Aegis accelerates cost cutting plans

Acquisitions added £12.8m to first-half revenue and favourable currency movements contributed another £94m. But stripping out these positives, organic revenue fell 10.8 per cent. But profits were hit by £15.7m of restructuring costs and a £8.8m fair value adjustments, which mainly relate to the value of Aegis's investment in Hong Kong-listed Qin Jia Yuan Advertising.

The restructuring costs and £52.3m of deferred payments for past acqusitions helped bump up net debt by £64.8m to £362m. Aegis remains comfortably inside its banking covenants, though, which are set at a debt-to-earnings ratio of 3 times comapared with the group's current debt-to-earnings ratio of 1.6 times.

Organic sales at marketing and media buying division Aegis Media fell 9.9 per cent leaving revenue at £402m. A relatively strong showing from digital services means it now account for 31 per cent of the division's revenues compared with 29 per cent a year ago. Encouragingly, the division had first-half net business wins worth $1.85bn (£1.14bn) which was well ahead of last year's $774m. The group secured contracts with Kelloggs, Nokia and Mastercard among others.

Aegis's research division, Synovate, has suffered more severely with constant-currency revenue down 10.4 per to £235m. Perofmance in Europe and the automotive industry were particularly weak and the division plunged into a £3.2m operating loss from profits of £7.9m. Worse still, the group says that "for the first time ever" the market research industry is expected to underformperform global gross domestic product (GDP) with an expected 4 per cent contraction. What's more, customised research, which accounting for about 90 per cent of Synovate's revenues, is the weakest part of the market, so the outlook is grim. Still, action to slash costs and drive sales are expected to improve second-half performance.

Altium Securities expects full-year pre-tax profits of £104m, giving EPS of 6.3p (2008: £125m/7.3p).

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