WPP PLC (WPP) 2014 Q4 法說會逐字稿

Welcome everybody to our results for 2014. I'm here in London with Paul Richardson on my left, Group CFO; Brian Lesser, CEO of Xaxis; and Irwin Gotlieb, Chairman of GroupM. We thought it would be useful to have both Irwin and Brian here as I'm sure you'll have a number of questions in relation to programmatic or targeting audiences, and some of the things we've been doing in data and technology and, indeed, content.

We've got a long presentation. Apologies for it being so long but there's a lot of ground to cover and Paul and I will share the presentation. Paul will kick off with results for 2014. And then a brief update on GroupM and their views on this year and next year on the report on the future of the media industry, and then I will cover our four core strategic priorities, key objectives and then a brief outlook and conclusions.

If I was to summarize the results of 2014, I think we would summarize it very simply as another record year, despite the strong currency headwinds we had to suffer as we reported in sterling. That was a 6% to 7% currency headwind. So I'll pass it over to Paul now to go through the results.

Good morning, good afternoon, ladies and gentlemen. As Martin said, another record year in 2014 with billings of GBP46 billion, up 6.8 in constant currencies and flats in the reported basis. On a revenue basis, growth was 11.3% in constant currencies, and up 8.2% like-for-like, reducing to a revenue growth of 4.6% as a result of the currency negative at 6.7%.

On net sales, which is probably a more appropriate measure of our topline growth, we grew at 6.3% in constant currencies and 3.3% like-for-like, reduced to flat, again as a result of currency being negative 6.4%. Headline PBIT, or profits before interest and tax, at GBP1.681 billion was up 8% in constant currencies, reduced to 1.1% reportable by the currency negative of 6.9%.

So reported net sales margin, again, one of our key metrics, was up 0.2 margin points to 16.7 on a reported basis, but up 0.3 margin points in constant currency in line with our fully emerging target of 0.3 margin points improvement per annum. Headline diluted earnings per share were up 5.1% to 84.9p in reported terms, and up 12.6% on a constant currency basis. Dividends per share at 38.2p were up 11.7% and a payout ratio of 45% achieves, compared to the ratio of 42% last year.

We were number one in new business league tables for the third year in a row. And on our balance sheet, the valuable of our investments, currently stated at GBP669 million, increased by around GBP400 million in technology and content investments, principally Vice and the new partnerships without AppNexus and Rentrak. And finally on this page, the return on equity improved to 15%, up 0.6 margin points from 14.4% in 2014.

In terms of results versus consensus, we were basically in line on a net sales basis and headline profit basis, slightly better than anticipated financial costs are profits before tax were slightly ahead of consensus at GBP1.5 billion, versus consensus of GBP1.48 billion, approximately 2% ahead. And rippling down to the earnings per share with a share buybacks bought of 3% through the year, our earnings-per-share growth leading to 84.9p, was slightly ahead of consensus for 82.2p.

When we compare our performance to our targets, basically we set out in the beginning of the year at the time of the budget. We basically had more than 3% identified as our growth in net sales which we achieved at 3.3%, our net sales of margin improvement on a constant currency basis we target 0.3 margin points, again we achieved that as mentioned earlier. On a reported diluted earnings per share basis we target 10% to 15% growth, and obviously on a reported basis because of currency, we were only up 5.1%, but when you include the benefits of the impact of currency you've at 12.6% improvement in headline earnings-per-share.

So overall a good performance versus target, despite the currency headwinds of between 6% and 7% through the P&L. So in terms of currency on this slightly complicated chart, you can see here how strong the pound had become over the last two years against US dollar. The weakness in the pound around March to July 2013, about [GBP1.50 to the dollar], move very strongly up over the next 12 months until we became $1.70 to the pound.

And you can see then that the strengthening of the pound and how it had an effect on us last year in the first three quarters of last year, approximately minus 6%, minus 8% and minus 7%. That has reversed in the final quarter of this year and we are expecting a currency benefit from the stronger dollar, which has now returned down to $1.50, to benefit us in 2015.

When I compare that to the euro, where the pound also strengthened considerably throughout 2013 and 2014, starting with the trough at [GBP1.16 to the euro], has now reached EUR1.27 by the end of the year, and is now EUR1.39 today. So in fact the weakness of the euro has hurt our European results and will continue to hurt us in 2015 as the pound has continued to strengthen against the euro. When you net the two impacts together of the pound versus the dollar, the pound versus euro for 2015, we expect on a revenue basis for it to be basically flat throughout 2015.

In terms of headline summary reports at a glance, a couple of things to pick out here. In terms of the revenues of the group, which include direct costs of research and pass through costs and a digital billings through the group, we have approximately GBP1.5 billion included in the revenues of GBP11.5 billion, compared to the net sales line of GBP10 billion for the year for the group. EBITDA is strong at GBP1.9 billion, up 7.5% on a constant currency basis, and in fact when you compare our market price of enterprise value to EBITDA, we currently trade at just under 12 times compared to just over 10.5 times a year ago.

Headcount was kept in check throughout the year, on average rising about 1% point-to-point on year-end date we down 0.4%, and leverage remained constant at 1.6 times average net debt to EBITDA. Within the P&L we had a number of items going through of an exceptional nature. On the left-hand side, we see here a number of investments we made where we contributed both revenues and assets and some cash contribution for these partnerships with both AppNexus and Rentrak. We currently own about 17% of AppNexus and around 20% of Rentrak, and a result of those contributions, we've ended up with an exceptional accounting gain.

Likewise, with our investment previously in oOh! Media in Australia, when they did an IPO we sold on half our stake and generated about a GBP10 million in sectional gain. There were in total in the full-year, GBP196 million of exceptional gains recorded in the P&L, but outside headline. And in the final quarter where we saw some traditional businesses in certain markets come under some pressure, we decided to enter into a restructure program, principally severance, which totaled GBP67 million in severance, of which three quarters of that was based in Europe.

There were some surface property where the payback was 3 to 4 years. Again, we've enter that into a restructuring program, and as part of our IT project we took a charge of GBP39 million throughout the year, as we now move forward with our transformation and IBM partnership. The good news is that, although there won't be savings coming through for this particular partnership, IBM transaction 2015, we're expecting quite significant savings coming through in 2016 of around $50 million and around $75 million in 2017. And despite these exceptional gains, the exceptional costs throughout the P&L, there was a normal level of severance going through the P&L for 2014 of GBP37 million, compared to around GBP27 million in 2013.

Now turning to the revenue waterfall, you can see here where we started the year of GBP11 billion with organic growth of 8.2%. Acquisitions earning 3%, but the currency impact meant that we only grew on a reported basis of revenues 4.6% and the GBP11.5 billion as I mentioned before.

When I do the same on a net sales basis, we end up at GBP10 billion, having started there with organic growth of 3.3%, acquisitions adding 3% and currency being minus 6.4%. Net-net flat overall after the 6.3% growth in constant currency.

Turning now to the detailed headline profit and loss account on slide 13, you see that net sales on a reported basis are flat, but on a constant currency basis up 6.3%. Profits before tax after benefit of low interest of GBP1.5 billion were up 3.7% on a reported basis, up nearly 12% on a constant currency basis, and tax remaining at 20% and so diluted earnings per share at 84.9p, were up 5% on a reported basis and 12.6% on a constant currency basis.

When I look now through the structured reported P&L, you see actually the performance of the group on a reported basis, because of two exceptional items coming through the P&L, actually mirrored the constant currency growth in the earnings of the group. Within the statutory number that was obviously a net exceptional gain of GBP61 million which I referred to earlier and lower amortization charges going through on goodwill and impairment. Which meant that on a profit after tax basis the group's GBP1.152 billion was up 13.8% on a reported basis, and a diluted earnings per share of 80.5p on a reported basis was up nearly 16% compared to last year.

Turning now to how we build up the revenues and how it reports under the various currencies. So on a like-for-like basis net sales was up 3.3%, acquisitions added 3%, hence constant currency growth was 6.3%. On foreign exchange which is negative on net sales of minus 6.4%, you could see on a reported sterling basis, net sales were basically flat.

However, if we were a dollar reporting Company, we would have reported net sales growth of 4.9% and if we were a euro reporting Company we would have reported net sales growth of 5.4%. When you move to the right and look at the headline EPS, on a similar basis either in dollars or euros, you can see that on our own basis of constant currency EPS growth of 12.6% is consistent with either reporting in dollars or euros in this particular example.

Moving now to the revenues for the year. On a full-year basis and just bearing in mind I want to go through how the two halves are broken through for the year, both 2013 and 2014. 2013 started quite weakly in the first half. Net sales growth of 2.2%, ending quite strongly in the second half of 2013, at 4.2% growth, having net sales growth of 3.2% for 2013.

2014 was almost a mirror image of that, in terms of strong first half at 4.1% growth, in the first half of this year. The second half, slightly weaker at 2.5%, but overall very similar level of net sales growth of 3.3%. And you'll see here through the charts, obviously through to the softer second half, we've actually had a fourth-quarter growth of around 2.1%, which will go through in the various slides by geography later on.

The key point to notice here in terms of the difference between revenues and net sales is as we've grown in our digital media billings in the advertising media investment management category, the difference in like-for-like growth of revenues at 16%, is very immaterial compared to like-for-like net sales growth of 5% on a net sales basis. It is the one discipline in which this area has had a significant impact in 2014.

On the data investment management business, revenues and net sales are very similarly growing at around 0.6% on both revenue and net sales basis. And in Public Relations and Public Affairs, there's been a consistent growth of revenues at 2.5% net sales growth of 2.7%. This is the one discipline which in the second half didn't slow down its rate of growth and continued the first half of rate of growth in net sales of 2.7%, likewise in the second half.

In Branding Identity Healthcare and Specialist Communications, which represents about 30% of the group now, revenue growth was 4% and net sales growth for the full-year basis was 2.5%. So overall, by discipline, revenues are up 8.2% and net sales are up 3.3%.

When I turn now to geography, on the same basis you can see actually the revenues in net sales, when you compare across the four geographies, in all markets there is this difference between the reported rates of growth, partially because of both the Kantar businesses and the group additional businesses. So in North America, like-for-like revenues grew on a full-year basis 9.5%, and on a net sales basis growing at 3%.

In the UK, where growth was strong, revenues are growing at 12.9% for this year and net sales up at 4.8%. In Western Continental Europe, although it's relatively low levels of reported revenue growth of 3.8% and net sales growth of 1.1%, it was one region where the second half growth picked up in the year and actually growing at 1.6% on a net sales basis in the second half. Asia-Pacific, Latin America, Africa and the Middle East we grew revenues at 8% and net sales at 4.6% on a full-year basis.

Finally in terms of how we fared in January, we've given you a little bit of an update in terms of the press release. In January the overall growth in revenues was 6.7% and on net sales 3.9%, particularly encouraging growth in the USA, Asia and the market research discipline.

Turning now to how that shaped into margin performance by discipline, so in our strongest margin business, Advertising and Media Investment Management, grew margins at 0.1% from 18.5% to 18.6%. In our Data Investment Management business they grew stronger their margin from 14.3% on net sales to 15.6%. And that resulted in good cost conversion, some of the benefits of restructuring action they'd taken two years ago coming through in Western Continental Europe and also a disposal of a business with a lower than average margin of the Kantar Group's coming through early in 2014.

In Public Relations, Public Affairs, with a margin growth of 1.1% to 15.8%, there was good performances from all our major networks and our specialist public relations agencies, hence the margin returning to the higher levels we've seen before. In our Branding Identity Healthcare Specialty Communication businesses, our margin 14.7% down 1.3% on last year and performances really in our Healthcare and Branding business is slow throughout the year. And certain of our specialist businesses in Western Continental Europe also found it challenging, hence one of the reasons why we take the restructuring action we did in the second half of this year.

In terms of margin by geography, North America is one of our better margin regions, having a margin improvement of 0.5 margin point from 17.4% to 17.9%. So a good performance there. UK again had a strong margin, 15.8% this year compared to 15.7% last year, and in Western Continental Europe despite the difficulties in terms of topline growth, good cost control and management coming through with the margins improving 0.6 margin points to 12.3% to 12.9%.

In our strongest margin region of Asia-Pacific, Latin America, Africa, Middle East and Central Eastern Europe, our margins did slip slightly down from the 18 point last year to 18.3, and there's some issues in certain markets such as Brazil and Mexico and Latin America and the Middle East where the topline growth wasn't as strong as we had expected. But otherwise good performance is coming out of our Asia-Pacific, Latin America region, with 18.3% margin overall a strong margin.

Now looking at the world in terms of reported revenues by the various subregions, again quite a complex graph to follow in terms of the top figure is the Q4 reported revenue growth. The bold figure below is the full-year percentage. So you can see overall for example that in the mature markets, growth overall was 8.2%, very comparable to the faster growth markets of 8% growth on a full-year basis.

So the group having grown at 7.8% in Q4 was very similar to the full-year rate of 8.2% for the year overall. You see some strong growth coming through there on a full-year in Asia-Pacific, on our revenues of 8.5%, the United Kingdom at 12.9%.

As you look now to net sales on a similar format. The italics topline number is the Q4 net sales growth on a like-for-like basis and the full-year is below it.

Overall you see for Q4, overall net sales growth at 2.1% with a mature markets being 1.6% and the faster growth markets 3.3%. And in the fourth quarter you as you see here on the chart it weakened slightly in the USA, United Kingdom, Latin America, Asia-Pacific and Central Eastern Europe, has strengthening in Western Continental Europe, Middle East and Africa and Australia, New Zealand. But overall, in terms of the group, 3.3% organic net sales growth with 2.7% coming from the mature markets and 4.6% coming from the faster growing markets.

Turning now on a similar basis to looking at the revenues and net sales for our largest five markets, which represents 62% of the group and therefore grew consistently in line with what the group experienced, i.e., they grew at 3.4% where the overall group as 3.3%. We've spoke about USA, you can see its performance on net sales moving up and increasing from the lower point in 2012 up to 3.1% in 2014. Couple of strong years seen there in net sales growth, annual revenue growth in the UK.

Greater China steady at around 4% on net sales and 8% on revenues coming through this year. And in Germany an improving trend on net sales from a low point of minus 1.5% net sales in 2012, to an improvement of 3.3% of sales growth in 2014.

And finally, France has just been weak for us but less weak now than it was in 2012 when we were down nearly 3% and were basically flat in terms of net sales growth in 2014. When we look at the same on the BRIC markets which represent 12% of the group, are growing stronger overall at 4.6%, you can see the spread of performances in the four BRIC countries. So China we mentioned at 4%, I think Brazil was slightly disappointing compared to the prior-year, having grown that nearly 8% in 2013, basically flat or plus 0.7% in 2014.

India has been the star for us in the last two years having grown at 6% in 2013, accelerating to 10% growth in 2014. And Russia, despite all the difficulties and although growth has slowed, we still grow in the topline in Russia around 7.5% on net sales. When I look at the overall BRIC markets growing this year at 4.6%, and despite difficulties we will experience in Russia in 2015 with our growth rates, we are expecting the BRIC markets to grow at over 5% for 2015.

In terms of looking at the revenue split by country which we've really covered I think thoroughly in terms of regional analysis, so I won't really comment again at all in terms by category, it's pleasing to see two of our major categories closely averaging, both automotive and financial services, there's nothing much more to comment on those particular categories.

More pleasingly I think on new business, we now show, will give you two or three slides here on the total trade estimates for major new business wins of over $100 million of billings during the year. These tend to be weighted towards the agency and the media businesses and these tend to be weighted towards the US and European agency wins.

As you can see here, GroupM in particular, in fact media in particular, had two very strong wins in the final quarter which is significant to the group in overall amount of billings that they have achieved, coming through in the final quarter. And a succession actually, of fairly significant media wins coming through in Q4 on slide 26 and 27.

And a couple of switches coming through, again on the media business, one globally for Blackrock in the final quarter and one likewise in Australia between our two agencies coming through there. Interestingly, we have had a look at the trade estimates in new business wins and identified from whom and to whom the various business flows have occurred. And I think the most interesting point to note here and I'll let you draw your own conclusions, is around 30% of the trade wins for new business are basically outside the big five holding companies and from independence, and that movement of 70% within the big five holding companies and 30% outside is reasonably consistent obviously during 2014.

When we look at our own internal estimates of new business won, we had a very strong year last year as you may recall, of $9.8 billion of billings, this year we were nearly there at $9.3 billion, so a very similar in terms of new business performance. However, a very strong Q4 with $3.5 billion won in the quarter, is approximately 38% in the full-year billings. That should set us up well for 2015 in terms of new client business.

In terms of the first quarter, or the first two months year-to-date, quiet time in terms of picture so far, with one agency pitch switch in the UK. One of our clients and a couple of wins in India. There's nothing of major significance occurring in the first two months of this year in terms of new business won and lost.

In terms of cash flow on slide 32, operating profit of GBP1.5 billion converts into net cash generation of GBP1.5 billion after interest and after-tax. And then more interestingly is how we spent the funds in 2014.

So the GBP1.5 billion generated, CapEx was lower at GBP214 million, it was lower both at the property level and at the IT level compared to last year's number of GBP285 million. Acquisitions spend was considerably higher at around GBP495 million, compared to GBP220 million last year, and share buybacks was stronger having brought in 1.4% last year costing nearly GBP200 million, we brought in 3% this year costing GBP511 million.

Before dividends this year, cash generation was GBP162 million, and after dividends paid cash outflow of nearly GBP300 million, to be precise GBP298 million outflow for the year. However, because of the improvements in working capital at the year end, we actually were positive by around GBP295 million, the average net debt for the year on slide 34 you see hardly changed, either on average or at the point to point time in the year.

In both cases, numbers are very similar on either a constant currency reported basis and therefore our leverage, as measured by our average net debt to headline EBITDA, at 1.6 times, was consistent with and continues to be at the lower end of our range as we describe it, being between 1.5 to 2 times. So we remain a 1.6 times with some opportunity for higher leverage going forward.

In terms of the uses of free cash flow in our various targets and goals in which, in terms of spending, we've mentioned here the acquisition spend which was higher. Our normal cash sum set aside for acquisitions in the year is around GBP300 million to GBP400 million. The footnote too is important for this year.

We will continue to spend that sort of amount on cash acquisitions, however, we are going to exempt or pull out of that, the funds already set aside for [IBOPE] comScore, which alone will probably amount to GBP400 million, to be paid out early and 2015. We do expect to do additional small to medium-size acquisitions from cash resources later in the year to fulfil that obligation as well and to grow the top line.

Share buybacks, again our new mantra is to buy in between 2% to 3% of share capital each year. Obviously about 1% to negate share option dilution so therefore it should be earnings enhancing in doing so. And the payout ratio, we have reach our target payout ratio of 45% one year earlier than anticipated, and your board will consider what are the next steps we'll take in terms of dividend payout and target ratios shortly.

So in terms of earnings overall, over the five year history you see we've grown from 44.4p, we growing it at 5% this year to 84.9p. But over all that five-year period, the compound average gross rate in earnings is around 13.8% from that low in 2009.

Looking at tax rates, again a good year, headline tax rates of 20% compared to 20.2% last year. As I mentioned in the morning, I think we've hit our low water mark in terms of the tax rate on headline. It is also very consistent with our reported tax rate of 20.7%, or cash tax rate which is also 19.2%. A consistent story there around taxes.

And in terms of the amount that we spend in terms of our social taxes between employer and employee, we reckon it's about GBP1.5 billion this year. I'm now $1.5 billion. I beg your pardon.

I'm now going to turn to GroupM. This year, next year reported that they do. It's done around December each year at one of the presentations. It gives an indication of what people can expect the outlook for the year ahead. I think we look at both the growth in GDP one year versus the next, and the growth in marketing and advertising spend.

And this time a year ago, Adam Smith would said okay, I'm expecting marketing and advertising services to grow at 3.9% throughout 2014, and when he stepped up a few months ago he said in the outlook for 2015 I'm expensing that to improve to 4.9%. That's encouraging and you see as global GDP has improved, we have also improved the rate of growth in advertising and marketing spend. Although we are still behind the growth of the rate of nominal GDP growth in 2015.

In terms of where has that growth come from, if you look at the world in terms of share of advertising and marketing spend, at the peak levels at 2002, 2005, 2006, you can see the old world of traditional markets, mature market have not yet returned to that peak advertising marketing spend budgets that they were encountering or were spending in those earlier years. However, some of the faster growing markets have clearly exceeded, and that has brought the world back to overall the place where it was 2005, 2006 in terms of marketing spend.

When you look at the G8 countries in terms of where is the contribution coming to the world of increased advertising expenditure, it's really the G2 world of the USA and China. Both last year and this year making the incremental contribution to advertising marketing year in, year out. And when we look again in a different cut in terms of where's the spend going to, in both mature markets and faster growing markets, digital is obviously taking a lion's share of the incremental growth year on year.

However, please note also in the faster growing markets, the traditional advertising market is also growing quite significantly. If you look by region in terms of what 2015 should bring in terms of marketing spend, marketing expenditures, 4.9% overall, improved growth in North America, Latin America, Western Europe, but obviously a decline in growth expected in Central and Eastern Europe and Asia Pacific picking up also in 2015 in its rate of advertising marketing spend.

With that I'd like to hand over to Martin.

Thanks, Paul. I'll carry on looking at section 3 which is the four core strategic priorities. Before I do that let me just run through what we see as being the 10 or so key global trends.

Firstly and well known to everybody is the shift to the east, meaning Asia to the South Latin America, in the Southeast meaning Africa and the Middle East from the US, from New York which I think can justifiably be called the center of the world. The second over-capacity, we see over-capacity in most major industrial categories.

You take the current truck industry for example, it is still true that cars and trucks can be produced to the tune of about 80 million units and consumers can only consume about 60 million units, despite what we saw during Lehman and post-Lehman. Where they shortage is, the paradox is that the shortage is in talent and the will for talent will continue to escalate.

The third major trend is the rise and rise of the world of the disintermediation that web companies cores, the disintermediation with lower cost business models, and finally looping back to the talent point, the fact that they are a major attraction for talent, particularly young talent. The fourth area is the growth of retail power, it's different type of retail power I think in the last year or so, or two or three years.

It used to be Walmart and Carrefour and Tesco that ere dominant with big-box retailers, and it's now the Amazon, Alibaba e-commerce mobile together with proximity retailing. So a big shift in retailing and a big opportunity for manufacturers, although Alibaba and Amazon may well become the Walmarts of the future.

And the importance of internal communications, a critical issue for chairmen and CEOs wherever we go, to explain strategic instruction change internally. Global and local structures a continuation of what we talked about last year with you, certainly there is more global influence inside companies and more global agile, more global centers. But at the same time there's a desire to spread that influence to a country level, maybe with regional structures being squeezed.

Relative power of finance and procurement, that continues to be a big trend. Marketing has lost influence to some extent and finance and procurement has gained influence, particularly in a low growth world or a low growth world than we were used to, where pricing power is nonexistent, or very difficult to gain because of low inflation or deflation and therefore emphasis on cost.

And allied with that, out of Lehman came the growth of government. Government will still be there as, not just a regulator but as an investor and stimulator.

And last two, but not least, acceptance, total acceptance I think by our clients of the importance of social responsibility, of doing good is good business. And doing good to create even more powerful businesses.

And last but not least, industry consolidation. We continue to see consolidation of clients. Continue to see consolidation of media owners and continue to see consolidation of agencies, and consolidation continues.

In terms of the market environment on slide 49, we tracked here our like-for-like revenue growth and sales growth and you can see we follow GDP remarkably closely. The interesting thing is that the nominal GDP in this case, taken from Goldman Sachs statistics, has started to compress or align with WPP's GDP or nominal GDP. And the reason for that is, although we're over indexed against our competition in places like Asia and Latin America and Africa and Middle East and Central Eastern Europe, we're under indexed against worldwide GDP.

And of course as those fast-growth markets as they're called have started to grow more slowly, not slower than the mature market, but are growing more slowly, that difference between worldwide nominal GDP and WPP's GDP has lessened. If we look at it, we're still talking this year in 2015 about a 5% to 5.5% nominal and a 3% to 3.5% real.

Turning to the macro and micro environment. On a macro level, we see as I've said uniformly higher forecast for 2015 at both nominal and real. But trending around 5% to 5.5% nominal, and 3% to 3.5% real.

Continued recovery in the US, which is the biggest economy in the world, around 17 trillion out of 72 trillion worldwide, with China second at 10 trillion. And of course the UK, a stronger UK in the last five years in the UK our business has gone from just over $2 billion of revenue to $3.2 billion, and a number of people in the group has gone from about 12,000 to 16,000.

And of course signs of growth now in the Eurozone, not so much in France, but that will come I guess. Spain certainly stronger. Northern part of Italy influenced heavily by Germany, and Germany itself, driven by a weaker euro and making exports even more competitive.

Deficit management is still key for the US. The taper tantrum that we saw on Friday I think will continue as people speculate as to when the Fed will raise rates. Albeit from very low levels.

The deficit issues in the EU and into the UK may not be front of mind, but they're still there after the UK election, whichever way it goes, whether it's Labour controlled or Conservative controlled. There will be significant focus, yet again, on the deficit and managing the deficit and managing the budget. There's also continuing pressure on traditional media from changes in viewing habits and hyperactivity in the new media.

I'll come on to Mary Meeker's latest slide on the comparison between times spent by consumer in the US and where the industry spends, or invests funds on behalf of clients or with clients. But clearly there's a change taking place in television viewing habits and I'm delighted we have both Irwin and Brian here to pick up on some of the questions that no doubt you have.

From a geographic, political point of view geopolitical point of view, Syria, Russia, Ukraine, Middle East are issues still. And Greece, although it's not a question of its size it's more a question about whether any compromises in terms of policy would have any impact or blowback on other countries in Europe in not dissimilar positions.

On a more optimistic note, we certainly see possibilities in Cuba, 12 million people in Egypt, as many as a 90 million people and Iran over 80 million highly educated, literate workforce. Not dissimilar to the sort of things that we saw in Vietnam with over 80 million people. And Myanmar with over 60 million people, but of course a number of political issues, particularly in relation to Cuba and Iran that have to be overcome.

From a micro point of view, there's no doubt that clients are still focused on opportunities in faster growth markets and on following consumers in new media. The new markets in new media emphasis on our strategy is a reflection of that.

Clients are investing in capacity and brands in faster growing markets, but in mature market they're just really investing in brands to maintain or gain share. They're not really investing in capacity. They're really constraining capacity.

There's a growing emphasis on horizontality as well call it, getting our people to work more effective. Clients with the best people working on their business, not necessarily from one vertical as opposed to the other.

There's a significant role for big data and a significant role for shopper marketing. Both those areas have grown significantly and will grow even more.

Efficiency and effectiveness, however are still the key, with client pressure on pricing and payment terms. Often we're asked to perform a banking function in the case of payment terms or extension of payment terms, and often we're asked to pay an insurance function, for example insuring of all the taking of indirect liability risk in relation to breaches of intellectual property. There's pressure at the same time for continuous improvement, totally understandable and something we're committed to working with our clients to do.

And last but not least in terms of differentiation, differentiating our offer from our competitors offer. There is no doubt that the application of technology, the application of data, and the introduction of content, are three critical differentiators for us beyond the simple or the more simple truism that it's all about the talent. So talent enhanced with technology, data and content are even more powerful.

On 51 we've just run the numbers comparing ourselves to the other leading holding companies and direct competitors. The green line shows enterprise value to market cap, and the mauve line is EBITDA compared to market cap in terms of valuation.

And you can see the metrics are similar, they vary a little bit from 1 to 1, but we have strong valuation of 12 times and around 11 times for both those metrics. It also shows the differences in market cap revenue and EBITDA. And you can see in terms of revenue we run at about a third bigger than our second biggest competitor and about twice the size of our third biggest competitor.

Our strategic priorities remain the same. 40% to 45% faster growth markets over the next five years, 40% to 45% for new media.

Data investment management is about right, together with digital and quantitative disciplines about one half of the business. And with a focus, however, on the application of technology data and content as I mentioned. And last but not least, horizontality, encouraging our people to work together, not just through client teams but through country managers as well.

Just want to highlight the application of technology and data and digital. We've completed a trifecta of minority investments in AppNexus, in Rentrak and comScore, and without delving too deeply, what we basically have done here is, instead of being, it doesn't translate well to our American cousins, but we're not big plonkers. We're not plonkers, we don't plunk down large amounts of cash, 100% particularly for public companies with limitations on how earnouts can be structured and of course on people.

If you look at these technology companies, a very significant amount of the costs each year are share substitutes, or options, and therefore share-based compensation plays a very big important part. And if you pay 100% upfront for a company it does leave you vulnerable, particularly in the technological area.

And so what we've done with AppNexus, Rentrak and comScore is transfer, trade certain revenues that we have. No argument about the valuation revenues, in all three cases it's been accepted that our revenues are like their revenues.

So if they have 10 and we have 5 we would end up with a third in that numerical example, but at the same time investing cash and in all cases we've ended up with 15% to 20% of each company and a significant relationship. And a relationship that people like Irwin and Brian that know the people very well have worked with the management teams for many years and although we don't have control we would not want control.

What we're saying is that this gives us an opportunity to develop a far stronger technological backbone in the case of AppNexus for Xaxis, to develop set-top box data and census level data with Rentrak. And last but not least to develop the internet measurement currency with ComScore.

The basis of the deal with ComScore is to develop its global network. We're delighted with those and there may well be others of that sort of nature, these partnerships that we think are important.

We have been unique in our sector in terms of debt from scale of our investment in technology, and that commenced with the acquisition of 24/7 Real Media in 2007 at a cost of $600 million, it migrated into the mig platform and B3 and now has an outstanding success under Brian's leadership with Xaxis. Our investments in external content and technology partnerships are already valued at over $1 billion or GBP700 million, and based on quoted market values, that's based on the quoted market values and latest funding rounds. So we have continued leadership in media investment management and data investment management and the intention is to bring these functions more and more closely together so they can leverage one another in developing ROI data and more meaningful measurement data.

Based on market comparisons that principally of Rocketfuel and Criteo, Xaxis on its own will be valued at up to $4 billion. Just to recap on our objectives, new markets today are 30%, new media is 36%, quantitative is just over 50%, the target is 40% to 45% over five years.

New markets, despite currency continue to grow, but of course if the pound continues to strengthen against some of the faster growing markets currencies like the R&B or like the rupee, or the ruble or the real, it's more difficult. In the case of new media 36% now, we want to get to 40% to 45%, and currency doesn't play as much as the role because new media is just as strong of course in the mature markets as well and quantitative at 50% we pretty much achieved.

Revenues in faster growing markets on 56%, we continue to grow our revenues there very strongly and the gap somewhat surprisingly doesn't seem to narrow too much despite the competitive activity that we see, particularly in the BRICs and Next 11. And we seem to be frank, some mistakes being made with over valuations particularly in Brazil and India and I would categorize the internet market in the US as being quite heated as well. Transactions like Datalogix and the like have been made at extremely high multiples, revenue multiples.

Looking at the BRICs market you can see from slide 57 we continue to grow extremely quickly in the BRICs. Brazil,14 years 11% compound average growth rate. In greater China, sorry 14 years, 11% compound average growth rate. In Brazil, 14 years compound average growth rate 8%.

In India, same period of time, 11%, and in Russia 40% over 14 years, although of course that's not going to be the case in 2015. In 58 we highlight our leading positions in most, if not all of the major markets, based on a recommend data, and in 59 you can see we lead worldwide group and other parts of our business, this data excludes Brazil where we have a leadership position which recommend doesn't include.

In Americas we're number two, there are North American market share has grown significantly this year, we're already, or last year we're already by about 2 or 3 points and it'll be reflected in later data. Europe we have leadership position along with Asia-Pacific.

Now I mentioned earlier the shifts in media buying habits. This is not the perfect data, but directionally I think it gives you a very good idea of what's going on. It taken unashamedly from the excellent presentation from every year, this is one of the slides and it shows time spent in media versus advertising spending in the USA in 2013.

You can see on the left-hand side that the traditional print industry, we're still investing, or the industry is still investing or were in 2013, about 20% of total funds in print. That's distributing newsprint and it's only 5% of attention.

On the right-hand side, there's 45% of time spent are on the internet and mobile, but only about 26% is invested. It's not a big gap on the internet but it is a big gap on mobile and it something like a $30 billion opportunity between those if we were to get it into parity.

Now most interesting thing is in the middle, what's happening with TV. This explains some of the angst and concern that you're starting to hear from media about media measurement, about the lack of Internet measurement, about the lack of outdoor out of home measurement. And you can see time spent in 2013 was around 38% as opposed to 45% in terms of industrial, industry investment.

This is pointing out the increasingly, the concern that many have about the changes in viewing habits. Of course tablet and smartphone viewing habits are included in the right-hand side on internet and mobile.

So it doesn't take into account what we discussed this morning at the UK presentation about the changes in viewing habits. But it does show what may or may not be happening with linear TV and what may or may not be happening with so-called over-the-top.

In terms of our digital strategy, our strategy is quite simple. It's to have digital everywhere in our traditional businesses, our digital businesses and experimentation. To have specialists digital expertise. To employee data and technology whenever we can, and partner with digital leaders.

I'll just comment that Google has become our biggest media partner. We invest, or invested last year, just under $3 billion, $2.9 billion to be precise, out of the $75 billion media book.

Facebook was up from about $440 million to $640 million, and we're targeting about $1.25 billion this year. And Twitter was up from $50 million to $150 million. AOL was around $100 million and Yahoo about $400 million.

Most of the major media companies Fox and News Corp. were around $2.5 billion worldwide and most of the major media companies beyond Fox and News would be around $1 billion, $1.5 billion. So RTL, CBS, ABC, Viacom would all be roughly around those levels.

We see it in Brazil as well. We see with Globo around $1 billion as well. Those are the metrics that we're dealing with in terms of our new partnerships.

We have Brian here, Xaxis continues to perform extremely strongly, has over 800 people in 40 markets. Annual sales or billings now just under $800 million, clients almost 3000 and growth year on year of 30%.

Obviously stronger in North America and EMEA because of history, but expanding very aggressively and rapidly in Latin America and in APAC. These are the markets that Xaxis are already in or are moving into, both mature and new markets.

Why is this happening and what's our advantage? Marketing obviously is becoming more data-driven, more maths men or maths women than mad men or mad women. Clients need better utilization data, simplified data, and to manage the explosion and fragmentation of data.

Digital campaigns in particular, driven by data analytics and clients need continuous feedback. They need real-time feedback for their decisions and actions and we have a unique combination of real assets in research, audience measurement, data management and digital media.

At the time of the ill-fated merger recourse, so-called there was a lot of discussion about the importance of data. That was a discussion about third-party data, not about first-party data. We have first party data. And are continually trying to develop that still further and the technology partnerships we have, build a foundation for the advantages for clients and indeed for WPP.

On horizontality, that simply means getting the 188,000 people, that's including all of the associates and investments that we have in 111 countries to leverage the $27 billion of revenue that is as group, if you included 100% of associates and investments, we have. And there are two ways of doing it.

Firstly, the 46 account teams we have, there are 38,000 WPP people working on these clients, accounting for about $8 billion of our $20 billion of revenue. And then there are 16 current country and regional managers coming now, 50 out of 111 countries.

So a little way to go in getting that co-ordination of the country level, which is to get the best people in those 111 markets, to make sure we're working with the best local and regional clients, the new global clients of the future, and last but not least we find the best acquisitions. We're ensuring our people work together. We're delivering specialist skills and we're focusing on client needs and business issues.

And the recent team wins we've had like Aliianz, Bayer General Mills and Pandora, all point to the success we're having, particularly in our nine $1 billion revenue brands. There are nine brands that we have, nine verticals that have achieved $1 billion of revenue in the year and that's includes now MEC, which has crossed the $1 billion mark.

In terms of digital and fast growth markets, it would not be true to say that two thirds of our business is in fast growth markets and digital because there is some lap over, and that lap over is about 9%. It will be true to say that there was about 56%, 57% of our actual 2014 revenue in those areas.

Let me just turn finally to the key objectives. We want to improve margins, we want to increase the flexibility and cost base to take account of recessionary conditions if and when they come. Use our free cash flow to enhance share on our value and improve capital return employed.

Develop the role of parent company, emphasizing net sales growth, organic sales growth more as margin improved. And last but not least, improve our creative capabilities.

On 73 we just outlined our progress in terms of profit before interest and taxes and margins, with this continuity is when we switch to focusing on margins to net sales, you see that our margins to net sales last year were at 16.7%, our target remains 19.7%. So 300 basis points, we're growing our margins, we're targeting growth of 30 basis points each year, excluding currency. And of course there's 100 basis points that should come out of project Gina starting in 2016 and 2017, as Paul indicated in his comments on that.

And that operational effectiveness program, Gina, is principally it's based on shared service centers, it's based on off-shoring, consolidation of our infrastructure. But these programs are as I said, projected to deliver 1 margin point, 100 basis points from our existing finance and IT cost base which is around 10% of our revenues.

And they'll start to deliver more effectively in 2016 and beyond and of course will make a significant contribution to that 30 base basis points margin improvement. Basically it's about process simplification, about off-shoring and outsourcing.

In terms of flexibility, we're still around the 8% level. It's hovered around for the last five years as low as 7.3% and as high as 8.5%. But in case there is any downward shift in the topline or indeed GDP worldwide, obviously this gives us significant flexibility.

In terms of free cash flow you can see laid out on 76, the progress in our headline diluted EPS. Our target payout ratio, we reached one year earlier 45%. Our Board will have to sit down and decide whether to take it further.

I think the obvious question is whether it should go to 50%, not further than that, giving a personal view. And you can see how our dividend declared per share has increased over the years to that 45% level.

Looking at it in a different way. This shows the buybacks and dividends. This is the total returns to share owners since 2008 and you can see that in 2014 dividends paid will total GBP460 million.

Buybacks GBP511 million, so it's effective to a 5.9% yield, but almost $1 billion, $971 million(sic-see presentation slides �GBP971 million�) being returned to shareholders. And over the last 10 years we've returned GBP4.3 billion to shareholders as averaged over GBP400 million a year and the payout ratio is actually if you include share buybacks in the payout ratios at least nationally you'll see that the payout ratio last year was 57% and has been as high in 2007 as 73%.

So continuous returns to shareholders beyond the total shareholder return which has been very significant over the years. Against the indices and indeed against our fears. On acquisitions, there's a very significant pipeline of reasonably priced more and medium-size potential mainly in the private markets. We continue to focus on our key objective of faster growth markets and digital, particularly digital and interactive and data.

We're accelerating our target to reach 40% to 45%, following the demise of we really upped our targets in terms of new markets and new media to 40% to 45%, they were at 35% to 40%. And so the focus is very much on the BRICs and outside opportunities like Cuba, Egypt and Iran would be very interesting if they came to fruition. And of course on digital. Last year we completed 65 small and medium-sized acquisitions, executing the strategy.

I would have to say that we have found as I mentioned before, some excesses in Brazil and India which have moved valuation multiples. And I think we've seen the results of that, or the negative effects of that in some of the results that we've seen elsewhere. I would apply the same thing to digital and interactive in the United States. Finally, acquisitions added just over 3%, 3.1% to revenue growth last year and 3% to net sales growth in 2014.

There's a venn diagram on slide 80 which just matches of these acquisitions and investments and you can see the venn intersection between faster growing markets and quantitative and digital, and that's continued into 2015 with these acquisitions as well. In terms of our key objectives, return on equity against the weighted average cost of capital is also extremely important and you can see continuous improvement since 2009 on this graph, hitting 15% for the first time in 2014 up 0.6 percentage points from 14.4% in 2013. And our weighted average cost of capital now at 6% all after-tax numbers, declining from about 8% in 2009.

The last objective, the creative capabilities and reputation of our businesses, another very good year for us. We won for the fourth time Cannes holding company of the year. The most awarded holding company for the fourth time out of four years since the award has been placed, a tribute to what John O'Keefe has done, awarded the EFFIE as the most effective holding Company as well, for three years in a row.

You can see the points at Cannes, but we are placing greater emphasis on recruitment and recognizing talent, creative talent, not just in traditional areas, but across the whole business, by acquiring highly regarded creative businesses. And as you see, placing emphasis on awards and you can see where our four agencies came in the top 11, at places 1,4, 10 and 11.

Ogilvy was awarded Cannes network of the year for the third year in a row. Grey last year was awarded by both leading trade magazines in America, global agency of the year. And Ogilvy has won the EFFIE most effective agency in 2012 and 2013.

And finally outlooks and conclusions. As I've said before, another record year despite those strong currency headwinds which cost us about 6% to 7%. Very strong year with market-leading like-to-like revenue growth of around 8% of net sales growth, enhanced by 3% of revenue from acquisitions. Strong currency headwind did, however, ravage our reported revenue and net sales figures.

Margin improvement 30 basis points before currency and even after currency, 20 basis points which we were very pleased with. Constant currency net sales up 6.3%.

Profit before interest and taxes up 8% and deleted EPS up 13%, all in constant currency. And in the strong cash flow enabled us to invest GBP1 billion in both acquisitions and buybacks. Buybacks amounting to 3% of share capital.

Average net debt to EBITDA ratio is at 1.6 times, same as last year at the bottom end of our target range, in spite of increasing the dividend power ratio and in spite of the incremental share buybacks and acquisitions. And clearly there's scope for more leverage if we feel the appetite to do so. And last but not least, on the slide number 1 in new business league tables for the third year in a row.

Outlook for 2015 and the long-term financial model. Just remind you, our model is for organic revenue and net sales growth of [null] to 5%, in line with market growth.

We're also very targeted on 30 basis points of margin improvement each year before currency movements, with that long-term growth net sales margin target of 19.7%. We lead the industry at the moment, we want to stay there.

Using our substantial cash flow to enhance EPS through acquisitions, through share buybacks and through debt reductions, excluding slightly larger one-offs like IBOPE and comScore, acquisitions should account for about GBP300 million to GBP400 million of spending. Free cash flow is about GBP1.2 billion, or over $2 billion. Share buybacks 2% to 3% and the payout ratio, now we're at 45% as we've said before, the Board will sit down to see whether it should be improved further.

The incremental share buybacks that we put in place a year or so ago of 1% to 2%, give us effectively another 20 basis points of margin. In essence, in theory, we're even Stephen with the 50 basis points that we used to have. All of this would give us a 10% to 15% EPS growth, which in constant currency is what we did for 2014.

As far as 2015 is concerned, like-for-like revenue and net sales growth of over 3%. So very similar to where we were at this time last year on 2014. Margin improvement in line with our target of 30 basis points of margin pre-currency.

Acquisitions to add at least 2% to revenue probably more than that. At current exchange rates, full year currency impact is balanced. So the gain against the dollar is balanced by the loss against the euro in essence. And at the moment we think it will have little effect. But at least it won't be a headwind as it was last year.

Having said all that, given these parameters, staff costs and headcount have to remain controlled to deliver the margin targets that we want to deliver. The operational effectiveness and efficiency programs will start to deliver significantly in 2016 as Paul outlined in his piece. You have some other data, significant amount of other data, on the 29 year history and other items, but we're stop there and we'll open up for questions.

(Operator Instructions) James Dix, Wedbush Securities.

I normally ask too many questions, but since you've established such a team with you, you've encouraged me to do it again. I have one for each. Irwin, do you think you're still gaining share in the media investment management, and if so what do you think's driving that, and to the extent it's scale how do you feel about your scale in the US?

For Brian, it may be hard for you to estimate this, but what share of your businesses do you think is primarily based on metrics of reach and frequency and pricing at the clients in that way, just finding more video viewers where you can't find them on TV, as opposed to business which is more based on performance metrics, driving test drive or sign-ups and things like that and had you think that mix is changing?

For Paul, how do you feel about your visibility on a multi-year basis in terms of that margin improvement, that 1-point impact. You gave pretty specific expectations for the IBM piece. Do you feel similarly confident about the other pieces? And is that 1 point expected by 2018 or 2019 to?

My last one, more generally, if you look at the GroupM forecast I think they were assuming 5.5% global GDP growth. Their media forecast, as you point out is 4.9%, and your outlook is for 3% plus. I'm just wondering what you think is driving those negative differentials as you step through that outlook? I would have thought almost that more data might have led clients to spend more on advertising, because they could drive more demand, but it doesn't seem to be as though that's the dynamic that you're seeing.

The answer is we are enhancing our scale and penetration in the US. I think we picked up 2 to 3 share points during 2014 as a consequent of some of the wins. Why are we gaining share? I believe it's really straightforward. It's the investment we're making in technology and data.

We believe strongly that media, data and technology have converged. The three can't be separated. We used to think of scale simply as billings, today when we talk about scale, we talk about scale in terms of billings, yes, but just as much data and technology assets. They're all synergistic because the more billings you have the more data you can aggregate, and the more technology you can afford and I think it creates a positive spiral. Brian?

Your question was about how much of our Business is reaching frequency oriented versus performance oriented. Almost 100% of the products that we sell are sold on a CPM basis, which means that they are reaching frequency-oriented. When we started Xaxis 4 years ago, 80% of business was display, now more than 50% of our business is online video, which tends to be TV extension type products, and that's all about reach and frequency.

However, all of our products have to perform and within digital advertising, all advertisers are looking for some sort of our wide based on a cost per acquisition. I will also say that we are developing a series of products that will be sold on a performance basis this year. In addition to a CPM-based products, which is almost 100% of what we do, we will have a line of products that are sold on a performance basis this year. Which is more of a cost per outcome.

I think I've given you a fairly clear view of what we hope to get from the IT program, which is specifically on the infrastructure side, to be fair, which is only about a third of our total IT spend. And actually under contract with improving guaranteed lower costs, assuming even a minimum of 85% of those guaranteed. So that's the $50 million in 2016 and $75 million and 2018.

I think there's a lot more to go for in the IT and the application development side and maintenance of the systems both of the back-office and client-side. But at this stage I think that's a fairly robust. But, as far as I can see out beyond 2017, I wouldn't like to make a figure yet or a guesstimate of 2018, 2019, I think we'll give you an update as we progress further along the GINA path as we call it.

To your last question, obviously at this time of the year everybody's cautious and that's part of what's going on. I wouldn't want to mislead you. I think the environment is still tough. We touch on it as we go through our presentation although our businesses did very well.

All of our verticals by and large did well. We did well in most geographies and most functional areas. Still, the pressure, the economic pressure, if you said to me you phrased your question a bit differently and said to me, what keeps me up at night or what worries me? Is it the G word that, not receded, it's still there, but we still worry about disintermediation. We still worry about geography and the impact, but we can figure out if new markets come into play whichever they are we can figure that one out.

The technological shifts Google included, a significant win. When Eric Schmidt was asked a few months back in Germany what did he fear most, he said Amazon. And then he checked himself and said, well, perhaps is that two people in the garage which is what Sir Guy and Larry were doing a few years ago.

All that's true, but the biggest issue, I think, for the industry remains, what is happening in a low growth or slow growth or slower than we would like to see growth environment, where pricing power is not nonexistent, but it's very rare to find. Where inflation is very low. With the fear is deflation.

And as a result, we have clients very focused on the short-term. It's just natural that they're focused on increased effectiveness and efficiency. Effectiveness means better work. Efficiency means at the same or lower cost. There is very much a more for less culture. And again I'm not complaining about it, it's just a fact of life.

And I think that explains those differences that you're talking about in principle. There are other differences like we're over indexed against the competition in Asia and Latin America, but we're under indexed against worldwide GDP. And if you look at GroupM's forecast, it's not until we get to the latter end of the second decade of the new millennium, i.e., 2018, 2019 where advertising starts to grow faster in GroupM's view than the GDP.

Maybe as we get towards the end of this decade, things will start to look a little bit better. I for one don't see much of a difference between 2015 and 2014 in terms of the atmosphere. And I don't see, there are two things probably, there's easing, quantitative easing here in Europe, which started today in implementation and a lower oil price, which is effectively a one-time tax cut for consumers. Those two things help and you see that in the euro numbers, the Western European numbers for us, those things help. It's too early to see it in the oil price, but do they create a breakthrough? I'm not so sure they do.

So I think we just have to run our business on the basis that we get this three plus net sales. And don't forget the other thing is, you're an influential analyst James, I think it's about time you put your foot down on getting everybody to put out revenue and net sales numbers, instead of having this slightly dotty situation where we're putting out revenue and net sales and putting out billings numbers.

I like to see billings numbers as well, because obviously from a cash flow point of view that's an important number too, given the throughput through the companies. I think it's about time we standardized the procedure on revenues, and net sales, and maybe even billings to get a better understanding about what's going on in relation to the question you asked.

Brian Wieser, Pivotal Research.

On the industry rebate issue, we put ourselves in a number of different arrangements in the US involved other holding companies, not those WPT for what it's worth, involved practices that some clients would consider questionable, things like undisclosed rebates, trading occurring in the US. As these prices are to come to light, which I think was the point of last week's presentation, and it was as well was bringing it up, do you think that this will lead to some worsening of market or agency relationships in general?

And ultimately do you think, because you have actually been much more up front I think than most about the nature of your undisclosed trading activity, do you think you're actually in a better position, if the industry becomes more aware of these activities? And a separate, much more mundane question, your working capital generations very strong in the second half was there any particular factor driving that?

Let Paul deal with the working capital. When you said undisclosed trading activity we, do disclose our trading activity. I think we disclose it,

We're transparent about being nondisclosed in businesses like Xaxis for example. I'm going to start by making a comment that I don't think that what happened last Thursday was in any way productive for client agency relationships. I'm not sure why the A&A chose to do what they did.

These are matters, quite frankly, that are between agencies and their clients and it's a matter of compliance with client contracts. I can's comment on what other agencies do or don't do. I can only say that it is GroupM's practice, specifically in the United States, to not promote rebates and to not conduct business that has rebates come back to us in any form.

We have chosen in that specific market to push for price discounting at the time we negotiate the deals, and we do not make those price discounts dependent on broad volume deals or whatever. We have a history of delivering, and so the whole notion of a rebate has never been something that we've pursued. I think that we came forward before the rest of the pack did as it relates to what our beliefs are. We think that clients can purchase our services, or they can purchase media delivery, or they can purchase outcomes. It's their choice. And we will sell all three to some clients.

We have clients where we offer services, where we offer specific delivery costs and performance outcomes. When we go on media delivery, there is an understanding, it's very clear our clients opt into it, that we do not disclose the underlying costs of the inventory that is part of that solution. When we sell outcomes we don't disclose the underlying costs, because they are a combination of data and technology and media inventory, most of which is on a proprietary basis where we act as principal. As I said, no comment on what other agencies are doing, and I believe strongly that's between them and their clients.

To be fair, it's been difficult for us for the last two or three years and we've put a great deal of focus on the process improvement around working capital, specifically on the collection receivables in the sort of 30 to 60, or 60 to 90 day period. And that's principally been assisted by the setting up of the shared service centers where we are real focused on collections. And when I look at how that's been achieved, it really has been a dedicated focus to just a better collections. So in terms of the payables, they have not really changed that significantly in the last 12 month, but in terms of the data, in terms of the receivable data, it is significantly improved.

We've also engaged in some external consultants in terms of eight markets. So we've gone through piece by piece helping the process improvement. And we are beginning to see the benefits of that reaping across all the agencies and all the regions. I think it's a great step forward. Obviously each day in terms of saved receivables or saved collections, amounts to around $200 million for the group. It is very significant.

This year from memory it's around a GBP300 million improvement. We certainly haven't finished, but it's very hard for us to quantify what we can achieve, we're only just beginning to roll out some of these new processes across the broader network of our agencies and into these shared services centers. It will keep on going. But the quantum of what we can improve to, as yet we're not quite sure.

Doug Arthur, Evercore ISI.

The big picture on the regional trends: Sir Martin, you sound somewhat encouraged by Europe, but leery of declaring any kind of victory in terms of a growth outbreak there. I'm wondering if you could just embellish on that a little bit? What is your near term outlook on China and Latin America?

Let me start, as you mentioned Europe. Europe is Western Europe and Eastern Europe. You can't be excited about Eastern Europe. In Russia we did well in last year, although it did slow in the second half of the year for understandable reasons following the Ukraine situation. Taking Europe as a whole, I think you have to be a little bit more balanced.

If you're focused on Western Continental Europe, distinguishing that from Western Europe which would include the UK, France still you see you saw the numbers, it's sort of balancing, but just about, I think you see that in competitive comparisons as well. Germany is certainly improved. You see from our data. Spain has got better. We didn't highlight Spain as a single market, but Spain's got better. And the northern part of Italy I think, which really goes in lock step with Germany, improved.

I look at the German data and our data is stronger. I look at some of the German data that's come out recently and it's weaker. And I wonder why, and I think that's because Germany is the primary trading partner with Russia. But that German, Polish, Russian market in the longer term, that's why we say in our release in the longer term, we'd be more bullish on Russia. Obviously it depends on the oil price, the Russian economy works at $80 a barrel from what I remember from the finance minister there.

It's difficult to generalize about the whole of Europe. But I think Western Continental Europe certainly is starting to pick up a bit in the QE, which has just started today will stimulate that. US continues to be strong and Canada continues to be strong. If I look at Latin America, the one thing I would say on the US we have to worry about what happens when tapering ends or when the Fed does start to raise rates, although it's from very low levels, and it's hard to think that even a significant increase in current levels would have a major impact. But we saw the taper tantrum, a little bit of it on Friday and markets are nervous, and today as well.

Moving south, Latin America was tougher last year. Brazil certainly was tougher. Dilma was reelected, has appointed a very strong finance minister, but the finance minister is not doing everything the market really wants.

Mexico has flattered to deceive so far, but I'm very bullish on Mexico. Columbia we see improvements, but again the oil price there affects Colombia, as it does Peru, and Colombia, Peru are two of the stronger economies. Chile is mixed, and then you the have issues around Argentina and Venezuela, as well.

Brazil this year pulled in this morning's presentation, our budgets for Brazil are better, but I still have concerns. I think next year Brazil will flourish with the Olympics. There's, obviously, still political issues surrounding the Olympics, but I think it will be a great festival, an Olympic festival.

As far as Africa and Middle East concerned, strong growth. I would say of the regions, the strongest in a sense we're certainly seeing strong growth in Africa. Not just in South Africa or East Africa, but in West Africa and indeed with Egypt now, we have a conference next week in Shamal Shake, or this week in Shamal Shake at the end of this week, which is highlighting the potential of a 90 million people economy.

Middle East is very mixed, Saudi Arabia is strong but pretty mixed, Israel is a tough market, and other Middle East markets are difficult as you can imagine. Asia-Pacific, the bookends as I put it that way, and that's Japan and Australia, New Zealand still tough. Whilst Japan has improved very significantly from a currency point of view, and companies have strengthened their P&Ls and balance sheets because of the weakness of the yen, we haven't seen major structural change there, and Australia, New Zealand remains flat to upper bit. Although I think the prospects are a little bit better.

In between, India is strong. The Modi government and the election of Modi has had a strong positive affect. It actually started to gather momentum before the election result was known and has strengthened subsequently. I think Jaitley's budget, the minister of finance's budget is a strong one, and his emphasis on restructuring the railway system and infrastructure is very good and very good news.

The rest, just before I come back to China, the rest, Thailand we visited just before Christmas, surprisingly strong given political issues. Indonesia strong. The Philippines is strong. Singapore more regional, but good, as well.

Generally I would say, and Southeast Asia, Malaysia pretty good given the situation. Although Malaysia is affected by the oil price. That leaves China and the quiktrip, and China, I was there this weekend, I remain an undiminished bull. I think the new regime has spent two years getting its ducks in a row, if I can put it that way. It would be uncharacteristic of any old Chinese -- new Chinese regime to criticize an old Chinese regime.

The 13th five-year plan I think will be mirrored in the 13th. The plan statement about 7% growth -- 7% on 10 trillion is much much better than 10 on 3, which is where we were three years ago. And just look at that diagram from GroupM, which talks about the G2 world. Slide 44: that really puts it into sharp perspective. China, in terms of its delta according to GroupM, will outdistance even the US. Be careful what you wish for.

I think the 13th five-year plan will emphasize consumption again, healthcare safety net again, and the importance of the service economy. So it read like WPP charter. And just to remind you, China is our third-largest market. We crossed $1.5 billion of revenue last year. So Germany was just a smidgen underneath. And we will cross well over $1.6 billion this year.

We had a strong December and end to the year and a very strong January, double-digits in January. So I feel pretty good. Having said that, there are market indicators that go the other way and there are people who will tell you the other way. Maybe I'm that way because we have a vested interest. But China for us is full of potential.

Alexia Quadrani, JPMorgan.

My question really is on measurement. With your very strong position in data and analytics research area you might have particular insight into this. Specifically, how much do you think, what do you think changes for the upfront this year, in terms of how measurement is used? Will it be C3, T7? Will it have analytics that override the decisions from the buyers and sellers? And just maybe any general comments you have Irwin, on the upfront in general. And then more specifically on WPP, how you feel that the increased frustration with the current measurement system has really, is really helping your business and demand for your products in general?

Let's talk about the simple part. We're the agency that moved to C3 quite a number of years ago. If you look at what we did last year in the 2014, 2015 broadcast year, we moved a substantial chunk of our activity over to C7. Viewing behavior is changing.

People don't consume television in as linear a fashion as they have historically done. And we have to recognize that in the way we acquire impressions and reach. We have to measure it accordingly. That's number one.

As it relates to the more granular data, the reality is we have been using more granular data for a number of years. We began to subscribe to TiVo data in the very early days. We've been working with Rentrak much more recently. And we use the granularity of data to inform our strategies and our tactics, and very often our program selections at a very, very different level of precision than what we can do with the standard Nielsen kind of data.

Having said, that the partnership that we now have with Rentrak and, in fact, with ComScore, will even better inform of decisions going forward because we will have census level data to inform not only our addressability and dynamic ad insertion operations, but our general targeting, and we will have better understanding of cross device fueling dynamics, something that we've only been able to do historically on a model basis. We will now begin to do it on a true measure basis.

Let me add to Irwin's. You want to say anything about the upfronts that Alexia was asking?

Alexia always wants to know about the upfront in advance of it and Alexia happy to have a conversation on the side, but we don't predict what happens in the upfront and we don't negotiate in public.

Same thing applied to your comments about transparency, as well.

Not in public.

Just generally Alexia on -- use the word frustration and I think it's an accurate word, particularly established media owners, partly because of what we saw on the Mary Meeker slide, our concern about these changing patterns in TV consumption and TV viewing. And I think that frustration level you hear it and you see it particularly in the United States, because it is the biggest market in the world, and the big media owners are concerned about it, and when they see ratings points changing they get very exercised about it.

And putting that to one side for a minute, there is no doubt that we have to provide, and when I say we because we're part of that industry, we have to provide better measurement data to justify the returns, the returns on investments. If the world is as we paint it, where there is this pressure for better results and more accurate targeting, then we have to have better measurement techniques.

What Kantar works in something like 45 markets around the world in television and internet audience measurement. What we've done with Rentrak and ComScore as Irwin has indicated, has built now a far more sophisticated network of possible measurement alternatives. I think this will give us a lot of traction, and because of who we are in the media planning and buying area what we media investment management, we have tremendous input for these companies that we partner with to tell them what clients want to what they don't want. Brian, do want to say anything in relation to measurement, in relation to Xaxis' activity?

Part of the reason we've been successful with clients is that we've enabled clients to understand reaching frequency across multiple channels, particularly how online video complements TV. I think with investments in comScore and Rentrak we'll continue to develop products that enable that full understanding multichannel marketing.

Dan Salmon, BMO Thompson Markets.

I'm going to follow up a little bit with Irwin and Brian on the last question, but maybe ask it a little bit more specifically around how you're preparing your clients and GroupM and Xaxis more broadly, I'm curious to see how much you're involved in helping here Brian. We talk about measurement and analytics and comScore and Rentrak and Nielsen plays a very big role in that. What I'm more curious about is how much are the conversations with your clients and the media owners beginning to extend beyond those classic metrics that we're used to hearing about, whether that's C3 or C7 in the television world, whether that's unique viewers or other ones in the digital world.

Are additional analytics being layered onto those conversations to drive the decision-making? And likewise from the media owners are you seeing a change in approach from them, whether that's the TV players bringing more data to the fore, whether that's the digital players emphasizing better content assets more, I'd just be interested to hear little bit more on that.

Things are changing quite rapidly, in fact. The unit of sale has always been the 30-second spot. It will continue to be for quite some time. However, we have already begun to look at what we're buying, not as 32nd spot but as impressions and those impressions are aggregated. Not just across television, but across all devices on which video is consumed.

By the way, if we didn't do that we'd simply be burying our heads in the sand. People talk about how television consumption is going down. Yes it is. Television consumption appears to be going down, but cross device consumption is in fact probably not going down. The supply side of the supply and demand equation which we analyze is not really going down if it's a measured correctly. If it isn't measured correctly, absolutely it's going down.

Beyond that, we have addressability capabilities today. Our moding media unit is doing addressability in dynamic ad insertion where they target specific households with specific ads.

Dynamic ad insertion is used in VOD streams to great effect, particularly for our entertainment clients. There are remarkable capabilities that you can extract from video and television, given digital distribution, and it dovetails very very elegantly with our digital, pure play digital video capabilities, which I'm going to turn over to Brian to talk about.

It's no longer enough to make campaigns perform. You have to make clients smarter in the process. In some cases getting region frequency is the easy part, but collecting data so that we can provide analytics is harder and we've made lots of investments in that area.

For example, last year we launched turbine, which is our proprietary data management platform. That helps us ingest data, normalize the data and target advertising, but it also helps us better understand the audiences that we target. We pass that along to the client.

As Irwin points out, part of the challenge with that is that it's difficult to collect data across multiple channels. Again, I think we're in a unique position there, not just because of some of the assets that we have in Kantar, but also because of the investments we've made within the platform we use in Xaxis, investments in AppLexus, but also investments in the people that understand the data and can feed that back to clients.

Probably that biggest example of that is the work that we've done at attribution, where we're helping clients understand not just where the last click came from or where the last view came from, but the totality of digital advertising and how it led to brand building, but also conversion at the bottom of the purchase funnel. In summary, yes, we need to make investments in this area and making campaigns perform is becoming a price of entry, but making clients smarter about that is something where we're investing in and excelling.

You mentioned in your comments, you reiterated as you have a few times the importance of Amazon and Alibaba, as they grow and particularly relative to Walmart and the retail environment. You also mentioned strength in your shopper marketing agencies. I would just be curious to tie those two together and how you're seeing those shopper marketing agencies and the work they do on behalf of FMCG clients and food retail starting to change. And whether or not you're starting to see changes in trade promotion budgets, in particular start to get weaved in there.

It's a really interesting question because the thing that's always puzzled us from the manufacturers point of view, is it's the retailers that have had the power. I've always wondered why it was that Tesco owned Dunnhumby and somebody else didn't own Dunnhumby. Or more relevant today, there are lots of companies; if you took a company like the Royal Mail here, the equivalent of the postal service, there's a lot of data there that they could use in a very sophisticated way to develop their targeting.

What we've had for the last 20 years is Walmart, Carrefour, Tesco, Carrefour in that order, really dominating retail. Not just nationally but internationally, globally you might even argue. Not quite, but almost. And the manufacturer being held at bay, if I can put it like that, the primary relationship for the manufacturer was to the retailer or to the wholesaler, not to you or I as the consumer. It was the retailer that had the day-to-day contact.

For example, Lehman, our experience in 2009 was the retailers reacted far faster to changes in market conditions than the manufacturers did. Now you have a different thing.

It's no longer big-box. In fact, what was really interesting when we went to Indonesia and Thailand just before Christmas, we were talking to several manufacturers who were saying that pack sizes inside proximity retail operations, so the smaller retail stores were getting bigger and bigger. In other words, people didn't have the time or the inclination to go to big-box stores, and were using proximity stores more for even regular shopping and not just for marginal shopping or smaller shopping trips.

Amazon and Alibaba could well become the next Walmarts if you like, or the next Carrefours or Tescos, unless manufacturers start to be a bit more aggressive in building and they do have the opportunity to build those relationships through e-commerce. So it's a finely balanced, and it's a bit of a frenemy here, as well. If you look at Amazon, and Jeff Bezos' strategy is very different to Jack Marr's strategy as you know and the dynamics of the two business or the parameters are very very different. But if you look at what's happening there, you adjust for or compare that to what's happening to big box stores or not. Meaning big-box stores are getting less and less important.

Look at what's happening to proximity shopping. All that adds up to I think, an explosion. That's putting it strongly. But a tremendous increase in interest in two things. One is offensive promotional marketing in store to defend retail positions and then offensive to try and build a stronger relationship between manufacturers and consumers.

This is where the first moment of truth battleground is going to be won and lost. I think we've seen a tremendous increase in activity and assignments, particularly in North America. Actually there have been three or four major assignments in shopper marketing. You asked whether it increases in promotional budgets. It may not increase overall budgets in total, but it might result in shifts in money from one part of the budget to another for more sophisticated -- and it's not trade promotion in price. This is building presence at the online, through online channels and off-line channels. It's building marketing capability.

It's not offering price and discount to get share and penetration. Ironically the companies that understand this best are the companies that have been precluded traditionally from media. So tobacco companies, alcohol companies understand these elements of trade marketing in a far more sophisticated way then the quote unquote normal manufacturers.

I think it's a very big opportunity and we form Geometry -- as you know, we merged Ogilvy activation with G2, and we have a very strong business, not just in the US, but globally, which is a leader actually in this sector and it's a very powerful opportunity, particularly when aligned with the sort of work that Irwin's people at GroupM and Brian's people at Xaxis do.

(Operator Instructions)

Peter Stabler, Wells Fargo Securities.

Two quick questions from me on media. First Paul could you confirm that only digital media passes through the P&L and no other traditional media types? And then secondly for Irwin, you talk about the packaging of data technology and media inventory as a solution for Xaxis. As more traditional media goes down the path of automation and there's more demand from advertisers to apply first party data sets to traditional media, could you envision a day when television or other newly digitized media types could also be sold in the same packaged way where we don't have disclosure of underlining media cost?

I think it's actually inevitable. I think clients -- there's a category of client out there who are fundamentally more comfortable with paying for known outcomes, for specific outcomes, Vis-a-vis assigning a scope of work on a service basis and buying a bunch of inventory and wondering what the outcome may turn out to be. There's no question that granularity of data and volume of data will permit that kind of activity to happen, and we are developing every day more and more sophisticated attribution analytics that allow us to predict what those outcomes may look like.

The other critical thing to understand is that granularity of data fundamentally changes the functions that we perform. If you look at who we were 30, 40 years ago, the traditional full-service ad agency in those days, was in the business principally of creating broad awareness. Broad awareness led to something that we call in the business, unaided awareness, and unaided awareness had some correlation, some broad correlation to sales volume. My role 30 years ago was to create awareness and maintain awareness levels. That's how we were measured.

Today the granularity of data lets us actually identify those people in the consideration set. We can identify people who are about to make a purchase decision, who are in the active part of a purchase decision cycle. We can push those people through a transaction. We now work, not just at the top of the funnel but at every level of the funnel, and that is supported by the granularity of data.

When you talk about first party data that's critically important, but client data sets typically have very very limited value until those data sets are conjoined with media consumption behavior, with other data sets, and social mobile et cetera. That's where you can begin to exploit knowledge asymmetry in the market and create outcomes for clients that are effective and efficient. Yes, it will absolutely happen in all media that is delivered digitally and has capabilities of targeting and segmentation.

Peter, on the question about what runs through our P&L. Let me broaden it out to be full and precise amounts. As you know, we've always had on the research side what we call pass-through costs or fieldwork that are basically run through as direct costs below the revenue line, the full line which used to term gross margin. That is continuing today and that's around GBP600 million of pass-through costs on the research side. That has not gone away. But continues through our P&L.

What is new is running through on our revenue line is where we act as principal. That is the big distinction. It could be in theory, other non-digital media, but as it happens to be in our particular case, because we don't have any barter activities or any other items, it is principally digital media and again it's principally through Xaxis where we have taken the stance of acting as principal.

In fact a year ago, we went to what it is required to be in order to treat the billings as revenues on the topline of the P&L. And that is the companies responsible for fulfillment, the company acts as principal in the media binaries, and the company has the credit risk.

We took that decision a year ago in the revenues or topline of Xaxis, which we know has grown to $775 million this year. It's not just Xaxis, it's Quizma and a few others where they're performance-based. They are principally digital in action, but they are acting as one in taking that risk on, and that's the other $600 million approximately in our P&L that runs through this year.

That is our full set of items that run through what I call through the P&L in terms of the cost of media and the pass through classes. So those are the only two items that we have. We don't have barter we don't have other issues of that nature, so that's the full explanation of the GBP1.5 billion.

I'll just add to that answer, Peter. I don't know what motivated the question, but it's an interesting one and one that we spend a lot of time thinking about. Because whilst we know that in the industry there are big telesales operations, we know that in the industry there are big barter operations and we have a small barter operation in North America.

We know that there are food broking operations that go on in various competitors. Until it comes back to what we were discussing before, until we get some standardization on revenues and net sales, and also to clear up what you just asked, billings, if we had those, if those were accepted as standard practice -- at the moment you have revenue and varying definitions of revenue -- if you add net sales and billings it would clear up any uncertainties.

As they are no further questions in the queue, I would like to hand the call back to the speaker for closing remarks.

Thank you, everybody, thanks for joining us on the call and thank you for the questions. A big thank you to Irwin and Brian for coming over to London for these two calls. Thank you for joining us and we look forward to seeing you and talking to you again at the end of the first quarter.