8 months ago| article
CEO has seen no material impact yet from inflation crisis
Oct 19, 2022 09:42:00 AM | Article | Gideon Spanier Share -
The boss of the world's second biggest advertising agency group employer has seen no material impact yet from the inflation crisis; and with revenues growing strongly at 10.3% in Q3, it has been able to upgrade its annual revenue forecast for the second time in three months.
However, Arthur Sadoun, the chief executive of 90,000-strong Publicis Groupe, also warned in an interview with Campaign that "every one of our clients is facing challenges" and he said the group also wanted to help its own staff because of rising inflation.
Employees who do not receive variable compensation will be given an extra week's salary in November.
Here is a transcript of the interview:
How would you describe Q3? Was it any different from the first half of 2022?
The common point between the two is that we’re seeing continued momentum. In a context of rising tensions in the global economy, Q3 came in well ahead of expectations at 21% reported growth. We are actually experiencing our third quarter in a row of double-digit organic growth at 10.3%.
[Data unit] Epsilon and [digital consulting arm] Publicis Sapient were particularly accretive to our growth at 13.9% and 18.1% respectively. All of our regions performed well, with the US and Europe at 11% organic growth.
How is Q4 shaping up? What might stop you hitting your upgraded full-year revenue forecast?
Nothing should stop us, and we are actually upgrading, for the second time this year, our guidance to about 8.5% organic growth for the year versus the 6%-7% previously announced in July. Of course, we have to stay cautious for Q4, given the macroeconomic uncertainties on the horizon. But we believe that the robust trends we have seen so far in 2022 will continue into the end of the year.
In a typical year, your predicted organic revenue growth in the high single digits would be seen as a good performance yet the share price of Publicis Groupe and your agency peers has declined this year ahead because of recession fears. How worried are you now about the outlook, as interest rates keep rising faster than expected? Or are there specific reasons why the agency sector might be able to keep growing?
It would be a mistake to look at the performance of our industry over a short period of time. The least we can say is that over the last three years, the economy and the world have been through many ups and downs. If you want to truly assess our industry and each of its players, you need to look at our results versus pre-pandemic levels and measure the progress made since 1 January 2020. Over this period, Publicis’ net revenue has increased by 31% and its market capitalisation by 40%.
When it comes to the outlook, we definitely need to be cautious, but we are also confident that we have the model, the capabilities, and even more importantly, the talent to face future challenges, as we demonstrated again in Q3.
What are clients telling you about 2023? We are hearing talk about some brands that are already preparing to cut marketing expenditure quite deeply next year.
For the moment, we haven’t seen any material impact from spend reduction. But let’s be clear, every one of our clients is facing challenges, be it inflation, supply chains, or the ongoing war in Ukraine. So they have to adapt, and may cut some traditional marketing investment next year. But what they won’t cut in 2023 is their investment to digitally transform their marketing and business model.
Clients know that they will need first-party data, dynamic content, new digital channels and technology at the core of their model to win in a platform world. We are uniquely positioned to partner them, with the scale of Epsilon and Publicis Sapient now fully integrated with our creative and media operations.
The UK is one of your most important markets and your biggest in Europe for media. Is there a danger that the political and financial instability in the UK will affect Publicis or client spend?
As a Frenchman, I’m not sure your UK readers want to hear my point of view on the political and financial context. When it comes to Publicis, we are seeing a particularly strong quarter in Q3 for the UK, at 22.6%, due to Publicis Sapient that is experiencing outstanding demand from clients for business transformation. We are actually planning for a very solid Q4 too, despite the current macro-economic difficulties.
You recently promoted Loris Nold to CEO for EMEA. It is the first time that Publicis has a CEO across Europe. Why do you need this new role? And does it mean the country model, with a country CEO, is now less important?
First, this is not the first time. Steve King has been directly in charge of Europe for the past years [although it was not his primary responsbility in his role as global chief operating officer]. Now, to answer your question, our structure is built on a country model, as we want to make sure our clients can benefit from a truly seamless approach to our resources, through a single P&L. There is no real integration if there are P&L silos between different agencies in the same country.
So yes, there is definitely a need for a country CEO, making sure that we properly integrate data, creativity, media and technology for all of our clients.
But we also need regional and global structures, to scale our best practices, and serve our global clients. This will be Loris’ role in EMEA, with full authority for the regional P&L to make the right investment where needed.
The cost of living, including rising interest rates, is a growing worry for staff in many countries. What can Publicis do to support employees in the light of inflation, potential mortgage refusals and so on?
Since the pandemic, we have always adopted a people-first approach towards all of the crises we have faced. Supporting our employees in a time of high inflation is clearly a top priority for us.
Of course, there is a limit to how much we can do, but we are dedicated to doing our part.
Concretely, this means that we have increased salaries by an average rate of 7% across the group this year. But we didn’t stop there. As we believe that everyone should feel the benefit of our strong results, we are granting an exceptional bonus, equivalent to one week’s salary to everyone with no variable remuneration, for the second time this year.
It will be paid in November, to roughly half of the group, to bring extra support to those who are most impacted by inflation as we enter the holiday season.
The United Nations secretary-general Antonio Gutteres recently criticised the "massive public relations machine raking in billions to shield the fossil-fuel industry from scrutiny" – "just as they did for the tobacco industry decades before". You told Campaign previously that it was important to work with energy companies – to "accompany" them – as part of solving environmental problems. But Gutteres says marketing services groups should stop working with some of these companies because they are not serious about tackling climate change. Is the UN secretary-general right? Or have your agencies been "raking in" too much money from these clients to turn them away?
Antonio Guterres is absolutely right to call out PR firms and companies focused on lobbying and greenwashing, rather than driving real change. At Publicis we’ve taken a firm anti-greenwashing stance since 2009.
Now, the world is currently in the middle of two major crises: the global climate crisis on one hand, and the energy supply crisis on the other. Resolving both will involve collaboration and innovation not just from energy companies, but across every industry and every discipline to build a better world.
That’s what we are committed to with our energy clients, and what we are doing concretely with Publicis Sapient, helping them transform the core of their business to become more sustainable and more ecological, now and in the long term.
When we come back to why agency groups have been performing relatively well in 2022, is the reason that they are less dependent on advertising than, say, in 2019, and more involved in new areas such as digital transformation, customer relationship management, data and retail media that are more stable? Does that make companies like Publicis less creative? And, more broadly, is Publicis' offer really that different from the other big six agency groups?
I won’t speak for the industry, but when it comes to Publicis, there is no doubt that the repositioning of Publicis Sapient, the acquisition of Epsilon, the implementation of the country model to integrate data, creative, media and technology, and the implementation of Marcel are reasons why we are delivering double-digit growth for the third quarter in a row in 2022.
In our new model, creativity is and will always be a key differentiator, that is absolutely vital to all of our operations, and we will continue to invest in our creative brands and next-generation creative platforms like Le Truc and Le Pub.
When it comes to our offer, our new business track record, placing us at the top of the industry over the past year, and the latest Forrester reports, speak for themselves. We have been building a unique way to go to market, that truly positions us as the preferred partner to our clients in their marketing and business transformation.
8 months ago| article