UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

(Mark One)

 

☐

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

 

OR

 

☒

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

 

For the fiscal year ended 31 December 2018

 

OR

 

☐

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

 

OR

 

☐

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

 

Date of event requiring this shell company report                  

 

For the transition period from                    to                 

 

 

Commission file number 001-38303

 

WPP plc

(Exact Name of Registrant as specified in its charter)

 

Jersey

(Jurisdiction of incorporation or organization)

 

Sea Containers, 18 Upper Ground

London, United Kingdom, SE1 9GL

(Address of principal executive offices)

 

Andrea Harris

Group Chief Counsel

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

Telephone: +44(0) 20 7282 4600

E-mail: andrea.harris@wpp.com

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

 

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

 

Title of each class		Name of each exchange on which registered
Ordinary Shares of 10p each American Depositary Shares, each representing five Ordinary Shares (ADSs)		New York Stock Exchange

 

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

 

Not applicable

 

(Title of Class)

 

Not applicable

 

(Title of Class)

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

 

None

 

(Title of Class)

 

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

 

At December 31, 2018, the number of outstanding ordinary shares was 1,332,678,227 which included at such date ordinary shares represented by 13,929,272 ADSs.

 

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

 

YES  ☒    NO  ☐

 

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

 

YES  ☐    NO  ☒

 

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

 

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

 

YES  ☒    NO  ☐

 

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

 

YES  ☒    NO  ☐

 

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

 

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Emerging growth company		☐

 

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

 

†

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

 

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

 

U.S. GAAP  ☐		International Financial Reporting Standards as issued by the International Accounting Standards Board  ☒		Other  ☐

 

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

 

Item 17  ☐    Item 18  ☐

 

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

 

YES  ☐    NO  ☒

 

 

 

TABLE OF CONTENTS

 

						Page
FORWARD – LOOKING STATEMENTS							1
Part I							1
Item 1		IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS					1
Item 2		OFFER STATISTICS AND EXPECTED TIMETABLE					1
Item 3		KEY INFORMATION					1
		A		Selected Financial Data			1
		B		Capitalization and Indebtedness			3
		C		Reasons for the Offer and Use of Proceeds			3
		D		Risk Factors			3
Item 4		INFORMATION ON THE COMPANY					5
		A		History and Development of the Company			5
		B		Business Overview			7
		C		Organizational Structure			12
		D		Property, Plant and Equipment			13
Item 4A		UNRESOLVED STAFF COMMENTS					14
Item 5		OPERATING AND FINANCIAL REVIEW AND PROSPECTS					14
		A		Operating Results			14
		B		Liquidity and Capital Resources			22
		C		Research and Development, Patents and Licenses, etc.			23
		D		Trend Information			24
		E		Off-Balance Sheet Arrangements			24
		F		Tabular Disclosure of Contractual Obligations			24
Item 6		DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES					34
		A		Directors and Senior Management			34
		B		Compensation			36
		C		Board Practices			40
		D		Employees			48
		E		Share Ownership			49
Item 7		MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS					50
		A		Major Shareholders			50
		B		Related Party Transactions			51
		C		Interests of Experts and Counsel			51
Item 8		FINANCIAL INFORMATION					51
		A		Consolidated Statements and Other Financial Information			51
		B		Significant Changes			51
Item 9		THE OFFER AND LISTING					52
		A		Offer and Listing Details			52
		B		Plan of Distribution			52
		C		Markets			52
		D		Selling Shareholders			52
		E		Dilution			52
		F		Expenses of the Issue			52

						Page
Item 10		ADDITIONAL INFORMATION					53
		A		Share Capital			53
		B		Memorandum and Articles of Association			53
		C		Material Contracts			61
		D		Exchange Controls			65
		E		Taxation			65
		F		Dividends and Paying Agents			70
		G		Statements by Experts			70
		H		Documents on Display			70
		I		Subsidiary Information			70
Item 11		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK					71
Item 12		DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES					71
		A		Debt Securities			71
		B		Warrants and Rights			71
		C		Other Securities			71
		D		American Depositary Shares			72
Part II							74
Item 13		DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES					74
Item 14		MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS					74
Item 15		CONTROLS AND PROCEDURES					74
Item 16A		AUDIT COMMITTEE FINANCIAL EXPERT					76
Item 16B		CODE OF ETHICS					76
Item 16C		PRINCIPAL ACCOUNTANT FEES AND SERVICES					76
Item 16D		EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES					77
Item 16E		PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS					77
Item 16F		CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT					77
Item 16G		CORPORATE GOVERNANCE					77
Item 16H		MINE SAFETY DISCLOSURE					78
Part III							79
Item 17		FINANCIAL STATEMENTS					79
Item 18		FINANCIAL STATEMENTS					79
Item 19		EXHIBITS					79

 

Forward-Looking Statements

 

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

 

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

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3. KEY INFORMATION

 

Overview

 

WPP plc and its subsidiaries (WPP) is a leading worldwide creative transformation organisation offering national and multinational clients a comprehensive range of communications, experience, commerce and technology services. At 31 December 2018, the Group, excluding associates, had 134,281 employees. For the year ended 31 December 2018, the Group had revenue of £15,602.4 million and operating profit of £1,431.4 million.

 

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

 

A. Selected Financial Data

 

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

 

The selected income statement data for each of the years ended 31 December 2018, 2017 and 2016 and the selected balance sheet data as at 31 December 2018 and 2017 are derived from the consolidated financial statements of the Company that appear elsewhere in this Form 20-F. The selected financial data for prior periods

 

1

is derived from the consolidated financial statements of the Company previously filed with the Securities and Exchange Commission (SEC) as part of the Company’s Annual Reports on Form 20-F. The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

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

 

Selected Consolidated Income Statement Data

 

		Year ended 31 December
		2018 £m				2017 1 £m				2016 1 £m				2015 £m				2014 £m
Revenue			15,602.4				15,804.2				14,887.3				12,235.2				11,528.9
Operating profit			1,431.4				1,908.2				2,063.1				1,632.0				1,507.3
Profit for the year			1,139.4				1,912.3				1,501.6				1,245.1				1,151.5
Profit attributable to equity holders of the parent			1,062.9				1,816.6				1,400.1				1,160.2				1,077.2
Earnings per ordinary share:
Basic			85.2	p			144.0	p			109.6	p			90.0	p			82.4	p
Diluted			84.3	p			142.4	p			108.0	p			88.4	p			80.5	p
Earnings per ADS 2 :
Basic			426.0	p			720.0	p			548.0	p			450.0	p			412.0	p
Diluted			421.5	p			712.0	p			540.0	p			442.0	p			402.5	p
Dividends per ordinary share			60.00	p			59.75	p			48.33	p			42.49	p			35.27	p
Dividends per ADS (US dollars) 3			391.87	¢			397.23	¢			352.41	¢			340.57	¢			280.73	¢
1     Prior year figures have been restated for the impact of the adoption of IFRS 15 Revenue from Contracts with Customers, as described in the accounting policies section of the consolidated financial statements. No restatement has been made in 2015 or 2014. 2     Basic and diluted earnings per American Depositary Share (ADS) have been calculated using the same method as earnings per share, multiplied by a factor of five. 3     These figures have been translated for convenience purposes only, using the approximate average exchange rates of US$1.3351 to pound sterling for the year 2018 (2017: US$1.2887, 2016: US$1.3547, 2015: US$1.5288, 2014: US$1.6475). 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.

 

Selected Consolidated Balance Sheet Data

 

		At 31 December
		2018 1 £m				2017 2 £m				2016 2 £m				2015 £m				2014 £m
Total assets			33,867.7				33,662.8				34,562.4				28,749.2				26,622.9
Net assets			9,806.6				9,956.1				9,761.7				8,015.8				7,826.8
Called-up share capital			133.3				133.3				133.2				132.9				132.6
Number of shares (in millions)			1,332.7				1,332.5				1,331.9				1,329.4				1,325.7
1    IFRS 9 Financial Instruments has been adopted from 1 January 2018 as described in the accounting policies section of the consolidated financial statements. No restatement has been made for years prior to 2018. 2     Prior year figures have been restated for the impact of the adoption of IFRS 15 Revenue from Contracts with Customers, as described in the accounting policies section of the consolidated financial statements. No restatement has been made in 2015 or 2014.

 

Dividends

 

Dividends on the Company’s ordinary shares, when paid, are paid to share owners as of a record date, which is fixed by the Company. The following table sets forth the amounts of interim or first interim, final or second interim and total dividends paid on the Company’s ordinary shares in respect of each fiscal year indicated. In the United States, the Company’s ordinary shares are represented by ADSs, which are evidenced by American

 

2

Depositary Receipts (ADRs) or held in book-entry form. The Group uses the terms ‘ADS’ and ‘ADR’ interchangeably. The dividends are also shown translated into US cents per ADS using the approximate average rates as shown on page 2, for each year presented.

 

		Pence per ordinary share												US cents per ADS
In respect of the year ended 31 December:		Interim or First Interim				Final or Second Interim				Total				Interim or First Interim				Final or Second Interim				Total
2014			11.62				26.58				38.20				95.72				218.95				314.67
2015			15.91				28.78				44.69				121.62				219.99				341.61
2016			19.55				37.05				56.60				132.42				250.96				383.38
2017			22.70				37.30				60.00				146.27				240.34				386.61
2018			22.70				37.30				60.00				151.53				249.00				400.53

 

The 2018 interim dividend was paid on 5 November 2018 to share owners on the register at 5 October 2018. The 2018 final dividend will be paid on 8 July 2019 to share owners on the register at 14 June 2019.

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D. Risk Factors

 

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

 

Principal risk		Potential impact
Clients
The Group competes for clients in a highly-competitive and evolving industry which is undergoing structural change. Client loss to competitors or as a consequence of client consolidation or a reduction in marketing budgets due to economic conditions or a shift in client spending may have a material adverse effect on our market share, business, revenues, results of operations, financial condition or prospects.		The competitive landscape in our industry is constantly evolving and the role of traditional agencies is being challenged. Competitors include multinational advertising and marketing communication groups, regional and national 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.   The global economy continues to be volatile with uncertainties such as those caused by Brexit in the UK and Europe and technological disruption from disintermediators. 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.

 

3

Principal risk		Potential impact
The Group receives a significant portion of our revenues from a limited number of large clients and the net loss of one or more of these clients could have a material adverse effect on our prospects, business, financial condition and results of operations.		A relatively small number of clients contribute a significant percentage of our consolidated revenues. Our 10 largest clients accounted for 14.4% of revenues in the year ended 31 December 2018. 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.
Cyber and data security
The Group is subject to strict data protection and privacy legislation in the jurisdictions in which we operate and relies 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, General Data Protection Regulation (GDPR) and e-privacy regulation in the EU concerning user privacy, use of personal information, consent and online tracking may restrict some of our activities and increase costs.   The Group is part way through an IT Transformation project and relies 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.		The Group 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.
Financial
The Group is subject to credit risk through the default of a client or other counterparty.		The Group is generally paid in arrears for its services. Invoices are typically payable within 30 to 60 days.   The Group commits 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.
Operational
The Group’s performance could be adversely impacted if it failed to ensure adequate internal control procedures are in place in relation to media trading.		Failure to ensure that trading activities are compliant with client obligations where relevant could adversely impact client relationships and business volumes.
The Group has commenced a three-year strategic plan to return the business to growth by the end of 2021 which includes the merger of some operations, disposals and the simplification of our structure.		A failure or delay in implementing the transformation plan may have a material adverse effect on our market share and our business, revenues, results of operations, financial condition or prospects.
People and succession
The Group’s performance could be adversely affected if it does not react quickly enough to changes in our market and fails to attract, develop and retain key creative, commercial and management talent.		The Group is highly dependent on the talent, creative abilities and technical skills of our personnel as well as their relationships with clients. We are vulnerable to the loss of personnel to competitors (traditional and emerging) and clients, leading to disruption to the business.

 

4

Principal risk		Potential impact
Regulatory, sanctions, anti-trust and taxation
The Group may be subject to regulations restricting its activities or effecting changes in taxation.		Changes in local or international tax rules, for example prompted by the OECD’s Base Erosion and Profit Shifting project (a global initiative to improve the fairness and integrity of tax systems), changes arising from the application of existing rules, or new challenges by tax or competition authorities, for example, the European Commission’s State Aid investigation into 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 is subject to strict anti-corruption, anti-bribery and anti-trust legislation and enforcement in the countries in which it operates.		The Group operates 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.
The Group is 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 the Group to civil and criminal penalties including fines and the imposition of economic sanctions against the Group and reputational damage and withdrawal of banking facilities which could materially impact the Group’s results.
Civil liabilities or judgements against the Company or its directors or officers based on United States federal or state securities laws may not be enforceable in the United States or in England and Wales or in Jersey.		The Company is a public limited company incorporated under the laws of Jersey. Some of the Company’s directors and officers reside outside of the United States. In addition, a substantial portion of the directly owned assets of the Company are located outside of the United States. As a result, it may be difficult or impossible for investors to effect service of process within the United States against the Company or its directors and officers or to enforce against them any of the judgements, including those obtained in original actions or in actions to enforce judgements of the U.S. courts, predicated upon the civil liability provisions of the federal or state securities laws of the United States.

 

ITEM 4. INFORMATION ON THE COMPANY

 

WPP’s offer to clients encompasses communications, experience, commerce and technology. The Company provides these services through a number of established global, multinational and national operating companies that are organised into four business segments. Our largest segment is Advertising and Media Investment Management, which accounted for approximately 46% of the Company’s revenues in 2018. The remaining 54% of our revenues were derived from the business segments of Data Investment Management; Public Relations & Public Affairs; and Brand Consulting, Health & Wellness and Specialist Communications (including direct, interactive and ecommerce). Excluding associates, the Company currently employs over 130,000 full-time people in 112 countries.

 

The Company’s ordinary shares are admitted to the Official List of the UK Listing Authority and trade on the London Stock Exchange and American Depositary Shares (which are evidenced by ADRs or held in book-entry form) representing deposited ordinary shares are listed on the New York Stock Exchange (NYSE). At 23 April 2019 the Company had a market capitalisation of approximately £11.814 billion.

 

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

 

A. History and Development of the Company

 

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

 

On 2 January 2013, under a scheme of arrangement between WPP 2012 Limited (formerly known as WPP plc), (Old WPP), the former holding company of the Group, and its share owners pursuant to Article 125 of the Companies (Jersey) Law 1991, and as sanctioned by the Royal Court of Jersey (the Jersey Court), a Jersey incorporated and United Kingdom tax resident company, WPP 2012 plc became the new parent company of the

 

5

WPP Group and adopted the name WPP plc. Under the scheme of arrangement, all the issued shares in Old WPP were cancelled and the same number of new shares were issued to WPP plc in consideration for the allotment to share owners of one share in WPP plc for each share in Old WPP held on the record date, 31 December 2012. Citibank, N.A., depositary for the ADSs representing Old WPP shares, cancelled Old WPP ADSs held in book-entry uncertificated form in the direct registration system maintained by it and issued ADSs representing shares of WPP plc in book entry uncertificated form in the direct registration system maintained by it to the holders. Holders of certificated ADSs, or ADRs, of Old WPP were entitled to receive ADSs of WPP plc upon surrender of the Old WPP ADSs, or ADRs, to the Depositary. Each Old WPP ADS represented five shares of Old WPP and each WPP plc ADS represents five shares of WPP plc.

 

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

 

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

 

The Company received £440.3 million and spent £228.8 million and £697.1 million related to acquisitions and investments in 2018, 2017 and 2016, respectively, including payments in respect of earnout payments resulting from acquisitions in prior years, net of cash and cash equivalents acquired (net) and proceeds on disposal of investments. For the same periods, cash spent on purchases of property, plant and equipment and other intangible assets was £375.2 million, £326.2 million and £285.1 million, respectively, and cash spent on share repurchases and buy-backs was £207.1 million, £504.2 million and £427.4 million, respectively.

 

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

 

6

B. Business Overview

 

Introduction

 

Certain Non-GAAP measures included in this business overview and in the operating and financial review and prospects have been derived from amounts calculated in accordance with IFRS but are not themselves IFRS measures. They should not be viewed in isolation as alternatives to the equivalent IFRS measure, rather they should be read in conjunction with the equivalent IFRS measure. These include constant currency, pro-forma (‘like-for-like’), headline PBIT (Profit Before Interest and Taxation), headline PBT (Profit Before Taxation), headline EBITDA (Earnings before Interest, Taxation, Depreciation and Amortisation), billings, estimated net new billings, free cash flow and net debt and average net debt, which we define, explain the use of and reconcile to the nearest IFRS measure on pages 25 to 28.

 

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

 

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

 

Revenue 1		2018								2017 2								2016 2
		£m				% of total				£m				% of total				£m				% of total
Advertising and Media Investment Management			7,132.4				45.6				7,368.7				46.6				6,709.4				45.1
Data Investment Management			2,582.5				16.6				2,703.4				17.1				2,672.4				17.9
Public Relations & Public Affairs			1,210.7				7.8				1,204.0				7.6				1,130.6				7.6
Brand Consulting, Health & Wellness and Specialist Communications			4,676.8				30.0				4,528.1				28.7				4,374.9				29.4
Total			15,602.4				100.0				15,804.2				100.0				14,887.3				100.0

1

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

2

Prior year figures have been restated for the impact of the adoption of IFRS 15 Revenue from Contracts with Customers, as described in the accounting policies section of the consolidated financial statements.

 

Revenue less pass-through costs 1		2018								2017 2								2016 2
		£m				% of total				£m				% of total				£m				% of total
Advertising and Media Investment Management			5,529.7				43.1				5,889.3				44.7				5,450.9				43.9
Data Investment Management			1,965.4				15.3				2,052.1				15.6				1,994.0				16.0
Public Relations & Public Affairs			1,136.3				8.9				1,140.6				8.7				1,078.5				8.7
Brand Consulting, Health & Wellness and Specialist Communications			4,195.2				32.7				4,087.6				31.0				3,905.2				31.4

1

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

2

Prior year figures have been restated for the impact of the adoption of IFRS 15 Revenue from Contracts with Customers, as described in the accounting policies section of the consolidated financial statements.

 

7

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

 

Revenue 1		2018								2017 3								2016 3
		£m				% of total				£m				% of total				£m				% of total
North America 2			5,371.0				34.4				5,659.2				35.8				5,400.9				36.3
United Kingdom			2,189.4				14.0				2,133.4				13.5				1,970.7				13.2
Western Continental Europe			3,335.3				21.4				3,230.6				20.4				3,008.5				20.2
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe			4,706.7				30.2				4,781.0				30.3				4,507.2				30.3
Total			15,602.4				100.0				15,804.2				100.0				14,887.3				100.0

1

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

2

North America includes the US with revenue of £5,074.1 million (2017: £5,336.3 million, 2016: £5,107.2 million).

3

Prior year figures have been restated for the impact of the adoption of IFRS 15 Revenue from Contracts with Customers, as described in the accounting policies section of the consolidated financial statements.

 

Revenue less pass-through costs 1		2018								2017 3								2016 3
		£m				% of total				£m				% of total				£m				% of total
North America 2			4,474.2				34.9				4,793.9				36.4				4,598.4				37.0
United Kingdom			1,691.3				13.2				1,688.0				12.8				1,590.2				12.8
Western Continental Europe			2,735.4				21.3				2,630.6				20.0				2,438.3				19.6
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe			3,925.7				30.6				4,057.1				30.8				3,801.7				30.6

1

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

2

North America includes the US with revenue less pass-through costs of £4,236.7 million (2017: £4,535.3 million, 2016: £4,359.7 million).

3

Prior year figures have been restated for the impact of the adoption of IFRS 15 Revenue from Contracts with Customers, as described in the accounting policies section of the consolidated financial statements.

 

The Company’s principal disciplines and operating companies within each of its business segments are described below.

 

Advertising and Media Investment Management

 

Advertising – WPP’s creative advertising services are delivered through our integrated agency networks, which include Ogilvy, Wunderman Thompson, VMLY&R and Grey. Among the principal functions of these agencies are the planning and creation of marketing and branding campaigns and the design and production of advertisements across all media.

 

Media Investment Management – GroupM is the world’s leading media investment company responsible for more than $45 billion in annual media investment through agencies including Mindshare, MediaCom, Wavemaker, Essence and m/SIX, as well as the outcomes-driven programmatic audience company, Xaxis.

 

Data Investment Management

 

WPP’s data investment management services are delivered through Kantar, one of the world’s leading data, insights and consulting company.

 

8

Public Relations & Public Affairs

 

WPP’s public relations and public affairs companies advise clients who are seeking to communicate with a range of stakeholders from consumers to governments and the business and financial communities. They include Burson Cohn & Wolfe and Hill+Knowlton Strategies.

 

Brand Consulting, Health & Wellness and Specialist Communications

 

Brand Consulting – Our consumer, corporate and employee brand consulting and design services, covering areas such as brand strategy, creative services, digital corporate communications, identity, motion graphics and packaging, are delivered through firms such as Landor and Superunion.

 

Health & Wellness – WPP provides integrated health marketing solutions through its main agency networks in the US and, internationally, specialist firms such as ghg, Sudler and Ogilvy Healthworld.

 

Specialist Communications (including direct, interactive and ecommerce) – WPP provides a full range of specialist communications services, including digital marketing, production, ecommerce, shopper, direct, field, retail, promotional, point-of-sale, sports marketing and events.

 

WPP Head Office

 

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

 

Our new strategy in 2018

 

We describe our new strategy as a radical evolution. It’s radical because we are making tough decisions and taking decisive action – having restructured a large proportion of our revenue base in 2018 – but an evolution because we are changing our business in a way that respects the people and things that make WPP such a great organisation. WPP has substantial assets, the most important of which is our people. As a talent business we need to transform at the right pace, and bring our people with us on the journey.

 

Our strategy focuses on growth. The restructuring of our business and associated cost savings will enable increased investment in creativity, technology and talent, so that we are well positioned for top-line growth in the future.

 

We aim to deliver this strategy over the next three years, incurring cash costs for restructuring of £300 million. The annual savings are anticipated to be £275 million by the end of 2021, approximately half of which will be reinvested in the business.

 

Our five elements to our new corporate strategy are:

 

•

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

 

•

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

 

•

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

 

•

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

 

9

•

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

 

Sustainability

 

Our clients look to us to provide the insight, expertise and creative solutions they need to navigate this changing landscape and communicate their purpose effectively and authentically. Our own sustainability strategy helps us to do this with credibility, meeting changing client expectations while reducing risks and creating a more resilient business for the long term.

 

Our sustainability strategy aligns with all five elements of our new corporate strategy, which we introduced in late 2018. We work with clients on sustainability across our disciplines. This work is growing in importance as more of our clients seek to develop brands with purpose and to integrate social and environmental values into their communication. Below sets out the most material ways in which sustainability supports our strategy.

 

•

Vision & Offer.

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.

 

•

Creativity.

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

 

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

 

•

Data & Technology.

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

 

•

Simpler Structure.

Greener office space: Our work to simplify our structure and consolidate our office space is driving a positive impact on our energy use and carbon footprint. We are reducing the overall number of offices we occupy, moving to locations that use green building standards and reduce our impact, help us to use space more efficiently and encourage collaboration between our companies.

 

•

Culture.

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

 

Clients

 

•

£2.07 billion revenues generated through clients who engaged with us on sustainability, equivalent to approximately 13% of our total revenue.

 

10

People

 

•

We spent £45.5 million on training in 2018.

 

•

At year-end 2018, women comprised 36% of the WPP Board and Executive leadership roles, 49% of Senior Managers, and 54% of total employees.

 

Environment

 

•

Our scope 1 and 2 market-based emissions per employee for 2018 were to 0.74 tonnes of CO 2 e, a 9% reduction from 2017.

 

Social investment

 

•

Our pro bono work was worth £11.3 million in 2018. We also made cash donations to charities of £6.2 million, resulting in a social investment worth £17.5 million. This is equivalent to 1.20% of profit before tax.

 

•

WPP media agencies negotiated free media space worth £23.8 million on behalf of pro bono clients, 1.63% of profit before tax.

 

Clients

 

The Group works with 369 of the Fortune Global 500, all 30 of the Dow Jones 30, and 71 of the NASDAQ 100.

 

The Company’s 10 largest clients accounted for 14.4% of the Company’s revenues in the year ended 31 December 2018. No client of the Company represented more than 5% of the Company’s aggregate revenues in 2018. The Group’s companies have maintained long-standing relationships with many of their clients, with an average length of relationship for the top 10 clients of approximately 50 years.

 

Government Regulation

 

From time to time, governments, government agencies and industry self-regulatory bodies in the United States, European Union and other countries in which the Company operates have adopted statutes, regulations, and rulings that directly or indirectly affect the form, content, and scheduling of advertising, public relations and public affairs, and market research, or otherwise limit the scope of the activities of the Company and its clients. Some of the foregoing relate to privacy and data protection and general considerations such as truthfulness, substantiation and interpretation of claims made, comparative advertising, relative responsibilities of clients and advertising, public relations and public affairs firms, and registration of public relations and public affairs firms’ representation of foreign governments.

 

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

 

IT

 

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

 

11

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 operating companies. Our Group Chief Privacy Officer and Data Protection Officer are working with our internal audit team to review privacy risks and practices as part of our company-wide audit programme.

 

In 2018, we launched WPP’s Data Privacy and Security Charter to help us communicate our approach to data to our people and our clients. This brings together our Data Code of Conduct, which sets out core principles for responsible data management, with our IT security, privacy and social media policies, and our security standards (which are based on ISO 27001).

 

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 use our Data Health Checker to review privacy risks and data security practices in our businesses. This provides us with insight into how data is used, stored and transferred and helps to identify any parts of the business that need further support on data practices. The results showed that the majority of our companies have mitigation measures that match or exceed their level of privacy risk, with the average risk score being 2.16 out of 5, where 5 is the maximum score possible indicating maximum risk. Of those companies surveyed, 80% have a dedicated privacy lead.

 

The IT Transformation project will enhance our data security. In addition, we have established a global internal IT company responsible for providing core IT shared services to our companies and manage external technology providers.

 

C. Organizational Structure

 

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

 

12

D. Property, Plant and Equipment

 

The majority of the Company’s properties are leased, although certain properties which are used mainly for office space are owned. In the United States the sole owned property was the 214,000 square foot VMLY&R office condominium for their headquarters located at 3 Columbus Circle in New York, New York, which was sold and converted to a leased location in Q1 2019 in addition to 160,000 of square feet of space already leased. Other owned properties are in Latin America (principally in Argentina, Brazil, Chile, Mexico, Peru and Puerto Rico), Asia (India and China) and in Europe (Spain, France, UK and Italy). In Europe, owned properties include the 135,626 square foot TNS office located at 2 Rue Francis Pedron, Chambourcy, Paris, France and the 101,592 square foot TNS House at Westgate, Hangar Lane, London. Manufacturing facilities are owned in the United Kingdom. Principal leased properties, which are accounted for as operating leases, include office space at the following locations:

 

Location		Use			Approximate square footage
3 World Trade Center, New York, NY		GroupM, Mindshare, Wavemaker, Mediacom, Kantar (Occupancy Q4 2018)			690,000
636 Eleventh Avenue, New York, NY		Ogilvy, Geometry, MJM			564,000
399 Heng Feng Road, Zhabei, Shanghai		Ogilvy, GroupM, Wavemaker, Mediacom, Mindshare, Geometry, Kantar, Hill+Knowlton Strategies, GTB, Sudler MDS, Burson Cohn & Wolfe, Peclars, Hogarth, Wunderman Thompson, Superunion, Kinetic.			464,200
498 Seventh Avenue, New York, NY		GroupM, Mindshare, Wavemaker, Mediacom (Lease expired Q4 2018, Employees transferred to 3 World Trade Center)			401,000
Calle de Ríos Rosas, 26, Madrid, Spain		GroupM, Grey, Kantar, WPP Health & Wellness, Ogilvy, Hill+Knowlton Strategies, Burson Cohn & Wolfe, Axicom, WPP, Lambie Nairn, Finance +, Superunion, SCPF VMLY&R, Wunderman Thompson (Fully occupied Q1 2019)			382,402
The Orb Adjacent to JW Marriott Sahar, Chatrapati Shivaji International Airport, Andheri East, Mumbai		GroupM, Ogilvy, Kantar, Grey, Wunderman Thompson, H+K, Fitch, Landor, VMLY&R, Genesis BM & PPR.			375,000
3 Columbus Circle, New York, NY		VMLY&R, Wunderman Thompson, Midas Exchange, Berlin Cameron, CMI (See discussion above)			374,000
200 Fifth Avenue and 23 West 23 rd Street, New York, NY		Grey, Burson Cohn & Wolfe, ghg, GCI Health			349,000
230 Park Avenue South, New York, NY		Burson Cohn & Wolfe, Landor, Sudler & Hennessey, Hogarth, Kinetic (Exiting H1 2019)			301,000
Tower B, DLF Cyber Park, Gurgaon		GroupM, Ogilvy, Wunderman Thompson, Hogarth, Grey, Kantar, AKQA, ADK (Q1 2020 Occupancy)			288,000
500/550 Town Center Drive, Dearborn, MI		Global Team Blue, PRISM, Burrows, Possible, VMLY&R			282,900
222 Merchandise Mart / 350 N Orleans, Chicago IL		Ogilvy, Wunderman Thompson, Geometry, Global Team Blue, Kantar, GroupM, Burson Cohn & Wolfe, Hill+Knowlton Strategies, The Futures Company, Kinetic			277,400
333 North Green Street, Chicago, IL		Ogilvy, Wunderman Thompson, Geometry, GTB, Kantar, GroupM, Burson Cohn & Wolfe, Hill+Knowlton Strategies, The Futures Company, Kinetic, VMLY&R (Estimated Q1 2020 Occupancy)			263,356
125 Queens Quay, Toronto, Canada		GroupM, Ogilvy, Kantar, Wunderman Thompson, VMLY&R, Grey, H&K (Estimated Q4 2021 Occupancy)			258,053
Sea Containers House, Upper Ground, London SE1		Ogilvy, Wavemaker, WPP, Kantar			226,000

 

The Company considers its properties, owned or leased, to be in good condition and generally suitable and adequate for the purposes for which they are used. At 31 December 2018, the fixed asset value (cost less depreciation) representing land, freehold buildings and leasehold buildings as reflected in the Company’s consolidated financial statements was £780.6 million.

 

In 2018, 21% of our floorspace was certified to advanced sustainability standards like LEED and BREEAM. Our target is 25% of global floor space certified to advanced green building standards by 2020.

 

We will continue to develop Campus co-locations to house our agencies in major cities, which deliver world-class working environments and increased efficiencies. The focus for 2019 includes 80 closures at local office

 

13

level by end of 2019 and opening of new WPP Campuses such as Madrid and Amsterdam. 70 of the 100 planned office mergers have been completed and 57 of the 80 offices have been closed.

 

See note 3 to the consolidated financial statements for a schedule by years of future minimum rental payments to be made and future sublease rental payments to be received, as at 31 December 2018, under non-cancelable operating leases of the Company.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

As introduced on page 7, certain Non-GAAP measures are included in the operating and financial review and prospects.

 

A. Operating Results

 

Overview

 

The Company is one of the world’s most comprehensive marketing communications groups. It operates through a large number of established national, multinational and global advertising and marketing services companies. The Company offers services in four reportable segments:

 

•

Advertising and Media Investment Management;

 

•

Data Investment Management;

 

•

Public Relations & Public Affairs; and

 

•

Brand Consulting, Health & Wellness and Specialist Communications

 

In 2018, approximately 46% of the Company’s consolidated revenues were derived from Advertising and Media Investment Management, with the remaining 54% of its revenues being derived from the remaining three segments.

 

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

 

During 2018 we focused on a number of short-term strategic priorities, as well as on formulating a new long-term strategy, which was announced in December. The actions taken in 2018 are outlined below.

 

•

Focus on our clients. Emphasis on providing faster, more agile, more effectively integrated solutions for our clients.

 

•

Continue to simplify our organisation. Creation of VMLY&R, a new brand experience agency formed by the merger of VML and Y&R. Integration of our healthcare agencies with Ogilvy, VMLY&R and Wunderman. Began Wunderman and J. Walter Thompson merger to create Wunderman Thompson, a new creative, data and technology agency. VML, Y&R, Wunderman, J. Walter Thompson and WPP Health & Wellness collectively account for 23% of WPP revenue. Opened/announced further Campus co-locations including New York, Prague and Toronto. Completion of Burson Cohn & Wolfe merger.

 

•

Embed data and technology much more deeply into our offer. New data and technology team in place. First WPP Chief Technology Officer appointed.

 

•

Invest in talent that represents our changing world. Formation of new central team with key appointments including Chief Operating Officer, Chief Client Officer and Chief Technology Officer. WPP Executive Committee established for the first time, drawn from corporate and operating company leadership.

 

14

•

Evaluate the shape of the portfolio to maximise shareholder value and release capital. 30 disposals in 2018, raising £849 million to reduce our debt. Initiated a strategic review of options in relation to Kantar to maximise shareholder value. The intention is to continue to develop Kantar while remaining a shareholder with strategic links to the business.

 

The share price decreased by 37% in 2018, closing at 846.6p at year end. Since then it has risen to 936.2p, up 11%, at 23 April 2019. Dividends remain flat at 60.00p in 2018, same as prior year.

 

Revenue was down 1.3% at £15.602 billion. Revenue on a constant currency basis was up 1.5% compared with last year, the difference to the reportable number reflecting the strength of the pound sterling against most currencies, particularly in the first half of the year. On a like-for-like basis, which excludes the impact of currency and acquisitions, revenue was up 0.8%. Billings were £55.798 billion, up 0.4%, up 3.3% in constant currency and up 3.2% like-for-like.

 

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

 

Profit before interest and tax was down 27.0% to £1.475 billion from £2.022 billion. Headline PBIT for 2018 was down 9.7% to £2.047 billion, from £2.267 billion and down 7.4% in constant currencies. Headline EBITDA was down by 8.8% to £2.311 billion, from £2.534 billion the previous year and down 6.4% in constant currencies.

 

Profit before tax fell by 30.6% to £1.463 billion from £2.109 billion reflecting principally the £302 million of restructuring and transformation costs and £184 million of goodwill impairment charges. Headline profit before tax was down 11.0% to £1.863 billion from £2.093 billion.

 

Profit after tax fell by 40.4% to £1.139 billion from £1.912 billion. In constant currencies, profit after tax fell 38.5%.

 

Profits attributable to shareholders fell 41.5% to £1.063 billion from £1.817 billion, again reflecting principally the £302 million of restructuring and transformation costs and £184 million of goodwill impairment. In constant currencies, profits attributable to shareholders fell by 39.6%.

 

Diluted earnings per share fell by 40.8% to 84.3p from 142.4p and decreased 38.9% in constant currencies.

 

Net cash inflow from operating activities increased to £1.694 billion in the year. In 2018, operating profit was £1.431 billion, depreciation, amortisation and goodwill impairment £728 million, non-cash share-based incentive charges £85 million, working capital and provisions inflow £166 million, net interest paid £162 million, tax paid £384 million, capital expenditure £375 million, earnout payments £120 million and other net cash outflows £266 million, principally £235 million gains on disposal of investments and subsidiaries. Free cash flow available for debt repayment, acquisitions (excluding earnouts), share buy-backs and dividends was, therefore, £1.103 billion. This free cash flow was enhanced by £849 million of proceeds from the disposal of associates and investments, offset by £289 million in cash acquisition costs (investments and new acquisition payments), £207 million in share buy-backs and £747 million in dividends, a net outflow of £394 million. This resulted in a net cash inflow of £709 million.

 

Debt financing was £6.660 billion at 31 December 2018, compared to £6.875 billion at 31 December 2017. Average net debt in 2018 was £4.966 billion, compared to £5.125 billion in 2017, at 2018 exchange rates. On 31 December 2018 net debt was £4.017 billion, against £4.483 billion on 31 December 2017, a decrease of £466 million (a decrease of £605 million at 2018 exchange rates). The reduced period end debt figure reflects the benefit of £849 million proceeds in relation to disposal of our interests in certain associates and investments, the principal of which were Globant S.A., Imagina, AppNexus and Bruin.

 

15

Segment performance

 

Performance of the Group’s businesses is reviewed by management based on headline PBIT. A table showing these amounts by reportable segment and geographical area for each of the three years ended 31 December 2018, 2017 and 2016 is presented in note 2 to the consolidated financial statements. To supplement the reportable currency segment information presented in note 2 to the consolidated financial statements, the following tables give details of revenue growth and revenue less pass-through costs growth by geographical area and reportable segment on a reported, constant currency, and like-for-like basis. Headline PBIT and headline PBIT margin by reportable segment are also provided below.

 

Geographical area

 

Revenue Analysis
		Reported revenue growth %+/(-)								Constant currency revenue growth %+/(-)								Like-for-like revenue growth %+/(-)
		2018				2017 1				2018				2017 1				2018				2017 1
North America			(5.1	)			4.8				(1.9	)			0.1				(3.0	)			(2.5	)
United Kingdom			2.6				8.3				2.6				8.3				1.5				6.8
Western Continental Europe			3.2				7.4				3.5				1.6				1.7				(0.2	)
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe			(1.6	)			6.1				3.8				0.8				4.4				(0.3	)
Total Group			(1.3	)			6.2				1.5				1.6				0.8				(0.2	)

1

Prior year figures have been restated for the impact of the adoption of IFRS 15 Revenue from Contracts with Customers, as described in the accounting policies section of the consolidated financial statements.

 

Revenue less pass-through costs analysis
		Reported revenue less pass- through costs 1 growth %+/(-)								Constant currency revenue less pass- through costs 1 growth %+/(-)								Like-for-like revenue less pass- through costs 1 growth %+/(-)
		2018				2017 2				2018				2017 2				2018				2017 2
North America			(6.7	)			4.3				(3.5	)			(0.4	)			(4.2	)			(3.2	)
United Kingdom			0.2				6.2				0.2				6.2				(0.5	)			4.9
Western Continental Europe			4.0				7.9				4.1				1.9				2.0				—
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe			(3.2	)			6.7				2.0				1.4				2.5				(0.9	)

1

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

2

Prior year figures have been restated for the impact of the adoption of IFRS 15 Revenue from Contracts with Customers, as described in the accounting policies section of the consolidated financial statements.

 

North America constant currency revenue less pass-through costs was down 4.5% in the final quarter, the same as the third quarter, and down 5.7% like-for-like, a slight deterioration on the third quarter (-5.3%). This reflects continuing challenges in our advertising businesses, with data investment management and healthcare also slower, partly offset by a significant improvement in public relations and public affairs. On a full year basis, constant currency revenue less pass-through costs was down 3.5%, with like-for-like down 4.2%. Addressing our underperforming operations in the US is a key element of WPP’s new strategy.

 

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United Kingdom constant currency revenue less pass-through costs was down 2.4% in the final quarter and down 2.7% like-for-like, slightly weaker than the -2.0% shown in quarter three. Media investment management and the specialist communications businesses were particularly strong with data investment management improving. Our public relations and public affairs and direct, interactive and ecommerce businesses were slower. On a full year basis, constant currency revenue less pass-through costs was up 0.2%, with like-for-like down 0.5%.

 

Western Continental Europe constant currency revenue less pass-through costs was up 4.1% in the final quarter, a significant improvement on the growth in quarter three of 1.3%. On a like-for-like basis revenue less pass-through costs was also up 4.1%, the strongest quarter of the year, and compared to -0.4% in quarter three. Twelve of the Group’s top 14 markets showed significant growth in quarter four, particularly Austria, Belgium, Denmark, Finland, Germany, Italy, the Netherlands, Portugal, Sweden and Turkey. For the year, Western Continental Europe constant currency revenue less pass-through costs grew 4.1% with like-for-like up 2.0%, the second strongest performing region.

 

In Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, on a constant currency basis, revenue less pass-through costs was up 0.4% in the fourth quarter and up 2.6% like-for-like, slightly above the third quarter growth of 2.4%. In the fourth quarter, Latin America grew over 7%, stronger than the third quarter, with Central & Eastern Europe showing double-digit growth in the fourth quarter compared with almost 5% in quarter three. Asia Pacific and Africa & the Middle East were slightly weaker. On a full-year basis, constant currency revenue less pass-through costs growth in the region was 2.0% with like-for-like growth 2.5%, the strongest performing region.

 

Reportable Segments

 

Revenue Analysis
		Reported revenue growth%+/(-)								Constant currency revenue growth%+/(-)								Like-for-like revenue growth%+/(-)
		2018				2017 1				2018				2017 1				2018				2017 1
Advertising and Media Investment Management			(3.2	)			9.8				(0.4	)			5.2				1.0				0.1
Data Investment Management			(4.5	)			1.2				(1.8	)			(3.5	)			(2.0	)			(2.9	)
Public Relations & Public Affairs			0.6				6.5				3.4				1.7				3.1				0.8
Brand Consulting, Health & Wellness and Specialist Communications			3.3				3.5				6.3				(0.9	)			1.5				0.6
Total Group			(1.3	)			6.2				1.5				1.6				0.8				(0.2	)

1

Prior year figures have been restated for the impact of the adoption of IFRS 15 Revenue from Contracts with Customers, as described in the accounting policies section of the consolidated financial statements.

 

Revenue less pass-through costs analysis
		Reported revenue less pass- through  costs 1 growth %+/(-)								Constant currency revenue less pass- through costs 1 growth %+/(-)								Like-for-like revenue less pass- through costs 1 growth%+/(-)
		2018				2017 2				2018				2017 2				2018				2017 2
Advertising and Media Investment Management			(6.1	)			8.0				(3.3	)			3.5				(1.2	)			(2.3	)
Data Investment Management			(4.2	)			2.9				(1.3	)			(1.9	)			(1.8	)			(1.3	)
Public Relations & Public Affairs			(0.4	)			5.8				2.5				1.0				2.6				0.2
Brand Consulting, Health & Wellness and Specialist Communications			2.6				4.7				5.6				0.2				0.6				1.0

1

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

2

Prior year figures have been restated for the impact of the adoption of IFRS 15 Revenue from Contracts with Customers, as described in the accounting policies section of the consolidated financial statements.

 

17