Publicis Groupe Warns of Slowing Fourth-Quarter Ad Spend

CEO Levy Sees 'Small Erosion' in Outlay vs. Falling Off a 2008-Like 'Cliff'

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Publicis Groupe warned today that advertising growth is likely to decline in the fourth quarter, hit by a slowing global economy, with the European debt crisis and the U.S economy raising particular concerns.

The French group, owner of networks including Leo Burnett, Saatchi & Saatchi, Starcom MediaVest group and ZenithOptimedia, reported organic growth of 6.4% in the third quarter of 2011. Revenue grew to $1.9 billion, a 7.5% increase over the same period last year. For the first nine months of this year, organic growth reached 6.9% and net new business -- including Burger King, Nescafe, Pizza Hut and Ferrero -- added up to $4.1 billion.

North America remains the biggest region by revenue, generating $940 million in the third quarter, up from $915 million during the same period a year ago for an organic growth rate of 5.5%. However, Maurice Levy, Publicis Groupe chairman and CEO, said, "Although we are outperforming the market and we are close to excellence operationally, we have many areas where we can improve -- in America there is room for improvement."

Latin America showed the strongest organic growth at 13.1%, followed by 7.6% in Asia-Pacific, with growth of 10.1% in China and 10.4% in India compensating for declines in Japan and Australia.

Looking to the future, Mr. Levy said, "India will not be a top country because we don't expect to become number one or number two in this market. China is very different -- we are already number one in media and probably number one in digital, though not in advertising or PR where we are investing in agencies to strengthen our operation. We believe we will be improving our position very nicely in China."

Digital accounted for 30.2% of total revenue in the first three nine months of the year, up from 28.7% a year ago, enabling Publicis to hit its goal early of growing digital to 30% of revenue this year. Advertising generated 31% of revenue, down from 33% last year, and media remained the same at 19%. Emerging markets now account for 23.7% of revenue.

Ad spend forecasts for 2011 have been downgraded to 3.6% growth, from 4.1% as recently as July, and much of that downturn may be in the fourth quarter. Mr. Levy referred to that downturn as "a blip," given that growth of 5.3% is forecast for 2012 by ZenithOptimedia, factoring in upcoming events like the 2012 Olympic Games in London, the European Football Championships and the U.S. presidential election.

"I am just a little bit more cautious [for 2012]," Mr. Levy said, "maybe because I'm sitting in Europe surrounded by the news about Euro zone and Greek crisis, but I've not witnessed so far the cliff we saw in 2008. Today we see small erosion, and current trading conditions may lead some of our clients to be more cautious and to cut in order to fuel their bottom line at the end of the year."

Talking about General Motors' $3 billion media review, involving Publicis Groupe agencies Starcom and Vivaki, Mr. Levy said, "We risk losing part or all of the business we have. The opportunity is that we win more. It's difficult to comment on the reason they have decided to review, but no one is saying it's only a question of strategy or planning. I don't know one single advertiser who is opening a review without looking at efficiencies. We believe that we have been servicing [GM] extremely well and we should be in a position to show our strength." A decision, he said, is expected at the end of the year.

Next year will also be decisive in Publicis Groupe 's relationship with Dentsu, its largest shareholder with a stake of 11.2% (and 15% of voting rights) at the end of 2010. Under a 10-year agreement that expires in July 2012, the Japanese group will be able, with some restrictions, to sell its Publicis shares. Mr. Levy said, "In June next year a decision will be made by Dentsu. We have to be ready to acquire their shares, but Dentsu may want to remain good shareholders, which they have been always. We are thinking that Dentsu will sell -- maybe because they have already sold part of their shares -- and we must be prepared for that ."

In a previous sale, Publicis acquired the shares Dentsu wanted to dispose of .

Mr. Levy said, "The pace of acquisitions will slow as we close out the year and move into next year, especially with the Dentsu reckoning coming up." He said that he does not see Aegis Group, sometimes rumored as a takeover candidate, as an opportunity "for the time being" and that in 2012, he expects to spend only half of what Publicis spent on acquisitions in 2011.
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