Markets hammer Publicis as organic growth dries up

Is Publicis Groupe now a medium-sized digital consultancy (in global terms) with some creative and media agencies attached?

Shares in Publicis tumbled yesterday as it reported little or no organic growth in Q3 even though earnings rose 33 per cent compared to the year before. This it ascribed to exchange rates and acquisitions – the weak euro and digital outfit Sapient, which it bought for $3.7bn following the collapse of the proposed merger with Omnicom.

Publicis CEO Maurice Levy (below) blamed the setback on clients cutting back or cancelling campaigns in September. He said the current round of US and global media reviews had not adversely impacted the company, so far winning more than it’s lost. Even so defending a large number of media accounts is expensive in both time and money; leading, perhaps, to less time spent persuading clients to keep spending.

Worryingly for Levy none of his rivals have reported similar problems so far, although both Omnicom and Interpublic suffered from the strength of the US dollar. Even more galling for Publicis, smaller French rival Havas seems to be motoring nicely.

Levy cut the company’s organic growth forecast for the year to just one per cent, against market expectations of 2.5 per cent, hence the share price fall.

On the face of it, Sapient looks a great deal for Publicis. Without it the numbers would be dire. Sapient benefits from selling services in the high-priced US and Europe on costs based on a massive workforce in India.

Both Publicis and its bigger rival Sir Martin Sorrell’s WPP have become, in effect, conglomerates, controlling a variety of businesses that have something in common but, in many cases, not all that much – despite their protestations to the contrary.

This is fine when times are good and there’s enough money to keep investing in all the parts of the business. But when they’re not – and all the marcoms companies are suffering from client cutbacks and a ferocious focus on fees as well as a slowing global economy – there isn’t enough money and, possibly, executive skills, to fix things.

Publicis owns Publicis Worldwide, Leo Burnett, Saatchi & Saatchi and BBH on the creative agency front, media agencies Starcom and Zenith, a gaggle of digital agencies now mostly grouped under the Sapient banner and PR outfit MSL, which recently had to shell out $3m or so in a sex discrimination case in the US. Levy’s number two Arthur Sadoun runs Publicis Worldwide and MSL.

In just about any other organisation shareholders would be clamouring for a change at the very top but Levy, who’s said he intends to retire within the next two years, seems to enjoy the continued support of Elizabeth Badinter, daughter of Publicis founder Marcel Bleustein-Blanchet. The family remain the biggest shareholder in Publicis.

Bernstein analyst Claudio Aspesi said: “Investors are starting to question whether they know what they are doing. The Omnicom deal broke up in May 2014 — 15 months and counting, with no evidence that the organisation knows how to reverse the decline in the growth rate.”

This a touch harsh – Levy did buy Sapient. But Levy does need to show he has a plan to revive the fortunes of the non-Sapient parts of the group.

Back to top button