EuroBusiness Media (EBM): Publicis Groupe, the world's fourth largest advertising company, has just reported third quarter of sales. Maurice Levy, welcome ! You are the chairman and CEO of Publicis Groupe. What are your comments on the company's performance in the third-quarter and on the level of new business?
Maurice LEVY (ML): The very good news for the third quarter is undoubtedly the level of new business. So we are again amongst the top winners of this quarter, with a number which is higher than US$1.2 billion in terms of net new business, which is a very positive news. I know that some analysts were questioning our ability to be again a winner in terms of new business…And they have a demonstration! The good news is also that the pipeline for Q4 looks good. So I hope that we will be able to give some good news by the end of the year.
EBM: And what about the low level of organic growth in the third-quarter?
ML: I think that some people may be disappointed because of the small dip that we have faced in Q3, and this is mainly due to 3 different factors. The first one is something which was expected, which is the loss of some accounts which had been already announced at the end of 2005, beginning of 2006, and that everyone is very well aware of, and the new businesses catch up has not yet offset these losses. So that is something which was clearly expected. Second, which was not expected, which is the fact that we had to face some important cancellation or postponing campaigns for some of our clients in the healthcare industry and in the automotive industry. This may have some consequence in Q4, and I hope very limited. The 3rd aspect is the fact that we have had a very clear new strategy in China where we have a selected approach to advertisers, because our competitors and some of our operations have suffered from insolvability of some our clients. So we have decided to be more focused on the kind of clients we want and to be much more selective. So this explains the situation. I don't believe that any of these elements has any consequence for the future. I think this is part of the situation that any agency in the world, including ourselves, has faced in the past and surmounted these kinds of difficulties relatively easily. The new business trend, and the information we have on this, are elements which give us some confidence for delivering the numbers in the future.
EBM: What then is your guidance for the fourth-quarter and for the full-year?
ML: As you know, the fourth-quarter is always a mystery because people are using advertising as one of the means to adjust their final results. And all the people who are closing their books with a calendar year are using this quarter to adjust. So it could be up, it could be down. We know that only at the end of the year. I have a relative confidence for the full-year. And I believe that for the full-year, Publicis will be around, above the 5%. What will be the full year number, I can't tell you precisely. But I have a certain degree of confidence.
EBM: And what about your guidance for next year?
ML: For 2007, I see no reason why we shouldn't catch up with our trend of growth, particularly given the fact that we have seen some very important wins recently. And that we are not facing any important loss. And we don't have any important account which is under review.
EBM: And looking at trends now, what are you seeing happening across broad geographical zones and in the main business sectors?
M.L: I still have some concern regarding the automotive industry. Not all of our clients, because Toyota is doing extremely well as everybody knows. For Renault, I think that 2007 should be a very interesting and very positive year because they are starting again with some launches. All this will be positive. And I believe that GM is starting to reap the fruits of their strategy. So all in all I feel more confident for 2007 for the automotive industry. Regarding the healthcare industry where we have been faced with some shake-up, the latest information we received is positive and I believe that the current difficulty will be surmounted without any major issue. So I don't see any big problem on the sectors.
EBM: And what about the main geographical zones?
ML: Regarding geography, I think that on the US, there is a question mark which is: will the current situation of consumption continue or will we be faced with a slowdown? The information we have so far and the projects of our clients are still very good. We do not see many of our clients presenting budgets for next year which are showing a deceleration or a cut. We don't know what will be the 'actuals' but, for the time being, based on the information we have, we feel pretty confident. Regarding Asia Pacific, we believe that the growth will be very good and we will control our own growth in China. As I said, we have seen some of our competitors facing some serious problems of solvability of clients and we have decided to be very cautious. We have some projects in China and we have some acquisitions which have been made recently which will start bearing fruit. So we are very positive in the region.
EBM: What about the situation in Europe?
ML: Europe is showing a lot or positive signs. We see France doing much better. The latest numbers in unemployment are very positive. Germany is also showing some very positive numbers. And these are the two big engines of the growth of Europe. So all in all, I feel pretty comfortable for 2007, while I'm not saying that it will be a 'promenade'. It will be hard work to come up with good numbers, but we will continue to work hard in order to deliver a growth which is higher than the market expectation.
EBM : What is your dynamic in the new media segment? Is Publicis sufficiently well-equipped to handle the shake up in your industry brought about by the emergence of new media?
ML : We believe so. We believe we are well-equipped. And we believe that we have made the right decision at the right time. We have some very interesting ventures and very interesting operations. We have one of the most advanced operations with Denuo, and we have made some interesting acquisitions recently. Be there in Europe or in the US. We are also investing a lot in this area and we have some very interesting projects, and we are doing some very interesting research, so I believe that the market will be nicely surprised by the initiatives that we are taking in this area when we are in a position to announce them.
EBM : Investors are still wondering how you plan to use your cash: acquisitions or returning excess cash to shareholders through dividends or buy-backs? If the answer is acquisitions, then what types of targets are you interested in, how large and in what time frame?
ML : We have a good problem to solve. I remember the time when investors were questioning our balance sheet situation. And now, it is good to see that they are questioning our cash position. That's good. We have the three options. That's why what we will try to do is first to increase the dividends anyway by a good margin, not something exceptional but we will increase the dividends. This is our policy. We announced this and we will do it. There is now another question. Will we have to choose between an extra dividend or to make acquisitions or buy-back shares? I don't believe that buying back shares is a good investment. Obviously it is nice, it's something which is paying off because we are helping the current stockholders, but it is not the way to create good value for the company. So the best thing to do is to acquire some very good operations, which will strengthen our position and which will help the growth for the future.
EBM : So, you are going to make acquisitions?
ML: We have a few targets in many directions, and I know that is has been recently mentioned in the press that we were targeting big acquisitions. The reality is fairly simple. We have just reiterated the fact that we are looking for acquisitions and if there is an opportunity for a large acquisition, we will certainly look at it. But, for the time being, we have no negotiation under way for any acquisition of a certain magnitude. Let's be clear about this: we are looking very, very seriously at many options and when it's time, we will be announcing this.
EBM : What about the question of adding an entirely new business to your portfolio by making an acquisition in the market research segment?
ML : This is a very interesting question. And this is a question that we have been contemplating since we have been working on the Aegis acquisition. As you know we decided to get out of the competition for this acquisition. I guess that nobody is interested anymore in making a bid for Aegis, at least for the time being. And we have contemplated the possibility of going to market research. It's an area that is facing an interesting growth. Margins are not exactly at the level we would like them to be, so we are still exploring this route cautiously.
EBM : In recent weeks we've seen some management turnover at Publicis with the arrivals and departures of certain players. Could you give us an overview of the situation today?
ML : For the management of Publicis Worldwide, we have put a new team in place. Olivier Fleurot joined us. He was the former chief executive officer of the Financial Times and he has spent the last year and the half looking at digital world. He is very interesting in terms of profile. He has a dual experience in the UK and in France. He is interesting because he was in the heart of the communication world, and also because he has spent a lot of time in the digital world. So that is something that will help us to move to the next level, and Olivier is joining us as Executive Chairman of Publicis Worldwide. On the management of the network, we asked Richard Pinder, who was until now the Chief Executive Officer of the European region of Leo Burnett, to take on the challenge of managing Publicis Worldwide on a day-to-day basis as the Chief Operating Officer. This tandem, this duo, is very interesting and I have a lot of confidence for managing the future.
EBM : What about some of the high-profile departures in France recently?
ML : Regarding the French operations, we faced the loss of Christophe Lambert who was the CEO of Publicis Conseil and Fred and Farid who were managing and had created Marcel, the highly creative agency, the hot shop. On the hot shops, everybody knows that this segment of our industry where highly talented people are on and off, moving around and most of the time building their own operation. So it's a pity that we lost Fred and Farid but it is something that happens very often. You just need to read the press and you will see a lot of this. Regarding Christophe Lambert, I think he was disappointed that he wasn't promoted and he decided to leave. And we hired Arthur Sadoun, chairman & CEO of TBWA Paris - whose track records is very impressive - to join us. He will be joining us with Valérie Henaff, head of strategy planning, and who will be in charge of planning and development. So with Arthur, Valérie, together with Olivier Altman we have a trio who will be running our flagship agency, Publicis Conseil in Paris. We also did something very interesting: we decided to separate, in the French operation, the role of head of the French network and head of the flagship agency. So, the French network will be led by Philippe Lentschener, 49. Philippe Lentschener is currently the head of Saatchi & Saatchi France and will be joining Publicis shortly to run this operation. This shows a lot of things. First, the fact that we remain highly attractive and we can get the best. Second, that we are able to offer to the talent of the group, be they from Leo Burnett or from Saatchi & Saatchi, a future. And not only this but the fact that we are able to transfer people from one agency to another one shows clearly that Publicis is working as a family group and this is very positive. It's something that is very exciting for the people because they feel there is energy, a future, a lot of positive aspects for their own future. So this is something which is very well-received in our organisation.
EBM : And finally, analysts observe that Omnicom is growing faster than Publicis but that Publicis has higher margins. Therefore, the market is wondering what should be viewed as more important for the future: higher growth or higher margins. Could you share some of your thinking on this issue?
ML : The best is to have both. And that is our target. And our target is clearly to try to have both: higher growth and higher margins. You can buy a market, you can buy market share by sacrificing the margin but when you start to do that, it is then very painful to change the mind of the people and to ask them to build margin. They go after your business, they accept to buy the new business at any price and this is a strategy that we don't like. What I'm trying to do is to manage Publicis in order to take it to the best level to make Publicis group the best group in communication, the best for the client and to focus on how we can best serve our clients by bringing inventiveness, innovation, creativity in a way that has never been reached. And I guess that if we are successful in the way we are working, we will get higher growth and we will keep our margins very high.
EBM : Maurice Levy, chairman and CEO of Publicis Group, thank you very much.
ML: Thank you.
