But Saatchi's shares fell more than five per cent after markets outside theUnited States showed a disappointing performance and the group scored anoperating margin below peers at 9.2 per cent excluding revenue from itsZenith joint venture. "We led the industry in terms of new business lastyear and 2000 is also off to a good start. New business will drive revenuein 2000 as will the continuing success of healthcare and Internet-relatedbusiness," Saatchi chairman Bob Seelert said.

Saatchi posted pre-tax profit of £36.3 million ($57.4 million) from 34.8million, compared with analysts forecasts of between 35.5 and 38.1 million.Net income was flat due to one-time items while revenue excluding Zenithrose 5.4 per cent to £400.7 million or 12.5 per cent on an ongoing basis.

Saatchi shares, which almost tripled last year, closed 4.46 per cent down at417.5 pence, just off a low of 415 pence. Analysts noted that the shareswere now trading at a discount to rival Cordiant which split from the groupin 1997.

"The new business is good but is still in the hands of a few clients. Someof the markets have been disappointing, there's no news on Zenith, thegolden Internet word has been scarce and the shares have already had a goodrun," said one analyst. The advertising firm posted strong growth in itscore US market - which accounts for almost 50 per cent of business - withrevenue climbing 13 per cent but revenues in its UK market fell 1.2 per centdue to lost accounts, the rest of Europe rose just one percent andAsia-Pacific was up 7.1 percent. "Stripping out the United States, eachmarket has not shown much underlying growth. The shares were discountingupgrades which may now be in question," said one analyst.

Advertising growth seen at 6.5 per cent
Seelert said he expected global advertising growth of 6.5 per cent in 2000and Saatchi hoped to surpass that to post double-digit earnings growthdriven by new business and solid growth in the healthcare sector. Thechairman said no decision had been taken on the Zenith Media joint venturewith Cordiant amid talk the two sides may bring in a new partner and floatthe media services agency.

On the Internet, Saatchi said its online business of banner advertising,production and consulting jumped 150 per cent and now constituted 2.5 percent of revenues. Another 5.5 per cent comes from e-commerce and DoT-comcompanies. But Seelert said the firm was not planning to separate outInternet activities into a stand-alone unit as rivals have done.

Saatchi said it won $1 billion of gross new business in 1999after winningbig clients such as Sony Europe and new assignments from Procter & Gambleand Hewlett-Packard. Net of accounts lost during the year, which includedDelta Air, Saatchi won $735 million of new business.

Procter & Gamble, which brought in over $300 million of new business forSaatchi, issued a profits warnings this week but analysts noted Saatchi'sdeal with P&G was based on sales revenue not advertising spend. In terms oftrading or operating margins, Saatchi said its 1999 margin excluding Zenithrose to 9.2 per cent from 8.2 per cent in the previous year. IncludingZenith, this figure was 10 per cent or 10.5 per cent on an ongoing basis.Cordiant, which demerged from Saatchi in 1997, said on Wednesday it hadachieved an operating margin of 10 per cent in 1999 while British giant WPPmade it to 13.4 per cent.

Saatchi has set a target of 12 per cent operating margin,including Zenith,by 2001, compared to WPP's 15 per cent target. Saatchi's ongoing operatingprofit rose 25.4 per cent to £35.5 million and the board is proposing adividend of 1.6 pence per share, up from 1.4 pence in 1998.