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Competitive performance

operating & financial review
Revenue per head

Headline PBIT margins


1 The figures above for Omnicom and IPG (The Interpublic Group) have been derived from their respective 10-K filings with the SEC. As both these companies report under US GAAP, the above figures should be read as indicative of their financial performance as they are not directly comparable with WPP's IFRS reporting. Additionally, adjustments have been made to conform the reported results of these companies to a presentation that is comparable – as far as the information disclosed in the Company's 10-K filings allows – to that of WPP.
2 Revenue per head has been calculated as reported revenue divided by the average number of employees in the relevant year. For Omnicom and IPG, who do not report average headcount in their 10-K filings, it has been estimated as the average of opening and closing headcount for the year. Additionally, revenue for these US dollar-reporting companies has been converted into sterling using the average exchange rates shown in the Consolidated income statements.
3 The calculation of Headline PBIT is set out in note 31 of the financial statements.

Our Media Investment Management businesses continued to show strong growth, along with direct, internet and interactive (part of Specialist Communications) and Public Relations & Public Affairs. This makes it four years in a row, when like-for-like revenue growth in Media Investment Management was 14% or over, almost three times the average for the Group, as a whole, of 5-6% over the same period. Direct and digitally-related activities now account for over 23% of the Group's revenues, which are running at the rate of over $12 billion per annum. Brand advertising, particularly in the new faster growing markets, along with Information, Insight & Consultancy and Branding & Identity, show consistent growth. Public Relations & Public Affairs also continues to show significant improvement over last year, following a strong year in 2006.

The new technologies have demonstrated the power of editorial publicity through fast-growing new applications of new technology such as MySpace, YouTube, Facebook, Flickr and Wikipedia, along with the difficulties of making money on social networking sites through advertising, as even Facebook found out with Beacon. Media Investment Management and Information, Insight & Consultancy combined, grew their gross margins by well over 10% on a like-for-like basis, ahead of independent competitors.

Estimated net new billings of £5.03 billion ($9.81 billion) were won last year, reflecting an historically unprecedented run of net new business wins in the second half of 2007. The Group was ranked first in the major new business surveys for 2007.

In these circumstances, there is no reason to believe that the Group cannot achieve the revised margin targets set with the announcement of last year's results, to achieve margins of 15.5% in 2008 and 16.0% in 2009. Budgets and incentive targets for 2008 include the operating margin target of 15.5% previously set for 2008. Nor is there any reason why operating margins could not be improved beyond these levels by continuing focus on revenue growth and careful husbandry of costs. Our ultimate objective continues to be to achieve a 19% margin over a period of time and to continue to improve the return on capital employed. We believe we can continue to make the necessary investment in talent and the application of technology, whilst, at the same time, improving operating margins, at around current levels of like-for-like revenue growth.