Final Results - Part 2
WPP Group PLC
29 February 2008
WPP GROUP PLC
Preliminary results for the year ended 31 December 2007
Unaudited preliminary consolidated income statement for the year ended 31
December 2007
Notes 2007 2006 Constant
£m £m +/(-)% Currency*
+/(-)%
Billings 31,665.5 30,140.7 5.1 8.6
Revenue 6,185.9 5,907.8 4.7 8.2
Direct costs (335.5) (296.8) (13.0) (15.9)
Gross profit 5,850.4 5,611.0 4.3 7.8
Operating costs 4 (5,045.7) (4,869.4) (3.6) (7.4)
Operating profit 804.7 741.6 8.5 10.3
Share of results of associates 4 41.4 41.1 0.7 4.4
Profit before interest and 846.1 782.7 8.1 10.0
taxation
Finance income 5 139.4 111.0 25.6 29.0
Finance costs 5 (266.1) (211.7) (25.7) (27.7)
Profit before taxation 719.4 682.0 5.5 7.4
Taxation 7 (204.3) (199.4) (2.5) (0.8)
Profit for the year 515.1 482.6 6.7 10.2
Attributable to:
Equity holders of the parent 465.9 435.8 6.9 10.8
Minority interests 49.2 46.8 (5.1) (5.6)
515.1 482.6 6.7 10.2
Headline PBIT 6,18 928.0 859.0 8.0 10.1
Headline PBIT margin 18 15.0% 14.5%
Headline PBT 18 817.3 766.3 6.7 8.8
Earnings per share**
Basic earnings per ordinary 9 39.6 36.3 9.1 13.0
share
Diluted earnings per ordinary 9 38.0 35.2 8.0 12.0
share
* The basis for calculating the constant currency percentage change shown above
is described in the glossary attached to this appendix.
** 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 cash flow statement for the year ended 31
December 2007
Notes 2007 2006
£m £m
Net cash inflow from operating activities 10 891.3 661.4
Investing activities
Acquisitions and disposals 10 (674.8) (215.6)
Purchase of property, plant and equipment (151.1) (167.8)
Purchase of other intangible assets (incl. (19.7) (16.7)
capitalised computer software)
Proceeds on disposal of property, plant and 8.3 22.4
equipment
Net cash outflow from investing activities (837.3) (377.7)
Financing activities
Issue of shares 34.8 70.9
Share repurchases and buybacks 10 (415.4) (257.7)
Net increase in borrowings 10 498.9 382.1
Financing and share issue costs (8.3) (3.7)
Equity dividends paid (138.9) (118.9)
Dividends paid to minority shareholders in (38.9) (28.8)
subsidiary undertakings
Net cash (outflow)/ inflow financing activities (67.8) 43.9
Net (decrease)/increase cash and cash equivalents (13.8) 327.6
Translation differences 119.2 (50.3)
Cash and cash equivalents at beginning of year 956.9 679.6
Cash and cash equivalents at end of year 10 1,062.3 956.9
Reconciliation of net cash flow to movement in net
debt:
Net (decrease)/increase in cash and cash (13.8) 327.6
equivalents
Cash outflow from decrease in debt financing (493.5) (380.1)
Other movements 26.0 9.3
Translation difference 10.2 32.6
Movement of net debt in the year (471.1) (10.6)
Net debt at beginning of year (814.6) (804.0)
Net debt at end of year 11 (1,285.7) (814.6)
WPP GROUP PLC
Unaudited preliminary consolidated statement of recognised income and expense
for the year ended 31 December 2007
2007 2006
£m £m
Profit for the year 515.1 482.6
Exchange adjustments on foreign currency net investments 71.7 (367.0)
Revaluation of other investments 108.1 9.5
Actuarial gain on defined benefit pension schemes 27.0 26.0
Deferred tax on defined benefit pension schemes (9.9) 5.3
Net income/(expense) recognised directly in equity 196.9 (326.2)
Total recognised income and expense relating to the year 712.0 156.4
Attributable to:
Equity holders of the parent 662.8 109.6
Minority interests 49.2 46.8
712.0 156.4
WPP GROUP PLC
Unaudited preliminary consolidated balance sheet as at 31 December 2007
Notes 2007 2006
£m £m
Non-current assets
Intangible assets:
Goodwill 12 6,071.7 5,434.5
Other 13 1,154.6 1,115.4
Property, plant and equipment 449.6 415.3
Interests in associates 540.1 411.4
Other investments 268.6 136.5
Deferred tax assets 56.0 108.9
Trade and other receivables 14 149.3 110.3
8,689.9 7,732.3
Current assets
Inventory and work in progress 343.9 341.5
Corporate income tax recoverable 37.2 26.5
Trade and other receivables 14 6,140.8 4,931.9
Cash and short-term deposits 2,040.2 1,663.7
8,562.1 6,963.6
Current liabilities
Trade and other payables 15 (8,248.9) (6,783.8)
Corporate income tax payable (70.0) (39.6)
Bank overdrafts and loans (1,585.9) (1,260.6)
(9,904.8) (8,084.0)
Net current liabilities (1,342.7) (1,120.4)
Total assets less current liabilities 7,347.2 6,611.9
Non-current liabilities
Bonds and bank loans (1,740.0) (1,217.7)
Trade and other payables 16 (460.4) (331.9)
Corporate income tax payable (336.2) (383.7)
Deferred tax liabilities (464.0) (467.8)
Provisions for post-employment benefits (135.0) (187.6)
Provisions for liabilities and charges (116.8) (104.8)
(3,252.4) (2,693.5)
Net assets 4,094.8 3,918.4
Equity
Called-up share capital 119.2 124.1
Share premium account 103.9 74.9
Shares to be issued 5.3 7.5
Merger reserve (1,365.9) (1,370.0)
Other reserves (114.9) (170.1)
Own shares (255.3) (288.5)
Retained earnings 5,482.1 5,449.0
Equity share owners' funds 17 3,974.4 3,826.9
Minority interests 120.4 91.5
Total equity 4,094.8 3,918.4
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements
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 the
recognition and measurement criteria of International Financial Reporting
Standards (IFRS), and with the accounting policies of the Group which were set
out on pages 143 to 148 of the 2006 Annual Report and Accounts. No changes have
been made to the Group's accounting policies since this time.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The Company's 2007 Annual Report and
Accounts will be prepared in compliance with IFRS as endorsed by the European
Union.
Statutory Information
The financial information for the years ended 31 December 2007 and 2006 does not
constitute statutory accounts for the purposes of s240 of the Companies Act
1985. The statutory accounts for the year ended 31 December 2006 have been
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 2007 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 2007 has yet to be signed.
The announcement of the preliminary results was approved by the board of
directors on 28 February 2008.
3. Currency conversion
The 2007 unaudited preliminary consolidated income statement is prepared using,
among other currencies, an average exchange rate of US$2.0019 to the pound
(2006: US$1.8432). The unaudited preliminary consolidated balance sheet as at 31
December 2007 has been prepared using the exchange rate on that day of US$1.9827
to the pound (2006: US$1.9569).
The basis for calculating the constant currency percentage changes, shown on the
face of the unaudited preliminary 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:
2007 2006
£m £m
Amortisation and impairment of acquired intangible 40.3 43.3
assets
Goodwill impairment 44.1 35.5
Goodwill write-down relating to utilisation of 1.7 8.8
pre-acquisition tax losses
Gains on disposal of investments (3.4) (7.3)
Share-based incentive plans 62.4 70.9
Other operating costs 4,900.6 4,718.2
5,045.7 4,869.4
The goodwill impairment charge of £44.1 million (2006: £35.5 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.
Operating profit includes credits totalling £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 2006.
Share of results of associates include:
2007 2006
£m £m
Share of profit before interest and taxation 65.8 61.4
Share of exceptional gains 0.8 4.0
Share of interest and minority interest 0.5 0.9
Share of taxation (25.7) (25.2)
41.4 41.1
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
5. Finance income and finance costs
Finance income includes:
2007 2006
£m £m
Expected return on pension scheme assets 28.1 25.2
Investment income 9.2 5.7
Interest income 102.1 80.1
139.4 111.0
Finance costs include:
2007 2006
£m £m
Interest on pension scheme liabilities 33.8 32.4
Interest payable and similar charges 216.3 171.3
Finance charges (excluding revaluation of financial 250.1 203.7
instruments)
Revaluation of financial instruments 16.0 8.0
266.1 211.7
The following are included in the revaluation of financial instruments shown
above:
2007 2006
£m £m
Movements in fair value of treasury instruments 6.7 3.3
Revaluation of put options over minority interests 9.3 4.7
16.0 8.0
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
6. Segmental analysis
Reported contributions by operating sector were as follows:
2007 2006
£m £m
Revenue
Advertising and Media Investment Management 2,871.3 2,806.9
Information, Insight & Consultancy 905.4 892.9
Public Relations & Public Affairs 641.4 595.7
Branding & Identity, Healthcare and Specialist 1,767.8 1,612.3
Communications
6,185.9 5,907.8
Headline PBIT *
Advertising and Media Investment Management 466.9 443.7
Information, Insight & Consultancy 104.3 98.7
Public Relations & Public Affairs 106.5 89.5
Branding & Identity, Healthcare and Specialist 250.3 227.1
Communications
928.0 859.0
Headline PBIT Margin % %
Advertising and Media Investment Management 16.3 15.8
Information, Insight & Consultancy 11.5 11.1
Public Relations & Public Affairs 16.6 15.0
Branding & Identity, Healthcare and Specialist 14.2 14.1
Communications
15.0 14.5
* Headline PBIT is defined in note 18.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
6. Segmental analysis (continued)
Reported contributions by geographical area were as follows:
2007 2006
£m £m
Revenue
United Kingdom 890.3 856.3
North America 2,266.7 2,291.1
Continental Europe 1,657.4 1,532.9
Asia Pacific, Latin America, Africa & Middle East 1,371.5 1,227.5
6,185.9 5,907.8
Headline PBIT*
United Kingdom 107.1 97.9
North America 391.5 389.0
Continental Europe 223.0 194.3
Asia Pacific, Latin America, Africa & Middle East 206.4 177.8
928.0 859.0
Headline PBIT Margin % %
United Kingdom 12.0 11.4
North America 17.3 17.0
Continental Europe 13.5 12.7
Asia Pacific, Latin America, Africa & Middle East 15.0 14.5
15.0 14.5
*Headline PBIT is defined in note 18.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
7. Taxation
The Group tax rate on Headline PBT* is 25.0% (2006: 26.0%). The Group tax rate
on Reported PBT is 28.4% (2006: 29.2%). The tax charge comprises:
2007 2006
£m £m
Current tax
UK Corporation tax at 30%
Current year 27.5 36.6
Prior years (57.9) (44.9)
(30.4) (8.3)
Foreign tax
Current year 212.9 216.9
Prior years 5.7 (7.6)
218.6 209.3
Total Current tax 188.2 201.0
Deferred tax 16.1 (1.6)
Tax expense 204.3 199.4
* Headline PBT is defined in note 18.
8. Ordinary dividends
The Board has recommended a final dividend of 9.13p (2006: 7.61p) per ordinary
share in addition to the interim dividend paid of 4.32p (2006: 3.60p) per
ordinary share. This makes a total for the year of 13.45p (2006: 11.21p) per
ordinary share, an increase of 20%. The final dividend is expected to be paid on
7 July 2008 to share owners on the register at 6 June 2008.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
9. Earnings per share
Basic EPS
The calculation of basic Reported and Headline EPS is as follows:
2007 2006 +/(-)% Constant
Currency
+/(-)%
Reported earnings* (£m) 465.9 435.8 6.9 10.8
Headline earnings (£m) (note 18) 563.8 520.1 8.4 12.3
Average shares used in Basic EPS 1,176.9 1,201.0
calculation (m)
Reported EPS 39.6p 36.3p 9.1 13.0
Headline EPS 47.9p 43.3p 10.6 14.6
* Reported earnings is equivalent to profit for the year attributable to equity
holders of the parent.
Diluted EPS
The calculation of diluted Reported and Headline EPS is set out below:
2007 2006 +/(-)% Constant
Currency
+/(-)%
Diluted Reported earnings (£m) 466.8 436.9 6.8 10.7
Diluted Headline earnings (£m) 564.7 521.2 8.3 12.2
Shares used in diluted EPS 1,227.1 1,242.2
calculation (m)
Diluted Reported EPS 38.0p 35.2p 8.0 12.0
Diluted Headline EPS 46.0p 42.0p 9.5 13.6
Diluted EPS has been calculated based on the Reported and Headline Earnings
amounts above. For the year ended 31 December 2007 and the year ended 31
December 2006 the $150 million Grey convertible bonds were dilutive and earnings
were consequently increased by £0.9 million and £1.1 million respectively for
the purpose of this calculation. For the year ended 31 December 2007 and the
year ended 31 December 2006, the £450 million convertible bonds were accretive
to earnings and therefore excluded from the calculation of dilutive earnings;
these bonds were redeemed on their due date of 11 April 2007.
A reconciliation between the shares used in calculating Basic and Diluted EPS is
as follows:
2007 2006
m m
Average shares used in Basic EPS calculation 1,176.9 1,201.0
Dilutive share options outstanding 16.6 14.9
Other potentially issuable shares 24.7 17.4
$150 million Grey convertible bonds 8.9 8.9
Shares used in Diluted EPS calculation 1,227.1 1,242.2
At 31 December 2007 there were 1,191,491,263 (2006: 1,240,605,187) 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 14:
Net cash inflow from operating activities:
2007 2006
£m £m
Profit for the year 515.1 482.6
Taxation 204.3 199.4
Finance costs 266.1 211.7
Finance income (139.4) (111.0)
Share of results of associates (41.4) (41.1)
Operating profit 804.7 741.6
Adjustments for:
Non cash share-based incentive plans (including share 62.4 70.9
options)
Depreciation of property, plant and equipment 126.3 129.1
Goodwill impairment 44.1 35.5
Goodwill write-down relating to utilisation of 1.7 8.8
pre-acquisition tax losses
Amortisation and impairment of acquired intangible 40.3 43.3
assets
Amortisation of other intangible assets 18.1 13.5
Gains on disposal of investments (3.4) (7.3)
Losses/(gains) on sale of property, plant and equipment 1.0 (3.7)
Operating cash flow before movements in working capital 1,095.2 1,031.7
and provisions
Movements in working capital and provisions 25.4 (171.1)
Cash generated by operations 1,120.6 860.6
Corporation and overseas tax paid (151.0) (162.0)
Interest and similar charges paid (212.0) (135.1)
Interest received 102.6 75.2
Investment income 3.1 2.4
Dividends received from associates 28.0 20.3
891.3 661.4
Acquisitions and disposals:
2007 2006
£m £m
Initial cash consideration (520.4) (120.5)
Cash and cash equivalents acquired (net) 60.5 21.4
Earnout payments (93.9) (91.6)
Loan note redemptions (2.1) (11.7)
Purchase of other investments (including associates) (128.0) (28.7)
Proceeds on disposal of investments 9.1 15.5
(674.8) (215.6)
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
10. Analysis of cash flows (continued)
Share repurchases and buybacks:
2007 2006
£m £m
Share cancellations (excluding brokerage fees) (402.7) (218.8)
Purchase of own shares by ESOP trusts - (38.9)
Shares purchased into treasury (12.7) -
(415.4) (257.7)
Net increase in borrowings:
2007 2006
£m £m
Decrease in drawings on bank loans - (21.8)
Repayment of £450 million 2.0% convertible bonds (450.0) -
Proceeds from issue of £400 million 6.0% bonds due 400.0 -
April 2017
Proceeds from issue of £200 million 6.375% bonds due 200.0 -
November 2020
Proceeds from issue of €500 million 5.25% bonds due 348.9 -
January 2015
Proceeds from issue of €600 million 4.375% Eurobonds - 403.9
due December 2013
498.9 382.1
Cash and cash equivalents:
2007 2006
£m £m
Cash at bank and in hand 1,957.4 1,476.8
Short-term bank deposits 82.8 186.9
Overdrafts* (977.9) (706.8)
1,062.3 956.9
*Bank overdrafts are included in cash and cash equivalents because they form an
integral part of the Group's cash management.
11. Net debt
2007 2006
£m £m
Cash and short-term deposits 2,040.2 1,663.7
Bank loans and overdrafts due within one year (1,585.9) (1,260.6)
Corporate bond and loans due after one year (1,740.0) (1,217.7)
Net debt (1,285.7) (814.6)
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
12. Goodwill and acquisitions
Goodwill in relation to subsidiary undertakings increased by £637.2 million
(2006: decreased by £240.7 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 and
the effect of currency translation. Goodwill in relation to associate
undertakings increased by £79.0 million (2006: decreased by £76.0 million) in
the year.
Future anticipated payments to vendors in respect of both deferred and earnout
obligations totalled £319.0 million (2006: £235.5 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.
In aggregate, for the year ended 31 December 2007, acquisitions completed in the
year contributed £132.2 million to revenue, £14.7 million to operating profit
and £24.7 million to Headline PBIT.
13. Other intangible assets
The following are included in other intangibles:
2007 2006
£m £m
Brands with an indefinite useful life 798.0 811.4
Acquired intangibles 316.8 271.9
Other (including capitalised computer software) 39.8 32.1
1,154.6 1,115.4
14. Trade and other receivables
Amounts falling due within one year:
2007 2006
£m £m
Trade receivables 4,691.0 4,021.4
VAT and sales taxes recoverable 86.5 50.0
Other debtors 609.8 438.4
Prepayments and accrued income 753.5 422.1
6,140.8 4,931.9
Amounts falling due after more than one year:
2007 2006
£m £m
Other debtors 129.2 106.6
Prepayments and accrued income 20.1 3.7
149.3 110.3
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
15. Trade and other payables: amounts falling due within one year
The following are included in trade and other payables falling due within one
year:
2007 2006
£m £m
Trade payables 5,843.6 4,743.6
Deferred income 600.5 510.8
Payments due to vendors 57.3 87.9
Loan notes due to vendors 2.7 1.8
Liabilities in respect of put option agreements with 45.0 51.1
vendors
Share repurchases - close period commitments (note 17) 64.8 -
Other creditors and accruals 1,635.0 1,388.6
8,248.9 6,783.8
16. 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:
2007 2006
£m £m
Payments due to vendors 261.7 147.6
Liabilities in respect of put option agreements with 37.0 28.8
vendors
Other creditors and accruals 161.7 155.5
460.4 331.9
The following table sets out the directors' best estimates of future deferred
and earnout related obligations:
2007 2006
£m £m
Within one year 57.3 87.9
Between 1 and 2 years 62.8 36.1
Between 2 and 3 years 85.4 34.6
Between 3 and 4 years 65.0 49.1
Between 4 and 5 years 48.5 27.8
Over 5 years - -
319.0 235.5
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
17. Reconciliation of movements in consolidated equity share owners' funds
2007 2006
£m £m
Profit for the year attributable to equity share owners 465.9 435.8
Ordinary dividends (138.9) (118.9)
327.0 316.9
Ordinary shares issued in respect of acquisitions 8.0 -
Other ordinary shares issued 28.2 73.0
Share cancellations (402.7) (218.8)
Share issue/cancellation costs (2.8) (1.7)
Net additions of own shares by ESOP Trusts - (38.9)
Shares purchased into treasury (12.7) -
Non cash share-based incentive plans (including stock 62.4 70.9
options)
Tax benefit of share-based payments 0.9 32.3
Actuarial gain on defined benefit pension schemes 27.0 26.0
Deferred tax on defined benefit pension schemes (9.9) 5.3
Exchange adjustments on foreign currency net 71.7 (367.0)
investments
Revaluation of other investments 108.1 9.5
Share repurchases - close period commitments* (64.8) -
Financial instruments - movements during the year 7.3 14.9
Other movements (0.2) -
Net additions/(deductions) to equity share owners' 147.5 (77.6)
funds
Opening equity share owners' funds 3,826.9 3,904.5
Closing equity share owners' funds 3,974.4 3,826.9
* During the year, the Company entered into an arrangement with its broker to
conduct share buybacks on the Company's behalf in the close period commencing on
2 January 2008 and ending on 28 February 2008, in accordance with UK listing
rules. Under IAS 32 and IAS 39, the commitment resulting from this agreement
constitutes a financial liability at 31 December 2007 which must be recognised
at fair value at that date. This liability is included in Trade and other
payables: amounts falling due within one year and has been recognised as a
movement in equity.
Issued share capital - movement in the year
2007 2006
Number of equity ordinary shares m m
At the beginning of the year 1,240.6 1,252.9
Exercise of share options 7.8 21.0
Acquisitions 0.3 -
Share cancellations (57.2) (33.2)
Other - (0.1)
At the end of the year 1,191.5 1,240.6
Notes to the unaudited preliminary consolidated financial statements (continued)
18. Non-GAAP measures of performance
Reconciliation of profit before interest and taxation to
Headline PBIT for the year ended 31 December 2007
2007 2006
£m £m
Profit before interest and taxation 846.1 782.7
Amortisation and impairment of acquired intangible assets 40.3 43.3
Goodwill impairment 44.1 35.5
Goodwill write-down relating to utilisation of 1.7 8.8
pre-acquisition tax losses
Gains on disposal of investments (3.4) (7.3)
Share of exceptional gains of associates (0.8) (4.0)
Headline PBIT 928.0 859.0
Finance income 139.4 111.0
Finance charges (excluding revaluation of financial (250.1) (203.7)
instruments)
(110.7) (92.7)
Interest cover on Headline PBIT 8.4 times 9.3 times
Calculation of Headline EBITDA
2007 2006
£m £m
Headline PBIT (as above) 928.0 859.0
Depreciation of property, plant and equipment 126.3 129.1
Amortisation of other intangible assets 18.1 13.5
Headline EBITDA 1,072.4 1,001.6
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
18 Non-GAAP measures of performance (continued)
Reconciliation of profit before taxation to Headline PBT
and Headline earnings for the year ended 31 December 2007
2007 2006
£m £m
Profit before taxation 719.4 682.0
Amortisation and impairment of acquired intangible 40.3 43.3
assets
Goodwill impairment 44.1 35.5
Goodwill write-down relating to utilisation of 1.7 8.8
pre-acquisition tax losses
Gains on disposal of investments (3.4) (7.3)
Share of exceptional gains of associates (0.8) (4.0)
Revaluation of financial instruments 16.0 8.0
Headline PBT 817.3 766.3
Taxation (204.3) (199.4)
Minority interests (49.2) (46.8)
Headline earnings 563.8 520.1
Ordinary dividends 138.9 118.9
Dividend cover on Headline earnings 4.1 times 4.4 times
Headline PBIT margins before and after share of results of associates
Margin(%) 2007 Margin(%) 2006
£m £m
Revenue 6,185.9 5,907.8
Headline PBIT 15.0% 928.0 14.5% 859.0
Share of results of associates (excluding 40.6 37.1
exceptional gains
Headline PBIT excluding share of results 14.3% 887.4 13.9% 821.9
of associates
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
18. Non-GAAP measures of performance (continued)
Reconciliation of free cash flow for the year ended 31 December 2007
2007 2006
£m £m
Cash generated by operations 1,120.6 860.6
Plus:
Interest received 102.6 75.2
Investment income 3.1 2.4
Dividends received from associates 28.0 20.3
Issue of shares 34.8 70.9
Proceeds on disposal of property, plant and equipment 8.3 22.4
Less:
(Losses)/gains on sale of property, plant and equipment (1.0) 3.7
Movements in working capital and provisions (25.4) 171.1
Interest and similar charges paid (212.0) (135.1)
Purchase of property, plant and equipment (151.1) (167.8)
Purchase of other intangible assets (including (19.7) (16.7)
capitalised computer software)
Corporation and overseas tax paid (151.0) (162.0)
Dividends paid to minority shareholders in subsidiary (38.9) (28.8)
undertakings
Free Cash Flow 698.3 716.2
WPP GROUP PLC
Preliminary results for the year ended 31 December 2007
in reportable US Dollars*
Unaudited illustrative preliminary consolidated income statement
for the year ended 31 December 2007
Year Year
ended ended
31 December 31 December
2007 2006 +/(-)%
$m $m
Billings 63,536.8 55,435.0 14.6
Revenue 12,395.4 10,910.9 13.6
Direct costs (672.7) (547.2) (22.9)
Gross profit 11,722.7 10,363.7 13.1
Operating costs (10,104.2) (8,982.8) (12.4)
Operating profit 1,618.5 1,380.9 17.2
Share of results of associates 82.9 76.3 8.7
Profit before interest and taxation 1,701.4 1,457.2 16.8
Finance income 280.3 200.9 39.5
Finance costs (535.0) (386.9) (38.3)
Profit before taxation 1,446.7 1,271.2 13.8
Taxation (409.5) (371.6) (10.2)
Profit for the year 1,037.2 899.6 15.3
Attributable to:
Equity holders of the parent 938.2 812.4 15.5
Minority interests 99.0 87.2 13.5
1,037.2 899.6 15.3
Headline PBIT 1,865.0 1,600.9 16.5
Headline PBIT margin 15.0% 14.7%
Headline PBT 1,642.7 1,430.5 14.8
Reported earnings per share**
Basic earnings per ordinary share 79.7c 67.6c 17.9
Diluted earnings per ordinary share 76.6c 65.6c 16.8
Headline earnings per share**
Basic earnings per ordinary share 96.4c 80.9c 19.2
Diluted earnings per ordinary share 92.6c 78.4c 18.1
* The unaudited consolidated income statement above is presented in reportable
US Dollars for information purposes only and has been prepared assuming the US
Dollar is the reporting currency of the Group, whereby local currency results
are translated into US Dollars at actual monthly average exchange rates in the
periods presented. Among other currencies, this includes an average exchange
rate of US$2.0019 to the pound for the year ended 31 December 2007 (2006:
US$1.8432).
** The basis of the calculations of the Group's earnings per share and Headline
earnings per share are set out in note 9 of Appendix 1.
WPP GROUP PLC
GLOSSARY AND BASIS OF PREPARATION
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.
Billings and estimated net new 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. Net new billings represent the estimated annualised impact on billings
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 budgets, which may not necessarily result in actual billings
of the same amount.
Constant currency
The Group uses US dollar-based, constant currency models to measure performance.
These are calculated by applying budgeted 2007 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.
Free cash flow
Free cash flow is calculated as Headline operating profit before non cash
charges for share-based incentive plans, depreciation of property, plant and
equipment and amortisation of other intangible assets, including dividends
received from associates, interest received, investment income received,
proceeds from the issue of shares, and proceeds from the disposal of property,
plant and equipment, less corporation and overseas tax paid, interest and
similar charges paid, dividends paid to minority shareholders in subsidiary
undertakings, purchases of property, plant and equipment and purchases of other
intangible assets.
Headline earnings
Headline PBT less taxation and minority interests.
Headline operating profit / Headline PBIT
Profit before finance income/costs, taxation, investment gains, goodwill
impairment and other goodwill write-downs, amortisation and impairment of
acquired intangible assets, and share of exceptional gains of associates.
Headline PBT
Profit before taxation, investment gains, goodwill impairment and other goodwill
write-downs, amortisation and impairment of acquired intangible assets, share of
exceptional gains of associates and gains/losses arising from the revaluation of
financial instruments.
Operating margin
Headline operating profit as a percentage of revenue.
Pro forma ('like-for-like')
Pro forma comparisons are calculated as follows: current year, constant currency
actual results (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. The Group uses the terms 'pro forma' and 'like-for-like' interchangeably.
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