Review, progress & strategyBy Sir Martin Sorrell, CEO, WPP
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Strategic report
Another record performance in 2015; our strategic priorities; and the outlook for 2016 and beyond
Reports from our company leaders
The leaders of our major companies give summary accounts of their performance and progress in 2015
Directors' reports
Letters from the chairmen of our Nomination and Governance, Compensation and Audit Committees
The case for sticking your neck out
From WPP’s entrepreneurial beginnings, the Company’s story has been one of doing things differently
For a quick, pre-digested, highly-compressed version of the 2015 Annual Report
WPP is the world leader in communications services. It comprises leading companies in all these disciplines:
There are more than 160 companies within the Group – and each is a distinctive brand in its own right. Each has its own identity, commands its own loyalty, and is committed to its own specialist expertise. That is their individual strength. Clients seek their talent and their experience on a brand-by-brand basis. Between them, our companies work with 352 of the Fortune Global 500, all 30 of the Dow Jones 30 and 77 of the NASDAQ 100. It is also of increasing value to clients that WPP companies and their people can work together, as increasingly they do: providing a tailor-made range of integrated communications services. Some 830 clients are now served in three distinct disciplines. Over 550 clients are served in four disciplines, and these clients account for almost 52% of Group revenues. Group companies also work with 448 clients across six or more countries.
Collectively, over 190,000 people (including associates) work for WPP companies, out of over 3,000 offices in 112 countries.
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To develop and manage talent; to apply that talent, throughout the world, for the benefit of clients; to do so in partnership; to do so with profit.
Within WPP, our clients have access to companies with all the necessary marketing and communications skills; companies with strong and distinctive cultures of their own; famous names, many of them. WPP, the parent company, complements these companies in three distinct ways.
Read Why we exist
by Sir Martin Sorrell
The danger of losing your head notwithstanding, at WPP we are very much in favour of sticking your neck out. Establishing an office in Havana, the day after Washington announced the reopening of the US Embassy last July, no doubt caused palpitations in the internal audit department and red lights to flash all over the risk dashboard. We did much the same in Myanmar three years earlier when sanctions were lifted. It is not beyond the realms of possibility that Iran will become our 113th country of operation in the course of the next year or so.
For some these are risky moves. We see them as market leadership.
From WPP’s entrepreneurial beginnings, with two people in one room and a stake in a manufacturer of wire baskets and teapots, to the acquisition of J. Walter Thompson and Ogilvy & Mather, the consolidation of media buying under Mindshare and later GroupM, the identification of the digital and data revolutions, and our unique, cross-Group, ‘horizontal’ approach to serving clients, the Company’s story has been one of doing things differently.
Read Sir Martin Sorrell’s article
(Which is why experiment and adventure can be so confidently explored)
by Jeremy Bullmore
To be reminded just how unlikely we are to make a catastrophic error is to be liberated: liberated to be less of a slave to caution; liberated to experiment, both in content and in levels of expenditure; liberated to test the waters, to try things out, to suck it and see. The penalties for getting it wrong will be barely measurable. The rewards for getting it right can be heady.
Read Jeremy Bullmore’s essay
Our goal remains to be the world’s most admired and respected communications services advisor to global, multinational, regional and local companies. To that end, we have four core strategic priorities:
Read our Strategic report
WPP celebrated its thirtieth birthday in 2015 with another record year: revenue, profitability, net sales margins and earnings per share all reached new highs, despite strong currency headwinds and a generally low-growth global environment.
Billings*
£47,632m
Reported +3.1% Constant +4.9%
Revenue
£12,235m
Reported +6.1% Constant +7.5%
Net sales*
£10,524m
Reported +4.6% Constant +5.8%
Headline EBITDA*
£2,002m
Reported +4.9% Constant +7.7%
Headline PBIT*
£1,774m
Reported +5.6% Constant +8.7%
Net sales margin*
16.9%
Reported +0.2%1 Constant +0.4%1
Headline PBT*
£1,622m
Reported +7.3% Constant +11.2%
Reported profit before tax
£1,493m
Reported +2.8% Constant +7.3%
Headline diluted EPS*
93.6p
Reported +10.2% Constant +13.3%
Reported diluted EPS*
88.4p
Reported +9.8% Constant +13.4%
Dividends per share
44.69p
Reported +17.0% Constant +17.0%
(% change from 2014 in reported and constant currency)
* Refer to financial summary for additional information.
1 Margin points.
Reported billings were £47.6 billion, up almost 5% in constant currencies, driven by a strong overall leadership position in net new business league tables for the fourth year in a row. Revenue was up over 6% to £12.2 billion and up well over 7% in constant currencies.
Dividends increased by 17% to 44.69p, a new high. This represents a dividend pay-out ratio of 47.7% of headline diluted earnings per share, compared with 45.0% in 2014. The newly targeted pay-out ratio of 50% could well be achieved by the end of 2016, a year ahead of target.
Headline PBIT was up well over 5% to £1.774 billion and up well over 8% in constant currencies. Net sales margins increased by 0.2 margin points to an industry-leading 16.9% and, on a constant currency basis, were up 0.4 margin points, ahead of the targeted constant currency increase of 0.3 margin points.
Reported profit before interest and tax rose 7% to £1.679 billion from £1.569 billion, up well over 10% in constant currencies. Headline EBITDA increased by almost 5% to £2.002 billion, crossing £2 billion for the first time, up well over 7% in constant currencies. Headline profit before tax was up over 7% to £1.622 billion and reported profit before tax was up almost 3% to £1.493 billion. Diluted headline earnings per share rose by over 10% to 93.6p (an all-time high) and diluted reported earnings per share were up almost 10% to 88.4p, both reflecting strong like-for-like revenue and net sales growth, margin improvement and the benefit of acquisitions.
The value of the Group’s non-controlled investments rose by almost £500 million to £1.2 billion during the year, chiefly reflecting the increasing value of our content businesses, primarily VICE, and the partnership formed during the year with comScore.
With a current equity market capitalisation of approximately £21.4 billion, the total enterprise value of your Company is approximately £25.5 billion, a multiple of 12.8 times 2015 headline EBITDA.
Free cash flow amounted to almost £1.3 billion in 2015, over £1 billion for the fifth consecutive year. Average net debt was £3.6 billion in 2015, compared to £3.1 billion in 2014, at 2015 exchange rates, and net debt at 31 December 2015 was £3.2 billion, against £2.3 billion in 2014, reflecting significant incremental net acquisition spend of £0.2 billion, incremental share re-purchases of £0.1 billion, and incremental dividends of £0.1 billion. The average net debt to headline EBITDA ratio in 2015 was 1.8 times, which is in the middle of the Group’s target range of 1.5-2.0 times.
Our reported revenue growth for the year was 6.1%, and on a constant currency basis, which excludes the impact of currency movements, revenue was up 7.5%. This difference of 1.4% reflects strong foreign currency headwinds in the second half: chiefly due to the strength of the pound sterling, primarily against the euro, partly offset by the weakness of the pound sterling against the US dollar.
On a like-for-like basis, which excludes the impact of currency and acquisitions, revenue was up 5.3%, with net sales up 3.3%. In the fourth quarter, like-for-like revenue was up well over 6%, the strongest quarter of the year, following like-for-like growth in the third quarter of well over 4%, due to stronger growth in the fourth quarter in North America, the UK and Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, partly offset by slightly slower growth in Western Continental Europe. Like-for-like net sales were up almost 5% in the fourth quarter, the strongest quarter of the year, with all regions, except the UK and Western Continental Europe, recording their strongest quarter of the year.
North America, with constant currency revenue growth of over 11% in the final quarter and like-for-like growth of well over 9%, strengthened further, exceeding the strong growth seen in the first nine months, an improvement over the third quarter year-to-date constant currency growth of well over 6% and like-for-like growth of over 6%. On a full-year basis, constant currency revenue was up almost 8%, with like-for-like up over 7%.
In the UK, constant currency revenue was up over 8%, with like-for-like up over 4% on a full-year basis. Net sales were up almost 8% in constant currency, with like-for-like up almost 3%.
Western Continental Europe revenue grew by well over 4% like-for-like (well over 5% in the second half), compared with almost 4% in 2014.
In Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe, on a constant currency basis, revenue growth in the fourth quarter remained strong at over 9%, ahead of the first nine months growth of over 8%. Like-for-like revenue growth in the fourth quarter was over 6%, slightly lower than the almost 7% in quarter one. On a full year basis, constant currency net sales growth in the region as a whole was over 7% with like-for-like net sales up 3%.
1 The calculation of headline PBIT is set out in note 31 of the financial statements PDF (1.07MB).
Advertising and Media Investment Management was the strongest performing sector, with constant currency revenue growth of almost 10% for the year, and 9% in quarter four.
Data Investment Management revenue grew by almost 6% in the fourth quarter on a constant currency basis, the strongest quarter of 2015, and 1.4% like-for-like. Net sales showed a similar pattern, up over 5% in constant currency in quarter four and almost 1% like-for-like. On a full-year basis, revenue was up 3.5% in constant currency, but down 0.2% like-for-like, with the second half stronger than the first half.
The Group’s Public Relations & Public Affairs businesses continued the growth shown earlier in the year. On a full-year basis, revenues were up well over 4% in constant currency and 3% like-for-like.
At the Group’s Branding & Identity, Healthcare and Specialist Communications businesses (including direct, digital and interactive), constant currency revenue grew strongly at over 11% in quarter four (as with most of our businesses, the strongest quarter of 2015) and like-for-like revenue was up almost 9%, a significant improvement over quarter three. Full-year revenue was up over 7% in constant currency and over 5% like-for-like.
In 2015, the reported headline net sales margin was up 0.2 margin points to 16.9%, achieving the highest reported comparative level in the industry.
For the fifth successive year, WPP was named Creative Holding Company of the Year at the Cannes International Festival of Creativity, in recognition of your Company’s collective creative excellence; and also for the fourth consecutive year, WPP was ranked Most Effective Holding Company in the Effie Global Effectiveness Index; and, for the second year in a row, Warc’s Most Effective Holding Company.
The Group is ranked first for both net new business and retentions in media investment management by RECMA.
Read How we're doing
Roberto Quarta Chairman of the Nomination and Governance Committee Member of the Compensation Committee
Sir Martin Sorrell Chief executive
Paul Richardson Finance director Chairman of the Sustainability Committee
Jacques Aigrain Chairman of the Audit Committee Member of the Compensation Committee
Charlene Begley Member of the Audit Committee and Nomination and Governance Committee
Sir John Hood Chairman of the Compensation Committee
Ruigang Li Member of the Nomination and Governance Committee
Daniela Riccardi Member of the Nomination and Governance Committee
Nicole Seligman Senior independent director
Hugo Shong Member of the Nomination and Governance Committee
Timothy Shriver Member of the Compensation Committee
Sally Susman Member of the Nomination and Governance Committee
Sol Trujillo Member of the Audit Committee
Jeremy Bullmore
John Jackson
Bud Morten
Koichiro Naganuma
John Quelch
Richard Rivers
Guiseppe Sala
Cuneyd Zapsu
Marie Capes
Read Who runs WPP
The Board of Directors is committed to achieving compliance with the principles of corporate governance set out in the UK Corporate Governance Code and to comply with relevant laws, regulations, and guidelines such as the US Sarbanes-Oxley Act 2002, the NASDAQ rules and, where practicable, with the guidelines issued by institutional investors and their representative bodies.
WPP operates a system of internal control, which is maintained and reviewed in accordance with the UK Corporate Governance Code, COSO and the FRC guidance on risk management and internal control.
Read How we comply
Executive Remuneration Policy is set by WPP’s Compensation Committee and is governed by three guiding principles:
Read Letter from the chairman of the Compensation Committee
Sustainability issues increasingly impact the products, operations, strategies and communications of leading brands. As these brands – our clients – adapt to social and environmental challenges they look to our companies for the best advice and insight. By developing our sustainability expertise and by improving our own social and environmental performance, we can forge stronger relationships with our clients and generate value for our business and society.
Read Sustainability review
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