WPP 2020 Preliminary Results

Rhea-AI Summary

WPP (NYSE: WPP) reported its 2020 Preliminary Results, showing a revenue decline of 9.3% to £12 billion and a significant operating loss of £2.3 billion, primarily due to £3.1 billion in impairments. Despite these challenges, the company achieved £4.4 billion in net new business, reflecting strategic progress and resilience during the pandemic. WPP also proposed a final dividend of 14.0p per share and plans to resume a share buyback. The outlook for 2021 anticipates mid-single-digit growth in revenue less pass-through costs and improved operating margins.

Positive

• Achieved £4.4 billion in net new business during 2020.
• Proposed a final dividend of 14.0p per share, indicating shareholder returns.
• Net debt decreased to £0.7 billion, the lowest level in 16 years.
• Strategic transformation initiatives have started to pay off, with a focus on digital and e-commerce.

Negative

• Reported operating loss of £2.3 billion due to substantial impairments.
• Revenue decreased by 9.3%, showing significant impact from COVID-19.
• Diluted EPS fell by 23.3% to 59.9p compared to the previous year.

WPP (NYSE: WPP) today reported its 2020 Preliminary Results.

Key figures – continuing operations

£ million		2020		+/(-)% reported1		+/(-)% LFL2		2019
Revenue		12,003		(9.3)		(7.3)		13,234
Revenue less pass-through costs		9,762		(10.0)		(8.2)		10,847
Reported:
Operating (loss)/profit		(2,278)		n/m3		-		1,296
(Loss)/profit before tax		(2,791)		n/m		-		1,2144
Diluted EPS (p)		(243.2)		n/m		-		68.24
Dividends per share (p)		24.0		5.7		-		22.7
Headline5:
Operating profit		1,261		(19.2)		(17.2)		1,561
Operating profit margin		12.9%		(1.5)pt*		(1.4)pt*		14.4%
Profit before tax		1,041		(23.6)		-		1,363
Diluted EPS (p)		59.9		(23.3)		-		78.1
* Margin points

Full year and Q4 financial highlights

• FY continuing operations reported revenue -9.3%, LFL revenue -7.3%
• FY LFL revenue less pass-through costs -8.2%; sequential recovery since initial lockdowns: Q2 -15.1%, Q3 -7.6%, Q4 -6.5%
• Q4 LFL revenue less pass-through costs by major market: US -6.2%, UK -7.4%, Germany -0.8%, Greater China -12.1%, India -8.9%
• FY headline operating margin 12.9%, down 1.5pt on prior year as cost savings of over £800 million offset the majority of the revenue decline; H2 headline operating margin +0.5pt
• Reported loss before tax impacted by £3.1 billion of impairments (£2.8 billion goodwill, £0.3 billion investment and other write-downs)
• Net debt at 31 December 2020 £0.7 billion, better than expected and down £0.8 billion year-on-year, reflecting continued strong working capital and cash management

Strategic progress, shareholder returns and 2021 guidance

• Transformation delivering results: VMLY&R +2.9% in Q4
• Continued focus on simplification: alignment of Grey with AKQA, Geometry with VMLY&R
• Offer resonating with clients: market-leading $4.4 billion⁶ of net new business won ($7.3 billion gross)
• Continued recognition of creativity and effectiveness: Effies winner for ninth successive year; Cannes Lions Agency Holding Company of the Decade
• Final dividend of 14.0p per share proposed, in line with new dividend policy
• £620 million Kantar share buyback to resume immediately: up to £300 million to be completed over the next three months
• 2021 outlook in line with guidance provided in December 2020: LFL revenue less pass-through costs growth of mid-single-digits %, with headline operating margin of 13.5-14.0%

Mark Read, Chief Executive Officer, WPP:

“2020 was a tough year for everyone, including our people who faced the personal and professional challenges of COVID-19. Their commitment to our clients, support for one another and contribution to the communities we serve have been a constant source of inspiration and pride.

“WPP’s performance has been remarkably resilient, thanks to these efforts and the demonstrable value of what we do for our clients. While revenue was significantly impacted as clients reduced spending, our performance exceeded our own expectations and those of the market throughout the year. There is no doubt that the actions we took during the previous two years to transform and simplify the business and reduce debt – to a 16-year low at the end of 2020 – played a crucial role in the strength of our response.

“At the height of the pandemic we saw five years’ worth of innovation in five weeks, with a dramatic shift to digital media and ecommerce as people’s lives went online – trends on which we based our vision for WPP. Having modernised our client offer, refined our structure and strengthened our agency brands, we were well prepared for this shift and saw the benefits of this acceleration in parts of our business. Our strategic progress was also evident in our very strong new business performance, with key wins including Alibaba, HSBC, Intel, Uber and Unilever.

“In December 2020, we outlined our plans to continue to transform our business, to accelerate our growth and to put purpose at the heart of what we do. We see many areas of attractive growth for WPP, from the permanent shift to ecommerce, the digitisation of media and the need from our clients to convert brand purpose into action. The past 12 months have demonstrated the importance and impact of communications. The demand from clients for simple, integrated solutions that combine outstanding creativity with sophisticated data and technology capability is only set to grow and, while uncertainties remain around the impact of the vaccine roll-out and economic growth, we continue to expect 2021 to be a year of solid recovery.”

To access WPP's 2020 preliminary results financial tables, please visit www.wpp.com/investors

Overview and strategic progress

Market environment

The impact of COVID-19 began to be felt from March onwards, causing widespread restrictions on economic activity. The market began to recover in the latter half of the year, with GroupM estimating that global advertising fell by 5.8% during 2020, a substantially better outcome than the 11.8% annual decline predicted in June. Within this, spend on digital media increased to 59.3% of total spend in 2020, from 51.6% in 2019, underpinned by growth in ecommerce and the increasing importance of a seamless omnichannel customer experience.

One of the prevailing outcomes of the pandemic has been the acceleration in underlying structural trends. Lockdown restrictions across the globe have brought about unprecedented growth in ecommerce, with a greater proportion of consumers shopping online. GroupM estimates that global retail ecommerce – including automotive sales but excluding food and delivery services – saw growth of 21% in 2020, amounting to 17% of global retail sales. China, the world’s largest ecommerce market, saw penetration reach 25% in 2020 and equivalent sales accounted for 14% and 18% of total retail activity in the US and UK, respectively. As a result, brands have had to put greater focus on their digital strategies.

In terms of trends by sector, linear TV advertising has continued to decline with production and live events taking a pause, while streaming services have grown at a rapid pace. Advertising spend on outdoor, cinema and print has fallen significantly as consumers have been spending an increased amount of time at home.

Trends in spend by geography have predominantly been driven by restrictions on economic activity and the maturity of digital channels. Based on GroupM findings, China saw growth in advertising spend of 6.2% in the year, reflecting its rapid response to the pandemic. Spend in the UK and US, excluding political advertising, declined by 4.4% and 7.3% respectively, with these markets performing better than expected in the second half of the year as they benefitted from the growth in ecommerce. Across other major markets in Europe activity was mixed: France saw advertising spend fall by 15.5%, while the market in Germany was more robust with spend falling by 2.0% in the year.

Consumer packaged goods, technology and pharmaceuticals businesses (57% of WPP’s revenue less pass-through costs from our top 200 clients for 2020) have held up reasonably well as demand for their services has either been less impacted or in some cases slightly increased. On the other hand, automotive, luxury & premium, travel and leisure businesses (22% of revenue less pass-through costs from the top 200 clients) have been the hardest hit and this in turn has been reflected in their marketing spend.

COVID-19 has transformed the way we work; for companies, engaging with employees has never been more important. The pandemic has also put a spotlight on the interrelationship between business, government, employees and communities. Considering this, companies have been prompted to re-evaluate their purpose and many have recognised the need to take a stand on important issues, particularly with a renewed focus on people and society.

2020 performance and COVID-19

We started the year strongly, building on the progress made over the course of 2019. From March, the environment became more challenging, but we responded positively as an organisation, supporting our people, staying closer than ever to clients and working with a number of partners to protect our communities. The second quarter was the toughest from a performance perspective, but activity began to stabilise in the third quarter and this continued through to the end of the year.

The nature of our work for clients evolved rapidly as they sought to make both short- and long-term changes to their brand messaging and interaction with customers. During the immediate response to the pandemic, we helped clients develop appropriate brand communications, working with great pace and agility. Within media, the pivot to digital accelerated, reflecting the rapid change in media consumption, with GroupM’s billing mix increasing from 38% digital in 2019 to 41% in 2020. Most significantly, we saw huge demand from clients for ecommerce services, across both media and our integrated creative agencies. We worked with 76 of our top 100 clients on ecommerce during 2020.

Overall, our financial performance has been less geared to client media expenditure than in previous cycles, reflecting the broader spread of marketing services we now provide, as well as an ongoing shift to resource-driven revenue models and away from commission on media investment.

Our sector exposure has contributed significantly to our resilient performance. Within our top 200 clients, the combined growth in LFL revenue less pass-through costs from consumer packaged goods, technology and healthcare & pharmaceutical businesses in 2020 was 0.9%. Within retail, financial services, telecommunications, media & entertainment and other clients, LFL revenue less pass-through costs was down 4.7%. The sectors which suffered the most – automotive, luxury & premium and travel & leisure – saw a LFL decline of 9.8%.

We have responded very effectively to the material impact that COVID-19 has had on the way we and our clients work. The significant majority of our people have been working remotely since March 2020, and we have ensured strong continuity of service to clients at a time when the need for our services and expertise has been greater than ever.

We have continued to work with clients, governments, national health organisations and NGOs to help limit the impact of COVID-19 on society, including our multi-agency support for the World Health Organization on a pro bono basis, delivering global and regional public awareness campaigns to encourage people to stay at home and adopt safe behaviours.

We have significantly improved the financial resilience of the business from both a liquidity and cost perspective. We raised over £900 million in the bond markets in May as a prudent measure in the face of uncertainty, and at 31 December 2020 had total liquidity of £6.4 billion. Our working capital position has improved year-on-year as a result of increased focus and discipline, leaving year-end net debt at £0.7 billion – the lowest level since 2004. Finally we have reduced operating costs by 8.4% year-on-year, limiting the impact on profitability from the sharp decline in revenue less pass-through costs.

To protect liquidity, we also took the decision back in March 2020 to suspend the 2019 final dividend and the share buyback funded by the proceeds of the Kantar transaction. We recommenced the dividend with the payment of an interim distribution of 10p per share in November 2020, and today the Board is proposing a final dividend for 2020 of 14.0p per share. In addition, we are recommencing the share buyback immediately, with a plan to purchase up to £300 million by June 2021.

We have generally not applied for government support in response to COVID-19, although in some overseas markets funding has been obtained, or has been applied automatically. We did not use the UK Government funded Job Retention Scheme. In total we have received £77 million of funding, none of which related to the UK, and have also benefited from the deferral of certain taxes under local initiatives available to all companies in the countries concerned. These benefits are described in more detail in Appendix 1.

Impairments of £3.1 billion (including £2.8 billion of goodwill impairments and £0.3 billion of investment and other write-downs) were recognised in 2020. The goodwill impairments relate to historical acquisitions whose carrying values have been reassessed in light of the impact of COVID-19. The impairments are driven by a combination of higher discount rates used to value future cash flows, a lower profit base in 2020 and lower industry growth rates.

Strategic progress

WPP is a radically different business from two years ago. It is a simpler, more nimble organisation with much stronger technology capabilities and a culture of collaboration, openness and mutual respect. After the success of the VMLY&R and Wunderman Thompson mergers, we have recently announced the formation of the AKQA Group with AKQA and Grey, and the creation of VMLY&R Commerce through the combination with Geometry. These new integrated agency models provide clients with simple solutions not only in communications but also in experience, health, ecommerce, data and technology. Under GroupM, our media business continues to lead its industry.

The power of our strategy is becoming evident in our improving performance. We led the new business tables globally in 2020, both in media and creative, winning a total of $4.4 billion in net new business. Key wins included Intel (global creative), HSBC (global creative), Unilever (China media) and WW (global integrated creative and media). We are seeing very strong levels of collaboration across WPP, with most pitches involving multi-agency teams with strong co-ordination and support from the client, new business and technology expertise we are building in the centre.

VMLY&R was the stand-out performer for the year, achieving almost a flat performance for the year as a whole and growing in the second half. Our relative performance has consistently improved over recent quarters, both globally and in the US, as we have begun to outperform the average of our global marketing services peers; and our client satisfaction scores continue to improve, with a clear acceleration during the pandemic as clients placed additional value on the work that we do for them.

Our commitment to creativity also continues to be reflected in the industry recognition our campaigns attract. In June, WPP was ranked the most effective marketing communications company in the world in the 2020 Effie Index for the ninth successive year. Campaign US named VMLY&R as Advertising Network of the Year for 2020, and Adweek named MediaCom Global Media Agency of the Year. The Cannes Lions International Festival of Creativity named WPP as holding company of the decade, in global rankings to recognise those companies which have demonstrated the greatest sustained creative excellence, based on winning and shortlisted work over the last 10 years.

We are building a strong culture and attracting new talent. Many of our major agencies have new leadership, from internal promotions and external hires, who are working together as part of a WPP Executive Committee. We have bolstered our creative talent around the world, attracting some of the best people in our industry – most recently announcing the appointment of Rob Reilly as Global Chief Creative Officer. We now have around a third of our people co-located on 20 campuses around the world, bringing our agencies closer together.

We have significantly simplified WPP, allowing us to reduce complexity and cost, and respond more quickly to client needs. We have sold more than 60 businesses and investments, raising over £3.5 billion; merged 100 small, local offices; and closed a further 80 business units. As a result, we have reduced net debt by over £4 billion from £4.9 billion at September 2018 to £0.7 billion at December 2020, leaving us well positioned to invest in future growth.

Accelerating our growth

In December 2020 we set out our plans to accelerate our growth, leveraging the significant progress made in strengthening WPP. Our goal is to deliver sustainable growth in Communications through a focus on digital communications, and to expand further into the high-growth areas of Commerce, Experience and Technology, growing our mix from 25% to 40% by 2025.

Furthermore, leveraging WPP’s existing global strength we will accelerate our investment in high growth potential markets, such as China, India and South America; and in our innovative digital platforms, such as Xaxis, our programmatic business, and Finecast, our market-leading addressable TV platform. We will supplement organic growth with targeted acquisitions, scalable across WPP, which bring in additional talent, capability and technology. Already in 2021 we have acquired growth businesses in digital experience and mobile commerce which exactly align with our strategy.

WPP has a very material opportunity to unlock efficiency savings, creating a better operating platform for our agencies and reinvesting these savings back into growth. We aim to achieve annual gross savings of around £600 million by 2025 by simplifying our operating model, generating efficiencies in procurement and real estate, and through improving the effectiveness of our support functions and shared services.

Of the total cost savings target, we expect to reinvest around two-thirds into talent, technology and incentives to drive growth. These cost savings will be phased over the next five years.

Purpose and sustainability progress and priorities

Our purpose is to use the power of creativity to build better futures for our people, planet, clients and communities. We must do this through the actions we take as a company. We also have the ability to use the power of marketing to communicate the actions that our clients are taking to build a sustainable future and a more inclusive society.

WPP is committed to real progress on diversity, equity and inclusion. In June 2020 we made a number of commitments to advance racial equity. First, we are taking decisive action on each of the 12 points in the “Call for Change” open letter to the industry from more than 1,200 Black advertising professionals, including a fundamental review of our hiring, retention and promotion practices and the annual publication of our racial diversity data.

Second, we will use our voice to fight racism and advance the cause of racial equality in and beyond our industry. We have established a Diversity Review Subcommittee to prevent negative and harmful stereotypes in creative work, and in July 2020 published our Commitment to Inclusiveness, Diversity and Anti-Racism in our Work. In December, in collaboration with UniWorld, we created the Inclusive Marketing Playbook to set the standard for inclusive marketing principles and best practice for our agencies.

Third, we have committed to investing $30 million over three years to fund inclusion programmes within WPP and to support external organisations. Our first investment is focused on broadening access to a more diverse talent pipeline, with formal partnerships with six organisations in the US and UK. In addition, we have put in place an employee donation match programme, through which we will match donations up to $1,000 per person and $1 million in total to relevant non-profit organisations.

We have made significant progress in driving gender equality, with women now representing 51% of our senior managers. At the most senior executive level, this figure is 40%, and our aim is to achieve parity. From 2021, we will be integrating inclusion and diversity metrics into executive remuneration to hold our leaders accountable for progress.

We have seen a material reduction in our environmental impact this year, in part due to the restrictions on movement. Our overall Scope 1 and 2 market-based carbon emissions are down 41%, office energy consumption has decreased by 25%, total waste is down 62% and our Scope 3 carbon emissions from business air travel fell by 81% year-on-year.

In 2020, we sourced 65% of our electricity from renewables (2019: 37%), including purchasing 100% of electricity from renewable sources in the US and, for the first time, Canada, the UK and most European markets.

In the coming weeks we will announce new sustainability targets for WPP, adding to our interim goals of reaching net zero carbon emissions in our campuses and sourcing 100% of our electricity from renewable sources by 2025. We are also completing a Scope 3 carbon inventory in order to set value chain carbon reduction targets. We have started to address the carbon emissions in our value chain, for example as a founding member of AdGreen, a new standard aimed at reducing the emissions associated with advertising production.

Outlook for 2021

As the global economy starts to recover from COVID-19, having simplified our business and reduced debt, WPP is well positioned to support our clients in achieving their growth aspirations.

We reiterate our guidance for 2021:

• Organic growth (defined as like-for-like revenue less pass-through costs growth) of mid-single-digits %, returning to growth in Q2 2021
• Headline operating margin in the range of 13.5-14.0%
• Capex £450-500 million

In addition, our current projections for foreign exchange movements imply around a 5 percentage point drag to reported revenue less pass-through costs from the strength of sterling year-on-year. We also anticipate a net working capital outflow for 2021 of £200-300 million, reflecting some normalisation from the very strong position at the end of 2020.

Medium-term guidance

At our Capital Markets Day in December 2020, we set out our new medium-term financial targets that will allow us to invest in talent, incentives and technology, improve our competitive position and deliver sustainable long-term growth. These are:

• Recovery to 2019 revenue less pass-through costs levels by 2022
• 3-4% annual growth in revenue less pass-through costs from 2023, including M&A benefit of 0.5-1.0% annually
• 15.5-16.0% headline operating margin in 2023
• Dividend: intention to grow annually with a pay-out ratio around 40% of headline diluted EPS
• Average net debt/EBITDA maintained in the range 1.5-1.75x

Financial results

Unaudited headline income statement:

£ million	2020		2019	+/(-) % reported	+/(-) % ∆ LFL
Continuing operations
Revenue	12,003		13,234	(9.3)	(7.3)
Revenue less pass-through costs	9,762		10,847	(10.0)	(8.2)
Operating profit	1,261		1,561	(19.2)	(17.2)
Operating margin %	12.9%		14.4%	(1.5)pt	(1.4)pt
Income from associates	10		62	(83.8)
PBIT	1,271		1,623	(21.7)
Net finance costs	(230)		(260)	11.8
Profit before tax	1,041		1,363	(23.6)
Tax	(242)		(300)	19.2
Profit after tax	799		1,063	(24.9)
Non-controlling interests	(59)		(79)	25.6
Profit attributable to shareholders	740		984	(24.8)
Diluted EPS	59.9p		78.1p	(23.3)

Reconciliation of operating (loss)/profit to headline operating profit:

£ million	2020	2019
Continuing operations
Operating (loss)/profit	(2,278)	1,296
Amortisation and impairment of acquired intangible assets	89	121
Goodwill impairment	2,823	48
Gains on disposal of investments and subsidiaries	(8)	(40)
Gains on remeasurement of equity interests arising from a change in scope of ownership	(1)	-
Investment and other write-downs	296	8
Litigation settlement	26	(17)
Gain on sale of freehold property in New York	-	(8)
Restructuring and transformation costs	81	153
Restructuring costs in relation to COVID-19	233	-
Headline operating profit	1,261	1,561

Reported billings were £46.9 billion, down 11.6%, and down 9.6% like-for-like.

Reported revenue from continuing operations was down 9.3% at £12.0 billion. Revenue on a constant currency basis was down 8.1% compared with last year. Net changes from acquisitions and disposals had a negative impact of 0.8% on growth, leading to a like-for-like performance, excluding the impact of currency and acquisitions, of -7.3%.

Reported revenue less pass-through costs was down 10.0%, and down 8.8% on a constant currency basis. Excluding the impact of acquisitions and disposals, like-for-like growth was -8.2%. In the fourth quarter, like-for-like revenue less pass-through costs was down 6.5%, reflecting a sequential recovery from Q3 as client spend showed some resilience in response to renewed lockdowns.

Regional review

Revenue analysis

£ million		2020		Reported growth %		LFL growth %		2019
N. America		4,465		(8.0)		(5.8)		4,855
United Kingdom		1,637		(8.9)		(7.9)		1,797
W Cont. Europe		2,442		(7.1)		(8.1)		2,629
AP, LA, AME, CEE7		3,459		(12.5)		(8.1)		3,953
Total Group		12,003		(9.3)		(7.3)		13,234

Revenue less pass-through costs analysis

£ million		2020		Reported growth %		LFL growth %		2019
N. America		3,744		(7.2)		(5.8)		4,034
United Kingdom		1,234		(11.2)		(10.5)		1,390
W Cont. Europe		2,019		(7.2)		(8.1)		2,177
AP, LA, AME, CEE		2,765		(14.8)		(10.3)		3,246
Total Group		9,762		(10.0)		(8.2)		10,847

Headline operating profit analysis

£ million	2020	% margin*	2019	% margin*
N. America	612	16.3	662	16.4
United Kingdom	138	11.2	189	13.6
W Cont. Europe	199	9.8	261	12.0
AP, LA, AME, CEE	312	11.3	449	13.8
Total Group	1,261	12.9	1,561	14.4
* Headline operating profit as a percentage of revenue less pass-through costs

North America like-for-like revenue less pass-through costs was down 5.7% in the final quarter. The USA continued its trend of relative resilience compared to other markets, with VMLY&R and BCW both growing in the fourth quarter. This was offset by GroupM, which saw a slight deterioration compared to the third quarter. Canada finished the year strongly, on the back of new business wins. On a full year basis, like-for-like revenue less pass-through costs in North America was -5.8%.

United Kingdom like-for-like revenue less pass-through costs was down 7.4% in the final quarter, a slight deterioration on the third quarter. AKQA and BCW were the best performers in the fourth quarter, both growing year-on-year. The lockdown in the UK limited the recovery in the larger integrated agencies. On a full year basis, like-for-like revenue less pass-through costs was -10.5%.

Western Continental Europe like-for-like revenue less pass-through costs was down 3.9% in the final quarter, an improvement on the third quarter performance. The recovery was led by Germany, the Netherlands, Denmark and Sweden. France, Spain and Italy continued to experience COVID-related headwinds. On a full year basis, like-for-like revenue less pass-through costs was -8.1%.

In Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, like-for-like revenue less pass-through costs was down 8.8% in the final quarter, the best quarter-on-quarter improvement of all the regions. The sequential improvement from the third quarter was driven by Asia Pacific and Latin America, with performance in the other regions slightly deteriorating in the fourth quarter. On a full year basis, like-for-like revenue less pass-through costs was -10.3%.

Business sector review

Revenue analysis

£ million		2020		Reported growth %		LFL growth %		2019
Global Int. Agencies		9,303		(8.8)		(6.1)		10,205
Public Relations		893		(6.6)		(5.8)		957
Specialist Agencies		1,807		(12.8)		(13.3)		2,072
Total Group		12,003		(9.3)		(7.3)		13,234

Revenue less pass-through costs analysis

£ million		2020		Reported growth %		LFL growth %		2019
Global Int. Agencies		7,319		(9.7)		(7.9)		8,108
Public Relations		854		(4.9)		(4.0)		898
Specialist Agencies		1,589		(13.7)		(11.5)		1,841
Total Group		9,762		(10.0)		(8.2)		10,847

Headline operating profit analysis

£ million	2020	% margin*	2019	% margin*
Global Int. Agencies	968	13.2	1,219	15.0
Public Relations	141	16.5	141	15.7
Specialist Agencies	152	9.5	201	10.9
Total Group	1,261	12.9	1,561	14.4
* Headline operating profit as a percentage of revenue less pass-through costs

Global Integrated Agencies like-for-like revenue less pass-through costs was down 6.3% in the final quarter, a small improvement on the third quarter performance. VMLY&R was the best performing integrated agency, returning to growth in the fourth quarter and demonstrating its improving business momentum since the merger. GroupM like-for-like revenue less pass-through costs was down 4.1% in the fourth quarter, similar to the third quarter. Of the other agencies, Wunderman Thompson improved slightly quarter-on-quarter, while trends at Ogilvy and Grey marginally deteriorated. From 2021, AKQA and Grey will come together within the AKQA Group, and Geometry will be incorporated within VMLY&R. For the full year, like-for-like revenue less pass-through costs for the segment was -7.9%.

Public Relations like-for-like revenue less pass-through costs was -4.1% in the final quarter. The trend at BCW, our largest agency within Public Relations, continued to improve, but H+K Strategies and Specialist PR were weaker in the fourth quarter as a result of a strong comparative period. In July, we announced the merger of Finsbury, Glover Park and Hering Schuppener to form Finsbury Glover Hering, to create a leading global strategic communications and public affairs business. Since the transaction, the business has achieved strong traction both with clients and in attracting new talent. For the full year, like-for-like revenue less pass-through costs for the segment was -4.0%.

Specialist Agencies like-for-like revenue less pass-through costs was down 8.6% in the final quarter. All of our main agencies improved performance over the third quarter, with AKQA, Superunion and Landor showing the biggest sequential improvements. For the full year, like-for-like revenue less pass-through costs for the segment was -11.5%.

Operating profitability

Reported loss before tax was £2.8 billion, compared to a profit of £1.2 billion in 2019, reflecting principally the £3.1 billion of impairment charges and investment writedowns and £313 million of restructuring and transformation costs (see table on page 10).

Reported loss after tax was £2.9 billion compared to a profit in 2019 of £939 million.

Headline EBITDA (including IFRS 16 depreciation) for 2020 was down 19.1% to £1.5 billion, compared to £1.8 billion the previous year, and down 17.7% in constant currency. Headline operating profit was down 19.2% to £1.3 billion, and down 17.2% like-for-like. The sharp decline in profitability year-on-year reflects the sudden and significant impact of COVID-19 on revenue less pass-through costs.

Headline operating margin was down 150 basis points to 12.9%, and down 140 basis points like-for-like. Operating costs were down 8.8%, with a year-on-year saving of £810 million excluding severance. The main areas of cost reduction were in travel and discretionary expenditure (down 59.5%), property costs (down 5.1%) and staff costs (down 7.9%). Over the course of the year, we offset 74.7% of the decline in revenue less pass-through costs with cost saving actions. In the second half, this figure was 92.4%.

The Group’s headline operating margin is after charging £68 million of severance costs, compared with £43 million in 2019 and £185 million of incentive payments, compared to £294 million in 2019.

On a like-for-like basis, the average number of people in the Group in 2020 was 102,822 compared to 106,185 in 2019. On the same basis, the total number of people at 31 December 2020 was 99,830 compared to 106,478 at 31 December 2019.

Impairments

Impairments of £3.1 billion (including £2.8 billion of goodwill impairments and £0.3 billion of investment and other write-downs) were recognised in 2020. The goodwill impairments relate to historical acquisitions whose carrying values have been reassessed in light of the impact of COVID-19. The impairments are driven by a combination of higher discount rates used to value future cash flows, a lower profit base in 2020 and lower industry growth rates. The majority of the impairments relate to businesses acquired as part of the Y&R acquisition in 2000. A full analysis of the impairments is provided in Appendix 1.

Exceptional items

In addition to the impairments outlined above, the Group incurred a net exceptional loss of £477 million in 2020. This comprises the Group’s share of associate company exceptional losses (£146 million), restructuring and transformation costs (£313 million) and other net exceptional losses (£18 million). Restructuring and transformation costs mainly comprise severance and property-related costs arising from the continuing structural review of parts of the Group’s operations and our response to the COVID-19 situation. This compares with a net exceptional loss in 2019 of £136 million.

Interest and taxes

Net finance costs (excluding the revaluation of financial instruments) were £229 million, a decrease of £31 million year-on-year, primarily as a result of lower average net debt.

The headline tax rate (excluding associate income) was 23.5% (2019: 23.0%). The reported tax charge was £129 million (2019: £275 million). Given the Group’s geographic mix of profits and the changing international tax environment, the tax rate is expected to increase slightly over the next few years.

Earnings and dividend

Headline profit before tax was down 23.6% to £1.0 billion, and down 24.6% like-for-like.

Losses attributable to share owners were £3.0 billion, again reflecting principally the £3.1 billion of impairments and £451 million of other net exceptional losses.

Headline diluted earnings per share from continuing operations fell by 23.3% to 59.9p and was down 3.8% like-for-like. Reported diluted loss per share, on the same basis, was 243.2p, compared to earnings per share of 68.2p in the prior period.

The Board is proposing a final dividend for 2020 of 14.0p per share, which together with the interim dividend paid in November 2020 gives a full-year dividend of 24.0p per share. The record date for the final dividend is 11 June 2021, and the dividend will be payable on 9 July 2021.

Further details of WPP’s financial performance are provided in Appendix 1.

Cash flow highlights

Twelve months ended (£ million)	31 December			31 December
	2020			2019
Operating (loss)/profit of continuing and discontinued operations		(2,267)		1,580
Depreciation and amortisation		631		686
Impairments and investment write-downs		3,316		56
Lease payments (inc interest)		(399)		(355)
Non-cash compensation		74		71
Net interest paid		(100)		(190)
Tax paid		(372)		(536)
Capex		(273)		(394)
Earnout payments		(115)		(130)
Other		(50)		(94)
Trade working capital		780		563
Other receivables, payables and provisions		58		(213)
Free cash flow		1,283		1,044
Disposal proceeds		284		2,315
Net initial acquisition payments		(144)		(94)
Dividends		(122)		(750)
Share repurchases and buybacks		(290)		(44)
Net cash flow		1,011		2,471

In 2020, net cash inflow was £1.0 billion, compared to £2.5 billion in 2019. The main drivers of the cash flow performance year-on-year were the lower operating profit as a result of the impact of the pandemic, lower net disposal proceeds, and the share buybacks, offset by the very strong working capital performance and a reduction in the dividend. A summary of the Group’s unaudited cash flow statement and notes for the twelve months to 31 December 2020 is provided in Appendix 1.

Balance sheet highlights

As at 31 December 2020 we had cash and cash equivalents of £4.3 billion and total liquidity, including undrawn credit facilities, of £6.4 billion. Average net debt in 2020 was £2.3 billion, compared to £4.4 billion in the prior period, at 2020 exchange rates. On 31 December 2020 net debt was £0.7 billion, against £1.5 billion on 31 December 2019, a reduction of £1.0 billion at 2020 exchange rates. The reduced net debt figure year-on-year mainly reflects the benefit of the improved working capital performance and the reduced outflow from dividend payments.

In May 2020, we issued bonds of €750 million and £250 million. Our bond portfolio at 31 December 2020 had an average maturity of 7.4 years, with no maturities until 2022.

The average net debt to EBITDA ratio in the 12 months to 31 December 2020 is 1.57x, which excludes the impact of IFRS 16. This is within our target range of 1.5 – 1.75x average net debt to EBITDA.

A summary of the Group’s unaudited balance sheet and notes as at 31 December 2020 is provided in Appendix 1.

Adjustment of 30 June 2020 goodwill impairment

The goodwill impairment charge recognised for the year ended 31 December 2020 includes £2.8 billion related to the six-month period ended 30 June 2020. This figure is £0.3 billion higher than the £2.5 billion previously reported in our 30 June 2020 interim financial statements as a result of an adjustment to appropriately reflect the working capital cash flow assumptions in the impairment model. This has been fully reflected in the consolidated financial statements for the year ended 31 December 2020, and the amount will be reflected in our future filings, including in the comparatives included in the 30 June 2021 financial statements. A full analysis is provided in Appendix 1 (Note 14 “Goodwill and Acquisitions”) and Appendix 3.

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1 Percentage change in reported sterling.

2 Like-for-like. LFL comparisons are calculated as follows: current year, constant currency actual results (which include acquisitions from the relevant date of completion) are compared with prior year, constant currency actual results, adjusted to reflect the results of acquisitions and disposals for the commensurate period in the prior year.

3 Not meaningful.

4 Restated, as set out in note 2 of Appendix 1.

5 In this press release not all of the figures and ratios used are readily available from the unaudited preliminary results included in Appendix 1. Management believes these non-GAAP measures, including constant currency and like-for-like growth, revenue less pass-through costs and headline profit measures, are both useful and necessary to better understand the Group’s results. Where required, details of how these have been arrived at are shown in Appendix 2.

6 Billings, as defined in the glossary on page 51.

7 Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe.

 

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FAQ

What were the key financial highlights for WPP in 2020?

WPP reported a revenue decline of 9.3% to £12 billion and an operating loss of £2.3 billion, largely due to £3.1 billion in impairments.

What is WPP's outlook for 2021?

WPP anticipates mid-single-digit growth in 2021 for revenue less pass-through costs and an improvement in operating margins.

What new business wins did WPP secure in 2020?

WPP secured £4.4 billion in net new business, including clients like Alibaba and HSBC.

How much has WPP reduced its net debt?

WPP reduced its net debt to £0.7 billion, marking the lowest level in 16 years.

What dividend has WPP proposed for 2020?

WPP proposed a final dividend of 14.0p per share as part of its shareholder returns.