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Publicis posts profit slump, shares fall

French advertising giant Publicis reported a big profit fall on Tuesday and was cautious about its outlook this year, causing its shares to fall sharply.

PARIS: French advertising giant Publicis reported a big profit fall on Tuesday and was cautious about its outlook this year, causing its shares to fall sharply. Net profit for the first half of the year fell by 16.9 per cent to 260 million euros ($351 million), weighed down by the strength of the euro.

Sales were about steady compared with the equivalent figure last year, showing a gain of 0.2 per cent to 3.365 billion euros, but performance slowed sharply in the second quarter. Shares in the group fell by 5.50 per cent initially, recovering mid-morning for a loss of 4.89 per cent to 55.99 euros

Group Chairman Maurice Levy said at a press conference that the effort by management put into an attempted merger with US advertising giant Omnicom, which fell through in May, may have weighed on performance. The merger would have created the biggest advertising group in the world, with 130,000 staff and annual sales of about 20 billion euros, overtaking British group WPP.

Publicis said then that the deal fell through because of deep differences which widened during the negotiations, administrative problems, and an unduly long timetable.

Publicis is an international advertising group and, as such, is an indicator of trends in the economies where it operates since companies are quick to adjust their advertising campaigns to the business climate and their launches of new products. Operating margin, equivalent to operating profit for an advertising group, fell by 5.4 per cent in the first half.

"The first half-year was heavily impacted by exchange rates which had an adverse effect on revenue of 148 million euro," Levy said in a statement. "Growth stalled in the second quarter," owing mainly to the delaying or cancellation of advertising campaigns and "lagging economies in Europe and emerging countries," he said.

"Given the situation in Europe and the slow pick-up in the emerging economies, we prefer to be extremely cautious on growth prospects and prioritise cost control in order to achieve a margin closer to our goal for the full year." In the first half of the year, internal growth by the group was 1.4 per cent and its target for the full year was 4.0 per cent, although this now looked difficult to achieve, the group said.

FIGURES NOT SATISFACTORY

After a difficult year in 2013, the group had achieved internal growth of 3.3 per cent in the first quarter of this year, but this slowed down sharply to 0.5 per cent in the second quarter. "These figures are not satisfactory by our standards," Levy said.

Warning that 2014 would be "a difficult year", he said that this would not undermine the group's medium-term prospects and the business plan up to 2018 was being revised to take account of market conditions and investment needed. The results statement said the group expected to do much better in the second half of the year "with growth picking up smartly as of the third quarter."

In morning trading, shares in the group were down by 4.89 per cent to 55.99 euros. The overall Paris market as measured by the CAC 40 index was up by 0.38 per cent. 

Brokers Aurel BG commented that although analysts had expected a slowdown in the second quarter, the setback was bigger than had been expected. "Its possible that the unsuccessful merger with Omnicom explains part of the disappointment with the first-half figures," the brokers said.

At Bank of America Merrill Lynch, analyst Ruchi Malaiya said: "While this is undoubtedly a disappointing quarter, we believe Publicis can regain some momentum in the second half and use cash to support strong total shareholder returns."

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