WPP PLC (WPP) 2003 Q1 法說會逐字稿

Good morning. My name is Erica (ph), and I will be your conference facilitator.

At this time, I would like to welcome everyone to the WPP 2003 First Quarter Training Update 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, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two 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. Good afternoon and good morning to everybody. We've got a brief presentation, about 18 or 19 slides, which I think some of you or most of you should have a copy of. And Paul will just run through that. And then we'll take question and answers afterwards.

Paul?

OK. Thanks, Martin. If you haven't got it direct from me by e-mail, they are up on the Web site, as well, at WPP.com. So, you can get into it there. And I'll go through it beginning now.

So, the first quarter 2003 - this is a revenue update as opposed to a full profit loss (ph) and (ph) training update. And that's what we'll concentrate on, performance of revenues just within the geographies.

The reported revenue growth was down almost four-percent. On a constant-currency basis, which excludes the impact of foreign exchange, revenues were up by over one-percent, reflecting the strength of the sterling against the dollar, partly offset by the weakness of sterling against the euro.

On a like-for-like basis, growth was slack. There's two points I'd like to make on that. First, just to help you out with the revenue pattern, if you start with zero growth organically on a like-for-like basis, on a constant-currency basis, growth was over one-percent. So, add one-percent, which is the impact of acquisitions on full-year revenue performance. Then take off that five-percent point (ph) base (ph). You get back to the minus-four reported.

We are, I think, moderately encouraged by the trend in terms of if you look back at the last five quarters, starting in quarter one 2002 on the same like-for-like basis, the revenue declined in quarter one with over nine-percent. The decline in quarter two was over 80-percent. The decline in quarter three was over three-percent. And the decline in quarter four was under three-percent. And this quarter, quarter one 2003, the performance was flat.

Strong growth functioning (ph) information (ph), in fact (ph), (INAUDIBLE) our new renamed division as both (ph) the (INAUDIBLE) certain (ph) (INAUDIBLE) marking (ph) certain (ph) companies from our specialty (ph) communication division and advertising media investment management also improving. That's (ph) more than (ph) about (ph) 60 (INAUDIBLE) acquisitions completed during the quarter.

Turning to Slide three and revenue by discipline, I do want to highlight the footnote that is attached to both information inside the Consultancy (ph) as expected (ph) indications. Where we say the 2002 comparative, it has been restated. The (ph) (INAUDIBLE) in the group is to teach (ph) market (ph) Consultancies (ph) branding (ph), identity, healthcare, et cetera, through the information in the bank currency.

The total revenue switch in last year is 16 million pounds. And I think it's important to say that the growth we're looking at on the constant-currency change for the group was 1.4-percent overall or Information, Insight & Consultancy, which is the fastest growth unit at 4.6-percent. When you (ph) reflect that transfer, i.e., it has been adjust for, on both that (ph) discipline - Information, Insight & Consultancy - a growth of about 4.6 and branding identity and healthcare and specialty (ph) communications which have declined 1.7-percent.

The second fastest growing (INAUDIBLE) was advertising and media investment management - that growth is 3.1-percent. And public relations and public affairs are (ph) going to continue to decline, but at the more modest rate of minus three-percent for the quarter.

We'll now make some comments about each of the disciplines in the first quarter on Slide four, advertising and media investment management. It was the media investment management part (ph) of (ph) the (ph) discipline that was grossly (ph) stronger growth, following (ph) strong, new business (ph) wins from (INAUDIBLE) 2002. Just to remind you, MindShare went (ph) into (ph) that business the final (ph) quarter of 2002.

And although MediaExcite (ph) did not win the US partnership of technical (ph) business into the first quarter of this year, they pick up the international part (ph) of business in the last quarter of last year. And that, too, has had a positive impact on the media side globally.

North America and the UK showed above average growth with continental and Europe, Northwest (ph) Europe and North America (ph) below the average quarter (ph) sector. Again, it was close (ph) (INAUDIBLE) sector for us, growth (ph) at 3.1-percent.

So, I think part of this explanation is our company's won (ph), I think, a greater share of client budget and the new business wins that we have had in the agency side. We've been particularly strong, I think, in the personal care and drop (ph) category with a good roster of clients, many of whom are doing pretty well in the current economic circumstances.

Acquisitions completed in six markets: UK, China, Germany, Italy, South Korea, Switzerland and (ph) (INAUDIBLE), all making (INAUDIBLE) into existing business networks. Some of them are wholly owned and some are partially owned.

On Slide five, the newly renamed Information, Insight & Consultancy division, strong revenue growth from Miller Brown (ph) and Cantone (ph) Media Research, and Cantone (ph) Indian market research business (INAUDIBLE) Mint (ph), which is in pharmaceutical research in the USA.

In addition, I'd ask (ph) them about smaller (ph) businesses (ph) - LightSpeed (ph), our internal in-house (INAUDIBLE) operation doing extremely well. FusionFive (ph) and Glendenning (ph) from the Insight discipline also performing well in the first quarter.

Above average growth in Asia-Pacific and Continental Europe and the UK. We've done particularly well in Asia-Pacific in both Miller Brown (ph) and RI (ph). And on (INAUDIBLE) that we have had a very good performance in Japan this quarter and in India, again, both with strong research presences in the Cantone (ph) businesses.

In terms of public relations and public affairs, Slide six, the impact of slowdown continues to affect this discipline, although less so with most - with the UK most affected, but strong growth in Latin America, although it is quite a small market in total compared to our group PL (ph) revenue as it is growing in this region.

The US was less affected than in the first quarter last year. We're trying to give you some feel for how this trend is going. I've taken the global PL (ph) revenues of our businesses on a constant-currency basis, of which they're (ph) having (ph) almost no acquisitions in the last 18 months.

The third part of revenue decline in 2002 was 11-percent. Second half decline in 2002 was four-and-a-half-percent. (INAUDIBLE) half-year, the first quarter decline in 2003 was three cents. So, you can see some impact of stabilization in this sector.

Slide seven, branding and identity, healthcare and specialist communications, above average growth in group healthcare agencies (ph).

(INAUDIBLE) subsidiaries (ph) are doing very well, solid growth in quite a (INAUDIBLE) category environment. But with their market leadership, they continue to do well (ph). One (INAUDIBLE) in some specialist communications (INAUDIBLE) also doing well.

I would (ph) highlight this fourth market (ph) arena, where we've also just, in addition to brands, this general consumer brand study (INAUDIBLE) separate 45.4 (ph) leading all (ph) sponsorship brand study inside European markets, Japan, China and the USA, identified for clients what are the strong brands in the sporting arena to where they can put either sponsorship or promotion behind?

Geographically, this discipline has been the strongest in the USA, which is not totally surprising. People that (ph) in healthcare business is exempted (ph) principally in USA. That has continued to be tough for our businesses in the identity area this year to date.

Going by region for the first quarter with group overall growth on a constant-currency basis of 1.4-percent - this is Slide eight - we have the strongest growth in Continental Europe. But I think we are slightly atypical of (ph) our competitors, and I'll come (ph) up with reasons why shortly.

Matching that growth, we have growth at 3.6-percent in Asia-Pacific, South America, Africa and the Middle East. Behind that is very good growth in Asia-Pacific, strong growth in Mexico, good growth in Chile and Argentina, although (ph) off a very small base, still typical (ph) in Brazil, all combined within that 3.6-percent growth.

One point four-percent growth in North America. And again, (INAUDIBLE) I think (ph) has been a second consecutive quarter in which we've had growth in the North American market. And a revenue decline of three-and-a-half-percent in the UK.

As I (ph) reason (ph) on Slide nine, again, repeating what I just said, (INAUDIBLE) strong growth in USA, continental Europe and Asia-Pacific off (ph) that (ph) bigger (ph) region with the US showing (INAUDIBLE) growth for the second consecutive quarter.

Turn to countries on page 10. These are (ph) on a constant-currency basis. But do bear in mind, the acquisitions only represented one-percent in total to the group's (ph) acquisition growth.

But India is growing 15-percent. So, that really is across the board of (ph) our (ph) businesses doing extremely well. I think atypically, again, our businesses in Japan are doing exceptionally well. As you recall last year, (INAUDIBLE) won the Jphone (ph) business in Japan. And our research businesses have been particularly strong out there.

In line with that, in the same band (ph) is Mexico is growing at 10 to 15-percent growth rate, a particularly strong (INAUDIBLE) in Mexico.

In the five to 10-percent growth, we have Germany and Spain, a proper (ph) array (ph) of our businesses. I won't go through. But it is a real cross section of businesses of almost (ph) seasonally (ph), a couple of the PI (ph) brands doing extremely well out there.

And in the (INAUDIBLE) category, so that's (ph) Italy and Continental Europe in that range, along with China, Taiwan and the USA, a mix of businesses and obviously, they're not growing, from Europe through (ph) Latin America with some Asian markets. Not growing in the first quarter too (ph), Hong Kong and Singapore.

In terms of categories of growth, Slide 11, these categories are impacted by any new business wins in that category. So, if you own (ph) a computer, where we're showing a 15-percent growth, we'll see later that (INAUDIBLE) won the Cisco business. So, there's certainly (ph) one - a new plant (ph) (INAUDIBLE) absolutely spend (ph) will (ph) it cap (ph) this growth category?

In addition, having already got the advertising (INAUDIBLE), we have picked up the public relations side. And due (ph) to (INAUDIBLE), I think we have the lion's share of the public relations business for that - for that time. So, this category we see (ph) particularly strong.

Another large category for us, personal care and drugs, we have a good (INAUDIBLE). And I think you see that the last six-or-so months, an increasing share of those clients are the healthcare or (INAUDIBLE) products coming into our portfolio.

(INAUDIBLE) a growth of 27-percent (ph), a couple of products doing (ph) particularly well. I think (INAUDIBLE) and (INAUDIBLE) having good performances.

In the five-percent or less growth, automotive, drink (ph), oil (ph), retail and (INAUDIBLE) obviously would be kicking in with Vodafone out of the group, keeping that category relatively stable.

Currency (INAUDIBLE) the impact of (INAUDIBLE) sterling against (INAUDIBLE), partly offset by the weakness of the pound against the euro, has reduced reported (ph) revenue growth by over five-percent in the quarter.

And the year (ph) is impacted by calculated (ph) after the affect - after the impact of interest in our various (ph) currencies is (ph) looking at closer to three-percent.

And while (ph) we still expect the impact of currency whichever way it goes not to exceed between two-and-a-half and three-percent of earnings on a full year basis for 2003.

On wins on Slide 13, I think these are all pretty well known. Again, the big instance (ph) probably the one that cuts the most (INAUDIBLE) classic win (INAUDIBLE) in the USA of billings in (INAUDIBLE) 260 million.

Cisco at (INAUDIBLE) $150 million of billings, (INAUDIBLE) I've mentioned the fourth (ph) one on (ph) USA MediaEdge. Novell (ph), one of the first global new wins under the MediaEdge cia (ph) banner and so on and so forth. I won't repeat them all.

This (INAUDIBLE) because (ph) obviously recently we've had in the second quarter, excluding (ph) Burger King with both (INAUDIBLE) our lion's share (INAUDIBLE) the business in the UK for Red Cell.

We've had a small number of losses, over 540 (ph) in the quarter. The BH Hill (ph) business, we have lost (ph) in Chile but have retained the rest of the world for that account.

Looking at the in-house billings number that weakened too (ph), which is different from the trade billings expectations, we put in the press release a new business billings win of the quarter estimated to be in-house (INAUDIBLE) at (ph) $656 million.

That compares with last year where we had two quarters over a billion. That's quarter two and quarter three and two quarters, quarter one and quarter four, about 700 million. And to be precise, quarter for was 698. So, the trend in quarter one (INAUDIBLE), it continues.

If you care to look up one or the other to track (ph) it, (INAUDIBLE) just under a quarter (ph) the first quarter where they've estimated our billings within the quarter at 600 million and no other competitor was (ph) greater than 100 million. So, I think we are doing reasonable well in the new business environment.

On Slide 15, net investment (ph) at 31st of March was 1.335 million - or 1.335 billion compared to 1.5 billion a year ago. And we have had some improvements in March working capital over the previous year similar to (ph), in a sense, that we had a very good year last year working capital. We have managed to improve again in March-to-March performance.

The average net investment (ph) in the first quarter this year was 1.252 (ph) million compared to 1.227 (ph) effective (ph) (INAUDIBLE) on a quarter-to-quarter basis. And the expectation for full year 2003 is our (ph) average net debt in the range of 1.3 to 1.4 billion pounds and were (ph) not significantly less.

Free cash flow, I mentioned (ph) the last 12 months like (ph) from April 2002 to March 2003 showed cash generation of 442. And in the same period capital expenditure, acquisitions and share repurchases and cancellations for the full 89 (ph), then (ph) outflow 47 million pounds in that 12-month period in cash flow.

In terms of share cancellation, we've purchased 5.6 million shares at an average cost of three-pound-60 (ph) (INAUDIBLE) 20 million pounds off the (INAUDIBLE) per share capital in light of our goal to cancel up to two-percent per share cancel this year.

If you recall, it was the first quarter last year when the price was around eight pounds. We didn't actually make any share cancellations in quarter one 2002.

(INAUDIBLE) acquisitions again, the six (ph) acquisitions are listed here. Just to remind you that LGR (ph) Advertising (ph) purchased 33-percent, which is split into or it can be equally worked in with Ogilvy and Y&R, one domestically and one internationally.

Media (ph) (INAUDIBLE) where we did purchase 100-percent is joined in with MediaEdge cia (ph). In Switzerland, we (ph) - again a very small business, 31-percent (ph) to improve our performance in Y&R in Switzerland.

HHCO (ph), where we purchased 49-percent of the town (ph) of Bedrock (ph) (INAUDIBLE) here in the UK. We purchased 25-percent of Shanghai Advertising (ph), one of the third Western (ph) companies, purchased a true (ph) BPRC (ph) business. It was our joint venture partner and still is our joint venture partner (INAUDIBLE) China.

And finally, a concept (ph) in Germany a (INAUDIBLE) media (ph) addition, the (INAUDIBLE) business there, just taking up space (ph), over 51-percent.

Today I think you've seen announced the 40-percent purchase of Markfest (ph), which is a market research (INAUDIBLE) informational (ph) business in Borchstone (ph), which is by far, I think the market leader in that category in that country.

And with that, I'll happily hand over for questions.

At this time, I would like to remind everyone, if would like to ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Lauren Fine with Merrill Lynch.

Thank you. Just a couple of questions. I'm wondering if you could comment specifically on the auto category in terms of your expectations for the rest of the year, whether you think spending will still continue to trend, you know, up, albeit modestly?

I'm wondering also if you could tell us which categories actually suffered declines in the quarter or if that was, kind of, coupled into that under-five-percent group?

And then third, if you could just comment on what you're seeing in terms of compensation trends right now?

OK. On the automobile category, I think for the year - and this gets almost client specific so I have to be a little bit cautious. But I think for the year, we can talk about flat spending.

In other words, I think for the automobile category won't (ph) diverge too much from what we see long (ph) for the advertising and marketing spend worldwide. And we've expected to be pretty much flat in terms of spending for the year.

In terms of declining categories, if we talk a little bit about the industry rather than us, I think the five categories that seem to us to have been a little bit stronger, low priced or value retail have been our strong packaged goods.

Although there is, as we've commented before, significant differences or there are significant differences between some packaged goods manufacturers one to the other.

For example, Unilever, our second largest client, I think has publicly said it is increasing its spending. And there's an example of one in the packaged goods category that has been innovating and spending more. But there are examples of it going the other way. So, packaged goods would be another example.

Pharmaceuticals have been strong. As government continues to be strong as sectors (ph) are (ph) spending more (ph) governments on both sides of the Atlantic. And the British government is still one of the biggest spenders in this market here in the UK.

And then oil and energy, with the oil price rising before the war probably cut down. But with it coming back again, that probably comes back a little bit, as well. The more depressed categories tend to be financial services, telecoms, technology.

I think our experience has been different in some of these categories because you've got different issues for us because of new business and additional businesses pull (ph) (INAUDIBLE).

But I think those are the categories. Any others there, Paul?

No. Actually, Martin, on attractive (ph) spot (ph) on - I think in telecom, you know, we've had or biggest client being very stable in that sector. I don't (INAUDIBLE). We've also had (INAUDIBLE) from Vodafone. And that's mitigated some other reduced spending in other telecoms (INAUDIBLE) we had (ph).

And I think, you know, in part in the auto (ph) category, I'd say that one of our major clients is going through quite an (INAUDIBLE) review process, which always put a bit of a stop on spending in that particular category. And I think, in addition, the oil price (INAUDIBLE) affect (ph) with (ph) that going on, as well.

Just on your question about compensation, Lauren, I think we've remarked before that the pressure from procurement functions, which initially started maybe a couple of years in pharmaceuticals and it has spread to other industries.

And there is a, if you like, a divergence of opinion within companies between marketing functions and procurement functions as to the way that advertising and marketing services should be purchased and how they should be paid. I would characterize compensation negotiations as difficult and that clients are - but this is nothing new - asking more for less.

And given the fact that competitive conditions are so difficult - I'm talking about our client competitive conditions, I've stated (ph), were characterized by over capacity, low inflation or zero inflation, which means that pricing flexibility is not there.

Given all that, there is bound to be pressure on compensation. And there is a continuous shift from omission (ph) to see, in our own case, about three-quarters of our business is fee-based now.

And that means about half of our advertising business is still commissioned and half is fee based. Those fees tend to be time-based fees. And that is what clients are focusing on. And there are negotiations going on. But there is a noticeable difference in opinion between marketing functions and procurement functions inside clients.

At the moment, I would say the procurement function has - is in the ascendancy because there is such cost pressure at inclines (ph) and such competitive pressure that quantify benefits, is easier and it gives it more weight than qualitative judgments or in tiers (ph) of judgments.

Having said that, most of our clients, I think still believe that taking advertising, example (ph), strong coffee and strong ideas have a remarkably strong impact on business.

And I think you could just characterize it, if you like, by the automobile and truck, industry.

And it's noticeable this week, for example, that Daimler-Chrysler specifically mentioned in their - in their profits announcement, which was in the press today, announced yesterday that incentive activity had caused margin pressure and had thrown into doubt their profit targets for the year.

Similarly, on the other side of the equation, we saw comments from Carlos Ghosn of Nissan earlier in the week where their volumes were down but their margins and profitability were up in the United States as if they had not participated in the 0.2 financing and promotional activity that is taking place.

So, you have a dichotomy in many product categories. Packaged goods would also be true (ph) - manufacturing be true between those clients that are - that are basing their strategy on price-based promotion and trying to drive volume in an over capacity situation and those clients that are focusing more on innovation and new product investment and introduction and margins.

So, there is a broad difference. And to some extent, that's reflected in compensation discussion (ph).

Just one last thing. I'm just wondering if you're feeling better or worse or the same as you did at the beginning of the year in terms of the outlook for the rest of the year and what your clients are thinking overall?

Well I wouldn't categorize it in the - for the rest of the year, Lauren, you know, or the - I'd rather be a bit (ph) cautious than caught out.

But having said that, if you said to me - somebody asked me this morning how does the needle - where is the needle? And I said neutral to positive. I'm certainly not neutral and I'm not neutral to negative. So, I think I would be neutral to positive about how I feel about things generally.

I think the impact of the war is certainly less than people anticipated. I was a little surprised that we didn't get down a bit in February and March. I think one analyst yesterday said that he thought that we would be down minus-four-percent organic growth for the first quarter. And we've come in flat.

And once (ph) I thought that was a little bit extreme. I think what he was trying to say he thought that the impacts of the war would be significant. It has not been so.

What has happened is this - it's a bad, bad way (ph) it's (ph) used (ph). But it's been a planned war. Whereas obviously, the Kuwaiti invasion by the Iraqis and the terror (ph) events of 9/11 were a surprise.

And I think in these circumstances and what we can make out in talking to our media people at Group M (ph), MindShare and MediaEdge cia (ph), the networks have been relatively unaffected in terms of advertising revenues. There may (ph) being a shift away from the continuous news coverage of advertising. But that's been planned.

The major cost of the networks have been the cost of news coverage, which I'm told is being a million dollars a day for each network, so something like $90 million for the 30 days or so of the continuous news coverage of the war.

But that aside, the networks have come out of this relatively unscathed. I think the war has been used commercially as an excuse, if you like and SARS, which obviously is the next issue that people raise.

And all these things in a bear market become magnified. The impact of the war, the impact of an epidemic such as SARS have become magnified in the context of a low growth or negative growth market.

So, my sense is that things a little bit underlying are stabilized. I - having said that, I don't think 2003 is going to be a great year. My view on the industry is it's going to be flat.

The so-called pundits I know (ph) I'm sure have very sophisticated and econometric models are forecasted. The pundits vary. Some are saying there's a little bit of growth, two or three-percent in the world market. Some are saying it's flat. Some are even saying it's negative.

I think it's about flat for this year. I think 2004 will be a better year for the things that we've discussed on previous calls. I think the economic issue facing the US administration, if it wants to win the next election, the economic issues are more complex and more distance out than they were six months ago.

And therefore, the need to stimulate the economy in front of the election is probably greater if they wish to come back again. So, I feel a little bit more positive about that.

Just as an aside, the OECD here in Europe said that the UK may face a little bit of inflation in the next year or so and the interest rates may have to rise.

We've been saying for some time that we're a little bit concerned about - well, not concerned but we think deficit spending on both sides of the Atlantic is going to stimulate the economy, that that will lead to a bit of inflation. That will probably be good for us.

I think some of our clients need a bit of inflation in order to give them a bit of pricing flexibility. And I think by and large, a little bit of inflation, not too much, but a little bit of inflation will be stimulative.

So, in a sense, if that report - the OECD doesn't have a great track record, by the way, in terms of forecasting - but on the assumption that that might be - might be happening, that's helpful. So, I feel a little bit more positive if not about 2003 certainly (ph) about 2004 (ph).

Thank you.

Your next question comes from Alexia Quadrani of Bear Stearns.

Good morning. Martin, could you talk a little bit about your three or four-man agencies? We've seen some nice signs of new business lines at Y&R. And perhaps you can address, sort of, where Y&R is and your other agencies in terms of where you'd hope them to be or where you hope they will eventually be.

Great (ph). First of all, Alexia, they're never good enough. So, they could all - they could all be - they could all be better. And I'm sure they'd all like to be better.

I still would rank - I think Y&R, there has been an improvement at Y&R. I think - I think you have to be very specific. It's Y&R Advertising. I'm not talking about the Y&R group. I think other parts of the Y&R group have performed quite strongly.

Landor, I think in difficult market conditions has done well. I think Burson in difficult market conditions has done well. Cohn & Wolfe is certainly improving.

And MediaEdge cia (ph), I think s improving too. I think Sutler & Hennessey (ph) has done a very good job, albeit in a - in a strong pharmaceutical market, but they've done a good job, as has our other healthcare business, Common Health.

So, I think as you look at the broad group (ph), we've done very well, as well. If you look around the group, it's done well. I think the advertising agency, obviously there's been equal changes there, new creative people not just in the United States but countries like Australia, where there's been a very significant improvement in Italy where we've seen a significant improvement - Germany.

But there have been a number of changes in Mexico where there have been a number of changes and improvement. But it's still not as strong as either I think the people at Y&R Advertising would like to see it or we would like to see it.

Obviously new business wins such as Burger King, which are excluded from the analysis that we gave for the first quarter because (ph) they came in the second quarter are very helpful. But I think there's an improvement there.

Red Cell - Red HCLL (ph), Berlin (ph), Camron (ph), our Red Cell operation, which is obviously at the smaller end of the spectrum has also had some very strong new business wins and there's more to come. There's an imminent announcement in relation to another win for Red Cell. So, I think one feels better about that.

And I think customers had a very good start for the year. The first quarter was very strong for them, driven to some extent by new business wins, two big new business wins in particular, but also by client spending by one or two of their established clients.

Ogilvy has done well last year, as you know, a quieter start to this year. But I think they have been quite conservative in their forecasting. And I think they will be - get stronger and stronger as we go through the year.

So, I feel reasonably good about the four agencies, advertising agencies' performance. But, you know, that's with the background of saying that we can always do better. I think we're attracting more good talent.

I think we've made a number of very good hires and promotions internally. I mean (ph) it's not just a question of trying to bring people in from the outside but it's people internally, as well.

And I think, you know, we made a change, as we know, in our talent organization and brought in an ex-partner, McKinsey Bethatsila (ph) to handle our talent. And I think she's making considerable progress in improving the quality of what we have, training, evaluation, development, retention and also engaging people from the outside.

And just a follow-up question on your revenue trends. I think if I remember correctly when you reported the year end, you had - you had said at that time it looked like the first quarter was progressing, sort of, down one-percent. Can we assume that everything improved as the quarter progressed?

Yes, you can. And we said generally it was down one-percent. February and March were - February was a little bit off last year. March was really flat. I mean it's - March is (ph) being the strongest month of the three.

And as I said, in answer to Lauren's question, that I think everybody was a little surprised by the lack of impact, if you like, of the war. SARS is a - you know, is a very difficult issue to evaluate. If you said to me can we evaluate - there's (ph) little impact of the first quarter.

But of concern is the spread that Toronto bit (ph) on a small scale. And obviously the mayor of Toronto was extremely upset by what happened. But that is a concern. We've set up a Web site today (ph) for all our WPP companies in Asia on this issue.

As far as individual company activity, this is - there are two aspects, one internally, the affect on our people. And to date, I'm not aware of any one of our people being infected or, indeed, members of their family being infected.

But we have had people under quarantine, not a lot but a few. And we are - we are seeing a cancellation of meetings, cancellation of steps in projects, which obviously slow down projects.

And there's no doubt that it is having an impact, particularly in Southern China and Hong Kong. And it doesn't help in Hong Kong in particular because Hong Kong has been in a fairly difficult state for the last couple of years, particularly as business has shifted to Shanghai and to a lessor extent, Beijing.

So, I think it's very difficult to estimate what that - what the impact of that's going to be. But in direct answer to your question, we saw a steady improvement.

And all these things are relative. I mean we're just talking about flat revenues for the third quarter. So, as we tried to say this morning, this is stabilization but without any oomph. There is no - you know, this is nothing to get excited about but it's certainly better than where we were a year or so back.

OK. Thanks very much

Your next question comes from Jim Cristos (ph) with Credit Suisse First Boston.

Hi. Thank you very much. Good morning. One, can you comment in terms of the business in Continental Europe, up three-and-a-half-percent in constant-currency? I mean given, sort of, the economic weakness in Germany and France in particular, can you just comment and provide some commentary in terms of growing relative to weakness there?

The second question is in terms of your new business activity in the first quarter, at least by our calculations, I mean is there - is there a change in expectation from your perspective in terms of when you would see a certain level of spending from that new business or that is contribution to your results, whether it be two quarters, whether it be longer? And one follow-up.

Sorry. And one what?

And then I'll follow-up with another (ph).

OK. Fine. On Continental Europe, I think we've done better than the market. I think we have actually gained share significantly in France and Germany.

Our constant-currency is (ph) it include acquisitions. And there was one acquisition in there but would stay (ph) effective, which is Concept (ph). But even you nix (ph) that out, the organic growth in Germany has been impressive.

And I think, Paul, you've got a list of the companies that are in Germany that has done well.

Yes. I certainly have (ph) and we have the same question ourselves. And there's (ph), sort of, (INAUDIBLE) too. I went through every property (ph) in Germany. And obviously, we've had some issues in the past but it's pretty much across the board.

And to give you a flavor for Germany and maybe Spain, as well, you know, Germany's businesses that are certainly in this range of revenue growth on a pro forma like-to-like basis, includes Thompson and Y&R, Burson-Marsteller, BJXKA (ph) and Wunderman, Jim (ph), I think Wunderman in particular, you know, we've actually - we've been pleased with.

And as we noted in the press release (ph), it is growing well. And it's, you know, a similar combination of agencies, non-agencies, the media buying companies in Spain, growing very robustly (ph).

I think we do have very good market share in Spain in particular. And Germany, we've improved our offering over the last couple of years and our issues for (ph) both of them.

I think in France, as well, we've done better than the market. I think the two markets everybody focuses on in Europe, Continental Europe particularly are France and Germany. Italy and Spain come less under the microscope.

We've got very strong businesses in both Italy and Spain. And they both continue to improve, particularly in Spain, as Paul highlighted. So, I think we are canceled (ph) in the market there.

The UK, although it wasn't in your question, the UK, we've had two causes of negatives there. And I think business is tapped (ph) in the UK. I think we - and a number of commentators in the UK were surprised by the Bank of England lowering interest rates in January, early in January.

I don't think we were because we saw a weak fourth quarter and a weak first quarter. And the figures the television (INAUDIBLE) this is (ph) particularly interesting in relation to what's been happening to US, in other words, for example, like Viacom, CBS-Viacom.

In the UK network, (INAUDIBLE), who are locked in this merger negotiation, which may be part of the reason things are so weak, are saying that June and July will not be good and will be significantly down on last year. So, the UK, I don't think - I think is a - is not such a good spot.

Central and Eastern Europe is stronger. Russia continues to grow. So, the, sort of, investments that we've seen there from BP, for example, is a good example of the increased investment in that area.

On new business, I don't think there's a material difference that you can point to in terms of if it's the question about the takeout rate of new business. In terms of the takeout rate, normally clients that are hired, it takes 90 days to get in. Clients that - agencies that are fired take 90 days to phase out. And I don't think there's any great change.

I think there is an argument that - to say that clients tend to exaggerate a little bit the potential in (ph) account (ph). Let's put it like that so that literally trade numbers for new business billing tend to be directionally OK if you use them. But the absolute amounts quoted tend to be a little bit over the top.

But having said that, I don't see any material difference between now and a year-or-so ago on takeout rates or willingness to engage. I mean a couple of our new business wins were already involved in activity would have been effective the first quarter were effective second quarter. So, I think most people (ph) have (ph) changed (ph).

What's your follow-up?

In the UK network, (INAUDIBLE) locked in this merger negotiation, which may be part of the reason things are so weak. They're saying that June and July will not be good.

Follow-up is get (ph) some announcements with respect to consolidating MindShare and MediaEdge and I guess some other direct marketing agencies. Can you just, sort of, communicate what sort of financial or strategic merits you see in doing that?

Well I think if we did know - if we did know what they - the benefits were, I don't think we would communicate because I wouldn't want to communicate them in front of achieving them.

Having said that, I mean what (INAUDIBLE) about is just providing a parent company umbrella, if you like, to our two media brands. MindShare and MediaEdge cia (ph) will be continue - will continue to be run as two separate brands, not only for conflict purposes but also because we think that those two brands do mean different things to clients and certainly to the people who work in them.

Having said that, there are certain markets in the world where volume economies and too (ph) in a (ph) buying (ph) economies are important.

And with increasing consolidation in the media ownership market with the latest example, I guess being subject to regulatory and approval (ph) of DirectTV or in Italy, where we've been appointed to handle the work for TelePU (ph) and Stream (ph) or what you see going on in the UK with Sky or what you see going on with legislation in Brazil on ownership or the congressional negotiations on media ownership and United States (ph), all adding up to greater concentration of media ownership or adding up to the necessity from our clients' point of view of being able to negotiate better deals.

And there are certain markets that are definitely volume drive and where having enhanced volume make sense. In those markets, our two media brands through Group N (ph) and through their own contact, will work together to deliver better value in terms of buying for our clients.

When we hear, for example, that the up front media market in the United States may be up five or 10-percent in May, that does tend to cause consternation amongst some of our clients who do not see costs of steel or oil or raw materials or indeed, labor rising at that rate, particularly in an inflationary environment of three-percent.

And so, being able to decide how much clients spend and where they spend it is becoming - and which media they spend it through is becoming, in our view, increasingly important. So, behind what we're talking about is that.

The other point for us is that we do have, as Paul has mentioned, we've reinforced it through mock (ph) data or mock (ph) tests in Portugal, which operates beyond in Portugal in Latin America and indeed, in other parts of Europe in the audience measurement business but not only in our audience measurement activities but the activities in our research businesses are (INAUDIBLE).

And we do have a considerable research expertise, which we would like to harness for the benefits of our media brands. So, SportZ, spelled with a Z or a zed - SportZ is a research granting (ph) exercise, which we define (ph) operations and plan operations we're (ph) using.

MindShare has just launched 3D, which is a new demographic analysis on a market-by-market basis tied to media consumption and which are-which MindShare in each country will be using. That was developed between MindShare and our Kantar media research operation.

Though (ph) another purpose of Group N (ph) is really to try and focus on how we could provide better research for our clients using the billion-or-so revenue that we have in research that knowledge and activity.

So, I don't want to quantify. I noticed that one of our competitors, when they formed a second brand, they outlined the cost involved rather than the benefits. I don't want to get involved in saying that we will deliver a specific benefit or indeed that this will cost a specific amount.

But I do think that in the areas of volume negotiation, research, there'll (ph) be (ph) some back office (ph) economies that will be some interesting opportunities.

Thanks very much.

Your next question comes from Brad Spearby (ph) of JP Morgan.

Good morning. Brad Spearby (ph). A couple of questions. Can you just give us your outlook for the up front? I mean we've heard, sort of, anecdotal strength. But what do you think and to what degree you'll be able to take that to the bank?

I don't think we're going to take anything to the bank.

Right. So...

I think it's really what I said before, five to 10-percent is what we have (ph). (INAUDIBLE) are the experts in this. Earl Degoteney (ph) or Charles Cotier (ph) or Mark Goldstein (ph) would be the best people to talk about it in the context of the US market.

But, you know, we - some months ago, people were talking about us (ph) being up low single digits. And that was probably in advance of the war. I think people have, sort of, hardened on their view in certain low economies (ph) and they've been talking about five to 10-percent. These are not double digits. But obviously, he has a vested interest in so doing.

But I wouldn't take anything to the bank on it. What I've said, it sounds as though it's going to be fairly competitive certainly from what - from what we hear. In all these discussions, there's an element of negotiation on it (ph) from the buyers and the sellers.

And another question is to what degree have you seen any of your major clients actually cut ad campaigns in Asia ex-Japan due to concerns of the SARS?

The honest answer to that is no. But that may be because we are not, you know, really - it takes some time for stuff to come in from the field.

Or I would say - and I sent a note as an (ph) example to every one of our operating brand heads in Asia Pacific, including Japan about two weeks ago and asked for details of any cuts in spending or cuts in projects. And it's very difficult to quantify because often people use things as an excuse. And in a bear market, as I said before, these things get magnified.

So, you know, war becomes an even bigger excuse or SARS become - I know (ph) it's both a terrible situation. Don't get me wrong what I'm saying. But in both cases, they get magnified as an excuse where the real issue is what's happening as to world economy.

It's very difficult to say something is off project, then it's due to SARS or that if we were off last year, that's due to SARS. You see what the figures are for revenues in the first quarter for Asia and Latin America, Africa and the Middle East.

Latin America has not been an easy area, although Argentina is improving and after the election, I think will improve significantly. Mexico is strong, as you saw. Brazil is being difficult but again, after the Lula election, seems to be stabilizing.

And - but the growth in the first quarter mainly came from Asia and mainly driven by China and India, in our case, which was strong and Japan - which again, if you're talking about France and Germany, I think the Indian market and the Japanese markets are not, from an industry point of view, particularly strong.

But our businesses there certainly are increasing their share. So I can't give you a number. We haven't finished April yet. And clearly, SARS has had more of an impact on April than it did on March. And if the authorities or the health authorities are unable to get it under control, obviously it will continue to have an impact. And we've got to watch it very, very carefully.

And finally, we've talked a lot about pricing pressures in the core agency business. Are there any areas where you're raising prices in real terms in excess of inflation and you feel like you have pricing power actually - leverage (ph)?

I'm hard pressed to think of areas where we have significant pricing power at this particular point in the cycle. I think - you know, as I've mentioned before in response to an earlier question, I think there is - there are conflicting views between let's say the marketing side of organizations and the finance and procurement side of organizations.

And I think clients - I'm not taking risks, whether it's because of war or SARS or the general economic situation. I think, you know, the average life of a CEO is three or four years.

There are more casualties in this morning's papers. I just think it's against human nature to be expansive at times like this. So there is general pressure. And I think people are trying to repair balance sheets, improve liquidity, improve profitability.

We're halfway through the earnings season in the United States and it - for the first quarter. And it seems that earnings - actual earnings are reasonably significantly above forecast. There's still a difference between macro and micro estimates of corporate earnings this year.

And the difference is something like 11 and seven or eight-percent with the macro analysts talking about growing by 11 and from the bottom up, it's about seven or eight. But that's less of a divergence (ph) than we've had historically. But I think it's a general atmosphere of caution and people unwilling to commit.

And I honestly think that pricing may be - and you could argue in the research areas, in the healthcare areas, despite again procurement, the basic (ph) underlying activity in some of those sectors direct (ph) a little bit more - a little bit more - well (ph) I think, Paul, as you put it, a little bit more leverage into that (ph).

(INAUDIBLE) interestingly, I think that probably is a little bit fierce (ph). There are - I'm looking at the areas where we see some strength - media investment management, media planning and buying.

I think clients are so focused on the issues of how much they should spend and where they should spend it that I think there are some opportunities there. But by and large, it's a very - I think a very tough environment at the moment.

OK. Thank you very much.

Your next question comes from Kevin Sullivan of Lehman Brothers.

Hi. Two quick question. One, you noted that March was your strongest month in the quarter and overall, you were pleasantly surprised being (ph) that (ph) the war was less than anticipated. I was just wondering whether there were any functional disciplines within the mix that may have seen a little more impact than the others.

And then secondly, on public relations, it's showing a nice sequential improvement partly due to easy (INAUDIBLE) and partly due to stabilization. Do you think PR could break into positive territory in the second half of the year? And what should we look - what should we be looking for there?

Well, I think - I think your two questions are linked. I mean I think the one area of our business maybe with the exception of branding and identity, but the one area of our business that has been most affected and continues to be is public relations and public affairs.

And my colleagues in our PR businesses don't like it when I say this but - or when we say it. But I think the fact is that public relations is less global. It is more local.

And if the instructions go out to cut discretionary spending or if national managers or regional managers cut spending, this is an area that they focus on. And that's despite the fact that from a qualitative point of view, I think editorial publicity can often be as effective if not more effective than paid for publicity.

Having said all that, I don't think that we would say that as a result of what happened in the war or the length of it that PR was more or less effective. I think it's pretty much relatively what we expected.

As to whether it will go positive in the next quarter, I don't know. I think we have variations in our brands. I think if I looked at our four or five brands, major brands, there are variations.

I can think of one or two specialist businesses that are doing very well, that is performance this year is up over last year quite significantly. Of the bigger brand, it's noticeable that their performance varies over time.

For example, one of our brands has a stronger US business than the other. And it was noticeable that that brand was hurt earlier in the recession. And later on in the recession because it had a weaker relative European business, it wasn't hurt as much.

Similarly, in the other brand because it had a weaker US business was not as hurt in the early part of the recession. But as Europe started to be affected where it had a stronger business, it was more affected.

In a way, the relative strength of the geographic portfolio gets played out through the cycle and the US gets hurt first and Europe gets hurt second. Asia and Latin America tend to be - they're important operations but they're less significant in the context of the PR operations.

My guess is that you'll continue to see a sequential improvement. I'm not proud of minus-three-percent on a constant-currency basis at all. And I think you got to look at it relatively. But I think you'll see a continued improvement.

But like most things in economic life, it really depends on what happens in the US. And I think probably the most encouraging statistic for us is this is the second quarter that we've seen positive like-for-like constant-currency growth in the US.

And that's encouraging. And if the US starts to recover and shows some growth, it'll filter through to the rest of Europe and obviously impact Asia and Latin America.

Great. Thank you.

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

No. That's it. Thank you very much, ladies and gentlemen. We've been on for about an hour. If you have any further questions, you can e-mail Paul or myself at prichardson@wpp.com and (INAUDIBLE) wpp.com or through Fran Guiterra (ph) in New York or Chris Switen (ph) here in London. Thanks so much.

Thank you for participating in today's conference. You may now disconnect.