STW stays positive despite reduced profits and asset writedowns

stw1Australian marketing behemoth STW has announced a $15m write down of the value of three of its investments – although it has declined to say which ones.   

The accounting exercise, combined with the cost of moving headquarters from Sydney’s CBD to St Leonards, contributed to a drop in reported profits of 60% to $17m for 2008. STW is one of Australia’s biggest communications groups, with 3000 staff and 70 companies.

However STW said that its underlying net profits were only down by about 6%, and revenues were up, while the office move will save money in the long term. STW also signalled it will be pushing hard on underperforming companies within the group.

It added: “The result has been impacted by the non cash writedown of three of STW’s investments in operating companies.” A spokesman for STW told Mumbrella that it would not be disclosing which the companies were. However, the group said that the writedowns were because of “conservative” accounting practices, adding they did “not alter our confidence in the future prospects of these operations”.

CEO Michael Connaghan said that if accounting regulations allowed the company to write-up assets that were now worth more, that would have added $200m to the company’s books.

But he acknowledged: “Certain investments did not deliver to expectations. We are keenly aware of the companies involved and the remedies needed.”

However, he said that although STW was “well placed to weather the storm” it would not be publishing guidance on its likely performance in 2009. He also pointed towards merging companies within the group “to create scale”.

He said at a briefing: “STW is well positioned to work through this economic tsunami and emerge an even stronger industry leader.”

Among the ad agencies that he singled out as having had a good year were The Brandshop in Sydney, the Brand Agency in Perth, Junior in Brisbane, Badjar Ogilvy in Melbourne and Jamshop in Adelaide. He said Ogilvy in Sydney and Auckland had had a “tough” year.

And he said that replacing the Vodafone account lost to Clemenger BBDO would be a “focus” for 2009. The account had been handled by One Barrack Street, a unit run by STW to service that client.

Most of the companies in STW’s diversified unit did well, although Connaghan added: “Digital, promotional and relationship marketing did not.” He added: “We are making changes and adjusting to the new reality of a maturing digital market place.” There are 19 agencies within that unit including minority ownership of New Dialogue and the White Agency; Newgency, and several Ogilvy digital brands.

He also singled out the production and media group – up 9% – for praise as a “fantastic” result. This includes media agency Ikon, half of Mindshare and production house Plush.

However, the specialist communications group was down by 23%, which he said was “driven by a couple of companies”. The companies in the group are International QuarterBack, Assignment, STW Sports & Events, Straterjee, Phuel and Massive. It was unclear which ones within that list he was referring to.

He said: “Our focus in 2009 is to drive our existing portfolio hard, to help our clients go to market in a more compelling and effective way, manage our costs and win more than our fair share of the market we face.”


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