Publicis Group Sa S/Adr

Good morning. This is the conference operator. Welcome and thank you for joining the Publicis Group third quarter 2024 revenue conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions by pressing star 1 at any time. Should anyone need assistance during the conference call, they may signal an operator by pressing star and 0 on their telephone. At this time, I would like to turn the conference over to Mr. Arthur Sadoun, Chairman and CEO of Publicis. Please go ahead, sir.

Thank you, Alicia. Bonjour and welcome to Publicis Group Third Quarter 2024 Revenue Call. I am Arthur Sadoun and I'm here in Paris with our CFO, Laurie Snod. Jean-Michel Bonamy is also here and will be available to take your questions offline after this session. I will begin by sharing the main financial highlights of our Q3 and our outlook for the rest of the year. Loris will then provide more details on our numbers. I will conclude with the ambition we have behind our latest acquisitions. As usual, we will take your questions together after the presentation. But before we start, please take the time to read the disclaimer, which is an important legal matter. Let's dive into our presentation. There are three highlights to take out of what has been a strong but also quite busy quarter for us. First, we continue to win market share and delivered plus 5.8% organic growth in Q3, outperforming the industry again this quarter by more than 300 basis points on average. Second, we are upgrading the floor of our 2024 organic growth guidance to 5.5% versus 5%. In Q4, we expect to be able to sustain our momentum once again, even in an environment that has become increasingly challenging since the last quarter. Third, we have consolidated our leadership in influence and commerce, investing $1 billion in the acquisition of Influential and Mars United Commerce. Let me get into the details of our numbers and our guidance upgrades. We posted plus 5.8% organic growth on the quarter. Despite the macroeconomic context, which has not been doing any better, we are accelerating on growth compared to our four-year CAGR of 5.1% in Q3. We continue to win market share for two main reasons. Number one, our new business track record that has been particularly strong this summer and year-to-date as confirmed by JP Morgan rankings, and number two, our ability to capture a disproportionate share of our clients' spend on personalization at scale. Thanks to the unique combination of Epsilon leading proprietary data assets and Publicis MediaScale, These highly intertwined but complementary activities, representing 50% of our revenue, continue to grow this quarter at almost 10% together. In the context of continued client consciousness toward capex spend, as reflected in the result of all IT consulting firms, Publicis Sapient saw sequential improvement despite an anticipated slight decline. Creative accelerated in Q3, delivering mid-single-digit growth, driven by solid momentum on production and new business wins, including scope expansions. We performed well in all regions, thanks to the strength of our offer. The US, our largest geography, once again delivered strong growth this quarter at plus 4%, affirming our number one position in the market. Europe delivered plus 4.9%, accelerating versus Q2 2024. Asia-Pac recorded plus 6.4% organic growth, with a very strong China at plus 12.4%, fueled by our continued new business win, particularly thanks to our best-in-class and transparent media operation there. Second highlight, we are upgrading the flow of our guidance. In Q2, we said that if the microeconomic environment remained challenging for the rest of the year, we would deliver 5%. I think we can all agree that the global context is still very challenging, even more so than in July. But despite this, we are in position to confidently raise the floor of our guidance to plus 5.5% organic growth for 2024, particularly thanks to our new business tailwind. Not only does the new flow of our guidance represent an even stronger acceleration compared with our four-year CAGRs at 4.7%, it also means that we will deliver another year of our district outperformance. These guidance take into account the current macro uncertainties that affect client spend, that still weigh on publicist sapient like other IT consulting firms, and that would impact client end-of-year adjustments. Achieving our previous floor of 5% would have been a strong performance. Now, delivering 5.5% would be an even greater accomplishment. Going beyond that would require an improvement in the macro in Q4, which I think we can all agree no one sees today. When it comes to 2024, not only should we outperform on growth, but we should also continue to deliver our industry-leading financial ratios. We confirm our operating margin guidance of 18% as well as our free cash flow expectation of 1.8 to 1.9 billion euros while sustaining our industry high bonus pool and investing 100 million euros in our AI plan. I will now leave the floor to Loris who will take you through the detail of our numbers. I will then come back to share with you the ambition behind our latest acquisitions.

Thank you, Arthur, and good morning, everyone. Let me go into the details of our Q3 net revenue. In Q3 2024, net revenue was 3 billion and 423 million euros, up 5.6% on a reported basis. This includes plus 5.8% organic growth, which comes on top of plus 5.3% organic growth in Q3 2023. A net negative impact of currency of 1.2 percentage points due to the depreciation of USD and the Argentinian peso, partly mitigated by the increase of the pound sterling versus euro. Finally, a contribution from acquisitions, net of disposals of 1 percentage points, mostly reflecting the revenue of Spinnaker and AKA Asia, but also influential EnMars. Let's move on to the next slide, which shows our Q3 net revenue by region. North America remained strong this quarter, up 5.3%, including plus 4.7% organic growth. There was a negative impact of USD versus Euro, more than offset by the contribution of acquisitions. Europe recorded 5.6% reported growth. Organic growth was robust at plus 4.9%. There was also a small positive impact of the pound sterling versus Euro. Asia Pacific posted a very strong plus 6.4% organic growth fueled by China at double digits. Middle East and Africa and Latin America continue to perform very well with plus 13.6% and plus 30.3% organic growth respectively, the latter being impacted by the depreciation of the Argentine peso versus Euro. Let's get into more details for each region starting with North America. The region was up 4.7% in Q3. In the U.S., the group's largest geography, all activities continued to perform well, delivering 4% organic growth, with the combination of media and epsilon growing high single-digit. Creative activities were up mid-single-digit, driven by new business wins and scope expansion. Publicity Sapiens posted a slight organic decline, due to the continued wait and see attitude from clients. Let's turn to the performance in Europe on the next slide. Europe recorded plus 4.9% organic growth in Q3. The UK, which is 9% of group net revenue, was down 2.6%. Media and creative together were up low single digit after three years at double digit, accumulating plus 42% in organic growth since Q3 2020. while Publicity Sapient remained impacted by delayed DBT capex and a challenging comparable, particularly when it comes to retail. France, which represents 5% of net revenue, posted a plus 7.3% organic growth in Q3. Media was a double digit on top of double digit growth in 2023. Creative was a low single digit, while Publicity Sapient was softer on the back of double digit organic growth last year. Germany, which represents 3% of our net revenue, posted plus 7.6% organic growth, driven mostly by media. Lastly, our operation in Central and Eastern Europe continued to grow strongly, posting a plus 19.1% organic growth on top of plus 15.9% last year, fueled by Poland, Romania, and Hungary. Turning to the next slide for our performance in the rest of the world. Asia-Pacific, which represents 9% of group net revenue, delivered plus 6.4% organic growth, driven by media activities which were up double digits. Importantly, China remained very strong at plus 12.4% organic growth in Q3, sequentially accelerating plus 7% in Q1 and plus 11% in Q2, still largely driven by market share gains and despite macro uncertainties. Middle East and Africa posted a strong plus 13.6 organic growth, largely driven by media activities and publicity sapiens growing double digit. Latin America posted a plus 30.3% organic growth, driven by both creative and media activities, in particular in Brazil, Mexico, and Colombia, as well as Argentina, partly due to inflation. On the next slide, you will find the group's performance by client industry for Q3. Again this quarter, seven sectors out of our top 10 posted positive growth. The tech media telecom sector, which represents 13% of our net revenue, continued to perform very well at plus 9% in Q3 2024, after plus 11% both in Q1 and Q2. healthcare recorded double-digit growth on top of double-digits in Q3 2023, thanks to new business wins across different activities and scope expansion with a number of existing clients. Retail was slightly down due to the lower contribution from publicity section this quarter, being impacted by delays in DBT projects in Europe and a top comparable, particularly in the UK. And finally, auto posted positive growth despite a challenging context. Moving to my last slide, net financial debt. Net debt was 1 billion, 710 million euros at the end of September, up 1.6 billion euros in Q3. The increase is due to dividend paid in cash to our shareholders for 0.9 billion euros, acquisition for circa 1 billion euros, and all partly offset by free cash flow generation, including change in working capital. Change in working capital improved versus Q3 2023, in line with our objective to deliver an outflow of circa 200 million for the full year of 2024. Average net debt on the last 12 months is 406 million euros, down 45 million euros versus average net debt at the end of September 2023. This concludes my financial presentation, and I now give the floor back to you, Arthur.

Thank you, Loris. As you have seen, we had a very strong quarter, and we feel confident in raising the floor by guidance, despite what is an increasing microeconomic headwinds. Q3 was also very busy on the M&A front with the acquisition of Influential, the world's largest influential marketing platform, and Mars United Commerce, the number one independent commerce marketing company. This investment of circa $1 billion not only brings to the group two unique assets in high growth segments, it also further reinforces our model. We want to take five minutes to tell you more about how our media model is evolving with the rise of AI, the acceleration of personalization at scale, and our two latest acquisitions. At a time where platforms, but also influencers and digital commerce are completely rewriting the marketing rules, brands now have three imperatives to succeed. Be across hundreds and thousands of media channels at the same time with custom content that fits every screen. Show up less like an ad and more like a real conversation using influencers and to recommend their brand as they are rich now rival with some of the biggest publishers. And keep up with the new shopping experiences online and offline and pay to play to show up on the digital shelves at the speed of commerce. Because media, creators, and commerce have all developed their own siloed and fragmented ecosystems, and the walled gardens have made their wall even higher, marketers are now at risk of losing control on their client relationships and being unable to link their marketing investments to business outcome. At Publicis, we have been solving that challenge by developing a connected media ecosystem. We have invested in new capabilities to take clear leadership on those three areas. We have connected them to Epsilon Identities, all while building this ecosystem transparently and directly in our clients' own environments. Let me break that down for you. For the last years, we have been investing in new capabilities to lead in fast-growing own media segments like CRM. but also in paying media, giving brands the power to choose the channel and screens that matter to them. We have made publishers addressable at 90% to deliver products like Lyft, our connected TV offering, and have formed exclusive partnerships with the different platforms leveraging our unmatched media scale. Then we doubled down on commerce with the acquisition of Citrus, then Profitero, and finally Mars United. Today, we can give our clients a 360-degree view of purchase journeys and opportunities to influence shopper behavior. They can reach their prospects and make their products consumer top choice across millions of physical store shelves and 700 global retail websites. Finally, we are accelerating on creators. They are the newest media channel that captures attention across audiences. We are talking about an addressable ad market in the U.S. of $30 billion today, which in the next three years will exceed the $59 billion currently spent on linear TV. With Influential, we bring 4 million creators, including 90% of global influencers with more than 1 million followers and 100 billion data points. This allows brands to find and activate the creators who resonate most with the shopper that will drive their growth. Second, we are connecting these three areas of expertise to Epsilon's world-class first-party database that holds knowledge of 2 billion consumers at an individual level around the world. We are now in position to truly deliver personalization at scale. Let me give you an example. Meet Lauren, who is one of Epsilon's 270 million individual profiles in the U.S., Thanks to identity, we know who she is, where she shops, what she buys, where she buys it, who she follows, and what she watches through a single identity profile. And by connecting this identity to our three media expertise, Brian can connect with her through the media she really cares about, the influencer she's following, and the platform where she buys. Our clients are available to link marketing investments that they are spending with Lorraine directly to business outcomes. And they can do that with millions of different Lorraines thanks to AI. Third, we make sure that this connected media ecosystem is built in our client environments and transparently based on four principles. The first is clean data. We responsibly and transparently manage our client data. We never use one client data for another or to enrich our own data. Second, we are committed to a clean Internet. We have zero tolerance for garbage media, even if zero incidence is impossible. And we add daily to our block list of over 1 million sites. Third, we practice clean trading every day in every geography, by the way, from the U.S. to China. All of our clients using our platform are directly opt-in, sometimes a single opt-in, sometimes a double opt-in, even sometimes a triple opt-in. Last but not least, we operate clean performance measurements. we report in net revenue, not in gross. This means that there are no pass-through costs inflating our gross. For instance, our U.S. principal media activity represents less than 1% of our net revenue. To wrap up, if you take a step back, our revenue streams give you a clear idea of our current dynamic and the model we are executing. Today, our connected media ecosystem, composed of Epsilon, our media capabilities, and our digital experience agencies, represent close to 65% of our revenue. It will continue to be strongly accretive to our goals this year and beyond. This ecosystem is fueled by intelligent content, thanks to our creative agency and production studios accounting for circa 20% of our revenue. And it is powered by Sapient technology, which represents 15% of our revenue. We believe this model fits the new marketing rules and responds directly to our client needs, as you can see, for example, from our sustained new business momentum. It actually makes us confident to continue to outperform the market in the coming years. Voilà. In what is a more challenging than expected microeconomic context, PwC is actually accelerating in 2024. We continue to win market share in Q3, delivering a very strong 5.8% growth on the top of an H1 at plus 5.4%. Going into Q4, we are planning to keep the momentum. until the end of the year, and we are actually upgrading the floor of our full-year guidance to 5.5% ahead of our four-year CAGR at plus 4.7%. We completed two strategic acquisitions with Influential and Mass United Commerce, which will be a critical addition to our go-to-market, making us confident that we will continue to outperform the industry in the year to come. I would like to thank our clients for their trust. and, of course, our people for their outstanding work all around the world. Thank you all for listening, and now with Loris, we are ready to take all of your questions.

This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Laura Metaier with Morgan Stanley. Please go ahead.

Bonjour, Arthur and Maurice. Thanks for taking my question. Two questions, please. First one on the creative business. So it accelerated to mid-single-digit press and growth this quarter from low single-digit, I think, in previous quarters. Could you talk in a bit more detail about the drivers behind this?

Hi Laura, you want me to start directly with this one or you want to ask the three questions first?

Hello? Hello? Sorry, her line got disconnected.

Okay, so maybe we go to the next question and we're going to take Laura's back because I definitely want to answer at least our first question, but I'm going to wait for her to be back.

The next question is from Nicholas Langley with BNP Paribas. Please go ahead.

Good morning, everyone. So I've got three questions. The first one, can you give us an update on the tone of conversation you had with your clients recently? And if you have any specific comments regarding the automotive segment, which is going through a difficult period, that would be April. Secondly, on Sapiens, so we see mixed signals from your peers. Based on your pipeline and recent discussion with clients, do you expect to return in positive territory as soon as Q4? or it's more H125 story. And finally, in terms of mid to long-term outlook, you have been growing above 5% for various quarters now, and that despite Satyen being negative. You also closed those Bolton acquisition and fast-growing segments. You sustained investment in tech and data. So with that in mind, should we consider the 5% plus we have seen in recent quarters as the new normative organic growth for Publicis in the midterm? Okay.

Wow, a lot to unpack here. So I'm going to start with the client, then go to Sapient, and then I'll come back on the guy then. So where can I start? I mean, last time we talked in July, the macro was not great. I would say that in many cases, it has gone worse, not better. It's not true for every industry, but in general, and I guess you are starting to see that with a different publication, it is a challenging time. Now, I think the tone of our client is still a tone of confidence because everyone has understood now that it's all about business transformation and making sure you adapt to this new world, I would say. And that's the case, to come back to your point, on the automotive sector. I mean, as you have seen in Laurie's presentation, the automotive sector is actually still growing for us. Here today, we are 4.2%. And the truth, to come back to your question, Nicolas, is that we are used to see ups and downs in industry, which come back to my point about the tone. Sometimes it gets better. Sometimes it gets worse. What really matters is a commitment to transform, which is at the heart of our own business. proposition. Eighteen months ago, we were saying that the tech was down and suffering. We are double digit growth on tech this year. It's true that for auto, there are some challenges, but I think there is a good news with auto is I think we can all agree that people will not stop using car anytime soon. So Well, what will happen with car manufacturers is what we have seen in many other industries, which is they're going to go faster and deeper into their own transformation. And where we are positioned today in terms of capabilities, model, and relationship actually put us in a strong position. So, again, I think there is very good reason to be confident. And, by the way, we have shown in the past that it's nuts because some categories are declining, that our business is not growing and outperforming. So we feel good about that. Sapient, it's a great question. You know, it's always important to put Sapient back in perspective because the least we can say is that when Maurice Lévy decided to go to technology with Publicis, I would say almost a decade ago, it has been challenged by the market at the time. And it happens now to demonstrate that the vision he had at the time is exactly the same. where the market is going. This is why, when you look at the repositioning we did with Sapient, actually exactly five years ago, and we announced it to the market at this time, in the last four years, Sapient has been growing 30%, which is, of course, very material. And what is even more interesting, and come back to your question, Nicolas, is that last year, where most of their peers, all the system integrators were negative, we actually grew by 3%. Coming from 19% in 2022. So it gives you an idea of the dynamic we've been there. Now, you're right. We are coming back to clients in this case on business transformation. There is a wait and see attitude that we clearly see. It doesn't mean that they are not committed to transform. So we are starting consulting projects. We are winning pitch. We are not losing clients. But at the moment, when it's about heavy capex investments to truly transform, there is this kind of redundancy attitude that we see again with all IT consulting firms, as you just said. The good news is, if it's a good news, yes, I think it's a good news, but of course we're expecting way more. Publicis Sapiens this quarter has improved sequentially. And by the way, to come back to your question, even with the Publicis Sapiens performance as it is, we are confident in upgrading the guidance. I'm going to come back to that in a second. But honestly, there are two things that I will take out of Sapiens. First, I think it's interesting to see that publicis group growth is way higher than all of those system integrators. And second, the fact that we are extremely confident on what the capabilities of Sapient can bring to our clients, but also to ourselves, to be honest. As you know, we used this year where there have been a slowdown with client and Sapient to do our own AI transformation. We are going at a very fast pace. It's very promising. Hopefully you saw it in the media presentation we just did, but it's also true for what we do in creative, particularly with production, and I'll come back maybe on that later when Laura will be back, and also in the way Sapien can position itself. I mean, AI is going to disrupt companies that have huge headcounts delivering basically code. This is not where SAPIENT is. It's on high-end services that should take advantage of this transformation. On the guidance, let's be clear. We're not going to give you a guidance for next year or now. What hopefully you have understood from the presentation that we just made is that because of our new business track record that we play next year, by the way, everything you see now is for next year roughly, because of our revenue streams, and we wanted to spend a bit of time to explain to you that 65% of our business that is kind of connected media ecosystem, very attractive to our growth, 20% with creative and what we call intelligent content, which is creative and production, and sapient means a very good revenue mix. And our platform organization for our margin make us confident to outperform. But as I've got you on the line, and maybe to step back on the guidance we just presented, which I think – It's also a reason for our confidence and hopefully for yours, because when you look at Q3, the real big news is the fact that we are actually able to say, OK, the micro remains tough. And actually, we believe has even deteriorated since Q2. But we feel very strong on our feet for the rest of the year. And we are now in position to sustain the momentum of the previous quarter, getting into Q4. Maybe I will come back on the detail of the guidance later, but I don't want to take too long. I want to make sure we take all the questions, but this is where we are today. Thank you.

Next question is from Laura Metier with Morgan Stanley.

Hi, sorry, I got disconnected earlier. So my first question was on the creative business. What drove the acceleration this quarter? Is that sustainable? And also in the light of more Gen AI tools being used, how are conversations with clients evolving in the creative business? And then secondly, could you give us an update on Epsilon outside of the U.S.? How is going what you've achieved recently and what are the next goals for Epsilon outside of the U.S.? Thank you.

I'm taking notes. So, I'm still outside of the U.S. I will let you give a couple of things and come back on that. But I'll take your question on creative. First of all, I was afraid that we were the one being disconnected. So, I'm sorry you lost us. But I was a bit reconforted when I thought it was you and not us. We're happy about our performance on CreativeNSC. and there are three reasons why I guess we are growing like this. The first is new business activity has been pretty good. Let's be clear, there is way more media pitch and creative pitch, but way more, for a very simple reason, by the way, which is a good reason. A good and a bad reason. The bad reason is media and the media landscape has been changing way faster than the creative landscape. And so, agencies and clients had to adapt to this new model that we just presented, which create more opportunity. On the creative, although there is, you know, digitalization, socialization, everything you want, we haven't seen so much transformation versus what we have seen in media, which means that there is less pitch, because the good reason there, and again, it's true for us, but true for others, You do great work when you create a long-term relationship with your client and you trust each other. And the good news is many, many advertisers, when it comes to creative, believe that it's better to stay with this agency and sometimes change the people than change the agency, and we love that. There are some clients here, and as we are in France, you can think about a couple in France, that started to work with Marcel Bluestand-Blanchet, then worked with Maurice, and still working with me now. So we like that. Now, the reason why we are growing is threefold. As I said, new business, for sure. Second, client expansion, because it's not because they are not pitching, that they are not distributing the work differently to their best partner, and we are taking advantage of that. And third, which comes back to your generic question, production. production is a big topic and you need to distinguish two things into production you need to distinguish production studios using ai to deliver more content faster more agile cheaper and of great quality and we have made huge progress into that and we're gonna unveil even more innovation beginning of next year and then what we call the production backbone which is how you link the data with the media and the content to truly deliver personalization at scale and there we have a huge advantage is that not only we are leading in terms of production capabilities but also we have sapiens who can as a system integrator truly help us build this kind of backbone for our clients so yes I think there is a lot of work to do and I think the industry should be very humble when it comes to production because there is a lot of work to do to truly connect the data with the content. But this is a very big source of growth for the market in general and for us in particular if we do it right. You want to talk about Epsilon a bit?

Yeah. Hi, Laura. On Epsilon outside of the US, I would make three comments. The first, to answer your question around the growth profile, I mean, it would come as no surprise that we're starting off a much smaller base, so it's growing outside of the US much faster than in the US. But more importantly, our ability, as you know, to connect and grow Epsilon in key markets like the UK, like China, and a few of those large markets outside of the U.S., has been driving a lot of the new business momentum that you've seen in the last 12 months. So it's a big priority for us. And speaking of which, and that's the third point, is when we look at the acquisitions that we have in the pipe, many of them are focused on driving geographic expansion for Epsilon outside of the U.S. So big priority, growing much faster than the U.S., and obviously helping us a lot around your business.

I think what you hopefully have seen in the presentation we made is that we have a unique capability to connect the data with paid media, with commerce, and with influencers. And coming back to Epsilon outside of the US, the great news is we can build Epsilon data stack on the back of our publicist media operation. and truly accelerate. This is one of the reasons why, by the way, epsilon number and publicist media number are so intertwined now, is that, as I said in last call, sometimes we favor putting epsilon at the service of publicist media to transform an existing client or win a new one than the own growth of epsilon. What matters at the end is this double-digit growth we are delivering on both, not only in the U.S., but also the progress we are making outside of the U.S. Thank you very much, Laura, and I think we can move to the next one. Merci beaucoup.

Next question is from Connor Ossie with Kepler Shiver. Please go ahead.

Yes, thank you. Thanks for taking my questions. Three questions for me as well, hopefully quick questions. Firstly, can you give us a sense of the contribution from new business winds to the organic growth in the third quarter, particularly in the healthcare sector, and when that might run out, given what you can see in terms of the existing Second question in terms of sector spend. I noticed that the food and beverage sector slowed quite a lot in the third quarter. I think it was flat versus plus 6% in the first half. So can you give a Give us some sort of color on that. And then the final question, just on Sapient, minus 1.1% organic worldwide, I think. Can you just give a sense of whether that number was, I guess, slightly lower or in line in the North American business standalone? Thank you.

okay i'm going to let loris take the beverage question and the satin question but i'm going to start with the contribution um you know if you look at a new business contribution on average is between 100 basis points and 200 basis points roughly uh i would say when you look at the tailwind and the reason why of our confidence it is closer from 200 basis point which is roughly a third of our growth okay i think what is very interesting if you take a minute is to look at the JP Morgan reports, okay? Not only year-to-date are we doing three times better than the second-best player in the industry, but even when you look at Q3, we are doing the double, right? of the second knowing that it is in Q3 that those two big pitches that I won't name and that we did not participate landed. And so to come back to your question, we are of course expecting the same kind of tailwind for next year because everything we have been winning recently will have an impact for next year. Now, I have to make one comment here which is very important. If you ask me, the thing that I'm the proudest of is not Our new business rate win is our retention rate because it's great to win clients, but it's even more important to keep the loyalty of your existing clients. It actually demonstrates that you continue to build with them what will be their future and their ability to grow.

Just quickly on the food and beverage industry, you're right, Conor, to say that it was flat in Q3. But year-to-date, it's up by 4.1%. And also, let's not forget that this was the second fastest growing industry vertical last year where we delivered more than 20%. So you have a very high comparable. Yes. it's still performing pretty well from our perspective. On Sapient in the U.S. specifically, the situation remains the same as Arthur described, so we're still slightly negative.

Maybe I can add one point on the CPG, and it's a conversation we had a year ago. The great news on CPG is that it was one of the last categories that was still relying a lot on cookies. uh because they are selling product with a very low average price they now realize would it be to manage their portfolio that getting into identity is truly important and that again give us an advantage let's be fair to our competition some of them have been investing in identity in the last years and good for them and i think good for the industry but that's going to be very interesting to look in the coming years great thanks

The next question is from Adrian de San with Bank of America. Please go ahead.

Yes. Good morning, everyone. This is Adrian. So a few questions, if you don't mind. First, if we can kick off on principal media buying. There's been a fair amount of debates in the last few months about this practice. I think even there was a commentary made by someone about potentially some companies using black box models. Very kindly, you framed us how big this is for you in terms of revenue, but I'm curious to what extent you think that's driving growth and market share gains, the fact that you do principal media buying. That's the first topic. The second topic is you've raised your guidance on revenue twice. We haven't seen much of an increase on the operating margin. Obviously, you're not a high operational leverage business, but I'm just curious, like, which areas are you investing in? And then thirdly, I'm just curious if you think that this year in 2024, the elections in the U.S. are having any sort of unusual impacts on your business compared to previous elections. Does that add more uncertainty than usual to Q4? Is that the normal uncertainty, I would say? Thank you.

Thank you, Adrian. Again, a lot to unpack. I'll start with your first question on principal media buying. I guess when you talk about commentary from some, you are referring about the comment that WPP made in Q2, where they talk about a black box in the U.S. in the market, right?

That's right, yeah.

Yeah? I guess it is. So what can I tell you about that? First, and maybe more importantly, not only we don't as publicists operate black boxes, but I can safely tell you that it is the same for our peers. I was surprised to hear this black box comment that I haven't heard for a while. But if I come back to your question and what you're saying, I will make two specific comments. The first is it would be wrong to say that this media platform and this principal media buying is the reason for our performance. I gave a number in the presentation that I can repeat for you. Our principal media activity in the US entire represents less than 1% of our net revenue. So as you can imagine, it is not the reason for our growth. Now, it is not because it's not the reason for our growth that it has not to be transparent. And I think it's very important to note that those media platforms have nothing to do with the black box. As I said, they work on an empty basis, client by client, which means that there is no client that can go into our own platform if it doesn't ask for and sometimes two times or three times. We never, ever use our client data for another client or, by the way, for ourselves. And as we said, we have zero tolerance for garbage inventory, which is garbage media. No, just to close on this one, as I said, I was very surprised by this WPP comment. I mean, it's exactly five years ago, for those who were already on that call, we made a very strong profit warning, and we said we have our own things to fix. We have a plan. We're going to put it on track. We were confident about what was coming. But, again, at that time, the least we can say is that I was a CEO under pressure. So I know what it is. And honestly, I don't think that throwing stones at competitors or, by the way, predecessors will help neither WPP nor the industry. Maybe we're going to move on the margin, and then I'll let you say a word about the U.S.

Yeah, Adrian, just to step back, I mean, in 2024, as you know, we anticipate maintaining the best financial ratios of our industry. and the operating margin of 18%. And just to remind you, the 18% includes roughly 100 million of incremental OPEX to finance our AI strategy and investment as we introduced in January. Investment in our talents and new business ramp up and what should remain in the three high bonus pool as in the past year. So in that context, we've clearly proven our ability to create operating leverage and elasticity in our cost base. We said repeatedly that our cost base is first and foremost at the service of our top-line growth, but going forward, we are continuously looking at areas where we can extract more efficiencies thanks to both the acceleration of our focus on automation and delivery. So when it comes to 2025, it's too early to say, but as we've said at the launch of our initiative, the 100 million euro investment of 2024 should be slightly accretive on 2025 margin.

On the US?

On the election in the US, it's a very simple answer. As I think we've mentioned before, we expect no impact because we're not involved in any political campaigns. So it's obviously not impactful for us one way or the other.

But I would say that's an important one. I would say that this is an important one because every four years we are asked to participate in those elections. It would have represented an increase of our revenue, but we have a code of conduct called Janus that prevents us from doing these kind of things for always, I guess, and of course we stick to it.

Thank you both. I guess my question was more on the other advertisers. Does that create additional uncertainty for your regular clients, those elections?

Q4 is always a quarter of adjustments to start with. There is a risk for instability depending on how the election will go. And, again, I think that the most important news you should take out of this publication is that our model is strong enough and our new business, Telwin, are strong enough to feel confident that despite all of this uncertainty, we will actually deliver and actually over-deliver versus what we said in July, which, again, was not expected in July.

Thank you.

Thank you. Merci.

The next question is from Tim Nolan with Macquire. Please go ahead.

Good morning, Arthur and Lois. I've got a couple quick follow-ups, please. Firstly, on the principal media question, you mentioned that it's less than 1% of net revenue. Just curious because your pass-through revenue as opposed as a proportion of your net revenue is quite a bit larger number than that. And I think that includes production and media costs and out-of-pocket expenses. So just to be clear, the less than 1% of your net revenue from principal media buying, does that mean of the pass-through revenue, those other items comprise a much bigger proportion of that number? And secondly, in the past you've given an Epsilon-specific growth figure, and I see a number of Epsilon plus media being up 10%. I wonder if it's possible to split out Epsilon versus its contribution to your media business. Thanks.

Thanks a lot. I'm going to take the epsilon question. And it's a great question, Tim. So, again, if you look, and I don't know if you were there. Yeah, I guess, of course, you were when we did the acquisition. When we made the acquisition, we said we're going to grow between 0% and 3% when we put things back on track. Organic growth has been double-digit for the last three years. So, hopefully, we all have to demonstrate the value and the dynamics that is there. Now, As hopefully we have demonstrated during the presentation, Epsilon and Publicis Media Operations, as I said, are now totally intertwined and at the heart of our connected media ecosystem. So the truth, and we can give you the number, of course, is that neither the low single-digit growth that we were anticipating this quarter for Epsilon, nor the very strong double-digit growth of media, truly make sense on their own. This is what I explained for international. You have to look at them together, because what we are looking is for the overall growth, and sometime we will favor a new business, versus maybe a product that we can sell. We will allocate resources to a specific client where the revenue is with Publicis Media. This is the beauty of the one P&L, by the way, is that we know how to reward our people based on the overall performance and not on a single performance. Once I've said that, again, when you start to look at things like this, you actually see that we have been delivering double-digit growth year-to-date And for three years in a row, when you put those two together, and I would say even more importantly for us, and this is why it's very difficult to distinguish now, this is the reason of our number one position in new business, I would say since 2019. If you remember the win we were having in 2019, despite the fact that we were in a challenging position as an organization, we were able to win thanks to Epsilon data connected to Publicis Media. There were no revenue for Epsilon, but it was allowing Publicis Media to start and continue to grow pretty strongly and made a difference. So it's true that now it's really connected. Loris?

Yeah, on the question of pass-through, Tim, so if you break down pass-through cost, you have media, you have production, you have experiential, and you have a few other items. But when you start moving from gross revenue to net revenue, the share or the impact of media becomes much more reduced because you're moving to the margin contribution in net revenues. So obviously, as you are at the gross revenue level, you have a much greater impact of pass-through coming from media.

Thank you, Tim.

Okay. Thank you.

The next question is from Silvia Cuneo with Deutsche Bank. Please go ahead.

Thanks. Good morning, everyone. I would also like to ask three questions. The first is a follow-up on media and Epsilon, where you highlighted the strength of the combined offering, particularly in North America. And I wanted to ask if you could share your thoughts about the sustainability of your competitive advantage versus BAs in this area, and update us on the potential new business pipeline ahead. And secondly, given the significant investment in Influential and Mars United, what are the key integration milestones for up to next year? And if you could comment about the contribution these acquisitions would have to growth and potentially also from a margin standpoint. And then final question on personalization. If we look at slide 30 where you unpacked your model in connected media, intelligent content, and technology, can you please share your thoughts about how this split could evolve as you push on more personalization at scale? Thank you.

Sorry, I was taking note because there is a lot here again. And by the way, a lot is contained in the presentation we made, but I'm going to try to make most of the points. First, I mean, our connected media ecosystem in the U.S. is strongly accretive to our business overall because there are two markets, I'm sorry for the other one, that are pretty, if not very advanced when it comes to marketing transformation. It is the U.S. and China. And by the way, we didn't talk about China, but when you look at that 12% performance in China versus our competition, you understand that we are winning market share basically thanks to our model, and by the way, the transparency of our model. But coming back to the U.S., we believe it is, of course, very sustainable, and it has been already for more than five or six years because, again, we are leading in capabilities. And that comes back maybe to your second question is, And hopefully you see that, by the way. We said we're going to move to Bolton Acquisition that are going to complement what we have done with Epsilon and will help us to build this connected media ecosystem. And in order to continue to outperform, not only we are winning in new business, but we are adding capabilities like Mars that can actually continue to outperform in the US and in other countries. And so to come back to your Mars question, The thing that you are all experiencing with your mobile at the moment we're talking is that we are actually truly living a commerce revolution. I think it's a moment where every marketing experience can actually become a commerce one. And what we have done with Mars is now put together under the same roof, what are definitely the market-leading end-to-end capabilities in commerce. And to come back to your question, we are able today to have a unique knowledge of customer purchase journey, not only client but prospect, and we know how important it is to CPG, and that's based, of course, on the Mars acquisition strategy. but also on everything we have with Epsilon. We have deep relationship with all the major retailers. We'll be online or offline. And that's, again, we had it on our side, and now Mars is adding a lot to that. We can do digital shelf optimization. That's thanks to the acquisition we did with Profitero. We know when a competitor of one of our brands is running out of stock on a website or on a shop, and we can push our product. And we have leading retail media offer that allow us not only to achieve the growth of our client, but to be able to measure it, to be able to know when you invest X, you get Y in terms of business return. And then on personalization, and I'm going to go fast on that because I guess this is a topic we're going to come back on very deeply beginning of next year when we come back and we tell you exactly what we have done with our AI strategy. I'm in. When you have the data, as we do, when you have a single structure, as we do, when you have 35,000 engineers, as we do, what you can achieve with AI to truly get to personalization is truly amazing and super promising. And again, a bit more for later, but Clarisse, you want to add something?

Yeah, Sylvia, on the impact of those acquisitions, as we've said in the presentation, in 2024, it will add about 120 basis points to our growth and probably be considering 150 basis points going into next year. Margin-wise, it's in line with our margin, so it's very clear.

Thank you very much. We still have questions because we have passed the hour. Yeah. Okay. A couple of questions. Let's go.

The next question is from Julianne Rock with Barclays.

Please go ahead. My first question is coming back on Tim's question on Epsilon. I understand that now Epsilon is intertwined with media, but you did say in your answer we can give you the organic. So I'm asking again, can we get the organic for Q3? And then the second question is coming back to that news split. So 65% connected media, 20% intelligent content, 15% technology. Before it was a third, a third, a third. If I add all media at a third and all Epstein on at 16%, I get 48, but you say connected media is 65. So can you give us more color on what is that 17% difference? And then lastly, for Loris, where do you see you're in an average net debt at the end of 24? Merci.

Merci. So as I said, epsilon is roughly low single digit, but again, as media is very strong double digit, and most of this, a big part of this growth is due to epsilon, it won't be fair to take one without the other for our people. But then if you want to put it in your model, this is where we are. The question you raised on the 65 is a great question. Maybe what I did not insist enough... in the presentation that I just made listening to you, is that what we understand by media now in this connected media ecosystem is not only paid media, it's also what we call own media, which is CRM, dot coms, everything, every digital asset built by clients to go directly to their customer. And the reason why we're moving from 50% to 65% is that we are adding all of our digital experience agencies, starting with Razorfish or Digitas. And the reason why we are doing this is if I want to be a bit provocative, because with a vast number of our clients now, we know people at an individual level. Take the Lorraine that I just presented earlier on. We know Lorraine. We know what she buys, where she buys, what she follows, the kind of media she likes. We know where she lives, and all of that in a very compliant way. And we are in a position now to say to our client, look, maybe you should spend less in paid media and start to invest in your own environment. Because, Lauren, yes, you can get her on, you know, connected TV, but it might be cheaper to get her on CRM. And that's where identity is absolutely key. And this is why we are having this momentum. And by the way, this is why looking at the epsilon performance on the standalone doesn't make sense, is that the value created by epsilon is, first of all, the ability to connect those different media expertise and being able to go to our client and tell them, Mr. Client, we know how you can spend 10% less in paid media, invest just 10%. 2% of this 10% in your own digital ecosystem and get a business outcome that will be superior than the one you would have had. And that's what really makes a difference. And this is why we are adding to our paid media, the own media, plus Epsilon into the mix.

Bonjour, Julien. On the net debt year-end and average, so at this point, and obviously given the impact of those acquisitions, we expect year-end net cash position to be roughly €350 million. And on the average net debt, at the moment, we are estimating it to be slightly below €700 million. So when you put that in the context of some of the guidance we've been giving on leverage, including the leases, we should have a financial leverage that sits anywhere between 1 and 1.1 times. Super. Merci. Merci beaucoup.

The next question is from Tom Singerhurst with CT. Please go ahead.

Yeah. Good morning. Tom here from Citi. Thank you very much for taking the questions. The first thing I was going to ask about is M&A. I've got two questions on that, if that's okay. The first one is just sort of rough sense of the overlap in the client base for Influential and Mars United Commerce with your sort of existing business. I'm just trying to get a sense of whether the payback from those acquisitions above and beyond the the acquisition impact is going to be in the form of new business or accelerating organic with existing clients or a bit of both um that would be a really useful thing to understand um the second question maybe a bit more challenging so i apologize but um you know omnicom has just seen a bit of an acceleration um in growth i mean i know it's a function of how they disclose organic, but from their sort of commerce acquisition and flywheel. I think I'm right in saying that publicity has actually lost some of the unilever commerce work in the U.S., I'm just trying to get a sense of, with Miles United Commerce, how much of that deal is sort of proactive and about securing new capabilities and future growth and how much of it is defensive. Those are the two questions.

Thank you. Thank you. As you know, we don't comment our win. And some of our competitors love to comment our losses. So I can tell you one thing is that the net-net in commerce is pretty significant. I mean, honestly, I think the only thing you need to look to understand who's winning, particularly on commerce, is to compare organic growth from one holding company to another, and you will have an answer that is way more rational than a couple of press releases. On M&A, because this is a big question. You need to understand that when we go for an acquisition and a bolt-on acquisition, we have a couple of criteria. And they are not in this order, but I'm going to give you them in this order. First is we are bringing people. I think the reason why we have been successful in our acquisition is that people first every time, and we make sure that the culture fits and that we can get along together. Second, of course, we look at is that too expensive or not, and that's the reason why last year we didn't do so many acquisitions because the market was high, and this is why we had those two opportunities. The third is how does it complement our existing model, and how are we going to leverage even better either our media, our creative, epsilon, or sapient operation? And the fourth, which comes back to your point, which is, is integration going to work? And the good news about both opportunities is that it creates only upside. And I'm going to explain why. Mars is not like we didn't have commerce capabilities before. And yes, the client list is very complementary. And never forget that we have other commerce brands like ARK that will continue to live, by the way, and that will be under the same umbrella to build this end-to-end model. So there is a complementarity in terms of clients. Influencer is different. And Influencer, they work with all of our clients already, and they work also with their competitors. They are the leading platform when it comes to Influencer by far. And so we don't have any conflict issue there because it's a capability that we just don't have at this scale by far so far. So we are really adding a leg to our model which frees us up from any conflict. I hope it answers your question because this is a very important one. We have been very thorough in the way we go for Bolton acquisition. By the way, both of those new acquisitions were through a competitive process, and we knew it was exactly what we needed for our model. We arrived at a price that was very decent, but more importantly, with people, value, culture, and a go-to-market that hopefully complement itself pretty well, as you have seen today.

Very clear. One quick question.

We are losing connection with Mr. Singerhurst.

I was going to ask a follow-up if it was okay, which was in terms of the envelope of spend on M&A, you're obviously a little bit over the original projection, which is fine because of the... the assets that you're buying, is that part of a sort of new sort of normal in terms of anticipated M&A spend running into next year? I know you're not necessarily going to set guidance at this stage, but should we expect a continuation of this sort of rate of investment in M&A to support new capabilities and new assets?

So, Tom, I'm going to take that question. So if you look at the acquisition that we spent since the beginning of the year, including H1, we are at roughly $1.2 billion. Put that in the context also of what we did spend last year, which was less than $200 million, and so on. If you look at the average of the last 24 months, we are exactly in the envelope that we talked about when you were raising the question on cash allocation. So I think it is still a very good yardstick to continue looking at our acquisition envelope going forward. Clearly, we have a very good pipeline at the moment, which is great. As we said before, we announced March and influential but nothing of the magnitude of influential and March so we'll continue being very aggressive when it comes to Bolton acquisition but I would stick to the envelope that we've communicated earlier on in the year.

Very clear. Thank you very much.

Thank you Tom. The last question is from Christophe Chablan with Bernstein. Please go ahead.

Hello, good morning. Thanks for taking my question. So I'll be quick. First question is on the new business and the impact on margin. Is it fair to assume that when you're in a ramp-up phase, when you're starting a new business contract, it's dilutive to margin or do you reach a normal margin very soon? That's the first one. And the second one is a very quick one for Loris. There was a mention of Argentina inflation. Is this a boost, which is significant? Because the inflation seems to be 200%. I just checked, and even on a small base, that could be significant. Thank you.

So specifically on Argentina, as you saw, we posted a very strong growth in Latin America of plus 30% this quarter. It is primarily driven... by the top-line performance in Brazil and Mexico, followed by Colombia, and those are the three largest markets. And then, on top of that, you have an impact of the inflation in Argentina, but it is not what is driving the growth in that region. It is primarily the performance of those three markets and the market share gain that we've benefited from in that region.

On the new business, yes. At the beginning, it is dilutive, and let me explain to you why. I mean, we have been number one in new business for the last five years now, so we had to onboard a lot of clients. And one recipe for success is not to wait for the contract to start to bring people onboard. And so to give you an example, everything that we have won in H1 – uh that will start between q4 and q1 next year we have started already to staff they are working with incumbent agency and we make sure that we do that in the best of trust first of all of our client but also to be honest of the incumbent agency there are people that can move from one place to another And, you know, it's a very brutal business. When you lose an account in the U.S., you might have to let go hundreds of people. And so we make sure that not only we keep the best service for our new client by investing ahead of revenue, but also working normally with incumbents to do a good job there for people, which is what we matter the most. And so to be clear, yes, it's dilutive. at the beginning, and normally it's actually dilutive before we start to get paid. Then we start to get paid. We are fully staffed. We have a contract. We know how it works, and that could be good. Look, I think we're done with the question. I want to thank you. Sorry, we've been a bit longer than expected. Hopefully, you're going to take three things out of this call. First of all, a very strong Q3 in challenging environments. and continuing to outperform the industry pretty significantly when you look at the net revenue. As I said, the news today is our ability to upgrade the flow of our guidance. I think you need to take that as a sign of confidence, not only for the rest of the year, but for the model of general and in the future. It's true, and we discussed about that. Some industries are suffering. Some countries have some difficulties. There is uncertainty ahead. So there is... a feeling here that could be a bit negative overall, but we feel very confident, not only in our ability to deliver, but actually deliver a bit more than what we say. And finally, and thank you for the question, as you can see, we are accelerating on our model. We haven't changed our strategy from day one, but we are adding new bricks that bring growth, that solidify our margin, that allow us to continue to win new business, to continue to grow, And again, we are only focusing on the execution. And I think I'm done now. And I'm going to thank you and see you very soon. Merci beaucoup.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.