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Today’s writing soundtrack: Dizzee Rascal - E3 AF

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Dance of the giants

Today I publish the results of a project I’ve been meaning to do for a while. I’ve dug into the financial performance of the major communications holding groups to compare how they all travelled through the Covid downturn.

I’m talking about WPP, Publicis, Omnicom, Dentsu, IPG, Havas and S4 Capital. And to add some local flavour, the ASX-listed minnow Enero sneaks into the graphs too. Below, we compare their revenues, profits and market capitalisations.

Between them they have a market capitalisation of just over AUS$100bn. They own most of Australia’s creative agencies, PR agencies and media agencies.

Unlike Australia, which follows a July to June financial cycle, the major global players follow the calendar year.

Which means they all reported their full year numbers over the last few weeks. Well, not quite all. As I wrote about last week, something has gone (perhaps badly) awry at Sir Martin Sorrell’s S4 Capital, and PWC has not signed off on the accounts. Still, with no indication of when S4 Capital will emerge from its financial purgatory, there’s no point waiting any longer.

Practicalities and caveats

Feel free to skip the next eight paragraphs if you want to cut to the chase with our comparisons.

It’s slightly more complicated to make direct comparisons than it might seem.

For one thing, the holding companies report into different global accounting regimes depending on where they are headquartered. So they work to slightly different accounting conventions.

For the purpose of this exercise, I’ve chosen to look at their operating revenues, which puts to one side the vast sums of passthrough revenue they spend on behalf of clients through their media buying operations.

I’ve focused on EBITDA (earnings before interest taxation, depreciation and amortisation) as the closest measure available to provide a single way of looking at profitability.

And for valuations I’ve focused on market capitalisation. Admittedly this doesn’t give as full a picture as enterprise value (which also factors in debt levels). But it’s the most readily available transparent measure. Of course, it’s also a snapshot measure as it changes every day. S4 Capital now looks a third worst than it did a fortnight ago, for instance.

Then there’s the fact that they report in different currencies. WPP and S4 Capital report in UK pounds. Publicis and Havas are in Euros. Omnicom and Interpublic do their numbers in US dollars. And Dentsu reports in Japanese Yen.

Because Unmade focuses on an Australian audience, we’ve converted all their numbers to Australian dollars for the purposes of this exercise. Again, with currencies bouncing around as central banks finally put up interest rates, that’s constantly changing too. So this marks a snapshot as of yesterday. Next week it will change again.

It’s just one way of comparing things, but it’s as good as any, and I haven’t seen it done this way before.

So let’s dive in…

Omnicom tops the turnover

Turnover is vanity, as they say. And profit is sanity. But nonetheless, we’ll start with turnover.

Slightly to my surprise, it’s not WPP that has the biggest turnover - it’s Omnicom that wins the vanity stakes.

The US based Omnicom - parent company of media agencies including OMD and PHD and creative networks DDB, TBWA and BBDO among others - had a turnover of just under US$14.3bn in 2021, which coverts to a little more than AUD$19bn. That’s not quite back to its AUD$20bn of two years before, but it’s not far off.

One thing that stands out is that the revenue of all of the companies have recovered from their rock bottom year of the 2020 Covid downturn.

And in the cases of Publicis and IPG, they’ve actually surpassed their 2019 level.

In totality, the industry has almost returned to the 2019 level. The big six holding companies wrote revenue of $78.8bn in 2021. That’s only just behind 2019’s $79.5bn. And it’s 9.3% up on 2020’s $72.1bn.

Publicis leads profits

It’s a different story in profits though. The sector is now ahead.

Once again my mental mind map with WPP as the most profitable player was incorrect - it was actually Publicis that was most profitable, with an EBITDA profit of nearly $3.4bn

But as a group it looks like the holding companies have used the downturn to cut costs and come through to the other side as more profitable. Never waste a good crisis.

Total profits from the big six for 2019 were $13.1bn. That fell to $10.1bn in 2020. And bounced right back up to $13.82bn in 2021.

The scale of the recovery from WPP, Omnicom and Dentsu in particular is striking.

Market caps

So how about shareholder value?

The most valuable holding company in the world is Omnicom - worth AUD$21.88bn. That’s ahead of Publicis, which has now pushed WPP down into third. Interpublic isn’t far behind either.

At the other end of the grid, we would have seen S4 Capital challenging Havas for market cap, if it hadn’t been for last week’s slide.

There’s a lot more to be explored in future deep dives. I’ve a hunch that 2020 will now prove to be a useful punctuation mark for company bosses who were struggling to justify declining margins before then. The push from clients for greater transparency in digital media buying was not good for holding company profit numbers.

Please do let me know if you find this exercise helpful. If you tell me it’s useful, I’ll repeat it.

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The Unmade Index: Back where we began

After bouncing around all week, the Unmade Index of Australia’s listed media and marketing companies ended the week almost where it began. It opened the week on 941.1 points and ended it on 926.

Southern Cross Austereo had a better day yesterday, up by 1.52%, although it remains down by 14% for the year to date. HT&E - owner of audio company ARN - had the biggest fall yesterday, down by 3.34%.

Nine, meanwhile finished the week back below a $5bn market cap, despite coming back a bit yesterday.

Time to let you enjoy your weekend, and possibly the start to your Easter getaway. Here’s hoping you don’t spend too much of it in the security queue at Sydney Airport.

For me a weekend of televised sport awaits. Saints versus Chelsea in a few hours in the EPL, and a 5.55am alarm call to watch the Melbourne Grand Prix live tomorrow.

And if the election gets called, Insiders will be compulsory ABC viewing on Sunday morning.

Have a great weekend.

Toodlepip…

Tim Burrowes

Unmade

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