WPP PLC (WPP) 2008 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the WPP interim trading update for 2008 conference call on the 22 of August 2008. Throughout today's recorded presentation, all participants will be in a listen-only mode.

After the presentation, there will be an opportunity to ask questions. (Operator Instructions) I will now hand the conference over to Sir Martin Sorrell. Thank you, sir. Please go ahead.

Thank you. Good morning everybody in New York. Good afternoon in London. I'm here with Paul Richardson. I'm actually in China and Paul is in London and we're going to go through our half-year results for 2008.

We've got three sections to the presentation. The first is a summary of the interim results which Paul will do. I will cover key priorities, objectives, and strategy and then conclusions which are fairly brief and then we will open up for questions. Paul, do you want to start on the interim results in section one? The presentation is on our website.

Thanks Martin. Right, (inaudible) I will refer to slide numbers so if you do get lost, you can catch up. Slide four, billings were up almost 12% to GBP16.87 billion. The reported revenue growth was up 14.3%. And on a constant currency basis, revenues were up 8.1. Like for like, organic growth was 4.3% for the half-year.

Reported headline PBIT was up 18% to GBP453 million, up from 383 (inaudible) or up 9.2% on a constant currency basis. Headline operating margin was up 0.5 margin points at 13.6% from 13.1% in line with our full-year objectives for raising the margin by half a margin point. Slide five.

Reported headline PBT was up 15% to GBP389 million from GBP338 million, up 4.9% in constant currency. The tax rate on headline profits was down 0.9 percentage points at 26% from 26.9% last half-year.

Reported dilutive headline earnings per share was up 21.4% to 22.1p from 18.2p per share or up 9.3% on a constant currency basis. Interim dividends again were up 20% to 5.19p per share.

Estimated net new business billings of GBP1.3 billion or $2.5 billion were won in the quarter. Turning now to slide six, there's a summary here in terms of showing the currency and the acquisition impact across various lines of the P&L.

From the revenue lines, the like for like growth of 4.3% was boosted by acquisitions or (inaudible) acquisitions of 3.8% to show constant currency revenue growth of 8.1%. Constant currency profit growth was 9.2% and constant currency earnings growth of 9.3%.

Foreign exchange was strong. It was stronger down at the bottom of the P&L so that on a revenue level we added 6% so the reported revenues are up 14%. At that (inaudible) level pretax or PBIT currency added 9% so the reported sterling growth was 18% and at the EPS level we added 12% to reported sterling growth of 21.4%.

We do show in the appendix to the press release what the results would have been if we were a dollar denominated company reporting US dollars and the impact the exchange it would have us would have been almost identical. So if we were a reported US dollar company, for example, the revenue growth on a reported basis would've also been 14%. This is principally (inaudible) the change in the currency to the first half 2007 and 2008 is almost entirely the euro-dollar or euro-pound impact.

Moving now to slide seven, on headline income statement, you can see here really both the reported changes and the constant currency revenue changes really as I referred to before. So on the revenue line, a constant currency growth of 8%, the profit pre-associates are up 10%. Post-associates like the PBIT level are up 9.2% to GBP453 million.

Interest cost is higher in the first half-year because of the increase in net debt principally through acquisitions of 24/7 last year and the higher level of share buybacks in the second half of 2008. So interest cost is GBP64 million this half-year compared to GBP45 million last half-year, therefore the PBT level, the constant currency growth is 5% and the reported growth is 15%.

Tax was an improvement, as I mentioned, down to 26%. Moving down to be diluted headline earnings per share, you can see the 9% constant currency growth and 21% reported growth. Headline EBITDA for those who follow this, it's GBP532 million in half one 2008 compared to GBP452 million in half one 2007.

On slide eight, you've got the (inaudible) reported P&L including goodwill, intangibles, etc. and [the fact that] this half-year, there's very little difference. And as you move through the P&L, you see the standard diluted EPS figures of 17.8p, up also 21% from a year ago, 14.7p.

Now turning to slide nine on revenues by discipline, the first half revenues grew by 4.3% organically, being 4.8% in quarter one and 3.8% in quarter two following a tougher comparison of 6.2% in the second quarter of 2007. And just to remind people on 2007, our run rates were as follows. In the quarter one it was 4.3%. In quarter two it was 6.2%, the first half 2007 was 5.3%. The second half was approximately 5% as well.

The advertising and media investment management discipline has half-year growth of 3.8%, second quarter growth of well over 4% and with an improvement over quarter one where we showed 3% growth, improving in all international markets. Information, insight and consultancy showed 5% growth the first half organically, consistent with other market research companies reporting so far and the acceleration in the second quarter growth of 4.2% in quarter one to almost 6% in quarter two.

Public Relations and Public Affairs, the strongest growth discipline performing well at 7.5% organic growth, a slight slowing from the double-digit 10% growth in quarter one to 6% growth in the second quarter with. Some of our more specialized public relations businesses are doing some cutbacks, but our general global PR brands continue to perform very well.

Branding & Identity, Healthcare and Specialist growing at 3.5% in the first half, a slowdown in the rate of growth in quarter two following a strong growth of 6% in the first quarter. Continued good growth in our direct and digital businesses (inaudible) significant cutbacks in the revenues of our health care companies and some parts of our branding and (inaudible) marketing companies [find the quarter tougher].

Turning now to slide ten with revenues by region, North America was growing at 2.1% in the first half. The second quarter was broadly flat, following a strong 5% growth in quarter one. In the second quarter in North America, we saw no change in the performance of the advertising agencies and improvement in our media businesses and, as mentioned earlier, the weakness that we saw in some of our specialist PR businesses, health care and certain branding and event marketing businesses was concentrated in the USA.

The UK first half growth of 2.5% showed an improvement of just under 2% in quarter one to over 3% in the second quarter; encouraging performances from both our agencies and our media businesses in particular in the UK. Continental Europe saw improvement in the second quarter to 4%, making 3.2% for the half-year. Eastern Europe remained very strong, growing at approximately 20% organically in the half-year.

And improvement in quarter two markets in particular of Holland, Italy, and Scandinavia was noted, but Spain remains difficult. The (inaudible) Latin America (inaudible) continues to be the strongest reason with growth of over 10% in the first half, with strong second quarter growth of almost 12%; all areas performing well, very well with the exception of (inaudible) Australia and New Zealand that is, and the Japanese market.

Turning now to margins by discipline; Advertising, Media Investment Management had good performance in the first half with reported profits up 20% to GBP243 million (technical difficulty) margins by 1.2 margin points to 15.9%. Information, Insight & Consultancy reported profits up 17% to almost GBP50 million in the first half and a margin improvement of (inaudible) to a margin of 10.1%.

Public Relations, Public Affairs we look forward to profits growing at 24%, GBP57 million generating the strongest margin (inaudible) of 16.1% in the half-year, an improvement of 1.4 margin points. The Branding Identity, Healthcare & Special Communications companies reported profits of GBP104 million, up 11% on last year with a margin of 10.7, down from 11.6 last year, impacted by the weakness in our healthcare (inaudible) in particular.

Turning now to margins by region, in North America, profits of GBP187 million in the first half were up 7% with very limited (inaudible) impact in dollars-sterling half-year on half-year and strong margins of 15.8% equal to that achieved in 2007. The UK profits of GBP58 million were up [to over] 22% without obviously any currency impact with margins growing strongly from 11% last year to 12.9% this year. Strong performance is in particular in our agencies and media businesses.

Continental Europe contributing profits of GBP123 million up 37% compared to last year, somewhat aided by the strength of the euro but nonetheless, good margin improvement of 1.5 margin points to 13.2%. Strong margins continue in Eastern Europe, a significant improvement compared to prior years in Scandinavia; Germany and Belgium benefiting from restructuring charges taken in prior years.

Asia-Pacific and Latin America profits of BGP85 million were up 22%, with margins of 11% in the traditionally weaker first half pulled down slightly by the weaker market in Japan, Australia, and New Zealand. Turning now to countries by band -- and there's nothing really that exceptional on slide 13. I think (inaudible) how Sweden has risen to the band of 10 to 15% in line with what we're seeing in terms of the improving performance in Scandinavia.

In terms of categories, revenue growth by category, on a constant currency basis the strongest growth we had was in category one with 15 to 20% growth in telecommunications and then category two, to 10 to 15% growth is computers. Both of these are aided somewhat by the [wins] by last year in each category.

In category three, the revenue growth of 5 to 10%, we see also automotive and financial services and retail. I think we are seeing solid spending behind the brands that we have in automotive and in financial services. I think we mentioned this morning's meeting we have three in our top 35 and two of those increasing spends and one is declining.

So again, the direct business that we do for the financial services industry is proving very robust. In the final category we have the other brands in the less than 5% growth -- drinks, entertainment, food, oil, personal care, and drugs.

Turning now to the effects of the strength of sterling, slide 15. Sterling was strong on average in the first half of 2008 and 2007 by 0.2% against the dollar (inaudible) weaker by 12.9% against the euro and weaker by 12.4% against the Japanese yen. The impact of currency increased revenue growth by 6.2% on revenues from 8.1% to 14.3% reported.

Headline PBT of GBP389 million would have been GBP356 million had sterling remained at the same level as 2007. We then gone on to slide 16 and 17 which are both the trade estimates reported wins and losses.

(inaudible) I think you see representation across all brands, both the agencies and the media companies, including our full media brand and Maxus picking up some major business (inaudible) Miramax represents here and the strong win rate in the second quarter. A couple of brands we have moved between these agencies, both Estee Lauder and Playtex, are movements between the group (inaudible) companies.

On slide 17, we do go through the losses that we have incurred, again, across the range of companies; not too many of a global nature though. Only one that's (inaudible). On slide 18, which are our own internal estimates of net new business wins, we have showed that in the first half, we believe we generated $2.5 billion of net new business billings.

The first quarter this year was $1.1 billion. The second quarter was $1.4 billion. This did compare to $3 billion in the first half of last year where media was exceptionally strong in first half 2007.

What is encouraging though, our creative advertising wins in the first half of this year, which are just $988 million in this schedule, are more than double what was reported the first half of 2007 in advertising creative billings wins of $456 million. Moving to (inaudible) wins since the 1 July, slide 19, you'll see again a switch from media businesses for Novartis and two wins by JWT, one of the (inaudible) which I think it the Jose Cuervo brand and a Microsoft (inaudible) line B2B win in the USA.

Moving through now to cash flow, nothing that surprising or necessary to point out. Operating profit GBP378 million, net cash generation (inaudible) GBP 382 million. I would point out in last year though, of the GBP67 million cash paid last year in interest, there's a footnote that says that GBP22 million of a rolled-up coupon on the 3% convertible paid out in '07 so the (inaudible) like for like cash component of interest would have been GBP45 million last year compared to GBP67 million this year, much more akin to what we see in the P&L interest charges.

Moving across in terms of uses of cash, cash generation of GBP382 million, CapEx was GBP74 million. Acquisition payments in total, GBP176 million and share buybacks representing 1.6% (inaudible) first half of GBP112 million resulting in a net cash inflow of before net working capital changes of GBP31 million.

Financing interest reported in the P&L of GBP60 million compared to GBP45 million last year. We have given you a breakdown; for those interested, the difference in what I call bank debt, headline finance (inaudible) and other notional charges we're taking (inaudible) detail. This half-year, there's nothing particularly interesting or unusual to discuss.

In terms of net debt at the half-year point, it's GBP1.873 billion on average, up around GBP500 to GBP600 million compared to this point a year ago of GBP1.2 billion. Again, principally driven by the 24/7 acquisition, which was done in July 2007 and the high level of buybacks in the second half of 2007.

Interest cover remains strong at 7.1 times, headline EBIT to finance charges compared to 8.5 times last year. And on slide 24, we do make a table of maturity profile and I'm pleased to say there's not a single banking or bond facility due for maturity until 2012; the earliest in 2023, the latest maturity on our schedule.

Turning now to the half-year working capital position, this is best seen graphically. The first point I would make is that at all points either June or December position, we are working capital negative. The negativity is all always stronger in December. And so the unwind of that working capital very strongly (inaudible) December to June is always an outflow in the first half.

Cash flow is always an inflow in the second half cash flow. So the cash outflow of 348 (inaudible) half 2007 was greater in the first half of 2008 to 572 principally because we see this very clearly (inaudible) graphically the very strong negativity in December 2007 compared to the prior December. If you have any questions or concerns about this, it's probably best to call me if you can't see graph in front of you because it makes it very clear.

Share buybacks and capital allocation following the review of the capital structure, the Company decided to increase buybacks to 4 to 5% in each of 2007 and in 2008. The share buybacks in 2007 totaled 52 million shares(Sic-see slide presentation) or 4.6% of the share capital and a further 2 million shares of were purchased and held as treasury.

In the first half of 2008, share buybacks totaled 18.8 million shares at a cost of GBP112 million or 1.6% of issue share capital. All of these shares are canceled. The annual rate is currently running at around 3%; lower than target, partly reflecting the (inaudible) to draw from the market in the midst of (inaudible) discussions on which started at the beginning of May.

Turning finally to the slide on share count, I'm pleased to say that both on the basic shares in issue, we had an effective accretion by a lower number of basic shares on average in issue of 4% really as a result of the buybacks that were incurred last year, and the weighted average effect running through into 2008. And secondly, on the second chart, on a diluted basis, the 4% improvement or accretion to earnings and reduction in the number of shares in issue is lowered by a further almost 2% and results partially as a lower share price and (inaudible) has a lower value and partially in terms of (inaudible) and other (inaudible) more programs, some maturing and some (inaudible) elements meaning a lower amount due.

This has been an area which has often surprised everybody up or down. There is volatility in this purely as a result of share price. The range of both in our view is between 1, 1.25 to 1.5% at certain times and I think that 6% basically accretion to earnings as a result of the dilution, of which 4% could have been predicted. The other 2 is probably (inaudible) we explained before. And with that, I'll happily turn it over to Martin.

Thanks, Paul. Now moving onto section two which starts on slide 29. Moving to 30, this is on our key priorities, objectives, and strategy.

Aside from the long-term factors, I won't dwell on them other than just to run through them broadly. The first point is the rise of the BRICs or the next 11 or the East and I guess Beijing and the Olympics here in China; another example of this dramatic shift in wealth that we are seeing in the globalization of the world economy and the birth of new major multinational companies of Chinese origins and Indian origins.

The second issue is about overcapacity. We still see significant overcapacity in terms of productive capital. The shortage is in human capital. And the human capital issue is again demonstrated here in China. The one-child policy has limited population growth and there is a shortage of human capital here as there are in the mature markets of the West.

The third issue is the growth of the new media, particularly the Web; the growth of mobile. We're hearing rumors today about Google launching its own phone, mobile phone. And last but not least, the growth of video, video content and the spread of video content through the new media.

The fourth issue is internal communications, internal alignment which encourages clients to focus on internal advertising and media management and marketing services. The next issue is retail concentration. Again, here in China, we have seen recently the impact on (inaudible) of what's been happening and the growing concentration in the West of Wal-Mart and TESCO in particular. But retail concentration is becoming more and more important, particularly as packaged goods companies start to increase prices to counter commodity price escalation.

The next issue is corporate responsibility and the environment. Again, here in China, we are seeing significant interest in this area in the demonstration that the government has prepared to curtail economic growth in light of the environmental and pollution consequences.

And last but not least, the emergence of global and local structures. There's some examples recently of clients changing their regional structures, eliminating their regional structures and having direct reporting from local or national management to global centers.

I think the trend is still to more global coordination. Slide 31 just outlines our three objectives -- faster growing markets as Asia, Latin America, Africa, the Middle East, Central and Eastern Europe, to be one-third of the group rather than 25% it is now. Secondly, for marketing services which are now up to 55% of the group to be two-thirds of the group. And last, but not least, quantitative disciplines to be one-half of the group versus one-third currently.

And obviously, TNS and the offer for TNS, the proposal for the TNS covers that area in particular. Just going through each of these individually, 32 just sets out the position on the left-hand slide of the part of the slide where faster growing markets now are already 25%, over 25% of our business. If we include associates, interestingly, we are already up to 31%.

The objective is to be one-third (inaudible). Why? Well it's really the population concentrations which are driving it. Half of the world's population are in Asia now. By 2014, it will be two-thirds.

And on slide 33, we see our dominant position in the BRICs described. China, we have a business now that is well over -- budgeted to do well over GBP600 million in revenue this year; Brazil, a similar size. India growing even more rapidly in the first half of this year than China running at about 30% rather than about 17, 18, 19%. And Russia is smaller but growing just as rapidly and you can see that our position there is forever strengthening.

Similarly, on slide 34, the same applies to the Middle East where we are seeing very rapid growth. You see the impact of the acquisition of 24/7 $100 million agency in the Middle East, and by the shortening of the block for associates. Central and Eastern Europe, slightly bigger now than the Middle East, but growing extremely rapidly as mentioned in the release. And Indonesian and Vietnam and indeed Pakistan if it was on this slide, two examples of the new tigers, smaller but growing very rapidly.

Slide 35 just uses the RECMA data to demonstrate the size and scope of our businesses in these markets of Asia and Latin America and Africa and the Middle East and Poland and Russia as examples of Central and Eastern Europe. You can see that we have dominant positions in the media business ranks one and two with the exception of Argentina were we are third.

And slide 36 just underlines the competitive position. You can see that our Asian business and Latin America and Africa and Middle Eastern business is almost three times bigger than our nearest competition. In fact, that gap has widened interestingly over the last two or three years, and you can see it amply demonstrated again on slide 37.

Again, it's the RECMA data. The new RECMA data is to appear I think in a month's time in August of 2008 or around the end of this month. And you will see that we have a dominant position in media planning and buying throughout the world.

Slide 38 is our second objective. Currently about 54%, almost 55% of our business is in marketing services; you have 46 being in Advertising and Media Investment Management. If we include associates, the position doesn't shift to where we would like to be as two-thirds/one-third. Why?

Well the cost of network television continues to escalate faster than inflation, although I guess the Olympics is an example where the investment has been considerably worthwhile. I think NBC are very pleased with the ratings. (inaudible) estimated about 2.3, 2.4 billion people watched the opening ceremony, and I think the audience for the closing ceremony may be even greater on Sunday.

And in addition, NBC, I think it's not exaggerations to say they were exalted about the number of hits they've had on the Web site, which was designed actually by one of our agencies, Schematic; had 17 million hits on the first day. And this is truly I guess could be described as the first real digital games that we've seen.

But what's driving the growth of marketing services is the cost of network television generally escalating faster than inflation and of course the fragmentation of media and the growth of new media as we have touched on before. On slide 39, we show the competitive position as we did on the geographic dimensions. And again, you can see that our marketing services business is around the same size, slightly smaller than Omnicom's comparative revenues of $12.4 billion against $12.7 billion and in the marketing services area it's $6.7 billion versus $7.3 billion.

It's difficult for us to analyze Omnicom's marketing services businesses as they lump I think about almost 40% of their business into what they call CRM but which we believe includes barter and telesales operations, (inaudible) [breaking] operations for example.

I think much has been made by our competition in America recently amongst institutional investors and analysts. It's about the size of our media planning and buying business, which, as you can see, is twice the size of Omnicom and about one-third bigger then Publicis.

I think they've been trying to point out that media planning and buying would be affected by any slowdown. And we have seen a tightening, as Paul mentioned, of activity in Western Europe and in America in the second quarter. But in fact, actually our media planning and buying business has been one of the fastest-growing parts of our business, probably the fastest-growing sector in our business.

And the trend towards media planning and buying consolidations continues unabated and unaffected by what we're seeing. I think that is driven by the weakness that clients perceive in traditional media businesses, and therefore, the open -- or being open to discount. We're seeing media buying consolidations drive about a 5 to 10% gross media pricing discount.

And secondly, because of the drive generally for efficiency, increased efficiency and effectiveness amongst our clients -- not because of any slowdown for recessionary trends, but because of general need to increase efficiency and increase in the competitive environment. Slide 40 outlines the third objective.

One-third of our businesses in the quantitative disciplines defined as market research or what we call Information Insight & Consultancy and direct digital interactive. They're about 33% of our business today. Including associates doesn't move the needle much, but we wanted to be 50-50. Why?

Because we believe that quantitative disciplines are becoming increasingly important to our clients, and digital and market research are the two main areas where that is so. And you can see that amply demonstrated on slide 41 where the direct Internet and interactive activities of the group have now grown to about 25% using what we call the wide definition and you can see it defined on the slide.

Even on the narrow definition, it's gone from 11 to 14%, the wide definition from 23 to 25% in one year. Worldwide client budgets, about 10% of client budgets are devoted to digital. Consumer retention is about 20% online. We spend about 20% according to the research on online activities and therefore we think it's inevitable that online budgets will gravitate towards 20%. By the time they got to 20%, we think it may well be up to one-third and that's where we would like to see digital as a proportion of WPP's revenues.

Slide 42, we outline our six key objectives. One, improving operating margins. One, increasing flexibility in the cost base, particularly important given what we are starting to see in the markets in terms of the tightening. Using free cash flow to enhance share owner value and improve return on capital. Developing the role of the parent company. Emphasizing revenue growth more as margins improve and improving the creative capabilities and reputation of all our businesses. And you have seen the fairly high profile appointment we have made at the group level recently.

On slide 43, we outline our historic growth in profit before interest and taxes and margins. And you can see the growth in margins, the 0.5 margin point, 50 basis point improvement in the first half of 2008 over 2007. You can also see outlined our objectives for 2008 of 15.5, our 2009 objective of 16 and the 2010 objective is 16.5%, which we announced about 18 months ago.

Our long-term IFRS target remains 19%. Slide 44 deals with the flexibility in our cost base, and you will see that flexible staff costs, that's defined as incentives and bonuses. Freelance and consultants now account for about 10.5% of staff costs. But defining as a proportion of revenue is around 6.5%.

So we are in the 6 to 7% range which is historically the high for the group and that gives us the flexibility of the shock absorber if there is to be further pressure as we think there may be, not definitely, but maybe in 2009. 2009 is a year -- it's the first year of the quadrennial cycle which tends to be the weakest and, of course, in 2009, we will have a new US President who may have different ideas on how the economy might be run, and trade and fiscal deficits dealt with.

I think the strength of the dollar against the pound probably has helped things a little bit in the last few weeks, but generally it's possible that we'll see increased taxes or reduced government spending which will be deflationary early next year particularly in front of mid-term congressionals in 2010. And the second issue is what happens, for example, here in China or in India or Latin America, which has been very strong or Central and Eastern Europe and the Middle East which have also been strong as a result of any slowdown in the US, although the world is less coupled than it used to be.

We still believe it's highly coupled and if America sneezes, we may not catch influenza, but the rest of us catch a cold and that applies to China too. Although I have to say that recent conversations here in China, there is a view that Chinese growth cannot slow significantly because of the absorption of rural population into open economies and the need for the Chinese economy to grow at 7, 8, or as some even believe 9% in order to accommodate that. So we will see how that pans out.

But the flexibility in the staff cost structure is important for us in the context of that economic situation. I should add that 2010 we see as being a stronger year. We think financial markets may well start to recover mid-2009. The real world would be affected in 2010 and a whole series of events in 2010 which are positive for our industry -- the World Cup in South Africa, assuming that security issues can be dealt with; the Winter Olympics in Vancouver, the Asian Games in (inaudible) in China, the Expo in Shanghai; and what I mentioned previously, the mid-term congressionals which will boost political spending again in 2010.

On slide 45, we talk about our free cash flow objective. Interim dividend, as mentioned by Paul, has been raised to 5.19p per share further to 20%. So it's now about 11 or 12 years we have increased dividends by 20%. Then, there's a further dividend to shareholders in a sense in terms of distributions to shareholders through share buybacks and we've tracked the progress of share buybacks since 2000.

You see that is in the first six or seven years, it was five or six years it was around 1%, 2% level. It rose to 3% in 2006 and almost 5% in 2007. We've been limited by what we can do in 2008 by the offer for Taylor Nelson. We had to curtail or eliminate share buybacks at the beginning of May when we started our discussions with Taylor Nelson. And so that slipped back to 1.6%.

And on slide 46, we try and estimate the yield, the notional (inaudible) yield from a mixture of dividends and buybacks to shareholders. And you can see that tracks 2% in the early part of the new millennium up to 3% almost in 2005, almost 4% in 2006, almost 5% in 2007. First half of 2007, it was 3.3%. First half of 2008, given the decline in the share price in the first part of this year, the yield from buybacks and dividends is still around 3.2%.

On 47, we discuss our approach to free cash flow. Obviously there's a capital expenditure, which is pretty much around the depreciation level certainly for the the long-term. There are then the question of acquisitions and buybacks. And on acquisitions, we're very focused on the faster growing geographical areas and marketing services, particularly the direct Internet and interactive areas and what we call the market research industry of Information, Insight & Consultancy.

During 2008, so far we made about 29 small, mid-sized acquisitions and investments, mainly designed to execute this strategy. Acquisitions in advertising used to address specific client needs as we have done recently in the case of Dell and then we continue to find opportunities of earnings in (inaudible) multiples, particularly outside the US. The US, despite the financial crisis and despite the fallback in the markets, the valuations are still higher then we find outside the United States.

On slide 48, we list our major acquisitions and investments this year. We have grouped them in three groups. (inaudible) that are in the faster growing markets, what some call the emerging markets on the left-hand side; on the right hand side, those that are focused on quantitative and digital; and in the middle, those that intersect both those points. These are acquisitions in the faster growing geographical markets in the faster growing areas. I won't go through them. They're there obviously.

And then on the next page, on 49, we just list other acquisitions, ADPEOPLE in the context of Dell and (inaudible) etc. there some in public relations and healthcare. As far as our objectives are concerned in relation to the creative capabilities, emphasis on recruitment. Again, the recent hire at the group level emphasizes that. Recognizing creative success tangibly and intangibly through bonuses and incentives; acquiring highly regarded creative businesses as recently 10 AM in Singapore which has attributed to the opening ceremony here in Beijing; and last but not least, placing greater emphasis on awards and at (inaudible) this year we were number two as a group and I'm pleased with the progress that we were making in creative awards.

Not just in the advertising business, but in direct and media and elsewhere. Just turning to the third section, conclusions, the summary on 52. Like for like revenue growth of 4.3%. Headline operating margin, up half a margin point, 50 basis points; PBIT up over 9% in constant currency; buybacks of about 1.5% of share capital.

Acquisitions added almost 4% to revenue and diluted EPS, headline EPS up 9% in constant currency and about 21%, as you know, with currency. The outlook on 53, levels of activity in 2008, should match those in 2007. We have a continued focus on achieving margin and staff cost to revenue ratios. In spite of the crisis in the financial markets, we believe 2008 will be another good year.

Our forecasts indicate that we will achieve our margin target for this year of 15.5%. And of course, we have the target next year of 16% and the year beyond that, 16.5%. And although 2009 may be more difficult for reasons I've already discussed, 2010 will benefit from those five events that we will see in this mini quadrennial year of 2010.

Last but not least, the conclusions on page 54. We continue to be well-placed by region and discipline to benefit from key industry trends. We believe there is scope for further margin improvement, cost flexibility and use of free cash flow to enhance share owner value.

In the long-term, the group will concentrate on positioning the topline in the highest growth functional and geographic sectors and improving the effectiveness of our cost structures. And last, there will be continued emphasis on free cash flow after acquisition payments and share repurchases and return on capital.

Just before opening up for Q&A, I just mentioned Taylor Nelson, TNS. We are somewhat perplexed by the lack of response from the supposed German bidder, GfK. There's been a lot of noise. In fact, when we issued our proposal for TNS, GfK pretty immediately came out with a press release about three or four weeks ago indicating that they had a source of capital that they were working with or -- and without naming it, at least openly, or transparently, they said that source of capital was -- they were in active discussions with -- subsequent to that, there has been nothing more other than speculation in the press that this was the Hertz family.

It is our understanding the Hertz family are not interested in proceeding with GfK. GfK have been frantically running around North America, Germany, Switzerland, the UK, and even Russian sources of capital to try and find somebody to back their bid as it's our understanding that there is nobody interested at the moment. It's never over I guess until the fat lady sings, but as certainly we don't believe that what they have come up with so far has any credibility whatsoever.

And in fact, more importantly, we believe the market is being misled by their lack of activity and lack of transparency. And certainly if I was a small or medium-size investor in TNS, I would be somewhat disappointed, maybe even aperplectic about the fact that there is no information. For larger investors, hedge funds, private equity funds who have better sources of information, I think the picture is clearer. But we believe the market is being misled.

So with that, let's just turn over to Q&A. Operator, can we organize the Q&A session, please?

(Operator Instructions) Michael Nathanson.

Sanford Bernstein. I have three and let me do them one at a time. Martin, I was wondering we're interested in the UK and the US and clearly there are signs of consumer weakness. But in this quarter, the second quarter, the results from the UK and the US really diverged. One was flat and one actually accelerated. So why do you think that is? And what you think the trend looks like in the UK and the US for the rest of the year?

Well, I think -- I don't know the answer I guess definitively. But I think the UK obviously interest rates -- and in fact this applies to Continental Europe, UK -- and European economic policy seems to be more concerned with inflation than with economic activity where the US certainly to date has been the reverse. And the Bank of England certainly seems to be concerned more about inflation than levels of economic activity.

And I think that may explain some of the divergence that we are seeing. But I think it's fair to say as we said in our statement, that we're seeing a tightening more I think happening in May and June in Western Continental Europe and the UK. And the same applies to the US too.

We think that that situation will become probably more apparent in 2009. You can't be definitive about that, but for the reasons I touch on which is new administration and what may or may not happen in the emerging markets as a result of a slower US economy, we think that will become more obvious in 2009. A couple of people have asked today -- actually one person in particular asked, do we see a recession.

Defining a recession as two quarters of negative GDP growth, I don't think that'll happen worldwide. More difficult to call in the context of the UK or, indeed, the US because we have seen some negative growth and in quarters and in continental Europe. Others who are much cleverer figure -- say that there will be a recession.

If there is, as I have indicated, I think we have a shock absorber of at least sort of 6 to 7% of revenue available to deal with it. But the divergence has to do I think with the relative approaches economically.

Let me ask you -- the second one would be in terms of visibility within your own forecast, how much visibility do you and Paul have going forward? (multiple speakers)

I hate the phrase visibility (multiple speakers)

I'm sorry. How much conclusiveness (multiple speakers)

No, not chastising you. I just -- from our end point of view because I think we have the same visibility all the time, we may not like what we see and when people don't like what they see, they tend to say they don't have visibility.

Right.

I think it is fair to say there is more short-term (inaudible) at the moment. So in other words, when somebody says ITV in the UK is going be down 26% in September, as I have heard some people say -- ITV is a particularly difficult example because it's a one medium company in one country and therefore more exposed particularly in a mature economy. But when they say that, it's a bit difficult to come to a definitive conclusion about that because money is moving much more short-term.

So in that sense, maybe we have -- visibility is relevant. But no, I think we understand I think to some extent what is happening, that the financial markets started to worsen about this time last year. It's taken about six to nine months for that to register we think in the real world and it started to register.

If you recall March, we saw a little bit of softness. We had a stronger April that May and June, there was some going back a little bit towards where we were in March. And we think this is a reflection of it. In 2009, we will have to see how it shakes out. But I think you'll see a continuation of that. We think middle of 2009 financial markets may start to improve and that will have an effect on the real world at the beginning of 2010.

In 2010, there are a series of events that will be helpful. The Beijing event, if I can put it like that, this has had I think a stimulative effect on people's -- certainly psychologically and people can see the power of these live events. There's a pool of money that does chase advertising and marketing services around these events. The supply of these events is limited -- world cups, Olympics, Olympics certainly on this scale are few and far between.

And London 2012 promises to be a good event of a similar nature, but the scale of it in terms of audiences will be difficult to replicate. But I do think it does demonstrate the power of these events, and I think 2010 will be a year when we will see that, and hopefully the real world will perk up a bit after financial markets start to improve midway through next year.

Okay, and last one is simple. Do you guys disclose in London what the July run rate was for (multiple speakers)

We didn't because nobody else does. But not a dissimilar pattern to what we've seen before.

Okay. Thank you very much.

More of the same.

Thank you.

Kenneth Gawrelski (Operator Instructions)

Carlson Capital. Thank you for taking the question. Could you please discuss the factors contributing to your underperformance in North America relative to your agency peers in 2Q? Thank you.

Well, I think you have to look at it -- we discussed this in London this morning. I think you have to look at it maybe just not just on one quarter or one year, but look at the previous year too. And if you amalgamate those, I don't think there is that underperformance certainly against the majority of the competitors that you refer to.

Havas we think is stronger certainly under Bollore's management and following his investment. We think it's a stronger agency. IPG has shown some signs of recovery because if you consolidate the previous year, you will see probably even a weaker pattern. Omnicom is strong and the advertising area in the US. But I think Publicis, again, if you consolidate the two years, 2007 and 2008, I don't think you have a dissimilar pattern to our own.

I just think maybe it also might be the way that we report things a little bit more on a month-by-month basis. We don't know, to answer your question directly, what happened in the case of our competitors between April, May and June. You have a fair idea of what happened in our business over that period.

I don't think we are dissatisfied with the growth that we are showing. We're delivering -- the other difference of course it is what's been happening on margins. You focused on top line.

We think valuations are determined by top line and by margins and I'm not aware of the competitive increase there operating -- that haven't recovered from problems that have increased their margins by half a basis point -- half a margin point and 50 basis points.

I got it. One follow-up is the new business wins, the strong new business wins you had, especially in the back half of 2007, how gave those flowed into 2008 thus far or what do you expect in the second half of 2008?

No, you have seen the continuation I think in the last survey I saw we were number two in the groups in terms of new business flowing through and not an abnormal pattern; the 90-day termination periods on most contracts, then a takeout period. So if you assumed that they started to kick in 90 days, 120 days after the win or implementation of it, I don't think there are any difference in the normal pattern.

Thank you very much.

(Operator Instructions) Thank you sir. There are no further questions. Please continue with any closing comments or remarks.

All right. Well thanks everybody for joining us and if anybody does have any further questions, Paul is in London staff, I'm in Beijing. We can be e-mailed. Fran Butera I think is still in London. So we can be -- Chris (inaudible) is in London too. So we're available for any further questions. So thank you, operator and thank you everybody for joining us.

Ladies and gentlemen, this concludes the WPP interim trading update conference call. Thank you for participating. You may now disconnect.