WPP 2013 Preliminary Results

  WPP 2013 Preliminary Results

  *Billings up 4.1% at over £46 billion
  *Revenues up 6.2% at over £11 billion
  *Like-for-like revenue up 3.5%, with second half up 4.6%
  *Operating margin at historical high of 15.1%, up 0.3 margin points, up 0.5
    margin points in constant currency and 0.6 margin points like-for-like
  *Gross margin or net sales margin at historical high of 16.5%, up 0.4
    margin points
  *Impact of exchange rates in second half reduced reported margin
  *Headline profit before interest and tax £1.662 billion, up over 8%
  *Headline profit before tax £1.458 billion, up almost 11%
  *Profit before tax £1.296 billion, up almost 19%
  *Headline diluted earnings per share of 80.8p, up over 10%
  *Dividends per share of 34.21p, up 20%, and pay-out ratio of 42% versus 39%
    last year, with a targeted dividend pay-out ratio of 45% in 2014
  *Share buy-back target raised to 2-3% of share capital against current 1%
  *Strategic targets raised for each of faster growth markets and new media
    sectors to 40-45% of revenues from 35-40% over the next five years
  *Constant currency net debt at 31 December 2013 down £634 million on same
    date in 2012, with average net debt in 2013 down £244 million over 2012
  *Good start to 2014 with January like-for-like revenues up 5.7% and gross
    margin or net sales up 4.1%

Business Wire

NEW YORK & LONDON -- February 27, 2014

WPP (NASDAQ:WPPGY) today reported its 2013 Preliminary Results.

Key figures
£ million    2013      ∆             ∆             %           2012      %
                             reported^1       constant^2       revenues                    revenues
Revenue      11,019    6.2%          5.7%          -           10,373    -
Gross
Margin       10,076    5.9%          5.4%          91.4%       9,515     91.7%
(Net
Sales)
Headline     1,896     8.0%          8.4%          17.2%       1,756     16.9%
EBITDA^3
Headline     1,662     8.5%          9.0%          15.1%*      1,531     14.8%
PBIT^4
EPS
headline     80.8p     10.1%         9.7%          -           73.4p     -
diluted^5
Diluted      69.6p     10.8%         10.6%         -           62.8p     -
EPS^6
Dividends    34.21p    20.0%         20.0%         -           28.51p    -
per share

* Gross margin or net sales margin of 16.5% (2012 16.1%)

_________________________________
^1          Percentage change in reported sterling
^2           Percentage change at constant currency exchange rates
^3           Headline earnings before interest, tax, depreciation and
             amortisation
^4           Headline profit before interest and tax
^5           Diluted earnings per share based on headline earnings
^6           Diluted earnings per share based on reported earnings

Full Year highlights

  *Reported billings increased 4.1% to £46.2bn driven by a strong leadership
    position in all net new business league tables
  *Revenue growth of 6.2%, with like-for-like growth of 3.5%, 2.2% growth
    from acquisitions and 0.5% from currency
  *Like-for-like revenue growth in all regions, characterised by strong
    growth in Asia Pacific, Latin America, Africa and the Middle East and the
    United Kingdom and all but one sector (public relations and public
    affairs), with strong growth in advertising and media investment
    management and branding and identity, healthcare and specialist
    communications (including direct, digital and interactive)
  *Like-for-like gross margin or net sales growth at 3.4%, in-line with
    like-for-like revenue growth of 3.5%, but with stronger growth in the
    Group’s data investment management businesses, offset by lower gross
    margin growth in media investment management, as we see the initial impact
    of increased digital inventory trading, where billings effectively become
    revenues in comparison with traditional media buying. Revenues are,
    therefore, likely to grow faster than before and faster than gross margin.
    As a result, we will be focusing more on our gross margin or net sales
    margin
  *Headline EBITDA growth of 8.0% giving 0.3 margin points improvement, with
    like-for-like operating costs (+2.9%) rising slower than revenues
  *Strength of sterling in the second half and final quarter lowered reported
    margins by 0.2 margin points. In the second half of 2013 and more
    particularly in the final quarter, when approximately two-thirds and 40%
    respectively of our profits are earned, sterling strengthened against many
    currencies in key faster growth markets by 10-20%, such as India,
    Australia, Japan, South Africa, Brazil, Argentina and Indonesia, where
    operating margins are also above the Group average. This began to have an
    impact on the Group’s reported margins in September, but escalated
    throughout the final quarter, with a full year impact of 0.2 margin
    points. Group margins on a constant currency basis increased by 0.5 margin
    points, in line with the Group’s margin target of 0.5 margin point
    improvement. On a like-for-like basis they improved 0.6 margin points.
  *Headline PBIT increase of 8.5% with PBIT margin rising by 0.3 margin
    points to 15.1%, surpassing the previous historical pro forma high of
    14.8% achieved in 2012. On a constant currency and like-for-like basis
    PBIT margins increased by 0.5 and 0.6 margin points, reflecting the impact
    of the strength of sterling on the faster growth markets
  *Exceptional gains of £36 million largely representing gains on the
    re-measurement of the Group’s equity interests, where we have acquired a
    majority stake
  *Gross margin or net sales margin, a more accurate competitive comparator,
    up 0.4 margin points to an industry leading 16.5%, up 0.5 margin points in
    constant currency and 0.6 margin points like-for-like
  *Headline diluted EPS up 10.1% and reported diluted EPS up 10.8%, with 20%
    higher final ordinary dividend of 23.65p and full year dividends of 34.21p
    per share up 20%
  *Targeted dividend pay-out ratio raised to 45%, to be reached in 2014
  *Average net debt decreased £244m (7.5%) to £2.989bn compared to last year,
    at 2013 exchange rates, reflecting the continued improvement in working
    capital in the second half of the year and also the benefit of converting
    all of the £450 million Convertible Bond in mid-2013 and lower acquisition
    spending in 2013
  *Creative and effectiveness excellence recognised again in 2013 with the
    award of the Cannes Lion to WPP for the most creative Holding Company for
    the third successive year since its inception, another to Ogilvy & Mather
    Worldwide for the second consecutive year as the most creative agency
    network and another to Ogilvy Brazil as the most creative agency. Grey was
    named Global Agency of the Year 2013 by both Ad Age and Adweek. For the
    second consecutive year, WPP was awarded the EFFIE as the most effective
    Holding Company
  *Strategy implementation accelerated in a pre- and post-POG (Publicis
    Omnicom Group) world as sector targets for fast growth markets and digital
    raised from 35-40% to 40-45% over the next five years

Current trading and outlook

  *January 2014 | Like-for-like revenues up 5.7% for the month, with
    like-for-like gross margin or net sales, a more accurate competitive
    comparator up 4.1%, ahead of budget and stronger than the final quarter of
    2013
  *FY 2014 budget | Like-for-like revenue and gross margin or net sales
    growth of over 3% and headline operating margin target improvement for
    both of 0.3 margin points, excluding the impact of currency
  *Dual focus in 2014 | 1. Revenue growth from leading position in faster
    growing geographic markets and digital, premier parent company creative
    position, new business, “horizontality” and strategically targeted
    acquisitions; 2. Continued emphasis on balancing revenue growth with
    headcount increases and improvement in staff costs/revenue ratio to
    enhance operating margins
  *Long-term targets recalibrated | Above industry revenue growth due to
    geographically superior position in new markets and functional strength in
    new media and data investment management, including data analytics and the
    application of new technology; improvement in staff costs/gross margin
    ratio of 0.2 to 0.4 margin points p.a. depending on gross margin or net
    sales growth; operating margin expansion of 0.3 margin points or more on a
    constant currency basis; and headline diluted EPS growth of 10% to 15%
    p.a. from margin expansion, strategically targeted small and medium-sized
    acquisitions and share buy-backs

In this press release not all of the figures and ratios used are readily
available from the unaudited preliminary results included in Appendix 1. Where
required, details of how these have been arrived at are shown in the
Appendices.

Review of group results

Revenues

Revenue analysis
£          2013      ∆           ∆             ∆        Acquisitions    2012
million                    reported       constant^7       LFL^8
First      5,327     7.1%        5.5%          2.4%     3.1%            4,972
half
Second     5,692     5.4%        5.9%          4.6%     1.3%            5,401
half
Full       11,019    6.2%        5.7%          3.5%     2.2%            10,373
year
                                                                                          

Billings increased 4.1% to £46.2 billion, up 3.6% in constant currency.
Estimated net new business billings of £6.119 billion ($9.791 billion) were
won in the year, up over 57% on last year, placing the Group first in all net
new business tables. The Group continues to benefit from consolidation trends
in the industry, winning assignments from existing and new clients, including
several very large industry-leading advertising, digital, media,
pharmaceutical and shopper marketing assignments, which partly benefitted the
latter half of 2013, but the full benefit of which will be seen in Group
revenues in 2014.

Reportable revenue was up 6.2% at £11.019 billion. Revenue on a constant
currency basis was up 5.7% compared with last year, but changes in exchange
rates, chiefly reflecting the weakness of the pound sterling against the US
dollar and euro in the first nine months, mostly offset by the strength of the
pound sterling against the US dollar, Japanese yen, Australian dollar and
Indian rupee in the final quarter, increased revenue by 0.5%. As a number of
our competitors report in US dollars and in euros, appendices 2 and 3 show
WPP’s Preliminary results in reportable US dollars and euros respectively.
This shows that US dollar reportable revenues were up 4.8% to $17.252 billion
and earnings before interest and taxes up 7.4% to $2.620 billion, which
compares with the $14.584 billion and $1.926^9 billion respectively of our
closest United States-based competitor and that euro reportable revenues were
up 1.4% to €12.978 billion and earnings before interest and taxes up 3.7% to
€1.962 billion, which compares with €6.953 billion and €1.107^10 billion
respectively of our nearest European-based competitor.

On a like-for-like basis, which excludes the impact of currency and
acquisitions, revenues were up 3.5%, with gross margin or net sales up 3.4%.
In the fourth quarter, like-for-like revenues were up 4.2%, following
like-for-like growth in the third quarter of 5.0%, due to stronger growth in
the fourth quarter in North America and Asia Pacific, Latin America, Africa &
the Middle East and Central and Eastern Europe, offset by lower growth in the
United Kingdom.

Operating profitability

Headline EBITDA was up 8.0% to £1.896 billion from £1.756 billion and up 8.4%
in constant currencies. Group revenues are more weighted to the second half of
the year across all regions and functions and particularly in the faster
growing markets of Asia Pacific and Latin America. As a result, the Group’s
profitability and margins continue to be skewed to the second half of the year
and following the strengthening of sterling in the final quarter, particularly
against the currencies of the faster growth markets, the Group’s reportable
operating margin was lowered. The currency effect is intensified by the fact
that disproportionate amounts of central overheads and incentive payments are
borne in £ sterling and United States dollars. Headline operating profit for
2013 was up 8.5% to £1.662 billion from £1.531 billion and up 9.0% in constant
currencies.

________________________________
^7     Percentage change at constant currency exchange rates
^8      Like-for-like growth at constant currency exchange rates and excluding
        the effects of acquisitions and disposals
^9      EBITDA, defined as operating income before interest, taxes and
        amortisation and including POG merger related costs of $41 million
^10     Operating margin including POG merger related costs of €38 million

Headline operating margins were up 0.3 margin points to a new historical high
of 15.1% and up 0.5 margin points in constant currency and 0.6 margin points
like-for-like, more than in line with the Group’s margin target, compared to
14.8% in 2012. The headline margin of 15.1% is after charging £27 million ($43
million) of severance costs, compared with £51 million ($82 million) in 2012
and £328 million ($521 million) of incentive payments, versus £291 million
($462 million) in 2012. As already noted, in 2013 the impact of exchange rates
reduced reported margins by 0.2 margin points. Constant currency and
like-for-like operating margins improved 0.5 and 0.6 margin points
respectively. Over the last three years, reported operating margins have
improved by 1.9 margin points and by 2.3 margin points excluding the impact of
currency.

Given the significance of data investment management revenues to the Group,
with none of our parent company competitors presently represented in that
sector, gross margin or net sales is a more meaningful measure of comparative
top-line growth. This is because data investment management revenues include
pass-through costs, principally for data collection, on which no margin is
charged. In addition the Group’s media investment management sector is
increasingly buying digital media on its own account and, as a result, the
subsequent billings to clients have to be accounted for as revenue as well as
billings. Thus, revenues and the revenue growth rate will increase, although
the gross margin and gross margin growth rate will remain the same and the
latter will present a clearer picture of underlying performance. Because of
these two significant factors, the Group, whilst continuing to report revenue
and revenue growth, will focus even more on gross margin or net sales margins
and operating margins in the future. In 2013 headline gross margin or net
sales margin was up 0.4 margin points to 16.5%, achieving the highest reported
level in the industry.

On a reported basis, operating margins, before all incentives^11 and income
from associates, were 17.3%, up 0.4 margin points, compared with 16.9% last
year. The Group’s staff cost to revenue ratio, including incentives, decreased
by 0.1 margin point to 58.8% compared with 58.9% in 2012, indicating increased
productivity.

Operating costs

During 2013, the Group continued to manage operating costs effectively, with
improvements across most cost categories, particularly staff, property,
commercial and office costs.

Reported operating costs^12, rose by 5.9% and by 5.2% in constant currency. On
a like-for-like basis, total operating and direct costs rose 2.9%, in all
cases the growth in costs being lower than the growth in revenues. Reported
staff costs, excluding incentives, rose by 5.7% and by 5.1% in constant
currency. Incentive payments amounted to £328 million (almost $521 million),
which was 17.1% of headline operating profit before incentives and income from
associates, compared with £291 million or 16.6% in 2012. Performance in parts
of the Group’s data investment management custom businesses, public relations
and public affairs, healthcare and direct, digital and interactive businesses
fell short of the target performance objectives agreed for 2013, as the
like-for-like revenue growth rate was slower in the first nine months of the
year, although most improved in the final quarter.

On a like-for-like basis, the average number of people in the Group, excluding
associates, in 2013 was 117,115, compared to 117,188 in 2012, a decrease of
0.1%. On the same basis, the total number of people in the Group, excluding
associates, at 31 December 2013 was 119,116 compared to 118,292 at 31 December
2012, an increase of over 800 or 0.7%. These average and point-to-point data
reflect the continuing sound management of headcount and staff costs in 2013
to balance revenues and costs. On the same basis revenues increased 3.5% and
gross margin or net sales 3.4%.

__________________________________
^11    Short and long-term incentives and the cost of share-based incentives
        Including, direct costs, but excluding goodwill impairment,
^12     amortisation of acquired intangibles, investment gains and write-downs
        and in 2012 the gain on sale of New York property, restructuring
        charges and costs in relation to changes in corporate structure

Interest and taxes

Net finance costs (excluding the revaluation of financial instruments) were
down 4.8% at £203.6 million, compared with £213.9 million in 2012, a decrease
of £10.3 million. This reflected the beneficial impact of lower net debt
funding costs and higher income from investments, partially offset by the cost
of higher average gross debt, due to pre-funding of 2014 debt maturities.

The tax rate on headline profit before tax was 20.2% (2012 21.2%) and on
reported profit before tax was 21.9% (2012 18.1%). The difference in the
reported rate is primarily due to significant deferred tax credits arising in
the prior year in relation to acquired intangibles that were non-recurring
items.

Earnings and dividend

Headline profit before tax was up 10.7% to £1.458 billion from £1.317 billion,
or up 11.2% in constant currencies.

Reported profit before tax rose by 18.7%, to £1.296 billion from £1.092
billion. In constant currencies, reported profit before tax rose by 19.5%.

Profits attributable to share owners rose by 13.8% to £937 million from £823
million. In constant currencies, profits attributable to share owners rose by
13.5%.

Headline diluted earnings per share rose by 10.1% to 80.8p from 73.4p. In
constant currencies, earnings per share on the same basis rose by 9.7%.
Reported diluted earnings per share rose by 10.8% to 69.6p from 62.8p and
increased 10.6% in constant currencies.

In the AGM statement in June 2011, the Board increased the dividend pay-out
ratio objective to approximately 40% over time, compared to the 2010 ratio of
31%. This was largely achieved in 2012, ahead of schedule, some eighteen
months later and as outlined in the June 2013 AGM statement, the Board gave
consideration to the merits of increasing the dividend pay-out ratio from the
then current level of approximately 40% to between 45% and 50%. Following that
review, the Board decided to target a further increase in the pay-out ratio to
45% over the next two years and, as a result, declares an increase of 20% in
the final dividend to 23.65p per share, which together with the interim
dividend of 10.56p per share, makes a total of 34.21p per share for 2013, an
overall increase of 20%. This represents a dividend pay-out ratio of 42%,
compared to a pay-out ratio of 39% in 2012. The record date for the final
dividend is 6 June 2014, payable on 7 July 2014. We are targeting a pay-out
ratio of 45% in 2014.

Further details of WPP’s financial performance are provided in Appendices 1, 2
and 3.

Regional review

The pattern of revenue growth differed regionally. The tables below give
details of revenue and revenue growth by region for 2013, as well as the
proportion of Group revenues and operating profit and operating margin by
region;

Revenue analysis
£          2013     ∆          ∆             ∆        %        2012     %
million                  reported     constant^13     LFL^14     group                 group
N.         3,745    5.6%       4.4%          2.9%     34.0%    3,547    34.2%
America
United     1,414    10.9%      10.9%         4.8%*    12.8%    1,275    12.3%
Kingdom
W Cont.    2,592    6.3%       2.1%          0.5%     23.5%    2,439    23.5%
Europe
AP, LA,
AME,       3,268    5.0%       7.9%          6.1%     29.7%    3,112    30.0%
CEE^15
Total      11,019   6.2%       5.7%          3.5%*    100.0%   10,373   100.0%
Group

* Like-for-like gross margin or net sales growth of 6.8% in the UK and 3.4%
for the Group

Operating profit analysis (Headline PBIT)
£          2013    %         %          2012    %         %
million                margin      margin*                margin      margin*
N.         617     16.5%     17.4%      579     16.3%     17.2%
America
United     205     14.5%     15.7%      173     13.6%     15.0%
Kingdom
W Cont.    272     10.5%     12.3%      253     10.4%     11.9%
Europe
AP, LA,    568     17.4%     18.9%      526     16.9%     18.3%
AME, CEE
Total      1,662   15.1%     16.5%      1,531   14.8%     16.1%
Group

* Headline profit to gross margin or net sales

North America, with constant currency growth of 5.9% in the final quarter and
like-for-like growth of 5.4%, achieved their highest quarterly rate of growth
in 2013, with particularly strong growth in advertising and media investment
management, healthcare and parts of the Group’s digital operations, especially
AKQA. Data investment management also performed well, with like-for-like
growth of 5.0% in the final quarter.

The United Kingdom’s rate of growth slowed in the final quarter with constant
currency growth of 5.5% and like-for-like growth of 2.3%, partly the result of
strong comparative rates of growth in the final quarter of 2012. The Group’s
advertising and media investment management, public relations and public
affairs, direct, digital and interactive and healthcare operations all
performed strongly, partly offset by lower revenue growth in data investment
management. However, overall gross margin or net sales increased 5.7% on a
like-for-like basis, with stronger gross margin growth in the custom research
business. On a full year basis, revenues in the United Kingdom rose 10.9% in
constant currency and 4.8% like-for-like.

Western Continental Europe, as with the United Kingdom, also slowed slightly
in the final quarter compared with a strong third quarter, with constant
currency and like-for-like growth of 1.3%. For the year Western Continental
Europe revenues grew 0.5% like-for-like (1.9% in the second half) compared
with 0.1% in 2012. Italy, Turkey, the Netherlands and Germany all showed good
growth in the final quarter, but Spain, Portugal, Belgium, Switzerland and
Austria were tougher.

In Asia Pacific, Latin America, Africa & the Middle East and Central and
Eastern Europe, revenue growth in the fourth quarter was fastest, as it has
been for most of 2013, up 8.2% in constant currency and up 6.0% like-for-like
and stronger than quarter three. Growth in the fourth quarter was driven
principally by Latin America, Australia and New Zealand, Central and Eastern
Europe and Africa, the CIVETS^16 and the MIST^17. Central and Eastern Europe,
after a difficult first half, improved significantly, with like-for-like
growth in the second half of over 10%.

__________________________________
^13    Percentage change at constant currency exchange rates
^14     Like-for-like growth at constant currency exchange rates and excluding
        the effects of acquisitions and disposals
^15     Asia Pacific, Latin America, Africa & Middle East and Central &
        Eastern Europe

Latin America showed consistently strong growth for most of 2013, with
like-for-like growth in the final quarter up 8.5% and the full year at 9.0%.
The Middle East slowed in the fourth quarter, with Africa up over 9%
like-for-like. In Central and Eastern Europe, like-for-like revenues were up
12.3% in the fourth quarter, compared with 7.5% in quarter three, with strong
growth in the Czech Republic, Russia and Poland. Full year revenues for the
BRICs^18, which account for almost $1.9 billion of revenue, were up almost 7%,
on a like-for-like basis, with the Next 11^19 and CIVETS up over 9% and over
15% respectively. The MIST was up over 9%.

In 2013, 29.7% of the Group’s revenues came from Asia Pacific, Latin America,
Africa and the Middle East and Central and Eastern Europe – slightly down
compared with the previous year, although this was the result of the strength
of sterling against the currencies of many of the markets in the region. On a
constant currency basis, 30.5% of the Group’s revenues came from this region,
up 0.7 percentage points compared with 2012 and against the Group’s strategic
objective of 40-45% in the next five years.

Business sector review

The pattern of revenue growth also varied by communications services sector
and operating brand. The tables below give details of revenue and revenue
growth for 2013, as well as the proportion of Group revenues and operating
profit and operating margin by communications services sector;

Revenue analysis
£         2013     ∆          ∆             ∆        %        2012     %
million                reported     constant^20     LFL^21     group                 group
AMIM^22   4,579    7.2%       6.9%          5.5%     41.5%    4,273    41.2%
Data
Inv.      2,549    3.6%       3.0%          1.6%*    23.1%    2,460    23.7%
Mgt.
PR &      921      0.4%       -0.7%         -1.7%    8.4%     917      8.8%
PA^23
BI, HC    2,970    9.1%       8.4%          3.9%     27.0%    2,723    26.3%
& SC^24
Total     11,019   6.2%       5.7%          3.5%*    100.0%   10,373   100.0%
Group

* Like-for-like gross margin or net sales growth of 2.4% in Data Investment
Management and 3.4% for the Group

Operating profit analysis (Headline PBIT)
£          2013    %         %          2012    %         %
million                margin      margin*                margin      margin*
AMIM       824     18.0%     18.5%      755     17.7%     18.0%
Data
Inv.       264     10.3%     14.3%      247     10.0%     14.0%
Mgt.
PR & PA    134     14.5%     14.7%      136     14.9%     15.1%
BI, HC &   440     14.8%     15.4%      393     14.4%     14.9%
SC
Total      1,662   15.1%     16.5%      1,531   14.8%     16.1%
Group

* Headline profit to gross margin or net sales

________________________________
^16    Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa
        (accounting for almost $940 million revenues, including associates)
^17     Mexico, Indonesia, South Korea and Turkey (accounting for almost $635
        million revenues, including associates)
^18     Brazil, Russia, India and China (accounting for over $2.5 billion
        revenues, including associates)
        Bangladesh, Egypt, Indonesia, South Korea, Mexico, Nigeria, Pakistan,
^19     Philippines, Vietnam and Turkey - the Group has no operations in Iran
        (accounting for almost $835 million revenues, including associates)
^20     Percentage change at constant currency exchange rates
^21     Like-for-like growth at constant currency exchange rates and excluding
        the effects of acquisitions and disposals
^22     Advertising, Media Investment Management
^23     Public Relations & Public Affairs
^24     Branding and Identity, Healthcare and Specialist Communications

In 2013, almost 35% of the Group’s revenues came from direct, digital and
interactive, up over 2.0 percentage points from the previous year and growing
well over 7% like-for-like over 2012.

Advertising and Media Investment Management

In constant currencies, advertising and media investment management was the
strongest performing sector, with constant currency revenues up 7.9% in the
final quarter and like-for-like up 6.5%, very similar to the third quarter
like-for-like growth of 6.6%. Advertising grew well in North America, Asia
Pacific and Africa as it did in the third quarter, with media investment
management showing particularly strong like-for-like growth across all regions
and especially in North America, with double digit growth. Full year revenues
were up 5.5% like-for-like.

Of the Group’s advertising networks, JWT, Ogilvy & Mather and Grey performed
especially well in North America in the fourth quarter, with Y&R performing
strongly in the United Kingdom. However, the Group’s advertising businesses in
Western Continental Europe generally remained challenged, with like-for-like
revenues under pressure. Growth in the Group’s media investment management
businesses has been very consistent throughout the year, with constant
currency revenues up almost 11% for the year and like-for-like growth up
almost 10%. tenthavenue, the “engagement” network focused on out-of-home
media, also performed strongly in the fourth quarter, with like-for-like
revenue growth up over 16%. The strong revenue growth across most of the
Group’s businesses, together with good cost control, resulted in the combined
reported operating margin of this sector improving by 0.3 margin points to
18.0%. In 2013, JWT, Ogilvy & Mather, Y&R, Grey and United generated net new
business billings of £2.332 billion ($3.732 billion). In the same year,
GroupM, the Group’s media investment management company, which includes
Mindshare, MEC, MediaCom, Maxus, GroupM Search and Xaxis, together with
tenthavenue, generated net new business billings of £3.194 billion ($5.110
billion). The Group totalled £6.119 billion ($9.791 billion) in net new
billings versus £3.894 billion ($6.231 billion) in 2012, up over 57%.

Data Investment Management

On a constant currency basis, data investment management revenues grew 3.9% in
the fourth quarter, with gross margin or net sales up even stronger at 4.0%.
On a like-for-like basis revenues were up 1.2% with gross margin up 1.9%. On a
full year basis, constant currency revenues were up 3.0%, with like-for-like
revenues up 1.6%, with the second half much stronger than the first half. More
significantly, gross margin was up 2.4% like-for-like, a turnaround of the
trend seen during 2012. North America, Asia Pacific, Latin America, Africa and
the Middle East performed well above the average in the fourth quarter, as
they did for the year as a whole. The United Kingdom and Western Continental
Europe were more difficult. There seems to be a growing recognition of the
value of “real” data businesses, rather than those that depend on third party
data. Reported operating margins improved 0.3 margin points to 10.3% (reported
gross margin or net sales margins also improved 0.3 margin points to 14.3%).
Although there has been marked improvement during 2013, the weakest sub-sector
continues to be like-for-like revenue growth in the custom businesses in
mature markets, (with North America maybe now the exception), where
discretionary spending remains under review by clients. Custom businesses in
faster growth markets and syndicated and semi-syndicated businesses in all
markets, remain robust, with strong like-for-like revenue and gross margin or
net sales growth.

Public Relations and Public Affairs

In constant currencies the Group’s public relations and public affairs
businesses returned to top-line growth in the fourth quarter, as forecast at
the third quarter results presentations, with constant currency revenues up
2.4% and like-for-like growth of 1.2%. However, overall 2013 was difficult for
many of the Group’s public relations and public affairs brands, particularly
in North America, Continental Europe, Latin America and the Middle East.
Despite careful cost management operating margins fell by 0.4 margin points to
14.5%.

Branding and Identity, Healthcare and Specialist Communications

At the Group’s branding and identity, healthcare and specialist communications
businesses (including direct, digital and interactive), constant currency
revenues grew strongly at 8.4% with like-for-like growth of 3.9%.
Like-for-like revenue growth slipped slightly in the fourth quarter, due
primarily to slower growth in parts of the Group’s branding & identity and
specialist communications businesses, but overall the second half was much
stronger than the first half on a like-for-like basis. AKQA, the leading
digital agency acquired in July 2012, performed particularly well with full
year like-for-like revenues up over 20%, with the fourth quarter even
stronger. Operating margins, for the sector as a whole, improved, up 0.4
margin points to 14.8%.

Client review

Including associates, the Group currently employs almost 175,000 full-time
people (up almost 3%, from almost 170,000 the previous year) in over 3,000
offices in 110 countries. It services 351 of the Fortune Global 500 companies,
all 30 of the Dow Jones 30, 69 of the NASDAQ 100, 31 of the Fortune e-50 and
768 national or multi-national clients in three or more disciplines. 489
clients are served in four disciplines and these clients account for over
57.5% of Group revenues. This reflects the increasing opportunities for
co-ordination and co-operation or “horizontality” between activities both
nationally and internationally and at a client and country level. The Group
also works with 393 clients in 6 or more countries. The Group estimates that
well over a third of new assignments in the year were generated through the
joint development of opportunities by two or more Group companies.
“Horizontality” is clearly becoming an increasingly important part of client
strategies, particularly as they continue to invest in brand in slower-growth
markets and both capacity and brand in faster-growth markets.

Cash flow highlights

In 2013, operating profit was £1.410 billion, depreciation, amortisation and
goodwill impairment £438 million, non-cash share-based incentive charges £105
million, net interest paid £203 million, tax paid £273 million, capital
expenditure £285 million and other net cash inflows £27 million. Free cash
flow available for working capital requirements, debt repayment, acquisitions,
share buy-backs and dividends was, therefore, £1.219 billion.

This free cash flow was absorbed by £221 million in net cash acquisition
payments and investments (of which £28 million was for earnout payments, with
the balance of £193 million for investments and new acquisition payments net
of disposal proceeds), £197 million in share buy-backs and £397 million in
dividends, a total outflow of £815 million. This resulted in a net cash inflow
of £404 million, before any changes in working capital.

A summary of the Group’s unaudited cash flow statement and notes as at 31
December 2013 is provided in Appendix 1.

Acquisitions

In line with the Group’s strategic focus on new markets, new media, data
investment management and horizontality, the Group completed 62 transactions
in the year; 38 acquisitions and investments were classified in new markets
(of which 32 were in new media), 22 in data investment management, including
data analytics and the application of technology, with the balance of 2 driven
by individual client or agency needs.

Specifically, in 2013, acquisitions and increased equity stakes have been
completed in advertising and media investment management in Canada, Kenya,
Colombia, China, Hong Kong, Indonesia, Myanmar, the Philippines and Thailand;
in data investment management in the United States, Brazil and Myanmar; in
public relations and public affairs in the United States, the United Kingdom,
China and Hong Kong; in direct, digital and interactive in the United States,
the United Kingdom, Belgium, France, Germany, the Netherlands, Poland, South
Africa, Turkey, Argentina, Brazil, Colombia, Uruguay, India, Singapore and
Australia. Further acquisitions and investments were made in the first two
months of 2014 in advertising and media investment management in Russia; in
direct, digital and interactive in the United States, the Netherlands, Poland,
Russia, South Africa, China and Vietnam.

There appears to be some growing evidence that excessive, competitive
acquisition pricing together with lower standards for compliance, driven by a
desire to play catch-up are resulting in slower, and even negative growth
rates for competitors with several acquired companies in Brazil, India and
China.

Balance sheet highlights

Average net debt in 2013 decreased by £244 million to £2.989 billion, compared
to £3.233 billion in 2012, at 2013 exchange rates. On 31 December 2013 net
debt was £2.240 billion, against £2.821 billion on 31 December 2012, a
decrease of £581 million (a decrease of £634 million at 2013 exchange rates),
reflecting improvements in working capital and the redemption of the £450
million Convertible Bond, reinforced by lower acquisition spending in 2013.
This improvement has continued in the first six weeks of 2014, with average
net debt of £2.088 billion, compared with £2.870 billion in the first six
weeks of 2013, a decrease of £782 million (a decrease of £827 million at 2014
exchange rates). The net debt figure of £2.240 billion at 31 December,
compares with a current market capitalisation of approximately £17.9 billion
($29.9 billion), giving an enterprise value of £20.1 billion ($33.6 billion).

Your Board continues to examine ways of deploying its EBITDA of almost £1.9
billion (over $3.0 billion) and substantial free cash flow of over £1.2
billion (almost $2.0 billion) per annum, to enhance share owner value. The
Group’s current market value of £17.9 billion implies an EBITDA multiple of
9.4 times, on the basis of the full year 2013 results. Including year end net
debt of £2.240 billion, the Group’s enterprise value to EBITDA multiple is
10.6 times.

A summary of the Group’s unaudited balance sheet and notes as at 31 December
2013 is provided in Appendix 1.

Return of funds to share owners

As outlined in the June 2013 AGM statement, the Board gave consideration to
the merits of increasing the dividend pay-out ratio from its current level of
approximately 40% to between 45% and 50%. Following that deliberation, the
Board decided to target an increase in the pay-out ratio to 45% over the next
two years and, following the strong first-half results, your Board raised the
interim dividend by 20%, around 10 percentage points higher than the growth in
headline diluted earnings per share and a pay-out ratio in the first half of
37%. For the full year, headline diluted earnings per share rose by 10.1% and
the final dividend has also been increased by 20%, bringing the total dividend
for the year to 34.21p per share, up 20%, 10 percentage points higher than the
growth in headline diluted earnings per share. This represents a pay-out ratio
of 42% for 2013 compared with 39% in 2012. Dividends paid in respect of 2013
will total almost £460 million for the year.

In 2013, 17.4 million shares, or 1.4% of the issued share capital, were
purchased at an average price of £11.31 per share, none of which were
cancelled.

Current trading

January 2014 revenues were ahead of budget and on a like-for-like basis were
up 5.7% with gross margin or net sales up 4.1%, reflecting the divergence
between revenue and gross margin or net sales in the Group’s media and data
investment management businesses as noted earlier. All regions were up, with
North America, the United Kingdom and Latin America up well above the average
gross margin growth. All sectors, except branding & identity and the
specialist communications businesses were up with advertising and media
investment management and direct, digital and interactive, up the strongest.

Outlook

Macroeconomic and industry context

2013, the Group’s twenty eighth year, was another record year. In some
respects it was easier than 2012, with faster like-for-like revenue growth,
3.5% versus 2.9%. We reached our margin targets on a constant currency basis
and did even better like-for-like. But following a major strengthening of
sterling against most of the faster growth markets’ currencies, we missed our
margin target in reportable sterling terms. Encouragingly, having budgeted
around 3% like-for-like revenue growth at the beginning of 2013, our forecast
for full year growth became progressively stronger, and we finished the year
with like-for-like growth of 3.5%. This, combined with intelligent control of
headcount and discretionary spend, improved profitability and replenished
bonus pools. However, pressures within the industry are becoming more and more
intense, with clients understandably continuing to demand more for less and
consolidating competitors discounting their pricing heavily, particularly in
media investment management.

So why was 2013, although another record year, still difficult? Clients were
certainly in better shape with profits at an all-time high as a proportion of
GDP, margins generally stronger, share prices rising as institutional
investors rotated out of government securities and with clients sitting on, in
the case of US-based multi-nationals, over $4 trillion in cash with relatively
unleveraged balance sheets. But, whilst clients are now certainly in stronger
shape than post-Lehman in September 2008, they still lack the necessary
confidence given that global GDP growth remains sub-trend and the "grey
swans", or known unknowns remain - although most, if not all, of the latter
are whiter. Black swans are the unknown unknowns, which by definition we do
not know what they are.

There are at least four or five “grey swans”, perhaps even six now in the case
of the United Kingdom. Firstly, the potential fragility of the Eurozone,
certainly better since one of the Super Marios, Mario Draghi, took over as the
President of the ECB, but still subject to potential shocks, for example, from
the implementation of banking stress tests later this year and the still
socially and politically unacceptable levels of unemployment and youth
unemployment, for example in Spain. The Eurozone has also been aided by others
stressing the need to reduce unemployment and surrendering the inflation rate
constraint, for example, by both the former and new Chairpersons of the
Federal Reserve Bank in the United States, the re-elected Prime Minister Abe
in Japan and Mark Carney, the new Governor of the Bank of England in the
United Kingdom. This has certainly helped equity securities too.

Second, the prospects for the Middle-East, are probably now, if anything,
better than a year ago. Although Syria remains a mess and there remain
challenges in Libya and between Israel and Palestine, President Putin’s
intervention on the chemical weapons issue in Syria and President Rouhani’s
initiatives from Tehran have improved the political climate. Perhaps, the next
election in Egypt will also bring more stability, although the region remains
generally fragile to say the least.

Third, a China or BRICs hard or soft landing. Most, if not all of these
markets have suffered a slowdown in 2013 and, following the tapering noises
from the United States, significant currency weakness, with the exception of
China. However, they still remain faster growth markets than the slower growth
mature markets of the West.

We remain bullish on China. The new leadership has immediately addressed
issues of corruption and the new Plenum document reinforced the strategic
directions of the Twelfth Five Year Plan, with an emphasis on lower quantum,
higher quality GDP growth, a switch to consumption from savings, a healthcare
and social security safety net and a strengthening of the service sector.

We also remain bullish on Russia. The Sochi Winter Olympics, the Putin
Olympics, has surprised and delighted participants, NBC and viewers, and as
long as the oil price remains over $80 the economy should remain solid. Brazil
and India both face elections shortly and politics and the economies are
dominated by electoral considerations. It looks likely that President Dilma
Roussaieff will be re- elected, particularly if Brazil win the 2014 FIFA World
Cup. It should be a great tournament, despite infrastructure issues and social
unrest, which will continue. After the election, growth should resume on
towards the Rio Olympics in 2016. India may be a different kettle of fish. The
election may not deliver a clear cut result and although the BJP looks
stronger, there will be a coalition, which may result in continued stasis.

However, the continued increase of the hundreds of millions in the new
middle-classes in all these countries seems to be the real economic motive
force, particularly for the fast-moving consumer goods. On its 25th
Anniversary, CNBC together with PricewaterhouseCoopers took a look at the
World in 25 more years. China was projected as the world's biggest economy
with GDP of $34 trillion versus $8 trillion now, the USA second at $28
trillion (but still with markedly higher GDP per capita) versus $16 trillion
now, and India third. India would be the most populous nation with 1.6 billion
people and China second with 1.4 billion. We continue to significantly focus
our future on the growth of these markets.

Fourth, and probably still most importantly, dealing with the US deficit and a
record level of $16 trillion of debt in the most effective way. Despite the
sequester, which slowed growth in the United States in the first half of 2013
by 100 basis points or so and the Congressional agreement to kick the can down
the road further than usual, these issues remain to be resolved. In addition,
we have to come off the post-Lehman cheap money drug at some time and the
scale and speed of tapering remains the key issue for the strength of equity
and currency markets. This remains the elephant in the room, as the United
States is still currently twice the size of the Chinese economy at around $16
trillion GDP versus over $8 trillion out of a global total of around $85
trillion.

Fifth, and more parochially, the decisions to launch referenda for Scottish
independence and Britain’s European Union membership, whilst no doubt being
astute political moves, add further uncertainty to the United Kingdom economy
until and after the next United Kingdom General Election in 2015.

Finally, whilst economic conditions may have generally slightly improved this
year, a further geopolitical risk emerged at the World Economic Forum in Davos
last January - the Sino-Japanese spat over the Islands of Diaoyu/Senkaku and
the willingness of both sides to engage in a "limited" military action to
resolve it. This reminded everyone of historical precedents, where seemingly
small events triggered bigger ones.

So all in all, whilst clients may be more confident than they were in
September 2008 post-Lehman, with stronger balance sheets, sub-trend global GDP
growth combined with these levels of uncertainty and strengthened corporate
governance scrutiny make them unwilling to take further risks. They remain
focussed on a strategy of adding capacity and brand building in both fast
growth geographic markets and functional markets, like digital and containing
or reducing capacity, perhaps with brand building to maintain or increase
market share, in the mature, slow growth markets. This approach also has the
apparent virtue of limiting fixed cost increases and increasing variable
costs, although we naturally believe that marketing is an investment not a
cost. We see little reason, if any, for this pattern of behaviour to change in
2014, with continued caution being the watchword. There is certainly no
evidence to suggest any such change in behaviour so far in 2014.

The pattern for 2014 looks very similar to 2013, perhaps with slightly
increased client confidence enhanced by the mini-quadrennial events of the
Winter Olympics at Sochi, the FIFA World Cup in Brazil (which will re-position
perceptions of Russia and Latin America, just like the Beijing Olympics did
for China, the World Cup did for South Africa and London 2012 did for the
United Kingdom) and the mid-term Congressional Elections in the United States.
Forecasts of worldwide real GDP growth still hover around 3.6%, with inflation
of 2.1% giving nominal GDP growth of around 5.7% for 2014, although they have
been reduced recently and may be reduced further in due course. Advertising as
a proportion of GDP should at least remain constant overall, although it is
still at relatively depressed historical levels, particularly in mature
markets, post-Lehman and advertising should grow at least at a similar rate as
GDP, buoyed by incremental branding investments in the under- branded faster
growing markets. Although both consumers and corporates seem to be
increasingly cautious and risk averse, they should continue to purchase or
invest in brands in both fast and slow growth markets to stimulate top line
sales growth. As the former leading Chief Investment Officer of one of the
largest investment institutions said perceptively, companies may be running
out of ways of reducing costs and have to focus more on top line growth.
Merger and acquisition activity may be regarded as an alternative way of doing
this, particularly funded by cheap long-term debt, but we believe clients may
regard this as a more risky way than investing in marketing and brand and
hence growing market share.

All in all, 2014 looks to be another demanding year, as a strong UK pound and
weak fast growth market currencies continue to take their toll on our reported
operating margins.

Financial guidance

The budgets for 2014 have been prepared on a cautious basis as usual
(hopefully), but continue to reflect the faster growing geographical markets
of Asia Pacific, Latin America, Africa and the Middle East and Central and
Eastern Europe and faster growing functional sectors of advertising, media
investment management and direct, digital and interactive to some extent
moderated by the slower growth in the mature markets of the United States and
Western Europe. Our 2014 budgets show the following;

  *Like-for-like revenue and gross margin growth of over 3%
  *Target operating margin and gross margin or net sales margin improvement
    of 0.3 margin points excluding the impact of currency

In 2014, our prime focus will remain on growing revenues and gross margin
faster than the industry average, driven by our leading position in the new
markets, in new media, in data investment management, including data analytics
and the application of technology, creativity and “horizontality”. At the same
time, we will concentrate on meeting our operating margin objectives by
managing absolute levels of costs and increasing our flexibility in order to
adapt our cost structure to significant market changes and by ensuring that
the benefits of the restructuring investments taken in 2012 continue to be
realised. The initiatives taken by the parent company in the areas of human
resources, property, procurement, information technology and practice
development continue to improve the flexibility of the Group’s cost base.
Flexible staff costs (including incentives, freelance and consultants) remain
close to historical highs of around 7.5% of revenues and continue to position
the Group extremely well should current market conditions deteriorate.

The Group continues to improve co-operation and co-ordination among its
operating companies in order to add value to our clients’ businesses and our
people’s careers, an objective which has been specifically built into
short-term incentive plans. We may, in addition, decide that a significant
proportion of operating company incentive pools are funded and allocated on
the basis of Group- wide performance over the coming years. “Horizontality”
has been accelerated through the appointment of 41 global client leaders for
our major clients, accounting for over one third of total revenues of $17
billion and 16 country managers in a growing number of test markets and sub-
regions. Emphasis has been laid on the areas of media investment management,
healthcare, sustainability, government, new technologies, new markets,
retailing, shopper marketing, internal communications, financial services and
media and entertainment. The Group continues to lead the industry, in
co-ordinating investment geographically and functionally through parent
company initiatives and winning Group pitches. For example, the Group has been
very successful in the recent wave of consolidation in the pharmaceutical and
shopper marketing industries and the resulting "team" pitches.

Our business remains geographically and functionally well positioned to
compete successfully and to deliver on our long-term targets:

  *Revenue and gross margin or net sales growth greater than the industry
    average
  *Improvement in operating margin and gross margin or net sales margin of
    0.3 margin points or more, excluding the impact of currency, depending on
    revenue growth and staff cost to revenue ratio improvement of 0.2 margin
    points or more
  *Annual headline diluted EPS growth of 10% to 15% p.a. delivered through
    revenue growth, margin expansion, acquisitions and share buy-backs

Uses of funds

As capital expenditure remains relatively stable, our focus is on the
alternative uses of funds between acquisitions, share buy-backs and dividends.
We have increasingly come to the view, that currently, the markets favour
consistent increases in dividends and higher sustainable pay-out ratios, along
with anti-dilutive progressive buy-backs and, of course, sensibly-priced
strategic acquisitions.

Buy-back strategy

Share buy-backs will continue to be targeted to absorb any share dilution from
issues of options or restricted stock. However, given the reduced operating
and gross margin or net sales margin targets of 0.3 margin points, the
targeted level of share buy-backs will be increased from around 1% of the
outstanding share capital to 2-3%. If achieved, the impact on headline EPS
would be equivalent to an improvement of 0.2 margin points. In addition, the
Company does also have considerable free cash flow to take advantage of any
anomalies in market values, particularly as the average 2013 net debt to
EBITDA ratio is 1.6 times, at the low end of our market guidance of 1.5-2.0
times, and will come down further this year.

Acquisition strategy

There is a very significant pipeline of reasonably priced small- and
medium-sized potential acquisitions, with the exception of Brazil and India
and digital in the United States, where prices seem to have got ahead of
themselves because of pressure on competitors to catch up. This is clearly
reflected in some of the operational issues that are starting to surface
elsewhere in the industry, particularly in fast growing markets like China,
Brazil and India. Transactions will be focused on our strategy of new markets,
new media and data investment management, including the application of new
technology and big data. Net acquisition spend is currently targeted at around
£300 to £400 million per annum and we will continue to seize opportunities in
line with our strategy to increase the Group’s exposure to:

  *Faster growing geographic markets and sectors
  *Data investment management, including the application of technology and
    big data

So far in 2014, acquisitions have already been made in the first two months in
the United States, the Netherlands, Poland, Russia, South Africa, China and
Vietnam.

Last but not least………

Efficient marketing companies always watch their costs closely. And when they
encounter difficult times, they examine them with a rigour bordering on
ruthlessness. Over the last five years or so, there cannot have been a single
WPP client who failed to interrogate their advertising and promotional costs
to within an inch of their lives in the hope of finding what they were hoping
to find: savings that carried no financial penalty.

There have, of course, been some reductions in advertising spend, and in other
forms of marketing communication. But for an area of expenditure whose return
has been historically more difficult to evaluate than many others, marketing
communications has shown itself to be remarkably resilient.

In part, this has been because more sophisticated methods of measurement have
allowed companies to authorise marketing expenditure with a higher level of
confidence; and in part because of the stark reality of competitive life.

There is a limit to how much you can cut before you begin to eat away at the
very brand on whose future profit stream you depend. There is no such limit to
the degree to which you can make a brand more desirable; or if there is, it is
a limitation not of financial resources but of the human imagination.

In the early part of the 20^th century, Sir Ernest Rutherford, the father of
nuclear physics, is reported to have told the staff of his laboratory, “We
haven’t any money so we’ve got to think.”

Over the last few years, a similar demand, though thankfully not quite as
draconian, has been made of our companies’ people around the world; and they
have responded magnificently. Better than any algorithm, the human mind can
perform a kind of alchemy that turns ideas, words, pictures and stories into
deeply satisfying objects that the world can take pleasure from.

And, around the world, the tens of thousands of human minds that WPP is
supremely fortunate to represent have helped create real wealth for our tens
of thousands of appreciative clients.

As is always the case, and never more so than in testing times, any success
that WPP may enjoy can be no more than the cumulative success of our talented
people. We thank them all.

To access WPP's 2013 preliminary results financial tables, please visit:
http://www.wpp.com/investor

This announcement has been filed at the Company Announcements Office of the
London Stock Exchange and is being distributed to all owners of Ordinary
shares and American Depository Receipts. Copies are available to the public at
the Company’s registered office.

The following cautionary statement is included for safe harbour purposes in
connection with the Private Securities Litigation Reform Act of 1995
introduced in the United States of America. This announcement may contain
forward-looking statements within the meaning of the US federal securities
laws. These statements are subject to risks and uncertainties that could cause
actual results to differ materially including adjustments arising from the
annual audit by management and the Company’s independent auditors. For further
information on factors which could impact the Company and the statements
contained herein, please refer to public filings by the Company with the
Securities and Exchange Commission. The statements in this announcement should
be considered in light of these risks and uncertainties.

Contact:

WPP
Sir Martin Sorrell, Paul Richardson, Chris Sweetland, Feona McEwan, Chris Wade
+44 20 7408 2204
or
Kevin McCormack, Fran Butera
+1 212-632-2235
or
Belinda Rabano, +86 1360 1078 488
www.wppinvestor.com
 
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