EuroBusiness Media (EBM): Publicis Groupe, the world’s fourth largest advertising group, just reported revenue for the third quarter. Maurice Lévy welcome. You are the CEO of Publicis Groupe, what are your comments on the revenue growth in the third quarter and for the first nine months of 2009?
Maurice Lévy (ML): I think that we have a market which has been decreasing very sharply and the good news is that I believe that the decline has been stopped somewhere during the summer. As far as Publicis is concerned, the trough has been reached there in the month of June which has been one of the most terrible months we have ever seen and since that period we have seen an improvement month after month in our numbers. The third quarter has shown organic growth which was down by 7.4%, precisely where we were expecting it and where the market was expecting it to be. Regarding the 9 first months of the year, we have an organic growth which is negative by 6.9%. If you compare both numbers with what has been published, as of today, from our industry, you see that we are outperforming the industry by a large margin.
EBM: What are the main reasons that would explain why Publicis seems to be outperforming its peers and gaining market share, in the US for example?
ML: I think there are three reasons for that. The first one is that we have an approach, a product and a way of working which are compelling and right on what the clients need today. The way we are working for our clients, the way we are addressing their issues, their problems, finding the solution is exactly what the client needs nowadays. The second aspect is that obviously we have invested a lot in transforming Publicis into an all-digital agency and this is starting to pay. We have very good numbers for growth in digital. And this is something which is offsetting the decrease of some other activities. And finally, it’s the new business, and the new business is very healthy, it’s growing and we are performing extremely well. We have won something like $4.8 billion in billings which is making us the number one in the category. So this is something which is very rewarding.
EBM: You’ve certainly won a lot of new business recently, but is there reason to believe, because of clients’ continuing focus on cost control, that all of this new business will be structurally less profitable than existing business or that it could be more volatile, due to a greater proportion of success fees?
ML: There is not really a dramatic change in the way clients are working with agencies. The trend in cutting fees is something that has existed for ever. I have barely seen an advertiser coming and saying, “You have done a great job, I want to raise your fees.” What I have seen is very often clients saying “OK, we have a bonus system, you have outperformed and we are giving you the full bonus.” So I don’t see a major change in the behavior of the clients. What I do see is that clients are, in this uncertain period, very focused on their market share gain and profitability and obviously they want partners who can help them gaining market share. And if they like to work with us and if we win more than our fair share for the business, it is because we are providing the clients with solutions which they hardly find elsewhere. So we have something unique, which is our proposal and the way we work with the clients.
EBM: What’s the trend in the industry today and the general mood of your clients for the near term? Do clients show any indication of wanting to spend more in 2010 or are they still restricting and cutting back their advertising budgets?
ML: I think that the good news is that we don’t see any further cuts. And that is clearly something which we see with individual clients as well as in our global numbers. So I believe – and I have some strong evidence – that we have reached the end of the crisis. Are we now in an uptrend of the market and are we in a situation where we can say “OK, everything is fine” and we will see growth coming back – I’m not sure yet. I believe that many of our clients are affected by the mood of the consumers and are waiting to see if the consumers are starting to spend – particularly in the US, by the way. What we have in our plants is slow recovery. And I believe that advertisers will spend more next year, will stop cutting and that we will have a slow recovery. Probably a very small rate of growth, and probably the first six months will continue to be negative and the second half will be positive.
EBM: If the market does indeed pick up again in 2010, what are the chances that you’ll need to start hiring back more staff? In other words, should we expect your cost base to grow in a recovery scenario in 2010?
ML: As I explained, we have a scenario where the recovery will be slow and progressive. The second aspect is that we had a reduction of our headcount which was also slow and progressive and we have not yet benefited from the impact of the reduction in headcount. So we believe that we will benefit from this reduction in headcount during next year. So therefore I don’t believe that our cost base will be affected and I believe that we will start having a better margin again in 2010.
EBM: Today, three quarters of the way into 2009, can you give us guidance about your figures for the full year?
ML: I believe we will outperform the market and I believe that we will still be delivering the best margin of the industry. I think that our financial situation will be further strengthened and that we’ll have probably one of the best balance sheets of the market.
EBM: You recently acquired Razorfish from Microsoft which raised some eyebrows because Razorfish traditionally has much lower margins than Publicis Groupe. What do you intend to do to bring Razorfish back up to your standards of profitability and within what timeframe?
ML: Razorfish is in the situation that many of the agencies we have acquired was. If you look at Saatchi & Saatchi, Become Free, or Digitas, their margins were very low, and what we have done was to bring to them our technique of management and our shared services, which is lowering the cost base of this operation. We will do exactly the same. We will do it progressively; we will do it in a way which will not hurt the client, which will not hurt the people, in order to deliver our margins during the course of 2011 and 2012. What we do expect is that Razorfish will be accretive as of 2011.
EBM: Beyond the Razorfish deal, the market is wondering how much more money you have at your disposal for external growth and whether you intend to go on making more acquisitions in the near to medium term?
ML: We have no plans to make further large acquisitions. We have plenty of plans to make small acquisitions in two areas. One is everything which has to do with emerging markets. In emerging markets we are interested by agencies, advertising agencies, PR agencies, marketing services, digital - obviously - or media. And we are still interested across the board by digital operations. These acquisitions are very hard to find; there are not many, and they are not very costly. We have liquidity of about €3.5 billion and this gives us ample room to make the acquisitions we expect to do, but normally we should be at a very low level of spending and I don’t anticipate some major acquisition any time soon.
EBM: Maurice Lévy, CEO of Publicis Groupe, thank you.
ML: Thank you.
