REG - WPP PLC - 2016 Preliminary Results <Origin Href="QuoteRef">WPP.L</Origin> - Part 2
03/03/2017 07:06
- Part 2: For the preceding part double click ID:nRSC4151Ya
alternative uses of funds between acquisitions, share
buy-backs and dividends. We have increasingly come to the view, that currently, the markets favour consistent increases in
dividends and higher sustainable pay-out ratios, along with anti-dilutive progressive buy-backs and, of course,
sensibly-priced, small- to medium-sized strategic acquisitions.
Buy-back strategy
Share buy-backs will continue to be targeted to absorb any share dilution from issues of options or restricted stock.
However, given the operating and net sales margin targets of 0.3 margin points, the targeted level of share buy-backs will
be 2-3% of the outstanding share capital. If achieved, the impact on headline EPS would be equivalent to an incremental
improvement of 0.2 margin points. In addition, the Company does also have considerable free cash flow to take advantage of
any anomalies in market values, as the average 2016 net debt to EBITDA ratio is under 1.8 times, at the mid-point of our
market guidance of 1.5-2.0 times.
Acquisition strategy
There is still a very significant pipeline of reasonably priced small- and medium-sized potential acquisitions, with the
exception perhaps of digital in the United States, where prices seem to have got ahead of themselves because of pressure on
competitors to catch up. This is clearly reflected in some of the operational issues that are starting to surface elsewhere
in the industry, particularly in fast growing markets like China, Brazil and India. Transactions will be focused on our
strategy of new markets, new media and data investment management, including the application of new technology and big
data. Net acquisition spend is currently targeted at around £300 to £400 million per annum, excluding slightly more
significant "one-offs", like IBOPE in Latin America, comScore and Triad. We will continue to seize opportunities in line
with our strategy to increase the Group's exposure to:
n Faster growing geographic markets and sectors
n New media and data investment management, including the application of technology and big data
Last but not least………
The business we are in demands that we be quick on our feet; quick to take advantage of new opportunities; quick to respond
to new challenges; quick to understand new popular attitudes. 2016, more than any we can remember, was a year that made
countless such demands.
But there is another skill, at least as important, that gets less recognition. It is less newsworthy, rarely draws
attention to itself and is perhaps closer to wisdom. It is the ability to create, recognise, refresh and maintain those
long-term brand values that provide most big companies with their most reliable profit streams. At a time when all external
pressures seem to call for instant, short-term responses, an understanding of the value of confidence, consistency and
continuity has never itself been more valuable.
It requires no less attentiveness and no less sensitivity to change in a market's dynamics. But it knows when a gentle turn
of the wheel is going to be far more favourable for a brand's future than a dramatic change of course.
The results we report today are the outcome of tens of thousands of different client projects undertaken by tens of
thousands of talented individuals working for a great diversity of companies within WPP. Some of these companies have yet
to celebrate their fifth birthday; others are as old as their clients' oldest brands. Increasingly, they work together.
We thank them all for another record-breaking year.
And the uncertainties of 2017 mean that we shall be more than ever grateful not only for their fleetness of foot, but also
for the benefit of their considered thoughtfulness and accumulated experience.
For further information:
Sir Martin Sorrell }
Paul Richardson }
Lisa Hau } +44 20 7408 2204
Feona McEwan }
Chris Wade }
Kevin McCormack }
Fran Butera } +1 212 632 2235
Juliana Yeh } +852 2280 3790
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 1: Preliminary results for the year ended 31 December 2016
Unaudited preliminary consolidated income statement for the year ended
31 December 2016
£ million Notes 2016 2015 +/(-)% Constant Currency1+/(-)%
Billings 55,245.2 47,631.9 16.0 5.5
Revenue 6 14,388.9 12,235.2 17.6 7.2
Direct costs (1,991.1) (1,710.9) (16.4) (5.8)
Net sales 6 12,397.8 10,524.3 17.8 7.4
Operating costs 4 (10,334.7) (8,892.3) (16.2) (6.4)
Operating profit 2,063.1 1,632.0 26.4 12.7
Share of results of associates 4 49.8 47.0 6.0 (11.5)
Profit before interest and taxation 2,112.9 1,679.0 25.8 12.0
Finance income 5 80.4 72.4 11.0 2.3
Finance costs 5 (254.5) (224.1) (13.6) (2.0)
Revaluation of financial instruments 5 (48.3) (34.7) - -
Profit before taxation 1,890.5 1,492.6 26.7 12.5
Taxation 7 (388.9) (247.5) (57.1) (39.9)
Profit for the year 1,501.6 1,245.1 20.6 7.2
Attributable to:
Equity holders of the parent 1,400.1 1,160.2 20.7 7.1
Non-controlling interests 101.5 84.9 (19.6) (7.4)
1,501.6 1,245.1 20.6 7.2
Headline PBIT 6,19 2,160.3 1,774.0 21.8 8.5
Net sales margin 6,19 17.4% 16.9% 0.52 0.22
Headline PBT 19 1,986.2 1,622.3 22.4 9.1
Earnings per share
Basic earnings per ordinary share 9 109.6p 90.0p 21.8 8.0
Diluted earnings per ordinary share 9 108.0p 88.4p 22.2 8.5
1 The basis for calculating the constant currency percentage changes shown above and in the notes to this appendix are
described in the glossary attached to this appendix.
2 Margin points.
Unaudited preliminary consolidated statement of comprehensive income for the year ended 31 December 2016
£ million 2016 2015
Profit for the year 1,501.6 1,245.1
Items that may be reclassified subsequently to profit or loss:
Exchange adjustments on foreign currency net investments 1,378.0 (275.9)
(Loss)/gain on revaluation of available for sale investments (93.1) 206.0
1,284.9 (69.9)
Items that will not be reclassified subsequently to profit or loss:
Actuarial (loss)/gain on defined benefit pension plans (15.9) 33.5
Deferred tax on defined benefit pension plans (0.4) (5.2)
(16.3) 28.3
Other comprehensive gain/(loss) relating to the year 1,268.6 (41.6)
Total comprehensive income relating to the year 2,770.2 1,203.5
Attributable to:
Equity holders of the parent 2,600.6 1,121.6
Non-controlling interests 169.6 81.9
2,770.2 1,203.5
Unaudited preliminary consolidated cash flow statement for the year ended
31 December 2016
£ million Notes 2016 2015
Net cash inflow from operating activities 10 1,773.8 1,359.9
Investing activities
Acquisitions and disposals 10 (638.8) (669.5)
Purchase of property, plant and equipment (252.1) (210.3)
Purchase of other intangible assets (including capitalised computer software) (33.0) (36.1)
Proceeds on disposal of property, plant and equipment 7.7 13.4
Net cash outflow from investing activities (916.2) (902.5)
Financing activities
Share option proceeds 27.2 27.6
Cash consideration for non-controlling interests 10 (58.3) (23.6)
Share repurchases and buybacks 10 (427.4) (587.6)
Net (decrease)/increase in borrowings 10 (22.5) 492.0
Financing and share issue costs (6.4) (11.4)
Equity dividends paid (616.5) (545.8)
Dividends paid to non-controlling interests in subsidiary undertakings (89.6) (55.2)
Net cash outflow from financing activities (1,193.5) (704.0)
Net decrease in cash and cash equivalents (335.9) (246.6)
Translation differences 291.9 (54.4)
Cash and cash equivalents at beginning of year 1,946.6 2,247.6
Cash and cash equivalents at end of year 10 1,902.6 1,946.6
Reconciliation of net cash flow to movement in net debt:
Net decrease in cash and cash equivalents (335.9) (246.6)
Cash outflow/(inflow) from decrease/(increase) in debt financing 28.9 (480.5)
Debt acquired (144.4) -
Other movements (2.3) (124.0)
Translation differences (466.0) (84.3)
Movement of net debt in the year (919.7) (935.4)
Net debt at beginning of year (3,210.8) (2,275.4)
Net debt at end of year 11 (4,130.5) (3,210.8)
Unaudited preliminary consolidated balance sheet as at 31 December 2016
£ million Notes 2016 2015
Non-current assets
Intangible assets:
Goodwill 12 13,214.3 10,670.6
Other 13 2,217.3 1,715.4
Property, plant and equipment 968.7 797.7
Interests in associates and joint ventures 1,069.4 758.6
Other investments 1,310.3 1,158.7
Deferred tax assets 140.4 94.1
Trade and other receivables 14 204.9 178.7
19,125.3 15,373.8
Current assets
Inventory and work in progress 400.4 329.0
Corporate income tax recoverable 231.2 168.6
Trade and other receivables 14 12,374.5 10,495.4
Cash and short-term deposits 2,436.9 2,382.4
15,443.0 13,375.4
Current liabilities
Trade and other payables 15 (15,010.4) (12,685.0)
Corporate income tax payable (752.3) (598.5)
Bank overdrafts and loans (1,002.5) (932.0)
(16,765.2) (14,215.5)
Net current liabilities (1,322.2) (840.1)
Total assets less current liabilities 17,803.1 14,533.7
Non-current liabilities
Bonds and bank loans (5,564.9) (4,661.2)
Trade and other payables 16 (1,273.8) (891.5)
Deferred tax liabilities (692.4) (552.3)
Provisions for post-employment benefits (276.5) (229.3)
Provisions for liabilities and charges (227.9) (183.6)
(8,035.5) (6,517.9)
Net assets 9,767.6 8,015.8
Equity
Called-up share capital 17 133.2 132.9
Share premium account 562.2 535.3
Other reserves 1,185.2 (9.7)
Own shares (962.0) (719.6)
Retained earnings 8,405.9 7,698.5
Equity share owners' funds 9,324.5 7,637.4
Non-controlling interests 443.1 378.4
Total equity 9,767.6 8,015.8
Unaudited preliminary consolidated statement of changes in equity for the year ended 31 December 2016
£ million Called-up share capital Share Other reserves Own shares Retained earnings Total equity share owners' funds Non- controlling interests Total
premium
account
Balance at 1 January 2016 132.9 535.3 (9.7) (719.6) 7,698.5 7,637.4 378.4 8,015.8
Ordinary shares issued 0.3 26.9 - - - 27.2 - 27.2
Treasury share additions - - - (274.4) - (274.4) - (274.4)
Treasury share allocations - - - 3.8 (3.8) - - -
Net profit for the year - - - - 1,400.1 1,400.1 101.5 1,501.6
Exchange adjustments on foreign currency net investments - - 1,309.9 - - 1,309.9 68.1 1,378.0
Loss on revaluation of available for sale investments - - (93.1) - - (93.1) - (93.1)
Actuarial loss on defined benefit pension plans - - - - (15.9) (15.9) - (15.9)
Deferred tax on defined benefit pension plans - - - - (0.4) (0.4) - (0.4)
Comprehensive income - - 1,216.8 - 1,383.8 2,600.6 169.6 2,770.2
Dividends paid - - - - (616.5) (616.5) (89.6) (706.1)
Non-cash share-based incentive plans (including share options) - - - - 106.5 106.5 - 106.5
Tax adjustment on share-based payments - - - - 3.9 3.9 - 3.9
Net movement in own shares held by ESOP Trusts - - - 28.2 (181.0) (152.8) - (152.8)
Recognition/remeasurement of financial instruments - - (21.9) - 26.8 4.9 - 4.9
Share purchases - close period commitments - - - - 8.6 8.6 - 8.6
Acquisition of subsidiaries1 - - - - (20.9) (20.9) (15.3) (36.2)
Balance at 31 December 2016 133.2 562.2 1,185.2 (962.0) 8,405.9 9,324.5 443.1 9,767.6
Total comprehensive income relating to the year ended 31 December 2016 was £2,770.2 million (2015: £1,203.5 million)
1 Acquisition of subsidiaries represents movements in retained earnings and non-controlling interests arising from
increases in ownership of existing subsidiaries and recognition of non-controlling interests on new acquisitions.
Unaudited preliminary consolidated statement of changes in equity for the year ended 31 December 2016 (continued)
£ million Called-up Share Shares tobe issued Other reserves Own shares Retained earnings Total equity share owners' funds Non- controlling interests Total
share capital premium
account
Balance at 1 January 2015 132.6 508.0 0.3 36.2 (283.7) 7,106.7 7,500.1 326.7 7,826.8
Ordinary shares issued 0.3 27.3 (0.3) - - 0.2 27.5 - 27.5
Treasury share additions - - - - (406.0) - (406.0) - (406.0)
Treasury share allocations - - - - 3.6 (3.6) - - -
Net profit for the year - - - - - 1,160.2 1,160.2 84.9 1,245.1
Exchange adjustments on foreign currency net investments - - - (272.9) - - (272.9) (3.0) (275.9)
Gain on revaluation of available for sale investments - - - 206.0 - - 206.0 - 206.0
Actuarial gain on defined benefit pension plans - - - - - 33.5 33.5 - 33.5
Deferred tax on defined benefit pension plans - - - - - (5.2) (5.2) - (5.2)
Comprehensive (loss)/income - - - (66.9) - 1,188.5 1,121.6 81.9 1,203.5
Dividends paid - - - - - (545.8) (545.8) (55.2) (601.0)
Non-cash share-based incentive plans (including share options) - - - - - 99.0 99.0 - 99.0
Tax adjustment on share-based payments - - - - - 18.0 18.0 - 18.0
Net movement in own shares held by ESOP Trusts - - - - (33.5) (148.1) (181.6) - (181.6)
Recognition/remeasurement of financial instruments - - - (59.0) - (0.7) (59.7) - (59.7)
Share purchases - close period commitments - - - 80.0 - 2.9 82.9 - 82.9
Acquisition of subsidiaries1 - - - - - (18.6) (18.6) 25.0 6.4
Balance at 31 December 2015 132.9 535.3 - (9.7) (719.6) 7,698.5 7,637.4 378.4 8,015.8
1 Acquisition of subsidiaries represents movements in retained earnings and non-controlling interests arising from
increases in ownership of existing subsidiaries and recognition of non-controlling interests on new acquisitions.
Notes to the unaudited preliminary consolidated financial statements
1. Basis of accounting
The unaudited preliminary consolidated financial statements are prepared under the historical cost convention, except for
the revaluation of certain financial instruments as disclosed in our accounting policies.
2. Accounting policies
The unaudited preliminary consolidated financial statements comply with the recognition and measurement criteria of
International Financial Reporting Standards (IFRS) as adopted by the European Union and issued by the International
Accounting Standards Board (IASB) and with the accounting policies of the Group which were set out on pages 171 to 178 of
the 2015 Annual Report and Accounts.
Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this
announcement does not itself contain sufficient information to comply with all IFRS disclosure requirements. The Company's
2016 Annual Report and Accounts will be prepared in compliance with IFRS. The unaudited preliminary announcement does not
constitute a dissemination of the annual financial report and does not therefore need to meet the dissemination
requirements for annual financial reports. A separate dissemination announcement in accordance with Disclosure and
Transparency Rules (DTR) 6.3 will be made when the annual report and audited financial statements are available on the
Company's website.
Statutory Information
The financial information included in this preliminary announcement does not constitute statutory accounts. The statutory
accounts for the year ended 31 December 2015 have been delivered to the Jersey Registrar and received an unqualified
auditors' report. The statutory accounts for the year ended 31 December 2016 will be finalised on the basis of the
financial information presented by the directors in this unaudited preliminary announcement and will be delivered to the
Jersey Registrar following the Company's General Meeting. The audit report for the year ended 31 December 2016 has yet to
be signed. The announcement of the preliminary results was approved on behalf of the board of directors on 3 March 2017.
Notes to the unaudited preliminary consolidated financial statements (continued)
3. Currency conversion
The reporting currency of the Group is pound sterling and the unaudited preliminary consolidated financial statements have
been prepared on this basis.
The 2016 unaudited preliminary consolidated income statement is prepared using, among other currencies, average exchange
rates of US$1.3547 to the pound (2015: US$1.5288) and E1.2234 to the pound (2015: E1.3782). The unaudited preliminary
consolidated balance sheet as at 31 December 2016 has been prepared using the exchange rates on that day of US$1.2345 to
the pound (2015: US$1.4734) and E1.1705 to the pound (2015: E1.3559).
The basis for calculating the constant currency percentage changes, shown on the face of the unaudited preliminary
consolidated income statement, is described in the glossary attached to this appendix.
4. Operating costs and share of results of associates
£ million 2016 2015
Staff costs 7,784.9 6,652.6
Establishment costs 836.5 726.3
Other operating costs 1,713.3 1,513.4
Total operating costs 10,334.7 8,892.3
Staff costs include:
£ million 2016 2015
Wages and salaries 5,395.6 4,578.4
Cash-based incentive plans 260.2 231.8
Share-based incentive plans 106.5 99.0
Social security costs 658.1 578.4
Pension costs 178.1 160.0
Severance 34.5 24.0
Other staff costs 1,151.9 981.0
7,784.9 6,652.6
Staff cost to net sales ratio 62.8% 63.2%
Notes to the unaudited preliminary consolidated financial statements (continued)
4. Operating costs and share of results of associates (continued)
Other operating costs include:
£ million 2016 2015
Amortisation and impairment of acquired intangible assets 168.4 140.1
Goodwill impairment 27.0 15.1
Gains on disposal of investments and subsidiaries (44.3) (131.0)
Gains on remeasurement of equity interests arising from achange in scope of ownership (232.4) (165.0)
Investment write-downs 86.1 78.7
Restructuring costs 27.4 106.2
IT asset write-downs - 29.1
The goodwill impairment charge of £27.0 million (2015: £15.1 million) relates to a number of under-performing businesses in
the Group, of which £7.0 million (2015: nil) is in relation to associates. In certain markets, the impact of current, local
economic conditions and trading circumstances on these businesses is sufficiently severe to indicate impairment to the
carrying value of goodwill.
Investment write-downs of £86.1 million (2015: £78.7 million) includes £79.6 million in relation to comScore Inc, which has
not released any financial statements in relation to its 2015 or 2016 results due to an internal investigation by their
Audit Committee. Following the announcement of this internal investigation, the market value of comScore Inc fell below the
Group's carrying value. Other investment write-downs relate to certain non-core minority investments in the US where
forecast financial performance and/or liquidity issues indicate a permanent decline in the recoverability of the Group's
investment.
Gains on disposal of investments and subsidiaries of £44.3 million in 2016 include £26.5 million of gains arising on the
sale of the Group's equity interest in Grass Roots Group.
Gains on disposal of investments and subsidiaries of £131.0 million in 2015 include £43.6 million of gains arising on the
sale of certain Kantar internet measurement businesses to comScore Inc in consideration for newly issued equity in the
buyer; £29.7 million of gains arising on the sale of the Group's minority stake in e-Rewards; and £30.6 million of gains
arising on the Group's equity interest in Chime Communications plc following its acquisition by Providence Equity Partners
in conjunction with WPP.
Gains on remeasurement of equity interests arising from a change in scope of ownership of £232.4 million in 2016 primarily
comprise gains of £260.0 million in relation to the reclassification of the Group's interest in the Imagina Group in Spain
from other investments to interests in associates, resulting from WPP attaining significant influence in the period; and
losses of £23.2 million in relation to the merger of most of the Group's Australian and New Zealand assets with STW
Communications Group Limited in Australia. The re-named WPP AUNZ became a listed subsidiary of the Group on 8 April 2016.
Notes to the unaudited preliminary consolidated financial statements (continued)
4. Operating costs and share of results of associates (continued)
Gains on remeasurement of equity interests arising from a change in scope of ownership in 2015 primarily comprise gains of
£131.7 million in relation to the acquisition of a majority stake in IBOPE in Latin America.
In 2016, restructuring costs of £27.4 million predominantly comprise costs resulting from the project to transform and
rationalise the Group's IT services and infrastructure.
In the year ended 31 December 2015, restructuring costs of £106.2 million comprise £69.5 million of costs (including £52.0
million of severance costs) arising from a structural reassessment of certain of the Group's operations, primarily in the
mature markets of Western Europe; and £36.7 million of costs resulting from the project to transform and rationalise the
Group's IT services and infrastructure. In 2015, IT asset write-downs comprise £29.1 million of accelerated depreciation of
IT assets in Asia and Europe.
Operating profit includes credits totalling £26.3 million (2015: £31.6 million) relating to the release of excess
provisions and other balances established in respect of acquisitions completed prior to 2015.
Share of results of associates include:
£ million 2016 2015
Share of profit before interest and taxation 97.1 95.2
Share of exceptional losses (15.2) (21.8)
Share of interest and non-controlling interests (4.7) (1.7)
Share of taxation (27.4) (24.7)
49.8 47.0
Notes to the unaudited preliminary consolidated financial statements (continued)
5. Finance income, finance costs and revaluation of financial instruments
Finance income includes:
£ million 2016 2015
Income from available for sale investments 12.5 18.9
Interest income 67.9 53.5
80.4 72.4
Finance costs include:
£ million 2016 2015
Net interest expense on pension plans 6.7 7.3
Interest on other long-term employee benefits 2.7 2.5
Interest payable and similar charges 245.1 214.3
254.5 224.1
Revaluation of financial instruments include:
£ million 2016 2015
Movements in fair value of treasury instruments (19.5) (3.7)
Movements in fair value of other derivatives - 15.9
Revaluation of put options over non-controlling interests (17.2) (11.3)
Revaluation of payments due to vendors (earnout agreements) (11.6) (35.6)
(48.3) (34.7)
Notes to the unaudited preliminary consolidated financial statements (continued)
6. Segmental analysis
Reported contributions by operating sector were as follows:
£ million 2016 2015
Revenue
Advertising and Media Investment Management 6,547.3 5,552.8
Data Investment Management 2,661.1 2,425.9
Public Relations & Public Affairs 1,101.3 945.8
Branding & Identity, Healthcare and Specialist Communications 4,079.2 3,310.7
14,388.9 12,235.2
Net sales
Advertising and Media Investment Management 5,413.5 4,652.0
Data Investment Management 1,994.0 1,768.1
Public Relations & Public Affairs 1,078.8 929.7
Branding & Identity, Healthcare and Specialist Communications 3,911.5 3,174.5
12,397.8 10,524.3
Headline PBIT1
Advertising and Media Investment Management3 1,027.2 859.7
Data Investment Management 351.5 286.1
Public Relations & Public Affairs3 179.8 145.2
Branding & Identity, Healthcare and Specialist Communications3 601.8 483.0
2,160.3 1,774.0
Net sales margin2
Advertising and Media Investment Management3 19.0% 18.5%
Data Investment Management 17.6% 16.2%
Public Relations & Public Affairs3 16.7% 15.6%
Branding & Identity, Healthcare and Specialist Communications3 15.4% 15.2%
17.4% 16.9%
1 Headline PBIT is defined in note 19.
2 Net sales margin is defined in note 19.
3 Prior year headline PBIT and net sales margins have been restated to reflect a reclassification between sectors of one of
the Group's associates.
Notes to the unaudited preliminary consolidated financial statements (continued)
6. Segmental analysis (continued)
Reported contributions by geographical area were as follows:
£ million 2016 2015
Revenue
North America1 5,280.8 4,491.2
United Kingdom 1,866.3 1,777.4
Western Continental Europe 2,943.2 2,425.6
Asia Pacific, Latin America, Africa & Middle East andCentral & Eastern Europe 4,298.6 3,541.0
14,388.9 12,235.2
Net sales
North America1 4,603.7 3,882.3
United Kingdom 1,587.6 1,504.5
Western Continental Europe 2,425.5 2,016.2
Asia Pacific, Latin America, Africa & Middle East andCentral & Eastern Europe 3,781.0 3,121.3
12,397.8 10,524.3
Headline PBIT2
North America1 895.4 728.2
United Kingdom 261.4 243.1
Western Continental Europe 351.7 277.2
Asia Pacific, Latin America, Africa & Middle East andCentral & Eastern Europe 651.8 525.5
2,160.3 1,774.0
Net sales margin3
North America1 19.4% 18.8%
United Kingdom 16.5% 16.2%
Western Continental Europe 14.5% 13.7%
Asia Pacific, Latin America, Africa & Middle East andCentral & Eastern Europe 17.2% 16.8%
17.4% 16.9%
1 North America includes the US with revenue of £5,005.8 million (2015: £4,257.4 million), net sales of £4,365.1 million
(2015: £3,674.3 million) and headline PBIT of £849.4 million (2015: £697.3 million).
2 Headline PBIT is defined in note 19.
3 Net sales margin is defined in note 19.
Notes to the unaudited preliminary consolidated financial statements (continued)
7. Taxation
The headline tax rate was 21.0% (2015: 19.0%). The tax rate on reported PBT was 20.6% (2015: 16.6%). The cash tax rate on
headline PBT1 was 20.9% (2015: 18.6%).
The tax charge comprises:
£ million 2016 2015
Corporation tax
Current year 569.4 403.0
Prior years (80.3) (108.4)
489.1 294.6
Deferred tax
Current year (88.0) (35.8)
Prior years (12.2) (11.3)
(100.2) (47.1)
Tax charge 388.9 247.5
The calculation of the headline tax rate is as follows:
£ million 2016 2015
Headline PBT1 1,986.2 1,622.3
Tax charge 388.9 247.5
Tax charge relating to gains on disposal of investments and subsidiaries (1.1) (1.1)
Deferred tax impact of the amortisation of acquired intangible assets and other goodwill items 29.2 35.4
Tax (charge)/credit relating to restructuring costs (3.0) 26.5
Deferred tax relating to gains on disposal of investments and subsidiaries 3.2 -
Headline tax charge 417.2 308.3
Headline tax rate 21.0% 19.0%
8. Ordinary dividends
The Board has recommended a final dividend of 37.05p (2015: 28.78p) per ordinary share in addition to the interim dividend
of 19.55p (2015: 15.91p) per share. This makes a total for the year of 56.60p (2015: 44.69p). Payment of the final dividend
of 37.05p per ordinary share will be made on 3 July 2017 to holders of ordinary shares in the Company on 9 June 2017.
1 Headline PBT is defined in note 19.
Notes to the unaudited preliminary consolidated financial statements (continued)
9. Earnings per share
Basic EPS
The calculation of basic reported and headline EPS is as follows:
2016 2015 +/(-)% ConstantCurrency+/(-)%
Reported earnings1 (£ million) 1,400.1 1,160.2
Headline earnings (£ million) (note 19) 1,467.5 1,229.1
Average shares used in basic EPS calculation (million) 1,277.8 1,288.5
Reported EPS 109.6p 90.0p 21.8 8.0
Headline EPS 114.8p 95.4p 20.3 7.2
Diluted EPS
The calculation of diluted reported and headline EPS is as follows:
2016 2015 +/(-)% ConstantCurrency+/(-)%
Diluted reported earnings (£ million) 1,400.1 1,160.2
Diluted headline earnings (£ million) 1,467.5 1,229.1
Average shares used in diluted EPS calculation (million) 1,296.0 1,313.0
Diluted reported EPS 108.0p 88.4p 22.2 8.5
Diluted headline EPS 113.2p 93.6p 20.9 7.7
A reconciliation between the shares used in calculating basic and diluted EPS is as follows:
million 2016 2015
Average shares used in basic EPS calculation 1,277.8 1,288.5
Dilutive share options outstanding 2.4 3.5
Other potentially issuable shares 15.8 21.0
Shares used in diluted EPS calculation 1,296.0 1,313.0
At 31 December 2016 there were 1,331,880,730 (2015: 1,329,366,024) ordinary shares in issue.
1 Reported earnings is equivalent to profit for the year attributable to equity holders of the parent.
Notes to the unaudited preliminary consolidated financial statements (continued)
10. Analysis of cash flows
The following tables analyse the items included within the main cash flow headings on page 21:
Net cash inflow from operating activities:
£ million 2016 2015
Profit for the year 1,501.6 1,245.1
Taxation 388.9 247.5
Revaluation of financial instruments 48.3 34.7
Finance costs 254.5 224.1
Finance income (80.4) (72.4)
Share of results of associates (49.8) (47.0)
Operating profit 2,063.1 1,632.0
Adjustments for:
Non-cash share-based incentive plans (including share options) 106.5 99.0
Depreciation of property, plant and equipment 220.8 194.7
Goodwill impairment 27.0 15.1
Amortisation and impairment of acquired intangible assets 168.4 140.1
Amortisation of other intangible assets 38.6 33.7
Investment write-downs 86.1 78.7
Gains on disposal of investments and subsidiaries (44.3) (131.0)
Gains on remeasurement of equity interests arising from a change in scope of ownership (232.4) (165.0)
Losses on sale of property, plant and equipment 0.8 1.1
Operating cash flow before movements in working capital and provisions 2,434.6 1,898.4
Movements in trade working capital 118.3 (161.6)
Movements in other receivables, payables and provisions (269.6) (2.5)
Cash generated by operations 2,283.3 1,734.3
Corporation and overseas tax paid (414.2) (301.2)
Interest and similar charges paid (242.1) (212.0)
Interest received 73.9 61.3
Investment income 12.5 4.9
Dividends from associates 60.4 72.6
1,773.8 1,359.9
Notes to the unaudited preliminary consolidated financial statements (continued)
10. Analysis of cash flows (continued)
Acquisitions and disposals:
£ million 2016 2015
Initial cash consideration (424.1) (463.5)
Cash and cash equivalents acquired (net) 57.3 57.7
Earnout payments (92.3) (43.9)
Purchase of other investments (including associates) (260.2) (283.2)
Proceeds on disposal of investments 80.5 63.4
Acquisitions and disposals (638.8) (669.5)
Cash consideration for non-controlling interests (58.3) (23.6)
Net acquisition payments and investments (697.1) (693.1)
Share repurchases and buybacks:
£ million 2016 2015
Purchase of own shares by ESOP Trusts (152.9) (181.6)
Shares purchased into treasury (274.5) (406.0)
(427.4) (587.6)
Net (decrease)/increase in borrowings:
£ million 2016 2015
(Decrease)/increase in drawings on bank loans (30.4) 128.9
Proceeds from issue of £400 million bonds 400.0 -
Repayment of E498 million bonds (392.1) -
Proceeds from issues of E600 million bonds - 858.7
Repayment of E500 million bonds - (481.9)
Premium on exchange of E252 million bonds - (13.7)
(22.5) 492.0
Cash and cash equivalents:
£ million 2016 2015
Cash at bank and in hand 2,256.2 2,227.8
Short-term bank deposits 180.7 154.6
Overdrafts1 (534.3) (435.8)
1,902.6 1,946.6
1 Bank overdrafts are included in cash and cash equivalents because they form an integral part of the Group's cash
management.
Notes to the unaudited preliminary consolidated financial statements (continued)
11. Net debt
£ million 2016 2015
Cash and short-term deposits 2,436.9 2,382.4
Bank overdrafts and loans due within one year (1,002.5) (932.0)
Bonds and bank loans due after one year (5,564.9) (4,661.2)
(4,130.5) (3,210.8)
The Group estimates that the fair value of corporate bonds is £6,101.4 million at 31 December 2016 (2015: £5,207.4
million). The Group considers that the carrying amount of bank loans approximates their fair value.
The following table is an analysis of future anticipated cash flows in relation to the Group's debt, on an undiscounted
basis which, therefore, differs from the carrying value:
£ million 2016 2015
Within one year (582.9) (541.7)
Between one and two years (389.5) (548.2)
Between two and three years (686.3) (325.4)
Between three and four years (369.1) (581.6)
Between four and five years (812.9) (335.0)
Over five years (5,144.8) (4,459.5)
Debt financing (including interest) under the Revolving Credit Facility and in relation to unsecured loan notes (7,985.5) (6,791.4)
Short-term overdrafts - within one year (534.3) (435.8)
Future anticipated cash flows (8,519.8) (7,227.2)
Effect of discounting/financing rates 1,952.4 1,634.0
Debt financing (6,567.4) (5,593.2)
Cash and short-term deposits 2,436.9 2,382.4
Net debt (4,130.5) (3,210.8)
Notes to the unaudited preliminary consolidated financial statements (continued)
12. Goodwill and acquisitions
Goodwill in relation to subsidiary undertakings increased by £2,543.7 million (2015: £691.2 million) in the year. This
movement primarily relates to the effect of currency translation and also includes both goodwill arising on acquisitions
completed in the year and adjustments to goodwill relating to acquisitions completed in prior years, net of impairment
charges.
The contribution to revenue and operating profit of acquisitions completed in the year was not material. There were no
material acquisitions completed during the year or between 31 December 2016 and the date these preliminary consolidated
financial statements were approved.
13. Other intangible assets
The following are included in other intangibles:
£ million 2016 2015
Brands with an indefinite useful life 1,141.3 968.1
Acquired intangibles 972.5 667.6
Other (including capitalised computer software) 103.5 79.7
2,217.3 1,715.4
14. Trade and other receivables
Amounts falling due within one year:
£ million 2016 2015
Trade receivables 8,054.2 6,799.4
VAT and sales taxes recoverable 157.2 154.9
Prepayments 310.0 235.0
Accrued income 3,353.8 2,853.8
Fair value of derivatives 14.7 4.6
Other debtors 484.6 447.7
12,374.5 10,495.4
Amounts falling due after more than one year:
£ million 2016 2015
Prepayments 3.7 1.5
Accrued income 9.5 5.8
Fair value of derivatives 8.3 39.7
Other debtors 183.4 131.7
204.9 178.7
The Group considers that the carrying amount of trade and other receivables approximates their fair value.
Notes to the unaudited preliminary consolidated financial statements (continued)
15. Trade and other payables: amounts falling due within one year
£ million 2016 2015
Trade payables 10,308.3 8,538.3
Deferred income 1,312.7 1,081.0
Payments due to vendors (earnout agreements) 277.5 126.0
Liabilities in respect of put option agreements with vendors 51.0 51.1
Fair value of derivatives 4.1 0.7
Other creditors and accruals 3,056.8 2,887.9
15,010.4 12,685.0
The Group considers that the carrying amount of trade and other payables approximates their fair value.
16. Trade and other payables: amounts falling due after more than one year
£ million 2016 2015
Payments due to vendors (earnout agreements) 699.0 455.3
Liabilities in respect of put option agreements with vendors 246.0 183.3
Fair value of derivatives 1.8 2.3
Other creditors and accruals
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