March 20, 2018 / 6:37 AM / 2 years ago

France's Publicis responds to ad market upheaval with push into consulting

LONDON (Reuters) - France’s Publicis is responding to upheaval in the advertising market with a stepped-up drive to become a consulting partner to global advertisers online, banking on the new strategy to reverse sluggish growth and boost profits.

The world’s third-biggest advertising group said it is targeting underlying sales growth of 4 percent in 2020, up from 0.8 percent last year, by focusing on its digital arm Publicis.Sapient and fostering greater collaboration between its many agencies.

The target is part of a three-year strategic plan unveiled by Chief Executive Arthur Sadoun in London on Tuesday in a key test since he succeeded company veteran Maurice Levy.

Advertising giants are being forced to rethink their models as Google, Facebook and consultants Accenture encroach on their turf and big consumer goods groups such as Unilever cut ad spending.

Publicis and larger rivals WPP and Omnicom have underperformed benchmark stock indexes over the last year, as investors penalised disappointing results and weak forecasts.

WPP, whose shares slumped on March 1 when it reported its worst annual sales performance in 2017 since the financial crisis, expects flat growth this year.

Publicis said it aimed to grow earnings per share (EPS) by 5 to 10 percent annually between 2018 and 2020.

The group is targeting an operating margin rate of a maximum of 17 percent in 2020, up from 15.5 percent last year.

Publicis expects to increase earnings through a 450 million euro ($550 million) cost saving plan and targeted acquisitions totalling between 300 and 500 million euros a year between 2018 and 2020.

“The challenge is to justify how we can progress like this while maintaining growth,” Sadoun said in a call with reporters late on Monday.

After an initial jump, Publicis shares were down by about 0.4 percent by 1230 GMT as investors gave a lukewarm response to its new strategy.

“The key question is whether investors will believe these targets, especially as they are largely based on M&A,” said Julien Roch, an analyst at Barclays.

“WPP also has a 5-10 percent annual EPS growth target and investors currently do not believe this target, in our view.”

Both WPP and Publicis appointed single global managers for their biggest clients to provide all the services required by these companies rather than through multiple agencies.

Publicis aims to differentiate itself further by offering technological tools, such as platforms and data analysis, to better reach the end-customers.

Reports that Cambridge Analytica, a political consultancy hired by Donald Trump, improperly accessed information about 50 million Facebook users is seen by some analysts as positive for Publicis, as big brands may consider traditional ad groups as better managers of their brand image.

The challenge for Publicis remains to prove that Sapient, which weighed heavily in a 1.4 billion-euro writedown in 2016, is well integrated into the company and will improve results, analysts have said.

($1 = 0.8103 euros)

($1 = 0.8139 euros)

Reporting by Mathieu Rosemain and Gwenaelle Barzic; Editing by Shri Navaratnam and Adrian Croft

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