Publicis's Levy: China Advertisers Not Increasing Budgets from Last Year

Slowdown in Market Compounds Economic Worries Amid European Crisis

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Publicis Groupe CEO Maurice Levy said advertisers in China, a market that has helped France's biggest marketing company to make up for slower growth in Europe, aren't increasing their budgets from last year.

Maurice Levy
Maurice Levy

Publicis has made more than a dozen acquisitions this year in countries such as China, India and the Middle East as high unemployment and austerity programs by European governments crimp spending by consumers and companies at home. The economic slowdown in China, where Publicis's first-quarter sales excluding purchases grew by 15.3%, is now one of his top concerns as the European crisis is spreading to the industry's more stalwart growth regions, Mr. Levy said.

"What we have seen in the market are some profit warnings," the CEO said last week at the Cannes advertising festival when asked about his clients' marketing spending. "When you have clients facing some difficulties, this is a little bit worrisome."

Publicis dropped as much as 1.6% to 36 .33 euros as of 10:04 this morning in Paris, valuing the company at 6.6 billion euros ($8.3 billion).

Slower Growth
This month, Credit Suisse Group AG cut its outlook for China's economic growth this year to 7.7% from 8%, while Deutsche Bank AG lowered its forecast to 7.9% from 8.2%. China cut its benchmark interest rates this month for the first time since 2008 as May economic data showed slower growth.

Companies advertising in China "have maintained their budget at the level of last year instead of increasing," Mr. Levy said.

Publicis, based in Paris, is sticking to its full-year forecast, the CEO said. While revenue growth will decelerate in the second quarter, sales in the second half of the year will be better than in the first half, helped by the London Olympics, the company said in April. Publicis's first-quarter organic sales growth of 15.3% in China compared with 4.6% in France and 3.3% in North America.

WPP, the largest advertising holding company, has also voiced concerns about growth in regions such as Brazil, Russia, India and China. WPP CEO Martin Sorrell told investors this month that he is "increasingly wary" of a slowdown.

In the year through June 22 , Publicis stock had risen 3.9%, while WPP gained 13% and the 28-member Bloomberg Europe 500 Media Index added 2.9%.

The French company's acquisitions this year include U-Link Business Solutions Co., a health-care communications company in China, and The Creative Factory in Russia. Advertising on mobile devices and social networks, such as Facebook, will also help drive growth this year, the company has said.

China is also in a period of political transition, which adds to uncertainty about the market's future, Mr. Levy said. China's Communist Party is preparing for a once-a-decade leadership transition later this year when President Hu Jintao and Premier Wen Jiabao are set to step down.

The Chinese government signaled a more-aggressive approach to sustaining expansion last month when Wen Jiabao called for more efforts toward stabilizing growth.

"The old guard which will be going and a new team will be coming on board," Mr. Levy said. "It is always a time for changes, but we don't know how the changes will happen. When you see the situation one can think 'What's going on and what will happen to the global economy?'"

~~Bloomberg News~~

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