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Notes 6-10

10. Sources of finance

The following table summarises the equity and debt financing of the Group, and changes during the year:

  Shares   Debt
Analysis of changes in financing 2007
£m
2006
£m
  2007
£m
2006
£m
Beginning of year 199.0 127.4   1,771.5 1,483.6
Shares issued in respect of acquisitions 2.3  
Other issues of share capital 30.2 75.0  
Share cancellations (5.7) (3.3)  
Share issue costs paid (2.7) (0.1)  
Net increase in drawings on bank loans,
corporate bonds and convertible bonds
  498.9 382.1
Net amortisation of financing
costs included in net debt
  5.5 10.4
Other movements   (36.7) (21.7)
Exchange adjustments   108.8 (82.9)
End of year 223.1 199.0   2,348.0 1,771.5

The above table excludes bank overdrafts which fall within cash and cash equivalents for the purposes of the consolidated cash flow statement.

Shares

At 31 December 2007, the Company's share base was entirely composed of ordinary equity share capital and share premium of £223.1 million (2006: £199.0 million, 2005: £127.4 million), further details of which are disclosed in notes 26 and 27.

Debt

USA bond The Group has in issue $100 million of 6.875% bonds due July 2008 and $650 million of 5.875% bonds due June 2014.

Eurobond

In November 2007, the Group issued €500 million of 5.25% bonds due January 2015. The Group has in issue €600 million of 4.375% bonds due December 2013 and €650 million of 6.0% bonds due June 2008.

Sterling bond

In April 2007, the Group issued £400 million of 6% bonds due April 2017. In November 2007, the Group issued £200 million of 6.375% bonds due November 2020.

Revolving Credit Facilities

The Group has a $1.6 billion seven year Revolving Credit Facility due August 2012. The Group's borrowing under this facility, which are drawn down predominantly in US dollars, Canadian dollars and pounds sterling, averaged $377 million in 2007. The Group had available undrawn committed credit facilities of £759 million at December 2007 (2006: £817 million).

Borrowings under the Revolving Credit Facility are governed by certain financial covenants based on the results and financial position of the Group.

US Commercial Paper Program

The Group has a $1.4 billion US Commercial Paper Program using the Revolving Credit Facility as a backstop. The Group's borrowings under this program are notes issued in US dollars and swapped into other currencies as required. The average commercial paper outstanding since the launch of the program was $476 million. There was no US Commercial Paper outstanding at 31 December 2007.

Convertible bonds

During the year, the Group redeemed £450 million of 2% convertible bonds on their due date of April 2007.

In March 2005, with the purchase of Grey Global Group Inc, the Group acquired $150 million of 5% convertible debentures due 2033. Each debenture holder has the right to require Grey and WPP (as co-obligor) to repurchase as of each of 28 October 2008, 2010 and 2013 all or a portion of the holder's then outstanding debentures at par ($1,000 per debenture) plus the amount of accrued and unpaid interest. WPP has the unrestricted right to call the bond at par from 2013. Each $1,000 of principal amount is initially convertible into 11.820362 WPP ADSs and $499.31 of cash and is convertible at the option of the holder at any time. The effective interest rate on the liability component is 4.5%.

The Grey convertible bond has a nominal value of £75.7 million at 31 December 2007 (2006: total convertible bonds of £526.7 million, made up of £450 million convertible redeemed in April 2007 and £76.7 million Grey convertible). In accordance with IAS 39, these bonds have been split between a liability component and an equity component by initially valuing the liability component at fair value based on the present value of future cash flows and then holding it at amortised cost. The equity component represents the fair value, on initial recognition, of the embedded option to convert the liability into equity of the Group.

The liability element is £81.5 million and the equity component is £nil as at 31 December 2007 (2006: £548.7 million and £68.7 million respectively).

The Group estimates that the fair value of the liability component of the convertible bonds at 31 December 2007 to be approximately £76.8 million (2006: £538.4 million). This fair value has been calculated by discounting the future cash flows at the market rate.

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 fair value and carrying value:

  2007
£m
2006
£m
Within one year (719.4) (624.9)
Between one and two years (94.6) (541.5)
Between two and three years (94.6) (37.2)
Between three and four years (94.6) (37.2)
Between four and five years (94.6) (37.2)
Over five years (2,030.1) (820.6)
Debt financing under the Revolving Credit Facility
and in relation to unsecured loan notes
(3,127.9) (2,098.6)
Short-term overdrafts – within one year (977.9) (706.8)
  (4,105.8) (2,805.4)
Effect of discount/financing rates 779.9 327.1
Debt financing (3,325.9) (2,478.3)
Cash and short-term deposits 2,040.2 1,663.7
Net debt (1,285.7) (814.6)

Analysis of fixed and floating rate debt by currency including the effect of interest rate and cross-currency swaps:

2007
Currency
£m Fixed
rate1
Floating
basis
Period
(months)1
$ – fixed 528.9 5.64% n/a 103
  – floating 384.5 n/a LIBOR n/a
£ – fixed 400.0 6.19% n/a 135
  – floating 213.7 n/a LIBOR n/a
– fixed 165.3 7.39% n/a 51
  – floating 605.7 n/a EURIBOR n/a
¥ – fixed 40.6 2.07% n/a 72
Other 9.3 n/a LIBOR n/a
    2,348.0      
2006
Currency
£m Fixed
rate1
Floating
basis
Period
(months)1
$ – fixed 483.9 5.18% n/a 120
  – floating 72.1 n/a LIBOR n/a
– fixed 56.6 8.85% n/a 36
  – floating 942.0 n/a LIBOR n/a
Other 216.9 n/a LIBOR n/a
    1,771.5      

Note

1 Weighted average. These rates do not include the effect of gains on interest rate swap terminations that are written to income over the life of the original instrument. At 31 December 2007 the amounts still to be written to income were £3.2 million in respect of US dollar swap terminations, to be written to income evenly until June 2014.

The following table is an analysis of future anticipated cash flows in relation to the Group's financial derivatives, which include interest rate and foreign exchange swaps:

  Financial liabilities   Financial assets
2007 Payable
£m
Receivable
£m
  Payable
£m
Receivable
£m
Within one year 422.8 411.3   581.2 588.5
Between one and two years 133.8 131.7   146.2 158.9
Between two and three years 78.3 76.0   60.8 63.4
Between three and four years 82.0 77.1   62.8 65.4
Between four and five years 83.1 77.7   63.9 65.6
Over five years 1,717.9 1,644.9   1,319.7 1,381.4
  2,517.9 2,418.7   2,234.6 2,323.2
  Financial liabilities   Financial assets
2006 Payable
£m
Receivable
£m
  Payable
£m
Receivable
£m
Within one year 748.8 740.2   579.7 607.5
Between one and two years 145.2 142.4   330.0 339.3
Between two and three years 140.7 139.5   50.6 55.5
Between three and four years 35.9 34.9   15.9 16.4
Between four and five years 35.7 34.8   16.0 16.4
Over five years 800.9 775.1   319.2 319.2
  1,907.2 1,866.9   1,311.4 1,354.3