EuroBusiness Media (EBM): Publicis Groupe, the world's fourth largest advertising company, is presenting new guidance and outlook to the investment community. Maurice Lévy, welcome. You are the CEO of Publicis Groupe. First of all, what is your trading update for the fourth quarter: is there any interesting new business to report?
Maurice Lévy (ML): There are alot of new business pitches on the way, and some very good wins. If we look at 2004 we had one objective which was to deliver 15% margin, and I think that as of today we are pretty sure that we will deliver that 15% margin, and maybe slightly above. So we will have fulfilled our task, and we can move on to some new objectives and be a little bit more ambitious.
EBM: What is your outlook for 2005?
ML: We are still in the budgeting process, and we are very conservative in the way we are looking at the budget. Obviously, our objective is always to do better in the market in terms of growth, as we have done in the past. If you look at the latest forecast from Zenith Optimedia you will see that there will be a slight slowdown compared to 2004. But if you exclude the extra investments due to the Olympic Games, the European Football Championship or the U.S. elections, then 2005 will be up from 2004, both in absolute numbers and also in terms of organic growth. So it will be, in our view, a pretty good year.
EBM: What is the feedback you are hearing from clients today?
ML: They are not bullish; they are quite cautious -- but they are cautiously confident. What we see today is that most of our clients are predicting a pretty good year for 2005, and they are ready to invest. And obviously the people who have a very solid growth, in Asia or in some other fast-growing markets, they feel pretty good about 2005. Those whose sales are mostly in France or in Germany are more cautious. So we see that it is very different from what you read in the press, and with some interesting growth coming from Asia as well as from the U.S. and some European countries.
EBM: What are your comments on your new 17% margin target?
ML: We were hesitating between 17.5 and 17%. We finally have decided to stick to 17%, and we have set a timetable with a plan to move to the 17% level over the next four years. Today our 15% margin level is considered to be the very best in the industry, but we feel that we can improve it.
EBM: Why are you increasing your margin target?
ML: Why do we want to improve it? It is not because we are greedy and we feel we should be delivering more for our stockholders. Why do we think we should do it? I believe it is in the interest of our clients. We have seen that some agencies which were not profitable enough have not been able to invest, and we believe it is of crucial importance for us to invest in talent, to invest in new tools and in new technology. It is very important that we have a solid margin.
The second aspect is that we think it is in the interest also of our employees and our stockholders to see that we are a solid group which can move forward and look at the future with the possibility of growing, and obviously we need to have a solid return. So it is a kind of "virtuous circle".
EBM: 17% does seem like a very ambitious target.
ML: It will not be easy. And it will not come from only one single source. It will also not be easy because it will not be 2% margin points, it will be much more than that, because we also have to take into account the fact that the pressure on prices and margins coming from our clients will not cease. We are expecting that this pressure will continue in the years to come. So we have to deliver more than 2% margin points if we want to achieve the 17% level.
EBM: How do you plan to achieve your 17% margin target?
ML: We will work on many aspects. The first one is obviously organization. We believe that the organization of a service company should never be frozen: it must continue to live and to evolve, and we should work on this regularly.
The second aspect is that we believe that in some regions, where we no longer have the level of margins we once had in the past, we can reach them again. This would help us to improve our average margin. This is particularly true in Europe. In some other regions, we have a level of margin which is not yet at cruising speed, due to the fact that the agencies have not yet reached a critical mass. So we need to look at them differently, through different eyes, and maybe think about some new structures, new organization. We also need to do what our clients are doing to us: they have put into place procurement and people who are twisting our arms, so we have to do the same with our suppliers -- we have no choice. We know it will be a difficult task; we know it will not be easy. We believe it is something which has a lot of importance for the future of the group. And we think that it is so critically important, for our clients and for our people and our stockholders, that we have to do it. So we will do it.
EBM: How should we expect the change in the new IFRS accounting standards to impact your numbers?
ML: Very little. We have done a lot of work since the beginning of the year with the information which is available today -- there are still a few things to be settled, but the impact will be very limited. So we are quite confident that it will not be a big surprise for our stockholders and for the analysts.
EBM: You are in the process of simplifying your balance sheet structure and reducing debt. Is there any progress to report at this stage?
ML: We have three objectives in this process. The first one is to strengthen our balance sheet, to make it more solid. The second is to reduce the debt as well as the future dilution of the shares. And the third is to reduce the interest costs. We are working on this. We have already accomplished the first step by selling the CLN - Credit-linked Notes - and by buying back the bond part of the convertible bond that we issued at the time we bought Bcom3. So this is done, and it has already made a very good impact on our gearing. We have some other studies which have yet to be conducted, and we have some decisions to make. I believe that during the year of 2005 we will do a lot of work in this area.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much.
ML: Merci.
