Sectors: Corporate

The numbers were looking good for the agency network halfway through 2024, but has it managed to keep momentum moving in the right direction? Our number-cruncher, Barry Dudley of Green Square, suggests not. At the half-year point, I sensed that momentum may be picking up at Dentsu. Unfortunately, the Q3 results don’t seem to show this, with just 0.3% organic growth in net revenue and the guidance for the full year being moved down to “circa 0%” from 1%. But this does mean two quarters of (marginal) growth, following declines in the previous five quarters, so it’s at least momentum in the right direction. Japan, Dentsu’s biggest market by far, saw “solid” organic growth (2.8%) driven by double-digit growth in internet media. EMEA was up a healthy 6.9%, but this was largely down to the comparative quarter in 2023 being hit by a “one-off negative impact.” Americas, its second biggest market, was down 3.1% and “the situation in APAC remains severe,” declining 11.6%, with ‘difficult market conditions” in Australia a key factor. Hiroshi Igarashi, president and global CEO at Dentsu, said: “We have seen notable global new wins in the quarter, higher pitch win rates in Japan and the steady accumulation of net wins in the media business in international markets, which is the result of our continued effort to deliver Integrated Growth Solutions. These are examples that prove the implementation of One Dentsu is affecting positive changes within our organization. “Over the last nine months, we have made internal investments around data and technology, people and culture and business operations to accelerate our competitiveness.” Undoubtedly, some of that technology investment would have been in AI, although AI was not referenced once in the whole of the press release and only three times in the 52 page Earnings Presentation. But I did find this comment: “Creative won a significant global pitch in Q3 where we were able to demonstrate synergies with Tag, especially on creativity and efficiency.” Synergies and creativity are not traditionally the best of bedfellows, but perhaps it’s that pesky AI at work… Dentsu’s next Mid-Term Management Plan is set to be announced in February 2025 and it says that “under One Dentsu [it] will achieve growth that outperforms the global market by 2027” and “the plan will cover specific business strategies to recover competitiveness.” Sounds like one hell of a plan. Looking forward to reading that. Read more

One is in high spirits thanks to accelerating growth. The other has seen its share price tumble to a record low. As Stagwell and S4 post their Q3 results, Green Square’s Barry Dudley examines the reasons behind their starkly different performance in his regular holding co results round-up. Off the back of a 13.5% decline in net revenues in Q2 comes a like-for-like drop of 12.6% in Q3 for S4. No wonder Sir Martin Sorrell, S4’s executive chairman, had a somewhat dour demeanor during his firm’s earnings call. Global macroeconomic factors, including high interest rates, were referenced. But S4’s fundamental challenge continues to be its dependence on technology clients with one client in particular pulling down its results. The outlook has been revised down to a low double-digit reduction in full-year year like-for-like net revenue – so down at least 10% against 2023, when put in plain English. Which is going to lead to a “significant reduction in the number of Monks.” Staff, that is. The Content division, S4’s largest, saw a drop of 9.1% in net revenues for the quarter. Data & Digital Media was flat, but Technology Services was down a thumping 42.1%. And by geography: Americas were down 14.5%, APAC down 21.2%, with EMEA up slightly by 1.3%. Scott Spirit, S4’s chief growth officer, talked through its “addressable market,” which I thought would add further color to why it is finding trading so tough… in 2024 ‘digital media spend’ is forecast to be up 8.7% (7.8% in 2023) and ‘ad revenue growth at the 5 main platforms’ is forecast to be up 15% (10% in 2023). Sounds like a pretty good addressable market to me! However, ‘Digital Transformation Service’ is projected to decline by 0.25% (compared with 5.2% growth in 2023). But the most fascinating numbers were in a table that showed the number of clients S4 had in four different size bandings for the year 2024 and for the same period in 2023. In 2023, there were 12 clients with revenues of more than £10m and 12 clients with revenues of between £5m and £10m – in 2024 the respective number of clients were nine and seven. As I’m pretty sure S4 hasn’t lost (m)any major clients, so that means there has been some sizeable cuts in spending. What is possibly more troubling is the picture at the other end of the scale: clients with revenues of between £0.1m and £1m have increased from 349 in 2023 to 390 in 2024. In tricky times, it is not unusual for businesses to take on smaller clients, or smaller projects than they might normally wish to in order to fill a sales gap. Sometimes this can also be the wrong type of work. There may simply be no choice: bills have to be paid. But this can create a vicious cycle where your resources are used inefficiently across too many things and then you don’t have the capacity or the right mindset to start working on converting the next £10m+ whopper. Spirit went on to say: “On the positive side our progress in new business, particularly driven by interest in our Monks.Flow AI offering has helped drive an increase in clients at the top of the funnel which we hope to develop into larger relationships in 2025”. Fingers crossed. Then there was Stagwell, with its waxed surfboard. If S4 has the challenge of its dependency (44% of revenues) on the Technology sector, Stagwell has the upside of a strong Advocacy practice which benefited from a US election that supposedly saw a combined cost of $3.5bn around the Trump and Harris campaigns. Stagwell’s Q3 organic net revenue growth was 7.6%, or 4.6% if you exclude advocacy work. All of its ‘principal capabilities’ saw organic growth with Stagwell Marketing Cloud Group up 23.3% and Digital Transformation up 14.5% – the latter a particularly stark contrast to S4’s fortunes. If the US, organic net revenue growth of 10.8% was helped by the election. I suspect the UK’s decline of 10.1% was due in part to clients holding back spending whilst they waited to see the outcome of the recent budget. ‘Other’ was down 0.9%. Mark Penn, Stagwell’s chairman and CEO, said: “The third quarter results show us returning to industry-leading growth. We believe we are poised to deliver double-digit growth in the fourth quarter and will be well-positioned for 2025. We are reaffirming our full-year guidance today after a more moderated start to the year. We are accelerating into the back half. Our new business momentum continued as we won our single largest deal to date with a global tech company and have expanded our work with major tech companies this quarter by 30%. Our tech company relationships have come back strongly. We posted a net new business figure of $101m, bringing our LTM new business to $345m, another company record. This was driven by a new business pipeline, and increasingly larger global pitches”. One of the share prices dropped 15.86% during the trading day of the announcement, the other jumped 2.95% – I’ll leave you to guess which was which. But I know which chairman I would rather have had a cup of tea with after these announcements…

The UK has been waiting 14 years for a Labour budget and, as expected, a rise in employers’ national insurance has stolen many of the headlines, but there was much more. Green Square’s Tony Walford asks if agency leaders are in for a bumpy ride in 2025 as a result. This afternoon, a client compared the budget to one of those fairground ghost trains where you’re promised an absolute bedlam of horrors but, once it starts rattling along the track, it’s all a bit lame. I have to say she was bang on the money, but there were still some nasty twists. The first thing that’s quite irritating is that in scaring folks by largely keeping schtum on what would happen regarding capital gains tax (CGT) and inheritance tax (IHT), while promising no rises in income tax, corporation tax and VAT, Rachel Reeves led a lot of business owners and individuals to take major life decisions in the short term based on conjecture. Last month, in a piece in The Drum, I countenanced against agency owners and shareholders taking a discount to close a sale pre-budget in case the hit to CGT wasn’t as bad as expected. It had been mooted that it could be aligned to income tax, so worst case 45%, but today’s hike from 20% to 24% for higher and top-rate taxpayers is right at the bottom end of expectations. Business asset disposal relief (formerly entrepreneurs relief), which gives qualifying business shareholders a reduced tax rate of 10% on the first £1m of gains, is being held until April 5, 2025, when it will rise to 14% and 18% in 2026. Those that sold quickly and at a chunky discount may rue the day, but I don’t write this with a smug ‘I told you so.’ The government fueling expectations of a Halloween horror-show budget with many being plunged into the depths of hellfire, when in reality it’s a few burnt marshmallows around the fan heater, is a very poor show. The lack of transparency was pitiful and the cynic in me would think it was done on purpose to drive the tax grab up between July’s election result and today’s budget through fear, with the huge time period between the two cementing this conspiracy theory further. The good news is we now know what the rates are and, as it’s not that bad, we don’t foresee a big impact on agency M&A or ongoing investment. Indeed, those qualifying shareholders in a sale process will still save £40,000 in CGT if they get it closed by April. Those in private equity firms that invest in the companies they fund personally will see a relatively modest rise of 4% in their CGT rates. – again, not ridiculously penal, and I’d like to think it won’t impact investment. The real kicker for all businesses however, and particularly smaller ones already struggling with staff costs, is the increase in employers’ NI and the reduction in the threshold from next April. Businesses currently pay employers’ national insurance of 13.8% on every employee’s salary once their salary exceeds £9,100. This is a direct cost of employment and the increase in employers’ NI to 15% (and threshold reduction to £5,000) will have a direct impact of at least 1.2% on the total salary bill of virtually all businesses that employ staff. There is some light for businesses that have four or fewer employees on the national minimum wage who will get an additional £5,000 relief, but this is unlikely to be of any comfort to the vast majority reading this piece. Staff costs are an agency’s biggest single expense line, with a key ratio being staff cost to revenue and the golden target being somewhere between 55% and 60%. Many agencies have been struggling to even get down to a ratio of 60% in recent times, particularly as salaries have gone up with the cost of living while clients have pushed back on fee increases. This additional levy is very unwelcome and if firms can’t pass the cost on to their clients, they will need to find savings in the form of reducing discretionary spend. This could include agencies revisiting their own marketing strategy, holding recruitment, cutting various internal budgets and, in the worst case, reducing headcount. On a macro view, clients will also be suffering the NI increases and the broader impact of higher staff costs and resulting lower profitability could lead to reductions in marketing budgets. These are often the first to be cut in tough times and last to be reinstated when things improve and will be a double-edged sword for all of us in the marketing industry. There were other changes, of course, but the employers’ NI twist in the ghost train track is the one with the biggest capability of spilling a lot of folk from the carriages. Let’s see how the upcoming impact pans out as we head towards the next tax year. Read more

With Halloween just around the corner and the IPA’s latest Bellwether talking of ‘stagnating’ marketing budgets in the UK, a fearless Barry Dudley of Green Square looks at Omnicom, Publicis, Havas, IPG and WPP’s Q3 results to see what horrors lie within. Both Omnicom and Publicis released their Q3 results last week and, despite some pretty mad things going on in the world right now, I’d say they are pretty good. Omnicom reported organic growth of 6.5% with revenues of $3.9bn, up from $3.6bn in Q3 of 2023. Key to this were a 9.4% increase for Advertising & Media and a very impressive 35.3% jump in Experiential. The Healthcare and Branding & Retail Commerce disciplines struggled, however, with 1.1% and 5.4% declines respectively. The latter is surprising as retail has been a hot area of late, with agencies such as Next15’s SMG roaring ahead. All geographies saw growth of between 6.5% (US) and 24.8% (Middle East & Africa), except for Other North America at 1.5% and a decline of 0.2% in the UK. This UK performance probably reflects the recent findings by the Institute of Practitioners in Advertising that said that many companies were ‘pressing pause’ on their marketing budgets ahead of the government’s budget next week. Publicis also delivered a strong performance in Q3, with organic growth of 5.8% to €3.4bn, up from €3.2bn in Q3 of 2023. Chairman and CEO Arthur Sadoun said: “Once again, we were able to gain market share by capturing a disproportionate amount of client demand for personalization at scale, with our combined media and Epsilon activities growing at almost 10%. All of our regions delivered strongly, with the US at +4%, Europe at +4.9% and APAC at +6.4%, with China accelerating to +12.4%”. Despite the “increasingly challenging macroeconomic environment,” Sadoun is maintaining his typical bullishness by upgrading the full-year organic growth guidance to at least 5.5%, up from 5%. Publicis was also on the front foot with its M&A activity, spending a tidy $1bn during the quarter on acquiring Influential, an influencer marketing platform, and Mars United Commerce, a commerce marketing company. Interpublic Group (IPG) released its results this week, with organic revenue ‘unchanged’ at $2.63bn from Q3 2023 ($2.68bn) – so quite some way behind Omnicom and Publicis. And the outlook for the full year also remains largely unchanged, with CEO Philippe Krakowsky commenting: “Looking forward, we are seeing a strong new business pipeline, for both Q4 activity and longer-term AOR opportunities, and we remain focused on achieving organic growth of approximately 1% this year.” Although this 1% is at the lower end of the 1% to 2% in previous guidance. In terms of regional performance, IPG’s strongest market was Latin America, with 9.8% organic net revenue growth. But its biggest market, the US, saw no growth, while Continental Europe was up 0.6%, UK down 0.7%, Asia Pacific down a lumpy 7.4% and All Other Markets were up 1.5%. That seems like there are quite a few headwinds in quite a few places – I’d hazard a guess that the upcoming US election is a factor for that geography. In times gone by, it could have been the likes of R/GA and Huge to bring bright news for IPG, but both are now ‘held for sale’ with conversations, according to Krakowsky, “a good way down the track.” Next up was Havas, reported within its parent company Vivendi’s results. Yannick Bolloré, chairman of Vivendi’s supervisory board, and Arnaud de Puyfontaine, CEO of Vivendi, said: “Vivendi has reported strong growth in the first nine months of 2024. The revenues of the Group increased by 4.5% at constant currency and perimeter compared with the same period in 2023. Canal+ experienced revenue growth across all of its activities. The performance delivered by Havas was particularly driven by Havas Media and the Europe and Latin America regions.” They subsequently added: “These performances confirm the strength of our main businesses and their capacity to become independent if the shareholders’ meeting convened on December 9, 2024, approves the group’s proposed split project.” A confident message around Havas and its potential independent stock exchange listing in the future. This seems a little at odds with a 2.3% organic revenue decline in Q2 and a 3.5% decline in Q3 against the corresponding periods in 2023, but a Q3 decline was forecast in Q2 mainly due to a ‘partial loss of a big client in the US.’ The hope in Q2 was for a return to organic growth in Q4 or maybe in 2025. Let’s see! Europe and Latin America had solid organic growth at 2.8% and 12.1%, respectively. Asia-Pacific and Africa declined 0.6% and, much like IPG, North America was a challenge with a 7.5% decline. But there was no slowdown in the Havas M&A team adding Hotglue, an Aussie ‘media agency and creative production company’ and DPMG in the UK, an ‘Adobe top 3 recommended independent agency.’ And then there was WPP. Mark Read, CEO, said: “Our third quarter delivered like-for-like growth in net sales, with a strong performance from GroupM in particular. We saw growth in North America, Western Continental Europe and India, though trading in China remains difficult.” He went on to say: “We are encouraged by progress during the quarter, but with recent new business wins primarily impacting 2025 and continuing macroeconomic pressures, our expectations for the full year remain unchanged.” An interesting point for me was the 7% growth in Q3 for its top 10 clients. Winning new clients is the lifeblood of the agency world, both for the maths as well as the excitement and challenge for the talent, and we regularly tell the businesses we work with that their existing clients should be the number one business development opportunity. More results are still to come and I expect the variety of fortunes to be extended further! Read more