Publicis Group Sa S/Adr

Good morning. This is the conference operator. Welcome and thank you for joining the Publicist Group Half Year 2025 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 on their telephone. At this time, I would like to turn the conference over to Mr. Arthur Sadoun, Chairman and CEO of Publicis Group. Please go ahead, sir.

Thank you, Judith. Bonjour and welcome to Publicis Group's first half 2025 earnings 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 question offline after this session. I will begin by sharing the highlights of our H1 performance and the outlook for the year. Loris will then take you through the details of our number, and I will conclude with a strategic update. As usual, Loris and I will take your questions after this presentation, but before we start, please take the time to read the disclaimer, which is an important legal matter. Okay. Let's dive into the presentation. There are three key highlights from H1. First, we delivered another very strong quarter with organic growth of plus 5.9% in Q2, bringing our H1 performance to plus 5.4%. Second, we are slightly improving our industry high operating margin, delivering 17.4% in H1 while maintaining a significant level of investment. Third, we are raising our full year net revenue organic growth guidance. We now expect to deliver close to 5% up from our initial 4% to 5% range thanks to very strong net new business wins. Let's get into the detail of those highlights, starting with organic growth. After Q1 at plus 4.9%, Q2 was even stronger at plus 5.9%. This performance stands out for two reasons. First, we are accelerating ahead of our five-year CAGR of 4.9% in Q2, despite increased macro uncertainty and external pressures. Second, we continue to make material market share gains, increasing our outperformance versus our competitors to nearly 800 basis points on average this quarter, based on consensus estimates, and up from around 600 basis points into one. Looking at our business practices, connected media representing circa 60% of our net revenue remained very strong. It was up high single digit again this quarter, driven by publicist media scale across geographies and media channels, and powered by epsilon proprietary data. Intelligent creativity, generating circa 25% of net revenue, once again recorded high single digit growth, supported by significant new business wins and scope expansion in production, but also in creative. Lastly, technology with Sapiens, representing 15% of our net revenue, returned to positive territory, despite client ongoing wait-and-see attitudes to capex spend, which is affecting every IT consulting firm. It is this better-than-expected performance at Publicis Sapiens that explains most of the acceleration in group organic growth in Q2 versus Q1. When it comes to our results by geography, all our regions performed well. The U.S., representing 58% of our net revenue in Q2, achieved solid organic growth at plus 5.3% this quarter, on top of plus 5.3% growth rate from last year, and accelerating versus Q1, thanks to publicist sapiens turning positive this quarter. Europe reported plus 4.6% organic growth, following plus 4.2% in Q2 2024, reflecting robust results in connecting media and intelligent creativity with sapience practically stable. Asia-Pac delivered plus 5.7% organic growth. China is up 5.2% in Q2, driven by market share gains. We have grown by 28% since 2020, thanks to our industry-leading capabilities, our scaling media offering, our unique reputation of rigor in China, and transparency. But also, thanks to a team with some of the country's very best talents. Turning to our second highlight, we improved our operating margin in H1. It reached another industry high level of 17.4%, further increasing the gap of our competition, which now stands at close to 600 basis points based on consensus. We were able to deliver this outperformance while making significant investments in building and staffing our core AI platform for 55 million euros, upgrading our talent pool, and investing in new business and onboarding new clients thanks to our best-in-class cost discipline and relentless focus on extracting efficiency gains. Headline APS came in at €3.51 in H1 2025, up 3.8% versus H1 2024. Free cash flow reached €828 million in H1, ahead of last year's €744 million records. We also pursued a differentiated button acquisition strategy, investing €600 million in H1. This space means we are on track to meet our 800 to 900 million euros envelope for 2025. Finally, our average net debt stood at 836 million euros in H1. Third highlight, our unprecedented new business run in H1 enables us to raise our full year organic growth guidance. We are now confident in delivering close to 5% in 2025, up from our initial 4% to 5% range, despite the lack of visibility in a challenging micro-context. Our guidance upgrades, fact-serving, anticipated reduction in client marketing spend in H2, negative full-year performance at Publicis Sapiens, consistent with other IT consulting firms, and a negative impact from year-end adjustments after the positive of 2024. These will be more than upset by our stronger-than-expected H1 and 15 material wins since the beginning of the year, some of which are set to progressively ramp up from Q3. When it comes to our other financial KPIs, we are confirming our guidance of a slight improvement on our operating margin for 2025 while maintaining high level of investment across AI, talent, and new business. And we anticipate free cash flow of circa 1.9 billion euros, including the negative impact of currency movement for 80 million euros. Before ending to Lois, let me say a word on our strong momentum of our creative operations. Not only our creative business outgrew competition significantly with high single-digit growth in the first half of the year, we also won major creative pitches on several truly iconic brands. What is more, we returned from Cannes with Publicis Conseil, the agency founded 99 years ago by Marcel-Brestin Blanchet, named Agency of the Year for the second time in a row. And we brought home the Grand Prix Titanium, the festival's highest honor for outstanding work with our historic client AXA, who became actually the festival Brand of the Year. We often speak about our undisputed leadership in connecting media. But we have here, once again, demonstrated our ability to take the lead on the creative front, too, thanks to the talent of our team and the strengthens of our capabilities. I will now leave the floor to Loris for a deeper dive into our number. I will then come back and set out the reason for our confidence in sustaining our strong outperformance in 2025 and beyond.

Thank you, Arthur, and good morning, everyone. Let me begin with the key highlights of our first half results. H1 net revenue was 7 billion and 152 million euros, up 6.9% versus 2024, and up 5.4% on an organic basis. Operating margin was 1 billion, 242 million euros, up 7.1% versus 2024, representing a record 17.4% operating margin rate. Headline net income was 890 million euros, up 3.9%. And free cash flow, before changing working capital, was 828 million euros, up 11.3%. I will now get into the details of the P&L, free cash flow, and balance sheet, starting with the net revenue. In Q2 2025, net revenue was 3 billion and 617 million euros, up 4.6% on a reported basis. This includes a net negative impact of currency of 420 basis points, mostly due to the decrease of the USD versus euro. A contribution from acquisitions, net of disposals of 290 basis points, mostly reflecting the impact of Mars and influential, but also the acquisitions completed since the beginning of the year, including Lotame, Atomic 212, and BR Media. And plus 5.9% organic growth, which comes on top of plus 5.6% organic growth in Q2 2024. Let's move to the next slide, which shows our Q2 net revenue by region. North America posted another strong quarter up 4.2%, including plus 5.8% organic growth. There was a negative impact of the USD versus Euro of 490 basis points in Q2 and a 330 basis point impact from acquisitions. Europe was up 5%, including plus 4.6% in organic growth. Asia Pacific posted a robust plus 5.7% organic growth. Middle Eastern Africa and Latin America reported plus 8.8% and plus 19.8% organic growth, respectively. Let's get into more details for each region, starting with North America. In the U.S., the group's largest geography, all activities continue to perform well. delivering plus 5.3% organic growth, driven by the solid performance of connected media and intelligent creativity, both benefiting from new business wins and scope expansions. Publicity Sapient showed sequential improvement, returning to positive territory in Q2. Let's turn to the performance in Europe on the next slide. The UK, which represents 9% of our net revenues, posted a solid plus 5.2% organic growth. Connected Media was up mid single digit in Q2. Intelligent Creativity posted a strong high single digit growth while Publicis Sapient was up mid single digit against an easy comparable. France was almost flat and up low single digit when excluding Publicis Sapient. Germany was slightly down in Q2 and up mid-single digit when excluding Publicis Sapient, thanks to high single digit growth in connected media. Lastly, our operations in Central and Eastern Europe continue to grow strongly, posting plus 9.9% organic growth on top of plus 17.4% last year, driven by connected media up double digit while Publicis Sapient was up mid-single digit. By country, main growth drivers were Romania, Poland, and Turkey. Moving to the next slide, our performance in the rest of the world. Asia Pacific, which represents 9% of our net revenues, delivered plus 5.7% organic growth, driven by connected media, which was up double digits. China remains strong at plus 5.2% organic growth after a double-digit growth in Q2 2024. Middle Eastern Africa posted plus 8.8% organic growth, mostly driven by connected media. latin america posted plus 19.8 percent organic growth driven by both connected media and intelligent creativity in particular in brazil and colombia as well as in argentina party due to inflation for your reference you'll find on the next slide the h1 performance by region as you can see all regions posted strong organic growth performance for the first half of 2025, leading to plus 5.4% in total for the group, on top of plus 5.4% organic growth in 2024. On the next slide, you will find our performance by client industry for H1. As for Q1, we saw most of our client industries record positive growth in Q2. Healthcare posted plus 16.1% organic growth in H1 2025, on top of double yield growth in 2024, thanks to new business wins and scope expansions across several clients. We had a strong performance from CPG with food and beverage up 9.8% and non-food consumer up 4.2%. Financial services, which represent 13% of our net revenue, continue to perform very well, posting plus 15% growth in Q2, leading to plus 12.5% in H1 2025. Moving to the next slide and our simplified P&L, down to the operating margin. Operating margin was at 1,242,000,000 euros, representing a margin rate of 17.4%. up against the record level of H1 2024, demonstrating our ability to continue investing in new business ramp up, talent upgrades, and AI to support our growth. This includes a 22 million increase in restructuring charges to 63 million euros, as well as a 55 million euro investment for our AI plan. Personal expenses, excluding restructuring, increased by 7.1%, reflecting investment in talent to support our new business. Other operating expenses were up 3.5%. Depreciation was up 7.5% due to increased IT investments and additional real estate footprint. Moving to our operating margin bridge on the next slide. Personal costs as a percentage of net revenue and excluding restructuring costs were up five basis points, mostly attributable to accelerated investment in talents as well as staffing requirements to ramp up our new business wins. Restructuring charges were up 22 million or 25 basis points as we continue to upgrade our talent bench. Other operating expenses as a percentage of net revenue were down 40 basis points demonstrating our strong cost management and ability to generate further operating leverage to invest in talent to grow our net revenue. Moving now to our headline income statements below operating margin and focusing on the main items. Headline net financial expenses were a 44 million euros charge versus 7 million euros in 2024, attributable to lower interest income. Headline and income tax charge was 302 million euros with an effective tax rate of 25.1%. Headline and income was 890 million euros, up 3.9% versus 2024. Next slide, our headline EPS fully diluted grew by 3.8% year on year to reach three euros and 51 cents. Moving to the next slide, free cash flow. Our free cash flow before changing working capital reached 828 million euros, up 84 million euros compared to H1 2024. This increase is mainly driven by an additional 100 million euros in EBITDA, partly mitigated by a 36 million euros decrease in interest paid and received due to the lower cash interest income. Tax paid decreased by 26 million euros as 2024 was impacted by some non-recurring tax payments. Moving to the next slide, use of cash. In H1 2025, changing working capital represented an outflow of 1,745,000 euros, fully in line with our expectations and reflecting the usual seasonality. Acquisition, including paid earn-out, amounted to 463,000 euros. It includes the upfront cash payments for Lotame, Atomic 212, and BR Media. On share buybacks, we spend 149 million euros in H1 2025 to cover our LTI plans. Other non-cash items represented a negative 274 million euros versus a positive 229 million euros in H1 2024. There are two main reasons for this 503 million euros swing. Currency translation, deteriorated by 390 million euros with the depreciation of currencies versus the Euro. Change in earn outs deteriorated by 187 million euros versus H1 2024 when combining earn out re-evaluations as well as new earn outs from acquisitions completed since the beginning of the year. When you consider payments for acquisition and new earn outs, we invested 600 million euros out of our 800 to 900 million euros envelope. Overall, net cash decreased by 1,808,000,000 euros. Moving to my last slide, net financial debt. The average net debt on the last 12 months was 836 million euros, an increase of 461 million euros compared to last year, due to the acquisitions completed over the last 12 months. We closed H1 2025 with a net debt of 1 billion and 33 million euros. And the financial leverage remained roughly stable at 1.1 times as expected. This concludes my financial presentation, and I now give the floor back to you, Arthur.