Posted on Sat, 28 Mar 2015 10:39:00 -0400
Maurice Lévy admits that 2014 was a difficult year for the third-largest ad agency network in the world, Publicis Groupe. He also admits it was his fault.
There was the failed $35 billion merger with Omnicom, industry-wide declines in some areas of traditional advertising spend, currency headwinds, and three major clients pulling back spend from its Razorfish digital agency.
But speaking with Business Insider at Ad Week Europe in London, Lévy said he thinks 2015 will be a more positive tale for his company. We asked him how the agency's $3.7 billion acquisition of US-based digital marketing and technology Sapient is transforming the business, his hopes for the rest of the year, and what the 72-year-old plans to achieve before he retires in the next couple of years.
BUSINESS INSIDER: You said on your latest earnings call that 2015 will be the year Publicis returns to growth. Why are you so confident?
MAURICE LÉVY: It's not only that I am optimistic by nature, which would not be sufficient. It’s simply the fact that we have been out of focus for some of our operation during last year. And we had also some specific difficulties with [digital agency] Razorfish. We believe Razorfish will be back. We are refocusing on the business and we feel confident. All the information we have currently in hand gives us a good level of confidence
BI: What were the difficulties with Razorfish last year?
ML: The Razorfish difficulties were in fact kind of a perfect storm, if I may. We had a client called Blackberry who went from consumer to B2B. So 90% of the revenues [from that account] vanished simply by a decision to change the approach.
The second is the issue of Motorola, which moved from Google to Lenovo and all spending was stopped. And one of our large clients, State Farm, decided to take inside some of the business that we were in charge of.
So this perfect storm led to something like a 20% decline in the Razorfish business, which had an impact of 2% on the Publicis Groupe. Without this impact we would have developed a growth of roughly 4% for the year, which would have been very good. So it’s something really specific.
This year we are starting with better comparisons: The comparison base for Razorfish will be better, but we still have to ramp up and we will have some issues in first quarter.
BI: Why the issues in the first quarter? Is it just overspill from last year?
ML: Yes it’s overspill, and we are ramping up progressively so we know for first quarter we have forecast that it will be slightly negative. The second quarter will be nicely positive and we will go from strength to strength.
BI: I imagine the biggest job in this current quarter and some quarters to come is the integration of Sapient (which Publicis announced it was acquiring for $3.7 billion last November)?
ML: It is underway. Clearly when you acquire a company of that size, integration is not happening overnight. So we have a lot of tasks to be done.
There is some very good news: The most important one is Sapient people are looking at this extremely positively and are very favorable to the merger and to the integration process, so what we are currently seeing is very, very positive.
The second aspect is now how to leverage the new assets that we have. We have formidable assets. In digital we have Sapient Nitro, Digitas LBI, Razorfish Global, and on top of that we have Sapient Consulting. All of this should lead to a true transformation of our business and the way we will be operating so I feel extremely comfortable with the new setup of Publicis, and the fact that we are going to transform the way we are operating.
I'm also happy with the kind of growth that we will be generating because with more than 50% of our business in digital we can expect to outperform the industry and the competition.
On top of that, with consulting, we move up the food chain and probably to a higher margin so all of this is something that is giving me a lot of reason and rationale for seeing the future very positively
BI: When you talk about "higher margin," is that just by the nature of being a technology/digital business as opposed to being a more people-heavy one?
ML: No, it’s three-fold. On the one hand there is the fact that our backbone, which is considered one of the best in industry — if not the best — will be servicing a lot more revenue.
The second aspect has to do with the media and production platforms that we have in Costa Rica and Mauritius and other countries. All of this is something that will be working at benefit of our clients and making us more profitable, and at the same time saving money for our clients.
The last aspect is the fact that as we are consolidating businesses, the margin of digital business is reaching progressively the average of the group, and therefore elevating this average to a higher level. So we feel in 2018 the challenge and goal we have to deliver 200 to 400 basis points is something that is within reach.
BI: How are you selling in this new "transformed" agency business to clients. They were obviously happy with what they were receiving already...
ML: They were happy with what they were receiving already, but at the same time they have questions about their own businesses for the future. All our clients are fully aware of what is going on in the industry, they see the transformation of the business, they see how consumers are changing, they see all the changes which are happening in their own industry — what's happening with retail, with the new commerce — so they are concerned about the future and they are looking for solutions.
Some solutions are some things they have to find in their own organization and some of the solutions are something that they will find with us because we will have a combination of services which is unique.
There is no-one who can offer them, under one roof, the consulting, the technology, the marketing and digital, and communication solutions. And we are the only company in the world which can offer this combination. There is no-one else.
BI: Honestly? If I spoke to your friend Sir Martin Sorrell at WPP or John Wren at Omnicom, wouldn't they say the same?
ML: You can ask them but there is no-one who has taken a chance to make the kind of bet that we have made on digital and, furthermore, the kind of acquisition that we have made with Sapient.
So we are offering a service which is rendered today by a combination of Accenture or Deloitte, plus WPP or Omnicom. And they don’t need to go to two they have to go to one [with Publicis]. And the knowledge that we have on the brand and the consumer and marketing is something that is extremely helpful when it comes to consulting and technology.
BI: Obviously Sapient was your big acquisition of 2014. You’ve been making a few smaller acquisitions already so far this year. What’s your acquisition strategy 2015?
ML: We will spend much less than previous years and that's clearly because we have made this acquisition in cash and we have to reduce our debt level, which we will do. We are delivering close to $1 billion of free cash flow, which will help us a great deal.
Acquisitions we will be doing will be limited to either some region of the world where we need to complete some of our network or in some specific capabilities in digital, or in analytics, or data.
BI: Have you got $2 billion to spend on [Tesco's data and loyalty business] Dunnhumby [which rival WPP has an eye on]?
ML: I will have to check but when I look at my bank account I think no, I have not that kind of money. And certainly not for an acquisition like Dunnhumby.
BI: Back to Sapient, as it was a cash acquisition. Do you feel you got a good price [Sir Martin Sorrell thinks not]? Especially considering others in the ad industry have been making non-100% deals, with mixtures of cash, stock, and partnerships recently?
ML: The price is always something which is complicated to define when it comes to business. It's not like when you are buying a purse at Chanel or Hermes, or a suit at Armani. It’s something which has to be a complex negotiation based on the value that you expect to extract, the synergies you believe you can deliver, and the kind of growth that you are hoping to get from that acquisition.
When you look at Sapient, some can think that the price is high, but my answer to that is what Sapient will bring to us ,and the asset that we will be able to leverage, and the conversations that are already having with our clients — which are extremely positive — all this gives us the feeling that the price we have paid, while it can be seen up front as high is fair. It’s full and fair.
BI: On to the wider advertising market. Whichever forecasts and figures you look at, it appears advertising spend does not appear to be quite in parallel with the economic recovery in developed markets as much as they used to be. It seems like ad spend isn't catching up at the same rate. Is that a fair comment? And why is this happening?
ML: First, there is a correlation. When the economy is down, the ad market is down, when economy is up, the advertising market is up.
Where the correlation has some limits is when you look at the numbers — clearly the numbers are no longer as they were in the past. In the past, when you were on the up you had an acceleration of the growth in advertising compared to GDP, and when you were on the downside you had an acceleration.
And this now is limited thanks to the fact that we have fees, and the fees are something which are leaning to limiting the negative impact but at the same time limiting the impact on the upside. So there are some merits with the new economics of our industry, however, I think that with the development of digital and the fact that we have new services, bringing technology and bringing some consulting services, we may change that.
BI: What do you mean on the fees front? Retainers as opposed to projects? And was this is a change you brought in after the recession because you had to double down so you didn't feel so much on an impact? How will this prepare you for the future?
ML: To make it short. the impact of digital on the global economy is huge and has been underestimated by a lot of corporations and they have to expect that this is something which will have a very deep and serious impact on the way they are organized, the way they will be organized in the future, the kind of innovation they will be able to develop, the kind of products that they will be able to sel,l and the way that they will be selling it. All this will have an impact on their own organizations, marketing, and how they will be operation.
The same will happen to our industry and it will be a big mistake to think that we are immune and that we will not be influenced or impacted by digital we will have to change quite dramatically the way we are operating. We will have to integrate a lot of capabilities that were not part of our craft, our skills, or the skills of our industry.
Clients see this transformation as a big need for them and we need to be ready to help them, otherwise it will be somebody else who will do it and they will interfere in the field of brand and consumers without understanding the brand and consumer as well as we do.
BI: You talk a lot about business transformation. But how have you changed personally to become more digital? Is there a particular phone you use? Apps?
ML: I have all the tools like everyone.
BI: Has it changed the way you work?
ML: This has changed over many years. I’m still writing with a pen. And I’m sending handwritten notes to people I like because I think this is courtesy; it is politeness.
But I’m using emails and have been since the early 1990s. I implemented "CIS" e-mail in Publicis in 1991. It’s not like it's something that happened yesterday, it’s something which has been implemented at the very beginning. Years ago I started work on a tool called PROFS, which was developed by IBM, and as you know, I am an engineer. I started in that industry, I know what technology can bring. I'm using all the tools, but it's not sufficient.
It's not the fact that you are using Blackberrys, and that you are emailing, that you are using iPads or tablets ...
BI: But it does help, surely. You spoke earlier [at AdWeek Europe] about the CEOs who pretend they know about Instagram and Snapchat because they’ve just seen their children using them …
ML: Sure it does. And I’m answering immediately, doing emails personally, all this is something which is very easy. The real thing is not the transformation in that aspect — it counts — but the real thing is how you integrate all this in your mindset when it comes to the agency itself and the way you are operating. This is the most important aspect.
BI: On the digital front, one thing I've always enjoyed is Publicis' Christmas videos [which are usually comical and Levy always stars.] Was that your idea? Did someone else encourage it?
ML: At the very beginning, the very first and second, was my idea, including the theme and everything. And then it has been the idea of the teams and I’m playing how they like. I believe them, I trust them, I think they are very creative, and I think also that they are cool and respectful. No! Disrespectful of my position! Respectful of the person, but disrespectful of the position.
I love that and the fact that they are not treating me as a big CEO of the company of 75,000 people. I like to do that and it takes a full day on a Saturday in November or December and I do whatever they want.
BI: You seem to take direction quite well and have great comic timing in those videos. Was acting something you did in your earlier years?
ML: Ha ha. I did that when I was a student. I played as everyone did. But it’s something which is soooo long behind me.
BI: You were asked earlier on stage about succession planning (Lévy suggested he will be replaced, when he retires in 2017, by a team rather than an individual — although he didn't give any names or specific details.) You have a short while left at the top of Publicis, what do you want to achieve before you retire?
ML: There are many things. First, the most important one, is that I want that Publicis to be such a strong company that it can last forever. In 2016 we are 90 years old, and I want this company to last for 20, 30, 40 more years and I think that they can do it. That's the most important aspect
I also have some dreams. I want Publicis to remain always the most irreverent and revered company. To be irreverent, and to change and transform, and to be the most innovative, and be revered as a hot house, and an innovative creative place, and a magnet for talent and for clients
And last, but not least, I want this company to always be about the future and not about its past, as glorious as it can be. And I wish that the future will be more glorious than its past.
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