STW chief Mike Connaghan says group ‘let down by a few’ as internal review continues
Connaghan
Senior management at STW Communications Group have delivered a withering assessment of its dismal 2014 performance with chief executive Mike Connaghan admitting the company was “let down” by some of its agencies.
And worryingly, STW admitted 2015 has not started well with its year-to-date trading hit by the continuing poor performance of a “small number of companies”.
Connaghan told shareholders at its annual general meeting today that its return last year was not good enough. “We were let down by a few, the leadership of those businesses has been changed,” he said.
While Connaghan stopped short of identifying which businesses had under-performed, media agency Ikon is among those known to have struggled with chief executive James Greet stepping down in January after just 18 months in the role “to pursue other opportunities”.
Connaghan said a strategic and structural review of STW is “well underway”. It holds interests in agencies including creative agencies Ogilvy, JWT and The Brand Agency, media agencies Maxus, Mindshare, Bohemia and Ikon Communications and PR agencies including Ogilvy PR.
The review was triggered following a gloomy 2014 financial result which saw underlying after tax profits slide almost $4m to $45.6m, a result which saw saw its share price collapse and wipe $100m off its value. A year ago the share price stood at $1.29, while today it is half that, at 64.5c.
Connaghan described its business win/loss ratio as poor in a year which saw Ogilvy lose the Myer account and Ikon fail to hold on to Coca-Cola and Diageo.
In addition, he admitted there was “not close oversight of business to ensure growth”.
In a candid address to shareholders, chairman Robert Mactier admitted 2014 was a “very disappointing” year and “well short of our expectations”.
“We continue to have to confront challenging industry dynamics and weak consumer sentiment but, no excuses from us. As a whole the results were well short of our expectations. Full stop,” he said. “We are committed to doing a better job of capitalising on the strengths of the STW Group.”
But early signs do not appear encouraging with Mactier revealing the group’s performance is being undermined by some subsidiaries.
“We continue to operate in challenging markets but we are pleased that the majority of our companies are trading well,” he said. “Disappointingly a small number of companies are still continuing to report poor results and these companies have unduly impacted on our overall year to date trading performances.
“Remedial action to drive enhanced performance from those companies is on-going and coupled with the potential benefits that we expect to unlock through the strategic review this augers well for the medium term.”
He warned that 2015 will be a “transitional period” and stressed to shareholders the management team is “well aware that change and improved performance are required”.
Mactier also sought to reassure the AGM that STW will not need to raise capital – a fear raised by nervous shareholders concerned about the level of debt.
While management “shares the concern”, Mactier said its renewed focus on delivering results and its “excellent commercial banking relationships” meant it did not anticipate any need to raise additional equity.
Connaghan expanded on STW’s current trading, telling the AGM that its performance was “marginally behind” last year. However, he added the performance was “cycling over the full year effect of the loss of some major contracts in 2014”.
He warned shareholders not to expect any improvement in its financial fortunes this year with earnings and after-tax profits likely to be in line with 2o14, before restructuring costs.
“It is our expectation that whilst we are incurring costs related to the strategic review, the benefits associated with the restructure will not be realised until late 2015 and have a full year effect in 2016,” Connaghan said.
Outlining the strategic review, the CEO said it was focused on “evolving our strategy for growth” and would provide management with “better and earlier insight” into its divisions which are “under stress”.
He said STW has brought new partners into the group and also flagged the future development of its own data hub, a project being driven by chief strategy officer Rose Herceg who joined in March.
Connaghan said STW will provide the market with an update on the review next month but stressed it was “on the front foot in delivering and executing a strategy that allows STW to achieve its potential”.
Turning to positives during the year, Connaghan singled out Lawrence Creative’s work on the Qantas Welcome Home brand campaign and DT Digital’s collaboration with Tourism Australia on the relaunch of the agency’s Australia.com web platform.
He added STW remains the “dominant player in the market”, claiming it has a market share of 8.4 per cent, ahead of Publicis (6 per cent), Omnicom (5.7 per cent) and WPP (5.4 per cent).
Meanwhile, Connaghan named South East Asia-based Aleph as its business of the year.
Steve Jones
Can someone please buy STW and run it properly.. always falling short of profit guidance, and now profits going backwards year on year. Very surprised WPP hasnt already made a play to mop them up (or maybe they are waiting for another year of missed earnings / share price to fall even further)
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Why doesn’t the board start questioning Mr Chief Executive?
He’s the leader. That’s his job. To lead. He’s responsible. If things start to go south, he’s the one who’s paid to nip it in the bud. He’s the one who’s suppose to stop it all going south. Hello, that’s the price of being the leader.
Washing his hands of it and saying, ‘oh I was let down by a few’ is like a parent who’s got a few kids putting brick through windows saying ‘oh, I was let down by a few. But look at my other 3 kids. Look at those finger paintings!’
It’s an Australian thing, isn’t it? ‘Don’t question the boss, be afraid of the boss.’
But in the States, which is probably a little too strong the other way (always blaming the boss), throwing people you hired – and that you are responsible for – as a way to absolve yourself of any responsibility would be akin to handing in your resignation letter. Imagine the backlash if a CEO took this route in the States.
Why don’t we ask some obvious questions:
* Mike, are you the leader of this organisation?
* Mike, arn’t you responsible for their performance?
* Mike, isn’t it your job to hire leadership and manage the units that ‘let you down’?
* Mike, as leader would it be fair to say you let those units down?
* Mike, as leader of this organisation, what exactly do you think you are responsible for, in terms of managing everyone?
* Mike, how would you actually evaluate yourself on the handling of these individual units over the last 12 months?
Those a questions, if we we’re living in the USA, we would be asking and we would be getting answers to.
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The directors are delusional. Connaghan says they’re “marginally behind” last year. His own press release confirms the share price has gone from $1.29 last year to 64.5 cents. On share price actual performance is down fifty per cent.
The business model of aggregated integrated marcomms agencies may have been sound twelve years back when Russell Tate started buying up business units. Sizeable share of market works in packaged goods, not in the game STW are in now. Their business model went past its use-by-date, they just won’t face it.
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Tomas, those 70 odd companies in STW have well paid MDs to look after the nuts and bolts and keep the $ rolling in, all Mike can do is go on what they say and bin them if they don’t deliver – he’s not there to run 70 companies single-handedly.
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You’re making an irrational switch.
No one suggested he should run 70 companies single-handedly.
No one suggested he should deliver a bouquet of bananas on the second Tuesday of every month.
His job is to run the company, which means managing the managers.
ps Ill take your tactic: his job isn’t too just sit in a chair and wait for his managers to report (you didn’t say that, did you? But see what I did there?)
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Stevo, his job is to manage. Not the nuts & bolts. Just manage. He’s the leader.
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He’s like the coach of a footy team – he’s got a few players who aren’t doing very well, other players who are doing great, the team is behind on the ladder and needs he to fix that and start winning matches.
If in time he doesn’t fix that and get results, the team owner (board) will review his position. But right now, he’s changing up the strategy and playing field and looking for wins.
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