Edelman: Agency Business Report 2006

The provocateur

The provocateur

No firm has generated as much buzz as Edelman during the past 12-15 months.

"I'd like to be considered the best," says Richard Edelman, "doing smart and interesting things."

Edelman had a raft of high-profile assignments in 2005: launching a new word-of-mouth practice, being part of the marketing team behind the Dove Campaign for Real Beauty, and gaining business with Wal-Mart corporate as it battles its ever-growing critics.

That work for Wal-Mart has thrust the agency and its employees into the public eye as the retail giant's PR tactics continue to come under scrutiny by mainstream media and outside groups. Several senior departures last year, particularly in the Bay Area, speak to the firm's ongoing problems in hiring and retention.

Edelman must ensure that its recent, much-ballyhooed, hiring of Steve Rubel doesn't overshadow the other attributes of the agency. Financial performance continues to be strong, with double-digit percentage increases in most geographic regions. Expanding outside of the United States is a key priority, as seen by the opening of its Warsaw and Tokyo offices.

Richard Edelman says the firm will continue to challenge the conventional wisdom of advertising and agency ownership, as it has in the past. "I want to continue to be different, and keep our character, which is a little edgy."

Subsidiary companies:

StrategyOne – A full-service market research and strategic communications agency providing clients with customized and targeted opinion research (qualitative and quantitative), strategic consulting, and market research - including corporate image evaluation, advertising effectiveness analysis, reputation modeling, and communications assessment and planning.

Blue: An advertising agency specializing in consumer and advocacy advertising. Blue provides the full-range of broadcast, print and out-of-home creative and production services, as well as full-service media planning and placement.

BioScience Communications: BioScience Communications is a global professional education and publications agency dedicated to helping physicians and other health practitioners understand and apply scientific developments and optimize medical practice. BioScience's capabilities include strategic publication planning and execution, health professional outreach, meeting support services, and interactive programming.

First&42nd: First&42nd is Edelman's management consultancy. It provides services on corporate social responsibility (CSR), with supporting practices in brand management and organizational development. Through strategic counsel and practical project implementation, its services help companies to navigate some of their most complex and urgent challenges.

Name of global CEO and US CEO (or most senior equivalent)
Richard Edelman, Global President & CEO
Pam Talbot, President & US CEO

What is your current headcount, and how has it changed from this time last year?
01/1/06 No. of employees worldwide 2073
01/1/05 No. of employees worldwide 1874

Employee Turnover:
Edelman does not provide any information about employee turnover, because there is no standard formula applied across the industry so comparisons between firms can be misleading.

Did you make any senior hires in 2005 (VP and higher)?
While we can not provide a complete list of "VP and higher" (there are simply too many to name) the following is the list of the most senior hires this year:

US
Michel Ogrizek: Vice Chairman, Global Head of Corporate Practice, --previously Managing Board Director and Head of Communications at The World Economic Forum.
Ken Dutcher: Global CFO, previously SVP CFO, North America Euro RSCG Worldwide
Pam Pollace: Global Practice Head, Technology -- previously, Vice President of Communications at Intel
Teresa Henderson: Executive Vice President and General Manager of Edelman's Southwest Region – previously Associate Director South Region, Ketchum
Janet Cabot: Executive Vice President and General Manager Food and Nutrition – previously Executive Vice President at Weber Shandwick
Cheryl Cook: Executive Vice President, US media services practice – previously communications manager for the Elizabeth Glaser Pediatric AIDS Foundation
Steve Telliano: General Manager, Sacramento Office – previously Managing Director for PCG
Charles Bakaly: Senior Counselor head litigation communications practice – previously private consultant Christina Smedley: Senior Vice President / Creative Director Eastern Region – previously Director of International Communications, Amazon.com
Richard Myers: EVP Financial Communications Practice – previously SVP Communications, VNU

Europe
Jan Soderberg: CEO Edelman Spain, -- previously founding director of Fleishman-Hillard Spain
Peter De Graaf: Managing Director, First&42nd -- previously Managing Director for the FTSE Group's EMEA Business Unit
Mark Cahalane: Executive Vice President and General Manager Dublin Office – previously Executive Director at Drury Communications
Barabara Kwiecien: General Manager Warsaw Office – previously Managing Director BCA Agency

Asia

Bob Grove: Managing Director Singapore – previously managing director of B-to-B technology company
Keizo Kumazawa: Managing Director, Tokyo Office – previously SVP Fleishman-Hillard
Charles Lankester: Managing Director, Hong Kong – previously President and Founder of Limehouse Partner

What senior staff have departed the firm?
Mark Golby, Global CIO (replaced by his deputy Chris Scott)
Meredith Mendes, Global CFO (replaced by Kenneth Dutcher)
Vivian Hirsch, CEO, Latin America (market oversight assumed by Michel Ogrizek)
Jami Warner Goldstene, GM, Sacramento (replaced by Steve Telliano)
Nicole Russell Didda, GM, San Francisco (replaced by Warren Egnal)
Warren Egnal, GM San Francisco (Search ongoing)
Luca Penati, GM, Silicon Valley (Search ongoing, Pam Pollace is acting in role)

For the most part, Edelman's senior most staff has been with the firm for many years. The US core leadership team is very stable: US Eastern Region President Matthew Harrington 15yrs, Global Healthcare Practice Chair Nancy Turett 18 yrs, Global Creative Director Mitch Markson 16 years, US CEO Pam Talbot 33 years.

How many offices do you have globally?
45

US
Atlanta, Austin, Chicago, Dallas, Los Angeles, Miami, New York, Portland, Sacramento, San Francisco, Seattle, Silicon Valley, Washington, D.C.

Canada
Montreal and Toronto

Latin America
Buenos Aires, Mexico City and Sao Paulo

Europe
Amsterdam, Barcelona, Brussels, Dublin, Frankfurt, Hamburg, London, Madrid, Milan, Munich, Paris, Stockholm and Warsaw

Asia Pacific
Beijing, Guangzhou, Hong Kong, Kuala Lumpur, Melbourne, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo

What offices opened in 2005 or early 2006?
Warsaw, Poland – Opened in June 2005 now has 15 full-time staff; Tokyo, Japan – Opened May 2005 now has 10 full-time staff

Is there a particular region, US and globally, that is growing right now?
Edelman ended 2005 experiencing double digit percentage revenue growth in our European, US and Asian operations.

Is there a particular region, US and globally, that's shrinking?
We experienced a low single digit percentage decline in our Latin American operation during 2005.

How many practice areas do you have?
The firm operates in primarily 15 practice areas globally:

Crisis & Issues Management
Corporate Social Responsibility (CSR)
Diversity Solutions
Employee Engagement
Entertainment
Food
Financial Communications & IR
Interactive
Litigation
Consumer Marketing
Public Affairs
Sports
Travel & Tourism
Word-of-Mouth

In addition, Edelman's network includes four specialty firms - Blue (advertising), First&42nd (management consulting), StrategyOne (research) and BioScience Communications (medical education and publishing) to create PR-centric communications programs.

Which ones are new?
In response to the challenges poised by the growing disintegration of the mass market Edelman launched a word-of-mouth marketing practice in 2005. The goal is to connect clients with their key audiences through word-of-mouth marketing (WOMM) campaigns by engaging audiences in a conversation or an experience, which in turn, gives audiences a reason to spread positive word of mouth. Edelman is also a founding member of the Word-of-Mouth Marketing Association.

Of those, which ones are part of the core strategy of the agency?
Each of our practices is core to our business goals.

What practice areas showed the most growth?
Healthcare continued to be a source of strength as revenue in that practice climbed by 17% on a year-over-year basis. This business continues to grow with recent account wins for Pfizer's smoking cessation treatment Champix and increased client relationships with existing clients such as AstraZeneca.

The Consumer Marketing Practice also saw a sizeable bump in revenue up 6.8%. This was aided by the firm's continued work for several global brand powerhouses including Unilever's Dove and Microsoft's Xbox 360, which was launched in December.

Government/Non-Profit saw a jump of 66% driven in part by stem cell research communications work for the California Institute for Regenerative Medicine.

Which practice areas showed the least growth?
Technology revenue was flat for 2005.

What is the distribution of accounts across practice areas?
Edelman continues to work for the same clients across both geographies and practices making this question difficult to answer on an absolute basis. Edelman's top 40 clients now account for 49.5% of total revenue. In addition, the firm is working at the center of big issues, whether climate change, healthcare public policy in Europe, working for the release of political prisoners in Africa, dissident shareholders of Morgan Stanley and Tsunami relief communications efforts for the NGO Save The Children, which all require a confluence of specialists from across practices and geographies.
For instance, Edelman's work for Dove's Campaign for Real Beauty is a consumer driven account that also relied heavily on StrategyOne's research. We service Pfizer in our corporate affairs practice, in our consumer marketing practice and in our healthcare RX practice.

What key account wins did you have in 2005?
Wal-Mart – Corporate AOR
American Heart Association
Go Red! AOR
Symbol Technologies
AOR
General Electric (Corporate)
Qwest
Avent America, Inc
Ochsner Clinic Foundation
MedImmune Inc
HON Company
Buongiorno –AOR
California Institute for Regenerative Medicine
Thermage, Inc
Tyco International
Schering-Plough US Respiratory Franchise
T-Mobile
FaceTime Communications
Alliance for Stem Cell Research
Latham & Watkins
Atlantic Express, Inc.
The Methodist Hospital

What key accounts did you lose in 2005?
Air Products & Chemicals Inc Apple Computer (conflict with Microsoft) Men's Health Magazine US Oncology
Munchkin Inc

Did you expand any existing accounts into new domestic or international markets?
Mouth and Foot Painters Asociation, General Electric, Navigant Consulting, Becton Dickinson, Tourism Authority of Thailand, W.C., and Bradle VTech

Did any dormant clients start to spend with you again?

The Colonial Williamsburg Foundation; Cadwalader Wickersham & Taft; Avaya Inc; Office Depot
Akin; Gump; Strauss; Hauer & Feld, LLP; and Crown Cork & Seal

What proportion of your clients are on a retainer?
26%

Has this changed over the past year?
Down 4%

What was your 2005 US revenue?
$170,893,272

What was the % change over 2004 US revenue? $18,165,917 or 12%

What was your 2005 global revenue?
$261,858,702

What was the % change over 2004 global revenue?
$31,433,547 or 14%

Did you experience top-line or bottom-line growth in the past year?
Yes, both. Please see our financial submission for revenue growth. However, we do not disclose profitability figures.

How did your performance, in terms of revenue and growth, meet expectations you had for the year?
We exceeded expectations given the overall economic growth in the markets in which we operate.

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