Synovate

*Constant currency

Synovate delivered a year of very strong revenue growth and an improvement in operating margin. Synovate’s guiding principles of the 3 ’i’s – international, innovative and integration – continue to underpin our offer to clients and our business success.

Revenue of £433.0 million (2006: £401.2 million) was up 13.0%, on a constant currency basis, and 7.9% at reported rates. Revenue grew 8.9% organically, making for a third successive year of growth around twice as fast as the industry, which we estimate to have grown at 5.2% in 2007. Synovate’s success reflects a number of factors, including our global client relationship programme, product innovation across a number of sectors and growing specialism in industry sectors and areas of research.

Synovate’s gross profit margin declined 80bps from 63.9% to 63.1%. This reflects changes in the 2007 business mix, with a high proportion of pass-through costs in certain studies and an increasing percentage of business from global clients.

Underlying operating profit was up 18.3% on a constant currency basis, and 13.3% at reported rates, to £34.9 million (2006: £30.8 million), reversing the half-year decline that arose from the second-half weighting of contract completions. Underlying operating margin improved from 7.7% to 8.1% as we offset continuing pressure on pricing from clients with good cost control and operating efficiencies, including moving data collection and processing to lower cost markets.

Our global client relationship (‘GCR’) programme, based around dedicated account management for 16 of Synovate’s largest multinational clients, continues to produce excellent results as we increased our share of their market research budgets. This client group accounted for 19% of Synovate’s revenue in 2007, up from 17% in 2006. We have also launched successful GCR programmes in both Synovate Healthcare and Synovate Motoresearch and have customised the programme for individual markets to roll-out on a national basis for local clients.

We created a dedicated global operations team and made very good progress on our operations strategy, following the appointment of Synovate’s first COO in 2006. In the summer we opened four data-processing centres in Bulgaria, Malaysia, Egypt and China to service clients at a more competitive cost than we can in developed markets. These are already operating well, bringing some early margin improvement, and we have set aggressive targets for utilisation in 2008. Our roll-out of new global technology infrastructure continues. We have installed the first modules of WorkBench, our new research platform, and are in the process of completing user acceptance testing of ManageMe, our MIS, as part of first roll-out in China.

Our revenue and profit growth was helped by a number of new product launches. In 2006 we established a worldwide Brand & Communications practice with ‘BrandLab’ as our centre of excellence for strategic thinking and new product development in Cape Town, led by Jannie Hofmeyr, an acknowledged leader in brand equity. BrandLab’s first product, sales prediction tool Brand Value Creator (‘BVC’), was launched at the end of 2006 and has delivered exceptional results throughout 2007, with over 400 separate projects undertaken, for many of the world’s best-known brands. Today BVC can draw on a total of 4 million individual consumer observations. An extension of BVC was launched in December 2007 and we have a series of further product launches planned for the Brand and Communications space.

Synovate Healthcare delivered another strong performance in 2007. Growth from GCR was particularly strong as we customised this Synovate-wide initiative for pharmaceutical clients. In addition, we saw good revenue growth from new product launches, including the development of our forecasting services and new Therapy Monitors in Psychoses in five European markets, Diabetes in China and Oncology in India. Along with expanding their geographical reach, we are also transitioning a number of Therapy Monitors online to ensure faster data collection and delivery to our clients. In keeping with our strategy to be in all the major and key emerging markets we extended our network to 22 countries with the launch of Synovate Healthcare in Germany, Turkey, Canada and Russia.

Synovate Motoresearch also enjoyed a very strong year, with particular success in China and Germany, where our emphasis on key accounts helped us increase revenues from a number of major manufacturers, and good growth in South Africa, where we remain the market leader. Our customer satisfaction tool, NADA 24, continues to perform very well. Originally designed to give real-time feedback to automotive dealers, the product has also proved popular with manufacturers and we are continuing to customise this service for new segment and geographic applications.

Synovate Aztec traded strongly in its heartland of Australia and New Zealand, at the same time as delivering encouraging growth in Thailand and Malaysia. Outside this region, Synovate Aztec has now established a presence in South Africa and is establishing its consultancy services in France, Belgium, the UK and Canada.

In April we announced an agreement with online data collection specialist GMI as a preferred partner for online research. While Synovate has a number of high specification online access panels across the world, in which we continue to invest, we do not believe that the online market is yet at a stage of development to merit start-up panel investment in every market where we operate. As a result, we have been able to service clients with online data collection in over 60 markets, without any additional capital investment. Through this partnership we have now carried out over 1,000 studies.

Revenue grew to £206.4 million (2006: £183.2 million) up 14.3% at constant currency and 12.7% at reported rates. Revenue growth in EMEA was powered by a very good year in Central and Eastern Europe and in the Middle East. We delivered exceptional growth in a number of these markets, with Russia, the Czech and Slovak Republics, Bulgaria and Hungary standing out in Central and Eastern Europe, and the UAE, Egypt and Tunisia in the Middle East and Africa. In the larger markets of Western Europe, we delivered good growth in Germany, where our global client relationship programme delivered gains in the automotive sector. The UK market remained highly competitive, but we made good progress being named to major client rosters, which we expect to deliver further success in future years. Synovate UK’s office move in April will see its 500 people in a single site for the first time.

During the year we acquired Interview-NSS in the Netherlands, and its leading product in affluent media research, the European Media and Marketing Service (EMS). Alongside Synovate’s PAX, our existing high net worth media survey in Asia, the Middle East and Latin America, we now have coverage in more countries than any other research business. The acquisition of Metra Seis in Spain strengthened Synovate Spain with greater scale and complements our existing position in qualitative with a strong quantitative practice. In December, the acquisition of SPSL, a UK-based leader in footfall measurement and analysis across Europe, extended our reach in the retail sector and brought in new proprietary technologies with the potential for wider international application. SPSL monitors over a billion visits to over 4,600 retail premises annually in the UK alone.

We grew revenue in Synovate Americas to £132.5 million (2006: £134.1 million), an increase of 7.3% at constant currency and a decrease of 1.2% at reported rates, reflecting the effect of the weak US dollar on our results in translation. The Americas region as a whole achieved good organic growth. We delivered a strong competitive performance in the US, our largest single market, where underlying growth was mid-single digit. The technology and telecommunications segments, along with financial services and healthcare, including medical insurance, were all particularly strong. Latin America grew well, as it becomes an increasing focus of attention for multi-national brands, as well as local business. We saw very good revenue growth across Mexico, Brazil and Argentina and profits remained healthy despite continuing investment in expansion.

Following the year-end, we acquired CIMA Group, a leading independent with operations in six Latin American markets, taking Synovate into a total of 57 countries worldwide.

Revenue at Synovate Asia-Pacific grew 18.8% at constant currency to £94.1 million (2006: £83.9 million) and 12.2% at reported rates. Favourable market conditions and Synovate’s well-established presence contributed to another good year of growth across the emerging economies of Asia-Pacific. We had a further excellent year in China, where we are the leader in custom market research. This remains our third largest market and we conducted over one million interviews there in the course of the year. 2007 was a more difficult year in some of the region’s more mature markets, such as Hong Kong and Taiwan, but we saw an improvement in performance in Japan.

We opened a full-service office in New Zealand, where our presence had previously been only through Synovate Aztec, and added to it with the acquisition of leading independent Research Solutions in November.