Huntsworth announces £48.8m writedown as pre-tax profits fall almost one third

Huntsworth has announced a impairment of £48.8m ($75.3m) on Grayling and Citigate this morning, following another challenging trading period with pre-tax profits falling almost one third from £7.7m to £5.3m in the first half of 2015.

Huntsworth CEO Paul Taaffe: "Every business has been reviewed"
Huntsworth CEO Paul Taaffe: "Every business has been reviewed"

Huntsworth said it closed five Grayling offices globally during the first half, and co-located another within Huntsworth Health, as part of a wide-ranging group restructure. It said there had been a "realignment of roles and structures throughout the group", affecting more than 100 positions at Grayling.

Like-for-like revenue across Huntsworth fell 0.7 per cent in the period, with a decline of 8.8 per cent at Grayling and 7.2 per cent at Citigate. This was mitigated by growth of 10.3 per cent at Huntsworth Health and 0.7 per cent at Red.

Revenue grew from £83.1m ($128.2m) in the first half of 2014 to £83.2m in the same period this year. Operating profit fell from £8.9m to £6.3m, and operating margin before central costs fell from 10.7 per cent to 7.6 per cent.

Huntsworth CEO Paul Taaffe said Grayling had been a particular focus during the half-year as part of his strategic review. As well as office closures and staff redeployment, there had been new leaders in Continental Europe, the UK, Dubai, Seattle, San Francisco and Singapore, as well as a newly created position of global creative director, and a new CFO for the division. In June Alison Clarke announced she was stepping down as Grayling UK CEO.

Taaffe said the process of reducing central costs had also begun, "with the results expected to be seen in 2016".

"While revenues in a number of Grayling operations across Europe and the Middle East are now growing, returning Grayling’s UK, US and Asia operations to growth requires further work. In light of the continuing challenges encountered in the first half, it was clear that we needed to readdress the carrying value of Grayling’s goodwill, leading to a further impairment of £38m."

He said Citigate had seen a fall in both revenue and margin in the first half of 2015, and a goodwill impairment of £10.8m on the agency was agreed.

Taaffe, who became CEO in April, said his main focus for growth would be Huntsworth Health, which generated revenue of £35.2m in the first half with operating profit growth of 14.8 per cent.

He said there were a "number of opportunities to expand into new markets and geographies". "We are establishing a new Huntsworth Health presence in Shanghai, have begun to expand Grayling into Africa with the opening of a new office in Kenya, and we further expanded our Middle East presence with new offices in Oman and Abu Dhabi. Red has created a deeper digital content capability."

Taaffe added: "Our focus in the first half of 2015 has been to improve the competitiveness of all operations in the group. Every business has been reviewed to determine which businesses are delivering, or could deliver, sustainable profit growth.

"The impact of the restructuring actions already implemented, and the reinvestment of some of the savings, should see Huntsworth Health continue on its double-digit growth trajectory, and Grayling return to stronger profitability as it exits 2015."

Speaking to PRWeek in April, Taaffe said he expected the business to return to growth within one year. He said "every option’s on the table" for his review of the business after a 20 per cent fall in pre-tax profits in 2014, a year that saw the departure of CEO Lord Chadlington and chairman Lord Myners.

Earnings per share at Huntsworth fell from 1.8p to 1.2p in the first half of 2015, and the interim dividend halved to 0.5p per share.

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