WPP 2021 Preliminary Results

Very strong growth driven by demand for digital services, ecommerce and technology; exceptional new business performance; over £1 billion returned to shareholders; sustained momentum into 2022

NEW YORK & LONDON--(BUSINESS WIRE)--WPP (NYSE: WPP) today reported its 2021 Preliminary Results.

Key figures – continuing operations

£ million		2021		+/(-)% reported1		+/(-)% LFL2		20203
Revenue		12,801		6.7		13.3		12,003
Revenue less pass-through costs		10,397		6.5		12.1		9,762
Reported:
Operating profit/(loss)		1,229		n/m		-		(2,278)
Profit/(loss) before tax		951		n/m				(2,791)
Diluted EPS (p)		52.5		n/m		-		(243.0)
Dividends per share (p)		31.2		30.0		-		24.0
Headline4:
Operating profit		1,494		18.5		26.8		1,261
Operating profit margin		14.4%		1.5pt*		1.7pt*		12.9%
Profit before tax		1,365		31.1		-		1,041
Diluted EPS (p)		78.5		30.6		-		60.1
* Margin points

Full year and Q4 financial highlights

• FY continuing operations reported revenue +6.7%, LFL revenue +13.3%
• FY LFL revenue less pass-through costs +12.1%; Q4 +10.8%
• 2-year FY LFL revenue less pass-through costs +2.9%; Q4 +3.6%
• Q4 LFL revenue less pass-through costs by major market: US +11.7%, UK +9.9%, Germany +3.4%, Greater China +13.6%, Australia -2.2%
• FY headline operating margin 14.4%, up 1.7pt LFL on prior year with strong top-line growth and efficiency savings supporting significant reinvestment in incentives
• Reported diluted EPS 52.5 pence; headline diluted EPS up 30.6% to 78.5 pence
• Free cash flow of £1.3 billion
• Adjusted net debt at 31 December 2021 £0.9 billion, after significant growth investments and shareholder returns, reflecting very strong cash generation

Strategic progress, shareholder returns and 2022 guidance

• Improving business mix: growth areas of experience, commerce and technology around 38% of revenue less pass-through costs in Global Integrated Agencies ex GroupM
• GroupM very strong: 2021 LFL revenue less pass-through costs +16.1%
• Continued investment in client offer: creation of Choreograph, acquisitions including Sard Verbinnen, Satalia, Cloud Commerce and Numerator (Kantar)
• Breadth and depth of capabilities resonating well with clients: market-leading $8.7 billion⁵ of net new business won, including global Coca-Cola account
• Strong recognition of creativity and effectiveness: most awarded company at the 2021 Cannes Lions Festival; ranked number one across all three WARC rankings for media, creative and effectiveness
• Transformation programme on track: around £245 million gross savings, mainly in property, procurement and simplification; good progress on shared services and IT transformation
• Final dividend of 18.7 pence proposed, up 33.6%; over £1 billion returned to shareholders in 2021 through share buybacks and dividends
• 2022 guidance: LFL revenue less pass-through costs growth around 5%; headline operating margin up around 50 bps; trade working capital expected to be flat year-on-year; £800 million share buyback, of which £129 million already completed; tax rate of around 25.5% in 2022

Mark Read, Chief Executive Officer, WPP:

“It has been an outstanding year for WPP. Our top-line growth, driven by strong demand for our services in digital marketing, media, ecommerce and technology, has resulted in our fastest organic growth for over 20 years. As a result, we are two years ahead of our plan, hitting our 2023 revenue target in 2021.

“As clients seek to accelerate their growth and transform how they reach customers, the depth, breadth and global scale of our offer - which combines creativity with technology and data, through Choreograph, and the largest global media platform in GroupM - is proving its value for existing and new clients. The talent, dynamism and commitment of our people have also shone through. Our extensive partnership with The Coca-Cola Company, the expansion of our work with Google and the continuation of our longstanding relationship with Unilever demonstrate the value that three of the world’s leading marketing organisations place in WPP.

“We have made substantial strategic progress, creating the world’s leading board-level communications firm through the merger of Finsbury Glover Hering and Sard Verbinnen, and acquiring capabilities in AI, commerce and technology services to leverage across all of WPP for future growth. Cash generation continues to be very strong, underpinned by efficiencies achieved in our transformation programme, allowing us to make significant investments in our offer and reward our people for their huge contribution, while returning over £1 billion in cash to shareholders through dividends and share buybacks.

“We look forward to 2022 with confidence. We are guiding to strong top-line growth, improving profitability and continued investment in our people and services.”

To access WPP's 2021 preliminary results financial tables, please visit www.wpp.com/investors

Overview and strategic progress

Market environment

2021 was an extraordinary year for the global advertising industry. Growth in spend was supported by a stronger-than-expected macroeconomic environment, a consumption boost from pent-up saving and structural growth in digital channels. According to GroupM estimates, global advertising spend⁶ grew by 22.5% in 2021, a considerably better outcome than the 12.3% forecast in December 2020.

The pace of growth in digital advertising has continued to accelerate, reflecting the seismic shift in the way people consume media. GroupM estimates that global digital advertising spend grew by 30.5% in 2021, and now accounts for 64.4% of total spend, up from 59.3% in 2020.

Within digital, one of the big drivers of growth has been the explosion in ecommerce. The pandemic accelerated a widespread shift towards shopping online, amplifying the number of opportunities for brands to connect to consumers on digital channels, while also levelling the playing field for challenger brands. GroupM estimates that global retail ecommerce advanced 20.4% in 2021.

Two other factors are playing a significant role in the growth in advertising spend. New, app-based or digital-first businesses are able to afford to invest a greater proportion of their income into marketing to grow scale fast because they lack the physical presence (and associated costs such as rent) of traditional businesses. In turn, more traditional advertisers such as consumer packaged goods companies are investing in retail and commerce media – engaging with customers closer to the digital point of sale. This is blurring the lines between the marketing budget and the sales promotion budget, significantly growing the addressable market for marketing services businesses.

By geography, the UK, US and China remain the largest contributors to growth in advertising spend, spurred by their exposure to digital. By medium, TV had a strong year with global advertising spend on TV growing by 11.7% in 2021, as advertisers invested in their brand-building strategies. It also reflects the growth of connected TV and the increased targeting and measurement potential this brings to advertisers. Despite restrictions on mobility, spend on outdoor also grew, supported by the increasing availability of digital screens and programmatic options. Audio also saw some growth reinforced by podcasting, while cinema has been slower to recover. Print was the only medium to decline, reflecting the trends in circulation.

We have seen the acceleration of two significant trends, in data and purpose, that we expect to continue. The shift to digital and omnichannel commerce is driving companies to increase investment in data-driven marketing, which requires better (and privacy-compliant) customer data as well as marketing technology transformation. We are also witnessing very strong demand for strategic advice on purpose, sustainability and broader social issues. 85% of consumers believe that brands should represent something more than just profit⁷, and brands perceived as having a high positive impact on society are estimated to be more than twice as valuable as brands that are not⁸.

Performance and progress

Revenue was £12.8 billion, up 6.7% from £12.0 billion in 2020, and up 13.3% like-for-like. Revenue less pass-through costs was £10.4 billion, up 6.5% from £9.8 billion in 2020, and up 12.1% like-for-like.

We have seen an exceptional recovery in the year, with LFL growth in revenue less pass-through costs across all our business sectors and major markets. On a two-year basis we are 2.9% ahead of 2019 performance in terms of LFL revenue less pass-through costs, reflecting the breadth and depth of our offer. Client demand has been strong, particularly for ecommerce services and in commerce media. GroupM’s commerce billings increased 41% year-on-year in 2021 while the proportion of digital billings has grown to 43% in 2021 from 41% in 2020. Revenue less pass-through costs from higher-growth areas of our offer in experience, commerce and technology increased to around 38% of our Global Integrated Agencies, excluding GroupM, compared to 35% in 2019.

Clients and partners

By sector, we have had continued momentum in technology, healthcare & pharma and consumer packaged goods which together represent 53% of our revenue less pass-through costs for designated clients. On a two-year basis, these sectors recorded like-for-like growth of 15.1%, 10.5% and 5.7% respectively. At the client level, we also saw widespread evidence of investing in marketing for growth, with 18 out of our top 30 clients showing double-digit two-year growth in 2021.

We won $8.7 billion of net new billings in 2021, including important retentions of longstanding media partnerships with Unilever and Bayer, demonstrating the strength of our client relationships. We also expanded our relationship with Google to handle the entirety of their media spend globally. Over the year we also won new assignments from AstraZeneca, Beiersdorf, L’Oréal, Sainsbury’s, TD Bank and Under Armour among others.

We are proud to have been appointed The Coca-Cola Company’s Global Marketing Network Partner. This is a partnership of unprecedented scale in the industry – covering creative, media and data across more than 200 countries and territories – and reflects the breadth and reach of WPP across the globe.

We continued to deepen and broaden our relationships with established and emerging technology partners globally, to build our expertise and develop leading services for clients. For example, we are a Global Partner with Google, with nearly 6,000 of our people now certified as Google Marketing Platform consultants; through Wavemaker, we achieved a global first through our access to Amazon Advertising’s Overlapping Audiences API; and we launched a ground-breaking global agency partnership with TikTok giving our agencies early access to advertising products in development and collaborating with a diverse network of creators.

Creativity

Underpinning our success this year is the strength of our creative work. We were honoured to be recognised as the most-awarded company at the 2021 Cannes Lions Festival, with winners representing 38 different countries. Each of our global integrated creative agencies won a Grand Prix. In addition, WPP topped WARC’s 2021 global agency rankings across all three categories – creative, media and effectiveness – reflecting the breadth of our capabilities.

The metaverse presents a new frontier of creative opportunities for brands to engage with consumers, through virtual worlds connecting gaming, augmented and virtual reality, NFTs and the blockchain. Clients are seizing the opportunity and seeking our partnership to experiment in ways to bring experiences to life in this new channel. Our agencies are already delivering metaverse projects for clients including Wendy’s, Under Armour and Pfizer. To take the ideas to the next level, Hogarth recently announced the launch of The Metaverse Foundry, a global team of over 700 creatives, producers, visual artists and technologists focused on delivering the most creative and compelling metaverse experiences for our clients.

Investments for growth

During the year we made a number of acquisitions, including Satalia, a market-leading artificial intelligence business; Cloud Commerce Group, a technology company helping brands to market, sell and deliver products across ecommerce platforms globally; and Made Thought, a London-based branding and design agency. We also merged Finsbury Glover Hering and Sard Verbinnen, a transaction which has created a leading global strategic communications firm. Kantar, in which we own a 40% stake, acquired Numerator, a technology-driven consumer and market intelligence company.

These acquisitions are aligned with our accelerated growth strategy and focused M&A approach to build on existing capabilities in growth areas. For example, Satalia’s highly specialised artificial intelligence capabilities have been leveraged across WPP to solve for a range of complex optimisation problems. Alongside applications for client engagements, the tools have been applied to internal opportunities including cross-platform media optimisation, workforce utilisation and content intelligence. The transaction has already added significant value both to clients and internal WPP product development.

We also stepped up organic investment to drive significant long-term growth opportunities. The main areas of focus for this investment are the formation and development of Choreograph to unify and accelerate our data capabilities, the creation of a commerce-as-a-service platform to complement our broader expertise in commerce, and further innovation in our market-leading programmatic and connected TV businesses, Xaxis and Finecast.

Choreograph is working to design innovative ways to future-proof our clients’ approach to data. We believe there will not be a single solution to addressing the challenges presented by the deprecation of third-party cookies and other identifiers. As such we are exploring and investing in multiple privacy-preserving solutions including machine learning graphs, identity networks, cohort analysis and the use of contextual signals. Choreograph has already played a central role in the retention of the Unilever media account and the Coca-Cola partnership.

Transformation programme

Good progress has been made on our transformation programme, designed to simplify WPP, build greater collaboration, drive efficiency and free up funds for reinvestment in growth. We remain comfortably on target to achieve our goal of £600 million annual cost efficiencies by 2025, with around £245 million of gross annual savings achieved so far against a 2019 base.

The transformation of our property estate continues, despite the constraints of COVID, with a further nine campuses opened in 2021, taking the total to 30. We aim to complete at least 65 campuses, housing more than 85,000 people, by 2025. In procurement, we are beginning to consolidate our spend more effectively, improving terms for our agencies with our purchasing scale. Telecoms savings and software licenses were areas of significant efficiency in 2021. In terms of simplification, the combination of sub-scale agencies in smaller markets is leading to a significant improvement in performance; we have removed around 500 legal entities from the group structure, with a similar figure targeted for 2022; and we have acquired the minorities in WPP AUNZ, taking us to 100% ownership to improve control and governance of our fifth largest geography.

Across IT, Finance and HR transformation, significant groundwork has been undertaken as we modernise and move to a more standardised approach, with target operating models approved for all three. In IT, transformation plans including network infrastructure, cloud acceleration and platform rationalisation are all on track. The shared services programme is progressing, with a significant portion of finance processes migrated from the UK to Mumbai, and new deployments in the Middle East, Asia and Latin America. We have, however, experienced some delays to the deployment of Workday, our new ERP platform, but we are confident of meeting our revised timetable starting in the first half of 2022.

Purpose and ESG

WPP’s purpose is to use the power of creativity to build better futures for our people, our planet, our clients and our communities. We outlined our sustainability strategy at an ESG event for stakeholders in June 2021. Since then, we have continued to make good progress in our commitments across each pillar of this purpose statement.

People

Our success is powered by our people. This year we have launched and developed a number of initiatives across our agencies to foster an open and inclusive culture. The pilot of our Inclusive Leadership in a Hybrid World programme equipped 1,000 managers across five companies and four countries with a roadmap to becoming a more inclusive leader. Our long-term goal is to make this learning experience available to everyone across WPP, starting with 40,000 managers globally in 2022.

As part of our commitment to ensure the best possible culture, we also launched our Mental Health Allies programme, providing mental health training to 500 leaders, HR professionals and employees across the UK and US. We will expand into more regions in 2022.

With the support of our first company-wide LGBTQ+ community, WPP Unite, we developed the LGBTQ+ Inclusive Marketing programme, to equip our people with the knowledge, skills and resources to ensure more inclusive marketing. WPP Unite was spearheaded in the UK and US and will expand to other regions. We also joined the Business Coalition for the Equality Act and were named among the Best Places to Work for LGBTQ+ Equality by the Human Rights Campaign for the second consecutive year.

We continue to focus on driving greater gender balance throughout the company with women now representing more than half of our senior managers and, at the most senior level of our company, women now make up 39%. Fourteen leaders from across WPP were named in the 2021 HERoes Women Role Model Lists for their work driving change in gender diversity, and we are now ranked in the top 10 for gender representation among senior leaders and at board level in the FTSE Women Leaders Review. In addition, WPP was recognised in the Bloomberg Gender-Equality Index for the fourth consecutive year.

We know we have more to do to ensure WPP represents the diversity of the societies in which we operate, which is why we are placing diversity, equity and inclusion at the centre of our recruitment and development processes, using analytics to provide a more inclusive employee experience. We have formed partnerships with leading inclusion and diversity organisations such as the Unstereotype Alliance, The Valuable 500 and the LAGRANT Foundation. We are also funding a number of local initiatives to advance racial equity, focusing on developing skills and increasing interest in joining our industry.

To help lower the barriers to entry into the creative industry we launched our second NextGen Leaders series. Built with inclusion at its core, this cohort comprised 1,400 participants (50% of participants in the US & UK identified as Black, Asian or LatinX and 60% identified as female).

As part of our Racial Equity Programme, in June 2021 we invited our global network of agencies to apply to receive resources to create and run innovative and impactful programmes to advance racial equity. Based on the ideas and initiatives that were felt to align most closely with WPP’s purpose and hold the greatest potential to effect change, we made the first nine grants. Supported projects include Life Through the Eyes of the UK Black Community, a new race equity organisation with a unique focus on dismantling all aspects of racism faced by Black people in the UK; and SOMA+, a platform focused on expanding the professional knowledge of Black, Indigenous, and low-income students in Brazil.

In addition, WPP committed in June 2020 to match personal donations by employees to several non-profit organisations up to $1,000 per person, to a total of $1 million.

Planet

Earlier in the year we made an industry-leading commitment to reduce carbon emissions from our own operations to net zero by 2025 and across our supply chain by 2030, including media buying – an industry first. Supporting this we have committed to equally ambitious carbon emission reduction targets in line with climate science, and validated by the Science Based Targets initiative, to reduce our absolute Scope 1 and 2 emissions by at least 84% by 2025 and reduce Scope 3 emissions by at least 50% by 2030, both from a 2019 base year.

In November 2021 WPP successfully amended and supplemented the $2.5 billion revolving credit facility to link the margin on the facility to specific sustainability measures, an important first milestone in WPP’s journey to embed its carbon reduction targets and broader sustainability commitments into its financing arrangements.

Engaging with rating agencies and benchmarking organisations is key to holding ourselves accountable for our progress. We are delighted that the Carbon Disclosure Project has upgraded our ESG score to an A- in their 2021 ratings, reflecting the ambition of our new net zero strategy, emissions reductions targets and strengthened governance.

Clients

We have supported many of our clients with their own sustainability goals. For example, we helped to design the world’s first carbon-neutral TV (Sky), designed and created an immersive experience on the plastic crisis in our oceans (SC Johnson) and launched an AI-powered campaign supporting local businesses across India for Diwali (Mondelez). Demand for advice on brand purpose, and support on everything from environmental product design to recycling and changing customer behaviour is a major driver of growth for a number of our agencies.

Communities

In partnership with the WHO Foundation, we created and delivered the $5 vaccine campaign, encouraging people across the globe to spend the price of a coffee on a donation to fund COVID-19 vaccines for lower-income countries. We also donated 10,000 vaccines on behalf of our clients and matched every vaccine bought by employees. Since the start of the pandemic, we have been proud to partner with the WHO to produce public awareness campaigns to help limit the spread and impact of COVID-19 which have reached tens of millions of people across 167 countries in more than 20 languages.

Outlook for 2022

WPP is entering 2022 with a strong balance sheet, good momentum from new business wins, and a comprehensive client offer.

Our guidance for 2022 is as follows:

• Like-for-like revenue less pass-through costs growth of around 5%
• Headline operating margin improvement of around 50 bps, excluding the impacts of M&A and foreign exchange
• Effective tax rate (measured as headline tax as a % of headline profit before tax) of around 25.5%
• Capex £350-400 million, with around £100 million relating to ERP system deployment previously included in capex guidance now included in restructuring costs
• Trade working capital expected to be flat year-on-year
• Current foreign exchange rates imply around a 0.5% drag on reported revenue less pass-through costs from the movement in sterling year-on-year
• We also anticipate mergers and acquisitions will add 0.5-1.0% to revenue less pass-through costs growth
• Given our low leverage and continued strong cash generation, we expect to execute around £800 million of share buybacks in 2022,

Contacts

Investors and analysts
Peregrine Riviere +44 7909 907193
Caitlin Holt +44 7392 280178
Fran Butera (US) +1 914 484 1198

Media
Chris Wade +44 20 7282 4600
Richard Oldworth, +44 20 7466 5000
Buchanan Communications +44 7710 130 634

wpp.com/investors

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