When holding companies Publicis Groupe and Omnicom reported their respective 2015 first quarter earnings on Tuesday, each had to field investor inquiries about agency rebates and kickbacks.
Omnicom outwardly denied participating in the controversial activity, at least in the US.
“Our media agencies in the US don’t seek rebates,” Daryl Simm, CEO of Omnicom Media Group, told investors. “The US is not a rebate-based marketplace from a negotiation standpoint."
Omnicom’s media agency clients in the US receive all the value negotiated on their behalf in the form of discounts, qualitative benefits or quantitative benefits, he claimed, adding that the “cornerstone of trust” for Omnicom’s business is the comprehensive client contracts that govern both services provided and performance requirements.
“There’s been a lot of innuendoing and comments against the industry,” Omnicom Group Chief John Wren added. “We know how we operate and have consistently operated. Clearing the air on this is a positive thing.”
Omnicom is participating in the ANA and 4A’s newly established working group to address the issue of agency kickbacks, formed after Mediacom’s former CEO Jon Mandel excoriated the practice at an ANA event in March.
“As quickly and as jointly as the ANA and the 4A’s can get to a conclusion, the better off we’re all going to be,” Wren said.
Pivotal Research Group senior analyst Brian Wieser wrote in a research note that though holding companies claim full transparency with clients, “Our conversations with suppliers and clients convey to us that many clients may not fully understand specific arrangements that are in place between suppliers and agencies.”
Wieser added that he expects more noise on the topic.
Indeed, Publicis suffered through some of it when it held its earnings call. Afterward, in an interview with EuroBusiness Media, Lévy adamantly declined to enter the debate.
“We have a clear contract with our clients, and we are absolutely rigorous in respecting transparency and the contracts,” he told the magazine, claiming that all its clients have the opportunity of auditing their numbers and that when Publicis participates in those audits, “nothing has been found.”
“Publicis is extremely rigorous in the way we are handling the contracts of our clients,” he added. “We feel responsible for them, and we are committed to transparency.”
In earnings news, Publicis saw a 31.7% YoY uptick in Q1 revenue, up to $2.3 billion from $1.7 billion. It benefited from positive exchange rates and from including its Sapient acquisition on its balance sheets. Publicis’ digital efforts also grew 4.7% and now account for 50.2% of total revenue.
Publicis is still recovering from a lousy 2014, and the fallout from that year will likely impact the holding company through Q2.
Omnicom’s revenue was negatively impacted by foreign exchange rates, causing a 1% YoY decline, from $3.5 billion to $3.47 billion.
However, Omnicom saw 5% organic growth YoY (Publicis, by contrast, saw 1% organic growth). A small amount of that growth - $40 million YoY – came from Omnicom’s programmatic trading efforts. That business grew 10% sequentially.