Havas Ranks as New-Business Leader of 2006

Company's Ability to Limit Its Losses Leads to $883 Million in Net Gains

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LOS ANGELES (AdAge.com) -- The big ad-agency groups are winning less new business -- and losing more. Worldwide billings on account wins for five top advertising holding companies fell 5% last year, according to Bear, Stearns & Co. But account losses jumped 12% as agencies failed to hold on to existing business.
The French ad firm scored adjusted net new billings of $883 million last year, bigger than the combined gains of all other holding companies ranked by a Bear Stearns analysts' team.
point bug An Unexpected Winner Chart

Wins still beat losses, but net new billings -- gains minus losses -- plunged 59% for the five ad firms. (These are all "adjusted" figures; the investment bank adjusts media accounts to one-fourth of reported billings because media accounts generate less revenue than creative accounts.)

Beat the goliaths
What sort of year was 2006? The kind of year where perennial also-ran Havas managed the unimaginable, beating every other ad holding company in adjusted net new business. David beat the Goliaths partly on wins and partly by limiting account losses.

The French ad firm scored adjusted net new billings of $883 million last year, bigger than the combined gains of all other holding companies ranked by a Bear Stearns analysts' team led by veteran advertising analyst Alexia Quadrani.

How holding companies stacked up in 2006 adjusted net new business:
  1. Havas: $883 million
  2. WPP Group: $442 million
  3. Aegis Group: $192 million
  4. Omnicom Group: $106 million
  5. Publicis Groupe: $64 million loss
  6. Interpublic Group of Cos.: $214 million loss
In total, the six firms last year had adjusted wins of $11.5 billion, including both account shifts (meaning there was a losing agency) and newly created accounts (no incumbent). Factoring out Aegis (which Bear Stearns didn't track in 2005), last year's wins ($11.1 billion) were 5% below 2005 ($11.6 billion). First place for 2006 may surprise you: Interpublic, which proved its new-business prowess even as it worked through continuing financial and operating challenges.

But in the agency game, you must count wins and losses. Excluding Aegis, adjusted account losses for the five companies jumped to $9.9 billion last year from $8.8 billion in 2005. The biggest loser: Interpublic, whose $2.7 billion in adjusted lost billings swamped its wins.

Win-loss ratio
Havas had adjusted wins of about $1.8 billion (including Progressive Direct, Reckitt Benckiser and French telecom SFR) and losses of $949 million (including Sony and Volkswagen's Audi of America). So Havas had $1.93 in adjusted wins for every dollar of adjusted losses. That's the best win-loss ratio of the six holding companies ranked by Bear Stearns.

New-business rankings are volatile. Publicis, tops in 2005, plunged to fifth place in 2006. Havas, meanwhile, jumped to first place from fourth place a year earlier. In a report, Ms. Quadrani termed Havas' top score in 2006 "a remarkable turnaround after several lackluster years."

Reported billings are an estimate of what marketers spend on advertising, and an agency's revenue is only a fraction of billings. But adjusted net new business serves as a simple proxy for whether a holding company's revenue from ad-account wins and losses is growing or shrinking.

By Ms. Quadrani's score, Havas last year added $106 million in revenue from ad-account wins minus losses. WPP came in No. 2 with an estimated revenue gain of $53 million, followed by media specialist Aegis, with a $23 million gain. Omnicom, the world's largest ad holding company, had revenue gains of $13 million from net new business, Bear Stearns estimates.

Publicis and Interpublic both endured revenue declines related to new business because account losses exceeded gains, according to Bear Stearns.

'We can do more'
In a statement to Ad Age, Havas CEO Fernando Rodes Vila said: "We are very honored to be ranked first worldwide for 2006 on Bear Stearns' new-business ranking, but we can always do more. We are satisfied to see that Havas is moving in the right direction."

Havas, with revenue of about $1.3 billion in the first nine months of 2006, ranks fifth in revenue, ahead of Aegis, and is just one-sixth the size of Omnicom. Havas agencies include Euro RSCG Worldwide and Arnold Worldwide.

Havas won't announce full-year results till February, but it earlier disclosed that its net new business for the first three quarters of 2006 more than doubled compared with the same period a year earlier.

Despite its strong new-business showing, Havas revenue grew just 2.1% in the first nine months, while net income fell in the first half. Havas will report fourth-quarter revenue and second-half profits next month.

Havas' stock last year rose 15%. That's not a bad gain, but Havas still underperformed the five other ad holding companies. Havas delisted its U.S. shares last July, but the stock continues to trade on Euronext Paris.

To be sure, advertising billings are an imprecise measure of holding companies at a time when much of the growth for the industry comes from other disciplines, such as marketing services. And billings don't necessarily translate into big revenue.

As Havas noted in a disclosure in a 2006 financial report: "Net new business is not an accurate predictor of future revenue. ... What constitutes new business or lost business is subject to differing judgments; the amounts associated with individual business wins and losses depend on estimated client budgets; clients may not spend as much as they budget; the timing of budgeted expenditures is uncertain; and the amount of budgeted expenditures that translate into revenue depends on the nature of the expenditures and the applicable fee structures."
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