By Ruth Bender
PARIS-- Publicis Groupe SA sought to convince investors Thursday
that its purchase of U.S. digital and consultancy company Sapient
Corp. will help kick-start growth after a year marked by the failed
merger with a key rival and disappointing sales growth.
In its first strategy presentation since the collapse of the
megamerger with Omnicom Group Inc., Publicis said it aims to
considerably boost its profit margins over the next three years and
boost revenue faster than its rivals once it has integrated the
Boston-based company. Publicis offered $3.7 billion last month to
buy Sapient.
With its strategy update Publicis is trying to draw a line under
a tough year for the owner of agencies such as Saatchi &Saatchi
and Digitas. Besides the aborted merger--which Chief Executive
Maurice Lévy has admitted weighed on the group's growth in recent
quarters--the company has faced some management issues at digital
agencies and lost some large business as clients such as BlackBerry
shifted their strategy.
Mr. Lévy said the group is now equipped to embark on the road to
recovery.
"Sapient completes us in the most harmonious way," he told
reporters in a briefing on the company's strategy update. "We have
now built a base that is almost impossible for our competitors to
replicate."
The purchase of Sapient has been Publicis' boldest move so far
in its eight-year race to bulk up its offering in digital
advertising to keep up with consumers increasingly spending time
and money online.
Publicis, along with major rivals such as WPP PLC, has spent
billions since 2006 buying up small to large digital companies to
expand its capabilities in digital advertising, which has
transformed over the years into a complex web of activities that
span from the building of websites, to shooting videos to promoting
brands on social networks and the automated buying and selling of
online ad space.
After years of outperforming rivals in terms of sales and margin
growth, Publicis' sales growth has lagged behind peers in recent
quarters. Publicis has said top management had been too distracted
with the merger project, which hurt growth.
Publicis is betting that by adding Sapient it will become a more
technology- and services-oriented company akin to big consulting
groups such as Accenture and Deloitte, a service crucial for ad
agencies as consumers increasingly buy products online, Mr. Lévy
said.
"We will be unique because we have the creativity and consumer
insight that consultancies don't have and no other advertising
holding company will have access to consultancy services like we
will," Mr. Lévy said.
Mr. Lévy said Sapient gives the company the scale it needs to
have in digital. The company will invest "moderately" in M&A to
complement its digital assets, he said, signaling that large deals
are off the table at least in the near future.
Publicis said it aims to improve its profit margin by between
two and four percentage points by 2018, even though Sapient's
profitability is lower than Publicis' current margin. Publicis will
continue to manage costs tightly and apply its shared services
system, which allows to pool back-office expenses such as on IT, to
Sapient, which should help improve its operating margin to between
17.3% and 19.3% in 2018, the group said.
Revenue growth, on the other hand, should start to recover as of
2015 and accelerate to beat the average growth on the ad market by
two percentage points as of 2016, Publicis said.
"They made a reasonable case for what they are doing, but people
will want to see that in numbers at some point," said Kepler
Cheuvreux analyst Conor O'Shea. "The 2018 targets are ambitious;
they imply a step-up in growth."
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