WPP Plc Form 20-F Summary: Fiscal Year Ended December 31, 1999
Business Context and Reporting Period
This Form 20-F covers the fiscal year ended December 31, 1999, for WPP Group plc, a leading worldwide communications services organization. Headquartered in London, WPP operates in 92 countries with over 39,000 employees (including affiliates). The company provides advertising, media investment management, information and consultancy, public relations, and branding services. In 1999, WPP was the third-largest marketing services company globally based on revenue.
Key Financial Metrics (UK GAAP)
| Metric | 1999 (GBP) | 1999 (USD) | 1998 (GBP) |
|---|---|---|---|
| Revenue | £2,172.6 million | $3,514.8 million | £1,918.4 million |
| Turnover (Gross Billings) | £9,345.9 million | $15,119.8 million | £8,000.1 million |
| Operating Profit | £263.5 million | $426.3 million | £229.1 million |
| Operating Margin | 13.4% | 13.4% | 12.8% |
| Net Income (Attributable to Shareholders) | £172.8 million | $279.6 million | £140.3 million |
| Diluted EPS | 22.5p | 36.4c | 18.8p |
| Average Net Debt | £206.0 million | $333.3 million | £143.0 million |
| Net Interest Coverage | 8.2x | 8.2x | 7.6x |
| Free Cash Flow | £171 million | $276.6 million | N/A |
Note: USD figures are converted at the average 1999 exchange rate of £1 = $1.6178.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 13.3% on a reported currency basis and 12% on a constant currency basis. Growth was driven by all disciplines, particularly Public Relations (30.5% constant currency growth) and Branding/Healthcare (19.2%).
- Profitability: Operating profit rose 18.6% to £290.8 million (including associate income). Operating margins improved from 12.8% to 13.4%.
- Debt Levels: Average net debt increased to £206 million from £143 million in 1998, reflecting £262 million spent on acquisitions and investments, as well as share repurchases.
- Client Concentration: The top 10 clients accounted for approximately 30% of total revenues. No single client represented more than 8% of aggregate revenues.
Guidance, Outlook, and Risks
- 2000 Outlook: Management budgets for like-for-like revenue growth of more than 7% in 2000. The company targets operating margins of 14% by 2000 and 15% by 2002.
- Strategic Acquisitions: In May 2000, WPP announced a merger agreement with Young & Rubicam Inc., valued at approximately $4.7 billion. Pro forma 1999 revenues for the combined entity were estimated at £3.2 billion ($5.2 billion).
- Capital Allocation: The company maintains a rolling annual share buy-back program of approximately £100 million. Dividends for 1999 totaled 3.1p per share.
- Risks: Key risks include the loss of material clients (clients can move accounts with 90 days' notice), currency fluctuations (approx. 80% of revenue is from outside the UK), and economic downturns affecting client advertising budgets.
Investor Verification Checklist
- Merger Completion: Verify the status of the Young & Rubicam merger, which is subject to shareholder and regulatory approval.
- GAAP Reconciliation: Review the reconciliation to US GAAP (Page F-18), where Net Income is significantly lower (£106.8 million) due to goodwill amortization and executive compensation adjustments.
- Debt Maturity: Confirm the status of the $500 million revolving credit facility (expiring July 2002) and the $300 million US bond offering.
- Client Retention: Monitor the stability of the top 10 clients, which drive 30% of revenue, given the industry's high client mobility.
- Constant Currency Performance: Distinguish between reported growth and constant currency growth to assess organic performance versus exchange rate impacts.