Shrinking margins hit Publicis

 
Steve Dinneen
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SHRINKING margins and a warning of a final quarter slowdown took the shine off forecast-beating first-half results at Publicis.

A surprise pick-up in European ad spending pushed the French firm to better than expected revenues.

The world’s third-biggest ad group also reiterated its previous annual targets as revenue grew across all regions in the first six months of the year.

The end of a two-year hiring freeze saw costs tick up because of higher salaries, eroding margins by one percentage point to 13.5 per cent. Analysts had estimated margins would improve slightly or remain flat.

Chief executive Maurice Levy said yesterday he expects costs to be lower in the second half of the year and said he is concentrating on improving margins and growing market share.

US rival Omnicom saw 7.2 per cent organic growth in the quarter. The strong sales performance by the two firms bodes well for other large ad agencies like WPP, Aegis and Havas, which are set to publish results in August.

Investors had been watching for clues on how much Europe’s sovereign debt crisis has dented company marketing budgets, as well as for the lingering effects of the Japan earthquake and political unrest in the Middle East.

With ad agency performance largely linked to the macroeconomic cycle, investors have been wary of the sector.

Publicis shares are down some four per cent this year, WPP is down about 10 per cent and smaller rival Havas is down 12 per cent.