EuroBusiness Media (EBM): Publicis Groupe, the world's fourth largest advertising company just reported first-half earnings, Maurice Lévy welcome.You are the CEO of Publicis Groupe, what are your overall comments about Publicis' performance in the first half?
Maurice Lévy (ML): I must say that we have been much more than satisfied with our numbers, because if you look at what happened we have a second-quarter with organic growth of 7.3% which is for the time being the best in the industry. For the overall first-half we have 6.8% plus -- close to 7% --which is a very good performance. We have improved our margin by 30 basis points. We have seriously reduced our debt level, moving from a debt-to-equity ratio of 53% to 27%, cutting it in half. We have reduced our average net debt level. And something which we can add to this, which is a nice thing: we have improved our net profit by 50%. So I would say it's a relatively good first-half.
EBM: It is generally understood that the Football World Cup alone adds 1% growth to the advertising industry every four years when it happens. Was this year's Football World Cup satisfactory in terms of advertising revenue for the sector in general, and for Publicis in particular?
ML: For the sector in general it was little bit disappointing. I think that the general feeling is that it has not brought what we were expecting. Most of the time, the promotion in football has been made instead of other promotion. There is a small effect, but it's really a small effect, its not something big like 1%. I don't believe that it is even 0.5%. I think it has been relatively loose, and surprisingly low compared to the previous year. If you look at Publicis, we have some positive aspects. The first one is obviously with ISC, which is the joint venture we have with Dentsu. We have been able to get a nice profit -- not in the range of the dreams that someone might have -- but it's nice, it's positive and it's good to take. The key question now is: what will we be doing for ISC next ? We have plans, we are thinking, and we are working with Dentsu. We think there has been a demonstration of the capabilities of ISC, which has been made in Germany, which are really very good.
EBM: Before the publication of first-half results, some analysts had been concerned that your record 10 billion dollars of net new business in 2005 was not translating fast enough into higher organic growth in 2006. They were wondering whether pressure from clients in media buying was leading to a situation whereby, perhaps, an increase in volume and market share was more than cancelled-out by a decrease in the profitability of the new budgets. What would be your comments on these fears?
ML: I think that the best comment I can make is to repeat some numbers. Organic growth of 7.3% for the second-quarter, organic growth close to 7% for the first-half, margin at the level of 15.2% for the first-half. I think it's quite impressive. So I think that is the best answer I can give.
EBM: However, Publicis had got the market used to record levels of new business in 2005 and there had been a sense of disappointment about the level of new business that was being brought-in in 2006, following the loss of certain budgets, in particular the Cadillac budget. How would you respond ?
ML: I would like to make my answer in two parts. The first one is that a year like 2005 is a year that we will not see before long, because there had been so many large accounts under review, and a collection of that magnitude in one single year is something which is quite rare. So I don't believe we will see anything like what happened in 2005. Second part of the answer is that obviously we will see a better trend. We have had some losses, which are very unfortunate, but there are some circumstances which have been negative for us. But all in all, when you look at the work, the attraction, the awards we got at the Cannes Lions, etc., all this is speaking in our favour, and the offering we have is very attractive to advertisers. And not only the offering we have is attractive, but we are improving it day after day. So I'm quite confident that we will be pitching more business and we will be winning more business.
EBM: There was a rumour in the market that Renault may have renegotiated its contract to your detriment. Could you give us an update about the sate of your relationship with Renault today ? And also your relationship with the rest of General Motors. Has that been shaken by the loss of the Cadillac budget?
ML: Let's start with General Motors. With General Motors, Leo Burnett has lost Cadillac and this has been compensated by some other wins. Obviously the loss of Cadillac is much more visible than the wins they have had. All in all, we believe that they will get about the same amount of revenue.
EBM: And concerning Renault ?
ML: Renault is a very important client for Publicis for a lot of reasons. Not only its history, but it's also one of the largest accounts of Publicis Worldwide. Obviously, when you compare with the whole of Publicis Groupe, the position of Renault is not the largest, but this does not change anything for us, because our commitment to the client is very important. We have a contract with Renault that finishes at the end of this year. We entered into an exclusive negotiation which has been concluded recently, and I'm pleased to report that we have signed today the terms of the new contract. That is something which is very positive. It's what the Americans call a 'happy ending' and we have new terms for three years, which is good. Obviously when you are entering into negotiations, it's give and take, and we had that negotiation.
EBM: In a recent interview with the Financial Times, you revealed for the first time ever your forecast for organic growth for 2006 between 5.5 and 6.5% without giving more details. What is now your degree of visibility and confidence about reaching the target? Is it looking likely that you'll come in at the top of the range, or even beat it?
ML: I thought it was good to explain to the market that while most of our competitors will be on average in the range of 3, 5 to 4%, that Publicis will do much better, and probably in the region of between 5.5 and 6.5%. As you have seen, the numbers for the first-half have been very good -- close to 7% growth. And our margin has been excellent, ahead of our own objectives. So we believe that we have a pretty good level of confidence, to confirm that we will be in that range. Shall we be closer to 5.5% or closer to 6.5%? This will very much depend on the economic situation in the US and in some other regions of the world in the last quarter of the year. So I prefer to keep the number in the bracket of 5.5% to 6.5%.
EBM: What is your global growth outlook for the rest of the year by geographical zones and by industrial sectors? You are usually in the habit of giving this kind of overall perspective at your half-year and full-year results.
ML: We believe that, despite some indications that there is in the US a risk of slowdown, that the US will still remain strong. We have been very much surprised by the strength of our operation in Europe, and this is what we would call in France "un sign avant coureur", so we have a kind of heads-up of what will happen in the second-half, and we believe that second half will be relatively good for Europe. And most of the countries of Europe should have a much stronger growth than the first-half.
EBM: And concerning growth by industrial sectors?
ML: In industrial sectors, I think every sector is contributing positively. I'm not sure that IT will be as strong as it has been till now. I don't believe that it will enter into a recession, but I think that they will enter into a plateau in terms of growth, and the level of growth that they have had is probably the right one, and we should not expect that this level will continue to go up. Financial services: there is still room for improvement and they believe that it will continue to grow. And consumer goods are very good and they are growing steadily.
EBM: Is there an industrial sector that has you concerned ?
ML: The only question mark that we may have on automotive. This is a sector which is highly contrasted and we have to be a little bit cautious. Otherwise, I think that all in all, we will have something that will not change greatly compared to last year.
EBM: Do you have any current industrial insights about the ongoing transition that clients are facing between old media and new media? Is the situation now stabilised in your view? Or is the net between the old media and new media leading to an increase or decrease of the size of the overall advertising pie?
ML: The whole advertising pie is growing. Not by the magnitude of what is going to the new media. So the new media is expanding at the expense, for part of it, of the old media, and this is a trend that we have seen that we will see for the next three to four years, so we cannot expect that we are in a stabilised world. There are so many things to be invented, there are so many things to be changed, there are also so many things for which people have to come to some conclusion. For the time being there is not a clear measurement of what Internet is bringing, there is not a clear measurement of the consequences of the multiplication of the channels, of the TV channels. We must have a far better understanding of the situation and this will probably lead to some dramatic changes.
Today the good news for us is that we are at the centre of the decision. So whatever is happening to the media is something that is positive to us, because are the ones who have the level of knowledge and the data which are helping the advertisers to connect with the consumer. And that is very important. The key of the connection is within people like us, and particular the Publicis Groupe media operation, which is considered by the market as the best in the industry. So I feel very confident about this.
EBM: And finally, you are the first CEO to talk about the need for major advertizing companies to reorganize themselves, by rethinking their 'holding and silo' management structure, with competing agencies who don't talk to eachother inside the same group. What exactly are you suggesting ?
ML: We have launched a program called 'Re-inventing our future', because we not only need to invent it, but we need to re-invent it. It's something that has to be very different for a certain number of reasons. The first one is the change in the media landscape. It's huge. What's happening in this world is something for which we have no past experience: the speed at which things are changing, the speed at which things in the minds of the people are changing, and the change in the society; because all of these changes are changing the behaviour of the consumer. The second thing which is very important are the issues that all advertisers are facing, in terms of cost pressure, in terms of the 'Street' pressure on their stock, etc., etc. The retailers who cannot afford today, because of the competition, to have more than three brands. And sometimes one of the three is their own brand. So all this is leading to a fiercer competition. In the face of this, we cannot continue to believe that the world has not changed, and that [clients] have to change but that we do not have to change. We have to start with our own house. We have to keep it not only in order, but we have to move ahead and to lead the change. And we have to help our clients. If we don't change ourselves, how can we dare to advise our clients? So we have built a formidable operation, and if you look at the holding company concept - even if the Publicis concept is slightly different from the other ones - it's something which dates back to the beginning of the eighties, even the end of the seventies. And we are today in another century, another millennium. So we have to invent a new way of working. And we should not be satisfied, because this will lead to complacency. And that's the worst thing that can happen to agencies.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much indeed.
ML: Thank you.
