Wpp Plc Ord New

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.

Broke the internet again. Did you post this? No. Well, not on purpose. Well, it's coming in hot. It's Verizon 5G. The network is crazy powerful. I bet you can't break that. I bet I can. Wait, what? Beyonce breaks the Internet, so can she break Verizon? Broken?

No.

Time for a surprise drop. Did I break it? You broke me. Oh, no. Say my name. Beyonce. But it still didn't work, so... Introducing... Beyonce Oz. What? Seriously? How about Barbette? I'm running for Beyonce of the United States. Can you hear me now? No, Frankie. Volumen in the sphere. No, on the sphere. You're working. How about the first woman to launch the first rocket for the first performance in space?

Horizon didn't break.

You ain't gonna break me.

Still works. Okay, they ready. Drop the new music.

All right, so we indulge you with the full 90 second version. Why is that important? Why start with should remind us that in this digital age, there's still some events to bring people together and the Super Bowl is one of them. And we also have the Olympics coming up this summer. These events aren't just linear TV events, although that's at the heart of them. They're multimedia digital events. There's many, many digital elements around our work for Verizon amplified the idea. That said, at the heart of it was a creative idea from a talented team, and the power of creativity is its ability to amplify a client's investment. The Super Bowl at $7 million for 30 seconds isn't cheap, but clients are really looking for a meaningful financial return. And while we can't yet share details of the business impact from that work, I can say that clients saw a meaningful increase in the business following Super Bowl. On page 24, the third element of our strategy is building world-class brands, and six brands a day account for approximately 90% of WPP's business. We share here some of the business that those brands have won over the course of the past year. Just to highlight some examples here, VML won the Krispy Kreme business globally, the first new business win is VML, has been followed up by several wins since then. Ogilvy had a very strong business performance, led to their growth, not least Verizon, also wins globally, and in Europe, the business has done well. Hobart had an excellent year, supported by many new business wins and expansion of key client relationships. And Group M, while it may have had a more challenging time in terms of new business in the United States, has been successful globally. Wavemakers topped the global new business charts, and they won a number of important global reviews, not least the Nestle business in Europe. And lastly, on the next page, we lay out, at our Capital Markets Day, our medium-term financial framework of 3% plus organic growth, 16% to 17% headline operating margin, 85% adjusted operating cash flow conversion, and 1.5 to 1.75 times average net debt headline EBITDA. All of that supported by a disciplined capital allocation. So on the last patient, 28, what we discussed the capital markets there. I just conclude by touching on the investment case for WPP. I think we've covered is our unrivaled global reach and scale our ability to help global and domestic champions reach their clients. We operate in attractive and growing addressable markets. We have deep client relationships with many of the world's leading businesses. We work with three of the world's four biggest companies by market capitalization. They rely on WPP for growth. We have a strategy to lead through AI data and technology supported by an investment of 250 million pounds a year. a strong investment-grade balance sheet, and lastly, and by no means least, world-leading talent ambitious for the future. All of this is aimed to deliver accelerated growth, margin expansion, and improve cash generation to drive returns for our shareholders. So that's what we're absolutely focused on as a team. Thank you for listening, and now we'll take your questions.

Thank you. Of course, if you'd like to ask your question via the telephone lines, you can do so by pressing star followed by 1 on your telephone keypad. If you choose to withdraw your question, please press star followed by 2. When preparing to ask your question, please ensure your phone is unmuted locally. As a reminder, that's star followed by 1 on your keypad now. Our first question comes from Laura Metaya of Morgan Stanley. Laura, your line is open. Please go ahead.

Hi, Mark. Hi, Joanne. Thank you for taking my question. Three questions, please. The first one is on the Group M growth acceleration this quarter. Can you give us a little bit more details on what drove the growth acceleration? Second question is on the assumption for the low end and the high end of your growth guidance. Is it fair to assume that the biggest moving part is the return of tech clients at spend? And then the third question is regarding open AI that recently announced Sora, the AI model that can create realistic scenes from text instructions. Just curious how you think about the impact that it can have on your business and if you think it can be an opportunity for your business and your industry. Thank you.

Joanne, why don't you take the financial questions and I'll finish up on the AI question at the end.

Okay. Well, just starting with your first question on GroupM, we were pleased with the performance in Q4, so It grew at 5.7%, and that was higher than the Q3 growth. We always see Q4 as a strong quarter for our media business. I think we have tougher comps in Q3 as well, which impacted that year-in-year growth. And as we look forward into 2024, we're expecting to see continued good growth in 2024, but obviously that growth will be impacted by some of the client decisions in 2023, particularly in the U.S. business. In terms of the growth guidance, 0% to 1%, in terms of Q4 trends, as we said, we saw similar trends to Q3. We'd expect the H2 trends from 2023 to continue through H1, that being the macro, some uncertainty still. And in terms of client activity, losses that we saw in 2023, we started to see some impact from that in Q4. And those will continue throughout 2024, particularly weighing on the first half. As we shared at the Capital Markets Day, if we look at our comps, Q1 is our toughest comp at 2.9% growth in 2023. Q3 is our easiest comp, which is negative 0.6. And so I think that will also impact the year-on-year growth that we are seeing. And just finally, what I'd say is, you know, we've talked about our pipeline being higher than it was this time a year ago. It's more skewed to offensive pitches, which is good. And of course, we will start to lap the impact from the tech sector from Q2 onwards. So I think it's too early to call a recovery in the tech sector, but certainly it feels like that's stabilizing and the comms will get easier from Q2. So overall, Laura, I think the way you should think about it is growth skewed to H2 and And just given all of the factors I talked about, I think we'll expect to see negative like-for-like growth in Q1.

Thanks, Joanne. Now, on the AI video, look, I think it's impressive. At one level, that shouldn't be a surprise, but it does remind us of the speed and pace at which innovation is taking place in AI. I don't think it changes our strategy. In fact, I think it reinforces what we're doing. What clients need is you know, work that's copyright proof, that they're able to accurately represent their brands and reality. And so it's not yet at that stage. And I think as we showed at the capital market today, you know, our strategy is very much to work with these models and work with the technologies out there, but adapt them to use them for our clients and apply our understanding of brands and marketing and creative work to direct them in ways that they're most effective for clients. And I think that shows what we can do. We've shown examples with you, the past of the work that we're doing with NVIDIA. We again mentioned in NVIDIA's conference call, earnings call yesterday, one of their partners, key strategic partners in this area, to deliver video using AI. And I think that's sort of a direction in which clients will go that's copyright safe and protects and highlights their brands in ways that they would want.

Very clear, thank you.

Thank you. Thank you. Our next question comes from Lisa Yang of Goldman Sachs. Lisa, your line is open. Please proceed.

Good morning. I have three questions, please. Firstly, you mentioned in terms of new business environment, there are more offensive pitches. I was just wondering if you can comment on how well you think WPE is positioned, I think, in those pitches and What sort of, you know, gives you that sort of confidence that you could potentially, you know, win many of those pitches? And what are the clients really looking for? I think those pitches, I think they'll be really, really helpful. The second question is on capital allocation. I don't think you gave an M&A envelope for this year. I think last year was $300 to $400. And some of your peers, I mean, probably since they increased actually their M&A spend for this year to $700 to $800 million. So I'm just wondering how you think about the priorities for the company in terms of the leveraging versus M&A over the next few years, and is there a risk that the gap could potentially widen versus some of your peers if you do less M&A? And the third question, thanks for giving the guidance on PACs and interest for 24. I think at the CMD you mentioned these items would be headwinds for the medium-term cash generation. Is there any sort of comment you can give on tax and interest beyond 24 or is 24 the peak? Thank you.

Okay. Well, I'll tackle the new business question and then Joanne can take the follow-ups. But I think in terms of new business, as we said, our pipeline is very strong. It's probably a little bit more offensive for us than it is defensive, but we do have defensive reviews that you would know about. I think the reviews span creative, media, and production. And we are going to highlight all of the capabilities that we highlighted in our capital market today to demonstrate to our clients why we would be the best partner for them. I think we absolutely have the capabilities that they need in terms of skills, investments in technology, geographic expertise. I expect AI to be a big focus of reviews, looking to see who's best positioned to partner with them on that in the future. I think in each of those cases, we have a strong case to make. Our industry, as you know, Lisa, is competitive, and we won't win them all, but we're absolutely focused on winning as many as we can.

Just taking your other two questions, Lisa, on capital allocation and M&A specifically, you shouldn't read anything into the fact that we haven't given specific guidance. Over the last few years, we've spent around $200 million to $300 million on M&A. As we set out at the Capital Markets Day, we think our M&A approaches work well for us, buying businesses that accelerate our capability and tend to be high-growth businesses, and we'll continue to look for those opportunities. At the CMD, we also talked about our priorities from a capital allocation perspective, starting with our organic investment. We shared some of what we've done with regard to organic investment over the last few years. We brought that to life for you, hopefully, at the CMD, and we'll continue to prioritize that in 2024. In terms of the risk of the gap widening, though we don't think that's a risk, I think we're very confident in our capabilities, in particular WPP, Open, and AI. and we'll continue to invest in those in 2024. As regards to tax and interest, maybe start with interest. So, the increase in 2024 is really a result of rising interest rates as we've refinanced our bonds. So, we have a full year impact of the 23 refinancing and 24. I'd expect, you know, the 295 million to really be the peak of our interest costs. They'll probably stabilize around that level. and over the medium term come down. In terms of tax, the reasons for the increase in tax this year are the BEPS 2.0 and the minimum tax and also interest deductibility caps. I think rising interest rates more generally interest deductibility caps and withholding tax will continue to put some upward pressure on our tax rate beyond 2024. That's helpful, thank you.

Thank you. Our next question comes from Nicholas Langley of BNP Paribas. Nicholas, your line is open. Please go ahead.

Hello. Good morning, everyone. So I've got three questions, please. The first one on the AI investment. So of the £250 million you plan to spend annually, how much was already spent in 2023? And what's the net addition we should expect in 2024? Second, on media in the U.S. So during the CMD, you mentioned the new strategy in the country to improve the go-to-market there. How long will it take to materialize a new contract gain and supply? Is it something already visible at the end of 24 or not? And finally, on China, we are now four months after the bad press report in the country. What has been the feedback from clients here? What's the situation in the country for your media business and what they would look for 24? Thank you.

All right. So what might tackle those? Look, I think on the AI investment, really we're talking about the 250 million going into AI. It's not really possible to say what's incremental and what's not incremental. You saw an increase in investment in technology from 22 to 23, which is significant. And we expect some of that refocus to take place in 24. I think the thing to focus on is it's included within our budgets and Really, the investment in AI 10 years ago was zero, and now it's 250 million. So I think of that on that basis as being 250 million of incremental investment from where we started. In terms of the go-to-market, I think that we're very focused on new business, and we expect to have an impact as we go through the year. And lastly, on China, I can't comment on the specifics of what's going on in the market, but China has been a challenging market for us. and for others, and we do expect it to continue to be challenging from a macro perspective in 2024. Thank you.

Thank you. Our next question comes from Tom Singlehurst of Citi. Tom, your line is open. Please go ahead.

Yes. Thanks. It's Tom here from Citi. Thanks for the presentation. the sort of standard three questions, I'm afraid. First one, on organic growth, last year, especially at the 2Q and the 3Q, it felt like the sort of outturn caught you by surprise as well as us. Now, I'm conscious that might have just been a function of a tough last month of each quarter, but can you just talk more broadly about visibility and and how much visibility you think you have on the year, and therefore on the phasing of growth. That was the first question. Second question, on the new business side, the $4.5 billion figure is a nice, big, chunky number. It's slightly down year on year, but it's still big. I just wanted to check whether that included retentions as well as sort of new, new business, and then I suppose overall for the year, would we expect the contribution from new business wins to be net positive, albeit I'm conscious Pfizer will be – the loss will be skewed to the first half and wins may take some on.

Why don't I take that and Joanne add what you want on the first question. Look, I think visibility in our business has always been good until it's not good. And I think that we were – We did not expect the cuts in technology spend that happened throughout the year to take place when we started the year. I don't think it's a month end in a quarter issue. It's just that we saw, you know, continued series of cuts as those companies adjusted their budgets to affect reality. And maybe they were slow to tell us what they planned. But I think it was a surprise to us as we went through the year. And the biggest delta versus our budget, you know, we expected to see some pressure in retail, which we knew about that, but the biggest delta versus our budget was in technology companies, which you know is 20% of our business. We have the biggest exposure in our industry out there. In terms of new business, we don't include retentions. It's wins or losses. We don't include retentions. Some of the convergent, some of the media analysts do that, but that's not the basis on which we do that. And then the last question, Tom, sorry, remind me. You didn't write it down.

Actually, no, I hadn't got there, but I was going to say... You hadn't got there? Oh, okay. Yeah, well, that's fine, that's fine, that's fine. Saving it up. Yeah. I was going to say, though, on that point about budget cuts creeping up on you, do you think budget recovery will creep up on you, or is that more visible?

Well, I think if we look at our technology clients in 24... Given the comparatives, they don't turn positive in Q1, but we do expect them to be much more stable for the year overall. And I think we probably would expect to see a little bit more stability after the adjustments they've made last year.

Fair enough. And the final question was going to be, I mean, you sold a couple of investment stakes. There's obviously been the discussion about weighing options for Cantar. Is there a systematic process in place to wind down investments and holdings or is it an ad hoc opportunistic policy?

I think we look at it systematically but we're governed by when we can get the right price in terms of shareholder value. So we do look at it consistently but the opportunities don't always present themselves when you want. I think you asked me a question on your business. Look, I think that The reality is that we will be impacted by losses in the beginning of the year. And, you know, we will see an underlying positive impact from new business if we're successful over the course of this year. So I'd say, you know, it's why we do expect the business to be somewhat second-half weighted. I think Joanne, do you want to add anything on the visibility or?

No, I mean, I think, you know, Mark's pretty much covered it. the big drivers will be tech recovery for us, which we've talked about. We like our exposure to tech, and that will recover at some point. The timing's a bit uncertain. We talked about macro, H1 versus H2. The expectation is that the macro will improve from the H2, and then, as Mark said, really new business. I think that's how you should think about the biggest factors.

Very clear. Thank you.

Thank you. Our next question comes from Adrian Dessant-Hilaire of Bank of America. Adrian, your line is open. Please go ahead.

Thank you. Good morning, and thank you for taking the questions. I've got a few, if that's okay. So, first of all, how much pricing contributed in your 2023 like-for-like growth? I think you previously talked about two or three points. How do you think about 2024? And I've got two questions for Joanne. Bit of an academic question, but in 2023, there was a negative impact of FX on margin, but you're not assuming this for 2024. Why is that not the case given the dollar move? And the third question is, could you provide a bit more guidance on what you would expect the cash flow conversion or generation to be for 2024, or perhaps go straight to what you expect average net debt to be for 2024, at the end of 2024? Thank you.

Why don't, Jan, why don't you tackle them all?

Yeah, so, I mean, on pricing, you know, we talked about 2% to 3%. I think that's a reasonable assumption on 2023. Obviously, wage inflation is stabilizing a little bit and so I expect similar levels in terms of pricing in 2024. Of course, as you'll know, Adrian, in our business, it's not as simple as just looking at pricing increases and applying that to the top line. It's much more nuanced, the conversations that we have with clients. around passing on inflation that we're seeing, but also delivering efficiencies in how we operate with them and how that gets shared. In terms of the negative impacts of the 25 basis points, and that was really driven by the US dollar and sterling exchange rate. And what really is a big factor in the FX impact on our profitability is the weighting through the year. So each month, the buildup of that through 2023 contributed or resulted in that 25 basis points. And as we look at the rates as they stand today, we expect, I'm ticking into that, but the weighting, the profit mix through the year, we expect that to be flat on profit as we go through the year, but 2% headwind on the top line. And then on the cash flow conversion, I mean, you asked about net debt. I'd expect net debt to end up broadly a flat year-in-year in terms of how we think about cash. We've given some guidance. Restructuring costs will be a little bit higher because of the mergers and the Group M simplification. We've shared what that looks like. CapEx will be a little bit higher. That was really driven by a one-off CapEx. related to some IT assets that we are in housing, and that will impact in 2024. And then we have the interest and the tax cash headwinds as well, and I'd expect working capital to be improvement next year. So when you take all of that into the mix, I think you should assume net debt will be flat.

And that's reported net debt and not average net debt, just to be clear.

Yes.

Yes. Thank you, John.

Thank you. As a reminder, if you wish to submit a question, please press star followed by 1 on your telephone keypad. Our next question comes from Julian Roche of Barclays. Julian, your line is open. Please go ahead.

Yes. Good morning, and thank you for taking the question. My first question is I know it's not something you've focused on on Investor Day anymore, and it's more a relic of the 2020 Investor Day. But when you go to creative being up 2% to get to your 3% within creative, you have some faster growth business. You used to call them data commerce and technology. You have Volgas. So it used to be about 39% of creative ex-group M or, sorry, of globally integrated agencies ex-group M. if we could get the historical number for 23 or some indication of how much it was of GIA. That's my first question. And then the second question is going on page 17 of the presentation to get to free cash flow. You've given us some indication on CapEx, taxes and interest, but taxes and interest are P&L, not cash flow. So I was wondering whether you could give us some indication on cash net interest, cash taxes, and also if there's any variation in rent for 24. Thank you.

All right. On the first point, thank you for referring to our relics. I think that we just didn't find looking at it was communications, experience, commerce, and technology helpful in terms of It's not the way we run our business. It's not the way clients buy our services. It's not the way we invoice it. Those are difficult to track. I don't think it was that helpful. So I don't have a number comparable to the 39%. If you remember, when we came back out of COVID, we did see very rapid growth in the communications part of our business. And actually, we've seen, as you know, during 23, some pullback on the technology part. But like others have said, Julian, I don't think those sort of year-on-year movements reflect the, you know, the secular and structural trends, I think, continue to persist towards technology. I think the best way for you to look at our business is the way we look at it. And I think that that's what the disclosure currently supports. Joanne, we'll take the rest of Julian's questions.

Yes. So, look, Julian, I would expect interest and tax from a cash perspective to increase as well, along with the P&L impact. And on rent, I'd expect rent to be probably slightly up on the year, just reflecting some of the inflation-linked leases that we have.

Okay. Thank you.

Thank you. Our next question comes from Adam Berlin of UBS. Adam, your line is open. Please go ahead.

Yeah. Hi. Good morning, everyone. Two questions left from me. The first one is within global integrated agencies, you're showing the split between GroupM and the others, which I suppose is the creative agencies, which accelerated, decelerated to minus 3.4% in the quarter. Can you just give us a split of how much of that decline was due to account losses versus cuts from your existing clients and maybe some commentary about how that will look in Q1? That would be helpful. And then the second thing on interest costs. you've got a fair amount of bonds coming up over the next few years to renew. Are you planning just to use cash to pay down some of those bonds or to renew them all? And if you're going to just renew the bonds, can you give us a sense of what the interest rates you're seeing in the market are like at the moment as you do that? Thanks.

Yeah. Okay. So I think in terms of that split, I think the biggest impact that we had that was had on our creative businesses was really lack of new project work, particularly in a more technology-related area to replace technology work that naturally finished. And we only really had one significant client lost last year, which you know was Pfizer, but that was substantial. And that did impact the creative agencies largely, you know, starting in Q4. But I'd say that in the main, we had a good new business performance overall with that exception. Actually, R3 cable came out yesterday. This week ranked WPP second across creative plus media. It was strong creatively. You know, it's talked about Ogilvy's very strong new business performance during the year, and Ogilvy did grow. But I think the impact on our creative agencies is largely project-related technology work. and work from technology clients where they are particularly strong. Joanne, do you want to take the second part?

Yeah, so just on the bond refinancing that we did last year, we've refinanced that bond at 5.1%. Our blended interest rate is 3.25%, and so as we refinanced Our bonds this year, I'd expect that blended interest rate to increase 10, 20 basis points. And your interest rates are, of course, expected to come down. But I'd expect that they'd be refinancing at up at around 5%. It is our intention to refinance those bonds as they mature.

Thank you very much.

Thank you. As a final reminder, if you wish to submit a question, please dial star followed by 1 on your telephone keypads now. We'll just pause briefly to allow for any final questions to be registered. At this stage, we have no further questions registered, so I'll hand back over to Mark Reed for any closing remarks.

So thank you very much, everybody. I think hopefully that was all clear. We know what we need to get on with in 2024. So thank you all and we'll keep in touch.