UPDATE 3-Publicis Q1 sales rise, eyes good growth for year

(Adds CEO comments on bond to analysts, updates shares)

By Dominique Vidalon

PARIS, April 29 (Reuters) - French advertising company Publicis Groupe (PUBP.PA) beat forecasts with a 5.4 percent rise in first-quarter underlying revenue on Tuesday and said it expected further growth in the year ahead.

With net new business of $1.9 billion, the world's fourth largest advertising group forecast "good" revenue growth in 2008, led by the digital and media businesses and emerging markets and a recovery in health communications.

"I am confident but at the same time realistic. We are in an economic climate that calls for some caution ... There are many very positive signs," Chairman and Chief Executive Maurice Levy told a conference call.

Publicis shares gained 4.14 percent at 26.18 euros in mid-morning trade, outperforming the European media sector .SXMP.

Levy, who predicted the second quarter would show improved underlying growth compared with the second quarter of 2007, did not give detailed guidance for the year.

"All I can say is that we should be among the best of the class this year," he said.

Publicis, which expects 2008 to be boosted by the Beijing Olympics, has not seen any signs yet that its clients were changing their advertising plans amid intense international attention over the human rights situation in China.

"Not one single client has changed its plans. We continue to work with our clients according to plans," Levy said.

Publicis also continued to look at small acquisitions in digital, marketing services or emerging markets but had no large deal in sight.

"We are not holding any talks of any nature with any large group," he said.

With no large acquisition in sight Publicis was likely to use cash to repay its 672 million euros convertible bond which expires in July 18, 2008. The bond has a strike price of 29 euros.

"If we are above that price we will have no choice but to let bond holders convert the bond (into Publicis shares). If we are below the strike price we will have a cash reimbursement," he said.

Levy said a cash reimbursement would be positive news for shareholders as it would prevent share dilution and boost the company's earnings per share.

SOLID QUARTER

Closely watched underlying revenue growth, which excludes currency changes, acquisitions and divestments, reached 5.4 percent in the quarter. This beat market expectations for growth of around 4 percent but lagged the 7.4 percent achieved by domestic rival Havas (EURC.PA).

"Publicis achieved a solid but not a revolutionary quarter, helped by an easy comparison base. This should also be the case in the second quarter and this is going to help them short-term," said Exane BNP Paribas analyst Charles Bedouelle.

Exane BNP Paribas kept a "neutral" rating on the stock.

Actual revenue rose 0.2 percent to 1.06 billion euros ($1.7 billion) in the first quarter as a weak dollar weighed. At constant exchange rates revenue grew 8.2 percent.

All businesses and all regions contributed to quarterly growth with the exception of healthcare communications in North America, excluding which growth was 7.5 percent in the quarter.

"Our healthcare communications business, still adversely impacted by the difficulties of the sector, should be back to positive growth before the end of the year," Levy said.

Publicis, which acquired digital ad firm Digitas last year, said its digital business accounted for 18.4 percent of revenue in the quarter. The sector is expected to represent 25 percent of revenue by 2010. Digitas alone had underlying growth of 23 percent in the quarter.

Emerging markets accounted for 21.6 percent of turnover in the quarter, with average underlying growth in China, Russia and India reaching 21.4 percent. (Additional reporting by Cyril Altmeyer; Editing by Sudip Kar-Gupta/David Holmes/Rory Channing)