WPP PLC (WPP) 2002 Q3 法說會逐字稿

Good morning. My name is Linda, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the WPP 2002 3rd Quarter Update Trading Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press "star" and the number "1" on your telephone keypad. If you would like to withdraw your question, pres "star" and then the number "2" on your telephone keypad. Thank you.

At this time, I would like to turn the call over to Sir Martin Sorrell. You may begin your conference.

Thank you very much. Good afternoon and good morning, ladies and gentlemen. This is the 3rd quarter trading statement for WPP, which as you know, focuses on revenues, margins and on he balance sheet. Paul Richardson, our CFO, is with me here in London. We have about a 20-slide presentation which he'll run through first, and then we'll take questions.

Thank you. Again, we have tried to e-mail people directly. It is up on the web shortly, if it's not there already. In due course it will be up with the full commentary and q-and-a from this morning's session on our website.

But going through it for you on the third quarter summary, third quarter reported revenue was down almost 3%. On a constant currency basis, revenues were up 2%. Just to remind people on a constant currency basis means organic revenue plus acquisitions.

Therefore the impact of foreign exchange in Q3 was (-)5%, which took constant currency revenue [inaudible] to a reported number of (-)3%.

Like for like organic revenues which adjust to the impact of acquisition and currency was down over 3% for the quarter. Again, just to remind people, Q1 our organic rate of revenue decline was 9%. In Q2 our revenue growth was -8%. In Q3, just over 3%.

On a year-to-date basis, reported revenue was down over 2%. On a constant currency basis, revenues rose by just under 1%. Again, the foreign exchange having a (-) 3% impact on the year-to-date. Adding the three quarters' organic revenue growth together, we come down to a like-for-like revenue decline of 7% for the 9 months ending September of 2002.

On a constant currency basis for the third quarter, we saw some improvement in advertising medium investment management, public relations, public affairs, and Branding and Identity, Healthcare and Specialist Communications, primarily due to easier comparatives.

Information consultancy was showing signs of being affected by the recession. I'll go through that in a second.

The second half operating margin forecast is now lower than that of the first half's margin. Analysts we have spoken to this morning are now bringing their forecasts down on a full-year basis to somewhere between 12 and 13%, but clustering in a range of around 12-12.5% markets for the full-year basis of 2002.

Several small strategic acquisitions were completed during the quarter. Share cancellations of 2 million shares at the cost of GBP8 million were made during the quarter. All future share purchases will result in share cancellations, going forward. To date, we have purchased this year 12.7 million [inaudible] shares, of which 2 million were cancelled, circling 1.1% for share capital.

Looking at the discipline for the third quarter, you can see the advertising medium investment of management had growth of 4.6%. This is organic plus acquisition growth. Three of the disciplines were stronger. One was weaker than the previous half year. The [inaudible] advertising management. The half year rate of growth was 0.2%. The third quarter growth was 4.6%.

Public relations and public affairs in the half year was down 11% on a constant currency basis in the third quarter, with (-)2.7%, so actually was stronger. Branding and Identity, Healthcare and Specialist Communications at the half-year stage was up 0.6%. In the third quarter, it was up 1.5% on a constant currency basis and again was slightly stronger.

The one discipline that was weaker in the third quarter than the half year was information and consultancy. On the half-year basis, the growth was 6.8%, and in the third quarter it was 0.9%; just under 1%.

Looking at [inaudible], again, we give some information on like-for-like basis by discipline. The way we've done this in the past is taking the total group, which you know was 8% at the first half and 3.5% at the third quarter, and break it down for you as follows.

In advertising, the first half, the organic rate of growth was approximately (-)8%, and the non-advertising businesses was also (-)8%, when you combine the three-information, consultancy and public relations/public affairs. The Branding and Identity, Healthcare and Specialist Communications.

In the third quarter, also the trend was pretty even. The organic rate of decline in advertising medium, investment of management was (-)4%, and the three non-advertising businesses combined was (-)3%. So on a full-year basis, the organic decline was 7% in revenue. They are both evenly split between advertising and the non-advertising business in the group so far, year-to-date.

In terms of geography for the quarter, two were better and two were weaker than the half-year run rate. In terms of North America where growth was actually flat in the quarter at plus 0.1%, this follows a half year where the revenue had declined by 6.3%.

In the UK again, it was principally flat in growth at 0.7%, followed by a stronger first half where growth was 3.9%.

In Continental Europe, where growth was 4%, it again followed a stronger first half of growth at 7.6%, and Asia-Pacific growth was better in the third quarter at 7.4%, compared to the first half rate of growth on a constant currency basis of 3.3%.

I'd like [inaudible] giving you some indication of the organic nature of the growth. At the first half of the stage where the group organic rate of growth was (-)8%, we indicated that USA was between (-)10% and (-)12%, and internationally it was (-)6%.

On a similar basis in Q3, they are very evenly-spread, with the USA declining by 3% and internationally by 4%, overall.

Running through on the first nine months which is slide six on my presentation, you can see that the most effective discipline on a full-year basis for 9 months was public relations / public affairs, with a revenue decline of 8.6%, less effective than being [inaudible] communications at a growth of 0.9%. Advertising Media, Investment Management growth of 1.6%. And still strongly year-to-date, [inaudible] growing over all the nine months at 4.8%.

Last point by geography on the 9 months on a constant currency basis, the most effective medium has been North America, with revenue decline of (-)4.3%. Internationally, you have the UK with a growth of 2.8%, Continental Europe growth of 6.4%, and Asia-Pacific and Latin America [inaudible] growth of 4.7%.

I think one of the trends that has been quite disappointing for us is the third quarter. Revenues particularly at the end of September, where we did expect performance to be positive compared to a year ago. That group organically was flat compared to September 2001. This follows [inaudible] in the like-for-like growth reported at the half-year for July, which is (-)4%, and we've come out on a quarterly basis at about (-)3% for the quarter.

If you will recall at the half-year stage, we were hoping that having had a half-year of (-)8% organic growth, we were expecting flat organic performance in the second half of the year, and coming out then with (-)4 on a full-year basis.

Obviously the growth in Q3 is (-)3%. We believe a similar trend will happen in Q4, and that on a full-year basis, we won't be able to produce (-)4% organic, but it will be lower than that.

Going through the discipline, Slide eight from my presentation, this once again is to remind people of a couple of the key facts. Revenue in the third quarter was up 4.6%, to be precise. Following the 0.2% at the half-year stage, making it to date 1.6%. It's on a constant currency basis and does include the [exact] acquisitions, and it's showing some improvement in the third quarter as I've mentioned, though primarily due to the easy comparatives. We have completed more acquisitions in France in the quarter for Red Cell. The [inaudible] and it's improving in that [inaudible] significantly creative skills.

In terms of the third quarter, all agencies did improve their trends. Mind Share remained strong. We are seeing some slight improvement in [inaudible] coming through. In terms of other regions, Latin America, Argentina had a difficult year. Brazil had specifically been frozen by the election process which happened and unfortunately sent it into [inaudible] week period, as the second-week elections for Brazil certainly have entered the period of static or a freezing of clients' budgets while the election process is taking place.

In Asia, [inaudible] definitely appears to be doing pretty well. I think we're having stronger growth in a number of markets in Asia. India continues to grow strongly. China grows strongly. Taiwan is growing and Korea is growing. Surprisingly, I think, Indonesia and [inaudible] are both growing pretty well. In addition, Singapore for us is doing well.

Turning today to the Central European advertising market, I would say that of the four main Continental European markets, our toughest market full-year and specifically continuing is Germany. Our next toughest is France. Our second-best market in terms of performance is Italy. Our strongest market as we're seeing growth and improvement from is actually Spain. UK is somewhere tucked into the middle of that range. Continental Europe is reasonably tough. Germany is a strong market for us, as I was saying. The weakest one of those five mentioned, is Germany.

[inaudible] growth rate was lower at 0.9% for the quarter than the first half rate of 6.8%. That on a 9-month basis is 4.8%. It did in part reflect strong growth for Q3 of 2001 as over 8%. But it is entering the recession late, and certainly some of the ad hoc nature of the business is to be [inaudible] continue to be stretched.

We did complete a number of acquisitions [inaudible]. One in France with [MFR]. We merged with [inaudible] in India. We continue to have a [inaudible] the partners, as we mentioned, for the half year. Asia [inaudible] operating revenue [inaudible] is robust and remaining well.

Public relations and public affairs. On a constant currency revenue, growth was down almost 3%, which is considerably stronger than the first half of revenue decline, which was over 11%. Again, primarily due to ease of comparison.

The third [inaudible] US economy and [inaudible] public relations / public affairs spending, and three [inaudible] acquisitions [inaudible] of the USA [inaudible] with FemCorp [inaudible] in China, and Gambit in Norway.

There don't seem to be any improvements in PR in Europe, currently. Asia is tough, although slightly improving. We are seeing spots of recovery signs from both [inaudible] and R and M in the USA. [inaudible] population is doing very well in its tough revenue environment with possibility.

In terms of Branding and Identity, Healthcare and Specialist Communications, on a constant currency revenue basis, this was up over 1% for the 9 months. The trend is pretty even between the first half and the third quarter. Strong growth in healthcare agencies continues, such as common health and [inaudible] healthcare usually do well. Apart from those, we've won especially communications [inaudible] consultancy, [inaudible] doing well.

We had one acquisition completed in the quarter in the USA, [inaudible] marketing. The effects of our specialty business is pretty evenly-weighted between the USA and Europe.

In terms of revenue growth by country on slide 12, this is including the effect of acquisitions. So the growth of Singapore is aided by taking associated interest in [inaudible] Singapore up to a degree level which excels the rate of growth. But even on a stand-alone like-for-like basis, Singapore would be in the 5-10% category you can see that a number of the Asia markets were up in the top band. The majority of the European markets were in the lower band, as you would expect.

In terms of revenue growth by category, this is company-specific. It does relate to [inaudible] of the previous account's wins and losses. [inaudible] category, we are seeing a benefit in increased products and increased relationships with Coca-Cola, and likewise with [inaudible] which gives us a [inaudible], we are seeing a good penetration by businesses in a number of the personal care pharmaceutical companies. As you'd expect, the weakest category for us is IT computer [inaudible] services. That is not growing, compared to last year.

In terms of foreign exchange and the impact of currency, as I mentioned, revenues in the third quarter rose by 2% in constant currency, with a slight percent adverse impact for foreign exchange, gave rise to reported (-)3. On a year-to-date basis, the currency impact is a (-)3 for the 9 months, expect on a full-year basis it would be on the order of (-)2 to (-)3 percent on reported revenues.

If the exchange rates had remained at the same levels of 2001, the profit would be GBP5 million higher, excluding impact of currency.

In terms of new business wins and losses, this is better shown shown in color. What we have identified there are a number of wins in the third quarter, the biggest, being Mind Share, a win of GBP600,000. Of the Gillette business, the Wine Arts and Ogilvy, and winning of the Mattel business, Wine Arts particularly beating out the foreign competition of McCann, Eriksson and FTD. The Ogilvy [inaudible] between DHL on a global basis. And (Inaudible) on a number of other Wine Art companies, winning [inaudible] introduction of [inaudible] in the USA over a multi-year project.

The one [inaudible] that went awry was Ogilvy [loss]. A brand of telephonic[inaudible]. We still maintain a very healthy relationship with them in Latin America, and with Wine Art.

On Page 17, there is some good news to be taken from this performance, year-to-date. I'm pleased to say that the net new business wins have picked up strongly and continue to be good. The last two quarters, we have generated over USD1 billion of net new business wins. The year-to-date figure of 2.9 billion has actually exceeded already last year's total of 2.5 billion. These obviously will take time to go through into our revenue numbers, but there is a good pile now of clients on the [inaudible] 2003 that would generate additional revenue.

On uses of cash flow, the net bet [inaudible] was GBP1.3 billion, against GBP978 million a year ago; an increase of GBP325 million.

The share purchases of 200 million, as I mentioned, have been canceled, making a total purchase for the year of 12.75 million shares. If I just take the first nine months of the year, looking at share purchases, acquisitions, [burn-out] payments and loan note redemptions, this totals GBP75 million in the quarter, and GBP286 million in the first nine months of 2002. This compares to today's same categories last year of GBP475 million.

If I make one adjustment which I think is fair, which is to take the GBP60 million of loan notes redeemed in 2002 which were not an item in 2001 and are effectively a debt transfer reduction of debt, I'm looking at a rate of something like GBP226 million in the first nine months of this year for those categories, compared to GBP475 a year before; i.e...tracking is something like 50% of the rate of the prior year on acquisitions, share buy back[inaudible] payments.

I think there is a real focus here on managing the cash flow [inaudible] acquisition [inaudible] positive. I'm extremely pleased with the working capital position as of the end of September. The first sign in a long time that we remain working capital negative at September. An improvement of something like GBP200 million compared to September 2001.

Finally, on acquisitions, we continue to focus on small [speed] acquisitions. A number were completed during the quarter. The major focus continues to be on information and consultancy in the fast-growing sectors, and Branding and Identity, Healthcare and Specialist Communications. Acquisitions and advertising used in addressing specific clients or local agency needs. Having continued to find better opportunity, particularly outside the USA.

With that, we'll happily hand it over for questions.

Thank you, Paul. Questions, please.

At this time, I would like to remind everyone if you would like to ask a question, press "star," then the number "1," on your telephone keypad. We'll pause for just a moment to compile the q-and-a roster.

Your first question comes from Carl Towee of Merrill-Lynch.

Hi. Good morning. I wonder if you can talk a little bit about the pricing situation in the industry. Are you seeing push backs from clients in terms of agency fees because of media inflation? Or are you seeing your peers competing heavily on price? Thanks.

I think that generally we would describe the pressure on revenues as being volume-driven rather than product-driven. I think the one area where we've seen quite heavy procurement fresher would be in pharmaceuticals. Broadly, I think there are five areas where we see relative, and I underline the word relative, growth. Pharmaceuticals would be one. But packaged goods, some areas of packaged goods, would be a second. And government spending both sides of the Atlantic would also be strong.

Oil and energy would be stronger or relatively stronger. Then finally, value retail or low-priced retail. Of those segments, I think pharmaceuticals is where we see the heaviest price pressure.

I don't think it's because of media inflation, because there is very little media inflation. In fact, there's media disinflation. I think that is not where the pressure's coming from.

So in summary, it's volume-driven rather than price-driven. There are one or two areas like pharmaceuticals where we are seeing some procurement pressure.

As to the point about competitive, there are one or two agencies that have been aggressive on pricing. I can think of one, in particular, that I'd rather not name. But one from let's say the big three holding companies, which has been very aggressive on price.

But beyond that, I don't think there has been that heavy a pressure on an agency-by-agency basis.

Thank you.

Your next question comes from Neil Byrd of Salomon Smith Barney.

Yes. Thank you. Paul, I was just wondering how you would break down your lower margin expectation for the second half. I was curious how much relates to information and consultancy being a little lighter than expected. Second Martin, I was just wondering if you could just talk about what catalysts you're looking for as a precursor to an improvement in the environment. Thank you.

Do you want to deal with the first one, Paul?

Yes. We haven't really [inaudible] on the second half of the year. [inaudible] remain an issue. The margin decrease we saw the first half, we'll see continue for the second half. But I think the pattern of what is happening cannot delay totally the [inaudible]. It is pretty widespread across the businesses, in terms of their overall revenues. They're down. Again, a correct [inaudible] in the third and fourth quarter. It is across geographies. It is across all brands. There are some exceptions.

I think the media buying companies are holding up reasonably well. But in terms of a general environment, it is a pretty uniform pattern. [inaudible] I am not going to single out a particular group or specialism issue. It's pretty broad-based.

Just returning to the second part of your question, (Inaudible). The catalyst. I don't think we'll see any external catalysts to stimulate spend until 2004, or just before that. I guess it's driven by the same old boring corporenial factors that we talk about every four years; namely there's a president trying to get re-elected. That usually has a stimulative effect on the economy in the sense that the president wants to go to the country with a reasonably good economic background. That's one thing.

The second thing is the political advertising does stimulate the media market, and therefore crowds out other buyers. Thirdly, you've got the Athens Olympic games. Those are not as stimulative maybe as Atlanta Olympic games or Beijing Olympic games in 2008, but certainly a help in terms of media pricing.

I focus on the US because like it or not, I think the American economy will drive what happens elsewhere. The recession certainly started in the US and spread across the Atlantic to the UK and Continental Europe, and then on into Asia and Latin America. So both Latin America and Asia have some indigenous activities or indigenous practices that are driving their markets, for example, as Paul mentioned.

The Lula election in Brazil, the problems in Argentina, or on the more positive side the growth that we're seeing in China or India on a smaller scale as far as we're concerned in Indonesia. I think those are the stimulative effects.

The issue of an invasion of Iraq, although there are some others in our areas who've forecast USD60 oil prices, I don't think we share that view. I think if there were to be an invasion of Iraq, I think it would be negative in the short-term. But maybe stimulative in the medium-term. We think that current oil prices and stock market prices take that possibility into account.

I think, we think broadly. We've not done our budgets for 2003. We're just starting to do them. We're working with our clients on those budgets. Our feeling is that 2003 will be another difficult year. Not as difficult as 2002. And 2002 though not easy, was certainly not as difficult as 2001.

I think that most of industry pundits or gurus for 2003 are forecasting flat growth for advertising to up maybe 1, 2 or 3%. We wouldn't demur from that view of the industry as a whole.

As a follow-on, when you contemplate the prospects of a double-dip, does it relate to kind of an unpredictable external factor like a war with Iraq? Specifically, is your concern greater as it relates to US or Europe?

Well, double-dip is probably a bad expression. I think we've had a two-paced recession. We've had one half of the economy, the business-to-business part of the economy, under considerable pressure. The statistics you see for capital expenditure or lack of capital expenditure I think spills over into our areas of activity and causes similarly reticence about spending or delaying on spending as a result.

The double-dip I think really refers not to a double-dip, but to the other half of the economy; whatever it is-the business or consumer side. I think that one of the reasons for our negative growth rate and our fall in revenue in the third quarter was (-)3% on a like-to-like basis, whereas, it's (-)8% in the first half and (-)7% overall for the 9 months. Clearly, as a result of passing September 11th, the comparatives have got easier. But they are not as easy as we thought they were going to be and as I think others thought they were going to be 6 or 9 or 12 months ago. So we're lacking easier comparatives. But the balance, as Paul indicated, in relation to September, is not as great as we thought six or so months ago.

So as I look at it, I think what's happening is the consumer is coming under a bit of pressure. This is primarily in America. But as I've said before, America like it or not drives pretty much everything that we do. If America catches a cold, we catch flu. If they sneeze, we catch a cold.

I think what's happening is you've seen some data for coming out of the automobile industry in America on car sales since October 1st that are off in comparison to last year; maybe suggesting some revision of predictions for the car market this year. Car and auto market this year and next year.

Secondly, we've had asset prices falling on both sides of the Atlantic, with stock market falls in the summer and late summer. We've had consumer confidence indexes showing a little bit of decline in confidence. We've had some concerns, particularly in recent weeks, on both sides of the Atlantic, about retail figures. Some retailers are experiencing tremendous volatility, and there are some concerns about Christmas.

Then you've got some speculative bubble-type issues for example, here in the UK. House prices are supposed to have risen by over 20% in the last year. I'm not talking about top of the market. I'm talking across the board. These building (Inaudible) figures tend to be pretty accurate, and have been driven clearly by cheap money. If money's cheap, whether it's corporates in Japan or first-time house buyers in the UK, they'll borrow the money.

So double-dip may be an unreasonable way of putting it, but I think that what we're really talking about is some concern about the impact of the recession that we've seen for the last 18 months or so impacting the consumer. That would be mainly in the US, but it would have a similar impact over here in Europe.

Just one little observation on Continental Europe. The four major countries. Germany is without doubt the most difficult market. I think that's followed by France. The least difficult of the big four in Continental Europe would be Spain, and second-least difficult would be Italy. So the periphery countries, Scandinavia, Belgium, Holland, Portugal, Greece, Turkey, Central and Eastern Europe, have been difficult. Although there are parts of Central and Eastern Europe-particularly Russia-which are stronger.

Thank you.

Your next question comes from Fred Zierby of JP Morgan.

Good afternoon, gentlemen. A couple of questions. Just touching upon automotive as it's clearly been one of the really surprising sources, relative to expectation, strong in North America. Can you give us some sort of sense? There was a false report on Ford doubling their budget that was somewhat amusing. But could you give us some sense on what you think is going to happen in the automotive next year, and what you're hearing from both your clients? I know you're not in the budgeting process yet.

Then if you could also just talk a little bit about Japan. I was surprised that you pointed that to one of the geographic areas of the strength, given anecdotal and statistical information we've seen, and how you're bucking the trend there?

Maybe also if you could just ouch upon what you're doing on the working capital side, because it sounds like you're making headway on it.

Yes. I'll leave the working capital part of the question to Paul. And the liquidity is improving. By the way-if one were looking for optimistic signs throughout the marketplace, I think it is coming down with most of our clients. Liquidity is improving. That's probably a good sign for what may happen in 2004, and maybe even before. Paul will come back to working capital.

On the automotive market, I think you've got two conflicting forces. I noticed with interest that Daimler Chrysler, I think it was the CFO at Daimler Chrysler, was pointing out something that we've discussed on these calls before. Namely, that of the give-back cash back and zero-coupon financing are a zero-sum gain. Having break-even at full capacity with 17-18 million a year being sold in the United States, it does not make sense. Weaning the consumer of price in the automobile and truck industry is going to be a difficult thing to do, given the incentives that particularly the US-based manufacturers have been giving.

I think averaging around about $3,200 a car or truck. Whereas certainly the Japanese like Toyota or Honda have been less aggressive and been [inaudible] $800 of their cost. They've been investing more in product. So going into 2003, you're right. That was of (Inaudible) reporting that age. It was a release to Reuter's from Ford, which indicated that their [inaudible] budgets would be slightly up next year but certainly not doubling.

I think there are two things going on, there. Or will be going on next year. The first is Ford dealer advertising, which we do a fair bit of. It's very volume driven. Counter-intuitively, the more you sell, the more you spend. Because there is a curve vehicle allowance. If volume were to come off, dealer advertising would be affected. On the other hand, if there is a shift, which there appears to be starting-I'm talking not from any inside knowledge, but external-based knowledge. If there is a shift to more brand-based advertising and more brand-based building of Ultra brand, if we would shy away from price installation, and there's probably be a heavier investment in brand, in product, and in innovation. Which I think ultimately is in the long term where it had to be.

So I can't tell you, Fred, where it's going to stop. But I think you have those conflicting trends. And I think the prospects for auto expenditure for next year are pretty reasonable.

On Japan, there are going to be countries. Australia would be another one, I think. China would be another one, where believe it or not, we might buck the trend. In Japan, given the growth of our businesses by Thompson and Ogilvy. There's our joint venture with Density One, which has not been as extraordinary as either Ogilvy or Thompson or [inaudible] investment which would not be included in those numbers. We only own 20% of the [inaudible].

But I think principally that what we've seen in the two major agencies, Ogilvy and Thompson, what we've seen in our research businesses, as well, with Research International and [inaudible]. I think we have to some extent bucked the trend, there.

We understand that life in Japan for the domestic agencies is very difficult. It was some very disappointing numbers out of Dinsu in the first half of the year. We understand the numbers for the second half of the year are rough, too.

So I think that to some extent, maybe because we're dealing with multi-nationals, you have to remember that we've had one or two product launches; very successful ones [inaudible] in Japan. We've obviously benefited from that.

Do you want to say something about working capital, Paul?

Yes. I think it's hard. It's always been an area we've had a lot of focus on. I've done sites in the past that show [inaudible] business at various points at year-end. Our sales [inaudible] have done consistently well.

A number of things have happened. I think that quite rightly, we had slippage at the end of 2001, based on the fact that billings were significantly lower in the industry in the final quarter. It is a billing volume that gives us the negativity on working capital. Although we were negative at December 2001, we weren't as negative as we have been in prior years.

We've got some real like systems and procedures being fine-tuned in North America, as the result of the Wine Art back office system and Mind Share all coming together, in getting the best-of-breed. I think Mind Share billing wins is helping us, in teems of the volume going through.

Then finally, a small but not un-incidental issue is that last year we were having some payment difficulties from the government and OSECT. That has all been cleared up. But to put it in very simple terms, we have [inaudible] [multi]-focus on this. We're very pleased with September. It's a big improvement over September of the prior year in a difficult environment. [inaudible] Earnings [inaudible] is quite good in some of our corporate accounts. Our relationship in getting paid is getting stronger.

So it's focus and attention to it. And some elimination of some of the one-off detriments that were happening last year to ONDCT.

Just to add one point to working capital. I think we got a little bit of stick in the fourth quarter of last year for the negative working capital movement. I think it was about GBP150 million or about USD220 million. Basically, due to the declines in volumes in the fourth quarter of 2001, following the events of September 11th. I think we saw that we were disappointed with that performance. We've made a lot of effort to try to reverse that position. I think we were successful in doing that.

Just one other observation in Japan. We heard recently that volumes of density in the second half of the year might be down as much as 12%. In fact, that the number of commercials begin made in the Japanese domestic market might be off as much as 1/3 in density, for example. They'd be making 1/3 less commercials in the second half of the year than they did in the previous year. So there is some pressure in Japan. It may be led by Japanese domestic advertisers rather than multinationals.

[inaudible] but we did pick up significantly on the [inaudible] business, and on the branding side. Our marketing services side is very strong there. [inaudible] on the mergers of two domestic airlines. So those two factors, like Martin side, is one's international and one's domestic. I think they're helping us to buck the trend.

That's very insightful. Thank you.

Your next question comes from David Doss of CIBC World Market.

Good afternoon. Just a couple of questions. One, can you delve a little bit more into the trends of the public relations business, which has been in decline quite a little bit longer than other sectors? Is there any pickup or flattening out in sight there?

I'll give you a playback of the information you actually already have, in terms of the quarterly constant currency rate of growth, just to give you a flavor of how it's gone. And you can see it for yourself.

In Q1 2001, on a constant currency basis, our public relations divisions have grown by 80%. It starts a decline in Q2, where it was down 5.5%. This is last year. In Q3, it was down 15%. In Q4, it was down 12%. The first half of this year, it was down 11%. What you can then see is four quarters of I'd say a pretty even decline in the 12-15% range. And now Q3 the decline is only 2.7%.

So I think if you go back, remember not all the growth of our 2000 business was driven off the technology and the IT market. We've seen that effect now work out of the system. You can kind of see the trend working through our numbers.

Yes. I think just to add to what Paul said, that is consistent with what you might expect theoretically. It's certainly true that three or four years ago, we thought that increased specialization in public relations would protect them from any downturn. But [inaudible] that we saw-the bubble that we saw in 2000 in TMT-did not protect them. In fact, I think we would admit to being disappointed with the impact the recession had on [inaudible].

But on the other hand, it is starting to bottom out. There is more stability-I wouldn't say growth-but more stability returning to the market. On the other hand, information and consultancy are research businesses which, up until the last three months or so, performed well in the recession. Now they've started themselves to be affected. They may be the later cycle recipients of the effects of the recession.

So I think PR first hit. I think it does tend to be more local, regional. The budgets are held on a discretionary basis. When instructions go out to cut spending, these are the budgets that maybe get affected first. Although in this particular recession, the technology, media and telecommunications sectors which started to fall apart round about March 2000 and later toward the end of 2000, properly led that decline.

Right. And a follow-up to that. At its peak, what percent of revenues of PR were TMT, and where about are you now?

I don't know, David. I don't have that number. I don't think we particularly monitor it. I would say it's substantially less. If there is by franchise, if you recall Ogilvy PR merged with Alexander Communications and Hill and Burton merged with Blanc and Otis. Neither [inaudible] purchase a small technology company, which has been affected. But in addition to that, First and Marcello didn't really get heavily involved in the technology rush. Certainly from an acquisition point of view.

But you're talking about, this is a guess, I would say at its peak, maybe 15%, 10-15%. So you have to remember there are a number of major technology pitches going on at the moment, which involve quite large sums of money, as the technology sector is under pressure.

So we could research. We'll try to research it and send you a note on what we think historically the figure is and what it is now.

That's helpful. And one other thing. Just in general, among some of the other forms of marketing services. If you would touch on some of the trends. We had the direct marketing association slash expectations for the year earlier this week in the US and on the direct mail front and telemarketing. Event marketing seems to be under pressure this year. I didn't know if you had any thoughts on some of those specific sub-sectors.

Yes. We'd be happy to give you some observations. If you look at our business, the part of our business that's been least-affected is information and consultancy, which is a posh phrase for market research. It includes some of our strategic partnering and consultancy businesses, some of which have not been affected actually by the recession as much as you would expect. Although there are project businesses.

But basically, market research, Lower Ground Research International, Camp Hour Media Research, in particular, our television audience measurement businesses, have not been affected by the recession as much as others, and have been the most resilient sector. Certainly, until recently.

On the other end of the scale as we discussed is public relations / public affairs. The second-least affected is Advertising and media investment management. The more traditional media like television, national press, regional press, radio, outdoor part of our business. And the media investment management part of that has been even more resilient than the advertising part. That's the media-planning and buying part.

In brand, what we call Branding and Identity, Healthcare and Specialist Communications has been varied. All those businesses are by-and-large fee-based or project-based. Branding and Identity we've seen a difference in performance between our two brands. [inaudible] which has been an integrated network for a longer period of time, I think, has dealt with a difficult situation very well. It has maintained margins at a time when the top line was under pressure.

Enterprise, which is our second network-our other network in Branding and Identity, the companies are similarly sized. And Enterprise which has been built more recently by acquisition and has not such a strong institutional franchise, has had a tougher time. Not as tough as we've seen elsewhere in companies such as Future Brand, but they've had a tougher time.

So Branding and Identity has been affected. But it varies, depending on the nature of the franchise. Healthcare has been and continues to be strong. It's the one area of our business where we're still seeing significant year-to-year growth in revenues. Specialists Communication covers a number of areas. It covers, for example, Hispanic communications. The Bravo Group has had a very strong year and has done very well. It covers other areas such as direct and interactive.

Our experience in direct and interactive have been, I think, generally positive. It's patchy. But Ogilvy 1 and Wonderment have both done pretty well in difficult positions. The internet interactive parts of our business are decidedly unfashionable now. Actually, what you'd expect, taking a contrarian view, they're probably stronger than we'd anticipated they would be at the beginning of the year. So I think there is variation.

I would say in relation to your comments on Direct, all parts of the business are being affected by the recession. But I would be more bullish about the prospects for Direct. By that, I mean mail, telephone marketing, all forms of direct marketing over the web and e-mail marketing, I think. I'm a little bit more optimistic also than your last comment indicated. Our experience has been that Direct as network television comes under pressure for pricing reasons, outdoor, radio, direct, interactive alternatives become more interesting.

Thank you. That's very helpful.

At this time, there are no further questions. I will now turn the call back over to Sir Martin Sorrell.

Okay. Well if we haven't got any more questions, we'll finish there. We've been on-air for about 55 minutes. If there are any other questions, feel free to e-mail Paul or myself. PRichardson@WPP.com, or MSorrell@WPP.com. We'll be happy to try to answer anything else you have.

We'll let David have the information on the technology side of PR. We'll send that to him.

This concludes today's WPP 2000 Q3 Trading Update Conference Call. You may now disconnect.