EuroBusiness Media (EBM): Publicis Groupe, the world's third largest advertising and communications group, reports revenue for the third quarter of 2012. Maurice Lévy, welcome. You are the CEO of Publicis Groupe. What are your comments on the group's performance in the third quarter?
Maurice Lévy: Our numbers are good, particularly when compared to the current situation. We are posting close to 15% up, compared to published numbers last year, and organic growth is close to 2%. The level of organic growth is not exactly where we expected it to be, as we were expecting something above 4%. In July and August we were quite in line with our internal forecast. The month of September was forecasted at +6.6% and it ended up at -1.6%. So the whole story is about the month of September. It's not very different from what you have heard from my competitors or from the market. So when you compare our performance with the market, I think we are quite well and I feel relatively good, particularly due to the fact that the issues and concerns are in very limited areas. Geographically it's Europe: -3.6% for the quarter. All of the other regions are up, and the US is up by more than 3%, which is much better than any of our competitors. When you look at the other regions, we also have very good numbers. If you have a look at the first nine months, for Digital we are up by 7.5%, Emerging Markets up 6.3%, so we are in good shape.
EBM: What are your comments on the current trading environment, in particular the differences between the different geographical zones?
Maurice Lévy: As I mentioned, Europe is negative, and we were expecting Europe to be slightly positive. The major issue in Europe is not only that the Southern markets, like Portugal, Spain, Italy and Greece are seriously down, close to 9%, but we also have Germany which has been a little bit weak, we have the United Kingdom which has been weak, and we have France which has also been weak. Each of them has negative numbers. This is quite a surprise and this is really mainly due to the softness of the post-Olympic games situation, the concerns of some advertisers regarding a possible credit crunch, and everyone has been sitting on the money and cutting instead of investing. I believe that the situation in Europe is of limited effect. We have seen that the euro situation and threat is fading away, and the real issue that we have is much more a question of confidence and how the economy will grow in those markets. In the US we have a relatively good growth, and this is mainly due to the fact that we have a share of our business in the US in digital, which is very solid, close to 50%. In Latin America, Asia-Pacific, and the rest of the world, we have a reasonable growth, which is due to the investments that we have made in all of these regions. If we look at the forecasts in the regions for the coming months and the year to come, my impression is that Europe will suffer for 6 to 9 months in 2013, the US will have to find ways to have better growth in the economy because there is a situation of unemployment which is unsustainable. And I believe that this will be, if not fixed, at least improved, and this will fuel the global economy. So I feel relatively confident, and I think that if we suffer a little bit in terms of the economy in the first six months, next year will be much better in total.
EBM: Your growth rate in Emerging Markets was recently below that of your peers -- what is your update there?
Maurice Lévy: When we look at our performance in the Emerging Markets, we are quite pleased with what we have been doing so far and the level of growth that we have at +6,3% is in my view very good. When you look at our peers it’s not so different, slightly up for some, but in total it’s not so different. So I feel quite confident for not only now but the future.
EBM: What are clients telling you, and what is their outlook?
Maurice Lévy: The clients are facing a situation of uncertainty and volatility. When you look at the market today I think that the two key words are volatility and uncertainties, and clients are very cautious. I don’t see a client depressed or with an issue of what the future will be, but much more a cautious approach towards the end of the year and next year. That’s the reason why we see that there is a retention in investment in Europe, because they see that the situation is not yet stable. They are a little bit afraid of some situations in some peculiar markets and they prefer to invest in other markets. Now when you look at marketing investment, they all know that they have to invest. And they all know that the brand is something which is not only essential to do business, but it is also their most important asset. So they need to nurture, to nourish the brand and to invest on the brand. And they do it. And the last aspect is about innovation. All our clients are looking for innovation, and the area of innovation at which they are looking the most, and they are expecting the most, is the digital space. And they are turning to us for this area. So yes, in conclusion, they are cautious, yes they are very prudent when it comes to Europe, but no they are not depressed, and they are ready to take challenges and invest.
EBM: What is your update on the growth of Digital? Does the recent acquisition of LBI consolidate your leadership in Digital?
Maurice Lévy: We have already a very strong position in Digital. The LBI acquisition will help us to do a few things. The first one and the most important one is to strengthen our position in Europe. And in Europe where we are roughly at 23-24% of our revenue derived from Digital, we will be at 30% or 30+%, and this will also help us to get over 35% for all our investment in Digital. So all our revenue derived from Digital next year will represent more than 35%. This is excellent. On top of that there are a few aspects on which LBI has made serious progress: e-commerce -- they have a very strong e-commerce practice -- on some innovation aspect (targeting), and also social networks. So LBI is strengthening very seriously our position in those areas and geographically in Europe. If it was just for this it would be wonderful. On top of that we inherited with LBI some excellent professionals. And this is the most scarce resource that exists in the market. And having access to roughly 2000 people in this field and a leadership team which is top-notch, I think this is an excellent operation, particularly when you look at the multiple that we have paid compared to some of our competitors.
EBM: What is your outlook for 2013? In particular, how do you see the US market holding up in a year following the election year?
Maurice Lévy: Obviously, regarding the US, the key change which might happen, or not, is what will happen at the White House, who will be in the Oval Office. And this will have an impact on the economy; what will happen to the fiscal cliff and what will be the decisions of the new President, whoever he is. So this will have a serious impact on the economy. If we put this aside -- I cannot comment more on this -- all the forecasts that we have in hand for next year are showing a 2013 year that will show better growth than in 2012. So we expect a growth that is higher. How large will the difference be, I don’t know. But what I can tell you about the situation for 2013 is that there are two or three elements which are quite interesting regarding oursleves : the first one is that we will reach a level of roughly 60% of our revenue which will be derived from Emerging Markets and Digital. 60% coming from fast growing segments! Even if these segments are growing less fast than 2012, or the recent years, they will grow much faster that the mature economies or the mature segments. So that is a very good aspect.
The second aspect is that when you compare with 2012, there are some very good elements of comparison. The first one is that we have been hit by the loss of GM, bigtime, for the full year. And we are with a comparable basis which is unfavourable in 2012, but which will be favourable for 2013. The other aspect is what is happening in the Healthcare division, Publicis Healthcare Communications Group. There is what is called the ‘patent cliff’, or the ‘pharmageddon’, and in our field we have suffered, Publicis Groupe has suffered from the ‘pharmageddon’. We have done what we had to, in order to be in a position to take maximum advantage of the growth. We have a very good news with the decision which has been made by the largest Pharma company, Pfizer, which has decided to concentrate all its business within three global holding companies and we are one of them. We had little business with them, we can expect to grow.
When you put all these elements together there is a lot of reason to believe that next year will be not only a good year for us, but certainly better than the market.
EBM: Do you still expect flat margin growth this year? Do you expect to be able to grow margins within the next couple of years and, if so, what will drive margin expansion?
Maurice Lévy: We are still with the idea that this year we will deliver the highest margin of the market, and our goal is to deliver 16%. When you take all the elements into account and with this low growth level -- which is for the time being at 2% organic growth -- I think it’s quite an achievement, particularly when compared with all our competitors. We will have between, I don’t know, 150 and 200 basis points better than the average of the industry, maybe more if you take into account some laggards. So we are quite solid on our feet regarding the margin.
On top of that we will obviously continue to manage our costs very tightly and take into account the current situation in order to make the best with our resources. We are also investing in some areas in order to drive more revenue or more growth, which would generate a better margin for next year. So this year 16%, the highest margin of the industry; next year we are in a plan to improve, this is the first year of a mid-term plan to improve our margin between 200 and 400 basis points. And it is also the first year of the improvement of our payout ratio, where we are moving roughly from 23,5% to 35%. And this will be done progressively -- it will not be done overnight -- but you can expect that we will increase our dividend and our payout ratio in the next few years, starting as of 2013.
EBM: We're seeing advertising groups are relying much more on technology, which they do not actually own. Should we expect you to acquire technology pure players in the medium-term?
Maurice Lévy: We are working with technology companies and we have been the first to have strategic agreements and strategic alliances with Google, Facebook, Microsoft and the likes. So we are using their technology and we are working very closely with them. By the same token we have a large share of our business that is digitally based. And to develop this work we need to be at the state of the art of technology and use all the new devices. We don’t need to invent them but we need to use them. And for that we need top-notch technologists, we need to have great computer scientists, and we have them, maybe we will need to add some, but we are not going to transform Publicis into a sub-Google, a sub-Yahoo or a sub-other technology company.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much.
Maurice Lévy: Thank you.
