WPP WPP PLC

WPP PLC ("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

 

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

Financial results

 

Unaudited headline income statement:

£ million	2021	20209	+/(-) % reported	+/(-) % ∆ LFL
Continuing operations
Revenue	12,801	12,003	6.7	13.3
Revenue less pass-through costs	10,397	9,762	6.5	12.1
Operating profit	1,494	1,261	18.5	26.8
Operating profit margin %	14.4%	12.9%	1.5pt	1.7pt
Income from associates	86	10	n/m
PBIT	1,580	1,271	24.3
Net finance costs	(215)	(230)	(6.6)
Profit before tax	1,365	1,041	31.1
Tax	(328)	(240)	36.7
Profit after tax	1,037	801	29.5
Non-controlling interests	(83)	(59)	40.9
Profit attributable to shareholders	954	742	28.6
Diluted EPS	78.5p	60.1p	30.6

£ million	2021	2020
Continuing operations
Operating profit/(loss)	1,229	(2,278)
Amortisation and impairment of acquired intangible assets	98	89
Goodwill impairment	2	2,823
Losses/(gains) on disposal of investments and subsidiaries	11	(8)
Gains on remeasurement of equity interests arising from a change in scope of ownership	-	(1)
Investment and other impairment (reversals)/charges	(43)	296
Litigation settlement	21	26
Restructuring and transformation costs	146	81
Restructuring costs in relation to COVID-19	30	233
Headline operating profit	1,494	1,261

Revenue analysis

 

£ million	2021	2020	+/(-) % reported	+/(-) % LFL
N. America	4,494	4,465	0.7	9.4
United Kingdom	1,867	1,637	14.0	15.0
W. Cont Europe	2,786	2,442	14.1	19.2
AP, LA, AME, CEE11	3,654	3,459	5.6	13.3
Total Group	12,801	12,003	6.7	13.3

£ million	2021	2020	+/(-) % reported	+/(-) % LFL
N. America	3,849	3,744	2.8	9.7
United Kingdom	1,414	1,234	14.6	15.0
W. Cont Europe	2,226	2,019	10.2	14.5
AP, LA, AME, CEE	2,908	2,765	5.2	12.3
Total Group	10,397	9,762	6.5	12.1

£ million	2021	% margin*	2020	% margin*
N. America	656	17.0	612	16.3
United Kingdom	181	12.8	138	11.2
W Cont. Europe	289	13.0	199	9.8
AP, LA, AME, CEE	368	12.7	312	11.3
Total Group	1,494	14.4	1,261	12.9

Revenue analysis

 

£ million	2021	2020	+/(-) % reported	+/(-) % LFL
Global Integrated Agencies	10,836	10,266	5.6	12.6
Public Relations	959	893	7.4	12.6
Specialist Agencies	1,006	844	19.1	22.5
Total Group	12,801	12,003	6.7	13.3

£ million	2021	2020	+/(-) % reported	+/(-) % LFL
Global Integrated Agencies	8,638	8,194	5.4	11.3
Public Relations	910	854	6.5	11.5
Specialist Agencies	849	714	19.0	21.8
Total Group	10,397	9,762	6.5	12.1

£ million	2021	% margin*	2020	% margin*
Global Int. Agencies	1,216	14.1	1,060	12.9
Public Relations	143	15.7	142	16.5
Specialist Agencies	135	15.9	59	8.3
Total Group	1,494	14.4	1,261	12.9

Cash flow highlights

 

Twelve months ended (£ million)	31 December 2021		31 December 2020
Operating profit/(loss) of continuing and discontinued operations		1,229	(2,267)
Depreciation and amortisation		542	631
Investment and other impairment (reversals)/charges		(1)	3,316
Lease payments (inc interest)		(409)	(399)
Non-cash compensation		100	74
Net interest paid		(126)	(100)
Tax paid		(391)	(372)
Capex		(293)	(273)
Earnout payments		(57)	(115)
Other		(31)	(50)
Trade working capital		319	780
Other receivables, payables and provisions		383	58
Free cash flow		1,265	1,283
Disposal proceeds		77	284
Net initial acquisition payments		(464)	(144)
Dividends		(315)	(122)
Share repurchases and buybacks		(819)	(290)
Net cash flow		(256)	1,011

£ million	Notes	2021	20201
Continuing operations
Revenue	7	12,801.1	12,002.8
Costs of services	4	(10,597.5)	(9,987.9)
Gross profit		2,203.6	2,014.9
General and administrative costs	4	(974.6)	(4,293.0)
Operating profit/(loss)		1,229.0	(2,278.1)
Share of results of associates	5	23.8	(136.0)
Profit/(loss) before interest and taxation		1,252.8	(2,414.1)
Finance and investment income	6	69.4	82.7
Finance costs	6	(283.6)	(312.0)
Revaluation and retranslation of financial instruments	6	(87.8)	(147.2)
Profit/(loss) before taxation		950.8	(2,790.6)
Taxation	8	(230.1)	(127.1)
Profit/(loss) for the year from continuing operations		720.7	(2,917.7)
Discontinued operations
Profit for the year from discontinued operations		-	16.4
Profit/(loss) for the year		720.7	(2,901.3)
Attributable to:
Equity holders of the parent
Continuing operations		637.7	(2,971.6)
Discontinued operations		-	6.5
		637.7	(2,965.1)
Non-controlling interests
Continuing operations		83.0	53.9
Discontinued operations		-	9.9
		83.0	63.8
		720.7	(2,901.3)
Earnings per share from continuing and discontinued operations
Basic earnings per ordinary share	10	53.4p	(242.5p)
Diluted earnings per ordinary share	10	52.5p	(242.5p)
Earnings per share from continuing operations
Basic earnings per ordinary share	10	53.4p	(243.0p)
Diluted earnings per ordinary share	10	52.5p	(243.0p)

31 December 2021

 

£ million	Notes	2021	2020
Net cash inflow from operating activities	11	2,032.8	2,054.8
Investing activities
Acquisitions	11	(386.1)	(178.4)
Disposals of investments and subsidiaries	11	28.3	272.3
Purchase of property, plant and equipment		(263.2)	(218.3)
Purchase of other intangible assets (including capitalised computer software)		(29.9)	(54.4)
Proceeds on disposal of property, plant and equipment		8.7	11.2
Net cash outflow from investing activities		(642.2)	(167.6)
Financing activities
Repayment of lease liabilities		(320.7)	(300.1)
Share option proceeds		4.4	-
Cash consideration received from non-controlling interests	11	39.5	-
Cash consideration for purchase of non-controlling interests	11	(135.0)	(80.6)
Share repurchases and buy-backs	11	(818.5)	(290.2)
Proceeds from borrowings	11	-	915.5
Repayment of borrowings	11	(397.1)	(282.7)
Financing and share issue costs		(0.4)	(7.1)
Equity dividends paid		(314.7)	(122.0)
Dividends paid to non-controlling interests in subsidiary undertakings		(114.5)	(83.3)
Net cash outflow from financing activities		(2,057.0)	(250.5)
Net (decrease)/increase in cash and cash equivalents		(666.4)	1,636.7
Translation of cash and cash equivalents		(130.1)	(99.2)
Cash and cash equivalents at beginning of year		4,337.1	2,799.6
Cash and cash equivalents at end of year	12	3,540.6	4,337.1
Reconciliation of net cash flow to movement in adjusted net debt:
Net (decrease)/increase in cash and cash equivalents		(666.4)	1,636.7
Cash outflow/(inflow) from decrease/(increase) in debt financing		397.5	(625.7)
Other movements		(5.6)	(6.1)
Translation differences		69.0	(227.2)
Movement of adjusted net debt in the year		(205.5)	777.7
Adjusted net debt at beginning of year		(695.6)	(1,473.3)
Adjusted net debt at end of year	12	(901.1)	(695.6)

£ million	Notes	2021	20201	20191
Non-current assets
Intangible assets:
Goodwill	13	7,612.3	7,388.8	10,110.6
Other	14	1,359.5	1,389.3	1,468.8
Property, plant and equipment		896.4	790.9	876.0
Right-of-use assets		1,395.1	1,504.5	1,734.5
Interests in associates and joint ventures		412.9	330.7	813.0
Other investments		318.3	387.3	498.3
Deferred tax assets		341.5	212.9	187.9
Corporate income tax recoverable		46.6	24.8	-
Trade and other receivables	15	152.6	156.2	137.6
		12,535.2	12,185.4	15,826.7
Current assets
Corporate income tax recoverable		90.4	110.3	142.6
Trade and other receivables	15	11,362.3	10,972.3	11,822.3
Cash and short-term deposits		3,882.9	12,899.1	11,305.7
		15,335.6	23,981.7	23,270.6
Assets classified as held for sale		-	-	485.3
		15,335.6	23,981.7	23,755.9
Current liabilities
Trade and other payables	16	(15,252.3)	(13,859.7)	(14,188.1)
Corporate income tax payable		(386.2)	(424.4)	(595.6)
Short-term lease liabilities		(279.7)	(323.8)	(302.2)
Bank overdrafts, bonds and bank loans		(567.2)	(8,619.2)	(8,798.0)
		(16,485.4)	(23,227.1)	(23,883.9)
Liabilities associated with assets classified as held for sale		-	-	(170.4)
		(16,485.4)	(23,227.1)	(24,054.3)
Net current (liabilities)/assets		(1,149.8)	754.6	(298.4)
Total assets less current liabilities		11,385.4	12,940.0	15,528.3
Non-current liabilities
Bonds and bank loans		(4,216.8)	(4,975.5)	(4,047.3)
Trade and other payables	17	(619.9)	(313.5)	(449.6)
Corporate income tax payable		-	(1.3)	-
Deferred tax liabilities		(312.5)	(304.1)	(379.8)
Provisions for post-employment benefits		(136.6)	(156.7)	(159.0)
Provisions for liabilities and charges		(268.5)	(306.3)	(247.8)
Long-term lease liabilities		(1,762.1)	(1,832.5)	(1,947.5)
		(7,316.4)	(7,889.9)	(7,231.0)
Net assets		4,069.0	5,050.1	8,297.3
Equity
Called-up share capital	18	122.4	129.6	132.8
Share premium account		574.7	570.3	570.3
Other reserves		(335.9)	191.2	(174.7)
Own shares		(1,112.1)	(1,118.3)	(1,178.7)
Retained earnings		4,367.3	4,959.2	8,576.2
Equity shareholders’ funds		3,616.4	4,732.0	7,925.9
Non-controlling interests		452.6	318.1	371.4
Total equity		4,069.0	5,050.1	8,297.3

£ million	Called-up share capital	Share premium account	Other reserves1	Own shares	Retained earnings1	Total equity share holders’ funds1	Non- controlling interests	Total1
Balance at 1 January 2020	132.8	570.3	(169.9)	(1,178.7)	8,689.9	8,044.4	371.4	8,415.8
Restatement1	-	-	(4.8)	-	(113.7)	(118.5)	-	(118.5)
Restated balance at 1 January 2020	132.8	570.3	(174.7)	(1,178.7)	8,576.2	7,925.9	371.4	8,297.3
Share cancellations	(3.2)	-	3.2	-	(281.2)	(281.2)	-	(281.2)
Treasury share allocations	-	-	-	0.6	(0.6)	-	-	-
(Loss)/profit for the year	-	-	-	-	(2,965.1)	(2,965.1)	63.8	(2,901.3)
Exchange adjustments on foreign currency net investments	-	-	89.0	-	-	89.0	(3.9)	85.1
Share of other comprehensive loss of associates undertakings	-	-	(61.5)	-	-	(61.5)	-	(61.5)
Exchange adjustments recycled to the income statement on disposal of discontinued operations	-	-	(20.6)	-	-	(20.6)	-	(20.6)
Movements on equity investments held at fair value through other comprehensive income	-	-	-	-	(127.7)	(127.7)	-	(127.7)
Actuarial gain on defined benefit pension plans	-	-	-	-	2.0	2.0	-	2.0
Deferred tax on defined benefit pension plans	-	-	-	-	7.4	7.4	-	7.4
Other comprehensive income/(loss)	-	-	6.9	-	(118.3)	(111.4)	(3.9)	(115.3)
Total comprehensive income/(loss)	-	-	6.9	-	(3,083.4)	(3,076.5)	59.9	(3,016.6)
Dividends paid	-	-	-	-	(122.0)	(122.0)	(83.3)	(205.3)
Non-cash share-based incentive plans (including share options)	-	-	-	-	74.4	74.4	-	74.4
Net movement in own shares held by ESOP Trusts	-	-	-	59.8	(64.9)	(5.1)	-	(5.1)
Recognition/derecognition of liabilities in respect of put options	-	-	103.5	-	(26.6)	76.9	-	76.9
Share purchases – close period commitments2	-	-	252.3	-	-	252.3	-	252.3
Acquisition of subsidiaries3	-	-	-	-	(112.7)	(112.7)	(29.9)	(142.6)
Restated balance at 31 December 2020	129.6	570.3	191.2	(1,118.3)	4,959.2	4,732.0	318.1	5,050.1
Ordinary shares issued	-	4.4	-	-	-	4.4	-	4.4
Share cancellations	(7.2)	-	7.2	-	(729.3)	(729.3)	-	(729.3)
Treasury share allocations	-	-	-	3.7	(3.7)	-	-	-
Profit for the year	-	-	-	-	637.7	637.7	83.0	720.7
Exchange adjustments on foreign currency net investments	-	-	(87.2)	-	-	(87.2)	(10.3)	(97.5)
Share of other comprehensive income of associates undertakings	-	-	7.3	-	6.2	13.5	-	13.5
Movements on equity investments held at fair value through other comprehensive income	-	-	-	-	(35.5)	(35.5)	-	(35.5)
Actuarial gain on defined benefit pension plans	-	-	-	-	14.3	14.3	-	14.3
Deferred tax on defined benefit pension plans	-	-	-	-	(3.0)	(3.0)	-	(3.0)
Other comprehensive loss	-	-	(79.9)	-	(18.0)	(97.9)	(10.3)	(108.2)
Total comprehensive (loss)/income	-	-	(79.9)	-	619.7	539.8	72.7	612.5
Dividends paid	-	-	-	-	(314.7)	(314.7)	(114.5)	(429.2)
Non-cash share-based incentive plans (including share options)	-	-	-	-	99.6	99.6	-	99.6
Tax adjustment on share-based payments	-	-	-	-	15.4	15.4	-	15.4
Net movement in own shares held by ESOP Trusts	-	-	-	2.5	(91.7)	(89.2)	-	(89.2)
Recognition/derecognition of liabilities in respect of put options4	-	-	(242.7)	-	1.1	(241.6)	-	(241.6)
Share purchases – close period commitments5	-	-	(211.7)	-	-	(211.7)	-	(211.7)
Share of other equity movements of associates	-	-	-	-	(8.0)	(8.0)	-	(8.0)
Acquisition of subsidiaries3	-	-	-	-	(180.3)	(180.3)	176.3	(4.0)
Balance at 31 December 2021	122.4	574.7	(335.9)	(1,112.1)	4,367.3	3,616.4	452.6	4,069.0

Staff costs include:

 

£ million	2021	2020
Continuing operations
Wages and salaries	4,797.2	4,781.0
Cash-based incentive plans	455.2	110.7
Share-based incentive plans	99.6	74.4
Social security costs	630.1	570.9
Pension costs	177.7	171.7
Severance	41.8	68.2
Other staff costs	965.1	779.6
	7,166.7	6,556.5

 

 

1 Other costs of services and general and administrative costs include £538.6 million (2020: £685.6 million) of other pass-through costs.

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

 

4.            

Costs of services and general and administrative costs (continued)

 

Other costs of services and general and administrative costs include:

 

£ million	2021	2020
Continuing operations
Amortisation and impairment of acquired intangible assets	97.8	89.1
Goodwill impairment	1.8	2,822.9
Losses/(gains) on disposal of investments and subsidiaries	10.6	(7.8)
Gains on remeasurement of equity interests arising from a change in scope of ownership	-	(0.6)
Investment and other impairment (reversals)/charges	(42.4)	296.2
Restructuring and transformation costs	145.5	80.7
Restructuring costs in relation to COVID-19	29.9	232.5
Litigation settlement	21.3	25.6
Depreciation of property, plant and equipment	151.2	174.8
Depreciation of right-of-use assets	272.9	331.9
Amortisation of other intangible assets	19.9	35.2
Short-term lease expense	18.0	36.7
Low-value lease expense	2.3	2.3

 

 

Amortisation and impairment of acquired intangible assets of £97.8 million (2020: £89.1 million) includes an impairment charge in the year of £47.9 million (2020: £21.6 million) in regard to certain brand names that are no longer in use, including £43.8 million for brands with an indefinite life.

 

Losses on disposal of investments and subsidiaries of £10.6 million in 2021 includes a loss of £4.9 million on the disposal of XMKT in China, which completed in September 2021.

 

Investment and other impairment reversals of £42.4 million primarily relates to the partial reversal of a £255.6 million impairment taken in 2020 relating to Imagina, an associate in Spain.

 

Restructuring and transformation costs of £145.5 million (2020: £80.7 million) include £94.2 million in relation to the Group’s IT transformation programme. This programme will allow technology to become a competitive advantage in the market as our clients, and their clients, move to an ever-increasing digital world. It includes costs of £62.2 million (including £14.0 million that was previously capitalised at 31 December 2020) in relation to the rollout of a new ERP system in order to drive efficiency and collaboration throughout the Group. The remaining £51.3 million relates to the continuing restructuring plan, first outlined on the Investor Day in December 2018. As part of that plan, restructuring actions have been taken to right-size under-performing businesses, address high-cost severance markets and simplify operational structures.

 

Restructuring costs in relation to COVID-19 of £29.9 million (2020: £232.5 million) primarily relate to property costs which the Group undertook in response to the COVID-19 pandemic. As management continues to assess the impact of COVID-19 on long-term working practices and the Group’s real estate portfolio, further impairments may occur in the future.

 

The goodwill impairment charge of £2,822.9 million in 2020 reflects the adverse impacts of COVID-19 on a number of businesses in the Group at that time.

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

5.         

Share of results of associates

 

Share of results of associates include:

 

 

£ million	2021	2020
Continuing operations
Share of profit before interest and taxation	208.5	142.5
Share of exceptional losses	(62.3)	(146.1)
Share of interest and non-controlling interests	(83.9)	(91.4)
Share of taxation	(38.5)	(41.0)
	23.8	(136.0)

 

 

 

Share of exceptional losses of £62.3 million (2020: £146.1 million) primarily comprise £38.8 million (2020: £54.3 million) of amortisation and impairment of acquired intangible assets as well as restructuring and one-off transaction costs of £18.8 million (2020: £89.3 million) within Kantar.

 

 

6.         

Finance and investment income, finance costs and revaluation and retranslation of financial instruments

 

Finance and investment income includes:

 

 

£ million	2021	2020
Continuing operations
Income from equity investments	17.9	8.7
Interest income	51.5	74.0
	69.4	82.7

 

 

Finance costs include:

 

 

£ million	2021	2020
Continuing operations
Net interest expense on pension plans	1.8	2.9
Interest on other long-term employee benefits	2.4	3.1
Interest payable and similar charges	188.5	205.0
Interest expense related to lease liabilities	90.9	101.0
	283.6	312.0

 

 

Revaluation and retranslation of financial instruments include:

 

 

£ million	2021	2020
Continuing operations
Movements in fair value of treasury instruments	9.1	15.4
Premium on the early repayment of bonds	(13.0)	-
Revaluation of investments held at fair value through profit or loss	(7.5)	8.0
Revaluation of put options over non-controlling interests	(40.6)	12.3
Revaluation of payments due to vendors (earnout agreements)	(58.7)	13.4
Retranslation of financial instruments	22.9	(196.3)
	(87.8)	(147.2)

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

7.        Segmental analysis

 

Reported contributions by operating sector were as follows:

 

 

£ million	2021	20201
Continuing operations
Revenue
Global Integrated Agencies	10,836.3	10,265.5
Public Relations	959.0	892.9
Specialist Agencies	1,005.8	844.4
	12,801.1	12,002.8
Revenue less pass-through costs2
Global Integrated Agencies	8,638.7	8,194.2
Public Relations	909.7	854.4
Specialist Agencies	848.8	713.4
	10,397.2	9,762.0
Headline operating profit3
Global Integrated Agencies	1,215.5	1,059.9
Public Relations	143.1	141.3
Specialist Agencies	134.9	59.3
	1,493.5	1,260.5

 

 

Reported contributions by geographical area were as follows:

 

 

£ million	2021	2020
Continuing operations
Revenue
North America4	4,494.2	4,464.9
United Kingdom	1,866.9	1,637.0
Western Continental Europe	2,786.3	2,441.6
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe	3,653.7	3,459.3
	12,801.1	12,002.8
Revenue less pass-through costs2
North America4	3,849.2	3,743.4
United Kingdom	1,414.3	1,233.8
Western Continental Europe	2,225.4	2,019.4
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe	2,908.3	2,765.4
	10,397.2	9,762.0
Headline operating profit3
North America4	655.7	611.9
United Kingdom	180.9	137.7
Western Continental Europe	288.6	198.7
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe	368.3	312.2
	1,493.5	1,260.5

 

 

1 During 2020, the Group announced the intention to combine Grey and AKQA into AKQA Group, and to bring Geometry and GTB into VMLY&R, and International Healthcare into VMLY&R and Ogilvy. As a result AKQA, Geometry, GTB and International Healthcare are now reported within Global Integrated Agencies, having previously been reported within Specialist Agencies. Prior year figures have been re-presented to reflect these changes.

2 Revenue less pass-through costs is defined in Appendix 2.

 

3 Headline operating profit is defined in Appendix 2.

 

4 North America includes the US with revenue of £4,220.8 million (2020: £4,216.1 million), revenue less pass-through costs of £3,597.4 million (2020: £3,524.8 million) and headline operating profit of £615.2 million (2020: £563.7 million).

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

8.         

Taxation

 

The tax rate on reported profit/loss before tax was 24.2% (2020: -4.6%). The tax charge comprises:

 

 

 

 

£ million	2021	20201
Continuing operations
Corporation tax
Current year	404.0	307.8
Prior years	(41.4)	(83.2)
	362.6	224.6
Deferred tax
Current year	(131.0)	(80.2)
Prior years	(1.5)	(17.3)
	(132.5)	(97.5)
Tax charge	230.1	127.1

 

 

The tax charge may be affected by the impact of acquisitions, disposals and other corporate restructurings, the resolution of open tax issues, and the ability to use brought forward tax losses. Changes in local or international tax rules, for example, increasing tax rates as a consequence of the financial support programmes implemented by governments during the COVID-19 pandemic, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, and changes arising from the application of existing rules or challenges by tax or competition authorities, may expose the Group to additional tax liabilities or impact the carrying value of deferred tax assets, which could affect the future tax charge.

 

Liabilities relating to open and judgemental matters are based upon an assessment of whether the tax authorities will accept the position taken, after taking into account external advice where appropriate. Where the final tax outcome of these matters is different from the amounts which were initially recorded then such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Group does not currently consider that judgements made in assessing tax liabilities have a significant risk of resulting in any material additional charges or credits in respect of these matters, within the next financial year, beyond the amounts already provided.

 

In the UK Budget on 3 March 2021, the Chancellor of the Exchequer announced an increase in the UK corporation tax rate from 19% to 25%, which is due to be effective from 1 April 2023. The change was enacted at the balance sheet date, and the Group has remeasured UK deferred tax balances accordingly and recognised a tax credit of £23.8 million in current period tax expense.

 

 

9.        Ordinary dividends

 

The Board has recommended a final dividend of 18.7p (2020: 14.0p) per ordinary share in addition to the interim dividend of 12.5p (2020: 10.0p) per share. This makes a total for the year of 31.2p (2020: 24.0p). Payment of the final dividend of 18.7p per ordinary share will be made on 8 July 2022 to holders of ordinary shares in the Company on 10 June 2022.

 

1 Figures have been restated as described in the accounting policies.

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

10.            

Earnings per share

 

Basic EPS

 

The calculation of basic reported and headline EPS is as follows:

 

Continuing operations:

 

 

	2021	20201
Reported earnings2 (£ million)	637.7	(2,971.6)
Headline earnings3 (£ million)	954.5	742.5
Weighted average shares used in basic EPS calculation (million)	1,194.1	1,223.0
Reported EPS	53.4p	(243.0p)
Headline EPS	79.9p	60.7p

 

Discontinued operations:

 

 

	2021	2020
Reported earnings2 (£ million)	-	6.5
Weighted average shares used in basic EPS calculation (million)	-	1,223.0
Reported EPS	-	0.5p

 

 

 

Continuing and discontinued operations:

 

	2021	20201
Reported earnings2 (£ million)	637.7	(2,965.1)
Weighted average shares used in basic EPS calculation (million)	1,194.1	1,223.0
Reported EPS	53.4p	(242.5p)

 

 

Diluted EPS

 

The calculation of diluted reported and headline EPS is as follows:

 

 

Continuing operations:

 

 

	2021	20201
Diluted reported earnings (£ million)	637.7	(2,971.6)
Diluted headline earnings (£ million)	954.5	742.5
Weighted average shares used in reported diluted EPS calculation (million)4	1,215.3	1,223.0
Weighted average shares used in headline diluted EPS calculation (million)	1,215.3	1,236.0
Diluted reported EPS	52.5p	(243.0p)
Diluted headline EPS	78.5p	60.1p

 

 

 

Discontinued operations:

 

 

	2021	2020
Diluted reported earnings (£ million)	-	6.5
Weighted average shares used in diluted EPS calculation (million)4	-	1,223.0
Diluted reported EPS	-	0.5p

 

1 Figures have been restated as described in the accounting policies

2 Reported earnings is equivalent to profit for the year attributable to equity holders of the parent.

 

3 Headline earnings is defined in Appendix 2.

 

4 In 2020, the weighted average shares used in the basic EPS calculation has also been used for reported diluted EPS due to the anti-dilutive effect of the weighted average shares calculated for the reported diluted EPS calculation.

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

 

10.         

Earnings per share (continued)

 

Diluted EPS

 

Continuing and discontinued operations:

 

 

	2021	20201
Diluted reported earnings (£ million)	637.7	(2,965.1)
Weighted average shares used in diluted EPS calculation (million)2	1,215.3	1,223.0
Diluted reported EPS	52.5p	(242.5p)

 

 

A reconciliation between the shares used in calculating basic and diluted EPS is as follows:

 

 

million	2021	2020
Weighted average shares used in basic EPS calculation	1,194.1	1,223.0
Dilutive share options outstanding	1.3	-
Other potentially issuable shares	19.9	13.0
Weighted average shares used in diluted EPS calculation	1,215.3	1,236.0

 

 

At 31 December 2021 there were 1,224,459,550 (2020: 1,296,080,242) ordinary shares in issue, including treasury shares of 70,489,953 (2020: 70,748,100).

 

 

1 Figures have been restated as described in the accounting policies.

2 In 2020, the weighted average shares used in the basic EPS calculation has also been used for reported diluted EPS due to the anti-dilutive effect of the weighted average shares calculated for the reported diluted EPS calculation.

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

 

11.          

Analysis of cash flows

 

The following tables analyse the items included within the main cash flow headings on page 18:

 

 

Net cash inflow from operating activities:

 

 

£ million	2021	20201
Profit/(loss) for the year	720.7	(2,901.3)
Taxation	230.1	129.3
Revaluation and retranslation of financial instruments	87.8	147.2
Finance costs	283.6	312.3
Finance and investment income	(69.4)	(82.8)
Share of results of associates	(23.8)	136.0
Gain on sale of discontinued operations	-	(10.0)
Attributable tax expense on sale of discontinued operations	-	1.9
Operating profit/(loss) of continuing and discontinued operations	1,229.0	(2,267.4)
Adjustments for:
Non-cash share-based incentive plans (including share options)	99.6	74.4
Depreciation of property, plant and equipment	151.2	174.8
Depreciation of right-of-use assets	272.9	331.9
Impairment charges included within restructuring costs	39.2	196.7
Goodwill impairment	1.8	2,822.9
Amortisation and impairment of acquired intangible assets	97.8	89.1
Amortisation of other intangible assets	19.9	35.2
Investment and other impairment (reversals)/charges	(42.4)	296.2
Losses/(gains) on disposal of investments and subsidiaries	10.6	(7.8)
Gains on remeasurement of equity interests arising from a change in scope of ownership	-	(0.6)
(Gains)/losses on sale of property, plant and equipment	(1.3)	0.3
Operating cash flow before movements in working capital and provisions	1,878.3	1,745.7
Movements in trade working capital2	318.9	780.2
Movements in other working capital and provisions	383.1	58.0
Cash generated by operations	2,580.3	2,583.9
Corporation and overseas tax paid	(391.1)	(371.5)
Premium on early settlement of bonds	(13.0)	-
Interest and similar charges paid	(173.7)	(173.9)
Interest paid on lease liabilities	(88.4)	(98.5)
Interest received	47.5	73.6
Investment income	17.8	8.7
Dividends from associates	53.4	32.5
Net cash inflow from operating activities	2,032.8	2,054.8

 

 

1 Figures have been restated as described in the accounting policies.

2 Trade working capital represents trade receivables, work in progress, accrued income, trade payables and deferred income.

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

11.            

Analysis of cash flows (continued)

 

Acquisitions and disposals:

 

 

£ million	2021	2020
Initial cash consideration	(227.6)	(32.8)
Cash and cash equivalents acquired	(2.3)	-
Earnout payments	(57.0)	(115.2)
Purchase of other investments (including associates)	(99.2)	(30.4)
Acquisitions	(386.1)	(178.4)
Proceeds on disposal of investments and subsidiaries1	51.9	320.0
Cash and cash equivalents disposed	(23.6)	(47.7)
Disposals of investments and subsidiaries	28.3	272.3
Cash consideration received from non-controlling interests	39.5	-
Cash consideration for purchase of non-controlling interests	(135.0)	(80.6)
Cash consideration for non-controlling interests	(95.5)	(80.6)
Net acquisition payments and investments	(453.3)	13.3

 

 

Share repurchases and buy-backs:

 

 

£ million	2021	2020
Purchase of own shares by ESOP Trusts	(89.2)	(5.1)
Shares purchased into treasury	(729.3)	(285.1)
	(818.5)	(290.2)

 

 

Proceeds from borrowings:

 

 

£ million	2021	2020
Proceeds from issue of €750 million bonds	-	665.5
Proceeds from issue of £250 million bonds	-	250.0
	-	915.5

 

Repayments of borrowings:

 

 

£ million	2021	2020
Net decrease in drawings on bank loans	(36.3)	(59.6)
Repayment of $500 million bonds	(360.8)	-
Repayment of €250 million bonds	-	(223.1)
	(397.1)	(282.7)

 

 

1 Proceeds on disposal of investments and subsidiaries includes return of capital from investments in associates.

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

 

12.            

Cash and cash equivalents and adjusted net debt

 

 

 

£ million	2021	2020
Cash at bank and in hand	2,776.6	10,075.0
Short-term bank deposits	1,106.3	2,824.1
Overdrafts1	(342.3)	(8,562.0)
Cash and cash equivalents	3,540.6	4,337.1
Bonds due within one year	(210.2)	-
Loans due within one year	(14.7)	(57.2)
Bonds due after one year	(4,216.8)	(4,975.5)
Adjusted net debt	(901.1)	(695.6)

 

 

During the year, the Group converted the majority of its notional cash pool arrangements to zero-balance accounts, whereby the cash and overdrafts within these cash pools are physically swept to the header accounts on a daily basis, resulting in a reduction of the large gross cash and overdraft positions at 31 December 2020.

 

The Group estimates that the fair value of corporate bonds is £4,790.3 million at 31 December 2021 (2020: £5,509.1 million). The Group considers that the carrying amount of bank loans approximates their fair value.

 

The following table is an analysis of future anticipated cash flows in relation to the Group’s debt, on an undiscounted basis which, therefore, differs from the carrying value:

 

 

 

£ million	2021	2020
Within one year	(332.4)	(182.2)
Between one and two years	(751.0)	(725.6)
Between two and three years	(652.1)	(795.7)
Between three and four years	(498.4)	(649.1)
Between four and five years	(703.6)	(528.2)
Over five years	(2,568.8)	(3,387.1)
Debt financing (including interest) under the Revolving Credit Facility and in relation to unsecured loan notes	(5,506.3)	(6,267.9)
Short-term overdrafts – within one year	(342.3)	(8,562.0)
Future anticipated cash flows	(5,848.6)	(14,829.9)
Effect of discounting/financing rates	1,064.6	1,235.2
Debt financing	(4,784.0)	(13,594.7)
Cash and short-term deposits	3,882.9	12,899.1
Adjusted net debt	(901.1)	(695.6)

 

 

1 Bank overdrafts are included in cash and cash equivalents because they form an integral part of the Group’s cash management.

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

 

13.         

Goodwill and acquisitions

 

 

 

Goodwill in relation to subsidiary undertakings increased by £223.5 million in the year. This movement primarily relates to goodwill arising on acquisitions completed in the year and adjustments to goodwill relating to acquisitions completed in prior years of £330.4 million, partially offset by the effect of currency translation of £105.1 million and £1.8 million of impairment charges.

 

In 2020, £2,822.9 million of impairment charges were incurred. The impairments related to historical acquisitions whose carrying values were reassessed in light of the impact of Covid-19. The impairments were 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 contribution to revenue and operating profit of acquisitions completed in the year was not material. There were no material acquisitions completed during the year or between 31 December 2021 and the date these preliminary consolidated financial statements were approved.

 

 

 

14.         

Other intangible assets

 

The following are included in other intangibles:

 

 

 

£ million	2021	2020
Brands with an indefinite useful life	1,010.5	1,059.1
Acquired intangibles	273.4	240.5
Other (including capitalised computer software)	75.6	89.7
	1,359.5	1,389.3

 

 

 

15.         

Trade and other receivables

 

Amounts falling due within one year:

 

 

£ million	2021	2020
Trade receivables	6,600.5	6,572.2
Work in progress	254.0	264.1
VAT and sales taxes recoverable	350.3	236.6
Prepayments	215.3	248.1
Accrued income	3,435.7	3,150.1
Fair value of derivatives	2.5	0.2
Other debtors	504.0	501.0
	11,362.3	10,972.3

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

15.            

Trade and other receivables (continued)

 

Amounts falling due after more than one year:

 

 

 

£ million	2021	2020
Prepayments	3.0	2.8
Fair value of derivatives	0.5	9.6
Other debtors	149.1	143.8
	152.6	156.2

 

The Group has applied the practical expedient permitted by IFRS 15 to not disclose the transaction price allocated to performance obligations unsatisfied (or partially unsatisfied) as of the end of the reporting period as contracts typically have an original expected duration of a year or less.

 

 

The Group considers that the carrying amount of trade and other receivables approximates their fair value.

 

A credit to bad debt expense of £10.6 million (2020: expense of £40.8 million) on the Group’s trade receivables in the period is a result of the reduction in expected credit losses since 31 December 2020. The allowance for bad and doubtful debts is equivalent to 1.1% (2020: 1.7%) of gross trade receivables.

 

 

 

 

16.         

Trade and other payables: amounts falling due within one year

 

 

£ million	2021	2020
Trade payables	10,596.9	10,206.5
Deferred income	1,334.0	1,153.7
Payments due to vendors (earnout agreements)	85.6	57.8
Liabilities in respect of put option agreements with vendors	58.4	9.3
Fair value of derivatives	6.4	1.8
Share repurchases – close period commitments1	211.7	-
Other creditors and accruals	2,959.3	2,430.6
	15,252.3	13,859.7

 

 

The Group considers that the carrying amount of trade and other payables approximates their fair value.

 

1 During 2021, the Company entered into an arrangement with a third party to conduct share buybacks on its behalf in the close period commencing on 16 December 2021 and ending on 18 February 2022, in accordance with UK listing rules. The commitment resulting from this agreement constitutes a liability at 31 December 2021, which is included in Trade and other payables: amounts falling due within one year and has been recognised as a movement in equity.

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

17.         

Trade and other payables: amounts falling due after more than one year

 

 

£ million	2021	2020
Payments due to vendors (earnout agreements)	111.1	56.5
Liabilities in respect of put option agreements with vendors	333.1	101.4
Fair value of derivatives	47.2	11.2
Other creditors and accruals	128.5	144.4
	619.9	313.5

 

The Group considers that the carrying amount of trade and other payables approximates their fair value.

 

The following table sets out payments due to vendors, comprising contingent consideration and the directors’ best estimates of future earnout related obligations:

 

£ million	2021	2020
Within one year	85.6	57.8
Between 1 and 2 years	24.0	17.2
Between 2 and 3 years	35.7	6.0
Between 3 and 4 years	51.4	30.5
Between 4 and 5 years	-	2.8
Over 5 years	-	-
	196.7	114.3

 

The Group’s approach to payments due to vendors is outlined in note 21.

 

 

The Group does not consider there to be any material contingent liabilities as at 31 December 2021.

 

 

 

18.        Issued share capital

 

 

 

Number of equity ordinary shares (million)	2021	2020
At the beginning of the year	1,296.1	1,328.2
Exercise of share options	0.6	-
Share cancellations	(72.2)	(32.1)
At the end of the year	1,224.5	1,296.1

 

 

 

19.         

Related party transactions

 

The Group enters into transactions with its associate undertakings. The Group has continuing transactions with Kantar, including sales, purchases, the provision of IT services, subleases and property related items.

 

In the year ended 31 December 2021, revenue of £117.2 million (2020: £90.6 million) was reported in relation to Compas, an associate in the USA. All other transactions in the years presented were immaterial.

 

The Group invested a further £92.9 million in Kantar in 2021 to fund its 40% share of the Numerator acquisition.

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

 

19.         

Related party transactions (continued)

 

The following amounts were outstanding at 31 December 2021:

 

 

 

£ million	2021	2020
Amounts owed by related parties
Kantar	30.3	39.0
Other	45.7	27.9
	76.0	66.9
Amounts owed to related parties
Kantar	(6.2)	(5.6)
Other	(51.4)	(36.0)
	(57.6)	(41.6)

 

 

 

20.         

Going concern and liquidity risk

 

In considering going concern and liquidity risk, the Directors have reviewed the Group’s future cash requirements and earnings projections. The Directors believe these forecasts have been prepared on a prudent basis and have also considered the impact of a range of potential changes to trading performance. The Company modelled a range of revenue less pass-through costs compared with the year ended 31 December 2021 and a number of mitigating cost actions that are available to the Company. Considering the Group's bank covenant and liquidity headroom and cost mitigation actions which could be implemented, the Company and the Group would be able to operate with appropriate liquidity and within its banking covenants and be able to meet its liabilities as they fall due with a decline in revenue less pass-through costs up to 30% in 2022. The likelihood of such a decline is considered remote. The Directors have concluded that the Group will be able to operate within its current facilities and comply with its banking covenants for the foreseeable future and therefore believe it is appropriate to prepare the financial statements of the Group on a going concern basis and that there are no material uncertainties which gives rise to a significant going concern risk.

 

At 31 December 2021, the Group has access to £6.3 billion of committed facilities with maturity dates spread over the years 2022 to 2046 as illustrated below:

 

 

£ million
		2022	2023	2024	2025	2026+
£ bonds £400m (2.875% ‘46)	400.0					400.0
US bond $220m (5.625% ‘43)	162.5					162.5
US bond $93m (5.125% ’42)	68.6					68.6
£ bonds £250m (3.750% ‘32)	250.0					250.0
Eurobonds €600m (1.625% ’30)	504.5					504.5
Eurobonds €750m (2.375% ’27)	630.6					630.6
Eurobonds €750m (2.25% ’26)	630.6					630.6
Bank revolver ($2,500m ’26)	1,847.5					1,847.5
Eurobonds €500m (1.375% ’25)	420.4				420.4
US bond $750m (3.75% ’24)	554.2			554.2
Eurobonds €750m (3.0% ’23)	630.6		630.6
Eurobonds €250m (3m EURIBOR + 0.45% ’22)	210.2	210.2
Total committed facilities available	6,309.7	210.2	630.6	554.2	420.4	4,494.3
Drawn down facilities at 31 December 2021	4,462.2	210.2	630.6	554.2	420.4	2,646.8
Undrawn committed credit facilities	1,847.5
Drawn down facilities at 31 December 2021	4,462.2
Net cash at 31 December 2021	(3,540.6)
Other adjustments	(20.5)
Adjusted net debt at 31 December 2021	901.1

 

 

Given its debt maturity profile and available facilities, the Directors believe the Group has sufficient liquidity to match its requirements for the foreseeable future.

 

 

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

21.         

Financial instruments

 

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree to which the fair value is observable, or based on observable inputs:

 

 

 

£ million	Level 1	Level 2	Level 3
Derivatives in designated hedge relationships
Derivative assets	-	0.5	-
Derivative liabilities	-	(47.2)	-
Held at fair value through profit or loss
Other investments	0.4	-	227.9
Derivative assets	-	2.5	-
Derivative liabilities	-	(6.4)	-
Payments due to vendors (earnout agreements) (note 17)	-	-	(196.7)
Liabilities in respect of put options	-	-	(391.5)
Held at fair value through other comprehensive income
Other investments	27.9	-	62.1

 

Reconciliation of level 3 fair value measurements:

 

 

£ million	Payments due to vendors (earnout agreements)	Liabilities in respect of put options	Other investments
1 January 2021	(114.3)	(110.7)	366.6
Losses recognised in the income statement	(58.7)	(40.6)	(7.7)
Losses recognised in other comprehensive income	-	-	(42.8)
Additions	(81.7)	(247.7)1	5.9
Disposals	-	-	(32.0)
Cancellations	-	0.8	-
Settlements	57.0	5.4	-
Exchange adjustments	1.0	1.3	-
31 December 2021	(196.7)	(391.5)	290.0

 

 

Payments due to vendors and liabilities in respect of put options

 

Future anticipated payments due to vendors in respect of contingent consideration (earnout agreements) are recorded at fair value, which is the present value of the expected cash outflows of the obligations. Liabilities in respect of put option agreements are initially recorded at the present value of the redemption amount in accordance with IAS 32 and subsequently measured at fair value in accordance with IFRS 9. Both types of obligations are dependent on the future financial performance of the entity and it is assumed that future profits are in line with directors’ estimates. The directors derive their estimates from internal business plans together with financial due diligence performed in connection with the acquisition.

 

 

Other investments

 

The fair value of other investments included in level 1 are based on quoted market prices. Other investments included in level 3 are unlisted securities, where market value is not readily available. The Group has estimated relevant fair values on the basis of publicly available information from outside sources. Certain investments are valued using revenue multiples.

 

 

1 During the year, the Group merged Finsbury Glover Hering and Sard Verbinnen & Co to form a leading global strategic communications firm. As a part of this transaction, certain management acquired shares in the company and a put option was granted which allows the equity partners to require the Group to purchase these shares. This resulted in additions to liabilities in respect of put options in the year of £219.6 million.

 

 

Principal risks and uncertainties

 

The Board regularly reviews the principal and emerging risks and uncertainties affecting the Group and these are summarised below:

 

 

COVID-19 Pandemic

 

●

The extent of the continued impact of the COVID-19 pandemic on our business will depend on numerous factors that we are not able to accurately predict, including the duration and scope of the pandemic, any existing or new variants, government actions to mitigate the effects of the pandemic and the intermediate and long-term impact of the pandemic on our clients’ spending plans.

 

 

Strategic Risks

 

●

The Group updated its strategic plan in December 2020, to return the business to growth and simplify the Group structure. A failure or delay in implementing and fully realising the benefits from the strategic plan, may have a material adverse effect on the Group’s market share and its business, revenues, results of operations, financial condition, or prospects.

 

 

Operational Risks

Clients

 

●

The Group competes for clients in a highly competitive and evolving industry which is undergoing structural change which has been accelerated by the COVID-19 pandemic. Client loss or consolidation or a reduction in marketing budgets due to recessionary economic conditions, may have a material adverse effect on the Group’s market share and its business, revenues, results of operations, financial condition or prospects.

 

●

The Group receives a significant portion of its revenues from a limited number of large clients and the net loss of one or more of these clients could have a material adverse effect on the Group’s prospects, business, financial condition and results of operations.

 

 

People, Culture and Succession

 

●

The Group’s performance could be adversely affected if we do not react quickly enough to changes in our market and fail to attract, develop and retain key and diverse creative, commercial technology and management talent or are unable to retain and incentivise key and diverse talent.

 

 

Cyber and Information Security

 

●

The Group is undertaking a series of IT transformation programmes to support the Group’s strategic plan and a failure or delay in implementing the IT programmes may have a material adverse effect on its business, revenues, results of operations, financial conditions or prospects. The Group is reliant on third parties for the performance of a significant part of its information technology and operational functions. A failure to provide these functions including as a result of a cyber event, could have an adverse effect on the Group's business. A significant percentage of the Group’s people continue to work remotely as a consequence of the COVID-19 pandemic which has the potential to increase the risk of compromised data security and cyber-attacks.

 

 

Financial Risks

 

●

 The Group is subject to credit risk through the default of a client or other counterparty.

 

Compliance Risks

 

●

The Group is subject to strict data protection and privacy legislation in the jurisdictions in which we operate and rely extensively on information technology systems. The Group stores, transmits and relies on critical and sensitive data. Security of this type of data is exposed to escalating external cyber threats that are increasing in sophistication as well as internal breaches.

●

The Group’s performance could be adversely impacted if it failed to ensure adequate internal control procedures are in place generally and through the period of remote working as a consequence of the COVID-19 pandemic.

 

 

Principal risks and uncertainties (continued)

 

 

Regulatory, Sanctions, Anti-Trust and Taxation

 

●

The Group may be subject to regulations restricting its activities or effecting changes in taxation, for example, as a consequence of the financial support programmes implemented by governments during the COVID-19 pandemic.

●

The Group is subject to anti-corruption, anti-bribery and anti-trust legislation and enforcement in the countries in which it operates and violations could have an adverse effect on our business and reputation.

●

Civil liabilities or judgements against the Company or its Directors or officers based on United States federal or state securities laws may not be enforceable in the United States or in England and Wales or in Jersey.

●

The Group is subject to the laws of the United States, EU and other jurisdictions regulating and imposing sanctions on the supply of services to certain countries. Failure to comply with these laws could expose the Group to civil and criminal penalties.

 

Emerging Risks

 

●

The Group’s operations could be disrupted by an increased frequency of extreme weather and climate related natural disasters as a consequence of the physical impacts of climate change in the next 30 years.

●

The Group is subject to increased reputational risk associated with working on environmentally detrimental client briefs and/or misrepresenting environmental claims.

●

The group could be subject to increased costs to comply with potential future changes in environmental laws and regulations and to meet is net zero commitments.

 

Cautionary statement regarding forward-looking statements

 

This document contains statements that are, or may be deemed to be, “forward-looking statements”. Forward- looking statements give the Group’s current expectations or forecasts of future events. An investor can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’, ‘target’ and other words and terms of similar meaning in connection with any discussion of future operating or financial performance.

 

These forward-looking statements may include, among other things, plans, objectives, projections and anticipated future economic performance based on assumptions and the like that are subject to risks and uncertainties. As such, actual results or outcomes may differ materially from those discussed in the forward- looking statements. Important factors which may cause actual results to differ include but are not limited to: the unanticipated loss of a material client or key personnel, delays or reductions in client advertising budgets, shifts in industry rates of compensation, regulatory compliance costs or litigation, natural disasters or acts of terrorism, the Company’s exposure to changes in the values of other major currencies (because a substantial portion of its revenues are derived and costs incurred outside of the UK) and the overall level of economic activity in the Company’s major markets (which varies depending on, among other things, regional, national and international political and economic conditions and government regulations in the world’s advertising markets). In addition, you should consider the risks described under Item 3D ‘Risk Factors’ in the Group’s Annual Report on Form 20-F for 2020 and any impacts of the COVID-19 pandemic which could also cause actual results to differ from forward-looking information. In light of these and other uncertainties, the forward- looking statements included in this document should not be regarded as a representation by the Company that the Company’s plans and objectives will be achieved. Other than in accordance with its legal or regulatory obligations (including under the Market Abuse Regulation, the UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), the Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The reader should, however, consult any additional disclosures that the Group may make in any documents which it publishes and/or files with the SEC. All readers, wherever located, should take note of these disclosures. Accordingly, no assurance can be given that any particular expectation will be met and investors are cautioned not to place undue reliance on the forward-looking statements.

 

Any forward looking statements made by or on behalf of the Group speak only as of the date they are made and are based upon the knowledge and information available to the Directors on the date of this document

 

 

Appendix 2: Alternative performance measures for the year ended 31 December 2021

 

 

 

Management includes non-GAAP measures as they consider these measures to be both useful and necessary. They are used by management for internal performance analyses; the presentation of these measures facilitates comparability with other companies, although management’s measures may not be calculated in the same way as similarly titled measures reported by other companies; and these measures are useful in connection with discussions with the investment community.

 

 

Reconciliation of revenue to revenue less pass-through costs:

 

 

 

£ million	2021	2020
Continuing operations
Revenue	12,801.1	12,002.8
Media pass-through costs	(1,865.3)	(1,555.2)
Other pass-through costs	(538.6)	(685.6)
Revenue less pass-through costs	10,397.2	9,762.0

 

 

Pass-through costs comprise fees paid to external suppliers when they are engaged to perform part or all of a specific project and are charged directly to clients, predominantly media and data collection costs. This includes the cost of media where the Group is buying digital media for its own account on a transparent opt-in basis and, as a result, the subsequent media pass-through costs have to be accounted for as revenue, as well as billings. Therefore, management considers that revenue less pass-through costs gives a helpful reflection of top-line growth.

 

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

 

 

 

£ million	2021	2020
Continuing operations
Operating profit/(loss)	1,229.0	(2,278.1)
Amortisation and impairment of acquired intangible assets	97.8	89.1
Goodwill impairment	1.8	2,822.9
Losses/(gains) on disposal of investments and subsidiaries	10.6	(7.8)
Gains on remeasurement of equity interests arising from a change in scope of ownership	-	(0.6)
Investment and other impairment (reversals)/charges	(42.4)	296.2
Litigation settlement	21.3	25.6
Restructuring and transformation costs	145.5	80.7
Restructuring costs in relation to COVID-19	29.9	232.5
Headline operating profit	1,493.5	1,260.5
Finance and investment income	69.4	82.7
Finance costs (excluding interest expense related to lease liabilities)	(192.7)	(211.0)
	(123.3)	(128.3)
Interest cover1 on headline operating profit	12.1 times	9.8 times

 

 

Headline operating profit is one of the metrics that management uses to assess the performance of the business.

 

 

1 Interest expense related to lease liabilities is excluded from interest cover as lease liabilities are excluded from the Group’s key leverage metrics.

 

 

Headline operating profit margin before and after share of results of associates:

 

 

 

£ million	Margin	2021	Margin	2020
Continuing operations
Revenue less pass-through costs		10,397.2		9,762.0
Headline operating profit	14.4%	1,493.5	12.9%	1,260.5
Share of results of associates (excluding exceptional gains/losses)		86.1		10.1
Headline PBIT	15.2%	1,579.6	13.0%	1,270.6

 

Headline PBIT is one of the metrics that management uses to assess the performance of the business.

 

Calculation of headline EBITDA:

 

 

£ million	2021	2020
Continuing operations
Headline PBIT	1,579.6	1,270.6
Depreciation of property, plant and equipment	151.2	174.8
Amortisation of other intangible assets	19.9	35.2
Headline EBITDA (including depreciation of right-of-use assets)	1,750.7	1,480.6
Depreciation of right-of-use assets	272.9	331.9
Headline EBITDA	2,023.6	1,812.5

 

Headline EBITDA is a key metric that private equity firms, for example, use for valuing companies, and is one of the metrics that management uses to assess the performance of the business. Headline EBITDA (including depreciation of right-of-use assets) is used in the Group’s key leverage metric.

 

 

 

Reconciliation of profit/(loss) before taxation to headline PBT and headline earnings:

 

 

£ million	2021	20201
Continuing operations
Profit/(loss) before taxation	950.8	(2,790.6)
Amortisation and impairment of acquired intangible assets	97.8	89.1
Goodwill impairment	1.8	2,822.9
Losses/(gains) on disposal of investments and subsidiaries	10.6	(7.8)
Gains on remeasurement of equity interests arising from a change in scope of ownership	-	(0.6)
Investment and other impairment (reversals)/charges	(42.4)	296.2
Restructuring and transformation costs	145.5	80.7
Restructuring costs in relation to COVID-19	29.9	232.5
Share of exceptional losses of associates	62.3	146.1
Litigation settlement	21.3	25.6
Revaluation and retranslation of financial instruments	87.8	147.2
Headline PBT	1,365.4	1,041.3
Headline tax charge	(327.9)	(239.9)
Headline non-controlling interests	(83.0)	(58.9)
Headline earnings	954.5	742.5

 

 

Headline PBT and headline earnings are metrics that management use to assess the performance of the business.

1 Figures have been restated as described in the accounting policies.

 

 

Calculation of headline taxation:

 

£ million	2021	20201
Continuing operations
Headline PBT	1,365.4	1,041.3
Tax charge	230.1	127.1
Tax credit/(charge) relating to losses/(gains) on disposal of investments and subsidiaries	31.5	(2.7)
Tax credit relating to restructuring and transformation costs	38.4	14.3
Tax credit relating to restructuring and transformation costs in relation to COVID-19	7.3	51.2
Tax (charge)/credit relating to litigation settlement	(5.4)	5.4
Deferred tax impact of the amortisation of acquired intangible assets and other goodwill items	5.6	36.0
Deferred tax relating to gains on disposal of investments and subsidiaries	20.4	8.6
Headline tax charge	327.9	239.9
Headline tax rate	24.0%	23.0%

 

The Group has re-assessed the measure of headline tax rate, as some associate businesses are classified as US tax partnerships with their related tax forming part of the headline tax charge, and now considers the most appropriate metric is to use the headline tax charge as a percentage of headline PBT (that includes the share of headline results of associates). The headline tax rate on headline PBT excluding the share of headline results of associates was 24.0% (2020: 23.0%).

 

Given the Group’s geographic mix of profits and the changing international tax environment, the headline tax rate is expected to increase over the next few years.

 

 

Calculation of headline non-controlling interests:

 

 

 

£ million	2021	2020
Continuing operations
Non-controlling interests	83.0	53.9
Non-controlling interests relating to restructuring costs in relation to COVID-19	-	5.0
Headline non-controlling interests	83.0	58.9

 

 

Reconciliation of free cash flow:

 

 

 

£ million	2021	2020
Cash generated by continuing and discontinued operations	2,580.3	2,583.9
Plus:
Interest received	47.5	73.6
Investment income	17.8	8.7
Dividends from associates	53.4	32.5
Share option proceeds	4.4	-
Less:
Earnout payments	(57.0)	(115.2)
Interest and similar charges paid	(173.7)	(173.9)
Purchase of property, plant and equipment	(263.2)	(218.3)
Purchase of other intangible assets (including capitalised computer software)	(29.9)	(54.4)
Repayment of lease liabilities	(320.7)	(300.1)
Interest paid on lease liabilities	(88.4)	(98.5)
Corporation and overseas tax paid	(391.1)	(371.5)
Dividends paid to non-controlling interests in subsidiary undertakings	(114.5)	(83.3)
Free cash flow	1,264.9	1,283.5

1 Figures have been restated as described in the accounting policies.

 

 

The Group bases its internal cash flow objectives on free cash flow. Management believes free cash flow is meaningful to investors because it is the measure of the Group’s funds available for acquisition related payments, dividends to shareholders, share repurchases and debt repayment. The purpose of presenting free cash flow is to indicate the ongoing cash generation within the control of the Group after taking account of the necessary cash expenditures of maintaining the capital and operating structure of the Group (in the form of payments of interest, corporate taxation, and capital expenditure).

 

Future restructuring and transformation costs

 

Further restructuring and transformation costs are expected from 2022 to 2025, with approximately £350 million in relation to the continued rollout of the Group’s new ERP system in order to drive efficiency and collaboration throughout the Group. Costs of between £200 and £250 million are also expected in relation to other IT transformation projects, shared service centres and co-locations.

 

Constant currency and pro forma (‘like-for-like’)

 

 

These preliminary consolidated financial statements are presented in pounds sterling. However, the Group’s significant international operations give rise to fluctuations in foreign exchange rates. To neutralise foreign exchange impact and illustrate the underlying change in revenue and profit from one year to the next, the Group has adopted the practice of discussing results in both reportable currency (local currency results translated into pounds sterling at the prevailing foreign exchange rate) and constant currency.

 

 

Management also believes that discussing pro forma or like-for-like contributes to the understanding of the Group’s performance and trends because it allows for meaningful comparisons of the current year to that of prior years.

 

 

Further details of the constant currency and pro forma methods are given in the glossary on page 45.

 

 

 

 

Glossary and basis of preparation

 

Average adjusted net debt and adjusted net debt

Average adjusted net debt is calculated as the average daily net borrowings of the Group. Adjusted net debt at a period end is calculated as the sum of the net borrowings of the Group, derived from the cash ledgers and accounts in the balance sheet. Adjusted net debt excludes lease liabilities.

 

 

Billings and estimated net new billings

Billings comprise the gross amounts billed to clients in respect of commission-based/fee-based income together with the total of other fees earned. Net new billings represent the estimated annualised impact on billings of new business gained from both existing and new clients, net of existing client business lost. The estimated impact is based upon initial assessments of the clients’ marketing budgets, which may not necessarily result in actual billings of the same amount.

 

 

 

Constant currency

The Group uses US dollar-based, constant currency models to measure performance. These are calculated by applying budgeted 2021 exchange rates to local currency reported results for the current and prior year, which excludes any variances attributable to foreign exchange rate movements.

 

 

Exceptional gains/losses

Exceptional gains/losses include gains/losses on disposal of investments and subsidiaries, gains/losses on remeasurement of equity interests arising from a change in scope of ownership, investment and other impairment (reversals)/charges, litigation settlement, restructuring and transformation costs, restructuring costs in relation to COVID-19 and share of exceptional gains/losses of associates.

 

 

Free cash flow

Free cash flow is calculated as cash generated by operations plus dividends received from associates, interest received, investment income received, and proceeds from the issue of shares, less corporation and overseas tax paid, interest and similar charges paid, dividends paid to non-controlling interests in subsidiary undertakings, repayment of lease liabilities (including interest), earnout payments and purchases of property, plant and equipment and purchases of other intangible assets.

 

 

General and administrative costs

General and administrative costs include marketing costs, certain professional fees, and an allocation of other costs, including staff and establishment costs, based on the function of employees within the Group.

 

 

Headline earnings

Headline PBT less headline tax charge and non-controlling interests.

 

 

Headline EBITDA

 

Profit before finance income/costs and revaluation and retranslation of financial instruments, taxation, gains/losses on disposal of investments and subsidiaries, investment and other impairment (reversals)/charges, goodwill impairment and other goodwill write-downs, amortisation and impairment of acquired intangible assets, amortisation of other intangibles, depreciation of property, plant and equipment, depreciation of right-of-use assets, restructuring and transformation costs, restructuring costs in relation to COVID-19, litigation settlement, share of exceptional gains/losses of associates and gains/losses on remeasurement of equity interests arising from a change in scope of ownership.

 

 

Headline non-controlling interests

Non-controlling interests excluding non-controlling interests relating to restructuring costs in relation to COVID-19.

 

 

Headline operating profit

Operating profit before gains/losses on disposal of investments and subsidiaries, investment and other impairment (reversals)/charges, goodwill impairment and other goodwill write-downs, amortisation and impairment of acquired intangible assets, restructuring and transformation costs, restructuring costs in relation to COVID-19, litigation settlement, and gains/losses on remeasurement of equity interests arising from a change in scope of ownership.

 

 

Headline PBIT

Profit before finance income/costs and revaluation and retranslation of financial instruments, taxation, gains/losses on disposal of investments and subsidiaries, investment and other impairment (reversals)/charges, goodwill impairment and other goodwill write-downs, amortisation and impairment of acquired intangible assets, restructuring and transformation costs, restructuring costs in relation to COVID-19, litigation settlement, share of exceptional gains/losses of associates and gains/losses on remeasurement of equity interests arising from a change in scope of ownership.

 

 

Headline operating profit margin

Headline operating profit margin is calculated as headline operating profit as a percentage of revenue less pass-through costs.

 

Headline PBT

Profit before taxation, gains/losses on disposal of investments and subsidiaries, investment and other impairment (reversals)/charges, goodwill impairment and other goodwill write-downs, amortisation and impairment of acquired intangible assets, restructuring and transformation costs, restructuring costs in relation to COVID-19, litigation settlement, share of exceptional gains/losses of associates, gains/losses arising from the revaluation and retranslation of financial instruments and gains/losses on remeasurement of equity interests arising from a change in scope of ownership.

 

 

 

Headline tax charge

 

Taxation excluding tax/deferred tax relating to gains/losses on disposal of investments and subsidiaries, investment and other impairment (reversals)/charges, goodwill impairment and other goodwill write-downs, restructuring and transformation costs, restructuring costs in relation to COVID-19, litigation settlement, and the deferred tax impact of the amortisation of acquired intangible assets and other goodwill items.

 

 

Net working capital

The movement in net working capital consists of movements in trade working capital and movements in other working capital and provisions per the analysis of cash flows note.

 

 

Pass-through costs

 

Pass-through costs comprise fees paid to external suppliers where they are engaged to perform part or all of a specific project and are charged directly to clients, predominantly media costs.

 

Pro forma (‘like-for-like’)

 

Pro forma 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 include the results of acquisitions and disposals, the reclassification of certain businesses to associates in 2021 and the restatement of agency arrangements under IFRS 15 for the commensurate period in the prior year. The Group uses the terms ‘pro forma’ and ‘like-for-like’ interchangeably.

 

 

Revenue less pass-through costs

 

Revenue less pass-through costs is revenue less media and other pass-through costs.

 

 

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 and the reclassification of certain businesses to associates in 2021 and the reassessment of agency arrangements under IFRS 15 for the commensurate period in the prior year.

3 Figures have been restated as described in the accounting policies in Appendix 1.

4 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.

5 Billings, as defined in the glossary on page 45.

6 All references to estimates and forecasts for advertising spend exclude US political advertising

7 Generation Z: Building a Better Normal, Wunderman Thompson Intelligence, December 2020

8 Kantar Purpose 2020 Report

9 Figures have been restated as described in the accounting policies in Appendix 1.

10 Certain businesses were reclassified to associates as the Group no longer controls them. In addition, certain media billings recognised as revenue earlier in the year have been re-assessed under IFRS 15: “Revenue from Contracts with Customers” and have been excluded from revenue, but have no impact on revenue less pass-through costs. There are no adjustments to previously reported revenue in the first three quarters of 2021 or the 2020 financial year.

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

 

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	WPP PLC
	(Registrant)
Date: 24 February 2022	By:  ______________________
	Balbir Kelly-Bisla
	Company Secretary

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