Good afternoon here from London. Good morning in the States. I'm joined in London by Scott Spirit, Mary Basterfield, and Jean-Benoit Berty, who you all know from the press release, has joined us effectively today as Chief Operating Officer. We've got a long presentation for you in several sections. I'll do a brief introduction, and then Scott will talk a little bit about our strategy. Mary will take you through our results. Scott will then take a look at market momentum and client analysis. Wes, who is in Las Vegas at the Adobe conference, will talk about artificial intelligence. And we have Chris Martin joining us from Barcelona, and Brady, I think from Brady Brim-DeForest from Maine, I think it is.
So- Oh, Los Angeles today.
Oh, Los Angeles there you are. We lose.
Yes, sir.
We lose trace of you. Okay, so both on the West Coast. So we're really appreciative you get up so early in the morning. So, and then we'll come back to a summary and conclusion after looking at AI. A little introduction first about where we are. After four years of strong growth, 2023 was a challenging year, reflecting not only global macro conditions, but client caution, and indeed fears of recession. In response to this, we've made several structural changes to improve performance. The first is a significant reduction in the number of Monks in our organization from over 9,000 to 7,700.
Secondly, to reorganize and to provide additional leadership in the content practice with Bruno Lambertini joining Wes as co-CEOs of that practice, and Wes focusing, as you'll hear later, in particular on AI and its development. The appointment of Jean-Benoit Berty as Chief Operating Officer, as I mentioned just now, and simplification of the board structure, which tended to be executive as well as non-executive, and strengthened the executive committee. We've also made further investments in our financial systems, in our processes, in our control and governance, and Mary has built out a strong central finance treasury and tax team to do this. And given market uncertainty, we remain and maintain continued discipline in hiring and our cost management.
Our strategy, as you'll hear from Scott, remains the same. We are confident that our talent, that our business model, and our strategy and scale client relationships, which are unique for a company of our size, position us well for above industry average growth in the medium and the long term. So with that as an introduction, and to the changes we've been making, I hand over to Scott to talk a little bit about strategy.
Thanks, Martin. Good afternoon, everybody. As Martin just said, our strategy remains consistent, and I wanted to cover some of our key differentiators. Firstly, we're purely digital. We're focused on the fastest growth segments on the marketing and tech services industries, and we have a natural understanding on the impacts of technology, which is especially relevant in the age of artificial intelligence. We're data-driven, and data informs all of our work, and this leads to more effective and reliable results for clients. Data is also the key input and the fuel which powers artificial intelligence. We go to market as faster, better, cheaper, and with the advent of AI, more. Our unique combination of marketing and technology capabilities allows us to address budgets across CMOs, CSOs, CIOs, and CTOs. Given the pace and impact of change, we focus on the now.
We're helping clients achieve results and relevance today. We have a single P&L approach, going to market under a unified Media.Monks brand and offering clients a more integrated approach. We generate value for our stakeholders by having scaled, profitable clients. Our addressable markets of digital marketing and technology services are both multi-billion-dollar opportunities. We rely on our talented entrepreneurial colleagues, and there are more than 7,700 of them around the world. And we aim to deliver maximum and measurable results for our clients across our three core practices: content, data and digital media, and technology services. We have a global network of connected offices, that's 61 across 32 markets. And finally, we act as responsible stewards, managing risk and aligning our ESG goals with our business objectives. And with that, I'll now hand over to Mary for our audited financial results.
Thank you, Scott. Hello, and thank you for joining us today. I look forward to catching up with many of you during the Investor Roadshow. I'll start with the financial highlights. After four years of strong growth, 2023 was a difficult year. Net revenue was GBP 873 million, down 4.5% on a Like-for-Like basis.... We delivered growth in the first half, but the third and fourth quarters were more challenging. Profitability came under pressure due to lower revenues. However, operational EBITDA was in line with revised targets at GBP 94 million. We made significant cost reductions to deliver an operational EBITDA margin of 10.7%. EBITDA improved as these cost reductions took effect, and we delivered GBP 57 million in the second half compared to GBP 37 million in the first.
Adjusted operating profit was GBP 82 million, and adjusted earnings per share were 5.7 pence. We finished the year with net debt of GBP 181 million, reflecting combination payments made in the year. This was at the bottom of the targeted range due to tight cost control and slightly lower than expected combination payments. Leverage was 1.9x. Moving now to revenue, decreased 5% on a reported basis to GBP 1 billion and like-for-like was down 8%. Reported net revenue of GBP 873 million was down 2% or 4.5% like-for-like. This reflects global macroeconomic conditions, client caution, longer sales cycles, a difficult year for new business, and a lower seasonal uplift than in previous years. While all practices were impacted, this was most evident in content. We finished the year with 10 Whoppers.
That is, clients delivering over $20 million of revenue. Our strategy of building broad-scaled relationships with leading clients continues to drive our revenue, and we saw better performance in our top 10, 20, and 50 clients. Operating expenses were broadly flat year-on-year, despite inflation and a full year of combinations made in 2022. This is the result of tight cost management and a reduction in the number of monks to about 7,700 at year-end, down 13% on December 2022. Operational EBITDA of GBP 94 million was down 25% on a reported basis and 37% like-for-like, driven by lower revenues. I've given you a breakdown of the adjusting items in the table on the left-hand side. You can see that M&A investment was significantly lower due to reduced activity.
Acquisition, restructuring, and other expenses of GBP 12 million includes GBP 13 million of contingent consideration linked to employment and restructuring costs of GBP 18 million, which have driven significant cost reductions. This was partly offset by a revaluation of contingent consideration on prior year combinations, resulting in a credit of GBP 25 million. Reported profit includes a credit of GBP 9 million relating to the significant one-off devaluation of the Argentinian peso, which we have excluded from operational EBITDA.
Finally, the increase in net finance expense is driven by higher interest rates on our term loan, which provides us with secure long-term financing. Looking next at our three different practice areas: content, data and digital media, and technology services. My comments here are all on a like-for-like basis. Net revenue in our largest practice, content, was down 10% in a challenging year, especially in the second half, when macroeconomic conditions made clients cautious.
Some technology clients spent less, and there were fewer regional and local opportunities. It was a difficult year for new business, and there was limited seasonal uplift in the fourth quarter. Data and Digital Media net revenue was down 3%, with modest growth in the first half, but a decline in the second, highlighting tougher end markets. Net revenue in Technology Services was up 22%, with very good growth in the first half. As expected, this slowed significantly in the second half due to longer sales cycles for transformation projects, phasing of work, and a reduction in activity from some larger clients. From a regional perspective, the Americas was down 3% and it remains our biggest region, boosted by Technology Services at 79% of the mix. EMEA decreased 11% in challenging macro conditions and Asia Pacific declined 9%.
Moving to EBITDA by practice on the next slide. Again, my comments are on a like-for-like basis. In content, operational EBITDA margins were significantly impacted by the decrease in net revenue, though this was tempered by strong cost discipline. Operational EBITDA was GBP 39 million, down 56% on the prior year at a margin of 7%. Ongoing hiring controls and reorganization of the practice have reduced headcount, and we continue to focus on improving the operating model, integration, and forecasting. In data and digital media, a modest decrease in net revenue impacted margin, and we took corrective action to reduce cost. Operational EBITDA was GBP 34 million, down 22% at a margin of 16%. Technology services had a strong first half, but delivered lower margins in the second on lower revenues. Operational EBITDA of GBP 43 million was up 1% at a margin of 32%.
Central costs were down 15% year-on-year, reflecting tight cost control and efficiencies. Moving to the next slide, you can see that we continue to maintain a strong balance sheet with sufficient liquidity and long-dated maturities to facilitate growth. Our EUR 375 million euro term loan matures in August 2028, and our EUR 100 million revolving credit facility, which remains undrawn, matures in August 2026. We currently have comfortable headroom against the key covenant. Moving to cash flow on the next slide. CapEx of GBP 10 million is primarily investment in IT infrastructure. Interest paid increased as a result of higher Euribor rates on the term loan, while higher tax paid reflects our performance in 2022. Restructuring and other one-off expenses includes the GBP 18 million of restructuring costs, mainly related to people, and around GBP 3 million of spend on our ERP program.
There was a very small working capital outflow due to a reduction in trade payables, driven by activity levels and cost control. Free cash flow was GBP 14 million, and we continue to focus on cash management. The cash spend on combinations was GBP 81 million, almost completing the payments related to activity in prior years. This takes net debt to GBP 181 million, which is at the bottom of the targeted range. Turning to our guidance for 2024, we anticipate significant market uncertainty as clients remain cautious in the near term, despite potential interest rate reductions later in the year. At a practice level, we expect content to deliver an improvement in EBITDA and margin, driven by the benefit of cost reductions made in 2023, and data and digital media to perform in line with 2023 on both the top and bottom line, with some margin improvement.
Technology Services has a more challenging outlook and is expected to be lower in both revenue and EBITDA, following a reduction in activity with some key clients. Given the outlook for Technology Services, we are targeting like-for-like net revenue for the group to be down on 2023, with overall a broadly similar level of operational EBITDA. The comparatives for 2023 will be tougher in the first half and ease in the second. We expect 2024 to be heavily weighted to the second half, given our natural seasonality and an expected improvement in end markets as interest rates come down. Given the uncertain market outlook, we continue to maintain a disciplined approach to cost management, including headcount and discretionary costs. We anticipate a net finance cash charge of about GBP 30 million and a tax rate of 24%-26%.
Our guidance for cash contingent consideration is GBP 10 million, settled in the first quarter, and our expectations for net debt at year-end are in the range of GBP 150 million-GBP 190 million, with capital allocation priorities focused on debt reduction, buybacks, and dividends. As usual, we have included information on weighted average share count and invested capital in the appendix, and we are happy to take any questions on these at your convenience. In summary, we expect clients to remain cautious this year. We continue our disciplined approach to cost management and operational efficiency, and we are targeting a broadly similar level of performance as 2023. Medium-term prospects remain good. With that, I will hand over to Scott for the market and client update.
Thanks, Mary. I'm going to take you through some of the market and client dynamics that we saw in 2023 and the outlook for 2024, some of the challenges we've been facing, and the actions we've taken to stabilize the business and build a stronger foundation for growth. As you are aware, 2023 was a difficult year. From a macro perspective, we entered 2023 with reduced growth expectations and less than typical visibility, as many of our clients delayed their budgeting processes well into Q1. As it turned out, 2023 was most notable for the challenges faced by our primary client segment, the technology sector. Historically, our growth has been tightly correlated to the growth of digital advertising and the revenue growth of the major tech platforms.
As tech companies engaged in rounds of layoffs, right-sizing their businesses after a post-COVID-fueled growth spurt, they also cut their marketing budgets and doubled down on their years of efficiency. Actually, digital marketing had a relatively healthy year. The platforms had a tough first half, but delivered strong growth in H2, and overall digital media spend growth was 8.7%. This was driven by FMCG spend, which was driven by inflation and other non-tech categories. Our quoted agency peers originally guided to 5% growth and ultimately delivered 0.6%. 2024 looks like it will be a similar year for digital media growth, with analysts projecting 7.7% growth, and with the technology category continuing to be muted. Our quoted agency peers are currently guiding towards a more modest 3% growth.
Our other addressable market, Technology Services, had a turbulent time after many years of 20%+ growth. Originally guiding to above 12% growth, the main peers delivered just over 5%, and for 2024, are projecting less than 1% growth, with significant margin compression and many of them in negative territory. Despite these macro challenges, our stated goal remains to outgrow our markets, and we did not achieve that in 2023, and our guidance for 2024 also falls short. So I want to dig into our clients and our growth approach some more and look at what changes and actions we're taking to turn things around. Our scaled client relationships remained healthy in 2023. The only significant loss we had was the previously flagged Mondelez content business, although Mondelez does remain an important client.
The reduction in work with Mondelez was around GBP 30 million in net revenue, and thus represents 3.3% of the 4.5% decline in net revenue. Our heavy exposure to technology clients was also a challenge in 2023, as they embarked on cost savings programs. Meta publicly disclosed that their sales and marketing spends were down almost 20% in 2023, with others down similar amounts as we understand it. We had six technology clients in our top 10 in 2022, and their net revenues were down just over 8% in 2023 due to spend declines. This obviously contributed to our overall decline, but in a year where their budgets were down as much as 20%, we still gained share. Our strategy of focusing on large-scaled client relationships continued to be successful.
We ended 2023 with 10 whoppers, clients with revenues above $20 million. The same number as 2022, with two dropping out, Mondelez and one tech company, which reduced spending, and two new ones, one telco and one FMCG, entering the list. Overall, our like-for-like revenues from our top 20 clients were down 2.6%, and our top 50 were down 1.1%. This is an overall figure of 5.4% for S4. Again, this illustrates the key challenge in 2023 was with smaller and local client relationships, project work, and winning new business. While we expect clients to remain cautious with their spending in 2024, we have a renewed focus on growth. We've launched a plus one strategy of expanding existing client relationships by selling in additional services or geographies.
We've simplified the go-to-market approach for our eight core capabilities, each of which has clear leadership and accountability. We're investing in sales and new business capabilities, expanding the teams, and using technologies such as Salesforce, and Brady can tell us more later about how he is reshaping the tech services approach to sales. We have new leadership in place in several key markets, such as the U.K., France, and Germany, and regions such as Latin America and Asia Pacific, to specifically address the challenges we've seen with local and regional clients. The pipelines are improving, and there's significant new business activity, including recent wins from the likes of Zillow, Burger King, LIV Golf, AliExpress, FanDuel, and ASML. I have a couple more slides which show the usual data that we share on our clients. As you can see, our client portfolio didn't change significantly in 2023.
Technology represents 43%, down slightly on reduced spend from clients. We remain bullish and committed to the technology sector. We continue to develop our relationships and partnerships there. That said, we also continue to diversify our client base and are pursuing a pipeline of opportunities in other categories too. In terms of scale, our average reported revenue for larger clients was largely stable in 2023, and this is in comparison to our overall reported revenue decline of 5.4% at S4, further evidence of the health of our scaled client relationships. This momentum with larger clients is also evident in the table on the right, with slight increases in the number of clients in the GBP 5-10 million and GBP 10 million+ categories.
We had declines in the number of clients in the lower revenue categories, many of which are one-off projects, new business, or local client relationships, and we're focused on rebuilding this pipeline in 2024. With that, I'll hand you over to Wes, who's gonna update us on artificial intelligence.
Thank you, Scott. Hey, everyone. If we go to the next slide. Let's look at our year in AI. I know these types of updates have become a bit of the standard, but I do think it's quite interesting to look back at the start of last year. If we go to the next slide, just to get a sense of the progress made and where we're headed next. In the beginning of last year, February of last year, we committed very publicly to being fast and first. Followed that up with some really mature thought leadership early in the year around, "The future will be generated." It actually echoes quite a lot of what we heard at NVIDIA's GTC last week, the idea of marketing moving from retrievable to generated.
And then, of course, in this earnings call last year, we first had to spend, put in another point of view, and put a plan together. If we go to the next slide, we're now seeing AI change our industry in two important ways. The first is the customer experience. We've been awarded Adweek's first-ever AI Tool of the Year for the work that we do in those spaces, and we're gonna show you a quick video, if we go to the next slide, around Burger King. So we launched this campaign a few months ago. As far as I can tell, probably the most significant use of generative AI in a creative campaign so far, and it starts showing some of the great irony of AI, which is that AI actually allows us to make the customer experience more human.
Much higher level of understanding of a consumer's intent and interactions. We can respond to that in close to real time, super high levels of relevance and fidelity. In this case, people got to design their own personal book. It's end-to-end generative AI trained brand model, which makes perfect-looking burgers, agent interactions, and highly personalized and shareable content. Really great piece of work. It also starts showing some of the scale of what the brand models can deliver. At one point in time, we were generating about eight burgers a second, and we'll get to the need for scale in a few slides. So it's a good example of both the creative side and the model strategy that a lot of our clients are getting into right now.
If we go to the next slide, the other impact of AI is really on marketing operations. Again, we're in a really good spot, just won a series of AI Excellence Awards from the Business Intelligence Group, one for the quality of our strategic planning. I think that's a great reflection of the growing, consultancy practice and the importance of that practice for our business. We also won one for product, and if we go to the next slide, we launched our product at CES called Monks. Flow. And this is an orchestration solution, our way to connect talent and technology across the enterprise stack to solve high-value marketing use cases.
If you look at year one, if last year was our year one, that's sort of broadly the year one in this space, the focus really was on solving speed, scale, and spend issues in global content creation. There isn't a global enterprise that doesn't need more content, and that's without even going into the concepts that more content should drive higher performance. Launched that, really good response, good reaction, driving really healthy pipeline, and of course, some different business and commercial models as well, which is good. If we go to the next slide, I want to be clear, this isn't just about content. If we look at now and sort of the year two focus, a lot of that is around insights and intelligence. How do we get better performance, better predictions?
Which of course, pulls our data, content, and media practices even closer together, and of course, our technology services team builds a lot of this architecture. We launched Persona.Flow at NVIDIA GTC last week, which is a great example of insights and intelligence. It's part of the Monks.Flow product set, accelerates the process of generating strategic insights for marketers. So see this as a promptable proxy, a digital twin of your consumer set. We have statistical proof that this replaces qualitative and quantitative surveys, and it has a very telling internal tagline, "From three months to three prompts," right? Collapses the ability to get from insight to strategy to creative, which is really quite powerful in the day-to-day workflows. If we go to the next slide, we launched Persona at GTC.
I think that's a reflection of our close collaboration with NVIDIA. We've designed and architected Monks Flow in close collaboration with NVIDIA engineers, making sure we're very sympathetic to that roadmap. Why? I think up until now, a lot of the work in this space has been pilots and test cases. As we start to scale this out, the efficiency of compute, the amount of cycles, minimizing error rates, efficiency of the model, are gonna be key components to actually delivering real positive impact on the P&L from a cost savings perspective. So that was really key. Also fun, at GTC, we we had a few talks. We had our teams on stage twice, once to talk about our avatar solutions connected to ACE, which is NVIDIA's infrastructure there, and once about Live Cloud Broadcast, which is a really exciting space.
We also had some of our work in Jensen's keynote, which of course is a lot of fun for the team. If we go to the next slide, pretty much everything we're doing from a Monks Flow perspective is really deeply connected to our main technology partnerships that Scott just mentioned. Want to lift out Adobe. I'm at the Adobe Summit in Vegas at the moment. I think looking at yesterday's keynote, you can really see the sort of alignment of big tech with our workflow tools. I thought especially the announcement of the Firefly Services model was really powerful. We'll have some more updates on this collaboration at Cannes, where we'll roll out a large Monks Flow update for our client base. And then the next slide is more just a general note.
We have very deep relationship with what you call big tech companies. There's lots of really emerging players in the AI space. We're building deeper relationships with those. Announced one of those relationships with Runway last week, which is, of course, a really interesting company in that space that has come out, I think, on top of the initial wave, especially of film generation models. There's another really interesting announcement to come. Hopefully, we'll be able to share that in April. If we go to the next slide. To cap this off, important note, I think there's sometimes almost a natural friction when we talk about AI and creativity and creators. For us, we don't see that friction. We actually launched a completely new talent offering around AI called Artist Monks.
Bring some of the world's most exciting AI creators, both internal talent and external talent, external talent, closer to our clients, closer to our projects. Which I think is also a good reflection of how we think about AI. We don't see this as a separate service, or discipline, or a separate business line. We really see this as becoming our business, and I think reflected in our current new business pipeline, there are very few meaningful pitches where AI isn't a really fundamental part of our offer or even the whole effort. So that was year one. If we go to the next slide, I think a few main takeaways. We said AI would be disruptive to our space. I think the evidence is bearing that out.
We also promised to be fast and first leaning into the disruption, helping our clients do the same. I think we've been able to deliver on that so far. More to do, and that really brings me to what happens next. So if we go to the next slide, I would say the recurring mantra is now at scale. We've gone through a year of pilots, of learning, of education. It really is now about moving from those pilots of projects and productization at scale. I think we're seeing a meaningful shift on the client side on getting into those bigger transformations. Those are relatively big changes. Quite difficult topics, I think, to communicate about because there's a lot of change management involved. So, hopefully, we'll be able to share a few of these examples in our next call.
But it's, it's quite interesting to see how that switch has happened over the last three months or so. And again, with our consultancy team especially, I think we're in a really great position to deliver some real value. If we go to the next slide, this is, probably the most important note on what, what's next: the commercial model. So the reality is that our industry at large, relies on, time and material model. What percentage of my people can I get billable at what percentage of their time? In the age of generative AI, both the concept of people and time is gonna get really squishy really quickly as your main commercial model. And we honestly believe that the traditional time and material model actually actively incentivizes against some of this disruption and innovation.
So for clients who are ready to buy different, we have changed time and material to talent and machine, and we're putting outcome and output-based commercial models in place. I think that's a win-win for both sides. We're already seeing this also be a really sizable conquest and opportunity for us. And I think that is probably the mantra that we had in year one, that will keep being the mantra in year two, we move quickly, fast and first, but that to me is probably the biggest change. And again, not everybody will be able to buy in this way. Some clients can only buy rate cards, but the clients that are making that shift as well, I think, are leaning into our proposals really actively, which is nice to see. Go to the next slide.
Really to end it, I think for us, this is really, the next phase of disruption. If you look at the initial phase of S4, and to Sir Martin's point earlier, five years of really strong growth, that was focused on, quite a tactical disruption of the traditional Hold cos. Single P&L model, different M&A model, faster, better, cheaper, and now with AI, also more. Quite tactical, but really meaningful for our clients. If you look at this next phase of disruption, it's a cloud and compute revolution. It will change how we work. It will change the work. It will change the commercial models. We believe that this is the defining trend over the next five to 10 years. It will be consistent across industries.
In our next call, we'll actually start showcasing some of the work we're doing in adjacent industries, especially broadcast, where we're seeing the exact same mechanics play out, different commercial models, more cloud and compute, the ability to disrupt, by leaning into technology and innovation. That is our AI update. I know we have some time for questions after as well, but I'm gonna hand it over to Sir Martin to bring us home.
Thanks, Wes, and thanks, Mary, and thanks, Scott. We have some more detail on what's been happening in our content practice, in our DDM, Data and Digital Media practice, and tech services practice, and that's in the appendices. I'd just like to summarize where we are and the outlook. So, just to go through the key points. Net revenue and Operational EBITDA margin was in line with the revised expectations that we issued last year, and the improved performance in the second half was mainly due to cost reductions. Net revenue at GBP 873 million was down 2.1% reported, and down 4.5% like-for-like, and that reflected the challenging macroeconomic conditions, cautious spending from clients, particularly those in the technology sector.
Our smaller client relationships, not necessarily with smaller companies or medium-sized companies, but smaller with larger companies, too, and regional and local clients, along with a difficult year, for new business and lower seasonal uplift, in the fourth quarter. Our strategy of building broad-scale relationships continues to drive our revenues, and we saw better performance in our top 10, in our top 20, and in our top 50 clients, stronger performance than the average for the company as a whole. We had a disciplined approach to cost management, and a focus on efficiency and integration. The number of months in the company was around, is around currently 7,700, 7,700, which is down about 13% compared to December 2022.
Net debt was at the lower end of the range we gave guidance for last year at GBP 181 million. That's leverage of 1.9x EBITDA at the lower end of the guided range, reflecting tight cost control and lower combination payments. The initial response from our AI initiative, as you just heard, is encouraging, and we remain very much at the forefront on leading this change. 2024 net revenue is expected to be down on prior year, with overall a broadly similar level of operational EBITDA. We expect the year to be heavily second half weighted, given improving end markets and our normal seasonality. Net debt range for 2024 is GBP 150 million-GBP 190 million, with capital allocation priorities focused on debt reduction, on buybacks, and on dividends.
Structural changes to improve performance have been taken with a strengthened ExCo, with a simplified board, and with the appointment of Jean-Benoit as Chief Operating Officer. We remain confident that our talent, business model, strategy, and scale client relationships position us very well for above industry average growth in the longer term, with an emphasis on improving efficiency and margins. So with that, and you have the appendix there to look at at your leisure, we'll. You can open it up, operator to Q&A. We have Wes and Brady and Chris are available to answer questions, too. So over to you, operator, if there are any questions.
Thank you, sir. If you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. If you change your mind and want to withdraw your question, please press star two. Please ensure your lines are unmuted locally, as you'll be prompted when to ask your question. As a reminder, to ask a question, please press star one on your telephone keypad. There are no questions coming through.
Okay, thank you, operator.
If you would like to..
If there are, if there are any further questions, Scott, Mary, and myself are available today, and then we, we will be doing a roadshow commencing tomorrow, and into next week. So, if there are further questions, please let us know. In the meantime, thanks for joining us, and a big thank you to Wes, and Brady in particular for getting up early, and Chris for being online from Barcelona. Thank you very much. Thank you.