WPP plc — FY2022 Form 20-F
Reporting period: Year ended 31 December 2022. This is an annual report, not a standalone Q4 filing. Financial statements are prepared under IFRS as issued by the IASB; amounts are in pounds sterling unless stated otherwise.
Business context
WPP is a global communications, experience, commerce and technology services group operating in more than 100 countries. It had 115,473 employees at year-end. Its three reportable segments are Global Integrated Agencies, Public Relations and Specialist Agencies; Global Integrated Agencies generated 84.5% of 2022 revenue.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | £14,428.7m | £12,801.1m |
| Revenue growth | 12.7% reported; 7.0% constant currency; 6.7% like-for-like | 6.7% like-for-like |
| Gross profit | £2,538.6m | £2,203.6m |
| Operating profit | £1,358.2m | £1,229.0m |
| Headline operating profit | £1,741.8m | £1,493.5m |
| Profit before tax | £1,159.8m | £950.8m |
| Profit attributable to shareholders | £682.7m | £637.7m |
| Diluted EPS | 61.2p | 52.5p |
| Effective tax rate | 33.1% | 24.2% |
| Net cash from operating activities | £700.9m | £2,029.0m |
| Adjusted free cash flow | £53.1m | £1,264.9m |
| Adjusted net debt at year-end | £2,479.3m | £901.1m |
Headline operating profit and adjusted free cash flow are non-IFRS measures defined by WPP; they should be considered alongside reported results. Adjusted net debt excludes lease liabilities. Separately, reported debt financing was approximately £5.0bn, cash and short-term deposits were £2.5bn, and cash and cash equivalents net of overdrafts were £2.0bn. Total liquidity, including undrawn committed facilities, was £4.1bn; undrawn facilities were £2.1bn. Lease liabilities were £2.2bn.
Material changes versus FY2021
- Revenue rose 12.7% reported, while like-for-like growth was 6.7%, down from 13.3% in 2021.
- Headline operating profit increased 16.6%; reported operating profit increased 10.5%. Reported profit attributable to shareholders and diluted EPS also improved.
- Operating cash flow fell to £701m from £2,029m, principally reflecting an £847m outflow from working capital and provisions. Adjusted free cash flow fell to £53m from £1,265m.
- Year-end adjusted net debt increased by £1.6bn to £2.5bn, mainly reflecting shareholder returns and working-capital movements. Funds returned to shareholders in 2022 totaled approximately £1.23bn, including dividends and buybacks.
- The tax rate rose from 24.2% to 33.1%, partly because 2021 included one-off tax credits and the share of associate results declined.
Management commentary, outlook and risks
- Management described 2022 demand as strong despite economic uncertainty, citing client investment in communications, customer experience, commerce, data and technology. WPP reported $5.9bn of net new business and continued expansion of its Coca-Cola partnership, alongside account losses including PepsiCo and L’Oréal’s US media account.
- WPP expects the effective tax rate to continue increasing over the next few years. It expected a further £50m of share buybacks during 2023. The report gives no clear quantified revenue or profit guidance for 2023.
- The proposed 2022 final dividend was 24.4p per share; together with the 15p interim dividend, dividends in respect of 2022 total 39.4p per share. The final dividend is paid in the subsequent year.
- Management concluded the Group had adequate resources to continue as a going concern. Its stress testing included a modeled decline of up to 28% in revenue less pass-through costs, with mitigating actions and suspension of buybacks, dividends and acquisitions in the severe scenario; management considered such a decline remote.
- Key risks include economic downturn and reductions in client marketing budgets, geopolitical disruption and sanctions, client concentration and loss, talent retention, cyber and data-privacy incidents, execution of strategic and IT transformation, regulation, taxation, foreign exchange and climate-related exposure. The ten largest clients represented 16% of revenue; no client exceeded 5%.
- Adjusting items included £203.7m of restructuring and transformation costs, £37.9m of goodwill impairment, £48.0m of investment and other impairment charges, and a £63.1m loss on disposal of Russian interests, partly offset by gains on other disposals. The total net loss from adjusting items was £341m.
- The 2022 financial statements received an unqualified audit opinion. Management and Deloitte concluded internal control over financial reporting was effective at 31 December 2022; previously disclosed material weaknesses had been reported as remediated by year-end 2021.
Important facts for investors to verify
- Review the reconciliation and definitions of headline profit, like-for-like growth and adjusted free cash flow, including the substantial gap between reported operating profit and headline operating profit.
- Assess the causes and likely persistence of the working-capital outflow, the sharp decline in operating cash flow and adjusted free cash flow, and the rise in adjusted net debt.
- Check liquidity and covenant headroom against the debt maturity schedule, lease obligations and seasonal cash requirements from media buying.
- Examine goodwill impairment assumptions and sensitivities. Goodwill was £8.45bn; the filing identifies Wunderman Thompson as sensitive to modest changes in operating margin or discount rate.
- Monitor the 2023 tax-rate outlook, delivery of transformation savings, client retention and the proposed dividend and buyback plans.