Account wins buoy Publicis Groupe’s Q1 organic growth; but APAC sees degrowth
Publicis Groupe has reported net revenue of €2,082 million euro in Q1 2018, down 8.2 per cent from €2,267 million in 2017. However, net revenue grew by +1.6 per cent at constant exchange rates. Organic growth was +1.6 per cent in Q1 2018 after reaping the benefits of accounts gained in 2017, notably McDonald’s, Diesel, Lionsgate, Bradesco and Southwest.
Publicis Groupe has applied IFRS15, the accounting standard on revenue recognition, since it became effective on January 1, 2018. The 2017 financial statements have, therefore, been restated for the purposes of comparison. This has increased Q1 2017 revenue by €161 million insofar as certain costs re-billed directly to clients are excluded from revenue. These costs mainly concern production activities as well as various expenses incumbent on clients.
In Q1 2017, revenue after application of IFRS15 is €2,489 million. After deduction of re-billable costs totalling €222 million (€161 million in application of IFRS15 and €61 million already in operating expenses in application of previous accounting standard), net revenue (that is, revenue less pass-through costs) stands at €2,267 million.
Exchange rates had a €217-million negative impact, that is, 9.6 per cent of net revenue in Q1 2017. Acquisitions (net of disposals) contributed a negative €1 million in Q1 2018, as Genedigi was deconsolidated from January 1, 2018.
Region wise growth
Net revenue in Europe declined by 0.8 per cent. With acquisitions and exchange rates factored out, organic growth was +0.3 per cent. In addition to the loss of a few accounts, this weak growth should be seen in the perspective of a difficult comparable period as growth in Q1 2017 was +5.5 per cent. Among the larger countries, France and the UK both performed well at +2.3 per cent and +1.3 per cent, respectively. Germany and Italy were both in negative territory (-4.1 per cent and -9.7 per cent, respectively) when measured against very strong first quarter in 2017.
North America posted organic growth of +2.8 per cent for Q1 2018, shored up by accounts won in 2017 (including McDonald’s, Diesel, Lionsgate, Molson Coors and Southwest).
Asia Pacific reported degrowth of -16.4 per cent and organic growth of -4.6 per cent. The negative performance can be mainly attributed to Australia (-11.6 per cent) due to the discontinuation of the Qantas call center contract. China performed satisfactorily, returning to positive growth (+1.1 per cent) despite the impact of accounts lost. Singapore rose by +10.2 per cent.
Latin America reported growth down 6.5 per cent, but organic growth of +11.5 per cent. In Brazil, net revenue progressed by 11.3 per cent thanks to the gain of the Petrobras and Bradesco accounts. Mexico continued to record sustained growth (+6.2 per cent).
The Middle East & Africa region reported a decline of 6.8 per cent, but increased by +4.8 per cent on an organic basis.
In a statement issued, Arthur Sadoun, Chairman and CEO of Publicis Groupe, said, “The first quarter of 2018 was a very intense period for Publicis Groupe. We had three objectives. Firstly, to continue to deliver solid performance while we transform ourselves. Secondly, to demonstrate the attractiveness of our model through our ability to convert pitches into wins. Lastly, to present our strategy and execution plan – ‘Sprint To The Future’ – to our teams, our clients, and to the financial community. Overall, the outcome on each of these three objectives has been positive, sometimes beyond our own expectations, making this quarter a key milestone in our transformation journey.”
Publicis Groupe is aiming to accelerate organic growth in 2018-2020 with the ambition of achieving +4 per cent growth by 2020, that is, an additional €900 million over the next three years (before the impact of IFRS15).
The Groupe is also aiming to increase its operating margin rate by 30 to 50 basis points per annum until 2020. This objective includes a €450-million cost savings plan fully aligned with the Groupe’s strategy. This cost savings plan will serve to fund a €300-million operational investment plan spanning 2018-2020, a plan that is primarily dedicated to the Groupe’s talent through hiring, training, development and re-skilling.
Publicis Groupe is targeting 5-10 per cent annual growth of headline diluted EPS, ramping up over the next three years, at constant exchange rates, through continuous enhancement of its organic growth, improved margins and the contribution of acquisitions to earnings.
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