Publicis hit by client losses and US restructuring
Advertising group’s chief warns that Accenture is becoming ‘major competitor’
Advertising company Publicis was hit by a fourth-quarter slowdown because of client losses and restructuring in the US.
It capped a difficult year as chief executive Arthur Sadoun seeks to reshape the company to cope with technological disruption and new competitors like consulting giant Accenture.
The world’s third-biggest ad group by sales on Thursday posted a 4.5 per cent decline in organic sales in the fourth quarter, on revenue of €2.9bn. This was slightly better than analysts’ expectations, according to a company-compiled consensus, and took the annual organic sales decline to 2.3 per cent.
That key metric, which strips out currency effects as well as acquisitions and disposals, is tracked closely by investors and used to compare the performances of the various ad groups.
“The magnitude of change at Publicis in the last year has been great and this hurt our performance,” Mr Sadoun said in an interview. “But now our transformation, in terms of structure and assets, is complete, and our recent new business wins show we are on the right track.”
Net profit grew by 9.8 per cent to reach €1.2bn last year, driven by an improved operating margin of 17.3 per cent. Earnings per share for the year reached €5.02.
The company also confirmed an earlier target for 2020 organic sales growth to come in somewhere between a 2 per cent decline and a 1 per cent increase.
Publicis, which competes with larger rivals WPP and Omnicom, is betting that its $4.4bn acquisition last year of Epsilon, a digital marketing agency that owns a trove of online and offline data on consumers, will help it better serve its big clients from consumer goods makers to banks.
But investors still appear concerned that execution problems, management upheaval, and repeated restructuring plans at Publicis are not over.
Its shares have fallen nearly 30 per cent in the past year after it twice scaled back its growth guidance. WPP shares rose 10 per cent in the same period, while Omnicom shares were largely flat.
It remains to be seen whether any of the big ad groups has figured out how to cope as Facebook and Google siphon off more ad dollars, and big advertisers like Procter & Gamble and Unilever increasingly do more work in-house.
Another concern among investors has been Accenture’s aggressive expansion into digital marketing in the past five years via acquisitions, the hiring of top talent and organic growth.
The consulting giant has built a business that brought in more than $10bn in annual revenue in Accenture’s financial year 2019; that compares to nearly $15bn annual sales for Omnicom and $12bn for Publicis.
Mr Sadoun said Accenture’s recent decision to stop doing so-called “media audits” for advertisers to verify where marketing messages were placed was a shot across the bows for traditional agencies because it cleared the path for the consultancy to expand its “media buying” business.
That service — by which agencies place ads across the web, on TV and on radio on behalf of clients — is a major generator of profits for Publicis and others.
“The choice they made is to go more frontally in our markets,” Mr Sadoun explained. “Given that the market cap of Accenture is bigger than all the agency holding companies together, you realise that this will be a major competitor.”
Nevertheless, the business model chosen by Publicis — namely to have creative, technology and data all housed under one roof — should help it resist Accenture’s competition. “An end-to-end model is the future of our industry,” Mr Sadoun said.