EuroBusiness Media (EBM): Publicis Groupe, the world’s third largest advertising and communications company, reports revenue growth for the first quarter of this year. Maurice Lévy welcome, you are the CEO of Publicis Groupe. What are your comments on the Group’s revenue growth in the first quarter?
Maurice Lévy: We are very pleased with the numbers that we are releasing today. We have an organic growth of 4.1%, which is slightly, slightly ahead of our old forecast, and we have an increase in our revenue of 12.9%. So in total, when we look at the numbers, not only we are on the consensus but we are slightly ahead of what we expected to do.
EBM: What are the most noteworthy trends that you observed by geographical region in the first quarter?
Maurice Lévy: What is interesting is to see that the mature markets have reacted quite positively: we have growth of 3.6% in Europe, despite the fact that the Latin countries are all in negative trends. France has posted growth of 4.6%, the UK above 8%, Germany above 10%. So all in all we feel quite good about Europe, despite the fact that there is still this cloud of uncertainty regarding the sovereign debt. The US and North America have been quite good, particularly when you compare to the comparison base, which last year was very strong – we posted growth of above 8%, and we have a growth of 3.3%. When you take into account a few other aspects of the operation in the US, which have been widely publicised, I think it’s a very good performance. What’s good is to look at what we are doing in the BRIC and the MISSAT (Malaysia, Indonesia, Singapore, South Africa, Turkey) market. BRICs, the combination of the Emerging Markets, are above 10%: BRICs are delivering 10%, MISSAT are delivering 11.8%, Brazil is delivering slightly above 15% and Chinese mainland also above 15%. All this is showing that the strategies that we have put in place are working extremely well. By the way, we see also a very nice increase in the Digital operation. The last quarter of 2011 was at slightly above 15%, we are close to 16%, so we have this sequential story, which is quite nice, as we have a good sequential growth when you compare Q1 2012 to Q4 2011. So all this is giving us a good level of confidence, despite the fact that there are some clouds in the economy.
EBM: Are you seeing any distinguishing patterns of ad spending behaviour by sector in the first quarter?
Maurice Lévy: When we look at all the sectors, they are all with a nice growth. Some are with incredible growth of above 30%, but this is a very small segment of luxury goods, or you have 24% for Financials or TMT, but these are relatively small segments. The vast majority of our segments are between 8% and 13%. So we feel quite good.
EBM: Looking at the rest of 2012, are you worried about the muted economic growth outlook in the US, Europe and Emerging Markets, and the potential implications for the advertising sector as a whole, and for Publicis Groupe in particular?
Maurice Lévy: We are receiving contradictory signals when you look at the information which is coming to us. The first thing that we received yesterday or the day before, the information of the new forecast of IMF: IMF is moving its forecast from 3.25% to 3.50%, and next year they are moving to above 4%. So when you look at this, you consider that everything is good and that we should see the market growing. At the same time, there are still a lot of uncertainties regarding the sovereign debt in Europe. And due to some elections, including in our country, there is some level of, if not questions, then at least uncertainties on what will be happening. So therefore, when you look at all these aspects, there is a big question mark regarding what, at the end of the day, will be the market. The latest forecast which has been issued by ZenithOptimedia is showing a small improvement compared to that of December, 2011. It’s not a big deal, but it’s a nice improvement. And when you look at the improvement, it’s interesting to see that some European markets are improving a little bit (Germany), some of the markets are deteriorating a little bit (UK, France). I will not cover Italy and Spain because it’s still the same story. And then at the same time you have some interesting growth stories, which are coming back from markets like China, or Brazil, or Mexico, or some other markets. So we have a situation which has a lot of contradictions and, obviously, what is interesting when you look at this picture is to see where we have put our bets. And we have put our bets in two areas: one is Emerging Markets, the other one is Digital. So normally, we should have a good year, and probably better than the market. And when you look at the trend, at the pattern, for 2012, what we think will happen – and what we think will happen to Publicis – is after a 4.1% for Q1, we will see a deceleration of growth in Q2. And with the Euro 2012 plus the Olympic Games, we will see Q3 and Q4 going up. So our bet and our predictions are that the second half will be stronger than the first half and Q1 will be stronger than Q2.
EBM: Since you just mentioned Emerging Markets, what is the outlook for your Emerging Markets business this year in a context of slower than expected growth in China?
Maurice Lévy: I’m always laughing when people are mentioning slower growth in China. I think that we would all dream about the growth that we are witnessing in China (8-9% growth). I think that the President of France, the Chancellor of Germany, the Prime Minister of the UK, would dance on the table if they had such growth. So putting this aside, we are having a growth in mainland China which is already above that, at 15%. We believe that, due to the strong new business momentum that we are having currently in China, or in Brazil, we should continue to grow much better than the market. So we feel confident on those markets. We still have some acquisitions to be made – mainly in China and India, a little bit in Russia – and we believe that this will not require a lot of investment and we think that the growth that we are witnessing in those markets will continue strongly in the next two to three years. So we have a solid pattern, which is giving us a good level of confidence.
EBM: What is your outlook for Publicis's operational lever to preserve or increase margins this year against a backdrop of slower growth than last year?
Maurice Lévy: Our objective this year is consolidating our margins. We don’t have the ambition of increasing our margins because we want to protect the future and we want to continue to invest in three areas: one is talent, the second one is technology, and the third one is what we call “productization”. In order to do that, while at the same time delivering a very good level of margin, we need to generate some good growth and we need also to contain our costs. And we have a very strong program of cost containment, which is working quite well. So I feel comfortable and confident that we will fulfil all our objectives in this area.
EBM: What is the outlook for the operational lever in Digital in particular, now that your portfolio of sizeable acquisitions seems near complete?
Maurice Lévy: The good news is that we have been able to gain control of Pixelpark, for which we have made a public tender. Pixelpark is the largest independent operation in Germany and, clearly, that’s a huge market. With Pixelpark, with Razorfish, and with a few other operations that we have in the Group (Ignition and some others), we are the largest player in the market. So we feel quite good in this market. And when we look at the other acquisitions that we need to make, there is nothing of large magnitude. So you’re right, we have our program, which is, if not complete, then almost complete, and we don’t have to make any large acquisitions today. Regarding the operational lever, we have currently very nice margins, and some of the margins that we are delivering in the Digital operation are above average of the Group margins. So we feel good about this. However, and that’s very important, we have to work towards the next level. And what we have decided on Digital is to do exactly what we have done with the VivaKi Nerve Center and with AOD. AOD is Audience On Demand, and as you have probably noticed, we see that there are a few competitors who are discovering Audience On Demand, which we created three years ago… Slightly more than three years, in fact, it will be four years in June. And this is working extremely well and we want to make a leap forward. We want to take new initiatives and we have a whole group of great people working together in order to identify the areas where we should be investing and where we should be taking a leading position. The first information I got from the team and the first meeting I had with them are very encouraging. And I believe that we will be in a position, probably in the fall, to share some of this news with the market.
EBM: Now that you have repurchased the Dentsu stake in Publicis and now that Aegis is primarily focused on media buying, wouldn't a buyout of Aegis by Publicis Groupe make strategic sense today?
Maurice Lévy: We have been very pleased to come to this final agreement with Dentsu, which by the way will remain a very good shareholder of Publicis Groupe. We have a very good relationship and everything has been done in an amicable way. The repurchase of the shares and the cancellation of some of them (slightly more than 10 million shares) will increase our EPS by 7% on a full-year basis compared to 2011. So it’s a good operation for our stockholders and we are very pleased with this. Acquiring Aegis would not be the same kind of operation for our shareholders and we don’t believe that it will be a good operation for them, nor for the company. We have already such a position in media that this will make a very slight difference for a very big price. So we don’t believe it is the good choice for us.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much.
Maurice Lévy: Thank you.
