'Transition year' for Edelman as growth stalls in 2016

The world's largest PR firm is still expanding but posted its lowest growth in seven years in 2016, with organic revenue up just 1.7% as clients became more cautious and cut spending - but it is more optimistic about Q1 and 2017 and remains committed to communications marketing.

Richard Edelman
Richard Edelman

NEW YORK: Edelman grew 1.7% organically in 2016 to take its year-over-year revenues to $875 million from $854 million in 2015.

The performance ends a run of six years of growth ranging from high single to high double digits and is the lowest annual growth figure posted by the world's largest PR firm since 2009 and the aftermath of the 2008 global financial crisis.

In 2015, Edelman grew 7.2% year-on-year organically, compared to 8.2% in 2014, 11.4% in 20139.6% in 2012, 9.8% in 2011, a stunning 18.1% in 2010, but less than 1% in 2009.

President and CEO Richard Edelman characterized 2016 as a "transition year" and said, "From July to December, clients deferred budgets, especially in the U.S. There is a cost pressure at companies. They’re looking for savings and corporate reputation and public affairs are increasingly being done internally."

Revenues in 2016 were up 2.4% in terms of actual growth, taking into account acquisitions and foreign exchange, and 4.3% in constant currency.

Edelman didn’t break out its revenue regionally this year, but the CEO said performance in the U.S., which accounts for 60% of the firm’s business, was "pretty much in line" with the global figures.

In the U.K., business "held up better than we expected in the wake of Brexit," he added. "Clients didn’t pull budgets, the London office performed quite well. In Asia, the best-performing offices were Korea, Japan, and India. China was pretty much flat."

"There is definitely a global trend for multinationals to concentrate spend in fewer markets, and evaluating and constraining spend," said Edelman. "We have invested in this growth area of comms marketing, and we’re committed to making it work. It’s a five-year process and there’s no going back. The mainstream media is shrinking - the classic way of doing what we’ve done is forever changed."

Edelman said Q1 2017 was looking more positive and budgets were "starting to come unstuck," with organic growth set to hit 5%. He noted that fees from the firm’s HP win didn’t kick in until November 2016 and some budgets from wins were initially smaller than anticipated.

"We’ve got a very stable and substantial large client list," he added. "We increased our business with HP; we added some good wins like Stanley Black and Decker, Wells Fargo, Bacardi, KFC, and Rockwell. We’re on the right path and we’re going to stay consistent in what we’re doing."

Edelman said the slowdown in growth was less about losing clients and more about clients being cautious and taking some elements of work in-house, such as digital community management and public affairs.

Spend by clients in the healthcare and pharma space was also down, the latter due to fewer drug introductions and approvals.

"That pipeline has been a bit slower in the past year," said Edelman.

Client losses in 2016 included Computer Associates and Jim Beam. Edelman also lost the ADT account to MDC Partners firm Allison & Partners last summer, having worked with the security system company since 2011.

Dubai Tourism U.K. and Ireland recently switched its PR brief from Edelman to The Brighter Group following a competitive pitch. Dubai-based Edelman Dabo also laid off about 20 members of its staff as it transitions beyond PR counsel.

Edelman added that the firm’s investment in communications marketing via 500 paid, creative, and planning employees had helped it start to make inroads into CMO budgets, citing its success in winning the Cannes Titanium Lion for its work on REI’s Opt Outside campaign.

He also highlighted work with existing clients such as Kellogg’s and Unilever, and new clients including KFC, Barilla pasta, and b-to-b firm Businessolver in Chicago.

"In that category, we aren’t just up against our usual coterie of [the likes of] Weber and Burson, it’s also digital firms and ad agencies," he said. "We’re half way across the river in terms of being a true communications marketing firm – some clients see us like this, some see us as a classic PR firm, others see us as a digital firm."

He noted that a lot of work the agency used to do for clients in the area of community management had been taken in-house.

"Our digital business [Edelman Digital] is 20% of our revenue, but in the last two years digital community management has fallen from 90% to 20% of that," said Edelman. "We’ve evolved that [work] substantially by going into digital customer service, video influencer, paid, and digital transformation on the consulting side."

Omnicom’s PR firms, including FleishmanHillard, Ketchum, and Porter Novelli, recently posted a full-year organic revenue increase of 2.8% in 2016.

IPG’s PR firms, which include Weber Shandwick and Golin, recorded organic full-year revenue increases of "mid-single-digits" in 2016 according to Weber’s CEO Andy Polansky. Interpublic’s CMG division, which includes its PR firms, was up 3.6% in 2016 on an organic growth basis.

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