The fast read
For a quick, pre-digested,
highly-compressed version of this Annual Report: please read below.
Who we are
WPP is the world leader in marketing communications services.
It comprises leading companies in all these disciplines:
- Media Investment Management
- Information, Insight & Consultancy
- Public Relations & Public Affairs
- Branding & Identity
- Healthcare Communications
- Direct, Digital, Promotion & Relationship Marketing
- Specialist Communications
There are more than 150 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 345 of the Fortune Global 500, 29 of the Dow Jones 30, half of the NASDAQ 100 and 33 of the Fortune e-50.
It is also of increasing value to clients that WPP companies can work together, as increasingly they do: providing a tailor-made range of integrated communications services. Over 700 clients are now served in three distinct disciplines. More than 440 clients are served in four disciplines, and these clients account for over 58% of Group revenues. Group companies now work with over 310 clients across six or more countries.
Collectively, over 135,000* people work for WPP companies; out of 2,400 offices in 107 countries.
*Including associates.->See our companies and their websites listed here
Why we exist
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 the WPP Group, 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.
- First, it relieves them of much administrative work. Financial matters (such as planning, budgeting, reporting, control, treasury, tax, mergers, acquisitions, investor relations, legal affairs and internal audit) are co-ordinated centrally. For the operating companies, every administrative hour saved is an extra hour to be devoted to the pursuit of professional excellence.
- Second, the parent company encourages and enables operating companies of different disciplines to work together for the benefit of clients. Such collaborations have the additional benefit of enhancing the job satisfaction of our people. The parent company also plays an across-the-Group role in the following functions: the management of talent, including recruitment and training; in property management; in procurement and information technology; in knowledge sharing and practice development.
- And, finally, WPP itself can function as the 21st-century equivalent of the full-service agency. For some clients, predominantly those with a vast geographical spread and a need for marketing services ranging from advertising through design and website construction to research and internal communications, WPP can act as a portal to provide a single point of contact and accountability.
What we think
New markets, new media and consumer insight by Sir Martin Sorrell
Despite the financial crisis, 2008 was our best year ever, with record billings, revenues and operating profit – bolstered by the Olympics and a high-spending US presidential campaign.
WPP is well placed to weather the current crisis and position itself for the future by anticipating trends in geography, technology and function. We have already built strong, often market-leading, positions in the fast growing economies of Asia Pacific – along with Latin America, Africa, the Middle East, and Central and Eastern Europe. That expansion will go on.
We will continue to invest heavily, by acquisition and through organic growth, in the measurable technologies that allow greater insight into consumer spending and habits. This represents a shift in the balance of our work from traditional advertising to marketing services, the so-called below-the-line areas of our work.
This year will undoubtedly be tough, especially without quadrennial events to boost revenues. But there may be a recovery of sorts in 2010 – if only because of the massive amounts of money being pumped into the world financial system.
Reduced consumer spending combined with overcapacity, concentration of distribution and pricing pressure will make demand for our skills – branding, differentiation, and advertising and marketing services – ever more essential.->Read Sir Martin Sorrell’s full article
“I’m Sorry – You’ve Lost Me”
Five Words No Brand Should Ever Have to Hear by Jeremy Bullmore
2008 may be remembered as the year when numbers finally lost their capacity to shock. At the beginning of the year, two billion dollars was a lot of money. By the end of it, two trillion dollars was rather less: or so it seemed. Logically, the fact of a corporation facing losses of 100 billion should be four times more chilling than one facing losses of 25 billion – but logic doesn’t come into it. There comes a moment when numbers so distance themselves from personal experience that comprehension snaps. And when comprehension goes, so, more worryingly, does any sense of personal involvement.->Read Jeremy Bullmore’s full essay
How we’re doing
|Headline operating profit2||£1,072m||£887m||+20.9|
|Reported operating profit||£876m||£805m||+8.9|
|Headline PBIT margin||15.0%||15.0%||–|
|Headline diluted earnings per share2,4||55.5p||45.8p||+21.2|
|Headline diluted earnings per ADR2,3,4||$5.14||$4.58||+12.2|
|Ordinary dividend per share||15.47p||13.45p||+15.0|
|Ordinary dividend per ADR3||$1.43||$1.35||+5.9|
|Net debt at year-end||£3,068m||£1,286m||+138.6|
|Average net debt5||£2,206m||£1,458m||+51.3|
|Ordinary share price at year-end||402.5p||647.0p||(37.8)|
|ADR price at year-end||$29.59||$64.29||(54.0)|
|Market capitalisation at year-end||£5,053m||£7,709m||(34.5)|
|At 8 April 2009|
|Ordinary share price||419.0p|
- The financial statements have been prepared under IFRS (International Financial Reporting Standards, incorporating International Accounting Standards).
- Billings is defined in the Financial Glossary.
- The calculation of ‘headline’ measurements of performance (including headline EBITDA, headline operating profit, headline PBIT, headline PBT and headline earnings) is shown in note 31 of the financial statements.
- One American Depositary Receipt represents five ordinary shares. These figures have been translated for convenience purposes only using the income statement exchange rates shown in the Consolidated income statement. 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.
- Earnings per share is calculated in note 9 of the financial statements.
- Average net debt is defined in the Financial Glossary.
WPP’s twenty-third year was in many ways another record year despite the financial catastrophes of 2008. Our performance conformed in many respects to the financial model we have developed, with both revenues and headline profits rising in the 5-10% range on a constant currency basis.
Our results include the contribution of TNS for the last two months of the year. Billings were up over 16% to £36.9 billion. Revenues were up almost 21% to £7.5 billion. Headline PBIT margin was flat at 15.0% against a target of 15.3%, including TNS. Headline PBIT (profit before goodwill write-downs, investment gains and write-downs, amortisation and impairment of acquired intangible assets, share of exceptional gains/losses of associates, one-off costs of changes to our corporate structure, finance income/costs and taxation) was up over 20% to £1,118 million. Headline EBITDA (or headline earnings before interest, taxation, depreciation and amortisation) rose over 20% to £1.3 billion.
Headline profit before tax was up over 18% to £968 million. Reported profit before tax was up almost 4% to £747 million. Diluted headline earnings per share were up over 21% to 55.5p and diluted reported earnings per share down 1% to 37.6p. Headline interest cover in 2008 was 7.5 times. Dividends rose 15% to 15.47p.
Our reported revenue growth of almost 21% reflected the strength of the euro and US dollar against sterling, as well as the impact of TNS. On a constant currency basis, which excludes the impact of currency movements, revenues were up 9.0%. On a like-for-like basis, excluding the impact of acquisitions and currency, revenues were up 2.7%. Revenue, including 100% of associates, is estimated to total over £8.9 billion.
Revenue growth slowed as the year progressed: on a like-for-like basis, growth of 4.8% in the first quarter slowed to 3.8% in the second, 3.0% in the third and then flattened to 0.1% in the final quarter of the year. However, we suffered less in the final quarter than some of our major competitors, who experienced negative overall growth. This trend will continue in the immediate short term: our own budgets prepared late last year indicate a like-for-like revenue decline of 2% for 2009, whilst more recent forecasts for the advertising industry as a whole indicate a decline of 4% or more, so we expect to continue to increase market share in spite of the downturn. Our total revenue in 2008 surpassed that of all our competitors, regaining the No.1 position for the third time.
Free cash flow and net debt
Free cash flow remained strong at £777 million. Net debt averaged £2.2 billion in 2008, up just over £600 million at 2008 exchange rates, reflecting the net acquisition cost of TNS and other, smaller acquisitions. Net debt at 31 December 2008 was £3.1 billion compared with £1.3 billion last year.
Asia Pacific, Latin America, Africa and the Middle East continued to be the fastest-growing regions, with Africa and the Middle East being the fastest-growing sub-region. Asia Pacific remained strong across the region, with mainland China up almost 9% and India up 21%, although Japan and Australia were weaker. Continental Europe and the UK, although suffering from the deterioration in economic conditions, both grew over 2% like-for-like.
In 2008, Continental Europe remained two-paced, with Western Continental Europe softer and Central and Eastern Europe, Russia and the other CIS countries, in particular, more buoyant. Of the big five Western European markets, Spain and Italy were weakest, France and Germany were stable and the UK was stronger. Markets outside North America now account for over 65% of our revenues, up from 62% in 2007 and 58% five years ago.
Growth was encouraging across all communications services sectors – Advertising, Media Investment Management, Information, Insight & Consultancy, Public Relations & Public Affairs, Branding & Identity, Healthcare and Specialist Communications – although this last sector lagged the others, particularly in the second half of the year. Public Relations & Public Affairs was the fastest-growing communications services sector.
Marketing services rose to almost 56% of our revenues in 2008, up from 54% in 2007, due to strong growth in Public Relations & Public Affairs and the impact of TNS on Information, Insight & Consultancy.
Our key priorities
Our goal remains to be the world’s most successful provider of communications services to multinational and local companies, not just the largest. To that end, we have three key strategic priorities:
- Short term, to weather the current crisis successfully.
- Medium term, to build upon the successful base we have established with our acquisitions.
- Long term, to increase the geographic share of revenues from faster-growing markets to one-third; to increase the share of revenues of marketing services to two-thirds; and to increase the share of more measurable marketing services to 50%.
2008 revenue1 by geography %
2008 headline PBIT1,2 by geography %
2008 revenue1 by sector %
2008 headline PBIT1,2 by sector %
- Percentages are calculated on a constant currency basis. See definition in the financial glossary page
- Headline PBIT: The calculation of Headline PBIT is set out in note 31 of the financial statements
Who runs WPP
Philip Lader Chairman of the Nomination Committee
Member of the Compensation Committee
Mark Read Strategy director
Chief executive, WPP Digital
Paul Spencer Chairman of the Audit Committee
Members of the Advisory Board
Marie Capes->Read the Directors’ biographies
How we behave
The Board of Directors as a whole is collectively accountable to the Company’s share owners for good corporate governance and is committed to achieving compliance with the principles of corporate governance set out in the Combined Code.
Our goal is to comply with relevant laws, regulations, and guidelines such as the Combined Code, 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 Combined Code and the guidance in the Turnbull Report as well as the relevant provisions of the Securities Exchange Act 1934 and related SEC rules as they currently apply to the Company. In the opinion of the Board, the Company has complied throughout the year with the Combined Code, the Turnbull Report and also with the relevant provisions of the Securities Exchange Act 1934 and SEC rules.
WPP’s Corporate Responsibility Committee, which is chaired by Paul Richardson, advises on policy, monitors emerging issues and co-ordinates communication among Group companies. WPP’s five most significant corporate responsibility issues are:
- The social and environmental impact of our work for clients.
- The impact of our work, including marketing ethics, compliance with marketing standards, protection of personal, consumer and corporate data and increasing transparency about our marketing practices.
- Employment, including diversity and equal opportunities, business ethics, employee development, remuneration, communication and health and safety. In 2008, WPP invested £42.6 million in training and wellbeing across the Group.
- Social investment, including pro bono work, donations to charity and employee volunteering. In 2008, our total social investment was worth £14.6 million, equivalent to 2% of reported profit before tax. This includes £10.3 million in pro bono work (based on the fees the benefiting organisations would have paid for our work) and £4.3 million in donations.
- Climate change, including the emissions from energy used in our offices and during business travel.
How we're rewarded
Executive remuneration policy is set by WPP’s Compensation Committee and is governed by three guiding principles:
- Alignment to share owner interests
The committee’s work during 2008 included:
- a review of the total compensation packages of the Group’s most senior executives relative to marketplace benchmarks to ensure competitiveness;
- a review of the total compensation packages of both Paul Richardson and Mark Read;
- a full review of the effectiveness and operation of all of WPP’s share incentive plans;
- the approval of all incentives (including Renewed LEAP), payable in cash and in shares, for senior executives throughout the Group as well as setting appropriate targets for the Group chief executive and other executive directors;
- consideration of the design details for LEAP III – the incentive plan that, with share owner approval, will replace Renewed LEAP following its expiry in 2009; and
- a review of the fees for the chairman (in his absence) and a recommendation to the Board as to the fees for the non-executive directors.
About share ownership
WPP is quoted on the London Stock Exchange and NASDAQ in New York.
Analysis of shareholdings
Issued share capital as at 31 December 2008: 1,255,343,263 ordinary shares owned by 13,617 share owners.
Share owners by geography %
Share owners by type %
Substantial share ownership
As at 14 April 2009, the Company is aware of the following interests of 3% or more in the issued ordinary share capital:
|Massachusetts Financial Services Company||4.84%|
|Legal & General||4.39%|
The disclosed interests of all of the above refer to the respective combined holdings of those entities and to interests associated with them. The Company has not been notified of any other holdings of ordinary share capital of 3% or more.
Share owner relations
WPP has a continuous program to address the needs of share owners, investment institutions and analysts, supplying a regular flow of information about the Company, its strategy and performance. WPP’s website, www.wpp.com, provides current and historical financial information including trading statements, news releases and presentations.