While Publicis Groupe posted better-than-expected Q2 earnings on Thursday, the France-based advertising agency holding company warned the next quarter is going to be “difficult.”
Last year, Publicis lost a number of huge media-buying accounts, including the mammoth $2.6 billion Procter & Gamble North America media business, the Honda media account in Europe, General Mills, and Coca-Cola.
It picked up some sizeable briefs along the way — like Visa, GSK, and Taco Bell — but Publicis CEO Maurice Lévy told Business Insider that nevertheless, Q3 will mark “the moment of truth and the most difficult moment of the year.”
But there are still plenty of reasons to be cheerful, according to Lévy.
Last December, Publicis announced a major reorganization that saw the business split itself into four separate divisions — Publicis Communications, Publicis Media, Publicis Sapient, and Publicis Healthcare — designed to help its hundreds of agencies — from Saatchi & Saatchi, Starcom, Sapient Consulting, to Leo Burnett — work better together under its new “power of one” concept.
That’s improved the scope of work it is offering clients, Lévy explained. So a client that was just working with one of Publicis’ many creative agencies is now more likely to be taking up media or digital consulting services too.
Lévy is also cheered by how well the company’s inaugural Viva Technology Paris event — a kind of mix between CES and TechCrunch Disrupt — went earlier this month. Speakers included Alphabet chairman Eric Schmidt and Wikipedia founder Jimmy Wales, and 45,000 people visited. Publicis invested 10 million euros in the event, where it also announced a big collaboration with Chinese tech firm Tencent.
“It was way beyond our wildest dreams. We wanted to do an event like no other exists,” Lévy said.
“The question now is how we will beat such success next year … we got a few returns. The publicity was just incredible, in terms of credibility in the field of technology, the people who were asking if what we are doing is true, is fake, is window dressing, or whatever, they have been able to measure our credibility to the key players of the industry … obviously now we have to make it work financially and this is what we are going to do in the year to come.”
French labour reforms
Lévy is also cheered by the French labour reforms, which were pushed through Parliament by Prime Minister Manuel Valls earlier this week without a vote. The bill — which was designed to create jobs and make the French economy more competitive with the rest of the world — weakens union powers, extends the working week, and should make layoffs and modifications to things such as overtime wages easier.
The bill, which was pushed through parliament after months of strikes and protests, has been watered down from the original version in order to make concessions to the unions. Lévy does not think the reforms go far enough as many minor measures were removed, but thinks the fact that it has been passed it is a good sign.
“Kudos to the government who have been able to stay strong on the will of reform,” he said. “Now we need to make sure we are getting the decrees of application and that they will implement the reform quickly. It is a good step in a good direction, although I was hoping for a giant step, which was the first reform.”
The ANA report
There are still some issues from previous quarters that linger over Publicis and the rest of the advertising sector.
The second half long-awaited Association of National Advertisers (ANA) report into US agency rebates was published earlier this month. The first report, published in June, suggested non-transparent behaviour — such as taking rebates from media owners and not disclosing them to clients — was “pervasive” in the US media agency landscape.
The second section of the report offered guidelines to marketers on how to manage their media agency relationships, which included recommendations including revising the wording of their contract and renegotiating their audit rights.
Publicis has felt the direct impact of that report. As Business Insider first reported, JPMorgan Chase called in auditors to examine its relationship with Publicis media agency Zenith. The two auditors it has hired happen to be the two companies that carried out the ANA report: K2 and Ebiquity’s Firm Decisions. While the audit is taking place, JPMorgan Chase has suspended its activity with Zenith and has appointed Vayner Media to take over in the interim.
Lévy admits the suspension of activity is “quite unusual,” but believes this is down to JPMorgan Chase being a bank and therefore being cautious to comply with regulation.
“We have regular audits made by many of our clients and some are doing an audit on a yearly basis. It’s not something uncommon and we feel extremely good about the necessity to do that audit. We believe it will go well. It is still in process and we don’t believe there will be any wrongdoing,” he said.
Publicis released a lengthy statement in response to the first half of the report last month, saying the ANA had “failed its members, advertisers, agencies, and the entire industry by releasing a report that relies on allegations about situations involving unnamed companies and individuals to make broad, unsubstantiated and unverifiable assertions.”
Lévy told us on Thursday: “In any given democracy, when there is an issue and somebody is accused of doing something wrong, the first right of that individual, or company is to know the facts and defend itself. So we want to know the facts and we want to check what those facts are in order to bring the right answers. So we find it quite awkward that the process went this way.”
Speaking of democracy, Publicis is still waiting to see what impact Britain’s intended exit from the European Union will have on its business. When Lévy spoke to us the day Britain voted for a Brexit last month, he told us he was “stunned to the point that it did exactly feel as if I had no legs.”
Now he has got over the shock somewhat, Lévy said there are still two questions Publicis has about how Brexit will affect its business: Will there be a decline in GDP in the UK or the EU? (To which he believes nobody knows yet.) And what are the Groupe’s plans for the UK? The UK is Publicis’ second-biggest market.
“We made a clear statement that we are going to stay [in the UK.] We are going to continue to invest. And we are going to continue to develop our operations. We will be there for a very long time and I wrote to all our people in the UK to tell them that we stand by them,” Lévy said.
He added that he hopes new Prime Minister Theresa May “will act quickly” in order to make the right decision to “build a better future for the EU.”
Publicis reported a better-than-expected second quarter on Thursday. Sales rose 0.9% to 2.46 billion euros ($2.7 billion), while organic growth — which is the measure the industry usually uses to measure success as it strips out the effects of acquisitions and currency fluctuations — was up 2.7%.
Publicis’ share price was up 2.7% to 65.98 euros at the time of writing.
Rival advertising holding company IPG also reported earnings on Thursday. The firm — which owns agencies including R/GA, McCann, and FCB — posted organic revenue growth of 3.7% in its second quarter. Total revenue increased 2.2% to $1.92 billion.
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