Section image

Cherries
oil on canvas
22 x 20 in
1981

Penny Machines
oil on canvas
23¾ x 29¾ in
1961

Stack of Books
oil on canvas
30 x 24 in
n.d.

Seven Suckers
oil on canvas
19 x 23 in
1970

Twin Jackpots
oil on canvas
30 x 46 in
1962

Ties
oil on canvas
20 x 26 in
1980

Cake Slices
oil on canvas
20 x 16 in
n.d.

Notes 6-10

For the year ended 31 December 2010

10. Sources of finance

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

  Shares   Debt
  2010
£m
2009
£m
  2010
£m
2009
£m
Analysis of changes in financing          
Beginning of year 138.2 134.1   3,586.4 4,385.7
Other ordinary shares issued 42.7 4.1  
Net increase/(decrease) in drawings on bank loans, corporate bonds and convertible bonds   19.8 (426.3)
Net amortisation of financing costs included in net debt   13.6 (32.8)
Other movements   0.5 (21.1)
Exchange adjustments   (22.1) (319.1)
End of year 180.9 138.2   3,598.2 3,586.4
Note
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 2010, the Company’s share base was entirely composed of ordinary equity share capital and share premium of £180.9 million (2009: £138.2 million), further details of which are disclosed in note 26.

Debt

US$ bonds The Group has in issue $600 million of 8% bonds due September 2014 and $650 million of 5.875% bonds due June 2014.

Eurobonds The Group has in issue €600 million of 4.375% bonds due December 2013, €500 million of 5.25% bonds due January 2015 and €750 million of 6.625% bonds due May 2016.

Sterling bonds The Group has in issue £400 million of 6% bonds due April 2017 and £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 and a £200 million amortising Revolving Credit Facility maturing in July 2011. The Group’s borrowing under these facilities, which are drawn down predominantly in US dollars, euros, Canadian dollars and pounds sterling, averaged the equivalent of $818 million in 2010. The Group had available undrawn committed credit facilities of £1,145 million at December 2010 (2009: £1,335 million).

Borrowings under the Revolving Credit Facilities 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 $1.6 billion Revolving Credit Facility as a backstop. There was no US Commercial Paper outstanding at 31 December 2010.

Convertible bonds

The Group has in issue £450 million of 5.75% convertible bonds due May 2014. At the option of the holder, the bonds are convertible into 76,530,612 WPP ordinary shares at an initial share price of £5.88 per share.

The convertible bonds have a nominal value of £450 million at 31 December 2010. 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. This fair value has been calculated assuming redemption in May 2014 and using a discount rate of 8.25%, based on the estimated rate of interest that would have applied to a comparable bond issued at that time without the convertible option. 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 £413.2 million and the equity component is £44.5 million as at 31 December 2010.

The Group estimates that the fair value of the liability component of the convertible bonds at 31 December 2010 to be approximately £433.2 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:

  2010
£m
2009
£m
Within one year (209.4) (210.0)
Between one and two years (308.7) (210.0)
Between two and three years (721.1) (228.1)
Between three and four years (1,416.3) (797.7)
Between four and five years (509.8) (1,396.6)
Over five years (1,355.4) (1,928.4)
Debt financing under the Revolving Credit Facility and in relation to unsecured loan notes (4,520.7) (4,770.8)
Short-term overdrafts – within one year (255.4) (720.7)
Future anticipated cash flows (4,776.1) (5,491.5)
Effect of discounting/financing rates 922.5 1,184.4
Debt financing (3,853.6) (4,307.1)
Cash and short-term deposits 1,965.2 1,666.7
Net debt (1,888.4) (2,640.4)


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

2010
Currency
£m Fixed
rate
1 Floating
basis
Period
(months)
1
$ – fixed 1,338.0 6.54%   n/a 44  
  – floating 283.0 n/a   LIBOR n/a  
£ – fixed 550.0 6.07%   n/a 83  
  – floating 200.0 n/a   LIBOR n/a  
– fixed 728.7 6.50%   n/a 63  
  – floating 363.1 n/a   EURIBOR n/a  
¥ – fixed 71.1 2.07%   n/a 36  
$C2 – floating 81.1 n/a   LIBOR n/a  
Other   (16.8) n/a   n/a n/a  
     3,598.2
       

2009
Currency
£m Fixed
rate
1 Floating
basis
Period
(months)
1
$ – fixed 1,106.1 6.54%   n/a 56  
  – floating 459.0 n/a   LIBOR n/a  
£ – fixed 550.0 6.07%   n/a 95  
  – floating 200.0 n/a   LIBOR n/a  
– fixed 754.3 6.50%   n/a 75  
  – floating 375.9 n/a   EURIBOR n/a  
¥ – fixed 59.8 2.07%   n/a 48  
$C2 – floating 56.2 n/a   LIBOR n/a  
Other   25.1 n/a   LIBOR n/a  
    3,586.4          
Notes
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 2010 the amount still to be written to income was £1.7 million (2009: £2.2 million) in respect of US dollar swap terminations, to be written to income evenly until June 2014.
2
Represents Canadian dollars.


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

2010 Financial liabilities   Financial assets
  Payable
£m
Receivable
£m
  Payable
£m
Receivable
£m
Within one year 74.1 46.3   160.0 205.4
Between one and two years 36.6 29.2   85.7 123.5
Between two and three years 335.2 241.1   758.8 847.0
Between three and four years 368.7 291.0   804.8 877.8
Between four and five years 480.6 355.8   556.5 656.4
Over five years 27.1 27.1   457.3 488.4
  1,322.3 990.5   2,823.1 3,198.5

2009 Financial liabilities   Financial assets
  Payable
£m
Receivable
£m
  Payable
£m
Receivable
£m
Within one year 284.5 272.8   170.5 218.7
Between one and two years 38.1 31.8   78.4 111.7
Between two and three years 45.4 39.0   107.5 128.9
Between three and four years 325.9 249.7   796.3 881.8
Between four and five years 336.7 242.4   841.0 909.3
Over five years 489.3 384.4   803.8 925.5
  1,519.9 1,220.1   2,797.5 3,175.9

Included in these amounts are anticipated cash flows in relation to cash flow hedges.