25th Feb 2005 07:01
WPP Group PLC25 February 2005 For Immediate Release 25 February 2005 WPP ___ PRELIMINARY RESULTS FOR THE YEAR ENDED ______________________________________ 31 DECEMBER 2004 ________________ Reported billings up over 5% to £19.6 billion _____________________________________________ Reported revenue up almost 5% to £4.3 billion _____________________________________________ Constant currency revenue up over 11% _____________________________________ Like-for-like revenue up over 4% ________________________________ Headline profits before tax up over 15% to £546 million _______________________________________________________ Operating margin up 1.1 margin points to 14.1% ______________________________________________ Diluted headline earnings per share up over 11% at 32.3p ________________________________________________________ Final dividend up 20% to 5.28p per share ________________________________________ • Revenue up almost 5% to £4.299 billion and up over 11% in constant currencies. • Like-for-like revenue up over 4%. • Headline operating profits before tax up almost 14% to £607.7 million from £533.5 million and up over 21% in constant currencies. • Operating margin up 1.1 margin points to 14.1% from 13.0%. • Headline profits before tax up over 15% to £546.5 million from £473.4 million and up almost 23% in constant currencies. • Profit before tax up over 30% to £456.5 million from £349.9 million and up over 41% in constant currencies. • Diluted headline earnings per share up over 11% to 32.3p from 29.0p and up over 20% in constant currencies. • Reported diluted earnings per share up over 37% to 25.0p from 18.2p and up almost 54% in constant currencies. • Final dividend up 20% to 5.28p per share making a total for the year of 7.78p up 20% over 2003. • Headline operating margin targets, including Grey, revised upwards to a minimum of 14.3% in 2005 and 14.8% in 2006. • Average net debt down over £400 million or almost 34% to £810 million from £1,222 million. • Record estimated net new billings of almost £3.8 billion ($6.8 billion). In this press release not all of the figures and ratios used are readilyavailable from the unaudited preliminary results included in Appendix I. Whererequired, details of how these have been arrived at are shown in Appendix IV. Summary of results__________________ The Board of WPP Group plc ("WPP") announces the unaudited preliminary resultsfor the year ended 31 December 2004, the Group's nineteenth year. These recordresults show improved performance, as the Group capitalised on better economicconditions in a quadrennial year across the globe and across all of itscommunications services. Turnover was up 5.2% at £19.6 billion. Reportable revenue was up almost 5% to £4.299 billion. Revenue includingassociates is estimated to total £5.283 billion. On a constant currency basis,revenue was up over 11% and gross profit up over 12%. Like-for-like revenues,excluding the impact of acquisitions and on a constant currency basis, were upover 4%. Excluding the acquisition of Cordiant Communications Group plc ("Cordiant"), like-for-like revenues were up 5.6%. Like-for-like revenues were upover 2% in the first half of 2004 and up almost 6% in the second half.Sequential quarters in 2004 were up 1.8%, 3.0%, 5.7%, and 5.7%. Reported operating costs including direct costs (but excluding goodwillamortisation and impairment), rose by over 4% and by almost 11% in constantcurrency. Like-for-like total operating and direct costs rose over 3%.Reported staff costs, excluding incentives, were up almost 5.0%, with salariesand freelance costs up 5.1%. Incentive payments totalled £160.6 million (£130.4million in 2003) or over 22% (almost 21% in 2003) of operating profit beforebonuses, taxes and income from associates. Before these incentive payments,operating margins increased by 1.6 margin points to 16.8% from 15.2%. On areported basis, the Group's staff cost to gross margin ratio rose to 61.4% from61.1%. Excluding incentives, this ratio fell 0.2 margin points to 57.5% from57.7%. All these figures exclude share option costs, which amount toapproximately 0.6 of a margin point, using the Black Scholes valuation model. Variable staff costs as a proportion of total staff costs increased during the1990s, reaching a peak of 12.1% in 2000. The impact of the recession in 2001and 2002 was to reduce this ratio to 9.2% and variable staff costs as aproportion of revenue to 5.3%. In 2004, following the significant improvementin pre-bonus operating profit, incentives increased and variable staff costs asa proportion of staff costs rose to 12.2%, higher than the previous maximumachieved in 2000, with variable staff costs as a proportion of revenues risingto another peak of 7.1%. Non-staff costs fell as a proportion of revenues, from24.6% to 23.4%, partly reflecting a reduction in the Group's property costsfollowing actions taken in 2003 and a reduction in IT costs. The number of people in the Group averaged 57,788 against 51,604 in 2003, anincrease of 12.0%. On a like-for-like basis, average headcount was upmarginally to 57,788 from 57,623, an increase of 0.3%. At the end of 2004,staff numbers were 59,932 compared with 57,478 at the end of 2003 on a pro-formabasis, an increase of 4.3%. Net interest payable and similar charges (including a charge of £9.5 million forFRS17) fell to £70.7 million from £71.6 million, principally reflecting improvedaverage net debt levels, largely offset by higher interest rates. Headlineinterest cover remains at a level of over eight times and at almost ten times,excluding the FRS17 charge. Headline operating profit or profit pre-goodwill and impairment, interest, tax,investment gains and write-downs was up 13.9% to £607.7 million from £533.5million and up over 21% in constant currencies. Headline profit before tax orprofit pre-goodwill, impairment and tax was up over 15% to £546.5 million from£473.4 million. Reported headline operating margin (including income fromassociates) increased to 14.1% from 13.0%. Reported profit before interest,tax, investment gains and write-downs was up over 25% to £529.2 million from£421.5 million and on a constant currency basis, was up over 35% reflecting theweakness of the United States dollar. However, moving down the incomestatement, this adverse currency impact was partly hedged by the effect ofdollar denominated operating expenses and interest costs, particularly at theprofit before tax level. The Group's tax rate on headline profits was 25.7%, a similar level to theprevious year, reflecting the continuing positive impact of the Group's taxplanning initiatives. Diluted headline earnings per share were up over 11% at 32.3p. In constantcurrency, earnings per share on the same basis were up over 20%. In 2003, £79 million was taken as an impairment charge primarily reflectingaccelerated amortisation of goodwill on first generation businesses whichsuffered in the recession. Although 2004 was a stronger year than 2003, somefirst generation businesses, continued to suffer and an impairment chargereflecting accelerated amortisation of goodwill of £36 million has been taken. As a result, profit before tax rose over 30% to £456.5 million and dilutedearnings per share rose by over 37% to 25.0p. The Board recommends an increase of 20% in the final dividend to 5.28p pershare, making a total of 7.78p per share for 2004, a 20% increase over 2003.The record date for this dividend is 3 June 2005, payable on 4 July 2005. Thedividend for 2004 is 4.2 times covered by headline earnings. Further details of WPP's financial performance are provided in Appendix I (insterling) and Appendix II (in euros). WPP will be required to charge the fair value of stock-based compensation(including share options) to its income statement from 2005. To illustratethe impact of this change, which arises from the implementation of FRS 20 (IFRS2) Share-based Payment, Appendix III shows a pro forma unaudited incomestatement for 2004 prepared on the basis of applying the principles of the newaccounting standard. The resulting charge has been calculated using a BlackScholes valuation model and applying it to the relevant share incentive schemeson a fully retrospective basis, so the 2004 charge arises from grants in 2004and prior years, fully expensed over the appropriate vesting period. Review of operations____________________ The Group's financial performance in the year more than mirrored the continuingimprovement in economic conditions across the globe, with even the weakestregion, Western Europe, picking up in the second half. 2004 reflected the positive impact of quadrennial factors such as the UnitedStates Presidential Election, political advertising in the United States pushingup media rates, the Athens Olympics and the European Football Championships.2004 also marked a switch in client focus to top-line growth, as corporateprofitability, margins and liquidity improved significantly, following costmanagement in the recession of 2001-2003. Corporate profitability is athistorically high levels on both sides of the Atlantic. This resulted inunprecedented levels of new business activity, which have continued into 2005. Network television price inflation and declining audiences, fragmentation oftraditional media and rapid development of new technologies continued to driveexperimentation by our clients in new media and non-traditional alternatives.1998 was really the first year when WPP's marketing services activitiesrepresented over 50% of Group revenue. In 2004 these activities representedalmost 54% of Group revenue. In addition, in 2004, our narrowly definedinternet-related revenue was almost $400 million or over 5% of our worldwidereported revenue. This is in line with over 5% for on-line media's share oftotal advertising spend in the United States and approximately 4% shareworldwide. The new media continue to build their share of client spending. Revenue and operating profit by region______________________________________ The pattern of revenue growth differed regionally. The table below givesdetails of revenue and revenue growth (on a constant currency basis includingthe impact of acquisitions) by region for 2004 as well as proportions ofoperating profits: Region Revenue as a% of Revenue growth% +/ Operating profit as Revenue* including______ ________________ __________________ ___________________ __________________ Total Group (-) 04/03 a % of Total Group 100% of associates as ___________ _________ __________________ _____________________ a % of Total Group __________________ North America 38.7 + 9.7 43.8 32.3United Kingdom 16.8 + 9.6 13.1 15.7Continental Europe 26.1 + 7.6 22.9 26.4Asia Pacific, LatinAmerica, Africa & theMiddle East 18.4 +23.7 20.2 25.6 _____________________________________________________________________________ Total Group 100.0 + 11.4 100.0 100.0 _____________________________________________________________________________ * Estimated As can be seen, all regions showed revenue growth in 2004, with Asia Pacific,Latin America, Africa and the Middle East growing fastest and crossing $1billion of annual revenues for the second time. Including 100% of associates'revenue these regions represent over 25% of total revenues. The acquisition ofGrey Global Group ("Grey") will add a further $150 million of revenues in theseareas. A record estimated net new billings of £3.794 billion ($6.829 billion) were wonlast year, reflecting in part exceptionally strong media investment managementnew business wins in the final quarter of 2004, which alone amounted to almost$3.2 billion. The Group was ranked number one for net new billings in all themajor new business tables for 2004. Revenue and operating profit by communications services sector and brand The pattern of revenue growth also varied by communications services sector andbrand. The table below gives details of revenue and revenue growth by communicationsservices sector for 2004 (on a constant currency basis including the impact ofacquisitions) as well as proportions of operating profits: Communications services Revenue as a % of Revenue growth % Operating profit as Revenue(1) including_______________________ _________________ ________________ ___________________ ____________________ Total Group + /(-) 04/03 a % of Total Group 100% of associates as ___________ ____________ __________________ _____________________ a % of Total Group __________________ Advertising, MediaInvestment Management(2) 46.1 +10.8 52.5 47.3Information, Insight &Consultancy 17.3 +11.5 12.1 16.0Public Relations & PublicAffairs(2) 10.4 +6.5 10.3 9.8Branding & Identity,Healthcare & SpecialistCommunications 26.2 +14.6 25.1 26.9 ______________________________________________________________________________ Total Group 100.0 11.4 100.0 100.0 ______________________________________________________________________________ (1) Estimated (2) In 2004, certain public relations revenue which historically was included inAdvertising, Media Investment Management has been moved into Public Relationsand Public Affairs. As a result, the comparative figures for both Advertising,Media Investment Management and Public Relations and Public Affairs have beenrestated to reflect this change. Our media investment management businesses started to improve in October 2002,and then significantly from April 2003. This growth continued for the remainderof 2003 and escalated during 2004, primarily driven by the strong new businesswins, in turn driven by client consolidation. Advertising has followed thistrend, but less strongly. Information, insight and consultancy continued thestrong growth seen in the first half. Branding and identity, healthcare andspecialist communications rebounded with healthcare and direct, internet andinteractive (a part of specialist communications), growing particularlystrongly. Public relations and public affairs, which was more affected by therecession, has recovered well and has now had five consecutive quarters ofrevenue growth. Advertising and Media Investment Management___________________________________________ In constant currencies, advertising and media and investment management revenuegrew by 10.8%. Like-for-like revenue growth was well over 3%. Excluding theimpact of the acquisition of Cordiant, like-for-like growth was almost 6%. Thecombined operating margin of this sector was over 16%. In 2004, Ogilvy & Mather Worldwide generated estimated net new billings of£153 million ($276 million), JWT £234 million ($421 million), Y&R Advertising£74 million ($134 million) and Red Cell, £62 million ($111 million). Also in 2004, MindShare and Mediaedge:cia generated estimated net new billingsof £2.781 billion ($5.005 billion). Information, Insight and Consultancy____________________________________ Information, insight and consultancy seems to have been the most recessionresistant communications service in the Group. In 2004, on a constant currencybasis revenues grew over 11%. Like-for-like revenues were up over 4%. Thedifficulties at the Group's call centre operations in the United States have nowbeen overcome, with significant improvement in 2004. Overall margins improvedby 2.7 margin points to almost 10%. Strong performances were recorded by Millward Brown (in the United States,Greenfield Consulting Group and MaPs in the United States, Sadek Wynberg andPrecis in the United Kingdom, IMS in Ireland, Ulster, Italy, Germany, China,Firefly in Thailand, Australia and Mexico); BMRB International in the UnitedKingdom, KMR Group, AGB, Research International (in the United States, SimonGodfrey in the United Kingdom, Germany, Greece, France, the Netherlands, Spain,SIFO in Sweden, Thailand, Singapore, Hong Kong and Indonesia); LightspeedResearch, Da Vinci in the United States, icon/DRI, Glendinning in the UnitedKingdom, Added Value/icon in France and pFour. Public Relations and Public Affairs___________________________________ Public relations and public affairs continued its recovery first seen in thelast quarter of 2003, with constant currency growth of over 6% and like-for-likegrowth of over 3%. Particularly strong were Cohn & Wolfe, Ogilvy PublicRelations Worldwide, Burson-Marsteller, Penn Schoen & Berland, Finsbury andBuchanan. Operating margins continued to improve and now exceed 14%, an improvement ofover 1 margin point. Branding and Identity, Healthcare and Specialist Communications_______________________________________________________________ The Group's branding and identity, healthcare and specialist communicationsrevenues rose by over 14%. Like-for-like revenues rose by over 5%. Operatingmargins were up 0.9 margin points. The Group's healthcare and direct, internetand interactive businesses showed particularly strong revenue growth. Several companies performed particularly well: • in branding and identity - Landor Associates in New York, Cincinnati, the United Kingdom, Dubai, Mexico, Japan and Hong Kong; Enterprise IG New York and WalkerGroup in the United States, Addison Corporate Marketing and Warwicks in the United Kingdom; Fitch in Columbus and Phoenix in the United States and the United Kingdom, including Pci:Live; The Partners in the United Kingdom • in healthcare - CommonHealth in the United States; Sudler & Hennessey in the United States including HealthAnswers Education, and in Australia • in promotion and direct marketing - OgilvyOne (in New York, Minneapolis and Eicoff in the United States, the United Kingdom, Sweden, the Netherlands and Austria, Concept in Germany, Italy, the Czech Republic, Mexico); 141 Worldwide in the United States, the United Kingdom, Italy, Mexico; Wunderman (in Detroit/Irvine and Chicago in the United States, Burrows and the Automotive Group in the United Kingdom, Germany, Switzerland, the Netherlands, Portugal, Belgium, Greece, Brazil, Mexico and Australia) • specialist marketing resources - VML, Einson Freeman and Pace in the United States and EWA, Mando Brand Assurance, Metro, PRISM, Premiere Sponsorship Marketing and Headcount in the United Kingdom. Manufacturing_____________ Revenues and profits at the Group's manufacturing division were downsignificantly in 2004. Balance sheet and cash flow___________________________ An unaudited summary of the Group's consolidated balance sheet as at 31 December2004 is attached in Appendix I (in sterling) and in Appendix II (in euros). Asat 31 December 2004, the Group's net debt fell by £62 million to £300 millioncompared with £362 million at 31 December 2003 (estimated at the same figure of£362 million on the basis of 2004 year end exchange rates). Net debt averaged £810 million in 2004, down £412 million against £1,222 millionin 2003 (down £323 million at 2004 exchange rates). These net debt figurescompare with a current equity market capitalisation of approximately £7.0billion, giving a total enterprise value of approximately £7.8 billion. Cash flow strengthened as a result of improved working capital management andcash flow from operations. In 2004, operating profit before goodwillamortisation and impairment was £560 million, capital expenditure £96million, depreciation £103 million, tax paid £101 million, interest and similarcharges paid £73 million and other net cash inflows of £55 million. Free cashflow available for debt repayment, acquisitions, share buybacks and dividendswas therefore £448 million. This free cash flow was partially absorbed by £218million in net acquisition payments and investments, share repurchases andcancellations of £89 million and dividends of £82 million. The Company morethan met its stated objective of more than covering acquisition payments andshare repurchases and cancellations from free cash flow, even after includingdividends. A summarised unaudited consolidated cash flow statement is includedin Appendix I. In the first seven weeks of 2005 up until 15 February, the last date for whichinformation is available prior to this announcement, net debt averaged £415million down £319 million versus £734 million for the same period last year at2005 exchange rates. In January 2005 the $288m 3% convertible bond issued by Y&R in 2000 was redeemed at par from existing resources, resulting in the expiryof the associated conversion rights into 16.3 million WPP shares. Your Board continues to examine ways of deploying its substantial cash flow ofalmost £500 million per annum to enhance share owner value. As necessarycapital expenditure is expected to remain equal to or less than the depreciationcharge in the long-term, the Company has concentrated on examining potentialacquisitions and on returning excess capital to share owners in the form ofdividends or share buy-backs. In 2004 the Group increased its equity interests, at a combined net initial costof £113 million in cash, in advertising and media investment management inCanada, Denmark, France, Germany, the Netherlands, Italy, Sweden, Poland, SouthAfrica, China, Japan, India, South Korea, Indonesia and Chile; ininformation, insight and consultancy in the United States, Hungary, and intelevision audience measurement in seventeen countries through an increasedinvestment in Italy; in public relations and public affairs in the United Statesand the United Kingdom; in healthcare in the Netherlands; and in branding andidentity in the United States and Australia. Last year, 13.4 million ordinary shares or 1.1% of the share capital wererepurchased at a total cost of £73.7 million and average price of 550p. As noted above, your Board has decided to increase the final dividend by 20% to5.28p per share, taking the full year dividend to 7.78p per share which is 4.2times covered, at the headline earnings level. In addition, as the return oncapital criteria for investing in cash acquisitions have been raised,particularly in the United States, the Company will continue to commit torepurchasing up to 2% of its share base in the open market at an approximatecost of £150 million, when market conditions are appropriate. Such annualrolling share repurchases are believed to have a more significant impact inimproving share owner value than sporadic buy-backs. Developments in 2004____________________ Including associates, the Group pre the acquisition of Grey Global Group ("Grey") had over 75,000 full-time people in over 1,400 offices in 106 countries atthe year end. It services over 300 of the Fortune Global 500 companies, overone-half of Nasdaq 100, over 30 of the Fortune e-50, and approximately 333national or multi-national clients in three or more disciplines. More than130 clients are served in four disciplines and these clients account for over50% of Group revenues. The Group also works with over 100 clients in six ormore countries. These statistics reflect the increasing opportunities for developing clientrelationships between activities nationally, internationally and by function.The Group estimates that over 35% of new assignments in the year were generatedthrough the joint development of opportunities by two or more Group companies.New integration mechanisms, sensitive to global and local opportunities,including WPP global client leaders and country managers, continue to bedeveloped. There is an increasing number of major client creative andintegration opportunities at a Group level. The acquisition of Grey is subject to Grey share owner approval, to be held on 3March and will be consolidated from the completion date of 7 March. Future prospects________________ The world economy continued to grow in 2004, after the pickup in 2003, driven bythe United States, Asia Pacific, Latin America, the Middle East, Russia and theCIS countries. As a result, your Company has performed at record levels.Whilst like-for-like revenues have grown beyond market expectations,like-for-like average headcount has remained almost constant, up only 0.3%. Following this productivity improvement, the Group's margins at both the pre-and post- incentive levels have improved significantly. In addition, givenimproved levels of operating profit and margin, incentive pools and variablestaff costs have now been re-built, after being diminished by the recession.This will improve operational gearing and flexibility in 2005 and beyond. The task of improving property utilisation continues to be a priority with aportfolio of approximately 14.5 million square feet worldwide. In December2002, establishment cost as a percentage of revenue was 8.4%, with a goal ofreducing this ratio to 7% in the medium term. At the end of 2003 theestablishment cost to revenue ratio reduced to 7.9% and by December 2004 thisratio improved further to 7.6%, driven by better utilisation and higherrevenues. There should be further opportunities to improve utilisation in thefuture, as we integrate 2.8 million square feet of property within Grey into theportfolio. As usual our budgets for 2005 have been prepared on a conservative basis,largely excluding new business, particularly in advertising and media investmentmanagement. They predict improvements in like-for-like revenues in the range of3-4%, with balanced growth in the first and second half of the year. They alsoindicate similar growth for both advertising and marketing services revenues.We only have actual data for January in 2005, and this shows revenue well abovelast year, with like-for-like revenues up 6%. Estimated net new businessbillings so far in 2005 were very strong with over $600 million (including Grey)of net wins according to trade publications. Worldwide economic conditions are set to continue to improve in 2005 - the onlyeconomic worry being whether twin deficits, commodity price inflation and theweak dollar might destabilise the United States economy. This year's prospects,therefore, look okay, with worldwide advertising and marketing services spendingset to rise by at least 2-3% with your company expected to grow at 3-4% andtherefore increasing share. Although growth in the world economy continues tobe led by Asia Pacific, Latin America, Africa and the Middle East, Russia andthe CIS countries, even Western Europe looks set to continue the improvementseen in the second half of 2004, the United Kingdom especially so, given theimminent general election. 2006 should benefit from the mini-quadrennial impact of the mid-term UnitedStates Congressional elections, the FIFA World Cup and the Torino WinterOlympics. 2007 should also benefit from the build-up to the United States PresidentialElections and the Beijing Olympics in 2008, which, as a maxi-quadrennial year,should be a very strong one, buoyed by those events plus heavy United Statespolitical advertising and the European Football Championships. In the short-term, growth in advertising and marketing services expenditure mayremain in low to medium single digit territory, given the low inflationaryenvironment, concentrating distribution and consequent lack of pricing power.In this climate, procurement pressure continues and the increasing proportion offee remuneration dampens revenue growth on cyclical upturns (and moderates ondownturns). However, there continues to be significant opportunities in thearea of outsourcing clients' marketing activities, consolidating client budgetsand capitalising on competitive weaknesses. In addition, spending amongst thepackaged goods, pharmaceutical, oil and energy, government (the government isthe largest advertiser in the UK market) and price-value retail sectors, whichremained relatively resilient in the recession of 2001 and 2002, have beenbuttressed by increased activity in previously recession-affected sectors liketechnology, financial services, media and entertainment and tele-communications. In the long-term, the outlook appears very favourable. Overcapacity ofproduction in most sectors and the shortage of human capital, the developmentsin new technologies and media, the growth in importance of internalcommunications, the continued strength of the United States economy and the needto influence distribution, underpin the need for our clients to continue todifferentiate their products and services both tangibly and intangibly.Moreover, the growth of the BRICs (Brazil, Russia, India and China) economies,will add significant opportunities in Asia Pacific, Latin America, Africa andthe Middle East and Central and Eastern Europe. Advertising and marketingservices expenditure as a proportion of gross national products should resumeits growth and bust through the cyclical high established in 2000. Given these short-term and long-term trends, your Company has three strategicpriorities. In the short-term, having weathered the recession, to capitalise onthe 2004 up-turn; in the medium-term, to continue to integrate successfully themergers with Y&R and Grey; and finally, in the long-term, to continue to developits businesses in the faster-growing geographical areas of Asia Pacific, LatinAmerica, Africa and the Middle East, and Central and Eastern Europe and in thefaster-growing functional areas of marketing services, particularly direct,internet, interactive and market research. Incentive plans for 2005 will again focus more on operating profit growth thanhistorically, in order to stimulate top-line growth, although objectives willcontinue to include operating margin improvement, improvement in staff costs torevenue ratios and qualitative Group objectives, including co-ordination, talentmanagement and succession planning. In these circumstances, there is no reason to believe that the Group cannotimprove upon the revised objective set after the announcement of the acquisitionof Grey of achieving margins of 14.0% in 2005 and 14.5% in 2006. Your Board nowbelieves that the Group can improve its operating margins to a minimum of 14.3%this year, and 14.8% in 2006, including Grey. Budgets for 2005 include thisoperating margin objective. Neither is there any reason why operating marginscould not be improved beyond this level by continued focus on revenue growth andcareful husbandry of costs. Our ultimate objective continues to be to achieve a20% margin over a period of time and to improve the return on capital employed. Increasingly, WPP is concentrating on its mission of the "management of theimagination", and ensuring it is a big company with the heart and mind of asmall one. To aid the achievement of this objective and to develop the benefitsof membership in the Group for both clients and our people, the parent companycontinues to develop its activities in the areas of human resources, property,procurement, information technology and practice development. Ten practiceareas which span all our brands have been developed initially in mediainvestment management, healthcare, privatisation, new technologies, new fastergrowing markets, internal communications, retailing, entertainment and media,financial services and hi-tech and telecommunications. Beyond the Numbers__________________ An announcement of this kind contains a bewildering number of numbers. Thosenumbers are there because they have to be there - and on this occasion, they arealmost universally positive. It has been a very good year. But numbers, while telling an important truth, can sometimes disguise the truedynamic of a company. In the case of WPP, that dynamic is our people. Everypiece of advice we give, every project we undertake, every advertisement wemake, every design we complete, every idea we have: they are all hand made. Notwo are alike. Each springs from the brain, the experience, the skill and theimagination of WPP company professionals. The word creative is usually reserved for advertising and design; for words and pictures. But every single one ofthe tens of thousands of hand made ideas we produced last year - across allcompanies, all disciplines and all nations - had creativity as a coreingredient. That is what our clients look for - and that, in gratifyingquantities, is what they bought from us in 2004. Emerging from some thirty six months of unrelenting economic battering, ourpeople seized the new opportunities and made the most of them. That all ournumbers look so good is entirely due to their unswerving commitment and enviableinventiveness. We thank them all. 2004 was a very good year. 2005 will mark WPP's 20th birthday; and it should bean even better one. Further information: Sir Martin Sorrell )Paul Richardson ) (44) 207 408 2204Feona McEwan )Fran Butera (1) 212 632 2235 Share owner web-site - www.wppinvestor.com This press release may contain forward-looking statements within the meaning ofthe federal securities laws. These statements are subject to risks anduncertainties that could cause actual results to differ materially includingadjustments arising from the annual audit by management and the company'sindependent auditors. For further information on factors which could impactthe company and the statements contained herein, please refer to public filingsby the company with the Securities and Exchange Commission. The statements inthis press release should be considered in light of these risks anduncertainties. Appendix I WPP GROUP PLC Preliminary results for the year ended 31 December 2004 Unaudited preliminary consolidated profit & loss account for the year ended 31 December 2004 Constant Notes 2004 2003 Currency3__________________________________________________________________________________________________________________ £m £m +/(-)% +/(-)%Turnover (gross billings) 19,598.0 18,621.3 5.2 12.0Cost of sales (15,298.5) (14,515.3) (5.4) (12.2)__________________________________________________________________________________________________________________Revenue 4 4,299.5 4,106.0 4.7 11.4Direct costs (225.1) (237.1) 5.1 1.0__________________________________________________________________________________________________________________Gross profit 4,074.4 3,868.9 5.3 12.2 __________________________________________________________________________________________________________________Operating costs excluding goodwill amortisation andimpairment (3,514.8) (3,375.9) (4.1) (10.9)Goodwill amortisation and impairment - subsidiaries 11 (75.0) (77.7) 3.5 3.5__________________________________________________________________________________________________________________Operating costs (3,589.8) (3,453.6) (3.9) (10.6)__________________________________________________________________________________________________________________Operating profit 484.6 415.3 16.7 25.8Income from associates 48.1 40.5 18.8 23.5Goodwill amortisation and impairment - associates 11 (3.5) (34.3) 89.8 89.8__________________________________________________________________________________________________________________Profit on ordinary activities before interest, taxation and fixed asset gains and write-downs 529.2 421.5 25.6 35.6 Profits on disposal of fixed assets 5 3.0 - - -Amounts written off fixed asset investments 11 (5.0) - - -__________________________________________________________________________________________________________________Net interest payable and similar charges on net borrowings (61.2) (60.1) (1.8) (6.9)Net interest charges on defined benefit pension schemes (9.5) (11.5) 17.4 9.7__________________________________________________________________________________________________________________Net interest payable and similar charges (70.7) (71.6) 1.3 (4.3)__________________________________________________________________________________________________________________Profit on ordinary activities before taxation 456.5 349.9 30.5 41.6 Taxation on profit on ordinary activities 6 (140.2) (122.1) (14.8) (18.6)__________________________________________________________________________________________________________________Profit on ordinary activities after taxation 316.3 227.8 38.8 54.8 Minority interests (24.0) (19.4) (23.7) (30.5)__________________________________________________________________________________________________________________Profit attributable to ordinary share owners 292.3 208.4 40.3 57.2 Ordinary dividends 7 (92.0) (76.8) 19.8 19.8__________________________________________________________________________________________________________________Retained profit for the year 200.3 131.6 52.2 83.0__________________________________________________________________________________________________________________ Headline PBIT 1 4 607.7 533.5 13.9 21.1Headline PBIT 1 margin 14.1% 13.0%Headline PBT 1 546.5 473.4 15.4 22.9__________________________________________________________________________________________________________________ Headline earnings per share 2Basic earnings per ordinary share 8 33.6p 29.8p 12.8 21.8Diluted earnings per ordinary share 8 32.3p 29.0p 11.4 20.2__________________________________________________________________________________________________________________Standard earnings per shareBasic earnings per ordinary share 8 25.7p 18.7p 37.4 54.3Diluted earnings per ordinary share 8 25.0p 18.2p 37.4 53.7__________________________________________________________________________________________________________________ 1 Headline PBIT: Profit on ordinary activities before interest, taxation,goodwill amortisation and impairment and fixed asset gains and write-downs. Headline PBT: Profit on ordinary activities before taxation, goodwillamortisation and impairment, fixed asset gains and write-downs and netinterest charges on defined benefit pension schemes. The calculations ofHeadline PBIT and Headline PBT are presented in Appendix IV. 2 Headline earnings per ordinary share excludes goodwill amortisation andimpairment, fixed asset gains and write-downs and netinterest charges on defined benefit pension schemes. The calculation ofHeadline earnings is presented in Appendix IV. 3 Constant currency is defined in Appendix IV WPP GROUP PLC Unaudited preliminary consolidated cash flow statement for the year ended 31 December 2004 2003 Notes 2004 Restated1_____________________________________________________________________________________________________________ £m £mOperating profit 484.6 415.3Depreciation 103.4 127.5Goodwill amortisation and impairment charges - subsidiaries 75.0 77.7Movements in working capital and provisions 27.0 321.5_____________________________________________________________________________________________________________Net cash inflow from operating activities 690.0 942.0Dividends received from associates 18.5 15.6Returns on investments and servicing of finance (73.3) (38.3)United Kingdom and overseas tax paid (101.3) (93.6)Capital expenditure and financial investment 9 (86.3) (85.2)Acquisitions and disposals 9 (208.9) (344.5)Equity dividends paid (81.7) (67.0)_____________________________________________________________________________________________________________Net cash inflow before management of liquid resourcesand financing 157.0 329.0Management of liquid resources 157.8 (211.4)Net cash inflow from financing 9 52.8 116.8_____________________________________________________________________________________________________________Increase in cash and overdrafts for the year 367.6 234.4Translation difference (44.6) (19.3)Balance of cash and overdrafts at beginning of year 716.0 500.9_____________________________________________________________________________________________________________Balance of cash and overdrafts at end of year 1,039.0 716.0_____________________________________________________________________________________________________________ Reconciliation of net cash flow to movement in net debt:Increase in cash and overdrafts for the year 367.6 234.4Cash (inflow)/ outflow from increase in liquid resources (157.8) 211.4Cash inflow from increase in debt financing (124.2) (24.3)Debt acquired (9.6) -Other movements (8.2) (9.4)Translation difference (6.7) (50.9)_____________________________________________________________________________________________________________Movement of net debt in the year 61.1 361.2Net debt at beginning of year (361.5) (722.7)_____________________________________________________________________________________________________________Net debt at end of year 10 (300.4) (361.5)_____________________________________________________________________________________________________________1 Restated on implementation of UITF 38 (Accounting for ESOP Trusts). Unaudited preliminary consolidated statement of total recognised gains and losses for the year ended 31 December 2004 2004 2003_____________________________________________________________________________________________________________ £m £mProfit for the year 292.3 208.4Exchange adjustments on foreign currency net investments 52.1 74.8Actuarial (loss)/gain on defined benefit pension schemes inaccordance with FRS17 (Retirement Benefits) (18.2) 14.0Deferred tax on defined benefit pension schemes 3.3 10.0_____________________________________________________________________________________________________________Total recognised gains and losses relating to the year 329.5 307.2_____________________________________________________________________________________________________________ WPP GROUP PLC Unaudited preliminary consolidated balance sheet as at 31 December 2004 2003 Notes 2004 Restated1___________________________________________________________________________________________________________ £m £mFixed assetsIntangible assets: Corporate brands 950.0 950.0 Goodwill 4,845.7 4,710.3Tangible assets 333.8 344.6Investments 389.3 381.5___________________________________________________________________________________________________________ 6,518.8 6,386.4Current assetsStocks and work in progress 220.6 269.6Debtors 12 2,677.6 2,394.5Trade debtors within working capital facility: Gross debts 545.7 507.5 Non-returnable proceeds (261.0) (280.4) _______ _______ 284.7 227.1Current asset investments(short-term bank and escrow deposits) 244.0 401.8Cash at bank and in hand 1,372.0 1,018.1___________________________________________________________________________________________________________ 4,798.9 4,311.1Creditors: amounts falling due within one year 13 (5,220.0) (4,902.0)___________________________________________________________________________________________________________Net current liabilities (421.1) (590.9)___________________________________________________________________________________________________________Total assets less current liabilities 6,097.7 5,795.5Creditors: amounts falling due after more than one year (including convertible bonds) 14 (1,852.6) (1,691.1)Provisions for liabilities and charges (91.2) (99.7)___________________________________________________________________________________________________________Net assets excluding pension provision 4,153.9 4,004.7Pension provision (187.8) (188.9)___________________________________________________________________________________________________________Net assets including pension provision 3,966.1 3,815.8___________________________________________________________________________________________________________ Capital and reservesCalled up share capital 118.5 118.7Share premium account 1,002.2 955.3Shares to be issued 49.9 130.0Merger reserve 2,920.6 2,921.0Other reserves (125.5) (178.9)Own shares2 (277.7) (307.8)Profit and loss account 226.5 129.4___________________________________________________________________________________________________________Equity share owners' funds 16 3,914.5 3,767.7Minority interests 51.6 48.1___________________________________________________________________________________________________________Total capital employed 3,966.1 3,815.8___________________________________________________________________________________________________________ 1 Restated on implementation of UITF 38 (Accounting for ESOP Trusts). 2 Investments in own shares held by the ESOP Trusts. WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (Notes 1-16) 1. Basis of accounting The unaudited preliminary consolidated financial statements are prepared underthe historical cost convention. 2. Accounting policies The unaudited preliminary consolidated financial statements comply with relevantaccounting standards and have been prepared using the accounting policies setout on pages 112 to 114 of the Group's 2003 Annual Report and Accounts. Nochanges have been made to the accounting policies since this time other than theadoption of UITF 38 (Accounting for ESOP Trusts). UITF 38 requires the classification of the cost of shares held by the Group'sESOP trusts as a deduction from share owners' funds; previously these were shownwithin fixed asset investments. Additionally, UITF 38 has changed the method ofcalculating the charge to the profit and loss account arising from certain ofthe Group's incentive plans, satisfied by the award of shares in the Group fromone of the ESOPs. Previously, this charge was based on the cash cost to theGroup of acquiring these shares in the open market, to be subsequently deliveredto individuals on satisfactory completion of the performance criteria relatingto the award. Under UITF 38, this charge should be based upon the intrinsicvalue (market value) of the shares at grant date. Following the implementation of UITF 38, the Group has restated its balancesheet and cash flow statement for the year ended 31 December 2003 and precedingperiods. There was no material impact on the profit and loss account for theyear ended 31 December 2003. The policies set out in the 2003 Annual Report and Accounts are in accordancewith applicable accounting standards in the United Kingdom (UK GAAP). Statutory Information The financial information for the years ended 31 December 2004 or 2003 does notconstitute the company's statutory accounts. The financial information for theyear ended 31 December 2003 is derived from the statutory accounts for that yearwhich have been delivered to the Registrar of Companies. The auditors reportedon those accounts; their report was unqualified and did not contain a statementunder s237 (2) or (3) Companies Act 1985. The statutory accounts for the yearended 31 December 2004 will be finalised on the basis of the financialinformation presented by the directors in this unaudited preliminaryannouncement and will be delivered to the Registrar of Companies following thecompany's annual general meeting. The audit report for the year ended 31December 2004 has yet to be signed. The preliminary announcement was approved by the board of directors on 24February 2005. 3. Currency conversion The 2004 unaudited preliminary consolidated profit and loss account is preparedusing, among other currencies, an average exchange rate of US$1.8326 to thepound (2003: US$1.6356). The unaudited preliminary consolidated balance sheetas at 31 December 2004 has been prepared using the exchange rate on that day ofUS$1.9158 to the pound (2003: US$1.7833). The unaudited preliminary consolidated profit and loss account and balance sheetare presented in euros in Appendix II for illustrative purposes. The unauditedpreliminary consolidated profit and loss account has been prepared using theaverage exchange rate for the year ended 31 December 2004 of €1.4739 to thepound (year ended 31 December 2003: €1.4450). The unaudited preliminaryconsolidated balance sheet at 31 December 2004 has been prepared using theexchange rate on 31 December 2004 of €1.4133 to the pound (31 December 2003:€1.4198). The basis for calculating the constant currency percentage changes, shown on theface of the unaudited preliminary consolidated profit and loss account, ispresented in Appendix IV. WPP GROUP PLCNotes to the unaudited preliminary consolidated financial statements (continued) 4. Segmental analysis Reported contributions by geographical area were as follows: 2004 2003 +/(-)%______________________________________________________________________________________________________________ £m £mRevenueNorth America 1,651.9 1,678.7 (1.6)United Kingdom 728.5 664.9 9.6Continental Europe 1,134.8 1,079.4 5.1Asia Pacific, Latin America, Africa & Middle East 784.3 683.0 14.8______________________________________________________________________________________________________________ 4,299.5 4,106.0 4.7______________________________________________________________________________________________________________Headline PBIT(1)North America 262.6 247.8 6.0United Kingdom 81.9 71.8 14.1Continental Europe 141.2 121.8 15.9Related Shares:
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