* Q2 organic growth 0.5 pct on sales of 1.76 bln euros
* H1 2014 operating margin 13 pct vs 13.7 pct in H1 2013
* CEO says failed Omnicom deal had a negative effect
* Strong euro and European slowdown also weighed
* Publicis shares fall 4.7 pct to lowest since August
(Adds detail of Omnicom forecasts, updates Publicis shares)
By Leila Abboud and Gwénaëlle Barzic
PARIS, July 22 French advertising group Publicis
has warned it would be "very difficult" to meet its
sales growth target this year after a second-quarter slowdown,
caused in part by the failure of its planned merger with Omnicom
Organic or self-generated sales growth fell to 0.5 percent
from 3.3 percent in the first quarter, the company said on
Tuesday, below its 4 percent annual target and short of
analysts' expectations, with growth in North America not enough
to offset weakness in Europe and sluggishness in China and
Shares in Publicis, whose global advertising brands also
include Leo Burnett and Saatchi & Saatchi, closed down 4.7
percent at 56.11 euros on Tuesday, their lowest since August
last year, a month after the planned "merger of equals" with
Omnicom was unveiled.
Publicis is the world's third-largest advertising group
after Britain's WPP Plc and its deal with No. 2 Omnicom
was supposed to create the world's largest agency, best-equipped
to compete in the Internet era. They called it off in early May
after a battle for control and divergent corporate cultures.
Omnicom said separately it remained on track to hit its
full-year organic revenue growth target of between 4 and 4.5
percent, after posting higher-than-expected quarterly revenue
Publicis Chief Executive Maurice Levy said the strong euro
was also to blame for chipping away at Publicis's growth,
currency effects having stripped 148 million euros out of
revenue in the first half.
Asked why Publicis was trailing rivals such as Interpublic
, which posted organic sales growth of 4.7 percent in the
second quarter, Levy said that trying to rescue the floundering
Omnicom tie-up had taken up a lot of management time.
"There was a negative effect, which we had somewhat
underestimated, from our intense concentration on the merger,"
said Levy. "But that's behind us now and we are focused on the
Forced to go it alone, Publicis said it was revising its
business plan, unveiled last year, and would publish a new
version by October.
The group will also have to fight to keep key customers,
notably electronics maker Samsung, whose
multi-billion euro contract is under review and may be decided
Analysts began paring back their expectations for the year,
with UBS and Exane BNP Paribas predicting organic growth of 3
percent and Jeffries saying it could be as low as 2 percent.
Publicis' second-quarter sales fell to 1.76 billion euros
($2.5 billion) from 1.79 billion a year earlier, missing an
average analysts' forecast of 1.88 billion, according to Thomson
First-half operating profit fell to 435 million euros from
460 million a year earlier and the company's operating margin
slipped to 13 percent from 13.7 percent.
First-half sales were nearly unchanged at 3.36 billion
euros, while organic growth was 1.8 percent. Stripping out the
effect of the strong euro, Publicis said organic growth would
have been 5 percent.
Speaking at a press briefing, Levy said there was little
Publicis could do to blunt currency effects, since foreign
exchange hedging tools were less effective in the global
advertising business than in other industries and agencies could
not raise prices and remain competitive.
Asked whether Publicis would still be able to deliver its
target of improving operating margins this year, Levy said the
company planned to clamp down on costs so as to "come in as
close as we can to our goal".
The share price performance of leading ad agencies has
varied widely this year. WPP shares are down about 11 percent,
hurt by the pound's strength, while Omnicom and Havas
have fallen about 2 percent. Interpublic has risen 12 percent
largely because some investors see it as a possible takeover
The European media sector as a whole has fallen 3
percent in the same period.
($1 = 0.7395 Euros)
(Additional reporting by Alexandre Boksenbaum-Granier; Editing
by Kenneth Maxwell and David Holmes)