Publicis Groupe Reports Q1 Earnings, Outlines Cost-Saving Measures

Publicis Groupe acknowledged a series of cost-cutting measures in its Q1 performance today, announced ahead of its previously scheduled date of April 23. "We are implementing a 500 million euro cost-reduction plan with full impact in 2020, to adapt and be recovery ready. We are asking our shareholders for solidarity with our company and our people by cutting dividends by 50% and exceptionally delaying payment until the end of September," Publicis Groupe CEO Arthur Sadoun said in a statement. "At the same time, the Groupe’s management team has decided to reduce its fixed remuneration." That includes a decision by Sadoun to reduce his base salary by 30% for the second and third quarters of 2020, while the management board and committee will take a 20% pay cut over the same period. Supervisory board chairman and former CEO Maurice Lévy has also opted to reduce his annual compensation by 30%. Asked whether further reductions for senior leadership were under consideration, Sadoun said he could only speak for himself personally, but that he would potentially consider such a measure at a later date. "I will do everything personally and as a CEO to make sure that we weather the storm," he said, adding that he is working 16 hour days, seven days a week. "It's a very tough moment for our industry, he added. "My feeling is that people are ready to show a lot of solidarity to actually make sure that we protect our people," he said when asked if he anticipated broader salary cuts at the agency level. In addition to these measures, Sadoun mentioned in an internal video that Publicis Groupe will consider a targeted "strategic restructuring," which will be determined at a country level and may include furloughs and layoffs. Sadoun told Adweek that the holding company is utilizing furloughs and other measures to avoid layoffs wherever possible and characterized the holding company's move to a country model 18 months ago as beneficial to its handling of the situation. Necessary cost-cutting measures will be directed at a country level, with further actions deemed necessary also varying agency to agency, according to a source with direct knowledge of the holding company's operations. "Everywhere there is a need for furloughs, we are doing it," Sadoun said, pointing to Drugstore, the restaurant on the ground floor of Publicis Groupe's Paris headquarters which has been closed for a month, as an example of where widespread furloughs were necessary. "Our obsession since Day One has been to take all measures to protect our people," he continued, adding that Publicis Groupe was utilizing internal resources such as its AI-powered connectivity platform Marcel and trying to find new resources of revenue to accomplish that goal. Sadoun claimed the accelerated launch of Marcel has helped employees combat isolation and aided in resource management across Publicis' offices. Since launching 10 days ago, 20,000 of Publicis Groupe's 24,000 U.S. employees have registered for Marcel, according to Sadoun. He noted that job opportunities on the platform were currently limited to existing Publicis Groupe employees. Publicis Groupe's cost-cutting measures began around a month ago, Sadoun explained, with the postponement of new hires and moving away from using freelancers wherever possible. While organic growth was down 2.9% for Q1, in line with expectations, Sadoun positioned the results as a strong start to 2020 for Publicis Groupe. [article_summary section="1"]Given the unprecedented nature and extent of the economic crisis created by the coronavirus pandemic—and the unclear timetable for recovery—Publicis Groupe has declined to issue any financial guidelines. Sadoun explained that it didn't make sense to offer such guidance during a crisis that is "unprecedented" and "unparalleled in terms of magnitude, complexity and probably length." In a statement, Sadoun said, "It is slightly awkward to share encouraging news at a time when we are preparing ourselves for tougher days. But we actually had a good start to the year, meeting our internal objectives despite the impact of Covid-19," posting a 2.9% loss Q1. Publicis Groupe reported net revenue growth of 17.1%, including the contribution of Epsilon. "At the end of February, before the pandemic started to spread, we recorded almost flat growth despite double-digit decline in China, mostly driven by 5% organic growth in the U.S. on our creative and media business," Sadoun said in a statement, adding that "Epsilon 2.0" had posted 5% growth at the end of February. Speaking to Adweek, Sadoun also pointed out the strong performance by U.S. creative and media agencies contributing to a positive quarter in North America, a reversal of 4.5% decline in the region that Publicis Groupe reported for Q4 of 2019. The business impact of COVID-19 made for a "tough" month of March, particularly in Europe, he said, a situation that stands to get worse in the coming quarter. "If you look at the glass half full, we actually arrived with a number that was better than what the market was expecting," he said. "Hopefully, it will reassure the market a bit—not only for us, but for the industry." Last Friday, Publicis Groupe's advisory board examined the holding company's first quarter performance, the preliminary economic impact of the coronavirus pandemic, government containment measures in various countries and states, decisions taken by management in response to the situation and the 2019 shareholder dividend, payable in 2020. "We took a very clear position," Sadoun said, asking shareholders to accept a delayed dividend payment in September, as well as a 50% dividend cut and to accept shares rather than cash. He insisted that this measure would not be reevaluated or delayed further, adding, "As with everything that we are doing, we are doing this transparently. "We are making sure that we show from the top the solidarity with shareholders and with top management. We are focusing on weathering the storm for our clients [and] being recovery ready," he said, estimating that the holding company is spending 70% of its time managing the short term and 30% preparing for the future.