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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
JOHN NAPIER, CHAIRMAN, BOARD OF DIRECTORS, AEGIS GROUP: Good morning, everyone. This will welcome to you all this half year presentation. My role today here is strictly limited, as it should be, and my first task is obviously to thank you for coming, but also to remind that please turn off your mobiles and it is being webcast live, so we need to get the hair in place.
Introduce myself -- I'm John Napier, I'm the incoming Chairman, but more importantly it is to introduce Robert and Alicja to you, and they are going to go through the results in detail. And I will also be turning up at the end just to chair the Q&A session, so over to Robert and Alicja.
ROBERT LERWILL, CEO, AEGIS GROUP: Thank you, John, and my welcome to you all this morning as well -- we've got analysts, investors, bankers and Aegis colleagues. Among the Aegis colleagues, there a number of familiar faces. We have two fellow board members, Adrian Chedore of Synovate and Jerry Buhlmann, our new-ish CEO of Aegis Media. We have got Mark Jamison, Aegis Media's CFO, and also Patrick Glydon, the CFO of Synovate, as well as Nigel Morris, who most of you know very well, CEO of Isobar, our digital agency business; Annie Rikard, who runs Posterscope worldwide, and Patrick Stahle, who is the Aegis Media CEO in Asia-Pacific, who is in town today.
You may have a chance to hear from one or more of them during the Q&A session and they will be around afterwards to be buttonholed, if you are quick. Before I hand over to Alicja, let me start by saying that we are very pleased with the sets of half-year results. Overall, our markets have held up well. Our organic growth has been best in class again, and this has translated into good financial performance.
We have taken some moderate steps to tighten our cost base, and I will talk about those a little later. We continue to believe in the long-term potential of both our businesses, and we will not compromise this, but in less certain times we want to focus more than ever on good business essentials, cost control and financial discipline.
In whatever the climate, we will be helped by the fundamentals of our businesses, almost one-third digital, one-fifth emerging markets, and with superior products and technologies throughout. I will come back to many of these but first of all, let me hand over to Alicja to go through the numbers.
ALICJA LESNIAK, CFO, AEGIS GROUP: Good morning, everyone. As Robert has already said, we have good results to talk about today. The highlights are double-digit growth in every line of the P&L and a good working capital performance. Together, these have helped to maintain our strong financial position and, of course, our reported results reflect the strength of the Euro and recent acquisitions.
I will start with the first of those highlights, our double-digit growth. As always, I will talk to our underlying results at constant currency but you can also see the very good growth at reported rates. Turnover up 11.1%. This demonstrates the strength of our traditional business, including the benefits of wins such as Mattel and J&J.
Revenue was up 13.7%, ahead of turnover, due to the strength of digital. Gross profit was up 14.9%, ahead of revenue, reflecting the benefits of Synovate's SmartWork program. Operating profit was up 16.7%, demonstrating good cost control. Net interest of GBP10 million mainly reflected continuing acquisition activity.
As a result, profit before tax was up 15.4%, to GBP56.2 million, a good result. Once again, organic growth was a key driver of our performance. Aegis Media has now grown at around 10% organically in each of the last six quarters. That is an exceptional performance and reflects an excellent tailwind from our 2007 new business performance and our leadership in digital.
Synovate also outgrew the market. In particular, we had to weather the effects of a difficult U.S. pharmaceutical market; so against that backdrop, 5.2% is very respectable. The green and yellow bars here on the chart show our latest estimates for market growth in our two sectors. Both are trending down somewhat as our markets become more hesitant. But as you can see from this chart, our two businesses were nicely ahead of their markets in the first half, and Robert will talk a bit more about how we see market growth shaping up later on.
Let us now look at the total revenue performance of each division. All three regions of Aegis Media are up in double digits. EMEA was up over 15%, despite market slowness in Spain and UK out of home. It continues to be the powerhouse with good performances from all our brands.
In the Americas, we were up 12.7%. Our non-traditional business and Latin America were [well] up. This more than compensated for challenges at Carat in the U.S., which Robert will cover later. It is also worth noting that we still had Hyundai in the first quarter. Despite our U.S. client losses, we still delivered an improvement in growth and operating margins.
Asia-Pacific was up over 30%. Almost half was organic. In March, I explained that the new regional management team had been tidying up some legacy joint ventures, and that the region was poised for a pickup in growth in 2008. That is coming through well. Synovate has total growth of 10.1% growth. EMEA was up 12.5%. Our best [performances] came from Central and Eastern Europe, Germany, where we have been particularly successful in automotive, and Norway.
The Americas grew at 4.6%. This includes a first contribution from CIMA in Latin America, an acquision made in response to increasing client interest in the region. Inside the U.S., we are experiencing a downturn in our ad-hoc healthcare business, as pharmaceutical clients faced challenges of their own.
Excluding healthcare, the U.S. was up 2%. Good growth in automotive and financials was offset by weakening demand from consumer industries. Asia-Pacific was up 11.9%. Once again, this region delivered the best organic growth with a good performance right across the board. Divisional operating margins showed little change in the first half, though in fact our half year margin is not very meaningful. It is full year margins that matter.
Aegis Media was broadly flat; Synovate's margin remains steady year on year, and lower central costs contributed to a good increase in our group margin at 10.7%, although much of this was timing related. Let's move on to a reconciliation of our underlying pre-tax profit back to (inaudible). There are a couple of items I would like to highlight here.
First, the charge for amortization of purchased intangibles. This has increased significantly. This is an accounting charge for amortization of any software, tools, IT and client relationships in our acquisitions. Evolving practice means we are now recognizing additional intangible assets on acquisition as purchased intangibles, rather than as good will. As a result, we have restated our 2007 comparative to GBP0.6 million from GBP0.2 million, and we are taking the charge of GBP4.2 million in the first half of this year.
Secondly, our reorganization costs of GBP4.8 million predominantly relates to the U.S. These include headcount reduction of GBP2 million at Carat, and GBP1.6 million of non-cash charges for rationalization of property. We anticipate a full year charge of GBP8 million altogether for these reorganization costs.
Our underlying tax charge of 26.5% was in line with full year 2007 and we expect to maintain it at around this level for the full year. This reflects the tax fund benefits I talked about in March. As a result, profit after tax was up 18.7% of constant currency to GBP41.3 million.
Minority interest doubled in the period, from GBP1.8 million to GBP3.6 million. Most of our minorities are in emerging markets, where growth is fastest, hence the scale of this increase. As a result, EPS of [GBP3.3] was up 13.8%. Statutory earnings per share of [GBP2.6]. We are increasing our interim dividend by 14.3%, [GBP0.96], and maintaining a very healthy cover of 2.7 times or 3.4 times on an underlying basis.
Our cash performance in the first half was excellent. Operating cash flow doubled to GBP93.3 million, mainly the result of higher profit and working capital improvements. We achieved a period and working capital in-flow of GBP14.7 million. This is consistent with our aim of managing working capital to be broadly flat, and you can see our average net working capital in the appendix.
This helped us generate GBP80.5 million of net cash, up GBP46.5 million on the first half of 2007. At GBP21.2 million, CapEx was up by a third. The principle areas of spend relate to leases and [office tax], such as our UK Synovate move. Again, our CAP-EX is also fully itemized in the appendix. Net acquisition spend of GBP61.8 million was [GBP30 million] down on the first half of last year.
Net cash before financing was almost flat. After paying dividends, and servicing our debt, our period and net debt was GBP270.5 million, just GBP25.3 million higher than December in spite of our continuing acquisition spend.
Let's just look at those acquisition payments in more detail. We...
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