What Maurice Levy Loves About the Recession

Q&A: Publicis Groupe CEO on Earnings, Layoffs, Shutting Down Honeyshed

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NEW YORK (AdAge.com) -- Maurice Levy finds the economic downturn exciting. In a wide-ranging discussion a few hours after Publicis Groupe's earnings presentation, the rather upbeat CEO pointed out that the company's stock price was up 6.57%; spoke candidly about the possibilities of layoffs and the shutdown of Honeyshed; and told Ad Age what he "loves" about the recession.

Maurice Levy
Maurice Levy Credit: Chris Cassidy
Ad Age: How did 2008 compare with 2007?
Mr. Levy: When you compare our numbers to Omnicom's earnings numbers, you see that there are areas where we performed much better than them, and we did better than we did in 2007 because of three things we did last year. First, we made a great strategic move by acquiring Digitas and then creating VivaKi, which gives us a strong leading position in the field of digital, the only field growing today. Secondly, we strengthened our position in the emerging markets. And thirdly, we have had a renovation of our offering in the advertising agencies. Leo Burnett has performed well; Saatchi & Saatchi posted a record year. Marketers like our offering because they feel we have correctly anticipated the change in the market and consumer behavior. Marketers have recognized we have something they like and want.

Ad Age: In terms of the sliding global economy, have you ever experienced anything like this before?
Mr. Levy: Never, including when I was a student and teachers were explaining to me the crisis of 1929. What we are seeing today is something unbelievable. There are trillions of dollars that have evaporated. There are scandals that have reached unprecedented levels, banks are in a very difficult situation and the financial system is really damaged. It creates a situation of anxiety for the population of the world because we are facing the first economic crisis of the globalized world.

This is something that businesses hate because they can not forecast or plan for the future. The question marks are very big, and during these situations there are some hesitations, and that's why I forecast a relatively gloomy 2009 for the ad industry. I think the first half will be tougher than the second, and I don't believe the market will pick up before the second quarter of 2010.

Ad Age: Does all of that make you nervous?
Mr. Levy: It doesn't make me nervous; the reality is it excites me. Obviously we are not immune and we have a situation that can be impacted by the recession. But we have made some strategic decisions that have been positive. We have formidably renovated our offering in the advertising agencies and created VivaKi, which gives us a unique profile in the industry. We have a strong foothold in the emerging markets, and this gives us the ability to offset -- if not totally, at least largely -- the impact of the economic crisis.

Ad Age: What about the situation excites you exactly?
Mr. Levy: I'm excited because this is something that leads me to think about how we can make our organization more efficient, how we can reduce our costs to help our clients, take maximum advantage of our scale to make sure our clients are the winners, and to think about new organizations and new operations and new client wins. I love that.

Ad Age: But what about the downside, such as closing down Honeyshed and layoffs?
Mr. Levy: Closing down Honeyshed was something that made me sad. I had a formidable love for this operation, and I supported them during the whole process. The problem with Honeyshed was that we had not yet got the response of the advertisers, and in these times advertisers are not keen to try new things. Advertisers want to put money in well-tested operations. And further investment in Honeyshed, which I have supported from day one, would have still taken a lot of money and many years. And today I don't have the right to invest in this type of long-term operation that has some high risk, because to finance this kind of thing, I will have to cut jobs in other areas. I have to be fair to people creating value, and this is the kind of situation which is a dilemma for me. I have to weigh the rational and the emotional. On the emotional side, I want to stay. On rational, it takes a lot of time, has a risk necessitating at least as much money that we have already spent, and that makes the bet too high.

Ad Age: Do you foresee any layoffs in 2009?
Mr. Levy: I'm very cautious with layoffs. We will unfortunately have in some agencies the necessity of laying off people, and we will do it, obviously, if we have to.

Ad Age: Does that mean you have plans for laying people off?
Mr. Levy: On an agency-by-agency basis, we may find some specific situation where we may have to lay people off. At the same time we may have some situations where we have to hire people. What I do expect is that we are managing our head count in a way which is mainly based on natural attrition and turnover in order to avoid any kind of massive layoff.

I don't believe it is right for companies of our kind, which are based on the quality and motivation of the people, to consider that we should adjust our cost by laying off people. If I need to do it and if I have to do it, I will do it, but I prefer to anticipate to cut the cost rather than head count. This is a time when we need all of our people pumped and motivated and going after clients. It's not the time to think about layoffs.

Ad Age: What cost-cutting measures will you take?
Mr. Levy: We want to limit the use of freelancers and temps. And we want to slash our overhead by 10%.

Ad Age: What were the bright spots in 2008?
Mr. Levy: Leo Burnett. Publicis France has been absolutely staggering, winning almost every account. And we have some very bright spots in Russia. Digital has been staggering, and Publicis Modem has been fantastic. Digitas has been absolutely formidable, and the creation of the VivaKi Nerve Center is something that is a formidable resource for the group.

Ad Age: What areas weren't as good and what were the low points of 2008?
Mr. Levy: The low point had been, during the first half of the year, our health-care operation, which has been stabilized in the second half, as expected, and is becoming a high point. The low point we have had is some small operations in the events field that have not performed exactly as we expected. We had a relatively good year, so it's difficult to find a real serious low point.

Ad Age: It's apparent digital is becoming a bigger part of what you do. Do you plan on continuing that trend and how will you ensure the digital practice continues to grow?
Mr. Levy: We want to make sure that the whole [Publicis] group is absorbing the digital practice and that almost everyone is literate in digital, because we can't tell the client when it comes to digital that "we are now going to call the specialists." We are doing a good job at developing digital within every operation. What we need to do in some markets is gain critical mass, and we have plans to grow in those markets like China, India and some European countries. We are also looking at some opportunities in Latin America.

The VivaKi operation is something that is formidable, because the synergies are exactly where we want them to be. A lot of people thought we did VivaKi for cost synergies, but our objective was to enhance our position in the market and grow faster, which has happened.

Ad Age: What are your plans for VivaKi in 2009?
Mr. Levy: We are developing new tools and collaborating with older quality platforms. The head of the VivaKi Nerve Center, Curt Hecht, has launched a new idea with a lot of partners like Yahoo and Microsoft in order to develop a common standard for video advertising on the net.

Ad Age: Any acquisitions planned yet for 2009?
Mr. Levy: The good thing is that we have 2.8 billion euros ($3.6 billion) of liquidity, and at that level, we have the possibility of making acquisitions. But we are not in a hurry or in a frenzy to make acquisitions. We consider that there are many small acquisitions we can make and we are working on, but we currently have no plans for any large acquisitions.

Ad Age: What sectors do you think will be strong in 2009?
Mr. Levy: In 2009, we will see the creative agencies coming back very strongly, because advertisers will be in need of great ideas. We may see the Publicis Groupe grow in the field of health care, and for the others, like CRM, PR, this will very much depend on each market, some of which will be on the up and some down. And there is one segment of PR that I call strategy PR, which includes management issues like crisis, that will definitely be on the upturn.

Ad Age: Were those sectors not as strong in 2008?
Mr. Levy: It's not that they weren't strong. When we are doing this kind of analysis, we cannot say that everything will be on the up. I'm trying to see how the markets will move and to be quite reasonable on the assumption. It has nothing to do with quality of operations or our people. In terms of service strength, when you are in situations that are so difficult and so much uncertainty, there is one ingredient that is as badly needed as the money and the credit, and that is the idea. And this is where we can generate imaginative solutions that connect the brand with the consumer in a way that can make the consumer change his behavior and buy the product. This is where we will see some interesting trends.

Ad Age: Some of the reports today said you are bullish on 2009. How do you justify being bullish?
Mr. Levy: I'm not sure I can say I am bullish. The reason why [some people reported] that is that our earnings presentation was very strong, and I said our two objectives were to win market share, deliver on our margins and to have the best margin in the industry.

Ad Age: With regard to the ANA report issued yesterday, are clients coming to your agencies and talking about renegotiating compensation and cutting their ad spending?
Mr. Levy: I have not seen the report yet. I sympathize with the clients who have issues, and I'm ready to revisit the situation and see what we can do. At the same time we have our own organization problems, so it's not that simple, but we understand the needs of the advertisers and we try to help.

Ad Age: What sectors will continue to struggle?
Mr. Levy: It will be the usual suspects, like financial, automotive, and we expect to see some issues in sectors such as travel. We do see some possibilities for growth, because some marketers have decided not to cut their advertising investment. So the situation is not one-size-fits-all but it is specific to industries and sectors. And we expect to be among the ones that are doing better within our industry.

Ad Age: Any comment on the war of words that took place through the papers between you and WPP Chief Executive Martin Sorrell a few weeks back?
Mr. Levy: No. This is something which is ridiculous. He made some comments, and I had to react to the comments he made. But I have nothing to add to this.

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