WPP PLC (WPP) 2010 Q2 法說會逐字稿

Good morning, everybody. We have got a fair number of slides to go through. Welcome to our first half for 2010. Paul will take you through the details. I think the release is fairly detailed, but we will go through it. There is a little bit more in the presentation. And then I will talk a little bit about the strategy and how we see it at the moment, the sort of state of how we see the industry and the macro outlook as well. Okay.

Okay. Good morning, ladies and gentlemen. So this is the 2010 interim results for the group. So billings are up 8.5% to GBP20.3 billion, and reported revenue growth was up 3.5%. On a constant currency basis, revenues are up 2.7%, and on a like-for-like basis, revenues are up 2.5%. So foreign exchange added 0.8% to the revenue growth for the half year.

The headline profits before interest and tax were up 33% to GBP455.3 million from GBP342 million last year on a reported basis. Headline operating margins were up 2.3 margin points to 10.3 compared to 8% last year, and on a pre-incentive basis, margins were up 3.7 margin points to 13.1% compared to 9.4% last year. Headline gross margin margins were 2.5 margin points to 11.2% versus 8.7%. And gross margins is our definition of revenues less direct costs. So it is basically the profit before interest and tax as a percentage of the GBP4 billion and GBP80 million of GM as opposed to the revenues.

In terms of headline PBT, it was up 41% to GBP356 million from GBP252 million last year, and the tax rate on headline profits improved 0.9 percentage points to 23.9% from 24.8% at the last half year and in line with the full-year '09 tax rate of 23.9%.

Diluted headline earnings per share were up 48% to 19.1p from 12.9p last year. And the first ordinary interim dividend was up 15% to 5.97p, following the flat dividends declared in 2009. The estimated net new business billings of GBP2.1 billion or $3.3 billion almost doubled last year and leading all industry net new business tables.

So without going through the detail here, the summary headline results at a glance. You can go through this at your leisure. You can look at the margins on a pre-severance and pre-bonus basis, which are up 3.2 margin points to 14.1% or a pre-bonus basis where margins are up 3.7 to 13.1% or just on the former headline operating profit where margins are up 2.3 margin points to 10.3%.

In terms of the reported numbers, the reported growth was still strong at GBP182 million, profits after tax up 32%, or in 12p per share, earnings per share up 36p. I would highlight two items that are different on the reported versus the headline numbers. One is goodwill where we had a larger impairment charge last year, I think totaling GBP40 million within that GBP124 million compared to GBP10 million this year. The other GBP88 million consistent in both years is the amortization of intangibles under the TNS acquisition that you have to amortize over seven to 10 years.

The second item of note is the net finance charges, and I will talk about that in more detail on slide 28. Because there are some special items that happened both last year and this year that distorts the underlying interest in finance costs.

Turning now to growth, so, as I mentioned before, the underlying organic like-for-like growth at 2.5%. Acquisitions are very modest adding only 0.2% to have constant currency revenue growth of 2.7%. Foreign exchange adding about 0.8% of percentage points in the first half, so reported Sterling was 3.5%.

What is interesting is the currency effect of both the headline PBT of 5% and even greater at the headline EPS level of 11%, and this is really the proportion of our overseas countries and where the profits arise and the various strengths and weaknesses versus Sterling in the half year.

So looking at it on a Sterling-reported company basis, our headline EPS was up 48%. If we were a US dollar reporting company with a US dollar basis, our EPS would have been up 41%, and if we were a euro domiciled company reporting on a euro basis, our profits headline earnings per share would have been up 53%.

Turning now to the headline, Profits for the Year. So revenues GBP4,441,000,000 were up 3.5% reported or 2.7% constant currency. You can see there the headline PBIT of 455 compared to 342, up 33%. A very strong conversion this year in terms of the incremental revenues of 153 over last year and incremental profits of 113 compared to last year. So about a 70% conversion, very strong by our standards.

The net finance costs are higher as a result of higher funding rates of about 10%. So GBP99 million in the first half compared to GBP90 million last half-year and the tax rate at 23.9, as we've mentioned before. All leading to the diluted headline earnings-per-share of 19.1p, up 48% on a reported basis or 37% on a constant currency basis and headline EBITDA of GBP561 million in the first half compared to GBP456 million the first half of last year.

In terms of the slide that we did a year ago, both for the first half and the second half -- and this is in like-for-like Sterling, so it will not be directly attributable to the reported numbers -- it shows that cost controls are in place, and expenses are being well controlled. So the revenues are up 2.5% or gross margin up 2.3%, very similar. The staff costs are basically flat, rising 0.2%. The establishment costs where we had some double rent last year are 5% better and trending towards our target of 7% establishment cost to revenue ratio and, in fact, about 7.5% this year compared to 8% last year, so a 5% improvement. And in other G&A, a 1.1% deterioration half year on half year, but leading to total operating expenses being up only 0.4% or 0.4% better compared to half-year ago.

As you can see here and in prior slides, the incentive charge now represents 2.9% of revenues or GBP127 million compared to a year ago where it was 1.4%, i.e. a difference of 1.5%, and an incentive cost of only 64 was accrued last half year.

Severance, as you can see, has continued in the first half of 2010 at a cost of GBP43 million compared to GBP68 million, but will tail all in the second half of this year compared to this run-rate.

As I mentioned before, on a pre-incentive basis, margins are up 3.7 margin points to 13.1% compared to 9.4% last year.

So turning now to revenues and just to remind people, so on a like-for-like basis, the first-half revenues grew at 2.5%. Quarter one was zero or flat revenue growth. Quarter two was 4.7%, making the half-year 2.5%. As we noted in the press release, July was strong at almost 7%, and therefore, the year-to-date after seven months was 3.1% organic like-for-like revenue growth for the group.

Turning now to the individual disciplines and giving you the quarterly splits, and in all cases, there is a stronger quarter two growth compared to quarter one. In Advertising, Media Investment Management, which represents 39% of our business, or GBP1.7 billion of revenues, the half-year growth was 3%, made up of quarter one minus 0.9% and quarter two plus 6.7%. The Consumer Insights business, which represents 26% of our revenues or just over GBP1.1 billion of revenue on a half-year basis, grew organically at 2.4%, the first-quarter minus 0.4%, and the second quarter plus 5%.

Public Relations and Public Affairs, representing 9% of our revenues or GBP417 million, grew overall in the first half 2% on a like-for-like basis, plus 0.7% in quarter one, plus 3.3% in quarter two. And the Branding & Identity, Healthcare and Specialist Communications businesses representing a quarter of our business or just over GBP1.1 billion of revenues, growing organically in the first half at 1.8%, was fairly evenly split between quarter one growing at 1.7% and quarter two growing at 1.9%. That can be much better said geographically, and you can see here the trends since quarter one 2008 where basically all of our disciplines in parallel followed the same shape, beginning quarter one turning negative in either quarter two or quarter three of '08, negative all throughout '09, the weakest quarter being the second quarter two 2009, and all turning positive or thereabouts some stage through the first half of this year, some at quarter one, some accelerating through in quarter two.

Turning now to revenues by geography, and I think if you stand back from our overall position, you can see here that the strength of the US market in particular with the first half's like-for-like growth of 5.8% is the strong message of the first half. In fact, our US business growing is around 6% and our international business growing around 1%.

Our own North American business represents 36% of our revenues. It is slightly smaller as a proportion compared to our competitors who have a bigger US business. So our biggest of our competitors has 54% US revenues. Others have 54% and 46%. So the proportion of US revenues is important, given the strong growth we are all experiencing in the first half of this year and its effect on the overall growth rate for the groups.

But turning specifically to North America for our sales, which is what GBP1.6 billion of revenue, like-for-like growth, which is USA and Canada combined, was 5.8%. The first quarter was plus 3.4%. Quarter two was 8.1%, very strong.

The UK is 12% of our revenues overall or GBP523 million in revenue, like-for-like growth of 2.8%. In the first quarter, it was minus 1.1%, accelerating to plus 6.7% for quarter two.

Western Continental Europe, representing 26% of our revenue is one of our toughest regions -- GBP1.1 billion in revenue, flat overall or minus 0.2% for the first half, being down 2% in quarter one, and plus 1.4% recoveries in quarter two.

Germany, Italy, Norway, Sweden and Turkey showed relatively strong growth, but difficult markets still maintained in France, Spain and Portugal.

In Asia-Pacific, Latin America, Africa and the Middle East, Central and Eastern Europe, representing 26% of our business or GBP1.1 billion in revenue, overall growth 0.7%, minus 2% in the first half and plus -- sorry, minus 2% in the first quarter and plus 3% in quarter two. Some of the slow markets in the first half were Korea, Japan, Australia. Some of the Central and Eastern European markets were late to get started, and the Middle East is only just now beginning to recover quite strongly.

Again, geographically gives you a very clear picture of how strong the growth has come out of the USA, but all markets are leading in the same direction with the weakest being Western Continental Europe, and then in between you have Asia-Pacific and the UK and on top North America.

So turning now to margins by discipline, I'm pleased to say that all disciplines and all regions have improved their margins given the very strong conversion in the first half, and you can see this for yourselves. So, in terms of the Advertising, Media Investment Management, our margin of 11.8 is an improvement of 1.8 margin points compared to the 10% margin in 2009. Our Consumer Insights business had a margin compared to revenues of 7.2 this year compared to 6.1 or 1.1% improvement in margin. On a gross margin basis, the improvement in operating margin is better at 9.8 this year compared to 8.3, so 1.5 margin points on a gross margin to operating profit basis.

Our Public Relations business also very strong, and all our businesses are growing on average 33% in profits. Public Relations was no exception growing 32% in profits, had a margin improvement of 3.2% to the strongest margin in the half year of any discipline at 14.8%, and our Branding & Identity, Healthcare, and Specialist Communications businesses had profits up significantly -- in fact, 74% compared to first half last year on a reported basis -- and margins up strongly from 5.5% to 9.4% in the first half. So all our disciplines converting well and improving margins.

It is a very similar story by geography. So North America profits are up 32%, and the margin improved 2.6 margin points to 12.2%. In the UK profits were up 15%, and the margin improved at 1.2 margin points to 11%. In Western Continental Europe, still tough, but profits are up 39%, and margins improved 2.2 margin points to 7.6%. And in Asia-Pacific, Latin America, Africa and the Middle East, profits were up 40%, and margin improved from 7.5 by 2.3 margin points margin points to 9.8%.

Turning now to geographies, and this just gives the range of how the markets performed on an organic basis, and the BRIC countries, Russia, India and China, in particular, have been very strong, accelerating their growth from quarter two over quarter one. In fact, July was the strongest of any of the BRIC markets that we have seen this year, so again very strong. No great surprises there across the businesses compared to what we saw in the first quarter, and some of the markets in Continental Europe, as we mentioned, quite sluggish in comparative.

In terms of clients, I think the one difference that we have noted versus some of our competition is our auto clients were very solid last year and did not dip significantly. Their revenues are spending, and that is different to us compared to some of our competition who are seeing a big spring back from their automotive clients in their sector. But we were very strong this year in Computers, Financial Services and Government in particular, quite a small category as it happens, Government for us. But that is where the shape of the clients and the revenue growth is performing. No particular comments I would want to make on that apart from what you see in front of you.

And in terms of currency, it is quite hard to explain. So currency movements accounted for an 0.8% increase in revenues, largely reflecting the weakness of the pound against most currencies, other than the dollar or the euro. When I talk about the weakness of the pound against visiting currencies, minus 16%. Against the Australian currency, it is minus 19%. Against Canada, it is minus 12%. Against India, it is minus 5%. Some of these are big markets for us and have a big impact on both the revenues and profits. However, the pound was marginally stronger against a dollar, up 2% and against the euro up 3%, as you can see. So that difference in where Sterling was strong and weak is one of the reasons why you see a difference in the revenues and the profit percentages as resulting from foreign currency.

So headline profit before tax of GBP356 million would have been GBP336 million if Sterling remained at the same levels of 2009. In terms of net new business wins, we are very pleased with the first-half performance. I cannot recall ever seeing a slide in such depth and breadth in the first half and in particular the second quarter. In fact, in quarter one we won GBP1.7 billion new business. In quarter two, GBP1.7 billion as well. And without going through them, you can see here a list of both media and creative wins. Those underlined and in red during the second quarter, the depth and breadth of it is second to none in the industry at the moment, and this continues onto the second page where we have had another good array of wins in the first half.

In fact, in the second quarter, I think we had 11 wins and four losses when you include the internal switches on some accounts between our agencies. So here are the losses in the first half. And to put some actual numbers against it, so the net new business billings were GBP3.3 billion in the first half. When compared to last half year, which was not our strongest, it was GBP1.8 billion. So it was 80% higher. What was interesting is our media business has won GBP1 billion more than they won in the first half last year, and our creative businesses have won GBP500 million more in creative assignments than they won in the first half last year.

If I look at the year as a whole like 2009, on average we were winning GBP1.2 billion a quarter. This half year we have been running at a rate of GBP1.7 billion, so a 40% uplift in the rate of new business wins, which I think is a telling figure.

And encouragingly, since 1st the July, this has continued. I think it has also demonstrated our competitive advantage in markets such as China and India, and some of these billings of this magnitude in those markets are very significant, indeed. And I think that is a strong story that is playing out in those markets as we have seen before for our businesses. So that is the wins since 1st of July and three losses also to make the record complete.

Turning now to cash and cash flow, so operating profits generated GBP340 million for this year. When adjusting for non-cash compensation, depreciation and amortization, amortization of acquired intangibles and impairment, less interest and less tax, the net generation was GBP375 million or GBP103 million better than the year before. And to how we distributed that cash, first of all, GBP90 million was spent on capital expenditure. You will be pleased to see, as we are, the reduction in the property CapEx after two very significant moves that occurred in 2009 both for Ogilvy and for Grey. The net acquisition initial payments were only GBP15 million, and the earnout payments, which were anticipated, were GBP75 million in the first half.

After the share buybacks and in this case, we accelerated the first interim dividend to be paid before 31st of March this year, which was atypical and won't recur. And, therefore, on a comparison basis, we generated GBP166 million pre-dividend or GBP39 million post-dividend compared to last year.

In terms of interest, and I'm afraid I need to explain some of this. So what I call bank interest or net debt interest did increase partly as a result of the longer funding we took on mid-2009 both in the bond and the convertible. So interest costs were up about GBP7.6 million. You then have what I call the notional interest adjustments of pension and investment income, etc. not making a significant difference year on year. Now the convertible, this is truing of the rate in our convertible to a normalized bond rate. That is the extra GBP4.5 million, coming to a headline finance cost of 99 versus 90.

The IAS 39 adjustments are as follows. Each year we have to revalue the put and call options over those minority stakes that we have the right to buy or then sell to us at the 20s or the 15% or the 30% remaining. During 2009, when people extrapolated their expectations of the future earnings, they obviously declined. And so compared to prior year, there was a reduction in expected payment, and there was a credit to the P&L of GBP25 million. This year, when the exercises have been done again, the businesses are performing better. So the outlook of the expected payment will be greater, and therefore, there was a charge to our P&L to rightsize that amount of GBP19 million.

It will happen every year. It is not normally as severe as this -- the change to the P&L -- but it is a P&L item.

The second item there last year was when we repaid some CNS bonds. There are some attaching swaps to them. They were, therefore, naked, and so we sold them back to market and generated a profit of GBP25 million. So those two items explain the difference in what I call the special items, and I would focus on the headline finance costs when you're trying to work out what the underlying performance of the business is or the bank interest on the line above, if you so wish.

In terms of net debt at the end of June, on a reported basis, we were just over GBP3 billion, down GBP480 million compared to the point-to-point position one year ago or down 12%. On a year-to-date average, again on a reported basis, the last set of figures, we were GBP3,168,000,000, GBP339 million or 10% better. But on a like-for-like currency basis, the first half-year average of debt was GBP3,168,000,000 compared to GBP3,422,000,000, an improvement of GBP254 million.

Our maturity profile has not changed significantly. The first item up of any significance is the bank rollover in 2012 of the GBP1.6 billion facility. And you can see here that the undrawn facilities at the 30th of June were approximately GBP1 billion, and there is a further GBP900 million of cash available in the balance sheet at that time as well.

So the average net debt in the first half was down GBP254 million on a constant currency rate of exchange as I mentioned before. I've discussed the net deposition point to point being bettered by GBP480 million, and the free cash flow of the last trailing 12 months has generated GBP769 million. Our expenses, including capital expenditure, acquisition, share buybacks and dividends, have amounted to GBP486 million. Therefore, the net cash generation in the last 12 trailing months was GBP283 million.

In the first half this year, we bought back 0.36% of the share capital representing 4.5 million shares at a cost of GBP28.6 million at an average price of GBP6.42.

And in terms of the financial disciplines we set ourselves at a time of the TNS acquisition, I've listed here both the first half of '09, the full-year '09, and the current first half year in terms of acquisition spend, share buybacks and dividends. And the only material change is the reinstatement of a dividend in the first half growing at 15%, and we have also highlighted the headroom at the various points in time the last few periods.

Pleasingly, when I put up the net debt to EBITDA, the 2003 and 2009 position has been reported to you before. We then took the last 12 months EBITDA, so the second half of '09 and the first half of 2010 and the average net debt as currently, and you can see the multiplier reducing from about 2.8 to about 2.35. So that's a steady improvement, which we expect to continue for the full year.

In terms of share counts, sometimes an issue, very stable in terms of the average basic shares in issue, and on a diluted basis, only 1.5% different. And I think I would note that some of our competition have very high dilution through employee shares and options outstanding that will ultimately flow through into their share count numbers. In our case it is only 5.2%. In our competition's case, it ranges from 7.6% to 14.3%. So I think, again, we are in good shape in terms of the relative option overhang in the next five to 10 years coming through on the share count.

And with that, I will happily hand over to Martin.

I just wanted to spend a little time on how we see the market, so sort of state of the market, firstly at a macro level and then at a micro level. Whilst the first six months, first seven months if we include July, we don't have any data on August or actual data on August yet. Whilst that we have seen a bounce back some people might describe it as a dead cat bounce back from the first half of last year because the first half of last year was brutal or was extremely difficult, and to some extent the recovery that we have seen does reflect that.

There are two key issues that we find that clients are focused on at the moment. And the first is the fear of fiscal contagion and sovereign debt issues in Europe, Western Europe, spreading from Greece and Spain. And that seems to be a sort of volatile phenomenon. One week or one month people are worried, and the next month they are not worried. Now they seem to be somewhere, I guess, in a way in between the two. Although the authorities do seem to be more worried about it whether you are talking about the Fed or the central banks in Western Europe. So that is one issue.

The second issue is uncertainty in the US next year. Not so much this year but next year. You have the Bush tax cuts coming to an end, or will they come to an end? Will Congress, when it comes back from recess, put in some sort of mild reinstatement or instatement of the Bush tax cuts.

There is a fear I think -- while not a fear -- there is a view in the administration, the Obama administration, that business is making too much money. That it is not paying enough tax. That profits as a proportion of GNP are at an all-time high or close to an all-time high, and at a time when many sections of society are being asked to make sacrifices, business is not making enough. So there is that issue. And then there is also the overseas tax issue, the taxation of overseas profits, which was enacted in the financial reg bill when about 200 amendments came through at the last minute in part. So the tax burden fear is coming.

So those are the two areas of uncertainty. They are not areas of uncertainty that I think affect this year very much. And the interesting thing about 2008 was, despite Lehman, the fourth-quarter 2008 was relatively unaffected. If you go back to the graphs on growth, you will see that it was pretty flat. We did not see an effect of Lehman, the sort of terrifying effect of Lehman, until the budgets -- most of which are done on a calendar year basis for 2009 -- were put in place.

So 2009 was cost cutting, fear from Lehman. 2010 was done this time last year at a time when it was becoming apparent the world would not come to an end, so a bit more relaxed. 2011 may be about midway between the two because there is this uncertainty.

There is also conservatism driving boards. It is not just Toyota product recalls. It is the Goldman Sachs issues, the Prudential issues, the failure of their deal, the BP environmental catastrophe, and events such as Hewlett-Packard, which I think have made boards even more conservative in terms of assessing and CEOs assessing where they are.

It is clear there are different speeds geographically whether you're talking about this sort of premiere league of the BRICs and the Next 11 and digital or whether you are talking about the championship to use the UK football analogy, I'm advised. Whether you are talking about the sort of middle range, the US, which has bounced back and TV which has bounced back, which are big markets never to be underestimated, or whether you are talking about Division I, which would be Western Europe. Even in Western Europe, we are seeing differences in speed. Germany is certainly stronger. The recent data on exports and GNP clearly shows and our data shows that Germany is the strongman of Western Europe. But Western Germany and Eastern Europe are growing faster than Western Europe and France, Italy, Spain, and the UK, not in Q2 -- maybe in Q1 but not in Q2 -- but maybe after the deficit reduction budget, which I think probably gets us in a better position in the UK in the longer-term, but obviously will have some effect in the short-term on industrial and commercial activity.

There is debate about double dips and deflation. I think we would be in the camp at the moment of saying there will not be a double dip, and we are more likely to see long-term -- underlying long-term inflation and higher interest rates at some point in time.

And then lastly, the interesting thing over the last few weeks is an increase to some extent of M&A activity. One whopper at the moment with BHP in potash, but you saw now the tension between or the fight between HP and Dell over a target yesterday.

So there is some increasing M&A activity, and that reflects strong balance sheets, very large cash reserves in most of our clients, and our high-tech clients, in particular -- all of them -- have massive cash reserves and unlevered balance sheets for acquisition activity.

That is the -- I mean to try and sum it up, there is a bit of a twilight zone here. When people say we are out of the recession, I'm not sure that is quite right. I think what CEOs are doing are trying to set the levels of expectation lower, either performing at expectations or outperforming them. What they are doing is they are because of these uncertainties they don't want to overcommit themselves. But what they see in their business or be it at high levels of unemployment is reasonably good progress. And I think the outlook, as we put in the release, is probably a slog, which means slow, low rates of growth, lower than we perhaps were accustomed to, but some growth, some mild expansion.

At a micro level, what we are seeing with clients is they did the cost-cutting in '09. They have realized there is a finite limit to it. There is this uncertainty about where do they go now, and what they are focusing on and actually they have been pushed into it faster, what they are focusing on more and more intensely are the growth parts of the market.

So the BRICs and the Next 11, we are seeing a disproportionate influence on client thinking, and I would say interactive on digital and Internet, disproportionate impact on their thinking. And that is where they are looking for growth, having made the cost cuts, having managed the business.

At the same time, they are very -- and I have watched the quarterly reviews or half-yearly reviews of our competitors quite closely. It was interesting that all three of the ones that I looked at did mention at one point in the hour or two that were speaking, this issue about efficiency and effectiveness. But they did not highlight it, but they got it in. This, I would say, is the biggest short-term issue without a doubt from a micro point of view. Clients are still ruthlessly focused on efficiency, effectiveness and liquidity, cash flow.

So the hangover from Lehman is still there, and I don't think -- I think Jeffrey Immelt was right when he talked about the world being reset or others have talked about a new normal. That has not gone away, and that is why I say there is a sort of twilight zone as well. We have not really got out of the recession because people are still focused on cost, on effectiveness and liquidity in that way.

So having said that, new markets are to the 4, new media to the 4. We think Consumer Insights are to the 4, trying to understand why consumers -- that is you or I -- in shops and also corporates on the B2B market -- why they are changing in terms of their habits, describing some of the things I talked about. And inevitably this leads to industry consolidation, and there will be further consolidation, not just amongst our clients, not just amongst our media owners, but within our own industry, too, of I think significant proportions in all three areas over the coming years.

As far as our priorities are concerned -- one thing I should add actually, just going back, is to remember that when you look at our results, we are very much more skewed now to the second half. We have now settled into a pattern where our profitability is about one-third, two-thirds, first half, second half. It is much more pronounced. We have been unable to explain -- understand the reasons why. You would -- and certainly in comparison to our competition. Given the growing proportion of fees in our revenue base, you would expect it to be evened out more. But it's actually got more out of kilter over the years. And so I just would say, remember that in the context of what we are looking at or what you are looking at for the full year.

Growth targets remain the same. Fast growth markets, BRICs and Next 11 to be a third of the group in three to four years. Marketing services to beat two-thirds of the group, again, within three to four years. We are making progress on that, particularly in the digital area, and quantitative disciplines to be half of the group, which it is already.

Looking at the faster growing markets, they are around 27% of our business, excluding Associates. If we include Associates on a 100% basis, they are a third, which is where we want to get them in the longer-term. Scale of our business in comparison to the competition is very different, and just to highlight, again, we are running in the faster growing markets -- that is really Asia-Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe -- at more than twice the size. And that is reflected in this analysis by geography. You can see that we have a proportionally smaller amount of our business in the US and a proportionally bigger amount of our business in the BRICs and Next 11 and Western Europe.

Similarly, if you looked at a similar analysis of media billings by geography, number one position in terms of media planning and buying accounting for about 25% to a third of the world's market. And in the key growth markets such as greater China and India and Thailand, this is the [Reckmur] analysis. You can see that we have an extremely strong position ranked one or two.

In marketing services, again, the objective is to be two-thirds, including Associates. It does not make that much difference. A little bit more actually for Advertising and Media Investment Management. We are running about 60/40, 61/39 ex-Associates. We want to be two-thirds, one-third. Again, the big differentiating factor between ourselves and our competition is the Consumer Insight piece, which you can see is a GBP3.6 billion out of GBP13.6 billion. These are '09 figures because we don't have the full-year comparisons for the competition. But it would probably be even more marked or it would be more marked in the first half. But the significant difference is the Insight business.

And lastly, in terms of quantitative disciplines, about half our business today, if we include Associates, about 52%. So we are there in terms of where we want to be.

In terms of Direct Digital and Interactive, those parts of the business continue to take growing share. We are up now from 26% to 28% in the first half of this year, so continued strong growth in interest in that area. We lead the industry with three digital leaders, according to the leading independent research firm that creates the interactive ranking. These are the criteria for inclusion are mentions by our competitors. Not so much clients, but mentions by our competitors. They cover seven of at least nine key areas, including digital strategy, Web development and other areas, CRN, analytics, media planning and buying and emerging media, and is based on new business record as well. We have seven agencies that were named digital leaders. We have three of them -- OgilvyInteractive, VML and Wunderman. And again, I would refer you to the website and the digital day that we did with Merrill's a few weeks ago for further in-depth analysis of that. Our competitors are only each the maximum they have is one in each of those digital leaders.

In terms of digital, it is in all of our businesses, and we have global scale and quality across all the businesses. We have the most significant resource in the peer group in terms of geographic spread and brands and size. As I mentioned, we are the only group with more than one leader. We are the number one search and digital media buyer, and our Kantar businesses, particularly Compete, Cymfony, Dynamic Logic and Lightspeed, give us an Internet-based research capability which is unmatched certainly in that peer group of operations.

We have a run-rate now of $4 billion of digitally driven revenues across the group, and the proprietary technology, which does mark us out as different for good or bad reasons, we have $700 million investment in digital spend on WPP platforms, and we can use that data across third party and internal platforms externally, and we can access across partners to a common data warehouse. That proprietary platform or set of platforms enables us to differentiate ourselves we think and will be increasingly important in the future.

Our objectives remain the same, improving operating margins, flexibility in the cost base, using free cash flow to enhance share owner value, improve return on capital employed, develop the role of the parent company, emphasize revenue growth as margins improve, and improve our creative capabilities. This is the track record in terms of headline PBIT in our margins, and you can see the impact of the recession and the crisis in 2009, and the recovery in the first half of 2010, which has been pronounced. And I would urge you to look at the pre-bonus. I think the point Paul touched on, which is important, is that the incentive pools -- and I will come on to that in a minute -- the incentive pools are now being largely refilled. We are now -- last year was an extremely difficult year. Incentive pools were reduced quite significantly. They have now been refilled actually at maximum levels of performance. To remind you, we try and aim for about 15% of operating profit before bonus and taxes in the incentive pools at target and 20% at maximum, and you can see that we are an excessive 20% at the moment. So the incentives -- and there was about a GBP60 million, GBP65 million increase in our incentive pools in the first half of this year. So about 1.5 margin points more into the incentive pools. And that has increased significantly in the first half.

In terms of earnings per share, our earnings per share obviously came under significant pressure last year. We have seen a recovery in the first half of this year, and it is our ambition or, indeed, our target to bring our earnings per share for this year back to where it was in 2008. A number of people comment that 2010 or 2011, to be more accurate, might well see the recovery -- a recovery level back to where we were in 2008. What we're trying to do is certainly get our actual EPS, not pro forma, but our actual EPS back to where it was in 2008 in 2010.

If you think about the top line, in 2009 we were down about 8%, 7% to 8%. In 2010 we are up and running at the moment, 3.1% up, and we did not give a figure for our quarter two revised forecast. But anticipating that might be one of the questions that you might ask, that is around 4%.

So our budget this year for revenues was zero. Q1 was up to 2%. Q2 is up to 4%.

Interestingly, to compare that with what happened in 2009, budget was minus 2%, and we came at minus 8%, minus 7% to 8%. So we are over-correcting. There was an interesting article in the New York Times on Sunday about the CFOs -- about some analysis that was done on CFO's abilities. It did not mention CEOs. It should have done. So I should say CEO's and CFO's ability to measure and calibrate forecast. And basically it asked CFOs to forecast what they thought the stock market was going to do, and they were remarkably unsuccessful. Not surprisingly because they would be running hedge funds, I suppose, if they were successful.

But the interesting thing is it is borne out by what we see certainly in the last couple of years. We were clearly too optimistic in 2009, and clearly we have been too pessimistic at least so far in 2010, and that is reflected in those forecasts that I mentioned.

Now I mentioned about the refilling of the bonus pools. We are seeing this return to the flexibility and the business in terms of cost, freelance, incentives, consultants, and that is now back up to where it was in the first half of 2006. It was at 7.1%. It is now actually in excess of that, and it's a bigger business at 7.2% of revenues and variable staff costs, which we are very pleased about.

In terms of return to shareholders, you have seen this graph before. We look at free cash flow in a sense and distributions to shareowners in terms of buybacks, dividends, declared and dividends paid. And you can see that we are improving the return to shareholders, partly because of the increase in dividend. We froze the dividend last year, and we have now increased it to the maximum level that we said we could do post-TNS a couple of years ago at 15%.

As far as acquisitions are concerned, we continue to focus on the faster growth segments. So that is New Markets, New Media and Consumer Insight. We executed a few small acquisitions and investments in the first half. We have also done one or two acquisitions around specific clients as we have indicated we would do. We continue to find good opportunities, particularly outside the US.

But I would just be a bit of caution. Our Korean and Japanese competitors are being very aggressive in the United States as have some of the media owners, legacy media owners, in particular in digital acquisitions, and some of the prices paid are colossal. And we are also starting to see that in China where there is a new -- I think called the [gem] market where the price earnings multiples that relatively small companies are receiving, and these are, I think, notional because there is not much volume on these quotes. But you are seeing multiples of 50 or 60 times, and that is influencing vendors thinking, and we are also seeing this in Brazil. There are some mad scrambles going on at the moment in Brazil in particular as well as China.

So we have focused on acquisitions and investments in the faster growing markets in Quantitative and Digital, and there is an intercept between them, and it is sort of a VIN diagram intercept for Poland and Argentina and Brazil in two cases, and China and Chile. But faster growing markets, we have also made investments in Eastern Europe and Latin America. Latin America, we do believe this will be the decade of Latin America, driven by both the Olympics and the World Cup. And then in Quantitative and Digital, we have made significant investments and expansions, and I mentioned one or two acquisitions around clients. The first Geoff Howe around Colgate and healthcare and not just in the UK and in the USA, but also in Eastern Europe and in Public Relations and Public Affairs in Germany.

In terms of creative reputation, we are recruiting and continue to recruit aggressively, recognizing creative success both tangibly and intangibly; acquiring highly regarded creative businesses, particularly in the digital area; placing greater emphasis on awards, as well as rewards; and this year at Cannes was particularly gratifying because we're now extremely close to first place, and we expect further progress on that next year.

In terms of conclusions, we have moved as an industry from less worse in quarter four 2009 to stabilization in 2010, a little bit of both actually in the first quarter, but better growth in Q2 and into Q3, albeit we have to say, again, against weak comparators.

We have shown strong growth in revenue in Q2, up nearly 5%, particularly driven by America biting back, and traditional advertising biting back. America is up -- US is up by over 8% in Q2 and advertising by 4%, having been down by 4% in Q1.

We have seen very strong new business in players Paul has mentioned, and that has continued into July and August, and we have leadership positions in all the tables that are made.

Our headline PBIT margins, up 2.3 margin points, and pre-incented margins up 3.7 margin points versus '09. So we've refilled those pools. Severance was down on last year by about just a little bit under a half a margin point, but is still there, and we are still restructuring our business particularly in Western Europe where it is slower because of the consulted -- quite rightly because of the consolidated processes and legal issues. It is slower, and we are still restructuring the business there.

Strong cash flow from operations. Our average net debt was down GBP339 million on a reportable basis, and fully diluted earnings per share was up strongly by almost 50% to 19.1%. As I mentioned, dividend is up 15%.

On the outlook, US has shown the sharpest turnaround I think we have ever seen for a region, and it will probably still be the single biggest sources of growth in 2010. The faster growing markets were later into the recession, but show a similar trend, and we have seen particularly strong growth in recent months in mainland China and in greater China and in India. And we have had some very big wins in India in particular in the last couple of weeks in the telecommunications industry.

Direct, Digital and Interactive look set to outperform as well. And our Q2 revised forecast indicates the momentum in Q2 will be maintained in the second half with July as we have mentioned being up almost 7%. So we were talking about -- we are already up at 3.1% after July, and we are talking about 4% for the year.

Margin improvement, we feel comfortable with a 1% margin point or more versus 2009, and that is achievable. The second half of 2010 is more difficult because of the comparatives to 2009, and more difficult -- remember that we had the same margin in 2009's second half as we had in 2008's second half, which we were very pleased with at 15.4%, but it makes obviously the comparison more difficult to this year. But, again, in our Q2 RF, we do see some growth in the margin in the second half.

For 2010 and 2011, the average net debt to EBITDA ratios should return close to the levels of 2 times, which we committed ourselves. And, as I said before, we are aiming for 2010 EPS to be at the actual level of 2008, 55.5p.

So, in summary, we think we are well placed by geography and discipline to benefit from the trends. We continue to make a significant investment in digital tools and infrastructure, which we think gives us a unique advantage for clients. We are seeing continuously the major technology companies -- Google, Yahoo, AOL -- make investments in companies and acquisitions in companies that make them increasingly like media owners and less like media evaluators or portfolio analyzers. So increasingly -- you may have seen the clash last week between Google TV and News Corp. and the commitment of content for Google TV. So, increasingly, the technology companies are becoming media owners, and clients and, indeed, traditional media owners are becoming increasingly concerned about that conflict of interest.

So we think investing in digital tools and infrastructure is increasingly important. And one of them in OgilvyOne, and one we have the two largest direct digital and interactive operations with $800 to $850 million each of revenue, and they have the most significant international global footprint and headcount. Our ambition, as I said, is to drive the EPS to where it was in 2008 and to return to the financial model that we have always had, which we are getting into -- we are not getting into -- we are in that zone. That zone, if you remember, was 0% to 5% topline growth, half a margin point, 0.5% to 1% margin point improvement. That gives us organically 5% to 10% EPS growth, acquisitions adding another 0% to 5%. So we are not getting into that zone. We are in that zone now with the sort of revenue growth that we are seeing at the budget level -- not at the budget level, but at the Q1 RF level of 2%, the Q2 RF level of 4%.

And, as the world wrestles with the financial crisis -- and I think the world is still wrestling with it -- there is still uncertainty. There is still this twilight zone where our focus will become more intensely focused on New Markets, New Media and Consumer Insight, including the application of technology and data.

Okay. So that is the formal part. Questions?

Simon Wallis, ING. Two questions related to the cost space. Firstly, you mentioned establishment costs coming down due to double rents being phased out. Can the kind of current run rate of about GBP330 million be representative for the full year, or are there further savings to be made?

If you look back historically, we saw a range worth a point at 8% establishment cost revenue ratio at our best 0.7%. Last year had two things going on. One, a rapid change in workforce and underutilization of certain spaces. This year with the growth workforce, we have been able to do two things. One, rationalize some of that space and jettison it, and two, absorb that additional double move costs that we had to absorb. Both of those are washing through our system. So I think this year you might not get all the way back to 7%, but we will make about a 0.7% improvement compared to last year as a percentage of revenue, and that should be sustainable. It will be much more our operating norm. Last year was an atypical year.

Secondly, I think the average number of people is just about 100,000 now. Your press release mentions the kind of compromise you have to make between exempting business unit managers' demands for more people with cost control. Where do you think you will end the year?

Well, if you think about what happened point to point last year -- so we were down about 12%, which is very tough, and that was until the end of last year. We have now seen an improvement -- an increase of about 1.5%, 1.5% to 2%.

So net you could say point to point the average is obviously different. It is about 10%. If you think about what has happened to revenues, the revenues are down, let's say, 7% to 8%, and now let's say they are trending up plus 3% for a minute. Right. So let's take 7% and 3% as the figures for a minute. So it's sort of net minus 4%.

We have done what I think we need to do to get the business in balance. The reason there is that deference is because you have to go back really to 2002 because the businesses were growing it from 2002, 2003, 2004, 2005, 2006, 2007 before we hit the Lehman wall, let's call it, into -- or the subprime wall in 2007 and into 2008. So I think the business is nicely balanced now. I think we feel comfortable.

Having said that, we also said in the release that when we looked at the Q2 RF, the good news was the revenues are showing stronger growth. But we also said there is headcount expansion, and there's discretionary costs. There is more relaxation in that area. So I think we are concerned about that, and we want to keep our eye on that because the natural instinct, particularly in the IR business, a lot of people always say, you would not be in the advertising business unless you were an optimist.

So you have to be optimistic, and what tends to happen in these forecasts is the revenue gets stronger. And there is a fair bit in the costs as well. We see it in the headcount. We see it in the discretionary costs. And our people, whether they are CFOs, CEOs or whoever, feel more comfortable doing that because they see the revenue. I think they tend to be a little bit conservative on that particular in Q4.

I mean one of the things we do see always is this -- particularly when the revenues are growing in a year is that people don't take up their annual forecasts quickly. They tend to take them up slowly. And what they do, even if they see the growth coming through, let's say, in the first seven months of the year, it then has a concertina effect on the last five months, if you understand what I mean, particularly in November/December. So you see these silly things happening where people have had to force up the earlier months and they had to keep the backend months constant, and it looks like nonsense. It looks overly cautious.

So there are some inbuilt things going there in the forecasting process. I just think that where we are in the head count was the right thing to do because we were seeing signs of strain, particularly as we started to move into the first quarter and second quarters of this year. And the pressure on our people was considerable.

I mean I come back to the effectiveness, efficiency and liquidity point. Clients are being very demanding of us. I'm not saying that is right or wrong; it is just a fact. And they are putting our people under tremendous pressure. They want more for less, more for the same, rarely more for more. And we have to take -- so we've got to look carefully at what we do. But I think it was right to let the string out of it, let the reins out a bit. We did have a freeze. We took the freeze off really in the first quarter of this year. We have hired particularly in the growth markets like an India, like a China, other markets as well, Russia. And I think that was the right thing to do. So I would expect the headcount to increase a little as we get through the year. And maybe what you have seen in the first seven months, six months, is right, and you will see a continuation of that as long as the top line keeps going where it is. If the top line was to slow down, contract, then we would obviously have to put the brakes on headcount. But I think where it is is well-balanced. At the moment, I feel pretty good.

If you look at the overall revenue and the overall increase in headcount, if you were put on a desert island, what two things -- pieces of information would you want? Probably it is like-for-like revenues and like-for-like headcount. And I think that is what -- I think we have got it right at the moment given what we have seen.

Richard Jones, Goldman Sachs. Firstly, could you give us a bit more color on what was going on within different bids within the specialist communications part of the business and then rest of the world? Because those are two areas which might have still been slightly softer than some of the other areas?

Okay. Should we start with that? I think branding and identity continues to be a pressure project-based business. It is a little bit better than it was, less worse I would say. Healthcare, not as strong as it was last year. In Specialist Communications and Digital, I think as strong as it should be. But I think principally it is Branding and Identity and Healthcare that had an impact on that.

On the rest of the world, I think Paul covered it. In Asia it is places like Korea, Japan, Australia. In Eastern Europe, it was very variable. Poland had a very good year last year, but I think understandably was not as strong this year. Russia, on the other hand, has surprised us on the upside. And there are some markets -- although Spain has been overall difficult, the media market there has snapped back quite dramatically with the restrictions and the consolidation so far that has taken place there. So I think there was any that you would add to that. I think that is it.

France -- Germany certainly stronger. France still tough. Italy still tough. Spain is still tough. UK, better in the second quarter, but I cannot believe the deficit reduction budget is not going to have an impact in some way, shape or form.

Secondly, can you give us an idea of the scale and the split and growth rates between advertising and media?

I think you can work it out mathematically with the information that you have -- with the differential equations, I think you will work it out. If you have a problem with your differential equations, we will help you.

I will get back to you then.

I think actually we have given you enough data to figure -- David, yes, you can have -- (multiple speakers). The sage is nodding, so you have got it.

And then finally, in terms of variable staff costs as a percentage of your revenue, the incentive staff costs as a percentage of revenue, so are you saying that they are back now in the first half, back to the levels they should be, the sustainable levels? They should not go up any further than that?

Yes. I mean just to go back to the model. 15% is the OPBBT. We have very little competitive information on that. There is some of it leaks out occasionally if you put them under pressure as to what they -- you know, it is a major item. We are talking about in our case an increase of about 1.5 margin points between this first half and last half. And, remember, this half is the smaller profit half, one-third, two-thirds.

It is running at 23. I think it is 23.8, which is above max. We do have super max as well for businesses that are performing at the highest levels. I think it is roughly around where it should be. It's a little bit more than the 20% because we are -- we had a particularly difficult year last year. But we wanted to give you an understanding of what is happening at the pre-bonus level and at the pre-severance level as well. Because we don't make general provisions as we have seen elsewhere in the industry. And part of the reason for the margin volatility that you're seeing in the industry is that most of our competitors took a general provision in '08, which suppressed '08, sort of ballooned '09.

And now what is interesting is what is happening in the margin expansion in the industry. It is under pressure for the reasons that I have mentioned, but it's also under pressure for the reason we just touched on. Because those general provisions, although they helped in '09, are not helping as much into 2010.

So I think the incentive pools are probably at the right level now given what we know about performance. And when we do the Q2 RFs, we plug in the target max, super max levels that we think are appropriate -- or we think are appropriate. They are mathematically preordained by the formulary we have for the bonuses. These are mathematic -- largely mathematical formulas. These are not discretionary bonuses. These are bonuses that people understand or should understand what they have to do to make them.

Tom Singlehurst, Citigroup. The question I had was on pricing pressure. On the basis that you and a number of your competitors are making effectively '08 earnings off sub-08 revenues, so you have become more efficient relative to your natural business. I mean I don't think you are going to think customers are justified in asking for more for less, but at the very least, do you anticipate continued pricing pressure from customers as a consequence of that?

Well, I think you got to look at it in the context of not just 2008, you have got to drop backwards. Right? So the last cycle really was maybe obviously a different one. But they last cycle was, say, 2000 -- the Internet bust of 2000, 2001, 2002. Let's say, we came out in 2002. So you had three, four, five, six, seven and arguably eight -- six years of growth -- where you have got reasonable single-digit like-for-like revenue growth. And you had to -- and you grew your people base, your staff cost base off the back of that.

So when you got into '09, there was not just the impact of subprime, monoline, Lehman; there was also the fact that perhaps we had grown a little bit lazy in the previous years.

I think the cost pressure, it is part of this reset new normal. It is not going to go away. That is why I don't feel that the recession has ended. Things are better than they were. It is certainly not a dead cat bounce. I think we should all be surprised and talking to somebody just before we started, we would be surprised knowing what we know now that America has bounced back in the way that it has and that traditional media have.

There is a Deloitte report this morning which you can take issue with. I would take issue -- or our people -- certainly Adam Smith at GroupM would take issue with several of its conclusions. But what it does highlight is that traditional media bounce back.

Now it has bounced back from a very low. I mean media owners were congratulating themselves if they went -- they remind us 13 are like-for-like rather than the minus 37 I remember a couple of quarters ago. So I mean this was a little bit of sort of wishful fulfillment going on. So I think you have got to look at it in the context of that.

Having said all that, the cost pressure is not going to go away. And, again, I have said this for the last couple of quarters, and I will say it again. Anybody that says to you that there is sort of singular expansion in the industry is misleading you. At the very best, they are being economic with their actuality. Clients are very focused on cost. If you have the majority of your business in the United States and Western Europe, which most of them do, unless you are an Asian-born or Latin American-born or African-born or Middle Eastern-born or Eastern European-born multinational, you are still going to have large amounts of your business in those mature markets, which are not high growth, which are bouncing at the moment, but longer-term that is not where the growth is going to be. So they are going to be very focused on costs in those markets. And procurement, again, rightly or wrongly is very involved in making sure that the costs are the right costs. I mean in some cases I think it has gone too far, and I think clients are missing out on opportunities as a result of it. Because, at some point in time, there is a limit to what you can do on costs. But the pressure will continue to be there.

Charles Bedouelle, Exane BNP Paribas. Two questions if I may. The first one would be, can you detail a little bit what was the main driver of your revision in the forecast? So the up driver. Is it new business involved? Is it more geographically?

And the second question -- I know it is difficult to exercise -- can you give us an idea of where you '09 or directly in '09 that business is occurring at the moment in terms of growth rate?

Okay. Well, on the second, you can figure it out. If we go from 26 to 28, you can figure it out in terms of the proportionate increase. On the first point about Q2 RF -- and we give you give you the numbers for the digital revenues anyway, so you can just compare them. On the first -- I think the Q2 RF really is pretty much across the board. I don't think, David, there is anything -- it is more America, or it is more less worse in Western Europe. So I think I would not single anything out. But I just underlined that longer-term -- I think we have seen greater growth in India and China for example, and we will see greater growth in Latin America as we go through the year. But it is broadly across everything.

Patrick Kirby, Deutsche Bank. Two questions. Firstly, on the severance, can you say how much of that GBP43 million is TNS-related or residual related to that? And for the second half, by how much? You said (multiple speakers)

I think the answer to that is no. Okay?

There was an element of -- if you stand back and say, okay, where was the severance predominantly focused in the first half, it was still the run-through of Europe. And with the works councils and TNS being quite slow, there were some markets. But I would say -- well, I did actually look it up. It is about a quarter to further severance that we incurred. So it is still predominantly Europe, but it is across the board of our networks, not just TNS to your flavor.

And the second half overall for severance tails off -- (multiple speakers)

Yes, I think we have said actually at the preliminary announcement that, if we spent around $200 million last year, we would be spending towards $100 million this year. I think that is the sort of range. And obviously it would vary to some degree, but that is the sort of order of magnitude.

I think we would also say, if we were having this conversation last year, we would have thought the level would have been lower this year than it has turned out to be.

And my second question is just a general one on 2011. You have outlined some macro and micro issues. We are all wrestling with the crisis and so on. So are you still comfortable that media buyers, including GroupM, are looking for faster growth in the market next year relative to this year?

Well, if you look at where they are bunched this year, they were bunched lower, GroupM and everybody else, and they are now up at around GNP growth rates for the world, which are about 4.5%. And we are with variations between markets. But I think the World Bank or the IMF is at 4.5%, and industry is around that level.

I think I would rather take notice of that, but I think they will come out at around a similar level if you ask them today. They would say we will be in a similar range. I don't know whether you describe that as a slog or not. I mean, if you are in Western Europe, you probably do. But if you are in China or India, you don't.

So I would put it at about the same. But the degree of uncertainty is so great. And we've got a world economic forum, IBC meeting. There will be about 65 CEOs out of a group of 105 this week. So it will be interesting to hear what they say, and we have done some survey work on that group.

The uncertainty level is still at a very high level, very high level. So I think when somebody asked this morning about visibility -- you know, that word everybody throws in when they don't know what the hell is going on -- and I think the only legitimate use of the word visibility is as in short-term. So I think what we still see is the markets are very short-term.

So the money comes in. It is not money coming out. Money comes in late. You saw that to some extent actually with the World Cup. Independent of whether the teams did well or badly, you saw that.

There are some fundamental things happening, which are very positive from the industry's point of view. Automotive, as Paul mentioned, has come back. A lot of the volatility amongst particularly our competitors in the automotive category has been lost of accounts or Chapter 11 or whatever.

What we are seeing, as some media owners describe, as auto wars in the coming months. And the level of activity both at a local and network level, a spot and upfront level, is so significantly greater that they remark on it. And that is probably the category where we have seen probably the biggest swing.

Packaged goods companies are talking a lot about advertising and promotion. You see it in their numbers. But, as we indicated in the release, we think there is significant amounts of P in there as well as A, and I think there is a very important difference between the two.

And what you're seeing is, with packaged goods companies, is volume increases are stronger than value increases. And that is indicative of two things. One is expansion into the faster growth markets. It is more difficult to get your margin in China or India or Brazil or Russia than it is in the mature markets. It is a little bit to do with commodity costs, and it is also to do with promotional activity. So price activity and retailers are putting pressure on the manufacturers to -- whether it be through slotting allowances or trade discounts, if you want to trade, you are going to have to give me more significant discounts to trade.

So I think it is all sort of mixed in with that. But I would say for next year where I would be at the moment is sort of similar to this year in terms of what you will see from the GroupMs and whatever else, but we will see how we go through the year.

Simon Baker, Credit Suisse. Two questions, please. Firstly, Martin, you said CEOs are setting expectations low. Mindful that --

No, I did not. I was very careful on that one actually. I said low or at expectations.

Still mindful of that. And also your EPS guidance being quite specific for this year, would you include WPP's --

It is not guidance. I said it is ambition or target. I don't know whether that comes as guidance or not.

Mindful of all of that, would you include WPP in that same camp?

No, I think we would try and say it as it is. I mean we are giving you numbers -- I said this morning like that we are a bit like the food retailers. We are giving our numbers every month now. We have not gone to a week, and we have not gone today. Maybe that was what we should do. But we're doing it every month. So when you see 2.5, you know that for the first five months we were at 2. Right? You now know it is 2.5 to 6 months, and you know it is 3.1 for seven months. And if somebody asks us what we did in August, we will probably, somewhat grudgingly, but we will probably give you the number. So you really do know what we know at the end of the day. And so we are trying to give you where we are actually. I mean we can shut up shop and say, you could use the word guidance. I would not call it guidance. We are just telling you what we see. We can shut up shop and say, no, and you can wait quarter by quarter. But what we say we will tell you.

Thank you. That is good. And the second question was, just in terms of the net new business that you have been achieving this year to date, it looks extremely impressive. One of the groups that you seem to be winning a lot from is Aegis, which if I look at your tables, it seems to sort of crop up for about $1 billion.

We put that in. I don't know whether that is fair or not. I think if you do the analysis, it is a bit more broad than that. I don't think there is any -- we just threw it up there because it was just -- we think it was an interesting piece of information to see where it is coming from.

I would not say that. I still -- in the media area, the snapback in Spain, the snapback in Russia, the snapback in some other markets has made pricing guarantees that were given. More difficult to fulfill. So it has made it a little bit more difficult. There was an interesting article in Ad Age yesterday, an interview with Vincent Bollore and his views on Havas and Aegis. I mean there is still that situation to be played out. It is getting an exhausting, an exhausting scenario. We talk about it every year, but it is still there and still not played out in my view, our view completely. So you may still see some consolidation to come in our industry as well.

Colin Tennant, Nomura. Just continuing on that subject, your acquisition spend first half is trending obviously a bit below the target for the year. Can you maybe give us an idea of what the pipeline is and the environment is at that sort of level, and maybe how that target is going to develop next year?

Significant -- I mean there is a significant pipeline. But I have got to say that I did touch on it, and we were going through the slides yesterday, and we did add a little bit on what we are seeing in China and Brazil. I mean there is that IPO market is quite hot and on the very small companies. I mean tiny companies, which in the context of exchange in the UK and the US would not be listed even on a name market.

And the valuations that they are achieving -- supposed to be achieving, whether they are real or not -- are very high. So I think that is having an impact on thinking there. And we have seen it similar in Brazil, not quite as bad but similar in Brazil. We have certainly seen it in the US with iCrossing and 360i to be specific. With Barbarian, McGarry Bowen, I mean these prices are very, very high. And it is not just, by the way, our competitors. We have also seen some legacy media owners like Hearst come in at high prices, we guess, supposedly to catch up on digital development.

But there is a lot of -- I mean if we showed you the list of things that we are looking at, there is a lot -- I would say probably the pipeline in that sense has increased. But I think there are some pricing issues developing, even in the small and medium-sized areas. It is not quite what it was before. That may be because the ground is now more picked over. I don't necessarily share that view, but some people have that view. I think if you look, there is plenty more. But prices are an issue.

And with money so cheap, even if you put the margin in, forget about the interest rate, you just put the margin in on top of it, these things look -- you can talk yourself into these things look cheap. So there are some prices that are being paid that are quite high. So we will continue the small and medium-sized acquisitions. As we said, we want to get our EBITDA ratio down to 2 times as we committed at the time of the TNS acquisition. We got a little bit away to go. Although if you can make some assumptions, you can figure out where it will be at the end of this year. So we should be into the target zone. But I think pricing is something that more concerns me now than it did six months ago.

(inaudible) stock cost for existing staff levels? Because I think he did an admirable job in keeping it down to plus 0.2. But going forward, given that I think your fare ahead is inflation and not deflation, how are you going to sit on those costs?

Well, I said long term. I did not say short to medium term. That was to cover myself because I don't think it is going to be short to medium term. The Fed's actions, the central banks' actions in the last few weeks and months have been more to keep interest rates down than to follow the Israeli example. I think was the first central bank to move interest rates up post-Lehman.

So I think -- now just on the talent point, and again to be very blunt, we are seeing more churn. So if we compare the churn, the turnover in our businesses this year as opposed to last year, there is more there. And that is one of the reasons to go back to -- I think it was Richard's question -- about the incentive pools -- or Patrick's -- the incentive pools I think refilling that.

I was very interested. One of our competitors said different model now. More fixed cost, less variable. I disagree totally with that. I think it is probably the reverse. Okay?

So I think getting the incentives in place is very important because there is not just the competition from our industry. We are getting more involved in digital, and you cannot segment the digital people in our industry and say they are different than people going to work at Google or Facebook. I mean it is the same pool, and we are fishing from the same pool. So we have to be careful on that.

So I'm not worried about the point -- I am concerned about the churn. Now churn gives you -- there is the flip. The good news about churn is it gives you more flexibility. Because the growth of the churn, if you do have to do something about the headcount increases, you get more ability to do it.

(inaudible question - microphone inaccessible)

No, it means it was a tough year last year. Okay? It also means growth. I mean high churn -- the conventional HR was the news high churn, bad management. It does not necessarily mean that. High churn can mean high-growth business as well as you know from your own industries.

So it is a mixed picture. But one of the things that in this research that we did amongst CEOs recently, which is really interesting, is that they -- the biggest challenge they say I'm not talking about our industry. I'm talking about in general. The biggest thing they say, one of their biggest issues is talent and keeping -- that is where the premium. Despite 9%, 8%, 10% unemployment talent, keeping people, finding people is still going to be the biggest issue.

So I think you have got to watch it. But I'm not concerned about the point that you are making at this stage. Maybe in 12 months time it will be more relevant, but not at this stage. And I am, I think, quite pleased. I think we are pleased as a group where we are in terms of our incentive pools.

[Richard Benz], Merrill Lynch. Three quick ones, if I can. First, just in terms of buybacks, I just wonder at what point you have to get to before you might commit a bit more on share buybacks?

I would always answer that on it depends on the relative merits of capital expenditure, and we are making investment decisions in the digital platform. So that is one thing. Capital expenditure generally. Not more buildings, please. M&A, and then pricing, the comments I made on pricing are relevant. And then it is share buybacks and dividends. And we bumped the dividend. I think it is relative. (multiple speakers)

(multiple speakers) -- taking into consideration is we tried to make sure that we don't have dilution occurring from maturing share plans. So we always have an amounting share in the ESOP really to fund in, and we work that through. So I think Martin has answered the question. It is sort of under review. But we know what we've got to achieve in our net debt to EBITDA goal before we can really be too expensive.

It is nice to have that question rather than the question this time last year was, how are you going to be at the debt level? So things have swung around. So I think we will see how we get on as we go through the next six, 12 months.

The second question was just you mentioned price guarantees and how some are not fulfilling. I just wonder, as the markets recovered, are you seeing less aggressive tactics on that front in terms of pitching, or is it still --?

I think some people are feeling quite wounded and sore, and that is going to continue. But we're now going into some of the gory details. I mean there were some things going on, I think, in that area which have still got to play out. And that might be influenced. If I am sitting there in Aegis with the Bollore sort of acts about to fall, if that is the right analogy, or Bollore about to pounce, I'm probably likely to be more aggressive and leave it to being a problem for him or somebody else rather than my problem. It is possible.

But you know, if I have got a smaller share, I probably want to be more aggressive. We have seen that, too, not from Aegis but from others. R&D is being particularly aggressive in that area. So, for example, in a market like China.

Do you think your net new business trend -- (multiple speakers). Your positive net new business trend, does that all reflect the fact maybe that you have been able to stick to the guarantees you have made versus others?

We have not made that many guarantees. So we have made some, but not that many. No, I don't know whether that -- I think I would like to think it is the quality of what we do. I think the emphasis on price has gone too far. I mean I will say this, auditors will compare prices, and they compare the prices without putting the pre-conditions or the insertion time or the audience, or they compare a pharmaceutical manufacturer with a packaged goods manufacturer. And the basis of the comparison can be inadequate.

So it often can be a superficial analysis. There often is a very good reason for pricing differential. And it may not have to do with -- this is not widgets. Even in the media buying area, it is not widgets. We are not buying and selling widgets. There are reasons for differences. And the trouble with audits often is, unless there is a lot of explanatory detail, they tend to be quite superficial on that. So this -- I think it is more reflective of that actually.

Richard Nunn, Charles Stanley. Can you just tell me what your current international to local client split is across the business?

I would give a 50-50 -- it is probably more 60/40 to the international. I mean I think we are still skewed -- I mean, if you look at our largest clients, our top 30 or 30% of our business, those would be all the multinationals. Our top -- the analysis we do -- what does that account for, David? 70? I think all our multinational is defined as over three countries.

(inaudible - microphone inaccessible)

Okay. We would be about 70% of the business. So I would say 60/40 would be fair. What we would like to do is have 50-50. Because the definition of a local, for example, Bartee -- Bharti Airtel a few weeks ago or months ago you would say was an Indian company. It acquired Zain. It becomes a multinational. Reliance would be similar. So the definitions are quite difficult.

The reason why I asked that is just understanding in terms of client spend. Are you seeing an increased client spend on multinationals versus local in terms of future growth?

Well, we focused -- we have these global account teams now. So we have, 30, they are appointed -- we have appointed now I think it is 19 or 20 of the 30. So our top 30 clients will have a global team leader. There will be some others as well. We are very focused on those.

So you would expect because of that focus that we would increase our share. So we are trying to increase our share of those 30 and others. (multiple speakers) Sorry, at the WPP level. So you would expect that 60 to grow.

On the other hand, we are also pushing our country managers of the brands, and we are experimenting with WPP country managers in various countries to expand their knowledge of local people, local clients, the new multinationals of the future, let's say, the Bharti Airtels of the future. So I think there are big opportunities with those two.

So this definition issue is getting very difficult actually. Because if you look at what is happening in the M&A market, a lot of the chaebols, the Japanese multinationals, the Russians, the Chinese, the Indians, the Brazilians -- I mean you have got three -- [Vali] -- where are they going to go and bid for potash. They were (inaudible). I mean these are all -- so it's very difficult actually now to discriminate. But I think the answer to the question is theoretically you would like to be at 50-50. We are probably at more 60/40 to multinationals.

Anybody else? Okay. If that is it, we are available for any more. Thank you very much. Thank you.