The fast read
For a quick, pre-digested, highly-compressed version of this Annual Report: read this section.
The full story starts in the section ‘Who we are’. Please read that, too.
Who we are
WPP is the world leader in communications services. It comprises leading companies in all these disciplines:
- Advertising
- Media Investment Management
- Consumer Insight
- 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 336 of the Fortune Global 500, 29 of the Dow Jones 30, 61 of the NASDAQ 100 and 35 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. More than 700 clients are now served in three distinct disciplines. More than 460 clients are served in four disciplines, and these clients account for over 57% of Group revenues. Group companies now work with over 340 clients across six or more countries.
Collectively, over 146,000* people work for WPP companies; out of almost 2,400 offices in 107 countries.
- * Including associates.
View a list of our companies and their websites.
Why we exist
Our mission
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.
Read more about our role here.
What we think
The US and traditional media bite back
by Sir Martin Sorrell
The recovery in 2010 was both remarkable and unexpected. Not only was its speed greater than anticipated, it also had unpredicted beneficiaries, notably the US and the traditional media of network television and print.
2011 should grow at a similar rate and 2012 promises a maxi-quadrennial boost in the shape of the Summer Olympics in London, the European Football Championships and the US presidential elections. Only 2013 is expected to be tougher: whoever occupies the White House will need to finally tackle the US deficit, unless there is a bond market strike before then.
The world economy will see three-speed growth. Slow in Western Europe, faster than expected in the US and much faster in India, China, Russia and Brazil, along with the expanding Next 11.
While it would be wrong to write off traditional media, the addressable and measurable new media will continue to grow in significance, as will the traditional below-the-line disciplines of marketing services.
WPP was founded to capitalise on these trends and remains in an excellent position to do so in future. Advertising and marketing services will continue to be driven by, amongst other things, globalisation, concentrating distribution, overcapacity, corporate responsibility, the need for internal communications and the growing requirements of government as client.
Read Sir Martin Sorrell’s article.
On the Incalculable Benefit
of Not Going Backwards
by Jeremy Bullmore
Every year, marketing companies set marketing objectives that are almost always set in terms of growth: every brand in every market aims for more sales or more share or both. Simple arithmetic suggests that some will be disappointed. In fact, one of marketing’s most responsible functions is to maintain a brand’s value. The trouble is, as dynamic objectives go, it doesn’t sound very manly.
Read Jeremy Bullmore’s essay.
How we're doing
Financial Summary
| 2010 | 2009 | Change % | |
|---|---|---|---|
| Billings1 | £42,684m | £37,919m | +12.6 |
| Revenue | £9,331m | £8,684m | +7.4 |
| Headline EBITDA2 | £1,439m | £1,243m | +15.8 |
| Headline operating profit2 | £1,173m | £959m | +22.3 |
| Reported operating profit | £973m | £762m | +27.7 |
| Headline PBIT2 | £1,229m | £1,017m | +20.8 |
| Headline PBIT margin2 | 13.2% | 11.7% | +1.5 |
| Headline PBT2 | £1,034m | £812m | +27.3 |
| Reported PBT | £851m | £663m | +28.4 |
| Headline diluted earnings per share2,4 | 56.7p | 44.4p | +27.7 |
| Headline diluted earnings per ADR2,3,4 | $4.38 | $3.48 | +25.9 |
| Ordinary dividend per share | 17.79p | 15.47p | +15.0 |
| Ordinary dividend per ADR3 | $1.38 | $1.21 | +14.0 |
| Net debt at year-end | £1,888m | £2,640m | -28.5 |
| Average net debt5 | £3,056m | £3,448m | -11.4 |
| Ordinary share price at year-end | 789.5p | 609.5p | +29.5 |
| ADR price at year-end | $61.97 | $48.65 | +27.4 |
| Market capitalisation at year-end | £9,982m | £7,658m | +30.3 |
| At 14 April 2011 | |||
| Ordinary share price | 723.0p | ||
| ADR price | $59.37 | ||
| Market capitalisation | £9,159m |
- The financial statements have been prepared under International Financial Reporting Standards (IFRS).
- 1
- Billings is defined in the Financial glossary.
- 2
- 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.
- 3
- One American Depositary Receipt (ADR) 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.
- 4
- Earnings per share is calculated in note 9 of the financial statements.
- 5
- Average net debt is defined in the Financial glossary.
2010 results
2010, our twenty-fifth year, was a year of significant recovery, as clients re-focused on top-line sales growth and expansion, particularly in faster-growth geographic markets, as well as continued cost containment in the slower-growth markets of the US and Western Europe.
Billings were up over 12% to £42.7 billion. Revenues were up over 7% to £9.3 billion. Including 100% of associates, revenue is estimated to total over £11.6 billion. Our revenues exceeded all our competitors for the third consecutive year, by an increasing amount. Headline PBIT was up almost 21% to £1.229 billion against £1.017 billion in 2009. Headline PBIT margin was 13.2% in 2010 against 11.7% last year. In the second half of the year the business returned to pre-Lehman pro-forma levels of revenue and profitability, with higher productivity.
Headline EBITDA increased by almost 16% to £1.439 billion, above £1 billion for the fifth consecutive year. Headline profit before tax was up over 27% to £1.034 billion, above £1 billion for the first time. Reported profit before tax was up over 28% to £851 million. Diluted headline earnings per share were up almost 28% to 56.7p (an all-time high) and diluted reported earnings per share up 30% to 45.9p. Dividends were increased by 15% to 17.79p, a record level.
Revenue growth
Our reported revenue growth for the year of over 7% reflected the comparative weakness of sterling against most currencies, other than the euro. On a constant currency basis, which excludes the impact of currency movements, revenues were up over 5%. On a like-for-like basis, excluding the impact of acquisitions and currency, revenues were up 5.3%.
Throughout 2010 we have seen continued sequential improvement in our like-for-like quarterly revenue growth, with the final two quarters of the year at 7.5% and 8.5% respectively. This followed zero like-for-like growth in the first quarter and 4.7% in quarter two. This significant turnaround was directionally in line with our earlier forecasts (we anticipated like-for-like growth in the second quarter of 2010 as early as the third quarter trading update of 2009), but was considerably more violent than anticipated.
Free cash flow and net debt
Free cash flow strengthened to £902 million in the year. Net debt averaged £3.1 billion in 2010, down £0.3 billion at 2010 exchange rates, and net debt at 31 December 2010 was £1.9 billion, or £0.7 billion lower than 2009, reflecting significant improvement in profitability and improved cash flows, despite a continued client emphasis on improved liquidity, as well as effectiveness and efficiency.
Geographic performance
Revenue growth continued to strengthen in the final quarter, particularly in the UK, which showed its strongest growth of the year, Central and Eastern Europe, the Middle East, Latin America, Africa and Australia, with the US and Asia (excluding Australia and New Zealand) maintaining the strong growth seen in the third quarter. Western Continental Europe remained difficult, with growth in the final quarter of just over 3%.
Markets outside North America now account for 65% of our revenues, up from 61% five years ago. The influence of the faster-growing markets outside North America is increasing rapidly.
Sector performance
Revenue growth was encouraging across all sectors, specifically in the third and fourth quarters. The fourth quarter of the year showed the strongest growth in Advertising and Media Investment Management (11.6%) and Public Relations & Public Affairs (5.6%). Consumer Insight’s fourth quarter revenues were up 5.3%, compared with 2.7% in the first half. Branding & Identity, Healthcare and Specialist Communications (including direct, digital and interactive) grew by 7.3% on a constant currency basis, down slightly on the strong growth of 8.1% in the third quarter, but well ahead of the first half growth of 2.1%.
This continuing improvement was driven largely by our uniquely global direct, digital and interactive businesses, which include three out of the seven worldwide ‘digital leaders’ identified by Forrester Research.
Marketing services comprised 60% of our revenues in 2010, a similar proportion to 2009.
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:
- Our immediate priority is to continue to emerge from the 2008 financial crisis a stronger company. Our 2010 results are an encouraging sign that we will or even have.
- Medium term, to build upon the successful base we have established whilst integrating our most recent acquisitions effectively.
- Long term, increase the combined geographic share of revenues from the faster-growing markets from around 27% to 35-40%; increase the share of revenues of new media from 29% to 35-40%; and maintain the share of more measurable marketing services – such as Consumer Insight and direct, digital and interactive – at 50% of revenues.
Read more in Our letter to share owners.
Our 2010 financial statements are presented in full here, and at www.wpp.com/investor.
| Region | Percentage |
|---|---|
| North America | 35 |
| UK | 12 |
| Western Continental Europe | 26 |
| Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe |
27 |
| Region | Percentage |
|---|---|
| North America | 39 |
| UK | 13 |
| Western Continental Europe | 19 |
| Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe | 29 |
| Sector | Percentage |
|---|---|
| Advertising and Media Investment Management | 40 |
| Consumer Insight | 26 |
| Public Relations & Public Affairs | 9 |
| Branding & Identity, Healthcare and Specialist Communications | 25 |
| Sector | Percentage |
|---|---|
| Advertising and Media Investment Management | 46 |
| Consumer Insight | 19 |
| Public Relations & Public Affairs | 11 |
| Branding & Identity, Healthcare and Specialist Communications | 24 |
- 1
- Percentages are calculated on a constant currency basis. See definition in the Financial gossary.
- 2
- The calculation of headline PBIT is set out in note 31 of the financial statements.
Who runs WPP
Non-executive chairman
Philip Lader
Chairman of the Nomination Committee
Member of the Compensation Committee
Executive directors
Sir Martin Sorrell
Chief executive
Paul Richardson
Finance director
Chairman of the Corporate Responsibility Committee
Mark Read
Strategy director
Chief executive, WPP Digital
Non-executive directors
Colin Day
Member of the Audit Committee and Compensation Committee
Esther Dyson
Member of the Compensation Committee and Nomination Committee
Orit Gadiesh
Member of the Nomination Committee
Ruigang Li
Stanley (Bud) Morten
Senior independent director (until April 2010)
Koichiro Naganuma
Lubna Olayan
Member of the Nomination Committee
John Quelch
Jeffrey Rosen
Chairman of the Compensation Committee
Member of the Audit Committee
Senior independent director (from April 2010)
Timothy Shriver
Member of the Compensation Committee
Paul Spencer
Chairman of the Audit Committee
Sol Trujillo
Member of the Audit Committee
Members of the Advisory Board
Jeremy Bullmore
John Jackson
Richard Rivers
Company Secretary
Marie Capes
Read the Directors’ biographies.
How we behave
Corporate governance
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 and, following its publication, the UK Corporate Governance Code.
Our goal is to comply with relevant laws, regulations, and guidelines such as the UK Corporate Governance 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 UK Corporate Governance 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 and, following its publication, the UK Corporate Governance Code, the Turnbull Report and also with the relevant provisions of the Securities Exchange Act 1934 and SEC rules.
Corporate responsibility
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 2010, WPP invested £48.9 million (2009: £39.9 million) in training and wellbeing across the Group.
- Social investment, including pro bono work, donations to charity and employee volunteering. In 2010, our total social investment was worth £14.3 million (2009: £14.9 million), equivalent to 1.7% of reported profit before tax. This includes £9.3 million in pro bono work (based on the fees the benefiting organisations would have paid for our work) and an estimated £5 million in donations. In addition, WPP media agencies negotiated free media space worth £20.2 million on behalf of pro bono clients.
- Climate change, including the emissions from energy used in our offices and during business travel.
Full details of our governance policies and practices, and our corporate responsibility activities, can be found in How we behave.
How we’re rewarded
Executive remuneration policy is set by WPP’s Compensation Committee and is governed by three guiding principles:
- Competitiveness
- Performance
- Alignment with share owner interests
The committee’s work during 2010 included:
- approving the deferral and further deferral of significant
- share incentive awards by the Group chief executive;
- a review of the total compensation packages of the
- executive directors relative to the marketplace to ensure
- competitiveness;
- a review of the fees of the chairman and the non-executive
- directors;
- the approval of all stock plan awards used to attract,
- retain, reward and motivate employees;
- the approval of all incentive payments, payable in cash or in shares, for senior executives throughout the Group and setting appropriate performance targets for the Group chief executive and the other executive directors; and
- implementation of clawback provisions in the Company’s senior management share incentive plans.
Our directors’ remuneration and interests are set out on in How we're rewarded.
A full report from the Compensation Committee.
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 2010: 1,264,391,221 ordinary shares owned by 12,628 share owners.
| Region | Percentage |
|---|---|
| UK | 38 |
| US | 34 |
| Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe |
28 |
| Share owner type | Percentage |
|---|---|
| Institutional investors | 94 |
| Employees | 3 |
| Other individuals | 3 |
- * In addition, 2.3% of the Company's share capital is under option to employees.
Substantial share ownership
As at 18 April 2011, the Company is aware of the following interest of 3% or more in the issued ordinary share capital:
| Share owner | Percentage |
|---|---|
| Legal & General | 3.78 |
The disclosed interest refers to the respective combined holdings of this entity and to interests associated with it. 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.
More information relating to share ownership.