Interim Results
WPP Group PLC
20 August 2004
FOR IMMEDIATE RELEASE 20 AUGUST 2004
WPP
2004 INTERIM RESULTS
Reported revenue up 6% to £2.03 billion
Constant currency revenue up over 13%
Like-for-like revenue up well over 2%
Headline profit before tax up almost 16% to £234.7 million
Diluted headline earnings per share up over 10% at 14.1p
Interim ordinary dividend up 20% to 2.50p per share
• Revenue up 6% to £2.03 billion and up over 13% in constant currencies
• Like-for-like revenue up well over 2%. Excluding Cordiant
like-for-like revenue up over 4%
• Headline operating profit up over 13% to £264.7 million and up over 21%
in constant currencies
• Headline operating margin up 0.8 margin points to 13.1%
• Headline profit before tax up almost 16% to £234.7 million and up
almost 25% in constant currencies
• Profit before tax up almost 15% to £176.3 million from £153.6 million
and up over 26% in constant currencies
• Diluted headline earnings per share up over 10% to 14.1p from 12.8p and
up almost 21% in constant currencies
• Reported diluted earnings per share up over 7% to 9.1p from 8.5p and up
over 24% in constant currencies
• Interim ordinary dividend up 20% to 2.50p per share
• Headline operating margin targets of 14.5% in 2005 and minimum of
15.0% in 2006, compared to 13.8% target in 2004
• Average net debt down over £300 million or 26% to £853 million from
£1,155 million
• Estimated net new business billings of £1.534 billion ($2.761 billion).
Ranked number one advertising and marketing services group for new
business in the first six months of 2004
In this press release not all the figures and ratios used are readily available
from the unaudited interim results included in Appendix I. Where required,
details of how these have been arrived at are shown in Appendix IV.
Summary of Results
The Board of WPP announces its unaudited interim results for the six months
ended 30 June 2004. These reflect continuing improvement over last year and
further evidence of growth, notably in the United States, Asia Pacific and Latin
America, stimulated by the quadrennial factors of the European Football
Championships, the Athens Olympic Games and the United States presidential
elections.
Turnover was up 6.0% at £9.155 billion.
Reportable revenue was up 6.0% at £2.03 billion, crossing £2 billion for the
first time in a first half-year period. On a constant currency basis, revenue
was up over 13% compared with last year, mainly due to the weakness of the
United States dollar. On a like-for-like basis, which includes the impact of
acquisitions, revenues were up well over 2%. Excluding the acquisition of
Cordiant, revenue growth was over 4%.
Headline operating profit was up 13.1% to £264.7 million from £234.1 million and
up 21.5% in constant currencies.
Headline operating margins rose by 0.8 margin points to 13.1% from 12.3%. On
the same basis, before short-term and long-term incentives, operating margins
rose by 1.5 margin points to 15.8% from 14.3%. Short and long-term incentives
amounted to £54.9 million or 18.4% of operating profits before bonus and taxes,
as improvements in operating profitability continued to re-fill incentive pools
reduced by the recent recession.
On a reported basis the Group's staff cost to revenue ratio, excluding
incentives, was up slightly, rising 0.3 margin points to 56.0% in the first half
of 2004, compared with the same period last year. On a like-for-like basis, it
fell 1.2 margin points. Similarly, on a like-for-like basis, the average number
of people in the Group, excluding associates, was 56,208 in the first half of
the year, compared to 57,406 in 2003, a decrease of over 2%. On the same basis,
the total number of people in the Group at 30 June 2004 was 57,723 compared to
58,052 in June 2003, a decrease of 0.6%.
Headline profit before tax was up 15.7% to £234.7 million from £202.9 million or
up 24.8% in constant currencies.
Net interest payable and similar charges (including a charge of £5.4 million for
FRS17) decreased to £35.4 million from £37.0 million, reflecting higher
interest rates more than offset by the impact of improved liquidity as a result
of a reduction in working capital.
Reported profit before tax, reflecting slightly increased goodwill and
impairments, rose by 14.8% to £176.3 million from £153.6 million. In constant
currencies pre-tax profits rose by over 26%.
The tax rate on headline profit before tax on ordinary activities was 25.8%, the
same as the 2003 rate.
Profits attributable to ordinary share owners rose by 11.1% to £105.9 million
from £95.2 million or 28.7% in constant currencies.
Diluted headline earnings per share rose by over 10% to 14.1p from 12.8p. In
constant currencies, earnings per share on the same basis rose by almost 21%.
The Board declares an increase of 20% in the interim ordinary dividend to 2.50p
per share. The record date for this interim dividend is 15 October 2004,
payable on 15 November 2004.
Further details of WPP's financial performance are provided in Appendix I in
sterling and for illustrative purposes in euros in Appendix II. Appendix III
contains details of the impact of adopting the United States transitional
guidelines on the expensing of share options.
Review of Operations
Revenue by Region
The pattern of revenue growth differed regionally. The table below gives
details of the proportion of revenue and revenue growth (on a constant currency
basis including the impact of acquisitions) by region for the first six months
of 2004:
Region Revenue as a % Revenue growth %
of total Group 04/03
North America 40.0 11.2
United Kingdom 16.9 12.0
Continental Europe 25.9 8.5
Asia Pacific, Latin America,
Africa & Middle East 17.2 28.9
_____ ____
TOTAL GROUP 100.0 13.3
_____ ____
As can be seen, all regions, with the exception of Continental Europe showed
double digit revenue growth, although even Continental Europe showed an
improving trend in the second quarter. The over 11% rise in North American
revenues marked the seventh consecutive quarter of growth.
In the United Kingdom, which is still a difficult media market, revenue was up
12.0%, with Continental Europe up over 8%. Asia Pacific, Latin America, Africa
and the Middle East continues to improve with revenue growth of almost 29%.
Latin America has shown particularly strong growth.
Estimated net new business billings of almost £1.534 billion ($2.761 billion)
were won in the first half of the year. The Group was ranked first for net new
business gains in the Lehman Brothers, William Blair & Company, Bear Stearns and
AdAge surveys for the first six months of 2004.
Revenue by Communications Services Sector and Brand
The pattern of revenue growth varied by communications services sector and
company brand. The table below gives details of the proportion of revenue and
revenue growth by communications services sector (on a constant currency basis
including the impact of acquisitions) for the first six months of 2004:
Communications Services Revenue as a Revenue growth %
Sector % of total Group 04/03
Advertising, Media
Investment Management* 46.3 14.7
Information, Insight &
Consultancy 16.6 6.1
Public Relations & Public
Affairs* 10.9 7.3
Branding & Identity,
Healthcare & Specialist
Communications 26.2 18.6
_____ ____
TOTAL GROUP 100.0 13.3
_____ ____
* In 2004, certain public relations revenue which historically was included in
Advertising, Media Investment Management has been moved into Public Relations
and Public Affairs. As a result, the comparative figures for both Advertising,
Media Investment Management and Public Relations and Public Affairs have been
restated to reflect this change.
Media investment management like-for-like revenue comparisons started to improve
in October 2002, and then significantly from April 2003, primarily driven by the
strong United States upfront media buying season. This growth continued for the
remainder of 2003 and the first six months of 2004, where again network
television costs rose faster than inflation.
Advertising has followed this trend but less strongly. Information, insight and
consultancy has continued to be relatively less affected by the recession,
picking up more recently, and branding and identity, healthcare and specialist
communications has started to pick up slightly, although healthcare, direct,
interactive and internet activities have been more resilient throughout the
recession. Public relations and public affairs, which was more affected by the
recession, has been less so over the last nine months, as some of our brands
have seen a significant recent pick-up in new business activity.
Advertising and Media Investment Management
On a constant currency basis, combined revenue at Ogilvy & Mather (including
OgilvyOne), J Walter Thompson Company, Y&R Advertising, Red Cell, MindShare and
Mediaedge:cia grew by over 16%, with operating margins up over 1.0 margin
points.
These businesses generated estimated net new business billings of £1.290
billion ($2.322 billion).
Information, Insight and Consultancy
The Group's information, insight and consultancy businesses continued their
growth, with revenues increasing by over 6%, and operating margins improving.
Public Relations and Public Affairs
In constant currencies, the Group's public relations and public affairs revenues
rose by over 7%, with operating margins recovering to 15%.
Branding and Identity, Healthcare and Specialist Communications
The Group's branding and identity, healthcare and specialist communications
revenues were up over 18%, with operating margins up almost 1.0 margin points.
Particularly good performances were registered by several companies in this
sector in the first half - including, in promotion and direct marketing by
Einson Freeman, Mando Brand Assurance, Maxx Marketing, OgilvyOne, and Savatar;
in branding and identity by Addison Corporate Marketing, Enterprise IG, Oakley
Young and Warwicks; in healthcare by CommonHealth; and in Specialist
Communications by Metro Group and Spafax.
Cashflow and Balance Sheet
A summary of the Group's unaudited cashflow statement and balance sheet and
notes as at 30 June 2004 are provided in Appendices I and II.
In the first half of 2004, operating profit was £195 million, depreciation,
amortisation and impairment £97 million, interest paid £50 million, tax paid £48
million, capital expenditure of £32 million and other net cash inflows of £21
million. Free cashflow available for debt repayment, acquisitions and share
re-purchases was, therefore, £183 million. This free cashflow was absorbed by
£144 million in net cash acquisition payments and investments, (of which £64
million was for initial acquisition payments, £66 million was for earnout
payments and the balance related to prior year loan note redemptions), and £71
million in share re-purchases, a total outflow of £215 million. This net
outflow of £32 million was not in line with the objective introduced last year,
of balancing free cashflow, principally because of heavier than forecast share
buy-backs in the first half.
Average net debt in the first six months of 2004 fell by £302 million to £853
million compared to £1,155 million in 2003, at 2004 exchanges rates. On 30 June
2004 net bank borrowings were £740 million, against £1,153 million on 30 June
2003. The Group has completed a $650 million 10 year bond issue in the United
States market which closed on 23 June 2004. The proceeds were used primarily to
repay the Euro 350 million bond which matured in June, with the balance
intended to be used to repay the Young & Rubicam $288 million 3% Convertible
Bond due January 2005. The Board continues to examine ways of deploying the
Group's substantial cashflow of approximately £450 million per annum to enhance
share owner value given that interest cover remains strong at over 7 times in
the first half of 2004, in comparison to over six times in the comparable period
last year. As necessary capital expenditure approximates to the depreciation
charge, the Company has continued to concentrate on examining possible
acquisitions or returning excess capital to share owners in the form of
dividends and/or share buy-backs.
In the first half of 2004 certain acquisitions have been made or equity
interests increased. In advertising and media investment management in Canada,
Germany, the Netherlands, Italy, Sweden, Poland, China, Japan, India, South
Korea, Indonesia and Chile; in information, insight and consultancy in 17
countries through Italy; in public relations and public affairs in the United
States and the United Kingdom; in healthcare in the Netherlands and in branding
& identity in the United States.
In addition to increasing the interim dividend by 20% to 2.50p per share, at a
total cost of £29.4 million compared to £24.5 million last year, the Company has
continued its rolling share buy-back programme in the first half of the year by
repurchasing 12.175 million shares at an average price of £5.55 per share and
total cost of £67.6 million. The Company's objective remains to repurchase up to
2% of its share base in the open market at an approximate cost of £150 million
when market conditions are appropriate.
Client Developments in the First Half of 2004
Including associates, the Group currently employs over 72,000 full-time people
in over 1,700 offices in 104 countries. It services over 300 of the Fortune
Global 500 companies, over one-half of the Nasdaq 100, over 30 of the Fortune
e-50, and approximately 333 national or multi-national clients in three or more
disciplines. More than 130 clients are served in four disciplines and these
clients account for over 50% of Group revenues. This reflects the increasing
opportunities for co-ordination between activities both nationally and
internationally. The Group also works with well over 100 clients in 6 or more
countries.
The Group estimates that more than 35% of new assignments in the first half of
the year were generated through the joint development of opportunities by two or
more Group companies.
Current Progress and Future Prospects
The Group's financial performance in the first half of the year mirrored the
continuing improvement in economic conditions in the United States, Asia
Pacific, Latin America, Africa and the Middle East, countered to some extent by
the continuing recession, certainly in the media industry, in the United Kingdom
and parts of Continental Europe. Like-for-like revenue was up well over 2% in
the first half of 2004, exceeding budgeted levels. July like-for-like revenues
were up over 6%, mirroring a strong June. An operating margin of 13.1% was
achieved, due principally to higher than budgeted revenues and a reduction in,
and the variability of, non-staff costs.
2004 has seen a significant improvement in activity particularly when compared
to 2001 and 2002 and even in comparison to the stabilisation seen in 2003. Most
pundits forecast industry growth rates of 3-4% this year. Levels of activity in
2004 will once again match, or surpass, the levels of activity seen in the
internet driven boom year of 2000. Our revenue forecasts for the year continue
to be in excess of budget and there are significant new business opportunities
at both the network and parent company levels.
Concerns remain, however, about the prospects for the US economy after the
presidential election. Whoever is elected will have to deal with a substantial
fiscal deficit, a weak dollar and risks of inflation, not aided by high oil and
commodity prices. Higher interest rates may slow the US economy, which
continues to be the primary driver of the global economy, despite the increasing
intra-dependency and insulation of the Asian economy.
The transatlantic consumer seems to be under increasing pressure in recent
months facing high consumer debt levels and rapidly increasing house prices.
However, the recent recession was driven originally by declines in corporate
capital spending. It may well be that less buoyant consumer spending will be
offset by improved corporate spending. Corporate profitability, liquidity and
margins are strong and have been growing recently at levels not seen since 1984.
Recent results from some technology companies, indicate increased level of
capital expenditures beyond replacement.
That said, many clients in many industries are finding it very difficult to meet
volume targets or increase revenues in a low-inflationary environment, with
little or no pricing power, concentrated distribution and no significant
increases in money wages. The answer is not, however, to react by cutting
prices or increasing trade incentive levels as in the automobile and food
manufacturing industries, or discounting against the hard retail discounters,
for example, in Germany. The solution remains in innovation and branding, which
augurs well for our industry.
Despite these concerns about 2005, the prospects for revenue and operating
margin improvements at WPP remain good. As indicated previously, we are today
announcing headline operating margin targets for 2005 and 2006. In 2005, our
objective will be 14.5%, against a target of 13.8% in 2004, which we remain
confident of achieving. For 2006, we are setting a target of a minimum of 15%.
Our long term operating target remains 20%. All these margin targets are before
fully expensing option costs, as estimated in Appendix III, and amount to
approximately 0.6 margin points using competitively conservative inputs for the
Black Scholes valuation model. They also exclude any impact of the
implementation of International Financial Reporting Standards (IFRS), which is
described in Note 15 of Appendix I.
Plans, budgets and forecasts will continue to be made on a conservative basis
and considerable attention is still being focused on achieving margin and staff
cost to revenue or gross margin targets. Margins continue to be strong in
important parts of the business. For example, the combined operating margins of
our advertising and media investment management sector, are almost 15% in the
first half. Geographically, North American operating margins are 16%. In
addition to influencing absolute levels of cost, the initiatives taken by the
parent company in the areas of human resources, property, procurement,
information technology and practice development continue to improve the
flexibility of the Group's cost base.
The Group continues to improve co-operation and co-ordination between companies
in order to add value to our clients' businesses and our people's careers, an
objective which has been specifically built into short-term incentive plans.
Particular emphasis and success has been achieved in the areas of media
investment management, healthcare, privatisation, new technologies, new markets,
retailing, internal communications, hi-tech, financial services and media and
entertainment.
The Group also continues to concentrate on its strategic objectives of improving
operating profits by 10-15% per annum; improving operating margins by half to
one margin point per annum or more depending on revenue growth; improving staff
cost to revenue or gross margin ratios by 0.6 margin points per annum or more
depending on revenue growth; converting 25-33% of incremental revenue to profit
and growing revenue faster than industry averages and encouraging co-operation
among Group companies.
As clients face an increasingly undifferentiated market place, the Group is
competitively well positioned to offer them the creativity they desire, along
with the ability to deliver the most effective co-ordinated communications in
the most efficient manner. The rise of the procurement function, the increasing
concentration of distribution and the legislative acceptance of media ownership
concentration in several countries, will further stimulate consolidation amongst
clients, media owners, wholesalers and retailers and last, but not least,
advertising and marketing services agencies. The Group is very well positioned
to capitalise on these developments and to focus on developing the best talents,
the strongest management structures and the most innovative incentive plans in
the industry for our people.
For further information:
Sir Martin Sorrell )
Paul Richardson ) 44-20-7408-2204
Feona McEwan ) 1-212-632-2301
www.wppinvestor.com
This announcement has been filed at the Company Announcements Office of the
London Stock Exchange and is being distributed to all owners of Ordinary shares
and American Depository Receipts. Copies are available to the public at the
Company's registered office.
The following cautionary statement is included for safe harbour purposes in
connection with the Private Securities Litigation Reform Act of 1995 introduced
in the United States of America. This announcement may contain forward-looking
statements within the meaning of the US federal securities laws. These
statements are subject to risks and uncertainties that could cause actual
results to differ materially including adjustments arising from the annual audit
by management and the Company's independent auditors. For further information
on factors which could impact the Company and the statements contained herein,
please refer to public filings by the Company with the Securities and Exchange
Commission. The statements in this announcement should be considered in light
of these risks and uncertainties.
Appendix I
WPP GROUP PLC
Interim results for the six months ended 30 June 2004
Unaudited consolidated interim profit and loss account for the six months ended
30 June 2004
Six months Six months
ended ended Year ended
30 June 30 June Constant 31 December
Notes 2004 2003 Currency3 2003
£m £m +/(-)% +/(-)% £m
Turnover (gross billings) 9,155.2 8,639.2 6.0 13.3 18,621.3
Cost of sales (7,129.6) (6,728.4) (6.0) (13.3) (14,515.3)
Revenue 4 2,025.6 1,910.8 6.0 13.3 4,106.0
Direct costs (104.7) (110.1) 4.9 0.8 (237.1)
Gross profit 1,920.9 1,800.7 6.7 14.2 3,868.9
Operating costs excluding goodwill amortisation
and impairment (1,677.0) (1,582.4) (6.0) 13.3) (3,375.9)
Goodwill amortisation and impairment - 10 (49.3) (43.5) (13.3) (13.3) (77.7)
subsidiaries
Operating costs (1,726.3) (1,625.9) (6.2) (13.3) (3,453.6)
Operating profit 194.6 174.8 11.3 22.5 415.3
Income from associates 20.8 15.8 31.6 34.5 40.5
Goodwill amortisation and impairment - (1.7) - (34.3)
associates
Profit on ordinary activities before interest, 213.7 190.6 12.1 22.6 421.5
taxation and amounts written off fixed asset
investments
Amounts written off fixed asset investments 10 (2.0) - -
Net interest payable and similar charges on net
borrowings (30.0) (31.2) 3.8 (0.7) (60.1)
Net interest charges on defined benefit pension
schemes (5.4) (5.8) 6.9 (3.0) (11.5)
Net interest payable and similar charges (35.4) (37.0) 4.3 (1.1) (71.6)
Profit on ordinary activities before taxation 176.3 153.6 14.8 26.5 349.9
Taxation on profit on ordinary activities 5 (60.6) (51.7) (17.2) (19.6) (122.1)
Profit on ordinary activities after taxation 115.7 101.9 13.5 30.4 227.8
Minority interests (9.8) (6.7) (46.3) (52.8) (19.4)
Profit attributable to ordinary share owners 105.9 95.2 11.1 28.7 208.4
Ordinary dividends 6 (29.4) (24.5) 20.0 20.0 (76.8)
Retained profit for the period 76.5 70.7 8.2 32.3 131.6
Headline PBIT 1 4 264.7 234.1 13.1 21.5 533.5
Headline PBIT 1 margin 13.1% 12.3% 13.0%
Headline PBT 1 234.7 202.9 15.7 24.8 473.4
Headline earnings per share 2
Basic earnings per ordinary share 7 14.5p 13.0p 11.5 22.8 29.8p
Diluted earnings per ordinary share 7 14.1p 12.8p 10.2 20.7 29.0p
Standard earnings per share
Basic earnings per ordinary share 7 9.4p 8.6p 9.3 26.0 18.7p
Diluted earnings per ordinary share 7 9.1p 8.5p 7.1 24.4 18.2p
1 Headline PBIT: Profit on ordinary activities before interest, taxation,
goodwill amortisation and impairment and amounts written off fixed asset
investments.
Headline PBT: Profit on ordinary activities before taxation, goodwill
amortisation and impairment, amounts written off fixed asset investments and net
interest charges on defined benefit pension schemes. The calculations of
Headline PBIT and Headline PBT are presented in Appendix IV.
2 Headline earnings per ordinary share excludes goodwill amortisation and
impairment, amounts written off fixed asset investments and net interest
charges on defined benefit pension schemes. The calculation of Headline earnings
is presented in Appendix IV.
3 Constant currency is defined in Appendix IV.
WPP GROUP PLC
Unaudited consolidated summary interim cash flow statement for
the six months ended 30 June 2004
Six months Six months ended Year ended 31
ended 30 June 30 June 2003 December 2003
2004 Restated1 Restated1
Notes
£m £m £m
Operating profit 194.6 174.8 415.3
Depreciation 47.9 53.0 127.5
Goodwill amortisation and impairment charges - 49.3 43.5 77.7
subsidiaries
Movements in working capital and provisions (373.1) (321.2) 321.5
Net cash (outflow)/inflow from operating
activities (81.3) (49.9) 942.0
Dividends received from associates 9.5 6.0 15.6
Returns on investments and servicing of finance (49.8) (47.7) (38.3)
United Kingdom and overseas tax paid (48.1) (43.0) (93.6)
Capital expenditure and financial investment 8 (28.4) (29.6) (85.2)
Acquisitions and disposals 8 (144.3) (323.9) (344.5)
Equity dividends paid - - (67.0)
Net cash (outflow)/inflow before management of
liquid resources and financing (342.4) (488.1) 329.0
Management of liquid resources 188.4 118.8 (211.4)
Net cash inflow from financing 8 59.6 205.0 116.8
(Decrease)/increase in cash and overdrafts
for the period (94.4) (164.3) 234.4
Translation difference (17.8) 11.4 (19.3)
Balance of cash and overdrafts at beginning of 716.0 500.9 500.9
period
Balance of cash and overdrafts at end of period 603.8 348.0 716.0
Reconciliation of net cash flow to movement in
net debt:
(Decrease)/increase in cash and overdrafts for the period (94.4) (164.3) 234.4
Cash (inflow)/outflow from increase in liquid (188.4) (118.8) 211.4
resources
Cash inflow from increase in debt financing (122.6) (125.1) (24.3)
Other movements (4.0) (6.5) (9.4)
Translation difference 31.1 (15.6) (50.9)
Movement of net debt in the period (378.3) (430.3) 361.2
Net debt at beginning of period (361.5) (722.7) (722.7)
Net debt at end of period 9 (739.8) (1,153.0) (361.5)
1 Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
Unaudited consolidated statement of total recognised gains and losses
for the period ended 30 June 2004
Six months Six months Year ended 31
ended ended December
30 June 2004 30 June 2003 2003
£m £m £m
Profit for the period 105.9 95.2 208.4
Exchange adjustments on foreign currency net investments 31.1 2.7 74.8
Actuarial loss on defined benefit pension schemes in
accordance with FRS17 (Retirement Benefits) - - 14.0
Deferred tax on defined benefit pension schemes - - 10.0
Total recognised gains and losses relating to the period 137.0 97.9 307.2
Prior year adjustment on implementation of UITF 38 (Accounting
for ESOP Trusts) (28.1)
Total gains and losses recognised since last annual report 108.9
WPP GROUP PLC
Unaudited consolidated interim balance sheet as at 30 June 2004
30 June 30 June 31 December 2003
Notes 2004 2003 Restated1
Restated1
£m £m £m
Fixed assets
Intangible assets:
Corporate brands 950.0 950.0 950.0
Goodwill 10 4,826.2 4,441.7 4,710.3
Tangible assets 331.9 354.4 344.6
Investments 10 365.9 547.7 381.5
6,474.0 6,293.8 6,386.4
Current assets
Stocks and work in progress 314.2 371.8 269.6
Debtors 2,433.5 2,306.9 2,394.5
Trade debtors within working capital facility:
Gross debts 605.3 379.3 507.5
Non-returnable proceeds (275.6) (211.8) (280.4)
329.7 167.5 227.1
Current asset investments
(short-term bank and escrow deposits) 213.4 71.6 401.8
Cash at bank and in hand 804.4 690.1 1,018.1
4,095.2 3,607.9 4,311.1
Creditors: amounts falling due within one year 11 (4,562.6) (4,316.7) (4,948.6)
Net current liabilities (467.4) (708.8) (637.5)
Total assets less current liabilities 6,006.6 5,585.0 5,748.9
Creditors: amounts falling due after more than one
year 12 (1,908.9) (1,734.2) (1,691.1)
(including convertible bonds)
Provisions for liabilities and charges (128.1) (126.0) (137.2)
Net assets excluding pension provision 3,969.6 3,724.8 3,920.6
Pension provision (188.9) (184.8) (188.9)
Net assets including pension provision 3,780.7 3,540.0 3,731.7
Capital and reserves
Called up share capital 117.9 117.8 118.7
Share premium account 968.6 939.4 955.3
Shares to be issued 118.0 166.4 130.0
Merger reserve 2,928.4 2,891.8 2,921.0
Other reserves (146.7) (253.0) (178.9)
Own shares2 (305.3) (307.9) (307.8)
Profit and loss account 56.5 (53.0) 45.3
Equity share owners' funds 14 3,737.4 3,501.5 3,683.6
Minority interests 43.3 38.5 48.1
Total capital employed 3,780.7 3,540.0 3,731.7
1 Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
2 Investments in own shares held by the ESOP Trusts.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1-15)
1. Basis of accounting
The unaudited consolidated interim financial statements are prepared under the
historical cost convention.
2. Accounting policies
The unaudited consolidated interim financial statements comply with relevant
accounting standards and have been prepared using the accounting policies set
out on pages 112 to 114 of the Group's 2003 Annual Report and Accounts. No
changes have been made to the accounting policies since this time other than the
adoption of UITF 38 (Accounting for ESOP Trusts).
UITF 38 requires the classification of the cost of shares held by the Group's
ESOP trusts as a deduction from share owners' funds; previously these were shown
within fixed asset investments. Additionally, UITF 38 has changed the method of
calculating the charge to the profit and loss account arising from certain of
the Group's incentive plans, satisfied by the award of shares in the Group from
one of the ESOPs. Previously, this charge was based on the cash cost to the
Group of acquiring these shares in the open market, to be subsequently delivered
to individuals on satisfactory completion of the performance criteria relating
to the award. Under UITF 38, this charge should be based upon the fair value of
the shares at grant date.
Following the implementation of UITF 38, the Group has restated its balance
sheet and cash flow statement for preceding periods. There was no material
impact on the profit and loss account for the six months ended 30 June 2003 or
the year ended 31 December 2003.
The policies set out in the 2003 Annual Report and Accounts are in accordance
with applicable accounting standards in the United Kingdom (UK GAAP).
Statutory Information and Independent Review
The interim financial statements for the six months to 30 June 2004 and 2003 do
not constitute statutory accounts. The statutory accounts for the year ended 31
December 2003 received an unqualified auditors' report and have been filed with
the Registrar of Companies. The interim financial statements are unaudited but
have been reviewed by the auditors and their report is set out on page 22.
The announcement of the interim results was approved by the board of directors
on 19 August 2004.
3. Currency conversion
The 2004 unaudited consolidated interim profit and loss account is prepared
using, among other currencies, an average exchange rate of US$1.8229 to the
pound (period ended 30 June 2003: US$1.6118; year ended 31 December 2003:
US$1.6356). The unaudited consolidated interim balance sheet as at 30 June 2004
has been prepared using the exchange rate on that day of US$1.8144 to the pound
(30 June 2003: US$1.6528; 31 December 2003: US$1.7833).
The unaudited consolidated interim profit and loss account and balance sheet are
presented in euros in Appendix II for illustrative purposes. The unaudited
consolidated interim profit and loss account has been prepared using an average
exchange rate of €1.4846 to the pound (period ended 30 June 2003: €1.4591; year
ended 31 December 2003: €1.4450). The unaudited consolidated interim balance
sheet at 30 June 2004 has been prepared using the exchange rate on that day of
€1.4911 to the pound (30 June 2003: €1.4393; 31 December 2003: €1.4198). This
translation should not be construed as a representation that the pound sterling
amounts actually represent, or could be converted into euros at the rates
indicated.
The basis for calculating the constant currency percentage changes, shown on the
face of the consolidated interim profit and loss account, is presented in
Appendix IV.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
4. Segmental analysis
Reported contributions by geographical area were as follows:
Six months Six months Year
ended ended Ended
30 June 30 June 31 December
2004 2003 2003
£m £m £m
Revenue
United Kingdom 343.4 306.5 664.9
United States 778.2 786.4 1,608.5
Continental Europe 524.3 496.8 1,079.4
Canada, Asia Pacific, Latin America, Africa & Middle East 379.7 321.1 753.2
2,025.6 1,910.8 4,106.0
Headline PBIT(1)
United Kingdom 31.2 31.4 71.8
United States 134.1 123.8 240.7
Continental Europe 57.0 49.2 121.8
Canada, Asia Pacific, Latin America, Africa & Middle East 42.4 29.7 99.2
264.7 234.1 533.5
Reported contributions by operating sector were as follows:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2004 2003 2003
£m £m £m
Revenue
Advertising and Media investment management2 936.7 875.6 1,911.1
Information, insight and consultancy 336.4 334.0 703.6
Public relations and public affairs2 221.6 224.1 451.0
Branding and identity, Healthcare and Specialist 530.9 477.1 1,040.3
communications
2,025.6 1,910.8 4,106.0
Headline PBIT1
Advertising and Media investment management2 138.3 125.3 291.9
Information, insight and consultancy 27.9 23.8 50.0
Public relations and public affairs2 33.4 29.1 58.6
Branding and identity, Healthcare and Specialist 65.1 55.9 133.0
communications
264.7 234.1 533.5
1 Headline PBIT: Profit on ordinary activities before interest, taxation,
goodwill amortisation and impairment and amounts written off fixed asset
investments. The calculation of Headline PBIT is presented in Appendix IV.
2 In 2004 certain of the Group's public relations and public affairs businesses,
which were historically included in Advertising and Media investment
management, have been moved to Public relations and public affairs. As a
result the comparative figures for both Advertising and Media
investment management and Public relations and public affairs have been
restated to reflect this change.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
5. Taxation
The Group tax rate on Headline PBT1 is 25.8% (30 June 2003: 25.5% and 31
December 2003: 25.8%). The tax charge comprises:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2004 2003 2003
£m £m £m
Total current tax 52.3 45.4 116.2
Total deferred tax - - (8.7)
Share of associates tax 8.3 6.3 14.6
Total tax on profits 60.6 51.7 122.1
1 Headline PBT: Profit on ordinary activities before taxation, goodwill
amortisation and impairment, amounts written off fixed asset investments and
net interest charges on defined benefit pension schemes. The calculation of
Headline PBT is presented in Appendix IV.
6. Ordinary dividends
The Board has recommended an interim dividend of 2.50p (2003: 2.08p) per
ordinary share. This is expected to be paid on 15 November 2004 to share owners
on the register at 15 October 2004.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2004 2003 2003
Ordinary dividend per share -
interim 2.50p 2.08p 2.08p
final - - 4.40p
2.50p 2.08p 6.48p
Ordinary dividend per ADR1 -
interim 4.56c 16.8c 17.0c
final - - 36.0c
4.56c 16.8c 53.0c
1 These figures have been translated for convenience purposes only, using the
profit and loss exchange rates shown in note 3.
This translation should not be construed as a representation that the pound
sterling amounts actually represent, or could be converted into, US dollars
at the rates indicated.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
7. Earnings per share
Basic and diluted earnings per share have been calculated in accordance with
FRS14 "Earnings per Share".
Headline basic earnings per share have been calculated using earnings of £164.3
million (period ended 30 June 2003: £144.5 million; year ended 31 December 2003:
£331.9 million), and adjusted for goodwill amortisation and impairment, amounts
written off fixed asset investments and net interest charges on defined benefit
pension schemes of £58.4 million (period ended 30 June 2003: £49.3 million; year
ended 31 December 2003: £123.5 million). The weighted average number of shares
in issue used was 1,132,052,831 shares (period ended 30 June 2003:
1,108,373,801; year ended 31 December 2003: 1,115,319,576 shares).
Headline diluted earnings per share have been calculated using earnings of
£164.3 million (period ended 30 June 2003: £144.5 million; year ended 31
December 2003: £331.9 million) and adjusted for goodwill amortisation and
impairment, amounts written off fixed asset investments and net interest charges
on defined benefit pension schemes of £58.4 million (period ended 30 June 2003:
£49.3 million; year ended 31 December 2003: £123.5 million). The weighted
average number of shares in issue used was 1,179,213,730 shares (period ended 30
June 2003: 1,125,489,621; year ended 31 December 2003: 1,145,014,508 shares.
This takes into account potentially issuable ordinary shares arising from the
exercise of employee share options, certain incentive schemes and convertible
debt where these are expected to dilute earnings. For the six month period ended
30 June 2004, the $287.5 million convertible loan note was dilutive and earnings
were consequently adjusted by £1.4 million, whereas the £450 million convertible
bond was accretive to earnings and therefore excluded from the calculation. For
the six month period ended 30 June 2003 and the year ended 31 December 2003,
both the $287.5 million convertible loan note and the £450 million convertible
bond were accretive to earnings and therefore excluded from the calculation.
Standard basic earnings per share have been calculated using earnings of £105.9
million (period ended 30 June 2003: £95.2 million; year ended 31 December 2003:
£208.4 million) and weighted average shares in issue during the period of
1,132,052,831 shares (period ended 30 June 2003: 1,108,373,801 shares; year
ended 31 December 2003: 1,115,319,576 shares).
Standard diluted earnings per share have been calculated using earnings of
£105.9 million (period ended 30 June 2003: £95.2 million; year ended 31 December
2003: £208.4 million). The weighted average number of shares used was
1,179,213,730 shares (period ended 30 June 2003: 1,125,489,621 shares; year
ended 31 December 2003: 1,145,014,508 shares). This takes into account
potentially issuable ordinary shares arising from the exercise of employee share
options, certain incentive schemes and convertible debt where these are expected
to dilute earnings. For the six month period ended 30 June 2004, the $287.5
million convertible loan note was dilutive and earnings were consequently
adjusted by £1.4 million, whereas the £450 million convertible bond was
accretive to earnings and therefore excluded from the calculation. For the six
month period ended 30 June 2003 and the year ended 31 December 2003, both the
$287.5 million convertible loan note and the £450 million convertible bond were
accretive to earnings and therefore excluded from the calculation.
At 30 June 2004 there were 1,178,806,111 ordinary shares in issue.
Six months Six months Year ended 31
ended ended Constant December 2003
30 June 2004 30 June 2003 Currency2
Earnings per ADR
Headline earnings per ADR 1,2 +/(-)% +/(-)%
Basic earnings per ADR $1.32 $1.05 25.7 22.8 $2.43
Diluted earnings per ADR $1.28 $1.03 24.3 20.7 $2.37
Standard earnings per ADR 1
Basic earnings per ADR $0.85 $0.69 23.2 26.0 $1.53
Diluted earnings per ADR $0.83 $0.69 20.3 24.4 $1.49
1 These figures have been translated for convenience purposes only, using the
profit and loss exchange rates shown in note 3. This translation should not be
construed as a representation that the pound sterling amounts actually
represent, or could be converted into, US dollars at the rates indicate
2 Headline earnings and constant currency are defined in Appendix IV.
WPP GROUP PLC
Notes to the unaudited consolidated financial statements (continued)
8. Analysis of non-operating cash flows
The following tables analyse the items included within the main cash flow
headings on page 10:
Six months ended 30 Six months ended Year ended 31
June 2004 30 June 2003 December 2003
Restated1 Restated1
£m £m £m
Capital expenditure and financial investment
Purchase of tangible fixed assets (31.7) (32.9) (93.9)
Proceeds from sale of tangible fixed assets 3.3 3.3 8.7
(28.4) (29.6) (85.2)
Acquisition and disposals
Cash consideration for acquisition of Cordiant - (176.6) (207.9)
Proceeds from disposal of interest in Zenith Optimedia - - 75.0
Group
Net cash acquired - Cordiant - - 37.8
Initial cash consideration for other acquisitions (40.7) (47.2) (70.1)
Earnout payments (65.6) (45.4) (56.2)
Loan note redemptions (14.8) (6.5) (38.7)
Net cash acquired - other acquisitions (12.5) 0.6 5.3
Purchases of other investments (including associates) (10.7) (51.0) (100.7)
Proceeds from disposal of other investments (including - 2.2 11.0
associates)
(144.3) (323.9) (344.5)
Net cash inflow from financing
Proceeds from issue of $650 million 10 year bond 358.2 - -
Repayment of €350 million bond (230.5) - -
(Reduction)/increase in drawings on bank loans (1.1) 125.5 25.0
Financing and share issue costs (4.3) (2.7) (3.4)
Share placement - 100.2 100.2
Proceeds from other issue of shares 8.5 5.0 18.1
Share cancellations (including brokerage fees) (67.6) (20.2) (20.2)
Purchase of own shares by ESOP Trusts (3.6) (2.8) (2.9)
59.6 205.0 116.8
1 Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
9. Net debt
30 June 30 June 31 December
2004 2003 2003
£m £m £m
Cash at bank and in hand 804.4 690.1 1,018.1
Current asset investments 213.4 71.6 401.8
Bank loans and overdrafts due within one year (note 11) (361.8) (590.9) (552.4)
Corporate bond and loans due after one year (note 12) (1,395.8) (1,323.8) (1,229.0)
Net debt (739.8) (1,153.0) (361.5)
During the period, the Group completed the issue of $650 million of 5.875%
coupon bonds due June 2014. Proceeds from the issue were used to assist in the
repayment of the €350 million bond in June with the balance intended to be used
to repay the Young & Rubicam convertible bond due in January 2005.
Current asset investments represent cash on deposit with a maturity of greater
than 24 hours.
There are no investor put options on any outstanding debt instruments.
10. Goodwill and acquisitions
During the period, the Group charged £25.0 million (30 June 2003: £16.5 million;
31 December 2003: £33.0 million) of goodwill amortisation and £26.0 million (30
June 2003: £27.0 million; 31 December 2003: £79.0 million) of goodwill
impairment to the profit and loss account, a total of £51.0 million (30 June
2003: £43.5 million; 31 December 2003: £112.0 million).
The impairment charge relates to a number of under-performing businesses in the
Public relations and public affairs, Information, insight and consultancy, and
Branding and identity, Healthcare and Specialist communications sectors. The
impact of the current economic climate on these businesses is sufficiently
severe to indicate an impairment to the carrying value of goodwill. The
Directors will reassess the need for any further impairment write-downs at the
year end.
In addition the Group charged £2.0 million of fixed asset investment write offs
(30 June 2003: £Nil; 31 December 2003: £Nil) to the profit and loss account
following a re-assessment of the carrying value of the Group's non core minority
investments.
The directors continue to assess the useful life of goodwill arising on
acquisitions. Goodwill of £822.5 million is subject to amortisation over
periods of between 10 and 20 years.
Goodwill in relation to subsidiary undertakings increased by £115.9 million in
the period. Other than amortisation and impairment this includes both goodwill
arising on acquisitions completed in the period and also adjustments to goodwill
relating to acquisitions completed in prior periods. Goodwill in relation to
associate undertakings decreased by £7.5 million in the period, principally due
to a reclassification from goodwill in associate companies to goodwill in
subsidiary undertakings arising on acquisitions.
Acquisitions do not have a significant impact on the Group's results for the six
months to 30 June 2004.
Future anticipated payments to vendors in respect of both deferred and earnout
obligations totalled £246.3 million (period ended 30 June 2003: £201.3 million;
year ended 31 December 2003: £215.7 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.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
11. Creditors: amounts falling due within one year
The following are included in creditors falling due within one year:
30 June 30 June 31 December
2004 2003 2003
Restated1 Restated1
£m £m £m
Bank loans and overdrafts 361.8 590.9 552.4
Trade creditors 2,542.3 2,335.4 2,733.3
Corporate income tax payable 32.5 35.5 29.5
Dividend proposed 81.7 66.9 52.2
Deferred income 417.5 346.4 391.9
Payments due to vendors 82.4 65.1 81.6
Loan notes due to vendors 19.4 37.9 13.9
Other creditors and accruals 1,025.0 838.6 1,093.8
4,562.6 4,316.7 4,948.6
1 Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
Overdraft balances included within bank loans and overdrafts amount to £200.6
million (30 June 2003: £342.1 million; 31 December 2003: £302.1 million).
12. Creditors: amounts falling due after more than one year
The following are included in creditors falling due after more than one year:
30 June 30 June 31 December
2004 2003 2003
£m £m £m
Corporate and convertible bonds and bank loans 1,395.8 1,323.8 1,229.0
Corporate income tax payable 281.2 214.7 268.7
Payments due to vendors 163.9 136.2 134.1
Other creditors and accruals 68.0 59.5 59.3
1,908.9 1,734.2 1,691.1
The following table sets out the directors' best estimates of future deferred
and earnout related obligations:
30 June 30 June 31 December
2004 2003 2003
£m £m £m
Within one year 82.4 65.1 81.6
Between 1 and 2 years 78.6 60.7 60.9
Between 2 and 3 years 50.3 31.2 32.4
Between 3 and 4 years 29.4 28.0 37.0
Between 4 and 5 years 3.9 14.5 3.8
Over 5 years 1.7 1.8 -
246.3 201.3 215.7
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
12. Creditors: amounts falling due after more than one year (continued)
The corporate and convertible bonds, bank loans and overdrafts included within
short and long term creditors fall due for repayment as follows:
30 June 30 June 31 December
2004 2003 2003
£m £m £m
Within one year 361.8 590.9 552.4
Between 1 and 2 years 110.0 170.9 273.1
Between 2 and 3 years 441.5 120.6 -
Between 3 and 4 years 434.7 521.6 443.4
Between 4 and 5 years 55.0 450.4 512.5
Over 5 years 354.6 60.3 -
1,757.6 1,914.7 1,781.4
13. Contingent liabilities in respect of option agreements
WPP has entered into agreements with certain share owners of partially owned
subsidiaries and associate companies to acquire additional equity interests.
These agreements typically contain options requiring WPP to purchase their
shares at specified times up to 2009 on the basis of average earnings both
before and after the exercise of the option.
All arrangements contain clauses that cap the maximum amount payable by WPP. The
table below shows the illustrative amounts that would be payable by WPP in
respect of these options, on the basis of the relevant companies' current
financial performance, if all the options had been exercised at 30 June 2004.
Currently Not Currently Total
Exercisable Exercisable
£m £m £m
Subsidiaries 12.4 23.5 35.9
Associates 4.3 0.5 4.8
Total 16.7 24.0 40.7
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
14. Reconciliation of movements in consolidated share owners' funds
Six months ended Six months Year ended
30 June 2004 ended 30 June 31 December
2003 2003
Restated1 Restated1
£m £m £m
Profit for the period 105.9 95.2 208.4
Ordinary dividends payable (29.4) (24.5) (76.8)
76.5 70.7 131.6
Exchange adjustments on foreign currency net investments 31.1 2.7 74.8
Ordinary shares issued in respect of acquisitions - 5.7 16.9
Share placement - 100.2 100.2
Share issue costs and brokerage fees charged to share premium
account or reserves
(0.3) (2.2) (2.8)
Other share issues 8.5 5.0 18.1
Share cancellations (67.5) (20.2) (20.2)
Adjustments to pre-1998 goodwill written off to reserves 3.0 - 1.3
Actuarial loss on defined benefit schemes - - 14.0
Deferred tax on defined benefit pension schemes - - 10.0
Net disposals of own shares by ESOP Trusts 2.5 4.3 4.4
Net additions to equity share owners' funds 53.8 166.2 348.3
Opening equity share owners' funds 3,683.6 3,335.3 3,335.3
Closing equity share owners' funds 3,737.4 3,501.5 3,683.6
1 Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
15. International Financial Reporting Standards ('IFRS')
From 2005 onwards, all listed companies in the European Union, including WPP,
will be required to prepare their consolidated financial statements in
accordance with IFRS. We have commenced a significant project to manage the
transition from UK GAAP to IFRS and are currently in the process of interpreting
the accounting standards that will apply from 2005 onwards, setting the Group's
future accounting policies in accordance with IFRS and identifying the detailed
accounting and disclosure requirements that may necessitate changes to our
financial information systems. As this project is still ongoing, we are not, as
yet, in a position to quantify the full effect of the differences between IFRS
and UK GAAP on the Group's results or financial position. However, based on our
work to date, we consider that significant differences will arise in the
following areas:
Goodwill
Generally, the carrying amount of goodwill recognised under UK GAAP on past
acquisitions will not be revisited under IFRS. However, in comparison to UK
GAAP, where an element of the Group's goodwill is currently amortised over its
useful life, under IFRS all goodwill will be subject to an annual impairment
review.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
15. International Financial Reporting Standards ('IFRS') (continued)
Retirement benefits
Under IFRS, the method of accounting for retirement benefits is broadly similar
to that under FRS 17 "Retirement Benefits". However, whereas FRS 17 requires
actuarial gains and losses be taken directly to equity through the statement of
total recognised gains and losses, current IFRS has no equivalent equity
statement and these gains and losses may be required to be recognised in the
income statement.
Convertible bonds
Under UK GAAP, convertible debt is reported as a liability unless conversion
actually occurs, and no gain or loss is recognised on conversion. IFRS
classification of compound instruments is performed according to the substance
of the contractual arrangements and consequently, the Group's compound
instruments will be split into liability and equity elements on the basis of
their initial fair values. The profit and loss account charge for the finance
cost will be spread evenly over the term of the bonds so that at redemption the
liability equals the redemption value. The main difference to UK GAAP is that
the initial recognition of the liability may be for a lower value and
consequently the finance cost over the period may be higher.
Stock options & other share based payments
Under current UK GAAP, where the Group grants share options at a strike price
equal to or greater than the market price on the date of the grant, no
compensation expense is recognised. Under IFRS, the fair value of share options
and other share based payments will be recognised in the profit and loss
account, using a fair value option pricing model.
Associates
The approach to classification of investments is similar under IFRS and UK GAAP,
but there is a difference on the application of what constitutes influence. Both
UK GAAP and IFRS adopt the concept of significant influence, but IFRS stresses
the power to influence, while UK GAAP stresses the actual exercise of influence.
This may affect the classification of the Group's associates and subsidiaries in
certain cases. Moreover, IFRS suspends equity accounting for associate losses
when the carrying value is nil and further losses are only accrued if the
investor has a legal or constructive obligation for the losses.
Derivatives and hedge accounting
Under UK GAAP, the derivative financial instruments that the Group uses to
manage its currency and interest rate exposures are not recognised until the
hedged transaction has itself been recognised in the financial statements. Under
IFRS, derivatives are recognised as assets and liabilities stated at their fair
values and changes in their fair values are recognised in the income statement.
However, in certain circumstances, "hedge accounting" can be used to mitigate
fluctuations in earnings.
INDEPENDENT REVIEW REPORT TO WPP GROUP PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2004 which comprises the consolidated profit and
loss account, the consolidated balance sheet, the consolidated cash flow
statement, the consolidated statement of total recognised gains and losses, the
reconciliation of movements in consolidated share owners' funds and the related
notes 1 - 14. We have read the other information contained in the interim report
and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for conclusions we have
formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reason for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2004.
Deloitte & Touche LLP
Chartered Accountants
London
19 August 2004
Appendix II
WPP GROUP PLC
Unaudited consolidated interim profit & loss account for the six months ended 30
June 2004
Presented in Euros for illustrative purposes only3
Six months ended Six months ended Year ended
30 June 2004 30 June 2003 31 December 2003
€m €m €m
Turnover (gross billings) 13,591.8 12,605.4 26,907.8
Costs of sales (10,584.6) (9,817.4) (20,974.6)
Revenue 3,007.2 2,788.0 5,933.2
Direct costs (155.4) (160.6) (342.6)
Gross Profit 2,851.8 2,627.4 5,590.6
Operating costs excluding goodwill amortisation and
impairment (2,489.7) (2,308.9) (4,878.2)
Goodwill amortisation and impairment - subsidiaries (73.2) (63.5) (112.3)
Operating costs (2,562.9) (2,372.4) (4,990.5)
Operating profit 288.9 255.0 600.1
Income from associates 30.9 23.1 58.5
Goodwill amortisation and impairment - associates (2.5) - (49.5)
Profit on ordinary activities before interest, taxation and
amounts written off fixed asset investments 317.3 278.1 609.1
Amounts written off fixed asset investments (3.0) - -
Net interest payable and similar charges on net borrowings (44.6) (45.5) (86.9)
Net interest charges on defined benefit pension schemes (8.0) (8.5) (16.6)
Net interest payable and similar charges (52.6) (54.0) (103.5)
Profit on ordinary activities before taxation 261.7 224.1 505.6
Taxation on profit on ordinary activities (90.0) (75.4) (176.4)
Profit on ordinary activities after taxation 171.7 148.7 329.2
Minority interests (14.5) (9.8) (28.0)
Profit attributable to ordinary share owners 157.2 138.9 301.2
Ordinary dividends (43.6) (35.7) (111.0)
Retained profit for the period 113.6 103.2 190.2
Headline PBIT 1 393.0 341.6 770.9
Headline PBIT 1 margin 13.1% 12.3% 13.0%
Headline PBT 1 348.4 296.1 684.1
Headline earnings per share 2
Basic earnings per ordinary share 21.5c 19.0c 43.1c
Diluted earnings per ordinary share 20.9c 18.7c 41.9c
Standard earnings per share
Basic earnings per ordinary share 14.0c 12.5c 27.0c
Diluted earnings per ordinary share 13.5c 12.4c 26.3c
1 Headline PBIT: Profit on ordinary activities before interest, taxation,
goodwill amortisation and impairment and amounts written off fixed asset
investments.
Headline PBT: Profit on ordinary activities before taxation, goodwill
amortisation and impairment, amounts written off fixed asset investments and
net interest charges on defined benefit pension schemes. The calculations of
Headline PBIT and Headline PBT are presented in Appendix IV.
2 Headline earnings per ordinary share excludes goodwill amortisation and
impairment, amounts written off fixed asset investments and net interest
charges on defined benefit pension schemes. The calculation of Headline earnings
is presented in Appendix IV.
3 These figures have been translated for convenience purposes only, using the
profit and loss exchange rates shown in Note 3.
WPP GROUP PLC
Unaudited consolidated interim balance sheet as at 30 June 2004
Presented in Euros for illustrative purposes only1
30 June 30 June 31 December
2004 2003 2003
Restated2 Restated2
€m €m €m
Fixed assets
Intangible assets:
Corporate brands 1,416.6 1,367.4 1,348.8
Goodwill 7,196.3 6,392.9 6,687.7
Tangible assets 494.9 510.1 489.2
Investments 545.6 788.3 541.7
9,653.4 9,058.7 9,067.4
Current assets
Stocks and work in progress 468.5 535.1 382.8
Debtors 3,628.6 3,320.3 3,399.7
Trade debtors within working capital facility:
Gross debts 902.6 545.9 720.5
Non-returnable proceeds (410.9) (304.8) (398.1)
491.7 241.1 322.4
Current asset investments (short-term bank and escrow 318.2 103.1 570.5
deposits)
Cash at bank and in hand 1,199.4 993.3 1,445.5
6,106.4 5,192.9 6,120.9
Creditors: amounts falling due within one year (6,803.3) (6,213.1) (7,026.0)
Net current liabilities (696.9) (1,020.2) (905.1)
Total assets less current liabilities 8,956.5 8,038.5 8,162.3
Creditors: amounts falling due after more than one year (2,846.4) (2,496.0) (2,401.0)
(including convertible bonds)
Provisions for liabilities and charges (191.0) (181.4) (194.8)
Net assets excluding pension provision 5,919.1 5,361.1 5,566.5
Pension provision (281.7) (266.0) (268.2)
Net assets including pension provision 5,637.4 5,095.1 5,298.3
Capital and reserves
Called up share capital 175.8 169.5 168.5
Share premium account 1,444.3 1,352.1 1,356.4
Shares to be issued 175.9 239.5 184.6
Merger reserve 4,366.5 4,162.2 4,147.2
Other reserves (218.7) (364.1) (254.0)
Own shares3 (455.2) (443.2) (437.0)
Profit and loss account 84.2 (76.3) 64.3
Equity share owners' funds 5,572.8 5,039.7 5,230.0
Minority interests 64.6 55.4 68.3
Total capital employed 5,637.4 5,095.1 5,298.3
1 These figures have been translated for convenience purposes only, using the
rates of exchange shown in Note 3.
2 Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
3 Investments in own shares held by the ESOP Trusts.
Appendix III
WPP GROUP PLC
To present the impact of US transitional guidelines on the expensing of share
options, for illustrative purposes only Unaudited pro forma consolidated interim
profit and loss account
for the six months ended 30 June 2004
Six months ended Six months ended Year ended
30 June 2004 30 June 2003 31 December
2003
£m £m £m
Turnover (gross billings) 9,155.2 8,639.2 18,621.3
Cost of sales (7,129.6) (6,728.4) (14,515.3)
Revenue 2,025.6 1,910.8 4,106.0
Direct costs (104.7) (110.1) (237.1)
Gross Profit 1,920.9 1,800.7 3,868.9
Operating costs excluding goodwill amortisation and
impairment (1,677.0) (1,582.4) (3,375.9)
Fair value of share options (11.2) (6.3) (13.9)
Goodwill amortisation and impairment - subsidiaries (49.3) (43.5) (77.7)
Operating costs (1,737.5) (1,632.2) (3,467.5)
Operating profit 183.4 168.5 401.4
Income from associates 20.8 15.8 40.5
Goodwill amortisation and impairment - associates (1.7) - (34.3)
Profit on ordinary activities before interest,
taxation and amounts written off fixed asset
investments 202.5 184.3 407.6
Amounts written off fixed asset investments (2.0) - -
Net interest payable and similar charges on net
borrowings (30.0) (31.2) (60.1)
Net interest charges on defined benefit pension (5.4) (5.8) (11.5)
schemes
Net interest payable and similar charges (35.4) (37.0) (71.6)
Profit on ordinary activities before taxation 165.1 147.3 336.0
Taxation on profit on ordinary activities (59.3) (51.0) (120.6)
Profit on ordinary activities after taxation 105.8 96.3 215.4
Minority interests (9.8) (6.7) (19.4)
Profit attributable to ordinary share owners 96.0 89.6 196.0
Ordinary dividends (29.4) (24.5) (76.8)
Retained profit for the period 66.6 65.1 119.2
Headline PBIT 1 253.5 227.8 519.6
Headline PBIT 1 margin 12.5% 11.9% 12.7%
Headline PBT 1 223.5 196.6 459.5
Headline earnings per share 2
Basic earnings per ordinary share 13.6p 12.5p 28.6p
Diluted earnings per ordinary share 13.2p 12.3p 27.9p
Standard earnings per share
Basic earnings per ordinary share 8.5p 8.1p 17.6p
Diluted earnings per ordinary share 8.3p 8.0p 17.1p
Headline earnings per ADR 2,3
Basic earnings per ADR $1.24 $1.01 $2.34
Diluted earnings per ADR $1.20 $0.99 $2.28
Standard earnings per ADR 3
Basic earnings per ADR $0.77 $0.65 $1.44
Diluted earnings per ADR $0.76 $0.64 $1.40
1 Headline PBIT: Profit on ordinary activities before interest, taxation,
goodwill amortisation and impairment and amounts written off fixed asset
investments.
Headline PBT: Profit on ordinary activities before taxation, goodwill
amortisation and impairment, amounts written off fixed asset investments and net
interest charges on defined benefit pension schemes. The calculations of
Headline PBIT and Headline PBT are presented in Appendix IV.
2 Headline earnings per ordinary share excludes goodwill amortisation and
impairment, amounts written off fixed asset investments and net
interest charges on defined benefit pension schemes. The calculation of
Headline earnings is presented in Appendix IV.
3 These figures have been translated for convenience purposes only, using the
profit and loss exchange rates shown in Note 3.
Appendix III (continued)
WPP GROUP PLC
Share options - illustrative charge
Appendix III illustrates the impact on WPP were it to adopt an approach to
expensing the weighted average fair value of options consistent with current
United States transitional guidelines under the prospective adoption method
contained within FAS 148, adopting a Black Scholes valuation model. This would
give rise to a charge to operating profit of £11.2 million (4.8% of Headline
PBT) for the six months ended 30 June 2004, £6.3 million (3.1% of Headline PBT)
for the six months ended 30 June 2003, and £13.9 million (2.9% of Headline PBT)
for the year ended 31 December 2003, in respect of executive share options
granted since 1 January 2002.
On a proforma basis, had WPP adopted a policy of charging the weighted average
fair value of options to the profit and loss account over the vesting period of
each options grant, adopting a Black Scholes basis of valuation, then the
resulting charge to operating profit would be £14.7 million (6.3% of Headline
PBT) for the six months ended 30 June 2004, and £13.3 million (6.6% of Headline
PBT) for the six months ended 30 June 2003, and £23.8 million (5.0% of Headline
PBT) for the year ended 31 December 2003.
The following assumptions have been made in determining the fair value of
options granted in the year:
UK Risk-free rate 3.91%
US Risk-free rate 2.55%
Expected life 48 months
Expected volatility 45%
Dividend yield 1.2%
Appendix IV
WPP GROUP PLC
Reconciliation of profit on ordinary activities before interest, taxation and
amounts written off fixed asset investments to Headline PBIT for the six months
ended 30 June 2004
Six months ended Six months ended Year ended
30 June 2004 30 June 2003 31 December 2003
£m £m £m
Profit on ordinary activities before interest, taxation
and amounts written off fixed asset investments 213.7 190.6 421.5
Goodwill amortisation and impairment 51.0 43.5 112.0
Headline PBIT 264.7 234.1 533.5
Net interest payable and similar charges 35.4 37.0 71.6
Interest cover on Headline PBIT 7.5 times 6.3 times 7.5 times
Six months ended Six months ended Year ended
30 June 2004 30 June 2003 31 December 2003
£m £m £m
Interest cover (excluding FRS17 interest) on Headline PBIT
Headline PBIT 264.7 234.1 533.5
Net interest payable and similar charges on net borrowings 30.0 31.2 60.1
Interest cover (excluding FRS17 interest)
on Headline PBIT 8.8 times 7.5 times 8.9 times
Reconciliation of profit on ordinary activities before taxation
to Headline PBT and Headline earnings for the six months ended 30 June 2004
Six months ended Six months ended Year ended
30 June 2004 30 June 2003 31 December 2003
£m £m £m
Profit on ordinary activities before taxation 176.3 153.6 349.9
Goodwill amortisation and impairment 51.0 43.5 112.0
Amounts written off fixed asset investments 2.0 - -
Net interest charges on defined benefit pension schemes 5.4 5.8 11.5
Headline PBT 234.7 202.9 473.4
Taxation on profit on ordinary activities (60.6) (51.7) (122.1)
Minority interests (9.8) (6.7) (19.4)
Headline earnings 164.3 144.5 331.9
Ordinary dividends 29.4 24.5 76.8
Dividend cover on Headline earnings 5.6 times 5.9 times 4.3 times
WPP GROUP PLC
Segmental margin analysis
for the six months ended 30 June 2004
Reported margins by geographical area were as follows:
Headline
Revenue PBIT1 Margin (%)
£m £m
United Kingdom 343.4 31.2 9.1%
United States 778.2 134.1 17.2%
Continental Europe 524.3 57.0 10.9%
Canada, Asia Pacific, Latin America, Africa & Middle East 379.7 42.4 11.2%
2,025.6 264.7 13.1%
Reported margins by operating sector were as follows:
Headline
Revenue PBIT1 Margin (%)
£m £m
Advertising and Media investment management 936.7 138.3 14.8%
Information, insight and consultancy 336.4 27.9 8.3%
Public relations and public affairs 221.6 33.4 15.1%
Branding and identity, Healthcare and Specialist communications 530.9 65.1 12.3%
2,025.6 264.7 13.1%
Reported margins before and after income from associates were as follows:
Six months Six months
ended ended
Margin (%) 30 June 2004 Margin (%) 30 June 2003
£m £m
Revenue 2,025.6 1,910.8
Headline PBIT 13.1% 264.7 12.3% 234.1
Income from associates 20.8 15.8
Headline PBIT excluding income from associates 12.0% 243.9 11.4% 218.3
(1) Headline PBIT: Profit on ordinary activities before interest, taxation,
goodwill amortisation and impairment and amounts written off fixed asset
investments. The calculation of Headline PBIT is presented above.
WPP GROUP PLC
Reconciliation of free cash flow for the six months ended 30 June 2004
Six months ended 30 Six months ended Year ended
June 2004 30 June 2003 31 December 2003
£m £m £m
Operating profit 194.6 174.8 415.3
Add back:
Depreciation and amortisation, including impairment 97.2 96.5 205.2
Plus:
Dividends received from associates 9.5 6.0 15.6
Proceeds from the issue of shares(1) 8.5 5.0 18.1
Proceeds from sale of tangible fixed assets 3.3 3.3 8.7
Proceeds from disposal of investments2 - 2.2 11.0
Less:
Purchase of tangible fixed assets (31.7) (32.9) (93.9)
UK and overseas tax paid (48.1) (43.0) (93.6)
Returns on investments and servicing of finance (49.8) (47.7) (38.3)
Free Cash Flow 183.5 164.2 448.1
1 Excludes £100.2 million of proceeds from share placement in June 2003.
2 Excludes proceeds from disposal of interest in Zenith Optimedia Group in
August 2003.
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.
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.
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 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
Profit on ordinary activities before interest, taxation, goodwill amortisation
and impairment and amounts written off fixed asset investments.
Headline PBT
Profit on ordinary activities before taxation, goodwill amortisation and
impairment, amounts written off fixed asset investments and net interest charges
on defined benefit pension schemes.
Headline earnings
Headline PBT less taxation on profit on ordinary activities 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.
This information is provided by RNS
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