Agency holding companies shows signs of financial recovery; Sir Martin Sorrell comments

Nobody thought 2009 was going to be easy, least of all the agency holding companies. Even in Asia, where many markets had escaped the worst of the global recession, 2009 was considered to be one that most wanted to quickly see the back of. And, according to the recently released holding company annual reports, 2009 has proven to be a year to forget, with a series of lacklustre financial performances for the holding companies.

Drop in revenue for 2008/9

> 14.2 per cent: Havas’ drop in organic revenue in Asia-Pacific
> 7.7 per cent: Publicis’ drop in organic revenue in Asia-Pacific
> 8.1 per cent: WPP’s drop in global organic revenue
> 12.3 per cent: Omnicom’s global drop in revenue
> 10.8 per cent: Interpublic Group’s global drop in revenue

According to Havas’ annual report, annual organic revenue in Asia-Pacific dropped 14.2 per cent in 2009, making the region its worst-performing market globally during 2010. Publicis Groupe fared only slightly better, reporting a 7.7 per cent drop in annual organic revenue in Asia-Pacific from 2008 to 2009. In fact, over the course of the year, Europe was the only region to underperform Asia-Pacific for the group .

The light at the end of the tunnel, though, was the generally improving performance toward the end of the year and what this indicates for 2010. For Havas, by the fourth quarter of 2009, year-on-year organic revenue had dropped to just 1.33 per cent, a marked improvement on 24.7 per cent in the first quarter of the year.

“From a Havas Media perspective, the media side of things in the year has been very good for us, and we do believe we’ll be able to continue the momentum we have in 2009 onto 2010,” said Vishnu Mohan, Asia-Pacific CEO of Havas Media. “I think it’s a combination of things that contributed to the end of the year boost, specifically the two pillars of new business acquisitions throughout the year and digital investment.”

Similarly, Publicis’ regional figures also wrapped up better than they began, with Asia-Pacific experiencing a 2.8 per cent year-on-year drop in the fourth quarter of 2009, compared to a 6.3 per cent drop in the first quarter.

For WPP, like-for-like revenues for Asia-Pacific, Latin America, Africa and the Middle East, and Central and Eastern Europe fell by 6.8 per cent, compared to 8.1 per cent globally, but it too anticipates a more upbeat year in Asia in 2010, partially attributed to the advertising opportunities linked to events such as the Asian Games in Guangzhou and the 2010 World Expo in Shanghai.

According to one senior WPP source, because Asian business is largely reliant on local clients, recovery came much quicker than in other regions. “Many local clients cut budgets very early on but returned very quickly when they saw that the climate was not as bad as it was in Western markets,” said the source. “As an example, in China, about 40 per cent of our business is with local clients and 60 per cent is with multinationals, and that’s similar in other Asian markets. With that, things did get better toward the end of the year.”

But not all the holding companies fit the trend. While Interpublic does not break down results by region, its fourth-quarter showing - a year-on-year drop in organic revenue of 8.2 per cent - was almost three percentage points more than in the first quarter. Omnicom experienced a slight improvement, finishing the year with a 6.3 per cent drop in organic revenue, from 6.6 per cent fall at the start of 2009.

At the same time, recovery across the region will by no means be uniform. According to the WPP source, markets such as Japan, Australia and South Korea - which were the worst hit by the recession and which were said to have declined 10 per cent in the past year - will still face an uphill battle, even as budgets stabilise.

A more uplifting outlook, however, could come from Southeast Asia. “We see Southeast Asia coming more into focus for clients,” said Shufen Goh of R3 Asia-Pacific. “The scope for growth is tremendous in markets like Indonesia and Vietnam for agencies willing to invest longer term to get around the red taps. In more mature markets like Singapore, the growth will be spurred by growing industries such as services and tourism, as well as its role as hub for regional clients.”

Industry comments

Sir Martin Sorrell, chief executive officer, WPP:
“We’re budgeting to see organic growth in Q2 this year, but that’s against the weakest comparative quarter for 2009. The overriding theme is that clients still feel they have to cut costs, so there’s no momentum developing yet. It’s nothing to be proud of yet that we are forecasting flat revenue. People think flat is the new up. I’m amazed when media companies trumpet a reduction in the rate of decline. We will only declare victory when we see growth.”

Shufen Goh, owner of R3 Asia Pacific:
“Agencies live and breathe long-term brand building, yet 2009 proved they are not able to practice what they preach when it comes to their own branding ‘investments’. We’ve seen the bloodshed and heads roll, possibly at a much faster rate than their counterparts on the client side. The crisis brought about more discipline and more regional collaboration among client companies, in a bid to increase marketing efficiency and effectiveness.”

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This article was originally published in the 11 March 2010 issue of Media.