LONDON, Feb. 20, 2003 (PRIMEZONE) -- Cordiant (NYSE:CDA):
-- Cost savings of Pounds 45m exceed previous estimate of 27m pounds
-- Focus on core Bates Group businesses, representing 85% of
Group revenues
-- Disposal of non-core businesses: considerable expressions of interest
-- Disposals to achieve significant debt reduction; renegotiating
covenants
In line with the strategic decision to focus its business on the Bates Group announced with the Group's interim results last September, the Board of Cordiant announces the proposed disposal of certain non-core businesses which will strengthen the Group's balance sheet. These disposals will focus the Bates Group into a single, integrated communications offering comprising Bates Advertising, marketing services network 141, branding and design group Fitch and specialist network Healthworld.
2002 PERFORMANCE
The Board also confirms that the Group's headline unaudited operating results for the year ended December 31, 2002 are in line with market expectations. Operating profits for the year ended December 31, 2002, before exceptional items and goodwill amortisation, are expected to be 37m pounds. This result was achieved despite revenues significantly reduced by 11% to 533m pounds, due to the continuance of extremely difficult market conditions and key account losses in the U.S. The Group's operating margin improved from 6.0% in 2001 to 6.9% in 2002 as a result of strong cost control, particularly in the second half.
This aggressive cost containment was central to the Group's restructuring strategy announced in September that has now been completed. The annual cost savings achieved of over 45m pounds significantly exceed the initial estimate of 27m pounds, and position the Group well for the future. The cost saving initiative has resulted in a larger than anticipated 2002 exceptional charge, now expected to be approximately 45m pounds. These charges are fully covered by the Group's current financial arrangements.
A full review of the carrying value of goodwill is currently being undertaken and the Board anticipates that an exceptional non-cash charge for the impairment of goodwill in the region of 155m pounds will be included in the 2002 accounts. Gross borrowings for the Group at December 31, 2002 were 249m pounds and average gross borrowings for the year were 220m pounds. Average net borrowings for the year were 172m pounds. The Group operated within the terms of its financial covenants with respect to the year ended December 31, 2002.
DISPOSALS
With its cost restructuring satisfactorily completed, the Group is now embarking on a programme of disposals of certain non-core businesses both to enhance the operations of its core business and to strengthen its balance sheet. The core Bates Group businesses, which account for approximately 85% of total revenues, performed solidly in 2002 versus the prior year and, despite difficult market conditions, enjoyed their best new business gains for over two years in the final quarter of 2002.
The businesses being considered for disposal by the Group, assuming satisfactory terms can be agreed, are its 77% stake in Scholz & Friends, Financial Dynamics International and, in line with other global marketing communications groups, a majority interest in the Group's Australian operations. The Group has already received significant interest in all of these assets. Therefore the Board is confident that transactions can be completed that will be in the best interests of shareholders, clients and staff. The Board will also consider the exercise of its option to sell its 25% stake in the Zenith Optimedia Group in January 2004.
BORROWINGS
These proposed disposals will strengthen the Group's balance sheet considerably by reducing the Group's debt. The terms agreed with the Group's principal lenders early in 2002 included progressively more demanding financial covenants, in anticipation of the then widely predicted recovery in the advertising and marketing services sector. Accordingly, in the light of the continuing adverse market conditions, and bearing in mind the effect of the planned disposal programme, Cordiant has commenced the renegotiation of certain of its financial covenants (but not the total amount of its facilities) from March 31, 2003. Although at an early stage, the Board expects that these discussions will be concluded on a satisfactory basis.
David Hearn, Chief Executive of Cordiant said: "Market conditions remain depressed and we see little prospect of revenue growth this year. We've aggressively driven costs down by a further 45m pounds into 2003 and are now focussing the Group on its core strengths. This will also rebuild our balance sheet. We are creating a leaner, stronger Group better placed to win revenue in the future."
Conference Calls: There will be a telephone conference call with Nigel Stapleton, Chairman designate, David Hearn, Chief Executive and Andy Boland, Finance Director at 09:30hrs U.K. time. To participate please dial the following number +44 (0)800 2792280. A replay facility is in place for 48 hours immediately following the conference call. To activate, dial the following number +44 (0)800 0260020, using the PIN number 874829#.
There will also be a conference call for U.S. audiences at 13:00hrs U.K. time and 08:00hrs NY time. To participate please dial the following number (U.K.) +44 (0)800 2792520 or (U.S.) 1 800 3667449. A replay facility is in place for 48 hours immediately following the conference call. To activate, dial the following number (U.K.) +44 (0)800 0260020, using the PIN number 874834# or (U.S.) 1 800 4052236 using the PIN number 527076#.
Forward-looking statements: This press release contains certain "forward-looking statements" and information that are based on the current expectations, estimates and projections of Cordiant's management and information currently available to Cordiant. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. In addition, some forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. These statements typically contain words such as "intends," "expects," "projects," "anticipates," "estimates," "will" and words of similar import and, in this release, include statements relating to Cordiant's revenues, profitability, asset disposals and cost reduction programme. Cordiant's actual performance could differ materially from that anticipated depending on, among other things, gains to or losses from its client base, the amount of revenue derived from clients, Cordiant's exposure to changes in the exchange rates of major currencies against the pound sterling, the general level of advertising expenditures in Cordiant's markets, the overall level of economic activity in Cordiant's major markets, employee costs, future interest rates, changes in tax rates and other factors discussed from time to time in Cordiant's public filings with the U.S. Securities and Exchange Commission, including Cordiant's Annual Report on Form 20-F. Many of the factors named above are macroeconomic in nature and are, therefore, beyond the control of Cordiant's management. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual performance may vary materially from those described herein as anticipated, believed, estimated, expected, intended, planned or projected. Cordiant does not intend, and does not assume any obligation, to update the forward-looking statements contained in this document.