As Publicis Groupe announces its 2020 first-quarter results – the first set of results to show some impact from the Covid-19 crisis – the company’s chairman and chief executive, Arthur Sadoun, talked to Campaign about the effect of the pandemic on his business, how he thinks marketers should respond to the crisis and whether Publicis will be able to stay independent as the economic impact unfolds.
Some people hope for a recovery by the fourth quarter but how likely do you think is it that a recession will continue in 2021 in Europe and the US because of the scale of new jobless claims (for example, in the US there have been more than 16 million in three weeks)?
We're facing a crisis that is unparalleled in terms of its magnitude, its complexity and most probably its length.
It's a public-health crisis with so many variables at play, in terms of resources, testing and tracking, and no two countries are in the same situation. Any forecasts at this point are irrelevant, as no-one knows exactly how the situation will evolve.
What’s your prognosis for global adspend over the next 18 months now?
We are not spending a minute on making predictions for the reasons I stated above. We are focusing on the health and well-being of our people, helping our clients to adapt and taking the right measures to protect our teams and our agencies. We are taking business measures to make sure they are as prepared as they can be for any eventuality.
Which areas of your business are being hardest hit right now?
We're seeing direct correlation between the health crisis peaks, the subsequent confinement measures taken to respond and a drop in revenue. In Q1, China declined by double digits, Europe was hit very hard in March and North America, which started the first two months of the year strong with 5%+ growth on our media and creative business, is also starting to feel the impact.
What one piece of advice would you give to marketers right now?
Think "now ahead" at all times. During this crisis, marketers do not have the luxury to prioritise one over the other. They need to focus on now – what’s right in front of them knowing that short-term outcomes matter. But, simultaneously, they need to prepare and activate for what’s ahead – the transformation their business needs to succeed in the next normal.
Did Publicis underestimate the scale of the coronavirus crisis? The company said on 18 March that it still planned to pay an increased dividend and said on 23 March that plans for job cuts in the next week were 'unfounded'. By contrast, WPP said on 31 March it is suspending the dividend, freezing pay and hiring, and cutting all discretionary spend, including awards.
Looking at the current global context, it’s clear that the situation was underestimated by just about everyone. In this crisis, two weeks are like a century. When we confirmed the payment of dividends, France was not under confinement measures and in Europe only Italy had put serious quarantine protocols in place.
Since then, we have taken measures to cut our dividends by 50% and are asking our shareholders to reinvest the other 50% in Publicis shares. The same kind of solidarity is also coming from top management. The members of the management committee have decided to reduce their fixed remuneration by 20% for the next two quarters. And Maurice Lévy and myself will reduce our fixed remuneration by 30%.
Operationally, we didn't wait one second to take the necessary measures to prioritise protecting our people, jobs and our business, all while reducing our cost base.
At the global level, our first act in mid-March was to launch our people-first "don’t go outside" initiative. On the one hand, it was an appeal for our teams to stay at home, for their own safety. This meant quickly putting in place the necessary infrastructure to allow all of them to connect and work from home.
On the other, it meant not going outside of the group and protecting our agencies by postponing all hires, reducing freelancing and third-party suppliers to leverage our pre-existing resources.
As well as these global measures, we are now moving to the second phase of our response, with local initiatives that are decided at the country level, depending on each individual situation.
Publicis has significant debt (€2.7bn of net debt at the end of December, after the Epsilon deal) and revenue is falling. Will you now need to ask shareholders for cash?
Since Publicis was founded 94 years ago, we have never asked shareholders to put cash into our company.
When it comes to revenue, in this challenging situation for everyone there was some encouraging news at the beginning of the year, before we started to feel the impact of Covid-19, with North America coming back to growth.
Our debt level is due to the acquisition of Epsilon, which is an excellent operation that is making a major contribution to our model, with data at its core. Thanks to our business model and our robust balance sheet, we are confident we will overcome the debt level as planned.
Does the current crisis make it more likely that there will be consolidation among the holding companies?
I don’t believe there will be consolidation among the holding companies. Not for financial reasons, but strategic ones. In a world that will need to be more and more agile every day, the future lies in the convergence of marketing transformation and business transformation, not the accumulation of marketing capabilities.
Publicis almost merged with Omnicom once; can Publicis remain an independent group given the current crisis or are you open to the possibility of talks with another company about a merger?
Publicis has gone through wars, fires and recessions, and has always maintained its independence. There is no doubt we will have to make efforts above and beyond. But, make no mistake, we will get through this crisis.
And can you give more context to the savings and strategic decisions you plan to make to ensure the group comes through the crisis in the best possible shape?
At the moment, we are focusing on two things to secure the future of our company.
First, reinforcing our financial resilience. This asks for a structured, multifaceted and rigorously applied response to the question of savings, to compensate the drop in revenue.
Second, getting recovery ready. Things won't return to how they were before, so we have to develop the products and services that will be adapted to the new paradigm that will emerge. On that front, our teams are working day and night. The results are very reassuring when it comes to our financial situation and pretty exciting when it comes to what we are preparing for the future.
Are you asking your companies to abstain from awards again?
What I’m asking of our people at the moment is to bring creative ideas to our client on a daily basis. Creativity is a fantastic weapon for them to fight back in this time of crisis and get an unfair share of growth in the recovery. That's what we are focused on at the moment. I'm amazed by the kind of work that is starting to be produced, and when it's time for awards again, I'll be happy to see both our effectiveness and our creativity judged.
Are you mandating temporary pay cuts and percentage of furloughed staff from the centre or are such decisions being made on a country-by-country/agency-by-agency basis?
We put in place a country model a couple of years ago, which is a major advantage in a world that will shift from globalised to localised economies. It gives us the agility and the necessary local sensitivity to take the right decisions, at the right time. For example, Annette King has full authority with her executive committee over our group P&L in the UK.
The plans they are putting in place take into account every possible and progressive solution, from central staffing, shorter weeks, furloughs, salary reductions and strategic restructuring. The same goes for all of our country leaders.
What’s the hardest decision you’ve had to make so far during this coronavirus crisis?
I think the hardest decisions are the ones I'm not actually in a position to take, from making the call on imposing quarantine conditions, implementing travel bans and bringing entire parts of the economy to a standstill. This crisis is forcing all of us into situations beyond our control.
What qualities of leadership do you think are most important to get companies through this crisis?
Transparency and resilience.
What gives you most hope that Publicis will come through this in good shape?
The beginning of the year shows that we are well-armed to face this unprecedented time. We have the financial backbone. We have the country model to better leverage our resources. We have unique assets in creativity, media, data and technology at a time when all of our clients will need help to transform for the new normal. But, just as importantly, we have a united and diverse team to come out of this crisis stronger. I want to take this opportunity to thank them all for the dedication and strength in this tough time.
What would you hope changes (in the world and/or business) as a result of the crisis?
Since the Covid-19 crisis began, everyone has been forced to collaborate in new ways, at country level, within companies and even with our neighbours. I hope that same spirit will endure once we all get out of the eye of the storm.
Have you found anything to like about the lockdown?
I've discovered that I have a house!