Chief Executive’s Report

Aegis delivered a robust set of financial results in 2010, during which we saw a return to growth in advertising and market research, with both Aegis Media and Synovate outperforming their respective markets.

We took significant steps in delivering on our objectives for our two businesses: positioning Aegis Media for a more convergent media environment and consolidating Synovate’s position in a changing market dynamic. We made good progress in increasing our exposure to both faster-growing regions and digital media platforms and we aim to increase this exposure further in the future, supported by the delivery of continued organic revenue growth and an on-going focus on acquisitions in these areas.

Our strong operational and financial performance in 2010 was testament to the hard work and commitment of our people and, in my first year as Aegis’s CEO, I am grateful to all of our people for their continued support. This performance, together with good new business momentum at Aegis Media and Synovate’s healthy orders on hand position going into 2011, ensures the Group is well placed for the future.

Delivering on key strategic objectives in 2010 /

We have high quality, focused senior management teams at both Aegis Media and Synovate which were further strengthened by a number of key appointments and promotions in 2010. The management teams have the right balance of energy and experience to develop our businesses going forward. In 2010, we were focused on delivering six key strategic objectives:

1. Increasing global reach, in particular increasing our exposure to faster-growing regions;
2. Strengthening our product portfolio and service range, including growing digital revenue at Aegis Media;
3. Building on our leading market positions and increasing our presence in key markets, reflecting client needs;
4. Developing international clients and building new business momentum;
5. Targeting potential acquisitions, subject to strategic and financial criteria; and
6. Driving revenue growth and cost control to improve our profit margins.

We will continue to focus on these key strategic objectives, ensuring our businesses remain well positioned for future growth.

1.
Increasing global reach, in particular increasing our exposure to faster-growing regions / Our geographic profile has changed significantly over the last five years, demonstrated by our increased presence in the faster-growing regions of Asia Pacific, Latin America, Eastern Europe and the Middle East and Africa over this period. Last year, Group revenue contribution from these regions increased to 33%, from 20% in 2006, following the acquisition of Mitchell Communication Group (“Mitchell”), Australia’s leading marketing communications agency in November 2010.
Mitchell, Aegis’s largest acquisition in 11 years, along with our investment in, and joint venture with, Charm Communications Inc (“Charm”), one of China’s leading media buying and advertising agencies, give us a significantly strengthened base from which to further improve our already strong position in the Asia Pacific region.
2.
Strengthening our product portfolio and service range, including growing digital revenue at Aegis Media / In 2010, Aegis Media and Synovate management reviewed and optimised their respective product portfolios and service ranges. This will ensure we are well placed to meet the needs of clients operating across a range of different markets, using a wide range of media and research platforms for their ever-changing requirements.
At Aegis Media, our digital capability is at the heart of our strategy, with digital contributing approximately 32% of Aegis Media’s revenue in 2010. Going foward, we expect the proportion of digital revenues to continue to grow as a result of continued acquisitions and anticipated organic growth from our existing businesses in this area. In addition, to meet increased client need for improved accountability, performance measurement and returns on investment, we have ensured that data management and platforms at both businesses continue to be fully integrated into our product and service offerings. Also in 2010, our market-leading CCS (Consumer Connection System) insight product was extended into 27 markets around the world.
3.
Building on our leading market positions and increasing our presence in key markets, reflecting client needs / We continue to build on our leading market positions, whilst also growing our presence in key markets, reflecting the needs of our clients. In 2010, we achieved this organically at both businesses, as exemplified by strong performances in North America and faster-growing regions. We also improved our position in certain markets via acquisition, as illustrated by the Mitchell transaction in Australia and our agreement to acquire a majority stake in COMCON, a leading Russian market research business, announced in December 2010. As a result, we are now the leading player in the Australian media market and we will become the second largest custom research provider in Russia.
4.
Developing international clients and building new business momentum / In 2010, new business momentum remained strong at both businesses. Last year, Aegis Media delivered over $2.0 billion in net new business wins, including a number of new international assignments such as Beiersdorf in the US and Germany, ING in Italy and France and Deutsche Bank around the world. Aegis Media succeeded in winning 99 additional market appointments from our major international clients, including Diageo, Nokia, Kellogg’s and Disney. Synovate was also successful in winning a number of major multi-national projects around the world in 2010, for companies including Unilever, Coca-Cola and HSBC. In addition, client retention at both businesses was very good during the year. This successful trend for both businesses has continued so far in 2011, with $1.5 billion of net new business wins already achieved at Aegis Media and a strong orders on hand position at Synovate at the start of the year.
5.
Targeting potential acquisitions, subject to strategic and financial criteria / Given our strong balance sheet and improved debt profile, we are able to re-focus on acquisitions with a view to extending our capabilities and driving growth. We have been and will continue to target acquisitions which provide scale, infill and innovation, with a focus on small to medium-sized bolt-ons in both faster growing regions and digital.
All acquisition targets are evaluated against strategic and investment criteria, including management and cultural fit, the delivery of good returns against financial hurdles and earnings accretion in the first full year after they are completed.
The acquisition of Mitchell is a good example. There is a strong strategic and cultural fit and we expect the transaction to be earnings accretive in 2011 at current exchange rates by low to mid-single digits. This is despite Mitchell shareholders taking up the maximum allotment of Aegis shares available as part of the consideration for the transaction.
6.
Driving revenue growth and cost control to improve our profit margins / Emerging from recession, upward pressure on staff costs is a growing feature as we ensure competitive salaries, increase headcount to support new business and re-introduce incentives to retain key staff to support the growth of our business. Total overheads were up 5.3% at constant currency during the year. To counter these cost pressures, we will maintain a clear focus on cost control and efficiencies throughout the Group. This focus is a key part of our culture, with management incentives aligned to margin performance.
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