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Organic Growth Flattens Out for Publicis Groupe

Hit by Q4 slowdown in emerging markets

Publicis Groupe CEO Maurice Lévy

Publicis Groupe, in the process of a merger with Omnicom Group, said organic growth was flat in the fourth quarter of last year, in contrast to a 3 percent rise in the first nine months.

The French holding company attributed the flattening to continuing Eurozone economic problems, the slowdown in emerging economies—particularly in China—and the postponement or cancellation of ad campaigns.

For all of 2013, Publicis reported a 2.6 percent rise in organic growth, falling below internal forecasts of 3.5 percent to 3.6 percent for the full year.

Revenue for the year rose nearly 9 percent to $9.2 billion while net income—not including the impact of merger expenses—rose more than 11 percent to $1.1 billion. Publicis said it incurred $52 million in merger-related expenses in 2013 but didn't break out the impact of those costs on results. Earlier this week Omnicom Group revealed it took a $41.4 million pre-tax charge against 2013 earnings because of professional fees related to the transaction. 

While Publicis chief executive Maurice Lévy described the year’s performance as “outstanding,” he addressed the company’s stagnant growth in a statement.

“The only cloud on the horizon was our organic growth in the fourth quarter which was affected by campaigns being cancelled or postponed, particularly in the emerging markets," Lévy said. "Our client portfolio, overweighed in the luxury sector, undoubtedly caused us to have a greater exposure than the market. This one-time blip does not call into question our growth plan, particularly for 2014.”

Revenue from digital business now supplies 38 percent of Publicis’ total revenue and 14 percent of all the organic growth in 2013. By contrast, growth in revenue from analog operations declined 3 percent last year.

For a company that in recent years has benefitted from the booming economies of the emerging markets, the fourth quarter showed a reversal in fortunes. Revenue in regions among the BRIC (Brazil, Russia, India and China) and MISSAT (Mexico, Indonesia, Singapore, South Africa and Turkey) countries declined nearly 6 percent. Publicis cited macronomic reasons like economic slowdowns and ad campaign postponements, which curtailed marketer spending.

The company said quarterly revenue in China declined nearly 11 percent for reasons of its own, including a cooling of the economy that became apparent in the third quarter and government decisions that impacted the ad market. India, in a pre-election year, also had mixed results and a decline in advertising investment.

A more mature economy, North America, rung up more than 2 percent in growth in Q4, thanks to strong increases in digital. Europe, excluding Russia and Turkey, remained flat at 0.1 percent.

Included in the 2013 financial details was a $64.2 million capital gain from Publicis’ sale of a 1.1 percent stake in Interpublic Group. In recent years Publicis has been interested in acquiring that U.S. rival, a deal that's now out of the picture with the French company’s pending merger with Omnicom.

The Publicis Omnicom Group deal, now expected to close at the end of the first half or start of the third quarter, “is progressing steadily,” Lévy said, adding, “We are currently working through the long process of obtaining the relevant administrative authorizations, one that is advancing smoothly.”

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