Saatchi ahead at 9m pounds: Difficult trading leads to large redundancy bill

SAATCHI & Saatchi, the advertising group best known for its British Airways campaign, yesterday reported an increase in taxable profits from pounds 1.7m to pounds 9.1m for the half-year to 30 June.

Thanks to a substantially lower tax charge - down from 65 to 55 per cent - the group returned to earnings per share of 1.9p against a loss of 4.9p.

However, trading profits fell by pounds 1m to pounds 18.8m, reflecting a pounds 3.8m redundancy bill amid continuing difficult trading conditions in Continental Europe. The company cut its total workforce by about 100 in the first half, taking the total to 11,900.

Although the results were in line with expectations, analysts have downgraded their 1993 forecasts from about pounds 27m to pounds 24m as severance costs are expected to total pounds 6m for the year. The shares dropped 4p to 168p.

Group revenues jumped by almost 12 per cent to pounds 404m, almost entirely due to currency gains.

Overall operating margins declined to 4.6 per cent against 5.5 per cent achieved at the same time last year. The group had hoped to achieve margins of 6 per cent, but the tough trading conditions have prevented that.

Saatchi is aiming to reduce staff costs from 60 to 55 per cent of revenues, but Charles Scott, chief executive, said this would take another two years.

Helped by a pounds 73m rights issue last June and improving cash flow from operations, interest costs fell from pounds 10.4m to pounds 9.9m after taking a pounds 2m one-off bank fee into account. Profit from the sale of works of art slumped from pounds 1.9m to pounds 200,000.

Average net debt at the half-year amounted to pounds 177m and is expected to drop to pounds 145m by the end of the year.

Trading profits in the UK rose from pounds 2.8m to pounds 3.1m despite a 3 per cent decline in revenue to pounds 56m. But trading conditions had shown some improvement in the second half.

Across the Atlantic profits rose from pounds 8.1m to pounds 10.8m on revenues up from pounds 153m to pounds 184m largely due to currency factors. At an underlying level, the result was disappointing. Saatchi said that spending on advertising continued to be hampered by the recession.

Operating profits from Europe slumped from pounds 9.7m to pounds 4.5m because of a poor performance in Spain, which has also been affected by a deep recession. The rest of the world turned a pounds 500,000 loss into a pounds 400,000 profit.

Zenith, the group's media-buying unit, achieved another strong performance, which has prompted a worldwide expansion of its operations.

However, Mr Scott is taking a cautious view of the group's prospects. 'Worldwide the outlook for advertising growth is uncertain . . . In the medium to long term we believe the emerging trend among fast-moving consumer goods manufacturers away from trade and consumer promotions to value pricing will benefit advertising, but in the short term this is causing disruption to clients' traditional expenditure patterns,' he said.

(Photograph omitted)