Publicis Takes $1.5 Billion Charge, Cites Razorfish

While Publicis Groupe has bet big on digital assets in recent years, the firm is struggling to make those assets post a decent return.

The latest evidence was provided today when the company reported it was taking a roughly $1.5 billion impairment charge for 2016, mostly against Publicis.Sapient, the division the firm created to house its key digital properties.

The weakest link in that group of assets is Razorfish, which the company described as having "serious issues" after reporting “negative growth” for the year in double digits. Publicis Groupe CEO Maurice Lévy said that the underperformance is being analyzed thoroughly.

Publicis Groupe’s consolidated revenue in 2016 rose 1.4% to 9.7 billion euro (about $10.4 billion). Organic growth was 0.7% in 2016. Exchange rates adversely affected revenue by $189.4 million (177 million euro). 

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The company reported an organic revenue decline of 2.5% in the fourth quarter, including a 2.2% drop in the North America region. By comparison, Omnicom Group, reporting earlier this week reported full year 2016 organic growth of 3.5% and 3.6% in the fourth quarter.

"Our numbers speak loud and clear," said Lévy during his last annual presentation as CEO. He will step down June 1 and be succeeded by Arthur Sadoun, although he is being nominated for the chairmanship of the firm’s Supervisory Board.

 "2016 was devoted to the implementation of [our] new organization and transformation from an 'advertising holding company' to a 'connecting company' with the creation of a completely new approach called 'The Power of One.'"

The first half of 2017 will be impacted by some account losses sustained early last year, as well as by the difficulties at Razorfish. But those losses will be progressively offset by the ramp-up of recent account wins, such as Merck, KFC and HSBC, and Special K. The Groupe also recently retained both GMC and Mars. Lévy noted that the latter is boosting its ad budget going forward.  

"We will feel difficulties but are not expecting Q2 to be worse than Q1," says Lévy.

"The only weakness is our organic growth," Lévy told analysts during an early Wednesday morning presentation. He noted the organic growth slippage in Q4 was due to media accounts lost in 2015 and early 2016, as well as the fact that certain digital projects reached completion at Razorfish before others had fully ramped up.

There was also a very "unfavorable" basis of comparison in North America in Q4 2015 (+6.3%) where the market was not as strong as anticipated during last year’s fourth quarter.

The Groupe’s consolidated revenue for the fourth quarter was nearly $2.9 billion (2.7 billion euro), down 2.5% from the prior year quarter.  Exchange rates impacted revenue negatively by $28.89 million (27 million euro).  Net acquisitions contributed $26.75 million (25 million euro) to revenue in Q4 2016.

Outcomes of referendums in the UK and Italy and elections in the U.S. have brought geopolitical uncertainties while America’s traditional positions seem to produce economic consequences that are difficult to gauge, Lévy said.

Organic growth in Europe was +5.9%. France performed well (+6.5%), and Germany and Italy both posted strong momentum (+8.0% and +6.3%, respectively). Volatility in Russia fueled 11.8% growth. The UK was up 5.9%.

Asia Pacific achieved organic growth of +1.5%.  China decreased in the second half year by -6.0% after achieving +4.4% in the first half year.  India and Singapore posted full year growth of +0.5% and +8.1% respectively.

Latin America was down 11.4% on a reported basis, mainly because of exchange rates, though organic growth was +2.9% for the period. 

The Groupe’s growth continued to be driven by its digital activities, which posted organic growth of 3.2%. Analog activities continued to decline. "Society is evolving spectacularly as the exponential development of digital and other technologies obliges companies to undergo very deep transformation," said Lévy.

1 comment about "Publicis Takes $1.5 Billion Charge, Cites Razorfish".
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  1. Nomers Business Services from Nomers Business Services, February 9, 2017 at 1:41 p.m.

    That's nice.

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