Publicis Groupe’s organic growth – excluding acquisitions – was just 1 percent for the third quarter of 2014, as chairman-CEO Maurice Lévy continued to blame his group’s poor performance on the failed merger with Omnicom.
Revenues were up 4.4 percent to $2.2 billion in the third quarter.
In an attempt to leave the bad memories behind him, at first Lévy avoided reference to the deal-that-never-was, and spoke instead of “other plans” that had derailed Publicis Groupe. But, towards the end of a conference call with analysts, he concedes that was all “pure rhetoric”.
He says, “I’m fed up mentioning the merger. I decided not to mention it. There has been far too much attention on the merger. I was personally – and my team – far too much focused on this”.
Asked why Omnicom Group was doing “perfectly well” but not Publicis Groupe since the merger breakdown earlier this year, Lévy says: “It is something that has been extremely important for us. We believed in the merger and we thought it would happen, so we worked very hard for it. I will not comment on Omnicom.”
However, he went straight ahead and commented bitterly on Omnicom: “Clearly they have been less distracted. Probably they didn’t believe very much in the merger. Maybe they were believing much more in a takeover, and that probably has been the real difference. Period”.
Publicis Groupe’s digital revenues were up 9 percent in the first nine months of the year, and now account for 41.63 percent of the total, up from 37.6 percent in 2013. However, Lévy made clear the extent of the problems with digital network Razorfish, which led to last month’s decision to merge it with Rosetta to form Razorfish Global, under the leadership of Rosetta CEO Tom Adamski.
“It was a perfect storm at Razorfish,” says Lévy. He cited the freezing of the Motorola account and Blackberry‘s move away from consumer marketing, as well as the end of some important one-off contracts. He adds that Pete Stein, who was made Razorfish global CEO in July 2013, was “an excellent guy but probably the casting was not appropriate for those days.” Stein is leaving at the end of the year.
As an example of the impact of the failed merger, Lévy says that the problems with Razorfish had been identified at the start of the year, but that the company had decided not to act because they had anticipated creating a bigger digital entity after the Omnicom deal went through. He also said that he had delayed the recent management changes because of the pending merger.
Earlier last week, Omnicom reported third-quarter revenue growth of 7.4 percent, while Interpublic Group of Cos. was up by 8.3 percent.
For the first nine months of the year, organic growth at Publicis Groupe was 1.5 percent. Lévy says, “We are not pleased with the numbers but it is the reality and we have to face it.” Publicis blamed North America’s meager 1.5 percent growth on the underperformance of Razorfish, while Europe’s -0.5 percent growth was attributed to weak economies of Southern Europe, as well as to problems in the U.K., where revenues were down 2.6 percent, due to the effects of a temporary leadership gap at Publicis Worldwide.
Emerging markets were also weak, with just 0.6 percent growth. Brazil was down -0.6 percent and Greater China down -1.6 percent, but India was up 5.9 percent.
A note from analyst Liberum says, “Our concern is not so much the short-term performance, more that [Publicis Groupe] may have more deep-seated problems that are impacting its relative performance against the other agency groups.”
Lévy admits: “The picture is bleak,” and was unable to offer reassurance about the fourth quarter due to “uncertainties” in emerging markets and the “challenging environment” in Europe.
At the start of the year, Publicis Groupe forecast four percent growth for 2014, but this has now dropped to 1.5 percent, which Lévy admits is, “quite painful for me to live with. The only thing I can tell you is that we are working extremely hard to deliver. 2014 will not be a landmark in history as one of our greatest years, to put it mildly. We should put it behind us quickly and move fast into 2015”.
On November 7, Publicis plans to hold an investor day to talk in greater detail about its strategic plans for improving the company’s performance.
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