ANNUAL REPORT 2018
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WPP AUNZ
WE ARE A CREATIVE TRANSFORMATION COMPANY
ANNUAL REPORT 2018
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CONTENTS
2 WELCOME TO WPP AUNZ 4 CHAIRMAN’S LETTER 6 OUR COMPANIES 8 COMMUNICATIONS 11 EXPERIENCE 14 COMMERCE 17 TECHNOLOGY 20 CREATING A CULTURE OF EXCELLENCE 22 WORK FROM OUR COMPANIES 26 THE BOARD OF DIRECTORS 29 DIRECTORS' REPORT 32 OPERATING AND FINANCIAL REVIEW 36 AUDITOR'S INDEPENDENCE DECLARATION 37 OUR REMUNERATION CHAIR'S LETTER 38 REMUNERATION REPORT 56 FINANCIAL STATEMENTS 120 DIRECTORS’ DECLARATION 121 INDEPENDENT AUDITOR'S REPORT 126 ASX ADDITIONAL INFORMATION 128 CORPORATE DIRECTORY
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WPP AUNZ
WELCOME TO WPP AUNZ
WPP AUNZ is made up of Australia and New Zealand’s leading companies in communications, experience, commerce and technology. Four key areas that our clients are invested in. Four key areas that will determine our clients' growth and their success.
Our operating companies are focused on delivering excellence in these four critical areas. Whether it’s creating brand stories through inspired communication, or delivering memorable customer experiences, every single day we build that important bridge between our clients’ brands and their target audiences.
Fortunately, we have access to more data and insights about Australians and New Zealanders than any other company in this part of the world. We know their dreams and aspirations, their frustrations and their worries. Business can only grow if it can connect with the customers who buy their products and services. Understanding human behaviour is the key ingredient in building new business models and new revenue streams. The success of companies like Uber and Airbnb comes not only from their transformative technology platforms but from their deep understanding of human behaviour.
More and more, our work is built on the strength of technology. Whether it be the latest data management platforms to create meaningful and timely communication in a 24/7 world, or eCommerce sites that allow consumers to transact anywhere, anytime, on any digital device of
- their choosing.
- In this new world, innovation and incubation have never
been more critical. For all the focus and discussion on technology, data, eCommerce and new platforms, creativity still remains as the X factor.
This annual report comes at a time of great change. Like many industries, we too are facing structural change. The way that people interact in this world, and the way that they select and buy their goods and services, has changed forever. Every channel is a potential transaction opportunity. Every communication effort is a chance to build a memorable brand story.
Without a memorable, lateral, entertaining or thoughtprovoking idea to burst through the avalanche of marketing messages consumers receive hourly, the job of connecting with people is almost impossible.
Seamless technology, driven by the engine room of meaningful data, is of course crucial. But getting consumers, customers, audiences, target markets, human beings – ultimately people – to see the message and take action, often comes down to imagination and creativity.
Many of our clients are facing their greatest marketing challenges in their company’s history. The traditional rules of marketing no longer exist. New rules are being written daily.
Our clients look to us to help them navigate this changing landscape. This complexity. They look to us to provide wise counsel and to make it far easier.
We are committed to helping our clients navigate this merging of technology and marketing. To use these transformative platforms offering real-time commerce and data to their advantage, by adding that magic ingredient of creativity.
This is why our new vision is to offer a simpler structure, with technology and data driving marketing decisions based on how consumers behave.
This is why we call ourselves a creative transformation company.
ANNUAL REPORT 2018
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COMMUNICATIONS
Our world-leading capabilities in advertising, content, media investment, public relations and public affairs give us unmatched breadth and depth in the world of communications.
EXPERIENCE
Expertise in branding and design, service design, platforms and applications allows us to create vivid, compelling and hyper-relevant brand experiences for clients.
COMMERCE
With deep omni-channel retail experience, including creating direct-to-consumer platforms and helping clients navigate marketplaces such as Amazon and Alibaba, we provide cutting-edge commerce solutions –
both online and offline.
TECHNOLOGY
Our data management, marketing technology consulting and systems integration services, alongside our unique partnerships with the world’s leading technology companies, deliver value and growth for our clients.
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WWPPPP AAUUNNZZ
CHAIRMAN’S LETTER
Strategic and operational achievements for 2018 included:
DEAR SHAREHOLDERS
At the beginning of 2018, WPPAUNZ had made good progress in capitalising on its position as the leading marketing communications company in Australia and New Zealand. In last year’s Annual Report, I told shareholders that while the Company had not yet taken full advantage of its unique position or firepower, we had a clear opportunity to capture more of our clients' marketing and communications expenditure, and to deliver growth.
• Solid organic revenue and earnings growth in the Media,
Digital and Public Relations segments.
• Digital businesses delivered growth through their strong service offerings in e-commerce, marketing automation and digital transformation.
• Global repositioning of creative agencies – VMLY&R and
Wunderman Thompson.
However, while the start to 2018 was encouraging, there were operational missteps that led to the Company not achieving its financial goals, and posting a very disappointing full year financial performance. The two primary drivers for this were:
• Invested in a new Melbourne campus, bringing together
15 agencies and 360 people, providing an opportunity for greater customer experience synergies.
• The significant underperformance of a small number of our businesses which materially detracted from the overall performance of the Group and the strong results achieved by the majority of our companies.
• Discussions with WPP plc to evaluate strategic options for the Kantar business.
An area of significant strategic value to our business is the continued reshaping of the portfolio of companies under the WPP AUNZ Group. During 2018, we acquired additional WPP related entities and increased shareholdings in existing businesses where we had a minority stake. The total cost of these investments was $20.8 million and this will allow us to execute on strategic initiatives with greater speed and control.
• Slower than anticipated progress on the operational and strategic initiatives aimed at fully capitalising on the growth and scale opportunity created through the 2016 merger with WPP in this region.
While the Group financial performance was disappointing, many of our operating companies delivered strong results in 2018. We also continued to progress initiatives to support future revenue growth and deliver operational efficiencies. To recap on our headline results in 2018:
As we have consistently foreshadowed, the marketing and communications industry in which we operate has been characterised by rapid digital transformation, economic headwinds, market contraction and high turnover of client side marketing leaders. We don’t shy away from this reality nor do we use the state of the industry as an excuse for our performance.
• Net sales of $857.3 million, down 1.4% • Earnings before interest and tax of $121.0 million, down 12.8%
• Net profit before tax decreased 13.7% to $107.9 million • Earnings per share of 8.4 cents, down 14.5%
Within WPP AUNZ we have the people, the expertise, the technology and the creativity that should, and I believe will, allow us to grow market share by continuing to deliver on the promise to our marketing and advertising clients that we are the “go to” Company for creative and effective solutions in a rapidly changing market environment.
• A final dividend of 4.0 cents per share, bringing total dividends for the year to 6.3 cents per share, reflecting a payout ratio of 75% of headline earnings.
To fulfil this ambition, we have acknowledged the need to accelerate the pace of “radical evolution” of the company. Against that backdrop, the company made the following decisions:
• Entered into new debt facilities totaling $520 million with a syndicate of 5 banking partners. The structure of the new debt facilities is better aligned to business cashflow and offers improved terms.
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John Steedman has been admirable in stepping in to take the
• In late October, we accepted the resignation of our long
standing CEO, Mike Connaghan, who after 12 years leading our business recognised the need for fresh leadership. A global search for Mike’s replacement is in progress. leadership reigns whilst the CEO search is underway. We are very fortunate to have someone of Steady’s experience, acumen and standing as interim CEO and he has not only provided stability but is actively championing the ongoing
- change program. Thank you Steady.
- • In December, Sunita Gloster was appointed as our first
Chief Customer Officer to drive our engagement and thought leadership with the major advertisers and brand owners.
At the Board level, we announced the resignation of Jon Steel as a director, consistent with his resignation from executive life after a distinguished senior executive career with WPP plc as Group Planning Director. We have valued, and will miss, Jon’s passionate contribution, industry insight and camaraderie around the Board table.
• Following the strategic merger of WPP’s two leading global powerhouses ofVML and Y&R to form VMLY&R, we merged Wunderman and J Walter Thompson to form Wunderman Thompson. Both of these mergers bring together traditional creative agencies with digitally led agencies to redefine and strengthen our proposition to our clients.
During the year, Mark Read was confirmed as the CEO of our major shareholder, WPP plc, and Andrew Scott was appointed as their Chief Operating Officer. Together with our long-standing relationship with WPP’s CFO, Paul Richardson, a director ofWPPAUNZ, we continue to benefit from a very engaged and accessible relationship with WPP providing unique access into the best technologies, practices and trends in the global industry.
• We moved to full ownership of ADG, our large format production business, and installed new management with a clear mandate to swiftly restructure and remediate that business.
2019 will indeed be a year of change as we push harder to cement our leadership position and to be able to reward our shareholders for their patient support.
• We established a clear path to tackling the legacy issues involved with integrating the myriad of information technology systems related to the merger with WPP.
In closing, I say thank you to our people, our clients, our shareholders and my fellow directors for their respective contribution, support and continued commitment during 2018.
• We began to create a culture of ownership within the
Group by rewarding our employees with participation in a broad based share ownership plan, as well as continuing to implement equity incentive structures that align our senior executives with the interests of shareholders.
Yours sincerely
I would like to make special mention of and thank Mike Connaghan for the very significant commitment and contribution he made to our company over some 25 years, most notably as CEO of the business since 2006. I would like to formally thank Mike for his leading role in the creation and evolution of the Group, and I know that he leaves behind much respect and many lasting relationships with our people and our clients. It is testament to Mike's qualities that he recognised it was time for renewal as we seek to capitalise on the opportunities that the merger and our leadership position in the market presents, particularly as the industry undergoes further transformation.
Robert Mactier
Chairman
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WPP AUNZ
OUR COMPANIES
Our 70-strong operating companies work across our four key disciplines bringing their unique skills to the table. Sometimes these companies work alone, oftentimes a number of them work collaboratively, drawing on the expertise and skills of several of our companies working as a team.
In the end, it is our clients who determine how they would like to work with us. The great breadth of our skills allows us to come together in whatever way best suits the client or the project.
In dozens of ways we transform the futures of our clients. Whether it be through communications, experience, commerce or technology, we help our clients grow their businesses so that they can thrive.
ANNUAL REPORT 2018
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DIGITAL, E-COMMERCE & SHOPPER
ADVERTISING
MEDIA
DATA & INSIGHT
PUBLIC RELATIONS & PUBLIC AFFAIRS
PRODUCTION & SPECIALIST
- BRAND CONSULTING
- HEALTH & WELLNESS
- TEAM MODELS
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WPP AUNZ
COMMUNICATIONS
HANDING THE MCA OVER TO THE PEOPLE
Our advertising agencies, media agencies, public relations and public affairs companies, create messages and stories connecting brands to customers. These stories inspire, change behaviour, and challenge the way customers think, feel and ultimately behave. Crucially, these stories start to build
Like contemporary art, Australia’s Museum of Contemporary Art (MCA) doesn’t have just one meaning. To help people see them differently MCA partnered with Ogilvy and gave their name over to the public, becoming a blank canvas for people to express what the gallery means to them.
Using the MCA acronym as a platform, Ogilvy created a campaign inviting people to redefine what the MCA means. Responses included everything from Mind Changing Art, Multi Cultural Artists, Moving Calming Arresting, Modern Cultural Awakening, even Messy Children Allowed. These new names were given a place to shine on the side of the iconic MCA building in Sydney, granting the people a voice that demonstrates the true meaning of contemporary art. The campaign included an onsite activation, multiple social touchpoints and a new website build that allowed people to make their own personalised MCA t-shirts – which became so popular they were an ongoing item for sale in the beloved MCA Store, showing that a great piece of
connective tissue between people and brands so that they begin to feel differently about certain brands, ultimately giving them preferential treatment. Building favourites makes for highly lucrative business. Stamping a name or a brand into the human psyche takes the very best storytelling and great imagination.
communication can turn into great commerce.
ANNUAL REPORT 2018
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WPP AUNZ
SUBWAY IS FIGHTING GLOBAL HUNGER
ATLASSIAN DRIVES A HOME-GROWN TECH HUB
Foodbank Australia estimates more than four million Australians experience food insecurity at some point every year. Tragically, 27% of them are children. Subway, the world’s largest quick service restaurant, believes no one
Communication with key industry sectors to gain the support of government is one of the most important roles we play as a creative transformation company. One of the best examples of this is through our government relations should ever go hungry. The brand wanted to make a tangible firm Barton Deakin and the work they do with Australian difference in the fight against world hunger and the Subway Live Feed was born, which saw Subway execute a global charity day across Subway’s worldwide network of 40,000 restaurants in 60 countries. Our three companies, J. Walter Thompson, IKON Communications and PPR, worked with Subway to create a campaign worthy of global attention. Linked to World Sandwich Day, Subway promoted a ‘buy one, give one, get one’ message. Customers were asked to visit a Subway restaurant, buy a sandwich and in return, a free sandwich would be given to them and a meal donated to the local hunger relief charity in each country. The event began in New Zealand and followed the sun over the next 24 hours across more than 60 countries. The campaign reached more that 42 million people through earned media, 450,000 meals were donated across Australia and New Zealand and this unique one-day-only event created the highest single sales day in the brand’s history in Australia. global success story Atlassian. With the expertise of Barton Deakin, Atlassian has been lobbying the New South Wales Government to establish a technology and start-up hub in the Sydney CBD to foster home-grown technology talent. Late in 2018, the NSW Premier Gladys Berejiklian MP, alongside Atlassian co-founder Scott Farquhar, announced that Central Station and the Central-Eveleigh corridor would be home to Sydney’s technology hub.
ANNUAL REPORT 2018
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EXPERIENCE
STARTING A CAREER AT MCDONALD’S
Now more than ever, how humans
‘Experience’ matters a great deal when it comes to companies that are household names. Especially brands that employ and train generations of Australians. McDonald’s employs over 100,000 people across the country, averaging an additional 6,000 new jobs every year. With the experience of our agency VMLY&R, McDonald’s launched ‘Snaplications’ a world-first Snapchat Lens that allows would-be employees to apply for a McDonald’s job in a snap. Snapchat users are able to utilise the branded lens that depicts the Snapchatter in uniform as a McDonald’s crew member and prompts them to send a 10-second video submission to the McDonald’s Snapchat account. Once submitted, ‘Snaplicants’ have the opportunity to enter a more formal interview process and be on their way to the start of an exciting career at McDonald’s. This kind of experience with one of the country’s most popular brands reinforces the role of McDonald’s in our economy. From job creator to skills teacher. In fact, dozens of Australia’s most successful business leaders all got their start at McDonald’s.
experience products and services, plays a significant role in the brands and services they choose to buy. Is the experience welcoming? Does it make sense? Is it enjoyable? Does it take out the complex and make it simple? Is it human? These are all questions that today’s consumers are asking of brands and their companies. Brands that embrace the culture of intuitive design and design-thinking, and platforms that make information gathering or purchasing a meaningful experience, are the brands most likely to win in today’s climate. Add to this, voice recognition, augmented reality and machine learning and the principles of design play a critical role in any commercial success a brand might expect to achieve.
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WPP AUNZ
ANNUAL REPORT 2018
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WORKING WITH VOLVO TO TURN SUSTAINABILITY INTO A TANGIBLE EXPERIENCE
FLEXIGROUP IS NOW TURNING FEAR INTO CONTROL
On the surface it might seem a very rational topic, but
- money is one of the most emotionally-charged subjects in
- The car industry is looking at new ways to help potential
buyers experience their car so that they can put that car on the list of brands to potentially buy. whiteGREY has been working alongside Volvo to do exactly that. Volvo has always been known as the safe and sensible option when in the market to buy a car. And rightly so, given Volvo has a history of pioneering some of the world’s most famous safety innovations over the past 50 years like 3-point seatbelts and passenger airbags. However, when it comes to the luxury car market segment, safety is seen as a given and not a key selling point. What luxury car-buyers don’t know about Volvo is that it has quietly become the leading automotive company in the world winning Car of the Year with its Volvo XC60 model. Volvo has also won awards for most advanced car technology and for its commitment to sustainability and design. Quietly and humbly – as is the Swedish way. The Volvo approach is built around one Swedish word ‘Omtanke’ (meaning consideration, care for others, thoughtfulness) and this word was brought to life by whiteGREY tangibly. One of whiteGREY’s many the world. Landor understood this very well when working with FlexiGroup, a financial services company offering a credit card to consumers with a 90-day payback versus the standard 60 days. FlexiGroup observed that consumers were using their credit card for one-off financing of certain high value items. Once they’d paid off their card, they were never using their card again and no one could understand why. Landor spent time with customers, entrepreneurs and psychologists to uncover some uncomfortable truths. Extended financing comes with feelings of fear, guilt and shame. Landor redesigned the buying experience to mimic the benefits of extended finance: reduced stress and greater control over cash flow. Landor named the product Skye, connecting the card to the benefits of breathing easier when it comes to money. The logo design and iconography were created using warm colours and a personable tone to humanise money and to remove the shame of extended credit.
examples is illustrated through The Volvo Living Seawall. An initiative to help improve the marine environment of Sydney Harbour as an example of Volvo’s commitment to sustainability. Volvo was the only luxury car brand in Australia to achieve a 43% year-on-year sales growth in 2018. Whilst other car brands find themselves in decline.
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WPP AUNZ
COMMERCE
HELPING REVLON TAKE OFFLINE BRANDS INTO AN ONLINE WORLD
The marketplaces of today are as transformational as they are unexpected. From the traditional bricks and mortar of retail to the online worlds of Amazon, eBay, Alibaba to handmade originals like Etsy, to curated alternatives like Bonanza and Ruby Lane, to aggregator models like TripAdvisor and Airbnb. Not to mention the connected commerce taking place though every social channel from LinkedIn to Facebook. To every small business doing what it can to go direct to its customer and bypass traditional