EuroBusiness Media (EBM): Publicis Groupe, one of the world’s largest advertising companies, just reported earnings for the first-half of 2009. Maurice Lévy, welcome. You are the CEO of Publicis Groupe. What are your comments on the Group's performance in the first-half, and in particular in the second-quarter of this year?
Maurice Lévy (ML): As we planned and expected, the second-quarter has been going down quite sharply, much less than the forecast of the industry, so we believe that we have won some market share. In fact, we have a decline in our revenue of 8.6% in terms of organic growth, while we believe that the market has been down by something in the range of 13-15%. Regarding the first-half, the decline in revenue is more limited and we are closing with an organic growth which is down by 6.6%, which compares with something in the market which is in the range of 13-15% again. So, it looks like we have been quite good at gaining market share and limiting the consequences of this crisis.
EBM: So, how did Publicis stand in the new business rankings for the second-quarter?
ML: The second-quarter has been good in terms of new business, as has been the first-quarter. So, in total, we are still number one as a winner, with a total net gain of $3.2 billion. The month of July, by the way, has been going well. So we have a good track record. In fact, what’s happening is that the offering of Publicis, which has been really built around the idea of holistic communication, which is integrating a lot of innovation, is something which is fitting extremely well with the current times.
EBM: What is your overview of the business trends at the end of the second-quarter, both in terms of geographies and industry sectors?
ML: As I said, the second-quarter has been much tougher than we expected at the beginning, and it has been the most difficult quarter that we have faced in many years. This was expected, this was not really a surprise. Obviously, the automotive industry, in particular with the situation of General Motors, is something which has had a negative impact. The financial sector has also had a negative impact. We had some good news, which is quite interesting. The healthcare operations are holding up quite well and showing positive numbers. And a positive number in the second-quarter of 2009 is something that we should celebrate! If we look from a geographic point of view, Europe has been the most disappointing situation, with the weight of the decline in the Southern Europe which has been huge, and which has had a negative impact on all of Europe. But there have also been some specific difficulties in Germany, and the UK is not coming back. France is still struggling. So, Europe is more complicated and more difficult than the US economy. And if you look at the US, we have posted a negative number which is well below the average of the Groupe – because it’s at 3.8% for the first-half -- and if we neutralize the GM investment, and the impact of GM on our accounts, we would be at almost 0% – 0.6% for the whole first-half. So, a contrasted situation. In the Emerging Markets, the growth is also negative but limited to 3.7%. The other good news is that we have the Digital activities which are up by something like 5.7%. So we have a situation where it looks like our strategies are working pretty well, and that we have been quite fortunate to take these decisions well ahead of the market situation.
EBM: Well, precisely, in the current crisis, are your Digital and Emerging Markets businesses still having the expected 'cushion' effect, helping to somewhat offset the decline of the rest of your portfolio?
ML: The Emerging Markets, as well as Digital, have helped us to mitigate the effect of the current crisis and the downturn of the economy, and the downturn of our sector. So, we are very happy with what’s happening in those segments. We do believe that we will have to do much more in these two areas and we think that we have such a position in Digital that we should take advantage of it to strengthen even more our position.
EBM: Getting back to General Motors, which you just mentioned earlier, GM traditionally represents 3% of your annual revenue. How low should we expect that figure to drop in the future, given GM's troubles and the fact that they still owe you some €50 million outstanding? By the way – were you able to be included in the list of 'Essential Vendors' to GM under US bankruptcy regulation?
ML: We have just issued a press release regarding General Motors. We cannot be very specific about some technicalities regarding ‘Essential Vendors’ and ‘contracts assumed’. But I can say, first, that General Motors has done a formidable job in getting out of Chapter 11 and in building the new GM. This is an incredible job which has been done. Our teams have been very close to the old GM and the new GM. We have obviously suffered from the Chapter 11 protection. The bulk of our fees have been already paid, and we believe that most of our fees and our invoices will be paid, including pre-petition. So, we feel quite comfortable and we have been quite cautious by taking a provision, which is limited to €9 million. It’s still a huge amount for us, and I do hope that it will not be consumed completely, but it is much less than the €55 million of exposure that we had. Regarding the future, it’s hard to tell because we don’t know the plans and we don’t know the details of what the new GM will be and what they will require, and the scope of work, and how much they will be investing. My understanding is that GM – the new GM – wants to fiercely regain the confidence of the consumers, of the American citizens; they really want to impose again their name with pride, and this will require that they have to be more aggressive commercially. So, I’m quite confident that we should normally see a nice trend of relationship. I’m not going to give any prognosis on the numbers, but I have a good level of confidence.
EBM: Is the second quarter the low point of this year in terms of organic growth, or should we expect the low point to be reached in Q3?
ML: I firmly believe, and all the information I have on hand, shows that the second-quarter will be the lowest point. We may have the month of July which will be going lower, but the Q3 should show better numbers than Q2 in terms of comparison and organic growth. So, I do believe, and based on the information I have on hand, that we are at the lowest point in terms of negative organic growth and that we should be showing better numbers from Q3. And we will certainly post in 2010, following a nice trend of growth, a positive number at the end of the year. So I’m quite confident that we are getting out of this crisis, not brutally and with huge numbers, but progressively, slowly, with a slow pace which will lead to some positive numbers for the full-year of 2010, and certainly starting somewhere in the second-half of 2010.
EBM: Admittedly, you've done a lot of cost-cutting this year, regularly trimming staff to preserve margins. Should we expect you to continue to cut costs at the same pace in the second-half of this year?
ML: I would like first to really thank all our teams because, despite the fact that we were trimming, cutting, reorganizing, restructuring in some areas, they have been absolutely formidable and close to our clients, and servicing our clients with heart and a great mind and a great soul. So I think they were absolutely formidable and I want to acknowledge this fact. The second aspect is, obviously, that we have done in a reasonable -- I would not dare to say intelligent -- but quite intelligent way managed our costs in order to make sure that we will reduce our headcount in a very responsible way. We will cut our costs where it is necessary or indispensable to do, and we have done a relatively good job. Are we going to stop? No. No, we need to do more. We will see the full benefit of this in 2010, because when you cut costs month after month you still have the severances, you have the notice periods, you have a few things which are going on for a lag-time, and you get the benefits only at the end of the period. And I think that this will be 2010. This could be the right time for saying a few words about our margin. Last year we posted a 15% margin. This year the margin is at 13%, so we are down by 200 basis points. And when we look at the way this is happening, most of the erosion of the margin is due to the decline in revenue – less revenue than expected – and we have some exceptional charges for restructuring and for severance, etc. So, I feel quite confident that we will come back to our high margin down the road and that progressively – 2010, 2011 – we will again reach the highest point that we had in the past.
EBM: So, precisely, at the mid-year point today, what kind of guidance can you give the market about your outlook for organic growth and margins in 2009?
ML: In these uncertain times, we have to be cautious. I have decided that we would not be giving any guidance to the market for 2009. I think it’s a reasonable approach and I will stick to that approach. What I can say, which I know is not hard numbers, is that there are some interesting facts. The first one is that they believe that we will do, if not the best, then the least bad performance of the market in terms of organic growth, that we will have definitely the best performance in terms of new business, that we are definitely gaining market share, that we are winning on our positioning regarding Digital and Emerging Markets. So all of this combined gives me a good level of confidence that we will achieve our objectives, which are gaining market share, protecting our margin, and having a good flexibility in our financial situation, while at the same time a very good balance sheet.
EBM: Well, lastly, speaking of financial flexibility, you recently raised over €600 million through a convertible bond issue. Could you please explain your rationale for raising this large amount of cash at this point in time? Some people are speculating that you may use the money for acquisitions, in particular to buy Razorfish from Microsoft -- what is your response?
ML: We have decided to issue this convertible first and foremost to give some more flexibility and to have a better maturity on our debt. That is really some good housekeeping, a rational approach to debt maturity. By the same token, we thought that, as we are in a period where credit is difficult -- and we see that every day, we don’t know exactly what will happen in a few months -- there was a window of opportunity and we decided to take advantage of that window of opportunity at a time when interest rates are relatively low. So, that is, let’s say, the opportunity. Besides this, obviously, we will look at acquisitions, if there are some. You are mentioning, how do say it, Razorfish? Razorfish… So, if Microsoft decided – which I don’t know and I’m not going to comment – that Razorfish was for sale, we will look at it with the idea that this would be nice to have, but due to our position in the market it’s not a must-have.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much.
ML: Thank you.
