Havas' share price fell by almost 12% Tuesday morning as Chairman-CEO Alain de Pouzilhac warned that the advertising market will continue to decline.
"We don't expect a rebound in 2002," he said. "We believe it will come in 2003."
The Diversified Agencies Group, a Paris-based division that includes more than 70 agencies and accounts for 27% of Havas' revenues, will be disbanded. Most of the agencies will be slotted into Havas' three other divisions: agency groups Euro RSCG Worldwide, New York, and Boston-based Arnold Worldwide Partners, and media specialist Media Planning Group, based in Barcelona, Spain.
Mr. de Pouzilhac said the restructuring will be completed by the end of October.
He said that 80% of the Diversified Agencies Group will join one of the three other divisions. Companies that don't fit into any of the three divisions but are high-performing, profitable niche players will be allowed to stand alone. Others will be sold or closed.
The biggest company in the Diversified Agencies Group is U.K.-based direct response specialist Brann Worldwide, with 2000 gross income of $254.8 million. It is unclear what will happen to the group's chairman-CEO, Jean-Michel Carlo.
In restructuring Havas, Mr. de Pouzilhac said the company "decided to take a pessimistic attitude."
He said that last December worldwide ad spending was expected to grow by 6% in 2001, but that the forecast is now for a decline of 3% to 4%, with the U.S. hardest hit with a steep drop of 6% to 9% this year.
For the first half of 2001, Havas has pre-tax profits of $65 million before one-off charges that resulted in a $6.5 million loss.
Mr. de Pouzilhac said Havas had been operating under a cost structure set at the end of 2002, when the company expected revenues to grow by about 10% in 2001. Instead, revenues grew by 7.9% in the first quarter of 2001 and just 3.5% in the second quarter.
Weak U.S. market
The U.S. is Havas' weakest major market, with revenue growth falling from 5% in the first quarter of 2001 to zero in the second quarter.
To cut costs, the company worldwide laid off 1,200 staff, closed three facilities and wrote down assets.
"Restructuring measures, implemented from May on, will impact essentially [the second half of 2001] and 2002 on a full year basis," the company told analysts today to explain the fall in operating margin to 10% to 12% in 2001 from a target of 15%.
Despite the gloomy picture, Mr. de Pouzilhac emphasized that Havas is still committed to growing Media Planning Group into one of the top five global media specialist networks by the end of 2003.
That will be an even tougher goal now. Havas let its $600 million bid to buy Tempus Group lapse as the U.K. media specialist looked increasingly expensive in a fast-declining market.
"We'll continue our geographic expansion," said Fernando Rodes, Media Planning Group's CEO. "There are potential opportunities in markets where we are not yet open, like Italy and Germany."
Mr. Rodes said Tempus "was a nice fit, but we can get much more value for less money."