Here’s an arithmetical problem for City analysts. Why don’t marketing services group Havas’s splendid Quarter Three figures actually add up properly?
First, a bit of background. Agency holding company performance has continued in strong recovery mode, despite the rest of the world economy going to blazes. Organic growth, which is seen as the purest underlying growth indicator because it strips out acquisitions, has been particularly vigorous at Aegis, which has just reported a surge of over 11 per cent. But Interpublic, Publicis Groupe and Omnicom have all reported sparkling figures, with WPP trailing among the big boys on a still respectable 4.9 per cent.
Havas, headed by new CEO David Jones (pictured) delivered its best quarterly sales in three years, beating analysts expectations, with a sterling like-for-like (ie organic) growth rate of 7.3 per cent thanks to strong performance in North America, Asia and Latin America. Not unnaturally, the Havas share price surged on publication of these figures.
I have no doubt that Havas did indeed perform very well. The trouble is, the regional figures broken out in Havas’ own analysis, when added up and averaged, don’t hit 7.3 per cent. They reach nearly 6.4 per cent.
Let’s get technical for a moment. The method used, so far as I know, by all parent companies for arriving at a global organic growth figure is to multiply the share of each region by that region’s growth rate and then add up the resulting figures to give a global total.
In Havas’ case the declared figures are as follows. Europe, 51.6 per cent (ie 0.516 of the whole), growing at 1.8 per cent, gives us a figure of 0.93 per cent; North America, 34.5 per cent at 8.2 per cent, gives us 2.83 per cent; and Rest of World, 13.9 per cent at 18.7 per cent, gives us 2.6 per cent. Now add up 0.93 per cent, 2.83 per cent and 2.6 per cent. You get 6.36 per cent, which rounds up to 6.4 per cent.
Not 7.3 per cent. Which is quite a difference when it comes to investors assessing the future performance of a company and making their bets accordingly.
My question is: where has the rest of Havas’ growth come from? Answers in my mailbox please.