Interim Results - Part 2
WPP Group PLC
18 August 2006
WPP GROUP PLC
Interim results for the six months ended 30 June 2006
Unaudited consolidated interim income statement
for the six months ended 30 June 2006
----------------- ------ ---------- --------- ------- -------- ----------
Notes Six months Six months Constant Year
ended ended Currency*
30 June 30 June ended
2006 2005 31 December
2005
------------------ ------ ---------- --------- ------- -------- ----------
£m £m +/(-)% +/(-)% £m
Turnover
(billings) 14,407.1 11,333.6 27.1 23.3 26,673.7
================== ====== ========== ========= ======= ======== ==========
Revenue 2,864.4 2,467.5 16.1 12.7 5,373.7
Direct costs (149.2) (111.1) (34.3) (31.6) (241.0)
------------------ ------ ---------- --------- ------- -------- ----------
Gross profit 2,715.2 2,356.4 15.2 11.9 5,132.7
Operating costs 4 (2,407.3) (2,103.8) (14.4) (11.1) (4,479.9)
------------------ ------ ---------- --------- ------- -------- ----------
Operating profit 307.9 252.6 21.9 17.9 652.8
Share of results
of associates 4 25.3 13.7 84.7 77.3 33.9
------------------ ------ ---------- --------- ------- -------- ----------
Profit before
interest and
taxation 333.2 266.3 25.1 20.9 686.7
Finance income 5 51.0 36.8 38.6 36.3 87.6
Finance costs 5 (97.1) (81.6) (19.0) (17.2) (182.3)
------------------ ------ ---------- --------- ------- -------- ----------
Profit before
taxation 287.1 221.5 29.6 24.8 592.0
Taxation 7 (91.7) (72.6) (26.3) (23.7) (194.0)
------------------ ------ ---------- --------- ------- -------- ----------
Profit for the
period 195.4 148.9 31.2 25.4 398.0
------------------ ------ ---------- --------- ------- -------- ----------
Attributable to:
Equity holders
of the parent 176.7 135.4 30.5 24.4 363.9
Minority
interests 18.7 13.5 (38.5) (35.4) 34.1
------------------ ------ ---------- --------- ------- -------- ----------
195.4 148.9 31.2 25.4 398.0
------------------ ------ ---------- --------- ------- -------- ----------
------------------ ------ ---------- --------- ------- -------- ----------
Headline PBIT 6,17 361.0 299.6 20.5 16.8 754.8
Headline PBIT
margin 17 12.6% 12.1% 14.0%
Headline PBT 17 316.1 254.8 24.1 19.9 669.0
------------------ ------ ---------- --------- ------- -------- ----------
Earnings per share**
Basic earnings
per ordinary
share 9 14.7p 11.4p 28.9 23.1 30.3p
Diluted
earnings per
ordinary share 9 14.3p 11.1p 28.8 22.7 29.7p
------------------ ------ ---------- --------- ------- -------- ----------
* 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 consolidated interim cash flow statement
for the six months ended 30 June 2006
--------------------------------- ------ -------- --------- ---------
Notes Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
--------------------------------- ------ -------- --------- ---------
£m £m £m
Net cash (outflow)/inflow
from operating activities 10 (26.8) (34.0) 837.5
Investing activities
Acquisitions and disposals 10 (124.8) (336.0) (507.7)
Purchases of property,
plant and equipment (66.6) (68.1) (160.5)
Purchases of other
intangible assets (incl.
capitalised computer software) (6.9) (2.1) (10.8)
Proceeds on disposal of
property, plant and equipment 4.8 2.1 6.7
--------------------------------- ------ -------- --------- ---------
Net cash outflow from
investing activities (193.5) (404.1) (672.3)
Financing activities
Issue of shares 49.5 15.8 20.3
Share repurchases and buybacks 10 (161.5) (75.1) (152.3)
Net increase/(decrease)
in borrowings 10 273.0 (96.0) (595.2)
Financing and share issue costs (0.9) (0.9) (2.2)
Equity dividends paid - - (100.2)
Dividends paid to
minority shareholders in
subsidiary undertakings (15.3) (14.3) (24.0)
--------------------------------- ------ -------- --------- ---------
Net cash inflow/(outflow)
from financing activities 144.8 (170.5) (853.6)
Net decrease in cash and
cash equivalents (75.5) (608.6) (688.4)
Translation differences (113.7) 34.5 85.0
Cash and cash equivalents
at beginning of period 679.6 1,283.0 1,283.0
--------------------------------- ------ -------- --------- ---------
Cash and cash equivalents
at end of period 10 490.4 708.9 679.6
--------------------------------- ------ -------- --------- ---------
Reconciliation of net cash flow to
movement in net debt:
Net decrease in cash and
cash equivalents (75.5) (608.6) (688.4)
Cash (inflow)/outflow
from (increase)/decrease
in debt financing (272.9) 96.5 596.9
Net debt acquired - (140.8) (140.8)
Other movements 9.9 (32.4) (25.9)
Translation difference (76.8) (2.0) 8.9
--------------------------------- ------ -------- --------- ---------
Movement of net debt in
the period (415.3) (687.3) (249.3)
Net debt at beginning of period (804.0) (554.7) (554.7)
--------------------------------- ------ -------- --------- ---------
Net debt at end of period 11 (1,219.3) (1,242.0) (804.0)
--------------------------------- ------ -------- --------- ---------
WPP GROUP PLC
Unaudited consolidated interim statement of recognised income and expense
for the six months ended 30 June 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
£m £m £m
Profit for the period 195.4 148.9 398.0
Exchange adjustments on foreign currency
net (210.9) 141.7 266.1
investments
Revaluation of other investments 2.7 15.8 21.0
Actuarial loss on defined benefit pension
schemes - - (16.5)
Deferred tax on defined benefit pension
schemes - - 3.6
---------------------------- ----------- ----------- -----------
Total recognised income and expense
relating to the period (12.8) 306.4 672.2
---------------------------- ----------- ----------- -----------
Attributable to:
Equity holders of the parent (31.5) 292.9 638.1
Minority interests 18.7 13.5 34.1
---------------------------- ----------- ----------- -----------
(12.8) 306.4 672.2
---------------------------- ----------- ----------- -----------
WPP GROUP PLC
Unaudited consolidated interim balance sheet
as at 30 June 2006
-------------------------- ------ ----------- ----------- -----------
Notes 30 June 30 June 31 December
2006 2005 2005
-------------------------- ------ ----------- ----------- -----------
£m £m £m
Non-current assets
Intangible assets:
Goodwill 12 5,492.7 5,431.3 5,675.2
Other 13 1,178.7 1,085.3 1,260.6
Property, plant and equipment 410.0 384.6 423.5
Interests in associates 443.0 507.0 509.9
Other investments 119.7 32.0 55.3
Deferred tax assets 111.4 118.4 130.3
Trade and other receivables 123.9 134.0 142.1
-------------------------- ------ ----------- ----------- -----------
7,879.4 7,692.6 8,196.9
Current assets
Inventories 365.3 346.7 281.5
Trade and other receivables 4,653.8 4,121.8 4,795.5
Cash and short-term deposits 854.8 1,163.0 1,115.2
-------------------------- ------ ----------- ----------- -----------
5,873.9 5,631.5 6,192.2
Current liabilities
Trade and other payables 14 (6,281.7) (5,687.7) (6,828.4)
Corporate income tax payable (50.1) (54.1) (56.5)
Bank overdrafts and loans (843.6) (873.5) (457.8)
-------------------------- ------ ----------- ----------- -----------
(7,175.4) (6,615.3) (7,342.7)
-------------------------- ------ ----------- ----------- -----------
Net current liabilities (1,301.5) (983.8) (1,150.5)
-------------------------- ------ ----------- ----------- -----------
Total assets less current
liabilities 6,577.9 6,708.8 7,046.4
-------------------------- ------ ----------- ----------- -----------
Non-current liabilities
Bonds and bank loans (1,230.5) (1,531.5) (1,461.4)
Trade and other payables 15 (690.2) (647.4) (703.0)
Deferred tax liabilities (501.4) (452.2) (533.1)
Provision for post-employment
benefits (231.4) (202.3) (231.4)
Provisions for liabilities and
charges (114.4) (133.3) (131.7)
-------------------------- ------ ----------- ----------- -----------
(2,767.9) (2,966.7) (3,060.6)
-------------------------- ------ ----------- ----------- -----------
Net assets 3,810.0 3,742.1 3,985.8
-------------------------- ------ ----------- ----------- -----------
Equity
Called-up share capital 124.9 126.3 125.3
Share premium account 52.6 1,035.3 2.1
Shares to be issued 15.7 44.5 37.2
Merger reserve (1,374.7) 3,414.6 (1,388.1)
Other reserves (39.4) 90.9 167.3
Own shares* (289.9) (281.2) (292.9)
Retained earnings 5,240.4 (752.5) 5,253.6
-------------------------- ------ ----------- ----------- -----------
Equity share owners' funds 16 3,729.6 3,677.9 3,904.5
Minority interests 80.4 64.2 81.3
-------------------------- ------ ----------- ----------- -----------
Total Equity 3,810.0 3,742.1 3,985.8
-------------------------- ------ ----------- ----------- -----------
* Investments in own shares held by the ESOP Trusts.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
1. Basis of accounting
The unaudited consolidated interim 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 consolidated interim 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 145 to 149 of the 2005 Annual Report and Accounts. No changes have
been made to the Group's accounting policies since this time.
Statutory Information and Independent Review
The unaudited consolidated interim financial statements for the six months to 30
June 2006 and 30 June 2005 do not constitute statutory accounts. The financial
information for the year ended 31 December 2005 does not constitute statutory
accounts for the purposes of s240 of the Companies Act 1985. The statutory
accounts for the year ended 31 December 2005 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 interim
financial statements are unaudited but have been reviewed by the auditors and
their report is set out on page 29.
The announcement of the interim results was approved by the board of directors
on 17 August 2006.
3. Currency conversion
The 2006 unaudited consolidated interim income statement is prepared using,
among other currencies, an average exchange rate of US$1.7908 to the pound
(period ended 30 June 2005: US$1.8728; year ended 31 December 2005: US$1.8189).
The unaudited consolidated interim balance sheet as at 30 June 2006 has been
prepared using the exchange rate on that day of US$1.8469 to the pound (30 June
2005: US$1.7918; 31 December 2005: US$1.7187).
The basis for calculating the constant currency percentage changes, shown on the
face of the unaudited consolidated interim income statement, is described in the
glossary attached to this appendix.
4. Operating costs and share of results of associates
Operating costs include:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Amortisation of acquired
intangible assets 23.0 11.8 25.3
Goodwill impairment 10.0 20.5 46.0
Goodwill write-down relating to
utilisation of pre-acquisition
tax losses 3.0 1.0 1.1
Gains on disposal of investments (4.2) - (4.3)
Share-based incentive plans 37.9 30.3 68.6
Other operating costs 2,337.6 2,040.2 4,343.2
-------------------------------- ---------- ---------- ----------
2,407.3 2,103.8 4,479.9
-------------------------------- ---------- ---------- ----------
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
4. Operating costs and share of results of associates (continued)
The goodwill impairment charge of £10.0 million relates to a number of
under-performing businesses in the Group. In certain markets, the impact of
current, local economic conditions and trading circumstances on these businesses
is sufficiently severe to indicate impairment to the carrying value of goodwill.
The Directors will reassess the need for any further impairment write-downs at
year end.
Charges in respect of share-based incentive plans include:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Share options 9.2 13.5 25.9
Other share-based incentive plans 28.7 16.8 42.7
-------------------------------- ---------- ---------- ----------
37.9 30.3 68.6
-------------------------------- ---------- ---------- ----------
Share of results of associates include:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Share of profit before interest and
taxation 34.4 23.8 54.0
Share of exceptional gains 4.0 - -
Share of interest and minority interest 0.6 (0.4) (0.9)
Share of taxation (13.7) (9.7) (19.2)
-------------------------------- ---------- ---------- ----------
25.3 13.7 33.9
-------------------------------- ---------- ---------- ----------
Share of exceptional gains of £4.0 million in the six months ended 30 June 2006
represents the Group's share of negative goodwill recognised in the income
statements of its associate undertakings during the period.
5. Finance income and finance costs
Finance income includes:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Expected return on pension scheme
assets 13.0 12.0 24.2
Investment income 0.5 - 5.6
Interest income 37.5 24.8 57.8
-------------------------------- ---------- ---------- ----------
51.0 36.8 87.6
-------------------------------- ---------- ---------- ----------
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
5. Finance income and finance costs (continued)
Finance costs include:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Interest on pension scheme
liabilities 16.5 16.0 32.0
Interest payable and similar
charges 79.4 65.6 141.4
-------------------------------- ---------- ---------- ----------
Finance charges (excluding
revaluation of financial
instruments) 95.9 81.6 173.4
Revaluation of financial
instruments 1.2 - 8.9
-------------------------------- ---------- ---------- ----------
97.1 81.6 182.3
-------------------------------- ---------- ---------- ----------
The following are included in the revaluation of financial instruments shown
above:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Movements in fair value of
treasury instruments 2.9 2.1 3.0
Revaluations of put options over
minority interests (1.7) (2.0) 5.8
Other - (0.1) 0.1
-------------------------------- ---------- ---------- ----------
1.2 - 8.9
-------------------------------- ---------- ---------- ----------
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
6. Segmental analysis
Reported contributions by operating sector were as follows:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Revenue
Advertising and Media Investment
Management 1,354.4 1,185.9 2,606.4
Information, Insight &
Consultancy 438.9 387.5 810.4
Public Relations & Public Affairs 290.3 251.8 534.4
Branding & Identity, Healthcare
and Specialist Communications 780.8 642.3 1,422.5
-------------------------------- ---------- ---------- ----------
2,864.4 2,467.5 5,373.7
-------------------------------- ---------- ---------- ----------
Headline PBIT*
Advertising and Media Investment
Management 190.3 158.6 402.7
Information, Insight &
Consultancy 41.5 36.1 83.4
Public Relations & Public Affairs 40.3 35.0 75.3
Branding & Identity, Healthcare
and Specialist Communications 88.9 69.9 193.4
-------------------------------- ---------- ---------- ----------
361.0 299.6 754.8
-------------------------------- ---------- ---------- ----------
Headline PBIT margin % % %
Advertising and Media Investment
Management 14.1 13.4 15.5
Information, Insight &
Consultancy 9.5 9.3 10.3
Public Relations & Public Affairs 13.9 13.9 14.1
Branding & Identity, Healthcare
and Specialist Communications 11.4 10.9 13.6
-------------------------------- ---------- ---------- ----------
12.6 12.1 14.0
-------------------------------- ---------- ---------- ----------
* Headline PBIT is defined in note 17.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
6. Segmental analysis (continued)
Reported contributions by geographical area were as follows:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Revenue
United Kingdom 415.1 389.0 808.1
North America 1,135.5 973.4 2,106.9
Continental Europe 741.4 662.3 1,410.3
Asia Pacific, Latin America,
Africa & Middle East 572.4 442.8 1,048.4
-------------------------------- ---------- ---------- ----------
2,864.4 2,467.5 5,373.7
-------------------------------- ---------- ---------- ----------
Headline PBIT*
United Kingdom 36.7 31.3 84.6
North America 176.1 151.9 350.1
Continental Europe 85.8 68.9 176.1
Asia Pacific, Latin America,
Africa & Middle East 62.4 47.5 144.0
-------------------------------- ---------- ---------- ----------
361.0 299.6 754.8
-------------------------------- ---------- ---------- ----------
Headline PBIT margin % % %
United Kingdom 8.8 8.0 10.5
North America 15.5 15.6 16.6
Continental Europe 11.6 10.4 12.5
Asia Pacific, Latin America,
Africa & Middle East 10.9 10.7 13.7
-------------------------------- ---------- ---------- ----------
12.6 12.1 14.0
-------------------------------- ---------- ---------- ----------
* Headline PBIT is defined in note 17.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
7. Taxation
The Group tax rate on Headline PBT* is 29.0% (30 June 2005: 28.5% and 31
December 2005: 29.0%).
The Group tax rate on Reported PBT is 31.9% (30 June 2005: 32.8% and 31 December
2005: 32.8%).
The tax charge comprises:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Current tax
UK Corporation tax at 30% 11.9 8.3 8.5
Foreign tax 80.9 66.4 187.2
-------------------------------- ---------- ---------- ----------
Total Current Tax 92.8 74.7 195.7
Deferred tax
Current year (1.1) (2.1) (1.7)
-------------------------------- ---------- ---------- ----------
Tax expense 91.7 72.6 194.0
-------------------------------- ---------- ---------- ----------
* Headline PBT is defined in note 17.
8. Ordinary dividends
The Board has recommended an interim dividend of 3.60p (2005: 3.00p) per
ordinary share. This is expected to be paid on 13 November 2006 to share owners
on the register at 13 October 2006.
The Board recommended a final dividend of 6.34p per ordinary share in respect of
2005. This was approved by the company's shareholders at the Annual General
Meeting on 27 June 2006 and paid on 3 July 2006.
9. Earnings per share
Basic EPS
The calculation of basic Reported and Headline EPS is as follows:
------------------------ -------- --------- ------ ------- ----------
Six months Six months +/(-)% Constant Year
ended ended Currency ended
30 June 30 June +/(-)% 31 December
2006 2005 2005
------------------------ -------- --------- ------ ------- ----------
Reported earnings* (£m) 176.7 135.4 363.9
Headline earnings (£m)
(note 17) 205.7 168.7 440.9
------------------------ -------- --------- ------ ------- ----------
Average shares used in
Basic EPS
calculation(m) 1,205.2 1,192.7 1,200.1
------------------------ -------- --------- ------ ------- ----------
Reported EPS 14.7p 11.4p 28.9 23.1 30.3p
Headline EPS 17.1p 14.1p 21.3 16.1 36.7p
----------------------- --------- --------- ------ ------- ----------
* Reported earnings is equivalent to profit for the period attributable to
equity holders of the parent.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
9. Earnings per share (continued)
Diluted EPS
The calculation of diluted Reported and Headline EPS is set out below:
----------------------- --------- --------- ------- ------- ----------
Six months Six months +/(-)% Constant Year
ended ended Currency ended
30 June 30 June +/(-)% 31 December
2006 2005 2005
----------------------- --------- --------- ------- ------- ----------
Diluted reported
earnings (£m) 177.8 135.4 363.9
Diluted headline
earnings (£m) 206.8 168.7 440.9
----------------------- --------- --------- ------- ------- ----------
Shares used in
diluted EPS
calculation (m) 1,243.5 1,218.6 1,224.8
----------------------- --------- --------- ------- ------- ----------
Diluted reported EPS 14.3p 11.1p 28.8 22.7 29.7p
Diluted headline EPS 16.6p 13.8p 20.3 15.6 36.0p
----------------------- --------- --------- ------- ------- ----------
Diluted EPS has been calculated based on the Reported and Headline Earnings
amounts above. For the six months ended 30 June 2006 the $150 million Grey
convertible was dilutive and earnings were consequently increased by £1.1
million. For the six months ended 30 June 2005, and the year ended 31 December
2005, the Grey convertible was accretive to earnings and therefore excluded from
the calculation of dilutive earnings. For the six months ended 30 June 2006 and
30 June 2005, and the year ended 31 December 2005, the £450 million convertible
bonds were accretive to earnings and therefore excluded from the calculation of
dilutive earnings.
A reconciliation between the shares used in calculating Basic and Diluted EPS is
as follows:
------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
------------------------------- ---------- ---------- ----------
m m m
Average shares used in Basic EPS
calculation 1,205.2 1,192.7 1,200.1
Dilutive share options
outstanding 18.0 19.3 18.6
Other potentially issuable shares 11.4 6.6 6.1
$150 million Grey convertible
bonds 8.9 - -
------------------------------- ---------- ---------- ----------
Shares used in Diluted EPS
calculation 1,243.5 1,218.6 1,224.8
------------------------------- ---------- ---------- ----------
At 30 June 2006 there were 1,249,246,636 ordinary shares in issue.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
10. Analysis of cash flows
The following tables analyse the items included within the main cash flow
headings on page 11:
Net cash (outflow)/inflow from operating activities:
----------------------------------- --------- --------- ---------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
----------------------------------- --------- --------- ---------
£m £m £m
Operating profit 307.9 252.6 652.8
Adjustments for:
Non-cash share-based incentive plans
(including share options) 37.9 30.3 68.6
Depreciation of property, plant and
equipment 60.8 46.0 111.4
Impairment of goodwill 10.0 20.5 46.0
Goodwill write-down relating to
utilisation of pre-acquisition tax
losses 3.0 1.0 1.1
Amortisation of acquired intangible
assets 23.0 11.8 25.3
Amortisation of other intangible assets 6.1 5.0 10.7
Gains on disposal of investments (4.2) - (4.3)
(Gains)/losses on sale of property,
plant and equipment (0.2) - 1.1
----------------------------------- --------- --------- ---------
Operating cash flow before movements in
working capital and provisions 444.3 367.2 912.7
Movements in working capital and
provisions (375.4) (317.9) 107.6
----------------------------------- --------- --------- ---------
Cash generated by operations 68.9 49.3 1,020.3
Corporation and overseas tax paid (69.3) (57.3) (136.0)
Interest and similar charges paid (76.9) (63.0) (128.2)
Interest received 39.5 27.5 62.4
Investment income - - 5.6
Dividends from associates 11.0 9.5 13.4
----------------------------------- --------- --------- ---------
(26.8) (34.0) 837.5
----------------------------------- --------- --------- ---------
Acquisitions and disposals:
----------------------------------- --------- --------- ---------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
----------------------------------- --------- --------- ---------
£m £m £m
Initial cash consideration (50.0) (468.9) (561.2)
Cash and cash equivalents
acquired (net) 15.6 176.1 173.9
Earnout payments (81.0) (69.3) (96.7)
Loan note redemptions (11.5) (3.2) (33.0)
Purchase of other investments
(including associates) (11.6) (8.2) (29.0)
Proceeds on disposal of
investments 13.7 37.5 38.3
----------------------------------- --------- --------- ---------
(124.8) (336.0) (507.7)
----------------------------------- --------- --------- ---------
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
10. Analysis of cash flows (continued)
Share repurchases and buybacks:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Share cancellations (including
brokerage fees) (123.1) (58.9) (123.3)
Purchase of own shares by ESOP
Trusts (38.4) (16.2) (29.0)
-------------------------------- ---------- ---------- ----------
(161.5) (75.1) (152.3)
-------------------------------- ---------- ---------- ----------
Net increase/(decrease) in borrowings:
-------------------------------- ---------- --------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- --------- ----------
£m £m £m
Increase in drawings on bank
loans 273.0 123.8 17.1
Repayment of $287.5 million
convertible bonds - (154.5) (154.5)
Repayment of $125 million Grey
debt - (65.3) (65.3)
Repayment of working capital
facility - - (277.2)
Repayment of $200 million bonds - - (115.3)
-------------------------------- ---------- --------- ----------
273.0 (96.0) (595.2)
-------------------------------- ---------- --------- ----------
Cash and cash equivalents:
-------------------------------- ---------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Cash at bank and in hand 741.2 1,088.7 1,029.0
Short-term bank deposits 113.6 74.3 86.2
Overdrafts* (364.4) (454.1) (435.6)
-------------------------------- ---------- ---------- ----------
490.4 708.9 679.6
-------------------------------- ---------- ---------- ----------
* Bank overdrafts are included in cash and cash equivalents because they form an
integral part of the Group's cash management.
11. Net debt
-------------------------------- ---------- ---------- ----------
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- ---------- ----------
£m £m £m
Cash and short-term deposits 854.8 1,163.0 1,115.2
Bank loans and overdrafts due within
one year (843.6) (594.5) (457.8)
Corporate bond and loans due after one
year (1,230.5) (1,531.5) (1,461.4)
Working capital facility - (279.0) -
-------------------------------- ---------- ---------- ----------
(1,219.3) (1,242.0) (804.0)
-------------------------------- ---------- ---------- ----------
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
12. Goodwill and acquisitions
Goodwill in relation to subsidiary undertakings decreased by £182.5 million in
the period. This includes both goodwill arising on acquisitions completed in the
period 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 decreased by £54.0 million in the
period.
Future anticipated payments to vendors in respect of both deferred and earnout
obligations totalled £167.7 million (period ended 30 June 2005: £233.1 million;
year ended 31 December 2005: £220.0 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 six months ended 30 June 2006, acquisitions completed
during the period contributed £22.0 million to revenue, £2.8 million to
operating profit and £3.5 million to Headline PBIT.
13. Other intangible assets
The following are included in other intangibles:
-------------------------------- ---------- --------- ----------
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- --------- ----------
£m £m £m
Brands with an indefinite useful life 853.0 794.0 897.0
Acquired intangibles 296.8 260.2 330.3
Other (including capitalised computer
software) 28.9 31.1 33.3
-------------------------------- ---------- --------- ----------
1,178.7 1,085.3 1,260.6
-------------------------------- ---------- --------- ----------
14. Trade and other payables: amounts falling due within one year
The following are included in trade and other payables falling due within one
year:
-------------------------------- ---------- --------- ----------
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- --------- ----------
£m £m £m
Trade payables 4,250.2 3,713.4 4,659.3
Deferred income 584.0 570.9 604.2
Payments due to vendors 46.0 87.1 81.3
Loan notes due to vendors 2.1 34.1 13.6
Liabilities in respect of put option
agreements with vendors 50.2 23.5 50.4
Dividends payable 76.1 62.6 -
Other creditors and accruals 1,273.1 1,196.1 1,419.6
-------------------------------- ---------- --------- ----------
6,281.7 5,687.7 6,828.4
-------------------------------- ---------- --------- ----------
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
15. 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:
-------------------------------- ---------- --------- ----------
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- --------- ----------
£m £m £m
Corporate income and other taxes
payable 378.7 320.3 372.8
Payments due to vendors 121.7 146.0 138.7
Liabilities in respect of put option
agreements with vendors 40.4 32.6 39.6
Other creditors and accruals 149.4 148.5 151.9
-------------------------------- ---------- --------- ----------
690.2 647.4 703.0
-------------------------------- ---------- --------- ----------
The following table sets out payments due to vendors, comprising deferred
consideration and the directors' best estimates of future earnout related
obligations:
-------------------------------- ---------- --------- ----------
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- --------- ----------
£m £m £m
Within one year 46.0 87.1 81.3
Between 1 and 2 years 43.8 68.5 71.9
Between 2 and 3 years 26.4 36.9 14.7
Between 3 and 4 years 27.9 14.9 20.3
Between 4 and 5 years 18.8 18.9 31.8
Over 5 years 4.8 6.8 -
-------------------------------- ---------- --------- ----------
167.7 233.1 220.0
-------------------------------- ---------- --------- ----------
The Group does not consider there to be any material contingent liabilities as
at 30 June 2006.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
16. Reconciliation of movements in consolidated equity share owners' funds
-------------------------------- --------- ---------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- --------- ---------- ----------
£m £m £m
Profit for the period
attributable to equity share
owners 176.7 135.4 363.9
Ordinary dividends (76.1) (62.6) (100.2)
-------------------------------- --------- ---------- ----------
100.6 72.8 263.7
Ordinary shares issued in respect
of acquisitions - 506.4 506.4
Other ordinary shares issued 48.4 15.4 18.3
Share cancellations (123.1) (58.9) (123.3)
Share issue/cancellation costs (0.7) (3.6) (3.6)
Net additions of own shares by
ESOP Trusts (38.4) (16.2) (29.0)
Transfer to goodwill - - (5.1)
Non-cash share-based incentive
plans (including share options) 37.9 30.3 68.6
Tax benefit of share-based
payments 10.1 3.5 12.9
Actuarial loss on defined benefit
schemes - - (16.5)
Deferred tax on defined benefit
pension schemes - - 3.6
Exchange adjustments on foreign
currency net investments (210.9) 141.7 266.1
Other movements 0.8 - -
Revaluation of other investments 2.7 15.8 21.0
Recognition of financial
instruments during the period (2.3) 21.7 (27.6)
-------------------------------- --------- ---------- ----------
Net (deductions)/additions to
equity share owners' funds (174.9) 728.9 955.5
Opening equity share owners'
funds 3,904.5 2,949.0 2,949.0
-------------------------------- --------- ---------- ----------
Closing equity share owners'
funds 3,729.6 3,677.9 3,904.5
-------------------------------- --------- ---------- ----------
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
17. Non-GAAP measures of performance
Reconciliation of profit before interest and taxation to
Headline PBIT for the six months ended 30 June 2006
-------------------------------- ---------- --------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- --------- ----------
£m £m £m
Profit before interest and
taxation 333.2 266.3 686.7
Amortisation of acquired
intangible assets 23.0 11.8 25.3
Goodwill impairment 10.0 20.5 46.0
Goodwill write-down relating to
utilisation of pre-acquisition
tax losses 3.0 1.0 1.1
Gains on disposal of investments (4.2) - (4.3)
Share of exceptional gains of
associates (4.0) - -
-------------------------------- ---------- --------- ----------
Headline PBIT 361.0 299.6 754.8
-------------------------------- ---------- --------- ----------
Finance income 51.0 36.8 87.6
Finance charges (excluding
revaluation of financial
instruments) (95.9) (81.6) (173.4)
-------------------------------- ---------- --------- ----------
(44.9) (44.8) (85.8)
-------------------------------- ---------- --------- ----------
Interest cover on Headline PBIT 8.0 times 6.7 times 8.8 times
-------------------------------- ---------- --------- ----------
Calculation of Headline EBITDA
-------------------------------- ---------- --------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
-------------------------------- ---------- --------- ----------
£m £m £m
Headline PBIT (as above) 361.0 299.6 754.8
Depreciation of property, plant
and equipment 60.8 46.0 111.4
Amortisation of other intangible
assets 6.1 5.0 10.7
-------------------------------- ---------- --------- ----------
Headline EBITDA 427.9 350.6 876.9
-------------------------------- ---------- --------- ----------
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
17. Non-GAAP measures of performance (continued)
Reconciliation of profit before taxation to Headline PBT
and Headline earnings for the six months ended 30 June 2006
------------------------------- --------- ---------- -----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
------------------------------- --------- ---------- -----------
£m £m £m
Profit before taxation 287.1 221.5 592.0
Amortisation of acquired
intangibles 23.0 11.8 25.3
Goodwill impairment 10.0 20.5 46.0
Goodwill write-down relating to
utilisation of pre-acquisition
tax losses 3.0 1.0 1.1
Gains on disposal of investments (4.2) - (4.3)
Share of exceptional gains of
associates (4.0) - -
Revaluation of financial
instruments 1.2 - 8.9
------------------------------- --------- ---------- -----------
Headline PBT 316.1 254.8 669.0
Taxation (91.7) (72.6) (194.0)
Minority interests (18.7) (13.5) (34.1)
------------------------------- --------- ---------- -----------
Headline earnings 205.7 168.7 440.9
------------------------------- --------- ---------- -----------
Ordinary dividends 76.1 62.6 100.2
------------------------------- --------- ---------- -----------
Dividend cover on Headline earnings 2.7 times 2.7 times 4.4 times
------------------------------- --------- ---------- -----------
Headline PBIT margins before and after share of results of associates
--------------------------- -------- --------- --------- ---------
Margin (%) Six months Margin (%) Six months
ended ended
30 June 30 June
2006 2005
--------------------------- -------- --------- --------- ---------
£m £m
Revenue 2,864.4 2,467.5
Headline PBIT 12.6% 361.0 12.1% 299.6
--------------------------- -------- --------- --------- ---------
Share of results of
associates (excluding
exceptional gains) 21.3 13.7
--------------------------- -------- --------- --------- ---------
Headline PBIT excluding
share of results of
associates 11.9% 339.7 11.6% 285.9
--------------------------- -------- --------- --------- ---------
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1 - 17)
(continued)
17. Non-GAAP measures of performance (continued)
Reconciliation of free cash flow for the six months ended 30 June 2006
---------------------------------- --------- --------- ----------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
---------------------------------- --------- --------- ----------
£m £m £m
Cash generated by operations 68.9 49.3 1,020.3
Plus:
Interest received 39.5 27.5 62.4
Investment income - - 5.6
Dividends received from
associates 11.0 9.5 13.4
Issue of shares 49.5 15.8 20.3
Proceeds on disposal of property,
plant and equipment 4.8 2.1 6.7
Gains on disposal of investments 4.2 - 4.3
Gains/(losses) on sale of
property, plant and equipment 0.2 - (1.1)
Movements in working capital and
provisions 375.4 317.9 (107.6)
Less:
Interest and similar charges (76.9) (63.0) (128.2)
Purchases of property, plant and
equipment (66.6) (68.1) (160.5)
Purchases of other intangible
assets (including capitalised
computer software) (6.9) (2.1) (10.8)
Corporation and overseas tax paid (69.3) (57.3) (136.0)
Dividends paid to minority
shareholders in subsidiary
undertakings (15.3) (14.3) (24.0)
---------------------------------- --------- --------- ----------
Free Cash Flow 318.5 217.3 564.8
---------------------------------- --------- --------- ----------
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 2006 which comprise the consolidated income
statement, the consolidated balance sheet, the consolidated statement of
recognised income and expense, the consolidated cash flow statement and related
notes 1 to 17. 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 the 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 are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons 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 International Standards on Auditing (UK and Ireland)
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 2006.
Deloitte & Touche LLP
London
Chartered Accountants
17 August 2006
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 budgeted 2006 exchange rates to local currency
reported results for the current and prior year. This gives a US dollar -
denominated income statement and balance sheet which exclude any variances
attributable to foreign exchange rate movements.
Estimated net new billings
Net new billings represent the estimated annualised impact on billings
(turnover) of new business gained from both existing and new clients, net of
existing client business lost. The estimated impact is based upon initial
assessments of the clients' media budgets, which may not necessarily result in
actual billings of the same amount.
Free cash flow
Free cash flow is calculated as Headline operating profit before 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 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 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.
This information is provided by RNS
The company news service from the London Stock Exchange
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