Advertising business Clemenger Group declares $13.7m profit, keeps wage subsidy

The Clemenger Group has provided the first glimpse of how the local advertising industry performed through the pandemic, with the agency posting its New Zealand financial results for the year to December.

And it comes as the group’s Australian business faces criticism over cost-cutting measures and the retention of Government wage subsidies as the economy recovers from the effects of Covid-19.

Clemenger, which houses some of New Zealand’s biggest advertising companies including Colenso BBDO, Clemenger BBDO and Proximity NZ, this week reported a net profit of $13.7 million for the year to December 31.

This is down on the $17.3m reported in 2019, reflecting a $12m drop in revenue from $79.5m to $67.2m.

The accounts showed the firm slashed staff costs from $51.7m to $44.1m in 2020, which it attributed to measures including redundancies, a hiring freeze, a pause on pay rises and encouraging staff to take annual leave.

The cost-cutting measures also included asking staff at certain subsidiaries to take a voluntary pay cut (understood to be around 15 per cent) for several months.

Chief executive Strahan Wallis confirmed to the Herald that some staff volunteered to have their pay cut for between two to four months due to the impact of Covid-19.

“We have no doubt the actions of these brave people along with our other cost-saving initiatives and Government support saved jobs at the time,” Wallis said.

He further added: “Our final year result was augmented by very significant savings in general expenses and in travel and entertainment.And, in the second half, our profit was also increased through an acquisition.”

Asked whether staff would be back-paid the wages they sacrificed now that Clemenger Group had reported profits, Wallis told the Herald the company would not be doing so at this stage. But he did add that the company was “looking after” staff through pay reviews where appropriate. All staff received a payrise except for those earning over $200,000, Wallis said.

This executive decision has caused consternation within the broader agency group, with some Australian staff members expressing their discontent to influential trade publication Mumbrella.

The staff, who were quoted anonymously, questioned how the company as profitable as Clemenger could refuse to pay back the wages of their staff members – especially after reporting yet another substantial profit.

Clemenger’s Australian group made a net profit of A$50.51m in 2020, only a slight drop on the 2019 result of $50.79m.

In New Zealand, the Clemenger Group received about NZ$2.47 million under the wage subsidy scheme through seven agencies located in the local market.

These included Colenso BBDO (NZ$913,848), 99 Enterprises (NZ$772,377), JustOne Holdings (NZ$81,525), Raydar Limited (NZ$200,050), Perceptive Group Limited (NZ$391,314), Brandworld (NZ$56,236) and Porter Novelli (NZ$112,473).JustOne and 99 have since been reorganised into a single entity called Proximity NZ.

Agencies 99, Perceptive Group and Porter Novelli applied for wage subsidy extensions, while the remaining agencies did not.

The Clemenger Group also applied for support under Australia’s JobKeeper scheme.

Asked whether the Clemenger Group would pay back any of this money, Wallis’ response was “not at this time”.

“It is worth noting that our profit was down in New Zealand more than 20 per cent in 2020 and had we not taken these decisive actions and received subsidies we would have had many more redundancies,” he said.

“It’s a simple fact that Government assistance saved jobs and we are enormously grateful for this.

“Any money we received from Government went directly towards saving jobs, we had rigorous and audited processes in place and we did everything by the book.”

The issue of profitable companies having their bottom lines boosted by the wage subsidy is in no way limited to the Clemenger Group.

It has previously also been raised in stories on Fulton Hogan, Farmers, Trade Me, Harvey Norman and others. It’s also no secret that news publishers Stuff and Herald-owner NZME retained their wage subsidies.

In other cases, intense media and political scrutiny led to companies, including The Warehouse, Briscoe Group and law firms, to commit to paying back the wage subsidy after declaring significant profits.

The Clemenger Group operates on both sides of the Tasman.

The Australian financial statements revealed the board will recommend 14 cents (Australian) dividend per share, totalling AU$24.6m (NZ$26.43 million), to be distributed to shareholders.

The Clemenger Group is 74 per cent owned by the BBDO Worldwide network, which is in turn owned by New York-based advertising juggernaut the Omnicom Group.

The other 26 per cent of the Clemenger Group is owned by directors and staff at the business, through an internal programme that offers employees of the company an opportunity to become shareholders. It’s unclear what proportion of that 26 per cent is owned by directors versus staff members or how many shares lower-lying staff members receive.

The Covid ad agency

A major agency within the Clemenger Group that did not apply for the wage subsidy is Clemenger BBDO Wellington. This agency has over the last year been responsible for the Government’s Covid-19 messaging.

A spokesperson from the Department of the Prime Minister and Cabinet (DPMC) told the Herald the Government has spent $5.37m on advertising with Celemenger BBDO since the beginning of the Covid-19 response.

This included 200 TV and digital ads, 200 radio ads, 140 press ads, 1000 outdoor ads, 350 social tiles and animations, 30 online banners, two nationwide mailers, 220 posters and presence at more than 50 events over the year.

The most recent work to come of Clemenger BBDO includes the impressive vaccine awareness ad, which cost the Government $823,000.

In addition to its spend with Clemenger BBDO, the Government has also spent $1m on other agencies, which have created more niche and targeted content.

The creation of the content is only part of the push. The Government also had to pay for distribution across media channels.

In total, the Government spent a total of $28m on media placement through media agency OMD, which is also owned by the Omnicom Group (OMD did not apply for the wage subsidy).

The vast majority of this spend went directly to NZ-owned media outlets for placement across press, radio, digital, outdoor, social media and television.

The fight against Covid is still not over, and the Government is currently finalising plans on how much more it will spend on advertising and public service announcements as it rolls out the vaccination programme.

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