WPP 2019 Preliminary Results

Good progress against three year plan: simpler business, stronger balance sheet, full year guidance delivered

NEW YORK & LONDON--(BUSINESS WIRE)--WPP (NYSE: WPP) today reported its 2019 Preliminary Results.

Key figures – continuing operations

£ million	2019	∆ reported^1	∆ constant^2	∆ LFL^3	2018^4
Billings	53,059	-0.3%	-1.4%	-1.0%	53,220
Revenue	13,234	1.4%	0.2%	0.0%	13,047
Revenue less pass-through costs	10,847	-0.3%	-1.5%	-1.6%	10,876
Headline EBITDA^5	1,830	-5.3%	-5.6%		1,933
Headline operating profit^6	1,561	-5.5%	-5.6%		1,651
Headline operating margin^6	14.4%	-0.8*	-0.6*	-1.2*	15.2%
Headline PBIT^6	1,623	-5.8%	-6.0%		1,723
Profit before tax	982	-21.9%	-22.3%		1,258
Profit after tax	707	-29.4%	-30.3%		1,002
Diluted EPS^6	49.8p	-33.0%	-33.8%		74.3p
Headline diluted EPS^6	78.1p	-14.6%	-14.9%		91.4p
Dividends per share	60.0p	-	-		60.0p

* Margin points

Full year and Q4 financial highlights

• Continuing operations reported revenue up 1.4%, constant currency revenue +0.2%, LFL revenue flat (Q4 +0.1%)
• Including Kantar⁷ LFL revenue less pass-through costs and headline operating margin delivered against guidance given at the Investor Day in December 2018 (revenue less pass-through costs -1.2% and operating margin -0.9 margin points)
• FY LFL revenue less pass-through costs -1.6% (-1.2% including Kantar); Q4 -1.9% (-1.6% including Kantar)
• FY headline operating margin 14.4%, down 1.2 margin points LFL (down 0.9 margin points including Kantar), reflecting challenging performance in specialist agencies and investing for future growth
• Reported profit before tax -21.9% driven primarily by a significant H1 2018 exceptional gain that has not been repeated (£73 million impact) and a charge on the revaluation of financial instruments versus a credit in 2018 (£238 million impact)
• Year-end net debt £1.540 billion (2018: £4.017 billion). Average net debt £4.282 billion, down £743 million in constant currency year-on-year as a result of disposals and strong cash generation
• Strong year over year improvement in net working capital of £350 million

Strategic highlights and 2020 guidance

• Renewed commitment to creativity and collaboration
• Simpler structure with fewer, stronger agency brands
• Investments in technology, HR and client & new business teams
• Stronger balance sheet and share buy-back programme commenced
• 2020 guidance: flat revenue less pass-through costs, flat headline operating profit margin
• 2021 targets reiterated: organic growth in line with peers, headline operating profit margin at least 15%
• 2020 guidance made prior to any impact from the coronavirus outbreak

Mark Read, Chief Executive Officer, WPP:

“2019 was the foundational year for the new WPP strategy, and thanks to the hard work of all our colleagues we have made substantial progress in a short period of time.

“We said that we would make progress in the journey to return WPP to growth, simplifying our business and reducing our debt, and we have delivered against each of these goals – having met our guidance for 2019, achieved our restructuring targets and completed the sale of a majority stake in Kantar. The second half of 2019 was stronger than the first, with performance improving globally and in the United States, our largest market.

“Our new offer of creativity powered by technology has resonated with clients, as we’ve seen in good retention rates and important wins. New creative assignments include Instagram and Mondelez, and AXA, eBay and Hasbro were among the media wins.

“Perhaps most importantly, our clients and our people tell us that WPP has a clear new sense of purpose and is successfully instilling a culture of creativity, collaboration and openness. As we enter the second year of our three-year turnaround plan, our ability to attract and retain the best people is key to long-term growth.

“I am optimistic about the future of our industry and WPP’s position within it, although there is still much more work to do. The marketing landscape has never been more dynamic and complex: clients need our help and expertise more than ever. With our market-leading scale and global footprint, allied to the creativity of our agencies and our technology leadership, we are confident of further progress against our 2021 targets.”

To access WPP's 2019 preliminary results financial tables, please visit www.wpp.com/investors

This announcement is being distributed to all owners of Ordinary shares. Copies are available to the public at the Company’s registered office.

The following cautionary statement is included for safe harbour purposes in connection with the Private Securities Litigation Reform Act of 1995 introduced in the United States of America. This announcement may contain forward-looking statements within the meaning of the US federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially including adjustments arising from the annual audit by management and the Company’s independent auditors. For further information on factors which could impact the Company and the statements contained herein, please refer to public filings by the Company with the Securities and Exchange Commission. The statements in this announcement should be considered in light of these risks and uncertainties.

In this press release not all of the figures and ratios used are readily available from the unaudited preliminary results included in Appendix 1. These non-GAAP measures, including constant currency and like-for-like growth, revenue less pass-through costs and headline profit measures, management believes 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 1.

Overview and strategic progress

In December 2018, WPP announced the results of a strategic review, setting out a new plan to return the business to sustainable growth. We are repositioning WPP as a creative transformation company with an offer extending beyond communications, into large-scale and higher-growth markets in experience, commerce and technology. This reflects the broadening needs of our clients to reach and engage with customers across multiple platforms. Our progress against the four pillars of this strategy – creativity, data and technology, a simpler structure and our own culture – is set out below.

Creativity

In our strategic review, we made a renewed commitment to creativity, our most important competitive advantage, including a plan to invest an incremental £15 million a year for the next three years in creative leadership, with a particular focus on the United States. Over the last year, we have succeeded in attracting a number of industry-leading creative talents into senior creative roles.

The Super Bowl is the most high-profile sporting and marketing event in the United States, and has become a celebration not only of TV advertising but also modern marketing in all its forms. In 2020, WPP’s clients had eight spots featuring during the game, many of which were integrated with social media platforms. We also achieved a number of significant new creative business wins, including Instagram and Mondelez (Ogilvy), Duracell (Wunderman Thompson) and VodafoneZiggo (an integrated WPP team in the Netherlands). Media wins included AXA (Wavemaker) and Signet (Mediacom).

Our creativity and the impact of our clients’ campaigns continue to be recognised in awards. At the 2019 Cannes Lions International Festival of Creativity in June, WPP agencies won a total of 187 Lions including five Grand Prix, Mindshare was named media network of the year and VMLY&R was named “Reach” agency of the year for work in social media and creative data. At the Effies, WPP was named the Most Effective Agency Holding Group, the eighth year in a row. Mediacom UK also received deserved recognition as media agency of the decade by Campaign magazine, for the second decade in a row.

Data and technology

Technology is shaping the present and the future for us and our clients, and touches everything we do. Today, more than half of global media spend is in new channels, traditional TV viewing for 18-34 year-olds in the US has fallen by 40% in the last four years, and almost all retail sales growth comes from e-commerce. Seven of the world’s ten biggest companies are technology businesses; five of them did not even exist 30 years ago. We are evolving our business to reflect these shifts.

Central to our technology strategy is our close alignment to the largest and most disruptive technology companies. Through our strategic partnerships with the likes of Adobe, Amazon, Facebook, Google, IBM and Microsoft, we are engaging in joint product development, gaining preferential access to their technology and media opportunities, and training our people with the relevant platform skills. There are very strong two-way ties: Google is now our second largest client globally, as well as our largest media partner.

We are also working to harness the best of our agencies’ own technology and data to make them available across the business. We are investing in WPP Open as our common technology platform that combines the leading solutions, applications and data from across WPP, supported by third-party partnerships, to help us deliver creative transformation. WPP Open is due to launch in 2020 and will build in scale throughout the year. We have significant data resources within WPP, but its value is less in ownership and more in how it is combined with client first-party data and other third-party data sources to build successful campaigns. This is the underlying principle of our data strategy.

To meet our clients’ changing needs, we also need to develop new skills in our people, and to do so at scale. We are focused on three streams: modern marketing technology, creative & production and digital media platforms. We now have over 60,000 people certified in one or more key products and platforms. In the next two years, we plan to train 50,000 people to be able to articulate the power of Artificial Intelligence and its value to clients, and to accredit 5,000 data scientists, engineers and creative technologists in the key marketing technologies.

Simpler structure

We are creating a simpler structure for WPP, to make it easier for clients to access our skills and resources, and the company more straightforward to manage. The new organisation is based on three principles: an absolute focus on the needs of our clients in everything we do; fewer, stronger WPP companies, each positioned to grow; and more closely integrated operations at the country level to facilitate collaboration and leverage our collective strengths. We have made the following progress on clients, countries and companies.

Clients – during the year we invested significantly in developing our dedicated client leadership teams. We have brought in new talent, with skills in technology, consulting or specific industry knowledge. We have also committed more to learning and development, and best practice sharing.

In 2019, our top 30 clients accounted for almost 30% of revenue less pass-through costs. 14 out of the 30 delivered organic growth in revenue less pass-through costs, an improvement on the figure in 2018 and well on our way to our 2021 target of more than 20.

Looking more broadly across our client base to the top 200, representing over 50% of revenue less pass-through costs in 2019, our Consumer Packaged Goods clients returned to growth as a category, which was very encouraging. Technology and Luxury & Premium Goods continue to be strong growth drivers, but we saw declines in Automotive, Financial Services and Healthcare & Pharma, all connected to specific assignment losses in 2018.

Countries – one of the strengths of WPP is its wide geographic footprint, with a significant presence both in the largest advertising markets such as the US and the UK, and in the faster growing economies such as China, India and Brazil. Although we remain organised firmly along agency lines, country managers play a key leadership role in client engagement, collaboration, talent management and culture. This has become increasingly the case as we roll out our campus strategy globally.

Companies – a key element of our simplification strategy has been to develop fewer, stronger agency brands, each equipped to serve clients with an integrated offer and making WPP easier to manage and easier for clients to navigate. The mergers in 2018 of VML with Y&R, and Wunderman with J Walter Thompson, to form VMLY&R and Wunderman Thompson respectively, were the cornerstones of this strategy. In the second half of 2019 VMLY&R returned to growth. Wunderman Thompson also showed significant improvement in the second half, as the benefits of the recent merger began to be realised.

We have made excellent progress towards simplifying WPP in the last 12 months, building on the strong start made in 2018. We have met or exceeded all of our targets, with 100 office mergers completed or in progress, 80 business units closed or in the process of closing and approximately 3,500 planned redundancies implemented. The gross savings for 2019 are in line with the £160 million estimate in December 2018. As previously announced, a proportion of these gross savings are being reinvested in talent and technology development. To date, we have made limited progress in rolling out our shared service centres and common IT infrastructure and these remain an opportunity.

Kantar - In December 2019 we completed the transaction to sell a 60% stake in Kantar to Bain Capital Private Equity to form a strong partnership to accelerate Kantar’s development. In addition to the potential in our remaining 40% investment in Kantar, the cash proceeds of approximately £2.4 billion have enabled us to reduce our debt significantly while also planning to return approximately £950 million to WPP shareholders by way of a share buy-back. As at 26 February 2020, £247 million of this had already been completed.

Other disposals during the year, including our investments in Chime, The Farm and freehold property in New York realised £344 million. Including Kantar, the total proceeds from all disposals in the last two years amount to approximately £3.3 billion. Our disposal programme is substantially complete, with over 50 businesses or investments sold in the last 18 months. We will continue to review our portfolio to maximise value for our shareholders.

Culture and ESG

Culture has always played an important part in the success of our individual agencies, as in all people businesses. However, there has not historically been a unified cultural vision across WPP. Through a clear common purpose, as well as an increasing commitment to collaboration, this is beginning to change. As a partner to many of the world’s largest and most influential businesses, we are also well positioned to be agents of change on a broader platform.

Our purpose is to use the power of creativity to build a better future for our people, clients and communities. Our workforce has an equal gender balance overall, and 50% of our senior managers are women (2018: 49%). At the Board level, 6 out of 15 of Board members are women and we are aiming to get to parity. In November 2019, we underscored this commitment by joining the 30% Club, a group of Chairs and CEOs campaigning for greater female representation in business leadership. We were also included in the 2020 Bloomberg Gender-Equality Index for the second year running. As an inclusive business, we signed up to the Valuable500, a global initiative that is putting disability on the boardroom agenda.

At both Board and executive level, there have been significant changes in how WPP operates. During 2019 we added Board skills in technology, marketing and sustainability. We have established a Board Sustainability Committee, on which both the CEO and CFO sit, as well as experienced Non-Executive Directors. The WPP Executive Committee, convened for the first time in 2019 and comprising agency CEOs and key central function leads, meets regularly to review performance, enhance collaboration and develop strategy.

We are changing our workplaces to foster collaboration and develop attractive working environments, with a goal to co-locate over half of our workforce in campuses by 2023. As at December 2019 we had launched campuses in 17 cities, with New York, Amsterdam, Madrid and Mumbai all completing during the year. These campuses are not only great places to work and present the best of WPP to clients in one place, but also drive efficiency through shared overhead and the removal of duplication.

We also want to instil a growth culture and to that end we have redesigned bonus incentives to align with our strategy for growth. In 2019, financial targets were weighted 50% to revenue less pass-through costs performance, whereas the focus in recent years has been exclusively on profit growth and margin improvement.

Another area where we are accelerating action is plastic waste. In 2019, we pledged to phase out plastics that cannot be reused, recycled or composted from all WPP offices by the end of 2020, and to work with clients to tackle plastic waste. We also signed up to the New Plastics Economy Global Commitment led by the UN Environment Programme and the Ellen MacArthur Foundation, which aims to create a circular economy where no plastic goes to waste.

Our use of renewable energy rose to 35%, with 100% of electricity in the US purchased from renewable sources. In November, Mindshare one of our leading media agencies, launched #ChangeTheBrief – a new approach to marketing planning designed to encourage behaviour change in the face of the Climate Crisis.

Financial results

The financial results for 2019 are based on the Group’s continuing operations and exclude the results of Kantar which are shown separately as discontinued operations. The 2018 reported numbers have been re-presented in accordance with IFRS 5, to reflect this change.

Reported billings were £53.059 billion, down 0.3%, down 1.4% in constant currency and down 1.0% like-for-like.

Reported revenue was up 1.4% at £13.234 billion. Revenue on a constant currency basis was up 0.2% compared with last year, the difference to the reportable number reflecting the weakness of the pound sterling against most currencies, particularly in the first half of the year. On a like-for-like basis, which excludes the impact of currency and acquisitions, revenue was flat.

Reported revenue less pass-through costs was down 0.3%, down 1.5% in constant currency and down 1.6% like-for-like, within the guidance range of -1.5% to -2.0% re-confirmed in October 2019. In the fourth quarter, like-for-like revenue was up 0.1%, a deterioration from the third quarter of +1.9%, with the United Kingdom and Western Continental Europe improving, more than offset by North America and Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe which were slower. On the same basis, revenue less pass-through costs in the fourth quarter was down 1.9%, a deterioration from the improvement seen in the third quarter of +0.5%, with the United Kingdom and Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe weaker.

Operating profitability

Reported profit before tax fell by 21.9% to £982 million from £1.258 billion, the difference between the headline and reported figures reflecting principally the £153 million of restructuring and transformation costs and £48 million of goodwill impairment charges. In constant currencies, reported profit before tax fell by 22.3%.

Reported profit after tax fell by 29.4% to £707 million from £1.002 billion. In constant currencies, profits after tax fell 30.3%.

Headline EBITDA was down 5.3% to £1.830 billion, from £1.933 billion the previous year and down 5.6% in constant currency. The Group’s revenue is more weighted to the second half of the year across all regions and sectors, and, particularly, in the faster growing markets of Asia Pacific and Latin America. As a result, profitability and margin continue to be skewed to the second half of the year, with the Group earning approximately 40% of its profits in the first half and 60% in the second half. Headline operating profit for 2019 was down 5.5% to £1.561 billion, from £1.651 billion and down 5.6% in constant currencies.

Headline operating margin⁸ was down 0.8 margin points to 14.4%, down 0.6 margin points in constant currency and down 1.2 margin points like-for-like. The difference between the constant currency and like-for-like margin reflects the impact of IFRS 16: Leases. The Group’s operating margin of 14.4% is after charging £43 million of severance costs, compared with £30 million in 2018 and £294 million of incentive payments, which were 15.8% of operating profit before incentives, a similar level to the £311 million or 15.9% in 2018.

The Group’s headline operating margin, excluding all incentives⁹ and income from associates, was 17.1%, down 0.9 margin points, compared with 18.0% last year. The Group’s staff costs to revenue less pass-through costs ratio, including severance and incentives, increased by 1.5 margin points to 65.4% compared to 63.9% in 2018.

On a like-for-like basis, the average number of people in the Group, excluding associates, in 2019 was 106,508 compared to 106,555 in 2018. On the same basis, the total number of people, excluding associates, at 31 December 2019 was 106,786 compared to 105,900 at 31 December 2018, an increase of 0.8%.

Exceptional gains and restructuring and transformation costs

As outlined in the Investor Day on 11 December 2018, we have undertaken a strategic review of our operations. As part of that review, restructuring actions have been taken to right-size underperforming businesses, address high cost severance markets and simplify operational structures. This has included a number of WPP’s operating companies having been merged, closed or sold. It also includes transformation costs with respect to strategic initiatives like co-locations in major cities, IT transformation and shared services.

In 2019, the Group recorded £121 million of restructuring and transformation costs in relation to this plan, in addition to the £212 million in 2018. Of this £333 million total, £220 million relates to actions with a cash cost, with £158 million paid to date – the balance to be paid in 2020 and beyond. Total restructuring and transformation costs in 2019 of £153 million comprises the £121 million above and £32 million of other costs, primarily relating to the continuing global IT transformation programme.

These exceptional costs of £153 million and £48 million of associate company exceptional losses have been partly offset by exceptional gains of £58 million, primarily relating to the gain on the sale of the Group’s investment in Chime.

This gives a net exceptional loss of £143 million and compares with a net exceptional loss in 2018 of £70 million.

Discontinued operations

As Kantar classifies as held for sale under IFRS 5, the profit for the year is presented as discontinued operations on the income statement. The decrease in profit for the year from £138 million in 2018 to £11 million in 2019 primarily reflects the goodwill impairment on classification as held for sale of £95 million and the tax expense on the disposal of £157 million, partially offset by the gain on sale of £74 million.

Interest and taxes

Net finance costs (excluding the revaluation of financial instruments and interest expense on lease liabilities) were £160 million, compared with £180 million in 2018, a decrease of £20 million.

The headline tax rate was 22.0% (2018: 20.7%) and on reported profit before tax was 28.0% (2018: 20.4%), the difference in the reported tax rate in 2019 was principally due to the revaluation of financial instruments not being tax deductible. Given the Group’s geographic mix of profits and the changing international tax environment, the tax rate is expected to increase slightly over the next few years.

Earnings and dividend

Headline profit before tax was down 11.7% to £1.363 billion from £1.543 billion, and down 11.6% in constant currencies.

Profits attributable to shareholders fell 33.0% to £628 million from £937 million, again reflecting principally the £153 million of restructuring and transformation costs and £48 million of goodwill impairment. In constant currencies, profits attributable to shareholders fell by 33.8%.

Headline diluted earnings per share, for continuing and discontinued operations, fell by 14.2% to 92.7p from 108.0p. In constant currencies, earnings per share on the same basis fell by 14.9%. Reported diluted earnings per share, on the same basis, fell by 41.3% to 49.5p from 84.3p and decreased 42.3% in constant currencies.

Your Board proposes to maintain the final dividend of 37.3p per share, which, together with the interim dividend of 22.7p per share, makes a total of 60.0p per share for 2019, the same as the prior year. The record date for the final dividend is 12 June 2020, payable on 6 July 2020.

Further details of WPP’s financial performance are provided in Appendix 1.

Regional review

Revenue analysis

£ million	2019	∆ reported	∆ constant^10	∆ LFL^11	2018^12
N. America	4,855	0.1%	-4.1%	-5.0%	4,852
United Kingdom	1,797	0.6%	0.6%	1.8%	1,785
W Cont. Europe	2,629	1.5%	2.9%	1.5%	2,590
AP, LA, AME, CEE^13	3,953	3.5%	3.6%	4.7%	3,820
Total Group	13,234	1.4%	0.2%	0.0%	13,047

Revenue less pass-through costs analysis

£ million	2019	∆ reported	∆ constant	∆ LFL	2018
N. America	4,034	-0.6%	-4.7%	-5.7%	4,060
United Kingdom	1,390	-0.3%	-0.3%	0.3%	1,394
W Cont. Europe	2,177	-0.3%	1.0%	0.7%	2,183
AP, LA, AME, CEE	3,246	0.2%	0.4%	1.4%	3,239
Total Group	10,847	-0.3%	-1.5%	-1.6%	10,876

Headline operating profit analysis

£ million	2019	% margin*	2018	% margin*
N. America	662	16.4%	711	17.5%
United Kingdom	188	13.6%	180	12.9%
W Cont. Europe	262	12.0%	289	13.3%
AP, LA, AME, CEE	449	13.8%	471	14.6%
Total Group	1,561	14.4%	1,651	15.2%

* Headline operating profit as a percentage of revenue less pass-through costs

North America constant currency revenue less pass-through costs was down 4.4% in the final quarter, a deterioration from -2.3% in the third quarter, and down 4.5% like-for-like, compared with -3.5% in the third quarter. This reflects slightly weaker performance in the Group’s public relations and specialist agencies. On a full year basis, constant currency revenue less pass-through costs was -4.7%, with like-for-like -5.7%, with a significant improvement in the second half, as the negative effect of some of the 2018 client assignment losses started to ease.

United Kingdom constant currency revenue less pass-through costs was down 3.3% in the final quarter and down 3.7% like-for-like. This compares with +0.6% and +3.1% respectively in the third quarter, with the Group’s global integrated agencies and particularly GroupM, performing less well, partly offset by a significant improvement in the Group’s specialist public relations businesses. On a full year basis, constant currency revenue less pass-through costs was down 0.3%, with like-for-like up 0.3%.

Western Continental Europe constant currency revenue less pass-through costs was up 1.2% in the final quarter, weaker than the third quarter +2.4%. On a like-for-like basis revenue less pass-through costs was up 1.3% in the final quarter, also slightly weaker than the third quarter growth of 1.7%. France, Italy, the Netherlands and Switzerland were softer, partly offset by a significant improvement in Germany in the final quarter. For the year, Western Continental Europe constant currency revenue less pass-through costs grew 1.0% with like-for-like up 0.7%, the second strongest performing region.

In Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, on a constant currency basis, revenue less pass-through costs was down 1.7% in the fourth quarter and down 0.2% like-for-like, somewhat weaker than the third quarter growth of 4.0%. In the fourth quarter, Asia Pacific, Latin America and Central & Eastern Europe performed less well, with Africa & the Middle East improving. On a full year basis, constant currency revenue less pass-through costs growth in the region was 0.4% with like-for-like growth 1.4%, the strongest performing region.

Business sector review

Revenue analysis

£ million	2019	∆ reported	∆ constant^14	∆ LFL^15	2018
Global Int. Agencies	10,205	2.8%	1.5%	1.4%	9,931
Public Relations	957	2.7%	0.5%	-0.7%	932
Specialist Agencies	2,072	-5.1%	-6.2%	-5.9%	2,184
Total Group	13,234	1.4%	0.2%	0.0%	13,047

Revenue less pass-through costs analysis

£ million	2019	∆ reported	∆ constant	∆ LFL	2018
Global Int. Agencies	8,108	0.5%	-0.7%	-0.7%	8,071
Public Relations	898	2.1%	-0.1%	-1.0%	880
Specialist Agencies	1,841	-4.4%	-5.6%	-5.6%	1,925
Total Group	10,847	-0.3%	-1.5%	-1.6%	10,876

Headline operating profit analysis

£ million	2019	% margin*	2018	% margin*
Global Int. Agencies	1,220	15.0%	1,228	15.2%
Public Relations	141	15.7%	139	15.8%
Specialist Agencies	200	10.9%	284	14.7%
Total Group	1,561	14.4%	1,651	15.2%

* Headline operating profit as a percentage of revenue less pass-through costs

In the final quarter of 2019, like-for-like revenue less pass-through costs in the Group’s global integrated agencies was -0.8%, down on the 1.7% growth achieved in the third quarter. Ogilvy and VMLY&R improved over the third quarter, more than offset by lower growth in Wunderman Thompson, Grey and GroupM. Geographically, North America and Asia Pacific improved, offset by lower growth, particularly in the United Kingdom and Western Continental Europe. On a full year basis like-for-like revenue less pass-through costs was down 0.7%, the strongest performing sector.

In the fourth quarter, like-for-like revenue less pass-through costs in the Group’s public relations businesses was almost flat at -0.1%, a significant improvement over the third quarter -0.9% and the first half -1.5%, with H+K Strategies and the specialist public relations businesses Finsbury, Glover Park, Hering Schuppener, Buchanan and Clarion performing strongly. On a full year basis, like-for-like revenue less pass-through costs was down 1.0%, with H2 -0.4% a significant improvement on the -1.5% in H1.

In the Group’s specialist agencies, like-for-like revenue less pass-through costs was down 7.4% in the final quarter, as the Group’s specialist brand consulting, advertising and direct, interactive and eCommerce businesses came under pressure, particularly in North America Western Continental Europe and Asia Pacific. The Group’s specialist agencies includes the specialist global Ford agency, GTB, and reflects the loss of the omni-channel work in the second half of 2018.

Cash flow highlights¹⁶

In 2019, operating profit was £1.580 billion, depreciation, amortisation and goodwill impairment £734 million, non-cash share-based incentive charges £71 million, working capital and provisions inflow £350 million, net interest paid £190 million, tax paid £536 million, lease liabilities (including interest) paid £355 million, capital expenditure £394 million, earnout payments £130 million and other net cash outflows of £86 million. Free cash flow was, therefore, an inflow of £1.044 billion.

This free cash inflow was enhanced by £2.221 billion in net cash acquisition payments and disposal proceeds (of which £1.971 billion was the Kantar disposal net of cash disposed and costs, and £250 million of net income from other disposal proceeds net of acquisition payments) and absorbed by £44 million in share buy-backs and £750 million in dividends. This resulted in a net cash inflow of £2.471 billion.

Free cash flow conversion¹⁷ in 2019 was 89%.

Balance sheet highlights¹⁸

Average net debt in 2019 was £4.282 billion, compared to £5.025 billion in 2018, at 2019 exchange rates. On 31 December 2019 net debt was £1.540 billion, against £4.017 billion on 31 December 2018, a decrease of £2.477 billion (a decrease of £2.313 billion at 2019 exchange rates). The reduced period end debt figure reflects the benefit of £1.971 billion proceeds in relation to the disposal of 60% of the Group’s interest in Phase 1 of the Kantar business.

Return of funds to shareholders

Funds returned to shareholders in 2019 totalled £794 million, including dividends and share buy-backs. In 2019, 4.6 million shares, or 0.4% of the issued share capital, were purchased at a cost of £44 million. All of these shares were purchased in the fourth quarter.

Outlook

Financial guidance

We have made good progress with our three year strategy during 2019, creating a simpler business, making significant investments for future growth and strengthening our balance sheet. Our financial performance in the second half of the year showed an encouraging improvement over the first half and gives us confidence of further improvement heading into 2020, as we make progress towards our 2021 goals. Our targets for 2020 are:

• Like-for-like revenue less pass-through costs flat, with business performance improving during the year
• Headline operating margin to revenue less pass-through costs flat on a constant currency basis

This guidance is made prior to any impact from the coronavirus outbreak. At this stage, it is too early to predict the full potential impact. We will provide an update at our first quarter trading update.

Medium-term financial targets

At our Investor Day in December 2018, we set out our new medium-term financial targets that will allow us to invest in talent and technology, improve our competitive position and deliver sustainable long-term growth rates. We are on track to deliver our financial targets by the end of 2021, which are:

• Organic growth (defined as like-for-like revenue less pass-through costs growth) in line with peers
• Headline operating margin (including the impact of IFRS 16: Leases but now excluding Kantar) of at least 15%
• Free cash flow conversion of 80%-90%

¹ Percentage change in reported sterling
² Percentage change at constant currency exchange rates
³ Like-for-like growth at constant currency exchange rates and excluding the effects of acquisitions and disposals
⁴ Prior year figures have been re-presented in accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations, as described in note 2 of Appendix 1
⁵ Headline EBITDA (including depreciation of right-of-use assets)
⁶ Headline measures, diluted EPS and net working capital are defined in Appendix 1
⁷ The basis of measures including Kantar is set out in Appendix 1
⁸ Headline operating profit (excluding income from associates) as a percentage of revenue less pass-through costs
⁹ Short and long-term incentives and the cost of share-based incentives
¹⁰ Percentage change at constant currency exchange rates
¹¹ Like-for-like growth at constant currency exchange rates and excluding the effects of acquisitions and disposals
¹² Prior year figures have been re-presented in accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations, as described in note 2 of Appendix 1
¹³ Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe
¹⁴ Percentage change at constant currency exchange rates
¹⁵ Like-for-like growth at constant currency exchange rates and excluding the effects of acquisitions and disposals
¹⁶ A summary of the Group’s unaudited cash flow statement and notes as at 31 December 2019 are provided in Appendix 1
¹⁷ Free cash flow conversion is the ratio of free cash flow to headline earnings. Free cash flow is after earnouts and changes in working capital and before new acquisition spend, disposals and shareholder distributions
¹⁸ A summary of the Group’s unaudited balance sheet and notes as at 31 December 2019 are provided in Appendix 1