Publicis forecasts revenue growth despite gloomy outlook

The French advertising group Publicis forecasts growth throughout 2023 despite a volatile economic backdrop after increasing its revenues by a fifth last year. 

The world’s third-largest advertising group by revenues rebounded from the damage wrought by the pandemic and several years of transition as it grappled with integrating two large acquisitions to deliver double-digit revenues and growth in 2022, ahead of analyst expectations.

It expects organic growth — a key metric for investors that strips out the impact of currency fluctuations and acquisitions — of between 3 per cent and 5 per cent this year, surpassing consensus expectations but slower than the 10 per cent pace of the past two years.

“In 2020 everyone had permission to fail . . . what matters is the average performance over those three years to show what kind of business and what kind of system of growth we are building,” chief executive Arthur Sadoun told the Financial Times.

“Before we can say whether the business has fully normalised we have to ask about the normalisation of the world . . . but what is certain is that, despite global uncertainties, we will continue to build on our three-year momentum.”

Publicis reported revenues of €12.6bn last year, up 20 per cent on 2021, and organic growth of 10 per cent, after a strong fourth quarter that was nearly double analyst expectations.

Headline earnings per share were also up a quarter to €6.35. The group’s operating margin increased by half a percentage point to 18 per cent in 2022, a figure Publicis forecasts it will be able to maintain this year despite pressures from inflation and some belt-tightening from clients. 

“It’s very difficult in an inflationary world to preserve your margin when you’re in a business like ours because you can’t pass your inflation costs to the client,” Sadoun said. 

Publicis has invested heavily in growing its data and technology capabilities to cater to clients, winning new business from multinationals such as McDonald’s and LVMH last year. The company bought digital marketing agency Epsilon in 2019 for €4.4bn, building on a $3.7bn deal for Sapient, another digital advertising specialist based in the US, in 2014. 

Those investments are bearing fruit after a rocky multiyear transition period, accounting for a third of revenues and half of the group’s growth last year, with Epsilon delivering 12 per cent growth and Sapient 19 per cent last year, respectively. 

“People want to finally see that outperformance delivered by companies they spent a lot of money on [and] which took a long time to bed in. They want to see these two growing at more than 5 per cent,” said Conor O’Shea, analyst at Kepler Cheuvreux.

The company plans to use €740mn of its free cash flow of €1.6bn to increase its dividend to €2.90 a share. About €500mn to €600mn will be put aside for bolt-on acquisitions focused on tech and data capabilities, and about €200mn for share buybacks.