Michael Roth, CEO of the Interpublic Group of Companies, said the company would have slightly elevated levels of severance in 2012, due largely to slower-performing operations in a number of markets -- particularly in Europe, where severance costs tend to be higher.
Speaking at the Deutsche Bank Media and Telecom Conference Wednesday in Palm Beach, Roth said the IPG shops must have “the right employee base with their revenue streams” if they are going to reach their profit margin targets for the year.
“We want agencies to get ahead of the curve [on reaching their goals] and they have to take action,” he said.
Europe, said Roth, accounts for about 13% of IPG revenue. That excludes the UK, which accounts for another 7% or 8% of revenue. In 2011, the revenue generation in the region was flat, and the assumption for 2012 is the same. “We managed through 2011 without a robust Europe, and we’ll continue to do that again” this year, he said.
While much has been made of the economic potential of the so-called BRIC countries -- Brazil, Russia, India, and China -- the next big frontiers for Adland will be Turkey and Africa, Roth said. “Istanbul will be a great future global hub if it’s not already there.”
In the U.S., Roth said the company has planned for organic growth of approximately 3%.
Despite some well publicized client losses for McCann Erickson, IPG’s flagship agency network, the shop expanded its margins and grew revenues in 2011. The CEO said he expects more of the same -- or better -- from the agency this year. “McCann is a global powerhouse,” he said. “You hear about the losses, but what you don’t see is the wins all over the world.”
Asked which agency has the biggest challenge this year in terms of meeting financial targets, Roth cited Draftfcb because the shop is still in the process of absorbing the loss of S.C. Johnson. But, he added, the entire organization is compensated based on organic growth and margin improvement. “We’re all marching to the same drummer."
Earlier in the week, IPG received upgrades from Standard & Poor's and Deutsche Bank. S&P revised its outlook on the advertising and marketing services holding company from “stable” to “positive,” citing among other indicators the company’s steadily rising pre-tax profit margin and its reduced debt level.
Deutsche Bank upgraded its rating on the holding company from a “hold” to a “buy,” based on “increased evidence that IPG is securely on track to peer level margins despite micro and macro headwinds.” At the same time, Deutsche said, IPG is returning substantial amounts of cash to shareholders.