Publicis Groupe is off to a promising start in 2016 with 2.9% organic revenue growth for the first quarter, which is above expectations thanks to digital and media operations. Sapient, which has been included in the calculation of organic growth for the first time since Publicis Groupe acquired it last year, posted organic growth of 10%.
"With 55% of our revenue coming from digital, we are confident about our future but must remain cautious about the next two quarters which will be more impacted by losses that occurred in the 2015 media account reviews," Publicis CEO Maurice Levy said on an investor call Tuesday morning. That said, he added, "we have no client that has put us on notice. No major difficulty. And we don't expect anything major."
The Groupe's consolidated revenue for the first quarter of 2016 totaled 2,291 million euro ($2.59 billion), up 8.9% from 2,103 million euro ($2.38 billion) in the first quarter of 2015. Exchange rates had a 20 million-euro negative (-$22.61 million) impact, or 1% of first-quarter 2015 revenue.
Net acquisitions contributed 147 million euro ($166.20 million) or 7% of first-quarter 2015 revenue. "You have maybe noticed we have reduced enormously the flow of acquisitions as we lean first to integrate Sapient," says Levy.
"We don't expect this year to be a year of large or numerous acquisitions" with the possible exception of Samsung's ad agency Cheil Worldwide, the second largest Asian agency outside of Japan. Levy confirms acquisition talks, believing the South Korean-based agency would be a great fit to complement its digital expertise and global footprint. But he says these discussions have had "ups and downs" and "we are in a plateau today."
North America saw its revenue increase by 12.9%, boosted by 3% organic growth. This progress was mainly attributable to the media business, as the loss of media accounts during the "Mediapalooza" was only moderate in the first quarter. The impact will be bigger in quarters to come, says Levy. He adds that many new deals are one-offs or project-based agreements rather than long-term contracts. "The pipeline of new business is not that strong. It is not as rich as what we have seen last year" adding "I would like to see the Wheel of Fortune turning in our direction."
The Groupe is still encountering difficulties with Razorfish. It should also be noted that analog activities continued their decline, he says.
Europe recorded growth of 7.3%, although with acquisitions and the impact exchange rates, organic growth stood at 3.4%. France (+3%), Germany and Italy (+10% each) were strong performers, while volatility in Russia, the UK, and Spain resulted in mixed results.
Asia-Pacific reported revenue growth of 4.1% and organic growth of 3.8%, with notable performances in India (+8.6%) and mainland China (+4.1%).
Latin America saw revenue fall by 21.1% (organic growth of -3.1%) due to Brazil and Mexico (respectively -9.5% and -14.6%) where the situation remains difficult in both countries.
In the Middle East & Africa, revenue grew by 11.5%. Organic growth was up 0.7%.
Publicis' "priority of the year" is its transformation to a "connecting company" to align the organization to better meet the needs of its clients. "We decided to kill -- or if you prefer something softer, to walk away -- from the traditional agency model which operated in silos," says Levy, noting that the Groupe has spent the past 10 years buying up shops to help provide the network with an end-to-end platform.
This newly streamlined network will be fully operational into four solution "Hubs" by the end of June. Already Publicis.Sapient and Publicis Health solutions are already up and running, says Levy. "We are at the end of advertising as we knew it when it comes to Publicis. We moved away from the holding company and are going to very different organization," he says. "We want to better serve our clients, we have to change, we have to adapt and we have to be aligned with the better world," he says. "We have to be the Power of One. We have to use the alchemy of technology." And "we have to do it bloody quick."
"Our objective remains achieving our three priorities: the completion of our organization by the end of the first half of 2016, the return to more usual levels of growth, and the continued improvement of our profitability," says Levy.