Cossette Communication Group - 2008 Third Quarter Results - Gross income increases to $67.2 million, net earnings at $2.2 million following goodwill impairment

August 5, 2008 | 6:55 pm

KOS (TSX)

QUEBEC CITY, Aug. 5 /PRNewswire-FirstCall/ - Cossette Communication Group Inc. ("Cossette" or the "Company") recorded gross income of $67.2 million for the third quarter of fiscal 2008, ended June 30, 2008, up 16 per cent from $57.9 million from the corresponding quarter of the previous fiscal year. Net earnings amounted to $2.2 million ($0.13 per share), or $4.5 million ($0.27 per share) excluding the after-tax effect of the goodwill impairment ($0.14 per share), compared to $4.7 million ($0.28 per share) for the third quarter of 2007.

During the quarter, the Company recorded a preliminary goodwill impairment charge of $4.1 million related to a reevaluation of the fair value of its U.S. reporting unit. The impairment arises from test results that indicate that the fair value of the U.S. reporting unit is lower than its carrying amount, including goodwill. The Company will complete the second and final step of its annual goodwill impairment test during the fourth quarter of 2008.

"Our results for the third quarter are on target with our stated financial objectives," said Claude Lessard, Chairman, Chief Executive Officer and President. "In the current context, we are satisfied with our performance in Canada. Our U.K. companies were successful on the new business front which translated to very strong organic growth. As for the U.S., we are well engaged in this market, as demonstrated by the recent acquisition of Rocket XL. The teams we have in place in our U.S. operations are energetic and dynamic. We are very confident of the quality of the service we can deliver in this market and are optimistic about the future success of the operation."

For the quarter, earnings from operations were $4.3 million ($9.8 million excluding non-recurring charges totalling $5.5 million), compared with $7.9 million in 2007. Cash flows from operating activities before changes in non-cash working capital items reached $8.2 million, compared with $6.6 million in 2007.

First nine-month period review - For the nine-month period ended June 30, 2008, gross income amounted to $186.6 million, an increase of $18.4 million or 10.9 per cent compared to gross income of $168.2 million reported for the nine-month period of fiscal 2007. Net earnings for the period were $6.4 million ($0.39 per share) or $8.7 million ($0.53 per share) excluding the after-tax effect of the goodwill impairment ($0.14 per share), compared to $11.7 million ($0.69 per share) for the same period in fiscal 2007.

Earnings from operations for the first nine months of fiscal 2008 were $12.1 million ($19.6 million excluding non-recurring charges totalling $7.5 million), as compared to $20.5 million for the same period in 2007. Cash flows from operations before changes in non-cash working capital items in the first nine months of fiscal 2008 were $17.8 million as compared to $18.5 million in the comparable period of 2007.

Management's Discussion and Analysis, containing a full analysis of financial results, is available on SEDAR (www.sedar.com).

Changes in the Senior Management team: Jean Royer leaves and

Martin Faucher comes on board

Jean Royer, Cossette's Executive Vice President and Chief Financial Officer, has announced his decision to leave the Company. His departure will be effective September 30, 2008.

"After nine years of outstanding and loyal services, Jean has decided to explore new professional avenues, at an age where all options are still open for him. I would like to sincerely thank him for his excellent work, his dedicated participation and his numerous accomplishments over the years. We wish him great success in his future endeavours", said Claude Lessard.

"My experience at Cossette will always remain as a landmark in my professional life. I want to thank Claude Lessard and the senior management team for providing this great opportunity for me at an early stage of my career," stated Jean Royer.

In light of this decision, Claude Lessard is pleased to announce the arrival of Martin Faucher, CA as Cossette's new Chief Financial Officer (CFO) who will start on August 25, 2008, ensuring a seamless transition in the administrative team. Mr. Faucher is currently CFO of iPerceptions Inc., Montreal, a North-American leader in monitoring consumer attitudes and perceptions on the Web.

A chartered accountant, Mr. Faucher has a Commerce and Public Accountancy degree from McGill University and started his career at Ernst & Young. In 1996, he became CFO of Kaydara, a leading real-time 3D animation software company where he spent 8 years before joining Microbridge, a manufacturer of electronic calibration products, principally for consumer market applications, as well as the automotive and medical industries. In 2007, he moved to his current position.

"Martin's financial and management experience in the fields of high tech, 3D animation, cultural and entertainment software products and web based monitoring initiatives will bring new insights to Cossette in our current and ongoing digital thrust" declared Claude Lessard. "We are very happy to have him on board."

"Cossette is a company with tremendous opportunities and an impressive management. I am excited to join this executive team promoting entrepreneurial values and lead the finance/IT team to play a significant role in the company's future strategic development," commented Martin Faucher.

Cossette Communication Group Inc. offers a full range of leading-edge communication services to clients of all sizes, including some of the most prestigious brands in the world. A customer-driven organization built around highly specialized business units, Cossette also offers Convergent Communications(TM), a unique working method that brings added value to the client by integrating various services offered by the Group, including strategic planning and research, advertising, media planning and buying, sales promotion, CRM, database and direct marketing, interactive marketing and technology solutions, public relations and alliance marketing, branding and design, ethnic marketing, sports marketing, branded content and product placement and business-to-business communications (B2B practices). Cossette has approximately 1,650 employees and offices in Quebec City, Montreal, Toronto, Vancouver, Halifax, New York, Irvine, Los Angeles, London, Moscow and Shanghai.

Forward-looking statements - This press release is not an offer of securities for sale. It may contain forward-looking statements concerning the Company's business, operations and strategies, including forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 in the United States.The Company cautions that, by their nature, forward-looking statements involve risks and uncertainties and the Company's actual results may differ materially from those expressed or implied in such statements, due to a variety of factors including downturns in general economic conditions and resulting changes in client business and marketing strategies, consolidation and globalisation of client brand strategies, the highly competitive nature of the communications industry, the greater resources available to much larger global agencies, low entry barriers for new competitors, dependence upon a limited number of clients contributing a significant percentage of income, inability to acquire new clients or new assignments from existing clients due to client policies prohibiting performance of similar services for competing products or companies, our ability to successfully integrate our acquired and to-be-acquired businesses and the retention of key management, creative and technical personnel. Reference should be made to the most recent annual Management's Discussion and Analysis for an in-depth description of major risk factors. The Company assumes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or any other reason, unless required by applicable laws. In the event the Company does update any forward-looking statements, no inference should be made that the Company will make additional updates with respect to that statement, related matters, or any other forward-looking statement.

Financial analysts are invited to participate in a conference call with management tomorrow August 6, 2008, at 9:30 a.m. The media and any stakeholders may attend the call in listening mode only. Please dial 514-861-1531 or 877-667-7766 (Canada & U.S.) or 00-800-6578-9898 (Global Toll Free). A replay will be available at 514-861-2272 or 800-408-3053, passcode 3265933# until August 27, 2008 and in the Investor Relations section of our website at www.cossette.com.

Appendix: Selected Financial Information

                      Cossette Communication Group Inc.
                       Selected Financial Information
       (in thousands of Canadian dollars, except for amounts per share)


    Results for the 3-month period ended June 30, (unaudited)

                                                            2008        2007

    Gross income                                          67,220      57,945
    Operating expenses before goodwill impairment         58,850      50,042
    Goodwill impairment                                    4,067           -
    Earnings from operations                               4,303       7,903
    Earnings before income taxes and non controlling
     interest                                              4,115       7,755
    Earnings after income taxes                            2,997       5,125
    Non-controlling interest                                (818)       (389)
    Net earnings                                           2,179       4,736
    Cash flows from operations (before changes in
     non-cash working capital items)                       8,202       6,568
    Net earnings per share
      Basic                                                 0.13        0.28
      Diluted                                               0.13        0.28
    Weighted average number of shares outstanding ('000)
      Basic                                               16,319      16,729
      Diluted                                             16,370      16,856


    Results for the 9-month period ended June 30, (unaudited)

                                                            2008        2007

    Gross income                                         186,562     168,227
    Operating expenses before goodwill impairment        170,414     147,763
    Goodwill impairment                                    4,067           -
    Earnings from operations                              12,081      20,464
    Earnings before income taxes and non controlling
     interest                                             12,225      20,992
    Earnings after income taxes                            8,355      13,708
    Non-controlling interest                              (1,953)     (1,990)
    Net earnings                                           6,402      11,718
    Cash flows from operations (before changes in
     non-cash working capital items)                      17,840      18,465
    Net earnings per share
      Basic                                                 0.39        0.69
      Diluted                                               0.39        0.69
    Weighted average number of shares outstanding ('000)
      Basic                                               16,507      16,866
      Diluted                                             16,577      16,936


    Balance sheet

                                                           As at       As at
                                                         June 30,   Sept. 30,
                                                            2008        2007
                                                      (unaudited)   (audited)

    Cash and cash equivalents                             12,024       3,484
    Current assets                                       217,281     188,788
    Intangible assets and deferred charges                 5,573       6,384
    Goodwill                                              82,024      84,244
    Total assets                                         328,454     299,100
    Short-term borrowings, including bank overdraft       41,825           -
    Current portion of long-term debt                         31         411
    Current portion of balances of purchase price of
     subsidiaries                                            331      16,009
    Long-term debt                                           382         108
    Balances of purchase price of subsidiaries                30         529
    Shareholders' equity                                 137,151     132,123