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Publicis Groupe Delivers Slow Second Quarter

Plans New Strategy to Renew Focus on Digital

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Maurice Lévy.
Maurice Lévy. Credit: Bloomberg

Publicis Groupe revenue declined 1.5% in the second quarter, compared with the quarter a year earlier, while organic revenue, a measure excluding results of events such as acquisitions or shifts in currency values, grew just 0.5%.

Net income for the first half declined 16.9% to 260 million Euros, the company said.

Maurice Lévy, the French agency holding company's chairman-CEO, blamed the disappointing results on the cancellation and postponement of campaigns, on poor economies in Europe and emerging countries and on exchange rates.

Mr. Lévy said that Blackberry had moved from consumer communication to B-to-B marketing, and that 90% of its spend with Publicis Groupe -- much of it through Razorfish -- had evaporated. Motorola has also frozen all of its investment, he said.

He also said that the planned merger with Omnicom Groupe, a plan the companies terminated on May 9, had not helped.

"There was too much focus on the merger, which distracted from day-to-day business," Mr. Lévy said during a call to discuss the most recent results.

The company is revisiting its current five-year business plan, which was intended to last until 2018, Mr. Lévy said. "It's a bottom-up approach," he said. "I have asked each CEO to revisit their own plan to take into account what has changed in the last 18 months, particularly the digital transformation, and to look for higher growth and margins." Initial internal presentations were made on July 14, and a plan will go to the board at the end of September with the goal of presenting something to investors in the first half of October.

Mr. Lévy said the competition among agency companies, which in addition to Publicis and Omnicom include WPP and Interpublic Group, will be determined by mastering digital. "We are set for that future," he said. "Some of our competitors are not even at the starting blocks. They may be doing slightly better now, but in two years' time they will suffer because they have not invested in digital. That is how I see the choreography of the future. I will elaborate on that when I give the strategic plan."

Digital was the driving force behind the attempted merger with Omnicom, Mr. Lévy said. "We have seen the trends long before anyone else and that is why we tried to do the merger of equals with Omnicom …. The key issue was not the sheer size. There was also the fact that our digital operation could grow much faster thanks to the portfolio of Omnicom."

Digital acquisitions are now likely to feature high on the agenda. "We have money," Mr. Lévy said. "We are not in a rush. We are very selective and disciplined in our approach -- don't expect us to buy for the sake of buying or to inflate our numbers. I'm looking at the acquisition of small and medium-sized companies. There are no large ones in sight for the time being."

Placing the failed merger in a wider context – perhaps referencing Rupert Murdoch's recent bid for Time Warner – Mr. Lévy added, "When you see the global companies, consolidation will continue to happen. It's so easy to create new media, so easy to create internet TV, so easy to create communication tools, that there is a thirst and an appetite for content which is hard to satisfy. You can expect to see consolidation on the media side and the channel side in order to amortize the cost and get the benefits of scale. [There will also be] consolidation in content in order to create the best content and to control the price."

Advertising, too, will continue to consolidate, according to Mr. Lévy. "I don't know if we will see a huge change in the holding companies, because as it is today the situation looks relatively frozen," he said. "I see that there are some players who have appetite for growth -- Dentsu Aegis is one of them -- and we see also that some are struggling to deliver very good margins, so there will be a point when probably there will be some reallocation of assets and maybe some consolidation."

Organic revenue in the second quarter declined 2.4% in Europe, increased 1.3% in North America, edged up 0.4% in the BRIC (Brazil, Russia, India and China) and MISSAT (Mexico, Indonesia, Singapore, South Africa and Turkey) regions, Publicis said. Organic revenue elsewhere in the world grew 6.1%.

For the first half of 2014, North America grew 2.8%, helped by the high proportion of digital revenue in the region. Of the BRIC and MISSAT countries, Russia (+5.9%), Mexico (+10.3%), Turkey (+2.5%) and Singapore (+7.2%) performed well, but greater China grew only 1.4%, while Brazil was down 0.6% and India declined -14.7%. In Europe, France performed well at +4.2%, but the U.K., Germany, Spain and Italy were all in negative territory.

"These figures are not satisfactory by our standards," Mr. Lévy said. "They are not consistent with what our operations can achieve. As can be seen from our digital growth (+8.8%) or the numerous awards … our strategy is spot-on and our networks are at the cutting edge of the industry. For the second part of the year, we are already on track for higher growth, and this should be evident as of the third quarter."

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