Operating and financial review

Competitive performance Geographic performance Sector performance Competitive performance Geographic performance Sector performance There is still significant profit opportunity As a result of the worldwide recession which Worldwide economic conditions are likely in matching the operating margins of the started in the US in the fourth quarter of to remain difficult in 2002. A V-shaped re- best-performing competition. The best-per- 2000 and the impact of the tragedy of covery seems unlikely, despite the level of forming competitive listed holding September 11, the worldwide advertising stock market valuations. W-shaped and companies, such as Omnicom, achieve industry shrank by approximately 5% in L-shaped recoveries seem unlikely too, 15-16% operating margins, whilst the best- 2001, with marketing services also down a given government and central bank mone- performing individual agencies such as similar amount. This sharp downturn af- tary and fiscal policies. What seems most McCann-Erickson Worldwide and BBDO fected the US most significantly, but also likely is a bath-shaped or saucer-shaped re- Worldwide are estimated to achieve operat- impacted Europe, Asia Pacific and Latin covery where the upturn is gradual. Should ing margins of as much as 20%. This America. Despite the gloomy trading con- conditions improve, the Group is well posi- compares to a WPP Group margin of 14% ditions, the Group believes it increased its tioned to respond to any recovery, given its and reported combined margins of the worldwide market share. geographical and functional spread and Ogilvy & Mather Worldwide, J. Walter North America bore the brunt of the strengths, its flexible cost structure and Thompson Company and Y&R Advertising recession with the UK, Continental Europe, strong cash flow. brands of over 17%. Asia Pacific, Latin America, Africa and the On the following pages the heads of our Historically, listed public relations com- Middle East less affected. 12 operating brands summarise their oper- panies showed operating margins of over ational activities and highlights for 2001. 10%, which have been more than matched by our own operations. Despite the difficult trading conditions in 2001, operating man- agement has indicated that margin performance can be improved above those competitive levels again. The results of our research into comparative benchmarking data on our Information & consultancy and Branding & identity, Healthcare and Specialist com- munications operations confirm that our businesses in these areas are competitive, al- though there are still opportunities to improve performance to the level of the best-performing competitors. One of the Group’s most important ob- jectives is to increase its rate of organic revenue growth which is a key measure of the success of its value-added strategy. Excluding acquisitions, this was approx- imately 15% in 2000, a rate of growth that, although delightful, was clearly unsustain- able in the long term, as 2001 proved.

1 PBIT: Profit on ordinary activities before interest and taxation, excluding goodwill charges, investment gains and write-downs. 2 Interpublic PBIT margin for 2001 as presented above excludes restructuring and merger-related costs of $645.6m and, for 2000, excludes restructuring and merger costs of $116.1m and Deutsch transaction costs of $44.7m.

14 WPP How we’re doing 15 WPP How we’re doing 16 WPP How we’re doing Operating and financial review continued Reports from our operating brands Advertising and Media investment management

This sector’s revenue grew 31% last year, Ogilvy & Mather Worldwide categories. We expanded our 360 Degree primarily driven by acquisitions. On a Much has been learned this year. We learned Brand StewardshipSM offering with new pro-forma combined basis, revenue at about impossible horror and great heroism. business initiatives and key acquisitions. In Ogilvy & Mather Worldwide (which was We learned, painfully, that becoming a glob- fact, we trace every single success commer- again named the US Agency of the Year al community will be neither easy nor cially and creatively to that strategy. The by Advertising Age, and which includes without controversy. outside world took note. Ad Age magazine Cole & Weber and OgilvyOne), J. Walter Not all the lessons were harsh. At Ogilvy, squarely cited this successful strategy as Thompson Company (named Eastern we learned that our company is indeed the a key rationale in naming us their US Agency Agency of the Year by Adweek), Y&R family we have long thought ourselves to of the Year… an honor which I believe re- Advertising, Red Cell, MindShare (named be. The outreach to our New York head- flects on the whole of the network. European Media Agency of the Year quarters from colleagues around the world This was not luck. This was the year we by Media & Marketing Europe) and following September 11 was profound and reaped the rewards of investments and busi- Mediaedge:cia (the new brand name for deeply felt. Ultimately it confirmed our pri- ness plans laid in place years before; and of the merged operations of The Media Edge vate belief: that what we do for a living, as a marketplace that has completely embraced and CIA) were flat. The combined operat- wonderful as it is, is not what ultimately the vision of brands and branding that we ing margin of this group of companies was binds us. It is our humanity, our shared have been developing and evolving as our over 17%. values, our hope for the future, and our business practice for nearly a decade now. In 2001, Ogilvy & Mather Worldwide belief in that future. The truth is these tough times have generated net new billings of £237 million In every annual report, from every mar- brought a post-dotcom return to business ($367 million), J. Walter Thompson keting communication company, you will fundamentals – of profit and loss, financial Company £243 million ($377 million) and read how tough this year has been. We were discipline, and of course, brands. This plays Y&R Advertising £96 million ($149 million). not immune at Ogilvy; but we were amaz- to our strengths. Our clients know Red Cell has been strengthened signi- ingly resilient. 360 Degree Brand StewardshipSM is not just ficantly by the addition of new talent and Coming off huge 20% revenue gains in a philosophical ideal, or a new business the acquisition of Berlin Cameron & 2000, we grew by a small percentage. Still, pitch. They know it’s a promise to work Partners in the US. any growth at all in 2001 should be con- as dedicated brand partners – no matter what Also in 2001, MindShare and sidered an achievement. We once again it takes. Mediaedge:cia generated net new billings improved our operating margin, one of our If you go back to Ogilvy’s long-declared of £563 million ($873 million). Plans con- most important financial objectives. This goal – To Be Most Valued by Those Who tinue to be developed to form a worldwide was the result of a quick and resolute effort Most Value Brands – and you use that as the ‘WPP Media’ parent company. This fol- to reduce costs and hold tight financial measure of success, then 2001 has been an lows the merger of Tempus Group’s CIA reins. Most importantly, for the tenth year excellent year. The formula for success next with the Media Edge and the subsequent running, and despite the deep revenue con- year is elegantly simple – more of the same; formation of Mediaedge:cia, resulting in striction, we met our budget commitments. execution is everything. We will deliver. the development of a strong sister global In many ways, this was a very successful Shelly Lazarus Media investment management brand. year for Ogilvy. We had new business gains Our digital operations suffered as of over $800 million. We won important clients reduced their spending on digital new brands such as AT&T Wireless and media campaigns, with consequent ad- The Coca-Cola Company. We won back all justments in revenue and people. of Ford in Europe – and gained major as- However, the quality of our operations in signments from many of our key global Europe will be enhanced with the integra- clients including Nestlé, Kraft, IBM and tion of Outrider, Tempus’ digital operation. Telefónica. We launched highly successful global campaigns for IBM, Kimberly- Clark, SAP, and BP. We picked up more than 700 creative awards – in some cases domi- nating whole shows, regions, and even

Shelly Lazarus Chairman and chief executive officer Ogilvy & Mather Worldwide

17 WPP How we’re doing Operating and financial review continued

J. Walter Thompson Company solutions for our clients with the launch of Young & Rubicam Inc. Indeed, the global leadership of Y&R J. Walter Thompson turned a year of chal- Synergy@jwt in North America. The mis- 2001 marked Young & Rubicam Inc.’s first Advertising and Wunderman are now lenges – recession coupled with the tragedy sion of this new division is to spearhead the full year as a member of WPP. It was a sig- housed in the same location, which will of terrorism – into one of achievement. We growth of our specialized communications nificant year in many ways, and one in ensure that the integrity of each brand will made progress in difficult times staying true brands and provide “best in class” service which we made great progress in recasting not be compromised as we develop mech- to our 138-year legacy of helping to launch, offerings in the direct, database and digital ourselves for the future. anisms to collaborate more effectively sustain, renew and reinvent great brands marketing disciplines. This synergistic ap- Shared clients and a shared sense of and creatively in the future. for many of the world’s premier marketers. proach to developing highly creative, purpose made our integration into the 2001 proved a challenging year for Y&R In fact, Adweek magazine named us effective brand messages that resonate in WPP network a successful proposi- Advertising, the largest division of the com- “Agency of the Year” for the US East Coast, every medium has the potential to become a tion, even though it was, by definition, pany. In October, after Ed Vick retired from citing our vitality, agility and dedication formidable competitive advantage for our a time of great change. We already felt Y&R, I took on the additional role of to our clients. company in the years ahead. the benefits of the larger network, work- Chairman and CEO of Y&R Advertising. JWT added $660 million in new business Two of our marketing services companies ing with some of the WPP companies It is a commitment I have made for the long worldwide. We welcomed new blue-chip remained on the leading edge in their disci- to deliver integrated communications term and am actively driving a return to ba- clients including Pharmacia/Pfizer, with the plines. digital@jwt, our full-service programs to our clients. In the future, sics at the agency – making sure that we are assignment of its leading Celebrex drug; interactive and digital brand marketing Y&R will continue to pursue more of all engaged in working closely and directly Unilever’s Best Foods and the Texaco retail arm, achieved significant growth, de- these opportunities. with our clients to develop creative and ef- brand from Shell. We continued to put a livered award-winning work and extended The downturn in the economy, of course, fective advertising that leverages their premium on growth from existing clients its global reach. JWT Specialized was a recurring theme throughout our in- business and brands. and we were entrusted with significant Communications, our recruitment and em- dustry. Y&R organized itself to minimize This reinvigorated process was respons- assignments from Diageo/UDV, Ford, ployee communications firm, an industry the impact of tightening client budgets. As ible for some important and substantial Kimberly-Clark, KPMG, Kraft, Nabisco, leader, continued its expansion worldwide. is usually the case, some of our disciplines growth of business with existing clients, Nestlé and Rolex. We began 2002 with JWT emerged from 2001 in the top tier of were harder hit than others. Importantly, including AT&T, Colgate and Ford. In a the $150 million Domino’s Pizza and global advertising brands, both in network although we did not achieve the major year that demanded change, there was also Häagen-Dazs US wins. strength and breadth. Worldwide billings growth with some of our clients that we strong forward motion in our agencies People are the lifeblood of a creative en- rose to $11 billion. Our global network now might have expected in better times, it is sig- around the world. terprise and we appointed a superb group spans 90 countries, serving a balanced mix nificant that our key accounts continued to We strengthened management in the US of highly talented professionals to key posts of multinational, regional and local ac- support their commitment to communica- and Europe significantly, both by putting in every discipline, notably new Executive counts. tions programs against worsening strong Y&R veterans in new roles and re- Creative Directors in New York, Chicago, Today, JWT is a more entrepreneurial, economic forecasts. cruiting some terrific new talent. We San Francisco, Toronto and the European creative and competitive total communica- As we melded our operations into acquired SicolaMartin, a full-service agency region. Two accomplished new Regional tions company. We have the resources, the WPP, we continued to work on creating an specializing in marketing, consulting and Presidents were named: Bob Jeffrey in North reach and the resolve to fuel our growth as environment in which integrated com- advertising for leading technology compa- America and Kevin Ramsey in Asia Pacific. the recovery begins in earnest. munications can really function and flour- nies. With the steps we have taken, it is Our company made creativity – the I would like to salute the 10,000 people ish. Our Y&R Advertising and Wunderman already becoming clear that Y&R development and delivery of great business- of J. Walter Thompson for their single- operations have renewed attention on find- Advertising is changing, improving and po- building ideas across all communications minded focus on great ideas that build ing the most productive and creative ways sitioned for a stronger future. channels – a top priority. We put in place a relationships between brands and con- to collaborate. With many shared accounts The Bravo Group, a division of Y&R new creative architecture: the Worldwide sumers. It is their will to win which and such complementary disciplines, build- Advertising, continued to be the leading Creative Council and Regional Creative will ensure that our company’s best days ing a working alliance should be of Hispanic marketer in the US. Revenue Leagues to tap the expertise of our best cre- lie ahead. tremendous help to our clients. growth was in the double digits. Bravo ative leaders. This effort to raise our Peter Schweitzer To this end, we integrated the leadership opened a new office in Irvine, California, standards has raised our creative profile as of Dentsu Young & Rubicam and bringing their total number of offices to five our Cannes, Effie, Clio and many regional Wunderman in the Asia Pacific region so (New York, Chicago, Miami, San Francisco and national awards attest. that our clients will get the best of both and Irvine). New business wins included We advanced another key priority: to en- brands. We will continue to look for oppor- Sears, Lincoln-Mercury, Pfizer, Jim Beam hance our delivery of integrated marketing tunities to place our resources side by side. and Kraft.

Peter Schweitzer Michael Dolan President and chief executive officer Chairman and chief executive officer J. Walter Thompson Company Young & Rubicam Inc.

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The Media Edge, Y&R’s media planning Burson-Marsteller scored some major through integrated communications solu- Red Cell Silverstein, had been (and remains) and buying division, made an important new business wins, including Texas tions. We are beginning to see the positive WPP’s fourth network, Red Cell, has the Chairman of Berlin Cameron. strategic merger with CIA, the media com- Public Utilities, Peregrine, Sony and SAP, results of our change and growth. And have enormous advantage of being new. The quality and depth of Red Cell’s strate- munications specialist of Tempus Group, more than offsetting the loss of Sun every reason to believe that we will leverage David Ogilvy called ‘new’ “the most pow- gic and creative abilities have been to form Mediaedge:cia. The company has Microsystems. Here, too, growth with top our strengths in 2002. erful word in advertising.” With good improved substantially in 2001 throughout immense strength in every region globally clients continued. At Cohn & Wolfe new Michael Dolan reason: the appeal of newness comes from many parts of the network and a vigorous and combined billings of more than $17 bil- business came from ADP, Taco Bell, the optimistic faith that we’ve truly learned program of standards and practices is being lion. This new configuration will be of M&M/Mars, Aventis, Lego and Pfizer. The from what’s gone before; that we’re free to implemented at this time. tremendous value to our clients and, once agency acquired the largest independent PR make changes that make sense without up- Despite the impact of the general business again, underscores the immense opportuni- firm in Texas, Springbok Technologies. setting the apple cart, and that we’ve turned downturn, Red Cell made use of 2001 to ties presented by our merger with WPP. Although 2001 was a difficult year for the our learning into something better; some- prepare and strengthen its position for rapid In 2001, Wunderman, formerly Impiric, industry, Landor Associates gained market thing exciting. growth as a unique and powerful competi- returned to its original name and its direct share. Major programs were launched for With 21 offices worldwide (and grow- tor on the world stage, combining marketing heritage. This move reaffirmed H&R Block, Merck, Altria, FedEx, Morgan ing), Red Cell’s mission is filling the the appeal of its new approach with the the company’s commitment to sound, Stanley, RWE, Charles Schwab and considerable gap between the traditional resources of WPP. fundamental marketing principles as well Hewlett-Packard. New clients included networks and a handful of craft-driven Red Cell looks forward to major as to its heritage of innovation. Daniel Wrigley’s, Guinness UDV, Belgacom, Pfizer, creative agencies that approach global accomplishments and growth in 2002 Morel joined the agency at the begin- AstraZeneca, Lego, Disney and Malaysia coverage one market at a time. We are the and 2003 in Asia, India, the UK, Europe ning of the year as Chairman and CEO. Airlines. In addition, Landor’s London of- first unique alternative to appear in the and Western markets. Significant expansion came from exist- fice was named “Design Agency of the last decade. Andy Berlin ing accounts, including Sony Ericsson, Sears Year” by Marketing magazine. Even in our first year, Red Cell moved Lee Daley and Citibank. New business came from Another bright spot in the Y&R network much faster than its creative competitors via IBM, Lufthansa, Jaguar and, on the media was Sudler & Hennessey, which celebrated acquisition, and operated leaner than its and interactive front, Register.com, 1-800- its sixtieth anniversary with another year of conventional network competition through Flowers, Land Rover Interactive solid growth. A slower performance in the application of proprietary new practices as well as AICPA. North America was offset by strong per- and technologies. Data continued to be the fuel of the formances in both Europe and Asia. S&H Red Cell’s most aggressive accomplish- Wunderman engine. In 2001, Wunderman’s expanded its geographic reach with new of- ment of 2001 was the acquisition of a New KnowledgeBase Marketing subsidiary fices in Shanghai and Hong Kong and its York-based agency with a first-rate world- launched Impact, a fully integrated web- product and service offerings with new wide creative and strategic reputation – enabled CRM solution. Best-in-class strate- medical, education, consumer, publishing, Berlin Cameron & Partners, now Berlin gic analytics from Kestenbaum Consulting, consulting and interactive units in New Cameron/Red Cell. The Berlin Cameron ac- which turns data-based customer insights York, Paris, Munich, Tokyo and Frankfurt. quisition in December brings with it into profitable marketing solutions, was Global new business wins included work important, relationships with major US- rolled out to the network and is already in for J&J/Cordis, Biogen, Gilead, EMD based clients including The Coca-Cola use by several clients. Pharmaceuticals and Roche. Company, Nestlé/Ralston, New York Life, As often in the past, the Public relations Our outlook for the future, despite the the National Basketball Association, & public affairs sector felt the pressures of challenging environment, remains bright. Acirca and Advertising Age. recessionary times more than any other sec- We continue to strengthen our operations At the same time, WPP gave the network tor. Burson-Marsteller and Cohn & Wolfe and our offerings. We are more flexible, new leadership with the appointment of were most adversely affected. Robinson more creative and more interconnected Andy Berlin and Lee Daley as Red Cell’s Lerer & Montgomery, in its first full year than ever before. Individually, our partner Co-CEOs. under Y&R, turned in excellent results in companies are working hard to keep Lee, one of the founders of Amster this tough environment, delivering high themselves at the cutting edge of their Yard, had most recently been Chief quality strategic communications work to individual disciplines. Strategic Officer for McCann-Erickson’s its corporate clients that span a wide range Together, we are finding new ways to European operations and Andy, one of of industries. help our clients reach their customers the founders of Goodby, Berlin &

Andy Berlin Lee Daley Co-chief executive officer Co-chief executive officer Red Cell Red Cell

20 WPP How we’re doing 21 WPP How we’re doing Operating and financial review continued

MindShare MindShare is a media investment manage- We have continued to expand into new Mediaedge:cia The combination of the two companies direct and group clients and work with With economic and political uncertainty ment firm. This approach sets us apart markets. We opened 16 new offices within 2001 saw the creation of Mediaedge:cia gives us genuine global strength. We now Mediaedge:cia to produce fully-integrated weighing heavily on the consciousness from the media specialists owned by com- the US, India, Mexico, South Africa, Sri following the acquisition of Tempus Group have a greater presence in the US and in on- and offline communication solutions. of most of the world, 2001 was a difficult petitive holding companies. We apply Lanka and Bangladesh. And our existing and the subsequent merger of The Media Asia Pacific, strength in Latin America As part of WPP, we continue to partner year for all components of the media proprietary research and econometrics to offices have been recognized for excellence. Edge and CIA in November. This was a (where CIA was previously absent), and a the Y&R group of companies with whom landscape: our clients, our media-vendor deliver critical insights into both a com- Significantly, we were named Media Agency positive and healthy outcome for our reinforced position in the EMEA markets – we still share many clients. We also benefit community, and, of course, ourselves. pany’s competitive landscape and con- of the Year by Media & Marketing Europe clients and staff and it came at the end of a we are also market leader in a number of from synergies and opportunities within the Meanwhile, consolidation among commu- sumers’ media consumption habits to form which noted “MindShare has convinced difficult year for our industry, affected markets and are already beginning to enjoy Group through the emergent worldwide nications services companies continued the core of our offering. These insights are the judges that strong buying power can be by the economic downturn and the effects the benefits of a truly global approach. The ‘WPP Media’ parent company, our joint with the creation of an elite group of global translated into strategies and tactics, combined with great strategic thinking.” of September 11. merger has given us more opportunity to approach to this fast-consolidating market players on the agency side, mirroring the which are then executed to deliver higher Despite signs of recovery in the US eco- Despite these factors, we are able to re- accelerate our expansion in terms of skills alongside our sister company, MindShare, consolidation that is ongoing among ROI for our clients’ media investment. nomy in 2002, this year promises to present port satisfactory results for 2001, and a and market coverage, and Mediaedge:cia’s which gives us access to further resources, clients and media suppliers. MindShare has also worked aggressively challenges. And opportunities. Our com- good new business record for the year. geographically-balanced network now expertise, power and leverage for the bene- In this unsettled business climate, to fully develop extended core capabilities petitive context continues to become more Prior to the merger, CIA wins included enables us to develop, manage and imple- fit of all our clients. MindShare achieved global new business from content and programming to complex as consolidation continues on the Singapore Airlines and Amaretto di ment national, regional and global Our ambition for the future is to become wins of over $1 billion while improving cross-media and marketing-alliance deals media-agency side. We are also the benefici- Saronno at a global level, H3G in Italy, communications and media solutions for the first truly global practitioners of insight- profitability. Now in our fifth year as a with the world’s largest media companies. aries of this trend, and are in a position to Xfera in Spain, Siemens in Germany, Six the benefit of our clients. ful and accountable communications multinational network, we are approach- Last year, we spearheaded several cross- take advantage of the extended resources, Continents Hotels in Asia and Canon and In terms of management, Charles planning and implementation. We aim to ing our two-year anniversary as a truly platform deals with some of the world’s and incremental leverage afforded us Hennes & Mauritz in EMEA. It was a spe- Courtier and Mainardo de Nardis, based provide communications solutions that are global entity. MindShare is a relatively ma- largest media companies on behalf of major through our relationship with our sister firm cial year for CIA as it was voted Asian in the New York and London Headquarters channel and discipline neutral and to create ture player in the competitive field with global clients. Mediaedge:cia. This dimension ensures that Media Agency of the Year, just before respectively, run the group as a partnership. powerful connections that engage con- 2001 billings of over $20 billion, 72 offices Operationally, MindShare took signifi- we will remain within the elite tier of media celebrating its twenty-fifth anniversary As in every merger, during the first few sumers with brands and influence their in 52 countries and a staff of more than cant steps to expand and initiate new agencies as it relates to the ever globally in association with TIME maga- months we have focused on developing our behaviour. Our objective is to make a sus- 3,400 media professionals. In the few years offerings in the area of research and con- important aspects of volume and leverage. zine and Advertising Age. The Media new organisation for the future, and we are tainable and measurable contribution to the that we have been operating, we have devel- sulting. The ATG Group (Advanced At the same time, many of our key media Edge added, amongst others, Pizza Hut, happy to report that this is now all in place. success of our clients’ brands. oped a distinct and strong MindShare Techniques Group), a unit within suppliers are expanding from their base KFC and Jaguar in the US, Singtel in Key to our unique offer is MediaLab, These ambitions support our claim, “Well culture. Our consistency in practice and ap- MindShare that applies econometrics and “content and distribution business” into a Singapore, and COI Communications in our Communication R&D Division, which Connected,” as we try to optimise proach to media solutions provides clients marketing sciences techniques to help “communications (cable and telephony) in- the UK, to its client list. Our expectations co-ordinates all research and product the connections across our company and with a trusted global partner everywhere clients develop business strategies and to frastructure.” This incremental consol- for the new Mediaedge:cia brand are development across the group, and OHAL, WPP, harnessing all the available talent to they need us. Like all excellent service com- better enable them to maximize the value of idation is taking place on a global scale and even higher and, to date, have been realis- possibly the largest econometric and enhance the work we do for our clients and, panies in consolidating sectors, we their media investments, made excellent provides us with significant opportunity to tic. We won $350m of new business in modelling specialist in the world. We are in particular, connections with consumers. recognize that it is our people and our clients headway in codifying its global offering. In identify and exploit media and marketing January 2002 alone, including internation- also proud of the achievements of 36T, our Charles Courtier who really make the difference. addition to representing a critical part of synergies for our large global clients. We are al accounts Sony Ericsson and Damovo, Total Communications expertise unit Mainardo de Nardis The broad appeal of our capabilities is re- our overall client offer, ATG is developing a confident that MindShare’s unique media ForeninsSparbanken and Scania in Sweden, which, whilst still relatively small, is flected in the new client assignments consulting business in its own right. investment management approach, com- Pillsbury in Spain, the PepsiCo business providing a model for all offices. This is awarded in 2001: Bristol-Myers in the US, Through its “MindShare Consumer bined with its analytics, strategy in Russia, and additional business for an important strategic area that is crucial to the Castrol and ARCO brands from BP on Insight” group, MindShare has extended development and vast negotiating power, Pentland across EMEA. our development from a media communi- a global basis, Kraft assignments in Europe its proprietary “3D” research into 11 new will ideally position us to exploit the poten- In future we are confident that the recent cations agency into a genuine channel- and Asia, and Twentieth Century Fox wins countries. This research brings together a tial opportunities in the media landscape. merger of our two media communications neutral communications planning and in Canada. Last year was also when we felt measurement of Brand Equity, social behav- Irwin Gotlieb specialists has given us the added advantage implementation specialist. the positive impact of being selected for ior and media consumption into one single Dominic Proctor of size, resource and especially talent. With Mediaedge:cia digital services, Outrider Unilever’s first US consolidated communi- source. MindShare has also launched billings of $16 billion, 4,000 people work- and The Digital Edge, which connect cations channel management assignment. “Snapshots of Youth,” a proprietary quali- ing in 186 companies in 80 countries across brands and consumers across all digital Importantly, the foundation work for a tative study among youth aged 16-19 in the globe, the newly-formed company is one platforms, have also merged. They spe- number of key new client assignments was Tokyo, Shanghai, Hong Kong, Sydney, of the five largest media communications cialise in creating e-marketing initiatives also built in 2001, and these efforts have Mexico City, Paris, Berlin, Milan, Madrid, specialists in the world, and we now look which deliver return on investment and already borne fruit in 2002. London and the US. forward to further growth. brand enhancement for a broad range of

Irwin Gotlieb Dominic Proctor Charles Courtier Mainardo de Nardis Chairman and chief executive officer Chief operating officer Executive chairman Chief executive officer MindShare MindShare Mediaedge:cia Mediaedge:cia

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Despite the recession, the Group’s The Kantar Group smart, enquiring minds find interesting The Ziment company brings to Kantar spe- Information & consultancy businesses The robust growth which our sector ex- ways of using technological advances; in- cialists in ethical pharmaceutical research continued their strong growth with perienced through the 1990s slowed sight at speed will help our clients develop and we are working to expand its reach be- gross profit rising by over 14% and dramatically in 2001 to 4-5% globally, competitive brands and services, cheaper yond the US to serve the needs of major drug operating margins up over the previous about half the long run rate, as clients de- data will not. companies in their major locations. year, although September 11 did have a ferred or delayed research spending. Within Research International, the world’s Our Lightspeed internet panel developed discernible impact. Particularly strong the overall slowdown, we found the pre- largest custom market research company, last year with the creation of specialty performances were recorded by Millward viously fast growing technology and auto- continued its move towards handling its panels, eg teens and healthcare, and ex- Brown in Canada, Spain, France, China, motive sectors were, not surprisingly, client base more on an agency model of panded in Europe. Singapore, Brazil and Mexico; by Research particularly hard hit, and interestingly the fewer, larger clients awarding bigger, Last, but not least, Center Partners, our International in the US, the UK, Italy, traditional packaged goods spenders longer-term contracts. The creation of Key 1999 entry into outsourced call handling, Australia, New Zealand, South-East Asia whose share of market research had Account Directors in 2000 began to bear saw a year of explosive growth in 2001, ex- and Mexico; by Center Partners; and by been declining, held up best. fruit in 2001 with some large-scale wins, ceeding all expectations as it won major Goldfarb Consultants in Mexico. Consolidation of our industry continued some of them gratifyingly against manage- long-term contracts and radically increased Technology and interactive research apace. In media research, we acquired JFC, ment consultancies attempting to encroach its capacity through new site openings. revenue declined during the first nine a French-based media research software into our area. RI made particularly strong Overall, we navigated our way through a months of the year but stabilised in the last company, and Mediafax, which specializes progress in the UK, US, and Asia. truly horrible year and although we have no quarter. This was evidenced by the stabil- in television audience measurement. Millward Brown made good progress in illusions that 2002 will be easy, our compan- isation at MB IntelliQuest and a pick-up in Millward Brown acquired Impact, special- most of its mainstream companies but was ies are now structured and ready to help our activity at Lightspeed, our interactive panel. izing in branding and advertising research particularly hard hit by the problems of its clients as they emerge from recession. in South Africa and strengthened its Italian technology clients in the US. Strong per- David Jenkins presence with the acquisition of Delpho. formances were turned in by its Asian, Latin Pharmaceutical research is one of the fastest American, UK and Continental European growing sectors of market research and operations where start-up Eastern we acquired New York-based Ziment European companies exceeded expecta- Associates, a specialist in this arena. tions. Sadly, Millward Brown lost Tony Interactive research growth slowed to Wheeler, CEO of its Australian and around 50% year-on-year; this failure to Japanese operations and a leading figure in fulfill some pundits extreme growth Australian market research, who passed forecasts offering an interesting insight away after a short illness. into the key drivers of our industry. We merged Kantar Media Research “Faster, Cheaper, Better” is the promise of and Millward Brown midway through the internet for research. “Faster,” well yes, last year as we decided to use the power usually. “Cheaper” though has driven many of MB’s international office infrastruc- companies on the supply side of the indus- ture as a more effective way to develop try into financial problems as they have our media research interests. The integra- failed to develop a sustainable business pri- tion of the hitherto separate units within cing model. “Better” has largely not been Kantar opens up interesting new product delivered due to a failure of imagination development opportunities. and inspiration as traditional telephone or Goldfarb Consultants, our Toronto head- face-to-face questionnaires have merely quartered company, developed well outside transferred to the internet without unlock- its automotive business though this latter ing the interactive power of the new specialization was clearly hard hit by the technology. And the lesson? It is that speed auto industry problems. and cheapness alone are not competitive ad- Our Indian company, IMRB, had an- vantages unless linked with intellect and other strong year both domestically and insight. Market research flourishes when in its West Asia expansion.

David Jenkins Chief executive officer The Kantar Group

24 WPP How we’re doing 25 WPP How we’re doing Operating and financial review continued Public relations & public affairs

In constant currencies, the Group’s Public of margin improvement interrupted. and intelligence tools from their agencies, Ogilvy Public Relations Worldwide months later were awarded the biggest piece to include Listerine and the addition of relations & public affairs revenue showed H&K’s sound reputation and its depth and H&K’s library of proprietary publications With a severe economic downturn hitting of the pie, the Sun Systems business. This Bausch and Lomb for their ocular vitamins. continued growth, due to acquisitions as complexity of expertise continued to make and surveys on issues, news and trends con- the technology sector first in 2001, and then immediately made Sun Ogilvy PR’s largest Our entertainment practice, BWR, se- well as the inclusion of Y&R for the entire it the agency of choice by top global compa- tinued to expand. These include Corporate spreading across both industries and geo- single client for 2001. We also won the cured a third consecutive Oscar victory in year, rising by over 49%. nies. Anxious in difficult times, clients Seeds (Brussels), Highlights (Amsterdam), graphies, 2001 was a year of retrenchment, European account management business 2002, with Jennifer Connelly’s Best However, this sector was most affected solicited H&K’s consulting counsel, partic- X-Ray (global marketing) CoolHunters restructure and, ultimately, regeneration. from Dell Computers to help define the Supporting Actress win. Best Actress nomi- by the worldwide recession, particularly in ularly in the corporate arena. (global marketing) Fusion (London) and With growth difficult to achieve, we strategy and oversee the execution of all nee, Renee Zellweger, was also on BWR’s technology, media and telecommunica- Revenue growth – with notable jumps in Bite-Sized (London). Additionally, the firm set about redefining our business, building their European activities, and Sony roster. This followed the success of another tions. On a pro-forma combined basis, two distinct areas: an increase in multi- expanded its annual Corporate Reputation for the future and intensifying the commit- Europe’s 15-country campaign to support talent client, Benecio del Toro, in 2001 and although Hill and Knowlton’s revenue rose country assignments and a year-over-year Watch survey of 1,000 global CEOs beyond ment to excellence in client service in their B2B offerings. a victory the previous year with client in 2001, Burson-Marsteller, Ogilvy Public increase by the top 10 clients of the agency the US to include Canada and six European everything we do. Two key strategies, expanding our pre- Hilary Swank. Relations Worldwide and Cohn & Wolfe – was concentrated in corporate work, mar- countries. Widely recognized and anticipat- Seeking to increase our strength in both dominantly tech markets – Atlanta, Denver We ended the year working out a new suffered significant revenue declines. keting, crisis, social marketing and public ed, the CRW survey augments the local social marketing programs and public and San Francisco – into more fully roun- brand definition and vision to take us for- Robinson Lerer & Montgomery, however, affairs. The company continued to expand firm’s credentials on reputation issues to affairs in the US, we started the year with ded offerings, and playing to the Ogilvy ward for 2002. The new vision keeps our continued to make a strong contribution major client relationships and was involved senior management. the January acquisition of Deen & Black, traditional strength in brand marketing senior staff closely tied to clients, focuses to the Group. in some of the seminal stories in business Notwithstanding the bumpy terrain, the California’s leading public affairs firm combined nicely together as evidenced our business areas only on those industries As a result, operating margins at around the world. Winning substantial new online phenomenon continued its relentless working on a number of state social by the addition of Target and Coca-Cola’s where we can supply true added value and our Public relations & public affairs business assignments and long-term con- march with an increase in total internet education initiatives. Gift of Reading Program in Atlanta, and brings brand concerns into everything we businesses as a whole declined to tracts during the year, H&K was proud to population. The customer move to online was Additional expansion efforts were fo- both Orange Glo and Celestial Seasonings do. The way we say it, we hope, says it all: over 9% against being over 13% in the count Ford Motor Company, Motorola, reflected in client requirements for fully in- cused outside the US and worked to great in Denver. Global Resources. Boutique Approach. previous year. and Aventis as clients. tegrated on- and offline communications – effect. We added five separate firms in Excellence in corporate work was evi- Brand Solutions. Responding to client and business needs, “normal.communications.” Assignments Australia to collectively make us the largest denced by both the return of Deloitte We enter 2002, smarter, sleeker, stronger H&K continued to maximize its matrix ranged from webcasts to mobile marketing PR entity in the continent – Howorth Touche Tohmatsu to our roster and our and focused on what lies ahead. structure, emphasizing practice development to online media relations. Additionally, Communications, Parker & Partners, global work for Intelsat, a leading interna- Bob Seltzer and geographic presence. The firm expand- while the dotcom and IT sectors suffered savage & horrigan, Ethnic Communications tional satellite company, that became a ed its worldwide network to 66 offices in 35 during the year, the technology practice con- and Impact Employee Communication. private corporation after 37 years as an countries by acquiring operations in Lisbon tinued to represent market leaders in In Paris, we acquired AKKA, a full- inter-governmental organization. and Paris and opening a new Berlin office. consumer technology, enterprise software, service firm with a specialty in corporate And as corporations tightened their budg- Several new services and offerings were de- systems and networking companies includ- and financial PR, as part of an ongoing ets, we pursued and won a variety veloped to enhance client strategic ing TiVo, BT and Interwoven, and Compaq. effort to strengthen our European network. of US government health education pro- objectives: HKShareholder Response Further evidence of retaining strength and We entered the Middle East marketplace grams including the NIH’s 3-Year HIV (Canada), Digital PR (Italy), media commu- position in the marketplace were the num- with a headquarters office in Dubai and Vaccine Communications program and a nications practice (US), and RADAR, a ber of awards garnered by the agency in eight satellite offices throughout the region, three-year effort for media relations sup- digital intelligence platform for managing 2001. Notable in frequency are the work in including Egypt, Jordan and Morocco. port of CDC that includes assisting their external and internal information sources. social marketing, corporate and arts and en- And we become the first major interna- anti-terrorism efforts. Hill and Knowlton With a new global practice head in tertainment. Awards include Gold SABRE, tional network to establish a presence With the additions of Johnson & Johnson Despite the worldwide economic slow- place, the healthcare practice experi- PR Week, PRSA PRisms, Targhe D’Argento in Vietnam, the region’s second most and Abbott to our portfolio, we end 2001 down, Hill and Knowlton more than enced good growth, serving worldwide and an Emmy. populous country. working for each of the 10 held its own in an intensely competitive pharmaceutical companies, hospitals, Despite an overall industry workforce At the close of the year, more than largest pharmaceutical companies in and contracting environment for public managed-care organizations, and profes- reduction, the firm was able to retain one-third of our business was conducted our network. We won J&J business on relations services, as evidenced by its sional associations. The life sciences and hire top talent. H&K was the only outside the US, the largest percentage in multiple fronts, working for Ortho selection to receive the prestigious division extended H&K’s reach into the strategic communications firm in Canada our firm’s history. Biotech, Ortho McNeil and Ethicon. In fact, Holmes Report’s “Agency of the Year biotechnology, biopharmaceutical, and to make the Top 100 Employers As the dotcom boom turned to bust, we what started as one cancer product within 2001” award. Effectively managing the bot- devices and diagnostics sectors. list, including a “Top 10 employer” rating refocused our technology business on the Ortho Biotech quickly turned to three. We tom line, the company was nonetheless Practice clients include Abbott, AstraZeneca, for women. In the US, employees ranked big players, as evidenced by several key also strengthened our position disappointed to have eight consecutive Pfizer, P&G, and Ortho Biotech. H&K high among top agencies. strategic wins. We won a first piece of Sun in the OTC side of the healthcare arena, years As clients demanded increased research Howard Paster Microsystems business in April, and three with the expansion of our Pfizer business

Howard Paster Bob Seltzer Chairman and chief executive officer Chairman and chief executive officer Hill and Knowlton Worldwide Ogilvy Public Relations Worldwide

26 WPP How we’re doing 27 WPP How we’re doing Operating and financial review continued Branding & identity, Healthcare and Specialist communications

The Group’s Branding & identity, Health- Even as some of the specialist businesses re- ventured into the contract sales arena businesses. Having built Enterprise IG into brand leaders. In 2001 icon won the pan- care and Specialist communications flected the overall softness in the market, through a unique partnership with PDI, the world’s leading brand consultancy, the European advertising tracking for General revenue grew by 43% last year, again pri- others were very strong. WPP’s long his-tory a leading provider of outsourced sales management team at The Brand Union Motors Europe (GME). marily due to acquisitions. Including Y&R, and experience with specialist firms has also and marketing solutions for pharma and now has set its sights on creating a number Lambie-Nairn won two silver British on a pro-forma combined basis, revenue helped to further evolve our understanding biotech companies. of new global businesses in the next five Design Association Promax awards and and gross profit rose by almost 1% and of three distinctly different and strategic Demonstrating remarkable breadth and years. In addition to continuing to grow were appointed to create the new brand operating costs by over 6%, resulting in ways these units further the Group’s mis- industry penetration, CommonHealth now Enterprise IG, our growth strategy has four for the client O2. overall operating margins declining by al- sion: works with nine of the top 10 pharmaceut- additional areas of focus which are of in- MCA, the internal communications con- most one margin point, chiefly due to margin Through coordination and combination ical companies in the US, having added creasing importance to both global and sultancy responsible for putting people first erosion at some of our Branding & identity they become significant businesses in their major new assignments from Pfizer, local clients: strategic marketing consulting; again at British Airways, was acquired in and Specialist communications units. own right – such as CommonHealth, GlaxoSmithKline, Aventis-Boehring, brand analytics; internal communication; June. The company is the UK’s leading Enterprise IG and The Brand Union, which Sanofi-Synthelabo and Novartis. While and live events. With some of the leading provider of programs designed to align now rank first in their respective sectors. continuing to help build billion-dollar providers of services in these areas already brand promise with employee behaviour. By collaborating with the larger advertis- brands like Avandia (GlaxoSmithKline), member companies, a foundation is in place MJM, one of the US’s leading live events ing or PR networks they fill gaps in inte- Listerine (Pfizer), Procrit (Ortho to create a business whose capabilities and and meetings specialists, was acquired in grated marketing or 360 degree branding. Biotech/J&J), and the Claritin/Clarinex scale are unprecedented in the industry. August – adding a new skill to the Group As start-ups or acquisitions in new or em- franchise (Schering-Plough) – the majority Although 2001 was a tough year, there and helping us to strengthen our relation- bryonic fields, they serve as a pipeline of of which employ multiple capabilities were a number of notable highlights ship with major clients like IBM and Pfizer. capabilities that become significant in the within the CommonHealth network – in to celebrate. Oakley Young were ranked number one future as client needs change. 2001 CommonHealth companies partici- Enterprise IG opened offices in Tokyo, in their point of purchase display industry Some of the noteworthy events, initi- pated in the launch or re-launch of 10 Bangkok and Dublin, bringing its net- by clients and won a major new assignment atives and achievements in 2001 are pharmaceutical brands, and is poised to work to 22 offices worldwide. Major as- from Estée Lauder. summarised below. take part in 14 additional launches in 2002. signments won during the year include The Clinic won a major piece of work CommonHealth continued to leverage Del Monte and Holcim in the US, Aeon in for BT. CommonHealth new technologies in 2001, adding extensive Japan, Red Bull in Thailand, The Sydney The Henley Centre conducted its first CommonHealth, the world’s leading digital creative and media capabilities; a Opera House, SNS Bank in Holland, Social Changes study in the US and won healthcare communications network, had digital asset management system; client Coloplast in Denmark, Coca-Cola in work from BT, The Army and Coca-Cola. an exceptional year – led by growth of both service internet portals, as well as a fully re- Germany, Veda Vodka in Russia and TXU its traditional business units as well as suc- vamped time reporting and financial in the UK. The company also won many Specialist communications cess with a number of its newer ventures. services platform. awards including a silver D&AD for Interactive, relationship marketing and CommonHealth companies handle In recognition of its integrated marketing Royal Mail, a gold global packaging promotion health-related brands in almost every thera- campaigns and highly differentiated client award for Peets Coffee and Teas and five RTC was named relationship marketing peutic category, from professional and services in the world of healthcare commu- Creativity Awards. agency of record for Nasdaq, the world’s consumer advertising, to relationship mar- nications, CommonHealth was named the Addison Corporate Marketing continued largest stock market, and is also working keting, physician-patient communication ‘Most Innovative’ healthcare communica- to grow its consultancy offer through an in- with digital@jwt to provide Nasdaq with and medical education. Through alliances tions organization in 2001 by dustry-leading stakeholder alignment integrated marketing solutions. with sister WPP companies, we also offer Med Ad News, a leading industry publica- programme (ASAP). Consultancy clients in- VML was acquired by WPP in June of clients even more specialised expertise in tion. Achieving this reputation for new clude Diageo, Shell, Novartis and Instinet. 2001 and reported a record level of revenue public relations, brand identity and design, and creative marketing solutions rarely BPRI continued to expand its internation- for the first year as part of WPP. The experiential and ethnic marketing – all of occurs in an industry’s largest agency al network, by adding a third office in organisation is beginning to forge new which have grown in importance to pre- resource – that is what is uncommon Sydney, and had notable client successes relationships and leverage the network scription pharmaceutical companies. Our about CommonHealth. with Accenture and Ericsson. into growth opportunities, working col-lab- global capabilities are uniquely delivered icon brand navigation, a world leader in oratively with other WPP agencies in the US through a partnership with the Ogilvy The Brand Union and Enterprise IG research-based marketing strategy consult- and Europe. Major new business wins in- Healthcare Network, a joint venture which The Brand Union management team is ing, joined the Brand Union in April. From clude the interactive AOR assignment from has expanded to 13 offices in nine countries. growing and managing a diverse port- its headquarters in Germany and with six Burger King where VML is now Additionally, in 2001 CommonHealth folio of leading consulting and creative offices, icon works with many international handling talent negotiation, broadcast

John Zweig Matt Geigerich Dave Allen Jim Johnson Chief executive officer President and chief executive officer Joint chief executive Joint chief executive Branding & identity, Healthcare and CommonHealth The Brand Union The Brand Union Specialist communications

28 WPP How we’re doing 29 WPP How we’re doing Operating and financial review continued

business management, franchisee extranet education – for the third time in four years. Group financial performance Operating margins Like-for-like performance development, and new assignments in In addition, Shire Health Group won 18 Turnover was up 50% to £20.9 billion, re- Pre-goodwill, operating margins (includ- On a like-for-like basis, excluding all acqui- loyalty marketing. It has also expanded other Communique awards in 2001, and flecting in part the full consolidation of ing income from associates) were 14% sitions, revenue was down by 3.0% and business with Colgate-Palmolive after won two Creative Excellence awards at the media investment management. on a reportable and constant cur- gross profit was down 4.0% on 2000. Total winning the global Web Development Chicago Film Festival. Shire Health Group’s Reportable revenue was up almost 35% rency basis. The margin gap between operating and direct costs were down 3.5% AOR – working closely with Y&R and New York office was set up in to £4.022 billion and gross profit up over the very best performing competition on the previous year. Staff costs excluding Y&R2.1 – to bring innovative online collaboration with CommonHealth to 38% to £3.790 billion. On a constant cur- and ourselves continues to narrow. Post- incentives were flat, as were total salaries. and digital marketing solutions to Colgate support a global expansion strategy, and rency basis, revenue was up 33% and gross goodwill, profits before interest, tax, On a constant currency basis, pre-tax brands worldwide. enabled major global account wins with profit up over 36%. Pro-forma for the mer- investment gains and write-downs was profits were up over 29% reflecting the Roche, Pfizer, and Boehringer Ingelheim ger with Y&R, constant currency revenue up almost 31% to £546.3 million from weakening of sterling against the dollar, Strategic marketing consulting for the first time – offering a truly transat- was up over 1%. £417.4 million. counterbalanced to some extent by strength Glendinning, a leading international mar- lantic service to their US and European Profit before goodwill, interest, tax, Operating margins before short-term and against the euro. If sterling had stayed at the keting consulting company focusing teams. Olog-e, a digital communications investment gains and write-downs was long-term incentive payments (totalling £81 same average levels as 2000, on this basis on ‘demand management’ joined the Group agency, was launched to further extend the up almost 30% to £561.1 million from million or over 12% of operating profits would have been £478.0 million. in April 2001 with a blue chip consumer service offering in Shire Health Group to £431.1 million and up almost 32% in profit before bonus and taxes) fell to 16% goods client base and capabilities in Europe, web design, animation and film making constant currencies. from 17.9%, reflecting the impact of Headcount Asia, South Africa and North America. for healthcare clients. The Group’s tax rate on profits was 28%, more difficult trading conditions and of Our staff numbers (excluding associates) Glendinning is staffed by senior sales and down from 30% on the previous year, re- the Group’s pay-for-performance compen- averaged 50,487 against 36,157 in 2000, marketing line managers previously with Media, technology and production flecting the impact of further improvements sation strategy. Reported operating up over 39%. On a like-for-like basis, aver- leading companies such as Unilever, Procter services in tax efficiency. costs rose by over 39% and by over 37% age headcount was down to 50,487 from & Gamble and Mars. International Presentations opened of- Diluted earnings per share before good- in constant currency. 51,398, a decrease of almost 2%. At the end fices in New York and Hong Kong and will, investment gains and write-downs On a reported basis the Group’s staff cost of 2001 staff numbers were 51,009 com- Demographic marketing moved into investor relations roadshows. were up almost 2% at 30.6p. In constant to gross margin ratio, excluding severance pared with 55,811 at the end of 2000 on a The Geppetto Group, originally a WPP Metro Group provided high definition currency, earnings per share on the same and incentives, rose to 56.5% from 54.1%. pro-forma basis, a reduction of almost 9%. start-up, was the winner for the second con- camera equipment for the first ever multi- basis were up slightly. Variable staff costs as a proportion of secutive year of the Golden Marble Awards camera shoot in the UK (SClub7 concert) All severance and restructuring total staff costs have increased over recent Manufacturing (recognising creative excellence in kid and for what was reputed to be the largest costs have been included in operating years, although the impact of the recession Gross profit was flat with operating profit advertising/marketing) for best overall TV ever multi-camera shoot in the world at the profits. In light of the collapse in in 2001 has reduced this ratio to 8.2% and margins up slightly at the Group’s campaign; and added Coca-Cola to its client Robbie Williams concert in Germany. technology equity valuations, it has and variable staff costs as a proportion manufacturing division. roster after a highly competitive pitch com- been considered prudent to write down of revenue to 4.6%. This highlights the prised of big, multinational agencies; Sports marketing the net balance sheet value of the benefits of the increased flexibility in the Parent company initiatives Geppetto authored two forward-thinking PRISM Group had another strong year Group’s investments in this area by cost structure. Increasingly, WPP is concentrating on its pieces of research: Gender and Teen Girls, that started with securing the global Shell £70.8 million. This results in diluted With the recession, the task of elimin- mission of the ‘management of the imagi- and beat our profit projections sponsorship communications account; earnings of 23.7p per share after these ating under-utilised property costs nation’, and ensuring it is a big company by nearly 100%. quickly followed by a successful bid for non-cash write-downs. At the end of has again become a priority. The Group with the heart and mind of a small one. client Heineken with the 2004 Athens 2001, the unrealised surplus on the occupied approximately 14 million To aid the achievement of this objective Industry sector marketing Olympic Games. Mid-year, PRISM was Group’s other quoted fixed asset invest- square feet worldwide, at a total estab- and to develop the benefits of member- At Pace, the leading real estate advertis- named Land Rover’s global sponsorship ments was over £80 million. lishment cost of $466 million in 2001. ship of the Group for both clients and ing business, billings and profit were the agency. The firm’s product launch skills The Board recommends an increase Around one million square feet at an our people, the parent company continues highest in 12 years; Green Advertising of were also used heavily in the year by Shell of 20% in the final dividend to 3.06p annual cost of $39 million is under- to develop its activities in the areas of Boca Raton, Fla, acquired by Pace in 1999, for their new Optimax brand and by Ford per share, making a total of 4.5p per utilised currently, mainly in the US. human resources, property, procurement, showed a 100% profit growth in 2001 as for their all new Fiesta. PRISM ended the share for 2001, a 20% increase over Despite the traditional inflexibility of information technology and practice compared to 1999 and 20% over year 2000. year by opening a new office in Southern 2000. The record date for this dividend property costs, approximately one million development. Ten practice areas which Shire Health Group, a London-based California to service newly-won Jaguar and is 7 June 2002, payable on 8 July 2002. square feet of the Group’s property span all our brands have been developed PR and medical education resource, Land Rover public relations business. The dividend for 2001 is almost seven portfolio is scheduled for renewal or termi- initially in media investment management, won European ‘Consultancy of the Year’ John Zweig times covered by earnings. nation in the US in the next two years. healthcare, privatisation, new technologies, Communique award for PR and medical

30 WPP How we’re doing 31 WPP How we’re doing Operating and financial review continued

new faster growing markets, internal and deciding upon the periods for fixing rates Targets for average net debt are set on an million and other net cash inflows of £115 communications, retailing, entertainment in the light of financial market expectations. annual basis, and to assist in meeting this, million. Free cash flow available for debt re- and media, financial services and hi-tech Its principal borrowing currencies are working capital targets are set for all the payment, acquisitions, share buy-backs and and telecommunications. US dollars, pounds sterling and euros. Group’s major operations. dividends was therefore £504 million. This Borrowings in these currencies, including The Group’s significant international op- free cash flow was more than absorbed by Acquisitions and start-ups amounts drawn under the working capital erations give rise to an exposure to changes acquisition payments and investments of In 2001 the Group increased its equity in- facility, represented 99% of the Group’s in foreign exchange rates. The Group seeks £736 million, share repurchases and can- terests, at a combined initial cost of £736 gross indebtedness at 31 December 2001 (at to mitigate the effect of these structural cur- cellations of £103 million and dividends of million in cash, in Advertising and Media $782 million, £130 million and e1,050 mil- rency exposures by borrowing in the same £44 million. investment management in the US, the UK, lion respectively) and 99% of the Group’s currencies as the operating (or ‘functional’) Your Board continues to examine ways Australia, Brazil, France, Portugal, South average gross debt during the course of currencies of its main operating units. The of deploying its substantial cash flow of over Africa, South Korea, Taiwan and Turkey; 2001 (at $1,282 million, majority of the Group’s debt is therefore de- £500 million per annum to enhance share in Information & consultancy in the US, £90 million and e610 million). 90% of the nominated in US dollars, as this is the owner value. As necessary capital expendi- Germany and South Africa; in Public rela- year-end dollar debt is at fixed rates predominant currency of revenues. ture normally approximates to 1-1.25 times tions & public affairs in the US, Argentina averaging 5.11% for an average period of Significant cross-border trading expo- the depreciation charge, the Company has and Switzerland; and in Branding & identi- 40 months. 57% of the euro debt is at fixed sures are hedged by the use of forward concentrated on examining possible acqui- ty in the US, the UK and Japan; in Direct, rates averaging 5.49% for an average foreign exchange contracts. There were no sitions or returning excess capital to share promotion & relationship marketing in period of 50 months. The sterling debt is all such material contracts in place at 31 owners in the form of dividends or share the UK, France and Hong Kong; and at floating rates. Cash balances in these December 2001. No speculative foreign ex- buy-backs. in interactive in the US, the UK, France currencies at 31 December 2001 were £84 change trading is undertaken. As noted earlier, your Board has and South Korea. million, e125 million and $208 million decided to increase the final dividend (reflecting 42% of cash balances). Cash flow by 20% to 3.06p per share, taking the Treasury activities Other than fixed rate debt, the Group’s As at 31 December 2001, the Group had net full year dividend to 4.5p per share which Treasury activity is managed centrally, from other fixed rates are achieved through debt of £885 million compared with net is almost seven times covered by earnings. the parent company’s London, New York interest rate swaps with the Group’s debt of £25 million at 31 December 2000 In addition, as current opportunities and Hong Kong offices, and is principally bankers. The Group also uses forward rate (2000: £36 million on the basis of 2001 year for cash acquisitions may be limited concerned with the monitoring of working agreements and interest rate caps to man- end exchange rates), following net cash ex- particularly in the US, the Company capital, managing external and internal age exposure to interest rate changes. At 31 penditure of £736 million on acquisitions will continue to commit £150-200 million funding requirements and the monitoring December 2001, no forward rate agreements and £103 million on share repurchases. for share buy-backs in the open market, and management of financial market risks, or interest rate caps were outstanding. Net debt averaged £834 million in 2001, when market conditions are appropriate. in particular interest rate and foreign ex- These interest rate derivatives are up £411 million against £423 million in Such annual rolling share repurchases change exposures. used only to hedge exposures to interest rate 2000 (up £385 million at 2001 exchange would represent approximately 2-2.5% The treasury operation is not a profit movements arising from the Group’s bor- rates). The average debt figures for 2000 in- of the Company’s share capital. This is centre and its activities are carried out in ac- rowing and surplus cash balances clude the impact of the Y&R long-term perceived to have a more significant cordance with policies approved by the arising from its commercial activities convertible bond of £195 million for the impact in improving share owner value Board of Directors and subject to regular and are not traded independently. final quarter. These net debt figures com- than dividends. review and audit. Payments made under these instruments pare with a current equity market Net debt at 31 March 2002 was £1,505 The Group’s interest rate management are accounted for on an accruals basis. capitalisation of approximately £8.0 billion million, compared to £987 million at policy recognises that fixing rates on all its An analysis of the debt and fixed rate giving a total enterprise value of approxi- 31 March 2001. In the 12 months to debt eliminates the possibility of benefiting maturities is shown in note 9 on page 65. mately £9.0 billion. 31 March 2002, the Group’s free cash from rate reductions and similarly, having The Group manages liquidity risk by Cash flow remained strong as a result of flow was £502 million. Over the same all its debt at floating rates unduly exposes ensuring continuity and flexibility of fund- improved profitability and management of period, the Group’s expenditure on capi- the Group to increases in rates. ing even in difficult market conditions. working capital. In 2001, operating profit tal, acquisitions, share purchases and divi- The Group therefore aims to limit the im- Undrawn committed borrowing facilities was £506 million, capital expenditure dends was £928 million. Net interest pact from increases in rates while seeking to are maintained in excess of average gross £118 million, depreciation and amortisa- costs will reduce in 2002 following the ensure that it benefits from rate reductions borrowing levels and debt maturities are tion of £125 million, tax paid £78 million, issue of a 2% £450 million Five Year by regularly reviewing its exposure profile closely monitored. interest and similar charges paid £46 Convertible Bond in April 2002.

32 WPP How we’re doing 33 WPP How we’re doing Operating and financial review continued

Net balance sheet assets ment in staff costs to revenue ratios and Given these short-term and long-term No hedging is undertaken in relation to Group co-operations. trends, your Company has three strategic the accounting translation of overseas bal- In these circumstances there is no reason priorities. In the short term, to weather the ance sheets. In 2001 this resulted in a to believe that the Group cannot achieve the recession; in the medium term to continue decrease of £81 million (2000: decrease revised objective set in 2001 of further im- to successfully integrate the mergers with of £133 million) in the sterling value of proving margins by up to another one Y&R and Tempus; and finally, in the long share owners’ funds due to movements margin point to 15% in 2002 with the term, to continue to develop its businesses in exchange rates. In 2001, net assets potential for a further 0.5 of a margin point in the faster growing geographical areas of of £3,641 million compared with £3,394 improvement in 2003. Your Board does not Asia Pacific, Latin America, Central and million (restated) in 2000. believe that there is any functional, geo- Eastern Europe, Africa and the Middle East graphic, account concentration or struc- and in the faster growing functional areas 2002 prospects tural reasons that should prevent the Group of marketing services, particularly direct, As usual and given conditions in 2001, our achieving operating margins of 15.5% interactive and market research. budgets for 2002 have been prepared on a by 2003. After all, the two best listed 2001 has been a brutal year. 2002 will be conservative basis largely excluding new performers in the industry are or have been difficult but hopefully not as traumatic. business particularly in Advertising and at 15-16% and that is where we would want Early indications are that the worldwide Media investment management. They pre- to be. Neither is there any reason why growth of advertising and marketing ser- dict flat like-for-like revenue in comparison operating margins could not be improved vices expenditure will be flat or slightly to 2001 numbers and a stronger second half beyond this level by continued focus on down. 2003 may be slightly better. of the year relative to the first, driven pri- revenue growth and careful husbandry of Our people have responded magnificent- marily by easier comparables to last year. costs. As a result of this confidence, your ly in 2001 to the difficult economic, They also indicate Advertising and Media Board had already set a new operating mar- political, financial, personal, emotional and investment management revenue down 3% gin plan, its sixth since 1991, to achieve psychological conditions that they have counterbalanced by marketing services rev- further growth in operating margins be- faced. They have delivered results which, enue growth of 3%, primarily driven by yond 2003. The objective is to achieve 20% even including all exceptional items, have comparative strength in Information & con- margins over a period of time. out-performed their competition and sultancy, Healthcare and direct. This In the short term, advertising and market- grown market share. compares with budgeted growth of 6% in ing services expenditure will likely remain We believe that despite the challenges that 1998 against like-for-like outcome of al- flat, although spending amongst we face, 2002, WPP’s seventeenth year, most 8%, budgeted growth of over 4% and the packaged goods, pharmaceutical, oil should be another good one. achieving almost 8% in 1999, budgeted and energy, government (the government is Paul Richardson growth of 10% and achieving 15% in 2000 the largest advertiser in the UK market) and Group finance director and budgeted growth of 7% and a decline price-value retail sectors has remained rela- of 3% in 2001. tively resilient. These sectors represent In the first three months of 2002, constant approximately 20% of the Group’s revenue. currency revenues were down over 1% In the long term the outlook is very and on a like-for-like basis, excluding favourable. Overcapacity and the shortage acquisitions and currency fluctuations, of human capital, the developments in new down almost 9%. technologies and media, the growth in im- Net new business billings so far in portance of internal communications and 2002 were very strong with over $900 the continued dominance of the US eco- million of wins. nomy underpin the need for our clients to Incentive plans for 2002 will focus more continue to differentiate their products and on operating profit growth than historic- services both tangibly and intangibly. ally to stimulate top-line growth, al- Advertising and marketing services expen- though objectives will continue to include diture as a proportion of gross national operating margin improvement, improve- product should continue to grow.

In connection with the provisions of the Private Securities shifts in industry rates of compensation, government Litigation Reform Act of 1995 (the ‘Reform Act’), the compliance costs or litigation, unanticipated natural Company may include forward-looking statements disasters, the Company’s exposure to changes in the values (as defined in the Reform Act) in oral or written public of other major currencies (because a substantial portion statements issued by or on behalf of the Company. of its revenues are derived and costs incurred outside These forward-looking statements may include, among of the UK) and the overall level of economic activity in the other things, plans, objectives, projections, anticipated future Company’s major markets (which varies depending on, economic performance as assumptions and the like that are among other things, regional, national and international subject to risks and uncertainties. As such, actual results political and economic conditions and government or outcomes may differ materially from those discussed in regulations in the world’s advertising markets). In light the forward-looking statements. Important factors which of these and other uncertainties, the forward-looking may cause actual results to differ include but are not limited statements included in this document should not be to: the unanticipated loss of a material client or key regarded as a representation by the Company that the personnel, delays or reductions in client advertising budgets, Company’s plans and objectives will be achieved.

34 WPP Who we are