Chief Executive’s report.

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Successfully delivering on our strategic objectives...

In 2011, we successfully delivered on the key metrics by which we measure our performance against these strategic objectives. Aegis Media:

Broadened our exposure to faster-growing regions to a sector-leading 34%, from 26% in 2010
Increased the proportion of our revenues from digital to a sector-leading 35%, from 32% in 2010
Grew the proportion of our revenues from international clients to 33%, from 32% in 2010
Outperformed our peer group in terms of organic revenue growth, with Aegis Media delivering organic revenue growth of 9.8% in 2011, compared to the peer group average of 5.8%
Continued to improve margins, with Aegis Media’s operating margin increasing to 19.5%, a 90 basis point improvement from 2010.

...demonstrated by strong financial results in 2011

The delivery of a strong set of financial results in 2011 was the direct consequence of our progress against these and other key metrics.

Revenue for the Group in 2011 was £1,135.0m, up 20.6% at reported rates and up 19.6% at constant currency.

Organic revenue growth for the year was 9.9% for the Group, mainly as a result of strong top line growth from our businesses in faster-growing regions and North America. Aegis Media delivered organic revenue growth of 9.8% for the year, and Aztec produced 11.3% organic revenue growth.

  Quarter Half Year Full Year
Group* Q111 Q211 Q311 Q411 H111 H211 FY11
Organic revenue change % 10.1 6.1 11.2 12.0 7.8 11.7 9.9

* All references to Group in this report relate to the Retained Group, which comprises Aegis Media, Aztec and the corporate centre

Group underlying operating profit was £197.4m, an increase of 30.6% from the prior year at reported rates, and 29.4% at constant currency. The Group achieved an increase in underlying operating margin of 130 basis points at reported rates and at constant currency to 17.4% during 2011.

This margin improvement was assisted by our continued focus on top line growth and cost control. Whilst the business does demonstrate some elements of scalability, cost initiatives are essential to mitigate on-going staff cost pressure, principally driven by industry salary inflation and high employee turnover in some of the faster-growing regions. In addition, we are continuing to increase our headcount in North America, following our strong new business performance in this region over the last 18 months. Group overheads increased by 18.2% at constant currency during the year, with increases in underlying headcount, excluding the addition of employees brought into the business via acquisition, of 12.1%.

Underlying fully diluted earnings per share, on a pro forma basis to take account of last year’s share consolidation, increased by 24.4% at reported rates and 23.0% at constant currency, to 10.7p from 8.6p in the prior year. This increase in earnings per share was supported by a reduction in our underlying effective tax rate in 2011.

A strong balance sheet position...

Our balance sheet position remains strong and we ended the year comfortably within our financial covenants, with undrawn available credit facilities totalling £450.0m.

Our cash position in the fourth quarter of 2011 improved following the sale of Synovate for an enterprise value of £525m. After a return of capital to shareholders of around £200m via a special dividend in November 2011, and following continued acquisition spend during the second half, net debt was £128.4m at the end of the year. This was an improved position from £393.3m at the end of the first half of 2011 and from £331.3m at the end of 2010, mainly as a result of the receipt of the Synovate sale proceeds.

...enables a continued focus on targeted acquisitions

The consequence of the strengthening of our balance sheet over the last two years has been a renewed focus on making acquisitions to support our growth strategy. This focus will continue and we expect to make further acquisitions which provide scale, in-fill and innovation, with a specific emphasis on faster growing regions, North America, and on digital businesses. All acquisition targets will continue to be evaluated against a range of strategic and investment criteria, with a view to providing top line growth, margin improvement and clear synergies.

In 2011, we spent around £75m in initial consideration on 18 small to medium-sized bolt-on acquisitions and investments in a range of different territories. These included MediaVest (Manchester) Ltd in the UK, Master Ad LLC and Ad O’clock LLC in Russia, Clickthinking Online (Pty) Ltd in South Africa, ICUC Social Media Moderation and Riber Sports Marketing Group Inc in North America, Filefix Co Ltd in Japan, pjure in Austria, Creative Media Services UAB in Lithuania and investments in Qualité Search Marketing in Norway as well as TigerSpike Pty Limited in Australia and Doosra in India.

Our focus on acquisitions continues in 2012. Earlier this month, we completed the acquisition of Roundarch, a leading digital agency in the US, for an initial consideration of $125m. This acquisition strengthens our digital capability in North America and, as a result, will move Aegis Media’s digital revenue exposure towards 40%.

Aegis’s acquisition strategy continues to be supported by a strong pipeline of potential targets, across a diverse range of geographies and product offerings which, combined with our proven track record of integration, will help to support us in delivering on our strategic objectives in the future.

Following an excellent start to 2012, we expect further performance progression /

So far in 2012, our clients have continued to spend on marketing and advertising their products and brands, as they seek to gain market share and strengthen their market positions. We expect this trend to continue, helping to support the momentum of our business, which built up during 2011 with a record-equalling net new business performance last year.

This momentum has gained further traction in 2012 with our appointment as the global strategic media partner for General Motors Co., announced in January. This contract, the largest ever single media agency consolidation by a major global advertiser, is a landmark achievement for Aegis, demonstrating our ability to deliver integrated and specialist media and digital communications services on a global scale.

As a result, and following a strong start to the year by the Group, we are optimistic about Aegis’s prospects for 2012. Despite continuing limited short term visibility and on-going macro-economic concerns, we expect to deliver continued sector-leading organic revenue growth in 2012.

Based on our expectations for organic revenue growth this year, and supported by the Group’s continued momentum, we expect underlying operating profit to improve further in 2012.

Our people /

Finally, I would like to thank all our clients and our people.

Our clients have been very supportive, giving us the confidence to deliver a market-leading product to assist them in making the most of the opportunities available in the rapidly-changing global advertising market.

Our people have shown dedication and loyalty, ultimately the key to ensuring that 2011 was such a successful year for Aegis. Their continued support is vital to the future success of the Group and is greatly appreciated by the Board and the management team.

We enter 2012 with a strong set of supportive international clients, the best talent in the market and an energised organisation focused on delivering great work for our clients and a strong performance for our shareholders.

Jerry Buhlmann
Chief Executive Officer, Aegis Group plc

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