Corporate finance advisory firm Ciesco has produced its review of the full year results from the big four marcoms companies – WPP, Omnicom, Publicis Groupe and Interpublic (IPG). IPG seems to be the narrow winner in a year of mixed fortunes for all.
WPP’s revenue for the twelve months ended December 31 2015 grew 6.1% to £12.2bn ($18.7bn). On a like-for-like basis (organic), which excludes the impact of currency and acquisitions, revenue grew 5.3%. Net sales, the most meaningful and accurate reflection of WPP’s top line growth, increased 3.3% on a like-for-like basis*. Reported net sales increased 4.6%, with 2.5% from acquisitions and reduced 1.2% by exchange rates. Reported EBITDA grew to £2bn ($3.1bn), up 4.9% from the previous year.
Omnicom’s revenue for the twelve months decreased 1.2% to $15.1bn. Strong organic growth of 5.3% was offset by the negative impact of foreign exchange rates, which reduced growth by 6.6%. Net acquisitions had a minor impact, accounting for only 0.1% of reported growth. EBITDA for 2015 was $2.2bn, down 1.2% from 2014.
Publicis’s revenue grew an impressive 32.1% in 2015 to €9.6bn ($10.6bn), however this is largely due to favourable exchange rates and growth via acquisitions. Organic growth accounted for only 1.5% of the group’s reported revenue growth, with forex accounting for 11.3%, and acquisitions for 19.3%, mainly due to the Sapient deal closing in February 2015. Reported EBITDA, largely helped by the weakening Euro, increased 27.1% to €1.7bn ($1.8bn).
Interpublic Group’s results follow a similar trend to that of their American rival, Omnicom. Reported revenue grew just 1% to $7.5bn. IPG enjoyed the strongest organic growth of the four largest holding companies, with 6.1%. However, unfavourable foreign exchange rates reduced reported revenue by 5.4% and net acquisitions added only 0.3% growth. EBITDA increased to $1.1bn, up 9.3% from the previous year.
Regionally, the core markets of North America and the UK were particularly strong for the American holding companies. Omnicom grew revenue organically by 5.4% in North America and 7.1% in the UK. IPG grew 6.8% in the US and 6.6% in the UK. WPP witnessed growth across all main regions, with North America seeing the highest growth at 4.1%.
Despite scepticism around the growth of China’s economy and subsequent turmoil in the stock markets, Asia Pacific was a high preforming region for all, particularly for IPG with 8.3% organic revenue growth and Omnicom with 7.9%. The UK was also a good region for the two American holding companies, with 6.6% growth for IPG and 7.1% for Omnicom.
Outlook for holding companies
Publicis announced their reorganisation in December 2015, aiming to ‘implement the most integrated organisation in the sector’. CEO Maurice Levy stated that 2016 will be a year of transition and the company needs time to catch up with the growth rate of its rivals, with the aim of beating them on organic growth in 2018. Chris Sahota, CEO of Ciesco, says: “Publicis has had a challenging year with organic growth of only 1.5%. Given that they announced digital activities accounted for 52% of group revenue and grew 5.4% organically, this would indicate that the remainder of the group’s activities have been in decline.”
2015 saw a number of winners and losers from the ‘media tsunami’ or ‘mediapalooza’, when marketers put an estimated $25-$30bn in media billings into review. This includes Omnicom taking a large portion of P&G’s $2.6bn North America account at the expense of Publicis. IPG won Coca-Cola’s North America account. Publicis also lost the $900m Walmart account, but did win the $200m Visa account from Omnicom and Etihad Airways from WPP. WPP’s big wins included landing L’Oréal’s $870m US account from IPG.
We expect 2016 to see a continuation of M&A activity by the big four holding networks as pressure builds from emerging buyers entering the sector. The sheer size of some of the consultancy, accountancy, and technology firms that are gaining a foothold in the marketing services sector, such as EY, PwC and IBM, will no doubt be a worry that sits on the top of holding company executives’ minds.
Already this year, IBM IX have acquired three digital agencies and Deloitte Digital have acquired 110-person creative agency, Heat. PwC’s digital division had $1.2bn in revenue in 2015 and according to the WSJ they are in the process of buying two or three digital creative firms in Europe and Asia that will add to this. WPP have already made 15 acquisitions and investments in the first two months of 2016. The holding networks will enjoy a boost in media and advertising spend in 2016 due to a number of quadrennial events that take place – the UEFA Euro Football Championship in France, the Rio Summer Olympics in Brazil and the US presidential election.
The UK’s referendum on whether or not they will remain a part of the EU has now been set for 23rd June. A change will inevitably have an impact on the UK and EU and will be felt by the big four holding networks, most notably London-headquartered WPP. WPP CEO Sir Martin Sorrell has voiced his concerns about a ‘Brexit’ and admitted it would destabilise UK businesses and put them at a disadvantage to their competitors in France.
*For WPP net sales figures and organic net sales growth are used rather than revenue and organic revenue growth, as they show underlying trends more accurately, given the increase in both online media buying as principal together with pass-through costs for data investment management.
Ciesco is a boutique corporate advisory firm specialising in marcoms and technology.