WPP plc — FY2020 Form 20-F summary
Business context and reporting period
This is WPP’s annual report for the fiscal year ended 31 December 2020, filed 29 April 2021; it is not a standalone 2020 Q4 filing. WPP is a global communications, experience, commerce and technology services group, reporting under IFRS. Kantar is presented as discontinued operations following its sale to Bain Capital; reported segment revenue below is from continuing operations.
Global Integrated Agencies generated 77.5% of continuing-operations revenue, Public Relations 7.4%, and Specialist Agencies 15.1%. WPP had 99,830 employees at year-end, excluding associates.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue, continuing operations | £12.003bn | £13.234bn |
| Like-for-like revenue change | -7.3% | 0.0% |
| Operating profit/(loss), continuing operations | (£2.278bn) | £1.296bn |
| Headline operating profit | £1.261bn | £1.561bn |
| Headline operating margin, total group | 13.0% of revenue less pass-through costs | 14.4% |
| Loss/profit before tax, continuing operations | (£2.791bn) | £1.214bn |
| Loss/profit for the year, including discontinued operations | (£2.904bn) | £950.1m |
| Diluted EPS, continuing operations | (243.2p) | 68.2p |
| Net cash inflow from operating activities | £2.055bn | £1.851bn |
| Free cash flow | £1.284bn | £1.044bn |
| Year-end net debt, excluding lease liabilities | £695.6m | £1.540bn |
Revenue fell 9.3% reported and 8.1% at constant currency. Billings decreased 11.6% to £46.918bn. Headline PBT was £1.041bn, down 23.6%. The effective tax rate on the continuing-operations loss was -4.6%, principally because goodwill impairment was not tax-deductible.
Year-end cash and cash equivalents were £4.337bn, comprising £12.899bn of cash and short-term deposits less £8.562bn of overdrafts. Undrawn committed facilities were £2.023bn, giving stated total liquidity of approximately £6.4bn. Debt financing, including overdrafts, was £13.595bn; average net debt was £2.3bn, down from £4.4bn. The £2.5bn revolving credit facility was extended to March 2026 in February 2021; WPP reported covenant compliance.
Material changes versus prior comparable period
- COVID-19 reduced client spending, particularly in Q2, and drove full-year like-for-like revenue declines across all three segments. For the full year, revenue less pass-through costs fell 7.9% in Global Integrated Agencies, 4.0% in Public Relations and 11.5% in Specialist Agencies.
- Operating results included £2.823bn of goodwill impairment, £296.2m of investment and other write-downs, and £313.2m of COVID-related and other restructuring/transformation costs. Total net exceptional losses were reported at £477m, including WPP’s share of associate exceptional losses.
- Global Integrated Agencies headline operating profit fell to £967.8m from £1.220bn; Specialist Agencies fell to £151.4m from £200.5m. Public Relations was broadly stable at £141.3m versus £140.6m.
- Net debt declined by about £844m year over year, while free cash flow increased. WPP attributed cash resilience partly to strong working-capital performance and lower dividend outflows.
- WPP received the remaining Kantar sale proceeds in 2020. Kantar contributed £107.4m revenue and £16.4m profit from discontinued operations in 2020, versus £2.388bn revenue and £10.8m profit in 2019; these periods are not directly comparable because the disposal was completed in stages.
Outlook, management commentary, risks and unusual items
- Management said the business exceeded its expectations in 2020, cited industry-leading estimated net new business wins of $4.4bn, and said WPP worked on ecommerce assignments with 76 of its top 100 clients. It described first-quarter 2021 revenue as strong but noted continued market uncertainty.
- The December 2020 strategy targets approximately £600m of cost savings by 2025, with £400m intended to fund investment in growth capabilities and technology. WPP aims to return communications to sustainable growth and expand commerce, experience and technology; these are targets, not guaranteed outcomes.
- Management’s going-concern assessment modeled declines in revenue less pass-through costs of up to 30% versus 2020, alongside cost mitigation. It concluded that liquidity and covenant headroom were adequate for the foreseeable future. No specific 2021 revenue or profit guidance is provided in the supplied filing text.
- The 2020 impairment charge followed revised forecasts and higher discount rates. The 2020 annual filing increased the previously reported first-half goodwill impairment by £328.2m, citing corrected working-capital cash-flow assumptions; this adjustment reduced first-half net assets by £320.2m after the related deferred-tax adjustment.
- Three material weaknesses in internal control over financial reporting remained at year-end: goodwill/intangible impairment review; complex IFRS matters and changes in accounting standards; and net-investment hedge accounting and documentation. Management and Deloitte concluded ICFR was not effective; Deloitte issued an adverse ICFR opinion. Deloitte nevertheless gave an unqualified opinion on the IFRS financial statements.
- Other principal risks include continued pandemic effects, client concentration and short-notice contract cancellations, talent retention, cyber and data-privacy risks, foreign-exchange exposure, tax and regulatory changes, and execution of the transformation plan. The ten largest clients accounted for 16% of revenue; no single client exceeded 5%.
- The board proposed a 14p final dividend for 2020, following a 10p interim dividend, for 24p in respect of the year. The 2019 final dividend was cancelled during 2020 to preserve liquidity. WPP also repurchased 32.8m shares for £290m in 2020.
Most important facts for investors to verify
- Whether revenue, margins and client spending recovered after 2020, and whether the first-quarter 2021 improvement persisted.
- Whether the £600m savings target and planned £400m reinvestment are being delivered, including the related implementation costs and effects on talent and client service.
- Progress in remediating all three material weaknesses, and whether subsequent impairment estimates or accounting judgments require further adjustment.
- Cash-flow quality and working-capital sustainability, including the distinction between gross cash, substantial client-related overdrafts, net debt, and lease liabilities.
- Whether goodwill and associate valuations remain supportable under updated forecasts, discount rates and market conditions.
- Completion and terms of the proposed acquisition of the remaining WPP AUNZ shares, which was subject to customary conditions and regulatory approvals.