WPP Annual Report 2003 01 Who We Are the Fast WPP Is One of the World’S Largest Communications Services Groups, Made up of Leading Companies In
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Annual Report and Accounts 2003 The fast read Contents 02 A six-minute read Who we are 08 About WPP 10 Our companies and associates Why we exist 12 Why we exist 13 Our mission How we’re doing 15 Financial summary 17 Letter to share owners 24 Reports from our operating brands 25 Ogilvy & Mather Worldwide 26 J. Walter Thompson Company 28 Young & Rubicam Brands 32 Red Cell 33 Bates Asia 34 GroupM 35 MindShare 36 Mediaedge:cia 38 The Kantar Group 40 Public relations & public affairs 41 Hill & Knowlton 42 Ogilvy Public Relations Worldwide 43 Branding & identity 46 Healthcare communications 48 Interactive, promotion & relationship marketing 49 Specialist communications What we think 53 The Advertising and Marketing Services Industry: Outlook Good and Getting Even Better by Martin Sorrell 69 The Steak & Kidney Pie That Wasn’t by Jeremy Bullmore Who runs WPP 72 Board of directors 75 Senior officers and advisors to the Board Current and historical financial information, including trading statements, news releases and presentations are available online at www.wppinvestor.com You can receive WPP annual reports, financial statements and press releases by e-mail. To register, go to www.wppinvestor.com and follow the link to ‘e-mail services’. cvr2 Contents How we behave Our 2003 financial statements 77 Directors’ report 112 Accounting policies 77 Corporate governance provisions 115 Consolidated profit and loss account 77 Share owner relations 116 Consolidated cash flow statement 77 Independence of non-executive directors 116 Consolidated statement of total 78 Board responsibilities recognised gains and losses 79 Board committees 117 Consolidated balance sheet 80 Internal control 118 Notes to the consolidated financial statements 81 Sarbanes-Oxley S404 132 Company balance sheet 81 Going concern 133 Notes to the Company balance sheet 81 Responsibilities in respect of the preparation of financial statements 134 Reconciliation to US Accounting Principles (unaudited) 82 Substantial share ownership 135 Notes to the Reconciliation to US 82 Re-election of directors Accounting Principles (unaudited) 82 Profits and dividends 138 Five-year summary 82 Parent company charitable donations 139 Unaudited consolidated profit and loss 82 Group activities account: euro illustration 82 Fixed assets 140 Unaudited consolidated balance sheet: euro illustration 82 Share capital 141 Unaudited consolidated profit and loss 82 Authority for purchase of own shares account: to present the impact of US 82 Supplier payment policy transitional guidelines on the expensing of share options, for illustrative purposes only 82 Auditors 142 Independent auditors’ report 83 Corporate social responsibility 143 Financial glossary 83 How we manage CSR 84 WPP in society 84 Marketing ethics 84 WPP as an employer About share ownership 145 Information for share owners 145 Share owners’ register How we’re rewarded 145 Analysis of shareholdings at 31 December 2003 145 Dividends 87 Compensation committee report on behalf of the Board 146 American Depositary Receipts (ADRs) 87 Introduction 146 Financial calendar 87 Remit of the Compensation committee 146 Share pr ice 88 Policy on remuneration of executive directors and 146 Access numbers/Ticker symbols senior executives 147 www.wppinvestor.com 89 Policy on directors’ service contracts, notice 147 Registrar and transfer office periods and termination payments 147 Tax information 90 Elements of executive remuneration 95 Directors’ remuneration 96 Directors’ interests 98 US-style proxy disclosures Where to find us Inside back cover Contact points Operating & financial review WPP offices Investor relations 101 Competitive performance Media relations 102 Geographic performance Group information 103 Sector performance 104 Review of operations 104 Group financial performance 105 Operating margins 105 Like-for-like performance 105 Headcount 105 Acquisitions and start-ups 105 Parent company initiatives 106 Executive options 106 Treasury activities 106 Cash flow 107 Pensions funding 107 Net balance sheet assets 108 Future prospects WPP Annual Report 2003 01 Who we are The fast WPP is one of the world’s largest communications services groups, made up of leading companies in: ■ Advertising read ■ Media investment management ■ Information, insight & consultancy For a quick, pre-digested, ■ Public relations & public affairs ■ Branding & identity highly-compressed version ■ Healthcare communications ■ Direct, promotion & relationship marketing of this Annual Report: read ■ Specialist communications the next six pages. Collectively, the Group has 70,000* people working in 1,400 offices in 106 countries. WPP companies provide communications services The full story starts on page 8. to clients worldwide including more than 300 of the Fortune Global 500; over one-half of the NASDAQ 100 Please read that, too. and over 30 of the Fortune e-50. Our companies work with over 330 clients in three or more disciplines; more than 130 clients in four disciplines and over 100 clients in six or more countries. Our companies and their websites are listed on pages 10 and 11. * Including associates. 02 WPP Annual Report 2003 The fast read Why we exist What we think Our mission The Advertising and Marketing Services Industry: Outlook Good and Getting Even Better To develop and manage talent; WPP CEO Martin Sorrell believes that with recessionary to apply that talent, forces abating in 2003, the short-term picture for communications services improved and quadrennial throughout the world, opportunities in 2004 will strengthen our business. for the benefit of clients; 2005 should show further improvement. In the longer term, advancing Americanisation and the growth of Asia to do so in partnership; Pacific, overcapacity and the shortage of human capital, to do so with profit. the web, the demand for internal communications, and retail concentration should together underline and assure Within the WPP organisation, our clients have access the importance of our industry and its constituent parts, to companies with all the necessary marketing and advertising and marketing services. communications skills; companies with strong and Martin Sorrell’s article begins on page 52. distinctive cultures of their own; famous names, many of them. The Steak & Kidney Pie That Wasn’t WPP, the parent company, complements these Over-enthusiasm for sizzle marketing is more dangerous companies in two distinct ways. today than ever because there’s a growing and clearly First, it relieves them of much administrative detectable popular thirst for what is usually summed work. Financial matters (such as planning, budgeting, up as authenticity. Increasingly, people like to know the reporting, control, treasury, tax, mergers, acquisitions, provenance of what they buy. Countries of origin and investor relations) are co-ordinated centrally. Every regions of origin provide valued reassurance. Knowledge administrative hour saved is an extra hour to be devoted of a brand’s history and the people behind it can to the pursuit of professional excellence. contribute a great deal to belief in the brand’s worth. Secondly, and increasingly, the parent company Artificiality is suspect; authenticity welcome: encourages and enables operating companies of different as long, of course, as the authenticity is authentic. disciplines to work together for the benefit of clients and our people. Jeremy Bullmore’s essay can be read in full on pages 68 to 71. In the management of talent (including recruitment and training), property, procurement, information technology and knowledge sharing, the parent company also has a significant across-the-Group part to play. Read more about our role on page 12. WPP Annual Report 2003 03 Key performance indicators Revenues were up over 5% to £4.1 billion. Operating How we’re doing margin was up 0.7 of a margin point from 12.3% to 13.0%. Headline PBIT – that is before interest, tax, 2003 2002 Change % goodwill amortisation and impairment, fixed asset Revenues £4,106m £3,908m +5.1 gains and investment write-downs – was up over 11% Headline EBITDA1 £661m £586m +12.8 to £534 million. Headline operating profit2 £493m £450m +9.5 Headline profit before tax was up over 18% to Reported operating profit £415m £273m +52.4 £473 million. Profit before tax was up over 70% to Headline PBIT2 £534m £480m +11.1 almost £350 million. Diluted headline earnings per Headline PBIT margin 13.0% 12.3% +0.7 share were up over 16% to 29p and reported diluted Headline PBT2 £473m £401m +18.2 earnings per share were up over 136% to 18.2p. Reported PBT £350m £205m +70.4 Total share owner return improved significantly, Diluted headline earnings with the share price rising by almost 16% to 548.5p per share4 29.0p 24.9p +16.5 over the year, and dividends rising by 20% to 6.48p. Diluted headline earnings Based on constant currency comparisons, on a per ADR3, 4 $2.37 $1.87 +26.7 like-for-like basis, revenues were up almost 1% for the Ordinary dividend per share 6.48p 5.40p +20.0 year as a whole, flat in the first half and up over 1% in Ordinary dividend per ADR3 53.0¢ 40.6¢ +30.5 the second half. This appears to have been in line with Net debt at year-end £362m £723m -50.0 the worldwide market, with the Group maintaining its Average net debt5 £1,222m £1,343m -9.0 market share. Share price at year-end 548.5p 474.5p +15.6 Headline PBIT margins rose to 13% from 12.3% Market capitalisation – less than our pre-Cordiant objective of 13.3%, but in at year-end £6,513m £5,492m +18.6 line with our post-Cordiant objective. WPP excluding Notes Cordiant achieved the 13.3% margin objective. 1 Headline EBITDA: profit on ordinary activities before taxation, net interest payable and similar charges of £71.6 million (2002: £86.4 million), depreciation of £127.5 million (2002: £116.6 million), and goodwill amortisation and impairment of £112.0 million (2002: £177.7 million). Sector and geographic performance 2 Headline operating profit: Operating profit before goodwill amortisation and impairment of subsidiaries of £77.7 million (2002: £177.7 million).