Shandwick improves but passes dividend

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The Independent Online
SHANDWICK, the world's largest public relations consultancy, has passed its interim dividend despite a return to profits because of 'continuing uncertainty' about the economy and its high debt burden.

The group, headed by Peter Gummer, was forced into a refinancing of its debts last December, when it stunned the City by warning of a pounds 1.4m loss for the 15 months to October.

Since then it has reorganised the business and cut costs. Staff numbers have been cut by 15 per cent to 1,870, partly by shedding a layer of regional management.

That helped the group report a pounds 1.5m pre-tax profit, down from pounds 8.1m in the six months to January 1991. Earnings per share were 0.9p, down from 6.4p.

Mr Gummer said the reorganisation was virtually complete and the group had been profitable every month since last December.

Debt rose by pounds 9m to pounds 58.3m in the six months to April, partly because of earn-out payments on previous acquisitions, but the group has stayed within its banking covenants. At 31 October it had net current liabilities of pounds 55m.

Debt is expected to peak at pounds 60m, and Mr Gummer expects the group to be generating cash next year. A further pounds 2m of earn- out payments are due in the second half and are estimated at pounds 14m in the four years to 1996.

The refinancing has cost about pounds 3m, of which pounds 1.3m is additional interest charges. The rest will be treated this year as an exceptional charge, of which pounds 309,000 was charged in the first half.

Mr Gummer also warned that there might be an extraordinary charge of up to pounds 6m when a number of peripheral businesses were disposed of as the group would have to write back goodwill previously charged against reserves.

But he added that this would not affect the balance sheet. Negotiations on the disposals are taking place but are unlikely to bring in a significant sum.

Shandwick indicated that the collapse in its share price could force it to make a provision against its pounds 987,000 loan to the employee share option plan. The shares, which stood at 145p last November, were yesterday down 1p to 11p, leaving the value of the option plan's shareholding at just pounds 109,000.

Mr Gummer said the decision on provisions would depend on the group's share price and its trading prospects when the final results were announced. He added that revenues at the moment were holding up despite the fact that economic conditions remained 'extremely poor'.

In the US there are tentative signs of recovery in some markets. In the UK, although the market remains depressed, sectors such as City and corporate work have been doing 'particularly well'. The Spanish business has benefitted from Olympics-related work.