Preliminary Results - Part 2
WPP Group PLC
23 February 2007
WPP GROUP PLC
Preliminary results for the year ended 31 December 2006
Unaudited preliminary consolidated income statement for the year ended 31
December 2006
Constant
Currency1
Notes 2006 2005
£m £m +/(-)% +/(-)%
Billings 30,140.7 26,673.7 13.0 13.9
Revenue 5,907.8 5,373.7 9.9 10.9
Direct costs (296.8) (241.0) (23.2) (24.4)
Gross profit 5,611.0 5,132.7 9.3 10.3
Operating costs 4 (4,869.4) (4,479.9) (8.7) (9.5)
Operating profit 741.6 652.8 13.6 15.5
Share of results of associates 4 41.1 33.9 21.2 24.6
Profit before interest and taxation 782.7 686.7 14.0 15.9
Finance income 5 111.0 87.6 26.7 28.3
Finance costs 5 (211.7) (182.3) (16.1) (16.4)
Profit before taxation 682.0 592.0 15.2 17.6
Taxation 7 (199.4) (194.0) (2.8) (4.6)
Profit for the year 482.6 398.0 21.3 23.9
Attributable to:
Equity holders of the parent 435.8 363.9 19.8 22.4
Minority interests 46.8 34.1 (37.2) (39.8)
482.6 398.0 21.3 23.9
Headline PBIT 6,18 859.0 754.8 13.8 15.7
Headline PBIT margin 18 14.5% 14.0%
Headline PBT 18 766.3 669.0 14.5 16.8
Earnings per share2
Basic earnings per ordinary share 9 36.3 30.3p 19.8 22.3
Diluted earnings per ordinary share 9 35.2 29.7p 18.5 21.0
1 The basis for calculating the constant currency percentage change shown above
is described in the glossary attached to this appendix.
2 The calculations of the Group's earnings per share and Headline earnings per
share are set out in note 9.
WPP GROUP PLC
Unaudited preliminary consolidated cash flow statement for the year ended 31
December 2006
Notes 2006 2005
£m £m
Net cash inflow from operating activities 10 661.4 837.5
Investing activities
Acquisitions and disposals 10 (215.6) (507.7)
Purchase of property, plant and equipment (167.8) (160.5)
Purchase of other intangible assets (incl. capitalised computer (16.7) (10.8)
software)
Proceeds on disposal of property, plant and equipment 22.4 6.7
Net cash outflow from investing activities (377.7) (672.3)
Financing activities
Issue of shares 70.9 20.3
Share repurchases and buybacks 10 (257.7) (152.3)
Net increase/(decrease) in borrowings 10 382.1 (595.2)
Financing and share issue costs (3.7) (2.2)
Equity dividends paid (118.9) (100.2)
Dividends paid to minority shareholders in subsidiary undertakings (28.8) (24.0)
Net cash inflow/(outflow) from financing activities 43.9 (853.6)
Net increase/(decrease) in cash and cash equivalents 327.6 (688.4)
Translation differences (50.3) 85.0
Cash and cash equivalents at beginning of year 679.6 1,283.0
Cash and cash equivalents at end of year 10 956.9 679.6
Reconciliation of net cash flow to movement in net debt:
Net (decrease)/increase in cash and cash equivalents 327.6 (688.4)
Cash (outflow)/inflow from decrease/(increase) in debt financing (380.1) 596.9
Net debt acquired - (140.8)
Other movements 9.3 (25.9)
Translation difference 32.6 8.9
Movement of net debt in the year (10.6) (249.3)
Net debt at beginning of year (804.0) (554.7)
Net debt at end of year 11 (814.6) (804.0)
WPP GROUP PLC
Unaudited preliminary consolidated statement of recognised income and expense
for the year ended 31 December 2006
2006 2005
£m £m
Profit for the year 482.6 398.0
Exchange adjustments on foreign currency net investments (367.0) 266.1
Revaluation of other investments 9.5 21.0
Actuarial gain/(loss) on defined benefit pension schemes 26.0 (16.5)
Deferred tax on defined benefit pension schemes 5.3 3.6
Total recognised income and expense relating to the year 156.4 672.2
Attributable to:
Equity holders of the parent 109.6 638.1
Minority interests 46.8 34.1
156.4 672.2
WPP GROUP PLC
Unaudited preliminary consolidated balance sheet as at 31 December 2006
Notes 2006 2005
£m £m
Non-current assets
Intangible assets:
Goodwill 12 5,434.5 5,675.2
Other 13 1,115.4 1,260.6
Property, plant and equipment 415.3 423.5
Interests in associates 411.4 509.9
Other investments 136.5 55.3
Deferred tax assets 108.9 130.3
Trade and other receivables 14 110.3 142.1
7,732.3 8,196.9
Current assets
Stocks and work in progress 341.5 281.5
Corporate income tax recoverable 26.5 21.0
Trade and other receivables 14 4,931.9 4,774.5
Cash and short-term deposits 1,663.7 1,115.2
6,963.6 6,192.2
Current liabilities
Trade and other payables 15 (6,783.8) (6,828.4)
Corporate income tax payable (39.6) (56.5)
Bank overdrafts and loans (1,260.6) (457.8)
(8,084.0) (7,342.7)
Net current liabilities (1,120.4) (1,150.5)
Total assets less current liabilities 6,611.9 7,046.4
Non-current liabilities
Bonds and bank loans (1,217.7) (1,461.4)
Trade and other payables 16 (331.9) (330.2)
Corporate income tax payable (383.7) (372.8)
Deferred tax liabilities (467.8) (533.1)
Provisions for post-employment benefits (187.6) (231.4)
Provisions for liabilities and charges (104.8) (131.7)
(2,693.5) (3,060.6)
Net assets 3,918.4 3,985.8
Equity
Called-up share capital 124.1 125.3
Share premium account 74.9 2.1
Shares to be issued 7.5 37.2
Merger reserve (1,370.0) (1,388.1)
Other reserves (170.1) 167.3
Own shares1 (288.5) (292.9)
Retained earnings 5,449.0 5,253.6
Equity share owners' funds 17 3,826.9 3,904.5
Minority interests 91.5 81.3
Total equity 3,918.4 3,985.8
1 Investments in own shares held by the ESOP Trusts.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements
1. Basis of accounting
The unaudited preliminary consolidated financial statements are prepared under
the historical cost convention, except for the revaluation of certain financial
instruments as disclosed in our accounting policies.
2. Accounting policies
The unaudited preliminary consolidated financial statements comply with the
recognition and measurement criteria of International Financial Reporting
Standards (IFRS), and with the accounting policies of the Group which were set
out on pages 145 to 149 of the 2005 Annual Report and Accounts. No changes have
been made to the Group's accounting policies since this time.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The Company's 2006 Annual Report and
Accounts will be prepared in compliance with IFRS.
Statutory Information
The financial information for the years ended 31 December 2006 and 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 statutory accounts for the year ended 31 December 2006 will be
finalised on the basis of the financial information presented by the directors
in this unaudited preliminary announcement and will be delivered to the
Registrar of Companies following the company's annual general meeting. The
audit report for the year ended 31 December 2006 has yet to be signed.
The announcement of the preliminary results was approved by the board of
directors on 22 February 2007.
3. Currency conversion
The 2006 unaudited preliminary consolidated income statement is prepared using,
among other currencies, an average exchange rate of US$1.8432 to the pound
(2005: US$1.8189). The unaudited preliminary consolidated balance sheet as at 31
December 2006 has been prepared using the exchange rate on that day of US$1.9569
to the pound (2005: US$1.7187).
The basis for calculating the constant currency percentage changes, shown on the
face of the unaudited preliminary consolidated income statement, is described in
the glossary attached to this appendix.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
4. Operating costs and share of results of associates
Operating costs include:
2006 2005
£m £m
Amortisation and impairment of acquired intangible assets 43.3 25.3
Goodwill impairment 35.5 46.0
Goodwill write-down relating to utilisation of pre-acquisition tax losses 8.8 1.1
Gains on disposal of investments (7.3) (4.3)
Share-based incentive plans 70.9 68.6
Other operating costs 4,718.2 4,343.2
4,869.4 4,479.9
The goodwill impairment charge of £35.5 million (2005: £46.0 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.
Operating profit includes credits totalling £10.6 million (2005: £10.1 million)
relating to the release of excess provisions and other balances established in
respect of acquisitions completed prior to 2005.
Share of results of associates include:
2006 2005
£m £m
Share of profit before interest and taxation 61.4 54.0
Share of exceptional gains 4.0 -
Share of interest and minority interest 0.9 (0.9)
Share of taxation (25.2) (19.2)
41.1 33.9
Share of exceptional gains of £4.0 million in the year ended 31 December 2006
represents the Group's share of negative goodwill recognised in the income
statements of its associate undertakings during the year.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
5. Finance income and finance costs
Finance income includes:
2006 2005
£m £m
Expected return on pension scheme assets 25.2 24.2
Investment income 5.7 5.6
Interest income 80.1 57.8
111.0 87.6
Finance costs include:
2006 2005
£m £m
Interest on pension scheme liabilities 32.4 32.0
Interest payable and similar charges 171.3 141.4
Finance charges (excluding revaluation of financial instruments) 203.7 173.4
Revaluation of financial instruments 8.0 8.9
211.7 182.3
The following are included in the revaluation of financial instruments shown
above:
2006 2005
£m £m
Movements in fair value of treasury instruments 3.3 3.0
Revaluation of put options over minority interests 4.7 5.8
Other - 0.1
8.0 8.9
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
6. Segmental analysis
Reported contributions by operating sector were as follows:
2006 2005
£m £m
Revenue
Advertising and Media Investment Management 2,806.9 2,606.4
Information, Insight & Consultancy 892.9 810.4
Public Relations & Public Affairs 595.7 534.4
Branding & Identity, Healthcare and Specialist Communications 1,612.3 1,422.5
5,907.8 5,373.7
Headline PBIT1
Advertising and Media Investment Management 443.7 402.7
Information, Insight & Consultancy 98.7 83.4
Public Relations & Public Affairs 89.5 75.3
Branding & Identity, Healthcare and Specialist Communications 227.1 193.4
859.0 754.8
Headline PBIT Margin % %
Advertising and Media Investment Management 15.8 15.5
Information, Insight & Consultancy 11.1 10.3
Public Relations & Public Affairs 15.0 14.1
Branding & Identity, Healthcare and Specialist Communications 14.1 13.6
14.5 14.0
1 Headline PBIT is defined in note 18.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
6. Segmental analysis (continued)
Reported contributions by geographical area were as follows:
2006 2005
£m £m
Revenue
United Kingdom 856.3 808.1
North America 2,291.1 2,106.9
Continental Europe 1,532.9 1,410.3
Asia Pacific, Latin America, Africa & Middle East 1,227.5 1,048.4
5,907.8 5,373.7
Headline PBIT1
United Kingdom 97.9 84.6
North America 389.0 350.1
Continental Europe 194.3 176.1
Asia Pacific, Latin America, Africa & Middle East 177.8 144.0
859.0 754.8
Headline PBIT Margin % %
United Kingdom 11.4 10.5
North America 17.0 16.6
Continental Europe 12.7 12.5
Asia Pacific, Latin America, Africa & Middle East 14.5 13.7
14.5 14.0
1 Headline PBIT is defined in note 18.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
7. Taxation
The Group tax rate on Headline PBT1 is 26.0% (2005: 29.0%). The Group tax rate
on Reported PBT is 29.2% (2005: 32.8%). The tax charge comprises:
2006 2005
£m £m
Current tax
UK Corporation tax at 30%
Current year 36.6 32.9
Prior years (44.9) (24.4)
(8.3) 8.5
Foreign tax
Current year 216.9 177.3
Prior years (7.6) 9.9
209.3 187.2
Total Current tax 201.0 195.7
Deferred tax
Current year (1.6) (1.7)
Tax expense 199.4 194.0
1 Headline PBT is defined in note 18.
8. Ordinary dividends
The Board has recommended a final dividend of 7.61p (2005: 6.34p) per ordinary
share in addition to the interim dividend paid of 3.60p (2005: 3.00p) per
ordinary share. This makes a total for the year of 11.21p (2005: 9.34p) per
ordinary share, an increase of 20%. The final dividend is expected to be paid on
9 July 2007 to share owners on the register at 8 June 2007.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
9. Earnings per share
Basic EPS
The calculation of basic Reported and Headline EPS is as follows:
2006 2005 +/(-)% Constant
Currency
+/(-)%
Reported earnings1 (£m) 435.8 363.9
Headline earnings (£m) (note 18) 520.1 440.9
Average shares used in Basic EPS calculation (m) 1,201.0 1,200.1
Reported EPS 36.3p 30.3p 19.8 22.3
Headline EPS 43.3p 36.7p 18.0 20.2
1 Reported earnings is equivalent to profit for the year attributable to equity
holders of the parent.
Diluted EPS
The calculation of diluted Reported and Headline EPS is set out below:
2006 2005 +/(-)% Constant
Currency
+/(-)%
Diluted Reported earnings (£m) 436.9 363.9
Diluted Headline earnings (£m) 521.2 440.9
Shares used in diluted EPS calculation (m) 1,242.2 1,224.8
Diluted Reported EPS 35.2p 29.7p 18.5 21.0
Diluted Headline EPS 42.0p 36.0p 16.7 18.9
Diluted EPS has been calculated based on the Reported and Headline Earnings
amounts above. For the year ended 31 December 2006, the $150 million Grey
convertible bonds were dilutive to earnings whilst the £450 million convertible
bonds were accretive. Earnings for the purposes of this calculation consequently
included an additional £1.1 million in 2006. In 2005, both convertibles 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:
2006 2005
m m
Average shares used in Basic EPS calculation 1,201.0 1,200.1
Dilutive share options outstanding 14.9 18.6
Other potentially issuable shares 17.4 6.1
$150 million Grey convertible bonds 8.9 -
Shares used in Diluted EPS calculation 1,242.2 1,224.8
At 31 December 2006 there were 1,240,605,187 (2005: 1,252,899,372) ordinary
shares in issue.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
10. Analysis of cash flows
The following tables analyse the items included within the main cash flow
headings on page 13:
Net cash inflow from operating activities:
2006 2005
£m £m
Profit for the year 482.6 398.0
Taxation 199.4 194.0
Finance costs 211.7 182.3
Finance income (111.0) (87.6)
Share of results of associates (41.1) (33.9)
Operating profit 741.6 652.8
Adjustments for:
Non cash share-based incentive plans (including share options) 70.9 68.6
Depreciation of property, plant and equipment 129.1 111.4
Goodwill impairment 35.5 46.0
Goodwill write-down relating to utilisation of pre-acquisition tax losses 8.8 1.1
Amortisation and impairment of acquired intangible assets 43.3 25.3
Amortisation of other intangible assets 13.5 10.7
Gains on disposal of investments (7.3) (4.3)
(Gains)/losses on sale of property, plant and equipment (3.7) 1.1
Operating cash flow before movements in working capital and provisions 1,031.7 912.7
Movements in working capital and provisions (171.1) 107.6
Cash generated by operations 860.6 1,020.3
Corporation and overseas tax paid (162.0) (136.0)
Interest and similar charges paid (135.1) (128.2)
Interest received 75.2 62.4
Investment income 2.4 5.6
Dividends from associates 20.3 13.4
661.4 837.5
Acquisitions and disposals:
2006 2005
£m £m
Initial cash consideration (120.5) (561.2)
Cash and cash equivalents acquired (net) 21.4 173.9
Earnout payments (91.6) (96.7)
Loan note redemptions (11.7) (33.0)
Purchase of other investments (including associates) (28.7) (29.0)
Proceeds on disposal of investments 15.5 38.3
(215.6) (507.7)
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
10. Analysis of cash flows (continued)
Share repurchases and buybacks:
2006 2005
£m £m
Share cancellations (excluding brokerage fees) (218.8) (123.3)
Purchase of own shares by ESOP trusts (38.9) (29.0)
(257.7) (152.3)
Net increase/(decrease) in borrowings:
2006 2005
£m £m
(Decrease)/increase in drawings on bank loans (21.8) 17.1
Proceeds from issue of €600 million Eurobonds 403.9 -
Repayment of $287.5 million convertible bonds - (154.5)
Repayment of $125 million Grey debt - (65.3)
Repayment of working capital facility - (277.2)
Repayment of $200 million bonds - (115.3)
382.1 (595.2)
Cash and cash equivalents:
2006 2005
£m £m
Cash at bank and in hand 1,476.8 1,029.0
Short-term bank deposits 186.9 86.2
Overdrafts1 (706.8) (435.6)
956.9 679.6
1 Bank overdrafts are included in cash and cash equivalents because they form an
integral part of the Group's cash management.
11. Net debt
2006 2005
£m £m
Cash and short-term deposits 1,663.7 1,115.2
Bank loans and overdrafts due within one year (1,260.6) (457.8)
Corporate bond and loans due after one year (1,217.7) (1,461.4)
Net debt (814.6) (804.0)
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
12. Goodwill and acquisitions
Goodwill in relation to subsidiary undertakings decreased by £240.7 million
(2005: increased by £1,285.5 million) in the year. This includes both goodwill
arising on acquisitions completed in the year and adjustments to goodwill
relating to acquisitions completed in prior years, net of impairment charges and
the effect of currency translation. Goodwill in relation to associate
undertakings decreased by £76.0 million (2005: increased by £79.1 million) in
the year.
Future anticipated payments to vendors in respect of both deferred and earnout
obligations totalled £235.5 million (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.
The contribution to revenue and operating profit of acquisitions completed in
2006 was not material.
13. Other intangible assets
The following are included in other intangibles:
2006 2005
£m £m
Brands with an indefinite useful life 811.4 897.0
Acquired intangibles 271.9 330.3
Other (including capitalised computer software) 32.1 33.3
1,115.4 1,260.6
14. Trade and other receivables
Amounts falling due within one year:
2006 2005
£m £m
Trade receivables 4,021.4 3,999.3
VAT and sales taxes recoverable 50.0 43.0
Other debtors 438.4 350.8
Prepayments and accrued income 422.1 381.4
4,931.9 4,774.5
Amounts falling due after more than one year:
2006 2005
£m £m
Other debtors 106.6 115.8
Prepayments and accrued income 3.7 26.3
110.3 142.1
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
15. Trade and other payables: amounts falling due within one year
The following are included in trade and other payables falling due within one
year:
2006 2005
£m £m
Trade payables 4,743.6 4,659.3
Deferred income 510.8 604.2
Payments due to vendors 87.9 81.3
Loan notes due to vendors 1.8 13.6
Liabilities in respect of put option agreements with vendors 51.1 50.4
Other creditors and accruals 1,388.6 1,419.6
6,783.8 6,828.4
16. Trade and other payables: amounts falling due after more than one year
The following are included in trade and other payables falling due after more
than one year:
2006 2005
£m £m
Payments due to vendors 147.6 138.7
Liabilities in respect of put option agreements with vendors 28.8 39.6
Other creditors and accruals 155.5 151.9
331.9 330.2
The following table sets out the directors' best estimates of future deferred
and earnout related obligations:
2006 2005
£m £m
Within one year 87.9 81.3
Between 1 and 2 years 36.1 71.9
Between 2 and 3 years 34.6 14.7
Between 3 and 4 years 49.1 20.3
Between 4 and 5 years 27.8 31.8
Over 5 years - -
235.5 220.0
The Group does not consider there to be any material contingent liabilities as
at 31 December 2006.
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
17. Reconciliation of movements in consolidated equity share owners' funds
2006 2005
£m £m
Profit for the year attributable to equity share owners 435.8 363.9
Ordinary dividends (118.9) (100.2)
316.9 263.7
Ordinary shares issued in respect of acquisitions - 506.4
Other ordinary shares issued 73.0 18.3
Share cancellations (218.8) (123.3)
Share issue/cancellation costs (1.7) (3.6)
Net additions of own shares by ESOP Trusts (38.9) (29.0)
Transfer to goodwill - (5.1)
Non cash share-based incentive plans (including stock options) 70.9 68.6
Tax benefit of share-based payments 32.3 12.9
Actuarial gain/(loss) on defined benefit pension schemes 26.0 (16.5)
Deferred tax on defined benefit pension schemes 5.3 3.6
Exchange adjustments on foreign currency net investments (367.0) 266.1
Revaluation of other investments 9.5 21.0
Financial instruments - movements during the year 14.9 (27.6)
Net (deductions)/additions to equity share owners' funds (77.6) 955.5
Opening equity share owners' funds 3,904.5 2,949.0
Closing equity share owners' funds 3,826.9 3,904.5
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
18. Non-GAAP measures of performance
Reconciliation of profit before interest and taxation to
Headline PBIT for the year ended 31 December 2006
2006 2005
£m £m
Profit before interest and taxation 782.7 686.7
Amortisation and impairment of acquired intangible assets 43.3 25.3
Goodwill impairment 35.5 46.0
Goodwill write-down relating to utilisation of pre-acquisition tax losses 8.8 1.1
Gains on disposal of investments (7.3) (4.3)
Share of exceptional gains of associates (4.0) -
Headline PBIT 859.0 754.8
Finance income 111.0 87.6
Finance charges (excluding revaluation of financial instruments) (203.7) (173.4)
(92.7) (85.8)
Interest cover on Headline PBIT 9.3 times 8.8 times
Calculation of Headline EBITDA
2006 2005
£m £m
Headline PBIT (as above) 859.0 754.8
Depreciation of property, plant and equipment 129.1 111.4
Amortisation of other intangible assets 13.5 10.7
Headline EBITDA 1,001.6 876.9
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
18. Non-GAAP measures of performance (continued)
Reconciliation of profit before taxation to Headline PBT
and Headline earnings for the year ended 31 December 2006
2006 2005
£m £m
Profit before taxation 682.0 592.0
Amortisation and impairment of acquired intangible assets 43.3 25.3
Goodwill impairment 35.5 46.0
Goodwill write-down relating to utilisation of pre-acquisition tax losses 8.8 1.1
Gains on disposal of investments (7.3) (4.3)
Share of exceptional gains of associates (4.0) -
Revaluation of financial instruments 8.0 8.9
Headline PBT 766.3 669.0
Taxation (199.4) (194.0)
Minority interests (46.8) (34.1)
Headline earnings 520.1 440.9
Ordinary dividends 118.9 100.2
Dividend cover on Headline earnings 4.4 times 4.4 times
Headline PBIT margins before and after share of results of associates
Margin (%) 2006 Margin (%) 2005
£m £m
Revenue 5,907.8 5,373.7
Headline PBIT 14.5% 859.0 14.0% 754.8
Share of results of associates (excluding exceptional 37.1 33.9
gains)
Headline PBIT excluding share of results of 13.9% 821.9 13.4% 720.9
associates
WPP GROUP PLC
Notes to the unaudited preliminary consolidated financial statements (continued)
18. Non-GAAP measures of performance (continued)
Reconciliation of free cash flow for the year ended 31 December 2006
2006 2005
£m £m
Cash generated by operations 860.6 1,020.3
Plus:
Interest received 75.2 62.4
Investment income 2.4 5.6
Dividends received from associates 20.3 13.4
Issue of shares 70.9 20.3
Proceeds on disposal of property, plant and equipment 22.4 6.7
Gains/(losses) on sale of property, plant and equipment 3.7 (1.1)
Movements in working capital and provisions 171.1 (107.6)
Less:
Interest and similar charges paid (135.1) (128.2)
Purchase of property, plant and equipment (167.8) (160.5)
Purchase of other intangible assets (including capitalised computer (16.7) (10.8)
software)
Corporation and overseas tax paid (162.0) (136.0)
Dividends paid to minority shareholders in subsidiary undertakings (28.8) (24.0)
Free Cash Flow 716.2 560.5
WPP GROUP PLC
GLOSSARY AND BASIS OF PREPARATION
2004 UK GAAP
UK Generally Accepted Accounting Principles ('UK GAAP') extant in respect of
2004 - the basis of preparation of the Group's consolidated financial statements
for the year ended 31 December 2004, as previously reported, prior to the
implementation of International Financial Reporting Standards ('IFRS').
Average net debt
Average net debt is calculated as the average daily net bank borrowings of the
Group, derived from the Group's automated banking system. Net debt at a period
end is calculated as the sum of the net bank borrowings of the Group, derived
from the cash ledgers and accounts in the balance sheet.
Billings and estimated net new billings
Billings comprises the gross amounts billed to clients in respect of
commission-based / fee-based income together with the total of other fees
earned. Net new billings represent the estimated annualised impact on billings
of new business gained from both existing and new clients, net of existing
client business lost. The estimated impact is based upon initial assessments of
the clients' media budgets, which may not necessarily result in actual billings
of the same amount.
Constant currency
The Group uses US dollar-based, constant currency models to measure performance.
These are calculated by applying budgeted 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.
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 and impairment of
acquired intangible assets, and share of exceptional gains of associates.
Headline PBT
Profit before taxation, investment gains, goodwill impairment and other goodwill
write-downs, amortisation and impairment of acquired intangible assets, share of
exceptional gains of associates and gains/losses arising from the revaluation of
financial instruments.
Operating margin
Headline operating profit as a percentage of revenue.
Pro forma ('like-for-like')
Pro forma comparisons are calculated as follows: current year, constant currency
actual results (which include acquisitions from the relevant date of completion)
are compared with prior year, constant currency actual results, adjusted to
include the results of acquisitions for the commensurate period in the prior
year. The Group uses the terms 'pro forma' and 'like-for-like' interchangeably.
This information is provided by RNS
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