Annual Report and Accounts 2002 Contents the Fast Read 2 a Six-Minute Read
Total Page:16
File Type:pdf, Size:1020Kb
Annual Report and Accounts 2002 Contents The fast read 2 A six-minute read Who we are 8 About WPP 10 Our companies and associates Why we exist 13 Our mission How we’re doing 15 Financial summary 17 Letter to share owners 22 Reports from our operating brands 23 Ogilvy & Mather Worldwide 24 J. Walter Thompson Company 25 Young & Rubicam Inc 28 Red Cell 30 MindShare 32 Mediaedge:cia 34 The Kantar Group 36 Public relations & public affairs overview 37 Hill & Knowlton 38 Ogilvy Public Relations Worldwide 40 Branding & identity 42 Healthcare 43 Direct, promotion & relationship marketing 43 Specialist communications What we think 48 The Advertising and Marketing Services Industry: Short-Term Gloom, Long-Term Glory by Martin Sorrell 60 Benjamin Franklin and the Kuala Lumpur Question by Jeremy Bullmore Who runs WPP 64 Board of directors Current and historical financial 67 Senior executives and advisors to the Board information, including trading statements, news releases and presentations are available online at www.wppinvestor.com You can receive WPP annual reports,financial statements and press releases by e-mail. To register, go to www.wppinvestor.com and follow the link to ‘e-mail services’. How we behave Our 2002 financial statements 68 Directors’ report 104 Accounting policies 68 Corporate governance provisions 107 Consolidated profit and loss account 69 Independence of non-executive directors 108 Consolidated cash flow statement 69 Board responsibilities 108 Consolidated statement of total recognised 70 Board committees gains and losses 71 Internal control 109 Consolidated balance sheet 72 Going concern 110 Notes to the consolidated financial statements 72 Responsibilities in respect of the preparation 123 Company balance sheet of financial statements 123 Notes to the Company balance sheet 73 Share owner relations 125 Reconciliation to US Accounting Principles (unaudited) 73 Substantial share ownership 126 Notes to the Reconciliation to US Accounting 73 Re-election of directors Principles (unaudited) 73 Profits and dividends 129 Five-year summary 73 Parent company charitable donations 130 Unaudited consolidated profit and loss account: 74 Group activities euro illustration 74 Fixed assets 131 Unaudited consolidated balance sheet: euro illustration 74 Share capital 132 Unaudited consolidated profit and loss account: to present the impact of US transitional guidelines on the 74 Authority for purchase of own shares expensing of share options, for illustrative purposes only 74 Supplier payment policy 133 Independent auditors’ report 74 Auditors 134 Financial glossary 75 Corporate social responsibility 75 WPP in society 76 WPP as an employer How we’re rewarded 79 Directors’ remuneration 80 Directors’ interests 83 Compensation committee report on behalf of the Board 83 Introduction 83 Remit of the Compensation committee 84 Policy on remuneration of executive directors and senior executives About share ownership 84 Elements of executive remuneration 137 Information for share owners 87 Policy on directors’ service contracts, notice periods and termination payments 137 Share owners’ register 89 Non-executive directors 137 Analysis of shareholdings at 31 December 2002 90 Compensation of executive officers 137 Dividends 138 American Depositary Receipts (ADRs) 138 Financial calendar 138 Share price 139 www.wppinvestor.com Operating & financial review 139 Registrar and transfer office 93 Competitive performance 139 Tax information 94 Geographic performance 95 Sector performance 96 Review of operations 96 Group financial performance 97 Operating margins Where to find us 97 Like-for-like performance Inside back cover 98 Headcount Contact points 98 Acquisitions and start-ups WPP offices 98 Parent company initiatives Investor relations 98 Executive options Media relations 98 Treasury activities Group information 99 Cash flow 100 Pensions funding 100 Net balance sheet assets 100 2003 prospects WPP 2002 1 Who we are The WPP is one of the world’s largest communications services groups, made up of leading companies in: I Advertising I Media investment management I Information, insight & consultancy I Public relations & public affairs fast I Branding & identity I Healthcare I Direct, promotion & relationship marketing I Specialist communications Collectively, the Group has 62,000* people working read in 1,400 offices in 103 countries. For a quick, pre-digested, WPP companies provide communications services highly-compressed version to clients worldwide including more than 330 of the of this Annual Report: Fortune Global 500; over one-half of the NASDAQ 100 and 42 of the Fortune e-50. Our companies work with read the next six pages. over 330 clients in three or more disciplines; more than The full story starts on page 8. 230 clients in four disciplines and over 200 clients in six or more countries. Please read that, too. Our companies and their websites are listed on pages 10 and 11. * Including associates. 2 WPP 2002 Why we exist What we think Our mission The Advertising and Marketing Services Industry: Short-Term Gloom, Long-Term Glory To develop and manage talent; WPP CEO Martin Sorrell believes that whilst the to apply that talent, short-term outlook for the advertising and marketing services industry is mixed and pressured, the underlying throughout the world, long-term trends of globalisation or Americanisation; for the benefit of clients; over-capacity of production and shortage of human capital; the web; internal communications; and, finally, to do so in partnership; concentration of distribution, will underline the importance of our thinking and skills and ensure that to do so with profit. communications services as a proportion of gross national product will bust through the cyclical highs Within the WPP Group, our clients have access established at the top of the previous cycle in 2000. to companies with all the necessary marketing and communications skills; companies with strong and Martin Sorrell’s article begins on page 48. distinctive cultures of their own; famous names, many of them. Benjamin Franklin and the WPP, the parent company, complements these Kuala Lumpur Question companies in two distinct ways. “Faced with an array of competitive brands – all known First, it relieves them of much administrative work. to be functionally satisfactory (which is why they are Financial matters (such as planning, budgeting, competitive) and all pleading persuasively for our reporting, control, treasury, tax, mergers, acquisitions, custom – we have no choice but to eliminate: so in investor relations) are co-ordinated centrally. Every allocating our loyalty we welcome reasons to reject administrative hour saved is an extra hour to be a brand almost as eagerly as reasons to prefer it. devoted to the pursuit of professional excellence. At some level of consciousness, we search for the Secondly, and increasingly, the parent company Objective Disqualifier, however trivial.” encourages and enables operating companies of different disciplines to work together for the benefit Jeremy Bullmore’s essay can be read in full on pages 61 to 63. of clients and our people. In property, procurement, information technology, recruitment, training and knowledge sharing, the parent company also has a significant across-the-Group part to play. Read more about our role on page 12. WPP 2002 3 How we’re doing 2002 2001 Change Sector and geographic performance % Information, insight & consultancy continued to grow Revenues £3,908m £4,022m –2.8 most strongly, although the recession started to affect Headline operating profit1 £450m £520m –13.5 it in the second half of the year. Advertising and Media investment management and Branding & identity, Operating profit – as reported £273m £506m –46.0 Healthcare and Specialist communications remained 1 PBIT £480m £561m –14.4 less affected, but Public relations & public affairs PBIT1 margin 12.3%14.0%–1.7continued to be most affected. Earnings before interest, tax, Continental Europe, Asia Pacific, Latin America, depreciation, and amortisation £586m £607m –3.5 Africa & the Middle East were less affected by the PBT1 £401m £494m –18.8 slow-down, with the US and UK being most affected. Profit before tax £205m £411m – 50.1 Operating performance 3 Diluted headline earnings PBIT1 margins fell to 12.3%, behind our original and per share 24.9p 30.9p –19.4 revised objectives of 15% and 13% respectively. 3 Diluted headline earnings However, these margins reflect all severance and per ADR2 $1.87 $2.22 –15.8 restructuring costs. Ordinary dividend per share 5.40p 4.50p +20.0 Ordinary dividend per ADR2 40.6¢ 32.4¢ +25.3 Cash flow Net debt at year-end £723m £885m +18.3 We generated free cash flow4 of £349 million. Average net debt4 £1,343m £834m –61.0 We almost achieved our newly introduced objective of covering acquisition payments and share buy-backs with Share price at year-end 474.5p 760.0p – 37.6 our cash flow. Average net debt rose to £1,343 million Market capitalisation from £822 million at 2002 exchange rates. WPP’s Board at year-end £5,492m £8,737m –37.1 is comfortable with this level of gearing, the resultant interest cover of over six times and the recently Revenues revised credit ratings of BBB+ (previously A-) and Baa2 Our revenues for the year fell by almost 3% to under (previously Baa1). £4 billion. Headline profit (profit before tax, goodwill and impairment, fixed asset gains, investment write- Future objectives downs and FRS 17 interest) fell by 19% to £401 million We will continue to focus on our key objectives – and diluted earnings per share on the same basis also improving operating profits and margins, increasing cost fell by 19% to 24.9p. The good news is that we flexibility, using free cash flow to enhance share owner increased the dividend by 20% to 5.4p per share. value and improve return on capital employed, continuing Based on constant currency comparisons, on a like- to develop the role of the parent company in adding for-like basis revenues were down almost 6%, pretty value to our clients and people, developing our portfolio much in line with worldwide demand for advertising in high revenue growth geographical and functional and marketing services in 2002.