EuroBusinessMedia (EBM): Publicis Group, the world’s third largest communications group, reports earnings for the first-half of 2010. Maurice Lévy welcome, you are the CEO of Publicis Group. What are your comments on the group’s performance in the first-half of this year?
Maurice Lévy (ML): Let’s start with the second quarter, because we already published our first quarter with organic growth of 3.1%. Second quarter we are again beating the expectations with organic growth of 7.1%, which is, I guess, well above all expectations. We are very pleased with these numbers. In terms of margin, we are also beating all expectations, including ours, by posting a margin of 14.5%. The activity of the full first-half has been very good, very solid. The new business has been very strong, with 2.1 billion US dollars. The growth of our current clients has been also very healthy. We have seen most of our top thirty clients increasing their media and advertising spending, which is a very good sign of the recovery of the industry. And at the same time and by the same token, the fact is that they are very satisfied with our services because they have increased their relationship with us, which is a very good sign of the nature of our relationship and the kind of service and their level of satisfaction regarding our services. So we have some interesting aspects. And the last thing that I would like to point out is that we are starting to lift the freeze on salary raises and hiring of people.
EBM: What trends are you observing in your Digital activities? Is the growth rate of your Digital activities sustainable?
ML: We have a very solid growth in our Digital activity, which his much higher than the industry. We are reaching the level of 28% - slightly above 28% - of our revenues coming from Digital operations, which makes us definitely the strongest player in our industry. And we see that many of our clients are expanding the relationship by giving us more responsibility and more accounts in Digital. So Digital is growing very fast. We have a rate of growth which is superior to the market, which is well above 10%, and we have a new business trend in that field, which is very solid. So we are very happy with how these activities are developing. Let me remind you that we have the full range of services, from the very classic display ad or search to the most sophisticated website, e-commerce, highly technological solutions as well as mobile communications and all the other services which are linked to Digital. So, on Digital, we are very, very happy. On top of that, I would like to point out the fact that the integration of Razorfish is doing well, exactly in line with our plans, slightly above the plans in terms of growth and with also relatively good news in terms of margin, so everything is making us highly satisfied.
EBM: Given the difference between your expectations in January and the performance delivered in the first-half of this year, isn’t an upgrade of your full-year margin guidance warranted at this stage?
ML: We have to be cautious, because the economy is not yet totally stabilized. You know that there are some people who are speaking about a double dip. Personally, I don’t believe that we will see a serious double dip. It may happen that there is a slowdown in the growth, it may even happen that there is a small decrease, but I don’t believe at all in a double dip. When you look at the forecast, which has been published recently by ZenithOptimedia, we see that on a regular basis they are increasing the forecast. We see also that the trend is very positive, including for 2011 and 2012. So all this is giving me a certain level of confidence. However, we see that there is a risk in the financial system, I think they are not yet stabilised. There has been the good news of Basel 3, which is really good news. There is also the good news of the stress tests for the European banks. So, all this is giving rise to a little bit of hope. Nevertheless, we know that it is not stabilized. We know also that there is a debt crisis in the sovereign situation in Europe, which may lead to some concern and some limitations on spending. So all this makes me a little bit cautious. If things continue as they are, we will certainly beat the guidance that we have given. But I’m pretty sure that in 2010, Publicis will outperform both on growth and again on margin.
EBM: The cost associated with the Razorfish integration and your new efficiency plan caused you to be prudent about your margin for this year. What is your update today on cost savings and efficiency gains?
ML: On Razorfish, we have in fact two different elements which are impacting our margin. We have the integration costs, which are exactly in line with what we were expecting - no more, no less - so it’s really the plan as we expected. And the second aspect is that the level of margin of Razorfish is well below those of the other operations of the group. So therefore, we have an impact on our margin which is 70 basis points on our total margin, which tells a lot about our own objective. We wanted to have 15% margin for the full year; this is the guidance I gave. The fact that we have 70 basis points, the reality of what we will have to deliver ex-Razorfish is 15.7%, which is a record, particularly after the crisis. What I would like to say is that Razorfish is doing better in terms of growth, better than we expected, and their margins are improving at the fastest speed. It is not totally impossible that we have a good surprise at the end of the year.
EBM: And what about the rest of your plans for cost savings and efficiency gains?
ML: There is much good news that I can share with the investors. The first one is, obviously, the fact that last year we went through a very painful year, but the good thing is that we are starting the year with a cost base which is healthier than the year before. Salary costs are below last year, G&A are below last year, and we have made a lot of savings. These savings will be kept, for a share of them, and reinvested either in new hiring or in salary increases. But all in all, at the end of the year, we will have some savings. And I guess that when you look at the combination of Publicis, its operations and the various components, we have a total cost operation which is very healthy and well below those of our competitors.
EBM: As you have mentioned, you are continuing to ease up on salaries and hiring freezes. In what parts of the business are you currently recruiting?
ML: We are recruiting in many areas, but before speaking about the recruiting, I would like to pay tribute to our people, because they went through a very difficult year. They have worked a lot, they have done wonders for our clients, they have really committed themselves heavily, and many of them have spent their weekends, their nights working for our clients in order to help them to go through the crisis in better shape than their competitors. And I want to thank them because such a behaviour is something which is quite rare nowadays. So we are very pleased with the state of mind of our people and this is rewarding. The second thing that I would like to say is that there are areas where we are in a more stable situation and areas where we see a lot of growth – obviously, Digital. In Digital, by the way, there is a tension on people. It’s very hard to find good people, it’s very hard to retain them, so this is an area where there is a lot of job creation, including in the Publicis Group. We are also developing a lot of our media operations, as well as our healthcare operations. And we have some pockets of growth in the emerging markets, obviously, but also in the US and in Europe. It’s interesting to see that we are hiring in many different areas. In some cases, we are limiting our hirings to temps, in some other cases, this is under long-term contract.
EBM: What can you tell us today about your priorities for the use of your available cash between share buybacks and acquisition spending?
ML: First of all, I would like to point out that we have reduced our debt level quite enormously, because we are at the gearing of 0.20, which is quite low. We have reduced our debt level also in a way which is quite impressive. And we have 3.5 billion (euros) of cash available. So we have what some people could call ‘petty cash’ to make a few acquisitions and to give some interesting satisfactions to our shareholders. Our priorities are as follows: one, we need to strengthen our operations in markets and in some sectors, and we are looking for opportunities to see if we can make some interesting acquisitions. The beauty is that we have is a strong balance sheet and a strong cash situation; the difficulty is that it is not very easy to find the right target in the right market. But we are working hard in order to be very selective and to make the right acquisition, and not an acquisition for the sake of making an acquisition. The second thing that we are looking for is to strengthen our Digital operation on a global basis. We are very strong in the US. Obviously, we will not say no to some limited acquisitions, but it’s not a priority anymore. And we are looking for acquisitions in Digital in the so-called ‘emerging’ markets that they prefer to call fast-growing markets, and in some of the mature markets in Europe or in Asia. The third aspect that we are looking for is to see what will be the best use of our cash. We have shown that we have no hesitations when there is an opportunity to reduce the number of shares, to make a share buyback, and to cancel the shares. This is what we have done with the Dentsu shares, and we will be looking at this or some other solutions. But we have first to go through the crisis, the end of the crisis, to look at the priorities in terms of acquisitions, to make our group even stronger, and then to think about how we can best use the cash to please our stockholders.
EBM: You’ve stated that you intend to step up your acquisition and investment strategy in China. What are your plans and what types of assets are you interested in acquiring in China?
ML: We have asked a member of the Directoire, Jean-Yves Naouri, to look at China as a new new market. So instead of going through the classic organisation with a bottom-up proposal and seeing what will fit well with the need of each of our operations, we are starting from a clean state and saying, “OK, where is China going in the next year? What should be our best strategy? How can we have some very ambitious objectives?” And Jean-Yves is taking that task personally. And we will have, I guess, in September, at the latest in October, his proposal for a new China plan, with the ambition that we will increase our footprint in that country in a big big way.
EBM: And finally, what is your outlook for the second-half of this year, given the current macroeconomic uncertainties? Is the stronger-than-expected recovery of the advertising sector sustainable in the second-half and into 2010?
ML: If you look at the forecast, as we know it, be it from ZenithOptimedia, which is, as you know, a subsidiary of Publicis Groupe, and which delivers forecasts with very limited mistakes - since now close to 30 years - or if you look at the other competitors, everyone is forecasting an improvement in the market, and a 2011 and 2012 better than what we know. Personally, I do believe that the market may see one or two hiccups - but the trend is positive - and we are really on a positive trend. I believe that Publicis Groupe will deliver better growth than the average of the industry and the average of the top players, and also a better margin. What I would like to point out is that, when you look at what happened since August 2008, which is the time when we decided that we have to be cautious and should manage things slightly differently because the crisis will be there, what we can see is that after these roughly close to 2 years, we are getting out of the crisis stronger than when we entered it. So, we have very well managed the crisis. We have lost very few accounts; we have won a lot more. And we have taken some strategic decisions early on, which have helped us a great deal to go through the crisis in a far better shape than any of our competitors. Now, if I look at the future, I think that we have some great assets that can deliver better growth, and we have some great systems of management which can generate a better margin. So I am confident - without having an overly-high optimism - but I am certainly quite confident that we will get where we want to be.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much.
ML: Merci.
