26th Aug 2005 07:00
WPP Group PLC26 August 2005 Appendix I WPP GROUP PLC Interim results for the six months ended 30 June 2005 Unaudited consolidated interim income statement for the six months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June Constant 31 Notes 2005 2004 Currency1 December 2004------------------------ ------- --------- -------- ------ -------- ---------- £m £m +/(-)% +/(-)% £m Turnover (billings) 11,333.6 9,155.2 23.8 23.7 19,598.0======================== ======= ========= ======== ====== ======== ========== Revenue 2,467.5 2,025.6 21.8 21.9 4,299.5Direct costs (111.1) (104.7) (6.1) (5.1) (225.1)------------------------ ------- --------- -------- ------ -------- ----------Gross profit 2,356.4 1,920.9 22.7 22.8 4,074.4Operating costs 4 (2,103.8) (1,738.0) (21.0) (21.3) (3,598.9)------------------------ ------- --------- -------- ------ -------- ----------Operating profit 252.6 182.9 38.1 37.5 475.5Share of results of associates 4 13.7 12.2 12.3 8.6 29.5------------------------ ------- --------- -------- ------ -------- ----------Profit before interest and 266.3 195.1 36.5 35.6 505.0taxationFinance income 24.8 20.0 24.0 22.3 56.4Finance costs 5 (69.6) (55.1) (26.3) (27.3) (127.0)------------------------ ------- --------- -------- ------ -------- ----------Profit before taxation 221.5 160.0 38.4 36.9 434.4Taxation 7 (72.6) (55.8) (30.1) (28.7) (135.0)------------------------ ------- --------- -------- ------ -------- ----------Profit for the period 148.9 104.2 42.9 41.2 299.4------------------------ ------- --------- -------- ------ -------- ---------- Attributable to:Equity holders of the parent 135.4 93.1 45.4 44.0 273.0Minority interests 13.5 11.1 (21.6) (18.0) 26.4------------------------ ------- --------- -------- ------ -------- ---------- 148.9 104.2 42.9 41.2 299.4------------------------ ------- --------- -------- ------ -------- ---------- ------------------------ ------- --------- -------- ------ -------- ---------- Headline PBIT 6,18 299.6 228.1 31.3 30.5 560.2Headline PBIT margin 18 12.1% 11.3% 13.0%Headline PBT 18 254.8 193.0 32.0 30.6 489.6------------------------ ------- --------- -------- ------ -------- ---------- Earnings per share2Basic earnings per ordinary share 9 11.4p 8.2p 39.0 36.6 24.0pDiluted earnings per ordinary 9 11.1p 8.0p 38.8 36.9 23.4pshare------------------------ ------- --------- -------- ------ -------- ----------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 consolidated summary interim cash flow statement for the six months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December Notes 2005 2004 2004--------------------------- ------ ------------ ------------ ---------- £m £m £mNet cash (outflow)/ inflow from 10 (34.0) (157.8) 556.4operating activitiesInvesting activitiesAcquisitions and disposals 10 (336.0) (144.3) (208.9)Purchase of property, plant and (70.2) (31.7) (95.6)equipmentProceeds on disposal of property, plant 2.1 3.3 9.3and equipment --------------------------- ------ ------------ ------------ ----------Net cash outflow from investing (404.1) (172.7) (295.2)activitiesFinancing activitiesIssue of shares 15.8 8.5 17.9Share repurchases and buybacks 10 (75.1) (71.2) (88.7)Net (decrease)/increase in borrowings 10 (96.0) 126.6 128.6Financing and share issue costs (0.9) (4.3) (5.0)Equity dividends paid - - (81.7)Dividends paid to minority shareholders (14.3) (11.9) (22.5)in subsidiary undertakings --------------------------- ------ ------------ ------------ ----------Net cash (outflow)/inflow from financing (170.5) 47.7 (51.4)activitiesNet (decrease)/ increase in cash and cash (608.6) (282.8) 209.8equivalentsTranslation differences 34.5 (17.8) (44.6)Cash and cash equivalents at beginning 1,283.0 1,117.8 1,117.8of period --------------------------- ------ ------------ ------------ ----------Cash and cash equivalents at end of 10 708.9 817.2 1,283.0period --------------------------- ------ ------------ ------------ ----------Reconciliation of net cash flow tomovement in net debt:Net (decrease)/ increase in cash and cash (608.6) (282.8) 209.8equivalentsCash inflow/(outflow) from (increase)/ 96.5 (122.6) (124.2)decrease in debt financingNet debt acquired (140.8) - (9.6)Other movements (32.4) (4.0) (8.2)Translation difference (2.0) 31.1 (6.7)--------------------------- ------ ------------ ------------ ----------Movement of net debt in the period (687.3) (378.3) 61.1Net debt at beginning of period (300.4) (361.5) (361.5)IAS 39 adjustment at 1 January 2005 11 (254.3) - ---------------------------- ------ ------------ ------------ ----------Net debt at end of period 12 (1,242.0) (739.8) (300.4)--------------------------- ------ ------------ ------------ ---------- Unaudited consolidated statement of recognised income and expense for the six months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004--------------------------- ------------ ------------ ---------- £m £m £mProfit for the period 135.4 93.1 273.0Exchange adjustments on foreign currency net 141.7 (91.7) (102.7)investmentsActuarial loss on defined benefit pension - - (18.2)schemesDeferred tax on defined benefit pension schemes - - 3.3--------------------------- ------------ ------------ ----------Total recognised income and expense relating to 277.1 1.4 155.4the period ------------------------------- ------------ ------------ ----------Impact of adoption of IAS 32 and IAS 39 on 1 (62.1)January 2005 WPP GROUP PLC Unaudited consolidated interim balance sheet as at 30 June 2005 30 June 30 June 31 December Notes 2005 2004 2004----------------------------- -------- ---------- ---------- ----------- £m £m £mNon-current assetsIntangible assets: Goodwill 13 5,431.3 4,366.3 4,389.7 Other 14 1,085.3 814.6 773.6Property, plant and equipment 384.6 308.4 309.8Interests in associates 507.0 361.7 385.5Other investments 32.0 14.6 8.1Deferred tax assets 118.4 90.1 100.2----------------------------- -------- ---------- ---------- ----------- 7,558.6 5,955.7 5,966.9Current assetsInventories and work in progress 346.7 314.2 220.6Trade and other receivables 4,255.8 2,363.5 2,601.0Trade receivables within working capital:2 Gross debts - 605.3 545.7 Non-returnable proceeds - (275.6) (261.0) ---------- ---------- ----------- - 329.7 284.7Cash and short term deposits 1,163.0 1,017.8 1,616.0----------------------------- -------- ---------- ---------- ----------- 5,765.5 4,025.2 4,722.3Current liabilitiesTrade and other payables 15 (5,687.7) (4,116.6) (4,515.9)Corporate income tax payable (54.1) (32.5) (53.1)Bank overdrafts and loans (873.5) (361.8) (597.8)----------------------------- -------- ---------- ---------- ----------- (6,615.3) (4,510.9) (5,166.8)----------------------------- -------- ---------- ---------- -----------Net current liabilities (849.8) (485.7) (444.5)Total assets less current liabilities 6,708.8 5,470.0 5,522.4----------------------------- -------- ---------- ---------- -----------Non-current liabilitiesBonds and bank loans (1,531.5) (1,395.8) (1,318.6)Trade and other payables 16 (647.4) (515.8) (536.6)Deferred tax liabilities (452.2) (326.2) (312.3)Provision for post employment benefits (202.3) (198.9) (202.3)Provisions for liabilities and charges (133.3) (82.4) (86.9)----------------------------- -------- ---------- ---------- ----------- (2,966.7) (2,519.1) (2,456.7)----------------------------- -------- ---------- ---------- -----------Net assets 3,742.1 2,950.9 3,065.7----------------------------- -------- ---------- ---------- -----------EquityCalled up share capital 126.3 117.9 118.5Share premium account 1,035.3 968.6 1,002.2Shares to be issued 44.5 118.0 49.9Merger reserve 3,414.6 2,928.4 2,920.6Other reserves 90.9 (84.8) (90.6)Own shares1 (281.2) (305.3) (277.7)Retained earnings (752.5) (836.5) (711.8)----------------------------- -------- ---------- ---------- -----------Equity share owners' funds 17 3,677.9 2,906.3 3,011.1Minority interests 64.2 44.6 54.6----------------------------- -------- ---------- ---------- -----------Total Equity 3,742.1 2,950.9 3,065.7----------------------------- -------- ---------- ---------- -----------1Investments in own shares held by the ESOP Trusts.2Following the adoption of IAS 32 and IAS 39 the Group have 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 consolidated interim financial statements (Notes 1-18) 1. Basis of accounting The unaudited consolidated interim financial statements are prepared under thehistorical cost convention, except for the revaluation of certain financialinstruments as disclosed in our accounting policies. The financial statements of the Group for the year ended 31 December 2005 willbe prepared under International Financial Reporting Standards (IFRS). Theseinterim financial statements have been prepared in accordance with IFRS with theexception that the Group has not adopted the interim reporting requirements ofIAS 34 (Interim Financial Reporting). 2. Accounting policies The accounting policies adopted by the Group are set out in Appendix II. Statutory Information and Independent Review The interim financial statements for the six months to 30 June 2005 and 30 June2004 do not constitute statutory accounts. The financial information for theyear ended 31 December 2004 does not constitute statutory accounts for thepurposes of s240 of the Companies Act 1985. The statutory accounts for the yearended 31 December 2004, prepared under UK GAAP, were delivered to the Registrarof Companies and received an unqualified auditors' report. The interim financialstatements are unaudited but have been reviewed by the auditors and their reportis set out on page 28. The announcement of the interim results was approved by the board of directorson 25 August 2005. 3. Currency conversion The 2005 unaudited consolidated interim income statement is prepared using,among other currencies, an average exchange rate of US$1.8728 to the pound(period ended 30 June 2004: US$1.8229; year ended 31 December 2004: US$1.8326).The unaudited consolidated interim balance sheet as at 30 June 2005 has beenprepared using the exchange rate on that day of US$1.7918 to the pound (30 June2004: US$1.8144; 31 December 2004: US$1.9158). The basis for calculating the constant currency percentage changes, shown on theface of the consolidated interim income statement, is described in the glossaryattached to this appendix. 4. Operating costs and share of results of associates Operating costs include: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004---------------------------------- --------- ----------- ----------- £m £m £mAmortisation of acquired intangible assets 11.8 - -Goodwill impairment 20.5 26.0 40.6Goodwill write-down relating to utilisation of 1.0 5.0 12.6pre-acquisition tax lossesProfits on disposal of fixed asset investments - - (3.0)Amounts written off fixed asset investments - 2.0 5.0Other operating costs 2,070.5 1,705.0 3,543.7---------------------------------- --------- ----------- ----------- 2,103.8 1,738.0 3,598.9---------------------------------- --------- ----------- ----------- WPP GROUP PLC Notes to the unaudited consolidated interim financial statements (continued) 4. Operating costs and share of results of associates (continued) Share of results of associates include: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004------------------------------ ----------- ----------- ----------- £m £m £mShare of profit before interest and taxation 23.8 20.8 48.1Share of interest, taxation and minority (10.1) (8.6) (18.6)interest ------------------------------ ----------- ----------- ----------- 13.7 12.2 29.5------------------------------ ----------- ----------- ----------- 5. Finance costs Finance costs include: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004------------------------------- ----------- ----------- ----------- £m £m £mNet interest charges on defined benefit 4.0 5.4 9.5pension schemesInterest payable and similar charges1 65.6 49.7 117.5------------------------------- ----------- ----------- -----------Finance charges (excluding revaluation of 69.6 55.1 127.0financial instruments)Revaluation of financial instruments - - -------------------------------- ----------- ----------- ----------- 69.6 55.1 127.0------------------------------- ----------- ----------- ----------- 1The charge of £65.6 million for the six months ended 30 June 2005 includesexpense of £7.1 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 period comparatives have not been restatedas the effective date of transition to these standards was 1 January 2005 (seealso the revised accounting policies of the group detailed in Appendix II). Thisapproach also applies to the initial recognition and subsequent re-measurementof the fair value of other financial instruments shown below. UK GAAP hascontinued to be applied in accounting for financial instruments in previousperiods. The following are included in the revaluation of financial instruments shownabove: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004------------------------------- ----------- ----------- ----------- £m - -Movements in fair value of treasury 2.1 - -instrumentsRevaluations of put options over minority (2.0) - -interests (note 15)Other (0.1) - -------------------------------- ----------- ----------- ----------- - - -------------------------------- ----------- ----------- ----------- WPP GROUP PLC Notes to the unaudited consolidated interim financial statements (continued) 6. Segmental analysis Reported contributions by operating sector were as follows: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004------------------------------ ------------ ------------ ------------ £m £m £mRevenueAdvertising, Media Investment Management 1,185.9 936.7 1,985.3Information, Insight & Consultancy 387.5 336.4 744.8Public Relations & Public Affairs 251.8 221.6 445.2Branding & Identity, Healthcare and 642.3 530.9 1,124.2Specialist Communications ------------------------------ ------------ ------------ ------------ 2,467.5 2,025.6 4,299.5------------------------------ ------------ ------------ ------------ Headline PBIT1Advertising, Media Investment Management 158.6 119.9 295.0Information, Insight & Consultancy 36.1 22.5 66.1Public Relations & Public Affairs 35.0 29.4 58.4Branding & Identity, Healthcare and 69.9 56.3 140.7Specialist Communications ------------------------------ ------------ ------------ ------------ 299.6 228.1 560.2------------------------------ ------------ ------------ ------------ Headline PBIT Margin % % %Advertising, Media Investment Management 13.4 12.8 14.9Information, Insight & Consultancy 9.3 6.7 8.9Public Relations & Public Affairs 13.9 13.2 13.1Branding & Identity, Healthcare and 10.9 10.6 12.5Specialist Communications ------------------------------ ------------ ------------ ------------ 12.1 11.3 13.0------------------------------ ------------ ------------ ------------(1) Headline PBIT is defined in Note 18. WPP GROUP PLC Notes to the unaudited consolidated interim financial statements (continued) 6. Segmental analysis (continued) Reported contributions by geographical area were as follows: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004------------------------------ ------------ ------------ ------------ £m £m £mRevenueUnited Kingdom 389.0 343.4 728.5North America 973.4 809.8 1,651.9Continental Europe 662.3 524.3 1,134.8Asia Pacific, Latin America, Africa & 442.8 348.1 784.3Middle East ------------------------------ ------------ ------------ ------------ 2,467.5 2,025.6 4,299.5------------------------------ ------------ ------------ ------------ Headline PBIT(1)United Kingdom 31.3 26.4 75.7North America 151.9 123.3 251.2Continental Europe 68.9 45.5 128.1Asia Pacific, Latin America, Africa & 47.5 32.9 105.2Middle East ------------------------------ ------------ ------------ ------------ 299.6 228.1 560.2------------------------------ ------------ ------------ ------------ Headline PBIT Margin % % %United Kingdom 8.0 7.7 10.4North America 15.6 15.2 15.2Continental Europe 10.4 8.7 11.3Asia Pacific, Latin America, Africa & 10.7 9.5 13.4Middle East ------------------------------ ------------ ------------ ------------ 12.1 11.3 13.0------------------------------ ------------ ------------ ------------(1) Headline PBIT is defined in Note 18. WPP GROUP PLC Notes to the unaudited consolidated interim financial statements (continued) 7. Taxation The Group tax rate on Headline PBT1 is 28.5% (30 June 2004: 28.9% and 31December 2004: 27.6%). The tax charge comprises: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004---------------------------------- ---------- ---------- ---------- £m £m £mTotal current tax 74.7 55.8 140.7Total deferred tax (2.1) - (5.7)---------------------------------- ---------- ---------- ----------Total tax on profits 72.6 55.8 135.0---------------------------------- ---------- ---------- ----------(1) Headline PBT is defined in Note 18. 8. Ordinary dividends The Board has recommended an interim dividend of 3.00p (2004: 2.50p) perordinary share. This is expected to be paid on 14 November 2005 to share ownerson the register at 14 October 2005. The Board recommended a final dividend of 5.28p per ordinary share in respect of2004. This was approved by the company's shareholders in the general meeting on27 June 2005 and paid on 4 July 2005. 9. Earnings per share Basic EPS The reconciliation between Reported and Headline EPS, and between earningsfigures used in calculating them, is as follows: Six months Six months Year ended ended Constant ended 30 June 30 June Currency 31 December 2005 2004 +/(-)% +/(-)% 2004-------------------------- --------- --------- ------- -------- ---------Reported earnings1 (£m) 135.4 93.1 273.0Headline earnings (£m) (note 18) 168.7 126.1 328.2-------------------------- --------- --------- ------- -------- ---------Average shares used in Basic EPS 1,192.7 1,132.0 1,136.1calculation (m) -------------------------- --------- --------- ------- -------- ---------Reported EPS 11.4p 8.2p 39.0 36.6 24.0pHeadline EPS 14.1p 11.1p 27.0 25.6 28.9p-------------------------- --------- --------- ------- -------- ---------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: Six months Six months Year ended ended Constant ended 30 June 30 June Currency 31 December 2005 2004 +/(-)% +/(-)% 2004-------------------------- --------- --------- ------- -------- ---------Diluted Reported Earnings (£m) 135.4 93.1 285.2Diluted Headline Earnings (£m) 168.7 126.1 340.4-------------------------- --------- --------- ------- -------- ---------Shares used in Diluted 1,218.6 1,162.8 1,219.6EPS calculation (m) -------------------------- --------- --------- ------- -------- ---------Diluted Reported EPS 11.1p 8.0p 38.8 36.9 23.4pDiluted Headline EPS 13.8p 10.8p 27.8 26.4 27.9p-------------------------- --------- --------- ------- -------- --------- WPP GROUP PLC Notes to the unaudited consolidated interim financial statements (continued) 9. Earnings per share (continued) Diluted EPS has been calculated based on the Reported and Headline Earningsamounts above. For the six month periods ended 30 June 2005 and 30 June 2004,both the $287.5 million convertible bonds and the £450 million convertible bondswere accretive to earnings and therefore excluded from the calculation ofdilutive earnings. In addition, for the six months ended 30 June 2005 the $150million Grey convertible was accretive to earnings and therefore excluded fromthe calculation of dilutive earnings. For the year ended 31 December 2004, boththe $287.5 million convertible bonds and the £450 million convertible bonds weredilutive and earnings were consequently increased by £12.2 million. A reconciliation between the shares used in calculating Basic and Diluted EPS isas follows: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004-------------------------------- ----------- ----------- ----------- m m mAverage shares used in Basic EPS calculation 1,192.7 1,132.0 1,136.1Dilutive share options outstanding 19.3 21.7 20.6Other potentially issuable shares 6.6 9.1 4.6$287.5 million convertible bonds - - 16.4£450 million convertible bonds - - 41.9-------------------------------- ----------- ----------- -----------Shares used in Diluted EPS calculation 1,218.6 1,162.8 1,219.6-------------------------------- ----------- ----------- ----------- At 30 June 2005 there were 1,262,775,409 ordinary shares in issue. 10. Analysis of cash flows The following tables analyse the items included within the main cash flowheadings on page 12: Net cash (outflow)/inflow from operating activities: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004-------------------------------- ----------- ----------- ----------- £m £m £mOperating profit 252.6 182.9 475.5Adjustments for:Non cash share-based incentive plans (including 30.3 22.9 58.8stock options)Depreciation of property, plant and equipment 51.0 47.9 103.4Impairment of goodwill 20.5 26.0 40.6Goodwill write-down relating to utilisation of 1.0 5.0 12.6pre-acquisition tax lossesAmortisation of acquired intangible assets 11.8 - -Profits on disposal of fixed asset - - (3.0)investmentsLoss on sale of property, plant and equipment - - 1.9Amounts written off fixed asset investments - 2.0 5.0-------------------------------- ----------- ----------- -----------Operating cash flow before movements in working 367.2 286.7 694.8capitalMovements in working capital and provisions (317.9) (368.0) (4.8)-------------------------------- ----------- ----------- -----------Cash generated by operations 49.3 (81.3) 690.0Corporation and overseas tax paid (57.3) (48.1) (101.3)Interest and similar charges (63.0) (58.1) (99.7)Interest received 27.5 20.2 48.9Dividends from associates 9.5 9.5 18.5-------------------------------- ----------- ----------- ----------- (34.0) (157.8) 556.4-------------------------------- ----------- ----------- ----------- WPP GROUP PLC Notes to the unaudited consolidated financial statements (continued) 10. Analysis of cash flows (continued) Acquisitions and disposals: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004------------------------------ ----------- ----------- ----------- £m £m £mInitial cash consideration (468.9) (40.7) (97.3)Cash/(overdraft) acquired 176.1 (12.5) 6.3Earnout payments (69.3) (65.6) (78.6)Loan note redemptions (3.2) (14.8) (26.6)Purchase of other investments (including (8.2) (10.7) (22.0)associates)Proceeds on disposal of investments 37.5 - 9.3------------------------------ ----------- ----------- ----------- (336.0) (144.3) (208.9)------------------------------ ----------- ----------- ----------- Share repurchases and buybacks: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004------------------------------ ----------- ----------- ----------- £m £m £mShare cancellations (including brokerage fees) (58.9) (67.6) (73.7)Purchase of own shares by ESOP trust (16.2) (3.6) (15.0)------------------------------ ----------- ----------- ----------- (75.1) (71.2) (88.7)------------------------------ ----------- ----------- ----------- Net (decrease)/increase in borrowings: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004------------------------------ ----------- ----------- ----------- £m £m £mIncrease/(decrease) in drawings on bank loans 123.7 (1.1) 0.9Repayment of $287.5 million convertible bond (154.4) - -Repayment of $125 million Grey debt (65.3) - -Proceeds from issue of $650 million 10 year bond - 358.2 358.2Repayment of €350 million bond - (230.5) (230.5)------------------------------ ----------- ----------- ----------- (96.0) 126.6 128.6------------------------------ ----------- ----------- ----------- Cash and cash equivalents: Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004------------------------------ ----------- ----------- ----------- £m £m £mCash at bank and in hand 1,088.7 804.4 1,372.0Short-term bank deposits 74.3 213.4 244.0Overdrafts1 (454.1) (200.6) (333.0)------------------------------ ----------- ----------- ----------- 708.9 817.2 1,283.0------------------------------ ----------- ----------- -----------1 Bank overdrafts are included in cash and cash equivalents because they form anintegral part of the entity's cash management. WPP GROUP PLC Notes to the unaudited consolidated interim financial statements (continued) 11. Financial instruments The IAS 32 and IAS 39 adjustments to net debt at 1 January 2005 are made up ofthe following: £m------------------------------------------------- ------------Reclassification 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 facility (note 12) (261.0)------------------------------------------------- ------------ (254.3)------------------------------------------------- ------------ 12. Net debt 30 June 30 June 31 December 2005 2004 2004------------------------------- ----------- ----------- ----------- £m £m £mCash and short term deposits 1,163.0 1,017.8 1,616.0Bank loans and overdrafts due within one year (594.5) (361.8) (597.8)Corporate bond and loans due after one year (1,531.5) (1,395.8) (1,318.6)Working capital facility1 (279.0) - -------------------------------- ----------- ----------- ----------- (1,242.0) (739.8) (300.4)------------------------------- ----------- ----------- -----------1The Group has a working capital facility (the advance of cash financing againstwhich certain trade debts have been assigned) that IAS 32 and IAS 39 require tobe presented as a bank borrowing. As the Group have elected to apply IAS 32 andIAS 39 from 1 January 2005, the periods before this date will continue to complywith 2004 UK GAAP as a deduction from debtors, in accordance with the 'linkedpresentation' required by FRS 5 (Reporting the substance of transactions). Thedrawdown on the facility has remained at $500 million for all of the periodsabove. 13. Goodwill and acquisitions During the period, the Group charged £20.5 million (30 June 2004: £26.0 million;31 December 2004: £40.6 million) of goodwill impairment to the income statement,£11.8 million (30 June 2004: £nil; 31 December 2004: £nil) of amortisation ofacquired intangible assets, primarily comprising the value of company brandnames and client relationships recognised on acquisitions, and £1.0 million (30June 2004: £5.0 million; 31 December 2004: £12.6 million) in relation to theutilisation of pre-acquisition tax losses. The impairment charge relates to a number of under-performing businesses in theAdvertising and Media investment management, and Branding & identity, Healthcareand Specialist communications sectors. 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 Directors will reassess the need for any further impairment write-downs atthe year end. In addition the Group charged £nil of fixed asset investment write offs (30 June2004: £2.0 million; 31 December 2004: £5.0 million) to the income statement. Goodwill in relation to subsidiary undertakings increased by £1,041.6 million inthe period. Other than impairment this includes both goodwill arising onacquisitions completed in the period and also adjustments to goodwill relatingto acquisitions completed in prior periods. Goodwill in relation to associateundertakings increased by £88.0 million in the period. WPP GROUP PLC Notes to the unaudited consolidated interim financial statements (continued) 13. Goodwill and acquisitions (continued) Future anticipated payments to vendors in respect of both deferred and earnoutobligations totalled £233.1 million (period ended 30 June 2004: £246.3 million;year ended 31 December 2004: £298.6 million). Earnouts are based on thedirectors' best estimates of future obligations, which are dependent on thefuture performance of the interests acquired and assume the operating companiesimprove 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 £384 millionin cash. Grey has been consolidated in the results of the Group from the date ofcompletion. In aggregate, for the six months ended 30 June 2005, acquisitions contributed£274.0 million to revenue, £40.4 million to operating profit and £40.9 millionto Headline PBIT. 14. Other intangible assets The following are included in other intangibles: 30 June 30 June 31 December 2005 2004 2004------------------------------ ----------- ----------- ----------- £m £m £mBrands with an indefinite life 794.0 784.1 742.6Acquired intangibles 260.2 7.0 7.0Other 31.1 23.5 24.0------------------------------ ----------- ----------- ----------- 1,085.3 814.6 773.6------------------------------ ----------- ----------- ----------- Acquired intangible assets increased by £253.2 million during the period,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 recognised a deferred tax liability of £100.2 million, being thedifference between the book and tax carrying values of these intangibles. Thishas increased the goodwill on the acquisition of Grey by the same amount eventhough the Group does not consider that any deferred tax liability in respect ofthis item will ever crystallise. WPP GROUP PLC Notes to the unaudited consolidated interim financial statements (continued) 15. Trade and other payables: amounts falling due within one year The following are included in trade and other payables falling due within oneyear: 30 June 30 June 31 December 2005 2004 2004------------------------------- ----------- ----------- ----------- £m £m £mTrade creditors 3,713.4 2,542.3 2,885.3Dividends payable 62.6 52.2 -Deferred income 570.9 417.5 405.8Payments due to vendors 87.1 82.4 146.6Loan notes due to vendors 34.1 19.4 7.2Liabilities in respect of put option 23.5 - -agreements of vendors1Other creditors and accruals 1,196.1 1,002.8 1,071.0------------------------------- ----------- ----------- ----------- 5,687.7 4,116.6 4,515.9------------------------------- ----------- ----------- -----------1The recognition of liabilities in respect of put options arises from theadoption of IAS 32 and IAS 39 on 1 January 2005. Prior years have not beenrestated as permitted by IFRS 1 (see also the revised accounting policies inAppendix II). 16. Trade and other payables: amounts falling due after more than one year The following are included in trade and other payables falling due after morethan one year: 30 June 30 June 31 December 2005 2004 2004------------------------------- ----------- ----------- ----------- £m £m £mCorporate income tax payable 320.3 281.2 290.6Payments due to vendors 146.0 163.9 152.0Liabilities in respect of put option 32.6 - -agreements with vendorsOther creditors and accruals 148.5 70.7 94.0------------------------------- ----------- ----------- ----------- 647.4 515.8 536.6------------------------------- ----------- ----------- ----------- The following table sets out the directors' best estimates of future deferredand earnout related obligations: 30 June 30 June 31 December 2005 2004 2004------------------------------- ----------- ----------- ----------- £m £m £mWithin one year 87.1 82.4 146.6Between 1 and 2 years 68.5 78.6 65.0Between 2 and 3 years 36.9 50.3 61.0Between 3 and 4 years 14.9 29.4 3.4Between 4 and 5 years 18.9 3.9 21.4Over 5 years 6.8 1.7 1.2------------------------------- ----------- ----------- ----------- 233.1 246.3 298.6------------------------------- ----------- ----------- ----------- The Group does not consider there to be any material contingent liabilities asat 30 June 2005. WPP GROUP PLC Notes to the unaudited consolidated interim financial statements (continued) 16. Trade and other payables: amounts falling due after more than one year(continued) The corporate and convertible bonds, bank loans and overdrafts and workingcapital facility included within short and long term creditors fall due forrepayment as follows: 30 June 30 June 31 December 2005 2004 2004------------------------------- ----------- ----------- ----------- £m £m £mWithin one year 873.5 361.8 597.8Between 1 and 2 years 532.4 110.0 2.5Between 2 and 3 years 451.2 441.5 453.3Between 3 and 4 years 55.8 434.7 510.9Between 4 and 5 years - 55.0 -Over 5 years 492.1 354.6 351.9------------------------------- ----------- ----------- ----------- 2,405.0 1,757.6 1,916.4------------------------------- ----------- ----------- ----------- 17. Reconciliation of movements in consolidated equity share owners' funds Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004------------------------------- ----------- ----------- ----------- £m £m £mProfit for the period 135.4 93.1 273.0Ordinary dividends payable (62.6) (52.2) (81.6)------------------------------- ----------- ----------- ----------- 72.8 40.9 191.4 Non cash share-based incentive plans 30.3 22.9 58.8(including stock options)Exchange adjustments on foreign currency net 141.7 (91.7) (102.7)investmentsOrdinary shares issued in respect of 506.4 - -acquisitionsShare issue / cancellation costs (3.6) (0.3) (0.8)Other share issues 15.4 8.5 32.8Share cancellations (58.9) (67.5) (73.6)Actuarial loss on defined benefit schemes - - (18.2)Deferred tax on defined benefit pension - - 3.3schemesNet additions of own shares by ESOP Trusts (16.2) (3.6) (14.9)Transfer to goodwill - - (67.3)Tax benefit of share-based payments 3.5 3.7 8.7Revaluation of other investments 15.8 - -Equity component of Grey convertible debt 19.2 - -acquiredOther movements 2.5 3.2 3.4------------------------------- ----------- ----------- -----------Net additions/(deductions) to equity share 728.9 (83.9) 20.9owners' fundsOpening equity share owners' funds 3,011.1 2,990.2 2,990.2Impact of adoption of IAS 32 and IAS 39 on 1 (62.1) - -January 2005 ------------------------------- ----------- ----------- -----------Closing equity share owners' funds 3,677.9 2,906.3 3,011.1------------------------------- ----------- ----------- ----------- WPP GROUP PLC Notes to the unaudited consolidated interim financial statements (continued) 18. Non-GAAP measures of performance Reconciliation of Headline PBIT and Headline PBT under IFRS to 2004 UK GAAP Six months Six monthsRelated Shares:
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