Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the WPP 2022 interim results conference call and webcast. At this time, all participants are on a listen-only mode. After the speaker presentation, there'll be a question-and-answer session. At which time, if you would like to ask a question, please press star followed by one on your telephone keypad. Today's conference is being recorded. WPP would like to open the presentation with a short film. Thereafter, the management will present their interim results.
All right, good morning, everybody. That's some of the fantastic work that contributed to WPP being named Creative Company of the Year at Cannes this year. We're very proud it came from across our agencies, from all disciplines, from film to public relations, to media, to social, to e-commerce and creative business transformation. It's why our clients come to us and why we had such a strong start to the year.
Good morning, everybody. I hope you've had a good start to the day, and I'm here in sequence with John Rogers and Peregrine Riviere to take you through the presentation and the Q&A. Turning to page three, we have our cautionary statement. I ask you just to take note of that. On page four, our agenda for today. I'll briefly go through the highlights of the first half, and John will take you through the financial results in some detail and our guidance. We'll come back quickly to review market trends and strategic progress before we take everybody's questions.
On page five, look, I think we delivered another strong performance in the first half of the year. It was reflected in net sales growth 8.9%, including 8.5% in the second quarter above market expectations. I'm pleased to say it was broad-based across client categories, business sectors, markets, and our key clients, the large global players that continue to invest while consumers continue to spend. It reflects our attractive industry exposure in technology, healthcare, consumer packaged goods, and the importance of what we do for these clients' businesses at scale.
We've seen strong performance across our integrated agencies, up 8.2%. Our public relations firm's up 7.3%, and our specialist agencies up 10.9% in the second quarter. Our regional performance is also strong in the second quarter. In North America, up 10.2%. Europe, up 6.6%. I n the rest of the world, growing a healthy 8%. That said, China, you know, as you would expect, was inevitably impacted by the ongoing lockdowns.
Our commitment to creativity was recognized at Cannes Lions in June, where WPP was rated the most creative company. In the media area, GroupM was once again ranked the world's leading Media Group by Comvergence, and that reflected in our new business with new assignments of around $3.4 billion in the first half of the year, including $1.6 billion in the second quarter.
During the first half, we continued to enhance our offer to drive growth, including capability in e-commerce, digital marketing technology. Included were more organic investments in Choreograph and Everymile, our DTC platform. On the M&A front, we acquired Bower House Digital in Australia to invest behind Salesforce and Corebiz, an e-commerce agency in Brazil, to strengthen our e-commerce capability. We continue to simplify the company through the creation of EssenceMediacom and Design Bridge and Partners. The transformation program remains on track with good progress, and John will talk more about that later.
Overall, a solid set of results enabled us to increase our dividend by 20%, buy back GBP 657 million worth of shares in the first half. Overall, we're raising our guidance for revenue less pass-through costs to 6.7% for the year overall. I think a good start to the year.
John, why don't you take us through the first half and come back to the guidance for the rest of the year as well.
Thank you, Mark. Morning, everyone. Let me take you through the financials for the first half of 2022. Revenue less pass-through cost of just over GBP 5.5 billion, increasing 12.5% on a reported basis, half- on -half, and 8.9% on a like-for-like basis, reflecting the foreign exchange tailwind of 3.3 percentage points and a net M&A impact of 0.3, which reflects our SVC merger and, of course, our Russian divestment. That delivered an operating profit of GBP 639 million, up 8.2%, and an operating profit margin of 11.6%, down 50 basis points due to higher personnel costs and a return, of course, to business travel in the first half of this year, and in line with the guidance that we gave at both the prelims and the Q1.
Reflecting income from associates. T his is down slightly due to lower income from Kantar and net finance costs, which have improved year- on -year as a result of slightly higher investment income, delivers a profit before tax of GBP 562 million, up 12%. Reflecting a tax rate of 25.5% for the half, which is also in line with our guidance for the full year, and non-controlling interest of GBP 43 million delivers a profit attributable to shareholders of GBP 376 million, up 6.5% half-on-half, and a headline diluted EPS of 33p, up 15% half-on-half, and of course, supported by our share buyback program.
Moving now to the reconciliation of our headline operating profit to reported operating profit. Headline operating profit of GBP 639 million, and then of course, we reflect a gain, a GBP 60 million gain in relation to the step down of Imagine in Spain from an associate to an investment. GBP 75 million of restructuring and transformation costs, GBP 60 million of which are in relation to our IT transformation program.
Losses on disposal are net GBP 48 million, reflecting the losses through divestment of our Russian interest of GBP 65 million, offset by some gains on disposal, delivers a total adjustment to headline profit of GBP 100 million compared to GBP 106 million for the same period last year, and a reported operating profit of GBP 539 million.
Coming on now to the performance of our global integrated agencies, which demonstrate continued growth in the first half. 8.4% on a like-for-like basis. That's split between our creative agencies that delivered 5.8% in the first half. W e saw good growth across all of our integrated agencies, and GroupM performance, which was up 11.8% in the first half. If you notice from the chart at the bottom, a little bit slower for GroupM in Q2 compared to Q1, reflecting the lockdown in China, in China that Mark referred to earlier on.
Really good performance on a three-year basis. GroupM up 15.8%, on the half on a three-year basis. Really solid performance. Headline operating profit of GBP 507 million, up 3.9%. Headline operating margin of 11.2%, down 0.7 points, again reflecting the higher personnel costs and importantly, the investments that we're making in growth. Choreograph, Nexus, and Everymile as example.
Coming on now to public relations. Really strong demand for strategic communications. Consistent message we've seen over the last one and 1/2 years or so. Delivering 10.5% like-for-like growth in the half, driven principally by purpose-related and ESG assignments in our business. We've seen a little bit of a quarter-over-quarter decline, so 14.1% in Q1, 7.3% in Q2. This really reflects a lapping in Q2 of some very, very tough comps in our financial PR side. Slightly weaker performance in Q2 due to those tougher comps. Headline profit of GBP 83 million, up 30.7% half-on-half. Really strong profit performance. Margin of 15.2%, up 0.4 percentage points.
Coming on now to specialist agencies, where we saw continued double-digit growth in the half. Like- for- like, up 11.9%. I think standout performances from CMI and Landor & Fitch. Again, if you look at the quarter-on-quarter, 13% in Q1, 10.9% in Q2. On a three-year basis, 12.4% in Q1 and 18.6% in Q2.
We saw some really, you know, solid momentum coming through on a three-year basis. Headline operating profit of GBP 49 million, up 26.9%, so strong profit performance and operating margin of 11.4%, up 1.1. You know, principally driven, of course, by the top-line growth and also, our investment in DTI, which is a South American acquisition that we completed a year or so ago. We've also moved to simplify the business further in this sector by merging Design Bridge and Superunion together to form Design Bridge and Partners.
Coming on now to the performance across our major markets, starting with the U.S.A. Actually, you know, 8.9% in the first quarter, 10.4% in the second quarter, and also really pleasingly up 10% on a three-year basis. It's great to see our U.S. market actually outperforming the average for the business. It's now becoming a driver for growth. U.K., 8.1% in the first quarter, 6.2% in the second. Slight downturn, but actually we had tougher comps in the second quarter. We had a very strong second quarter in the U.K. this time last year.
Germany down a little bit in the second quarter, but 16.2% on a three-year basis. It's down slightly as we start to overlap this government contract that we talked about last year with GKK, and we'll see some of that dynamic also flow through into Q3. China, very strong growth in the first quarter, 11.9%. Down 6.1% in the second quarter, reflecting the impact of the lockdowns. We would expect to see that come back in Q3 and Q4.
India, really strong performance in both quarters. We actually got sort of step up in Q2 to 47.6% growth, quarter-on-quarter. On a three-year basis, India has grown 38.5% in the half. So that's really, really strong performance. I think the second quarter somewhat helped, of course, by the IPL. Australia, we've seen consistent growth in Q1 and Q2, 3.5% and 3.2% respectively. Actually, though, if you look at the performance last year, we were down Q1 last year, up in Q2. Actually that 3.2 in Q2 reflected a strengthening of our position.
Canada, showing consistent growth. France, a little bit disappointing, again, reflecting some client losses that we saw in 2021. Really strong performance in Brazil, again, consistent across Q1 and Q2, and up 34.3% on a three-year basis for the half. Spain, also showing increasing momentum Q1 into Q2, 8.2% and 16.5%, respectively. Good growth consistently across our major markets in our business.
Coming on now to the change in our operating margin year-on-year. First half last year, we delivered 12.1% margin. First half in 2022, 11.6% margin, down 50 basis points, in line with the guidance that we gave, as I said, at the Q1 statement and also the prelims. We're seeing staff costs, excluding incentives, up by 16.7%, driven by higher headcount and increasing use of freelancers and salary inflation, particularly in the U.S. and the U.K., driving a reduction in margin by 2.4 percentage points.
Personnel expenses up 84.6%, again, as expected, due to the increase of travel coming through in H1 of this year compared to H1 of last year, which was largely impacted, of course, by lockdown, introducing a drag on margin of 0.7. Other G&A, driven by slightly higher headquarters investment. Really pleasing performance on establishment costs, actually down 0.8%, year-on-year. You know, we're continuing to see the benefit of the campus rollout, so we're seeing actually a margin upside of 0.6 as a consequence of our campus rollout program.
IT costs up 11.3%, reflecting investment in products and services and the cost, of course, of our transformation program, but actually seeing resulting in a small net margin improvement. Of course, the reversal of what was last year an incredibly strong bonus pool to a more normalized level for this year, seeing an improvement in margin of 2%, and as I said before, delivering 11.6% for the half, 50 bps down year-on-year in line with our guidance.
Coming on now to transformation, as Mark said earlier, making really good progress across our transformation program. Campuses, I've already talked about. We've opened three in the first half. We now total 34 campuses across our business. We're targeting a further four more by the end of this year. Of course, ultimately, we aim to have over 80% of our people in our campuses by 2024, 2025.
We've seen a really good progress being made in the rollout of our ERP platform. The first deployment of Workday in North America and Wunderman Thompson. We now have 18,500 users on Maconomy, which is our second-tier ERP platform, which we'll use to support our overall Workday rollout. Good progress on IT transformation.
We've established global hubs in Chennai and in Mexico. We're working to transform our procurement function. We had a session with 30 or so of our key suppliers to align incentives and drive incremental savings. We're also reorganizing our procurement function against a category-led model and looking at new source to pay system solutions. We continue to simplify the business, so merging Essence and MediaCom and GroupM Nexus as examples, as well as Superunion and Design Bridge, which I've already mentioned.
We're also streamlining, of course, our operating model, reducing the statutory number of entities by a further 150 in the first half. Overall, we remain on target to achieve our annual savings of GBP 300 million this year against the 2019 baseline, and we remain on track to achieve target savings of GBP 600 million by 2025.
Coming on now to our strong cash generation, which is supporting our investment in growth and of course, shareholder returns. This time last year, we had net debt position of just over GBP 1.5 billion. We've delivered just under GBP 2 billion of operating cash over the last twelve months. We've seen a slight outflow in working capital. A lot of that is actually driven by the slowdown, the lockdown in China.
We've also seen a slight outflow in other working capital provisions reflecting the release of the bonus accrual from last year. Taking account of interest, of course, lease payments, tax paid, share purchases, as normal. CapEx, GBP 272 million over the last twelve months, GBP 350 million of dividends, and then acquisitions and disposals of a net GBP 201 million. You know, a little bit of a slowdown in the first half of this year, in terms of acquisitions and disposals, but a huge share buyback program over the last twelve months. Over 1.1 billion returned to shareholders through that share buyback program, netting out at GBP 3.1 billion of net debt as of June 2022.
When we come on to our leverage metrics on the following slide, you see that the rolling 12-month average net debt on a reportable basis, just over GBP 2 billion. Our rolling 12-month headline EBITDA is just under GBP 1.8 billion, delivering an average net debt headline EBITDA of 1.2 x. That's well, well below our guided range of 1.5-1.75 net debt -to -EBITDA, so we're well below that range. We would expect that to increase slightly as we move towards the end of the year, but we still expect to outturn either slightly below or at the bottom end of our guided range of 1.5x-1.75 x.
Coming on now to dividend share buybacks and the guidance for the remainder of the financial year. Very pleased to report an interim dividend up 20% to 15p per share. With regards to our 2022 guidance, as Mark has already said, like-for-like revenue, less pass-through costs growth of 6%-7%. We were previously at 5.5%-6.5%. This is the second time we've upgraded that guidance for the year.
We now see that the M&A contribution being roughly 0.3%, which reflects, of course, the net divestment of our Russian operations. Previously the guidance was 0.5%-1%. Still a bit beneath that now as a consequence of those Russian divestments. We see the FX benefit over the full year of being roughly 4.5%. Previously, that was 2%-2.5%.
CapEx for GBP 350 million-GBP 400 million, consistent with the guidance that we gave at the prelims last year, and GBP 100 million on Workday, of course, which now comes into our P&L as a reflection of the changes to the accounting, again, in line with the guidance that we gave at the prelim.
Trade working capital, we expect to recover the slight outflow that we've seen over the last 12 months. We expect to continue to be flat year-on-year, consistent with our guidance we gave at the prelims. GBP 80 million of share buybacks for the full year. Headline tax rate, again, around 25.5%, which is exactly the same as we outturned in the first half.
In terms of our medium-term guidance, we're confident in our ability to deliver annual revenue less pass-through costs growth of 3%-4%, and a headline operating margin of 15.5%-16%. We'll provide specific guidance for 2023 at our prelim results in February. With that, I'll hand back to Mark to update you on our strategic progress.
Thanks very much, John. I'll make a few observations about, you know, current market trends and our strategic approach, and how, you know, our offer across creativity, media, data, and technology leads us well into those trends and leaves us well-positioned going into the second half of the year in 2023.
On page 19, I think it's clear we see attractive growth opportunities for advertiser spend and for WPP. The first chart shows our GroupM forecast for global ad spend. It remains up 8.4% in 2022, just slightly less than 9.7% they forecast back in 2021, December of 2021, mainly due to a softer outlook for China amid ongoing lockdowns there. You can see very strong growth, 8% on top of 24% last year. The other point I'd make is that with digital now at 67% of ad spend, WPP is delivering 8% growth as well, indicating, you know, the success we've had in navigating the digital transition.
On the second graph, you can see the long-term potential in e-commerce. We see that in our results and in the discussions and investments that clients are making in that area. On the third point, the third chart, I think the point to make is that clients' needs are much broader today than perhaps they were five years ago. This is a chart we took from Citi research based on a survey of some 250 CMOs across five markets just back in May this year.
It shows that digital transformation, the top marketing priority area where WPP, is very well positioned. We've actually won, I think, three or four Lions in the creative business transformation category at Cannes. 39% of our sales in our global integrated agencies come from experience, commerce and technology, so we can help our clients there.
Next is performance media and the EssenceMediacom launch, the Neo Mindshare integration, the investments that GroupM is making in Nexus are all focused at delivering the clients there. We also have strong positioning in building direct to consumer platforms. The last point I'd make is that in-housing, you know, cause of some debate over the last, I guess, 5+ years, remains very low on CMOs' wish lists.
On page 20, if you look at demand from our clients, I think we've seen good growth in the areas of technology, CPG, healthcare. They represent about half of our business compared to 2019, it's actually about double digits, underlining their structural growth and their commitment to marketing and investment. I do think we are seeing a very different and more, I wouldn't say constructive, more long-term approach from CPG companies to their investments in marketing. Other sectors, travel and leisure did continue to rebound, growing 23% in the first half. Still, I think 10% down on 2019, so further growth to come there as the world opens up and airports hire a few more people.
FMCG expanded 13%, though we did see some softness as well in the automotive sector as a result of the ongoing chip shortages. Overall, half our top 20 clients grew by double digits. In fact, we're seeing our larger clients drive our net sales, in contrast to where we were four or five years ago, a positive indication of the strength of our offer. I'm sure we'll cover it in more detail in the Q&A, with a little bit more color on the level of client demand.
You know, from our perspective, our clients are continuing to invest. You can see it in the quote from Alan Jope at Unilever, but I also note other comments from clients such as Coca-Cola, who are continuing to invest in their brands and in marketing.
Turning to page 21, you saw the film of some of our work that won at Cannes at the start of the call. As we previously said, we're committed to continue to deliver excellent creative work to our clients, and there could be no better endorsement of that than WPP being named the Most Creative Company of the Year at Cannes in June. I think it's sort of equivalent to the Oscars of our industry.
We had more than 1,000 clients present at Cannes, and they absolutely take it very seriously and want to do well, as do our creative people. You know, my view is that Cannes is a virtuous circle, that doing good work there is recognized, attracts better people. It attracts clients who want to do good work, and cumulatively, it helps to grow our business.
Have to call out Ogilvy, who with 88 Lions, were named the Most Creative Network of the Year. We had actually a good performance across all of our integrated agencies. That was also recognized by WARC in terms of creative media and effectiveness. I think, you know, the quality of the work that we're doing for clients has shown a dramatic improvement. I think the last year, we won Cannes in a single year was 2017. We're in a much better position from that respect.
Turning to page 22, GroupM, our media business. I think there are a few points to make. First, it's a business which has leading global and local scale. You know, GroupM remains RECMA's number one ranked media agency. $62 billion billing, an increase of 15%, now close to a 30% market share. It did improve to joint second place in North America and retains number one position in APAC and EMEA, and WARC named Mindshare the number one media agency for the third consecutive year.
Second, in terms of performance, the strength of those businesses is reflected in a healthy 10.9% net sales growth in Q2 to 43% on a two-year basis. You see the strength of the bounce back in the media business. It's also clearly a business with strong structural growth opportunities. Now 46% digital, maybe slightly less than the market, but that indicates further growth potential ahead of clients. You know, major companies continue to shift their budgets into digital, probably slightly behind SMEs, and also growing client demand for retail and e-commerce driven media. That actually grew 26% in the first half.
Thirdly, I think importantly, we're not seeing disintegration of digital and analog media, but actually more integration. We saw that in the Unilever review, which covered not just digital and traditional media, but areas like social and e-commerce. Similarly, Google took the decision to consolidate their media, both digital and offline, into WPP, and Sky chose to make the same decision with MediaCom. There are a number of other clients from Coca-Cola to Mars to Bayer that are adopting a much more integrated approach. I think that contrary to what some people would expect, that digital media would fragment either into specialist or in-house, I think that GroupM is proving very effective at giving clients an integrated, digital and offline offer.
Finally, as you would expect, we continue to simplify our media business. We formed EssenceMediacom, delivering a much more integrated, performance and brand building offer to our clients. We've created GroupM Nexus, a world leading performance media organization providing scale and data and technology and performance to our clients where it's needed.
Moving to slide 23, just to cover some of our organic and acquisition-based investments. We continue to look to enhance our capability in digital marketing technology, data and e-commerce, the areas that are both growing faster and critical to our clients. We continue to invest in Choreograph, our data company, with a focus on their identity graph that allows brands to build, own, control their identity solution in a privacy compliant way that's ready for future privacy regulations.
Choreograph's been instrumental in a number of client wins, particularly including Coca-Cola and BBVA, and ranked a strong performer by Forrester. I think our data strategy is differentiated by our privacy first approach. We do believe our clients have to have full control of their first party data, and we're supportive in enabling them to do that. During the first half, we also launched Everymile, our dedicated D2C commerce business. We expect to have our first customers by the end of the year, and to roll out to other markets over the course of the next couple of years.
Now on the M&A front, we announced the purchase of Bower House Digital, a Salesforce marketing cloud company in Australia, and Corebiz, a leading e-commerce business in Brazil with a deep specialization in VTEX, which is a very strong locally used commerce platform. I think continuing the strategy over the last couple of years of focus acquisitions that differentiate our offer and enable us to deal with the areas that clients need in the future.
On slide 24, we should just talk briefly about our purpose, you know, which is to use the power of creativity to create better futures for our people, planet, clients and communities, and a few areas to call out there. First, we're very conscious of our people and helping them navigate through, you know, difficult economic times.
We are pleased to launch Making Space, an initiative to give people a two-day break to thank them for their hard work during the pandemic, but also to give them a break at a difficult part of the year to get ready for the second half. We followed that with three days of events, development opportunities in our offices that brought a lot of people back into our campuses around the world and reminded them of the value of collaboration, creativity, being together.
Our people survey, we ran again this year, it showed a continued set of solid results and actually significant improvement in our employee engagement and belonging. I think as a result of a number of the programs we've rolled out over the last year, and we continue to have our NextGen Leaders program. We had 2,700 participants over the summer on a remote engagement program. It's really building a much more diverse pipeline for us.
Turning to diversity, we continue to fulfill our commitment to racial equity and our $30 million commitment. Among other initiatives, we launched the Black Equity Organization, or supported that launch here in the U.K., and our LGBTQ+ community won Outstanding Employee Network of the Year at the Burberry British Diversity Awards. We continue to invest in our communities and make a difference there, not just through our support to Ukraine through the UNHCR, but also working with the Ukrainian government on supporting their economic recovery. We launched an initiative at Cannes with IBM to tackle bias in advertising technology. We continue to invest significantly in making sure that WPP, its clients, and its footprint make a positive contribution to dealing with the climate crisis.
Taking that all together, turning to page 26, and in summary, I'd say in the first we delivered, you know, a strong broad-based growth across sectors and regions, and our clients continue to invest. Really very little sign of a slowdown in Q2 despite much tougher comps. Secondly, we continue to invest for future growth. Thirdly, we're raising our guidance for 2022 to some extent as a result of the outperformance in the second quarter, but we remain confident of achieving the net sales that we've outlined of 6%-7% for the balance of the year. Now, clearly, we face an uncertain macro environment.
We're ready to respond as needed, as we've demonstrated in the past. I think going into that we are in good shape. You know, competitively, we're stronger. Compared to where we were four years, we've really transformed the business. You know, we have better leadership in our agencies. Our businesses are more integrated and able to deliver the services that clients need. Our creative agencies are stronger and growing. They delivered a 6% growth in the second quarter in our creative agencies.
Our U.S. business has turned around. It's moved from being a drag on our growth three or four years ago to actually an accelerant of our growth in the first half of the year. Our client relationships are stronger, our NPS score's better, our new business performance is better, and our balance sheet is in better shape. This is opportunities both to return cash to shareholders, but also to take advantage of attractive acquisition opportunities that will strengthen our offer to clients.
I think finally, and perhaps most importantly, our clients' view of marketing, of what we do and of its importance to them, is also transformed. I think they recognize the value that we create, and you see that in our numbers. I do think we're well-placed for the future to navigate the challenges that will no doubt face us. I think we're in a good situation. A good first half. I'm sure that there'll be a lot of debate about, you know, the second half and the outlook in 2023 in the questions, and so we'll turn to that.
Now, before we do that, just one point I make, which is, Peregrine. I'm sad to say, as many of you know, Peregrine will be leaving us after the call to take a new role outside of WPP. He's really led and, transformed our investor relations function over the last, three years. He reinvented our approach to investor relations. It's an award-winning approach.
I hope that, you, as analysts and investors, have got a much greater transparency into the way the company's operating, its financial performance or insight into our people, our business. He's led, innovations around our Capital Markets Day, our investor webinars and deep dives. Peregrine, thank you very much. We will miss you, but we'll wish you all the best. Thanks for everything you've done for us in this regard.
On that note, we'll turn to the Q&A.
Thank you. If you would like to ask a question today, please press star followed by one on your telephone keypads. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally.
Our first question goes to Lina Ghayor of BNP Paribas Exane. Lina, please go ahead. Your line is open.
Hi. Thank you very much. Good morning, Mark. Good morning, John. Congratulations on the results.
Good morning.
I have three questions for you. The first one is obviously on the macro. While I have not lived through as many recessions as some others on this call, but I would be interested to hear from you around the tangible elements that you are seeing or not regarding the slowdown for H2 on an organic basis and a two-year stack. I guess my question is, does the pessimism of investors seem reasonable to you based on what you are hearing from clients this year but also next year?
The second question is on the U.S. Could you elaborate a bit on the performance in the U.S., what were the key drivers, and do you expect the geography to continue to outperform? If yes, will we see a tailwind in the operating profits as this geography has higher margins?
Lastly, on the simplification that you have done recently in the business, particularly between Essence and MediaCom, and more importantly, how far are you in the merging exercise between some of your networks and should we expect much more in the future? Thank you very much.
Okay. John, why don't you tackle the outlook in the U.S. and I'll come back to EssenceMediacom and do the thing I can in terms of color from what I'm hearing from clients.
Yeah. Look, I think in terms of the outlook for the second half, I mean, we're not currently, as we said repeatedly, seeing any noise from clients which would particularly suggest that the second half will be challenged. That said, clearly there's a lot of noise out there in the market and we expect uncertain times, but we're certainly not seeing that in the way that the clients are behaving today. You know, Mark's highlighted in the past, you know, the importance of advertising spend in a challenging economic environment. I think many of our clients see the value of trading up, if you like, in spend terms to grow their brands in a more challenging environment.
In terms of U.S. performance, I think what's pleasing about the U.S. is, as I said, on a three-year basis, we're up 10%. We're actually growing in the U.S. more than we're growing the organization on average, which I think is very encouraging. Actually what's more encouraging is that the performance is across the board. It's principally, you know, there's a lot of good, strong growth in GroupM, but also actually in our creative agencies and fairly consistently across our creative agencies, we're seeing good performance in the U.S. Particularly I think encouraging signs, for example, in Ogilvy, which has had a challenging two or three years, and we're starting to see some green shoots of recovery with regard to that business.
Yeah. Look, I think just to add some color on what we're hearing from clients, you know, I think that, you know, while consumer spending remains strong, clients continue to invest. I mean, I think there's a little bit of a disconnect between sort of the corporate world and the financial world. You know, financial markets look ahead, but in the corporate world, the world we deal with in the real time is seeing, you know, strong continued demand for goods and services, an ability to some extent pass on input prices to, you know, I guess, to consumers through inflation and a desire to invest.
Let's read you know, three quotes from statements. Unilever, "We will continue to invest in the health of our brands. Delivering growth remains our first priority." You know, Coca-Cola, "We expect the consumer environment to be more challenging and we're very importantly stepping up our investments." Or P&G, you know, "Keep investing in marketing and innovation to drive superior value."
So I do think clients have learned and, you know, they know this, they've learned particularly through the pandemic, the value of continuing to invest in innovation in brands, of supporting, you know, price rises through through marketing spend. I think that does give us, you know, some comfort going into the second half of the year and to some extent into 2023. There's no doubt that, you know, the outlook, as we said in 2023, is uncertain.
On the mergers, you know, I think the EssenceMediacom merger is sort of proceeding well. Expect to be sort of fully incorporated by the first quarter of next year. The same is true of Design Bridge and Partners. Like, look, I think it's part of an ongoing simplification of WPP's business. Each time that we've done this, we've done it on a number of occasions. I think the resulting companies have come out growing more strongly with improvements in margin, able to take out some of the sort of duplicative back office costs in a better position. The business is simpler, easier for our clients to navigate, and quite frankly, easier for us to manage.
I wouldn't say that there are other things that are being planned. Indeed, to some extent, while we're, you know, simplifying obviously in other aspects, we're launching, you know, new businesses like Proto in the transformation area in the U.S. that are also creating brands. I think that we need to be fluid in terms of how we go to market. I think a simpler WPP is a stronger WPP.
Okay, thank you very much.
Thank you. The next question goes to Julien Roch of Barclays. Julien, please go ahead. Your line is open.
Yes. Good morning, everybody. My first question is on margin. I know, you wrote you would give us a 2023 guidance at the 2022 results, so I'm not asking for guidance, but maybe just an indication, scenarios. If organic is flat next year, what do you think happens to margin? And if organic is, say, -5% next year, same question, what do you think happens to margin? That's my first question.
The second one is a question in two parts. You said at a higher growth area, of our offering experience, commerce and technology was 39% of global integrated agencies excluding GroupM. A, just to confirm this is the new disclosure we will get twice a year as opposed to the alternative breakdown you envisaged at the 2018 Investor Day of 75 traditional communication, 25% higher growth. B, what was the organic of higher growth in the first half?
The third question is, can you remind us how much was China of the revenue in either Q2 or full year last year? Thank you.
John, why don't you tackle that and the sort of three more-
Okay.
... different questions.
In terms of your first question, which is, you know, what happens in the different scenarios and, of course, you know, the first point to observe is, you know, there are lots of moving parts in these numbers. Let's say you take a flat sales scenario. Obviously, to some extent, it depends on the inflation and the volume mix in those flat sales, as a start. Generally speaking, if we saw flat sales, then we would look to try and hold margin flat. You know, as I said, there's lots of moving parts. You've got sort of headcount, salary inflation, you've got your freelance mix, you've got investments in growth, for example, like Choreograph and Nexus and Everymile. These are all the moving parts. We wouldn't want to stop our investments in growth.
We certainly take a long-term view on these things. I think if sales were flat, all else being equal, we'd certainly try and hold our margin flat. In relation to your second scenario, which is if we saw sales go back by 5%. I mean, I think I'd point you here, of course, it's not that long ago since we've gone through a scenario, through COVID, where we saw our sales go back -8%, and our margin was down 150 basis points. That'll give you the idea. I'd sort of say we saw sales go back by 5% or so, we'd see margin decline by 100-150 basis points.
What we do know, and I think we demonstrated this through the COVID period, is that we're very good at responding to a challenging market. We've got very early indicators as to how the market's performing and responding, and we're very quick to adjust our cost base accordingly. We feel very confident in our ability to navigate whatever the business cycle may or may not throw at us.
In relation to your second question, which was the sort of the mix point. The intention is to continue reporting it ex GroupM going forward. The reason being is that because we've seen such strong growth in GroupM, and GroupM is predominantly a communications business, it was actually distorting the movement or, you know, the great progress that our creative agencies are making in growing in the areas of commerce, experience and technology.
We've decided going forward to strip out the GroupM performance because in a way, we also provide you with the breakdown between the digital component of GroupM sales and the more traditional. We give you that break there so you can see the mix of that business, and then we will now give you the breakdown in relation to commerce, experience and technology for our creative agencies. Which is, you know, very pleasingly moving in the right direction.
In terms of China revenues, I think you were asking what the sort of proportion of our overall net sales is from China, and it's roughly 5% or so. You know, clearly we've had a challenging second quarter there as a consequence of lockdown. We're now, you know, everyone's back in the office in China. We're back up to 70% or 80% occupancy levels in China. The business is back up and running, so we would expect to see that bounce back of course in the second half, albeit, you know, we don't know whether there will be future lockdowns, which we can't predict. Hopefully that helps.
Yeah, John, thank you very much. As usual, very, very clear. There was a second question in my second one, which was what was the organic of higher growth in the first half? If you don't have that, maybe you can give us M&A growth contribution from acquisition, i.e. excluding Russia and SVC.
I'm not sure what you're asking there. Can you just clarify the question so I make sure I understand?
Sure. I wanted the organic of the 39% of-
Oh, I'm not sure. Oh, sorry, I see. I don't have that. Let me just leave that one with me and we'll either come back to you later on the call or we'll come back to you separately on the growth of that.
Okay. Thank you very much. Very clear. Thank you.
No problem.
Thank you. The next question goes to Omar Sheikh of Morgan Stanley. Omar, please go ahead. Your line is open.
Thanks. Morning everyone. First of all we'd very much like to echo Mark's comments, apparently, we're just sad to see you go. Just on the questions, I had three if I could. Maybe if I could start with 2023. Mark, could you just maybe talk about what drove the decision to kind of separate that out from the medium-term guidance, kind of what's changed about how you're thinking about 2023? Then maybe you could just quantify, you know, just to kind of clarify for us whether you think 2023 will be up or down next year. That's the first question.
Secondly, maybe for John, could you give us an average headcount number for the first half and how much it's grown year on year? Maybe some sense of what the total cost of freelance headcount or staff was, maybe as a proportion of total staff costs or some other metric that would be helpful.
Finally, just on new business, could you perhaps give us a sense of how the Coca-Cola account is scaling, sort of what percentage of that business you expect to come through this year, what impact it might have, and maybe just kind of broader commentary on new business trends. Thanks so much.
All right. Look, I think on 2023, you know, we remain confident of meeting our medium-term guidance, as we said. I think as the clock ticks, you know, our medium-term guidance became next year's guidance. I think given the economic uncertainty, we decided it was more, you know, prudent to some extent.
Better to say that we'll come back to you with that at the beginning of the year because the future is just uncertain. You know, I think it's, there's a degree of uncertainty. Now, on the positive side, I think you've got the strength of our business. You know, we're a stronger business, you know, creatively in media. We're geographically diverse. We work in many different sectors, which may or may not be more or less impacted by economic outlook. We've got, you know, the agility of our business model and, I think, well-demonstrated ability to navigate the impact of revenue and net sales changes on our margin.
We've got, you know, really strong demand from our clients for marketing against the background of, you know, recent experience of the pandemic, where those companies that continued to invest did better as they came out of it. We've got growing interest in advertising and businesses like Netflix opening up their advertising business and continued growth in digital media. If you look at WPP's performance over the cycle, you know, you take our three-year growth rate, 2019, H1 to 2022, H2, it's close to 3%. I think that we're saying, "Look, 2023 is uncertain," which is a fact. We still believe with confidence that we'll hit that medium-term guidance, but we're not yet in a position to say that we'll do that in 2023.
I think that's sort of where we are, which I think is, to be fair, where all of our peers are. I think we're in the same position as them, saying we're seeing strong demand for the business, but there's no doubt that our business is impacted by the economy like everybody else. You know, on Coca-Cola, I think we've made good progress onboarding in the first half of the year, but probably it's likely to have a slightly bigger impact in the second half of the year than it is in the first half of the year. Actually, it will have a positive impact going into 2023 as well, as the business continues to scale and we continue to onboard.
I think it is a, you know, a good sort of tailwind for us in the second half and going into next year. And, on what was that? Headcount?
Yes.
On average headcount, we actually ended this half with 114,000-115,000 people. The average headcount for the half was 111,000. If we compare that to the same half last year, which was roughly just over 101,000. We're actually up roughly 10% on a comparable basis, half-on-half, in terms of permanent headcount. In relation to freelance headcount, we actually ended the half with 11,800 freelancers, but an average of about 11,700 for the half.
That compares to about 11,100 for the same half last year. An uplift of about 6% on freelancers. What's been really interesting with freelancers is actually we've seen quite high salary inflation on freelancers, so about 15%-20%. Whereas of course, inflation on permanents is closer to 5%. The over-indexing into freelancers has really driven costs up as a consequence of that much higher salary inflation.
Julien, just you'll be pleased to know I've managed to now find in my range of schedules, the like-for-like growth across the different areas on, commerce experience and technology. I can actually give it to you broken down by sector specifically. 0.7% in our global integrated agencies, in our PR agencies about 1%, and in our specialist agencies about just under 9%. That gives you the growth that you were asking for.
Great. Thanks very much.
Thank you. The next question goes to Tom Singlehurst of Citi. Tom, please go ahead. Your line is open.
Yeah, morning. Thank you very much for taking the question. And thanks for the presentation. A couple of questions. Mark, I mean, sorry to push you on the 2023 guidance, but the market, I think, is explicitly sort of taking the fact that you're not equating 2023 with medium-term as saying that there is no chance that you're gonna hit the margin expectation. You know, the revenue, I think uncertainty probably is a little bit more sort of understandable because of the variances in the macro.
I suppose just for clarity's sake, should we interpret the fact that you're not giving committing to that now as a sign that 15.5%-16% is just simply not achievable in 2023? Is there still a range of outcomes where that is doable? It's just a question of waiting and seeing what the top line does? That would be the first question.
Then the second question is on leverage and cash flow and I sense cash usage. I sense some disappointment within the investor base around the buyback not being sort of re-upped. Can you just talk about the puts and takes in terms of how you're thinking about cash usage through the end of the year and what you anticipate the plans being over 2023? Thank you.
Well, I mean, I-- On your first question, I'll just say no, and then let John give you some more color and take the second one.
Hi, Tom. Look, in relation to, you know, the sort of the margin, you know, we're really confident in our ability in the steady state to deliver annual net sales growth of 3%-4% and operating margin of 15.5%-16%. That's absolutely clear. With regards to 2023, all we're saying is we're gonna update you very specifically with our guidance in February at our prelims. You know, we're not saying we will or we won't achieve 15.5%-16% in 2023. We're merely saying that we'll update you know, with the guidance in February of next year. I think that's a perfectly reasonable position to adopt, given the market uncertainty.
I wouldn't read anything into, you know, with regards to margin. We're not saying we will or we won't deliver the 15.5%-60%. We're just merely saying, you know, with the current uncertainty out there, we're gonna update you with a much more detailed guidance in February of next year, which I think is a very reasonable position to adopt.
With regards to the second question, which is on the leverage cash flow buybacks. I mean, we said very clearly at the beginning of this year that we would do GBP 800 million of share buybacks this year. We've done about roughly GBP 630 million or so in the first half. We did roughly GBP 170 million in the second half. Very much clearly in line with our guidance. I suspect we'll do the GBP 170 million or so in the third quarter. And then we'll leave our options open.
You know, we've been very clear on our capital allocation policy. We set that out very clearly, so I won't repeat that. We'll leave our options open as we travel through the remainder of the second half. I mean, certainly there's many interesting opportunities from an acquisition perspective, but equally we've also been very clear that if we outturn our leverage position beneath our guidance of 1.5-1.75, then over time we will buy back our shares. I think we'll do the GBP 800 million, and then we'll keep our options open going forward.
Very clear. Thank you very much.
Mm-hmm.
Thank you. Our next question goes to Adrien de Saint Hilaire of Bank of America. Adrien, please go ahead. Your line is open.
Thank you very much. I've got a couple of questions that are probably more specifically for John. I think you mentioned the fact that leverage for the full year should be towards 1.5 x. Given the fact that the second half tends to be quite cash generative, I'm not quite sure leverage would increase between the first half and the second half.
Secondly, regarding trade and non-trade working capital. You've given us a guidance for trade working capital. I just wanted to confirm, this is a guidance for flat trade working capital for the whole of 2022, or is that on a combined 2021 and 2022 basis? If you could give us some indication as well for non-trade working capital, which was a big outflow in the first half.
Then a last question. Sorry again, John. There seems to be quite a contrasted performance in the operating margin by region. I think they're up in the rest of the world, but they're down in North America, Europe and U.K. Why is that the case, given that the growth trends seem to be quite similar? Thank you.
Okay. Great. Thank you, Adrien. On your point about leverage, you know, obviously we work out the leverage ratios on a rolling twelve-month basis. I think we'll end the year with a net debt position at about, I don't know, GBP 2.2 billion, maybe GBP 2.3 billion or so, which would reflect the normal flow of cash in the second half. That will leave us with an adjusted net debt- to- EBITDA somewhere in the region of maybe 1.3, 1.4, maybe a little bit higher, but certainly no worse than at the lower end of our leverage metrics. So again, you know, that's I think that's hopefully very, very clear guidance reflecting an assumed flat trade working capital position.
In regards to just the clarification on that guidance on the net trade working capital, clear that guidance is flat on a 2022 year basis. We're saying that December to December, we expect to be flat with regards to trade working capital. Hopefully that guides it. There's a little bit of recovery from the outflow in the first half, essentially an outflow in the first half, which we always see anyway, but we expect to recover that so that we are flat year on year in 2022. In terms of your point around sort of operating margins by geography, you're right to point out there are some quite big differences.
Let me just give you a little bit of flavor as to what's driving those differences. Let's take the U.S. market first and foremost. What we saw in the U.S. market was growth. Net sales was just below 10%, which was a higher growth, I mean, encouragingly, a higher growth than we were anticipating. As we tried to recruit into that market, given the relatively tight labor conditions, it was quite difficult to recruit permanent heads into that market as quickly as our net sales were growing. We indexed therefore into the freelancer market. We actually increased our freelancers roughly 30% or 40% in North America over the first half. Because, as I said earlier on, we're seeing inflation in freelancer pay, particularly in North America, it's around 15%-20% inflation on freelancer pay.
That explains about roughly 0.8% margin delta between this year and last year. The rest of the gap actually in North America is principally driven by the investments that we're making to grow our business. Areas like Choreograph, for example, and Nexus within GroupM, which have a higher concentration of activity in North America and the U.K. for that matter, driving some of that margin delta. That explains the difference, I think in North America.
In relation to the U.K., I think there are three key drivers as to the margin delta year on year. The first of which is that the U.K. margin also includes some investments that we're making. For example, not only in Choreograph and Nexus which is also centered around the U.K. and the U.S., but in particular our investment in Everymile is focused in the U.K. That's impacting our margin differential year-on-year.
GroupM also actually had a very, very good year this time last year, and it's having, you know, a normal year if you like, this time. This year it's had very, very tough comps. That's also explaining some of the margin difference. Actually Hogarth, our production business lost a key client, so half-on-half that's impacted the margin. I think that gives you a really clear differential if you like, between in terms of what's happening in the North American market and also what's happening in the U.K. market, so if that's helpful to you.
Now with regards to the second half, of course, you know, we would expect those positions to reverse. In North America, you know, as we've got to grips with our balance between freelancers and permanent, we'd expect to see that come back. The same is true in the U.K. market as well.
Yep. That's all very clear. Thank you.
Thank you. Our next question goes to Joe Thomas of HSBC. Joe, please go ahead. Your line is open.
Good morning. Just following on from some of those points. On slide 13 you talk about the change in operating margin year-on-year and the staff cost pre-incentives is the one that stands out. You sort of talked around this topic a little bit, but I just wonder if you can disaggregate that number a little bit better, so to see how much of that is freelancers and how much of it is underlying cost inflation and also headcount of course. The second thing relating to that I suppose is just to understand the extent to which you are getting pricing up and well, I suppose what pricing volume mix is within the business and you're able to get that cost inflation back.
Finally, these questions are all related to some extent. Finally, just as we think into 2023 and the risks that are in 2023, given the increased dependency on freelancers, could we expect the drop through rate to be substantially lower than it has been historically?
Joe, let me come back to the last two, and then just remind me your first one because I was trying to write down the questions as you were talking. I think in relation to 2023, I wouldn't draw too much from it with regards to the trends we're seeing in the first half of 2022. As I said, the freelance mix issue, I think will be solved as we navigate through the second half. I don't think that will be an issue going into 2023. With regards to your point on pricing, how much are we managing to pass through?
You know, clearly there's a balance here in relation to, you know, we want to do the right thing, of course, as well by our clients and continue to give them great value for service. We're probably seeing in the order of 1.5%-2% price increases coming through. If growth in the first half is roughly 8.9%, you might see 1.5%-2% of that being price inflation. Your first question, just remind me please of the first question.
Yeah. It was the slide 13, the 2.4% impact on margin from staff cost pre-incentives. How much of that was, well, if you could just decompose that a little bit better, I suppose.
Yeah. I mean, it's primarily driven by the headcounts going up by roughly 10%. The actual, I would say the overall freelance shift at the group level is relatively small. It's probably a 0.2 or a 0.3 swing against. But it's, you know, principally driven by headcount going up roughly by 10% and our salary inflation going up by roughly sort of 4%-5%. Those are the key drivers that gets to your 16% or so. I would say relatively small component of that, given the number of freelancers, it doesn't have a huge impact at the group level.
It has a more marked impact, as I said, in, you know, so it's probably 0.2% or 0.3% at the overall group level in terms of margin. But it has a more marked impact in North America, so the 0.8% that I referred to earlier on, because of the concentration of freelancers in that particular market, obviously that gets somewhat diluted at the group level. I hope that's clear.
Yeah, thank you. Just to push on that final question. The drop through in 2023, we should expect it to be the usual sort of 25%-30% range, right?
Yeah, I don't see any reason why it wouldn't be. I mean, the point to make is that, you know, there are so many moving parts in all these, you know, in terms of relation to margin and drop through. You know, we're clearly, you know, living in uncertain times, lots of moving parts, both in terms of the top line. So a lot of it will depend on the volume price mix on the top line and clearly on the cost line as well. You know, there's probably a broader range of drop through.
Going forward given that uncertainty, but typically 25%-30% will be the weighted average. What I can say is I know that we're very good at responding to the market. We're very agile in looking forward into the market and being able to adjust our cost base accordingly. You know, we feel confident as we navigate through into 2023 that we can adjust the business accordingly to reflect whatever the business cycle throws at us.
Understood. Thank you very much.
Thank you. Our next question goes to Richard Eary from UBS. Richard, please go ahead. Your line is open.
Yeah, morning. Three questions from myself. The first one is just as we look into the second half of the year, obviously guidance implies a slowdown, but I'm sort of keen to understand within that slowdown, how much we are still gonna get from positive account win momentum, you know, through the back end of the year. You obviously mentioned earlier that Coca-Cola was gonna have a bigger impact on the second half. If you think about guidance, which implies maybe 3%-5% organic growth in the second half, how much of that is actually coming from account wins? That's the first question.
The second thing is that, John, Mark, I don't know whether you can give us any color in terms of that guidance around the shape of Q3 and Q4 to understand, you know, how you expect the market to slow, if you are. Then just lastly, can we get a little bit of an update on where Kantar is? Because obviously the associate numbers were probably softer than most people expected in the first half. So just to try and get an understanding of the performance of Kantar and the next steps for that business. Many thanks.
Yeah. Look, I think, I mean, I'll just make some observations and John can sort of build on. Look, I think second half, probably there's a little bit more help from Coca-Cola than there was in the first half of the year. But net-net, I don't think there's more, you know, other clients that go the other way. What I would say is that, you know, the new business pipeline does remain strong. We have had a pretty good first half of the year. We looked at our pipeline, it's maybe 10% shy of where it was this time last year, so not significantly different. You know, well over $1 billion of net sales in the new business pipeline.
I think that supports momentum going into the second half of the year and indeed supports, you know, the business going into next year. On the guidance, I don't know, John, what you would add. I think we view the half as a whole and, you know, we're pretty confident of, you know, very confident of delivering the guidance that we've given, which is why, we've raised the guidance for the year overall. I think that's, you know, really kind of what we'd say.
Yeah. I mean, I get maybe to give you just a little bit more color. I mean, we're forecasting, you know, broadly similar growth levels in Q3 and Q4, which means on a two-year basis, for example, that means on a two-year basis, Q3 will be slightly higher than Q4, and on a three-year basis, Q3 will be slightly higher than Q4. Just year-on-year, broadly similar across both quarters. Hopefully that gives you a little bit of a view on the phasing. In relation to Kantar, just to be clear, I mean, Kantar is actually trading very well, particularly on the margin side, you know, a very, very good recovery on costs.
The reason why it's softer in terms of the associates number is largely due to interest costs that's been brought about through the acquisition of Numerator and causing a bit more debt being placed into the vehicle, higher interest costs and therefore a lower outturn on associates. It doesn't reflect poorer trading performance from Kantar. It's just the gearing. Actually, you know, Kantar continues to trade pretty positively.
Thanks, John, and Mark. Much appreciated.
Thank you.
Okay.
As a reminder today, if you would like to ask a question, please press star followed by one on your telephone keypads now. Our next question goes to Stephanie [ audio distortion] of Goldman Sachs. Stephanie, please go ahead. Your line is open.
Hi, good morning. Actually, it's Lisa Yang from Goldman. Most of my questions have been answered. There's just a couple of follow-ups. So firstly, on the margins, obviously, some of your peers have seen quite a big benefit from FX on the margins, and obviously North America should be obviously a higher margin segment. So I'm wondering if you have seen any benefit in H1, and what should we be expecting for the full year or what you're baking in for the full year. I think that's the first question.
I think the second question again, and I know there's a lot of uncertainty and I think it's probably reasonable not to, I would say, you know, give guidance for 2023 at this point. I'm just wondering, are you doing anything differently in terms of costs or in terms of investments? I mean, clearly it's sort of invested quite a lot in H1, given the most uncertain background outlook. You know, have any of your plans changed in terms of hiring, in terms of investments into H2 2023? Any sort of change we should be aware of?
And the third question, I know you don't necessarily want to comment on the performance of the other agencies, but I think if we look at the three-year stack, I mean, you're still sort of lagging a little bit, you know, behind your peers. I know your guidance initially was to get back to growth, which is in line with the agency peers. What does it take for WPP to go from basically being in line to basically best in class? I'm just wondering any structural differences we should be aware of and what you're doing to sort of improve your performance relative to the rest of the agencies. These are my questions. Thank you.
Okay, let me have a crack at those. I'm not sure I quite understood your second one, so I might ask you for clarification there. On your first question in relation to the Forex benefit in margin half one, half two and full year, I mean, basically half one I'd say it's zero. I mean, it's no real Forex benefit. I'd say for the full year, if exchange rates remain as they are today, somewhere between zero and ten basis points. It's not a lot, to be honest, and which I know is different to our peers, but it's, you know, again, obviously due to a different cost base and different mix and, you know, given where sort of various parts of the business are located.
We're not really expecting to see massive margin tailwinds as a result of FX. In terms of the third question, which I think was looking at you know the sort of how we compare versus our peers and you know are there any structural reasons as to why we're different? I mean I guess the obvious one would be you know we tend to you know our business is slightly less indexed towards the U.S. We have a slightly broader geographic mix, which we see as being a major strategic advantage in the long run. I guess you know I mean what it would take to be best in class, we just have to grow more than we're forecasting.
I don't think more complex than that. I think we've delivered very strong performance in North America in the first half of the year, which is pleasing. That you know, historically America has been slightly weak for us, and it's good to see that North America is trading very strongly. The only structural differences, I think, between us and our peers is that geographic mix. Then your second question, I wasn't sure whether you were talking about sort of cost investments like Everymile or Choreograph, or whether you're referring more specifically to our cost base, vis-à-vis salaries or maybe you can just clarify.
Yeah, apologies. Just want to clarify whether, you know, you have made any change in terms of your, you know, hiring plans or investments, just to take into account, you know, the more challenging macroeconomic environment in which we see the greater investments, which probably has, I would say, offset the operating leverage in the business. I just wanted to get any sort of change in plans regarding the-
Well-
... cost outlook for, investment. Yeah.
... I guess only what I referred to, which is, you know, as we go from half one into half two, we expect to see a lower dependency on freelancers. We should see more of an indexing into permanent colleagues, which as we know, the inflation on the permanent side is 35% compared to 15% plus on freelancers. That will help us deliver the margin upside that we're looking to deliver in half two. Only that particular trend. I mean, we're very good at, as I said, responding to the market going forward.
Because we see relatively high churn rates among our people, it's an industry factor, we can actually pivot relatively quickly if we need to adjust our cost base either up or down to reflect the changes in the market. You know, typically speaking, if we see the net sales go up more, we have to index into the freelancer market as we did in the first half, and that's a more expensive resource, hence the 2.4% margin drag in the first half. If we see net sales go down, then we can index out of those freelancers as well as not rehire those that churn from the business. We can quite quickly respond by taking costs out. Hopefully that gives you some clarity.
Great. That's clear. Thank you.
Thank you. We currently have no further questions, so I'll hand the call back over to Mark Read for any closing remarks.
All right. Well, look, thanks very much everybody for your questions. Thank you, Peregrine, for everything that you've done for us. I think just, you know, a few comments to make at the close. You know, I think that we've had a good start to the year. We're confident of achieving our guidance for this year and we do go into 2023 with a much stronger business, an agile business model. I think clients who are looking to, you know, maintain where they can their investments. You know, the outlook is undoubtedly uncertain, but I think that WPP has performed extremely well over the last year.
If you look back over the last three to four years, the business has transformed in many respects, puts us in a good position to go into the second half. Thanks everybody for your questions, and look forward to seeing you on the next call.
Thank you.