EuroBusiness Media (EBM) : Publicis Groupe, the world's fourth largest advertising company, just reported earnings for 2004. Maurice Lévy, welcome. You are the CEO of Publicis Groupe. What are your comments on the company's performance in 2004?
Maurice Lévy (ML): I would say it was a relatively good year, which is putting it lightly, because when you look at our numbers I can say without false modesty that they are very, very good. Organic growth is up by 4%, the second best performance in the market, and margins are 15.4%, so we are exceeding not only the consensus, but all our targets: our cash flow has been staggering; the debt to equity ratio is down to 0.4, which is two years ahead of our objectives; and we have done an excellent job of strengthening our balance sheet. So, all in all -- and I'll admit I am enthusiastic -- our teams have done an incredibly good job, and it has been a very good year.
EBM: Analysts feel that organic growth was disappointing in the fourth quarter, especially in Europe. Should we be concerned about the level of organic growth at the very end of the year? And as the first quarter draws to a close, how is business looking at the beginning of this year?
ML: Organic growth has been slowing down at the end of the year, and there are two reasons for this. The first one is obviously the fact that we are comparing the fourth quarter with a very strong fourth quarter in 2003, so the comparison is not favorable. The second aspect is obviously the fact that we have seen a slight slowdown in the European economy, and since Europe represents 43% of our activity, this has had a slight impact on our numbers. But I feel that we should not be too concerned about this situation. First of all because of our staggeringly good new business in 2004, where we reached the highest point ever with US$4.4 billion, or 3.5 billion euros, which will serve to fuel our growth in 2005. The beginning of 2005 does not yet represent a benchmark for what the year will be, but we are continuing to grow, and we are continuing to win new business, so there is reason to hope we will do better than the market.
EBM: Analysts thought that mega-mergers were definitively over after the Saatchi & Saatchi and BCom3 acquisitions. However, you recently stated that you are interested in making acquisitions again. What is your acquisition strategy today?
ML: We need to strengthen operations in some countries, so this will be relatively limited, and what we need to do is to acquire some competencies or some operations to raise our level of visibility in some markets, or our critical mass. We also need to increase our size in marketing services -- this is true in all the disciplines -- and we are looking at some acquisitions in this sector. Since there are very few [targets] left, this is relatively difficult, but we are aggressively pursuing several possibilities. We have slightly shifted our targets: whereas before we sought acquisitions of relatively small size, we are now looking for something of medium or larger scale.
EBM: After your recent convertible buybacks, can we expect to see further initiatives to restructure your balance sheet?
ML: Our current balance sheet is relatively strong. Our debt-to-equity ratio has reached a level which is greater than expected, according to the old [French] accounting rules. We are today at a year-end [gearing] of 0.4, which was much better than our objective for the end of 2006, so we are well ahead of our plan in this area. We are now looking at all opportunities to further strengthen or simplify our balance sheet. We want to do so carefully and with great caution, so we will see how the market reacts to the OBSA (equity warrants) and ORANE (bonds mandatorily redeemed in shares), which will be put on the market at the end of March, because the first lock-up will expire. Based on the market's reaction, we will then decide on how to proceed.
EBM: The lock-up period for the managers of BCom3 ends this month. Should we fear a significant flow-back of paper on the market, or potential departures of key players?
ML: We are known for having done a very, very good job of integrating Saatchi & Saatchi. What is less well known is the work which has been done to integrate BCom3, which is at least as good as the job which was done with Saatchi & Saatchi. We have lost no clients, or nothing significant; we have lost no significant people; we have maintained and grown all our operations; we have done an incredibly good job in the dismantling of D'Arcy and the reallocation of the assets. So all the work which has been done on the integration of BCom3 will probably be taught as an exemplary case study for business schools in years to come.
EBM: What about the risk of flow-back?
ML: Regarding flow-back, I know it has been a concern on our stock price, and I know that it has played a very important role in terms of overhang. Fortunately, this concern had no basis in reality, and every six months we have released various lock-ups with almost no consequence on either the stock price or the volume of stock sold. Regarding stock, everything is now on the free market, and there are no further lock-ups. We have four lock-ups coming up for every six months for the warrants and for the ORANEs. And this will happen starting this month, on March 24, and then every six months. I don't expect anything in particular to happen.
EBM: What is the outlook for business in 2005, both in terms of industry sectors and geographical zones?
ML: What we see from different expectations put forth, and the various forecasts made by Zenith Optimedia as well as from our competitors, is that the market will be relatively solid -- not as solid as 2004, but relatively solid. It will still be a growth market, and this growth will be very healthy because it will not be fueled by the U.S. elections, there will be no exceptional operations like the Olympic Games of last year. We believe that, in total, the market will grow between 3 to 4%. The right level is very hard to forecast because Europe continues to have a lot of uncertainties, while the U.S. will still be in a very good position, and Asia will be red hot. So we believe that it will be a relatively good year. When we look at our own forecasts, and we look at our operations, we believe that no matter what happens to the market, for Publicis it will still be a good year.
EBM: It appears that the market has not fully valued your new 17% margin target. Indeed, some observers would first like to know more details about how you plan to achieve this target. In short, what is the new Publicis story today?
ML: I think that the market is not fully valuing not only the 17% story, but the Publicis story. And I would guess that the reason for this is due to some concern that the market may have had regarding our balance sheet. Now the market should be relatively confident, because not only have we delivered on all our objectives, but we have done an incredibly good job on debt, on free cash flow, and on all the operations, which are leading today to an undeniably strong balance sheet.
EBM: So, what doesn't the market understand about your new growth story?
ML: People were used to seeing Publicis grow faster, and make acquisitions which fueled our growth. Today we have one of the most fantastic stories to tell, not only to stockholders and potential investors, but also to advertisers. And I would like to start with the advertisers, because this is our key objective. We are today undoubtedly the prime communication group to watch. We are No. 1 and No. 2 in terms of creativity; we have three very different networks growing very fast and very strong; we have an incredible client list; we have a cutting-edge position in terms of policy communication which is clearly what clients are seeking, and we are the pioneer in this sector; and we are growing very fast in policy communication; we are also No. 1 and growing fast in health care communication. Our growth in all these areas is an incredible success story. And on SAMS (Specialized Agencies & Marketing Services), which are the diversified operations, we are looking for more growth, fueled by the growth of marketing services, and also the fact that we will be acquiring operations. All in all, I believe -- though as CEO of this company I may be excused for being a little biassed -- that not only is the Publicis story a great success story, but that the best is yet to come.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you very much.
