WPP plc

Thank you very much and welcome everybody to WPP's preliminary results for 2023. I'm Mark Green and I'm joined here by Joanne Wilson, our CFO, and Tom Waldron, our Head of Investor Relations. So turning to the presentation, please take notice of our portion statement on page two. And for the meeting on page three, I'm going to cover the highlights of our financial performance for Jane. Joanne takes us through that in more detail. I then reiterate the strategy that we laid out that the capital market staged over three weeks ago before taking questions. Turning to page five, the highlights. We had a resilient performance in 2023 with like-for-like growth of 0.9% and a headline operating margin of 14.8% up, 0.2% on a constant currency basis. Showed excellent cost control and we're pleased to have continued margin progression this year. We had strong growth outside the United States with our non-US business growing 3.3% with the UK and India doing particularly well and despite some challenges in China. However, the US market declined 2.8% as strong growth in the CPG sector was outweighed by lower revenues from our technology clients and in the retail sector. In terms of agency performance, Group M grew 4.9% with a strong performance in Q4 up 5.7%. Our public relations businesses grew 1.4% against the strong comparison last year, but this was offset by a tougher year in our specialist and integrated creative agencies, with the exception of Ogilvy that grew very well and should remind us of the great potential in our creative agencies. At our capital markets, they set out our strategy to drive accelerated and more profitable growth with a focus on AI and a commitment to invest £250 million a year in AI and proprietary technology. And at the Capital Markets Day, we also set out new financial targets with a medium-term growth target of 3% plus, 16% to 17% headline operating profit margins, and 85% plus operating cash flow conversion. And lastly, we also shared our guidance for 2024 with like-for-like revenue as past due costs up 0% to 1%, continued progression in our headline operating profit margin up 20% to 40 basis points, So with that highlights, I'll turn it to Joanne to take us through the financial performance in more detail.

Thank you, Mark, and good morning, everyone. So let me take you through the 2023 financial results, just starting on slide seven. Revenue less past due costs was up 0.5% on a reported basis and 0.9% on a like-for-like basis. Reported growth includes a 1.3 percentage point headwind from FX and a 0.9 percentage point contribution from M&A. Like-for-like performance was towards the upper end of the guidance we shared at Q3. However, our full-year performance reflects softer growth than we had anticipated at the beginning of 2023. This was impacted primarily by a slowdown in spending by our technology clients in the U.S. and delays in technology-related projects as a result of more cautious client spending patterns. Turning to the headline income statement on slide 8, overall revenue-less pass-through costs was 11.9 billion pounds, an increase of 0.5% year-on-year, with headline operating profit of 1.75 billion pounds, also up 0.5% year-on-year. This resulted in an operating margin that was in line with our original target of 15% at constant currency, reflecting the disciplined cost control measures that we took throughout the year. The reported headline operating profit margin of 14.8% you see here is flat on 2022, reflecting a headwind of 25 basis points from FX. Moving down the P&L, income from associates excludes any contribution from Cantar in 2023 in accordance with IIF 28 due to nil carrying value on our balance sheet. This compares to 38.1 million contribution in 2022. Net finance costs increased year-on-year due to higher levels of debt and interest rates and lower investment income compared to 2022, which benefited from a disposal. These items are partially offset by higher interest income. Reflecting an increased tax rate of 27% in the year and non-controlling interest of 87 million pounds, the profit attributable to shareholders was 1.03 billion pounds, resulting in a headline diluted EPS of 93.8 pence. Based on that performance, our cash generation and progressive dividend policy, the Board have recommended a flat final dividend of 24.4 pence, giving a total dividend of 39.4 pence for 2023, representing a cash return to shareholders of over 420 million pounds. Moving on to slide nine and the reconciliation between our headline and reported profit. Our headline operating profit of 1.75 billion pounds is adjusted for a number of items, the majority of which are non-cash. We have taken a goodwill impairment totaling 63 million pounds, which relates to two of our smaller businesses within specialist agencies. The creation of VML has triggered the impairment of the balance sheet's current values of intangibles related to legacy brands, including Young and Rubicam and Wunderman, which is the majority of the £728 million of impairments excluded from headline operating profit. During 2023, we incurred restructuring and IT-related transformation costs of £196 million, including some initial costs of £16 million associated with the creation of VML and simplification of Group M. In addition, the review of our property portfolio, as shared at interim, resulted in a largely non-cash charge of 232 million pounds. This is slightly higher than the around 220 million pounds we guided to in July, as a result of an additional non-cash charge reflecting the application of a recent IFRIC agenda decision on IFRS accounting for sale and leasebacks. The above, together with some smaller items, results in an overall adjustment of 1.2 billion pounds and a reported operating profit of £531 million. Moving on to slide 10, our global integrated agencies grew 1.3% on a life-for-life basis. Group M, our media planning and buying business, grew 4.9% in the year with an improved quarter-on-quarter performance in Q4. This was offset by a weaker performance from our integrated creative agencies, which saw an overall decline of 1.6% in 2023. Ogilvy grew well, supported by recent new business wins, including SC Johnson and Verizon. Our other global integrated agencies, Wunderman Thompson, VML Y&R, and AKQA, were adversely impacted by reduced spend across tech sector clients, predominantly in the U.S., client-led delays in technology-related projects, and the impact of expected client losses in the U.S. retail sector. In Q4, this included the early impact of the loss of Pfizer, which will continue to weigh on this segment in 2024. Hogarth grew well, benefiting from increased spending by CPG clients and growing demand for its technology and the AI capabilities as clients produce more personalized and addressable content. The global integrated agencies as a whole headline operating profit was 1.5 billion pounds, up 2.9%, delivering a margin of 15% up 30 basis points. And moving now on to public relations in slide 11, where we saw continued demand for strategic communications with like-for-like sales at 1.4% overall. FGS Global, our leading strategic advisory and communications consultancy, grew high single digits. Hill & Milton delivered modest growth, lapping a strong 2022, partially offset by a weaker year for BCW. Headline operating profit of £191 million was down 0.5% year-on-year, with margin of 16.2% down 30 basis points year-on-year. And now turning to specialist agencies, on page 12, revenue-less pass-through costs was down 3.4% on a life-for-life basis, while CMI, our US specialist healthcare media agency, delivered strong double-digit growth, Lander, DesignBridge and Partners, and the longer tail of smaller agencies in this segment were impacted by tougher comps and more cautious client spending patterns, which resulted in longer lead times and project delays. Operating margin of 9.7%, with 3.3 percentage points lower year-on-year, reflecting the weaker top line and the runoff of a COVID-19-related contract in Germany. Slide 13 highlights performance across our geographic segments, North America declined 2.7% in 2023, with quarter four seeing similar client spending trends to those in the second and third quarters, most notably reduced spend from technology clients and client losses in the retail sector. Q4 also saw the beginning of the roll-off of the Pfizer creative business, and partially offsetting this was good growth across our CPG and telecoms clients. The UK grew 5.6% in the year, lapping 7.6% growth in 2022, with both Group M and Ogilvy performing well. CPG and healthcare were the strongest client sectors. In Western continental Europe, Germany, our largest market at a challenging end to the year, with a more uncertain macro environment weighing on client spend in the second half. France returned to growth in Q4 after several quarters of decline as new clients were onboarded. The rest of the world saw good growth in 2023, driven by India, which was up 7.7%, reflecting strong double-digit growth in the second half. This was partially offset by China, which declined 3.3%, with a consistent level of decline across the first and second half, and a weak macro economy weighing on our creative agencies. Turning to slide 14, you can see the 2023 client-sector split and net sales dynamics. WPP is a diverse client base, but in 2023, three sectors have really dominated the outcome, with very strong growth in CPG clients, offset by declines in technology and the retail sector. In Q4, those trends continued across our five largest sectors, with CPG strong and technology and retail sectors weaker. In addition, automotive accelerated a little in Q4, and in healthcare, growth turned negative, as it began to be impacted by client loss. Going forward, we believe our exposure to the technology sector and within that, our strong relationship with some of the world's most valuable companies will be a source of growth and competitive advantage over the medium term. And now moving to slide 15 and changes in operating margin year and year. We held a reported headline operating margin flat in 2023, despite a weaker top line performance and a 25 basis points FX headwind. Staff costs, excluding incentives, were up 0.2% year-on-year at £7.8 billion, reflecting wage inflation. This was offset by a small reduction in permanent headcount as we exit 2023 and a 19% reduction in average freelancers through the year, improving our overall mix. Together, these resulted in staff costs reducing as a percentage of net sales by around 30 basis points. Incentive costs were lower year-on-year, contributing to a further 30 basis points improvement in margin. These movements were offset by higher personal costs, driven by more in-person client meetings, and some inflationary pressure on travel costs. Establishment costs fell as more of our people moved into campuses, contributing to 20 basis points of margin improvement. And finally, our investment in IT, both enterprise and client-facing, was a headwind in margin of 70 basis points, This investment included our IT and cloud infrastructure and cyber capability, as well as our global capabilities, including WPP open and AI, and was partly offset by offshoring savings. As we look to 2024 and beyond, I thought it would be helpful to recap on this slide from our capital markets days, so turning now to slide 16. In 2024, despite top line pressures, we expect to deliver 20 to 40 basis points of margin accretion benefiting from part realisation of the cost savings from the creation of VML and Burson and the simplification of Group M. We expect 40% to 50% of the £125 million cost savings to be realised in 2024, partially offset by an expected increase in incentives as a percentage of net sales. Beyond 2024, we expect to realise further structural and efficiency savings and greater operating leverage as our top line grows towards our medium-term targets. Some of these savings will support continued investment in our business, prioritising our industry-leading capabilities, including AI, Choreograph and WPP Open. Our plans include annual cash investment of around £250 million in 2024 in proprietary technology to support our AI and data strategy. Taking all of this together, we are confident we can deliver our medium-term margin target of 16% to 17% and invest in our business to accelerate growth. And moving now to slide 17, which provides an overview of our net debt and cash generation and uses over the last 12 months. Our net debt at year-end of £2.5 billion was broadly flat year-on-year. Looking at the bridge and starting from 2023 EBITDA, less income from associates of £2.2 billion, you can see the uses of cash. Rent of £362 million. non-headline cash costs, including cash restructuring of £218 million, which I will come back to, CapEx of £217 million, with investment primarily in our tech capability and campuses, and a working capital outflow of £260 million, which includes an adverse impact from year-end FX of £89 million. Excluding FX, the working capital outflow was £171 million. This included a better than expected performance from trade working capital excluding FX representing an inflow of 157 million pounds. This is offset by a larger than expected art flow and non-trade working capital of 328 million pounds, excluding FX, impacted by the year-in-year movement of bonus, a shift to prepayment terms for a large IT contract and other smaller items. Combined, those moving parts translate to adjusted operating cash flow of 1.3 billion pounds, which translates to a 73% conversion of headline profit before interest and tax. Free cash flow after dividends to minorities, M&A earnouts, interest and tax was around £637 million, nearly £600 million higher than last year. Total cash returned to shareholders via the dividend was £423 million, and acquisitions and disposals resulted in a net cashed outlay of £158 million. As I indicated at our recent Capital Markets Day, the fundamentals of our business mean we are confident that we can deliver consistent and stronger cash generation that exceeds 85% conversion of headline operating profit into operating cash flow over the medium term. The levers to drive that improvement in cash generation include more profitable growth, a focus on working capital management, lower CapEx and lower cash restructuring costs as we complete our transformation initiatives. As we flagged our average adjusted net debt to headline EBITDA, we're slightly above our target range of 1.5 to 1.75 times at 1.83 times at year end. We are focused on bringing that metric back within our target range. I'm moving on to more detail on our restructuring costs and other adjusting items on slide 18. 2023 reported operating income includes non-cash charges for impairments to our property portfolio as a result of our 2023 property review and the impairment and accelerated amortisation of Goodwill associated with Legacy Browns, which had been impaired following the creation of BML. The bulk of our restructuring and transformation costs in 2023 consists of the costs associated with our transformation programme and the initial costs of the strategic actions taken in the creation of BML and simplification of Group M. These total £196 million. Within that, restructuring costs for our ERP program have declined to £52 million in 2023 as we evolve our ERP roadmap to reflect some of the learnings from the past few years. As I shared at our CMD, we now expect the bulk of our ERP consolidation to be completed by 2026, with restructuring costs reducing accordingly. Other restructuring and transformation costs associated with enterprise IT include and our campus programme will also decline as initiatives begun in 2020 are completed. The total cash attributable to restructuring costs in 2023 of 207 million pounds consisted of that 196 million pounds plus an additional 11 million pounds of cash costs from our property review. In 2024, we expect cash restructuring costs to be around 285 million pounds. That reflects 125 million pounds of costs associated with the VML and birth and mergers and the Group M simplification. Other cash restructuring costs relating to our ERP and IT programs, as well as property-related costs, are expected to reduce from the 196 million you see here to around 160 million pounds in 2024. And finally, let me take you through the guidance for 2024 on slide 19. Our headline guidance for like-for-like growth of 0% to 1% and margin improvement of 20 to 40 basis points of constant currency are consistent with the guidance shared at our Capital Markets Day on January the 30th. At current FX rates, we would expect around a 2% drag on 2024 reported revenue, less past three costs growth with a net neutral impact on margin. We expect M&A to contribute between 0.5 to 1% to our growth. Our net finance costs will rise to around 295 million pounds as a result of increasing rates, including a full year impact of last year's bond refinancing and the partial year impact of refinancing the $750 million bond that matures in 2024. We expect a tax rate of around 28% in 2024, up from 27% in 2023, as we see upward pressure on our effective tax rates from increased rates in some countries, together with minimum tax regimes, caps on interest deductibility and withholding taxes. CapEx will be around £260 million in 2024 and will reduce from 2025 onwards with lower spend on our campus programme. We will continue to focus on our working capital management and are targeting overall net total working capital to be flat in 2024. So thank you and I will now hand you back to Mark to talk about our strategic progress.

Thank you, Joanne. So turning to our strategic progress on page 21. We outline the key elements of our strategy, innovating to lead, that we set out at Capital Markets Day. There's really four key elements to our strategy. The first, leading through our investments in AI, data, and technology. The second, accelerating our growth with the power of creative transformation. Thirdly, building world-class market-leading brands. And finally, executing efficiently to drive financial returns through margin and cash. Now, we went through those in some detail at the Capital Markets Day, but I would like to emphasise some of the key points that we made there on this call. Turning to page 22, and our ambition to lead through AI, data, and technology. We had a lot of questions at the meeting and subsequent discussions with shareholders about the impact of AI on our business model. And that's early days, but we do see opportunities for our investment in AI to lead to improved growth and better financial performance. And these were the five Areas we highlighted at the meeting, they show some of the opportunities that we see and how they can translate into revenue and margin. And then starting at the top, we see the ability to earn technology license fees in areas such as commerce, production and media from WPP Open. Secondly, we have the ability to help our clients embrace AI, offering them consulting projects to use AI, as well as technology projects with AI embedded within it. And there's many examples of those over the past few years with an acceleration into 2023. We also see how AI can help to drive improvements in the effectiveness of our work. It can augment, not replace roles to make people more productive. And we already see that AI augmented work is driving better ROI for our clients. You saw that in the Amazon PDP generator we shared at the Capital Markets Day. And this leads us to believe that we can improve our pricing to clients on the back of improved financial returns on their marketing investment. AI will also offer us the ability to develop new business and financial models and to accelerate the shift away from hours-based compensation to remuneration more linked to results, particularly again in areas such as commerce and medium production, where a meaningful percentage of our remuneration today is already non-hours-based. And lastly, we see the ability of AI to make us more efficient, to reduce our back-office costs, and to improve productivity. I'm sure we'll get into it in the Q&A, but these are all reasons why we see AI as an opportunity for us in the future. On page 23, turning to the second element of our strategy, creative transformation. And at the Capital Markets Day, we did spend some time demonstrating to you the link between creative, production, and media, and how these disciplines increasingly integrate to drive success for clients. At the heart of our work is creativity. And there's no bigger platform on the world stage for creative excellence than the Super Bowl. While for some it's a game, for us it's the Olympics of advertising and a time actually when viewers look forward to the ads, maybe a few times in the year. If you look at the viewing, you can see why. This year's Super Bowl was the most watched event on US TV since the moon landing had an average viewing of 123 million people across all platforms, not just on linear TV, but on many of the streaming platforms. And WPP agencies were this year responsible for the creative work on 12 TV spots and bought media for 19 spots. Really significant involvement, given there are only 57 spots in the Super Bowl. Forbes magazine, in an assessment of a number of indicators, called out what they evaluated to be the top five ads at the Super Bowl. I'm pleased to say that four came from WPP agencies. So the work we did for Verizon from Ogilvy, the Heldens work, their third Super Bowl ad from VML and Mindshare, work for Progressive Insurance from VML, and the CeraVe work from WPP1's team made up of WPP agencies. These are some of the examples of the work that we're doing. Now we're really pleased by the impact, particularly the work we had for Verizon. If you remember, this was a client that Oakley won during the course of 2024. And the work that they did with Beyonce at the Super Bowl was judged by many commentators to be the ad that won the Super Bowl. So let's look at that piece if you could run that film.