WPP PLC (WPP) 2017 Q4 法說會逐字稿

Good afternoon, everybody. Good morning in New York, and thank you for joining us on our results call for 2017. I'm joined on my right by Mark Read, who runs Wunderman; by Adam Smith, who's our guru on media and gives you a view on what's going to happen in the current year; and on his right, Paul Richardson, our CFO. We're joined also in New York by Carla Hendra, who heads Ogilvy Consulting. We thought it'd be useful to get her perspective in relation to the Q&A sessions we may have afterwards; and then last, but not least, Kelly Clark, who's in Los Angeles, so it's early for him. So thanks for getting up early, Kelly. He's in Los Angeles and to give us a view on GroupM and developments there.

So we've split the presentation, as usual, first into a look at the results with Paul. Then Adam will opine on this year, next year as far as GroupM is concerned. And then we thought we would try and address the most commonly asked questions around ourselves and our sector, talk about our structural response to some of those opportunities and challenges and last but not least, some outlooks and conclusions. You have -- I'll leave behind on -- also on our website on our 33-year history and other financial information.

So I'd like to turn it over to Paul to start on the results.

So good morning, good afternoon. I'll be about half an hour going through the financial results for 2017. Our reported billings were up 0.6% at GBP 55.56 billion. They were down 3.9% in constant currency and down 5.4% on a like-for-like basis. Reported revenue was up 6.1% at GBP 15.265 billion, 1.6% on a constant currency basis and minus 0.3% on like-for-like.

The third line item, revenue less pass-through costs. This is the same as we used to refer to as net sales, and you'll see a footnote down the bottom saying we have changed our description of net sales to revenue less pass-through cost based on upcoming adoption of new accounting standards and recently issued guidance and observations. There has been no change in the way that this measure is calculated. So in future, we'll be referring to what used to be called net sales as revenue less pass-through costs on a consistent basis.

So revenue less pass-through costs were up 6% on a reported basis, 1.4% on a constant currency basis, but down 0.9% like-for-like. Reported headline EBITDA was up 4.7% at GBP 2,534,000,000 and was up 1.2% on a constant currency basis. Reported headline PBIT was up 4.9% at GBP 2,267,000,000 and up 1.5% on a constant currency basis. Reported revenues less pass-through costs margin was 17.3%, down 1 margin points on a reported basis but flat on a constant currency and like-for-like basis, in line with the revised full year margin target. Headline diluted earnings per share was up 6.4% at 120.4p and was up 2.7% on a constant currency basis. Dividends per share of 60p were up also 6% and a payout ratio of 50% was achieved in line with our target.

On average, constant currency net debt was up GBP 584 million to GBP 5.1 billion, reflecting significant net acquisition spend in the back end of 2016 when we acquired Triad for around $300 million in November '16, share buybacks and dividends. And average net debt-to-EBITDA ratio was 2x the top end of a 1.5x to 2x range. The share buybacks totaled GBP 504 million, approximately 2.5% of share capital, up from the 2% repurchased the year before and within our target range of 2% to 3% per annum of share buybacks. Net new business billings at GBP 6.3 billion in the year continued with overall performance seen in the first 9 months, and we had leading positions in the net new business tables for 2017. Return on equity was up strongly at 16.9% from 16.2% a year ago and compared to our lower weighted average cost of capital of approximately 6.3%.

So turning now to consensus. We were a bit behind on the revenue less pass-through cost line being down 0.9% for the year. We, therefore, were slightly behind on the PBIT line around GBP 23 million at GBP 2.267 billion. We were in line, actually slightly better, on a net financial cost, which was similar to last year at GBP 174 million. And the PBT level, that GBP 2,093,000,000 was just GBP 16 million behind the consensus level of GBP 2,109,000,000. With the benefit of slightly lower minority interests and an increase in the share buybacks leading to some share accretion, we, therefore, achieved an EPS growth of 0.6p to 120.4p, just ahead of consensus at 119.8p.

In terms of summary of the headline P&L at a glance, really a very familiar pattern to what you've seen. Revenues, revenue less pass-through cost, we've spoken about. Margins we've spoken about in terms of being down on a reported basis 0.1%, but on a constant currency basis and like-for-like being flat with last year at 17.3%. The tax rate has increased, principally through the U.K. legislation from 21% to 22%. We do disclose in the press release that we are or have taken an exceptional tax credit in 2017, in relation to deferred tax liabilities, which are now at a lower rate going forward. However -- and we don't expect the U.S. tax changes to have a material impact on the group's tax rate overall.

We've talked about net debt GBP 5.1 billion on a constant currency basis being 13%. It was impacted by currency, so on a reported basis, it was up 18%. And we've talked about average net debt-to-EBITDA at 2x. Average headcount for the year was down 1.5%, and closing headcount was down 1.7% for the year.

So in terms of the revenue bridge started last year at GBP 14.4 billion. Like-for-like revenues are down 0.3%. Acquisitions added 1.9%. Foreign exchange adding 4.5%, so overall, revenues grew at 6.1% to GBP 15.3 billion. Doing exactly the same for revenues less pass-through costs, previously known as net sales, we started at GBP 12.4 billion. We were down 0.9% like-for-like. Acquisitions added 2.3%. Foreign exchange added 4.6%. And overall, our revenues less pass-through cost growth was 6% on a reported basis.

Now turning to foreign exchange. As you see here, in 2016, the group had a benefit to both revenues and revenues less pass-through costs of around 10%. In 3 of the quarters of this year, we had a benefit, but it was mitigating. And in the fourth quarter, it was a headwind. But overall for 2017, we had the benefit of foreign exchange to the tune of 4.5% on revenues and 4.6% on revenues less pass-through costs. If we were to look at current rates over 2018, we'd expect there to be a minus 4% impact to revenues and profits as a result of the current exchange rates compared to 2017.

Turning now to a second change in disclosures, and you'll see more detail later comparing, in a slide in fact, the previous display or disclosure on the top half of the profit loss account. So like with last year, revenue's GBP 15.265 billion, a new line called cost of services and a gross profit of GBP 3.175 billion. The cost of services at GBP 12 billion is basically all the costs associated with delivering those revenues, a pass-through, through our 93% of the revenues. Then we have a general and administrative costs, which in the main, is the G&A or the admin staff related to running the business, et cetera, is around 7% of the group.

At the operating profit level, be the same level as we disclosed in previous years, GBP 1.908 billion versus GBP 2.063 billion last year, and the PBIT is exactly the same, measured and calculated, as we have disclosed in prior years. This is again the statutory P&L. So in the finance costs, you do have other items that go through in addition to the bank interest, remeasurement gains on options, et cetera, that is disclosed separately in the appendix and the detail behind it. And likewise, on the statutory tax payment, we were down from GBP 389 million to GBP 197 million, again, principally for the exceptional tax credit, as I mentioned on deferred liabilities we've taken in 2017. So on a reported basis, our diluted EPS was 142.4p, up nearly 27% on a constant currency basis from last year of 108p.

So turning now to a bit more color on the disclosure. So in the past, we had revenues, direct cost of just GBP 2 billion, again, explained over the last 4 or 5 years being those data collection costs in the data investment management business and in those digital businesses, where we are principal media buying those 2 elements we had identified as a direct cost, and therefore, disclosed as subtotal revenues as net sales of GBP 13.14 billion. We then had all the other operating costs disclosed in the P&L, around GBP 11.2 billion, leading to an operating profit of GBP 1.908 billion.

On the left-hand side, which is the new format by function, you see a different combination, but you land at the same point of operating profit at GBP 1.908 billion, as I mentioned with 93% of the revenues allocated as cost of services and around 7% in general and admin costs.

You see down below also the breakout of general and admin cost, which is what we call headline G&A of GBP 1.020 billion, intangible amortization of GBP 195 million, goodwill amortization of GBP 27 million and any exceptional items in the year net of GBP 25 million. This will be explained shortly. But in every respect, on the revenue less pass-through costs, so previously, net sales numbers are the same and calculated in the same way, the headline PBIT is the same and calculated in the same way, and the margin is the same and calculated in the same way.

So for 2017, our headline P&L would look as follows: revenues, GBP 15.265 billion on a constant currency growth of 1.6%; revenue less pass-through costs, as mentioned previously known as net sales, at GBP 13 billion; operating profits at GBP 2,154,000,000; the [associate] income is around GBP 113 million; and PBIT, GBP 2.267 billion, up 1.5% on a constant currency basis. On a headline basis, our net interest or finance costs are the same as last year, GBP 174 million of costs. And our tax rate on a headline basis has moved up from 21% last year to 22%. Net-net of all these, the diluted EPS at 120.4p is up 6.4% on a reported basis and 2.7% on a constant currency basis versus the EPS last year of 113.2p.

Turning now to net exceptional loss of GBP 24 million. It's a combination of the 3 items. The gain on disposal of investments and subsidiaries, Asatsu being the main, we identify in the notes to the tune of around GBP 92 million after total of GBP 129 million of book gain. Investment write-downs, again, identified now as comScore being the principal write-down, in total GBP 96 million of write-downs taken throughout the year. And restructuring costs in total of GBP 57 million, of which predominantly GBP 34 million is severance and around GBP 13 million of IT cost, including all those costs associated with the cyberattack in the middle of the year. So net-net, at subsidiary level, we took an exceptional loss of GBP 24 million, including an exceptional loss of GBP 1 million in the associate line in the statutory P&L, you'll see a net loss of GBP 25 million.

So turning now to growth versus prior year. I'm going to build up the revenue less pass-through costs line. So on a like-for-like basis, we were down 0.9%. Acquisitions added 2.3% to lead to constant currency growth of 1.4%. Foreign exchange added 4.6% to the group, so reported revenues less pass-through cost line was growing at 6%. If we were a dollar-reporting company, our reported revenue less pass-through cost growth would be 1.6%. If we were a euro-reporting company, the decline would have been 0.7%. And if we were a yen-reporting company, our growth would have been 4.8%.

So turning now to the revenues and revenues less pass-through costs by sector. For the year, and I think best if I give you the shape of how the 4 quarters went throughout 2017 and then compare the full year performance to the half year performance for each of the sectors and each of the geographies. So quarter 1, on a like-for-like basis, using revenues less pass-through costs as the line, we were up 0.8%. In quarter 2, we were down 1.7%. So the first half on revenues less pass-through cost on a like-for-like basis, we were down 0.5%. In quarter 3, we were down 1.1% and in quarter 4, we were down 1.3%. So in the second half, our like-for-like revenues less pass-through costs were down 1.2%, similar to the rate we saw in January 2018 of minus 1.2%. Therefore, on a full year basis, we were down 0.9%.

So turning now to the advertising media investment management business, which represents 47% of the group. On a like-for-like revenue less pass-through costs, we declined 2.3% for the full year, slightly higher than the rate of decline at the half year, which is minus 1.7%. In data investment management, which is around 18% of the group, on a full year basis, we declined 1.3%, a slight improvement over the decline at the half year, which was almost 2%.

In public relations and public affairs, around 8% of the group, we had growth at the half year of 1.8% and on a full year basis, still had growth but slightly more modest, a plus 0.2%. In brand consulting, health and wellness and specialist communications, around 28% of the group, we had growth at the half year of 1.1%, very similar to that -- how we grew at the full year basis of 1.0%. So overall for the group, growth for the year at 0.9% compared to a decline of minus 0.5% at the half year.

Turning now to geography. In North America, representing 36% of the group, we saw full year like-for-like decline of 3.2% and at the half year, we saw a decline of 2.2%. In the U.K., which was a strong economy for us this year, it's around 13% of the business, we saw an improvement in the first half of plus 3.8% and on a full year basis, plus 4.8%. Western Continental Europe, which is around 21% of the group, was a decline at 0.3% at the half year and flat on a full year basis at 0.0%. In Asia Pacific, Latin America, Africa, Middle East and Central and Eastern Europe, approximately 30% of the group, we saw a decline at the half year of minus 0.3% and on a full year basis, a decline of minus 0.8%. So overall for the group, a decline of 0.9% on a full year basis.

When we look at our competitors and try to take out the volatility of year-on-year measurements, and we trended to do this on a -- looking at 2-year cumulative, just on the revenue line, you could see really across the industry a slowing down in the '16, '17 half year numbers compared to '15, '16 half year numbers, and that's really across the group. Slightly patchy in parts, but the trend is reasonably clear.

So turning now to headline PBIT and revenue less pass-through cost margins by sector. I'll go through it again by discipline. So advertising, media investment management, 49% of the group, margins are flat at 19% with last year. Data investment management business, 15% of the group, had the second-highest margin -- margins at 17.1%, down half a margin point on a full year basis from 17.6%, consistent where they were at the half year, where they were also down half a margin point. Public relations, public affairs representing 8% of the group. So margins are 16.1%, down 0.6 margin points on a full year basis from the 16.7% last year. And branding consulting, health and wellness and specialist communications, around 28% of the group, basically saw flat margins, or 15.3% this year compared to 15.4% last year. So overall on a reported basis, down 0.1% from 17.4% to 17.3%, but flat on a constant currency or like-for-like basis.

Turning to geographies to look at the same. In North America, our strongest margin region, continued to grow margin despite revenues and revenue less pass-through costs declines. Margins improved from 19.4% to 19.5%. In the U.K., margins did improve from 16.5% to 16.6%. In Western Continental Europe, margins are basically flat, moving down from 14.5% to 14.4%. And in Asia Pacific, Latin America, Africa, Middle East and Central and Eastern Europe, margins were down half a margin point on a full year basis, declining from 17.2% to 16.7%.

So turning now to the geographies. To give you some flavor, again, the first slide is on revenues of both the fourth quarter and the full year basis. And again, there is some distortion of revenue numbers compared to net sales or revenue less pass-through costs, and we'll come onto that in a second. So on a full year basis, you can see here declines in North America, but on a revenue basis in quarter 4, we had growth. Latin America had a good year generally and so did the U.K. But in other regions, both the fourth quarter and the full year was fairly challenging. So overall, on a revenue basis, mature markets were down 0.5%, and the fast growing markets are basically flat. Overall, the group down 0.3%. On a revenue less pass-through costs basis or previously as net sales, on a full year basis, the group overall is down 0.9%. In quarter 4, we were down 1.3%. And a number of our regions had a disappointing fourth quarter. As you'll see here, the only 2 regions that were growing on net sales basis or revenue less pass-through costs were United Kingdom, which was strong at 9% growth in quarter 4; and Latin America, which has been up all year, growing more modestly at 0.6% in quarter 4.

If I turn now to the main 6 markets of the group, representing just under 70%, you can see here the trends compared to '15, '16 and '17, both on a revenue and on a revenue less pass-through cost basis. And the trends versus 9 months are quite consistent in many cases. So we were down around 2.5% to 3% in the 9-month stage in the U.S.A. We're down 3.2% on a full year basis. In the U.K., after 9 months, we're up 3.8%; and we grew at 4.8% in a full year basis. In China, whilst it's disappointing compared to the prior year, we were down 4.6% in -- after 9 months, declining 3.2% in full year '17, although we have got a very good start of double-digit growth in January 2018 in Greater China.

Germany was disappointing, but it was impacted by some of the major account losses we had incurred over the last 18 months. And overall, we saw revenue less pass-through cost down 1.3% after 2 very solid years of growth in Germany. ANZ or WPP AUNZ has reported in the last few days and whilst the revenues are down, profits are up in ANZ. So we see momentum is quite strong in that business. And in France, we've seen a modest turnaround from a flat to slightly positive market for the last 2 years in France.

Turning now to the BRICs markets and sales, which represent 12% of revenues and revenue less pass-through costs. We've talked about China. India was disappointing. It was definitely affected by the GST and demonetization throughout 2017. And whilst we had growth around 7% after 9 months, on a full year basis, we were growing at 1%. Brazil has had a better year compared to the year before, where we were down 2.5% in 2016, and growing revenues less pass-through costs 1.6% this year, a slight improvement from the 9-month run rate. And in Russia, it is very variable. But overall for the year, we were down close to 15%.

So turning now to the trade estimates of major new business wins, all listed here for the full year. Those that are highlighted are those that have been won or lost in the fourth quarter, and we see a number here of what I'd call transport-related wins in both Europe and North America coming through in quarter 4, principally on the media business but not exclusively on the media business.

On the second page, we -- smaller in scale but equally important wins across our businesses, a very strong win coming from Mediacom in Australia on the Victorian government business. And actually, the winning of a Latin American business, the AB InBev. However, on the losses, we weren't able to hold on to the AB InBev business in U.S.A., Australia and India and had some other losses in the fourth quarter. The net of the wins and the losses in the fourth quarter was fairly even. And so when we run our own internal estimates of net new business won, it's very respectable versus last year. So the GBP 6.3 billion wins of new business were weighted to the first 3 quarters of the year and compared to GBP 6.7 billion of net wins last year.

And when I turn now to year-to-date, since the 1st of January, we've had 3 wins, all identified here throughout the group: 2 global and 1 covering the area in North America, Canada and Mexico.

So turning now to cash flow. Starting with the statutory operating profit as opposed to the headline operating profit. I think the message on the first page is to show that whatever cash or operating profit we generate, we deliver in true cash generation. So literally, 100% of the operating profit is generated into cash generation. And when we look at how we spent that cash, we have increased the rate of capital expenditure, partly on software applications that are being outsourced to third parties, developers to help us with. That's a growing part of our capital expenditure program, along with the property collocations and coordinations that we are doing. And we have some major properties collocating in the next 12 months in which build-out costs have been going on since sort of mid-'17.

The next discretionary use of spend is on M&A and acquisition payments. And although the net initial payments here are shown as minus 30, that's a combination of a gross spend on acquisitions of GBP 326 million, so in line with our GBP 300 million to GBP 400 million spend per year; and proceeds from disposals of GBP 296 million, hence, the net initial payments only being GBP 30 million in 2017 compared to GBP 605 million in 2016. That, less available cash before distributions, is about GBP 1.3 billion, of which GBP 1.25 billion was spent on dividends and share buybacks, leaving a cash generation of around GBP 55 million this year compared to an outflow of GBP 156 million last year.

So in terms of the net debt and the averages, currency has had a fairly material impact in the net debt. So on a constant currency basis, the average of GBP 5.1 billion was GBP 584 million worse than a year ago or 13% worse than a year ago. And on a reported basis, it was GBP 803 million worse or 19% worse. However, with that strong cash proceeds coming in and the sale of the ADK stake coming through on December 15, in combination with what is seasonally a strong cash position at the end of the year, our net debt has both decreased significantly compared to the average and on a constant currency basis of GBP 4.4 billion, was only GBP 391 million worse or 10% worse than a year ago. This should lead through, as it does down below the page, into where we are on a reported basis after 7 weeks, around GBP 300 million to GBP 400 million different compared to the year before, around GBP 4.5 billion compared to the first 7 weeks in 2017 of GBP 4.1 billion or GBP 4.2 billion. But overall, with headline finance costs running at GBP 174 million. We have strong interest cover at 13x, and the headline EBITDA to the average net debt was 2x, as shown on the graph below. But if one wants to use the period-end net debt, our net debt-to-point cover would be around 1.77x. But we are at the top end of the range of our average net debt-to-headline EBITDA.

Our maturity profile of the debt, it's well balanced. The average maturity is around 9.5 years. The average coupon is around 3%. We have one bond coming up in 2018, and the AUNZ facility coming up in March '19 for refinancing.

And finally for me, just where we have done versus our targets for the year. So we target GBP 300 million to GBP 400 million of acquisition spend. In fact, we achieved GBP 326 million in 2017, but with the net of the disposals showing at GBP 30 million. Share buybacks, we target between 2% to 3% and spent 2.5%. And on dividend, we are targeting a 50% payout ratio. And with the rise in earnings at 6%, the dividend has risen 6%, so we achieved that target.

I will now hand over to Adam Smith.

Thank you, Paul. Hello. I'm just going to run through the -- our current ad forecast, which we published in December. We revisit these twice a year, and so we'll be revising around the end of June. But this is where we currently are on forecasting worldwide total advertising investment.

We thought -- we think 2017 was going to be coming out of plus 3.1%, which was a downgrade from when we had come into the year, so from 4.4%. That was with fixed investment looking sluggish and a neutral position on the Trump presidency, and which was followed by a bit of a downgrade in China in the first half and weakness emerging in some categories. Since then, coming into 2018, we've picking up to 4.3% this year, obviously, benefiting also from the sports events, the Winter Olympics, the World Cup in a favorable time zone and the Asia Games. And this number's been stable since middle of last year amid supportive macro indicators around business and consumer confidence, industrial production, fixed capital. And geographically, China is strong as does Japan. Slight worries perhaps around wages and their share of the global economy compared to profits and a commodity upswing, which despite recent energy fluctuations, is still, I think, running about 11% up on the year. So 4.3%, our expectation for '18.

The relationship with advertising investments to GDP. In this recovery cycle, we've seen advertising intensity fall a little from 0.75% to 0.70% and on average, lagging the nominal GDP growth rate by 1 point. We see in this graph the convergence of the 2 curves in 2016. This was despite headwinds, particularly in personal care, and then the diversions again in 2017, as the cutbacks became more generalized. I investigated whether we might be chronically under-measuring advertising expenditure to explain this 1-point gap and investigated the cost of technology to support digital media investment, which we've been doing some work on recently, and established that we think technical expenditures are occupying about 19% of working media spend in digital display and about 2% for paid search. So if we add that back and treat it as measured digital ad spend, it would bring in about another GBP 20 billion. The other main missing part is under-measurement in certain countries, India, Brazil, South Korea, which would conservatively add another GBP 10 billion. However, that doesn't really close the gap. Only -- it only closes about 1/5 of this gap. So other causes is perhaps the compression of traditional advertising budgets and a sustained diversion of brand support into promotional spending, which is a characteristic of low-inflation markets.

This portrays the advertising recovery in real terms indexing from 2009. And one thing this demonstrates is the shift of advertising investment away from mature markets, where advertising intensity is typically about 0.8% of GDP to the faster-growth worlds where the advertising intensity is more like 0.6%. So there is some gearing there. And the developed world is currently 65% of the measured ad economy and is today, at the end of 2017, indexing 107 in real terms from the 2009 base point. The faster-growth world really has been faster, currently indexing at 150.

Now putting a little more color into that, I thought we'd pick out Japan, which is 8% still of measured ad revenue globally and which is, as you can see, being under the stimulus from the government or by the government, the -- has outperformed the developed world generally across this cycle. Eurozone, the eurozone is currently about 15 -- no, I beg your pardon, 18% of global ad revenue and is about 1/4 smaller in real terms than it was in 2009. So this is despite an acceleration in advertising growth in the eurozone. The eurozone's ad intensity is the lowest in the world though, of any region, at 0.43%, and it lacks digital density as well. 30% of the eurozone's advertising is in digital compared to a global average of now 36%.

Looking at the sources of the expected growth in 2018. What's notable is that growth is becoming more simultaneous. We had 13 countries and the 6 countries of the Gulf States reversing in 2017. In 2018, we're only expecting 6 countries to reverse. And the corollary of that is the dependence on this top group of growth countries is falling a little as well. The U.S. growth rate remains sluggish with advertisers remaining focused on reducing expense and increasing efficiency, scrutinizing digital. China has stabilized. The government's priority in 2017 was to curb financial risk, and it has apparently successfully conducted heat away from the excessive property market of the larger cities into the smaller cities. But GroupM tells us that demand, and Kantar tells us that demand for consumer goods is a little bit calmed. One result of household income growth slowing since 2012, along with a propensity to try new products. Auto sales growth has slowed in China, too, and even went negative at one point in 2017, all of the premium end of the car market remains healthy.

One effect of rebalancing the economy away from exports and investments has been to help the percentage of the economy which is accounted for by retail sales, which is now rising into the high-40 percentage points. Argentina appears here, the results of political stability and an appreciating currency. India is looking past the disruption of its recent reforms, although it echoes China's moderation in demand for consumer goods and auto. Although underpinning India's growth is urbanization and strong wage growth.

The U.K. features once again driven entirely by performance-driven digital marketing. And Russia, although it doesn't appear here, is also growing strongly, not quite big enough to make it into this list. Brazil's ad recovery, and its economic recovery generally, is postponed to beyond our forecast horizon, which is this year at the moment, as austerity bears down on the massive population.

I thought we'd look at this coincidence of e-commerce growth, retail volumes and the growth of digital advertising. The -- they currently, whether coincidentally or not, their digital advertising is 8% of the volume of e-commerce. And if this relationship allows us to predict anything, our current digital advertising forecast would imply a 14% growth in e-commerce sales in 2018. Now since we did this forecast, we have specifically investigated e-commerce as we do once a year, and in fact, predict that it will rise 15% this year. That follows a rise in e-commerce transactions of 17% in 2017. So a 15% rise in e-commerce would take its total to GBP 2.5 trillion in 2018, which would represent about 10% of all global retail. And in China, 16%, and of course, more like 100% of retail growth in total.

The average Internet shopper in 2018 will spend just under $1,000. That's a 10% increase in -- on 2017, compared to a 5% increase in Internet usership. And it's the first time -- and a similar thing happened in 2017, a 10% rise in spend on a 5% rise in Internet penetration. It's the first time, I think, we've seen a substantial diversion to those 2 figures.

Byron Sharp, last year, told us big brands are not dying but they might be wasting money on unproven new media. Against this, we have plenty of real-world evidence of nimble online challengers, flexitarians, picky Millennials delighting in the infinite shelve space of online. And in -- why should there be one truth? In November, Procter & Gamble said it was spending close to 1/3 of its advertising budget in digital media, but in some markets, 50%, and in some brands, 100%. There may be emerging a new kink in the product life cycle as web endemics grow to a certain point. And it's being suggested this might be sales of GBP 100 billion or GBP 150 billion, at which point they might have to investigate reach outside the direct-to-consumer digital media and to find further growth.

Such published ROI, as is available on the success of our -- or the outcomes of advertising, online advertising, suggest that results are more polarized than they are in traditional media, which might suggest a need of greater management and I think possibly, scrutiny of the media mix. Another polarity, which we are seeing in digital media, is inflation in certain types of digital media, particularly atop of the funnel, where advertisers are seeking high quality, more safe video inventory. And at the bottom of the funnel, where last-click economics, which still plagues us and brings advertisers into competition for the same relatively small pool of prospects.

In closing on that chart, I would say that the rising importance of e-commerce is one of the reasons which underlies our GroupM's business partnership with Amazon, which is one of several, which I think we'll be discussing later on in the presentation.

What I would try to do here is investigate the question how big can digital get? With the caveat that obviously, separating digital from other media, there's a deal of blurring and overlapping now. But I looked at digital intensity in various countries, divided the world into 4 quarters and finding the most digital countries average of 48% digital ad intensity that is share of investment, and that 1/4 of countries represents 1/3 of all global ad expenditure, leading likes among those in that quartile is China and the U.K., both of which have a highly regulated TV industry, which is I think connected to this. But once you've got to this high level of digital intensity, is it time to start looking for points of resistance. And the way GroupM China puts, it is the pure online or offline bonus is almost gone. The best opportunity is in combination. GroupM causes -- in China causes Internet Plus, and it's part of a broader revision of the retail model, shortening time to market and integrating the omnichannel offer.

Moving to the third quartile, we find digital intensity averages are 30% of that expenditure. This is the largest group of countries representing about half of total ad expenditure. And in the lower quartiles, what we see here is that the effective under measurement, in fact. So this is certainly an understatement of their true digital investment. So if we were to suppose then that digital has the capacity to grow to 1/2 of global ad spend, where is that all going to come from? Well, some of it is going to be coming from other media silos, and -- but it might also come from other forms of marketing support or, indeed, advertisers, which are new to advertising in the first place. But anyway, if it were to reach 50%, the other media lines would have to give up 14 points. Underlying again for the definitions of blurring, particularly with online and TV, we can observe that TV advertising is still relatively stable. Without China, it's flat and not losing share. And television viewing hours remain high, eroding very slightly at the top end and a little bit faster with the younger demographics but still high. House of home is -- it looks resilient. It's becoming more versatile, plannable now by the weather or by daypart or by geographic location. And we think that the share will edge up to 6.3% of global advertising in 2018, which is the highest it's been since 1993. So one possible scenario here is that we might see digital if it's on its road to 50% taking 1/3 from linear TV, 1/3 from print and 1/3 from the, what might one -- one might call a traditional TV incumbent outlets online. The TV content will remain and will become more addressable. It will remain a brand safe and salient medium. And I think distribution will be a lot to do with this because the better and more widely television is distributed, the younger its profile becomes.

So that was all I had to say. I'll just finish with that summary of regional growth, which we will be revising again in June. Pass over to Martin now.

And now I just want to go to section 3, which is Slide 47 and just talk a little bit about what we regard as being the most commonly asked questions by institutional investors and analysts on this call and elsewhere. And no doubt, anybody's got any more questions we can cover them in the Q&A session after we finish. So we've identified 5 questions we think are really important. Firstly, are Google, Facebook, Amazon, Alibaba and Tencent, examples of the new media companies are going direct to client. Secondly, our account consultancies like Accenture or Deloitte Digital, eating our digital lunch. And thirdly, are ZBB zero-based budgeting models, activists or private equity institutions driving down marketing costs by focus on cost? Fourthly, are clients increasing the in-housing their marketing activities? And finally, are innovation and branding still relevant and important?

So turning to the first question first on Slide 49. Just outlines last year's distribution of media spend. Our media book is about $70 billion, $75 billion, and you can see here the destinations, top of the pops for the first time this year have been Google and Facebook, Facebook having been third the year before. And then the picture is a little bit cloudy because of what's going on in the media space at the moment, the contested bid for Sky with Fox in there, Disney in there and of course, now Comcast in there. So it's a bit unclear as who will end up with what and where and of course, we have AT&T and Time Warner in the background, too. But you can see the distribution basically pretty much whichever way it goes, the third and fourth will be the protagonist in that contested situation at the moment. You don't have a slew of traditional media owners, and then we see towards the bottom of the list outside the top 10, Twitter and Tencent and Oath and Amazon and Snap and Alibaba. And if you go back to 2012 and Google alone was in the top 10 and the others, of course, were nascent at that time. Now there's a lot of discussion as to whether there is disintermediation. We have referred to Google and Facebook as frenemies and friendlier frenemies and partners. But now what we're seeing is certainly a much stronger relationship with these what we call new media companies, technology companies as they would have it. And this is a quote from Philipp Schindler, Chief Business Officer of Google, in November of last year at the Credit Suisse conference. I'll just repeat -- just relay what he said: "We don't want to disintermediate advertising agencies. We're actually working very, very closely with agencies all over the world. It's important to understand that we see ourselves as suppliers of technologies, and we would like agencies to actually apply our technologies and smartly use our technology. We see agencies as trusted advisers to customers and clients." And that's manifested in what we actually do with Google. We have 4 programs here: SWARM, which is a creative partnership: Geode, a business transformation process; Starkiller, which enables us to implement search capabilities that Essence, our media planning and buying agency, have developed; and then finally, and importantly, the launch of the next billion consumers. These are the new consumers that we should all be focusing on for growth beyond the West, beyond the U.S. or North America and Western Europe to Asia, Latin America, Africa, the Middle East and Central and Eastern Europe.

In addition to that, with Facebook, we have a Creative Ambassadors Program, a joint initiative developed specifically for the WPP agencies; with Amazon, a unique unified approach to Amazon involving -- we have Mark here and he can talk a little bit about it about what Mindshare is doing with POSSIBLE and what Wunderman Commerce is doing with the first-ever global commerce agency dedicated to Amazon and its first headquarters. It will have another headquarters in U.S. in fairly short order. Alibaba, we have a unique strategic partnership through GroupM and Tencent, we've announced the China Social Marketing Lab. So considerable number of initiatives with Google, Facebook and others in joint areas. And similarly, in the data area with Google, with Facebook, with Amazon, with Crossix, with Mobilewalla and Spotify, we're developing unique ways of developing our data in their data to provide unprecedented insights. Similarly, we're building our relationship with marketing tech partners, Adobe, Salesforce, Oracle, Sitecore, Acquia, Marketo, they're all good examples of where we are building relationships with software and creative suppliers in effective ways and earning awards from them in terms of building our relationships as we did with Adobe in '17 and with Acquia in 2018.

Similarly, we're building our own beta assets using Kantar and GroupM with mPLATFORM, optimizing and analyzing and executing and identifying data. They are exceedingly important in developing through Zipline targeted data for targeted marketing and developing our relationships with mPLATFORM and Xaxis and AppNexus and Google and Facebook. AppNexus, of course, is which we have an investment in.

So that's the first area. And I think you can see from that we are building these relationships in a constructive and meaningful way and working with those companies to deal with some of the concerns that our clients have registered in the areas of brand safety, both political and consumer. And we've had another speech today, I think, at the ANA by Marc Pritchard of Procter & Gamble outlining the importance of those relationships with the tech company and improving ad placement measurability and brand safety. And at the same time, identifying the areas where Procter & Gamble's agencies are working with their agencies, of which we are one, to build new models, colocation models, collaborative models in an effective way.

On Slide 57, we've addressed the second commonly asked question. Are consultancies eating our digital lunch? We just reiterated the statistics because there are a lot of, I think, inaccurate statistics in terms of volumes and activity. And of course, the definition we had here in London, one analyst talking about business transformation, you can talk about technological disruption, technological transformation, business transformation, a lot of semantics there. But when you actually get down to the hard numbers, it's quite difficult to identify what is business transformation, what is digital. And these numbers just show the difficulties here in comparing Ad Age estimates with the estimates that we've seen from audited sources. But more importantly, we've tracked yet again, as we did at the end of the third quarter of last year, what's actually been happening on the ground asking our businesses where they pitched against the major consulting competitors in the digital area. And you can see that we've seen significant wins running at about 2:1. And we're also seeing, in revenue terms, significant wins. Again, it's been just over $100 million of revenue, so small in the context of our overall operations, but over 80 wins and just under 30 losses. So significant winning capability on direct and digital. And interestingly, on the bigger programs, we seem to be doing extremely well as you can see from the fourth quarter update.

Similarly, we tried to identify some of the examples. These are not all the examples of digital transformation -- through digital transformation that we're involved in. And you can see several examples in automotive, financial services, FMCG, personal care and drugs, retail, travel and airline and telecommunications that we can talk about. And Carla is on the line from New York, and Mark can talk a little bit more about these examples in due course.

The third question that gets asked is about the short-term pressure the zero-based budgeting models, which is extremely powerful. The activists also extremely powerful in private equity, putting emphasis on margins on short-term costs on cost reduction and we have the disruption. We have the activist investors and the zero-based budgeters. I would have to say, in fairness to the activist investors, prominently people like Dan Loeb and Nelson Peltz, are quite adamant that they are very focused on innovation and very focused on branding and the 2 together in order to build the top line.

But you can see, if you look at the slide on 61, on the left-hand side, we have analysis of our leading CPG clients and what's been happening to their organic growth rates, which have been pretty low. And price, there's been a little bit of price but limited and overall what impact does that have -- has that had on volume. And there are people who, albeit working, have worked for many years in the CPG area who believe that the lack of volume growth will drive CPG companies to increase their investment in A&P, and more of that in a second, in the near future given the pressures that we see.

On the right-hand side of the slide, we just highlighted 2 well-known ZBB companies. And you can see what's been happening to their quarterly organic growth. It's been very volatile and hovering around or below the 0 level. And what impact that's had on their market capitalizations in the last year or so. And obviously, they've been affected to some extent recently by increases in interest rates. Interestingly, the growth that we've seen in the S&P 500 has been confined pretty much to the tech area and the health care area. This is what we've seen generally. And there is a great disparity in terms of growth rate yet not in terms of valuation. It has come back a bit since we last reviewed this a quarter or so ago. And information technology has grown by about 1/3, and consumer staples have dropped by about 6%. But the growth rate of IT is around 9.3% compound. And you can see the multiple just under 20 and the consumer staples at just over 3% compound growth is just under 18x in terms of multiple. So there is still is that dissonance that sort of paradox in terms of valuation given growth rates. And that's been compounded by what's happening to the channels of distribution.

Hyper and supermarkets have about a 52% share but are only growing at just under 1%. Discounters are growing at about 6%, but only have a 6% share. Convenience about just under 5% share, growing at 3.6%. And of course, e-commerce, as Adam highlighted, is growing the fastest, but it only has a 5% share but growing at well over 25%. The traditional trade goes at 3%, but has a 26% share. So you have this different channel set of growth rates and that, of course, is making omnichannel much more challenging.

The fourth area that we're looking at is our clients increasingly in-housing their marketing activities. And there is a considerable sets of data that go one way and the other. And in fact, clients vary from time to time going in-house and out-house and back in-house again. What we're doing is making sure that we have the capabilities in all these areas. And Hogarth, which we announced today, was going to be horizontalized across the whole of our enterprise. Hogarth production management is a platform that's been growing very significantly over the last 3 years. In fact, it's 3 or 4 years, it's tripled its revenues and provides a purely digital production management platform on which all marketing assets can hang.

The second thing we're doing is making sure that our programmatic and performance agencies continue to grow. Xaxis is gaining traction with over 4,000 clients as effectiveness and efficiency becomes even more critical. The clients reinforced by plista, our performance agency, and Essence in digital media planning and buying.

Third area, we do cooperate. I think there is a misunderstanding in this area. We do co-operate with clients on building in-house facilities. We've done it in media investment management with content. We've done it in data with data, and we've done it through our public relations agencies with content studios as well. And we participate in building and supporting all those studio owned in-house capabilities. And recent data has indicated that some in-house programmatic and content studios maybe going more out-house than in-house again. And it's an interesting, although volatile situation.

And then finally, we have developed what I would call ZBB models. These are more agile, more responsible -- responsive, lower-cost models to deliver more cost-effective, agile and responsive solutions. Now having said all that, there's no doubt that GDP growth, although it has become more synchronous was the highlight, I guess, this year at Davos, the unanimity of view, which may be a canary in the coal mine, but that's the unanimity of view. We saw this year at Davos but the GDP growth, whether it's in the low 3s or the upper 3s towards 4, is still low in relation to what we saw pre-Lehman in 2008 and before. So we are -- we do face generally lower GDP growth subtrend pre-Lehman, lower no inflation, therefore, little pricing power and a high focus on cost. We also have short-ish or relatively short-ish management tenure. And of course, as we see on Slide 67, still the propensity for companies, this is the S&P 500, to deliver to shareholders at least or close to 100% of their earnings in dividends and buybacks.

And this move brings me back to the point about investment in branding and indeed, in innovation. You've got to have the 2 together it. And this is data taken from a piece of Morgan Stanley research again from November of 2017 last year comparing what they call the investors, that's the packaged goods companies, the FMCG companies that invest in A&P, in advertising and promotion. We can't split A&P, unfortunately, but this is the total spend in A&P, advertising and promotion, and the cutters, the people who cut it. And just let me read you the quote: "Analyzing A&P spend across 40 global FMCG companies shows that those that have been consistently increasing brand investment have on average 50% faster growth than peers that haven't." And not only those A&P spend boost sales, it also builds barriers-to-entry, builds what Warren Buffett would call a moat, which allows FMCG companies to earn returns far in excess of their cost of capital and ultimately drives valuation. So there's a clear, clear statistical evidence that investing is far better than cutting.

And just to buttress that still further, what we see also from our brand, annual brand valuation surveys that we've been doing globally and locally in latterly in France and Italy, for example, in countries and regions, this brand valuation survey clearly indicates that over the last 11 years, if you had invested in the top 10 brands, those surveys show, your portfolio will be up 182% against about 112% for the S&P 500 and only 57% for the MSCI. So investing in brands or in companies that are successful from a brand valuation point of view delivers higher total shareholder returns. Now whatever the analysis here, whatever the right questions and the right responses to those questions are our structural response is absolutely key. And I'd just point out, we have been moving in a more unified direction for a number of years with our team approach and integrated approach, we've been doing that for a considerable period of time, probably 6, 7, 8 years' time. But our structural response given these changes in the landscape, whatever the reasons, whether they're structural or cyclical, has to accelerate. And to do that, we're doing basically 4 things. Firstly, we're simplifying our verticals. Ogilvy and -- Carla can comment on this if you want, through John Seifert's next chapter. We have Kelly Clark on the phone, and Kelly and [Tim] have put together Wavemaker from MEC and Maxus, 2 of our agencies at GroupM. Eric Salama at Kantar has unified Kantar's offering on a country-by-country basis. This week, Donna Imperato was appointed leader of a combined Burson, Cohn and Wolfe, and Finsbury has its strategic partnership with Hering Schuppener and Glover Park. And we have WPP brand consulting with its consolidation at Superunion, in that case, under Simon Bolton and Jim Prior and Mike Hudnall's WPP health and wellness and Mark sitting here with me with Wunderman and POSSIBLE Salmon, Cognifide and Acceleration in the consolidation and simplification there. And Jon Cook's, VML with Rockfish, all examples of simplifying our verticals. One of the analysts here in London this morning asked what proportion of group revenues are affected by these vertical shifts. And the answer that these consolidations affect about 40% to 50% of our $20 billion of revenue. So we're talking here about $8 billion or $9 billion of revenue being impacted in one way or another by what we're doing here.

The second area is stronger client coordination. We have over 50 client leaders covering 1/3 of our revenue, combining our efforts for clients. And I referenced Marc Pritchard's speech today at the ANA, and he's pointing to what we're doing in that case with P&G and looking at our overall relationship there across the world.

Thirdly, looking at those relationships on a country-by-country basis. In the last few weeks, we've appointed Shenang Chuang at -- in Taiwan, Mathieu Morgensztern we recruited from Accenture, head of their digital practices in Europe. In France, Karen Blackett here in the U.K., [Sergio Armado]in Brazil and now we're running those countries, and we now cover about half of our geographies around the world.

So a third area is country management, and the final is what's horizontalizing functions, systems and platforms. I mentioned Hogarth. Today, we've announced that we've now combined Hogarth across the world as a platform or a system or a function of a digital production for all our agencies. Earlier in the week, you may have seen Hogarth's announcements of its partnerships with Ogilvy, and we've now decided to roll that out across the whole of our operation. At the same time, we're starting to examine how digital transformation, e-commerce and shopper platforms and systems and capabilities can similarly to Hogarth be made available across the whole group. So really, we're heavily involved already in digital strategy transformation and disruption with clients, so we're trying to make these much more accessible to our individual businesses.

On Slide 72, we just outline where we're going in terms of structure. We have our 7 functions: advertising; media; data; brand; public relations; health and wellness; and specialist communications, which is essentially digital and what we term digital, direct and interactive. Across those 7 verticals, we have production management, which is Hogarth, and we're looking -- that's the reason why it's got a hatch box around it. We're looking at how we can apply the same approach with digital transformation, with e-commerce and with the shopper. And of course, we have the shared services around talent, finance, property, procurement, information technology and practices. We've had those for many years. And those span already horizontally what we do.

On the top right and lower right, you'll see a select client teams and select country P&Ls, where we're operating already client and country management. So that's the objective. It is clearly to bring the firm much closer together on an enterprise-wide basis.

So finally, let me just summarize outlooks and conclusions. Reported revenue and revenue less pass-through costs grew 6% on a reportable basis. Like-for-like revenues less pass-through costs were down 0.9%, just under 1%. Our reported margin was down 0.1 margin points, but flat in constant currency and like-for-like. And reported headline diluted earnings per share was 124.4p, up over 6%. We had increased return on equity up to 16.9% I think versus 16.4% last year on a lower weighted average cost of capital of 6.3% where it was 6.4% the year before and dividends have been increased to 60p, up 6%, which represents a 50% payout ratio, which was what our target was a year or so ago. Average net debt-to-EBITDA ratio was 2x. It's the top of our range of 1.5 to 2x. The ForEx tailwind will reduce as we go through the year and becomes a headwind from Q4 of 2017. So up 14% in Q1, up 10% in Q2, 2%, in Q3 and became a tailwind -- a headwind of minus 3% in Q4, and it's 4.5% for the fiscal year 2017. Obviously, it will have a different impact next year. Net new business was $6.3 billion in the year. It continues to be strong. Good overall performance, particularly in the first 9 months. And we lead or led the new business tables for the last year positions 1 and 2 in all the tables.

A slow start to 2018. With generally like-for-like revenues flat and revenue less pass-through costs down 1.2%, but above budget, which I think is important. And focus strategically tends to be on or centers around simplification of our structure, including verticals, client and country management and enterprise-wide alignment of digital systems, platforms and capabilities.

Our financial model has changed in light of what's been happening in the last year, whether cyclical or structural. Organic revenue and revenue less pass-through costs growth of 0% to 5% in line with market growth. That's what we had pretty much before. Margin improvement now of 0 to 0.3 margin points or more before currency movements. That depends on revenue less pass-through costs growth, and staff cost of revenue less pass-through costs ratio improvement of 0.2 margin points or more depending on what happens on revenue and revenue growth. A use of our substantial cash flow, as Paul outlined, to enhance EPS growth through acquisition, share buybacks and debt reduction. Acquisitions continue to be around the GBP 300 million to GBP 400 million range in terms of target. Share buybacks, 2% to 3%, payout ratio 50%. Acquisitions will give us 1%, 2% to 3% revenue growth. And putting all that together, that would deliver 5% to 10% of EPS growth. At the low end of that range, if revenues remained flat and margins flat with 2%, 3% share buybacks and acquisition adding 1%, 2% or 3% and the payout ratio obviously at 50%. At the top of that range or towards of the top range, if we get a little bit more flexibility on the top line and we get a little bit more flexibility in terms of margins.

Now finally, the outlook for 2018. We budget bottom up with the operating companies we've encouraged them, if that's the right word, to budget extremely conservatively principally because of what we've gone through in the last 9 months since the end of Q1 of 2017. And those budgets having been adjusted in the way that I just suggested, indicate flat like-for-like revenue and revenue less pass-through costs growth with a stronger second half. So second half will be stronger than the first half, principally because the pattern last year was a slightly better first half and a slightly weaker second half. Flat constant currency operating margins to revenue less pass-through costs acquisition to add around 2% to 3% to revenue and revenue less pass-through costs. And at current exchange rates, the full year currency impact is a 4% decrease to revenue and revenue less pass-through costs. You remember that we do our budgets at the current or the beginning going into the year then current rates.

Our primary focus continues to be -- to grow revenue less pass-through costs faster than the industry average, driven by our positioning geographically and functionally. And the creative and effectiveness position we have, and through new business and strategically targeted acquisitions.

And finally, our objective remains to meet operating margin objectives by managing our absolute cost levels and by increasing the flexibility to adapt cost structure to significant market changes.

So I'll end there. You have in your -- on the website or in the company -- the presentation, you have historical data and competitive data. And we'll open up now for questions.

(Operator Instructions) And we will take our first question from Dan Salmon with BMO Capital Markets.

So Martin, since the beginning of the year, you've made some moves that I think you touched on this along in your comments already this morning a little bit, but I'd love to just dig in a little bit more. You've taken some moves to consolidate down your branding agencies, your PR agencies and then to bring together some of the consulting assets within Kantar. I'd love to just hear a little bit more on each of those 3 and maybe compare and contrast the reasoning for them. I think some of the high-level issues you've discussed touch on it a little bit, but just maybe some of the details on it and that would be great.

Okay then. Maybe Carla just be interesting as we have you on the line and you are so patient with us early morning. Give you a chance to talk a little bit about your perspective. And Dan didn't mention it specifically, but it's one of the biggest moves that we've made, probably the second biggest after what Eric Salama has been doing at Kantar, not just with the consultants stand, but with Kantar as a whole and Kantar First, and I'll come back to that with branding and health and wellness. But Carla, do you want to talk a little bit about what next chapter is and how Jon and yourselves and other senior executives at Ogilvy have dealt with next chapter?

Sure. The whole idea of Ogilvy next chapter is about us being able to create our own consolidation that serves clients better and does so by giving them the best brand thinking and creative quality, but also deep, deep expertise in the areas that most of our clients really need help on, including customer experience and digital, including data. And so to do this, we've been designing over the last 18 months or so, an entirely new operating system for the company and in fact, have a new identity, since we launched out into the public. So that's what used to be Ogilvy & Mather for advertising and OgilvyOne and Ogilvy PR and many, many other Ogilvy things becomes the one brand Ogilvy. And this has been met with a great deal of support from our clients. We did a lot of research with them. We talked to CEOs and CMOs, and they really want to be able to get a kind of plug and play model where they can get the best talent, but they can get a customized integrated solution that's perfect for them and for their particular needs. So what it does is, is improve the quality of what we're going to be able to do and what we are delivering today to clients where we've already either won business or have modeled this out, but it's also helping us to strip out unnecessary cost layers. So when you have 10, 15 individual subsidiaries with their own cost structures, it adds to overhead. We've been doing a really deep bit of work on pulling that out. So our promise now in the next chapter is to be right for modern marketers, for brands that need to build and stand for something over time, which we are experts at, but that also have to deliver quarterly business results, whether it's how many users they acquire or what their e-commerce sales are or whatever their metrics are as well as the minute-to-minute brand reputation that happens in a digital world. So that's kind of the scenario that we believe is right and our clients have come along with us on. And we've already won quite a bit of new business using this and applying this one Ogilvy model. So does that answer that, Dan?

Yes. That's very helpful.

Kelly on the line from Los Angeles. Kelly, you could say a little bit, not just about what you've done with Wavemaker, which, again, Dan didn't focus on, but also what you're doing at GroupM in terms of consolidating your offer around mPLATFORM as well.

Similarly to Carla's explanation of what's happening in Ogilvy, I mean, many of the same themes across the group and businesses, the media planning and buying businesses. So we have, as Martin said, merged 2 of our agencies, Maxus and MEC into Wavemaker, that's part of a larger program to simplify and consolidate services, particularly where we can drive efficiencies, cut out overheads and then reallocate those resources to client-facing and specific practice areas that are in high demand from clients now. We're seeing some early success on that. Quite a ways to go yet, but the ultimate outcome is hopefully we become more nimble and we become much more flexible and marginal in the way we go to market. We will consolidate services. We've already -- I mean, GroupM was established obviously to aggregate volume in our relationships, in our trading partnerships with media -- suppliers of media, inventory and media audiences. That continues to be a core focus, but increasingly, as Martin referenced, aggregating our capabilities in data and using that data across our volumes to enrich clients' understanding of consumers of retail environments. And we're again seeing good success there. Again, a lot of work to do. There's more consolidation to happen within the GroupM businesses, particularly in those nonclient-facing functions so that we can reallocate those resources to more value-adding services. I think we will see more and more, as Martin referenced, of the in-housing consultancy-type opportunities. We actually see that as a growth opportunity rather than a threat. More clients coming to us as partners asking for expertise that could be physically resident off and in their own teams, but nevertheless wanting to stay connected to the broader markets. The risk of in-housing without partners is that you disconnect yourself from the market. Best practices can slip, and most of our clients are engaging us as partners in that. So...

Okay, thank you. Let me just go back to where Dan -- that Dan -- so on consultancy, Kantar, I think it had 4 consulting businesses it brought back -- it brought together as Kantar Consulting. I mean, principally because we see the consulting companies and it's, I guess, more the quoted ones like Accenture or Capgemini are starting to try and invade the digital space. I think their penetration has been more on the cost side. So they're going to clients or client CEO or CMO or CIO you're spending too much money. You should spend less. And of course, we're a sort of subset of that cost bucket or a series of cost buckets that they mentioned. I mean, I can think of one example where we were actually inside a client looking at the implications of a ZBB exercise. In that case, it was EUR 1 billion of cost reduction exercise, and marketing was a part of it. So they sort of coming at a higher level. And what Eric is doing is putting together our offers in consultancy that would be, say, in health and in retail and in our futures that's in our -- looking at the future from a consulting point of view, putting that together in a much more concerted and coherent way. And you will have seen, Dan that we've hired the Head of Digital Consulting from Accenture in Europe, Mathieu Morgensztern, who's based in Paris currently. And he will remain in Paris being head of our French operations, which is our fifth or sixth largest business in the world. And he obviously has a tremendous background and experience in digital consulting. And I have no doubt that, that will herald the growth of our digital consulting capability not just at Kantar, but beyond Kantar into GroupM and WPP itself. So that's the consultancy. On the branding side, we have a number of very successful smaller businesses, which we brought together under Superunion. So we have -- we still have a number of branding businesses, but the biggest ones are Superunion and FITCH and last but not least, Landor. And we're consolidating our branding efforts in a more coherent way, and that's already got significant traction at Superunion. And the thesis is that these companies, what clients want is what Carla said. I mean, they -- the clients really want the best people working on their business. Frankly, we may care where they come from, but they don't. And so it's bringing together people in a area of expertise in a more effective, coordinated and flexible and agile way. And then finally, on health, we have 3 health care brands that we brought together domestically and that we're all building their businesses globally and a leading -- well, the leading media planning and buying operation in pharma CMI/Compas in America. And that's a unit of about $500 million in revenue. And we brought them together as one business under the WPP brand, WPP health and branding, health and wellness, and we've done the same thing with WPP branding, of which the constituent parts I've mentioned. And the aim is to bring them together to make them more effective in the environment. And I referenced a couple of times Marc Pritchard's speech is top of my mind because I was just reading it before we came on to this conference. But he's calling for agencies to -- that Procter worked with to collocate. He's calling for them to get together more effectively. And that's emblematic, I think, of what we see in a -- with a large number of clients that the disruption that we described -- technological disruption on production, on media, on distribution and the short-term things that we also tried to describe in the presentation, are driving clients to look at their business not in a more disintegrated way, but in a much more integrated way. And critically, we have to learn to work as one. And we may have our silos, tribes, brands and we may have had them historically, but they have to be broken down in order for us to deliver one -- there may be functional experts within the team, but they have to act as one unified enterprise. Together we'll be much more successful.

Great. Martin, if I can allow maybe just one quick follow-up. To the extent that you can, can you give us any comments on the evolution of your relationship with Ford?

Well, it -- we can't talk specifically, Dan. I wish I could but we can't talk about that, obviously, so it's difficult for us to comment on that.

Our next question comes from Doug Arthur with Huber Research.

I'm just trying to sort of disaggregate what happened in the fourth quarter and specifically in North America. I mean, it seems like business was a little better in the fourth quarter and specifically in North America. You talk about media being strong in North America but advertising being weak. Do you take any encouragement from that going into the new year? I mean, obviously, you talked about January already or not? I'm just trying to, kind of, get a sense for any turn here.

I'll answer that, but I should've asked Mark. Do you want to just say a little bit about the consolidation that you've done at Wunderman? I think it would be useful just going back to Dan's question for you to say a little bit.

I mean, Dan, I think we started -- or I started at Wunderman about 3 years ago. And I think we operated then as about 30 different brands around the world. So we had a process of consolidation under the Wunderman brand. And accelerated in 2017 when we bought POSSIBLE into Wunderman so we now operate really as 2 brands, but one company. And then Salmon, an e-commerce company; Acceleration, a consulting business; and Cognifide, an Adobe Experience Management company. So really we've strengthened what we're able to do, the strategy levels and the digital transformation and technology strategy we consolidated our delivery expertise into delivery centers around Adobe and around Salesforce and also our relationships with partners like Adobe, Salesforce, Google, Oracle, Acquia and others, and it really enables us to deliver to clients a more integrated and effective solution and allows both brands to really be driven off the same technology platform and experience, so it's both designed to position us for growth. There are cost savings, but I'd say it's not primarily a cost-saving method. It's really about positioning the business for growth and giving both the Wunderman brand and the POSSIBLE brand, and they will evolve access to that talents and expertise.

Okay. Let's pick up on the question about the fourth quarter. I mean, at one level, when you look at North America and some of the data. And we look at it at a revenue level and net sales level, unlike others, and we look at it on a functional basis for some depth, I guess, again, unlike others. Now there is some data to suggest that things got a little bit better in the fourth quarter. For example, in packaged goods in our own data that we showed you in this presentation does suggest some increase in volume. But somebody used the phrase in this morning's conference about budget flushing or reverse budget flushing, meaning people holding back spending. And I think when you look at the fourth quarter and you look at what we saw in the first month in January, although, for example, the position in China in the first month in January, for example, was much stronger. But I just think it would be rash to suggest that there's been any meaningful change. If you, as far as we are concerned as yet. And we prefer as we've said, to go into -- given the experience that we had in the first 9 -- or the second 9 months or the last 9 months of 2017 and indeed, the first month of 2018, we think it's better to -- as we did with the bottom-up budgets, to take them down in terms of the top line. That imposes, to some extent, more discipline on the costs where I mean, 2 things happened last year. One is we were overoptimistic on the top line. Secondly, we didn't control -- it wasn't the staff costs, the FTEs because you'll see that our headcount was down about 1.5%. Usually, that indicates extremely good control. And that wasn't due to Coretech. That is sort of rotated through the system. That was due to better control of the headcount. But what we didn't see was control of -- good control of freelance, and that's where the balloon got squeezed. So I think given what we've gone through, I described it this morning as once bitten, twice shy. I think we just want to be a little bit more cautious about our budgeting. And we didn't -- the other thing I would say in relation to the fourth quarter that came up this morning, if you went back to 2015, we -- and before, so I would say it's true in '12, '13, even '11 and maybe even '10. '10, '11, '12, '13, '14, '15 we saw under-forecasting of revenues in Q4. Some of our competition referred to project business in Q4 being intense. So I mean, we don't see higher levels of projects in Q4. We see higher levels of activity in Q4, which I guess, by definition, if you have project businesses means you have more projects in Q4 than you have in other quarters. But we don't see it as being as big a phenomenon as it's painted elsewhere. But we don't see those budget flashes happening in '16 and '17 to the extent that it did. And I think that reflects the short-term pressures that we were referring to in the presentation. I mean, rightly or wrongly, we have -- most of us have annual budgets, and there's tremendous pressure on people to make the numbers towards the end of the year. And that's -- historically that might have been when things were a little bit easier and there was more inflation, there was a little bit more wiggle room. There's less wiggle room now. So I wouldn't read anything particularly one way or the other, I think we have to see how 2018 pans out. Paul, do you want to add anything to that?

No, I think the only thing I'd say is we did see some return in our media business in the U.S.A. in the fourth quarter. Obviously, partly that was cycling through and the data investment management business whilst it didn't have a great year, it did seem to be doing better in the U.S.A. But generally, as Martin said, we didn't see an upswing in volumes and revenues coming through. And really, it's quite a weak quarter overall despite some signs of momentum coming back.

Our next question comes from Peter Stabler with Wells Fargo Securities.

I got a couple. So Martin, the caution in your comments isn't surprising, we're hearing it across the group. Just wondering if you could step back a little bit and talk about visibility. Friends of ours in the agency business have begun to describe operations as project oriented for everything. Just wondering if you could talk a little bit about the AOR relationship, how it's evolved over the years and whether you think the implied lack of visibility or compromised visibility that you're seeing now and your peers are seeing now is this likely a structural change. Or do you think it's more of a cyclical change? And then secondly, wondering if you could talk about, maybe this is for Paul, any appreciable headwind or tailwind from new business wins, losses entering '18 that we should factor into modeling. And then lastly, because you guys have a bit of a different approach than the peers in terms of managing proprietary data sets, wondering if you're anticipating any impact from GDPR?

Do you want to have a go at GDPR, Paul? I'll give you the easy one.

So thank you on that one, Peter. To be honest, we feel reasonably well prepared for GDPR because it is obviously well underway and the deadline approaches. We've been sort of planning it carefully for the last 2 years. I'd say specifically, given the data we house within our media business and our data investment management business, we've been very careful and cognizant given that it's obviously focused on EU personal data. We have, actually, for 5 years been carrying out a sort of data health checker to track what data we are hosting, owning, controlling within our businesses and identifying the flows between the various businesses to and from clients, and to and from various geographies. And I think if I had to sum up our philosophy, we're trying to adopt privacy-enhancing practices, which includes privacy-by-design strategies. And what I mean by that is actually our data traditionally has never had to be unbundled and taken apart in a manner that actually it may have to be in the future. So that is the strategic thinking about how we're approaching our data. We are including data anonymization and minimization within our businesses in order to mitigate the risks, and we're working closely with our major clients in this area. And in addition, we're working with such products like the IAB to look at standardizing privacy frameworks. So I think from the information we know we have in-house from the involvement with our clients, with the understanding of how to -- we're going to need to manage, I won't say manipulate, but resort our data. The thinking behind it has been quite clear that we need to be flexible in how it's going to shape ourselves going forward, but we're working closely with industry bodies as well to work through this on the European footprint.

On new business, Peter, we've given you the details clearly. It's net new business figure, not a gross figure. We also give you the trade estimates and our own estimates. I don't think I would read anything into it in terms of your models. We did well last year, having had a tough end to 2016 on new business. But we sort of cycled our way through that. And whilst they weren't enormous number of very big wins, I mean, it was a pretty good recovery from the hiccups that we had towards the end of 2016. So I wouldn't read anything more into it than we've indicated in the statement. On visibility, I mean, there is a bit of a shift from a so-called Agency of Records, but Agency of Records contractually tend to be a short term to what is called project business. But what we find is probably you get -- it doesn't shift that much. I think we tend to be a little bit more nervous about project-based relationships for the obvious reason because it seems to be less stable. But actually, and this is the critical issue, if what we do is important, which we think it is, we do think coming back to one of those questions that we raised that innovation and branding together are critically important. They do build significant long-term value for the companies that we work for, particularly in a digitally disrupted world. Then it probably doesn't make much difference. You used the word visibility. I think the visibility is about the same, and we've seen volatility in our forecasts historically. I think the big change is that the new normal, that low-GDP, low-inflation world where pricing power is difficult and where there's a focus on costs has made -- had made what used to happen, let's say, in the fourth quarter where people would probably be willing to be a little bit more expansive has probably made them more conservative. And I don't think that's a function of AOR relationships or project-based relationships. If what we do has value, clients will attribute value to it and pay for it. They won't overpay for it, but if we can differentiate our offer in a meaningful way. And just to be clear, we see meaningful value in areas such as Hogarth. We see meaningful value in where we combine media with data. We see meaningful value when digital agencies like Mark's agency, Wunderman, he can comment on this, really show clients, together with other parts of our operation, whether it be Wavemaker or Mindshare or Mediacom or Essence or whatever it is, meaningful value. So do you want to comment at all, Mark, because you have to deal with the sharp end of this stuff?

Yes, I mean, I think that from a project basis, ironically, you see things moving in both directions. I mean, you see clients signing, taking 3-year transformation projects and major projects, I think, you see something's going one way. And I think, if clients are looking to save money, doing things on a project-by-project basis is probably not the most efficient way to do it, giving us greater certainty enables us to plan our resources more effectively and give them a cheaper service -- or not cheaper service, but a more effective service. On the media and data front, I mean, Wunderman's increasingly part of joint reviews with GroupM. There are some, where we have been successful, most recently with Bose. So I think the client could see the value in getting an understanding of the first-party data, where Wunderman would typically be involved with the data that GroupM and Kantar would have and really booting that into the offer to do data-driven marketing, both at a creative level and at a targeting level. So I think increasingly, we will see a much more greater integration as we have done in other competitive media reviews in that business.

Okay. Was that all right, Peter?

Very helpful.

Our next question comes from Alexia Quadrani with JPMorgan.

I guess, Martin, two questions. One, the -- when you look at your outlook here, and I know you talk about maybe a little bit better growth in the back half of '18, than this first half but that could be partially at least or maybe entirely from easier comparisons, I guess I'd love to hear from you, is this -- can you see better days ahead for the ad agencies? I mean, you go to the threats, and I think you did a fantastic job of sort of dismissing some or saying how WPP is adapting or managing the others. I mean, is there going to be a period of time where we can see sort of a bit more of a tailwind, maybe not the same business we used to see but a bit more of a tailwind than we're seeing right now? And then just specifically on WPP, you've made these sort of structural changes, which obviously are meaningful. Do you also think that your business mix or the -- you have the right mix going forward for the new environment?

Okay. I understood the business mix. Did you understand the -- I didn't quite understand the first because the line is not exactly clear. Alexia, can you just repeat the first question? The business mix one. I got the first one.

The first question is really simply is do -- can things get better eventually for the business? I mean, you've sort of addressed some of the challenges, dismissed some of them, talked about how you're adapting to some of them and can manage some of them. I mean, do you think you we'll see a business in this new world where you have a bit more of a tailwind in your business than you're seeing right now?

Well, let me deal with the business mix first. I think when we -- look, everybody is subjective about their companies and what they have and if you say you don't have the right mix, you feel a bit silly. And if you probably say probably a little bit more -- a little bit too passionately that you have the right business mix. So the honest answer is you probably could improve the business mix, as you put it. I think for us, a big question for us to be absolutely brutally frank about it is the data business is not -- has been a laggard for us in terms of top line growth for a number of years. And the question certainly in my mind and I think in others' mind is we understand -- and Mark made the point just a few seconds ago and quoted a specific example and there are other examples, too, of where our data input through Kantar was we think critically important to success. One of the analysts this morning asked -- sort of compared our data business with our advertising and media business and we -- I come back to what I said about clear differentiation, whether it's sort of Hogarth-type production, whether it's digital agencies like Mark's Wunderman or VML or AKQA, and last but not least, whether it's the mix between data and media, which I think is really important. Again, getting right to the point, jettisoning a data -- a strong data component does not make sense to me when we are seeing that sort of differentiation become increasingly important. And really importantly, when you see -- everybody's focus is on Google and Facebook and we don't think that's an issue or is much of an issue as some people make out to be, just look at our presentation, but Amazon is coming over the hill. Amazon certainly poses a big threat on search and advertising to, let's say, Google and Facebook. There is head-to-head competition coming there. Amazon already, according to Kantar, generates, what, 55% of search, emanates in some way or another from Amazon. And voice is going to become increasingly important, particularly Amazon has sort of carpet-bombed the voice real estate with Alexa. I don't know what their market share of homes are but it seems to me to be extremely high. So when I look at the business mix, I think data is terribly important. And I think if we're honest with ourselves, and Kelly can comment on this if he feels self-motivated, I don't think, if we're brutally frank, that we've leveraged Kantar. And I don't think the Kantar people have leveraged GroupM or, indeed, Wunderman, as we have Mark here, and that's a good trifecta here in the way that we should have done. So I think we must continue to try and pull those things together. I mean, Kelly, you might comment on what you see happening on media and data and it's important. So -- I mean you touched on it in your previous response, but I think it'd be worthwhile underlining it.

Yes. I think we'll -- I think what we'll have to do is accelerate formal and informal structures and product development between the media agencies within GroupM and a number of the Kantar businesses, an area that's probably most advanced is in the retail space. We have the business that Paul referred to earlier, Triad, which works with major retailers to monetize their digital media estate. Kantar has a business that specializes in retail data, frequent shoppers, frequent buyers, loyalty programs. And we're looking at how we formally end and formally combine those businesses into a more compelling offer to clients who are obviously under enormous threat in the retail space. So that's just one example where Eric, Salama at Kantar and I are looking at accelerating ways for the 2 businesses to come together in the way that Martin said.

Just going back to what I think your first -- we tried to translate it and I think we've translated it, are things ever going to improve, Alexia. I mean, I think that what we see is continued caution at a client level in some areas of activity. I mean, what we see in package goods certainly is a continued caution. Somebody asked us this morning if we could go through it sector-by-sector is what we see and we can see sectors like tech, clearly, some financial services, some health care, some telecommunications. But clearly, there are growth opportunities and where we'll see continue to grow and there are some geographic areas like Latin America, for example, where we saw growth last year. We have a little bit more flexibility because of inflation that will continue to grow. But I think having been burnt last year, and this is not just us. I mean, I think generally, people in the industry -- and we provided you with the 2-year growth figures for ourselves and our direct competitors, what we see is compression on the top line. And the responses by different competitors have been different. We've been very focused, as you know, on margins. And we've - this is not the first time that we've discussed the balance between topline growth or lack of it and margins. We've now sort of compromised our margin objective and said 30 basis points we're not going to do anymore, particularly if we see a flat top line. And we're going to be a bit more rigorous. We haven't gone the whole hog. One of our competitors, I think, dropped its margins by 300 basis points and have indicated that its operating margins are going to go down even further. Now we haven't gone the route of surrendering our margin and going for market share. Now that's not a business mix question. It's more a question about -- comes your first question about do we think there'll be a change in the environment. I think a significant part of what we're seeing is still cyclical. Some of it is structural, it's true. The structural bit causes delay and uncertainty as well because the structural bit causes every one of our clients. And I can't think of one that hasn't gone through this process or isn't going through this process or will go through this process of examining what the technological changes mean for them in terms of production, marketing and distribution. And the pace is likely to intensify. And what we're saying at the end of the day is we were going in a direction of unifying the business. It's the same direction, but we just have to get there much, much faster. Maybe we should have done it faster before a bit. When you do this, there is certain breakage. Going back to Dan's question, when you put companies together, whether it be in any area of your business, there is -- there are good things that happen, and there is breakage. And you might want to put it simply on a piece of paper and explain it simply. But that simple explanation ignores the realities and the cold face, you have numbers of people who built businesses, and Mark referred to Wunderman being, what, 20 brands?

Maybe more.

Maybe more, 3 or 4 years ago. So people were going in their own directions in various parts of the world and it has to be brought back together, particularly in this environment. So I think, as I say, we've been at this for 33 years. Times change, and it is different, '91, '92 is different to 2001, '02 was different to 2009, and that's different to 2017. And it's still difficult to figure out why it sort of triggered around the beginning of 2017. But you have seen 2 seminal events in 2017. One was the Kraft Heinz bid and the other was, I think, the Fox decision to merge with Disney. And of course, that's now been further complicated by Comcast interest in Sky. And I guess, you attach to that AT&T and Time Warner. So there are a lot of moving pieces and all those moves, I think, reflect the sort of things that we see going on.

Alexia, if I -- sorry, Alexia, it's Adam Smith here. I just thought that your first question had an almost philosophical tone to it. And I would answer that what are the underpinnings of capitalism? They are -- it is consumer benefit. It is the object of strategy. It's the reason we do marketing at all. It's the reason Amazon exists. And what I've seen has occurred in our businesses is this huge focus and direction away from process to the outcome, which is essentially generating insights to do with consumer benefit. So I think we're doing things for the right reasons.

With that philosophical observation, let's move on. Your name is Adam Smith, after all.

Our next question comes from Brian Wieser with Pivotal Research.

I just want to dive into a point that Marc Pritchard from P&G made as well around creative and media agencies, and specifically, I know this isn't intermediate part of the (inaudible) the industry that you have that media and creative should be reunited. But it was pretty overt in saying that, that should happen. I'm just curious, obviously, (inaudible) and sort of the bespoke solutions that you had for individual clients and that other holding companies provide, get to more or less the same place. But does it make any sense at any point to actually combine the legacy creative agencies into the media agencies at this point?

So again, it's -- go.

As we couldn't create it back with creative media, I think.

Okay. Yes, I think the question, if I heard it right and if Adam heard it right, was -- are you saying, Brian, are we seeing creative and media come together again? Because I think Marc Pritchard, as you referenced, in his speech, did talk about creative and media becoming more together.

Should be merging (inaudible).

Yes. And more specifically, does it make sense to go beyond simple (inaudible) or the bespoke team solutions for client -- specific clients and actively mitigate sort of the medium?

Okay. Well, look, I think the issue is this. If you went back 20, 25 years ago, media agencies declared UDI independence and did not wish to be part of an integrated agency. You went back to J. Walter Thompson in the 1950s, you had a research company in there, a PR company in there, a media department, et cetera. And that was the integrated agency. What WPP is, what Publicis is, Omnicom and everybody else, to some degree or other, they would -- some would admit it, some wouldn't, is the new integrated agency. I think it's very difficult to merge back creative agencies with media agencies in that sense because there will always be an argument about who's in control. However, the clients' need is -- and this is fundamental to us and has been for a number of years, the clients' need is to integrate these activities in an effective way. And so the key, I think, to answer to your question, is we have to come up with the best way of doing that for clients. We're willing to work with all the assets that we have available in our group and, indeed, outside our group. There are many -- and the example there was a specific win in Germany where we worked together with a performance agency in Germany, our media company did, Mediacom did with the performance agency in Germany to enhance our offer. So we do, do it fairly frequently not just within the confines or perimeters of WPP, but beyond. So -- but I think putting the 2 back together again would be extremely difficult other than in that specific client way. So you will have effectively in-house agencies within WPP, as we do have, where we marry creative -- digital creative, traditional creative, for want of a better word, media, data, insight, whatever, branding, health care, and we do it frequently and sometimes very effectively and sometimes not so effectively. So we have to raise the standard. But that's the way, Brian, I think it comes together again, certainly, in the short to medium term. Ultimately, it may be different. I mean, the more integrated that WPP becomes, the more likely you are to become, ironically, full circle to what I think you just asked about bringing creative and media together. But it's not just creative and media, by the way, it's everything else that we do. They have to be brought together. And, of course, the argument always will be who leads that team? Where should it come from? And over the last few years, the natural answer to that question wasn't -- is no longer traditional creative, again, whatever that means. It's increasingly meaningful in a media sense, in a digital sense, a data sense and not forgetting public relations. I mean, some of the stuff that we're seeing coming out of public relations agencies in terms of digital content development on a 24/7 basis is really critical.

There are no further questions at this time. I would now like to hand the call over to Sir Martin Sorrell for further closing remarks.

Thank you very much. We're here in London. If anyone has got any further questions, we got Fran Butera here and Lisa Hau here in London, and you know how to get them on e-mail. So thank you very much, and we'll be back to you for the next quarter. Thank you.