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WPP plc – ‘20-F’ for 12/31/08

On:  Tuesday, 5/12/09, at 4:37pm ET   ·   For:  12/31/08   ·   Accession #:  1193125-9-108587   ·   File #:  0-16350

Previous ‘20-F’:  ‘20-F’ on 6/10/08 for 12/31/07   ·   Next:  ‘20-F’ on 5/5/10 for 12/31/09   ·   Latest:  ‘20-F’ on 3/21/24 for 12/31/23   ·   5 References:   By:  WPP plc – Latest ‘20-F’ on 3/21/24 for 12/31/23 By:  WPP plc – ‘20-F’ on 3/23/23 for 12/31/22 By:  WPP plc – ‘20-F’ on 4/6/22 for 12/31/21 By:  WPP plc – ‘20-F’ on 4/29/21 for 12/31/20 By:  WPP plc – ‘20-F/A’ on 2/12/21 for 12/31/19 

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/12/09  WPP plc                           20-F       12/31/08   39:7.8M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML   2.40M 
 3: EX-2.15     Agreement of Registrant to File, If Requested by    HTML     16K 
                          the SEC                                                
 4: EX-2.16     Agreement of Registrant to File, If Requested by    HTML     16K 
                          the SEC                                                
 5: EX-2.17     Agreement of Registrant to File, If Requested by    HTML     16K 
                          the SEC                                                
 6: EX-2.18     Fifth Supplemental Indenture, Dated as of 7         HTML     92K 
                          October 2008                                           
 2: EX-2.9      Fifth Supplemental Indenture Dated as of April 30,  HTML     34K 
                          2009                                                   
 7: EX-4.12     Ogilvy & Mather Erisa Excess Plan Summary Plan      HTML     36K 
                          Description                                            
 8: EX-4.13     Ogilvy & Mather Executive Savings Plan Summary      HTML     37K 
                          Plan Description 25% Matching                          
 9: EX-4.14     Ogilvy & Mather Executive Savings Plan Summary      HTML     37K 
                          Plan Description 50% Matching                          
10: EX-4.15     Ogilvy & Mather Deferred Compensation Plan Summary  HTML     38K 
                          Plan Description                                       
11: EX-4.18     Wpp Executive Stock Option Plan                     HTML    156K 
12: EX-4.19     Wpp Plc Performance Share Plan                      HTML     67K 
13: EX-4.20     Wpp Plc Restricted Stock Plan                       HTML    121K 
14: EX-4.21     Wpp 2005 Executive Stock Option Plan                HTML    167K 
15: EX-4.22     Wpp Annual Bonus Deferral Programme                 HTML    108K 
16: EX-4.24     Groupm Executive Savings Plan Summary Plan          HTML     41K 
                          Description                                            
17: EX-4.27     Wpp 2008 Executive Stock Option Plan                HTML    149K 
18: EX-4.28     Uk Service Agreement, Effective 19 Novemeber 2008   HTML     91K 
19: EX-4.29     Service Agreement, in the Usa, Effective 19         HTML    128K 
                          November 2008                                          
20: EX-4.30     Usa Service Agreement, Dated 30 April 2009          HTML    126K 
21: EX-4.31     Director's Appointment Agreement Dated 21 November  HTML     60K 
                          2008                                                   
22: EX-4.32     Employment Agreement Dated 12 February 2009         HTML    124K 
23: EX-4.33     Director's Appointment Agreement Dated 21 November  HTML     54K 
                          2008                                                   
24: EX-4.34     Supplemental Retirement Agreement Dated as of 1     HTML     62K 
                          July 2008                                              
25: EX-4.35     Amendment Dated 19 November 2008 to Supplemental    HTML     20K 
                          Retirement Agreement                                   
26: EX-4.36     Stock Purchase Agreement, Dated 3 August 1998       HTML    224K 
27: EX-4.39     Amendment No. 2 to the Grey Global Group Inc. 2003  HTML     26K 
                          Senior Mgmt Incentive Plan                             
28: EX-4.40     The Grey Advertising Inc. Senior Executive Officer  HTML     39K 
                          Post-Employment Comp. Plan                             
29: EX-4.41     Amend. No. 1 to the Grey Advertising Senior Exec.   HTML     22K 
                          Officer Post-Empl Comp Plan                            
30: EX-4.42     Amend. No. 1 to the J.Walter Thompson Retained      HTML     23K 
                          Benefit Supp Empl Retirement Plan                      
31: EX-4.43     Taylor Nelson Sofres 2001 Equity Participation      HTML    101K 
                          Plan                                                   
32: EX-4.44     Taylor Nelson Sofres Plc 2005 Long Term Incentive   HTML    220K 
                          Plan                                                   
33: EX-4.45     Taylor Nelson Sofres New Share Plan                 HTML    179K 
34: EX-8.1      List of Subsidiaries                                HTML    606K 
35: EX-12.1     Certification of Group Chief Executive              HTML     22K 
36: EX-12.2     Certification of Group Finance Director             HTML     22K 
37: EX-13.1     Certification of Group Chief Executive Under 18     HTML     16K 
                          U.S.C. Section 1350                                    
38: EX-13.2     Certification of Group Finance Director Under 18    HTML     16K 
                          U.S.C. Section 1350                                    
39: EX-14.1     Consent of Independent Registered Public            HTML     15K 
                          Accounting Firm                                        

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

OR

For the fiscal year ended 31 December 2008

OR

For the transition period from              to             

OR

Date of event requiring this shell company report                     

Commission file number 0-16350

WPP plc

(Exact Name of Registrant as specified in its charter)

Jersey

(State or other jurisdiction of incorporation or organization)

6 Ely Place

Dublin 2, Ireland

011-353-1-669-0333

(Address and telephone number of Registrant’s principal executive offices)

Andrea Harris, Esq.

Group Chief Counsel

6 Ely Place Dublin 2, Ireland

011-353-1-669-0333

(Name, address and telephone number of agent for service)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Ordinary Shares of 10p each

(Title of Class)

American Depositary Shares, each representing five Ordinary Shares (“ADSs”)

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

At December 31, 2008, the number of outstanding ordinary shares was 1,255,343,263 which includes at such date ordinary shares represented by 17,710,111 ADSs.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES  x    NO  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

YES  ¨    NO  x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x                    Accelerated filer  ¨                    Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  ¨    NO  x

Forward-Looking Statements

In connection with the provisions of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), the Company (as defined below) may include forward-looking statements (as defined in the Reform Act) in oral or written public statements issued by or on behalf of the Company. These forward-looking statements may include, among other things, plans, objectives, projections and anticipated future economic performance based on assumptions that are subject to risks and uncertainties. As such, actual results or outcomes may differ materially from those discussed in the forward-looking statements. Important factors which may cause actual results to differ include but are not limited to: the unanticipated loss of a material client or key personnel, delays or reductions in client advertising budgets, shifts in industry rates of compensation, regulatory compliance costs or litigation, natural disasters or acts of terrorism, the Company’s exposure to changes in the values of major currencies other than the UK pound sterling (because a substantial portion of its revenues are derived and costs incurred outside of the United Kingdom) and the overall level of economic activity in the Company’s major markets (which varies depending on, among other things, regional, national and international political and economic conditions and government regulations in the world’s advertising markets). In addition, you should consider the risks described in Item 3.D., captioned “Risk Factors,” below, which could also cause actual results to differ from forward-looking information. In light of these and other uncertainties, the forward-looking statements included in this document should not be regarded as a representation by the Company that the Company’s plans and objectives will be achieved.

The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Overview

WPP plc (“WPP”) and its subsidiaries and affiliates comprise one of the largest communication services businesses in the world. As of 31 December 2008, the Group had over 112,000 employees. For the year ended 31 December 2008, the Group had revenue of approximately £7,477 million and operating profit of approximately £876 million.

Unless the context otherwise requires, the terms “Company”, “Group” and “Registrant” as used herein shall mean WPP and its subsidiaries.

A. Selected Financial Data

The selected financial data should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements of the Company, including the notes thereto.

The selected income statement data for the three years ended 31 December 2008 and the selected balance sheet data as of December 2008 and 2007 are derived from the Consolidated Financial Statements of the Company, which appear elsewhere in this Form 20-F. The selected

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financial data for prior periods is derived from the Consolidated Financial Statements of the Company previously filed with the Securities and Exchange Commission as part of the Company’s Annual Reports on Form 20-F. The Consolidated Financial Statements were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), for all periods.

The reporting currency of the Group is the pound sterling and the selected financial data has been prepared on this basis.

Selected Consolidated Income Statement Data

Selected Consolidated Balance Sheet Data

Notes

Dividends

Dividends on the Company’s ordinary shares, when paid, are paid to share owners as of a record date, which is fixed by the Company.

The table on page 3 sets forth the amounts of interim, second interim and total dividends paid on the Company’s ordinary shares in respect of each fiscal year indicated. In the United States, the Company’s ordinary shares are represented by American Depositary Shares (“ADSs”), which are

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evidenced by American Depositary Receipts (“ADRs”) or held in book-entry form. The dividends are also shown translated into US cents per ADS using the average Bloomberg Closing Mid Point rate for pounds sterling, as shown below, for each year presented.

Notes

The 2008 first interim dividend was paid on 10 November 2008 to share owners on the register at 10 October 2008. The 2008 second interim dividend is expected to be paid on 6 July 2009 to share owners on the register at 5 June 2009.

Exchange rates

Fluctuations in the exchange rate between the pound sterling and the US dollar will affect the dollar equivalent of the pound sterling prices of the Company’s ordinary shares on The London Stock Exchange Limited (“The London Stock Exchange”) and, as a result, are likely to affect the market price of the ADSs in the United States. US dollar amounts paid to holders of ADSs also depend on the sterling/US dollar exchange rate at the time of payment. The annual average of the daily Bloomberg Closing Mid Point rate for pounds sterling expressed in US dollars for each of the five years ended 31 December was:

The following table sets forth for each of the most recent six months, the high and low Bloomberg Closing Mid Point rates. As of 30 April 2009, the Bloomberg Closing Mid Point rate was 1.4774.

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B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

The Company is subject to a variety of possible risks that could adversely impact its revenues, results of operations or financial condition. Some of these risks relate to the industries in which the Company operates while others are more specific to the Company. The following factors set out potential risks the Company has identified that could adversely affect it. See also the discussion of Forward-Looking Statements preceding Item 1.

Global economic risk

The Company is subject to recessionary economic cycles.

The Company’s business is affected by recessionary economic cycles. The current global credit crisis could adversely impact the Company’s business, results of operations, ability to raise appropriate financing and financial condition. Many of the economies in which the Company operates are under significant stress or in recession. The Company cannot predict the duration and severity of this economic downturn in any particular market or globally. These conditions make it difficult for the Company’s clients and the Company to accurately forecast and plan future business activities, and they may result in the Company’s clients reducing or postponing spending on the services the Company offers. A reduction in client spending and a slowdown in client payments could also adversely affect the Company’s working capital. Changes to our debt ratings may affect the Company’s access to debt capital. The Company’s debt issues are rated by the rating agencies Moody’s Investor Services and Standard and Poor’s Rating Service. The Company’s long term debt is currently rated Baa2 and BBB by the agencies, respectively, and the Company’s short term debt obligations P2 and A3, respectively. The rating agencies have placed the Company’s debt ratings on “negative outlook” which means that, in the event the Company’s financial performance and outlook materially deteriorate, a ratings downgrade could occur. The interest rates and fees payable on certain of the Company’s revolving credit facilities would be increased and the Company’s access to the bond and commercial paper markets could be impaired if the Company’s long term debt ratings are downgraded.

Client risks

The Company competes for clients in a highly competitive industry, and client loss may reduce market share and decrease profits.

The communications services industry is highly competitive and fragmented. The Company’s principal competitors are other large multinational communications services companies, as well as regional and national advertising and/or marketing services firms and new media companies. In the communications services industry, service agreements with clients are generally terminable by the client upon 90 days’ notice. As such, clients may move their accounts to another agency on relatively short notice. In many cases, a WPP agency represents a client for only a portion of its advertising or marketing services needs or only in particular geographic areas, thus enabling the client continually to compare the effectiveness of the WPP agency against other agencies’ work. Many clients do not permit an agency working for them to represent competing accounts or product lines in the same market. A lesser number of companies will not permit any of the agencies owned by a communications service company to work on competing accounts or product lines in any market. These client conflict policies can and sometimes do prevent the Company’s agencies from seeking and winning new clients and assignments. If the Company’s agencies are unable to compete effectively in the markets in which they operate, the Company’s market share and profits may decrease.

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The Company receives a significant portion of its revenues from a limited number of large clients, and the loss of these clients could adversely impact the Company’s prospects, business, financial condition and results of operations.

A relatively small number of clients contribute a significant percentage of the Company’s consolidated revenues. The Company’s ten largest clients accounted for approximately 18% of revenues in the year ended 31 December 2008. The Company’s clients generally are able to reduce advertising and marketing spending or cancel projects at any time for any reason. There can be no assurance that any of the Company’s clients will continue to utilise the Company’s services to the same extent, or at all, in the future. A significant reduction in advertising and marketing spending by, or the loss of one or more of, the Company’s largest clients, if not replaced by new client accounts or an increase in business from existing clients, would adversely affect the Company’s prospects, business, financial condition and results of operations.

The Company may be unable to collect balances due from any client that files for bankruptcy or becomes insolvent.

The Company generally provides advertising and communications services to its clients in advance of its receipt of payment. The invoices for these services are typically payable within 30 to 60 days. In addition, the Company commits to media and production purchases on behalf of some of its clients. If one or more of its clients files for bankruptcy, or becomes insolvent or otherwise is unable to pay for the services the Company provides, the Company may be unable to collect balances due to it on a timely basis or at all. In addition, in that event, media and production companies may look to the Company to pay for media purchases and production work to which it committed as an agent on behalf of these clients. The damages, costs, expenses or attorneys’ fees arising from the lack of payment could have an adverse effect on the Company’s prospects, business, results of operations and financial condition. The reputation of the Company’s agencies may also be negatively affected.

Employee risks

The Company is dependent on its people.

The advertising and marketing services industries are highly dependent on the talent, creative abilities and technical skills of the personnel of the service providers and the relationships their personnel have with clients. The Company believes that its operating companies have established reputations in the industry that attract talented personnel. However, the Company, like all service providers, is vulnerable to adverse consequences from the loss of key employees due to competition among providers of advertising and marketing services for talented personnel.

International business risks

The Company is exposed to the risks of doing business internationally.

The Company operates in 107 countries throughout the world. The Company’s international operations are subject to a number of risks inherent in operating in different countries. These include, but are not limited to risks regarding:

The occurrence of any of these events or conditions could adversely affect the Company’s ability to increase or maintain its operations in various countries.

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Currency exchange rate fluctuations could adversely affect the Company’s consolidated results of operations.

The Company’s reporting currency is pounds sterling. However, the Company’s significant international operations give rise to an exposure to changes in foreign exchange rates, since most of its revenues from countries other than the UK are denominated in currencies other than pounds sterling, including US dollars and euros. Changes in exchange rates cause fluctuations in the Company’s results when measured in pounds sterling.

The Company may have difficulty repatriating the earnings of its subsidiaries.

Any payment of dividends, distributions, loans or advances to the Company by its subsidiaries could be subject to restrictions on, or taxation of, dividends or repatriation of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange regulations in the jurisdictions in which the Company’s subsidiaries operate. If the Company is unable to repatriate the earnings of its subsidiaries it could have an adverse impact on the Company’s ability to redeploy earnings in other jurisdictions where they could be used more profitably.

Merger and acquisition risks

The Company may be unsuccessful in evaluating material risks involved in completed and future acquisitions.

The Company regularly reviews potential acquisitions of businesses that are complementary to its businesses. As part of the review the Company conducts business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in any particular transaction. Despite the Company’s efforts, it may be unsuccessful in ascertaining or evaluating all such risks. As a result, it might not realise the intended advantages of any given acquisition. If the Company fails to realise the expected benefits from one or more acquisitions, the Company’s business, results of operations and financial condition could be adversely affected.

The Company may be unsuccessful in integrating any acquired operations with its existing businesses.

The Company may experience difficulties in integrating operations acquired from other companies. These difficulties include the diversion of management’s attention from other business concerns and the potential loss of key employees of the acquired operations. Acquisitions also frequently involve significant costs related to integrating information technology, accounting and management services, rationalising personnel levels and implementing internal controls. If the Company experiences difficulties in integrating one or more acquisitions, the Company’s business, results of operations and financial condition could be adversely affected.

Goodwill and other acquired intangible assets recorded on the Company’s balance sheet with respect to acquired companies may become impaired.

The Company has a significant amount of goodwill and other acquired intangible assets recorded on its balance sheet with respect to acquired companies. The Company annually tests the carrying value of goodwill for impairment. The estimates and assumptions about results of operations and cash flows made in connection with impairment testing could differ from future actual results of operations

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and cash flows. In addition, future events could cause the Company to conclude that the asset values associated with a given operation have become impaired. Any resulting impairment loss could have a material impact on the Company’s financial condition and results of operations.

The Company may use ordinary shares, incur indebtedness, expend cash or use any combination of ordinary shares, indebtedness and cash for all or part of the consideration to be paid in future acquisitions that would result in additional goodwill being recorded on the Company’s balance sheet.

Regulatory and legal risks

The Company may be subject to certain regulations that could restrict the Company’s activities.

From time to time, governments, government agencies and industry self-regulatory bodies in the United States, European Union and other countries in which the Company operates have adopted statutes, regulations and rulings that directly or indirectly affect the form, content and scheduling of advertising, public relations and public affairs, and market research, or otherwise affect the activities of the Company and its clients. For further discussion of such regulations, see the discussion in the Government Regulation section under Item 4B. Changes in tax laws or their application may also adversely affect the Company’s reported results. Although the Company does not expect any existing or proposed regulations to materially adversely impact the Company’s business, the Company is unable to estimate the effect on its future operations of the application of existing statutes or regulations or the extent or nature of future regulatory action.

The Company may be exposed to liabilities from allegations that certain of its clients’ advertising claims may be false or misleading or that its clients’ products may be defective.

The Company may be, or may be joined as, a defendant in litigation brought against its clients by third parties, its clients’ competitors, governmental or regulatory authorities or consumers. These actions could involve claims alleging, among other things, that:

The damages, costs, expenses or attorneys’ fees arising from any of these claims could have an adverse effect on the Company’s prospects, business, results of operations and financial condition to the extent that we are not adequately insured against such risks or indemnified by the Company’s clients. In any case, the reputation of the Company’s agencies may be negatively affected by such allegations.

Civil liabilities or judgments against the Company or its directors or officers based on U.S. federal or state securities laws may not be enforceable in the U.S. or in England and Wales or in Jersey.

The Company is a public limited company incorporated under the laws of Jersey. Some of the Company’s directors and officers reside outside of the United States. In addition, a substantial portion of the directly owned assets of the Company are located outside of the United States. As a result, it may be difficult or impossible for investors to effect service of process within the United States against

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the Company or its directors and officers or to enforce against them any of the judgments, including those obtained in original actions or in actions to enforce judgments of the U.S. courts, predicated upon the civil liability provisions of the federal or state securities laws of the United States.

ITEM 4. INFORMATION ON THE COMPANY

The Company operates through a number of established global, multinational and national advertising and marketing services companies that are organised into four business segments. Our largest segment is Advertising and Media Investment Management where we operate the well-known advertising networks Ogilvy & Mather Worldwide, JWT, Y&R, Grey, Bates 141 and the United Network, as well as Media Investment Management companies such as MediaCom, Mediaedge:cia, Mindshare and Maxus. Our other segments are Information, Insight and Consultancy (where our operations are conducted through the Kantar Group, including the TNS Group (“TNS”)), Public Relations and Public Affairs (where we operate through well-known companies such as Burson-Marsteller, Cohn & Wolfe, Hill & Knowlton and Ogilvy Public Relations Worldwide) and Branding and Identity, Healthcare and Specialist Communications (where our operations are conducted by B to D Group, CommonHealth, ghg, Wunderman, Sudler & Hennessey, OgilvyOne Worldwide, Ogilvy Healthworld, G2, OgilvyAction, 24/7 Real Media Inc and other companies).

The Company’s ordinary shares are admitted to the Official List of the UK Listing Authority and trade on The London Stock Exchange and American Depositary Shares (which are evidenced by ADRs or held in book-entry form) representing deposited ordinary shares are quoted on the NASDAQ Global Select Market (“NASDAQ”). At 30 April 2009 the Company had a market capitalisation of £5,856.4 million.

The Company’s executive office is located at 6 Ely Place, Dublin 2, Ireland, Tel: 011-353-1-669-0333 and its registered office is located at 22 Grenville Street, St Helier, Jersey, JE4 8PX.

A. History and Development of the Company

WPP plc was incorporated on 12 September 2008.

On 19 November 2008, under a scheme of arrangement between WPP 2008 Limited (formerly WPP Group plc), (“Old WPP”), the former holding company of the Group, and its share owners under Part 26 of the Companies Act 2006, and as sanctioned by the High Court, all the issued shares in that company were cancelled and the same number of new shares were issued to WPP plc in consideration for the allotment to share owners of one ordinary share in WPP plc for each ordinary share in WPP 2008 Limited held on the record date, 18 November 2008. Citibank, N.A., depositary for the ADSs representing Old WPP ordinary shares, cancelled Old WPP ADSs held in book-entry uncertificated form in the direct registration system maintained by it and issued ADSs representing ordinary shares of the Company in book entry uncertificated form in the direct registration system maintained by it to the holders. Holders of certificated ADSs, or ADRs, of Old WPP were entitled to receive Company ADSs upon surrender of the Old WPP ADRs to the Depositary. Each Old WPP ADS represented five ordinary shares of Old WPP and each Company ADS represents five ordinary shares of the Company.

As part of the scheme of arrangement noted above, 1,252,652,646 ordinary shares were issued at a price of 340.75 pence each. On 24 November 2008 the entire balance standing to the credit of the share premium account was transferred to retained earnings as sanctioned by The Royal Court of Jersey. As a result £4,143.1 million was added to retained earnings for both WPP plc and the Group. For the Company this amount is distributable.

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Pursuant to Rule 12g-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), WPP plc succeeded to Old WPP’s registration and periodic reporting obligations under the Exchange Act.

Old WPP became the holding company of the WPP Group on or about 25 October 2005 when the company now known as WPP 2005 Limited, the original holding company of the WPP Group, completed a reorganization of its capital and corporate structure. WPP 2005 Limited (formerly WPP Group plc) was incorporated and registered in England and Wales in 1971 and is a private limited company under the Companies Act 1985, and until 1985 operated as a manufacturer and distributor of wire and plastic products. In 1985, new investors acquired a significant interest in WPP and changed the strategic direction of the Company from being a wire and plastics manufacturer and distributor to being a multinational communications services organisation. Since then, the Company has grown both organically and by the acquisition of companies, most significantly the acquisitions of JWT Group, Inc. in 1987, The Ogilvy Group, Inc. in 1989, Young & Rubicam Inc. (“Young & Rubicam” or “Young & Rubicam Brands”, as the group is now known) in 2000, Tempus Group plc (“Tempus”) in 2001, Cordiant Communications Group plc (“Cordiant”) in 2003, Grey Global Group, Inc. (“Grey”) in 2005, 24/7 Real Media Inc (“TFSM”) in 2007 and TNS in 2008.

In October 2008, the Company completed the acquisition of TNS for total consideration of £1,025.0 million, comprising 80.5 million ordinary shares and £737.0 million in cash (net of cash acquired). TNS is a major information, insight and consultancy group, operating in over 80 countries with almost 17,000 people worldwide.

The Company spent £1,054.0 million (excluding cash and cash equivalents acquired), £744.4 million and £252.5 million for acquisitions and investments in 2008, 2007 and 2006, respectively, including payments in respect of loan note redemptions and earnout consideration resulting from acquisitions in prior years. For the same periods, cash spent on purchases of property, plant and equipment and other intangible assets was £220.6 million, £170.8 million and £184.5 million, respectively, and cash spent on share repurchases and cancellations was £112.2 million, £415.4 million and £257.7 million, respectively.

B. Business Overview

In 2008, revenues increased by almost 21% to £7.5 billion as compared to 2007. On a like-for-like basis, under which current year actual results on a constant currency basis (which include acquisitions from the relevant date of completion) are compared with prior year results, adjusted to include the results of acquisitions for the commensurate period in the prior year, revenues were up by 2.7%. See Item 5 – Operating and Financial Review and Prospects for the Group’s view on reviewing its businesses on a like-for-like and constant currency basis. Profit before interest and taxation increased in 2008 by 9.0% to £922.0 million but fell by 6% in constant currency, including the effects of £84.1 million and £44.1 million of goodwill impairment charges taken on subsidiaries and associates in 2008 and 2007, respectively and £30.5 million of investment write-downs in 2008. Profit before taxation in 2008 was up 3.8% to £746.8 million as compared to 2007, but declined 13.4% in constant currency, and diluted earnings per share decreased by 1.1% to 37.6p.

The Company’s business comprises the provision of communications services on a national, multinational and global basis. It operates from 2,400 offices in 107 countries including associates. The Company organises its businesses in the following areas: Advertising and Media Investment Management; Information, Insight and Consultancy; Public Relations and Public Affairs; and Branding and Identity, Healthcare and Specialist Communications (including direct, digital, promotion and relationship marketing).

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Approximately 45% of the Company’s reported revenues in 2008 were from Advertising and Media Investment Management, with the remaining 55% of its revenues being derived from the business segments of Information, Insight and Consultancy; Public Relations and Public Affairs; and Branding and Identity, Healthcare and Specialist Communications.

The following table shows, for the last three fiscal years, reported revenue attributable to each business segment in which the Company operates.

The pattern of revenue growth also differed regionally. The following table shows, for the last three fiscal years, reported revenue attributable to each geographic area in which the Company operates and demonstrates the Company’s regional diversity.

The Company’s principal activities within each of its business segments are described below.

Advertising and Media Investment Management

Advertising

The principal functions of an advertising agency are the planning and creation of marketing and branding campaigns and the design and production of advertisements for all types of media such as television, cable, the internet, radio, magazines, newspapers and outdoor locations such as billboards.

The Company’s principal advertising agencies include Ogilvy & Mather Worldwide, JWT, Y&R, Grey, United Network and Bates 141. The Company also owns interests in Asatsu-DK (24.0%); Chime Communications PLC (19.3%); High Co S.A. (33.5%) and GIIR, Inc (20.0%).

Ogilvy & Mather Worldwide. Ogilvy & Mather is a full-service multinational advertising agency. Ogilvy & Mather was formed in 1948 and is headquartered in New York. Its strategy includes an integrated service offering known as 360 Degree Brand Stewardship^®, a business platform that

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enables Ogilvy & Mather to integrate its growing range of disciplines which now include OgilvyAction, Ogilvy’s brand activation company, Ogilvy Public Relations Worldwide and Ogilvy Healthword. Ogilvy also brought digital and direct media back into their operations in 2005 as Neo@Ogilvy.

JWT. JWT, one of the world’s first advertising agencies, was founded in 1864 and is a full service multinational advertising agency headquartered in New York. JWT’s relationships with a number of its major clients have been in existence for many years, exhibiting, management believes, an ability to adapt to meet the clients’ and market’s new demands.

Y&R. Y&R, a full-service multinational advertising agency network headquartered in New York, was formed in 1923 and is now part of a collaborative, multidisciplinary model under Young & Rubicam Brands. Y&R’s clients also benefit from Y&R’s continued investment in its proprietary brand management tool, BrandAsset^® Valuator.

Grey. Grey commenced operations in 1917 and was incorporated in 1925 as Grey Advertising Inc. Grey has offices in approximately 96 countries and was acquired by WPP in March 2005.

United Network. In late 2005, WPP’s Red Cell network was split in two parts, with several of the former Red Cell offices forming the United Network. The group now includes Senora Rushmore United, Madrid; Berlin Cameron United, New York; Cole & Weber United, Seattle; 1861 United, Milan; LDV United, Antwerp; BTS United, Oslo; and Les Ouvriers du Paradis United, Paris.

Bates 141 is an Asia-dedicated advertising and brand activation network. In 2008 several acquisitions were made to broaden the company’s geographic coverage in key disciplines.

Media Investment Management

GroupM is WPP’s global media investment management operation, serving as the parent company to agencies including MediaCom, Mediaedge:cia, Mindshare and Maxus. With its agencies, GroupM has capabilities in business science, consumer insight, communications and media planning implementation, interactions, content development, and sports and entertainment marketing. The primary purpose of GroupM is to maximise the performance of WPP’s media agencies, operating not only as a parent company but as a collaborator on performance-enhancing activities, such as trading, content creation, sports, digital, finance, tool development and other business-critical capabilities, in order to leverage the combination of GroupM’s care and talent resources.

MediaCom. MediaCom became part of GroupM following the Grey acquisition in March 2005 and, as part of WPP, is able to work together with sister media agencies, developing synergies in a number of relevant professional areas.

Mediaedge:cia. Mediaedge:cia was formed following the Group’s acquisition of Tempus in 2001 with the merger of its core brand CIA with The MediaEdge. In addition to its media planning and implementation capability, Mediaedge:cia has established and is growing its operations in interaction (digital, direct & search), entertainment marketing, sports, sponsorship and event marketing, cause-related marketing, content development, return on investment (“ROI”) and consumer insights, and is now developing a retail marketing practice.

Mindshare. Mindshare was originally formed from the merger of the media departments of JWT and Ogilvy & Mather. Mindshare has made significant investments in developing strategic resources, especially in the areas of communications planning, content, insights, digital and ROI, with its ambition moving from being marketing partners for their clients to being their business partners.

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Maxus. Maxus is a global communications consultancy that helps marketers build interactive relationships between consumers and their brands.

Information, Insight and Consultancy

To help optimise its worldwide research offering to clients, the Company’s separate global research and strategic marketing consultancy businesses, which are described below, are managed on a centralised basis under the umbrella of the Kantar Group. In 2009 the Kantar Group announced a major re-organisation to strengthen its position as the world’s leading information, insight and consultancy business and streamline its offer for clients. The re-organisation simplified the Group’s overall offering through a series of structural changes, building on the acquisition of TNS in October 2008. The principal interests comprising the Kantar Group are:

TNS. The TNS Custom business and Research International are being merged in 2009. The new global company is known as TNS. This custom research company specialises in a wide range of business sectors and areas of marketplace information including strategic market studies, brand positioning and equity research, customer satisfaction surveys, product development, international research and advanced modeling.

In addition, following the acquisition of TNS in 2008 four dedicated vertical sector operating units were established using the Kantar name:

Millward Brown. MB is one of the world’s leading companies in advertising research, including pre-testing, tracking and sales modeling, and offers a full range of services to help clients market their brands more effectively.

Public Relations and Public Affairs

Public Relations and Public Affairs companies advise clients who are seeking to communicate with consumers, governments and/or the business and financial communities. Public Relations and Public Affairs activities include national and international corporate, financial and marketing communications, crisis management, reputation management, public affairs and government lobbying. The Company’s global networks in this area included Burson-Marsteller, Hill & Knowlton, Ogilvy Public Relations Worldwide and Cohn & Wolfe.

Burson-Marsteller. B-M, founded in 1953 and part of Young & Rubicam Brands, specialises in corporate and marketing communications, business-to-business services, crisis management, employee relations and government relations. The B-M network includes the businesses of Marsteller, a full service multimedia agency, and public affairs companies, Quinn Gillespie, Dewey Square Group, BKSH and Penn, Schoen & Berland.

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Hill & Knowlton. H&K, founded in 1927, is a worldwide public relations and public affairs firm headquartered in New York. H&K provides national and multinational clients with a wide range of communications services including corporate and financial public relations, marketing communications, internal communication, change management, crisis communications and public affairs counseling. The Hill & Knowlton network also includes the businesses of Blanc & Otus, H&K’s stand-alone technology company, Timmons and Company, and Wexler & Walker Public Policy Associates.

Ogilvy Public Relations Worldwide. Part of the Ogilvy & Mather worldwide network, OPR is a leading public relations and public affairs firm based in New York with practice areas in marketing, health and medical, corporate public affairs and technology and social marketing. The firm has offices in key financial, governmental and media centres as well as relationships with affiliates worldwide.

Cohn & Wolfe. C&W, a Young & Rubicam Brands company, is an international public relations agency established in 1970. It offers marketing-related public relations for its clients and provides its clients with business results and marketing communications solutions. In 2008 Cohn & Wolfe merged with Grey Group’s public relations network, GCI.

Branding and Identity, Healthcare and Specialist Communications

The Company’s activities in this business area include branding and identity; healthcare communications; direct digital, promotional and interactive marketing; and other specialist communications services including custom media, demographic and sector marketing, sports marketing, and media and film production services.

Branding and Identity

B to D Group. This branding and design entity, formed in 2005, consists of Landor Associates (a Young & Rubicam Brands company), The Brand Union (formerly Enterprise IG), VBAT, Addison Corporate Marketing, Lambie-Nairn, The Partners (a Young & Rubicam Brands company) and Fitch. The mission of the B to D Group is to maximise and leverage the strengths of each individual company in order to offer clients and prospects the most complete and compelling branding and design solutions. As part of the Group, the companies have access to new clients and untapped markets, as well as resources such as advanced knowledge sharing systems and financial tools. Employee exchange further enables the companies to share top-level strategic thinking, creativity and cultural knowledge.

BDG McColl. BDG McColl, Edinburgh–based architects and interior designers, specialise in the design of commercial buildings and interiors.

BDGworkfutures. BDGworkfutures is an international design consultancy focusing on strategy and design for working environments, working with corporate clients and within the Government sector.

Healthcare Communications

The Company has extensive expertise in healthcare communications, including the global networks of CommonHealth, Sudler & Hennessey (a Young & Rubicam Brands company), Ogilvy Healthworld (part of the Ogilvy & Mather Worldwide network) and ghg (part of Grey Group).

Direct, Digital, Promotion and Relationship Marketing

The Company has a number of operating businesses in this category, including:

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Specialist Communications

Custom media

Corporate/B2B

Demographic marketing

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Event/face-to-face marketing

Foodservice marketing

Youth marketing

Real estate marketing

Technology marketing

Sports marketing

Media & production services

WPP Digital

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Manufacturing

The original business of the Group remains as the manufacturing division, which operates through subsidiaries of Wire and Plastic Products Limited. The division produces a wide range of products for commercial, industrial and retail applications.

WPP Head Office

WPP and its offices in Dublin, London, New York, Hong Kong and Shanghai, develop the professional and financial strategy of the Group, promote operating efficiencies, coordinate cross referrals of clients among the Group companies and monitor the financial performance of its operating companies. The principal activity of the Group is the provision of communications services worldwide. WPP acts only as the parent company and does not trade. The parent company complements the operating companies in three distinct ways:

The parent company operates with a limited group of approximately 300 people.

WPP Strategy

The Group has three strategic priorities:

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Corporate Responsibility

The significance of corporate responsibility (“CR”) to the Company’s business continues to increase, notwithstanding the economic downturn. We focus our efforts on the issues we have identified as being most material (relevant and significant) to WPP. We consider five corporate responsibility issues to be of significance to WPP:

Clients

The Group services over 345 of the Fortune Global 500, 29 of the Dow Jones 30, half of the NASDAQ 100, and 33 of the Fortune e-50. Over 700 national or multinational clients are served in three or more disciplines. More than 440 clients are served in four disciplines and these clients account for over 58% of Group revenues. The Group also works with over 310 clients in six or more countries. The Company’s ten largest clients in 2008, measured by revenues, were BAT, Ford, GlaxoSmithKline, IBM, Johnson & Johnson, Kraft Food, Microsoft, Nestlé, Procter & Gamble and Unilever. Together, these clients accounted for approximately 18% of the Company’s revenues in 2008. No client of the Company represented more than 5% of the Company’s aggregate revenues in 2008. The Group’s companies have maintained long-standing relationships with many of its clients, with an average length of relationship for the top 10 clients of approximately 50 years.

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Acquisitions

In 2008, in addition to the acquisition of TNS, the Company strengthened its position in Advertising and Media Investment Management in the US, the UK, Denmark, France, Italy, the Netherlands, Switzerland, Ukraine, the Middle East, Kenya, Argentina, Brazil, Chile, Guatemala, Australia, New Zealand, China, Singapore and Vietnam; in Information, Insight & Consultancy in the US, the UK, Spain, Brazil and India; in Public Relations & Public Affairs in the UK, China, Korea and India; in direct, internet and interactive in the US, the Czech Republic, Denmark, France, Russia, China, India, Japan and Malaysia; and in Branding & Identity in the Netherlands. Total initial cash consideration spent on acquisitions and investments, less cash and cash equivalents acquired, was £989.7 million in 2008.

Government Regulation

From time to time, governments, government agencies and industry self-regulatory bodies in the United States, European Union and other countries in which the Company operates have adopted statutes, regulations, and rulings which directly or indirectly affect the form, content, and scheduling of advertising, public relations and public affairs, and market research, or otherwise affect the activities of the Company and its clients. Some of the foregoing relate to privacy and data protection and general considerations such as truthfulness, substantiation and interpretation of claims made, comparative advertising, relative responsibilities of clients and advertising, public relations and public affairs firms, and registration of public relations and public affairs firms’ representation of foreign governments.

In addition, there is an increasing tendency towards expansion of specific rules, prohibitions, media restrictions, labeling disclosures and warning requirements with respect to advertising for certain products, such as over-the-counter drugs and pharmaceuticals, cigarettes, food and certain alcoholic beverages, and to certain groups, such as children.

Proposals have been made for the adoption of additional laws and regulations that could further restrict the activities of advertising, public relations and public affairs, and market research firms and their clients. Though the Company does not expect any existing or proposed regulations to materially adversely impact the Company’s business, the Company is unable to estimate the effect on its future operations of the application of existing statutes or regulations or the extent or nature of future regulatory action.

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C. Organizational Structure

The Company’s business comprises the provision of communications services on a national, multinational and global basis. It operates from 2,400 offices in 107 countries including associates. The Company organises its businesses in the following areas: Advertising and Media Investment Management; Information, Insight and Consultancy; Public Relations and Public Affairs; and Branding and Identity, Healthcare and Specialist Communications (including direct, digital promotion and relationship marketing). A listing of the Group brands operating within these business segments as at April 2009 is set forth below.

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Notes

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D. Property, Plant and Equipment

The majority of the Company’s properties are leased, although certain properties which are used mainly for office space are owned. In the United States owned properties include the 370,000 net square foot Young & Rubicam headquarters office building located at 285 Madison Avenue in New York and 152,000 square foot TNS headquarters located near Toledo, Ohio. Other owned properties are in Latin America (principally in Argentina, Brazil, Chile, Mexico and Peru), Asia (India) and in Europe (Spain, France, UK and Italy). In Europe owned properties include the TNS 135,626 square foot office located at 2 Rue Francis Pedron, Chambourcy, Paris, France and the 101,592 square foot TNS House at Westgate, Hangar Lane, London. Manufacturing facilities are owned in the United Kingdom. Principal leased properties, which are accounted for as operating leases, include office space at the following locations:

Notes

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The Company considers its properties, owned or leased, to be in good condition and generally suitable and adequate for the purposes for which they are used. See also Item 5—Operating and Financial Review and Prospects. As of 31 December 2008, the fixed asset value (cost less depreciation) representing properties, both owned and leased, as reflected in the Company’s consolidated financial statements was approximately £358.7 million.

The task of improving property utilisation continues to be a priority for the Group, with a portfolio of approximately 19 million square feet worldwide. Average square foot per head is down 8% from 236 square feet in 2006 to 218 square feet in 2008. In 2008 the Group achieved the medium-term objective of a 7% establishment cost-to-revenue ratio set in 2002, when the same ratio was 8.4%.

See note 3 to the Consolidated Financial Statements for a schedule by years of future minimum rental payments to be made and future sublease rental payments to be received, as of 31 December 2008, under non-cancelable operating leases of the Company.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Introduction

The Company’s reporting currency is the UK pound sterling. However, the Company’s significant international operations give rise to an exposure to changes in foreign exchange rates. The Group seeks to mitigate the effect of these structural currency exposures by borrowing in the same currencies as the operating (or “functional”) currencies of its main operating units. The majority of the Group’s debt is therefore denominated in US dollars, pounds sterling and euros.

To neutralise foreign exchange impact and to better illustrate the underlying change in revenue and profit from one year to the next, the Company has adopted the practice of discussing results in both reportable currency (local currency results translated into pounds sterling at the prevailing foreign exchange rate) and constant currency (current and prior year local currency results translated into US dollars at a budget, or “constant”, foreign exchange rate).

Certain Non GAAP measures included in this operating and financial review and prospects have been derived from amounts calculated in accordance with IFRS but are not themselves IFRS measures. They should not be viewed in isolation as alternatives to the equivalent IFRS measure, rather should be read in conjunction with the equivalent IFRS measure. These include headline PBIT and headline PBIT margin (headline PBIT as a percent of revenues) on a consolidated basis, free cash flow, and net debt, which we define, explain their use and reconcile to their nearest IFRS measure on pages 23, 31 and 32. In reviewing year on year revenue growth management also uses the measure of like-for-like revenue as discussed on page 25.

See Item 11 of this report for Quantitative and Qualitative Disclosures about Market Risk.

A. Operating Results

Overview

The Company is one of the world’s most comprehensive marketing communications groups. It operates through a large number of established national, multinational and global advertising and marketing services companies. The Company offers services in four reporting segments:

In 2008, 45% of the Company’s consolidated revenues were derived from Advertising and Media Investment Management, with the remaining 55% of its revenues being derived from the remaining three segments.

The Group has established the following financial and strategic objectives:

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The following discussion is based on the Company’s audited Consolidated Financial Statements beginning on page F-1 of this report. The Group’s consolidated financial statements have been prepared under IFRS.

2008 was largely a year of two contrasting halves. A strong first half (although second-quarter growth wobbled a little), and a weaker second half with slowing organic growth, as the impact of the sub-prime and insurance monoline crises, that started towards the end of 2007, was intensified by the collapse, emergency acquisition and restructuring of financial institutions in many parts of the world. The “Beijing bounce”, anticipated in the Group’s budget and reforecasts for the third quarter of 2008, failed to materialise. In the fourth quarter, better than anticipated revenue growth, combined with decisive action to reduce headcount growth, improved relative performance. Headcount fell through a mixture of non-replacement, the attrition rate and increased severance.

Although the US Presidential Election, the Beijing Olympics and the UEFA football championship had the usual positive maxi-quadrennial effect on client spending in 2008, worldwide advertising and marketing expenditures only rose about 2-3% in the year.

Despite the overall slow-down in the industry growth rate, three engines of relative growth remained. Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe, iconically represented by the BRICs (Brazil, Russia, India and China) and those of the Next 11 markets where we are present (Bangladesh, Egypt, Indonesia, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey and Vietnam), continued to grow faster than last year. As did new media and the application of technology in the form of internet, PC, mobile, video content and social networks, which now account for almost 25% of Group revenues. And finally, as did consumer insight and information, insight and consultancy, which now account for almost 27% of Group revenues.

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Segment performance

Management reviews the Group’s businesses in constant currency to better illustrate the underlying trends from one year to the next and also on a like-for-like basis, in which current year actual results on a constant currency basis (which include acquisitions from the relevant date of completion) are compared with prior year, constant currency actual results adjusted to include the results of acquisitions for the commensurate period in the prior year. Management believes that discussing like-for-like revenues provides a better understanding of the Company’s revenue performance and trends because it allows for more meaningful comparisons of current period revenue to that of prior periods. The following table reconciles revenue growth for 2008 and 2007 to like-for-like revenue growth for the same periods.

To supplement the reportable currency segment information presented in note 2 to the Consolidated Financial Statements, the table below gives details of revenue growth by region and business segment on a reported, constant currency, and like-for-like basis.

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Like-for-like revenue growth was positive across all regions other than North America, which was almost flat.

Asia Pacific, Latin America, Africa and the Middle East continued to be the fastest-growing of the Company’s geographic regions, with Africa and the Middle East being the fastest-growing sub-region. Asia Pacific remained strong across the region, with mainland China up almost 9% and India up 21%, although Japan and Australia were weaker. Continental Europe and the UK, although suffering from the deterioration in economic conditions, both grew over 2% like-for-like. In 2008, Continental Europe remained two-paced, with Western Continental Europe softer and Central and Eastern Europe, Russia and the other CIS countries, in particular, more buoyant. Of the big five Western European markets, Spain and Italy were weakest, France and Germany were stable and the UK was stronger.

Performance of the Group’s businesses is reviewed by management based on headline PBIT. A table showing these amounts by segment and geographical area for each of the three years ended 31 December 2008 is presented in note 2 to the Consolidated Financial Statements.

2008 compared with 2007

Revenues—Reported revenues were up 20.9% in 2008 to £7,476.9 million from £6,185.9 million in 2007 reflecting the strength of the euro and US dollar against sterling, as well as the impact of TNS. On a constant currency basis, revenue was up 9.0% and gross margin up 8.2%, with all regions showing revenue growth, as detailed in the table on page 25. In 2008, acquisitions contributed £376.3 million to revenue (including £269.6 million relating to TNS). Acquisitions completed in 2007 contributed £132.2 million to revenue. On a like-for-like basis revenues were up 2.7%. Revenue growth slowed as the year progressed: on a like-for-like basis, growth of 4.8% in the first quarter slowed to 3.8% in the second, 3.0% in the third and then flattened to 0.1% in the final quarter of the year.

Operating costs—Reported operating costs increased by 21.6%. Staff costs in 2008 were up 20.6%. Charges for incentive payments (including the cost of share-based compensation) fell by over 7% to £214 million from £231 million. The Group’s staff cost-to-revenue ratio improved slightly to 58.2% compared with 58.3% in 2007. Part of the Group’s strategy is to continue to ensure that variable staff costs (freelance, consultants and charges for incentive payments) are a significant proportion of total staff costs and revenue, as this provides flexibility to deal with volatility in revenues and recessions or slow downs. In 2007, the ratio of variable staff costs to total staff costs fell marginally by 0.3 percentage points to 12.7% and in 2008 to 11.4%. As a proportion of revenue, variable staff costs were 7.4% in 2007 and 6.6% in 2008. These variable staff costs provide a “shock absorber” to operating margins as revenues come under increasing pressure.

Establishment costs as a proportion of revenues were 7.0% in 2008 compared to 6.9% in 2007.

Goodwill impairment charges of £84.1 million and £44.1 million were recorded in the years ended 31 December 2008 and 2007, respectively. The impairment charges relate to certain under performing businesses in the Group. In certain markets, the impact of current local economic conditions and trading circumstances on these businesses was sufficiently severe to indicate impairment to the carrying value of goodwill. Additionally, in 2008 and 2007, an impairment charge on acquired intangible assets was recorded for £8.4 million and £1.5 million, respectively, resulting from a decline in the value of certain brands and customer relationships held within Branding & Identity, Healthcare and Specialist Communications. Investment write-downs of £30.5 million taken in 2008 mostly related to listed securities. There were no investment write-downs in 2007.

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Operating profit—Reported operating profit was up 8.9% to £876.0 million in 2008 from £804.7 million in 2007. Reported operating margins decreased from 13.0% to 11.7%. Reported profit before interest and taxation (“PBIT”) was £922.0 million in 2008, up 9.0% from £846.1 million in 2007. Reported PBIT margins were 12.3% and 13.7% in 2008 and 2007, respectively. PBIT margins were negatively impacted by 2.6% in 2008 and 1.4% in 2007 due to goodwill impairment and other goodwill and investment write-downs, and amortisation and impairment of acquired intangibles taken on subsidiaries in each year. The impact of profits on disposal of equity investments was immaterial in both 2008 and 2007. Headline PBIT margins remained at 15.0% in 2008. For 2008, the post-acquisition contribution of all acquisitions to the Group’s operating profit was £30.3 million. For 2007, the post-acquisition contribution of acquisitions to the Group’s operating profit was £14.7 million.

The Group has released £23.7 million in 2008 to operating profit relating to excess provisions and other balances established in respect of acquisitions completed prior to 2007 and £16.8 million in 2007 related to acquisitions completed prior to 2006. Further details of the Group’s approach to acquisition accounting are given in Note 28 to the Consolidated Financial Statements.

Finance income/costs—Finance income increased to £169.6 million in 2008 from £139.4 million in 2007. Finance costs increased to £344.8 million in 2008 from £266.1 million in 2007, therefore, net finance costs increased by £48.5 million, reflecting higher interest rates and increased average net debt due to cash spent on acquisitions, including TNS.

Taxes—The Company’s effective tax rate on reported profits in 2008 was 31.2% compared to 28.4% in 2007. The increase is due to an increase in the charge for impairment of goodwill and intangibles amortization in 2008, a proportion of which is not deductible for taxation purposes.

Profit for the year—PBIT increased by 9.0% from £846.1 million in 2007 to £922.0 million in 2008 on a reported basis but fell by 6% in constant currency, reflecting a combined goodwill and investment write-down of £114.6 million compared to £44.1 million in 2007. Profit before taxation increased by 3.8% from £719.4 million in 2007 to £746.8 million in 2008 on a reported basis but declined by 13.4% in constant currency reflecting increased net finance costs. Profit for the year decreased by 0.2% from £515.1 million in 2007 to £513.9 million in 2008 on a reported basis and by 16.4% in constant currency, reflecting the increased effective tax rate. In 2008, £439.1 million of profit for the year was attributable to equity holders of the parent and £74.8 million attributable to minority interests.

2007 compared with 2006

Revenues—Reported revenues were up 4.7% in 2007 to £6,185.9 million from £5,907.8 million in 2006. On a constant currency basis, revenue was up 8.2% and gross margin up 7.8%, with all regions showing revenue growth. In 2007, acquisitions contributed £132.2 million to revenue. Acquisitions completed in 2006 did not make a material contribution to revenue. On a like-for-like basis revenues were up 5.0% and gross margin was up 5.1%. Like-for-like revenues were up 5.3% in the first half of 2007 and 4.8% in the second half, continuing the strong growth of 5.4% in 2006, with the fourth quarter of 2007 up 4.9%.

Operating costs—Reported operating costs increased by 3.6%. Reported operating costs including direct costs (but excluding goodwill impairment and other goodwill write-downs, amortisation

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and impairment of acquired intangibles and investment gains and write-downs) rose in 2007 by 4.2% and by 7.9% in constant currency (over 4.6 % on a like-for-like basis) from the previous year.

Staff costs excluding incentives (which include the costs of share based payments) in 2007 were up 4.6%. Charges for incentive payments (including the cost of share-based compensation) totaled £230.7 million in 2007 (£246.9 million in 2006), down 6.6%, which represents 20.6% (compared with 23.1%, in 2006) of headline PBIT. Before these incentive payments, operating margins remained strong at 18.7%. The reported staff cost to revenue ratio improved 0.5 margin points to 58.3% compared with 58.8% in 2006.

Part of the Group’s strategy is to continue to increase variable staff costs (freelance, consultants and charges for incentive payments, including share option charges) as a proportion of total staff costs and revenue, as this provides flexibility to deal with volatility in revenues and recessions or slow downs. Variable staff costs as a proportion of total staff costs were 12.7% in 2007, a marginal change of 0.3 percentage points from 13.0% in 2006.

Establishment costs as a proportion of revenues continued to improve slightly from 7.1% in 2006 to 6.9% in 2007, driven by better property utilisation and higher revenues.

Goodwill impairment charges of £44.1 million and £35.5 million were recorded in the years ended 31 December 2007 and 2006, respectively. The impairment charges relate to certain under performing businesses in the Group. In certain markets, the impact of current local economic conditions and trading circumstances on these businesses was sufficiently severe to indicate impairment to the carrying value of goodwill. Goodwill write-downs in relation to the utilisation of pre-acquisition tax losses of £1.7 million and £8.8 million were taken in 2007 and 2006, respectively. These write-downs were due to the better than expected performance of certain acquisitions in the year, which enabled the utilisation of pre-acquisition tax attributes that previously could not be recognised at the time of acquisition due to insufficient evidence that they were recoverable. Additionally, in 2007 and 2006, an impairment charge on acquired intangible assets was recorded for £1.5 million, resulting from certain client relationships which were lost during the years concerned.

Operating profit—Reported operating profit was up 8.5% to £804.7 million in 2007 from £741.6 million in 2006. Reported operating margins increased from 12.6% to 13.0%. PBIT was £846.1 million in 2007, up 8.1% from £782.7 million in 2006. Reported operating margins, including income from associates, were 13.7% and 13.2% in 2007 and 2006, respectively. While margins improved overall they were negatively impacted by 1.4% in 2007 and 1.5% in 2006 due to goodwill impairment and other goodwill write-downs, and amortisation and impairment of acquired intangibles taken on subsidiaries in each year. The impact of profits on disposal of equity investments was immaterial in both 2007 and 2006. Headline PBIT margins increased to 15.0% in 2007 from 14.5% in 2006. For 2007, the post-acquisition contribution of all acquisitions to the Group’s operating profit was £14.7 million. For 2006, the post-acquisition contribution of acquisitions to the Group’s operating profit was not material.

The Group released £16.8 million in 2007 to operating profit relating to excess provisions and other balances established in respect of acquisitions completed prior to 2006 and £10.6 million in 2006 related to acquisitions completed prior to 2005. Further details of the Group’s approach to acquisition accounting are given in Note 28 to the Consolidated Financial Statements.

Finance income/costs—Finance income increased to £139.4 million in 2007 from £111.0 million in 2006 mainly due to higher interest rates on higher cash balances. Finance costs increased to £266.1 million in 2007 from £211.7 million in 2006, reflecting higher interest rates on variable interest

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rate debt. Therefore, net finance costs increased by £26 million, largely reflecting the higher interest rates, the impact of the cash cost of the acquisition of 24/7 Real Media Inc in July 2007, partly offset by the impact of improved liquidity as a result of a reduction in average working capital.

Taxes—The Company’s tax rate on reported profits in 2007 was 28.4% compared to 29.2% in 2006. This decrease reflects the continuing positive impact of the Group’s tax planning initiatives.

Profit for the year—Profit for the year attributable to equity holders of the parent was £465.9 million in 2007 against £435.8 million in 2006. The increase was driven by improved results of operations during the year, partially offset by increased net finance costs.

B. Liquidity and Capital Resources

General—The primary sources of funds for the Group are cash generated from operations and funds available under its credit facilities. The primary uses of cash funds in recent years have been for debt service and repayment, capital expenditures, acquisitions, share repurchases and cancellations and dividends. For a breakdown of the Company’s sources and uses of cash see the “Consolidated Cash Flow Statements” included as part of the Company’s Consolidated Financial Statements in Item 18 of this Report.

The Company spent £1,054.0 million (excluding cash and cash equivalents acquired) and £744.4 million for acquisitions and investments in 2008 and 2007, respectively, including payments on loan note redemptions and earnout consideration resulting from acquisitions in prior years. For the same periods, cash spent on purchases of property, plant and equipment and other intangible assets was £220.6 million and £170.8 million, respectively, and cash spent on share repurchases and buy-backs was £112.2 million and £415.4 million, respectively.

There are broadly three alternative uses of funds: capital expenditure, which usually approximates depreciation cost, mergers and acquisitions, which have historically taken the lion’s share of free cash flow, and dividends and share buy backs. In 2007 the Company boosted the target level of the share buy-back program from 2-3% of the outstanding share capital to 4-5%, spending over £400 million in that year on buy-backs. In the first half of 2008, the Company bought back almost 19 million shares, equivalent to 1.6% of share capital, at a cost of £112 million, but then withdrew from the market during the TNS bid process. For the two years following the acquisition of TNS, we will limit our share buy-back program to a target of 1% of share capital per annum and dividend growth at 15% per annum, subject to review by the Board. We expect these actions, together with a reduced level of acquisition spend (targeted at £100 million per annum), to generate surplus cash and a reduction in borrowing levels. The Board has decided to increase the second interim dividend to 10.28p per share, increasing the full-year dividend 15% to 15.47p per share for 2008.

The Group’s liquidity is affected primarily by the working capital flows associated with its media buying activities on behalf of clients. The working capital movements relate primarily to the Group’s billings. Billings comprise the gross amounts billed to clients in respect of commission-based/fee-based income together with the total of other fees earned. In 2008, billings were £36.9 billion, or 4.9 times the revenue of the Group. The inflows and outflows associated with media buying activity therefore represent significant cash flow within each month of the year and are forecast and re-forecast on a regular basis throughout the year by the Group’s treasury staff so as to ensure that there is continuing coverage of peak requirements through committed borrowing facilities from the Group’s bankers and other sources.

Liquidity risk management—The Group manages liquidity risk by ensuring continuity and flexibility of funding even in difficult market conditions. Undrawn committed borrowing facilities are maintained in

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excess of peak net borrowing levels and debt maturities are closely monitored. Targets for average net debt are set on an annual basis and, to assist in meeting this, working capital targets are set for all the Group’s major operations. See the discussions below for the Group’s view on the use of net debt to measure net debt levels.

US Commercial Paper Program—The Group has a $1.4 billion US Commercial Paper Program using the $1.6 billion Revolving Credit Facility described below as a backstop. The Group’s borrowings under this program are notes issued in US dollars and swapped into other currencies as required. The average commercial paper outstanding during the year was $10 million at an average interest rate of 2.83% inclusive of margin. There was no US Commercial Paper outstanding at 31 December 2008.

US$ bonds—The Group has in issue $650 million of 5.875% bonds due June 2014. During the year, the Group repaid $100 million of 6.875% bonds on their due date of July 2008.

Eurobonds—In May 2008, the Group issued €750 million of 6.625% bonds due May 2016. The Group has in issue €600 million of 4.375% bonds due December 2013 and €500 million of 5.25% bonds due January 2015. During the year, the Group repaid €650 million of 6.0% bonds on their due date of June 2008.

Sterling bonds—The Group has in issue £400 million of 6% bonds due April 2017 and £200 million of 6.375% bonds due November 2020.

Revolving Credit Facilities—The Group has a $1.6 billion seven year Revolving Credit Facility due August 2012. During the year, £1,250 million was raised from the Group’s bankers to assist in the acquisition of TNS. This amount is made up of a £650 million term facility with a final maturity date of July 2010 and a £600 million amortising Revolving Credit Facility maturing in July 2011. The Group’s borrowing under these facilities, which are drawn down predominantly in US dollars, euros, Canadian dollars and pounds sterling, averaged $774 million in 2008. The Group had available undrawn committed credit facilities of £1,074 million at December 2008 (2007: £759 million).

Borrowings under the Revolving Credit Facilities are governed by certain financial covenants based on the results and financial position of the Group, including requirements that (i) the interest coverage ratio for each financial period equal or exceed 5.0 to 1 and (ii) the ratio of borrowed funds to earnings before interest, taxes, depreciation and amortisation at 30 June and 31 December in each year shall not exceed 3.5 to 1, both covenants as defined in the relevant agreement. The Group is in compliance with both covenants.

Convertible bonds—In March 2005, with the purchase of Grey Global Group Inc, the Group acquired $150 million of 5% convertible debentures due 2033. Each debenture holder had the right to require Grey and WPP (as co-obligor) to repurchase on each of 28 October 2008, 2010 and 2013 all or a portion of the holder’s then outstanding debentures at par ($1,000 per debenture) plus the amount of accrued and unpaid interest. This right was exercised during 2008 and all of the debentures were subsequently repurchased.

Hedging of financial instruments—The Group’s policy on interest rate and foreign exchange rate management sets out the instruments and methods available to hedge interest and currency risk exposures and the control procedures in place to ensure effectiveness. The Group uses derivative financial instruments to reduce exposure to foreign exchange risk and interest rate movements. The Group does not hold or issue derivative financial instruments for speculative purposes.

With the acquisition of TNS in October 2008 the Group took on $103 million of 6.34% Senior Notes, $62 million of 6.46% Senior Notes, $10 million of floating rate Senior Notes, $20 million of floating rate Guaranteed Senior Notes, €20 million of floating rate Senior Notes and £25 million of

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6.51% Senior Notes which were all repaid in January 2009. With the acquisition of TNS, the Group also took on $30 million of 6.22% Senior Notes due July 2012 and $25 million of 6.34% Senior Notes due July 2014.

As at 31 December 2008, the Group’s net debt was £3,068 million, up £1,782 million from £1,286 million in 2007. Net debt averaged £2,206 million in 2008, against £1,458 million in 2007 (up £614 million from £1,592 million at 2008 exchange rates) reflecting the net acquisition cost of TNS and other, smaller acquisitions.

It is expected that in May 2009 the Group will issue £450 million of 5.75% convertible bonds due May 2014. The conversion price has been set at 600 pence per share. The net proceeds of the offering will be used to pay debt drawn under the £650 million term facility discussed on page 30. These securities will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the US absent registration or an applicable exemption from registration requirements.

In 2008, operating cash flow before movements in working capital and provisions was £1,304.3 million, net cash inflow from operating activities was £922.7 million after movements in working capital provisions of £109.3 million, tax paid £182.5 million, interest and similar charges paid, interest received and investment income of £134.4 million and dividends from associates of £44.6 million. Free cash flow available for debt repayment, acquisitions, share buy-backs and dividends was £777 million. This free cash flow was absorbed by £1,049 million in net acquisition payments and investments, share repurchases and cancellations of £112 million and dividends of £162 million. This resulted in a net outflow of £546 million.

The Group bases its internal cash flow objectives on free cash flow. Management believes free cash flow is meaningful to investors because it is the measure of our funds available for acquisition-related payments, dividends to shareowners, share repurchases and debt repayment. The purpose of presenting free cash flow is to indicate the ongoing cash generation within the control of the Group after taking account of the necessary cash expenditures of maintaining the capital and operating structure of the Group (in the form of payments of interest, corporate taxation and capital expenditure). Net working capital movements are excluded from this measure since these are principally associated with our media buying activities on behalf of clients and are not necessarily within the control of the Group. This computation may not be comparable to that of similarly titled measures presented by other companies.

A tabular reconciliation of free cash flow is shown below.

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Because of the seasonal swings in our working capital generally, and those resulting from our media buying activities on behalf of our clients in particular, together with the fact that we choose for commercial reasons to locate the debt of the Group in particular countries and leave cash resources in others, though our cash resources could be used to repay the debt concerned, management believes that net debt is an appropriate and meaningful measure of the debt levels within the Group. We similarly believe average net debt to be a more accurate reflection of the amount of debt the Group has supporting its activities through the year.

The following table is an analysis of net debt.

As at 31 December 2008, the Company’s credit rating was “BBB” (S&P) and “Baa2” (Moody’s). The rating agencies have placed the Company’s debt ratings on “negative outlook” which means that, in the event the Company’s financial performance and outlook materially deteriorate, a ratings downgrade could occur.

The Company’s borrowings are evenly distributed between fixed and floating rate debt. Given the strong cash generation of the business, its debt maturity profile and available facilities, the directors believe the Company has sufficient liquidity to match its requirements for the foreseeable future.

As part of the scheme of arrangement on 19 November 2008, 1,252,652,646 ordinary shares were issued at a price of 340.75 pence each. On 24 November 2008 the entire balance standing to the credit of the share premium account was transferred to retained earnings as sanctioned by The Royal Court of Jersey. As a result £4,143.1 million was added to retained earnings for both WPP plc and the Group. For the Company this amount is distributable.

C. Research and Development, Patents and Licenses

Not applicable.

D. Trend Information

The discussion below and in the rest of this Item 5 includes forward-looking statements regarding plans, objectives, projections and anticipated future performance based on assumptions that are subject to risks and uncertainties. As such, actual results or outcomes may differ materially from those discussed in the forward-looking statements. See “Forward-Looking Statements” elsewhere in this annual report.

As the first year of the quadrennial cycle, there are no mini- or maxi-quadrennial events in 2009 to boost client spending. It is true that 2009 was always likely to be a weaker year, but the unprecedented current financial crisis has triggered a vicious recession across the globe.

In the first quarter of 2009, reported revenues rose by 35.9% to £2.117 billion. Revenues in constant currency were up 11.1%, reflecting the weakness of the pound sterling against the US dollar and euro. On a like-for-like basis, excluding the impact of acquisitions and currency fluctuations, revenues were down 5.8%. This reflected cuts in client spending in reaction to the global financial and economic crisis, essentially after both the sub-prime crisis and the collapse of Lehman Brothers in September, as de-stocking followed declines in consumer spending.

The first quarter results reflect the acquisition of Taylor Nelson Sofres plc (“TNS”), which was completed on 29 October 2008. Although, the final quarter of 2008 and especially December, with flat Group revenues, were better than expected, the first three months of 2009 were markedly different, although the rate of decline eased in March, perhaps reflecting some stabilisation or maybe re-stocking of inventories.

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In the first quarter the economic pressure, both in terms of constant currency revenue growth and like-for-like revenue growth, was most keenly felt in the United States, with the United Kingdom less affected and Asia Pacific, Latin America, Africa and the Middle East least affected. Despite the overall position, some parts of the world showed some resilience, with Latin America, Africa and Eastern Continental Europe still showing like-for-like growth. Some countries were particularly affected such as Spain, Italy and Denmark, but others such as Russia and Poland continued to grow. In Asia Pacific, Australia and New Zealand, Japan, Singapore and South Korea were difficult, but Mainland China and India still showed some like-for-like growth. In Latin America, Brazil, Argentina, Mexico and Colombia, all showed like-for-like growth. By communications services sector, advertising and media investment management was least affected on a like-for-like basis, with public affairs and public relations and information, insight and consultancy a little more affected. Branding and identity, healthcare and specialist communications (including direct, internet and interactive) were most affected. Cyclical and structural pressure on traditional media in the developed countries continued, whilst digital media grew faster, although at lower rates. Public relations and public affairs continued to benefit from new media and polling research, although for the first quarter, for some time, less so. The Company’s specialist communications businesses in the United States and Western Europe continued to be impacted by the recession although healthcare showed some improvement, driven by account consolidation new business success.

The Group continues to benefit from consolidation trends in the industry, winning several assignments from existing and new clients. The general economic situation is encouraging a significant number of account reviews, consolidations and new business opportunities, particularly in media investment management.

In the first quarter, although revenue was below budget, operating margins were ahead of budget and revenue shortfalls were offset by operating cost reductions. Operating margins were down against last year, partly due to severance costs as headcount was reduced in line with the fall in revenues.

The Company is in the process of reviewing its quarter one revised forecasts, but indications are that like-for-like revenues will be below budget, closer to recent industry forecasts of mid-single digit declines, reflecting continued pressure in most regions, but most significantly in the United States, Western Continental Europe and parts of Asia Pacific, like Japan and Australia. Given the first quarter overall performance and the preliminary quarter one forecast for the year, it will be difficult to maintain operating margins at the level achieved in 2008, after adjusting for TNS.

E. Off-Balance Sheet Arrangements

Not applicable.

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F. Tabular Disclosure of Contractual Obligations

The following summarises the Company’s estimated contractual obligations at 31 December 2008, and the effect such obligations are expected to have on its liquidity and cash flows in the future periods. Certain obligations presented below held by one subsidiary of the Company may be guaranteed by another subsidiary in the ordinary course of business.

Notes

The Company expects to make annual contributions to its funded defined benefit schemes, as determined in line with local conditions and practices. Certain contributions in respect of unfunded schemes are paid as they fall due. In 2006 the Group implemented a funding strategy under which we expect to fully eliminate the deficit for funded schemes by 31 December 2010. The total contributions (for funded schemes) and benefit payments (for unfunded schemes) paid for 2008 amounted to £44.2 million (2007: £47.0 million, 2006: £48.6 million). Employer contributions and benefit payments in 2009 are expected to be in the range of £63 million to £90 million depending on the performance of the assets. Projections for years after 2009 are subject to a number of factors, including future asset performance and changes in assumptions which mean the Company is unable to make sufficiently reliable estimations of future contributions.

Property Costs

Our future priority in managing the property portfolio of approximately 19 million sq ft worldwide is to ensure growth in additional square footage is far less than the growth in revenues and headcount. In the short term our objectives will be to manage our lease expiries so that we can reduce our portfolio in line with any short-term reductions in headcount and revenue.

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Inflation

As in 2007, in management’s opinion the effect of inflation has not had a material impact on the Company’s results for the year or financial position as at 31 December 2008.

Use of Estimates

The preparation of financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Critical Accounting Policies

The Company’s financial statements have been prepared in accordance with IFRS. A summary of the Group’s principal accounting policies are described in the Accounting Policies section of the Consolidated Financial Statements, entitled “Accounting Policies”. The Company believes certain of these accounting policies are particularly critical to understanding the more significant judgments and estimates used in the preparation of its consolidated financial statements. Therefore, we have prepared the following supplemental discussion of critical accounting policies, which should be read together with our financial statements and notes thereto.

Goodwill and other intangibles

The Company has a significant amount of goodwill and other intangible assets. In accordance with the guidance provided by IAS 36 ‘Impairment of Assets’, the Company initially tests the carrying value of goodwill and other indefinite lived intangible assets for impairment annually as at 30 June of each year, and then updates the review as at 31 December or whenever there is an indication of impairment.

Under IFRS, an impairment charge is required for both goodwill and other indefinite lived assets when the carrying amount exceeds the ‘recoverable amount’, defined as the higher of fair value less costs to sell and value in use. Our approach in determining the recoverable amount utilises a discounted cash flow methodology, which necessarily involves making numerous estimates and assumptions regarding revenue growth, operating margins, tax rates, appropriate discount rates and working capital requirements. These estimates will likely differ from future actual results of operations and cash flows, and it is possible that these differences could be material. In addition, judgments are applied in determining the level of cash-generating unit we identify for impairment testing and the criteria we use to determine which assets should be aggregated. A difference in testing levels could affect whether an impairment is recorded and the extent of impairment loss. Changes in our business activities or structure may also result in changes to the level of testing in future periods. Further, future events could cause the Company to conclude that impairment indicators exist and that the asset values associated with a given operation have become impaired. Any resulting impairment loss could have a material impact on the Company’s financial condition and results of operations.

In 2007, the Group acquired 24/7 Real Media, Inc. for consideration of approximately £330 million. 24/7 significantly enhances the Group’s digital capability and will make a major contribution to winning new business for the Group, primarily our Advertising and Media Investment Management businesses. For this reason, goodwill relating to 24/7 was reviewed for impairment against the net present value of future cash flows of this segment as the appropriate cash-generating unit.

Historically our impairment losses have resulted from a specific event, condition or circumstance in one of our companies, such as the loss of a significant client. As a result, changes in the assumptions

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used in our impairment model have not had a significant effect on the impairment charges recognised. The carrying value of goodwill and other intangible assets will continue to be reviewed at least annually for impairment and adjusted to the recoverable amount if required.

The most significant assumptions employed by the Company in determining recoverable amounts are as follows:

Future anticipated payments to vendors in respect of contingent consideration (earnouts) are based on the directors’ best estimates of future obligations, which are dependent on the future performance of the interests acquired and assume the operating companies improve profits in line with directors’ estimates. A summary of earnout related obligations included in creditors is shown in note 19 to the Consolidated Financial Statements. WPP has also entered into option agreements that allow the Group’s equity partners to require the Group to purchase the minority interest. These agreements are treated as derivatives over equity instruments and are recorded in the balance sheet at fair value and the valuation is remeasured at year end. Under IFRS, fair value is based on the present value of expected cash outflows. Actual performance may differ from the assumptions used resulting in amounts ultimately paid out with respect to these earnout and option agreements at more or less than the recorded liabilities.

Acquisition accounting

The Group accounts for acquisitions in accordance with IFRS 3 ‘Business Combinations’. IFRS 3 requires the acquiree’s identifiable assets, liabilities and contingent liabilities (other than non-current assets or disposal groups held for sale) to be recognised at fair value at acquisition date. In assessing fair value at acquisition date, management make their best estimate of the likely outcome where the fair value of an asset or liability may be contingent on a future event. In certain instances, the underlying transaction giving rise to an estimate may not be resolved until some years after the acquisition date. IFRS 3 requires the release to profit of any acquisition reserves which subsequently become excess in the same way as any excess costs over those provided at acquisition date are charged to profit. At each period end management assess provisions and other balances established in respect of acquisitions for their continued probability of occurrence and amend the relevant value accordingly through the income statement or as an adjustment to goodwill as appropriate under IFRS 3. In 2008 operating profit includes credits totaling £23.7 million (2007: £16.8 million, 2006: £10.6 million) relating to the release of excess provisions and other balances established in respect of acquisitions completed prior to 2007.

Revenue recognition

Advertising and media investment management revenue is typically derived from commissions on media placements and fees for advertising services. Revenue may consist of various arrangements involving commissions, fees, incentive-based revenue or a combination of the three, as agreed upon with each client.

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Revenue is recognised when the service is performed, in accordance with the terms of the contractual arrangement. Incentive-based revenue typically comprises both quantitative and qualitative elements; on the element related to quantitative targets, revenue is recognised when the quantitative targets have been achieved; on the element related to qualitative targets, revenue is recognised when the incentive is received or receivable.

The Group receives volume rebates from certain suppliers for transactions entered into on behalf of clients that, based on the terms of the relevant contracts and local law, are either remitted to clients or retained by the Group. If amounts are passed on to clients they are recorded as liabilities until settled or, if retained by the Group, are recorded as revenue when earned.

In applying the proportional performance method of revenue recognition for both market research and other long-term contracts, management is required to make significant judgments, estimates and assumptions. In assessing contract performance, both input and output criteria are reviewed. Costs incurred are used as an objective input measure of performance. The primary input of all work performed under these arrangements is labor. As a result of the relationship between labor and cost, there is normally a direct relationship between costs incurred and the proportion of the contract performed to date. Costs incurred as a proportion of expected total costs is used as an initial proportional performance measure. The indicative proportional performance measure is subsequently validated against other more subjective criteria (i.e. relevant output measures) such as the percentage of interviews completed, percentage of reports delivered to a client and the achievement of any project milestones stipulated in the contract. In the event of divergence between the objective and more subjective measures, the more subjective measure takes precedence since these are output measures.

Since project costs can vary from initial estimates, the reliance on total project cost estimate represents an uncertainty inherent in the revenue recognition process. Individual project budgets are reviewed regularly with project leaders to ensure that cost estimates are based upon up to date and as accurate information as possible, and take into account any relevant historic performance experience. Also, the majority of contracted services subject to proportional performance method revenue recognition are in relation to short term projects, averaging approximately 3 months. Due to this close and frequent monitoring of budgeted costs and the preponderance of short term projects, the impact of variances between actual and budgeted project costs has historically been minimal. The Company does not believe that the effect of these uncertainties, taken as a whole, will significantly impact their results of operations in the future.

Pension costs

Pension costs are accounted for in accordance with IAS 19, “Employee Benefits” under IFRS. Pension costs are assessed in accordance with the advice of local independent qualified actuaries. The latest full actuarial valuations for the various schemes were carried out as at various dates in the last three years. These valuations have generally been updated by the local independent qualified actuaries to 31 December 2008.

The Group has a policy of closing defined benefit schemes to new members which has been effected in respect of a significant number of the schemes. As a result, these schemes generally have an ageing membership population. In accordance with IAS 19, the actuarial calculations have been carried out using the projected unit method. In these circumstances, use of this method implies that the contribution rate implicit in the current service cost will increase in future years.

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The Group’s pension deficit was £268.7 million as at 31 December 2008, compared to £133.6 million as at 31 December 2007. The pension deficit is primarily due to a decrease in pension scheme asset values in 2008 and reflects the deterioration in the global economic environment during the year and the effect of foreign exchange rates.

There are a number of areas in the pension accounting that involve judgments made by management. These include establishing the long-term expected rates of investment return on pension assets, mortality assumptions, discount rates, inflation, rate of increase in pensions in payment and salary increases.

Most of the Group’s pension scheme assets are held by its schemes in the UK and North America. In the UK, the forecasted weighted average return on assets decreased from 5.8% as at 31 December 2007 to 5.7% as at 31 December 2008, and in North America, the forecasted weighted average return decreased from 6.7% to 6.6%, broadly in line with the yields available in both markets.

Management reviews the expected long-term rates of return on an annual basis and revises them as appropriate.

Also, we periodically commission detailed asset and liability studies performed by third-party professional investment advisors and actuaries, which generate probability-adjusted expected future returns on those assets. These studies also project our estimated future pension payments and evaluate the efficiency of the allocation of our pension plan assets into various investment categories.

At 31 December 2008, the life expectancies underlying the value of the accrued liabilities for the main defined benefit pension plans operated by the Group were as follows:

In the determination of mortality assumptions, management use the most up-to-date mortality tables available in each country and consistently allows for expected generational improvement.

For a 0.25% increase or decrease in the discount rate at 31 December 2008, the 2009 pension expense would be broadly unchanged as the change in service cost and interest cost are similar. The effect on the year-end 2008 pension deficit would be a decrease or increase, respectively, of approximately £22.5 million.

Contributions to funded schemes are determined in line with local conditions and practices. Certain contributions in respect of unfunded schemes are paid as they fall due. In 2006 the Group implemented a funding strategy under which our objective is to fully eliminate the deficit for funded schemes by 31 December 2010. Employer contributions and benefit payments in 2009 are expected to be in the range of £63 million to £90 million depending on the performance of the assets.

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Deferred taxes

We record deferred tax assets and liabilities using tax rates enacted, or substantively enacted, at the balance sheet date for the effect of temporary differences between book and tax bases of assets and liabilities. Currently we have deferred tax assets resulting from operating loss carryforwards and deductible temporary differences, all of which could reduce taxable income in the future. Based on available evidence, both positive and negative, we determine whether it is probable that all or a portion of the deferred tax assets will be realised. The main factors that we consider include:

If it is our belief that it is probable that some portion of these assets will not be realised, then no asset is recognised in relation to the portion not considered to be realisable. Gross unrecognised assets under IFRS were £3,796.6 million in 2008.

If market conditions improve and future results of operations exceed our current expectations, our existing recognised deferred tax assets may be adjusted, resulting in future tax benefits. Alternatively, if market conditions deteriorate further or future results of operations are less than expected, future assessments may result in a determination that some or all of the deferred tax assets are not realisable. As a result, we may need to reverse all or a portion of the deferred tax assets, which may have a significant effect on our results of operations and financial condition.

New IFRS Accounting Pronouncements

The following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

IFRIC 13 Customer Loyalty;

IFRIC 16 Hedges of a Net Investment in a Foreign Operation;

IFRIC 17 Distributions of Non-cash Assets to Owners;

IFRIC 18 Transfers of Assets from Customers;

IFRS 1 (amended)/IAS 27 (amended): Cost of an Investment in a Subsidiary, Jointly Controlled Entity or associate;

IFRS 2 (amended): Share-Based Payment-Vesting Conditions and Cancellations;

IFRS 8 Operating Segments;

IAS 1 (revised) Presentation of Financial Statements;

IAS 23 (revised) Borrowing Costs; and

IAS 32 (amended)/IAS 1 (amended): Puttable Financial Instruments and Obligations arising on Liquidation.

The Group does not consider that these Standards and Interpretations will have a significant impact on the financial statements of the Group except for additional disclosures when the relevant standards come into effect for periods commencing on or after 1 January 2009.

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In addition, IFRS 3 (revised) Business Combinations and IAS 27 (revised) Consolidated and Separate Financial Statements become effective for the Group in the year ending 31 December 2010. The revisions to these standards will apply to business combinations completed after 1 January 2010. The main changes under the revised standards are: all acquisition-related costs must be recognised as an expense in the period; contingent consideration payable is to be measured at fair value at the acquisition date. Any subsequent movements in the fair value of such consideration as a result of post-acquisition events (such as changes in estimates of earnout consideration) must be recognised as a gain or loss in the income statement; equity interests held prior to control being obtained must be re-measured to fair value at the acquisition date, with any gain or loss recognised in the income statement; increases in ownership interest in a subsidiary that do not result in a change of control are treated as transactions among equity holders and are reported within equity. No gain or loss is recognised on such transactions and goodwill is not re-measured.

The revisions to the standards apply prospectively to business combinations for which the acquisition date is on or after the first annual financial reporting period beginning on or after 1 January 2009. Consequently, the impact that these revised standards will have on the financial statements of the Group will depend on the circumstances of business combinations occurring on or after 1 January 2010.

In the current year, the following interpretations issued became effective:

IFRIC 11: IFRS 2 – Group and Treasury Share Transactions; and

IFRIC 14: IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction.

The adoption of these interpretations has not led to any changes in the Group’s accounting policies.

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The directors and executive officers of the Company as of 14 April 2009 are as follows:

Philip Lader, age 63: Non-executive chairman. Philip Lader was appointed chairman in 2001. The US Ambassador to the Court of St James’s from 1997 to 2001, he previously served in several senior executive roles in the US Government, including as a Member of the President’s Cabinet and as White House Deputy Chief of Staff. Before entering government service, he was executive vice president of the company managing the late Sir James Goldsmith’s US holdings and president of both a prominent American real estate company and universities in the US and Australia. A lawyer, he is also a Senior Advisor to Morgan Stanley, a member of the council of Lloyd’s (insurance market) a director of RAND, Marathon Oil, Rusal, AES Corporation and Songbird Estates plc (Canary Wharf), a trustee of the Smithsonian Museum of American History and the Atlantic Council and a member of the Council on Foreign Relations.

Sir Martin Sorrell, age 64: Chief executive. Sir Martin Sorrell joined WPP in 1986 as a director, becoming Group chief executive in the same year. He is a non-executive director of Formula One.

Paul Richardson, age 51: Finance director. Paul Richardson became Group finance director of WPP in 1996 after four years with the Company as director of treasury. He is responsible for the Group’s worldwide functions in finance, information technology, procurement, property, treasury, taxation, internal audit and corporate responsibility. He is also the Country Manager for Italy. He is a chartered accountant and fellow of the Association of Corporate Treasurers. He is a non-executive director of CEVA Group plc, Chime Communications PLC and STW Communications Group Limited in Australia, the last two being companies associated with the Group.

Mark Read, age 42: Strategy director and CEO, WPP Digital. Mark Read was appointed a director in March 2005. He has been WPP’s director of strategy since 2002 and is also CEO of WPP Digital. He is a member of the Supervisory Board of HighCo and a director of CHI & Partners. He worked at WPP between 1989 and 1995 in both parent company and operating company roles. Prior to rejoining WPP in 2002, he was a principal at the consultancy firm of Booz-Allen & Hamilton and founded and developed the company WebRewards in the UK.

Colin Day, age 54: Non-executive director. Colin Day was appointed a director in July 2005. He is group finance director of Reckitt Benckiser plc, having been appointed to its board in September 2000 and became a non-executive director of Cadbury plc in December 2008. Prior to joining Reckitt Benckiser he was group finance director of Aegis Group plc and previously held a number of senior finance positions with ABB Group plc and De La Rue Group plc. He was a non-executive director of Imperial Tobacco plc until February 2007 and of easyJet plc until September 2005.