19 February 2016, Written by Nick Nichols


STW Communications Group (ASX:SGN) has cleared the decks after a challenging year involving a restructure and a proposed merger that it says will return Australia's largest marketing services group to sustainable growth.

The Sydney-based company has posted a $52.6 million bottom-line loss in calendar 2015 following $92.2 million in non-cash impairments and one-off costs related to a strategic review of the business.

However, STW pleased shareholders by delivering on its forecast underlying after-tax net profit of $39.6 million, which is 13 per cent lower than a year earlier.

Shares in the company surged 14 per cent to close at 90c following the release of the result, which was driven by a 1.6 per cent lift in revenue to $416 million.

"There is no doubt that 2015 was a challenging year for the company with flat revenues and a decline in underlying earnings," says CEO Michael Connaghan (pictured).

"We have, however, delivered to our guidance provided in August.

"After a disappointing finish to 2014, the company undertook a strategic and structural review during the course of 2015 and made tough decisions to restructure the business.

"We have implemented a number of initiatives designed to drive deeper engagement with each of our businesses, coupled with stronger financial and management oversight.

"The changes are designed to allow STW to meet the challenges faced in the current trading environment and to position STW for future growth.

"As a result we enter 2016 with a clear strategy and path to return to sustainable growth."

The next big step for STW is to secure shareholder approval for a $512 million merger of its Australian and New Zealand businesses with UK marketing and advertising giant WPP.

The merger will deliver WPP majority interest in STW, with a 61.5 per cent stake, although the proposal has raised fears of staff cuts which have been repeatedly denied by STW.

The company says it won't be issuing a profit forecast at this stage pending the merger, which it says will have a significant impact on the 2016 result.

Shareholders will meet in March to vote on the planned merger with the deal expected to be settled in the second quarter of this year.

STW has previously indicated that the merger will create a business with annual revenue of $847 million and a combined workforce of 5500 as WPP takes a significant share of the advertising and corporate communications market in the region.

The merger allows WPP to leverage off STW's strong local base with Australia and New Zealand which is the company's biggest market behind the US, UK, China and Germany.

STW is paying a final dividend of 3.6c a share, bringing the total dividend for the year to 5.7c, down from 6.8c in 2014.

Author: Nick Nichols





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