Publicis chief gloomy on ad market recovery

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Maurice Lévy, chairman and chief executive of Publicis Groupe, said on Wednesday he did not expect the advertising market to recover before mid-2010.

But in spite of the gloomy outlook, the world’s fourth largest advertising group which owns agencies such as Fallon and Saatchi & Saatchi weathered a fourth-quarter slowdown to maintain revenue growth last year.

Revenues increased 3.8 per cent, excluding the impact of acquisitions and foreign exchange movements, to €4.7bn ($6bn, £4.2bn) in the year to December 31 2008.

Fourth-quarter organic growth was 1.1 per cent, in spite of revenue declines in the UK, Spain, Germany, Japan and Korea.

Net income fell 1.1 per cent to €447m, although net debt was down to €676m from €837m at the end of 2007. Omnicom, a larger rival to Publicis, reported fourth-quarter organic revenues down 5.8 per cent on Tuesday.

While declining to give specific guidance, Mr Lévy estimated the advertising market would decline 2-3 per cent in 2009, with the first half weaker than the second.

He added: “I think the market will pick up in the second quarter of 2010 at best.”

Zenith Optimedia, Publicis’ media buying unit, made preliminary cuts yesterday to its advertising market forecasts, and now expects a 1.8 per cent drop worldwide in 2009.

But even in a falling market, Mr Lévy pledged to increase Publicis’ market share. “In 2009 we will without any doubt be the [advertising] company with the best margin on the market,” he said.

Operating margins would be “fairly close” to 2008’s 16.7 per cent, he added, thanks to flexible costs that represent 8 per cent of revenues and savings from moving back-office functions from New York to Costa Rica.

Almost two-thirds of Publicis revenues come from what Mr Lévy called “resilient sectors”, such as consumer packaged goods, although automotive clients make up 15 per cent.

Justin Diddams, analyst at RBS, said he was “a little bit more comfortable” about Publicis’ margin outlook, as it has “done the hard work in making the business more efficient”.

But he queried Publicis’ decision not to raise its dividend, given its strong balance sheet.

The UK faced the steepest cuts in Zenith’s revised advertising forecasts. Having expected growth of 1.5 per cent in December, it now estimates the UK market will fall 4 per cent in 2009.

However, in a separate report released yesterday, the UK’s Advertising Association predicted marketing budgets in the UK would recover from 2010, with growth of between 28 per cent and 52 per cent in the subsequent decade.

Additional reporting by Ben Hall in Paris

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