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[london] Saatchi & Saatchi and Cordiant Communications Group reported big jumps in revenue and operating profits for the first half, fed by a steady diet of new business and modest acquisitions.

Both groups, part of the same holding company less than two years ago, promise there's more growth to come.

"They've won lots of new business and are keeping costs down and putting margins up," said Lorna Tilbian, an analyst at WestLB Panmure who has issued buy recommendations for both companies' stock.

Michael Bungey, Cordiant's acquisition-oriented chief executive, announced a spending spree that analysts speculate will be financed by selling the company's 50% stake in Zenith Media Services, possibly by yearend.

Mr. Bungey, however, denied that Cordiant will sell its Zenith stake and said acquisitions-of Internet and other fast-growing specialist companies-will be financed through a mix of cash and stock.

"From now on, we're not looking for quantity of acquisitions," he said, referring to the 22 acquisitions he spent $40 million on over the past year.


All future deals, he said, will be geared toward increasing business in three areas: multinational clients, North America and diversified marketing services.

Last week, Cordiant reported 8.9% growth in revenue to $256.9 million for the first six months of 1998. Operating profit rose by 30.2% to $17.3 million for the same period.

The brightest spot is North America, where new business and acquisitions drove revenues up by 18.6%. Cordiant is still overly reliant on continental Europe, where half of the group's operating profit is generated.

The worst performance was in Asia. Australia accounts for 60% of Cordiant's Asian revenues and has had an abysmal year so far, with operating margins slipping from 6.5% in 1998 to 1.2% this year. Cordiant's Asian and Latin American revenues fell by 3.8% in the first half of 1999.

Cordiant reported $200 million in new-business wins for the first half, including a $60 million Mercedes-Benz truck account in Germany for Hamburg-based Scholz & Friends.

New York-based Bates Worldwide still underperforms on winning business on a regional and global basis. In a ranking of global and regional account wins by network published by Advertising Age International this month, Bates didn't appear in the top 20, while Saatchi & Saatchi ranked No. 2.


Saatchi last week reported a 12% hike in first-half revenues to $306.5 million and a 38% increase in operating profit to $16.8 million.

Like Cordiant, Saatchi's strongest growth was in North America, where revenue rose by 14.4% to $47 million on new assignments from existing multinational clients. Saatchi's worst-performing area was the U.K., with a 3.9% revenue drop due to lost business; outside the U.K., Saatchi eked out an operating profit in continental Europe of just $1.3 million, a 72% drop from the same period last year.


Both companies are promising to squeeze out further profitability through steady growth in operating margins. Cordiant is committed to boosting margins from 6.6% during the first half to 10% for the year and 11% next year, still well below U.S. groups such as Omnicom Group and Interpublic Group of Cos. Saatchi has pledged to boost margins from 8.5% in the first half to 12% by the end of 2001.

At Zenith, first-half revenues rose by 17%. But Zenith, owned by two companies with other investment priorities, is lagging competitors.

Rival groups are investing heavily to build media specialist brands, such as Young & Rubicam's Media Edge and Leo Burnett Co.'s Starcom Worldwide. In the U.S. and other markets, Bates and Saatchi keep media planning within their own media departments, with Zenith handling only media buying.

In Asia, Zenith has franchised operations rather than wholly owned units. In China, Zenith's $150 million agency of record assignment for Procter & Gamble Co. is up for a statutory review.

"A new plan for Zenith is at the top of the agenda," Mr. Bungey said.

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