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Chime Falls on Delay of Earnings From Rio Stadium: London Mover

Chime Communications Plc (CHW), the public relations firm that boasts London Olympics director Sebastian Coe as chairman of the sports unit, fell as repairs to a Brazil stadium destined for the 2016 Summer Games may delay revenue.

The closing of a Rio de Janeiro stadium used by a local soccer team means that some sponsorship revenue related to that league may come in later than expected, Chief Executive Officer Chris Satterthwaite said in a phone interview today. He spoke after the London-based company reported that first-half operating profit in the sports marketing division fell 40 percent to 4.5 million pounds ($7 million), excluding disposals.

“For the time that the stadium is shut our contract is in a hole,” Satterthwaite said. The venue should reopen in six to 12 months, he said. Growth is usually steady in years with no World Cup or Olympics and is forecast to accelerate in 2014, when Brazil hosts the soccer championship, and in 2016, when the country welcomes the Summer Games, he said.

The stock fell 1.3 percent to 310 pence in London after declining as much as 4.1 percent, the most in 10 months in intraday trading, earlier in the day.

“Time to take profit,” Malcolm Morgan, an analyst at Peel Hunt, wrote in a note to clients. Sports marketing was “disappointing,” said Morgan, who reduced his 2013 adjusted pretax profit estimate by 9.7 percent to 26 million pounds and said earnings by that measure may be 34 million pounds next year. Morgan repeated a hold recommendation and a stock-price prediction of 270 pence.

Photographer: Oli Scarff/Getty Images

Chime announced it bought Shanghai and Hong Kong-based People Marketing in May and acquired London Olympics director Sebastian Coe's 93 percent interest in Complete Leisure Group in January. Close

Chime announced it bought Shanghai and Hong Kong-based People Marketing in May and... Read More

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Photographer: Oli Scarff/Getty Images

Chime announced it bought Shanghai and Hong Kong-based People Marketing in May and acquired London Olympics director Sebastian Coe's 93 percent interest in Complete Leisure Group in January.

Canaccord Cut

Canaccord cut its advice to hold from buy, though it maintained a 330-pence price target. The Rio stadium closure, Brazilian real weakness and a build-up of World Cup costs will hit second-half earnings, analyst Simon Davies wrote in a note.

Even so, first-half earnings “masked significant growth in its non-sports businesses” led by the attraction of new clients, international expansion and tighter cost control, Davies said. Growth in advertising and health-care business will partially offset Brazil costs, he said.

Chime’s VCCP advertising agency will probably become the U.K’s fifth-largest, up from eighth, after taking a contract from Saatchi & Saatchi (SAA) to serve Wal-Mart Stores Inc. (WMT)’s U.K. supermarket chain Asda, Satterthwaite said. The work will have a “major impact” on 2014 earnings, he said. The agreement is worth an estimated 100 million pounds, the Telegraph newspaper said yesterday, without citing anyone.

Acquisition Plans

Operating profit rose at least 50 percent in Chime’s four non-sports divisions in the first half, pushing adjusted pretax profit up 2 percent to 11.2 million pounds, the company said.

The company plans to make more acquisitions in sports marketing, Satterthwaite said. Chime announced it bought Shanghai and Hong Kong-based People Marketing in May and acquired Coe’s 93 percent interest in Complete Leisure Group in January.

The Estadio Olimpico Joao Havelange in downtown Rio was closed in March, just six years after opening, because signs of wear in its roof structure suggest a danger of collapse, according to the city mayor’s office. The venue is meant to host track and field events for the 2016 Summer Games.

To contact the reporter on this story: Rachel Savage in London at rsavage10@bloomberg.net

To contact the editors responsible for this story: Douglas Lytle at dlytle@bloomberg.net; David Risser at drisser@bloomberg.net

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