EuroBusiness Media (EBM): Publicis, a global leader in marketing, communication and digital transformation, has just released full-year 2016 results. Maurice Lévy hello.
Maurice Lévy: Bonjour.
EBM: You are the Chairman and CEO of Publicis. What are some of the highlights of these results?
Maurice Lévy: In fact, in 2016 we had two very strong objectives. One was to implement the new organisation. And we have some key achievements on which I will come back a little bit later in our conversation. The second is that we promised the market that we would increase all our financial indicators. We said we would increase revenue in absolute numbers, we’d increase margin in absolute numbers as well as a percentage rise, we will increase EPS or headline EPS, and dividends. We achieved that. We are posting very good results, despite the fact that our organic growth has been relatively weak at 0.7%. So, delivering such great results is a clear demonstration that we have one of the most robust business models of the industry. I’m very proud of this, this has been a very heavy work done by all the people of our organisation and I want to really pay tribute to all our teams and people because they had to do the reorg and at the same time to deliver. It’s a little bit like changing the tyres of a car while driving. Not very easy to do. They did it. Congratulations! And the pretty good news is that our free cash flow has increased by 14.9% and we are generating our all-time high cash flow. So, I think it’s a pretty good achievement, while the debt has been reduced and is now at 0.21% debt-to-equity ratio. So, I feel pretty good about the achievement of 2016.
EBM: I understand though that the fourth quarter was weak, particularly in the US. Could you explain what affected your performance there?
Maurice Lévy: Q4 has not been a very good quarter for us, as for the industry. And as we have seen in the recent announcement that the general market has suffered, particularly the US. As far as we are concerned, we are suffering from two elements. On the one hand, we have a strong based comparison. Last year we had 6.3% up in Q4, while this year we are down by 6.9%. So you can imagine the difference – it’s huge – and this is due to the account losses of last year and the beginning of 2016, which by the way will be felt still in the beginning of 2017, and some one-off contracts which came to an end while the new business, which has been pretty good, has not been able to catch up at the speed of which contracts were ending. So this is something which is a situation very peculiar which will not last and we can be pretty confident for the rest of the year.
EBM: You booked an impairment charge. What is it related to?
Maurice Lévy: Impairment is a non-cash accounting charge, so it has zero consequence on operating margin, on EPS or headline EPS if you prefer and on cash. When we acquired Sapient, we have created a new unit called Publicis.Sapient where we have combined Sapient, the new acquisition, with Razorfish and DigitasLBi. We have considered that this unit has to be seen as a whole and this is in agreement with all the rule of IFRS. The total goodwill of this unit represents €4.9 billion. Based on the current market trends and the new business plan for this unit, we have considered that it was more reasonable to put the goodwill in line with what we can expect in the future and therefore we took an impairment charge of roughly €1.4 billion. Again, I want to be clear regarding this charge, it’s a non-cash charge, purely accounting which has zero effect on dividend pay-out, on cash management or on operating margin. It has also one advantage to make that decision at current time, which is to look at the business plan with a certain level of comfort.
EBM: What makes you confident for 2017 and beyond?
Maurice Lévy: As I explained, we have a market transformation which is due to the impact on digital. When you look at consumer journey, consumer behaviour, at the transformation of the businesses of our clients, the way they are going to market, all this has changed dramatically. We have made some very serious acquisitions and more importantly than the acquisition we have transformed our way of working. We have changed dramatically the way we are approaching the business and the way we are operating. What we have done in fact is something which is relatively simple, which is to build these four solution hubs, to put the client at the centre, to support this with Publicis One and to make sure that we are leveraging the Power of One. We are no longer operating as an advertising holding company, but as most of our clients, we are moving towards one company. A connecting company. That is what we are trying to do and when we look at the implementation of what we have done, we see some interesting benefits. First, the people are much more motivated, they feel empowered and they feel that they can work on this multi-disciplinary world which requires a lot of different competences. The second aspect, is that every time that we are going to a client, we see that the client is interested with our new offering and very often we win. If we look at what happened since December, we have won a lot of pitches, we have retained businesses that we could have lost and we have enriched our offering to the point that we are now working on some consulting and some transformation work for which we had no competence yesterday. So, all in all, this new concept is very well suited to the needs of our clients and they believe it is a winning concept.
EBM: And finally, Publicis Group recently announced the succession plan. Could you tell us more about the management changes to come?
Maurice Lévy: Yes, with great pleasure. And I’m very pleased with the solution which has been decided by the Conseil de Surveillance based on the recommendation of the Chair of the Conseil de Surveillance, Madame Elisabeth Badinter and the nominating committee. As we announced, we have followed a very thorough process and the nominating committee has worked hand in hand with Elisabeth Badinter to look at what would be the best solution for the future. After that thought process, which has included a lot of contact with all the managers of the group, the nominating committee has decided to recommend that Arthur Sadoun be elected as CEO of the Group. I fully support this choice. It is my recommendation and I’m extremely pleased. I’m even more pleased with this nomination as it is accompanied by the nomination of Steve King as a member of the Directoire. So we’ll have a very strong Directoire, with Jean-Michel Etienne, our CFO, Anne-Gabrielle Heilbronner, our Secretary General, Steve King who is in charge of all the media and Arthur Sadoun who was, until now, in charge of Publicis Communication. The Supervisory Board and Elisabeth Badinter has also asked me to join the Supervisory Board and to become its Chairman as of June 1st. If the shareholders choose to elect me to join the Supervisory Board, I will be pleased to do that and to help - during the necessary time - Arthur to achieve his objectives. I’m pretty sure that the new team will take Publicis to a new level. I believe that it’s a very strong team. I think that combined with the Directoire Plus where we see all the heads of the other units and some of the key people of our organisation, we will have one of the strongest teams that we can find in our industry. So I feel extremely happy.
EBM: Maurice Lévy, Chairman and CEO of Publicis, thank you very much.
Maurice Lévy: Thank you.
