Chime in talks with banks after breaching covenants

Shares in Chime Communications plunged 75 per cent yesterday after the advertising group admitted it had breached its banking agreements and issued a profit warning.

The company, which is headed by Lord Bell, blamed deteriorating trading conditions for a warning that its full-year results would be "well below market expectations".

It said it was in discussions with its bankers, Royal Bank of Scotland, after expected restructuring costs of £12m had caused it to breach its financial covenants.

The news, which was released half an hour before the stock market closed, wiped almost £40m off the company's valuation, leaving it worth £13.6m. The shares, which traded at 150.5p last December, fell 26p to 9p.

Lord Bell – a former public relations adviser to Margaret Thatcher – said the group had been "firing people and getting rid of space we don't need" to cut costs. Since last autumn, Chime has axed 500 jobs out of a previous total of 1,200. Lord Bell said more jobs were at risk if the market did not pick up.

Two months ago, speaking at the group's interim results, Lord Bell said he believed the downturn had "bottomed out" and that the second half would be better than the first. Yesterday he said the collapse in full-year expectations was because "the market deterioration has continued and impacted on what is usually our best quarter, the fourth quarter".

The group, which owns the HHCL advertising agency and the Bell Pottinger City public relations firm, said advertising had continued to decline, as had hi-tech and financial public relations. "Pressure on fees is extreme across the whole group," it added.

Hector Forsythe, an analyst at Evolution Beeson Gregory, said the warning "without doubt reflected that markets lacked visibility". He added: "They haven't found a black hole but they are clearly unable to steer revenue higher." The group has about £33m of net debt.

Referring to the recent departure of Rupert Howell, the respected chief executive, Lord Bell said: "Not a single client left because of that."

The collapse in Chime's fortunes is a further blow to Sir Martin Sorrell's advertising giant WPP, which is the group's largest shareholder with a 20 per cent stake. However, Lord Bell insisted plans to merge HHCL with WPP's Red Cell would not be affected by Chime's financial position.