UPDATE 1-Publicis upbeat for 2012 despite economic worries

Thu Feb 9, 2012 1:45am EST

* 2011 organic growth 5.7 pct, op margin 16 pct

* Dividend stable at 0.70 euros per share

* 2011 revenue 5.82 bln eur vs consensus 5.77 bln

* CEO says aims for stable op margin in 2012

By Leila Abboud

PARIS, Feb 9 (Reuters) - Advertising agency Publicis is confident about its prospects for 2012 despite the volatility of the global economy, which is causing some clients to delay spending decisions and others such as banks and car makers to reduce marketing efforts.

Chief Executive Maurice Levy said the group would aim to grow faster than the overall ad market this year, while keeping its operating margin stable.

"The year will be marked by uncertainty," he acknowledged, adding that Publicis' reach in emerging markets and digital advertising and its focus on cost controls would allow it to overcome the challenges.

Levy said the expected ad spending boost from a trio of upcoming events - the summer Olympics, European football championships and the U.S. presidential election - was likely to be muted by concerns elsewhere about global growth.

"Given that it is a so-called quadrennial year with all these events, the advertising sector should be having a really big year," he said. "Instead we'll probably end up with a good year."

Publicis, which is the world's biggest ad group by revenue and competes with WPP and Omnicom, posted full-year results ahead of expectations on Thursday with organic growth of 5.7 percent.

Annual revenue reached 5.82 billion euros ($7.71 billion), ahead of the average estimate of 5.77 billion according to Thomson Reuters I/B/E/S.

Publicis slightly improved its 2011 operating margin to 16.0 percent from 15.8 percent a year earlier, largely by increasing revenue and limiting restructuring costs.

As the first major ad group to publish results, Publicis' figures and Levy's comments on what lies ahead for the world economy are likely to be scrutinised by investors.

With ad agency performance largely linked to the economic cycle, investors have been wary of the sector recently for fear that Europe's sovereign debt crisis and persistent unemployment in the United States and elsewhere would slow consumer spending.

The International Monetary Fund chopped its estimate for 2012 global growth to 3.3 percent from 4 percent just three months ago and warned it could drop as low as 1.3 percent if Europe lets the crisis fester for much longer.

But some advertising executives and market forecasters remain remarkably optimistic about 2012's growth prospects.

Havas CEO David Jones recently told Reuters that corporate executives he met with were more upbeat than gloomy economic forecasters and that the year could turn out better than many think.

For his part, Levy said January ad sales were good and that it was too soon to tell how demand would shape up for the rest of the year. He said he expected banks and auto makers to face weakness, while technology and telecoms companies spend heavily to position themselves in very competitive markets.

NO MEGA-DEALS

Market research group Zenith Optimedia, which is a unit of Publicis, has forecast 4.7 percent growth for the ad sector this year, up from 3.5 percent in 2011.

For Levy, the ongoing uncertainty meant Publicis must be prudent and agile.

For example, the group has frozen hiring again and is trying to keep a tight rein on personnel expenses, which tend to be high in an industry where top talent often defects to rivals.

While targeted acquisitions in digital and online ads were still on the table, Levy did not expect to splash out on mega-deals this year.

"I don't think we'll see consolidation among the top ad agencies this year; there is no reason for it," he said.

Such prudence, Levy says, will help Publicis keep its operating margin stable this year, after improving it in recent years.

"With the level of margins we've now attained, our goal will be to consolidate those gains, rather than expect further increases because we still want to invest in talent and technology," he added.

Publicis also chose not to increase its dividend for 2011 despite generating a higher net profit and free cash flow, keeping it at 0.70 euros per share.

"We want to be careful," said Levy.

He added that he expected the group's biggest shareholder, Dentsu, to decide in the first half of the year whether it wanted to sell its stake of around 11 percent.

Dentsu has a window starting in July 2012 during which it can sell some or all of the stake it owns or hold onto it.

Publicis has said that it would buy back and cancel the Japanese company's shares, which are worth about 850 million euros at current valuations.

Publicis shares fell about 10 percent in 2011, less than the media index overall, but its shares have recovered to rise 12 percent since the beginning of this year amid a broader market rally.

Publicis shares closed at 39.78 euros per share on Wednesday. ($1 = 0.7545 euros) (Additional reporting by Gwenaelle Barzic; Editing by James Regan)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.