24th Feb 2006 07:02
WPP Group PLC24 February 2006 Appendix I WPP GROUP PLC Preliminary results for the year ended 31 December 2005 Unaudited preliminary consolidated income statement for the year ended 31 December 2005 Constant Currency1 Notes 2005 2004 £m £m +/(-)% +/(-)%Turnover (billings) 26,673.7 19,598.0 36.1 35.9 Revenue 5,373.7 4,299.5 25.0 22.9Direct costs (241.0) (225.1) (7.1) (4.9)Gross profit 5,132.7 4,074.4 26.0 23.9Operating costs 4 (4,479.9) (3,598.9) (24.5) (22.6)Operating profit 652.8 475.5 37.3 33.6Share of results of associates 4 33.9 29.5 14.9 10.3Profit before interest and 686.7 505.0 36.0 32.3taxationFinance income 5 87.6 77.7 12.7 10.9Finance costs 5 (182.3) (148.3) (22.9) (22.3)Profit before taxation 592.0 434.4 36.3 31.8Taxation 7 (194.0) (135.0) (43.7) (39.7)Profit for the year 398.0 299.4 32.9 28.2 Attributable to:Equity holders of the parent 363.9 273.0 33.3 28.6Minority interests 34.1 26.4 (29.2) (24.3) 398.0 299.4 32.9 28.2 Headline PBIT 6,19 754.8 560.2 34.7 31.3Headline PBIT margin 19 14.0% 13.0%Headline PBT 19 669.0 489.6 36.6 32.5 Earnings per share2Basic earnings per ordinary share 9 30.3p 24.0p 26.3 21.6Diluted earnings per ordinary 9 29.7p 23.4p 26.9 22.5share 1 The basis for calculating the constant currency percentage change shown aboveis described in the glossary attached to this appendix. 2 The calculations of the Group's earnings per share and Headline earnings pershare are set out in note 9. WPP GROUP PLC Unaudited preliminary consolidated summary cash flow statement for the year ended 31 December 2005 Notes 2005 2004 £m £mNet cash inflow from operating activities 10 837.5 556.4Investing activitiesAcquisitions and disposals 10 (507.7) (208.9)Purchase of property, plant and equipment (160.5) (89.7)Purchase of other intangible assets (incl. capitalised (10.8) (5.9)computer software)Proceeds on disposal of property, plant and equipment 6.7 9.3Net cash outflow from investing activities (672.3) (295.2)Financing activitiesIssue of shares 20.3 17.9Share repurchases and buybacks 10 (152.3) (88.7)Net (decrease)/increase in borrowings 10 (595.2) 128.6Financing and share issue costs (2.2) (5.0)Equity dividends paid (100.2) (81.7)Dividends paid to minority shareholders in subsidiary (24.0) (22.5)undertakingsNet cash outflow from financing activities (853.6) (51.4)Net (decrease)/increase in cash and cash equivalents (688.4) 209.8Translation differences 85.0 (44.6)Cash and cash equivalents at beginning of year 1,283.0 1,117.8Cash and cash equivalents at end of year 10 679.6 1,283.0Reconciliation of net cash flow to movement in net debt:Net (decrease)/increase in cash and cash equivalents (688.4) 209.8Cash inflow/(outflow) from (increase)/decrease in debt 596.9 (124.2)financingNet debt acquired (140.8) (9.6)Other movements (25.9) (8.2)Translation difference 8.9 (6.7)Movement of net debt in the year (249.3) 61.1Net debt at beginning of year (300.4) (361.5)IAS 39 adjustment at 1 January 2005 11 (254.3) -Net debt at end of year 12 (804.0) (300.4) Unaudited preliminary consolidated statement of recognised income and expense for the year ended 31 December 2005 2005 2004 £m £mProfit for the year 398.0 299.4Exchange adjustments on foreign currency net investments 266.1 (102.7)Revaluation of other investments 21.0 -Actuarial loss on defined benefit pension schemes (16.5) (18.2)Deferred tax on defined benefit pension schemes 3.6 3.3Total recognised income and expense relating to the year 672.2 181.8 Attributable to:Equity holders of the parent 638.1 155.4Minority interests 34.1 26.4 672.2 181.8 WPP GROUP PLC Unaudited preliminary consolidated balance sheet as at 31 December 2005 Notes 2005 2004 £m £mNon-current assetsIntangible assets: Goodwill 13 5,675.2 4,389.7 Other 14 1,260.6 773.6Property, plant and equipment 423.5 309.8Interests in associates 509.9 385.5Other investments 55.3 8.1Deferred tax assets 130.3 100.2Trade and other receivables 15 142.1 59.5 8,196.9 6,026.4Current assetsInventories 281.5 220.6Trade and other receivables 15 4,795.5 2,541.5Trade receivables within working capital:2 Gross debts - 545.7 Non-returnable proceeds - (261.0) - 284.7Cash and short-term deposits 1,115.2 1,616.0 6,192.2 4,662.8Current liabilitiesTrade and other payables 16 (6,828.4) (4,515.9)Corporate income tax payable (56.5) (53.1)Bank overdrafts and loans (457.8) (597.8) (7,342.7) (5,166.8)Net current liabilities (1,150.5) (504.0)Total assets less current liabilities 7,046.4 5,522.4Non-current liabilitiesBonds and bank loans (1,461.4) (1,318.6)Trade and other payables 17 (703.0) (536.6)Deferred tax liabilities (533.1) (312.3)Provisions for post employment benefits (231.4) (202.3)Provisions for liabilities and charges (131.7) (86.9) (3,060.6) (2,456.7)Net assets 3,985.8 3,065.7 EquityCalled up share capital 125.3 118.5Share premium account 2.1 1,002.2Shares to be issued 37.2 49.9Merger reserve (1,388.1) 2,920.6Other reserves 167.3 (90.6)Own shares1 (292.9) (277.7)Retained earnings 5,253.6 (711.8)Equity share owners' funds 18 3,904.5 3,011.1Minority interests 81.3 54.6Total Equity 3,985.8 3,065.7 1 Investments in own shares held by the ESOP Trusts. 2 Following the adoption of IAS 32 and IAS 39 the Group has reclassified theworking capital facility on 1 January 2005 as IFRS does not permit linkedpresentation. The 2004 figures have not been restated as permitted by IFRS 1. WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (Notes 1 - 19) 1. Basis of accounting The unaudited preliminary consolidated financial statements are prepared underthe historical cost convention, except for the revaluation of certain financialinstruments as disclosed in our accounting policies. 2. Accounting policies The unaudited preliminary consolidated financial statements comply with relevantInternational Financial Reporting Standards (IFRS), incorporating InternationalAccounting Standards, and with the accounting policies of the Group which areavailable on the Group's website, www.wpp.com. The disclosures required by IFRS 1 concerning the transition from UK GAAP toIFRS are disclosed in Appendix III of the Group's 2005 Interim Report. Adetailed summary of the key impacts of the transition from UK GAAP to IFRS wasincluded in the Appendix to the Group's first Quarterly Trading Update issued on22 April 2005. Statutory Information In October 2005, pursuant to a Scheme of Arrangement under s425 of the CompaniesAct 1985, a new parent company was introduced which is now called WPP Group plc("Newco"). The previous parent company has been renamed and re-registered as WPP2005 Limited ("Oldco"). The financial information for the years ended 31 December 2005 in respect ofNewco or 2004 in respect of Oldco does not constitute either company's statutoryaccounts. The statutory accounts of Oldco for the year ended 31 December 2004,prepared under UK GAAP, were delivered to the Registrar of Companies andreceived an unqualified auditors' report and did not contain a statement unders237 (2) or (3) of the Companies Act 1985. The statutory accounts for the yearended 31 December 2005 of Newco 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 2005 has yet to be signed. Basis of preparation The introduction of a new holding company constitutes a group reconstruction andhas been accounted for using merger accounting principles. Therefore, althoughthe group reconstruction did not become effective until October 2005, thefinancial statements of WPP Group plc are presented as if Newco and Oldco hadalways been part of the same group. Accordingly, the results of the group forthe entire year ended 31 December 2005 are shown in the consolidated incomestatement and the comparative figures for the year ended 31 December 2004 arealso prepared on this basis. The preliminary announcement was approved by the board of directors on 23February 2006. 3. Currency conversion The 2005 unaudited preliminary consolidated income statement is prepared using,among other currencies, an average exchange rate of US$1.8189 to the pound(2004: US$1.8326). The unaudited preliminary consolidated balance sheet as at 31December 2005 has been prepared using the exchange rate on that day of US$1.7187to the pound (2004: US$1.9158). The basis for calculating the constant currency percentage changes, shown on theface of the consolidated income statement, is described in the glossary attachedto 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: 2005 2004 £m £mAmortisation of acquired intangible assets 25.3 -Goodwill impairment 46.0 40.6Goodwill write-down relating to utilisation of pre-acquisition 1.1 12.6tax lossesProfits on disposal of fixed asset investments (4.3) (3.0)Amounts written off fixed asset investments - 5.0Share-based payments 68.6 58.8Other operating costs 4,343.2 3,484.9 4,479.9 3,598.9 Share-based payments include: 2005 2004 £m £mStock options 25.9 29.4Other share-based payments 42.7 29.4 68.6 58.8 The impairment charge of £46.0 million (2004: £40.6 million) relates to a numberof under-performing businesses in the Group. In certain markets, the impact ofcurrent, local economic conditions and trading circumstances on these businessesis sufficiently severe to indicate impairment to the carrying value of goodwill. The Group has released £10.1 million (2004: £14.0 million) to operating profitrelating to excess provisions established in respect of acquisitions completedprior to 2004. At the same time, the Group includes within operating costscharges for one-off costs, severance and restructuring charges, including thoseresulting from integrating acquisitions. For this reason, the Group considersthat the above combination of releases and charges, when taken together, doesnot materially impact the Group's quality of earnings. Share of results of associates include: 2005 2004 £m £mShare of profit before interest and taxation 54.0 48.1Share of interest and minority interest (0.9) (0.7)Share of taxation (19.2) (17.9) 33.9 29.5 WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 5. Finance income and finance costs Finance income includes: 2005 2004 £m £mExpected return on pension scheme assets 24.2 21.3Investment income 5.6 -Interest income 57.8 56.4 87.6 77.7 Finance costs include: 2005 2004 £m £mInterest on pension scheme liabilities 32.0 30.8Interest payable and similar charges1 141.4 117.5Finance charges (excluding revaluation of financial instruments) 173.4 148.3Revaluation of financial instruments 8.9 - 182.3 148.3 1 The charge of £141.4 million for the year ended 31 December 2005 includesexpense of £13.8 million arising from the change in accounting for the Group'sconvertible bonds following the adoption of IAS 32 'Financial Instruments:Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition andMeasurement' on 1 January 2005. Prior year comparatives have not been restatedas permitted by IFRS 1. This approach also applies to the initial recognitionand subsequent re-measurement of the fair value of other financial instrumentsshown below. UK GAAP has continued to be applied in accounting for financialinstruments in previous years. The following are included in the revaluation of financial instruments shownabove: 2005 2004 £m £mMovements in fair value of treasury instruments 3.0 -Revaluation of put options over minority interests (note 16) 5.8 -Other 0.1 - 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: 2005 2004 £m £mRevenueAdvertising, Media Investment Management 2,606.4 1,985.3Information, Insight & Consultancy 810.4 744.8Public Relations & Public Affairs 534.4 445.2Branding & Identity, Healthcare and Specialist Communications 1,422.5 1,124.2 5,373.7 4,299.5 Headline PBIT1Advertising, Media Investment Management 402.7 295.0Information, Insight & Consultancy 83.4 66.1Public Relations & Public Affairs 75.3 58.4Branding & Identity, Healthcare and Specialist Communications 193.4 140.7 754.8 560.2 Headline PBIT Margin % %Advertising, Media Investment Management 15.5 14.9Information, Insight & Consultancy 10.3 8.9Public Relations & Public Affairs 14.1 13.1Branding & Identity, Healthcare and Specialist Communications 13.6 12.5 14.0 13.0 1 Headline PBIT is defined in note 19. WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 6. Segmental analysis (continued) Reported contributions by geographical area were as follows: 2005 2004 £m £mRevenueUnited Kingdom 808.1 728.5North America 2,106.9 1,651.9Continental Europe 1,410.3 1,134.8Asia Pacific, Latin America, Africa & Middle East 1,048.4 784.3 5,373.7 4,299.5 Headline PBIT1United Kingdom 84.6 75.7North America 350.1 251.2Continental Europe 176.1 128.1Asia Pacific, Latin America, Africa & Middle East 144.0 105.2 754.8 560.2 Headline PBIT Margin % %United Kingdom 10.5 10.4North America 16.6 15.2Continental Europe 12.5 11.3Asia Pacific, Latin America, Africa & Middle East 13.7 13.4 14.0 13.0 1 Headline PBIT is defined in note 19. WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 7. Taxation The Group tax rate on Headline PBT1 is 29.0% (2004: 27.6%). The tax chargecomprises: 2005 2004 £m £mCurrent taxUK Corporation tax at 30%Current year 19.9 22.5Prior years (11.4) - 8.5 22.5Foreign taxCurrent year 177.3 108.6Prior years 9.9 9.6 187.2 118.2Total Current Tax 195.7 140.7Deferred taxCurrent year (1.7) (5.7)Total tax on profits 194.0 135.0 1 Headline PBT is defined in note 19. 8. Ordinary dividends The Board has recommended a final dividend of 6.34p (2004: 5.28p) per ordinaryshare in addition to the interim dividend paid of 3.00p (2004: 2.50p) perordinary share. This makes a total for the year of 9.34p (2004: 7.78p) perordinary share, an increase of 20%. The final dividend is expected to be paid on3 July 2006 to share owners on the register at 2 June 2006. WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 9. Earnings per share Basic EPS The reconciliation between Reported and Headline EPS, and between earningsfigures used in calculating them, is as follows: 2005 2004 +/(-)% Constant Currency +/(-)%Reported earnings1 (£m) 363.9 273.0Headline earnings (£m) (note 19) 440.9 328.2Average shares used in Basic EPS 1,200.1 1,136.1calculation (m)Reported EPS 30.3p 24.0p 26.3 21.6Headline EPS 36.7p 28.9p 27.0 23.4 1 Reported earnings is equivalent to profit for the period attributable toequity holders of the parent. Diluted EPS The diluted Reported and Headline EPS are set out below: 2005 2004 +/(-)% Constant Currency +/(-)%Diluted Reported earnings (£m) 363.9 285.2Diluted Headline earnings (£m) 440.9 340.4Average shares used in diluted EPS 1,224.8 1,219.6calculation (m)Diluted Reported EPS 29.7p 23.4p 26.9 22.5Diluted Headline EPS 36.0p 27.9p 29.0 25.4 Diluted EPS has been calculated based on the Reported and Headline Earningsamounts above. For the year ended 31 December 2004, both the $287.5 millionconvertible bonds and the £450 million convertible bonds were dilutive andearnings for the purposes of this calculation consequently included anadditional £12.2 million. A reconciliation between the shares used in calculating Basic and Diluted EPS isas follows: 2005 2004 m mAverage shares used in Basic EPS calculation 1,200.1 1,136.1Dilutive share options outstanding 18.6 20.6Other potentially issuable shares 6.1 4.6$287.5 million convertible bonds - 16.4£450 million convertible bonds - 41.9Shares used in Diluted EPS calculation 1,224.8 1,219.6 At 31 December 2005 there were 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 flowheadings on page 13: Net cash inflow from operating activities: 2005 2004 £m £mOperating profit 652.8 475.5Adjustments for:Non cash share-based incentive plans (including stock options) 68.6 58.8Depreciation of property, plant and equipment 111.4 96.7Impairment of goodwill 46.0 40.6Goodwill write-down relating to utilisation of pre-acquisition 1.1 12.6tax lossesAmortisation of acquired intangible assets 25.3 -Amortisation of other intangible assets 10.7 6.7Profits on disposal of fixed asset investments (4.3) (3.0)Loss on sale of property, plant and equipment 1.1 1.9Amounts written off fixed asset investments - 5.0Operating cash flow before movements in working capital 912.7 694.8Movements in working capital and provisions 107.6 (4.8)Cash generated by operations 1,020.3 690.0Corporation and overseas tax paid (136.0) (101.3)Interest and similar charges (128.2) (99.7)Interest received 62.4 48.9Investment income 5.6 -Dividends from associates 13.4 18.5 837.5 556.4 Acquisitions and disposals: 2005 2004 £m £mInitial cash consideration (561.2) (97.3)Cash and cash equivalents acquired 173.9 6.3Earnout payments (96.7) (78.6)Loan note redemptions (33.0) (26.6)Purchase of other investments (including associates) (29.0) (22.0)Proceeds on disposal of investments 38.3 9.3 (507.7) (208.9) WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 10. Analysis of cash flows (continued) Share repurchases and buybacks: 2005 2004 £m £mShare cancellations (including brokerage fees) (123.3) (73.7)Purchase of own shares by ESOP trusts (29.0) (15.0) (152.3) (88.7) Net (decrease)/increase in borrowings: 2005 2004 £m £mIncrease in drawings on bank loans 17.1 0.9Repayment 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) -Proceeds from issue of $650 million 10 year bonds - 358.2Repayment of €350 million bonds - (230.5) (595.2) 128.6 Cash and cash equivalents: 2005 2004 £m £mCash at bank and in hand 1,029.0 1,372.0Short-term bank deposits 86.2 244.0Overdrafts1 (435.6) (333.0) 679.6 1,283.0 1 Bank overdrafts are included in cash and cash equivalents because they form anintegral part of the Group's cash management. 11. Financial instruments The IAS 32 and IAS 39 adjustments to net debt at 1 January 2005 are made up ofthe following: £mReclassification of components of convertible debt 32.4Reclassification of the deferred gain recognised under UK GAAP (18.6)Recognition of financial instruments at fair value (7.1)Reclassification of the working capital facility1 (261.0) (254.3) 1 The Group had a working capital facility (the advance of cash financingagainst which certain trade debts have been assigned) that IAS 32 and IAS 39require to be presented as a bank borrowing. As the Group has elected to applyIAS 32 and IAS 39 from 1 January 2005, net debt at 31 December 2004 has beenpresented to comply with 2004 UK GAAP as a deduction from debtors, in accordancewith the 'linked presentation' required by FRS 5 (Reporting the substance oftransactions). The drawdown on the facility was transferred to debt at 1 January2005. The facility was repaid and cancelled on 31 August 2005. WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 12. Net debt 31 December 31 December 2005 2004 £m £mCash and short-term deposits 1,115.2 1,616.0Bank loans and overdrafts due within one year (457.8) (597.8)Corporate bond and loans due after one year (1,461.4) (1,318.6)Net debt (per balance sheet) (804.0) (300.4)Working capital facility (Note 11) - (261.0)Net debt including working capital facility (804.0) (561.4) Elsewhere in this release net debt at 31 December 2004 is shown as £554.7million to provide a comparable basis with net debt at 31 December 2005. Thisincludes the entire IAS 39 adjustment of £254.3 million at 1 January 2005described in Note 11. 13. Goodwill and acquisitions Goodwill in relation to subsidiary undertakings increased by £1,285.5 million inthe year. This includes both goodwill arising on acquisitions completed in theyear and adjustments to goodwill relating to acquisitions completed in prioryears, net of impairment charges. Goodwill in relation to associate undertakingsincreased by £82.5 million in the period. Future anticipated payments to vendors in respect of both deferred and earnoutobligations totalled £220.0 million (2004: £298.6 million). Earnouts are basedon the directors' best estimates of future obligations, which are dependent onthe future performance of the interests acquired and assume the operatingcompanies improve profits in line with directors' estimates. On 7 March 2005 the Group completed the acquisition of Grey Global Group, Inc.(Grey) in consideration for 78 million new WPP ordinary shares and £376 millionin cash. Grey has been consolidated in the results of the Group from the date ofcompletion. In aggregate, for the year ended 31 December 2005, acquisitions made in the yearcontributed £757.4 million to revenue, £74.6 million to operating profit and£100.0 million to Headline PBIT. WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 14. Other intangible assets The following are included in other intangibles: 2005 2004 £m £mBrands with an indefinite life 897.0 742.6Acquired intangibles 330.3 7.0Other (including capitalised computer software) 33.3 24.0 1,260.6 773.6 Acquired intangible assets increased by £323.3 million during the year,primarily due to the recognition at fair value of corporate brands and customerrelationships resulting from the acquisition of Grey. These assets are beingamortised over their respective useful lives, which vary from 2 to 20 years,depending on the nature of the asset concerned. In accordance with IAS 12, theGroup has a deferred tax liability of £504.4 million at 31 December 2005, beingthe difference between the book and tax carrying values of these intangibles.The Group does not consider that any deferred tax liability in respect of theseitems will ever crystallise. 15. Trade and other receivables Amounts falling due within one year: 2005 2004 £m £mTrade receivables 3,999.3 2,058.5VAT and sales taxes recoverable 43.0 29.1Corporate income taxes recoverable 21.0 24.2Other debtors 350.8 238.1Prepayments and accrued income 381.4 191.6 4,795.5 2,541.5 Amounts falling due after more than one year: 2005 2004 £m £mOther debtors 115.8 54.2Prepayments and accrued income 26.3 5.3 142.1 59.5 WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 16. Trade and other payables: amounts falling due within one year The following are included in trade and other payables falling due within oneyear: 2005 2004 £m £mTrade creditors 4,659.3 2,885.3Deferred income 604.2 405.8Payments due to vendors 81.3 146.6Loan notes due to vendors 13.6 7.2Liabilities in respect of put option agreements with vendors1 50.4 -Other creditors and accruals 1,419.6 1,071.0 6,828.4 4,515.9 1 The recognition of liabilities in respect of put options arises from theadoption of IAS 32 and IAS 39. Prior years have not been restated as permittedby IFRS 1. 17. Trade and other payables: amounts falling due after more thanone year The following are included in trade and other payables falling due after morethan one year: 2005 2004 £m £mCorporate income tax payable 372.8 290.6Payments due to vendors 138.7 152.0Liabilities in respect of put option agreements with vendors 39.6 -Other creditors and accruals 151.9 94.0 703.0 536.6 The following table sets out the directors' best estimates of future deferredand earnout related obligations: 2005 2004 £m £mWithin one year 81.3 146.6Between 1 and 2 years 71.9 65.0Between 2 and 3 years 14.7 61.0Between 3 and 4 years 20.3 3.4Between 4 and 5 years 31.8 21.4Over 5 years - 1.2 220.0 298.6 The Group does not consider there to be any material contingent liabilities asat 31 December 2005. WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 18. Reconciliation of movements in consolidated equity shareowners' funds 2005 2004 £m £mProfit for the period 363.9 273.0Ordinary dividends (100.2) (81.6) 263.7 191.4 Non cash share-based incentive plans (including stock options) 68.6 58.8Exchange adjustments on foreign currency net investments 266.1 (102.7)Ordinary shares issued in respect of acquisitions 506.4 -Share issue/cancellation costs (3.6) (0.8)Other share issues 18.3 32.8Share cancellations (123.3) (73.6)Actuarial loss on defined benefit schemes (16.5) (18.2)Deferred tax on defined benefit pension schemes 3.6 3.3Net additions of own shares by ESOP Trusts (29.0) (14.9)Transfer to goodwill (5.1) (67.3)Tax benefit of share-based payments 12.9 8.7Revaluation of other investments 21.0 -Recognition of financial instruments during the year (27.6) -Other movements - 3.4Net additions to equity share owners' funds 955.5 20.9Opening equity share owners' funds 3,011.1 2,990.2Impact of adoption of IAS 32 and IAS 39 on 1 January 2005 (62.1) -Closing equity share owners' funds 3,904.5 3,011.1 WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 19. Non-GAAP measures of performance Reconciliation of Headline PBIT and Headline PBT under IFRS to 2004 UK GAAP Margin (%) 2005 Margin (%) 2004 £m £m Revenue 5,373.7 4,299.5 Headline PBIT (IFRS) 14.0% 754.8 13.0% 560.2 Share-based payments (IFRS 2) 0.6% 32.4 0.7% 28.9Accounting for associates (IAS 28) 0.4% 20.1 0.4% 18.6 52.5 47.5Headline PBIT (2004 UK GAAP) 15.0% 807.3 14.1% 607.7 Headline PBT (IFRS) 669.0 489.6 Adjustments to Headline PBIT (as above) 52.5 47.5Additional interest on convertible debt 13.8 -(IAS 32)Interest on associates (IAS 28) (0.1) (0.1)Headline PBT (2004 UK GAAP) 735.2 537.0 Reconciliation of profit before interest and taxation to Headline PBIT for the year ended 31 December 2005 2005 2004 £m £mProfit before interest and taxation 686.7 505.0Profits on disposal of fixed asset investments (4.3) (3.0)Amounts written off fixed asset investments - 5.0Goodwill impairment 46.0 40.6Goodwill write-down relating to utilisation of pre-acquisition 1.1 12.6tax lossesAmortisation of acquired intangible assets 25.3 -Headline PBIT 754.8 560.2 Finance income 87.6 77.7Finance charges (excluding revaluation of financial instruments) (173.4) (148.3) (85.8) (70.6) Interest cover on Headline PBIT1 8.8 times 7.9 times 1 The finance charges for the year ended 31 December 2005 of £173.4 millionshown above include £13.8 million arising from the change in accounting for theGroup's convertible bonds under IFRS. Interest cover on a comparable basis withprior years would be 10.5 times. WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 19. Non-GAAP measures of performance (continued) Reconciliation of profit before taxation to Headline PBT and Headline earnings for the year ended 31 December 2005 2005 2004 £m £mProfit before taxation 592.0 434.4 Profits on disposal of fixed assets (4.3) (3.0)Amounts written off fixed asset investments - 5.0Goodwill impairment 46.0 40.6Goodwill write-down relating to utilisation of pre-acquisition 1.1 12.6tax lossesAmortisation of acquired intangibles 25.3 -Revaluation of financial instruments 8.9 - Headline PBT 669.0 489.6 Taxation (194.0) (135.0)Minority interests (34.1) (26.4) Headline earnings 440.9 328.2 Ordinary dividends 100.3 81.6 Dividend cover on Headline earnings 4.4 times 4.0 times Reported margins before and after share of results of associates Margin (%) 2005 Margin (%) 2004 £m £m Revenue 5,373.7 4,299.5Headline PBIT 14.0% 754.8 13.0% 560.2Share of results of associates 33.9 29.5Headline PBIT excluding share of results of 13.4% 720.9 12.3% 530.7associates WPP GROUP PLC Notes to the unaudited preliminary consolidated financial statements (continued) 19. Non-GAAP measures of performance (continued) Reconciliation of free cash flow for the year ended 31 December 2005 2005 2004 £m £mCash generated by operations 1,020.3 690.0Plus:Interest received 62.4 48.9Investment income 5.6 -Dividends received from associates 13.4 18.5Issue of shares 20.3 17.9Proceeds on disposal of property, plant and equipment 6.7 9.3Profits on disposal of fixed asset investments 4.3 3.0Less:Movements in working capital and provisions (107.6) 4.8Loss on sale of property, plant and equipment (1.1) (1.9)Amounts written off fixed asset investments - (5.0)Interest and similar charges (128.2) (99.7)Purchase of property, plant and equipment (160.5) (89.7)Purchase of other intangible assets (including capitalised (10.8) (5.9)computer software)Corporation and overseas tax paid (136.0) (101.3)Dividends paid to minority shareholders in subsidiary (24.0) (22.5)undertakingsFree Cash Flow1 564.8 466.4 1 Elsewhere in this release free cash flow in 2005 has been rounded to £565million. WPP GROUP PLC GLOSSARY AND BASIS OF PREPARATION 2004 UK GAAP UK Generally Accepted Accounting Principles ('UK GAAP') extant in respect of2004 - the basis of preparation of the Group's consolidated financial statementsfor the year ended 31 December 2004, as previously reported, prior to theimplementation of International Financial Reporting Standards ('IFRS'). Average net debt Average net debt is calculated as the average daily net bank borrowings of theGroup, derived from the Group's automated banking system. Net debt at a periodend is calculated as the sum of the net bank borrowings of the Group, derivedfrom 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 currencyreported results for the current and prior year. This gives a US dollar -denominated income statement and balance sheet which exclude any variancesattributable to foreign exchange rate movements. Estimated net new billings Net new billings represent the estimated annualised impact on billings(turnover) of new business gained from both existing and new clients, net ofexisting client business lost. The estimated impact is based upon initialassessments of the clients' media budget, which may not necessarily result inactual billings of the same amount. Free cash flow Free cash flow is calculated as Headline PBIT before equity income anddepreciation (including dividends received from associates, proceeds from theissue of shares, and the proceeds from disposal of tangible fixed assets andinvestments), less tax paid, returns on investments and servicing of finance andthe purchase of tangible fixed assets. Headline PBIT ('Headline operating profit') Profit on ordinary activities before finance income, finance costs, taxation,goodwill impairment, goodwill write-down relating to utilisation ofpre-acquisition tax losses, amortisation of acquired intangible assets and fixedassets gains and write-downs. Headline PBT Profit on ordinary activities before taxation, goodwill impairment, goodwillwrite-down relating to the utilisation of previously unrecognisedpre-acquisition tax losses, amortisation of acquired intangible assets, fixedassets gains and write-downs and the revaluation of financial instruments. Headline earnings Headline PBT less taxation and minority interests. Operating margin Headline PBIT as a percentage of revenue. Pro forma ('like for like') Pro forma comparisons are calculated as follows: current year actual results(which include acquisitions from the relevant date of completion) are comparedwith prior year actual results, adjusted to include the results of acquisitionsfor the commensurate period in the prior year. The Group uses the terms 'proforma' and 'like for like' interchangeably. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
WPP