WPP PLC (WPP) 2006 Q2 法說會逐字稿

Good morning, everybody. 2006 first half -- you should have on your seats the full presentation. We've got really three major sections. Paul is going to do a summary of the interim results, which were put out this morning, and we're going to do the most lively part of the presentation -- is going to be an update on pensions because we actually think it is an important issue. We think there will be a considerable amount of institutional interest in how companies are going to address this particular issue, and then I will come back -- I will get involved on priorities, objectives and strategy. Paul?

Good morning. So we're going to kick off with the first-half 2006 interim results. With billings up over 27% to 14.4 billion pounds, reported revenue was up over 16% including the effect of currency. On a constant currency basis, revenues were up almost 13%. And on a like-for-like basis, revenue is up over 5%. So to break that down into its constituent parts -- organic growth is 5%, growth from acquisitions was 7.7% -- making a total constant currency rate of growth of 12.7%. Foreign exchange -- but I will comment to you later about the second half -- was plus 3.4% in the first half totaling 16.1%. Headline PBIT was up over 20% to 361 million pounds and operating margin was up 0.5 margin points to 12.6%.

Headline profits before tax on a constant currency basis were up over 24% to 316 million pounds, and diluted headline earnings per share was up over 20% to 16.6 pence from 13.8p. And the interim dividend was up 20% for the 11th year now to 3.6p and was 4.6 times covered by the headline earnings per share. Record estimated net new business billings for the first half of over 2 billion pounds or over $4.1 billion, up 15% compared to the first half 2005 -- rated number one in almost all new business surveys for the first half of 2006.

In terms of the reported income statement, what I want to draw your attention to first of all is the -- on the first percentage economy, you've got the reported rates of growth. So the 16.1% revenue growth first is a constant currency of 12.7%. Operating profit growth obviously on a constant currency basis up 18% as reported. Income from associates at 25 million pounds, but there was a 4 million pound exceptional gain, re-resulting from negative goodwill on an acquisition. That's a once-off that we've removed from the headline associated income.

The second element of why associates were so strong was we can't report the full Asatsu numbers in 2005 until they have reported their results, which are after ours, and we had a catch-up for a very good year in '05 on Asatsu, which comes through into '06 numbers. That's one of the key reasons why associates is up so significantly year on year.

In terms of reported PBIT, it's up 25% on a reported basis and profits before tax are up 30%. Tax rate at 29% was higher than last half year but in line with last year 2005 full rate.

On the headline basis, revenue is up 12.7% on a constant currency basis. Most of these numbers are slightly ahead of consensus or even beating certain cases of top end of consensus. Headline PBIT at 361 million pounds was up 16.8%. Interest and similar charges of 44.9 almost identical to last year's 44.8 but broken out into a number of different areas, which I will go into later, was flat with last year on a reported basis. And headline EPS at 16.6p was up 20% on a reported basis and nearly 16% on a constant currency basis. We have for the first time just broken out here the EBITDA I've shown, which you can work out from the information, but it's at 428 million pounds, up 22% on a reported basis compared to a year ago.

In terms of the revenue growth by discipline, I'll just remind you of what the first quarter growth is on a like-for-like basis compared to the 5.0% for the first half. You remember the first quarter was 4.8% growth. So the first quarter in advertising, media investment management was growth of 3.2%. On a half-year basis, it's 3.4%, so a slight uptick. Information, insight and consultancy was growing at 5.4% for the first quarter, is up 4.1% for the first half, slightly softer in the UK and Europe in the second quarter. Public relations and public affairs accelerated from 4.1% growth in the first quarter to 5.5% organic growth for the first half. And branding, identity, healthcare and specialist communications accelerated from 7.6% organic rate of growth in the first quarter to 8% in the first half.

In terms of revenues by geography on a similar pattern on a similar basis, so the first quarter being overall 4.8%, you had North American growing in the first quarter 3.7%, now accelerating to approximately 5% growth in quarter 2 to a like-for-like basis in the first half of 4.5%. In the UK remained static at approximately 1.3% growth for the first quarter, 1.2% growth for the first half. Continental Europe 4.9% growth in the first quarter, decelerating slightly. We mentioned Spain was a little bit weaker in the last few months, and Germany is a little stronger on average. The first-half growth rate was 4.5%. Asia Pacific, Latin America, Africa and Middle East growing at 9.9% for the first quarter, 9.4% for the first half -- again, a little softening we noticed in Brazil in the last few months. In terms of the international US split in the first half, it's 4.5% rate of growth organically for the USA and about 5.3% internationally -- a very similar mix compared to the first quarter.

Looking at profit and margin performance in terms of the reported profit improvement -- so taking for advertising, media investment management 190.3 million pounds compared to 158.6 -- it is growth of 20%. The margin has moved up 0.7 margin points from 13.4 to 14.1. We've had good margin improvement at both Y&R and Grey in the first half of this year. Information, insight and consultancy reported profit growth of 15%, margins up 0.2% in the first half of this year compared to last year. Public relations/public affairs -- remember, we've good revenue growth -- reported operating profit growth of 15% margins flat with last year at 13.9% but nice and healthy nonetheless. And the brand-new identity, healthcare, and specialist behavior businesses up and reported terms of 27% on profits and strong margin improvement from 10.9 to 11.4 across our businesses, both in direct and specialist and identity, aiding the margin improvement of 0.5 margin point in that discipline.

Likewise, analyzing the geographies in terms of profit contribution and margin improvement, North American's profits on a reported basis are up 16% with margins held flat basically at 15.5% for the first half of the year. UK's profits were up 17% with a margin improvement of 0.8 -- from 8% to 8.8%, a number of our businesses doing well -- particularly in the agencies of Ogilvy, Y&R, Grey, MindShare media buy -- and also in the branding businesses and direct business enterprise in G2, particularly strong profit improvements in the first half of this year compared to a year ago. Continental Europe with reported profits up 25% for the half year and margin improvement from 10.4% to 11.6%, boosted by improving returns in Germany, very strong returns in Eastern Europe and some improvement in the Scandinavian markets in particular -- aided that margin conservation. Asia-Pacific, Latin America, Africa and the Middle East, we reported profits up 31%, margin improvement from 10.7 to 10.9, 0.2 margin points. Again, the Asia-Pacific region is simply back ended in terms of where their margin improvement comes compared to very consistent with all prior years.

So, looking at the geographies by country, this is on a constant currency basis. But I think it is helpfully in direction terms and where you see some of the stronger European markets, such as Germany. And now a top 20 country has become Poland and has emerged as the fast-growing Eastern Block as one of our major markets -- grew very strongly. As you can see some of the Scandinavian market is doing particularly well -- Sweden, Denmark and Norway in the first half compared to I suppose prior metrics in prior years.

What is soft as you can tell here -- Brazil and Singapore in the Asian and Latin American markets, Spain as we've mentioned and then some of the major European markets a little soft -- Belgium, France, Italy and Holland -- as you can see from the slide. Likewise, directionally, this does include the impact of acquisitions. Obviously, we had -- Grey had a major client in AOL/Time Warner. We have six months of Grey this first half compared to four months of Grey in the first half of 2005 so that does explain in the main why entertainment is so strong as a category. But if I look at directionally where the personal care and drugs -- these are major categories of personal care and drugs, financial services, food and automotive -- they are reflective of where the organic performance is in these four major categories.

Moving on in terms of foreign exchange. I do want to spend a little bit of time on this, and I try to get it right. This is actually pretty confusing. The sterling was weak on average in the first half of 2006 and in 2005 by about 4.4%. So the first half 2005 for example exchange rate dollar/pound was 1.87. The first half this year is 1.79. So sterling was weaker by about 4.4%. And the impact on currency increased our revenue growth by around 3.4% in the first half. Headline PBT in first half of 316 million pounds would've been 370 million pounds had sterling remained the same at 2005 levels.

If we run for the second half of the year the dollar/pound exchange rate, when comparing it to the second half of 2005 where the average was 1.76, so sterling was quite weak the second half of last year. I compare it at 1.85 for the second half of this year. We're looking at a negative currency impact to the group of around 2.6%. And if I was to run the dollars at 1.95 in the second half of this year, which is a 10% difference compared to 1.76 the second half of last year, we're looking at a 4.5% negative impact on the group for the second half. When I roll either of those two together with the first-half 3.4 currency benefit, I'm looking at approximately either flat to minus 1% on a reported effect to revenues on a full year basis. I hope I don't have to repeat that.

Looking at major net new business billings, we've had a good year with about $2.9 billion of billings in the first half of this year on media wins and about 1.2 billion of creative wins. Obviously, the media wins tend to cluster around the larger size. What is encouraging here is the underlined and green wins are those won in the second quarter just for reference. But what is encouraging is a whole range of wins across both MindShare, MEC and MediaCom. You've got some interesting wins both global in terms of the Campbell Soup win by MEC. You've got some Asia-Pacific wins of MindShare in Indonesia and Nokia in Asia-Pacific for MediaCom. You have two swaps between group companies on this slide, so Kimberly-Clark was a consolidation from another WPP company to JWT. And Sears was another consolidation by MindShare of a business previously under the stewardship of another WPP entity.

Likewise, on the second slide of wins, there's a good combination of creative agencies across-the-board here -- Y&R, Grey, Ogilvy and J. Walter Thompson -- all contributing to the creative wins in the first half of the year. And in terms of losses for the first half of the year, Reckitt Benckiser which obviously has been well-publicized. The Kimberly-Clark and Sears is a swap. MindShare was a loss of Vodafone Italy partly through conflict issues, but we have won the Vodafone below-the-line business recently with RMG in Italy and some other losses there for note.

And in terms of the first six months to give you a comparison, the first six months of last year. We had billings of 3.5 billion so we are up 15%. In fact, it is reflective on the creative side last year; we had just under 937 million of billings, so we are up 19% on creative wins and up 11% on media wins compared to the first half of 2005.

Since June 30, we've had again once swap with MediaCom winning the RBS business from MEC in the UK. Again, two wins in Japan -- LVMH for MindShare and Nike for MindShare -- against tough local competition. And IKEA was won by MEC in the USA. We unfortunately have lost the Star Alliance to Wunderman and Bridgestone to Grey in the month as well.

In terms of cash flow, we had 308 million pounds of operating profit. No real surprises in depreciation, net interest paid or tax paid in the first half, so generating 343 million pounds in the first half. Capital expenditure in line with last year at 74 million pounds. We are expecting it to be around 185 million - 190 million pounds on the full year, partly through two property refurbishments. Acquisition spend in total including loan notes, earn-out payments and new acquisitions totaled 125 million pounds in the first half and share repurchases 1.9% -- in total 1.5% which are canceled -- totaling 162 million pounds. Net cash generation for the half year, 32 million pounds versus last year minus 193. Obviously, the item that affected the first half last year was a 50% consideration paid for Grey in cash totaling 243 on a net basis.

In terms of interest, you have 34.3 million of what I call bank-related interests and fees compared to 31.2 million, so it's actually worse by 3.1 million pounds. We did get some volume benefit compared to last year on average on working capital. The rates would have -- if nothing else had changed, the rates would have been a 5 million pound adverse variance because of the increasing rates mainly in the USA. And we got some foreign exchange adverse effects on interest rates. So the net of all those three, we were minus 3.1 million on interest costs or up 10%.

What you then have is some investment income, which is a dividend on a convertible preference share coming in, it's the pensions' interest costs. Net interest costs has reduced slightly. Earned interest has reduced slightly because there's less earn-outs in our balance sheet than there was a year ago. And the notional interest on the convertible has reduced as the closest tail of that instrument. So we did get a pickup of 3 million pounds on what I call non-bank interest-related items. You then have down at the bottom the 1.2, which is the mismatch on the hedges, which is reduced actually. And we are being quite successful in our matching principal in hedges, but that did add 1.2 to interest costs. So the 46.1 does play the 44.8 on the face of the P&L.

Net debt on average -- we have 1.2 billion, about 2% better than the first half on average in 2005. Sorry, I beg your pardon; that's at the June 30 date, the 1219 versus 1242. On average, we're 150 million pounds worse on 170 when taking all the geographies together and this is 1020. You can see based on the headline interest costs of 45, we have ample coverage of eight coverage on our EBIT to headline earnings to headline interest.

Net debt is a little confusing. It says working capital, but this gives you the picture of the seasonality of our business in terms of what happens with our net debt. So this very strong fourth quarter through strong billings and good working capital management, we have a low net debt position as reported at the end of December each year. As you can see here, 561 million in December '04. And with the acquisition of Grey, 804 million in December '05. We then have a fairly big outflow in the first half of the year in working capital terms and in net debt terms, which brings the net debt to about 1.2 billion, which traditionally and we expect exactly the same in this year, will reverse in the second half of the year where we have quite a significant inflow due to the seasonality of our business.

In terms of shares, the basic share calculation you can see here the 18 million shares canceled approximately 1.5% for the shares in issue this first half. The 1205 was up 1% in terms of basic shares in issuance compared to a year ago. And then on the fully diluted calculation, the one item that I would note is that the fully diluted on the average and the potential issuance of shares is only up 1.3%. But because the Grey convertible has this time to be included, it's added 9 million shares to the calculations. So the fully diluted calculation is up actually 1.9% compared to the first-half average fully diluted a year ago.

On pensions, I should try to be quick. We were an early adopter -- the steps taken to mitigate liability in post-employment plans. And as a result, 71% of our contributions were in 2000 and are today in defined contribution plans. The balance sheet has liabilities of post-employment benefits of 231 million. 103 million is deficit for funded plans, which should ideally be matched. The other 128 million is liabilities resulting from unfunded plans, which I'm defining as post-employment arrangements with no separate defined pension assets. For example, in certain markets such as Germany, there is no requirement to fund separately your pension obligations. Although it is on the corporate balance sheet, there's no separate requirement to put it aside separate. So I term those as unfunded plans, which totally -- which now total 128 million. The environment is changing with introduction of minimum funding requirements in many countries around the world.

So this is the history of the P&L expense. And in terms of the contribution costs for defined contribution plans, it pretty much mirrors the P&L expense for defined benefit plans. It can be quite different to the cash paid, but it has been 70/30 over the last five years.

And doing an analysis of how the balance sheet obviously has grown over the last five years, we have acquired, which we knew about at the time of due diligence, underfunded plans both in Y&R, Cordiant, and Grey. There's been falling interest rates which have led to the discount rates, leading to a higher present value of liabilities. And I've just quoted here the 2000 discount rate that was applied and the 2005 in both cases. Investment returns just -- by bringing down the expected investment return on our equities -- and I've just quoted the equity expectations here -- we have slightly undershot but only marginally over that five-year period the expected equity returns. We have had an increase in life expectancy -- we just add it to liabilities -- and we've had newly-designated plans under IAS.

Looking at it graphically, the light brown box was the liabilities as they were in 2000 and we just added then the Y&R acquisition. That brown box with the extra contributions we did make over the five years would have reduced to a much smaller figure in 2005 acquisitions that I mentioned had increased liability. The green is the interest rate effect of the extra liabilities discounted. The darker purple is the investment returns falling under expectation. The life expectancy is the pink increase in life expectancy and especially in the UK, and the blue is a newly-designated IAS compared to IFRS types of defined benefit plans.

So in the next five years, our current strategy, which was in line with all requirements, was to pay 174 million pounds towards the defined benefit side of our equation -- on average, 35 million pounds a year. That would have reduced the deficit from 103 million to 65 million pounds in 2010, and there still is. And there isn't yet anywhere a requirement to fund the unfunded plans as I have defined them. This was the expense and the cash contribution profile, so you've got the last five years -- 131 million, 26 million pounds on average; the next five at 35 million on average; and the final five in 2010 to 2015 on average 30 million. So 327 million payable in the next 10 years. And this would've been the liability profile on the balance sheet excluding the extra 21 million. I just can't put that in right now because I haven't had the actuaries work it through. But you would've had 100 million there in '05 as I mentioned; on the unfunded the extra 21 million and then approximately 103 million on the funded plans; it should be matched out. This profile would've given us 65 million of unfunded obligations under defined benefit plans by 2010.

The revised strategy is to eliminate the deficit for funded plans by 2010 with an additional 56 million pounds, about 11 million pounds a year over the next five years. And in Phase II to eliminate or match the unfunded plans in the following five years from 2010 to 2015, this requires an extra 46 million pounds. So in total, an extra 102 million pounds over the next 10 years, this will be the contribution profile. The additional amounts are there in the light green and the red. This will become the pension liability on the balance sheet as reported -- 0 deficit on the funded plans by 2010 and also a complete matching of the unfunded plans by 2015. This does assume the assumptions to remain the same on life expectancy, interest rates, etc. But this is the general profile of what we're expecting to achieve. Thank you.

And we're all captivated by it. Just want to run through our strategy and the long-term factors are well rehearsed. We talk about them a lot historically in the Annual Report and currently. There is the issue of globalization, and we're getting true globalization I guess for the really first time rather than American-based multinationals dominating the industry. There was a time when you could argue that two-thirds of worldwide spending were emanating from the United States, although north what we used to call the -- or still call the Northeastern Corridor of the US.

We're now talking about increasingly companies based in China -- well not just Japan and South Korea but China and India too -- and that's where the new forces are doing. We have been heavily involved with the Chinese government and the World Economic Forum in establishing this through Ogilvy actually in Beijing, establishing this research project to identify the next FORTUNE 500 or the next FORTUNE 1000. That's not just Chinese companies but worldwide companies, which is an interesting project in terms of client development. So you are seeing that and obviously the power of the BRICs still dependent to a large extent on US economic expansion or stability -- it's true -- but increasingly becoming more interdependent or independent of the US. And that's a long-term trend, which we think is extremely powerful. Which if any of you haven't seen, I think we should probably send you the TGI BRICs analysis that we recently put out, which has some interesting observations on what is happening in Brazil, Russia, India and China. And of course, we call it BRIICs really because Indonesia is becoming an extremely powerful country as well in terms of development. So that is one issue.

Overcapacity shortage of human capital, we have rehearsed with you before. The overcapacity issues are well rehearsed. But you see in Detroit now, it becoming even more significant and major structural changes either being discussed or implemented in Detroit. But that's just one example of the overcapacity that face -- we are seeing the issues facing Dell for example -- another example of overcapacity in another industry -- and increasing issue about the shortage of human capital. All the demographics are against increasing the supply of human capital. And that's an issue that is becoming increasingly important, so differentiating companies through talent is more and more important.

The Web, probably the central issue that I don't think analysts or institutional investors feel comfortable with, probably the reason they feel most uncomfortable about it is that the new growth area is not areas which have traditional business models or more importantly profitability. So it is very difficult to figure out and it's fine for MySpace and for Google to do their deals. But how in the end does it all get monetized and how do you turn traffic into profit? And that's the thing I think that people feel very uncomfortable about.

I think the issue -- the point to make is that we are the least vulnerable. Media owners and clients obviously have to make choices. Media owners I think are in the toughest position because they have to choose between technologies and they have to make bets. We don't have to make bets. And as long as no new technology has a monopoly that we are excluded from, I think we are in a fairly powerful position and witness the growth of media planning and buying. I'll just emphasize it again -- media planning and buying operations group grew 14% in 2004 -- correct me if I'm wrong -- 14% in 2005 and 12% in 2006 first half. Now, that's very strong growth.

Our suspicions are that Publicis's growth has been driven by the growth of Starcom in particular. Omnicom's to some extent has been by OMD. Aegis is sort of the rogue factor here because their growth rates in media appear to have been about 5% to 6%, so it seems to us that they are losing significant market share on the media side of their business. That's indicative in our view of the growing fragmentation and the pressure being brought about by the Web. And of course, the media consolidations. And if you look at our new business wins, media consolidations play a very big role in those wins.

The fourth point is internal communication is becoming more and more important. Getting corporate strategy and behavior aligned is critically important for a multi-branded company like us; it's extremely difficult to do. It's also difficult for companies that grow by acquisition. Companies that are uni-branded and organically grown probably have the task the easiest. But internal communication is more and more important.

And finally, I won't into the details, the issue of retail concentration. Most of our clients' package groups' clients are 30% of their sales in the US will be going through Wal-Mart, whatever is happening to Wal-Mart, good or bad, in terms of it. Tesco is now what 31% of the grocery market here? So the retail concentration -- Carrefour with its growth -- are all examples of retail concentration, which is extremely significant. And that plays an increasing role in the way that our clients' clients are behaving.

Media planning and buying growth, I've talked about in the context of the two-speed world. Another example of the two-speed world is really what's happening in the US and Western Europe -- slower growth -- and what's happening in Asia, Latin America, Africa and the Middle East and the Central/Eastern Europe, which is faster growth. I will come on to the statistics in a minute. But some of the impact of this is quite phenomenal. I think it's in the first half of this year, our Central/Eastern European business doubled their revenues and their profitability, and we're talking about some very significant gains from small bases.

Middle East has become the fastest-growing region. Russia has become the fastest-growing country. We are seeing some very significant changes albeit from small bases. But we're talking about relative revenue growth as being the biggest driver of total shareholder return and stock prices, and I think that's becoming increasingly important. So you've got two speed geographically and then you've got two speed functionally, the obvious one being direct digital and search-related marketing. We have included a statistic, and I will show you a slide in a minute on what we think has been happening to digital and direct in WPP. But now, it's about 20% of our business, so our revenues are running at about $11 billion. And 20% of that is direct interactive and Internet related.

So if you think about the Google statistic that consumers spend about 20% of their time online, that should theoretically be the weighting. Somebody asked me this morning in the interviews around the release on where do we think we're going to go, and it's very much a thing in the air exercise. But I would say it's reasonable to assume that digital and Internet-related activity would be at least one-third of our business in the next 5 to 10 years. And I think that's the way that it's moving. Whether it will stabilize at that sort of level or not, we have to see.

And then finally, the areas of quantitative research and direct marketing interactive, which are growing more slowly than the traditional media. It's well rehearsed that the pressure that traditional media is under. The other thing that I think it's important to understand on the context of traditional media is that there's pressure from one end of the spectrum from new technologies, and there's pressure at the other and of the spectrum from a sort of procurement activity that is going on which is media consolidation. We are now in GroupM starting to consolidate our media buying into one buying point. For example, in the UK, we are that. We are about a quarter of TV here and about one-third of press -- all effectively going through now one buying point for the three brands -- or the three major brands.

That's not the case in all markets, but it is increasingly the case in many markets. For example, in Spain where I was recently, that would be true as well. We would have I think -- don't quote me on these statistics -- but I think our billings base in Spain is about EUR1.7 billion. The next competitor MPG is at 1.2, and we've now started to consolidate in Spain. In Italy, we have a 45% share following the acquisition of 49% of Fiat Media Center, again through one buying point. So these consolidations I think are having an impact on the balance of the relationship between client and media owner and I think from a client point of view offer interesting opportunities.

So what are our priorities and objectives? Well for us, the growing markets -- that's Asia, Latin America, Africa, Middle East and Central/Eastern Europe -- to be one-third of the Company as opposed to 20%, marketing services to be two-thirds as opposed to just over 50% and quantitative disciplines to be half of the group rather than one-third. And just to rehearse this, currently, we are 40/40/20 if I exclude associates. Interestingly, if I include 100% of the associates, which is a little bit of a cheat, but if I do that, it moves Asia-Pacific, Latin America, Africa and the Middle East. And I'm excluding Central and Eastern Europe, which is about 2% to 3% of our revenue base, it moves up to 25%. And if I look at it where we want to be, it's as I said one-third, one-third, one-third. So that's one objective.

Just to put a little bit of flesh on these bones, we're putting the statistics out because we want to call out the competition on this because there's a lot of nonsense being talked in the market about market positions. There are two things we'd really like to get out into the marketplace. One is, what is incentive compensation? We've been trying for about six or seven years to do it. We include the statistics. You see it's running at about 23% of our [OPPBT] at the moment, including Black-Scholes valuation of options and of course restricted stock. And we can't sort of get the numbers out on a consistent basis because we think that's important for you to understand what our margins are doing pre-incentive expense and post-incentive expense.

And the second thing is what are these market positions? A lot of claims are made about primacy in markets, which we think is nonsense. So we're just giving out the statistics. Now this is greater China the first block, and then you can see that we're running over 400 million last year in '05. Trailing 12 months would be around about 20% higher. But you can see for half one of 2006, China is just over 200 million. The grayish-white blocks are associate interests. Brazil totals about 325 million. First half of this year is 156, and we mentioned that Brazil has softened in the last two or three months pre the election, which Lula looks as though he probably will win. And then finally, India at about 175 -- 88 million in the first half of this year, and you can see that Russia is growing at a phenomenally high rate but off a very small base of only 29 million. But the leading company there in Russia with Video International. I'll come back to our market positions here.

We're number one. The ranking -- it's claimed Sarbanes-Oxley has prevented people from revealing statistics. So that's not quite true actually. I think people's statistics are so inaccurate pre-Sarbanes-Oxley that they were probably a little bit conscious of trying to reinforce it post Sarbanes-Oxley and they might get caught out. So everybody has dropped the statistics. But RECMA produces statistics now on market share, and you can see that in the third column. You can see we're number one in all markets on media with the exception of Argentina. We tried -- we've not estimated our billings -- we've given you our billings numbers in each of these market so from greater China through to Russia and estimated our market shares. And you can see, we've gotten very strong market shares in all those markets. I've given you the revenues and given you the headcounts; that's 6700 in greater China. And we hope we can get some veracity into the claims that are being made in those markets.

In terms of our break of business, we are really a 40/40/20 company as I've said in terms of North America, Europe and what is badly called the rest of the world on this chart. This chart is really to draw attention to the size of our business. If our total revenue is 10 billion, which is just a smidgen less than Omnicom and Publicis -- they are at 5 billion and IPG at 6 billion -- 20% of our business. So it is about $2 billion is in Asia, Latin America, Africa and the Middle East. And this is significantly bigger than everybody else's business in these areas. We think this is a critical competitive factor for us.

And again, trying to put some flesh on the bones competitively is difficult, but we have used the RECMA billings here for the Americas so that's North and South America really have leadership. Europe really has significant leadership. Asia has significant leadership. And of course worldwide, that gives us a very strong position in terms of media against the competition.

Second one is marketing services -- why marketing service is growing? Well, fragmentation of the media, still relatively high cost of network to TV and cost per thousand -- the upfronts still continue to rise. The amazing thing is the -- in a way is the continued strength of the upfront markets and people moan about it not being as strong as it was. But you know to increase at rates of inflation and general price inflation and in advance of that it is a significant achievement, even when you are under pressure. So for those two reasons, we really believe that marketing services should be two-thirds of our business, and that continues to be an integral part of our strategy not only organically but by acquisition. And you can see that 52% of our business now is outside advertising and media -- media being media investment management.

Omnicom is at 56. Interesting thing is our advertising and media businesses are roughly the same as Omnicom. Marketing services at Omnicom is about 800 million more. But we don't know from Omnicom -- and again, I am sort of making a dig here -- but we don't know what their food broking company represents. We don't know what their barter company represents. We don't know what their SELLBYTELL operation -- they're at 3000 people in Germany and Spain who are in a call center operation, which is called SELLBYTELL. And they have a whacking great number under CRM, which is a phrase that we don't use in the context of breaking down of which we don't know the content of. So again, we would like there to be a little bit more analytical basis to the comparison because we're very interested at looking at the differences between the companies and particularly our major competitors.

The third one -- the third is for quantitative disciplines. That's direct, interactive and Internet and market research, which is currently one-third of our business. So about 3 billion -- a little over 3 billion and that we think it should be half. Why? Well, we think that really that decision makers inside corporations will not make decisions until they have good quantitative evidence for doing so. Whether that is the right thing or not, creative departments don't like it. But whether it is the right thing or not, we think it's important.

To give you -- and this is again, I think the critical analytical issue that we keep on coming into as I've said before is, what is the impact of direct digital? More importantly, I guess digital on our business? And we're trying to give you an idea here just like we've done with the BRICs countries and this two-speed phenomenon. To give you an idea of the impact of direct digital on our business -- not just -- we focused historically on the impact on Ogilvy, which is $600 million dollars; on Wunderman, which is 650; on G2, which is 300; and on RMG Connect, we just say is 150, 125. We've always talked about that.

What we've done here is to try to give you an idea of what the impact of direct and digital -- more importantly digital has been on our other businesses. So, for example, at the there, you've got the four businesses I mentioned within the first half revenues of 850 million, so about 1.7 billion for the full year, up 10% on the previous year -- so, strong growth -- it's about 17% of our revenues. And then you've got information, insight and consultancies of about 126. So things like Millward Brown, Dynamic Logic looking at the impact of direct and digital RI, research international, in Lightspeed, which is our Internet panel. We're going to do a little extension of Lightspeed. Just this morning, I think we finally agreed a deal where we'll increase the size of the panel interestingly with Lightspeed but it's now profitable. We made a significant investment in it and it's doing extremely well. But that's another 250 million or 126 million for the first half.

GroupM, about 60 million of digital revenue. We're Google's third-largest customer. We would like to be Google's largest customer. And again, so it's running about 120. And then healthcare small but growing, and we just bought Catalyst, which is a search engine optimization company based in Boston, which Grey Healthcare Lynn Vos has absorbed into her operation and we see great opportunities. But it includes CommonHealth, Sudler & Hennessey as well as Grey Healthcare. And then some others dotted around the group mainly in public relations and public affairs, and you'll see that we picked up a stake in Visible Technologies, which is a research operation to measure the impact of blogging on PR activities and public affairs activities. So in total, it's about $1 billion, so it's over $2 billion for the year. So it's running at about 20%, and you can see we've seen strong growth 15% on that in that operation. So it's a very important and growing part of our operation and I think underappreciated and underestimated externally.

What are our key objectives? Obviously continued margin improvement -- I'll go through each of these -- more flexibility in the cost base and we've increased the flexibility in the first half of the year. So if we do run into choppy water, which some people believe that economically we're going to run into, we think we're extremely well placed to deal with it.

And just one observation here. I think since we last met, there's been some choppiness in the industry. We've seen three or four things happening that are sort of interesting. First IPG continues to have its travails. It's been at it now for four to five years. And in our view in their first-half performance, they made absolutely no progress whatsoever. It's amazing that analysts ignore the fact that their start cost of revenue ratio keeps on charging up, but it is now at about 64%. They seem to be bemused and appreciate the fact that they can reduce professional fees as a proportion of revenues. But the basics cited we think are being missed out. So we don't see much progress there and that's very interesting for us competitively. So that's number one.

Number two, Digitas ran into choppy water, a tremendous business in the Internet and digital area -- and they ran into choppy water in Chicago. I think they lost Ameriprise and Best Buy so that was a second thing.

The third thing was TNS, which we've noticed that TNS post-NFO, which was an acquisition that we were I think we were the underbidder or the second underbidder on -- they've had issues in America for the last two or three years. And they seem to have come home to roost, and there's significant dislocation from what we can observe competitively in America -- a significant change in the management team there; it's been turned over completely. We're just going to follow with interest what happens at TNS.

The last point is a point I've made before -- is that Aegis's growth in media planning and buying is really sub par. If we're growing at 12 and 14 and we guess that's Publicis is growing at similar rates -- I know OMD off a smaller base is growing at similar rates -- we don't -- the 5% to 6% we see at Aegis doesn't compute. And that's been going on for the last two or three years, and that's with the strength of Isobar in it.

So there's some interesting things happening in the industry and some movement, and we think that will probably give opportunities over the coming months, particularly if the water gets choppy. So, it's interesting. So flexibility in the cost base is we think important.

Free cash flow to enhance shareowner value and improve return on capital employed, we're very focused on that. Grey is delivering returns in excess of the cost of capital. Y&R continues to improve. Developing the role of the parent company -- there are a number of pictures. There will be a number another one next week which we are involved in sadly on the holiday period but good to be involved rather than not, which is not known in the trade press and not known amongst the analytical community and is just one example of a number that are going on of consolidations. Clients are -- there is no doubt -- are increasing looking at consolidation of their not necessarily down to one group or one agency but several cases. And in some cases, we lose; some cases, we win. But I think we win more than we lose in that area. So I think the role of a parent company is becoming increasingly important, emphasizing revenue growth as margins improve and that is -- if somebody said, what would I like for Christmas? I think I'd probably really like an extra 1% or 2% on the organic growth rate.

And finally, improving the creative capabilities and reputation of all our businesses, which is probably linked to that point. We did very well in Cannes this year. We became a very close second on Cannes Lions and awards and points to Omnicom and certainly improved our position substantially over the previous year.

Margins -- this is the progression that we've made to 2005 in the first half of 2006 -- were up to 12.6%. The margin target for '06 is 14.5 and 15 for 2007. When we announce our results in February of next year for 2006, we will put in a margin target for '08 and much against Paul's better judgment '09. And so, we will give you a guidance for that because we think that is important. The long-term target remains 19. That's not a joke. We do believe that it is possible. And at Publicis's margins, you would have to correct our margins for the research issue, but Publicis's margins are strong. OMC, we have surpassed currently. So we think there is scope on the margin side too, particularly as we move more and more into BRICs and into digital because those are not inherently less profitable. If anything, they are inherently more profitable.

Flexibility present variable staff costs as a percentage of staff costs. Variable staff costs as a percentage of revenue showing gains. We've shown you the first half for '01, for '05 and '06. It's not perfect. The variable costs by the way are incentive costs. So our incentive costs are running -- guys, what is it now? It's 105 million pounds for the first half. What's the full year projection, David? Can you just check that? I think it's about $350. But just check it. So that's incentives and then there's freelance and consultants that are in there too. So you're not going to get rid of 7 points of margin but I would say half of that. So it gives us 3.5 points of margin compression to deal with.

Share buybacks, we are increasing dividends by 20% and we will continue to try and do so. Share buybacks, we were aggressive in the first half, probably the fastest rate. We were almost up to 4%, which is in excess of the target of 2% to 3% in the first half of this year. We will now -- we are now out of [PURDA] now, and we'll be looking at our view on share buybacks as we go through the balance of the year. But it's been quite strong in the first half of this year. We do believe a continuous buyback program is the most impactful on shareholder value.

Acquisitions, we will continue to focus on small and mid-sized strategic acquisitions. We've been fairly active in the last few weeks -- Dewey Square, DSG yesterday. They will continue to be Internet-related China/India-related activities. So you get the gist of what we're doing. A major focus continues to be on information, insight and consultancy in the faster growing areas like branding, identity, and healthcare or direct, interactive and Internet. Acquisitions in advertising were to bolster client relationships or improve client relationships or local agency needs. And it's still true to say that pricing is better outside the USA than inside.

Now this is what we've been doing in '06, and we have tried to group these things in a more logical way because it may seem there's a lot of activity albeit on a smaller scale. And you will see the gist here. We are expanding our businesses in the faster growing market, so Beyond is a PR company in Hong Kong; Always is a field marketing company in China. Enterprise Nexus, an advertising agency in India, Genesis, a major public relations network throughout India. ACSR is research in China. HYLZ gives us 10% of the online market in China, and we are working on another thing in China which we hope to announce shortly in the Internet area too. Bridge -- I won't go through all of these but Bridge is Internet out of the US. IEG is sponsorship in the US. Catalyst, I've mentioned is search engine optimization in the US and the healthcare business. LiveWorld is the social networking. Visible Technologies is the monitoring of the impact on public relations/public affairs of blogs and the like. WildTangent, online gaming, ZAAZ interactive. So you get the gist of what we're doing.

Public relations is sort of interesting. I think there's -- whether you call it a little -- a new lease of life or a new dimension, the blog -- the social networking activity has emphasized yet again the value of editorial publicity as opposed to paid for publicity. And the social networking you see in MySpace or YouTube or BBO or any of the other sites that are becoming more and more popular are indicative of this sort of recommendation -- word-of-mouth advertising. And it's very effective and clients are very interested. So these are affinity group sites that we're building. So for example, Dove. We did realbeauty.com for them or Visible World did BMW's. I think it has 80% of BMW on the site. And people are swapping experiences, swapping understanding in a non-commercial way. So you've got to be careful about how commercial you make the site.

One of the challenges for MySpace is how they can ensure that the users don't think it's become too commercial. There's the stalking phenomenon obviously you have to deal with it. There's the fashionability issue because the average age of the people that are on these sites is very young, and they are going to be very fickle. So it's going to be very interesting to see how these things develop.

But the net result of this is the public relations and public affairs, and you will see this in the strategies that -- there's a good article in The Financial Times yesterday about Wal-Mart, which we are not involved in -- Edelman is doing that -- which talks about their use of political strategies and political electronic digital strategies in terms of the image issues that Wal-Mart faces. This I think has really a significant impact on the prospects for the public relations and public affairs activities, and then we've consolidated our position in in-flight entertainment with an acquisition for Spafax.

Creative capabilities, it's emphasis on recruitment. It's emphasis on creative awards, acquiring highly-regarded creative businesses like Senora Rushmore or the units that we have in Argentina now which have been very successful with Unilever and Coca-Cola. And then finally, placing greater emphasis on awards, which I've mentioned in relation to Cannes.

So to sum up, we think we're very well-placed -- increasingly well-placed geographically and functionally to benefit on what we believe are the two key industry trends. It's all about in our view, China and the Internet. That's too narrow. Obviously, it's more about all those regions I talked about and all those other technologies, but that's the heart of it in our view. There's scope for further margin improvement, cost flexibility and obviously using free cash flow to enhance shareowner value. Long term, we'll be concentrating on those high-growth sectors both functional and geographic and while maintaining a sensible approach on costs.

Headcount was up by about 3.5%, 3.4% in the first half against a 5% like-for-like revenue growth. And I think that balance is right. Somebody asked how we are going to get to 14.5%, 14.6% at the end of this year. And the answer is by that balance between revenue growth and the headcount growth. And then finally, continued emphasis on free cash flow after acquisition payments and share repurchases and return on capital, which we have achieved in the first half and believe we will achieve in the second half too.