EuroBusiness Media (EBM) : Publicis Groupe, the world’s fourth largest communications company, reports earnings for the full 2009 fiscal year. Maurice Lévy bonjour. As CEO of Publicis Groupe, what are your comments on the group’s 2009 results and, in particular, your performance in the fourth quarter?
Maurice Lévy (ML) : We anticipated that things would improve in the fourth quarter and it did happen. We have unfortunately this environment of negative growth, but which is limited to 5.4%, which is a very good performance compared to the market. For the full year, we have 6.5% negative growth which compares with the market which has lost between 12 and 14%. So we weathered the crisis quite well and we have been able to gain market share.
EBM : At the start of 2010 are you confident that business is continuing to pick up? What are some of the main advertising spending trends that you are observing, whether by geographical zone or by industry?
ML : I would like to say three or four things on that front. The first one is obviously that we anticipated that the trend of the sales would continue to improve. January has been pretty good and the forecast that we have for the first quarter of 2010 is quite encouraging. So we believe that 2010 will show positive growth and I do believe that Publicis Groupe will outperform - again - the market. Regarding now the source of business, we will find this in many areas. The first one, obviously, is new business. Last year, Publicis Groupe has been able to be number 1 worldwide, and wherever the ranking was coming from - JP Morgan, Goldman Sachs, Nomura - the three of them have ranked Publicis Groupe number 1. For 2010, we already have a very good month of January and we anticipate some good news in February. Regarding now by activity, we had last year double digit growth in digital and we believe that this is what will happen again in 2010. Regarding the markets, we think that, obviously, emerging markets will outperform the developed market, and we expect China and Brazil to do well. We think that India will also be very close to the performance of China. We believe that Russia will probably lag a little bit behind. All in all, we think that the market will move quite nicely in 2010, and we anticipate a very small growth for the market and a better one for us.
EBM: And what about Europe and the United States?
ML: In the US we have been quite lucky because we had, in 2009, a decrease which was much smaller than the market. In fact, for the full year we had a decline of about 4%, when the market was well above 10%, and this is due to the fact that 36% of our business in the US is originated by digital. So I’m confident that in the US the trend will continue to be positive for us. Regarding Europe, it is a contrasted market. We cannot speak about a unified Europe: we have the Southern Europe which is facing a very tough situation, with Portugal, Spain, Italy, Greece, which are losing more than double digits. Spain has lost, in 2009, 25% of the advertising market. So the situation of recovery in these markets will be very slow, and we don’t anticipate that they will be positive in 2010. We think that the total recovery will happen only in 2011. On the contrary, we see some positive sides for France, for Germany, which remain the key drivers of Europe, alongside the Eastern European countries. Maybe I can add one word on Latin America, which is showing some positive signs, and I’m quite confident that we will see also Latin America picking up, as well as the Arab countries and Middle East Africa. I believe that in the Middle East what we will see is maybe a situation a little bit difficult in the first quarter, due to the Dubai situation, and then it will improve. So I think that we have a worldwide geography which is quite difficult to read in one single picture. There are different tempos and different vibrations according to the market.
EBM : What’s your update today on digital growth and the integration of your recent acquisition of Razorfish?
ML: We have a strategy which is to continue to develop the digital footprint in the Publicis Groupe. We have roughly 22.5% of our revenues which are derived from digital – 22.4% exactly. For 2010, our objective is 25% and we believe that we will be there. And we have already set a new target, which is to reach - in the coming years - 30%. We have made a very important acquisition last year, which is Razorfish. We had already the number 1 network with Digitas, and we acquired the number 2 network with Razorfish. So we have two very strong networks which will help us to grow and to help our clients reach the consumers through all the means of communication which are based on digital. It could be digital communication on TV, could be internet, viral communication, websites, mobile communication, etc. And we anticipate to continue to invest in these markets and we believe that we will have to make some acquisitions in some international markets. We don’t anticipate making any acquisition of any magnitude in the US or in France or two or three other markets where we are very, very strong. But we believe that we will need some acquisitions, particularly in emerging markets.
EBM : Today, roughly 22% of your revenues come from emerging markets, but analysts note that you are mostly present in the mature emerging markets, such as China, which saw a decline in 2009. Therefore, what’s your strategy to boost your exposure to the faster growth markets in the Asia Pacific region?
ML : We are present in all the markets. So we are not only in China, or in India. We are in Indonesia, we are in Thailand, we are in Korea, we are in Singapore, Malaysia, Vietnam. And we intend to intensify our presence in all these markets. There is also something that we should not neglect, which is the Eastern and Central European countries, which are fast growing. And we have a very strong presence in Russia, and I believe that when you look at all the resources that Russia has, Russia will pick up. Russia will rebound. I don’t know when - it could be in the first half or in the second half of 2010 - but Russia will definitely have a good year this year.
EBM : What’s your outlook and guidance for 2010? Are you confident that you can bring your operating margin back up to 16.7% in 2011?
ML: Our objective today is to take advantage of what we have done. We have increased our position in digital, we have increased our position in the emerging markets and we need to invest in three areas. We need to invest in talent - and digital expertise is very important - we need to invest in technology, and we need to invest in emerging markets. All this will require that we accept to have the margin which will be maintained for 2010 at the level that we reached in 2009. We will then, from there, have new goals. And my objective is clearly to go over the level we reached in the past. I’m not yet prepared to say what is the right level. But I believe that with our resources, our approach, the way we work and what we bring to our clients, we can definitely have a far better position than the competition, which would help us to deliver value and to be paid for that value. And this gives me confidence that we can reach a level of margin which would be - again, with a plan - higher than what we already had.
EBM : Analysts are worried that stronger revenue growth in 2010 may be totally offset by higher staff costs. In other words, should we fear that the effect of the recovery might not trickle down to the earnings level?
ML : I’m not sure that we will call 2010 a year of recovery. Not for the economy; not for the advertising market. I think it will be more a year of stabilization. We have seen a regular deterioration of the market last year. The crisis is not yet over. There are still a lot of things that are happening around the world and I don’t believe that we can think that we are out of the woods. We will still have to face some difficult times, and I’m confident that Publicis will have a far better ride than any of our competitors. I think that we are in a position to win more market share, I believe that we will continue to post the highest margin of our industry, which we will do in 2009. We know. And I believe also that we will have the better growth of our industry. So I’m quite confident. Now, considering all this, I don’t believe that it is a year of 4-5% GDP growth. On a worldwide basis, I think it will be maybe 1-1.5%, and probably the advertising market will grow slightly in the same proportion.
EBM : Lastly, some analysts anticipate that you will resume share buy-backs this year. Is that going to be the case?
ML : We have a very solid, robust financial situation with liquidities which are at the level of €3.7 billion. So we are working on what could be the best use of this money. And I guess that for our next meeting/encounter, I will be able to tell you more!
EBM : Maurice Lévy, CEO of Publicis Groupe, thank you for joining me.
ML : Merci !
