Financial review

Balance sheet /

£m 2010 2009
Goodwill 1,331.1 1,010.9
Intangible assets 112.5 85.5
Property, plant and equipment 61.9 59.9
Investments in associates and joint ventures 48.5 3.3
Other non-current assets 74.1 41.1
Total non-current assets 1,628.1 1,200.7
Net payables (441.0) (309.3)
Net debt (331.3) (257.2)
Earn-out liabilities (63.7) (70.2)
Liabilities in respect of put options (34.5) (31.4)
Other (89.2) (88.1)
Net assets 668.4 444.5

Balance sheet movements year-on-year were affected by exchange movements at the closing date, but not to the extent of previous years.

Goodwill and intangible assets /

The increase of £320.2m in goodwill predominantly arises due to the acquisition of Mitchell Communication Group in the year as well as exchange movements and upward revisions of estimated future earn-out liabilities, offset by movements on the disposal of subsidiaries. Goodwill arising on new acquisitions in the year totalled £260.0m.

Intangible assets increased to £112.5m (2009: £85.5m) as a result of an increase in purchased intangibles largely through the Mitchell acquisition, offset by the current year amortisation charge of £35.1m, and together with exchange movements.

Property, plant and equipment /

The net increase in property, plant and equipment of £2.0m was due to depreciation offset by foreign exchange and net additions. Net capital expenditure for the year was £28.1m (2009: £26.0m).

Investments in associates and joint ventures /

The increase of £45.2m in associates and joint ventures was mainly due to the addition of £31.0m and £10.2m from the acquisitions of stakes in Charm Communications Inc and Litmus MR Limited respectively.

Net payables /

Trade payables principally represent amounts payable to media owners in respect of media space booked for clients; trade receivables principally represent amounts due from clients in respect of this space.

There were the usual working capital movements during the year, with an outflow during the first half, followed by an inflow in the second half. During the year, there was a working capital inflow of £18.2m on an underlying basis.

Net debt /

The profile of net debt at the year end was as follows:

£m 2010 2009 Change
(£m)
Cash and short-term deposits 394.4 391.1 3.3
Current borrowings and overdrafts (85.6) (43.2) (42.4)
Non-current borrowings (640.1) (605.1) (35.0)
Net Debt (331.3) (257.2) (74.1)

Net debt fell from £398.4m at the end of the first half to £331.3m at the end of 2010, a year-on-year increase of £74.1m from the end of 2009. This increase was mainly due to acquisition spend, partially offset by strong operating cash flows in the second half of 2010.

Earn-outs and put options /

Our estimated future earn-out liabilities decreased by £6.5m to £63.7m at the end of the year. Decreases in liabilities due to payments made in the year were partly offset by acquired earn-outs of £10.4m through Mitchell, revaluations of future liabilities and currency effects. The vast majority of our earn-out commitments depend on the post acquisition financial performance of businesses acquired.

Liabilities in respect of put options increased by £3.1m to £34.5m (2009: £31.4m).

Cash flow /

Cash inflows from underlying operations were £250.2m (2009: £237.6m), up 5.3%, driven largely by improved profitability across the Group and working capital inflows. Statutory cash inflows from operations were £232.5m, up 16.8% from £199.1m in 2009. Net cash outflows on acquisitions and disposals was £164.7m, primarily relating to the acquisition of Mitchell Communication Group and our stake in Charm, as well as earn-out liabilities paid in the year.

Financing /

In 2010, the Group made good progress in extending its debt maturity and diversifying its debt profile and, as a result, the headroom on the Group’s facilities increased.

In April 2010, the Group issued a convertible bond to raise £190.6m. The convertible bond bears interest at 2.5% per annum and is convertible at the option of the holder into Aegis ordinary shares at an exchange price of £1.6444. The final maturity of the bonds is 20 April 2015.

In July 2010, the Group successfully refinanced the revolving credit facility with a new 5 year £450.0m facility, syndicated amongst twelve international banks, the tenure of which has been lengthened until 2015.

We ended the year with a comfortable covenant position. Our leverage covenant (net debt/EBITDA) was 1.5 times (compared to a covenant requirement of <3 times) and our interest cover covenant (EBITDA/net interest) was 8.2 times (compared to a covenant requirement of >4 times).

Covenant Requirement 2010 2009
Leverage Less than 3 times 1.5 1.2
Interest cover Greater than 4 times 8.2 10.8

Under our committed central facilities, we had undrawn available facilities at the year end of £450.0m (2009: £376.4m). The improvement in central headroom is a result of the convertible bond, the proceeds from which were used to reduce drawings under the Group’s revolving credit facility.

Eight tranches of existing US private placement funding mature between 2012 and 2019. Cash flow forecasts produced on a prudent basis for the next three years show that the Group has sufficient headroom and available facilities to meet its liabilities as they fall due.

Nick Priday
Chief Financial Officer, Aegis Group plc