Following better-than-expected financial results for the second quarter of the year, Publicis Groupe’s Arthur Sadoun tells The Drum why he’s being ‘cautious’ about the remainder of 2020 and explains what cost-cutting really looks like for the holding company.
The phrase “weather this crisis” pops up a few times in Publicis Groupe’s financial statement for the first half of 2020. And for his part, the advertising giant's chairman and chief executive Arthur Sadoun would agree that this year has been a “storm” for the business to navigate.
The Groupe – which counts big spenders like P&G and Daimler among its clients – outperformed analyst expectations on Thursday (23 July), posting a fall in organic revenues of 13% to €2.29bn versus a forecast of 20% amid a pandemic which has seen ad spend from the world’s biggest brands go into freefall.
Sadoun puts this down to Publicis' own internal transformation and the “tailwinds” from some big clients wins (Disney and Bank of America have been added to the roster over the past 12 months). He also credits the firm’s controversial acquisition of data analytics firm Epsilon as having played a “massive” part in cushioning the Saatchi & Saatchi and Digitas owner from the financial blow of Covid-19.
“It’s playing a key role in how we go to market with clients. We’ve been able to use it to help clients take back control of their own first-party data,” Sadoun says.
“It’s also allowed us to create new products, adapted to this world,” he adds, pointing to The Pact an Epsilon-powered tool that Publicis claims guarantees KPIs, including sales, client acquisition and ROI.
Any client that uses The Pact is entitles to a refund if it doesn’t deliver the agreed outcomes. While he does not go into which brands have taken the holding group up on the offer, Sadoun reveals it has been a contributing factor to the company’s better-than-expected results.
Marcel, Publicis’ internal AI platform, has also been rolled out to all 60,000 staff amid the crisis, to help them service clients remotely.
What cost-cutting looks like
Publicis’ bottom line has also been bolstered by an extensive €500m cost-savings programme, of which €286m has been saved so far.
Sadoun attributes the fast pace of this reduction to a dramatic drop in travel expenses, which alone accounted for “around €50m”. Top-level execs have also taken voluntary salary reductions, including Sadoun and his predecessor, now chairman, Maurice Lévy. Dividends have been cut too.
A hiring freeze across the entire network, coupled with a pause to internal promotions and shorter working weeks for some staff, has seen fixed personnel costs dip €61m year-on-year. Limitations on the use of freelancers has also seen the cost of outside resource dip by €41m.
Sadoun doesn’t rule out further cuts to costs, saying the business will further “adapt its cost base” as needed.
As for staff cuts and redundancies, however, those decisions are being taken at a regional level. In the UK, where Publicis is led by chief exec Annette King, it has already been reported that redundancies have hit “most of” the group’s UK agencies.” At the time of writing, the agency had not confirmed the details on this.
“We have a very simple strategy when it comes to reducing our costs,” says Sadoun. “We’ve taken only one single measure at group level – and that’s don’t go outside, whether it’s for hiring, freelancing or third-party companies. All the other measures are being taken at a country level. There’s no one-size fits all.
“Some agencies are still doing great. Some have been particularly impacted. Some are in countries that will recover fast, other in countries where rules haven’t been relaxed. My conviction in this crisis is that you have to trust that your team will do the right thing.”
A ‘cautious’ second half of the year
At the time of writing, the markets had reacted well to Publicis’ most recent financials, with shares up 14%. However, the boss isn’t getting complacent about the Covid-19 headwinds ahead.
A recent study from the World Federation of Advertisers (WFA) detailed how large global brands planned to cut spend through to the end of 2020. Elsewhere, the IPA Bellwether report revealed that brands have slashed their budgets to their lowest ever levels. Bellwether panellists remain pessimistic towards financial prospects in the second quarter of 2020, casting more downbeat assessments on both own-company and industry-wide finances.
Though he believes Publicis is in a strong position to traverse these choppy waters, Sadoun is treading carefully.
“The level of uncertainty is such that’s it’s impossible for anyone to make predictions,” he says, adding that Publicis is focused on three priorities: taking care of its people; servicing clients (which have a sense of “urgency” about delivering personalistion at scale in the current climate); and investing in its own transformation.
“We do have to be extremely cautious,” he adds. “Yes our numbers are getting better but the forecast [from the wider industry] doesn’t look good. My duty is to protect my people, and my organisation, during the storm.”