THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document or the action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank, solicitor, accountant, fund manager or other appropriate independent financial adviser authorised under the Financial Services and Markets Act 2000 if you are resident in the UK or, if not, from another appropriately authorised independent financial adviser. If you sell or transfer or have sold or transferred all of your Ordinary Shares, please forward this Circular and the accompanying documentation as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for onward transmission to the purchaser or transferee. If you sell or have sold or otherwise transferred only part of your holding of Ordinary Shares, you should consult with the stockbroker, bank or other agent through whom the sale or transfer was effected as to the action you should take. Any person (including, without limitation, custodians, nominees and trustees) who may have a contractual or legal obligation or may otherwise intend to forward this Circular to any jurisdiction outside the UK should seek appropriate advice before taking any action. The distribution of this Circular and any accompanying documents into jurisdictions other than the UK may be restricted by law. Any person not in the UK into whose possession this Circular and any accompanying documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. LR13.3.1(4) LR13.3.1(6) Aegis Group plc (Incorporated in England and Wales with registered number 01403668) PROPOSED SALE OF THE SYNOVATE GROUP, RETURN OF CAPITAL AND SHARE CONSOLIDATION Circular to Ordinary Shareholders and Notice of General Meeting Your attention is drawn to the letter to Ordinary Shareholders from the Chairman of Aegis, which is set out in Part I (Letter from the Chairman) of this Circular. This letter contains the recommendation of the Board of Aegis that you vote in favour of the Resolutions to be proposed at the General Meeting. Please read the whole of this Circular. In particular, your attention is drawn to the risk factors set out in Part II (Risk Factors) of this Circular. A notice convening a General Meeting of the Company to be held at 3.00 p.m. on 16 August 2011 at The Academy of Medical Sciences, 41 Portland Place, London W1B 1QH is set out at the end of this Circular. A Form of Proxy for use at the General Meeting is enclosed with this Circular. Whether or not you intend to attend the General Meeting in person, please complete, sign and return the accompanying Form of Proxy in accordance with the instructions printed on it as soon as possible but, in any event, so as to be received by the Company s Registrar no later than 3.00 p.m. on 12 August 2011, being 48 hours before the time appointed for the holding of the General Meeting (excluding non-working days). If you hold your Ordinary Shares in uncertificated form (i.e. in CREST) you may appoint a proxy by completing and transmitting a CREST Proxy Instruction in accordance with the procedures set out in the CREST Manual so that it is received by the Company s Registrar (under CREST participant ID3RA50) by no later than 3.00 p.m. on 12 August 2011. A summary of the action to be taken by Ordinary Shareholders is set out on pages 10 and 11 of this Circular and in the accompanying Notice of General Meeting. The completion and posting of the Form of Proxy or the making of a CREST Proxy Instruction will not prevent you from attending and voting in person (in substitution for your proxy vote) at the General Meeting if you wish to do so and are so entitled.
No person has been authorised to give any information or make any representations other than those contained in this Circular and, if given or made, such information or representations must not be relied on as having been so authorised. The delivery of this Circular shall not, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this Circular or that the information in it is correct as of any subsequent time. Greenhill, which is authorised and regulated in the UK by the FSA, is acting for Aegis and for no one else in connection with the Sale and will not be responsible to anyone other than Aegis for providing the protections afforded to clients of Greenhill or for providing advice in relation to the Sale, the contents of this Circular or any transaction, arrangement or other matter described in this Circular. J.P. Morgan Cazenove, which is authorised and regulated in the UK by the FSA, is acting for Aegis and for no one else in connection with the Sale, the Return of Capital and the Share Consolidation and will not be responsible to anyone other than Aegis for providing the protections afforded to clients of J.P. Morgan Cazenove or for providing advice in relation to the Sale, the Return of Capital or the Share Consolidation the contents of this Circular or any transaction, arrangement or other matter described in this Circular. Capitalised terms have the meaning ascribed to them in Part X (Definitions) of this Circular. 29 July 2011 2
FORWARD-LOOKING STATEMENTS This Circular contains forward-looking statements which are subject to assumptions, risks and uncertainties associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Retained Group and the Synovate Group operate. These factors include, but are not limited to, those discussed in Part II (Risk Factors) of this Circular. These and other factors could affect the results, strategy and prospects of the Retained Group and/or the Synovate Group. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that these expectations will prove to have been correct. Since these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by those forward-looking statements. Each forward-looking statement is correct only as of the date of the particular statement. Except as required by the rules of the London Stock Exchange, the Listing Rules, the Disclosure and Transparency Rules or any other applicable law, the Company does not undertake any obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of new information, future events or otherwise. The statements in this section should not be construed as a qualification to the opinion of the Company as to the Retained Group s working capital set out in paragraph 11 of Part IX (Additional Information) of this Circular. 3
CORPORATE DETAILS AND ADVISERS Secretary and Registered Office Andrew Moberly Aegis Group plc 10 Triton Street Regent s Place London NW1 3BF Joint Sponsor and Financial Adviser J.P. Morgan Limited (which conducts its UK investment banking activities as J.P. Morgan Cazenove) 125 London Wall London EC2Y 5AJ Financial Adviser and Joint Sponsor Greenhill & Co. International LLP Lansdowne House 57 Berkeley Square London W1J 6ER Legal Adviser Auditor and reporting accountant Financial public relations adviser Company s Registrar Slaughter and May One Bunhill Row London EC1Y 8YY Ernst & Young LLP 1 More London Place London SE1 2AF Tulchan Communications LLP 85 Fleet Street London EC4Y 1AE Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZY 4
CONTENTS PART I LETTER FROM THE CHAIRMAN OF AEGIS 7 PART II RISK FACTORS 12 PART III FINANCIAL INFORMATION ON THE SYNOVATE GROUP 16 PART IV UNAUDITED PRO FORMA FINANCIAL INFORMATION FOR THE RETAINED GROUP 19 PART V ACCOUNTANT S REPORT IN RESPECT OF THE PRO FORMA FINANCIAL INFORMATION FOR THE RETAINED GROUP 21 PART VI PRINCIPAL TERMS OF THE SALE AGREEMENT 23 PART VII RETURN OF CAPITAL AND SHARE CONSOLIDATION 26 PART VIII UNITED KINGDOM TAXATION 28 PART IX ADDITIONAL INFORMATION 30 PART X DEFINITIONS 40 NOTICE OF GENERAL MEETING 43 Page 5
EXPECTED TIMETABLE OF PRINCIPAL EVENTS Date of this Circular 29 July 2011 Latest time and date for receipt of Forms of Proxy for the General Meeting 3.00 p.m. on 12 August 2011 General Meeting 3.00 p.m. on 16 August 2011 Expected completion of the Sale 30 September 2011 Notes: All references in this Circular are to London times. Future dates are indicative only and are subject to change by the Company, in which event details of the new times and dates will be notified to the FSA and, where appropriate, to Ordinary Shareholders. 6
PART I LETTER FROM THE CHAIRMAN OF AEGIS (Incorporated and registered in England and Wales under number 01403668) Directors John Napier (Chairman) Jerry Buhlmann (Chief Executive Officer) Harold Mitchell (Executive Chairman, Aegis Media Pacific) Nick Priday (Chief Finance Officer) Robert Philpott (Chief Executive Officer, Synovate) Charles Strauss (Senior Independent Non-Executive Director) John Brady (Non-Executive Director) Simon Laffin (Non-Executive Director) Martin Read (Non-Executive Director) Lorraine Trainer (Non-Executive Director) Registered office 10 Triton Street Regent s Place London NW1 3BF United Kingdom 29 July 2011 To: Ordinary Shareholders and, for information only, to participants in the Aegis Employee Share Schemes Dear Shareholder Proposed Sale of the Synovate Group 1. Introduction and summary of proposed Sale On 27 July 2011, the Company announced that it had entered into a conditional agreement with respect to the sale of the Synovate Group to Ipsos S.A. The Sale is proposed to be effected by the sale to the Purchaser of the entire issued share capital of the Synovate Holding Companies. The Sale excludes the Aztec Business and, as such, the ownership of the entire issued share capital of the Aztec Companies will, prior to Completion, be transferred from the members of the Synovate Group to other members of the Retained Group. The enterprise value for the Sale will be 525 million, which has been calculated on a cash and debt free basis and on the basis of there being a minimum level of working capital in the Synovate Group. The consideration will be subject to a customary adjustment for the amount of cash, debt and working capital in the Synovate Group at Completion. The principal terms of the Sale Agreement are set out in Part VI (Principal Terms of the Sale Agreement) of this Circular. Completion is conditional upon the satisfaction or waiver of the conditions described in paragraph 3 of Part VI (Principal Terms of the Sale Agreement) of this Circular. The Sale is of sufficient size relative to the size of the Company to constitute a class 1 transaction under the Listing Rules and is, therefore, conditional upon the approval of Ordinary Shareholders. As the Board is proposing to return some of the proceeds of the Sale to Ordinary Shareholders by way of a special dividend, you are also being asked to approve a consolidation of the ordinary share capital of the Company. The resolution to approve the consolidation of the ordinary share capital of the Company will be proposed as an ordinary resolution pursuant to the provisions of section 618 of the Companies Act 2006. Your approval of the Sale and the Share Consolidation is being sought at a General Meeting of the Company to be held at 3.00 p.m. on 16 August 2011 at The Academy of Medical Sciences, 41 Portland Place, London W1B 1QH. A notice of the General Meeting and of the Resolutions to be considered at the meeting is set out at the end of this Circular. A summary of the action you should take is set out in paragraph 9 of this letter LR10.4.1(2)(a) LR10.4.1(2)(c) LR13.3.1(1) LR13.4.1(1) LR13.3.1(3) LR13.3.1(2) 7
and on the Form of Proxy that accompanies this document. If the Sale Resolution is passed at the General Meeting, Completion is expected to take place on 30 September 2011. LR10.4.1(2)(b) LR13.4.1(1) The purpose of this Circular is to provide you with information on the Sale, the return of 200 million to shareholders (the Return of Capital ) and the Share Consolidation, to explain the background to and reasons for the Sale and why the Board believes the Sale, the Return of Capital and the Share Consolidation are in the best interests of the Company s shareholders taken as a whole and to recommend that you vote in favour of the Resolutions. Ordinary Shareholders should read the whole of this Circular and not only rely on the summarised information set out in this letter. You will find definitions for capitalised terms used in this letter and the rest of this Circular in Part X (Definitions) of this Circular. LR10.4.1(2)(d) LR10.4.1(2)(e) LR13.4.1(1) 2. Information on Synovate The Synovate Group is one of the leading providers of custom market research globally, with a network spanning over 60 countries (the Synovate Business ). It offers a broad range of tailored market research services to customers in a variety of industry sectors. The Synovate Business, together with Aegis Media, comprise the two principal business divisions within the Group. The Synovate Business has been part of the Group since the acquisition of Market Facts in 1999 and the subsequent establishment of the international network of the Synovate Group in 2003. LR13.5.6 LR13.5.7(1), (2), (3) (a) A summary of the trading results for the Synovate Group (excluding the Aztec Business) for the three years ended 31 December 2010 (on an IFRS basis at reported exchange rates) is set out below: Year ended Year ended Year ended 31 December 31 December 31 December 2010 2009 2008 m m m Revenue 518.4 473.5 485.6 Operating profit 35.6 9.8 32.3 At 31 December 2010, the Synovate Group (excluding the Aztec Business) had net assets of 338.2 million and gross assets of 661.3 million. The financial information in this section has been extracted without material adjustment from the financial information contained in Part III (Financial Information on the Synovate Group) of this Circular. Please refer to Part III (Financial Information on the Synovate Group) of this document for further information. 3. Background to and reasons for the Sale Aegis has for some time operated a two division strategy, with a separate operating plan for Aegis Media and the Synovate Business, aligned with the Group s key strategic objectives. Although the Synovate Group offers no significant synergies with Aegis Media, it has been a core business for the Group, offering custom market research services on a consistent basis across its international network, led by an experienced management team. The Synovate Business performed strongly in 2010, recovering well from the global economic downturn. The Synovate management team has maintained this momentum into 2011, while implementing a re-focused strategic approach to build on the Synovate Group s recognised position in the global custom market research sector. LR13.3.1(1) LR10.4.1(2)(f) Having received an approach from Ipsos to acquire the Synovate Group for an enterprise value of 525 million, the Board believes the proposed sale represents attractive value to Aegis for the Synovate Group and reflects the Synovate Group s strong financial performance and recognition of its market 8
positioning. The Sale will crystallise the Group s investment made over a number of years in building the Synovate Business into a leading provider of global custom market research. The Sale will leave Aegis, being principally comprised of Aegis Media and the Aztec Business, focused on pursuing its strategy of positioning Aegis Media for a rapidly changing media environment, based on its Power Brand strategy. The Board believes that the more focused Group offers the scope to accelerate the delivery of value to shareholders. 4. Use of Proceeds and Financial Effects of the Sale on the Retained Group On Completion, the Retained Group is expected to receive net cash proceeds (after estimated taxes and transaction costs but prior to post-completion adjustments for cash, debt and working capital) of approximately 505 million. Having considered the expected net proceeds from the Sale and the Retained Group s proposed plans for the future, the Board intends that Aegis will return 200 million to shareholders. The Return of Capital is to be effected by means of a special dividend and, if approved by the Ordinary Shareholders, an associated sub-division and consolidation of Ordinary Shares on the basis of 10 New Ordinary Shares for every 11 Ordinary Shares. The Share Consolidation is intended, so far as possible, to maintain comparability of the Company s share price before and after the Return of Capital. The Share Consolidation requires the approval of a majority of Ordinary Shareholders present and voting at the General Meeting. The Share Consolidation is conditional on completion of the Sale and the necessary amendment of the Official List of the UK Listing Authority taking place. LR13.3.1(1) LR10.4.1(2)(f), (h) LR13.4.1(1),(5) LR13.5.6 LR13.5.7(3)(c) Further details of the Return of Capital and Share Consolidation are set out in Part VII (Return of Capital and Share Consolidation). Following the Return of Capital, the balance of the net cash proceeds are intended to provide increased financial flexibility to allow for investments in value-enhancing acquisitions by the Retained Group. The Board expects that, in the short term, any balance of the net cash proceeds arising from the Sale will be deposited in the money markets or with banks, invested in money market funds, gilts or short-term commercial paper, or used to repay part of the Retained Group s outstanding bank debt. The Board believes that the Sale and related Return of Capital and Share Consolidation will have a minimal impact on the earnings per share of Aegis in the medium term. One of the Retained Group s key strategic objectives is to focus on acquisitions that extend its capabilities and drive growth. The Retained Group will continue to pursue opportunities that provide scale, in-fill and innovation, with a specific focus on faster growing regions and digital businesses. Aegis has a successful track record of making acquisitions and has proven a strong partner for the media businesses it has acquired historically. All acquisitions will continue to be evaluated against strategic and investment criteria, including management and cultural fit, the delivery of good returns against financial hurdles and earnings accretion in the first full year after they are completed. LR13.3.1(1) LR10.4.1(f) LR13.5.31 PD Annex I, 12.1 and 12.2 LR13.5.6 LR13.5.7(1) 5. Irrevocable undertaking The Company has received an irrevocable undertaking from M. Vincent Bolloré to vote, or procure that the registered holders of the Ordinary Shares controlled by him vote, in favour of the Resolutions to be proposed at the General Meeting in respect of a total of 340,911,920 Ordinary Shares, representing approximately 26.48 per cent. of the Company s existing issued share capital as at 28 July 2011, being the latest practicable date prior to publication of this Circular. 6. Current Trading and Future Prospects of the Group As set out in the Group s first quarter Interim Management Statement, the levels of client advertising and research expenditure in the first quarter of 2011 have been ahead of the same period in 2010. This year-onyear trend has continued in the second quarter. In spite of continued macro-economic uncertainties, and 9
whilst medium term visibility continues to be relatively limited, the Group s prospects for 2011 remain positive. For the Retained Group, the Board continues to expect organic revenue growth during 2011 to be at least in line with the level achieved last year, in spite of the more difficult comparatives for the remainder of the year. LR13.3.1(3) Management continues to keep a clear focus on cost control and efficiencies to counter the upward pressure on staff costs that Aegis and its peers are experiencing in most markets. As a result of this management focus, and given the increasing momentum being built, together with our expectations for organic revenue growth in 2011, the Company continues to expect underlying operating profit for the Retained Group to improve further this year, compared to 2010. 7. Risk Factors For a discussion of the risks and uncertainties which you should take into account when considering whether to vote in favour of the Resolutions, please refer to Part II (Risk Factors) of this Circular. 8. General Meeting A notice convening the General Meeting to be held at 3.00 p.m. on 16 August 2011 at The Academy of Medical Sciences, 41 Portland Place, London W1B 1QH is set out at the end of this Circular. A Form of Proxy to be used in connection with the General Meeting is enclosed. As a class 1 transaction (owing to the size of the Sale relative to the size of the Company), the Company requires the approval of Ordinary Shareholders to proceed with the Sale. The completion of the Sale is therefore conditional, amongst other conditions set out in paragraph 3 of Part VI (Principal Terms of the Sale Agreement) of this Circular, on the passing of the Sale Resolution at the General Meeting of the Company. The full text of the Sale Resolution, which is to be proposed as an ordinary resolution at the General Meeting, is set out in the Notice of General Meeting, together with the Share Consolidation Resolution. To be approved, the majority of votes cast on the Resolutions must be in favour. Voting on the Resolutions will be conducted by way of a poll, rather than on a show of hands, as the Board believes that a poll gives as many shareholders as possible the opportunity to have their votes counted (whether their votes are tendered by proxy in advance, or in person) at the General Meeting. A poll was used at the 2011 annual general meeting and is intended to be used at future shareholder meetings of the Company. 9. Action to be taken You will find enclosed with this document a Form of Proxy for use in connection with the General Meeting or any adjournment thereof. It is important to us that our Ordinary Shareholders have the opportunity to vote, even if they are unable to come to the General Meeting. If you are unable to come to the General Meeting, you can use the enclosed Form of Proxy to nominate someone else to come to the meeting and vote on your behalf. To appoint a proxy, you need to send back the Form of Proxy or appoint a proxy electronically through CREST. Details of the relevant procedures are set out in the notes to the Form of Proxy and the Notice of General Meeting. You are requested to complete and sign the Form of Proxy whether or not you propose to attend the General Meeting in person in accordance with the instructions printed on it and return it as soon as possible, but in any event so as to be received by no later than 3.00 p.m. on 12 August 2011, by Computershare Investor Services PLC, the Company s Registrar, at The Pavilions, Bridgwater Road, Bristol BS99 6ZY. If you hold your Ordinary Shares in uncertificated form (i.e. in CREST) you may appoint a proxy by completing and transmitting a CREST Proxy Instruction in accordance with the procedures set out in the CREST Manual so that it is received by the Company s Registrar (under CREST participant ID3RA50), in each case by no later than 3.00 p.m. on 12 August 2011. 10
Unless the Form of Proxy or CREST Proxy Instruction is received by the relevant date and time specified above, it will be invalid. Completion and return of the Form of Proxy or submission of a CREST Proxy Instruction will not preclude you from attending and voting in person at the General Meeting if you wish to do so. 10. Further information Your attention is drawn to the further information set out in Part II (Risk Factors) to Part IX (Additional Information) of this Circular. You should read the whole of this document and, in particular, the risks and uncertainties set out in Part II (Risk Factors). 11. Recommendation The Board has received financial advice from Greenhill and J.P. Morgan Cazenove in relation to the Sale. In providing their financial advice to the Board, Greenhill and J.P. Morgan Cazenove have taken into account the Board s commercial assessment of the Sale. LR13.3.1(5) As a result of the potential conflict of interest represented by Robert Philpott s potential future employment with the Purchaser s group, Robert Philpott did not take part in the discussions of the Board relating to the recommendation to Ordinary Shareholders in respect of the Sale. The Board considers that the Sale is in the best interests of the shareholders of the Company taken as a whole and recommends that Ordinary Shareholders vote in favour of the Resolutions to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings, which amount in aggregate to 48,808,802 Ordinary Shares and represent approximately 3.79 per cent. of the Company s issued share capital as at 28 July 2011 (the latest practicable date prior to publication of this Circular). Yours faithfully John Napier Chairman 11
PART II RISK FACTORS LR13.3.1(1) LR13.4.1(2) PD Annex I, 4 Prior to voting on the Sale, Ordinary Shareholders should carefully consider the risks and uncertainties described in this Part II (Risk Factors). This Part II (Risk Factors) addresses the risks known to the Company and the Directors to which the Group is exposed. The following risks and uncertainties are not exhaustive and do not purport to be a complete explanation of all the risks involved in the Sale. The risks and uncertainties set out below are those which the Directors believe could materially and adversely affect the Group. Additional risks and uncertainties relating to the Group which are not known to the Directors as at the date of this Circular, or that the Directors currently deem immaterial, may also have a material adverse effect on the financial condition or business of the Group if they materialise. If any or a combination of the following risks and uncertainties actually materialise, the business, operations, financial condition or prospects of the Group could be materially and adversely affected. In such circumstances, the market price of Ordinary Shares could decline and you may lose all or part of your investment. These risks and uncertainties should be read in conjunction with all other information contained in this Circular. 1. Risks related to the Sale The Sale may not proceed Completion of the Sale is subject to the satisfaction of certain conditions, details of which are set out in Part VI (Principal Terms of the Sale Agreement) of this Circular. If Ordinary Shareholders do not approve the Sale, or the Completion Conditions are not satisfied (or waived), the Sale will not complete. If the Sale does not complete, the Company s ability to deliver shareholder value or to implement the Retained Group s stated strategy may be prejudiced and the Company will also be unable to implement the proposed Return of Capital and Share Consolidation proposed in Part VII (Return of Capital and Share Consolidation) of this Circular. A break fee may be payable if the Sale does not proceed The Company has agreed to pay a break fee to the Purchaser of 7,875,000 in the event of: (i) the execution of legally binding, definitive documentation for the implementation of a transaction or arrangement, which is or is reasonably likely to be inconsistent with, or preclude, the consummation of the Sale, within the 9 month period immediately following the signing of the Sale Agreement; or (ii) the Directors withdraw or qualify their recommendation of the Sale and the Ordinary Shareholders do not pass the Sale Resolution (or the General Meeting of the Ordinary Shareholders is not held prior to 1 September 2011). Potential disruptive effect if the Sale does not proceed If the Sale does not complete, this may have a negative impact on the performance of the Synovate Group under the Company s ownership. The Group s management, employees and clients may be affected if the Sale does not proceed and key personnel may choose to leave as a result of the uncertainty that would be caused were the Sale to fail to complete. To maintain shareholder value, the Group s management would be required to continue to allocate time and resources to the ongoing supervision and development of the Synovate Group. Representations, warranties and indemnities in the Sale Agreement The Sale Agreement contains current customary warranties and indemnities given by the Company in favour of the Purchaser in respect of the Synovate Group, which could cause the Retained Group to incur liabilities and obligations to make payments which would not have arisen had the Sale not taken place. Any such 12
payments could have an adverse effect on the Retained Group s cash flow and financial condition. Further details of the warranties and indemnities given are set out in Part VI (Principal Terms of the Sale Agreement) of this Circular. The Company may not realise the perceived benefits of the Sale The Company may not realise the anticipated benefits of the Sale set out in Part I (Letter from the Chairman of Aegis) of this Circular. The Company may encounter substantial difficulties in achieving these anticipated benefits and/or these anticipated benefits may not materialise. There is a risk that, even if the Sale proceeds, the Share Consolidation Resolution will not be approved by the Ordinary Shareholders and therefore the Company may be unable to realise the anticipated benefits set out in Part I (Letter from the Chairman of Aegis) of this Circular. The Retained Group s operations will be less diversified The Group currently comprises two divisions: the Aegis Media division and the Synovate Business. The two divisions operate in different markets and the financial performance of the two businesses are impacted by different and unrelated factors. Following Completion, the Retained Group s business will be less diversified, resulting in a greater risk of share price volatility. 2. Risks related to the Group s business and the markets in which it operates Challenging economic conditions Changes in global economic conditions, the volatility of international markets and any downturn may have a material and adverse effect on the demand for the Group s products and therefore its financial position. Client relationships The Group s success depends, in part, upon the strength of the Group s brands, its goodwill and reputation. The Group has worked with a number of its larger clients over a number of years to build up a strong sense of partnership, however, in the uncertain economic climate endured in recent years, there is a risk that clients investment in advertising and research will decrease, causing an impact on revenues. Damage to the Group s brands or reputation or a decline in customer confidence in the Group could have a material adverse effect on the Group s business, customers, employees, results of operations and financial condition. Competition The Group operates in a competitive environment where technological advances potentially allow current and prospective clients to be reached by suppliers from anywhere in the world. For some services, aggressive pricing from competitors in countries where costs are lower could cause a reduction in the Group s revenues and margins. Parts of the industry in which the Group operates have relatively low barriers to entry, increasing the potential risk of new competitors striving to take a part of the Group s market share. Failure by the Group to adapt to the challenges posed by competition and new technologies could have a material adverse effect on the Group s business, customers, results of operations and financial condition. Talent management The Group s employees are important in its client relations and for the wealth of the knowledge they hold. The departure of key personnel could have a material adverse impact on client retention, key decision making and development of the Group s business. Cash management The Group has to manage its funding arrangements and cash management to enable it to meet its liabilities. The media buying activities of the Group, in particular, require robust cash management processes. To help manage cash, the Group receives daily cash reporting from its operations and the larger businesses take part in cash pooling arrangements with the relationship banks, with which the Group also has its debt facilities. Business units also deposit surplus funds with Group Treasury to assist with managing interest payments and 13
liquidity. Failure to properly manage cash flow could have a material adverse effect on the Group s business and operations. Critical business systems The Group s business is dependent on the suitability and reliability of its systems and procedures. The Group s information technology systems are particularly critical given the Group hosts client databases and other applications on its own servers. Any disruption to these services would impact the Group s ability to perform against its client contracts and the Group s financial condition may be adversely affected. The Group also retains confidential information in relation to clients new product pipelines and advertising strategies. Unauthorised access to, or inappropriate use of, any information stored on the Group s servers or IT framework could have a detrimental impact on the Group s reputation and adversely affect its client relationships. Counterparty risk The Group is exposed to the risk that third parties (including clients, affiliates, media owners and other suppliers) may face financial difficulties, which may result in disruption to the provision of products or services by them to the Group. This may result in the loss of income from clients in financial difficulties or from increased media buying liabilities arising in markets where the Group acts as principal. The Group may also be affected by the level and the terms of credit available to counterparties and the availability of credit insurance. If a counterparty defaults or there is any interruption to the products or services provided by third parties, the Group may be adversely affected. This could result in a loss of customers, which may have an adverse effect on the Group s financial condition and future prospects. Acquisitions, successful integration and expansion Acquisitions and joint ventures remain a key feature of the Company s long term strategy, however, there is a risk that investment by the Group to increase its global reach may fail to generate an adequate return. Investment in an acquisition may be based on incorrect assumptions, resulting in overpayment. There is also a risk that the Group s integration plans for acquired businesses are not successful. Customer growth could be jeopardised by (i) overestimating the size of the target markets; (ii) failing effectively to manage the process of addressing the target markets and acquiring customers; and (iii) failing to adapt services offered to changes in customers requirements. As a result, the Group may not be able to sustain growth in customer numbers. In relation to new markets, there are limited target companies that are suitable to be acquired. Failure to implement successfully the Group s growth strategy could have a material adverse effect on the Group s business, customers, employees, results of operations and financial condition. Currency fluctuations The Group s reporting currency is Sterling. However, a material proportion of the Group s revenues, expenses and assets are denominated or held in other currencies as the Group operates across a number of foreign countries. The Group s future results and the value of its assets and liabilities will therefore fluctuate due to the translation effect. Whilst the Group attempts to manage foreign transaction exchange risks, there can be no assurance that the Group will be able to hedge successfully all its foreign exchange risks and failure to do so could have a material adverse effect on the Group s financial condition. Interest rate fluctuations The Group is exposed to changes in interest rates. There can be no assurance that the resources which the Group devotes to managing the interest rate risk will enable the Group to manage successfully the potential negative impact of risks associated with rapid interest rate changes. Such fluctuations in interest rates affect the interest expenses on existing debt facilities and the cost of new financings. The Group s cost of borrowing would therefore be affected by increases in interest rates, which could have a material adverse effect on the Group s financial costs, credit profile and business. 14
Legal and regulatory compliance The Group is obliged to comply with a range of legal guidelines and regulatory policies around the world, in areas such as taxation policy, accounting and corporate governance. In particular, the Group s operations are subject to extensive regulatory requirements in relation to its services, advertising, marketing and sales practices, terms of business, employment and pension policies. Laws, regulations, rules, guidance, codes of conduct, government policies and/or their respective interpretations currently affecting the Group may change and, although the Group monitors developments, it cannot predict with certainty future initiatives or changes. The Group would have to respond to any material changes in legislation or regulation which affected its business by adapting its services and procedures in the relevant market. There can be no assurance that the Group will be able to effectively respond to any such changes and this may have a material adverse effect upon the Group s business, results of operations and financial condition. 15
PART III FINANCIAL INFORMATION ON THE SYNOVATE GROUP The following financial information relating to the Synovate Group (excluding the Aztec Business) has been extracted without material adjustment from the consolidation schedules that underlie the Company s audited consolidated accounts for the years ended 31 December 2008, 31 December 2009 and 31 December 2010. The financial information in this Part III (Financial Information on the Synovate Group) does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 or section 434 of the Companies Act 2006 (as the case may be). The consolidated statutory accounts for Aegis in respect of the financial years ended 31 December 2008, 31 December 2009 and 31 December 2010 have been delivered to the Registrar of Companies. The auditors reports in respect of the statutory accounts for each of these three financial periods were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985 or section 498(2) or (3) of the Companies Act 2006. LR13.5.4(1) LR13.5(6) LR13.5.9 LR13.5.11 LR13.5.7(1) LR13.5.7(2) LR13.5.7(3)(a) The financial information contained in this Part III (Financial Information on the Synovate Group) for the years ended 31 December 2008, 31 December 2009 and 31 December 2010 has been prepared using the IFRS accounting policies used to prepare the consolidated financial statements of the Group for the year ended 31 December 2010. Ordinary Shareholders should read the whole of this Circular and not rely solely on the summarised financial information contained in this Part III (Financial Information on the Synovate Group). Financial Information (i) Income statement for Synovate Group (excluding the Aztec Business) for the years ended 31 December 2008, 31 December 2009 and 31 December 2010 at reported exchange rates Year ended Year ended Year ended 31 December 31 December 31 December 2010 2009 2008 Statutory Statutory Statutory results results results m m m Revenue 518.4 473.5 485.6 Cost of sales (197.6) (174.2) (176.1) Gross profit 320.8 299.3 309.5 Operating expenses (285.2) (289.5) (277.2) Operating profit 35.6 9.8 32.3 Share of results of associates (0.3) (0.1) Profit before interest and tax 35.6 9.5 32.2 LR13.5.19(2) 16
The summarised underlying income statements at reported exchange rates for the Synovate Group (excluding the Aztec Business) are presented below: Year ended Year ended Year ended 31 December 31 December 31 December 2010 2009 2008 Underlying Underlying Underlying results results results m m m Revenue 518.4 473.5 485.6 Cost of sales (197.6) (174.2) (176.1) Gross profit 320.8 299.3 309.5 Operating expenses (279.7) (265.2) (271.8) Operating profit 41.1 34.1 37.7 Share of results of associates (0.3) (0.1) Profit before interest and tax 41.1 33.8 37.6 Notes: 1. Underlying operating profit and underlying profit before interest and tax are operating profit and profit before interest and tax, 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 ). The Group believes that underlying results provide additional useful information on underlying trends to shareholders. The term underlying is not a defined term under IFRS and 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 include profits and losses on disposals of investments, amortisation of purchased intangible assets (being amortisation charged on separately identifiable intangible assets in acquired businesses), and one-off items, such as restructuring charges, which are material by nature or amount in the opinion of the Directors, as appropriate. 2. This represents the Synovate Group s statutory and underlying profit before interest and tax before net adjustments for intra-group charges which will remain with the Retained Group following the Sale. 3. A dispensation from Listing Rule 13.5.19R has been granted because the income statements for each of the years ending 31 December 2008, 2009 and 2010 have been prepared on a profit before interest and taxes basis as it is not possible to provide a meaningful allocation of interest-bearing debt and taxation charges given that these are allocated at a group level rather than a divisional level. Reconciliation of statutory profit before interest and tax to underlying profit before interest and tax at reported exchange rates Year ended Year ended Year ended 31 December 31 December 31 December 2010 2009 2009 m m m Statutory profit before interest and tax 35.6 9.5 32.2 Amortisation of purchased intangibles 5.2 5.4 4.0 Sale of subsidiaries and associates 0.3 Restructuring charges 18.9 1.4 Underlying profit before interest and tax 41.1 33.8 37.6 17
(ii) Balance sheet for Synovate Group (excluding the Aztec Business) as at 31 December 2010 Year ended 31 December 2010 m Non-current assets Goodwill 395.4 Intangible assets 13.4 Property, plant and equipment 16.9 Deferred tax assets (5) 6.0 Available-for-sale financial assets 1.5 Other financial assets 0.1 433.3 Current assets Work in progress 11.4 Trade and other receivables 170.9 Cash and short-term deposits (2) 45.7 228.0 Total assets 661.3 Current liabilities Trade and other payables (142.4) Borrowings (3) (4.7) Amounts owed to Aegis and its subsidiaries (1) (151.0) Provisions (1.5) Current tax liabilities (4.1) (303.7) Net current liabilities (75.7) Non-current liabilities Borrowings (4) (7.3) Other non-current liabilities (5.7) Provisions (1.2) Deferred tax liabilities (5.2) (19.4) Total liabilities (323.1) Net assets 338.2 Note: 1. The statement of net assets above includes net intra-group balances amounting to 151.0 million (see (1) above), cash and short-term deposits of 45.7 million (see (2) above), current borrowings of 4.7 million (see (3) above), non-current borrowings of 7.3 million (see (4) above) and deferred tax assets of 1.0 million (see (5) above) which are not the subject of the disposal. LR13.5.19 18
PART IV UNAUDITED PRO FORMA FINANCIAL INFORMATION FOR THE RETAINED GROUP The unaudited pro forma statement of consolidated net assets of the Retained Group set out below has been prepared on the basis set out in the notes below to illustrate the effect of the proposed Sale of the Synovate Group on the consolidated net assets of the Retained Group as at 31 December 2010 had the Sale taken place on that date. The unaudited pro forma statement of consolidated net assets, which has been produced for illustrative purposes only, by its nature addresses a hypothetical situation and, therefore, does not represent the Retained Group s actual financial position or results. The unaudited pro forma financial information is compiled on the basis set out in the notes below from the audited consolidated balance sheet of Aegis as at 31 December 2010 and from financial information on the Synovate Group set out in Part III (Financial Information on the Synovate Group) of this Circular. LR13.4.1(5) LR13.5.4(1) LR13.5.6 LR13.5.7(1) LR13.5.7(3)(c) PD Annex II, 1, 4 and 5 LR13.5.9 LR13.5.11 Ordinary Shareholders should read the whole of this Circular and not rely solely on the summarised financial information contained in this Part IV (Unaudited Pro forma Financial Information for the Retained Group). Ernst & Young LLP s report on the unaudited pro forma statement of net assets is set out in Part V (Accountant s Report in respect of the pro forma financial information for the Retained Group) of this Circular. Year ended 31 December 2010 As reported Adjustments Pro forma net Aegis Synovate Other assets of Group plc divisional Retained consolidated net assets Group net assets (note 1) (note 2) (note 3) m m m m Non-current assets Goodwill 1,331.1 (395.4) 935.7 Intangible assets 112.5 (13.4) 99.1 Property, plant and equipment 61.9 (16.9) 45.0 Interests in associates and joint ventures 48.5 48.5 Deferred tax assets 49.3 (5.0) 44.3 Available-for-sale financial assets 15.6 (1.5) 14.1 Derivative financial assets 8.5 8.5 Other financial assets 0.7 (0.1) 0.6 1,628.1 (432.3) 1,195.8 Current assets Work in progress 18.5 (11.4) 7.1 Trade and other receivables 2,414.1 (170.9) 2,243.2 Derivative financial assets 3.2 3.2 Cash and short-term deposits 394.4 277.6 672.0 2,830.2 (182.3) 277.6 2,925.5 Total assets 4,458.3 (614.6) 277.6 4,121.3 19
Year ended 31 December 2010 As reported Adjustments Pro forma net Aegis Synovate Other assets of Group plc divisional Retained consolidated net assets Group net assets (note 1) (note 2) (note 3) m m m m Current liabilities Trade and other payables (2,917.3) 142.4 (2,774.9) Borrowings (85.6) 6.2 (79.4) Derivative financial liabilities (13.4) (13.4) Provisions (3.3) 1.5 (1.8) Current tax liabilities (9.0) 4.1 (4.9) (3,028.6) 148.0 6.2 (2,874.4) Net current assets/(liabilities) (198.4) (34.3) 283.8 (51.1) Non-current liabilities Borrowings (640.1) 21.3 (618.8) Other non-current liabilities (35.6) 5.7 (29.9) Derivative financial liabilities (36.7) (36.7) Provisions (4.7) 1.2 (3.5) Deferred tax liabilities (44.2) 5.2 (39.0) (761.3) 12.1 21.3 (727.9) Total liabilities (3,789.9) 160.1 27.5 (3,602.3) Net assets 668.4 (454.5) 305.1 519.0 Notes: 1. The consolidated net assets of the Company at 31 December 2010 have been extracted, without material adjustment, from the audited financial statements for the year ended 31 December 2010 which were produced in accordance with IFRS. 2. The net assets of the Synovate Group as stated in the pro forma have been extracted, without material adjustment, from the financial information on the Synovate Group set out in Part III (Financial Information on the Synovate Group) of this document, except for net intra-group balances amounting to 151.0 million, cash and short-term deposits of 45.7 million, current borrowings of 4.7 million, non-current borrowings of 7.3 million and 1.0 million of deferred tax assets, which are not the subject of the disposal. 3. This represents gross proceeds of 525.0 million, after deducting internal and external transactions costs and estimated taxes of 19.9 million and after paying a special dividend of 200.0 million. 4. Since 31 December 2010 the Group has completed nine acquisitions and investments (ComCon, Clickthinking Online (Pty) Ltd, Qualite Search Marketing, Creative Media Services UAB, ICUC Moderation Services, Riber Sports Marketing, FileFix Co Ltd, Mediavest (Manchester) Ltd) and TigerSpikePty Ltd) for an aggregate consideration of 52.1 million. No account has been taken for these acquisitions in the numbers above. 5. No account has been taken of the trading of the Retained Group or of the Synovate Group since 31 December 2010 or of any other event or transaction save as disclosed above. 20
PART V ACCOUNTANT S REPORT IN RESPECT OF THE PRO FORMA FINANCIAL INFORMATION FOR THE RETAINED GROUP PD Annex II, 7 The Board Aegis Group plc 10 Triton Street London NW1 3BF 29 July 2011 Dear Sirs We report on the pro forma balance sheet (the Pro Forma Financial Information ) set out in Part IV of the Circular dated 29 July 2011, which has been prepared on the basis described in notes 1 to 5, for illustrative purposes only, to provide information about how the disposal might have affected the financial information presented on the basis of the accounting policies adopted by Aegis Group plc in preparing the financial statements for the year ended 31 December 2010. This report is required by Listing Rule 13.3.3R and is given for the purpose of complying with that rule and for no other purpose. Save for any responsibility which we may have to those persons to whom this report is expressly addressed and which we may have to ordinary shareholders as a result of the inclusion of this report in the Circular, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Listing Rule 13.4.1R (6), consenting to its inclusion in the Circular. Responsibilities It is the responsibility of the directors of the Company to prepare the Pro Forma Financial Information in accordance with Listing Rule 13.3.3R. It is our responsibility to form an opinion, as required by Listing Rule 13.3.3R as to the proper compilation of the Pro Forma Financial Information and to report that opinion to you. In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro Forma Financial Information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue. 21