The fast read
For a quick, pre-digested, highly-compressed version of this Annual Report: read this section.
The full story starts in ‘Who we are’. Please read that, too.
WPP is the world leader in communications services. It comprises leading companies in all these disciplines:
- 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 344 of the Fortune Global 500, all 30 of the Dow Jones 30, 63 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. More than 730 clients are now served in three distinct disciplines. More than 470 clients are served in four disciplines, and these clients account for almost 57% of Group revenues. Group companies also work with almost 360 clients across six or more countries.
Collectively, over 158,000* people work for WPP companies; out of over 2,500 offices in 107 countries.
- Including associates
View a list of our companies and their websites.
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 IT; in knowledge sharing and practice development – with an increasing emphasis on corporate responsibility and sustainability.
- 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.
A new normal and why Mad Men (and women) are becoming more important by Sir Martin Sorrell
2011 was a record year against almost all measures, showing just how far we have come from the dark days of 2008 and the Lehman collapse. WPP achieved like-for-like revenue growth of 5.3%, with gross margin growing even faster at 5.9%. The recovery was LUV-shaped, with the BRICs, Next 11 and digital regaining their greater prominence, and the mature markets and media slowing, hit by the Eurozone crisis and US budgetary deadlock.
The prospects for 2012 look similar, despite the maxiquadrennial impact of the UEFA Football Championships, Summer Olympics and US Presidential election. The following year could be more challenging, but 2014 may well be a different story if the new US Administration finally begins to tackle the deficit issue. In addition, it will be a mini-quadrennial with the Winter Olympics, FIFA World Cup and US mid-term Congressionals.
In summary, the long term looks reasonably good. WPP’s growth will continue to be driven by nine factors – globalisation, overcapacity and the shortage of talent, the web, retail, internal communications, central and local organisational focus, the rise of finance and procurement, the role of government, and sustainability.
Read Sir Martin Sorrell’s article .
Plonk and Placebos by Jeremy Bullmore
A brand is routinely described as a product with added presentation. The product is said to be the bit that delivers: the taste, the function, the effect. And the presentation is there merely to attract the eye and distinguish the product with some ill-defined property called personality.
An examination of the placebo effect, demonstrated to exist over decades of pharmaceutical research, shows that this is a dangerously superficial understanding of the nature of a successful brand. Because of the far from fully-understood inter-relationship of mind and body, a well-known, well-presented brand will deliver more real satisfaction to its users than an anonymous, generic equivalent: and this is just as true for an analgesic as it is for a bottle of wine.
Read Jeremy Bullmore’s essay .
|Headline operating profit2||£1,365m||£1,173m||+16.4|
|Reported operating profit||£1,192m||£973m||+22.5|
|Headline PBIT margin2||14.3%||13.2%||+1.1|
|Headline diluted earnings per share2,4||67.7p||56.7p||+19.4|
|Headline diluted earnings per share (including exceptional tax credit) 2,4||75.6p||56.7p||+33.3|
|Reported diluted earnings per share4||64.5p||45.9p||+40.5|
|Ordinary dividend per share||24.60p||17.79p||+38.3|
|Ordinary dividend per ADR3||$1.97||$1.38||+42.8|
|Net debt at year-end||£2,465m||£1,888m||+30.6|
|Average net debt5||£2,811m||£3,056m||-8.0|
|Ordinary share price at year-end||675.5p||789.5p||-14.4|
|ADR price at year-end||$52.23||$61.97||-15.7|
|Market capitalisation at year-end||£8,554m||£9,982m||-14.3|
|At 19 April 2012|
|Ordinary share price||855.5p|
- The financial statements have been prepared under International Financial Reporting Standards (IFRS).
- 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 (ADR) represents five ordinary shares. These figures have been translated for convenience purposes only using the income statement exchange rates shown in the Financial Statements. 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.
2011, our twenty-sixth year, was a record year in almost all respects. Revenue, profit before tax and earnings per share all reached new highs.
Total share owner return was enhanced by a 38% increase in dividends to 24.6p, a record level, and included a 45% increase in the second interim dividend to 17.14p.
Billings were up almost 5% to £44.8 billion. Revenues were up over 7% to £10.0 billion, the first time the Group has exceeded £10 billion. Including 100% of associates, revenue is estimated to total over £12.1 billion.
Headline PBIT was up over 16% to £1.429 billion against £1.229 billion in 2010. Headline PBIT margin was 14.3% in 2011 against 13.2% in 2010, well ahead of target.
Headline EBITDA increased by 14% to £1.640 billion. Headline profit before tax was up almost 19% to £1.229 billion and reported profit before tax was up over 18% to £1.008 billion, above £1 billion for the first time. Diluted headline earnings per share were up over 19% to 67.7p (an all-time high) and diluted reported earnings per share were up over 40% to 64.5p.
Free cash flow and net debt
Free cash flow strengthened to £1.013 billion in the year, over £1 billion for the first time. Net debt averaged £2.8 billion in 2011, down £0.2 billion at 2011 exchange rates, and net debt at 31 December 2011 was £2.5 billion, or £0.6 billion higher than 2010, reflecting stronger acquisition and share buy-back activity in the latter half of the year. The Group's average net debt was around 1.7 times headline EBITDA in 2011 compared with 2.1 times in 2010, and well within the Group's current target range of 1.5-2.0 times.
Our reported revenue growth for the year of over 7% reflected the strength of sterling, primarily against the US dollar. On a constant currency basis, which excludes the impact of currency movements, revenues were up over 8%.
On a like-for-like basis, excluding the impact of acquisitions and currency, revenues were up 5.3%, with gross margin up 5.9%. In the fourth quarter, like-for-like revenues were up 4.5%, down slightly on the third quarter, primarily due to stronger comparatives.
On a combined basis, over the last two years, there has been a sequential improvement in like-for-like quarterly revenue growth, with 6.7% for the first quarter, 10.3% in the second, 12.2% for the third and 13.1% for the fourth.
North America continued to show good growth throughout the year, with constant currency revenues up 6.3%. The UK, against market trends, showed even stronger growth, with constant currency revenues up almost 9% and gross margin even stronger up almost 11%, accelerating in the second half.
Western Continental Europe, although relatively more difficult, grew constant currency revenues by over 6%.
In Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe, revenue growth was strongest, up well over 12%. Like-for-like growth was up well over 10%.
In constant currencies, Advertising and Media Investment Management revenues grew by 12.2%, with like-for-like growth of 7.4%. Growth in the Group's Media Investment Management businesses was very consistent throughout the year, with constant currency revenues up almost 19% for the year and like-for-like growth up almost 13%.
Consumer Insight revenues grew 1.7% on a constant currency basis, with gross margin up 2.2%. On a like-for-like basis, revenues were up 0.8% with gross margin growth stronger at 1.9%.
The Group's Public Relations & Public Affairs businesses had another good year with full-year growth in constant currencies of 6.2%, with like-for-like revenues up 4.6%. Operating margins rose by 0.3 margin points to 16.1%.
At the Group's Branding & Identity, Healthcare and Specialist Communications businesses (including direct, digital and interactive), constant currency revenues grew strongly at 10.1% with like-for-like growth of 6.9%.
The Group's global direct, digital and interactive agencies showed continuing strong growth, with like-for-like revenues up well over 7% for the year. Over 30% of the Group's 2011 revenues came from direct, digital and interactive, up over one percentage point from the previous year.
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 goal is to deliver annual EPS growth of 10-15% through organic revenue growth of up to 5%, margin improvement of 0.5 margin points or more and use of our cash flow.
- Medium term, to build upon the successful base we have established whilst integrating our most recent acquisitions effectively.
- Long term, to increase the combined geographic share of revenues from the faster-growing markets from over 29% to 35-40%; increase the share of revenues of new media from 30% to 35-40%; and increase the share of more measurable marketing services – such as Consumer Insight and direct, digital and interactive – to be more than 50% of revenues, with a focus on digital and consumer insight, data analytics and the application of new technology.
2011 revenue by geography % Region Percentage North America 34 UK 12 Western Continental Europe 25 Asia Pacific, Latin America,
Africa & Middle East
and Central & Eastern Europe
2011 headline PBIT1,2 by geography % Region Percentage North America 37 UK 17 Western Continental Europe 20 Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe 32
2011 revenue1 by sector % Sector Percentage Advertising and Media Investment Management 41 Consumer Insight 25 Public Relations & Public Affairs 9 Branding & Identity, Healthcare and Specialist Communications 25
2011 headline PBIT1,2 by sector % Sector Percentage Advertising and Media Investment Management 47 Consumer Insight 18 Public Relations & Public Affairs 10 Branding & Identity, Healthcare and Specialist Communications 25
- Percentages are calculated on a constant currency basis. See definition in the Financial glossary.
- The calculation of headline PBIT is set out in note 31 of the financial statements.
Chairman of the Nomination and Governance Committee
Member of the Compensation Committee
Sir Martin Sorrell
Chairman of the Sustainability Committee
Chief executive, WPP Digital
Member of the Audit Committee and Compensation Committee
Member of the Compensation Committee and Nomination and Governance Committee
Member of the Nomination and Governance Committee
Stanley (Bud) Morten
Member of the Nomination and Governance Committee
Chairman of the Compensation Committee
Member of the Audit Committee
Senior independent director
Member of the Compensation Committee
Chairman of the Audit Committee
Member of the Audit Committee
Members of the Advisory Board
Read the Directors’ biographies.
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 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 UK Corporate Governance Code, the Turnbull Report and also with the relevant provisions of the Securities Exchange Act 1934 and SEC rules.
Paul Richardson is the Board director responsible for sustainability and chairs WPP's Sustainability Committee, established in 2003. WPP's five most significant issues are:
- The impact of our work for clients. Our goal is for WPP to be a centre of excellence for sustainability communication, giving our clients the best advice and enhancing consumers' understanding of sustainability issues. The value of client business supported by our sustainability credentials is worth at least $1 billion.
- Marketing standards, including ethical decision-making, privacy and data protection, and compliance with marketing standards and our Code of Conduct.
- Employment practices, including diversity and inclusion, training and development. Women currently account for 54% of our total employees and 31% of our Board members and executive leaders. In 2011, WPP invested £58.3 million on training and wellbeing.
- Environmental performance. WPP was ranked 41 in Newsweek's Green Rankings of the 500 largest global companies. We have reduced our carbon footprint per person by 26% since 2006. Our target is a 63% reduction by 2020.
- Social investment including pro bono work. Our total social investment was worth £15.3 million in 2011, the equivalent of 1.5% of reported profit before tax.
Full details of our governance policies and practices, and our sustainability activities, can be found in How we behave.
Executive remuneration policy is set by WPP's Compensation Committee and is governed by three guiding principles:
- Alignment with share owner interests
The committee's work during 2011 included:
- A comprehensive review of the compensation arrangements for executive directors, in conjunction with the ongoing review of the Group chief executive's compensation.
- Supervision of the Group's equity incentive plans that are critical to the attraction and retention of talent.
- Oversight of the Group's cash incentive programs and approval of the awards to the most senior business leaders below Board level.
- Reviewing developments in areas of corporate governance and ensuring the Company's compliance with changes to the design of compensation of Board directors.
WPP is quoted on the London Stock Exchange and NASDAQ in New York.
Analysis of shareholdings
Issued share capital as at 31 December 2011: 1,266,373,821 ordinary shares owned by 12,653 share owners.
Share owners by geography % UK 36 US 35 Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe 29
Share owners by type* % Institutional investors 95 Employees 2 Other individuals 3
- In addition, 2.07% of the Company's share capital is under option to employees.
Substantial share ownership
As at 20 April 2012, the Company is aware of the following interest of 3% or more in the issued ordinary share capital:
|Legal & General||3.55%|
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.