First, some necessary background to the dispute.
These days, only two things really matter for global agency holding companies presenting themselves in the annual financial beauty parade. Two things, that is, beyond a clean set of figures showing decent organic growth, enhanced operating margins and a handsome improvement in earnings per share (EPS).
They are: how much revenue is digital (as opposed to derived from ‘traditional’ advertising). And: how much comes from emerging economies.
The annual figures merely tell us how well the company has been stewarded in the recent past. But the other two criteria are much more exciting because they are predictive. Get them right and you tantalise shareholders with the thought of future gain, garner positive headlines in the financial media, boost the share price and – if you are one of the company’s most senior executives – make yourself still richer in the process.
By these standards, Publicis Groupe has just produced a corker. Never mind revenue growth of 5.7% to €5.8bn in near economic-blizzard conditions, or operating margins of 16%, or EPS up 14%. What really mattered to The Financial Times was a sound-bite: Publicis’ US digital revenues are set to overtake those of traditional media.
And to be fair, it is a pretty singular statistic considering that, as recently as 2006, digital was only 7% of PG’s revenue globally; now by comparison that global figure is nearly 31%.
“Digital” is of course shorthand for: our share of the pie in the only bit of the advertising economy still growing in developed economies, such as the USA and Europe.
Of no less importance as a corporate virility symbol is “emerging markets”, the geographical counterpart of “digital’s” sectoral dominance. Maximum bragging rights are accorded to those who can establish leadership in the most significant of these markets, the BRICs (Brazil, Russia, India and China).
PG chief Maurice Lévy’s claim that 75% of group revenues will in the “pretty near future” be derived from a combination of digital and emerging markets such as “Brazil and China” is therefore music to the investment community’s ears.
Better still for investor returns, Lévy claims he will reach this milestone ahead of his rivals Omnicom and WPP.
Not surprisingly, these rivals are livid at the suggestion. So incensed in fact that WPP, for one, is challenging the factual evidence on which Lévy has built his ambitious projections.
It has dissected PG’s webcast financial presentation and done a slide-by-slide demolition of PG’s BRIC performance. I won’t bore you with all the details. But here’s the gist:
Slide 32, Brazil. Lévy mentioned last year that Brazil was PG’s 4th largest market. Now he’s saying it’s the 6th. What happened?
Slide 33, China. WPP takes issue with PG’s assertion that it will double its size in this all-important market by 2013, from a $200m 2010 revenue baseline. It says the ’3 creative network leaders’ claim is a myth. R3 sourced figures actually put WPP and Omnicom agencies ahead of PG’s. Cannes performance also suggests WPP outguns Publicis. PG claims to be top in media buying: this is flatly disputed by WPP, which says RECMA figures prove it is overall leader in Greater China. The key argument, avers WPP, is over organic growth. Here, PG is achieving about 8.5% while WPP appears to be nearing 16% a year.
Slide 36, Russia. PG claims leadership in this market both in media (Vivaki) and creative (Leo Burnett and Publicis Worldwide). WPP asserts that there are no reliable creative rankings in Russia and where media is concerned it is emphatically on top with 28% share versus PG’s 23.2%, according to RECMA figures.
Slide 37, India. PG claims to be number one in new media business (Vivaki) and no 2 in creative (Leo Burnett), quoting R3 as the source. But R3 does not do a new business table for India, says WPP. PG claims strong positions in digital, healthcare and PR, but with no source attached. PG’s digital presence is “tiny” (says WPP), and it has made no recent acquisitions. As for media, according to RECMA, WPP’s GroupM has 42.7% share while Vivaki is 3rd with 9.4% share. Creatively, the latest Economic Times 2011 Brand Equity rankings for agencies (the only authoritative source on this subject) puts two WPP agencies Ogilvy and JWT first and second, while Burnett is 6th and Saatchi & Saatchi 17th.
It’s no surprise, of course, to find these two deadly rivals engaged in another slanging match, albeit disguised in high-falutin’ finance speak. What will be interesting is if Publicis has a riposte.
POSTSCRIPT. I note that, despite a strong set of figures and robust balance sheet, PG has maintained rather than increased its dividend. As Lévy explained, that’s because PG needs to hold on to all the cash it can in case it has to buy back up to €900m of Dentsu shares later this year. In view of recent developments, this seems highly likely.