WPP PLC (WPP) 2022 Q4 法說會逐字稿

All right. So that's just some of the fantastic work that our agencies and people did throughout the year and, really, the reason why you see such a fantastic set of financial results.

So good morning, and welcome, everyone here at Sea Containers. It's great to be back in person for the first time, I think, in 3 years. So John and I have to take you through the results. (Operator Instructions)

So just to start with the customary statement, and be aware and read that. I'll turn into the agenda. I'll just talk you through briefly the highlights, then John will cover the financial performance. I'll come back to look at our strategic progress and really answer, I guess, your question of what's changed, what's changed in the outlook for our business on why we're confident about our guidance for 2023, and then we can take your questions.

So turning to the highlights. Look, I think we had a continued strong and broad-based performance for the year. We had a strong 2022. We upgraded our guidance a number of times during the year, and after perhaps a slightly slower Q3 in part of the comparative, we had a good end of the year, 6.4%, really in line with the overall year, despite having some fears that we see much more of a slowdown.

Secondly, our performance is much more broad based because all our major agencies and across maybe all of our key markets.

Thirdly, the key point is we're in a much stronger competitive position. We'll come on to that when we talk about strategic progress the group has made. But I think a lot of the structure question does sort of bedeviled our conversation with analysts and investors to some extent, I think, have been answered by a set of numbers in '21 and '22 and give us confidence in our guidance for 2023.

And that's down to the quality of the work that you just saw, the size and scale of GroupM, our performance in new business with close to $6 billion won over the course of last year.

Fourthly, we continue to invest and enhance our offer both through organic investments in technology through acquisitions and to continue to simplify and transform our businesses through creation of new companies, such as EssenceMediacom, Design Bridge and Partners and other changes in the organization with the creation of GroupM Nexus.

In terms of savings, the transformation plan remains on track with savings coming in ahead of target. And we're on track to deliver the aggregate savings by 2025.

And the last point, I think, in view of the focus for a lot of the questions is our guidance for the year of 3% to 5% topline growth and continued margin expansion, deliver a headline operating margin of 15%.

So net-net, I'd say we had a productive year. We continue to transform and invest in the business. And all of this gives us confidence in the year ahead.

So with that as an introduction, John will take you through the financial performance, and then we'll come back to the strategy and then to all of your questions. John?

Thank you, Mark. And great to be here in person, as Mark says. So let me take you through the financial results for 2022.

So overall, revenue less pass-through cost is up 13.5% on a reported basis, up 6.9% on a like-for-like basis, and that was the top end of the guidance range that we gave you in Q3. That, of course, includes ForEx tailwind of 5.9% and a contribution from an M%A of 0.7%, which is really as a consequence of the SVC merger, creating FGS Global. A number of bolt-on acquisitions that we'll take you through later on, and also, of course, the impact of divesting our Russian operations.

Overall operating profit at GBP 1.7 billion, up 16.6% year-on-year, delivering a margin of 14.8%, up 40 bps and again within the guidance range that we gave you.

So taking account of income from associates and obviously net finance cost broadly similar to 2021. Tax at a rate of 25.5%, again, in line with the guidance that we gave you. Delivered an EPS of 98.5p, up 25.5% year-on-year, helped, of course, by share buyback program.

Coming on now to reconciliation between our headline operations and our reported profit. So at the headline level, a profit of GBP 1.74 billion, again, adjusting for goodwill impairment and amortization of intangibles. Restructuring cost of GBP 220 million -- GBP 219 million, in line with the guidance that we gave you at GBP 220 million this time last year.

We have also revised our resumptions on some of our historical impairments in relation to our subletting assumptions, which has increased those impairments by a further GBP 18 million. A loss of GBP 36 million on disposals, which is a few gains from some disposals, offset of course by the GBP 65 million on disposal of our Russian operations that we took you through at the half.

A step down in our Imagina investment from associate to an investment, giving us GBP 66 million back, leading to overall adjustment of GBP 384 million and reported operating profit of GBP 1.358 billion.

So coming on now to the performance of our Global Integrated Agencies. The strong growth in the year, 6.9% like-for-like, in line with the rest of our business. Now that's split between our creatives, creative agencies that grew at 5%, and GroupM that grew at 9.1%, a good bounce back in Q4.

In particular, a mention to Ogilvy who had a very strong finish to the year in the second half. And also AKQA and Hogarth, both of which delivered double-digit growth in the year.

Overall headline operating profit of GBP 1.4 billion, up 17.2% year-on-year and a margin of 14.7%, up 60 bps. So good reversal of performance in the second half versus the first, strong margin accretion coming through.

Now looking at performance over a 3-year basis. Again, we can see here on the right-hand side, very, very strong growth from GroupM, so up 17.2% over the last 3 years. And equally on the left-hand side, our creative agency is also up 3.5%. And you can see, given that the red bars are larger than the purple bars, a lot of that growth in our creative agencies came through in 2022. So we've got real momentum going into 2023 in relation to the performance of our creative business.

Coming on now to Public Relations, this has been a very strong performer over the last 3 years given the need for strategic communications and also a lot of the work we do, purpose-related work, ESG work, we've seen very strong growth in those areas in particular.

So overall, delivering 8.2% like-for-like growth. Worth calling out Hill+Knowlton, who delivered double-digit growth in 2022, overall headline operating profit of GBP 191 million, up 33.6% year-on-year and a margin of 16.5%, up 80 basis points. Very strong performance.

Moving on now to our specialist agencies. So we saw good growth across the business, actually delivering like-for-like growth of 5.6%. But if we reflect the fact that we had a one-off COVID-related contract in 2021, which benefited that year, if we stripped out that one-off contract, then, actually, growth in 2022 would have been 9.1% on a normalized basis. So the underlying performance of this sector is very strong. Particularly called out CMI, Landor & Fitch, both of which were up double-digit year-on-year.

Headline operating profit of GBP 119 million, down 7.8%, but again affecting the -- that one-off contract benefit coming through in 2021. And the same on our margin, 13.2% year-on-year decline given the COVID contract. Worth mention of, again, example of simplifying our business. We combine Design Bridge and Superunion in the year to form Design Bridge and Partners.

So coming on now to our geographic performance across our major markets. Saw good growth in the U.S., pretty much in line with the rest of the group. Worth calling out GroupM that saw double-digit growth in our U.S. market and actually move from the third place market position to the second place market position.

The U.K. actually was very strong, up slightly higher than our overall growth of 7.6%, a really strong fourth quarter, surprising given the sort of the negative economic headlines at the time. And our PR business, in particular, with FGS, Hill+Knowlton, BCW, all delivering double-digit growth.

Germany was up 4.8%. But again, if you stripped out that COVID contract, it would have been up on a normalized level by 8.4%.

China clearly had a challenging year last year as a consequence of lockdown, so we saw good growth in the first quarter actually, up 12%. But then the impact of lockdown saw our decline, minus 6% in Q2, minus 9% in Q3, minus 8.4% in Q4, to deliver an overall negative minus 4% for the year. So we expect to see a challenging quarter in the first quarter of 2023 given the very tough comp, but we'd expect the performance to bounce back from Q2 onwards.

India continues to deliver strong growth at double-digit growth, albeit slowing slightly in the second half. GroupM actually within India grow -- grew almost 30%, so really strong growth from GroupM.

In Australia, solid performance with double-digit growth from our PR businesses. Brazil continues to be strong. Particular call-out for F.biz and DTI digital. Actually, on a year-on-year, we were up 18.2% in Brazil. And over the last 3 years, we've been up 32%. So that's been a really solid performance on a 3-year basis.

And France continues to be challenging as we absorb some of the credit -- the client losses that we saw in 2021.

So coming on now to our transformation program. As Mark mentioned earlier on, we've delivered GBP 375 million of savings today. That's ahead of our GBP 300 million target, and we expect to deliver -- we're confident to deliver the GBP 600 million by 2025.

If you look at where these savings generate from, starting at the bottom with the blue bar, the operating model is really as a result of greatly simplifying our business over the last 2 or 3 years and, in the last year, continuing that journey with the creation of EssenceMediacom, GroupM Nexus, again, joined together with Finecast and Xaxis and Design Bridge and Partners, as I've already mentioned.

We've also significantly removed a large number of our legal entities as we continue to simplify the overall group structure. And again, we've made changes to the ways of working, particularly as a consequence of reduced travel, all of which has contributed to those savings in that blue bar.

We also see savings as a consequence in the green bar, what we call our efficiency savings, as a result of investments in our campus program. We now have 37 campuses across our business, 5 new ones in 2022, and we think we'll do another 5 to 6 in 2023. And of course, by 2026, we anticipate having about 70%, 75% of our people all located in our global campuses.

We've made significant changes to the way we operate in our procurement function. We've now driven the organization towards a much more category-driven model, and we started to see the benefits that come through in savings. And in particular, in 2023, we expect to see more savings, particularly in the areas of flexible working and, of course, our IT infrastructure.

And we continue to obviously roll out new systems, our ERP program combination of economy, which we've rolled out in APAC in 2022. And we anticipate in 2023, we'll roll that out in South America.

And Workday, of course, where we're rolling out in Wunderman Thompson, North America. And we've also rolled out the people component of that package in the U.K. as well. And at the same time, of course, in putting in place new systems, we're able to put in place shared services. We've put shared services and operations in APAC as well as North America as a consequence of that systems investment.

So what does all that mean in terms of margin as a consequence of these savings? And so you'll see when we set out our transformation plan back at the Capital Markets Day in December 2020, we talked about the ability to deliver efficiency and operational savings in our business, and that's clearly what's reflected on the left-hand side of this slide and the numbers I've just taken you through.

We also talked about the need to invest in our business, to grow our top line and to support our people, and this is what this chart sets out. So you see on this chart an investment very much in our people and our talent, reflected in that 2.5% shown on the chart.

We've also invested in our incentive schemes, again, to normalize those to levels that we would be expected to paying out, and we see that. We talk very much about that in 2020. And also in our IT infrastructure as well. There's an element, I say, of technical debt through years and years of underinvestment that we've had to play some catch-up on. So we're investing in our IT systems in order to make our -- the lives of our people easier and to free up their time, so they can focus on actually supporting and working our clients.

If we were to look at the shape of this, how this might change over time as we progress over 2024 and 2025, I'd expect to see that overall net investment in our people start to reduce somewhat, as we start to see the payback of investing in our talent.

We start to see that operational leverage come through. We're also getting more efficiency gains through a better balance of our freelance and our permanent mix, increasing offshore activities, for example, and also back office efficiencies, all of which have started to see -- start to pay dividends. And we'll see that net investment in our people start to reduce between '24 and '25.

I would say from an incentives perspective, that will remain relatively static. We've now got our incentives on a broadly normalized level, so we'd expect to see that investment to be consistent over '24 and '25.

And on our IT, we'd expect to see that investment -- net investment reduce over time as a consequence of getting some of the payback of the investments that we're making in 2022 and also in 2023, so an overall improvement in margin. And in fact, come 2025 and 2026, we ought to start to see our IT cost come down as we see that investment pay back.

So just showing the margin bridge between 2021 and 2022, so 40 bps of margin accretion. Again, we saw the net investment in people come through, particularly in the first half of the year where we were carrying quite a lot of freelance costs as a consequence of having to bring resource into the business to cope with higher-than-expected client demand.

We saw an investment in our personal costs, reflecting the fact that people are coming back to traveling in 2022 versus 2021. Albeit important to note, there are travel costs in 2022, we're still roughly half of what they were pre-COVID, so in [2029]. So significant savings overall reflected in the previous chart that I've just taken you through.

Procurement savings and finance savings coming through, delivering 40 bps of upside in our D&A costs. And our campus program, again, continuing to pay back as we invest 50 bps of upside coming through there. And given that our incentives in 2021 were so high, we had a record year of incentives in 2021. We also saw a benefit as a consequence of moving to a more normalized level of incentive payout in 2022. Overall, though, the 40 bps of margin accretion that we guided to.

Just to give you a little bit of a view as to the shape of 2023. We expect to see some relative improvements in terms of our staff cost investment and probably offset a little bit by more investment into our IT infrastructure, particularly as we start to shift to the cloud and actually also drive improvements in our colleague experience. As I said, we expect to see that pay back in '24 and '25.

Coming on now to our restructuring costs, again, in line with our guidance. Last year, we talked about Workday costs of GBP 350 million between 2022 and 2025. In '22, we actually invested GBP 100 million in Workday, in line with the guidance, so that gives us GBP 250 million to spend over '23 to '25, so roughly GBP 80 million a year over the next 3 years.

In '22, we had other restructuring costs of around GBP 120 million, which are largely IT and property related to deliver overall restructuring cost of GBP 220 million -- GBP 219 million, in line with the guidance that we gave you.

For 2023, as I've said, expect another GBP 80 million or so from Workday and another GBP 100 million in other restructuring to give a total of GBP 180 million, so down year-on-year. So GBP 180 million in '23 versus the GBP 220 million in '22.

We will also conduct a broad review of our property portfolio through 2023, but with particular focus on the U.S. markets given the existing usage and also a change in the hybrid ways of working. And once we've completed that property review, we do expect further restructuring charges to come through in 2023, albeit they will largely be of an accounting nature, not a cash impact.

Coming on now to headline income from associates, GBP 74 million versus GBP 86 million in 2021, so a slight decline year-on-year. The movements there are, actually, Kantar has improved. It's gone up, and the rest has gone down slightly, so a net reduction year-on-year.

Our guidance actually for 2023 is GBP 40 million of associate income. The reason why that's significantly lower than historically is because, actually, the carrying value of our Kantar investment has dropped to 0 as a result of large restructuring costs and interest costs associated on the debt, which means from an accounting perspective, we cannot recognize that associate income from Kantar. So the GBP 40 million is effectively net of that associate income from Kantar.

If we were able to include that associate income, that number will be closer to GBP 90 million to GBP 100 million. It's important to recognize also that, that is an accounting adjustment. There are absolutely 0 changes to any cash flows.

So going on now to our overall cash position. So strong operating cash flow of over GBP 2 billion. We did have an outflow of net working capital at the year-end, and I'm going to talk you through that in a second.

CapEx of GBP 223 million was a little bit lower than what we guided to. Cash dividends, obviously, net acquisitions and disposals of GBP 237 million, and a share buyback of GBP 800 million, which we signaled at the beginning of the year. And actually, that's -- if we look over the last 2 years, we've returned GBP 1.5 billion of cash to our shareholders through share buybacks, all of which resulted in a year-end net debt of GBP 2.48 billion.

Just coming to that net working capital position, you can see from this slide, this shows the net working capital position 2019 through to 2022. And you can see at the very bottom there, difference between that blue and the red line at the bottom, we saw an outflow actually of about GBP 230 million or so year-on-year between '22 and '21.

That said, if you look at the average performance, our average net working capital month-by-month through the year, you can see from the chart, and I can assure you mathematically that it is level year-on-year. So we really had some, I would say, timing differences at the year-end.

I think also our creative agencies grew better than we expected, and you saw that in the numbers. And our creative agencies tend to absorb working capital. And our media business, albeit grew well, didn't grow quite as well as we were expecting and, therefore, tends to be a generator of working capital. So net-net, that explains the year-end position.

But in terms of guidance for your models for 2023, we expect net working capital to be broadly flat. We do expect to see small operational improvements come through, offsetting the overarching continued growth of the business.

So coming on now to our leverage metrics. Net debt, just under GBP 2.5 billion, an improvement in our interest cover. And our net debt to EBITDA ratio exiting the year at 1.46x, this is the average for the year, 1.46x, just below the 1.5x to 1.75x target range, so slightly better than the guidance that we gave you.

And again, just a reminder of our capital allocation strategy. So organic investment, the first priority, GBP 223 million of CapEx, particularly into our campus and our IT program. But also P&L investment in areas like Choreograph and GroupM Nexus, for example.

Cash dividends of GBP 365 million, and we had investments in M&A of GBP 287 million, offset by disposals of GBP 50 million in the likes of Village Marketing and Fenom Digital and Bower House Digital and Corebiz, all of these in high-growth areas of commerce, experience in technology, helping that long-term growth of our business.

And then, of course, our strategy is to return any excess capital within the boundaries of our 1.5 to 1.7x range. Hence, the GBP 800 million plus share buyback that we saw in 2022. Given that the average is now 1.46x, and we expect that to be 1.5x, 1.6x as we travel through 2023, we're not intending to buy back any shares this year, other than those to cover the dilutive impact of our [various] share programs, so about GBP 50 million or so in total. This will enable us to capitalize, of course, on any M&A opportunities that come our way.

And lastly, just to take you through the guidance for next year, for 2023. So like-for-like revenue less pass-through cost growth of 3% to 5% and further margin improvement, reflecting continued operational leverage to deliver a headline margin of around 15%. And we've hopefully helpfully set out the rest of the detailed guidance for you on this slide. And we reiterate, of course, our medium-term guidance to get to 3% to 4% growth and 15.5% to 16% also in the medium term.

So that's it from me. Thank you, and I'll hand back to Mark to cover the strategic progress.

Very good. All right. So thank you, John.

And look, at the end of John's presentation, you shared the guidance of 3% to 5% for next year. And I think what I'd like to just talk about our strategic progress in the context of the guidance -- or the guidance in the context of our strategic progress, what's changed to give us the confidence that we can deliver that growth next year.

I think some reasons that are external to the environment, so what clients are doing and what's happening in the market, and the number of reasons that are linked to WPP and the changes we've made at the company over the last 4 to 5 years.

But if you look at the external environment, it's clear. It's an environment of increasing complexity, but an environment where there's also new opportunities for our clients. We're operating in a more competitive media environment.

New platforms like TikTok growing, YouTube launching Shorts, Meta launching Instagram Reels, WeChat taking search advertising for the first time. So it's a more competitive media landscape, more choices for clients. Those channels are technology and data-driven, so they need more analytics, they need more media savvy. They also need new creative work and new creative opportunities.

And all these complexity is driving new opportunities for clients, and I think there's new opportunities to advertise on platforms like Netflix or to invest behind TikTok. And all of these channels need new content and new ideas and, quite often, different types of content from other channels.

So that's leading our clients to look much more fundamentally in their investments. And whereas, perhaps 4 or 5 years ago, they look at television advertising and think about how much they should spend there, today, they're faced with a plethora of choice, they need to maximize their choice.

And some of the questions we've had around the growth of the platform, so the platforms disintermediate WPP. My view is they empower us, they empower our people to do different and better types of work, and they empower us to grow if we do our job correctly, and that ultimately is the critical point.

So I think the external environment is more complicated. And faced with that, I think clients are also investing more in marketing, and these are some of the statements we've seen from clients' reports over the last couple of months. And I think a number of you who are analysts picked up on that.

Ask yourself the reason for that. Is it because they saw the renewed importance of communicating with the customers during COVID? It's certainly driven by their desire to invest in brands at a time of high inflation. When clients are facing volume reduction and price increases, they understand they need to reinvest with that margin back in brands to communicate with customers to secure their place in retailers, and you can see that in the results.

You can see, for example, what Coke is saying, "We'll continue to invest to support momentum," or Colgate, "We'll continue to invest margin improvement in the P&L to allow us to fund more advertising," or Unilever, "Further investments in brand and marketing -- further increases in brand and marketing investments."

So consistently, and while most of the commentary is from consumer packaged goods companies, I think you're seeing this consistently across our client base. Amazon today is the world's largest advertiser from nowhere 10 years ago. I think clients understand the importance of marketing. They understand the importance of what we do, and they're continuing to invest, despite the challenges of the global economy.

But it's not just the external environment that's changed. WPP has changed as well. Today, we have a broader, a much more modern offering. We set out 4 years ago this new understanding of our offer from communications, experience, commerce and technology. And today, while about 75% of our business is in the communications business, 25% of our business is in experience, commerce and technology.

And I think maybe one thing that's changed is an understanding of the value of communications. When we set this out, we had a growth rate for communications of 0% to 3%, and 5%, 10%, 15% in the other areas. Actually, last year, while the experience, commerce and technology product business grew at 9%, the communications product business grew at 6% because there are big growth opportunities in communications, whether that's influencer marketing and social media, the example here of work we did for Ford in Europe, or retail media or programmatic media within communications. GroupM today get 48% of their business from digital media. That's up significantly over the last 4 years.

But there's also strong growth areas in experiences work we did for Haleon, the new AI-driven application. Actually, look at packaging and see what's on the packaging. Whether we build the Xbox e-commerce platform from Wunderman Thompson or the work that Ogilvy and GroupM did together from Mondelez in India, using AI to create millions of versions of commercial that Indians all across India put out across social media.

So our offer is different. It's broader, it's more relevant to clients, and it's more integrated. At the same time, as a company, we have a simpler business with stronger brands, whether that's great brands like Ogilvy or AKQA, on public relations, FGS Global or BCW, and the simplification we've done in our design and brand identity, our structure has changed.

We go from hundreds of brands to really 12 or 13 key brands. And each of these brands are stronger, more relevant and more differentiated in the market, in my view. And our business is simpler and easier -- somewhat easier to manage.

And those brands, I'd say, are delivering world-class work, and that work is recognized in our industry. At Cannes last year, WPP was Creative Company of the Year for the second year running. The last time we achieved that was 2017. Ogilvy was Network of the Year. The last time that they did that was 2016.

I think our work is getting better. It's getting more recognized. Interestingly, FGS Global, of those of you who saw the emerging market table, FGS Global was the lead M&A adviser, not just globally, but in the U.S., in Europe and in Asia. They're creating a powerhouse in strategic communications. Or the recognition of AKQA by Fast Company for the world changing ideas that they create for their clients. Our work is better. It's better recognized.

While our geographic position and client portfolio may not have shifted, I think it does give us confidence as we look at 2023, particularly the breadth of our geographic spread and the breadth of our client portfolio. In particular, I called out here our performance in the rest of the world.

China is 5%, but it's not a major part of our business. But in the opening of China will help the result, particularly from the second quarter on. But we have a broad-based business geographically and a broad-based business from a client perspective. And you can see our strength in CPG that, perhaps, 4 or 5 years ago, would be seen as a weakness. It is perhaps now being perceived as a strength.

We're also continuing to and have continued to invest in the business. We focus here a lot on our work around e-commerce partnerships with the likes of Stripe, Instacart, acquisitions of Corebiz, Newcraft and Diff in the e-commerce space.

We launched GroupM Nexus to bring a lot of our digital media operations together. That makes it easier to automate. It makes easier to offshore, makes it easier to invest. And Xaxis and Finecast in programmatic media and connected television continue to grow, delivering $2 billion of billings last year and growing very strongly, particularly in connected television.

And we continue to train and invest in people that can help our clients understand the platforms produced by the likes of Adobe and Salesforce and Microsoft and Meta. That's another big area.

There's been a lot of attention over the last few weeks on generative AI. And personally, now, I've sort of played around a lot with ChatGPT, and whether or not it's going to fundamentally revolutionize search, it certainly captured the world's attention.

I thought we'd talk a little bit about our work through the context of AI. It's an area we've been investing in for a number of years at WPP. We acquired Satalia, an AI company 2 years ago here in the U.K., which is home actually to a lot of the innovation that's going on in the AI sphere. And I thought we try to bring to life what we do for clients using AI through a few examples.

So the first example is work that EssenceMediacom did for cancer research in the U.K. And what's important about this work is the ability to use AI not just to reach and target new audiences, but also to tailor create to those new audiences. And in this particular case, to use that not just across digital out-of-home, but also on connected television.

So if you're watching TV from your connected TV box in your living room that's connected by WiFi, you'll see a different ad, depending on what country you are in the world. We actually had to get those ads through the U.K. Clearance Authority, but I can assure you it's not easy because they like to see every word that's written. This notion of automating, delivering ads on the fly is difficult.

So let's see the work that EssenceMediacom did for cancer research.

(presentation)

Okay. So you can see there how we're using AI to improve our media performance to tailor create to particular audiences, all leading to better results and better performance to clients.

The next example is in e-commerce, and it's an example of why we think creativity can be applied in all areas of our business. So this is an example for paint. If you thought that watching paint dry was a boring experience, this shows how you can make the paint purchasing process more exciting and more interesting for consumers using the power of AI. So let's show this film.

(presentation)

So that shows how consumers are speaking, you couldn't hear them, would talk to different colors and produce those colors in the paint.

Now the last example shows how we can use AI to bring something to life that wouldn't be brought to life. And this year was the last year of Serena Williams's career. And AKQA worked with Nike to bring Serena's matches back to life and have Serena play Serena over the last 27 years, analyzing 130,000 games that she played. Let's see the work that AKQA did for Nike.

(presentation)

So I think that shows what AI can do in our business, whether it's targeting media, creating new customer experiences or bringing ideas to life. And I don't think there's an area of our business or any other business that isn't going to be touched by it. For us, it's very relevant, as I said, in our media business. It's very relevant as an assistant in the creative process.

I don't believe -- the good news is it's never going to replace creativity, but it is an aid in the creative process. It certainly have aid in automating processes that are largely done by people. A lot of our production work will be more automated, and that will help us reduce cost to clients, bring work to them more efficiently and deal with a plethora of new channels that need to operate in, and will help us in decision-making as well. So we're really keen on applying that across our business.

Now the last point I want to touch on before wrapping up is our purpose. And we set out a new purpose for WPP 5 years ago to build a better future for our people, planet, clients and communities, and I think we've done a lot of work in this area.

In people, I'd highlight the work that we've done in training people, investing in mental health allies, in diversity and inclusion. I'm very proud of the progress we've made as a company in promoting more women and more people from other ethnic backgrounds to leadership positions and other roles inside the company. We've made tremendous progress there.

In terms of the planet, we've committed to be net zero in our own operations by 2025 and through the areas of production and media by 2030. We're doing a lot of work internally and with other media partners to drive to those changes.

And lastly, sadly, many communities in which our people live and work have been impacted over the last few years. I'm struck that tomorrow is the anniversary of the Russian invasion in Ukraine. We're actually 3 years really from the start of the recognition of the challenge of COVID. We stand on the cusp of really at the -- in the reality of a disaster in Turkey and Syria.

And our teams in Turkey are really helping to deliver creative work and creative campaigns to raise money for that region. We have 1,200 people in Turkey. We have 200 people in Pakistan. And while they haven't been directly affected, many of their families and friends have been impacted by the events there.

I think it's important for us as a company, and certainly important for our people, to feel that there's something that they can do in that scenario. We want to invest. I think it makes WPP a better destination for people, and I think it makes us a better partner to our clients. So I think we should be proud of the work that we've done out of that area.

So a lot has changed. And I think as you look at our guidance, and I'm sure we'll come on to it in some detailed questioning shortly, I think that we are looking at good growth next year. I think it's well supported by the discussions and conversations we have from our clients who recognize the environment in which they operate and the importance of what we do, and we are in a position to deliver a strong set of numbers.

So I think in conclusion, that's why I really know we're well positioned to deliver sustainable long-term growth. We have a good guidance in '23 on the back of a good year in '22 and a good year in '21. There's a positive outlook for our industry.

If you come back to our overall 3-year growth that, I think 2019 is really the right point in comparison. We delivered 3.2% growth over that period. And I remember being actually in this room in December 2018 and being asked by, I don't know, Tom or one of his colleagues, what will we deliver. And I think we sort of slightly ducked it by saying peer-level growth. I think if you sort of pin me to the ground, I probably would have said 3%. And effectively, that's what we've delivered since 2019.

There were questions, I think, rightly at that time about our growth in North America, which has delivered 3-year growth at 3.3%. Remember, we hadn't grown in the U.S. since the first quarter of 2016. We delivered 3.3% compound growth over the last 3 years.

And there are questions about our creative agencies, which, while they've grown 1.2% CAGR, that actually grew around 5% last year, and they haven't grown for many years before 2016. And our PR businesses have done extremely well, and that's often been a part of the business that are most impacted by these.

So I think we can deliver consistent, long-term organic growth, made a lot of progress in transforming and simplifying our business, and we leave the last year and look forward this year for confident or quietly confident in continued growth and margin expansion in 2023.

So thank you. We're done, and we're here to take your questions.

(Operator Instructions)

Lina from BNP Paribas. Congratulations on the results. I have 3 questions.

The first one is on the top line guidance. Can you elaborate a bit more around what you have baked in, in terms of macro headwinds, new contract, cross-selling, brands appetite? And what will make the difference between the 3% and the 5%?

Second question, very similar on the margin. Can you explain a bit more the moving parts around the 5% -- the 15%, sorry, guidance on wage inflation, attrition levels, operating leverage and benefits from the transformation plan?

And lastly, John, I guess, you mentioned offshoring. Can you elaborate where you stand as a percentage of accounts currently in offshore centers? And how should we think about your offshoring strategy in the medium term?

Okay. So why don't I sort of start on the guidance and let John sort of finish that off, talk about the margin, and we'll come back to headcount and offshore.

Look, I think our budgets and our guidance -- well, our guidance is based on our budgets, and our budgets are based on a detailed bottom-up view of what each of our agencies and each of our people have in terms of conversations with clients.

I think they're also supported by the conversations we have at a senior level with clients and what you understand clients want to do. And I think we tried to say during the presentation -- I think at the end of last year, I think clients were more confident in private than they were in public.

So when I talk to CEOs, they're a lot more positive than they would have been if they -- when they appeared on Bloomberg or CNBC about the outlook for the year. I think everyone was rightly cautious, and I think the general view is the world economy is in a better place today than when people feared it would be back in October and November.

And by the way, you hear that consistently across our peers, so our guidance is maybe not as much news to you as it would have been if it were to come out a year -- a month ago.

I think the second reason is the reasons I talked, clients understand the value of investing. And if you are the CEO of a company, you're looking at, let's say, an FMG company at prices down 2% -- sorry, volume is down 2%, price is up, say, 7%, total revenue up 5%, you're probably not going to cut your spend. You're probably going to continue to invest in marketing to support the price increases, to support your revenue.

I think that investors are looking for, albeit this is the year of efficiency, store value revenue growth. And there's no doubt that we're a little bit helped certainly in the top line by inflation. I don't mean inflation in terms of us putting our prices up for our clients. I mean inflation in terms of what's happening in terms of client budgets and client spend.

So I think, broadly speaking, it's a positive environment for companies to continue to invest. I do think that consumers continue to spend and that, to some extent, is behind this. And if there's a catastrophe this year, then things change.

But I said back in -- when we did our Q3 results, I don't think this year is going to be a catastrophe. And I still have that view. There will be a slightly softer landing. It may take somewhat longer. And you see interest rates inflation tend to fight against each other.

If inflation goes up, so does interest rates. Demand comes off a bit, prices come off a bit. So I think we're in for maybe a slightly longer, but a slightly more sort of resilient top line environment than perhaps we certainly would have fared back in October and November.

I think, internally, our view has substantially shifted since then. And you saw Q4 came in better than people had fared, actually stronger than our Q3, although our Q3 was a little bit skewed by comparative. So I think we're pretty confident in the guidance for the year.

Asking about margin?

Yes, just maybe help you unpack the margin a little bit. So in terms of 2022, we saw average sort of staff cost inflation of around 6% to 7%, which is really around 4% in our permanent headcount, but then our freelance inflation was somewhat higher.

I think as we move into 2023, we'll see that inflation come off a little bit. So for our permanent headcount, it will be broadly the same. But actually, we expect to see lower inflation in 2023 on freelance. So I think average cost inflation on our staff costs will be about 4% to 5% '23 versus 6% to 7% in '22.

I think then you've got other investments, we talked about an investment in IT. So we're going to have to invest in our IT, continue to invest in our IT infrastructure. You saw the investment that we've made over the last 3 years. We'll continue on that journey in '23, and we'll start to see the payback in '24 and '25. You'll also see the transformational savings come through, so the GBP 450 million that we showed on that chart, the progression towards the GBP 600 million.

And then there's other components like, for example, we ought to see a bit of a bounce back, for example, in China. So China was actually a drag of 20 bps of margin in '22. So we may start to see, depending on how China fares through the year, some of that bounce back in '23. And we continue, of course, to make investments in Choreograph in other parts of our business.

When you net all of those different moving parts, we're expecting to see a drop-through on our net sales increase this year of below 20%. Now normally, in a normal year, we'd expect that to be 25% to 30%. It's a little bit lower in 2023 because of the somewhat higher inflationary environment and our desire to protect our clients from price increases as much as we possibly can. So that's why you see a slightly lower drop-through in '23. So that gives you a little bit of a shape on the margin for this year.

In terms of your question on outsourcing, we -- offshoring, we offshore roughly about -- we've got about 10,000 people you describe as being offshored, which certainly helps to mitigate some of our cost and mitigate some of that sort of 5% inflation that we're seeing on our permanent headcount. We'd expect to see that increase over time. We're not going to give any specific guidance on that. There's plans in place to see that increase over time.

What we're also seeing increasingly is our agencies move to a much more, what we call, a distributed model, whereby we use resource in all geographies to serve clients in different parts of the world. So where we've got low cost or lower cost resource, we're using that resource to help serve clients, for example, in the U.S. or in the U.K. So we're using a much more distributed model. It's not sort of offshoring in and of itself, but it's using the right resource to support our client work in a much more economically efficient way.

Okay. Adrien?

Yes. So this is Adrien from Bank of America. So I've got a few questions, if you don't mind.

So to follow up on Lina's question about '23, can you discuss a bit the phasing of that growth? Would you expect it to be second half weighted? Or do you expect performance to be equally based around the different quarters?

Secondly, I wasn't quite sure, John, why you mentioned that leverage would increase. You said 1.5, 1.6, but not quite sure why.

And then to come back on the '23 guidance, Mark, you highlighted 3.2%, 3-year CAGR. You're guiding on 3% to 5%. I'm not quite sure I understood what's driving the acceleration from 3.2% to like 3% to 5%.

Yes. I mean, on the last point, I mean, we are in a more inflationary world in '23 than we were the last 3 years, and that may contribute to part of it, I think, would be the simple answer.

And do you want to talk about the phasing, John?

Yes. In terms of phasing, it is broadly neutral across the year. I would say probably slightly lower in Q1 because, of course, we've got the comp on China. We saw China grow 12% in the first quarter of last year, so we've got to annualize that comparative. So I'd say Q1, possibly slightly lower and then relatively consistent across Q2, Q3 and Q4.

And in question to your point on leverage, I think, again, it's a reflection of the -- we will see a good bounce back in our free cash flow in 2023. We were impacted, of course, in '22 as a consequence of the net working capital outflow as well as the bonus accrual for '21 and the cash payments coming through in '22.

We'll expect to see that all reverse in '23, so we'll see a strong bounce back to free cash flow generation. But of course, there's CapEx of GBP 300 million, other investments that we had in M&A and so forth. And when you add all that together, I'd expect our net debt position to be somewhere between sort of GBP 2.6 billion. There's a little bit of an increase year-on-year, but certainly at the lower end of our 1.5 to 1.75 guided range.

Okay. Do it with Lisa, and then Tom.

It's Lisa from Goldman Sachs. Three questions, please.

Firstly, on your midterm guide, clearly, you already at that 3% to 4% level in terms of growth or even outperforming that. So I'm just wondering, when should we expect to get to that 15.5% to 16% margin? Is that 2024, 2025? I think you did say some of -- you're going to get some of the payback in the next 1 to 2 years. That's the first question.

Second question is on the interest cost. Obviously, a couple of moving parts. I think given the movement in rates, you should be a net beneficiary because you're getting more interest on your cash. At the same time, you have also a lot of maturities due.

So I'm just wondering what are you assuming in terms of -- are you expecting to refinance that or you're happy to repay down the debt? So any sort of color on the -- how should we think about interest cost in 2003, 2024 would be great.

And third question is on Kantar. I mean, clearly, it has performed really well. I think it looked like your guidance for 2023 implies an improvement from, I think, GBP 38 million to GBP 40 million to GBP 50 million. So can you maybe explain how -- what's underpinning that, like the organic growth expectations, margins? And any sort of plans for an imminent exit?

Okay. I think -- I mean, John, why don't you take that and we talk about Kantar and the sort of round as well, yes?

So in terms of your first question, which is when do we think we'll get to the 15.5% to 16%, I think we would say in the next 1 or 2 years. So '24, '25 would be what we see as being the medium term, which is about a year later than we guided to when we gave our Capital Markets Day in December 2020, obviously, as a consequence of events that have happened since then in the invasion of Ukraine by Russia, so about a year later than we originally planned.

In relation to your question on interest, so we had about GBP 250 million of interest cost in 2022. We'd expect that to be about GBP 250 million in 2023. It's important that we unpack that because, actually, that GBP 35 million increase, about half of it is actually interest on net debt, and the other half is actually a reduction in income from investments.

So it just happens to be that we've got a whole plethora of investments. We think they will return less, so we expect to see a reduction in net income. So about GBP 18 million or so of the GBP 35 million is actually an increase in our interest cost. And when you look at that GBP 18 million, you break that down, about 2/3 of it is as a consequence of having slightly higher net debt and about 1/3 of it is as a consequence of increasing rates.

Now our average interest cost at the moment is 3%. We have to refinance a GBP 750 million bond this year. We'll likely do that earlier than later, so that will increase our average interest cost to about 3.2%, hence, why we're seeing that slight rate increase. But it's important to note that only half of that uptick in interest cost is actually interest on debt. The other half is a reduction in investment income.

And in terms of Kantar, I mean, I wouldn't want to talk too specifically in relation to the performance of Kantar overall, albeit other than to say that it's performed incredibly well. It has a headline EBITDA of about GBP 750 million at the moment, so it's performed incredibly well over the last couple of years and continues to grow.

In terms of obviously exits, I'm not going to give you any sort of indications as to when those be. But I would look at Kantar, and we often think of Kantar as being a hidden gem, if you like, in our business. Again, if you sort of think about the value of Kantar, I mean, I'll leave you to do your own modeling, of course.

But if you think about the headline income of GBP 750 million or so of EBITDA and if you applied -- again, you talk a range of multiples 8 to 12x, you choose your own range, but call that 10x, that sort of GBP 7.5 billion, you take off the GBP 3.4 billion or so of debt, that's about GBP 4 billion of equity value. Our share of that is about $1.8 billion, call that GBP 1.4 billion, GBP 1.5 billion. With that -- that might give you some sort of ideas as to the way we think about the value of Kantar.

Now there's lots of assumptions in there, and you'll have to make your own assumptions as to that value. But I think it's quite in a way the fact that we're now stripping out, if you like, the income from Kantar from our associates line makes it a little bit cleaner because you can take that straightforward, income, EPS, if you like, for the WPP business overall and apply whatever multiple you want to that. And you can then take the value of Kantar and apply whatever you want to our 40% stake on Kantar and add the 2 together.

I mean, I'd add to that. I think as John said, in some ways, it's easy to look at the value of it. It's a financial investment. We're very pleased with the decision we made to retain 40%, and we're very aligned with Bain Capital on the investment. It may happen this year. It may not happen this year. But I think that, that's how we're looking at realizing the value of that investment.

Tom?

Yes. Tom here from Citi. I've got a couple on capital allocation, if it's okay. Maybe we could start with the buyback or lack of. I mean, obviously, the leverage is slightly raised this year for a number of reasons that you outlined.

But I'm just interested in your sort of philosophical view on buybacks beyond for the ESOP. Is it -- should we anticipate you returning capital via that going forward in general? Or should we assume that cash will be held back for M&A and other uses?

And then on that point, can you talk about plans for M&A? And can you talk in particular about retail media investment? Some of the other big agency groups have bought dedicated retail media investment related platforms. I know you have those capabilities within your networks, but do you feel the need to have something dedicated and separate? And could that maybe part of the story?

Yes. I mean, I'll talk about how I feel philosophically about buybacks more than the policy, if you like. Look, I think you can't shrink to grow at the end of the day, and I think there are attractive investment opportunities in our business. And that's what, as a management team, we should be focused on looking at.

If after the results and after the acquisition we've been able to make, the dividend we've been able to pay to shareholders and there's money left over, then it makes sense to return that through a buyback. And a substantial buyback that we've done has really been to offset the impact of the Kantar transaction on earnings.

So I think that's really sort of philosophically how we use it, and that's not to say there won't be buybacks in '23, but I think our priority has to be to invest in the business, to build capabilities that our clients need and to allow our companies and our brands to make acquisitions to grow. So that's the priority.

I think on M&A, I mean, I think the focus is clear that it has been -- it's technology-related, technology-driven businesses that are sometimes creatively strong, sometimes strong in data. We're very focused on solidifying our partnership with companies like Adobe and Salesforce and Microsoft and Google because that helps strengthen our position with them.

I think we're very focused on the more major markets, so the U.S., Brazil, India, other parts of the world where we have a strong position, where actually valuation is a little bit more realistic. But I think the U.S. is a big focus for us from an investment perspective.

And here some parts of the U.K. -- or the U.K. and some parts of Western Europe, where we have a great business like Germany, I think, are interesting. So that will be the sort of functional and geographic mix. And I think I go into this year expecting sort of similar in '23 to what we did in '22. 6 to 10, 8 to 10 sort of acquisitions, but there may be -- we never rule out more interesting opportunities.

In terms of retail media, we do have some capabilities in that area, and I think there's 2 sides -- like every economy, there's 2 sides to the coin. I mean, this is what we do to help our clients invest in retail media. And we have very strong capability there.

I believe Amazon is single largest retail media partner. We acquired companies like Market Ignition (sic) [Marketplac Ignition] in Seattle, I think, 7 or 8 years ago. We acquired an Amazon expert in Luxembourg 5 years ago. We have been investing for some time in retail media and helping clients navigate that.

And interesting about retail media, it's both a media problem as well as a creative problem, and then you have to understand distribution and supply chain and everything there.

I think the other side of the coin is helping retailers sell their media to clients, and there I think we're a little bit cognizant of the channel conflict issues. Are we sitting on both sides of the fence, if you like, in terms of retail media? And we look at it with interest, and we advise a number of clients what they should do.

But we acquired a company called Triad 6 or 7 years ago with not a great success. And I think we're sort of wary of being on both sides of the fence from a retail media perspective and whether we need our clients to have confidence that the money that they invest in is not going through channels where we're on the other side of the transaction.

So while it is interesting, it's a massive growth area that, obviously, we have in every client. And we're very, very well equipped to help clients, whether they want to spend money on Amazon or Walmart or on WBA or Target or any other major retail media platforms around the world.

Okay. Do we have any more questions in the room? Here in the room, you get priority.

Okay. I think no, so we're going to take questions from the webcast. How are we going to do this? Can we dial people in or not? I think we can play them over the speaker.

(Operator Instructions) Our first question comes from Richard Eary from UBS.

I have a couple of questions, actually, if I can. First one for John, just going back to your comment about you expect net debt to increase slightly. Can you just walk us through again, so I'm clear, the moving parts from what your EBITDA number is through to the increase in net debt, so I'm just clear? We've got all the moving parts in there in terms of particularly around M&A, et cetera, and uses of cash flow. That's the first thing.

The second thing, Mark, just on guidance is that can you maybe talk through a little bit -- I know you've given some discussion already, but talk through in terms of by drivers, by clients, by geography and by business lines, and whether that growth you're expecting, the 3% to 5% is similar to what you articulated over the last 2 years by different business lines, that would be helpful.

And then just the last question, just going back to, I think, a comment on Kantar. Can you just repeat what you said around the value of Kantar that you had on the books? I believe within the balance sheet, it's been written down to 0, but what would be your current carrying value if it wasn't written down?

All right. Why don't I start on the guidance, and John can tackle net debt and how we account for Kantar. In terms of the drivers, look, I think it's relatively broad-based, and I'd say we're not seeing a big shift in the patterns that we saw before.

So I say by client, perhaps we're seeing a consistent growth across our top 30 clients and across the client base, with 1 or 2 clients looking at reductions but no major pullbacks, certainly no consistent pullback.

I'd say by business line, again, pretty consistently strong growth in businesses that are driven more by technology and data and commerce and technology services. Our media business, as it has historically tends to have a higher underlying rate of growth than, let's say, the so-called creative agencies, but the creative agencies, because they have strong capability in commerce like AKQA and digital transformation, are seeing good growth.

And then geographically, I'd say, again, a similar pattern. More resilient than we'd expected in Western Europe, a couple of markets a bit softer because of specific client issues. Solid growth in Brazil and India. China coming back from, let's say, the second quarter on that helped the profile overall.

So I think that there's nothing I'd -- there's no single thing I would call out that our growth is dependent upon, other than the fact that the economy continues to be in a slightly better place than people expected perhaps 3 to 4 months ago. And I think as everyone else has realized, our industry is in a structurally better place than perhaps people had fared 3 to 4 months ago as well.

John, do you want to talk about debt and...

Sure. Richard...

I can ask a follow-up just on that?

Yes.

Just with regard to just the capital momentum in the business, obviously, last year was softer than probably what it was in the previous year given obviously the Coke win, but then the L'Oreal loss in the fourth quarter. Are we still expecting within that 3% to 5% growth tailwinds from account win momentum this year?

Yes. I think that our good new business performance last year, not without -- notwithstanding -- sadly, we're not 100% perfect. Notwithstanding some losses, I think definitely helps going into '23, but it's not the sole driver.

I mean, we have a large number of clients that are planning double-digit growth and some that are lower, obviously, doing any -- at this point in any year. So I don't think that there's -- look, I think our new business performance and our competitive helps us, but I don't think it's dependent on any one of those things.

All right. John?

Okay. Richard, at risk of doing all our modeling work for you, I'll try and take you through some of the numbers just to sort of help you out in terms of cash flow. If you look at the headline EBITDA level, just over GBP 2 billion in '22, we'd expect that to sort of obviously rise in '23 to GBP 2.1 billion, GBP 2.2 billion, that type of direction.

We then got interest costs again on debt of around GBP 150 million, GBP 160 million, taxes of GBP 450 million or so, reflecting the step-up in our tax rate that we've guided to, the 27% versus the 25.5%. CapEx of around GBP 300 million.

And then, of course, we've got restructuring cost of GBP 180 million, again that we guided to. We've got earn-outs of around GBP 80 million or so, similar to this year. We've got flat working capital movements. And then in terms of non-trade working capital, expect an outflow of around GBP 150 million or so.

And then we talk about M&A, GBP 400 million or so. We don't assume any disposals within that, although there may be some disposals. GBP 50 million on share buybacks to support the different share schemes. And the dividend, of course, policy at 40% payout ratio.

If you add all of that together and, of course, there's lots of moving parts there, and it can move, that's roughly an outflow of GBP 150 million, GBP 200 million or so. That gets us to a net debt position of about GBP 2.6 billion, GBP 2.65 billion for the year-end.

So that's a fairly detailed overview. Of course, there are variabilities plus or minus around that, all of which would result in a net debt to EBITDA average for the year of about just over 1.5x. So again, 1.5x to 1.75x range. So hopefully, that sets out very clearly the expected cash flows for the year. Of course, they may well change.

In terms of your question on Kantar, again, just to repeat. I mean, obviously, the complexities around -- I'm sure you're aware around private equity sort of debt structuring are clear, but the carrying value of our investment in Kantar has dropped to 0 for 2 reasons, principally.

One of which is because of restructuring costs taken outside of headline to transform that business, and that is delivering great success in the performance of Kantar. We've seen a really step-up in EBITDA performance over the last couple of years as a consequence of that restructuring, that transformation. And second, of course, is the interest cost on the leverage.

So all of which is technically taking the carrying value of Kantar in our books down to 0. That means that we cannot recognize the associated income. That's an accounting technicality. But of course, it doesn't mean there's no value associated or attached to Kantar.

So then how do you think about what is the value of Kantar in our portfolio? And one way of looking at it, it's not the only way of looking at it, but one way of looking at it is the way that I outlined earlier on. And just to sort of, again, for your benefit, just to take you through that math, and it is subjective, and you have to do your own work and valuations.

But the headline EBITDA is around GBP 750 million. That's the bit -- that's been steadily improving, and that may well continue to improve. You can then look at whatever multiple you fancy to that, and it could be 8. If you look at (inaudible) type multiple, it could be higher. If you looked at the higher comparable, the 8 to 12, again, you have to take your view.

And I can't comment on what the market would assume there, but let's just take as an illustrative example, 10x, that gets you to your GBP 7.5 billion. You then take off the GBP 3.4 billion of debt that Kantar has, that gets you to a net GBP 4 billion and our stake in there is GBP 1.7 billion or so. So GBP 1.3 billion, GBP 1.4 billion.

I'm not saying that -- that's one way of looking at the value of Kantar. You have to look at your own approach. You'll take your own assumptions around that, but that might be an illustrative way of looking at how do you think about the value of Kantar in our business. That's not value, of course, that's reflected in our books because the carrying value, as I said, is 0.

Our next question comes from Matthew Walker from Credit Suisse.

The first thing is that you mentioned the 9% growth of your business transformation assets in '22. Are you assuming a similar level of growth for business transformation in '23?

Second question would really be on in-housing. What are you seeing on the in-housing trend at the moment? And are you offsetting any of that with selling extra services like ECT and business transformation? Just wondering what your perspective on that was.

And then finally, just on the inflation point, which, I guess, is well taken about the client budgets. But I think, last year, you did put up your own prices to -- and got maybe a couple of percent of growth from putting on your own prices of your own workforce. Are we to assume that you're not doing any of that in 2023?

Okay. So why don't I start and then -- look, I think on the experience, commerce and technology area, we wouldn't necessarily define that as business transformation because transformation impacts everything we do with our clients. But we don't really forecast or budget in that way, so I can't give you a number of 9%.

What I'd say is, broadly speaking, we would expect that part of the business to grow more strongly than communications in 2023, as it has done in previous years. But I would point out that what we've seen is a relatively robust performance in communications because that business is not dead and actually is doing well, particularly as clients invest in marketing.

On in-housing, look, I think the clients have always brought sort of more commodity elements of what we've done in-house and offshored it. And increasingly, we're offshoring it as well to reduce the cost of doing it.

I don't think anything substantially changed in that, and a number of the sort of best known in-housing initiatives from clients are actually staffed and provided by agencies. And we have many examples of people across WPP and many of our clients, a great number of clients who do work inside client operations.

I think it's a very fluid structure. And I think if I were a talented person looking for a job in programmatic media or e-commerce or data analytics, would I rather work in one of our agencies or work inside a client organization that makes sausages or a bank? I probably want to work in one of our companies.

So I think clients are best off partnering with us in many of those areas, but there will always be sort of more commoditized areas of the work that they bring in-house. And our job is to make sure that we're always at the forefront of what we're doing and not in those more commoditized areas.

On your question on inflation, maybe John will answer. I think the simple answer is that we continue to put our -- we continue to manage our prices. We have to pay our people more money, and that means we have to put our prices up to our clients to be able to attract and reward our people.

Yes. I guess, exactly -- I mean, I guess, to put a bit of color on that in terms of numbers, as you rightly highlighted, in 2022, we probably managed to put our prices up overall about 3% to 3.5% or so.

But obviously, our cost inflation in '22 on our staff was 6% to 7%, so we had to -- it's our job as a business to absorb that cost inflation and try and avoid passing it on to our clients. We want to give them value for money, and we're able to do so by initiatives such as transformation, by initiatives such as offshoring, managing our cost base effectively and so forth.

And so I would say for the year ahead, we would probably expect to see similar types of price increases and, as I said earlier on, maybe slightly lower inflation on our staff costs, still 4% to 5% or so.

So still above what we might put through in price increases, but nonetheless, we get a little bit of relatively margin relief in '23 because the inflationary pressures have eased. And we continue to push our prices up sensibly with our clients by about the same as we did in 2021.

Do you mind if I have just as a quick follow-up, which is the U.S. was a little bit slower in Q4. Do you see U.S. being a little bit slower than some of the other geographies in '23? Or any comments around that?

No, I think you're right. It was a little bit slower in Q4. That said, we had some really good momentum in our Ogilvy business with some significant client wins, which will benefit us as we go into 2023.

I wouldn't want to give specific geographic guidance going into this year, but we feel confident about our ability to continue to perform in the U.S. market. And we've had some good success examples from Ogilvy in the last quarter.

Our next question comes from Omar Sheikh from Morgan Stanley.

Just 3 quick ones for me, maybe. On margins, maybe John, first of all, you talked about the medium-term margin target being achieved in the next couple of years. Could you maybe talk about what you think might be the potential to raise margins beyond that? And are there any further efficiency savings that you think are possible within WPP? Are there some benefits from the investments that you made in technology that could maybe take margins up beyond that -- or meaningfully beyond that medium-term guidance?

And then maybe also on margin, John, you said 4% to 5% on staff costs, 4% to 5% overall growth in '23. But isn't the average headcount going to be going up? So just wondering what the kind of price and total headcount for '23 sort of mix looks like. If you could just maybe give us some color there, that would be helpful.

And then secondly, maybe for Mark. Your comments just -- I mean, I think, just following up on Matthew's question just now on the impact of inflation on client spending, could you just maybe give us a sense of what clients are telling you about how much they're expecting inflation to play on their total spending for '23? And what happens if inflation comes down rapidly? Does that negatively impact how much they might spend? Or does that not really change things? That would be helpful.

And then just finally really quickly on Kantar. It sounds like -- well, let's not infer, but I guess the question is, if you were to decide to sell Kantar, what would you do with the proceeds?

Yes. Look, I think, I mean, I'll take your question in reverse order. On Kantar, I think we'd have to see. And we don't know when it would be or what the proceeds would be or what opportunity would be ahead of us at that time, so we'll see that. In some ways, the situation we've got to now is somewhat cleaner in terms of the earnings that, in some ways, makes it easier.

On inflation, I mean, we don't have direct conversations with clients. My sense is that these things balance. If inflation comes down, interest rates will come down, and that will be positive. And if inflation goes up, interest rates will go up, and that's sort of a bit more negative.

So I think it's hard to say what's positive or negative. I just think that in an inflationary environment, clients don't slash spend. That doesn't mean if inflation starts to come down gradually, they are going to -- they are -- you're sort of looking for the negative on these things.

I think the conversations we have are relatively robust, as the economy is in a slightly better place than people fared, and that's sort of where we are now as we look ahead over the next 12 months. I can't really give you sort of more detailed insight into that -- than that, I'm afraid.

He had a question on margin.

Yes, I think there were 2 questions on margin, if I understood correctly. Just in terms of your last question on margin, just to again give you a little bit of the shape of some of the dynamics, so just for comparison.

So for 2022, we saw, broadly speaking, staff inflation cost of about 6% to 7%, as I said, and we also saw headcount increases on average of about 9% in 2022. Now the reality was we've mitigated a lot of the impact of that inflation through transformation savings, through offshoring, through mix of resource and freelance and permanent and so forth, but that gives you a little bit of the headline to 2022.

If you look for 2023, we would, as I said earlier on, we expect the staff inflation at around 4% to 5%. We'd actually expect our head count increases to be around 2% or so, something of that order, so that gives you -- and then in both years, '21 and '22, so the price increase of around 3% to 4%, so that helps you think about how you're doing your modeling.

But important to highlight that a lot of the inflationary pressure coming through on the staff cost, we managed to offset. You don't see that all flow through. There's a lot of work we do to offset that through mix, through offshoring, through using the right resource in the right places to support our clients.

And then your first question, which was on margin beyond the medium-term guidance of 15.5% to 16%, obviously, I'm not going to give any new guidance today beyond that medium term, which we hope to achieve in the next year or so, other than to say that WPP is a complex organization.

It's a lot simpler today than it was 4 years ago. And in 2, 3, 4 years' time, it will likely be simpler still. And it's not a journey that's going to be finished in 2, 3, 4 years. This is a long journey of change.

And I don't -- I suspect my successor and Mark's successor over the years will be talking about transformation in WPP for years to come. There is a significant opportunity in the business to simplify and improve the business. We've made good progress, I think, in the last 4 years in that direction. So you can read into that what you will about longer-term margins. But certainly, we're very happy with the medium-term guidance that we set out.

We have one final question on the telephone line from Silvia Cuneo from Deutsche Bank.

I just have two left. One is on account reviews. What is your expectation for level of account reviews this year? How much could be up for renewal to defend and how much potentially up for grab? And do you have any bigger sample that you might like to share on this?

Secondly, on digital advertising, many of the platforms see some EBIT mix regarding performance and outlook for digital advertising. Can you please share your views as to why WPP does not seem to be that impacted? Is that more because of the (inaudible) perhaps away from display to more retail media or your sectors of exposure?

Okay. I mean, look, I think on account reviews, we have a pretty healthy new business pipeline. It's probably a little bit smaller than it was this time last year, though it increased significantly in the last 24 hours.

So I think there'll be reviews that will take place. I think a lot of clients are looking at our work and our partnership with The Coca-Cola company trying to -- in trying to understand how relevant that is for them, what are the benefits of really working with a partner who can help them transform their business and transform their marketing, help them deliver better work, and at the time, save money.

I think that's quite attractive proposition to a large number of major clients who are struggling with thousands -- in some cases, thousands and thousands of agency partners. And I expect that to continue this year.

On the digital advertising point, I mean, it was interesting. We're looking at the growth of the FAANGs in Q4 was 1.2%, and WPP delivered 6.4%. Now I will admit that on a 3-year basis, they've certainly seen very strong growth. And probably, I'd rather have it on a 3-year basis than for a quarter.

But I do think that it does demonstrate the strength and resilience of our business, and I think it's a little bit a sample error. It's both -- it's a little bit a sample error problem, and it's a little bit a business mix problem.

The business mix problem is we tend to work with larger companies that have more consistent budgets. They are less driven by customer acquisition and the vagaries of the private equity market. And many of the platforms have a different business mix, a lot of small and medium-sized businesses, a lot of companies. I don't think FTX is a major partner to a lot of the platforms in a way it was perhaps a year ago, so a lot of the venture banks start up the spending less. So that's the sort of the business mix.

And then I think it's a little bit of a sample size error, which is a lot of the platforms where you're seeing growth, like TikTok or Amazon, are not measured in those models where you just add up simplistically Google, Meta, Twitter and Snap. So you're seeing growth out of those 4 platforms, and that makes a more diverse media mix, more competition, more ways to reach consumers. I think that's better for our clients. It's better for WPP as well. So I think that's the transformation we're seeing there, and I expect that to continue this year and into the future.

Okay. So I hope that's the last of the questions. Thank you for that. Thanks everybody for listening in the room. Thanks in particular to our clients who's trust in us we repay through our work; to our people, for the hard work they've done. They've created these results, not John or I; and also to our shareholders for their support for the year.

So thank you all, and we'll see you in Q1.