Maurice LÚvy, CEO
Maurice LÚvy, CEO
EuroBusiness Media (EBM): Publicis Groupe, the world’s third largest communications group, reports second quarter revenue and first half results. Maurice LÚvy, welcome. You are the CEO of Publicis Groupe. What are your comments on the Group’s performance in the second quarter, and in the first half of the year overall?
Maurice LÚvy: I have only good news today. There are some days which are very sunny, and this is one of the days which is so sunny that I am very pleased to share these numbers with you. We had a very strong acceleration of our growth in Q2. While we were expecting something like 2.3-2.4% for organic growth in the second quarter, we have concluded the quarter with a 5% organic growth. So I am extremely pleased with this number.
Regarding the first half results, we also have very good news because we have an improvement of our margin which is moving up from 13.4% to 13.8%. That is a +40 bp improvement in our margin which is already the highest in the industry. There are some other good news: net income has increased by 15%, free cash flow has increased by 27.2%, and the EPS, totally diluted, by 11,8%. So, when you look at all these numbers, I think that we have a lot of reasons to be happy. And also, new business is very good in the first half with $2.8bn of new accounts that we have registered. So all in all, a good first half.
EBM: What are your comments on the major trends in the geographical zones? Should we be worried about a slowdown in Emerging Markets? And has Europe bottomed out?
Maurice LÚvy: Europe is still negative but less negative than it has been in the first quarter. The second quarter has shown a 1.1% negative growth, while we had a much higher percentage in the first quarter. In total, the first half in Europe is at -3.6%, which is not great but the negative trend is slowing down or decelerating.
Regarding the US, this is the very good news, we have a second quarter which is up by 7.7%, which is an extremely good number and, as we will see in a minute, it is also mainly driven by the Digital growth. We have some good numbers in all the other regions. So all in all, things are going pretty well and we have no major concerns.
Regarding the Emerging Markets, there is a situation in Brazil that we have to watch carefully. It has not yet settled down, and while we have not yet experienced a tough quarter or the consequences of this current situation, we have to see cautiously what will happen. There is a reason to believe that things will be sorted out positively, which is the fact that in no way the Brazilians would like to fail with the big fiesta around the World Cup next year. So we believe that the reacceleration of growth in Brazil will happen at the end of the year.
Regarding China, there are three factors which are concerning and which probably explain why there is this slowdown. Slowdown, but at a very high level – I wish that we saw our old Europe with such a slowdown, with a +7% growth in our economy! But anyway… The first thing is that there is a new team who is in charge and this new Government, and the new administration –thousands of people have changed – are trying to find their mark and are evaluating all the strategies and all the policies. This is creating some slowdown in how some investments will be redirected. The second element, which is extremely positive for us, is the fact that they have decided to fight corruption strongly. So companies like us, like our clients, who refuse to participate in these kinds of games, will probably benefit from this fight. The third aspect – which we will be seeing in the third quarter and which will probably give some room for growth in the last part of the year – is clearly the fact that they are reassessing all their policies and all their strategies in order to bring some 200 or 300 million new Chinese to the middle class. And this is the best news that we can have because what will happen is that they will probably accelerate the second leg on which growth stands, that is internal consumption, and this will be good for all our clients.
EBM: What are your comments on the trends by sector ? Is Healthcare stabilizing?
Maurice LÚvy: Healthcare is still negative, but the negative trend is slowing down and is improving. So therefore, we are not yet where we would like to see our Healthcare operations but we are on the way. We expect Healthcare to be positive in the third quarter. So all this is fine. All the other segments, when you look across the board - and since we run a global operation where when something is not going extremely well in one market it’s going much better in another - you see that all sectors are doing pretty well.
EBM: What is your outlook for the rest of the year in terms of organic growth and margin?
Maurice LÚvy: We expected a few weeks ago to deliver something in the region of 3.2% to 3.6%. So we had a range. Now we can tell you that the low end of the range is finished. We are targeting internally 3.6% and we believe that we have all the reasons to deliver that number.
Regarding the margin, we had an excellent first half. We believe there still are a lot of things to be done in the second half, and particularly some rearrangement of operations, restructuring, etc. which will cost us a little bit of money. So we will see a nice improvement in our margin, but certainly not in the magnitude of what we have seen in the first half.
EBM: What is your update on the development of AOD platforms? And also for mobile? You recently took the significant stake in Jana. Could you tell us a bit more? And what is your update on the integration of LBi?
Maurice LÚvy: Maybe before I answer your question, I will say a few words about how Digital is growing in our Group. Europe has shown a negative growth, all included, of 3.6%. But if Analog was down by 5.5%, Digital was up by 2.4%. North America was up by 6.1% for the whole first half, Analog was just even, 0.2%, Digital was up by 12.3%. BRIC + MISSAT* was up by 24.6% on Digital and only 3.5% on Analog. Same for the rest of the world. So all this shows that our investment in Digital has been very well thought through and well implemented. That is leading me now to the integration of LBi.
LBi - so far, so good - is doing extremely well. Obviously an integration is never easy, but in this case the merger of Digitas with LBi, and the fact that Luke Taylor is taking over the whole operation is something that is producing already some very good effects, so we are extremely positive about this. If we look at the platforms, we have a very good news - and we will show this in our analyst presentation - that is that today the AOD platform is already live in 23 countries all around the world. I think we are clearly a step ahead of all the industry, we are advancing in many projects, and this leads me to say a few words about Jana. Jana is a great idea. As you know, in the emerging markets airtime is money, and the people that have units can use them to pay for bread, milk, a lot of things. So it’s real money. And Jana, under the leadership of Nathan Eagle, had an idea which is to go to all emerging markets and to offer time in exchange for information on the subscribers. And with that information, we send them the right advertising which is relevant for them. Jana has an agreement with 237 operators, covering 3.48 billion consumers in the emerging markets. And as you know, growth will come from the emerging markets. We have decided to invest along with others and be a partner of Jana’s and we believe that this is a great platform. And we have many other projects, and there will be soon another news on a new platform. So Publicis Groupe is really ahead of the pack when it comes to Digital, and when it comes to bringing to our clients the best innovation and the best way to communicate with consumers.
*MISSAT: Mexico, Indonesia, Singapore, South Africa and Turkey
EBM: Chief marketing officers (CMOs) will spend more on digital in the future than Chief Information Officers (CIOs) who themselves will spend more of their budget probably on marketing. How will you take advantage of this new situation, and what are the implications for your strategy?
Maurice LÚvy: Our strategy has been tailored for that. If we have invested so much money to become the clear leader in this field, it has not been by chance or just because we wanted to look good. It was because we made the analysis that the growth would come from these segments; the fact that CMOs will spend a lot of money on technology, CIOs will spend a lot of technology money on marketing, and there will be a combination. And for that we are ready. We are ready when you look at all the aspects: building websites, obviously display, video, mobile communications, AOD platforms, and e-commerce and much more. And with all the innovation that we are doing everywhere, including what has been created with Brandlife or what we have developed with - I mentioned it already several times - AOD, but also Fluent™ and other products, we see that Publicis Groupe has developed a lot of tools and a lot of innovation in order to take maximum advantage of the investments which will be made by our clients in those two areas. Now, I have maybe to be more precise because I think this is something which is extremely important: we are not doing this only because we will increase our revenue. Obviously we hope to increase our revenue, and we do hope also to increase our margins - which is normal, we are a company that needs to survive and to develop and to grow - but we are doing this, mostly because we believe that this is the right way to best serve our clients. They need innovation in the way they are approaching marketing, in the way they are now communicating with consumers, they need innovation in the way they are dealing with social networks, with all the new platforms which are developed everywhere and particularly on new channels opportunities such as e-commerce. So for all that, we are best suited. Why? We understand brands, we understand consumers, we understand technology and we create what is the most important for everyone, that is ideas which are really moving the brands. What is important, more than technology, more than big data, more than anything else, is to make sure that we create the idea which creates the value for the future. And this is an area we’re pretty good at.
EBM: Maurice LÚvy, CEO of Publicis Groupe, thank you very much.
Maurice LÚvy: Merci.