Cash-rich Havas sees weak results

Results posted last week by French media giant Havas underline the seriousness of the economic recession in Europe. Havas, with stakes in Canal Plus, broadcaster CLT and a host of leading advertising and publishing companies , ranks among the top five media groups in the world.

The cash-rich conglom achieved a nominal increase in gross revenues last year of 5.7%, to 28 billion francs ($ 5.1 billion). But most of that was added in the first half. The second half saw a significant deterioration, especially in France, where revenues fell 5.6% in the three months leading to December.

The French advertising market, on which Havas depends heavily, has suffered a significant downturn. The boom years of 1985 to 1990 are not expected to return.

Revenues outside France jumped 21.1%, but this reflects increased investment rather than organic growth. Havas’ major foreign markets, Germany, the Netherlands, Belgium and Italy, are stuck in the economic doldrums.

The profits picture is worse. Havas suffered a 24% decline in net income last year, to $ 149 million, following a 6.2% decline in 1991. Over the previous four years, profits had grown by 100%.

(Included in the profit and loss statement, but not in gross revenues, are the performance of minority holdings in companies such as advertising giant Euro RSCG, publisher CEP and broadcasters Canal Plus and CLT.)

Picture’s not so bleak

Does all this mean that Havas is in trouble? Far from it. The company, which has cash reserves of about $ 545 million, has one of the strongest balance sheets in European media and its subsids dominate their respective sectors. And with no company contributing more than 25% of group profits, its risks are prudently spread.

The market has responded favorably to Havas’ results, with shares hitting around 440 francs from the 368-franc low last October, but still way off last year’s peak of 550 francs. Morgan Stanley and others are still saying buy.

But Havas does have a problem about what to do next. In France, much depends on the outcome of the forthcoming general election.

If, as expected, a center-right coalition forms the new government, it is likely that restrictions on media ownership will be relaxed. Havas would then be expected to increase its stake in Canal Plus, which contributes about a quarter of group profits, and perhaps make a bid for the Bouygues-controlled network TF- 1.

There has also been talk of a share swap with CLT, possibly as a consequence of the renegotiated deal between Havas and GBL.

France, however, is a mature market. Even fast-growing Canal Plus is close to saturation.

Aware of this, Havas boss Pierre Dauzier has set a steady course of international expansion. But at some point he has to attack the English-language market, where his experience, via Euro RSCG in the U.S. and Canal Plus’s investments in TVS and Carolco, has not been good.

It could be that the U.K. will become a perfect target when takeover restrictions on the ITV web are lifted at the end of this year. CLT has already declared its interest in U.K. TV and Canal Plus has reached an accord with BSkyB.

As one French media analyst concluded: “Havas can’t stay as it is. It has to spend that money.”

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