WPP PLC (WPP) 2013 Q2 法說會逐字稿

Good day, and welcome to the WPP 2013 interim results conference call. At this time, I would like to turn the conference over to Sir Martin Sorrell, CEO. Please go ahead.

Thank you very much, operator. I am here in London with Paul Richardson. The presentation is on our website. There are four sections that we will cover verbally. And then there are two other sections, which are there for information on the 2078 history of the firm, and other financial information. So Paul will kick off on the interim results, and then I will follow up with the strategic part of the presentation. It is a long presentation, so I apologize, apologies in advance. It should take us a little over an hour to go through. Paul?

Okay, thanks, Martin. So I am going to go through the slides. They are on the web, and I will refer to page numbers. So on page 4, on the interim results, as you will note the billings are up 5% at GBP23 billion. And our reportable revenues are up 7.1%, so over GBP5.3 billion. Like-for-like revenues are up 2.4%, with acquisitions adding 3.1%, and foreign exchange adding 1.6%. So both like-for-like revenues are up 2.4%, and our gross margin which is basically revenue less direct costs were also up similarly 2.4% on a like-for-like basis. Headline PBIT, or profits before interest and tax, were up 11.8% to GBP637 million, and headline operating margins was up 0.5 margin points, 12%. Headline diluted earnings per share were up 10.1% to 28.4p, and the interim ordinary dividend was up 20% to 10.56p per share. The targeted dividend payout ratio has been lifted from its current 40% to a new target of 45% to be achieved within two years. This is approximately one year ahead of market consensus of where the payout ratio will be in 2014. Strategic targets for each of the faster growth markets and new media have been raised from to 35% to 40% to a new level of 40% to 45% over the next five years, i.e. by 2018.

On slide 5, we give you a summary of the headline results at a glance. As you can see there, either on revenues or on a reported gross margin they were up 7% this year. The margin improvement at the a revenue level was 0.5 margin point to 12%. On the GM level, it was 0.5 margin point at 13%. As I mentioned before, earnings were up 10%, dividends were up 20%. And the average net debt at GBP3.1 billion was 8% higher than a year ago. Although the average net debt to EBITDA ratio remains the same at 1.8 times. Interest cover remains strong, at just under 6 times. And the number of people in the business on average is basically down compared to a year ago by 0.3% or basically flat, as with the closing head count compared to 30, June 2012. The enterprise value of the business, (inaudible) the enterprise value of the EBITDA has grown by approximately 20% higher, i.e. the 10 times valuation as opposed to the 8 times valuation a year ago.

Versus consensus on slide 6, you can see that we were either better or equal to consensus in all areas of revenues, profits, margin improvement, EPS growth or dividends. On slide 7, we talk about headline interim results. Working down the reported columns on revenues, we were up 7%. On profits before tax we were up 12%. The tax rate remained the same at approximately 22%. And therefore, profits after tax, profits were up 12.6%, GBP410 million. Diluted earnings per share was 24.8p, up 10.1%, compared to last year. And as you know, the margin has gone up 0.5 margin point in this half year.

On slide 8, is the reported statuary profit and loss numbers which are very similar, up to the profits before income tax line, i.e. revenues growing at 7%. Profits growing at 12% to GBP541 million. Interest was actually lower in the reported basis, principally because in 2012 there was an IAS 39 finance charge of GBP22 million, whereas this year it was only a GBP1 million. This is detailed in Note 5 at the back of the account. You see therefore the interest and finance charges in 2013 were lower than those in 2012.

We then get to the profit before tax line, which is up 19% to GBP427 million. And in a similar fashion, we have broken out the tax line into two different lines to show you the underlying tax rate is approximately 21% in both years. Which drives to a profits after underlying tax of GBP313 million, or up 23%. And we then separately identify the deferred tax credit, which was quite significant in 2012 of GBP52 million, but only GBP2 million this year. If you adjust for all that, and take the numbers that fall out as a result of everything and such in the P&L, profits after tax is GBP[315] million, up 3% compared to the year before.

In terms of growth, and how we build it up. So like-for-like revenues are up 2.4%, acquisitions added 3.1%, giving constant currency revenue growth for the first half year of 5.5%. Foreign exchange added 1.6% to the Group's revenue this year. So we reported 7% on a revenue basis, just under 12% on a profit before interest and tax basis, and 10% EPS basis. If we were a dollar-reporting company, our headline profits would have grown 8.5%. And if we were a euro-reporting company, our profits would have grown 7.1%.

Now turning to the revenues by sector. But before I start, I just want to go through pattern of revenues that we saw last year, which will help partially explain the pattern of revenues we expect to see this year. So last year was strong in 2012, with organic revenues in the first quarter of 4%, in the second quarter of 3.2%, making 3.5% in the first half of 2012. Then declining to a slower rate of 1.9% in quarter three, and 2.5% quite strong in quarter four, leaving full-year 2012 organic revenues at 2.9%. You can see here on the table, that the organic revenues were 2.4% in the first half. That is actually a combination of growth of 2.1% in quarter one, and 2.7% in quarter two, making the 2.4%.

Also in the press release, we gave an update on the July revenues, which were up 5% organically. I will now go through each of the various disciplines, breaking out the quarter on quarter, like-for-like revenue growth, and give you an indication of whether the July was above or in line with the average for the Group. So media, [outside] the media investment management which represents just under 42% of the Group, had like-for-like revenue growth for the half year of 4.3%, with media being very strong within that, the first quarter growth of 3.9%, improving to 4.7% in quarter two, and July was even stronger than the average for this discipline.

In data investment management, which represents 23% of the Group, had similar patterns of revenue growth in quarter one and quarter two, with the first half being 0.9%, quarter one being 1%, quarter two being 0.8%. But on a gross margin basis, which we explain in the press release is a better measure of businesses that have a higher number of direct pass-through costs. The gross margin growth was 1.7% for the half year, being 0.9% in quarter one, and being 2.4% in quarter two.

In Public Relations and Public Affairs, which is just under 9% for business, revenues were down in the first half by 3.6%, having fallen 4.1% in quarter one, having fallen just under -- just over 3% in quarter two, and a smaller fall in July, but still down. In terms of Branding Identity Healthcare and Specialist Communications which represents 27% of the Group, with the strong acquisition activity as you can see, with the constant currency growth of 11%, the like-for-like growth of 2.9%, the first quarter had like-for-like growth of 2.4%, the second quarter had like-for-like growth of 3.4% boosted by a very strong healthcare performance of 12% organic in the second quarter. And the July growth was even stronger than the average of the 5%. But overall, reported revenues were up 7%, constant currency with acquisitions up 5.5%, and like-for-like for the half up 2.4%.

Slide 11, is probably better seen than listened to, in terms of the analysis. This is a breakdown of the data investment management business into five or six, actually seven, upon -- separate growth areas, which when consolidated show that solid, this solid in the faster growth markets, whilst improving actually in North America. So breaking out the chart, the mature markets as we define it in this particular chart which includes the USA, United Kingdom, Western Continental Europe, and A and Zed and Japan overall were down 1.7%. And the faster growth markets, which we defined as Latin America, Africa and Middle East, Eastern Europe, Turkey, and Asia Pacific excluding Australia, New Zealand and Japan, overall that combined portfolio faster growth market countries was up 8.4%. Again, this is the breakdown of the overall revenue growth for approximately 1% for the Kantar businesses, as shown by these five, six or seven individual splits of revenues.

Turning now to more specific geographies for the Group overall on slide 12, we show that the North American business, which is approximately 34.5% of our revenues, was up just under 1% for the half year on a like-for-like basis of 0.8%, and having been down 1% in quarter one, but up more strongly at plus 2.4% in quarter two. This was helped, actually, by the strength of our Kantar business in USA which in the second quarter grew organically at 5%. And all of our Specialist businesses are relatively strong in the USA and continue to get stronger. We were above average for the Group in the growth in North America in July.

The United Kingdom, which is just under 13% of our business, we have had a strong first half growth in acquisitions, which on a constant currency basis have grown revenues by 13%. On a like-for-like basis, on revenues have grown 4.6%, and on a gross margin basis have grown at 6%, because we have a relatively strong weighting of market research in the UK market place. So looking at the 4.6% like-for-like in the first half, breaks down to 3.7% organic growth in quarter one, and 5.4% growth in quarter two. In western continental Europe, which is 24% of our business approximately, we are down modestly 1% organically for the first half, they are trending very similar patterns of minus 0.8% in quarter one, and minus 1.2% in quarter two, although we did have a strong July principally in the Germany and Italia market. That was, which was encouraging.

You can't get away from the fact that a number of markets are finding it very tough. In this first half, Germany, Holland, Russia and Turkey were all positive, but France and our southern European markets found it tough going in the first half of this year. In Asia-Pacific, Latin America, Africa, Middle East, Central and Eastern Europe are just under 30% as a Group, grew on a like-for-like basis 6.4%, having grown at 7.8% in the first quarter, and 5.2% in the second quarter. Within that the splits, Latin America remained very strong throughout the half year, with quarter one growth of 12%, and quarter two growth of 9%. The BRIC collectively were up 9% in the second quarter, and Africa remains strong, except there was a little bit of weakness in some Asian markets in the second quarter. Obviously, some of those are quite developed, such as Japan, and Korea, and Taiwan.

Turning now to margins by discipline. So overall, the Group is up 0.5 margin point. You can see here, the strength in the advertising, media investment management business going up 0.5 margin point to 14.4%, the strongest of the margins for the half year. In the data investment business, margins rose on a revenue basis by 0.5 margin point to 7.5%. And on a gross margin basis, 0.5 margin point to a 10.4% profitability. Public relations, public affairs with a difficult trading in revenues in the first half, margins did slip by 0.5 margin point, but there is still quite a healthy margin at 13%. And the Branding Identity Healthcare Specialist businesses, margin improvement was 0.8% to 11.8% margin for the first half.

During the same, on slide 14, margins by geography, overall up 0.5 margin point, relatively flat margins, will be at strong in North America at 13.8%. The UK was up, 0.4 margin point to 12.7%. And in western continental Europe, margins were held just under 8% at 7.9%, or basically flat. And our strong margin improvement came through in the Asian Pacific, Latin America, Africa, Middle East, and Central European regions, margins were up 1.5 margin points, from 11.7% to 12.7%, particularly strong profit improvements coming through in the A and Zed regions, and in Southeast Asia. So looking at the geographies, the top 20 or so markets, comparing on a banded basis, the average which is 2.4%, the first banding 2.4%, despite the [sense] and likewise all the way up to over 20%. You see the strong growth in some of the countries in the faster growing markets, such as Argentina, such as Thailand, Brazil, South Africa, China, India, et cetera. You there see on the next band down, the European markets which did well, Germany, Holland, Russia, the UK, and in addition, South Korea.

Likewise, there were some other countries that did have very strong growth, but are too small. There is -- picking out a number that were over 20% growth in the half year, included Turkey, Indonesia, Ghana, and Nigeria, albeit some of these are off quite a small base. In terms of revenues by discipline and categories, and what I really put out here is two of our biggest categories, which automotive and personal care growth. And in the middle of the table, in the average 5% growth, are quite pleasing. No other real comments to make on that particular slide.

On slide 17, the effects of the strength of sterling. So currency movements accounted for a positive 1.6% increase in revenues, largely reflecting the weakness of the pound against both the euro and the dollar. And you can see from the table, they are approximately 3% weaker than they were in the first half of 2012. The headline profits of GBP524 million would have been slightly lower at GBP513 million, had sterling remained at the same levels as 2012. Our forecast for the second half, is if foreign exchange rates where they currently are, currency will add approximately 2% to revenues for the business in the second half of the year.

On slide 18, you can see here, the wins and losses that we have incurred, as related in the trade press. In the first half, two slides, the wins are the gray colors. Obviously, in the second quarter, the most recent quarter, some very strong creative wins coming through. In North America in particular, you can see there are a couple of very strong, One Media, and one creative win in the top five. And a number of other global media, and other wins coming through. A couple of wins, our businesses, our creative businesses in China identified, quite sizable in the quarter. And a number of losses, principally media, also did take place in the quarter.

If we look at these estimates, up from our own estimates of new business of how we performed. In the first half, we added GBP4.1 billion of billings, which actually is a pick top run rate from the GBP1.5 billion added in quarter one, to GBP2.6 billion added in quarter two, overall GBP4.1 billion, similar just ahead of what we added last year by our own estimates of just under GBP4 billion. Pleasingly though, it is the creative win rate, coming in just under GBP2 billion in the first half of this year, compared to GBP1.5 billion compared to first half last year. On slide 22, we had just had number of impressive wins since the first of July that have been announced in the trade press. We are pleased obviously to see these coming through so quickly after the half year.

And then now going to cash and how we did on all cash flow. On slide 23, so profits of GBP514 million, were GBP59 million higher than they were a year ago. When adjusting for depreciation, interest and tax, we generated GBP524 million, or GBP81 million higher than we did a year ago in cash generation. How did we spend that cash? On slide 24, on the GBP24 million we have generated, GBP151 million was spent on capital expenditures. There was a fairly major (inaudible) that did happen in the first half of this year, and we are expecting the full year impact to CapEx to be slightly less than the GBP300 million that this would indicate. Acquisition payments are just under GBP100 million in the first half, GBP91 million from net initial payments and earnout payments of [GBP7 million]. In fact, again, if you look at our balance sheet, the total of all future earnouts is currently estimated is GBP205 million. Share repurchases, we repurchased 1% of the share capital costing GBP133 million at an average price of [10.58p] in the first half, slightly more than we had purchased in the first half last year, resulting in net cash before working capital changes with changes of GBP161 million in the half.

Turning now to average net debt. And we have looked at both, from an average net debt perspective, which is the one that we favor and trying to manage aggressively too, and also some point to point measures that we have had historically and currently, to take you through. So on an average debt basis, at GBP3.1 billion is basically 7% or 8% ahead, currently not making a difference in terms of the numbers, -- in terms of where we were last year, just under GBP2.9 billion. On the 31 of July, the position is similar, a little bit tighter in terms that we are GBP3.1 billion, compared to GBP2.99 million, just 4% higher than we were a year ago, although I believe the gap to be closing. The headline finance costs are well-covered at just under 6 times, it is 5.6 times compared to a year ago. And the 12 month trailing average net debt to headline EBITDA is consistent at 1.8 times, but this will improve in the second half of the year.

Now turning to point to point to net debt as reported at month end. Obviously, the balance sheets are drawn publicly in June and December, but is impacted by a number of factors, operating performance, net working capital, currencies and the seasonality of the media billings. And you can see here, as of December, at GBP2.8 billion, which is lower than our averages, which is a strong part of the season, it was actually worse than by GBP356 million than the December 2011 position. When measured at June 30, our net debt was GBP2.7 billion, GBP144 million lower than it was in the 30 June 2011, however, that was assisted by GBP390 million of the conversions into equity of the convertible bond. However, rolling forward one month later, when we look to the net debt at 31 July, 2013 is at GBP2.9 billion was GBP759 million better than the 31 July 2012. Obviously, that was impacted by stronger billings, and certain improvements in working capital. In terms of 27, the historical average net debt to EBITDA range, we are still targeting the range of 1.5 to 2 times. With the conversion of the convertible and other improvements in working capital, we are expecting to lower that ratio from the current level of 1.8 times currently being experienced.

On slide 28, we just give you some idea of the discretionary items we have available at our disposal, in terms of the cash generating acquisitions. On small to medium-sized deals, we expect to spend around GBP300 million to GBP400 million in any one year. Obviously, there are occasionally opportunities like AKQA that came up last year, which were bought all for cash, which meant that our full-year spending was over GBP500 million. Share buybacks, we try to offset the dilution from employee ownership plans, which is approximately 1% per annum. So therefore, we rate -- we target between 1% and 2% share buybacks each year. We have already achieved our 1% level, our minimum level for 2013.

Dividend increases have been strong. As you know, as we brought the dividend payout ratio, up from the lows, up towards 40%, which is our medium-term target, by growing our dividend 16% last year, and 20% at the interim. And that again, the new revised target of the dividend payout ratio is to have a payout ratio of 45% within two years. The headroom remains strong, as measured by undrawn facilities and surplus cash. And therefore, we turn to slide 29, which just gives a historical summary since '07 of our earnings per share, are up 8% last year, and up 10% in the first half. And then just a reminder, that on the ordinary and diluted shares, whilst the convertible has converted, and it does add approximately 5% to the basic shares in issue. On a average basic of number shares this is only up 1.4%. But when you turn to page 31, on a fully-diluted basis, the cost of the convertible was always included in our calculations, there is marginal impact on the diluted head -- diluted shares in issue of only 0.7% at 1.356 billion shares in issue. And with that, I would like to hand it over to Martin.

Thank you, Paul. So now moving on to section two, which is called four strategic priorities, starting on slide 33. We try and do a summary of how we see the market environment, and on a macro basis, we do see signs of some stabilization in the Eurozone. But clearly, continued worries are weighing down, particularly across southern Europe, and adding to the uncertainty. Recent developments in Syria have raised the grey swan, and if we put it like that, of the Middle East, and concerns are quite high. And this morning, after we announced our results, we had a lot of questions about whether Syria and the Middle East situation would cause problems. There are questions remaining over hard or soft landings in Brazil, China, and India. We continue to see good growth in all those markets, including Russia. But they are not growing as fast as they were, although they remain a significantly faster growing set of markets, to Western Europe and the US, and the US despite recovery there.

There is the grey swan of the fiscal deficit in America, and the impact and timing of any tapering under Bernanke or his successor. Another new trend is this investment by longer-term private equity, often family well-focused investors backed by aggressive management teams, with very cheap long-term funding. A good example are [Heinz] with Warren Buffett, and Jorge Lemann and 3G, and the [DC Masters] with [Bob Beck], the Santa Domingos and the [Mancesa] family. Another feature of the environment, macro environment is a concern about lack of trust for business, and the role of business in society, and this has had an impact on communications, and CSR in particular. And there is also pressure on traditional media, not only with the newspapers and magazines, but with television as well. With the growth of other tablets and smart phones, the slowing of the TV penetration [free to add penetration] to much younger age groups, and the growth of substitutes like [Areo] in the marketplace.

And finally, the prospect of 2014 with the quadrennial events in Brazil and the World Cup, Russian Sochi Olympics, winter Olympics, and the mid-term congressionals in the US is a better background of 2014. But on a macro level, client comments don't indicate any significant lowering of spend. In fact, it's the other way, and clients are increasing their spend. New investments, media investments, are redirected investments from traditional media, and new money being committed to digital.

Clients are certainly investing in capacity in brands in fast-growing markets, and in brands in mature markets to maintain or increase share. And recent feature being the fact that clients are not making their top line forecasts or making lowered forecasts. They are making their bottom line forecasts, but doing it by cost cutting. And this leads on to the efficiency and effectiveness, which is still key amongst clients, the rise of finance and procurement. And this is highlighted by such things as the debate -- and I think it is a debate now -- about payment terms. And the [AAAAs] have issued a report recently justifying the fact that the normal payment terms are 30 to 35 days.

Growing [forward] on horizontality and the role of Big Data, a lot of people talk about big data, and lot of people talk about it without any real basis to it, by just buying third-party data, And we have a real big data business, and that is becoming more and more important, in the context of our operation. And one of the reasons why we renamed it data investment management, to bring it closer to our media investment management business. But there is a rise in e-commerce, particularly Amazon. Amazon is a bonus for the manufacturers in their tussle with big retailers, but Amazon raises, for example, concerns amongst manufacturers, and there are some interesting opportunities in that area. And finally, there is the industry consolidation that we have seen not only [Dentsu Aegis], but Publicis and Omnicom, which we christened POG.

On 44 -- on 34, we talk about the initial reactions to a pre- and post-POG world, pre because there is a long regulatory period that we have to observe, something like 43 jurisdictions. And obviously critically, in jurisdictions like Washington, DC, in Brussels, and last but not least, Beijing. To our mind, the merger of equals so-called, although we don't believe there are such things, is really a strategic u-turn for both companies. Omnicom has traditionally have been more North American, and traditional, and Publicis more emerging markets and digital. And the net result of all this, is the fast growth markets and digital become a much smaller proportion of the command operation. And structurally, [concave] with it merger of equals, and co-chairmen and co-CEOs, and [dead-locked] Board, because of the lack of consultation prior to the announcement, there are significant client and people conflicts. There are clearly regulatory issues that I have touched on. And to date, there has been a very limited articulation of client benefits. Probably the best one is by Omnicom's lawyer in a Bloomberg interview, where he pointed to the financial benefits of locating in Amsterdam, headquartering. And then checked himself to say, registered in Amsterdam, with benefits in terms of retirement packages for executives, and also incentives for executives.

Turning to 35, on a more positive note, potentially economies of scale in media buying certainly, but dis-economies of scale elsewhere. We have written for many years about the dis-economies of scale in our business. Certainly, media buying offers opportunities. But if you look at the analysis of the media buying positions, even in a post-POG world, we will retain our leadership in Europe, in Asia, and Latin America and Africa, Middle East and Central and Eastern Europe. The one area where there will be focus on, will be the US, where we think there are some things that we can do to re-address that position. Finally, it just escalates the focus on consolidation and concentration. But our response, and I want to underline this heavily, our strategic response is basically the same strategy as we have pursued to date, but more intense. We think that POG validates our strategy even more, new markets, new media, data investment management and our horizontality. And we have raised our targets for the new-media sectors, and new market sectors of our business to 40% to 45% by the next five years. So simply put, it means more of the same but faster.

On 36, we have shown what impact the transaction has had on the market. And it's quite interesting to see what has happened so far. This is prior to today, and our stock is up currently about 3.5% in New York, and about 4% here in London. But prior to that, we were flat to the announcement, ahead of all of the indices, whereas Omnicom was down 7%, and Publicis was down 7%. Publicis is up 2% today and Omnicom is up 0.5%. So the market in a way, has certainly given a short-term verdict to what has been happening. On 37, we just reiterate our strategy, fast growth targets to be 45% of our revenues in five years. New media, same percentage. Data investment management and quantitative, one-half of our business with a focus, a very clear focus on the application of technology, big data. And this is not talk, this is a real business. And last but not least, digital. Horizontality, just ensuring our people work together, as to what the purpose of the Company is, which is to ensure that clients receive a benefit.

On 38, we just highlight where we are today. New markets are 30% of our business, new media 34% including AKQA, and quantitative just over half of the business. On 39, we talk about where we want to be, 40% to 45% on new markets, 40% to 45% on new media, and quantitative staying at where they are at 50%. On 40, we look at the impact of the POG merger on rankings, and you can see that our fast growth market position is still dominant. We have highlighted POG, which is a muddy brown color, which happens when you mix orange with purple apparently. And you can see the relative scales there. And on 41, we show what the combined businesses would look like in comparison to our own. And interestingly, faster growth markets will be 30% of our business versus 21% for POG. And our businesses will still be of significantly greater scale, as is the case in Asia, in Latin America, Middle East, and others rough parity.

On 42, we highlight our strong growth in the BRICs markets, and continued growth, greater China, growing again, the compound growth of 17% over 12 years, Brazil, 13% over 12 years, India 13% over 12 years, and Russia, 50% over 12 years, and strong on growing. And on 43, we showed direct media billings which exclude Brazil, which I will come onto in a minute. And you can see the one market where POG has greater size is in the Americas. And that is North America and Latin America. But you can see that if you can include Brazil, it makes a significant business. And you can see, in number one, a clear number one in Brazil, with double the penetration of market. You will recall that in Brazil, there is not a separation between creative and media agencies.

On 45, we highlight the opportunity in new media. These are US statistics. They compare time spent by consumers with ad spend. And you can see the big two discontinuities are in print, where consumers spend [6]% of their time with print, whereas we continued to invest with our clients 23%. And in internet and mobile, where consumers spent 26% of their time on the internet, we invest 22%. And on mobile, 12% of their time on mobile with only 3% invested. So there is a big $20 billion opportunity, in terms of the shift between newspapers and magazines, for example, to internet and mobile.

On 46, we look at what digital will look like in the post-POG world, and digital will be a third of our business, 32% against 24% for POG. And interestingly, maybe we will find out a little bit more about that category called other marketing services, which includes barter companies, and I think food-broking companies, and SELLBYTEL operations, particularly in Germany and Spain. On 47, we show our objectives in relation to share of digital revenues, currently at 34% in half one of this year. and we think -- we get a natural growth both for new markets and new media each year of about 1%. So in five years time, one would expect X acquistions, digital to be 39%. So acquisitions would have to add another say, 2%, 3%, 4%, over five years, to get us where we want to be on new media. It's more of the -- 35% organically for the new markets. But we are very active in new markets, not only faster growth markets generally in terms of acquisitions, but also digital.

On 48, we highlight our digital strategy. Our strategy is to invest in all of our businesses in digital, to develop new services beyond traditional services, such as in web development or demand-side platforms. And in areas such as e-commerce and e-shop, when we have a major announcement on e-commerce and shopper, the consolidation obviously, of geometry, for mobile reactivation, and [G2]. But more importantly, an important new client in that area of significant proportions.

Third area is establishing propriety technology platforms, such as Xaxis, which I will come on to in a minute. And this is going to become particularly important as media owners move toward more programmatic media buy, which you may well have seen with the 21st Century Fox announcement last week. And not only building strong relationships with leaders such as Microsoft, but partnering -- and Google and Facebook and Apple and Twitter and LinkedIn and Instagram and Pinterest, but linking them more -- they are (inaudible) in some cases. And it's a question of partnering and competing in an effective way. And it's interesting in the context of POG, to hear that now they propose to take on companies such as Google, which will be an extremely difficult thing I think to do, with market caps of 10 or 15 times bigger. But it's interesting to know that they now espouse the friend of me approach as well.

On 49, we have highlighted Xaxis, which is the world's the largest audience buying company. It has more than 300 employees in 26 markets, and annual billings of [GBP]400 million, 1,800 clients, and growth year-over-year of 50%-plus. So you see significant growth in North America, and EMEA, and we have launched in Latin America and Asia, and we will be launching in MENA in Q4. On 50, we highlight the relative sizes of these trading desks. Xaxis is by far the largest, bigger than [AOD Audience's] on-demand or Cadreon or Accuen. And you can see the relative growth and size of Xaxis, and its continued growth into the second half of this year.

On 51, we just emphasize the importance of data investment management. And it's not a renaming from consumer insight that we took lightly. We think there is a close connection between media investment management and data investment management, as the non-US Nielsen, if I can put it this way, measuring TV audiences and internet audiences in around 40 markets around the world, we think data investment management is critical in terms of linking with media investment management. We believe marketing is becoming more data-driven, clients want more simplified and better used data. Digital campaigns are certainly driven by data analytics and feedback. And there is a need to provide continuous updated data for realtime decisions. And we have a unique combination of real businesses. This is not talking about building a data business on a third-party data that you buy. We are talking about investors that are made by clients each year of [GBP]4.5 billion a year in data, not only in custom research and syndicated research, but audience management, and measurement, data management, and digital media.

On 52, we highlight horizontality, I think the line at the top of that slide is important. We have totaled up all the revenues that we have in our core businesses, our associates, and our investments, and that amounts now to [$]23 billion of annual revenues, with 170,000 people in 110 countries. And that gives us, I think the requisite stuff, if I can put it like that, to manage. What we clearly have to do, is to make sure that stuff works more effectively together to provide clients with a benefit, which is after all, is what the purpose of the business is. And on 53, we highlight our horizontality in terms of clients. We have 40 account teams, over 35,000 people working on these accounts, across the whole of WPP. And this is interesting, in the context not only of clients, but also you will see on the next slide, on slide 54, I think it is, which highlights the 13 country managers we have, and regional managers. And you will see that we have appointed a regional manager just recently, Andrew Scott, to keep a close eye on work on Europe, Western Europe in particular, where we see opportunities for improved efficiency, and back office efficiency in particular.

On 55, we discussed in more detail, horizontality is not only about people. It's about clients and acquisitions, making sure we have the best in each of the local markets, ensure our people work effectively across their businesses and their verticals, develop special skills such as the shopper skill I mentioned. Focus on client needs and business issues, and the recent team wins, which you see there, 405 is a good example [please speak Chanel] are very good examples of where the team approach and the coordinated and integrated approach has worked extremely effectively.

On 56, we show our digital and fast-growing markets penetration, with 30% fast-growing markets, 33% in digital. There is an overlap between the two. You can't add the two together, and say, 63%. In those two, there is 8% overlap. So it is 55% between fast growth markets and digital. So turning on slide 57, to our three key objectives, our key objectives of which there are six. Section three, first is to improve operating margins. You see in the, we got 50 basis points in the first half, which is a record first half margin for us. And certainly better performance than competitively, and in terms of absolute and relatives. But with increasing flexibility in the cost base, we are now up to about 6.9% of revenues in flexible costs. We used free cash flow to enhance share owner value, and improve return on capital, and common to that more developing the role of the parent company, emphasizing revenue growth as margins improve, and improving creative capabilities and reputation.

On slide 59, we just track our PBIT performance and margins, and show you the first half of this year versus last year. You can see the 11.5% to 12%, our long-term objectives remain 18.3%. Interestingly, if you track our margins out at 50 basis points, and compare it to Publicis' first -- well, its pre-POG investors day, and the targets that they have established for POG, in terms of [GBP]500 million of synergies, costing [GBP]400 million over five years with [GBP]18 million of tax synergies, if you plot all of that through, our margins in five years would be about [17.8]% if we achieve our objectives, whereas POG would be at 17%. So our, at 50 basis points per year, it is more ambitious than theirs. I would also add that their figures include a 100 basis point improvement in revenue growth as a result of the acquisition or the merger.

On 60, we talk about our operating margins, in terms of operational effectiveness. I think we have been slow to share services to offshore and outsourced. And you can see that we are now on a significant program, which under bullet four, you see we believe we will deliver in excess of 1 margin point, 100 basis points, from our existing finance and IT cost base, which are currently about 8% of revenues. I should point out that this is part of the 50 basis points improvement we see over the coming years, it is not in addition to it. We are at an early stage of implementation of these programs. We calculate it will take something like three to five years to deliver the full benefit.

On 61, we show flexible cost base. This is freelance costs, this is consultants costs, essentially variable costs in our cost base, 6.9% of revenues, almost at a historic high. At 62, we show what we are doing in terms of enhancing share owner value. Each year we buy back stock to minimize dilution from incentive programs. And we have added that in this slide to dividends declared and dividends paid. And you can see first half of this year, the yield between the two was 2.9% versus 2.8% the year before. For the full-year, it has been [tracking] about in 2012, '11, about 4.5%. We have raised our dividend payout ratio. You will see this morning to 45%, a target over two years. It is targeted over two years. We committed to look at 45% to 50%. The Board decided to focus on 45% over the coming two years. And you can see that is the reason why we increased the dividend to 20%, which is a 37% payout ratio in the first half, versus 34% the year before. On 63, we have just outlined the free cash flow to enhance that dividend payout ratio. It really just describes what I have said, that shows, compares the headline diluted EPS to the dividend declared per share. It shows you the first half this year versus last year, and the target payout ratio now being raised from 40% to 45%.

On acquisitions on slide 64. There is a very significant pipeline of reasonably priced small and medium-sized acquisitions. This is what we are highly focused on. And I want to emphasize that again. We will be focusing on faster growing markets, and functional services like digital, direct and interactive, and data investment management. We are accelerating, as I said, efforts to reach 40% to 45% in new markets and new media. And you have seen, for example, what we have done or are proposing to do with [Scan group] in sub-Saharan, and North Africa and the East and West Africa. And so far this year, we have made 39 small and medium-sized acquisitions, 10 in the second half, or the first month or so of the second half, and we continue to find opportunities at earnings enhancing multiples, particularly outside the US. I think that is probably a little bit unfair to the USA. There are significant opportunities in the US as well.

The only markets, that I think that have been spoiled were in Brazil and India, where a number of high-priced acquisitions have gone wrong. One in India I can remember, one in Brazil, where clients have defected quite quickly. We have seen I think, a diminution of quality and standards in some of these acquisitions. Acquiring public relations companies that pay journalists to place articles, or that are paid to send out negative messages on websites, I think are not the sort of thing that we think is appropriate. And in a mad dash by some competitors to make acquisitions in their markets, I think they are making mistakes in acquiring those businesses. Those are businesses that we have passed on. Acquisitions in the first half added 3% to revenue growth, as they did in the previous year. And we anticipate that will be a similar figure for the second half.

On 65, we just do a venn diagram of what we have been doing on acquisitions in the first half. Fast-growing markets on the left, faster growing and digital on right kind. And then the intersection showing where a -- places like Turkey, Argentina, Poland, Myanmar, China, Africa, et cetera where the acquisition has fulfilled both criteria, and at the bottom, one or two acquisitions that were for specific client needs. On 66, we show acquisitions and investments since July 1. Again, segmenting them fast growing markets, quantitative, digital, and then a mixture of the two. You can see Brazil, Latin America, Hong Kong, Czech Republic, Korea, Bangladesh and Singapore where samples where we fulfilled by both criteria.

On 67, we just analyzed or give you details of the 94 companies we have acquired majority stakes in between 2009 and 2012. So these are the key acquisitions that were made in '9, '10, '11 and '12. And you can see 17 were in faster growth markets, 13 in quantitative and digital, 32 in both, and 15 in client and creative areas to boost client or creative capabilities. And the total revenues of those acquisitions in 2013 were $1.362 billion, and the total consideration paid was $1.4 billion. So roughly, 1 times revenue. So on 68, we try to analyze the returns from these acquisitions under three separate headings. Organic revenue growth, this is '13 over '12, for those acquisitions made from '9 through '12, '13 over '12 in operating margin contribution, and return on capital employed.

And we have broken these out into four areas. Fast-growing markets, is the blue line, the green line, quantitative and digital, the darker blue line, quantitative and digital in fast-growing markets. And then finally, the brown line, client and creative, 15 acquisitions, and then the red line is the total portfolio. And you can see that, as you would expect faster growing markets and digital did well, in terms of organic revenue growth. But then quantitative and digital, where they both -- are faster growing markets is where you would expect the faster growth, and that's what we saw.

Client creative was down actually in terms of revenue, so that reflected the pressure that we see in traditional advertising. But overall organic revenue growth was 10%, margin contribution was strong really across the board, whatever category you looked at, with an overall rate of 17%. And return on capital employed was pretty good across the board, fastest in faster growing markets. And in the quantitative and digital in faster growing markets, the two blue lines, but generally overall, 12% return on capital employed, versus a 7% or 8% for the Group as a whole.

On 69, key objectives in relation to creating capabilities, covers recruitment, recognizing success, acquiring highly-regarded creative businesses, and placing great emphasis on the awards. We came first again at Cannes, as a holding company, and that makes a hat trick, three years in a row. In addition, for two years in a row, we have been awarded the EFFIE as the most effective holding company. We dominated at Cannes this year with over 2,000 points, Omnicom with 1,500, and Publicis at just under 1000. On 70, we highlight again, Oglivy's outstanding success at Cannes. Second year in a row, they were the Network of the Year with over 1,000 points. Ogilvy Brazil was Cannes Agency of the Year in 2013. And Oglilvy won a EFFIE for Most Effective Agency of the Year, for the second year in a row.

So, turning finally to conclusions, on 71 and moving to 72. So a very solid like-for-like revenue growth of 2.4%, 2.1% in the first quarter, 2.7%, in the second quarter with that acceleration in a difficult environment. Over two-thirds of our absolute growth came from Asia, Latin America, Africa, the Middle East and Central and Eastern Europe. And that underlines the importance of our strategic focus. Margins up 50 basis points to 12%, in line with our full-year target of 15.3%. Strong cash flow enabled us to make further acquisitions which contributed 3% to our revenue growth, very similar to the previous half year, and fully-diluted EPS up over 10%, with interim dividends up 20% to 10.56p. For 73, if we look at our forecast, this is our Q2 RF. And that is the revised forecast that we did at the end of July, middle of August, indicating growth of over 3% for 2013. Remember, our budgets were around 3[%], our Q1 RF was taken up, and our Q2 RF has been taken up again, all over 3%, with continued strong growth in faster growth markets, and slower growth in mature markets, and relatively functional -- and functionally relatively faster growth in media investment management and digital.

July 2013 showed like-to-like growth of 5%, surprised us on the upside, and we had a good month in western continental Europe, particularly in Germany and Italy. And it supported our quarterly revised forecast of a stronger second half, and indeed a stronger third quarter. And our budgets, our Q1 RF and Q2 RF, our third quarter and half two, were budgeted to be stronger. So it is in line pretty much with that thinking, if and with July actually being stronger than we thought it was going to be. And we believe the business is very well-positioned, with headcount held virtually flat over first half of last year. It's only up marginally -- we are up 400 heads between January 1 and June 30, and that has continued into July. And the margin target for 2013, the 50 basis point margin improvement is very much in line with our long-term strategy.

We are going to continue to use our substantial cash flow to enhance earnings through these small and medium-size acquisitions. We estimate spend currently at GBP300 million to GBP400 million a year. That is out of GBP1.8 billion of free cash flow. And, of course, there will be dividend increases as described to take the payout ratio up to 45%, and share buybacks to minimize any dilution from incentive arrangements and plans. Our goal is, as ever, is to deliver on our financial model. Just to remind you, it is to achieve 10% to 15% EPS growth which we have done consistently over the 27 years of the Company. If you look at the slides at the back, which is to takeaway, you see that we have done. And that 10% to 15% is made up of 0.5% organic top line growth, with 50 basis points improvement, which takes us into the 5% to 10% EPS zone. And then, acquisitions of 0.5% to 5% on the top line, and 0.5% to 5% on the bottom line, to take us into EPS growth of 10% to 15%.

Finally on 74, the conclusions. Half one results demonstrate the Group is very well-placed to benefit from our geographic and functional focus. We have very strong positions in new market and new media, which if anything post-POG will become more significant, and enable us to raise our strategic goals on share revenues to 40% to 45%. And achieving this will drive above industry average growth. Investment in digital tools and infrastructure is critical, and Xaxis and its success is a really good example of that. Lightspeed, our internet panel which we highlighted this morning at our London presentation is another very good example of it. And Xaxis is already the world's largest audience-buying company. We are very strong believers in the relevance and the application of technology and big data for our clients, something that which our competitors we don't believe really have -- they talk about it, but they don't have real businesses in these areas. And this is going to be particularly important, as programmatic media buying grows. We think the Group is very well-placed to meet its goals for 2013. And I would add that I think that is early days, and but for 2014 as well. And the business is very well-positioned in new markets, new media, and data investment management.

2014, just finally, the early GDP growth forecasts are around 4% real, 5.5% nominal. So slightly less than inflation next year projected, but it is together with these many quadrennial events, Brazil, Sochi, and the mid-term congressionals, and we think that all goes well for the industry. And then looking forward to 2015, with an election here in the UK, and America preparing for another election in 2016, which might see a first female American president, I think all goes pretty well for the industry as a whole. So that is where we are on our presentation. Operator, can we take any questions please now?

Thank you. We will now take our first question from Alexia Quadrani of JPMorgan. Please go ahead.

Thank you. Martin, you've done such a great job with the new business once again, in this most recent quarter. I was wondering if you could comment on how you think the new business activity may change going forward, given this pre-POG world that you described. Do you think there will be a lot more activity going on, and I guess on that line, do you also feel that clients maybe a little less strict going forward on client conflict issues, given maybe potentially one less player in the market.

I think actually, Alexia, it will increase. It's already shown a sign of doing that, even in the post-POG period, actually. I think we've seen -- you saw the -- BA has gone into review about 10 days ago, British Airways, which I suppose is the latest example. My view would be that you'll see an intensification of that. And that will, I think, reflect more subtle realignments than people expect, in terms of clients lining up.

In terms of conflict, I think there are always conflicts. One -- Chinese walls, separation audits, other procedures, information cutoffs, cooling-off periods and whatever. They still are. It depends on how these things are handled. I think if clients are asked for review, before an event, rather than after it, you always get a better reaction than if you ask for a review afterwards -- it's just, I guess in some sense, it's a courtesy. After all, it's their money, our money.

So I think levels of activity and concerns about how conflicts are handled will remain pretty much the same level. People may think they can get away with it, but I think you have to be open and transparent about it. It's very dangerous not to be. But the levels of activity, I think they're heightened, and there is more going on at the moment that I can remember for a long period of time. And you can see that in what's happened since June with us, and you can see the level of new business activity, which was outlined in the slides.

Just one follow-up. I believe Paul said earlier, on the opening comments that Kantar did a bit better in North America in the most recent quarter. Is that a sort of a -- is that a notable change? I'm just trying to get a little more color on how much bettor Kantar did, and if that bodes well for the second half.

You said notable change, and it was notable. It was significant. We are pleased with that. It is even more significant at the gross margin level. Now, whether that's due to a flip-up in the market, certainly GDP is stronger, so it's a bit about the market. It's a bit about, I think, discretionary spending in custom research being a little bit more active. And it may well be due to dislocation -- it's us, Synnovate, a little bit more generally. But we are pleased, and we are seeing a bit of strength. We are seeing a bit of strength in America, which we welcome, which we wanted, and we are seeing a bit of strength in what we now call data investment management.

Thank you very much.

Dan Salmon, BMO Capital Markets.

Martin, you mentioned in the prepared remarks that you're seeing your investment in programmatic start to pay off as the media owners start to step up their own work in that area. Could you maybe expand a little bit on what you're seeing change this year, maybe what you expect next year, and in particular, maybe your thoughts on where that type of technology could move, outside of the basic display advertising and beyond that. And then second, maybe a quick update on Brazil specifically. With some of the socioeconomic turbulence there lately, maybe how clients are changing their view of the upcoming events around the Olympics and World Cup, or not?

Let me deal with Brazil first, we see strong growth up to the end of July. We're up just under 13% in Brazil, like for like. So it continues to be strong. Latin America continues to be a very strong region, not just Brazil, but Mexico, Colombia, Argentina, despite the challenges. I think you have to be careful when you look at us in relation to the fast growth markets. India continues to be good at around 5% to 6%, China continues to be good, depending on how you define China, including Taiwan or Hong Kong, but something like 6% to 8%, depending on that definition. And Russia continues to do well at 4% or 5%.

So what we're seeing is -- and the reason that we are relatively strong, particularly in a country like Brazil, is that we are really focused on consumer. And so when the Chinese, for example, say, that their two or five-year plan is shifting from savings to consumption, we benefit from that. The core of our client base is their CGs, or capital consumer goods like cars and trucks, et cetera. We are not a great bellwether of what's happening immediately. We are not a capital-intensive dependent company.

On programmatic, I think what we're seeing is the media owners, particularly the legacy media owners, that is, try to move their business more to digital and to move their business more away from analog models. And they see programmatic buying as being helpful to that. Therefore they are linking directly relates to access and avoiding third-party contacts as much as they would do without programmatic buying. So we are seeing it as being a strong growth element.

Having said that, the figures I have seen for the proportion of buying being programmatic buying, is still quite small. And even the projections at five years out are still small. I think the highest I have seen is about 20% of the market. But I do think it is inevitable that we will see more of this approach, both for defensive reasons, the reasons I just mentioned related to legacy media owners, and for offensive reasons, in order to try and turn analog dimes into more than digital pennies.

So it's inevitable, and is very much wrapped up in our approach and media investment management and data investment management. I think the linking of what we do in media planning and buying and what we do in data is growing. We note that the linkages now between our media and research businesses or data investment management businesses are strong as they have ever been, stronger, and our people are working together in much more effective ways. I think we are only now just learning the lessons of not linking our business more effectively. It relates to the comment that I made about stuff. And I think Globant today followed its prospectus with this one, and it's another example of where we are building platforms. We only own 20% of Globant, but it gives us assets to a company that is developing highly sophisticated technological platforms for clients, and we're able to leverage that with marketing knowledge, so that you get a combination of the mad men and the management, which at its heart, programmatic buying is another example of.

Okay. Thank you.

James Dix, Wedbush.

I have three questions. I guess, first in terms of your higher growth outlook for the year, Martin, I think you mentioned both that client spending plans seem to if anything, be heading up a little bit, and obviously you're having a great run in terms of new business. Are both of those factors contributing somewhat similarly to the higher revenue expectation for the year? Or is it really more one than the other, because I know that can take some time for new business to actually flow through to your actual revenue line. And then secondly, just in terms of the improving margins in the rest of world region, is there any risk that you might be under investing in that region, just given that it has -- seems to have the most long-term growth potential, and yet you seem to be getting a lot of margin expansion, just on the typical line, that sometimes you invest a little bit in margin in an area which is growing faster, in order to reap the benefits over the longer term? And finally, you mentioned Amazon as one of the factors that clients are thinking about. I'm curious, in China, do you have any comments on the role Alibaba in the market there? Obviously, it's been more increasing focus, and I'm curious as two how you would compare and contrast any comments or trends you are seeing with Alibaba in China to those you're having with Amazon.

On higher growth, when we started it, our budgets were 2% for the first half and 4% for the second half. And obviously, we have delivered 2.4% for the -- this is like-for-like for the first half. July has started well with 5% as an accelerating trend. But it looks like at least so far in the year, you don't know what's going to happen, and you must always be paranoid about it. I think it's a mixture of the two, certainly. I wouldn't say that the clients are being profligate.

They're basically in the faster growth markets investing in capacity or acquisitions and they are investing behind that in brand. In the slow growth markets, because they are missing their top line targets, and cutting their costs, I think to some extent, they worry about losing share in the slow growth markets, and in order to deal with that, they invest in brand. So I think it's a mixture of spend and new business. The new business that we've won, in particular, a couple of the bigger accounts, have started to spend quite quickly because the reviews were telegraphed a long time ago. They were long reviews, the incumbent agency had been given notice, and so by the time the decision had made, the three-month notice period had run out, and we moved in quite quickly. So I would say it's a mixture of the two.

Our margins, if I understood the question rightly, we continue to invest heavily in fast growth markets. We will maintain our leadership position there, and we will grow it and enlarge the gap. And I think we are doing it equally in Asia. Obviously, the two mature markets in Asia, Japan and Australia and New Zealand, are more difficult than the rest. There are challenges in Thailand and Indonesia with currency and the stock markets and the like, and India, obviously. Indians are worried pre-election and they are worried about the election results and what that might mean in terms of deadlock and coalitions.

Brazil, we have an election coming up very soon, but as I have said in answer to the previous question, Brazil remains strong for us. But I think as far as margins are concerned, Asia-Pacific, Latin America, Africa, the Middle East, Central and Eastern European grew by the second highest margins in the first half, which is unusual because they are usually third or fourth, because the stronger half is very much a stronger half in the fast growth markets. On the last question on Amazon, I do think Alibaba, it is not the Amazon, it's called Dangdang, isn't it? The Amazon look-alike in China run by a lady who I met in Chengdu, and I'm trying to remember her name, but that is the Amazon look-alike in China.

But Alibaba and Jack Ma is a force of nature. It's not just that Jack Ma has pulled back from running Alibaba, he was appointed as CEO, and he is focusing on his logistics platform and his financial transactions platform. And I think I am right in saying that he has not been granted a banking license. But were he to be awarded a banking license by the Chinese authorities, I think Alibaba would be more than a force of nature, if that is possible. With Amazon, its logistics platform, its transactions platform, I hadn't realized and I saw them in Nanjing about six or seven weeks ago, and I haven't realized the extent to which they funded small business activity -- on the Alibaba platform already, so they were a source of credit already, and this transaction platform will pose, I think a significant problem for banks in China, if, as I say, he gets a banking license. So Alibaba is different than Amazon. It's not a pure competitor, but it is very significant in its current form and with its transactions and logistics platform, it is going to be a very, very formidable competitor, not just to retailers, not just a source of buying for manufacturers, but also international services transactions.

Great. Thank you very much.

Michael Corty, Morningstar.

I had just a few questions in regards to some of the cost initiatives you talked about in your presentation, specifically you mentioned that you were a bit slow to outsource. And there is margin opportunity kind of on an annual basis. From your seat, does that mean that there might be margin opportunity for your holding company that may not exist with your peers? And then I guess secondarily, WPP has accomplished major acquisitions in the past. Are there operational hurdles that you have come across with your acquisitions that you think that Publicis and Omnicom might face when they try to put those two large entities together?

You'd better ask them, I guess. Let me just deal with the last one first and maybe Paul can -- I think what I said was, I think we have been slower than we should be, to look at process standardization and simplification, off shoring and outsourcing. And just to be clear, the 100 basis points that we see over the next three to five years, the costs of which we bear in the P&L, which are not extraordinary to the P&L, they are in the P&L, that is in the 50 basis points margin improvement that we see. Which we hope will get us to 17.8% in five or so years' time. Paul, do you want to add anything to that?

I think in part, in the second half, we have been reasonably busy on acquisitions ourselves. And I think we've spent a lot of time trying to integrate the people, the compensation plans, the benefit plans, the clients, that are coming into the group, and actually let them stay with whatever existing systems they had. Albeit quite disparate to our existing platform. So in some ways this is a golden opportunity for us because we've got a relatively set of companies now to work on standardization, putting it all together. I think actually it's very hard, without taking consumer risk or considerable financial cost in doing it, almost whilst everything else is moving around and not stable.

I think the opportunity for us is probably similar in my own view, to what Publicis Omnicom can achieve, however, it does need a real discipline to get it done. It does need a patience and good procurement in order to achieve it. And it does take time, so in order to pay back these things. We have rather gone at it slowly, without huge hurdle costs. And I suppose that the platforms and our opportunities now, I think, are fast moving, so whilst being slow to start, I think actually the gradient to which we will get there could be a little steeper than some organizations. But I think it is -- we've been quite busy incorporating these businesses into our group over the last decade, but realize that this is a golden opportunity to standardize and become more efficient, as current pressure has built.

I think we have constrained ourselves a little bit because of cost. We haven't gone out with big ERP investments, which always cost double what you think they're going to cost, and take double the time to implement. And we have been a bit, I called chewing gum and baling wire in our approach, which may be the right thing to do, but it's being conservative. And I think it's time for us to be a little bit more expansive. On the lessons to be learned, far be it from us to say that there are lessons to be learned, because everybody makes mistakes. But any observations I would make could be covered the presentation.

I think you got to have the right, the correct, the similar strategies and POG doesn't. These are two companies that were going in totally opposite directions, and actually one passed on the opportunities that the others took. So that's sort of strange. It's structurally clunky. You have to have somebody taking decisions. You can have it run from two centers or three centers because there are going to be three headquarters. You can't have Co- this and Co- that and Chairmen of committees.

From a client and people point of view, if two people sit in a room for six months talking about a deal, they'll never talk to anybody else about it, it's bound to cause problems because -- on one level, I can remember when we did Grey, we went through it meticulously, and we made mistakes. But we went through it meticulously, and made sure that clients and people understood what was happening, and it didn't come as a surprise. I think if things come as a surprise, they have unintended consequences. And I think certainly what we have seen in the first four weeks, particularly with an information communications vacuum, if clients are told that everything stays the same, I think their reaction is, why bother. If you look at the video that was done by the lawyer to Omnicom, he talks about registering the company, he said headquartered, and then checked himself, and said registering in Amsterdam. He talks about benefits, retirement benefits for executives, and incentive plans, and the benefits of French companies moving their headquarters to Amsterdam. So a lot of this, on the one hand, the French government is saying employment will be maintained in Paris and it will be the digital hub, and on the other hand, you've got synergies being claimed. And on the other hand, a lawyer saying everybody is going to be autonomous and independent. So a lot of confusing messages.

The regulator is clearly going to have a hard look at this. We heard that prior to Congress' recess in Washington, the merger is being touted as approved by leading clients. That was before the Congress broke up. In Brussels, we were told that French politicians had been, before the announcement, had been in to talk to the competition authorities. And in Beijing, we hear nothing is being done, which has not pleased the Chinese authorities. So I think the regulatory process is going to be longer and more complicated than many people think, and there will be a degree of examination, because the competition authorities really hadn't formed a view as to what the new media landscape looks like.

I know that POG is saying this is the deal with the size of Google, that's nonsense. You can't deal with the size of Google, with the exception of Apple, it is the most valuable Company on the planet, and you strip out the cash, it's even more valuable than Apple. But the competition authority, that's a smokescreen to take attention away from the impact on legacy companies, on traditional companies. So I think there are a lot of things that fall out of this that we have yet to see. And we'll see how it pans out. At the end of the day, I think from our point of view, our strategy remains the same, but faster. We will become -- it will goad us to be more competitive and urgent in implementing our strategies.

They will have a six to nine month, I estimate, regulatory period, maybe even longer. Certainly Aegis suffered in China. It's took a long time for Aegis and Dentsu to pass in China. And I think you had to pay respect -- I think at the end of the day these things are -- airing them with clients and people and the regulatory authorities is a courtesy, in a way, more than it is a requirement. And we'll see how it comes out. Net-net, I think it's neutral for us, probably positive. Neutral to highly positive. I don't think it can really be negative.

But one interesting situation, one client had consolidated its business into three holding companies, Omnicom, Publicis, and ourselves, we asked if three goes to two, would you engage a third? The answer was no, two is enough. So putting one and one together in that particular instance equals one. It doesn't equal anything greater than one. So I'm not sure that in some cases, that this will be of any benefit at all. And if you are saying we remain autonomous and independent, then it really begs the question.

That's helpful. I appreciate your answer. Thank you.

Mark Greenberg, Sugarloaf Rock.

Martin, you mentioned GDP forecast for 4% growth. Is that WPP's forecast? And what are you basing your guidance on, or is that an average of economist forecasts? And related to the -- are you more comfortable with 2014, 2015, the economy in those years, than you were six months ago?

The answer to the last question is yes, I feel better about 2014 and 2015 than I did six months ago. That forecast actually comes from a conversation I had with Goldman and Peter Oppenheimer a couple of months ago, I don't know whether they have revised their figure, but it was 4%. That's generally when I look at World Bank or IMF forecast is the figure that we see, Mark, for 2014, 4% real, 5.5% nominal, and that's a little bit better than this year. And as I look at 2015, I feel a little bit better as the wind up to -- as we begin to wind up for the Winter Olympics, sorry the Summer Olympics in Brazil, the European Cup in Europe, in 2016, and then the presidential election in 2016, too. So I feel a little bit better, that might be because the business is doing better than we expected. We're doing better than we budgeted. You see the results say we did better at the revenue level and the operating profit level and budget, in our Q1 RF and our Q2 RF. So, all-in-all, I would say that we feel a little bit more confident.

Thank you.

Brian Wieser, Pivotal Research.

There's been a lot of talk, discussion, about the M&A, but I wondering if you can elaborate on what you would not to do with respect to M&A, or is there anything that we perhaps should rule out? I know you've noted that there is economies of scale around creative, but you also noted that around the time of the Grey acquisition, too. So that's the first question. The second question, is there now fewer potential large customers for ad tech companies to work with? Do you think you're better positioned to capitalize on your existing ad tech investments, or alternately, are you better positioned to pick the winners?

I'm not quite sure I followed the second question. Maybe just amplify that in a second, but let me to try and answer the first one. I can't underline the strategy more. And that is in a pre-POG post-POG world, we think focus on our existing strategy is the right thing, but more. More and faster. So we couldn't conjure up 10 acquisitions in four weeks, post-POG announcement, or on the POG announcement, they were in the pipeline, but we are -- what you should expect from us is more of the same, more focused on new markets, new media, and data investment management.

So in terms of spending, GBP300 million to GBP400 million. Someone asked me this morning, one of the analysts, whether that was fixed immutable GBP300 million to GBP400 million, I said it could be GBP400 million to GBP500 million, or GBP500 million to GBP600 million. But when you have free cash flow of GBP1.8 billion, I think a third on acquisitions is not going crazy. So there may be that we find more. We're going to avoid, and I want to underline this, Brian, we have seen a sacrificing of standards in relation to -- particularly in China and in Brazil, and people doing things that we never thought people would do. I specifically referred to a couple of public relations instances, which make no sense from a business model point of view, certainly in terms of what we are used to. And it's buying volume for buying volumes' sake.

So I think, focus organic growth, as I say, north of 5%. Margin improvement of 50 basis points, so balancing the two, not sacrificing margin improvement, and adding acquisitions of 0% to 5%, we are running at 3% at the moment, and we are paying about 1-times revenue getting good return on capital, 50% over the cost of capital from it. On the second point, on ad tech, can you just explain exactly what you mean?

Sure. One thing is that right now you have ad tech companies let's say it's a demand-side platform, that you may be trying to work with one holding company or another one at the exclusion of another holding company. Well, they've now got fewer holding companies to work with potentially. You're presumably able to commit volumes or license fees that are in relatively greater scale, both you and the new POG. Two players can effectively dominate that market. I'm just curious if you think that you're better, does this have any implications for your own ad tech investments that you have minority stakes in, or in terms of your own strategies in that area?

I mean, the duopoly point, which I think you're getting at I give you that example of a client that had three holding companies which have now gone to two, do you add another one, and they say two is enough, it's an interesting one. Which I really hadn't thought about until the POG announcement and started to explore it. And you could argue that procurement departments only need two. And extrapolating that to the ad tech world that you're talking about, that would have ramifications there, too. But in a way, that explains to some extent why I feel relatively relaxed about what's happening. I don't feel under any great pressure in the short, medium, or indeed the long term to do much about it.

Because I think, and we said this after the POG announcement came out, we referred to, there are signs of greater stabilization, you have Dentsu/Aegis. I don't know how Dentsu feel about Aegis, we picked up a little bit to the effect that they think they may have moved a bit too early. And when you think that Dentsu did own 15% of -- was the biggest shareholder of Publicis, up until a couple of years ago. So they may move on Aegis. And I think they may well say to themselves, do we have the right scale to go further? That's something I think is not a short-term consideration. I think that's likely to be more medium to long term. So we'll have to see how that plays out. You do see some surprising things.

You saw Emirates go from Starcom to Havas, if I remember rightly, on media. You saw Hershey go from OMD to Universal. All within the last couple of weeks. So you have to be careful. It pays to be paranoid, and there are no rules, or if there are rules, they are rules to be broken.

So I think one shouldn't jump to conclusions early, but sometimes these things are not as people would like to see, or as they say they see, and you have to watch more people do rather than say. I think for example, client conflicts issues are going to be blatant. I think it's going to be subtle. I think clients will move business subtly during the process of reviews, or making decisions, without openly coming out and saying, as a result of POG's announcement, we're going to do X or Y or Z. So it's much more subtle, and you have to read the runes much more carefully, and it's not going to be as blatant as people would think.

Makes sense. Thank you very much.

Doug Arthur, Evercore.

Two questions. One on political, as you look at or anticipate the wave of political ad spending in the US in 2014, particularly with greater emphasis on digital strategies and the Hispanic vote, I'm curious as two how you think your portfolio is positioned for that. And on healthcare, obviously a very successful second quarter. I'm wondering if any of that is related to Affordable Healthcare?

On the first, I think we are in a very good position. Generally, we get involved, really, on the public relations and public affairs and polling side. And if you look at our offer, whether it be Penn Schoen Berland, a Blue State Digital, a Benenson, which is President Obama's pollster in the last two elections, Benenson, obviously, we're extremely well-placed and, in fact, have been advising governments and campaigns in many countries across the world. So I think whether it's in the US or the UK in 2015 or Brazil or France or elsewhere, Mexico, which are all examples of where we've been working, I think we have a very good opportunity. So that's one.

The healthcare side, very strong, very strong activity. All our healthcare businesses are doing much better now and I don't think that's to do with Affordable Healthcare. I think that's to do with the consolidation in the healthcare industry, and the fact that we've ended up on the right side of healthcare consolidation. And even where we've been consolidated into clients where we didn't have big positions, I think the key factor has been that our team approach has been very successful. We're very experienced in it, and we can present and deliver, because it's not just about promising, it's about delivering too, we can present and deliver a very effective healthcare approach, and it's very strong, it's very sophisticated, it's very data-driven, it's very deep. And it has a lot of traction. That doesn't mean the others can't try and do the same, but it does mean that what we are doing is extremely effective. But I don't think it's to do with Affordable Healthcare, it has to do with, I think, consolidation in the industry, and we have benefited as a result.

Great. Thank you.

Conor O'Shea, Kepler Cheuvreux.

Just three questions from my side, if I may. First question on market research, obviously, we saw a notable acceleration in the second quarter based on gross margin. But I think I'm right in saying that at the AGM training segment, it was mentioned 4% organic growth, perhaps again on a gross margin basis. I was just wondering if the acceleration was sustained throughout the second quarter in market research, and if you expect that activity to be a significant contributor to the acceleration in group organic growth in the second half.

If it was 4%, it probably would only been for one month, if it was, and we will check that. But generally, I will say Q2 we did better, primarily driven by stronger growth in the US, and not so much by Western, Continental Europe, or indeed, the UK. And that continued into July. So I think generally, as to why it is, I think it's a little bit to do with growth in the US, general growth in the US. It's a little bit to do with the disruption of the Synnovate acquisition, and I think it's a little bit to do with that we are managing our business better. But I think one of the reasons why we had a stronger Q2, we had a stronger US business in Q2 and into July, was because of an improvement in what we now call data investment management. (multiple speakers)

To follow-up on the thing on accounts this morning on the POG development, I think you made a distinction about GroupM having a single point of buying versus the combined POG, which was 4.5. I was just wondering, can you give us an idea how -- I think you mentioned the difficulty of creating a single point of buying at GroupM at the time, and the amount of work it involved. Can you give us a sense of how long it took you to create a single platform at GroupM, and to what extent has that been a contributor to margin and revenue growth in media buying over the last five, six years?

Is a very difficult process, and it depends on how it's done. And who does it. The essential problem is, if you're trying to create one of buying platform and you have 4.5, everybody in the 4.5 is looking at one another, as who's going to do what to who. And you have to have team players. Good people are difficult to manage. And the better the people, probably, the more difficult they are to manage.

And probably, to be fair, the better the people, the stronger their personalities, and the more they like to be identified with the success of their particular unit. And is very, very difficult to bring it together. But it takes a long time. And particularly, if you've been in violent in competition with one another, and particularly, if you've set up your store against one another. Already, we are seeing in competitive pitches, considerable dis-alignment or non-alignment among those 4.5 units. Each individual unit says they will have primacy in a consolidated operation. So I think, it depends on how it's done. If it's something that's discussed before the announcement, it's different to something that's announced post-announcement. I might put it that way.

If you wake up on a Saturday morning and are told to come to an emergency conference call and then given the news and asked to disseminate it to clients, after it's been leaked on a Friday night and before being publicly announced on a Sunday, it's quite difficult, and it's quite difficult for people to stomach it. Personalities do come into play. And frankly, Publicis, I don't know whether VivaKi exists or doesn't exist. I don't think it exists anymore. But it's a name that is used. But there was an attempt at Publicis on its own to bring it together. It's probably easier at Omnicom, because it's really 1.5 units there with OMD and PHD.

But it is very difficult. And I'm not saying it was easy for us. To make an omelette, you have to break some eggs. And it's going to be time-consuming. It will take at least three years, maybe even more.

Okay. Interesting. And just the last question, again, relative to some comments he made this morning, I think you said that the biggest sort of change in ranking post-POG would be in the US market, and that you would respond to that in time. Obviously, within the context of what you set out in terms of an M&A policy. It seems on the outside, the biggest shift post-POG is the concentration in the media buying market, but I think on paper they have 40% of the market. In terms of your response, what maneuvers can you make in response to that, given that they're actually an independent media buying company slides to the left, and what could you do? (multiple speakers)

You'll see in the four months of time, and I intend to share that in the conference call.

Sure. But in terms of your response, would it be fair to say it may well be with media buying or is it just generally in terms of the US region?

Who will see. We will flesh it out for you if you like on another quarterly conference call.

Indeed. Thanks for the answers.

Rich Tullo, Albert Fried & Company.

On one of those slides, when we look at media spend and print, it's apparently over index. To what extent is digital bundled advertising included in that print number and how do you think the transition of that spend filters out into the other media? It's pretty easy to see that Internet radio, audio ads, have a high degree of engagement, and work pretty well. But where else is it clear where that $20 billion is going to go to?

I haven't a clue to your first part of your question, so I will admit to abject failure on that. So I have to pass on that. On the second part, when we look at, for example, our relationship with Google, the three areas where we see highest lift, and this is not just a US answer, but generally, is search through all means, mobile search, which is growing extremely rapidly, albeit from a small base, and video. So YouTube.

So our investments in Vice, which 21st Century have now taken investment in, our investments in Fullscreen, Peter Chernin's new company, which manages about 100 YouTube channels, are good examples of the sort of things that we're doing. And I would say that increased intensity of investment in search, which to my mind, of course, knowledgeable search or intelligent search is inevitable, because every time you do a search on Google or Bing or whatever, they get more intelligent. And they can predict behavior. So I would say the bulk of that is going to go to where we've been seeing it go in the last year or so. Our volumes with Google are up violently this year in the first six months, and we are tracking over $2.5 billion of spend with Google in five areas, in search, display, video, social, and mobile. And it's likely to become, I think, our biggest media relationship this year.

And so I think that's where the bulk of that money is going to go. And that's where clients, I think, see the greatest value. We talk to a lot of clients who visited Silicon Valley, I was talking to one a couple of days ago who just came back from a tour of Silicon Valley, covered off Amazon from Seattle and Microsoft in Seattle, when they were in the Silicon Valley, and the message is the same. Google for search, for video, Facebook for brand, Twitter for brand PR, LinkedIn, again, sort of branding, public relations, same for Instagram and Pinterest. So you come back, and on the e-commerce side, Amazon has a growing position.

It seems to be quite threatening in some senses, although it does offer manufacturers a means of competing against physical retailers. But I think that, over time, there will be a better relationship and understanding what Amazon can do. And Amazon's penetration of some categories is growing like topsy. So I would come back to search, both mobile and other, and video.

Question, as we see TV transition into the cloud, do you think advertisers are seeing it as a mistake for the major studios and content networks, to be emphasizing SVOD at this point in time? If the whole $1 billion ecosystem is out there, ripe for the taking, it seems to me like in CBS's example, $100 million or $200 million in incremental fees from Netflix and Amazon, maybe they're strategically missing an opportunity. Is that possible?

I don't know. It's very difficult. It raises parallels with the music industry before, and it's so easy to sit on the sidelines and criticize it. So much easier for new players and new entrants, particularly, venture capital financed, or financed by people with different criteria. It's so easy to criticize. It's a very, very difficult decision. All I would say is that it is disruptive, and it is a disruptive situation.

And I think you've got to think very carefully before you commit your strategic directions. In our release, I didn't put in on the presentation, on one of the macro trends that free direct television in America, you've seen what's happened to Nielsen ratings, you've got Nielsen plus three at the moment, a question as to whether it should be plus seven. Our personal view is that it should be plus seven. I think there are others with a different view. But some things are not what it seems. We have this data agreement with Twitter and it's quite clear that consumer engagement with free direct television is stronger than we thought. If you look at how people use Twitter when they are watching live programming. And even -- we even see that in the case of newspapers, where there is some evidence that people use these messaging techniques when they are using legacy media.

All is not lost, and there are interesting things to explore. It's very difficult if you are trying to change the engine on an airplane while you're flying, which is what someone who is running a free-to-air network or legacy newspaper or magazine is trying to do. And Zucker, I think is still the best quote, analog dimes into digital pennies, as he said many, years ago. So easy to criticize, easy to comment on, very difficult to do, and know which is the right direction to go.

Thank you.

As we have no further questions, I would now like to hand the call back over to your host for today, Sir Martin Sorrell, for any additional closing remarks.

Think you very much. Thanks to everybody for attending the call, not only in the UK this morning, but in the US. Any further questions, Paul and I are here in London. Chris Sweetland and Fran Butera are available as well on e-mail. So any further questions, please let me know. And by the way, it was 4% on GM in April for what was then consumer insight. Thank you very much indeed. Thank you.

That will conclude today's conference call. Thank you your participation. Ladies and gentlemen, you may now disconnect.