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Notes 26-31

27. Equity share owners' funds

Movements during the year were as follows:

  Ordinary
share
capital
£m
Share
premium
account
£m
Shares to
be issued
£m
Merger
reserve
£m
Other
reserves
£m
Own
Shares1
£m
Retained
earnings
£m
Total
£m
Balance at 1 January 2006 125.3 2.1 37.2 (1,388.1) 167.3 (292.9) 5,253.6 3,904.5
Ordinary shares issued 2.1 72.9 (29.7) 18.5 9.22 73.0
Share issue/cancellation costs (0.1) (0.4) (1.2) (1.7)
Share cancellations (3.3) 3.3 (218.8) (218.8)
Exchange adjustments on foreign
currency net investments
(367.0) (367.0)
Net profit for the year 435.8 435.8
Dividends paid (118.9) (118.9)
Non-cash share-based incentive plans
including stock options)
70.9 70.9
Tax benefit of share-based payments 32.3 32.3
Net additions of own shares by ESOP Trusts 4.4 (43.3) (38.9)
Actuarial gain on defined benefit
pension schemes
26.0 26.0
Deferred tax credit on defined benefit
pension schemes
5.3 5.3
Revaluation of other investments 9.5 9.5
Recognition of financial instruments
during the year
16.8 (1.9) 14.9
Balance at 31 December 2006 124.1 74.9 7.5 (1,370.0) (170.1) (288.5) 5,449.0 3,826.9
Ordinary shares issued in respect of acquisitions 0.1 2.2 5.7 8.0
Other ordinary shares issued 0.7 29.5 (7.9) 4.2 1.72 28.2
Share issue/cancellation costs (2.7) (0.1) (2.8)
Share cancellations (5.7) 5.7 (402.7) (402.7)
Exchange adjustments on foreign
currency net investments
71.7 71.7
Net profit for the year 465.9 465.9
Dividends paid (138.9) (138.9)
Non-cash share-based incentive plans
(including stock options)
62.4 62.4
Tax benefit of share-based payments 0.9 0.9
Net disposal of own shares by ESOP Trusts 45.9 (45.9)
Shares purchased into treasury (12.7) (12.7)
Actuarial gain on defined benefit pension schemes 27.0 27.0
Deferred tax charge on defined benefit
pension schemes
(9.9) (9.9)
Revaluation of other investments 108.1 108.1
Share purchases –
close period commitments3
(64.8) (64.8)
Recognition of financial instruments
during the year
3.4 3.9 7.3
Reclassification of equity component of convertible
bond redeemed during the year
(68.7) 68.7
Other movements (0.2) (0.2)
Balance at 31 December 2007 119.2 103.9 5.3 (1,365.9) (114.9) (255.3) 5,482.1 3,974.4

Notes

1 The Company's holdings of own shares are stated at cost and represent shares held in treasury and purchases by the Employee Share Ownership Plan ('ESOP') trusts of shares in WPP Group plc for the purpose of funding certain of the Group's share-based incentive plans, details of which are disclosed in the Compensation Committee report in How we're rewarded.

The trustees of the ESOP purchase the Company's ordinary shares in the open market using funds provided by the Company. The Company also has an obligation to make regular contributions to the ESOP to enable it to meet its administrative costs. The number and market value of the ordinary shares of the Company held by the ESOP at 31 December 2007 was 43,889,384 (2006: 51,134,155), and £284.0 million (2006: £353.1 million) respectively. The number and market value of ordinary shares held in treasury at 31 December 2007 was 2,000,000 (2006: nil) and £12.9 million (2006: £nil) respectively.

2 Represents the difference between the legal share capital and premium, recorded on the issue of new shares to satisfy option exercises, and the cash proceeds received on exercise.

3 During the year, the Company entered into an arrangement with its broker to conduct share buybacks on the Company's behalf in the close period commencing on 2 January 2008 and ending on 28 February 2008, in accordance with UK listing rules. Under IAS 39, the commitment resulting from this agreement constitutes a financial liability at 31 December 2007 which must be recognised at fair value at that date. This liability is included in Trade and other payables: amounts falling due within one year and has been recognised as a movement in equity.

Other reserves comprise the following:

  Equity
reserve
£m
Revaluation
reserve
£m
Capital
redemption
reserve
£m
Translation
reserves
£m
Total
other
Reserves
£m
Balance at 1
January 2006
(16.4) 21.0 0.5 162.2 167.3
Share cancellations 3.3 3.3
Exchange adjustments on foreign
currency net investments
(367.0) (367.0)
Revaluation of other investments 9.5 9.5
Recognition of financial
instruments during the year
16.8 16.8
Balance at 31
December 2006
0.4 30.5 3.8 (204.8) (170.1)
Share cancellations 5.7 5.7
Exchange adjustments on foreign
currency net
71.7 71.7
Revaluation of other investments 108.1 108.1
Recognition of financial
instruments during the year
3.4 3.4
Share purchases –
close period commitments
(64.8) (64.8)
Reclassification of equity
component of convertible bond
redeemed during the year
(68.7) (68.7)
Other movements (0.2) (0.2)
Balance at 31
December 2007
(129.9) 138.6 9.5 (133.1) (114.9)

Reconciliation of movements in consolidated equity share owners' funds for the year ended 31 December 2007:

  2007
£m
2006
£m
2005
£m
Net profit for the year 465.9 435.8 363.9
Dividends paid (138.9) (118.9) (100.2)
  327.0 316.9 263.7
Non-cash share-based incentive plans
(including stock options)
62.4 70.9 68.6
Tax benefit of share-based payments 0.9 32.3 12.9
Exchange adjustments on foreign currency net investments 71.7 (367.0) 266.1
Ordinary shares issued in respect of acquisitions 8.0 506.4
Share issue/cancellation costs (2.8) (1.7) (3.6)
Other ordinary shares issued 28.2 73.0 18.3
Share cancellations (402.7) (218.8) (123.3)
Shares purchased into treasury (12.7)
Actuarial gain/(loss) on defined benefit pension schemes 27.0 26.0 (16.5)
Deferred tax (charge)/credit on defined benefit
pension schemes
(9.9) 5.3 3.6
Net additions of own shares by ESOP Trusts (38.9) (29.0)
Transfer to goodwill (5.1)
Revaluation of other investments 108.1 9.5 21.0
Shares repurchases – close period commitments (64.8)
Recognition of financial instruments during the year 7.3 14.9 (27.6)
Other movements (0.2)
Net additions/(reductions) to equity
share owners' funds
147.5 (77.6) 955.5
Opening equity share owners' funds 3,826.9 3,904.5 2,949.0
Closing equity share owners' funds 3,974.4 3,826.9 3,904.5