REG - WPP PLC - WPP 2014 Preliminary Results <Origin Href="QuoteRef">WPP.L</Origin> - Part 3
09/03/2015 07:02
- Part 3: For the preceding part double click ID:nRSI8691Gb
of estimates taken to goodwill 26.4 (5.7)
Revaluation of payments due to vendors (note 5) (13.2) (15.8)
Exchange adjustments 3.0 (3.2)
At the end of the year 311.4 193.5
The Group does not consider there to be any material contingent liabilities as at 31 December 2014.
17. Issued share capital - movement in the year
Number of equity ordinary shares (million) 2014 2013
At the beginning of the year 1,348.7 1,265.4
Exercise of share options 3.9 6.8
Treasury share cancellations (26.9) -
Conversion of bond to equity - 76.5
At the end of the year 1,325.7 1,348.7
18. Related party transactions
From time to time the Group enters into transactions with its associate undertakings. These transactions were not material
for either year presented.
19. Non-GAAP measures of performance
Reconciliation of profit before interest and taxation to headline PBIT for the year ended 31 December 2014:
£ million 2014 2013
Profit before interest and taxation 1,569.2 1,478.4
Amortisation and impairment of acquired intangible assets 147.5 179.8
Goodwill impairment 16.9 23.3
Gains on disposal of investments and subsidiaries (186.3) (6.0)
Gains on remeasurement of equity interest on acquisition of controlling interest (9.2) (30.0)
Investment write-downs 7.3 0.4
Restructuring costs 127.6 5.0
Share of exceptional losses of associates 7.6 10.7
Headline PBIT 1,680.6 1,661.6
Finance income 94.7 64.3
Finance costs (262.7) (267.9)
(168.0) (203.6)
Interest cover on headline PBIT 10.0 times 8.2 times
Calculation of headline EBITDA:
£ million 2014 2013
Headline PBIT (as above) 1,680.6 1,661.6
Depreciation of property, plant and equipment 197.3 202.0
Amortisation of other intangible assets 31.6 32.7
Headline EBITDA 1,909.5 1,896.3
Net sales margin before and after share of results of associates:
£ million Margin 2014 Margin 2013
Net sales 10,064.8 10,076.1
Headline PBIT 16.7% 1,680.6 16.5% 1,661.6
Share of results of associates (excluding exceptional gains/losses) 69.5 78.8
Headline PBIT excluding share of results of associates 16.0% 1,611.1 15.7% 1,582.8
Reconciliation of profit before taxation to headline PBT and headline earnings for the year ended 31 December 2014:
£ million 2014 2013
Profit before taxation 1,451.9 1,295.8
Amortisation and impairment of acquired intangible assets 147.5 179.8
Goodwill impairment 16.9 23.3
Gains on disposal of investments and subsidiaries (186.3)3333 (6.0)
Gains on remeasurement of equity interest on acquisition of controlling interest (9.2) (30.0)
Investment write-downs 7.3 0.4
Restructuring costs 127.6 5.0
Share of exceptional losses of associates 7.6 10.7
Revaluation of financial instruments (50.7) (21.0)
Headline PBT 1,512.6 1,458.0
Headline tax charge (note 7) (302.5) (294.3)
Non-controlling interests (74.3) (75.6)
Headline earnings 1,135.8 1,088.1
Ordinary dividends 460.0 397.3
Dividend cover on headline earnings 2.5 times 2.7 times
Reconciliation of free cash flow for the year ended 31 December 2014:
£ million 2014 2013
Cash generated by operations (note 10) 2,108.8 1,784.1
Plus:
Interest received 69.8 51.3
Investment income 11.9 10.1
Dividends from associates 52.2 56.7
Share option proceeds 25.0 42.4
Proceeds on disposal of property, plant and equipment 5.9 7.3
Less:
Movements in working capital and provisions (295.0) 133.4
Interest and similar charges paid (249.1) (254.7)
Purchase of property, plant and equipment (177.9) (240.7)
Purchase of other intangible assets (including capitalised computer software) (36.5) (43.8)
Corporation and overseas tax paid (289.9) (273.3)
Dividends paid to non-controlling interests in subsidiary undertakings (57.7) (53.2)
Free cash flow 1,167.5 1,219.6
20. Going concern and liquidity risk
In considering going concern and liquidity risk, the directors have reviewed the Group's future cash requirements and
earnings projections. The directors believe these forecasts have been prepared on a prudent basis and have also considered
the impact of a range of potential changes to trading performance. The directors have concluded that the Group should be
able to operate within its current facilities and comply with its banking covenants for the foreseeable future and
therefore believe it is appropriate to prepare the financial statements of the Group on a going concern basis.
At 31 December 2014, the Group has access to £6.2 billion of committed facilities with maturity dates spread over the years
2014 to 2043 as illustrated below:
£ million
2015 2016 2017 2018+
US bond $500m (5.625% '43) 320.9 320.9
US bond $300m (5.125% '42) 192.5 192.5
Eurobonds E750m (2.25%,'26) 582.6 582.6
US bond $750m (3.75%,'24) 481.4 481.4
Eurobonds E750m (3.0% '23) 582.6 582.6
US bond $500m (3.625% '22) 320.9 320.9
US bond $812m (4.75% '21) 521.4 521.4
£ bonds £200m (6.375% '20) 200.0 200.0
Bank revolver ($2,500m) 1,604.5 1,604.5
£ bonds £400m (6.0% '17) 400.0 400.0
Eurobonds E750m (6.625% '16) 582.6 582.6
Eurobonds E500m (5.25% '15) 388.4 388.4
Total committed facilities available 6,177.8 388.4 582.6 400.0 4,806.8
Drawn down facilities at 31 December 2014 4,573.3 388.4 582.6 400.0 3,202.3
Undrawn committed credit facilities 1,604.5
Drawn down facilities at 31 December 2014 4,573.3
Net cash at 31 December 2014 (2,247.6)
Other adjustments (50.3)
Net debt at 31 December 2014 2,275.4
Given the strong cash generation of the business, its debt maturity profile and available facilities, the directors believe
the Group has sufficient liquidity to match its requirements for the foreseeable future.
Treasury management
The Group's treasury activities are principally concerned with monitoring of working capital, managing external and
internal funding requirements and monitoring and managing financial market risks, in particular risks from movements in
interest and foreign exchange rates.
The Group's risk management policies relating to foreign currency risk, interest rate risk, liquidity risk, capital risk
and credit risk are presented in the notes to the consolidated financial statements of the 2013 Annual Report and Accounts
and in the opinion of the Board remain relevant at 31 December 2014.
21. Financial instruments
The fair values of financial assets and liabilities are based on quoted market prices where available. Where the market
value is not available, the Group has estimated relevant fair values on the basis of publicly available information from
outside sources or on the basis of discounted cash flow models where appropriate.
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at
fair value, grouped into levels 1 to 3 based on the degree to which the fair value is observable, or based on observable
inputs:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable inputs).
£ million Level 1 Level 2 Level 3 Carrying value
Derivatives in designated hedge relationships
Derivative assets - 51.1 - 51.1
Derivative liabilities - (74.8) - (74.8)
Held for trading
Derivative assets - 2.2 - 2.2
Derivative liabilities - (2.3) - (2.3)
Share purchases - close period commitments (78.8) - - (78.8)
Payments due to vendors (earnout agreements) (note 16) - - (311.4) (311.4)
Liabilities in respect of put options - - (184.9) (184.9)
Available for sale
Other investments 134.8 - 534.4 669.2
Reconciliation of level 3 fair value measurements1:
£ million Liabilities in respect of put options Other investments
1 January 2014 (139.1) 247.6
Losses recognised in the income statement (8.8) (7.3)
Gains recognised in other comprehensive income - 96.5
Exchange adjustments 6.5 4.3
Additions (46.0) 206.6
Disposals - (10.7)
Reclassification to subsidiaries - (2.6)
Settlements 2.5 -
31 December 2014 (184.9) 534.4
Payments due to vendors and liabilities in respect of put options
Future anticipated payments due to vendors in respect of contingent consideration (earnout agreements) are recorded at fair
value, which is the present value of the expected cash outflows of the obligations. Liabilities in respect of put option
agreements are initially recorded at the present value of the redemption amount in accordance with IAS 32 and subsequently
measured at fair value in accordance with IAS 39. Both types of obligations are dependent on the future financial
performance of the entity and it is assumed that future profits are in line with directors' estimates. The directors derive
their estimates from internal business plans together with financial due diligence performed in connection with the
acquisition. At 31 December 2014, the weighted average growth rate in estimating future financial performance was 19.8%,
which reflects the prevalence of recent acquisitions in the faster growing markets and new media sectors. The risk adjusted
discount rate applied to these obligations at 31 December 2014 was 2.0%.
A one percentage point increase or decrease in the growth rate in estimated future financial performance would increase or
decrease the combined liabilities due to earnout agreements and put options by approximately £6.6 million and £11.7
million, respectively. A 0.5 percentage point increase or decrease in the risk adjusted discount rate would decrease or
increase the combined liabilities by approximately £6.5 million and £6.7 million, respectively. An increase in theliability
would result in a reduction in the revaluation of financial instruments (note 5), while a decrease would result in a
further gain.
Other investments
The fair value of other investments included in level 1 are based on quoted market prices. Other investments included in
level 3 are unlisted securities, where market value is not readily available. The Group has estimated relevant fair values
on the basis of publicly available information from outside sources or on the basis of discounted cash flow models where
appropriate. The sensitivity to changes in unobservable inputs is specific to each individual investment.
1 Payments due to vendors (earnout agreements) are reconciled in note 16.
22. Principal risks and uncertainties
The directors have considered the principal risks and uncertainties affecting the Group for the year and updated those
presented in the Group's published Annual Report and Accounts and Form 20-F for the year ended 31 December 2013 in relation
to data protection and security and sanctions. The Annual Report and Accounts and Form 20-F are published in the Investor
Relations section of the Group website (www.wpp.com) and are available from the Group on request.
WPP plc has specific policies in place to ensure that risks are properly evaluated and managed at the appropriate level
within the business. These are presented on pages 182 to 185 of the published 2013 Annual Report and Accounts. Pages 5 and
6 of the Group's Form 20-F for the year ended 31 December 2013 contain a detailed explanation of the risk factors
identified by the Group and these are updated and summarised below:
Clients
n The Group competes for clients in a highly competitive industry and client loss may have a material adverse effect on the
Group's market share and its business, revenues, results of operations, financial condition or prospects.
n The Group receives a significant portion of its revenues from a limited number of large clients and the loss of these
clients could have a material adverse effect on the Group's prospects, business, financial condition and results of
operations.
Data Security
n Existing and proposed data protection laws may restrict the Group's activities and increase our costs.
n The Group is carrying out an IT transformation project and will rely on third parties for the performance of a
significant part of its information technology and operational functions. A failure to provide these functions could have
an adverse effect on the Group's business.
n The Group stores, transmits and relies on critical and sensitive data. Security of this type of data is exposed to
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