Group’s principal markets. The Group designates its foreign currency-
denominated debt as hedging instruments against the currency risk
associated with the translation of its foreign operations.
The Group also designates certain cross currency swaps as hedging
instruments in cash flow hedges to manage its exposure to foreign exchange
movements on its borrowings. Contracts due in March 2025 have receipts of
€500.0 million and payments of £444.1 million.
At 31 December 2019, the fair value of the Group’s currency derivatives is
estimated to be a net liability of approximately £21.2 million (2018: net asset
of £8.4 million). These amounts are based on market values of equivalent
instruments at the balance sheet date, comprising £nil (2018: £8.4 million)
assets included in trade and other receivables and £21.2 million (2018: £nil)
liabilities included in trade and other payables. The amounts taken to and
deferred in equity during the year for currency derivatives that are designated
and effective hedges was a credit of £29.2 million (2018: charge of £17.9 million)
for cash flow hedges.
Changes in the fair value relating to the ineffective portion of the currency
derivatives amounted to a loss of £nil (2018: £11.1 million) which is included
in the revaluation of financial instruments for the year.
At the balance sheet date, the total nominal amount of outstanding forward
foreign exchange contracts not designated as hedges was £151.7 million
(2018: £296.1 million). The Group estimates the fair value of these contracts
to be a net liability of £0.1 million (2018: £1.3 million).
These arrangements are designed to address significant exchange exposure
and are renewed on a revolving basis as required.
INTEREST RATE SWAPS
The Group uses interest rate swaps as hedging instruments in fair value
hedges to manage its exposure to interest rate movements on its borrowing.
During 2019 the Group terminated contracts that had a nominal value of $812
million which had fixed rate receipts of 4.75% and floating interest payments
averaging LIBOR plus 2.34% until November 2021. The Group also terminated
contracts in 2019 that had a nominal value of $500 million which had fixed rate
receipts of 3.63% and floating interest payments averaging LIBOR plus 1.52%
until September 2022.
The fair value of interest rate swaps entered into at 31 December 2019 is
estimated to be a net liability of £nil (2018: £14.2 million). These amounts
are based on market values of equivalent instruments at the balance sheet
date, comprising £nil (2018: £14.2 million) liabilities included in trade and
other payables.
Changes in the fair value relating to the ineffective portion of interest rate
swaps amounted to a gain of £1.0 million (2018: £0.9 million) which is included
in the revaluation of financial instruments for the year. This gain resulted from
a £13.3 million loss on hedging instruments and a £14.3 million gain on
hedged items.
175
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 27. FINANCIAL INSTRUMENTS CONTINUED
An analysis of the Group’s financial assets and liabilities by accounting classification is set out below:
Derivatives in
designated
hedge
relationships
£m
Held at fair
value through
profit or loss
£m
Held at
fair value
through other
comprehensive
income
Amortised
cost
£m
Carrying
value
£m
2019
Other investments
Cash and short-term deposits
Bank overdrafts, bonds and bank loans
Bonds and bank loans
Trade and other receivables: amounts falling due within one year
Trade and other receivables: amounts falling due after more than one year
Trade and other payables: amounts falling due within one year
Trade and other payables: amounts falling due after more than one year
Derivative assets
Derivative liabilities
Payments due to vendors (earnout agreements) (note 20)
Liabilities in respect of put options
–
–
–
–
–
–
–
–
–
(21.2)
–
–
255.7
–
–
–
–
–
–
–
1.4
(1.5)
(253.8)
(226.8)
242.6
–
498.3
–
–
–
–
–
–
–
–
–
–
–
2,969.0
(461.3)
(4,047.3)
7,530.8
59.3
(10,191.6)
(2.6)
–
–
–
–
(4,143.7)
2,969.0
(461.3)
(4,047.3)
7,530.8
59.3
(10,191.6)
(2.6)
1.4
(22.7)
(253.8)
(226.8)
(4,147.3)
(21.2)
(225.0)
242.6
2018
Other investments
Cash and short-term deposits
Bank overdrafts, bonds and bank loans
Bonds and bank loans
Trade and other receivables: amounts falling due within one year
Trade and other receivables: amounts falling due after more than one year
Trade and other payables: amounts falling due within one year
Trade and other payables: amounts falling due after more than one year
Derivative assets
Derivative liabilities
Payments due to vendors (earnout agreements) (note 20)
Liabilities in respect of put options
Derivatives in
designated
hedge
relationships
£m
Held at
fair value
through profit
or loss
£m
Held at
fair value
through other
comprehensive
income
£m
Amortised
cost
£m
Carrying
value
£m
–
–
–
–
–
–
–
–
8.4
(14.2)
–
–
(5.8)
319.6
–
–
–
–
–
–
–
1.3
(2.6)
(414.7)
(242.0)
(338.4)
347.1
–
666.7
–
–
–
–
–
–
–
–
–
–
–
2,643.2
(1,025.1)
(5,634.8)
8,545.6
68.3
(10,637.3)
(8.4)
–
–
–
–
2,643.2
(1,025.1)
(5,634.8)
8,545.6
68.3
(10,637.3)
(8.4)
9.7
(16.8)
(414.7)
(242.0)
347.1
(6,048.5)
(6,045.6)
The Group is party to certain cash pooling arrangements with its banks and
has offset cash and short-term deposits and bank overdrafts where a legally
enforceable right to set off exists. At 31 December 2019, £6,832.8 million
(2018: £6,214.2 million) had been offset.
The following table provides an analysis of financial instruments that are
measured subsequent to initial recognition at fair value, grouped into levels
1 to 3 based on the degree to which the fair value is observable:
Level 1 fair value measurements are those derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than
quoted prices included within level 1 that are observable for the asset or
liability, either directly (ie as prices) or indirectly (ie derived from prices);
Level 3 fair value measurements are those derived from valuation techniques
that include inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
176
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 2019
Derivatives in designated hedge relationships
Derivative assets
Derivative liabilities
Held at fair value through profit or loss
Other investments
Derivative assets
Derivative liabilities
Payments due to vendors (earnout agreements)
(note 20)
Liabilities in respect of put options
Held at fair value through other
comprehensive income
Other investments
2018
Derivatives in designated hedge relationships
Derivative assets
Derivative liabilities
Held at fair value through profit or loss
Other investments
Derivative assets
Derivative liabilities
Payments due to vendors (earnout agreements)
(note 20)
Liabilities in respect of put options
Held at fair value through other
comprehensive income
Other investments
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
–
42.2
–
(21.2)
–
–
–
1.4
(1.5)
255.7
–
–
–
–
–
(253.8)
(226.8)
200.4
Level 1
£m
Level 2
£m
Level 3
£m
–
–
0.4
–
–
–
–
128.1
8.4
(14.2)
–
–
–
1.3
(2.6)
319.2
–
–
–
–
–
(414.7)
(242.0)
219.0
There have been no transfers between these levels in the years presented.
Reconciliation of level 3 fair value measurements1:
1 January 2018
Gains recognised in the income statement
Losses recognised in other comprehensive income
Exchange adjustments
Additions
Disposals
Cancellations
Reclassifications from other investments to interests in
associates
Settlements
31 December 2018
(Losses)/gains recognised in the income statement
Losses recognised in other comprehensive income
Exchange adjustments
Additions
Disposals
Cancellations
Transfer to disposal group classified as held for sale
Settlements
31 December 2019
Liabilities in
respect of
put options
£m
(258.1)
34.5
–
1.1
(43.5)
–
2.2
Other
investments
£m
820.3
61.1
(140.6)
–
35.0
(237.3)
–
–
21.8
(242.0)
(19.4)
–
11.7
(38.6)
–
9.7
31.0
20.8
(226.8)
(0.3)
–
538.2
9.1
(55.4)
–
18.2
(53.4)
–
(0.6)
–
456.1
Note
1 The reconciliation of payments due to vendors (earnout agreements) is presented in note 20.
The fair values of financial assets and liabilities are based on quoted market
prices where available. Where the market value is not available, the Group has
estimated relevant fair values on the basis of publicly available information
from outside sources. There have been no movements between level 3 and
other levels.
PAYMENTS DUE TO VENDORS AND LIABILITIES IN RESPECT
OF PUT OPTIONS
Future anticipated payments due to vendors in respect of contingent
consideration (earnout agreements) are recorded at fair value, which is the
present value of the expected cash outflows of the obligations. Liabilities in
respect of put option agreements are initially recorded at the present value
of the redemption amount in accordance with IAS 32. After recognition,
the liability is remeasured in accordance with IFRS 9 and is subject to the
estimation of future performance of the business acquired. Changes in the
estimation result in re-measurement of the liability through the income
statement. Both types of obligations are dependent on the future financial
performance of the entity and it is assumed that future profits are 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. At 31 December 2019, the weighted average growth rate
in estimating future financial performance was 19.5% (2018: 22.7%), which
reflects the prevalence of recent acquisitions in the faster-growing markets
and new media sectors. The risk adjusted discount rate applied to these
obligations at 31 December 2019 was 1.4% (2018: 2.9%).
A one percentage point increase or decrease in the growth rate in estimated
future financial performance would increase or decrease the combined
liabilities due to earnout agreements and put options by approximately
£4.6 million (2018: £6.8 million) and £7.7 million (2018: £10.4 million),
respectively. A 0.5 percentage point increase or decrease in the risk
adjusted discount rate would decrease or increase the combined liabilities
by approximately £5.6 million (2018: £7.1 million) and £5.7 million (2018:
£7.2 million), respectively. An increase in the liability would result in a loss
in the revaluation of financial instruments, while a decrease would result
in a gain.
OTHER INVESTMENTS
The fair value of other investments included in level 1 are based on quoted
market prices. Other investments included in level 3 are unlisted securities,
where market value is not readily available. The Group has estimated relevant
fair values on the basis of publicly available information from outside sources
using the most appropriate valuation technique, including all external funding
rounds, revenue and EBITDA multiples, the share of fund net asset value and
discounted cash flows. Certain investments are valued using revenue
multiples. An increase or decrease in this multiple of one times revenue would
result in an increase or decrease in the value of investments of £53.6 million,
which would result in a credit or charge to the income statement of
£3.3 million and equity of £50.3 million. The sensitivity to changes in
unobservable inputs is specific to each individual investment.
28. AUTHORISED AND ISSUED SHARE CAPITAL
Authorised
1 January 2018
31 December 2018
31 December 2019
Issued and fully paid
At 1 January 2018
Exercise of share options
At 31 December 2018
Exercise of share options
Share cancellations
At 31 December 2019
Equity
ordinary
shares
Nominal
value
£m
1,750,000,000
1,750,000,000
1,750,000,000
1,332,511,552
166,675
1,332,678,227
75,625
(4,586,039)
1,328,167,813
175.0
175.0
175.0
133.3
–
133.3
–
(0.5)
132.8
COMPANY’S OWN SHARES
The Company’s holdings of own shares are stated at cost and represent shares
held in treasury and purchases by the Employee Share Ownership Plan (ESOP)
trusts of shares in WPP plc for the purpose of funding certain of the Group’s
share-based incentive plans, details of which are disclosed in the
Compensation Committee report on pages 114-137.
177
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 WPP SHARE OPTION PLAN 2015 (WSOP)
As at 31 December 2019, unexercised options over ordinary shares of 13,413,425
and unexercised options over ADRs of 1,396,745 have been granted under the
WPP Worldwide Share Ownership Programme as follows:
Number of ordinary
shares under option
18,250
3,406,900
15,500
2,863,975
19,250
2,785,100
55,500
1,952,200
5,375
12,375
2,279,000
Number of ADRs
under option
347,660
347,105
276,790
236,265
188,925
Exercise price
per share (£)
8.372
8.372
9.600
9.600
13.085
13.085
15.150
15.150
15.150
17.055
17.055
Exercise price
per ADR ($)
53.140
62.590
88.260
105.490
115.940
Exercise
dates
2021-2025
2021-2028
2022-2026
2022-2029
2020-2024
2020-2027
2018-2022
2018-2025
2019-2025
2019-2023
2019-2026
Exercise
dates
2021-2028
2022-2029
2020-2027
2020-2026
2018-2025
28. AUTHORISED AND ISSUED SHARE CAPITAL CONTINUED
The trustees of the ESOP purchase the Company’s ordinary shares in the
open market using funds provided by the Company. The Company also has
an obligation to make regular contributions to the ESOP to enable it to meet
its administrative costs. The number and market value of the ordinary shares
of the Company held by the ESOP at 31 December 2019 was 9,219,837
(2018: 14,820,994), and £98.3 million (2018: £125.5 million) respectively.
The number and market value of ordinary shares held in treasury at
31 December 2019 was 70,787,730 (2018: 70,854,553) and £755.0 million
(2018: £599.9 million) respectively.
SHARE OPTIONS
WPP EXECUTIVE SHARE OPTION SCHEME (WPP)
As at 31 December 2019, unexercised options over ordinary shares of 6,741 have
been granted under the WPP Executive Share Option Scheme as follows:
Number of ordinary
shares under option
3,696
3,045
Exercise price
per share (£)
8.333
10.595
Exercise
dates
2015-2022
2016-2023
WPP WORLDWIDE SHARE OWNERSHIP PROGRAMME (WWOP)
As at 31 December 2019, unexercised options over ordinary shares of 2,757,654
and unexercised options over ADRs of 388,854 have been granted under the
WPP Worldwide Share Ownership Programme as follows:
Number of ordinary
shares under option
82,650
36,500
53,150
25,750
194,079
43,000
1,739,050
4,375
564,975
14,125
Number of ADRs
under option
24,550
16,530
39,184
166,655
141,935
Exercise price
per share (£)
6.268
6.268
7.113
7.113
8.458
13.145
13.145
13.145
13.505
13.505
Exercise price
per ADR ($)
49.230
56.560
67.490
102.670
110.760
Exercise
dates
2014-2021
2015-2021
2013-2020
2014-2020
2015-2022
2017-2021
2017-2024
2018-2024
2016-2023
2017-2023
Exercise
dates
2014-2021
2013-2020
2015-2022
2017-2024
2016-2023
The aggregate status of the WPP Share Option Plans during 2019 was as follows:
1 January
2019
6,741
5,520,774
18,691,100
24,218,615
1 January
2019
9.355
12.290
12.753
95.453
84.893
Granted
Exercised
Lapsed
Outstanding
31 December
2019
Exercisable
31 December
2019
–
–
4,615,000
4,615,000
–
(71,475)
(4,150)
(75,625)
–
(747,375)
(2,904,800)
(3,652,175)
6,741
4,701,924
20,397,150
25,105,815
6,741
4,701,924
5,249,075
9,957,740
Granted
Exercised
Lapsed
Outstanding
31 December
2019
Exercisable
31 December
2019
–
–
9.600
–
62.590
–
6.888
8.372
47.388
53.140
–
12.027
12.405
91.622
82.290
9.355
12.421
12.121
96.744
79.798
9.355
12.421
16.164
96.744
115.940
Movements on options granted (represented in
ordinary shares)
WPP
WWOP
WSOP
Weighted‑average exercise price for options over
Ordinary shares (£)
WPP
WWOP
WSOP
ADRs ($)
WWOP
WSOP
178
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 OPTIONS OVER ORDINARY SHARES
Outstanding
OPTIONS OVER ADRs
Outstanding
Range of
exercise prices
£
6.268-17.055
Weighted average
exercise price
£
12.171
Weighted average
contractual life
Months
90
Range of
exercise prices
$
49.230-115.940
Weighted average
exercise price
$
83.488
Weighted average
contractual life
Months
89
As at 31 December 2019 there was £7.3 million (2018: £8.5 million) of total
unrecognised compensation costs related to share options. That cost is
expected to be recognised over a weighted average period of 19 months
(2018: 20 months).
Share options are satisfied out of newly issued shares.
The Worldwide Share Ownership Programme was open for participation
to employees with at least two years’ employment in the Group. It was not
available to those participating in other share-based incentive programmes
or to Executive Directors. The vesting period for each grant is three years
and there are no performance conditions other than continued employment
with the Group.
The Executive Stock Option Plan has historically been open for participation
to WPP Group Leaders, Partners and High Potential Group. It is not currently
offered to Parent Company Executive Directors. The vesting period is three
years and performance conditions include achievement of various TSR (Total
Shareholder Return) and EPS (Earnings Per Share) objectives, as well as
continued employment. The terms of these stock options are such that if, after
nine years and eight months, the performance conditions have not been met,
then the stock option will vest automatically.
The Group grants stock options with a life of 10 years, including the
vesting period.
The weighted average fair value of options granted in the year calculated
using the Black-Scholes model was as follows:
29. OTHER RESERVES
Other reserves comprise the following:
Fair value of UK options (shares)
Fair value of US options (ADRs)
Weighted average assumptions
UK Risk-free interest rate
US Risk-free interest rate
Expected life (months)
Expected volatility
Dividend yield
2019
2017
2018
117.0p 107.0p 112.0p
$9.40
$8.09
$8.49
0.57% 0.78% 0.57%
1.61% 2.74% 2.05%
48
17%
2.9%
48
24%
3.8%
48
24%
3.5%
Options are issued at an exercise price equal to market value on the date
of grant.
The average share price of the Group for the year ended 31 December 2019
was £9.39 (2018: £11.56, 2017: £15.86) and the average ADR price for the same
period was $59.93 (2018: $77.31, 2017: $101.86).
Expected volatility is sourced from external market data and represents the
historic volatility in the Group’s share price over a period equivalent to the
expected option life.
Expected life is based on a review of historic exercise behaviour in the context
of the contractual terms of the options, as described in more detail below.
TERMS OF SHARE OPTION PLANS
In 2015, the Group introduced the Share Option Plan 2015 to replace both the
"all-employee" Worldwide Share Ownership Plan and the discretionary
Executive Stock Option Plan. Two kinds of options over ordinary shares can
be granted, both with a market value exercise price. Firstly, options can be
granted to employees who have worked at a company owned by WPP plc for
at least two years which are not subject to performance conditions. Secondly,
options may be granted on a discretionary basis subject to the satisfaction of
performance conditions.
Capital
redemption
reserve
£m
2.7
Equity
reserve
£m
(257.2)
Revaluation
reserve
£m
303.4
Translation
reserve
£m
712.8
Total
other
reserves
£m
761.7
–
–
–
–
–
2.7
(30.7)
(287.9)
–
–
0.5
–
–
–
–
2.5
–
3.2
(252.3)
(537.7)
–
69.9
69.9
(303.4)
(104.0)
(407.4)
–
–
–
–
–
–
–
–
–
678.7
(30.7)
393.5
(361.4)
(361.4)
(284.0)
–
(284.0)
0.5
–
2.5
–
33.3
(252.3)
(501.2)
1 January 2018
Exchange adjustments
on foreign currency
net investments
Accounting policy
change (IFRS 9)1
Recognition and
remeasurement of
financial instruments
31 December 2018
Exchange adjustments
on foreign currency
net investments
Exchange adjustments
recycled to the income
statement on disposal of
discontinued operations
Share cancellations
Recognition and
remeasurement of
financial instruments
Share purchases – close
period commitments
31 December 2019
Note
1 Due to the adoption of IFRS 9, cumulative gains and losses on revaluation of available for sale
investments have been transferred to retained earnings.
179
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 30. ACQUISITIONS
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.
32. RECONCILIATION TO NON-GAAP MEASURES OF PERFORMANCE
Management includes non-GAAP measures as they consider these measures
to be both useful and necessary. 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.
Reconciliation of revenue to revenue less pass-through costs:
Continuing operations
Revenue
Media pass-through costs
Other pass-through costs
Revenue less pass‑through costs
2019
£m
13,234.1
(1,656.2)
(731.4)
10,846.5
20181
£m
13,046.7
(1,458.0)
(713.0)
10,875.7
20171
£m
13,146.4
(1,429.4)
(573.1)
11,143.9
Goodwill arising from acquisitions represents the value of synergies with
our existing portfolio of businesses and skilled staff to deliver services to
our clients.
Note
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.
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. This includes the cost of media where the Group is buying digital
media for its own account on a transparent opt-in basis and, as a result, the
subsequent media pass-through costs have to be accounted for as revenue,
as well as billings. Therefore, management considers that revenue less
pass-through costs gives a helpful reflection of top-line growth.
Reconciliation of operating profit to headline operating profit:
Continuing operations
Operating profit
Amortisation and impairment of acquired
intangible assets
Goodwill impairment
Gains on disposal of investments and subsidiaries
(Gains)/losses on remeasurement of equity interests
arising from a change in scope of ownership
Investment write-downs
Litigation settlement
Gain on sale of freehold property in New York
Restructuring and transformation costs
Headline operating profit
Finance and investment income
Finance costs (excluding interest expense related
to lease liabilities)
Interest cover2 on headline operating profit
2019
£m
20171
£m
1,295.9 1,237.9 1,577.9
20181
£m
121.5
47.7
(40.4)
201.8
183.9
(237.9)
138.0
27.1
(98.7)
(0.4)
7.5
(16.8)
(7.9)
153.5
(2.0)
2.0
–
–
265.5
1,560.6 1,651.2
98.9
99.0
0.3
91.7
–
–
56.8
1,793.1
89.0
(259.4)
(160.4)
9.7
times
(279.1)
(180.2)
9.2
times
(261.9)
(172.9)
10.4
times
Notes
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.
2 Interest expense related to lease liabilities is excluded from interest cover as lease liabilities are
excluded from the Group’s key leverage metrics.
Headline operating profit is one of the metrics that management uses to
assess the performance of the business.
Non-controlling interests in acquired companies are measured at the
non-controlling interests’ proportionate share of the acquiree’s identifiable
net assets.
The contribution to revenue and operating profit of acquisitions completed
in the year was not material. There were no material acquisitions completed
in the year ended 31 December 2019 or between 31 December 2019 and the
date the financial statements have been authorised for issue.
31. RELATED PARTY TRANSACTIONS
From time to time the Group enters into transactions with its associate
undertakings. These transactions were not material for either year presented.
The Group has continuing transactions with Kantar, including sales, purchases,
the provision of IT services, subleases and property related items. None of
these were material in the period since 5 December 2019 when Kantar became
a related party as an associate.
The following amounts were outstanding at 31 December 2019:
Amounts owed by related parties
Kantar
Other
Amounts owed to related parties
Kantar
Other
2019
£m
87.5
87.5
175.0
(36.5)
(49.6)
(86.1)
180
FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 Headline operating profit margin before and after share of
results of associates:
Reconciliation of free cash flow:
Continuing operations
Revenue less pass‑
through costs
Headline operating profit
Share of results of
associates (excluding
exceptional gains/losses)
Headline PBIT
Margin
%
2019
£m
Margin1
%
20181
£m
Margin1
%
20171
£m
10,846.5
14.4 1,560.6
10,875.7
15.2 1,651.2
11,143.9
1,793.1
16.1
62.5
15.0 1,623.1
72.0
15.8 1,723.2
97.4
17.0 1,890.5
Note
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.
Calculation of headline EBITDA:
Continuing operations
Headline PBIT (as above)
Depreciation of property, plant and equipment
Amortisation of other intangible assets
Headline EBITDA (including depreciation
of right‑of‑use assets)
Depreciation of right-of-use assets
Headline EBITDA
2019
£m
1,623.1
185.5
21.2
20181
£m
20171
£m
1,723.2 1,890.5
189.0
20.1
188.6
20.7
1,829.8 1,932.5 2,099.6
–
2,131.4 1,932.5 2,099.6
301.6
–
Note
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.
Headline EBITDA is a key metric that private equity firms, for example, use for
valuing companies, and is one of the metrics that management uses to assess
the performance of the business. Headline EBITDA (including depreciation of
right-of-use assets) is used in the Group’s key leverage metric.
Calculation of headline non-controlling interests:
Cash generated by continuing and discontinued
operations (note 11)
Plus
Interest received
Investment income
Dividends from associates
Share option proceeds
Less
Earnout payments
Interest and similar charges paid
Purchases of property, plant and equipment
Purchase of other intangible assets (including
capitalised computer software)
Repayment of lease liabilities
Interest paid on lease liabilities
Corporation and overseas tax paid
Dividends paid to non-controlling interests in
subsidiary undertakings
Free cash flow
2019
£m
20181
£m
20171
£m
2,693.2 2,174.7 1,938.9
80.8
18.3
33.3
0.6
90.4
15.4
49.7
1.2
76.9
16.8
46.8
6.4
(130.2)
(270.6)
(339.3)
(120.2)
(252.8)
(314.8)
(199.1)
(246.6)
(288.9)
(54.8)
(249.8)
(105.1)
(536.0)
(60.4)
–
–
(383.6)
(37.3)
–
–
(424.7)
(96.2)
(106.2)
1,044.2 1,093.4
(87.8)
801.4
Note
1 Prior year free cash flow has been re-presented to exclude proceeds on disposal of property,
plant and equipment.
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 Group’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).
Continuing operations
Non‑controlling interests
Non-controlling interests relating to restructuring
and transformation costs
Headline non‑controlling interests
2019
£m
79.2
–
79.2
20181
£m
65.1
4.7
69.8
20171
£m
84.4
–
84.4
PERFORMANCE MEASURES INCLUDING KANTAR
Like-for-like revenue less pass-through costs and headline operating margin
including Kantar reflect the full year performance as if Kantar was owned by
the Group throughout the entirety of 2019 adjusted to remove the effects of
held for sale accounting.
CONSTANT CURRENCY AND PRO FORMA (‘LIKE-FOR-LIKE’)
These consolidated financial statements are presented in pounds sterling.
However, the Group’s significant international operations give rise to
fluctuations in foreign exchange rates. To neutralise foreign exchange impact
and illustrate the underlying change in revenue and profit from one year to the
next, the Group 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.
Management also believes that discussing pro forma or like-for-like contributes
to the understanding of the Group’s performance and trends because it allows
for meaningful comparisons of the current year to that of prior years.
Further details of the constant currency and pro forma methods are given in
the glossary on pages 204 and 205.
Note
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.
Reconciliation of profit before taxation to headline PBT and
headline earnings:
Continuing operations
Profit before taxation
Amortisation and impairment of acquired
intangible assets
Goodwill impairment
Gains on disposal of investments and subsidiaries
(Gains)/losses on remeasurement of equity interests
arising from a change in scope of ownership
Investment write-downs
Restructuring and transformation costs
Share of exceptional losses/(gains) of associates
Litigation settlement
Gain on sale of freehold property in New York
Revaluation of financial instruments
Headline PBT
Headline tax charge (note 7)
Headline non-controlling interests
Headline earnings
2019
£m
982.1
20181
£m
20171
£m
1,257.6 1,746.9
121.5
47.7
(40.4)
201.8
183.9
(237.9)
138.0
27.1
(98.7)
(0.4)
7.5
153.5
47.8
(16.8)
(7.9)
68.4
(2.0)
2.0
265.5
41.5
–
–
(169.4)
1,363.0 1,543.0
(320.1)
(69.8)
1,153.1
(299.6)
(79.2)
984.2
0.3
91.7
56.8
(0.6)
–
–
(243.9)
1,717.6
(318.6)
(84.4)
1,314.6
Note
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.
Headline PBT and headline earnings are metrics that management use to
assess the performance of the business.
181
FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 COMPANY PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2019
Turnover
Operating income
Operating profit
Income from shares in Group undertakings
Interest receivable and similar income
Interest payable and similar charges
Loss on ordinary activities before taxation
Taxation on loss on ordinary activities
Loss for the year
Note
The accompanying notes form an integral part of this profit and loss account.
All results are derived from continuing activities.
Notes
34
35
2019
£m
–
0.5
0.5
–
0.1
(138.9)
(138.3)
–
(138.3)
2018
£m
–
10.8
10.8
35.9
–
(127.1)
(80.4)
–
(80.4)
There are no recognised gains or losses in either year, other than those shown above, and accordingly no statement of comprehensive income has
been prepared.
182
FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2019
Fixed assets
Investments
Current assets
Debtors due within one year
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other reserves
Capital redemption reserve
Own shares
Profit and loss account
Equity shareholders’ funds
Note
The accompanying notes form an integral part of this balance sheet.
The financial statements were approved by the Board of Directors and authorised for issue on 29 April 2020.
Mark Read
Chief Executive Officer
Paul Richardson
Group Finance Director
Registered Company Number: 111714
Notes
2019
£m
2018
£m
36
37
38
39
40
13,231.5
13,231.5
13,160.1
13,160.1
1,647.9
216.8
1,864.7
(8,446.3)
(6,581.6)
6,649.9
(688.3)
5,961.6
132.8
570.3
(262.3)
3.2
(1,045.9)
6,563.5
5,961.6
1,676.2
–
1,676.2
(6,368.1)
(4,691.9)
8,468.2
(1,389.8)
7,078.4
133.3
569.7
(10.0)
2.7
(1,046.9)
7,429.6
7,078.4
183
FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019
COMPANY STATEMENT OF CHANGES IN EQUITY
Capital
redemption
reserve
£m
Own
shares
£m
Profit and
loss account
£m
Total
equity
shareholders’
funds
£m
2.7
(944.1)
8,174.1
7,924.5
Other
reserves1
£m
(10.0)
–
–
–
–
–
–
(10.0)
–
–
–
–
–
–
(252.3)
(262.3)
–
–
–
–
–
–
2.7
–
0.5
–
–
–
–
–
–
(104.3)
1.5
–
–
–
–
–
(1.5)
(80.4)
(747.4)
84.8
1.2
(104.3)
–
(80.4)
(747.4)
84.8
(1,046.9)
7,429.6
7,078.4
–
–
1.0
–
–
–
–
–
(47.7)
(1.0)
(138.3)
(750.5)
71.4
–
0.6
(47.7)
–
(138.3)
(750.5)
71.4
(252.3)
5,961.6
3.2
(1,045.9)
6,563.5
FOR THE YEAR ENDED 31 DECEMBER 2019
Balance at 1 January 2018
Ordinary shares issued
Treasury share additions
Treasury share allocations
Loss for the year
Dividends paid
Non-cash share-based incentive plans (including share options)
Balance at 31 December 2018
Ordinary shares issued
Share cancellations
Treasury share allocations
Loss for the year
Dividends paid
Non-cash share-based incentive plans (including share options)
Share purchases – close period commitments
Balance at 31 December 2019
Notes
The accompanying notes form an integral part of this statement of changes in equity.
1 Other reserves are analysed in note 40.
Ordinary
share capital
£m
133.3
–
–
–
–
–
–
133.3
–
(0.5)
–
–
–
–
–
Share
premium
£m
568.5
1.2
–
–
–
–
–
569.7
0.6
–
–
–
–
–
–
132.8
570.3
184
FINANCIAL STATEMENTS WPP ANNUAL REPORT 2019 NOTES TO THE COMPANY FINANCIAL STATEMENTS
33. ACCOUNTING POLICIES
The principal accounting policies of WPP plc (the Company) are summarised
below. These accounting policies have all been applied consistently
throughout the year and preceding year.
(D) TAXATION
Current tax is provided at amounts expected to be paid (or recovered) using
the tax rates and laws that have been enacted or substantively enacted by the
balance sheet date.
(A) BASIS OF ACCOUNTING
The separate financial statements of the Company are prepared under the
historical cost convention in accordance with the Companies (Jersey) Law
1991. The company meets the definition of a qualifying entity under FRS 100
(Financial Reporting Standard 100) issued by the Financial Reporting Council.
These financial statements were prepared in accordance with Financial
Reporting Standard 101 Reduced Disclosure Framework. As permitted by FRS
101, the Company has taken advantage of the disclosure exemptions available
under that standard in relation to share-based payment, financial instruments,
capital management, presentation of a cash-flow statement and certain
related-party transactions.
Where required, equivalent disclosures are given in the consolidated financial
statements. The financial statements are prepared on a going concern basis,
further details of which are in the Directors’ report on page 84.
(B) TRANSLATION OF FOREIGN CURRENCY
Foreign currency transactions arising from operating activities are translated
from local currency into pounds sterling at the exchange rates prevailing at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies at the period end are translated at the period-end exchange rate.
Foreign currency gains or losses are credited or charged to the profit and loss
account as they arise.
(C) INVESTMENTS
Fixed asset investments are stated at cost less provision for impairment.
Investments are tested for impairment annually. At 31 December 2019, the
recoverable amount was assessed based on the Group's market value and
exceeded the carrying value at that date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of
taxable profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are recognised for all taxable temporary differences
unless specifically excepted by IAS 12 Income Taxes. Deferred tax is charged
or credited in the consolidated income statement, except when it relates to
items charged or credited to other comprehensive income or directly to
equity, in which case the deferred tax is also dealt with in other
comprehensive income or equity. Deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises from the initial
recognition of goodwill or other assets and liabilities (other than in a business
combination) in a transaction that affects neither the tax profit nor the
accounting profit.
(E) GROUP AND TREASURY SHARE TRANSACTIONS
Where a parent entity grants rights to its equity instruments to employees
of a subsidiary, and such share-based compensation is accounted for as
equity-settled in the consolidated financial statements of the parent, IFRS 2
(share-based payment) requires the subsidiary to record an expense for such
compensation with a corresponding increase recognised in equity as a
contribution from the parent. Consequently, in the financial statements of the
parent (WPP plc), the Company has recognised an addition to fixed asset
investments of the aggregate amount of these contributions of £71.4 million
in 2019 (2018: £84.8 million), with a credit to equity for the same amount.
(F) EXPECTED CREDIT LOSSES
Amounts owed by subsidiaries are recorded at amortised cost and are
reduced by expected credit losses. Under IFRS 9 Financial Instruments, the
expected credit losses are measured as the difference between the asset’s
gross carrying amount and the present value of estimated future cash flows
discounted at the financial asset’s original effective interest rate.
185
FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 34. INTEREST PAYABLE AND SIMILAR CHARGES
38. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
The following are included in creditors falling due within one year:
Bank and other interest payable
Interest payable to subsidiary undertakings
2019
£m
26.9
112.0
138.9
2018
£m
37.8
89.3
127.1
35. TAXATION ON LOSS ON ORDINARY ACTIVITIES
The tax assessed for the year differs from that resulting from applying the
rate of corporation tax in the UK of 19% (2018: 19%). The differences are
explained below:
Loss on ordinary activities before tax
Tax at the rate of 19% (2018: 19%) thereon
Factors affecting tax charge for the year
Group relief not paid for
Items that are not deductible/(taxable)
Tax charge for the year
2019
£m
(138.3)
26.3
(26.3)
–
–
2018
£m
(80.4)
15.3
(22.1)
6.8
–
Bank overdrafts
Amounts due to subsidiary undertakings
Share purchases – close period commitments
Other creditors and accruals
2018
2019
£m
£m
1,174.1
1,222.5
6,964.3 5,190.3
–
3.7
8,446.3 6,368.1
252.3
7.2
39. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN
ONE YEAR
The following are included in creditors falling due after more than one year:
Amounts due to subsidiary undertakings
Total borrowings are repayable as follows:
36. FIXED ASSET INVESTMENTS
The following are included in the net book value of fixed asset investments:
Within one year
Between one and five years
Over five years
2019
£m
2018
£m
688.3 1,389.8
2019
£m
2018
£m
8,446.3 6,368.1
535.4 1,010.9
378.9
152.9
9,134.6 7,757.9
40. EQUITY SHAREHOLDERS’ FUNDS
Other reserves at 31 December 2019 comprise a translation reserve of
£10.0 million (2018: £10.0 million) and an equity reserve of £252.3 million
(2018: £nil).
At 31 December 2019 the Company’s distributable reserves amounted to
£5,825.6 million (2018: £6,942.4 million). Further details of the Company’s share
capital are shown in note 28.
1 January 2019
Additions
31 December 2019
Subsidiary
undertakings
£m
13,160.1
71.4
13,231.5
Fixed asset investments primarily represent 100% of the issued share
capital of WPP Jubilee Limited, a company incorporated in Great Britain.
Fixed asset investments were purchased in a share-for-share exchange.
At 31 December 2019 cost and net book value were the same.
37. DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
The following are included in debtors falling due within one year:
Amounts owed by subsidiary undertakings
Other debtors
2019
£m
2018
£m
1,646.8 1,675.6
0.6
1,647.9 1,676.2
1.1
There were no expected credit losses on debtors in the year ended
31 December 2019 (2018: nil).
186
FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WPP PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion:
– the financial statements of WPP plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the Group’s and of the
Parent Company’s affairs as at 31 December 2019 and of the Group’s profit and the Parent Company’s loss for the year then ended;
– the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union and IFRSs as issued by the International Accounting Standards Board (IASB);
– the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice,
including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
– the financial statements have been properly prepared in accordance with the requirements of the Companies Jersey Law 1991.
We have audited the financial statements which comprise:
– the accounting policies;
– the consolidated income statement, excluding the US dollar information;
– the consolidated statement of comprehensive income;
– the consolidated cash flow statement;
– the consolidated balance sheet;
– the consolidated statement of changes in equity;
– the Parent Company profit and loss account, balance sheet and statement of changes in equity; and
– the related notes 1 to 40.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted by the
European Union. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and
United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards
are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. The non-audit services provided to the group and parent company for the year are disclosed in
note 3 to the financial statements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the
Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
SUMMARY OF OUR AUDIT APPROACH
Key audit matters
The key audit matters that we identified in the current year were:
– Goodwill
– Taxation
– Assets held for sale and discontinued operations
– Going concern
.
Within this report, any new key audit matters are identified with
identified with
.
and any key audit matters which are the same as the prior year
The materiality that we used for the Group financial statements was £55 million (2018: £80 million) which was determined on the basis
of pre-tax profit from continuing operations (2018: pre-tax profit). The reduction in materiality compared to the prior year reflects the
presentation of the Kantar businesses in discontinued operations.
Those entities subject to audit represented 75% of the Group’s consolidated revenue from continuing operations (2018: 76% of the
Group’s consolidated revenue) and 92% of the Group’s consolidated operating profit from continuing operations (2018: 81% of the
Group’s consolidated operating profit); achieved through a combination of direct testing and specified audit procedures, including
substantive analytical review procedures, performed by the Group auditor and/or component auditors across the world.
We have revised our assessment of key audit matters as compared to the prior year as discussed below.
Materiality
Scoping
Significant changes
in our approach
187
FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019
CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENT
GOING CONCERN
We have reviewed the directors’ statement in the Strategic Report and note 26 to the financial statements about whether they considered it appropriate to
adopt the going concern basis of accounting in preparing the financial statements and their identification of any material uncertainties to the Group’s and
Parent Company’s ability to continue as a going concern over a period of at least twelve months from the date of approval of the financial statements.
We considered as part of our risk assessment the nature of the Group, its business model and related risks including where relevant the impact of external
economic factors including the potential impact of the COVID-19 pandemic and Brexit, the requirements of the applicable financial reporting framework and
the Group’s system of internal control. We evaluated the directors’ assessment of the Group’s ability to continue as a going concern, including challenging
the underlying data and key assumptions used to make the assessment, and evaluated the directors’ plans for future actions in relation to their going
concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation to that statement required by Listing Rule 9.8.6R(3) and report
if the statement is materially inconsistent with our knowledge obtained in the audit.
Going concern is the basis of preparation of the financial statements that assumes an entity will remain in operation for a period of at least 12 months from
the date of approval of the financial statements.
We confirm that we have nothing material to report, add or draw attention to in respect of these matters.
PRINCIPAL RISKS AND VIABILITY STATEMENT
Based solely on reading the Strategic Report and considering whether the principal risks and viability statement were consistent with the knowledge we
obtained in the course of the audit, including the knowledge obtained in the evaluation of the directors’ assessment of the Group’s and the Parent Company’s
ability to continue as a going concern, we are required to state whether we have anything material to add or draw attention to in relation to:
– the disclosures on pages 84-91 that describe the principal risks and explain how they are being managed or mitigated;
– the directors' confirmation on page 84 that they have carried out a robust assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity; or
– the directors’ explanation on page 84 as to how they have assessed the prospects of the Group, over what period they have done so and why they consider
that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
We are also required to report whether the directors’ statement relating to the prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent
with our knowledge obtained in the audit.
Viability means the ability of the group to continue over the time horizon considered appropriate by the directors.
We confirm that we have nothing material to report, add or draw attention to in respect of these matters.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period
and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which
had the greatest effect on the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the audit team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
For the prior year audit we identified the recognition of revenue related to the Kantar network as a key audit matter due to the impact of Kantar’s revenues
in the prior year on the pricing of the Kantar disposal transaction. As the sale was agreed in the first half of the current year, we determined that Kantar
revenue recognition is no longer a key audit matter. Furthermore, we determined that there is no longer a key audit matter related to the cut-off of
restructuring and transformation costs due to the amount of restructuring costs expected to be incurred in the current year being significantly reduced
compared to the prior year.
188
FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF WPP PLCWPP ANNUAL REPORT 2019 Key audit matter
How the scope of our audit responded to the key audit matter
Key observations
GOODWILL
(Refer to the Accounting Policies and Notes 3 and 14 to the financial statements, and the Audit Committee Report)
The net book value of goodwill was £10,171 million as at
31 December 2019 (2018: £13,203 million). The Group’s
assessment of goodwill for impairment involves the comparison
of the recoverable amount of goodwill to its carrying value as at
the 30 September measurement date. An impairment charge of
£48 million was recorded in the current year (2018: £184 million)
related to a number of under-performing businesses. The Group
used the value in use approach which uses a discounted cash
flow to estimate the recoverable amount of each group of cash
generating units, using assumptions related to discount rates,
short-term forecasts and long-term growth rates. The impact of
COVID-19 was treated as a non-adjusting subsequent event and
was not reflected within the goodwill impairment testing.
We identified goodwill valuation and allocation as a key
audit matter because of the significant judgements made by
management to estimate the recoverable amount of goodwill.
Estimates of future performance and market conditions used
to arrive at the net present value of future cash flows at
30 September, which is used within the goodwill impairment
analysis, are subjective in nature. Through our risk assessment
procedures, we identified those inputs to the goodwill
impairment analysis that were the most sensitive which enabled
us to design our audit procedures to address the higher risk
areas in our work, focusing on those estimates that are either
complex, including the discount rate calculations, or subjective
in nature, including the short-term forecast and long-term
growth rates.
Our audit procedures focused on challenging the inputs to the
discounted cash flow model used to determine the recoverable
amount of each group of cash generating units and included the
following audit procedures, among others:
– We tested the effectiveness of controls over management’s
selection of the discount rate, short-term forecasts and
long-term growth rates used to determine the recoverable
amount for each group of cash generating units.
– We agreed the underlying cash flow projections to
Board-approved forecasts and we tested management’s
ability to accurately forecast future revenues and growth
rates by comparing actual results to management’s
historical forecasts.
– With the assistance of our valuation specialists we tested the
appropriateness of the discount rates used for each group of
cash generating units by:
– Testing the source information underlying the
determination of the discount rate and the mathematical
accuracy of the calculation.
– Developing a range of independent estimates and
comparing those to the discount rates selected
by management.
– We compared the long-term growth rates to independent
market data.
– We analysed the actual results between the date of the
impairment test and the balance sheet date to determine
if any additional indicators of impairment existed.
– We evaluated the Group’s disclosures on goodwill against
the requirements of IFRS.
TAXATION
(Refer to the Accounting Policies and Note 7 to the financial statements, and the Audit Committee Report)
Based on our
procedures, we
determined
management’s
assumptions used in
the valuation of
goodwill to be
reasonable.
As set out in the Audit
Committee Report on
page 110, a control
weakness was
identified with respect
to management’s
review and selection
of the appropriate
discount rates for use
in the impairment
calculations.
The Group is subject to corporate taxes in a number of different
jurisdictions with complex tax laws and regulations. Tax reserves
are required to be recorded in relation to uncertain tax positions,
which are based on management’s identification of relevant
jurisdictions, interpretation of tax law and understanding of the
approach of the local tax authorities. In many cases, there is a
range of potential outcomes which must be considered.
We identified the valuation and allocation of reserves for taxes
as a key audit matter because of the multiple jurisdictions in
which the Group files its tax returns and the complexity of
relevant tax laws and regulations. This required a high degree
of auditor judgement and an increased extent of effort,
including involvement of our tax specialists when performing
audit procedures to challenge the appropriateness of
management’s estimates of tax reserves.
Our audit procedures related to the valuation and allocation of
taxation reserves included the following, among others:
– We tested the effectiveness of controls over management’s
valuation of the reserves and over the monitoring of exposures
related to tax audits.
We determined the
tax reserves to be
appropriate based on
our audit procedures.
– We evaluated management’s assessment of the impact of
developments during the period in international tax rules on
the Group.
– We evaluated management’s calculations of uncertain tax
provisions arising from the risk of tax authority challenge of
historical arrangements and tested the assumptions made in
those calculations.
– With the assistance of our tax specialists, we tested the
estimates made by management in determining the
reserves by:
– Evaluating the assumptions used in the Group’s analysis of
uncertain tax positions based on knowledge of the Group
and relevant tax regimes.
– Reading the Group’s correspondence with tax authorities in
significant locations to determine whether any other tax
exposure exists and whether the amounts provided for
appear reasonable and the appropriate recognition criteria
has been met.
– Reading the tax opinions provided by external legal counsel.
– Evaluating historical settlement amounts to determine
whether management has been adequately provided in
the past.
– We also assessed the disclosure in the financial statements in
relation to the requirements of IFRS.
189
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF WPP PLC FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019
Key audit matter
How the scope of our audit responded to the key audit matter
Key observations
ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
(Refer to the Accounting Policies and Note 12 to the financial statements, and the Audit Committee Report)
Following the Group’s announcement of the proposed sale of the
Kantar business to Bain Capital in July 2019, Kantar was classified
as held for sale and reported as a discontinued operation under
IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations. On 5 December 2019 the first stage of the transaction
completed, which involved the sale of approximately 90% of the
Kantar group. The gain recognised on the sale of the
discontinued operations was £74 million.
Particular complexities associated with the Kantar disposal were:
– The agreement to provide certain post disposal services as
part of the transition agreement within the overall disposal
agreement required significant judgement in determining the
appropriate accounting treatment.
– The overall gain on disposal involved a number of judgements,
particularly related to contingent consideration.
Due to the complexity and inherent judgement associated with
the Group’s accounting treatment for consideration as defined
within the transition service agreements and the determination
of contingent consideration per the disposal agreement, we
have identified the Kantar disposal as a key audit matter.
We determined the
accounting for assets
held for sale and
discontinued
operations to be
appropriate based on
our audit procedures.
Our audit procedures related to the Kantar disposal were as
follows, among others:
– We tested the effectiveness of controls established to
identify, authorise and approve, account for and disclose
the disposal transaction in the financial statements.
– We performed procedures to test the calculation of the
gain recognised at the disposal date.
– We assessed the appropriateness of the Group’s treatment
of variable elements of consideration.
– We utilised technical accounting specialists to assess the
transition service agreements in order to determine the
appropriate accounting and subjected the estimates
determined by management to our audit procedures.
– We analysed the terms of the disposal agreement.
– We read the minutes of the Board of Directors which
evidenced authorization and approval of the transaction.
– We performed procedures to test the effectiveness of
internal controls specific to IFRS 5.
GOING CONCERN
(Refer to the Accounting Policies and Note 26 to the financial statements, and the Audit Committee Report)
The Board of Directors has concluded that there are no material
uncertainties that give rise to significant doubt over the Group’s
ability to continue as a going concern for at least twelve months
from the date of the approval of the financial statements.
We performed the following audit procedures which consider
the impact of the uncertainty of the COVID-19 pandemic,
among others:
– We tested the effectiveness of controls over management’s
Given the inherent uncertainty associated with COVID-19, it is
currently difficult to determine a reasonable worst case scenario.
Accordingly, management modelled a range of scenarios. These
included a scenario which assumed a year-on-year decline of
over 35% in revenue less pass through costs as defined in Note 2
Segment Information. The directors determined that the
likelihood of the Group breaching its banking covenants as at
31 December 2020 and not having access to sufficient liquidity
for at least twelve months from the date of signing the financial
statements is remote considering the decline in revenue less
pass through costs required and the mitigating actions available
to management, including the suspension of share buy-backs
and the final dividend.
As a result of the uncertainty as to the impact of COVID-19 on
the Group, we identified a key audit matter related to going
concern due to the significant judgement required to conclude
that there is not a material uncertainty related to going concern,
in particular the judgement that the likelihood of the Group
experiencing a decline in revenue less pass through costs that
would result in a breach of its banking covenants at 31 December
2020 is remote.
going concern models, including the review of the inputs and
assumptions used in those models, and the review of going
concern disclosures.
– We utilised our internal transaction specialists to assess the
appropriateness of forecast assumptions by:
– Reading analyst reports, industry data and other external
information to determine if it provided corroborative or
contradictory evidence in relation to management’s
assumptions.
– Comparing forecasted sales to recent historical financial
information.
– Enquiring of management regarding the mitigating
actions to reduce costs and manage cash flows and
assessing whether the mitigating actions were within
the Company’s control.
– We tested the underlying data generated to prepare the
forecast scenarios and determined whether there was adequate
support for the assumptions underlying the forecast.
– We read the terms of the revolving credit facility to obtain an
understanding of the debt covenants.
– We evaluated the Group’s disclosures on going concern
against the requirements of IAS 1 and ISA 570.
Based on our
procedures, we
determined that the
Board of Directors’
conclusion that there
are no material
uncertainties that
give rise to significant
doubt over the Group
and the Parent
Company’s ability to
continue as a going
concern to be
appropriate.
190
FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF WPP PLCWPP ANNUAL REPORT 2019 OUR APPLICATION OF MATERIALITY
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of
our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group
financial statements
Materiality
£55 million
(2018: £80 million)
Basis for
determining
materiality
5.6% of pre-tax profit from
continuing operations
(2018: 5.5% of pre-tax profit)
Rationale
for the
benchmark
applied
We have determined that the critical
benchmark for the Group was pre-tax
profit from continuing operations
because we consider this measure to
be the primary focus of users of the
financial statements. The reduction in
materiality compared to the prior year
reflects the presentation of the Kantar
businesses in discontinued operations.
Parent Company
financial statements
£22 million
(2018: £32 million)
The basis for materiality
is shareholder's equity.
In our determination
we use 40% of Group
materiality as the
maximum threshold. The
materiality used is less
than 1% of shareholder's
equity (2018: less than 1%
of shareholder’s equity).
Due to the nature of
the Company as a
parent entity holding
company, we consider
shareholder's equity
to be the most
appropriate basis for
materiality. Materiality
is capped at 40% of
Group materiality
(2018: 40% of Group
materiality).
PBT
£982.1m
Group materiality
£55m
Audit Committee
reporting threshold
£1.5m
PBT
Group materiality
We set performance materiality at £33 million (2018: £52 million) which is
lower than Group materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the materiality for the
financial statements as a whole. Group performance materiality was set at 60%
of Group materiality for the 2019 audit (2018: 65%). In determining performance
materiality, we considered factors including:
– our risk assessment, including our assessment of the Group’s overall control
environment and that we consider it appropriate to rely on controls financial
processes and systems; and
– our past experience of the audit, which has indicated a low value of
corrected and uncorrected misstatements identified in prior periods.
We agreed with the Audit Committee that we would report to the Committee
all audit differences in excess of £1.5 million (2018: £1.5 million), as well as
differences below that threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation of the
financial statements.
191
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF WPP PLC FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 AN OVERVIEW OF THE SCOPE OF OUR AUDIT
In selecting the components that are in scope each year, we refresh and
update our understanding of the Group and its environment, including
obtaining an understanding of the Group’s system of internal controls, and
assessing the risks of material misstatement at the Group level, in order to
ensure that the components selected for audit provide an appropriate basis
on which to undertake audit work to address the identified risks of material
misstatement. Such audit work represents a combination of procedures,
all of which are designed to target the Group’s identified risks of material
misstatement in the most effective manner possible.
Those entities subjected to audit represented 75% of the Group’s
consolidated revenue from continuing operations (2018: 76% of the Group’s
consolidated revenue) and 92% of the Group’s consolidated operating profit
from continuing operations (2018: 81% of the Group’s consolidated operating
profit); achieved through a combination of direct testing and specified audit
procedures, including substantive analytical review procedures, performed
by the Group auditor and component auditors across the world. Our audit
work at the components is executed at levels of materiality appropriate for
such components, many of which are local statutory materiality levels which
in all instances are capped at 40% of Group materiality.
Due to the disruption caused by COVID-19, there were certain components
within China which were removed from the scope of our audit procedures.
In order to support our conclusion that there were no significant risks of
material misstatement of the aggregated financial information of the
remaining components, we tested the consolidation process and performed
analytical procedures at both the Group level and component level for
components deemed to be out-of-scope.
As the Group files its financial statements in the US, the Group is required to
comply with the US Sarbanes-Oxley Act. Accordingly we perform testing of
the operating effectiveness of internal controls over financial reporting in all
areas of the audit.
HOW WE WORK CLOSELY WITH COMPONENT AUDITORS
The Group audit team exercises its oversight of component auditors using a
carefully designed programme, which considers a variety of factors including
the size of entity and number of significant risks. This programme is put in
place to ensure that appropriate guidance is provided to the component
auditors through a combination of:
– upfront planning meetings with all component teams;
– site visits;
– central review of documentation; and
– risk assessment discussions and detailed workpaper reviews.
These are designed so that the Senior Statutory Auditor or a senior member of
the Group audit team visits all key locations across the Group on a regular basis.
In addition we assess the competence of each of our component auditors.
In years when we do not visit a key location we:
– include the component audit partner in our team planning meeting;
– discuss their risk assessment; and
– review documentation of the findings from their work and discuss with
them as needed.
We also hold quarterly meetings with management at a regional and global
level in order to update our understanding of the Group and its environment
on an ongoing basis.
OTHER INFORMATION
The directors are responsible for the other information. The other information
comprises the information included in the Annual Report, other than the
financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
In this context, matters that we are specifically required to report to you as
uncorrected material misstatements of the other information include where
we conclude that:
– Fair, balanced and understandable – the statement given by the directors
that they consider the Annual Report and financial statements taken as a
whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and performance,
business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
– Audit Committee reporting – the section describing the work of the Audit
Committee does not appropriately address matters communicated by us
to the Audit Committee; or
– Directors’ statement of compliance with the UK Corporate Governance
Code – the parts of the directors’ statement required under the Listing
Rules relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor
in accordance with Listing Rule 9.8.10R(2) do not properly disclose a
departure from a relevant provision of the UK Corporate Governance Code.
We have nothing to report in respect of these matters.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Group’s and the Parent Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Group or the Parent Company or to cease operations, or have
no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT
OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.
Details of the extent to which the audit was considered capable of detecting
irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
192
FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF WPP PLCWPP ANNUAL REPORT 2019 EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE
OF DETECTING IRREGULARITIES, INCLUDING FRAUD
We identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, and then design and perform audit
procedures responsive to those risks, including obtaining audit evidence that
is sufficient and appropriate to provide a basis for our opinion.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
OPINIONS ON OTHER MATTERS PRESCRIBED BY OUR
ENGAGEMENT LETTER
In our opinion the part of the Directors’ Remuneration report to be audited
has been properly prepared in accordance with the UK Companies Act 2006
as if that Act had applied to the Company.
IDENTIFYING AND ASSESSING POTENTIAL RISKS RELATED
TO IRREGULARITIES
In identifying and assessing risks of material misstatement in respect of
irregularities, including fraud and non-compliance with laws and regulations,
our procedures included the following:
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the Strategic Report and the Corporate
Governance Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
– the Strategic Report and the Corporate Governance Report have been
– the nature of the industry and sector, control environment and business
prepared in accordance with applicable legal requirements.
performance including the design of the group’s remuneration policies, key
drivers for directors’ remuneration, bonus levels and performance targets;
– the Group’s own assessment of the risks that irregularities may occur either as
a result of fraud or error that was approved by the board on 12 December 2019;
– enquiring of management, the Group’s general counsel, internal audit and
the Audit Committee, including obtaining and reviewing supporting
documentation, concerning the Group’s policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and
whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have
knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks related to fraud or
In the light of the knowledge and understanding of the Group and of the
Parent Company and their environment obtained in the course of the audit, we
have not identified any material misstatements in the strategic report or the
directors’ report.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
ADEQUACY OF EXPLANATIONS RECEIVED AND ACCOUNTING
RECORDS
Under the Companies (Jersey) Law 1991 we are required to report to you if,
in our opinion:
– we have not received all the information and explanations we require for
non-compliance with laws and regulations;
our audit; or
– discussing among the engagement team including significant component
– proper accounting records have not been kept by the Parent Company,
audit teams and involving relevant internal specialists, including tax,
valuations, pensions and IT specialists regarding how and where fraud
might occur in the financial statements and any potential indicators of fraud.
As part of this discussion, we identified potential for fraud in management
override of controls; and
– obtaining an understanding of the legal and regulatory frameworks that the
Group operates in, focusing on those laws and regulations that had a direct
effect on the financial statements or that had a fundamental effect on the
operations of the Group. The key laws and regulations we considered in this
context included Securities and Exchange Commission rules, Securities Law
in the UK and US, the UK Listing Rules, European Union Law, Companies
(Jersey) Law and tax legislation in the Group’s various jurisdictions. In
addition, compliance with the Group’s regulatory solvency requirements,
the US Foreign Corrupt Practices Act and the UK Bribery Act were
fundamental to the Group’s ability to continue as a going concern.
AUDIT RESPONSE TO RISKS IDENTIFIED
As a result of performing the above, we identified goodwill as a key audit
matter related to the potential risk of fraud. The key audit matters section of
our report explains the matter in more detail and also describes the specific
procedures we performed in response to that key audit matter.
Our procedures to respond to risks identified included the following:
– reviewing the financial statement disclosures and testing to supporting
documentation to assess compliance with relevant laws and regulations
described as having a direct effect on the financial statements;
– enquiring of management, the Audit Committee and internal and external
legal counsel concerning actual and potential litigation and claims;
– performing analytical procedures to identify any unusual or unexpected
relationships that may indicate risks of material misstatement due to fraud;
– reading minutes of meetings of those charged with governance, reviewing
internal audit reports and reviewing correspondence with relevant tax
authorities; and
– in addressing the risk of fraud through management override of controls,
testing the appropriateness of journal entries and other adjustments;
assessing whether the judgements made in making accounting estimates
are indicative of a potential bias; and evaluating the business rationale of
any significant transactions that are unusual or outside the normal course
of business.
or returns proper for our audit have not been received from branches not
visited by us; or
– the Parent Company financial statements are not in agreement with the
accounting records and returns.
We have nothing to report in respect of these matters.
DIRECTORS’ REMUNERATION
Under our engagement letter we are also required to report if in our opinion
certain disclosures of directors’ remuneration have not been made or the part
of the directors’ remuneration report to be audited is not in agreement with
the accounting records and returns.
We have nothing to report in respect of these matters.
OTHER MATTERS
AUDITOR TENURE
Following the recommendation of the Audit Committee, we were appointed
by the Company at the Annual General Meeting on 20 May 2002 to audit the
financial statements for the year ending 31 December 2002 and subsequent
financial periods. The period of total uninterrupted engagement including
previous renewals and reappointments of the firm is 18 years, covering the
years ending 31 December 2002 to 31 December 2019.
CONSISTENCY OF THE AUDIT REPORT WITH THE ADDITIONAL
REPORT TO THE AUDIT COMMITTEE
Our audit opinion is consistent with the additional report to the Audit
Committee we are required to provide in accordance with ISAs (UK).
USE OF OUR REPORT
This report is made solely to the company’s members, as a body, in
accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit
work has been undertaken so that we might state to the company’s members
those matters we are required to state to them in an auditor’s report and/or
those matters we have expressly agreed to report to them in our engagement
letter and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the company and the
company’s members as a body, for our audit work, for this report, or for the
opinions we have formed.
We also communicated relevant identified laws and regulations and potential
fraud risks to all engagement team members including internal specialists and
significant component audit teams, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the audit.
Robert Topley, FCA
For and on behalf of Deloitte LLP
Recognized auditor
London, United Kingdom
29 April 2020
193
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF WPP PLC FINANCIAL STATEMENTSWPP ANNUAL REPORT 2019 ADDITIONAL INFORMATION
194
194
WPP ANNUAL REPORT 2019
WPP ANNUAL REPORT 2019
ADDITIONAL
INFORMATION
Taskforce on Climate-related
Financial Disclosures
Other statutory information
Five-year summary
Information for shareholders
Financial glossary
Where to find us
196
198
201
202
204
206
WPP ANNUAL REPORT 2019
WPP ANNUAL REPORT 2019
195
195
TASKFORCE ON CLIMATE-RELATED
FINANCIAL DISCLOSURES STATEMENT
IDENTIFYING CLIMATE RISK AND OPPORTUNITY
Sustainability risks are integrated into our overall risk management
processes. Performance and updated risk implications are reviewed
by the Audit Committee on a regular basis. Assessment of risk is
informed by feedback from investors, clients and our people. Our
overall risk management process is outlined on pages 80-91.
Following a review of risk management in 2018, Risk Committees
were established in our operating companies in 2019 with the aim
of ensuring accountability at the network level to monitor risk and
compliance. In 2020, the Risk Committees will conduct a review
of network-level climate risk and opportunity.
The Sustainability Committee reviews WPP’s climate-related risks
and opportunities on an annual basis. This analysis of risk is informed
by interviews with sustainability and consumer experts from within
WPP’s agencies and external data sources including Maplecroft’s
Climate Change Exposure Index and the IPCC Representative
Concentration Pathways (RCPs). Factors considered include
regulatory requirements, reputational risk, physical risks, and
opportunities to advise our clients. Evaluation criteria include
relevance to our industry, relevance to sustainability, regulatory and
legal risks, financial implications and the operations affected. In 2020,
we will conduct a qualitative scenario analysis against a pathway
limiting warming to 2° Celsius to inform future assessment.
We support the Taskforce on Climate-related Financial Disclosures
and aim to develop our disclosures in line with its recommendations.
This voluntary framework seeks to encourage businesses to disclose
climate-related risks and opportunities and is structured around four
themes: governance, strategy, risk management, and metrics and
targets. Our disclosure, across these four themes, is set out below.
WPP’s overall approach to risk management and a summary of our
principal risks can be found on pages 80-91 of our Annual Report.
Our CDP response provides further disclosures on our approach
to climate change and is available at https://www.cdp.net/en.
GOVERNANCE
Our CEO has overall responsibility for climate-related risks and
opportunities. At Board level, we established a Sustainability
Committee in 2019. The Committee includes three Non-Executive
Directors and is attended as requested by our Chief Executive,
Group Chief Counsel and Head of Sustainability, Global Sustainability
Director and other executives. The Committee meets at least four
times a year and its remit includes reviewing our sustainability
strategy and evaluating our performance against targets and
commitments. As our clients integrate climate adaptation and
mitigation into their business strategies, the Committee will review
the growth of services which maximise their success. It will also
review climate adaptation and transition plans, including steps to
ensure that our Campuses and offices are resilient to extreme
weather and that we are meeting growing regulatory requirements
that face both WPP and its clients.
In 2019, we also established an Executive Committee working group
on sustainability to guide our strategy and oversee our approach
across agencies. This group includes WPP’s Chief Financial Officer,
Chief Marketing and Growth Officer, Group Chief Counsel and Head
of Sustainability, and two agency CEOs. The wider Executive
Committee includes the leaders of WPP’s largest agencies and Group
Functional leaders. To support the broadening of their remit, senior
leaders will receive climate crisis training. This will outline the risks
and opportunities that climate change poses to WPP and its largest
clients, while enabling our leaders to take progressive measures to
mitigate climate risk in their operations and maximise commercial
opportunities.
196
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WPP ANNUAL REPORT 2019 ADDITIONAL INFORMATIONWPP ANNUAL REPORT 2019 TASKFORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES STATEMENT
ADDITIONAL INFORMATION
CLIMATE CHANGE AND OUR STRATEGY
The nature of the risks and opportunities that we face depends not
just on the physical aspects of climate change, but on the trajectory
our clients take in adapting their business models, regulations in the
markets we operate in, and our ability to understand and shape a
culture of climate action. Our response to our principal climate risks
and opportunities involves a range of WPP Group functions and
responses by our companies.
KEY
Risk
Opportunity
PRINCIPAL RISK OR OPPORTUNITY
POTENTIAL IMPACT
HOW IT IS MANAGED
PHYSICAL RISKS AND OPPORTUNITIES
Increased frequency of extreme weather and
climate-related natural disasters
TRANSITION RISKS AND OPPORTUNITIES
Increased demand for sustainable products and
services from consumers and clients
Increased reputational risk associated with
working on environmentally detrimental
client briefs
Achieving resource efficiencies through cutting
our carbon footprint and improving energy
efficiency
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.
One in five of our top 50 clients has made a
carbon neutral commitment. Consumers
increasingly seek sustainable brands. Climate
strikes, other mass movements and devastating
climate-related natural disasters are fuelling
demands for immediate and ambitious action
from businesses and governments.
As consumer consciousness around climate
change rises, our sector is seeing increased
scrutiny of our role in driving unsustainable
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.
We continue in our long-standing commitment
to tackling our own carbon footprint. This has
created a significant resource and cost
efficiency opportunity for WPP as we achieve
greater energy efficiency across our offices.
Our strategy of co-locating our people in
WPP Campuses is enabling us to centralise
emergency preparedness procedures. It will
also enable us to more efficiently deploy
climate mitigation measures. We intend to
further explore the exposure of our assets to
the physical impacts of climate change using
the IPCC’s RCPs utilising a 2° Celsius scenario
analysis. Further details on our Campus strategy
are outlined on page 40.
WPP’s agencies continue to develop products
and services which enable our clients to adopt
leadership positions on climate change and
exceed the expectations of consumers.
To ensure our leaders are confident in
communicating on climate change we will
be running climate crisis training in 2020.
Sustainability will also be integrated into our
global How We Behave training in 2020 and
will be delivered to all new employees.
Further details of our climate-related client
work can be found in our Sustainability Report.
Our climate crisis training will ensure that
our people recognise the importance of our
sector’s role in addressing the climate crisis. It
will be part of a broader sustainability training
programme which we will run in multiple
markets with localised content in key regions.
We are also developing internal tools to help
our people identify environmentally harmful
briefs. These tools will embed climate-related
issues within existing content-review
procedures across the organisation
Through our Campus strategy, all buildings with
a floor space exceeding 50,000 square feet will
be certified to advanced sustainability
standards including LEED and BREEAM. We
estimate that this reduces energy consumption
by 21% per location. By the end of 2020 over
25% of our floorspace should be certified.
MONITORING OUR PROGRESS
We have been reporting on a range of climate change indicators
since 2006 and have an ambitious Scope 1 and 2 carbon reduction
target, in line with climate science. We have set a new goal to be
carbon neutral across our Campuses by 2025. A summary is provided
on page 72 with further information in our Sustainability Report. We
have also set a new target to source 100% of our electricity from
renewable sources by 2025, and to improve energy efficiency.
We met our 2020 target to certify 25% of our floorspace to advanced
sustainability standards by the end of 2020 a year early, in 2019. Our
most material climate-related opportunities relate to our client work.
Examples of work relating to climate change are included in our
downloadable Sustainability Report 2019: wpp.com/sustainability.
197
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WPP ANNUAL REPORT 2019ADDITIONAL INFORMATIONWPP ANNUAL REPORT 2019
OTHER STATUTORY INFORMATION
SUBSTANTIAL SHAREHOLDERS
As at 31 March 2020, the Company is aware of the following interests of 3% or
more in the issued ordinary share capital:
ARTICLES OF ASSOCIATION
There are no restrictions on amending the Articles of Association of the
Company other than the requirement to pass a special resolution of the
shareholders.
MFS
Harris Associates LP
BlackRock Inc
3.96%
5.88%
7.60%
The disclosed interests refer to the respective combined holdings of the entity
and to interests associated with it.
The Company has not been notified of any other holdings of ordinary share
capital of 3% or more.
PROFITS AND DIVIDENDS
The profit before tax of continuing operations for the year was £982.1 million
(2018: £1,257.6 million). Given the significant uncertainty 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.
Therefore, the Board is suspending the 2019 final dividend of 37.30p per share,
which was due to be proposed at the 2020 AGM. The interim ordinary
dividend of 22.70p per share was paid on 4 November 2019.
In 2018, the Directors declared a final dividend of 37.30p per share which,
together with the interim ordinary dividend of 22.70p makes a total of 60.00p
for the year.
CHANGE OF CONTROL
All of our bonds contain provisions which are triggered on a change of control
of the Company. The holders of such bonds have the right to repayment at par
except for holders of our US$ bonds. The holders of our US$ bonds have the
right to redeem the bonds at 101% of par, if the Company is non-investment
grade at the time of the change of control or becomes non-investment grade
within 120 days of the announcement of the change of control.
In addition, the Group has a Revolving Credit Facility in the amount of $2,500
million due March 2024, the terms of which require the consent of the
majority of the lenders if a proposed merger or consolidation of the Company
would alter its legal personality or identity. On 14 February 2020, the lending
banks approved an extension of the term of the Revolving Credit Facility to
15 March 2025.
SHARE CAPITAL
The Company’s authorised share capital consists solely of 1,750,000,000
ordinary 10 pence shares. The Company operates an American Depositary
Receipt programme. The rights and obligations relating to the ordinary share
capital are outlined in the Articles of Association; there are no restrictions on
transfer, no restrictions on voting rights and no securities carry special voting
rights with regard to control of the Company.
At the AGM on 12 June 2019, shareholders passed resolutions authorising
the Company, in accordance with its Articles of Association, to allot shares
up to a maximum nominal amount of £42,020,728 of which £6,309,418 could
be allotted for cash free of statutory pre-emption rights. In the year under
review no shares were issued for cash free from pre-emption rights. Details
of share capital movements are given in note 28 of the financial statements
on pages 177-179.
AUTHORITY FOR PURCHASE OF OWN SHARES
At the AGM on 12 June 2019, shareholders passed a special resolution
authorising the Company, in accordance with its Articles of Association, to
purchase up to 126,188,373 of its own shares in the market. In the year under
review, 4,586,039 ordinary shares were purchased.
LISTING RULES – COMPLIANCE WITH LR 9.8.4R
Section
Applicable sub-paragraph
within LR 9.8.4R
Location
2
4
Publication of unaudited
financial information
Immediately below
Details of long-term
incentive schemes
Directors’ Remuneration report,
pages 129 and 130
The above table sets out only those sections of LR 9.8.4R which are relevant. The remaining
sections of LR 9.8.4R are not applicable.
PUBLICATION OF UNAUDITED FINANCIAL INFORMATION
In the Circular to Shareholders for the Proposed Transaction in respect of the
Kantar Business dated 7 October 2019, the Company reiterated the following
guidance that it had previously provided in respect of the financial targets for
the Company for the year ending 31 December 2019:
In general terms, awards granted under WPP’s incentive plans will usually vest
on a change of control, albeit on a prorated basis. Where awards are subject
to performance conditions, those conditions will still need to be met, also on
a prorated basis. Certain incentive plans allow the Compensation Committee
to require outstanding awards to be exchanged for equivalent awards in the
acquiring company.
(a) “Like-for-like revenue less pass-through costs down 1.5% to 2.0%”; and
(b) “Headline operating margin to revenue less pass-through costs down
around 1.0 margin point on a constant currency basis (excluding the impact
of IFRS 16 Leases)”, (together, the “Profit Forecast”).
The above statements represented a profit forecast under the Listing Rules.
The Profit Forecast was compiled based on the existing WPP Group at that
time, and as such included both the year to date performance and projected
performance of Kantar for the year ending 31 December 2019. On this basis,
like-for-like revenue less pass-through costs were down 1.2% and headline
operating margin to revenue less pass-through costs was down 0.9 margin
points for the year-ended 31 December 2019. This results in the implied profit
being within 10% of the profit forecast.
198
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WPP ANNUAL REPORT 2019 ADDITIONAL INFORMATIONWPP ANNUAL REPORT 2019 OTHER STATUTORY INFORMATION
EMISSIONS
CO2e EMISSIONS BREAKDOWN (TONNES OF CO2e)
Emissions source
Continuing operations
Scope 1
Stationary fuel combustion
Scope 2
Total scope 1
Scope 2 emissions from standard electricity
(location based)
Scope 2 emissions from green and renewable
electricity (location based)
Scope 2 emissions from heat and steam
(location based)
Total scope 2 (location‑based)
Scope 2 emissions from standard electricity
(market based)
Scope 2 emissions from green and renewable
electricity (market based)
Scope 2 emissions from heat and steam
(market based)
Total scope 2 (market‑based)
Total scope 1 and 2
Total scope 1 and 2 CO2e emissions (location-based)
Total scope 1 and 2 CO2e emissions (market-based)
Scope 3
Business air travel
Total scope 3
Discontinued operations
Total scope 1 and 2
Total scope 1 and 2 CO2e emissions
(location-based)
Total scope 1 and 2 CO2e emissions (market-based)
Scope 3
Business air travel
Total scope 3
Overall total (Continuing and discontinued operations)
Total scope 1 and 2
Total scope 1 and 2 CO2e emissions
(location-based)
Total scope 1 and 2 CO2e emissions (market-based)
Scope 3
Business air travel
Total scope 3
2019
2018
2017 (target
base year)
2016
2015
6,841
6,841
7,309
7,309
5,997
5,997
6,109
6,109
5,649
5,649
51,434
66,848
96,265
103,071
97,705
27,324
26,370
11,604
14,425
21,723
1,820
80,578
1,925
95,143
1,596
1,499
n/a
109,465
118,995
119,428
55,763
71,905
82,996
94,331
97,705
0
0
0
0
0
1,820
57,583
87,419
64,424
65,014
65,014
19,154
17,769
14,635
14,635
106,573
82,193
79,649
79,649
1,925
73,830
102,452
81,139
69,425
69,425
20,633
18,724
16,034
16,034
123,065
99,863
85,459
85,459
2018
0.76
6.22
0.65
1,596
84,592
115,462
90,589
74,151
74,151
25,096
19,384
15,367
15,367
140,558
109,973
89,518
89,518
2017 (target
base year)
0.85
6.89
0.70
1,499
95,830
125,104
101,939
75,157
75,157
29,594
22,818
17,288
17,288
154,698
124,757
92,445
92,445
20161
0.94
8.38
0.70
n/a
97,705
125,077
103,354
79,328
79,328
36,856
27,999
19,557
19,557
161,933
131,353
98,885
98,885
20151
1.05
10.74
0.79
WPP'S CARBON INTENSITY FROM CONTINUING OPERATIONS (TONNES OF CO2e)
Intensity metric
Total scope 1 and 2
Tonnes per full-time employee (market based)
Tonnes per £million revenue (market based)
Scope 3
Tonnes per full time employee
2019
0.60
4.87
0.61
Note
1 Continuing and discontinued operations.
NOTES TO CARBON EMISSIONS STATEMENT 2019
Our carbon emissions statement has been prepared in accordance with the
Greenhouse Gas Protocol and aligns with the scope 2 market-based emissions
methodology guidance.
Our reporting incorporates carbon dioxide equivalent emissions from building
energy use and business air travel. Emissions data is included for all operations
for which WPP and its subsidiaries have operational control. Associate
Companies are excluded. Due to the sale of the Kantar business our carbon
emissions statement separates our results into totals from continuing and
discontinued operations. Under discontinued operations we have accounted
for full emissions until November 2019 and 10% until end of the year which is in
line with our share in the outgoing business. Our continuing operations
include all remaining WPP agencies. In line with the guidance on disposals
in the Greenhouse Gas Protocol Corporate Accounting Guidelines we have
recalculated our 2030 target baseline data to exclude Kantar’s operations.
This covers 106,000 FTE employees. Associate companies are excluded.
Our carbon data is reviewed by Bureau Veritas, an independent assurance
provider. See its Independent Verification Statement on our website
wpp.com/sustainability. Additional information on our carbon emissions
methodology is included in our Sustainability Report.
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WPP ANNUAL REPORT 2019ADDITIONAL INFORMATIONWPP ANNUAL REPORT 2019
ADDITIONAL INFORMATION OTHER STATUTORY INFORMATION
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE
PREPARATION OF FINANCIAL STATEMENTS
The Directors are responsible for preparing the financial statements in
accordance with applicable law and regulations. The Directors have elected
to prepare financial statements for the Group in accordance with International
Financial Reporting Standards as adopted by the European Union (IFRS) and
have also elected to prepare financial statements for the Company in
accordance with UK accounting standards. Company law requires the
Directors to prepare such financial statements in accordance with the
Companies (Jersey) Law 1991.
International Accounting Standard 1 requires that financial statements present
fairly for each financial year the Company’s financial position, financial
performance and cash flows. This requires the faithful representation of the
effects of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and expenses
set out in the International Accounting Standards Board’s “Framework for the
Preparation and Presentation of Financial Statements”.
In virtually all circumstances, a fair presentation will be achieved by
compliance with all applicable IFRSs. Directors are also required to:
– properly select and apply accounting policies;
– present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
– provide additional disclosures, when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
entity’s financial position and financial performance; and
– make an assessment of the Company’s ability to continue as a going concern.
The Directors are responsible for keeping proper accounting records, which
disclose with reasonable accuracy at any time the financial position of the
Company, for safeguarding the assets, for taking reasonable steps for the
prevention and detection of fraud and other irregularities and for the
preparation of a Directors’ report and Directors’ Compensation Report.
The Directors are responsible for the maintenance and integrity of the
Company website. Jersey legislation and UK regulation governing the
preparation and dissemination of financial statements differs from legislation
in other jurisdictions.
The Directors confirm that so far as they are aware, there is no relevant audit
information of which the Company’s auditors are unaware. Each Director has
taken all the steps that he or she ought to have taken, as a Director, in order to
make himself or herself aware of any relevant audit information and to establish
that the Company’s auditors are aware of that information.
In accordance with the principles of the UK Corporate Governance Code,
the Board has established arrangements to evaluate whether the information
presented in the Annual Report is fair, balanced and understandable; these
are described on page 109.
The Board considers the Annual Report and financial statements, taken as
a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position, performance,
business model and strategy.
The letters from the Chairmen of the Sustainability, Nomination and
Governance, Audit and Compensation Committees, the statements regarding
Directors’ responsibilities and statement of going concern set out above and
the Directors’ remuneration and interests in the share capital of the Company
set out on pages 116-136 are included in the Directors’ report, which also
includes the sections strategic report and corporate governance.
By Order of the Board
Balbir Kelly‑Bisla
Company Secretary
29 April 2020
200
200
WPP ANNUAL REPORT 2019WPP ANNUAL REPORT 2019
FIVE-YEAR SUMMARY
Income statement
Continuing operations:
Billings3
Revenue
Revenue less pass-through costs3
Operating profit
Headline EBITDA4
Headline operating profit4
Profit before taxation
Headline PBT4
Profit for the year
Continuing operations
Continuing and
discontinued operations
2019
£m
2018
£m
20171
£m
20161,2
£m
20152
£m
53,059.0
13,234.1
10,846.5
1,295.9
2,131.4
1,560.6
982.1
1,363.0
707.1
53,219.7
13,046.7
10,875.7
1,237.9
1,932.5
1,651.2
1,257.6
1,543.0
1,001.6
52,915.4
13,146.4
11,143.9
1,577.9
2,099.6
1,793.1
1,746.9
1,717.6
1,663.9
55,278.0
14,887.3
12,428.6
2,063.1
2,419.7
2,095.3
1,890.5
1,986.2
1,501.6
47,631.9
12,235.2
10,524.3
1,632.0
2,002.4
1,705.2
1,492.6
1,622.3
1,245.1
Headline operating profit margin4
14.4%
15.2%
16.1%
16.9%
16.2%
Balance sheet
Non-current assets
Net current liabilities
Net assets
Net debt
Average net debt
Our people
Revenue per employee (£000)
Revenue less pass-through costs3 per employee (£000)
Staff cost per employee (£000)
Average headcount5
Share information
Headline6
– basic earnings per share from continuing operations
– diluted earnings per share from continuing operations
Reported
– basic earnings per share from continuing operations
– diluted earnings per share from continuing operations
Dividends per share7
Share price – high
– low
Market capitalisation at year-end (£m)
15,886.8
17,924.3
18,506.0
(178.6)
8,443.5
(666.0)
9,806.6
(1,539.6)
(4,016.7)
(4,282.0)
(4,965.6)
(357.7)
9,956.1
(4,483.1)
(5,142.7)
19,125.3
(1,328.1)
9,761.7
15,373.8
(840.1)
8,015.8
(4,130.5)
(3,210.8)
(4,340.5)
(3,562.3)
2019
2018
2017
2016
2015
124.3
101.8
66.6
123.0
102.5
65.5
123.5
104.7
66.4
112.2
93.7
58.7
97.9
84.2
53.3
106,498
106,090
106,414
132,657
124,930
78.7p
78.1p
50.2p
49.8p
92.4p
91.4p
75.1p
74.3p
22.70p
60.00p
1,077.5p
1,471.0p
800.4p
805.0p
13,410.0
10,682.6
104.2p
103.0p
125.2p
123.8p
60.00p
1,921.0p
1,253.0p
17,029.8
114.8p
113.2p
109.6p
108.0p
56.60p
1,850.0p
1,338.0p
23,260.3
95.4p
93.6p
90.0p
88.4p
44.69p
1,611.0p
1,304.0p
20,236.9
Notes
1 2017 and 2016 figures were restated for the adoption of IFRS 15 Revenue from Contracts with Customers in the 2018 Annual Report & Accounts. No restatement has been made in 2015.
2 2016 and 2015 figures have not been re-presented in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations therefore represent total continuing and discontinued operations.
3 Billings and revenue less pass-through costs are defined on pages 204 and 205.
4 The calculation of ‘headline’ measures of performance (including headline EBITDA, headline operating profit, headline operating profit margin and headline PBT) is set out in note 32 of the financial statements.
5 2019, 2018 and 2017 average headcount excludes the Kantar disposal group.
6 Headline earnings per share is set out in note 9 of the financial statements.
7 Dividends per share represents the dividends declared in respect of each year. Given the significant uncertainty 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. Therefore, the Board is suspending the 2019
final dividend of 37.30p pence per share, which was due to be proposed at the 2020 AGM.
The information on this page is unaudited.
201
201
WPP ANNUAL REPORT 2019 ADDITIONAL INFORMATIONWPP ANNUAL REPORT 2019
INFORMATION FOR SHAREHOLDERS
SHAREHOLDERS’ REGISTER
A register of shareholders’ interests is kept at the Company’s registrar’s office in Jersey and is available for inspection on request. The register includes
information on nominee accounts and their beneficial owners.
ANALYSIS OF SHAREHOLDINGS AT 31 DECEMBER 2019
Issued share capital as at 31 December 2019: 1,328,167,813 ordinary shares (following the buyback of 261,178 shares on 30 December 2019 and 96,280 shares on
31 December 2019).
Number of shares held
Number of holders
% owners
Shareholdings
% outstanding1
1-100
101-250
251-500
501-1,000
1,001-5,000
5,001-10,000
10,001-25,000
25,001-50,000
50,001-100,000
100,001-500,000
500,001-1,000,000
1,000,001-2,000,000
2,000,001-3,000,000
3,000,001-4,000,000
4,000,001 and above
Total
2,281
1,301
1,291
1,121
1,746
628
766
566
566
845
217
107
45
26
51
19.8%
11.3%
11.2%
9.7%
15.1%
5.4%
6.6%
4.9%
4.9%
7.3%
1.9%
0.9%
0.4%
0.2%
0.4%
77,084
229,222
484,449
843,859
4,240,821
4,494,479
12,574,246
20,289,478
40,217,924
192,999,788
154,705,258
153,258,189
109,637,849
91,825,225
542,647,400
11,557
100.0%
1,328,525,2712
1 All calculations are based on the percentage outstanding on the share register as of 31 December 2019.
2 Total includes 261,178 shares bought back by WPP on 30 December 2019 and 96,280 shares bought back by WPP on 31 December 2019.
Shareholders by geography
UK
United States
Rest of World
Total
%
28.1
35.6
36.3
100
Shareholders by type
Institutional investors
Our people
Other individuals
Total
Shareholders by geography %
Shareholders by type %
0.0%
0.0%
0.0%
0.1%
0.3%
0.3%
0.9%
1.5%
3.0%
14.5%
11.6%
11.5%
8.4%
7.0%
40.9%
100.0%
%
95.4
0.9
3.7
100
UK
United States
Rest of World
28.1%
35.6%
36.3%
Institutional investors
Employees1
Other individuals
95.4%
0.9% 3.7%
1 In addition, as at 31 December 2019, 2.0% of the Company’s share capital (excluding treasury shares) is under option to our people.
DIVIDENDS
Ordinary shareholders have received the following dividends in respect of each financial year:
Interim dividend per ordinary share
Final dividend per ordinary share
Total
20191
22.70p
–
22.70p
2018
22.70p
37.30p
60.00p
2017
22.70p
37.30p
60.00p
2016
19.55p
37.05p
56.60p
2015
15.91p
28.78p
44.69p
1 Given the significant uncertainty 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. Therefore, the Board is suspending the 2019 final dividend of 37.30p pence per share, which was due to be proposed at
the 2020 AGM.
202
202
WPP ANNUAL REPORT 2019 ADDITIONAL INFORMATIONWPP ANNUAL REPORT 2019 INFORMATION FOR SHAREHOLDERS
FINANCIAL CALENDAR
Interim statements for the half-year ending 30 June are issued in August.
AMERICAN DEPOSITARY RECEIPTS (ADRS)
Each ADR represents five ordinary shares.
Quarterly trading announcements are issued in April and October.
Interim dividends are paid in November.
Preliminary announcements of results for the financial year ending
31 December are issued in the first quarter.
Annual Reports are published in April.
Annual General Meetings are held in London in June.
SHARE PRICE
The closing price of the shares at 31 December was as follows:
At 24 April
2020
2019
2018
2017
2016
2015
Ordinary 10p
shares
545.0p 1,066.5p 846.6p 1,341.0p
1,816.0p 1,563.0p
Share price information is also available online at
wpp.com/investors/share‑price
ONLINE INFORMATION
WPP’s public website, wpp.com, provides current and historical financial
information, news releases, trading reports and share price information.
Go to wpp.com/investors
ACCESS NUMBERS/TICKER SYMBOLS
NYSE
–
Reuters
Bloomberg
WPP.L
WPP LN
Ordinary shares
American
Depositary Shares
WPP plc is subject to the informational requirements of the United States’
securities laws applicable to foreign companies and files an annual report
on Form 20-F and other information with the US Securities and Exchange
Commission. These documents are available at the Commission’s website,
sec.gov. Our reports on Form 20-F are also available from our Investor Relations
department in New York.
ADR DIVIDENDS
ADR holders are eligible for all stock dividends or other entitlements accruing
on the underlying WPP plc shares and receive all cash dividends in US dollars.
These are normally paid twice a year.
Dividend cheques are mailed directly to the ADR holder on the payment date
if ADRs are registered with WPP’s US depositary. Dividends on ADRs that are
registered with brokers are sent to the brokers, who forward them to ADR
holders. WPP’s US depositary is Citibank N.A. (address above).
Dividends per ADR in respect of each financial year are set out below.
In £ sterling
Interim
Final
Total
In US dollars2
Interim
Final
Total
20191
2018
2017
2016
2015
113.50p
113.50p
113.50p
97.75p
79.55p
–
186.50p 186.50p
185.25p
143.90p
113.50p
300.00p 300.00p 283.00p 223.45p
144.88¢
151.53¢
146.27¢
132.42¢
121.62¢
–
249.00¢
240.34¢
250.96¢
219.99¢
144.88¢
400.53¢
386.61¢
383.38¢
341.61¢
WPP
WPP.N
WPP US
1 Given the significant uncertainty over the coming months, we are taking prudent action now to
REGISTRAR AND TRANSFER OFFICE
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey
JE1 1ES
Enquiry number: 0870 707 1411
AMERICAN DEPOSITARY RECEIPTS (ADRS) OFFICE
Citibank N.A.
PO Box 43077
Providence
RI 02940–3077
Telephone enquiries: within the United States +1 877 248 4237
Telephone enquiries: outside the United States +1 781 575 4555
Email enquiries: citibank@shareholders-online.com
WPP REGISTERED OFFICE
Queensway House
Hilgrove Street
St Helier
Jersey
JE1 1ES
The Company’s registered number is 111714.
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 37.30p pence per share, which was due to be
proposed at the 2020 AGM.
2 These figures have been translated for convenience purposes only, using the approximate
average rate for the year of US$1.2765 (2018: US$1.3351, 2017: US$1.2887). 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.
Dollar amounts paid to ADR holders depend on the sterling/dollar exchange
rate at the time of payment.
No withholding tax is imposed on dividends paid to ADR holders and there will
be no entitlement to offset any part of the notional UK taxation credit against
any United States’ taxation liability. The dividends received will be subject to
United States’ taxation.
TAX INFORMATION
UK TAXATION
Dividends received from 6 April 2018
UK resident individuals receive a Dividend Allowance in the form of a 0% tax
rate on the first £2,000 of dividend income received each tax year.
Any dividends received over the Dividend Allowance are taxed at a rate of
7.5% on dividend income for individuals in the basic rate band, 32.5% for higher
rate tax payers and at 38.1% for individuals with income of £150,000 or more.
Capital gains tax
The market value of an ordinary share at 31 March 1982 was 39p. Since that date
rights issues have occurred in September 1986, August 1987 and April 1993. For
capital gains tax purposes the acquisition cost of ordinary shares is adjusted
to take account of such rights issues. Since any adjustments will depend on
individual circumstances, shareholders are advised to consult their
professional advisors.
Capital gains
As liability to capital gains tax on a disposal of WPP shares will depend
on individual circumstances, shareholders are advised to consult their
professional advisors.
203
203
WPP ANNUAL REPORT 2019ADDITIONAL INFORMATIONWPP ANNUAL REPORT 2019
FINANCIAL GLOSSARY
Term used in Annual Report
United States’ equivalent or brief description
ADRs/ADSs
Allotted
Average net debt and net debt
Billings
Called‑up share capital
Constant currency
ESOP
Estimated net new billings
EURIBOR
Finance lease
Free cash flow
American Depositary Receipts/American Depositary Shares. The Group uses the terms ADR and
ADS interchangeably. One ADR/ADS represents five ordinary shares
Issued
Average net debt is calculated as the average daily net borrowings of the Group. 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. Net debt excludes lease liabilities
Billings comprise the gross amounts billed to clients in respect of commission-based/fee-based
income together with the total of other fees earned
Ordinary shares, issued and fully paid
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
Employee share ownership plan
Net new billings represent the estimated annualised impact on billings of new business gained
from both existing and new clients, net of existing client business lost. The estimated impact is
based upon initial assessments of the clients’ marketing budgets, which may not necessarily
result in actual billings of the same amount
The euro area inter-bank offered rate for euro deposits
Capital lease
Free cash flow is calculated as cash generated by operations plus dividends received from
associates, interest received, investment income received, and proceeds from the issue of
shares, less corporation and overseas tax paid, interest and similar charges paid, dividends paid
to non-controlling interests in subsidiary undertakings, repayment of lease liabilities (including
interest), earnout payments and purchases of property, plant and equipment and purchases of
other intangible assets
Freehold
Ownership with absolute rights in perpetuity
General and administrative costs
Headline earnings
Headline EBITDA
Headline operating profit
Headline operating profit margin
Headline PBIT
Headline PBT
204
204
General and administrative costs include marketing costs, certain professional fees and an
allocation of other costs, including staff and establishment costs, based on the function of
employees within the Group
Headline PBT less headline tax charge and non-controlling interests
Profit before finance income/costs and revaluation 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,
amortisation of other intangibles, depreciation of property, plant and equipment, depreciation of
right-of-use 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
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
Headline operating profit margin is calculated as headline operating profit (defined above) as
a percentage of revenue less pass-through costs.
Profit before finance income/costs and revaluation 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
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 of financial instruments and gains/losses
on remeasurement of equity interests arising from a change in scope of ownership
WPP ANNUAL REPORT 2019 ADDITIONAL INFORMATIONWPP ANNUAL REPORT 2019 FINANCIAL GLOSSARY
Term used in Annual Report
United States’ equivalent or brief description
Headline tax charge
IFRS/IAS
LIBOR
Net working capital
OCI
Pass‑through costs
Pro forma (“like‑for‑like”)
Taxation excluding tax/deferred tax relating to gains on disposal of investments and subsidiaries,
tax credit relating to gain on sale of freehold property in New York, tax charge relating to
litigation settlement, deferred tax impact of the amortisation of acquired intangible assets and
other goodwill items, the tax impact of the 2017 United States’ tax reform and tax credit relating
to restructuring and transformation costs
International Financial Reporting Standard/International Accounting Standard
The London inter-bank offered rate
The movement in net working capital consists of movements in trade working capital and
movements in other working capital and provisions per the analysis of cash flows note
Consolidated statement of comprehensive income
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 and data
collection costs
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
Profit
Income
Profit attributable to equity holders of the parent
Net income
Revenue less pass‑through costs
Sarbanes‑Oxley Act or SOX
Share capital
Shares in issue
Revenue less pass-through costs is revenue less media, data collection and other
pass-through costs
An Act passed in the United States to protect investors by improving the accuracy and reliability
of corporate disclosures made pursuant to the securities laws, and for other purposes
Ordinary shares, capital stock or common stock issued and fully paid
Shares outstanding
Share premium account
Additional paid-in capital or paid-in surplus (not distributable)
UK Corporate Governance Code
The UK Corporate Governance Code published by the Financial Reporting Council dated
April 2016
FORWARD-LOOKING STATEMENT
In connection with the provisions of the Private Securities Litigation Reform
Act of 1995 (the ‘Reform Act’), the Company 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 other
major currencies (because a substantial portion of its revenues are derived
and costs incurred outside of the UK) 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 under the heading Principal risks on
pages 85-91, 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.
205
205
WPP ANNUAL REPORT 2019ADDITIONAL INFORMATIONWPP ANNUAL REPORT 2019
WHERE TO FIND US
COMPANY CENTRES
WPP NEW YORK
3 World Trade Center
175 Greenwich Street
New York NY 10007
Tel +1 (212) 632 2200
WPP LONDON
Sea Containers
18 Upper Ground
London SE1 9GL
Tel +44 (0)20 7282 4600
WPP ASIA PACIFIC
50 Scotts Road
Singapore 228242
Tel +65 6508 5219
COMPANY INFORMATION
If you would like further general information about WPP, its
companies or any of the programmes or initiatives mentioned in this
Annual Report, please visit our website, wpp.com, or email:
enquiries@wpp.com
BUSINESS DEVELOPMENT
For more about WPP companies’ professional services,
please contact:
Jason Day
jason.day@wpp.com
206
206
CONTACT POINTS
INVESTOR RELATIONS
John Rogers
Chief Financial Officer Designate
Tel +44 (0)20 7282 4600
john.rogers@wpp.com
Peregrine Riviere
Group Investor Relations Director
London
Tel +44 (0)20 7282 4600
peregrine.riviere@wpp.com
Fran Butera
Investor Relations Director
New York
Tel +1 (212) 632 2235
fran.butera@wpp.com
INVESTOR INFORMATION
Investor relations material and our financial statements are available
online at wpp.com/investors
CORPORATE COMMUNICATIONS
AND MEDIA RELATIONS
Chris Wade
Chief Communications Officer
Tel +44 (0)20 7282 4600
chris.wade@wpp.com
EMEA
Niken Wresniwiro
Tel +44 (0)20 7282 4600
niken.wresniwiro@wpp.com
NORTH AMERICA
Kevin McCormack
Tel +1 (212) 632 2200
kevin.mccormack@wpp.com
ASIA PACIFIC
Juliana Yeh
Tel +852 2280 3790
juliana.yeh@wpp.com
SUSTAINABILITY
Andrea Harris
Tel +44 (0)20 7282 4600
andrea.harris@wpp.com
Written by WPP
Designed and produced by Superunion, London
superunion.com
©WPP 2020
This product is made of material from well-managed, FSC®-certified forests
and other controlled sources. Printed in the UK by Pureprint Group.
A CarbonNeutral® company, certificated to Environmental Management
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WPP ANNUAL REPORT 2019 ADDITIONAL INFORMATIONWPP ANNUAL REPORT 2019
WPP AT DREAMFORCE 2019
Dreamforce is Salesforce’s flagship
annual event that brings over
170,000 industry leaders together
to collaborate, learn and inspire.
As a first-time sponsor of the event
in 2019, WPP came out strong with a
beautiful activation that was inspired
by our brand identity. “Living Art”
was designed by WPP agency MJM
and featured renowned artist Alexa
Meade. Our creative, brand-inspired
booth was recognised by Salesforce
as a “Best in Show”.
TO BE UPDATED