NEW YORK Interpublic Group today reported a net loss of $289 million for 2005, an improvement from a net loss of $558 million for the previous year. IPG ended last year with revenue of $6.3 billion, down 2 percent from 2004.
Rising professional fees, increased salary costs and client losses all contributed to the revenue decline, IPG said. Salaries and related expenses, for example, totaled $4 billion or 64 percent of revenue in 2005, compared to $3.7 billion (58 percent of revenue) in 2004, according to IPG. Those expenses included severance paid to some 2,500 employees who left last year, IPG said.
IPG also re-stated downward its net income results for the first three quarters of 2005, which were originally reported in September. The $14.1 million restatement stemmed from the "accounting for a number of smaller items identified as part of the company's extensive 2005 financial review process," IPG said.
IPG CEO Michael Roth described 2005 as "challenging and complex," adding, "The organic revenue decline was marginal and we will continue cycling through a number of client losses during the next two to three quarters." Major losses booked in the second half of 2005 included Bank of America and General Motors' media duties.
Shedding non-core assets also impacted revenue last year. "During 2005 and 2006, [IPG] is divesting a number of businesses that are non-strategic, chronically unprofitable or would never be Sarbanes-Oxley compliant at reasonable cost," IPG said, adding that the businesses are mostly in markets outside the U.S.
"We divested 25 businesses in 2005, 13 of them in the fourth quarter, and have additional divestitures pending this year," said IPG CFO Frank Mergenthaler, during an hour-long call IPG had with industry analysts, after the numbers were released. "They were generally subsidiaries in international markets, such as Spain, Greece and the ex-Soviet republics, as well as a few non-strategic businesses in the U.S."
For the fourth quarter of 2005, IPG recorded a net loss of $34 million, down from net earnings of $125 million in the same period the year before. IPG attributed the loss partly to a $92 million asset impairment charge that the company said was related largely to a write-down of goodwill at Lowe. The Lowe portion of the charge was triggered by account losses during the quarter, IPG said.
In addition, Mergenthaler told analysts that the company won't achieve compliance with the federal Sarbanes-Oxley accounting standards in 2006, as previously suggested. IPG is still trying to implement new financial procedures and controls, and as such, continues to have material weaknesses.
Separately, the No. 3 holding company said that McCann Worldgroup controller Christopher Carroll would replace Nick Cyprus, controller and chief accounting officer at IPG. Before joining McCann last year, Carroll held top financial posts at Avaya Communications and Lucent Technologies. Cyprus had been controller since May 2004.