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 2019

 

OR

 

☐

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

 

OR

 

☐

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

 

Date of event requiring this shell company report                 

 

For the transition period from                  to                 

 

 

Commission file number 001-38303

 

WPP plc

(Exact Name of Registrant as specified in its charter)

 

Jersey

(Jurisdiction of incorporation or organization)

 

Sea Containers, 18 Upper Ground

London, United Kingdom, SE1 9GL

(Address of principal executive offices)

 

Andrea Harris

Group Chief Counsel

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

Telephone: +44(0) 20 7282 4600

E-mail: andrea.harris@wpp.com

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

 

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

 

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

 

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

 

Not applicable

 

(Title of Class)

 

Not applicable

 

(Title of Class)

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

 

None

 

(Title of Class)

 

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

 

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

 

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

 

YES  ☒    NO  ☐

 

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

 

YES  ☐    NO  ☒

 

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

 

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

 

YES  ☒    NO  ☐

 

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

 

YES  ☒    NO  ☐

 

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

 

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

 

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

 

†

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

 

Indicate by check mark 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			4
Item 4		INFORMATION ON THE COMPANY					7
		A		History and Development of the Company			7
		B		Business Overview			9
		C		Organizational Structure			14
		D		Property, Plant and Equipment			15
Item 4A		UNRESOLVED STAFF COMMENTS					16
Item 5		OPERATING AND FINANCIAL REVIEW AND PROSPECTS					16
		A		Operating Results			16
		B		Liquidity and Capital Resources			24
		C		Research and Development, Patents and Licenses, etc.			28
		D		Trend Information			28
		E		Off-Balance Sheet Arrangements			29
		F		Tabular Disclosure of Contractual Obligations			29
Item 6		DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES					40
		A		Directors and Senior Management			40
		B		Compensation			42
		C		Board Practices			46
		D		Employees			54
		E		Share Ownership			55
Item 7		MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS					56
		A		Major Shareholders			56
		B		Related Party Transactions			57
		C		Interests of Experts and Counsel			57
Item 8		FINANCIAL INFORMATION					57
		A		Consolidated Statements and Other Financial Information			57
		B		Significant Changes			57
Item 9		THE OFFER AND LISTING					58
		A		Offer and Listing Details			58
		B		Plan of Distribution			58
		C		Markets			58
		D		Selling Shareholders			58
		E		Dilution			58
		F		Expenses of the Issue			58

						Page
Item 10		ADDITIONAL INFORMATION					58
		A		Share Capital			58
		B		Memorandum and Articles of Association			58
		C		Material Contracts			58
		D		Exchange Controls			62
		E		Taxation			62
		F		Dividends and Paying Agents			68
		G		Statements by Experts			68
		H		Documents on Display			68
		I		Subsidiary Information			68
Item 11		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK					69
Item 12		DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES					69
		A		Debt Securities			69
		B		Warrants and Rights			69
		C		Other Securities			69
		D		American Depositary Shares			70
Part II							72
Item 13		DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES					72
Item 14		MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS					72
Item 15		CONTROLS AND PROCEDURES					72
Item 16A		AUDIT COMMITTEE FINANCIAL EXPERT					73
Item 16B		CODE OF ETHICS					73
Item 16C		PRINCIPAL ACCOUNTANT FEES AND SERVICES					74
Item 16D		EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES					74
Item 16E		PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS					74
Item 16F		CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT					75
Item 16G		CORPORATE GOVERNANCE					75
Item 16H		MINE SAFETY DISCLOSURE					76
Part III							76
Item 17		FINANCIAL STATEMENTS					76
Item 18		FINANCIAL STATEMENTS					76
Item 19		EXHIBITS					76

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 2019, the Group, excluding associates, had 106,786 employees. For the year ended 31 December 2019, the Group had revenue of £13,234.1 million and operating profit of £1,295.9 million.

 

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

 

A. Selected Financial Data

 

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

 

The selected income statement data for each of the years ended 31 December 2019, 2018 and 2017 and the selected balance sheet data as at 31 December 2019 and 2018 are derived from the consolidated financial

 

1

statements of the Company that appear elsewhere in this Form 20-F. The selected financial data for prior periods 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
		20191 £m				20182 £m				20172,3 £m				20163 £m				2015 £m
Continuing operations:
Revenue			13,234.1				13,046.7				13,146.4				14,887.3				12,235.2
Operating profit			1,295.9				1,237.9				1,577.9				2,063.1				1,632.0
Profit for the year from continuing operations			707.1				1,001.6				1,663.9				1,501.6				1,245.1
Profit for the year			717.9				1,139.4				1,912.3				1,501.6				1,245.1
Share information:
Earnings per ordinary share from continuing and discontinued operations:
Basic			49.9	p			85.2	p			144.0	p			109.6	p			90.0	p
Diluted			49.5	p			84.3	p			142.4	p			108.0	p			88.4	p
Earnings per ordinary share from continuing operations:
Basic			50.2	p			75.1	p			125.2	p			109.6	p			90.0	p
Diluted			49.8	p			74.3	p			123.8	p			108.0	p			88.4	p
Earnings per ADS4 from continuing operations:
Basic			251.0	p			375.5	p			626.0	p			548.0	p			450.0	p
Diluted			249.0	p			371.5	p			619.0	p			540.0	p			442.0	p
Dividends per ordinary share			60.00	p			60.00	p			59.75	p			48.33	p			42.49	p
Dividends per ADS (US dollars)5			393.88	¢			391.87	¢			397.23	¢			352.41	¢			340.57	¢
1  The impact of the adoption of IFRS 16 Leases from 1 January 2019 is described in the accounting policies section of the consolidated financial statements. No restatement has been made in prior years. 2  Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in the accounting policies section of the consolidated financial statements. No restatement has been made in 2016 or 2015. 3  2017 and 2016 figures were restated for the adoption of IFRS 15 Revenue from Contracts with Customers in the 2018 Form 20-F. No restatement was made in 2015. 4  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. 5  These figures have been translated for convenience purposes only, using the approximate average exchange rates of US$1.2765 to pound sterling for the year 2019 (2018: US$1.3351, 2017: US$1.2887, 2016: US$1.3547, 2015: US$1.5288). This conversion should not be construed as a representation that the pound sterling amounts actually represent, or could be converted into, US dollars at the rates indicated.

 

2

Selected Consolidated Balance Sheet Data

 

		At 31 December
		20191 £m				20182 £m				20173 £m				20163 £m				2015 £m
Total assets			31,328.8				33,867.7				33,662.8				34,562.4				28,749.2
Net assets			8,443.5				9,806.6				9,956.1				9,761.7				8,015.8
Called-up share capital			132.8				133.3				133.3				133.2				132.9
Number of shares (in millions)			1,328.2				1,332.7				1,332.5				1,331.9				1,329.4
1   The impact of the adoption of IFRS 16 Leases from 1 January 2019 is described in the accounting policies section of the consolidated financial statements. No restatement has been made in prior years. 2   IFRS 9 Financial Instruments was adopted from 1 January 2018. No restatement has been made for years prior to 2018. 3   2017 and 2016 figures were restated for the adoption of IFRS 15 Revenue from Contracts with Customers in the 2018 Form 20-F. No restatement was made in 2015.

 

Dividends

 

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

 

The dividends are also shown translated into US cents per ADS using the approximate average rates as shown on page 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
2015			15.91				28.78				44.69				121.62				219.99				341.61
2016			19.55				37.05				56.60				132.42				250.96				383.38
2017			22.70				37.30				60.00				146.27				240.34				386.61
2018			22.70				37.30				60.00				151.53				249.00				400.53
2019			22.70				—				22.70				144.88				—				144.88

 

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

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

3

D. Risk Factors

 

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

 

Principal risk		Potential impact
Covid-19 Pandemic
The coronavirus pandemic is adversely affecting and is expected to continue to adversely affect our business, revenues, results of operations, financial condition and prospects.		While we expect the impacts of Covid-19 to have an adverse effect on our business, financial condition and results of operations, we are unable to predict the extent or nature or duration of these impacts at this time.
Strategic risks
The failure to successfully complete the three-year strategic plan to return the business to growth by the end of 2021 and simplify our structure.		A failure or delay in completing the transformation plan and/or returning the business to growth, may have a material adverse effect on our market share and our business, revenues, results of operations, financial condition or prospects. The Covid-19 pandemic is impacting the implementation of the transformation plan, and we cannot predict the extent or duration of the impact.
Operational risks
Clients
We compete for clients in a highly-competitive industry which has been evolving and undergoing structural change and is being adversely impacted by the Covid-19 pandemic. Client loss to competitors or as a consequence of client consolidation, insolvency or a reduction in marketing budgets due to recessionary economic conditions or a shift in client spending would have a material adverse effect on our market share, business, revenues, results of operations, financial condition and prospects.		The competitive landscape in our industry is constantly evolving and the role of traditional agencies is being challenged. Competitors include multinational advertising and marketing communication groups, marketing services companies, database marketing information and measurement, social media and professional services and consultants and consulting internet companies.   Client contracts can generally be terminated on 90 days’ notice or are on an assignment basis and clients put their business up for competitive review from time to time. The ability to attract new clients and to retain or increase the amount of work from existing clients may be impacted if we fail to react quickly enough to changes in the market and to evolve our structure, and by loss of reputation, and may be limited by clients’ policies on conflicts of interest.   There are a range of different impacts on our clients globally as a consequence of the Covid-19 pandemic. In the short-term media spend has largely remained committed or diverted to alternative channels but there is an increasing volume of cancellations. Project and retained work have continued in most sectors but activity has begun to decline. New business pitches continue where the process was already underway, but there is increased uncertainty in the future pipeline. In the past, clients have responded to weak economic and financial conditions by reducing or shifting their marketing budgets which are easier to reduce in the short term than their other operating expenses. The risk of client loss or reduction in marketing budgets has increased significantly.
We receive a significant portion of our revenues from a limited number of large clients and the net loss of one or more of these clients could have a material adverse effect on our prospects, business, financial condition and results of operations.		A relatively small number of clients contribute a significant percentage of our consolidated revenues. Our 10 largest clients accounted for 15% of revenues in the year ended 31 December 2019. Clients can reduce their marketing spend, terminate contracts, or cancel projects on short notice. The loss of one or more of our largest clients, if not replaced by new accounts or an increase in business from existing clients, would adversely affect our financial condition.

 

4

Principal risk		Potential impact
People, culture and succession
Our performance could be adversely affected if we do not react quickly enough to changes in our market and fail to attract, develop and retain key creative, commercial and management talent, or are unable to retain and incentivise key talent as a consequence of the cost saving actions implemented to maintain liquidity during the Covid-19 pandemic and reduction in economic activity.		We are highly dependent on the talent, creative abilities and technical skills of our people as well as their relationships with clients. We are vulnerable to the loss of people to competitors (traditional and emerging) and clients, leading to disruption to the business.   To maintain our liquidity position through the current crisis, cost reduction measures have already been taken which impact our people include freezing new hires, postponing salary increases for 2020 and reducing salaries or fees for the Board, Executive Committee, CEO and senior employees. Further additional measures including reduced working hours or severances will also be required which may lead to challenges in retaining and attracting key talent during this period of disruption and at the beginning of a recovery.
Cyber and information security
We are undertaking a series of IT transformation programmes to support the Group’s strategic plan and a failure or delay in implementing the IT programmes may have a material adverse effect on its business, revenues, results of operations, financial conditions or prospects. The Group is reliant on third parties for the performance of a significant portion of our worldwide information technology and operations functions. A failure to provide these functions could have an adverse effect on our business. During the transformation, we are still reliant on legacy systems which could restrict our ability to change rapidly.   A cyber-attack could result in disruption to one or more of our businesses or the security of data being compromised.		We may be subject to investigative or enforcement action or legal claims or incur fines, damages, or costs and client loss if we fail to adequately protect data. A system breakdown or intrusion could have a material adverse effect on our business, revenues, results of operations, financial condition or prospects and have an impact on long-term reputation and lead to client loss.   Nearly 95% of the Group’s people are working remotely as a consequence of the Covid-19 pandemic which has the potential to increase the risk of compromised data security and cyber-attacks.
Financial risks
Credit risk
We are subject to credit risk through the default of a client or other counterparty.		We are generally paid in arrears for our services. Invoices are typically payable within 30 to 60 days.   We commit to media and production purchases on behalf of some of our clients as principal or agent depending on the client and market circumstances. If a client is unable to pay sums due, media and production companies may look to us to pay those amounts and there could be an adverse effect on our working capital and operating cash flow.   A significant number of our clients and suppliers are adversely financially impacted by the Covid-19 pandemic and economic inactivity across markets in periods of lockdown. Clients may seek to renegotiate payment terms, ask for discounts or fail to honour their payment obligations which would have an adverse impact on our working capital and operating cash flow.
Internal controls
Our performance could be adversely impacted if we fail to ensure adequate internal control procedures are in place.		Failure to ensure that our businesses have robust control environments, or that the services we provide and trading activities within the Group are compliant with client obligations, could adversely impact client relationships and business volumes and revenues.

 

5

Principal risk		Potential impact
Internal control over financial reporting
The Group has identified a material weakness in its internal control over financial reporting that, if not properly remediated, could adversely affect its results of operations, investor confidence in the Group and the market price of its ADSs.		As disclosed in Part II, Item 15 of this Form 20-F, in connection with the Group’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2019, the Group has identified a material weakness in its internal control over financial reporting with respect to management’s review of the impairment assessment of intangible assets and goodwill, specifically the selection of appropriate discount rates for use in the impairment calculations. As a result of such material weakness, the Group concluded that its internal control over financial reporting was not effective. This material weakness identified did not result in any adjustments or restatements of the Group’s consolidated financial statements or disclosures for the year ended December 31, 2019 or for any prior period.   As further described in Part II, Item 15 of this Form 20-F, the Group is currently taking actions to design and implement a remediation plan to address the material weakness. If remedial measures are insufficient to address the material weakness, or if additional material weaknesses in internal control are discovered or occur in the future, the Group’s ability to accurately record, process and report financial information and consequently, its ability to prepare financial statements within required time periods, could be adversely affected. In addition, the Group may be unable to maintain compliance with the federal securities laws and NYSE listing requirements regarding the timely filing of periodic reports. Any of the foregoing could cause investors to lose confidence in the reliability of the Group’s financial reporting, which could have a negative effect on the trading price of the Group’s ADSs.
Compliance risks
Data Privacy
We are subject to strict data protection and privacy legislation in the jurisdictions in which we operate and rely extensively on information technology systems. We store, transmit and rely on critical and sensitive data such as strategic plans, personally identifiable information and trade secrets. Security of this type of data is exposed to escalating external threats that are increasing in sophistication, as well as internal data breaches.   Existing and new data protection laws, GDPR and the CCPA and legislation in the markets in which we operate concerning user privacy, use of personal information, consent and online tracking may restrict some of our activities and increase costs. Privacy regulators have continued to underline the obligation on businesses to ensure continued compliance with data privacy legislation during the Covid-19 pandemic.		We may be subject to investigative or enforcement action or legal claims or incur fines, damages, or costs and client loss if we fail to adequately protect data or observe privacy legislation in every instance. A system breakdown or intrusion could have a material adverse effect on our business, revenues, results of operations, financial condition or prospects.   Governments and public health officials have mandated precautions to mitigate the spread of Covid-19 including lock-downs and remote working. Nearly 95% of our people are working which has the potential to increase the risk of compromised data securities.
Taxation
We may be subject to regulations restricting our activities or effecting changes in taxation.		Changes in local or international tax rules, for example as a consequence of the financial support programmes being implemented by governments during the Covid-19 crisis, changes arising from the application of existing rules, or challenges by tax or competition authorities, for example, the European Commission’s State Aid decision into the Group Financing Exemption in the UK CFC rules, may expose us to significant additional tax liabilities or impact the carrying value of our deferred tax assets, which would affect the future tax charge.
Regulatory
We are subject to strict anti-corruption, anti-bribery and anti-trust legislation and enforcement in the countries in which we operate.		We operate in a number of markets where the corruption risk has been identified as high by groups such as Transparency International. Failure to comply or to create a culture opposed to corruption or failing to instil business practices that prevent corruption could expose us to civil and criminal sanctions.

 

6

Principal risk		Potential impact
Sanctions
We are subject to the laws of the US, the EU and other jurisdictions that impose sanctions and regulate the supply of services to certain countries.		Failure to comply with these laws could expose us to civil and criminal penalties including fines and the imposition of economic sanctions against us and reputational damage and withdrawal of banking facilities which could materially impact our results.
Civil liabilities or judgements against the Company or its directors or officers based on United States federal or state securities laws may not be enforceable in the United States or in England and Wales or in Jersey.		The Company is a public limited company incorporated under the laws of Jersey. Some of the Company’s directors and officers reside outside of the United States. In addition, a substantial portion of the directly owned assets of the Company are located outside of the United States. As a result, it may be difficult or impossible for investors to effect service of process within the United States against the Company or its directors and officers or to enforce against them any of the judgements, including those obtained in original actions or in actions to enforce judgements of the U.S. courts, predicated upon the civil liability provisions of the federal or state securities laws of the United States.
Emerging risks
Increased frequency of extreme weather and climate-related natural disasters.		This includes storms, flooding, wildfires and water and heat stress which can damage our buildings, jeopardise the safety of our people and significantly disrupt our operations. At present 9% of our headcount are located in countries at “extreme” risk from the physical impacts of climate change in the next 30 years.
Increased reputational risk associated with working on environmentally detrimental client briefs.		As consumer consciousness around climate change rises, our sector is seeing increased scrutiny for our role in contributing to consumption. Our clients seek expert partners who can give recommendations that take into account stakeholder concerns around climate change.   Additionally, WPP serves some clients whose business models are under increased scrutiny. This creates both a reputational and related financial risk for WPP if we are not rigorous in our content standards as we grow our sustainability-related services.

 

ITEM 4. INFORMATION ON THE COMPANY

 

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

 

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

 

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

 

A. History and Development of the Company

 

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

 

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

 

7

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

 

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

 

Old WPP was incorporated in Jersey on 12 September 2008 and became the holding company of the WPP Group on 19 November 2008 when the company now known as WPP 2008 Limited, the prior holding company of the WPP Group which was incorporated in England and Wales, completed a reorganisation of its capital and corporate structure. WPP 2008 Limited had become the holding company of the Group on 25 October 2005 when the company now known as WPP 2005 Limited, the original holding company of the WPP Group, completed a reorganisation of its capital and corporate structure. WPP 2005 Limited was incorporated and registered in England and Wales in 1971 and is a private limited company under the Companies Act 1985, and until 1985 operated as a manufacturer and distributor of wire and plastic products. In 1985, new investors acquired a significant interest in WPP and changed the strategic direction of the Company from being a wire and plastic products manufacturer and distributor to being a multinational communications services organisation. Since then, the Company has grown both organically and by the acquisition of companies, most significantly the acquisitions of J. Walter Thompson Group, Inc. (now known as J. Walter Thompson Company LLC) in 1987, The Ogilvy Group, Inc. (now known as The Ogilvy Group LLC) in 1989, Young & Rubicam Inc. (now known as Young & Rubicam LLC) in 2000, Tempus Group plc (Tempus) in 2001, Cordiant Communications Group plc (Cordiant) in 2003, Grey Global Group, LLC (Grey) in 2005, 24/7 Real Media Inc (now known as Xaxis LLC) in 2007, Taylor Nelson Sofres plc (TNS) in 2008, AKQA Holdings, Inc. (AKQA) in 2012, IBOPE Participações Ltda (IBOPE) in 2015, Triad Digital Media, LLC and the merger of most of the Group’s Australian and New Zealand assets with STW Communications Group Limited in Australia (re-named WPP AUNZ) in 2016. During 2018, the Company focused on simplifying its organisation with the completion of the merger of VML and Y&R to create VMLY&R as well as the merger of Burson-Marsteller and Cohn & Wolfe to create Burson Cohn & Wolfe. The merger of Wunderman and J. Walter Thompson to create Wunderman Thompson began at the end of 2018 and was finalized in 2019. In July 2019, the Company entered into an agreement to sell 60% of the Kantar group to Bain Capital Private Equity. The transaction was completed with respect to the sale of approximately 90% of the Kantar group in December 2019. Completion of the sale of the remaining approximately 10% of the Kantar group is expected to occur in 2020.

 

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

 

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

 

8

B. Business Overview

 

Introduction

 

Certain Non-GAAP measures included in this business overview and in the operating and financial review and prospects have been derived from amounts calculated in accordance with IFRS but are not themselves IFRS measures. They should not be viewed in isolation as alternatives to the equivalent IFRS measure, rather they should be read in conjunction with the equivalent IFRS measure. These include constant currency, pro-forma (‘like-for-like’), headline operating profit, headline PBIT (Profit Before Interest and Taxation), headline PBT (Profit Before Taxation), billings, free cash flow and net debt and average net debt, which we define, explain the use of and reconcile to the nearest IFRS measure on pages 29 to 33.

 

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

 

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

 

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

 

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

 

Global Integrated Agencies

 

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

 

Public Relations

 

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

 

9

Specialist Agencies

 

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

 

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

 

Revenue1		2019								20182								20172
		£m				% of total				£m				% of total				£m				% of total
Global Integrated Agencies			10,205.2				77.1				9,930.7				76.1				10,028.6				76.3
Public Relations			956.5				7.2				931.7				7.1				915.0				7.0
Specialist Agencies			2,072.4				15.7				2,184.3				16.8				2,202.8				16.7
Total			13,234.1				100.0				13,046.7				100.0				13,146.4				100.0

1

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

2

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

 

Revenue less pass-through costs1		2019								20182								20172
		£m				% of total				£m				% of total				£m				% of total
Global Integrated Agencies			8,108.1				74.7				8,070.8				74.2				8,315.3				74.6
Public Relations			898.0				8.3				879.9				8.1				864.3				7.8
Specialist Agencies			1,840.4				17.0				1,925.0				17.7				1,964.3				17.6

1

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

2

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

 

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

 

Revenue1		2019								20183								20173
		£m				% of total				£m				% of total				£m				% of total
North America2			4,854.7				36.7				4,851.7				37.2				5,083.5				38.7
United Kingdom			1,797.1				13.6				1,785.6				13.7				1,737.4				13.2
Western Continental Europe			2,628.8				19.8				2,589.6				19.8				2,455.7				18.7
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe			3,953.5				29.9				3,819.8				29.3				3,869.8				29.4
Total			13,234.1				100.0				13,046.7				100.0				13,146.4				100.0

1

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

2

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

3

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

 

10

Revenue less pass-through costs1		2019								20183								20173
		£m				% of total				£m				% of total				£m				% of total
North America2			4,034.3				37.2				4,059.7				37.3				4,335.2				38.9
United Kingdom			1,390.1				12.8				1,393.8				12.8				1390.0				12.5
Western Continental Europe			2,176.4				20.1				2,182.9				20.1				2,063.7				18.5
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe			3,245.7				29.9				3,239.3				29.8				3,355.0				30.1

1

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

2

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

3

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

 

WPP Head Office

 

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

 

Our strategy

 

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

 

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

 

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

 

The five elements of our corporate strategy are:

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

11

Sustainability

 

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

 

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

 

•

Vision & Offer.

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

 

•

Creativity.

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

 

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

 

•

Data & Technology.

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

 

•

Simpler Structure.

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

 

•

People & Culture.

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

 

Clients

 

•

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

 

People

 

•

We spent £38.7 million on training in 2019.

 

•

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

 

12

Environment

 

•

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

–

phasing out plastics that cannot be reused, recycled or composted across all of our 3,000+ agency offices and campuses worldwide by the end of 2020;

–

signing up to the New Plastics Economy Global Commitment led by UN Environment and the Ellen MacArthur Foundation which aims to unite businesses, governments and other stakeholders behind a common vision for a plastics system that works; and

–

pledging to work with clients and partners to drive consumer change at scale.

 

•

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

 

Social investment

 

•

Our pro bono work was worth £10.6 million in 2019 for clients including UN Women and WildAid. We also made cash donations to charities of £5.2 million, resulting in a social investment worth £15.8 million. This is equivalent to 1.6% of profit before tax.

 

•

WPP media agencies negotiated free media space worth £18.9 million on behalf of pro bono clients, 1.92% of profit before tax.

 

Clients

 

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

 

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

 

Government Regulation

 

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

 

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

 

IT

 

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

 

Since the launch of the WPP Data Privacy and Security Charter in 2018 we have issued incremental updates to reflect regulatory and best practice changes as well as to reflect changes to our business. The Charter helps us

 

13

communicate our approach to data to our people and clients, setting out core principles for responsible data management through our Data Code of Conduct, our IT security, privacy and social media policies, and our security standards (which are based on ISO 27001).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

C. Organizational Structure

 

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

 

14

D. Property, Plant and Equipment

 

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

 

Location		Use		Approximate square footage
3 World Trade Center, New York, NY		GroupM, Mindshare, Wavemaker, Mediacom, Essence, Xaxis, Kinetic, WPP			690,000
636 Eleventh Avenue, New York, NY		Ogilvy, Geometry, MJM, Hogarth, BDG			564,000
399 Heng Feng Road, Zhabei, Shanghai		Ogilvy, GroupM, Wavemaker, Mediacom, Mindshare, Geometry, Hill+Knowlton Strategies, Global Team Blue, Sudler MDS, Burson Cohn & Wolfe, Peclars, Hogarth, Wunderman Thompson, Superunion, Kinetic			488,000
Calle de Ríos Rosas, 26, Madrid		GroupM, Grey, WPP Health & Wellness, Ogilvy, Hill+Knowlton Strategies, Burson Cohn & Wolfe, Axicom, WPP, Lambie Nairn, Finance +, Superunion, SCPF, VMLY&R, Wunderman Thompson			382,402
The Orb Adjacent to JW Marriott Sahar, Chatrapati Shivaji International Airport, Andheri East, Mumbai		GroupM, Wavemaker, Mindshare, Mediacom, Kinetic, Ogilvy, Grey, Wunderman Thompson, Hill+Knowlton Strategies, Fitch, Landor, VMLY&R, Genesis Burson Cohn & Wolfe, WPP			375,000
3 Columbus Circle, New York, NY		VMLY&R, Midas Exchange, Berlin Cameron, CMI, Taxi, Red Fuse, Finsbury, Fitch, WPP Health			374,000
200 Fifth Avenue and 23 West 23rd Street, New York, NY		Grey, Burson Cohn & Wolfe, Landor, Finance +, GCI Health, SJR, Townhouse			349,000
Tower B, DLF Cyber Park, Gurugram		GroupM, Wavemaker, Mindshare, Mediacom, Ogilvy, Wunderman Thompson, Hogarth, Grey, Global Team Blue, AKQA, ADK, WPP (Q4 2020 Occupancy)			340,000
222 Merchandise Mart / 350 N Orleans, Chicago IL		Ogilvy, Wunderman Thompson, Geometry, Global Team Blue, GroupM, Burson Cohn & Wolfe, Hill+Knowlton Strategies, The Futures Company, Kinetic			277,400
333 North Green Street, Chicago, IL		Burson Cohn & Wolfe, Branding, Geometry, GroupM, Hill+Knowlton Strategies, Kinetic, Ogilvy, VMLY&R, Wunderman Thompson, Hogarth, WBA			265,108
125 Queens Quay, Toronto		GroupM, Ogilvy, Wunderman Thompson, VMLY&R, Grey, Hill+Knowlton Strategies (Estimated Q4 2021 Occupancy)			258,053
Sea Containers House, Upper Ground, London SE1		Ogilvy, Wavemaker, WPP			226,000
550 Town Center Drive, Dearborn, MI		Global Team Blue, PRISM, Burrows, POSSIBLE, VMLY&R			217,900

 

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

 

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

 

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

 

15

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

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

As introduced on page 9, certain Non-GAAP measures are included in the operating and financial review and prospects.

 

A. Operating Results

 

Overview

 

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

 

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Global Integrated Agencies;

 

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Public Relations

 

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Specialist Agencies

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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Simpler Structure. Clients: Appointed 17 Global Client Leaders to head up our most important client relationships; Won 18 new major global accounts; and Expanded almost half of our existing top-50 client relationships. Companies: Sale of 60% share in Kantar; 22 disposals of non-core businesses; and

 

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100 local office mergers and 80 business unit closures. Countries: Established our WPP Campus strategic vision; and Opened new Campuses in Helsinki, Bucharest, Madrid, Amsterdam and Mumbai.

 

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

 

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

 

Continuing operations

 

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

 

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

 

Operating profit was up 4.7% to £1.296 billion from £1.238 billion, up 4.3% in constant currency. Headline operating profit was down 5.5% to £1.561 billion, from £1.651 billion and down 5.6% in constant currency. The implementation of IFRS 16 on 1 January 2019 resulted in an increase to operating profit of £61 million.

 

Profit before interest and tax was up 3.4% to £1.311 billion from £1.268 billion. Headline PBIT for 2019 was down 5.8% to £1.623 billion, from £1.723 billion and down 6.0% in constant currencies.

 

Profit before tax fell by 21.9% to £0.982 billion from £1.258 billion. In constant currencies, profit before tax fell by 22.3%. Headline profit before tax was down 11.7% to £1.363 billion from £1.543 billion. The difference between profit before tax and headline profit before tax reflecting principally the £153 million of restructuring and transformation costs and £48 million of goodwill impairment charges.

 

Profit after tax fell by 29.4% to £0.707 billion from £1.002 billion. In constant currencies, profit after tax fell 30.3%.

 

Profits attributable to shareholders fell 33.0% to £0.628 billion from £0.937 billion, again reflecting principally the £153 million of restructuring and transformation costs and £48 million of goodwill impairment. In constant currencies, profits attributable to shareholders fell by 33.8%.

 

Diluted earnings per share fell by 41.3% to 49.5p from 84.3p and decreased 42.3% in constant currencies.

 

Net cash inflow from operating activities increased to £1.851 billion in the year from £1.694 billion in 2018. In 2019, operating profit was £1.580 billion, depreciation, amortisation and goodwill impairment £734 million, non-cash share-based incentive charges £71 million, working capital and provisions inflow £350 million, net interest paid £190 million, tax paid £536 million, lease liabilities (including interest) paid £355 million, capital expenditure £394 million, earnout payments £130 million and other net cash outflows £86 million. Free cash flow

 

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was, therefore, an inflow £1.044 billion. This free cash flow was enhanced by £2.221 billion in net cash acquisition payments and disposal proceeds (of which £1.971 billion was the Kantar disposal net of cash disposed and costs, and £250 million of net income from other disposal proceeds net of acquisition payments) and absorbed by £44 million in share buybacks and £750 million in dividends. This resulted in a net cash inflow of £2.471 billion.

 

Debt financing was £4.509 billion at 31 December 2019, compared to £6.660 billion at 31 December 2018. Average net debt in 2019 was £4.282 billion, compared to £5.025 billion in 2018, at 2019 exchange rates. On 31 December 2019 net debt was £1.540 billion, against £4.017 billion on 31 December 2018, a decrease of £2.477 billion (a decrease of £2.313 billion at 2019 exchange rates). The reduced period end debt figure reflects the benefit of £1.971 billion proceeds in relation to the disposal of 60% of the Group’s interest in Phase 1 of the Kantar business.

 

Discontinued operations

 

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

 

Segment performance

 

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

 

Geographical area

 

Revenue Analysis
		Reported revenue change %+/(-)								Constant currency revenue change %+/(-)								Like-for-like revenue change %+/(-)
		2019				20181				2019				20181				2019				20181
North America			0.1				(4.6	)			(4.1	)			(1.4	)			(5.0	)			(2.5	)
United Kingdom			0.6				2.8				0.6				2.8				1.8				1.8
Western Continental Europe			1.5				5.5				2.9				5.8				1.5				3.2
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe			3.5				(1.3	)			3.6				3.5				4.7				4.8
Total Group			1.4				(0.8	)			0.2				2.1				0.0				1.3

1

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

 

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Revenue less pass-through costs analysis
		Reported revenue less pass- through costs1 change %+/(-)								Constant currency revenue less pass- through costs1 change %+/(-)								Like-for-like revenue less pass- through costs1 change %+/(-)
		2019				20182				2019				20182				2019				20182
North America			(0.6	)			(6.4	)			(4.7	)			(3.1	)			(5.7	)			(3.9	)
United Kingdom			(0.3	)			0.3				(0.3	)			0.3				0.3				(0.2	)
Western Continental Europe			(0.3	)			5.8				1.0				6.0				0.7				3.4
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe			0.2				(3.4	)			0.4				1.6				1.4				2.2

1

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

2

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

 

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

 

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

 

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.

 

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Reportable Segments

 

Revenue Analysis
		Reported revenue change %+/(-)								Constant currency revenue change %+/(-)								Like-for-like revenue change %+/(-)
		2019				20181				2019				20181				2019				20181
Global Integrated Agencies			2.8				(1.0	)			1.5				1.9				1.4				1.4
Public Relations			2.7				1.8				0.5				4.7				(0.7	)			4.0
Specialist Agencies			(5.1	)			(0.8	)			(6.2	)			1.8				(5.9	)			(0.2	)
Total Group			1.4				(0.8	)			0.2				2.1				0.0				1.3

1

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

 

Revenue less pass-through costs analysis
		Reported revenue less pass- through  costs1 change %+/(-)								Constant currency revenue less pass- through costs1 change %+/(-)								Like-for-like revenue less pass- through costs1 change %+/(-)
		2019				20182				2019				20182				2019				20182
Global Integrated Agencies			0.5				(2.9	)			(0.7	)			(0.1	)			(0.7	)			(0.3	)
Public Relations			2.1				1.8				(0.1	)			4.7				(1.0	)			4.2
Specialist Agencies			(4.4	)			(2.0	)			(5.6	)			0.7				(5.6	)			(1.7	)

1

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

2

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

 

Headline operating profit analysis		20191								2018								2017
		£m				Headline operating profit margin2 %				£m				Headline operating profit margin2, 3 %				£m				Headline operating profit margin2, 3 %
Global Integrated Agencies			1,219.5				15.0				1,228.2				15.2				1,321.4				15.9
Public Relations			140.6				15.7				139.2				15.8				123.5				14.3
Specialist Agencies			200.5				10.9				283.8				14.7				348.3				17.7
Total Group			1,560.6								1,651.2								1,793.2

1

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

2

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

3

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

 

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

 

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