Huntsworth pre-tax profit rises 21 per cent in improved first half

Huntsworth has reported an improved performance in the first half of 2016, with pre-tax profit rising 21 per cent to £7.3m ($9.5m) on the back of revenue growth in three of its four divisions, although Grayling continued to struggle.

CEO Paul Taaffe: Momentum at Huntsworth Health will offset Grayling performance
CEO Paul Taaffe: Momentum at Huntsworth Health will offset Grayling performance

Revenue rose four per cent to £86.6m ($113.2m), with growth of 0.3 per cent on a like-for-like basis. Growth was led by Huntsworth Health, where like-for-like revenue rose 11.4 per cent. Like-for-like growth at Citigate and Red was 4.4 and 3.5 per cent respectively.

However, growth was mitigated by Grayling, where like-for-likes fell 14.7 per cent amid the continued restructuring that saw the agency make significant changes in the US in particular, including exiting its US state lobbying business.

Huntsworth said its UK PR businesses are seeing "some client uncertainty" following the EU referendum vote, although there has been "no trading impact as yet".

Huntsworth has been in a period of recovery under CEO Paul Taaffe, who joined in April 2015 following the departure of senior figures including founder/CEO Lord Chadlington and chairman Lord Myners.

Taaffe said today: "Over 20 per cent profit growth in the first half is a product of accelerating growth at Huntsworth Health, Red and Citigate Dewe Rogerson. The final phase of restructuring is now underway at Grayling, which should deliver upside in 2017.

"Business momentum in Huntsworth Health remains strong, especially in the US, which will offset the impact that the Grayling restructure imposes on growth and any potential fallout from the uncertainty created by the UK's EU membership referendum vote."

Divisional overview

At Huntsworth Health, H1 revenue rose 18 per cent to £41.5m ($54.3m), with operating margins improving from 18.7 per cent to 19.4 per cent. The firm said growth is being driven by the US, highlighting its PR agency Tonic Life among the strong performers.

"New business momentum remains solid going into H2 with recent large global wins," Huntsworth said. The period saw the division open a marketing comms agency called Firsthand, a consulting group called TraverseHealth Strategy, and a new Evoke Health office in Santa Monica.

Revenue at Grayling fell 12.4 per cent to £27.8m ($36.3m), and the agency reported a loss of £0.1m ($0.13m) in the period, against a profit of £0.7m ($0.9m) in H1 2015.

Huntsworth said Grayling is being "refocused" to "ensure it exits 2016 in profit" – restructuring will be "substantially completed" in the second half. However, it announced an impairment of £15m ($19.6m) following the "underperformance" in H1.

The US arm continues to see net client losses in its PR and lobbying businesses as it exits its traditional smaller and higher-churn client base, Huntsworth said. "The US is consolidating and simplifying its model over the next six months, exiting its state and local lobbying activities, in order to pursue higher value PR budgets, digital marketing and branding opportunities, positioning it for a return to growth," it said.

However, in Continental Europe, Grayling is starting to "realise the benefits" of leadership changes in 2015. The UK business is also "beginning to make progress" by retaining "a number of major clients and generating positive net new client wins".

H1 has been a "difficult trading period" in META, with the loss of a "major client" and the end of one of its biggest projects.

Revenue at Citigate rose 6.9 per cent to £10.7m ($14m), with margins rising to 15.1 per cent against 14.7 per cent in H1 last year.

Like-for-like revenue in the UK was 5.3 per cent, although margins there were slightly lower due to "talent investments". Citigate’s financial arm opened in New York in the period, with that office "already contributing positively to the division".

However, like-for-like revenue in Continental Europe fell 1.7 per cent, with Huntsworth citing "tough comparatives in the Netherlands", while revenue growth in Asia Pacific was six per cent on a like-for-like basis. New clients won in H1 included Accor Hotels, British Sugar and Hotel Chocolat in the UK; FXTM in the UK and China; and Biophytis, Adisseo and Eurosic in France. 

Revenue at Red rose 3.5 per cent to £6.6m ($8.6m), with operating profit up 10.8 per cent to £1.2m ($1.6m) and margins up by 1.2 percentage points to 18.2 per cent. New clients in H1 included Spotify, Total Jobs and Sanofi.

Meanwhile, Paul Richards, an analyst at Numis Securities, described Huntsworth's performance as "encouraging in most areas", with profit growth in line with his expectations.

Richards said he "continues to view the shares as offering strong value at current levels".

Click here to read PRWeek’s interview with Paul Taaffe from October 2015.

* Pre-tax profit figures exclude factors such as goodwill impairment, restructuring costs, and costs related to acquisitions.

* This article was altered on Wednesday morning with comments added from analyst Paul Richards.

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