STW sees "disappointing" results: flags 2014 client losses

Rachael Micallef
By Rachael Micallef | 13 August 2015
STW CEO Michael Connaghan

STW has reported a 22.5% drop in net profit after tax (NPAT) of $15.1 million from 19.5% in the prior corresponding period as a result of “significant client losses” last year, in its half year results.

The group's underlying earnings before interest, tax, deprecation and amortisation (EBITDA) reached $30.9m down 15.2% from $36.5 million in its 2014 half year results.

While revenue hit $194.4m, a boost of 3.3% from $188.3 million in the prior year, STW CEO Michael Connaghan said the growth was driven by acquisitions with organic revenue dropping by 4.2%

“We knew that the first half of 2015 was not going to be easy as we lost some big client mandates in 2014,” Connaghan said.

“But while we made significant progress in winning new business and our win/loss record has improved, it has not bridged the gap to make up for significant client losses last year.”

The company lost clients including Myer, Diageo and Vodafone last year. Connaghan told an investor presentation this morning that the reasons why companies lose business vary dramatically but it has an eye to build up new clients to get its individual companies back to organic growth.

“You lose business for lots of different reasons and what it does do for those businesses that have lost those contracts is it gives them a steely determination of replace that work,” he said.

“We have people that are very specialist and understand the beer business or the telco business as well as anybody in the industry and certainly as well as many of the clients.

“So it's a matter for those businesses to get themselves off the ground, dust themselves off and replace that business.”

STW has been undergoing a strategic review as it looks to improve business performance following a turbulent period for the company. The strategic review has included a focus on what it calls “Fewer, bigger, better businesses” which has include the creation of Ikon Group through a merger of Moon and Ikon and the recent creation of Ogilvy Brisbane after JuniorCru was absorbed into Ogilvy.

In addition, its strategic review included the creation of its 14 person executive council (EXCO) with oversight of its companies and stronger affiance management of operating companies.

As a result of the strategic review, Connaghan said STW “remain entirely confident in our new strategy.” The group noted that with much of the review completed, the one-off costs related to it have largely been incurred in the first half of the year, with the benefits expected to accrue in the second half of the year.

For its full year outlook the group expects its full year underlying NPAT to be circa $40 million.

“The first half of the year has been disappointing, however, the tough decisions we have made and costs incurred will begin to deliver benefits in the second half of the year,” Connaghan said.

“The expected 2015 full year profit will still be behind our 2014 result but certainly the trajectory is headed in the right direction. By 2016 we should see the full benefit of the cost out program associated with the strategic review.”

"We remain entirely confident in our strategy. We now need to focus on the speed and intensity of our “execution,” Connaghan said.

“It is tough, but our strategy, the business, the clients and the talent in the Group will see us through and return STW to growth.”

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