Cossette - 2009 Third Quarter Results

KOS (TSX)

QUEBEC CITY, Aug. 4 /PRNewswire-FirstCall/ - Highlights from the Third Quarter 2009:

    - Gross income decreased by 22.5% to $52.1 million;
    - EBITDA(1) margin was 2.3%;
    - Goodwill impairment of $10.5 million;
    - Loss from operations was $11.6 million including goodwill impairment of
      $10.5 million;
    - Incremental tax provision of $6.4 million related primarily to not
      recording a benefit on the tax losses in the U.S. and applying a
      valuation allowance on certain deferred tax assets;
    - Net loss amounted to $18.4 million ($1.16 per share) including goodwill
      impairment of $10.5 million ($0.66 per share) and the incremental tax
      provision of $6.4 million ($0.40 per share);
    - Miles Calcraft Briginshaw Duffy Limited ("MCBD") and Elvis
      Communications Limited ("Elvis") became wholly-owned subsidiaries
      following the acquisition of their non- controlling interest;
    - Consolidation of the balance sheet position by reducing the net debt
      position from $39.0 million to $4.1 million and decreasing future earn-
      out payments and potential additional equity interest obligations from
      $40.5 million to $19.7 million.

Cossette Inc. ("Cossette" or the "Company") recorded gross income of $52.1 million for the third quarter of fiscal 2009, ended June 30, 2009, compared to $67.2 million in the corresponding quarter of the previous fiscal year. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)(1) amounted to $1.2 million for the third quarter of fiscal year 2009, ended June 30, 2009, compared to $10.6 million in the corresponding quarter of fiscal year 2008. For the quarter, loss from operations was $11.6 million, including goodwill impairment of $10.5 million, compared with earnings from operations of $4.3 million in 2008. Net loss amounted to $18.4 million ($1.16 per share), including goodwill impairment of $10.5 million and the incremental tax provision of $6.4 million, compared to net earnings of $2.2 million ($0.13 per share) for the third quarter of 2008. For the quarter, cash flow from operating activities before changes in non-cash working capital items reached $1.7 million, compared with $8.2 million in 2008.

Cossette also acquired the remaining interests in MCBD and Elvis, which have now become wholly-owned subsidiaries of the Company. MCBD, an advertising agency, is one of the most awarded agencies in the United Kingdom for its creative work and has won top awards and Campaign of the Year for its Hovis work in 2008. Elvis, a direct marketing agency, was also named Agency of the Year 2009 in the United Kingdom.

"During this quarter, our management team worked hard to improve our balance sheet in the context of a turbulent economic climate. In addition, over the past nine months we have incurred $8.5 million in cash expenses related principally to severance, client-related expenses and insurance on certain accounts receivable, which is a significantly higher level than we expect to incur moving forward. Although I cannot be satisfied with the decrease in our organic growth, the market weakness was greater than we had anticipated," said Claude Lessard, Chairman of the Board, Chief Executive Officer and President. "However, we are very proud of our people who continue to deliver a spectacular product and who are being recognized for their work with industry awards. We are strengthening this creative success by forging stronger ties with our clients across all sectors. Our Company is fully focused on the following objectives: providing better service to our clients in these difficult times, protecting our margins and consolidating Cossette's financial health. With all the measures we have taken, we expect to return to profitability and, as the economy improves, to return to our historical levels" he concluded.

First nine-month period review - For the nine-month period ended June 30, 2009, gross income amounted to $165.1 million, compared to $186.6 million reported in the nine-month period of fiscal 2008. EBITDA amounted to $9.3 million for the nine-month period ended June 30, 2009, compared to $22.3 million in the corresponding period of fiscal 2008. Loss from operations for the nine-month period of fiscal 2009 was $8.0 million, including goodwill impairment of $10.5 million, as compared to earnings from operations of $12.1 million for the same period in 2008. Net loss in the nine-month period of fiscal 2009 was $17.4 million ($1.10 per share), including goodwill impairment of $10.5 million and the incremental tax provision of $6.4 million, down from net earnings of $6.4 million ($0.39 per share) for the same period in fiscal 2008. Cash flow from operating activities before changes in non-cash working capital items in the first nine months of fiscal 2009 were $8.4 million as compared to $ 17.8 million for the same period of fiscal year 2008.

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

Cossette 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 buying and channel planning, sales promotion, direct response, database and direct marketing, customer relationship management, interactive marketing and technology solutions, public relations, organizational communication and change management, sponsorship and alliance marketing, branding and design, ethnic marketing, business-to-business communications (B2B practices) and print and video production. Cossette has approximately 1,485 employees and offices in Quebec City, Montreal, Toronto, Vancouver, Halifax, New York, Irvine, Los Angeles, London and Shanghai.

Forward-looking statements - This press release may contain statements that are forward-looking in nature. These forward-looking statements may involve, but are not limited to, comments with respect to the Company's business or financial objectives, its strategies or future actions, its targets, expectations for financial condition or outlook for operations and future earn-out and additional equity interest obligations. Forward-looking statements are not guarantees of future performance and actual results may differ materially from those in the forwardlooking statements as a result of various factors, including downturns in general economic conditions and resulting changes in client business and marketing strategies, consolidation and globalization 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, the Company's ability to successfully integrate acquired and to-beacquired businesses and the retention of key management, creative and technical personnel. Assumptions relating to the foregoing involve judgments and risks, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although management believes that the expectations reflected in the forward-looking statements are reasonable based on information currently available, it cannot assure that the expectations will prove to have been correct. Accordingly, undue reliance should not be placed on forward-looking statements.

Financial analysts are invited to participate in a conference call with management tomorrow August 5, 2009, at 10:00 a.m. The media and any stakeholders may attend the call in listening mode only. Please dial (514) 392-9193 or 866-696-5911 (Canada US) or 00-800-9559-6849 (Global Toll Free). A replay will be available at (514) 861-2272 or 800-408-3053, passcode 2811707# until August 21, 2009 and on the investor relations section of our website at www.cossette.com.

Appendix: Selected Financial Information

               Cossette Inc. - Selected Financial Information
        (in thousands of Canadian dollars, except the number of shares and
                               per share data)

    Results for the 3-month period ended June 30, 2009 (unaudited)

                                                            2009        2008

    Gross income                                          52,100      67,220
    Salary, general and administrative expenses           50,906      56,670
    Goodwill Impairment                                   10,467       4,067
    EBITDA(1)                                              1,194      10,550
    Earnings (loss) from operations                      (11,573)      4,303
    Earnings (loss) before income taxes and non-
     controlling interest                                (11,884)      4,115
    Earnings (loss) after income taxes                   (18,155)      2,997
    Non-controlling interest                                (260)       (818)
    Net earnings (Net loss)                              (18,415)      2,179
    Cash flow from operations (before changes in
     non-cash working capital items)                       1,704       8,202
    Net earnings (loss) per share
      Basic                                                (1.16)       0.13
      Diluted                                              (1.16)       0.13
    Weighted average number of shares outstanding ('000)
      Basic                                               15,816      16,319
      Diluted                                             15,816      16,370


    Results for the 9-month period ended June 30, 2009 (unaudited)

                                                            2009        2008

    Gross income                                         165,129     186,562
    Salary, general and administrative expenses          155,876     164,213
    Goodwill Impairment                                   10,467       4,067
    EBITDA(1)                                              9,253      22,349
    Earnings (loss) from operations                       (8,005)     12,081
    Earnings (loss) before income taxes and non-
     controlling interest                                 (8,013)     12,225
    Earnings (loss) after income taxes                   (15,897)      8,355
    Non-controlling interest                              (1,499)     (1,953)
    Net earnings (Net loss)                              (17,396)      6,402
    Cash flow from operations (before changes in
     non-cash working capital items)                       8,374      17,840
    Net earnings per share
      Basic                                                (1.10)       0.39
      Diluted                                              (1.10)       0.39
    Weighted average number of shares outstanding ('000)
      Basic                                               15,814      16,507
      Diluted                                             15,814      16,577


               Cossette Inc. - Selected Financial Information
                     (in thousands of Canadian dollars)

    Balance sheet

                                                           As at       As at
                                                         June 30,   Sept. 30,
                                                            2009        2008
                                                      (unaudited)   (audited)

    Cash and cash equivalents                             29,134      13,685
    Current assets                                       173,510     225,201
    Intangible assets                                      6,607       5,505
    Goodwill                                             103,545      93,122
    Total assets                                         299,571     348,356
    Short-term borrowings, including bank overdraft            -      37,649
    Current portion of long-term debt                          7          99
    Balances of purchase price of subsidiaries
     (current portion)                                    13,135      14,566
    Long-term debt                                        20,090         219
    Balances of purchase price of subsidiaries                 -         106
    Shareholders' equity                                 121,904     134,212

    (1) EBITDA is not a performance measure consistent with Canadian
        generally accepted accounting principles ("GAAP"). The information
        regarding measures not consistent with Canadian GAAP is contained in
        the Management's Discussion and Analysis filed on SEDAR.

SOURCE COSSETTE INC.