No. 4 Publicis Groupe

Analysis of Publicis Activities in 2006, from the 2007 Agency Report

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Publicis Groupe, the fourth-largest marketing organization, generated about 70% of 2006 revenue from traditional advertising and media and 30% from a range of marketing services. The marketing services portion will grow with its January 2007 acquisition of Digitas, an interactive and direct-marketing agency group.

Publicis employed 39,939 people in 104 countries and more than 200 cities as of December 31, 2006, up 3.4%—1,329 jobs—from a year earlier. That tally doesn't include the 2,050 staffers who joined Publicis in the Digitas deal.

Factor in Digitas, and Publicis on a pro forma basis had about 42,000 employees and revenue of $5.87 billion in 2006.


Publicis in 2006 launched a new-media venture, Denuo, to focus efforts in digital communications (internet, video games, mobile phones, iPod). Denuo, part of Publicis Groupe Media, had three elements: strategic consulting; developing new solutions; investments in partnerships. Publicis' April 2007 20-F annual report said: "Denuo acts in partnership with or as a supplement to [Publicis] networks in order to enhance the solutions proposed to clients. It also serves its own clients independently."

Publicis made several management moves in 2006. In October 2006, Publicis Worldwide COO Rick Bendel resigned after 20 years at Publicis to be group marketing director for Wal-Mart operations in the U.K. Richard Pinder, then age 42, succeeded him as COO. Mr. Pinder had been president of sibling Leo Burnett EMEA since 2004. Also, Olivier Fleurot, 54, former chief executive of the Financial Times Group, was hired as executive chairman of the Publicis network; Mr. Pinder reports to him.

The company's Marcel creative boutique, launched only in 2005, lost its top executives when they bolted in October 2006 to form their own ad agency with financial backing of Vincent Bollore, chairman and lead shareholder of rival Havas. Frederic Raillard and Farid Mokart, who ran Marcel, linked up with Christophe Lambert, who headed Publicis Conseil, to form Fred Farid Lambert. Mr. Bollore took a 30% interest in the venture, with the three principals equally dividing the rest. Publicis replaced the top two with co-presidents Anne de Maupeou and Frederic Temin. Marcel clients included Nestle Waters, Heineken, United Biscuits, Pernod-Ricard, Coca-Cola and Unilever.

A Publicis-backed agency in New York, Droga5, made a splash in 2006 at the Cannes Lions International Advertising Festival, winning a cyber Grand Prix and two of the three U.S. media Lions for its work on Ecko. That was virtually the first creative work out of the shop. Mr. Droga had left Publicis as worldwide chief creative officer to set up Droga5.

Louis Capozzi became chairman emeritus of Publicis Public Relations and Corporate Communications Group at year-end 2006. He had been chairman of the PRCC unit since its founding in April 2005.


Publicis 2006 revenue grew 7.3% to $5.5 billion after factoring in euro-to-dollar currency changes. Reported revenue in euros rose 6.3%. Publicis closed its acquisition of Digitas Jan. 31, 2007. On a pro forma basis, if Publicis had owned Digitas in 2006, then Publicis' 2006 revenue would have been nearly $5.9 billion—within striking distance of the No. 3 ad organization, Interpublic Group of Cos. ($6.2 billion).

Net income in 2006 rose 12.8% to $551 million based on U.S. Generally Accepted Accounting Principles and after factoring in euro-to-dollar currency changes. Net income in euros increased 11.6% based on U.S. accounting rules and 14.8% as Publicis reported income (using International Financial Reporting Standards).

Organic revenue, which factors out acquisitions/divestitures and currency changes, rose 5.6%. Organic revenue increased 5.1% in North America, 5% in Europe, 5.3% in Asia-Pacific, 9.3% in Latin America and 20% in Middle East/Africa.

Publicis in early 2007 said it expected its 2007 business in Europe and the U.S. to grow at comparable levels to 2006, with emerging markets' growth showing further acceleration in 2007.

Publicis reported a 2006 operating margin of 16.3%, a record for the company and an increase from 15.7% in 2005. In February 2007, Publicis said it had a 2008 target operating margin of 16.7%.

Publicis' stock March 21, 2007, reached $49.40, highest point since the shares began U.S. trading Sept. 12, 2000 (at $37). The stock's low point since its U.S. debut was $14.75 on Oct. 2, 2001, shortly after 9/11.

Publicis holdings consist of:

Traditional advertising services: Publicis, Saatchi & Saatchi and Leo Burnett networks. Other ad agencies including Fallon, Kaplan Thaler Group and French agency Marcel. Publicis also owns 49% of Bartle Bogle Hegarty, a U.K.-based agency.

Specialized agencies and marketing services: public relations (Publicis Public Relations and Corporate Communications Group, including Publicis Consultants, Manning Selvage & Lee and Freud Communications); healthcare communications for pharmaceuticals (Publicis Healthcare Communications Group); direct marketing, customer relationship management, sales promotion, interactive (Leo Burnett's Arc Worldwide, Publicis network's Publicis Dialog, Saatchi network's Saatchi & Saatchi X, Digitas Inc.); multicultural (Hispanic shops Lapiz and 49%-owned Bromley Communications, urban shop Vigilante, 49%-owned African-American agency Burrell Communications); events marketing (Publicis Events Worldwide); and design.

Media services: Publicis Groupe Media, consisting of Starcom MediaVest Group, ZenithOptimedia and new-media venture Denuo. Publicis also operates, mainly in France, a media sales unit, Medias & Regies Europe, for advertising in print, movie theaters and outdoor and on radio.

Japanese ad firm Dentsu owns about 15% of Publicis under a strategic relationship forged when Publicis bought Dentsu-backed Bcom3 Group in 2002.

Publicis as of December 2006 owned 1.2% of Interpublic. In its April 2007 20-F, Publicis classified those shares as "available-for-sale assets." Publicis received the shares in 2001 when Interpublic bought True North Communications, in which Publicis owned a 9% stake as the result of a one-time—and long-aborted—alliance with Foote Cone & Belding.

There was renewed speculation in 2006 about whether Interpublic might be a takeover prospect. Publicis in late '06 was said to be weighing a potential bid; Publicis Chairman-CEO Maurice Levy strenuously denied that. Not long after those reports, Mr. Levy struck a smaller deal, acquiring Digitas.


Publicis in 2006 had a loss of $156 million in reported net new billings, reflecting nearly $2.9 billion in account wins and a bit more than $3 billion in account losses, according to the tally of Bear, Stearns & Co. analyst Alexia Quadrani. That placed Publicis fifth among the six ad holding companies ranked by Bear Stearns.

Bear Stearns also scored Publicis fifth in 2006 adjusted net new billings with a loss of $64 million; "adjusted" reduces media accounts to 25% of reported billings to more closely correlate with anticipated revenue. The adjusted net new billings translated to an expected annualized revenue loss of $14 million.

Bear Stearns aggregates account shifts reported in media, but it doesn't claim its new-business tally is all-inclusive, particularly in marketing services and outside the U.S. and U.K. Publicis, for its part, said it had 2006 net new business of $3.3 billion, including marketing-services wins, down 66% from 2005's $9.8 billion.

Publicis said its 2006 key advertising and marketing services wins included:

Renault (contract extended to cover Latin America and Baltic states); Sanofi Aventis/Vaccins Pasteur (worldwide); Orange (Europe); Marriott (Asia); Kraft (marketing services Europe); JC Penney (U.S.); Wal-Mart (U.S. in-store marketing; Sony Ericsson (worldwide); InterContinental's Crowne Plaza Hotel & Resorts (U.S.). Media wins in 2006 included Washington Mutual (U.S.), Oracle (worldwide), Avaya (worldwide), Del Monte (Europe) and Beam Global Spirits & Wine (worldwide).

Publicis said key 2006 losses included General Motors Corp.'s Cadillac (U.S.), Heineken (U.S.) and SFR (France) in advertising; and Sprint (U.S.) and Nokia (Asia) in media. It also noted decreases in business, including Hewlett-Packard Co.'s Personal Systems Group advertising in North America, Latin America and Europe. (HP pulled a large part of its Personal Systems work from Publicis in 2006.)


Publicis' top five and ten clients accounted for about 25% and 35% of 2006 revenue, respectively. Its largest client, Procter & Gamble Co., supplied about 10% of revenue in both 2006 and 2005. The holding company in February 2007 said its clients included 38 of the Fortune Global 500's top 100.

Publicis said its largest clients by network were, alphabetically:

Publicis: Cadbury-Schweppes; Coca-Cola Co.; Hewlett-Packard; L'Oreal; Nestle; Pernod Ricard; Procter & Gamble; Renault; Sanofi-Aventis; Siemens; Telefonica; UBS; Whirlpool Corp.; Zurich Financial.

Leo Burnett: Coca-Cola; Diageo; Walt Disney Co.; Fiat; General Motors; H.J. Heinz Co.; Kellogg Co.; McDonald's Corp.; Philip Morris; Procter & Gamble; Samsung; Samsung; Wm. Wrigley Jr. Co.

Saatchi & Saatchi: Ameriprise; Avaya; Bel; Bristol-Myers Squibb/Mead Johnson; Carlsberg; Deutsche Telekom/T-Mobile; Diageo/Guinness; Emirates Airline; General Mills; JC Penney; Novartis; P&G; Sony Ericsson; Toyota/Lexus; Visa Europe; Wal-Mart.

Starcom MediaVest Group: Coca-Cola; Disney; GM; Kellogg; Kraft; Masterfoods; Miller Brewing Co.; Philip Morris; P&G; Sara Lee.

ZenithOptimedia: 20th Century Fox; British Airways; Hewlett-Packard; JP Morgan Chase; Lloyds TSB; L'Oreal; LVMH; Nestle; Puma; Richemont Group; Sanofi-Aventis; Toyota/Lexus; Verizon; Whirlpool; Zurich Financial.

Publicis said clients of newly acquired Digitas Inc. included: American Express Co., AstraZeneca, AARP, Bristol-Myers Squibb, Cingular (part of AT&T), Delta Air Lines, GM, Heineken, Hewlett-Packard, Home Depot, IBM Corp., InterContinental Hotels Group, Kraft Foods, Lloyds TSB, Procter & Gamble, Pfizer, Sanofi-Aventis, Time Warner, Whirlpool, Wyeth and Wells Fargo.

Digitas Inc. in 2005 generated 26% of fee revenue from its top client, American Express. No. 2 client GM—also a key Publicis client—kicked in 22% of Digitas 2005 fee revenue. Digitas Inc.'s top 10 clients in 2005 accounted for about 67% of fee revenue.

In the first nine months of 2006, AmEx accounted for 26% of Digitas Inc. revenue (vs. 27% a year earlier); GM's share of revenue slumped to 17% (from 22%).


Traditional advertising generated 44% of 2006 revenue (down from 46% in 2005). Specialized agencies and marketing services accounted for 30% of '06 revenue (up from 28%). Publicis said media services produced 26% of '06 revenue (the same as 2005).

The revenue split will change after the integration of Digitas, acquired in January 2007. Publicis said the 2006 split, had it owned Digitas that year, would have been 42% from traditional advertising, 34% from specialized agencies/marketing services and 24% from media. "Digital and interactive communication sector should represent approximately 15% of our revenues," Publicis said in its April 2007 20-K filing. (WPP, the only other member of the Big 4 marketing groups that discloses a digital figure, said that digital/interactive accounted for 9% of its 2006 revenue.)

Publicis in 2006 generated 42% of revenue from North America (down from 42.7% in 2005); 39.8% in Europe (vs. 39.9%); 10.7% in Asia Pacific (vs. 10.5%); 4.9% in Latin America (vs. 4.6%); and 2.6% in Middle East/Africa (vs. 2.3%). (Digitas Inc. in 2006 generated 95% of its revenue from North America; the other 5% came from Europe.)

As noted, Publicis reported a 2006 operating margin of 16.3% (up from 15.7% in 2005). North America led the way with an operating margin of 18% (vs. 17.4%), followed by Europe (15.9% vs. 15.2%) and rest of world (13% vs. 12.8%).

Publicis attributed rising margins in North America and Europe largely to efforts to reduce operating costs by centralizing back-office functions and sharing resources across operating units. Publicis by year-end 2006 had shared-service centers operating in 14 countries where it generates more than 80% of revenue. One cost-saving move: a centralized travel-procurement effort.

Publicis said in its April 2007 20-F filing: "All regions benefited from increased spending on advertising in 2005, while North America and, to a lesser degree, Europe benefited from sizable growth in the media business and healthcare communications. Although more moderate than in 2005, growth in North America remained sound in 2006, despite the impact of budget losses in late 2005 and early 2006. Business in Europe remained strong throughout 2006. Growth in other parts of the world was lower than expected, principally because of slower growth in China, Korea and Brazil in 2006."

That 20-F filing said North America generated 5.1% organic growth in 2006. "The increase," Publicis said, "was primarily due to increased media buying and consultancy business (Publicis Groupe Media), healthcare communication of Saatchi & Saatchi and of the Kaplan Thaler Group, which benefited from large new accounts booked in 2005, and increased spending by some existing clients."

The 20-F filing noted 2006 organic growth in Europe of 5%. "Most networks contributed to the growth, with the exception of Leo Burnett, which was impacted by losses or decreases in accounts, an insufficient level of new business bookings and changes in management teams that affected several markets in continental Europe," Publicis said. "The strongest performances were from Starcom MediaVest, ZenithOptimedia and [Publicis Healthcare], which was stimulated by increased spending by and growth of some existing clients. Growth was most robust in Great Britain, Germany, Switzerland and Northern and Eastern Europe, particularly in Russia, while France and Italy showed average growth. Spain was the most difficult market in 2006, as revenues in Spain decreased compared to 2005."

Publicis generated 2006 organic growth of 8.2% in the rest of world, including 5.3% in Asia-Pacific, 9.3% in Latin America and 20% in Africa/Middle East. "Highest growth rates were recorded in India, Mexico, Venezuela and Argentina," Publicis said. "Growth in Asia in 2006 was relatively disappointing due to decreased business in (South) Korea and also due to the group's decision to be more selective in its commercial policies in China."

North American employment dropped slightly to 11,990 people at year-end 2006 from 12,158 a year earlier.

Publicis said 15,000 (38%) of its employees in 2006 were in emerging markets. In its February 2007 earnings release, it proclaimed "strong market positions" in China, Russia, Turkey, Mexico and Brazil. Publicis in February 2007 said its target was to generate 25% of 2010 revenue in emerging markets.


Publicis in December 2006 struck a deal—completed Jan. 31, 2007—to buy marketing services company Digitas Inc. for $1.3 billion. Digitas reported the deal would give it greater media-buying scale with giant online-media sellers including Google and Yahoo.

Even Publicis rivals had positive comments on the Digitas acquisition. WPP Group Chief Executive Martin Sorrell in February 2007 told analysts: "For what it's worth, I think Publicis' acquisition of Digitas was smart, but it was expensive." Interpublic's CFO, Frank Mergenthaler, told analysts in March 2007: "I think that the Digitas acquisition for Publicis was a good move for a variety of reasons."

Digitas generated 2006 revenue of $390 million, according to a February 2007 Publicis disclosure. That's 14.5% above the $340.5 million that Digitas reported in 2005 fee revenue.

Digitas at year-end 2006 employed 2,050 people, up 18% or 310 people from year-end 2005 (1,740). Much of that gain—and much of the 2006 revenue increase for Digitas—reflected the January 2006 acquisition by Digitas of Medical Broadcasting Co., which employed about 140 people when it was acquired (and 160 at year end). Medical Broadcasting in April 2007 changed its name to Digitas Health. The other Digitas Inc. units are agencies Digitas and Modem Media.

Publicis said in January 2007 it was seeking other internet-related acquisitions in China, India and Europe that would make Publicis a global leader in digital marketing. "We intend to own this space," said Mr. Levy. That search was to be led by Digitas Chairman-CEO David Kenny, now on the Publicis executive committee and in charge of Publicis' digital-marketing strategy.

Publicis denied one potential deal: Press rumors in early January 2007 that Publicis was about to mount a second takeover bid for Aegis Group were "without foundation," according to a Publicis statement.

Publicis unwound other ventures: Publicis and Dentsu—both 45% owners of iSe Hospitality AG, formed to manage and organize hospitality logistics for the 2006 FIFA World Cup—began dismantling the operation in January 2007 for lack of future contracts. In July 2006, Publicis sold Bensimon Byrne, a Toronto ad agency, to a management group.

Publicis in April 2007 bought McGinn Group, a U.S. corporate communications outfit that took the new name McGinn MS&L. Publicis in April 2007 bought 51% of Yong Yang, a Chinese marketing-services firm specializing in field force logistics and retail and promotional marketing with 29 offices across the country.

Publicis in March 2007 bought Pharmagistics, a Somerset, N.J.-based healthcare direct-marketing agency. The unit was placed in the Publicis Healthcare Communications Group.

Publicis in October 2006 bought Emotion, a Toyko-based event management group that had expanded to Shanghai, Beijing, Seoul, Bangkok, Manila and Singapore since its founding in 2002. The shop was planning expansion to Taiwan and Hong Kong in 2007. Emotion was now under Publicis Events Worldwide, whose agency ECA2 was selected for opening ceremonies at the 2008 Olympic Games in Beijing.

In August 2006, Publicis acquired Moxie Interactive, an Atlanta firm specializing in interactive media advice and buying. Publicis integrated Moxie into the ZenithOptimedia network.

In July 2006, Publicis bought BOZ Group, a healthcare-communications outfit in France.

Publicis' media-sales unit (Medias & Regies Europe) and Simon Property Group formed a joint venture in May 2006 to sell commercial time on screens placed in U.S. shopping malls. The venture, OnSpot Digital Network, delivered high-definition content on about 2,000 screens in 50 Simon malls in 10 major U.S. cities.

In April 2006, Publicis acquired Duval Guillaume, a Belgian advertising and marketing-services shop with offices also in Antwerp, New York and Paris. The agency remained autonomous within Publicis Groupe. In March 2006, Publicis bought 80% of Betterway Marketing Solutions, a Shanghai-based marketing-services agency. The acquisition came several months after Publicis boosted its sports-marketing operation in the region.

In other deals, Publicis in 2006 bought:

--Pole Nord, a French firm focused on internet keyword research. Publicis integrated Pole Nord into the ZenithOptimedia network.

--a majority stake in Turkish communications shops Yorum, Allmedia, Bold and Zone, which together employed 155 professionals. The renamed Publicis Yorum is an ad agency; Starcom Allmedia is a media shop; Bold, a direct shop, became part of Publicis Dialog; Zone, a PR shop, became part of the Publicis Consultants network.

--a 60% stake in Solutions Integrated Marketing Services, billed as the leading marketing services agency in India.

--a 21% stake in Capital MS&L, increasing its investment in the U.K. financial-communications agency to 51%.
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