Aegis growth story hammered by bad debt, low contribution from Mitchell

The business newswires are awash this morning with confident noises from media buying and research group Aegis (which owns Carat, Vizeum and researcher Synovate) after its 2010 revenue rose from £1.35bn to £1.46bn.

This led to an underlying profit of £192m, ‘underlying’ meaning what the profit would have been without various nasties, such as an increase in operating costs (including £8.8m for a new office it seems), 13.9m on the ‘disposal of subsidiaries’ and a quite staggering £37m provision (it was originally reported as £25m) against a likely bad debt from Spanish client industrial group Nueva Rumasa.

Also the company’s part share, part cash acquisition for £200m of Australia’s Mitchell Communications half way through the year brought in just £2m in profit on £12.6m. If you double this up Aegis paid around 50 times earnings for Mitchell and nine times revenues.

Decidedly toppy looks to be an understatement. Aegis CEO Jerry Buhlmann obviously takes the view that Mitchell is a valuable (if premium-priced) hub for the company in the booming media markets of Asia Pacific. Sounds like it needs to up its game a bit though.

The result of all of this was that Aegis’ actual profits fell to £68m, down from £91m in 2009 (the depths of the ad recession) and £124.6m in 2008.

Aegis chairman John Napier claimed the results showed “above market growth,” which is fair enough, and the need for a “strengthened reporting and cash management environment.”

As £37m looks like it’s fallen out of the window he can say that again.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.