Reported revenue up 6% to $3.70 billion (2.03 billion pounds Sterling)
Constant currency revenue up over 13%
Like-for-like revenue up well over 2%
Headline profit before tax up almost 16% to $427.8 million
(234.7 million pounds)
Diluted headline earnings per share up over 10% at 25.7 cents (14.1p)
Interim ordinary dividend up 20% to 4.56 cents (2.50p) per share
LONDON, Aug. 20 /PRNewswire-FirstCall/ -- WPP (Nasdaq: WPPGY) today
announced its 2004 interim results:
* Revenue up 6% to $3.70 billion (2.03 billion pounds) and up over 13% in
constant currencies
* Like-for-like revenue up well over 2%. Excluding Cordiant like-for-like
revenue up over 4%
* Headline operating profit up over 13% to $482.5 million (264.7 million
pounds) and up over 21% in constant currencies
* Headline operating margin up 0.8 margin points to 13.1%
* Headline profit before tax up almost 16% to $427.8 million
(234.7 million pounds) and up almost 25% in constant currencies
* Profit before tax up almost 15% to $321.4 million (176.3 million pounds)
from $280.0 million (153.6 million pounds) and up over 26% in constant
currencies
* Diluted headline earnings per share up over 10% to 25.7 cents (14.1p)
from 23.3 cents (12.8p) and up almost 21% in constant currencies
* Reported diluted earnings per share up over 7% to 16.6 cents (9.1p) from
15.5 cents (8.5p) and up over 24% in constant currencies
* Interim ordinary dividend up 20% to 4.56 cents (2.50p) per share
* Headline operating margin targets of 14.5% in 2005 and minimum of 15.0%
in 2006, compared to 13.8% target in 2004
* Average net debt down over $544 million (300 million pounds) or 26% to
$1,548 million (853 million pounds) from $2,096 million (1,155 million
pounds).
* Estimated net new business billings of $2.761 billion (1.534 billion
pounds). Ranked number one advertising and marketing services group for
new business in the first six months of 2004
In this press release not all the figures and ratios used are readily
available from the unaudited interim results included in Appendix I. Where
required, details of how these have been arrived at are shown in Appendix IV.
Summary of Results
The Board of WPP announces its unaudited interim results for the six
months ended 30 June 2004. These reflect continuing improvement over last
year and further evidence of growth, notably in the United States, Asia
Pacific and Latin America, stimulated by the quadrennial factors of the
European Football Championships, the Athens Olympic Games and the United
States presidential elections.
Turnover was up 6.0% at $16.689 billion (9.155 billion pounds).
Reportable revenue was up 6.0% at $3.70 billion (2.03 billion pounds),
crossing $3.6 billion (2 billion pounds) for the first time in a first half-
year period. On a constant currency basis, revenue was up over 13% compared
with last year, mainly due to the weakness of the United States dollar. On a
like-for-like basis, which includes the impact of acquisitions, revenues were
up well over 2%. Excluding the acquisition of Cordiant, revenue growth was
over 4%.
Headline operating profit was up 13.1% to $482.5 million (264.7 million
pounds) from $426.7 million (234.1 million pounds) and up 21.5% in constant
currencies.
Headline operating margins rose by 0.8 margin points to 13.1% from 12.3%.
On the same basis, before short-term and long-term incentives, operating
margins rose by 1.5 margin points to 15.8% from 14.3%. Short and long-term
incentives amounted to $100.1 million (54.9 million pounds) or 18.4% of
operating profits before bonus and taxes, as improvements in operating
profitability continued to re-fill incentive pools reduced by the recent
recession.
On a reported basis the Group's staff cost to revenue ratio, excluding
incentives, was up slightly, rising 0.3 margin points to 56.0% in the first
half of 2004, compared with the same period last year. On a like-for-like
basis, it fell 1.2 margin points. Similarly, on a like-for-like basis, the
average number of people in the Group, excluding associates, was 56,208 in the
first half of the year, compared to 57,406 in 2003, a decrease of over 2%. On
the same basis, the total number of people in the Group at 30 June 2004 was
57,723 compared to 58,052 in June 2003, a decrease of 0.6%.
Headline profit before tax was up 15.7% to $427.8 million (234.7 million
pounds) from $369.9 million (202.9 million pounds) or up 24.8% in constant
currencies.
Net interest payable and similar charges (including a charge of $9.8
million (5.4 million pounds) for FRS17) decreased to $64.5 million (35.4
million pounds) from $67.4 million (37.0 million pounds), reflecting higher
interest rates more than offset by the impact of improved liquidity as a
result of a reduction in working capital.
Reported profit before tax, reflecting slightly increased goodwill and
impairments, rose by 14.8% to $321.4 million (176.3 million pounds) from
$280.0 million (153.6 million pounds). In constant currencies pre-tax profits
rose by over 26%.
The tax rate on headline profit before tax on ordinary activities was
25.8%, the same as the 2003 rate.
Profits attributable to ordinary share owners rose by 11.1% to $193.0
million (105.9 million pounds) from $173.5 million (95.2 million pounds) or
28.7% in constant currencies.
Diluted headline earnings per share rose by over 10% to 25.7 cents (14.1p)
from 23.3 cents (12.8p). In constant currencies, earnings per share on the
same basis rose by almost 21%.
The Board declares an increase of 20% in the interim ordinary dividend to
4.56 cents (2.50p) per share. The record date for this interim dividend is 15
October 2004, payable on 15 November 2004.
Further details of WPP's financial performance are provided in Appendix I
in sterling and for illustrative purposes in euros in Appendix II. Appendix
III contains details of the impact of adopting the United States transitional
guidelines on the expensing of share options.
Review of Operations
Revenue by Region
The pattern of revenue growth differed regionally. The table below gives
details of the proportion of revenue and revenue growth (on a constant
currency basis including the impact of acquisitions) by region for the first
six months of 2004:
Region Revenue as a % Revenue growth %
of total Group 04/03
North America 40.0 11.2
United Kingdom 16.9 12.0
Continental Europe 25.9 8.5
Asia Pacific, Latin
America, Africa &
Middle East 17.2 28.9
TOTAL GROUP 100.0 13.3
As can be seen, all regions, with the exception of Continental Europe
showed double digit revenue growth, although even Continental Europe showed an
improving trend in the second quarter. The over 11% rise in North American
revenues marked the seventh consecutive quarter of growth.
In the United Kingdom, which is still a difficult media market, revenue
was up 12.0%, with Continental Europe up over 8%. Asia Pacific, Latin
America, Africa and the Middle East continues to improve with revenue growth
of almost 29%. Latin America has shown particularly strong growth.
Estimated net new business billings of almost $2.761 billion (1.534
billion pounds) were won in the first half of the year. The Group was ranked
first for net new business gains in the Lehman Brothers, William Blair &
Company, Bear Stearns and AdAge surveys for the first six months of 2004.
Revenue by Communications Services Sector and Brand
The pattern of revenue growth varied by communications services sector and
company brand. The table below gives details of the proportion of revenue and
revenue growth by communications services sector (on a constant currency basis
including the impact of acquisitions) for the first six months of 2004:
Communications Revenue as a Revenue growth %
Services % of total Group 04/03
Sector
Advertising, Media
Investment Management* 46.3 14.7
Information,Insight &
Consultancy 16.6 6.1
Public Relations &
Public Affairs* 10.9 7.3
Branding & Identity,
Healthcare & Specialist
Communications 26.2 18.6
TOTAL GROUP 100.0 13.3
* In 2004, certain public relations revenue which historically was
included in Advertising, Media Investment Management has been moved
into Public Relations and Public Affairs. As a result, the comparative
figures for both Advertising, Media Investment Management and Public
Relations and Public Affairs have been restated to reflect this change.
Media investment management like-for-like revenue comparisons started to
improve in October 2002, and then significantly from April 2003, primarily
driven by the strong United States upfront media buying season. This growth
continued for the remainder of 2003 and the first six months of 2004, where
again network television costs rose faster than inflation.
Advertising has followed this trend but less strongly. Information,
insight and consultancy has continued to be relatively less affected by the
recession, picking up more recently, and branding and identity, healthcare and
specialist communications has started to pick up slightly, although
healthcare, direct, interactive and internet activities have been more
resilient throughout the recession. Public relations and public affairs,
which was more affected by the recession, has been less so over the last nine
months, as some of our brands have seen a significant recent pick-up in new
business activity.
Advertising and Media Investment Management
On a constant currency basis, combined revenue at Ogilvy & Mather
(including OgilvyOne), J Walter Thompson Company, Y&R Advertising, Red Cell,
MindShare and Mediaedge:cia grew by over 16%, with operating margins up over
1.0 margin points.
These businesses generated estimated net new business billings of $2.322
billion (1.290 billion pounds).
Information, Insight and Consultancy
The Group's information, insight and consultancy businesses continued
their growth, with revenues increasing by over 6%, and operating margins
improving.
Public Relations and Public Affairs
In constant currencies, the Group's public relations and public affairs
revenues rose by over 7%, with operating margins recovering to 15%.
Branding and Identity, Healthcare and Specialist Communications
The Group's branding and identity, healthcare and specialist
communications revenues were up over 18%, with operating margins up almost 1.0
margin points. Particularly good performances were registered by several
companies in this sector in the first half -- including, in promotion and
direct marketing by Einson Freeman, Mando Brand Assurance, Maxx Marketing,
OgilvyOne, and Savatar; in branding and identity by Addison Corporate
Marketing, Enterprise IG, Oakley Young and Warwicks; in healthcare by
CommonHealth; and in Specialist Communications by Metro Group and Spafax.
Cashflow and Balance Sheet
A summary of the Group's unaudited cashflow statement and balance sheet
and notes as at 30 June 2004 are provided in Appendices I and II.
In the first half of 2004, operating profit was $355 million (195 million
pounds), depreciation, amortisation and impairment $177 million (97 million
pounds), interest paid $91 million (50 million pounds), tax paid $87 million
(48 million pounds), capital expenditure of $58 million (32 million pounds)
and other net cash inflows of $38 million (21 million pounds). Free cashflow
available for debt repayment, acquisitions and share re-purchases was,
therefore, $334 million (183 million pounds). This free cashflow was absorbed
by $263 million (144 million pounds) in net cash acquisition payments and
investments, (of which $117 million (64 million pounds) was for initial
acquisition payments, $120 million (66 million pounds) was for earnout
payments and the balance related to prior year loan note redemptions), and
$129 million (71 million pounds) in share re-purchases, a total outflow of
$392 million (215 million pounds). This net outflow of $58 million (32
million pounds) was not in line with the objective introduced last year, of
balancing free cashflow, principally because of heavier than forecast share
buy-backs in the first half.
Average net debt in the first six months of 2004 fell by $548 million (302
million pounds) to $1,548 million (853 million pounds) compared to $2,096
million (1,155 million pounds) in 2003, at 2004 exchanges rates. On 30 June
2004 net bank borrowings were $1,343 million (740 million pounds), against
$2,092 million (1,153 million pounds) on 30 June 2003. The Group has completed
a $650 million 10 year bond issue in the United States market which closed on
23 June 2004. The proceeds were used primarily to repay the Euro 350 million
bond which matured in June, with the balance intended to be used to repay the
Young & Rubicam $288 million 3% Convertible Bond due January 2005. The Board
continues to examine ways of deploying the Group's substantial cashflow of
approximately $820 million (450 million pounds) per annum to enhance share
owner value given that interest cover remains strong at over 7 times in the
first half of 2004, in comparison to over six times in the comparable period
last year. As necessary capital expenditure approximates to the depreciation
charge, the Company has continued to concentrate on examining possible
acquisitions or returning excess capital to share owners in the form of
dividends and/or share buy-backs.
In the first half of 2004 certain acquisitions have been made or equity
interests increased. In advertising and media investment management in
Canada, Germany, the Netherlands, Italy, Sweden, Poland, China, Japan, India,
South Korea, Indonesia and Chile; in information, insight and consultancy in
17 countries through Italy; in public relations and public affairs in the
United States and the United Kingdom; in healthcare in the Netherlands and in
branding & identity in the United States.
In addition to increasing the interim dividend by 20% to 4.56 cents
(2.50p) per share, at a total cost of $53.6 million (29.4 million pounds)
compared to $44.7 million (24.5 million pounds) last year, the Company has
continued its rolling share buy-back programme in the first half of the year
by repurchasing 12.175 million shares at an average price of $10.12 (5.55
pounds) per share and total cost of $123.2 million (67.6 million pounds). The
Company's objective remains to repurchase up to 2% of its share base in the
open market at an approximate cost of $273 million (150 million pounds) when
market conditions are appropriate.
Client Developments in the First Half of 2004
Including associates, the Group currently employs over 72,000 full-time
people in over 1,700 offices in 104 countries. It services over 300 of the
Fortune Global 500 companies, over one-half of the Nasdaq 100, over 30 of the
Fortune e-50, and approximately 333 national or multi-national clients in
three or more disciplines. More than 130 clients are served in four
disciplines and these clients account for over 50% of Group revenues. This
reflects the increasing opportunities for co-ordination between activities
both nationally and internationally. The Group also works with well over 100
clients in 6 or more countries.
The Group estimates that more than 35% of new assignments in the first
half of the year were generated through the joint development of opportunities
by two or more Group companies.
Current Progress and Future Prospects
The Group's financial performance in the first half of the year mirrored
the continuing improvement in economic conditions in the United States, Asia
Pacific, Latin America, Africa and the Middle East, countered to some extent
by the continuing recession, certainly in the media industry, in the United
Kingdom and parts of Continental Europe. Like-for-like revenue was up well
over 2% in the first half of 2004, exceeding budgeted levels. July like-for-
like revenues were up over 6%, mirroring a strong June. An operating margin
of 13.1% was achieved, due principally to higher than budgeted revenues and a
reduction in, and the variability of, non-staff costs.
2004 has seen a significant improvement in activity particularly when
compared to 2001 and 2002 and even in comparison to the stabilisation seen in
2003. Most pundits forecast industry growth rates of 3-4% this year. Levels
of activity in 2004 will once again match, or surpass, the levels of activity
seen in the internet driven boom year of 2000. Our revenue forecasts for the
year continue to be in excess of budget and there are significant new business
opportunities at both the network and parent company levels.
Concerns remain, however, about the prospects for the US economy after the
presidential election. Whoever is elected will have to deal with a
substantial fiscal deficit, a weak dollar and risks of inflation, not aided by
high oil and commodity prices. Higher interest rates may slow the US economy,
which continues to be the primary driver of the global economy, despite the
increasing intra-dependency and insulation of the Asian economy.
The transatlantic consumer seems to be under increasing pressure in recent
months facing high consumer debt levels and rapidly increasing house prices.
However, the recent recession was driven originally by declines in corporate
capital spending. It may well be that less buoyant consumer spending will be
offset by improved corporate spending. Corporate profitability, liquidity and
margins are strong and have been growing recently at levels not seen since
1984. Recent results from some technology companies, indicate increased level
of capital expenditures beyond replacement.
That said, many clients in many industries are finding it very difficult
to meet volume targets or increase revenues in a low-inflationary environment,
with little or no pricing power, concentrated distribution and no significant
increases in money wages. The answer is not, however, to react by cutting
prices or increasing trade incentive levels as in the automobile and food
manufacturing industries, or discounting against the hard retail discounters,
for example, in Germany. The solution remains in innovation and branding,
which augurs well for our industry.
Despite these concerns about 2005, the prospects for revenue and operating
margin improvements at WPP remain good. As indicated previously, we are today
announcing headline operating margin targets for 2005 and 2006. In 2005, our
objective will be 14.5%, against a target of 13.8% in 2004, which we remain
confident of achieving. For 2006, we are setting a target of a minimum of
15%. Our long term operating target remains 20%. All these margin targets
are before fully expensing option costs, as estimated in Appendix III, and
amount to approximately 0.6 margin points using competitively conservative
inputs for the Black Scholes valuation model. They also exclude any impact of
the implementation of International Financial Reporting Standards (IFRS),
which is described in Note 15 of Appendix I.
Plans, budgets and forecasts will continue to be made on a conservative
basis and considerable attention is still being focused on achieving margin
and staff cost to revenue or gross margin targets. Margins continue to be
strong in important parts of the business. For example, the combined
operating margins of our advertising and media investment management sector,
are almost 15% in the first half. Geographically, North American operating
margins are 16%. In addition to influencing absolute levels of cost, the
initiatives taken by the parent company in the areas of human resources,
property, procurement, information technology and practice development
continue to improve the flexibility of the Group's cost base.
The Group continues to improve co-operation and co-ordination between
companies in order to add value to our clients' businesses and our people's
careers, an objective which has been specifically built into short-term
incentive plans. Particular emphasis and success has been achieved in the
areas of media investment management, healthcare, privatisation, new
technologies, new markets, retailing, internal communications, hi-tech,
financial services and media and entertainment.
The Group also continues to concentrate on its strategic objectives of
improving operating profits by 10-15% per annum; improving operating margins
by half to one margin point per annum or more depending on revenue growth;
improving staff cost to revenue or gross margin ratios by 0.6 margin points
per annum or more depending on revenue growth; converting 25-33% of
incremental revenue to profit and growing revenue faster than industry
averages and encouraging co-operation among Group companies.
As clients face an increasingly undifferentiated market place, the Group
is competitively well positioned to offer them the creativity they desire,
along with the ability to deliver the most effective co-ordinated
communications in the most efficient manner. The rise of the procurement
function, the increasing concentration of distribution and the legislative
acceptance of media ownership concentration in several countries, will further
stimulate consolidation amongst clients, media owners, wholesalers and
retailers and last, but not least, advertising and marketing services
agencies. The Group is very well positioned to capitalise on these
developments and to focus on developing the best talents, the strongest
management structures and the most innovative incentive plans in the industry
for our people.
For further information:
Sir Martin Sorrell, Paul Richardson 44-20-7408-2204
Feona McEwan 1-212-632-2301
http://www.wppinvestor.com
This announcement has been filed at the Company Announcements Office of
the London Stock Exchange and is being distributed to all owners of Ordinary
shares and American Depository Receipts. Copies are available to the public
at the Company's registered office.
The following cautionary statement is included for safe harbour purposes
in connection with the Private Securities Litigation Reform Act of 1995
introduced in the United States of America. This announcement may contain
forward-looking statements within the meaning of the US federal securities
laws. These statements are subject to risks and uncertainties that could
cause actual results to differ materially including adjustments arising from
the annual audit by management and the Company's independent auditors. For
further information on factors which could impact the Company and the
statements contained herein, please refer to public filings by the Company
with the Securities and Exchange Commission. The statements in this
announcement should be considered in light of these risks and uncertainties.
Appendix I
WPP GROUP PLC
Interim results for the six months ended 30 June 2004
Unaudited consolidated interim profit and loss account
for the six months ended 30 June 2004
Six months Six months
ended ended Constant Year ended
Notes 30 June 30 June Currency(3) 31 December
2004 2003 2003
m pounds m pounds +/(-)% +/(-)% m pounds
Turnover (gross
billings) 9,155.2 8,639.2 6.0 13.3 18,621.3
Cost of sales (7,129.6) (6,728.4) (6.0) (13.3) (14,515.3)
Revenue 4 2,025.6 1,910.8 6.0 13.3 4,106.0
Direct costs (104.7) (110.1) 4.9 0.8 (237.1)
Gross profit 1,920.9 1,800.7 6.7 14.2 3,868.9
Operating costs
excluding
goodwill
amortisation
and impairment (1,677.0) (1,582.4) (6.0) (13.3) (3,375.9)
Goodwill
amortisation
and impairment
- subsidiaries 10 (49.3) (43.5) (13.3) (13.3) (77.7)
Operating costs (1,726.3) (1,625.9) (6.2) (13.3) (3,453.6)
Operating profit 194.6 174.8 11.3 22.5 415.3
Income from
associates 20.8 15.8 31.6 34.5 40.5
Goodwill
amortisation
and impairment
- associates (1.7) -- (34.3)
Profit on
ordinary
activities
before
interest,
taxation
and amounts
written off
fixed asset
investments 213.7 190.6 12.1 22.6 421.5
Amounts written
off fixed asset
investments 10 (2.0) -- --
Net interest
payable and
similar charges
on net
borrowings (30.0) (31.2) 3.8 (0.7) (60.1)
Net interest
charges on
defined benefit
pension schemes (5.4) (5.8) 6.9 (3.0) (11.5)
Net interest
payable and
similar charges (35.4) (37.0) 4.3 (1.1) (71.6)
Profit on
ordinary
activities
before taxation 176.3 153.6 14.8 26.5 349.9
Taxation on
profit on
ordinary
activities 5 (60.6) (51.7) (17.2) (19.6) (122.1)
Profit on
ordinary
activities
after
taxation 115.7 101.9 13.5 30.4 227.8
Minority interests (9.8) (6.7) (46.3) (52.8) (19.4)
Profit attributable
to ordinary share
owners 105.9 95.2 11.1 28.7 208.4
Ordinary dividends 6 (29.4) (24.5) 20.0 20.0 (76.8)
Retained profit
for the period 76.5 70.7 8.2 32.3 131.6
Headline PBIT(1) 4 264.7 234.1 13.1 21.5 533.5
Headline PBIT(1)
margin 13.1% 12.3% 13.0%
Headline PBT(1) 234.7 202.9 15.7 24.8 473.4
Headline earnings
per share(2)
Basic earnings
per ordinary
share 7 14.5p 13.0p 11.5 22.8 29.8p
Diluted earnings
per ordinary
share 7 14.1p 12.8p 10.2 20.7 29.0p
Standard earnings
per share
Basic earnings
per ordinary
share 7 9.4p 8.6p 9.3 26.0 18.7p
Diluted earnings
per ordinary
share 7 9.1p 8.5p 7.1 24.4 18.2p
(1) Headline PBIT: Profit on ordinary activities before interest,
taxation, goodwill amortisation and impairment and amounts written off
fixed asset investments.
Headline PBT: Profit on ordinary activities before taxation, goodwill
amortisation and impairment, amounts written off fixed asset
investments and net interest charges on defined benefit pension
schemes. The calculations of Headline PBIT and Headline PBT are
presented in Appendix IV.
(2) Headline earnings per ordinary share excludes goodwill amortisation
and impairment, amounts written off fixed asset investments and net
interest charges on defined benefit pension schemes. The calculation
of Headline earnings is presented in Appendix IV.
(3) Constant currency is defined in Appendix IV.
WPP GROUP PLC
Unaudited consolidated summary interim cash flow statement for
the six months ended 30 June 2004
Six months Six months Year ended
ended ended 31 December
Notes 30 June 2004 30 June 2003 2003
Restated(1) Restated(1)
m pounds m pounds m pounds
Operating profit 194.6 174.8 415.3
Depreciation 47.9 53.0 127.5
Goodwill amortisation
and impairment
charges - subsidiaries 49.3 43.5 77.7
Movements in working
capital and provisions (373.1) (321.2) 321.5
Net cash (outflow)
/inflow from operating
activities (81.3) (49.9) 942.0
Dividends received
from associates 9.5 6.0 15.6
Returns on investments
and servicing of
finance (49.8) (47.7) (38.3)
United Kingdom and
overseas tax paid (48.1) (43.0) (93.6)
Capital expenditure
and financial
investment 8 (28.4) (29.6) (85.2)
Acquisitions
and disposals 8 (144.3) (323.9) (344.5)
Equity dividends paid -- -- (67.0)
Net cash (outflow)
/inflow before
management of
liquid resources and
financing (342.4) (488.1) 329.0
Management of
liquid resources 188.4 118.8 (211.4)
Net cash inflow
from financing 8 59.6 205.0 116.8
(Decrease)/increase in
cash and overdrafts
for the period (94.4) (164.3) 234.4
Translation difference (17.8) 11.4 (19.3)
Balance of cash and
overdrafts at
beginning of period 716.0 500.9 500.9
Balance of cash and
overdrafts at
end of period 603.8 348.0 716.0
Reconciliation of net
cash flow to movement
in net debt:
(Decrease)/increase in
cash and overdrafts
for the period (94.4) (164.3) 234.4
Cash (inflow)/outflow
from increase in
liquid resources (188.4) (118.8) 211.4
Cash inflow from
increase in debt
financing (122.6) (125.1) (24.3)
Other movements (4.0) (6.5) (9.4)
Translation difference 31.1 (15.6) (50.9)
Movement of net debt
in the period (378.3) (430.3) 361.2
Net debt at beginning
of period (361.5) (722.7) (722.7)
Net debt at
end of period 9 (739.8) (1,153.0) (361.5)
(1) Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
Unaudited consolidated statement of total recognised gains and losses
for the period ended 30 June 2004
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 2003 2003
m pounds m pounds m pounds
Profit for the period 105.9 95.2 208.4
Exchange adjustments
on foreign currency
net investments 31.1 2.7 74.8
Actuarial loss on defined
benefit pension schemes
in accordance with FRS17
(Retirement Benefits) -- -- 14.0
Deferred tax on defined
benefit pension schemes -- -- 10.0
Total recognised gains
and losses relating
to the period 137.0 97.9 307.2
Prior year adjustment on
implementation of UITF 38
(Accounting for ESOP Trusts) (28.1)
Total gains and losses
recognised since last
annual report 108.9
WPP GROUP PLC
Unaudited consolidated interim balance sheet as at 30 June 2004
30 June 30 June 31 December
Notes 2004 2003 2003
Restated(1) Restated(1)
m pounds m pounds m pounds
Fixed assets
Intangible assets:
Corporate brands 950.0 950.0 950.0
Goodwill 10 4,826.2 4,441.7 4,710.3
Tangible assets 331.9 354.4 344.6
Investments 10 365.9 547.7 381.5
6,474.0 6,293.8 6,386.4
Current assets
Stocks and work
in progress 314.2 371.8 269.6
Debtors 2,433.5 2,306.9 2,394.5
Trade debtors within
working capital
facility:
Gross debts 605.3 379.3 507.5
Non-returnable proceeds (275.6) (211.8) (280.4)
329.7 167.5 227.1
Current asset investments
(short-term bank and
escrow deposits) 213.4 71.6 401.8
Cash at bank and in hand 804.4 690.1 1,018.1
4,095.2 3,607.9 4,311.1
Creditors:amounts falling
due within one year 11 (4,562.6) (4,316.7) (4,948.6)
Net current liabilities
(467.4) (708.8) (637.5)
Total assets less
current liabilities
6,006.6 5,585.0 5,748.9
Creditors: amounts
falling due after more
than one year (including
convertible bonds) 12 (1,908.9) (1,734.2) (1,691.1)
Provisions for
liabilities and charges (128.1) (126.0) (137.2)
Net assets excluding
pension provision 3,969.6 3,724.8 3,920.6
Pension provision (188.9) (184.8) (188.9)
Net assets including
pension provision 3,780.7 3,540.0 3,731.7
Capital and reserves
Called up share capital 117.9 117.8 118.7
Share premium account 968.6 939.4 955.3
Shares to be issued 118.0 166.4 130.0
Merger reserve 2,928.4 2,891.8 2,921.0
Other reserves (146.7) (253.0) (178.9)
Own shares(2) (305.3) (307.9) (307.8)
Profit and loss account 56.5 (53.0) 45.3
Equity share
owners' funds 14 3,737.4 3,501.5 3,683.6
Minority interests 43.3 38.5 48.1
Total capital employed 3,780.7 3,540.0 3,731.7
(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 consolidated interim financial statements (Notes 1-15)
1. Basis of accounting
The unaudited consolidated interim financial statements are prepared under
the historical cost convention.
2. Accounting policies
The unaudited consolidated interim financial statements comply with
relevant accounting standards and have been prepared using the accounting
policies set out on pages 112 to 114 of the Group's 2003 Annual Report and
Accounts. No changes have been made to the accounting policies since this
time other than the adoption of UITF 38 (Accounting for ESOP Trusts).
UITF 38 requires the classification of the cost of shares held by the
Group's ESOP trusts as a deduction from share owners' funds; previously these
were shown within fixed asset investments. Additionally, UITF 38 has changed
the method of calculating the charge to the profit and loss account arising
from certain of the Group's incentive plans, satisfied by the award of shares
in the Group from one of the ESOPs. Previously, this charge was based on the
cash cost to the Group of acquiring these shares in the open market, to be
subsequently delivered to individuals on satisfactory completion of the
performance criteria relating to the award. Under UITF 38, this charge should
be based upon the fair value of the shares at grant date.
Following the implementation of UITF 38, the Group has restated its
balance sheet and cash flow statement for preceding periods. There was no
material impact on the profit and loss account for the six months ended 30
June 2003 or the year ended 31 December 2003.
The policies set out in the 2003 Annual Report and Accounts are in
accordance with applicable accounting standards in the United Kingdom (UK
GAAP).
Statutory Information and Independent Review
The interim financial statements for the six months to 30 June 2004 and
2003 do not constitute statutory accounts. The statutory accounts for the year
ended 31 December 2003 received an unqualified auditors' report and have been
filed with the Registrar of Companies. The interim financial statements are
unaudited but have been reviewed by the auditors and their report is set out
on page 22.
The announcement of the interim results was approved by the board of
directors on 19 August 2004.
3. Currency conversion
The 2004 unaudited consolidated interim profit and loss account is
prepared using, among other currencies, an average exchange rate of US$1.8229
to the pound (period ended 30 June 2003: US$1.6118; year ended 31 December
2003: US$1.6356). The unaudited consolidated interim balance sheet as at 30
June 2004 has been prepared using the exchange rate on that day of US$1.8144
to the pound (30 June 2003: US$1.6528; 31 December 2003: US$1.7833).
The unaudited consolidated interim profit and loss account and balance
sheet are presented in euros in Appendix II for illustrative purposes. The
unaudited consolidated interim profit and loss account has been prepared using
an average exchange rate of euro 1.4846 to the pound (period ended 30 June
2003: euro 1.4591; year ended 31 December 2003: euro 1.4450). The unaudited
consolidated interim balance sheet at 30 June 2004 has been prepared using the
exchange rate on that day of euro 1.4911 to the pound (30 June 2003: euro
1.4393; 31 December 2003: euro 1.4198). This translation should not be
construed as a representation that the pound sterling amounts actually
represent, or could be converted into euros at the rates indicated.
The basis for calculating the constant currency percentage changes, shown
on the face of the consolidated interim profit and loss account, is presented
in Appendix IV.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
4. Segmental analysis
Reported contributions by geographical area were as follows:
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 2003 2003
m pounds m pounds m pounds
Revenue
United Kingdom 343.4 306.5 664.9
United States 778.2 786.4 1,608.5
Continental Europe 524.3 496.8 1,079.4
Canada, Asia Pacific,
Latin America, Africa
& Middle East 379.7 321.1 753.2
2,025.6 1,910.8 4,106.0
Headline PBIT(1)
United Kingdom 31.2 31.4 71.8
United States 134.1 123.8 240.7
Continental Europe 57.0 49.2 121.8
Canada, Asia Pacific,
Latin America, Africa
& Middle East 42.4 29.7 99.2
264.7 234.1 533.5
Reported contributions by operating sector were as follows:
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 2003 2003
m pounds m pounds m pounds
Revenue
Advertising and Media
investment management(2) 936.7 875.6 1,911.1
Information, insight
and consultancy 336.4 334.0 703.6
Public relations and
public affairs (2) 221.6 224.1 451.0
Branding and identity,
Healthcare and Specialist
communications 530.9 477.1 1,040.3
2,025.6 1,910.8 4,106.0
Headline PBIT(1)
Advertising and Media
investment management(2) 138.3 125.3 291.9
Information, insight
and consultancy 27.9 23.8 50.0
Public relations and
public affairs(2) 33.4 29.1 58.6
Branding and identity,
Healthcare and Specialist
communications 65.1 55.9 133.0
264.7 234.1 533.5
(1) Headline PBIT: Profit on ordinary activities before interest,
taxation, goodwill amortisation and impairment and amounts written
off fixed asset investments. The calculation of Headline PBIT is
presented in Appendix IV.
(2) In 2004 certain of the Group's public relations and public affairs
businesses, which were historically included in Advertising and Media
investment management, have been moved to Public relations and public
affairs. As a result the comparative figures for both Advertising and
Media investment management and Public relations and public affairs
have been restated to reflect this change.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
5. Taxation
The Group tax rate on Headline PBT(1) is 25.8% (30 June 2003: 25.5% and 31
December 2003: 25.8%). The tax charge comprises:
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 2003 2003
m pounds m pounds m pounds
Total current tax 52.3 45.4 116.2
Total deferred tax -- -- (8.7)
Share of associates tax 8.3 6.3 14.6
Total tax on profits 60.6 51.7 122.1
(1) Headline PBT: Profit on ordinary activities before taxation, goodwill
amortisation and impairment, amounts written off fixed asset
investments and net interest charges on defined benefit pension
schemes. The calculation of Headline PBT is presented in Appendix IV.
6. Ordinary dividends
The Board has recommended an interim dividend of 2.50p (2003: 2.08p) per
ordinary share. This is expected to be paid on 15 November 2004 to share
owners on the register at 15 October 2004.
Six months Six months Year ended
ended ended 31 December
30 June 2004 30 June 2003 2003
Ordinary dividend per share -
interim 2.50p 2.08p 2.08p
final -- -- 4.40p
2.50p 2.08p 6.48p
Ordinary dividend per ADR1 -
interim 4.56 cents 16.8 cents 17.0 cents
final -- -- 36.0 cents
4.56 cents 16.8 cents 53.0 cents
(1) These figures have been translated for convenience purposes only,
using the profit and loss exchange rates shown in note 3. This
translation should not be construed as a representation that the pound
sterling amounts actually represent, or could be converted into, US
dollars at the rates indicated.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
7. Earnings per share
Basic and diluted earnings per share have been calculated in accordance
with FRS14 "Earnings per Share."
Headline basic earnings per share have been calculated using earnings of
164.3 million pounds (period ended 30 June 2003: 144.5 million pounds; year
ended 31 December 2003: 331.9 million pounds), and adjusted for goodwill
amortisation and impairment, amounts written off fixed asset investments and
net interest charges on defined benefit pension schemes of #58.4 million
(period ended 30 June 2003: 49.3 million pounds; year ended 31 December 2003:
123.5 million pounds). The weighted average number of shares in issue used
was 1,132,052,831 shares (period ended 30 June 2003: 1,108,373,801; year ended
31 December 2003: 1,115,319,576 shares).
Headline diluted earnings per share have been calculated using earnings of
164.3 million pounds (period ended 30 June 2003: 144.5 million pounds; year
ended 31 December 2003: 331.9 million pounds) and adjusted for goodwill
amortisation and impairment, amounts written off fixed asset investments and
net interest charges on defined benefit pension schemes of 58.4 million pounds
(period ended 30 June 2003: 49.3 million pounds; year ended 31 December 2003:
123.5 million pounds). The weighted average number of shares in issue used
was 1,179,213,730 shares (period ended 30 June 2003: 1,125,489,621; year ended
31 December 2003: 1,145,014,508 shares. This takes into account potentially
issuable ordinary shares arising from the exercise of employee share options,
certain incentive schemes and convertible debt where these are expected to
dilute earnings. For the six month period ended 30 June 2004, the $287.5
million convertible loan note was dilutive and earnings were consequently
adjusted by 1.4 million pounds, whereas the 450 million pounds convertible
bond was accretive to earnings and therefore excluded from the calculation.
For the six month period ended 30 June 2003 and the year ended 31 December
2003, both the $287.5 million convertible loan note and the 450 million pounds
convertible bond were accretive to earnings and therefore excluded from the
calculation.
Standard basic earnings per share have been calculated using earnings of
105.9 million pounds (period ended 30 June 2003: 95.2 million pounds; year
ended 31 December 2003: 208.4 million pounds) and weighted average shares in
issue during the period of 1,132,052,831 shares (period ended 30 June 2003:
1,108,373,801 shares; year ended 31 December 2003: 1,115,319,576 shares).
Standard diluted earnings per share have been calculated using earnings of
105.9 million pounds (period ended 30 June 2003: 95.2 million pounds; year
ended 31 December 2003: 208.4 million pounds). The weighted average number of
shares used was 1,179,213,730 shares (period ended 30 June 2003: 1,125,489,621
shares; year ended 31 December 2003: 1,145,014,508 shares). This takes into
account potentially issuable ordinary shares arising from the exercise of
employee share options, certain incentive schemes and convertible debt where
these are expected to dilute earnings. For the six month period ended 30 June
2004, the $287.5 million convertible loan note was dilutive and earnings were
consequently adjusted by 1.4 million pounds, whereas the 450 million pounds
convertible bond was accretive to earnings and therefore excluded from the
calculation. For the six month period ended 30 June 2003 and the year ended 31
December 2003, both the $287.5 million convertible loan note and the 450
million pounds convertible bond were accretive to earnings and therefore
excluded from the calculation.
At 30 June 2004 there were 1,178,806,111 ordinary shares in issue.
Six months Six months Year ended
ended ended Constant 31 December
Earnings per ADR 30 June 30 June Currency(2) 2003
2004 2003
Headline earnings +/(-)% +/(-)%
per ADR (1),(2)
Basic earnings per ADR $1.32 $1.05 25.7 22.8 $2.43
Diluted earnings
per ADR $1.28 $1.03 24.3 20.7 $2.37
Standard earnings
per ADR (1)
Basic earnings per ADR $0.85 $0.69 23.2 26.0 $1.53
Diluted earnings per ADR $0.83 $0.69 20.3 24.4 $1.49
(1) These figures have been translated for convenience purposes only,
using the profit and loss exchange rates shown in note 3. This
translation should not be construed as a representation that the pound
sterling amounts actually represent, or could be converted into, US
dollars at the rates indicated.
(2) Headline earnings and constant currency are defined in Appendix IV.
WPP GROUP PLC
Notes to the unaudited consolidated financial statements (continued)
8. Analysis of non-operating cash flows
The following tables analyse the items included within the main cash flow
headings on page 10:
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2004 2003 2003
Restated(1) Restated(1)
m pounds m pounds m pounds
Capital expenditure and
financial investment
Purchase of tangible
fixed assets (31.7) (32.9) (93.9)
Proceeds from sale of
tangible fixed assets 3.3 3.3 8.7
(28.4) (29.6) (85.2)
Acquisition and disposals
Cash consideration for
acquisition of Cordiant -- (176.6) (207.9)
Proceeds from disposal of
interest in Zenith
Optimedia Group -- -- 75.0
Net cash acquired - Cordiant -- -- 37.8
Initial cash consideration
for other acquisitions (40.7) (47.2) (70.1)
Earnout payments (65.6) (45.4) (56.2)
Loan note redemptions (14.8) (6.5) (38.7)
Net cash acquired -
other acquisitions (12.5) 0.6 5.3
Purchases of other
investments
(including associates) (10.7) (51.0) (100.7)
Proceeds from disposal of
other investments
(including associates) -- 2.2 11.0
(144.3) (323.9) (344.5)
Net cash inflow from financing
Proceeds from issue
of $650 million 10 year bond 358.2 -- --
Repayment of euro 350
million bond (230.5) -- --
(Reduction)/increase in
drawings on bank loans (1.1) 125.5 25.0
Financing and share issue costs (4.3) (2.7) (3.4)
Share placement -- 100.2 100.2
Proceeds from other
issue of shares 8.5 5.0 18.1
Share cancellations
(including brokerage fees) (67.6) (20.2) (20.2)
Purchase of own shares
by ESOP Trusts (3.6) (2.8) (2.9)
59.6 205.0 116.8
(1) Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
9. Net debt
30 June 30 June 31 December
2004 2003 2003
m pounds m pounds m pounds
Cash at bank and in hand 804.4 690.1 1,018.1
Current asset investments 213.4 71.6 401.8
Bank loans and overdrafts
due within one year (note 11) (361.8) (590.9) (552.4)
Corporate bond and loans
due after one year (note 12) (1,395.8) (1,323.8) (1,229.0)
Net debt (739.8) (1,153.0) (361.5)
During the period, the Group completed the issue of $650 million of 5.875%
coupon bonds due June 2014. Proceeds from the issue were used to assist in the
repayment of the euro 350 million bond in June with the balance intended to be
used to repay the Young & Rubicam convertible bond due in January 2005.
Current asset investments represent cash on deposit with a maturity of
greater than 24 hours.
There are no investor put options on any outstanding debt instruments.
10. Goodwill and acquisitions
During the period, the Group charged 25.0 million pounds (30 June 2003:
16.5 million pounds; 31 December 2003: 33.0 million pounds) of goodwill
amortisation and 26.0 million pounds (30 June 2003: 27.0 million pounds; 31
December 2003: 79.0 million pounds) of goodwill impairment to the profit and
loss account, a total of 51.0 million pounds (30 June 2003: 43.5 million
pounds; 31 December 2003: 112.0 million pounds).
The impairment charge relates to a number of under-performing businesses
in the Public relations and public affairs, Information, insight and
consultancy, and Branding and identity, Healthcare and Specialist
communications sectors. The impact of the current economic climate on these
businesses is sufficiently severe to indicate an impairment to the carrying
value of goodwill. The Directors will reassess the need for any further
impairment write-downs at the year end.
In addition the Group charged 2.0 million pounds of fixed asset investment
write offs (30 June 2003: Nil pounds; 31 December 2003: Nil pounds) to the
profit and loss account following a re-assessment of the carrying value of the
Group's non core minority investments.
The directors continue to assess the useful life of goodwill arising on
acquisitions. Goodwill of 822.5 million pounds is subject to amortisation
over periods of between 10 and 20 years.
Goodwill in relation to subsidiary undertakings increased by
115.9 million pounds in the period. Other than amortisation and impairment
this includes both goodwill arising on acquisitions completed in the period
and also adjustments to goodwill relating to acquisitions completed in prior
periods. Goodwill in relation to associate undertakings decreased by 7.5
million pounds in the period, principally due to a reclassification from
goodwill in associate companies to goodwill in subsidiary undertakings arising
on acquisitions.
Acquisitions do not have a significant impact on the Group's results for
the six months to 30 June 2004.
Future anticipated payments to vendors in respect of both deferred and
earnout obligations totalled 246.3 million pounds (period ended 30 June 2003:
201.3 million pounds; year ended 31 December 2003: 215.7 million pounds).
Earnouts are based on the directors' best estimates of future obligations,
which are dependent on the future performance of the interests acquired and
assume the operating companies improve profits in line with directors'
estimates.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
11. Creditors: amounts falling due within one year
The following are included in creditors falling due within one year:
30 June 30 June 31 December
2004 2003 2003
Restated(1) Restated(1)
m pounds m pounds m pounds
Bank loans and overdrafts 361.8 590.9 552.4
Trade creditors 2,542.3 2,335.4 2,733.3
Corporate income tax payable 32.5 35.5 29.5
Dividend proposed 81.7 66.9 52.2
Deferred income 417.5 346.4 391.9
Payments due to vendors 82.4 65.1 81.6
Loan notes due to vendors 19.4 37.9 13.9
Other creditors and accruals 1,025.0 838.6 1,093.8
4,562.6 4,316.7 4,948.6
(1) Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
Overdraft balances included within bank loans and overdrafts amount to
200.6 million pounds (30 June 2003: 342.1 million pounds; 31 December 2003:
302.1 million pounds).
12. Creditors: amounts falling due after more than one year
The following are included in creditors falling due after more than one
year:
30 June 30 June 31 December
2004 2003 2003
m pounds m pounds m pounds
Corporate and convertible
bonds and bank loans 1,395.8 1,323.8 1,229.0
Corporate income tax payable 281.2 214.7 268.7
Payments due to vendors 163.9 136.2 134.1
Other creditors and accruals 68.0 59.5 59.3
1,908.9 1,734.2 1,691.1
The following table sets out the directors' best estimates of future
deferred and earnout related obligations:
30 June 30 June 31 December
2004 2003 2003
m pounds m pounds m pounds
Within one year 82.4 65.1 81.6
Between 1 and 2 years 78.6 60.7 60.9
Between 2 and 3 years 50.3 31.2 32.4
Between 3 and 4 years 29.4 28.0 37.0
Between 4 and 5 years 3.9 14.5 3.8
Over 5 years 1.7 1.8 --
246.3 201.3 215.7
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
12. Creditors: amounts falling due after more than one year (continued)
The corporate and convertible bonds, bank loans and overdrafts included
within short and long term creditors fall due for repayment as follows:
30 June 30 June 31 December
2004 2003 2003
m pounds m pounds m pounds
Within one year 361.8 590.9 552.4
Between 1 and 2 years 110.0 170.9 273.1
Between 2 and 3 years 441.5 120.6 --
Between 3 and 4 years 434.7 521.6 443.4
Between 4 and 5 years 55.0 450.4 512.5
Over 5 years 354.6 60.3 --
1,757.6 1,914.7 1,781.4
13. Contingent liabilities in respect of option agreements
WPP has entered into agreements with certain share owners of partially
owned subsidiaries and associate companies to acquire additional equity
interests. These agreements typically contain options requiring WPP to
purchase their shares at specified times up to 2009 on the basis of average
earnings both before and after the exercise of the option.
All arrangements contain clauses that cap the maximum amount payable by
WPP. The table below shows the illustrative amounts that would be payable by
WPP in respect of these options, on the basis of the relevant companies'
current financial performance, if all the options had been exercised at
30 June 2004.
Currently Not Currently
Exercisable Exercisable Total
m pounds m pounds m pounds
Subsidiaries 12.4 23.5 35.9
Associates 4.3 0.5 4.8
Total 16.7 24.0 40.7
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
14. Reconciliation of movements in consolidated share owners' funds
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2004 2003 2003
Restated(1) Restated(1)
m pounds m pounds m pounds
Profit for the period 105.9 95.2 208.4
Ordinary dividends payable (29.4) (24.5) (76.8)
76.5 70.7 131.6
Exchange adjustments on
foreign currency net
investments 31.1 2.7 74.8
Ordinary shares issued
in respect of acquisitions -- 5.7 16.9
Share placement -- 100.2 100.2
Share issue costs and brokerage
fees charged to share premium
account or reserves (0.3) (2.2) (2.8)
Other share issues 8.5 5.0 18.1
Share cancellations (67.5) (20.2) (20.2)
Adjustments to pre-1998
goodwill written off
to reserves 3.0 -- 1.3
Actuarial loss on
defined benefit schemes -- -- 14.0
Deferred tax on defined
benefit pension schemes -- -- 10.0
Net disposals of own
shares by ESOP Trusts 2.5 4.3 4.4
Net additions to equity
share owners' funds 53.8 166.2 348.3
Opening equity share
owners' funds 3,683.6 3,335.3 3,335.3
Closing equity share
owners' funds 3,737.4 3,501.5 3,683.6
(1) Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
15. International Financial Reporting Standards ('IFRS')
From 2005 onwards, all listed companies in the European Union, including
WPP, will be required to prepare their consolidated financial statements in
accordance with IFRS. We have commenced a significant project to manage the
transition from UK GAAP to IFRS and are currently in the process of
interpreting the accounting standards that will apply from 2005 onwards,
setting the Group's future accounting policies in accordance with IFRS and
identifying the detailed accounting and disclosure requirements that may
necessitate changes to our financial information systems. As this project is
still ongoing, we are not, as yet, in a position to quantify the full effect
of the differences between IFRS and UK GAAP on the Group's results or
financial position. However, based on our work to date, we consider that
significant differences will arise in the following areas:
Goodwill
Generally, the carrying amount of goodwill recognised under UK GAAP on
past acquisitions will not be revisited under IFRS. However, in comparison to
UK GAAP, where an element of the Group's goodwill is currently amortised over
its useful life, under IFRS all goodwill will be subject to an annual
impairment review.
WPP GROUP PLC
Notes to the unaudited consolidated interim financial statements (continued)
15. International Financial Reporting Standards ('IFRS') (continued)
Retirement benefits
Under IFRS, the method of accounting for retirement benefits is broadly
similar to that under FRS 17 "Retirement Benefits". However, whereas FRS 17
requires actuarial gains and losses be taken directly to equity through the
statement of total recognised gains and losses, current IFRS has no equivalent
equity statement and these gains and losses may be required to be recognised
in the income statement.
Convertible bonds
Under UK GAAP, convertible debt is reported as a liability unless
conversion actually occurs, and no gain or loss is recognised on conversion.
IFRS classification of compound instruments is performed according to the
substance of the contractual arrangements and consequently, the Group's
compound instruments will be split into liability and equity elements on the
basis of their initial fair values. The profit and loss account charge for the
finance cost will be spread evenly over the term of the bonds so that at
redemption the liability equals the redemption value. The main difference to
UK GAAP is that the initial recognition of the liability may be for a lower
value and consequently the finance cost over the period may be higher.
Stock options & other share based payments
Under current UK GAAP, where the Group grants share options at a strike
price equal to or greater than the market price on the date of the grant, no
compensation expense is recognised. Under IFRS, the fair value of share
options and other share based payments will be recognised in the profit and
loss account, using a fair value option pricing model.
Associates
The approach to classification of investments is similar under IFRS and UK
GAAP, but there is a difference on the application of what constitutes
influence. Both UK GAAP and IFRS adopt the concept of significant influence,
but IFRS stresses the power to influence, while UK GAAP stresses the actual
exercise of influence. This may affect the classification of the Group's
associates and subsidiaries in certain cases. Moreover, IFRS suspends equity
accounting for associate losses when the carrying value is nil and further
losses are only accrued if the investor has a legal or constructive obligation
for the losses.
Derivatives and hedge accounting
Under UK GAAP, the derivative financial instruments that the Group uses to
manage its currency and interest rate exposures are not recognised until the
hedged transaction has itself been recognised in the financial statements.
Under IFRS, derivatives are recognised as assets and liabilities stated at
their fair values and changes in their fair values are recognised in the
income statement. However, in certain circumstances, "hedge accounting" can be
used to mitigate fluctuations in earnings.
Introduction
We have been instructed by the company to review the financial information
for the six months ended 30 June 2004 which comprises the consolidated profit
and loss account, the consolidated balance sheet, the consolidated cash flow
statement, the consolidated statement of total recognised gains and losses,
the reconciliation of movements in consolidated share owners' funds and the
related notes 1 - 14. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin
1999/4 issued by the Auditing Practices Board. Our work has been undertaken so
that we might state to the company those matters we are required to state to
them in an independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our review work, for this report, or for
conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein,
is the responsibility of, and has been approved by, the directors. The
directors are responsible for preparing the interim report in accordance with
the Listing Rules of the Financial Services Authority which require that the
accounting policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual accounts
except where any changes, and the reason for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in
Bulletin 1999/4 issued by the Auditing Practices Board for use in the United
Kingdom. A review consists principally of making enquiries of group
management and applying analytical procedures to the financial information and
underlying financial data and, based thereon, assessing whether the accounting
policies and presentation have been consistently applied unless otherwise
disclosed. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially
less in scope than an audit performed in accordance with United Kingdom
auditing standards and therefore provides a lower level of assurance than an
audit. Accordingly, we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review we are not aware of any material modifications
that should be made to the financial information as presented for the six
months ended 30 June 2004.
Deloitte & Touche LLP
Chartered Accountants
London
19 August 2004
Appendix II
WPP GROUP PLC
Unaudited consolidated interim profit & loss account
for the six months ended 30 June 2004
Presented in Euros for illustrative purposes only(3)
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2004 2003 2003
euro m euro m euro m
Turnover
(gross billings) 13,591.8 12,605.4 26,907.8
Costs of sales (10,584.6) (9,817.4) (20,974.6)
Revenue 3,007.2 2,788.0 5,933.2
Direct costs (155.4) (160.6) (342.6)
Gross Profit 2,851.8 2,627.4 5,590.6
Operating costs
excluding goodwill
amortisation and
impairment (2,489.7) (2,308.9) (4,878.2)
Goodwill
amortisation and
impairment -
subsidiaries (73.2) (63.5) (112.3)
Operating costs (2,562.9) (2,372.4) (4,990.5)
Operating profit 288.9 255.0 600.1
Income from
associates 30.9 23.1 58.5
Goodwill amortisation
and impairment -
associates (2.5) -- (49.5)
Profit on ordinary
activities before
interest, taxation
and amounts written
off fixed asset
investments 317.3 278.1 609.1
Amounts written off
fixed asset
investments (3.0) -- --
Net interest payable
and similar charges
on net borrowings (44.6) (45.5) (86.9)
Net interest charges
on defined benefit
pension schemes (8.0) (8.5) (16.6)
Net interest payable
and similar charges (52.6) (54.0) (103.5)
Profit on ordinary
activities before
taxation 261.7 224.1 505.6
Taxation on profit
on ordinary
activities (90.0) (75.4) (176.4)
Profit on ordinary
activities after
taxation 171.7 148.7 329.2
Minority interests (14.5) (9.8) (28.0)
Profit attributable
to ordinary
share owners 157.2 138.9 301.2
Ordinary dividends (43.6) (35.7) (111.0)
Retained profit
for the period 113.6 103.2 190.2
Headline PBIT (1) 393.0 341.6 770.9
Headline PBIT (1)
margin 13.1% 12.3% 13.0%
Headline PBT (1) 348.4 296.1 684.1
Headline earnings
per share (2)
Basic earnings
per ordinary share 21.5 cents 19.0 cents 43.1 cents
Diluted earnings
per ordinary share 20.9 cents 18.7 cents 41.9 cents
Standard earnings
per share
Basic earnings per
ordinary share 14.0 cents 12.5 cents 27.0 cents
Diluted earnings per
ordinary share 13.5 cents 12.4 cents 26.3 cents
(1) Headline PBIT: Profit on ordinary activities before interest,
taxation, goodwill amortisation and impairment and amounts written
off fixed asset investments.
Headline PBT: Profit on ordinary activities before taxation,
goodwill amortisation and impairment, amounts written off fixed asset
investments and net interest charges on defined benefit pension
schemes. The calculations of Headline PBIT and Headline PBT are
presented in Appendix IV.
(2) Headline earnings per ordinary share excludes goodwill amortisation
and impairment, amounts written off fixed asset investments and net
interest charges on defined benefit pension schemes. The calculation
of Headline earnings is presented in Appendix IV.
(3) These figures have been translated for convenience purposes only,
using the profit and loss exchange rates shown in Note 3.
WPP GROUP PLC
Unaudited consolidated interim balance sheet as at 30 June 2004
Presented in Euros for illustrative purposes only(1)
30 June 30 June 31 December
2004 2003 2003
Restated(2) Restated(2)
euro m euro m euro m
Fixed assets
Intangible assets:
Corporate brands 1,416.6 1,367.4 1,348.8
Goodwill 7,196.3 6,392.9 6,687.7
Tangible assets 494.9 510.1 489.2
Investments 545.6 788.3 541.7
9,653.4 9,058.7 9,067.4
Current assets
Stocks and work in progress 468.5 535.1 382.8
Debtors 3,628.6 3,320.3 3,399.7
Trade debtors within
working capital facility:
Gross debts 902.6 545.9 720.5
Non-returnable proceeds (410.9) (304.8) (398.1)
491.7 241.1 322.4
Current asset investments
(short-term bank
and escrow deposits) 318.2 103.1 570.5
Cash at bank and in hand 1,199.4 993.3 1,445.5
6,106.4 5,192.9 6,120.9
Creditors: amounts falling
due within one year (6,803.3) (6,213.1) (7,026.0)
Net current liabilities (696.9) (1,020.2) (905.1)
Total assets less
current liabilities 8,956.5 8,038.5 8,162.3
Creditors: amounts falling due
after more than one year
(including convertible bonds) (2,846.4) (2,496.0) (2,401.0)
Provisions for
liabilities and charges (191.0) (181.4) (194.8)
Net assets excluding
pension provision 5,919.1 5,361.1 5,566.5
Pension provision (281.7) (266.0) (268.2)
Net assets including
pension provision 5,637.4 5,095.1 5,298.3
Capital and reserves
Called up share capital 175.8 169.5 168.5
Share premium account 1,444.3 1,352.1 1,356.4
Shares to be issued 175.9 239.5 184.6
Merger reserve 4,366.5 4,162.2 4,147.2
Other reserves (218.7) (364.1) (254.0)
Own shares(3) (455.2) (443.2) (437.0)
Profit and loss account 84.2 (76.3) 64.3
Equity share owners' funds 5,572.8 5,039.7 5,230.0
Minority interests 64.6 55.4 68.3
Total capital employed 5,637.4 5,095.1 5,298.3
(1) These figures have been translated for convenience purposes only,
using the rates of exchange shown in Note 3.
(2) Restated on implementation of UITF 38 (Accounting for ESOP Trusts).
(3) Investments in own shares held by the ESOP Trusts.
Appendix III
WPP GROUP PLC
To present the impact of US transitional guidelines on the expensing of share
options, for illustrative purposes only
Unaudited pro forma consolidated interim profit and loss account
for the six months ended 30 June 2004
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2004 2003 2003
m pounds m pounds m pounds
Turnover (gross billings) 9,155.2 8,639.2 18,621.3
Cost of sales (7,129.6) (6,728.4) (14,515.3)
Revenue 2,025.6 1,910.8 4,106.0
Direct costs (104.7) (110.1) (237.1)
Gross Profit 1,920.9 1,800.7 3,868.9
Operating costs excluding goodwill
amortisation and impairment (1,677.0) (1,582.4) (3,375.9)
Fair value of share options (11.2) (6.3) (13.9)
Goodwill amortisation and
impairment - subsidiaries (49.3) (43.5) (77.7)
Operating costs (1,737.5) (1,632.2) (3,467.5)
Operating profit 183.4 168.5 401.4
Income from associates 20.8 15.8 40.5
Goodwill amortisation and
impairment - associates (1.7) -- (34.3)
Profit on ordinary activities
before interest, taxation
and amounts written off
fixed asset investments 202.5 184.3 407.6
Amounts written off
fixed asset investments (2.0) -- --
Net interest payable and similar
charges on net borrowings (30.0) (31.2) (60.1)
Net interest charges on defined
benefit pension schemes (5.4) (5.8) (11.5)
Net interest payable
and similar charges (35.4) (37.0) (71.6)
Profit on ordinary
activities before taxation 165.1 147.3 336.0
Taxation on profit on
ordinary activities (59.3) (51.0) (120.6)
Profit on ordinary
activities after taxation 105.8 96.3 215.4
Minority interests (9.8) (6.7) (19.4)
Profit attributable to
ordinary share owners 96.0 89.6 196.0
Ordinary dividends (29.4) (24.5) (76.8)
Retained profit for the period 66.6 65.1 119.2
Headline PBIT (1) 253.5 227.8 519.6
Headline PBIT (1) margin 12.5% 11.9% 12.7%
Headline PBT (1) 223.5 196.6 459.5
Headline earnings per share (2)
Basic earnings per ordinary share 13.6p 12.5p 28.6p
Diluted earnings per ordinary share 13.2p 12.3p 27.9p
Standard earnings per share
Basic earnings per ordinary share 8.5p 8.1p 17.6p
Diluted earnings per ordinary share 8.3p 8.0p 17.1p
Headline earnings per ADR (2),(3)
Basic earnings per ADR $1.24 $1.01 $2.34
Diluted earnings per ADR $1.20 $0.99 $2.28
Standard earnings per ADR (3)
Basic earnings per ADR $0.77 $0.65 $1.44
Diluted earnings per ADR $0.76 $0.64 $1.40
(1) Headline PBIT: Profit on ordinary activities before interest,
taxation, goodwill amortisation and impairment and amounts written off
fixed asset investments.
Headline PBT: Profit on ordinary activities before taxation, goodwill
amortisation and impairment, amounts written off fixed asset
investments and net interest charges on defined benefit pension
schemes. The calculations of Headline PBIT and Headline PBT are
presented in Appendix IV.
(2) Headline earnings per ordinary share excludes goodwill amortisation
and impairment, amounts written off fixed asset investments and net
interest charges on defined benefit pension schemes. The calculation
of Headline earnings is presented in Appendix IV.
(3) These figures have been translated for convenience purposes only,
using the profit and loss exchange rates shown in Note 3.
WPP GROUP PLC
Share options - illustrative charge
Appendix III illustrates the impact on WPP were it to adopt an approach to
expensing the weighted average fair value of options consistent with current
United States transitional guidelines under the prospective adoption method
contained within FAS 148, adopting a Black Scholes valuation model. This would
give rise to a charge to operating profit of 11.2 million pounds (4.8% of
Headline PBT) for the six months ended 30 June 2004, 6.3 million pounds (3.1%
of Headline PBT) for the six months ended 30 June 2003, and 13.9 million
pounds (2.9% of Headline PBT) for the year ended 31 December 2003, in respect
of executive share options granted since 1 January 2002.
On a proforma basis, had WPP adopted a policy of charging the weighted
average fair value of options to the profit and loss account over the vesting
period of each options grant, adopting a Black Scholes basis of valuation,
then the resulting charge to operating profit would be 14.7 million pounds
(6.3% of Headline PBT) for the six months ended 30 June 2004, and 13.3 million
pounds (6.6% of Headline PBT) for the six months ended 30 June 2003, and 23.8
million pounds (5.0% of Headline PBT) for the year ended 31 December 2003.
The following assumptions have been made in determining the fair value of
options granted in the year:
UK Risk-free rate 3.91%
US Risk-free rate 2.55%
Expected life 48 months
Expected volatility 45%
Dividend yield 1.2%
Appendix IV
WPP GROUP PLC
Reconciliation of profit on ordinary activities before interest, taxation and
amounts written off fixed asset investments to Headline PBIT for the six
months ended 30 June 2004
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2004 2003 2003
m pounds m pounds m pounds
Profit on ordinary
activities before
interest, taxation and
amounts written off
fixed asset investments 213.7 190.6 421.5
Goodwill amortisation
and impairment 51.0 43.5 112.0
Headline PBIT 264.7 234.1 533.5
Net interest payable
and similar charges 35.4 37.0 71.6
Interest cover on
Headline PBIT 7.5 times 6.3 times 7.5 times
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2004 2003 2003
m pounds m pounds m pounds
Interest cover (excluding
FRS17 interest) on Headline PBIT
Headline PBIT 264.7 234.1 533.5
Net interest payable
and similar charges
on net borrowings 30.0 31.2 60.1
Interest cover (excluding
FRS17 interest) on
Headline PBIT 8.8 times 7.5 times 8.9 times
Reconciliation of profit on ordinary activities before taxation to Headline
PBT and Headline earnings for the six months ended 30 June 2004
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2004 2003 2003
m pounds m pounds m pounds
Profit on ordinary
activities before taxation 176.3 153.6 349.9
Goodwill amortisation
and impairment 51.0 43.5 112.0
Amounts written off
fixed asset investments 2.0 -- --
Net interest charges on
defined benefit pension schemes 5.4 5.8 11.5
Headline PBT 234.7 202.9 473.4
Taxation on profit on
ordinary activities (60.6) (51.7) (122.1)
Minority interests (9.8) (6.7) (19.4)
Headline earnings 164.3 144.5 331.9
Ordinary dividends 29.4 24.5 76.8
Dividend cover on
Headline earnings 5.6 times 5.9 times 4.3 times
WPP GROUP PLC
Segmental margin analysis
for the six months ended 30 June 2004
Reported margins by geographical area were as follows:
Headline
Revenue PBIT(1) Margin (%)
m pounds m pounds
United Kingdom 343.4 31.2 9.1%
United States 778.2 134.1 17.2%
Continental Europe 524.3 57.0 10.9%
Canada, Asia Pacific,
Latin America, Africa & Middle East 379.7 42.4 11.2%
2,025.6 264.7 13.1%
Reported margins by operating sector were as follows:
Headline
Revenue PBIT(1) Margin (%)
m pounds m pounds
Advertising and Media
investment management 936.7 138.3 14.8%
Information, insight and consultancy 336.4 27.9 8.3%
Public relations and public affairs 221.6 33.4 15.1%
Branding and identity, Healthcare
and Specialist communications 530.9 65.1 12.3%
2,025.6 264.7 13.1%
Reported margins before and after income from associates were as follows:
Six months Six months
ended 30 June ended 30 June
Margin (%) 2004 Margin (%) 2003
m pounds m pounds
Revenue 2,025.6 1,910.8
Headline PBIT 13.1% 264.7 12.3% 234.1
Income from associates 20.8 15.8
Headline PBIT excluding
income from associates 12.0% 243.9 11.4% 218.3
(1) Headline PBIT: Profit on ordinary activities before interest,
taxation, goodwill amortisation and impairment and amounts written off
fixed asset investments. The calculation of Headline PBIT is presented
above.
WPP GROUP PLC
Reconciliation of free cash flow for the six months ended 30 June 2004
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2004 2003 2003
m pounds m pounds m pounds
Operating profit 194.6 174.8 415.3
Add back:
Depreciation and amortisation,
including impairment 97.2 96.5 205.2
Plus:
Dividends received from associates 9.5 6.0 15.6
Proceeds from the
issue of shares(1) 8.5 5.0 18.1
Proceeds from sale of
tangible fixed assets 3.3 3.3 8.7
Proceeds from disposal
of investments(2) -- 2.2 11.0
Less:
Purchase of tangible
fixed assets (31.7) (32.9) (93.9)
UK and overseas tax paid (48.1) (43.0) (93.6)
Returns on investments and
servicing of finance (49.8) (47.7) (38.3)
Free Cash Flow 183.5 164.2 448.1
(1) Excludes #100.2 million of proceeds from share placement in June 2003.
(2) Excludes proceeds from disposal of interest in Zenith Optimedia Group
in August 2003.
GLOSSARY AND BASIS OF PREPARATION
Average net debt
Average net debt is calculated as the average daily net bank borrowings of
the Group, derived from the Group's automated banking system. Net debt at a
period end is calculated as the sum of the net bank borrowings of the Group,
derived from the cash ledgers and accounts in the balance sheet.
Constant currency
The Group uses US dollar-based, constant currency models to measure
performance. These are calculated by applying constant exchange rates to local
currency reported results for the current and prior year. This gives a US
dollar - denominated income statement and balance sheet which exclude any
variances attributable to foreign exchange rate movements.
Free cash flow
Free cash flow is calculated as Headline PBIT before equity income and
depreciation (including dividends received from associates, proceeds from the
issue of shares, and proceeds from disposal of tangible fixed assets and
investments), less tax paid, returns on investments and servicing of finance
and the purchase of tangible fixed assets.
Headline PBIT
Profit on ordinary activities before interest, taxation, goodwill
amortisation and impairment and amounts written off fixed asset investments.
Headline PBT
Profit on ordinary activities before taxation, goodwill amortisation and
impairment, amounts written off fixed asset investments and net interest
charges on defined benefit pension schemes.
Headline earnings
Headline PBT less taxation on profit on ordinary activities 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
compared with prior year actual results, adjusted to include the results of
acquisitions for the commensurate period in the prior year. The Group uses the
terms 'pro forma' and 'like for like' interchangeably.
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