Chime strikes dour note over media sector outlook

Lord Bell, the chairman of PR and advertising group Chime Communications, offered a "very cautious" outlook for the future after reporting a 35 per cent drop in underlying first-half profits.

The former PR adviser to Lady Thatcher warned that the "economic outlook is dull, the political climate weak", and that "the marketplace continues to be testing and there is little visibility going forward".

His comments were in agreement with recent comments from other media bosses. Last month Sir Martin Sorrell, chief executive at WPP, had been broadly positive about the outlook for his company but this was based largely on prospects for the US and not the UK. Likewise Aegis boss Doug Flynn had been cautious about prospects in Europe in general and the UK in particular.

Chime operates in the UK only. Figures from ZenithOptimedia earlier this week predicted growth in UK advertising expenditure of just 0.8 per cent in 2004 after inflation, offering little hope of a significant turnaround in the short term.

Lord Bell said that, after the experience of Chime over the past 18 months, it was prudent to be cautious.

Chime Communications has struggled in recent times with the sharp downturn in advertising and PR expenditure. This culminated in the forced sale, in January, of 49 per cent of previously high-flying advertising agency HHCL to WPP, incurring a loss on disposal of almost £8.3m.

The company, whose clients include BAE Systems and McDonalds, reported a pre-tax loss for the six months to June of £5.35m compared with a £6.05m loss last year. Pre-exceptional profits were down from £4.6m to £3m. Chime shares closed down 10 per cent at 32.5p.

Lord Bell described the UK market as a "media crucible" and said it was a particularly diverse and competitive marketplace. Clients had become very choosy and cost-conscious and this had caused margins to be squeezed, adding to the pressures on operators like Chime, he added.

The Tory peer said the company had recently done some performance-related rather than flat-fee business. This was a sign of things to come, he said.

Malcolm Morgan, an analyst at Investec Securities, said most operators in the industry were loathe to be the first to signal an upturn after previous false starts. He said Chime deserved credit for restructuring work and was in a better position to take advantage of any economic upturn.