WPP PLC (WPP) 2012 Q2 法說會逐字稿

Okay, good morning, ladies and gentlemen. So this is the 2012 interim results. Four sections we'll talk about; and one is just in the handout for further information.

So in terms of results the first six months of the year, billings were up over 1% at GBP21.7 billion. Reported revenues were up 5.5%. And on a constant currency basis, revenues were up 6.8%. That excludes the impact of foreign exchange. On a like-for-like basis, that excludes the impact of acquisitions and foreign exchange, revenues were up 3.6%, and gross margin was up 3.3%.

Headline profits before interest and taxes, up 10.1% to GBP570 million. And headline operating margins were up 0.5 margin points to 11.5%, and 0.7%(sic-see press release "0.7 margin points") on both a like-for-like and constant currency basis. Gross margin, operating margins were up 0.6 margin points at 12.5% on a reported basis. Headline diluted earnings per share was up 13.2% to 25.8p for the half year. And reported diluted earnings per share was up 19.3% to 21.6p for the half year.

The first interim ordering dividend was up 18% at 8.8p for the half year. And the Board has agreed to return the Company's headquarters to the UK, subject to shareholder approval, where an EGM is expected to be held in December this year. Net new business billings of GBP2.475 billion were just under $4 billion, placing the group first in all leading net new business tables.

So, in terms of a summary headline results at a glance, revenues were up 5.5%. Gross margin was up 4.9%. The operating profit margins on a revenue basis were up 0.5 margin point, and on a gross margin basis, up 0.6 of a margin point. Diluted earnings per share was up 13%, and dividends were grown at 5% greater at 18% for the half year.

Average net debt in the first half was GBP307 million higher, or 13% higher than the year before, although at June the 30th, the net debt was flat with June the 30th, 2011. The average net debt to EBITDA ratio is comfortably within our 1.5 to 2 times range at 1.8 times, and interest is well covered at 5.5 times. The average number of people in the group for the first half of the year was up 2.7%, and point-to-point June '12 to June '11, the average headcount -- or the headcount was up 1.6%. On the enterprise value to EBITDA is running at around 8 times.

In terms of the headline profit and loss statement, we're just focusing on the constant currency growth rate, which excludes the impact of currency. So, revenues were up 6.8%; PBIT was up 13.5%; profit before tax at GBP570 million, up 13.5% as well. PBT was up 17%; tax at 22% on a headline basis means that profits after tax were up 17%, and diluted earnings per share were up 18% at 25.8p.

In terms of the statuary or reported income statement for the year, again, on a constant currency basis, the numbers are very similar, with operating profits pre-goodwill and intangibles up 13%; operating profit up 9%; profit before tax up 13%. Tax -- there was an exceptional tax credit or one-off tax credit ratings [of] deferred tax and a strategy P&L, which brought the tax charge down in relative terms compared to last year, meaning that profits after tax for the half year were up 24%, and reported earnings per share was at 21.6p.

Turning now to the interim results in terms of growth versus prior year, so building up the revenues, on the like-for-like basis, before currency and acquisitions, the [growth] of 3.6% in revenues. Acquisitions added 3.2%, leading to constant currency rates of growth of 6.8%. Foreign exchange was negative in the first half of minus 1.3%. And if you run the half year rates for the rest of the year, we'd expect foreign exchange to be somewhere in the order of minus 2% to minus 2.5% impact on the full-year numbers.

So in the reported basis, sterling had a revenue growth of 5%. Headline profits before interest and tax up 10%, and EPS up 13%. Currency is having a major impact. And if we were a dollar-reporting company, our earnings per share wouldn't have been 13%, but would have been growing at 10%. And if we were a euro-reporting company, our results would have grown earnings by 22%. So currencies are having quite a significant effect, especially further down the P&L, as you can see.

So in terms of our performance versus some of our targets or budget indications, in terms of the budget, we're expecting 4% growth in revenues for the year. In the first half, we are now -- had grown revenues at 3.6%. And you will see in the statement, we expect our full-year out year -- full-year outlook now to be closer to 3.5%. In terms of the operating margin, improvement targeted for the full year of 0.5 margin points, we've achieved that in the first half. And in terms of the fully diluted earnings per share growth targeted for the full-year basis between 10% and 15%, which [used] 13% in the first half.

So now turning to some of the detail in terms of revenues both by discipline and by geography. So advertising and media investment management, which is 41% of the business, had reported revenue growth of 6%, constant currency revenue growth of 7.6%, and like-for-like revenue growth of 6.1% in the half year.

I'm going to go through the first and the second quarters in each of the discipline's like-for-like growth, so you can see how the performance has been. So reminding you for -- overall for the group, in revenues, we grew at 4% in the first quarter, and grew at 3.2% in the second quarter, making a first-half organic like-for-like growth of 3.6%. So, slightly softer in quarter two.

So in terms of the advertising and media investment management business, quarter one growth was 6.2% and quarter two growth was 5.9%, so relatively consistent. On consumer insight business, which represents 24% of the group, revenues on a like-for-like basis were up 1% for the half year, having grown 1.3% in quarter one, softened slightly to 0.8% revenue growth in quarter two. This is consistent with some of the competition they've announced in the research business. In the second quarter and the first half there was a slowdown in the second quarter.

Public relations and public affairs, revenues was 9% of the business overall in the first half. Revenues in the first-half organically were growing at 1%. In the first quarter is 1.9%, and in the second quarter, it was 0.3%. In terms of the branding healthcare specialist businesses, overall revenues are growing at 3%, 3.8% in the first quarter, and 2.2% in the second quarter. So overall, 3.6% organic revenue growth in the first half, 4% in quarter one, 3.2% in quarter two.

When turning now to the same metric, but by geography, so North America, which represents 35% of our business, had like-for-like revenue growth in the first half of 0.4%. Quarter one was 1.4%, and quarter two was minus 0.6%. In the USA, in particular in quarter two, we slowed in the areas of healthcare, the custom research operations, the core set of businesses, and the public affairs businesses in Washington all slowed in the second quarter in North America.

In the UK, which represented 12% of our business, growth remains solid at 3%. We had revenues in the first quarter up 2.5%, and in the second quarter, 3.5%. In western continental Europe, which represents 24% of our business, growth overall in the half was 1.6% organically, with 2.5% in the first quarter and 0.8% in the second quarter. And I'd say there was good growth continuing in Germany, where we saw organic growth of just under 5% at 4.6%, to be precise, in the first half. Italy and Switzerland remained strong, both above 5%, but difficult markets continued in Spain, Portugal, France and Greece.

In Asia-Pacific, Latin America, Africa and the Middle East, Central and Eastern Europe, growth remained very robust at just under 10% or 9.7% in the first half, growing at 9.5% in quarter one and growing at 9.8% in quarter two. This region represents 29% of our revenues in the first half.

So now looking at the margins by discipline, so overall, as you know, the margin for the business was up 0.5 margin points on a revenue basis from 11% to 11.5%. Turning now to advertising and media investment management, we have margins rose 1.6 margin points to 13.9%. We saw good momentum in the advertising agencies, particularly in Grey and the Ogilvy networks, and continuing strong performance in our media businesses.

The consumer insights business, where margin declined from 7.5% to 7% in the half year, we saw softness in our custom semi-syndicated business core set operations in the USA. We did see some pricing pressure affecting the gross margin in the second quarter. We did take additional restructuring costs in mature markets in the UK, USA, and western continental Europe, and have made some significant technology investments, all affecting the first-half margins for the consumer insight business.

In public relations and public affairs, margins were still strong at 13.5%, but they were down 2 margin points compared to the first half last year. Again, we saw softness in the public affair and the podium businesses in Washington, and the specialist financial PR, principally due to the lack of IPO activity, again, saw some softness in the first half. Of the global networks, Wolf Kern had an exceptionally strong year and is doing very well.

In terms of the branding identity healthcare specialist businesses, margins improved from 10.7% to 11% for the half year. So overall margins at 11.5% for the first half up 0.5 margin points on a reported basis or 0.7 margin points on a like-for-like and currency basis.

In terms of geographics, better margins, you saw that despite the softness in revenues in North America, costs were well-controlled. So the margins actually were up 1 margin point, from 12.7% to 13.7%. We've got some good momentum in the agencies. We have a strong media business, and our auto business held up well in North America.

In the UK, following two very strong quarters last year, if you remember the UK grew at 6% in quarter three and 9% in quarter four of last year. We've had momentum that saw the agencies and media businesses coming off that strong second-half growth of last year. We had some issues, I suppose, in terms of softness of revenues in our design businesses, as some of our specialist financial businesses lead to a margin decline of 0.8 margin points from 13.1% to 12.3% in the UK.

In western continental Europe, margins held up well and were flat at 8%, with good performances in the markets that are growing, such as Germany and Italy. And the markets that were down, we have limited control -- a limited decline in terms of performance in countries such as Spain. In Asia-Pacific, Latin America, Africa and the Middle East, Central and Eastern Europe, where the revenue is strong, margins are improving by 0.6 margin points, up from 10.6% to 11.2% for the half year.

So in terms of revenue growth by country, we've listed here the top 20 countries, and there are a few surprises. But in terms of the BRIC markets overall, they grew at 13%, which included Brazil growing at 15%, Russia at 13%, India at 9%, and Greater China at 15%. And the BRIC markets overall now represent 12.5% of the group. Argentina was exceptionally strong this first half, growing revenues at 28%. I think the other markets are relatively strong compared to what one might expect.

South Korea was strong for us, growing at between 15% and 20%. Belgium, where we have won a lot of Central European government work, has been particularly strong for us, growing at between 10% and 15%. Japan has recovered compared to year ago, and now it's relatively strong. Italy remains strong in Europe. As I mentioned, also Germany was strong at just under 5% at 4.6%.

Of the markets in Europe which are weak and actually declining modestly in low single digits seem to be Denmark, France, Holland and Spain. But all other markets in Europe are growing.

In terms of by client, I won't dwell on this in terms of government is a small category overall. And we have done particularly well on some research projects for the European Central Parliament. Automotive, as I've mentioned, has held up particularly well for us with our clients. And also personal care is strong.

In terms of currencies, it's a more confusing picture than some years. So overall, there's been a 1.2% decrease in revenues, largely reflecting the strength of the pound against the euro and other currencies such as the Brazil reais, the Indian rupee, and the South African RAND. As you can see here, the strength of the pound against the euro is 5%, but against the reais is 11%, rupee 13%, and RAND is, the South African RAND, 13% -- 12%. Offset in part by the weakness against the dollar, which was 2%, and other currencies like the Chinese RMB, again, weakness by 6%.

Net-net, the headline profit before tax of GBP467 million would have been GBP485 million had sterling remained at the same levels as 2011. In terms of net new business wins, they've been very strong. As I mentioned, we were first in all net new business tables in the first half. Three wins in the quarter came from the team approach. And pleasingly, seven of the 11 major wins in the first half had a strong creative component in there.

So as I mentioned, the team BofA in this quarter, team IHT and Calvary, all team approaches to new business wins in the first quarter. The shaded numbers or the shaded items are those that were won in the second quarter of this first half. Likewise, the second page of wins, a number of smaller wins coming through in the second quarter. And then in terms of losses, nothing significant in the quarter, but a reasonably major media loss in the first half came through earlier on in the Sprint business. Otherwise, a fair number, but modest in size.

Overall, and taking our own in turn of net in that new business wins, we've had a strong first half. So last half year, we added $2 billion of additional new business. This half year, we've added nearly $4 billion of additional new business. And what is pleasing, as you can see here, that both in the creative and in the media, the billings rates are up respectively for both categories.

In terms of the third quarter, it has been relatively light, in terms of reported net new business wins, two wins and one loss, nothing of major significance to report in quarter three so far. In terms of cash flow, strong performance. Reported operating profit is GBP455 million; and cash generation, after tax and interest, is GBP443 million. Again, slightly ahead of last year, which is GBP421 million.

And how we have spend that money, GBP116 million has gone on CapEx. Again, we have a big building move going on in USA. And as you saw in the press release, we have put the freehold investment in our property 285 Madison up for sale, and hope to receive again a disposal of a firm offer on the disposal of the freehold in the second half of this year.

In terms of acquisitions, we paid out GBP140 million in the first half, GBP90 million to do with new deals. The AKQA transaction closed in July. That alone was around GBP350 million. But in the first half prior to that, we spent GBP90 million on new acquisitions and GBP50 million from earnouts from prior years. In the share buybacks, we spent GBP66 million, buying 0.6% of the stock, leaving us with around GBP160 million of cash generation in the first half. And the dividend just gets paid just after the half year date from last year's second interim.

So in terms of average net debt, an improving picture overall, although for the first half, we are GBP307 million worse than we were on average compared to the prior year. The pleasing number is that as at the 30th of June, our GBP2.86 billion net debt was almost identical to that which was the position as at June 2011. But the year-to-date average continues to be negative, given the relatively poor start we had at the year on January 1, if you remember, we were GBP577 million worse than the prior year.

So on average, up to the 9th of August, we're still running around [GBP351 million] worse on average, but at the half-year point, we had brought that back down to even to last year. Finance costs remain remarkably similar to last year, at just over GBP100 million in the first half. Interest cover remains strong at 5.5 times covered.

Again, as I mentioned before, a company within our targeted net debt to EBITDA range of 1.5 to 2 times, currently at a 1.8 times. You can see this here graphically, in terms of the average net debt to EBITDA having been as high as 2.8 times in 2009, we brought this down to the comfortable zone of 1.5 to 2 times.

In terms of some of the targets or uses of free cash flow, if I take the full year 2011 just a comparison, so share buybacks were 2.1%. We targeted a minimum of 1% each year, having achieved a 0.6% buyback at the half-year stage. In terms of dividend increases, we had a strong dividend growth last year, up 38%, which brought the payout ratio to 36%, the goal being to move from the 31% payout ratio towards a 40% payout ratio over the medium term.

We continue that growth and acceleration by growing the dividends this half-year at 18%, 5% faster than the rate of growth of earnings of 13%. And the payout ratio the first half was 34%, up from 33% a year ago. So in terms of earnings per share, this takes a six-year history of how we performed both in per share and percentage growth, having finished last year at 67.7p, and at the half-year stage, we're 25.8p, 13% ahead of last year.

So with that, I'd like to hand over to Martin.

Okay. Thanks, Paul. So I'm going to talk a little bit about, as usual, about the strategy. Silly me, actually -- you might be thin in the room, but there are 70 people on the webcast. I forgot about digital times.

Okay, so market environment, two levels -- macro and micro. At the macro level, there are still, as I think the results reflect, considerable uncertainties around. It's not just the eurozone. It's the political issues, obviously, in the Middle East and whether there will be any nuclear attack by the Israelis on the Iranians or any preemptive attack by the Iranians on the Israelis. It's particularly in front of the elections, so there's that political issue.

There is the Chinese hard/soft landing. And I just emphasize, and Paul mentioned that China is up 15% in the first seven months of this year. Chinese GDP growth, as you know, is running at about 7% to 7.5%. And I do believe it's a fundamental misunderstanding about what's happening in China.

Premier Wen Jiabao two years ago announced the 12th five-year plan. And he said quite clearly in that they wanted high-quality growth in China. And that would be less than under the 11th plan, which I think was about 11.5%, although the 11th plan itself only looked for 7.5% when it was first put into place. They outperformed it. But he said 7% higher quality growth.

There will be a switch from savings to consumption, because that's the problem in China. They said that they would put in a Social Security safety net in order to stop Chinese saving and encourage consumption. And last but not least, the improvement in service sector -- financial services sector. And so, it almost read like a charter for WPP.

So the other issue that people worry about is China hard/soft landing. We see it as certainly a soft landing; maybe you can even argue no landing so far, although there are some signs that the luxury market has started to be impacted. I've talked to at least a couple of luxury goods manufacturers who've said that they've seen a slowdown in China.

But we've not seen it in the consumption categories that we deal in. You have to remember that in the case of Brazil and Russia and India and China, all the BRICs, which account for, as Paul said, about 12.5% of our business, now one-eighth of our business, the heart of our business is with the middle class and lower middle class. It's the 100 million to 200 million or 300 million or 400 million people that have been, depending on which countries you're looking at, that have been pulled into those economic classes.

So there's worries about that and the impact on growth rates in the faster growth markets. And I think the most important issue is the US deficit issue. And Paul Ryan's nomination at the Republican convention or prior to the Republican convention -- there's confirmation at the convention -- and his speech last night, which was reported in the news this morning -- and certainly, I haven't read the whole speech, but the parts that were -- the deficit issue is going to become the election issue between President Obama and candidate Romney and Ryan and Biden. And a question about how that's going to be dealt with post the election I think are going to be of paramount importance.

We still see stronger relative growth, as I mentioned, in Asia and Latin America, and Africa, and Central and Eastern Europe. There was some uncertainty ahead of the election that certainly affected the US elections, effected Q2. 2012 is a very similar pattern to 2011. I mean, whatever people say, it's virtually the same as 2011 -- but it's less. So it's the same, but less. And it's -- the growth rate is slightly less than we saw in '11.

Looking ahead -- and I've been forewarned about what I should say about 2013 before I walked into the room -- you know, we remain cautious about 2013 for the simple fact that there are no events. Now, having said that, if you were trying to build the bookcase for it, the chastiser having chastised me about 2013, if you building a bookcase, there is a bookcase. And the bookcase is, GDP forecast for 2013 are actually in real terms stronger than they are for 2012. And you add on 2% for inflation.

So this year it's about 3% on average, 2.5% to 3.5% in real terms. You add on a couple of points for inflation, you're looking at 4% or 5%, whatever it is for this year. And next year, people are looking for even stronger GDP growth rates. The only point I'm making is I think there's a need for caution. And I 'd our businesses to go into next year cautious about next year, not feeling overconfident about it. And it's a question really of encouraging people inside our business to be cautious.

If you look at our staff cost of revenues in 2012 in the first half, they're up. Staff cost to revenue ratio is up. It's our ability to control the other costs, which if you went back and looked at 2010 and 2011, we controlled staff cost to revenue ratio quite well. The other costs grew.

This year, staff cost to revenue ratio is we invested in talent in the second half of last year. If you look at our headcount growth, it was in the second half of last year. And that's impacted the first half of this year. We've invested, continued to invest in the talent that we have to invest in, in the fast growth markets and elsewhere.

But effectively, I want to be very cautious about what we do next year because of the uncertainties surrounding it. So I'd rather go in what I would call tight with variable costs -- I'll come on to that in a second -- at [60% to 70%] of revenues, variable cost being incentives, being consultants and freelance, rather than having people who've done what they did in the second half of last year, which is invest heavily in headcount.

Looking further forward, in 2013, 2014 looks pretty good. You've got the mini-quarter right in our year, which will probably turn out to be sort of a maxi-mini or a mini-maxi in the sense that Brazil will have the World Cup. Russia will have the Sochi Winter Olympics. Both of those will be very important for Brazil's image and Latin America's image, and Russia's image, and Central and Eastern European image.

And, of course, amazing to say it again, we'll have another election in America, the mid-term congressionals, with Super PAC spending at similar levels we've seen before. So that's the macro environment.

The point I would make is that corporates -- I mean, I never thought I would see it. I went to a Wall Street Journal conference and I sat with a bunch of CFOs who said that they were prepared to accept on their surplus funds -- and if you look at US-based multinationals, there's something like $2 trillion sitting on relatively unleveraged balance sheets. They said they were prepared to accept 70 basis points as a return on the cash balances. And one CFO put her hand up and said, no, not 70 -- that's too much; 40 basis points.

So, in this environment, people are just not willing to take risk, whether it's because of the stresses and strains put on by corporate governance; whether it's because of the average life of a CEO is 4.5 years and the average life of a CMO, I think, is two years in America -- whether it's that uncertainty or not, they're not willing to take risks, particularly in the slow growth markets.

So you get this phenomenon moving to the micro, where, in the slow growth markets, like the US, like Western Europe, including the UK, no capacity increases. In fact, if anything, if you can reduce capacity, you reduce capacity. Even if you have to have a fight with local government in order to do it, for example, in France, where several clients are sort of battling to reduce capacity, and the government doesn't like the reduction in jobs.

And you invest in brand behind that maintaining capacity or reducing it. But in the fast growth markets, you increase your capacity and you invest behind the brands. Now, client comments are not indicating that they're lowering their spend other than in a very few, very specific sectors. So generally, the environment is okay, but it's not buoyant.

It would be too much to say that they're getting their ugly. They're getting their ugly, but they're getting there not by being expansive, not by focusing on the topline. They're getting there by looking at the supply chain, by looking at finance and procurement, and the balance of power inside all these companies, as we've said before, has shifted to finance procurements post-Lehman. Efficiency and effectiveness is what they're doing.

And the worrying thing really long-term is whether that strategy can work. What you have to do at the end of the day is have some expansion at a macro level that will drive the micro growth. There's a redirection of funds continuing. You see this in the latest analysis that we see on digital and on social. I'd have to say our biggest growth in digital -- digital was up in the first half of this year by about 8.3%, I think the figure is in the presentation.

But if you look at the digital relationships we have, the strongest one is Google. We will cross 2 billion with Google this year easily against 1.6 billion last year. And Google has this five point -- sort of five-legged stool. It started, of course, in search, then it moved on to display; and then it moved on to video -- or at the same time went on to video; then to social and now mobile.

And with Motorola mobility and the general switch into mobile, Google really offers us tremendous opportunities to build our relationship. We will go well past 2 billion I think by the end of this year. And in fact, Google as a mediarona will rival such mediaronas as News Corp. and Viacom and CBS and others, in terms of the direction of our $70 billion or $75 billion of spend worldwide.

Quarter annual, things generally underpin growth this year. They will underpin growth in a couple years' time. And efficiency and effectiveness, as I said, is still really key. For growth, the growth agenda is very much the BRICs and X11. I mean, it's very interesting when you see any results from any of our clients in whichever category you're talking about, the where they get the growth is from the BRICs or the next level or the Civics or the Mist or the new [8] whatever you want to -- new Geo, whatever you're going to call it.

I've mentioned about investing in capacity, and that's really slowly taking place in those faster growth markets. The other thing we see is that horizontality, as we insist on calling it, rather uglily, is the key issue. The reason why these team pictures are so successful is that clients are looking to leverage effectiveness and efficiency by getting us to work for them not as fragmented or siloed units, but genuine teams with unsiloed P&Ls, with one P&L -- which we do, for example, in the most celebrated case of Ford, which is driving a lot of our activity with other clients.

The other thing is that from a micro level, there is a very great focus on growth and employment in the sense that that's what companies want to try and do. And generally, marketing investment continues to be significant across most of our clients, as I've said, without any other clients -- without any other specific categories being affected.

In terms of the priorities, faster growth markets are now almost one-third of our business. We want them to be almost 40%. New media is 32% if we include AKQA. We want it to be 40%. Consumer insight and cognitive disciplines are roughly already half of our business. And horizontality is the fourth sort of core priority. We want to encourage our people to work more and more intensely together.

Now, if you look at where we are today, 29% in new markets, 32% in new media, 48% quantitative. As I've said, we want it to be roughly 40% in new markets, 40% in new media. We're pretty much there in terms of quantitative. And just to remind you that what we're going through at the moment is nothing really new. If you went back a couple of hundred years, you would find that India and China in the early 19th Century was where it will be, according to Goldman Sachs and others, by 2025.

The competitive position in terms of growth markets or faster growth markets remains pretty much the same, whether you looked at 2004 -- in fact, the gap has widened. We've just shown the position between ourselves, the second-biggest competitor, Omnicom, the third-biggest publicist, and the fourth biggest IPG. We can't get recommendated to consolidate Dentsu and Aegis as yet, but I'll come on to that in a second to show you how the structure of the market has changed, as best as we can estimate it.

But the gap, if anything, has grown faster. What is interesting is the desperation to get a foothold in some of these markets is getting greater. There was a classic example in India yesterday, with the acquisition of Taproot, where if unconfirmed reports are true -- I mean, the multiples that are being paid for a tiny business that grew -- that has grown to that tiny scale within two years, the multiple being paid are just exorbitant and, I think, indicate a degree of frustration.

And in fact, two markets -- we drew attention to this in our press release -- two markets I think have been ruined from a pricing point of view, they are Brazil and India. But that only puts the premium on organic growth being more and more important.

And looking at the markets much more specifically, if you look at Greater China, which includes Hong Kong and Taiwan, our businesses now -- will this year -- cross about $1.3 billion. In Brazil, it will cross $800 million. In India, it will cost $500 million. And in Russia, it will cross $200 million. So, very significant businesses; compound average growth rates of 18%, 15%, 13%; 53% over 11 years, Russia, of course, being the smallest market.

And if you look at some of the other BRICs and next level markets, the Middle East, I think Middle East has been a bit disappointing for us in the last couple of years. It's rebounded a little bit, but it's still, I think, not where it should be. We just recently put one of our people in charge of the region as a whole. I attended a conference yesterday evening on the Middle East, and there's a little bit -- there's obviously concerns about what's happening or what might happen in Israel, Iran, in Jordan, Palestine, et cetera.

But generally, I think there's a slightly better feeling there. But you can see compound average growth rate there of 18%. Our business is now approaching $400 million in the Middle East. Central and Eastern Europe, again approaching $600 million; compound average growth rate of 18%. And two smaller markets -- Indonesia, where we will announce another JV tomorrow. We announced one this morning in the Philippines. Indonesia, about $100 million business, and the same in Vietnam, but with compound growth rates over the last [11] years of over 30%.

And you can see from this Rekmire analysis that we have a very strong position in the Asian, the Latin American and the other markets of Africa, and Poland and Russia, for example. We're all number one with the exceptions of Argentina and Mexico, very strong businesses revenue-wise, and very strong businesses people-wise.

In terms of worldwide ranking against the competition, the leader across the world in terms of billings -- against Omnicom and Publicis, IPG, Aegis and Havas. And then just to try to put some flesh on the bones on what Dentsu and Aegis means, the combination of Dentsu and Aegis, as best as we can determine, Dentsu does not participate in detailed Rekmire analysis on a market-by-market basis; but using their published numbers, Dentsu and Aegis were ranked third. So the rankings and media billings will be ourselves, first; Publicis, second; Dentsu/Aegis, third; and Omnicom fourth; with IPG fifth, and Havas sixth.

So I think this obviously raises the question of what further consolidation will take place in the industry. I think there will be more. And we've always predicted -- and certainly probably ad nauseum for the last four or five years -- that there will be more. Finally, some more has taken place. There are rumors about IPG; substantiated or unsubstantiated, rumors about IPG. There continue to be rumors about Havas. But of course that depends on Vincent Bollore wants to do.

But I think the way that the market moves, if you go back to what we think is happening, client-wise, with this great focus on finance and procurement, and this unwillingness to take risk in terms of expanding the topline, particularly in the mature markets; that must mean that the supply chain has more focus on it, which must mean that consolidation continues to happen. Not just in clients; not just in media revenues; but in agencies, too. And I think that will continue to be the case.

Small companies and medium-sized companies are finding it increasingly difficult. There have been some administrations and bankruptcies of smaller companies in recent months, which indicate that the squeeze -- there is a squeeze, I think, on the small- and medium-size end of the business -- and I think you will see more consolidation happening there, too.

On new media, digital continues to grow rapidly. If you look at the compound average growth rates for the last five years of 18%, the predictions are 15%. So there will be little slowdown in digital, if any. And it's going to continue to be part of -- a core part of our strategy. The strategy is Digital Everywhere, emphasizing specialist digital expertise; obviously emphasizing data and technology; and partnering with digital leaders. And we partner with digital leaders like Omniture and Buddy Media, and they ended up being absorbed by others too.

I just want to emphasize, yet again, that these new areas of media -- and often we get the question, there, it's lower margin -- it isn't lower margin. There's bigger opportunity in terms of agency fees, commissions, and development, in the mobile or social or new media space, as you see here, than there is in either, to be fair, search and display or in traditional media. So these give us bigger opportunities. And the share of digital revenue is already at 31%, 32%, if you include AKQA. And our target is to get to 40% in five years.

And we're very proud of the fact now that we have four Forrester digital leaders in the Group. With the acquisition of AKQA, it's Wunderman, OgilvyOne, AKQA and VML, which are four out of the seven. So not only are -- three others, and no other Group has more than one. And both Wunderman and Ogilvy are knocking on the door of $1 billion, in terms of the global capability.

And to emphasize the global capability, if you look at the BRICs, you can see that we now have in Brazil -- this is the digital revenues -- out of the $800 million, $200 million is digital. Out of the $500 million in India, $50 million is digital. Out of the $200 million in Russia, $50 million -- and that's heavy, because of the acquisition of Grape. And in China, out of $1.3 billion, about $200 million is digital.

In terms of people, obviously, extensive workforces there, and strong representations of all our brands in the BRIC, Next Eleven. So the digital area is becoming more and more critically important.

Now the Xaxis media buying platform, the digital media buying platform, which migrated from 24/7 to B3 and into Xaxis, has had its first year. So we thought we'd give you a little snapshot of how well it's doing. It's got 150 people in 16 markets. So we launched it from 0, basically, just under a year ago; 318 billion impressions annually. More than 850 clients have signed up for the Xaxis platform. We've conducted over 4000 campaigns. A 77% profit growth year-over-year, aggregating the units that have been put together as the base. For channels that cover display, video, mobile and social. It's one technology platform to do the planning and buying and it consists of 50 integrated partnerships. And the vision is to be the number one global audience buying, company. So we've had extremely strong start there, not just in the US but in 15 markets outside the US as well.

We're very pleased with the deal with AKQA. It will be consolidated into our results in 1 August, we completed in just the end of July. It's the world's leading independent and most awarded agency. It's got just over 1100 people. Offices not just in America but in London, in Paris, in Amsterdam and Berlin and Shanghai. And one of the fundamental reasons for the deal is to take them further into those fast growth markets.

The two founders, Ajaz Ahmed and Tom Bedecarre, the two key principles. And it was majority-owned. We bought the equity essentially from General Atlantic. And we bought part, part more from management. But management effectively rolled half of their shareholding going forward. $230 million of revenue and they continue to have strong growth. We've seen their latest Q2 revised forecast. Strong growth over last year with strong margins.

And of course they were voted interactive agency of the year in both the US and the UK. And just an insight, again, on the data explosion and the importance of it, the growth in whatever zed bytes are -- got to learn those -- but they're growing from 0.8 to 35, from the period of 2009 to 2020. So strong growth, an explosion, a growth factor of 44 times. And marketing is certainly becoming more data-driven. They need -- clients need simplified use of data, and more integrated.

The big data opportunity is nothing more than really integrating existing sources of information. There's a massive opportunity there. And digital campaigns are driven by analytics and feedback to shape and improve, and continues to improve activity. And we have to provided in real-time to enable efficient decisions and actions.

We think we have a unique -- well, we know we have a unique -- combination of assets in the data area. In terms of the horizontality, this presents the branding -- it's not as complicated as this, there are really 12 core businesses in WPP -- but we now have 30 account leaders over 35,000 of our 160,000 people who work on these accounts. These are our top 30 accounts. And we've also started to implement country managers. So in a dozen or so markets around the world, in India and Portugal and Italy in Middle East and North Africa, in India and greater China, South Korea, Vietnam, Indonesia, Australia, New Zealand -- we have country managers who are starting to integrate our offers more effectively, horizontally across our business.

And what's the reason? We want to make sure that our people work much more closely together. And we want to make sure that we deliver specialist skills, whether it be digital or shopper or analytics, retail, etc. We have to focus on the clients' needs and business issues. And their biggest issue is getting the leverage across their business. And the proof of the pudding is in the eating; News Corp., Bank of America, Miller Coors and IHG are for recent examples in the last 5 to 6 months of the team wins.

In terms of growth, the digital and the faster growing markets are the critical ones. Overall, 53% of our revenues come from digital and faster growing markets, but there's a lap over between the two of 7%, so you would deflate the 53% for 7%, to reflect that, so would be 46%, de facto accounting for it. So that's the strategic background; that's what we're trying to do in new markets, in new media, in consumer insight, and last but not least, in the horizontality.

Now moving towards the objectives, they continued to be about operating margins. And we made very good progress again in the first half of this year. 50 basis points on the margin; if you look at it on a like-for-like basis, it was 70 basis points. Flexibility in the cost base, I'll comment on that in a second. Using free cash flow to enhance shareholder value and improve return on capital. Developing the role of the parent company, -- I'll comment on that as well, because there are some initiatives in terms of back-office consolidation that I think are important for the short and medium term. Emphasizing revenue growth as margins improve and improving our creative capabilities.

So, if you look back over the last six, seven, eight years, continued progress in terms of absolute levels of operating profit, in terms of margins. Obviously we were hit by the layman crisis in 2009, but we made a very sharp recovery from that. In fact, we've recovered back in terms of margins and absolute profitability really in 2010 and 2011. And we continue to make progress in 2012. And 2012 should again be a record year for the Company, as 2011 was, with revenues of GBP10 billion and profits of GBP1 billion.

Our long-term objective in terms of margins continues to be 18.3%, which is the 20th percent adjusted for changes in accounting practice and the consolidation of TNS. And, again, I'll comment on that a little bit more about how we can achieve that in the longer term.

Operational effectiveness is really about back-office consolidation or shared services. And what we started in New York recently to do that, we've actually done it in other parts of the world, but we see significant opportunity. If you think about how that Group has grown over the last 27 years, it's largely, certainly, going from a wire basket manufacturers, 27 years ago. It certainly has been largely, and particularly in the initial years, through acquisition.

We never really consolidated the back offices in any meaningful way. And there are three processes here. One is process simplification. Often, with many wire businesses they don't even share, even if they're in the same category. Even if they are in PR or in media or whatever, or market research or consumer insight, they don't share the same process. So it's getting the same process, that's one.

Then it's off-shoring. Can we do it cheaper elsewhere? And then, of course, it's outsourcing. Can somebody else do it even more effectively than we have? So we're starting to build a shared service centers. I think we've been a little bit cautious to make big investments. We're a bit worried by that old saw -- any IT project, you double the cost and double the time that it takes to do it. So we've done it a bit by chewing gum and bailing wire, in terms of improving. But now I think we're making a little bit more wholehearted effort to improve shared service centers. To look at offshoring where it makes sense. To look at consolidation of our IT infrastructure and the provision of essential services.

And of course as we horizontalize that Group more, this becomes easier to do. And these programs, we think, are projected to deliver in excess of 1 margin point -- so 100 basis points -- from our existing finance and IT cost base of about 8% of revenue. So it effectively is about 12.5% reduction in finance and IT. Now this is a conservative projection. We'd rather start conservatively and up it, than start at some higher number and come down. And we're at an early stage of implementation. But these programs will take something like 3 to 5 years to deliver full benefit.

And in the mature markets, it's more difficult and more expensive to do it. I think previously we've shared with you that in some mature markets, for example in Western Europe, some of these programs can take five years to pay back, because of the severance costs and restructuring costs that you have to go through. But we're now at a stage where we think we're in a position to do that. And we think this offers a significant opportunity. So at least 1 margin point of getting from where we are, at around 14.5%, 15%, to 18.3% -- can come -- at least one of those margin points can come from these areas.

On flexibility of costs, we're right around 6.5% of our revenues in flexible cost. Again to remind you, those flexible costs are incentives. They are consultants and freelance. Incentives in the first half of this year dropped back a little bit from 22% of operating profit before bonus and taxes to 19%. But you can see from that that the companies are operating at close to where they should be, in terms of target and maximum performance. Just to remind you, our incentive schemes are geared at 15% of [OPBBT] at target performance; 20% at max; and then we have a category called, not for every company, called super max which goes beyond 20%.

And generally, we're looking for 10 and 1 as being our performance improvements, 10 being 10% increase in operating profits, and 1% being the margin improvement. It varies if a company is at the high end of the margin curve we're not looking for that, in terms of margin improvement. In fact we may even go as far as allowing flat margins, as long as you get 10% profit improvement. But it shows that the businesses are operating at good level. And we're maintaining, again, we're maintaining good levels of flexible cost going into 2013 and, indeed, 2014.

In terms of our using our free cash flow, again, in this slide we try and give you an idea about how buybacks and dividends declared and paid rank in terms of return to shareholders. We are increasing the dividend payout ratio from a one-third to 40%. We're really at around 34%, 35% -- 34% in the first half. The weighting of the dividend to the second interim, as it's called, and the second half of the year, means that it looks a little bit lower than actually it will turn out for the year. Last year we were running at 33%. If you included the extraordinary tax credit I think it was about 36%. If you didn't include it -- so, the payout ratio is coming up to the 40% level. Although I think we indicated that it would be -- take about 3 or 4 years to get there. And we would maintain a dividend payout of 500 basis points; 5% greater than growth in fully diluted earnings per share. So in the first half of this year, we were up 13% and dividends were up 18%.

And this just shows, again, what's been happening to headline diluted EPS, the dividend payout ratio and dividends declared. And you can see, we just showed in that little box, the impact of the -- in 2011, of the tax credit and what impact that had on the payout ratio. But essentially we're getting up now to about 35% as opposed to the 40% objective.

On acquisitions, there is still a very significant -- despite what I said about pricing in Brazil and India, and to some extent, the US -- Internet. There is still a significant pipeline of reasonably priced small- and medium-sized acquisitions. We continue to focus on the faster growth areas. Today, this morning, it was the joint venture in the Philippines. Tomorrow it will be something in Indonesia. So it's very much the same as that, particularly in the faster growth markets and digital and direct and consumer insight.

We've done a lot this year, small stuff, with the exception of AKQA. And we will do acquisitions which address specific client or local agency needs. And we continue to find opportunities, as I've said, with the exceptions that I've mentioned. And this is a summary, a Venn diagram, of the things that we made. The acquisitions on the left-hand side, which are pure faster growth markets; the ones on the right-hand side, which are quantitative or digital; and the ones in the middle, the intersection, which do both, which are both faster growth markets, and quantitative and digital.

We've acquired -- just, one of the things we've been asked is, how do you assess the measurement of the return, or return on acquisitions? So we thought we'd just take a look this morning at the -- these are the companies that we've acquired majority stakes in. So it excludes companies where we took minority stakes and step-ups. So, for example, it excludes and Omniture or a Buddy Media, which obviously would actually significantly increase the return. So if anything, this is on the conservative side.

You can see that we've acquired 56 companies on that basis, controlled 56 companies, between 2009, 2010, 2011, in those three years. Those have been 12 pure, faster growing markets; 17 pure quantitative and digital; and 17 both. And then 10 in what we call client and creative, which would fall outside those categories.

The total revenue of those companies in 2012 is $954 million, so just under $1 billion. If you look at little footnote too, which is in the smaller print there, the proportion of revenue that we acquired -- so if we acquired 51%, we just take 51% of the revenue, that would be $770 million. And the consideration that we paid was $873 million. So if you think about it $954 million, which is the total revenue, or the amount that would be allocated to the amount that we -- the percentage that we bought, the $770 million -- we are buying these companies at about 1 times revenue. One case that would be under one times revenue. Look at all the revenue, a little bit slightly over it, if you allocate the revenue. We're buying on about 1 times revenue, which I think is a good indication.

To give you an idea of what's been happening to these companies -- again, we divided them into the four groups -- faster growing markets, quantitative and digital; quantitative and digital in faster growing markets; and client and creative. You can see, as you probably would expect, that the organic revenue growth has been over that period including the 2012 forecast, has been 19%, 13%, 24%, where -- which is all logical if you think about it. Because the 24% is quantitative -- and faster growing, or digital and faster growing -- and then client creative, 2%, the lowest, lowest growth.

Operating margin contribution in each of those categories has been high. It's been 20%, 21%, 18% and 19%. So even where we've seen the slower revenue growth, which is where you would expect it in the client and creative-driven area, the margins have been strong. And the returns on capital employed have been very strong. They've been 18%, 16%, 17%, and 13%. So in our view, this strategy of focus on small- and medium-sized acquisitions, is the way to go.

It's certainly avoids paying a 50% premium?. And I was just looking at the context of the Dentsu Aegis deal, at all the premium that have been paid for US companies over the last -- I think it's 10 years, 15 years. It runs from 30% to 50% in the public markets. It's very rare that you see a premium outside that range. And the Dentsu premium for -- or the Aegis premium for Dentsu was 48%. So I think, when you're looking at return on capital and acquisition strategy, this makes an awful lot of sense.

In terms of acquisitions we've done year to date -- these are the ones we've done in advertising and public relations and public affairs, which fall outside of the criteria. In terms of creative capabilities, we continue to focus on recruitment. We're doing well in that area. We do recognize success increasingly, both tangibly and intangibly. We acquire good creative businesses, AKQA being a classic example of that.

And we place tremendous emphasis on awards. And we've done well in awards, certainly in the last couple of years. Cannes had just started, two years ago, holding Company of the year. We've won both years. These were the point scores in 2012, with Omnicom second and Publicis third. And even if you adjust for the amount of qualifying billings or revenues, we come first. And then, particularly pleasing this year, was the position of the networks. Ogilvy came top as most creative network. Y&R was fourth; JWT was sixth. So three of our networks in the top six, and that contributed, obviously, strongly, to the overall creative position.

So in summary, really good like-for-like growth; slightly softer in Q2 than Q1; double-digit growth continues in those faster growth markets; continues in media investment management. Margins up strongly, 50 margin points, which we continue to outperform the competition in terms of expanding margins. And I think there is a philosophical difference. We are not prepared to increase revenues and sacrifice margin or expansion in margin. And if you look at it on a like-for-like basis, it was actually 70 basis points.

Strong cash flow continues and has improved, as Paul mentioned, working capital certainly has improved from the position we had at the end of last year. Strong growth in cash flows being invested in acquisitions, and they've contributed over 3% to our revenue growth. Fully diluted EPS was up 13%. And if you adjusted the currency, up 18%. And dividends were up 18% 8.8p.

Our Q2 revised forecast, which we've gone through, indicates growth for the rest of the year for 3.5%. So were not at the level of 4% of our budget or slightly better than that. After the Q1 [RF], we've pulled that back a bit. Consumer insight revenue and gross margin projected to improve modestly. We've seen some improvement there but we want to see more improvement. Our forecast, that's our Q2 RF forecast, supports our 50 basis point improvement in reported margins, in line with our strategy.

Cash flow being used for dividend increases for small- and medium-sized acquisitions and share buybacks. A little bit less on the buyback front, although we [bought a bounding] 0.6%, we're targeting about 1% for the year. Following the acquisition of AKQA for around GBP350 million, we revised the guidance for acquisition spending to GBP550 million to GBP600 million for 2012. This will probably be an abnormal year. But in a normal year, quote unquote, it would probably be about GBP300 million to GBP400 million more than that range. And we continue to target our net debt to EBITDA ratio at between 1.5 and 2 times. It's about 1.8 times at the moment.

The first half of the Q2 results show the Groups benefiting from geographic and functional trends. We'll continue to invest in those four core pillars or priorities of our strategy. Because we believe that will enable us to optimize our client campaigns and build even more unique advantage and differentiation. And despite all those global financial and political concerns, we still think that the strategy is right, supported by flexible costs and by control of staff costs, which is very important. And that's enabled us to deliver -- which we have done in the first half of the year -- 10% to 15% EPS growth, even allowing a for what's happening with currency.

Organic revenue, and that's based on organic revenue growth of up to 5%, margin improvement of 50 basis points or more. And of course optimum use of financial -- of our cash flow for share repurchases and acquisition and debt reduction.

The you've got some other slides there, which are the other financial information that we give you. But now we're ready for questions.

Yes question? Do we need a microphone, or -- ? We do, I think -- have we got a microphone? Bereft of microphone. Anybody got a microphone? have we got one there? Patrick can use the mini microphone. Good.

Patrick Kirby from Deutsche Bank.

You were uncannily accurate. I almost thought that you got sight of our numbers.

I think I've just been doing this job too long (laughter). The first question is -- the slowdown in June. Is that just a blip, do you think, because growth picked up in July? Or are there parts of the business which slowed which you don't think are going to improve in H2?

I think, actually, that's probably a little bit harsh. I think if you were looking for a slowdown, you could say in April May and June, in that sense. I detected a -- or I detect a significant change in the attitude, the conference you go to or the people that you meet or the clients you talk to, between Q2 and Q1. I think -- calendar Q2 and Q1. I think Q1, people started off feeling good about things. Q2, I think primarily because of eurozone concerns and worries about people kicking the can down the road, and when would it all stop. I think people got nervous.

If you talk to the private equity companies, without naming them, if you think about the top three or four of them -- the people who lead that will all tell you -- those companies will all tell you that their portfolio was showing signs of wear and tear in Q2. And you can see that in the US.

In Q1, I think people felt more optimistic about the US. And I think it certainly declined slightly in Q2. I do find some of the focus on the difference between 4% and 3.5% a little bit strange. But let's take it the way it is, because everybody is worried about precision.

But I do think that things did get different in Q2. In Q3, I mean, even if I look at our Q2 revised forecast, Q3 is more balanced between the first half and the second half than it was in the original budgets. But Q3 does look better than Q2, for example. But we have to see how it pans out. And July, I think, was pretty much in line with what we've seen before.

So I would say, slower Q2, but nothing to get it terribly anxious about. Having said all that, the uncertainties remain. I tried to go through them in the macro analysis. You know, you speak to these companies. They're not in an expansive frame of mind. That's the best way I -- you could say growth is mucky, but that would be putting it too strongly. It's just that they just don't want to take any risks. And so, why mess about? Pull your horns in, hunker down, focus on costs, where you've got -- not got growth; full capacity utilization; and let it rip more in the faster growth markets. And I think that's the maintenance of that.

I think what we're talking about is very, very small changes actually in the numbers. And then from a market point view, the thing I think to emphasize is that we do see this as being a mixture of revenue and margin. We've had this debate before. Certainly at the beginning of 2011, margin -- my sense is that margin for analysts became more important. So the emphasis that we placed on margins became more important.

I think that is still the case. That is still the case, that margin still plays an important role. In certainly in what we do, and what we've tried to do, margin will continue to pay at least 50% of the weighting, with the exception of consumer insight, where we're trying to get more revenue growth and gross margin growth, the weighting still remains 50% or thereabouts, to margin.

And then specifically on consumer insight, could you --

He's got control of the microphone, we can't stop it. Don't worry, keep grappling.

Could you just give us a bit more detail on the call center business? And how much of a drag that part of the business is on revenue growth and margins?

I don't think you want to get excited about that, either. It is there; it did affect the first half, or the second quarter. But, again, I don't think -- let me put it like this, I don't think it's something that one wants to create -- say it's an excuse for poor performance or the lack of performance. It just -- in our commentary, it's just like saying, public affairs in Washington was affected by the pre-election. It's what it is, but don't -- it's not significant in the scheme of things.

Steve Liechti from Investec. At the risk of being too precise, do you mind just giving us May and June organic growth numbers?

No. We do mind. (laughter) Get it from the others, and then we'll give it to you.

Okay. Worth a try. And then in the third quarter, obviously your previous guidance/subsidiary budgets were above, or presumably well above, 4%.

Not well above, above.

Above 4%.

Just get the language right.

(multiple speakers) should sit down now. If we think about the quadrennial boost, which we presume would have been in the third quarter, does that mean that the fourth quarter should actually come down by more than that?

It doesn't mean anything along that -- I don't think you should -- you should still -- I got asked a lot about this in the media this morning -- you should still think about whatever. However you look at it. You should still think about the Olympics, the Paralympics, the [youth urafa], the US presidential election, impacting revenue growth for the industry --forget about us -- by about 1%. I still think that's a legitimate statistic.

The political implications, political spending is much higher. And what's that done a lot -- those of you who follow the local media markets in America and the stock markets, those of you who follow will be amazed by some of the statistics that you see for the price of local media in the United States. Because of Super PAC spending and, indeed, just the normal quote-unquote Democrat and Republican spending.

Now that doesn't affect us that much. It might affect the recommendations we make to clients on which media they invest in, because the pricing might have got too high on the spot and local as a result. But I think the 1% still holds. So if you want to look at it negatively, if the industry is going up 4%, or whatever it's growing at, without 4%, without that it would have been 3%. So I don't think you can look at it any more or less than that.

As far as the UK Olympics are concerned, I haven't asked GroupM, for example, here in the UK, about the Paralympics. I think people were concerned -- at the time that the Olympics opened here, there was great concern about whether Channel 4 had done the right thing and the sponsors you put in the Paralympics was the right thing. I think now, four weeks on or six weeks on, people feel much better about it. And the media have got behind it in a very big way.

When I spoke to GroupM, Nick Theakstone, just before the Olympics started, we had not seen the amount of short money for fast money as you would call it, come into the market for the Olympics as much as we thought there would be for the UK Olympics. I haven't checked as to whether more money has come in for the Paralympics. My guess is it probably will do, because as somebody said this morning, I think, from a sponsorship point of view, in a way the Paralympics is probably even more powerful, in many senses, for obvious reasons.

But I would say the Olympics has been pretty much on-plan, maybe a little bit on the disappointing side; but not -- again, not meaningfully. But pretty much in line with people's expectations. And the same thing for the football championships as well.

The one thing that has been stronger is the spending on the US presidential election, although that doesn't affect agencies as such.

Okay, thanks. Can I have one more? Just explain to me, in terms of the margin expansion, 0.5 percentage point-- but 0.7 if you strip out the FX, what exactly is happening there? And then, will the same thing happen in the second half if FX stays where it is?

Depends on what happens to currencies.

No, but if FX stays the same, just where we are now. I just need to understand what's taking that extra bit of margin out.

It's not an easy thing to get across verbally. But if you think about it, we've got 106 different markets with different operating performance. And really what happens, it depends on where sterling is strong or weak, versus those local currencies; how those 106 aggregate. Traditionally, there's always a difference -- 0.1, 0, minus 0.1. With the current spread of where sterling is strong and sterling is weak, if that continued, it is quite likely, on a full-year basis, there will be a 0.2%(sic) difference continuing. But we're re-aiming our goals, based at the reported margin. And we do sometimes give you the like-for-like or constant currency difference margins, but normally we don't. We just focus on the reported performance.

But the pre-incentive margin came out -- was it 14.3%, right? As opposed to 14.1%. So there was a 0.2 margin point difference there, too.

If the currencies remain as they are, it is quite likely, given the strength of the Brit markets and their performance, both in revenue and margins, that there will be this difference of 0.2 margin point continuing for this financial year.

If it worked the other way for a minute, we wouldn't come to you and say 0.3 margin point would suffice, we would still stick to the 0.5 margin point.

Hi, good morning. It's Adrian from [Exam]. A few questions, please. First of all, in terms of consumer insight, what we've seen in the previous semesters, is that despite a somewhat weak topline, the margins went up. So can you explain to us what happened in H1? And what will happen in H2 and potentially in 2013?

Yes, just on that for a minute, I think if you look at -- we refer to this in the press release -- if you look at the competitive performance in Q2, actually we've probably done better. We've probably gained share in Q2, in terms of topline and gross margin performance. If you look on the margins, I think we gave you the reasons. I think one was call center, one was the technology investments we made, there was a third reason I'm trying to remember. (Multiple speakers) Restructuring in the US and Western Europe. So that's the reason for that.

Okay, and well, does that put some threat under your (multiple speakers)

No, no, it's just what's happened in the first half, that's all.

Right. Second question is on cash return. All of your competitors sent out, like, special cash return over the past couple of years. So why do you put that on hold for now? I mean special cash return, special dividend or buybacks -- special buybacks to stop.

You mean special buybacks?

Yes.

Well, I think we've had this discussion before. We had a long -- with capital research. We went in -- we came to the view that increasing dividend payout ratio -- and to your point, it's interesting that others seem to -- was it, copying is the sincerest form of -- imitation is the sincerest form of flattery, okay. And there's a lot of imitation that goes on. So we went through the analysis of capital research. We have been of the view up until that point that consistent buybacks had a better impact on share price than special buybacks.

I've always been of the view, irrespective of the capital research analysis we did, that special dividends were a waste of time. And -- not waste time, but in the long term, were a waste of time. And what you should do is consistent buybacks. So whether it was one or two to cover the dilution from share options dilution, or whatever it happened to be, or whether you went further, that was a better thing than the big block buybacks.

When we went through the capital research, they said, your dividend payout ratio is 30%. We think, and other institutions think, that 40% would be more appropriate, and have a longer-term impact on the share price. And given where yields are, I think that is the case. We're still -- if you look at the footsie, I think we're still about the average, in terms of yield and payout ratios.

And there is an argument -- there are some who have a view, in fact, one house has expressed that view to us quite strongly recently -- that a payout ratio of 40% is still not high enough. That you could go to 50% and that would be even better. I'm not convinced of that. I'm not saying that something that's either under active consideration or not, but there are -- so I think that -- despite what you just said, or the implication of what you just said, I think that the general view is that dividend and dividend growth is particularly in an environment where you have such low yields -- and it looks like for the foreseeable future will continue to have those low yields -- has a more positive impact on share price. And I can look at our own share price performance over the last year. And I would think that that is -- I don't know how much of it is due to that, but I think that's -- and that's relative to others, too. I think that's had an impact.

So I think, and I think it's the Company's view, that increasing dividend payout ratio to 40% and increasing dividends, at least until we get to that level at a faster rate than earnings per share growth, in our case 500 basis points, or 5%, is the way to go. Now, when we get to 40%, whether you're thinking we could go further, either along the lines you're talking about or elsewhere, I don't know.

If you look at projections of our cash flow, it's a strong cash flow generative business. You do your projections. And people keep on saying to us, what are you going to do when your debt to EBITDA ratio is -- gets -- what do you plan to do? I think there is enough for us to do, certainly in the short- to medium-term, to absorb it. And I think probably -- and I'm not making this comment because -- with any commitment -- but I think probably when you get to 40%, you look at the 40% and then maybe you decide whether that's the right level or you should go even further.

Right, thanks. And then two additional questions on margins. Can you discuss on the benefits, short-term, mid-term and long-term, as pitching as a team. As you said for -- of pitching as a team, like Team Bank of America and so on. Because some industry commentators I've heard are saying that, for example, market research could be sacrificed in this context.

In fact, will come onto the other question later. No, we don't sacrifice. Effectively, what we do is, when we agree -- and there's the other element that comes in here, is that people say, well, you sacrificed margin to get it, not just sacrificing research or something, but sacrificed margin as a whole. There's a price deal done.

The interesting thing is that most of those wins, in fact all of the ones, the remuneration was not discussed until after the appointment was made. What tends to happen when we do those things, and the place that I would like to get to, is to the Team Ford thing. So just so we're all clear, Team Ford was six agencies. It was originally 1200 people. It was consolidated into one operation, actually using a Ford land building in Detroit, and headcount was reduced by 1200 to 1000. It's now gone back up over 1200 because the business has since expanded so significantly. And it's one P&L. And in that case, research was not part of it.

The companies in that were JWT, Ogilvy, Wunderman, Landor, Mindshare and one other, I don't remember. There was one other. I think it was Berson; either Berson or [Holt and Holt]. They have shareholdings in that company, and it's one P&L. That's what you want to get to. So you don't sacrifice anything because if [Cantal] was a part of that, you would take the base revenues, whatever they were at that time, and they would get their proportion of those revenues. And that would be the ongoing equity interest for internal incentive purposes in the future.

That's the model. And that's a superb model, because it integrates the whole activity. The people inside the business, inside Team Detroit, are not just working in one function, advertising, they're working in media; they're working in branding and identity; they're working in direct; they're working in digital. So that gives them a complete 360-degree view of the business. And the client -- what's critical is that the client has the vision, the strategic vision, and then it wants to implement it.

So, there's no sacrifices involved. Now, there could be a situation where the client says, the procurement department says, look, I've got this other team at Omnicom or Publicis or IPG, and they're bidding 10 and you're bidding and 11. What are you going to do about it? But I've got to say that that has not, to date, been the case. Now it might become the case at some point in time, so nothing really get sacrificed. And there's a lot of misunderstanding.

I spoke to client yesterday in one of our big sectors, who said to me, he felt that their effort was too fragmented. It wasn't leveraged enough. And he sits at the center of the company; he's frustrated because he sees the will being duplicated in various countries or regions around the world and functions and sees no reason for them to do that. Particularly when they are in slow growth markets fighting to reduce cost. So it fits the time.

This also is in sync with where we're starting to see with small and medium sized companies, which are finding it very difficult in this sort of environment.

All right. And my second question related to margin was, you said that you wanted to continue to invest and staff and look for other efficiencies elsewhere. Can you update us on your view on a global ERP? Because I think so far you've been very, very cautious on that.

Yes. Well, I think clients say what you said -- this is your third question, actually. I didn't quite say what you just said. What I said was, if you looked at 2010 and 2011, where we had made the margin improvement, came primarily from staff and cost of revenues. In 2012, in the first half of 2012, at least, it's come from the other costs.

In terms of ERP or consolidation, what I would call process simplification, offshoring, outsourcing -- I think we have been slow, and that we should be. Some of my colleagues will get -- will not be colleagues, as a result of what I just said. But I think if we're all honest about it, we haven't been as aggressive on it, partly because of the chewing gum and baling wire argument.

Or the, every IT project I've every ever come across, if somebody comes in white-faced after six months and says, whoops, it's going to cost double what I told you six months ago, and is going to take twice the period of time. It inevitably happens that way. And if you talk to IT supplies about it, they smile. And they don't deny that that is the fact.

So I think there is a method to the madness. Having said that, if you look at the potential, particularly if you're trying to do what I just said, in a Team Detroit-type example, and consolidate and integrate, then it makes even more sense. And there are very significant economies. We've gone at it, as I say, from the bottom end, rather than the top end down.

And I think there are significant opportunities. But it's not because we want to invest in the staff cost line. We do want to invest in the staff cost line. But it's not because we're doing that because we see limited opportunity. I think -- if I was being self-critical about our performance -- and we discussed this yesterday as we were talking about the presentation -- our head count, actually, from January of this year to June 30, is flat. The headcount increase really came in the second half of last year.

If we had our druthers, I think we might have been a little bit more restrictive in the second half of last year. And the other problem that we have -- and this is a very marked difference between us and the others, which we still cannot explain -- we are very much more second-half orientated, in terms of revenue and profitability. If that pattern -- and we don't understand quite how the others' numbers work from that point of view, other than there must be some smoothing going on. And if you think about that for a minute, what we have to do is to invest in headcount in the second half of the year for the increased level of activity, assuming there is going to be an increased level of activity in the coming year; the first half of the following year, and the second half of the following year. And that's what happened.

So that's the reason why the staff cost of revenue issue is up this year. But the saving, in order to get to the 50 basis points or 70 basis points, on the basis of like-for-like, has come from other costs. I mean, it's not totally; but, from other costs.

Thanks.

Hi, it's Giasone Salati from Espirito Santo. Three questions, please. First, there might be something patriotic about that -- growth in Italy of 5% to 10%. It's Company-specific, or you think the country has turned?

I think it's more to do with media, actually.

Media is very strong.

Yes. Media is quite strong.(multiple speakers)

-- stronger in that our agencies, also, I think, have done a good job of consolidation there in the marketplace. The PR business has also had a big lift, actually, in some of the -- there's a particular company, an Italian company, have a shipping crisis. They lent a strong hand, and that helped.

But, I think generally, Italy is a good example of where the smaller companies are finding it very tough. How do you explain our UK performance, either this year or last year. But when times get tough, the bigger, I think, do get an advantage. You look at the collapse of Brilliant Media here in the UK, which the RFT did look at, but then passed, which we took over the assets of. There's more of that sort of stuff happening. As well as another company I heard a similar thing happened to last week here in the UK. It seems to me, and I think Italy is the same, also.

Okay. Secondly, a bit more globally. What is exactly the healthcare trend you are seeing? And can you quantify a negative impact, the headwind like Publicis did, in 50 basis points on revenues, for 2012? Is that a 2012-specific patent cliff? Or it rolls over into 2013?

I don't know what their specific thing was. Basically, all the pharmaceutical manufacturers are having a tough time. They are all consolidating. They are all restructuring their sales forces. They are all -- on the positive side, investing more in digital -- iPad developments or digital developments, generally.

But, because of the patent cliff -- and the other thing that people don't talk a lot about -- but their inability to be paid by state healthcare systems. I'm amazed by the number of drug companies that have been failed to be paid, or have outstanding receivables from government. This is not stuff that is disputed; but this is drugs that the National Health Services, or the equivalent thereof, have bought and have not been paid for; the government cannot pay for.

So I think a lot of them are under pressure. And you've seen, there's been some churn at senior levels in some of those companies, too. So I think healthcare -- now, having said that, if I look at our four healthcare companies, or three healthcare companies, there's a varied performance between them. And even in tough times -- in one of our Spanish businesses, I remember when we were doing the review, Q2, and the guy running Europe for that particular agency said to me, it's the classic example. His Spanish business had done extremely well, where everybody is doom and gloom. You go to Spain, it's 50% youth unemployment. The banking crisis continues, it's really terrible. And yet he said, even in those difficult circumstances, the leadership of that agency had done particularly well.

So even when it's -- you look as though you're at death's door, it still possible to do something. But, generally, the healthcare business, I'm not surprised about Publicis. I think Omnicom have said the same thing. The healthcare business is under pressure. A lot of the consolidation exercises that are taking place, are taking place in the healthcare sector. And there is, whether there are consolidation or procurement is playing an increased role.

So you put all that little lot together, and healthcare has got some pressure. Whether it's government failing to pay, patent cliffs, consolidation, consolidations of sales forces, movement of marketing money from one area to another. There's a fair amount going on there.

And lastly, in terms of -- you mentioned the pricing pressure in market research. Is that coming from new entrants? And maybe we were speaking --

From new entrants?

Yes. Maybe we were speaking about technology companies giving the --

No. It's --

-- or it's coming from competition of clients?

I can't get it over more than the shifting corporate behavior, which applies to pharmaceutical companies or companies that deal with consumer insight. There's been a marked shift in behavior, particularly in the slow growth markets. If you don't think you can get it on the top line, you think you -- and if you just think about it, just for a minute. There's very limited price inflation at the consumer level. There is commodity price inflation, or there has been, although that's ameliorated.

So what you've got, is you've got no pricing flexibility, so you're forced. You've got no growth, or limited growth. And you've got no pricing flexibility at the retail level, because Wal-Mart and Tesco and Carrefour are being quite aggressive. And you've got commodity pricing, so what do you do? You have to do something about your supply chain or you have to do something about your suppliers in those slow growth markets. And that's why it's -- it's like working in two completely different environments.

In Brazil, despite what people say about the fast growth markets, in Brazil and Russia and India and China, or Vietnam, or Myanmar, to take the latest example, there is no cost constraint there. 66 million people will jump in there in a big way. And, again, I think we've said this before, if we showed you, for consumer insight, the delta for the first six months of this year, for example, by market; and we showed you US, UK, France, Germany, Italy and Spain; and then showed you the delta for the BRICS and the Next Eleven, it's like operating on two different planets. It's as marked as that. It's just a totally different approach.

Natasha Brilliant, Barclays. My first question is on digital. Could we get the first half organic growth rates?

8.3%, I think it was.

Is that organic? Okay. And then, Group M are expecting a 15% increase in digital advertising this year. How does that compare to your 8%? And I know the numbers are not exactly like-for-like, but that's quite a big difference.

Well, it doesn't compare well, is the obvious answer. So we have to do something about Group M. I have to tell Adam Smith to cut it in half. I'm pleased with 8.3%. Don't worry about that. I just think it indicates -- I mean it may not -- the group M -- I don't know. We haven't matched the Group M portfolio or footprint to the WPP footprint. We don't know what proportion their markets -- whether we are in sync totally. And I don't know whether that explains -- it's not going to explain all of it, but part of it.

But, Chris, you've got something?

Is the measure includes the long tail, who where our clients aren't active, in Internet.

You mean the smaller classifieds, et cetera. It could be partly that. But, yes, I'm very satisfied with that.

Okay. And then, on M&A, you talked about a focus on mid-sized deals and seeing more value there. Would you do a larger-sized deal if the price was right? Or you --

I doubt it. I doubt it very much. I think there's a bit of insanity creeping in.

And, finally, on consumer insight -- when will it stop being a drag on organic growth? You talked about hoping for an improvement by the end of this year. Do you think that's still the case?

No, no. I think we've seen an improvement, in Q2, if you looked again at the competitive data. And then if you looked at GFK, disappointed; [Ipsol] is disappointed. Well, Ipsol have now given out, giving an organic number. Nielsen doesn't give one. So it's very difficult, actually, to look totally accurately. But I think, actually -- I'm not pleased with the overall performance. But relatively, I've been more pleased. But there are signs of improvement there. So I think we feel a bit better about it. As we said in the Q2, there are some slight signs of improvement there. Anybody else?

Okay. All right, thank you very much. Thanks, all, for coming, and for the 70 people on the webcast. And Paul, Chris Sweetland, Lynn Fran Butera, myself, all available for further questions. Thank you very much.