STW reports $50m loss after huge write down of business ahead of WPP merger
STW Group, parent company of agencies including Ogilvy and Ikon, has reported a net loss of $52.6m for 2015 after making massive write-downs to the value of some of its businesses after what it described as a difficult year.
While the company reported an underlying net profit after tax of $39.6m it has wiped $92m off the value of some of its assets, as it prepares to seal a merger with the world’s largest marketing services holding group, WPP.
CEO Mike Connaghan also used the full year results to confirm that once the merger with WPP is complete, the STW name will be retired and the group will operate under a new brand in alignment with WPP.
STW saw revenues remain flat, up just 1.6% to $416m, which saw the underlying net profit slip 13% on the previous year, as the company undertook a review to shed and merge many of its businesses.
That included divesting interests in The Conscience Organisation and Adelaide agency Jamshop. It also merged media agency Ikon and creative shop Moon to create a full-service agency.
The company reported business close down and other one off costs of $2.1m and strategic review costs of $3m.
Earnings before interest, tax, depreciation and amortisation were $76.8m, down 7.8% with a reported margin of 18.5%, down slightly on the 2014 financial year which was 20.3%.
CEO Mike Connaghan said while the result capped a difficult year, it had set the company up for a stronger 2016.
“There is no doubt that 2015 was a challenging year for the company with flat revenues and a decline in underlying earnings,” said Connaghan.
“We have, however, delivered on our guidance provided in August 2015.
“After a disappointing finish to 2014, the company undertook a strategic and structural review during the course of 2015 and made tough decisions to restructure the business.
“The changes are designed to allow STW to meet the challenges faced in the current trading environment and to position STW for future growth.”
Connaghan said that much of the negative impact on STW’s books had taken place in the first half of 2015 and that organic growth through existing clients, having them work with more STW businesses and cost cutting measures had seen underlying improvement in the second half of the year.
“If you look at half-on-half performance the second half does undine the momentum we have coming it 2016.”
Second half EBITDA was 21% in the six months to December and the group also achieved positive organic revenue growth.
Connaghan was also bullish about the impact the WPP merger will have on the fortunes of the group, and he said with current combined revenues of $850m he expected it to quickly grow to $1b.
“STW will become the primary operating vehicle for WPP in Australia and New Zealand,” said Connaghan.
He also addressed speculation about reporting lines and management continuity, with WPP’s current ANZ operations reporting to STW’s management, and STW management now firmly in place.
He said WPP was looking forward to having “agnostic country leadership” that would would be focused on managing its assets in the region.
Cost synergies of $15m per year will also be realised over the first three years of the merged entity.
He highlighted some of the brands STW was keen to work with including Y&R, research specialist Kantar and digital brand VML.
In particular, he said he saw Grey as a business that could grow under the management guidance of the STW team.
“There are hidden jewels within these groups and immediate opportunity for our clients to drive efficiency and reduce complexity,” he said.
The merger with WPP is expected to be approved at an extraordinary general meeting of shareholders to be held in March and based on the impact the merger will have, STW did not give further guidance.
Simon Canning
And the surprise is… ….there’s no surprise.
Shareholders should roast this incompetence.
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I find it extraordinary that for a company that performed so poorly, Connaghan’s remuneration package (Remuneration Report – p17) is listed as $942k in 2015. An increase from $913k in 2014.
That’s an absolute travesty given the FY2015 results. What was the board thinking?
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“In particular, he said he saw Grey as a business that could grow under the management guidance of the STW team.”
Just like the fantastic growth experienced by current STW agencies?
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Around 9 years in the role – has presided over unacceptable results throughout, yet still pulls around $1million a year.
Sir Martin, I can achieve results like this, and I’ll only charge you $750K.
Win. Win.
Do we have a deal?
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Michael took over the top job at this company at an extraordinarily difficult time following the years of acquisition and as the market changed rapidly, left him with a very difficult task. Rather than be critical, not to say picky, I’d suggest he’s done a very good job to steer the show to the results he’s achieved, against the tide. There’s many who would have folded under that pressure, but not Connaghan.
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@Alan I think you’d find that in the era post Singleton & Tate, acquisitions increased under Connaghan. Some of those acquisitions have now been exited, written down or merged into oblivion (I.e the one great Moon). The Asia strategy which was driven by Connaghan and Savage achieved none of the growth it promised. Sorrell himself has heavily criticised it. Meanwhile, agencies like Ikon & Ogilvy have faltered through constant management changes and key client losses. Then there’s the various village models that Connaghan & Savage pioneered – from CBA to NRMA, Myer and Vodafone. Not one of those models held on to the business or produced anything memorable for any considerable time.
I’m not sure this rap sheet can be considered ‘a very good job’.
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Are the numbers lying then?
Or are you saying that’s a good result?
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STW are yesterday’s news, they are not convincing any stakeholders (their own agencies included) that anything about them is any way progressive.
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Agency holding companies and agencies themselves are about to endure a slow, painful death. Adtech giants — Facebook, Google, etc. — are slowly crushing them. The writing is on the wall for all concerned.
Business don’t need bloated digital agencies creating posts on Facebook. People are watching less TV and blocking more pre-roll ads. Nobody has emotional connections to banks (if they, in fact, ever did).
The evidence is borne out in the profits — Facebook could buy IPG, Omnicom, WPP and Publicis with once quarter’s profits.
Agency kids: Get out while you still can! Take a client-side job or a role at a tech company and never look back!
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