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Publicis to consider cash return by year end

By Kate Holton

LONDON (Reuters) - Advertising group Publicis could return cash to shareholders this year via a share buyback or special dividend by sticking to a plan of only making small acquisitions, its chief executive said.

Speaking to Reuters during an investor event eight days after a trading update rattled the market, Maurice Levy said he was confident shareholders would keep faith in the French group's ability to improve as the year goes on.

He now expects the world's third-biggest global ad agency to hit the upper end of its forecast range of between 3.2 to 3.6 percent organic revenue growth, due to a strong performance from its digital division, cost control and a program to slowly improve margins.

"We are under leveraged and we have an extremely solid balance sheet," Levy told Reuters at the event in east London.

"We have increased the dividend this year and we plan to continue to increase it. Obviously, we will see what will happen at the end of the year with the generation of new cash flow.

"We will look at the various opportunities and including the fact that we could make share buybacks or a special dividend."

Levy said when looking for acquisitions, he expected the group to focus its attention on faster-growing emerging markets, and that they would remain relatively small.

"In mature markets we believe that we have the right size and we don't plan to have more acquisitions in this field," he said. "We are directing most of our acquisitions in the fast growing markets, both in analogue and in digital fields.

"What we have as targets today, they are all relatively small or medium sized acquisitions."

Publicis shocked the market last week when it reported weaker-than-expected revenue growth in the first quarter, sending its shares down 5 percent and knocking the stock prices of rival groups as it showed the impact of a weak European advertising market on its overall business.

Levy said the second half of the year would see the impact of account wins and some recovery in the healthcare sector.

But he did not expect an improvement in Europe until governments properly tackle their debt levels and public spending, which could take two to three years.

Levy also said he would use the company's investor day to set out his plans for the next five years, including how he expects to increase margins to between 18 to 20 percent from 16.1 percent currently, with the majority of the improvement "starting to take strong shape in two to three years time".

He plans to improve margins by increasing them in the digital sector, containing costs and increasing in scale in some areas.

"We will have difficulties in finding a good trend for growth in Europe, we believe this will last for at least two to three years," he said. "We will have to play the game of market share and fight hard."

(Editing by David Cowell)

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