Business review.

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Aegis Media’s performance continues to be driven by strong positive momentum.

Aegis Media

£m 2011 2010 Change
EMEA 630.9 579.7 8.8 7.9
Americas 217.3 189.4 14.7 17.6
Asia Pacific 220.6 117.7 87.4 81.7
Worldwide 1,068.8 886.8 20.5 20.0
Operating costs (860.3) (722.1) (19.1) (18.6)
Operating profit* 208.5 164.7 26.6 25.8
Operating margin* 19.5% 18.6% 90 bps 90 bps
Throughout this commentary, results are stated on an underlying basis unless otherwise indicated

Headlines /

Organic revenue growth of 9.8% in 2011, including 11.9% in the fourth quarter
At constant currency, operating margin increased 90 basis points to 19.5%, with operating profit increasing 25.8% to £208.5m, supported by strong profit improvement in the Americas and APAC
Businesses in faster-growing regions and North America continued to perform well – contributing around 50% of Aegis Media’s revenue in 2011 (2010: 43%)
Digital revenue up to 35% in 2011 (2010: 32%)
Record-equaling new business performance of approximately $2.7 billion net new business wins in billings in 2011 (2010: $2.0 billion)
Excellent start to 2012 with Carat’s appointment as General Motors Co. global strategic media partner, which carries an anticipated annual global media spend of $3 billion
Carat maintains 2012 global advertising expenditure growth forecast at 6.0%.

Overview /

In 2011, Aegis Media produced sector-leading organic growth, margin progression and a record-equaling year of net new business wins. Our performance highlighted the continued strong momentum being built throughout our business and our unrivalled focus as a scaled media and digital communications specialist, supported by a unique commercial structure.

Our success last year also demonstrates the importance of having a global network to support our international clients. In 2011, we won 32 additional market appointments from our major international clients, in new regions or through new service propositions, totalling around $620m in billings. These include Disney in North America, Mexico and Australia, P&G in Portugal and South Asia, Coca-Cola in Spain and Sub-Saharan Africa, Diageo in Ireland, EPSON in Mexico and Adidas in five new markets across EMEA.

We further increased revenue contribution from our digital capabilities, to 35% from 32% in 2010, as they continued to be fully integrated into our product offerings in order to help our clients develop communications programmes across multiple channels and platforms.

With the digital environment remaining highly complex, clients are increasingly making data-driven decisions to help them measure the performance of their advertising campaigns and track returns on investment. We are developing our own product offerings in this area, such as real time audience buying, to enable us to deliver highly targeted and measurable advertising campaigns for clients. This area will become increasingly important over the long term, and we will ensure that Aegis has the appropriate infrastructure and talent in place to be at the forefront of this industry dynamic in the future.

In 2011, Aegis Media delivered total revenue of £1,068.8m, an increase of 20.5% at reported rates and 20.0% at constant currency. Aegis Media delivered organic growth of 9.8% in 2011, including 11.9% in the fourth quarter of the year:

  Quarter Half Year Full Year
Aegis Media Q111 Q211 Q311 Q411 H111 H211 FY11
Organic revenue change % 10.1 5.8 11.5 11.9 7.6 11.7 9.8

Management continue to focus on cost control, supported by management incentives remaining aligned to margin improvement. Staff cost pressure remains a key feature, given the relatively high industry salary inflation and employee turnover in several key faster-growing regions, and the additional hiring in North America to support our new business wins.

Underlying headcount at Aegis Media increased by 12.1%, excluding the addition of employees brought into the business via acquisition. In total, we now have 12,154 people working for Aegis Media, an 18.1% increase from 2010. This headcount increase impacted total Aegis Media operating costs, which increased by 19.1% at reported rates and 18.6% on a constant currency basis.

Despite this staff cost pressure, operating profit increased by 26.6% at reported rates and 25.8% at constant currency to £208.5m, with operating margin up to 19.5%, an increase of 90 basis points at reported rates and constant currency.

We remain optimistic about the outlook for global advertising and media expenditure, based on our clients’ indicated advertising budgets for 2012. As evidence of this, Carat has maintained its global advertising expenditure growth forecast for 2012 at 6.0%.

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“Aegis Media’s re-focused strategic approach supported our 2011 performance and will continue to do so in the future.”