Analysis: Chime profits hint at brighter future

Chime Communications’ profits rise suggests it is undergoing a renaissance. Tom Williams asks if the company really has recovered from past travails

Lord Bell had more to smile about than most last week. Chime Communications, the group he chairs, posted a pre-tax profit of £8.6m for 2005, a rise of 34 per cent on the previous year.

More significantly, net debt more than halved in 2005, from £6.3m to £3m. In 2002, debt was around £33m.

The City has lapped up this recovery. 'They have more than turned the corner. If you check back two and a half years, Chime had hit the buffers on debt and was having a lot of problems with HHCL [the advertising agency Chime sold to WPP last year],' says Investec Securities media analyst Malcolm Morgan.

'We are pleased to see the numbers are in line. Even better is the management's robust trading statement. They are back on the front foot,' he adds.

PR, which accounts for 63 per cent of Chime's operating income, was no exception to what Bell described as 'a very successful year'.

Operating profit for the Kevin Murray-led division rose by 24 per cent to £6.8m. Chime singled out Bell Pottinger Sans Frontieres – which specialises in advising governments, such as those of Iraq and Dubai – as 'our most successful business'.

Mixed fortunes
Bell Pottinger Public Affairs, led by MD Peter Bingle, is also doing remarkably well. The agency counts BAE Systems, McDonald's and HSBC among its clients. Chime goes so far as to claim in its results statement that BPPA is the UK's 'number one public affairs consultancy'.

But other elements of the business tell a different story. Its main marcoms offering, QBO Bell Pottinger – which takes its prefix from forerunner The Quentin Bell Organisation and was bought by Chime in 2000 – had a difficult 2005. Pizza Express pulled its account after six years, later hiring Ketchum (PRWeek, 21 January 2005). In the autumn, Masterfoods ended its 11-year relationship with QBO, carving up the account between Jackie Cooper PR and Ketchum (PRWeek, 22 September 2005). Then Norwich Union delivered a hammer blow, dropping QBO from its £500,000-a-year account after 15 years to hire Lexis PR (PRWeek, 11 November 2005). Sister firm Good Relations has also had a difficult time.

Murray points to Chime's results statement, which attributes the sluggish performance in consumer work to a general decline in consumer spending. He insists that QBO, run by MD David Wilson, and Good Relations 'are in very good shape this year'. But big changes are afoot (see box).

Business is more upbeat at other creative shop Resonate. Launched by former Shine Communications directors Michael Frohlich and Graham Drew just three years ago, it has a reputation for having an edgier approach than its longer-established sister firm. Resonate has eight staff and handles PR for directory enquiries brand 118 118, dairy firm Müller and drinks group Pernod Ricard. As Lexis PR
director Margot Raggett puts it: 'Resonate is Chime's way of renewing its consumer offering.'

Chime also trumpeted the success last week of City arm Bell Pottinger Corporate & Financial. Former Edelman financial head Stephen Benzikie has now taken over from Tim Ryan as the division's chief executive (see box). According to Chime, the agency has 'returned to growth and been reconfirmed in the top ten'.

Financial arm 'in top ten'
BPC&F scored a significant recent coup with Dubai Ports World's acquisition of P&O. It also advised and Petrofac on their listings. But the firm appears just three times in the past 13 months of PRWeek's Deal Watch ranking of City firms (the data for which is provided by Zephyr, with companies ranked by the value of the deals on which they have advised).

Financial calendar work can keep City PR practices ticking over. But working on major mergers and acquisitions is what pulls in the big fees.

Benzikie counters that other rankings, such as those produced by Hemscott, show BPC&F consistently in the top ten. He and deputy chairman Charles Cook, whose firm Grandfield was acquired by Chime last summer (PRWeek, 15 July 2005), also argue that BPC&F would be in the top five of such lists if 'expertise' and work for smaller-sized clients were taken into account.

But some contend that BPC&F still needs to regain much of the expertise that was haemorrhaged in the wake of the agency's creation. The firm came about through the traumatic merger of Bell Pottinger Financial with Bell Pottinger Consultants – a restructure that was followed by the departure of several respected financial communicators.

However, divisional circumstances aside, the Chime group's overall financial recovery cannot be denied. One former staffer admits that the 2005 results are 'a very credible performance', but adds that 'the trick is to transform that into consistent growth'.

Chime's recovery has not been cheap. In 2004 the company had to tap shareholders, which include marcoms group WPP, for £18.5m through a rights issue. The money was used to fund the restructure that is now delivering financial success. Yet while the City has welcomed the group's results, enthusiasm is tempered with caution.
'I hope that it is not a mere flash in the pan,' says Investec's Morgan. 'The real test will be the next downturn – we will see whether the firm's structure is strong enough to withstand that.'

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