Maurice LÚvy, CEO
Paris, July 20, 2012 - Publicis Groupe, the world’s third largest advertising and communications group, reports results for the first-half of 2012. Publicis Groupe CEO Maurice LÚvy comments on H1 and outlook for the rest of 2012.
Company website : www.publicisgroupe.com
Maurice LÚvy, CEO
EuroBusiness Media (EBM) : Publicis Groupe, the world’s third largest advertising and communications group, reports results for the first half of 2012. Maurice LÚvy welcome, you are the CEO of Publicis Groupe. What are your comments on the group’s performance in the second quarter and overall in the first half ? In particular, can you comment on the impact of the recent loss of the General Motors contract — is that the only reason that you are seeing a slowdown in Q2 vs. Q1 ?
Maurice LÚvy : We have forecast and informed the market, as early as February, that the second quarter will show a slowdown. And there will be no surprise. The numbers that we are showing for the second quarter are showing that slowdown at a level of 1.6% organic growth. Total growth compared to last year, including acquisitions and all the other elements, it’s at 14.3%. The major reasons for the slowdown are three elements. The first one is that we are facing the loss of GM, both on Media and Search. The second is that there is a very sharp slowdown in the Healthcare communications due to what we call the patent cliff. And the third aspect is that there have been some cuts, or postponing of investment in TMT and in Healthcare and Digital. And this has clearly had an impact – a very strong impact – on the second quarter. We will see very soon in the third quarter that the forecast that we have made will happen, that the second half will be better than the first and that the third quarter will be reassuring for everyone, so I have no real issue on the fact that this is purely non recurrent items, which will not have any impact in the long-term.
EBM : What are the trends that you’re seeing in the different main geographical zones ? In particular, what are your comments on China and Brazil, where investors fear the slowdown may be spreading ?
Maurice LÚvy : We have to look at two different elements. The one that you are asking for is the market and the other one is what will be the situation of Publicis. So let’s talk of the market for a few minutes and the economy globally. China is revising its forecast for growth and we know that for the time being they are moving progressively to the level of 7 or 7.5%, which is a very low number for China. Obviously any President or Prime Minister in Europe will be more than happy and dancing on the table with such a number. For China, this is slow. And this may have a consequence for the other economies and it is also, by itself, a consequence of the slowdown that we are seeing in Europe or in the US. For Europe, we have the situation which is well known regarding the southern region and what is a little bit knew is how France has been affected by the electoral campaign and also how Germany has reacted recently. What we have seen is a marked slowdown in consumer behavior. Is it just linked to the electoral campaign ? I don’t know. We will see in September. For the US, the level of confidence is still good. Now, Publicis. I have said that Q3 will be good. For the time being, very good. This is what we have in hand. This is what we are seeing. There is some good rationale for that. The first one is obviously that we are entering a period where there is a lot of advertising regarding the Olympic Games and this will continue until mid August. So we have half of the quarter which will be fed with a lot of advertising. And there are a few other operations which are in the pipeline and which are already firm, so we have a good level of confidence for Q3. And this gives us a very good level of confidence for the full year.
EBM : In terms of sectors, where are budgets being cut, and where are clients remaining confident ? In particular, how is US Healthcare holding up ?
Maurice LÚvy : In the US, we know that the situation is a little bit contrasted, but when it comes to Healthcare. Every day in the newspapers we see some news regarding the restructuring of the sector. There is what the specialists are calling the "2012 patent cliff" which is the fact that there are a lot of patents which are coming to expiration in 2012 and a little bit in 2013. But the vast majority is 2012. This has a serious consequence on our numbers, because obviously when a patent is expiring, the pharmaceutical company is not going to advertise or to invest in communication and we are facing this issue. The second issue that we are facing in the US is simply something that you have already mentioned, which is the loss of GM Media and Search accounts. Otherwise we see a little bit here and there some retention postponing or some small issues but nothing major. The key issues are clearly identified. They are non-recurring and they are limited to these sectors.
EBM : Is your organization geared up to be able to react quickly in case of a brutal slowdown in macro economic growth, despite your current on-going investments ?
Maurice LÚvy : If we look at the history of Publicis, we are the fastest to react and so far we have been able to react without impacting the confidence of our clients or the confidence of our people. We are not the kind of people who are immediately doing a lot of lay-offs and brutal firing. We are managing this with a very subtle approach and this has been very positive so far. We have also a very large share of our costs which is in variables : freelancers, variable compensation, bonuses. These represent something between 12 and 13% – or maybe closer to 15% in the good years – and we have room for manoeuvre if there is something brutal which is happening. So I’m quite confident on the ability of our group to react if something tough is happening in the market.
EBM : Within what time horizon should your current on-going investments translate into a relatively higher organic growth rate compared to your peers ?
Maurice LÚvy : We should not look at Publicis and at the picture of Q2 as the story of Publicis, because when you look at what has been our story so far, we have been always able to be either Number 1 or Number 2 in organic growth. We have this unfortunate non-recurring event and this is momentary - for a moment and only that moment - and I’m totally confident that as soon as 2013 we will have a pace of growth which will be better, not only than the market but than most of our competitors. So I have total confidence in the ability of our people, we have great teams everywhere and superb management teams, so we feel very good about the possibility of resuming our history, which is higher growth on the market and the best margin of the industry, which we still have.
EBM : What is your outlook for the second half of 2012 and 2013 ?
Maurice LÚvy : In short, for 2012, fairly simple : H2 should be higher than H1. Full year higher than the market. Margin : our objective is to consolidate our margin at the high level that we have reached, which is the highest of the market at 16% and our objective for 2013 is to continue to build on our two very strong pillars, which are the Digital markets and the Emerging Markets.
EBM : How do you plan to use your significant excess cash and your balance sheet ? Are you able to provide the market with some targets and a timeframe ? Will you use excess cash to buy back shares, to make acquisitions, or to increase the dividend ?
Maurice LÚvy : We are conscious of the need for treating well our shareholders. And most of them are very loyal to us, so it is absolutely normal that we go in their direction. We have accomplished already a lot of the acquisitions that we had to make. And that has been the reason why so far we have preferred to invest rather than to distribute. However, last year we have already done a small gesture regarding the first part of the Dentsu shares, and this year we have done a vast majority of the operation, with the acquisition, for €644 million, of the Dentsu shares. This has a very good impact for our shareholders. Second aspect, we have made clear at the last AGM that we will raise the dividend and the payout. It happens that the EPS for the first half of 2012 is up by 24.3%. So it’s a good indication of where we are going and it is clear that we will increase the dividend.
EBM : And lastly, is the recent acquisition of Aegis by Dentsu a disadvantage for Publicis Groupe ?
Maurice LÚvy : I believe it will be an advantage for Dentsu, because it’s a good move for them. However, I consider that the price is full. By the way, there have been two operations recently in the market and we passed on the two, because in both cases we considered that this was off-limits in terms of price. As far as the Dentsu-Aegis operation, if it comes to a positive conclusion, I think it will be making a very good competitor and I’m pleased for Dentsu and I’m pleased also for our industry. We need strong competitors and this is not only sharpening our ability to compete, it is making us far better and I like this idea.
EBM : Maurice LÚvy, CEO of Publicis Groupe, thank you.
Maurice LÚvy : Merci.