Our six specific objectives

Our six objectives are summarised here, together with an assessment of how we performed against them in 2008. These objectives represent our key performance indicators (KPIs).

1 Continue to raise operating margins to the levels of the best-performing competition

First, to continue to raise operating margins to the levels of the best-performing competition. 15% has been achieved for two consecutive years. 19%, or over 18% post-TNS, is much tougher, but not out of the question. BBDO, Dentsu and McCann have done so historically, although the pressure became too great in some instances.

Headline operating margins* vs peers %

Headline operating margins vs peers

Based on headline operating profit as defined in the Financial Glossary, excluding share of results of associates, and sourced from relevant public filings, adjusted to a comparable basis to WPP.

2 Continue to increase flexibility in the cost structure

Second, to continue to increase flexibility in the cost structure. Great strides have been made in recent years. Peak flexibility historically was in 2000, when variable staff costs made up 6.6% of revenues. At 7.4% in 2007, 7.7% in 2006, 7.6% in 2005 and 7.8% in 2004, we have seen new peaks; and once again we have a sufficient “shock absorber” in our cost structure for when revenue growth weakens, as it will do as a result of the current financial crisis. The decrease to 6.6% in 2008 illustrates the value of this flexibility as revenue growth started to tail off in the year, yet we were able to maintain an operating margin in line with the prior year.

Change in variable costs %

Change in variable costs

3 Improve total share owner return

Third, to improve total share owner return by maximising the return on investment on the Company’s almost £800 million (or $1.2 billion) free cash flow. There are broadly three alternative uses of funds:

Capital expenditure, which usually approximates the depreciation cost. Pressure here has eased as technology pricing has fallen, although we are investing more in real estate following lease renewals, particularly in New York, to secure greater efficiencies.

Mergers and acquisitions, which have historically taken the lion’s share of free cash flow. Here we have raised the hurdle rate on capital employed so that our return on capital may be increased. Even so, there are still interesting opportunities, particularly outside the US, where pricing remains lower, despite the recent financial crisis, and where there is a closer fit with the Company’s strategic objectives. Private transactions remain more attractively priced at single-digit price-earnings multiples.

Our acquisition focus in 2008 was again on the twin opportunities of faster-growing geographic markets and new technologies, totally consistent with our strategic objectives in the areas of geography, new communication services and measurability.

Dividends or share buy-backs. We were the only FTSE 100 company to consistently increase its dividend by 20% per annum for the 10 years up to 2007. In 2008 we increased the dividend by 15%. Given dividend cover of four times headline earnings and a dividend yield of over 1% in recent years (although current yields are in excess of 4%), we believe we can continue to increase the dividend. A rolling share buy-back program appears to offer a more significant benefit to total share owner returns. In 2007 we boosted the target level of the share buy-back program from 2-3% of the outstanding share capital to 4-5%, spending over £400 million in that year on buy-backs. In the first half of 2008, we bought back almost 19 million shares, equivalent to 1.6% of share capital, at a cost of £112 million, but then withdrew from the market during the TNS bid process.

For the two years following the acquisition of TNS, we will limit our share buy-back program to a target of 1% of share capital per annum and dividend growth at 15% per annum, subject to review by the Board. We expect these actions, together with a reduced level of acquisition spend (targeted at £100 million per annum), to generate surplus cash and a reduction in borrowing levels.

Distributions to share owners1 £m

Distributions to share owners

Sum of share buy-backs and dividends paid divided by average shares in issue for the relevant period, as a % of the average share price for the relevant period.

3 Continue to enhance the contribution of the parent company

Fourth, we will continue to enhance the contribution of the parent company and build unique integrated marketing approaches for clients. WPP is not just a holding company focused on planning, budgeting, reporting and financial issues, but a parent company that can add value to our clients and our people in the areas of human resources, property, procurement, information technology and practice development. We will continue to do this through a limited group of 300 or so people at the centre in Dublin, London, New York, Hong Kong and Shanghai. This does not mean that we seek to diminish the strength of our operating brands. Our objective is to maximise the added value for our clients with their businesses and our people with their careers.

Many of our initiatives are possible because of the scale on which we now operate. In the optimum use of property, in information technology and in procurement generally, we are able to achieve efficiencies that would be beyond the reach of any individual operating company.

But it is also clear that there is an increasing requirement for the centre to complement the operating companies in professional development and client co-ordination. It is a relatively recent development for certain multinational marketing companies, when looking to satisfy their global communications needs, to make their initial approach not to operating companies but directly to parent companies.

Such assignments present major, and increasingly frequent, opportunities for the few groups of our size. It is absolutely essential that we have the professional resources and the practice development capability to serve such clients comprehensively, actively and creatively. The recent high-profile, high technology pitch (that we won against all our competitors), to build a totally new agency for that client’s needs, is the most extreme and exciting (and difficult) example of this. Similar initiatives involving some of the world’s largest marketers continue to gain momentum.

All our clients, whether global, multinational or local, continue to focus on the quality of our thinking, co-ordination of communications, and price. In response, we focus on talent, structure and incentives.

Training and development

Talent and its management therefore remain the lynchpin of our reason for existence: that is what our clients pay us for. Development of our people and the way we manage that talent is a critical determinant of performance; and on that critical dimension, we continue to make significant progress.

In the creation of extremely attractive working environments, with highly competitive incentives, we increasingly differentiate ourselves from our competitors and improve the attraction of WPP companies as destinations for talent. Our quarterly reviews with the operating companies have been restructured, consequently, to give more time and attention to talent and to clients. Our recruiting efforts throughout 2008 were especially fruitful, as we successfully targeted and attracted top talent within and beyond our industry, often competing with investment banking, management consulting and private equity offers. The war for talent is fierce and there is more to be done.

The blueprint for our executive development curriculum has been completed and our new client leadership training program, Maestro, has been successfully introduced. The parent company and each of our operating companies installed its own approach to performance assessment and succession planning, aimed at developing the careers of their people, improving the quality of feedback, coaching and mentoring and providing for orderly succession. We continued to scrutinise and modify our compensation practices, both to offer competitive and appropriately-based rewards to our people and to attract outstanding talent from elsewhere.


A communications services company must be a model of excellent external and internal communications. To that end, we accelerate the understanding of the Group’s vast resources with a raft of regular communications through our websites and in print: our online FactFiles profiling Group resources/companies/products; our monthly public online news bulletin, e.wire; our award-winning global newspaper, The WIRE, voted best internal newspaper globally at the recent LACP Inspire awards; our annual Atticus Journal of original marketing thinking; The WPP Reading Room, an extensive online library of thinkpieces (both public and original) from WPP professionals worldwide; our annual Corporate Responsibility Report; and this consistently-award winning Annual Report.

Property management

In property management we continue to optimise our real estate portfolio through the award-winning WPP Space Program, with investment in property databases and systems, innovative design and a continuous review of our key locations. This has enabled us to hold the increase in square footage in our portfolio to 5% p.a. over the last three years, while for the same period, revenue (excluding the impact of currency) increased by 6% p.a. As a result, average square foot per head is down 8% from 236 sq ft in 2006 to 218 sq ft in 2008.

We have achieved the medium-term objective of a 7% establishment cost-to-revenue ratio set in 2002, when the same ratio was 8.4% and our future priority in managing the property portfolio of approximately 19 million sq ft worldwide is to ensure growth in additional square footage is far less than the growth in revenues and headcount.

In the short term our objectives will be to manage our lease expiries so that we can reduce our portfolio in line with any short-term reductions in headcount and revenue.


In procurement, we continue to set ourselves the goal of being the undisputed leader of procurement practice in the global advertising and marketing services industry.

We aim to benchmark ourselves regularly against our competitors and our clients. Through intensified investment in procurement people, processes and technology, our goal is to maintain the ratio of bought-in costs-to-revenue at around 15%, by leveraging Group scale across all of our major markets, and focusing on those spend categories most favourable for global, regional and local supply contracts, such as in IT, telecoms, travel, professional services, facilities and production.


In IT we continue to consolidate our core technology infrastructure with the objectives of reducing cost and improving quality. This enables our operating companies to concentrate their efforts on client-related developments and other internal business-focused applications.

The convergence of mobile, voice and data communications has allowed us to take advantage of new offerings in the telecommunications sector to drive efficiencies and to provide enhanced support to our increasingly mobile workforce.

Practice development

Finally, in practice development we continue to develop horizontal initiatives in a focused set of high-potential areas across our vertical operating brands: in media, healthcare, new technologies, new faster-growing markets, internal communications, retail, entertainment and media, financial services, hi-tech and telecommunications and corporate responsibility. Specifically, we continue to invest in sharing insights and developing initiatives through The Channel (in media and research) and The Store (in distribution and retail).

In key geographic markets we are increasingly co-ordinating our activities through WPP Country Managers. We continue to believe that increasing co-ordination is required between our brands at the country and global levels, as the arguments for investment in regional management become weaker. As experience in Italy has demonstrated, however, the activities of Country Managers must be closely aligned and monitored. In addition, we are appointing an increasing number of WPP Global Client Leaders to co-ordinate our efforts on behalf of clients and to ensure they get maximum benefit from their relationships with WPP operating brands. We are focused currently on our top 30 global clients, which last year grew revenues at 3.6% on a like-for-like basis.

Furthermore, we continue to encourage internal strategic alliances and promote co-operation. Practice development initiatives have therefore been reinforced in such areas as healthcare, retail, internal communications and media and entertainment. This has been especially important to manage our portfolio of direct investments in new media, including 24/7 Real Media, under WPP Digital, and where our investments are working with our agencies and people to bring new technology capabilities and understanding to our clients. All these initiatives are designed to ensure that we, the parent company, really do (as well as being perceived to) inspire, motivate, coach, encourage, support and incentivise our operating companies to achieve their strategic and operational goals.

5 Place greater emphasis on revenue growth

Growing our revenues

Fifth, to continue to place greater emphasis on revenue growth. One legitimate criticism of our performance against the best-performing competition is our comparative level of organic revenue growth. 2000 was a bumper year but unsustainable. In 2001, we disappointingly moved back into the middle of the pack. But there was a significant revival in 2002 and 2003, when we were one of only two of the major companies that showed revenue growth. 2004 was punctuated with a number of high-profile wins, resulting in the second strongest organic growth performance in the industry, and 2005 and 2006 saw strong growth again among the leaders in the industry. New business wins in 2007 were unprecedented in the history of WPP, and revenue growth again impressed against the competition, particularly the Big Four.

In 2008, revenue growth trailed a little behind our major competitors, although the fourth quarter held up better than the competition. Estimated net new billings of £2.9 billion in 2008 reflected a consistently high level of wins throughout the year. The Group was ranked first in two of the three major industry new business surveys in 2008 and was, therefore, the leading group overall in new business acquisition, excluding re-appointments, as is the industry convention.

Organic revenue growth vs peers %

Organic revenue growth vs peers

Our practice development activities are also aimed at helping us position our portfolio in the faster-growing functional and geographic areas. So far in 2009, the Group has made acquisitions or increased equity interests in Advertising and Media Investment Management in Italy and South Africa; in Information, Insight & Consultancy in the UK and US; in direct, internet and interactive in France, South Africa, the US and Vietnam.

These acquisitions continue to move us forward to our previously described strategic priorities; expanding the market shares of our businesses in Asia Pacific, Latin America, Africa and the Middle East to one-third; in marketing services to two-thirds; and in Information, Insight & Consultancy, direct and interactive, to one-half.

We intend to expand our strong networks – Ogilvy & Mather, JWT, Y&R, Grey, United Network, Bates 141, Mindshare, Mediaedge:cia, MediaCom, TNS (the newly combined TNS Custom Research and Research International), Millward Brown, Kantar Media, Kantar Healthcare, Kantar Retail, Kantar Worldpanel, Hill & Knowlton, Ogilvy Public Relations Worldwide, Burson-Marsteller, Cohn & Wolfe, OgilvyOne, Wunderman, OgilvyAction, G2, 24/7 Real Media, CommonHealth, Sudler & Hennessey, Ogilvy Healthworld, ghg, The Brand Union, Landor and Fitch – in high-growth markets or where their market share is insufficient.

In 2008, in addition to the acquisition of TNS, we strengthened our position in Advertising and Media Investment Management in the US, the UK, Denmark, France, Italy, the Netherlands, Switzerland, Ukraine, the Middle East, Kenya, Argentina, Brazil, Chile, Guatemala, Australia, New Zealand, China, Singapore and Vietnam; in Information, Insight & Consultancy in the US, the UK, Spain, Brazil and India; in Public Relations & Public Affairs in the UK, China, Korea and India; in direct, internet and interactive in the US, the Czech Republic, Denmark, France, Russia, China, India, Japan and Malaysia; and in Branding & Identity in the Netherlands.

We will also enhance our leadership position in Information, Insight & Consultancy by further development of our key brands with particular emphasis on North America, Asia Pacific, Latin America and Continental and Eastern Europe. We will continue our growth of research panels and have established a Kantar-wide operational capability, which will be consolidated with the same function at TNS. We will reinforce our growing position in media research through Kantar Media, which includes our investments in television audience research through the former TNS Media Intelligence and TNS Media Research, and IBOPE and Marktest, which, combined, are among the market leaders outside North America.

In addition, we intend to reinforce our worldwide strength in direct and interactive marketing and research through our traditional channels such as OgilvyOne, Wunderman, G2, RMG Connect, Blanc & Otus and Lightspeed. Although the early 2000-2001 compressions in financial valuations initially offered significant opportunities, we will now also invest directly in the new channels through start-ups, particularly as US and French valuations in search, for example, are still prohibitive, despite the financial crisis. Other opportunities will be sought to enhance our online capabilities.

Lastly, we will continue to develop our specialist expertise in areas such as healthcare, retail and interactive and to identify new high-growth areas.

6 Further improve the quality of our creative output

Creativity remains paramount

Our sixth objective is to improve still further the quality of our creative output. Despite the growing importance of co-ordinated communications and price effectiveness, the quality of the work remains and will remain paramount. If you drew a graph plotting creative awards (as a proxy for creativity) against margins for any group of agencies, there would be a very strong correlation. The more awards, the stronger the margins. The client’s procurement department fades into the background when the work is strong. Of the three things we do – strategic thinking, creative execution and co-ordination – creative execution is undoubtedly the most important, and that means creativity in its broadest sense.

Clients look for creative thinking and output not just from advertising agencies, public relations and design companies, but also from our media companies and our research companies. Millward Brown remains arguably one of our most creative brands. Witness the BrandZ Top 100 Most Powerful Brands Study published annually each April with the Financial Times.

We intend to achieve this objective by stepping up our training and development programs; by recruiting the finest external talent; by celebrating and rewarding outstanding creative success tangibly and intangibly; by acquiring strong creative companies; and by encouraging, monitoring and promoting our companies’ achievements in winning creative awards. Our thanks go to Robyn Putter, who left the Group in November, for his work in championing the WPP creative product and community; and we welcome the appointment of John O’Keeffe to the position of worldwide creative director of WPP. 2008 saw the second annual WPPED Cream awards, our internal award scheme for outstanding work across the Group. Your Company also amassed the second largest points tally at the 2008 advertising and marketing services festival in Cannes (please refer to our website, www.wpp.com, for further details).

At the same time we are committed to achieving all these objectives as a significantly responsible corporate citizen of the world at large and the communities in which we operate.

As a parent company, we continue to develop practical principles and policies for our companies’ charitable giving and services to the environment, education, the arts and healthcare based on best practice guidelines. We conservatively calculate that the WPP organisation contributed an estimated £14.6 million worth of time, skills, materials and money to social and community causes in 2008. A summary of the Group’s approach to corporate responsibility can be found in the corporate responsibility section.

Please also see our annual and unique (in our industry) Corporate Responsibility Report on the work our clients and our people do in these increasingly important areas.