EuroBusinessMedia (EBM): Publicis Groupe, the world's fourth largest advertising company, just reported earnings for the first half. Maurice Lévy welcome, you are the CEO of Publicis Groupe. Clearly organic growth in the first half of the year is a disappointment. What's going on?
Maurice Lévy (ML): It is clearly a disappointment and the reason for that is twofold. The first one is that we have lost a few accounts, as this was clearly announced at the end of 2005 and during the year 2006, and the revenues were still in the numbers of 2006, so the comparison base is unfavourable. By the same token, we have had very new good business, which unfortunately has not yet translated into new revenues for the first half. This is something that we expect to see later in the year.
EBM: Now, what is your outlook for the second half of the year? Are you on target to reach your objective of around 5% organic growth for the full year, suggesting a pick-up in business in the second half of the year?
ML: The second half will undoubtedly be far better than the first half. Some will tell me it will not be difficult, because it's the first time in the history of Publicis that we are showing such a poor amount of organic growth. So we will do a far better second half. We will be close to 5% or close to 4%, I don't know yet, it's very difficult to measure exactly what will be, because there are so many things in our industry, but I feel very confident that we'll be close to the target - between 4% and 5%. We have a very healthy new business with some interesting wins which have already happened. And particularly, if you look at the scorecard of Lehman, which is a kind of bible in our industry, we are ranking number 1 for the full first half of 2007.
EBM: For 2007, your full year operating margin is not expected to be significantly different from last year's due to the impact of the Ditigas acquisition, which weighs on the margin. So far you've not updated your target of 16.7% operating margin in 2008. Does that mean you are still fully confident in your ability to reach this target next year?
ML: Without any ambiguity, we are confirming our target of 16.7% for 2008, and we have a few reasons to do that. The first one, is that if you look at the first half of 2007, we have posted an operating margin of 15% and we have improved, without Digitas, our operating margin from 15.2% to 15.3%, and this despite a modest organic growth. Second, which is very important, we have largely improved our cash flow, so we will have the possibility of investing in some areas of growth, and this will fuel also our operating margin. So we feel very confident -- our Horizon programme is starting to deliver. So all in all, the 16.7 % which was promised to the market will be delivered in 2008, including Digitas.
EBM: Obviously the US represents a very significant portion of your business. What is your sense today of the US economy in general, and of ad spending by major US clients in particular?
ML: There are some fluctuations in this market and there are some sectors which are doing much better than some others. But if you look at the breakdown of our activity by sector, it is well balanced. So we feel confident that we will not be hit by the market, unless if there are some huge changes in the confidence of consumers - a thing that we don't see today - so we feel confident.
EBM: What is your update on the Digitas integration? Does it look likely that you will exceed your target of 12 million euros in synergies?
ML: The integration of Digitas is working well on three levels. This first one is the fact that David Kenny, and his team, has been very well received and the chemistry with our teams is working perfectly well. This is not new in Publicis Groupe, as everyone knows the history of Publicis in terms of integration. Second, there is something that has already borne fruit, which is the fact that Digitas has been included already in some of our pitches or some of our services to some clients, and very well received and perceived by the clients. There are some wins which would not have been possible without the Digitas impact. The third aspect is how are we doing in terms of operations? Operationally, we have transformed Modem Media into Publicis Modem and they have joined Publicis Dialogue and Publicis Worldwide. The rest of Modem Media has been transformed into Digitas, part in the US and part in the UK. This gives Digitas a position in the UK. We have then bought Business Interactif in France, and we are making some other acquisitions in order to build the global network we promised. In terms of savings, we have a target of 12 million. We believe we will be there. Will we exceed that sum? I don't know yet - but this sum will be definitely delivered.
EBM: What is your update on your business in Asia, which is a region where Publicis has been performing under par in recent quarters and which needs to deliver if you are to reach your full year target for 2007?
ML: The good news is that China in the Publicis Groupe is back. We have a growth in China which is staggering in the third quarter and the strategy that we put in place - which was to be more selective - is working very well. So China is under control - and positively under control - with a growth which is exactly what we were expecting. China is working very well, Russia is working very well, and most of the major markets are really delivering what we are expecting. We have some issues in APAC. Australia we have some difficulties still. Korea is not yet there, but they will be in the second half of the year. So we feel quite confident.
EBM: You've given the market a target of 25% of your revenues coming from digital sales by 2010, which is about twice your current level. Analysts expect that this 25% target cannot be reached by organic growth alone and that you will be required to make more digital acquisitions, perhaps also implying a strategic shift for the group. Therefore, in terms of cash allocation, what kind of yearly acquisition budget are you setting for yourself in the next three years and what is your feeling about the current valuations of potential targets? Do you feel that there are still any potential targets left at the current levels of valuation?
ML: That is quite a long question and I will try to answer all aspects. The first thing that I would like to stress is that we will invest in digital and we will continue to invest quite heavily. But heavily in that sector is relatively modest, because the large targets are already acquired. So there is nothing of a sizeable amount which is left. We have initiated the shift and we have made the very first large acquisition which, by the way, has triggered some other acquisitions at prices that are not at all on a par with what we paid. That is one aspect. The second aspect is that we have a very healthy cash flow and we will have enough money to fuel our acquisition targets. The third aspect - something which is very interesting and very important - is that in fact digital by itself is working very well, but what is working much better is a combination of analogue and digital. That is what's working. And that is what clients are expecting. They don't want to be in a kind digital ghetto, what they are expecting is that their brand is managed, is fuelled with creative spirit which is shared on both media - analogue and digital - and that is what we are doing. In terms of transformation, we started our transformation about two years ago. I made a very important speech which transpired outside, when I was explaining that we should not work any more in silos and this is something that we are doing. We are well ahead of our competitors in that spirit of working, because we know now how to work together and, let me tell you, it's not an easy task in an industry where individuals are so important and where people, with their own minds and spirit, are working based on emotion, and they like to work alone. So, pulling down the barriers, the walls, was not an easy task. And now, it's happening.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much.
ML: Thanks to you.
