EuroBusiness Media (EBM): Publicis Groupe, the world’s fourth largest advertising company just reported earnings for the first half of 2008, Maurice Lévy welcome, you are the CEO of Publicis Groupe, what are your comments on the company’s performance in the first-half and, more specifically, at the end of the second-quarter?
Maurice Lévy (ML): I will maybe start with the second-quarter. We have an organic growth which is slightly better than the first-quarter, so we moved from 5.4% to 5.5% - it’s not a magic number - but it’s good to see that the trend we have seen during the first quarter has continued and has been even slightly strengthened. For the first-half we have organic growth of 5.4%, which is slightly above our own expectations, which is a good sign, we will come maybe to the detail of how we have been able to deliver this number. On operating margins, we have been very gladly surprised by the level of margin, because our own expectation was around 14.8% and in fact we delivered 15%. We have to take into account a few factors. One is some deterioration of the margin due to currency exchange. Secondly is the fact we had a few acquisitions which had a diluting effect, and some restructuring costs related thereto. And thirdly, the share of digital is growing in our total business and while the profitability of digital is improving, it is still below average. So we have delivered 15%, which is excellent news for us and I guess for the market also.
EBM: You just mentioned currency impact – let’s focus on that for a second - how bad was the dollar’s decline for Publicis Groupe?
ML: The best way to answer is to tell you that if our books were in US dollars or British pounds - just to take two examples which are, I think, interesting for easy comparison with our competitors - we would have shown 14% growth in revenues for the first-half in US dollars, 13.7% in British pounds, and for the margin we would have shown 14.1% growth and, in British pounds, a 13.8% increase. So as you can see the impact is quite important, so for comparison basis it’s very good. If we now go through what it would have looked like in terms of growth by region, it’s quite interesting. And, if I may, I will take my numbers in hand, because I’m not used to US dollars and it’s important numbers, bigger numbers - in Europe we should have shown a growth of 18.8%, in the US and North America 7.5%, Asia Pacific close to 20% -19.6% - Latam. 23.2.% and Middle East Africa 19.2%. So as you can see, its quite impressive. Now, if we look at our numbers in euros, they are quite good also. Organic growth for the second-half in Europe has been 3.5% -- when we know that it’s obtained through countries with good growth and countries which are really depressed, the combination is quite good, the US is 5.5%, Asia Pacific close to 9%, Latin Americas close to 7% - 6.9%- and Middle East Africa close to 17%, exactly 16.9%, so as you can see we have good growth, no one region is negative, and the growth coming from mature markets is quite interesting to see.
EBM: Coming to the business now, and your activities - be they digital, media, advertising - how are your businesses progressing in the current difficult environment
ML: There are three of four things to note. The first one which is quite interesting is that all our operations, with the exception of healthcare, are doing great. And if healthcare was taken out from our performance, we would show organic growth of 7.1% for the first-half, so all our operations; advertising agencies, marketing services and obviously media and digital. On digital, I’m very pleased to report that for the first-half of 2008, and I can’t resist giving the numbers, Digitas has grown by 29%. So for the people who are asking if it was the right acquisition or if the integration is working, they have a direct answer.
EBM: Some very prominent corporations are making the headlines by reporting profit warnings. Are you seeing some ad spending cuts as a result?
ML: Yes, definitely yes. We are seeing a few signs of cuts. If you look at the current situation, it is something which is quite paradoxical, because for the time being we see some markets declining, some segments declining, and we see some others growing. And at the end of the day when you do the calculations and the maths for everything, you end up with the same numbers. It looks like the growth is offsetting the reductions. Will that trend continue? I hope so. For the time being, we see some signs which are a little bit of concern. But as I say - and I think it is important to insist on - we see also some revision, positive revision on some segments of our business and particularly when it comes to digital and also on emerging markets. By the way, I think that you will be pleased to see that our strategy works. We insisted on the idea that we should shift to digital much faster, and we took some very strong initiatives. And as of June 30th, the share of our business in pure digital has moved from 12.7% in the first half of 07 to 18.8% in the first half of 08 - so a huge increase. I mentioned already the growth of Digitas. The second thing I would like to point out is the fact that on emerging markets, last year we had a share of our business which was totalling 20.3% this year it’s 22.3%, so we won 200 base points in the emerging markets. So here also we have a demonstration that our strategy works. We are well on track, and maybe slightly in advance, to have 25% of our business coming from emerging markets in 2010 and 25% coming from digital in 2010.
EBM: You just reimbursed your convertible bond last week. Are you planning on buying back your own shares at the current levels of the stock?
ML: We have acquired already 8 million shares, we cancelled 8 million shares, we bought back 8 million shares, we have just reimbursed the bond as you said, so we have destroyed the potential creation of 23 million shares, so I think that we are treating our shareholders extremely well. We will probably pause for a while on this kind of operation in order to rebuild our cash position, and we will see in a year’s time what should be the best action.
EBM: You just recently launched VivaKi, a new, single, digital, creative platform across the entire group. What is your update today on VivaKi since the launch?
ML: We have been very much surprised by the reaction, which has been excellent on three fronts. The first one has been the clients. The clients have been very much interested, they want to know more, and we are making a lot of presentations. They are absolutely enthused; because they believe that is really what they were in need of, what they were expecting from holding companies and the fact that we are doing it now - well ahead of our competition - is something which is appreciated and they see the benefit for their own operations. The second is obviously internally. Our people are ‘pumped’, as we say, they are absolutely enthused, they are impressed that we could move so fast and they are working very hard to make it happen in the field in each of the countries. The third reaction is the media, be they analog or digital. They see this as a very positive stand. Not only because it will give an approach to media which is very different, which is the first step to the future, so we are dealing with them on an approach which has nothing to do with the old way, and they love that, because for analog media they know that this is something they will take advantage of, and for the digital media, we are on the same wavelength. So that is very positive. The other aspect is that with the creation of VivaKi nerve centre, not only have we put together a lot of tools, but we have one person, Curt Hecht, who is the one who is in regular contact with all the platforms, in order to make some agreements, to find the right way to collaborate, to build some good relationships, and to take us to the next level. So all this is absolutely positive. Now what we are doing: at this very moment the board of VivaKi is meeting in Moscow in order to decide on the next steps for the action plan. So I think that we have made a decision which is spot-on; the need of the client, the internal approach and the relationship with the media, and this will put us, let’s say, at least a year ahead of our competition.
EBM: And finally, to conclude, what would you say is your outlook for the second-half of this year?
ML: If you look at the market conditions, we see that there are a lot of issues. We are not blind, we see what are all the issues in the financial sector following the sub-prime crisis, we see also what are the issues with real estate and all this is creating a gloomy environment. Within this gloomy environment we have taken a few actions. The most important one is obviously to be very aggressive in terms of new business and the fact that we have been able to bag 3 billion US dollars of new business in the first-half is something which will fuel our future growth and it’s also winning market share. So we are aggressively after winning market share. The second thing is that we look at the global market with different lenses. There are some countries which are facing some serious issues -- is it depression? is it recession? is it slowdown? Honestly, I’m not skilled enough to tell you what it is, but there is definitely, in some markets, a slowdown. Some other markets are growing very fast; Russia, China, India, but also Turkey and also some other markets which are less on the radar of the industry or journalists. We are very much focused on two major aspects, which are digital and emerging markets, and when you look at the global perspective and the last forecasts of ZenithOptimedia, you see that finally it looks like growth in emerging markets, growth in digital, will offset the reduction that we are witnessing in some of the markets. What will be the situation after the Olympic Games? It’s difficult to know. What can we say for ourselves? I think three things. The first one is that we have had a very good first-half and we are still aggressively pursuing new business and doing quite well. That is very positive because what we may miss from our client growth, we may win from market share. The second aspect is that we are very, very well positioned on the two growth segments with our two growth engines: digital, emerging markets. The third thing is that when I look at all the numbers and when I look at the indications that we have to-date, we are encouraged, both for the second-half of 2008 and the first signs for 2009, I’m quite cautious, and I’m cautiously optimistic. I am confident; I believe that we will do better than most of our competitors, that we will probably do better than the average of the market and for the time being I feel that we should deliver a good growth for 2008 in total, and our key objective, which is to make our margin rock solid at the high level that we have reached so far, it’s something which is well under way.
EBM:Maurice Lévy CEO of Publicis group, thank you very much.
ML: Thank you.
