As foreshadowed last year Mathew Freud's long-time business partner and former chief executive Nick Wiszowaty resigned from Freud Communications and its parent company Freud 2.0 Holdings on 31 March.
Wiszowaty is not the first senior executive to leave Freud since Publicis Groupe acquired control in 2005. Kris Thykier left in 2006, company secretary Elizabeth Kiernan resigned in November 2007 and Louis Capozzi resigned in July last year.
Publicis initially acquired 50.1% of the Freud group and bought further slices of Wiszowaty's shares over subsequent years. By March 2008 Wiszowaty had disposed of his entire holding, leaving Mathew Freud with 22.75% of the company and Publicis with the 77.25% majority.
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The trials and tribulations suffered by AIM listed digital advertising sales agency Deal Group Media increased today with the announcement that its recently appointed finance director Tang Mei Lin Zoe has stepped down from her role "with immediate effect". Personal reasons were cited for the unexpected change.
Tang took up the role just seven months ago at the age of 45 after working for several Far Eastern companies including Robert Bosch in Singapore
Chief executive Adrian Moss, who is an accountant himself, will assume the finance function duties. The company made no comment about whether a full-time replacement finance director will be appointed in due course.
Two days ago Deal Group announced another loss, despite having shed its UK operations and expanded into what the company promised would be a more profitable region of Australia and the Far East (see Deal Group increases revenues...and losses).
As we predicted in March (see Revenue up 20% but profit down at WPP), WPP has overtaken Omnicom as the biggest marketing services group in the world. But at the same time the group has warned of lower margins in 2009 as revenues fall below budget.
Boosted by the acquisition of Taylor Nelson Sofres, WPP's revenues in the first quarter of 2009 were $3,035 million - well ahead of Omnicom's $2,747 million. But on a like-for-like basis revenues actually fell by 5.8% and the outlook is even more gloomy: "Given the first quarter overall performance and the preliminary quarter one forecast for the year, it will be difficult to maintain operating margins at the level achieved in 2008", the company said. "The short term focus will continue to be on balancing the likely fall in revenues against staff costs and headcount."
WPP has regularly fallen short of achieving its targeted profit margins and the acquisition of the research business of Taylor Nelson, where margins were normally lower, will not help. However, the group's future performance is likely to be hit not only by lower profit margins and declining revenues but also by extra financing costs. The group is carrying well over £1 billion of extra debt following the Taylor Nelson purchase and this will add a considerable amount to its interest burden despite the currently lower interest rates.
Publicis Groupe is the only other major global business to report any growth in revenues in the first quarter of 2009 (see chart). Its 1.3% rise was very modest and was helped by a substantially bigger contribution from its digital activities. These provided over 20% of revenues in the first quarter of 2009 compared with 17.6% in the corresponding quarter of 2008.
Another of the global players - The Interpublic Group of Companies - announced an 11% downturn in revenues in the first quarter. The drop was less substantial than experienced by Omnicom, but enough to push up its post-tax loss to $73.9 million from $69.7 million in the same quarter last year. Interpublic's operating margin remained very low at 6.2% compared with an industry benchmark of 15% and a lowly 3.9% for the corresponding quarter last year.
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Deal Group Media, the AIM-listed digital advertising group that shed its loss-making UK operations and sought a better life in Australia and the Far East, succeeded in increasing its revenues in the ongoing business during 2008, but increased its losses as well.
Revenues from its continuing business grew by 56% to £14.7 million but the post-tax loss incurred by its continuing business for the year also increased by 37.5% to £2.8 million. Admittedly the loss was exacerbated by adverse currency movements and a provision for the outstanding commitment on leasehold premises formerly used by its UK operations.
"The board expects to be trading profitably by the end of the current year and are continuously assessing the sufficiency of cash resource", commented chairman David Lees.
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Omnicom Group's revenues fell by 14% in the first quarter of 2009 compared with its performance in the first quarter of 2008 and the group's post-tax profit suffered a 21.4% fall. Its operating profit margin also slipped from 11% in the first quarter last year to 10.3% this time. The results are the worst in any quarter for at least two years (see chart).
Profits were hit by adverse currency movements that reduced revenues by $252 million and a doubling of finance costs from $11 million to $21.4 million. Revenues from the UK were particularly badly hit as sterling deteriorated against the dollar.
Group cash flow was also negative in the period as the company was less successful in converting operating profits into cash while at the same time suffering a squeeze on its net borrowings.
Yorkshire entrepreneur Anthony Gill has bought 16% of the share capital of Media Square in the last few days at an approximate cost of £415,000, adding to speculation that some sort of deal is in the offing even if Gill is simply a bystander hoping to enjoy an upsurge in share price as a result. Gill's main business interests are in printing, direct marketing and stationery. Media Square initially reported that Gill had acquired a 13% stake, but subsequently amended that figure.
Last year the Irish private equity company Prime Active Capital ("PAC") bought up 21.5% of Media Square's capital for over £6 million. That investment is now worth little more than £500,000. PAC claims to acquire "companies where value can be achieved through improving and reinvigorating management teams". Assuming its shares have been retained - and Media Square's records suggest they have - quite a lot more reinvigoration may be required before the £5.5 million loss is recovered.
Last week Media Square announced the impending departure of its finance director Graeme Burns (see Media Square parts with finance director)
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Media Square's finance director Graeme Burns is to leave the group and his role will be assumed by 58-year-old chief operating officer Bruce Winfield.
Burns is the latest casualty following the arrival of Roger Perry nearly two years ago as the group's part-time executive chairman. He will retire from the board after seven years' service in June and continue with the company until the end of the year.
No plans have been announced for a replacement, leaving open a big question for shareholders about whether the management structure will be adequate for a public company. After Burns' departure the group's top management will comprise a part-time executive chairman without a separate chief executive, and the roles of finance director and chief operating officer will have been combined into one.
Winfield joined Media Square when the group acquired Arnold Interactive from Havas in 2004. At that time Winfield was chief executive of Arnold in the UK.
European-based digital marketing and technology agency LBi International boosted its profits in 2008 by including an exceptional gain of £1.4 million on the disposal and/or liquidation of group companies. The group's accounts, published last Friday, show that without that gain the group's 2008 pre-tax profit of £6.5 million would have remained virtually unchanged from the £6.4 million reported for 2007, despite an 8% increase in revenue.
One contributor to that static result was the absence of the hefty currency gain that had boosted profits by £1.3 million in the previous year.
"This action was taken as a consequence of the deteriorating economic climate and the headcount reduction has been explicitly targeted at the Central European and American regions where LBi anticipates further pressure on the top line", the company said.
AIM listed The Mission Marketing Group is in discussions with its bankers about restructuring its borrowings to satisfy all the short-term financial obligations it faces. "Negotiations are at an advanced stage", said chief executive officer Iain Ferguson today, "and an agreement has been made in principle." Nevertheless the company acknowledged that the negotiations have not been finalised.
At 31 December the group had short-term liabilities that exceeded readily realisable assets by £7.3 million. Much of that shortfall related to acquisition earnout commitments due within one year. So the group has also been renegotiating the timing of outstanding acquisition payments with some vendors.
Notwithstanding these short-term funding delicacies, Mission was able to report a 21.5% increase in operating profit for 2008 on a 29% increase in revenues. As a consequence the group's operating profit margin declined slightly from 22.5% to a still very healthy 21.2%. Profit after tax was £7.2 million compared with £5.3 million in 2007.
Tentative signs that the London stock market is stabilising may be drawn from the 8.4% rise in the FTSE All-Share Index during the month to 12 April. Among marketing services companies the share price movements were anything but consistent, although several companies experienced healthy price rises.
The best movers were M&C Saatchi (up 45%), Motivcom (up 38%), Huntsworth (up 29%), Chime Communications (up 27%) and Creston (up 24%). Aegis Group put on a 19.6% rise as the market continued to anticipate some sort of deal being hatched by its new executive chairman and advisers Merrill Lynch, while Havas chairman Vincent Bolloré uttered surprisingly conciliatory noises and was reported to have withdrawn his long-standing demand for board representation.
The share price recovery at M&C Saatchi was to be expected after its preliminary results contained nothing to justify the extent of earlier share price falls (see Stock market less than euphoric as M&C Saatchi almost doubles shareholders' return). Similar comments could be made about Chime.
Huntsworth shares benefitted from a combination of factors. During the period it was busy buying back shares that were coming on the market after being dumped by institutions that were tracking the FTSE All-Share Index following Huntsworth's eviction from the Index last year. Simultaneously Huntsworth reorganised its share capital so that its depressed share price would no longer be less than the 50p face value. More recently it published its preliminary results for 2008 which, after a little unravelling seemed to tell a fairly encouraging story. After stripping out gains and losses on disposal of various businesses (and otherwise ignoring listed companies' habit of excluding certain so-called "highlighted items" from what the regulators define as profit) and after substituting a standard rate of tax, the current share price represents a multiple of about 10 times historic post-tax profits despite the gloomy economic outlook.
The previous decline in Motivcom's share price was perhaps an over-reaction to the warning last November that profits would fall well behind those of 2007. Its results seemed good enough to support the current price assuming business doesn't plummet further. However, analysts will not have been too pleased to learn that Motivcom had overestimated the value of net assets acquired when it bought Protravel in 2007 and that too may have affected the share price. The future remains very uncertain and implicit in the current share price is a further decline in 2009. That price represents a multiple of only about 6 times last year's post-tax profit.
We should all be feeling just a little bit sorry for Andrew Robertson who runs Omnicom's BBDO network worldwide. He suffered a near 60% cut in remuneration last year and had to manage with just $1.85 million. A small proportion of that was in share awards and doubtless he earned every penny of the cash that he did receive.
Overall Omnicom's five senior executives received $20 million less in 2008 than in 2007. And, if they hadn't suffered that collective fall, the group's operating profit in 2008 would have shown minimal improvement on 2007 - at $1,669 million against $1,659 in 2007.
Chief executive John Wren's package dropped from $10.4 million to $3 million and his colleagues experienced similar reductions as bonuses and stock option awards fell dramatically.
Burst Media, the US-based online advertising sales business, has reported another operating loss in what is becoming a tradition of doing so. The operating loss for 2008 was $377,000. The post-tax loss was $274,000. Revenue and gross income were static.
Burst has recorded an operating loss in every year since its shares were admitted to AIM in London in 2006. Before that date the group had already run up losses of $10.3 million although it did deliver a profit in each of the two years immediately prior to admission.
Understandably eager to show its performance in a good light, Burst points out that its operating loss for 2008 was calculated after charging $283,000 spent on "strategic alternatives" and another $192,000 for share incentive arrangements. Without those items, there would have been an operating profit of $201,000. But there wasn't.
On 3 March Burst announced that it had rejected an initial takeover approach from an un-named source although it did not rule out the possibility of an improved offer (see The Burst "not for sale" game continues). The bidder has now withdrawn its expression of interest completely.
The Burst board anticipates a "very challenging year" ahead.
Dentsu, Japan's largest publicly listed marketing group, has today announced a further £275 million (¥40,883m) write-down in the market value of certain securities following the recognition by Dentsu that "recovery of market prices is uncertain".
The massive write-down is expected to wipe out any prospect of a profit being reported by the group for the year to 31 March 2009 although Dentsu is currently compiling an updated forecast of the likely out-turn. The company plans to make an additional announcement as soon as its latest forecast becomes available. Only eight weeks ago Dentsu halved its forecast profit to £74 million (¥11,000m).
In January Dentsu revealed that it would be making a provision of £64 million (¥10,117m) in respect of the falling market value of its investments (see Dentsu writes £64m off its investments). The further provision now being made is beyond what anyone seemed to have expected.
It may be no more than coincidence that, within months of John Napier taking the helm at Aegis, the company has announced that three out of six non-executive directors are to stand down at the next annual general meeting on 22 May. Even more of a coincidence is the fact that two of the three were born in France where potential bidder Vincent Bolloré also resides.
The departing directors are Daniel Farrar, Bernard Fournier and Leslie Van de Walle. Aegis says it is actively searching for replacements, but perhaps it might have been better to have found at least some of those replacements before announcing the departures.
Fournier's retirement at the age of 69 is understandable enough, but his departing colleagues are still a youthful 47 and 51. So is there more going on behind the scenes than the bland press release implies?
BOB WILLOTT
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