Preliminary Results

CHIME COMMUNICATIONS PLC

AUDITED PRELIMINARY RESULTS FOR

THE YEAR ENDED 31ST DECEMBER 2010

Chime Communications PLC, the leading marketing services group, today announces its preliminary results for the year ended 31 December 2010.

SUMMARY OF RESULTS

FINANCIAL HIGHLIGHTS

·; Reported operating income up 21%

·; Operating profit3up 36%

·; Operating profit margin3up to 18.3%

·; Profit before tax3 and 4 up 40% to £26.5 million (2009: £18.8 million)

·; Reported profit before tax £21.2 million (2009: £18.6 million)

·; Earnings per share from continuing operations1, 3 and 4 up 13% to 25.49p (2009: 22.46p)

·; Net cash as at 31 December 2010 of £6.9 million (2009: £4.8 million)

·; Total dividend of 6.05p per share (2009: 5.10p), an increase of 18.6%

OPERATIONAL HIGHLIGHTS

·; Strong growth in all four divisions

·; International revenue up to over 50% of group revenue

·; Expanded international offices during the year to 24 (2009: 20)

·; Public Relations and Sports Marketing No. 1 in the UK

·; Sports Marketing Division integration complete

·; Further acquisitions planned in areas of greatest growth opportunity

·; Good start to first quarter trading

Note: 1. Reported earnings per share was 18.8p (2009: 22.1p)

2. Organic growth is calculated excluding all acquisitions in 2009 and 2010.

3. Before taking account of amortisation of acquired intangible assets and impairment of goodwill (£3.0 million, 2009: £0.3 million) and costs relating to acquisitions and restructuring (£2.2 million, 2009: £0.2 million). In the Income Statement this is referred to as Headline Operating Profit.

4. Before taking account of profit on disposal of a minority of a subsidiary (£nil, 2009: £1.3 million) and write off of investments (£nil, 2009: £1.0 million).

Lord Bell, Chairman of Chime Communications, commented:

"Another brilliant year. All four business divisions showing strong growth in operating profit. These are very good results and I thank everyone for their contribution. It is worth noting that we made £26 million in pretax profit but have paid nearly £50 million in VAT, PAYE and Corporation tax. That is why business is the source of all growth. In 2011 we expect to grow both organically through strategic acquisitions and international expansion. Our Middle East business has not been affected by the turmoil in the region. We are confident of 2011 but cautious about UK and world GDP growth."

For further information please contact:

Lord Bell, Chairman 020 7861 8515

Chime Communications

Christopher Satterthwaite, Chief Executive 020 7861 8515

Chime Communications

James Henderson/ Victoria Geoghegan 020 7861 3925

Pelham Bell Pottinger

REVIEW OF OPERATIONS

I am delighted to be reporting record results for the sixth year in succession against the backdrop of a challenging economic environment. Over the last six years the group's operating income has more than doubled and pretax profits have risen almost fourfold. This is a testament to our diversified strategy both geographically and by marketing discipline. We have invested in those sectors where there is above average growth. We now have 24 offices overseas and have developed in new areas such as sports marketing which now represents 20% of group operating income. International income has increased from 30% of group operating income in 2005 to over 50%. Our focus on costs throughout that period has improved margins by five basis points in five years.

In 2010 all of our divisions grew revenue; our Public Relations Division maintained its position as the No 1 agency within the UK and is a leading global player and our Sports Marketing business was No 1 in the Sponsorship league table. VCCP, our advertising business, won several awards on the back of its comparethemarket.com and O2 campaigns and our Research Division returned to profit.

The Group acted for 1,494 clients in 2010 compared to 1,389 in 2009. 277 of these clients used more than one of our businesses (230 in 2009) which represented 66% of total operating income (2009: 70%).

205 clients paid us over £100,000 in 2010, compared to 150 in 2009. Our top 30 clients represented 49% of total operating income (2009: 57%).

Our two largest clients represented 21.0% of our operating income (2009: 22.3%). Both clients have been retained since 2003, are high margin and have normal renewal terms. 

Average fee income per client in 2010 was £100,000 compared to £89,000 in 2009. Average income per employee was £120,000 in 2010 compared to £118,000 in 2009. In 2010, 51% of our income came from overseas work compared to 46% in 2009.

OPERATIONAL HIGHLIGHTS OF THE YEAR

·; Bell Pottinger retained its position as No. 1 in the 'PR Week' League Table.

·; Fast Track remains No. 1 in 'Marketing' Sponsorship League Table.

·; TPG acquisition of Republic.

·; Richemont acquisition of Net-a-Porter.

·; Korea National Oil Corporation successful hostile takeover of Dana Petroleum.

·; Launching Nintendo's European preview of the ground breaking 3DS console.

·; Promoting TalkTalk's sponsorship of the XFactor.

·; Winning the exclusive commercial agency rights for Rugby World Cup's 7's contract for 2013 in Moscow.

·; HSBC becoming the naming rights sponsor of the HSBC IRB World 7's series for the next 5 years.

·; Investec taking naming rights to Super Rugby and Tri-Nations in NZ for 5 years from 2011.

·; SFW's launch of More Th>n Freeman campaign.

·; Staging the Tri Yas - 1st full triathlon on a Formula 1 circuit (Yas Marina Circuit in Abu Dhabi).

·; Mubadala activity around 2010 Abu Dhabi Grand Prix and Scuderia Ferrari relationship.

·; Delivering the Mubadala World Tennis Championships.

·; Managing Emirates FIFA World Cup work.

·; Managing Emirates ICC Cricket World Cup promotion.

·; Initiating Land Rover's partnership with the Rugby World Cup 2011 and 2015.

·; VCCP awarded Financial Services Forum Advertising Agency of the Year

NEW BUSINESS WINS

New business wins in 2010 included:

DIVISIONAL PERFORMANCE

In 2010 all four divisions showed growth in operating profit (in total and organic). The performance of the Public Relations Division was particularly strong.

Public Relations continues to be our largest division being 49% of operating income (2009: 55%), Advertising and Marketing Services was 26% (2009: 26%), Sports Marketing was 20% (2009: 14%) and Research 5% (2009: 5%). 

Public Relations - Bell Pottinger Group including Good Relations, Harvard and Insight

Overall the division showed growth and very good cost control which resulted in both improved profits and margin. In 2010 nearly all businesses in the Group performed ahead of the previous year and there were particularly strong performances from Pelham Bell Pottinger; Public Affairs; our geopolitical business; Corporate Citizenship; Property and International. 

2011 has started well for city and financial, corporate, technology, the Middle East and corporate and social responsibility.

Note: 3. Before taking account of amortisation of acquired intangible assets and goodwill impairment (£1.7 million, 2009: £nil) and costs relating to acquisitions and restructuring (£0.2 million, 2009: £nil). In the Income Statement this is referred to as Headline Operating Profit.

Advertising and Marketing Services - VCCP Group and Teamspirit 

Very strong growth in operating income was offset by investment in talent and new business pitches resulting in a lower margin. In 2011 the focus will be on improving the margin.

There was a strong performance from VCCP in the UK, Germany and the Czech Republic, as well as our Search business. Teamspirit, our financial services marketing business, performed ahead of our expectations and well ahead of 2009. 

The first quarter has started well and we are already ahead of 2010.

Sports Marketing - Fast Track and Essentially

2010 included a full year of the Essentially acquisition (two months in 2009) and Essentially performed well with good growth.

The Fast Track business had good revenue growth, invested in new people and a start up in Hong Kong. The margin therefore declined. It is expected that in 2011 the margin can return to the levels achieved in 2009.

This division has had a very strong start to 2011, particularly in rights sales and the margin is already improving.

Note: 3. Before taking account of amortisation of acquired intangible assets (£1.2 million, 2009: £0.3 million) and costs relating to acquisitions and restructuring (£1.1 million, 2009: £0.2 million). In the Income Statement this is referred to as Headline Operating Profit.

Research - The Research Group

Following the appointment of new management and the acquisition of Tree in February 2010 this division has returned to growth. The marketplace appears to be growing once again and we believe the prospects are improving for the division.

Facts International performed particularly well in 2010. Opinion Leader has been completely restructured during the year.

The 2011 new business pipeline is stronger than this time last year.

Note: 3. Before taking account of amortisation of acquired intangible assets (£0.1 million, 2009: £nil) and costs relating to acquisitions and restructuring (£0.8 million, 2009: £nil). In the Income Statement this is referred to as Headline Operating Profit.

CASH FLOW AND BANKING ARRANGEMENTS

Net cash at 31st December 2010 was £6.9 million compared to £4.8 million at 31st December 2009. 

The Group continued to generate cash in 2010 with cash from operating activities of £16.4 million (2009: £10.4 million) and cash conversion of 85% (2009: 79%).

The Group continues to operate well within its banking covenants and retains its borrowing facility of £32 million which continues until July 2013.

The estimated deferred considerations payable in 2011 and 2012 total £3.4 million, of which £2.7 million is payable in cash and £0.7 million in shares, or cash at Chime's discretion. Total estimated deferred considerations payable are £13.2 million compared to a maximum of £26.5 million. There are no deferred considerations payable after April 2013.

TAXATION

The effective tax rate for 2010 was 30.6% compared to 31.6% last year and this rate is expected to reduce further in 2011.

DIVIDENDS

The Board is proposing to pay a final dividend of 4.21p per share (2009: 3.50p), giving a total dividend per share of 6.05p compared to 5.10p in 2009, an increase of 18.6%. The final dividend will be payable on 17th June 2011 to shareholders on the register at 27th May 2011. The expected ex-dividend date is 25th May 2011.

CORPORATE ACTIVITY

Our strategy is to expand the range of services and geographical reach of the services we can offer to clients. 

During 2010 we have:

·; Acquired pmplegacy, a company specialising in countries' and federations' bids for major sporting events.

·; Acquired the business of Presky Maves, a direct marketing business.

·; Completed the acquisitions and integration of Essentially Sports Marketing, Tree (data analytics) and Pelham (financial public relations).

·; Started 'Open Health' with David Rowley, the former Chief Executive Officer of Huntsworth Health.

·; Opened a sports marketing business in Hong Kong which is already profitable.

We will continue to look at earnings enhancing acquisitions.

CORPORATE AND SOCIAL RESPONSIBILITY

Our biggest CSR achievement in 2010 was becoming the first marcoms group in the UK to be awarded the Carbon Trust Standard. The Standard recognises year on year carbon emissions reductions and in 2009 our carbon footprint was reduced by 5%. This is further progress since our programme began in 2007. We are currently calculating our 2010 footprint and will publish the results in our CSR report later this year. We expect to make another reduction. The remaining emissions we offset with qualified carbon offsets working with the Carbon Neutral Company as our external specialist advisor. In 2010 we were re-accredited with a "Big Tick" by Business in the Community for our continuing efforts on environmental performance. 

We are also making progress with our wider CSR programme by requiring our Group companies to evaluate themselves against a number of benchmarks each year relating to the environment, suppliers, clients, people and the community. This is driving improved performance across the Group and embeds our processes within each business. Our wider performance on CSR issues has resulted in our continued listing in the FTSE4Good Index.

OUTLOOK

The outlook for 2011 continues to be very challenging as it has for the last three or four years. The UK continues its austerity programme and the global economy continues to be buffeted by oil price and commodity price fluctuations, but one thing is certain, the need to communicate change and the growth in impact of social media and internet campaigning appears to be never ending. 

Reputation management and the communication of real facts is more than ever essential. This is what we do and our market is more vibrant than ever. 

Our strategy is to expand both organically and through earnings enhancing acquisitions.

·; We have started a new healthcare business, a market that is more active than ever.

·; Our sports business continues to grow as sport becomes more and more of our daily lives and we will expand our presence by sport and geography as the year continues. 

·; We have Sports Marketing offices in 11 countries, the most recent being Hong Kong. 

·; Our financial public relations business is growing fast and our Singapore and Middle East branches are doing well. 

·; Our Advertising and Marketing Services businesses continue to develop market leading campaigns, be it for O2, comparethemarket and most recently with More Th>n Freeman.

·; Our Middle Eastern business has not been affected by recent turbulence in the region.

·; Our research business is back in profit and growing again.

·; Our costs are tightly controlled and our cash position is strong.

We are cautious about the future, but confident of continued growth.

Lord Bell

Chairman

9th March 2011

Consolidated Income Statement

Year ended 31 December 2010

Consolidated Statement of Comprehensive Income

Year ended 31 December 2010

Consolidated Balance Sheet as at 31 December 2010

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Year ended 31 December 2010

Notes:

1. Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2010 or 2009. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the company's annual general meeting. The auditor's reports on both the 2009 and 2010 accounts were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of Companies Act 2006 or equivalent preceding legislation. Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs) this announcement does not in itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in April 2011.

The information in this preliminary announcement was approved by the Board on 9 March 2011.

The consolidated income statement, consolidated balance sheet, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement have been prepared on a basis consistent with the financial statements for the year ended 31 December 2009 with exception of the following new standards, amendments to standards or interpretations which are mandatory for the first time for the financial year beginning on 1 January 2010, and impact the consolidated financial information as described:

·; IFRS 3 (revised), "Business combinations", and consequential amendments to IAS 27, "Consolidated and separate financial statements", IAS 28, "Investments in associates", and IAS 31, "Interests in joint ventures", are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. IFRS 3 (revised) continues to apply the acquisition method to business combinations, but with some significant changes. For example acquisition-related expenses and any revisions to contingent cash consideration in the period following the acquisition will be recorded in the income statement. As this amendment is applied prospectively it has not been applied in respect of acquisitions made in previous periods.

·; As the Group has adopted IFRS 3 (revised), it is also required to adopt IAS 27 (revised), "Consolidated and separate financial statements". IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. Such transactions will no longer result in either goodwill or in a gain or a loss being recognised.

The 2009 balance sheet has been restated in accordance with IFRS 3 to reflect changes in the fair value of net assets acquired relating to acquisitions completed during the prior year. The adjustments to fair value are detailed in note 8, and have a corresponding impact on goodwill.

Going Concern Basis

The Group meets its day to day working capital requirements through a rolling overdraft facility and a committed facility which matures in June 2013.

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;

·; The level of committed and variable costs; and

·; Current new business targets compared to levels achieved in previous years.

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

Forward looking statements

The preliminary announcement contains certain forward looking statements in respect of Chime Communications plc and the operation of its subsidiaries. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast.

2 Business Segments

Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. For this purpose, the Group is currently organised into four operating segments - Public Relations, Advertising and Marketing Services, Sports Marketing and Research.

Principal activities are as follows:

Public Relations

The Public Relations division comprises some of the leading names in the industry, including Bell Pottinger, Pelham Bell Pottinger, Good Relations, Harvard, Insight, Resonate, TTA Public Relations and Corporate Citizenship. It is the ranked number 1 PR Group in the UK in the PR Week public relations consultancy league table for 2009. It serves major UK and international brands, as well as governments, government departments, pharmaceutical and healthcare companies, charities, not-for-profit organisations, professional service firms, consumer brands and famous people.

Advertising and Marketing Services ('AMS')

The AMS division includes the VCCP Group and Teamspirit. It possesses specialist skills in advertising and marketing services - direct marketing, digital communication, search relations, point of sale, sales promotion and specialist media planning and buying. It also specialises in the niche market of financial services.

Sports Marketing

The Sports Marketing division is the UK's number one sports marketing group (Marketing Magazine, October 2010) and includes Fast Track and Essentially Group.

Research

The Research division is made up of Opinion Leader Research, Facts International and Tree.

Comparatives

The comparatives for the year ended 31 December 2009 in the following table have been restated as Branded Moments of Truth is now reported as part of Public Relations (previously part of Advertising and Marketing Services). The impact for the year ended 31 December 2009 is to increase operating income in Public Relations by £1,393,000 and operating profit by £66,000, with a corresponding decrease in Advertising and Marketing Services.

2 Business Segments

Additional information on headline operating profit is provided in note 3.

3. Headline results

*Cost of acquisitions and restructuring includes costs incurred by the Group in reorganising and integrating acquired businesses, non-recurring business restructuring and costs associated with senior management changes. Costs have been incurred in the PR division (£140,000), Research (£779,000) and Sports Marketing (£1,144,000). £154,000 relating to acquisitions was recorded centrally.

4. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

5. Dividends

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The dividend will be paid on 17 June 2011 to those shareholders on the register at 27 May 2011. The expected ex-dividend date is 25 May 2011.

Under an arrangement dated 3 April 1996, The Chime Communications Employee Trust which holds 1,692,828 ordinary shares representing 2.3% of the Company's called-up share capital, has agreed to waive dividends over 525,803 shares (0.7% of the company's called up share capital), the difference being those shares held under the deferred share scheme.

6. Notes to the cash flow statement