EuroBusiness Media (EBM): Publicis Groupe, the world’s third largest advertising and communications group reports results for 2013. Maurice Lévy, welcome. What are your comments on the group’s overall results for 2013?
Maurice Lévy: It’s a record year. It’s one of these fantastic years where you hit all the marks. We have raised our margin by 40 basis points. We have increased our net profit by 11.5%. We have increased our free cash flow by 19%, and we have decided to increase our dividend by 22.2% and our payout ratio will be at 30%, en route for the 35% we announced. There is only a small cloud in the landscape which is our growth for Q4, which has not been at the level we expected and unfortunately this is due to emerging markets and particularly China. We are over-exposed in luxury goods and luxury clients, and they have suffered in the 4th quarter and there have been a lot of postponements or cuts in budgets. This is not the sign of something which will last, it is just something extremely temporary so we have no worry about the future, we feel extremely good. The only problem has been this Q4 organic growth. But when you look at all these numbers, we feel extremely, extremely good and very happy and I want to thank all our people for their hard work, and our clients for their confidence.
EBM: What are your comments on the evolution of your margin, which excludes the merger cost?
Maurice Lévy: The merger cost represents 38 million and we have established our numbers without the merger cost in order to show the performance by itself. What is interesting is in fact two very important aspects. The first one is that despite a fourth quarter which is a little bit sluggish, and the fact that our full-year organic growth is moderate at 2.6%, we have been able to demonstrate how good is our business case and how solid our model is. We are delivering a 40 basis point improvement in our margin despite this sluggish environment and this moderate growth. On top of that, there is another aspect, which will be explained to the analysts shortly, which is the fact that we are measuring all the time the impact of new acquisition on our margin because we have to improve the margin of the acquired operation. And this impact is 30 basis points. Which means that we could have also improved our margin by 30 basis points, which is a good thing for the future.
EBM: What is your outlook for 2014? What are some of the sectors where you’re hearing positive signals from clients? And do you feel that the rebound is really there?
Maurice Lévy: ZenithOptimedia is forecasting 5.3% organic growth for the media. Which translates into 3.5% in revenue of the agencies. The key market which will show some very good growth is the US with 4.7%, China with +10%, Brazil +5%, UK +6%, Eurozone unfortunately will be below 1%. So when you look at these numbers you feel more confident about the geographic breakdown and the fact that all the regions are contributing to growth. The key issue, and the only one that we still see as a possible problem for the future, is the issue of luxury goods. We believe that this will be impacted for still a few months in China, but not much more than that. When you look now at the key drivers, there is this incredible driver which is Digital. I just remind you that in 2013 our Digital operation for the full year has reached 38.4% and a growth of 13.9%. If we look at only at Q4, we reach a level of 40.4% in revenue, and 20.1% of organic growth. So this shows clearly that the way we have anticipated the shift to Digital has been good, and all our investments in Digital are very good investments for our shareholders. So we feel very good about this. And when I look at the forecasts for 2014 I think that there are two aspects on which I will insist. The first one is that we will still be insisting on growth and we believe that we will be North of 4%. And regarding the margin, we are still targeting a new improvement, maybe not as big as the 40 basis points that we got last year, but a new improvement in our margin. So I feel good.
EBM: What is your progress report on the ongoing merger of equals with Omnicom and what do you say to analysts who feel that your are underestimating the synergies and overestimating the client loss impact?
Maurice Lévy: We are not overestimating the client loss impact because we do believe that we will not lose one single client. We think that what we are offering with this merger is something which is in the interest of our people, in the interest of our clients. And in the interest obviously of our shareholders. So I feel extremely comfortable with the concept of the merger of equals and I feel extremely good about what we have prepared and developed. Now regarding the progress there are areas that we can control and there are areas which are out of our control. We have a kind of series of hurdles that we have to jump over, and all these are administrative hurdles. We have to go through the anti-trust operations and we got 14 of the 15 that we were expecting to get. The last one is the one with China. And our conversations with the Chinese authorities are very good and we don’t anticipate any major problem. We think that conversations are constructive. The questions that they are putting to us are accurate and sensible and we are doing everything we can to give them the reassuring answers. So we feel good. Then there is what we have to do with the SEC, the AMF, etc. -- AFM more than AMF. And for that we need to close the books of this year. We need to translate them into US GAAP. Omnicom has to translate them into IFRS. Then we have to get the auditors certification and to file. Then how much time it will take – nobody knows exactly. There is no major complexity in any of this. There is only something which is a long process and for which a lot of decisions are totally out of our control. We have given guidance which we thought was right because we are quite aggressive in timing, which was before the end of H1 of this year. We still believe that it can be the end of Q2 but it could also be the beginning of Q3. Nobody knows exactly and it’s very difficult to know.
EBM: Some analysts believe that you are going to become even more aggressive in terms of return of cash to shareholders. Should they have reason to believe this?
Maurice Lévy: Omnicom has a long history of returning a lot of cash through higher dividends than what Publicis was delivering, and share buy-back programmes. When you look at Publicis, our history has been a little bit of share buy-backs and we have bought all the shares of Dentsu, and a dividend that was a little bit moderate. We made the decision to increase our dividend and the pay-out ratio to 35%. We are en route for this 35% at 30% this year, so we are sticking to our word. Clearly, when you look at the cash that we are generating, it will be, I guess, the responsibility of the Board to decide what to do with it. I would be surprised if we did not see a good return for the shareholders through a better dividend, probably in the region of 35%. I don’t know what the Board will decide and the AGM and certainly they will decide to return more cash to the shareholders through share buy-backs, and all this will be decided after the merger, but I’m quite confident that it will be good for the shareholders.
EBM: Big Data seems to be the next Eldorado, but competition is becoming fiercer. What do see as the advantages of the agencies in order to capture their lion’s share of that market?
Maurice Lévy: Fairly simple. Data is about targeting. If someone knows exactly what targeting means, it’s clearly the agencies. This is what we are doing for our clients since day 1, when we invented the role of an Ad Agency. Understanding the consumers, understanding their behaviour, understanding the brand and understanding the kind of message which is right for the consumer, is clearly our core metier. This is what we are doing day and night, every single day of the year. I don’t see who is better positioned than an Ad Agency to crunch the right numbers, to understand the behaviour of the consumer, and to deliver the right message at the right time to the right consumer. I don’t see why some people are thinking that there might be some other competitors in that field. If an advertiser wants to have the right message to the right person at the right time, it is clearly with its partner, the advertising agency.
EBM: Where does your DNA of creativity fit into this equation? In other words, if you are going to be competing more and more in the data space, aren’t you running the risk somehow of neglecting what sets you apart: the creativity aspect of the agency versus other types of players?
Maurice Lévy: Crunching the data is not only some clever algorithm. Clearly you can have -and PhD’s are in all the companies - we have a lot of PhDs doing this kind of job and we are extremely happy to have them and very proud that we have been able to attract them. But what is important is what Einstein has said: “Imagination is more important that knowledge”. We have the imagination. We have the ideas. This is our DNA. This is what we do for a living. This is what we do every single day on every single aspect. That’s the reason why we are going into territories where others do not go. If it was so easy to put under two or three algorithms how to develop an idea, how to reach a consumer, I can guarantee you that already there would have been a lot of computers on Earth trying to do our job. But there is something that they can’t do and that is the sensitivity, the antennae, to understand human beings. And human beings have a human soul.
EBM: And lastly, when the merger is complete, when you do resume some M&A activity, will your priority still be to increase your Big Data analytics capabilities through acquisitions?
Maurice Lévy: The key reason for the merger is obviously to be able to bring our client to tomorrow. And Big Data is at the core of what tomorrow will be. So it is extremely important that we build a Big Data capability. Will it be through organic? Acquisition? This is yet to be discussed and we are discussing this with Omnicom and it’s not something that we have on the agenda every single day, because there are a lot of other things that we have to do, but it is on our agenda, and we will see if we can avoid making acquisitions we will avoid making acquisitions. We don’t have an addiction to acquisitions. We have an addiction to performance and that is what we want to do. We want to perform for our clients, we want to see our clients growing and winning and we want to perform for ourselves, for our people. We want our people to be proud and to benefit from our performance and obviously for our shareholders, everything we are doing is something that has to benefit to all our stakeholders. Clients first, people second, third the shareholders, who will benefit from everything we do.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much.
Maurice Lévy: Merci, thank you!
