EuroBusiness Media (EBM) : Maurice Lévy welcome, you are the CEO of Publicis Groupe -- what are your comments on Publicis' full-year earnings for 2005?
Maurice Lévy (ML): 2005 has been an extraordinary year. We have record numbers, and whichever numbers you look at, you'll be surprised by the scope of improvement compared to last year. We have reached and surpassed our operating margin target, with a 15.7% margin, which is a big step, 60 basis points better than last year. We have had very strong organic growth, close to 7%, with the last quarter at 8.6%. We have reached a record level in terms of profitability, with net profit rising by 39%. Not only have we done all this, but we have also worked very effectively on our balance sheet. We have reduced our net debt at the end of the year by two thirds, reaching the incredible level of 200 million euros, and a debt to equity ratio of 0.10, which had never been reached in the last six years. We have also done good work on average net debt, reducing it by 27%. All this is leading us to improve not only our EPS, which has grown by 36%, but also our dividend which will be delivered at more than 20%.
EBM: After a record year in 2005, with 7% organic growth, what is your top line guidance for 2006? Analysts have only noted that Publicis expects 'similar' organic growth in 2006, but they are yearning for a more precise guidance statement from you.
ML: For the past few years, we have decided not to give any guidance. This is a policy we have. The only thing we are saying is that we expect to do much better than the market, and we will repeat that statement for 2006. The only thing that I would like to stress is that after the year we have just experienced, we are now full steam ahead for a new cycle of growth, and that is something that is very important. This is brand new, I have never said this at Publicis. We see that all the [engine] cylinders of our operations are really working very, very well. None of our operations are lagging behind, and I truly believe we are entering a new cycle of growth.
EBM: What is the outlook for new business in 2006 ? Won't it be difficult to do better than 2005?
ML: I think it will be difficult. I think it will be difficult because my target for 2006 is to be number 1 or number 2. I'm not sure that we will reach the record level we reached last year, which was close to 10 billion US dollars, but I do expect that our teams will still deliver great, great numbers.
EBM: You just reported a 2005 margin of 15.7%, which makes it look like you might well reach your 2008 margin target of 16.7% ahead of schedule, as it is now only 1% point away. Analysts cannot decide whether to consider your guidance as too conservative, or whether to believe that your business outlook is relatively flat for the next 2 years. What should they believe?
ML: They should believe the numbers. I think that is the best thing to do. And I trust their capabilities and capacities for reading the numbers. For example, they can make a comparison between what Publicis is delivering, 15.7% with what WPP is delivering, which is 13.4% without the associates, or what Omnicom is delivering, which is 12.8%. This tells you a lot, and this will tell them a lot. Reaching a level of 16.7% is not very easy. As we know for people who go climbing, I don't know if you did that, but in my good old days when I was a young man, I went climbing. The last meters are always the most difficult. When you are close to the summit it's always difficult. So reaching 16.7% is something that is within reach. It will require some effort. It will still require some reengineering of our operations, but I'm very confident that we will deliver.
EBM: One reason for having a 'conservative' margin target is that you plan to make new investments, to invest in a new IT platform worldwide. Could you tell us more about the costs and benefits associated with this project?
ML: Not only are we going to have a new IT platform but I don't believe that we should stop investing, so we are not milking the cow. We are not delivering our numbers by milking the cow. We are delivering our numbers by reengineering our operations, in order to have a cost of logistics and to have a cost of operations which are much lower than our competitors. And the reason for that is twofold. Not only do we want to deliver a better margin, but we also have to be competitive. When our clients are requesting, demanding sometimes, that we look at our prices, we have to be competitive. So it's not by charging more that we are delivering. And it's not by investing less. It is through a whole new reengineering of our operations. I think that in terms of our organisation, and management of our operations, we are far ahead of our competition.
EBM: Traditionally at this time of the year, you always provide the market with some geographic and sector trends for the year to come. What are the major trends you foresee in 2006?
ML: 2005 has been a very good year. I was the only one at the beginning of the year to be upbeat about 2005. 2006 will still be very good. It will be good not only because we see a positive economic outlook, but also because there is a tradition: when there is a World Cup or when there is a big event like the Olympic Games, people invest more. We are in a World Cup year, so we will see more investment flowing into advertising and marketing services. The US is still doing extremely well and I believe that they will continue to do well. The traditional or 'usual suspects' -- like China, India, Brazil and Russia -- are doing tremendously well, and we can expect double-digit growth in these regions. We also see a very positive outlook for the Middle East and some African countries. The sick child of the world is Europe. There are two positive things, maybe three. Let's start with the first and most important one, which is what we call "football" in Europe and what Americans call "soccer". It's the World Soccer Cup, so we will see a lot of attention and we will see a lot of operations. This will be very positive for people's mood. The second aspect is what I call the "Merkel effect". We already see this in the behaviour of the consumer. We believe there will be a "Merkel effect". I hope that she will make some interesting and positive decisions, which will help restructure Germany and make it once more a very competitive market, buoyant for the European economy.
So consumers in Germany are more positive. And the last thing -- and its not because I'm a Frenchman that I say this -- is that France is starting to pick up. I'm confident that France will be one of the countries which will surprise us in 2006. All in all, I believe that 2006 will be a good year, and that we will probably take good advantage of this year.
EBM: You've done a lot to simplify and restructure your balance sheet. Should we consider that the simplification is now completed? If not, what else should we expect to see, and when?
ML: We are almost at the end. We have destroyed something like 35 million potential new shares, so the fantasy of dilution is no longer relevant, at least for a large number of shares. We have reduced our debt, we have killed some of our hybrid tools. We have a balance sheet that can be read now even by a kid. I have absolutely no problem, I think it's very solid, I think its financially sound. We now even think that Publicis can take a new step in growth, and take new initiatives. We have no plans for the time being, but we are prepared for a new round of growth.
EBM: Now that you have improved the balance sheet, and obtained a credit rating, do you plan to make some significant acquisitions?
ML: As you know we are traditionally very cautious. We like the acquisition that we can integrate. We like the acquisitions that are accretive, and we like acquisitions that bring something to our offering or enhance our positions in the market. That was the reason for the discussion we had with Aegis. Its unfortunate that it didn't come to a positive outcome, but we believe that was the right decision to make and we will stick to that position for the time being. We are targeting acquisitions in China, in India, in Russia and in some other emerging markets. We are targeting acquisitions in marketing services, in the US as well as in other mature markets. Our objective is not to make acquisitions just to grow. We like muscle, we don't like to be fat. So don't expect from us an acquisition just to make headlines in the press.
EBM: Publicis still has no market research division, which appears to be a growing demand from clients. Will market research be a priority in your acquisition strategy?
ML: We have evaluated several times the possibility of acquiring market research. We looked at various possibilities and we do not feel that we are prepared for this kind of operation yet. We like operations that we can understand, that we can manage, and which contribute to the growth of Publicis, and to the service to the client. We will not look at acquisitions just for the sake of having nice growth if at the end of the day we cannot bring something to the party. It's really important for us to better understand the market. We will always go for acquisitions where we believe we can add something.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much.
ML: Thank you.
