Interim Results - Part 1

WPP Group PLC
18 August 2006


PRESS RELEASE                                                     18 August 2006



                                      WPP
                                        
                              2006 INTERIM RESULTS


                     Billings up over 27% at £14.4 billion

                 Reported revenue up over 16% to £2.86 billion

                          Like-for-like revenue up 5%

             Headline operating profit up over 20% to £361 million

            Headline operating margin up 0.5 margin points to 12.6%

             Headline profit before tax up over 24% to £316 million
                                        
                Profit before tax up almost 30% to £287 million
                                        
            Diluted headline earnings per share up over 20% at 16.6p
                                        
              Interim ordinary dividend up 20% to 3.60p per share



   • Billings up over 27% at £14.4 billion
   • Reported revenue up over 16% to £2.86 billion and up almost 13% in constant 
     currencies
   • Like-for-like revenue up 5%
   • Headline operating profit up over 20% to £361.0 million from £299.6
     million and up almost 17% in constant currencies
   • Headline operating margin up 0.5 margin points to 12.6%
   • Headline profit before tax up over 24% to £316.1 million from £254.8
     million and up almost 20% in constant currencies
   • Profit before tax up almost 30% to £287.1 million from £221.5 million
     and up almost 25% in constant currencies
   • Diluted headline earnings per share up over 20% to 16.6p from 13.8p and
     up over 15% in constant currencies
   • Diluted earnings per share up almost 29% to 14.3p and up almost 23% in
     constant currencies
   • Interim ordinary dividend up 20% to 3.60p per share
   • Average net debt up £150 million to £1,170 million from £1,020 million,
     despite cash payments of £287 million for net cash acquisition payments and
     share repurchases in the first six months
   • Estimated net new business billings of £2.204 billion ($4.078 billion).
     Rated No. 1 in almost all new business surveys for the first half of 2006
   • Strategic opportunities remain new markets and new technologies



In this press release not all the figures and ratios used are readily available
from the unaudited interim results included in Appendix I. Where required,
details of how these have been arrived at are shown in note 17 of Appendix I.


Summary of Results


The Board of WPP announces its unaudited interim results for the six months
ended 30 June 2006. These represent record first half results, reflecting
continued significant improvement over last year and further evidence of growth
across the whole business, both functionally and geographically.


Billings were up over 27% at £14.407 billion.


Reportable revenue was up 16.1% at £2.864 billion. On a constant currency basis,
revenue was up 12.7% compared with last year, with currency fluctuations in the
first six months accounting for over 3 percentage points of the Group's revenue
growth, principally due to the strength of the US dollar against sterling. On a
like-for-like basis, which excludes the impact of acquisitions and currency,
revenues were up 5.0% in the first half, a slight increase on the encouraging
organic growth of 4.8% in the first quarter of 2006.


Headline earnings before interest, depreciation and amortisation ("EBITDA") was
up 22.0% to £427.9 million and up over 18% in constant currencies. Headline
operating profit was up 20.5% to £361.0 million from £299.6 million and up 16.8%
in constant currencies.


Headline operating margins rose by 0.5 margin points to 12.6% from 12.1%, in
line with the full year margin target of 14.5%. Before short-term and long-term
incentives (including the cost of share-based compensation), operating margins
rose by 0.5 margin points to 16.3% from 15.8%. Short and long-term incentives
and the cost of share-based incentives amounted to £105.1 million or 22.7% of
operating profits before bonus and taxes, as improvements in operating
profitability continued to swell incentive pools towards maximum levels.


On a reported basis the Group's staff cost to revenue ratio, including
incentives, was down 0.3 margin points to 60.4% in the first half of 2006,
compared with the same period last year. On a like-for-like basis, the average
number of people in the Group, excluding associates, was 76,436 in the first
half of the year, compared to 73,933 in 2005, an increase of 3.4%. On the same
basis, the total number of people in the Group at 30 June 2006 was 77,535
compared to 75,004 in June 2005, also an increase of 3.4%.


Headline profit before tax was up 24.1% to £316.1 million from £254.8 million or
up 19.9% in constant currencies.


Net finance costs (excluding the revaluation of financial instruments) were flat
with last year at £44.9 million compared with £44.8 million in 2005, reflecting
higher interest rates, offset by the impact of improved liquidity as a result of
a reduction in working capital.


Reported profit before tax rose by 29.6% to £287.1 million from £221.5 million.
In constant currencies pre-tax profits rose by 24.8%.


The tax rate on headline profit before tax on ordinary activities was 29.0%,
slightly up on the first half 2005 rate of 28.5%.


Profits attributable to ordinary share owners rose by 30.5% to £176.7 million
from £135.4 million or up 24.4% in constant currencies.


Diluted headline earnings per share rose by 20.3% to 16.6p from 13.8p. In
constant currencies, earnings per share on the same basis rose by 15.6%. Diluted
reported earnings per share were up 28.8% to 14.3p and up 22.7% in constant
currencies.


The Board declares an increase of 20% in the interim ordinary dividend to 3.60p
per share. The record date for this interim dividend is 13 October 2006, payable
on 13 November 2006.


Further details of WPP's financial performance are provided in Appendix I.




Review of Operations

Revenue by Region


The pattern of revenue growth differed regionally. The table below gives details
of the proportion of revenue and revenue growth by region for the first six
months of 2006:

                                                                    
Region                     Constant    Reported          Constant    Like-for-
                          Currency*     Revenue         Currency*       like**
                         Revenue as      Growth           Revenue      Revenue             
                       a % of Total       06/05            Growth       Growth                                  
                              Group                         06/05        06/05   
                                              %                 %            %

North                          39.6        16.7              11.3          4.5
America
United                         14.6         6.7               6.7          1.2
Kingdom
Continental
Europe                         25.7        11.9              11.4          4.5

Asia                           20.1        29.3              22.8          9.4
Pacific,
Latin
America,
Africa &
Middle East                ----------  ----------       -----------  -----------

TOTAL GROUP                   100.0        16.1              12.7          5.0
                           ----------  ----------       -----------  -----------


* Constant currency growth excludes the effects of currency movements.

** Like-for-like growth excludes the effects of currency movements and the
impact of acquisitions.



On a constant currency basis, the Group grew at almost 13% and all regions
showed double digit revenue growth, with the exception of the United Kingdom.


The United States continues to grow, despite the twin deficits and threat of
inflation. Latin America remains one of the fastest growing regions, as it was
in 2004 and 2005. Asia Pacific shows strong growth across the region, with
Mainland China and India leading the way, with like-for-like growth rates of 22%
and 23%. Western Europe, although relatively more difficult, has improved over
last year and the United Kingdom has stabilised, at low levels of growth. Rates
of growth in Europe continue, however, to be two-paced, with the United Kingdom,
Germany, France, Spain, Italy, Netherlands, Sweden, Denmark and Portugal growing
slower and Central and Eastern Europe, Russia and the CIS countries, in
particular, more buoyant. Africa and the Middle East is currently the fastest
growing region, along with Central and Eastern Europe. There is no doubt that
South Africa, and Africa as a whole, will benefit from the World Cup in 2010.
Perhaps not as significantly as China will from Beijing 2008, but certainly the
event will be of similar political, social and economic significance.


Record estimated net new business billings of £2.204 billion ($4.078 billion)
were won in the first half of the year (up 15% on the comparable period last
year) and the Group was rated No. 1 in almost all new business surveys.



Revenue by Communications Services Sector and Brand


The pattern of revenue growth varied by communications services sector and
company brand. The table below gives details of the proportion of revenue and
revenue growth by communications services sector for the first six months of
2006:

Communications            Constant   Reported          Constant      Like-for-
Services                 Currency*    Revenue         Currency*         like**
Sector                  Revenue as     Growth           Revenue        Revenue             
                      a % of Total      06/05            Growth         Growth                                  
                             Group                        06/05          06/05   
                                            %                 %              %            
Advertising,
Media                        47.3        14.2              10.7            3.4
Investment
Management
Information,
Insight &                    15.3        13.3              10.9            4.1
Consultancy
Public
Relations &                  10.1        15.3              11.6            5.5
Public Affairs
Branding &
Identity,                    27.3        21.6              18.0            8.0
Healthcare and
Specialist
Communications
                         ----------  ----------        ----------     ----------
TOTAL GROUP                 100.0        16.1              12.7            5.0
                         ----------  ----------        ----------     ----------


* Constant currency growth excludes the effects of currency movements.

** Like-for-like growth excludes the effects of currency movements and the
impact of acquisitions.


Media investment management continues to show the strongest growth of all our
communications services businesses, along with direct, internet and interactive
and healthcare communications. Direct and digitally-related activities now
account for approximately 20% of the Group's revenues, which are running at the
rate of approximately $11 billion per annum. Brand advertising, particularly in
the new faster growing markets, along with information, insight & consultancy
and branding & identity, healthcare and specialist communications, show
consistent growth.


Public relations and public affairs also continues to show significant
improvement over last year, following a strong year in 2005. It seems that the
public relations and public affairs businesses, in particular, are benefiting
from the growth of new technologies, where editorial publicity is very effective
and probably more effective than paid for publicity. Social networking, in
particular, is offering a new form of word-of-mouth "advertising", that is very
effective. These new technologies are probably boosting the growth rates of
public relations and public affairs activities.


Advertising and Media Investment Management


On a constant currency basis, advertising and media investment management
revenues grew by almost 11%, with like-for-like revenue growth well over 3%.
Operating margins improved by 0.7 margin points.


These businesses generated estimated net new business billings of £1.894 billion
($3.504 billion).


Information, Insight and Consultancy


The Group's information, insight and consultancy businesses continued their
growth, with constant currency revenues increasing by almost 11% and operating
margins improving.


Public Relations and Public Affairs


In constant currencies, the Group's public relations and public affairs revenues
rose by over 11%, with operating margins maintained at almost 14%.

Branding and Identity, Healthcare and Specialist Communications


The Group's branding and identity, healthcare and specialist communications
constant currency revenues were up 18%, with operating margins up 0.5 margin
points, as our direct, internet and interactive businesses targeted sales growth
and invested in talent. Particularly good performances were registered by
several companies in this sector in the first half - including, in promotion and
direct marketing OgilvyOne, Wunderman, G2 and Bridge Worldwide; in branding and
identity Landor, Enterprise IG, VBAT, Addison, The Partners and Fitch; in
healthcare Sudler & Hennessey and Grey Healthcare Group; and in specialist
communications Pace, Spafax and MJM.


Cash Flow and Balance Sheet


A summary of the Group's unaudited cash flow statement and balance sheet and
notes as at 30 June 2006 are provided in Appendix I.


In the first half of 2006, operating profit was £308 million, depreciation,
amortisation and impairment £103 million, non-cash based incentive charges of
£38 million, net interest paid £37 million, tax paid £69 million, capital
expenditure £74 million and other net cash inflows £50 million. Free cash flow
available for working capital requirements, debt repayment, acquisitions and
share re-purchases was, therefore, £319 million. This free cash flow was
absorbed by £125 million in net cash acquisition payments and investments (of
which £32 million was for initial acquisition payments net of disposal proceeds,
£81 million was for earnout payments and the balance related to prior year loan
note redemptions), and £162 million by share re-purchases, a total outflow of
£287 million. This resulted in a net cash inflow of £32 million, in line with
the Group's free cash flow objectives.


Average net debt in the first six months of 2006 rose by £150 million to £1,170
million, compared to £1,020 million in 2005, at 2006 exchange rates. On 30 June
2006 net debt was £1,219 million, against £1,242 million on 30 June 2005, a
slight reduction. The Board continues to examine ways of deploying the Group's
substantial surplus cash flow, which now amounts to almost £600 million or over
$1 billion per annum, to enhance share owner value, given that interest cover
remains strong at 8.0 times in the first half of 2006, in comparison to 6.7
times on a comparable basis, in the first half of 2005. As necessary capital
expenditure, mainly on information technology and property, is expected to
remain equal to or less than the depreciation charge in the long term, the
Company has continued to concentrate on examining possible acquisitions or
returning excess capital to share owners in the form of dividends and/or share
buy-backs.


In the first half of 2006, the Group continued to make small to medium-sized
acquisitions or investments in high growth geographical or functional areas. In
the first six months of this year, acquisitions and increased equity stakes have
been concentrated in advertising & media investment management in the United
States, the United Kingdom, Germany, South Africa, Israel, China, Singapore and
Brazil; in information, insight & consultancy in China; in public relations &
public affairs in India; in healthcare in the United States, the Netherlands and
Switzerland and in direct, internet & interactive in the United States.


In addition to increasing the interim dividend by 20% to 3.60p per share, the
Company continues to focus on examining the alternative between increasing
dividends and accelerating share buy-backs, and completed a review of its share
buy-back policy earlier this year. The Group will accelerate its share
repurchase programme and will now aim to buy-back up to 2-3% of its share
capital each year, as compared to 1-2% historically. In the first half of the
year 24.0 million ordinary shares were purchased, equivalent to 1.9% of the
share capital, including 5.6 million ordinary shares acquired by the WPP ESOP in
connection with restricted stock awards. These shares were acquired at an
average price of £6.73 per share and total cost of £161.5 million. Of these
shares, 18.4 million were purchased in the market and subsequently cancelled.


Client Developments in the First Half of 2006


Including associates, the Group currently employs almost 97,000 full-time people
in over 2,000 offices in 106 countries. It services over 300 of the Fortune
Global 500 companies, over one-half of the Nasdaq 100, over 30 of the Fortune
e-50, and approximately 330 national or multi-national clients in three or more
disciplines. More than 230 clients are served in four disciplines and these
clients account for over 50% of Group revenues. This reflects the increasing
opportunities for co-ordination between activities both nationally and
internationally. The Group also works with nearly 200 clients in 6 or more
countries.


The Group estimates that more than 35% of new assignments in the first half of
the year were generated through the joint development of opportunities by two or
more Group companies.



Current Progress and Future Prospects


The Group's performance in the first half of the year mirrored the continuing
good economic conditions in the United States, Central and Eastern Europe, Asia
Pacific, Latin America, Africa and the Middle East, reinforced by a mild
improvement in Western Europe, although the United Kingdom remains relatively
weak, even against Continental Europe. In the last few months, Germany has shown
strength and Spain slower growth, with Brazil also softening. Like-for-like
revenue was up 5% in the first half of 2006, exceeding budgeted levels. This
trend continued into the second half, with July like-for-like revenues up almost
5% . Experts forecast that the industry will grow at 4% this year, which, so
far, the group has exceeded, growing market share. An operating margin of 12.6%
was achieved, in line with the Group's revised margin target for 2006 of 14.5%.


The first half of 2006 saw another significant improvement in activity, even
against the strong performance of 2005. Levels of activity in 2006 should match,
or surpass, those seen in 2005 and there are significant new business
opportunities at both the network and parent company levels. As long as the
United States economy holds up, 2007 should be a good year too, buoyed by the
build up to Beijing 2008 and heavy United States political spending, in advance
of a Presidential election, which may pit Hillary Clinton against John McCain.
2008 should be a bumper year, with the culmination of these two major events and
the European Football Championships in Austria and Switzerland. 2009 may see
slower growth, following the strength of 2008 and as the new United States
administration wrestles with the country's economic issues.


Corporate profitability remains strong on both sides of the Atlantic, in fact,
at the highest levels as a proportion of GNP for almost 50 years and, as a
result, advertising and marketing services spending does too, if anything
continuing to strengthen. However, in a low inflationary environment, which
remains a government and central bank priority and which has been with us
continuously for almost 15 years, significant, continuous, like-for-like sales
gains remain difficult to achieve. Overcapacity, disintermediation via the web,
slowing population growth and concentrating distribution result in limited
pricing power. This pressure is at its most intense in the slower growth, but
large, mature markets of the United States and Western Europe. Concerns remain
of stagflation, as the United States and other nations wrestle with increasing
oil prices, twin fiscal and trade deficits and the potential impact of changes
in interest rate policy.


The consumer remains under pressure on both sides of the Atlantic from
increasing levels of debt, low savings ratios and potentially fragile house
prices. Any slack in consumer spending has not to date been taken up by
significant increases in corporate capital spending, beyond replacement
spending. Company boards remain cautious, perhaps cowed by regulatory measures
and fear of failure. The average life of a Chief Executive Officer, remains
around four years and apparently under two years for a Chief Marketing Officer
in the United States.



In this environment, clients are seeking new ways of reaching the consumer and
finding new geographic growth opportunities. Satellite and cable television,
outdoor and out-of-home advertising and radio in traditional media and more
importantly direct, internet and interactive are taking a growing share of
client spending, albeit from lower absolute and relative levels. Similarly, but
geographically, Asia (particularly but not exclusively China and India), Latin
America, despite political volatility and the growth of populism and
protectionism, Africa, the Middle East and Eastern Europe are becoming more and
more significant, again from lower absolute and relative levels.


We are finding that our industry is becoming more and more two-paced. Slow
growth in traditional media, such as network television, newspapers and
magazines, more rapid growth in new media, such as direct, internet and
interactive, driven by new technology. Slower growth in the mature markets of
the United States and Western Europe, more rapid growth in Central and Eastern
Europe, Asia, Latin America, Africa and the Middle East. Growth patterns even
vary within regions - for example, slow growth in Western Europe alongside rapid
growth in Central and Eastern Europe.


In these market conditions, the prospects for our industry remain very good, as
the need for differentiation through innovation and branding and global
expansion grow. The two critical strategic opportunities for our clients, media
owners and ourselves, remain geographical expansion across the globe and
assessing and dealing with the implications of new technological developments -
which could be glibly described as "China and the internet". Clearly, it is more
complex than this, with China an icon for Asia, Latin America, Africa and the
Middle East and Central and Eastern Europe and the internet an icon for mobile,
iPodsTM, video iPodsTM, PVRs, HDTV, IPTV, gaming and social networks, amongst
others. Geographical development remains relatively easy to manage.
Technological development remains relatively difficult to manage as it is taxing
to forecast the impact of such changes, although increasing complexity makes us
more valuable to our clients.


The prospects for trading performance improvements at WPP remain good too. A
year ago the Group revised its margin target for 2005 to 13.7% and for 2006 to
14.2%. These were raised again at the time of the Group's 2005 preliminary
announcement to 14.5% for 2006 from 14.2% and to 15.0% for 2007 from 14.7%. The
Group is on track to achieve this accelerated timetable. Our long term operating
margin target remains 19%. Margin targets for 2008 and 2009 will be outlined in
the preliminary results announcement for 2006 in February 2007.


Plans, budgets and forecasts will continue to be made on a conservative basis
and considerable attention is still being focused on achieving margin and staff
cost to revenue or gross margin targets. Margins continue to be strong in
important parts of the business. In addition to influencing absolute levels of
cost, the initiatives taken by the parent company in the areas of human
resources, property, procurement, information technology and practice
development continue to improve the flexibility of the Group's cost base.


The Group continues to improve co-operation and co-ordination between companies
in order to add value to our clients' businesses and our people's careers, an
objective which has been specifically built into short-term incentive plans.
Particular emphasis and success has been achieved in the areas of media
investment management, healthcare, privatisation, new technologies, new markets,
retailing, internal communications, hi-tech, financial services and media and
entertainment. The Group continues to lead the industry, in co-ordinating
investment geographically and functionally through parent company initiatives,
which competitors initially 'pooh-poohed' but now attempt to imitate.


The Group also continues to concentrate on its long-term targets and strategic
objectives of improving operating profits; improving operating margins by half
to one margin point per annum or more depending on revenue growth; improving
staff cost to revenue or gross margin ratios by 0.6 margin points per annum or
more depending on revenue growth; converting 25-33% of incremental revenue to
profit; growing revenue faster than industry averages and encouraging
co-operation among Group companies.


As clients face an increasingly undifferentiated market place, particularly in
mature markets, the Group is competitively well positioned to offer them the
creativity they desire, along with the ability to deliver the most effective
co-ordinated communications in the most efficient manner. The rise of the
procurement function, the increasing concentration of distribution and the
legislative acceptance of media ownership concentration in several countries,
will further stimulate consolidation amongst clients, media owners, wholesalers
and retailers and last, but not least, advertising and marketing services
agencies. The Group is very well positioned to capitalise on these developments
and to focus on developing the best talents, the strongest management structures
and the most innovative incentive plans in the industry for our people.





For further information:

Sir Martin Sorrell )
Paul Richardson    ) [phone]
Feona McEwan       )


Fran Butera          [phone]


www.wppinvestor.com


This announcement has been filed at the Company Announcements Office of the
London Stock Exchange and is being distributed to all owners of Ordinary shares
and American Depository Receipts. Copies are available to the public at the
Company's registered office.


The following cautionary statement is included for safe harbour purposes in
connection with the Private Securities Litigation Reform Act of 1995 introduced
in the United States of America. This announcement may contain forward-looking
statements within the meaning of the US federal securities laws. These
statements are subject to risks and uncertainties that could cause actual
results to differ materially including adjustments arising from the annual audit
by management and the Company's independent auditors. For further information on
factors which could impact the Company and the statements contained herein,
please refer to public filings by the Company with the Securities and Exchange
Commission. The statements in this announcement should be considered in light of
these risks and uncertainties.




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