By James Whyms and Luke Power at Ciesco
WPP, the world’s largest marketing group, reported revenue growth of 23.4% to £3.6bn ($4.7bn) for the third quarter of 2016 as it benefitted largely from the weakening pound. The underlying like-for-like, or organic, revenue growth was 3.2%. Net sales, the most meaningful and accurate reflection of WPP’s top line growth, increased 2.8% on a like-for-like basis. Reported net sales increased 23.6% to £3.1bn ($3.8bn), with 5% coming from acquisitions and a huge 15.8% from exchange rates. Chief Executive Sir Martin Sorrell noted during an earnings call that the UK revenue growth had slowed to 2.8% versus the 3.4% growth in Q2 2016 which could be attributed to Britain’s vote to exit the EU.
New York-based Omnicom Group grew revenue by 2.3% to $3.8bn for the third quarter of 2016, comprising underlying organic growth of 3.2%, net acquisitions contributing 0.4% growth and foreign exchange impacts reducing revenue by 1.3%. Omnicom’s Specialty Sector had the largest growth in revenue in Q3, with organic growth of 6.2%. PR and Advertising also had strong quarters with growth of 4.4% and 3.6% respectively.
Omnicom’s impressive 5.2% organic growth in the UK was diminished by the weaker pound, with the reported revenue for the region down 10.4%. The US group noted uncertainty around Q4 and 2017 due to the implications of Brexit and the upcoming US presidential elections.
Publicis posted reported revenue for the quarter of €2.3bn ($2.5bn), down 0.4% from the same quarter in the previous year. The French group lost several key media accounts to competitors in the US last year including P&G, Coca-Cola, Mondelez and General Mills and the impact of this this is now showing. North America was Publicis’ weakest performing region for the quarter, with organic growth at -4.0%, sending shares down as much as 6.5% on the day of announcement. The group did, however, enjoy strong underlying growth in its home region of Europe, with 7.6%.
Interpublic Group reported a third quarter revenue increase of 3% to $1.9bn. The company once again reported the highest organic growth of the four largest holding companies with 4.3% for this quarter. Acquisitions slightly increased revenue by 0.4% whilst forex reduced revenue by 1.7% for the quarter.
IPG’s Constituency Management Group (CMG) division which includes agencies such as Weber Shandwick, Golin and, Jack Morton, enjoyed with highest underlying growth with 9.4%.
WPP, IPG and Omnicom all experienced organic growth in the core market of North America/US. Publicis, however, had a very poor quarter in the region, with organic growth of -4.0% due to key media account losses from last year materialising.
For all four companies, growth was generally stronger outside of North America, likely influenced by the pending US elections taking place this month. WPP and Omnicom posted organic growth in all regions and IPG enjoyed particularly strong growth in the UK, with 16.4%. IPG’s performance in the UK and Europe was driven by event specialist, Jack Morton, as well as major account wins in the retail, and food and beverage sectors by both Mediabrands and McCann.
Concerns about future Brexit implications was a trend across earning calls this quarter. WPP noted that in all aspects of its UK business revenues softened in Q3, claiming this may be the first signs of “Brexit anxiety.” Omnicom felt the strain of the drop in the value of the pound as well. However, counter to this, IPG noted that they have not seen any “specific impact on spending related to Brexit,” as can be seen in their high organic growth in the UK market.
Growth in Europe was strong for French-based Publicis, which saw organic growth of 7.6% and IPG with 8.3%. In both cases this was due to multiple large client wins in the region.
Latin America proved to be a strong market for all four holding companies with most reporting double digit growth, driven by the increased adspend caused by the Summer Olympics in Rio de Janeiro.
APAC was an area of weakness for IPG and Publicis, whilst Omnicom recorded 8.0% organic in the region.
Outlook
IPG enjoyed the strongest organic growth in Q3 of the four companies. For the 9-months up to the end of Q3, organic growth is 4.8%, and an improved full year target of 4%-5% has been set, up from the previous target of 3%-4%.
WPP’s YTD 9-month net sales growth have grown a steady 3.4% organically. Due to the uncertainty of the UK’s political future in Europe, the company has said it will place an even greater emphasis on Western Continental Europe. In September, WPP invested in French media group LNEI.
Omnicom produced positive organic growth in all sectors and in all disciplines in Q3 2016 and 9-month organic growth of 3.4%. However, CEO John Wren remains “cautiously optimistic” going into the fourth quarter, stating a “very unusual year with the presidential election” is adding to a “general conservatism,”.
Publicis CEO Maurice Lévy stated a cautious approach to 2017 given the lack of visibility owing to elections in the US, France and Germany, and the consequences of Brexit. The group is currently in the process of restructuring as it prepares to reorganise the company into four hubs: communications, media, healthcare and Publicis.sapient (housing digital consultancy) as well as preparing for the departure of Mr Lévy in April 2017. With 1.9% organic growth for the first 9 months of the year, the group is trailing its competitors.
Notes:
Source: All data obtained from WPP, Omnicom, Publicis and Interpublic Group of Companies’ Q3 interim reports and presentations.
Organic Growth: the year-on-year increase or decrease in revenue from the prior period, excluding the FX impact and net acquisition revenue
1: 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.
About Ciesco
Ciesco is a boutique corporate finance advisory firm, specialising in the digital, media, marketing and technology sectors. Ciesco advises clients on mergers & acquisitions and corporate strategy.
© November 2016 Ciesco Limited. All rights reserved.
