WPP plc (WPP) Q2 2023 Earnings Report, Transcript and Summary

Thank you very much and welcome everyone to WPP's First Half Results. I'm here in London with Joanne Wilson, our CFO at her first set of results; and Tom Waldron, who leads our Investor Relations team. So, please do read the statement on Page 2 of the presentation. It's important. Now in terms of the presentation on Page 3, I'll cover the highlights for the year then Joanne will take us through the financial performance, and I'll come back at the end on our strategic progress and the opportunities ahead of us before we take everyone's question. So turning to the highlights on Page 4. I'd say we had resilient growth in the first half overall with growth of 2%. And it's important to understand the breakdown of this growth so we can evaluate really what happened. To start with we did see growth slow from 2.9% in Q1 to 1.3% in Q2. And the world outside the US represents around 63% of our business. We actually saw growth accelerate from 3.2% in the first quarter to 5% in the second quarter and this reflected a pretty strong performance in the second quarter in the UK; in Germany at 6.6%; we saw a recovery in China from negative to 4.8% having been down 13% in the first quarter. All of this suggests actually a pretty robust client spending environment. Similarly, we saw continued growth in GroupM at 6.1% in both Q1 and Q2 globally, reflecting strong client spending. And our Public Relations business grew and perhaps somewhat more slowly, but actually fairly consistently at around 2% in both the first and the second quarter. Ogilvy, particularly had a strong performance in the first half, on the back of good client wins at the end of last year and really a recovery in performance of that business after perhaps a couple of disappointing years. The part of our business that we have seen a shortfall has been in the United States with the gap versus our expectations in the prior year, really been focused on technology clients and technology-related projects. We did flag earlier this year that we've seen some slowdown in spending from technology clients on marketing but this accelerated in the second quarter. Perhaps it took us maybe a little bit by surprise. The reasons differ by clients and actually not all clients are down but the general trends are one I think cost control; a focus on margins after a significant slowdown in their own rapid rates of growth; and perhaps a different stage of the innovation cycle. As others have mentioned, we've also seen delays in decision-making on some technology-related projects, primarily in our creative agencies that is Wunderman Thompson, VMLY&R and AKQA. We saw work being pushed out and lower revenue in technology consulting and development parts of these companies. In this context, it's worth reminding ourselves that our creative agencies have a broad service offer and an increasing amount of their work comes from outside of the traditional agency remittance areas such as marketing technology, e-commerce, data consulting and other technology-related services. Together, this meant that our revenues in North America declined by 4.1% in Q2 having grown in Q1. There are some other minor elements impacting this from some weakness in the telco sector linked to technology delays on a client -- and also a client loss in the retail sector. But the primary explanation is the reduction of technology in telco spend. If you look at it overall it had around a 1.9% impact on WPP's revenues in Q2 but obviously a significantly bigger impact if you look at it just in the United States. Now it's fair to say that we do see our technology clients as important long-term partners and drivers of our growth. It's not the case, as I mentioned that revenues at all of them have declined and we're not going to call them out one by one but we are confident that our relationships are in a good place. This doesn't reflect the loss of assignments but we don't see any reason why their spend should not recover in the future. Our clients in some of the world's largest companies by market capitalization, they're growing and investing in exciting new areas but we do believe that they need to put significant investments behind their brands and into their customer relationships in the future. So with that as background at the same time we have continued to strengthen our offer to clients and to invest in the future. We had a very strong performance at Cannes Lions winning five Grand Prix and a total of 165 Lions. Mindshare were named Media Agency of the Year. As importantly, the Effie awards which recognize effectiveness in marketing, WPP was named the most effective communications company in the world with Ogilvy leading as well. There was a little talk in our industry partnerships around AI we're doing an increasing amount of work in this area. Every week I see strong examples of work we're doing for clients and we'll share some of that later on in the presentation. We've also made a number of acquisitions. I'd like to highlight too, particularly in the area of influencer marketing Goat and Obviously. So, turning to our profitability. Given our revenue performance we saw disciplined cost control. It's been important. And as a result we delivered an operating margin of 11.5%, which is up 1.1% on a like-for-like basis albeit down 0.1% on last year due to FX effects. Our margin benefit from good control of staff costs, it was achieved despite higher IT costs from further investment in modernizing our platforms and higher severance costs. Taking that all together for the full year, we considered our guidance as you can imagine very carefully and have decided to revise it to 1.5% to 3% for the year overall while holding our margin guidance at around 15% for the year at 2022 exchange rates. I'm sure we'll get into a discussion of our guidance in the Q&A, but it's worth saying that some of the reduction is due to the softness that we saw in Q2. We've really taken three factors into account. First I think we're being rightly cautious about the pattern of spending by technology clients and on technology projects in the second half. Secondly, we have seen continued growth as I pointed out actually an acceleration in the rest of the world and the issues we've seen have been largely concentrated in the United States. But it's fair to say the economic environment does remain uncertain. And while there's more positive signs in the US regarding the control of inflation, there are also issues around consumer spending as COVID savings get spent. And then the third area that we are aware are that comparatives in the second half of the year are somewhat easier than in the first half of the year. So taking these sort of pluses and minuses together we think a range of 1.5% to 3% while wider than we may like is probably the right place to guide you at this point in the year. So with that as sort of introduction Joanne, why don't you take us through the financial performance.

So thank you Mark, and good morning everyone. So let me take you through the financial results for the first half of 2023. And I'll start on Slide 6. First half revenue less pass-through costs was up 5.5% on a reported basis and 2% on a like-for-like basis. Our reported growth includes a 2.6 percentage point tailwind from FX due to sterling weakness and a 0.9 percentage point contribution from M&A. As Mark mentioned, this is a softer like-for-like growth than we had anticipated impacted primarily by a slowdown in spending of our technology clients in the US and delays in technology-related projects. Turning to the headline income statement on Slide 7. Overall revenue less pass-through costs was £5.8 billion, an increase of 5.5% year-on-year with headline operating profit of £666 million, up 4.3% year-on-year. This resulted in a reported operating profit margin of 11.5%, down 10 basis points year-on-year. We have seen an adverse FX impact on margin of 20 basis points, as a result of the recent strengthening of sterling. On a constant currency basis, our margin improved 10 basis points year-on-year reflecting improved staff and other costs, offset by planned higher IT investment and higher severance costs. Moving down the P&L. As shared at prelims, income from associates excludes any contribution from Kantar in 2023 under IAS 28, due to its no carrying value on our balance sheet. Net finance costs increased during the year due to higher levels of debt and lower investment income as a result of a disposal in 2022, and that was partially offset by higher interest income. Reflecting the tax rate of 27% for the half and non-controlling interest of £37 million, the profit attributable to shareholders is £361 million resulting in a headline diluted EPS of 33.1 pence, which is broadly flat year-on-year. Moving to Slide 8 and the reconciliation between our headline and reported profit. As well as the usual amortization and impairment of intangibles, our headline operating profit of £666 million is adjusted for goodwill impairment totaling £53 million, which relates to two of our smaller businesses within Specialist Agencies. In the half we incurred restructuring and IT-related transformation costs of £54 million and ERP costs of £24 million consistent with our full year guidance of £180 million. As indicated at prelims, we have conducted a review of our property portfolio and as a result we are consolidating our office space in the US and in small number of other markets. The full year 2023 impairment costs related to this review are primarily non-cash and are expected to be £220 million with £180 million in the first half. The expected cash impact of £20 million will be incurred as leases expire. The above together with some smaller items results in an overall adjustment of £360 million and reported operating profit of £306 million. Moving on to Slide 9. Our Global Integrated Agencies grew 2.2% on a like-for-like basis. GroupM, our media planning and buying business grew 6.1% with consistent performance across Q1 and Q2. This is offset by a weaker performance from our integrated creative agencies which saw an overall decline of 0.8% in the half with growth in Q1 being more than offset by a decline in Q2. GroupM benefited from growth across all regions and we saw the ramp-up of some good assignment wins including Discovery in the US, Flutter in the UK and Maruti Suzuki and Reckitt in India. We also saw continued strong growth in programmatic and connected TV advertising driving double-digit growth in GroupM Nexus. Digital is now 49% of GroupM billings, up from 48% in full year 2022. Across our integrated creative agencies, Ogilvy grew well supported by recent new business wins including Verizon and SC Johnson. Hogarth our creative production agency also enjoyed strong growth and expanded its collaboration with other WPP agencies. Our other global integrated agencies Wunderman Thompson VMLY&R and AKQA Group were adversely impacted in the first half by reduced spend across tech sector clients predominantly in the US, longer lead times on technology-related projects and expected client losses in the US retail sector. For the Global Integrated Agencies as a whole, headline operating profit was £540 million, up 6.6% and the margin was broadly flat year-on-year at 11.3%. Moving on now to Public Relations on Slide 10, where we see continued demand for strategic communications with like-for-like sales, up 2.1% overall. FGS Global, our leading strategic advisory and communications consultancy, grew high single digits. KKR completed their minority investment in FGS Global last month, becoming a 29% shareholder in a transaction, which valued the business at over $1.4 billion. H&K also continued to grow, while BCW saw a small decline in the first half. Headline operating profit of £88 million represented a margin of 15% and was slightly down year-on-year. And now turning to Specialist Agencies on Page 11. Revenue less pass-through costs was up 0.2% on a like-for-like basis. CMI our US specialist healthcare media agency delivered strong double-digit growth. And Landor & Fitch saw an acceleration of growth. The performance of the longer tail of smaller agencies in this segment was impacted by tougher comps, and clients delaying projects. Operating margin of 8.6% was 2.8 percentage points lower year-on-year, primarily reflecting the runoff of a COVID-19-related contract in Germany. Turning now to trends across our key client sectors on Slide 12. We delivered strong growth in consumer packaged goods, driven by our work with The Coca-Cola Company. And we also saw good growth in the healthcare and pharma, financial services and travel and leisure sectors. Against that, we saw declines in retail as expected, given the loss of a couple of clients in the US, one competitive and the other related to supermarket consolidation. Less anticipated was the reduction in spend from clients in the tech and digital services sector, which was down almost 5% with most of the decline coming in Q2 In terms of our performance by market, on Slide 13. The US our largest market saw a decline in net sales of 1.2% in the half, with a 4.5% decline in Q2. This is primarily driven by reduced spend from technology clients and known losses in the retail sector, together with delays in technology-related project spend, which primarily impacted our integrated creative agencies. Excluding the US, we saw good growth in the first half and an acceleration of growth in Q2. The UK continued to show strong performance, with 8.2% growth in the half and faster growth in the second quarter, with particularly good performance in CPG and health care clients, and across our media business which grew double digits. Germany grew by 5.4% in the half, with strong performance in travel and leisure boosting our media business. And in China, we saw a 4% decline in the first half with growth recovering in Q2 to 4.8% albeit slightly slower than we anticipated. We expect China's growth to accelerate in the second half, reflecting easier comps and new business wins including Estee Lauder. Finally, India grew 0.8% in H1, with a tough comp of 37% growth last year. Like-for-like performance improved in Q2 to 2.5% driven by CPG clients and media wins. And we expect a further acceleration in the second half, reflecting softer comps and recent new business. As mentioned, first half operating margin reduced 10 basis points to 11.5%. Our head count-related actions drove a 30 basis points improvement to margin. Our average head count for the period was slightly lower year-on-year, with freelances over 20% lower improving our overall mix. These savings were in part offset by higher severance payments, as we move to adjust our cost base in response to a more cautious client spending environment. Personnel costs were higher driven by more in-person client meetings increasing travel spend. Additional G&A savings came from operating efficiencies, in part relating to our transformation program. And establishment costs fell as more of our people moved into campuses. IT costs rose as we previously flagged reflecting investment in our IT infrastructure, cyber capability and our move to the cloud partly offset by offshoring savings. And finally, we saw an FX headwind of 20 basis points. Turning now to our transformation program, on Slide 15. Overall, transformation savings are on track to deliver at least £450 million of annualized savings in 2023 versus the 2019 base by the end of this year, and we remain on track to achieve the targeted £600 million by 2025. We are seeing further efficiency improvements driven primarily from a consolidation of our office footprint. As mentioned, we continued to rightsize our properties and we'll see further savings from actions taken this year to consolidate our offices in the US and elsewhere. In procurement, we are starting to see benefits from our category-driven model, which is helping to consolidate our supplier base and better leverage our global scale. The secondary savings focuses on improving our operating model from simplifying our ways of working. And the final area is, from our functional spend including shared services. In addition to the IT offshoring that I referenced, we continued to make progress with our ERP consolidation. Maconomy has now rolled out in 17 Latin American and APAC markets, and we continue to deploy Workday in North America. Moving to Slide 16, and cash generation and uses over the last 12 months. In June last year, our net debt was just over £3 billion. And since then we generated £2.1 billion of operating cash and saw a benefit from trade working capital of £165 million, with much of that coming through in the quarter just gone. Our non-trade working capital was an outflow of £316 million, with the largest drivers being landlord incentives relating to our campus program, sales and other taxes and bonus accruals. Interest lease payments and corporate tax outflows were as normal. And CapEx was £210 million, with investment primarily in our tech capability and campuses. Total cash returned to shareholders was £584 million, in the form of dividends and share purchases and we saw acquisitions and disposals of a net £433 million. Other movements primarily include the impact of FX on our operating cash flows and earn-outs. Together these increased our net debt by around £300 million and our average adjusted net debt-to-EBITDA ratio of 1.68 times. And now turning to a reminder of our capital allocation policy on page 17. Our first priority is organic investment to support growth which includes investment in Choreograph, our data company; and WPP OPEN, our AI-powered agency operating system as well as our IT infrastructure and campuses. Our dividend policy targets a payout of 40% of EPS and we've declared an interim dividend of £0.15. We will also invest in acquisitions in attractive growth areas which accelerate our capabilities as recent examples being in the influencer marketing, PR, and branding. And finally we will seek to return any excess capital to shareholders. With our leverage ratio currently within our target range, we will limit the buyback of shares to cover the dilutive impact of our employee share program, which will be around £37 million in the first half. And finally for me just to take you through the guidance for 2023 in slide 18. As Mark has already said, we expect like-for-like revenue less pass-through cost growth of 1.5% to 3% for the full year. This compares to previous guidance of 3% to 5% growth for the year. Our expected M&A contribution remains at 0.5% to 1%. And we now expect a two percentage point headwind to net sales from FX over the full year. Previously that was a 1% tailwind. FX is also expected to have an adverse impact of 25 basis points from the full year margin based on 31st of July rates. Guidance for headline income from associates of circa £40 million is unchanged with no contribution from Kantar included in that figure. Headline tax rate of 27% is also unchanged and we now expect CapEx to be £250 million down from previous guidance of £300 million. Restructuring costs including property impairments are now expected to be around £400 million with restructuring and transformation-related spend of £180 million as previously guided and approximately £220 million of costs relating to the impairment of right-of-use property assets, of which £200 million is noncash. Trade working capital is expected to remain flat with the non-trade working capital outflow of approximately £150 million consistent with previous guidance. And finally on net debt we expect our average leverage ratio to within our target range of 1.5 times to 1.75 times. The forecast net debt at the year-end expected to be £2.5 billion consistent with the year-end 2022. So, thank you and I will now hand you back to Mark to update you on our strategic progress.

Thanks very much Joanne. So, turning to our strategic progress, I wanted to update you on what we're seeing in the market what we're hearing from our clients and also share some more progress on our investments in AI. So, on page 20, it is clear that our clients are facing an ever more complex environment. Leave aside the macro uncertainty and the need to spend behind their brands to support price increases driven by inflation, the market environment just continues to post more opportunities and challenges. To name just three. First there are many new ways to reach consumers from Netflix taking advertising to Uber also building an advertising business. These present new opportunities to advertise, but also more fragmentation and complexity for clients. It is also a more political environment where positions taken a year ago on social issues that may have felt right are now coming under question. And thirdly, there's a whole topic of AI and how that may impact marketing and where clients need to invest. Faced with this on slide 21, we highlight what we see as our clients' priorities and let's take each one of these five priorities in turn. First on slide 22, it is evident that clients continue to invest in brands. Whether you look at the GroupM advertising spend forecast or the recent Citi CMO survey, you can see the advertising expenditure paid media is continuing to hold up well. We're seeing this in group where we achieved 6.1% growth in both the first and second quarters. And what as we covered we've seen some softness in Q2 in technology clients and technology-related projects. We don't see this as a broader pullback. These clients understand the importance of supporting their brands. And on slide 23, we continued to do well in new business winning assignments from many of the world's leading companies and brand owners. In the first half, this included new assignments from existing clients such as Ford; new clients such as easyJet where we won the European media; and Maruti Suzuki, India's second largest advertiser now takes us to work with I believe 48 of India's top 50 advertisers and marketers. The second priority to highlight on slide 24 is creativity and effectiveness which both remain probably our client's number one priority. Cannes Lions, WPP did very well as I mentioned winning five Grand Prix and 165 Lions in total with Mindshare being named Media Network of the Year. But the other half of marketing is effectiveness because we do great creative work for clients it will be reflected in the effectiveness of the work and results that clients see. And here we also did well with WPP being recognized as the most effective communications company globally and Ogilvy taking Network of the Year at the most recent Effie Awards. Thirdly on slide 25. In the face of this complexity and the need for big creative ideas to deliver effective marketing, clients are looking at their marketing partnerships and seeking simplicity transformation. Perhaps the most ambitious examples around the world is our relationship with The Coca-Cola Company, which we believe is the first of its kind model and in our view not the last. At its heart it's creative excellence, powerful creative platforms that leverage one data and technology platform, but also provide local intimacy with the benefits of global scale. This will focus on driving revenue growth and consumption growth to top-line growth for the client. But at the same time, there are two important principles. The first is to deliver efficiency. The company consolidated from really 7,000 agencies to one global marketing partner. And at the heart of it is also transformation where simple model allows The Coca-Cola Company to transform how it's marketing, while it's marketing not as a separate exercise but part of how it approaches the future. And we're now seeing nearly two years into this partnership is delivering great results which you can see in this quote, but more importantly in their financial results. The fourth priority is technology and data on slide 26 as these two elements really underpin modern marketing. Here you've seen news today our partnership with Spotify as well as other recent partnerships with leading data and technology partnerships. The Spotify partnership gives us access to the rich insights into music consumption and consumer trends. It also allows us to access their audiences without the use of cookies and to build innovative new products and creative platforms with them. It's a very broad and very deep partnership with one of the most important new platforms or fast-growing platforms. That takes us to slide 27 and last but not least the topic of AI. We thought it would be helpful to look at some data on the impact of AI on marketing. There isn't much but this data taken from research by Citi we think is the first of its kind. And we do think there is some consideration given the debate about the impact of AI on marketing and on the agency business. And what this data shows is that whether it's overall advertising spend or marketing intentions or the amounts that CMOs believe they will spend on agency services they don't see these amounts going down. In fact 85% expect the amount spent on advertising to go up significantly more or somewhat more and 78% expect the same to be true of agency services. And only a tiny number of clients expect their spend to be down somewhat less or significantly less. Now it's early days, but I do believe that the survey points to the understanding by the CMOs that a lot of what we'll use AI for is to deal with complexity in their business to help them overcome this complexity and produce the volume of assets they need more cost effectively to target their media and marketing more effectively and to power their creative ideas. This investment in the AI will allow them to succeed in this new environment not allow them to significantly reduce their spend and this really tallies with our experience to-date with technology where the parts of our business the most impacted by it media production have for some time been the fastest-growing part of the business. On slide 28, we do have broad capabilities across our client -- across WPP. If you look at what we're doing with clients today creatively we've been using AI to power creative work for some time. The example, The Next Rembrandt from Wunderman Thompson for ING was back in 2016 so some seven years ago. In production, we'll talk later about our unique partnership with NVIDIA but this really highlights the opportunities AI to create more personalized and relevant work also much more cost effectively. And lastly in media, as you'd expect given the amounts that we're investing AI is an extremely important lever driving up returns in a much more complex digital environment. So on page 29 rather than announcements let's talk about some of the work that we're doing today for our clients. And the work really spans three areas of our business: first supercharging our creative work; secondly, scaling personalization; and thirdly, maximizing performance. And taking each of these in turn. We shared many examples with you or a few examples with you over the last few calls of how we're using AI to power our work from the Nike work featuring Serena Williams to the Nestle work for La Laitière. This time we'll share some work for Virgin Cruises starring JLo. And you can see how AI brings this idea to life. So please would you play the film? [Video Presentation] Okay. So that's a fun example of using AI. I think what's important is it indicates how our creative teams are really embracing this technology to bring their ideas and I think that's a pattern that we see really across the business. The second area of our work is really around scaling personalization. The personalization we found is really one of the greatest drivers of production complexity and cost. And this example relating the work we've been running for Cadbury's in India shows how we can use technology to produce highly scaled personalized work to reach millions of people. It uses AI to create personalized birthday songs for individuals, uses some key AI technology say text to script to write the script, machine-generated generative AI to write the music, but also GenAI-based images for the video. We're not going to play it today, but you can click on the link and see how we use these three different AI technologies to bring the idea to life. And the last area of work we're delivering to clients is this creative lift -- CreateLift [ph] product that's come out of our partnership with Google. This uses the Google Vision API to understand video to understand the elements of the video and really to figure out how to optimize those to drive performance. It's based on a benchmark database of 3,500 videos. And rather than using A/B testing really evaluate -- uses AI to evaluate the elements of the video against previous work allows us to drive the creative work to optimize the various creative elements of the video and drive performance. So I touched on page 30 earlier about our partnership with NVIDIA. This is something that we announced back in May. Actually Jensen Huang announced at their COMPUTEX event back in May. There's been a source of a lot of interest from our clients who are looking to use the power of generative AI but are concerned around copyright and using brand-safe assets. At the heart of this partnership and the video will do a better job than me of explaining it is the ability to combine generative AI images with brand-safe and product-compliant content that comes directly from the client's systems. It really brings us the best of both worlds that the film would highlight. And as you watch the film, please bear in mind that all of the video in it was generated by AI. So please if you could play the film on page 31. [Video Presentation] Thank you very much. So as you can see we're really bringing this type of technology used to create Hollywood movies to the advertising business. It solves a number of issues facing our clients and we're starting to use that to produce work for clients. So last it'll be worth highlighting amp, an acquisition of a sonic brand that we made in April last year. It's an excellent example of how generative AI can be used to build a business and strengthen one's relationship with the client, ensuring that we can build an enduring relationship rather than somehow being disintermediated by the technology. As a leading branding agency, amp decided to approach the opportunity to sonic branding from an AI perspective and they use AI to understand a brand sonic identity and our client have been then able to use this to produce new sonic branding elements like ring tones or jingles or background music, or music for adverts themselves. The platform provides both governance of the brand and the branding, but also very low cost assets. We license this platform to brands and then charge them the use of the platform to create new sonic elements. Now at the heart is, obviously, the creative work, but amp also generating ongoing license fees and using their technology platform is one of the models I think that's likely to proceed in the future. So I hope you can see we've got a very comprehensive approach to AI. These are many of the products and services that we're deploying today and we have further products in development that we'll be able to talk to you about when they're ready. So in summary on page 31. It's fair to say we're facing a mixed market environment. GroupM continues to perform well. The regions of the world outside of the US saw a good Q2 with growth accelerating and China recovering will be maybe a little bit slower than we had anticipated. At the same time, lower spending by technology clients and non-technology related projects has impacted our business primarily really in the United States. We continue to make good strategic progress and I think we have a particularly strong approach to the opportunity of AI, but we are continuing to invest in data and technology to grow the capabilities in the business via bolt-on M&A. And our transformation program remains on track to deliver savings. Through disciplined cost control we've been able to improve the margin by 10 basis points excluding FX. And as we said at the start of the call, we are revising our guidance for the year from a revenue perspective to 1.5% to 3% and maintaining our margin -- headline margin at around 15%, excluding the impact of FX. So those are our sort of formal remarks. We can now take questions. So if -- we'd like to invite the first question then, Joanne and I will see how we can help.

Thank you. Our first question today comes from Lisa Yang from Goldman Sachs. Lisa, please go ahead. Your line is open.

Good morning and thanks for taking my question. I've got three. The first one is on the weakness you're seeing from tech clients. I'm just wondering, what has really changed in the last sort of one to two months that sort of caught you by surprise? What message were you getting from your tech clients in terms of when they would intend to basically resume spending? And I was just wondering, like, how much of that weakness is sort of more temporary and just a pure company growth spending as opposed to like a post-COVID reset and something a bit more structural. So any color on that would be really, really helpful. The second question is on margin. Obviously, you've done a great job at protecting the margin, despite weaker growth. But just thinking longer term, I think a question for Joanne, what makes you confident that you will still be able to achieve that sort of 15.5% to 16%? I think previously you said this, could be achievable in 2024 2025. So just wondering like based on your observations so far, what makes you confident you'll be able to get there? And what are the actions or sort of your weak revenues you're taking to improve your margin going forward? And the third question is on net new business. Obviously there's always some wins and losses. But could you maybe just help us quantify the potential impact on the net new business on the organic growth in H2 and also in 2024, based obviously on what has been announced so far. And you also said, there's a larger pipeline of potential new business activity. So how well -- how big of an opportunity you think this is for WPP? Thank you.

Okay. So I'll take the first and the third question. And Joanne, will add anything and then discuss the margin. I think on tech clients, we had flagged that we've seen a little bit of weakness earlier in the year, but I think it really accelerated in the second quarter. And you can see that both in the numbers and also the impact really in the US. I'd say, as to -- I don't believe that it's a reset. I think others have said the same thing. I think that those companies are some of the world's largest advertisers. And the impact on us is greater given that we have I think 18% of our revenues from technology companies. So by implication, we'd probably be a little bit more impacted than others. Again, I don't think that it's -- that we see it as a reset. I think that they faced both, two or three years of strong growth. They had their own cutbacks to make. And then at the same time I think we're in an interesting point in the innovation cycle where, they've got a lot of products ready to market, but the business models are not necessarily entirely clear for them. And I think if they've become clearer I think that we'll see a greater volume of marketing around many of these new products. On the net new business number it is -- much as we'd like to win everything, that's impossible. And there are some things that we win and do well on like, Coca-Cola and there are other things that where we do less well on. I'd say, it has been a little bit being open with you a little bit disappointing in the first six months of the year. We did have one loss in the healthcare sector. So we'll have to see how that plays out over the balance of the year and into next year. It will be a little bit of a drag. So we're expecting towards sort of the fourth quarter and into next year. But as I said, we have a very strong pipeline. Perhaps, some of that pipeline is built up because of the length of decision-making in people. But we have got a strong pipeline. And we continue to have a strong offer. I think lead in many areas. There's, many strengths in WPP's business that I think will be reflected in our new business in the future. Joanne, you want to take the margin question?

Yes. Good morning, Lisa. Thanks for the question. So look, just in terms of the medium term 15.5% to 16%. Look, I'd say three months in there's nothing that I see and no reason why we won't get there within that timeframe. And what I would say is, more than that we are incredibly focused as a business on delivering our medium-term margin target. So yes, for now we're absolutely focused on that. In the first three months reflection is it is a flexible operating model, and we've shown that in the first half in how quickly we've been able to respond to some of the cautious spending signals that we have seen from clients. We ended June with our permanent head count down year-on-year and our freelance is actually down 20%. So a mixed benefit as well as an overall quantum. And that really helps, as we think about the cyclical business how we manage the margin around that. But looking more medium term, there are a number of areas where I see opportunities and it's probably worth just giving you a little bit of flavor on that. Back-office efficiencies, if I look at what the business has done in the last few years, I think a really great job in simplifying and driving efficiency across mostly at front-office including some of our long tail of smaller markets. And we have done work on our back-office as well including some off-shoring. And we are on a program as you know the ERP consolidation which will be a key enabler to standardize automate and then drive further efficiencies. So that is going to be an unlock for us. But that is a multiyear program as I think you know. And we always said that that would be towards the back end of our program through 2025. And the other area, we talked about the flexible operating model. I think as well there's more that we could probably do on utilization and pricing across all of our markets. So that will be another area for us to continue to work on. And we have done some country simplification as I talked about, but there is more that we can do. So continuing on that country simplification will also help drive profitability. In our front and medium office, if you like we have done some off-shoring so primarily around production in Hogarth and Wunderman Thompson and our commerce business in GroupM around ad ops and other areas just to give you a flavor of what we've done. But there is more opportunity. We have now got scale across our off-shoring hubs. And certainly we'll be able to do more of that and look to consolidation to consolidate more of our production. And finally a big opportunity for us is just really leveraging our scale better. So we've started to do that with procurement and our category management approach. We've had some quick wins and we'll continue to focus on that across both our IT, contract spend, travel and other areas of the business. So hopefully that gives you a flavor of how we're thinking about it. But I'll just leave you with we are incredibly focused on it as a business and looking to deliver that by 2024 to 2025.

That’s very helpful. Thank you.

Thank you. Our next question is from Julien Roch from Barclays. Julien, please go ahead. Your line is open.

Yes. Morning, Joanne and Mark, Tom, Caitlin and Anthony. And welcome Joanne to your first results call. Proper baptism of fire I suppose. Now for my scene WPP has been one of my top picks. And today, I'm not getting much love. So apparently, your P&L are made up because you are more addicted to constant restructuring that I am to Grand Cru Burgundy. Believe you me that's not a good thing. And you generate poor cash flow because of working capital ouch. So that brings me to my first two questions. Joanne can you tell us how do you feel about restructuring charges and your view of a normalized level of restructuring by 2025 once the heavy lifting is done? I'm hoping for 0 as an answer. And two, can you tell us what you can do to your working capital about zero like most of the agencies. You are the only one splitting working capital between trade and non-trade with only one of the two at zero. And then third unrelated question. What was the organic in the first half 2023 of your offer in experience commerce and technology? Thank you.

Okay. Thank you, Julien for that introduction. And let me just take your first question on restructuring. As we embarked on this program, I guess when Mark took over we talked about the complex nature of WPP and the fragmentation across the business and it would be a multi-year program to unlock some of that. As I said, I think we've made good progress on our front office more to do in our back office. And in answer to the question of what should normalized restructuring be, I agree that it should be zero in any business. And we have elevated restructuring costs this year, most of which or a large chunk of which are non-cash relating to the property impairments. The restructuring costs relating to really two buckets our IT transformation -- IT infrastructure transformation and our ERP program is £180 million and that is cash. So through to 2025, I think we'll continue to see a restructuring cost around IT and ERP program. I think most of the IT restructuring cost will finish in 2024 and the ERP ones will certainly go on to 2025. So we'll see them for the next couple of years. But I mean looking at our cash more generally, we are also focused on how do we improve our cash conversion. I think our CapEx as well has been elevated in the last few years as we have embarked on our campus strategy, which has been a positive for the business. We've had to pivot a little bit with changes in ways of working post-COVID, but that is a much more efficient way of working for our people. And that CapEx will start to come down from 2024 onwards. So we'll see CapEx nudge down a bit. In terms of working capital, so just starting with trade working capital. We saw a big outflow last year in 2022 which we talked about. But if you look at performance since 2019, actually our trade working capital has improved by about £1 billion. Now we won't stop there. We had a better performance in Q2 this year with a business that's very, very focused on it and we'll continue to be focused on that trade working capital in the back end of the year. As a reminder, media business has billings of over $60 billion a year. So it is incredibly volatile and can be volatile quarter-to-quarter, but we need to be focused on our trade working capital to make sure that that's optimized. We continue to make progress on it. Just on our non-trade working capital, I touched on some of the buckets that's within that. It's really as our bonus accruals move year-on-year our landlord incentives which hopefully we run off as we come to the end of our campus program or it reduces slightly. And those incentives are where landlords pass back cash for building campuses. So that's a big number within that. And then we have some sales and taxes relating to GroupM and that can fluctuate in a year-to-year. And the final one is around IT contracts where we have more prepayments. So that will just give you a flavor of what's on -- in non-trade working capital and that has been elevated in recent years. This year we are forecasting £150 million outflow. And again, that will be an area of focus for the business. So, overall working capital an improvement this year versus last year, but still more to go and a big focus area for us as well as is our overall cash conversion.

On ECT, Julien, I mean, I think, that it's basically flat in the first six months of this year. I think that probably shouldn't be surprising given what we talked about in terms of technology-related projects. And I think that the progress will return as that part of the business returns to growth as well. We continue to see it as a long-term driver of growth. I think what you've seen this year actually maybe the last 18 months is perhaps stronger growth in communications in the more traditional part of our business than people expected. So the ECT sector has not progressed perhaps as we would have expected, but I think that it continues to be a long-term faster growth part of our business. And we shouldn't forget that there's many parts of our communications business that are increasingly deeply driven as well.

Just to clarify, Julien. When Mark said flat, so it's flat as a percentage of our overall creative agencies revenue, so around 39%. So, we have seen some growth, but it's flat as a share of that revenue.

Yes.

Okay. Thank you.

Thank you. Our next question is from Matthew Walker from Credit Suisse. Matthew, please go ahead. Your line is open.

Thanks a lot. Hi, Mark. Hi, Joanne. The first question is on tech. Obviously, you don't have a crystal ball, but the tech actual advertising numbers are getting better in terms of their revenues. So when do you think that they will start marketing again? Is it related to product innovation, or is it going to be related to their revenue growth? So could we see some in the second half of 2023, or do you think it's more likely that they rebound from a marketing point of view in 2024? Second question was you mentioned margin and staff utilization hopefully getting better. Do you have something like Marcel, which can increase utilization? Are you working on anything like that, or what is the sort of WPP solution to utilization? And then the final question was on the property. Are you going to increase the £600 million savings target as a result of the charges taken against property?

Okay. So if I tackle technology clients, I mean, as you say, I don't have a crystal ball. I do think that there's a -- we're sort of at a unique point where growth has slowed. The companies have driven their share price by rebuilding margins. And we're at a point in the innovation cycle where there's an article in the FT today that talks about the number of new products being launched, but clients not -- but technology companies not entirely clear on what the business model is associated with that. And that very much bears in line the conversations I've had with these companies around the product innovation. So I would expect that to revert. But I think that we're rightly being cautious about the likelihood of that happening in the course of this year and that's reflected in perhaps the range of the guidance. If you think about our guidance on a second half basis it's sort of 1% to 4% in the second half and that's a fact reflected in that range. Now these clients haven't totally stopped spending. It's really that they pulled back and I don't think that that will continue forever. On the topic of sort of Marcel and staff allocation, we do have systems in each of our businesses that help us identify staff. We are using AI to pull staff from our systems to put on projects. Actually interesting Satalia, the AI company is used by one of the big four accounting service firms to allocate their staff to projects. And we have had a lot of success. And you will see some of the success we've had in reducing our freelance cost by better utilizing staff across the business both within our agencies and across our agencies. And that is something I think that we will continue to implement. Joanne, do you want take that.

Yes. Yes so just on the -- and hi, Matthew. Just on the property savings. So this year certainly underpins the £450 million, which gives us confidence we'll deliver at least the £450 million this year. But I mean looking at real estate as a whole there are other areas of inflation. Energy is higher. As we open campuses we see higher facilities costs associated with that. So all of that savings this year which we estimate to around £30 million doesn't necessarily flow to the bottom line. And in terms of the £600 million the way, I think, you should consider it is it accelerates us towards the £600 million rather than we'll now overlay the £600 million savings. £600 million is a bigger number, but certainly it will help us accelerate to that target.

Okay. Thanks a lot.

Thank you. Our next question is from Tom Singlehurst from Citi. Tom, please go ahead. Your line is open.

Yes. Good morning. It's Tom here from Citi. Thank you for taking the question. I've got two broad questions although the first one is a two-parter, so I'll just warn you on that.

It sounds like four, Tom.

Yes, yes exactly. It's three questions really. First group of questions. If we characterize, it as being sort of spend that is quasi-CapEx that's being delayed and spend that is cost of goods sold that's continuing, I think, that's possibly the way we interpret GroupM chunking along at six and some of the project-based work coming under pressure. I suppose the first question is are you more exposed to CapEx style work in the US and COGS like work internationally? Is there a sort of structural exposure issue that explains the growth differential, or do you think it's macro? That was the first question. And then the second one is linked to that. When you speak to your fellow CEOs what is the fact they're looking for to help get the confidence to turn the CapEx style spend back on? So that's -- those are the first two questions. And then the second one is -- or the third one is you're guiding to 1.5% to 3% which is for the second half 1% to 4%. But given what's happening in the rest of the world and that's quite robust and possibly gets better are you really just saying that the US could be anywhere between minus 5% and plus 1% in the second half? Is all of that variance in the US essentially? Thank you.

I don't even know where to begin Tom. I think the answer to your first question I think that's a good way of thinking about it in terms of sort of quality CapEx and quality cost of goods sold and it kind of explains why GroupM has continued to grow. I think the reason the impact is in the US and in our integrated creative agencies is more to do with where those clients spend most money and where we do most work for them. And also we happen to be probably stronger in our creative agencies and we probably do -- we do some media for those technology companies, but not media for all of those technology companies. So it's really a question of where the balance of work has fallen. I think if I talk about client confidence as at the CEO event earlier this week I think the confidence is not bad, but not good. I think it's probably pretty much where it was three months ago. You will have seen your peer Goldman reduce their recession risk. I mean there's a sense that U.S. inflation is a bit back under control but some nervousness as they start thinking about consumer spending. So I think we're really seeing -- trying to evaluate what would happen to technology spend and technology-related projects and how clients will start to sort of reinvest in the more as you call it CapEx-intensive parts of the business. I'll let Joanne sort of talk to the guidance for consistency.

Yes. So Tom, if you think about 1% to 4% in the second half maybe let me start at the bottom end of that. So in Q2 we saw our like-for-like drop to 1.3%. And as we roll forward I mean what are we seeing today? I think we'd say things feel like they're stabilizing so they're not getting any worse they're not getting any better. And if that like-for-like performance continued through the second half with a little bit more caution would that be about 1%. So that's really how we think about that bottom end albeit we do have softer comps in the second half. So it does assume a further deterioration and it's probably a cautious bottom end of our range as you'd expect. In terms of the top end the 4% that reflects really the softer comps that we see in the second half. So if you look at last year in H1 we grew at 0.9%. In H2 we grew 5.1%. So that should be a tailwind in the second half. And we have visibility of new business some new business that we won only at 2022 that's ramping up and we'll start to see more of a benefit from that as we go through the back half of Q3 and into Q4 and also some more recent new business wins in the last four weeks to six weeks that we will ramp up again sort of in that time period to the end of Q3 and through Q4. So good visibility on that. I think what is unknown of course is what stops. So in the tech space in Q2 we haven't lost clients. It's clients choosing to either reduce spend or delay projects across mostly ECT. And what happens to that in the second half that's really the unknown. And then of course as Mark talked of the macro it is still very uncertain business looking like that. And that's really resulting in the caution that we're seeing across our client base which our peers have talked about as well. So that's really how we're thinking about the 1% to 4% in the second half.

Okay. Thank you.

Thank you. We have no further questions. So I'd like to hand back the call to Mr. Mark Read for further closing remarks.

Very good. Well thank you very much everybody for listening. And as you can see we did -- we had a mixed first half of the year. But I think we should take some comfort from the performance outside the United States. No doubt the United States was impacted as we talked about by the impact of technology companies. I think we should be pleased as well with the disciplined cost control and the improvement we made in the margin on a like-for-like basis in the first half of the year. We'll continue to focus on those elements in the rest of the year. So thank you everybody for joining us.