Arthur Sadoun: Clients are still spending but there are fewer pitches and ‘clouds’ over 2023

Publicis CEO talks after upgrading growth forecast at Q2 results

Jul 22, 2022 04:08:00 AM | Article | Gideon Spanier

Arthur Sadoun has seen no significant change yet in client behaviour, despite mounting economic uncertainty, and said Publicis Groupe’s 10% growth in the first half of 2022 shows it has modernised its offer and is well prepared for what could be a 'cold economic winter'.

Sadoun, the chief executive and chairman of Publicis, was speaking to Campaign after upgrading his annual forecast, as he expects growth of between 6% and 7%, but that still implies slower revenue growth in the second half.

There has already been a slowdown in pitching, particularly in creative work, compared with last year and he admitted 'there are clouds gathering above the economy' – a reference to rising inflation and the cost of living.

Sadoun also talked about helping energy clients to evolve their operation in response to the climate crisis, following Greenpeace’s protests at Cannes Lions, and the gender pay gap after a Campaign survey found two Publicis agencies had the largest gaps among larger UK advertising companies.

Sadoun, who marked five years in the job as CEO in June, has continued to work after a cancer diagnosis earlier this year. “I had a tough couple of weeks but I’m now fully recovered after my preventative treatment and am starting to travel again,” he said.

Here is a transcript of the interview: 

How would you describe Q2? There is a lot of talk about the economic environment worsening and inflation rising in recent months, but was there any substantial change compared with Q1? 

Q2 was very strong, with an increase in our net revenue by 21% and organic growth at 10.3%, way above expectations. These results are even more remarkable than our Q1 performance – where we also published organic growth just above 10% – as they come on top of 17.1% organic growth in Q2 last year [during the initial bounceback from the 2020 coronavirus slump].

So it’s strong growth on strong growth. Our H1 is at an all-time high across all KPIs, despite the macro-economic uncertainty.  

Are clients behaving differently? And are you having to be more cautious – for example, on hiring?

For the moment, we aren’t seeing any change in client behaviour linked to the ongoing uncertainty. They are continuing to accelerate their investment in first-party data management, digital media, commerce and business transformation overall. We are capturing a disproportionate share of that revenue, as you can see from the performance of both Epsilon and Publicis Sapient, which grew by 13.7% and 19.1% respectively.

Consequently, we have been hiring at pace to deliver our growth. That said, if some clients were to behave differently and reduce their spend, we have the necessary agility thanks to [internal online platform] Marcel to reallocate our resources fast [by moving staff onto other client work] and protect jobs, as we have demonstrated over the past couple of years.

What about the revenue outlook for the second half of the year and the whole of 2022? At your Q1 results in April, you pushed up your annual revenue forecast slightly but kept it within the same range between 4% and 5%. That was in contrast to some of your rivals, which were more optimistic at their Q1 results and upgraded their forecasts by 1%.

We preferred to wait for the end of H1 to have more visibility on the year, rather than upgrade by a few basis points every quarter. We are now confident that 2022 will be another record year for Publicis, which is why we are upgrading our guidance across all of our KPIs, including raising our organic growth target from 4-5% to 6-7%.   

Some analysts have said 2023 will be when things get really tough and organic revenue in the agency sector could turn negative. What’s your view? Is there a risk of recession?

Some are predicting that a very cold economic winter is coming. It is true that clouds are gathering above the economy, but my job is not to predict the weather. It is to make sure that as a group we are ready to face any uncertainties. And in this case we definitely are. We have all the tech and data assets fully integrated with our creative and media expertise, to help our clients drive growth and generate efficiencies, whatever the scenario.

The attractiveness of our offer is particularly visible when you look at the new business rankings that we continue to lead [according to JPMorgan’s table for the past 12 months]. On top of that, with our platform organisation, we have the agility to continue to deliver the highest financial [profit] ratios in the industry, while investing in our product and our talent. 

It’s important to bring some perspective here. Since 2019, and in spite of all of the crises we have been through in that time, Publicis has increased its first-half revenue by 35% [including acquisitions], and its operating margin by 50%. So we are confident that we have the assets, the structure and the experience to deliver sustainable growth. 

What’s happening with new business in 2022? It feels like there are fewer big pitches and maybe fewer of the integrated “Power of One”-style pitches across creative, media and marketing?

After a record number of pitches in 2021, the industry as a whole is experiencing less activity at the moment. We are seeing fewer pitches in creative, with some clients now preferring to have different agency partners working project by project. Media is where most of the big, global battles are this year, but there are also fewer major pitches here than in 2021. The biggest so far has been AB InBev [where Publicis was the big winner]

We have also been participating in – and winning – some of the business transformation-oriented opportunities [that you don’t see publicly because they tend to be broader than advertising]. For example, we recently won a very large pitch against both some of the other holding companies and the global consulting firms, that covered commerce, CRM and website build. More generally, we continue to see demand from our clients for transformative solutions across creative, data, media and tech.

Netflix recently signed a deal with Microsoft as part of the streaming company’s forthcoming ad-supported tier. Disney+ is also planning to offer ads soon. How significant could this be in terms of the evolution of TV advertising – after a long period when a lot of the audience growth was in ad-free streaming and it became harder for brands to reach consumers? 

The addition of Netflix and Disney+ to the TV advertising ecosystem will enable clients to finally achieve the goal of personalised video at scale. At Publicis, we have been helping clients navigate this fragmented market to ensure they are scaling their investment at this critical intersection of audience growth within the highest-quality content, via our Advanced TV product, Lift. 

Not only will Lift enable our clients to counteract this highly inflationary TV market, but we have the unique ability to make Advanced TV assets more performant and effective for brands. By tying together the fragmented inventory and distribution landscape through Epsilon, our clients have been able to unify the reach, frequency and measurement of their ATV campaigns in a way that’s not available at other holding companies.

Greenpeace protested at Cannes Lions and criticised agency groups, including Publicis, because “all these firms continue to work for the fossil fuel industry helping them promote their image and the alleged environmental virtues of oil and fossil gas and, as a result, block the rapid climate action required”. Is Greenpeace right, especially when you look at the soaring temperatures and fires across Europe this month? Will Publicis get tougher on sustainability and stop working with some clients?

Greenpeace is right in bringing the topic of sustainability to the fore. It’s a call of urgency for all of us in the industry and the world at large. Publicis is focused on actions, not words, be it through helping develop sustainable products and services, our proprietary tools that calculate and reduce the impact of campaigns, or our SBTi [science based-targets] approved commitments to be carbon neutral before 2030. Our efforts on this front mean we are ranked first in our industry on ESG by eight leading [ratings] agencies. But make no mistake: we know that so much more still needs to be done. 

The size of this problem is enormous and requires the skills, talent, ingenuity of everyone and all industries – that includes energy companies as they seek to transform their businesses and find new ways to continue to power our world more sustainably. At Publicis, we are able to accompany our energy clients, not only in the marketing, branding and PR space, like other holding companies, but we are also uniquely placed to help them transform the core of their businesses for the better, thanks to Publicis Sapient.

Campaign recently carried out a survey of the gender pay gap across UK agencies and advertising companies with more than 250 staff and found two Publicis agencies, Bartle Bogle Hegarty and Digitas, had the widest median gaps – 33% and 28% respectively. Were you shocked? Why isn't change happening faster?

Gender equity is a key priority for Publicis around the world. The UK team, under the leadership of Annette King, have introduced a range of programmes which will help attract more women into the business and create the conditions for them to thrive, and are tracking and analysing the data monthly to ensure the initiatives are having an impact. 

Lasting, meaningful change is complex. It takes time and commitment, but I know that every manager, starting with Karen [Martin, CEO] at BBH and Dani [Bassil, CEO] at Digitas, have strong plans in place to reduce these gaps and are unwavering in their commitment to driving positive change.

You said in February that you planned to double your M&A budget in 2022. What kinds of business are you looking to buy and have you had to alter your ambitions because of the tougher economic environment?

We did not have to alter our ambitions at all. Quite the opposite actually. We will finish the year at the upper end of the €400-600m bracket we gave, with acquisitions like Tremend and Profitero. Our transformation is complete, following the successful integration of Epsilon and Publicis Sapient, and we are now looking at smaller targets that can drastically accelerate growth for our clients.

This is exactly what we did in acquiring CitrusAd, our retail media platform that grew triple digits this quarter and is now proposing the industry’s first unified on-site/ off-site platform, CitrusAd Powered by Epsilon. 

You officially started as CEO and chairman of Publicis Groupe in June 2017 and your five-year term as chairman of the management board expires on 14 September 2022 when it is due for renewal. How do you rate your first five years? And what would you like Publicis Groupe to look like in five years from now?

The last five years have been some of the toughest times, but also some of the brightest. The toughest, because we were challenged pretty heavily for making controversial bets like Marcel, shifting to a country-led model, or the biggest acquisition of our industry, with Epsilon. The brightest, because five years later, thanks to the resilience and the talent of our teams, our efforts to disrupt the industry are paying off in every dimension as you can see in our results.

I’m incredibly grateful to everyone at Publicis who has contributed to getting us where we are today. As for the next five years… ask me on 15 September. And, in the meantime, have a good summer.