Aegis Media

*Constant currency

Total revenue at Aegis Media increased 15.0% to £673.4 million (2006: £595.7 million) on a constant currency basis, and 13.0% at reported rates. Organic revenue growth of 10.3% was well ahead of the global advertising market, which we estimate to have grown at 4.6% globally.

Underlying operating profit was up 11.9% on a constant currency basis, and 11.0% at reported rates, to £134.4 million (2006: £121.1 million). Underlying operating margins of 20.0% (2006: 20.3%) remained best-in-class for our industry, in spite of increased investment in resources to win and service global clients.

Aegis Media achieved significant success in local and international pitches during 2007. Net new business of US$1,667.5 million (2006: US$2,691.7 million) followed an exceptional performance the previous year and reflects Aegis Media’s global leadership in insight (including CCS, our proprietary consumer research, the largest study of its type), our planning and measurement tools, both on and offline, our consumer-planning led approach, our leadership in digital and the strength of our media buying operation. In December, Carat was named Campaign’s 2007 Media Network of the Year for the second year running.

Key wins included Twentieth Century Fox in 18 markets by Vizeum, Johnson & Johnson across EMEA by Aegis Media and Mattel globally by Carat. We successfully expanded a number of existing client relationships, including our appointment by Renault in the Nordics, Procter & Gamble in China and The Coca-Cola Company in the UK. We also retained a number of significant client relationships in review, including Carat’s global Philips account and Pernod Ricard in the USA and a number of European markets in Vizeum. We do not include retentions in our net new business total.

Additional wins in the period included Birds Eye in the UK; Eau Eclarte in France; Red Bull in Portugal; EON in Spain; GEOX in Italy; Bang & Olufsen, Outback Steakhouses and Discover Financial Services in the USA; Subway in Canada; ABN Amro, Korean Air and LG Shine across the Asia-Pacific region; Energy Australia in Australia; Procter & Gamble’s Pampers and Whisper brands in China; and Nikon in Japan.

We have concentrated investment in the year on building our capability to service global clients across all our brands. We doubled the size of Isobar’s global client resource, established in 2006, and we have also restructured Carat and Vizeum’s international client services around a new team of senior client presidents, drawing on internal appointments and new hires. We have put in place new shared resources for global insight, investment management and data.

We have also developed our capability to provide integrated services. We believe our heritage in consumer insight and accountability, along with a unique structure, gives us a natural advantage in providing full-service solutions. For example, in the US, Carat was behind the use of over 350,000 personalised text messages and phone calls with pioneering use of callback, webisodes starring NBA players and offline media to recruit teens to adidas’s ‘Basketball is a Brotherhood’ cause. Brand favourability more than doubled, and 72% of all participants said the campaign made them ‘think differently about their lives’. We have also established a central team to work on defining and sharing best practice approaches around the world and will be launching the next generation of our three key communications planning frameworks – Carat 3C’s; The Vizeum Way and Isobar’s Creating Time® – in the course of this year.

Isobar, our digital marketing agency network, had another exceptional year of growth. We exceeded our target of one quarter of Aegis Media revenue from Isobar; at 26% it was up from 20% in 2006 and over three times ahead of the wider marketplace. Isobar agencies continued to lead the field in digital marketing, taking more awards at the Webbies and the Cannes Cyber Lions than any other network, with five Webbies and eight Cyber Lions in 2007. Ground-breaking work in the year included Farfar’s Heidies campaign for the launch of Diesel underwear, a Grand Prix winner at Cannes, and wwwins’ search-led interactive online soap opera for Yahoo! Kimo in Taiwan, which generated almost 20 million search queries in four weeks.

Our 2007 digital acquisitions focused on expanding Isobar in emerging markets and bringing new technologies into the Group, such as Marvellous in mobile marketing and Bluestreak in digital ad-serving. The technologies and capabilities acquired, along with previous acquisitions such as iProspect in search, are enabling us to create new global data offerings for our clients, integrating proprietary data and analytics for the optimisation of client marketing initiatives. By the year end, Isobar was in 38 markets, with Brazil, South Africa, Hong Kong and Switzerland added to the network. Isobar was also recognised as the world’s largest digital agency network in RECMA’s first report on interactive agencies.

We started the international roll-out of iProspect and delivered exceptional growth in search engine marketing. Acquired in 2004, iProspect’s bidding technology and its search engine optimisation capability are both judged industry-leading. Today, we have 10 full-service iProspects, of which nine were opened in 2007. We have a further ambitious opening programme for 2008.

Posterscope also achieved another year of market outperformance, helped by investment in consumer insight, proprietary tools and technology, continuing momentum from international expansion of the brand and the breadth of our out-of-home offer. The long anticipated loss of Mediacom’s UK business in the fourth quarter of 2006, following its change in ownership, was more than offset through share gains elsewhere in the UK. New international openings in 2007 included Posterscope Netherlands and Posterscope Malaysia, taking the brand into a total of 21 countries worldwide. Developments in technology mean that digital out-of-home screens are becoming increasingly commonplace. In the UK, Guinness was able to create additional word-of-mouth by taking its ‘Hands’ advertising idea beyond television and internet into digital out-of-home with positive results.

2007 was another excellent year in Aegis Media EMEA. Our digital advantage and a very strong new business performance during 2006 and 2007, including the $800 million GM Europe account, delivered good revenue momentum throughout the year.

Revenue at constant currency was up 12.4%, and up 12.7% at reported rates, to £471.1 million (2006: £418.1 million). We enjoyed a generally stable trading environment, although traditional media remained under pressure in many Western European markets.

We achieved particularly strong performances in Russia and Eastern Europe, Italy, Spain and the Nordics. In each of the three largest European advertising economies of Germany, the UK and France, our organic growth was comfortably ahead of the respective national markets.

We continue to pioneer new agency models, with Carat UK, Vizeum UK and Carat France all trialling alternative structures for online – offline integration. This has resulted in exceptional client work and new business success, with Carat and Vizeum respectively taking the first and second positions in the Campaign new business league for 2007, and Carat France winning a number of full-service assignments.

Our acquisitions included Trigger and Full Circle Media in South Africa, taking us into digital and underpinning our commitment to invest and grow in a rapidly consumerising market; Suddenly Copenhagen, and Suddenly Stockholm (along with the subsequent acquisition of White Sheep in January 2008, completing our Nordics full-service digital offer under the Suddenly brand); Marvellous in mobile in the UK, with international operations and a proprietary technology platform, m-hub; Implicom in trade marketing and retail promotions in France; and Extenseo in search in Belgium, for the iProspect network. We also launched Vizeum in South Africa and UK digital brand Diffiniti in Ireland during the year.

Aegis Media Americas grew revenue at 25.0% at constant currency, and 15.5% at reported rates, to £153.7 million (2006: £133.1 million). We experienced strong growth in Mexico, Argentina, Brazil and Canada, with Brazil and Canada both helped by acquisitions in the year. Overall, our USA business grew well, delivering above-market organic growth, driven in particular by an exceptional performance in digital and another good year in out-of-home and sponsorship and entertainment marketing.

The reduction of two major client budgets at the end of 2006, as reported at the half year, impacted Carat USA’s revenue and profitability, although we increased the Aegis Media Americas operating margin year-on-year. We took advantage of the opportunity to restructure Carat USA by merging it with Carat Fusion, our largest digital business, creating a new integrated agency model with unique scale in the USA, and have absorbed the cost of restructuring in our underlying results. We are reshaping the business with new tools, metrics and an agency-wide emphasis on communications planning, which will enable our planners to work across the full spectrum of marketing services, from media, search, word-of-mouth, out-of-home, creative and mobile. This has been well received by the US market, and we will continue to innovate in this area.

Having launched Posterscope USA in 2006, we saw a further year of very good performance in 2007. We brought HyperSpace, our digital out-of-home offer, to the US. Posterscope USA is well placed to make further good progress ahead of the launch of industry-wide out-of-home audience data, Eyes On, in the current year. Velocity, our sports and entertainment business, grew well. The June acquisition of Vivid Marketing, a full-service event and experiential marketing agency, is proving highly complementary, giving us a unique integrated sponsorship and experiential capability. We have also been working on the creation of a free-standing co-ordinated global sponsorship and experiential network. This will draw together the skills of our 500 people in 17 countries already active in this area, ahead of a new brand launch in the first half of 2008.

We transformed our client proposition in both Canada and Brazil. The acquisitions of Genesis Media and Mindblossom in Canada in the second half have enabled us to establish the Vizeum brand in Canada and to offer full-service digital services. In Brazil, the acquisition of AgenciaClick brought the leading independent digital agency into Aegis Media, with a worldwide reputation for creativity, having won 16 Cannes Lions. The addition of AgenciaClick gives us an extremely solid platform to build on for future growth in the Latin America region, and was a contributing factor to a quadrupling in revenue from Latin America in the period.

Revenue at Aegis Media Asia-Pacific increased 12.2% at constant currency to £48.6 million (2006: £44.5 million) and 9.2% at reported rates. We significantly strengthened the senior team in the region, including the appointment of new CEOs in Australia, India and North Asia, following the appointment of a new regional CEO in July 2006. We took a number of strategic actions in the course of 2007 which impacted our revenue growth and profitability during the year and leave us with a significantly stronger business. These included a new service proposition at Carat Australia, a restructuring in India, where we now operate as a wholly-owned business, and a move from media buying to a pure planning offer in Japan, where a different business model prevails. As a result, we saw a year-on-year decline in profitability of our Asia-Pacific business but are very confident of a return to good growth in 2008.

Elsewhere in the region we performed well. The developing markets of Asia-Pacific continue to drive high growth rates throughout the region. We remain the leading player in digital in much of the region, and both Carat and Vizeum enjoy a reputation for competitive, creative work. We delivered outstanding growth in China, Korea, Malaysia and Taiwan. We benefited from strong market positions in China, where Aegis Media is the number three media agency and a leader in digital, and in Taiwan, where Carat is the market leader.

We signed three acquisitions in the region during 2007. The Korean operations of ION Global brought us strategic and technical capabilities in mobile and web-build in the world’s most broadband-penetrated market. ION’s Hong Kong operations have given us a base to build the successful wwwins brand in Hong Kong, giving us a presence in the four key cities across Greater China. In December we announced an agreement to acquire Heartland, China’s leading independent out-of-home agency. We also acquired Apollo, the largest independent promotional marketing agency in Australia and New Zealand, reinforcing our sponsorship and entertainment offer in the region.