Publicis Group Sa S/Adr

Good morning. This is the conference operator. Welcome, and thank you for joining the Publicist Group Full Year 2024 Results 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 and 1 at any time. Should anyone need assistance during the conference call, they may signal an operator by pressing star and 0. At this time, I would like to turn the conference over to Mr. Arthur Saloon, Chairman and CEO of the Publicis Group. Please go ahead, sir.

Thank you, Sherry. Bonjour and welcome to Publicis Group 2024 Full Year Result Call. I am Arthur Sadoun and I'm here in Paris with our CFO, Laurie Snould. Jean-Michel Bonamy is also here and will be available to take your questions offline after this call. I will start this presentation by sharing the main highlights of 2024, which was again a record year for the group. Loris will provide the full detail of our numbers. I will then conclude with the outlook for 2025 and our main priorities. 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 the presentation with three key highlights. First, we ended 2024 on a high note, with full-year organic growth at plus 5.8%, allowing us to outperform the industry on organic growth for the fifth year in a row, growing twice as fast as our peers averaged over that period. Second, once again, we maintain industry-leading financial KPIs and at the same time, increased our investment base in both people and AI. Last but not least, we are ending 2024 as the largest advertising group by net revenue. Each of these three highlights made us stand out from the pack again this year. Let me take you through them, starting with our organic growth performance. In a climate of uncertainty, we posted a stronger-than-expected Q4 at plus 6.3% organic growth, leading to plus 5.8% for the full year. This means that we accelerated from our four-year 2023 CAGR of 4.7% by more than 100 basis points. It also means we grew more than three times faster than our holding company peers based on consensus and more than five times faster than the average of our IT consulting peers. Getting into the detail of organic growth by pillar. Connected media, encompassing our data, media, CRM, social, and commerce activities, representing 60% of our net revenue, delivered high single-digit, fully organic growth, driven by market share gains in personalization at scale. Intelligent creativity, regrouping our creative agencies and production capabilities, representing 25% of net revenue at a solid year at mid-single-digit organic growth, supported by production, new business win, scope expansions, and fewer cuts than anticipated in classic advertising in Q4, which is usually a quarter of adjustments. Finally, business transformation through Publicis Sapiens, representing 15% of our net revenue, was flat in Q4, with the US being positive. This represents a sequential improvement versus Q3, leading to a slight full-year decline as expected. Like all leading IT consulting firms, we continue to see client cautiousness towards capex spend due to continued challenging microenvironment. Move on to organic growth by region. All of our geographies perform well, supported by the strength of our platform organization. The U.S., Our largest market, representing 60% of our net revenue, posted a strong Q4 organic growth at plus 5.2%, accelerating after Q3 despite tougher comparables. This led to a solid plus 4.9% for the year, cementing our number one position in this market. Europe delivered plus 5.4% full-year organic growth on top of double-digit in 2021, 22, and 23. In Q4, the region accelerated to plus 6.5%, driven by double-digit organic growth for connected media. Asia-Pacific delivered plus 5% organic growth in Q4, fueled by continued new business win, leading to plus 6.3% for the full year. In one remains a very volatile market, China had a strong year at plus 6.4%. Second highlight, in 2024, we both maintain our leadership on financial KPIs and significantly increase our investment in talent and AI. We delivered a record high operating margin at 18%, the highest of the industry by 250 basis points, fully absorbing our accelerated investments of circa 100 million euros in our AI plan and 136 million euros in restructuring above 2023 levels to drive upgrade in our tenant bench. When adjusting this, we actually outperform our peers by close to 350 BCH points when it comes to margin. It is important to note that the current pricing environment makes this achievement even more significant. LIEPS came ahead of analyst estimates at €7.30, 4.9% versus 2023 and compare with flat EPS growth expected for our peers on average according to consensus. Regarding free cash flow, we deliver 1.84 billion euros in line with our guidance and above 2023 record level. When it comes to M&A, we also accelerated our Bolton investment, spending circa 1.2 billion euros, including the acquisition of two major assets in influencer marketing and commerce. This allows us to propose a dividend of 3 euros and 60 cents per share, up 5.9% versus 2023, representing the highest payout ratio of the industry at 49.3%. Last but not least, we also continue to be an industry leader on ESG. Our efforts in sustainable business practices around D&I, responsible marketing, and the fight against climate change mean we continue to be ranked number one in the industry by far by leading rating agencies. Third highlight, after being number one on organic growth for the last three years, in community new business win for the last five years, on margin for more than 15, and number one in market cap since early 2023, we finished 2024 as number one in size, becoming the largest advertising group with net revenue of circa 14 billion euros. We leapfrogged from the third position to the first in just three years through a combination of four unique factors. First, we are winning more and at the same time losing less than our competition. We want significant market share through net new business, as confirmed by J.P. Morgan's ranking since 2019. Actually, over this period, our net new business billing are close to four times larger than those of the second-best performers. Factor two, our strategic acquisition of Epsilon and Sapien, as well as complementary Bolton investments, have been strong contributors to our group organic growth for the last five years, generating close to 35% growth since 2019. Factor three, our country model has boosted all of our regions, allowing us to outperform across geographies. In the last five years, our organic basis in the U.S. grew almost three times as fast as the industry average. Europe was up 25% versus 15% for our industry average. And we grew by 20% in China when the largest player in the market is expected to be down by 25% for the period. Factor four, our people first approach. We have always made our people our number one priority. We did it in tough times, like COVID, using Marcel to save thousands of jobs. In better times, when we reimbursed the salary sacrifice made by our teams at the beginning of the pandemic. And in good times, for example, when we saw two years of double-digit growth, we gave bonuses twice to everyone at PBCs. Our investments in learning and development and our policies around salary increases have built a growth mindset in our teams. Today, our people now know that when Publicis grows, everyone at Publicis grows. But it's not being number one that really matters. It is actually the journey we went on to get there. Since 2019, we have increased our net revenue by 43% or 4.2 billion euros, our operating margin by 52%, our headline EPS by 45%, our free cash flow by 47%. As you can see in this chart, we have outperformed the industry on each of those financial KPIs over the period. These performance have led to a 27% total shareholder return in 2024 and 185% since 2019, which is four times as high as the second best performer in the industry. I will now leave the floor to Loris. We'll take you through the detail of our numbers. I will then come back to share our guidance and priorities for 2025.

Thank you, Arthur, and good morning, everyone. Let me begin with the key highlights of our full year results. Full year revenue was 16 billion and 30 million euros, up 8.3% versus 2023. Full year net revenue was 13 billion and 965 million euros, up 6.6% versus 2023, and up 5.8% on an organic basis. Operating margin was 2,519,000,000 euros, up 6.6% versus 2023, representing an 18% operating margin rate at the same record level as last year. Headline net income was 1,851,000,000 euros, up 4.8%. And free cash flow before change in working capital was 1,838,000,000 euros, up 18.8%. I will now get into the details of the P&L, the free cash flow and the balance sheet, starting with the net revenue. In Q4 2024, net revenue was 3,854,000,000 euros, up 8.9% on a reported basis. This includes plus 6.3% organic growth, which comes on top of plus 5.8% organic growth in Q3 2024. A net positive impact of currency of 40 basis points due to the increase of the USD and the pound sterling, partially mitigated by the depreciation of the Argentinian peso versus euro. And last, a contribution from acquisitions, net of disposals of 210 basis points, mostly reflecting the impact of Mars and influential, but also of other smaller acquisitions completed in 2024. Let's move to the next slide, which shows our Q4 net revenue by region. North America posted another strong quarter, up 9.6%, including plus 5.6% organic growths. There was a positive impact of the USD versus Euro, contributing 70 basis points in Q4, and a 330 basis points impact from acquisitions, notably from Mars and Influential. Europe was up 8.5%, including plus 6.5% in organic growth. There was also a positive impact of the pound sterling versus Euro, that contributed 150 basis points in Q4. Asia Pacific posted a robust plus 5% organic growth, notably led by India and Australia. Middle East and Africa and Latin America reported plus 3.4% and plus 30.3% organic growth, respectively. Let's get into more details for each region, starting with North America. In the US, the group's largest geography All activities continue to perform well, delivering plus 5.2% organic growth, driven by the strong contribution of connected media and intelligent creativity, both benefiting from new business wins and scope expansions. Publicis Sapient showed sequential improvement, returning to positive territory, with plus 0.9% organic growth in Q4. Let's turn to the performance in Europe on the next slide. The UK, which represents 9% of our net revenues, posted a strong plus 7.2% organic growth. Connected media was up double digits in Q4. Intelligent creativity posted a strong high single-digit growth, while publicity sapience remained soft, still impacted by delayed EBITDA capex. France posted a slight organic decline of 2.1% on top of double-digit growth in Q4 last year and after a very strong Q3. Germany was broadly stable in Q4 with a high single-digit connected media offset by a negative publicity sapient. Lastly, our operations in Central and Eastern Europe continued to grow strongly, posting a plus 17.9% organic growth on top of plus 20.3% last year, fueled by Poland, Hungary, and Serbia. Moving to the next slide, our performance in the rest of the world. Asia-Pacific, which represents 9% of our net revenues, delivered plus 5% organic growth, driven by intelligent creativity, which was up high single-digit. This performance was achieved despite a softer China at minus 1.9% organic, impacted by some phasing effects after a very strong Q3 at plus 12.4%. For the full year, China was up 6.4%. Middle Eastern Africa posted plus 3.4% organic growth, mostly driven by intelligent creativity. Latin America posted a plus 30.3% organic growth, driven by both connected media and intelligent creativity, in particular in Brazil, Mexico, and Colombia, as well as Argentina, partly due to inflation. For your reference, you will find on the next slide the full year performance by region. As you can see, all regions posted strong organic performance for the full year 2024, leading to plus 5.8% in total for the group, on top of plus 6.3 organic growth in 2023 on the next slide you will find our performance by client industry for the full year for the full year like for the first nine months of the year we saw most of our client industries record positive growth the tmt sector which represents 11 of our net revenues continues to perform very well, posting 8% in Q4, leading to double-digit organic growth in the full year of 2024. Healthcare posted plus 25% organic growth in 2024, on top of double-digit growth in 2023, thanks to new business wins and scope expansions across several clients. Food and beverage delivered mid single digit growth in 2024 after double digit growth in 2023. Automotive ended the year up 4% despite the challenging environment. Financial and retail were both slightly down in 2024 due to a tough comparable, particularly in the UK. Moving to the next slide and our simplified P&L down to the operating margin. Operating margin was at 2 billion 519 million euros, representing a margin rate of 18%, in line with the record level of last year, and demonstrating our ability to continue investing in talent and AI to support our growth. This includes circa 100 million euros for our AI plan and a 25 million increase in restructuring charges. Personal expenses, including restructuring, increased by 8.2% as anticipated. Other operating expenses were down 0.7%. Depreciation was up 2.7% due to increased real estate footprint. I will not detail the different parts. Moving to our operating margin bridge on the next slide. Personal cost as a percentage of net revenue and excluding restructuring costs were up 95 basis points, mostly attributable to our AI plan to accelerated investments in talents, as well as staffing requirements to ramp up our new business wins. Restructuring charges were up 25 million or 15 basis points, reflecting the investment to continue upgrading our talent bench. Other operating expenses, as a percentage of net revenue, were down 95 basis points, demonstrating a strong cost management and notably low discretionary costs, including professional services and research costs. Moving now to our headline income statements below operating margin and focusing only on the main items. Headline net financial expenses were a 39 million euro charge versus 20 million euros in 2023 attributable to a lower interest rate for U.S. denominated cash balance. Headline net income tax was 619 million euros with an effective tax rate of 24.9% fully in line with our forecasts. Headline and income was 1,851,000,000 euros up 4.8% versus 2023. On the next slide, our headline EPS fully diluted grew by plus 4.9% year on year to reach seven euros and 30 cents. Overall, our EPS has increased by 71% since 2020. moving to the next slide free cash flow our free cash flow before change in working capital reached 1 billion 838 million euros up 291 million euros compared to the full year 2023 note that in 2023 free cash flow included the 148 million euros negative impact of the rosetta settlement this increase is mainly driven by an additional 169 euros inhibitor partly mitigated by, first, a €30 million increase in lease repayments, consistent with our return-to-the-office policy. Second, a €57 million increase in CAPEX, reflecting the increased investment in our platform and cloud infrastructures, our continued ERP deployment, as well as additional refurbishment expenses related to new leases. Moving to the next slide, use of cash. In 2024, change in working capital represented an outflow of €161 million, fully in line with our guidance. Acquisitions, including paid earnouts, amounted to €889 million. It includes the upfront cash payments for our two major acquisitions in 2024, Mars United Commerce and Influential, but also AKA Asia and Spinnaker, amongst others. As planned, our dividend was paid in July, resulting in a net cash out of 865 million euros. On share buybacks, we spent 148 million euros in 2024 to cover our long-term incentive plans. Other non-cash items represented a positive 91 million euros. It includes 115 million euros negative impact due to the change in earn-outs and buy-outs, mostly due to the earn-out component of acquisitions, and offset by the positive impact of currency translation for 202 million euros. Overall, as a result of these variations, we decreased our end-of-year net cash position by €134 million. We closed 2024 with a net cash of €775 million. The average net debt on the last 12 months was €585 million, an increase of €153 million compared to last year due to the acquisition completed in 2024. and the financial leverage remains stable at one time as expected. Moving to the next slide, a dividend of €3.60 per share will be proposed at our next AGM in May. This represents a payout of 49.3% in line with the group financial policy, an increase of 5.9% versus 23%, and an increase of 80% since 2020. This dividend will be fully paid in cash. Moving to my last slide, cash allocation for 2025. Our outlook for 2025 is a free cash flow before change in working capital of 1.9 to 2 billion euros. Our capital allocation will continue to be comprised of the same three pillars. First, a cash dividend of 900 to 950 million euros, representing roughly 50% of our free cash flow. Second, share buybacks for an estimated 150 million euros to cancel the potential dilution resulting from our long-term incentive plans and to keep the share count stable. Last, we anticipate investing 800 to 900 million euros in selected bolt-on acquisitions. So this concludes my financial presentation, and I now give the floor back to you, Artur.