STW COMMUNICATIONS GROUP LIMITED
SGN - Half Year Results - Mr Mike Connaghan, CEO and Mr Chris Thomson, CFO
Fri, 15 Aug 2008 09:00AM
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STW COMMUNICATIONS GROUP LIMITED (SGN)
ASX code: SGN
Website: http://www.stwgroup.com.au/
Industry: Media
Principal Activities:
Marketing, content and communications services group
Address:
, 72 Christie Street, Level 6,
ST LEONARDS
NSW
Phone: (02) 9373 6333
Fax: (02) 9373 6396
Executives & Directors
Mr Rob Mactier , Chairman
Mr Russell Tate , Deputy Chairman, Non Exec. Director
Mr Mike Connaghan , CEO, Executive Director
Mr Miles Young , Director
Mr Graham Cubbin , Non Exec. Director, Independent Director
Ms Anne Keating , Non Exec. Director, Independent Director
Mr Paul Richardson , Non Exec. Director
Mr Ian Tsicalas , Non Exec. Director
Mr Chris Savage , Chief Op. Officer
Mr Chris Thomson , CFO
Mr Chris Rollinson , Company Secretary
Company Podcasts
Company ASX Announcements
Company ASX announcements can be viewed on the ASX website.
Announcements from the preceding six months are shown below.
Please refer to the relevant stock exchange if any of the above information is incorrect
STW COMMUNICATIONS GROUP LIMITED (SGN) Events
| Company (Stock Code) | Date/Time | Event |
Timezone: Australia/NSW |
|---|---|---|---|
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Fri, 15 May 2009 11:00AM |
SGN - 2009 Annual General Meeting - Mr Rob Mactier, Chairman and Mr Mike Connaghan, CEO, Executive Director |
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Fri, 20 Feb 2009 08:00AM |
SGN - Full Year Results - Mr Mike Connaghan, CEO, Mr Chris Thomson, CFO and Mr Chris Savage COO |
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Fri, 15 Aug 2008 09:00AM |
SGN - Half Year Results - Mr Mike Connaghan, CEO and Mr Chris Thomson, CFO |
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Mon, 19 May 2008 05:20PM |
SGN - 2008 Annual General Meeting - Mr Russel Tate, Executive Chairman, Mr Mike Connaghan, CEO, Mr Chris Thomson, CFO |
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Fri, 15 Feb 2008 08:05AM |
SGN - FY07 Full Year Results - Mr Mike Connaghan, CEO |
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Mon, 20 Aug 2007 03:00PM |
SGN - 2007 Interim Results - Mr Mike Connaghan, CEO |
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Fri, 18 May 2007 10:30AM |
SGN - 2007 Annual General Meeting - Mr Russel Tate, Executive Chairman |
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Tue, 27 Feb 2007 08:00AM |
SGN - FY06 Full Year Results - Mr Mike Connaghan, CEO |
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Fri, 1 Dec 2006 03:45PM |
SGN - Company Update - Mr Michael Connaghan, CEO |
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Tue, 29 Aug 2006 09:00AM |
SGN - Interim Results for 2006 - Mr Michael Connaghan, CEO and Mr Russell Tate, Executive Chairman |
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Fri, 10 Mar 2006 08:00AM |
Results Briefing Westin Hotel, Heritage Ballroom, 1 Martin Place, Sydney NSW 2000
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| Fri, 15 May 2009 11:00AM |
Annual General Meeting Ogilvy House, 72 Christie St, St Leonards, NSW
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| Thu, 14 May 2009 | Date Payable | ||
| Thu, 30 Apr 2009 | Record Date | ||
| Fri, 24 Apr 2009 | Ex Div Date | ||
| Mon, 16 Mar 2009 08:00AM |
Full Year Results | ||
| Thu, 19 Feb 2009 11:00PM |
Interim Results | ||
| Thu, 14 Aug 2008 | Interim Results | ||
| Mon, 19 May 2008 10:30AM |
Annual General Meeting Singleton Ogilvy and Mather, Level 25, Tower 2, Darling Park, 201 Sussex Street, Sydney
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| Wed, 30 Apr 2008 | Date Payable | ||
| Wed, 16 Apr 2008 | Record Date | ||
| Thu, 10 Apr 2008 | Ex Div Date | ||
| Fri, 28 Sep 2007 | Date Payable | ||
| Fri, 14 Sep 2007 | Record Date | ||
| Mon, 10 Sep 2007 | Ex Div Date | ||
| Mon, 20 Aug 2007 | Interim Results | ||
| Fri, 18 May 2007 10:30AM |
Annual General Meeting Tower 2, Level 25, 201 Sussex Street Sydney NSW 2000
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| Fri, 18 May 2007 | Date Payable | ||
| Fri, 4 May 2007 | Record Date | ||
| Mon, 30 Apr 2007 | Ex Div Date | ||
| Sun, 25 Feb 2007 11:00PM |
Full Year Results | ||
  Displaying 1-20 of 40 events
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STW COMMUNICATIONS GROUP LIMITED (SGN)
| Change in substantial holding | Mon, 1 Jun 2009 |
| Change in substantial holding from PPT | Mon, 1 Jun 2009 |
| Change of Director`s Interest Notice - Michael Connaghan | Mon, 1 Jun 2009 |
| Change of Director`s Interest Notice - Russell Tate | Mon, 1 Jun 2009 |
| Change of Director`s Interest Notice - Anne Keating | Mon, 1 Jun 2009 |
| Change of Director`s Interest Notice - Robert Mactier | Mon, 1 Jun 2009 |
| Appendix 3B | Fri, 29 May 2009 |
| Pro-Rata Entitlement Offer Completion | Tue, 26 May 2009 |
| Change in substantial holding from CBA | Mon, 18 May 2009 |
| Annual Genral Meeting | Fri, 15 May 2009 |
Please note: This company appears on this website as a result of its listing on the Australian Securities Exchange. Boardroom Radio does not claim any association with any company listed on this site.
PRESENTATION BY MIKE CONNAGHAN, CHIEF EXECUTIVE OFFICER, AND CHRIS THOMSON, CHIEF FINANCIAL OFFICER, OF STW COMMUNICATIONS GROUP LIMITED (SGN)
“SGN - Half Year Results”
http://www.brr.com.au/event/49340
FRIDAY, AUGUST 15, 2008, 9:00 AM.
SGN Good morning, everyone. We might get underway. It is probably (inaudible)
10 (0:00:04) volume a little bit light, but it is a pretty busy time of year for a lot of people. We are on Boardroom Radio as well, so there is no doubt some people are listening in from their desks. Okay, we will get into it.
Good morning. I am Mike Connaghan, the CEO of STW Group, and with me
15 is our CFO, Chris Thomson. We are here to present the Group’s financial results for the half year ending June 30, 2008. Also in the audience are a number of senior STW executives. You can have a chat with those guys after the presentation if you so wish, and Chris and I will take some questions at the end if you can hold the questions until then.
20
We have the last year results presentations use the revised format. We are going to follow that again today. As previously, the more detailed breakdown by division is available in the Appendix online and there are some copies here for you to take if you so wish.
25
So, to the key financial results for the half year 2008, the STW share we referenced today takes into account STW’s economic interest in over 70 companies. Their revenues, expenses, profits, and losses aggregate on a percentage basis.
30
In the first half of 2008, STW group revenues were $145,249,000, up 30% on the prior period, and that revenue growth translated into growth at the EBITDA line of 18% or $31.4 million. The underlying NPAT, therefore, and taking into account increased investment at the holding company and an
35 increase in our overall debt and the associated interest expense, the NPAT is up 3% to $17,203,000. The underlying NPAT translates to a fully diluted underlying EPS of 8.9 cents per share, which is up 6% on the prior half-year period.
40 We did announce in February of this year our intention to relocate a number of STW businesses from the CBD to St. Leonards. That move is now largely complete with 17 companies already in St. Leonards with another five to move before the end of the year.
45 The move has made a one-off nonrecurring NPAT impact of $5 million. Therefore, the reported statutory NPAT is impacted, and the reported statutory NPAT is $11,862,000.
As I have said, the cost of the move is a one-off. The move is cash flow-positive and will generate more than $8 million in savings over the initial period of the nine-year lease.
5
More importantly, the group is moving forward into a new environment, an environment we can control much better which allows us to manage our growth more efficiently and brings more of our best and brightest people together to realize synergies in the backroom and critically leverage off each
10 others’ specialties and skills and client opportunities.
To the dividends, the STW Board yesterday approved the interim dividend of 4.8 cents per share, fully franked. This dividend is in line with the half year dividend for 2007, and the interim dividend will be payable on September 30
15 to all shareholders registered at September 15.
Let me drill down into the business and have a look at the group split between advertising and diversified divisions.
20 You can see that as predicted over recent years, the diversified group is now larger than advertising. This has been a trend for some time now. The full year for 2007 was the first time the diversified group was larger than the advertising sector. As you can see at the 2007 half year, it was at about 50-50.
25
The revenue and EBITDA split are very similar, 56-44 and 55-45, respectively. Importantly, both sides of the business are continuing to grow in absolute terms. There is little doubt the diversified business will continue to contribute on a greater overall percentage as the sheer weight of numbers of
30 diversified companies continues to evolve with the strategy of STW being able to service total marketing budgets.
The advertising companies have delivered a solid result for the first half of 2008. Revenue is up 14% and EBITDA 7%.
35
The recovery of JWT’s financial performance is very much underway. We are beginning to see the positive impact of recent acquisitions in Haines in New Zealand, Jamshop in Adelaide, Catalyst and Paragon in Melbourne, and Junior in Brisbane.
40
This half-year result is negatively impacted by the loss of Commonwealth Bank advertising revenue, but that negative is somewhat offset by the positive effects from Vodafone and IAG in this half.
45 The ad agencies, in particular, the large units of Ogilvy, JWT, Brandshop, and Junior have all had positive new business wins, including Tourism New South Wales, the Australian Rugby Union, BHP, Nokia, ACP (inaudible) (0:04:52), and importantly Telstra Consumer. By and large, the benefits of these new business gains will not be seen until the second half.
In this half, we moved our biggest advertising unit in Sydney, Singleton Ogilvy & Mather, to new premises in St. Leonards. This was a massive task but represents far more than a change of address. We have new management
5 there, new focus and a new way forward, which we firmly believe will reinstate Ogilvy in Sydney as the most fearsome agency in town.
There has been some press recently on the Vodafone account. We continue to work with Vodafone and indeed have a great relationship with them. A
10 review of their advertising contract has been called. STW decided not to resubmit for the advertising component of that pitch. However, we continue to look after their media planning, buying and public relations, which is not part of the review, and remain confident that our track record will enable us to retain the digital design direct and retail components of the business which
15 we did resubmit for.
The movie advertising business will not take effect until the final quarter of 2008, and we do not believe it will have any material impact on the profit of the advertising section.
20
To the diversified group, the diversified group continues to build great momentum. Overall, at the STW level, revenue is up 48% and EBITDA are up 32%. The margin did slip three points, but we expect that this is a timing issue and should come back in the second half.
25
The majority of the diversified unit, as we split them operationally, did well. Digital promotional and relationship marketing NPAT up 11%. Branding and identity NPAT up 51%; the standouts were Cornwell in Melbourne , Moon in Sydney, and a start-up, Yellow, in Melbourne. Public relations up 116% and a
30 solid performance across the board from all the companies not discounting the significant addition of Hawker Britton to that stable. Production and Media up 11%, and Mindshare and Ikon are both performing well year to date. Specialist Communications is down 4%, a disappointing result, driven by a couple of companies, but this is one of the smaller categories if you have
35 looked at the Appendix.
The big mover, I think, in this half has been Information and Insights or Research, if you like. It is a dramatic turnaround, NPAT up 114%. In 2007, we restructured and subsequently announced the demerger of AMR, the offline
40 traditional research business, and the ORU, an online research unit. The management of those businesses should be very proud of this result. Both those units will be moving to St. Leonards later in the year and we fully expect them to continue their march forward.
45 With an improved performance from the other research businesses and a possible acquisition, we expect to take our rightful place as the dominant player in information and insights in Australia and New Zealand.
I will pass over to Chris now. He is going to take you through some financial matters and then I will come back after that to talk about the rest of 2008.
SGN Thanks, Mike. Good morning, everyone.
5
Firstly, I want you to take a look at the balance sheet of STW. The STW balance sheet at 30 June 2008 remained strong and well capitalized. Cash levels are healthy at $65 million, and we continue to strive for better net working capital management. So there are no issues on the cash and working
10 capital areas.
The impact of the acquisition activities in recent periods can be seen in the uplift of balances and investments and intangibles captions. There is also a corresponding uplift in the bank borrowings and deferred acquisition
15 consideration captions.
It is important to note that the current and expected debt levels remain at sensible levels. STW is comfortably within bank covenants and the debt-to-EBITDA is set at 2.3 times EBITDA in line with previous ratios that were
20 flagged to the market.
When considering net debt, please note that about $15 million is statutorily required for media business financing.
25 Turning to the summarized group cash flow statement. The net cash flows for the period remained at acceptable levels. In terms of net operating cash flow of $16.9 million for the six months, this is down on the 2007 year because it is flatted in the prior year by the timing of equity investment distributions. I think you should note that operating cash flow is basically in line with underlying
30 NPAT for the June 2008 period. The comparability of the two periods in operating cash flows is also impacted by the timing of tax payments in between the two years.
Turning to investing activities, cash flow is adverse versus the 2007 year or
35 corresponding period due to the receipts on sales of interest in 2007 on (inaudible) (0:10:00) and WDG which is $14 million. In addition, first half 2008 includes increased levels of acquisition payments of about $8 million. In total, $17.5 million was spent on acquisition payments in the first half of 2008. When you look at financing activities, these reflect the drawdown of a net $29
40 million from bank facilities for the period.
Turning to other financial matters, regarding the status of STW’s banking facilities, the new banking facilities announced in STW’s annual general meeting was signed in July 2008. Our banking partners, ANZ and HSBC,
45 have extended their total facilities available by $51 million. You should note the average duration to maturity is now 2.5 years, and the facilities that we have got provide an appropriate headroom to cover the cash requirements for both working capital and earn-out payments.
On the share buyback, the last buyback from August 2007 through to 2008 has expired, and during that period, we bought 7.4 million shares for $16.9 million. STW will renew our buyback program to enable the company to undertake an on-market share repurchase program. Any repurchases made
5 would need to be from free cash flow rather than borrowings in the future.
The STW Board has determined it wishes to be conservative in capital management in order to preserve cash and maximize future financial flexibility. Accordingly, STW is likely to be very selective or relatively inactive
10 in either share repurchases and also acquisitions until we have greater clarity on the state of the economy and its implications for trading and also in terms of the way that interest rates and the availability of capital will move in the future.
15 This conservative approach is consistent with our current internal focus on driving revenue and managing cost opportunities within the STW Group operations. This approach will also ensure that STW is best positioned to capitalize on all opportunities that may emerge from these uncertain economic times.
20
I will now hand you back over to Mike Connaghan.
SGN Before I talk about the rest of 2008, I would just firstly like to reference the new STW Board.
25
At this year’s AGM, changes to the STW Board were announced. The STW Board now comprises eight directors: Four independent non-executive directors, our new Chairman, Robert Mactier, Graham Cubbin, Anne Keating, and Ian Tsicalas. Two WPP aligned directors, Paul Richardson, the WPP
30 CFO, and Miles Young. Miles has recently been announced as the worldwide CEO of Ogilvy, one of the biggest jobs in the world of advertising. He will move from Hong Kong to New York, but pleasingly for us, he stated a desire to stay involved with STW and stay on our Board. We also have one Executive Director in myself and one non-independent, non-executive director
35 in Russell Tate. I am very happy to say that Russell is very non-independent, but not very non-executive, and Russell has assumed the role of Deputy Chairman and has entered into a two-year contract with us and remains an integral part of the operations and developing strategy for the company. Ian Tsicalas has been appointed to the role of Chairman of Remunerations and
40 Nominations Committee, and Graham Cubbin has been appointed Chairman of the Audit Committee. The new Board is already having a very positive effect on the makeup of the group.
So, a solid first half result, and we see no reason at this stage to believe our
45 2008 result will be materially different to analyst consensus of midrange, single-digit EPS growth. In fact, our second quarter has been much stronger than our first, and as has been the trend over recent years, we expect our performance to improve again in the third quarter.
STW is the leading marketing content and communications group in Australia, and I do not think we should forget that. We are made up of more than 70 companies and close to 3000 individual employees. Our consolidated revenues are approaching $500 million, and based on a recent advertising
5 (inaudible) (0:14:44) survey out of the States, that actually puts the STW Group in the Top 10 marketing communications groups in the world.
We are watching the macroeconomic conditions in our individual businesses very closely. Marketing communications business is a variable cost business
10 and STW has a proven track record in managing that cost base to the optimum effect and ahead of the curve.
We remain ever vigilant in our analysis of client spends and signals from the market. If the predicted pressure does come on advertising budgets,
15 however, STW is well positioned to weather any turbulence. Firstly, the vast majority of advertising revenues in the group are retainer based. Secondly, our exposure to media planning and buying is minimal. Thirdly and most importantly, the easiest and largest cuts to make from a marketing budget are in the big-ticket mainstream media budgets. The balance and diversity of the
20 STW portfolio of companies means we are ideally positioned to maintain our growth.
The STW DNA was built on a results obsession and an unrivalled track record with it delivering measurable outcomes for our clients. If the probable
25 economic headwinds do come to fruition, we believe that STW is ideally positioned to offer clients the best possible solutions in a cost-effective manner, helping them optimize their internal marketing investment.
In 2008, for the rest of the year, we will be continuing to focus on broadening
30 the touch points with existing clients as well as using our shared services infrastructure to provide administrative support to our businesses to let our people maximize time in what they do best, and that is planning, creating, executing, and measuring the best marketing content in communications in Australia and New Zealand and beyond.
35
As you can see in the first half of 2008, the number of clients working with multiple touch points across the group of companies continues to grow. In these numbers, I added our valued clients such as the Commonwealth Bank and Vodafone.
40
Certain elements of the media or our competitors seem think or wish that these two companies are ex-clients. They certainly are not. I think it is worth reinforcing here what STW is. We are the leading marketing content and communications group in Australasia. Our strategy is to be able to service to
45 total client marketing budgets. It is not just about advertising or just about retail or just about research or media or digital or PR, but the total marketing budget. The entry points are multiple and varied and well beyond an advertising budget. We have multiple relationships with all the best clients in Australia and New Zealand. It is rare where we will service every single aspect of their clients’ marketing needs, but the point is we can, and I believe we can do it better than anybody else.
Acquisition has been large for the last few years and it will remain a part of
5 our strategy going forward. We are already a very strong and diverse business, and we are happy with the coverage and balance of the group as it stands today. So we will be even more selective in the coming periods about the number and types of businesses that we will invite into the group.
10 The pipeline of likely acquisitions is also now constrained by vendor expectations, but that said, the number of competitors that have been in the marketplace pursuing our diversified strategy is now less so quality companies looking for a bigger stage are now more than ever likely to be knocking on STW’s door.
15
The focus for us in the second half of 2008 and moving into 2009 will be driving the best possible organic earnings uplift and maximizing synergies and leveraging the wonderful existing assets in STW. We are cautious about the macroeconomy, but certainly not pessimistic.
20
We thank you for your time today. This is the end of the formal part of the presentation. We will be happy to answer questions. We are on broadcast radio, so be polite to those listening in and if you could identify yourself to the audience.
25
SGN The cost that we referenced today is for the total move. It has all been factored in. It is more a timing issue, the research business which is going to be moving at the end of the year. They have leases that are running out in their existing premises and they have costs because of the nature of the
30 business being online research and (inaudible) (0:19:07) systems, the IT situation. So we will be doing that in December when they get to acquire quite a period.
As far as the mood and feel of the new building in St. Leonards, it is actually
35 fantastic. We were stuck in CBD for too long. It was too expensive and everything so (inaudible) (0:19:31) we have been trying to get out of the Darling Park, despite it is too expensive and we continue to grow, as we will continue to grow. In our business, that means more people and we need more flexibility with our space to be able to be more in control of our destiny.
40
We were the very first tenant in Darling Park. We shared a floor with (Inaudible) (0:19:59) and I think we had half floor. We ended up with five-and-a-half and we are already in both towers again. It was just wonderful as it was but it was very expensive, and the fact is we do not need to be there. The
45 circulated option is ours. We are the tenant of the building. It is a great building. It has got some outdoor areas and we can actually open windows and doors, and it is right on the station, it was a fantastic environment. It was an important move not only for STW but most importantly for Ogilvy who are the key tenant in that building, so it is a fantastic move.
Q I have got some follow-up questions. This is (inaudible) (0:20:50). Given where your stock is trading now (inaudible) (0:20:53) is that having any impact on the sort of businesses you feel you are going to track? And is that
5 slowing down the acquisition strategy or is that or are you really just feeling that the environment is too tough at the moment?
SGN I did reference in the presentation that the vendor expectation is probably still a little bit higher than the reality, the new reality that we all live in. And so we
10 become somewhat more circumspect, I suppose, and yes, and we are obviously always prudent that we -- one of the rules we do here is that any deal that we do will be a credit to STW share price so that we can stand by that. That said, we have still got some conversations going on. It is not always just about the money. There is plenty of companies out there that really do
15 believe that getting themselves into a bigger stage with a partner like STW is pretty important for their future.
Q I am Mike (Inaudible) (0:21:58) from Macquarie. Could you shed a little bit more light on the organic growth track using both the advertising and
20 diversified businesses, either an absolute or relative term? Also, a little bit more colour around the apparent timing issue with the decline in diversified margin?
SGN Yes, it is fair to say, at the half year, as you know, we are very much a back-
25 end-slower business. The half year is a difficult period to measure in absolute terms. We did make quite a few acquisitions last year particularly in the advertising space. The biggest driver of the organic revenue though was the Commonwealth Bank. We had the full Commonwealth Bank advertising revenue in the first half of last year, which is obviously not in this half year.
30 So, in overall terms, the acquisition or the acquired growth is largely organic. That said, the diversified companies, as was pointed out (inaudible) (0:22:57) there have been solid contributions across the board. Just on the margin in diversified, we live in Australia, and one of the reasons that our half year is somewhat less than our second half is that Australia tends to go on holiday in
35 January. So, January and half of February is never a growth time for us, and therefore, margins are not happening in the first half but it tends to balance out over the course of the year.
Q I am Steve from Macquarie. I was jus wondering on the Commonwealth Bank
40 account, I am just trying to get a feel for how that deep flow (inaudible) (0:23:53). Was it a case of sort of the $2 million lag or was it just a…?
SGN Oh no, we never really get into the individual financial arrangements with clients. As I have said in my presentation, the Commonwealth Bank remains
45 a large client of the group and a valued partner of ours. I think at last count, more than 10 companies still had a relationship with the Com Bank. The biggest component of the business that did the most was the advertising in the first half. In the second half, we continued to do the direct marketing, which we are not doing for the actual Commonwealth Bank of Australia at the moment. I do not really want to get into the individual client relationships on a financial perspective.
Q Going off from that, I am sorry. Was there sort of a deeper black hole in terms
5 of costs which were being (inaudible) (0:24:52) as it sort of rolled out of that period with Com Bank advertising or did you manage to stop the losses?
SGN I think we managed to as well can be managed. I think we have got a pretty good record as far as managing out our cost base. I think we did so in a
10 pretty timely and efficient manner, as efficient as can be in that certain sense.
Q I guess just on the current market, it feels that how much activity is going on in terms of (inaudible) (0:25:33) as willing to engage sort of, I guess, short-term quick turnaround time (inaudible) (0:25:43). How would you classify that
15 matter at the moment?
SGN Look, I think you would be crazy not to think that there is not something going on out in the broader economy. But on a day-to-day basis, our businesses are as busy as ever.
20
In our game, there is always going to be swings and rounded up. You are always going to win some clients, you are always going to lose some clients. What we have got to make sure is that we win more than we lose. What we have got to make sure is that we maximize our share of quality (inaudible)
25 (0:26:17) existing clients that we have. I mean, the client portfolio that we have and the number -- the power in the number of companies that we have really does enable us to just further leverage into existing client’s budgets. What we have always said is that if there is a slowdown, the easiest and most effective cut to any budget would be the mainstream media budget. The big-
30 ticket items are still the 30-second spots on a Sunday night. You cut some of those out and redivert those funds into better internal investment kind of channels and we are well positioned to actually fulfil those programs.
Q And sorry, the last question, I promise. (Inaudible) (0:27:05) strong bit of
35 growth to you guys?
SGN Yes. Because of our client base, obviously we have a number of clients who are sponsors and have been sponsors of the Olympics for many years. We still have the (inaudible) (0:27:19) showed the big Telstra campaign.
40 (Inaudible) (0:27:23) Coca-Cola is big client of the group. So there is a number of Olympics-active clients, if you like.
The other interesting part of the Olympics is that the people that are not the sponsors of the Olympics also still have to get a market. So there is still
45 plenty of stuff going on out there.
If things do knock in the second half, that means the market is going to have to be smarter and then they are going to have to innovate and they are going to have to do things differently. In our minds, that flows into our strategy.
Q Thanks.
Q (Inaudible) (0:28:06) Just a couple of things. (Inaudible) (0:28:09).
5
SGN Well, no. Look, what I said in the presentation was that the advertising -- the brand advertising component of the Vodafone account we had come up to pitch, and we decided to not resubmit for that component of the business. But that said, in any marketing budget, advertising is only one component of it.
10
We did resubmit for the digital, the design, the retail, the sponsorship, and the direct marketing. We are pretty confident, we are pretty proud of our track record with Vodafone, we have got a great relationship with them, they completely understand why we did not resubmit for the advertising
15 component of the account. We are still doing the advertising at the moment. We (inaudible) (0:29:09) Christmas campaign and we are doing that right now, but there will be movement at that account in the final quarter of 2008. But we are happy with where we are at with Vodafone at the moment.
20 Q Was there any impact to cash flow for the client (inaudible) (0:29:29) late payment rather than (inaudible) (0:29:31) second half?
SGN Our clients are never late.
25 Q I mean, at this stage, we have actually improved the current techniques that we are using to monitor and manage the companies and put pressure on them to make sure they are getting their billings out quickly and the late payers are -- that we are on top of them. So -- but we have not at this stage seen a deterioration in terms of trade, but we are constantly mindful of the
30 need for that given the pressures on customers.
SGN I think that is one of the main efforts with some of these diversified companies, coming to a group like us. We can sort of give a bit of muscle in the backroom to help with that kind of thing because some of the smaller
35 companies find that conversation difficult. So the shared services that (inaudible) (0:30:27) able to have is coming to the fore at the moment.
Q Thanks, Mike. (Inaudible) (0:30:41) Tim MacArthur. The question is, Why (inaudible) (0:30:48) the buyback between last noted from the 1st of July
40 2008 and the point of that is allow and to buy back at the 5th of August 2008?
SGN I am not even sure if that is correct or not, but I am pretty sure that the Board took a prudent view of where we were from a financial knowledge point of view, if you like. Obviously, the half year we have been working on this
45 presentation for sometime now. The Board was aware of the results probably a month ago. I think if we did (inaudible) (0:31:26) it would have been because we have got a self-imposed rule of not really trading a month before the results.
Q The second questions was could you just restate your gearing for net debt-to-equity for STW?
SGN Debt-to-equity, well, at the moment, we are about, in terms of including the
5 earned-out obligations as well, about 46%. So because we previously announced that the Board was targeting being Triple-B grading, that was the kind of constraint. It was about 45%. Our banking covenants are significantly above it. So, we do want to stay at around the kind of just a touch above 45% level in the foreseeable future, and we expect to do that by spawning out our
10 projections.
Q And just one final question. Mike, could you shed some light on the dropping of operating cash flows at half from the increase in interest expense? Like have costs been increasing quicker than (inaudible) (0:32:29) rather than
15 timing issues?
SGN No, I think that a technical answer to that question is (inaudible) (0:32:35). I have heard this quite a few times.
20 SGN Or is that in relation to the operating cash flows? Yes, I mean, it is very much driven by timing. I have looked at the recent periods and the impacts of things like the Singleton Ogilvy made a consolidation and we remain confident that this is actually a timing issue. We see on a full-year basis in December, no issues with anything that is permanent. It is very much about timing.
25
SGN Okay, that would seem that we are all done. Thanks for coming along today, quite a big crowd. I was surprised. I thought Boardroom Radio was more powerful than that, but maybe next time we will have this presentation in St. Leonards in the new premises over there. Thanks for your interest today. As I
30 said, solid result. We are pretty happy with it and we are pretty comfortable with where we are for the rest of the year. So, thanks for your interest today.
PRESENTATION CONCLUDED
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