Saatchi shows profit, but city not pleased By Kevin McCormac

NEW YORK--Saatchi & Saatchi Co. PLC is expected to report operating profits of $49-55 million, which includes the sale of art, and pretax profits of aro

Saatchi made it clear that it was taking a conservative outlook for 1992. Yet, despite that caution, the results still won’t thrill the financial community.
“They will be disappointing, relative to this time last year,” said David Grimbley, an analyst with Hoare Govett in London.
“It’s a sight lower than this time last year,” agreed James Capel analyst Nell Blackley.
Industry observers said the lingering recession and the accompanying client cutbacks have had an impact on Saatchi’s operations. Account losses, such as Rover pulling its business out of BSB Dorland in the United Kingdom had a negative impact.
Company insiders and analysts point to a disappointing year at Saatchi & Saatchi Advertising Worldwide, which had a good 1991 but endured many client cutbacks in 1992, also putting a drag on financial results.
The holding company’s balance sheet will be impacted by whatever decision the board makes this week on how to treat some $800 million in goodwill write-offs the holding company is carrying on its books. This goodwill is a matter of accounting that relates to the price Saatchi paid for its acquisitions and what they are worth today. Many of them depreciated in value.
For 1992, Saatchi will write off some $21 million relating to the sale of such properties as market research firm Yankelovich Clancy Shulman, reflecting the profit/loss adjustment for what the company paid for the businesses and their selling prices. In balance sheet terms, that leaves Saatchi with $33.5 million in profits after writeoffs.
That figure could become a loss depending on how much of the overall goodwill it chooses to write off this year. While the goodwill writeoffs will blemish the balance sheet, they do not impact real cash flow.
Copyright Adweek L.P. (1993)