Report to share owners

The Board of WPP announces its unaudited interim results for the six months ended 30 June 2009, which include the acquisition of Taylor Nelson Sofres (TNS). The results continue to reflect the impact of the significant global economic contraction on most regions and service sectors. The impact continued to intensify in the second quarter, though results for July did indicate a “less-worse” picture.

Billings were up 11.1% at £18.742 billion.

Reportable revenue was up 28.4% at £4.289 billion. Revenue on a constant currency basis was up 8.6% compared with last year, chiefly reflecting the weakness of the pound sterling against the US dollar and Euro. As a number of our competitors report in US dollars and inter-currency comparisons are difficult, the Unaudited condensed consolidated interim income statement: Reportable US dollar illustration shows WPP’s interim results in reportable US dollars.

On a like-for-like basis, which excludes the impact of acquisitions and currency, revenues were down 8.3% in the first half, with gross margin down less at 7.8%.

Headline earnings before interest, depreciation and amortisation (EBITDA) was down 14.3% to £455.7 million and down 26.7% in constant currencies. Headline operating profit was down 24.5% to £342.2 million from £453.4 million and down 35.1% in constant currencies.

Headline operating margins were down 5.6 margin points to 8.0% compared with 13.6% in the first half of last year. On a like-for-like basis operating margins were down 4.5 margin points. Before severance costs, operating margins were 9.6%, down 3.5 margin points on a like-for-like basis. Before severance costs and one-off property and integration costs, headline operating margins were 10.0%, down 3.1 margin points on a like-for-like basis.

On a reported basis, the Group’s staff cost to revenue ratio, including incentives, deteriorated by 2.2 margin points to 62.1% compared with 59.9% in the first half of 2008, partly as a result of additional severance costs, which accounted for almost half of the increase and partly as a result of currency. Short- and long-term incentives and the cost of share-based incentives amounted to £59.3 million or 15.5% of operating profits before bonus and taxes, compared to £84.1 million last year, or 16.3%, down £24.8 million. Of these, cash-based incentives almost halved. On a constant currency basis, the Group’s staff costs to revenue ratio, including incentives, rose by 1.9 margin points to 62.0% from 60.1%, 1.0 margin point resulting from incremental severance.

On a like-for-like basis, the average number of people in the Group, excluding associates, was 108,973 in the first half of the year, compared to 112,105 in 2008, a decrease of 2.8%. On the same basis, the total number of people in the Group, excluding associates, at 30 June 2009 was 106,683 compared to 113,208 at 30 June 2008, a decrease of 6,525 or 5.8%. As at 30 June 2009, the number of people in the Group fell by over 5,800 or 5.2% compared to the pro-forma figure at 31 December 2008. As at 31 July 2009, the number had fallen further to 105,393 or 6.3%.

Net finance costs (excluding the revaluation of financial instruments) were £90.0 million, compared with £64.3 million in 2008, an increase of £25.7 million, reflecting higher levels of net debt as a result of the net acquisition cost of TNS and other smaller acquisitions and debt acquired on the acquisition of TNS.

Headline profit before tax was down 35.2% to £252.2 million from £389.1 million, or down 45.1% in constant currencies, primarily reflecting the impact of higher £ sterling translation of interest costs on euro-denominated debt.

Reported profit before tax fell by 47.0% to £179.3 million from £338.5 million. In constant currencies, reported profit before tax fell by 55.8%, again, primarily reflecting the impact of higher £ sterling translation of interest costs on euro-denominated debt.

The tax rate on headline profit before tax was 24.8%, down 2.1 percentage points on the first half rate in 2008 of 26.9%.

Profits attributable to share owners fell by 47.9% to £108.4 million from £208.2 million.

Diluted headline earnings per share fell by 40.8% to 12.9p from 21.8p. In constant currencies, earnings per share on the same basis fell by 51.0%. Diluted reported earnings per share fell by 50.6% to 8.8p and fell 60.1% in constant currencies.

The Board declares a maintained first interim ordinary dividend of 5.19p per share. The record date for this first interim dividend is 9 October 2009, payable on 9 November 2009.

Further details of WPP’s financial performance are provided in the Unaudited condensed consolidated interim income statement: UK sterling.

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