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.

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?

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…

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…

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

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?

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.

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?

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.

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?

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?

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,…

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.

Our next question comes from James Dix from Wedbush.

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?

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.

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.

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.

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?

That is correct.

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?

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.

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?

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.

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.

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.

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

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.

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…

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?

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.

Our next question comes from Michael Corty from Morningstar.

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?

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…

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

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?

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.

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

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.

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