EuroBusiness Media (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. What are your comments on your first-half earnings report?
Maurice Lévy (ML): You know, sometimes there are sunny days, and this is one of those sunny days because we have reported a very good organic growth: +4.5% for the first-half. We have improved our margin by 110 basis points, which puts the operational margin at the level of 14.4%; we have also improved our balance sheet by reducing our debt level; and net earnings are up by 23%. So all in all, it is a good, sunny day.
EBM: The first-half figures are strong enough to justify an upward revision of your full-year 15% margin target. Following this first-half report, are you now in a position to revise your guidance upwards?
ML: 15% is already a very strong objective, and I prefer to remain relatively cautious and stick to this 15% [target], and obviously I do hope that we will deliver more than we promise. Our promise to the market was 15% -- this is something we told the market on the 7th of March 2002, and we are perfectly on line with our promises.
EBM: After the 15% margin target, what is the medium-term objective? Aside from topline growth, are there any other levers in store for further margin improvement?
ML: I strongly believe that we can deliver much more than 15%. It is not easy -- I think that the level of 15% is already the best in the market. My objective is to make this 15% a very solid base to grow from. If we look at the medium-term, I remind you that in 1989 we already had a level of 16%. So our aim is to go progressively from this 15% level to (why not?) 17-17.5% within the next 3 or 4 years.
EBM: Publicis is a great success story today, which is paradoxically a problem for investors. When everything is already picture perfect, some investors are asking: 'Where do we go from here?' What's the new growth story today at Publicis?
ML: I can't agree with you when you say that investing in a good company, which delivers every day what it promises, is a problem for investors. But maybe there are some investors who prefer investing in broken companies. In that case, they should not invest in Publicis! Now, if we look at what Publicis is all about, and what future growth will be for our group, I would simply mention three or four key points. First: addressing the issues facing our clients is one of the major problems in the world today, and Publicis has the best capabilities to do that. We are better prepared than any other company in our sector to address the issue of multiculturalism. The second aspect concerns the media and understanding holistic communication: Publicis Groupe is the best-prepared company in the world to get the best possible deals and the best possible investments for our clients, as well as the best return on their investment - thanks to Starcom MediaVest and Zenith Optimedia. So, looking at the component parts of the Publicis Groupe, our position as the fastest growing agency is one we will continue to hold in the future. We will also continue to be very strong on the numbers, on managing our balance sheet, and delivering on our margins.
EBM: Following the Grey acquisition, should we expect to see a new wave of consolidation in the advertising industry?
ML: This very much depends on which side of the bidders Grey will fall into. If Grey is acquired by WPP, this will put a question mark on Havas, which will be the sole [remaining] holding company of its kind, and of a size which is not competitive. If Grey goes with Havas, this will be a challenge for Havas in terms of financing, but this will put Havas in the fifth position, and I think that concentration will end with this [transaction]. So we will move from four top holding companies to five, even if Havas lags slightly behind, and this will be the end of the concentration.
EBM: What is your outlook on the advertising industry in the second-half and beyond? In particular, what is your sentiment about your clients' state-of-mind?
ML: If you look at the global stage and forecasts for the rest of the year, we see no real change. We see steady growth in the U.S., maybe a slight decline, but nevertheless numbers which are quite impressive. We also see the Asia-Pacific region growing, even if we are reaching a plateau; Latin America is facing a steep rise in investment; Europe is coming back -- so, all in all, there should be no big difference in the second half. Now, looking at 2005, it will really depend on the economic policies of the next U.S. administration -- whether Bush is re-elected or if Kerry is elected -- the resulting economic policies, oil prices, the situation in Iraq. All of these factors will have an important influence on the economic outlook. Personally, I believe that growth in the next few years may not be as great as it was in the second half of the previous decade (between '95 and '99), but we will still have solid growth. We are expecting growth between 3.5 and 4.5%.
EBM: Publicis has just recently become a member of the CAC 40 index, the most important index of the French stock market. Perhaps this is a significant turning point in Publicis' history?
ML: It is! It is a reward for the work accomplished, but it is also a challenge for the future. At Publicis we foolishly feel that when we are given responsibility we must live up to the expectations placed on us. Now that we are a part of the CAC 40, the spotlight will be focused on us almost every day. So we will have to be on top, we will have to deliver more, and we are prepared to do that. By the way, if you look at the last 8 months, as of August 31st, the Bear Stearns scorecard ranked Publicis as the No. 1 group worldwide in terms of winning new business. So we are very strong on winning new business, and very strong on addressing the issues of our clients, and the advertisers' needs, and so I think that the CAC 40 index is just a little bit more pressure on us to deliver for our stockholders.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much.
ML: Thank you.
