EuroBusinessMedia (EBM): Publicis Groupe, the world’s third largest communications company, just reported revenue for the first quarter of 2010. Maurice Lévy welcome. You are the CEO of Publicis Groupe, what are your comments on the Group’s performance in the first-quarter?
Maurice Lévy (ML): I must say that I can only be happy. And it is about time, because we went through a very difficult period since the end of 2008. And as forecast - at least by ourselves - we have seen an inversion in the curve with an improvement since Q3 2009, and I’m pleased to report that we are posting a growth - organically - of 3.1%. It is well above our own expectations and we have a growth, an increase of our revenue compared to last year, of 8.1% as reported. So we are pleased with these numbers.
EBM: Where do we stand today in the growth cycle – do you see the pace of recovery as being rapid or slow, and why?
ML: The fact that we are posting growth in the first-quarter is a little bit of a surprise. I was expecting initially that we would be much more round a small ‘zero plus’, and 3% is well beyond our expectation, as I said. And I’m a little bit cautious, because I don’t believe that we have already passed the crisis, that there are still some issues. We don’t know exactly what will happen with some financial institutions and this may create another crisis. We don’t know, for example, what will be Basel 3. There are a few issues which are like a Damocles sword above us and we have to be very cautious. But I have to add that we are optimistic, we see a recovery at Publicis and we see very good, positive trends.
EBM: What are the differences that you are observing in the different geographies, and should we be concerned by the fact that the advertising recovery in Europe is slower than in other parts of the world?
ML: Obviously when you have a region like Europe, which is not yet in a recovery mode, it is a concern. What has been a good surprise is to see that the US is growing faster than expected. We are posting, by the way, 5.6% growth in the US. Europe as a whole is, in our numbers, slightly behind with minus 1.5%. This is not very good. And the situation in Europe is hugely contrasted. You have France, for example, in our books, which is up by 8.4%, while some other countries are negative. So we believe that at the end of the day we will have a Europe which will catch up progressively. And I’m cautiously optimistic regarding Europe, but I believe that we are in the right direction.
EBM: What are the sectors that are performing well or badly in the recovery and what is your update today on the automobile sector in particular, and the implications this has for your business?
ML: If you look at the sectors as represented in Publicis Groupe, all the sectors are in progression – up – increasing the investment. And we are growing in each of the sectors, including financial sectors by 19% and automotive by 10%. If you look at the automobile industry, what you see is the fact that they are still struggling - they are not yet out of the crisis. There is some restructuring which is underway and we will see the real recovery with a real growth in 2011 with the fact that there will be a whole new collection of cars from many manufacturers, many brands, and particularly electric cars. So I think that 2010 will be a year of transition. Today, positive transition, and 2011 will be a year of growth. One word which I think is important on GM, as you have seen; GM is starting to repay the taxpayer and the US government. This is very, very good news and it shows that they are starting to get out of their problems.
EBM: What is your update on Digital activities today and how well has Razorfish been contributing to your business since the recent acquisition?
ML: When we are mentioning 3.1% growth for the Publicis Groupe, we are excluding the growth of Razorfish. The Digital operation for Q1 in Publicis Groupe has grown by 15% which is a very good number, well ahead of the market. Razorfish is doing extremely well and the integration of Razorfish within the Publicis Groupe is very satisfactory. One, Razorfish, for the first quarter, has posted a growth of 8.4%, which was also unexpected; we thought that the growth of Razorfish would resume later in the year, and we are very pleased with the numbers. The second aspect is that Razorfish is working with the vast majority of our operations on some clients in common and the relationships between Razorfish and the other operations of the Publicis Groupe are highly satisfactory. And they are bringing something new and something fresh to our clients. This is very good news. The last thing I would like to point out, despite the fact that we are at the quarter – at the quarter we speak about revenues and not margin – but the margins of Razorfish are improving. So all in all, we can say that whatever criteria you take regarding the integration of Razorfish, it is working like a clock.
EBM: You have stated that 2010 would be a year of investment rather than a year of margin growth. How much investment are we talking about and what will be the primary focus of these investments?
ML: What I’m talking about is much more the fact that we will have to invest in talent; talent in technology, talent in creative, talent in planning. We have been through a year where we had to freeze the raises, to freeze hiring and this has been quite painful for all our people. So we have made an effort since the end of 2008, during all the year of 2009 and the beginning of 2010. We will need to lift the freeze progressively according to the situation of each of our brands, and we will also have to recruit in the various areas. So this is what I mean by investment. I’m not speaking about huge investments which will have a huge one-time cost – it is about filling some positions, filling some gaps and putting all our operations up to speed. So all this should normally bring some fruit in the future, so it’s a very good investment and something which is very positive for our operations.
EBM: Following up on what you’ve just said, how well will you be able to contain rising staff costs on the back of the recovery, so as not to deteriorate your margins this year?
ML: This is a little bit of a conundrum, because we have to be cautious. We have to lift the freeze progressively. At the same time we have also to keep our people happy. So we will have to manoeuvre with a lot of subtlety in order not to put at risk our margin and at the same time to keep our people happy. Because don’t forget that we are a people business and the first thing that we have to do is to make sure that we have the best talent and that the best talent is highly motivated to best serve our clients.
EBM: And lastly, what is your update today on your acquisition strategy?
ML: The first thing I would like to say is that we have been quite fortunate by making a decision on investing heavily in digital. It happens that maybe it’s an accident of our brains, but it was the right decision at the right time and it’s really the best thing which could have happened to Publicis. We are well ahead of the competition and we have the best assets of the industry. That’s a very good thing. What do we need to do today? We need to enhance our digital operation in some markets and this doesn’t need a lot of investments. And we need also to strengthen our position in some emerging markets or fast-growing markets. All this is something which will require - for each of the operations - a handful of millions. It’s not big deals, and if we can complete ten or fifteen of these small operations, we will be very happy. We have nothing in light for a big, large acquisition, so we will be in a very good financial position and I think that our stockholders will be very happy.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much indeed.
ML: My pleasure.
