Synovate Steps up Cost Cutting after H1 Loss

Synovate parent Aegis has reported an 86% drop in first half pre-tax profits to £6.6m despite growing revenues by 4.8%. The research agency itself made an underlying operating loss of £3.2m in the first half, compared with a £7.9m profit a year earlier.

In response, the firm is accelerating its cost-cutting plan, especially at Synovate and to a lesser extent at marcoms arm Aegis Media.

The group, which had been planning to cut 780 jobs, or 5% of its workforce, has now said that 900 people have left the company - through a mixture of natural attrition and job losses - since its £40m cost-cutting programme began late last year. Planned cost reductions at Synovate have increased quarter-to-quarter from 0.7% to 7.8%.

Chairman and Interim CEO John Napier told analysts today that there will be some more cuts to headcount, but did not specify how many. He added that the decline in demand for market research had been worse than in previous downturns.

Custom research, which makes up 64% of the industry and nearly 90% of Synovate's gross revenue, has been the weakest area of the market. Aegis says this is because of project deferments and scope reductions.

For the first half of the year, 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.

Revenue saw organic decline of 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.

'Synovate faces a challenging but deliverable market and is bringing forward a reorganisation of its activities, both to improve its sales effectiveness and to further reduce its cost base going forward,' the firm said in a trading statement. 'Market conditions are expected to remain difficult and Aegis is not forecasting on the basis of any upturn in the second half, although we expect both Aegis Media and Synovate to face easier second halves.'

Synovate today appointed Robert Philpott as CEO, replacing Adrian Chedore who is to retire at the end of the year.

For the group, profits for the six months to the end of June were £43.5m, down from £56.2m. After tax the firm made a net loss of £0.4m, down from a £3.6m profit last year. Napier added that there were no talks about a possible merger with French rival Havas.

Aegis shares fell 0.25p to 98.1p in early morning trading.

Web sites: www.aegisplc.com and www.synovate.com .