Interim Results - PART TWO
WPP Group PLC
22 August 2003
WPP GROUP - INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2003
PART TWO
Appendix I
WPP GROUP PLC
Interim results for the six months ended 30 June 2003
Unaudited consolidated interim profit and loss account for the six months ended
30 June 2003
Six months Six months
ended ended Year ended
30 June 30 June Constant 31 December
Notes 2003 2002 Currency(3) 2002
£m £m +/(-)% +/(-)% £m
Turnover (gross billings) 8,639.2 8,779.9 (1.6) 1.6 18,028.7
Cost of sales (6,728.4) (6,820.1) 1.3 (1.5) (14,120.4)
Revenue 4 1,910.8 1,959.8 (2.5) 1.8 3,908.3
Direct costs (110.1) (110.7) 0.5 (3.3) (218.2)
Gross profit 1,800.7 1,849.1 (2.6) 1.7 3,690.1
Operating costs excluding goodwill
amortisation and impairment (1,582.4) (1,611.0) 1.8 (2.8) (3,239.9)
Goodwill amortisation and impairment 8 (43.5) (36.7) (18.5) (17.5) (177.7)
Operating costs (1,625.9) (1,647.7) 1.3 (3.1) (3,417.6)
Operating profit 174.8 201.4 (13.2) (10.3) 272.5
Income from associates 15.8 15.8 - 3.6 30.0
Profit on ordinary activities before interest,
taxation, fixed asset gains and write-downs 190.6 217.2 (12.2) (9.3) 302.5
Profits on disposal of fixed assets - - - - 9.2
Amounts written off fixed asset investments - - - - (19.9)
Net interest payable and similar charges
on net borrowings (31.2) (41.0) 23.9 19.0 (79.6)
Net interest charges on defined benefit
pension schemes (5.8) (2.5) (132.0) (141.9) (6.8)
Net interest payable and similar charges (37.0) (43.5) 14.9 9.6 (86.4)
Profit on ordinary activities before taxation 153.6 173.7 (11.6) (9.2) 205.4
Taxation on profit on ordinary activities 5 (51.7) (53.4) 3.2 3.4 (103.4)
Profit on ordinary activities after taxation 101.9 120.3 (15.3) (12.0) 102.0
Minority interests (6.7) (6.0) (11.7) (12.5) (14.0)
Profit attributable to ordinary share owners 95.2 114.3 (16.7) (13.4) 88.0
Ordinary dividends 6 (24.5) (20.0) 22.5 22.5 (62.5)
Retained profit for the period 70.7 94.3 (25.0) (21.8) 25.5
Headline PBIT (1) 4 234.1 253.9 (7.8) (5.2) 480.2
Headline PBIT (1) margin 12.3% 13.0% 12.3%
Headline PBT (1) 202.9 212.9 (4.7) (2.5) 400.6
Headline earnings per share (2)
Basic earnings per ordinary share 7 13.0p 13.8p (5.8) (2.5) 25.5p
Diluted earnings per ordinary share 7 12.8p 13.4p (4.5) (1.6) 24.9p
Standard earnings per share
Basic earnings per ordinary share 7 8.6p 10.3p (16.5) (13.0) 7.9p
Diluted earnings per ordinary share 7 8.5p 10.0p (15.0) (12.2) 7.7p
(1) Headline PBIT: Profit on ordinary activities before interest, taxation,
goodwill amortisation and impairment, fixed asset gains and write-downs.
Headline PBT: Profit on ordinary activities before taxation, goodwill
amortisation and impairment, fixed asset gains and write-downs, 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, fixed asset gains and write-downs, 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 2003
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2003 2002 2002
Reconciliation of operating profit to net cash (outflow)/inflow £m £m £m
from operating activities:
Operating profit 174.8 201.4 272.5
Depreciation 53.0 59.5 116.6
Goodwill amortisation and impairment charges 43.5 36.7 177.7
Movements in working capital and provisions (321.2) (252.5) 213.1
Net cash (outflow)/inflow from operating activities (49.9) 45.1 779.9
Dividends received from associates 6.0 4.4 9.4
Returns on investments and servicing of finance (47.7) (48.5) (78.2)
United Kingdom and overseas tax paid (43.0) (43.6) (85.0)
Purchase of tangible fixed assets (32.9) (34.0) (100.5)
Purchase of own shares by ESOP Trust (2.8) (67.9) (67.6)
Proceeds from sale of tangible fixed assets 3.3 1.8 10.2
Capital expenditure and financial investment (32.4) (100.1) (157.9)
Initial cash consideration for acquisitions (47.2) (112.3) (141.2)
Earnout payments (45.4) (44.9) (82.4)
Loan note redemptions (6.5) (44.9) (93.7)
Net cash acquired 0.6 58.0 62.8
Purchase of majority of Cordiant bank debt from its lenders (176.6) - -
Purchases of other investments (including associates) (51.0) (2.0) (26.1)
Proceeds from disposal of other investments 2.2 3.3 3.3
Acquisitions and disposals (323.9) (142.8) (277.3)
Equity dividends paid - - (55.6)
Net cash (outflow)/inflow before management of
liquid resources and financing (490.9) (285.5) 135.3
Management of liquid resources 118.8 43.7 (113.6)
Proceeds from issue of convertible bond - 450.0 450.0
Increase/(reduction) in drawings on bank loans 125.5 (116.2) (239.3)
Financing and share issue costs (2.7) (9.0) (12.9)
Share placement 100.2 - -
Proceeds from other issue of shares 5.0 20.5 24.4
Share cancellations (20.2) - (8.3)
Net cash inflow from financing 207.8 345.3 213.9
(Decrease)/increase in cash and overdrafts for the period (164.3) 103.5 235.6
Translation difference 11.4 6.1 (0.4)
Balance of cash and overdrafts at beginning of period 500.9 265.7 265.7
Balance of cash and overdrafts at end of period 348.0 375.3 500.9
Reconciliation of net cash flow to movement in net debt:
(Decrease)/increase in cash and overdrafts for the period (164.3) 103.5 235.6
Cash (inflow)/outflow from increase in liquid resources (118.8) (43.7) 113.6
Cash inflow from increase in debt financing (125.1) (324.9) (201.2)
Other movements (6.5) (3.9) (8.8)
Translation difference (15.6) (6.1) 23.2
Movement of net debt in the period (430.3) (275.1) 162.4
Net debt at beginning of period (722.7) (885.1) (885.1)
Net debt at end of period (Note 11) (1,153.0) (1,160.2) (722.7)
WPP GROUP PLC
Unaudited consolidated balance sheet as at 30 June 2003
30 June 30 June 31 December
Notes 2003 2002 2002
£m £m £m
Fixed assets
Intangible assets:
Corporate brands 950.0 950.0 950.0
Goodwill 8 4,441.7 4,452.2 4,407.0
Tangible assets 354.4 396.9 377.3
Investments 8 855.6 635.8 628.7
6,601.7 6,434.9 6,363.0
Current assets
Stocks and work in progress 371.8 328.5 291.6
Debtors 2,306.9 2,420.2 2,256.4
Trade debtors within working capital facility:
Gross debts 379.3 409.5 385.7
Non-returnable proceeds (211.8) (229.1) (217.4)
167.5 180.4 168.3
Current asset investments
(short-term bank and escrow deposits) 71.6 33.1 190.4
Cash at bank and in hand 690.1 690.6 689.1
3,607.9 3,652.8 3,595.8
Creditors: amounts falling due within one year 9 (4,313.0) (4,038.8) (4,120.1)
Net current liabilities (705.1) (386.0) (524.3)
Total assets less current liabilities 5,896.6 6,048.9 5,838.7
Creditors: amounts falling due after more than one year
(including convertible bonds) 10 (1,734.2) (2,016.6) (1,837.5)
Provisions for liabilities and charges (101.6) (106.5) (102.0)
Net assets excluding pension provision 4,060.8 3,925.8 3,899.2
Pension provision (184.8) (135.3) (184.8)
Net assets including pension provision 3,876.0 3,790.5 3,714.4
Capital and reserves
Called up share capital 117.8 115.6 115.7
Share premium account 939.4 834.6 836.6
Shares to be issued 166.4 206.1 195.7
Merger reserve 2,891.8 2,855.4 2,869.3
Other reserves (253.0) (307.0) (254.3)
Profit and loss account (24.9) 40.5 (87.4)
Equity share owners' funds 3,837.5 3,745.2 3,675.6
Minority interests 38.5 45.3 38.8
Total capital employed 3,876.0 3,790.5 3,714.4
WPP GROUP PLC
Unaudited consolidated statement of total recognised gains and losses
for the period ended 30 June 2003
Six months Six months Year ended
ended 30 ended 30 31 December
June 2003 June 2002 2002
£m £m £m
Profit for the period 95.2 114.3 88.0
Exchange adjustments on foreign currency net investments 2.7 29.8 82.3
Actuarial loss on defined benefit pension schemes in accordance
with FRS17 (Retirement Benefits) - - (52.8)
Total recognised gains and losses relating to the period 97.9 144.1 117.5
Unaudited reconciliation of movements in consolidated share owners' funds
for the period ended 30 June 2003
Six months Six months Year ended
ended 30 ended 30 31 December
June 2003 June 2002 2002
£m £m £m
Profit for the period 95.2 114.3 88.0
Ordinary dividends payable (24.5) (20.0) (62.5)
70.7 94.3 25.5
Exchange adjustments on foreign currency net investments 2.7 29.8 82.3
Ordinary shares issued in respect of acquisitions 5.7 0.5 8.2
Share placement 100.2 - -
Share issue costs charged to share premium account or merger
reserve (2.2) - (3.4)
Other share issues 5.0 20.8 24.3
Share cancellations (20.2) - (8.3)
Actuarial loss on defined benefit schemes - - (52.8)
Net additions to equity share owners' funds 161.9 145.4 75.8
Opening equity share owners' funds 3,675.6 3,599.8 3,599.8
Closing equity share owners' funds 3,837.5 3,745.2 3,675.6
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (Notes 1-12)
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 104 to 106 of the Group's 2002 Annual Report and Accounts. No
changes have been made to the accounting policies since this time.
The policies set out in the 2002 Annual Report and Accounts are in accordance
with applicable accounting standards in the United Kingdom (UK GAAP).
FRS 17 "Retirement benefits"
As disclosed in the 2002 Annual Report and Accounts, the Group accounts for
pension costs and retirement benefits in accordance with FRS 17. This requires
an annual actuarial assessment of the defined benefit pension schemes, which is
carried out by the Group's independent actuarial advisers. In the six months
ended 30 June 2003 the Group has charged the profit and loss account with £6.6
million (period ended 30 June 2002: £7.1 million; year ended 31 December 2002:
£11.4 million) of service cost and £5.8 million (period ended 30 June 2002: £2.5
million; year ended 31 December 2002: £6.8 million) of notional interest in
respect of defined benefit schemes on the basis of the 2002 actuarial
assessment. This will be updated during the second half of the year, and any
actuarial gains and losses arising on pension assets and liabilities in the
balance sheet will be shown in the statement of total recognised gains and
losses for 2003.
Statutory Information and Independent Review
The interim financial statements for the six months to 30 June 2003 and 2002 do
not constitute statutory accounts. The statutory accounts for the year ended 31
December 2002 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 20.
The announcement of the interim results was approved by the board of directors
on 21 August 2003.
3. Currency conversion
The 2003 unaudited consolidated interim profit and loss account is prepared
using, among other currencies, an average exchange rate of US$1.6118 to the
pound (period ended 30 June 2002: US$1.4441; year ended 31 December 2002:
US$1.5036). The unaudited consolidated interim balance sheet as at 30 June 2003
has been prepared using the exchange rate on that day of US$1.6528 to the pound
(period ended 30 June 2002: US$1.5279; year ended 31 December 2002: US$1.6100).
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 Euro 1.4591 to the pound (period ended 30 June 2002:
Euro 1.6096; year ended 31 December 2002: Euro 1.5910). The unaudited
consolidated interim balance sheet at 30 June, 2003 has been prepared using the
exchange rate on that day of Euro 1.4393 to the pound (period ended 30 June
2002: Euro 1.5435; year ended 31 December 2002: Euro 1.5345). 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
ended ended Year ended
30 June 30 June 31 December
2003 2002 2002
£m £m £m
Revenue
United Kingdom 306.5 312.2 619.2
United States 786.4 855.1 1,655.0
Continental Europe 496.8 444.2 929.6
Canada, Asia Pacific, Latin America, Africa & Middle East 321.1 348.3 704.5
1,910.8 1,959.8 3,908.3
Headline PBIT(1)
United Kingdom 31.4 39.1 67.5
United States 123.8 140.4 239.2
Continental Europe 49.2 41.9 99.7
Canada, Asia Pacific, Latin America, Africa & Middle East 29.7 32.5 73.8
234.1 253.9 480.2
Reported contributions by operating sector were as follows:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2003 2002 2002
£m £m £m
Revenue
Advertising and Media investment management 886.8 896.0 1,810.0
Information, insight and consultancy(2) 334.0 331.0 664.7
Public relations and public affairs 212.9 232.9 447.6
Branding and identity, Healthcare and Specialist communications(2) 477.1 499.9 986.0
1,910.8 1,959.8 3,908.3
Headline PBIT(1)
Advertising and Media investment management 126.3 140.3 274.7
Information, insight and consultancy(2) 23.8 26.0 48.5
Public relations and public affairs 28.1 27.8 46.5
Branding and identity, Healthcare and Specialist communications(2) 55.9 59.8 110.5
234.1 253.9 480.2
(1) Headline PBIT: Profit on ordinary activities before interest, taxation,
goodwill amortisation and impairment, fixed asset gains and write-downs. The
calculation of PBIT is presented in Appendix IV.
(2) In 2003 certain of the Group's Specialist communications companies in
strategic marketing consulting were moved into the renamed Information,
insight and consultancy sector. As a result the comparative figures for both
Information, insight and consultancy and Branding and identity,
Healthcare and Specialist communications 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 PBT(1) is 25.5% (30 June 2002: 25.1% and 31
December 2002: 25.8%). The tax charge comprises:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2003 2002 2002
£m £m £m
Total current tax 45.4 47.6 93.8
Total deferred tax - - (1.5)
Share of associates tax 6.3 5.8 11.1
Total tax on profits 51.7 53.4 103.4
(1) Headline PBT: Profit on ordinary activities before taxation, goodwill
amortisation and impairment, fixed asset gains and write-downs, 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 2.08p (2002: 1.73p) per
ordinary share.
This is expected to be paid on 17 November 2003 to share owners on the register
at 17 October 2003.
Six months Six months
ended ended Year ended
30 June 2003 30 June 2002 31 December 2002
Ordinary dividend per share -
interim 2.08p 1.73p 1.73p
final - - 3.67p
2.08p 1.73p 5.40p
Ordinary dividend per ADR(1) -
interim 16.8c 13.0c 13.0c
final - - 27.6c
16.8c 13.0c 40.6c
(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 £95.2
million (period ended 30 June 2002: £114.3 million; year ended 31 December 2002:
£88.0 million), and adjusted for goodwill amortisation and impairment, fixed
asset gains and write downs and net interest charges on defined benefit pension
schemes of £49.3 million (period ended 30 June 2002: £39.2 million; year ended
31 December 2002: £195.2 million). The weighted average number of shares in
issue used was 1,108,373,801 shares (period ended 30 June 2002: 1,112,746,764;
year ended 31 December 2002: 1,110,556,878 shares).
Headline diluted earnings per share have been calculated using earnings of £95.2
million (period ended 30 June 2002: £114.3 million; year ended 31 December 2002:
£88.0 million) and adjusted for goodwill amortisation and impairment, fixed
asset gains and write downs and net interest charges on defined benefit pension
schemes of £49.3 million (period ended 30 June 2002: £39.2 million; year ended
31 December 2002: £195.2 million). The weighted average number of shares in
issue used was 1,125,489,621 shares (period ended 30 June 2002: 1,141,408,177;
year ended 31 December 2002: 1,136,548,459 shares). This takes into account the
exercise of employee share options, where these are expected to dilute earnings,
and convertible debt. For the six month periods ended 30 June 2003 and 30 June
2002 and the year ended 31 December 2002, 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 £95.2
million (period ended 30 June 2002: £114.3 million; year ended 31 December 2002:
£88.0 million) and weighted average shares in issue during the period of
1,108,373,801 shares (period ended 30 June 2002: 1,112,746,764 shares; year
ended 31 December 2002: 1,110,556,878 shares).
Standard diluted earnings per share have been calculated using earnings of £95.2
million (period ended 30 June 2002: £114.3 million; year ended 31 December 2002:
£88.0 million). The weighted average number of shares used was 1,125,489,621
shares (period ended 30 June 2002: 1,141,408,177 shares; year ended 31 December
2002: 1,136,548,459 shares). This takes into account the exercise of employee
share options where these are expected to dilute earnings and convertible debt.
For the six month periods ended 30 June 2003 and 30 June 2002, and the year
ended 31 December 2002, 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 2003 there were 1,178,096,488 ordinary shares in issue.
Six months Six months Year ended
ended 30 ended 30 Constant 31 December
Earnings per ADR June 2003 June 2002 Currency(3) 2002
Headline earnings per ADR (1),(2) +/(-)% +/(-)%
Basic earning per ADR $1.05 $1.00 5.0 (2.5) $1.92
Diluted earnings per ADR $1.03 $0.97 6.2 (1.6) $1.87
Standard earnings per ADR (1)
Basic earnings per ADR $0.69 $0.74 (6.8) (13.0) $0.59
Diluted earnings per ADR $0.69 $0.72 (4.2) (12.2) $0.58
(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.
(2) Headline earnings per ADR excludes goodwill amortisation and
impairment, fixed asset gains and write downs, and net interest charges on
defined benefit pension schemes.
(3) Constant currency is defined in Appendix IV.
WPP GROUP PLC
Notes to the unaudited consolidated financial statements (continued)
8. Goodwill and acquisitions
During the period, the Group charged £16.5 million (30 June 2002: £12.7 million;
31 December 2002: £32.0 million) of goodwill amortisation and £27.0 million (30
June 2002: £24.0 million; 31 December 2002: £145.7 million) of goodwill
impairment to the profit and loss account, a total of £43.5 million (30 June
2002: £36.7 million; 31 December 2002: £177.7 million). The impairment charge of
£27.0 million represents less than 1% of goodwill shown in the balance sheet at
the start of the year.
The impairment charge relates to a number of under-performing businesses in the
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. All of the impairment charge relates to goodwill
that was previously being amortised. The Directors will reassess the need for
any further impairment write-downs at the year end.
The directors continue to assess the useful life of goodwill arising on
acquisitions. Goodwill of £493.2 million is subject to amortisation over
periods of between 10 and 20 years.
Goodwill in relation to subsidiary undertakings increased by £34.7 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 increased by £23.3 million in the period.
These acquisitions do not have a significant impact on the Group's results for
the six months to 30 June 2003.
Future anticipated payments to vendors in respect of earnouts totalled £201.3
million (period ended 30 June 2002: £227.9 million; year ended 31 December 2002:
£237.8 million), based on the directors' best estimates of future obligations,
which are dependent on the future performance of the interests acquired and
assume the operating companies improve profits in line with directors'
estimates.
On 1 August 2003, the Group completed its acquisition, via a scheme of
arrangement, of Cordiant Communications Group plc ("Cordiant"). The results of
Cordiant will be consolidated into the results of WPP Group plc from that date.
As at 30 June 2003, the Group had purchased £176.6 million of Cordiant's debt
from its lenders and this debt is shown within fixed asset investments in the
Group's balance sheet.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
9. Creditors: amounts falling due within one year
The following are included in creditors falling due within one year:
30 June 30 June 31 December
2003 2002 2002
£m £m £m
Bank loans and overdrafts 590.9 350.2 199.7
Trade creditors 2,335.4 2,353.9 2,477.8
Corporate income tax payable 35.5 47.7 29.9
Deferred income 346.4 301.8 335.0
Earnouts (note 8) 65.1 59.0 73.6
Loan notes due to vendors 37.9 53.8 27.3
Other creditors and accruals 901.8 872.4 976.8
4,313.0 4,038.8 4,120.1
Overdraft balances included within bank loans and overdrafts amount to £342.1
million (30 June 2002: £315.3 million; 31 December 2002: £188.2 million).
10. 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
2003 2002 2002
£m £m £m
Corporate and convertible bonds and bank loans 1,323.8 1,533.7 1,402.5
Corporate income tax payable 214.7 227.4 215.7
Earnouts (note 8) 136.2 168.9 164.2
Other creditors and accruals 59.5 86.6 55.1
1,734.2 2,016.6 1,837.5
The following table sets out the directors' best estimates of future earnout
related obligations:
30 June 30 June 31 December
2003 2002 2002
£m £m £m
Within one year 65.1 59.0 73.6
Between 1 and 2 years 60.7 57.5 75.9
Between 2 and 3 years 31.2 43.8 20.8
Between 3 and 4 years 28.0 26.7 36.5
Between 4 and 5 years 14.5 28.1 29.0
Over 5 years 1.8 12.8 2.0
201.3 227.9 237.8
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
10. 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
2003 2002 2002
£m £m £m
Within one year 590.9 350.2 199.7
Between 1 and 2 years 170.9 227.6 227.4
Between 2 and 3 years 120.6 188.2 302.3
Between 3 and 4 years 521.6 129.9 -
Between 4 and 5 years 450.4 506.4 420.1
Over 5 years 60.3 481.6 452.7
1,914.7 1,883.9 1,602.2
11. Net debt
30 June 30 June 31 December
2003 2002 2002
£m £m £m
Cash at bank and in hand 690.1 690.6 689.1
Current asset investments 71.6 33.1 190.4
Bank loans and overdrafts due within one year (note 9) (590.9) (350.2) (199.7)
Corporate bond and loans due after one year (note 10) (1,323.8) (1,533.7) (1,402.5)
Net debt (1,153.0) (1,160.2) (722.7)
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.
12. 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 2003.
Currently Not Currently
Exercisable Exercisable Total
£m £m £m
Subsidiaries 10.0 18.6 28.6
Associates 4.3 10.4 14.7
Total 14.3 29.0 43.3
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 2003 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 - 12. 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 2003.
Deloitte & Touche LLP
Chartered Accountants
London
21 August 2003
Appendix II
WPP GROUP PLC
Unaudited consolidated profit & loss account for the six months ended 30 June
2003
Presented in Euros for illustrative purposes only(3)
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2003 2002 2002
Euro m Euro m Euro m
Turnover (gross billings) 12,605.4 14,132.1 28,683.7
Costs of sales (9,817.4) (10,977.6) (22,465.6)
Revenue 2,788.0 3,154.5 6,218.1
Direct Costs (160.6) (178.2) (347.2)
Gross Profit 2,627.4 2,976.3 5,870.9
Operating costs excluding goodwill (2,308.9) (2,593.0) (5,154.7)
Goodwill amortisation and impairment (63.5) (59.1) (282.7)
Operating costs (2,372.4) (2,652.1) (5,437.4)
Operating profit 255.0 324.2 433.5
Income from associates 23.1 25.4 47.7
Profit on ordinary activities before interest,
taxation, fixed asset gains and write-downs 278.1 349.6 481.2
Profits on disposal of fixed assets - - 14.6
Amounts written off fixed asset investments - - (31.7)
Net interest payable and similar charges on net
borrowings (45.5) (66.0) (126.6)
Net interest charges on defined benefit pension
schemes (8.5) (4.0) (10.8)
Net interest payable and similar charges (54.0) (70.0) (137.4)
Profit on ordinary activities before taxation 224.1 279.6 326.7
Taxation on profit on ordinary activities (75.4) (85.9) (164.5)
Profit on ordinary activities after taxation 148.7 193.7 162.2
Minority interests (9.8) (9.7) (22.3)
Profit attributable to ordinary share owners 138.9 184.0 139.9
Ordinary dividends (35.7) (32.2) (99.4)
Retained profit for the year 103.2 151.8 40.5
Headline PBIT (1) 341.6 408.7 764.0
Headline PBIT (1) margin 12.3% 13.0% 12.3%
Headline PBT (1) 296.1 342.7 637.3
Headline earnings per share (2)
Basic earnings per ordinary share 19.0c 22.2c 40.6c
Diluted earnings per ordinary share 18.7c 21.6c 39.6c
Standard earnings per share
Basic earnings per ordinary share 12.5c 16.6c 12.6c
Diluted earnings per ordinary share 12.4c 16.1c 12.3c
(1) Headline PBIT: Profit on ordinary activities before interest, taxation,
excluding goodwill amortisation and impairment, fixed asset gains
and write-downs.
Headline PBT: Profit on ordinary activities before taxation, excluding
goodwill amortisation and impairment, fixed asset gains and write
downs, and net interest charges on defined benefit pension schemes. The
calculations of PBIT and Headline PBT are presented in Appendix IV.
(2) Headline earnings per ordinary share exclude goodwill amortisation and
impairment, investment gains and write downs, and net
interest charges on defined benefit pension schemes.
(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 balance sheet as at 30 June 2003
Presented in Euros for illustrative purposes only1
30 June 30 June 31 December
2003 2002 2002
Euro m Euro m Euro m
Fixed assets
Intangible assets:
Corporate brands 1,367.3 1,466.3 1,457.8
Goodwill 6,392.9 6,872.0 6,762.5
Tangible assets 510.1 612.6 579.0
Investments 1,231.5 981.4 964.7
9,501.8 9,932.3 9,764.0
Current assets
Stocks and work in progress 535.1 507.0 447.5
Debtors 3,320.3 3,735.6 3,462.4
Trade debtors within working capital facility:
Gross debts 545.9 632.1 591.9
Non-returnable proceeds (304.8) (353.6) (333.6)
241.1 278.5 258.3
Current asset investments (short-term bank and escrow 103.1 51.1 292.2
deposits)
Cash at bank and in hand 993.3 1,065.9 1,057.4
5,192.9 5,638.1 5,517.8
Creditors: amounts falling due within one year (6,207.7) (6,233.9) (6,322.3)
Net current liabilities (1,014.8) (595.8) (804.5)
Total assets less current liabilities 8,487.0 9,336.5 8,959.5
Creditors: amounts falling due after more than one year
(including convertible loan notes) (2,496.0) (3,112.6) (2,819.7)
Provisions for liabilities and charges (146.2) (164.4) (156.5)
Net assets excluding pension provision 5,844.8 6,059.5 5,983.3
Pension provision (266.0) (208.9) (283.6)
Net assets including pension provision 5,578.8 5,850.6 5,699.7
Capital and reserves
Called up share capital 169.5 178.4 177.5
Share premium account 1,352.1 1,288.2 1,283.8
Shares to be issued 239.5 318.1 300.3
Merger reserve 4,162.2 4,407.3 4,402.9
Other reserves (364.1) (473.8) (390.2)
Profit and loss account (35.8) 62.5 (134.1)
Equity share owners' funds 5,523.4 5,780.7 5,640.2
Minority interests 55.4 69.9 59.5
Total capital employed 5,578.8 5,850.6 5,699.7
(1) These figures have been translated for convenience purposes only, using the
rates of exchange shown in Note 3.
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 2003
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2003 2002 2002
£m £m £m
Turnover (gross billings) 8,639.2 8,779.9 18,028.7
Cost of sales (6,728.4) (6,820.1) (14,120.4)
Revenue 1,910.8 1,959.8 3,908.3
Direct costs (110.1) (110.7) (218.2)
Gross Profit 1,800.7 1,849.1 3,690.1
Operating costs excluding goodwill (1,582.4) (1,611.0) (3,239.9)
Fair value of share options (6.3) (1.3) (5.0)
Goodwill amortisation and impairment (43.5) (36.7) (177.7)
Operating costs (1,632.2) (1,649.0) (3,422.6)
Operating profit 168.5 200.1 267.5
Income from associates 15.8 15.8 30.0
Profit on ordinary activities before interest, taxation,
fixed asset gains and write-downs 184.3 215.9 297.5
Profits on disposal of fixed assets - - 9.2
Amounts written off fixed asset investments - - (19.9)
Net interest payable and similar charges on net (31.2) (41.0) (79.6)
borrowings
Net interest charges on defined benefit pension schemes (5.8) (2.5) (6.8)
Net interest payable and similar charges (37.0) (43.5) (86.4)
Profit on ordinary activities before taxation 147.3 172.4 200.4
Taxation on profit on ordinary activities (51.0) (53.0) (102.7)
Profit on ordinary activities after taxation 96.3 119.4 97.7
Minority interests (6.7) (6.0) (14.0)
Profit attributable to ordinary share owners 89.6 113.4 83.7
Ordinary dividends (24.5) (20.0) (62.5)
Retained profit for the period 65.1 93.4 21.2
Headline PBIT (1) 227.8 252.6 475.2
Headline PBIT(1) margin 11.9% 12.9% 12.2%
Headline PBT (1) 196.6 211.6 395.6
Headline earnings per share (2)
Basic earnings per ordinary share 12.5p 13.7p 25.1p
Diluted earnings per ordinary share 12.3p 13.3p 24.5p
Standard earnings per share
Basic earnings per ordinary share 8.1p 10.2p 7.5p
Diluted earnings per ordinary share 8.0p 9.9p 7.4p
Headline earnings per ADR (2),(3)
Basic earnings per ADR $1.01 $0.99 $1.89
Diluted earnings per ADR $0.99 $0.96 $1.84
Standard earnings per ADR (3)
Basic earnings per ADR $0.65 $0.74 $0.56
Diluted earnings per ADR $0.64 $0.71 $0.56
(1) Headline PBIT: Profit on ordinary activities before interest, taxation,
goodwill amortisation and impairment, fixed asset gains and write-downs.
Headline PBT: Profit on ordinary activities before taxation, goodwill
amortisation and impairment, fixed asset gains and write-downs, and net
interest charges on defined benefit pension schemes.
(2) Headline earnings per ordinary share and ADR excludes goodwill amortisation
and impairment, fixed asset gains and write-downs and net interest charges on
defined benefit pension schemes.
(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
The unaudited pro forma consolidated interim profit and loss account above
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 £6.3 million (£5.6 million after taxation) for the
six months ended 30 June 2003, £1.3 million (£0.9 million after taxation) for
the six months ended 30 June 2002, and £5.0 million (£4.3 million after
taxation) for the year ended 31 December 2002, 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 £13.3 million (£11.9 million after
taxation or 8.2% of headline earnings) for the six months ended 30 June 2003,
and £10.0 million (£7.0 million after taxation or 4.6% of headline earnings) for
the six months ended 30 June 2002, and £22.4 million (£20.0 million after
taxation or 7.1% of headline earnings) for the year ended 31 December 2002.
The following assumptions have been made in determining the fair value of
options granted in the year:
UK Risk-free rate 3.58%
US Risk-free rate 2.27%
Expected life 48 months
Expected volatility 45%
Dividend yield 1.0%
Appendix IV
WPP GROUP PLC
Reconciliation of profit on ordinary activities before interest, taxation,
fixed asset gains and write downs to PBIT for the six months ended 30 June 2003
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2003 2002 2002
£m £m £m
Profit on ordinary activities before interest, taxation,
fixed asset gains and write downs 190.6 217.2 302.5
Goodwill amortisation and impairment 43.5 36.7 177.7
Headline PBIT 234.1 253.9 480.2
Net interest payable and similar charges 37.0 43.5 86.4
Interest cover on headline PBIT 6.3 times 5.8 times 5.6 times
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2003 2002 2002
£m £m £m
Interest cover on headline PBIT (excluding FRS17 interest)
Headline PBIT 234.1 253.9 480.2
Net interest payable and similar charges on net borrowings 31.2 41.0 79.6
Interest cover on headline PBIT (excluding FRS17 interest) 7.5 times 6.2 times 6.0 times
Reconciliation of profit on ordinary activities before taxation
to headline PBT and headline earnings for the six months ended 30 June 2003
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2003 2002 2002
£m £m £m
Profit on ordinary activities before taxation 153.6 173.7 205.4
Goodwill amortisation and impairment 43.5 36.7 177.7
Profits on disposal of fixed assets - - (9.2)
Amounts written off fixed asset investments - - 19.9
Net interest charges on defined benefit pension schemes 5.8 2.5 6.8
Headline PBT 202.9 212.9 400.6
Taxation on profit on ordinary activities (51.7) (53.4) (103.4)
Minority interests (6.7) (6.0) (14.0)
Headline earnings 144.5 153.5 283.2
Ordinary dividends 24.5 20.0 62.5
Dividend cover on headline earnings 5.9 times 7.7 times 4.5 times
WPP GROUP PLC
Segmental margin analysis
for the six months ended 30 June 2003
Reported margins by geographical area were as follows:
Headline
Revenue PBIT(1) Margin (%)
£m £m
United Kingdom 306.5 31.4 10.2%
United States 786.4 123.8 15.7%
Continental Europe 496.8 49.2 9.9%
Canada, Asia Pacific, Latin America, Africa & Middle East 321.1 29.7 9.2%
1,910.8 234.1 12.3%
Reported margins by operating sector were as follows:
Headline
Revenue PBIT(1) Margin (%)
£m £m
Advertising and Media investment management 886.8 126.3 14.2%
Information, insight and consultancy 334.0 23.8 7.1%
Public relations and public affairs 212.9 28.1 13.2%
Branding and identity, Healthcare and Specialist communications 477.1 55.9 11.7%
1,910.8 234.1 12.3%
Reported margins before and after income from associates were as follows:
Six months Six months
ended 30 June ended 30 June
Margin (%) 2003 Margin (%) 2002
£m £m
Revenue 1,910.8 1,959.8
Headline PBIT 12.3% 234.1 13.0% 253.9
Income from associates 15.8 15.8
Headline PBIT excluding income from associates 11.4% 218.3 12.1% 238.1
(1) Headline PBIT: Profit on ordinary activities before interest, taxation,
goodwill amortisation and impairment, fixed asset gains and write-downs.
The calculation of headline PBIT is presented above.
WPP GROUP PLC
Reconciliation of free cash flow for the six months ended 30 June 2003
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2003 2002 2002
£m £m £m
Operating profit 174.8 201.4 272.5
Add back:
Depreciation and amortisation, including impairment 96.5 96.2 294.3
Plus:
Dividends received from associates 6.0 4.4 9.4
Proceeds from the issue of shares 5.0 20.5 24.4
Proceeds from sale of tangible fixed assets 3.3 1.8 10.2
Proceeds from disposal of investments 2.2 3.3 3.3
Less:
Purchase of tangible fixed assets (32.9) (34.0) (100.5)
UK and overseas tax paid (43.0) (43.6) (85.0)
Returns on investments and servicing of finance (47.7) (48.5) (78.2)
Free Cash Flow 164.2 201.5 350.4
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, fixed asset gains and write-downs.
Headline PBT
Profit on ordinary activities before taxation, goodwill amortisation and
impairment, fixed asset gains and write-downs, and net interest charges on
defined benefit pension schemes.
Pro forma ('like for like')
Pro forma comparisons are calculated as follows: current year actual results
(which include acquisitions from the relevant date of completion) are compared
with prior year actual results, adjusted to include the results of acquisitions
for the commensurate period in the prior year. The Group uses the terms 'pro
forma' and 'like for like' interchangeably.
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