Best of the Week: Wins and losses on the ASX carousel

[View web version]( BEST OF THE WEEK And another thing... August 24, 2019 Welcome to Best of the Week, mostly written on Friday evening at Mumbrella House in Chippendale as we order in pizza and wait for Sydney’s latest trainmageddon to subside. It feels like a lot more than a week has passed by over the last seven days. Last weekend I broke my own rule and went to Olympic Park for Fleetwood Mac. (Thank goodness for Neil Finn - I’m not sure it would have been worth the trek otherwise.) And I was amazed at how packed the Cremorne Orpheum’s 35mm screening of Once Upon A Time in Hollywood was. (Tarantino fans will enjoy it, while his growing band of critics will find plenty to give them more ammo.) Then I broke another rule and watched something inspired by Shakespeare, in the form of West Side Story at the Sydney Opera House. (My life-is-too-short-for-watching-Shakespeare rule is now firmly reinstated.) And by Thursday night, I was breaking my no-bothering-celebrities rule to engage an affable Steve “Commando” Willis in a deeply nerdy conversation about Survivor gameplay strategy at the closing drinks for the Mumbrella Health Marketing Summit. (I wonder if we’ll see him fronting Broken Skull Challenge as the next Ninja Warrior TV network counter-strike.) Meanwhile, there was one major theme dominating the week’s news agenda - ASX results. The main theme of those results shouldn’t surprise you - with a spluttering economy, it’s been a bad year for the communications industry, and there are few signs of an improvement. Those few who’ve done well (Nine, QMS and Enero) are the exceptions. WPP: Waiting for Jens Before we get into the main game of the media companies, let’s start with the agency holding groups. WPP AUNZ achieved the embarrassing, albeit overly dramatic, statistic of delivering [a 2,040% drop in profit for the half](. That might be some kind of record. It came about because after the company’s revenue fell by a still less-than-fantastic 15.3% to $22.6m, it also wrote down the value of its agency brands by $270m. The writedown was to be expected, given the continuing dash to merge and close so many global WPP agency brands, even the great ones. My jaw remains dropped at the decision to take the 155 years of brand equity built into the JWT name and turn it into Wunderman Thompson, for instance. It’s reminiscent of the cultural vandalism demonstrated more than a decade ago when WPP’s Y&R Brands swallowed the iconic Aussie agency George Patterson to become GPY&R. Then Y&R. And now the merger-driven alphabet soup of VMLY&R. There’ve been a lot of mergers in recent years. Digital agency Tongue merged into DT which merged into AKQA which had already absorbed Switched On. PR agencies Burson Marsteller and Cohn & Wolfe merged into BCW. Media agencies Maxus and MEC became Wavemaker. (At least that was a brand, not an acronym.) Brand agency Designworks was absorbed by Landor. The White Agency and Grey became, erm, WhiteGrey. And In the health niche, Greyhealth and Sudler & Hennessey became Sudler. In research, AMR was subsumed into Comar Brunton Not that WPP is alone in failing to treat its brands like brands. As an anonymous Mumbrella commenter said back in March, discussing rival Publicis Groupe’s own woeful efforts at agency branding: “So one of the agencies has been called StarcomMediavest, Mediavest and Spark Foundry in the past few years, and the other has been called Match Media, Blue 449 and now also Spark Foundry. How on earth do they convince clients that they understand brands??!? “Another case of really smart, hard-working agency folk being done in by the utter stupidity of global holding groups.” Locally, WPP has been going harder at the mergers than others. This week’s accounts show it spent $6.2m on closures and mergers over the last financial half year. WPP AUNZ is itself a confusing beast. It’s on the ASX as a local entity, although WPP’s global operation owns 61 per cent of the stock which originally had its roots as John Singleton Advertising and then STW Group. WPP took control three years ago, with former boss Mike Connaghan moving on last October. In the ten months since his departure, there’s not been a single day where the company share price has been above the 77c he exited on. In the three years since the takeover, the $850m business fallen to a market cap of around $500m. Interim CEO John Steedman, who came up through the WPP machine’s media buying arm, does not deserve all of the blame. Although he was admittedly already on the board, It’s hard to be strategic in a caretaker role. And the skills of maintaining buying relationships from the media side are not the same as those required to turn around a giant company in a disrupted industry. I suspect Steedman, who is well liked within the media side of the industry, didn’t expect to be in the hot seat for this long. Incoming boss Jens Monsees, hired for his disruption-friendly, ex-Google background, won’t be starting for another five weeks yet, a full year after Connaghan’s exit. In the face of WPP’s woes, Steedman’s campaign against anonymous commentary on trade press websites increasingly looks, if not cynical, then certainly ill-timed, launching as it did on the day the company’s share price hit the lowest in its history. The moral high ground - that the intention was to protect mental health rather than stifle debate - also looked a little soggy under foot. It emerged that at the time the anti-comment campaign launched, WPP was being sued in two different cases by former executives alleging their health had suffered at the hands of the organisation. Former Mediacom GM [Rob Moore alleges he was wrongly made redundant]( after disclosing a diagnosis of depression. And Carmel Williamson, former MD of WPP’s Team Red, which services client Vodafone, alleges that harassment and a “boys club” culture ultimately led to her being dismissed and in need of psychological treatment. Both cases are still in their early stages and are, it is worth noting, being defended by WPP. And many of the problems for WPP are not locally created. Founder Sir Martin Sorrell created a growth machine which was fuelled by constantly buying agencies (and the clients that come with them), and demanding aggressive returns from his executives. WPP became an increasingly complicated business, which his successor Mark Read is still focused on simplifying. That’s being echoed locally. Then there’s the industry-wide structural decline facing WPP’s two biggest market segments. Ad agencies ain’t what they used to be. And media agencies aren’t either. In Australia, the numbers show a 16.6% fall in headline profit in WPP’s advertising and media segment. The profit margin is a slim 9.9% - nowhere near the 20%+ Sir Martin used to expect. The highest margin now - with a profit margin of 17.7% - is data investment margin. That will be worth exploring another day. I wonder how they’re delivering that, and whether the clients fully understand the process. Not far behind though in terms of margin is public relations, which looks like a well run unit for WPP locally. PR may be relatively small with revenues of $29m for WPP locally, but the $4.8m profit was a margin of nearly 17%. And there are further pressures on WPP AUNZ. Its net debt has risen to $326m. Even if all the $150m from the sale of Kantar was used to pay that down (and there doesn’t seem to be a strategic plan to use the money in a more clever way than that), it wouldn’t clear it. Of course, there’s one more reason for the timing of all this bad news. One of the roles of a predecessor at a listed company - and particularly an interim CEO - is to be a human shield for their successor, who can then sweep in and hopefully show the market some signs of an early turnaround. So I’m sure that Steedman has done Monsees the favour of getting as much of the bad news as possible out of the way now. Nonetheless, Herr Monsees can look forward to one hell of a first day. Enero: The long road back By contrast to WPP, one of the few other holding companies on the ASX, [Enero, is having a good time of it](. Enero’s agencies include BMF, Hotwire, Frank, The Leading Edge and now Orchard Marketing. The company’s share price is currently trading at the highest point since its disastrous near-death experience in late 2010 back when it was still known as Photon Group. Boss Matthew Melhuish has delivered a laborious turnaround since taking the helm in early 2012. It’s been a steady, not flashy, journey. The Enero share price is now 40% up on a year ago. The Orchard acquisition - made in February last year - appears to have worked out well, helping drive up revenues 25% and profits by 53%. Growthops: Hmmm Growthops, aka TGO, or Trimantium Growth Ops is the other ASX-listed holding company that will be worth watching. Its most famous agency is AJF Partnership. It hasn’t yet given an indication to the market on when it will release its numbers. Last year it did so in September. TGO is currently trading at just 44c, well down on its $1.35 peak shortly after listing last year. We received a curious email regarding TGO during the week, as it happens. Somebody seems to be trying to start a rumour that there’s a takeover bid afoot. If the rumour is true, it might drive up the share price. That seems like a big IF though. Seven: The magic table Meanwhile, life is just as tough on the media side of the communications industry. Over at Seven, James Warburton had a hell of a first few days as CEO after last week’s axing of Tim Worner. Tuesday saw Seven West Media’s financial results released to the market. And [they were as bad as expected](, with writedowns seeing SWM report a loss of $444m. Like WPP, it was a chance to take the trash out before the new boss gets properly settled behind the desk. Nonetheless it was a tough first few days for Warburton, with market scepticism that the company has much room to manoeuvre in the mergers and acquisitions game because of Seven West Media’s big debt level. As our editor Vivienne Kelly discussed in [this week’s Mumbrellacast](, Warburton - normally an upbeat type - went through a challenging investors call where he overused the phrase “nothing’s on the table, and nothing’s off the table.” Which presumably makes it Schrodinger’s Table. The challenge for Warburton and Seven now is to move the narrative on. That day Warburton - always a salesman - also wrote to key advertisers and agency partners trying to emphasise the positives; the company still generates $1.6bn in revenue, is still reaches the majority of Australians across multiple media every month and before the writedowns created a scary headline loss number, it generated an underlying profit of more than $200m. Also lost in the noise was another impressive metric. The number which really matters in the TV sales battle is the three-way split in advertising revenue between Seven, Nine and Ten. For all of the challenges of a declining TV market and stalling ratings, the sales team under Kurt Burnette grew Seven’s revenue share to 38.8%. In the circumstances, that was a big achievement. If the wider TV market had happened to be up rather than down then I suspect the market sentiment around Seven might be much better than it currently is. Nine: ASX darling And in the revenue share game, Nine did even better, revealing on Thursday that Michael Stephenson’s sales team has delivered revenue share of an even stronger 39.6%, agonisingly close to that magic 40% mark. (Ten, now owned by CBS, is no longer on the ASX, so we don’t get to see its numbers, by the way. But by deduction, Ten’s share must have been 21.6% - less than its ratings share and symptomatic of the loss of momentum from the shift of sales out to MCN and then back in-house again. Rod Prosser’s sales team still has a mountain to climb, just to get revenue share back on a par with audience share.) But it was Nine’s big week on the ASX, with the market expecting good news and getting it. The company’s market cap is back well above $3bn again. Slightly unexpectedly, the segment which delivered one of the biggest percentage profit growth for Nine was actually publishing, up 65%. It was only beaten by the smaller but faster growing area of streaming video on demand, with 9Now up 87% in profit terms. And while Stan didn’t yet show a profit, it did chalk up a 62% revenue growth. It is worth bearing in mind though that in the year after a merger, it’s not too hard to create growth numbers for the market. This time next year (which seems like a good name for a Nine TV show…) we’ll have a much clearer picture on how good a deal it really was. And while we’re looking into Nine’s future, it might be a tad early to talk about a successor to Hugh Marks just yet, but Michael Stephenson, Stan’s boss Mike Sneesby and publishing head Chris Janz are among those showing that there will be internal candidates when the time comes. Southern Cross Austereo: No love for telly? Nine’s regional TV partner [SCA also reported its results on Thursday](. Profit was down, particularly from TV, although the Boomtown regional marketing initiative does seem to be helping the company at the edges. But as Viv observed in [the Mumbrellacast](, CEO Grant Blackley was a lot more interested in talking about the company’s future in audio rather than television. Noticeably enough that it seemed like a signal. When we have our next round of industry consolidations, I wonder whether SCA will be a seller of its TV stations. Not that Nine would be a keen buyer, I suspect. At the moment the regional affiliates generate straightfoward revenue without the hassle of running the business. I wonder if Antony Catalano’s Australian Community Media would see an opportunity as part of a wider regional rollup. Prime: Hitting bottom Not that regional TV is a licence to print money anywhere. Seven’s affiliate, [Prime Media, also reported this week](. Revenue was down 4.7% to $192m, and profit down 15% to 38m. Yesterday Prime’s share price fell to the lowest in its history. Yep, we’re in a media recession and particularly a TV recession. QMS: Strong result Harder to call though is the out of home sector. After this month’s profit warning from Ooh Media ahead of its official results announcement on Monday, I was expecting the out of home sector to look uniformly bad. But [QMS had a storming result yesterday](, which was all the more impressive in the current media environment. QMS has been the out of home player to most consistently invest in its trade marketing over recent years. I wonder if the two things could possibly be linked. Isentia: is the turnaround starting to work? And while we’re on the positives, media monitoring company Isentia finally had a good set of results yesterday. Its share price shot up 25%, albeit from a low base. Isentia revealed EBITDA profits of $23.1m. There are no signs yet of a return to the days when Isentia briefly looked like it might be a $1bn company, but the ship certainly seems to have steadied. In this market, just getting to stability is a good result. Weekend incoming Time for me to leave you to enjoy the weekend. As ever, I welcome your emails to tim@mumbrella.com.au. And as ever, I apologise for not responding yet to all of the kind notes about last week’s BOTW. Housekeeping note: You can find the full Best of the Week archive on [Mumbrella Pro](. Please do give Mumbrella Pro a trial run if you haven’t already, and let me know what you think. And I’m off to Singapore for a few days. We’re running the Mumbrella Finance Marketing Summit on Thursday. If you happen to be in town,[it’s a great program](. Meanwhile Vivienne - vivienne@mumbrella.com.au - will be on the newsdesk over the weekend. Toodlepip… Tim Burrowes Content Director - Mumbrella Mumbrella | 46-48 Balfour Street Chippendale NSW 2008 Australia This email was sent to {EMAIL}. If you would rather not receive Mumbrella's Best of the Week email you can [unsubscribe]( or [manage subscriptions](. [Facebook]( [LinkedIn]( [Twitter](