WPP plc Q2 FY2023 Earnings Call

Thank you for joining us for WPP's First Half Results. I am in London with Joanne Wilson, our CFO, for her first results presentation, and Tom Waldron, who heads our Investor Relations team. Please refer to the statement on Page 2 of the presentation, as it is significant. On Page 3, I will discuss the year's highlights, after which Joanne will detail our financial performance. I will return to outline our strategic progress and future opportunities before we open the floor for questions. Looking at the highlights on Page 4, we experienced resilient growth in the first half, achieving an overall increase of 2%. It’s crucial to break down this growth to truly understand what transpired. We noticed a deceleration in growth from 2.9% in Q1 to 1.3% in Q2. Notably, 63% of our business is outside the US, where we actually saw growth pick up from 3.2% in Q1 to 5% in Q2, driven by robust performances particularly in the UK and Germany, which grew by 6.6%. We also observed a recovery in China, moving from a 13% decline in Q1 to a 4.8% increase in Q2. This indicates a strong client spending environment. GroupM performed consistently well, achieving 6.1% growth in both Q1 and Q2 globally, reflecting robust client expenditures. Although our Public Relations segment grew at a steadier pace of around 2% in both quarters, Ogilvy particularly excelled in the first half, benefiting from strong client acquisitions last year and recovering from previous challenges. However, we did encounter challenges in the United States, where our performance fell short of expectations, particularly due to slowdowns among technology clients. Earlier this year, we noted reductions in marketing spending from technology clients, which worsened in Q2, somewhat unexpectedly. While the reasons for the slowdown vary per client, common themes include stringent cost management and a shift in focus toward margins after experiencing a significant decrease in their own growth rates. Additionally, we’ve seen delays in decision-making regarding technology-related projects, particularly within our creative agencies such as Wunderman Thompson, VMLY&R, and AKQA. This resulted in postponed work and lower revenue in tech consulting and development roles. However, it's essential to recognize that our creative agencies have an expansive service offering, increasingly drawing in revenue from areas like marketing technology, e-commerce, data consulting, and other tech-related services. Consequently, revenues in North America dropped by 4.1% in Q2 after growth in Q1. Other minor elements affecting this included challenges in the telecom sector due to tech delays and a client loss in retail, but the primary factor was the reduction in tech spending. Overall, technology spending impacted WPP’s revenues in Q2 by approximately 1.9%, with a significantly larger effect in the United States. Nevertheless, we view our technology clients as crucial long-term partners and growth drivers. While not all clients are experiencing revenue declines, we believe our relationships remain strong, and there are reasons to expect a recovery in spending. Our clients, which include some of the world’s largest companies by market capitalization, are actively investing in innovative new areas, and we believe they will need to increase their investments in brand and customer relationships moving forward. In this light, we have continued to enhance our client offerings and invest in future capabilities. We performed exceptionally well at Cannes Lions, winning five Grand Prix and a total of 165 Lions. Mindshare was named Media Agency of the Year. Furthermore, at the Effie awards, which celebrate marketing effectiveness, WPP was named the most effective communications company globally, with Ogilvy leading the charge. We are increasing our involvement in AI, with numerous instances of the impactful work we’re doing for clients. Additionally, we have made several acquisitions, notably in influencer marketing with Goat and Obviously. Regarding profitability, we maintained disciplined cost management, leading to an operating margin of 11.5%, reflecting a 1.1% increase on a like-for-like basis, despite a small decline of 0.1% from last year due to foreign exchange effects. This margin improvement stemmed from effective staff cost management, though we faced higher IT costs due to investments in modernizing our platforms and a rise in severance costs. In light of our revenue performance, we have carefully reevaluated our guidance for the full year, now projecting growth of 1.5% to 3%, while maintaining our margin target at around 15% based on 2022 exchange rates. We will delve into our guidance during the Q&A, but it's important to highlight that some of the adjustment arises from the softness observed in Q2. We considered three primary factors: Firstly, we are being prudent regarding technology client spending trends for the second half. Secondly, while we have seen continued growth and even an uptick in other regions, the challenges have largely stemmed from the United States. Lastly, the comparisons for the second half of the year are easier than in the first half. We believe the range of 1.5% to 3% reflects the current outlook accurately, albeit wider than we would prefer. With that introduction, Joanne, please 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 non-cash. 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.

Thank you, Joanne. I want to share our strategic progress, focusing on the market dynamics we're observing, client feedback, and updates on our AI investments. Our clients are dealing with a complex environment, influenced by macro uncertainties and the need to support their brands amidst inflation-driven price increases. The market presents both opportunities and challenges. For instance, we see emerging platforms like Netflix and Uber introducing new advertising avenues, leading to both opportunity and increased complexity for our clients. Additionally, the political climate has shifted, questioning previous positions on social issues, and there’s the growing significance of AI in marketing strategies. On slide 21, we outline our clients' priorities. First, as shown on slide 22, clients are still investing in brand support, as evidenced by forecasts from GroupM and the Citi CMO survey indicating stable advertising expenditure. In the first half, our group achieved 6.1% growth in both the first and second quarters. While there was some decline in Q2 from technology clients, we don't interpret this as a broader trend, since these clients recognize the importance of brand support. On slide 23, we've excelled in new business initiatives, securing assignments from top companies, including Ford and easyJet, as well as Maruti Suzuki, which now partners with us among 48 of India's leading advertisers. The second priority, detailed on slide 24, is creativity and effectiveness. At the Cannes Lions, WPP stood out, winning multiple awards, including Media Network of the Year for Mindshare. Delivering effective marketing is essential to reflect the quality of creative work. WPP was recognized as the leading effective communications company globally, with Ogilvy winning Network of the Year at the Effie Awards. Thirdly, on slide 25, in response to the complexities of modern marketing, clients are revisiting their marketing partnerships for simplicity and transformation opportunities. Our collaboration with The Coca-Cola Company represents a groundbreaking model, focusing on leveraging data and technology while retaining local relevance within a global framework. This partnership is driving revenue growth as well as marketing transformation. The fourth priority, technology and data on slide 26, is foundational to contemporary marketing. We announced a partnership with Spotify, giving us valuable insights into music consumption, which enhances our ability to reach audiences effectively and innovate our creative solutions. Regarding AI on slide 27, we found notable insights from Citi's research on its impact on marketing. This data reveals that a significant percentage of CMOs believe advertising spends will increase, contrary to any decline expectations. It suggests that AI will primarily aid in managing complexity and enhancing the efficiency of targeted marketing efforts, supporting their strategies rather than reducing costs. On slide 28, we elaborate on our comprehensive AI capabilities. Initiatives like The Next Rembrandt demonstrate our long-standing integration of AI in creative work. In production, our partnership with NVIDIA emphasizes AI's role in generating personalized, relevant content at scale, and optimizing performance across digital media. On slide 29, we'll showcase ongoing projects across three domains: enhancing creativity, scaling personalization, and optimizing performance. We've demonstrated AI applications in projects like Nike's collaboration with Serena Williams and Cadbury's personalized birthday songs in India, utilizing various AI technologies to enhance production and creative outputs. Our partnership with Google, highlighted in the CreateLift product, uses AI to assess video elements for performance optimization, enhancing our creative strategies based on extensive benchmarks. Additionally, the partnership with NVIDIA illustrates how we blend generative AI with brand-safe content, addressing client concerns over copyright while harnessing cutting-edge technology. Lastly, our acquisition of amp last year showcases how generative AI can innovate sonic branding, allowing brands to create cost-effective audio identities while solidifying long-term client relationships. In summary, we face a mixed market landscape, yet GroupM remains robust. While there's slower growth anticipated in China and reduced spending from technology clients in the U.S., we continue to make strategic advancements, particularly in AI, and are investing in technology to enhance our capabilities through strategic partnerships. We've seen improvements in margins through disciplined cost management and updated our revenue guidance to reflect expected growth, maintaining our margin targets amidst currency fluctuations. We're ready to take your questions.

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

Good morning and thank you for taking my question. I have three questions. First, regarding the weakness from tech clients, what has changed in the past month or two that took you by surprise? What feedback are you receiving from your tech clients about when they plan to resume spending? I'm also curious about how much of this weakness is temporary growth-related spending versus a more structural post-COVID adjustment. Any insights would be very helpful. The second question is about margin. You've done an impressive job of maintaining margins despite slower growth. Looking ahead, what gives you confidence that you can still reach the 15.5% to 16% margin target you mentioned for 2024 and 2025? Based on your observations so far, what are your reasons for this confidence and what steps are you taking to enhance your margins in the future? My third question is about net new business. There are always wins and losses, but could you help quantify the potential impact of net new business on organic growth in the second half of the year and into 2024, based on what has been announced so far? You also mentioned a larger pipeline of potential new business opportunities. How significant do you believe this is for WPP? Thank you.

I will address the first and third questions, and Joanne will add her insights and discuss the margins. We had previously noted a slight weakness among our tech clients earlier in the year, but this trend intensified in the second quarter, particularly in the US. I don't perceive this as a reset; many have echoed this sentiment. These companies are among the largest advertisers globally, which impacts us more significantly since 18% of our revenues come from technology companies. Therefore, we might be affected more than others. I also believe that these companies have experienced two or three years of strong growth and are now making necessary cutbacks. We are at a unique moment in the innovation cycle where they have numerous products ready for market, but the business models for these products are not entirely clear. Once these models become clearer, I expect we will see an increase in marketing activities around these new offerings. Regarding new business, while we aspire to win all opportunities, that is not feasible. There are certain wins, like Coca-Cola, and others where our performance has been less favorable. To be honest, the first half of the year has been somewhat disappointing. We did encounter a loss in the healthcare sector, so we will monitor how that develops throughout the remainder of the year and into next year, which may result in some challenges. We anticipate some effects in the fourth quarter and into next year. However, we have a robust pipeline, possibly influenced by prolonged decision-making processes. We continue to maintain a strong offer and lead in many areas, which will be evident in our future new business endeavors. Joanne, would you like to address 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 than 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.

Thank you, Julien, for the introduction. I'll address your first question about restructuring. When Mark took over, we discussed the complexity and fragmentation of WPP, and acknowledged that it would take several years to address these issues. I believe we have made good progress with our front office, but there’s still work to be done in our back office. Regarding normalized restructuring costs, I agree they should ideally be zero in any business. This year, we have higher restructuring costs, most of which are non-cash related to property impairments. The cash restructuring costs are primarily associated with our IT infrastructure transformation and our ERP program, totaling £180 million. We expect to see restructuring costs related to IT and ERP programs through 2025, with most IT restructuring costs concluding in 2024 and ERP costs extending into 2025. On our cash position, we are also focused on enhancing our cash conversion. Our capital expenditures have been high in recent years due to our campus strategy, which has positively impacted the business. We’ve made adjustments following post-COVID changes in work practices, leading to a more efficient work environment, and we expect our capital expenditures to decrease from 2024 onward. Regarding working capital, we experienced significant outflow in trade working capital last year, but since 2019, we have actually improved our trade working capital by about £1 billion. We had better performance in Q2 this year, and we will continue to focus on optimizing trade working capital. Our media business, which bills over $60 billion annually, is quite volatile, impacting our quarter-to-quarter performance. As for non-trade working capital, it includes factors like fluctuating bonus accruals, landlord incentives that should decrease as we finish our campus program, and variations in sales and taxes related to GroupM. We also have increased prepayments for IT contracts. This year, we anticipate a £150 million outflow in non-trade working capital, which will be a continued focus for us. Overall, we are seeing improvements in working capital this year compared to last, but there is still work to do as we enhance 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.

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?

Regarding technology clients, I don’t have a crystal ball, but we are at a unique juncture where growth has slowed. Companies have increased their share prices by improving margins. We're currently in an innovation cycle, as highlighted in an article today discussing the launch of new products, yet technology firms seem uncertain about the associated business models. This aligns with my discussions about product innovation with these companies. I expect this trend to change, but we are wise to be cautious about the likelihood of this occurring this year, which is reflected in our guidance range. Our guidance for the second half indicates growth between 1% and 4%. These clients have not completely halted spending; they have simply reduced it, and I don’t believe this will last indefinitely. Concerning Marcel and staff allocation, we have systems in place across our businesses to identify staff. We are utilizing AI to allocate staff from our systems to projects. An interesting example is Satalia, the AI company, which is employed by one of the major accounting firms to manage staff allocation for projects. We have seen great success in this area, particularly in reducing freelance costs by better leveraging staff within and across our agencies. This is an approach we will continue to develop. Joanne, would you like to add anything?

Yes. Yes so 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, exactly. There are three questions really. The first group of questions pertains to spending that can be considered as quasi-CapEx, which is being delayed, and spending that falls under the cost of goods sold, which is ongoing. This might help us interpret the situation with GroupM progressing at a rate of six, along with some project-based work facing challenges. The first question is whether you are more exposed to CapEx-style work in the US and COGS-type work internationally. Is there a structural exposure issue that accounts for the growth differential, or is it more related to macro factors? That was the first question. The second question is related: when you discuss this with your fellow CEOs, what factors are they looking for to regain confidence in resuming CapEx spending? Those are the first two questions. The third question pertains to your guidance of 1.5% to 3% for the second half, which translates to 1% to 4%. Considering the robust performance elsewhere in the world that may improve, are you suggesting that the US could fall anywhere between minus 5% and plus 1% in the second half? Is all of this variance essentially confined to the US? Thank you.

I’m not sure where to start, Tom. Regarding your first question, I believe thinking about quality CapEx and quality cost of goods sold is insightful, as it sheds light on why GroupM has continued to grow. The impact seems more relevant in the US and within our integrated creative agencies because that's where these clients allocate the majority of their budgets and where we provide most of our services. We also have a strong presence in our creative agencies and handle some media for those technology companies, but not for all of them. Therefore, it comes down to the distribution of our workload. As for client confidence, as I mentioned at the CEO event earlier this week, it's decent but not stellar, remaining fairly consistent with three months ago. You might have noticed that Goldman reduced their recession risk, reflecting a belief that US inflation is somewhat under control, although there's some unease regarding consumer spending. We're currently assessing the potential changes in technology spending and related projects, and how clients might begin to reinvest in the more CapEx-intensive areas of their businesses. I’ll let Joanne elaborate on 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.

Thank you very much everyone for joining us. We experienced a mixed performance in the first half of the year, but we can take some comfort from our results outside the United States. It's clear that the performance in the U.S. was negatively affected by the technology sector. However, we should also be pleased with our disciplined cost control and the improvements in our margins on a like-for-like basis during the first half of the year. We will maintain our focus on these areas for the remainder of the year. Thank you again for being with us.