Preliminary Results

6th March 2013

CHIME COMMUNICATIONS PLC

ANNOUNCEMENT OF AUDITED PRELIMINARY RESULTS FOR

THE YEAR ENDED 31ST DECEMBER 2012

Chime Communications plc, the international communications and sports marketing group, today announces its preliminary results for the year ended 31st December 2012.

OPERATIONAL HIGHLIGHTS

·; Strong growth in Sport and Entertainment, Healthcare and Insight and Engagement

·; Successful completion of Olympic and Paralympic contracts

·; Sport & Entertainment operating profit increased by 105%

·; Substantial investment in new digital products in VCCP, CIE and Good Relations.

·; Healthcare now established as the fifth division of Chime, operating profit increased to £2.2 million from £0.2 million

·; Strong organic growth in Insight and Engagement division, operating profit up to £2.2 million from £0.7 million

·; New offices opened in Madrid, Moscow, Singapore, Sochi and Sydney

·; Acquisitions of iLUKA, McKenzie Clark, Harvey Walsh (51%), Succinct, Rough Hill (60%) and pH Associates

·; Disposal of most of the Bell Pottinger businesses completed for £19.6 million

·; Lord Coe appointed as Executive Chairman of CSM Sport and Entertainment

·; Lord Davies of Abersoch appointed as Chairman of the Group

Christopher Satterthwaite, Chief Executive of Chime Communications, said:

"2012 was a year of strong performance for Chime's on-going businesses. During the period, we realigned the Group as an international communications and sports marketing business, invested in our digital offering and opened new offices in Europe, the Far East and Australasia which offer good potential returns. This concentration of activity in specific sectors and expansion geographically positions us strongly for future, long-term growth.

The Board is delighted that Lord Davies of Abersoch has become our new Chairman. We are already working closely with him on the continued development of the Group."

HEADLINE RESULTS

These results reflect the Group in its continuing form following the sale of most of the Bell Pottinger businesses and the planned closure of other Bell Pottinger businesses, once an overseas contract has been completed in 2013.

·; Net cash as at 31st December 2012 of £4.2 million (2011: £3.3 million).

·; Total dividend for the year increased by 10% to 7.24p (2011: 6.58p)

·; £47 million facility agreed with RBS until September 2016

REPORTED RESULTS

Reported results exclude businesses that have been sold but include businesses that are in the process of being closed. 

The Group has always accounted for earn-out payments as a capital item and believes this reflects the substance of the arrangements, particularly as the Group has a policy of paying proper market rate salaries and packages to all staff including those who benefit from earn-outs. However, IFRS IC issued a clarification of IFRS3 on 22nd January 2013 which required earn-out payments conditional upon continued employment to be treated as a charge to the Income Statement. Whilst the Directors do not believe that the treatment reflects the substance of the arrangements, they have complied with it and this has resulted in a charge of £11.5 million in 2012 for deemed remuneration (2011 also restated for a charge of £3.1 million).

On a reported basis the operating profit was £4.9 million (2011: £18.7 million) and the profit before tax was £2.5 million (2011: £17.8 million). The two most significant components of this reduction are the completion of one major contract (£11.9 million) and an increase in the deemed remuneration charge in respect of earn-out arrangements. In addition, costs of acquisitions and restructuring and loss on disposal and impairments increased. The majority of the charges are not tax deductible nor do they arise in entities with minority shareholders. Reported earnings per share was negative as a consequence of these charges.

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

·; Business in the process of being discontinued - During 2012 all the Bell Pottinger branded businesses were either sold or were in the process of being exited. Chime has been exiting the geopolitical business within Bell Pottinger since late 2011, although there remains one contract which ends in April 2013. The work has been sub-contracted to third parties and Chime is not expected to make any profit or loss on this contract in the period to completion. Under accounting standards this line of business does not meet the definition of discontinued at 31st December 2012 due to Chime's legal obligation in the completion of the contract. Given the substantial exit of this business, we have shown the impact in this announcement as if this business was discontinued so as to provide helpful information about our on-going business.

·; Deemed remuneration charge add back in respect of the change in accounting policy for earn-out payments as explained above.

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

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 5825

Chime Communications

Mark Smith, Chief Operating Officer and Finance Director 020 7096 5833

Chime Communications

James Henderson/ Victoria Geoghegan/Elizabeth Snow 020 7861 3925

Pelham Bell Pottinger

OVERVIEW

2012 was a year of transition for Chime during which we developed our approach away from a reliance on large government contracts to a focus on four market drivers within the communications marketplace:

·; The global growth of sports and entertainment driven by rising fan numbers, viewers and rights values.

·; The new opportunities that digital communications create in all forms of media.

·; The shift in healthcare communications to scientific communications based on data generated by national health authorities.

·; Growing marketplaces of the world, e.g. Brazil, Russia and China.

CSM Sport and Entertainment's capabilities and reputation grew through its involvement in the 2012 Olympic and Paralympic Games during which it worked for over a quarter of the Games' sponsors.

The increasing awareness of Chime's operating brands (CSM Sport and Entertainment, VCCP Group, Good Relations Group, Open Health and CIE) in their individual sectors has also enabled Group new business to develop across more than one brand - e.g. digital communications and sports marketing are complementing each other as sporting spectators watch events "live" whilst having a secondary communications device at hand e.g. a tablet or mobile phone - be they in a stadium or at home.

KEY PERFORMANCE INDICATORS

Income from Shared Clients

The Group acted for 1,737 clients in 2012 compared to 1,377 in 2011. 252 of these clients used more than one of our businesses (2011: 219) which represented 68% of total operating income (2011: 66%).

Average Fee per Client

Average fee per client for 2012 was £91,000, compared to £84,000 in 2011. 214 clients paid us over £100,000 in 2012 compared to 167 in 2011. Our largest client represented 12% of total operating income (2011: 16%). Our top 30 clients represented 49% of total income compared to 50% in 2011.

Operating Profit Margin

Operating profit margin for 2012 was 16.3% compared to 13.4% in 2011.

Income from Overseas Offices

Income from overseas offices increased by 12% in 2012, although as a percentage of total income it reduced from 15% in 2011 to 13% in 2012. Much of our future growth is expected to come from international offices so we expect this percentage to increase substantially in 2013 and beyond.

Earnings per Share

Earnings per share in 2012 increased to 21.2p (2011: 12.8p).

HEADLINE DIVISIONAL PERFORMANCE

Sport & Entertainment

The sports marketing and entertainment market globally continues to grow in excess of 5% per annum and CSM is No. 1 in the UK sports marketing league tables. The two acquisitions we made in 2012, iLUKA and McKenzie Clark, have been successfully integrated and Lord Coe has now been appointed Executive Chairman of CSM Sport and Entertainment. 

Our Olympic and Paralympic activity was extremely successful and this is already helping us create opportunities for other major sporting events. 

Recent new business wins include:

·; Appointment by FIFA, subject to finalisation of the detailed contract terms, to do the signage, wayfinding and branding for both the 2013 Confederations Cup and the 2014 World Cup.

·; Appointment by Ingosstrakh to provide torch relay and hospitality services for their sponsorship of the 2014 Winter Olympics in Sochi.

·; SABMiller - activation of Global Music sponsorship.

·; Lead agency for the FIFA U-17 World Cup in the UAE in 2013. The biggest football tournament ever held in the UAE.

Advertising & Marketing Services

The VCCP Group further improved its creative reputation during 2012 whilst also investing in four new start-ups including new offices in Sydney and Madrid. This has, together with higher than normal new business costs, resulted in their operating profit margin being lower than we expected, although the second half year showed an improvement over the first half. Margin improvement will be the main focus in 2013.

Teamspirit, the specialist financial services agency, has entered 2013 in a stronger position following new client wins in the second half of 2012.

 Recent new business wins include:

·; Avis Budget Group

·; Muller

·; Macmillan

·; BetVictor

·; Capita

·; Rugby Football League

·; Which?

Public Relations

Major changes have taken place following the sale of most of the Bell Pottinger businesses and the closure of the remaining geopolitical business. The repositioning as the Good Relations Group is now well under way with the second half year trading being better than the first half. This division is well positioned for growth in 2013 and we also expect further margin improvement.

Recent new business wins include:

·; SABMiller (Pilsner Urquell)

·; Serco

·; Huawei

·; British Land

Healthcare

This division has grown both organically and through acquisition in just over two years and is now a separate division of Chime. It has integrated the businesses as the Open Health Group and whilst providing a full range of healthcare communications services, it has a specialisation in market access. We expect further growth in 2013 and continued high margins.

Recent new business wins include:

·; Napp

·; Mundipharma

·; Astellas Europe

·; Pfizer

·; Leo

·; Biogen Idec

Insight & Engagement

2012 was an extremely successful year for our Insight and Engagement division with strong organic growth and margin levels well above the industry norm. They are now in the top 10 UK insight groups. Their digital agency, Watermelon, launched in 2012, is already profitable.

Recent new business wins include:

·; Aviva

·; O2

·; Ofqual

·; HSBC

CORPORATE ACTIVITY

In 2012 we acquired:

·; iLUKA (sport and entertainment)

·; McKenzie Clark (sport and entertainment)

·; Harvey Walsh (51%) (healthcare)

·; Succinct (healthcare)

·; Rough Hill (60%) (youth marketing)

·; pH Associates (healthcare)

In January 2013 we completed the acquisition of The Complete Leisure Group.

The sale of certain Bell Pottinger businesses to a management team was completed on 30th June 2012 for a consideration of £19.6 million. Following this we have restructured our remaining business which has resulted in a one off restructuring cost of £4.0 million (property £3.1 million, staff £0.9 million).

CASH FLOW AND BANKING ARRANGEMENTS

Net cash at 31st December 2012 was £4.2 million compared to £3.1 million at 31st December 2011. The Group continued to generate cash from operating activities during 2012.

A new four year borrowing facility has been agreed with RBS for £47 million. This runs until September 2016, with an interest rate of between 1.75% and 2.25%, depending on use of the facility compared to EBITDA. The estimated earn-outs (which include consideration treated as deemed remuneration) payable in 2013 total £19.9 million and are payable £11.7 million in cash and £8.2 million in shares. 

TAXATION

The effective tax rate for 2012 was 27.6% compared to 28.8% for 2011.

The rate is expected to continue to reduce in future years particularly as the Group pays the majority of its tax in the UK where the rate of corporation tax continues to fall.

DIVIDENDS

The Board proposes a final dividend of 5.14p per share (2011: 4.50p per share). This will be payable on 14th June 2013 to shareholders on the register at 24th May 2013. The ex-dividend date is 22nd May 2013. 

Total dividend for the year was 7.24p compared to 6.58p in 2011. An increase of 10%. This represents a dividend cover of three times.

CORPORATE RESPONSIBILITYWe continue to reduce our impact on the environment. In 2011 we reduced our carbon footprint per full time employee by 12%. We expect to meet our target of a further 5% reduction for 2012 which is currently being measured. We have well developed community and young people initiatives.

We continue to be listed on the FTSE4Good and are proud to be a Carbon Trust Standard Bearer.

OUTLOOK

We anticipate continued profitable growth in 2013 although, not at the same rate as 2012, nor at the level we expect in 2014. Olympic and FIFA World Cup years will always accelerate profits through our sports marketing business in 'even' years of the calendar.

Nonetheless we aim to grow our business in 2013 through a combination of organic and acquisitive growth, continuing to utilise the proceeds of the disposal of Bell Pottinger businesses.

Appendix - Reconciliation of Income Statement to headline results for the year ended 31 December 2012

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

Headline figures are presented with the exit of the Public Advocacy and Defacto businesses classed as discontinued operations.

Appendix - Reconciliation of Business Segments to adjusted results for the year ended 31 December 2012

Headline figures are presented with the exit of the Public Advocacy and Defacto businesses classed as discontinued operations.

Consolidated Income Statement

Year ended 31 December 2012

* These amounts together with the applicable notes have been restated for discontinued operations (see note 6), in line with IFRS 5 and the change in accounting policy which resulted from the IFRS IC agenda decision on IFRS 3 and continuing employment (see note 2).

Consolidated Statement of Comprehensive Income

Year ended 31 December 2012

* These amounts together with the applicable notes have been restated for discontinued operations (see note 6), in line with IFRS 5 and the change in accounting policy which resulted from the IFRS IC agenda decision on IFRS 3 and continuing employment (see note 2).

Consolidated Balance Sheet as at 31 December 2012

Consolidated Balance Sheet as at 31 December 2012 (continued)

* These amounts together with the applicable notes have been restated for discontinued operations (see note 6), in line with IFRS 5 and the change in accounting policy which resulted from the IFRS IC agenda decision on IFRS 3 and continuing employment (see note 2).

Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity (continued)

Consolidated Cash Flow Statement

Year ended 31 December 2012

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 2012 or 2011. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the company's annual general meeting. The auditor's reports on both the 2012 and 2011 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. 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 2013.

The information in this preliminary announcement was approved by the Board on 6 March 2013.

Accounting policies have been applied consistently between years with the exception of the change in accounting policy described below and the new standards or amendments adopted in the year.

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 2011 with the following exceptions:

·; Headline numbers have been removed from the face of the income statement and are now located in the Appendix on pages 8 to pages 9.

·; Discontinued operations, as per IFRS 5, have been disclosed separately, including the representation of comparative information as is required by the standard (note 4)

·; Change in accounting policy resulting from IFRS IC agenda decision on IFRS 3 and continuing employment

Disclosure for change in accounting policy resulting from IFRS IC agenda decision on IFRS 3 and continuing employment

When a business is acquired from former shareholders who become employees of the Group, the Group uses the indicators set out in paragraph B55 of IFRS 3 to determine whether payments to those individuals are consideration for the business or remuneration for post-acquisition services. Previously the Group reached an overall conclusion based on a balanced assessment of all indicators, including whether payments are dependent on continuing employment. Following the publication in the January 2013 IFRIC Update of the IFRS Interpretations Committee's agenda decision on contingent payments to selling shareholders who continue as employees following a business combination, the Group has changed its accounting policy and now treats all payments that are dependent on continuing employment as remuneration for post-acquisition services.

The changes impact continuing operations only. There is no impact to the balance sheet at 31 December 2010 and hence the balance sheet at this date is not reproduced in this announcement.

The effects of this change in policy are summarised below:

Going Concern Basis

The Group meets its day to day working capital requirements through a £47 million rolling overdraft facility and a committed facility which matures in September 2016.

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 deferred and contingent consideration and deemed remuneration;

·; 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

For management purposes, the Group is currently organised into five operating segments: Sport & Entertainment, Advertising and Marketing Services, Public Relations, Healthcare and, Insight and Engagement.

Principal activities are as follows:

Sport & Entertainment

The Sport & Entertainment division is the 4th largest Sport & Entertainment group in the world, and includes Fast Track and the Essentially Group, as well as ICON and most recently iLUKA, which was acquired during 2012. Fast Track and Essentially are number one and number two respectively in the sponsorship leagues tables (Marketing Magazine, November 2012)

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, data consultancy and technical design, multimedia content, youth marketing and experiential, marketing consulting and specialist media planning and buying. It also specialises in the niche market of financial services. AMS also includes Rough Hill which was acquired in 2012.

Public Relations

The Good Relations Group is a fully integrated brand communications and CSR consultancy servicing more than 300 clients in the UK and internationally. Companies include: Corporate Citizenship, a best-in-class global CSR consultancy, inEvidence, a market-leading and global business-to-business customer advocacy agency, Good Relations Brand Communications, one of the UK's leading consumer brand and B2B public relations agencies, Harvard, a renowned technology public relations business and TTA Property, an award-winning property public relations business.

Insight and Engagement

The Insight and Engagement division brings together some of the country's leading insight specialists with the most extensive and innovative research solutions to help their clients to reach faster conclusions, make better decisions and develop more informed solutions. The Insight and Engagement division is made up of Opinion Leader Research, Facts International and Watermelon Research.

Healthcare

Open Health, a healthcare communications group was formed in 2011, and comprises organically developed and acquired businesses. The group brands are Open LEC, Open Plan, Reynolds McKenzie, Succinct, The Earth Works, Harvey Walsh and pH Associates. 

Comparatives

As discussed in note 1 the comparatives for the year ended 31 December 2011 were restated. This has the following effect on the segmental analysis:

i. Discontinued operations have been removed from the Public Relations segment

ii. Change in accounting policy resulting from IFRS IC agenda decision on IFRS 3 and continuing employment resulting in a deemed remuneration charge, this charge relates to the Sport & Entertainment division.

In addition the following changes have been made to reflect changes in the way the group operates and the manner in which information in respect of decision making is presented:

iii. Healthcare division is now reported as a separate segment whereas it was previously reported as part of Public Relations

iv. Tree (London) Limited is now reported as part of Advertising and Marketing Services (previously part of Insight & Engagement)

The impact for the year ended 31 December 2011 is as follows:

3. Earnings per share

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

Diluted earnings per share is calculated on the profit for the year attributable to parent company shareholders divided by the weighted average number of ordinary shares outstanding during the year adjusted for the potentially dilutive impact of employee share incentive schemes and shares to be issued as part of deferred or contingent consideration on acquisitions of subsidiaries.

Some share options that had a higher purchase price than the average market price of the shares for the year ended 31 December 2012 were outstanding. These options have been excluded from the calculation of diluted earnings per share as they would have been antidilutive.

The denominators used are the same as those detailed above for both basic and diluted earnings per share from continuing and discontinued operations.

4. 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 14 June 2013 to those shareholders on the register at 24 May 2013. The ex-dividend date is 22 May 2013.

Under an arrangement dated 3 April 1996, The Chime Communications Employee Trust which holds 1,261,702 ordinary shares representing 1.5% of the Company's called-up share capital, has agreed to waive dividends over 620,526 shares (0.7% of the company's called up share capital), the difference being those shares held under the deferred share scheme.

5. Notes to the cash flow statement