20-F 1 d10820d20f.htm 20-F 20-F
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

(Mark One)

 

  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended 31 December 2020

 

OR

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report                 

 

For the transition period from                  to                 

 

 

Commission file number 001-38303

 

WPP plc

(Exact Name of Registrant as specified in its charter)

 

Jersey

(Jurisdiction of incorporation or organization)

 

Sea Containers, 18 Upper Ground

London, United Kingdom, SE1 9GL

(Address of principal executive offices)

 

Andrea Harris

Group Chief Counsel

Sea Containers, 18 Upper Ground, London, United Kingdom, SE1 9GL

Telephone: +44(0) 20 7282 4600

E-mail: andrea.harris@wpp.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

  

Trading Symbol (s)

  

Name of each exchange on which registered

Ordinary Shares of 10p each

American Depositary Shares, each

representing five Ordinary Shares (ADSs)

  

WPP

WPP

  

London Stock Exchange

New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

 

Not applicable

 

(Title of Class)

 

Not applicable

 

(Title of Class)


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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

None

 

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

At December 31, 2020, the number of outstanding ordinary shares was 1,225,332,142 which included at such date ordinary shares represented by 13,240,935 ADSs.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

YES  ☒    NO  ☐

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

YES  ☐    NO  ☒

 

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES  ☒    NO  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

YES  ☒    NO  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Emerging growth company

 

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

 

    The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ☐

   International Financial Reporting Standards as issued by the
International Accounting Standards Board  ☒
   Other  ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17  ☐    Item 18  ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

YES  ☐    NO  ☒

 

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  

FORWARD – LOOKING STATEMENTS

     1  

Part I

     1  

  Item 1

  

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     1  

  Item 2

  

OFFER STATISTICS AND EXPECTED TIMETABLE

     1  

  Item 3

  

KEY INFORMATION

     1  
   A   

Selected Financial Data

     2  
   B   

Capitalization and Indebtedness

     2  
   C   

Reasons for the Offer and Use of Proceeds

     2  
   D   

Risk Factors

     2  

  Item 4

  

INFORMATION ON THE COMPANY

     5  
   A   

History and Development of the Company

     6  
   B   

Business Overview

     7  
   C   

Organizational Structure

     12  
   D   

Property, Plant and Equipment

     13  

  Item 4A

  

UNRESOLVED STAFF COMMENTS

     13  

  Item 5

  

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     13  
   A   

Operating Results

     14  
   B   

Liquidity and Capital Resources

     20  
   C   

Research and Development, Patents and Licenses, etc.

     24  
   D   

Trend Information

     24  
   E   

Off-Balance Sheet Arrangements

     24  
   F   

Tabular Disclosure of Contractual Obligations

     25  

  Item 6

  

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     34  
   A   

Directors and Senior Management

     34  
   B   

Compensation

     37  
   C   

Board Practices

     41  
   D   

Employees

     51  
   E    Share Ownership      52  

  Item 7

  

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     53  
   A   

Major Shareholders

     53  
   B   

Related Party Transactions

     54  
   C   

Interests of Experts and Counsel

     54  

  Item 8

  

FINANCIAL INFORMATION

     54  
   A   

Consolidated Statements and Other Financial Information

     54  
   B   

Significant Changes

     54  

  Item 9

  

THE OFFER AND LISTING

     55  
   A   

Offer and Listing Details

     55  
   B   

Plan of Distribution

     55  
   C   

Markets

     55  
   D   

Selling Shareholders

     55  
   E   

Dilution

     55  
   F   

Expenses of the Issue

     55  


Table of Contents
     Page  

  Item 10

  

ADDITIONAL INFORMATION

     55  
   A   

Share Capital

     55  
   B   

Memorandum and Articles of Association

     55  
   C   

Material Contracts

     55  
   D   

Exchange Controls

     59  
   E   

Taxation

     59  
   F   

Dividends and Paying Agents

     65  
   G   

Statements by Experts

     65  
   H   

Documents on Display

     65  
   I   

Subsidiary Information

     65  

  Item 11

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     66  

  Item 12

  

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     66  
   A   

Debt Securities

     66  
   B   

Warrants and Rights

     66  
   C   

Other Securities

     66  
   D   

American Depositary Shares

     66  

Part II

     69  

  Item 13

  

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     69  

  Item 14

  

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     69  

  Item 15

  

CONTROLS AND PROCEDURES

     69  

  Item 16A

  

AUDIT COMMITTEE FINANCIAL EXPERT

     73  

  Item 16B

  

CODE OF ETHICS

     73  

  Item 16C

  

PRINCIPAL ACCOUNTANT FEES AND SERVICES

     74  

  Item 16D

  

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     74  

  Item 16E

  

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     75  

  Item 16F

  

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

     75  

  Item 16G

  

CORPORATE GOVERNANCE

     75  

  Item 16H

  

MINE SAFETY DISCLOSURE

     77  

Part III

     77  

  Item 17

  

FINANCIAL STATEMENTS

     77  

  Item 18

  

FINANCIAL STATEMENTS

     78  

  Item 19

  

EXHIBITS

     78  


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Forward-Looking Statements

 

In connection with the provisions of the U.S. Private Securities Litigation Reform Act of 1995 (the ‘Reform Act’), the Company may include forward-looking statements (as defined in the Reform Act) in oral or written public statements issued by or on behalf of the Company. These forward-looking statements may include, among other things, plans, objectives, beliefs, intentions, strategies, projections and anticipated future economic performance based on assumptions and the like that are subject to risks and uncertainties. These statements can be identified 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 similar references to future periods but are not the exclusive means of identifying such statements. As such, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Company. Actual results or outcomes may differ materially from those discussed or implied in the forward-looking statements. Therefore, you should not rely on such forward-looking statements, which speak only as of the date they are made, as a prediction of actual results or otherwise. Important factors which may cause actual results to differ include but are not limited to: the impact of outbreaks, epidemics or pandemics, such as the Covid-19 pandemic and ongoing challenges and uncertainties posed by the Covid-19 pandemic for businesses and governments around the world; 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; changes in competitive factors in the industries in which we operate and demand for our products and services; our inability to realise the future anticipated benefits of acquisitions; failure to realise our assumptions regarding goodwill and indefinite lived intangible assets; natural disasters or acts of terrorism; the Company’s ability to attract new clients; the UK’s exit from the EU; the risk of global economic downturn; technological changes and risks to the security of IT and operational infrastructure, systems, data and information resulting from increased threat of cyber and other attacks; 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 in Item 3D, captioned “Risk Factors,” 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. Neither the Company, nor any its directors, officers or employees, provides any representation, assurance or guarantee that the occurrence of any events anticipated, expressed or implied in any forward-looking statements will actually occur. The Company undertakes no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.

 

PART I

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3.

KEY INFORMATION

 

Overview

 

WPP plc and its subsidiaries (WPP) is a leading worldwide creative transformation organisation offering national and multinational clients a comprehensive range of communications, experience, commerce and technology services. At 31 December 2020, the Group, excluding associates, had 99,830 employees. For the year ended 31 December 2020, the Group had revenue of £12,002.8 million and operating loss of £2,278.1 million.

 

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Unless the context otherwise requires, the terms “Company”, “Group” and “Registrant” as used herein shall also mean WPP.

 

A. Selected Financial Data

 

[Reserved]

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D. Risk Factors

 

The Company is subject to a variety of possible risks that could adversely impact its revenues, results of operations, reputation or financial condition. Some of these risks relate to the industries in which the Company operates while others are more specific to the Company. The table below sets out principal risks the Company has identified that could adversely affect it. See also the discussion of Forward-Looking Statements preceding Item 1.

 

   
Principal risk    Potential impact
Covid-19 Pandemic     

The coronavirus pandemic negatively impacted our business, revenues, results of operations, financial condition and prospects in 2020. 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, government actions to mitigate the effects of the pandemic and the intermediate and long-term impact of the pandemic on our clients’ spending plans.

 

  

The Covid-19 pandemic and the measures to contain its spread, may have a continuing adverse effect on our business, revenues, results of operations and financial condition and prospects.

 

Strategic risks     

The failure to successfully complete the strategic plan updated in December 2020 to return the business to growth and simplify our structure.

 

  

A failure or delay in implementing or realising the benefits from the transformation plan and/or returning the business to growth may have a material adverse effect on our market share and our business, revenues, results of operations, financial condition or prospects.

 

Operational risks     
Clients     

We compete for clients in a highly competitive industry which has been evolving and undergoing structural change, now accelerated by the Covid-19 pandemic. Client loss to competitors or as a consequence of client consolidation, insolvency or a reduction in marketing budgets due to recessionary economic conditions or a shift in client spending would have a material adverse effect on our market share, business, revenues, results of operations, financial condition and prospects.

 

  

The competitive landscape in our industry is constantly evolving and the role of traditional agencies is being challenged. Competitors include multinational advertising and marketing communication groups, marketing services companies, database marketing information and measurement, social media and professional services and consultants and consulting internet companies.

 

Client contracts can generally be terminated on 90 days’ notice or are on an assignment basis and clients put their business up for competitive review from time to time. The ability to attract new clients and to retain or increase the amount of work from existing clients may be impacted if we fail to react quickly enough to changes in the market and to evolve our structure, and by loss of reputation, and may be limited by clients’ policies on conflicts of interest.

 

 

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Principal risk    Potential impact
    

There are a range of different impacts on our clients globally as a consequence of the Covid-19 pandemic. In the past, clients have responded to weak economic and financial conditions by reducing or shifting their marketing budgets which are easier to reduce in the short term than their other operating expenses.

 

We receive a significant portion of our 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 our prospects, business, financial condition and results of operations.

 

  

A relatively small number of clients contribute a significant percentage of our consolidated revenues. Our ten largest clients accounted for 16% of revenues in the year ended 31 December 2020. Clients can reduce their marketing spend, terminate contracts, or cancel projects on short notice. The loss of one or more of our largest clients, if not replaced by new accounts or an increase in business from existing clients, would adversely affect our financial condition.

 

People, culture and succession     

Our 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 creative, commercial, technology and management talent, or are unable to retain and incentivise key and diverse talent.

 

  

We are highly dependent on the talent, creative abilities and technical skills of our people as well as their relationships with clients. We are vulnerable to the loss of people to competitors (traditional and emerging) and clients, leading to disruption to the business.

 

Cyber and information security     

We are 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 portion of our worldwide information technology and operations functions. A failure to provide these functions could have an adverse effect on our business. During the transformation, we are still reliant on legacy systems which could restrict our ability to change rapidly.

 

A cyber-attack could result in disruption to one or more of our businesses or the security of data being compromised.

 

  

We may be subject to investigative or enforcement action or legal claims or incur fines, damages, or costs and client loss if we fail to adequately protect data. A system breakdown or intrusion could have a material adverse effect on our business, revenues, results of operations, financial condition or prospects and have an impact on long-term reputation and lead to client loss.

 

A significant number of the Group’s people are working 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     
Credit risk     
We are subject to credit risk through the default of a client or other counterparty.   

We are generally paid in arrears for our services. Invoices are typically payable within 30 to 60 days.

 

We commit to media and production purchases on behalf of some of our clients as principal or agent depending on the client and market circumstances. If a client is unable to pay sums due, media and production companies may look to us to pay those amounts and there could be an adverse effect on our working capital and operating cash flow.

 

Internal controls     

Our performance could be adversely impacted if we failed to ensure adequate internal control procedures are in place.

 

We have identified material weaknesses in our internal control over financial reporting that, if not properly remediated, could adversely affect our results of operations, investor confidence in the Group and the market price of our ADSs and ordinary shares.

  

Failure to ensure that our businesses have robust control environments, or that the services we provide and trading activities within the Group are compliant with client obligations, could adversely impact client relationships and business volumes and revenues.

 

As disclosed in Item 15, in connection with the Group’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2020, we identified material weaknesses in our internal control over financial reporting with respect to management’s review of the impairment assessment of intangible assets and goodwill (specifically the selection of appropriate discount rates for use in the impairment calculations, the determination of the appropriateness of the cash flow

 

 

3


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Principal risk    Potential impact
    

periods and associated discounting and determination of the assumptions in respect of working capital cash flows, in each case used in the impairment calculation); the design and implementation of internal controls to ensure that the complex accounting matters and judgements are assessed against the requirements of IFRS and to reflect changes in the applicable accounting standards and interpretations or changes in the underlying business on a timely basis; and our net investment hedging arrangements (specifically concerning the eligibility of hedging relationships under IFRS, the adequacy and maintenance of contemporaneous documentation of the application of hedge accounting, and the review of the impact of changes in internal financing structures on such hedging relationships). As a result of such material weaknesses, we concluded that our internal control over financial reporting was not effective.

 

If remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses in internal control are discovered or occur in the future, our ability to accurately record, process and report financial information and consequently, our ability to prepare financial statements within required time periods, could be adversely affected. In addition, the Group may be unable to maintain compliance with the federal securities laws and NYSE listing requirements regarding the timely filing of periodic reports. Any of the foregoing could cause investors to lose confidence in the reliability of our financial reporting, which could have a negative effect on the trading price of the Group’s ADSs and ordinary shares.

 

Compliance risks     
Data Privacy     

We are subject to strict data protection and privacy legislation in the jurisdictions in which we operate and rely extensively on information technology systems. We store, transmit and rely on critical and sensitive data such as strategic plans, personally identifiable information and trade secrets:

 

-   Security of this type of data is exposed to escalating external threats that are increasing in sophistication, as well as internal data breaches.

 

-   Data transfers between our global operating companies, clients or vendors may be interrupted due to changes in law (eg EU adequacy decisions, CJEU Schrems II decision)

 

  

We may be subject to investigative or enforcement action or legal claims or incur fines, damages, or costs and client loss if we fail to adequately protect data or observe privacy legislation in every instance:

 

-   A system breakdown or intrusion could have a material adverse effect on our business, revenues, results of operations, financial condition or prospects

 

-   Restrictions or limitations on international data transfers could have an adverse effect on our business and operations.

Taxation     
We may be subject to regulations restricting our activities or effecting changes in taxation.   

Changes in local or international tax rules, for example as a consequence of the financial support programmes implemented by governments during the Covid-19 pandemic, changes arising from the application of existing rules, or challenges by tax or competition authorities, may expose us to significant additional tax liabilities or impact the carrying value of our deferred tax assets, which would affect the future tax charge.

 

Regulatory     
We are subject to strict anti-corruption, anti-bribery and anti-trust legislation and enforcement in the countries in which we operate.   

We operate in a number of markets where the corruption risk has been identified as high by groups such as Transparency International. Failure to comply or to create a culture opposed to corruption or failing to instil business practices that prevent corruption could expose us to civil and criminal sanctions.

 

 

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Principal risk    Potential impact
Sanctions     

We are subject to the laws of the United States, the EU and other jurisdictions that impose sanctions and regulate the supply of services to certain countries.

 

  

Failure to comply with these laws could expose us to civil and criminal penalties including fines and the imposition of economic sanctions against us and reputational damage and withdrawal of banking facilities which could materially impact our results.

 

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 Company is a public limited company incorporated under the laws of Jersey. Some of the Company’s directors and officers reside outside of the United States. In addition, a substantial portion of the directly owned assets of the Company are located outside of the United States. As a result, it may be difficult or impossible for investors to effect service of process within the United States against the Company or its directors and officers or to enforce against them any of the judgements, including those obtained in original actions or in actions to enforce judgements of the United States courts, predicated upon the civil liability provisions of the federal or state securities laws of the United States.

 

Emerging risks     
Increased frequency of extreme weather and climate-related natural disasters.   

This includes storms, flooding, wildfires and water and heat stress which can damage our buildings, jeopardise the safety of our people and significantly disrupt our operations. At present 10% of our headcount is located in countries at “extreme” risk from the physical impacts of climate change in the next 30 years.

 

Increased reputational risk associated with working on environmentally detrimental client briefs and/or misrepresenting environmental claims.   

As consumer consciousness around climate change rises, our sector is seeing increased scrutiny of our role in driving unsustainable consumption. Our clients seek expert partners who can give recommendations that take into account stakeholder concerns around climate change.

 

Additionally, WPP serves some clients whose business models are under increased scrutiny, for example oil and gas companies or associated industry groups who are not actively decarbonising. This creates both a reputational and related financial risk for WPP if we are not rigorous in our content standards as we grow our sustainability-related services.

 

 

ITEM 4.

INFORMATION ON THE COMPANY

 

WPP is a leading worldwide creative transformation company offering national and multinational clients a comprehensive range of communications, experience, commerce and technology services. The Company provides these services through a number of established global, multinational and national operating companies that are organised into three reportable segments. The largest reportable segment is Global Integrated Agencies, which accounted for approximately 78% of the Company’s revenues in 2020. The remaining 22% of our revenues were derived from the reportable segments of Public Relations and Specialist Agencies. Excluding associates, the Company currently employs 100,000 people in 111 countries.

 

The Company’s ordinary shares are admitted to the Official List of the UK Listing Authority and trade on the London Stock Exchange and American Depositary Shares (which are evidenced by American Depository Receipts (ADRs) or held in book-entry form) representing deposited ordinary shares are listed on the New York Stock Exchange (NYSE). At 31 December 2020 the Company had a market capitalisation of approximately £9.803 billion.

 

The Company’s executive office is located at Sea Containers, 18 Upper Ground, London, United Kingdom, SE1 9GL, Tel:+44 (0)20 7282 4600 and its registered office is located at 13 Castle Street, St Helier, Jersey, JE1 1ES.

 

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A. History and Development of the Company

 

WPP plc was incorporated in Jersey on 25 October 2012 under the name WPP 2012 plc.

 

On 2 January 2013, under a scheme of arrangement between WPP 2012 Limited (formerly known as WPP plc), (Old WPP), the former holding company of the Group, and its share owners pursuant to Article 125 of the Companies (Jersey) Law 1991, and as sanctioned by the Royal Court of Jersey (the Jersey Court), a Jersey incorporated and United Kingdom tax resident company, WPP 2012 plc became the new parent company of the WPP Group and adopted the name WPP plc. Under the scheme of arrangement, all the issued shares in Old WPP were cancelled and the same number of new shares were issued to WPP plc in consideration for the allotment to share owners of one share in WPP plc for each share in Old WPP held on the record date, 31 December 2012. Citibank, N.A., depositary for the ADSs representing Old WPP shares, cancelled Old WPP ADSs held in book-entry uncertificated form in the direct registration system maintained by it and issued ADSs representing shares of WPP plc in book entry uncertificated form in the direct registration system maintained by it to the holders. Holders of certificated ADSs, or ADRs, of Old WPP were entitled to receive ADSs of WPP plc upon surrender of the Old WPP ADSs, or ADRs, to the Depositary. Each Old WPP ADS represented five shares of Old WPP and each WPP plc ADS represents five shares of WPP plc.

 

Pursuant to Rule 12g-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act), WPP plc succeeded to Old WPP’s registration and periodic reporting obligations under the Exchange Act.

 

Old WPP was incorporated in Jersey on 12 September 2008 and became the holding company of the WPP Group on 19 November 2008 when the company now known as WPP 2008 Limited, the prior holding company of the WPP Group which was incorporated in England and Wales, completed a reorganisation of its capital and corporate structure. WPP 2008 Limited had become the holding company of the Group on 25 October 2005 when the company now known as WPP 2005 Limited, the original holding company of the WPP Group, completed a reorganisation of its capital and corporate structure. WPP 2005 Limited was incorporated and registered in England and Wales in 1971 and is a private limited company under the Companies Act 1985, and until 1985 operated as a manufacturer and distributor of wire and plastic products. In 1985, new investors acquired a significant interest in WPP and changed the strategic direction of the Company from being a wire and plastic products manufacturer and distributor to being a multinational communications services organisation. Since then, the Company has grown both organically and by the acquisition of companies, most significantly the acquisitions of J. Walter Thompson Group, Inc. (now known as Wunderman Thompson LLC) in 1987, The Ogilvy Group, Inc. (now known as The Ogilvy Group LLC) in 1989, Young & Rubicam Inc. (now known as Young & Rubicam LLC) in 2000, Tempus Group plc (Tempus) in 2001, Cordiant Communications Group plc (Cordiant) in 2003, Grey Global Group, LLC (Grey) in 2005, 24/7 Real Media Inc (now known as Xaxis LLC) in 2007, Taylor Nelson Sofres plc (TNS) in 2008, AKQA Holdings, Inc. (AKQA) in 2012, IBOPE Participações Ltda (IBOPE) in 2015, Triad Digital Media, LLC and the merger of most of the Group’s Australian and New Zealand assets with STW Communications Group Limited in Australia (re-named WPP AUNZ Limited) in 2016. During 2018, the Company focused on simplifying its organisation with the completion of the merger of VML and Y&R to create VMLY&R as well as the merger of Burson-Marsteller and Cohn & Wolfe to create Burson Cohn & Wolfe. The merger of Wunderman and J. Walter Thompson to create Wunderman Thompson began at the end of 2018 and was finalized in 2019. In July 2019, the Company entered into an agreement to sell 60% of the Kantar group to Bain Capital Private Equity. The transaction was completed with respect to the sale of approximately 90% of the Kantar group in December 2019. Completion of the sale of the remaining approximately 10% of the Kantar group occurred in 2020. In November 2020, the Company submitted a proposal to the Board of WPP AUNZ to pursue an acquisition of the remaining shares in WPP AUNZ. WPP currently holds a stake of approximately 61.5% of the share capital of WPP AUNZ, which is listed on the Australian Securities Exchange (ASX:WPP). The proposed acquisition is in line with WPP’s global strategy of simplifying its structure and will move WPP to 100% ownership and control of its Australian and New Zealand operations. The proposal of A$0.70 per share in cash, which was accepted by WPP AUNZ in December 2020 and approved by shareholders of WPP AUNZ in April 2021, is subject to customary conditions (including regulatory approvals) and, if implemented, is expected to be completed in 2021.

 

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The Company received £13.3 million, £1,917.0 million and £440.3 million related to acquisitions and disposals in 2020, 2019 and 2018, respectively, including proceeds on disposal of investments and subsidiaries, payments in respect of earnout payments resulting from acquisitions in prior years and net of cash and cash equivalents disposed. For the same periods, cash spent on purchases of property, plant and equipment and other intangible assets was £272.7 million, £394.1 million and £375.2 million, respectively, and cash spent on share repurchases and buybacks was £290.2 million, £43.8 million and £207.1 million, respectively.

 

The Company is subject to the informational requirements of the Exchange Act. In accordance with these requirements, the Company files reports and other information with the United States Securities and Exchange Commission. You may read and copy any materials filed with the SEC at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC. The Company’s Form 20-F is also available on the Company’s website, www.wpp.com.

 

B. Business Overview

 

Introduction

 

Certain Non-GAAP measures included in this business overview and in the operating and financial review and prospects have been derived from amounts calculated in accordance with IFRS but are not themselves IFRS measures. They should not be viewed in isolation as alternatives to the equivalent IFRS measure, rather they should be read in conjunction with the equivalent IFRS measure. These include constant currency, pro-forma (‘like-for-like’), headline operating profit, headline PBIT (Profit Before Interest and Taxation), headline PBT (Profit Before Taxation), billings and estimated net new business/billings, free cash flow and net debt and average net debt, which we define, explain the use of and reconcile to the nearest IFRS measure on pages 25 to 29.

 

Management believes that these measures are both useful and necessary to present herein because 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.

 

The Company is a leading worldwide creative transformation organisation offering national and multinational clients a comprehensive range of communications, experience, commerce and technology services.

 

A key element of our strategy is to align our technology capabilities more closely with our creative expertise, and to simplify WPP through the creation of fewer, stronger, integrated agencies. In 2020, we announced we would bring AKQA and Grey together within AKQA Group, and move Geometry into VMLY&R to create VMLY&R Commerce, a new end-to-end creative commerce agency. These moves follow the creation of Wunderman Thompson and VMLY&R in prior years. In 2020 we also announced changes within our public relations business, bringing together three of our agencies to form Finsbury Glover Hering, a leading global strategic communications and public affairs firm.

 

Global Integrated Agencies

 

The principal functions of integrated agencies are the planning and creation of marketing, branding campaigns, design and production of advertisements across all media, and media buying services including strategy & business development, media investment, data & technology and content. In 2020, WPP’s integrated agency networks included Ogilvy, VMLY&R, Wunderman Thompson, Grey, GroupM and Hogarth. Following the alignment of AKQA and Grey and the creation of VMLY&R Commerce, from January 2021 AKQA and VMLY&R Commerce will be reported within Global Integrated Agencies.

 

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Public Relations

 

WPP’s public relations companies advise clients who are seeking to communicate with a range of stakeholders from consumers to governments and the business and financial communities. They include Burson Cohn & Wolfe (BCW), Hill+Knowlton Strategies, as well as Finsbury Glover Hering.

 

Specialist Agencies

 

Our specialist agencies provide services by region or type. In 2020, they included AKQA, GTB, Landor & Fitch and Superunion. From January 2021, AKQA will be reported within Global Integrated Agencies.

 

The following tables show, for the last three fiscal years, reported revenue and revenue less pass-through costs from continuing operations attributable to each reportable segment in which the Company operates.

 

Revenue1    2020      2019      2018  
      £m     

% of

total

     £m     

% of

total

     £m     

% of

total

 

Global Integrated Agencies

     9,302.5        77.5        10,205.2        77.1        9,930.7        76.1  

Public Relations

     892.9        7.4        956.5        7.2        931.7        7.1  

Specialist Agencies

     1,807.4        15.1        2,072.4        15.7        2,184.3        16.8  

Total

     12,002.8        100.0        13,234.1        100.0        13,046.7        100.0  
1    

Intersegment sales have not been separately disclosed as they are not material.

 

Revenue less pass-through costs1    2020      2019      2018  
      £m     

% of

total

     £m     

% of

total

     £m     

% of

total

 

Global Integrated Agencies

       7,318.5          75.0          8,108.1          74.7          8,070.8          74.2  

Public Relations

     854.4        8.7        898.0        8.3        879.9        8.1  

Specialist Agencies

     1,589.1        16.3        1,840.4        17.0        1,925.0        17.7  
1    

Revenue less pass-through costs is revenue less media and other 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. See note 3 to the consolidated financial statements for more details of the pass-through costs.

 

The following tables show, for the last three fiscal years, reported revenue and revenue less pass-through costs from continuing operations attributable to each geographic area in which the Company operates and demonstrates the Company’s regional diversity.

 

Revenue1    2020      2019      2018  
      £m     

% of

total

     £m     

% of

total

     £m     

% of

total

 

North America2

     4,464.9        37.3        4,854.7        36.7        4,851.7        37.2  

United Kingdom

     1,637.0        13.6        1,797.1        13.6        1,785.6        13.7  

Western Continental Europe

     2,441.6        20.3        2,628.8        19.8        2,589.6        19.8  

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

     3,459.3        28.8        3,953.5        29.9        3,819.8        29.3  

Total

     12,002.8        100.0        13,234.1        100.0        13,046.7        100.0  
1    

Intersegment sales have not been separately disclosed as they are not material.

2   

North America includes the United States with revenue of £4,216.1 million (2019: £4,576.5 million, 2018: £4,576.1 million).

 

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Revenue less pass-through costs1    2020      2019      2018  
      £m     

% of

total

     £m     

% of

total

     £m     

% of

total

 

North America2

     3,743.4        38.4        4,034.3        37.2        4,059.7        37.3  

United Kingdom

     1,233.8        12.6        1,390.1        12.8        1,393.8        12.8  

Western Continental Europe

     2,019.4        20.7        2,176.4        20.1        2,182.9        20.1  

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

     2,765.4        28.3        3,245.7        29.9        3,239.3        29.8  
1    

Revenue less pass-through costs is revenue less media and other 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. See note 3 to the consolidated financial statements for more details of the pass-through costs.

2   

North America includes the United States with revenue less pass-through costs of £3,524.8 million (2019: £3,806.3 million, 2018: £3,836.0 million).

 

WPP Head Office

 

The central functions of WPP, with principal offices in London and New York, are to develop the strategy of the Company, coordinate the provision of services to cross-Company clients, perform a range of cross-Company functions in areas such as new business, talent recruitment and development, training, IT, finance, audit, legal affairs, mergers & acquisitions (M&A), property, sustainability, investor relations and communications, promote best practice in areas such as our agencies’ approach to diversity and inclusion, drive operating efficiencies and monitor the financial performance of WPP’s operating companies.

 

Our strategy

 

It has been two years since we set out our strategy to return WPP to growth. We have made significant progress, with stronger agency brands, new leadership, a simpler structure and a strong balance sheet. The results were evident in our industry-leading new business performance in 2020.

 

The events of 2020 have only accelerated the structural changes in our industry, from the expansion of digital channels to growing demand for ecommerce solutions. The actions that we have taken have positioned us well, and we are already working with 76 of our top 100 clients on ecommerce. There are significant new growth opportunities for WPP as clients demand simple, integrated solutions that combine creativity with technology and data expertise. Clients need trusted partners more than ever to help them transform and succeed.

 

In December 2020, we held a Capital Markets Day to provide an update on progress and to outline our plans to accelerate our growth. We aim to return our communications business to sustainable growth and invest further in the high-growth areas of commerce, experience and technology. A new transformation programme will make us more effective and efficient as we share expertise across a simpler company of stronger agency brands. We are targeting approximately £600 million of cost savings by 2025, of which £400 million will be used to fund investment in the capabilities and technology that will drive future growth for our people, our clients, our agencies, and our shareholders.

 

The five elements of our corporate strategy are:

 

   

Vision & Offer. A vision developed with our people and clients and a modern offer to meet the needs of our clients in a rapidly changing market.

 

   

Creativity. A renewed commitment to creativity, WPP’s most important competitive advantage.

 

   

Data & Technology. Harnessing the strength of marketing and advertising technology, and our unique partnerships with leading technology firms.

 

   

Simpler Structure. Reducing complexity and making sure our clients can access the best resources from across the Company.

 

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People & Culture. Investment in our people, culture and values to ensure WPP is the natural home for the best and brightest talent.

 

Sustainability

 

We have set a new sustainability strategy that directs us to use the power of creativity to build better futures for our people, planet, clients and communities. It sets out the action we are taking to make sure we are the employer of choice for all people – a company where a sense of belonging is felt by everyone, and our differences are celebrated. And it shows how we are tackling the greatest environmental challenges we face, committing to reach net zero carbon emissions across our value chain by 2030.

 

We know our clients also recognise these challenges and are looking for support and advice. That is why we are increasing our skills and capacity to assist them to make the transition to a sustainable and inclusive world. As an employer of 100,000 people in more than 100 countries, we are using our unique convening power and global partnerships to effect positive change for society as a whole. That is why we are proud to partner with the United Nations, especially the World Health Organization and UN Women, to provide our skills in creativity, communications, data and technology to support them as they support the world.

 

There has never been a better time to seize the opportunities before us. We are determined to do our very best to realise this potential.

 

Our sustainability strategy is aligned to all five elements of our corporate strategy:

 

   

Vision & Offer.

Sustainability at the heart of our offer for clients: A growing number of clients are embracing inclusion, diversity and sustainability and looking to articulate the purpose of their brands. They look for partners who share their sustainability values and aspirations. Our commitment to responsible and sustainable business practices helps us to broaden and deepen these partnerships, and to meet the growing expectations and sustainability requirements in client procurement processes.

 

   

Creativity.

Social investment: Our pro bono work can make a significant difference to charities and non-governmental organisations (NGOs), enabling our partners to raise awareness and funds, recruit members, and achieve campaign objectives. Pro bono work benefits our business too, providing rewarding creative opportunities for our people that often result in award-winning campaigns that raise the profile of our companies.

 

Diverse, equitable and inclusive teams: Diversity and difference powers creativity. We foster an inclusive culture across WPP: one that is equitable, tolerant and respectful of diverse thoughts and individual expression. We want all of our people to feel valued and able to fulfil their potential, regardless of background, lived experience, sex, gender, race and ethnicity, thinking style, sexual orientation, age, religion, disability, family status and so much more.

 

   

Data & Technology.

Privacy and data ethics: Data – including consumer data – can play an essential role in our work for clients. Data security and privacy are increasingly high-profile topics for regulators, consumers and our clients. We have a responsibility to look after this data carefully, to collect data only when needed and with consent where required, and to store and transfer data securely.

 

   

Simpler Structure.

Greener office space: Our work to simplify our structure and consolidate our office space is driving a positive impact on our energy use and carbon footprint. We continue to move employees into Campuses, closing multiple smaller sites and replacing them with fewer, larger, more environmentally friendly buildings that offer modern, world-class workspaces.

 

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People & Culture.

Shared values across our business and supply chain: Strong employment policies, investment in skills and inclusive working practices help us recruit, motivate and develop the talented people we need to serve our clients in all disciplines across our locations. Selecting suppliers and partners who adopt standards consistent with our own can reduce costs, improve efficiency and protect our reputation.

 

Clients

 

   

Recognising our clients’ growing focus on sustainable products and practices, we continue to strengthen our offer to ensure we can provide our clients with the best support and the expertise they need to deliver against their own sustainability ambitions. For example, in 2020 we became a founding member of AdGreen – alongside clients and partners including Google, Sky and Unilever – an initiative to unite the advertising industry to eliminate the negative environmental impacts of production.

 

   

We have established a Diversity Review Panel to provide a forum to escalate concerns around potentially offensive or culturally insensitive work and receive guidance and advice designed to ensure those concerns are appropriately addressed. Our new Inclusive Marketing Playbook and resource library codifies inclusive marketing principles and best practice for communications, marketing and new business projects to train and equip our client leads for the complexity of this issue.

 

People

 

   

We spent £19.7 million on training in 2020.

 

   

At year-end 2020, women comprised 40% of the WPP Board and Executive leadership roles, 51% of Senior Managers, and 55% of total employees.

 

Environment

 

   

WPP is a member of RE100 and has committed to sourcing 100% of its electricity from renewable sources by 2025. In 2020, we purchased 65% of our electricity from renewable sources, including 100% of electricity purchased in the United States and, for the first time, in Canada, UK and most European markets.

 

   

During the year, the Covid-19 pandemic increased global demand for single-use plastics. We remain committed to phasing out plastics that cannot be reused, recycled or composted across all of our offices and Campuses worldwide. To give our offices – many of which were unoccupied for much of 2020 – time to adjust to new safety requirements and consumption patterns, we have extended our timeline to December 2021. We are applying a new level of rigour to how we source products to ensure they comply with our Circular Economy Plastics Policy.

 

   

Our scope 1 and 2 market-based emissions per full-time employee for 2020 were 0.52 tonnes of CO2e/head. This represents a 37% reduction from 2019 of 0.82 tonnes of CO2e/head. The 2019 figures have been restated due to the integration of new best practice carbon emissions reporting and data reviews upon joining RE100.

 

Social investment

 

   

Our pro bono work was worth £12.6 million in 2020 for clients including UN Women and World Health Organization. We also made cash donations to charities of £4.3 million, resulting in a total social investment worth £16.9 million. This is equivalent to 1.6% of headline profit before tax.

 

   

WPP media agencies negotiated free media space worth £59.3 million on behalf of pro bono clients.

 

Clients

 

The Group works with 325 of the Fortune Global 500, all 30 of the Dow Jones 30, 62 of the NASDAQ 100, and 61 of the FTSE 100.

 

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The Company’s 10 largest clients accounted for 16% of the Company’s revenues in the year ended 31 December 2020. No client of the Company represented more than 5% of the Company’s aggregate revenues in 2020. The Group’s companies have maintained long-standing relationships with many of their clients, with an average length of relationship for the top 10 clients of approximately 50 years.

 

Government Regulation

 

From time to time, governments, government agencies and industry self-regulatory bodies in the United States, European Union and other countries in which the Company operates have adopted statutes, regulations, and rulings that directly or indirectly affect the form, content, and scheduling of advertising, public relations and public affairs, and market research, or otherwise limit the scope of the activities of the Company and its clients. Some of the foregoing relate to privacy and data protection and general considerations such as truthfulness, substantiation and interpretation of claims made, comparative advertising, relative responsibilities of clients and advertising, public relations and public affairs firms, and registration of public relations and public affairs firms’ representation of foreign governments.

 

There has been a trend towards expansion of specific rules, prohibitions, media restrictions, labeling disclosures and warning requirements with respect to advertising for certain products, such as over-the-counter drugs and pharmaceuticals, cigarettes, food and certain alcoholic beverages, and to certain groups, such as children. Though the Company does not expect any existing or proposed regulations to have a material adverse impact on the Company’s business, the Company is unable to estimate the effect on its future operations of the application of existing statutes or regulations or the extent or nature of future regulatory action.

 

IT

 

We have established the WPP Risk Sub-committee focusing on data privacy, security and ethics. Co-chaired by WPP’s Chief Privacy Officer and Chief Information Officer, the Sub-committee consists of representation from across the security, technology and data leadership. The Sub-committee is responsible for reviewing and monitoring the Group’s approach to regulatory and legal compliance, as well as monitoring data privacy, ethics and security risk. This Sub-committee is pivotal in our approach to our own and our clients’ data, as well as contributing to our overall strategy.

 

2020 saw the first full-increment version of the WPP Data Privacy & Security Charter. Bringing together our related policies, the Charter communicates our approach to data, setting out core principles for responsible data management through our Data Code of Conduct, our technology, privacy and social media policies, and our security standards (based on ISO 27001).

 

In 2019, we launched the revised data protection and privacy “Safer Data” training as part of the relaunch of the WPP How We Behave training. Completed by all staff, the new training completely overhauls the content and delivery. This training is augmented by subject-focused training, where required, covering specific regulations, regional laws or activities undertaken by our agencies.

 

Our annual Data Health Checker provides us with insight into how data is used, stored and transferred and helps to identify any parts of the business that need further support on data practices. The results show us that the majority of our agencies continue to have mitigation measures that match or exceed their level of privacy risk, with the average risk score being 1.6 out of five, where five is the maximum score possible and indicates maximum risk.

 

C. Organizational Structure

 

The Company’s business comprises the provision of creative transformation services on a national, multinational and global basis. It operates in 111 countries (including associates). For a list of the Company’s subsidiary undertakings and their country of incorporation see Exhibit 8.1 to this Form 20-F.

 

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D. Property, Plant and Equipment

 

The majority of the Company’s properties are leased, although certain properties which are used mainly for office space are owned. Owned properties are in Latin America (principally in Argentina, Brazil, Chile, Mexico, Peru and Puerto Rico), Asia (India and China) and in Europe (Spain and UK). Principal leased properties, which include office space at the following locations:

 

Location   Use    Approximate
square footage
 

3 World Trade Center, New York, NY

  GroupM, Mindshare, Wavemaker, Mediacom, Essence, Xaxis, Kinetic, WPP, Wunderman Thompson, AKQA, Finance+, WPP-IT      690,000  

636 Eleventh Avenue, New York, NY

  Hogarth, MJM, SET (89% vacant held for disposition)      564,000  

399 Heng Feng Road, Zhabei, Shanghai

  Ogilvy, GroupM, Wavemaker, Mediacom, Mindshare, VMLY&R Commerce, Hill+Knowlton Strategies, Global Team Blue, Sudler MDS, Burson Cohn & Wolfe, Peclars, Hogarth, Wunderman Thompson, Superunion, Kinetic      488,000  
Calle de Ríos Rosas, 26, Madrid   GroupM, Grey, WPP Health & Wellness, Ogilvy, Hill+Knowlton Strategies, Burson Cohn & Wolfe, Axicom, WPP, Lambie Nairn, Finance +, Superunion, SCPF, VMLY&R, Wunderman Thompson      382,402  
The Orb Adjacent to JW Marriott Sahar, Chatrapati Shivaji International Airport, Andheri East, Mumbai   GroupM, Wavemaker, Mindshare, Mediacom, Kinetic, Ogilvy, Grey, Wunderman Thompson, Hill+Knowlton Strategies, Landor & Fitch, VMLY&R, Genesis Burson Cohn & Wolfe, WPP      375,000  

3 Columbus Circle, New York, NY

  VMLY&R, VMLY&R Commerce, Berlin Cameron, CMI, Taxi, Red Fuse, VMLY&Rx      374,000  

200 Fifth Avenue and 23 West 23rd Street, New York, NY

  Grey, Ogilvy, Burson Cohn & Wolfe, Landor & Fitch, GCI Health, SJR, Superunion      349,000  

Tower B, DLF Cyber Park, Gurugram

  GroupM, Wavemaker, Mindshare, Mediacom, Ogilvy, Wunderman Thompson, Hogarth, Grey, Global Team Blue, AKQA, ADK, WPP      340,000  

971 Mofarrej Avenue, Sao Paulo

  Ogilvy, Wunderman Thompson, VMLY&R, VMLY&R Commerce, Grey, AKQA, David, Mirum, GTB, Fbiz, Blinks Essence, Jussi, Possible, Enext, Try, PmWeb, Foster, Mutato, Burson Cohn & Wolfe, Hill+Knowlton Strategies, Hogarth (Estimated Occupancy Q4 2024)      311,927  

333 North Green Street, Chicago, IL

  Burson Cohn & Wolfe, Branding, VMLY&R Commerce, GroupM, Hill+Knowlton Strategies, Kinetic, Ogilvy, VMLY&R, Wunderman Thompson, Hogarth, WBA      265,108  

125 Queens Quay, Toronto

  GroupM, Ogilvy, Wunderman Thompson, VMLY&R, Grey, Hill+Knowlton Strategies (Estimated Q3 2022 Occupancy)      258,053  

Sea Containers House, Upper Ground, London SE1

  Ogilvy, Wavemaker, WPP      226,000  

550 Town Center Drive, Dearborn, MI

  Global Team Blue, PRISM, Burrows, POSSIBLE, VMLY&R      217,900  

 

The Company considers its properties, owned or leased, to be in good condition and generally suitable and adequate for the purposes for which they are used. At 31 December 2020, the fixed asset value (cost less depreciation) representing land, freehold buildings and leasehold buildings as reflected in the Company’s consolidated financial statements was £613.7 million.

 

In 2020, we added three new Campuses in Chicago, Hong Kong and Rome, taking the total to 20. Before the end of 2021 we expect to open a further 11 sites. Under our simplification strategy, we expect to locate 85% of our people in Campuses by 2025, compared to 33% today, and a reduction in our office space requirements of between 15% and 20%.

 

See note 13 to the consolidated financial statements for a schedule by years of lease payments as at 31 December 2020.

 

ITEM 4A.

UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

As introduced on page 7, certain Non-GAAP measures are included in the operating and financial review and prospects.

 

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A. Operating Results

 

Overview

 

WPP is a creative transformation company with a service offering that allows us to meet the present and future needs of our clients. Our business model is client-centric, and we leverage resource and skills across our internal structures to provide the best possible service. The Company offers services in three reportable segments:

 

   

Global Integrated Agencies;

 

   

Public Relations

 

   

Specialist Agencies

 

In 2020, approximately 78% of the Company’s consolidated revenues from continuing operations were derived from Global Integrated Agencies, with the remaining 22% of its revenues being derived from the remaining two segments.

 

The following discussion is based on the Company’s audited consolidated financial statements beginning on page F-1 of this report. The Group’s consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.

 

2020 was a tough year for everyone, including our people as they faced the personal and professional challenges of Covid-19. Since March 16 last year, most of them have been working, for most of the time, from their homes – and dealing with all the difficulties this brings. Their commitment to our clients, support for one another and contribution to the communities we serve have been a constant source of inspiration and pride.

 

Our Company’s performance has been remarkably resilient, thanks to the efforts of our people and the demonstrable value of what we do for our clients. While revenues were significantly impacted as clients reduced spending, particularly in the second quarter, our performance exceeded our own expectations and those of the market throughout the year.

 

The actions taken during 2018 and 2019 to streamline and simplify WPP, and the reduction in our debt to sustainable levels meant that we entered 2020 in a strong financial position. In March 2020 we took action to strengthen our business further, including the suspension of the Kantar share buyback scheme and final dividend for 2019, and a comprehensive programme of cost reduction and cash conservation initiatives, with the aim of protecting as many jobs as possible. More than 3,000 senior executives, beginning with the Board and Executive Committee, volunteered to take a 20% cut in their fees or salary for a three-month period.

 

We saw five years’ worth of innovation in five weeks as society and the economy were digitised at amazing speed. Platforms like TikTok – with whom we signed an exclusive global partnership at the beginning of 2021 – saw record growth. It quickly became clear that the pandemic was accelerating the trends on which we based our vision for WPP, from the explosion of ecommerce and digital experiences as people’s lives went online, to growing demand from clients for simple, integrated solutions that combine outstanding creativity with sophisticated data and technology skills.

 

Having modernised our client offer, simplified our structure and strengthened our agency brands in the 18 months before the pandemic began, we saw the benefits of this acceleration in parts of our business. And because we have such close relationships with the world’s leading companies, we could understand their requirements, react quickly to changing consumer behaviour and deliver what clients need. Being fast was vital, and work that might have taken weeks or months to conceive and produce before the pandemic was turned around in days or even hours.

 

We had a very positive year in terms of client retention and business development, winning an industry-leading $4.4 billion in net new business during 2020 with clients including Alibaba, HSBC, Intel, Uber and Unilever.

 

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Our client satisfaction scores continued to improve as we were recognized for our capabilities in experience, commerce and technology, alongside our classic strengths in communications. During 2020 we worked with 76 of our top 100 clients on ecommerce assignments.

 

The share price decreased by 25% in 2020 as compared to 2019, closing at 800.0 pence at year end. Since then it has increased to 967.8 pence, up 21%, at 23 April 2021. Dividends in respect of 2020 are 24.0 pence, an increase from 22.7 pence in respect of 2019.

 

2020 compared with 2019

 

The financial results for 2020 are based on the Group’s continuing operations and the results of Kantar are presented separately as discontinued operations.

 

Revenues

 

Revenue was down 9.3% at £12.003 billion in 2020 compared to £13.234 billion in 2019. Revenue on a constant currency basis was down 8.1% compared with last year. Net changes from acquisitions and disposals had a negative impact of 0.8% on growth, leading to a like-for-like performance, excluding the impact of currency and acquisitions, of -7.3%, as compared to 2019. Billings were £46.918 billion in 2020, down 11.6% from £53.059 billion in 2019, and down 9.6% on a like-for-like basis compared to last year.

 

Costs of services, general and administrative costs

 

Costs of services decreased by 7.7% in 2020 to £9,987.9 million from £10,825.1 million in 2019.

 

General and administrative costs increased by 285.7% in 2020 to £4,293.0 million from £1,113.1 million in 2019, principally in relation to an increase in goodwill impairment, an increase in investment write-downs, and an increase in restructuring and transformation costs. Restructuring and transformation costs mainly comprise severance and property-related costs arising from the continuing structural review of parts of the Group’s operations and our response to the Covid-19 situation.

 

Staff costs decreased by 7.5% in 2020 to £6,556.5 million from £7,090.6 million in 2019. Staff costs, excluding incentives (short- and long-term incentives and cost of share-based incentives), decreased by 6.3%. Incentive payments were £185 million compared to £294 million in 2019.

 

On a like-for-like basis, the average number of people in the Group in 2020 was 102,822 compared to 106,185 in 2019. On the same basis, the total number of people at 31 December 2020 was 99,830 compared to 106,478 at 31 December 2019.

 

Impairments of £3.119 billion (including £2.823 billion of goodwill impairments and £0.296 billion of investment and other write-downs) were recognised in 2020. The goodwill impairments relate to historical acquisitions whose carrying values have been reassessed in light of the impact of Covid-19. The impairments are 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 majority of the impairments relate to businesses acquired as part of the Y&R acquisition in 2000.

 

In addition to the impairments outlined above, the Group incurred net exceptional losses of £477 million in 2020. This comprises the Group’s share of associate company exceptional losses (£146 million), restructuring and transformation costs (£313 million) and other net exceptional losses (£18 million). Restructuring and transformation costs mainly comprise severance and property-related costs arising from the continuing structural review of parts of the Group’s operations and our response to the Covid-19 situation. This compares with net exceptional losses in 2019 of £136 million.

 

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Operating loss/profit

 

Operating loss was £2.278 billion in 2020 compared to a profit of £1.296 billion in 2019, reflecting principally the impairments of £3.119 billion (including £2.823 billion goodwill impairments and £0.296 billion of investment and other write-downs) that were recognized in 2020. Headline operating profit was down 19.2% to £1.261 billion in 2020 compared to £1.561 billion in 2019, and down 17.2% on a like-for-like basis compared to 2019. The sharp decline in profitability year-on-year reflects the sudden and significant impact of Covid-19 on revenue.

 

Loss/profit before interest and tax

 

Loss before interest and tax was £2.414 billion in 2020, compared to a profit of £1.311 billion in 2019. Headline PBIT for 2020 was down 21.7% to £1.271 billion from £1.623 billion for 2019.

 

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

 

Net finance costs, finance and investment income less finance costs (excluding the revaluation and retranslation of financial instruments), were £229.3 million compared with £260.0 million in 2019, a decrease of £30.7 million year-on-year, primarily as a result of lower average net debt. Revaluation and retranslation of financial instruments resulted in a loss of £147.2 million in 2020, a decrease of £311.0 million from a gain of £163.8 million in 2019 primarily as a result of £196.3 million of retranslation losses for the year ended 31 December 2020.

 

Loss/profit before taxation

 

Loss before tax was £2.791 billion in 2020, compared to a profit of £1.214 billion in 2019, reflecting principally the £3.119 billion of impairment charges and investment write-downs and £313 million of restructuring and transformation costs. Headline PBT was down 23.6% to £1.041 billion in 2020 from £1.363 billion in 2019, and down 24.6% on a like-for-like basis compared to 2019.

 

Taxation

 

The Group’s effective tax rate on loss/profit before tax was -4.6% in 2020 against 22.6% in 2019.

 

The difference in the rate in 2020 was principally due to non-deductible goodwill impairment. Given the Group’s geographic mix of profits and the changing international tax environment, the tax rate is expected to increase slightly over the next few years.

 

Loss/profit for the year

 

Loss after tax was £2.920 billion, compared to a profit of £0.939 billion in 2019. Losses attributable to shareholders was £2.974 billion, compared to a profit of £0.860 billion, again reflecting principally the £3.119 billion of impairments, £313 million of restructuring and transformation losses and £146 million of the Group’s share of associate company exceptional losses. See note 4 to the consolidated financial statements for more details of share of associate company exceptional losses.

 

Diluted loss per share was 243.2p, compared to earnings per share of 68.2p in the prior period.

 

Segment performance

 

Performance of the Group’s businesses is reviewed by management based on headline operating profit. A table showing these amounts by reportable segment and geographical area for each of the three years ended 31 December 2020, 2019 and 2018 is presented in note 2 to the consolidated financial statements. To supplement

 

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the reportable segment information presented in note 2 to the consolidated financial statements, the following tables give details of revenue change and revenue less pass-through costs change by geographical area and reportable segment on a reported and like-for-like basis. Headline operating profit and headline operating profit margin by reportable segment are also provided below.

 

Geographical area

 

Revenue Analysis                              
     

Reported

revenue

change %+/(-)

    

Like-for-like

revenue

change %+/(-)

 
      2020     2019      2020     2019  

North America

     (8.0     0.1        (5.8     (5.0

United Kingdom

     (8.9     0.6        (7.9     1.8  

Western Continental Europe

     (7.1     1.5        (8.1     1.5  

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

     (12.5     3.5        (8.1     4.7  

Total Group

     (9.3     1.4        (7.3     0.0  

 

Revenue less pass-through costs analysis                         
     

Reported

revenue

less pass-
through costs1
change %+/(-)

   

Like-for-like
revenue

less pass-
through costs1
change %+/(-)

 
      2020     2019     2020     2019  

North America

     (7.2     (0.6     (5.8     (5.7

United Kingdom

     (11.2     (0.3     (10.5     0.3  

Western Continental Europe

     (7.2     (0.3     (8.1     0.7  

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

     (14.8     0.2       (10.3     1.4  
  1    

Revenue less pass-through costs is revenue less media and other 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. See note 3 to the consolidated financial statements for more details of the pass-through costs.

 

 

North America like-for-like revenue less pass-through costs was down 5.7% in the final quarter. The United States continued its trend of relative resilience compared to other markets, with VMLY&R and BCW both growing in the fourth quarter. This was offset by GroupM, which saw a slight deterioration compared to the third quarter. Canada finished the year strongly, on the back of new business wins. On a full-year basis, like-for-like revenue less pass-through costs in North America was -5.8%.

 

United Kingdom like-for-like revenue less pass-through costs was down 7.4% in the final quarter, a slight deterioration on the third quarter. AKQA and BCW were the best performers in the fourth quarter, both growing year-on-year. The lockdown in the UK limited the recovery in the larger integrated agencies. On a full year basis, like-for-like revenue less pass-through costs was -10.5%.

 

Western Continental Europe like-for-like revenue less pass-through costs was down 3.9% in the final quarter, an improvement on the third quarter performance. The recovery was led by Germany, the Netherlands, Denmark and Sweden. France, Spain and Italy continued to experience Covid-related headwinds. On a full-year basis, like-for-like revenue less pass-through costs was -8.1%.

 

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In Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, like-for-like revenue less pass-through costs was down 8.8% in the final quarter, the best quarter-on-quarter improvement of all the regions. The sequential improvement from the third quarter was driven by Asia Pacific and Latin America, with performance in the other regions slightly deteriorating in the fourth quarter. On a full-year basis, like-for-like revenue less pass-through costs was -10.3%.

 

Reportable Segments

 

Revenue Analysis                         
     

Reported

revenue

change %+/(-)

   

Like-for-like

revenue

change %+/(-)

 
      2020     2019     2020     2019  

Global Integrated Agencies

     (8.8     2.8       (6.1     1.4  

Public Relations

     (6.6     2.7       (5.8     (0.7

Specialist Agencies

     (12.8     (5.1     (13.3     (5.9

Total Group

     (9.3     1.4       (7.3     0.0  

 

Revenue less pass-through costs analysis                         
     

Reported

revenue

less pass-

through costs1
change %+/(-)

   

Like-for-like
revenue

less pass-
through costs1

change %+/(-)

 
      2020     2019     2020     2019  

Global Integrated Agencies

     (9.7     0.5       (7.9     (0.7

Public Relations

     (4.9     2.1       (4.0     (1.0

Specialist Agencies

     (13.7     (4.4     (11.5     (5.6
  1   

Revenue less pass-through costs is revenue less media and other 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. See note 3 to the consolidated financial statements for more details of the pass-through costs.

 

 

Headline operating profit analysis   2020     2019     2018  
     £m    

Headline

operating
profit

margin1

%

    £m    

Headline

operating
profit

margin1

%

    £m    

Headline

operating
profit

margin1

%

 

Global Integrated Agencies

    967.8       13.2       1,219.5       15.0       1,228.2       15.2  

Public Relations

    141.3       16.5       140.6       15.7       139.2       15.8  

Specialist Agencies

    151.4       9.5       200.5       10.9       283.8       14.7  

Total Group

    1,260.5               1,560.6               1,651.2          
  1   

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

 

 

Global Integrated Agencies like-for-like revenue less pass-through costs was down 6.3% in the final quarter, a small improvement on the third quarter performance. VMLY&R was the best performing integrated agency, returning to growth in the fourth quarter and demonstrating its improving business momentum since the merger. GroupM like-for-like revenue less pass-through costs was down 4.1% in the fourth quarter, similar to the third quarter. Of the other agencies, Wunderman Thompson improved slightly quarter-on-quarter, while trends at Ogilvy and Grey marginally deteriorated. From 2021, AKQA and Grey will come together within the AKQA Group, and Geometry will be incorporated within VMLY&R. For the full year, like-for-like revenue less pass-through costs for the segment was -7.9%. Headline operating profit was down £251.7 million from £1,219.5 million for the year ended 31 December 2019 to £967.8 million for the year ended 31 December 2020.

 

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Public Relations like-for-like revenue less pass-through costs was -4.1% in the final quarter. The trend at BCW, our largest agency within Public Relations, continued to improve, but H+K Strategies and Specialist PR were weaker in the fourth quarter as a result of a strong comparative period. In July, we announced the merger of Finsbury, Glover Park and Hering Schuppener to form Finsbury Glover Hering, to create a leading global strategic communications and public affairs business. Since the transaction, the business has achieved strong traction both with clients and in attracting new talent. For the full year, like-for-like revenue less pass-through costs for the segment was -4.0%. Headline operating profit was up £0.7 million from £140.6 million for the year ended 31 December 2019 to £141.3 million for the year ended 31 December 2020.

 

Specialist Agencies like-for-like revenue less pass-through costs was down 8.6% in the final quarter. All of our main agencies improved performance over the third quarter, with AKQA, Superunion and Landor & Fitch showing the biggest sequential improvements. For the full year, like-for-like revenue less pass-through costs for the segment was -11.5%. Headline operating profit was down £49.1 million from £200.5 million for the year ended 31 December 2019 to £151.4 million for the year ended 31 December 2020.

 

Adjustment of 30 June 2020 Impairment

 

The goodwill impairment charge recognised for the year ended 31 December 2020 includes £2,812.9 million related to the six-month period ended 30 June 2020. This figure is £328.2 million higher than the £2,484.7 million previously reported in the 30 June 2020 interim financial statements as a result of an adjustment to appropriately reflect the working capital cash flow assumptions in the impairment model.

 

The table below reflects the impact of the adjustment on key income statement and balance sheet line items. The £333.3 million adjustment reflects the £328.2 million increase in the goodwill impairment charge and a £5.1 million increase primarily in impairment of right-of-use assets with a related increase in the deferred tax credit of £13.1 million and a corresponding decrease in deferred tax liabilities.

 

Six months ended 30 June 2020

 

    
£ million    As previously reported     Adjusted  

Continuing operations

                

General and administrative costs

     3,195.3       3,528.6  

Operating loss

     (2,417.3     (2,750.6

Loss before interest and taxation

     (2,469.2     (2,802.5

Loss before taxation

     (2,843.9     (3,177.2

Loss for the period from continuing operations

     (2,867.9     (3,188.1

Loss for the period

     (2,864.8     (3,185.0

Headline operating profit

     382.3       382.3  

Loss for the period attributable to equity holders of the parent

     (2,889.0     (3,209.2

Weighted average shares used in basic EPS calculation (million)

     1,224.7       1,224.7  

Reported basic earnings per share

     (235.9p     (262.0p

Goodwill

     8,096.3       7,768.1  

Deferred tax liabilities

     (398.9     (385.8

Net assets

     5,779.7       5,459.5  

 

We will reflect these adjustments in the comparatives included in the 2021 interim financial statements.

 

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The following table presents the CGUs with significant goodwill impairments that were recognised as at 30 June 2020, both as previously reported and as adjusted for the identified adjustment.

 

        As reported     As adjusted  

CGU

£ million

  Operating Sector  

Recoverable
amount as at

30 June 2020

   

Goodwill
impairment
charge for the
period ended

30 June 2020

   

Recoverable
amount as at

30 June 2020

   

Goodwill
impairment
charge for the
period ended

30 June 2020

 

Wunderman Thompson

  Global Integrated Agencies     1,932.2       1,054.4       1,759.5       1,207.5  

VMLY&R

  Global Integrated Agencies     918.3       472.0       871.0       516.9  

Burson Cohn & Wolfe

  Public Relations     859.8       127.0       845.9       140.3  

Geometry Global

  Specialist Agencies     205.9       232.5       128.4       305.8  

Landor & Fitch

  Specialist Agencies     197.5       158.1       169.5       185.4  

Other

        1,349.3       440.7       1,325.7       457.0  
          5,463.0       2,484.7       5,100.0       2,812.9  

 

2019 compared with 2018

 

For a discussion of the year ended 31 December 2019 compared to the year ended 31 December 2018, please refer to “Item 5. Operating and Financial Review and Prospects” in our Annual Report on Form 20-F/A for the year ended 31 December 2019.

 

B. Liquidity and Capital Resources

 

General—The primary sources of funds for the Group are cash generated from operations and funds available under its credit facilities. The primary uses of cash funds in recent years have been for debt service and repayment, capital expenditures, acquisitions, share repurchases and cancellations and dividends. For a breakdown of the Company’s sources and uses of cash and for the Company’s liquidity risk management see the “Consolidated Cash Flow Statement” and note 25, which are included as part of the Company’s consolidated financial statements in Item 18 of this Report.

 

In 2020 the attractiveness of our investment proposition was demonstrated by our performance, which exceeded both our own expectations and those of the market. We believe we are in a strong financial position with diverse revenue streams from a balanced global portfolio, resilient revenue streams from a varied client base that covers all sectors, a predominantly variable cost structure which protects profitability during a downturn. We have a strong balance sheet and ample liquidity due to strong cash generation and over 60 disposals. As at 31 December 2020 we had cash and cash equivalents of £4.3 billion comprised of £12.9 billion of cash and short-term deposits and £8.6 billion of bank overdrafts. Total liquidity, including undrawn credit facilities, was £6.4 billion.

 

Funds returned to shareholders in 2020 totaled £412 million, including dividends and share buybacks. In 2020, 32.8 million shares, or 2.5% of the issued share capital, were purchased at a cost of £290 million.

 

The Group’s liquidity is affected primarily by the working capital flows associated with its media buying activities on behalf of clients. The working capital movements relate primarily to the Group’s 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. In 2020, billings were £46.9 billion, or 3.9 times the revenue of the Group. The inflows and outflows associated with media buying activity therefore represent significant cash flow within each month of the year and are forecast and re-forecast on a regular basis throughout the year by the Group’s treasury staff so as to ensure that there is continuing coverage of peak requirements through committed borrowing facilities from the Group’s bankers and other sources.

 

Liquidity risk management—The Group manages liquidity risk by ensuring continuity and flexibility of funding even in difficult market conditions. Undrawn committed borrowing facilities are maintained in excess of peak

 

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net-borrowing levels and debt maturities are closely monitored. Targets for debt less cash position are set on an annual basis and, to assist in meeting this, working capital targets are set for all the Group’s major operations. See additional discussion on liquidity risk in note 25 to the consolidated financial statements.

 

Debt

 

The Company’s borrowings consist of bonds and revolving credit facilities; details on the Company’s borrowings are provided in note 10 to the consolidated financial statements.

 

The Group has a five-year Revolving Credit Facility of $2.5 billion due March 2026 (extended from March 2025 in February 2021). Borrowings under the Revolving Credit Facility are governed by certain financial covenants based on the results and financial position of the Group, including requirements that (i) the interest coverage ratio for each financial period equal or exceed 5.0 to 1 and (ii) the ratio of borrowed funds to earnings before interest, taxes, depreciation and amortisation at 30 June and 31 December in each year shall not exceed 3.5 to 1, both covenants are defined in the relevant agreement. The Group is in compliance with both covenants.

 

The Group also has a one-year Revolving Credit Facility of A$150 million due August 2021 and a three-year Revolving Credit Facility of A$270 million due August 2023. Borrowings under these facilities are governed by certain financial covenants based on the results and financial position of WPP AUNZ, including requirements that (i) the interest coverage ratio for each financial period equal or exceed 4.0 to 1 and (ii) the ratio of borrowed funds to earnings before interest, taxes, depreciation and amortisation at 30 June and 31 December in each year shall not exceed 3.0 to 1, both covenants are defined in the relevant agreement. The Group is in compliance with both covenants.

 

Hedging of financial instruments—The Group’s policy on interest rate and foreign exchange rate management sets out the instruments and methods available to hedge interest and currency risk exposures and the control procedures in place to ensure effectiveness. The Group uses derivative financial instruments to reduce exposure to foreign exchange risk and interest rate movements. The Group does not hold or issue derivative financial instruments for speculative purposes.

 

Cash flow and balance sheet

 

Net cash inflow from operating activities increased to £2.055 billion in 2020 from £1.851 billion in 2019. Operating loss from continuing and discontinued operations was £2.267 billion, depreciation and amortisation

£631 million, impairments and investment and other write downs £3,316 million, non-cash share-based incentive charges £74 million, working capital and provisions inflow £838 million, earnout payments £115 million, net interest paid £100 million, tax paid £372 million, lease liabilities (including interest) paid £399 million, capital expenditure £273 million and other net cash outflows £50 million. Free cash flow was, therefore, an inflow of £1,283 million.

 

Free cash flow inflow was enhanced by £284 million disposal proceeds (of which £272 million was disposals of investments and subsidiaries net of cash disposed and £11 million was disposal of property, plant and equipment) and reduced by £144 million in net initial acquisition payments, £122 million in dividend payments and

£290 million of share repurchases and buybacks, which resulted in a cash inflow of £1.0 billion compared to £2.5 billion in 2019.

 

The main drivers of the cash flow performance year-on-year were the lower operating profit as a result of the impact of the pandemic, lower net disposal proceeds, and the share buybacks, offset by the very strong working capital performance and a reduction in the dividend.

 

As at 31 December 2020 we had cash and cash equivalents of £4.3 billion and total liquidity, including undrawn credit facilities, of £6.4 billion. Debt financing was £13.6 billion at 31 December 2020, compared to £12.8 billion at 31 December 2019, an increase of £0.7 billion. Average net debt in 2020 was £2.3 billion, compared to £4.4 billion in 2019, at 2020 exchange rates. On 31 December 2020, net debt was £0.7 billion, against £1.5 billion on

 

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31 December 2019, a reduction of £1.0 billion at 2020 exchange rates. The reduced net debt figure year-on-year mainly reflects the benefit of the improved working capital performance and the reduced outflow from dividend payments.

 

In May 2020, we issued bonds of 750 million and £250 million. Our bond portfolio at 31 December 2020 had an average maturity of 7.4 years, with no maturities until 2022.

 

Refer to Item 5F for details on the Company’s material commitments for capital expenditures at 31 December 2020.

 

Going concern

 

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Operating Results on pages 14 to 20 and Risk Factors on pages 2 to 5. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial statements and the notes to the financial statements include the company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Company’s forecasts and projections, taking account of (i) reasonably possible declines in revenue less pass through costs; and (ii) remote declines in revenue less pass-through costs for stress-testing purposes as a consequence of the Covid-19 pandemic compared to 2020, considering the Group’s bank covenant and liquidity headroom taking into account the suspension of share buybacks, dividends and acquisitions, and cost mitigation actions which are and which could be implemented, show that 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. The Company modelled a range of revenue less pass through cost declines up to 30% compared with the year ended 31 December 2020. The Directors therefore have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

 

This section is included in the 2020 WPP Annual Report posted on the Company’s website at www.wpp.com/investors pursuant to UK requirements and is provided in this Form 20-F as supplemental information. This Annual Report on Form 20-F does not incorporate by reference information on the Company’s website. The 2020 WPP Annual Report will be furnished to the SEC on Form 6-K.

 

Summarised financial information about Guarantors and Issuers of Guaranteed Securities

 

WPP Finance 2010 has in issue $500 million of 3.625% bonds due September 2022 and $93 million ($28 million was repaid in 2018 and $179 million was repaid in 2019 from the $300 million initially issued) of 5.125% bonds due September 2042 with WPP plc as parent guarantor and WPP Air 1, WPP 2008 Limited, WPP 2005 Limited, WPP 2012 Limited and WPP Jubilee Limited as subsidiary guarantors. WPP Finance 2010 repaid in full $812 million of 4.75% bonds due November 2021 on December 27, 2019.

 

In the event that WPP Finance 2010 fails to pay the holders of the securities, thereby requiring WPP plc, WPP Air 1, WPP 2008 Limited, WPP 2005 Limited, WPP 2012 Limited or WPP Jubilee Limited to make payment pursuant to the terms of their full and unconditional, and joint and several guarantee of those securities, there is no impediment to WPP plc, WPP Air 1, WPP 2008 Limited, WPP 2005 Limited, WPP 2012 Limited or WPP Jubilee Limited obtaining reimbursement for any such payments from WPP Finance 2010.

 

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For the year ended 31 December 2020, £m

 

     

WPP Finance 2010

(issuer), WPP plc

and Subsidiary

Guarantors

 

Continuing operations

        

Revenue

      

Costs of services

      

Gross profit

      

Finance and investment income from non-guarantors

     26.4  

Finance costs to non-guarantors

     (266.4

Loss for the year from continuing operations

     (568.2

Loss for the year

     (568.2

 

     

WPP Finance 2010
(issuer), WPP plc

and Subsidiary
Guarantors

 

Due from Non-Guarantors-long term

     1,842.0  

Non-current assets

     1,987.4  

Due from Non-Guarantors-short term

     310.9  

Current assets

     959.4  

Due to Non-Guarantors-short term

     (21,919.5

Current Liabilities

     (24,863.4

Due to Non-Guarantors-long term

     (7,447.9

Non-current liabilities

     (8,713.2

 

WPP Finance 2010 has in issue $750 million of 3.750% bonds due September 2024 and $220 million ($50 million was repaid in 2018 and $230 million was repaid in 2019 from the $500 million initially issued) of 5.625% bonds due November 2043, with WPP plc as parent guarantor and WPP Jubilee Limited and WPP 2005 Limited as subsidiary guarantors.

 

In the event that WPP Finance 2010 fails to pay the holders of the securities, thereby requiring WPP plc, WPP Jubilee Limited or WPP 2005 Limited to make payment pursuant to the terms of their full and unconditional, and joint and several guarantee of those securities, there is no impediment to WPP plc, WPP Jubilee Limited or WPP 2005 Limited obtaining reimbursement for any such payments from WPP Finance 2010.

 

For the year ended 31 December 2020, £m

 

     

WPP Finance 2010

(issuer), WPP plc

and Subsidiary

Guarantors

 

Continuing operations

        

Revenue

      

Costs of services

      

Gross profit

      

Finance and investment income from non-guarantors

     26.4  

Finance costs to non-guarantors

     (266.4

Loss for the year from continuing operations

     (568.2

Loss for the year

     (568.2

 

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Table of Contents
     

WPP Finance 2010
(issuer), WPP plc

and Subsidiary
Guarantors

 

Due from Non-Guarantors-long term

     1,842.0  

Non-current assets

     1,987.4  

Due from Non-Guarantors-short term

     483.9  

Current assets

     1,128.5  

Due to Non-Guarantors-short term

     (21,920.1

Current Liabilities

     (24,863.9

Due to Non-Guarantors-long term

     (7,447.9

Non-current liabilities

     (8,713.2

 

The issuer and guarantors of the bonds (issuer and subsidiary guarantors are 100% owned by WPP plc) are consolidated subsidiaries of WPP plc and are each subject to the reporting requirements under section 15(d) of the Securities Exchange Act of 1934. The summarized financial information for WPP Finance 2010 and the guarantors is presented on a combined basis with intercompany balances and transactions between the entities in the issuer and guarantors group eliminated. The summarised financial information is prepared in accordance with IFRS as issued by the IASB and is intended to provide investors with meaningful financial information, and is provided pursuant to the adoption of Rule 13-01 of Regulation S-X which allows for alternative financial disclosures or narrative disclosures in lieu of the separate financial statements of WPP Finance 2010 and the guarantors. The financial information presented is that of the issuers and guarantors of the guaranteed security, and the financial information of non-issuer and non-guarantor subsidiaries has been excluded.

 

C. Research and Development, Patents and Licenses, etc.

 

Not applicable.

 

D. Trend Information

 

The discussion below and in the rest of this Item 5 includes forward-looking statements regarding plans, objectives, projections and anticipated future performance based on assumptions that are subject to risks and uncertainties. As such, actual results or outcomes may differ materially from those discussed in the forward-looking statements. See “Forward-Looking Statements” preceding Item 1 in this annual report.

 

As the global economy starts to recover from Covid-19, having simplified our business and reduced debt, we believe WPP is well positioned to support our clients in achieving their growth aspirations. First quarter revenue was strong and we continue to exercise tight cost control. While these are encouraging trends, there remains continued uncertainty across a number of our markets.

 

For additional information regarding the trends in our business, see Item 5A Operating Results and Item 5B Liquidity and Capital Resources above.

 

E. Off-Balance Sheet Arrangements

 

None.

 

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F. Tabular Disclosure of Contractual Obligations

 

The following summarises the Company’s estimated contractual obligations at 31 December 2020, and the effect such obligations are expected to have on its liquidity and cash flows in the future periods. Certain obligations presented below held by one subsidiary of the Company may be guaranteed by another subsidiary in the ordinary course of business.

 

              Payments due in  
£m    Total      2021      2022      2023     2024      2025    

Beyond

2025

 

Debt financing under the Revolving Credit Facility and in relation to unsecured loan notes1

 

Eurobonds

     3,224.1               223.9        671.7              447.8       1,880.7  

Sterling bonds

     650.0                                         650.0  

US$ bonds

     1,143.1               365.8              548.6              228.7  

Bank revolvers

     42.3        42.3                                   

Subtotal

     5,059.5        42.3        589.7        671.7       548.6        447.8       2,759.4  

Interest payable

     1,208.4        139.9        135.9        124.0       100.5        80.4       627.7  

Total

     6,267.9        182.2        725.6        795.7       649.1        528.2       3,387.1  

Lease liabilities2

     2,783.1        412.3        357.7        309.0       255.3        209.9       1,238.9  

Capital commitments3

     132.5        116.7        13.8        1.9       0.1               

Investment commitments3

     7.5        7.5                                   

Financial derivatives

     3.0        10.4        9.6        (5.8     5.3        (16.5      

Estimated obligations under acquisition earnouts and put option agreements

     225.0        67.1        68.2        16.0       56.7        11.8       5.2  

Total contractual obligations

     9,419.0        796.2        1,174.9        1,116.8       966.5        733.4       4,631.2  
1    

In addition to debt financing under the Revolving Credit Facility and in relation to unsecured loan notes, the Company had short-term overdrafts at 31 December 2020 of £8,562.0 million. The Group’s net debt at 31 December 2020 was £695.6 million and is analysed in Item 5B.

2   

In addition to the lease liabilities, the total committed future cash flow for leases not yet commenced at 31 December 2020 is £674.3 million. In 2020, variable lease expenses were £65.4 million which primarily include real estate taxes and insurance costs.

3   

Capital and investment commitments include commitments contracted, but not provided for in respect of property, plant and equipment and in respect of interests in associates and other investments, respectively.

 

Contributions to funded plans are determined in line with local conditions and practices. Contributions in respect of unfunded plans are paid as they fall due. The total contributions (for funded plans) and benefit payments (for unfunded plans) paid for 2020 amounted to £20.3 million (2019: £37.1 million. 2018: £44.9 million). Employer contributions and benefit payments in 2021 are expected to be approximately £25 million. Projections for years after 2021 are subject to a number of factors, including future asset performance and changes in assumptions which mean the Company is unable to make sufficiently reliable estimations of future contributions.

 

Non-GAAP Information

 

As introduced on page 7, the following metrics are the Group’s Non-GAAP measures.

 

Constant currency

 

These consolidated financial statements are presented in pounds sterling. However, the Company’s significant international operations give rise to fluctuations in foreign exchange rates. To neutralize foreign exchange impact and illustrate the underlying change in revenue, profit and other relevant financial statement line items from one year to the next, the Company 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.

 

The Group uses US dollar-based, constant currency models to measure performance. These are calculated by applying budgeted 2020 exchange rates to local currency reported results for the current and prior year. This gives a US dollar-denominated income statement which excludes any variances attributable to foreign exchange rate movements.

 

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Pro-forma (‘like-for-like’)

 

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

 

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 for the commensurate period in the prior year. The Group uses the terms ‘pro-forma’ and ‘like-for-like’ interchangeably.

 

The following table reconciles reported revenue growth for 2020 and 2019 to like-for-like revenue for the same period.

 

Continuing operations    Revenue  
      £m         

2018 Reportable

     13,047          

Impact of exchange rate changes

     165       1.2%  

Impact of acquisition

     22       0.2%  

Like-for-like growth

            

2019 Reportable

     13,234       1.4%  

Impact of exchange rate changes

     (159     (1.2%

Impact of acquisition

     (106     (0.8%

Like-for-like growth

     (966     (7.3%

2020 Reportable

     12,003       (9.3%

 

Headline operating profit

 

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

 

Headline operating profit is calculated as operating profit before gains/losses on disposal of investments and subsidiaries, investment and other write-downs, 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, gain on sale of freehold property in New York and gains/losses on remeasurement of equity interests arising from a change in scope of ownership.

 

A tabular reconciliation of operating profit to headline operating profit is provided in note 31 to the consolidated financial statements.

 

Headline PBIT

 

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

 

Headline PBIT is calculated as profit before finance and investment income/costs and revaluation and retranslation of financial instruments, taxation, gains/losses on disposal of investments and subsidiaries, investment and other write-downs, 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, gain on sale of freehold property in New York, share of exceptional gains/losses of associates and gains/losses on remeasurement of equity interests arising from a change in scope of ownership.

 

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A tabular reconciliation of profit before interest and taxation to headline PBIT is shown below.

 

Continuing operations    Year ended 31 December  
     

2020

£m

   

2019

£m

   

2018

£m

 

(Loss)/profit before interest and taxation

     (2,414.1     1,310.6       1,275.8  

Amortisation and impairment of acquired intangible assets

     89.1       121.5       201.8  

Goodwill impairment

     2,822.9       47.7       176.5  

Gains on disposal of investments and subsidiaries

     (7.8     (40.4     (237.9

Gains on remeasurement of equity interests arising from a change in scope of ownership

     (0.6     (0.4     (2.0

Investment and other write-downs

     296.2       7.5       2.0  

Restructuring and transformation costs

     80.7       153.5       265.5  

Restructuring costs in relation to Covid-19

     232.5              

Share of exceptional losses of associates

     146.1       47.8       41.5  

Litigation settlement

     25.6       (16.8      

Gain on sale of freehold property in New York

           (7.9      

Headline PBIT

     1,270.6       1,623.1       1,723.2  

 

Headline PBT

 

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

 

Headline PBT is calculated as profit before taxation, gains/losses on disposal of investments and subsidiaries, investment and other write-downs, 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, gain on sale of freehold property in New York, 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.

 

A tabular reconciliation of profit before taxation to headline PBT is shown below.

 

Continuing operations    Year ended 31 December  
     

2020

£m

   

20191

£m

   

20181

£m

 

(Loss)/profit before taxation

     (2,790.6     1,214.3       1,019.3  

Amortisation and impairment of acquired intangible assets

     89.1       121.5       201.8  

Goodwill impairment

     2,822.9       47.7       176.5  

Gains on disposal of investments and subsidiaries

     (7.8     (40.4     (237.9

Gains on remeasurement of equity interests arising from a change in scope of ownership

     (0.6     (0.4     (2.0

Investment and other write-downs

     296.2       7.5       2.0  

Restructuring and transformation costs

     80.7       153.5       265.5  

Restructuring costs in relation to Covid-19

     232.5              

Share of exceptional losses of associates

     146.1       47.8       41.5  

Litigation settlement

     25.6       (16.8      

Gain on sale of freehold property in New York

           (7.9      

Revaluation and retranslation of financial instruments

     147.2       (163.8     76.3  

Headline PBT

     1,041.3       1,363.0       1,543.0  

 

  1    

Figures have been restated to be in accordance with IAS 39 Financial Instruments: Recognition and Measurement, as described in the accounting policies of the consolidated financial statements.

 

 

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Billings and estimated net new business/billings

 

Billings and estimated net new business/billings are metrics that management uses to assess the performance of the business.

 

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 business/billings represent the estimated annualized 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.

 

Free cash flow

 

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 Company’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). This computation may not be comparable to that of similarly titled measures presented by other companies.

 

Free cash flow is calculated as net cash inflow from operating activities plus payment on early settlement of bonds and proceeds from the issue of shares, less earnout payments, purchases of property, plant and equipment, purchases of other intangible assets, repayment of lease liabilities, and dividends paid to non-controlling interests in subsidiary undertakings.

 

A tabular reconciliation of net cash inflow from operating activities to free cash flow is shown below.

 

      Year ended 31 December  
     

2020

£m

   

2019

£m

   

2018

£m

 

Net cash inflow from operating activities

     2,054.8       1,850.5       1,693.8  

Payment on early settlement of bonds

           63.4        

Share option proceeds

           0.6       1.2  

Earnout payments

     (115.2     (130.2     (120.2

Purchases of property, plant and equipment

     (218.3     (339.3     (314.8

Purchases of other intangible assets (including capitalised computer software)

     (54.4     (54.8     (60.4

Repayment of lease liabilities

     (300.1     (249.8      

Dividends paid to non-controlling interests in subsidiary undertakings

     (83.3     (96.2     (106.2

Free cash flow

     1,283.5       1,044.2       1,093.4  

 

Net debt and average net debt

 

Management believes that net debt and average net debt are appropriate and meaningful measures of the debt levels within the Group. This is because of the seasonal swings in our working capital generally, and those resulting from our media buying activities on behalf of our clients in particular, together with the fact that we choose for commercial reasons to locate the debt of the Group in particular countries and leave cash resources in others—though our cash resources could be used to repay the debt concerned.

 

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. Average net debt is calculated as the average daily net borrowings of the Group. Net debt excludes lease liabilities.

 

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The following table is an analysis of net debt:

 

     

2020

£m

   

20191

£m

   

20181

£m

 

Cash and short-term deposits

     12,899.1       11,305.7       11,065.8  

Bank overdraft, bonds and bank loans due within one year

     (8,619.2     (8,798.0     (9,447.7

Bonds and bank loans due after one year

     (4,975.5     (4,047.3     (5,634.8

Net debt

     (695.6     (1,539.6     (4,016.7
  1   

Figures have been restated to be in accordance with IAS 32 Financial Instruments: Presentation, as described in the accounting policies section of the consolidated financial statements.

 

Use of Estimates

 

The preparation of consolidated financial statements requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

 

Critical Accounting Policies

 

The Company’s consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. A summary of the Group’s principal accounting policies is provided in the Accounting Policies section of the consolidated financial statements. The Company believes certain of these accounting policies are particularly critical to understand the more significant judgements and estimates used in the preparation of its consolidated financial statements. Therefore, we have prepared the following supplemental discussion of critical accounting policies, which should be read together with our consolidated financial statements and notes thereto.

 

Goodwill and other intangibles

 

The Company has a significant amount of goodwill and other intangible assets. In accordance with the Group’s accounting policy, the carrying values of goodwill and intangible assets with indefinite useful lives are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

 

The impairment review is undertaken annually on 30 September. Under IFRS, an impairment charge is required for both goodwill and other indefinite-lived assets when the carrying amount exceeds the “recoverable amount”, defined as the higher of fair value less costs to sell and value in use. The review assessed whether the carrying value of goodwill and intangible assets with indefinite useful lives was supported by the value in use determined as the net present value of future cash flows.

 

Due to a significant number of cash-generating units (CGUs), the impairment test was performed in two steps. In the first step, the recoverable amount was calculated for each CGU using the latest available forecasts for 2020 and/or 2021, nil growth rate thereafter (2019: 3.0%) and a conservative pre-tax discount rate. The conservative pre-tax discount rate was above the rate calculated for the global networks. For smaller CGUs that operate primarily in a particular region subject to higher risk, the higher of the conservative global network rate or 100 basis points above the regional discount rate was used in the first step.

 

The recoverable amount was then compared to the carrying amount. CGUs where the recoverable amount exceeded the carrying amount were not considered to be impaired. Those CGUs where the recoverable amount did not exceed the carrying amount were then further reviewed in the second step.

 

In the second step, these CGUs were retested for impairment using more refined assumptions. This included using a CGU specific pre-tax discount rate and management forecasts for a projection period of up to five years, followed by an assumed long-term growth rate that does not exceed the long-term average growth rate for the industry. If the recoverable amount using the more specific assumptions did not exceed the carrying value of a CGU, an impairment charge was recorded.

 

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The long-term growth rate is derived from management’s best estimate of the likely long-term trading performance with reference to external industry reports and other relevant market trends.

 

The discount rate uses the capital asset pricing model (CAPM) to derive the cost of equity along with an estimated cost of debt that is weighted by an appropriate capital structure to derive an indication of a weighted average cost of capital. The cost of equity is calculated based on long-term government bond yield, an estimate of the required premium for investment in equity relative to government securities and further considers the volatility associated with peer public companies relative to the market. The cost of debt reflects an estimated market yield for long-term debt financing after taking into account the credit profile of public peer companies in the industry. The capital structure used to weight the cost of equity and cost of debt has been derived from the observed capital structure of public peer companies.

 

We developed a global discount rate that takes into account the diverse nature of the operations, as these CGUs operate with a diverse range of clients in a range of industries throughout the world, hence are subject to similar levels of market risks. Specific rates were applied to the CGUs that have more regional specific operations.

 

Our approach in determining the recoverable amount utilises a discounted cash flow methodology, which necessarily involves making numerous estimates and assumptions regarding revenue less pass-through costs growth, operating margins, appropriate discount rates and working capital requirements. The key assumptions used for estimating cash flow projections in the Group’s impairment testing are those relating to revenue less pass-through costs growth and operating margins. The key assumptions take account of the businesses’ expectations for the projection period. These expectations consider the macroeconomic environment, industry and market conditions, the CGU’s historical performance and any other circumstances particular to the unit, such as business strategy and client mix.

 

These estimates will likely differ from future actual results of operations and cash flows, and it is possible that these differences could be material. In addition, judgements are applied in determining the level of CGU identified for impairment testing and the criteria used to determine which assets should be aggregated. A difference in testing levels could affect whether an impairment is recorded and the extent of impairment loss. Transfers of carrying value between CGUs are determined on a relative value basis.

 

Acquisition accounting

 

The Group accounts for acquisitions in accordance with IFRS 3 ‘Business Combinations’. IFRS 3 requires the acquiree’s identifiable assets, liabilities and contingent liabilities (other than non-current assets or disposal groups held for sale) to be recognised at fair value at acquisition date. In assessing fair value at acquisition date, management make their best estimate of the likely outcome where the fair value of an asset or liability may be contingent on a future event. In certain instances, the underlying transaction giving rise to an estimate may not be resolved until some years after the acquisition date. IFRS 3 requires the release to profit of any acquisition reserves which subsequently become excess in the same way as any excess costs over those provided at acquisition date are charged to profit. At each period end, management assess provisions and other balances established in respect of acquisitions for their continued probability of occurrence and amend the relevant value accordingly through the consolidated income statement or as an adjustment to goodwill as appropriate under IFRS 3. Goodwill arising from acquisitions represents the value of synergies with our existing portfolio of businesses and skilled staff to deliver services to our clients.

 

Future anticipated payments to vendors in respect of contingent consideration (earnout agreements) are initially recorded at fair value which is the present value of the expected cash outflows of the obligations. The obligations are dependent on the future financial performance of the interests acquired (typically over a four- to five-year period following the year of acquisition) and assume the operating companies improve profits 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. Subsequent adjustments to the fair value are recorded in

 

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the consolidated income statement within revaluation and retranslation of financial instruments. A summary of earnout related obligations included in trade and other payables is shown in note 19 to the consolidated financial statements.

 

WPP has also entered into option agreements that allow the Group’s equity partners to require the Group to purchase a non-controlling interest. These agreements are treated as derivatives over equity instruments and are recorded in the consolidated balance sheet initially at the present value of the redemption amount in accordance with IAS 32 Financial Instruments: Presentation and subsequently, the financial liability is measured in accordance with IFRS 9 Financial Instruments. Changes in the measurement of the financial liability due to the unwinding of the discount or changes in the amount that the Group could be required to pay are recognized in profit or loss within revaluation and retranslation of financial instruments in the consolidated income statement.

 

Actual performance may differ from the assumptions used resulting in amounts ultimately paid out with respect to these earnout and option agreements at more or less than the recorded liabilities. Estimates are required regarding growth rates in deriving future financial performance and discount rates to be applied when measuring the liabilities for earnout and option agreements. The assumptions and sensitivity to changes in these assumptions is shown in note 26 to the consolidated financial statements.

 

Revenue recognition

 

The Group is a leading worldwide creative transformation organisation offering national and multinational clients a comprehensive range of communications, experience, commerce and technology services. Contracts often involve multiple agencies offering different services in different countries. As such, the terms of local, regional and global contracts can vary to meet client needs and regulatory requirements. Consistent with the industry, contracts are typically short-term in nature and tend to be cancellable by either party with 90 days’ notice.

 

The Group is generally entitled to payment for work performed to date. The Group is generally paid in arrears for its services. Invoices are typically payable within 30 to 60 days. Revenue comprises commissions and fees earned in respect of amounts billed and is stated exclusive of VAT, sales taxes and trade discounts. 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 costs. Costs to obtain a contract are typically expensed as incurred as the contracts are generally short-term in nature.

 

In most instances, promised services in a contract are not considered distinct or represent a series of services that are substantially the same with the same pattern of transfer to the customer and, as such, are accounted for as a single performance obligation. However, where there are contracts with services that are capable of being distinct, are distinct within the context of the contract, and are accounted for as separate performance obligations, revenue is allocated to each of the performance obligations based on relative standalone selling prices.

 

Revenue is recognised when a performance obligation is satisfied, in accordance with the terms of the contractual arrangement. Typically, performance obligations are satisfied over time as services are rendered. Revenue recognised over time is based on the proportion of the level of service performed. Either an input method or an output method, depending on the particular arrangement, is used to measure progress for each performance obligation. For most fee arrangements, costs incurred are used as an objective input measure of performance. The primary input of substantially all work performed under these arrangements is labour. There is normally a direct relationship between costs incurred and the proportion of the contract performed to date. In other circumstances relevant output measures, such as the achievement of any project milestones stipulated in the contract, are used to assess proportional performance.

 

For our retainer arrangements, we have a stand ready obligation to perform services on an ongoing basis over the life of the contract. The scope of these arrangements are broad and generally are not reconcilable to another input

 

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or output criteria. In these instances, revenue is recognised using a time-based method resulting in straight-line revenue recognition.

 

The amount of revenue recognised depends on whether we act as an agent or as a principal. Certain arrangements with our clients are such that our responsibility is to arrange for a third party to provide a specified good or service to the client. In these cases we are acting as an agent as we do not control the relevant good or service before it is transferred to the client. When we act as an agent, the revenue recorded is the net amount retained. Costs incurred with external suppliers (such as production costs and media suppliers) are excluded from revenue and recorded as work in progress until billed.

 

The Group acts as principal when we control the specified good or service prior to transfer. When the Group acts as a principal (such as when supplying in-house production services, events and branding), the revenue recorded is the gross amount billed. Billings related to out-of-pocket costs such as travel are also recognised at the gross amount billed with a corresponding amount recorded as an expense. Further details on revenue recognition are detailed by sector below:

 

Global Integrated Agencies

 

Revenue is typically derived from integrated product offerings including media placements and creative services. Revenue may consist of various arrangements involving commissions, fees, incentive-based revenue or a combination of the three, as agreed upon with each client. Revenue for commissions on purchased media is typically recognised at the point in time the media is run.

 

The Group receives volume rebates from certain suppliers for transactions entered into on behalf of clients that, based on the terms of the relevant contracts and local law, are either remitted to clients or retained by the Group. If amounts are passed on to clients they are recorded as liabilities until settled or, if retained by the Group, are recorded as revenue when earned.

 

Variable incentive-based revenue typically comprises both quantitative and qualitative elements. Incentive compensation is estimated using the most likely amount and is included in revenue up to the amount that is highly probable not to result in a significant reversal of cumulative revenue recognised. The Group recognises incentive revenue as the related performance obligation is satisfied.

 

Public Relations and Specialist Agencies

 

Revenue for these services is typically derived from retainer fees and fees for services to be performed subject to specific agreement. Most revenue under these arrangements is earned over time, in accordance with the terms of the contractual arrangement.

 

Discontinued Operations (Data Investment Management)

 

Revenue for market research services is typically recognised over time based on input measures. For certain performance obligations, output measures such as the percentage of interviews completed, percentage of reports delivered to a client and the achievement of any project milestones stipulated in the contract are used to measure progress. While most of the studies provided in connection with the Group’s market research contracts are undertaken in response to an individual client’s or group of clients’ specifications, in certain instances a study may be developed as an off-the-shelf product offering sold to a broad client base. For these transactions, revenue is recognised when the product is delivered. When the terms of the transaction provide for licensing the right to access a product on a subscription basis, revenue is recognised over the subscription period, typically on a straight-line basis.

 

Deferred consideration on the Kantar disposal

 

As per the terms of the Kantar disposal, deferred consideration consisted of amounts expected to be received in future periods on satisfaction of certain conditions and the deferral of consideration against services to be

 

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provided to Kantar in the future, as detailed in note 12 to the consolidated financial statement. Estimates are required in determining amounts to be received and the value of services to be provided, taking into account uncertainty in the ultimate timing and resolution of each of these. The sensitivity to these estimates is specific to each individual circumstance and no individual estimate is expected to result in a material change to the amount recognised.

 

Retirement benefit costs

 

Pension costs are assessed in accordance with the advice of local independent qualified actuaries. The latest full actuarial valuations for the various plans were carried out at various dates in the last three years. These valuations have been updated by the local actuaries to 31 December 2020.

 

There are a number of areas in the pension accounting that involve judgements made by management based on the advice of qualified advisors. These include establishing the discount rates, rate of increase in salaries and pensions in payment, inflation and mortality assumptions. A sensitivity analysis for each significant actuarial assumption is shown in note 24 to the consolidated financial statements.

 

Most of the Group’s pension plan assets are held by its plans in the UK and North America. Management considers the types of investment classes in which the pension plan assets are invested. The types of investment classes are determined by economic and market conditions and in consideration of specific asset class risk.

 

Management periodically commissions detailed asset and liability studies performed by third-party professional investment advisors and actuaries that generate probability-adjusted expected future returns on those assets. These studies also project the estimated future pension payments and evaluate the efficiency of the allocation of the pension plan assets into various investment categories.

 

Taxation

 

Corporate taxes are payable on taxable profits at current rates. The tax expense represents the sum of the tax currently payable and deferred tax.

 

The Group is subject to corporate taxes in a number of different jurisdictions and judgement is required in determining the appropriate provision for transactions where the ultimate tax determination is uncertain. In such circumstances, the Group recognises liabilities for anticipated taxes based on the best information available and where the anticipated liability is both probable and estimable, liabilities are classified as current. Any interest and penalties accrued are included in corporate income taxes both in the consolidated income statement and balance sheet. Where the final outcome of such matters differs from the amount recorded, any differences may impact the income tax and deferred tax provisions in the period in which the final determination is made.

 

We record deferred tax assets and liabilities using tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on enacted, or substantively enacted legislation, for the effect of temporary differences between book and tax bases of assets and liabilities. Currently we have deferred tax assets resulting from operating loss carryforwards and deductible temporary differences, all of which could reduce taxable income in the future. The main factors that we consider include:

 

   

the future earnings potential determined through the use of internal forecasts;

 

   

the cumulative losses in recent years;

 

   

the various jurisdictions in which the potential deferred tax assets arise;

 

   

the history of losses carried forward and other tax assets expiring;

 

   

the timing of future reversal of taxable temporary differences;

 

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the expiry period associated with the deferred tax assets; and

 

   

the nature of the income that can be used to realise the deferred tax asset.

 

If it is probable that some portion of these assets will not be realised, then no asset is recognised in relation to that portion.

 

If market conditions improve and future results of operations exceed our current expectations, our existing recognised deferred tax assets may be adjusted, resulting in future tax benefits. Alternatively, if market conditions deteriorate further or future results of operations are less than expected, future assessments may result in a determination that some or all of the deferred tax assets are not realisable. As a result, all or a portion of the deferred tax assets may need to be reversed.

 

New IFRS Accounting Pronouncements

 

See page F-4 of the consolidated financial statements for a description of new IFRS accounting pronouncements.

 

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Senior Management

 

The Directors and Executive Officers of the Company are as follows:

 

Roberto Quarta, Age 71: Chairman. Roberto Quarta was appointed as a Director on 1 January 2015 and became Chairman on 9 June 2015. Roberto has extensive and diverse experience in corporate governance and global commerce having served on the boards of a number of UK and international companies. His career in private equity brings valuable experience to WPP, particularly when evaluating acquisitions and new business opportunities. He is Chairman of Smith & Nephew plc, a Partner of Clayton, Dubilier & Rice and Chairman of Clayton, Dubilier & Rice Europe. Previously he was Chief Executive and then Chairman of BBA Group plc, Chairman of Rexel SA, Chairman of IMI plc and a Non-Executive Director at BAE Systems plc, Equant NV, Foster Wheeler AG and PowerGen plc.

 

External appointments: Chairman, Smith & Nephew; Partner, Clayton, Dubilier & Rice; Chairman, Clayton, Dubilier & Rice Europe.

 

Mark Read, Age 54: Chief Executive Officer. Mark Read was appointed as an Executive Director and Chief Executive Officer on 3 September 2018. Mark has a deep understanding of the industry having held multiple leadership positions at WPP since he joined in 1989. As Head of Strategy and then CEO of WPP Digital he was responsible for WPP’s first moves into technology. In 2015, he became Global CEO of Wunderman, which he transformed into one of the world’s leading creative, data and technology agencies. Earlier in his career, he co-founded internet start-up WebRewards and specialised in media and marketing as a principal at consultancy Booz Allen Hamilton. Mark was voted the industry’s Most Influential Person of 2019 in Econsultancy’s Top 100 Digital Agencies report and was recognised as a HERoes Champion of Women in Business in 2018, 2019 and 2020.

 

Mark has an MBA from INSEAD and an Economics degree from Trinity College, University of Cambridge, and was a Henry Fellow at Harvard University.

 

External appointments: Chairman of the Natural History Museum Digital Council.

 

John Rogers, Age 52: Chief Financial Officer. John Rogers was appointed as a Director on 3 February 2020 and became Chief Financial Officer from 1 May 2020. John has extensive finance, strategy, digital, property and retail experience. He joined WPP from J Sainsbury plc where he was Chief Executive Officer of Sainsbury’s

 

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Argos. John was previously the Chief Financial Officer of J Sainsbury plc, responsible for business strategy, new business development, Sainsbury’s Online and Sainsbury’s Bank, in addition to its core finance functions. John is a member of The Prince’s Advisory Council for Accounting for Sustainability. He also sits on the Retail Sector Council, which acts as a point of liaison between the UK Government and retail sector.

 

External appointments: Non-Executive Director and Chair of the Audit Committee, Travis Perkins plc; Member, The Prince’s Advisory Council for Accounting for Sustainability; Member, Retail Sector Council.

 

Nicole Seligman, Age 64: Senior Independent Director, Non-Executive Director. Nicole Seligman was appointed as a Director on 1 January 2014. Nicole is a global business leader and an internationally recognised lawyer. She brings to the Board analytical skills, in-depth knowledge of public company corporate governance and a comprehensive understanding of media and business issues. Nicole was previously President of Sony Entertainment, Inc. and global General Counsel for Sony Corporation. Prior to that, as a partner at law firm Williams & Connolly, Nicole represented key public figures and major media and other companies in complex litigation.

 

She is a Magna Cum Laude graduate of both Harvard College and Harvard Law School.

 

External appointments: Non-Executive Director, ViacomCBS Inc.; Non-Executive Director, MeiraGTx Holdings plc; Non-Executive Director, Far Peak Acquisition Corporation.

 

Angela Ahrendts DBE, Age 60: Non-Executive Director. Angela Ahrendts DBE was appointed as a Director on 1 July 2020. Angela brings expertise as a leader of creative and technology-driven global businesses. From 2014 until 2019, she was Senior Vice President, Retail at Apple, Inc., where she integrated and redesigned the physical and digital global consumer experience. Angela was CEO of Burberry from 2006 to 2014, where she repositioned the brand as a luxury high-growth company and created the Burberry Foundation. Prior to Burberry, Angela was Executive Vice President at Liz Claiborne, Inc. and President of Donna Karan International, Inc. Angela was a member of the UK Prime Minister’s Business Advisory Council from 2010 to 2015.

 

External appointments: Non-Executive Director, Ralph Lauren Corporation and Airbnb, Inc.; Chair of Save the Children International; Non-Executive Director, Charity: Water and The HOW Institute for Society; member of the Global Leadership Council of the Oxford University Saïd Business School and BritishAmerican Business International Advisory Board.

 

Jacques Aigrain, Age 66: Non-Executive Director. Jacques Aigrain was appointed as a Director on 13 May 2013. Jacques has extensive business, corporate finance and governance expertise. He was a Senior Advisor at Warburg Pincus LLP from 2001 to 2009. Jacques was a member of the Executive Committee of Swiss Re AG and CEO from 2006. Prior to Swiss Re, he spent 20 years with JPMorgan Chase. Jacques was previously Chairman of LCH Clearnet Group Ltd from 2010, a Director of the Qatar Financial Centre Authority and a Supervisory Board Member of Lufthansa AG and Swiss International Airlines AG.

 

He holds a PhD in Economics from Sorbonne University and an MA in Economics from Paris Dauphine University.

 

External appointments: Chairman, LyondellBasell NV; Non-Executive Director, London Stock Exchange Group plc; Chairman, Singular SAU (private company); Chairman, ACUTRONIC Holding AG (private company); Non-Executive Director, Clearwater Analytics (private company).

 

Sandrine Dufour, Age 54: Non-Executive Director. Sandrine Dufour was appointed as a Director on 3 February 2020. Sandrine brings substantial financial expertise gained in global companies and strong strategic capability to the Board. She has executive leadership experience in the telecommunications, entertainment and media industries and an enthusiasm for cultural, technological and business transformation. Sandrine is currently Chief Financial Officer of UCB, a global pharmaceutical company. Previously she was CFO of Proximus. She held a number of leadership roles at Vivendi, in France and in the United States, across its entertainment and

 

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telecommunications business. Sandrine began her career as a financial analyst at BNP and then Credit Agricole in the telecoms sector. She has held other non-executive director roles, most recently at Solocal Group.

 

External appointments: Chief Financial Officer, UCB.

 

Tarek Farahat, Age 56: Non-Executive Director. Tarek Farahat was appointed as a Director on 11 October 2016. Tarek has extensive leadership and brand-building experience gained in leading businesses in the Americas, Europe, Middle East and Africa. He worked for Procter & Gamble for over 26 years, his last position at Procter & Gamble was President of Procter & Gamble Latin America and member of the Global Leadership Council. Tarek was previously Chairman of the board of JBS S.A. and a board member of Pilgrim’s Pride Corporation and Alpargatas. Tarek is currently a strategic advisor, consultant and partner for companies in the consumer goods, Fintec and healthcare sectors.

 

Tarek is a graduate of the American University in Cairo, Faculty of Commerce and Finance.

 

External appointments: None.

 

Tom Ilube CBE, Age 57: Non-Executive Director. Tom Ilube CBE was appointed as a Director on 5 October 2020. Tom brings a wealth of expertise as a technology entrepreneur. He is the founder and CEO of Crossword Cybersecurity Plc. From 2010 to 2014, Tom was Managing Director of Consumer Markets at Callcredit Information Group. Prior to Callcredit, Tom founded and was CEO of Garlik, a venture capital backed identity protection company. His 30-year career in the UK technology sector includes roles at Egg Banking plc, PricewaterhouseCoopers, Goldman Sachs and the London Stock Exchange. He was made a Doctor of Science (Honoris Causa) by City, University of London, an Honorary Doctor of Technology by the University of Wolverhampton, an Honorary Fellow of Jesus College, Oxford and an Advisory Fellow at St Anne’s College. In 2017 Tom topped the Powerlist ranking of the most influential people of African or African Caribbean heritage in the UK.

 

External appointments: Founder and CEO, Crossword Cybersecurity plc; Non-Executive Director, BBC; Chair, Deathio Ltd; Founder and Chair, African Gifted Foundation.

 

Cindy Rose OBE, Age 55: Non-Executive Director. Cindy Rose was appointed as a Director on 1 April 2019. Cindy has extensive experience as a leader in the technology and media sectors and a deep understanding of the role of technology in business transformation. She was appointed President of Microsoft Western Europe in October 2020, prior to which she was Microsoft UK CEO from 2016. She previously held roles as Managing Director of the UK consumer division at Vodafone and as Executive Director of Digital Entertainment at Virgin Media. She also spent 15 years at The Walt Disney Company, ultimately as Senior Vice President & Managing Director of Disney Interactive Media Group.

 

Cindy is a graduate of Columbia University and New York Law School.

 

External appointments: President, Microsoft Western Europe; Member of the advisory board of Imperial College Business School in London; Member of the advisory board of McLaren.

 

Sally Susman, Age 59: Non-Executive Director. Sally Susman was appointed as a Director on 13 May 2013. Sally brings expertise in communications, public affairs, governance and strategy. She is Executive Vice President, Chief Corporate Affairs Officer for Pfizer and also heads Pfizer’s corporate responsibility group. Before joining Pfizer in 2007, Sally was Executive Vice President of Global Communications at Estée Lauder, where she directed global corporate affairs strategy and served as a member of the Executive Committee. She previously held several senior corporate affairs posts at American Express, in both London and the United States. She started her career in government service where positions included Deputy Assistant Secretary for Legislative and Intergovernmental Affairs in the U.S. Department of Commerce.

 

Sally has a BA in Government from Connecticut College and has studied at the London School of Economics.

 

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External appointments: Executive Vice President, Chief Corporate Affairs Officer, Pfizer; Co-Chair, International Rescue Committee.

 

Keith Weed CBE, Age 60: Non-Executive Director. Keith Weed was appointed as a Director on 1 November 2019. Keith has a wealth of experience as a marketing and digital leader and an understanding of the ways in which technology is transforming businesses. From 2010 to 2019, Keith was Chief Marketing and Communications Officer at Unilever, a role that included creating and leading Unilever’s sustainability programme. Keith was named the World’s Most Influential Chief Marketing Officer by Forbes in 2017, 2018 and 2019, and Global Marketer of the Year 2017 by the World Federation of Advertisers. He received The Drum’s Lifetime Achievement Award in 2018 and was inducted into the Marketing Hall of Fame in 2019. Keith is a Non-Executive Director of J Sainsbury plc.

 

External appointments: Non-Executive Director, J Sainsbury plc; Trustee Director of Business in the Community; Board Trustee Grange Park Opera; President of the UK Advertising Association; President of the Royal Horticultural Society.

 

Jasmine Whitbread, Age 57: Non-Executive Director. Jasmine Whitbread was appointed as a Director on 1 September 2019. Jasmine’s experience spans marketing, technology, finance, media, telecommunications, and not-for-profit organisations, and she brings this breadth of perspective and knowledge of many of WPP’s client sectors. Jasmine began her career in marketing in the technology sector, including with Thomson Financial in the US. After completing the Stanford Executive Program, Jasmine went on to hold leadership roles with Oxfam and Save the Children, starting in 1999 in West Africa and, from 2010-15, as the first Chief Executive of Save the Children International. Jasmine was a Non-Executive Director of BT Group plc from 2011 to 2019 and Chief Executive Officer of London First from 2016 until March 2021.

 

External appointments: Chair of the Board, Travis Perkins plc effective 31 March 2021; Non-Executive Director, Standard Chartered plc; Advisor to the Ethics Committee, Compagnie Financière Richemont SA; Visiting Fellow, Oxford University.

 

Dr. Ya-Qin Zhang, Age 55: Non-Executive Director. Ya-Qin was appointed as a Director after year-end on 1 January 2021. Ya-Qin is a world-renowned technologist, scientist and entrepreneur with a particular understanding of the changing consumer technology landscape in China. He was President of Baidu Inc., the global internet services and AI company headquartered in Beijing, between 2014 and 2019. Prior to joining Baidu, he held several positions during his 16-year tenure at Microsoft, both in the United States and China, including Corporate Vice President and Chairman of Microsoft China. Ya-Qin is currently a Non-Executive Director of Fortescue Metals Group, AsiaInfo Technologies Limited and ChinaSoft International Limited. He is also Chair Professor of AI Science at Tsinghua University and the founding Dean of the Institute for AI Industry Research at the same university.

 

External appointments: Non-Executive Director of Fortescue Metals Group, AsiaInfo Technologies Limited and ChinaSoft International Limited; Chair Professor of AI Science at Tsinghua University and the founding Dean of the Institute for AI Industry Research at the same university; Fellow, American Academy of Arts and Sciences.

 

The independence of each Non-Executive Director is assessed annually by the Board under the UK Corporate Governance Code which applies in respect of WPP’s primary listing on the London Stock Exchange. The Board has confirmed that all of the Non-Executive Directors standing for election and re-election at the 2021 Annual General Meeting (AGM) continue to demonstrate the characteristics of independence.

 

B. Compensation

 

Directors’ Compensation

 

For the fiscal year ended 31 December 2020 the aggregate compensation paid by WPP to key management personnel of WPP for services in all capacities was £29.2 million. Key management personnel comprises the

 

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Board and the Executive Committee. Such compensation was paid by WPP and its subsidiaries primarily in the form of salaries, performance-related bonuses, other benefits and deferred share awards. The sum of £1.0 million was set aside and paid in the last fiscal year to provide pensions and other post-retirement benefits for key management personnel of WPP.

 

Executive Directors’ total compensation received

 

Single total figure of remuneration

 

2020    Base salary3      Benefits4      Pension5     

Short-term

incentive6

     Long-term
incentive7,8
     Other8,9     

Total annual

compensation

 
      £000      £000      £000     

Cash

£000

    

Deferred

£000

     £000      £000      £000  

Mark Read

     910        36        158                      32               1,136  

John Rogers1

     643        30        64                      1,538        2,110        4,385  

Paul Richardson2

     282        25        62                      105        242        716  
1    

John Rogers joined the Company on 27 January 2020. His base salary and benefits reflect his time in role.

2   

Paul Richardson retired effective 1 May 2020. His 2020 base salary, contractual fee for his directorship of WPP plc and benefits reflect his time in role. Paul Richardson’s base salary and benefits allowance are denominated in US dollars and have been converted at an exchange rate of $1.2836 to £1. Mr Richardson was not eligible to receive an annual bonus for 2020 and his 2016 EPSP vesting has been prorated to reflect his time in role in accordance with the Directors’ Compensation Policy.

3   

Mark Read and John Rogers voluntarily reduced their base salary for a four-month period during the year as part of cost-reduction targets implemented during the Covid-19 pandemic.

4   

Benefits provide an annual fixed and non-itemised allowance to enable the executive to procure benefits to enable them to undertake their role and ensure their wellbeing and security. In addition to the allowance received, the values disclosed include the value of expenses related directly to attendance at Board meetings that would be chargeable to UK income tax. The expenses for Mark Read were £945, for John Rogers £1,641 and for Paul Richardson were £2,458.

5   

Pension is provided by way of contribution to a defined contribution retirement arrangement, or as a cash allowance, determined as a percentage of base salary. Contributions/allowances are as follows (as % of base salary): CEO—15% (reducing to 10% over the 2020-2022 Policy period) and CFO—10%. Mark Read was awarded an allowance of 20% less employer’s national insurance contribution of 13.8% resulting in a net pension contribution of 17.6%. This reduced to 15% during 2020 and will reduce to 12% in 2021 and 10% in 2022 to ensure alignment with the wider workforce by the end of 2022.

6   

Due to the impact of Covid-19 on the performance of WPP and the uncertainty over future performance, the Compensation Committee determined it was not possible to set meaningful financial targets. As a result, the financial component will not pay out. The Compensation Committee considered whether the non-financial measures should be assessed and a STIP awarded. The Compensation Committee recognised the exceptional performance of both Executive Directors in delivering resilient performance in a challenging year whilst progressing the transformation agenda. However, taking the wider stakeholder group into account, the decision was made not to award a STIP in respect of 2020 performance.

7   

With respect to Mark Read and Paul Richardson, this includes the value of the 2016 Executive Performance Share Plan (EPSP) awards which vested in 2021 assessed over a five-year period. With respect to John Rogers, this includes the value of an EPSP award made as part of a buy-out award which vested in 2021 as described in note 8.

8   

John Rogers received buy-out awards to compensate for the forfeiture of incentive awards from his previous employer. This comprises cash of £1,457,538, restricted stock of £652,614 and an EPSP which vested in March 2021 based on a performance period of 1 Jan 2019 to 31 Dec 2020 with a final vesting value of £1,538,363.

9   

Paul Richardson received a payment in relation to accumulated outstanding annual leave on retirement.

 

Vesting of 2016 – 2020 EPSP awards

 

Vesting of the 2016 EPSP awards was dependent on performance against three measures, all assessed over a five-year period, which include relative Total Shareholder Returns (TSR), Earnings Per Share (EPS) growth and average annual Return On Equity (ROE).

 

     

Number of shares

awarded

     Additional
shares in
respect of
dividend
accrual
     Number of shares
vesting
     Share/ADR price
on vesting
    

Value of
vested

2016-2020
EPSP awards1
000

 

Mark Read

     58,644        545        3,477      £ 9.111      £ 32  

Paul Richardson2

     41,536        333        2,132      $ 62.922      $ 134  
1    

None of the value of the vested awards is attributable to share price appreciation.

2   

Paul Richardson’s EPSP awards were granted in the form of ADRs. In addition to the application of the performance outcome, Paul Richardson’s award was time prorated in accordance with the Plan Rules.

 

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Vesting of additional awards

 

The first of the EPSP awards granted to John Rogers as part of his buy-out award has vested following achievement of the TSR performance measure and Return on Invested Capital underpin, both assessed over a two-year period. The Committee has the discretion to determine the extent to which the award will vest if an average ROIC (return on invested capital) of 7.5% over the performance period is not achieved.

 

     

Number of shares

awarded

     Additional
shares in
respect of
dividend
accrual
     Number of shares
vesting
     Share price
on vesting1
     Value of
vested shares1
000
 

John Rogers

     182,744        2,546        168,843      £   9.111      £   1,538  
1    

The share price increased 55.6% between the grant and vest dates for this award. £549,956 of the total value of vested shares is attributable to share price appreciation.

 

Outstanding share-based awards

 

Executive Share Awards (ESAs) held by Executive Directors

 

All Executive Share Awards or Performance Share Awards (PSA) granted under the Restricted Stock Plan and its successor, the WPP Stock Plan 2018, are made on the basis of satisfaction of previous performance conditions and are subject to continuous employment until the vesting date. Mark Read received ESAs and PSA awards prior to his appointment as Executive Director. The table below shows outstanding ESAs at 31 December 2020. Unless otherwise noted, awards are made in the form of WPP ordinary shares.

 

           

Grant

date

   

Share/ADR

price on

grant date

   

No. of

Shares/ADRs

granted2

   

Face

value

on grant

date

0003

   

Additional

shares

granted

in lieu of

dividends

   

Total

shares

vesting

   

Vesting

Date4

   

Shares/
ADR

price on

vesting

   

Value

on vesting

000

 

Mark Read

    2017 PSA       12.06.18     £ 12.380       38,317       £474       4,692     43,009     10.03.20       £6.681     £287
      2018 ESA       30.05.19     £ 9.484       62,834       £596       —         —         06.03.21       —         —    
      2019 ESA       14.05.20     £ 5.502       97,523       £537       —         —         06.03.22       —         —    

Paul Richardson1

    2018 ESA       30.05.19     $   60.060       2,847       $171       —         —         06.03.21       —         —    
1    

Paul Richardson’s ESAs were granted in respect of ADRs.

2   

Dividend shares will be due on these awards.

3   

Face value has been calculated using the average closing share price for the trading day preceding the date of grant (as set out in the table).

4   

The 2018 ESA vested on 15 March 2021 due to an extended close period.

 

Long-term incentive plans – EPSP

 

The following table summarises all of the awards outstanding under the EPSP.

 

     Grant
date
   

Performance

period

   

Shares/
ADR

price on

grant date

   

Maximum

number of nil

cost options over

shares/ADRs

awarded3

   

During 2020

        
 

Options

vested/

(lapsed)

   

Additional

dividend

shares

   

Options

exercised

   

Maximum number

of nil cost options

over shares/ADRs

at 31 December 2020

 

Mark Read1

    28.11.16       01.01.16-31.12.20     £ 17.052       58,644       —         —         —         58,644  
      04.12.17       01.01.17-31.12.21     £ 12.911       106,498       —         —         —         106,498  
      06.12.18       01.01.18-31.12.22     £ 8.604       396,617       —         —         —         396,617  
      24.09.19       01.01.19-31.12.23     £ 10.035       340,059       —         —         —         340,059  
      24.11.20       01.01.20-31.12.22     £ 7.411       460,464       —         —         —         460,464  

Paul Richardson2

    28.11.16       01.01.16-31.12.20     $   105.931       41,536       —         —         —         41,536  
      04.12.17       01.01.17-31.12.21     $ 86.914       36,933       —         —         —         36,933  
      06.12.18       01.01.18-31.12.22     $ 55.263       58,628       —         —         —         58,628  
      24.09.19       01.01.19-31.12.23     $ 62.653       51,593       —         —         —         51,593  

John Rogers1

    24.11.20       01.01.20-31.12.22     £ 7.411       299,554       —         —         —         299,554  
1    

EPSP awards made to Mark Read and John Rogers are in the form of nil-cost options and expire three months after the vesting date.

2   

Paul Richardson’s EPSP awards were granted in respect of ADRs.

3   

Dividend shares will be due on these awards.

 

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Additional share awards

 

Mark Read received awards prior to his appointment as CEO under the management incentive plans. In addition, he received awards on his appointment as joint-COO in April 2018. While the Board decided on the appointment of the next CEO, a special one-off award was made recognising the importance and scale of the additional responsibilities that were being undertaken. Each award is subject to continuous employment and malus and clawback and was made under the Restricted Stock Plan and the WPP Stock Plan 2018. John Rogers received buy-out awards to compensate for the forfeiture of incentive awards from his previous employer.

 

         

Grant

date

   

Share/
ADR

price on

grant date

   

No. of

Shares

/ADRs

granted2

   

Face

value

on grant

date

0003

   

Additional

shares

granted

in lieu of

dividends

   

Total

shares

vesting

   

Vesting

date

   

Share
price
on

vesting

   

Value

on vesting

000

 

Mark Read

  Leaders 2017     04.12.17     £   13.0850       11,463     £ 150       1,600     13,063     15.11.20     £   7.537     £ 98  
  Special award1     12.06.18     £ 12.3800       80,774     £ 500       4,946     45,333     01.05.20     £ 5.940     £   269  
                                £ 500       —         —         01.05.21       —         —    

John Rogers

  2019 EPSP
award4
    14.05.20     £ 5.854       182,744     £   1,070       —         —         15.03.21       —         —    
  2019 EPSP
award4
    14.05.20     £ 5.854       243,934     £ 1,428       —         —         15.03.22       —         —    
  Contractual
award
    14.05.20     £ 5.502       66,176     £ 364       —         —         04.05.21       —         —    
    Contractual
award
    14.05.20     £ 5.502       52,438     £ 289       —         —         15.11.21       —         —    
1    

The award vested in three tranches – the first on 1 May 2019, the second on 1 May 2020 and the third is due to vest on 1 May 2021.

2   

Dividend shares will be due on these awards.

3   

Face value has been calculated using the average closing share price for the trading day preceding the date of grant (as set out in the table).

4   

EPSP awards are in the form of nil-cost options and expire three months after the vesting date.

 

Non-Executive Directors’ total compensation received

 

The single total figure of compensation table below details fee payments received by the Non-Executive Directors while they held a position on the Board.

 

     

Fees

£000

    

Benefits

£000

    

Total

£000

 
      20201      2020      2020  

Roberto Quarta

     490        27        517  

Angela Ahrendts, appointed 1 July 2020

     41        0        41  

Jacques Aigrain

     135        2        137  

Sandrine Dufour, appointed 3 February 2020

     89        1        90  

Tarek Farahat

     98        0        98  

Sir John Hood, retired 10 June 2020

     51        3        54  

Tom Ilube, appointed 3 October 2020

     20        1        21  

Daniela Riccardi, retired 10 June 2020

     39        1        40  

Cindy Rose

     98        5        103  

Nicole Seligman

     135        1        136  

Sally Susman

     103        1        104  

Sol Trujillo, retired 10 June 2020

     43        1        44  

Keith Weed

     93        5        98  

Jasmine Whitbread

     118        5        123  
1    

The Non-Executive Directors took a voluntary 20% reduction in fees for four months between April and July 2020.

 

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Past directors

 

Since his retirement from the Board, Timothy Shriver provided consultancy services advising the Company on certain client relationships until 30 June 2020. He received a payment of £77,906 in 2020 for his consultancy services.

 

The Compensation Committee exercised its discretion under the terms of the EPSP to make malus adjustments. It determined that the 2016 and 2017 EPSP Awards granted to Sir Martin Sorrell, the former Group Chief Executive, will lapse as a result of Sir Martin Sorrell’s disclosure of confidential information belonging to WPP and certain of its clients to the media during his tenure as a WPP director.

 

The full Directors’ Compensation Policy can be found at www.wpp.com/investors/corporate-governance. This Annual Report on Form 20-F does not incorporate by reference information on the Company’s website.

 

C. Board Practices

 

       
Board attendance table                     
     

Board

(scheduled

meetings)

    

Audit

Committee

(scheduled

meetings)

    

Compensation

Committee

(scheduled

meetings)

 

Roberto Quarta

     6/6                 3/3  

Mark Read

     6/6                    

John Rogers – appointed on 3 February 2020

     6/6                    

Angela Ahrendts DBE – appointed on 1 July 2020

     3/3                    

Jacques Aigrain

     6/6        8/8        3/3  

Sandrine Dufour – appointed on 3 February 2020

     6/6        8/8           

Tarek Farahat

     6/6        8/8           

Tom Ilube CBE – appointed on 5 October 2020

     2/2                    

Cindy Rose OBE

     6/6        8/8           

Nicole Seligman

     6/6                 3/3  

Sally Susman

     6/6                    

Keith Weed

     6/6                    

Jasmine Whitbread

     6/6                 3/3  

Former Directors who served for part of the year

                          

Sir John Hood – retired on 10 June 2020

     3/3                 2/2  

Daniela Riccardi – retired on 10 June 2020

     3/3                    

Paul Richardson – retired on 1 May 2020

     2/2                    

Solomon D. Trujillo – retired on 10 June 2020

     3/3        5/5           

Number of ad-hoc meetings

     7        1        8  

 

The role of the Board

 

The Board is responsible for the overall long-term success of WPP and for setting the Company’s purpose, values and culture and strategic direction; oversees the implementation of appropriate risk assessment processes to identify and mitigate WPP’s principal risks; responsible for corporate governance; and oversees the execution of the strategy and responsible for the overall financial performance of the Group. The Board recognises the

 

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importance of considering the perspectives of, and the potential impact on, the Company’s key stakeholders in its discussions. Its responsibilities are discharged through an annual programme of meetings, each of which follows a tailored agenda. A typical Board meeting will comprise reports on operational and financial performance, progress onstrategy, people updates and a deep dive into a particular ESG topic. The list of matters reserved to the Board can be downloaded from www.wpp.com/investors/corporate-governance. This Annual Report on Form 20-F does not incorporate by reference information on the Company’s website.

 

Re-election

 

The Chair, Senior Independent Director and Non-Executive Directors are appointed for a three-year term, subject to annual re-election by the shareholders at the AGM. With only specific exceptions to ensure Board continuity, Non-Executive Directors shall not stand for re-election after they have served for the period of their independence, as determined by applicable UK and US standards, which is nine years. With the exception of Angela Ahrendts, Tom Ilube and Dr. Zhang who are standing for election for the first time, all Directors will stand for re-election at the AGM with the support of the Board. The Non-Executive Directors’ letters of appointment are available for inspection at the Company’s registered office.

 

Service contracts

 

The Company’s policy on Executive Directors’ service contracts is that they should be on a rolling basis without a specific end date. The effective dates and notice periods under the current Executive Directors’ service contracts are shown below:

 

                      Effective from        Notice period  

Mark Read

                       3 September 2018          12 months  

Paul Richardson1

                       19 November 2008          12 months  

John Rogers

                       27 January 2020          12 months  

 

1    

Paul Richardson retired from the Company with effect from 1 May 2020, and his service contract is no longer in effect.

 

The Executive Directors’ service contracts are available for inspection at the Company’s registered office and head office.

 

Loss of office provisions

 

Fixed compensation elements

 

As noted above, the service contracts of the executives provide for notice to be given on termination.

 

The fixed compensation elements of the contract will continue to be paid in respect of any notice period. There are no provisions relating to payment in lieu of notice. If an Executive Director is placed on garden leave, the Compensation Committee retains the discretion to settle benefits in the form of cash. The Executive Directors are entitled to compensation for any accrued and unused holiday although, to the extent it is possible and in shareholder interests, the Committee will encourage Executive Directors to use their leave entitlements prior to the end of their notice period. Except in respect of any remaining notice period, no aspect of any Executive Director’s fixed compensation is payable on termination of employment.

 

Short- and long-term compensation elements

 

If the Executive Director is dismissed for cause, there is not an entitlement to a STIP award, and any unvested share- based awards will lapse. Otherwise, the table below summarises the relevant provisions from the Directors’ service contracts (cash bonus) and the plan rules (ESA and EPSP), which apply in other leaver

 

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scenarios. The Compensation Committee has the authority to ensure that any awards that vest or lapse are treated in accordance with the plan rules, which are more extensive than the summary set out in the table below.

 

 

Cash bonus    The Executive Directors are entitled to receive their bonus for any particular year provided they are employed on the last date of the performance period.
ESA    Provided the Executive Director is a Good Leaver, unvested awards will be reduced on a time pro-rata basis and paid on the vesting date.
EPSP   

•   The award will lapse if the Executive Director leaves during the first year of a performance period.

  

•   Provided the Executive Director is a Good Leaver, awards will vest subject to performance at the end of the performance period and time pro-rating. Awards will be paid on the normal date.

  

•   In exceptional circumstances, the Compensation Committee may determine that an award will vest on a different basis.

  

•   Generally, in the event of death, the performance conditions are to be assessed as at the date of death. However, the Compensation Committee retains the discretion to deal with an award due to a deceased executive on any other basis that it considers appropriate.

    

•   Awards will vest immediately on a change of control subject to performance and time pro-rating will be applied unless it is agreed by the Compensation Committee and the relevant Executive Director that the outstanding awards are exchanged for equivalent new awards.

 

Other Compensation Committee discretions not set out above

 

Leaver status: the Compensation Committee has the discretion to determine an executive’s leaver classification considering the guidance set out within the relevant plan rules.

 

Settlement agreements: the Compensation Committee is authorised to reach settlement agreements with departing executives, informed by the default position set out above.

 

External appointments

 

Executive Directors are permitted to serve as non-executives on the boards of other organisations. If the Company is a shareholder in that organisation, non-executive fees for those roles are waived. However, if the Company is not a shareholder in that organisation, any non-executive fees can be retained by the office holder.

 

Other chairman and non-executive director policies

 

Letters of appointment for the chairman and non-executive directors

 

Letters of appointment have a one- to two-month notice period and there are no payments due on loss of office.

 

Appointments to the Board

 

The Chairman and Non-Executive Directors are not eligible to receive any variable pay. Fees for any new Non-Executive Directors will be consistent with the operating policy at their time of appointment. In respect of the appointment of a new Chairman, the Compensation Committee has the discretion to set fees considering a range of factors including the profile and prior experience of the candidate and external market data.

 

Payments in exceptional circumstances

 

In unforeseen and exceptional circumstances, the Compensation Committee retains the discretion to make emergency payments which might not otherwise be covered by this policy. The Committee will not use this

 

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power to exceed the recruitment policy limit, nor will awards be made in excess of the limits set out in the Directors’ Compensation Policy table. An example of such an exceptional circumstance could be the untimely death of a director, requiring another director to take on an interim role until a permanent replacement is found.

 

Compensation Committee

 

During 2020, the Compensation Committee met three times on a formal basis, with additional informal meetings held as needed to deal with ad hoc matters. A table of Board and Committee attendance can be found on page 41.

 

The Committee members have no personal financial interest (other than as a shareholder as disclosed on page 53) in the matters to be decided by the Committee, potential conflicts of interest arising from cross-directorships, or day-to-day involvement in running the Group’s businesses. The terms of reference for the Compensation Committee are available on the Company’s website, www.wpp.com/investors/corporate-governance, and will be on display at the AGM, as set out in the Notice of AGM. This Annual Report on Form 20-F does not incorporate by reference information on the Company’s website.

 

The Committee’s principal responsibilities under its terms of reference include:

 

   

To set, review and approve in respect of the Company’s Chairman, Chief Executive Officer, other Executive Directors, the Executive Committee and the Company Secretary:

 

   

the remuneration policy;

 

   

individual remuneration arrangements;

 

   

individual benefits, including pension;

 

   

Individual fees and expenses;

 

   

terms and conditions of employment;

 

   

terms of any compensation package in the event of early termination of contract;

 

   

participation in any cash or share based plans operated by the Company; and

 

   

to set the targets and measures for any performance related cash or share based plans operated by the Company for the Chief Executive Officer and other Executive Directors, and to have oversight of the performance measure and target setting for of such plans for the Executive Committee and the Company Secretary.

 

   

To review remuneration and related policies across the general workforce and the alignment of incentives and rewards with culture, taking this into account when determining the remuneration policy for the Executive Directors.

 

   

To use judgement to determine whether incentives that are due as a result of formulaic outcomes are truly representative of company and individual performance.

 

   

To use discretion to make adjustments to incentives as appropriate.

 

   

To oversee the process for recovery and withholding (malus and clawback) and determine the resulting action to be taken.

 

   

The remuneration and contractual terms of the Non-Executive Directors (NEDs) will be set by the Company’s Chairman and the Executive Directors.

 

   

To approve new rules or amendments and the launch of any Company share or cashbased incentive plans and the grant, award, allocation or issue of shares or payments under such plan.

 

   

To agree the policy for authorising claims for expenses from the Company’s Chairman, Chief Executive Officer and Executive Directors.

 

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To establish the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants to advise the Committee.

 

   

To consult with key shareowners in respect of new or substantial changes to the remuneration policy or existing elements of remuneration.

 

   

To approve for submission to shareowners all new or substantial changes to existing elements of remuneration.

 

   

Oversee the preparation of and recommend to the Board the approval of the annual report of the Committee in compliance with statutory disclosure requirements and all relevant Codes of Best Practice.

 

Advisors to the Compensation Committee

 

The Compensation Committee regularly consults with Group executives. The Committee invites certain individuals to attend meetings, including the Chief Executive Officer and Chief Financial Officer (who are not present when matters relating to his own compensation or contracts are discussed and decided), the Company Secretary, the Chief People Officer and the Global Reward and Performance Director. The latter two individuals provide a perspective on information reviewed by the Committee and are a conduit for requests for information and analysis from the Company’s external advisors.

 

External advisors

 

The Committee retains Willis Towers Watson (WTW) to act as independent advisors. They provide advice to the Compensation Committee and work with management on matters related to our compensation policy and practices. They are a member of the Remuneration Consultants Group and have signed the code of conduct relating to the provision of advice in the UK. Considering this, and the level and nature of the service received, the Committee remains satisfied that the advice is objective and independent. WTW provides limited other services at a Group level and some of our operating companies engage them as advisors at a local level. In 2020, WTW received fees of £166,265 in relation to the provision of advice to the Committee. The Committee receives external legal advice, where required, to assist it in carrying out its duties.

 

Changes in Executive Directors

 

Paul Richardson retired from the Company with effect from 1 May 2020. John Rogers joined the Company as Chief Financial Officer Designate on 27 January 2020 and was appointed to the Board on 3 February 2020. Mr. Rogers became Chief Financial Officer following Paul Richardson’s retirement on 1 May 2020.

 

Audit Committee

 

The Committee is responsible for reviewing the quarterly, half yearly and annual financial results, including the Annual Report, with management, focusing on the integrity of the financial reporting process, compliance with relevant legal and financial reporting standards and application of accounting policies and judgements. During the year, the Committee considered management’s application of key accounting policies, compliance with disclosure requirements and information presented on significant matters of judgement to ensure the adequacy, clarity and completeness of half yearly and annual financial results announcements. The Committee undertook a detailed review before recommending to the Board that the Company continues to adopt the going concern basis in preparing the annual financial statements.

 

Committee responsibilities and key areas of focus in 2020

 

The Committee’s principal responsibilities under its terms of reference include:

 

   

monitoring the integrity of the Group’s financial statements and formal announcements relating to the Company’s financial performance, reviewing significant financial reporting judgements and disclosures;

 

 

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monitoring and reviewing the Group’s internal financial, operational and compliance controls and internal control system. Overseeing the Group’s compliance with Section 404 of SOX;

 

   

reviewing and monitoring the activities and effectiveness of the Group’s internal audit function;

 

   

reviewing and monitoring the Company’s risk management framework. Assisting the Board in carrying out a robust assessment of emerging and principal risks. Overseeing the Group’s risk exposure and risk strategy;

 

   

reviewing the effectiveness of the external audit process, reviewing and monitoring the independence and objectivity of the external auditor. Reviewing and approving the external auditor’s terms of engagement and remuneration;

 

   

monitoring applicable accounting and legal reporting requirements, including all relevant regulations of the FCA, the SEC, the NYSE and the Jersey Financial Services Commission and the UK Corporate Governance Code;

 

   

reviewing the Company’s systems and controls for ethical behaviour, the matters reported on the Group’s Right to Speak helpline and the investigations and actions undertaken by the Group in response; and

 

   

approving significant acquisitions.

 

The key areas of focus for 2020 included:

 

   

monitoring the impact of Covid-19 on the financial resilience of the business, including carrying out additional reviews on goodwill impairment and providing a recommendation to the Board to cancel the 2019 final dividend and suspend the share buyback programme;

 

   

monitoring the role of the newly established Risk and Controls Group and its objectives to strengthen the Internal Financial Controls Framework, particularly focused on Sarbanes-Oxley Act Compliance, and developing controls relating to risks identified in the Risk Appetite Framework;

 

   

in-depth reviews of the Group’s internal controls over financial reporting, particularly in relation to the material weaknesses identified;

 

   

ongoing monitoring of the business integrity programme, including oversight of whistleblower reports;

 

   

assessing the effectiveness of WPP’s IT Covid-19 response, including IT and cyber security; and

 

   

continuing to engage with the Internal Audit plan and monitoring progress.

 

Other reviews undertaken in 2020 by the Committee included:

 

   

Group tax strategy, performance and drivers of the Group’s effective tax rate;

 

   

reports on any actual or potential material litigation; and

 

   

Group Treasury performance and risk management.

 

Fair, balanced and understandable

 

To support the Board’s confirmation that the Annual Report and Accounts, taken as a whole, is considered to be fair, balanced and understandable, and provide the information necessary for shareholders to assess the Group’s position, performance, business model and strategy, the Committee oversaw the process by which the Annual Report and Accounts were prepared.

 

The Committee received a summary of the approach taken by management in the preparation of the Annual Report and Accounts, and considered in particular the accuracy, integrity and consistency of the messages conveyed in the Annual Report; the appropriateness of the level of detail in the narrative reporting; and that a balance had been sought between describing potential challenges and opportunities.

 

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The Committee therefore recommended to the Board (which the Board subsequently approved) that, taken as a whole, the 2020 Annual Report and Accounts is fair, balanced and understandable and provides the necessary information for shareholders to assess the Company’s position and performance, business model and strategy.

 

Internal Audit

 

The Internal Audit team provides independent assurance over the Company’s risk management and internal controls processes via internal audits and the testing programme for the Sarbanes-Oxley Act. The Internal Audit team has unrestricted access to all Group documentation, premises, functions and employees to enable it to perform its work. The Committee Chair met regularly with the Director of Internal Audit during the year without executive management present.

 

The annual internal audit plan, including the list of units for internal audit review, was approved by the Committee and progress against the plan was monitored throughout the year. There was particular focus on how the plan would be completed due to site and system restrictions as a result of Covid-19. This was largely addressed through reviews being completed remotely. Significant issues identified within internal audit reports were discussed in detail by the Committee along with the remediation plans to resolve them.

 

In March 2021, the Committee approved the appointment of Phil Gerrard as Director of Internal Audit, in succession to Paul Stanley who will retire later in the year. The Committee also considered the level of internal audit resource to ensure it is appropriate to provide the right level of assurance over the principal risks and controls throughout the Group.

 

Risk Management and Internal Control

 

The Board has overall responsibility for setting the Company’s risk appetite and for ensuring there is effective risk management. The Committee supports the Board in the management of risk and, in 2020, was responsible for monitoring and reviewing the effectiveness of the Company’s approach to risk management and the internal control framework.

 

Under the overall supervision of the Committee, the WPP Risk Committee, an executive committee supported by Risk Committees in each network, assesses emerging and principal risks and oversees and manages day-to-day risk in the business. The General Counsel, Corporate Risk provides regular updates to the Committee on risk matters including emerging risks, adherence to the Company’s business integrity programme (including mitigating and remediation actions) and the monitoring and evolution of the Company’s four risk modules: governance, culture, appetite and management.

 

An assessment of the principal risks and uncertainties facing the Group can be found on pages 2 – 5. In fulfilling its responsibilities, the Committee received reports throughout 2020 to enable evaluation of the control environment and risk management framework.

 

Internal Controls over Financial Reporting

 

The Committee carried out in-depth reviews of the Group’s internal controls over financial reporting, with a focus on monitoring, remediation of material weaknesses and compliance with Section 404 of the Sarbanes-Oxley Act. The following paragraphs outline the approach taken by management in relation to the remediation of material weaknesses, which the Committee oversaw and continues to monitor.

 

In response to the material weakness identified in 2019 relating to the control over the discount rate methodology used in impairment testing, management has enhanced its risk assessment of the impairment assessment process and has changed the approach to determining inputs with respect to the discount rates used in impairment assessments and has established a more comprehensive review process over inputs and the overall discount rate methodology. Management has also engaged an independent valuation specialist to assist as an integral part of the input determination process on an ongoing basis and implemented additional validation controls.

 

In respect of the years ended 31 December 2019, 2018 and 2017, and for each of the interim half year periods ended 30 June 2020 and 2019, material weaknesses were identified relating to the application of IAS 32 and IAS 39, which

 

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resulted in material misstatements. The Company filed a Form 20-F/A and Form 6-K/A with the SEC on 12 February 2021 restating the relevant Financial Statements to correct the identified misstatements. The Board determined these errors resulted from material weaknesses in its internal control over financial reporting as at 31 December 2019 and the Group concluded that its internal control over financial reporting was not effective. Management is committed to remediating the identified material weaknesses in a timely manner, with appropriate oversight from the Audit Committee. As part of the remediation, management is undertaking a series of steps to complete a comprehensive review and remediation of our controls and procedures and has engaged outside advisors to assist with this. In addition to the comprehensive retrospective reviews of the Company’s controls, management is implementing enhanced periodic controls including to identify and evaluate amended or clarified accounting standards, or new guidance with respect to accounting standards, as well as controls surrounding the verification of critical accounting judgments, including those most likely to be impacted by amendments to or clarifications of accounting standards we have adopted. Management is also re-reviewing our hedging relationships and the associated documentation and analysing the application of hedge accounting to all other financial instruments to which such accounting treatment is being applied. Management has updated the design of our controls to verify the nature and existence of contemporaneous hedge documentation in accordance with IAS 39. Each material weakness will not be considered fully remediated until all aspects of the applicable remediation plan for that material weakness have been implemented and such controls operate for a sufficient period of time to allow management to conclude, through testing, that these controls are operating effectively. The Committee continues to monitor the progress of the remediation.

 

Business Integrity

 

During the year, the Committee reviewed the adherence to, and evolution of, the business integrity programme. The Group has established procedures by which all employees may, in confidence (and, if they wish, anonymously) report any concerns. The Committee received regular updates on the Company’s systems and controls for ethical behaviour, which included matters reported on the Group’s Right to Speak helpline and investigations and actions undertaken in response. The Committee received regular reports on the total number and nature of reports from whistleblowers and investigations by region and by network both for substantiated and unsubstantiated cases. During the year the Committee was satisfied that the Right to Speak helpline arrangements are effective and facilitate the proportionate and independent investigation of reported matters and allow appropriate