Final Results - Part II
WPP Group PLC
24 February 2006
Appendix I
WPP GROUP PLC
Preliminary results for the year ended 31 December 2005
Unaudited preliminary consolidated income statement for the year ended 31
December 2005
Constant
Currency1
Notes 2005 2004
£m £m +/(-)% +/(-)%
Turnover (billings) 26,673.7 19,598.0 36.1 35.9
Revenue 5,373.7 4,299.5 25.0 22.9
Direct costs (241.0) (225.1) (7.1) (4.9)
Gross profit 5,132.7 4,074.4 26.0 23.9
Operating costs 4 (4,479.9) (3,598.9) (24.5) (22.6)
Operating profit 652.8 475.5 37.3 33.6
Share of results of associates 4 33.9 29.5 14.9 10.3
Profit before interest and 686.7 505.0 36.0 32.3
taxation
Finance income 5 87.6 77.7 12.7 10.9
Finance costs 5 (182.3) (148.3) (22.9) (22.3)
Profit before taxation 592.0 434.4 36.3 31.8
Taxation 7 (194.0) (135.0) (43.7) (39.7)
Profit for the year 398.0 299.4 32.9 28.2
Attributable to:
Equity holders of the parent 363.9 273.0 33.3 28.6
Minority interests 34.1 26.4 (29.2) (24.3)
398.0 299.4 32.9 28.2
Headline PBIT 6,19 754.8 560.2 34.7 31.3
Headline PBIT margin 19 14.0% 13.0%
Headline PBT 19 669.0 489.6 36.6 32.5
Earnings per share2
Basic earnings per ordinary share 9 30.3p 24.0p 26.3 21.6
Diluted earnings per ordinary 9 29.7p 23.4p 26.9 22.5
share
1 The basis for calculating the constant currency percentage change shown above
is described in the glossary attached to this appendix.
2 The calculations of the Group's earnings per share and Headline earnings per
share are set out in note 9.
WPP GROUP PLC
Unaudited preliminary consolidated summary cash flow statement for the year
ended 31 December 2005
Notes 2005 2004
£m £m
Net cash inflow from operating activities 10 837.5 556.4
Investing activities
Acquisitions and disposals 10 (507.7) (208.9)
Purchase of property, plant and equipment (160.5) (89.7)
Purchase of other intangible assets (incl. capitalised (10.8) (5.9)
computer software)
Proceeds on disposal of property, plant and equipment 6.7 9.3
Net cash outflow from investing activities (672.3) (295.2)
Financing activities
Issue of shares 20.3 17.9
Share repurchases and buybacks 10 (152.3) (88.7)
Net (decrease)/increase in borrowings 10 (595.2) 128.6
Financing and share issue costs (2.2) (5.0)
Equity dividends paid (100.2) (81.7)
Dividends paid to minority shareholders in subsidiary (24.0) (22.5)
undertakings
Net cash outflow from financing activities (853.6) (51.4)
Net (decrease)/increase in cash and cash equivalents (688.4) 209.8
Translation differences 85.0 (44.6)
Cash and cash equivalents at beginning of year 1,283.0 1,117.8
Cash and cash equivalents at end of year 10 679.6 1,283.0
Reconciliation of net cash flow to movement in net debt:
Net (decrease)/increase in cash and cash equivalents (688.4) 209.8
Cash inflow/(outflow) from (increase)/decrease in debt 596.9 (124.2)
financing
Net debt acquired (140.8) (9.6)
Other movements (25.9) (8.2)
Translation difference 8.9 (6.7)
Movement of net debt in the year (249.3) 61.1
Net debt at beginning of year (300.4) (361.5)
IAS 39 adjustment at 1 January 2005 11 (254.3) -
Net debt at end of year 12 (804.0) (300.4)
Unaudited preliminary consolidated statement of recognised income and expense
for the year ended 31 December 2005
2005 2004
£m £m
Profit for the year 398.0 299.4
Exchange adjustments on foreign currency net investments 266.1 (102.7)
Revaluation of other investments 21.0 -
Actuarial loss on defined benefit pension schemes (16.5) (18.2)
Deferred tax on defined benefit pension schemes 3.6 3.3
Total recognised income and expense relating to the year 672.2 181.8
Attributable to:
Equity holders of the parent 638.1 155.4
Minority interests 34.1 26.4
672.2 181.8
WPP GROUP PLC
Unaudited preliminary consolidated balance sheet as at 31 December 2005
Notes 2005 2004
£m £m
Non-current assets
Intangible assets:
Goodwill 13 5,675.2 4,389.7
Other 14 1,260.6 773.6
Property, plant and equipment 423.5 309.8
Interests in associates 509.9 385.5
Other investments 55.3 8.1
Deferred tax assets 130.3 100.2
Trade and other receivables 15 142.1 59.5
8,196.9 6,026.4
Current assets
Inventories 281.5 220.6
Trade and other receivables 15 4,795.5 2,541.5
Trade receivables within working capital:2
Gross debts - 545.7
Non-returnable proceeds - (261.0)
- 284.7
Cash and short-term deposits 1,115.2 1,616.0
6,192.2 4,662.8
Current liabilities
Trade and other payables 16 (6,828.4) (4,515.9)
Corporate income tax payable (56.5) (53.1)
Bank overdrafts and loans (457.8) (597.8)
(7,342.7) (5,166.8)
Net current liabilities (1,150.5) (504.0)
Total assets less current liabilities 7,046.4 5,522.4
Non-current liabilities
Bonds and bank loans (1,461.4) (1,318.6)
Trade and other payables 17 (703.0) (536.6)
Deferred tax liabilities (533.1) (312.3)
Provisions for post employment benefits (231.4) (202.3)
Provisions for liabilities and charges (131.7) (86.9)
(3,060.6) (2,456.7)
Net assets 3,985.8 3,065.7
Equity
Called up share capital 125.3 118.5
Share premium account 2.1 1,002.2
Shares to be issued 37.2 49.9
Merger reserve (1,388.1) 2,920.6
Other reserves 167.3 (90.6)
Own shares1 (292.9) (277.7)
Retained earnings 5,253.6 (711.8)
Equity share owners' funds 18 3,904.5 3,011.1
Minority interests 81.3 54.6
Total Equity 3,985.8 3,065.7
1 Investments in own shares held by the ESOP Trusts.
2 Following the adoption of IAS 32 and IAS 39 the Group has reclassified the
working capital facility on 1 January 2005 as IFRS does not permit linked
presentation. The 2004 figures have not been restated as permitted by IFRS 1.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (Notes 1 -
19)
1. Basis of accounting
The unaudited preliminary consolidated financial statements are prepared under
the historical cost convention, except for the revaluation of certain financial
instruments as disclosed in our accounting policies.
2. Accounting policies
The unaudited preliminary consolidated financial statements comply with relevant
International Financial Reporting Standards (IFRS), incorporating International
Accounting Standards, and with the accounting policies of the Group which are
available on the Group's website, www.wpp.com.
The disclosures required by IFRS 1 concerning the transition from UK GAAP to
IFRS are disclosed in Appendix III of the Group's 2005 Interim Report. A
detailed summary of the key impacts of the transition from UK GAAP to IFRS was
included in the Appendix to the Group's first Quarterly Trading Update issued on
22 April 2005.
Statutory Information
In October 2005, pursuant to a Scheme of Arrangement under s425 of the Companies
Act 1985, a new parent company was introduced which is now called WPP Group plc
("Newco"). The previous parent company has been renamed and re-registered as WPP
2005 Limited ("Oldco").
The financial information for the years ended 31 December 2005 in respect of
Newco or 2004 in respect of Oldco does not constitute either company's statutory
accounts. The statutory accounts of Oldco for the year ended 31 December 2004,
prepared under UK GAAP, were delivered to the Registrar of Companies and
received an unqualified auditors' report and did not contain a statement under
s237 (2) or (3) of the Companies Act 1985. The statutory accounts for the year
ended 31 December 2005 of Newco will be finalised on the basis of the financial
information presented by the directors in this unaudited preliminary
announcement and will be delivered to the Registrar of Companies following the
company's annual general meeting. The audit report for the year ended 31
December 2005 has yet to be signed.
Basis of preparation
The introduction of a new holding company constitutes a group reconstruction and
has been accounted for using merger accounting principles. Therefore, although
the group reconstruction did not become effective until October 2005, the
financial statements of WPP Group plc are presented as if Newco and Oldco had
always been part of the same group. Accordingly, the results of the group for
the entire year ended 31 December 2005 are shown in the consolidated income
statement and the comparative figures for the year ended 31 December 2004 are
also prepared on this basis.
The preliminary announcement was approved by the board of directors on 23
February 2006.
3. Currency conversion
The 2005 unaudited preliminary consolidated income statement is prepared using,
among other currencies, an average exchange rate of US$1.8189 to the pound
(2004: US$1.8326). The unaudited preliminary consolidated balance sheet as at 31
December 2005 has been prepared using the exchange rate on that day of US$1.7187
to the pound (2004: US$1.9158).
The basis for calculating the constant currency percentage changes, shown on the
face of the consolidated income statement, is described in the glossary attached
to this appendix.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
4. Operating costs and share of results of associates
Operating costs include:
2005 2004
£m £m
Amortisation of acquired intangible assets 25.3 -
Goodwill impairment 46.0 40.6
Goodwill write-down relating to utilisation of pre-acquisition 1.1 12.6
tax losses
Profits on disposal of fixed asset investments (4.3) (3.0)
Amounts written off fixed asset investments - 5.0
Share-based payments 68.6 58.8
Other operating costs 4,343.2 3,484.9
4,479.9 3,598.9
Share-based payments include:
2005 2004
£m £m
Stock options 25.9 29.4
Other share-based payments 42.7 29.4
68.6 58.8
The impairment charge of £46.0 million (2004: £40.6 million) relates to a number
of under-performing businesses in the Group. In certain markets, the impact of
current, local economic conditions and trading circumstances on these businesses
is sufficiently severe to indicate impairment to the carrying value of goodwill.
The Group has released £10.1 million (2004: £14.0 million) to operating profit
relating to excess provisions established in respect of acquisitions completed
prior to 2004. At the same time, the Group includes within operating costs
charges for one-off costs, severance and restructuring charges, including those
resulting from integrating acquisitions. For this reason, the Group considers
that the above combination of releases and charges, when taken together, does
not materially impact the Group's quality of earnings.
Share of results of associates include:
2005 2004
£m £m
Share of profit before interest and taxation 54.0 48.1
Share of interest and minority interest (0.9) (0.7)
Share of taxation (19.2) (17.9)
33.9 29.5
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
5. Finance income and finance costs
Finance income includes:
2005 2004
£m £m
Expected return on pension scheme assets 24.2 21.3
Investment income 5.6 -
Interest income 57.8 56.4
87.6 77.7
Finance costs include:
2005 2004
£m £m
Interest on pension scheme liabilities 32.0 30.8
Interest payable and similar charges1 141.4 117.5
Finance charges (excluding revaluation of financial instruments) 173.4 148.3
Revaluation of financial instruments 8.9 -
182.3 148.3
1 The charge of £141.4 million for the year ended 31 December 2005 includes
expense of £13.8 million arising from the change in accounting for the Group's
convertible bonds following the adoption of IAS 32 'Financial Instruments:
Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and
Measurement' on 1 January 2005. Prior year comparatives have not been restated
as permitted by IFRS 1. This approach also applies to the initial recognition
and subsequent re-measurement of the fair value of other financial instruments
shown below. UK GAAP has continued to be applied in accounting for financial
instruments in previous years.
The following are included in the revaluation of financial instruments shown
above:
2005 2004
£m £m
Movements in fair value of treasury instruments 3.0 -
Revaluation of put options over minority interests (note 16) 5.8 -
Other 0.1 -
8.9 -
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
6. Segmental analysis
Reported contributions by operating sector were as follows:
2005 2004
£m £m
Revenue
Advertising, Media Investment Management 2,606.4 1,985.3
Information, Insight & Consultancy 810.4 744.8
Public Relations & Public Affairs 534.4 445.2
Branding & Identity, Healthcare and Specialist Communications 1,422.5 1,124.2
5,373.7 4,299.5
Headline PBIT1
Advertising, Media Investment Management 402.7 295.0
Information, Insight & Consultancy 83.4 66.1
Public Relations & Public Affairs 75.3 58.4
Branding & Identity, Healthcare and Specialist Communications 193.4 140.7
754.8 560.2
Headline PBIT Margin % %
Advertising, Media Investment Management 15.5 14.9
Information, Insight & Consultancy 10.3 8.9
Public Relations & Public Affairs 14.1 13.1
Branding & Identity, Healthcare and Specialist Communications 13.6 12.5
14.0 13.0
1 Headline PBIT is defined in note 19.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
6. Segmental analysis (continued)
Reported contributions by geographical area were as follows:
2005 2004
£m £m
Revenue
United Kingdom 808.1 728.5
North America 2,106.9 1,651.9
Continental Europe 1,410.3 1,134.8
Asia Pacific, Latin America, Africa & Middle East 1,048.4 784.3
5,373.7 4,299.5
Headline PBIT1
United Kingdom 84.6 75.7
North America 350.1 251.2
Continental Europe 176.1 128.1
Asia Pacific, Latin America, Africa & Middle East 144.0 105.2
754.8 560.2
Headline PBIT Margin % %
United Kingdom 10.5 10.4
North America 16.6 15.2
Continental Europe 12.5 11.3
Asia Pacific, Latin America, Africa & Middle East 13.7 13.4
14.0 13.0
1 Headline PBIT is defined in note 19.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
7. Taxation
The Group tax rate on Headline PBT1 is 29.0% (2004: 27.6%). The tax charge
comprises:
2005 2004
£m £m
Current tax
UK Corporation tax at 30%
Current year 19.9 22.5
Prior years (11.4) -
8.5 22.5
Foreign tax
Current year 177.3 108.6
Prior years 9.9 9.6
187.2 118.2
Total Current Tax 195.7 140.7
Deferred tax
Current year (1.7) (5.7)
Total tax on profits 194.0 135.0
1 Headline PBT is defined in note 19.
8. Ordinary dividends
The Board has recommended a final dividend of 6.34p (2004: 5.28p) per ordinary
share in addition to the interim dividend paid of 3.00p (2004: 2.50p) per
ordinary share. This makes a total for the year of 9.34p (2004: 7.78p) per
ordinary share, an increase of 20%. The final dividend is expected to be paid on
3 July 2006 to share owners on the register at 2 June 2006.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
9. Earnings per share
Basic EPS
The reconciliation between Reported and Headline EPS, and between earnings
figures used in calculating them, is as follows:
2005 2004 +/(-)% Constant Currency
+/(-)%
Reported earnings1 (£m) 363.9 273.0
Headline earnings (£m) (note 19) 440.9 328.2
Average shares used in Basic EPS 1,200.1 1,136.1
calculation (m)
Reported EPS 30.3p 24.0p 26.3 21.6
Headline EPS 36.7p 28.9p 27.0 23.4
1 Reported earnings is equivalent to profit for the period attributable to
equity holders of the parent.
Diluted EPS
The diluted Reported and Headline EPS are set out below:
2005 2004 +/(-)% Constant Currency
+/(-)%
Diluted Reported earnings (£m) 363.9 285.2
Diluted Headline earnings (£m) 440.9 340.4
Average shares used in diluted EPS 1,224.8 1,219.6
calculation (m)
Diluted Reported EPS 29.7p 23.4p 26.9 22.5
Diluted Headline EPS 36.0p 27.9p 29.0 25.4
Diluted EPS has been calculated based on the Reported and Headline Earnings
amounts above. For the year ended 31 December 2004, both the $287.5 million
convertible bonds and the £450 million convertible bonds were dilutive and
earnings for the purposes of this calculation consequently included an
additional £12.2 million.
A reconciliation between the shares used in calculating Basic and Diluted EPS is
as follows:
2005 2004
m m
Average shares used in Basic EPS calculation 1,200.1 1,136.1
Dilutive share options outstanding 18.6 20.6
Other potentially issuable shares 6.1 4.6
$287.5 million convertible bonds - 16.4
£450 million convertible bonds - 41.9
Shares used in Diluted EPS calculation 1,224.8 1,219.6
At 31 December 2005 there were 1,252,899,372 ordinary shares in issue.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
10. Analysis of cash flows
The following tables analyse the items included within the main cash flow
headings on page 13:
Net cash inflow from operating activities:
2005 2004
£m £m
Operating profit 652.8 475.5
Adjustments for:
Non cash share-based incentive plans (including stock options) 68.6 58.8
Depreciation of property, plant and equipment 111.4 96.7
Impairment of goodwill 46.0 40.6
Goodwill write-down relating to utilisation of pre-acquisition 1.1 12.6
tax losses
Amortisation of acquired intangible assets 25.3 -
Amortisation of other intangible assets 10.7 6.7
Profits on disposal of fixed asset investments (4.3) (3.0)
Loss on sale of property, plant and equipment 1.1 1.9
Amounts written off fixed asset investments - 5.0
Operating cash flow before movements in working capital 912.7 694.8
Movements in working capital and provisions 107.6 (4.8)
Cash generated by operations 1,020.3 690.0
Corporation and overseas tax paid (136.0) (101.3)
Interest and similar charges (128.2) (99.7)
Interest received 62.4 48.9
Investment income 5.6 -
Dividends from associates 13.4 18.5
837.5 556.4
Acquisitions and disposals:
2005 2004
£m £m
Initial cash consideration (561.2) (97.3)
Cash and cash equivalents acquired 173.9 6.3
Earnout payments (96.7) (78.6)
Loan note redemptions (33.0) (26.6)
Purchase of other investments (including associates) (29.0) (22.0)
Proceeds on disposal of investments 38.3 9.3
(507.7) (208.9)
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
10. Analysis of cash flows (continued)
Share repurchases and buybacks:
2005 2004
£m £m
Share cancellations (including brokerage fees) (123.3) (73.7)
Purchase of own shares by ESOP trusts (29.0) (15.0)
(152.3) (88.7)
Net (decrease)/increase in borrowings:
2005 2004
£m £m
Increase in drawings on bank loans 17.1 0.9
Repayment of $287.5 million convertible bonds (154.5) -
Repayment of $125 million Grey debt (65.3) -
Repayment of working capital facility (277.2) -
Repayment of $200 million bonds (115.3) -
Proceeds from issue of $650 million 10 year bonds - 358.2
Repayment of €350 million bonds - (230.5)
(595.2) 128.6
Cash and cash equivalents:
2005 2004
£m £m
Cash at bank and in hand 1,029.0 1,372.0
Short-term bank deposits 86.2 244.0
Overdrafts1 (435.6) (333.0)
679.6 1,283.0
1 Bank overdrafts are included in cash and cash equivalents because they form an
integral part of the Group's cash management.
11. Financial instruments
The IAS 32 and IAS 39 adjustments to net debt at 1 January 2005 are made up of
the following:
£m
Reclassification of components of convertible debt 32.4
Reclassification of the deferred gain recognised under UK GAAP (18.6)
Recognition of financial instruments at fair value (7.1)
Reclassification of the working capital facility1 (261.0)
(254.3)
1 The Group had a working capital facility (the advance of cash financing
against which certain trade debts have been assigned) that IAS 32 and IAS 39
require to be presented as a bank borrowing. As the Group has elected to apply
IAS 32 and IAS 39 from 1 January 2005, net debt at 31 December 2004 has been
presented to comply with 2004 UK GAAP as a deduction from debtors, in accordance
with the 'linked presentation' required by FRS 5 (Reporting the substance of
transactions). The drawdown on the facility was transferred to debt at 1 January
2005. The facility was repaid and cancelled on 31 August 2005.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
12. Net debt
31 December 31 December
2005 2004
£m £m
Cash and short-term deposits 1,115.2 1,616.0
Bank loans and overdrafts due within one year (457.8) (597.8)
Corporate bond and loans due after one year (1,461.4) (1,318.6)
Net debt (per balance sheet) (804.0) (300.4)
Working capital facility (Note 11) - (261.0)
Net debt including working capital facility (804.0) (561.4)
Elsewhere in this release net debt at 31 December 2004 is shown as £554.7
million to provide a comparable basis with net debt at 31 December 2005. This
includes the entire IAS 39 adjustment of £254.3 million at 1 January 2005
described in Note 11.
13. Goodwill and acquisitions
Goodwill in relation to subsidiary undertakings increased by £1,285.5 million in
the year. This includes both goodwill arising on acquisitions completed in the
year and adjustments to goodwill relating to acquisitions completed in prior
years, net of impairment charges. Goodwill in relation to associate undertakings
increased by £82.5 million in the period.
Future anticipated payments to vendors in respect of both deferred and earnout
obligations totalled £220.0 million (2004: £298.6 million). 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.
On 7 March 2005 the Group completed the acquisition of Grey Global Group, Inc.
(Grey) in consideration for 78 million new WPP ordinary shares and £376 million
in cash. Grey has been consolidated in the results of the Group from the date of
completion.
In aggregate, for the year ended 31 December 2005, acquisitions made in the year
contributed £757.4 million to revenue, £74.6 million to operating profit and
£100.0 million to Headline PBIT.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
14. Other intangible assets
The following are included in other intangibles:
2005 2004
£m £m
Brands with an indefinite life 897.0 742.6
Acquired intangibles 330.3 7.0
Other (including capitalised computer software) 33.3 24.0
1,260.6 773.6
Acquired intangible assets increased by £323.3 million during the year,
primarily due to the recognition at fair value of corporate brands and customer
relationships resulting from the acquisition of Grey. These assets are being
amortised over their respective useful lives, which vary from 2 to 20 years,
depending on the nature of the asset concerned. In accordance with IAS 12, the
Group has a deferred tax liability of £504.4 million at 31 December 2005, being
the difference between the book and tax carrying values of these intangibles.
The Group does not consider that any deferred tax liability in respect of these
items will ever crystallise.
15. Trade and other receivables
Amounts falling due within one year:
2005 2004
£m £m
Trade receivables 3,999.3 2,058.5
VAT and sales taxes recoverable 43.0 29.1
Corporate income taxes recoverable 21.0 24.2
Other debtors 350.8 238.1
Prepayments and accrued income 381.4 191.6
4,795.5 2,541.5
Amounts falling due after more than one year:
2005 2004
£m £m
Other debtors 115.8 54.2
Prepayments and accrued income 26.3 5.3
142.1 59.5
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
16. Trade and other payables: amounts falling due within one year
The following are included in trade and other payables falling due within one
year:
2005 2004
£m £m
Trade creditors 4,659.3 2,885.3
Deferred income 604.2 405.8
Payments due to vendors 81.3 146.6
Loan notes due to vendors 13.6 7.2
Liabilities in respect of put option agreements with vendors1 50.4 -
Other creditors and accruals 1,419.6 1,071.0
6,828.4 4,515.9
1 The recognition of liabilities in respect of put options arises from the
adoption of IAS 32 and IAS 39. Prior years have not been restated as permitted
by IFRS 1.
17. Trade and other payables: amounts falling due after more than
one year
The following are included in trade and other payables falling due after more
than one year:
2005 2004
£m £m
Corporate income tax payable 372.8 290.6
Payments due to vendors 138.7 152.0
Liabilities in respect of put option agreements with vendors 39.6 -
Other creditors and accruals 151.9 94.0
703.0 536.6
The following table sets out the directors' best estimates of future deferred
and earnout related obligations:
2005 2004
£m £m
Within one year 81.3 146.6
Between 1 and 2 years 71.9 65.0
Between 2 and 3 years 14.7 61.0
Between 3 and 4 years 20.3 3.4
Between 4 and 5 years 31.8 21.4
Over 5 years - 1.2
220.0 298.6
The Group does not consider there to be any material contingent liabilities as
at 31 December 2005.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
18. Reconciliation of movements in consolidated equity share
owners' funds
2005 2004
£m £m
Profit for the period 363.9 273.0
Ordinary dividends (100.2) (81.6)
263.7 191.4
Non cash share-based incentive plans (including stock options) 68.6 58.8
Exchange adjustments on foreign currency net investments 266.1 (102.7)
Ordinary shares issued in respect of acquisitions 506.4 -
Share issue/cancellation costs (3.6) (0.8)
Other share issues 18.3 32.8
Share cancellations (123.3) (73.6)
Actuarial loss on defined benefit schemes (16.5) (18.2)
Deferred tax on defined benefit pension schemes 3.6 3.3
Net additions of own shares by ESOP Trusts (29.0) (14.9)
Transfer to goodwill (5.1) (67.3)
Tax benefit of share-based payments 12.9 8.7
Revaluation of other investments 21.0 -
Recognition of financial instruments during the year (27.6) -
Other movements - 3.4
Net additions to equity share owners' funds 955.5 20.9
Opening equity share owners' funds 3,011.1 2,990.2
Impact of adoption of IAS 32 and IAS 39 on 1 January 2005 (62.1) -
Closing equity share owners' funds 3,904.5 3,011.1
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
19. Non-GAAP measures of performance
Reconciliation of Headline PBIT and Headline PBT under IFRS to 2004 UK GAAP
Margin (%) 2005 Margin (%) 2004
£m £m
Revenue 5,373.7 4,299.5
Headline PBIT (IFRS) 14.0% 754.8 13.0% 560.2
Share-based payments (IFRS 2) 0.6% 32.4 0.7% 28.9
Accounting for associates (IAS 28) 0.4% 20.1 0.4% 18.6
52.5 47.5
Headline PBIT (2004 UK GAAP) 15.0% 807.3 14.1% 607.7
Headline PBT (IFRS) 669.0 489.6
Adjustments to Headline PBIT (as above) 52.5 47.5
Additional interest on convertible debt 13.8 -
(IAS 32)
Interest on associates (IAS 28) (0.1) (0.1)
Headline PBT (2004 UK GAAP) 735.2 537.0
Reconciliation of profit before interest and taxation to
Headline PBIT for the year ended 31 December 2005
2005 2004
£m £m
Profit before interest and taxation 686.7 505.0
Profits on disposal of fixed asset investments (4.3) (3.0)
Amounts written off fixed asset investments - 5.0
Goodwill impairment 46.0 40.6
Goodwill write-down relating to utilisation of pre-acquisition 1.1 12.6
tax losses
Amortisation of acquired intangible assets 25.3 -
Headline PBIT 754.8 560.2
Finance income 87.6 77.7
Finance charges (excluding revaluation of financial instruments) (173.4) (148.3)
(85.8) (70.6)
Interest cover on Headline PBIT1 8.8 times 7.9 times
1 The finance charges for the year ended 31 December 2005 of £173.4 million
shown above include £13.8 million arising from the change in accounting for the
Group's convertible bonds under IFRS. Interest cover on a comparable basis with
prior years would be 10.5 times.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
19. Non-GAAP measures of performance (continued)
Reconciliation of profit before taxation to Headline PBT
and Headline earnings for the year ended 31 December 2005
2005 2004
£m £m
Profit before taxation 592.0 434.4
Profits on disposal of fixed assets (4.3) (3.0)
Amounts written off fixed asset investments - 5.0
Goodwill impairment 46.0 40.6
Goodwill write-down relating to utilisation of pre-acquisition 1.1 12.6
tax losses
Amortisation of acquired intangibles 25.3 -
Revaluation of financial instruments 8.9 -
Headline PBT 669.0 489.6
Taxation (194.0) (135.0)
Minority interests (34.1) (26.4)
Headline earnings 440.9 328.2
Ordinary dividends 100.3 81.6
Dividend cover on Headline earnings 4.4 times 4.0 times
Reported margins before and after share of results of associates
Margin (%) 2005 Margin (%) 2004
£m £m
Revenue 5,373.7 4,299.5
Headline PBIT 14.0% 754.8 13.0% 560.2
Share of results of associates 33.9 29.5
Headline PBIT excluding share of results of 13.4% 720.9 12.3% 530.7
associates
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
19. Non-GAAP measures of performance (continued)
Reconciliation of free cash flow for the year ended 31 December 2005
2005 2004
£m £m
Cash generated by operations 1,020.3 690.0
Plus:
Interest received 62.4 48.9
Investment income 5.6 -
Dividends received from associates 13.4 18.5
Issue of shares 20.3 17.9
Proceeds on disposal of property, plant and equipment 6.7 9.3
Profits on disposal of fixed asset investments 4.3 3.0
Less:
Movements in working capital and provisions (107.6) 4.8
Loss on sale of property, plant and equipment (1.1) (1.9)
Amounts written off fixed asset investments - (5.0)
Interest and similar charges (128.2) (99.7)
Purchase of property, plant and equipment (160.5) (89.7)
Purchase of other intangible assets (including capitalised (10.8) (5.9)
computer software)
Corporation and overseas tax paid (136.0) (101.3)
Dividends paid to minority shareholders in subsidiary (24.0) (22.5)
undertakings
Free Cash Flow1 564.8 466.4
1 Elsewhere in this release free cash flow in 2005 has been rounded to £565
million.
WPP GROUP PLC
GLOSSARY AND BASIS OF PREPARATION
2004 UK GAAP
UK Generally Accepted Accounting Principles ('UK GAAP') extant in respect of
2004 - the basis of preparation of the Group's consolidated financial statements
for the year ended 31 December 2004, as previously reported, prior to the
implementation of International Financial Reporting Standards ('IFRS').
Average net debt
Average net debt is calculated as the average daily net bank borrowings of the
Group, derived from the Group's automated banking system. Net debt at a period
end is calculated as the sum of the net bank borrowings of the Group, derived
from the cash ledgers and accounts in the balance sheet.
Constant currency
The Group uses US dollar-based, constant currency models to measure performance.
These are calculated by applying constant exchange rates to local currency
reported results for the current and prior year. This gives a US dollar -
denominated income statement and balance sheet which exclude any variances
attributable to foreign exchange rate movements.
Estimated net new billings
Net new billings represent the estimated annualised impact on billings
(turnover) of new business gained from both existing and new clients, net of
existing client business lost. The estimated impact is based upon initial
assessments of the clients' media budget, which may not necessarily result in
actual billings of the same amount.
Free cash flow
Free cash flow is calculated as Headline PBIT before equity income and
depreciation (including dividends received from associates, proceeds from the
issue of shares, and the proceeds from disposal of tangible fixed assets and
investments), less tax paid, returns on investments and servicing of finance and
the purchase of tangible fixed assets.
Headline PBIT ('Headline operating profit')
Profit on ordinary activities before finance income, finance costs, taxation,
goodwill impairment, goodwill write-down relating to utilisation of
pre-acquisition tax losses, amortisation of acquired intangible assets and fixed
assets gains and write-downs.
Headline PBT
Profit on ordinary activities before taxation, goodwill impairment, goodwill
write-down relating to the utilisation of previously unrecognised
pre-acquisition tax losses, amortisation of acquired intangible assets, fixed
assets gains and write-downs and the revaluation of financial instruments.
Headline earnings
Headline PBT less taxation and minority interests.
Operating margin
Headline PBIT as a percentage of revenue.
Pro forma ('like for like')
Pro forma comparisons are calculated as follows: current year actual results
(which include acquisitions from the relevant date of completion) are compared
with prior year actual results, adjusted to include the results of acquisitions
for the commensurate period in the prior year. The Group uses the terms 'pro
forma' and 'like for like' interchangeably.
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