Overview and strategic progress

Market environment

The global marketing and advertising industry has demonstrated great resilience as brands continue to invest in marketing despite turbulence in the global economy. According to GroupM estimates, global advertising spend[1] grew by 6.5% in 2022, slightly lower than the 8.4% forecast in June 2022, a change primarily due to lower than expected growth in China.

Digital advertising has continued to grow. As the number of scaled advertising platforms increases the market is becoming more complex. GroupM estimates that global digital advertising spend grew by 9.3% in 2022, following unprecedented 31.9% growth in 2021. Digital advertising made up 67% of total advertising in 2022, up from 64% in 2021. Retail media is one of the fastest growing segments within digital advertising, reflecting the growth in ecommerce post the pandemic. GroupM estimates retail media spending will have reached $110.7 billion globally in 2022, around 20% of overall digital spend.

Spend on TV is recovering to pre-pandemic levels as advertisers value the medium's effectiveness in satisfying reach and frequency goals. GroupM estimates that TV advertising grew by 1.7% in 2022, a slowdown in growth from 11.7% in 2021. The robustness of TV spend has been supported by growth in connected TV inventory, which made up 12.7% of the market in 2022, up from 11.0% in 2021. GroupM expects connected TV to make up nearly a third of all US TV advertising by 2027.

Global out of home advertising saw modest growth in 2022, curtailed by lockdown restrictions in China - the largest market for out of home advertising. Audio saw low-single-digit growth, supported by growth in digital which represents nearly a quarter of total audio advertising revenue. Print continues to face pressure as publishers are diversifying their offerings and revenue streams.

By geography, 2022 saw healthy growth in most major markets. Based on GroupM findings, advertising spend in the US and UK grew by 7.1% and 8.9% respectively. China was the only major market to see declines in advertising spend in 2022 as lockdown restrictions impacted consumer spending.

For 2023, GroupM expects global advertising spend to grow 5.9% including a return to growth in China as the economy re-opens, which is expected to grow 6.3% after a decline of 0.6% in 2022.

Ukraine

Since the war in Ukraine began in February 2022, our colleagues in Ukraine have shown extraordinary resilience and bravery and we remain in regular contact with our leaders in the country to support our employees. This has included financial support packages and other forms of assistance, including access to medical advice, counselling, immigration and relocation support, language classes, schooling for children and other practical resources.

WPP partnered with the UN's Refugee Agency (UNHCR) to launch an emergency appeal for families forced to flee their homes in Ukraine. Our people donated $675,000 which WPP match-funded, bringing the total to $1.35 million. Through GroupM, we secured $1.5 million in pro bono media support for the wider public appeal through our partners.

We also supported the Ukrainian government through a pro bono initiative to encourage inward investment and help revitalise the country's economy. Advantage Ukraine launched in September 2022, when we arranged for President Zelensky to virtually ring the opening bell at the New York Stock Exchange.

In early March, the Board of WPP concluded that WPP's ongoing presence in Russia would be inconsistent with our values as a company and we have subsequently divested our businesses there. This led to a loss on disposal of £63 million. Russia represented approximately 0.8% of WPP's revenue and 0.6% of revenue less pass-through costs in 2021.

Performance and progress

Since 2019, WPP's LFL revenue less pass-through costs have grown 10%, headline operating profit is 15% higher and headline EPS has grown by 26%.

Revenue was £14.4 billion, up 12.7% from £12.8 billion in 2021, and up 6.7% like-for-like. Revenue less pass-through costs was £11.8 billion, up 13.5% from £10.4 billion in 2021, and up 6.9% like-for-like.

We delivered a strong performance in 2022, with LFL growth in revenue less pass-through costs across all our major creative, media, public relations and specialist agencies. Client demand has been strong, particularly for commerce services and in commerce media. GroupM's commerce billings increased 18% year-on-year in 2022 while the proportion of digital billings has grown to 48% in 2022, from 43% in 2021.

Revenue less pass-through costs from higher-growth areas of our offer in experience, commerce and technology remained around a quarter of the Group. Global revenue less pass-through costs from experience, commerce and technology grew high-single digits in line with expected market growth, but in 2022 this growth was matched by the rest of the portfolio, including a resurgent performance in broader creative, PR and other communications activities. For Global Integrated Agencies, excluding GroupM, experience, commerce and technology accounted for 39%, compared to 38% in 2021 and 35% in 2019.

Clients and partners

By sector, we have had continued momentum from clients in the technology, healthcare & pharma and consumer packaged goods sectors, which together represent 55% of our revenue less pass-through costs for designated clients. On a three-year basis, these sectors recorded like-for-like growth of 27.9%, 19.4% and 21.4% respectively. At the client level, we also saw a broad commitment to investing in marketing for growth, with 14 out of our top 30 clients in 2022 showing double-digit growth.

We won $5.9 billion of net new billings in 2022. Key assignment wins include Audible, Danone, Migros, SC Johnson, Nationwide and Verizon. Key retentions included Sony Playstation, Tesco, Mars Wrigley and MasterKong. Account losses included L'Oréal (US media) and PepsiCo.

Following the Coca-Cola Company account win in 2021, this global partnership of unprecedented scale in the industry has been onboarded at pace, with expectations for further growth, as well as a strong new business pipeline, helping to underpin our overall guidance for 2023.

Our relationships with the world's largest brands continue to broaden, with 90% of WPP's top 50 clients working with five or more of our agencies, demonstrating the integrated nature of our offer.

We continue to develop new strategic partnerships with leading and emergent technology companies to build expertise, gain unique insights and develop our offering for clients.

We have recently announced several partnerships to enhance our commerce capabilities. These include a first-of-its-kind partnership with Instacart, the leading online grocery platform in North America, giving WPP early product insights, access to custom features and a co-developed certification programme; a partnership with financial infrastructure platform Stripe to enhance our digital commerce capabilities across the business; and a partnership with BigCommerce a leading Open SaaS ecommerce platform, giving WPP priority access to new product tools and data sets that will enable WPP agencies to develop unique insights, maximise omnichannel sales and optimise spend for both B2C and B2B clients. 

Agencies across WPP are using a broad range of generative artificial intelligence tools to automate workflows, speed the process of ideation and concepting, and produce innovative creative work for clients.

Creativity and awards

Our success in 2022 was again underpinned by the strength of our creative work. We were honoured to win the prestigious title of most creative company of the year at Cannes Lions International Festival of Creativity for the second year in a row. Ogilvy won global network of the year, regaining the top spot it last won in 2016.

In the 2022 WARC rankings, Ogilvy also topped the creativity ranking and placed second for effectiveness, becoming the only agency to secure top rankings in both categories and reflecting the breadth of its offer. WARC also named Mindshare the number one media agency network for the third consecutive year.

VMLY&R was recognised by Forrester as a leader in Marketing Creative and Content Services, AKQA secured two Grand Clio awards and Wunderman Thompson won the inaugural Creative B2B Grand Prix award at Cannes Lions.

Investments for growth

During the year we made a number of acquisitions investing net £237m, excluding earnout payments, to expand our presence in fast growing regions such as Latin America, and our global offer in experience, commerce and technology. Key acquisitions included: influencer marketing agency Village Marketing in North America; Bower House Digital a leading marketing technology services agency in Australia; Latin American ecommerce agency Corebiz; JeffreyGroup, one of the most respected independent corporate communications, public affairs, and marketing consulting firms in Latin America; Passport Brand Design in the US; Diff, a leading commerce agency based in Montreal; and New York-based digital transformation agency Fenom Digital.

We also continued to make organic investments to drive significant long-term growth opportunities, with a focus on unifying and accelerating our data capabilities and partnerships, embedding AI into our workflows through Satalia, and further building out our proprietary software portfolio.

Choreograph, our data company, continues to invest in its data products, allowing brands to predict relevance and drive deeper customer connections, with recent innovative work for Ford, Unilever and Bayer. Choreograph continues to play a central role in key client assignment wins, including Verizon in 2022.

In April 2022, we launched GroupM Nexus, bringing together 9,000 practitioners globally across addressable TV (Finecast), AI, retail media and commerce, programmatic (Xaxis), search and social to be the performance engine for GroupM's agencies and deliver transformational outcomes for clients across digital channels and platforms. We are continuing to see great potential for innovation and growth in this area, as brands increasingly focus more of their budgets on delivering cross-channel digital performance and as traditional TV budgets continue to follow audiences onto new platforms offering better addressability and measurement such as Connected TV. Finecast added 150 new clients in 2022 and grew strongly.

Transformation programme

Good progress has been made on our transformation programme, designed to simplify WPP, build greater collaboration, drive efficiency and free up funds for reinvestment in growth. By the end of 2022 we had delivered around £375 million of gross annual savings against a 2019 base, ahead of planned savings of £300 million, with savings across property, procurement and ways of working.

We remain comfortably on target to achieve our goal of £600 million annual cost efficiencies against a 2019 base by 2025.

Transformation cost saving enabled additional investment in talent in growth areas, allowing WPP to end 2022 with a better balance of freelance and salaried staff.

The transformation of our property estate continues, with a further five campuses opened in 2022 (Brussels, Düsseldorf, Santiago, Tokyo, Toronto), taking the total to 36, accommodating around half our people. In January we opened a new office in Guangzhou, China, and we plan to open additional offices including Atlanta, Paris and Manchester, in 2023. The programme has driven significant savings to date and our goal remains to complete at least 65 campuses, housing more than 85,000 people, by 2025.

As part of our transformation, we are consolidating and modernising our Enterprise Resource Planning and Human Capital Management tools by deploying Workday and Maconomy. We have also established 24x7 IT services capabilities for the Group, moving over 1,000 people from agency roles into WPP and establishing global hubs in Chennai, Mexico, Bucharest and Kuala Lumpur.

We continue to implement a new procurement operating model leveraging our global scale, aligned around categories and consolidating suppliers. As part of this programme, we launched an initiative in 2022 to optimise our use of flexible talent across the Group.

We have also merged more of our businesses to simplify our organisation and respond to our clients' needs for integrated solutions. Within GroupM we announced the merger of Essence and MediaCom to form EssenceMediacom and the formation of GroupM Nexus. In our specialist design agencies, we announced the merger of Design Bridge and Superunion to create a single leading design company, Design Bridge and Partners.

Purpose

WPP's purpose is to use the power of creativity to build better futures for our people, our planet, our clients and our communities. We outlined our sustainability strategy at an ESG event for stakeholders in June 2021. Since then, we have continued to make good progress in our commitments across each pillar of our purpose.

People

Throughout the year we have launched and expanded programmes across our agencies to attract, engage and develop top talent, including the Future Readiness Academies programme, a unique global learning programme, based on the four elements of WPP's offer: communications, experience, commerce and technology; to help everyone across the company gain the skills and knowledge needed for success in a growing digital world.

WPP is committed to improving diversity, equity and inclusion across the company. During the year we were pleased to appoint a new Chief Talent and Inclusion Officer, LJ Louis, who will oversee global initiatives and we continue to link our leaders' compensation and performance reviews to our DE&I goals and achievements.

Our Mental Health Allies programme has been rolled out in Singapore, following the success of the UK initiative and its extension to the United States, aimed at supporting our people and reducing stigmas around mental health. So far, we have trained over 550 Mental Health Allies and aim to continue to expand into more markets in 2023.

Recognising our commitment to building an inclusive culture, WPP achieved a top score on the Corporate Equality Index and has been named among the Best Places to Work for LGBTQ+ equality. In partnership with Choreograph, WPP Unite our company-wide LGBTQ+ community published Beyond the Rainbow, a survey of over 7,500 people in the United States, UK and Canada to better understand their perceptions and experiences of viewing LGBTQ+ identities in media and advertising.

We continue to invest in programmes to drive greater gender balance across the business. WPP's women's network, Stella, has been expanded across EMEA aiming to connect, inspire and support women across WPP to maximise their potential.

In June 2020, as part of a wider set of commitments to help combat racial injustice, WPP pledged to invest $30 million over a three-year period to fund inclusion programmes and support external organisations. WPP agencies globally are invited to apply to receive resources to create and run impactful programmes to advance racial equity. Successful third-round proposals include: Mindshare's Impact Index, an AI Human safety tool that examines the social impact of editorial content on historically underrepresented communities; WPP Belgium's Surboum from a WPP team in Belgium, a platform for companies, organisations and creatives dedicated to make the creative scene in Belgium more diverse; and Set Creative's Pathways Network, an industry-wide coalition to power diversity, equity and inclusion in suppliers across the experiential event marketing industry.

Planet

WPP has committed to reach net zero carbon emissions across its direct operations by 2025 and across its supply chain by 2030. Our net zero pledges are backed by science-based reduction targets, which have been verified by the Science-Based Targets initiative. We have committed to reducing our absolute Scope 1 and 2 emissions by at least 84% by 2025 and reduce Scope 3 emissions by at least 50% by 2030, both from a 2019 base year.

WPP is the only marketing communications company to include the emissions from media placement in our emissions reduction target. Currently, media accounts for more than half of WPP's supply chain emissions. GroupM has launched a media decarbonisation framework for measuring and reducing ad-based carbon emissions. Supporting this, GroupM has created a client coalition uniting leading advertisers, collectively representing $10 billion in global advertising investment, with a shared commitment to accelerate the decarbonisation of the world's media supply chain.

During the year, WPP was awarded a 'Prime' ESG rating by ISS, one of the world's leading rating agencies for sustainable investment. WPP received an 'A-' rating in CDP's 2022 climate change assessment for the second year in a row.

Clients

Purpose is at the heart of our offer, and we continue to support our clients on their own diversity, equity and inclusion goals. For example, Mindshare Inclusive Innovation hosted a panel with key clients and Mindshare leaders for TikTok's NextGen Diverse Creator Cohort. The goal of the panel was empower diverse creators and provide insight on the role of influencer marketing for brands, how media agencies work, on how to land a brand partnership.

In our annual survey of our client satisfaction, our key Likelihood to recommend score was 8 out of a possible 10, with Quality of work scored at 8.1 and Diversity, Equity and Inclusion scored at 8.2, maintaining the high levels achieved in the 2021 survey and showing a significant improvement over 2018-2020.

Communities

WPP is committed to making a positive contribution to the communities in which we operate. Earlier this year, WPP launched Creative Data School a learning programme for 6,000 young people aged 10-25 across the UK, designed by WPP's data and AI team, aiming to inspire young people and build their confidence in Data and AI.

In November, WPP published The Consumer Equality Equation report, a study into the relationship between ethnicity and the consumer experience in the UK, urging brands to rethink assumptions and address inequality. The report, supported by the WPP Racial Equity Programme, is an important milestone in our commitment to be a catalyst towards greater consumer equality.

 

Outlook for 2023

WPP is entering 2023 with a compelling client offer, good momentum from new business wins, and a robust balance sheet.

Our guidance for 2023 is as follows:

Like-for-like revenue less pass-through costs growth of 3-5%; further margin improvement reflecting continued operating leverage to deliver a headline margin of around 15% (excluding the impact of FX)

 

Other 2023 financial guidance:

n We also anticipate mergers and acquisitions will add 0.5-1.0% to revenue less pass-through costs growth

n Headline income from associates is expected to be around £40 million*

n Effective tax rate (measured as headline tax as a % of headline profit before tax) of around 27.0%

n Capex £300 million

n Restructuring costs of around £180 million

n Trade working capital expected to be broadly flat year-on-year with operational improvement offsetting increased client focus on cash management

n Average net debt/EBITDA within the range of 1.5x-1.75x

 

*Kantar associate income

In accordance with IAS 28: Investments in Associates and Joint Ventures once an investment in an associate reaches zero carrying value, the Group does not recognise any further losses, nor income, until the cumulative share of income returns the carrying value to above zero. At the end of 2022 WPP's cumulative reported share of losses in Kantar has reduced the carrying value of the investment to zero. This means that we expect that around £40-50 million of Kantar headline income will not be recognised in our headline income from associates during 2023.

 

Medium-term guidance

We remain confident in our ability to deliver annual revenue less pass-through costs growth of 3-4% and headline operating profit margin of 15.5-16%, as a result of the actions we have taken to broaden and strengthen our services, to increase our exposure to attractive industry segments and to leverage our global scale.

Financial results

Unaudited headline income statement[2]:

£ million	2022	2021	+/(-) % reported	+/(-) % LFL
Revenue	14,429	12,801	12.7	6.7
Revenue less pass-through costs	11,799	10,397	13.5	6.9
Operating profit	1,742	1,494	16.6	10.0
Operating profit margin %	14.8%	14.4%	0.4pt	0.4pt
Income from associates	74	86	(14.2)
PBIT	1,816	1,580	14.9
Net finance costs	(214)	(215)	0.1
Profit before tax	1,602	1,365	17.3
Tax	(409)	(328)	(24.7)
Profit after tax	1,193	1,037	15.0
Non-controlling interests	(93)	(83)	(11.7)
Profit attributable to shareholders	1,100	954	15.3
Diluted EPS	98.5p	78.5p	25.5

 

Reconciliation of profit before taxation to headline operating profit:

 

£ million	2022	2021
Profit before taxation	1,160	951
Finance and investment income	145	70
Finance costs	(359)	(284)
Revaluation and retranslation of financial instruments	76	(88)
Profit before interest and taxation	1,298	1,253
Earnings from associates - after interest and tax	60	(24)
Operating profit	1,358	1,229
Goodwill impairment	38	2
Amortisation and impairment of acquired intangible assets	62	98
Investment and other impairment charges/(reversals)	48	(42)
Intangible asset impairment	29	-
Restructuring and transformation costs	204	146
Restructuring costs in relation to COVID-19	15	30
Property related costs	18	-
Losses on disposal of investments and subsidiaries	36	10
Gains on remeasurement of equity interests arising from a change in scope of ownership	(66)	-
Litigation settlement	-	21
Headline operating profit	1,742	1,494

 

Reported revenue was up 12.7% at £14.4 billion. Reported revenue on a constant currency basis was up 7.0% compared with last year. Net changes from acquisitions, disposals had a negative impact of 0.3% on growth.

Like-for-like revenue growth for 2022 excluding the impact of currency, acquisitions and disposals, and the other adjustments, was 6.7%.

Reported revenue less pass-through costs was up 13.5%, and up 7.6% on a constant currency basis. Excluding the impact of acquisitions and disposals and the other adjustments, like-for-like growth was 6.9%. In the fourth quarter, like-for-like revenue less pass-through costs was up 6.4%.

 

Business sector review

Revenue analysis

£ million	2022	2021	+/(-) % reported	+/(-) % LFL
Global Integrated Agencies	12,191	10,890	11.9	6.9
Public Relations	1,228	959	28.1	9.4
Specialist Agencies	1,010	952	6.1	1.9
Total Group	14,429	12,801	12.7	6.7

 

Prior year figures have been re-presented to reflect the reallocation of a number of

businesses between Global Integrated Agencies and Specialist Agencies. This increases

Global Integrated Agencies' Q4 and FY 2021 revenue by £13 million and £54 million

respectively and reduces Specialist Agencies' by the same amount.

Revenue less pass-through costs analysis

£ million	2022	2021	+/(-) % reported	+/(-) % LFL
Global Integrated Agencies	9,742	8,683	12.2	6.9
Public Relations	1,157	910	27.1	8.2
Specialist Agencies	900	804	11.9	5.6
Total Group	11,799	10,397	13.5	6.9

 

Prior year figures have been re-presented to reflect the reallocation of a number of businesses between Global Integrated Agencies and Specialist Agencies. This increases Global Integrated Agencies' Q4 and FY 2021 revenue less pass-through costs by £11 million and £44 million respectively and reduces Specialist Agencies' by the same amount.

Headline operating profit analysis

£ million	2022	% margin*	2021	% margin*
Global Int. Agencies	1,432	14.7	1,222	14.1
Public Relations	191	16.5	143	15.7
Specialist Agencies	119	13.2	129	16.0
Total Group	1,742	14.8	1,494	14.4

* Headline operating profit as a percentage of revenue less pass-through costs

Prior year figures have been re-presented to reflect the reallocation of a number of businesses between Global Integrated Agencies and Specialist Agencies. This increases Global Integrated Agencies' 2021 headline operating profit by £6 million and reduces Specialist Agencies' by the same amount.

Global Integrated Agencies reported revenue was up 18.7% in the final quarter. Like-for-like revenue less pass-through costs was up 6.6% in the final quarter, and up 9.8% on a three-year basis. GroupM, which represented 37% of WPP's revenue less pass-through costs in the fourth quarter, was up 8.8% like-for-like. The other integrated agencies all recorded broadly similar levels of growth. For the full year, like-for-like revenue less pass-through costs for the segment was up 6.9%, and up 9.5% over three years.

Public Relations reported revenue was up 30.1% in the final quarter. Like-for-like revenue less pass-through costs was up 6.5% in the final quarter, and up 17.5% on a three-year basis. All agencies continued to grow well, with Hill + Knowlton Strategies growing strongly. During the period we launched FGS Global, the new name and branding for the merger of Finsbury Glover Hering and Sard Verbinnen. For the full year, like-for-like revenue less pass-through costs for the segment was up 8.2%, and up 15.9% over three years.

 

Specialist Agencies reported revenue was up 19.3% in the final quarter. Like-for-like revenue less pass-through costs was up 4.4% in the final quarter, and up 8.7% on a three-year basis. For the full year, like-for-like revenue less pass-through costs for the segment was up 5.6%, and up 13.8% over three years.

Regional review

Revenue analysis

£ million	2022	2021	+/(-) % reported	+/(-) % LFL
N. America	5,550	4,494	23.5	7.8
United Kingdom	2,004	1,867	7.3	6.3
W. Cont Europe	2,876	2,786	3.2	4.8
AP, LA, AME, CEE[3]	3,999	3,654	9.5	7.0
Total Group	14,429	12,801	12.7	6.7

 

Revenue less pass-through costs analysis

£ million	2022	2021	+/(-) % reported	+/(-) % LFL
N. America	4,688	3,849	21.8	6.6
United Kingdom	1,537	1,414	8.7	7.6
W. Cont Europe	2,319	2,226	4.2	5.5
AP, LA, AME, CEE	3,255	2,908	11.9	8.0
Total Group	11,799	10,397	13.5	6.9

 

Headline operating profit analysis

£ million	2022	% margin*	2021	% margin*
N. America	771	16.4	656	17.0
United Kingdom	187	12.3	181	12.8
W Cont. Europe	301	13.0	289	13.0
AP, LA, AME, CEE	483	14.8	368	12.7
Total Group	1,742	14.8	1,494	14.4

* Headline operating profit as a percentage of revenue less pass-through costs

North America reported revenue was up 30.6% in the final quarter. Like-for-like revenue less pass-through costs was up 3.4% in the final quarter, and up 8.6% on a three-year basis. The US continued to grow at a high-single-digit rate, led by Ogilvy, Hogarth and GroupM. On a full year basis, like-for-like revenue less pass-through costs in North America was up 6.6%, and up 10.2% over three years.

United Kingdom reported revenue was up 24.3% in the final quarter. Like-for-like revenue less pass-through costs was up 12.0% in the final quarter, and up 14.0% on a three-year basis. GroupM and Hogarth were the strongest performers. On a full year basis, like-for-like revenue less pass-through costs was up 7.6%, and up 10.8% over three years.

Western Continental Europe reported revenue was up 12.7% in the final quarter. Like-for-like revenue less pass-through costs was up 8.7% in the final quarter, and up 12.7% on a three-year basis. Spain was the strongest performer in the quarter, up 38.6% driven by good growth Ogilvy and Wunderman Thompson. France declined 12.2% in the quarter and 18.7% over three years reflecting the full year impact of client losses in 2021. On a full year basis, like-for-like revenue less pass-through costs in the region was up 5.5%, and up 11.0% over three years.

In Asia Pacific, Latin America, Africa & the Middle East and Central & Eastern Europe, reported revenue was up 10.4% in the final quarter. Like-for-like revenue less pass-through costs was up 5.9% in the final quarter, and up 8.7% on a three-year basis. In Latin America growth benefited from a strong performance in Brazil and very strong growth in Argentina, while Asia Pacific continued to be negatively impacted by COVID-related restrictions in China. On a full year basis, like-for-like revenue less pass-through costs was up 8.0%, and up 8.8% over three years.

The decline of like-for-like revenue less pass-through costs in China in Q4 reflected widespread COVID-related lockdowns during the quarter. Policy changes and the subsequent re-opening late in the quarter is expected to benefit WPP later in 2023 with media and programmatic business recovering first, followed by creative activities.

Operating profitability

Reported profit before tax was £1.2 billion, compared to a profit of £1.0 billion in 2021, reflecting the strong operating performance.

Reported profit after tax was £0.8 billion compared to a profit in 2021 of £0.7 billion.

Headline EBITDA (including IFRS 16 depreciation) for 2022 was up 14.5% to £2.0 billion, compared to £1.8 billion the previous year. Headline operating profit was up 16.6% to £1.7 billion. The significant growth in profitability year-on-year reflects revenue growth and the progress on our transformation programme, with £375 million of gross savings towards our 2025 annual run rate target of £600 million.

Headline operating profit margin was up 40 basis points to 14.8%, and up 40 basis points like-for-like. Staff costs pre-incentives were a 240 basis points drag on margin, reflecting the tight labour market and inflationary backdrop. Personal costs were a 50 basis points drag as travel and in-person meetings recommenced. Offsetting tailwinds were staff incentives (210 basis points), establishment costs (50 basis points), IT costs (30 basis points) and other operating costs (40 basis points).

The Group's headline operating profit margin is after charging £44 million of severance costs, compared with £42 million in 2021 and £424 million of incentive payments, compared to £592 million in 2021.

The average number of people in the Group in 2022 was 114,129 compared to 104,808 in 2021. The total number of people at 31 December 2022 was 115,473 compared to 109,382 at 31 December 2021.

Adjusting items

The Group incurred a net loss from adjusting items of £341 million in 2022. This comprises the Group's share of adjusting items from associates (£134 million), restructuring and transformation costs (£219 million) and other net gains from adjusting items (£12 million). Restructuring and transformation costs mainly comprise severance and property-related costs arising from the continuing structural review of parts of the Group's operations, investments in IT and ERP systems as part of our transformation programme. This compares with a net loss from adjusting items in 2021 of £270 million.

Interest and taxes

Net finance costs (excluding the revaluation and retranslation of financial instruments) were £214 million, a decrease of £1 million year-on-year.

The reported tax charge was £384 million (2021: £230 million). The headline tax rate (measured on headline profit before tax, including associate income) was 25.5% (2021: 24.0%). Given the Group's geographic mix of profits and the changing international tax environment, the tax rate is expected to be around 27.0% in 2023, and to continue to increase in the next few years.

Earnings and dividend

Reported profit before tax was up 22.0% to £1.2 billion. Headline profit before tax was up 17.3% to £1.6 billion, and headline profits attributable to share owners were £1.1 billion.

Reported diluted earnings per share were 61.2 pence, compared to 52.5 pence in the prior period. Headline diluted earnings per share were up 25.5% to 98.5 pence.

The Board is proposing a final dividend for 2022 of 24.4 pence per share, which together with the interim dividend paid in November 2022 gives a full-year dividend of 39.4 pence per share. The record date for the final dividend is 9 June 2023, and the dividend will be payable on 7 July 2023.

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

Cash flow highlights

Twelve months ended (£ million)	31 December 2022		31 December 2021
Operating profit		1,358	1,229
Depreciation and amortisation		513	542
Investment and other impairment charges/(reversals)		158	(1)
Lease payments (inc interest)		(402)	(409)
Non-cash compensation		122	100
Net interest paid		(121)	(126)
Tax paid		(391)	(391)
Capex		(223)	(293)
Earnout payments		(71)	(57)
Other		(43)	(31)
Trade working capital		(328)	319
Other receivables, payables and provisions		(519)	383
Adjusted free cash flow[4]		53	1,265
Disposal proceeds		51	77
Net initial acquisition payments		(274)	(464)
Dividends		(365)	(315)
Share repurchases and buybacks		(863)	(819)
Net cash flow		(1,398)	(256)

 

In 2022, net cash outflow was £1,398 million, compared to a £256 million outflow in 2021. The main driver of the cash flow performance year-on-year was the £328 million adverse movement in trade working capital lapping positive movement in the prior year, driven by year-end mix and timing factors, the £519 million adverse movement in other receivables, payables and provisions was driven by a reduction in staff incentives payable, prepayments and year-end mix and timing factors associated with VAT, growth in the dividend and the increase in the share buyback. A summary of the Group's unaudited cash flow statement and notes for the twelve months to 31 December 2022 is provided in Appendix 1.

Balance sheet highlights

As at 31 December 2022 we had cash and cash equivalents of £2.1 billion and total liquidity, including undrawn credit facilities, of £4.1 billion. Average adjusted net debt in 2022 was £2.9 billion, compared to £1.6 billion in the prior period, at 2022 exchange rates. On 31 December 2022 adjusted net debt was £2.5 billion, against £0.9 billion on 31 December 2021, an increase of £1.4 billion at 2022 exchange rates. The higher adjusted net debt figure mainly reflects the £1,172 million returned to shareholders in 2022 comprising £807 million of share buybacks completed and £365 million of dividends paid.

We spent £863 million on share purchases during the year, of which £807 million

related to share buybacks.

Around £50 million of share repurchases planned for 2023 continuing to offset dilution from share-based payments.

Our bond portfolio at 31 December 2022 had an average maturity of 6.4 years.

The average adjusted net debt to EBITDA ratio in the 12 months to 31 December 2022 is 1.46x, which excludes the impact of IFRS 16. This is slightly below our target range of 1.5 - 1.75x average adjusted net debt to EBITDA.

A summary of the Group's unaudited balance sheet and notes as at 31 December 2022 is provided in Appendix 1.

Foreign exchange sensitivity

Foreign exchange rates at 22nd February 2023 imply around a 1% tailwind to reported revenue less pass-through costs in 2023 from the movement in sterling year-on-year.

Management change

In November, we announced that Chief Financial Officer John Rogers has decided to step down from the company. The Board has appointed Joanne Wilson to succeed John as Chief Financial Officer. Joanne is currently Chief Financial Officer at Britvic plc (LSE:BVIC), the UK-listed international soft drinks company. It is expected that Joanne will join WPP in the first half of 2023. To ensure a smooth transition, John will remain available until later in 2023.

 

 

 

 

Appendix 1: Preliminary results for the year ended 31 December 2022

Unaudited preliminary consolidated income statement for the year ended 31 December 2022

 

£ million	Notes	2022	2021
Revenue	7	14,428.7	12,801.1
Costs of services	4	(11,890.1)	(10,597.5)
Gross profit		2,538.6	2,203.6
General and administrative costs	4	(1,180.4)	(974.6)
Operating profit		1,358.2	1,229.0
Earnings from associates - after interest and tax	5	(60.4)	23.8
Profit before interest and taxation		1,297.8	1,252.8
Finance and investment income	6	145.4	69.4
Finance costs	6	(359.4)	(283.6)
Revaluation and retranslation of financial instruments	6	76.0	(87.8)
Profit before taxation		1,159.8	950.8
Taxation	8	(384.4)	(230.1)
Profit for the year		775.4	720.7
Attributable to:
Equity holders of the parent		682.7	637.7
Non-controlling interests		92.7	83.0
		775.4	720.7
Earnings per share
Basic earnings per ordinary share	10	62.2p	53.4p
Diluted earnings per ordinary share	10	61.2p	52.5p

 

 

 

The accompanying notes form an integral part of this unaudited preliminary consolidated income statement.

 

Unaudited preliminary consolidated statement of comprehensive income for the year ended 31 December 2022

 

£ million		2022	2021
Profit for the year		775.4	720.7
Items that may be reclassified subsequently to profit or loss:
Exchange adjustments on foreign currency net investments1		424.2	(143.0)
(Loss)/gain on net investment hedges		(141.5)	45.5
Cash flow hedges:1
Fair value gain/(loss) arising on hedging instruments		38.5	(38.0)
Less: (loss)/gain reclassified to profit or loss		(38.5)	38.0
Share of other comprehensive income of associates undertakings		51.2	13.5
		333.9	(84.0)
Items that will not be reclassified subsequently to profit or loss:
Movements on equity investments held at fair value through other comprehensive income		(22.3)	(35.5)
Actuarial gain on defined benefit pension plans		16.6	14.3
Deferred tax on defined benefit pension plans		(7.4)	(3.0)
		(13.1)	(24.2)
Other comprehensive income/(loss) relating to the year		320.8	(108.2)
Total comprehensive income relating to the year		1,096.2	612.5
Attributable to:
Equity holders of the parent		988.3	539.8
Non-controlling interests		107.9	72.7
		1,096.2	612.5

 

 

 

The accompanying notes form an integral part of this unaudited preliminary consolidated statement of comprehensive income.

¹ Balance for the year ended 31 December 2021 has been re-presented following a £38.0 million reclassification between the Hedging Reserve and Translation Reserves.

 

Unaudited preliminary consolidated cash flow statement for the year ended

31 December 2022

 

 

£ million	Notes	2022	2021
Net cash inflow from operating activities1	11	700.9	2,029.0
Investing activities
Acquisitions1	11	(236.2)	(382.3)
Disposals of investments and subsidiaries	11	37.7	28.3
Purchase of property, plant and equipment		(208.4)	(263.2)
Purchase of other intangible assets (including capitalised computer software)		(14.9)	(29.9)
Proceeds on disposal of property, plant and equipment		12.9	8.7
Net cash outflow from investing activities		(408.9)	(638.4)
Financing activities
Repayment of lease liabilities		(309.6)	(320.7)
Share option proceeds		1.2	4.4
Cash consideration received from non-controlling interests	11	-	39.5
Cash consideration for purchase of non-controlling interests	11	(84.2)	(135.0)
Share repurchases and buy-backs	11	(862.7)	(818.5)
Repayment of borrowings	11	(220.6)	(397.1)
Financing and share issue costs		(0.2)	(0.4)
Equity dividends paid		(365.4)	(314.7)
Dividends paid to non-controlling interests in subsidiary undertakings		(69.5)	(114.5)
Net cash outflow from financing activities		(1,911.0)	(2,057.0)
Net decrease in cash and cash equivalents		(1,619.0)	(666.4)
Translation of cash and cash equivalents		64.2	(130.1)
Cash and cash equivalents at beginning of year		3,540.6	4,337.1
Cash and cash equivalents at end of year	12	1,985.8	3,540.6

 

 

 

 

The accompanying notes form an integral part of this unaudited preliminary consolidated cash flow statement.

¹ Earnout payments in excess of the amount determined at acquisition are recorded as operating activities. Prior year excess amounts were recorded as investing activities and have been re-presented as operating activities.

 

 

 

 

 

 

Unaudited preliminary consolidated balance sheet as at 31 December 2022

 

£ million	Notes	2022	2021
Non-current assets
Intangible assets:
Goodwill	13	8,453.4	7,612.3
Other	14	1,451.9	1,359.5
Property, plant and equipment		1,000.7	896.4
Right-of-use assets		1,528.5	1,395.1
Interests in associates and joint ventures		305.1	412.9
Other investments		369.8	318.3
Deferred tax assets		322.1	341.5
Corporate income tax recoverable		74.1	46.6
Trade and other receivables	15	218.6	152.6
		13,724.2	12,535.2
Current assets
Corporate income tax recoverable		107.1	90.4
Trade and other receivables	15	12,499.7	11,362.3
Cash and short-term deposits		2,491.5	3,882.9
		15,098.3	15,335.6
Current liabilities
Trade and other payables	16	(15,834.9)	(15,252.3)
Corporate income tax payable		(422.0)	(386.2)
Short-term lease liabilities		(282.4)	(279.7)
Bank overdrafts, bonds and bank loans		(1,169.0)	(567.2)
		(17,708.3)	(16,485.4)
Net current liabilities		(2,610.0)	(1,149.8)
Total assets less current liabilities		11,114.2	11,385.4
Non-current liabilities
Bonds and bank loans		(3,801.8)	(4,216.8)
Trade and other payables	17	(490.9)	(619.9)
Deferred tax liabilities		(350.8)	(312.5)
Provisions for post-employment benefits		(137.5)	(136.6)
Provisions for liabilities and charges		(244.6)	(268.5)
Long-term lease liabilities		(1,928.2)	(1,762.1)
		(6,953.8)	(7,316.4)
Net assets		4,160.4	4,069.0
Equity
Called-up share capital	18	114.1	122.4
Share premium account		575.9	574.7
Other reserves		285.2	(335.9)
Own shares		(1,054.1)	(1,112.1)
Retained earnings		3,759.7	4,367.3
Equity shareholders' funds		3,680.8	3,616.4
Non-controlling interests		479.6	452.6
Total equity		4,160.4	4,069.0

 

 

 

 

The accompanying notes form an integral part of this unaudited preliminary consolidated balance sheet.

 

 

Unaudited preliminary consolidated statement of changes in equity for the year ended 31 December 2022

£ million	Called-up share capital	Share premium account	Other reserves	Own shares	Retained earnings1	Total equity share holders' funds	Non- controlling interests	Total
Balance at 1 January 2021	129.6	570.3	191.2	(1,118.3)	4,959.2	4,732.0	318.1	5,050.1
Ordinary shares issued	-	4.4	-	-	-	4.4	-	4.4
Share cancellations	(7.2)	-	7.2	-	(729.3)	(729.3)	-	(729.3)
Treasury share allocations	-	-	-	3.7	(3.7)	-	-	-
Profit for the year	-	-	-	-	637.7	637.7	83.0	720.7
Exchange adjustments on foreign currency net investments2	-	-	(132.7)	-	-	(132.7)	(10.3)	(143.0)
Gain on net investment hedges	-	-	45.5	-	-	45.5	-	45.5
Cash flow hedges2:
Fair value loss arising on hedging instruments	-	-	(38.0)	-	-	(38.0)	-	(38.0)
Less: gain reclassified to profit or loss	-	-	38.0	-	-	38.0	-	38.0
Share of other comprehensive income of associates undertakings	-	-	7.3	-	6.2	13.5	-	13.5
Movements on equity investments held at fair value through other comprehensive income	-	-	-	-	(35.5)	(35.5)	-	(35.5)
Actuarial gain on defined benefit pension plans	-	-	-	-	14.3	14.3	-	14.3
Deferred tax on defined benefit pension plans	-	-	-	-	(3.0)	(3.0)	-	(3.0)
Other comprehensive loss	-	-	(79.9)	-	(18.0)	(97.9)	(10.3)	(108.2)
Total comprehensive (loss)/income	-	-	(79.9)	-	619.7	539.8	72.7	612.5
Dividends paid	-	-	-	-	(314.7)	(314.7)	(114.5)	(429.2)
Non-cash share-based incentive plans (including share options)	-	-	-	-	99.6	99.6	-	99.6
Tax adjustment on share-based payments	-	-	-	-	15.4	15.4	-	15.4
Net movement in own shares held by ESOP Trusts	-	-	-	2.5	(91.7)	(89.2)	-	(89.2)
Recognition/derecognition of liabilities in respect of put options	-	-	(242.7)	-	1.1	(241.6)	-	(241.6)
Share purchases - close period commitments3	-	-	(211.7)	-	-	(211.7)	-	(211.7)
Share of other equity movements of associates	-	-	-	-	(8.0)	(8.0)	-	(8.0)
Acquisition of subsidiaries4	-	-	-	-	(180.3)	(180.3)	176.3	(4.0)
Balance at 31 December 2021	122.4	574.7	(335.9)	(1,112.1)	4,367.3	3,616.4	452.6	4,069.0
Ordinary shares issued	-	1.2	-	-	-	1.2	-	1.2
Share cancellations	(8.3)	-	8.3	-	(807.4)	(807.4)	-	(807.4)
Treasury share allocations	-	-	-	-	-	-		-
Profit for the year	-	-	-	-	682.7	682.7	92.7	775.4
Exchange adjustments on foreign currency net investments	-	-	409.0	-	-	409.0	15.2	424.2
Loss on net investment hedges	-	-	(141.5)	-	-	(141.5)	-	(141.5)
Cash flow hedges:
Fair value gain arising on hedging instruments	-	-	38.5	-	-	38.5	-	38.5
Less: loss reclassified to profit or loss	-	-	(38.5)	-	-	(38.5)	-	(38.5)
Share of other comprehensive income of associates undertakings	-	-	31.9	-	19.3	51.2	-	51.2
Movements on equity investments held at fair value through other comprehensive income	-	-	-	-	(22.3)	(22.3)	-	(22.3)
Actuarial gain on defined benefit pension plans	-	-	-	-	16.6	16.6	-	16.6
Deferred tax on defined benefit pension plans	-	-	-	-	(7.4)	(7.4)	-	(7.4)
Other comprehensive income	-	-	299.4	-	6.2	305.6	15.2	320.8
Total comprehensive income	-	-	299.4	-	688.9	988.3	107.9	1,096.2
Dividends paid	-	-	-	-	(365.4)	(365.4)	(69.5)	(434.9)
Non-cash share-based incentive plans (including share options)	-	-	-	-	122.0	122.0	-	122.0
Tax adjustment on share-based payments	-	-	-	-	(9.2)	(9.2)	-	(9.2)
Net movement in own shares held by ESOP Trusts	-	-	-	58.0	(113.3)	(55.3)	-	(55.3)
Recognition/derecognition of liabilities in respect of put options	-	-	101.7	-	(40.3)	61.4	-	61.4
Share purchases - close period commitments3	-	-	211.7	-	-	211.7	-	211.7
Share of other equity movements of associates	-	-	-	-	-	-	-	-
Acquisition of subsidiaries4	-	-	-	-	(82.9)	(82.9)	(11.4)	(94.3)
Balance at 31 December 2022	114.1	575.9	285.2	(1,054.1)	3,759.7	3,680.8	479.6	4,160.4

The accompanying notes form an integral part of this unaudited preliminary consolidated statement of changes in equity.

¹ Accumulated losses on existing equity investments held at fair value through other comprehensive income are £330.8 million at 31 December 2022 (2021: £308.5 million).

² Balance for the year ended 31 December 2021 has been re-presented following a £38.0 million reclassification between the Hedging Reserve and Translation Reserves.

³ During 2021, the Company entered into an arrangement with a third party to conduct share buybacks on its behalf in the close period commencing on 16 December 2021 and ending on 18 February 2022, in accordance with UK listing rules. The commitment resulting from this agreement constituted a liability at 31 December 2021 and was recognised as a movement in other reserves in the year ended 31 December 2021. After the close period ended on 18 February 2022, the liability was settled and the amount in other reserves was reclassified to retained earnings.

⁴ Acquisition of subsidiaries represents movements in retained earnings and non-controlling interests arising from changes in ownership of existing subsidiaries and recognition of non-controlling interests on new acquisitions.

 

 

Notes to the unaudited preliminary consolidated financial statements

 

1. Basis of accounting

 

The unaudited preliminary consolidated financial statements are prepared under the historical cost convention, except for the revaluation of certain financial instruments as disclosed in our accounting policies.

 

2. Accounting policies

 

The unaudited preliminary consolidated financial statements comply with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) as they apply to the financial statements of the Group. With the exception of the adoption of hedge accounting requirements under IFRS 9 Financial Instruments, which is discussed below, no changes have been made to the Group's accounting policies in the year ended 31 December 2022. The Group does not consider that the amendments to standards adopted during the year have a significant impact on the financial statements.

 

Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with all IFRS disclosure requirements. The Company's 2022 Annual Report and Accounts will be prepared in compliance with IFRS. The unaudited preliminary announcement does not constitute a dissemination of the annual financial report and does not therefore need to meet the dissemination requirements for annual financial reports. A separate dissemination announcement in accordance with Disclosure and Transparency Rules (DTR) 6.3 will be made when the annual report and audited financial statements are available on the Company's website.

 

Impact of the adoption of hedge accounting under IFRS 9 Financial Instruments

The Group has elected to adopt the hedge accounting requirements of IFRS 9 Financial Instruments from 1 January 2022. The IFRS 9 hedge accounting requirements are applied prospectively, and all hedge arrangements in place at the point of transition are regarded as continuing hedging relationships under IFRS 9. Accordingly, prior year financial information has not been restated and will continue to be reported under IAS 39. There has been no significant impact on the financial statements as a result of the adoption of IFRS 9 hedge accounting requirements, both at the point of transition and in the year ended 31 December 2022.

 

Statutory information

The financial information included in this preliminary announcement does not constitute statutory accounts. The statutory accounts for the year ended 31 December 2021 have been delivered to the Jersey Registrar and received an unqualified auditors' report. The statutory accounts for the year ended 31 December 2022 will be finalised on the basis of the financial information presented by the directors in this unaudited preliminary announcement and will be delivered to the Jersey Registrar following the Company's General Meeting. The audit report for the year ended 31 December 2022 has yet to be signed. The announcement of the preliminary results was approved on behalf of the board of directors on 23 February 2023.

 

3. Currency conversion

 

The presentation currency of the Group is pound sterling and the unaudited preliminary consolidated financial statements have been prepared on this basis.

 

The 2022 unaudited preliminary consolidated income statement is prepared using, among other currencies, average exchange rates of US$1.2363 to the pound (2021: US$1.3757) and €1.1733 to the pound (2021:

€1.1633). The unaudited preliminary consolidated balance sheet as at 31 December 2022 has been prepared using the exchange rates on that day of US$1.2083 to the pound (2021: US$1.3532) and €1.1295 to the pound (2021: €1.1893).

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

4. Costs of services and general and administrative costs

 

£ million	2022	2021
Costs of services	11,890.1	10,597.5
General and administrative costs	1,180.4	974.6
	13,070.5	11,572.1

 

Costs of services and general and administrative costs include:

 

£ million	2022	2021
Staff costs	8,165.8	7,166.7
Establishment costs	536.0	529.0
Media pass-through costs	1,905.7	1,865.3
Other costs of services and general and administrative costs1	2,463.0	2,011.1
	13,070.5	11,572.1

 

Staff costs include:

 

£ million	2022	2021
Wages and salaries	5,721.0	4,797.2
Cash-based incentive plans	292.6	455.2
Share-based incentive plans	122.0	99.6
Social security costs	689.4	630.1
Pension costs	204.8	177.7
Severance	44.2	41.8
Other staff costs	1,091.8	965.1
	8,165.8	7,166.7

 

Other costs of services and general and administrative costs include:

 

£ million	2022	2021
Goodwill impairment	37.9	1.8
Amortisation and impairment of acquired intangible assets	62.1	97.8
Investment and other impairment charges/(reversals)	48.0	(42.4)
Intangible asset impairment	29.0	-
Restructuring and transformation costs	203.7	145.5
Restructuring costs in relation to COVID-19	15.1	29.9
Property related costs	18.0	-
Losses on disposal of investments and subsidiaries	36.3	10.6
Gains on remeasurement of equity interests arising from a change in scope of ownership	(66.5)	-
Litigation settlement	-	21.3
Amortisation of other intangible assets	21.9	19.9
Depreciation of property, plant and equipment	166.9	151.2
Depreciation of right-of-use assets	262.2	272.9
Short-term lease expense	20.2	18.0
Low-value lease expense	1.9	2.3

 

In 2022, operating profit includes credits totalling £29.3 million (2021: £19.3 million) relating to the release of  provisions and other balances established in respect of acquisitions completed prior to 2021.

 

The goodwill impairment charge of £37.9 million in 2022 (2021: £1.8 million) relates to a number of  businesses in the Group and investments where the impact of increases in discount rates and current, local economic conditions and trading circumstances is sufficiently severe to indicate impairment to the carrying value.

 

¹ Other costs of services and general and administrative costs include £723.7 million (2021: £538.6 million) of other pass-through costs.

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

 

4. Costs of services and general and administrative costs (continued)

 

Amortisation and impairment of acquired intangible assets of £62.1 million (2021: £97.8 million) includes an impairment charge in the year of £1.4 million (2021: £47.9 million) in regard to certain brand names that are no longer in use.

 

The investment and other impairment charges of £48.0 million (2021: reversal of £42.4 million) relate to the same macro-economic factors noted above. The reversal in the prior year for investments primarily relates to the partial reversal of a £255.6 million impairment taken in 2020 relating to Imagina, an associate in Spain.

 

Intangible asset impairment of £29.0 million in 2022 (2021: £nil) relates to the write off of capitalised configuration and customisation costs related to a software development project.

 

Restructuring and transformation costs of £203.7 million (2021: £145.5 million) include £134.5 million (2021: £94.2 million) in relation to the Group's IT transformation programme. This programme will allow technology to become a competitive advantage in the market as our clients, and their clients, move to an ever-increasing digital world. It includes costs of £96.8 million (2021: £62.2 million) in relation to the rollout of a new ERP system in order to drive efficiency and collaboration throughout the Group. The remaining £69.2 million relates to the continuing restructuring plan. As part of that plan, restructuring actions have been taken to right-size under-performing businesses, address high-cost severance markets and simplify operational structures.

 

Restructuring costs in relation to COVID-19 of £15.1 million (2021: £29.9 million) primarily relate to property costs which the Group undertook in response to the COVID-19 pandemic.

 

Property related costs include further right-of-use assets impairment taken for properties that were previously impaired due to challenging conditions in the subletting market. In 2022, £18.0 million (2021: £nil) were incurred.

 

Losses on disposal of investments and subsidiaries of £36.3 million in 2022 (2021: £10.6 million) primarily includes a loss of £63.1 million on the divestment of our Russian interests which completed in May 2022. This was partially offset by gains on other disposals during the period including Res Publica for £17.7 million and Mutual Mobile for £9.4 million with the remaining gains/losses due to individually insignificant transactions.

 

Gains on remeasurement of equity interests arising from a change in scope of ownership of £66.5 million comprises a gain in relation to the reclassification of the Group's interest in Imagina in Spain from interests in associates to other investments.

5. Earnings from associates - after interest and tax

 

Earnings from associates - after interest and tax include:

 

£ million	2022	2021
Share of profit before interest and taxation	219.6	208.5
Share of adjusting items	(134.3)	(62.3)
Share of interest and non-controlling interests	(104.7)	(83.9)
Share of taxation	(41.0)	(38.5)
	(60.4)	23.8

 

Share of adjusting items of £134.3 million (2021: £62.3 million) primarily comprise £75.8 million (2021: £38.8 million) of amortisation and impairment of acquired intangible assets as well as restructuring and one-off transaction costs of £54.8 million (2021: £18.8 million) within Kantar.

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

 

6. Finance and investment income, finance costs and revaluation and retranslation of financial instruments

 

Finance and investment income includes:

 

£ million	2022	2021
Income from equity investments	24.5	17.9
Interest income	120.9	51.5
	145.4	69.4

 

Finance costs include:

 

£ million	2022	2021
Net interest expense on pension plans	2.2	1.8
Interest on other long-term employee benefits	3.7	2.4
Interest payable and similar charges	257.8	188.5
Interest expense related to lease liabilities	95.7	90.9
	359.4	283.6

 

Revaluation and retranslation of financial instruments include:

 

£ million	2022	2021
Movements in fair value of treasury instruments	0.5	9.1
Premium on the early repayment of bonds	-	(13.0)
Revaluation of investments held at fair value through profit or loss	23.1	(7.5)
Revaluation of put options over non-controlling interests	27.9	(40.6)
Revaluation of payments due to vendors (earnout agreements)	26.2	(58.7)
Retranslation of financial instruments	(1.7)	22.9
	76.0	(87.8)

 

 

 

 

 

 

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

 

7. Segmental analysis

 

Reported contributions by operating sector were as follows:

 

£ million	2022	20211
Revenue
Global Integrated Agencies	12,191.0	10,890.5
Public Relations	1,228.3	959.0
Specialist Agencies	1,009.4	951.6
	14,428.7	12,801.1
Revenue less pass-through costs2
Global Integrated Agencies	9,742.8	8,683.1
Public Relations	1,157.0	909.7
Specialist Agencies	899.5	804.4
	11,799.3	10,397.2
Headline operating profit3
Global Integrated Agencies	1,432.4	1,221.8
Public Relations	190.8	143.1
Specialist Agencies	118.6	128.6
	1,741.8	1,493.5

 

Reported contributions by geographical area were as follows:

 

£ million	2022	2021
Revenue
North America4	5,549.5	4,494.2
United Kingdom	2,003.8	1,866.9
Western Continental Europe	2,876.2	2,786.3
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe	3,999.2	3,653.7
	14,428.7	12,801.1
Revenue less pass-through costs2
North America4	4,688.1	3,849.2
United Kingdom	1,537.2	1,414.3
Western Continental Europe	2,318.5	2,225.4
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe	3,255.5	2,908.3
	11,799.3	10,397.2
Headline operating profit3
North America4	770.4	655.7
United Kingdom	187.1	180.9
Western Continental Europe	301.3	288.6
Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe	483.0	368.3
	1,741.8	1,493.5

 

¹ Prior year figures have been re-presented to reflect the reallocation of a number of businesses between Global Integrated Agencies and Specialist Agencies.

²  Revenue less pass-through costs is defined in Appendix 2.

³ Headline operating profit is defined in Appendix 2. A reconciliation from reported profit before tax to headline operating profit is also provided in Appendix 2

⁴ North America includes the US with revenue of £5,230.9 million (2021: £4,220.8 million), revenue less pass-through costs of £4,402.0 million (2021: £3,597.4 million) and headline operating profit of £727.6 million (2021: £615.2 million).

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

8. Taxation

 

The tax rate on reported profit before tax was 33.1% (2021: 24.2%). The tax charge comprises:

 

 

£ million	2022	2021
Corporation tax
Current year	425.8	404.0
Prior years	(55.5)	(41.4)
	370.3	362.6
Deferred tax
Current year	9.4	(131.0)
Prior years	4.7	(1.5)
	14.1	(132.5)
Tax charge	384.4	230.1

 

The tax charge may be affected by the impact of acquisitions, disposals and other corporate restructurings, the resolution of open tax issues, and the ability to use brought forward tax losses. Changes in local or international tax rules, for example, increasing tax rates as a consequence of the financial support programmes implemented by governments during the COVID-19 pandemic, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, and changes arising from the application of existing rules or challenges by tax or competition authorities, may expose the Group to additional tax liabilities or impact the carrying value of deferred tax assets, which could affect the future tax charge.

 

Liabilities relating to open and judgemental matters are based upon an assessment of whether the tax authorities will accept the position taken, after considering external advice where appropriate. Where the final tax outcome of these matters is different from the amounts which were initially recorded then such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Group does not currently consider that judgements made in assessing tax liabilities have a significant risk of resulting in any material additional charges or credits in respect of these matters, within the next financial year, beyond the amounts already provided.

 

Following the enactment in 2021 of an increase in the UK corporation tax rate from 19% to 25% from 1 April 2023, the Group remeasured UK deferred tax balances accordingly and recognised a tax credit of £23.8 million in the prior period.

 

9. Ordinary dividends

 

The Board has recommended a final dividend of 24.4p (2021: 18.7p) per ordinary share in addition to the interim dividend of 15.0p (2021: 12.5p) per share. This makes a total for the year of 39.4p (2021: 31.2p). Payment of the final dividend of 24.4p per ordinary share will be made on 07 July 2023 to holders of ordinary shares in the Company on 09 June 2023.

 

 

 

 

Notes to the unaudited preliminary consolidated financial statements (continued)

 

10. Earnings per share

 

Basic EPS

 

The calculation of basic reported and headline EPS is as follows:

 

	2022	2021
Reported earnings1 (£ million)	682.7	637.7
Headline earnings2 (£ million)	1,100.2	954.5
Weighted average shares used in basic EPS calculation (million)	1,097.9	1,194.1
Reported EPS	62.2p	53.4p
Headline EPS	100.2p	79.9p

 

Diluted EPS

 

The calculation of diluted reported and headline EPS is as follows:

 

 

	2022	2021
Diluted reported earnings (£ million)	682.7	637.7
Diluted headline earnings (£ million)	1,100.2	954.5
Weighted average shares used in diluted EPS calculation (million)	1,116.4	1,215.3
Diluted reported EPS	61.2p	52.5p
Diluted headline EPS	98.5p	78.5p

 

A reconciliation between the shares used in calculating basic and diluted EPS is as follows:

 

million	2022	2021
Weighted average shares used in basic EPS calculation	1,097.9	1,194.1
Dilutive share options outstanding	0.7	1.3
Other potentially issuable shares	17.8	19.9
Weighted average shares used in diluted EPS calculation	1,116.4	1,215.3

 

At 31 December 2022 there were 1,141,427,296 (2021: 1,224,459,550) ordinary shares in issue, including treasury shares of 70,489,953 (2021: 70,489,953).

 

 

 

 

¹ Reported earnings is equivalent to profit for the year attributable to equity holders of the parent.

² Headline earnings is defined in Appendix 2.

Notes to the unaudited preliminary consolidated financial statements (continued)

 

11. Analysis of cash flows

 

The following tables analyse the items included within the main cash flow headings on page 19:

 

Net cash inflow from operating activities:

 

£ million	2022	2021
Profit for the year	775.4	720.7
Taxation	384.4	230.1
Revaluation and retranslation of financial instruments	(76.0)	87.8
Finance costs	359.4	283.6
Finance and investment income	(145.4)	(69.4)
Earnings from associates - after interest and tax	60.4	(23.8)
Operating profit	1,358.2	1,229.0
Adjustments for:
Non-cash share-based incentive plans (including share options)	122.0	99.6
Depreciation of property, plant and equipment	166.9	151.2
Depreciation of right-of-use assets	262.2	272.9
Impairment charges included within restructuring costs1	72.3	39.2
Goodwill impairment	37.9	1.8
Amortisation and impairment of acquired intangible assets	62.1	97.8
Amortisation of other intangible assets	21.9	19.9
Investment and other impairment charges/(reversals)	48.0	(42.4)
Losses on disposal of investments and subsidiaries	36.3	10.6
Gains on sale of property, plant and equipment	(6.4)	(1.3)
Gains on remeasurement of equity interests arising from a change in scope of ownership	(66.5)	-
Operating cash flow before movements in working capital and provisions	2,114.9	1,878.3
Movements in trade working capital2	(328.0)	318.9
Movements in other working capital and provisions3	(518.7)	383.1
Cash generated by operations	1,268.2	2,580.3
Corporation and overseas tax paid	(390.9)	(391.1)
Premium on early settlement of bonds	-	(13.0)
Interest and similar charges paid	(210.2)	(173.7)
Interest paid on lease liabilities	(92.4)	(88.4)
Interest received	88.9	47.5
Investment income	24.5	17.8
Dividends from associates	37.6	53.4
Earnout payments recognised in operating activities4	(24.8)	(3.8)
Net cash inflow from operating activities	700.9	2,029.0

 

 

 

 

 

¹ Impairment charges included within restructuring costs includes impairments for right-of-use assets, property, plant and equipment and other intangible assets.

² Trade working capital represents trade receivables, work in progress, accrued income, trade payables and deferred income.

³ Other working capital represents other receivables and other payables.

⁴ Earnout payments in excess of the amount determined at acquisition are recorded as operating activities. Prior year excess amounts were recorded as investing activities and have been re-presented as operating activities.

Notes to the unaudited preliminary consolidated financial statements (continued)

11. Analysis of cash flows (continued)

 

Acquisitions and disposals:

 

£ million	2022	2021
Initial cash consideration	(218.3)	(227.6)
Cash and cash equivalents acquired	38.8	(2.3)
Earnout payments recognised in investing activities2	(46.6)	(53.2)
Purchase of other investments (including associates)	(10.1)	(99.2)
Acquisitions	(236.2)	(382.3)
Proceeds on disposal of investments and subsidiaries1	50.1	51.9
Cash and cash equivalents disposed	(12.4)	(23.6)
Disposals of investments and subsidiaries	37.7	28.3
Cash consideration received from non-controlling interests	-	39.5
Cash consideration for purchase of non-controlling interests	(84.2)	(135.0)
Cash consideration for non-controlling interests	(84.2)	(95.5)
Net acquisition payments and investments	(282.7)	(449.5)

 

Share repurchases and buy-backs:

 

£ million	2022	2021
Purchase of own shares by ESOP Trusts	(55.3)	(89.2)
Shares purchased into treasury	(807.4)	(729.3)
	(862.7)	(818.5)

 

Repayments of borrowings

 

£ million	2022	2021
Net decrease in drawings on bank loans	(11.3)	(36.3)
Repayment of €250 million bonds	(209.3)	-
Repayment of $500 million bonds	-	(360.8)
	(220.6)	(397.1)

 

 

 

 

¹ Proceeds on disposal of investments and subsidiaries includes return of capital from investments in associates.

²  Earnout payments in excess of the amount determined at acquisition are recorded as operating activities. Prior year excess amounts were recorded as investing activities and have been re-presented as operating activities.

Notes to the unaudited preliminary consolidated financial statements (continued)

 

12. Cash and cash equivalents and adjusted net debt

 

£ million	2022	2021
Cash at bank and in hand	2,271.6	2,776.6
Short-term bank deposits	219.9	1,106.3
Overdrafts1	(505.7)	(342.3)
Cash and cash equivalents	1,985.8	3,540.6
Bonds due within one year	(663.3)	(210.2)
Loans due within one year	-	(14.7)
Bonds due after one year	(3,801.8)	(4,216.8)
Adjusted net debt	(2,479.3)	(901.1)

 

The Group estimates that the fair value of corporate bonds is £4,049.1 million at 31 December 2022 (2021: £4,790.3 million). The Group considers that the carrying amount of bank loans approximates their fair value.

 

The following table is an analysis of future anticipated cash flows in relation to the Group's debt, on an undiscounted basis which, therefore, differs from the carrying value:

 

£ million	2022	2021
Within one year	(791.6)	(326.8)
Between one and two years	(724.3)	(745.4)
Between two and three years	(524.2)	(646.5)
Between three and four years	(740.3)	(492.8)
Between four and five years	(719.9)	(698.0)
Over five years	(1,963.7)	(2,546.3)
Debt financing (including interest) under the Revolving Credit Facility and in relation to unsecured loan notes	(5,464.0)	(5,455.8)
Short-term overdrafts - within one year	(505.7)	(342.3)
Future anticipated cash flows	(5,969.7)	(5,798.1)
Effect of discounting/financing rates	998.9	1,014.1
Debt financing	(4,970.8)	(4,784.0)
Cash and short-term deposits	2,491.5	3,882.9
Adjusted net debt	(2,479.3)	(901.1)

 

 

¹ Bank overdrafts are included in cash and cash equivalents because they form an integral part of the Group's cash management.