Pay-offs hamper Cordiant

MATHEW HORSMAN

Redundancy payments to 470 sacked staff and a write-down on the sale of a subsidiary earlier this year will severely depress 1995 profits at Cordiant, the advertising agency, the company revealed yesterday.

Speaking to shareholders at a sometimes tense annual meeting, Charles Scott, chief executive and acting chairman, said that severance costs of up to pounds 10m and a further pounds 14m-pounds 15m of goodwill written off following the sale of Campbell Mithun Esty for pounds 40m in April were "one-off items" and that the second half of 1995 would show an improvement in profitability compared to the second half of last year.

Mr Scott said the company aimed to improve operating margins by 1 percentage point over 1994, before extraordinary items. Last year, the company earned pounds 32.4m.

Cordiant has lost important clients and key staff since the acrimonious departure late last year of Maurice Saatchi, former chairman, who has since set up a rival agency. A bitter legal battle between the two ended last month with a global settlement that will cost Cordiant nearly pounds 1m.

Client defections since the start of the year represented about 6 per cent of revenues, Mr Scott told shareholders. But, he stressed, Cordiant has won new business worth about 3 per cent of revenues since January.

Of planned lay-offs, more than 400 jobs have already gone, following the loss of the lucrative Mars account earlier this year and the subsequent defection of British Airways to Mr Saatchi's new firm, M&C Saatchi. Mr Scott said the company had managed to keep some senior account executives, who were soliciting new business in areas where Cordiant had built up expertise, such as airlines and consumer products.

Mr Scott said the company would now "draw a line" under the turbulent past six months. "The client losses connected to the events of the first half have ceased," Mr Scott told shareholders. But, he cautioned, "replacing major accounts is a long-term process; there is no short cut".

Some shareholders questioned management's handling of Maurice Saatchi's departure and its aftermath, with one calling it a "cock-up". Mr Scott vigorously disputed that interpretation, although he conceded that Cordiant may have lost the public relations battle against Maurice Saatchi's camp.

Company management stressed yesterday that the out-of-court settlement had been reached largely to reassure existing clients. "They disliked the prospect of senior management being distracted by the dispute," Mr Scott said.

Mr Scott said the search for a new senior executive, either as chairman or as chief executive, was continuing, and hinted that the successful candidate may well come from outside Britain.

Analysts said the company's prospects looked more positive following the decision to cut staff, and many raised earnings projections marginally for 1996. Estimates hover at about the pounds 25m-pounds 28m mark for 1996, or around 5p a share. Cordiant's shares closed 3p higher at 104p.

Investment Column, page 22