Interim Results

18th August 2015

CHIME COMMUNICATIONS PLC

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2015

Chime Communications plc, the international communications and sports marketing group, today announces its interim results to 30th June 2015. 

HIGHLIGHTS

HEADLINE FINANCIAL HIGHLIGHTS1

Christopher Satterthwaite, Chief Executive of Chime Communications, said:

"We are pleased with the Group's performance in the first half of the year. Sport and Entertainment was lower than the previous period 2014, which saw our involvement in the FIFA World Cup and Winter Olympics. The second half of the year will see a benefit from the timing of sports events including the UK Rugby World Cup and Ashes Series, as well as the continuing strong performances of our marketing services businesses: VCCP, Open Health, CIE and the Chime Specialist Group".

STATUTORY FINANCIAL HIGHLIGHTS

Note: 1. All numbers and comments shown in this section are headline unless otherwise stated. The appendix to this announcement shows a reconciliation of these headline numbers to the reported numbers. The headline numbers adjust for the following:

2. Like for Like comparisons are calculated by taking current year actual results (which include acquisitions from the relevant date of completion) compared with prior year actual results, adjusted to include the results of acquisitions for the commensurate period in the prior year.

For further information please contact:

Christopher Satterthwaite, Chief Executive 020 7096 5888

Chime Communications

Mark Smith, Chief Operating Officer and Finance Director 020 7096 5888

Chime Communications

James Henderson/Victoria Geoghegan/Elizabeth Snow 020 3772 2562

Bell Pottinger

OVERVIEW

The strong comparative of the first half of 2014 as well as the £1 million restructuring costs in our Sport and Entertainment division meant that performance in the first half of 2015 was behind the same period last year. Advertising and Marketing Services division had another strong performance and our Healthcare, Insight and Engagement and Specialist Communications divisions continued to grow.

STRATEGY

We continue to develop our strategic capability as an international sports marketing and communications group and to work on identifying opportunities for international expansion, particularly in the US.

KEY PERFORMANCE INDICATORS

Average Fee per Client

Average fee per client for 2015 was £83,000, compared to £73,000 in the first half of 2014. 307 clients paid us over £50,000 in the first half of 2015 compared to 292 in the first half of 2014. Our largest client represented 7.7% of total operating income (2014 First Half: 9.2%). Our top 30 clients represent 39% of first half operating income compared to 44% in the first half of 2014. 

Income from Shared Clients

The Group acted for 1,236 clients in the first half of 2015 compared to 1,322 clients in the first half of 2014. 232 of these clients used more than one of our businesses (2014 First Half: 230) which represented 62% of total operating income (2014 First Half: 67%). 

Operating Profit Margin1

Headline operating profit margin for the first half of 2015 was 14.8% compared to 18.1% in the first half of 2014. The reduction was caused mainly by the strong performance in Sport and Entertainment in the first half of 2014 and £1 million of restructuring costs incurred in the first half of 2015. 

Income from Overseas Offices

Income from overseas offices in the first half of 2015 was 23% of total income in line with 2014. The first half of 2014 included the FIFA World Cup in Brazil.

Earnings per Share1

Fully diluted earnings per share in the first half of 2015 was 10.3p compared to 11.6p in the first half of 2014. 

Working Capital

At 30th June 2015 working capital was 3.7% of the previous 12 months revenue compared to 2.1% for the 30th June 2014 and the target of less than 5% of revenue.

HEADLINE DIVISIONAL PERFORMANCE

Sport and Entertainment

2015 has started well although performance is below what we achieved in the first half of 2014 which included high margin projects at major global sporting events including the FIFA World Cup in Brazil and the Winter Olympics in Sochi. The major event in the first half of 2015 was the European Games in Baku which was smaller.

The new management introduced in the first half of 2015 led by Chairman Seb Coe, Chief Executive Zak Brown and Finance Director Roopesh Prashar has made good progress in restructuring the division for future growth. £1 million of restructuring costs are included in these results.

The second half of 2015 will include the 2015 Rugby World Cup in the UK for which we are handling Land Rover's sponsorships and managing 82 players who are expected to play for the eight top world ranked countries. 

We are also winning further contracts for the 2016 Olympics in Brazil particularly through our branding business ICON and our hospitality business, iLUKA.

Good Relations, our brand and corporate public relations business within this division, continued to make good progress. 

New business wins in 2015 so far include Bose, CIMA, Epson, Haas F1 Racing Team, Hisense, Longines Digital, Manchester City FC, PGA of America, Samsung, Singapore Airlines, The European Tour, Unilever Simple, Wrangler and World Rugby Sevens.

Advertising and Marketing Services

This division has continued its success of recent years with strong growth and impressive new business wins which so far in 2015 include: Avon, Barratt Developments, Bibbys, BILD, Fitness First, Formula E, Nationwide, Prudential, SsangYong Motor, The Children's Society and World Vision.

Healthcare Communications

The first half of 2015 saw further successful consolidation and integration with the division continuing to focus on market access and patient data. The OPEN Health agencies are increasingly working as one integrated business providing better services to clients which should lead to an improved margin.

New business wins so far in 2015 include: Biogen, Bristol-Myers Squibb, Celgene, GSK, Lundbeck, Novartis and Sanofi.

Insight and Engagement

The first half of 2015 has matched the strong performance in the first half of 2014. The margins remain higher than industry norms but have come under some pressure in the first half of 2015. The role of digital research continues to increase and we have raised our stake in our digital research business, Watermelon, to 90%, purchasing part of the minority in an earnings enhancing transaction.

New business wins so far in 2015 include: Anglian Water, Aviva, Braks, Foreign & Commonwealth Office, npower, PayPoint and Virgin Trains East Coast.

CASH FLOW AND BANKING ARRANGEMENTS

Net bank debt at 30th June 2015 was £64.2 million compared to £46.3 million at 30th June 2014 and £53.1 million at 31st December 2014. 

The Group has a £130 million facility with RBS and HSBC which runs until September 2019, with an interest rate of between 1.50% and 2.9%, depending on use of the facility compared to EBITDA and the level of borrowing. The estimated earnouts and loan note payments (which include consideration treated as deemed remuneration) payable in the remainder of 2015 total £3.4 million.

TAXATION1

The effective tax rate for 2015 was 24.6% in line with 2014.

DIVIDENDS

The Board has declared an interim dividend of 2.53p per share in line with 2014. The interim dividend will be payable on 2nd October 2015 to shareholders on the register at 11th September 2015. The ex-dividend date is 10th September 2015.

OUTLOOK

Performance so far in 2015 has been good and we expect that to continue in the second half of the year.

Reconciliation of Condensed Income Statement to headline results for the 6 months ended

30 June 2015

The reconciliation below sets out the headline results of the group and the related adjustments to the Statutory Income Statement that the directors consider necessary in order to provide an indication of the underlying trading performance.

The headline numbers have been adjusted for the following:

· Deemed remuneration charge (including the finance cost of deemed remuneration) add back in respect of earn-out payments including LLP capital based payments.

· Add back of charges to the income statement in respect of amortisation of intangible assets, impairment of goodwill and costs relating to acquisition.

· Add back of results from discontinued businesses that do not meet the definition of discontinued operations under the accounting standard. These include in the period 6 months ended 30 June 2014: Ex Nihilo Limited; year ended 31 December 2014: Ex Nihilo Limited, Traffic Gmbh, VCCP me, Rough Hill Limited, UTR Events Limited, Fast Track Agency Scotland Limited and Essentially Australia Rugby

Reconciliation of Business Segments to headline results for the 6 months ended 30 June 2015

The headline numbers have been adjusted for the following:

· Deemed remuneration charge (including the finance cost of deemed remuneration) add back in respect of earn-out payments including LLP capital based payments.

· Add back of charges to the income statement in respect of amortisation of intangible assets, impairment of goodwill and costs relating to acquisition.

· Add back of results from discontinued businesses that do not meet the definition of discontinued operations under the accounting standard. These include in the period 6 months ended 30 June 2014: Ex Nihilo Limited; year ended 31 December 2014: Ex Nihilo Limited, Traffic Gmbh, VCCP me, Rough Hill Limited, UTR Events Limited, Fast Track Agency Scotland Limited and Essentially Australia Rugby.

· The Group was restructured at the end of 2014 and the segmental has been prepared to reflect changes in the way the Group operates and the manner in which information in respect of decision making is presented. Further detail can be found in the 2014 Annual Report.

Key risks and uncertainties 

In addition to the general economic and competitive risks affecting businesses operating in the Group's markets, the following are considered to be the principal internal and external risks impacting the Group:

· Internal Risks:

o Reputation

o Business ethics

o Operations

o Financial risks

o Legal and regulatory

o Corporate activity

o Systems, resources and data

· External risks:

o Economic

o Political

o Business environment

These risks and their mitigations are described in full on pages 18 to 24 of the 2014 Annual Report and Accounts. The Group performs a comprehensive risk assessment exercise involving all senior management teams around the Group to identify, report and evaluate operational risks facing the business and ensure appropriate actions are undertaken to manage these risks.

The Directors have considered whether these risks have changed since the 2014 Annual Report and Accounts were published, but do not consider that the level of risk that the Group is exposed to has increased in the first half of 2015 and anticipate that these will continue to be the key risks and uncertainties during the second half of 2015.

Going Concern

The directors have assessed the future funding requirements of the Group and are of the opinion that the Group has adequate resources to fund its operations for the foreseeable future. Therefore they believe that it is appropriate to prepare the accounts on a going concern basis. For further details please see Note 2 to the Condensed Consolidated Financial Statements.

Southside, 6th Floor

105 Victoria Street

Victoria

London

SW1E 6QT

By order of the board

Mark Smith

Chief Operating Officer and Finance Director

18 August 2015

Condensed Consolidated Income Statement

6 months ended 30 June 2015

Condensed Consolidated Statement of Comprehensive Income

6 months ended 30 June 2015

Condensed Consolidated Balance Sheet as at 30 June 2015

Condensed Consolidated Statement of Changes in Equity

6 months ended 30 June 2015

Condensed Consolidated Statement of Changes in Equity (continued)

6 months ended 30 June 2015

Condensed Consolidated Cash Flow Statement

6 months to 30 June 2015

Cash and cash equivalents comprise cash at bank, loan note deposits less overdrafts.

Taking into account the following borrowings, overall net borrowings were:

Notes to the Condensed Consolidated Financial Statements:

1. General information

The information for the year ended 31 December 2014 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

2. Basis of preparation

The interim report for the six months ended 30 June 2015 is unaudited but has been reviewed by the auditor, Deloitte LLP, and their report to Chime Communications plc is set out on page 26.

The annual financial statements of Chime Communications Plc are prepared in accordance with IFRS as adopted by the European Union. Except as described below, the accounting policies adopted in the preparation of the half-yearly condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2014.

· As required by IAS34 taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The interim report for the six months ended 30 June 2015 has been prepared in accordance with IAS 34 'Interim financial reporting' as adopted by the European Union. The consolidated interim report should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which has been prepared in accordance with IFRS as adopted by the European Union.

Going Concern Basis

In preparing forecasts the Directors have taken into account the following key factors:

· The rate of growth of the UK and global economy on the Group's business during the economic recovery;

· Key client account renewals;

· Planned acquisitions and disposals;

· Anticipated payments under deemed remuneration and deferred and contingent consideration;

· The level of committed and variable costs;

· Current new business targets compared to levels achieved in previous year; and

· Compliance to the covenants as set by the Finance Institutions.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facility and banking covenants.

The Group increased the existing borrowing facility to £130.0 million (from £95.0 million) in October 2014. This facility continues until September 2019 and is subject to banking covenants. 

The directors have a reasonable expectation that the Company and the Group have adequate resources to continue an operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the interim statements.

3. Business Segments

For management purposes the Group is organised into four operating segments; Sports & Entertainment, Advertising and Marketing Services, Insight and Engagement and Healthcare Communications.

The principal activities are as follows:

Sport & Entertainment

CSM Sport & Entertainment is a group of internationally recognised agencies, working together to put clients and people at the heart of the world's greatest experiences in sport and entertainment. Working with brands, rights holders, governing bodies, governments and athletes across the globe, CSM specialises in strategic consultancy, rights sales, sponsorship activation, hospitality, branding and wayfinding, athlete management and communications across major sporting events.

Advertising and Marketing Services ('AMS')

The AMS division includes the VCCP Partnership and the Chime Specialist Group. VCCP operates in advertising and marketing services, direct marketing, digital communication, search relations, point of sale, sales promotion, data consultancy and technical design, multimedia content, youth marketing and experiential, marketing consulting, retail and shopper marketing and specialist media planning and buying. The Chime Specialist Group includes agencies operating in niche markets; corporate responsibility and sustainability consultancy; for technology brands; providing customer reference and advocacy and; in professional and financial services.

Insight & Engagement

The Insight & Engagement division brings together researchers, technologists and insight specialists who deliver to clients, globally, in real time, actionable solutions. The Division has particular expertise in delivering clients in FMCG, financial services, utilities and retail with experience performance improvement plans, mystery shopping programmes and advertising and brand tracking. The Insight & Engagement division includes leading specialist brands such as Watermelon - a specialist digital agency, CherryPicked - a specialist recruitment agency, Facts International - a specialist fieldwork agency and full service agencies Opinion Leader and CIE. 

Healthcare

OPEN Health is a healthcare communications and market access group. It comprises ten different specialist businesses that bring a breadth of expertise focussed principally on pharma, health device and diagnostic clients. OPEN Health's companies cover most aspects of the marketing mix including advertising, PR, medical communications, market access consulting, real world data collection, market research and patient engagement programmes.

3. Business segments (continued)

Segment information about these businesses is presented below.

Geographical segments:

The Group's operations are located in the United Kingdom, Europe, the Middle East, the Far East, the USA, South America, Africa and Australasia. The Sport & Entertainment division is located in the United Kingdom, the USA, the Middle East, The Far East, South America, Europe, Africa and Australasia. The Group's Advertising and Marketing Services division is located in the United Kingdom, Europe, Africa, the Middle East, the Far East, the USA and Australasia. Insight and Engagement is located in the United Kingdom and Australasia and the Healthcare division is located solely in the United Kingdom.

The Group was restructured at the end of 2014 and the segmental has been prepared to reflect changes in the way the Group operates and the manner in which information in respect of decision making is presented. Further detail can be found in the 2014 Annual Report

4. Deemed remuneration

5. Tax

Tax charge

Headline results

Tax for the six month period is charged at 24.6% (six months ended 30 June 2014: 25.0%; year ended 31 December 2014: 22.5%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six month period.

Statutory results

Tax for the six month period is charged at 181.3% (six months ended 30 June 2014: 36.7%; year ended 31 December 2014: 21.5%, representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six month period.

Deferred tax