Business context and reporting period
WPP plc’s Form 20-F is an annual report for the fiscal year ended 31 December 2019, not a standalone Q4 filing. WPP provides global advertising, communications, public relations and specialist services. It reported 106,786 employees at year-end, excluding associates. The financial statements use IFRS as issued by the IASB and report in pounds sterling.
Following restructuring and the sale of a majority stake in Kantar, WPP reported three continuing segments: Global Integrated Agencies, Public Relations and Specialist Agencies. Kantar was presented as a discontinued operation.
Financial and operating metrics
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Revenue, continuing operations | £13,234.1m | £13,046.7m | +1.4% reported; +0.2% at constant currency; flat like-for-like |
| Operating profit | £1,295.9m | £1,237.9m | +4.7%; includes £61m benefit from IFRS 16 lease accounting |
| Headline operating profit | £1,560.6m | £1,651.2m | −5.5% |
| Profit before tax, continuing operations | £982.1m | £1,257.6m | −21.9% |
| Profit for year, continuing operations | £707.1m | £1,001.6m | −29.4% |
| Total profit for year | £717.9m | £1,139.4m | Includes discontinued operations |
| Diluted EPS, continuing operations | 49.8p | 74.3p | −33.0% |
| Operating cash flow | £1,850.5m | £1,693.8m | Increased |
| Free cash flow | £1,044.2m | £1,093.4m | Decreased |
| Net debt at year-end | £1,539.6m | £4,016.7m | Reduced substantially, principally reflecting Kantar disposal proceeds |
| Cash and short-term deposits | £2,969.0m | £2,643.2m | At 31 December |
WPP reported total liquidity, including undrawn committed facilities, of £4.8bn. Undrawn committed credit facilities were £2.006bn. Year-end lease liabilities were £2.250bn; lease liabilities are excluded from WPP’s stated net debt measure. The group had net current liabilities of £178.6m.
Headline operating profit margins, calculated on revenue less pass-through costs, were 15.0% for Global Integrated Agencies, 15.7% for Public Relations and 10.9% for Specialist Agencies.
Material changes versus the prior comparable period
- Reported revenue rose modestly, but like-for-like revenue was flat. Revenue less pass-through costs declined 0.7% like-for-like in Global Integrated Agencies and 5.6% in Specialist Agencies; Public Relations declined 1.0%.
- Headline operating profit fell 5.5%, with the largest segment decline in Specialist Agencies: £200.5m versus £283.8m. Its margin fell to 10.9% from 14.7%.
- Profit and EPS declined more sharply than revenue. Results reflected restructuring and transformation costs of £153.5m, goodwill impairment of £47.7m, and a £68.4m loss on revaluation of financial instruments, compared with a £169.4m gain in 2018. The effective tax rate rose to 28.0% from 20.4%.
- WPP completed the first main stage of the Kantar transaction in December 2019, selling approximately 90% and retaining a 40% interest in the new Kantar group. The disposal generated a £73.8m pre-tax gain, alongside £94.5m goodwill impairment and £157.4m tax expense. The remaining transaction stages were expected to complete in 2020.
- IFRS 16 was adopted from 1 January 2019 without restating prior periods. It increased reported operating profit by £61m but reduced diluted EPS by 1.8p and added lease assets and liabilities to the balance sheet.
Outlook, risks, contingencies and unusual items
- COVID-19 and outlook: WPP said the pandemic’s impact would be significant but could not yet be quantified, and withdrew its previously issued 2020 guidance. Q1 2020 revenue was down 4.9% reported, 4.6% at constant currency and 3.8% like-for-like.
- Liquidity actions: The Board suspended the proposed 2019 final dividend of 37.3p per share and the remaining share-buyback programme, actions expected to preserve approximately £1.1bn. WPP also froze hiring, postponed salary increases, cut discretionary spending and identified £700–800m of in-year 2020 savings, plus more than £100m of property and IT capital expenditure savings.
- Going concern: Directors said stress tests covering revenue less pass-through-cost declines from 15% to over 35% indicated adequate liquidity and covenant headroom, considering mitigation actions. They judged declines above 35% remote and retained the going-concern basis.
- Financial reporting controls: Management identified a material weakness in controls over goodwill and intangible-asset impairment testing, specifically selection of discount rates. Management concluded controls over financial reporting were ineffective; Deloitte issued an adverse opinion on internal control. The weakness did not result in a financial-statement restatement, and remediation was being designed and implemented.
- Other key risks: Client budget cuts, cancellations and loss of major clients; talent retention; cyber and data privacy; foreign exchange and interest rates; tax exposures; and additional goodwill impairment. The ten largest clients represented 15% of revenue, with no single client above 5%.
- Other items: Restructuring and transformation costs included costs expected to continue in 2020 and 2021. The goodwill impairment assessment used year-end assumptions that did not reflect COVID-19; management warned future impairment could be material. The filing states that ordinary-course legal claims were not expected to have a material adverse effect.
Most important facts for investors to verify
- How 2020 revenue, client spending and cash collections developed after the reported Q1 decline, and whether the withdrawn guidance was subsequently replaced.
- Whether planned cost savings and cash-preservation actions were achieved, and how liquidity, covenant headroom and debt changed after year-end.
- Progress and effectiveness of remediation for the impairment-discount-rate control weakness, and the outcome of subsequent goodwill and intangible-asset testing.
- Completion and final proceeds of the remaining Kantar sale stages, including any deferred or contingent consideration and the value of WPP’s retained stake.
- Whether flat 2019 like-for-like revenue and lower headline profit margins improved or deteriorated across segments, especially Specialist Agencies.
- The treatment of the suspended 2019 final dividend and the status of future distributions and share repurchases.