July 22, 2014 / 6:27 AM / 4 years ago

UPDATE 3-Publicis warns annual growth target will be hard to meet

* 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 (Reuters) - 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 in May.

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 India.

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 and profit.

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 future.”


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 in September.

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 Reuters I/B/E/S.

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 target.

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)

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