REG - WPP PLC - 2023 Preliminary Results
22/02/2024 07:00
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RNS Number : 0232E WPP PLC 22 February 2024
2023 Preliminary Results
Resilient performance in 2023 with 0.9% like-for-like growth and improved
headline margin up 0.2pt like-for-like. Investing in AI and innovation to
deliver improved growth, margin and cash
Key figures
£m 2023 +/(-) % reported(1) +/(-) % 2022
LFL(2)
Revenue 14,845 2.9 3.2 14,429
Revenue less pass-through costs 11,860 0.5 0.9 11,799
Reported:
Operating profit 531 (60.9) 1,358
Profit before tax 346 (70.1) 1,160
Diluted EPS (p) 10.1* (83.5) 61.2
Dividends per share (p) 39.4 - 39.4
Headline(3):
Operating profit 1,750 0.5 1,742
Operating profit margin 14.8% 0.0pt 0.2pt 14.8%
Profit before tax 1,525 (4.8) 1,602
Diluted EPS 93.8 (4.8) 98.5
* includes the impact of accelerated amortisation of previously indefinite
life brands and impairment of leases related to the 2023 property review
Full year and Q4 financial highlights
• FY reported revenue +2.9%, LFL revenue +3.2%
• FY revenue less pass-through costs +0.5%, LFL revenue less
pass-through costs +0.9%
• Q4 LFL revenue less pass-through costs +0.3% with ex-US(4) +3.1%
benefiting from strong growth in the UK and India partially offset by declines
in Germany and China. US Q4 LFL decline of 4.5% primarily due to lower spend
by technology, healthcare and retail clients, partially offset by growth in
CPG, telecoms and automotive sectors
• Global Integrated Agencies FY LFL revenue less pass-through costs
+1.3% (Q4: +0.7%): within which GroupM, our media planning and buying
business, grew +4.9% (Q4: +5.7%), partially offset by a 1.6% decline in other
Global Integrated Agencies (Q4: -3.4%)
• Solid new business performance: $4.5bn net new billings(5) (2022:
$5.9bn) with Q4 net new billings $1.1bn (Q4 2022: $0.8bn). The current
pipeline of potential new business remains higher year-on-year
• FY headline operating profit margin in line with original
guidance(6) of 15.0% (excluding the impact of FX). Headline operating profit
margin of 14.8% (2022: 14.8%) reflecting a 0.2pt drag from FX, disciplined
cost control and continued investment in our technology, data and AI offer
• Reported EPS of 10.1p (2022: 61.2p) reflects the impact of
accelerated amortisation of intangible assets as a result of the creation of
VML, and property impairments announced earlier in the year
• Headline EPS of 93.8p (2022: 98.5p) reflects a zero contribution
from Kantar in income from associates in 2023, which in 2022 represented 3.3p
in headline EPS(7)
• Adjusted operating cash flow of £1,280m (2022: £669m)
reflecting an improved working capital performance
• Adjusted net debt at 31 December 2023 of £2.5bn, flat
year-on-year
• Final dividend of 24.4p proposed (2022: 24.4p) resulting in a
proposed total dividend of 39.4p (2022: 39.4p) in line with our payout policy
of approximately 40% of headline diluted EPS
Strategic progress and 2024 guidance
• VML launched in January following the merger of VMLY&R and
Wunderman Thompson with senior leadership appointed. GroupM simplification
plan on track. Burson, created from the merger of Hill & Knowlton and BCW,
scheduled to launch in July
• Acquisitions in the year included influencer marketing agencies Goat
and Obviously and are contributing well to growth
• 2020 transformation programme gross annual savings of £475m in
2023 against a 2019 base, ahead of planned £450m, with savings from our
campus programme, procurement initiatives, simpler WPP and lower travel costs
• 2024 guidance: LFL revenue less pass-through costs growth of
0-1%, with improvement in headline operating profit margin of 20-40bps
(excluding the impact of FX)
Innovating to Lead
At our Capital Markets Day in January 2024 we announced the next phase of our
strategy - 'Innovating to Lead' - which is built on four strategic pillars:
1. Lead through AI, data and technology, by building on our leadership
position in the application of artificial intelligence through the acquisition
of the AI research firm Satalia in 2021; organic investment in WPP Open, our
AI-driven platform, client technology and data; and deep partnerships with
strategic technology partners such as Adobe, Google, IBM, Microsoft, Nvidia
and OpenAI. Our plans include annual cash investment of around £250m in
proprietary technology to support our AI and data strategy
2. Unlock the full potential of creative transformation to drive growth,
expanding our client relationships by further leveraging WPP's global scale,
integrated offer in creative, media, production and PR, and capabilities in
growth areas such as commerce, influencer marketing and retail media to
capture share in a growing market
3. Build world-class, market-leading brands through our six powerful agency
networks - VML, Ogilvy, AKQA, Hogarth, GroupM and Burson - which now represent
close to 90% of WPP's revenue less pass-through costs, and in particular reap
the benefits of unrivalled scale from VML as the world's largest integrated
creative agency, leverage GroupM's simplified operating model and scale as the
world's largest media agency and establish Burson as a leading global
strategic communications agency by bringing together BCW and Hill &
Knowlton
4. Execute efficiently to drive strong financial returns, by delivering
growth and structural cost savings from the creation of VML and Burson, and
simplification of GroupM, unlocking scale advantages and further efficiency
savings
Our strategy will continue to be underpinned by a disciplined approach to
capital allocation with ongoing organic investment, a progressive dividend
policy and a disciplined approach to M&A, supported by a strong balance
sheet and an investment grade credit rating.
Mark Read, Chief Executive Officer of WPP, said:
"At our recent Capital Markets Day we detailed our strategy to capture the
opportunities of AI, data and technology, while harnessing the full power of
our offer to clients, building world-class agency brands, and driving strong
financial returns through efficient execution.
"AI will be fundamental for our business and we are embracing the
opportunities that it presents, putting it at the heart of our operations and
our work for clients. Our AI-powered platform, WPP Open, is now being used by
more than 30,000 people across WPP with growing adoption by our clients.
"While 2023 was more challenging than we expected due to cuts in spending by
technology clients, we delivered a resilient performance for the year with
0.9% like-for-like growth and a 0.2 point improvement in our headline
operating margin at constant currency. This was driven by disciplined cost
control, while continuing to invest in AI, data and technology.
"Our net new business of $4.5bn in 2023 included major new assignments with
clients such as Allianz, Krispy Kreme, Mondelēz, Nestlé, PayPal and Verizon
and reflects a stronger year-on-year performance in the fourth quarter.
"We are optimistic about the strategic opportunities ahead of us and are
confident that we can deliver accelerated and increasingly profitable growth
over the medium term."
WPP's 2023 Preliminary Results announcement has been submitted in full
unedited text to the Financial Conduct Authority's National Storage Mechanism
and will be available shortly for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Report is also available
at http://www.rns-pdf.londonstockexchange.com/rns/0232E_1-2024-2-22.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0232E_1-2024-2-22.pdf) and
on the WPP investor relations website www.wpp.com/investors.
For further information:
Investors and analysts
Tom Waldron +44 7788 695864
Anthony Hamilton +44 7464 532903
Caitlin Holt +44 7392 280178
irteam@wpp.com
Media
Chris Wade +44 20 7282 4600
Richard Oldworth +44 7710 130 634
Buchanan Communications +44 20 7466 5000
press@wpp.com
wpp.com/investors
(1.) Percentage change in reported sterling.
(2.) Like-for-like. LFL comparisons are calculated as follows: current year,
constant currency actual results (which include acquisitions from the relevant
date of completion) are compared with prior year, constant currency actual
results from continuing operations, adjusted to include the results of
acquisitions and disposals for the commensurate period in the prior year.
(3.) In this press release not all of the figures and ratios used are readily
available from the unaudited interim results included in Appendix 1.
Management believes these non-GAAP measures, including constant currency and
like-for-like growth, revenue less pass-through costs and headline profit
measures, are both useful and necessary to better understand the Group's
results. Details of how these have been arrived at are shown in Appendix 2.
(4.) The aggregate of markets outside the US.
(5.) As defined in the glossary on page 46.
(6.) Original FY23 guidance given on 23 February 2023.
(7.) In accordance with IAS 28: Investments in Associates and Joint Ventures
once an investment in an associate reaches zero carrying value, the Group does
not recognise any further losses, nor income, until the cumulative share of
income returns the carrying value to above zero. At the end of 2022 WPP's
cumulative reported share of losses in Kantar has reduced the carrying value
of the investment to nil.
Full year overview
Revenue was £14.8bn, up 2.9% from £14.4bn in 2022, and up 3.2%
like-for-like. Revenue less pass-through costs was £11.9bn, up 0.5% from
£11.8bn in 2022, and up 0.9% like-for-like.
Q4 2023 % % % %
£m reported M&A FX LFL
Revenue 4,116 0.4 1.3 (4.2) 3.3
Revenue less pass-through costs 3,211 (2.8) 0.9 (4.0) 0.3
2023 % % % %
£m reported M&A FX LFL
Revenue 14,845 2.9 1.2 (1.5) 3.2
Revenue less pass-through costs 11,860 0.5 0.9 (1.3) 0.9
Business segment review
Business segments - revenue less pass-through costs
% LFL +/(-) Global Public Relations Specialist Agencies
Integrated Agencies
Q4 2023 0.7 2.4 (6.8)
2023 1.3 1.4 (3.4)
Global Integrated Agencies: GroupM, our media planning and buying business,
grew well in 2023, benefiting from continued client investment in media, with
like-for-like growth in revenue less pass-through costs of 4.9% (Q4 +5.7%),
partially offset by a 1.6% LFL decline at other Global Integrated Agencies (Q4
-3.4%).
GroupM grew in all major regions with mid-single digit growth in ex-US markets
and low-single digit growth in the US. The digital billings mix within GroupM
increased to 51% (2022: 48%).
Ogilvy's performance benefited from recent new business wins including SC
Johnson and Verizon, which contributed to mid-single digit growth.
Hogarth grew well benefiting from increased spend by CPG clients and growing
demand for its technology and AI-driven capabilities as clients seek to
produce more personalised and addressable content.
Other Global Integrated Agencies: Wunderman Thompson and VMLY&R (which
were merged in January 2024 to become VML) and AKQA felt the greatest impact
from reduced spend across the technology sector and delays in
technology-related projects. Revenue less pass-through costs in the retail
sector was impacted by 2022 and 2023 client losses and lower spend by some
retail clients in an uncertain macroeconomic environment.
Public Relations: FGS Global continued to grow strongly in 2023, while Hill
& Knowlton delivered modest growth lapping strong performance in 2022;
partially offset by a weaker year for BCW.
Specialist Agencies: CMI Media Group, our specialist healthcare media planning
and buying agency, grew strongly, offset by declines at Landor and Design
Bridge and Partners. Our smaller specialist agencies continued to be affected
by more cautious client spending, including delays in project-based spending.
Regional review
Regional segments - revenue less pass-through costs
% LFL +/(-) North America United Kingdom Western Continental Europe Rest of World
Q4 2023 (4.1) 5.1 (0.8) 5.3
2023 (2.7) 5.6 1.8 3.7
North America declined by 2.7% in 2023 reflecting lower revenues from
technology clients and in the retail sector. This was partially offset by
growth in CPG and telecommunications. Lower revenues from technology clients
had a greater adverse impact on our integrated creative agencies, whilst
GroupM grew low-single digits in the region.
The United Kingdom delivered good growth, building on a strong prior year
performance (2022: +7.6%) with both GroupM and Ogilvy performing well. CPG and
healthcare were the strongest client sectors.
In Western Continental Europe, Germany, our largest market, had 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 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.
Top five markets - revenue less pass-through costs
% LFL +/(-) USA UK Germany China India
Q4 2023 (4.5) 5.1 (5.3) (1.2) 22.0
2023 (2.8) 5.6 0.1 (3.3) 7.7
Client sector review
Client sector - revenue less pass-through costs(8)
2023 % share, revenue less pass-through costs(8) % LFL +/(-)
CPG 27.0 14.2
Tech & Digital Services 17.5 (6.9)
Healthcare & Pharma 12.0 0.6
Automotive 10.3 1.3
Retail 9.2 (11.3)
Telecom, Media & Entertainment 6.4 2.9
Financial Services 6.2 4.3
Other 5.4 (3.4)
Travel & Leisure 3.5 7.1
Government, Public Sector & Non-profit 2.5 0.2
Strategic progress
Clients: We won $4.5bn of net new business in 2023 (2022: $5.9bn) including
the loss of certain Pfizer creative assignments. Key assignment wins include
Adobe, Allianz, Estée Lauder, Ford, Hyatt, Krispy Kreme, Lenovo, Lloyds
Banking Group, Maruti Suzuki, Mondelēz, Nestlé, Pernod Ricard, SC Johnson
and Verizon.
Creativity and awards: Creativity is applied to everything that we do at WPP,
and we are proud that our world-class talent has continued to be recognised
through prestigious awards. We had another successful year at the Cannes Lions
International Festival of Creativity, with WPP agencies winning a total of 165
Lions including one Titanium Lion, five Grand Prix, and 24 Gold awards.
Mindshare was named Media Network of the Year.
At the Effies, WPP was awarded the most effective communications company
globally, with Ogilvy ranked the most effective network. WARC named WPP the
top company in all three of their rankings, the Creative 100, Effective 100
and Media 100 lists. Ogilvy ranked as the top network of the year in both the
Creative 100 and Effective 100 while EssenceMediacom took first place in the
Media 100.
WPP was named holding company of the year and VMLY&R network of the year
at the New York Festivals Advertising Awards. Ogilvy was the most awarded
agency at the Global Influencer Marketing Awards for the fifth year running
and was recently named AdWeek's 2023 Global Agency of the Year. Gain Theory,
WPP's global marketing effectiveness consultancy, was recognised by Forrester
as a Wave Leader in marketing measurement and optimisation.
(8.) Proportion of WPP group revenue less pass-through costs in 2023; table
made up of clients representing 77% of WPP total revenue less pass-through
costs.
Investment for growth: We have invested significantly in client-facing
technology over the last five years and this continued in 2023, with
priorities including WPP Open, our AI-driven platform; Choreograph, our data
products and technology unit; and other AI tools and services delivered
through WPP Open.
WPP Open brings together all of WPP's proprietary tools, technologies, data
and services into one operating system, and is already being deployed across
some of our largest global clients, with broad adoption by over 30,000 of
WPP's people.
We have bolstered our capabilities through acquisitions during the year,
including: influencer marketing agencies Goat, based in London and Obviously,
based in New-York; 3K Communication, a Frankfurt-based healthcare PR agency;
and amp, one of the world's leading sonic branding companies. We also made a
minority investment in Majority, a diversity-focused US creative agency.
In July, KKR completed their minority investment to become a 29% shareholder
in FGS Global, after acquiring all of Golden Gate Capital's equity and a
proportion of the interests of WPP and FGS Global management. WPP remains the
majority owner at 51%. The transaction valued FGS Global at $1.425bn.
Transformation: At our Capital Markets Day in December 2020 we set out a plan
to deliver £600m of annual gross savings by 2025 against the 2019 cost base.
At the end of 2023 we had delivered around £475m of gross savings, which is
ahead of the originally planned £450m.
Savings have come from our operating model, including a simpler WPP and lower
travel costs; from efficiency initiatives driven by our procurement team and
our successful campus strategy; and from functional effectiveness, focused on
IT and finance with savings from our cloud migration and workforce
optimisation.
Our ERP consolidation has taken longer than we originally expected, but we are
realising benefits from the deployment of Workday at VML (formerly Wunderman
Thompson) in North America and from Maconomy in Asia Pacific and other
markets. We anticipate the bulk of new systems will be rolled out by 2026 with
associated restructuring costs reducing accordingly.
At our Capital Markets Day in January 2024 we outlined an updated target for
headline operating margin of 16-17% over the medium term underpinned by a plan
focused on structural cost savings and efficiencies which will enable us to
deliver more profitable growth whilst continuing to invest in the business.
This plan builds on the 2020 programme and the structural changes announced in
the last six months with the creation of VML and Burson and the simplification
of GroupM.
Structural cost savings from the creation of VML and Burson and simplification
of GroupM are expected to deliver annualised net cost savings of c.£125m in
2025, with 40-50% of those savings expected to be realised in 2024.
Restructuring costs associated with the completion of these programmes in 2024
are expected to be around £125m.
Targeted efficiency savings across both back office and commercial delivery
represent a further opportunity for annualised gross savings of around £175m
over the next three to five years which will support delivery of our
medium-term margin target and investment for growth.
Purpose and ESG
WPP's purpose is to use the power of creativity to build better futures for
our people, planet, clients and communities.
WPP maintained a low-risk rating in the 2023 Sustainalytics risk rating, which
scores the ESG performance of companies. WPP has the lowest risk rating of its
peer group and saw an improvement in its score from 12.1 in 2022 to 11.0 in
2023.
People: We are committed to building a strong, purpose-driven culture at WPP
where everyone feels valued. WPP ranked sixth best performer in the 2023 FTSE
Women Leaders ranking, recognising our gender diversity in leadership roles.
In addition, WPP was awarded Leader status for the fifth year running in the
Bloomberg Gender Equality Index. In May, eleven leaders from across WPP were
recognised in the 2023 Empower Role Model Lists, designed to celebrate leaders
who are championing inclusion for people of colour within global businesses.
Planet: In 2021, we set near-term science-based targets to reduce our absolute
Scope 1 and 2 emissions by at least 84% by 2025 and reduce Scope 3 emissions
(including emissions from media buying - an industry first) by at least 50% by
2030, both from a 2019 base year.
In April, our 2022 Sustainability Report stated that we have delivered a
reduction in Scope 1 and 2 emissions of 71% in absolute terms since our 2019
baseline. Our 2023 Sustainability Report will be issued in March 2024.
Clients: Sustainability is a priority for all stakeholders including our
clients. We aim to use our creativity for good, delivering client work which
is inclusive and accessible and supporting clients on their own sustainability
journeys. At the Ad Net Zero Awards, which recognise the companies and
organisations that are leading the way on sustainability and the move to a net
zero carbon economy, we were proud to win six awards including both
International and UK Grand Prix. The Grand Prix awards were won by
EssenceMediacom for their partnership eBay x Love Island and Grey Colombia for
their Life Extending Stickers innovation for Makro; both were recognised for
their simple, scalable solutions to shifting consumer behaviour whilst driving
material transformation within their respective industries.
Scrutiny over brands' environmental claims continues to grow. To support
clients in making effective claims, in 2023 we launched a client version of
our Green Claims Guide and ran targeted training for employees and clients in
high emissions sectors.
Communities: We aim to use the power of our creativity and voice to support
the communities in which we live and work. For example, during the year we
launched the Creative Data School in partnership with leading non-profit and
educational organisations which has already taught essential technical skills
to over 6,000 young people across the UK.
Further detail on how WPP is focused on realising a more sustainable,
equitable future can be read in our 2022 Sustainability Report
(https://www.wpp.com/en/sustainability/sustainability-report-2022) .
Outlook
Our guidance for 2024 is as follows:
Like-for-like revenue less pass-through costs growth of 01%.
Headline operating margin improvement of 20-40bps (excluding the impact of FX)
Other 2024 financial indications:
• Mergers and acquisitions will add 0.5-1.0% to revenue less
pass-through costs growth
• FX impact: current rates (at 15 February 2024) imply a c.2% drag
on FY 2024 revenues less pass-through costs, with no meaningful impact
expected on FY 2024 headline operating margin
• Headline income from associates and non-controlling interests at
similar levels to 2023
• Net finance costs of around £295m
• Effective tax rate (measured as headline tax as a % of headline
profit before tax) of around 28%
• Capex of around £260m
• Cash restructuring costs of around £285m
• Working capital expected to be broadly flat year-on-year
Medium-term targets
In January 2024 we presented updated medium-term financial framework including
the following three targets:
• 3%+ LFL growth in revenue less pass-through costs
• 16-17% headline operating profit margin
• Adjusted operating cash flow conversion of 85%+(9)
(9.) Adjusted operating cash flow divided by headline operating profit.
Financial results
Unaudited headline income statement(10):
£ million 2023 2022 +/(-) % reported +/(-) % LFL
Revenue 14,845 14,429 2.9 3.2
Revenue less pass-through costs 11,860 11,799 0.5 0.9
Operating profit 1,750 1,742 0.5
Operating profit margin % 14.8% 14.8% - 0.2pt*
Income from associates 36 74 (51.0)
PBIT 1,786 1,816 (1.6)
Net finance costs (261) (214) (21.8)
Profit before taxation 1,525 1,602 (4.8)
Tax (412) (409) (0.8)
Profit after taxation 1,113 1,193 (6.7)
Non-controlling interests (87) (93) 6.4
Profit attributable to shareholders 1,026 1,100 (6.8)
Diluted EPS 93.8p 98.5p (4.8)
*margin points
Reconciliation of profit before taxation to headline operating profit:
£ million 2023 2022
Profit before taxation 346 1,160
Finance and investment income (127) (145)
Finance costs 389 359
Revaluation and retranslation of financial instruments (7) (76)
Profit before interest and taxation 601 1,298
(Earnings)/loss from associates - after interest and tax (70) 60
Operating profit 531 1,358
Goodwill impairment 63 38
Amortisation and impairment of acquired intangible assets 728 62
Investment and other impairment charges 18 77
(Gains)/losses on disposal of investments and subsidiaries (7) 36
Gains on remeasurement of equity interests arising from a change in scope of - (66)
ownership
Litigation settlement (11) -
Restructuring and transformation costs 196 219
Property related costs 232 18
Headline operating profit 1,750 1,742
(10) Non-GAAP measures in this table are reconciled in Appendix 2.
Business sector(11)
Revenue analysis
£ million 2023 2022 +/(-) % reported +/(-) % LFL
Global Int. Agencies 12,595 12,192 3.3 3.7
Public Relations 1,262 1,232 2.4 2.0
Specialist Agencies 988 1,005 (1.8) (2.5)
Total Group 14,845 14,429 2.9 3.2
Revenue less pass-through costs analysis
£ million 2023 2022 +/(-) % reported +/(-) % LFL
Global Int. Agencies 9,808 9,743 0.7 1.3
Public Relations 1,180 1,161 1.6 1.4
Specialist Agencies 872 895 (2.6) (3.4)
Total Group 11,860 11,799 0.5 0.9
Headline operating profit analysis
( )
£ million 2023 % margin* 2022 % margin*
Global Int. Agencies 1,474 15.0 1,433 14.7
Public Relations 191 16.2 192 16.5
Specialist Agencies 85 9.7 117 13.0
Total Group 1,750 14.8 1,742 14.8
* Headline operating profit as a percentage of revenue less pass-through costs
Regional
Revenue analysis
£ million 2023 2022 +/(-) % reported +/(-) % LFL
N. America 5,528 5,550 (0.4) (0.4)
United Kingdom 2,155 2,004 7.6 6.5
W Cont. Europe 3,037 2,876 5.6 3.8
AP, LA, AME, CEE(12) 4,125 3,999 3.1 6.3
Total Group 14,845 14,429 2.9 3.2
(11) Prior year figures have been re-presented to reflect the reallocation of
a number of businesses.
(12) Asia Pacific, Latin America, Africa & Middle East and Central &
Eastern Europe.
Revenue less pass-through costs analysis
£ million 2023 2022 +/(-) % reported +/(-) % LFL
N. America 4,556 4,688 (2.8) (2.7)
United Kingdom 1,626 1,537 5.8 5.6
W Cont. Europe 2,411 2,319 4.0 1.8
AP, LA, AME, CEE 3,267 3,255 0.3 3.7
Total Group 11,860 11,799 0.5 0.9
Headline operating profit analysis
£ million 2023 % margin* 2022 % margin*
N. America 834 18.3 771 16.4
United Kingdom 215 13.2 187 12.2
W Cont. Europe 258 10.7 301 13.0
AP, LA, AME, CEE 443 13.6 483 14.8
Total Group 1,750 14.8 1,742 14.8
* Headline operating profit as a percentage of revenue less pass-through costs
Operating profitability
Reported profit before tax was £346m, compared to £1,160m in the prior
period, principally reflecting the accelerated amortisation of previously
indefinite life brands related to the creation of VML and the impairment taken
as a result of the 2023 property review.
Reported profit after tax was £197m compared to £775m in the prior period.
Headline EBITDA (including IFRS 16 depreciation) for the year was down 1.4% to
£1,976m. Headline operating profit was up 0.5% to £1,750m.
Headline operating profit margin was flat year on year at 14.8% and up 0.2
points year on year on a constant currency basis. Total operating costs were
up 0.5% to £10.1bn. Staff costs, excluding incentives, were up 0.1%
year-on-year at £7.8bn, reflecting wage inflation offset by lower use of
freelancers. Staff costs include severance costs of £78m (2022: £44m).
Incentive costs were down 8.5% year-on-year to £387m, compared to £423m in
2022.
Establishment costs were down 3.8% at £516m reflecting the progress in our
campus programme. IT costs were up 12.6% at £698m, reflecting investment in
enterprise technology and our IT infrastructure, as well as our global
client-facing technology capabilities including WPP Open, Choreograph and AI
capabilities.
Personal costs rose 9.3% to £223m, reflecting greater client-related business
travel and inflationary pressures. Other operating expenses were down 0.8% at
£535m.
The average number of people in the Group in the year was 114,732 compared to
114,129 in 2022. The total number of people as at 31 December 2023 was 114,173
compared to 115,473 as at 31 December 2022.
Adjusting items
The Group incurred £1,219m of adjusting items in 2023, mainly relating to the
amortisation of acquired intangible assets, restructuring and transformation
costs, and property and goodwill impairments. This compares with net adjusting
items in 2022 of £384m.
Goodwill impairment, amortisation and impairment of acquired intangibles and
other impairment charges were £809m (2022: £177m), mainly related to the
accelerated amortisation of indefinite life brands resulting from the VML
merger. This includes accelerated amortisation charges of £431m and £202m
for Wunderman Thompson and Y&R brands respectively.
Restructuring costs of £196m in 2023 (2022: £219m) mainly relate to: the
Group's IT transformation; property costs associated with impairments prior to
2023; and costs related to the continuing restructuring plan, including the
creation of VML and simplification of GroupM.
Charges associated with property, including the property review conducted in
2023, were £232m and primarily relate to non-cash lease impairments in the
US.
Interest and taxes
Net finance costs (excluding the revaluation of financial instruments) were
£261m, an increase of £47m year-on-year, due to higher levels of debt
through the year, higher interest rates and lower investment income partially
offset by higher interest earned on cash.
The headline tax rate (based on headline profit before tax) was 27.0% (2022:
25.5%) and on reported profit before tax was 43.1% (2022: 33.1%). The increase
in the headline tax rate is driven by lower income from associates and changes
in tax rates or tax bases in the markets in which we operate. Given the
Group's geographic mix of profits and the changing international tax
environment, the tax rate is expected to increase over the next few years.
Earnings and dividend
Profits attributable to shareholders were £110m, compared to a profit of
£683m in the prior period, principally reflecting the accelerated
amortisation of indefinite life brands and the impairment taken as a result of
the 2023 property review.
Reported diluted earnings per share was 10.1p, compared to 61.2p in the prior
period. Headline diluted earnings per share from continuing operations
decreased by 4.8% to 93.8p.
The Board is proposing a final dividend for 2023 of 24.4 pence per share,
which together with the interim dividend paid in November 2023 gives a
full-year dividend of 39.4 pence per share. The record date for the final
dividend is 7 June 2024, and the dividend will be payable on 5 July 2024.
Further details of WPP's financial performance are provided in Appendix 1.
Cash flow highlights
Twelve months ended (£ million) 31 December 2023 31 December 2022
Headline operating profit 1,750 1,742
Income from associates 36 74
Depreciation of property, plant and equipment 165 167
Amortisation of other intangibles 25 22
Depreciation of right-of-use assets 257 262
Headline EBITDA 2,233 2,267
Less: income from associates (36) (74)
Repayment of lease liabilities and related interest (362) (402)
Non-cash compensation 140 122
Non headline cash costs (including restructuring cost) (218) (174)
Capex (217) (223)
Working capital (260) (847)
Adjusted operating cash flow 1,280 669
% conversion of Headline operating profit 73% 38%
Dividends (to minorities)/ from associates (58) (32)
Earnout payments (31) (71)
Net interest (159) (121)
Cash tax (395) (391)
Adjusted free cash flow(13) 637 53
Disposal proceeds 122 51
Net initial acquisition payments (280) (274)
Dividends (423) (365)
Share purchases (54) (863)
Net cash flow 2 (1,398)
In 2023, net cash inflow was broadly neutral, compared to a £1.4bn outflow in
2022. The main drivers of the improved cash flow performance year-on-year were
a smaller outflow from investment in net working capital and lower share
purchases.
A working capital outflow of £260m (2022: £847m) includes an adverse impact
of £89m from less favourable FX rates at the end of the year compared to the
prior year. The movement in total working capital of £260m reflects a
favourable movement of £113m in trade working capital and an outflow of
£373m from non-trade working capital, primarily reflecting year on year
movements in bonus, landlord incentives relating to our campus programme and
prepayments.
A summary of the Group's unaudited cash flow statement and notes for the
twelve months to 31 December 2023 is provided in Appendix 1.
(13) Adjusted free cash flow is reconciled to cash generated by operations in
Appendix 2.
Balance sheet highlights
As at 31 December 2023 we had cash and cash equivalents of £1.9bn (2022:
£2.0bn) and total liquidity, including undrawn credit facilities, of £3.8bn.
Average adjusted net debt was £3.6bn, compared to £2.9bn in the prior
period, at 2023 exchange rates. As at 31 December 2023 adjusted net debt was
£2.5bn, against £2.5bn as at 31 December 2022, unchanged on a reported
basis and an increase of £0.1bn at 2023 exchange rates.
We spent £54 million on share purchases during the year to offset dilution
from share-based payments.
Our bond portfolio at 31 December 2023 had an average maturity of 6.2 years.
In May 2023, we refinanced the November 2023 €750m bond as planned, issuing
a May 2028 €750m bond priced at 4.125%.
The average adjusted net debt to Headline EBITDA ratio in the 12 months to
31 December 2023 is 1.83x, which excludes the impact of IFRS 16.
A summary of the Group's unaudited balance sheet and notes as at 31 December
2023 is provided in Appendix 1.
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