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28 August 2009

Aegis Group plc

2009 Interim Results Announcement

Forecasting full-year underlying profit in line with market consensus

• Underlying operating profit at £51.1m, down 16.5% on a reported basis, and 28.9% at constant currency, held up well in a difficult market environment 

• Revenue was up 4.8% on a reported basis, down 9.2% at constant currency; organic revenue decline of 10.8%

• End-of-year cost actions taken significantly mitigated revenue falls, although differences in phasing meant Synovate made a small mid-year loss of £3.2m

• Results reflect a positive currency impact of 15.4% on reported revenue; 17.4% on underlying operating profit

• Underlying group operating margin was 8.0%, compared to prior half-year of 10.1%, with a relatively stronger Aegis Media performance partly offsetting the loss in Synovate

• Underlying pre-tax profit is stated before £36.9m of adjusting charges which are deducted from the statutory results: restructuring costs of £15.7m, acquisition-related amortisation of £12.4m and negative fair value adjustments of £8.8m

• Aegis Media achieved record net new business of $1,845.3m, and also benefited from a strong digital mix at 31% of revenue and an earlier phasing of cost reduction programme

• Covenant position remains strong and headroom on banking facilities comfortable

• First half performance, together with forecast revenue and accelerated run rate of cost improvements in the second half, underpin our forecast for full-year profit to be in line with current market consensus

• Interim dividend held at 0.96p, reflecting first half underlying performance and confidence in forecast outlook

£m	H1 2009	H1 2008	Change, %	Constant currency, %
Turnover	4,780.1	5,332.3	(10.4)	(21.6)
Revenue	636.7	607.6	4.8	(9.2)
Underlying results*
§ operating profit	51.1	61.2	(16.5)	(28.9)
§ pre-tax profit	43.5	56.2	(22.6)	(36.4)
§ diluted eps	2.6p	3.3p	(21.2)
Statutory results
§ operating profit	23.0	52.2	(55.9)	(62.2)
§ pre-tax profit	6.6	47.4	(86.1)	(88.5)
§ diluted eps	(0.2)p	2.6p	-
Dividend per share	0.96p	0.96p	-

* Throughout the commentary in this announcement, results are stated on an underlying basis unless otherwise indicated. See page 2 for more detailed definition.  Percentage movements are given at reported exchange rates unless otherwise stated.

John Napier, chairman and interim chief executive officer, said:

'We developed a clear strategy to perform resiliently in a downturn, which has delivered in more difficult market conditions than forecast. The rate of delivery of savings is increasing, and with strong new business wins in Aegis Media and an improved Synovate secured net revenue position, we expect to deliver a full-year profit outcome in line with the current market consensus. The Board is pleased to maintain the interim dividend.' 

For further information please contact:

Aegis Group plc +44 (0) 20 7070 7700	Tulchan +44 (0) 20 7353 4200
John Napier, chairman and interim chief executive officer Alicja Lesniak, chief financial officer Nick Priday, chief financial officer designate Charlotte Elston, communications director	Andrew Grant Susanna Voyle

Our interim results presentation will be audiocast live today at 09.00 (GMT) and available afterwards for replay at www.aegisgroupplc.com.

Reconciliation of underlying to statutory profit before tax

£m	H1 2009		H1 2008	Change, %
Underlying profit before tax	43.5		56.2	(22.6)
Less:
Restructuring costs#	(15.7)		(4.8)
Amortisation of purchased intangible assets	(12.4)		(4.2)
IAS 39 adjustments	(8.8)		0.2
Statutory profit before tax	6.6		47.4	(86.1)
Underlying diluted earnings per share	2.6p		3.3p	(21.2)
Statutory diluted earnings per share	(0.2)p		2.6p
Dividend per share	0.96p		0.96p

* Underlying operating profit, underlying profit before interest and tax, underlying profit before tax, and underlying profit after tax are operating profit, profit before interest and tax, profit before tax, and profit after tax respectively, stated before those items of financial performance that the Group believes should be separately disclosed to assist in the understanding of the underlying performance achieved by the Group and its businesses ('adjusting items').  Such adjusting items are material by nature or amount in the opinion of the directors and may include impairment charges and other exceptional items, including profits and losses on disposals of investments, amortisation of purchased intangible assets, unrealised gains and losses on non-hedge derivative financial instruments, fair value gains and losses on liabilities in respect of put option agreements, and any related tax thereon, as appropriate.  Adjusting items may also include specific tax items such as the benefit arising on the reduction of certain tax liabilities in a particular half-year period and deferred tax liabilities for tax deductions taken in respect of goodwill, where a deferred tax liability is recognised even if such a liability would only unwind on the eventual sale or impairment of the business in question.

Adjusting items are classified as operating, non-operating and financing according to the nature of the underlying income or expense.

The Group has reclassified certain foreign exchange gains relating to financing items from operating profit to net finance costs to more appropriately reflect the nature of such items. As a result, £3.8m of net foreign exchange gains have been reclassified from operating expenses to net finance costs in respect of the six months ended 30 June 2008 (year ended 31 December 2008: £8.4m). There is no impact on pre-tax profit or earnings per share.

# The Group announced a cost reduction programme as part of its 2008 results, the restructuring charge associated with which was £39.4m.  Of this, £27.4m was charged in 2008 (Aegis Media £22.6m; Synovate £2.1m; Corporate Head office £2.7m) and £12.0m was to be taken in 2009.  The £12.0m charge to be taken in 2009 was stated at 2008 average exchange rates and related to Synovate.  At H1 2009 exchange rates, this equates to a restructuring charge of £13.5m to be taken in 2009, of which £12.2m was charged in the first half.  In addition, incremental severance of £3.5m was charged in respect of Aegis Media resulting in a total restructuring charge for H1 2009 of £15.7m.  

A full glossary of terms used is included on page 32.

Review of results

At the 2008 results presentation we made it clear that we believe the industry faced a more challenging market environment with the continuing onset of a global recession. Our strategy was to position the company to respond to those market conditions. We announced measures to:

• introduce significant cost reductions to meet an expected downturn in markets;

• increase the flexibility of our variable costs particularly performance pay in the event of significant revenue falls;

• safeguard service standards and competitive actions; and

• have the management capability to react to market opportunities and changes.

In short, we forecast that we expected to produce a resilient performance in more difficult market conditions.

All the above features have come into play in the first half of the year. Reported group revenue grew at 4.8% to £636.7m, which was equivalent to a decline of 9.2% at constant currency. The organic revenue decline was 10.8%. In general, the group revenue decline was greater in the first quarter and slackened in the second. 

Although a market downturn was assumed, and action was taken to reduce the cost base of both businesses and central costs, the market decline was greater than was expected. Total operating expenses were down 7.1% at constant currency, helped by the variable cost flexibility in relation to performance bonuses. The relative decline in revenue has meant that further cost measures to achieve a better underlying sustainable cost base have been actioned.  

The geographic and strategic mix of the business has meant that results have continued to benefit from favourable foreign exchange movements. These had a positive effect on our reported revenue of 15.4%. Overall Aegis Group plc margins were 8.0%, compared to 10.1% in the first half of last year, and demonstrate the level of resilience forecast in what is always the weaker first half of the Aegis year.  

Aegis Media has made significant new business wins which place it in a stronger position to improve comparative performance in the second half.  Markets remain competitive, but Aegis Media has been well placed to take opportunity of the challenging market circumstances and is more advanced with its cost reduction measures.  

Synovate faced different challenges: severe market conditions and the complexity of its business. As a result, it has been less advanced with cost reduction measures while revenue performance has been down, producing a small loss in the first half. There has been an intensification of plans to reduce costs and salary cost reductions have accelerated quarter-to-quarter from 0.7% to 7.8%.

The group remained comfortably within covenants, and the undrawn headroom on committed lending facilities increased slightly from £172.1m at 31 December 2008 to £178.3m at 30 June 2009.

Outlook

Market conditions are expected to remain difficult and we are not forecasting on the basis of any upturn in the second half, although both Aegis Media and Synovate will face easier second half comparatives.  

Aegis Media's performance will see increasing benefits from new business won in the first half. An improved secured net revenue position at Synovate, together with an improved run rate of cost reductions, are expected to lift Synovate's results substantially.  In the first quarter, total group staff costs at constant currency, excluding performance pay and severance, were 2.0% lower than in the first quarter of 2008, and by the second quarter the savings had increased to 7.5%.  

These factors, together with the continuing impact from actions already taken in the first half to reduce costs, and the flexibility of performance pay, give us confidence to forecast a full year profit outturn in line with current market expectations.

Aegis Media 

£m
	H1 2009	H1 2008	Change, %	Constant currency, %
Revenue
EMEA	281.3	276.8	1.6	(7.2)
Americas	83.8	77.9	7.6	(14.9)
Asia Pacific	37.1	31.2	18.9	(1.3)
Worldwide	402.2	385.9	4.2	(8.4)
Operating profit*	63.0	65.8	(4.3)	(16.0)
Operating margin*	15.7%	17.1%

* Throughout this commentary, results are stated on an underlying basis unless otherwise indicated.

Highlights

• Revenue performance held up better than turnover; further strengthening of gross margin to 8.8%

• Operating profit down, but impact of revenue falls significantly offset by ongoing cost reductions

• Strongest ever half for net new business at $1,845.3m, including Kellogg's in EMEA and Nokia globally

• Some moderation in organic revenue decline in course of first half; helped in part by easier comparatives and phasing of new business

• 31% of first half revenue derived from digital services

• Geographic reach broadened with affiliate relationships signed in nine new markets

Overview

Aegis Media delivered a relatively resilient first-half performance with reported operating profit of £63.0m, 4.3% below last year, down 16.0% at constant currency, in a difficult market.  

In this environment, revenue held up better than turnover at £402.2m, an increase of 4.2%, and a decline of 8.4% at constant currency. Acquisitions contributed 1.7 percentage points to revenue in the period. On an organic basis, the revenue fall was 9.9%. This was a creditable performance against difficult comparatives, particularly in the first quarter.

Turnover fell further (22.1% on a constant currency basis), mainly due to weaker markets in the US and Europe, and media deflation. This was offset by gross margin gains at 8.8%, up from 7.6% in the prior period. This reflects further diversification of revenue sources, and our ongoing expansion in digital services, where revenue performance was relatively stronger than offline planning and buying within Aegis Media's revenue mix. Digital services accounted for 31% of Aegis Media revenue in the first half, up from 29% in the first half of 2008.

The reported reduction in operating profit was mainly revenue-led and was partially offset by cost reductions and significantly lower bonus costs. All costs remain an ongoing area of attention. This has resulted in a reduction in the half-year operating margin to 15.7%, compared to 17.1% in the first half of 2008.

Isobar, our global digital agency network, was not unaffected by tougher trading conditions, although revenue held up better than elsewhere in Aegis Media. Digital services made up 31% of Aegis Media revenue in the period. We saw particularly good growth in social media services, albeit on a small base, where demand was considerable, and we launched a number of new practices in this area. Mark Cranmer was appointed CEO of Isobar, bringing over 25 years' advertising agency experience, replacing Nigel Morris, who has taken on the challenge of Aegis Media North America.

Posterscope continued to face a difficult out-of-home market. Posterscope outperformed the UK market, its largest. Internationally, Posterscope USA continued to do well, while in Continental Europe demand remained weak, broadly tracking prevailing conditions in individual markets. We continued to invest in new tools, and will shortly be launching Prism Screen 2, a digital planning tool with data covering some two million digital screens, or 80% of the world's digital advertising screens, in the US, China, India and three other Asian markets, following its successful UK launch in 2008, giving us unrivalled leadership in digital.

New business performance was excellent in the period, with net wins of $1,845.3m, up from $774.1m in the first half of 2008. Notable pitch success included Kellogg's in EMEA, the awards globally of Nokia's media and digital creative mandates, the wins of Groupe Crédit Agricole and Société Générale in France, Diageo in Russia and Spain, Perfetti van Melle in China, Pernod Ricard in the Nordics and Taiwan, Mastercard in Russia and China, Bild in Germany and MGM Grand in the US. 

Aegis Media EMEA

We experienced falling revenue in almost every market in this region.  Revenue of £281.3m was up 1.6%, down 7.2% at constant currency.  

The toughest markets were Spain, where a very weak economy and high unemployment have resulted in an estimated 29% first half market decline in advertising expenditure, and Portugal, where trends are comparable, albeit somewhat lagged. In spite of market conditions, a strong new business performance delivered share gains in both markets.  Italy also suffered from a particularly challenging environment, as well as a high proportion of automotive in our business mix.

On a relative basis, Northern Europe proved somewhat stronger. The UK, the Nordics and certain markets in Eastern Europe saw the lowest declines in revenue, helped in part by a very strong new business performance towards the end of 2008 and during the first half. Results at Aegis Media France were helped by a strong digital performance.  

Recession was slower to impact in Germany, where the first quarter was significantly stronger than the second. Good revenue growth in Russia was helped by last year's acquisition of AdWatch. In Eastern Europe, the Baltics, Romania and Hungary were the softest markets, principally reflecting their domestic economic situations, while Austria and Poland were the least affected.  

Our business in the Middle East was stable and we created affiliate relationships in Egypt, Algeria and Tunisia. 

Aegis Media Americas

First half revenue at Aegis Media Americas of £83.8m (H1 2008: £77.9m) was up 7.6%, or down 14.9% at constant currency. This movement reflects very cautious sentiment in the world's largest advertising market, as well as the ongoing impact of 2008 client losses in the US. Together these resulted in a decline in operating profit.

Net new business has remained stable since last autumn, and plans are underway to deliver improvements in business and financial performance in Carat US, re-aligning our organisational structure and building on our competitive advantage in insight and communications planning.

Market conditions resulted in difficult trading in almost every segment of our business. The brightest spot was iProspect, which continued to grow strongly, reflecting the resilience of search as an accountable sales-focused discipline in this market, and iProspect's leadership in tools. Posterscope and Velocity both delivered a good first-half performance.

In Latin America, the Mexican market suffered from weakness in both Spain and the US, but we grew market share and increased diversification in the period.  Argentina, although weak, was not as severely affected, and the market in Brazil was broadly flat. We continued to reorganize our affiliate relationships in the region, extending our footprint into Central America with new partners in Ecuador, Paraguay and Puerto Rico.

Aegis Media Asia-Pacific

Asia-Pacific was the strongest performing region, with revenue close to prior period at constant currency. Less impacted by recession, clients continued to spend reasonably well. Revenue of £37.1m (H1 2008: £31.2m) was up 18.9%, down 1.3% at constant currency.  

In our two largest regional markets, we grew revenue modestly in China, despite tough first-half comparatives associated with the Beijing Olympics and we delivered good growth in Australia, in response to measures taken to improve business performance.  Taiwan delivered a good performance in difficult markets.  

A new management team in India, appointed in 2008, delivered excellent growth, and Indonesia and Malaysia both achieved very strong performances. The export and international-trade driven markets of Japan, Hong Kong, Singapore and Korea proved the toughest in the period, with declines more akin to the developed markets of the West. We broadened our presence in the high potential markets of South Asia, putting in place affiliate relationships in Vietnam, Pakistan and Bangladesh.

Synovate 

£m
Gross revenue**	H1 2009	H1 2008	Change, %	Constant currency, %
EMEA	106.3	111.0	(4.1)	(11.2)
Americas	66.3	60.9	8.9	(13.6)
Asia Pacific	61.9	49.8	24.3	(5.4)
Worldwide gross revenue	234.5	221.7	5.8	(10.4)
Net revenue**
EMEA	62.5	67.4	(7.3)	(14.5)
Americas	45.8	40.5	13.1	(12.6)
Asia Pacific	37.1	35.3	5.1	(11.5)
Worldwide net revenue	145.4	143.2	1.6	(13.1)
Operating profit*	(3.2)	7.9	(140.5)	(132.0)
Operating margin*	(1.4)%	3.6%

* Throughout this commentary, results are stated on an underlying basis unless otherwise indicated.

** For the purpose of this announcement, Synovate gross revenue is the same as revenue in the statutory results. Net revenue is the same as gross profit in the statutory results.

Highlights

• Market research industry clearly more affected than expected by global economic weakness than historical precedent; competitive pricing environment intensified

• In addition, higher levels of sales order volatility, linked to a pattern of project deferment, further impacted revenue performance

• Action taken to reduce cost base intensified; savings expected to benefit the seasonally more significant second half

• Secured net revenue position at constant currency ahead of prior half-year end

Overview

The global market for market research proved less resilient than expected and the assumption that it would be less affected by the recession than other advertising and marketing activities proved to be incorrect, at least in the first half of 2009. For the first time ever, market research industry growth is expected to be lower than global GDP growth, at an estimated -4% this year. Within this, custom research, which makes up 64% of the industry and approaching 90% of Synovate's gross revenue, has been the weakest area of the market. This is resulting in project deferments and scope reductions and has intensified an already competitive pricing environment.

The early monthly revenue patterns were also unusually volatile, making forecasting more difficult. This high level of sales order volatility, linked to a pattern of project deferment, has further impacted revenue performance. Synovate's secured net revenue position, which is defined as confirmed sales orders for projects completing in the year as a percentage of full-year revenue, is ahead of prior year at the half-year stage in constant currency.

Synovate's gross revenue increased 5.8% to £234.5m, equivalent to a 10.4% decline at constant currency. Net revenue (after direct costs) of £145.4m was up 1.6%, or down 13.1% at constant currency. Organic revenue declines were 12.3% at the gross revenue level and 15.5% at net revenue. Acquisitions contributed 2.1 percentage points to gross revenue and 2.8 percentage points to net revenue.

Action has been taken the first half to reduce Synovate's cost base and improve sales orders, but has had a relatively limited impact in the period. The actions taken to date are now delivering significant further cost reductions and will benefit the second half. There were also specific sharp declines in automotive generally and in Europe in particular. As a result, Synovate made an operating loss of £3.2m, down from a £7.9m profit in the prior period. Synovate faces a challenging but deliverable market and profit task and is bringing forward a more substantial reorganisation of its activities, both to improve its sales effectiveness and to further reduce its cost base going forward.  

We are today announcing the appointment of Robert Philpott as CEO of Synovate. Robert has been global chief operating officer of Synovate since 2007, and prior to that was CEO of Synovate North America. Robert joined Synovate through the acquisition of Asia Market Intelligence in 2000, and has spent some 25 years in the market research industry. He takes over from Adrian Chedore, as part of a planned retirement.  Adrian will remain a director of Aegis Group plc until the end of this year.

Synovate EMEA

Synovate's EMEA business experienced a net revenue decline of 7.3%, or 14.5% at constant currency to £62.5m. As in Aegis Media, Spain proved the toughest market globally.  Germany was particularly affected by the significance of its automotive sector and financial services were also weak. The Netherlands began the year well, but weakened towards the end of the period, while in the Nordics, Norway proved the strongest market. In the UK, progress has been made to refocus the business, with performance improvements evident.  Western Europe in particular continues to represent a challenge for Synovate, and this is being met with a combination of simplified management structure, reduced costs and greater emphasis on sales. Revenue declines in Central and Eastern Europe were shallower than in Western Europe.  

The 2008 acquisition of Steadman Group in Africa has continued to perform well, and we made good progress in both South Africa and Egypt.  

Synovate Americas

In the Americas, net revenue of £45.8m was up 13.1% or down 12.6% at constant currency. Synovate Motoresearch suffered badly as both automotive manufacturers and dealers significantly pulled back spend and in-house resource, impacting us across ad hoc projects, customer satisfaction and new product work. Consolidation in the financial services industry also reduced spend, although in many cases individual banks and insurers held budgets relatively firm. We saw good stability across consumer staples, public sector and government, and MMA, in its first full year of Synovate ownership, performed well. Trading conditions in Canada also proved tough.

We delivered stable revenue in Latin America, with Mexico ahead of prior period in spite of the outbreak of swine flu.

Synovate Asia-Pacific

Net revenue was up 5.1%, or down 11.5% at constant currency, to £37.1m. Automotive weakness had a significant impact on our China business, in a market where we experienced particular pricing pressure. The markets of North Asia were affected by weakness in international trade, while in the developing markets of South Asia, such as India and Indonesia, conditions were more robust. Australia and New Zealand both proved to be relatively stable for Synovate.

Industry sectors

Industry specialism will remain an important source of advantage for us, and we are committed to maintaining excellence here at the same time as increasing our focus on geographic lines of management. In the first half, we completed a reorganisation of Synovate Healthcare, integrating our ad hoc offer into the broader business, which will deliver operational and management efficiencies, while maintaining our syndicated studies as a centre of excellence. Trading in the period was satisfactory, with local business somewhat mitigating weakness among multi-national clients.

Aztec, our retail scan data business, delivered an excellent performance, growing well at both the gross and net revenue lines, due to continued expansion of services in spite of the tougher market conditions that prevailed. Investment in future growth initiatives continued, including a move into measurement in the petrol and convenience store segment in Australia. 

 

Motoresearch had a very challenging first half. Extreme trading conditions among our clients resulted in dramatically lower expenditure across ad hoc and continuous projects. We have taken steps to decentralise our Motoresearch operations, reducing central cost and enabling us to work more closely with clients in local markets. 

Capabilities 

Our branded IP and solutions continued to deliver good sales results, with BVC, our proprietary sales forecasting tool, delivering a third year of exceptional growth. We have also seen healthy demand for Ideate in product development, and in the brands and communications space, Mind Clouds, Communications Life, AdCheck and Connections have all proved to be popular. Mystery shopping has been an area of strength globally. At MMA, we have seen good growth in Avista, a proprietary econometric modelling tool.  

New products launched in the period include a new generation Shopper Interact retail solution, offering extremely detailed footfall analytics, and additional tools in our MarketQuest new product development suite, with a particular focus on recessionary market environments.  In addition to our proprietary tools, we also entered into a partnership with Vision Critical to build custom online research communities to boost our offer in interactive research.

SmartWork 

SmartWork, our operational efficiency programme, remains a major focus, and will continue to be a driver of operating margin improvement over time.  We continued to move our CATI offshore, at the half year point approaching 20% in our eight key target markets. In data-processing, we increased staffing in our wholly owned centres of excellence by some 60%, and increased volumes outsourced to third-party operations, which positions us well to achieve our target of offshoring 80% of data processing from our 14 highest cost markets.  The full roll-out of WorkBench, our customised research platform, is progressing well in Scandinavia and is underway in the US and UK, and is now being used globally as the platform for our proprietary online data collection, resulting in more efficient management of clients' survey data.

Financial review

Our reported results reflect the positive effects of currency movements in the half year, contributing £93.5m to revenue and £10.7m to operating profit. Sterling, which had weakened significantly against a number of currencies progressively through 2008 and early 2009, began to recover. For consolidation purposes, the trading results and cash flows are translated at average exchange rates.  The average exchange rates for the period were £1: $1.4935 and £1: €1.1189.  On this basis, for the first half of 2009, sterling was 24.4% weaker against the US dollar and 13.3% against the euro compared to the first half of 2008.  

The movement in the period end closing rates used to translate foreign currency assets and liabilities also reflected this initial decline, and partial recovery of sterling. The 30 June 2009 closing US dollar rate was £1: $1.6463 (30 June 2008: £1:$1.9908; 31 December 2008: £1: €1.4575) and closing euro rate was £1: €1.172 (30 June 2008: £1: €1.2651; 31 December 2008: £1: €1.0442).  

Underlying results

Group turnover of £4,780.1m (H1 2008: £5,332.3m) was down 10.4%, or 21.6% in constant currency. The majority of our turnover represents client media billings, and this decrease primarily reflects budget reductions on the part of Aegis Media's clients and media deflation.

Revenue of £636.7m (H1 2008: £607.6m) was up 4.8% (down 9.2% in constant currency).   The group organic revenue decline was 10.8%, made up of 9.9% at Aegis Media and 12.3% at Synovate. Acquisitions added £12.8m to revenue, equivalent to 1.8 percentage points of revenue growth at constant currency (1.7 percentage points at Aegis Media and 2.1 percentage points at Synovate).   The difference between the group's revenue and gross profit (or net revenue) is attributable to pass-through and direct costs at Synovate, representing £89.1m in the period.  After these costs, Synovate's net revenue was £145.4m, up 1.6%, down 13.1% in constant currency. This was lower than its total revenue growth due to pricing pressure and progress in outsourcing, which results in a movement of cost from operating cost to cost of sales.

Group underlying expenses were £496.5m (H1 2008: £468.0m) up 6.1% in reported currency (7.1% down in constant currency). As a result the group's underlying operating profit was £51.1m (H1 2008: £61.2m) a decrease of 16.5% in reported currency (28.9% decrease in constant currency).

The Group has reclassified certain foreign exchange gains relating to financing items from operating profit to net finance costs to more appropriately reflect the nature of such items. As a result, £3.8m of net foreign exchange gains have been reclassified from operating expenses to net finance costs in respect of the six months ended 30 June 2008 (year ended 31 December 2008: £8.4m). In the first half of 2009, this amounted to a gain of £2.4m. There is no impact on pre-tax profit or earnings per share.

Associates contributed a loss of £0.5m (H1 2008: profit of £1.2m).  This decrease was primarily due to the fact that during the period, the group recognised that its investment in Qin Jia Yuan Advertising ('QJY'), a company listed in Hong Kong, no longer met the IFRS definition of an associate, due to a decrease in our influence over QJY following dilution to our equity holding. QJY has therefore been reclassified as an available-for-sale investment, in accordance with IAS 39, and we no longer equity account for its profits.  

Our interest income was £4.7m (H1 2008: £7.5m), a decrease of 37.3%, or 45.3% in constant currency. This decrease was due to the reduction in interest rates, particularly across the euro zone and the US, but was mitigated by a £0.9m benefit from foreign exchange, with the majority of our cash denominated in non-Sterling currencies.

The group's gross finance costs were £11.8m (H1 2008: £13.7m) a decrease of 13.9%, or 29.0% in constant currency. This decrease was primarily due to the reduction in interest rates in the UK; this saving was partly offset by the impact of foreign exchange and the increase in gross debt average balances.

Pre-tax profit was £43.5m (H1 2008: £56.2m), down 22.6% (36.4% in constant currency).  Our underlying tax rate for the half year was 26.1%, slightly down from 26.5% in the first half of 2008 and broadly in line with our 2008 full year rate of 25.8%.  

Underlying diluted earnings per share decreased by 0.7p to 2.6p.

Dividends

The Board is proposing an interim dividend of 0.96p per ordinary share, in line with the first half of 2008.  The interim dividend will be paid on 25 September 2009 to shareholders on the register at 11 September 2009.

Statutory results

Our statutory results are reported after £15.7m of restructuring costs (H1 2008: £4.8m) recognised in the period as the continuation of a restructuring programme initiated at the end of 2008. This compares to an estimate of approximately £12.0m given at our full-year results in March; £1.5m of this increase relates to foreign exchange movements. The restructuring costs charged since the beginning of 2008 to date, of which the majority relate to a group-wide cost-savings programme, are now £43.1m.

The other significant reconciling item between underlying and statutory profit is the amortisation of purchased intangible assets of £12.4m (H1 2008: £4.2m). IAS 39 fair value adjustments and impairment of available-for-sale financial assets represent the balance of £8.8m (H1 2008: gain £0.2m), of which the majority relates to our investment in QJY.

Statutory diluted losses per share of (0.2)p, (H1 2008: earnings per share 2.6p) were significantly affected by the reconciling items between underlying profit before tax and statutory profit before tax described above.  

Balance Sheet

Balance sheet movements half year on half year were significantly affected by the net depreciation of sterling, primarily against the dollar and euro, between 30 June 2008 and 30 June 2009. All movements discussed below relate to movements on the closing balance sheets at 31 December 2008 and 30 June 2009. These were significantly affected by the subsequent relative appreciation in sterling over that period.  

Net debt

Period end net debt increased by £64.8m to £362.3m, primarily due to the £22.2m cash cost of the 2008/9 restructuring programme and the £52.3m payments on deferred consideration and purchase of subsidiaries.  Changes in cash and gross debt due to currency movements were substantially offset on a net debt basis, with cash and cash equivalents decreasing by £35.7m and gross debt decreasing by £48.6m due to exchange movements.

Working capital

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.  The net payable at 30 June 2009 is £259.5m (30 June 2008: £193.6m; 31 December 2008: £281.0m).  The movement between period-end balances is due to the trends in turnover and foreign exchange.  There has been no significant change to payment profiles.  Trade receivables and trade payables typically arise in local currencies and therefore substantially offset, providing natural protection from significant exchange rate movements on a net basis.

Goodwill and intangible assets

Goodwill decreased over the half year by £127.0m to £987.6m. An increase of £3.9m due to acquisitions in the period was more than offset by a decrease of £94.1m due to currency movements and a decrease in expected deferred consideration, due to revised estimates of future earn out obligations payable to acquired agency shareholders. Intangibles decreased by £15.8m; a £1.6m increase due to acquisitions was more than offset by foreign exchange.

Interests in associates and joint ventures

Interests in associates and joint ventures decreased by £23.8m to £2.9m. A decrease of £20.3m was due to the group's investment in QJY.  As outlined above, QJY no longer meets the definition of an associate and the investment is now classified in our available-for-sale financial assets. This is behind the increase in the available-for-sale line of £13.6m.

Earn-outs

Estimated earn out liabilities have decreased by £95.1m to £102.3m. Payments made in the period were £46.4m; the liability was reduced by £39.9m due to changes in estimates for those future payments which are contingent on future financial performance. Increases due to current year acquisitions were minimal and the balance is due to foreign exchange movements. Of the £102.3m liability, £40.0m is due to be paid within one year. Liabilities in respect of put options decreased by £11.6m to £29.7m.

Pensions

The group does not operate any material defined benefit pension schemes. In a small number of markets we are obliged to accrue for a defined sum payable to employees on leaving the company; these are statutory requirements typically related to length of service. The present value of defined benefit obligations under these schemes are fully provided for.

Cash flow

Cash generated from the operations was £30.3m (H1 2008: £93.3m). There was a £16.7m outflow of working capital (H1 2008: £14.7m inflow). £52.3m payments were made related to the purchase of subsidiaries and deferred consideration on current and prior period acquisitions. Capital expenditure on property, plant and equipment was £9.2m (H1 2008: £16.7m), related to essential investments.

Financing

The period end covenant position was well within the required parameters. Net debt/EBITDA was 1.6x (covenant requirement <3) and EBITA/gross interest was 6.1x (covenant requirement of >4x). We had undrawn central facilities at the half year-end of £178.3m (31 December 2008: £172.1m).

We do not have any term facilities maturing in 2009. Our RCF is due for renewal in June 2011. Five tranches of US private placement funding mature between 2012 and 2017. Cash flow forecasts for the next three years show that the group expects to generate free cash flow, after payment of current estimates of existing earn-out liabilities.

Going concern 

The group's business activities, together with factors likely to affect its future development, performance and financial position and commentary on the Group's financial results, its cash flows, liquidity requirements and borrowing facilities are set out in the review of results and financial review on pages 3 to 13 and elsewhere within this interim results announcement.

The Board is satisfied that the group balance sheet remains strong. The group remains well-financed with considerable cash and covenant headroom under its current facilities and no major facilities due to expire until 2011. The Group has a number of lending banks and during the period secured additional facilities.

During the period to 30 June 2009 the group has continued to generate positive operating cash inflows from operations, as it has done for each of the last five years to 31 December 2008.

The main factors contributing to these cash inflows are the retention and growth of the customer base, terms of trade with customers and suppliers and the continuing management of working capital within the group. The Board has concluded that no matters have come to its attention which suggests that the group will not be able to maintain its current payment terms with customers and suppliers. The group's forecasts and projections, taking account of reasonably possible changes in trading performance, indicate that the group has sufficient funding to operate within the terms of its available facilities.

The Board has considered various alternative operating and funding strategies should these be necessary and is satisfied that a range of cost reduction activities could be adopted if and when necessary to maintain these levels of funding. 

After making these enquiries, the Board is satisfied that the Group has sufficient resources to continue in operational existence for the foreseeable future and for this reason the going concern basis continues to be adopted in preparing this Interim Statement.

Principal risks and uncertainties

As part of the continuing process of reviewing and responding to the risks faced by the group, the Board has identified certain key areas of risk, all of which were set out in the annual report for the year to 31 December 2008.

Economic climate

The global economic outlook has continued to deteriorate in the first half of 2009, with economists reporting a slower-than-expected recovery for the global economy. This continuing lack of confidence in the market has led to a decrease in global advertising and research spending, which has put pressure on the results of all of the group's business interests. The group's restructuring plans, discussed above, respond to this risk, but there continues to be a possibility that the rate of recovery will be weak, putting further downward pressure on the group's results.

Counterparty relationships

The weakness of the economic recovery increases the risk of loss of revenue or profit through counterparty relationships. Counterparty risk remains a focus of attention for management, particularly in relation to the potential risk of loss of income from clients in financial distress and potential media buying liabilities arising in markets where we act as principal. There has been no material change in our counterparty risk since 31 December 2008.

Liquidity and working capital

The group's operating cash inflows and the new facilities secured by the group are discussed in the going concern section above. There have been no further changes to the group's liquidity or liquidity and working capital management. This area continues to be a focus for the group in the current economic environment.

Client wins and client relationships

In the first half, the group has achieved net new business wins totalling $1,845.3m (H1 2008: $774.1m). However, as noted above, the environment in which our clients operate is continuing to impact their investment in advertising and research, and this continues to put pressure on group revenue. The range of services offered by the group is diverse and investment in new media continues, helping to mitigate this risk. In addition, the global client services, client relationship teams and local business development structures in place continue to develop and maintain strong relationships with our clients. The continued focus on cost has enabled us to remain competitive on pricing.

Other risks

In the annual report for the year ended 31 December 2008, management discussed further risks around careful selection of acquisitions and their successful integration, keeping ahead of competitors by focusing on client relationships, quality and changes in the advertising market, data protection (the risk of loss of sensitive data) and talent management (focusing on incentives and the risk of loss of key people). These risks continue to be relevant and have not changed significantly during the year to date.

Unaudited consolidated income statement

for the six months ended 30 June 2009

				Six months ended	Six months ended	Year ended
				30 June 2009	30 June 2008	31 December 2008
		Notes		£m	£m	£m
				unaudited	unaudited*	audited*
	Turnover - amounts invoiced to clients			4,780.1	5,332.3	10,413.8
	Revenue	3		636.7	607.6	1,342.0
	Cost of sales			(89.1)	(78.4)	(189.0)
	Gross profit			547.6	529.2	1,153.0
	Operating expenses before restructuring			(508.9)	(472.2)	(997.6)
	Restructuring charges	4		(15.7)	(4.8)	(27.4)
	Operating expenses	5		(524.6)	(477.0)	(1,025.0)
	Operating profit			23.0	52.2	128.0
	Share of results of associates	6		(0.5)	1.2	2.7
	Profit before interest and tax			22.5	53.4	130.7
	Investment income	7		4.7	7.5	15.9
	Finance costs	8		(20.6)	(13.5)	(22.0)
	Net finance costs			(15.9)	(6.0)	(6.1)
	Profit before tax			6.6	47.4	124.6
	Tax	9		(7.0)	(13.8)	(35.4)
	(Loss) / profit for the period			(0.4)	33.6	89.2
	Attributable to:
	Equity holders of the parent			(2.1)	30.0	82.8
	Minority interests			1.7	3.6	6.4
				(0.4)	33.6	89.2
	(Loss) / earnings per ordinary share:
	Basic (pence)	11		(0.2)	2.7	7.3
	Diluted (pence)	11		(0.2)	2.6	7.3
	Underlying results:*
	Underlying operating profit	3		51.1	61.2	177.0
	Underlying profit before tax	3		43.5	56.2	166.8
	Underlying earnings per ordinary share:
	Basic (pence)	11		2.6	3.4	10.3
	Diluted (pence)	11		2.6	3.3	10.3

 

The basis for calculating the Group's underlying results and underlying earnings per share is set out in note 2.

* Prior periods are restated for the reclassification of financing-related exchange gains and losses as explained in note 2.  This reclassification impacts statutory and underlying operating profit but has no effect on profit before tax or profit after tax.

Unaudited consolidated balance sheet

at 30 June 2009

ASSETS		Notes	30 June 2009	30 June 2008	31 December 2008
Non-current assets			£m	£m	£m
			unaudited	unaudited*	audited*
Goodwill		12	987.6	921.9	1,114.6
Intangible assets			89.1	54.4	104.9
Property, plant and equipment			62.5	62.0	73.5
Interests in associates and joint ventures			2.9	19.2	26.7
Deferred tax asset			26.1	16.1	23.5
Available-for-sale financial assets			14.0	1.1	0.4
Other financial assets			0.7	1.9	2.1
			1,182.9	1,076.6	1,345.7
Current assets
Work in progress			24.8	24.2	22.5
Trade and other receivables			1,739.7	2,170.1	2,324.0
Derivative financial assets			0.4	-	6.0
Other financial assets			-	0.1	2.8
Cash at bank and in hand and short-term deposits		15	317.8	327.9	412.7
			2,082.7	2,522.3	2,768.0
Total assets			3,265.6	3,598.9	4,113.7
LIABILITIES
Current liabilities
Trade and other payables		13	(2,066.2)	(2,446.8)	(2,703.4)
Short-term borrowings and overdrafts			(54.0)	(75.0)	(52.7)
Derivative financial liabilities			(0.5)	-	(0.8)
Provisions			(0.7)	(4.2)	(2.2)
Current tax liabilities			(8.1)	(12.3)	(14.3)
			(2,129.5)	(2,538.3)	(2,773.4)
Net current liabilities			(46.8)	(16.0)	(5.4)
Non-current liabilities
Long-term borrowings			(626.1)	(523.4)	(657.5)
Other long-term liabilities		14	(103.5)	(156.2)	(178.9)
Derivative financial liabilities			(18.2)	(22.1)	(11.1)
Provisions			(2.8)	(0.6)	(2.3)
Deferred tax liabilities			(30.5)	(17.6)	(30.7)
			(781.1)	(719.9)	(880.5)
Total liabilities			(2,910.6)	(3,258.2)	(3,653.9)
Net assets			355.0	340.7	459.8
EQUITY
Share capital			58.0	58.0	58.0
Shares to be issued			4.0	4.7	4.0
Own shares			(23.7)	(25.4)	(30.6)
Share premium account			243.5	242.6	243.5
Capital redemption reserve			0.2	0.2	0.2
Foreign currency translation reserve			22.3	20.9	107.9
Retained earnings			74.7	60.3	102.9
Equity attributable to equity holders of the parent			379.0	361.3	485.9
Minority interests			15.6	10.6	17.3
Potential acquisition of minority interests			(39.6)	(31.2)	(43.4)
Total equity			355.0	340.7	459.8

 

* See note 2 for details of adjustments to prior periods.

 

Unaudited consolidated cash flow statement

for the six months ended 30 June 2009

			Six months ended	Six months ended	Year ended
	Notes		30 June 2009	30 June 2008	31 December 2008
			£m	£m	£m
			unaudited	unaudited	audited
Cash flows from operating activities
Cash inflows from operations	15		30.3	93.3	261.6
Income taxes paid			(20.2)	(20.9)	(46.1)
Net cash from operating activities			10.1	72.4	215.5
Investing activities
Interest received			4.7	7.5	15.9
Dividends received from associates			0.2	0.6	0.8
Net cash paid on purchase of subsidiary undertakings			(5.9)	(32.5)	(55.5)
Proceeds from disposal of associated undertakings			2.3	-	-
Payments of deferred consideration on current and prior period acquisitions			(46.4)	(29.3)	(47.8)
Purchase of property, plant and equipment			(9.2)	(16.7)	(29.4)
Purchase of intangible assets			(3.9)	(4.7)	(10.9)
Proceeds from disposal of property, plant and equipment			1.6	0.2	0.3
Proceeds from disposal of intangible assets			-	-	0.4
Net cash used in investing activities			(56.6)	(74.9)	(126.2)
Financing activities
Dividends paid			(17.5)	(16.5)	(27.4)
Dividends paid to minority shareholders			(0.3)	(1.3)	(4.1)
Interest paid			(12.9)	(16.5)	(35.4)
Proceeds from borrowings			20.8	42.5	64.7
Repayments of borrowings			(8.5)	(46.2)	(86.8)
Proceeds on issue of ordinary share capital			-	4.2	4.4
Purchase of own shares			-	-	(8.9)
Other financing activities			(1.2)	-	-
Net cash used in financing activities			(19.6)	(33.8)	(93.5)
Net decrease in cash and cash equivalents	15		(66.1)	(36.3)	(4.2)
Translation differences			(35.2)	15.8	82.4
Cash and cash equivalents at beginning of period	15		407.7	329.5	329.5
Cash and cash equivalents at end of period	15		306.4	309.0	407.7
Cash at bank and in hand and short-term deposits			317.8	327.9	412.7
Bank overdrafts	15		(11.4)	(18.9)	(5.0)
Cash and cash equivalents at end of period	15		306.4	309.0	407.7

 

Unaudited consolidated statement of comprehensive income

for the six months ended 30 June 2009

 

			Six months ended	Six months ended	Year ended
			30 June 2009	30 June 2008	31 December 2008
			£m	£m	£m
			unaudited	unaudited	audited
(Loss) / profit for the period			(0.4)	33.6	89.2
Currency translation differences on foreign operations:
- Group			(85.6)	14.6	101.5
- Minority interests			(2.0)	0.5	3.6
Available for sale investments: losses taken to equity			-	(1.2)	(0.9)
Cash flow hedges: (losses) / gains taken to equity			(5.6)	5.1	5.9
Tax on items taken directly to equity			1.6	-	(1.7)
Other comprehensive (expense) / income			(91.6)	19.0	108.4
Total comprehensive income and expense			(92.0)	52.6	197.6
Attributable to:
Equity holders of the parent			(91.7)	48.5	187.6
Minority interests			(0.3)	4.1	10.0
			(92.0)	52.6	197.6

 

Unaudited consolidated statement of changes in equity

for the six months ended 30 June 2009

 

	Share Capital	Shares to be issued	Own shares	Share premium account	Capital redemption reserve	Foreign currency translation reserve	Accumulated profits	Total	Minority interest	Potential acquisition of minority interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2008	57.7	4.7	(30.9)	238.7	0.2	6.4	44.2	321.0	6.5	(21.2)	306.3
Total comprehensive income	-	-	-	-	-	14.6	33.9	48.5	4.1	-	52.6
New share capital subscribed	0.3	-	-	3.9	-	-	-	4.2	-	-	4.2
Shares awarded by ESOP	-	-	5.5	-	-	-	(5.5)	-	-	-	-
Credit for share-based incentive schemes	-	-	-	-	-	-	4.6	4.6	-	-	4.6
Other movements	-	-	-	-	-	(0.1)	(0.4)	(0.5)	1.3	(10.0)	(9.2)
Dividends	-		-	-	-	-	(16.5)	(16.5)	(1.3)	-	(17.8)
At 30 June 2008	58.0	4.7	(25.4)	242.6	0.2	20.9	60.3	361.3	10.6	(31.2)	340.7
Total comprehensive income	-	-	-	-	-	86.9	52.2	139.1	5.9	-	145.0
New share capital subscribed	-	(0.7)	-	0.9	-	-	-	0.2	-	-	0.2
Purchase of shares by ESOP	-	-	(8.9)	-	-	-	-	(8.9)	-	-	(8.9)
Shares awarded by ESOP	-	-	3.7	-	-	-	(3.7)	-	-	-	-
Credit for share-based incentive schemes	-	-	-	-	-	-	4.6	4.6	-	-	4.6
Other movements	-	-	-	-	-	0.1	0.4	0.5	3.6	(12.2)	(8.1)
Dividends	-	-	-	-	-	-	(10.9)	(10.9)	(2.8)	-	(13.7)
At 1 January 2009	58.0	4.0	(30.6)	243.5	0.2	107.9	102.9	485.9	17.3	(43.4)	459.8
Total comprehensive income	-	-	-	-	-	(85.6)	(6.1)	(91.7)	(0.3)	-	(92.0)
Shares awarded by ESOP	-	-	6.9	-	-	-	(6.9)	-	-	-	-
Credit for share-based incentive schemes	-	-	-	-	-	-	2.3	2.3	-	-	2.3
Other movements	-	-	-	-	-	-	-	-	(1.1)	3.8	2.7
Dividends	-	-	-	-	-	-	(17.5)	(17.5)	(0.3)	-	(17.8)
At 30 June 2008	58.0	4.0	(23.7)	243.5	0.2	22.3	74.7	379.0	15.6	(39.6)	355.0

Notes to the unaudited consolidated interim statement
for the six months ended 30 June 2009

1.  General information

Aegis Group plc is a public limited company incorporated and registered in England and Wales, Number 1403668. Its registered office is at 180 Great Portland Street, London W1W 5QZ.

The condensed consolidated interim financial statement ('Interim Financial Statement') for the six months ended 30 June 2009 was authorised for issue in accordance with a resolution of the directors on 27 August 2009.  

The Interim Financial Statements for the six months to 30 June 2009 and 30 June 2008 do not constitute statutory accounts. The financial information for the year ended 31 December 2008 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985.  A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under section 237(2) or (3) of the Companies Act 1985.  

The Interim Financial Statement is unaudited but has been reviewed by the auditors. Their report is set out on page 31.  A copy of the Interim Financial Statement for the six months ended 30 June 2009 is available online at www.aegisgroupplc.com and is also available from the Company's registered office.

2.  Basis of preparation and accounting policies

Basis of preparation

The Interim Financial Statement for the six months ended 30 June 2009 has been prepared in accordance with Disclosure and Transparency Rules of the Financial Services Authority, IAS 34 Interim Financial Reporting and on the basis of the accounting policies set out in the Group's latest annual financial statements for the year ended 31 December 2008. These accounting policies are drawn up in accordance with International Financial Reporting Standards (IFRS) adopted for use by the European Union.

The Interim Financial Statement does not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's 2008 Annual Report.

The financial statements have been prepared on the going concern basis of accounting, a discussion of which is set out in the financial review on pages 12 and 13.

The Group believes that underlying results (note 3) and underlying earnings per share (note 11) provide additional useful information on underlying trends to shareholders. These measures are used for internal performance analysis and incentive compensation arrangements for employees. The term underlying is not a defined term under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. It is not intended to be a substitute for, or superior to IFRS measurements of profit.  In the opinion of the directors, such adjusting items are material by nature or amount and may include impairment charges, profits and losses on disposals of investments, amortisation of purchased intangible assets, unrealised gains and losses on non-hedge derivative financial instruments, fair value gains and losses on liabilities in respect of put option agreements, and one-off items which are material by nature or amount in the opinion of the directors, and any related tax thereon, as appropriate.  Adjusting items may also include specific tax items such as the benefit arising on the reduction of certain tax liabilities in a particular half-year period and deferred tax liabilities for tax deductions taken in respect of goodwill, where a deferred tax liability is recognised even if such a liability would only unwind on the eventual sale or impairment of the business in question.

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's annual audited financial statements for the year ended 31 December 2008, except as described below.

At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective:

IFRS 1 (amended) Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

IFRS 2 (amended) Group cash-settled share-based payment transactions

IFRS 3 (revised 2008) Business Combinations

IAS 27 (revised 2008) Consolidated and Separate Financial Statements

IAS 39 (amended) and IFRIC 9 (amended) Embedded Derivatives and Eligible Hedged Items

IFRIC 17 Distributions of Non-Cash Assets to Owners

IFRIC 18 Transfers of Assets from Customers

The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group.

Adoption of Standards

In the current financial year, the Group has adopted International Financial Reporting Standard 8 'Operating Segments' and International Accounting Standard 1 'Presentations of Financial Statements' (revised 2007).

IFRS 8 requires operating segments to be identified on the basis of internal reports about the components of the Group that are regularly reviewed by the Group's Chief Executive Officer to allocate resources to the segments and to assess their performance. In contrast, the predecessor standard (IAS 14 'Segmental Reporting') required the Group to identify two sets of segments (business and geographical), using a risks and rewards approach, with the Group's system of internal financial reporting to key management personnel serving only as the starting point for the identification of such segments. As a result, the segmental information required by IAS 34, which is included in note 3 below, is presented in accordance with IFRS 8. The comparatives have been restated accordingly. 

IAS 1 (revised) requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. As a result, a consolidated statement of changes in equity has been included in the primary statements, showing changes in each component of equity for each period presented.

Change to the classification of investment in QJY

During the period, the Group determined that its investment in Qin Jia Yuan Advertising (QJY), a company listed in Hong Kong, no longer meets the definition of an associate, as defined in IAS 28, due to a decrease in the Group's influence over the company following a dilution to its equity holding. Therefore, QJY is reclassified as an available-for-sale investment and measured in accordance with IAS 39. In the current period, the reclassification and resulting change in measurement requirements led to an impairment loss of £6.0m recognised within finance costs as the impairment is considered to be other than temporary.

Reclassification of exchange movements on financing items

The Group has reclassified certain foreign exchange gains relating to financing items from operating profit to net finance costs to more appropriately reflect the nature of such items.  As a result, £3.8m of net foreign exchange gains have been reclassified from operating expenses to net finance costs in respect of the six months ended 30 June 2008 (year ended 31 December 2008: £8.4m).  There is no impact on pre-tax profit or earnings per share.

Reclassification in 2008 half year and full year balance sheets

The balance sheet comparatives for the year ended 31 December 2008 and the half year ended 30 June 2008 have been restated to reclassify certain provisions from non-current liabilities to current liabilities. In addition, the balance sheet for the half year ended 30 June 2008 has been adjusted for changes in the assessment of purchased intangibles, resulting in a reduction to net assets of £0.5m (intangible assets decreased by £0.5m; the foreign currency translation reserve by £0.7m and minority interests increased by £0.2m).

Notes to the unaudited consolidated interim statement

for the six months ended 30 June 2009

3.  Segment reporting and underlying results

Business segments

The adoption of IFRS 8 leads to changes in the way in which the Group segments its result, with only one form of segmentation now required, driven by information provided to the Group's Chief Executive Officer. Information reported to the Group's Chief Executive Officer for the purposes of resource allocation and assessment of segment performance focuses on the two business sectors in which the Group operates: Aegis Media and Synovate. These divisions are therefore the Group's reportable segments under IFRS 8, having previously been the primary segments under IAS 14. Intersegment trading is not significant to either operating segment and no intersegment trading information is included in reports to the Group's Chief Executive Officer. Therefore all information reported below relates to external trade.

An analysis of revenue and operating segment result by these business sectors is set out below:  

 

Underlying results		Six months ended			Six months ended
		30 June 2009			30 June 2008
		Underlying results			Underlying results
		£m	£m		£m	£m
		Revenue	Segment result		Revenue	Segment result
Aegis Media		402.2	63.0		385.9	65.8
Synovate		234.5	(3.2)		221.7	7.9
		636.7	59.8		607.6	73.7
Corporate costs		-	(8.7)		-	(12.5)
		636.7	51.1		607.6	61.2
Statutory results		Six months ended			Six months ended
		30 June 2009			30 June 2008
		Statutory results			Statutory results
		£m	£m		£m	£m
		Revenue	Segment result		Revenue	Segment result
Aegis Media		402.2	49.9		385.9	60.1
Synovate		234.5	(18.2)		221.7	6.5
		636.7	31.7		607.6	66.6
Corporate costs		-	(8.7)		-	(14.4)
		636.7	23.0		607.6	52.2

Synovate achieved gross profit (or net revenue), after external direct costs, of £145.4m (6 months to 30 June 2008: £143.3m). See below for a reconciliation of our operating segment result to our statutory results:

2009 half year		£m	£m		£m	£m		£m	£m
		Underlying	Restructuring		Amortisation of	IAS 39		Deferred tax	Statutory
		results	costs		purchased	adjustments (1)		adjustment (2)	results
					intangibles
Aegis Media		63.0	(3.5)		(9.6)	-		-	49.9
Synovate		(3.2)	(12.2)		(2.8)	-		-	(18.2)
Operating segment result		59.8	(15.7)		(12.4)	-		-	31.7
Corporate		(8.7)	-		-	-		-	(8.7)
Operating profit		51.1	(15.7)		(12.4)	-		-	23.0
Share of results of associates		(0.5)	-		-	-		-	(0.5)
Profit before interest and tax		50.6	(15.7)		(12.4)	-		-	22.5
Investment income		4.7	-		-	-		-	4.7
Finance costs		(11.8)	-		-	(8.8)			(20.6)
Net finance costs		(7.1)	-		-	(8.8)		-	(15.9)
Profit before tax		43.5	(15.7)		(12.4)	(8.8)		-	6.6
Tax		(11.4)	2.2		3.3	-		(1.1)	(7.0)
Profit after tax		32.1	(13.5)		(9.1)	(8.8)		(1.1)	(0.4)

(1) IAS 39 adjustments comprise gains of £7.3m on revaluation of put option liabilities and losses of £10.1m and £6.0m on revaluation of non-hedge derivatives and impairment of available-for-sale financial assets respectively.

(2) Deferred tax adjustment for tax amortisation of goodwill.

Notes to the unaudited consolidated interim statement

for the six months ended 30 June 2009

3.  Segment reporting and underlying results (continued)

2008 half year		£m	£m		£m	£m		£m	£m
(re-presented)		Underlying	Restructuring		Amortisation of	IAS 39		Deferred tax	Statutory
		results	costs		purchased	adjustments (1)		adjustment (2)	results
					intangibles
Aegis Media		65.8	(2.9)		(2.8)	-		-	60.1
Synovate		7.9	-		(1.4)	-		-	6.5
Operating segment result		73.7	(2.9)		(4.2)	-		-	66.6
Corporate		(12.5)	(1.9)		-	-		-	(14.4)
Operating profit		61.2	(4.8)		(4.2)	-		-	52.2
Share of results of associates		1.2	-		-	-		-	1.2
Profit before interest and tax		62.4	(4.8)		(4.2)	-		-	53.4
Investment income		7.5	-		-	-		-	7.5
Finance costs		(13.7)	-		-	0.2			(13.5)
Net finance costs		(6.2)	-		-	0.2		-	(6.0)
Profit before tax		56.2	(4.8)		(4.2)	0.2		-	47.4
Tax		(14.9)	1.5		1.1	-		(1.5)	(13.8)
Profit after tax		41.3	(3.3)		(3.1)	0.2		(1.5)	33.6

(1) IAS 39 adjustments comprise gains of £1.8m on revaluation of put option liabilities and losses of £1.6m on revaluation of non-hedge derivatives.

(2) Deferred tax adjustment for tax amortisation of goodwill.

 

For the year ended 31 December 2008, underlying operating profit was £177.0m (£185.4m as published less reclassified exchange gains of £8.4m), excluding a net charge of £49.0m and underlying profit before tax was £166.8m, excluding a net charge of £42.2m. Underlying adjustments to operating profit comprise restructuring charges of £27.4m, software impairment of £4.4m and amortisation of purchased intangible assets totalling £17.2m. IAS 39 adjustments add back £6.8m to reconcile underlying profit before tax.

Following the adoption of IFRS 8, the Group is now also required to provide a segmentation of total assets in the interim statement.

 

Segment assets:		Six months ended	Six months ended
		30 June 2009	30 June 2008
		£m	£m
Aegis Media		2,579.9	2,969.6
Synovate		656.7	613.3
Total allocated assets		3,236.6	3,582.9
Corporate		29.0	16.0
Total assets		3,265.6	3,598.9

 

The accounting policies of the reportable segments are the same as the Group's accounting policies, which are described in the Group's latest annual financial statements. Segment result represents segment operating profit, which is the measure reported to the Group's Chief Executive Officer for the purposes of resource allocation and assessment of segment performance. The Group's Chief Executive Officer also monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments with the exception of centrally-managed financial assets and tax assets.

Notes to the unaudited consolidated interim statement

for the six months ended 30 June 2009

4.  Restructuring charges

During the year the Group incurred the following charges in respect of restructuring programmes:

	Six months ended	Six months ended	Year ended
	30 June 2009	30 June 2008	31 December 2008
	£m	£m	£m
Severance and related expenditure	13.9	3.2	23.0
Property costs	1.8	1.6	4.4
	15.7	4.8	27.4

5. Operating expenses

Operating expenses include:

		Six months ended	Six months ended	Year ended
		30 June 2009	30 June 2008	31 December 2008
		£m	£m	£m
Amortisation of purchased intangible assets		(12.4)	(4.2)	(17.2)
Share based payments		(2.3)	(4.6)	(9.2)
Other operating expenses		(509.9)	(468.2)	(998.6)
		(524.6)	(477.0)	(1,025.0)

6.  Share of results of associates

		Six months ended	Six months ended	Year ended
		30 June 2009	30 June 2008	31 December 2008
		£m	£m	£m
Share of results of associates		(0.5)	1.2	2.7

As discussed in note 2, the Group's investment in QJY has been reclassified from associates to available-for-sale assets. Share of results of associates for the current period therefore excludes this investment.

7. Investment income

	Six months ended	Six months ended	Year ended
	30 June 2009	30 June 2008	31 December 2008
	£m	£m	£m
Interest receivable	4.7	7.5	15.9

 

Notes to the unaudited consolidated interim statement

for the six months ended 30 June 2009

8.  Finance costs

	Six months ended	Six months ended	Year ended
	30 June 2009	30 June 2008	31 December 2008
	£m	£m	£m
Interest payable on bank loans and overdrafts	(1.9)	(1.9)	(5.1)
Interest payable on loan notes, other loans and retirement benefit liabilities	(11.0)	(14.6)	(30.1)
Imputed interest on deferred consideration	(1.1)	(0.8)	(1.6)
Exchange gains on financing items	2.4	3.8	8.4
Fair value movements on put options granted to minorities	7.3	1.8	2.2
Fair value movements on other derivative financial instruments	(10.1)	(1.6)	6.0
Impairment of available-for-sale financial assets	(6.0)	-	(1.4)
	(20.4)	(13.3)	(21.6)
Amortisation of financing costs	(0.2)	(0.2)	(0.4)
	(20.6)	(13.5)	(22.0)

 

9. Tax on profit on ordinary activities

The underlying effective tax rate on underlying profit for the six months ended 30 June 2009 is 26.1% (six months ended 30 June 2008: 26.5%) which is the estimated underlying effective tax rate for the full year.

The tax charge for the six months ended 30 June 2009 is £7.0m (six months ended 30 June 2008: £13.8m; year ended 31 December 2008: £35.4m) representing an effective tax rate on statutory profits of 106.1% (six months ended 30 June 2008: 29.1%; year ended 31 December 2008: 28.4%).  The effective statutory tax rate is impacted by certain items which are not deductible for tax purposes.

The tax charge for the six months ended 30 June 2009 includes a deferred tax expense of £1.1m (six months ended 30 June 2008: £1.5m; year ended 31 December 2008: £3.9m) for tax deductions in respect of goodwill. IFRS requires that such deferred tax is recognised even if a liability would only unwind on the eventual sale or impairment of the business in question.

Notes to the unaudited consolidated interim statement

for the six months ended 30 June 2009

10.  Dividends

	Six months ended	Six months ended	Year ended
	30 June 2009	30 June 2008	31 December 2008
Ordinary shares of 5p each
Dividend rate per share for the period (pence)	0.96	0.96	2.50
Declared and paid during the period	£m	£m	£m
Final dividend for 2007 of 1.46p per share	-	16.5	16.5
Interim dividend for 2008 of 0.96p per share	-	-	10.9
Final dividend for 2008 of 1.54p per share	17.8	-	-
	17.8	16.5	27.4
Proposed but not yet declared or paid at the balance sheet date	£m	£m
Interim dividend for 2008 of 0.96p per share	-	10.9	-
Final dividend for 2008 of 1.54p per share	-	-	17.8
Interim dividend for 2009 of 0.96p per share	11.1	-	-
	11.1	10.9	17.8

Notes to the unaudited consolidated interim statement

for the six months ended 30 June 2009

11.  Earnings per ordinary share

	Six months ended	Six months ended	Year ended
	30 June 2009	30 June 2008	31 December 2008
Basic
(Loss) / profit for the year attributable to equity holders of the parent (£ millions)	(2.1)	30.0	82.8
Adjusting items attributable to equity holders of the parent (£ millions)	31.7	7.7	34.5
Underlying profit for the year (£ millions)	29.6	37.7	117.3
Weighted average number of ordinary shares in issue (millions)	1,143.2	1,130.8	1,133.5
Basic (loss) / earnings per share (pence)	(0.2)	2.7	7.3
Adjusting items attributable to equity holders of the parent (pence)	2.8	0.7	3.0
Underlying basic earnings per share (pence)	2.6	3.4	10.3
Diluted
(Loss) / profit for the year attributable to equity holders of the parent (£ millions)	(2.1)	30.0	82.8
Adjusting items attributable to equity holders of the parent (£ millions)	31.7	7.7	34.5
Underlying profit for the year (£ millions)	29.6	37.7	117.3
Weighted average number of ordinary shares in issue (millions)	1,146.0	1,137.9	1,136.9
Diluted (loss) / earnings per share (pence)	(0.2)	2.6	7.3
Adjusting items attributable to equity holders of the parent (pence)	2.8	0.7	3.0
Underlying diluted earnings per share (pence)	2.6	3.3	10.3
Weighted average number of ordinary shares (millions)
Basic weighted average number of ordinary shares	1,143.2	1,130.8	1,133.5
Dilutive potential ordinary shares: employee share options	0.1	3.7	0.7
Shares to be issued	2.7	3.4	2.7
Diluted weighted average number of ordinary shares	1,146.0	1,137.9	1,136.9

 

The calculation of basic and diluted earnings per share is based on profit after tax and minority interests. The weighted average number of shares excludes the Group's interest in own shares held through an ESOP trust. The shares to be issued relate to the acquisition of AgenciaClick in Brazil and are dependent on certain performance conditions being met.

Notes to the unaudited consolidated interim statement

for the six months ended 30 June 2009

12.  Goodwill

In January 2009, the Group acquired a 51% equity share in View, a media company incorporated in Portugal. The Group revenue and operating profit are materially the same as if the entity had been included in the consolidated Group from 1 January 2009.

During the period, the Group also acquired additional stakes in existing subsidiaries as detailed below:

Company	Country of incorporation	% Acquired (Total Group holding)	Month of acquisition
Aegis Media
Dr Pichutta	Germany	45 (100)	January
Creo Communication	Norway	49 (100)	April
Vizeum Malmo	Sweden	49 (100)	May
Carat Taiwan	Taiwan	10 (100)	May

 

Initial consideration paid during the period, including acquisition costs, totalled £6.1m with estimated deferred cash consideration of £1.0m payable between 2010 and 2012, subject to performance criteria. A summary of the net assets acquired and goodwill arising is given below. 

 

Net assets acquired:	Book value acquired	Fair value adjustments	Fair value of net assets
		(a)
	£m	£m	£m
Intangible assets	-	1.6	1.6
Property, plant and equipment	0.1	-	0.1
Trade and other receivables	0.3	-	0.3
Cash and cash equivalents	0.2	-	0.2
Trade and other payables	(0.4)	-	(0.4)
Deferred tax liabilities	-	(0.4)	(0.4)
Net assets	0.2	1.2	1.4
Minority interest on current period acquisitions			(0.7)
Minority interest acquired			1.5
Release of provision for potential acquisition of minority interest			1.0
			3.2
Goodwill capitalised in the period			3.9
Consideration			7.1
Satisfied by:
Initial cash consideration			6.1
Deferred cash consideration			1.0
			7.1

 

Provisional adjustments have been made to reflect the provisional fair value of existing assets and liabilities in the Group's balance sheet. The assessment of any further intangible fixed assets is ongoing and expected to be complete by the financial year end. 

 

Notes to the unaudited consolidated interim statement

for the six months ended 30 June 2009

13.  Trade and other payables

	Six months ended	Six months ended	Year ended
	30 June 2009	30 June 2008	31 December 2008
	£m	£m	£m
Trade payables	1,458.5	1,837.9	1,981.4
Accruals and deferred income	213.0	228.6	243.8
Deferred consideration (note 14)	40.0	54.8	71.8
Liabilities in respect of put option agreements	2.2	4.1	4.1
Other payables	352.5	321.4	402.3
	2,066.2	2,446.8	2,703.4

14. Other long-term liabilities

Other long-term liabilities of £103.5m (30 June 2008: £156.2m; 31 December 2008: £178.9m) include deferred consideration of £62.3m (30 June 2008: £111.7m; 31 December 2008: £125.6m).

 

Deferred consideration

Deferred consideration may be paid to the vendors of certain subsidiary undertakings in the years to 2014. Such payments are either fixed under the terms of the acquisition or are contingent on future financial performance. Changes in such estimates in the current period have led to a decrease in the liability of £39.9m.  Deferred consideration is discounted at the Group's weighted average cost of borrowing.  The directors estimate that, at the rates of exchange ruling at the balance sheet date, the liability at 30 June 2009 for payments that may be due is as follows:

 

	Six months ended	Six months ended	Year ended
	30 June 2009	30 June 2008	31 December 2008
	£m	£m	£m
Within one year	40.0	54.8	71.8
Between one and two years	32.9	38.4	41.7
Between two and five years	29.4	73.3	81.1
Greater than 5 years	-	-	2.8
	102.3	166.5	197.4

Notes to the unaudited consolidated interim statement

for the six months ended 30 June 2009

15. Note to the cash flow statement 

		Six months ended	Six months ended	Year ended
		30 June 2009	30 June 2008	31 December 2008
		£m	£m	£m
Operating profit		23.0	52.2	128.0
Adjustments for:
Depreciation of property, plant and equipment		11.8	10.5	23.0
Amortisation of intangible assets		16.1	8.0	24.3
Impairment of intangible assets		0.1	-	4.4
Loss on disposal of property, plant and equipment		0.2	0.1	0.5
Loss / (profit) on disposal of intangible assets		0.1	-	(0.1)
Share-based payments		2.3	4.6	9.2
Other non-cash movements		(0.1)	3.2	(2.0)
		53.5	78.6	187.3
(Decrease) / increase in provisions		(0.8)	-	1.2
(Decrease) / increase in restructuring related liabilities		(5.7)	-	18.2
		47.0	78.6	206.7
Decrease in receivables		382.2	39.7	243.1
Increase in work in progress		(4.5)	(8.3)	(2.8)
Increase in payables		(394.4)	(16.7)	(185.4)
		(16.7)	14.7	54.9
Cash generated from operations		30.3	93.3	261.6

		1 January 2009	Cash flow	Other non-cash charges	Exchange movements	30 June 2009
		£m	£m	£m	£m	£m
Analysis of net debt
Cash and cash equivalents		412.7	(59.2)	-	(35.7)	317.8
Overdrafts		(5.0)	(6.9)	-	0.5	(11.4)
		407.7	(66.1)	-	(35.2)	306.4
Debt due within one year		(48.1)	(1.1)	-	5.8	(43.4)
Debt due after more than one year		(658.3)	(11.2)	0.2	42.3	(627.0)
Net debt before issue costs of debt		(298.7)	(78.4)	0.2	12.9	(364.0)
Issue costs of debt		1.2	0.7	(0.2)	-	1.7
Total		(297.5)	(77.7)	-	12.9	(362.3)

Notes to the unaudited consolidated interim statement

for the six months ended 30 June 2009

16. Related party transactions

Remuneration of key management personnel

Other than remuneration there were no material transactions with key management personnel in the period.

 

Transactions with associated undertakings

In 2009, Group subsidiary companies purchased media space from associated undertakings totaling £8.7m (2008: £19.0m; 6 months to 30 June 2008: £17.8m). These transactions have occurred on an arms' length basis. The balance due from Group companies to associated undertakings at the end of the current reporting period was £2.0m (31 December 2008: £0.8m; 30 June 2008: £8.8m). The balance due from associated undertakings to Group companies at the 30 June 2009 was £2.3m (31 December 2008: £3.5m; 30 June 2008: £28.2m)

17. Contingent liabilities

The Group is exposed to legal claims in the ordinary course of business and vigorously defends against claims received. The Group makes provision for the estimated costs to defend such claims when incurred and provides for any settlement costs when such and outcome is judged probable. There have been no material changes to management's assessment of contingent liabilities since 31 December 2008.

Responsibility statement

We confirm that to the best of our knowledge:

• the condensed Group financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting;

• the interim management report includes a fair review of important events during the first six months and their impact on the condensed Group financial statements and a description of the principal risks and uncertainties for the remaining six months of the year, as required by the Disclosure and Transparency Rule 4.2.7R; and

• the interim management report includes a fair review of related parties' transactions and changes therein, as required by the Disclosure and Transparency Rule 4.2.8R.

On behalf of the Board

John Napier Chief Executive Officer 27 August 2009

Alicja Lesniak Chief Financial Officer 27 August 2009

Independent review report to Aegis Group plc

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 17. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting,' as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditors
London

27 August 2009

A review does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular in whether any changes may have occurred to the financial information since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area.

 

Legislation in the United Kingdom governing the preparation and dissemination of financial information differs from legislation in other jurisdictions.

Glossary of terms

The Group

Aegis Group plc and its subsidiaries.

Aegis Media

The media services division of Aegis Group plc.

Synovate

The market research division of Aegis Group plc.

Billings
The annualised value of media purchased and/or managed on behalf of clients, before agency discounts.

Turnover

Represents amounts invoiced for media handled by the Group on behalf of clients, together with fees invoiced for media and research services provided.

Revenue

The value of media and research fees and commission earned by the Group.

Secured revenue %

Secured revenue represents confirmed sales orders for projects which will complete in the year as a percentage of full year revenue.

Gross profit

Media and research income after deduction of all direct costs.

Gross margin

Gross profit stated as a percentage of turnover.

Operating profit

Gross profit less operating expenses.

Operating margin

Operating profit stated as a percentage of revenue.

Net new business

The annualised value of media billings gained less the annualised value of media billings lost.

Reported growth

Reported growth represents the year on year growth including the effect of new businesses acquired or disposed of during the year and movements in exchange rates.

Organic growth

Organic growth represents the constant currency year on year growth after adjusting for the effect of businesses acquired or disposed of since the beginning of the prior year.

Constant currency results

Constant currency results are calculated by restating prior year local currency amounts using current year exchange rates.

Underlying results

Underlying operating profit, underlying profit before interest and tax, underlying profit before tax, and underlying profit after tax are operating profit, profit before interest and tax, profit before tax, and profit after tax respectively, stated before those items of financial performance that the Group believes should be separately disclosed to assist in the understanding of the underlying performance achieved by the Group and its businesses ('adjusting items'). Such adjusting items are material by nature or amount in the opinion of the directors and may include impairment charges and other exceptional items, including profits and losses on disposals of investments, amortisation of purchased intangible assets, unrealised gains and losses on non-hedge derivative financial instruments, fair value gains and losses on liabilities in respect of put option agreements, and any related tax thereon, as appropriate. Adjusting items may also include specific tax items such as the benefit arising on the reduction of certain tax liabilities in a particular half-year period and deferred tax liabilities for tax deductions taken in respect of goodwill, where a deferred tax liability is recognised even if such a liability would only unwind on the eventual sale or impairment of the business in question.

Adjusting items are classified as operating, non-operating and financing according to the nature of the underlying income or expense.

Goodwill

The difference between the fair value of purchase consideration of a business as a whole and the aggregate fair value of its separable net assets.

Minority interests

Partial ownership of subsidiary undertakings by external shareholders.

Emerging markets

Emerging markets comprise Latin America, Central and Eastern Europe, Asia Pacific (with the exception of Australia, New Zealand and Japan) and the Middle East and Africa.

ENDIR PRMMTMMTTTJL