Publicis Group Sa S/Adr

Bonjour and welcome to Publicis Group's first quarter 2024 revenue call. I am Arthur Sadoun and I'm here in Paris with our CFO, Loris Nold. I will begin this session by sharing our Q1 highlights. You will see that we are starting this year on our front foot. Then, Loris will provide more details on our number. Finally, I will conclude with our outlook for the rest of the year. As usual, we will take all of your questions together after the presentation. Jean-Michel Bonamy is also here and will be available to take your questions offline after this session. But before we start, please take the time to read the disclaimer, which is an important legal matter. Okay. To sum up this presentation, I would say we had a very strong start to the year. We continue to win market share by sustaining our organic growth momentum with plus 5.3% in Q1 ahead of expectations. This is a good performance as we are resisting despite what is still a very challenging microeconomic environment impacting the entire industry. We are gaining market share by outperforming our peers by 400 basis points on average versus consensus. And we are accelerating on growth compared to our four-year CAGR for the first quarter of 4.3%, on the top of a high comparable of 7.1%. This very good start to the year and the strength of our model mean we are confident and more confident than ever, actually, in delivering on our 2024 organic growth guidance while maintaining industry-high financial ratios. There are four highlights when it comes to Q1. First, Epsilon and Publicis Media continue to be strongly accretive to our performance. Demand for marketing transformation remains high, particularly with the rise of AI and personalization at scale in a soon-to-be cookie-less world. Epsilon was up 6.8% organically this quarter after a double-digit growth in Q1 2023, capturing the continued client need for identity-based media solutions. Media, a third of our revenue, was up double digits again in Q1 after two years of double-digit growth. This was due to both new contract wins and organic growth with existing clients. Second highlight, as anticipated, Publicis Sapiens recorded sequential improvement in Q1 2024 versus Q4 2023 by delivering a modest minus 1.1% this quarter. In the U.S., Publicis Sapient's largest market, we actually returned to positive growth at plus 2.2% in the quarter. This is encouraging in a context where IT consultancies have not yet seen clients resume cap expense on DBT, as recently expressed by the leader of the market. As we said in February, we remain confident that Publicis Sapient will return to grow over the course of the year. Third, creative continued to show its resilience with low single-digit growth this quarter, driven by new business, scope expansion, and a solid performance from production. Last but not least, fourth highlight, all of our regions performed well. The U.S., our largest geography, continued to pose strong growth with plus 5% this quarter, on the top of plus 5.8% last year. Europe continued its positive momentum with plus 6.1% organic growth on a top of plus 15% in 2022 and plus 12% in 2023. The region benefited from strong performances, notably in France and CE. It's also interesting to note that the creative and media in the UK grew double digits this quarter, while Publicis Sapient faced tough comparables in Q1 2023 at plus 44%. In Asia-Pac, organic growth was plus 6.2%, with a very solid China at plus 6.7%, and a strong Southeast Asian performance driven by media. Overall, after outperforming our peers by 500 basis points last year, we are sustaining this dynamic in Q1 by continuing to win market share, expecting to deliver the highest organic growth of the industry for the eighth quarter in a row. Looking at our four-year CAGR, we are clearly accelerating on our growth in Q1 and plan to keep doing so for the rest of the year. I will tell you more about this after Loris takes you through the details of our members.

Thank you, Arthur, and good morning to all of you. It's a pleasure to be with you today. I will begin with the evolution of our net revenue for the first quarter of the year. The group posted a net revenue of €3,230,000,000 in Q1 2024, which represents an organic growth of plus 5.3%. This comes on top of plus 7.1% last year and is ahead of our expectation, as Arthur just explained. Reported growth was at plus 4.9%. We recorded an €18 million positive impact from acquisitions and disposals. This mostly includes the contribution of PRACTIA and CORA acquired in the last 12 months. This quarter, foreign exchange rates contributed a negative 29 million euros, which is equivalent to circa minus 1% of net revenue. This was mainly driven by a negative 22 million euros related to the evolution of the USD to Euro FX rate. Let's move on to the next slide which gives the dynamics of our Q1 organic growth by geography. North America continued to see strong organic growth this quarter at plus 4.8%. The impact of the USD to Euro was a negative 120 basis points on growth this quarter. Together with the impact of acquisition, this led to a plus 3.6% reported growth overall in the region. Europe posted a very solid plus 6.1% organic growth, despite a challenging double digit comparable in Q1 2023, thanks to the strong performances of France and CE. Asia Pacific posted a strong plus 6.2% organic growth, fueled both by China at high single digits, improving from the last quarter, as well as a strong Southeast Asia. Middle East and Africa and Latin America both posted solid organic growth plus 4% and plus 7.8% respectively. I will now detail the performance of each region on the following slides. Let's begin with North America. As I have just said, our operation in the region posted plus 4.8% organic growth in Q1, mainly driven by the U.S. at plus 5% while Canada was stable. Let's focus on the US, representing 60% of group net revenue, where operations grew plus 5% organically, as I just mentioned, coming on top of plus 5.8% for the same period last year. Media and Epsilon continue to be accretive to growth this quarter, confirming the strength of our integrated offer in this geography. Media grew at a double-digit rate this quarter. This was supported by both new business one in 2023 and scope expansions at existing clients, particularly in food and beverage, retail, and healthcare. Creative posted broadly stable growth in this quarter. Publicis Sapient posted a positive organic growth in Q1, sequentially improving from Q4 2023. This performance was particularly solid considering the plus 8% growth in Q1 last year, and the current wait-and-see attitude of clients when it comes to DBT projects and capex spend. Epsilon posted a high single-digit organ growth in Q1, benefiting from a strong contribution from digital media and data driven by ongoing demand for identity-led and first-party data solutions. Let's turn to the performance of Europe on the following slide. As I mentioned earlier, Europe recorded an organic growth of plus 6.1%. The UK, which is 9% of group net revenue in Q1, was slightly positive in the quarter, on top of a high comparable base of plus 24% in Q1 2023. Media activities grew double digit in Q1 2024, like in Q1 2023, driven mainly by global winds of 2023. Creative Activities also posted double-digit organic growth in Q1 2024, fueled by new business wins and scope expansions. Publicis Sapiens, which represents one-third of revenue in the country, posted negative organic growth in Q1 against a particularly high comparable in Q1 2023. As highlighted in the last call, we are still facing delays in DBT projects and CapExpand, as experienced by other IT consulting firms. France, which represents 6% of group net revenues in Q1, posted a very strong organic growth at plus 9.4%. Media posted high single-digit growth on the back of very solid growth in Q1 2023, thanks to scope expansions. Creative activities grew mid-single digits, and publicity sapient was up double digits again this quarter. Germany, representing 3% of group net revenue, posted a mid-single-digit growth on top of double-digit organic growth in Q1 2023. Media grew by double digits, mostly on the back of global clients, which follows double-digit growth in Q1 2023, while creative was soft. Let's finish with Central and Eastern Europe. The performance in the region was very strong, at plus 21.2% organic, as it benefited from global wins ramping up in both media and production. Turning to the next slide where I will detail our performance in the rest of the world. In Asia Pacific, which represents 8% of group net revenue in Q1, we delivered plus 6.2% organic growth. Overall in the region, media grew double digit on top of double digits in Q1 2023. Publicist Sapient posted high single digit growth in the region. China posted a very solid performance at plus 6.7% organic growth in the quarter, sequentially improving versus Q4 2023, largely driven by client wins in media. This is also the case for Southeast Asia, with Thailand, Malaysia, and Indonesia as main contributors. Australia was broadly stable in the quarter. In Middle East and Africa, we posted a plus 4% organic growth in Q1, benefiting from strong creative, mainly led by UAE. Latin America posted a plus 7.8% organic growth, driven by both creative and media, and with Brazil, Mexico, and Chile, largely contributing to the region's performance. On the next slide, you will find the group performance by client industry for the quarter. This is based on an analysis of our main clients representing 92% of our net revenues. It also excludes outdoor media activities and the drugstore. This quarter, most of our client industries recorded positive growth. First, I do want to single out that in Q1, the tech sector, representing 12% of our net revenue, posted a very strong performance at plus 11% growth. This was fueled by a combination of expanded scope at existing clients and new business gains. When it comes to the other sectors, healthcare recorded double-digit growth on top of double-digit growth in Q1 2023, thanks to new business wins across different activities and scope expansion at existing clients. Financial and retail were both down by mid-single digits. Regarding the financial sector, it received a low contribution from Publicis Sapiens this quarter, being impacted by delays in DBT projects in Europe and a tough comparable, particularly in the UK. The retail sector faced a double-digit comparable from last year. And finally, both auto and food and beverage delivered high single-digit growth. Moving to the next slide, net financial debt. The group closing net debt at the end of March was 445 million euros. representing a net cash out of circa 1.3 billion euros over the quarter, showing the usual negative seasonality of working capital at this period of the year. This compares to a net cash out of circa 1.1 billion in Q1 2023. The variation of circa 200 million euros was fully anticipated, first linked to the increase in the total cash payment for M&A in Q1, And second to the change in working capital fully factored in our full year expectations on working capital. On M&A specifically, we are on track with our full year budget of 700 to 800 million euros as announced at our full year 2023 earnings call. The 12 months average net debt was 383 million at end of Q1 2024. This is 180 million euros below end of Q1 2023 level and 49 million euros below end of 2023 level. We are fully on track to meet our average net debt objective for full year 2024 of circa 400 million euros. This concludes my financial presentation and now I give the floor back to you, Arthur.

Thank you, Loris. As you have seen, Publicis is off to a very strong start in 2024. In Q1, we have demonstrated once again our ability to gain market share with an expected 400 basis point gap versus our peers. Since 2019, we grew by 24%, roughly twice as fast as the industry average over the same period. Thanks to the strength of our model, we expect to sustain this very solid growth across the year. Despite ongoing microeconomic headwinds, we are more confident than ever in delivering on our full year guidance and continuing to go twice as fast as the industry average. There are three reasons for that confidence. First, demand for personalization at scale in a soon-to-be cookie-less world continues to increase, particularly with the rise of AI. We are able to capture a disproportionate part of our client investment in this area thanks to our unique data offer combined with our unmatched media scale. We anticipate Epsilon and Publicis Media representing 50% of our revenue to remain very strong and accretive to our growth. Second, we will benefit this year again from new business tailwind. Our unique go-to-market formula connecting data, media, creative, and technology, all powered by AI, has enabled us to top the new business ranking for the past five years. We expect the wins we had in the last 18 months to continue ramping up this year and materially support our overall growth. Last but not least, our agile platform organization means that the growth we will achieve this year won't be at the expense of our margin. Thanks to the efficiencies generated by our country model, global delivery centers, third services, and our platform, Marcel, we are able to invest in our talent and our technology. One example is our roadmap on AI that we presented in January. After spending close to 9 billion euros since 2015 in data and technology acquisition, including Sapient and Epsilon, we are making an incremental OPEX investment of 300 million euros over the next three years. Half will be focused on upskilling, training, and recruitment of our people, and the other half on technology through licenses, IT software, and cloud infrastructure. This investment will allow us to evolve and accelerate to become an AI-powered intelligent system company. Thanks to Core AI, we will be able to connect every data point across all activities, business units, and geographies and put them in the hands of our people to supercharge our client growth. We are on track to launch it, both for ourselves and for our clients, in three steps over the course of the year. This investment will even further strengthen our offer and undoubtedly leading to more market share gains in the year to come. All of this while maintaining the highest financial ratios of our industry. When you look at our organic growth guidance, plus 4% is rock solid. and factor in a continued wait-and-see attitude from clients when it comes to digital business transformation spend, still affecting publicist sapiens like all the other IT consulting firms, more cuts in classic advertising spend as clients reduce certain costs, and a cautious stand on urine adjustment in advertiser budgets. The higher range of our guidance, at plus 5%, is definitely within reach. If we see a faster ramp-up of clients resuming capex spend on DBT projects in the second half of 2024, benefiting publicist APNs, and fewer cuts to classic advertising. In this scenario, we will see an acceleration in 2024 compared with our four-year CAGRs at plus 4.7%, while outperforming our peers for another year despite our tougher comps. This organic growth performance won't come at the expense of our financial ratios. We will continue to deliver industrialized financial KPIs with our full-year operating margin guidance at 18% and free cash flow of 1.8 to 1.9 billion euros. For Q2, we are confident in delivering solid organic growth again in line with our full-year guidance despite high comparables of plus 7.1% last year and ongoing micro-uncertainties. To wrap up, we are starting 2024 on the front foot, sustaining our growth momentum. Coming on top of a high comparable, we delivered a very strong Q1 ahead of expectation. We saw a clear acceleration of our growth compared with our four-year CAGR, demonstrating our ability to continue to win market share. In a still challenging microeconomic context, our leadership in personalization at scale, our new business wins, and our platform organization make us confident to confirm our guidance for 2024. Our expected performance, which is well above the industry average, could show a further acceleration of our organic growth in 2024 versus our four-year CAGR. last but not least we will maintain industry high financial ratios while investing 300 million euros in the next three years in ai to truly become an intelligent system company i would like to thank our clients for their trust and our people for their outstanding work thank you all for listening and now with loris we are ready to take your questions