Huntsworth pre-tax profits fall 20 per cent in 'turbulent' year

Global PR group Huntsworth saw pre-tax profits fall by around 20 per cent in 2014, driven by operating margins almost halving at its Grayling agency.

Paul Taaffe: New Huntsworth CEO started his role this month
Paul Taaffe: New Huntsworth CEO started his role this month

Like-for-like revenue declined in three of its four divisions in what it called an "unusually turbulent year", when overall revenue fell from £171.1m to £164.7m.

New CEO Paul Taaffe has begun a strategic and operational review of the business, Huntsworth said this morning.

Like-for-like revenue dipped by 0.9 per cent and operating profit fell from £23.6m to £18.2m.

Like-for-like revenue in Grayling fell 6.3 per cent to £70.8m, with declines "steepest in the UK, Europe and USA with the associated margin shortfalls being most acute in Western Europe". Operating margin at the agency fell from 14.3 per cent to 7.7 per cent over the year.

Huntsworth has set an impairment charge of £65m relating to Grayling, whose CEO Pete Pedersen resigned at the start of 2015.

The group said of the agency: "European markets continue to be very challenging. Almost 60 per cent of Grayling’s revenues are still earned in the UK and Europe and we have recently re-organised Grayling’s management structure under new leadership in Continental Europe. Additionally, Grayling USA has re-organised its government relations and direct government lobbying business to concentrate on the growth sectors of public affairs and digital advocacy."

A programme to close or dispose of underperforming "non-core" assets in Grayling began in the first quarter of 2015.

"We consider that improvement in Grayling will take longer than expected, requiring far stronger conversion rates globally in order to grow revenues," Huntsworth said.

Like-for-like revenue fell 4.4 per cent to £12.3m at its Red agency. Operating margin fell from 24.2 per cent to 20.9 per cent and operating profit was £2.6m.

Huntsworth said return to growth at Red was impacted by "major project delays and new business wins coming on stream later than anticipated". "However, the agency ended the year winning in excess of £1 million in new contracts, including leading airline Emirates. As a result the agency is projecting a return to growth in 2015."

Citigate saw like-for-like revenues fall 3.7 per cent to £21.9m. Margins were 20.4 per cent (2013: 20.3 per cent).

Like-for-like revenues in the London and European business fell by around six per cent, with margins maintained at around 20 per cent. Huntsworth said the value of Citigate’s goodwill should be written down by £6.5m "as the outlook for sustained growth in London in particular continues to be challenging".

Citigate’s Asia Pacific division fared better with like-for-like revenue growth of 6.4 per cent. It represents almost 20 per cent of Citigate’s revenues, with the region completing a number of IPO and M&A assignments in the year including Pteris Global Limited, PACC Offshore Services Holdings and Accordia Golf Trust.

More positively, revenues at Huntsworth Health grew 8.4 per cent on a like-for-like basis to £59.7m, with margin growing from 20.5 per cent to 20.8 per cent.

Digital revenues grew at 22 per cent and the agency's top client delivered £5.8m revenue in 2014, compared to the top client in 2013 which delivered £4.4m. Huntsworth said new business momentum at the agency is "solid" at the start of the year, "and the expectation is for continued organic revenue growth with sustained operating profit margins in 2015".

Huntsworth expects the agency to "deliver rapid revenue growth" over the next three years and "begin to deliver solid margins as it reaches critical mass". "Huntsworth Health is also growing revenues in the expansion markets of the Asia Pacific and the Middle East working closely with Grayling under a partnership called Grayling Health."

The results following a tumultuous period at Huntsworth, which has seen the resignation of CEO Lord Chadlington and chairman Lord Myners and the appointment of their successors, Paul Taaffe and Derek Mapp respectively.

In a statement, the group said this morning: "Huntsworth has been through an unusually turbulent year with the expectation of further re- organisation in 2015.

"While we have been subject to significant change in the composition of the group non-executive and executive team, some trading - notably Huntsworth Health - has been particularly strong. Grayling, however, has continued to find trading conditions challenging in Q1 2015 and, despite the early reorganisation of its North American business, has not won the mandates which were expected.

"The proposed cut in dividend is reflective of the downturn in profit performance for the year and its continuation into 2015."

Taaffe's review of the group is due to report at Huntsworth’s 2015 interim results, the company said.

Mapp said: "I took on the responsibility as chair of Huntsworth in December 2014 in the knowledge that 2014 was a year of fundamental change for the group. During the past year, there have been significant leadership changes at board, executive and divisional levels that have inevitably been disruptive and distracting. It is a tribute to our teams across the whole group that these changes did not deflect them either from their good work on behalf of our clients or from their abilities to service and win new business."

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