Review, progress & strategyBy Sir Martin Sorrell, CEO, WPP
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Strategic report
Our performance in 2014 and the outlook for 2015 and beyond
Reports from our company leaders
The leaders of our major companies give summary accounts of their performance and progress in 2014
Chairman’s letter
After 14 years as Chairman, Philip Lader's final Report to share owners
In praise of the long view
WPP CEO Sir Martin Sorrell on the Group’s 30th anniversary, another record year, and the outlook for marketing services
A quick, pre-digested, highly-compressed version of the 2014 Annual Report
WPP is the world leader in communications services. It comprises leading companies in all these disciplines:
There are more than 155 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 355 of the Fortune Global 500, all 30 of the Dow Jones 30 and 71 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. Nearly 830 clients are now served in three distinct disciplines. Over 530 clients are served in four disciplines, and these clients account for over 53% of Group revenues. Group companies also work with nearly 430 clients across six or more countries.
Collectively, almost 179,000 people (including associates) work for WPP companies, out of over 3,000 offices in 111 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
Champions of the long view are becoming harder to find. Boardrooms (in the West at least) are more likely to be inhabited by the ghosts of Lehman than John Maynard Keynes’ animal spirits. Consequently, targets are often reached not by maximising revenues, but by minimising costs – including marketing spend.
Despite the challenges, our business performed well in 2014, which was another record year for the Group. We expect the pattern for 2015 to be much the same: a bit of a slog, but a satisfactory result at the end of it, ahead of last year. Looking further into the future, corporate minds will eventually turn to investment and growth, and marketing services will be one of the principal beneficiaries.
Throughout our three decades of existence, taking the long view has worked well for WPP and its stakeholders.
We have the right strategy to take advantage of the fundamental shifts – both technological and geographical – shaping our industry. We continue to focus on: new markets, new media, data investment management and the application of technology, and ‘horizontality’.
Read Sir Martin Sorrell’s article
(Which is why The Best Brief may be The Brand)
by Jeremy Bullmore
In business, particularly in marketing, we seem to be at least as reluctant as scientists to come clean about our processes of thought.
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
2014, our twenty-ninth year, was another record one, with revenue, profitability, net sales margins and earnings per share all reaching new highs, despite strong currency headwinds.
Billings*
£46,186m
Reported 0.0% Constant 6.8%
Revenue
£11,529m
Reported 4.6% Constant 11.3%
Net sales*
£10,065m
Reported -0.1% Constant 6.3%
Headline EBITDA*
£1,910m
Reported 0.7% Constant 7.5%
Headline PBIT*
£1,681m
Reported 1.1% Constant 8.0%
Net sales margin*
16.7%
Reported 0.2%1 Constant 0.3%1
Headline PBT*
£1,513m
Reported 3.7% Constant 11.6%
Reported profit before tax
£1,452m
Reported 12.0% Constant 21.3%
Headline diluted EPS*
84.9p
Reported 5.1% Constant 12.6%
Reported diluted EPS*
80.5p
Reported 15.7% Constant 24.9%
Dividends per share
38.20p
Reported 11.7% Constant 11.7%
(% change from 2013 in reported and constant currency)
* Refer to financial summary for additional information.
1 Margin points
Reported billings were £46.2 billion, up almost 7% in constant currencies, driven by a strong leadership position in net new business league tables for the third year in a row. Revenue was up well over 4% to £11.5 billion and up over 11% in constant currencies.
Dividends increased by 11.7% to 38.20p, a new high. This represents a dividend pay-out ratio of 45% of headline diluted earnings per share, achieved one year earlier than the objective set after the 2013 AGM.
Headline PBIT was up over 1% to £1.681 billion and up 8% in constant currencies. Net sales margins increased by 0.2 margin points to an industry-leading 16.7% and, on a constant currency basis, were up 0.3 margin points, in line with target.
Reported profit before interest and tax rose over 6% to £1.569 billion from £1.478 billion, up over 14% in constant currencies. Headline EBITDA increased by 0.7% to £1.910 billion, up 7.5% in constant currencies. Headline profit before tax was up well over 3% to £1.513 billion and reported profit before tax was up 12% to £1.452 billion. Diluted headline earnings per share rose by over 5% to 84.9p (an all-time high) and diluted reported earnings per share were up well over 15% to 80.5p.
The value of the Group’s non-controlled investments rose by almost £400 million to £669 million during the year, reflecting the increasing value of our investments in content businesses, primarily VICE, and the technology partnerships formed during the year with AppNexus and Rentrak.
With a current equity market capitalisation of approximately £20.5 billion, the total enterprise value of your Company is approximately £23.6 billion, a multiple of 12.4 times 2014 headline EBITDA.
Free cash flow amounted to almost £1.2 billion in 2014, over £1 billion for the fourth consecutive year. Average net debt was £3.0 billion in 2014, the same level as in 2013, at 2014 exchange rates, and net debt at 31 December 2014 was £2.3 billion, against £2.2 billion in 2013, reflecting significant incremental net acquisition spend of £0.3 billion and incremental share re-purchases of £0.3 billion, more than offsetting the improvements in working capital at the year end. Average net debt remained around 1.6 times headline EBITDA in 2014, at the low end of the Group’s target range of 1.5-2.0 times.
Our reported revenue growth for the year was 4.6%, and on a constant currency basis, which excludes the impact of currency movements, revenue was up 11.3%. This difference of 6.7% reflects strong foreign currency headwinds: chiefly due to the strength of the pound sterling against the US dollar and euro in the first nine months, to some extent offset by the weakness of the pound sterling against the US dollar, Japanese yen, Australian dollar and Indian rupee in the final quarter.
On a like-for-like basis, which excludes the impact of currency and acquisitions, revenue was up 8.2%, with net sales up 3.3%. In the fourth quarter, like-for-like revenue was up almost 8%, following like-for-like growth in the third quarter of well over 7%, due to stronger growth in the fourth quarter in North America, the UK and Western Continental Europe, offset by lower growth in Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe. Like-for-like revenue growth in the second half was therefore well over 7% compared with well over 8% in the first.
North America, with constant currency revenue growth of well over 10% in the final quarter and like-for-like growth of over 9%, maintained the strong growth seen in the first nine months, an improvement over the third quarter year-to-date constant currency growth of almost 10%.
In the UK, constant currency revenue was up 16%, with like-for-like up almost 13% on a full year basis. Net sales were up over 7% in constant currency, with like-for-like up almost 5%.
Western Continental Europe revenue grew almost 4% like-for-like (almost 5% in the second half), compared with 0.5% in 2013.
In Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe, revenue growth in the fourth quarter was fastest overall, as it was in quarter three, up 16% in constant currency and up over 6% like-for-like.
1 The calculation of headline PBIT is set out in note 31 of the financial statements PDF (1.19MB).
Advertising and Media Investment Management was the strongest performing sector, with constant currency revenue up almost 20% for the year and up over 16% like-for-like. Net sales were up almost 8% in constant currencies and up 5% like-for-like.
Data Investment Management revenue grew by 1.5% in constant currency, with like-for-like revenue up 0.6%, and the second half weaker than the first, partly due to stronger comparatives in the second half of 2013. More significantly, net sales were stronger, up almost 1% in constant currencies and up 0.6% like-for-like, reflecting an improvement in the custom research parts of the business.
The Group’s Public Relations & Public Affairs businesses returned to top-line growth in 2014, with full year revenue up well over 2% on both a constant currency and like-for-like basis.
At the Group’s Branding & Identity, Healthcare and Specialist Communications businesses (including direct, digital and interactive), full-year revenue was up over 9% in constant currency and up 4% like-for-like. In the fourth quarter, constant currency revenue grew strongly at over 11% with like-for-like revenue growth of over 4%, an improvement over the third quarter. Net sales margins for the sector as a whole fell 0.7 margin points to 14.7% and by 0.6 margin points in constant currency, as parts of the Group’s direct, digital and interactive businesses in Western Continental Europe, together with Branding & Identity and Healthcare Communications slowed.
In 2014, 36% of the Group’s revenue and net sales came from direct, digital and interactive, up over one percentage point from the previous year, with revenue growing well over 11% like-for-like.
1 The calculation of headline PBIT is set out in note 31 of the financial statements.
For the fourth successive year, your Company was awarded the Cannes Lion for Creative Holding Company of the Year, 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.
In April 2015, WPP was named one of America’s 500 best employers by Forbes magazine, the only company in the communications services industry to be placed among the top 500 employers.
Read How we're doing
Philip Lader Chairman of the Nomination and Governance Committee
Roberto Quarta Chairman designateMember of the Compensation Committee and Nomination and Governance Committee
Sir Martin Sorrell Chief executive
Paul Richardson Finance director Chairman of the Sustainability Committee
Roger Agnelli Member of the Audit Committee, Compensation Committee and Nomination and Governance Committee
Jacques Aigrain Member of the Audit Committee and Compensation Committee
Charlene Begley Member of the Audit Committee and Nomination and Governance Committee
Colin Day Chairman of the Audit Committee and member of the Compensation Committee
Sir John Hood Chairman of the Compensation Committee
Ruigang Li Member of the Compensation Committee and Nomination and Governance Committee
Daniela Riccardi Member of the Compensation Committee
Jeffrey Rosen Member of the Audit Committee, Compensation Committee and Nomination and Governance Committee Senior independent director
Nicole Seligman Member of the Compensation Committee
Hugo Shong Member of the Audit Committee, Compensation Committee and Nomination and Governance Committee
Timothy Shriver Member of the Compensation Committee and Nomination and Governance Committee
Sally Susman Member of the Nomination and Governance Committee
Sol Trujillo Member of the Audit Committee and Compensation Committee
Jeremy Bullmore
John Jackson
Bud Morten
Koichiro Naganuma
John Quelch
Richard Rivers
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 and the guidance in the Turnbull Report and the FRC guidance on risk management.
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 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.
Clients who engaged with us on sustainability were worth at least £1.35 billion to the Group in 2014, equivalent to 12% of revenues, a 7% increase on the previous year.
Read Sustainability review
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