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 convergence. 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. I didn’t write it down.
Tom Singlehurst: Actually, no, I haven’t got there, but I was going to say–
Mark Read: You haven’t got there? Okay.
Tom Singlehurst: Yes. That’s fine. That’s fine. 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?
Mark Read: Well, I think if we look at our technology clients in ’24, given the comparatives, but 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 of the adjustments they’ve made last year.
Tom Singlehurst: Fair enough. The final question was going to be, I mean, you sold a couple of investment stakes that has obviously been the discussion about weighing options for cancer. Is there a systematic process in place to wind down investments in holdings or is it an ad-hoc opportunistic policy?
Mark Read: No. I think we look at it systematically. But with government 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 new business, look, I think that the reality is that we will be impacted by losses in the beginning of the year and – but we will see an underlying positive impact from new business if we’re successful over the course of this year. So I’d say, it’s why we do expect the business to be somewhat second half weighted. Joanne, do you want to add anything on the visibility or?
Joanne Wilson: No. I think Mark 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 is 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, winning new business. I think that’s how you should think the biggest factors.
Tom Singlehurst: Very clear. Thank you.
Operator: Thank you. Our next question comes from Adrien de Saint Hilaire of Bank of America. Adrien, your line is open. Please go ahead.
Adrien de Saint Hilaire: 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 and how do you think about 2024. And then I’ve got two questions for Joanne. A bit of an economic 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 cash-flow conversion generation to be for 2024 or perhaps go straight to like, what do you expect average net debt to be for 2024 – at the end of 2024? Thank you.
Mark Read: Joanne, why don’t you want to tackle them all?
Joanne Wilson: Yes. I mean, on pricing, we talked about 2% to 3%. Yes, I think that’s a reasonable assumption on 2023. Obviously, wage inflation is stabilizing a little bit, and so we expect similar levels in terms of pricing in ’24. Of course, as you all know, Adrien, and our business is not as simple as just looking at a pricing increases and applying that to the topline is much more nuanced to the conversations that we have with clients around half in all the stations that we’re seeing, but also delivering efficiencies and how we operate with them and how that gets shared. In terms of the negative impacts of 25 basis points, and that was really driven by the U.S. dollar and sterling exchange rate and what really is a big factor in the FX impact on our profitability is the waiting through the year.
So each month, the buildup of that through 2023 contributed a result in that 25 basis points. And as we look at the rates as they stand today, we expect, I’m taking into that the waiting and 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 topline. And then on the cash-flow conversion, I mean, you asked about net debt. I would expect net debt to end up broadly as flat year-on-year in terms of how we think about cash and we’ve given some guidance, restructuring costs will be a little bit higher because of the mergers and the GroupM simplification, and we’ve shared what that looks like. CapEx will be a little bit higher. That’s really driven by a one-off CapEx related to some IT assets that we are in-house payment that will impact in 2024 and then we have the interest and the tax cost headwinds as well.
I’d expect working capital to be improved in the next year. So when you take all of that into the mix, I think you should assume that that will be flat.
Adrien de Saint Hilaire: And that’s reported net debts and not average net debt, just to be clear?
Joanne Wilson: Yes.
Adrien de Saint Hilaire: Yes. Thank you, Joanne.
Joanne Wilson: Thank you.
Operator: Thank you. [Operator Instructions] Our next question comes from Julien Roch of Barclays. Julien, your line is open. Please go ahead.
Julien Roch: Yes, good morning, and thank you for taking the question. My first question is, I know it’s not something you focused on in the Investor Day anymore, and it’s more relic of the 2020 Investor Day. But when you guide to creative being up 2% to get to your 3% within creative, you have some faster gross business. You used to call them data commerce and technology. You have Hogarth. So it used to be about 39% of creative, ex GroupM, or sorry of Global Integrated Agencies, ex GroupM. If we could get the historical numbers 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 is any variation in rent for ’24? Thank you.
Mark Read: All right. On the first point, thank you for referring to our Relic. I think – 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. So it’s just 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, Julien, I don’t think those sort of year-on-year movements reflect the secular and structural trends to 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, can you take the rest of Julien’s questions?
Joanne Wilson: Yes. So, Julien, 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.
Julien Roch: Okay. Thank you.
Operator: Thank you. Our next question comes from Adam Berlin of UBS. Adam, your line is open. Please go ahead.
Adam Berlin: Yes. 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 as the creative agencies which were – 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. We – 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 these bonds or to renew them on, 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.
Mark Read: Yes, okay, look, I think in terms of that split, I think the biggest impact that we had of that had on all creative businesses was really lack of new projects work, particularly in more technology-related areas to replace technology work naturally finished and we’ve only really had one significant client loss last year. As you know, it was Pfizer but that was substantial and that did impact the creative agencies largely starting in Q4. But I’d say that in the main, we had a good new business performance overall with that exception. Actually all three came out yesterday in which we ranked WPP second across creative plus media and we’re strong creatively. Talked about Ogilvy has 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?
Joanne Wilson: Yes. So just on the bond refinancing that we did last year, we’ve refinanced that bond at about 5.1%. Our blended interest rate is 3.25%, and so as we refinanced our blonds this year, I’d expect that blended interest rate to increase 10, 20 basis points and interest rates are of course expected to come down. I’d expect that we’d be refinancing it up at around 5%. It is our intention to refinance those bonds to mature.
Adam Berlin: Thank you very much.
Operator: Thank you. [Operator Instructions] 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 hand back over to you, Mark Read, for any closing remarks.
Mark Read: 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.
