Publicis Hit by Stagnant China Ads as Europe Crisis Spreads
Publicis Groupe SA (PUB) Chief Executive Officer Maurice Levy said advertisers in China, a market that has helped the French marketing company make up for slower growth in Europe, aren’t increasing budgets from last year.
Publicis has made more than a dozen acquisitions this year in markets such as China, India and the Middle East as high unemployment and austerity programs by European governments crimp spending by consumers and companies at home. The economic slowdown in China, where Publicis’s first-quarter sales excluding purchases grew by 15 percent, is now one of his top concerns as the European crisis is spreading to the industry’s more stalwart growth regions, Levy said.
“What we have seen in the market are some profit warnings,’’ Levy said in an interview last week at the Cannes advertising conference when asked about his clients’ marketing spending. “When you have clients facing some difficulties, this is a little bit worrisome.”
Publicis dropped as much as 1.9 percent to 36.24 euros in Paris and was down 1.8 percent as of 12:10 a.m., valuing the company at 6.62 billion euros ($8.2 billion).
Companies advertising in China “have maintained their budget at the level of last year instead of increasing,” Levy said.
Credit Suisse Group AG cut its outlook this month for China’s economic growth this year to 7.7 percent from 8 percent, while Deutsche Bank AG lowered its forecast to 7.9 percent from 8.2 percent. China cut its benchmark interest rates this month for the first time since 2008 as May economic data showed slower growth.
Publicis, based in Paris, is sticking to its full-year forecast, the CEO said. While revenue growth will decelerate in the second quarter, sales in the second half of the year will be better than in the first half, helped by the London Olympics, the company said in April.
WPP Plc (WPP), the world’s biggest advertising company, has also voiced concerns about growth in regions such as Brazil, Russia, India and China. WPP CEO Martin Sorrell told investors this month that he is “increasingly wary” of a slowdown globally, including in the so-called BRIC markets. Still, the fastest increases will come from those countries and his biggest concerns for the industry are around U.S. and European performance next year, Sorrell said.
Publicis’s first-quarter organic sales growth of 15 percent in China compared with 4.6 percent in France and 3.3 percent in North America.
The stock has dropped 3.9 percent in the past year, while WPP gained 0.9 percent and the 28-member Bloomberg Europe 500 Media Index declined 4.1 percent.
The French company’s acquisitions this year include U-Link Business Solutions Co., a health-care communications company in China, and The Creative Factory in Russia. Advertising on mobile devices and social networks, such as Facebook Inc., will also help drive growth this year, the company has said.
China is also in a period of political transition, which adds to uncertainty about the market’s future, Levy said. China’s Communist Party is preparing for a once-a-decade leadership transition later this year when President Hu Jintao and Premier Wen Jiabao are set to step down.
The Chinese government signaled a more aggressive approach to sustaining expansion last month when Wen Jiabao called for more efforts toward stabilizing growth.
“The old guard which will be going and a new team will be coming on board,” Levy said. “It is always a time for changes, but we don’t know how the changes will happen. When you see the situation one can think ‘What’s going on and what will happen to the global economy?’”
To contact the reporter on this story: Amy Thomson in London at firstname.lastname@example.org
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