Publicis Group Sa S/Adr

Good morning. This is the conference operator. Welcome and thank you for joining the Publicis Group first half 2026 earnings conference call. After the presentation, there will be an opportunity to ask questions by pressing star and one at any time. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero. 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 first half 2026 earning call. I am Arthur Sadoun and I'm here in Paris with our CFO, Loris Nold. Jean-Michel Bonamy is also here and will be available to take all of your questions offline after this call. I will start this presentation by sharing the main highlights of our Q2 and H1 performance, showing an acceleration on all fronts. Loris will then walk you through the full details of our members. And I will come back with our outlook and the reason for our confidence in raising our guidance and sustaining our strong momentum in H2 and beyond. As usual, we will take all of 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 actually four key highlights. In a nutshell, in the first half of the year, we have been accelerating on all fronts. First, on net organic growth with Q2 at plus 4.8% despite a tougher comparable and a still challenging microenvironment. Second, on new business with a very strong first part of the year, which allow us to raise our guidance. Third, on our financial KPIs, starting with our headline margin increasing to 17.5% while investing further on our talent in AI and in ramping up our new business wins. Fourth, on our differentiation and addressable market expansion through strategic acquisitions leveraging the strengths of our balance sheets. Let's start with the detail of our top-line performance. In Q2, we once again reaffirmed our ability to deliver even in challenging microeconomic conditions. Organic growth came in at plus 4.8% on a net revenue basis. As expected, this represents a sequential acceleration versus our Q1 at plus 4.5% and despite a 100 basis point higher comparable base in an increasingly uncertain geopolitical context. This acceleration was driven by our marketing transformation activities, representing 87% of our net revenue, where we continued to capture a disproportionate share of our client demand for AI-powered services and products. They grew at plus 6.5% organically in Q2, compared to plus 5.6% in Q1, ahead of our six-year CAGR at plus 5.3%. These contributed to further widening the gap with our peers to 610 basis points in Q2, according to consensus. In detail, Connected Media, representing 62% of our net revenue, delivered a very strong performance again this quarter at high single-digit growth, accelerating versus Q1. This performance was driven by double-digit growth in Europe and high single-digit growth in the US. It reflects our continued ability to accelerate market share gains thanks to our scaled AI-powered media offering. Intelligent Creativity, which is 25% of net revenue, posted solid low single-digit growth in line with the expected long-term growth profile of these segments. The only part of our business that was seriously impacted by the macroeconomic uncertainty and particularly the Middle East conflict is technology, as experienced by other IT consulting firms, including the market leader. We continue to see delays in large transformation programs, of course in the Gulf, but with a direct effect on many other geographies and companies. This led to mid-single-digit decline in Publicis Sapiens, representing 13% of Group net revenue. I will make just two remarks on Sapiens performance. First, comparing Q2 with Q1, I would highlight that Sapiens faced a significantly tougher comp in Q2 of 600 basis points versus Q1. And therefore, we saw a sequential stabilization in terms of net revenue. Second, our ability to accelerate in Q2 and raise our guidance at group level despite those microeconomic challenges makes our performance and resilience even more remarkable. Turning to our geographies, we had another strong demonstration of the consistency and resilience of our country model globally. In particular, our two largest regions, totaling 86% of our net revenue, both grew organically at 5% or above. The US was up 5.5%, accelerating versus Q1, driven by high single-digit growth in connected media, with major wins from last year ramping up. delivered a very strong plus 5% growth, broad-based across markets, accelerating strongly versus Q1 despite a much higher comp of close to 200 basis points. Asia-Pac recorded a plus 2.6% growth with strong performance in Greater China at plus 7.5% while we experienced localized softness in Southeast Asia. LATAM continues its excellent trajectory at plus 11%. MEA was done minus 8.3% as expected, directly impacted by geopolitical tension in the region. Moving to our second highlights, our very strong new business performance in the last months make us confident in delivering the same momentum in H2 as in H1. In the last 18 months, we have seen a dramatic reduction of the competitive landscape due particularly to consolidation. After a very strong finish to 2025, we have had a couple of very sizable wins in the first half of the year with a real material financial impact that will start to progressively ramp up through the back end of the year, but also some local wins with more immediate impact on our numbers. That makes us very confident in raising our guidance range from 4% to 5% to 4.5% to 5%. Third, we accelerated on all our financial KPIs. We improved our H1 headline operating margin again this year to 17.5%. We were able to unlock 50 basis points of margin improvement as we continued to extract operating leverage, allowing us to reinvest more than 30 basis points in our new business AI plan and our talent pool upgrade, and deliver the remaining 17 basis points in margin increase. Headline EPS came at €3.52 in H1 2026, up 5.7% at constant currency. And headline free cash flow reached €957 million in H1, up 20.8% at constant currency. Getting to our fourth and final highlight. In H1, we are accelerating on our differentiation with two important strategic acquisitions. We finalized the acquisition of 160 over 90 in sport marketing in Q2. By putting epsilon data at its core and connecting it to our end-to-end media ecosystem, we will be uniquely positioned to make sport the fastest growing media segment of our industry, addressable and measurable at scale. and we announced the acquisition of LiveRamp in May, which, once closed, will enable us to enter a totally new addressable market, data co-creation. With LiveRamp as part of our strong interconnected ecosystem of Publicis Sapient, Epsilon and Marcel, we will go even further and faster in delivering a genetic transformation for our clients safely and transparently in their own environments. Thanks to their successful integration into our Power of One model and their ability to open up new addressable markets, our bolt-on acquisitions of the last two years have delivered close to 20% annual organic growth on a standalone basis, EPS growth acceleration at group level, and a strong contribution to our new business wins. Our ability to continue expanding our capabilities and addressable markets has been made possible thanks to the strength of our balance sheets. Actually, there is one last highlight for each one. After the Cannes Lions named Publicis Conseil Agency of the Year for the past two years and their client AXA as Brand of the Year in 2025, the festival has now recognized Le Pub Milan as its 2026 Agency of the Year. It's an incredible accomplishment that is only made better by the fact that Heineken, our global client since 2014, has been named Creative Brand of the Year. This latest achievement from Le Pump Moulin is everything we love at Publicis. Breakthrough work for iconic brands that demonstrate the power of creative ideas to transform our client businesses. I will now hand over to Loris to take you through the Q2 and H1 financials in detail before I return with our outlook and strategic updates.

Thank you, Arthur, and good morning, everyone. Let me begin with the key highlights of our H1 2026 results. Revenue was 8 billion and 734 million euros, up 3% versus 2025 and up 5.3% on an organic basis. Net revenue was 7 billion and 229 million euros, up 1.1% versus 2025 and up 4.7% on an organic basis. Operating margin was 1 billion and 261 million euros, up 1.5% versus 2025 and up 7.4% at constant currency while the operating margin rate reached 17.4%. When excluding the live RAM transaction costs, headline operating margin was €1,268,000,000 with a record headline operating margin rate of 17.5% up 17 basis points versus 2025. Headline net income was 885 million euros, down 0.5% on a reported basis, but up 5.3% at constant currency. Last, free cash flow before change in working capital was 950 million euros. When excluding the live RAM transaction costs, headline free cash flow was up 20.8% at constant currency. I will now get into the details of the P&L free cash flow and balance sheet starting with Q2 revenue and net revenue Q2 2026 revenue was 4 billion 543 million euros up 4.2% on an organic basis Net revenue was 3 billion and 769 million euros Organic growth was plus 4.8%, which comes on top of plus 5.9% in Q2 2025. There was a negative impact of currency of 170 basis points due to the depreciation of the US dollar, the pound sterling, and several LATAM and APAC currencies versus the euro. And acquisitions net of disposals contributed a positive 110 basis points reflecting the impact of our 2025 and 2026 acquisitions, namely Captivate, P-Value, HEPMIL, AGI, and 160 over 90. When factoring in those items, net revenue was up 4.2% on a reported basis. Let's move to the next slide and our Q2 net revenue by region. North America was up 5.4% on an organic basis on top of plus 5.8% in Q2 2025. There was a negative impact of the US dollar versus Euro partly offset by the contribution from acquisitions and reported revenue was up 4.4% in Q2. Europe delivered plus 5% in organic growth. There was a negative impact of the pound sterling versus euro, leading to reported growth of plus 4.2% for the region. Asia Pacific posted plus 2.6% organic growth. There too, there was a negative impact of currency depreciation versus euro, offset by the contribution from acquisitions, leading to a reported growth of plus 2.8% in Q2. Latin America continued to perform very strongly and reported plus 11% organic growth. When adding the negative impact of currencies and the contribution of acquisitions, reported growth was at plus 13.5%. And finally, Middle East and Africa was impacted by the geopolitical situation, leading to an organic decline of minus 8.3%. Let's get into more details for each region, starting with North America. In the US, the group's largest geography, which represents 58% of our net revenues, organic growth was plus 5.5% after plus 5.3% in Q2 last year. Connected Media was up high single digit and Intelligent Creativity was up mid single digit, benefiting from new business wins and scope expansions. Technology was down mid single digit in Q2. Let's now turn to the performance in Europe on the next slide. The UK, which represents 9% of our net revenue, posted a plus 2.8% organic growth. When excluding technology, organic growth was plus 8.1%, driven by very strong growth in connected media. Technology was down, as Publicity Sapient in the UK is servicing some clients based in the Middle East. France, which represents 5% of our net revenue, was close to flat. Lastly, our operations in Central and Eastern Europe were up double digits driven by strong growth in all segments with Poland, Romania and Czech Republic performing very well. Turning to the next slide for our performance in the rest of the world. Asia-Pacific which represents 9% of our net revenues was up 2.6% organically. China continues to be very solid at plus 7.5% organic growth in Q2 partly mitigated by software performance in Southeast Asia largely due to the impact of the Middle East conflict. Latin America posted a plus 11% organic growth in Q2 driven by double digit growth in connected media and intelligent creativity in particular in Brazil, Mexico and Colombia. As mentioned earlier, Middle East and Africa posted an 8.3% organic decline in Q2, with UAE and Lebanon being the most impacted countries as expected. In Q2, we estimated that the conflict in the Middle East had a negative impact of 30 basis points on our net organic growth. For your reference, you'll find on the next slide our H1 2026 performance by region. As you can see, all regions posted a strong organic performance, leading to plus 4.7% in total for the Group, on top of plus 5.4% in H1 2025. Last, net revenue was up 1.1% on a reported basis. Moving to the next slide and our simplified P&L down to the operating margin. Personal expenses excluding restructuring charges were down 0.6% year-on-year, generating 110 basis points in margin improvements. Restructuring charges increased by 21% due to the continued investment in talent upgrades with a 17 basis point impact on margin. Other operating expenses excluding the live rent acquisition costs were up 7.1%, representing 70 basis points of incremental costs as a percentage of net revenue. Depreciation was up 2.7%, mainly due to increased IT investments. Headline operating margin was €1,268,000,000, up 2.1% versus last year. At constant currency, the increase was plus 7.4%. Headline operating margin rate was 17.5%, up 17 basis points against the record level of 2025. When including the live RAM transaction costs, operating margin was €1,261,000,000. Moving to our next slide and our operating margin bridge. Our headline margin was up by 17 basis points, which includes, first, an improvement of 110 basis points of personal costs, excluding restructuring charges, driven by three main factors. Some scalability benefits on our 2025 recruitments, combined with some early impact from our gentrification initiatives on task optimization. Some rebalancing between our people cost and G&A, When it comes to our AI investments, as we rolled out our AI productivity tools to our talents. Some adjustments, including at Publicis Sapiens and our continued cost management discipline, notably when it comes to recruitment in H1. And second, this improvement was mitigated by two factors. a 17 basis points increase in our restructuring charge as we continue to upgrade our talent pool and a 76 basis points increase in our other costs reflecting in part higher spending on AI products and tools and some additional depreciation linked to our IT investments. Moving now to our headline income statement below operating margin and focusing on the main items. Headline net financial expenses were a charge of €62 million versus €44 million in 2025, mostly attributable to lower interest income for our US dollar cash balance. Headline net income tax was €312 million with an effective tax rate of 25.9%. The increase versus 2025 is due to positive non-recurring impact of some tax audits in 2025 and lower deductible LTIP expenses in 2026. Headline income was 885 million euros down 0.5% versus 2025. Again, the increase was 5.3% at constant currency. Next slide, our headline EPS fully diluted grew by 5.7% at constant currency to reach €3.52. On the reported basis, it grew at plus 0.3%. Moving to the next slide, free cash flow. Our free cash flow before change in working capital reached 950 million euros, up 14.7% versus 2025 and up 19.9% at constant currency. Headline free cash flow before change in working capital was up 20.8% at constant currency. Increase in EBITDA of 26 million euros contributed to the year-on-year growth. There was also a tailwind in tax paid, mostly resulting from non-recurring payments in 2025 and some benefits following the change in tax regulation in U.S. in H2 2025. This was partly mitigated by higher financial interest charge resulting from lower cash balances in U.S. dollars. Moving to the next slide, use of cash. In H1 2026, change in working capital represented an outflow of €2,089,000,000 fully in line with our expectations and reflecting the usual seasonality. The year-on-year deterioration of €344,000,000 in H1 cash outflow is largely explained by the reversal of the €234,000,000 positive effect recorded at year-end 2025. Acquisitions, including paid earn-out amounted to 672 million euros. It includes the upfront cash payments for Ag AI and 160 over 90 and the payment of earn-outs related to influential. On share buybacks, we spend 181 million euros in H1 2026 to cover our LT plans. Others known in cash items represented a positive €235 million versus a negative €274 million in H1 2025. There are two main reasons for the €509 million swing. 2025 was impacted by currency translation deterioration with the depreciation of currencies versus the euro. Change in earnouts improved by €214 million versus H1 2025 as H1 2026 included the elimination of the earn-out debt related to influential. When you consider payment for acquisitions and new earn-outs, we invested 517 million euros in H1 2026. Overall, net cash decreased by 1,763,000,000 euros. Moving to my last slide, net financial debt. The average net debt on the last 12 months was 1 billion and 131 million euros, representing an increase of 295 million euros compared to last year, due to the acquisitions completed over the last 12 months. We closed H1 2026 with a net debt of 1 billion and 215 million euros. And the financial leverage remained roughly stable at one time, as expected. This concludes my financial presentation, and I now give the floor back to you, Arthur.