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WPP plc (NASDAQ:WPPGY)

Q2 2011 Earnings Call

August 24, 2011 9:00 am ET

Executives

Paul Richardson - Group Finance Director, Executive Director and Chairman of Corporate Responsibility Committee

Martin Sorrell - Group Chief Executive Officer and Executive Director

Analysts

Daniel Salmon - BMO Capital Markets U.S.

Michael Corty - Morningstar Inc.

Peter Stabler - Wells Fargo Securities, LLC

Alexia Quadrani - JP Morgan Chase & Co

Unknown Analyst -

James Dix - Wedbush Securities Inc.

Operator

Ladies and gentlemen, welcome to the WPP 2011 Interim Results Conference Call on the 24th of August 2011. [Operator Instructions] I'll now hand the conference to Mr. Paul Richardson and Sir Martin Sorrell. Please go ahead, sir.

Martin Sorrell

Thank you, operator. This Martin Sorrell here with Paul in London. We're here to discuss our first 6 months results for 2011. We had a meeting with analysts, which was webcast this morning here in London and was transmitted with the Q&A and the film of that will be available, the video of that will be available shortly. In addition, we'll be producing a transcript of this conversation, which will be unchanged. There will be no editing of it, just so we're clear, and we propose the presentation is on our website and we split it as usual into 3 areas. Paul will talk a little bit about the financial results and key figures for the first half 2011. I'll talk a little bit about priorities, objectives and strategy and then conclusions. Apologies, the press statement today, we hope you've seen and read. It's on our website as well. It's fairly long. It's long because there are a lot of uncertainties at the moment, macro uncertainties, which don't seem to have affected our micro performance or indeed the -- significantly -- or the performance of most of our clients and results in Q2, whilst perhaps not beating your estimates or analyst estimates as much as in Q1 do seem to have been pretty strong.

So we've got into some depth in the press release. The presentation is quite a long one, probably take us about an hour to do. There's a fairly significant section on digital as well as the BRICs. Our business is driven by twin pillars of geography and technology. And that, as you saw, was even more important, in the context of the first 6 months.

So Paul will kick off on the first section, and then I'll come back later. Paul?

Paul Richardson

Okay. Thank you, Martin. So turning to Slide 4, some of the interim results. Billings are up strongly at 5.2% to GBP 21.4 billion. Reported revenues were up 6.1%. On a constant currency basis, which includes acquisitions, revenues were up 8.1%. Acquisitions added 2%. Foreign exchange went the other way and took 2% off the revenues. And then, like-for-like revenues grew at 6.1%, and on a gross margin basis, the gross margins grew at 6.8% on like-for-like basis.

Headline PBIT was up just under 14% at GBP 517.9 million the half year compared to GBP 455 million the year before. The headline operating margin was up 0.7 margin points to 11% and up 0.8 margin points on a pre-incentive basis to 13.9%. On a gross margin basis, the headline operating margin is up 0.7 basis points to 11.9%. Diluted headline earnings per share were up 19.4% to 22.8p and the first interim ordinary dividend was increased by 25% at 7.46p per share.

The average net debt was down GBP 513 million on a constant currency basis to GBP 2.6 billion in the first half and the average net debt to headline EBITDA for the 12 months ending June 2011 ran at 1.8x. So on a reported basis from Slide 5, the numbers have pretty been shown to you. There was good conversion in the figures and revenues up 6.1%. Gross margin, which is probably a better indication of our true top line performance is off [ph] the direct cost, we're growing at 6.7%. Staff costs growing at 6.6%, other expenses growing at 3.6%, on profit pre bonus growing at 12.7% and post bonus profit is growing at 13.7%.

Continuing the summary on Slide 6, the margin as a percentage of revenues grew 0.7 margin points from 10.3% to 11%, and on the gross margin basis, also grew 0.7 margin points from 11.2% to 11.9%. Diluted earnings per share were at 22.8p this half year, up 19% as mentioned earlier. And I've also shown here the debt on a reported basis, which was down 20%, up from GBP 3,168,000,000 just over GBP 2.5 billion, and the improvement in the coverage ratio from net debt-to-EBITDA from this time a year ago at 2.4x to today at 1.8x. Average headcount for the half year on a like-for-like basis grew 4.5% comparing that to the gross margin growth of 6.7%.

On the statutory reported basis on Slide 7, we see the results even stronger with the reported earnings per share, up 50% from 12p last half year. This is after goodwill intangibles and other charges to 18p for this current half year. Although amortization was about the same, there was a re-measurement gain in this half year. In that, was a credit of GBP 25 million in the previous half year, the GBP 7.5 million, that's the principal difference in the reported statutory numbers half year on half year.

The growth is broken out on Slide 8. This shows that on a like-for-like basis, we grew 6.1%. Acquisitions added 2% to 8.1%. Foreign currency took off 2% to show report with sterling growth in the first half of 6.1% and EPS growth of 19.4%. If we were a dollar reporting company, the revenue growth would have been 12.8% and EPS growth would have been 32%, and if we were a euro reporting company, our euro -- our top line would have grown 6% and our reported EPS would have been around 16%.

Versus consensus on Slide 9, you can see that we basically achieved, if not beat, that in all cases the consensus, with one exception, on finance costs, which were running higher than consensus estimates. Again, this was principally caused once we have strong cash generation, the monies on deposit were earning very little relative interest compared to the cost of borrowing on the bonds that should be principally fixed. Otherwise, we met or exceeded consensus across all lines in the P&L. Including that the operating margin where we had given guidance for the first half of 0.5 margin points for the year, we've improved that to 0.7 in the first half year and certainly we hope that in the full year basis we should meet or exceed that in the Q2 [ph] Forecasts that we have received and reviewed.

On the statutory reported results for the year on Slide 10, the one additional piece of information is in terms of tax rate, which for half year fell from half year '10 at 23.9% to half year '11 at 22%. That was consistent, that is consistent with the full year '10 tax rate, and is more than likely to be the tax rate we will end the year in '11. We won't be going any lower than 22% in my view as of today.

In terms of revenues by discipline, I'll tell you in Slide 11. Remind you that advertising, media investment management, 41% revenues today, grew in this first half by 8.1% while compared to quarterly split to give you a sense of how we're trending. So in quarter 1 in this discipline, we grew at 9.3%, in quarter 2 at 7%. On consumer insight, which is 25% of our business, on revenues, we grew at 2.3%, but on a gross margin basis, which is more -- the better measure for our consumer insight is because of the direct cost playing through, our gross margin growth was 3.2% as footnoted, and comparing that half on half, the GM growth in quarter 1 was 3.8% and in quarter 2 was 2.7%. The Public Relations and Public Affairs business, which is 9% of our revenues grew at 5% in the half year growing at 5.2% in the first quarter and 4.7% in the second quarter. The Branding and Identity, Healthcare and Specialist Communications businesses, representing 25% of the group, grew at 7.3% in the first half having grown at 6.8% in quarter 1 accelerating through the 7.9% in quarter 2. So overall, the group grew at 6.1% on revenues or 6.8% on GM. The first half was fairly even with quarter 1 on the revenue basis growing at 6.7% in quarter 1 and quarter 2 at 5.6%.

Turning now to the graph on Slide 12. You can see quarter-by-quarter since the second quarter 2009, the individual disciplines and how they're performing and what you can see here is we reached a peak in terms of the fourth quarter in '10 on the Advertising, Media Investment Management of around 12% and currently are running at around 7% in quarter 2. The Branding and Identity, Healthcare and Specialist businesses have continued to improve the highest they've seen for some time at 8% in the second quarter this year.

By geography, similar analysis, so North America representing 35% of our business, have like-for-like revenue growth of 5.4% split 6.9% in quarter 1 and 3.9% in the second quarter. U.K., which was strong represents 12% of our business grew at 5.1% in the first half, having been at 5.4% in quarter 1 and 4.9% in quarter 2. Western Continental Europe, representing 25% of our business, grew at 2.9% overall for the half year having grown 1.8% on a like-for-like basis in quarter 1 and 3.9% in quarter 2.

In terms of the market that was stronger, we saw a strength in Italy growing at almost 10% in the first half, Spain recovering in the second quarter from a very tough quarter 1. France is marginally better and Germany was improving and then the first half year at a growth rate of around 4%.

In Asia-Pacific, Latin America, Africa and the Middle East. We saw growth in the first half of 10.5%. Split between Asia-Pacific, 10.3% and Latin America growth 17%. Recorded split growth in quarter 1 of 10.5% and growth in quarter 2 of 9.6%. If I were just to take the 4 BRIC markets combined, they grow -- they grew collectively at 15% organically in the first half, all fairly evenly matched with Brazil growing at 16%, Russia growing at 17%, India growing at 17% and Greater China including Taiwan growing at 13%. So overall, this group represents 12% of our revenue and was up 15% on a combined basis.

Turning to the trends that you can see on Slide 14. You've got last in, last out, you saw the strength of the Asia and Latin America business grow. In quarter 2, as I mentioned, just under 10% in the second quarter at 9.6%. U.K. is at 5% and then both the USA and Western Continental Europe are growing 4% in the second quarter.

Turning now to margin performance by discipline. If I look at the Advertising, Media Investment Management business, it grew strongly up 15% for the half year and margins improved 0.5 margins points from 11.8% to 12.3%. The consumer insight business grew at 6% in the first half and the operating margins on the gross margin basis were up 0.5 margin points to 10.3% and on a revenue basis were up 0.3 margin points to 7.5%. The Public Relations Public Affairs business grew 8% in the half year, with margins improving 0.7 margin points from 14.8% to 15.5%. And lastly but not least, the Branding & Identity, Healthcare and Specialist Communications group had a strong first half with operating profits up 21% and margin improving 1.3 margin points from 9.4% to 10.7%.

If I were to look at the same geographically on Slide 16, North America had good performance with margin improving by 0.5 margin point to 12.7% and operating profits up 7%. The U.K. had very strong performance with profits up 27% and a margin improvement of over 2 margin points from 11% to 13.1%. Western Continental Europe still growing nicely, with operating profit up 11% and margin improvement of 0.4% to 8% in the first half and Asia Pacific, Latin America, Africa and Middle East, Central and Eastern Europe profits are up 21% for the region and margins are up 0.8% from 9.8% to 10.6%.

To tell you now Slide 17 by country, we list I think the top 20 countries on a like-for-like and you can see the strength of the Asian and Latin American markets. Some markets are recovering quite strongly. Australia in our case has been not as strong as it's been in the past. You've seen Netherlands strong and Poland strong for example. And in terms of country that are still weak in the 5% or less, that will include Belgium, France, Japan and Sweden, where we're still finding it pretty difficult. I've gone through the BRIC markets and how strong they were.

So turning now to Slide 18, the categories -- of the big categories that affect us. Automotive has been very strong at over 15% growth. Financial services has bounced back and recovered with growth of 10% to 15% and personal care and drug probably our single largest category with growth between 5% and 10%, all very promising. In terms of currency, as I mentioned, this accounted for 2% decrease in revenues, largely reflecting the strength of the pound against the dollar. A year ago, the average of $1.52, currently $1.6160 for the first half of '11, a change of 6%. Euros were evenly matched half year on half year and the Japanese yen got stronger. So the profits before tax of GBP 417 million we have reported would have been GBP 425 million had sterling remained at the same level as 2010.

Turning now to major new business wins and losses as reported in the trade press in the first half 2011. Pleasingly to see our biggest single win is the Brazilian client of Claro by over being a $500 million bid -- The $500 million of billings, a very significant client for that marketplace. 2 other things to point out, I think it's pleasing also to see that Taxi/Y&R partnership, a combination winning both Revlon business and Kraft business in the first half. And also a very significant dish to win for VML in the U.S.A. of the Kellogg's digital work are very significant in the first half. Likewise, in the losses, a number losses coming through, none of these are very surprising from what we reported it in the press.

In terms of Slide 22, in terms of new business win rate, I think we performed average speed of about $1 billion a quarter. So in this first half, we're running at just under $2 billion, i.e. $1.922 million.

But pleasingly on Slide 23, we've had a slew of strong wins in the third quarter and on this page alone, there's about $2 billion worth of wins, Maxus [ph] wins some top quality clients, including only announced yesterday the JWT/MediaCom, Hill & Knowlton and Brand Union combination winning the U.S. public-private corporation for travel promotion in the U.S.A.

Now the cash flow. The operating profits are strong at GBP 431 million and cash generation was equally strong generating GBP 421 million. In terms of the use of the cash generation, capital expenditure of GBP 107 million is up slightly on the year before of GBP 90 million. Acquisition payments in total GBP 229 million, net initial payments of GBP 175 million, and you'll notice in the press release that we anticipate because of strong healthy pipeline of small to medium-size acquisitions we expect to spend around GBP 400 million this year. After share buybacks of around 1% in the first half, we were less than the cash outflow of around GBP 10 million.

Pleasingly, however, on Slide 26, you can see that we're very strong in the average net debt reduction having reduced it by 17% on a constant currency basis from just over GBP 3 billion to GBP 2.6 billion. Likewise, on a reported basis, a 90% decrease in net debt and at 30th of June, a 5% improvement compared to a year ago. Headline financial costs, as I mentioned, was a little bit higher and analyst forecasts are very much in line with what we paid last year with GBP 101 million compared to GBP 99 million. Interest covers stronger at 5.1x covered and the average net debt headline EBITDA stronger at 1.8x coverage, below our sort of target threshold of 2x average net debt-to-EBITDA.

This is shown graphically on Slide 27 and this is a reference you can see here that the historic trend in the average net-debt-to-EBITDA at the year end last year, we were at 2.1x. A year ago, we were 2.4x. We're currently at 1.8x.

On Slide 28, let's go through some of the statistics in terms of acquisition, share buyback and dividends the last 1.5 year into full year. As you can see from this, we've increased our targets now to spend on acquisitions from the traditional GBP 100 million we have to 2 years up to now GBP 400 million the current year. Share buybacks, we currently net dilution, i.e., 1% is our normal rate of dilution we've achieved that. We have been buying in the closed period for another 0.25% is around GBP 6.15. That was when we were aftermarket apart from a program trade that we have to preset before the end [ph] of June. That brought in another 3 million shares. And finally, on dividends, as we mentioned before, we're looking to increase the rate of dividend payout from the current levels which for the last year were 31% of earnings to around 40% over the medium term. As a first step in that direction, we've increased the rate of dividend, in this case by 6% but they should be around 5% faster than the rate of earnings, the earnings growing at 19% and the interim dividend therefore was growing at 25%. We're pleased with that, and now that takes us to about 33% of headline earnings as a percentage.

In terms of EPS, graphically, we're showing how we're doing. Strong performance in the first half 19.1% to 22%, and the slide on share count, only one thing to really note in terms of the change in dilution on Slide 31 was 1%, but then this year, we had to include the convertible because the EPS accretion element to it, so that added 6% to the share count, which wasn't there a year ago, which meant the fully diluted including the convertible share change was 7% but pre-convertible, i.e., on a normalized basis was only 1% down.

Martin Sorrell

Thank you, Paul, and we'll now switch on Slide 32, the priorities, objectives and strategy. And on 33, we just lay out the macro and the micro and there is a dissonance the markets clearly or dissonance between the markets and the individual results of company as we've indicated already. In Q1, Q2, companies generally beat analyst expectations maybe lesser in Q2 than Q1. And of course, the stock markets have had a vicious and a sharp correction in the last few weeks and there seems to be a difference between the macro and we've highlighted some of the trends. Clearly, there's a momentum in GDP growth outside Western markets. I was in India last week, and the Indians are all getting over 7% to 8.5% GDP growth and we're growing, as Paul indicated, in India at around twice that rate. So there's that feature, interesting in talking to one of the leading Indian companies. They are looking at possible scenarios, and one of the scenarios they're looking at is the U.S. and Western Europe having a sharp correction, not in the financial markets but in the actual markets and what impact would that have on their business, and one of their thoughts is that they would really reduce the level of their operations in the Western markets, the U.S. and Western Europe and focus on markets such as Brazil, Turkey, Indonesia and of course China and India.

Second issue is fears of euro contagion and that's been bouncing around for a long time, but it seems to sort of ebb and flow though it's very much flowing at the moment with the concerns not just about the Portugal and Ireland, Greece or Spain, but France too. We've seen the French government take measures this morning to reduce spending and increase taxation following the pattern set by the U.K. coalition about a year ago.

And thirdly, there are concerns on the management of the U.S. deficit. The debt reduction program that's been agreed between the President and Congress doesn't really seem to get to the heart of the matter and certainly there's sort of automatic regulators with the committee procedure, and if they fail to reach agreement through a program series of cuts, which gets us through the election in November 2012, and I remain with the view, for what it's worth that, that still 2013 is a critical year and if it still looks likely, I think the balance probability favors the President being reelected, but maybe with the Republicans controlling the House and the Senate and us facing a grid lock again maybe for as long as 4 years, and that's not a pretty picture and the markets don't like it.

The fourth point is commodity prices, and that increase in commodity prices impacting margins. There is some evidence over the last few weeks that this has not happened, not only commodity prices come off a bit, but in addition, packagers manufacturers are saying both in the market and to ourselves that they're managing to gain the pricing.

Political instability in the Middle East and Africa probably has increased since we last spoke to you. Events in Libya, Egypt and other markets whilst -- they might be satisfactory from a political point of view, from an economic point of view. They create a vacuum, and we still have a vacuum in Egypt and it looks like we'll have a similar situation in Libya, and Syria is unpredictable. So that whole instability and the possible impact on the oil prices is difficult to fathom.

The next point is that the tragic events in Japan. Although we have to say that our Japanese business has recovered a little bit faster than we thought it would be, including companies like Asatsu, which we have an interest and it seems that the restructuring and renewal that has taken place after the earthquake and tsunami and nuclear fallout seems to be having a positive impact quicker than anticipated.

The final point, and it's a point probably that really triggered this latest crisis, is the thought or the reality that we had to be weaned off the money drug post-Lehman in September 2008. We calculated something like $12 trillion was being pumped in one way or another into the world's economy of $65 trillion and this had to be withdrawn. I guess also what you see what might come out of Jackson Hole this week in terms of further measures to deal with that sort of issue. At a micro level, client comments continue to be that A&P they don't break out the A and the P, but when pressed, they seem to indicate that the data that we produced through Kantar and other seems to indicate that advertising, particularly in the United States, has been stronger and there is -- there's also dissonance between the U.S. where media companies by and large have been reporting better results and have been more optimistic and the U.K. and Western Europe where they've been -- or Western Continental Europe -- where they've been more pessimistic and I think there is a difference in valuations between the U.S. and Western Europe as a result. But clearly, A has remained pretty strong. P perhaps has come back a bit and we think this is linked to the idea that investing in expanding fixed capacity in an uncertain world is eclipsed by investing in the brand and the brand equity to maintain sales or increase sales or maintain or increase market share.

Efficient and effectiveness remains the key. We saw one of the biggest accounts was put into review last night, the General Motors media account, and it's interesting that in the announcement, they refer to efficiency and effectiveness being the guideline to that, and it seems the client consolidation the next point will continue and there is particularly in the media area a considerable amount of activity. I would say, generally, there's significant new business activity and particularly in media.

In terms of the micro, new markets and new media and consumer insight remain the keys. And as a result of this client search for share in the BRICs and Next '11, it is growing with intensity and not just for foreign multinationals coming into markets taking India as an example as well, but for Indian companies expanding abroad. In India last week, Mahindra, ASL, Hero are all examples of companies that are building their business not just in India but beyond.

Turning to Slide 34. We have our objectives, faster growing markets are now around 30% of our business. We raised the objective from 1/3 to 35% to 40%. New media almost exactly the same around 30% target of 1/3. Originally, we've upped that to 35% to 40%. Marketing services to be 2/3 of the group is around 60% at the moment. And last but not the least, quantitative disciplines, which over lapped, but digital and consumer insight to be 1/2 and we are pretty much there.

Turning to 35. And the pie charts just show where we are in terms of faster-growing markets and you can see that the split between North America, U.K. and Asia Pacific, et cetera, is 35%, 28% and 37%. If you include associates, difference between our revenues, our forecast by analysts at around $16 billion this year. If you include associates, it's about $19 billion, and on that basis, its 30%, 35%, 35% and the target tomorrow as we put it is 31%, 38%, 31%. So if you include the associates, we're pretty much getting near to where we want to be.

On 36, we outlined the revenues and the faster-growing markets for ourselves and the other 3 of the largest 4 and you can see that the gap continues to widen between ourselves and our competition in Brazil, in Russia, in India and China, and to get those markets are around $2 billion of our revenues, including associates.

So on 37, we show progress on an individual market-by-market basis. You can see Greater China, we have a strong growth and we thought we would hit $1 billion this year. I think it's now more likely to be $1.1 billion so it will be close to passing Germany. I would say in another year or so Germany if I remember rightly is around $1.2 billion, $1.3 billion and is our third largest market after the U.S. and the U.K. Brazil is now around $700 million and growing extremely rapidly. We have the number 1, 2 and 3 agencies in Brazil. India, $450 million. We'll probably cross $500 million next year and Russia smaller but growing very rapidly at around $200 million. Middle East you can see we didn't make much progress this year, first half, including associates is pretty much the same as last year. The black line in the 2010 column indicates revenues for the first half of the year, including associates. Central and Eastern Europe, slightly different story. We've seen some growth there and we're a great believer in the access between Germany, Poland and Russia in driving economic expansion, and Indonesia and Vietnam are rapidly becoming more and more important markets. And these slides leave off examples like Turkey, which is growing rapidly, Colombia, Mexico, which are key priorities for us as well.

On 39, we outlined the difference between ourselves and our competition, and again, you will see the relative weight to our $4 billion business in Asia Latin America, Africa and Middle East and how it compares to next biggest business at $1.7 million.

And on 40, we show media billings from RECMA by geography. You can see on a worldwide basis, we have an extremely strong and powerful position, the leader by some considerable distance overall.

On 41, we just give a bit more detail on the billings and share and revenues by markets and number of people and you can see that a growing important part of the BRICs we have some strong positions in places like Thailand, in Mexico, in Argentina, in Poland and indeed Africa as a whole.

At 42, we look at revenues by discipline. We are the only company which has a significant consumer insight. Operational though there is buried in Omnicom's $6.6 billion or $6.8 billion of not getting services. There are some research businesses too. But by and large, it emphasizes yet again the differences in the structure and with data analytics and application and technology capability of Kantar, our consumer insight business.

On 43, we look at the quantitative disciplines and the objective to be 1/2 of the group. We have 53% advertising and media at the moment, including associates that will shift 55%-45%and we want to be 49%-51%. So we're in the zone there and it will probably grow in time for that. Now I want to spend a little bit on time on digital. We spent a very -- the twin peaks of new markets and new media absolutely key.

And on 44, we just talk about really what's happening in the market as a whole. Global ad spend has been growing significantly since the disastrous year of 2009, post-Lehman, and you can see the difference between the traditional growth rates and the digital growth rates, and it's quite clear that this is rather like comparing the U.K. or the United States to China or in India. If the U.K. is growing, let's say, 1%, 1.5%, China is - has been the 12-, 5-year plan calls for 7% compound growth and they usually outperform their plans. In India, you're seeing arguments over 7% to 8.5% against America at around 1.5%, 2%. So significant difference. And in the digital area, which is 17% of client spend, so we know consumers spend 25% of their time online. We know that clients are spending about 17%, so there is again disconnect between the 2 figures and rather similar to what we see in the Afro-American and the Hispanic markets in the United States.

The key areas, our clients' focus, the search and display, particularly audience buying, that's the first one and mobile, we got to get through each of these areas. Mobile for the next 4 billion consumers, social media 25% time spent on Facebook and Twitter and blogs and everything and e-commerce is the fourth area, in all categories from autos to FMCG and that's the primary driver in the U.K. of the growth of the Internet e-commerce activity.

On 45, we just track from 2000 to today, what's been happening to digital as a proportion of WPP revenues, 12% in 2000 rising to around 30% in 2011 with the objective of 35% to 40% in 5 years.

People are fond of timelines all of a sudden, so we thought we had one, too, 46 we just track the history of digital at WPP over 3 periods, '96 to 2005, so it takes in the bubble in Internet 1.0. We established wpp.com in 1996, so that's sort of similar to the history in BRICS where we really started to build our BRICS business with China in 1989 when we had our very first WPP board meeting in China, not the operating companies. This is the parent company.

Also in that period, '96 to '05, we developed OgilvyOne and Wunderman, which are the 2 largest by far digital businesses in the world. I'll come on to that in a minute. And then, the acquisitions of smaller agencies such as VML, Bridge, Studiocom, Good Technology and Outrider and our investment in Syzygy, a separately listed company in Germany.

In 2006 to 2008, we launched WPP Digital. We acquired 24/7 Real Media, which is a core and fundamental difference. We do believe having an independent platform is the way to go being the middleman, but the independent middleman not biased because of commission arrangements or whatever to -- or target deals in terms of amount of media, but having a platform, which can advise clients on how much and where their budget should be distributed. That's why we call it media investment management. We also launched the Media Innovation Group. Then we acquired Actis, Aqua, Agenda, and the whole list of companies that you see there over that 3-year period. We launch Deliver, which is our digital production operation and we established partnerships with Google and Yahoo! and Microsoft and AOL and last but not least, Omniture.

For the last 2 to 3 years, 2009 to 2011, we've focused on launching possible worldwide, which was an amalgamation of 4 agencies within WPP Digital launching Xaxis, a platform that I'll come onto in a second and tenthavenue, which is our other home offering through Group A [ph] Which we separated. We acquired companies such as Blue State Digital, which ran President Obama's first campaign and is involved in his second campaign. F.biz, a digital business in Brazil, as is Gringo. Rockfish, which is in the southern part of the United States and very focused on retail and technology and other companies such as iBehaviour, Lunchbox and Digitaria. We also made investments in Buddy Media and Omniture, Buddy Media being the chief interface with Facebook and established partnerships with Apple, Facebook and Twitter, and I'll come onto each of those in a second.

As you can see from 47, we have a very strong competitive position in new media just as we do in BRICs. Our business double the size of the next group and that gap again does not show much sign of diminishing.

On 48, we just outline our strategy. It's 4 pillars. Digital everywhere, digital in all our businesses, expand and develop our global digital networks, G2, GroupM Search, OgilvyOne, Possible Worldwide, Wunderman and VML, establish new businesses, amalgamating Possible Worldwide and launching it as a new digital network in February 2011 as an example of that. Launching Xaxis, which is a global audience, buying business for digital media and tenthavenue, which I mentioned before focuses on out-of-home media.

So the second pillar is new businesses. Data and technology is the third pillar. We've managed $1 billion-plus in digital spend on proprietary WPP platforms, not other people's platforms, our own platforms and we have both internal and third-party technologies integrated by 24/7 Real Media and greater flexibility to use this data across media across clients and across research, and this allows us to launch new businesses such as Xaxis, which I'll come on into a second. The final area is innovation areas. That covers mobile, social and e-commerce.

On 49, you can see the size and scope of our global digital network. Wunderman will cross $1 billion shortly. OgilvyOne is over $900 million now. These are 2 digital networks, albeit they are the 2 digital global networks. G2, $300 million; 24/7, GroupM Search and Xaxis are $330 million; Possible Worldwide, $100 million and; VML, which is part of Y&R, $125 million.

But on 50, there's much chatter about how digital does not overlap with BRICs, and that's not our experience and I think not to the complete transparency. And here, with the BRICs, we’ve given you the number of people that work for us, for example, the 1,200 there that work in the digital area, the brands, Wunderman, F.biz, Casa, i-Cherry, G2 OgilvyOne, Possible Worldwide. And in the case of Brazil, revenues, including associates of $700 million and revenues, digital revenues about $54 million. In India, revenues are around $450 million, as I said, including associates, revenues here are $20 million. In Russia, revenues are about $200 million in total revenues, digital revenues $25 million. And last but not least, China, with the revenues this year, I think, will be around $1.1 billion now. China has revenues of $80 million. So there is considerable lapover and growing lapover between digital businesses and the BRICs, as the BRICs become more and more important. In India, we know, well we think, India now has 850 million mobile subscribers and 3 networks over 100 million, that's Vodafone, ASL and Reliance. And China, has I think about $750 million, we have of course China Mobile being about $650 million of that.

On 51, we just highlight that we have 3 of the digital levers as they call by independent research companies Ogilvy, VML, and Wunderman. No other company has -- holding company -- has more than one and there's one independent.

On 52, we talk about and show the first -- maybe a little bit boastful -- but I think there are history of firsts that the WPP Digital and others in the group should proud of. And in 2007, we were the first to acquire, in our industry, a major technology firm 24/7 Real Media. The technology development firm focused on audience targeting and optimization and devised the Media Innovation Group.

In 2008, we developed the user level data management platform, a DMP, which was called a ZAP platform. In addition, we developed the agency trading desk, and we were the first agency-owned demand-side targeting an optimization technology or we had that with B3 [ph] and ZAP.

In 2009, we launched the audience decision platform in Europe known as Targ.ad and the video exchange in proprietary products based on agency data, owned inventory and proprietary format.

And last but not least, in 2010, we did develop the DSP technology for real-time auction-based buying of display and then the ZAP Trader and the Demand Side Platform was launched in Asia-Pacific. So a large number of firsts.

And then, on 53, I guess we have the most significant of these firsts. I mean we have not made claims for platforms and the development of our digital business by slapping together media buying or media planning and buying firms and direct firms. We haven't thought that by re-badging that, we would achieve anything. What we tried to do is develop bona fide and technological platforms and developments and products that made a difference, and that is in our view -- is that it's a recognized leader in audience buying and it's the only global audience buying solution and it’s been launched in 13 markets. It's the first agency trading desk to offer clients a complete data warehousing solution. It's for proprietary technology that protects data and objectively measures all results without bias. We have the world's largest team of experienced trading professionals, and they're recruited, but not only from DSPs but networks and publishers. It has trading power, more direct relationships with premium publishers than any other trading desk and buying from Google and Microsoft, Yahoo! and others. It's access. It's not just exchanges. It's access to media from publishers, from networks and from supply-side platforms. And last but not the least, it seamlessly reaches audiences across displays, search, video, mobile and social media. There is no other agency group that has an independent platform of that kind.

On 54, we look at innovation for the future focusing on mobile. We have specialist resources such as iconmobile and Joule and we developed key partnerships. We're running Android competitions to promote mobile to clients and mobile's now an element of doing client plans and we've worked with Apple on iAd in the U.S. -- U.S. iAd media deals and most iAd deals for the -- that we have the most iAd deals for the European launch.

In terms of the future and dedicated social initiatives for clients, Slide 55 lists our specialist resources and key partnerships. Blue State Digital I've already mentioned, it was responsible for the first Obama campaign, is working on the second one, and has 160 professionals working on campaigns for politics, commerce and commercial clients and indeed NGOs and nonprofits. Cymfony provides analysis of social media in the blogosphere. And Buddy Media, which I've already touched on is the leading platform for Facebook. It's used by 8 of the world's top 10 brands on Facebook. In terms of partnerships, we've got close working relationships with Facebook and Twitter. We work on client development and research and Millward Brown is working on branding studies with Facebook in the research area, and of course, we're doing client trials with Twitter for their new ad products.

On 56, we just list some of the acquisitions and investments we've made in 2011, so it's the first 7 months, 8 months F.biz in Brazil, Rockfish in the U.S, Gringo again in São Paulo in Brazil, Who Digital in Vietnam and last but not the least, Lunchbox in the United States, which has strong package group and retail relationships.

What does that all add up to. Well, on 57, you can see the first half of the year $2 billion, $2.1 billion of revenues are spanning not just our direct digital and interactive networks, which is just about over half of that, but also consumer insight group and other parts of our business such as Public Relations and Public Affairs and Branding and Identity. So that's a summary of the strength and vigor of the digital business.

Let me just turn finally to Slide 58 and the following slides on our objectives. We have the 6 objectives that you're well aware of, improving operating margins, improving flexibility, enhancing free cash flow and using that enhanced cash flow to improve returns on capital employed, developing the role of the parent company, emphasizing revenue growth as margin improves and improving our creative capabilities.

59, a slide similar to what the slide before showed you in terms of profit growth and margin growth, and you can see, the recovery that we made in 2010 and the further recovery in 2011. We are now quite significantly ahead of where we were in 2008 in terms of sales and profitabilities. We mentioned in the release our margins target for this year and the budget was 0.5 margin point, 50 basis points. We delivered in the first half 70 basis points, and this is quite interesting. I think what we found this morning in the analytical response is as the markets have come under pressure, analysts and institutions are looking much more closely now at a combination of revenue growth and margin growth. And as we know, in the top 4, there have been 2 companies whose margins have gone backwards, and in one other case, there is some restructuring provision that clouds the picture in terms of what has happened from quarter-to-quarter on margins. But basically, our margin objective remains 18.3%, which is the adjusted margin from down from 20% to take account of differences in IFRS to old GAAP and also TNS. Our margin, the expectation in the market I think prior to these results was 13.9%. We've indicated that the quarter 2 revised forecast not only gives us some satisfaction on meeting the revenue or continuing the revenue growth and gross margin growth we've seen in the first 7 months of the year but also indicates the scope for some further margin improvement beyond the 0.7 that we've achieved in the first half. Now what we'd very much like to do is get back as quickly as possible to 14.3%, as I say 0.7, 70 basis points would take us to 13.9%. This year if we were to do better, for example, 0.8. It would take us to 14% but the first thing we want to do is get back to where we were 14.3%, which is the old 15% adjusted for TNS margin dilution and we feel that, as we said in the release that, that will be a considerable achievement and we're very focused on that, but you see the progression on Slide 59.

And on 60, we show how we've refilled the incentive pool. But if there's one thing that is slightly higher than we had prior to Lehman, that's on the incentives. So one of the ways that I think we've managed to get the business back on an even keel after the vicious contraction in '09 was in the incentive pools. We have -- if you look at most analysts forecast, they're anticipating an EBITDA this year of about $2.5 billion, $2.6 billion, $2.7 billion and on top of that, $500 million of incentives. So our pre-incentive EBITDA is as high as $3.2 billion. I'd just like to point that there are trailing EBITDA is GBP 1.5 billion. Our market cap this morning at the open was about GBP 7.5 billion so we are trading at 5x EBITDA, and we've pointed that out in the press release.

So on 60, you see the flexibility. We're back to almost 7% in terms of flexible variable cost. That's just not incentives. It's freelance and consultants, too, but you can see that there's not a lot of flexibility into the system. In fact, in the first half of the year, incentives were 23% of operating profit before bonus and taxes. On 60, a little bit above maximum target of 20.

On 61, we review our free cash flow and how we're using that to enhance share and value buybacks and dividends. Obviously, the 2 key areas we've been buying back a little bit of stock. We were in the market slightly close period. We are able in agreement with the stock exchange to have a program by during a close period. If we set it out before the close period starts. And you can see that we're also increasing the dividend. If you extrapolate this morning's price, what people anticipate in terms of dividends, the yield would be about 3.7%, 3.8%, so the dividend has grown in the year. And I think theoretically, we're of the view having talked to a number of institutions and analysts that it is better for us to focus on increasing the payout ratio from 31%, it was last year, it's now 33% to 40% over a period of time rather than focus totally or in a major way on buybacks. If you look at the history of buybacks, usually companies have bought at the wrong time. They've bought too high and where they've had the resources rather than buying when they didn't have at low point.

On 62, we show what's been happening to the dividend payout ratio. And as I say, last year, it was about 31%. This year, it's around 33%, and the objective is to raise it into the 40% area in due course. The dividend's being increased you'll see by 25%. That's about 5 points above the diluted earnings per share growth and I think that's a guideline to what we will do over time.

I would just summarize the acquisition approach on Slide 63. There is a very significant pipeline of reasonably priced small and medium-sized acquisitions. We started off the year taking the constraint off that we have at the time of the TNS acquisition a couple of years ago. We said that until the debt-to-EBITDA ratio is up to 2x, we wouldn't spend more than GBP 100 million, so we've taken it up. We indicated a spend of GBP 200 million. We're now indicating that will be GBP 400 million.

There's a lot in the context of new markets, new media and consumer insight and you can see that on 64. The acquisitions that we've done so far this year and how they fit in, in a sort of Venn diagram between the fast-growing markets and the Quantitative and Digital.

And on 65, we just highlight the others that we've done outside it, for example, Scholz & Friends in Germany, a $200 million revenue agency, fine creative reputation, very strong in Germany and Eastern Europe, and this backs up our views on the new and fast-growing markets we think of Germany, Poland and Russia. And we will continue to reinforce clients like we do with St. John and Ford in the U.S. in terms of the dealer networks and maybe 1 or 2 of those 2.

On 66, we've touched on the creative capabilities and reputation. This is about recruitment. It's about recognizing greater success. It's about acquiring creative businesses like Taxi and others, by placing greater emphasis on awards and we're very pleased and proud by what happens in Cannes this year. The first holding company line ever awarded by Cannes went to the group, and I'd just point out that the qualifying revenues that we have probably at the smallest of those big 3. So if you did it on effectiveness basis, the gap would be even more significant because obviously, for the moment, at least research doesn't count into, and that's about $4.5 billion of $16 billion doesn't count into what we do or what is awarded at Cannes.

So turning finally to the conclusions on 68. 2011 did start strongly. We're pleased with the results and the U.S. and the U.K. both showed like-for-like revenue growth over 5%. I'd just point out that revenue growth is around 6.5% and it stronger than last year, which is 5.3%. Our Western Continental Europe just delivered almost 3% like-for-like growth despite a very difficult environment. One of the things we're seeing happening as the growth rate slows in the U.S., it is being not more than compensated or not totally compensated by other regions, but Western Continental Europe does play a part because it's coming from such low, low comparisons. However, the chief strain has taken nothing, I'll put it that way, by the faster-growing markets of Asia and Latin America. Middle East continues to be issues after [ph] there is extremely positive and we think they continue to accelerate and they've reached 12% of like-for-like revenue growth in Q2 as the U.S. has slowed down a bit, but still performs better than we would have anticipated a couple of years ago. We've exhibited good cost control, 0.8 margin .80 basis points before bonus, 70 basis points after most of that margin improvement, some of it's come from a reduction and severance. Some of it's come from improvement, rationalization, property cost and stock cost of revenue ratio is a whole remain constant and moved up slightly, and that reflects our increased investment in talent. We've added 5,000 people in the course of year-on-year, 2,500 since the year end in the last 6 months. But most of that, 85% of that increase, is coming in markets such as Asia-Pacific and the U.K. and Latin America where we're seeing the growth. Cash flow is very strong in the first half. Net debt was down on a daily average basis by GBP 0.5 billion, about $750 billion -- $750 million versus the prior year and on a daily average basis. And the average net debt to headline EBITDA ratio is now reduced to 1.8x for a trailing 12 months in line with our strategy.

On 69, on the outlook, the expectation is I think for the U.S. to slow. It is compensated not totally but mostly by Western Continental Europe, by Asia Pacific, Latin America and Eastern Europe. Our full year Q2 revised forecast, and we've gone through in probably too much detail in the press release, how we've built this up. The budgets were 5%. The margin was budgeted in 0.5, 50 basis points. Q1, we took the revenue forecast up to over 6% and we said nothing about margins. But margins have come in at better at 0.7 or 70 basis points. But Q2 RF is remarkably similar or very similar to what we saw for the first 7 months so you can take the guide from that. And then margins, we've indicated, as Paul has mentioned, that the Q2 RF is indicating further improvement over the 0.7. I should say that when the Q2 RF was prepared. It was prepared in July, it was reviewed by the parent company in New York the first 2 weeks of August. So the first week was a relatively quiet week market-wise. The second week is where no business increased significantly, and we saw the shock in the equity markets. So these forecasts were done at the time when people were justifiably nervous about what's happened. I have to say we've seen no impact as yet and it's probably unrealistic to expect it on client behavior. This is a holiday period, which may be a part of the problem and part of the low volumes, a lot of people away. Hedge fund activity may have exaggerated the swings that we've seen in the market. It seems to me that we have to wait until people coming back from the Labor Day in the U.S., from the August holidays here in Europe. But I don't think there will be a significant impact in the fourth quarter.

If you go back to Lehman in September 2008, there was little or no impact in the fourth quarter. We were flat. The impact was felt in the first and second quarters of 2009 when we budgeted minus 2% and minus 4%. I think it was over the first half and did minus 8% and minus 11% in the first 2 quarters, although it did come down a little bit in the third and fourth quarters. So I think most of our clients operate on a calendar year basis and you won't see any impact, if there is any, from what's been happening until then. So I think we'll be looking carefully. We're going to use our cash flow to take advantage of acquisition opportunities, which support the growth, the 3-point growth strategy. And we'll use buybacks where we think there are anomalies in the value, and that clearly has been the case in the last few weeks.

Finally, Slide 70, we're well placed by function and by geography to take advantage of industry trends. We will continue to invest in our digital tools and infrastructure. In Wunderman and OgilvyOne, we have the 2 leading truly global networks, our digital networks. As far as our financial ambitions are concerned, for this year, we are keen to exceed our growth targets of 10% to 15%. To remind you, organic growth should give us a 5% to 10% lift in profit EPS acquisitions and other 0.5. And if anything, we want to try and do better than that, whilst maintaining our net debt-to-EBITDA ratio at around 2x. And again, on a trailing basis, we're running at 1.8x with a stronger second half. There's a difference between ourselves and our competitors. There's quite a marked difference in terms of the pattern of revenue and profitability first half to second half.

And finally, as clients focus on BRICs and Next 11, the focus that we have on these new markets and new media and consumer insight is going to become in our view even more effective.

Okay. With that, operator, we're taking about an hour over to any questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our next question comes from Dan Salmon from BMO Capital Markets.

Daniel Salmon - BMO Capital Markets U.S.

Mr. Martin, you laid out a nice timeline about WPP's investments in technology and data and the march-up to the launch of the Xaxis platform, and I think there's been a lot of confusion and really misinformation in the marketplace about the holding company's role in the audience buying business. And so can you just tell us a little bit about how clients are looking at that today? Is it mostly experimental at this stage? Are there clients who are starting to move the bulk of their spend over there, smaller ones presumably, and then lastly, how they're viewing it in conjunction with other of the group services?

Martin Sorrell

Well, I think it's just been launched. It's early days but we are -- we could go through all of our existing relationships and obviously when we've pitched new business, we've had some considerable successes in the first half and the second half in new media, but particularly in the second when Xaxis has been up and running. We're seeing -- we're getting good traction. We obviously have to talk to clients through what Xaxis means in terms of operations and what difference it means to our previous operations. So I think the answer, Dan, is we're getting a mix of both. We're getting new clients who come in. We're moving existing clients where they agreed to do so on to the Xaxis platform and the traction that we've got primarily, and this is effectively a joint initiative by 2 companies 24/7 Real Media and GroupM. This is working extremely well, probably better than we anticipated. And I think we launched, as we said, in 13 markets and it will be rolled out in further geographic markets in short order. So it's a mixture of the things that the areas you identified.

Daniel Salmon - BMO Capital Markets U.S.

Okay. And then just one follow-up, in the press release you mention at one point, how cooperation and coordination is a focus, and I know you've talked about that quite a bit over the last 12 months. But in particular, there is a line here which mentions that it's being built more into short-term incentive plans. Can you maybe explain a little bit about how employees are being compensated for cross marketing a bit more?

Martin Sorrell

Well, we try and identify -- I mean when we set -- we've got a funding mechanism, which tends to be generated by profit margin improvement although revenue improvement might be part of it as well, and then the allocation mechanism are those things so that's the allocation by individual from the pool, from the fund that's being generated by growth in profit and margin. The allocation is made in relation to principally it's always on a basis of 3 quantitative objectives and 2 or maybe 3 qualitative ones. One of those qualitative ones when we're seeking to get cooperation and people working together is it might be in relation to a specific client. It might be in relation to a specific territory. It might be in relation to more general methods -- and it may be -- the difficult thing about it is, often it is difficult to measure quantitatively and there has to be some judgmental view, which often frankly results in some difficulties as to whether people are being cooperative or not. The biggest issue that we have is trying to leverage all the knowledge and capabilities subject to the conflict issues that we have for our clients. Our clients want the best people working on their accounts. They don't worry where they come from. And if you take Ford as an example where we have established team Ford, a team Detroit in Detroit. I was in India and we formed a team Ford in India, in Shanghai, in São Paulo, in London. It's a very good -- these are genuinely seamless businesses. It's not BS. We're just bringing companies together, this is one P&L in which constituent companies have effective have internal shareholdings, and it works extremely well. And we're applying that model in many other instances and you know that the top 24, 25 of our top 30 clients, which were about 1/3 of our revenues $5 billion last year out of $15 billion, slightly more this year obviously. We have team leaders for the top 24, 25 accounts, and we have country managers, at a level, for example, in India where I was last week. We have a country manager who tries to get people to work together across the group. So it's very difficult to measure the cooperation issue quantitatively. It has to be done qualitatively and it's like the 360-degree analysis or evaluations that you see done in investment banks. The consulting companies, I think those 2 types of organizations tend to do this in the best way, and we're seeking to copy them. But what we're saying is you win, if you're cooperative. You lose, if you're uncooperative.

Operator

Our next question comes from Alexia Quadrani from JPMorgan.

Alexia Quadrani - JP Morgan Chase & Co

Martin, you've been in this business for a while and have obviously seen many cycles. If there was going to be a slowdown, I guess what segment would you see it in, first? And sort of a follow-up to that question, when would you expect to see some indication of 2012 budgets from clients?

Martin Sorrell

So just on that last question, Alexia, in relation to 2012 budgets, what did you say?.

Alexia Quadrani - JP Morgan Chase & Co

When would you begin to see some indications?

Martin Sorrell

Okay. Well, you're making me sound very old. I've seen all these cycles. I mean on the segment, I would guess you would tend to see it in financial services. Autos might be, although this time around, we've got a different auto industry, an auto industry that to the top 3 went into chapter 11 and are being slimmed down. They become more focused and they're looking at the growth markets. I would tend to say financial services, travel, airline, those areas -- autos, that's where I would anticipate it. And on budget for 2012, I now got a meeting later this week of about 55 CEOs at an organization. And actually, we were putting together some poll questions for them, and the questions we're going to ask, which I think they will respond to because it's sort of anonymous voting is, given recent events -- had an impact on your existing budgets for this year. Is it likely to influence your thinking for next year. Our planning process, Alexia, is we have our group strategy meeting at end of September in New York. For that, people are preparing a revision of that 3-year plan, which we do every year, and we're setting out criteria and questions for that. And then, the budget preparation really is starting now going into September and October, and we have a budget review as we get into October and November. So I think we -- usually when we meet with you and others in the December institutional conferences, in our early December, middle December, we give an indication of where we are. This morning, when I got asked a question and, in fact, I've been asked a question pretty incessantly by journalists and press and TV and all the others and analysts, I mean, if you just think about it logically for a minute, irrespective of what's been happening in the markets, there was some downward revisions to worldwide GDP I noticed last week. One was from Goldman, which I think went from 4.1% to 4%. One was in Deutsche Bank which went from 4% to 3.8%, if I'm rightly. If you take that as a sort of guidelines for a minute, and it's not perfect, but it has been prepared pretty later, pretty much lately. And if it's, let's say, 3.5% to 4% or even 3% to 4%, I said this morning 3.5% to 4%. If you then look at the events next year, you have the London Olympics and that looks to us a strong event. Timezone is very good for the transmission for television and in fact for everything else. Organization will be good. Obviously, the London riots didn't help matters, but maybe in a way the best way to make sure that things are even better run. So that's London Olympics strong. European Football Championship smaller but also has an impact particularly in Europe, which is where it will be in Eastern Europe. And then, last but not least, and probably in the way the most important is the presidential election and we've seen a lot of activity already. And with the Supreme Court decision, which frees up lobbying a bit more and spending a bit more, the figures are being tossed around the $4 billion. Now $4 billion place $500 million for the traditional industry and $500 million outside, which we operate in as well as about $1 trillion. In the traditional industry, it looks like that one event is going to deliver sort of 0.5% to 1% growth. Political is new money mostly. Obviously, Olympics and Euro championships can be existing money switch, but there is new money there as well. So I look at that 3.5 to 4 and think GDP growth, advertising is going to grow at GDP growth. I actually think we're at a stage in the cycle going back to what I know about cycles, and every cycle is different, so it's dangerous to generalize. But I would say advertising will grow particularly as a proportion of GDP, particularly in the markets that we've been talking about, the BRICs, Next 11. India, for example, is under advertised and under-branded, and that's because Indian companies going abroad are in their infancy, although last week when I was in India, Mahindra, ASL, Hero are all building international and national campaigns. So net-net, I look at next year and think and look at the markets and think to myself is there something wrong here. I mean the markets are rarely wrong, but the markets also frequently go too far one way or the other and maybe what we've just witnessed is a correction in part for the markets going too far in 2010 when they recovered from 2009, a very, very tough year. So I retain my concern not so much about '11 and '12, and maybe I'm wrong, but about '13. And I mean by that -- I mean after the presidential election in America. America is still a $15 trillion economy. It's 3x bigger than China despite China's growth, and what happens in America is still the most important thing probably from an economic point of view, and I don't see a willingness to deal with the deficit issue until after the election for political reasons. So I'm a little bit -- again, it's so difficult to know and I've said this morning we don't know and a lot of this is supposition. But if you look at our statement, if you're a bull, there's stuff there, if you're a bull. If you're a bear there's stuff there for a bear, and that reflects our indecision or my indecision about frankly where it will go. Pushed to the wall, and I was talking to the head of the big banks in New York last night, pushed to the wall and he said pretty much this, it seems that the market has overreacted at least so far, and we'll see how things go. On valuation, I can't believe that WPP is anywhere 5x trailing EBITDA.

Alexia Quadrani - JP Morgan Chase & Co

And just a follow-up on your earlier comments, in terms of business segment that you operate in, is there one maybe it's media buying and planning PR, where you'll see particular early sensitivity if there was to be any kind of movement, one way or the other actually?

Martin Sorrell

Well, I mean, if you track media planning and buying, if there are cuts coming, obviously, you would see it there. I mean there is -- I'll come back to one of the things I said during the course of the presentation, Alexia, there is a big difference between what we're -- how you're reacting in New York and how your counterparts are reacting in London. And that's because they see ITV, Media Sets, TF1, and ProSieben and those companies are operating in markets where there is little or no growth. America was quite strong last year. You see Philippe Dauman, Les Moonves, Bob Iger, Sumner Redstone, Rupert Murdoch, James Murdoch, and they have big U.S. businesses and by and large, they are being more bullish by temperament. But I don't think that's all the explanation. And there is prior to the market crack and even post the market crack, multiples in our industry, and we said this in the statement, in New York and America are higher than over here. Now historically, there has been a difference, but it's a wider difference now, a bigger difference than it was before. It doesn't make too much sense. If you're looking at a global company like ourselves. U.S. is an important part of our business. Western Europe is, but it doesn't to my mind fit together, logically. But who knows markets are seldom wrong and although they do go too far one way then the other.

Operator

Our next question comes from James Dix from Wedbush.

James Dix - Wedbush Securities Inc.

I guess I had one housekeeping question on the U.S. Paul, maybe you have this. Do you have the figures on organic growth by quarter in the U.S, as distinct from North America or are those essentially pretty much the same?

Paul Richardson

James, I don't have it right at hand, but I don't think there's any material difference to be honest. I mean, Kantar's growing too. So it's just -- you can say the trend is very similar.

James Dix - Wedbush Securities Inc.

Okay. So then, that's kind of my question. What is -- it seems like among the major regions, North America is where you saw the biggest slowdown in the second quarter versus the first. I'm just -- any color you could give on [indiscernible]? So what is your outlook for the full year, in the U.S. in particular, as distinct from kind of the continuation of the first 7 months of growth. You kind of indicated qualitatively, you expect it to slow. I'm just trying to get a little bit better sense as to how much it's slowing and why.

Martin Sorrell

Well, I think what we've said before is it's -- a lot of interference on somebody's line. I think what we've said before is what we'll say again, which is in the U.S., we have seen a slowing down. U.S. did perform like an emerging market last year. It has been strong in the first 7 months, as you know -- in the first 6 months, as you know. It is slowing. But to date and in our forecast, any slowdown there in the growth rate has been not more than counterbalanced because you've seen the Q2 revised forecast is slightly, as we were talking about, over 6% in terms of revenue. And in the Q2 we're implying that it's very similar to the first 7 months, which was slightly under 6%. But that's of the revenue. The gross margin, of course, it is over 6%. Any slowdown in the U.S. growth rate will be compensated not totally, but to a large extent, by Western Europe picking up, and Asia Pacific and Latin America and Central and Eastern Europe's stronger growth rates. And Africa and the Middle East, there's a difference between Africa and the Middle East. Africa by and large continues to grow. The Middle East is having more difficulties. So I think that's where we are on the differences in growth rates.

James Dix - Wedbush Securities Inc.

Yes, I think you may have indicated that in the U.K. Analyst Meeting, that by the end of the second quarter, the U.S. was growing somewhat similarly to Western Continental Europe. I just want to make sure that, that's right. And is that kind of the right indication?

Martin Sorrell

That is correct.

James Dix - Wedbush Securities Inc.

And is that a fair assumption for kind of the outlook for the rest of the year, that it'll probably be growing to similar to Western Continental Europe?

Martin Sorrell

I think that's a reasonable assumption. It might have even trouble getting to that level, but again, I come back to the point, as you look at it overall, the one counterbalance, not perfectly, that is counterbalanced by the growth that we're seeing elsewhere.

James Dix - Wedbush Securities Inc.

Okay. And then I just had just one other question on margin. You've indicated that margins are now generally getting close to pre-Lehman levels pro forma for TNS. Are there any particular regions or disciplines where you expect there's going to be a continuing improvement in the performance or where you've seen, as compared to pre-Lehmans, the margins are now higher in those businesses and you expect that to continue than where they were before Lehman?

Martin Sorrell

Yes. We're getting a lot of interference on the line. I don't know whether it's your line or anybody else's, but there is a lot of background noise. Somebody is listening to the call and has not gone mute, so I'd appreciate it if somebody would just shut that down.

That sounds a bit better. I think you can't make broad generalizations. I think if I was -- we are seeing some differences. In other words, whilst the overall margin is getting back, if we say 0.7% on 13.2% takes us to 13.9%, just round it up, say, to 14%. So we're in 30 basis points of where we were. If you said that was the same for the average, I think our media businesses, our advertising businesses, advertising and media businesses, our digital businesses, our faster-growth markets, where you're seeing better-than-average revenue growth, you're probably seeing better-than-average margin growth. And I think that will be pretty consistent across the whole portfolio. So where you get greater revenue growth, that's where you have the opportunity to leverage margins. Now some of the businesses, if they didn't miss a beat in 2009, they weren't as challenged as other parts of the businesses. And that would be new media and that would be BRICs and Next 11 in the context of 2009. There are some countries that almost did not stutter at all when they went through 2009. There are also some functions that did not stutter at all, and I would say media and digital would be it functionally and BRICs and Next 11 or the growth markets of Asia and Latin America and Africa and the Middle East and Central and Eastern Europe would be the countries. The flip side of that is true as well. But clearly, traditional advertising was punished by the recession in 2009. Project-based businesses like branding and identity had a tougher time. Healthcare, actually, I think held up reasonably well. But public relations and public affairs did not. Going back to Alexia's question, whereas there used to be early signals, there weren't so much early signals of a decline because social media and new media made editorial publicity more and more important. So I think that's a broad generalization, but if at the heart of your question is, is there scope beyond getting back to where it was, our long-term objective is, we said, is the 18.3%. That's tough, but if you took what we do normally, which is to go through every segment of the business, all 4 or 5 segments, find the top 2 businesses, run their margins and say, "What would others do", you can get up into that territory. We're talking about in the longer term. What has to happen is you have to be firing on all cylinders at the same time.

James Dix - Wedbush Securities Inc.

Okay. And I just had one other thing on social media. I mean it's -- you've had more experience with it now, and I don't know whether Zaxis is giving you any more insight into how budgets are flowing to use social media and which other media are contributing budgets to social media, but I was wondering if you could give any comment as to where you seeing moving money -- money moving from into social media, and any broader sense as to how much social media is really affecting the media plan at this point.

Martin Sorrell

Well, I think it's still early days. And I think I certainly would be of the view and I think others are of the view, although that it's not a unanimous view on it. But I'd certainly be of the view that it still -- the jury is still out. But if you look at the volumes, and you are using the phrase "social media", so I assume we're excluding search and display. And if we just focus on social media, e.g. Facebook and Twitter, it's still very early days. The sort of volumes we're talking about in relation to traditional media is still in its infancy, as is the case with mobile. Having said all that, the phenomenon I think that we see most is what we call -- we talked about being the twin peaks phenomenon, i.e. if you watch somebody watching free-to-web television, pay-TV, cable, satellite, you will notice that they not only use devices, they're not just in front of the screen, but they're using other devices at the same time, maybe to transmit social messages. That cannot be monetized, but are adjunct and are editorially influenced. So I think you still have the issue of that terrible word, monetizing or monetization of social media. And again, and we're still -- it's still in its very early days. That doesn't mean it's not powerful. It doesn't mean that it's not increasingly powerful, but it does mean that the attempts to monetize it have not been -- have not gathered the momentum yet that either people hoped for or that might come over periods of time. So still early days. And I don't think you could come to a conclusion that money is being shifted from one medium to another. And you are left with the conclusion that the medium that has suffered the most is newspapers. And that's not just because of the power of digital. It's also because felling trees and distributing newsprint isn't very efficient or environmentally friendly. So that's the area that has been, I think, most affected by the shift, but that's just not social media, that's generally. But it's too early to judge, and for you to be able to say newspaper and periodicals have come under the heaviest stress and strain -- for you to come to a conclusion, I mean I think, television has shown a resurgence, particularly in the U.S., and you see this. We make reference in the release that the TV media companies in America have done pretty well and are pretty bullish.

Operator

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

Peter Stabler - Wells Fargo Securities, LLC

Just a couple of quick questions on Kantar. Could you give us a little bit more color on the component parts? You've mentioned the weakness in the spoke business. Does that stretch across Millward Brown, TNS custom and the media side, or is it really just the custom business? And then secondly on the deceleration from Q1 to Q2, could you give us a little geographic color, if possible. My understanding is, is that Kantar is overexposed to Continental Europe versus some of your other reporting segments, yet we saw an improvement sequentially in Continental Europe. So just trying to reconcile that if there's anything at all.

Martin Sorrell

Yes. I mean, on the Continental Europe point just now. I mean, we're talking -- we did see an improvement, but again, from a low base. So in the context of the growth that you saw for Kantar, I'm not -- and I think the other, not that significant. I think Kantar is a more European business, and the custom business is a more European business. As far as the segments are concerned, it's principally -- and we said it was a $4.5 billion business, $4 billion business. Roughly half is in custom and roughly half is in syndicated or what you might term "semi-syndicated". Millward Brown is not in custom, it's in semi-syndicated. The issue, and as I said in the U.K. Analyst Meeting this morning, where we are focused on is the custom business. And whilst from a profitability point of view, a margin point of view, synergies are being delivered, so pretty much in line with what we thought they're going to be on the acquisition. And we're getting the rationalization benefits. On the top line, we've not done as well as we wanted to do and I made comment in the meeting this morning that Eric Salama, who runs Kantar, is getting more and more involved in the custom side of the business. He's looking at the talent that we have and how that needs to be, if we have any holes or any issues to deal with and how that needs to be managed. He is looking at the structure, not from the point of view of restructuring, but responsiveness, and I think -- responsiveness and speed, particularly in a growing digital world. And the last thing is the balance between revenue growth and margin growth. I think probably, we would acknowledge we've focused probably too much on the margins and too little on the revenue growth. And we're developing ways of trying to ensure that revenue growth is enhanced. Having said all that, it's also given Ipsos' acquisition of the Synovate business, which I don't think is completed yet, but is getting there and will go through I guess, that will throw up some opportunities for us in the custom business. Synovate is largely a custom business. There has already been, to our knowledge, a little bit of dislocation as a result, which is a natural thing. If you have 2 businesses, you have to combine the 2. The previous CEO of Synovate said as much in an interview about 6 weeks ago, that you have 2 competing business obviously in India, and we've already seen some dislocation there. And these things happen when you try to merge 2 businesses, and particularly if you try to change the brand. So I think there will be some opportunities coming out of that. But I have to say, in all frankness, that with the growth rate, top line growth rate, of the custom part of Kantar has not been as good as we would like to see it. You should make the adjustment to the gross margin net adds, another percentage point you'll see that we put the gross margin percentages in for the like-for-like for the company as a whole and indeed for the U.K. because that's where it has the biggest impact. On your comment on Europe, Kantar is big not only in Western Continental Europe, but it's big in the U.K., too. And of course we've had a reasonably good time in the U.K. as a whole. So overall, split it into 2, custom and syndicated, and it was roughly half and half. We're looking at how we can fill any talent holes that we have, how we can respond more quickly, particularly in a digital environment. And last but not least, I think this is probably the key one, is get people to focus a little bit more on our balance between revenue and margin. Now certainly, when you look at the results of some of our competitors, although the revenues are greater, the margins have been very volatile. I mean, I'm not talking about the last quarter where we saw companies slip on margin targets or margin expectations, I'm just talking about, on Synovate for example, which is probably the closest from a custom point of view. GfK does have custom. We don't get a Nielsen, a full Nielsen breakdown on those heavy panel business there at Ipsos. I don't think it gives a full breakdown of it, but it seems to us that we focused more on pricing and margin and not enough on revenue and revenue development.

Peter Stabler - Wells Fargo Securities, LLC

Two quick follow-ups on that. To what degree is pricing pressure an element of the custom sluggishness here, or is it really a demand issue? And then secondly, over a longer period, 2012, 2013, would you expect the growth rate of the whole Kantar division to more closely resemble group performance?

Martin Sorrell

Well, it's difficult. I think there is more competition. If you said to people, "Why is syndicated better than custom?" Syndicated is repeat business. Syndicated, you can roll out in different markets, you can roll out the same product. So you start on Millward Brown, all of it is syndicated. Part of TNS was syndicated of Kantar Worldpanel. You roll it out on a market-by-market basis. You can do that by amortizing the cost elsewhere. There might be some variable costs, but it's a big opportunity. And if not instantly profitable, I mean, early profitability. Custom is project-by-project and therefore, often, in order to get business, there will be -- I think it's more of a pricing issue than a demand issue, actually. Pricing will be -- is quite important. So I think that's where the focus is. And just as we've said in the release, we referred to dumping our business and nicking as we've crudely put it, nicking of talent. That, in our view, has contributed to some margin pressure. Two of the big 4 missed their margin targets in Q2. A third one, there was some restructuring costs that were taken in the first quarter, or actually I think in quarters of last year. So that altered the margin calculation in a way in the following quarters. None of those businesses have significant consumer insight businesses or custom businesses, but I do think that in the custom research business, it is acutely price-competitive and clients and procurement departments will seek to take advantage of that. Obviously, the consolidation of Synovate and Ipsos may make one less, may make pricing a little bit more resilient, apart from the dislocation that I mentioned.

Operator

Our next question comes from Michael Corty from Morningstar.

Michael Corty - Morningstar Inc.

First, I have to say it's refreshing to hear a CEO realize the tendency of corporations to mistime share buybacks, buying heavy and aggressively when outlook is rosy and everything looks clear and the stock price is near an all-time high. So it's refreshing to hear a balanced approach to capital allocation. My one question is on -- in regards to the account wins and losses. I understand that client movement is a natural part of your business. But from your comments, is it any greater than normal this year? And if so, are there any industry-specific or economic reasons for more client movement now than in past years?

Martin Sorrell

My own view is that ever since Lehman, there has been more pressure in the system. In other words, the shock of that weekend when a number of businesses, and big businesses, well-established businesses, valued businesses, and margin [ph] respected business. I mean, if you remember Jeffrey Immelt, I think, said in Too Big to Fail, Andrew Ross Sorkin's book, that they were 48 hours away from being unable to refinance the obligations of GE Capital. That was a pretty shattering thing. Warren Buffett referred to it as, I think, it was America's financial Pearl Harbor that weekend. So I think that interestingly, that probably has had more of an impact on corporate thinking than maybe even consumer thinking, although I think it's had an impact on consumer thinking too. In a relatively low inflationary environment where clients didn't have pricing power, which certainly the case pre-Lehman since the early 90s, and until recently, post-Lehman, procurement and finance has become more powerful. And I think activity, and I have not -- we've not done a calculation, I know we've done it in previous years, of the proportion of the business that seems to have shifted. But I do think clients want effectiveness and efficiency. Immediately after the weekend, it was in September 2008, it was effectiveness, efficiency and liquidity. But it's really very focused on effectiveness and efficiency, and it still is. I mean, in what is probably the biggest review that's been announced so far, which as of last night, from General Motors, which I think is about $3 billion or $3.5 billion in terms of worldwide spending. It excludes China and India I understand, but it involves 2 of our competitors, or 3 of our competitors, private primarily. That was -- in the announcement, it referred -- it actually used the same phrase, effectiveness and efficiency. So I don't think you should be that surprised that clients are looking for opportunities to reduce cost. We've said this time and time again, whether we like it or not, they want more for less or the same for less. Sometimes, they'll say okay, give us more for more and that's in the form of a consolidation. But there is this general pressure, and I think it would be naive and a bit disingenuous of anybody to suggest otherwise. Whether the pace of activity, I think media -- I mean, I can remember media reviews being at this pace if not higher a few years ago, a couple of years ago. So I wouldn't say on the creative side there is stuff. Yesterday, JWT and Mediacom and Hill & Knowlton and Brand Union as Paul mentioned, won this new $200 million tourism account, which is part of the administration's program. So I think there is stuff. We've had the consolidations of SCJ, which was media and creative. So again, it's there. I think corporate attitudes have changed post-Lehman. They have got keener on cost in the sense of effectiveness and efficiency, but frankly, they've also gotten keener terms of wanting us to do better work. So that's all part of the territory. I mean, we want to do better each year. We want to be more effective and more efficient. You lot push us to do that, so welcome to the club.

Operator

Our next question comes from Mark Greenberg [ph] from Chivalrous Bank [ph].

Unknown Analyst -

With the economic concerns going into 2012 and 2013, are you sharpening your pencil as you look at costs? The divisional CEOs tend to be a little bit more optimistic than you might be especially as you mentioned the economic stresses we've had in the past. So do you try to hold the line on spending and say, "Well, I know he's asking for another 20 people for this division, but maybe we're going to -- should only really plan for 17 people or 15 people" or whatever it might be?

Martin Sorrell

Well, I think as we indicated in the release, I mean we're as shocked as anybody by what's been happening in the equity markets. And I refer to the valuation of the business. And I was told many years ago, actually by a guy called David Tucker MMG [ph], never to talk about share price. I'll try and refrain from that, other than saying the valuations, it's not just us. I mean, and not just our sector, it happens elsewhere, seemed to be a little bit overdone. Or the reductions [indiscernible]. Having said that, I take your point. We've said I think at 2 or 3 points in the release, and maybe the release is too long and too turgid and too interminable, but we said we continue to -- we will look very carefully at headcount. We will look at spending plans, keeping an eye on that, and that we are going to be cautious about it. We have tried to manage the headcount. The attrition rates have risen this year, so the turnover rates have risen. And in our first quarter call, I think I said -- I certainly said it in the U.K. and I think it I said it in the U.S. as well, that if there was one thing I was worried about, it was that attrition rates had risen. Now part of that is due to the fact that our business is growing so rapidly in the faster-growing markets, and attrition is not necessarily a bad thing in the fast-growing markets. In fact, we were at the conference a few months ago and compared notes with the leading consulting companies on banks in China, and their attrition rates were even higher. So we get some flexibility in a way because of the attrition rates. But we take your point. We are, you said, sharpening our pencils. We are looking very carefully at what's happening in the business. I think it's too early to come to a view as to whether client thinking has changed. Having said that, Mark, if you -- as you and I have read the papers or our iPads for the last 4 weeks, 5 weeks, seeing what went on in Washington, see what the French government did this morning, what Angela Merkel and Nicolas Sarkozy failed to do in terms of bringing in extra measures in Europe to deal with the euro. It seems to us that you have to be more cautious. And if you read this stuff, consumers are going to be more cautious, and I've just said that consumer -- the corporates were cautious before this stuff. So the simple one-word answer is yes, we will sharpen our pencils.

Operator

There appear to be no further questions at this time. Please continue.

Martin Sorrell

Okay. Thank you very much, operator. Thank you, everybody, for joining our call. If you have any further questions, Paul and I are here in London, but reachable by e-mails. And Chris Sweetland and Fran Butera are actually in London as well, but on e-mail at any time. So any further questions, please let us know. And thanks for joining us. Thank you, operator.

Operator

Thank you. This does conclude the WPP 2011 Interim Results Conference Call. Thank you for your participation. You may now disconnect.

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