2019 Annual financial report

Revenue
Group revenue mainly stems from creative and production services, direct and digital marketing, CRM (Customer Relationship Management), sales promotion and point of sale marketing, public relations, event management, institutional and financial communication, strategic media planning and media buying as well as digital business transformation consulting. Client contracts are mainly compensated by fees, commission, performance-based bonuses and reimbursement of third-party costs incurred on behalf of the clients or a combination of the four.

The fees agreed with clients are for the most part calculated on the basis of an hourly rate plus overheads and a margin. Commission-based contracts are calculated on the basis of a percentage of the total sum of costs paid to third parties (repaid by the client) to carry out the contract. Commission-based contracts mainly involve: media services on the basis of media space bought on behalf of the clients and supervision of productions done by third parties. Virtually all our contracts are short-term, generally under one year, and the Group typically has right to payment to the end of the contract or at least for the work performed to date. The Group recognizes revenue when (or as) the control of the promised goods or services (identified as performance obligations) is transferred to the client, in an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.

• Performance obligations

For each contract, the promised services (called performance obligations) are distinct only if the client can benefit from the services on its own and if the agency’s promise to transfer these services is separately identifiable from other promises in the contract. Outside of media services, performance obligations generally correspond to the various compensation set out in the contracts. In creative advertising, the Group typically considers two performance obligations, one for creative advisory services and the second for productions, which generally corresponds to the various compensation set out in the contracts. 

In media services, the transaction price generally covers strategic media planning services as well as media buying. In these contracts, we consider that these two groups of services are separate and the transaction price is allocated on the basis of the employees assigned to these services. 

• Variable considerations of the transaction price 

Some contracts include incentives that are subject to qualitative or quantitative performance criteria. These variable components are only included in the transaction price when it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Performance-based incentives are typically only recognized when they are confirmed by the client. The Group also receives volume rebates from suppliers on transactions carried out on behalf of clients. These rebates are either remitted to clients based on contractual terms or local laws, or retained by the Group. The portion paid back to clients is recognized under liabilities and the portion retained is typically recognized under revenue when the media is broadcast, if a contract exists with the media vendor and we anticipate exceeding volume criteria.

• “Agent” vs. “Principal” considerations 

When third party suppliers are involved in providing services to clients, the Group considers that it is acting as “Principal” if at least one of the following criteria is satisfied: 

• the agency obtains control of the asset or service before transferring it to the client;
• the agency has the ability to direct the supplier(s); 
• the agency incorporates or combines the work of suppliers to deliver the promised goods or services to the client. The Group acts as “Principal” in most of its activities except for media buying services performed on behalf of clients and supervision of productions done by third parties. With respect to productions, the Group acts as “Agent” only on contracts for which it only performs production supervision that is wholly done by an external third party. If the agency incorporates or significantly transforms the work done by a third party, the Group considers that this involves a single performance obligation for which it acts as “Principal”. When the Group acts as “Principal”, the revenue is recognized for the gross amount invoiced to the client. When the Group acts as “Agent”, revenue is recognized net of the costs pass-through to clients, which means that revenue recorded is solely comprised of fees or commission. In any case, travel expenses reimbursed by clients (transport, hotels, meals, etc.) are always recognized in revenue. 
• Revenue recognition period 

Almost all Group’s revenue is recognized overtime because the client directly receives or consumes the benefit of our services or our performance generates an asset with no alternative use and for which we are entitled to payment for the work done to date. For fixed-price projects, revenue is recognized overtime based on internal measurement which best describes the level of effort spent on the project, usually calculated on the basis of hours worked and direct external costs incurred on the project. For retainer arrangements with a dedicated team, generally involving annual contracts, the Group considers that its performance obligation is to be ready at all times to make resources available to our client. In this instance, revenue is recognized on a straight-line basis over the term of the contract. For commission-based media contracts, we recognize revenue when the media is broadcast.