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STW chief Mike Connaghan says group ‘let down by a few’ as internal review continues

Connaghan

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”.

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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.

Screen Shot 2015-05-13 at 1.00.59 pmIn 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.

Screen Shot 2015-05-13 at 1.02.38 pm“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”.

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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 

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