Aegis Group comes a cropper over £25m client bad debt

February 22, 2011

Aegis Group, the media buying, planning and research company, is beginning to look plain unlucky. Late last year, it had to eat humble pie after the much-trumpeted £200m deal with Mitchell Communications went sour. Aegis was forced to restate Mitchell revenue figures – downwards.

Now Aegis’ Spanish subsidiary has been landed with a bad debt of £25m, which will have to be written off against the 2010 profit and loss account. The cause of this debt is one of its former Spanish clients, Nueva Rumasa. It’s an industrial conglomerate – owned by the billionaire Ruiz Mateos family – which has been in financial trouble for some time. Which is why it has gone into the Spanish version of Chapter 11, a form of protected bankruptcy.

Note the “former”. Extraordinarily, Aegis appears to have extended Nueva Rumasa 24 months’ credit. Not, you might say, the usual terms.

Aegis will publish its annual figures on March 17 and says the bad debt will have no effect on its underlying performance. It will, however, likely affect the dividend. Earnings per share will have 20% lopped off them. City analysts had been forecasting EPS of 10p per share, pre-adjustment.

UPDATE 1/03/11: Financial expert Bob Willott asks how a public company like Aegis could have allowed a £25m debt to roll up, apparently unmonitored. How indeed? Lax Spanish practices seems to be the answer. Willott calls for heads (or a head at any rate) to roll. He’s probably right to do so. But I doubt they will. There’s more on the Rumasa bad debt in Willott’s Financial Intelligence newsletter...

… and in my Marketing Week column this week.

Shining example – Elisabeth Murdoch sets up a mirror to James

February 22, 2011

In Outcasts, a Shine Television production currently airing on BBC1, the mysterious comeback-kid Julius Berger has managed to weasel his way onto the governing board of the Carpathian colony, armed with a silver tongue and a bulging power agenda. What will he do next – overthrow president Tate?

It’s hard to believe that James Murdoch isn’t – like Carpathia’s president – feeling the teensiest bit paranoid. Having his sister Elisabeth back on board (literally) after a decade’s absence from News Corporation is a mixed blessing.

On the one hand, the £415m acquisition of Shine makes News Corporation that much more a creative content and entertainment company, and that bit less a TV platform with a legacy newspaper business tied in. Then again, Liz is clearly an asset. She has won her spurs as a talented entrepreneur and manager during her near 11 years of independence from NewsCorp. Even if £415m is a tad generous (but hey, what’s wrong with a bit of nepotism if you can afford it?), no one seriously doubts that Shine is a good business, operating in the right place. How different her standing from the year 2000 when she quit as managing director of Sky Networks, apparently in mounting frustration over her father’s reluctance to give her full executive responsibility for BSkyB.

On the other, that’s just the problem for James. As someone with credible executive experience gained outside the family business, she must now pose a subtle threat to his role as heir presumptive to the Murdoch empire. Not an overt threat, of course. Merely a reminder that Rupert Murdoch, now nearing 80, has other options when it comes to handing over the reins of power.

Significantly Liz, 42, will not report to younger bro James, 38, but to Chase Carey, NewsCorp’ US-based deputy chairman, even though her business is centred in London.

Every time James makes a club-footed move from now on, it will be contrasted (fairly or not) with the more circumspect and reserved behaviour of his sister. And James has made a few club-footed moves, hasn’t he? The dawn raid on ITV shares, so audacious at the time, now looks less well-conceived. Then there was that intemperate raid of another kind – on the offices of The Independent’s editor-in-chief Simon Kelner, driven by blind but misguided rage. And finally, we have the ongoing News of the World bugging scandal, in which James’ handling of the situation has been called into question.

I mention this because the issue of James’ character and leadership qualities has just been raised (at some length) by an authority more eminent, and certainly more informed, than me: Tim Arango in The New York Times. Arango concludes: “James Murdoch is trying to succeed at the company his father built, but he is a very different character: more blunt, more bureaucratic and less able to smooth ruffled feathers. He has his father’s aggressiveness but not his tactical sense or temperance.” Just in passing, I suggest that his sister, though arguably less aggressive, is also less blunt, less bureaucratic and a lot more able to smooth ruffled feathers. I’m not sure about her “tactical sense”, but more so about her “temperance”.

All this would matter less if James’ leadership qualities were not about to undergo their supreme test. If the current chief executive of  NewsCorp Europe and Asia can shepherd the other 61% of BSkyB’s equity into NewsCorp’s stable, his future looks assured. He will then be in charge of roughly half the media empire’s revenues.

But what if he doesn’t? Suppose, for example, that the takeover is referred to the Competition Commission after all, and that Murdoch père decides the matter is no longer worth pursuing. How would that leave James’s leadership credentials looking? Impaired to say the least.

Which leads me to one last thing. The timing of the Shine deal seems very odd. Why was it concluded shortly before culture secretary Jeremy Hunt reached his decision on whether to invoke the CC, rather than afterwards? Having Shine – a considerable presence in British TV programme production – on board can only heighten anti-Murdoch paranoia, and put more pressure on Hunt to refer.

UPDATE 25/2/11: Silly me. Jeremy Hunt had already reached his decision, and it’s not to refer. That’s the gist of a report in today’s Financial Times. The FT suggests that Hunt and Rupert Murdoch have agreed to remove Sky News from a fully Murdoch-owned BSkyB, while at the same time guaranteeing its financial security. Strictly in the interest of ‘media plurality’, you understand. Mind you, the Murdochs still have to launch a successful takeover bid.

Hans Riedel – the Porsche mastermind behind Jaguar’s bright Sparks ad plan

February 21, 2011

I cannot be alone in wondering what possessed Jaguar to pluck the majority (not all, note) of its $100m global advertising and marketing communications account out of Euro RSCG and place it in the hands of an untried joint-venture called Spark44, which will be head-quartered in Los Angeles.

If you don’t like the agency, fire it; don’t leave it clinging onto the business in nearly a third of your markets. If you do like the agency, but you’re unsure about the quality of its work, call a global review and take it from there. What’s happened here, by contrast, looks amateur and ill-judged: an accident waiting to happen at a time when Jaguar should be worrying about other things. Such as its dealers’ morale and the reliability of its new core product, the long-delayed XJ large saloon range.

Jaguar, which is part of Jaguar Land Rover and now owned by the family of Indian billionaire Ratan Tata, has been rather cryptic about the new marketing services JV – possibly because the news got out prematurely. So let’s try to fill in some of the gaps.

They say it’s not in-house but will be “100% dedicated to developing the Jaguar brand”. I take this to mean that 1) Jaguar is to be the majority shareholder in the enterprise and 2) that Spark44 will not be permitted to chase other clients.

In other words, the model is slightly different to Samsung’s relationship to Cheil (it can, but is so smothered it has never been able to diversify satisfactorily). And perish the thought we should so much as mention Kevin Morley Marketing – which for 3 unhappy years during the early nineties handled the £100m Rover brand. Even so, there are some unsettling parallels with KMM. As will be seen.

What little we definitely know about Spark44 comes from its website which, alas, has now been locked down with password protection (Nerves? Unreadiness? Both?). Before it disappeared from public view, a logo was to be discerned, in the form of a large spark-plug. The “44” part probably relates to the four partners ostensibly running the JV; and the fact that they will operate in Jaguar’s 4 main markets: the USA, Britain, Germany and China  – which, together, account for about 70% of the marque’s sales.

These four partners are: Alastair Duncan; Steve Woolford; Bruce Dundore; and Werner Krainz. Who? Well, good question. First, all of them have big agency backgrounds (McCann and BBDO figuring particularly prominently in their CVs), and specific experience on car accounts. Krainz (German, as the name suggests) and Dundore are creatives. London-based Duncan was until 2009 chief executive of McCann WorldGroup digital arm MRM Worldwide, and earlier helped to set up digital agency Zentropy. Finally, and most important, there is LA-based Woolford. Woolford, after a spell running a barber shop or two in LA, has been a group account director at BBDO (Mitusbishi being one of his clients); and also has a connection with McCann and Duncan, having – surprise, surprise – occupied senior positions at Zentropy and MRM.

But the really interesting thing about Woolford is his client-side experience: earlier in his career he worked for both Porsche and BMW. And it is this pedigree which has given him an entrée to the senior German car executives and consultants who now – effectively – run Jaguar worldwide.

Yes, the Indian Tata business dynasty may own Tata Motors – which bought Jaguar and Land Rover from Ford for £1.15bn in 2008 – but it is the Germans who run it. Last year, Tata put the respected former head of General Motors Europe and ex-BMW executive Carl-Peter Forster in overall charge of its global motor operations. Separately, but about the same time, it picked former BMW executive Ralph Speth as CEO of the Jaguar Land Rover division. Speth reports to Forster but – importantly for the future perhaps – the Speth appointment was made not by Forster but by Ravi Kant, vice chairman of Tata Motors.

Speth quickly set about refashioning JLR’s senior management in his own image. One of his most significant hirings is former senior Saab and Porsche executive Adrian Hallmark to the new position of Jaguar global brand director. Indirectly, Hallmark is a replacement – with much-reduced powers – for managing director Mike O’Driscoll, who leaves this year. Over the past 3 years, O’Driscoll – in charge of product and sales, as well as marketing – has been the key transition figure in the handover of Jaguar from Ford to Tata. Among other things, he was pivotal in cementing Euro’s relationship (which began during the Ford era in 2005) with the brand’s new owner.

There are a lot of names in this thickening plot, but let’s start tying it together with the introduction of yet another one. Speth has been surrounding himself with expensive consultants: in fact, Jaguar has been spending more on consultancy recently than it has on agency fees, according to one well-placed source. If so, that must be a tidy sum, since the Euro RSCG fee is commonly thought to be $10m per annum.

Prime among these consultants is one Dr Hans Riedel, who first made his appearance last summer, prior to the Hallmark appointment. It is Riedel (left) who is effectively calling the shots in marketing. Now about 62, he has worked full-time for only 3 employers in his life: Young & Rubicam; BMW, which he joined in 1980; and Porsche, from which, after 12 years, he retired in 2006. At Porsche he was Mr Sales and Marketing – the man who helped launch the sports-car maker’s third-leg strategy, the Cayenne 4×4 off-roader; and who oversaw an explosion of Porsche sales, which soared from 18,000 in 1994 to over 90,000 by the time he left. At BMW, he acquired extensive knowledge of the North American market helping, among other things, to reorganise BMW’s motorcycle operation there.

The point is this. Riedel quickly made his presence felt at Jaguar by cancelling an imminent global all-model ad campaign – to dealers’ consternation – and bringing in the relatively unknown Woolford as his right-hand man. Next thing we know, Woolford and his chums have carved out for themselves the lion’s share of Jaguar’s marketing communications budget.

In whose best interest is this marketing services JC being set up: Jaguar’s or the people running it? But, equally important: will it actually work?

First, a bit of background. Euro’s advertising strategy performed an early and vital service for the Jaguar brand. The “Gorgeous” campaign definitively pushed Jaguar upmarket, by detaching it from the Ford name and repositioning it as a luxury item. Its task was assisted by the scrapping of Jaguar’s entry model, the unsuccessful X, and the revitalisation of the rest of its range, the XF, XS and the XJ. Whatever quibbles there may be over the XJ’s reliability, all three ranges have been well received critically; and the 2010 JD Power ratings – which measure customer satisfaction – prove the point by ranking Jaguar the highest-scoring luxury marque in the US auto industry.

The “luxury item” strategy is remarkably similar to that which has prevailed at Porsche over the years, at a noticeably lower cost in marketing services expenditure. Riedel  – who must be regarded as the eminence grise behind Spark44 – was not a believer in bloated advertising budgets then; and the evidence is, he is not one now (particularly when it comes to the flim-flam of digital and social media).

Maybe he’s right to be so conservative: his track record speaks for itself. But there are also reasons for suspecting that Spark44 will not succeed in the objectives it seems to have set itself. Will it save Jaguar money? Initially maybe. Its problem is the brand’s global reach. Although it has sought to circumvent the issue of network overheads by leaving all the messy bits to Euro, Spark44 is still lumbered with a fundamental problem. It is servicing only one brand, and that brand must therefore, single-handedly, subsidise the cost of regional presence. There is a complexity of engagement  – and therefore expense – in that presence which may, so far, have eluded the drawing-board agency strategists. The Kevin Morley (left) experiment failed not simply because of the posturing, pugnacious personality of Rover’s former managing director-turned-adman, but because it was and remained a one-trick pony. It could find no substantial partner to spread the costs of a European network. Nor, in the last analysis, could it give advice that was in any sense robustly objective, tied as it was to a single paymaster. Morley quit before his 5-year term was up and, shortly afterwards, the business was sold to Lintas, later a part of Lowe.

Jaguar  might have been better advised to approach Havas with the idea of a 50/50 joint venture run out of Euro. After all, the infrastructure is halfway there already. Jaguar is handled by a specialist agency with a dedicated strategy unit, operating out of its two chief markets London and New York (not always in that order), in order to avoid account conflict with Peugeot. That way the Jaguar JC could have spread the risk while asserting greater control over marketing communications and the associated costs. What’s more, as a global strategy it would have been a good deal more coherent.

For all that, let’s not prejudge Spark44’s chances of success. We’ll know it’s working when, in about a year’s time, Speth turns his attention to Y&R’s global contract with the more successful Land Rover brand, and attempts to replicate the Spark44 model. Either that, or he may find himself without a job.

British Airways’ not very Bright move

February 16, 2011

Mystery surrounds, as they say, the unanticipated departure of Kerris Bright, BA’s head of global marketing – which hit the news last week.

Bright lives up to her name. She is a marketing luminary, a Fellow of the Marketing Society, and highly placed in those “power leagues” that do the rounds (usually not far off Aviva’s Amanda Mackenzie in ranking). BA spent about a year head-hunting her after her predecessor – head of marketing communications Katherine Whitton – took voluntary redundancy in 2008.

All to little avail. Though Bright signed up for the BA job about a year ago, she in fact joined in June. So she has served little more than 6 months before handing her notice in.

Ostensibly, she had had an offer she could not refuse from her former boss at ICI, David Hamill, whom she describes as “the most inspirational person” she has ever worked for. Hamill is now chairman and chief executive officer of Ideal Standard International, the bathroom fixtures company. The job he was offering her? Chief marketing officer and a team role in spearheading ISI’s international expansion.

Ideal Standard, the formerly British brand, is now part of an international consortium – mainly financed by private equity specialist Bain Capital Partners – with a focus on Europe and the Middle East. No doubt Bright has been lined up for a cut of the PE action over time – enticement in itself, it could be argued. And no doubt Hamill is every bit as charismatic as he sounds. Nevertheless, the abrupt U-turn in her career aspirations has set tongues wagging about her “real”motives for leaving BA. After all, try as you might to juxtapose Ideal Standard as a brand (under-rated, as it happens) with BA, however degraded it has become, and something doesn’t stack up.

The missing ingredient is called Frank van der Post. Van der Post, formerly chief operating officer of hotel group Jumeriah, was parachuted in last December to fill the new and senior role of BA managing director brands and customer experience. His appointment was part of a top-echelon management reshuffle as BA limbered up for its merger with Iberia, as a result of which BA chief Willie Walsh got to run the new holding company, International Airlines Group.

The important point to note here is that Bright’s immediate boss, sales and marketing director Andy Crawley, was boosted to an executive boardroom role at BA as commercial director with “particular responsibility for exploiting the revenue opportunities” arising from the near £6bn merger. He is no longer BA specific. And what did Bright get out of all this? Very little, except perhaps a smack in the face.

Not only had she not received a promotion herself, she had a new boss, van der Post, whose experience of brand strategy is arguably inferior to her own. All right, he is hugely experienced in the other area of his remit, customer relations. But so he should be, with over 25 years in the hotel business – most of it spent at Intercontinental Hotels Group. With all due respect to the Flying Dutchman, I doubt that he has ever achieved a branding success that bears comparison with Bright’s work for Dulux at ICI then AkzoNobel.

In sum, Bright had been “restructured” out of the strategic part of her role, but left with the less interesting tactical stuff (like dealing with agencies). Not, I imagine, what she thought she had been brought in to do.

Of course, a mitigating case could be made for BA’s behaviour. The chronic industrial unrest that continues to plague it makes the appointment of an experienced customer relations expert a great deal more of a priority than that of a first-class brand strategist. It’s difficult to launch a meaningful corporate brand campaign when so much of BA’s recent past is tainted with the memory of the Terminal 5 fiasco, and so much of its future with the possibility of paralysing industrial action. Furthermore – and I do not know the answer to this – it may be that Bright is more comfortable working with product rather than service brands (check her CV).

All the same, it looks as if BA has made a prime cock-up over the handling of Bright. Now, why does that not surprise me? I wonder how long the company will take to recruit her successor.

How country of origin affects brand trust

February 14, 2011

A global or international brand’s country of origin still has an important effect on the way it is regarded. And although that perception is related to the power and sophistication of the host country’s economy, the calibration between the two is not entirely straightforward.

That is one of the conclusions to be drawn from a survey, just out, conducted among over 5,000 adults, with a college education and in the top income quartile for their national age-group, active in 23 national markets. It was commissioned by Edelman.

The most trusted country is Germany, which achieved a 76% score, with Canada (75%), Sweden and Switzerland (both 73%) a little way behind. Britain and Japan were further down the scale (69% each), but still beat US multinationals (64%) and France (63%), while Italy scored only 50%.

Even so, these scores were comfortably above those of brands hailing from the so-called BRIC economies. Among the latter, India was top, with 42%; Brazil next with 40%; and Russia lowest, with 35%. The survey’s focus of concern, however, was the world’s second largest economy, China, which received a relatively poor trust score of 39%. Considering it is now “the workshop of the world”, that is a pretty worrying result. South Korea, by contrast, was on 44%.

True, Chinese brands are on the way up. Like all BRIC countries, approval ratings have risen sharply compared with similar research conducted last year. And China (along with South Korea) is at the top of that particular crest, with a 5% improvement. India and Brazil, by comparison, improved by 3% and 4% respectively. But that respect is not reflected in most Western economies. Americans, in particular, seem to have a very low opinion of Chinese brands, which polled a mere 15% trust rating. That in itself marked a contraction of 6% over last year’s survey results. It sounds as if, for the sake of world trade, some effective remedial action needs to be taken, and soon.

“Corporations in China should start considering strategies to communicate effectively to global stakeholders, close the perception gap and increase brand trust, creating more favorable conditions for them to do business worldwide,” says Kevin Wang, managing director of Edelman Beijing. Quite.

For more on the 2011 Edelman Trust Barometer, click here.

i circulation soars – but what happens when they pull the plug on Jemima?

February 11, 2011

Sales of “Britain’s concise quality newspaper” – otherwise known as the 20p i – are doing far better than expected.

After a bumpy start to its career, the pocket-size Independent has received a confidence-boosting fillip to its circulation, thanks in part to a TV advertising campaign starring – among others – Jemima Khan.

Confidence enough, at least, for the management team to disclose its first Audit Bureau of Circulations figures a month before the competition had anticipated.

The headline figure for January (that means the total including bulk and freebie copies) was 133, 472, of which a healthy 125,702 copies were actually paid for.

These figures are interesting for at least two reasons. First, as my colleague at Marketing Week, Lara O’Reilly, has pointed out, if you add the gross Lite figures and the gross Standard Issue figures together, you get 318,507 – which puts the Independent comfortably ahead of our only other liberal newspaper, The Guardian.

Second, and more commercially important, the first ABC figures mark a watershed in the Independent’s relationship with the media buying fraternity. According to sources close to the competition, the Independent sales team has a deal going with the agencies that once the combined “offer” reaches paid-for sales of 340,000 a day, the ads thus far appearing in i will actually have to be paid for, and that the ratecard will approximately double.

Whatever the fine-print truth, it’s a commercial turning-point that is now hoving into view. The eagle-eyed among you will have noted that the present combined figure is still a good way short of that 340,000 goal. It’s even lower when considering the paid-for figures. The Independent itself is heavily bulked, and the combined paid-for figure would be a mere 214,126. But the ABC figures represent an average, an average that disguises the momentum of i sales. By the beginning of this month, with the TV campaign still running, i’s daily circulation had soared to 160,000 – according to the publisher. This week, distribution of i will extend to the further reaches of the British Isles. The Independent’s management must be hoping that growth will be given an extra spurt, bringing the combined paid-for figures close to that moment of commercial truth.

Ah, but that’s February’s figures. What about March’s, when the TV campaign life-support system will have been switched off? A good question, and one that Andy Mullins, managing director of the Independent and i, will no doubt be pondering. One further thing, though: these January figures do demonstrate a milestone has been passed. Many of us outside Lebedev Towers predicted i would merely cannibalise sales of the Independent. That prediction has not come to pass. Sales of the Independent, although chronically low, have not been significantly eroded.

Stephen Elop’s fiery eloquence leaves Nokia looking a burnt-out case

February 10, 2011

I have no idea whether Nokia chief executive Stephen Elop’s announcement tomorrow of a pact with Microsoft will involve the ditching of Symbian mobile operating software in favour of Windows Phone 7.

But one thing I do predict is that nowhere will eloquent Elop’s now notorious staff memo make an appearance in Lucy Kellaway’s much feted annual FT corporate bullshit awards.

There was no elephant to be seen in any room, no going forward (that part presumably comes tomorrow), and no low-hanging fruit whatsoever.

Instead we had a terse, carefully constructed piece of prose that is a classic of its kind. It spared no illusion, but was rich in an almost poetic imagery that took in the Piper Alpha oil rig disaster and made a nod to ‘the boy on the burning deck’ along the way. Not the sort of thing you get from CEOs every day, is it? And, for that reason – and others  as well – I suspect Elop’s name will be hallowed in business schools for years to come even if what he does with the Nokia brand is not.

There are many things to be admired in “Burning Platform” (which appears in a literal sense to be an allusion to Symbian), but I would single out Elop’s searing indictment of Nokia’s faulty marketing strategy as the most notable. It’s the sort of detached corporate insight that only an outsider could bring – although most would have kept it to themselves and their boards:

We are still too often trying to approach each price range on a device-to-device basis.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem.

This is one of the decisions we need to make. In the meantime, we’ve lost market share, we’ve lost mind share and we’ve lost time.

Elop’s image of a desperate man plunging 30 meters into icy waters to escape the burning oil rig may be unique, but it is not without parallel. The Wall Street Journal has helpfully assembled a clutch of similar memos from high profile CEOs attempting to ride out a corporate crisis. They were equally embattled, if not equally eloquent. There’s the  Microsoft “Internet Tidal Wave” memo in 1995, in which Bill Gates highlights the web-threat to PCs; the “Commoditization of the Starbucks Experience” call to arms by chairman Howard Schulz in 2007; the 2006 Yahoo Peanut Butter Manifesto, in which an executive pointed out the internet company was spreading itself too thinly to survive; and John Pluthero’s morale boosting memo to Cable & Wireless staff, roundly condemning “an underperforming business in a crappy industry.”

I’m not sure they’ve all had the fully desired effect. I wonder if Elop will be any more successful?

UPDATE 11/2/11: So, Elop is going for the Windows Phone 7 deal after all. He’s chucking Nokia’s upmarket MeeGo specification, but keeping the mid-market Symbian operating software – for now. Early traders on the Helsinki stock exchange seem to agree with the somewhat spiteful verdict of a Google executive, perhaps smarting from Android’s exclusion from the Nokia picture: two turkeys do not make an eagle. They marked down Nokia shares a savage 10%. But it’s early days. Both Microsoft and Nokia, though on the backfoot, have huge latent market power. And we should not underestimate the willingness of the mobile operators to embrace a wider spectrum of competition within the smartphone sector, which will have the desirable byproduct of buttressing their own market position against those impudent upstarts Apple and Google.

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