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Publicis Groupe 2008 First Half Results
PARIS (Map) - REVENUE / GROWTH 2nd Quarter 2008 EUR - Q2 Revenue 1,165 million Excl. exchange rate impact (1) 1,272 million - Q2 Organic growth + 5.5% - Q2 Growth excl. exchange rate impact (2) + 7.1% 1st Half 2008 - H1 Revenue 2,226 million Excl. exchange rate impact (1) 2,419 million - H1 Organic growth + 5.4% Excl. Healthcare + 7.1% - H1 Growth excl. exchange rate impact (2) + 7.6% OPERATING MARGIN - 1st Half (H1) 334 million Excl. exchange rate impact (1) 369 million - Operating margin rate 15.0% WORLD NO. 1 IN NEW BUSINESS WITH NET WINS TOTALING USD 3 BILLION - Group net income 192 million - Headline diluted EPS 0.99 EUR (after OCEANE redemption) (1) 2008 at 2007 exchange rates - (2) 2007 at 2008 exchange rates
"The first half of 2008 has lived up to its promise in terms of organic growth, new business and margins.
An organic growth of 5.4% was very good, though we are still adversely affected by the Healthcare sector (growth would have been + 7.1% without Healthcare).
We are gaining market share in digital communications, media and
advertising, as shown by our impressive level of net new business (
We should point out the increasing share of digital, where profitability is improving, but is still below the group's average.
The group's transformation is ongoing. In fact, strategic initiatives
such as the launch of VivaKi, our accelerated expansion in digital
communications and emerging markets, our creative excellence yet again widely
acclaimed in
Very early on we embarked on an adaptation of our group's structures, organization, and services to be attuned to new market conditions. Thanks to this strategy, not only are we able to provide constantly improving service to our clients, but we can better resist downturns in the economic cycle.
In a somewhat depressed world economy, and against a backdrop of financial unease, we have every reason to believe that we can better resist by virtue of our strong positions in high-growth markets and sectors.
We are cautiously and reasonably confident in our expectations for the second half of 2008."
Good performance of the businesses
The first half of 2008 was characterized by a continued deterioration of
the general economic environment. The negative impact of the financial
crisis, the continuing weakness of the US dollar, and pressure on oil prices,
commodities and food products have led to ever-gloomier forecasts firstly in
the US and then in
Despite this very uncertain economic environment, Publicis Groupe performed well in the first half of 2008.
Simplified Income Statement
(EUR million) H1 2008 H1 2007
Revenue 2,226 2,248
Operating margin 334 337
Operating margin rate 15.0% 15.0%
Amortization of intangibles (14) (15)
arising on acquisitions
Impairment (4)
Non-current income (expense) 4 9
Operating income 320 331
Net financial costs (42) (38)
Income taxes (84) (88)
Associates 5 6
Minority interests (7) (13)
Group net income 192 198
Earnings per Share(1) EUR0.94 EUR0.95
(1) Earnings Per Share calculations based on 208,854,265
shares in circulation in H1 2007 and 204,487, 173 in H1 2008. After
redemption of the OCEANE 2008 bonds, headline diluted EPS stood at
EUR0.99 (simulation based on redemption of the OCEANE bonds at Jan.
1, 2008), compared with headline diluted EPS of EUR0.92 at June 30,
2007.
- H1 2008 Revenue
At
Organic growth for the first half-year (after Q1 growth of 5.4%) remained high at + 5.4%.
This growth was achieved thanks to the strong performance and results of
all our networks (Publicis, Saatchi & Saatchi,
All geographic zones reported satisfactory growth, including the US which
achieved 5.5% growth for the period. The situation in
Our digital offering stepped up a gear with the acquisition and worldwide roll-out of Digitas which not only caused this activity to rocket but confirmed the group's position as world leader in this field.
The digital businesses and the emerging markets continue to drive growth and the H1 2008 results have confirmed the efficiency of the strategic decisions taken to reach our goals for 2010, i.e. 25% of our revenue in digital communications and 25% in the emerging markets.
In H1 2008, the digital businesses accounted for 18.8% of the group's revenue compared with 12.7% in H1 2007.
The emerging markets grew 11.2% to generate 22.3% of our H1 2008 revenue compared with 20.3% in H1 2007.
Breakdown of H1 2008 revenue by geography:
(EUR million) Revenue Organic growth
H1 2008 H1 2007
Europe 873 846 + 3.5%
North America 942 1 008 + 5.5%
Asia Pacific 243 235 + 8.8%
Latin America 111 104 + 6.9%
Middle East & Africa 57 55 + 16.9%
Total 2,226 2,248 + 5.4%
- Q2 2008 Revenue
The second quarter saw continued high growth after the good performance in the first quarter.
With consolidated revenue of
+ 6.8% excluding the Healthcare sector.
Breakdown of Q2 2008 revenue by geography:
(EUR million)
Revenue Organic growth
Q2 2008 Q2 2007
Europe 470 457 + 3.8%
North America 476 516 + 5.8%
Asia Pacific 127 127 + 6.2%
Latin America 59 57 + 7.5%
Middle East & Africa 33 32 + 18.8%
Total 1,165 1,189 + 5.5%
- Operating margin & Operating income
The Operating margin was
The Operating margin rate was 15% over the period, above the group's expectations, as in the first half of 2007. This percentage margin factors in the dilution effects of recent acquisitions, integration costs and the rapidly-increasing proportion of the digital business where the average margin is lower despite the fact that it is constantly improving. As such, this stability is a reflection of the continuing progress being made by all entities in cost control.
Excluding exchange rate impact, the percentage operating margin would have been 15.2%.
Operating income stood at
- Net income
Group net income was
- Free Cash Flow
The group's Free cash flow (excluding changes in working capital
requirements) was down on H1 2007 due to the adverse effect of exchange
rates, falling from
If the impact of exchange rates were excluded, free cash flow would have been up 4%.
- Shareholders' equity
The group's share of consolidated shareholders' equity was
- Net financial debt
Net financial debt was
If the average debt in H1 2008 were converted at 2007 exchange rates, the
average debt and debt reduction would have been
- Exchange rate impact
For the purposes of comparison with other firms in the sector who publish their accounts in other currencies, Publicis Groupe proposes the following data:
USD GBP
Revenue 3,406 M$ + 14.0% 1,725 M GBP + 13.7%
Operating Margin Growth 511 M$ + 14.1% 259 M GBP + 13.8%
Highlights of H1 2008
- Strategic Initiatives
- Creation and launch of VivaKi: a major strategic initiative
In January, Publicis Groupe announced its cooperation with Google, a turning point marking the group's faith in open-source systems fostering the expansion of numerous forms of collaboration.
In June, the creation of VivaKi was announced on the occasion of the group's Digital Day. The group thus took a big step forward in its transformation by substantially modifying its organization and business approach in order to provide even better service to its clients while leveraging the sector's high growth.
VivaKi unites the power of Digitas, Starcom MediaVest, Denuo and ZenithOptimedia which, while remaining independent, will roll out new services, tools and partnerships.
By pooling Publicis Groupe's analog and digital media assets, the group has positioned itself in a very original manner, thus gaining a decisive edge over its competitors.
By creating VivaKi, with more than 14,000 people and over
This creation, which is a crucial part of the group's strategy, enables us to:
- better meet advertisers' needs by providing solutions that integrate all communications requirements in an efficient, rapid and up-to-date manner. Publicis Groupe's clients will thus be able embrace the future ahead of their competitors;
- bring together all our study, research, tools and skill-sets (and talent is scarce in this field) with the VivaKi Nerve Center, thereby providing all our entities with access to cutting edge digital solutions;
- leverage VivaKi's size and scale to foster cooperation with the big electronic platforms. In the wake of the Google agreement, several other cooperation agreements have been concluded with digital leaders and these breakthrough agreements will benefit our clients without the need to invest massively in short-lived technology:
- Audience on Demand: building upon Yahoo! Microsoft and Platform A (AOL)
- Mobile Communication: with Yahoo! and our subsidiary PhoneValley
- attract and retain the most talented people (in a market short on supply) through the creation of VivaKi's Talent and Innovation unit. The first steps in innovative thinking have been drawn up in areas such as recruitment, networking, mobility, training and diversity.
- Saatchi & Saatchi: JV with Energy Source (
In addition to the acquisitions announced and completed in the first quarter, we set up Saatchi & Saatchi Energy Source Integrated Interactive Solutions, a joint venture between Saatchi & Saatchi and the Chinese leader in interactive solutions, Energy Source.
- Digitas expansion (
During the same period, in order to broaden Digitas' worldwide footprint,
the Solutions agency in
- Creativity
Once again, the outstanding creative talent of Publicis Groupe has not gone unnoticed.
The group received numerous awards in the various festivals and competitions, such as the highly coveted Grand Prix in Films at the Cannes International Advertising Festival, which crowned a grand total of 101 Lions (including 16 Gold Lions).
At the Clio Awards, the group took the Grand Prix for Innovative Media and 51 Clios in all, five of which were gold awards, on top of an exceptional 81 awards at the One Show.
At all these events, the group was consistently ranked second which, given the relatively small size of the group, gives us a clear top overall ranking.
- New Business: No. 1 worldwide with
Our creative performance, the strong positions of the different networks,
the repositioning of the group and its leadership in the world of digital /
interactive advertising have confirmed the attractiveness of the group's
offering. Publicis Groupe topped the (Lehman Brothers) world rankings in New
Business in the first half of 2008 thanks to a number of very spectacular
wins and a total of some
- Appointments
Further to the creation of VivaKi, several appointments were made:
- David Kenny and Jack Klues, both members of the Management Board, have
become Managing Partners of VivaKi,
- Renetta McCann has become Head of Talent and Innovation,
- Laura Desmond has been named CEO of SMG Worldwide,
- Laura Lang has become CEO of Digitas Worldwide
- Curt Hecht has been promoted to President of the VivaKi Nerve Center
- Events subsequent to June 30, 2008
- Redemption of the 2008 OCEANE bonds
On
In avoiding the potential dilution effect of 23,172,413 shares, this redemption in cash will substantially enhance diluted Earnings Per Share in the second half of 2008 and therefore over the full year as well.
Based on redemption at
To fund this redemption, the group drew down
- Recent acquisitions
- Kekst and Company Incorporated
In early July, the group announced the acquisition of Kekst and Company Incorporated, a top-flight US agency that has received worldwide acclaim in public relations and strategic and financial communications.
- Portfolio (Korea - digital communications)
On
Portfolio, a leading agency in the rapidly expanding Korean market, is joining Publicis Modem, the digital branch of the Publicis worldwide network, to become Publicis Modem Korea.
Outlook
All these initiatives, whether in the form of asset portfolio reorganization, acquisitions or agreements, reflect the group's intention to step up its development in high-growth markets such as digital, media, emerging markets and holistic communications.
As such, figures for the first half of 2008 confirm that the group's strategic options work well: superb growth in media and digital communications, good growth of the advertising networks and excellent New Business.
July has been unfolding well, particularly in light of new accounts won
(Homebase, Holcim, Disney and numerous accounts in the digital business
including Nissan in
The global economy is marked by the financial crisis and the rising prices of oil, food and commodities. Marketing investments are expected to decrease in certain areas such as the automotive and financial sectors.
The second half of 2008 will be heavily influenced by advertising budgets revolving around the Olympic Games.
Forecasts drawn up by ZenithOptimedia in particular suggest that the growth markets and sectors will offset expected slowdowns. At this point in time, Publicis Groupe is on track and should generate good growth in the second half of 2008.
The early signs regarding 2009 confirm the traditional and anticipated slowing of growth in post-Olympics years. The early trends are encouraging for Publicis Groupe.
In the first half of 2008, margins were higher than expected despite the impact of exchange rates and the increased contribution to revenue of digital communications.
The second half-year looks quite similar, the objective being to consolidate our operating margin at their high level in 2008 and 2009.
About Publicis Groupe
Publicis Groupe [Euronext Paris: FR0000130577] is the world's fourth largest communications group. In addition, it is ranked as the world's second largest media counsel and buying group, and is a global leader in digital and healthcare communications. With activities spanning 104 countries on five continents, the Groupe employs approximately 44,000 professionals.
The Groupe offers local and international clients a complete range of
communication services, from advertising through three autonomous global
advertising networks,
Web Site: http://www.publicisgroupe.com
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