Financial review

Income statement /

Revenue /

Revenue grew 8.4% at reported exchange rates, or 6.4% at constant currency, to £1,459.4m (2009: £1,346.5m). Excluding the limited impact of prior year acquisitions and disposals, the increase in Group organic revenue was 5.8%.

Group
£m		 2010 Change
%		 2009 Change
%
Prior year revenue as reported 1,346.5   1,342.0  
Currency movements 25.7 1.9 133.2 9.9
Prior year revenue at constant currency 1,372.2   1,475.2  
Organic movement in year 79.7 5.8 (142.5) (9.7)
Change in revenue from acquisitions & disposals in year 7.5 0.5 13.8 1.0
Total change in revenue at constant currency 87.2 6.4 (128.7) (8.7)
Current year revenue as reported 1,459.4   1,346.5  
Aegis Media
£m		 2010 Change
%		 2009 Change
%
Prior year revenue as reported 825.2   823.8  
Currency movements 5.2 0.6 80.3 9.7
Prior year revenue at constant currency 830.4   904.1  
Organic movement in year 47.9 5.7 (87.7) (9.7)
Change in revenue from acquisitions & disposals in year 8.5 1.0 8.8 1.0
Total change in revenue at constant currency 56.4 6.8 (78.9) (8.7)
Current year revenue as reported 886.8   825.2  
Synovate
£m		 2010 Change
%		 2009 Change
%
Prior year revenue as reported 521.3   518.2  
Currency movements 20.5 3.9 52.9 10.2
Prior year revenue at constant currency 541.8   571.1  
Organic movement in year 31.8 5.9 (54.8) (9.6)
Change in revenue from acquisitions & disposals in year (1.0) (0.2) 5.0 0.9
Total change in revenue at constant currency 30.8 5.7 (49.8) (8.7)
Current year revenue as reported 572.6   521.3  

Group revenue increased 7.0% organically in the fourth quarter of 2010 and 8.1% during the second half of the year:

  Quarterly performance Half Year
performance		 Full Year
performance
Organic Revenue Change % Q110 Q210 Q310 Q410 H110 H210 FY10
Aegis Group 1.1 4.7 9.7 7.0 3.2 8.1 5.8
Aegis Media 3.0 3.6 8.5 7.4 3.4 7.8 5.7
Synovate (1.9) 6.5 11.5 6.3 2.8 8.4 5.9

Gross profit (net revenue) /

The difference between the Group’s revenue and net revenue is attributable to pass-through and direct costs at Synovate. Total Group net revenue was £1,237.5m, up 7.9% or 6.4% at constant currency, whilst Synovate’s net revenue increased by 9.0%, or 5.3% at constant currency, as shown in the table below:

Synovate
£m		 2010 2009 Change
%		 Constant
currency
%
Gross revenue 572.6 521.3 9.8 5.7
Net revenue 350.7 321.8 9.0 5.3
Net revenue conversion 61.2% 61.7% (50)bps (30)bps

Synovate’s net revenue conversion fell slightly to 61.2% as a result of a change in work mix and continuing pricing pressure.

Operating performance /

Operating expenses increased to £1,045.3m (2009: £976.7m), an increase of 7.0% at reported exchange rates, or 5.3% at constant currency, mainly as a result of increased staff costs during the year. Corporate costs increased from £17.0m to £18.1m in 2010.

Operating profit was £192.2m (2009: £170.3m), up 12.9% or 12.3% at constant currency, due to improved performances of both businesses during the year.

Group operating margin was 13.2% in 2010, an increase of 60 basis points, or 70 basis points at constant currency, from the prior year.

Profit before interest and tax /

After a profit from associates of £4.0m (2009: loss of £(0.3)m), predominantly relating to our share of profits from our investment in Charm Communications Inc (“Charm”), profit before interest and tax was up 15.4% to £196.2m (2009: £170.0m), equivalent to an increase of 14.5% at constant currency.

Net financial items /

£m 2010 2009 Change
%		 Constant
currency
%
Interest income 6.6 7.9 (16.5) (18.5)
Interest payable (39.7) (28.6) (38.8) (38.3)
Net interest charge before fx (losses)/gains (33.1) (20.7) (59.9) (60.7)
Foreign exchange (losses)/gains (0.7) 1.1 (163.6) (163.6)
Net financial items (33.8) (19.6) (72.4) (73.3)

The Group’s net charge in respect of financial items was £33.8m (2009: £19.6m) an increase of 72.4% or 73.3% at constant currency.

This increase reflects the Group’s actions to diversify and extend the maturity profile of its borrowings over the last 18 months. In December 2009, the Group raised £25.0m and $183.0m in unsecured loan notes repayable between 2017 and 2019 and, in April 2010, £190.6m was raised through the issue of convertible notes. In addition, the Group re-financed a five year revolving credit facility on renewed terms.

Before the effect of foreign exchange gains and losses relating to financing items, the net interest charge in 2010 increased year-on-year to £33.1m (2009: £20.7m). Within the net interest charge, interest income reduced to £6.6m (2009: £7.9m), principally due to the significantly lower level of average interest rates available on cash deposits during the year, and interest payable increased to £39.7m (2009: £28.6m), reflecting the increase in the Group’s overall borrowings.

Profit before tax /

Profit before tax of £162.4m (2009: £150.4m) increased by 8.0%, or 7.0% at constant currency.

Tax /

Our underlying effective tax rate for the year was 24.9% (2009: 25.3%). The statutory effective tax rate was 36.8% (2009: 29.6%). The total of income taxes paid in cash in the year was £47.6m (2009: £34.2m).

Profit attributable to equity holders of the parent /

Minorities’ share of income increased to £3.4m (2009: £3.0m) reflecting a marginal improvement in profitability of non-100% owned entities in the Group and underlying profit attributable to equity holders of the parent was £118.6m (2009: £109.3m). Minorities’ share of statutory income was £1.8m, up from £1.5m in 2009. Statutory profit attributable to equity holders of the parent was £41.2m (2009: £62.7m).

Earnings per share /

Diluted earnings per share increased by 5.2% to 10.1p (2009: 9.6p). For 2011, we expect the Mitchell acquisition to be accretive to diluted earnings per share by low to mid single digits.

Dividends /

The Board is proposing a total dividend of 2.75p per ordinary share, an increase of 10.0% from the prior year.

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