WPP 2021 Preliminary Results

Very strong growth driven by demand for digital services, ecommerce and technology; exceptional new business performance; over £1 billion returned to shareholders; sustained momentum into 2022

NEW YORK & LONDON--(BUSINESS WIRE)--WPP (NYSE: WPP) today reported its 2021 Preliminary Results.

Key figures – continuing operations

£ million	2021	+/(-)% reported^1	+/(-)% LFL^2	2020^3
Revenue	12,801	6.7	13.3	12,003
Revenue less pass-through costs	10,397	6.5	12.1	9,762
Reported:
Operating profit/(loss)	1,229	n/m	-	(2,278)
Profit/(loss) before tax	951	n/m		(2,791)
Diluted EPS (p)	52.5	n/m	-	(243.0)
Dividends per share (p)	31.2	30.0	-	24.0
Headline^4:
Operating profit	1,494	18.5	26.8	1,261
Operating profit margin	14.4%	1.5pt*	1.7pt*	12.9%
Profit before tax	1,365	31.1	-	1,041
Diluted EPS (p)	78.5	30.6	-	60.1
* Margin points

Full year and Q4 financial highlights

• FY continuing operations reported revenue +6.7%, LFL revenue +13.3%
• FY LFL revenue less pass-through costs +12.1%; Q4 +10.8%
• 2-year FY LFL revenue less pass-through costs +2.9%; Q4 +3.6%
• Q4 LFL revenue less pass-through costs by major market: US +11.7%, UK +9.9%, Germany +3.4%, Greater China +13.6%, Australia -2.2%
• FY headline operating margin 14.4%, up 1.7pt LFL on prior year with strong top-line growth and efficiency savings supporting significant reinvestment in incentives
• Reported diluted EPS 52.5 pence; headline diluted EPS up 30.6% to 78.5 pence
• Free cash flow of £1.3 billion
• Adjusted net debt at 31 December 2021 £0.9 billion, after significant growth investments and shareholder returns, reflecting very strong cash generation

Strategic progress, shareholder returns and 2022 guidance

• Improving business mix: growth areas of experience, commerce and technology around 38% of revenue less pass-through costs in Global Integrated Agencies ex GroupM
• GroupM very strong: 2021 LFL revenue less pass-through costs +16.1%
• Continued investment in client offer: creation of Choreograph, acquisitions including Sard Verbinnen, Satalia, Cloud Commerce and Numerator (Kantar)
• Breadth and depth of capabilities resonating well with clients: market-leading $8.7 billion⁵ of net new business won, including global Coca-Cola account
• Strong recognition of creativity and effectiveness: most awarded company at the 2021 Cannes Lions Festival; ranked number one across all three WARC rankings for media, creative and effectiveness
• Transformation programme on track: around £245 million gross savings, mainly in property, procurement and simplification; good progress on shared services and IT transformation
• Final dividend of 18.7 pence proposed, up 33.6%; over £1 billion returned to shareholders in 2021 through share buybacks and dividends
• 2022 guidance: LFL revenue less pass-through costs growth around 5%; headline operating margin up around 50 bps; trade working capital expected to be flat year-on-year; £800 million share buyback, of which £129 million already completed; tax rate of around 25.5% in 2022

Mark Read, Chief Executive Officer, WPP:

“It has been an outstanding year for WPP. Our top-line growth, driven by strong demand for our services in digital marketing, media, ecommerce and technology, has resulted in our fastest organic growth for over 20 years. As a result, we are two years ahead of our plan, hitting our 2023 revenue target in 2021.

“As clients seek to accelerate their growth and transform how they reach customers, the depth, breadth and global scale of our offer - which combines creativity with technology and data, through Choreograph, and the largest global media platform in GroupM - is proving its value for existing and new clients. The talent, dynamism and commitment of our people have also shone through. Our extensive partnership with The Coca-Cola Company, the expansion of our work with Google and the continuation of our longstanding relationship with Unilever demonstrate the value that three of the world’s leading marketing organisations place in WPP.

“We have made substantial strategic progress, creating the world’s leading board-level communications firm through the merger of Finsbury Glover Hering and Sard Verbinnen, and acquiring capabilities in AI, commerce and technology services to leverage across all of WPP for future growth. Cash generation continues to be very strong, underpinned by efficiencies achieved in our transformation programme, allowing us to make significant investments in our offer and reward our people for their huge contribution, while returning over £1 billion in cash to shareholders through dividends and share buybacks.

“We look forward to 2022 with confidence. We are guiding to strong top-line growth, improving profitability and continued investment in our people and services.”

To access WPP's 2021 preliminary results financial tables, please visit www.wpp.com/investors

Overview and strategic progress

Market environment

2021 was an extraordinary year for the global advertising industry. Growth in spend was supported by a stronger-than-expected macroeconomic environment, a consumption boost from pent-up saving and structural growth in digital channels. According to GroupM estimates, global advertising spend⁶ grew by 22.5% in 2021, a considerably better outcome than the 12.3% forecast in December 2020.

The pace of growth in digital advertising has continued to accelerate, reflecting the seismic shift in the way people consume media. GroupM estimates that global digital advertising spend grew by 30.5% in 2021, and now accounts for 64.4% of total spend, up from 59.3% in 2020.

Within digital, one of the big drivers of growth has been the explosion in ecommerce. The pandemic accelerated a widespread shift towards shopping online, amplifying the number of opportunities for brands to connect to consumers on digital channels, while also levelling the playing field for challenger brands. GroupM estimates that global retail ecommerce advanced 20.4% in 2021.

Two other factors are playing a significant role in the growth in advertising spend. New, app-based or digital-first businesses are able to afford to invest a greater proportion of their income into marketing to grow scale fast because they lack the physical presence (and associated costs such as rent) of traditional businesses. In turn, more traditional advertisers such as consumer packaged goods companies are investing in retail and commerce media – engaging with customers closer to the digital point of sale. This is blurring the lines between the marketing budget and the sales promotion budget, significantly growing the addressable market for marketing services businesses.

By geography, the UK, US and China remain the largest contributors to growth in advertising spend, spurred by their exposure to digital. By medium, TV had a strong year with global advertising spend on TV growing by 11.7% in 2021, as advertisers invested in their brand-building strategies. It also reflects the growth of connected TV and the increased targeting and measurement potential this brings to advertisers. Despite restrictions on mobility, spend on outdoor also grew, supported by the increasing availability of digital screens and programmatic options. Audio also saw some growth reinforced by podcasting, while cinema has been slower to recover. Print was the only medium to decline, reflecting the trends in circulation.

We have seen the acceleration of two significant trends, in data and purpose, that we expect to continue. The shift to digital and omnichannel commerce is driving companies to increase investment in data-driven marketing, which requires better (and privacy-compliant) customer data as well as marketing technology transformation. We are also witnessing very strong demand for strategic advice on purpose, sustainability and broader social issues. 85% of consumers believe that brands should represent something more than just profit⁷, and brands perceived as having a high positive impact on society are estimated to be more than twice as valuable as brands that are not⁸.

Performance and progress

Revenue was £12.8 billion, up 6.7% from £12.0 billion in 2020, and up 13.3% like-for-like. Revenue less pass-through costs was £10.4 billion, up 6.5% from £9.8 billion in 2020, and up 12.1% like-for-like.

We have seen an exceptional recovery in the year, with LFL growth in revenue less pass-through costs across all our business sectors and major markets. On a two-year basis we are 2.9% ahead of 2019 performance in terms of LFL revenue less pass-through costs, reflecting the breadth and depth of our offer. Client demand has been strong, particularly for ecommerce services and in commerce media. GroupM’s commerce billings increased 41% year-on-year in 2021 while the proportion of digital billings has grown to 43% in 2021 from 41% in 2020. Revenue less pass-through costs from higher-growth areas of our offer in experience, commerce and technology increased to around 38% of our Global Integrated Agencies, excluding GroupM, compared to 35% in 2019.

Clients and partners

By sector, we have had continued momentum in technology, healthcare & pharma and consumer packaged goods which together represent 53% of our revenue less pass-through costs for designated clients. On a two-year basis, these sectors recorded like-for-like growth of 15.1%, 10.5% and 5.7% respectively. At the client level, we also saw widespread evidence of investing in marketing for growth, with 18 out of our top 30 clients showing double-digit two-year growth in 2021.

We won $8.7 billion of net new billings in 2021, including important retentions of longstanding media partnerships with Unilever and Bayer, demonstrating the strength of our client relationships. We also expanded our relationship with Google to handle the entirety of their media spend globally. Over the year we also won new assignments from AstraZeneca, Beiersdorf, L’Oréal, Sainsbury’s, TD Bank and Under Armour among others.

We are proud to have been appointed The Coca-Cola Company’s Global Marketing Network Partner. This is a partnership of unprecedented scale in the industry – covering creative, media and data across more than 200 countries and territories – and reflects the breadth and reach of WPP across the globe.

We continued to deepen and broaden our relationships with established and emerging technology partners globally, to build our expertise and develop leading services for clients. For example, we are a Global Partner with Google, with nearly 6,000 of our people now certified as Google Marketing Platform consultants; through Wavemaker, we achieved a global first through our access to Amazon Advertising’s Overlapping Audiences API; and we launched a ground-breaking global agency partnership with TikTok giving our agencies early access to advertising products in development and collaborating with a diverse network of creators.

Creativity

Underpinning our success this year is the strength of our creative work. We were honoured to be recognised as the most-awarded company at the 2021 Cannes Lions Festival, with winners representing 38 different countries. Each of our global integrated creative agencies won a Grand Prix. In addition, WPP topped WARC’s 2021 global agency rankings across all three categories – creative, media and effectiveness – reflecting the breadth of our capabilities.

The metaverse presents a new frontier of creative opportunities for brands to engage with consumers, through virtual worlds connecting gaming, augmented and virtual reality, NFTs and the blockchain. Clients are seizing the opportunity and seeking our partnership to experiment in ways to bring experiences to life in this new channel. Our agencies are already delivering metaverse projects for clients including Wendy’s, Under Armour and Pfizer. To take the ideas to the next level, Hogarth recently announced the launch of The Metaverse Foundry, a global team of over 700 creatives, producers, visual artists and technologists focused on delivering the most creative and compelling metaverse experiences for our clients.

Investments for growth

During the year we made a number of acquisitions, including Satalia, a market-leading artificial intelligence business; Cloud Commerce Group, a technology company helping brands to market, sell and deliver products across ecommerce platforms globally; and Made Thought, a London-based branding and design agency. We also merged Finsbury Glover Hering and Sard Verbinnen, a transaction which has created a leading global strategic communications firm. Kantar, in which we own a 40% stake, acquired Numerator, a technology-driven consumer and market intelligence company.

These acquisitions are aligned with our accelerated growth strategy and focused M&A approach to build on existing capabilities in growth areas. For example, Satalia’s highly specialised artificial intelligence capabilities have been leveraged across WPP to solve for a range of complex optimisation problems. Alongside applications for client engagements, the tools have been applied to internal opportunities including cross-platform media optimisation, workforce utilisation and content intelligence. The transaction has already added significant value both to clients and internal WPP product development.

We also stepped up organic investment to drive significant long-term growth opportunities. The main areas of focus for this investment are the formation and development of Choreograph to unify and accelerate our data capabilities, the creation of a commerce-as-a-service platform to complement our broader expertise in commerce, and further innovation in our market-leading programmatic and connected TV businesses, Xaxis and Finecast.

Choreograph is working to design innovative ways to future-proof our clients’ approach to data. We believe there will not be a single solution to addressing the challenges presented by the deprecation of third-party cookies and other identifiers. As such we are exploring and investing in multiple privacy-preserving solutions including machine learning graphs, identity networks, cohort analysis and the use of contextual signals. Choreograph has already played a central role in the retention of the Unilever media account and the Coca-Cola partnership.

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. We remain comfortably on target to achieve our goal of £600 million annual cost efficiencies by 2025, with around £245 million of gross annual savings achieved so far against a 2019 base.

The transformation of our property estate continues, despite the constraints of COVID, with a further nine campuses opened in 2021, taking the total to 30. We aim to complete at least 65 campuses, housing more than 85,000 people, by 2025. In procurement, we are beginning to consolidate our spend more effectively, improving terms for our agencies with our purchasing scale. Telecoms savings and software licenses were areas of significant efficiency in 2021. In terms of simplification, the combination of sub-scale agencies in smaller markets is leading to a significant improvement in performance; we have removed around 500 legal entities from the group structure, with a similar figure targeted for 2022; and we have acquired the minorities in WPP AUNZ, taking us to 100% ownership to improve control and governance of our fifth largest geography.

Across IT, Finance and HR transformation, significant groundwork has been undertaken as we modernise and move to a more standardised approach, with target operating models approved for all three. In IT, transformation plans including network infrastructure, cloud acceleration and platform rationalisation are all on track. The shared services programme is progressing, with a significant portion of finance processes migrated from the UK to Mumbai, and new deployments in the Middle East, Asia and Latin America. We have, however, experienced some delays to the deployment of Workday, our new ERP platform, but we are confident of meeting our revised timetable starting in the first half of 2022.

Purpose and ESG

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 this purpose statement.

People

Our success is powered by our people. This year we have launched and developed a number of initiatives across our agencies to foster an open and inclusive culture. The pilot of our Inclusive Leadership in a Hybrid World programme equipped 1,000 managers across five companies and four countries with a roadmap to becoming a more inclusive leader. Our long-term goal is to make this learning experience available to everyone across WPP, starting with 40,000 managers globally in 2022.

As part of our commitment to ensure the best possible culture, we also launched our Mental Health Allies programme, providing mental health training to 500 leaders, HR professionals and employees across the UK and US. We will expand into more regions in 2022.

With the support of our first company-wide LGBTQ+ community, WPP Unite, we developed the LGBTQ+ Inclusive Marketing programme, to equip our people with the knowledge, skills and resources to ensure more inclusive marketing. WPP Unite was spearheaded in the UK and US and will expand to other regions. We also joined the Business Coalition for the Equality Act and were named among the Best Places to Work for LGBTQ+ Equality by the Human Rights Campaign for the second consecutive year.

We continue to focus on driving greater gender balance throughout the company with women now representing more than half of our senior managers and, at the most senior level of our company, women now make up 39%. Fourteen leaders from across WPP were named in the 2021 HERoes Women Role Model Lists for their work driving change in gender diversity, and we are now ranked in the top 10 for gender representation among senior leaders and at board level in the FTSE Women Leaders Review. In addition, WPP was recognised in the Bloomberg Gender-Equality Index for the fourth consecutive year.

We know we have more to do to ensure WPP represents the diversity of the societies in which we operate, which is why we are placing diversity, equity and inclusion at the centre of our recruitment and development processes, using analytics to provide a more inclusive employee experience. We have formed partnerships with leading inclusion and diversity organisations such as the Unstereotype Alliance, The Valuable 500 and the LAGRANT Foundation. We are also funding a number of local initiatives to advance racial equity, focusing on developing skills and increasing interest in joining our industry.

To help lower the barriers to entry into the creative industry we launched our second NextGen Leaders series. Built with inclusion at its core, this cohort comprised 1,400 participants (50% of participants in the US & UK identified as Black, Asian or LatinX and 60% identified as female).

As part of our Racial Equity Programme, in June 2021 we invited our global network of agencies to apply to receive resources to create and run innovative and impactful programmes to advance racial equity. Based on the ideas and initiatives that were felt to align most closely with WPP’s purpose and hold the greatest potential to effect change, we made the first nine grants. Supported projects include Life Through the Eyes of the UK Black Community, a new race equity organisation with a unique focus on dismantling all aspects of racism faced by Black people in the UK; and SOMA+, a platform focused on expanding the professional knowledge of Black, Indigenous, and low-income students in Brazil.

In addition, WPP committed in June 2020 to match personal donations by employees to several non-profit organisations up to $1,000 per person, to a total of $1 million.

Planet

Earlier in the year we made an industry-leading commitment to reduce carbon emissions from our own operations to net zero by 2025 and across our supply chain by 2030, including media buying – an industry first. Supporting this we have committed to equally ambitious carbon emission reduction targets in line with climate science, and validated by the Science Based Targets initiative, to reduce 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.

In November 2021 WPP successfully amended and supplemented the $2.5 billion revolving credit facility to link the margin on the facility to specific sustainability measures, an important first milestone in WPP’s journey to embed its carbon reduction targets and broader sustainability commitments into its financing arrangements.

Engaging with rating agencies and benchmarking organisations is key to holding ourselves accountable for our progress. We are delighted that the Carbon Disclosure Project has upgraded our ESG score to an A- in their 2021 ratings, reflecting the ambition of our new net zero strategy, emissions reductions targets and strengthened governance.

Clients

We have supported many of our clients with their own sustainability goals. For example, we helped to design the world’s first carbon-neutral TV (Sky), designed and created an immersive experience on the plastic crisis in our oceans (SC Johnson) and launched an AI-powered campaign supporting local businesses across India for Diwali (Mondelez). Demand for advice on brand purpose, and support on everything from environmental product design to recycling and changing customer behaviour is a major driver of growth for a number of our agencies.

Communities

In partnership with the WHO Foundation, we created and delivered the $5 vaccine campaign, encouraging people across the globe to spend the price of a coffee on a donation to fund COVID-19 vaccines for lower-income countries. We also donated 10,000 vaccines on behalf of our clients and matched every vaccine bought by employees. Since the start of the pandemic, we have been proud to partner with the WHO to produce public awareness campaigns to help limit the spread and impact of COVID-19 which have reached tens of millions of people across 167 countries in more than 20 languages.

Outlook for 2022

WPP is entering 2022 with a strong balance sheet, good momentum from new business wins, and a comprehensive client offer.

Our guidance for 2022 is as follows:

• Like-for-like revenue less pass-through costs growth of around 5%
• Headline operating margin improvement of around 50 bps, excluding the impacts of M&A and foreign exchange
• Effective tax rate (measured as headline tax as a % of headline profit before tax) of around 25.5%
• Capex £350-400 million, with around £100 million relating to ERP system deployment previously included in capex guidance now included in restructuring costs
• Trade working capital expected to be flat year-on-year
• Current foreign exchange rates imply around a 0.5% drag on reported revenue less pass-through costs from the movement in sterling year-on-year
• We also anticipate mergers and acquisitions will add 0.5-1.0% to revenue less pass-through costs growth
• Given our low leverage and continued strong cash generation, we expect to execute around £800 million of share buybacks in 2022, of which £129 million has already been completed

Medium-term guidance

At our Capital Markets Day in December 2020, we set out our new medium-term financial targets that will allow us to invest in talent, incentives and technology, improve our competitive position and deliver sustainable long-term growth. These remain:

• 3-4% annual growth in revenue less pass-through costs from 2023, including M&A benefit of 0.5-1.0% annually
• 15.5-16.0% headline operating margin in 2023
• Dividend: intention to grow annually with a pay-out ratio around 40% of headline diluted EPS
• Average adjusted net debt/EBITDA maintained in the range 1.5-1.75x

Financial results

Unaudited headline income statement:

£ million	2021	2020^9	+/(-) % reported	+/(-) % ∆ LFL
Continuing operations
Revenue	12,801	12,003	6.7	13.3
Revenue less pass-through costs	10,397	9,762	6.5	12.1
Operating profit	1,494	1,261	18.5	26.8
Operating profit margin %	14.4%	12.9%	1.5pt	1.7pt
Income from associates	86	10	n/m
PBIT	1,580	1,271	24.3
Net finance costs	(215)	(230)	(6.6)
Profit before tax	1,365	1,041	31.1
Tax	(328)	(240)	36.7
Profit after tax	1,037	801	29.5
Non-controlling interests	(83)	(59)	40.9
Profit attributable to shareholders	954	742	28.6
Diluted EPS	78.5p	60.1p	30.6

Reconciliation of operating profit/(loss) to headline operating profit:

£ million	2021	2020
Continuing operations
Operating profit/(loss)	1,229	(2,278)
Amortisation and impairment of acquired intangible assets	98	89
Goodwill impairment	2	2,823
Losses/(gains) on disposal of investments and subsidiaries	11	(8)
Gains on remeasurement of equity interests arising from a change in scope of ownership	-	(1)
Investment and other impairment (reversals)/charges	(43)	296
Litigation settlement	21	26
Restructuring and transformation costs	146	81
Restructuring costs in relation to COVID-19	30	233
Headline operating profit	1,494	1,261

Reported billings were £50.7 billion, up 8.0%, and up 14.4% like-for-like.

Reported revenue from continuing operations was up 6.7% at £12.8 billion. Revenue on a constant currency basis was up 11.6% compared with last year. Net changes from acquisitions, disposals and other adjustments¹⁰ had a negative impact of 1.7% on growth.

Like-for-like revenue growth for 2021, excluding the impact of currency, acquisitions and disposals, and the other adjustments, was 13.3%.

Reported revenue less pass-through costs was up 6.5%, and up 11.5% on a constant currency basis. Excluding the impact of acquisitions and disposals and the other adjustments, like-for-like growth was 12.1%. In the fourth quarter, like-for-like revenue less pass-through costs was up 10.8%.

Regional review

Revenue analysis

£ million	2021	2020	+/(-) % reported	+/(-) % LFL
N. America	4,494	4,465	0.7	9.4
United Kingdom	1,867	1,637	14.0	15.0
W. Cont Europe	2,786	2,442	14.1	19.2
AP, LA, AME, CEE^11	3,654	3,459	5.6	13.3
Total Group	12,801	12,003	6.7	13.3

Revenue less pass-through costs analysis

£ million	2021	2020	+/(-) % reported	+/(-) % LFL
N. America	3,849	3,744	2.8	9.7
United Kingdom	1,414	1,234	14.6	15.0
W. Cont Europe	2,226	2,019	10.2	14.5
AP, LA, AME, CEE	2,908	2,765	5.2	12.3
Total Group	10,397	9,762	6.5	12.1

Headline operating profit analysis

£ million	2021	% margin*	2020	% margin*
N. America	656	17.0	612	16.3
United Kingdom	181	12.8	138	11.2
W Cont. Europe	289	13.0	199	9.8
AP, LA, AME, CEE	368	12.7	312	11.3
Total Group	1,494	14.4	1,261	12.9
* Headline operating profit as a percentage of revenue less pass-through costs

North America like-for-like revenue less pass-through costs was up 11.4% in the final quarter, and up 5.1% on a two-year basis. The USA continued to grow at a double-digit rate, led by GroupM, VMLY&R and Hogarth, and Canada also performed strongly. On a full year basis, like-for-like revenue less pass-through costs in North America was up 9.7%, and up 3.3% over two years.

United Kingdom like-for-like revenue less pass-through costs was up 9.9% in the final quarter, and up 1.8% on a two-year basis. AKQA Group and VMLY&R were the strongest performers. On a full year basis, like-for-like revenue less pass-through costs was up 15.0%, and up 2.9% over two years.

Western Continental Europe like-for-like revenue less pass-through costs was up 7.9% in the final quarter, and up 3.7% on a two-year basis. The strongest performers in the period were Italy, the Netherlands and France. On a full year basis, like-for-like revenue less pass-through costs was up 14.5%, and up 5.2% over two years.

In Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, like-for-like revenue less pass-through costs was up 12.5% in the final quarter, and up 2.6% on a two-year basis. Latin America was boosted by a very strong performance in Brazil, while Asia Pacific continued to be negatively impacted by COVID-related restrictions in Australia. On a full year basis, like-for-like revenue less pass-through costs was up 12.3%, and up 0.7% over two years.

Business sector review

During 2020, we announced that we would bring together Grey and AKQA under the AKQA Group, and we brought Geometry and GTB into VMLY&R, and International Healthcare into VMLY&R and Ogilvy. As a result AKQA Group, Geometry, GTB and International Healthcare are now reported within Global Integrated Agencies, having previously been reported within Specialist Agencies. Prior year figures have been re-presented to reflect these changes.

Revenue analysis

£ million	2021	2020	+/(-) % reported	+/(-) % LFL
Global Integrated Agencies	10,836	10,266	5.6	12.6
Public Relations	959	893	7.4	12.6
Specialist Agencies	1,006	844	19.1	22.5
Total Group	12,801	12,003	6.7	13.3

Revenue less pass-through costs analysis

£ million	2021	2020	+/(-) % reported	+/(-) % LFL
Global Integrated Agencies	8,638	8,194	5.4	11.3
Public Relations	910	854	6.5	11.5
Specialist Agencies	849	714	19.0	21.8
Total Group	10,397	9,762	6.5	12.1

Headline operating profit analysis

£ million	2021	% margin*	2020	% margin*
Global Int. Agencies	1,216	14.1	1,060	12.9
Public Relations	143	15.7	142	16.5
Specialist Agencies	135	15.9	59	8.3
Total Group	1,494	14.4	1,261	12.9
* Headline operating profit as a percentage of revenue less pass-through costs

Global Integrated Agencies like-for-like revenue less pass-through costs was up 10.0% in the final quarter, and up 3.1% on a two-year basis. GroupM, which represented 38% of WPP’s revenue less pass-through costs in the fourth quarter, was up 12.3% 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 11.3%, and up 2.5% over two years.

Public Relations like-for-like revenue less pass-through costs was up 15.1% in the final quarter, and up 10.4% on a two-year basis. BCW and H+K Strategies continued to grow strongly. In October, we announced the merger of Finsbury Glover Hering with Sard Verbinnen to create a leading global strategic communications firm. For the full year, like-for-like revenue less pass-through costs for the segment was up 11.5%, and up 7.0% over two years.

Specialist Agencies like-for-like revenue less pass-through costs was up 13.9% in the final quarter, and up 4.1% on a two-year basis. We continued to see strong demand from clients across most of our businesses, although the overall growth rate slowed from the third quarter as the contribution from the COVID-related contract in Germany eased. For the full year, like-for-like revenue less pass-through costs for the segment was up 21.8%, and up 7.8% over two years.

Operating profitability

Reported profit before tax was £951 million, compared to a loss of £2.8 billion in 2020, reflecting principally the £3.1 billion of impairment charges and investment write-downs and £313 million of restructuring and transformation costs during the prior period.

Reported profit after tax was £721 million compared to a loss in 2020 of £2.9 billion.

Headline EBITDA (including IFRS 16 depreciation) for 2021 was up 18.2% to £1.8 billion, compared to £1.5 billion the previous year. Headline operating profit was up 18.5% to £1.5 billion. The significant growth in profitability year-on-year reflects the strong recovery from the impact of COVID-19 on revenue less pass-through costs, as well as improvement in our competitive performance and the progress on our transformation programme, with £245 million of gross savings towards our 2025 annual run rate target of £600 million.

Headline operating margin was up 150 basis points to 14.4%, and up 170 basis points like-for-like. Operating costs were up 4.7%, but were flat year-on-year excluding the impact of incentives. Staff costs pre-incentives rose 3.2% but property costs fell 17.1% reflecting the campus roll-out and the continued impact of COVID. IT costs were flat, and other costs were down 13.2%, driven by lower office costs and bad debt.

The Group’s headline operating margin is after charging £42 million of severance costs, compared with £68 million in 2020 and £592 million of incentive payments, compared to £185 million in 2020 and £294 million in 2019.

The average number of people in the Group in 2021 was 104,808 compared to 102,822 in 2020. The total number of people at 31 December 2021 was 109,382 compared to 99,830 at 31 December 2020.

Exceptional items

The Group incurred a net exceptional loss of £270 million in 2021. This comprises the Group’s share of associate company exceptional losses (£62 million), restructuring and transformation costs (£176 million) and other net exceptional losses (£32 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, and our response to the COVID-19 situation. This compares with a net exceptional loss in 2020 of £477 million.

Interest and taxes

Net finance costs (excluding the revaluation and retranslation of financial instruments) were £215 million, a decrease of £15 million year-on-year, primarily as a result of the repayment of the $500 million 3.625% September 2022 bond in July 2021 and foreign exchange movements.

The reported tax charge was £230 million (2020: £127 million). The headline tax rate (measured on headline profit before tax, including associate income) was 24.0% (2020: 23.0%). Given the Group’s geographic mix of profits and the changing international tax environment, the tax rate is expected to be around 25.5% in 2022, and to continue to increase in subsequent years.

Earnings and dividend

Headline profit before tax was up 31.1% to £1.4 billion, and profits attributable to share owners were £954 million.

Reported diluted earnings per share were 52.5 pence, compared to a loss per share of 243.0 pence in the prior period. Headline diluted earnings per share were up 30.6% to 78.5 pence.

The Board is proposing a final dividend for 2021 of 18.7 pence per share, which together with the interim dividend paid in November 2021 gives a full-year dividend of 31.2 pence per share. The record date for the final dividend is 10 June 2022, and the dividend will be payable on 8 July 2022.

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

Cash flow highlights

Twelve months ended (£ million)	31 December 2021	31 December 2020
Operating profit/(loss) of continuing and discontinued operations	1,229	(2,267)
Depreciation and amortisation	542	631
Investment and other impairment (reversals)/charges	(1)	3,316
Lease payments (inc interest)	(409)	(399)
Non-cash compensation	100	74
Net interest paid	(126)	(100)
Tax paid	(391)	(372)
Capex	(293)	(273)
Earnout payments	(57)	(115)
Other	(31)	(50)
Trade working capital	319	780
Other receivables, payables and provisions	383	58
Free cash flow	1,265	1,283
Disposal proceeds	77	284
Net initial acquisition payments	(464)	(144)
Dividends	(315)	(122)
Share repurchases and buybacks	(819)	(290)
Net cash flow	(256)	1,011

In 2021, net cash outflow was £256 million, compared to a £1.0 billion inflow in 2020. The main drivers of the cash flow performance year-on-year were the higher operating profit and continued improvements in working capital, offset by increased spend on acquisitions, growth in the dividend and the significant increase in the share buyback. A summary of the Group’s unaudited cash flow statement and notes for the twelve months to 31 December 2021 is provided in Appendix 1.

Balance sheet highlights

As at 31 December 2021 we had cash and cash equivalents of £3.5 billion and total liquidity, including undrawn credit facilities, of £5.5 billion. Average adjusted net debt in 2021 was £1.6 billion, compared to £2.3 billion in the prior period, at 2020 exchange rates. On 31 December 2021 adjusted net debt was £0.9 billion, against £0.7 billion on 31 December 2020, an increase of £0.2 billion at 2021 exchange rates. The slightly higher adjusted net debt figure reflects mainly the significant increase in share buybacks year-on-year.

During the year, we converted the majority of our cash pool arrangements to zero-balancing cash pools, whereby the cash and overdrafts within these cash pools are physically swept to the header accounts on a daily basis, resulting in a reduction of the large gross cash and overdraft positions at 31 December 2020. Our bond portfolio at 31 December 2021 had an average maturity of 7.0 years. In July 2021 we repaid the $500 million 3.625% September 2022 bond. A €250 million Eurobond at 3-month EURIBOR +0.45% is due to mature in March 2022.

The average adjusted net debt to EBITDA ratio in the 12 months to 31 December 2021 is 0.90x, which excludes the impact of IFRS 16. This is 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 2021 is provided in Appendix 1.

________________________________

^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 and the reclassification of certain businesses to associates in 2021 and the reassessment of agency arrangements under IFRS 15 for the commensurate period in the prior year.

^3 Figures have been restated as described in the accounting policies in Appendix 1.

^4 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.

^5 Billings, as defined in the glossary on page 45.

^6 All references to estimates and forecasts for advertising spend exclude US political advertising

^7 Generation Z: Building a Better Normal, Wunderman Thompson Intelligence, December 2020

^8 Kantar Purpose 2020 Report

^9 Figures have been restated as described in the accounting policies in Appendix 1.

^10 Certain businesses were reclassified to associates as the Group no longer controls them. In addition, certain media billings recognised as revenue earlier in the year have been re-assessed under IFRS 15: “Revenue from Contracts with Customers” and have been excluded from revenue, but have no impact on revenue less pass-through costs. There are no adjustments to previously reported revenue in the first three quarters of 2021 or the 2020 financial year.

^11 Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe