WPP PLC (WPP) 2002 Q4 法說會逐字稿

Good morning, my name is Mandy. I will be your conference facilitator. Welcome, everyone, to the WPP 2002 Full Year Results Teleconference. 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 1 on your telephone keypad. If you would like to withdraw your question, press star, then the number 2 on your telephone keypad. Thank you. Mr. Sorrell, you may begin your conference.

Hello. Good afternoon or good morning, ladies and gentlemen. This is the telephone conference call on WPP's results for 2002. I believe you have a copy of the presentation and pack, it's up on the web now. We have about 60 slides that Paul Richardson and I will run through. There are five segments to the presentation. The first three of which we'll cover this afternoon. The other two parts are there for you to look at. What we'll focus first on the results for 2002. Paul will cover that. Secondly, I will cover the key priorities and objectives. Thirdly, we'll look at the conclusions on those first two parts and then the other two parts, one on our strategy structure and competitive position and secondly on property.

There are two areas that analysts and future investors are particularly interested in recently. First, liquidity, debt levels and working capital and Paul will cover that in section one on results for 2002. The second area is property. We've reduced most of it to one slide that we're including in the results for 2002 in the interests of group brevity. But there is some more detail on what we've been doing with property costs in section five. I should add that the pressure on margins has really come from nonstock costs as a proportion of revenues. They've increased by over 1% over the last two years and so there has been a focus on what we're doing to reduce property costs and fix property costs as our head count has fallen by about 8% last year and another 2%, I think it was, the year before. So, a total of 10% over the last two years. So, I will hand over to Paul first to cover the results for 2002.

Hi, good morning. As Martin said, the slides are on the web, if you have a direct e-mail copy. I will be reasonably quick, "A," it's a lot to cover. "B," I don't want to take up a lot of your time.

The reported revenue was down almost 3%. On a constant cost basis due to the impact [INAUDIBLE], revenue rose by 9.7. On a like-to-like basis, exclude the impact of acquisitions, revenues are down almost 6%. Again, just to help you, we start with the minus 6% on a like-to-like. Acquisitions basically tempers last year ended around 6.5 percentage points in growth to come up the constant currency growth of plus .7, then foreign exchange took away 3.5% to come up a reported decline of 3% for the year. Profit before tax, as adjusted for removing goodwill, fixed asset gains, buydowns, is something [INAUDIBLE] with the U.K., early adoption of FRS 17, which is basically taking the market to market value of your pension fund assets and putting them in the balance sheet and taking an interest cost as a result of any funding shortfall. I've remove that from profit before tax. I removed it simply because each time it didn't get adopted in the U.K. and we're the only company with the charge. It is around 6.8 million pounds of interest in 2003. So, adjusting for those profit for taxes down almost 19% to 400.6 million pounds compared to the other four.

Operating margins remain at 12.3, this is a PBIT margin, compared to 14% a year ago. Strength of profit before tax, no adjustment, is down 50% to 205.4 million pounds.

Headline diluted earnings per share was down over 19% to 24.9 from 30.9 the year before. The full year dividend was up 20% to 5.4 per share and remains four and a half covered by headline earnings. Cash generated, we will show you was 404 million pounds and was absorbed by share repurchases and cancellations totaling 76 million pounds.

Net cash acquisition costs of 105. Loan outpayments and an additional loan note redemption from '94, totaling 281 million pounds. Strong estimated net new billings over the year was about 2.4 billion pounds or $3.6 billion, ahead of last year.

Turning to slide 5, this is the fully reported income statement. In it, there are a couple of items of a nonrecurring nature or some of significance. One, we took an impairment charge of $145 million in the second half in line with GAAP and that's affected profits. Two, there was a net loss of around 10 million pounds on the further writedown of technology investment stocks, mainly private. Moderated to some extent by gains on successes around 10 million pounds. The reported PBIT is 205 million pounds and reported earnings per share was 7.7 compared to the headline of 24.9.

Moving to slide 6, what it shows here is the headline operating profit of 480 million pounds, down 14% on a reported basis, compared to the revenues of 3908, down 2.8% as a reported basis and on the right-hand side is the constant currency basis, showing PBIT down 12%. There was a decline in income from a range of our associates. They've moved down from 40 million pounds to 30.

Interest in the charges, excluding the effect of the pension charge, was 80 million pounds, up 18% compared to a year ago. Tax continued to decline in terms of rate and P&L. A further reduction from 27% in 2001 to 26% in 2002. A level which we believe we can maintain. Headline earnings per share of 24.9 down 19% on a reported basis and down 15.8% adjusting for currency to 24.9 compared to 30.9 a year ago. Consensus for those that are interested, was around 392 to 395, the profit before tax compared to our 400.6. The margin consensus was 12.1, in the range of 12 to 12.5, we met that with 12.3% margins.

Again, turning to revenue, by discipline on slide 7, you've got the reported revenue decline of minus 2.8. You've got the constant currency growth of 4.7. I think the most meaningful item in terms of how revenue has performed is the quarterly light to light trends. I want to go through those with you, although they are in the press release it was down over 9% in quarter 1. It was down 8% in quarter 2. It was down over 3% in quarter 4. And down under 3% current. Down over 3% in quarter 3 and down under 3% in quarter 4. Making in terms of the via minus almost 6%. There was some encouragement in terms of the trend rate and you see in the press release that we said that January, 2003, on a light to light basis, was down less than 1% a year ago and actually generally 2002 was a relatively strong month for us.

Looking at it by geography, again, on a light to light basis, the most meaningful thing I can tell you is that North America has had its strongest quarter of the last seven in terms of revenue growth in quarter 4, 2002 as compared to quite significant declines in quarter one and quarter two of this year. And in terms of the worldwide growth, Asia Pacific and Latin America, all struggling and was pulled down by what was happening in Latin America and Brazil, Asia continued to be relatively strong compared to the other markets. North America was down the most of the markets from the full year basis of over 6% where as the others combined were under 6.

Moving on to margin performance on slide 9, we have the four distances broken out. We have the 1.7% margin decline, again, disappointing across the range, apart from public relations, which we reported to be the most effective way for the decline in revenues and pleasingly, their margin improved to 9.6, a 7.4% 2001 to 2002. All our disciplines had a margin decline of between 1.4 and 2.7%. The most impact is Information and Consultancy with a margin of 47.1%. Again, we've listed these on the press release. Those are businesses that did particularly well. I repeat them again but it's clearly laid out in the press release.

The Research, PR, communication companies did well. But just to reassure you, some of the companies we said would do well at the beginning of the year, such as direct and healthcare, continues to do well. I think it was pleasing to see the public relations business do so well in terms of in 2002.

By region on slide 10, you have basically America holding pretty well at a 14.1% margin just down from 2001 of 14.5 and all of the other regions now, aggregating around the 10% margin level. As mentioned previously, or indicated previously, the margin decline in Asia Pacific and Latin America is being driven by Latin America, it's a tough market there. Asia Pacific has done particularly well in this environment.

Turning to slide 11, looking at the growth or lack of it by geography, you can see the sway the companies that weren't growing. Of those that grew, it is interesting to note that there is still solid growth coming out of Asia Pacific. In our top 20 markets, which we list here, you can see China, India, France and Japan doing well. In addition, our smaller markets, very strong growth in Indonesia, good growth in Thailand and Malaysia. Even Latin America, despite what happened in Brazil and Argentina, Mexico has grown well as has Columbia, Venezuala, Peru and Chili. In Europe, our strongest market was in Spain, Italy and Germany throughout the year.

In terms of categories on slide 12, really, the only one that distinguished itself is very strong growth is our performance in the drinks category, partly due to our own client wins. The rest of the it grouped around 5% or less on a constant currency basis and 9.7% growth in the definition.

Slide 13, the impact and strength against the U.S. dollar counterbalanced some of the weakness against the euro. It reduced revenue by over 3% in the same earnings and if I was to restate 2002 profit before tax, which was 302 million pounds I would have added an extra 12.7 to the effect of Sterling. We would have reported 315 if currencies stayed at 2001 levels.

Slide 14, is a summary of business wins and losses for the full year. The two that have come into the final quarter was the major edge Chevron-Texaco Europe win estimated $100 million a billing and the further project for IBM of $19 million worldwide. Turning to mufflers, the one that arrived in the quarter was lost by a business around $18 million a billing.

Slide 16 currently shows the split of billings between advertising on advertising totaled $3.6 billion for the year, compared to last year at $2.5 billion and the trend has been reasonably pleasing, quarter one was $750 million of win. Quarter two and three both over $1 billion. Q4 water was $700 million.

And so far year date, on slide 17, we've had around $750 million of win as the most prestigious in the Coke Classic win. Others including the Cisco win by Ogilvy and others listed here.

Slide 18 on cash flow, we simplfy the cash flow that's provided to the account with solid operating profit, $450 million compared to $521 a year ago. Depreciation at $117, interest paid at charges at 7 to 8 million pounds and tax paid, 85. Coming up net cash generation of 404 this year compared to 497 last year.

Now how we spent that cash on slide 19, capital expenditure 101 came out at 85% of depreciation. We are holding a level of at least what only Cap Ex being no greater than depreciation one to one ratio going forward. In terms of acquisition payments, we have initial payments, which totaled -- new acquisitions taken on during the year, 105 million pounds. This is net of cash acquired in businesses and the one business in particular, where we paid dollar for dollar for the cash in the balance sheet. 105 this year compared to 680 last year.

Loan out payments this, year's payment resulted in 82 million pounds being paid out from prior acquisitions. And one item we did not fully anticipate to be of such magnitude was loan note redemptions. These are loan notes provided to principals on the sale, putable to the company any time. The tax all changed in the U.K. and no tax benefited in holding the loan notes by them. So, we repaid 94 million pounds of loan notes, which were previously in the balance sheet of the group. But putting those together at 281 million pounds, there is only a balance of 27 million of loan notes remaining in the balance sheet.

Share repurchases, approximately at the 1.1% share capital this year. There wasn't significant share purchases in the final quarter of the year. As our share price remained quite strong. Hello?

Hello.

Fred, I can hear you, if you could just cut off.

Yes, okay.

That meant we ended up a net cash outflow of 8 million pounds, pretty much object to the break even for 2002 before dividends.

I wanted to spend a few minutes if I could on the slide looking at working capital lost here and the cash flow statement. There was a working capital movement, which is both trade working capital and nontrade items at 456 million pounds negative. This year I'm pleased to report that is reversed and we're showing a 230 million pound positive. However, I want to stress this is not a permanent situation. It is driven by the level of billings in the business, not by the level of revenues. All mentioned, working capital is -- [ INDISCERNIBLE ] -- as -- as we have a assembled pattern to our billings, we tend to have an outflow in quarter one and quarter three in working capital and quarter two and quarter four is a fall.

The best way to describe this is slide 21, which shows the position suffered at the end of the fourth quarter in December. Around 6 to $700 million negative. And despite the fact that June is also negative in working capital, it is not negative by the same degree. So, the movement in the first half cash flow balance sheet is from around minus 600 to minus 200 and shows an outflow. With strong quarter 4, we've built up to a negative working capital position again in December. You can see the inflow in the second half.

What you see in the listed cash flow and balance sheet is the change between December and December which in this year, as I said Washington an improvement of 231 being both trade and nontrade items. Slide 22 shows you that the net position is the sum two of large moving parts. One, about 3 billion pounds -- I'm sorry, $3 billion of receivables and approximately $4 billion of payables. One day's swing can be quite significant. We -- we're not expecting the terms of trade to change. All it does is affect the amount of facility usage we have to have available to the terms of trade changes.

So, on slide 23, lists out what good networking caps may achieve. It reduces the average net debt, it reduces interest cost and reduces services acquired. We accept targets from businesses in the media of management to incorporate the promotion and believe our management is in line with the best of the competition.

So, I've listed out in the next few slides, slide 24, looking at the year-end, that's a credit situation for us in economic terms, likewise on slide 25, looking at ratio creditors to debtors, around 115 to 120 for us.

26 looks at the cumulative cash flow from working capital over a series of years and despite a hiccup between 2000/2001, you can see on trend we've done extremely well and taking it from '96 to today, the view extracts around $400 million of year-end at working capital.

Moving on to slide 27, this shows that the average net debt for the year was 1.3 billion pounds, an increase of around 61% compared to the average of the debt a year ago. However, at year-end, we're good working Capital Management, we did bring this down to around 727 million pounds at the year-end point. The interest charged based obviously off volume and on rate went up 18% to 18 million pounds.

On slide 28, I'm not going to dwell on this, it is a number of ratios, how people can measure debt capacity and interest coverage both ABITDA to year-end and average net debt. I won't go through this in detail.

Slide 29 is, again, the most important point on this slide, it says that none of your convertibles have put some in. This is the maturity profile we're working to. There is nothing up in 2003 of a bond or banking nature and there below you have the unit obligations listed year by year of 238 million pounds. So, it certainly illustrates this in color, yellow for the year now and red for 2006. And finally from me, one final property. I think in the back of the text, one item I do stress is that it is actually quite hard to assimilate a property portfolio taken on from third parties.

So, in 1999, at the end of the year, we only had 9.2 new square feet as a result of two acquisitions that, grew to 14 million square foot portfolio the end of last year to December 2001. We had two actions this year reduced it by half a million square feet or 4% of the opening positions and we've coughed actions already taken, a further 8% or 1.1 million square feet will drop the portfolio by the end of next year. The cost effectiveness is more than we'd like, but we are right sizing the property portfolio to the business to the business today. Thank you.

Okay. Moving now to the second section, key priorities and objectives. Slide 33, before I go into those priorities and objectives, just want to talk a little bit about the operating environment that we face. Obviously in the short-term, with any forecasts are overshadowed by the issue of whether there will be a conflict in Iraq or not. Not only that, but whether it will be short or long. And if it is short or long, what will be the resulting situation in terms of new government in Iraq, in terms of the oil price further instability or not in the Middle East and generally whether there might even be further acts of terrorism. That, actually, I think has had a significant impact in the short-term on client spending and I think the fourth quarter performance in North America, the increase in light to light revenues of 2%, the first quarter for seven quarters since the first quarter of 2001 we have seen a positive like to like difference shows that there has been some light underlying improvement and the figures for January that we provide in the press release of minus 1% for the first month of January -- of the year in January, I think all is pretty well for the budgets and I'll come on to in a minute. At the same time as the risk of war is there, there is significant fiscal stimulation taking place on both sides of the Atlantic. We seem to have moved from solely monetary treatment policies to a mixture of the two with the approach in both the U.S. and U.K. governments running significant deficits, which possibly will have a stimulous effect in addition to the Bush tax program and changes in the dividend rules, or tax rules that, will have a significant effect stimulating the economy fiscally.

At the same time of all of that, there is significant consolidation involving clients, media owners, agencies and the retail industry. As far as clients are concerned, we recently had the frustrated bid for Hershey with the top bidder being Wrigley. We've had Adams being purchased by Cadbury. We have Chic purchased by Energizer. Consolidation continues and agencies are involved, obviously, many of those transactions and rationalization and consolidation of the roster agencies is still a significant factor. I've lost a lot of deals are being talked about at the moment, very little activity seems to be taking place through investment bank. I think if the underlying tone does improve, we will see a significant amount of consolidation taking place in -- amongst clients. The same applies to media owners in the sense that it is unusual that we now have at least three countries, the U.K., U.S. and Brazil passing legislation to enable cross meter ownership and in Brazil, foreign meter ownership more and more. We're seeing more consolidation amongst media owners, too. Agencies, there seems to be a for sale sign up above Chordiant, they seem to be under significantly increased pressure in the middle ground. I guess there are issues in relation in the long-term to the ownership of Gray and how that will impact the future of that agency. And obviously the issues facing IPG, you know, raise the issue of whether a parent company such as Omni Com, IPG, and Publicity visit too big and issues of management are becoming, I think, more and more important. But, the agency seen is probably going to witness further consolidation much we've seen the collapse or elimination of the Dossy brand. I guess there were three underlying brands there, signifying there is probably overcapacity in the agency business as well as other industries, too.

The final point is retail consolidation. Distribution is, I think, the key issue facing many of your clients. If you ask the CEOs or COO s or MMOs of major clients, what is their biggest issue, they almost reply in unison, distribution. The increasing concentration taking place, the significant bid activity surrounding Safeway, for example, here in the U.K., are indicative of this issue. On like to this the is the recent change in accounting for sales where clients are being asked to provide information on gross sales and net sales and so there's an increasing concentration, both between the client and external level about what trade discounts are being paid by manufacturers for distribution -- for distribution at the retail or wholesale level. We think that will increasingly put the magnifying glass on what clients are spending on trade promotion and the balance between trade promotion and advertising in marketing services. That, we think, will work to our advantage because investment and trading trade promotion as you see in Detroit, or in the current truck industry or in the food manufacturing industry, what we see is increasing investment in trade promotion and retail penetration, really putting most of the products and services being sold in the framework of commodities rather than brands.

Next, there is a continuing move from commissions to fees at the agency level. If you look at WPP, 55% of our business is outside advertising in marketing services. Of the 45% in advertising, about half is fee driven and half commission-driven. So, about 75% of our business is based on fees and 25% on commissions. As I say, there is an increasing move to fees, not rapid, but it's still continuing. That's good for us in the sense that our business is more stable. Reduced seasonality and declines don't stand, we still get paid fees. I think that explains the dampening that we're seeing in advertising agencies, commissions and fees. And I think to some extent, explains that this distance that we saw between the comments at recent Murdock and others that they were seeing some growth in quarter 4, our own operations in North America, as you know, improved in quarter 4 by 2%. And we did see, for example, at Mind Share and at Media Edge, Mind Share, in particular, a flip-up in the fourth quarter in television and media buying in general. And I think the reason why it was damp in respect -- in relation to the media owners was because of the greater dependence on fees.

There are two other factors involving clients, which I think we report, which is procurement and outsourcing. If you ask me what clients are concerned about, currently there are three things, creativity, creative ideas with the product and services that we sell is of critical importance and still is the most important issue.

Secondly, comes coordination. That is becoming increasingly important as we move up. It's moving up the agenda. Coordination of advertising and marketing services, both to improve the effect of marketing services and to reduce their cost. We're seeing a significant amount of procurement pressure, primarily in the pharmaceutical industry, but there is other industries as clients drive for reduction in cost. So, one example is that a conversation is one of the multinational clients last week. I was told they insist on referring to us as suppliers, but they are asking all their suppliers to try and reduce their cost by at least 3% this year. We are budgeting for example, a 3% worldwide increase in wages and salaries, which was a similar level to what we budgeted in 2002 and obviously there is a disconnect between that, between clients putting pressure on the top line and costs, top costs being our top costs, increasing clearly.

That means that we have to alter or reconstruct the way that we do business and restructure the way we do business, reducing layers, reducing maybe investing more in heavyweight talent and talent at the bottom end of the scale. And reducing our investment in the middle levels of our organizations with an hourglass structure, however you want to describe it. Restructuring our operations, I think is going to be increasingly important as we seek to become important to our client needs and you see increasingly evidence in our own case, for example, with Berlin Cameron, recently, part of Red Cell, the development of the speed boats versus the aircraft carriers and we have aircraft carriers with inside our organization, as well.

On a more positive note, related to that, is the issue of outsourcing. We're seeing more and more opportunities for us to outsource activities with client companies and we're examining at least three and four operations where clients are looking to reduce head count and internal resources by outsourcing their marketing services activity. So, you to put procurement and outsourcing into tandem. When that's going on, the media fragmentation is continuing. This stems, I think, from a dissatisfaction with network television in the '90s, when pricing increased at a faster rate then general price inflation at network media, rising by 10% in general price of inflation was 3%. This has driven a number of our clients who are satisfied with paying more for less each year. It's driven our clients to experiment with other media. This explains why, for example, radio and outdoor have increased their share in penetration in most developed markets, doubling their share in the last five years or so. It explains why clients are experimenting more with direct interactive and internet activity. So, media fragmentation continues to drive our business, as does the growth of the so-called superagents, these new, what are effectively new full service agents like Omni Com, IPGO, ourselves, seeking to coordinate the activities of their clients across all their various tribes as they call them and creating it, in essence, more specialized full service agencies or more specialized than we were attuned to in the '50s and the '60s, when you had such specializations in one full service advertising agency.

The final point I want to make on the background is the so-called quadrennial factors for 2004. We see 2003 as being another difficult year, not an easy year, particularly given the short-term uncertainty, given the possibility of military conflict. However, we see 2004 as being a better year, driven by the usual factors. President Bush, we take it, will want to be re-elected again for a second and final term and we expect he would therefore drive the economy forward, particularly with a new treasury team under John Snow to stimulate the economy in time for the election in 2004, back end of 2004. In addition, the Atkins Olympics, not as strong in terms of impact as the Beijing Olympics will be in 2008, but certainly a major event. So, there's that Olympics, then, the European football championships, which will also have an impact on media buying and indeed planning and then finally political advertising, which will start toward the end of this year. We will have an impact in terms of squeezing out other media purchases and pushing prices up. So, the quadrennial factors in our view, give us -- give us reason to believe that 2004 will be a better year but not -- not significantly better, I think what -- what's happening is that we're paying the price to some extent for the nine-year bull market we had in the '90s and the speculative blow-out that we had in the South Sea bubble in 2000 around the new technologies and that -- that price that we have to pay is probably going to have to be paid for a few years because nine-year bull markets are very rare. In fact, we certainly haven't experienced one for many, many years, generally in industry, let alone in our own. So, any pickup, I think will be a slow and steady pickup rather than a violent boom and bust cycle that we saw in the '70s, '80s or in the late '80s.

Turning to slide 34 on our budgets, we're looking at the flat-like revenue growth in 2003 over 2002, maybe up a little bit overall. Operating profits are up 10% and operating margins up by up to 1%. That's the basic background.

Page 35, I should say before I move onto slide 35, the -- the -- the patent of our budget is slightly stronger in the second half than the first half. That's possibly explained by the uncertainty that exists over the possibility of military conflict at the moment. Slide 35, we detail our strategic priorities. They remain the same in the short-term to weather the difficult recession, to successfully integrate the mergers with Y&R and Tempest. Tempest now is fully integrated now, throughout the world, including Asia-Pacific. Y&R, if you think about it being about a third of our revenues, about 2/3 of that as we've indicated before in the direct area that Healthcare area, Public Relations, Branding and Identity, Ethnic Advertising, those -- those areas, I think are doing pretty well, or certainly under control. I think we -- the advertising agency at Y&R has had a bumpy time over the initial first two years, but now there have been significant investments in new talent, for example, America, in the United States, in Europe, in Italy, for example, in Asia Pacific for example. There are signs of improvement there and stability, but obviously there is more to do and more investment to do in improving the -- the product and services that Y&R as a group markets.

The third objective is a long-term one, that's to develop our businesses in the faster-growing areas. As slide 36 details our revenues by region, you can see the U.S., North America as about 45%, the U.K. up 15. Continental Europe at about 25. And you see Asia Pacific, Latin America, Africa slightly under 20%. If you include associates, that's about a billion pounds plus of revenues much if you include associates, in the calculation, it's interesting to see the impact that that has. North America drops to about 37%. Asia Pacific and Latin America is well over 20%. Continental Europe remains about 25% and the U.K. at 16%.

So, our investment in the societies, that's companies that we own between 20 and 50% of, indicates the direction in which the business is going and on slide 37, we retrace that geographical representation and on the right-hand side, you will see the pie chart which indicates where we want to get to, a third in North America, a third in Europe and a third in Latin America, Asia, Africa and the Middle East. Similarly on slide 38, the -- the addition of associates does not make much difference to achieving our objective of advertising and marketing services split. Our objective, when we say tomorrow, talking over the next 5 to 10 years; to have 2/3 of our business outside advertising and 1/3 in advertising. It doesn't mean, by the way, some Scandinavian publications have suggested we're pulling out of advertising. Far from it. What it indicates is that higher growth prospects that are irrelevant in various parts of our marketing services businesses, particularly those detailed on slide 39, the quantitative agents of decision making, which is direct, interactive and consultancy. Internet is a part of that, too. Today, a third of our business are in the quantitative areas, 2/3 outside. With associates, it makes a different. It is the direct information and consultancy parts of our business to 36%. The ultimate objective is to get to 50/50.

On slide 40, we detail our fixed key objectives, improving operating margins, we're embarrassed by the fact that for two years we missed our margin targets. Second objective increasing flexibility in the cost base in the recessionary times. Thirdly, using free cash flow to win a hard share and a value. Fourthly, to develop the role of the parent company. Fifthly, to emphasize revenue growth more as margins improve and finally to improve the creative capabilities and reputation of all of our businesses.

On slide 41, we detail the profit progress. You will see what's happened to margins in the last two years. They've fallen from the peak year of 2000 and the steady progress in the '90s to 14% in 2001 and 12.3 in 2002. Our margin target for 2003 is a 1% improvement up to 13.3 and for 2004, 13.8%, long-term target remains 20% and I would point out that despite the fact of the pressure that we've had on the top line, our agency businesses are continuing to show margins of over 15% and if you strip out from those brands the nonadvertising activities margins that even significantly greater than that at 16 to 17%. I think it is north of 17, actually. So, what we're seeing is continued opportunity, what we see is continued opportunity to improve the margins even beyond the levels that we are now.

If you turn to the financial model on 42, what does all of this mean? Well, we see in the short to medium term, organic revenue growth in the north to 5% level. Margin growth in line with revised objectives as I mentioned before that, would give operating profit growth of 5 to 10%. In addition to that, we're looking for incremental profit growth from acquisitions of up to another 5% to put us in range of overall growth in EPS of 10 to 15%.

And on slide 43, we show our earnings per share progression. This is before goodwill and impairment, before fixed asset gains and investment writedowns and interest and you will see that the EPS is a 24.9 P on a headline basis of 2002 against the -- the peak of 30.9 in 2001 and 30.1 in 2000.

Increased flexibility and cost space on slide 44 is not just the question of staff as Paula touched on and I touched on previously, we invest 10% of our revenues in property, about $600 million a year, clearly what's happened in the last couple of years is that as we've reduced head count, we've been left with surplus property. We reduced our property cost, as you know, from the release by about 4% last year and as a result of actions that we've already taken last year, we'll reduce our property costs by about 8% this year. So, property costs will come down by about 12%, which matches the sort of decline in head counts as the peak of 2000 of about 10%. Head count was down, I think, on average by about 2 in -- 2% in 2001 and last year by 8%, making a total of 10.

Boarding services are covered by our procurement activity, strong procurement activity at the center, but obviously all of these measures are important to come back -- combat the slow down and on slide 45, we're showing what is happened to variable start costs at potential start costs and as a percent of revenue. Two ways of looking at the same thing. If you look at the right-hand side, focusing on one, in 1992, variable stock costs, that's to say incentives, freelance and consulting costs were 4.3% of revenues. Peaks at 6.5% at the top of the cycle in 2000 and now at 5.3% in 2002. We expect that to increase as we improve our margins.

Turning to free cash flow, and enhancing share owner value, on slide 46, we indicate that we've raised the dividend by another 20% to bring our yield up more in line, I think with our peers and alternative investments in our sector and outside it to 5.03 per share. Share purchase and buybacks continued last year. We bought back 1.1% of our share base at 76 million pounds at an average cost of just under 6 pounds. The share purchase program will continue in 2003 and we will allocate funds up to and equivalent of 2% of our share base, around about 100 million pounds, to buying back stock, but it depends on what view we take in relation to alternative investments.

The first being capital expenditure and the second being mergers and acquisitions or acquisitions and on slide 47, we just detail, once again, what our focus is, we're focusing on what we call strategic acquisitions, we're focusing on the areas of Information and Consultancy that's market research and strategic marketing consulting. And faster growing areas between -- within Branding and Identity, Healthcare and Specialist Communications. Healthcare has been a strong performer, as has district interactive and Internet, in spite of technology meltdowns in 2000. And we're using our acquisition strategy to help enforce that.

In the advertising area, we're reinforcing markets where we have specific client or local agency needs. For example, France now, I think is the only one in the top 20 market where we are out of the top 3, where we're number 4 and have publicists dominate the French market just like [INAUDIBLE] dominating the Japanese market and we're looking to expand our presence in those area where those geographic areas where we have what we perceives being the need to improve it.

As far as pricing is concerned, we continue to find more attractive opportunities outside the U.S. rather than in it. That might be because private companies are still pricing themselves off the public markets, still being high because interest rates are low or because U.S. vendors have been less willing to compromise their valuation objectives.

Whatever it is, the drift of our activity is outside and you will see I won't go through the details on slide 48, 49, 50, 51, 52, details of all the investments and acquisitions we made last year and total initial cost of 105 million pounds. Those acquisitions and investments are broadly outside the United States and they're broadly in increasing our interest in business that's we already know, associates that we already know because we know the people, we know the clients, we know the accounts, both client accounts and the deep financial accounts and -- and it gives us some degree of comfort that we know what we're doing in terms of the acquisition area. We will continue to build in those areas particularly in the smaller, medium-sized acquisition. I should mention NFO, that's received some -- some mention in the press. I can't reveal details for -- for technical reasons, but I would just say what's been in the press, commented in the press has been accurate. We did put in an indicative offer around the levels indicated in the press and didn't make the second round. We have no ongoing interest in that, certainly at the moment.

On slide 53, we -- we just outlined the 10 growth areas that we think is important in our business. These are practice areas across our vertical tribes, these are horizontal practice areas across our vertical tribes. I think we've done a good job with Mind Share and G-mek as it develops in healthcare, as well. There have been exciting developments there. And retailings, we've built a strong practice through MVI, Management Ventures in Boston and channel marketing and in the store where we have 900 people linked virtually through an Internet, linking up our retailing abilities across the world. What we have to do with the other seven areas is develop similar capabilities across our various brands.

Slide 54, we highlight again, the need to emphasize record growth as margins improve. We've been very pleased by the new business performance in 2002, which represents about a 50% increase over 2001 and by the start to 2003, where we've had according to the trade press, something like $750 million of net new business wins in the first six or seven weeks of the year. But, clearly, we need to focus continually on delivering above average revenue growth and want to do that by expanding networks to take exchange of the geographical markets to capitalize on the individual expertise that we have in various areas, for example,market research, direct interactive, high-tech retail and healthcare and take advantage of the consolidation trends that have taken place in the market to increase our market share. It does appear that in these trading conditions, there is a -- a -- a -- it gravitates, times gravitate to the bigger brands and quality brands in the market and there is some evidence of the speed boats outpacing the -- the aircraft carriers, but by and large, I think the general trend is towards further consolidation amongst the big agency brands.

Finally, on -- on page -- slide 55, improving the creator capabilities is critically important, I just made mention of the hiring of Michael Packie from PPDO in New York at Y&R Advertising. Another example is of the additions that we made in Europe and Italy at Y&R and indeed in Australia at Y&R. It will make principally very strong account management planning and creative talent. In addition, we've made a number of highs in New York, one from Publicist, in New York, and, indeed, from Leo Bennett in London, both at Thompson. So, I think the efforts that they're making is our new chief talent officer from McKinsey as of eight or nine or 10 months ago is starting to bear the fruit. In addition to that, it's not just recruitment, it's recognizing traders tangibly and intangibly. I think a good example is Bennett Cameron in the United States or SPCS in Spain, which works closely together with Thompson in creating the reputation in Europe. And finally by placing greater emphasis on awards.

In conclusion, on -- on -- on slide 57, we think the group continues to be well-placed both geographically and by function to benefit from key industry credits. We think there is additional scout for margin improvement. There should be after we've missed our margin targets for two years. There is opportunity for increased stock opportunity, for stock costs and nonstock costs as well. In the long-term, we will be concentrating on positioning ourselves in the top line in the highest growth function geographic areas and improving the effectiveness of our cost structure. I touched that before. I think it's going to be increasingly important as clients continually order their structure in a low inflationary environment and don't have pricing power and they're putting pressure on through the procurement process and then finally, we've changed our interests in the focus on free cash flow, all to acquisition payments and share repurchases. That was because of the -- the focus that I think institutions and analysts started to put on, probably in the middle of last year, when the questions were raised about the accounting policies of particularly I think of Omni Com in relation to -- to organic growth, how they accounted for Internet investments and how they accounted for earn-out liabilities. After that, I think institutions and analysts started to focus on these agency parent company models and whether they needed acquisitions to generate growth and then similarly, in relation to options, we, as many of you know, decided to expense options. We've put into our releases we did in the half year, a pro forma statement of the expensing of options. We in the U.K. have not sprayed options around like confetti as -- as tended to happen particularly in America, our competitors, I think in America, who still have not come to a view as to whether they will expense options or not, have something like 15% or so or maybe a 20% over there on their issued share capital in the form of options. We are limited to about 13%, 1.3% per annum of as a result here in the U.K. So, as a result of both those things, we focused our cash flow measurement on free cash flow after acquisition payments and after share repurchases, which are normally being made to reduce or obliterate the diluted impact of -- of issuing q-and-a.

At this time, I'd like to remind everyone, if you would like to ask a question, press star, then the number one on your telephone keypad. We will pause for a moment to compile the Q&A roster. Your first question comes from Alexia Quadrani with Bear Sterns.

Good afternoon. Martin, you mentioned pricing pressures that you're seeing from some clients. Is that pressure getting any worse? And do you think this is something that will naturally improve when the economy just gets stronger?

I -- I think the pricing pressure has -- has increased, I think it started in the pharmaceutical area. When we see pricing pressure, I think it's procurement pressure. I think when you look at what clients want, they certainly, the creative -- the importance of the creative product is undisputed. The coordination that they're looking for has moved up the agenda. The creative is still important because you can't coordinate the lousy idea. And finally, there is the issue of price. Again, if you have a strong creative idea, you can combat the pricing issue because there is no doubt given over the capacity in most industries in which we operate in, strong, creative ideas that develop brands or drive brands or drive sales, are very effective and no price can be put on them. But, in the absence of that, I think there has been significant pricing pressure. I think it has increased. I think that is understandable because if you had zero pricing power, our clients are going to look for more -- for less, we're probably an easier target than the media owners. That's probably a mistaken attention because if you think about the amount of money of necessary advertising budgets that goes to media, let's say 88% or 87 and 12 or 13% goes to the agencies, i think it's misplaced, but it's probably client nature or human nature to focus on us rather than media owners because we're an easier target. So, I think net-net it's increased. I think it's understandable because of the pressure that all of our clients are under because of overcapacity in the markets. I think when the markets ease it probably will get easier. But I think having said all that, what I just want to underline, is this is an opportunity, not just a problem. The opportunity being how can we structure our operations such that we're faster, we're fitter, we're more flexible. There are less layers, less people going to meetings, less trips being -- being made and we're being more effective in decision making as a result. So, I think -- I think that -- that probably answers what you wanted.

And would you -- do you see at some point, the margins that you got paid from our clients for turning to levels they were in the late '90s then does your cautious outlook on pricing play into why your 2004 margin target is as you view as sort of relatively modest.

I think we're gun shy having missed targets two years in a row and having to modify that. We said our budgets indicate up to 1% margin growth in 2003 we're looking for half a percent in 2004. That brings us to 13.8. That's below 2000, but at least it will be on the right track. I think, also, again, to be very frank, things are very difficult to predict at the moment. I hate that phrase about lack of visibility, because basically what you're saying is you don't know what's going on, but there is a lot of uncertainty about we don't know whether there will be a war in one week, two weeks, three weeks, four weeks or not. We don't know how long it's going to be. We don't know what's going to happen afterwards. So, I think there are a lot of uncertainties and I think it's better for us to be cautious rather than expansive at this point in the stage.

And on the marketing services businesses; there any areas in the marketing services side that continue to deteriorate in the fourth quarter? Or is it more of a question of some of the businesses are hanging out at the bottom?

No, I think -- no, no is the answer to that. I think by and large, if you look at 12 months rolling revenues statistics, you can make the argument that it began to bottom out midway through last year. And if you look at pretty much any part of our business geographically, maybe with the exception of Latin America, pretty much with any part of our business geographically or functionally, what you see it it's -- it's either -- these are rolling 12 months, either bumping along the bottom or if you see an upward tick, the downward tick that follows is not as great. So, you've got a secular trend upwards, so, I think the sequential -- the quarterly sequential analysis that we gave, but I'm not proud of the fact that we're down by minus 9, minus 8, I think that's -- that's indicative of the direction in which things are going and then the 1% in January, I think is also indicative of -- although you have to be careful, it's only one month, but last year, first quarter, we were down 9. But I think if I'm right in the memory, January was a strong month. Paul says it was a strong month last year. So -- so, that's a little bit heartening. Particularly when you think that January was started to reflect in the war uncertainty that we're talking about so, I think there are grounds using the analogy we used, you wouldn't know what the bart was in America. It's certainly not shallow or anything. The bart-shaped or saucer-shaped would be a reasonable analogy. The reason for that is any upturn, I think is going to be gradual rather than violent.

Okay. Just one last question on Red Cell. Any plans to expand that in light of the Coke win and hopefully any more Coke wins to come?

We've got with Ogilvy with Samsung and Sprite and have picked up Coca-Cola in one or two markets outside of the United States. I think Red Cell has done a good job in starting to play a little bit to the speed boat versus the aircraft carrier analogy as a bit unfair on aircraft carriers, I think, but it plays to that analogy and I think we've got to consolidate what we have, Red Cell has taken over HHCL here in the U.K., we made an acquisition recently in France on the smaller side. So, we have to consolidate our position, but certainly, it gives us a good base for expansion and I think we're quite excited about the opportunity position, but certainly, it gives us a good base for expansion and I think we're quite excited about the

Okay, thank you very much.

Thanks.

Your next question comes from Fred Zierby with JP Morgan.

Hi, it's Fred Zierby from JP Morgan. Thank you for the -- this thorough presentation. A couple of questions, can you comment specifically on the fourth quarter trends in continental Europe? You noted the uptick in the U.S., but a number of your competitors have had some surprisingly weak numbers out of continental Europe. I wonder if you can comment upon what degree that is market wide and secular trend versus something unique? I'm curious as the economics, I mean congratulations on the win at Red Cell, but what does this say about the economics of the business for the large global agencies if they can basically be out of the creative side and then become distribution vehicles, I mean do you think that's going to structurely or longer term impair the -- the economics for the larger agencies and see more business on the creative side move to the smaller. I think the businesses, you point out, like Red Cell.

Well, on the fourth quarter, is interest in question? Our experience has been different. Continental Europe we've seen some -- in fact, while the fourth quarter was not great it was an improvement over Q3 on -- so, in other words, we didn't see this sort of trend that you saw amongst them. On the other hand, the U.K. weakened a bit Q4 to Q3. So, we saw the U.K. getting weaker and that probably explains to some extent to what we saw from the Bank of England where they refused interest rates in some quarters. But on continental Europe, whilest it wasn't strong it was no -- it wasn't weaker than we saw in the third quarter. So, slightly different and that's reflective of what's going on in Spain and Italy rather than France and Germany and maybe in central and eastern Europe, as well as Scandinavia, Portugal, Holland, Turkey and Greece have been under pressure. On the second question, I think you have to be very careful because I don't think it's quite as you've described, if you went back in time, we would have been having the same conversation about CAA and McCann some 10 or so years ago, whenever it was that Michael was running CAA. I think the issue is not about distribution in the way that you described it. I think it is what I was trying to say about process and response. I think there is a feeling amongst clients and people who work in our business that the bigger you are, the tougher you manage. I think that's a big issue. I think that's the heart of the issue, how do you manage and this is maybe at the heart of the IPG issue, which is, you know, do we -- do we need more stuff? Does Omni Com, IPG, WPP need more stuff? Is what we have sufficiently big in terms of number of countries covered, number of functions covered and then the issue becomes how do you manage that more effectively. And our organization, in the -- in the presentation you've got a strategy structure and competitive position section, you will see the structure -- the business there, since Eric is going to run, we've made some adjustments on our strategic marketing consulting businesses and they've been brought in to Kantar and what we're trying to do there is to -- is to set a good example to manage more effectively to what we have than rather add to what we had. I think the positioning of the agencies, the bigger agencies, has to be that they are becoming more responsive, more proactive, leaner, meaner and more flexible. I think that's the heart of the issue. It's not the issue that these are distribution mechanisms, the issue is how can you ensure that a large agency is sparking creative and there are agencies such as -- let's talk about competitive agencies, DDB, TDWA, those are three good examples of agencies that are competitive to us, that although they're big, do have a strong creative profile. So, by no means is it an impossible thing to do. It's just a question in some instances, it doesn't work. And it doesn't mean that because McCann loses the total classic to Red Cell that's the end of large agencies and though just become distribution mechanisms. They have to adjust just like anybody else, just like our clients, to changes in the competitive environment.

Okay. Thank you.

Your next question comes from Patrick Wellington with Smith Barney.

Martin, sorry to --

Is this your second bit from the cherry?

What?

Is this your second bite of the cherry?

I came away from this morning's meeting and -- and didn't sufficiently answer the questions to myself, why the second half margin was so weak, 11.6% and what's going to make it go shooting back up in the call for 2003? And perhaps you could run us through some of the components for that, seems like shifts of redundancy costs and currency effects and so on. What gives you such confidence that after a disappointing second half margin that it comes back so strongly in the current year?

Well, I think that if you look at the distribution of revenue, if I remember right it was less skewed to the second half than normal. So, I think it was a weaker second half in the context of H-1, half-1 and half-2. I think basically in terms of the restructuring that we did, you remember as we said this morning, that we include all restructuring costs. Whether they be property-based or people-based, we include them in our P&L. We don't make any extraordinary adjustment for them. And I think what we're seeing is the impact of those restructuring costs principally in the -- in the second half of the year. Obviously, our incentive payments are more skewed towards the second half of the year as well and that's where the bulk of the -- the bulk of the incentive payments would fall. So, for example, the increase in the provision for Leap that we mentioned this morning, which is referred to in the press release, the incentive payments would be more skewed to the second half as would be the stronger performance of some of the units where the incentives rose, I think a total of $80 million last year to $90 million this year. So, I think that -- that explains it to some degree and that's the base, I think, for better performance in 2003. Paul?

Yeah, Patrick, in terms of, as everybody assumed, rightly or wrongly, wrongly as it turned out, the second half would be better on a comparable basis than the year before and we were sitting here saying okay, we think it's going flat in 2002 and what we thought was to be minus 5 and police five for the first and second half. The first half trended to where we expected. But around the summer, it really -- the declined revenues just dried up and there wasn't the spring that we expected and although we have taken the actions in our numbers and I think what you are seeing, you know, it's being commended, which was a pretty heavy number in 2001, it wasn't that significantly different in 2002. That is the stuff we've gone through in the properties I've tried to explain. Both of these two nations have suffered losses and have an impact on the numbers and those two factors, I think the depressed margin in the second half right sized the business. Again, you know, if you look forward, you know, we are looking in the year in which we have taken, you know, cost down, we've actually managed very well the perseverance stock costs. I think if we can concentrate on the other side of the element and revenues expect to be flat in 2003, not the upturn, we will have the balance of possibilities we had to forego in the second half of 2002. I think that's the analysis.

That's great. Thank you both.

Are you satisfied now, Patrick?

No, that's fine. I mean I've concocted --

Concocted, all right.

I just want to get the -- the exact number for the redundancy --

We're not going to give you that. So, you mind your own business.

Okay. Thank you.

Your next question comes from Troy Mastin with William Blair.

Thank you, good afternoon. I'm trying to reconcile sort of a disconnection between net new business win and organic growth with 2002 down about 6% organically and $2.5 billion in new business in 'so and about $3.50 billion in '03 -- excuse me, '02, what are we getting to in terms of true organic performance in terms of your customers, your sustained customers in '02 versus '01, do you have a sense of what that might be?

I think the answer is no. I don't think we do the analysis on that. I think -- I think frankly in all of these analyses, the -- the best -- the best figures to rely on are the like for like revenue figures that we give out. I mean there are -- I said at the presentation this morning, there are some disturbing things going on in our own industry. I see one of our competitors excludes discontinued operations from its calculations of organic growth. During -- in discontinuing those operations, revenue shifts to their continuing operations and they will include revenue from their discontinued operations in their continuing operations in the future. I think the new business statistics, which are put out -- are either coming out of the trade magazines and we've had the discussion before, are good directionally I think they're good directional indicators of who's winning new business or not but I wouldn't place a tremendous amount of reliance on them in the context you're trying to work out what's happening organically. You're far better off with all the imperfections about the way the organic growth rates are calculated relying on the organic growth rates. I think what the disconnect that you're talking about indicates is that established clients, we're reducing net spend in 2002 and, indeed, in 2001. That new business, when it was one, the figures that were closer, either in trade magazines or mother companies involved, became less than indicated because budgets were being pulled back. Working the other way, I can think of, again, we're not naming clients, one of our top three clients with very strong product innovation that launched a product worldwide which one of our agents has handled, which has a significant impact on -- on revenues at that agency, but it doesn't appear in any new business analysis whatsoever. So, I -- I think analytically, if I was you, I would look at more of the organic growth rate and come to conclusions based on that looking at the way that they're calculated. As a result of the new rules, the new disclosure rules that we have here in the U.K., we provide a detail that's in our addendum, our addendices to the press release, detailing the organic growth rate and I think we bring out the annual report and it will be the same, if not more detail on the issue. It's the last page of the release, page 30.

Maybe two quick follow-ups on that. I guess I think it would fair to conclude that the organic decline of existing clients would be greater than 6% because you would be --

Yeah, yeah, that has to be the case unless you have zero net new business.

Right. And second question on new business, in the environment today versus where it's been in the last 18 months, do you sense that new business wins are as inflated as they've been or more less statistically?

I wouldn't suggest they're inflate populated. What I'm saying is when awarded, let's say they're at $10 and when implemented they're at $8 or whatever it is. I wouldn't say they're inflated. I think the clients may well be of the view, just like they have been historically at the beginning of a budget year, that they will spend more than they actually spent.

Are the accounts then being represented more accurately to what the dollars might ultimately be?

It could be, could be. But I think there's always a tendency to exaggerate a little bit in terms of the potential.

Certainly we've done -- I don't see the difference, which, you know, need a certain pipeline of new business wins to keep going. They being formerly conservative in summations about a number of projects going forward. So, you know, our budget for 2003 have pulled back even further the amount of unidentified new business in our pipeline.

Okay, thank you.

Thank you.

Your next question comes from Rupert Penasquitosert with CSFB.

Hi, Martin, I want to ask about the media buying trends, what do you snee Europe versus the U.S.?

Yeah, I think the -- the growth that we saw in the fourth quarter of 2002 has not been reflected in Europe. I think we see Europe being under greater pressure than the United States and the media planning and buying area. I think the obvious reasons, I would be surprised. I haven't got the figures, but would be surprised if there's as much of a difference between what we said to you before, mainly the U.S. probably under more pressure and the -- and continental Europe a little under less pressure than the U.K. You sort of see that in the figures that are coming out from Cultman, Grenada, in respect of their anticipated advertising revenues in February and March and April and May. There seems to be a difference between what U.S. networks are saying and what European network owners are saying in relation to advertising trends. So, I don't think we've seen the Viacom news corps optimism replicated in the U.K. There was in the U.S. and continental Europe, a little flurry around October/November, when revenues advertising revenues improved at Cultman, Grenada, it seems to have fallen back.

Okay, thank you.

You have a follow-up we question from Fred Zierby with JP Morgan.

If I may bite twice from the cherry, a question for you here, in terms of compensation, I was surprised somewhat when we saw down with people in the industry on compensation consultants who said for top tier creative people and account executives, it's still actually going up or had been stable, you would have expected some pressure there, I mean as you've picked off some of the people and there's been a churn or movement; that the Kate case? You would expect it to come down, actually?

What's going up?

The top tier creative people that the total packages are still quite high, as high or higher than they were even in 2000?

Well, I think there's -- I think that -- I don't think there's been a significant change in that. Obviously to attract people, there will be some element of that. But I think the major issue is there's considerably more turmoil in the industry. If you look at what's happening at Chordiant, look at what's happening at IBG, certainly those sort of events don't calm things down. Clearly it doesn't calm the waters, either. So, I think that's probably the key issue rather than issues of compensation. I don't think that we've seen significant salary pressure as yet. That might change if conditions improve in 2004 and beyond. But at the moment, I think if you looked at the head count analysis of all the major groups, there have been significant reductions in the number of people -- the number of people employed. It's true to say even Omni Com has been reducing head counts in its three major agencies. So, I think that's the -- that's the issue really rather than putting pressure on the cost.

Okay. Thank you.

Do we have time to take one more question?

Yes, as much time as anybody needs.

Your next question is from Sara Dean with Lehman Brothers.

Hello. I have one quick question. Could you give reasons as to why the turnover figure is down 14%. Obviously a lot more than the revenue figure, particularly bearing in mind of tempest?

Yeah, I think the -- I think it's probably 10, not by 14 on the recordable level.

On the constant currency, 11.

Most of that is due to currency. I mean well over half of it is due to currency.

I think this is not the constant currency basis down to 11%; is that right?

I think you will find it more than half is due to currency.

Currency is what, I think -- various things have gone in terms of the billings number, depending whether it's the media or full creative, what we win and what we lose. If you lose a piece of business which is on the buying side of what you use a large amount of bidding, remnants to the revenue you get. I think what it's really indicative of is there is -- a continuing move even the media dividing signs of the fee-based nature of our business. We're becoming attached from the actual or one state away from a level of building across all of its trends, media, prints, T.V., network, et cetera. So, these are having an impact on the billing revenue ratio and such across the group. That was a big factor in this and that detachment is the other key factor, particular more and more fee-based in terms of upgrade.

Can you tell me what percentage would be fee-based now for Mind Share and Media Edge?

Well, quite honestly, they tended to go a fee for the buying and certain degree, a little bit on the commission side on the planning. And it's -- it's well north of 50% with the analysis fee basis.

Thanks.

Thank you. Anybody else?

Your next question comes from David Sacks with Hockman Capital.

Good afternoon or morning, Martin. Quick question, we've kind of talked a little bit about it, I guess, but nobody has called it benchmarking. In terms of clients in essence, saying if you created a certain type of ad, would using 10 or whatever number of people you normally use, now we want you to use 7. Have you seen that? Or is that really taking place more often in the industry now?

I think if you went back in time, they were prior to created with compensation consultants. Menus, I think it was called, actually, carrots. These are the right menus where if you did a print ad it would cost "X". If you did a TV ad, it would cost "Y". Those efforts were actually remarkably unsuccessful and attempts to sort of mechanize the business have historically failed. I think the primary reason for that is we are not in the widget manufacturing business. We're not a -- a classic manufacturing process and, indeed, I think people inside our business tend to object to the suggestion that we are. Now, there may well be people in procurement functions who believe that we are and believe the process could be reduced to the sort of step process or approach that you're suggesting. Sometimes we will go along with that. I think in the final analysis, we find those things don't work. The sort of things that we do are very difficult to quantify, particularly on the advertising side of the business, although we do have businesses that specialize in trying to do that. There is a qualitative judgment to them, which is difficult to judge and measure. What we've seen is an attempt to quantify and to process, dry and process these sorts of approaches do not work. That doesn't mean people aren't willing to try them. I think part of the problem that we have is that the procurement process prized to reduce everybody to a lowest common denominator and in a lot of aspects of our business that, just doesn't work. Having said that, again, I just want to underline that often there are opportunities here because certainly given the scope of services that we have functionally and geographically, we can offer declines certainly unlike any of our two major competitors because of our involvement in the research area. We can also decline, a bundle, if you like, of coordinated services, which is very different and can be more effective and in the case of account consolidations, whether it is acquisitions or not, can be very effective from a cost point of view, too.

Thank you.

At this time, there are no further questions. Mr. Sorrell, do you have any closing remarks?

No, that's fine. We've been going for about an hour and a half. If anybody has any further questions for Paul or myself, Paul Richardson at WPPM.com or Msorrell@WPPM.com.

Thank you. You may now disconnect.