REG - WPP PLC - 2022 Preliminary Results
23/02/2023 07:00
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RNS Number : 7778Q WPP PLC 23 February 2023
23 February 2023
2022 Preliminary Results
Strong performance driven by growth across all key WPP agencies. Headline
fully diluted EPS growth of over 25%. Expect LFL top-line growth of 3-5% and
further progress on operating margin to around 15% in 2023
Key figures
£ million 2022 +/(-)% reported 1 +/(-)% 2021
LFL 2
Revenue 14,429 12.7 6.7 12,801
Revenue less pass-through costs 11,799 13.5 6.9 10,397
Reported:
Operating profit 1,358 10.5 - 1,229
Profit before tax 1,160 22.0 - 951
Diluted EPS (p) 61.2 16.6 - 52.5
Dividends per share (p) 39.4 26.3 - 31.2
Headline 3 :
Operating profit 1,742 16.6 10.0 1,494
Operating profit margin 14.8% 0.4pt* 0.4pt* 14.4%
Profit before tax 1,602 17.3 - 1,365
Diluted EPS (p) 98.5 25.5 - 78.5
* Margin points
Full year and Q4 financial highlights
n FY reported revenue +12.7%, LFL revenue +6.7%
n FY LFL revenue less pass-through costs +6.9%; with good performance in Q4
+6.4%
n Q4 LFL revenue less pass-through costs by major market: US +3.5%, UK +12.0%,
Germany +4.9%, China -8.4%, India +8.5%
n Three-year FY LFL revenue less pass-through costs +10.0%; Q4 +10.2%
n FY headline operating margin 14.8%, up 0.4 points LFL with strong top-line
growth and efficiency savings supporting investment and margin expansion
n Reported diluted EPS 61.2 pence; headline diluted EPS up 25.5% to 98.5 pence
n Adjusted net debt at 31 December 2022 £2.5 billion (2021: £0.9 billion)
after investments and over £1.1 billion of cash returned to shareholders.
Average adjusted net debt to EBITDA ratio of 1.46x, slightly below the
1.5-1.75 target range
n Trade working capital adverse movement of £226 million 4 at year-end
driven by mix and timing factors. Average trade working capital across 2022
was flat year-on-year
n Final dividend of 24.4 pence proposed, up 30.5%, for a proposed total
dividend for 2022 of 39.4 pence, in line with our policy of approximately 40%
of headline diluted EPS
Strategic progress, shareholder returns and 2023 guidance
n Strong performance across major WPP agencies: continued strength in GroupM
2022 with FY LFL revenue less pass-through costs growth of +9.1%, with other
Global Integrated Agencies delivering 5.0% LFL growth; Public Relations 8.2%
and Specialist Agencies 5.6%
n Breadth and depth of capabilities resonating well with clients: $5.9
billion 5 of net new business won, including Audible, Danone, SC Johnson and
Verizon
n Recognised for creativity: most awarded company at the 2022 Cannes Lions
Festival for the second year running
n Transformation programme gross annual savings of around £375 million
against a 2019 base are ahead of the planned £300 million, with savings in
property, procurement and ways of working, enabling additional investment in
talent for growth areas. On track to reach target of £600 million by 2025
n Over £1.1 billion returned to shareholders in 2022 comprising £807 million
of share buybacks completed and £365 million of dividends paid
n 2023 guidance: LFL revenue less pass-through costs growth of 3 to 5%, and
further margin improvement reflecting continued operating leverage, to deliver
a headline margin of around 15% (excluding the impact of FX)
Mark Read, Chief Executive Officer, WPP:
"WPP delivered strong growth in 2022, despite the macro challenges, reflecting
the priority placed by our clients on investing in communications, customer
experience, commerce, data and technology.
"The competitiveness of our offer drove net new business of $5.9 billion in
2022, including new assignments with Audible, SC Johnson, and Verizon among
many others and the quality of our work was recognised at the Cannes Lions
Festival of Creativity where WPP was named Creative Company of the Year.
"Our transformation is now delivering measurable results. Over the past three
years, WPP has grown like-for-like net sales at a compound average rate of
3.2%, including 3.3% in North America, while improving our headline operating
profit margin by 40 basis points. Our adjusted net debt has declined from over
£4 billion at the end of 2018 to £2.5 billion, while over £3.4 billion has
been returned to shareholders via share buybacks and dividends.
"We enter 2023 in a strong financial position with good momentum from new
business and the many opportunities ahead of us. While there will no doubt be
challenges, the continued need for major companies to build brands, sell
products, reinvent and transform their business, understand their data, invest
in technology and exploit the potential of AI remains, as does their need for
modern partners who can help them navigate this new world."
For further information:
Investors and analysts
Tom
Waldron
+44 7867 975920
Anthony Hamilton +44 7464 532903
Caitlin Holt +44 7392 280178
irteam@wpp.com
Media
Chris Wade +44 20 7282 4600
Richard Oldworth, +44 7710 130 634
Buchanan Communications +44 20 7466 5000
wpp.com/investors (http://www.wpp.com/investors)
( 1 ) Percentage change in reported sterling.
( 2 ) Like-for-like. LFL 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 reflect the results of acquisitions and disposals.
( 3 ) In this press release not all of the figures and ratios used are readily
available from the unaudited preliminary results included in Appendix 1.
Management believes these non-GAAP measures, including constant currency and
like-for-like growth, revenue less pass-through costs and headline profit
measures, are both useful and necessary to better understand the Group's
results. Where required, details of how these have been arrived at are shown
in Appendix 2.
( 4 ) Includes a benefit of £102 million due to more favourable FX rates at
year end compared to the prior year
( 5 ) Billings, as defined in the glossary.
Overview and strategic progress
Market environment
The global marketing and advertising industry has demonstrated great
resilience as brands continue to invest in marketing despite turbulence in the
global economy. According to GroupM estimates, global advertising spend 1
grew by 6.5% in 2022, slightly lower than the 8.4% forecast in June 2022, a
change primarily due to lower than expected growth in China.
Digital advertising has continued to grow. As the number of scaled advertising
platforms increases the market is becoming more complex. GroupM estimates that
global digital advertising spend grew by 9.3% in 2022, following unprecedented
31.9% growth in 2021. Digital advertising made up 67% of total advertising in
2022, up from 64% in 2021. Retail media is one of the fastest growing segments
within digital advertising, reflecting the growth in ecommerce post the
pandemic. GroupM estimates retail media spending will have reached $110.7
billion globally in 2022, around 20% of overall digital spend.
Spend on TV is recovering to pre-pandemic levels as advertisers value the
medium's effectiveness in satisfying reach and frequency goals. GroupM
estimates that TV advertising grew by 1.7% in 2022, a slowdown in growth from
11.7% in 2021. The robustness of TV spend has been supported by growth in
connected TV inventory, which made up 12.7% of the market in 2022, up from
11.0% in 2021. GroupM expects connected TV to make up nearly a third of all US
TV advertising by 2027.
Global out of home advertising saw modest growth in 2022, curtailed by
lockdown restrictions in China - the largest market for out of home
advertising. Audio saw low-single-digit growth, supported by growth in digital
which represents nearly a quarter of total audio advertising revenue. Print
continues to face pressure as publishers are diversifying their offerings and
revenue streams.
By geography, 2022 saw healthy growth in most major markets. Based on GroupM
findings, advertising spend in the US and UK grew by 7.1% and 8.9%
respectively. China was the only major market to see declines in advertising
spend in 2022 as lockdown restrictions impacted consumer spending.
For 2023, GroupM expects global advertising spend to grow 5.9% including a
return to growth in China as the economy re-opens, which is expected to grow
6.3% after a decline of 0.6% in 2022.
Ukraine
Since the war in Ukraine began in February 2022, our colleagues in Ukraine
have shown extraordinary resilience and bravery and we remain in regular
contact with our leaders in the country to support our employees. This has
included financial support packages and other forms of assistance, including
access to medical advice, counselling, immigration and relocation support,
language classes, schooling for children and other practical resources.
WPP partnered with the UN's Refugee Agency (UNHCR) to launch an emergency
appeal for families forced to flee their homes in Ukraine. Our people donated
$675,000 which WPP match-funded, bringing the total to $1.35 million. Through
GroupM, we secured $1.5 million in pro bono media support for the wider public
appeal through our partners.
We also supported the Ukrainian government through a pro bono initiative to
encourage inward investment and help revitalise the country's economy.
Advantage Ukraine launched in September 2022, when we arranged for President
Zelensky to virtually ring the opening bell at the New York Stock Exchange.
In early March, the Board of WPP concluded that WPP's ongoing presence in
Russia would be inconsistent with our values as a company and we have
subsequently divested our businesses there. This led to a loss on disposal of
£63 million. Russia represented approximately 0.8% of WPP's revenue and 0.6%
of revenue less pass-through costs in 2021.
Performance and progress
Since 2019, WPP's LFL revenue less pass-through costs have grown 10%, headline
operating profit is 15% higher and headline EPS has grown by 26%.
Revenue was £14.4 billion, up 12.7% from £12.8 billion in 2021, and up 6.7%
like-for-like. Revenue less pass-through costs was £11.8 billion, up 13.5%
from £10.4 billion in 2021, and up 6.9% like-for-like.
We delivered a strong performance in 2022, with LFL growth in revenue less
pass-through costs across all our major creative, media, public relations and
specialist agencies. Client demand has been strong, particularly for commerce
services and in commerce media. GroupM's commerce billings increased 18%
year-on-year in 2022 while the proportion of digital billings has grown to 48%
in 2022, from 43% in 2021.
Revenue less pass-through costs from higher-growth areas of our offer in
experience, commerce and technology remained around a quarter of the Group.
Global revenue less pass-through costs from experience, commerce and
technology grew high-single digits in line with expected market growth, but in
2022 this growth was matched by the rest of the portfolio, including a
resurgent performance in broader creative, PR and other communications
activities. For Global Integrated Agencies, excluding GroupM, experience,
commerce and technology accounted for 39%, compared to 38% in 2021 and 35% in
2019.
Clients and partners
By sector, we have had continued momentum from clients in the technology,
healthcare & pharma and consumer packaged goods sectors, which together
represent 55% of our revenue less pass-through costs for designated clients.
On a three-year basis, these sectors recorded like-for-like growth of 27.9%,
19.4% and 21.4% respectively. At the client level, we also saw a broad
commitment to investing in marketing for growth, with 14 out of our top 30
clients in 2022 showing double-digit growth.
We won $5.9 billion of net new billings in 2022. Key assignment wins include
Audible, Danone, Migros, SC Johnson, Nationwide and Verizon. Key retentions
included Sony Playstation, Tesco, Mars Wrigley and MasterKong. Account losses
included L'Oréal (US media) and PepsiCo.
Following the Coca-Cola Company account win in 2021, this global partnership
of unprecedented scale in the industry has been onboarded at pace, with
expectations for further growth, as well as a strong new business pipeline,
helping to underpin our overall guidance for 2023.
Our relationships with the world's largest brands continue to broaden, with
90% of WPP's top 50 clients working with five or more of our agencies,
demonstrating the integrated nature of our offer.
We continue to develop new strategic partnerships with leading and emergent
technology companies to build expertise, gain unique insights and develop our
offering for clients.
We have recently announced several partnerships to enhance our commerce
capabilities. These include a first-of-its-kind partnership with Instacart,
the leading online grocery platform in North America, giving WPP early product
insights, access to custom features and a co-developed certification
programme; a partnership with financial infrastructure platform Stripe to
enhance our digital commerce capabilities across the business; and a
partnership with BigCommerce a leading Open SaaS ecommerce platform, giving
WPP priority access to new product tools and data sets that will enable WPP
agencies to develop unique insights, maximise omnichannel sales and optimise
spend for both B2C and B2B clients.
Agencies across WPP are using a broad range of generative artificial
intelligence tools to automate workflows, speed the process of ideation and
concepting, and produce innovative creative work for clients.
Creativity and awards
Our success in 2022 was again underpinned by the strength of our creative
work. We were honoured to win the prestigious title of most creative company
of the year at Cannes Lions International Festival of Creativity for the
second year in a row. Ogilvy won global network of the year, regaining the top
spot it last won in 2016.
In the 2022 WARC rankings, Ogilvy also topped the creativity ranking and
placed second for effectiveness, becoming the only agency to secure top
rankings in both categories and reflecting the breadth of its offer. WARC also
named Mindshare the number one media agency network for the third consecutive
year.
VMLY&R was recognised by Forrester as a leader in Marketing Creative and
Content Services, AKQA secured two Grand Clio awards and Wunderman Thompson
won the inaugural Creative B2B Grand Prix award at Cannes Lions.
Investments for growth
During the year we made a number of acquisitions investing net £237m,
excluding earnout payments, to expand our presence in fast growing regions
such as Latin America, and our global offer in experience, commerce and
technology. Key acquisitions included: influencer marketing agency Village
Marketing in North America; Bower House Digital a leading marketing technology
services agency in Australia; Latin American ecommerce agency Corebiz;
JeffreyGroup, one of the most respected independent corporate communications,
public affairs, and marketing consulting firms in Latin America; Passport
Brand Design in the US; Diff, a leading commerce agency based in Montreal; and
New York-based digital transformation agency Fenom Digital.
We also continued to make organic investments to drive significant long-term
growth opportunities, with a focus on unifying and accelerating our data
capabilities and partnerships, embedding AI into our workflows through
Satalia, and further building out our proprietary software portfolio.
Choreograph, our data company, continues to invest in its data products,
allowing brands to predict relevance and drive deeper customer connections,
with recent innovative work for Ford, Unilever and Bayer. Choreograph
continues to play a central role in key client assignment wins, including
Verizon in 2022.
In April 2022, we launched GroupM Nexus, bringing together 9,000 practitioners
globally across addressable TV (Finecast), AI, retail media and commerce,
programmatic (Xaxis), search and social to be the performance engine for
GroupM's agencies and deliver transformational outcomes for clients across
digital channels and platforms. We are continuing to see great potential for
innovation and growth in this area, as brands increasingly focus more of their
budgets on delivering cross-channel digital performance and as traditional TV
budgets continue to follow audiences onto new platforms offering better
addressability and measurement such as Connected TV. Finecast added 150 new
clients in 2022 and grew strongly.
Transformation programme
Good progress has been made on our transformation programme, designed to
simplify WPP, build greater collaboration, drive efficiency and free up funds
for reinvestment in growth. By the end of 2022 we had delivered around £375
million of gross annual savings against a 2019 base, ahead of planned savings
of £300 million, with savings across property, procurement and ways of
working.
We remain comfortably on target to achieve our goal of £600 million annual
cost efficiencies against a 2019 base by 2025.
Transformation cost saving enabled additional investment in talent in growth
areas, allowing WPP to end 2022 with a better balance of freelance and
salaried staff.
The transformation of our property estate continues, with a further five
campuses opened in 2022 (Brussels, Düsseldorf, Santiago, Tokyo, Toronto),
taking the total to 36, accommodating around half our people. In January we
opened a new office in Guangzhou, China, and we plan to open additional
offices including Atlanta, Paris and Manchester, in 2023. The programme has
driven significant savings to date and our goal remains to complete at least
65 campuses, housing more than 85,000 people, by 2025.
As part of our transformation, we are consolidating and modernising our
Enterprise Resource Planning and Human Capital Management tools by deploying
Workday and Maconomy. We have also established 24x7 IT services capabilities
for the Group, moving over 1,000 people from agency roles into WPP and
establishing global hubs in Chennai, Mexico, Bucharest and Kuala Lumpur.
We continue to implement a new procurement operating model leveraging our
global scale, aligned around categories and consolidating suppliers. As part
of this programme, we launched an initiative in 2022 to optimise our use of
flexible talent across the Group.
We have also merged more of our businesses to simplify our organisation and
respond to our clients' needs for integrated solutions. Within GroupM we
announced the merger of Essence and MediaCom to form EssenceMediacom and the
formation of GroupM Nexus. In our specialist design agencies, we announced the
merger of Design Bridge and Superunion to create a single leading design
company, Design Bridge and Partners.
Purpose
WPP's purpose is to use the power of creativity to build better futures for
our people, our planet, our clients and our communities. We outlined our
sustainability strategy at an ESG event for stakeholders in June 2021. Since
then, we have continued to make good progress in our commitments across each
pillar of our purpose.
People
Throughout the year we have launched and expanded programmes across our
agencies to attract, engage and develop top talent, including the Future
Readiness Academies programme, a unique global learning programme, based on
the four elements of WPP's offer: communications, experience, commerce and
technology; to help everyone across the company gain the skills and knowledge
needed for success in a growing digital world.
WPP is committed to improving diversity, equity and inclusion across the
company. During the year we were pleased to appoint a new Chief Talent and
Inclusion Officer, LJ Louis, who will oversee global initiatives and we
continue to link our leaders' compensation and performance reviews to our
DE&I goals and achievements.
Our Mental Health Allies programme has been rolled out in Singapore, following
the success of the UK initiative and its extension to the United States, aimed
at supporting our people and reducing stigmas around mental health. So far, we
have trained over 550 Mental Health Allies and aim to continue to expand into
more markets in 2023.
Recognising our commitment to building an inclusive culture, WPP achieved a
top score on the Corporate Equality Index and has been named among the Best
Places to Work for LGBTQ+ equality. In partnership with Choreograph, WPP Unite
our company-wide LGBTQ+ community published Beyond the Rainbow, a survey of
over 7,500 people in the United States, UK and Canada to better understand
their perceptions and experiences of viewing LGBTQ+ identities in media and
advertising.
We continue to invest in programmes to drive greater gender balance across the
business. WPP's women's network, Stella, has been expanded across EMEA aiming
to connect, inspire and support women across WPP to maximise their potential.
In June 2020, as part of a wider set of commitments to help combat racial
injustice, WPP pledged to invest $30 million over a three-year period to fund
inclusion programmes and support external organisations. WPP agencies globally
are invited to apply to receive resources to create and run impactful
programmes to advance racial equity. Successful third-round proposals include:
Mindshare's Impact Index, an AI Human safety tool that examines the social
impact of editorial content on historically underrepresented communities; WPP
Belgium's Surboum from a WPP team in Belgium, a platform for companies,
organisations and creatives dedicated to make the creative scene in Belgium
more diverse; and Set Creative's Pathways Network, an industry-wide coalition
to power diversity, equity and inclusion in suppliers across the experiential
event marketing industry.
Planet
WPP has committed to reach net zero carbon emissions across its direct
operations by 2025 and across its supply chain by 2030. Our net zero pledges
are backed by science-based reduction targets, which have been verified by the
Science-Based Targets initiative. We have committed to reducing our absolute
Scope 1 and 2 emissions by at least 84% by 2025 and reduce Scope 3 emissions
by at least 50% by 2030, both from a 2019 base year.
WPP is the only marketing communications company to include the emissions from
media placement in our emissions reduction target. Currently, media accounts
for more than half of WPP's supply chain emissions. GroupM has launched a
media decarbonisation framework for measuring and reducing ad-based carbon
emissions. Supporting this, GroupM has created a client coalition uniting
leading advertisers, collectively representing $10 billion in global
advertising investment, with a shared commitment to accelerate the
decarbonisation of the world's media supply chain.
During the year, WPP was awarded a 'Prime' ESG rating by ISS, one of the
world's leading rating agencies for sustainable investment. WPP received an
'A-' rating in CDP's 2022 climate change assessment for the second year in a
row.
Clients
Purpose is at the heart of our offer, and we continue to support our clients
on their own diversity, equity and inclusion goals. For example, Mindshare
Inclusive Innovation hosted a panel with key clients and Mindshare leaders for
TikTok's NextGen Diverse Creator Cohort. The goal of the panel was empower
diverse creators and provide insight on the role of influencer marketing for
brands, how media agencies work, on how to land a brand partnership.
In our annual survey of our client satisfaction, our key Likelihood to
recommend score was 8 out of a possible 10, with Quality of work scored at 8.1
and Diversity, Equity and Inclusion scored at 8.2, maintaining the high levels
achieved in the 2021 survey and showing a significant improvement over
2018-2020.
Communities
WPP is committed to making a positive contribution to the communities in which
we operate. Earlier this year, WPP launched Creative Data School a learning
programme for 6,000 young people aged 10-25 across the UK, designed by WPP's
data and AI team, aiming to inspire young people and build their confidence in
Data and AI.
In November, WPP published The Consumer Equality Equation report, a study into
the relationship between ethnicity and the consumer experience in the UK,
urging brands to rethink assumptions and address inequality. The report,
supported by the WPP Racial Equity Programme, is an important milestone in our
commitment to be a catalyst towards greater consumer equality.
Outlook for 2023
WPP is entering 2023 with a compelling client offer, good momentum from new
business wins, and a robust balance sheet.
Our guidance for 2023 is as follows:
Like-for-like revenue less pass-through costs growth of 3-5%;
further margin improvement reflecting continued operating leverage to deliver
a headline margin of around 15% (excluding the impact of FX)
Other 2023 financial guidance:
n We also anticipate mergers and acquisitions will add 0.5-1.0% to revenue
less pass-through costs growth
n Headline income from associates is expected to be around £40 million*
n Effective tax rate (measured as headline tax as a % of headline profit
before tax) of around 27.0%
n Capex £300 million
n Restructuring costs of around £180 million
n Trade working capital expected to be broadly flat year-on-year with
operational improvement offsetting increased client focus on cash management
n Average net debt/EBITDA within the range of 1.5x-1.75x
*Kantar associate income
In accordance with IAS 28: Investments in Associates and Joint Ventures once
an investment in an associate reaches zero carrying value, the Group does not
recognise any further losses, nor income, until the cumulative share of income
returns the carrying value to above zero. At the end of 2022 WPP's cumulative
reported share of losses in Kantar has reduced the carrying value of the
investment to zero. This means that we expect that around £40-50 million of
Kantar headline income will not be recognised in our headline income from
associates during 2023.
Medium-term guidance
We remain confident in our ability to deliver annual revenue less pass-through
costs growth of 3-4% and headline operating profit margin of 15.5-16%, as a
result of the actions we have taken to broaden and strengthen our services, to
increase our exposure to attractive industry segments and to leverage our
global scale.
Financial results
Unaudited headline income statement 2 :
£ million +/(-) % reported +/(-) %
2022 2021 LFL
Revenue 14,429 12,801 12.7 6.7
Revenue less pass-through costs 11,799 10,397 13.5 6.9
Operating profit 1,742 1,494 16.6 10.0
Operating profit margin % 14.8% 14.4% 0.4pt 0.4pt
Income from associates 74 86 (14.2)
PBIT 1,816 1,580 14.9
Net finance costs (214) (215) 0.1
Profit before tax 1,602 1,365 17.3
Tax (409) (328) (24.7)
Profit after tax 1,193 1,037 15.0
Non-controlling interests (93) (83) (11.7)
Profit attributable to shareholders 1,100 954 15.3
Diluted EPS 98.5p 78.5p 25.5
Reconciliation of profit before taxation to headline operating profit:
£ million 2022 2021
Profit before taxation 1,160 951
Finance and investment income 145 70
Finance costs (359) (284)
Revaluation and retranslation of financial instruments 76 (88)
Profit before interest and taxation 1,298 1,253
Earnings from associates - after interest and tax 60 (24)
Operating profit 1,358 1,229
Goodwill impairment 38 2
Amortisation and impairment of acquired intangible assets 62 98
Investment and other impairment charges/(reversals) 48 (42)
Intangible asset impairment 29 -
Restructuring and transformation costs 204 146
Restructuring costs in relation to COVID-19 15 30
Property related costs 18 -
Losses on disposal of investments and subsidiaries 36 10
Gains on remeasurement of equity interests arising from a change in scope of (66) -
ownership
Litigation settlement - 21
Headline operating profit 1,742 1,494
Reported revenue was up 12.7% at £14.4 billion. Reported revenue on a
constant currency basis was up 7.0% compared with last year. Net changes from
acquisitions, disposals had a negative impact of 0.3% on growth.
Like-for-like revenue growth for 2022 excluding the impact of currency,
acquisitions and disposals, and the other adjustments, was 6.7%.
Reported revenue less pass-through costs was up 13.5%, and up 7.6% on a
constant currency basis. Excluding the impact of acquisitions and disposals
and the other adjustments, like-for-like growth was 6.9%. In the fourth
quarter, like-for-like revenue less pass-through costs was up 6.4%.
Business sector review
Revenue analysis
+/(-) % reported +/(-) % LFL
£ million 2022 2021
Global Integrated Agencies 12,191 10,890 11.9 6.9
Public Relations 1,228 959 28.1 9.4
Specialist Agencies 1,010 952 6.1 1.9
Total Group 14,429 12,801 12.7 6.7
Prior year figures have been re-presented to reflect the reallocation of a
number of
businesses between Global Integrated Agencies and Specialist Agencies. This
increases
Global Integrated Agencies' Q4 and FY 2021 revenue by £13 million and £54
million
respectively and reduces Specialist Agencies' by the same amount.
Revenue less pass-through costs analysis
+/(-) % reported +/(-) % LFL
£ million 2022 2021
Global Integrated Agencies 9,742 8,683 12.2 6.9
Public Relations 1,157 910 27.1 8.2
Specialist Agencies 900 804 11.9 5.6
Total Group 11,799 10,397 13.5 6.9
Prior year figures have been re-presented to reflect the reallocation of a
number of businesses between Global Integrated Agencies and Specialist
Agencies. This increases Global Integrated Agencies' Q4 and FY 2021 revenue
less pass-through costs by £11 million and £44 million respectively and
reduces Specialist Agencies' by the same amount.
Headline operating profit analysis
£ million 2022 % margin* 2021 % margin*
Global Int. Agencies 1,432 14.7 1,222 14.1
Public Relations 191 16.5 143 15.7
Specialist Agencies 119 13.2 129 16.0
Total Group 1,742 14.8 1,494 14.4
* Headline operating profit as a percentage of revenue less pass-through costs
Prior year figures have been re-presented to reflect the reallocation of a
number of businesses between Global Integrated Agencies and Specialist
Agencies. This increases Global Integrated Agencies' 2021 headline operating
profit by £6 million and reduces Specialist Agencies' by the same amount.
Global Integrated Agencies reported revenue was up 18.7% in the final quarter.
Like-for-like revenue less pass-through costs was up 6.6% in the final
quarter, and up 9.8% on a three-year basis. GroupM, which represented 37% of
WPP's revenue less pass-through costs in the fourth quarter, was up 8.8%
like-for-like. The other integrated agencies all recorded broadly similar
levels of growth. For the full year, like-for-like revenue less pass-through
costs for the segment was up 6.9%, and up 9.5% over three years.
Public Relations reported revenue was up 30.1% in the final quarter.
Like-for-like revenue less pass-through costs was up 6.5% in the final
quarter, and up 17.5% on a three-year basis. All agencies continued to grow
well, with Hill + Knowlton Strategies growing strongly. During the period we
launched FGS Global, the new name and branding for the merger of Finsbury
Glover Hering and Sard Verbinnen. For the full year, like-for-like revenue
less pass-through costs for the segment was up 8.2%, and up 15.9% over three
years.
Specialist Agencies reported revenue was up 19.3% in the final quarter.
Like-for-like revenue less pass-through costs was up 4.4% in the final
quarter, and up 8.7% on a three-year basis. For the full year, like-for-like
revenue less pass-through costs for the segment was up 5.6%, and up 13.8% over
three years.
Regional review
Revenue analysis
+/(-) % reported +/(-) % LFL
£ million 2022 2021
N. America 5,550 4,494 23.5 7.8
United Kingdom 2,004 1,867 7.3 6.3
W. Cont Europe 2,876 2,786 3.2 4.8
AP, LA, AME, CEE 3 3,999 3,654 9.5 7.0
Total Group 14,429 12,801 12.7 6.7
Revenue less pass-through costs analysis
+/(-) % reported +/(-) % LFL
£ million 2022 2021
N. America 4,688 3,849 21.8 6.6
United Kingdom 1,537 1,414 8.7 7.6
W. Cont Europe 2,319 2,226 4.2 5.5
AP, LA, AME, CEE 3,255 2,908 11.9 8.0
Total Group 11,799 10,397 13.5 6.9
Headline operating profit analysis
£ million 2022 % margin* 2021 % margin*
N. America 771 16.4 656 17.0
United Kingdom 187 12.3 181 12.8
W Cont. Europe 301 13.0 289 13.0
AP, LA, AME, CEE 483 14.8 368 12.7
Total Group 1,742 14.8 1,494 14.4
* Headline operating profit as a percentage of revenue less pass-through costs
North America reported revenue was up 30.6% in the final quarter.
Like-for-like revenue less pass-through costs was up 3.4% in the final
quarter, and up 8.6% on a three-year basis. The US continued to grow at a
high-single-digit rate, led by Ogilvy, Hogarth and GroupM. On a full year
basis, like-for-like revenue less pass-through costs in North America was up
6.6%, and up 10.2% over three years.
United Kingdom reported revenue was up 24.3% in the final quarter.
Like-for-like revenue less pass-through costs was up 12.0% in the final
quarter, and up 14.0% on a three-year basis. GroupM and Hogarth were the
strongest performers. On a full year basis, like-for-like revenue less
pass-through costs was up 7.6%, and up 10.8% over three years.
Western Continental Europe reported revenue was up 12.7% in the final quarter.
Like-for-like revenue less pass-through costs was up 8.7% in the final
quarter, and up 12.7% on a three-year basis. Spain was the strongest performer
in the quarter, up 38.6% driven by good growth Ogilvy and Wunderman Thompson.
France declined 12.2% in the quarter and 18.7% over three years reflecting the
full year impact of client losses in 2021. On a full year basis, like-for-like
revenue less pass-through costs in the region was up 5.5%, and up 11.0% over
three years.
In Asia Pacific, Latin America, Africa & the Middle East and Central &
Eastern Europe, reported revenue was up 10.4% in the final quarter.
Like-for-like revenue less pass-through costs was up 5.9% in the final
quarter, and up 8.7% on a three-year basis. In Latin America growth benefited
from a strong performance in Brazil and very strong growth in Argentina, while
Asia Pacific continued to be negatively impacted by COVID-related restrictions
in China. On a full year basis, like-for-like revenue less pass-through costs
was up 8.0%, and up 8.8% over three years.
The decline of like-for-like revenue less pass-through costs in China in Q4
reflected widespread COVID-related lockdowns during the quarter. Policy
changes and the subsequent re-opening late in the quarter is expected to
benefit WPP later in 2023 with media and programmatic business recovering
first, followed by creative activities.
Operating profitability
Reported profit before tax was £1.2 billion, compared to a profit of £1.0
billion in 2021, reflecting the strong operating performance.
Reported profit after tax was £0.8 billion compared to a profit in 2021 of
£0.7 billion.
Headline EBITDA (including IFRS 16 depreciation) for 2022 was up 14.5% to
£2.0 billion, compared to £1.8 billion the previous year. Headline operating
profit was up 16.6% to £1.7 billion. The significant growth in profitability
year-on-year reflects revenue growth and the progress on our transformation
programme, with £375 million of gross savings towards our 2025 annual run
rate target of £600 million.
Headline operating profit margin was up 40 basis points to 14.8%, and up 40
basis points like-for-like. Staff costs pre-incentives were a 240 basis points
drag on margin, reflecting the tight labour market and inflationary backdrop.
Personal costs were a 50 basis points drag as travel and in-person meetings
recommenced. Offsetting tailwinds were staff incentives (210 basis points),
establishment costs (50 basis points), IT costs (30 basis points) and other
operating costs (40 basis points).
The Group's headline operating profit margin is after charging £44 million of
severance costs, compared with £42 million in 2021 and £424 million of
incentive payments, compared to £592 million in 2021.
The average number of people in the Group in 2022 was 114,129 compared to
104,808 in 2021. The total number of people at 31 December 2022 was 115,473
compared to 109,382 at 31 December 2021.
Adjusting items
The Group incurred a net loss from adjusting items of £341 million in 2022.
This comprises the Group's share of adjusting items from associates (£134
million), restructuring and transformation costs (£219 million) and other net
gains from adjusting items (£12 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, investments
in IT and ERP systems as part of our transformation programme. This compares
with a net loss from adjusting items in 2021 of £270 million.
Interest and taxes
Net finance costs (excluding the revaluation and retranslation of financial
instruments) were £214 million, a decrease of £1 million year-on-year.
The reported tax charge was £384 million (2021: £230 million). The headline
tax rate (measured on headline profit before tax, including associate income)
was 25.5% (2021: 24.0%). Given the Group's geographic mix of profits and the
changing international tax environment, the tax rate is expected to be around
27.0% in 2023, and to continue to increase in the next few years.
Earnings and dividend
Reported profit before tax was up 22.0% to £1.2 billion. Headline profit
before tax was up 17.3% to £1.6 billion, and headline profits attributable to
share owners were £1.1 billion.
Reported diluted earnings per share were 61.2 pence, compared to 52.5 pence in
the prior period. Headline diluted earnings per share were up 25.5% to 98.5
pence.
The Board is proposing a final dividend for 2022 of 24.4 pence per share,
which together with the interim dividend paid in November 2022 gives a
full-year dividend of 39.4 pence per share. The record date for the final
dividend is 9 June 2023, and the dividend will be payable on 7 July 2023.
Further details of WPP's financial performance are provided in Appendix 1.
Cash flow highlights
Twelve months ended (£ million) 31 December 2022 31 December 2021
Operating profit 1,358 1,229
Depreciation and amortisation 513 542
Investment and other impairment charges/(reversals) 158 (1)
Lease payments (inc interest) (402) (409)
Non-cash compensation 122 100
Net interest paid (121) (126)
Tax paid (391) (391)
Capex (223) (293)
Earnout payments (71) (57)
Other (43) (31)
Trade working capital (328) 319
Other receivables, payables and provisions (519) 383
Adjusted free cash flow 4 53 1,265
Disposal proceeds 51 77
Net initial acquisition payments (274) (464)
Dividends (365) (315)
Share repurchases and buybacks (863) (819)
Net cash flow (1,398) (256)
In 2022, net cash outflow was £1,398 million, compared to a £256 million
outflow in 2021. The main driver of the cash flow performance year-on-year was
the £328 million adverse movement in trade working capital lapping positive
movement in the prior year, driven by year-end mix and timing factors, the
£519 million adverse movement in other receivables, payables and provisions
was driven by a reduction in staff incentives payable, prepayments and
year-end mix and timing factors associated with VAT, growth in the dividend
and the increase in the share buyback. A summary of the Group's unaudited cash
flow statement and notes for the twelve months to 31 December 2022 is provided
in Appendix 1.
Balance sheet highlights
As at 31 December 2022 we had cash and cash equivalents of £2.1 billion and
total liquidity, including undrawn credit facilities, of £4.1 billion.
Average adjusted net debt in 2022 was £2.9 billion, compared to £1.6 billion
in the prior period, at 2022 exchange rates. On 31 December 2022 adjusted net
debt was £2.5 billion, against £0.9 billion on 31 December 2021, an increase
of £1.4 billion at 2022 exchange rates. The higher adjusted net debt figure
mainly reflects the £1,172 million returned to shareholders in 2022
comprising £807 million of share buybacks completed and £365 million of
dividends paid.
We spent £863 million on share purchases during the year, of which £807
million
related to share buybacks.
Around £50 million of share repurchases planned for 2023 continuing to offset
dilution from share-based payments.
Our bond portfolio at 31 December 2022 had an average maturity of 6.4 years.
The average adjusted net debt to EBITDA ratio in the 12 months to 31 December
2022 is 1.46x, which excludes the impact of IFRS 16. This is slightly below
our target range of 1.5 - 1.75x average adjusted net debt to EBITDA.
A summary of the Group's unaudited balance sheet and notes as at 31 December
2022 is provided in Appendix 1.
Foreign exchange sensitivity
Foreign exchange rates at 22nd February 2023 imply around a 1% tailwind to
reported revenue less pass-through costs in 2023 from the movement in sterling
year-on-year.
Management change
In November, we announced
(https://www.wpp.com/news/2022/11/wpp-announces-cfo-transition#:~:text=The%20Board%20has%20agreed%20that,John%20as%20Chief%20Financial%20Officer.)
that Chief Financial Officer John Rogers has decided to step down from the
company. The Board has appointed Joanne Wilson to succeed John as Chief
Financial Officer. Joanne is currently Chief Financial Officer at Britvic plc
(LSE:BVIC), the UK-listed international soft drinks company. It is expected
that Joanne will join WPP in the first half of 2023. To ensure a smooth
transition, John will remain available until later in 2023.
Appendix 1: Preliminary results for the year ended 31 December 2022
Unaudited preliminary consolidated income statement for the year ended
31 December 2022
£ million Notes 2022 2021
Revenue 7 14,428.7 12,801.1
Costs of services 4 (11,890.1) (10,597.5)
Gross profit 2,538.6 2,203.6
General and administrative costs 4 (1,180.4) (974.6)
Operating profit 1,358.2 1,229.0
Earnings from associates - after interest and tax 5 (60.4) 23.8
Profit before interest and taxation 1,297.8 1,252.8
Finance and investment income 6 145.4 69.4
Finance costs 6 (359.4) (283.6)
Revaluation and retranslation of financial instruments 6 76.0 (87.8)
Profit before taxation 1,159.8 950.8
Taxation 8 (384.4) (230.1)
Profit for the year 775.4 720.7
Attributable to:
Equity holders of the parent 682.7 637.7
Non-controlling interests 92.7 83.0
775.4 720.7
Earnings per share
Basic earnings per ordinary share 10 62.2p 53.4p
Diluted earnings per ordinary share 10 61.2p 52.5p
The accompanying notes form an integral part of this unaudited preliminary
consolidated income statement.
Unaudited preliminary consolidated statement of comprehensive income for the
year ended 31 December 2022
£ million 2022 2021
Profit for the year 775.4 720.7
Items that may be reclassified subsequently to profit or loss:
Exchange adjustments on foreign currency net investments(1) 424.2 (143.0)
(Loss)/gain on net investment hedges (141.5) 45.5
Cash flow hedges:(1)
Fair value gain/(loss) arising on hedging instruments 38.5 (38.0)
Less: (loss)/gain reclassified to profit or loss (38.5) 38.0
Share of other comprehensive income of associates undertakings 51.2 13.5
333.9 (84.0)
Items that will not be reclassified subsequently to profit or loss:
Movements on equity investments held at fair value through other comprehensive (22.3) (35.5)
income
Actuarial gain on defined benefit pension plans 16.6 14.3
Deferred tax on defined benefit pension plans (7.4) (3.0)
(13.1) (24.2)
Other comprehensive income/(loss) relating to the year 320.8 (108.2)
Total comprehensive income relating to the year 1,096.2 612.5
Attributable to:
Equity holders of the parent 988.3 539.8
Non-controlling interests 107.9 72.7
1,096.2 612.5
The accompanying notes form an integral part of this unaudited preliminary
consolidated statement of comprehensive income.
(1) Balance for the year ended 31 December 2021 has been re-presented
following a £38.0 million reclassification between the Hedging Reserve and
Translation Reserves.
( )
Unaudited preliminary consolidated cash flow statement for the year ended
31 December 2022
£ million Notes 2022 2021
Net cash inflow from operating activities(1) 11 700.9 2,029.0
Investing activities
Acquisitions(1) 11 (236.2) (382.3)
Disposals of investments and subsidiaries 11 37.7 28.3
Purchase of property, plant and equipment (208.4) (263.2)
Purchase of other intangible assets (including capitalised computer software) (14.9) (29.9)
Proceeds on disposal of property, plant and equipment 12.9 8.7
Net cash outflow from investing activities (408.9) (638.4)
Financing activities
Repayment of lease liabilities (309.6) (320.7)
Share option proceeds 1.2 4.4
Cash consideration received from non-controlling interests 11 - 39.5
Cash consideration for purchase of non-controlling interests 11 (84.2) (135.0)
Share repurchases and buy-backs 11 (862.7) (818.5)
Repayment of borrowings 11 (220.6) (397.1)
Financing and share issue costs (0.2) (0.4)
Equity dividends paid (365.4) (314.7)
Dividends paid to non-controlling interests in subsidiary undertakings (69.5) (114.5)
Net cash outflow from financing activities (1,911.0) (2,057.0)
Net decrease in cash and cash equivalents (1,619.0) (666.4)
Translation of cash and cash equivalents 64.2 (130.1)
Cash and cash equivalents at beginning of year 3,540.6 4,337.1
Cash and cash equivalents at end of year 12 1,985.8 3,540.6
The accompanying notes form an integral part of this unaudited preliminary
consolidated cash flow statement.
(1) Earnout payments in excess of the amount determined at acquisition are
recorded as operating activities. Prior year excess amounts were recorded as
investing activities and have been re-presented as operating activities.
Unaudited preliminary consolidated balance sheet as at 31 December 2022
£ million Notes 2022 2021
Non-current assets
Intangible assets:
Goodwill 13 8,453.4 7,612.3
Other 14 1,451.9 1,359.5
Property, plant and equipment 1,000.7 896.4
Right-of-use assets 1,528.5 1,395.1
Interests in associates and joint ventures 305.1 412.9
Other investments 369.8 318.3
Deferred tax assets 322.1 341.5
Corporate income tax recoverable 74.1 46.6
Trade and other receivables 15 218.6 152.6
13,724.2 12,535.2
Current assets
Corporate income tax recoverable 107.1 90.4
Trade and other receivables 15 12,499.7 11,362.3
Cash and short-term deposits 2,491.5 3,882.9
15,098.3 15,335.6
Current liabilities
Trade and other payables 16 (15,834.9) (15,252.3)
Corporate income tax payable (422.0) (386.2)
Short-term lease liabilities (282.4) (279.7)
Bank overdrafts, bonds and bank loans (1,169.0) (567.2)
(17,708.3) (16,485.4)
Net current liabilities (2,610.0) (1,149.8)
Total assets less current liabilities 11,114.2 11,385.4
Non-current liabilities
Bonds and bank loans (3,801.8) (4,216.8)
Trade and other payables 17 (490.9) (619.9)
Deferred tax liabilities (350.8) (312.5)
Provisions for post-employment benefits (137.5) (136.6)
Provisions for liabilities and charges (244.6) (268.5)
Long-term lease liabilities (1,928.2) (1,762.1)
(6,953.8) (7,316.4)
Net assets 4,160.4 4,069.0
Equity
Called-up share capital 18 114.1 122.4
Share premium account 575.9 574.7
Other reserves 285.2 (335.9)
Own shares (1,054.1) (1,112.1)
Retained earnings 3,759.7 4,367.3
Equity shareholders' funds 3,680.8 3,616.4
Non-controlling interests 479.6 452.6
Total equity 4,160.4 4,069.0
The accompanying notes form an integral part of this unaudited preliminary
consolidated balance sheet.
Unaudited preliminary consolidated statement of changes in equity for the year
ended 31 December 2022
Total equity
Called-up Share Other reserves Retained earnings(1) share Non-
share capital premium account Own shares holders' funds controlling interests Total
£ million
Balance at 1 January 2021 129.6 570.3 191.2 (1,118.3) 4,959.2 4,732.0 318.1 5,050.1
Ordinary shares issued - 4.4 - - - 4.4 - 4.4
Share cancellations (7.2) - 7.2 - (729.3) (729.3) - (729.3)
Treasury share allocations - - - 3.7 (3.7) - - -
Profit for the year - - - - 637.7 637.7 83.0 720.7
Exchange adjustments on foreign currency net investments(2) - - (132.7) - - (132.7) (10.3) (143.0)
Gain on net investment hedges - - 45.5 - - 45.5 - 45.5
Cash flow hedges(2):
Fair value loss arising on hedging instruments - - (38.0) - - (38.0) - (38.0)
Less: gain reclassified to profit or loss - - 38.0 - - 38.0 - 38.0
Share of other comprehensive income of associates undertakings - - 7.3 - 6.2 13.5 - 13.5
Movements on equity investments held at fair value through other comprehensive - - - - (35.5) (35.5) - (35.5)
income
Actuarial gain on defined benefit pension plans - - - - 14.3 14.3 - 14.3
Deferred tax on defined benefit pension plans - - - - (3.0) (3.0) - (3.0)
Other comprehensive loss - - (79.9) - (18.0) (97.9) (10.3) (108.2)
Total comprehensive (loss)/income - - (79.9) - 619.7 539.8 72.7 612.5
Dividends paid - - - - (314.7) (314.7) (114.5) (429.2)
Non-cash share-based incentive plans (including share options) - - - - 99.6 99.6 - 99.6
Tax adjustment on share-based payments - - - - 15.4 15.4 - 15.4
Net movement in own shares held by ESOP Trusts - - - 2.5 (91.7) (89.2) - (89.2)
Recognition/derecognition of liabilities in respect of put options - - (242.7) - 1.1 (241.6) - (241.6)
Share purchases - close period commitments(3) - - (211.7) - - (211.7) - (211.7)
Share of other equity movements of associates - - - - (8.0) (8.0) - (8.0)
Acquisition of subsidiaries(4) - - - - (180.3) (180.3) 176.3 (4.0)
Balance at 31 December 2021 122.4 574.7 (335.9) (1,112.1) 4,367.3 3,616.4 452.6 4,069.0
Ordinary shares issued - 1.2 - - - 1.2 - 1.2
Share cancellations (8.3) - 8.3 - (807.4) (807.4) - (807.4)
Treasury share allocations - - - - - - -
Profit for the year - - - - 682.7 682.7 92.7 775.4
Exchange adjustments on foreign currency net investments - - 409.0 - - 409.0 15.2 424.2
Loss on net investment hedges - - (141.5) - - (141.5) - (141.5)
Cash flow hedges:
Fair value gain arising on hedging instruments - - 38.5 - - 38.5 - 38.5
Less: loss reclassified to profit or loss - - (38.5) - - (38.5) - (38.5)
Share of other comprehensive income of associates undertakings - - 31.9 - 19.3 51.2 - 51.2
Movements on equity investments held at fair value through other comprehensive - - - - (22.3) (22.3) - (22.3)
income
Actuarial gain on defined benefit pension plans - - - - 16.6 16.6 - 16.6
Deferred tax on defined benefit pension plans - - - - (7.4) (7.4) - (7.4)
Other comprehensive income - - 299.4 - 6.2 305.6 15.2 320.8
Total comprehensive income - - 299.4 - 688.9 988.3 107.9 1,096.2
Dividends paid - - - - (365.4) (365.4) (69.5) (434.9)
Non-cash share-based incentive plans (including share options) - - - - 122.0 122.0 - 122.0
Tax adjustment on share-based payments - - - - (9.2) (9.2) - (9.2)
Net movement in own shares held by ESOP Trusts - - - 58.0 (113.3) (55.3) - (55.3)
Recognition/derecognition of liabilities in respect of put options - - 101.7 - (40.3) 61.4 - 61.4
Share purchases - close period commitments(3) - - 211.7 - - 211.7 - 211.7
Share of other equity movements of associates - - - - - - - -
Acquisition of subsidiaries(4) - - - - (82.9) (82.9) (11.4) (94.3)
Balance at 31 December 2022 114.1 575.9 285.2 (1,054.1) 3,759.7 3,680.8 479.6 4,160.4
The accompanying notes form an integral part of this unaudited preliminary
consolidated statement of changes in equity.
(1) Accumulated losses on existing equity investments held at fair value
through other comprehensive income are £330.8 million at 31 December 2022
(2021: £308.5 million).
(2) Balance for the year ended 31 December 2021 has been re-presented
following a £38.0 million reclassification between the Hedging Reserve and
Translation Reserves.
(3) During 2021, the Company entered into an arrangement with a third party to
conduct share buybacks on its behalf in the close period commencing on 16
December 2021 and ending on 18 February 2022, in accordance with UK listing
rules. The commitment resulting from this agreement constituted a liability at
31 December 2021 and was recognised as a movement in other reserves in the
year ended 31 December 2021. After the close period ended on 18 February 2022,
the liability was settled and the amount in other reserves was reclassified to
retained earnings.
(4) Acquisition of subsidiaries represents movements in retained earnings and
non-controlling interests arising from changes in ownership of existing
subsidiaries and recognition of non-controlling interests on new acquisitions.
Notes to the unaudited preliminary consolidated financial statements
1. Basis of accounting
The unaudited preliminary consolidated financial statements are prepared under
the historical cost convention, except for the revaluation of certain
financial instruments as disclosed in our accounting policies.
2. Accounting policies
The unaudited preliminary consolidated financial statements comply with the
recognition and measurement criteria of International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board
(IASB) as they apply to the financial statements of the Group. With the
exception of the adoption of hedge accounting requirements under IFRS 9
Financial Instruments, which is discussed below, no changes have been made to
the Group's accounting policies in the year ended 31 December 2022. The Group
does not consider that the amendments to standards adopted during the year
have a significant impact on the financial statements.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRS, this announcement does not itself
contain sufficient information to comply with all IFRS disclosure
requirements. The Company's 2022 Annual Report and Accounts will be prepared
in compliance with IFRS. The unaudited preliminary announcement does not
constitute a dissemination of the annual financial report and does not
therefore need to meet the dissemination requirements for annual financial
reports. A separate dissemination announcement in accordance with Disclosure
and Transparency Rules (DTR) 6.3 will be made when the annual report and
audited financial statements are available on the Company's website.
Impact of the adoption of hedge accounting under IFRS 9 Financial Instruments
The Group has elected to adopt the hedge accounting requirements of IFRS 9
Financial Instruments from 1 January 2022. The IFRS 9 hedge accounting
requirements are applied prospectively, and all hedge arrangements in place at
the point of transition are regarded as continuing hedging relationships under
IFRS 9. Accordingly, prior year financial information has not been restated
and will continue to be reported under IAS 39. There has been no significant
impact on the financial statements as a result of the adoption of IFRS 9 hedge
accounting requirements, both at the point of transition and in the year ended
31 December 2022.
Statutory information
The financial information included in this preliminary announcement does not
constitute statutory accounts. The statutory accounts for the year ended
31 December 2021 have been delivered to the Jersey Registrar and received an
unqualified auditors' report. The statutory accounts for the year ended
31 December 2022 will be finalised on the basis of the financial information
presented by the directors in this unaudited preliminary announcement and will
be delivered to the Jersey Registrar following the Company's General Meeting.
The audit report for the year ended 31 December 2022 has yet to be signed.
The announcement of the preliminary results was approved on behalf of the
board of directors on 23 February 2023.
3. Currency conversion
The presentation currency of the Group is pound sterling and the unaudited
preliminary consolidated financial statements have been prepared on this
basis.
The 2022 unaudited preliminary consolidated income statement is prepared
using, among other currencies, average exchange rates of US$1.2363 to the
pound (2021: US$1.3757) and €1.1733 to the pound (2021:
€1.1633). The unaudited preliminary consolidated balance sheet as at
31 December 2022 has been prepared using the exchange rates on that day of
US$1.2083 to the pound (2021: US$1.3532) and €1.1295 to the pound (2021:
€1.1893).
Notes to the unaudited preliminary consolidated financial statements
(continued)
4. Costs of services and general and administrative costs
£ million 2022 2021
Costs of services 11,890.1 10,597.5
General and administrative costs 1,180.4 974.6
13,070.5 11,572.1
Costs of services and general and administrative costs include:
£ million 2022 2021
Staff costs 8,165.8 7,166.7
Establishment costs 536.0 529.0
Media pass-through costs 1,905.7 1,865.3
Other costs of services and general and administrative costs(1) 2,463.0 2,011.1
13,070.5 11,572.1
Staff costs include:
£ million 2022 2021
Wages and salaries 5,721.0 4,797.2
Cash-based incentive plans 292.6 455.2
Share-based incentive plans 122.0 99.6
Social security costs 689.4 630.1
Pension costs 204.8 177.7
Severance 44.2 41.8
Other staff costs 1,091.8 965.1
8,165.8 7,166.7
( )
Other costs of services and general and administrative costs include:
( )
£ million 2022 2021
Goodwill impairment 37.9 1.8
Amortisation and impairment of acquired intangible assets 62.1 97.8
Investment and other impairment charges/(reversals) 48.0 (42.4)
Intangible asset impairment 29.0 -
Restructuring and transformation costs 203.7 145.5
Restructuring costs in relation to COVID-19 15.1 29.9
Property related costs 18.0 -
Losses on disposal of investments and subsidiaries 36.3 10.6
Gains on remeasurement of equity interests arising from a change in scope of (66.5) -
ownership
Litigation settlement - 21.3
Amortisation of other intangible assets 21.9 19.9
Depreciation of property, plant and equipment 166.9 151.2
Depreciation of right-of-use assets 262.2 272.9
Short-term lease expense 20.2 18.0
Low-value lease expense 1.9 2.3
In 2022, operating profit includes credits totalling £29.3 million (2021:
£19.3 million) relating to the release of provisions and other balances
established in respect of acquisitions completed prior to 2021.
The goodwill impairment charge of £37.9 million in 2022 (2021: £1.8 million)
relates to a number of businesses in the Group and investments where the
impact of increases in discount rates and current, local economic conditions
and trading circumstances is sufficiently severe to indicate impairment to the
carrying value.
(1) Other costs of services and general and administrative costs include
£723.7 million (2021: £538.6 million) of other pass-through costs.
Notes to the unaudited preliminary consolidated financial statements
(continued)
4. Costs of services and general and administrative costs (continued)
Amortisation and impairment of acquired intangible assets of £62.1 million
(2021: £97.8 million) includes an impairment charge in the year of £1.4
million (2021: £47.9 million) in regard to certain brand names that are no
longer in use.
The investment and other impairment charges of £48.0 million (2021: reversal
of £42.4 million) relate to the same macro-economic factors noted above. The
reversal in the prior year for investments primarily relates to the partial
reversal of a £255.6 million impairment taken in 2020 relating to Imagina, an
associate in Spain.
Intangible asset impairment of £29.0 million in 2022 (2021: £nil) relates to
the write off of capitalised configuration and customisation costs related to
a software development project.
Restructuring and transformation costs of £203.7 million (2021: £145.5
million) include £134.5 million (2021: £94.2 million) in relation to the
Group's IT transformation programme. This programme will allow technology to
become a competitive advantage in the market as our clients, and their
clients, move to an ever-increasing digital world. It includes costs of £96.8
million (2021: £62.2 million) in relation to the rollout of a new ERP system
in order to drive efficiency and collaboration throughout the Group. The
remaining £69.2 million relates to the continuing restructuring plan. As part
of that plan, restructuring actions have been taken to right-size
under-performing businesses, address high-cost severance markets and simplify
operational structures.
Restructuring costs in relation to COVID-19 of £15.1 million (2021: £29.9
million) primarily relate to property costs which the Group undertook in
response to the COVID-19 pandemic.
Property related costs include further right-of-use assets impairment taken
for properties that were previously impaired due to challenging conditions in
the subletting market. In 2022, £18.0 million (2021: £nil) were incurred.
Losses on disposal of investments and subsidiaries of £36.3 million in 2022
(2021: £10.6 million) primarily includes a loss of £63.1 million on the
divestment of our Russian interests which completed in May 2022. This was
partially offset by gains on other disposals during the period including Res
Publica for £17.7 million and Mutual Mobile for £9.4 million with the
remaining gains/losses due to individually insignificant transactions.
Gains on remeasurement of equity interests arising from a change in scope of
ownership of £66.5 million comprises a gain in relation to the
reclassification of the Group's interest in Imagina in Spain from interests in
associates to other investments.
5. Earnings from associates - after interest and tax
Earnings from associates - after interest and tax include:
£ million 2022 2021
Share of profit before interest and taxation 219.6 208.5
Share of adjusting items (134.3) (62.3)
Share of interest and non-controlling interests (104.7) (83.9)
Share of taxation (41.0) (38.5)
(60.4) 23.8
Share of adjusting items of £134.3 million (2021: £62.3 million) primarily
comprise £75.8 million (2021: £38.8 million) of amortisation and impairment
of acquired intangible assets as well as restructuring and one-off transaction
costs of £54.8 million (2021: £18.8 million) within Kantar.
Notes to the unaudited preliminary consolidated financial statements
(continued)
6. Finance and investment income, finance costs and revaluation and
retranslation of financial instruments
Finance and investment income includes:
£ million 2022 2021
Income from equity investments 24.5 17.9
Interest income 120.9 51.5
145.4 69.4
Finance costs include:
£ million 2022 2021
Net interest expense on pension plans 2.2 1.8
Interest on other long-term employee benefits 3.7 2.4
Interest payable and similar charges 257.8 188.5
Interest expense related to lease liabilities 95.7 90.9
359.4 283.6
Revaluation and retranslation of financial instruments include:
£ million 2022 2021
Movements in fair value of treasury instruments 0.5 9.1
Premium on the early repayment of bonds - (13.0)
Revaluation of investments held at fair value through profit or loss 23.1 (7.5)
Revaluation of put options over non-controlling interests 27.9 (40.6)
Revaluation of payments due to vendors (earnout agreements) 26.2 (58.7)
Retranslation of financial instruments (1.7) 22.9
76.0 (87.8)
Notes to the unaudited preliminary consolidated financial statements
(continued)
7. Segmental analysis
Reported contributions by operating sector were as follows:
£ million 2022 2021(1)
Revenue
Global Integrated Agencies 12,191.0 10,890.5
Public Relations 1,228.3 959.0
Specialist Agencies 1,009.4 951.6
14,428.7 12,801.1
Revenue less pass-through costs(2)
Global Integrated Agencies 9,742.8 8,683.1
Public Relations 1,157.0 909.7
Specialist Agencies 899.5 804.4
11,799.3 10,397.2
Headline operating profit(3)
Global Integrated Agencies 1,432.4 1,221.8
Public Relations 190.8 143.1
Specialist Agencies 118.6 128.6
1,741.8 1,493.5
Reported contributions by geographical area were as follows:
£ million 2022 2021
Revenue
North America(4) 5,549.5 4,494.2
United Kingdom 2,003.8 1,866.9
Western Continental Europe 2,876.2 2,786.3
Asia Pacific, Latin America, Africa & Middle East and Central & 3,999.2 3,653.7
Eastern Europe
14,428.7 12,801.1
Revenue less pass-through costs(2)
North America(4) 4,688.1 3,849.2
United Kingdom 1,537.2 1,414.3
Western Continental Europe 2,318.5 2,225.4
Asia Pacific, Latin America, Africa & Middle East and Central & 3,255.5 2,908.3
Eastern Europe
11,799.3 10,397.2
Headline operating profit(3)
North America(4) 770.4 655.7
United Kingdom 187.1 180.9
Western Continental Europe 301.3 288.6
Asia Pacific, Latin America, Africa & Middle East and Central & 483.0 368.3
Eastern Europe
1,741.8 1,493.5
(1) Prior year figures have been re-presented to reflect the reallocation of a
number of businesses between Global Integrated Agencies and Specialist
Agencies.
(2 ) Revenue less pass-through costs is defined in Appendix 2.
(3) Headline operating profit is defined in Appendix 2. A reconciliation from
reported profit before tax to headline operating profit is also provided in
Appendix 2
(4) North America includes the US with revenue of £5,230.9 million (2021:
£4,220.8 million), revenue less pass-through costs of £4,402.0 million
(2021: £3,597.4 million) and headline operating profit of £727.6 million
(2021: £615.2 million).
Notes to the unaudited preliminary consolidated financial statements
(continued)
8. Taxation
The tax rate on reported profit before tax was 33.1% (2021: 24.2%). The tax
charge comprises:
£ million 2022 2021
Corporation tax
Current year 425.8 404.0
Prior years (55.5) (41.4)
370.3 362.6
Deferred tax
Current year 9.4 (131.0)
Prior years 4.7 (1.5)
14.1 (132.5)
Tax charge 384.4 230.1
The tax charge may be affected by the impact of acquisitions, disposals and
other corporate restructurings, the resolution of open tax issues, and the
ability to use brought forward tax losses. Changes in local or international
tax rules, for example, increasing tax rates as a consequence of the financial
support programmes implemented by governments during the COVID-19 pandemic,
the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, and
changes arising from the application of existing rules or challenges by tax or
competition authorities, may expose the Group to additional tax liabilities or
impact the carrying value of deferred tax assets, which could affect the
future tax charge.
Liabilities relating to open and judgemental matters are based upon an
assessment of whether the tax authorities will accept the position taken,
after considering external advice where appropriate. Where the final tax
outcome of these matters is different from the amounts which were initially
recorded then such differences will impact the current and deferred income tax
assets and liabilities in the period in which such determination is made. The
Group does not currently consider that judgements made in assessing tax
liabilities have a significant risk of resulting in any material additional
charges or credits in respect of these matters, within the next financial
year, beyond the amounts already provided.
Following the enactment in 2021 of an increase in the UK corporation tax rate
from 19% to 25% from 1 April 2023, the Group remeasured UK deferred tax
balances accordingly and recognised a tax credit of £23.8 million in the
prior period.
9. Ordinary dividends
The Board has recommended a final dividend of 24.4p (2021: 18.7p) per ordinary
share in addition to the interim dividend of 15.0p (2021: 12.5p) per share.
This makes a total for the year of 39.4p (2021: 31.2p). Payment of the final
dividend of 24.4p per ordinary share will be made on 07 July 2023 to holders
of ordinary shares in the Company on 09 June 2023.
Notes to the unaudited preliminary consolidated financial statements
(continued)
10. Earnings per share
Basic EPS
The calculation of basic reported and headline EPS is as follows:
2022 2021
Reported earnings(1) (£ million) 682.7 637.7
Headline earnings(2) (£ million) 1,100.2 954.5
Weighted average shares used in basic EPS calculation (million) 1,097.9 1,194.1
Reported EPS 62.2p 53.4p
Headline EPS 100.2p 79.9p
Diluted EPS
The calculation of diluted reported and headline EPS is as follows:
2022 2021
Diluted reported earnings (£ million) 682.7 637.7
Diluted headline earnings (£ million) 1,100.2 954.5
Weighted average shares used in diluted EPS calculation (million) 1,116.4 1,215.3
Diluted reported EPS 61.2p 52.5p
Diluted headline EPS 98.5p 78.5p
( )
A reconciliation between the shares used in calculating basic and diluted EPS
is as follows:
( )
million 2022 2021
Weighted average shares used in basic EPS calculation 1,097.9 1,194.1
Dilutive share options outstanding 0.7 1.3
Other potentially issuable shares 17.8 19.9
Weighted average shares used in diluted EPS calculation 1,116.4 1,215.3
At 31 December 2022 there were 1,141,427,296 (2021: 1,224,459,550) ordinary
shares in issue, including treasury shares of 70,489,953 (2021: 70,489,953).
(1) Reported earnings is equivalent to profit for the year attributable to
equity holders of the parent.
(2) Headline earnings is defined in Appendix 2.
Notes to the unaudited preliminary consolidated financial statements
(continued)
11. Analysis of cash flows
The following tables analyse the items included within the main cash flow
headings on page 19:
Net cash inflow from operating activities:
£ million 2022 2021
Profit for the year 775.4 720.7
Taxation 384.4 230.1
Revaluation and retranslation of financial instruments (76.0) 87.8
Finance costs 359.4 283.6
Finance and investment income (145.4) (69.4)
Earnings from associates - after interest and tax 60.4 (23.8)
Operating profit 1,358.2 1,229.0
Adjustments for:
Non-cash share-based incentive plans (including share options) 122.0 99.6
Depreciation of property, plant and equipment 166.9 151.2
Depreciation of right-of-use assets 262.2 272.9
Impairment charges included within restructuring costs(1) 72.3 39.2
Goodwill impairment 37.9 1.8
Amortisation and impairment of acquired intangible assets 62.1 97.8
Amortisation of other intangible assets 21.9 19.9
Investment and other impairment charges/(reversals) 48.0 (42.4)
Losses on disposal of investments and subsidiaries 36.3 10.6
Gains on sale of property, plant and equipment (6.4) (1.3)
Gains on remeasurement of equity interests arising from a change in scope of (66.5) -
ownership
Operating cash flow before movements in working capital and provisions 2,114.9 1,878.3
Movements in trade working capital(2) (328.0) 318.9
Movements in other working capital and provisions(3) (518.7) 383.1
Cash generated by operations 1,268.2 2,580.3
Corporation and overseas tax paid (390.9) (391.1)
Premium on early settlement of bonds - (13.0)
Interest and similar charges paid (210.2) (173.7)
Interest paid on lease liabilities (92.4) (88.4)
Interest received 88.9 47.5
Investment income 24.5 17.8
Dividends from associates 37.6 53.4
Earnout payments recognised in operating activities(4) (24.8) (3.8)
Net cash inflow from operating activities 700.9 2,029.0
(1) Impairment charges included within restructuring costs includes
impairments for right-of-use assets, property, plant and equipment and other
intangible assets.
(2) Trade working capital represents trade receivables, work in progress,
accrued income, trade payables and deferred income.
(3) Other working capital represents other receivables and other payables.
(4) Earnout payments in excess of the amount determined at acquisition are
recorded as operating activities. Prior year excess amounts were recorded as
investing activities and have been re-presented as operating activities.
Notes to the unaudited preliminary consolidated financial statements
(continued)
11. Analysis of cash flows (continued)
Acquisitions and disposals:
£ million 2022 2021
Initial cash consideration (218.3) (227.6)
Cash and cash equivalents acquired 38.8 (2.3)
Earnout payments recognised in investing activities(2) (46.6) (53.2)
Purchase of other investments (including associates) (10.1) (99.2)
Acquisitions (236.2) (382.3)
Proceeds on disposal of investments and subsidiaries(1) 50.1 51.9
Cash and cash equivalents disposed (12.4) (23.6)
Disposals of investments and subsidiaries 37.7 28.3
Cash consideration received from non-controlling interests - 39.5
Cash consideration for purchase of non-controlling interests (84.2) (135.0)
Cash consideration for non-controlling interests (84.2) (95.5)
Net acquisition payments and investments (282.7) (449.5)
Share repurchases and buy-backs:
£ million 2022 2021
Purchase of own shares by ESOP Trusts (55.3) (89.2)
Shares purchased into treasury (807.4) (729.3)
(862.7) (818.5)
Repayments of borrowings
£ million 2022 2021
Net decrease in drawings on bank loans (11.3) (36.3)
Repayment of €250 million bonds (209.3) -
Repayment of $500 million bonds - (360.8)
(220.6) (397.1)
(1) Proceeds on disposal of investments and subsidiaries includes return of
capital from investments in associates.
(2 ) Earnout payments in excess of the amount determined at acquisition are
recorded as operating activities. Prior year excess amounts were recorded as
investing activities and have been re-presented as operating activities.
Notes to the unaudited preliminary consolidated financial statements
(continued)
12. Cash and cash equivalents and adjusted net debt
£ million 2022 2021
Cash at bank and in hand 2,271.6 2,776.6
Short-term bank deposits 219.9 1,106.3
Overdrafts(1) (505.7) (342.3)
Cash and cash equivalents 1,985.8 3,540.6
Bonds due within one year (663.3) (210.2)
Loans due within one year - (14.7)
Bonds due after one year (3,801.8) (4,216.8)
Adjusted net debt (2,479.3) (901.1)
The Group estimates that the fair value of corporate bonds is £4,049.1
million at 31 December 2022 (2021: £4,790.3 million). The Group considers
that the carrying amount of bank loans approximates their fair value.
The following table is an analysis of future anticipated cash flows in
relation to the Group's debt, on an undiscounted basis which, therefore,
differs from the carrying value:
£ million 2022 2021
Within one year (791.6) (326.8)
Between one and two years (724.3) (745.4)
Between two and three years (524.2) (646.5)
Between three and four years (740.3) (492.8)
Between four and five years (719.9) (698.0)
Over five years (1,963.7) (2,546.3)
Debt financing (including interest) under the Revolving Credit Facility and in (5,464.0) (5,455.8)
relation to unsecured loan notes
Short-term overdrafts - within one year (505.7) (342.3)
Future anticipated cash flows (5,969.7) (5,798.1)
Effect of discounting/financing rates 998.9 1,014.1
Debt financing (4,970.8) (4,784.0)
Cash and short-term deposits 2,491.5 3,882.9
Adjusted net debt (2,479.3) (901.1)
(1) Bank overdrafts are included in cash and cash equivalents because they
form an integral part of the Group's cash management.
Notes to the unaudited preliminary consolidated financial statements
(continued)
13. Goodwill and acquisitions
Goodwill in relation to subsidiary undertakings increased by £841.1 million
in the year. This movement primarily relates to goodwill arising from the
effect of currency translation of £616.4 million, acquisitions completed in
the year and adjustments to goodwill relating to acquisitions completed in
prior years of £262.6 million, and partially offset by £37.9 million of
impairment charges.
The contribution to revenue and operating profit of acquisitions completed in
the year was not material. There were no material acquisitions completed
during the year or between 31 December 2022 and the date these preliminary
consolidated financial statements were approved.
14. Other intangible assets
The following are included in other intangibles:
£ million 2022 2021
Brands with an indefinite useful life 1,103.4 1,010.5
Acquired intangibles 288.7 273.4
Other (including capitalised computer software) 59.8 75.6
1,451.9 1,359.5
15. Trade and other receivables
Amounts falling due within one year:
£ million 2022 2021
Trade receivables 7,403.9 6,600.5
Work in progress 352.4 254.0
VAT and sales taxes recoverable 448.1 350.3
Prepayments 236.6 215.3
Accrued income 3,468.3 3,435.7
Fair value of derivatives 5.1 2.5
Other debtors 585.3 504.0
12,499.7 11,362.3
Amounts falling due after more than one year:
£ million 2022 2021
Prepayments 3.9 3.0
Fair value of derivatives 0.6 0.5
Other debtors 214.1 149.1
218.6 152.6
The Group has applied the practical expedient permitted by IFRS 15 to not
disclose the transaction price allocated to performance obligations
unsatisfied (or partially unsatisfied) as of the end of the reporting period
as contracts typically have an original expected duration of a year or less.
The Group considers that the carrying amount of trade and other receivables
approximates their fair value.
The bad debt expense of £20.7 million (2021: credit of £10.6 million) on the
Group's trade receivables in the period is a result of the increase in
expected credit losses since 31 December 2021. A loss allowance of £71.5
million (2021: £70.5 million) has been recognised against trade receivables
which is equivalent to 1.0% (2021: 1.1%) of gross trade receivables.
Other debtors falling due after more than one year for 31 December 2022
includes £15.4 million in relation to pension plans in surplus. The
corresponding figure for 31 December 2021 is included in provision for
post-employment benefits.
Notes to the unaudited preliminary consolidated financial statements
(continued)
16. Trade and other payables: amounts falling due within one year
£ million 2022 2021
Trade payables 11,182.3 10,596.9
Deferred income 1,599.0 1,334.0
Payments due to vendors (earnout agreements) 62.0 85.6
Liabilities in respect of put option agreements with vendors 18.8 58.4
Fair value of derivatives 58.0 6.4
Share repurchases - close period commitments(1) - 211.7
Other creditors and accruals 2,914.8 2,959.3
15,834.9 15,252.3
The Group considers that the carrying amount of trade and other payables
approximates their fair value.
17. Trade and other payables: amounts falling due after more than one year
£ million 2022 2021
Payments due to vendors (earnout agreements) 98.1 111.1
Liabilities in respect of put option agreements with vendors 323.3 333.1
Fair value of derivatives - 47.2
Other creditors and accruals 69.5 128.5
490.9 619.9
The Group considers that the carrying amount of trade and other payables
approximates their fair value.
The following table sets out payments due to vendors, comprising contingent
consideration and the directors' best estimates of future earnout related
obligations:
£ million 2022 2021
Within one year 62.0 85.6
Between 1 and 2 years 19.5 24.0
Between 2 and 3 years 27.6 35.7
Between 3 and 4 years 28.6 51.4
Between 4 and 5 years 22.4 -
160.1 196.7
The Group's approach to payments due to vendors is outlined in note 21.
The Group does not consider there to be any material contingent liabilities as
at 31 December 2022.
18. Issued share capital
Number of equity ordinary shares (million) 2022 2021
At the beginning of the year 1,224.5 1,296.1
Exercise of share options 0.1 0.6
Share cancellations (83.2) (72.2)
At the end of the year 1,141.4 1,224.5
(1) During 2021, the Company entered into an arrangement with a third party to
conduct share buybacks on its behalf in the close period commencing on 16
December 2021 and ending on 18 February 2022, in accordance with UK listing
rules. The commitment resulting from this agreement constituted a liability at
31 December 2021 and was recognised as a movement in other reserves in the
year ended 31 December 2021. After the close period ended on 18 February 2022,
the liability was settled and the amount in other reserves was reclassified to
retained earnings.
Notes to the unaudited preliminary consolidated financial statements
(continued)
19. Related party transactions
The Group enters into transactions with its associate undertakings. The Group
has continuing transactions with Kantar, including sales, purchases, the
provision of IT services, subleases and property related items.
In the year ended 31 December 2022, revenue of £88.3 million (2021: £117.2
million) was reported in relation to Compas, an associate in the USA, and
revenue of £42.7 million (2021: £11.3 million) was reported in relation to
Kantar. All other transactions in the years presented were immaterial.
The following amounts were outstanding at 31 December 2022:
£ million 2022 2021
Amounts owed by related parties
Kantar 26.1 30.3
Other 62.4 45.7
88.5 76.0
Amounts owed to related parties
Kantar (10.5) (6.2)
Other (65.2) (51.4)
(75.7) (57.6)
20. Going concern and liquidity risk
In considering going concern and liquidity risk, the Directors have reviewed
the Group's future cash requirements and earnings projections. The Directors
believe these forecasts have been prepared on a prudent basis and have also
considered the impact of a range of potential changes to trading performance.
The Company modelled a range of revenue less pass-through costs compared with
the year ended 31 December 2022 and a number of mitigating cost actions that
are available to the Group. Considering the Group's bank covenant and
liquidity headroom and cost mitigation actions which could be implemented, 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 with a decline in revenue less pass-through costs up to 28% in 2023 (2021:
30% in 2022). The likelihood of such a decline is considered remote. The
Directors have concluded that the Group will be able to operate within its
current facilities and comply with its banking covenants for the foreseeable
future and therefore believe it is appropriate to prepare the financial
statements of the Group on a going concern basis and that there are no
material uncertainties which gives rise to a significant going concern risk.
Notes to the unaudited preliminary consolidated financial statements
(continued)
20. Going concern and liquidity risk (continued)
At 31 December 2022, the Group has access to £6.6 billion of committed
facilities with maturity dates spread over the years 2023 to 2046 as
illustrated below:
£ million
2023 2024 2025 2026 2027+
£ bonds £400m (2.875% '46) 400.0 400.0
US bond $220m (5.625% '43) 181.9 181.9
US bond $93m (5.125% '42) 76.8 76.8
£ bonds £250m (3.750% '32) 250.0 250.0
Eurobonds €600m (1.625% '30) 531.2 531.2
Eurobonds €750m (2.375% '27) 664.0 664.0
Eurobonds €750m (2.25% '26) 664.0 664.0
Bank revolver ($2,500m '26) 2,069.0 2,069.0
Eurobonds €500m (1.375% '25) 442.7 442.7
US bond $750m (3.75% '24) 620.7 620.7
Eurobonds €750m (3.0% '23) 664.0 664.0
Total committed facilities available 6,564.3 664.0 620.7 442.7 2,733.0 2,103.9
Drawn down facilities at 31 December 2022 4,495.3 664.0 620.7 442.7 664.0 2,103.9
Undrawn committed credit facilities 2,069.0
Drawn down facilities at 31 December 2022 4,495.3
Net cash at 31 December 2022 (1,985.8)
Other adjustments (30.2)
Adjusted net debt at 31 December 2022 2,479.3
Given its debt maturity profile and available facilities, the Directors
believe the Group has sufficient liquidity to match its requirements for the
foreseeable future.
Notes to the unaudited preliminary consolidated financial statements
(continued)
21. Financial instruments
The following table provides an analysis of financial instruments that are
measured subsequent to initial recognition at fair value, grouped into levels
1 to 3 based on the degree to which the fair value is observable, or based on
observable inputs:
£ million Level 1 Level 2 Level 3 Total
Derivatives in designated hedge relationships
Derivative assets - 0.6 - 0.6
Derivative liabilities - (53.3) - (53.3)
Held at fair value through profit or loss
Other investments 0.4 - 255.3 255.7
Derivative assets - 5.1 - 5.1
Derivative liabilities - (4.7) - (4.7)
Payments due to vendors (earnout agreements) - - (160.1) (160.1)
Liabilities in respect of put options - - (342.1) (342.1)
Held at fair value through other comprehensive income
Other investments 10.9 - 103.2 114.1
Reconciliation of level 3 fair value measurements:
£ million Payments due to vendors (earnout agreements) Liabilities in respect of put options Other investments
1 January 2022 (196.7) (391.5) 290.0
Gains recognised in the income statement 26.2 27.9 23.1
Losses recognised in other comprehensive income - - (5.3)
Exchange adjustments (14.3) (39.9) -
Additions (46.7) (5.0) 66.7
Disposals - - (16.0)
Cancellations - 11.0 -
Settlements 71.4 55.4 -
31 December 2022 (160.1) (342.1) 358.5
Payments due to vendors and liabilities in respect of put options
Future anticipated payments due to vendors in respect of contingent
consideration (earnout agreements) are recorded at fair value, which is the
present value of the expected cash outflows of the obligations. Liabilities in
respect of put option agreements are initially recorded at the present value
of the redemption amount in accordance with IAS 32 and subsequently measured
at fair value in accordance with IFRS 9. Both types of obligations are
dependent on the future financial performance of the entity and it is assumed
that future profits are 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.
Other investments
The fair value of other investments included in level 1 are based on quoted
market prices. Other investments included in level 3 are unlisted securities,
where market value is not readily available. The Group has estimated relevant
fair values on the basis of information from outside sources using the most
appropriate valuation technique, including all external funding rounds,
revenue and EBITDA multiples, the share of fund net asset value and discounted
cash flows.
Principal risks and uncertainties
The Board regularly reviews the principal and emerging risks and uncertainties
affecting the Group and these are summarised below:
Strategic and External Risks
Economic Risk
• Adverse economic conditions, including those caused by the pandemic,
the Ukrainian conflict, severe and sustained inflation in key markets where
the Group operates, supply chain issues affecting the distribution of clients'
products and/or disruption in credit markets, pose a risk the Group's clients
may reduce or cancel spend, or be unable to satisfy obligations.
Geopolitical Risk
Growing geopolitical tension and conflicts continue to have a
destabilising effect in markets where the Group has operations. This rise in
geopolitical activity continues to have an adverse effect upon the economic
outlook, the general erosion of trust and an increasing trend of national
ideology and regional convergence over global cooperation and integration.
Such factors and economic conditions may reflect in clients' confidence in
making longer term investments and commitments in marketing spend.
Pandemic
• The extent of a pandemic on our business will depend on numerous factors
that we are not able to accurately predict, including the duration and scope
of a pandemic, any existing or new variants, government actions to mitigate
the effects of a pandemic and the continuing and long-term impact of a
pandemic on our clients' spending plans.
Strategic Plan
• The failure to successfully complete the strategic plan updated in
December 2020 - to simplify the Group structure, continue to introduce market
leading products and services, identify cost savings and successfully
integrate acquisitions- may have a material adverse effect on the Group's
market share and its business revenues, results of operation, financial
condition, or prospects.
IT Transformation
• The IT Transformation programme prioritises the most critical changes
necessary to support the Group's Strategic Plan whilst maintaining the
operational performance and security of core Group systems. The Group is also
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.
Operational Risks
Client Loss
• The Group competes for clients in a highly competitive industry which
has been evolving and undergoing structural change. Client net loss to
competitors or as a consequence of client consolidation, insolvency or a
reduction in marketing budgets due to a geopolitical change or shift in client
spending would have a material adverse effect on our market share, business,
revenues, results of operations, financial condition and prospects.
Client Concentration
• The Group receives a significant portion of its 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 the Group's prospects, business, financial
condition and results of operations.
Reputation
• The Group is subject to increased reputational risk associated with
working on client briefs perceived to be environmentally detrimental and/or
misrepresenting environmental claims.
People, Culture and Succession
• The Group's 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 and diverse creative, commercial technology and management talent
or are unable to retain and incentivise key and diverse talent.
Principal risks and uncertainties (continued)
Cyber and Information Security
• The Group has in the past and may in the future experience a
cyber-attack that leads to harm or disruption to its operations, systems or
services. Such an attack may also affect suppliers and partners through the
unauthorised access, manipulation, corruption or the destruction of data.
Financial Risks
• The Group is subject to credit risk through the default of a client or
other counterparty.
• Challenging economic conditions, heightened geopolitical issues, shocks to
consumer confidence, disruption in credit markets, challenges in the supply
chain disrupting client operations can lead to a reduction, suspension or
cancellation of client spend or an inability to satisfy obligations.
Internal Controls
• The Group's performance could be adversely impacted if we failed to
ensure adequate internal control procedures are in place.
• The Group has previously identified material weaknesses in internal
control over financial reporting and a failure to properly remediate these or
any new material weaknesses could adversely affect our results of operations,
investor confidence in the Group and the market price of our ADSs and ordinary
shares.
Compliance Risks
Data Privacy
• The Group is subject to strict data protection and privacy legislation
in the jurisdictions in which we operate and rely extensively on information
technology systems. The Group stores, transmits and relies on critical and
sensitive data. Security of this type of data is exposed to escalating
external cyber threats that are increasing in sophistication as well as
internal breaches.
Environment Regulation and Reporting
• The Group could be subject to increased costs to comply with potential
future changes in environmental law and regulations and increasing carbon
offset pricing to meet net zero commitments.
Regulatory, Sanctions, Anti-Trust and Taxation
• The Group may be subject to regulations restricting its activities or
effecting changes in taxation.
• The Group is subject to anti-corruption, anti-bribery and anti-trust
legislation and enforcement in the countries in which it operates and
violations could have an adverse effect on our business and reputation.
• 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 Group is 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. The Ukraine conflict has caused the adoption of
comprehensive sanctions by, among others, the EU, the United States and the
UK, which restrict a wide range of trade and financial dealings with Russia
and Russian persons. Failure to comply which these laws could expose the
Group to civil and criminal penalties.
Emerging Risks
• The Group's operations could be disrupted by an increased frequency of
extreme weather and climate related natural disasters.
• A failure to manage the complexity in carbon emission accounting for
marketing & media or to consider scope 3 emissions in new technology and
business model innovation across the supply chain could have an adverse effect
on our business and reputation.
Cautionary statement regarding forward-looking statements
This document contains statements that are, or may be deemed to be,
"forward-looking statements". Forward-looking statements give the Group's
current expectations or forecasts of future events. An investor can identify
these statements by the fact that they do not relate strictly to historical or
current facts.
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; 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 economic and geopolitical impact of the conflict in Ukraine; 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
under Item 3D 'Risk Factors' in the Group's Annual Report on Form 20-F for
2021, which could also cause actual results to differ from forward-looking
information. Neither the Company, nor any of 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. Accordingly, no assurance can
be given that any particular expectation will be met and investors are
cautioned not to place undue reliance on the forward-looking statements.
Other than in accordance with its legal or regulatory obligations (including
under the Market Abuse Regulation, the UK Listing Rules and the Disclosure and
Transparency Rules of the Financial Conduct Authority), 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.
Any forward-looking statements made by or on behalf of the Group speak only as
of the date they are made and are based upon the knowledge and information
available to the Directors on the date of this document.
Appendix 2: Alternative performance measures for the year ended 31 December
2022
The Group presents alternative performance measures, including headline
operating profit, headline profit before interest and tax, headline EBITDA,
headline profit before tax, headline earnings, headline EPS, revenue less
pass-through costs, adjusted net debt and adjusted free cash flow. 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.
In the calculation of headline profit, judgement is required by management in
determining which revenues and costs are considered to be significant,
non-recurring or volatile items that are to be excluded.
The exclusion of certain adjusting items may result in headline earnings being
materially higher or lower than reported earnings, for example when
significant impairments or restructuring charges are excluded but the related
benefits are included headline earnings will be higher. Headline measures
should not be considered in isolation as they provide additional information
to aid the understanding of the Group's financial performance.
Reconciliation of revenue to revenue less pass-through costs:
£ million 2022 2021
Revenue 14,428.7 12,801.1
Media pass-through costs (1,905.7) (1,865.3)
Other pass-through costs (723.7) (538.6)
Revenue less pass-through costs 11,799.3 10,397.2
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 and data collection costs. This includes the
cost of media where the Group is buying digital media for its own account on a
transparent opt-in basis and, as a result, the subsequent media pass-through
costs have to be accounted for as revenue, as well as billings. Therefore,
management considers that revenue less pass-through costs gives a helpful
reflection of top-line growth.
Reconciliation of profit before taxation to headline operating profit:
£ million Margin 2022 Margin 2021
Profit before taxation 1,159.8 950.8
Finance and investment income 145.4 69.4
Finance costs (359.4) (283.6)
Revaluation and retranslation of financial instruments 76.0 (87.8)
Profit before interest and taxation 1,297.8 1,252.8
Earnings from associates - after interest and tax 60.4 (23.8)
Operating profit 11.5% 1,358.2 11.8% 1,229.0
Goodwill impairment 37.9 1.8
Amortisation and impairment of acquired intangible assets 62.1 97.8
Investment and other impairment charges/(reversals) 48.0 (42.4)
Intangible asset impairment 29.0 -
Restructuring and transformation costs 203.7 145.5
Restructuring costs in relation to COVID-19 15.1 29.9
Property related costs 18.0 -
Losses on disposal of investments and subsidiaries 36.3 10.6
Gains on remeasurement of equity interests arising from a change in scope of (66.5) -
ownership
Litigation settlement - 21.3
Headline operating profit 14.8% 1,741.8 14.4% 1,493.5
Finance and investment income 145.4 69.4
Finance costs (excluding interest expense related to lease liabilities) (263.7) (192.7)
(118.3) (123.3)
Interest cover(1) on headline operating profit 14.7 times 12.1 times
Headline operating profit and headline operating margin are metrics that
management use to assess the performance of the business.
Headline operating profit margin before and after earnings from associates:
£ million Margin 2022 Margin 2021
Revenue less pass-through costs 11,799.3 10,397.2
Headline operating profit 14.8% 1,741.8 14.4% 1,493.5
Earnings from associates (after interest and tax, excluding adjusting items) 73.9 86.1
Headline PBIT 15.4% 1,815.7 15.2% 1,579.6
Headline PBIT is one of the metrics that management uses to assess the
performance of the business.
Calculation of headline EBITDA:
£ million 2022 2021
Headline PBIT 1,815.7 1,579.6
Depreciation of property, plant and equipment 166.9 151.2
Amortisation of other intangible assets 21.9 19.9
Headline EBITDA (including depreciation of right-of-use assets) 2,004.5 1,750.7
Depreciation of right-of-use assets 262.2 272.9
Headline EBITDA 2,266.7 2,023.6
Headline EBITDA is a key metric that private equity firms, for example, use
for valuing companies, and is one of the metrics that management uses to
assess the performance of the business. Headline EBITDA (including
depreciation of right-of-use assets) is used in the Group's key leverage
metric.
(1) Interest expense related to lease liabilities is excluded from interest
cover as lease liabilities are excluded from the Group's key leverage metrics.
Reconciliation of profit before taxation to headline PBT and headline
earnings:
£ million 2022 2021
Profit before taxation 1,159.8 950.8
Goodwill impairment 37.9 1.8
Amortisation and impairment of acquired intangible assets 62.1 97.8
Investment and other impairment charges/(reversals) 48.0 (42.4)
Intangible asset impairment 29.0 -
Restructuring and transformation costs 203.7 145.5
Restructuring costs in relation to COVID-19 15.1 29.9
Property related costs 18.0 -
Losses on disposal of investments and subsidiaries 36.3 10.6
Gains on remeasurement of equity interests arising from a change in scope of (66.5) -
ownership
Litigation settlement - 21.3
Share of adjusting items of associates 134.3 62.3
Revaluation and retranslation of financial instruments (76.0) 87.8
Headline PBT 1,601.7 1,365.4
Headline tax charge (408.8) (327.9)
Non-controlling interests (92.7) (83.0)
Headline earnings 1,100.2 954.5
Headline PBT and headline earnings are metrics that management use to assess
the performance of the business.
Calculation of headline taxation:
£ million 2022 2021
Headline PBT 1,601.7 1,365.4
Tax charge 384.4 230.1
Tax (charge)/credit relating to gains on disposal of investments and (9.0) 31.5
subsidiaries
Tax credit relating to restructuring and transformation costs 41.1 38.4
Tax credit relating to restructuring and transformation costs in relation to 5.4 7.3
COVID-19
Tax charge relating to litigation settlement - (5.4)
Deferred tax impact of the amortisation of acquired intangible assets and (15.4) 5.6
other goodwill items
Deferred tax relating to gains on disposal of investments and subsidiaries 2.3 20.4
Headline tax charge 408.8 327.9
Headline tax rate 25.5% 24.0%
The headline tax rate as a percentage of headline PBT (that includes the share
of headline results of associates) is 25.5% (2021: 24.0%).
Given the Group's geographic mix of profits and the changing international tax
environment, the headline tax rate is expected to increase over the next few
years.
Reconciliation of free cash flow:
£ million 2022 2021
Cash generated by operations 1,268.2 2,580.3
Plus:
Interest received 88.9 47.5
Investment income 24.5 17.8
Dividends from associates 37.6 53.4
Share option proceeds 1.2 4.4
Less:
Earnout payments (71.4) (57.0)
Corporation and overseas tax paid (390.9) (391.1)
Interest and similar charges paid (210.2) (173.7)
Interest paid on lease liabilities (92.4) (88.4)
Repayment of lease liabilities (309.6) (320.7)
Purchase of property, plant and equipment (208.4) (263.2)
Purchase of other intangible assets (including capitalised computer software) (14.9) (29.9)
Dividends paid to non-controlling interests in subsidiary undertakings (69.5) (114.5)
Adjusted free cash flow 53.1 1,264.9
The Group bases its internal cash flow objectives on adjusted free cash flow.
Management believes adjusted free cash flow is meaningful to investors because
it is the measure of the Group's funds available for acquisition related
payments, dividends to shareholders, share repurchases and debt repayment. The
purpose of presenting adjusted 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).
Future restructuring and transformation costs
Further restructuring and transformation costs are expected from 2023 to 2025,
with approximately £250 million in relation to the continued rollout of the
Group's new ERP system in order to drive efficiency and collaboration
throughout the Group. Costs of between £100 and £150 million are also
expected in relation to other IT transformation projects, shared service
centres and co-locations.
Constant currency and pro forma ('like-for-like')
These preliminary consolidated financial statements are presented in pounds
sterling. However, the Group's significant international operations give rise
to fluctuations in foreign exchange rates. To neutralise foreign exchange
impact and illustrate the underlying change in revenue and profit from one
year to the next, the Group 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.
Management also believes that discussing pro forma or like-for-like
contributes to the understanding of the Group's performance and trends because
it allows for meaningful comparisons of the current year to that of prior
years.
Further details of the constant currency and pro forma methods are given in
the glossary on page 45.
Reconciliation of reported revenue less pass-through costs to like-for-like
revenue less pass-through costs:
£ million
Revenue less pass-through costs
2021 Reported 10,397.2
Impact of exchange rate changes 611.9 5.9%
Impact of acquisitions and disposals 72.8 0.7%
Like-for-like growth 717.4 6.9%
2022 Reported 11,799.3 13.5%
Glossary and basis of preparation
Adjusted free cash flow
Adjusted free cash flow is calculated as cash generated by operations plus
dividends received from associates, interest received, investment income
received, and proceeds from the issue of shares, less corporation and overseas
tax paid, interest and similar charges paid, dividends paid to non-controlling
interests in subsidiary undertakings, repayment of lease liabilities
(including interest), earnout payments and purchases of property, plant and
equipment and purchases of other intangible assets.
Adjusting items
Adjusting items include gains/losses on disposal of investments and
subsidiaries, gains/losses on remeasurement of equity interests arising from a
change in scope of ownership, investment and other charges/reversals,
litigation settlement, restructuring and transformation costs, restructuring
costs in relation to COVID-19 and share of adjusting items of associates.
Average adjusted net debt and adjusted net debt
Average adjusted net debt is calculated as the average daily net borrowings of
the Group. Adjusted net debt at a period end consists of cash and short-term
deposits, bank overdraft, bonds and bank loans due within one year and bonds
and bank loans due after one year. Adjusted net debt excludes lease
liabilities.
Billings and estimated net new 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. Net new billings represent the estimated annualised 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.
Constant currency
The Group uses US dollar-based, constant currency models to measure
performance. These are calculated by applying budgeted 2022 exchange rates to
local currency reported results for the current and prior year, which excludes
any variances attributable to foreign exchange rate movements.
General and administrative costs
General and administrative costs include marketing costs, certain professional
fees, and an allocation of other costs, including staff and establishment
costs, based on the function of employees within the Group.
Headline earnings
Headline PBT less headline tax charge and non-controlling interests.
Headline EBITDA
Profit before finance income/costs and revaluation and retranslation of
financial instruments, taxation, gains/losses on disposal of investments and
subsidiaries, investment and other charges/reversals, goodwill impairment,
amortisation and impairment of acquired intangible assets, intangible asset
impairment, amortisation of other intangibles, depreciation of property, plant
and equipment, depreciation of right-of-use assets, restructuring and
transformation costs, restructuring costs in relation to COVID-19, property
related costs, litigation settlement, share of adjusting items of associates
and gains/losses on remeasurement of equity interests arising from a change in
scope of ownership.
Headline operating profit
Operating profit before gains/losses on disposal of investments and
subsidiaries, investment and other charges/(reversals), goodwill impairment,
amortisation and impairment of acquired intangible assets, intangible asset
impairment, restructuring and transformation costs, restructuring costs in
relation to COVID-19, property related costs, litigation settlement, and
gains/losses on remeasurement of equity interests arising from a change in
scope of ownership.
Headline PBIT
Profit before finance income/costs and revaluation and retranslation of
financial instruments, taxation, gains/losses on disposal of investments and
subsidiaries, investment and other charges/reversals, goodwill impairment,
amortisation and impairment of acquired intangible assets, intangible asset
impairment, restructuring and transformation costs, restructuring costs in
relation to COVID-19, property related costs, litigation settlement, share of
adjusting items of associates and gains/losses on remeasurement of equity
interests arising from a change in scope of ownership.
Headline operating profit margin
Headline operating profit margin is calculated as headline operating profit as
a percentage of revenue less pass-through costs.
Headline PBT
Profit before taxation, gains/losses on disposal of investments and
subsidiaries, investment and other charges/reversals, goodwill impairment,
amortisation and impairment of acquired intangible assets, intangible asset
impairment, restructuring and transformation costs, restructuring costs in
relation to COVID-19, property related costs, litigation settlement, share of
adjusting items 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.
Headline tax charge
Taxation excluding tax/deferred tax relating to gains/losses on disposal of
investments and subsidiaries, investment and other charges/reversals, goodwill
impairment, restructuring and transformation costs, restructuring costs in
relation to COVID-19, litigation settlement, and the deferred tax impact of
the amortisation of acquired intangible assets and other goodwill items.
Net working capital
The movement in net working capital consists of movements in trade working
capital and movements in other working capital and provisions per the analysis
of cash flows note.
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.
Pro forma ('like-for-like')
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 and disposals, the
reclassification of certain businesses to associates in 2022 and the
restatement of agency arrangements under IFRS 15 for the commensurate period
in the prior year. Both periods exclude results from Russia. The Group uses
the terms 'pro forma' and 'like-for-like' interchangeably.
Revenue less pass-through costs
Revenue less pass-through costs is revenue less media and other pass-through
costs.
1 All references to estimates and forecasts for advertising spend exclude US
political advertising.
2 Non-GAAP measures in this table are reconciled in Appendix 2.
3 Asia Pacific, Latin America, Africa & Middle East and Central &
Eastern Europe.
4 Adjusted free cash flow is reconciled to cash generated by operations in
Appendix 2.
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