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.