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Edited Transcript of PUB.PA earnings conference call or presentation 6-Feb-20 8:30am GMT

Full Year 2019 Publicis Groupe SA Earnings Call

Paris Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Publicis Groupe SA earnings conference call or presentation Thursday, February 6, 2020 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Arthur Sadoun

Publicis Groupe S.A. - Chairman of Management Board & CEO

* Jean-Michel Etienne

Publicis Groupe S.A. - Group CFO, Executive VP & Member of the Management Board

* Steve King

Publicis Groupe S.A. - COO & CEO of Publicis Media

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Conference Call Participants

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* Adrien de Saint Hilaire

BofA Merrill Lynch, Research Division - VP & Head of Media Research

* Conor O'Shea

Kepler Cheuvreux, Research Division - Head of Media Sector

* Julien Roch

Barclays Bank PLC, Research Division - MD & European Media Analyst

* Laurence Davison

Deutsche Bank AG, Research Division - Research Analyst

* Lisa Yang

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Matthew John Walker

Crédit Suisse AG, Research Division - Research Analyst

* Omar Farooq Sheikh

Morgan Stanley, Research Division - Equity Analyst

* William Henry Packer

Exane BNP Paribas, Research Division - Executive Director of Media Equity Research

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the full year 2019 results presentation of Publicis Groupe.

For your information, this conference is being recorded.

At this time, I would like to turn the call over to Mr. Arthur Sadoun, Chairman and CEO of Publicis Groupe.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [2]

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(foreign language) And welcome to the Publicis Groupe 2019 Full Year Earning Call.

I am Arthur Sadoun. And I'm here in Paris with our CFO, Jean-Michel Etienne. The 2 other members of the directoire are here with us, our Secretary General, Anne-Gabrielle Heilbronner; and Steve King, COO of Publicis Groupe. As usual, we will take your questions all together at the end of the presentation. Alessandra Girolami is also here and will be ready to take your question offline after this session. We will start this call with an overview of 2019 results and highlights. Then Jean-Michel will give you a full detail on our number. I will conclude by sharing our 2020 business priorities and outlook before taking all of your question.

Now let's dive into the presentation, but before anything, please take the time to read the disclaimer, which is an important legal matter.

Okay. 2019 has been, without a doubt, a challenging year but a constructive one. We have definitely seen the 2 phases actually of our transformation. Our organic growth was severely impacted by the headwinds on our traditional business and the costs of our transition. That said, thanks to our new model, we are shifting our revenue stream, delivering very robust financial results and the best new business performance in the industry. Now that we have finalized our transformation in term of assets and structure, our focus is only on execution. Before Jean-Michel take you through the details of our number, let me share with you the 4 key highlights of last year.

First, 2019 was a pivotal year in our transformation with the acquisition of Epsilon. With this decisive step, we now have the technology and the data capabilities to compete in a market that is incredibly and increasingly driven by personalization at scale. Epsilon is now positioned at -- as a core expertise in building, enriching and activating first-party data, and we haven't lost 1 second to include this capability in our broader offering to clients. We have merged Epsilon advertising activities into Leo Burnett and Arc and decided to place CJ Affiliate under strategic review to explore different ways to unlock value. The integration is largely complete, and Epsilon has had a significant impact already on our client relationship. It has also been instrumental in our major H2 new business wins, with Disney and Novartis being the most notable examples.

We are shifting our revenue stream towards data and technologies, which now represent nearly 30% of our group revenues. With Epsilon, the reported net revenue growth for the group reached 9.3% in the full year and 16.2% in H2, fully oriented toward innovative products and digital services that our clients increasingly need.

Second, our organic growth for 2019 stand at minus 2.3% and came in line with the expectation that we shared with you in October. Our overall performance was severely impacted by 3 well-identified headwinds. The first is the attrition on our traditional advertising business, which represents an impact of around 200 basis points globally over the year, which mean over 300 basis points in the U.S. Second, we have seen the negative impact of a few media loss of 2018. And third, we felt the cost of our transition, mainly with the repositioning of Publicis Sapient in the U.S. The good performance of our game changer, growing by 18%, and the positive effect of our new business were not sufficient to offset these headwinds.

This situation is reflected into our geographical performance. North America was at minus 3.5% for the year, Europe at minus 2% and APAC slightly positive at plus 0.8%. The U.K. and France delivered resilient performance despite tough comparable at the end of the year. Overall, Q4 came in line with expectations, but the headwinds we are facing continue to be stronger. And as we already shared in October, they will continue to have an impact, particularly in the first half of 2020.

Third, thank to our model, we continued to deliver strong financial results while reinvesting in our business. Our operating margin increased by 30 basis points to 17.3%, including significant additional investment in talent for an amount around EUR 100 million. Headline EPS is up 8.2%. We will be proposing a dividend of EUR 2.30, representing an increase of 8.5% versus last year and a payout ratio close to 46%.

We maintain free cash flow generation at a high level, reaching nearly EUR 1.3 billion. This will enable us to fully deleverage in the 4 years following the acquisition of Epsilon as planned and announced. This financial performance was driven largely by our activity mix and our continued efforts in simplifying our structure.

Last but not least. For the second year in a row, we are leading the industry in new business performance, as we can see in JPMorgan and Goldman Sachs research. As I said earlier, Epsilon has made an important contribution to that momentum. When you look at our most significant wins, you can distinguish actually 3 different buckets of win, and we are equally proud of each of them: first, the new clients that have elected the group for their marketing transformation, like Disney or NIVEA; second, existing clients with whom we have pitched a new part of their business, like Mondelez where we won the creative assignments or GSK that's awarded us the Pfizer business they just acquired only 1 year after we won the account; and finally, the existing clients that have organized a review to consolidate, like Novartis or AXA, where we have been able to regain their trust for the future and get more business. It is important to underline that, at the same time while we were doing these efforts, we have not lost any major global accounts in 2019.

The new business momentum is actually continuing in 2020. Just yesterday, Bank of America has decided to consolidate its creative business with Leo Burnett to accelerate their data-driven creative approach with Publicis.

I will now let Jean-Michel go into the detail of our numbers, and I will then come back to you with our priority for 2020.

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Jean-Michel Etienne, Publicis Groupe S.A. - Group CFO, Executive VP & Member of the Management Board [3]

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Thank you, Arthur. And good morning, everybody.

I will now present our Q4 revenue and 2019 financial results.

As usual, let's start with net revenue, which is up 9.3% on the reported basis at EUR 9.8 billion. Currencies have a 3.1% positive impact. Acquisitions impact is at plus 8.5%. All in all, the organic growth in 2019 is minus 2.3%, in line with our October update. For Q4 2019, net revenue is up by 15.2% on the reported basis. Currencies have a 2.1% positive impact. Acquisitions have a positive impact of 17.7%, thanks to Epsilon. However, organic growth is down by 4.5% in Q4.

Moving to Page 9, let's present the net revenue by geography.

In Europe, net revenue is down 7% on an organic basis. This is largely explained by the consequence of the few 2018 media losses combined with some specific items: first, the high comps in Q4 last year in the 3 main countries of the region, with a double-digit growth in Germany in Q4 2018, for instance. Second, in the U.K., the uncertainty linked to the Brexit had an impact in Q4 because of our exposure to financial services. And finally, France is impacted by some projects that have ended as expected; and some reduction in scope of work at the end of the year, which is typical in Q4, which is an adjustment quarter.

North America at minus 4.2%. This is explained by the U.S., where attrition is continuing; but also with the 2018 media losses with high -- and high comparatives at Publicis Media; and finally the repositioning of Publicis Sapient on business transformation.

Asia Pacific is down 2.3% with some pressure due to macro environment, mostly in China. Latin America returned to positive at 0.9%, supported by easier comparatives for this quarter. Middle East and Africa is down by 1.2% in a context of high comps and some digital business transformation projects which have been completed.

Thus for the group, organic growth is down 4.5% in Q4.

In Page 10, you will find the performance for the entire year by geography. I will just give you the growth on an organic basis. Europe is down by 2%. North America is down by 3.5%. Asia Pacific is up by 0.8%. Latin America decreased by 4.5 -- 4.9%. Middle East and Africa is growing double digit for the full year at plus 10%. For the group, organic growth is at minus 2.3% in 2019.

On Page 11, let's have a closer look at our performance by country. Above 10%, we have, for example, United Arab Emirates at plus 17% and India at plus 10.4%. Between 5% and 10%, you will find Canada at plus 8.3% and Malaysia at plus 5.3%. Between 0% and 5%, Israel is at plus 3.2% and Spain at plus 1.1%. Below 0%, we have U.K. and France close to 0, very close to 0, with respectively, minus 0.2% and minus 0.8%; China, minus 1.8%; and the U.S. at minus 4.1%.

Let's move now to our consolidated income statement on Page 12. I want to remind you that Epsilon is consolidated from July 1. And in order to present an accurate comparative analysis, we have isolated the Epsilon transaction costs, as already disclosed in H1, for an amount of EUR 40 million before tax.

To introduce our income statement, we have in reality 3 buckets. First bucket starts with EBITDA, which stands at EUR 2.245 billion, up by 9.6% year-on-year. Excluding Epsilon acquisition costs, EBITDA is up by 11.5%, and operating income by 11.6%. Operating income stands at EUR 1.699 billion, Epsilon contributing, as said already, on the last 6 months. Second bucket is our headline group net income, up by 9.8% at EUR 1.188 billion after taking into account net financial expenses of EUR 106 million and income tax of EUR 396 million that will -- I will detail that later in my presentation.

Third bucket is further down in the P&L with the group net income, which is down by 8.5% at EUR 841 million and includes the Epsilon transaction costs, net of tax, at EUR 30 million; a capital gain of EUR 21 million, mostly coming from the disposal of Publicis Health Services. It also includes some noncash items, namely the amortization of intangible of EUR 153 million, net of tax; the real estate consolidation charge due to vacant location as well as an impairment charge, for a total of EUR 163 million, net of tax; and the revaluation of earnouts, representing a charge of minus EUR 22 million.

On Page 13, let's now enter in our operating margin details.

To start. Personnel costs decreased by 2.1 percentage points, representing 60.8% of net revenue. The reduction of this ratio is mainly due to the consolidation of Epsilon, which is typically less people intensive than the rest of the group. Restructuring costs at EUR 118 million (sic) [EUR 116 million], up by EUR 12 million versus last year, in line with our transformation plan. Other operating expenses amounts to EUR 1.586 billion, representing 16.2% of net revenue compared to 14.2% last year. Again, this is largely due to the Epsilon consolidation, which have higher other operating costs than the rest of the group, and EUR 40 million of Epsilon transaction costs before tax.

This leads us to an operating margin of EUR 1.7 billion, excluding Epsilon acquisition costs, representing an operating margin rate of 17.3%, up by 30 basis points versus 2018, in line with indication given in October.

If we move now to Page 14, showing the change in operating margin rate. Foreign exchange, mostly due to the U.S. dollar, combined with M&A with the disposal of PHS and Proximedia, had a 50 basis point positive impact on operating margin rate. This does not include the impact of Epsilon, which is shown separately. Higher restructuring charges than 2018 had a 10 basis point impact. As part of our strategic plan, we continue to invest in talent to grow our game changers. We have also been active in hiring key talents to support the future of our creative and media operations, notably in the second half. All in all, this has an impact of 120 basis points.

The implementation of our new organization, especially regarding the country model, implies some simplifications, which have brought 40 basis points to the margin. We also benefit from 30 basis points in lower occupancy costs coming from our real estate consolidation plan. Variable compensation has been mechanically affected by the miss of our targeted organic growth. On the other hand, the portion relate to the operating margin and cash flow has been raised, as we over-delivered on these targets. The net impact is 70 basis points. Other operating costs, including bad debt, had a negative impact of 20 basis point. Depreciation had also a negative impact of 20 basis point. And finally, Epsilon has a positive impact of 10 basis point on the margin as expected.

Overall, this has led us to deliver in 2019 an operating margin rate of 17.3% excluding the Epsilon transaction costs.

Regarding now the net financial expense on Page 15. The amount of interest paid has doubled in 2019 due to the Epsilon acquisition, largely financed with a EUR 2.250 billion bond issue. This is partly offset by the increase in interest income coming from our cash generation over the last 12 months. All in all, interest on net financial debt amounted to EUR 25 million versus EUR 11 million last year. When we include 3 elements, which are, first, the interest on lease liabilities following IFRS 16 implementation; second, the net exchange gain or loss; third, the other financial expenses, the headline net financial expense is a EUR 106 million charge versus an 80 million charge in 2018.

After change in the fair value of financial instruments, net financial expense are up by EUR 20 million at EUR 91 million.

Regarding the income tax, on Page 16. The 2019 tax rate is at 25%, up 100 basis point versus last year. We should note that in 2019 we have additionally the impact of the BEAT tax, which is a U.S. tax on imported high-added-value services, for roughly EUR 20 million, which compared to EUR 30 million estimated at the beginning of the year. For 2020, we expect an effective tax rate to be slightly lower than 25% in a context where some countries have decided to lower their corporate tax rate.

On Page 17. The headline earnings per share fully diluted is growing by 8.9% year-on-year to EUR 5.02 at constant currency. And excluding the BEAT tax, headline EPS fully diluted is up by 8.2%.

Moving on Page 18, relating to the dividend. We will propose a dividend of EUR 2.30, representing an increase of 8.5% compared to last year, reflecting the increase in the headline EPS. That would imply a payout ratio of 45.8%, up by nearly 100 basis point, slightly above our commitment of 45%. The dividend will be submitted to the AGM on May 27.

On Page 19. Free cash flow before change in working capital is EUR 1.253 billion, up by nearly EUR 100 million compared to 2018, improving by 8.2%. The main items are, first, the EBITDA at EUR 2.245 billion, up by EUR 196 million, mostly thanks to the contribution of Epsilon in H2. Second, the tax paid is EUR 349 million, up by EUR 21 million, an increase mainly due to the BEAT tax, as already mentioned. Third, the CapEx is EUR 225 million, up EUR 29 million, with the contribution of Epsilon in H2.

Going into the change in working capital. It is a positive EUR 394 million this year, supported by a few positive elements such as our cash management policy and a better overdue recovery as well as the impact of Epsilon. Now as I've been saying that during years, 4 years, the objective is to be neutral on the change in working capital year after year.

Overall group free cash flow amount to EUR 1.647 billion, growing by EUR 336 million.

If we move now to Page 20, showing the use of cash, you can see that the main impact on the increase of our net debt is, of course, the acquisition of Epsilon. Indeed acquisition, net of disposal, amounted to nearly EUR 4 billion in 2019. The earnout and buyout paid is EUR 125 million. The dividend is an outflow of EUR 297 million. We have also a noncash impact on net debt of minus EUR 283 million. Last year, it was a positive impact of EUR 183 million due to foreign exchange impact on the debt. This year, foreign exchange impact is smaller, but there are 2 main other items, which are the change in the mark-to-market value on cross-currency swaps due to the drop in the U.S. dollars interest rate. And the second reason is the impact of the new earnout and buyout. That leads to an increase in net debt of EUR 3 billion.

On Page 21, we are presenting the balance sheet. The biggest impact is, of course, the acquisition of Epsilon; and to a lower extent, currency impact.

Goodwill and intangibles are increasing by EUR 3.7 billion to EUR 13.6 billion. On the liability side, you can obviously see the increase in net debt to finance the acquisition. We are also regrouping all our people in the same building in New York, allowing a better collaboration between our teams, and thus committed a lease extension in June. This translate into an increase of EUR 400 million in the net right of use and a rise in lease liabilities under IFRS 16.

Let's move to Page 22, about the net financial debt. Average net financial debt is EUR 2.375 billion, up by EUR 1 billion versus last year. I will remind you that, in 2019, the debt linked to the acquisition of Epsilon has been accounted for only 6 months in the average. As it will be taken into account for 12 months in 2020, of course, the average net debt will naturally increase. Net financial debt at the end of 2019 is at EUR 2.7 billion.

Regarding our financial ratios, on Page 23, we show the evolution of our financial ratios, including the IFRS 16 impact, which means including the impact of lease liabilities. With 6 months of Epsilon including in our average net financial debt, our leverage ratio is increasing by 0.5x to 2.1x EBITDA. We also confirm our goal to deleverage in 4 years, reflecting our prudent approach in term of balance sheet management.

To conclude my presentation now, a brief word on our strong liquidity position at the end of December, standing at EUR 6 billion.

And now I hand back to Arthur, who will give you an update to our strategic outlook. And of course, I remain available for question during the Q&A session.

Thank you.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [4]

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Thank you, Jean-Michel.

Before we take your question, let me give you an overview of where we stand strategies and our priority for 2020.

In 2019, we completed our transformation in term of assets but also in term of organization. During this period, we have been obsessed with what our client wants. More than ever, they have to differentiate and add value to their product through creative excellence and navigate the increasingly complex media landscape, but they also need new capabilities to take back control of their customer relationships and adapt their business model to the digital ecosystem. Thanks to the investments we have made and all the changes we have implemented, we are now uniquely positioned to deliver what they need to continue to grow profitability, this through the 4 pillars of our offer. First of all, with iconic creative brands, we can deliver groundbreaking dynamic creativities. Thanks to our unique media networks, tool and partnerships, we have unparalleled clout and scale with a strong leadership position in the U.S. With Epsilon, we have the technology and data expertise to build, enrich and activate client first-party data. And finally, with Publicis Sapient we have the engineering and the consulting capabilities to redesign their operation with a customer-centric view. We not only have all of these expertise at scale now with Epsilon, but we are also able to deliver them seamlessly, which is exactly what they need. And thanks to our country model, we are able to do that in every country; and by the way, to do it globally through our unified client P&L and the Power of One.

Today, our model is clearly adapted to our client needs, as you can see on this chart. And it has been the case, and it has made the difference when we have been pitching those new business track record that you have seen. Now for 2020, our priority is to execute on the 4 steps of our organic growth recovery plan: first step, stabilize and progressively return to growth in our advertising and media activities. In 2019, we completed the necessary changes to our organization to set the foundation for this. This is done and won't need any further improvements. In 2020, we will focus on leveraging our new structure to foster cross-fertilization in order to improve our performance, thanks to 3 structural actions. We have finalized our country model over 10 operation, each with a single P&L and a single leadership team. In the U.S., which represents more than 55% of our activities, we have appointed a single governing body, the U.S. ComEx, that I am personally sharing, composed of our key leaders in the market. This year, for the first time, business plans have been following this country-led structure. The incentives model has shifted from global expertise to country or regional performance and is designed to reward overall delivery on those targets. This should accelerate our ability to cross-sell and upsell our expertise in creative and media, of course, but also in other areas like production, commerce and CRM. We are leveraging our client-centric organization with our top client to fight attrition and grow with them. Growth plan have been defined for each of them across our 10 markets and around 6 different capabilities. Finally, we need to increase our win rates in regional and national accounts and pitches. We will apply our new business model that has enabled us to win most of the largest pitches in the last 2 years to mid-size opportunities.

Second step, we will bring back Publicis Sapient to growth in the U.S. by making the necessary changes to turn-around the situation there. As we have announced at the beginning of last year, we are focusing Publicis Sapient U.S. on business transformation through industry verticals, actually reflecting the structure that supports growth in Publicis Sapient internationally. This involves again 3 decisive moves.

First, we integrated Publicis Sapient U.S.' digital marketing activities with our creative agencies under the brand of Razorfish to strengthen our relationship with shared clients and drive cross-fertilization. Second, as we do this, we are also disengaging from small one-off projects and digital marketing services to focus on resources that are less labor intensive, with additional growth potential. Finally, positioning Publicis Sapient U.S. solely around digital business transformation means we are also shifting from project-based work to multiyear client assignments. These are necessary measures, and it is the right thing to do if we want to drive sustainable future performance in the U.S. for Publicis Sapient. And they are and do exactly the same as what we have done internationally. These changes produce already some positive results, but it will take time to fully materialize in our numbers.

Third step, we will leverage Epsilon expertise for all of our assets. In only 6 months, we have put Epsilon at the heart of the group, and the integration is largely complete. We now have one unified team, gathering all the Publicis Groupe data and capabilities under Epsilon leadership. We have built a unique data platform, Epsilon PeopleCloud, that spans the old data value change (sic) [chain] in onboarding, enriching and activating our clients' data. And Epsilon has been connected to our shared services. We have also started to expand Epsilon outside of the U.S., thanks to our footprint, and we are preparing the rollout of Epsilon PeopleCloud in key European countries.

There have been many questions during the last months on whether a group like Publicis should own data or not. We actually believe that the right question is another one: Can our clients afford to fully outsource the management of their own data to a walled garden or an e-commerce platform? Or should they also start to build their own data capabilities? Some will tell you that an agency role is only to help clients navigate around a complex digital ecosystem of computing platform. Let's be clear. Of course, our clients need the scale of a platform [to be held], but at Publicis we also believe that they are actually jeopardizing their future if they don't start building a direct relationship with their own customers through first-party data. It is not a coincidence that the companies that are the most advanced in this domain are also the most successful ones. This is why we offer both.

On the one hand, with Publicis Media, we have developed over the last decade the right capabilities and partnership with the Google, Facebook and Amazon of the world. The billing we are managing and the new business performance in 2019 clearly demonstrate that we are a leader in this market, but as we believe clients need to control their data, we are also bringing with Epsilon something unique that none of our competitors have, data and technology at scale to help our clients build their first-party data and start to engage directly with their customer in a personalized way at scale. This is actually becoming even more important in an environment where privacy requirements are increasing. Third-party cookies are likely to disappear. And some platform are changing the rules constantly, as we have seen recently with Google Chrome. Combining Epsilon capabilities with our traditional business give us a unique point of difference on the market.

As I said earlier, today, our data and tech capabilities now represent nearly 30% of our revenues. In the future, they should be the biggest contributor to our growth, seamlessly connected with our traditional activities in creativity and media. We will now focus on execution, with 3 clear areas for investments: talent, training and CapEx. This is the first step of our organic growth recovery plan.

We are a people business. In 2019, while we were implementing our model, we continued to promote a new generation of leaders in strategic positions in our most iconic brands, our biggest countries and our top clients. Only last year, we have invested an additional EUR 100 million in talent. We promoted 100 leaders internally and hired 150 top executives. This is one of the reason why we are actually performing so well in new business. We made the decision to transition our talent profile and actually proceed to a massive talents uplift. This mean we have also have to let go some people, as reflected in our restructuring cost of EUR 116 million last year. We will continue exactly the same strategy in 2020 by attracting the best people but also continuing to transform and change the kind of profiles we need for the future. To do so, we have put in place a new talent organization, and we will also align our incentive plan to encourage greater collaboration across teams.

Embarking everyone in our transformation journey is exciting and demanding. This mean we will need to overinvest in term of trainings. Our L&D program, learning and development program, should allow everyone to play an active role in our transformation. We will invest more than EUR 50 million in 2020 to continue to develop the initiatives taken in 2019 to raise knowledge on our expertise, products and services.

And on CapEx, our approach will reflect the fact that we are now both a service and a product company. This is why our CapEx should reach around EUR 300 million in 2020, including the integration of Epsilon. As a percentage of net revenue, this is above a traditional agency profile and perfectly demonstrates the uniqueness of our business model with investments that will make a difference to future growth initiative and new capabilities.

So in 2019, despite the challenge faced on organic growth, we are shifting the revenue profile of the group. We are demonstrating the attractiveness of our offer in transformative pitches and consistently delivering robust financial ratios. Now that our transformation is completed in term of asset and structure, our organic growth recovery plan will be our main focus. We have to be realistic: This recovery won't happen overnight. We have designed our road map to drive profitable organic growth with a revenue mix that fits with our client needs in the future, but in the short term, we will still experience headwinds. And the cost of our transition will continue to impact our growth rates.

When it comes to 2020 outlook, we are confirming what we said in October. Our organic growth should be between minus 2% and plus 1%. We therefore anticipate that the first half of the year should be negative, particularly in Q1. Most of the improvement will come in H2. We will update you on outlook at the end of H1. We will then have more visibilities on the 4 well-identified elements that will shape our performance for the year: the attrition we are experiencing on our traditional expertise; the new business ramp-up, mainly in our media activities; the result of the shifts we are undertaking with Publicis Sapient in the U.S.; and the contribution of Epsilon in H2. As for margin, our model makes us confident that we will sustain our margin around 17%; and it will continue to be supported by the simplification of our structure, on one side, and our new revenue stream.

2019 was a tough fight. They've made us stronger. We are more ready than ever to work as a united team. Now we will put 100% of our energies in executing our road map.

(foreign language). To conclude our presentation, I would like to thank our clients for their support in this transformation journey and, of course, everyone at Publicis Groupe for their efforts. I would also like to express our solidarity with our teams and clients in China. We are constantly monitoring the situation and are here for them at any time.

Thank you very much for listening, and now we will take your question.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Lisa Yang from Goldman Sachs.

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Lisa Yang, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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I have 3 questions, please. Firstly, to follow up on your comments around Google Chrome dropping the third-party cookies. I mean investors seems to have been very worried about being part of Epsilon. And it looks like you imply this could be an opportunity, so could you elaborate on that more specifically? The second question is on Sapient. Could you maybe give us some color in terms of how much of the business has been already transitioned away from the long-tail/digital marketing services? How much biz is there left to do? Is that mainly in Q1? Could there still be a few left to do in Q2, Q3? And have you seen any positive impact from that transition on your DBT business? If you can comment on the pipeline of new contracts you might have got, so far. And thirdly, it's about the level of attrition. I'm just wondering how much of that is related to client-specific issues. And is there anything you guys could do in 2020 to reduce that? And related to that issue specifically, P&G has been talking about reinvesting in marketing spending lately and has also outperformed on organic growth. I'm just wondering if that could ease the level of attrition for 2020.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [3]

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Lisa. I'm afraid the 3 question are for me. I was hoping that someone here could take one of those, but I will start. I will take it the other way around, or maybe I'll start with attrition. First of all, we don't comment on any particular client, but the good news is the client you just mentioned comment on us, so my feeling is that you should ask him a bit our position there. He will tell you more things than I can in my position. Are we fighting attrition? Of course. And actually, the exercise we did this year with a business plan with our top clients to make sure that we find every opportunity for cross-fertilization is a big operation. I don't know if you remember last year, but I announced that someone called Ros King, nothing to do with Steve King, by the way, that -- was coming onboard. She was the CMO of Lloyds. She was coming onboard to help us manage a business plan for every of our clients. This is in place. We did all the business plan. Of course, we have a growth plan for every of our clients. And so we are doing everything we can in this area. And as you have seen, this is a very well-identified point that we have to manage. Now to give you a bit of flavor on that: And I mean, although we are seeing encouraging signs that actually attrition could slow down, and we are again doing everything we can, we are not seeing yet this in our numbers. So, so far, as you have seen in our press release, we are taking a conservative view on attrition, hence the minus 2% low end of our organic growth outlook. So again this is things that we'll be able to update you at the end of Q2, but I want to make sure that we do the things properly. It's way too early, honestly.

Sapient. I'm not going to go into every detail, but I think you're right, the fantastic question about marketing services. And Sapient, what we did is pretty simple. We have a model internationally that is based on industry practices or industry verticals, I will call it, where we sell business transformation that has been delivering growth every year for the last 5 or 6 or at least for the time I know Sapient. It's brilliant because it's exactly what our client needs, and it's very complementary to our marketing offer. So we are really bringing together marketing transformation with media and creative and business transformation with Sapient, and now we can put data at the core. So this is very powerful. And the reason why we've won what we have won this year -- by the way, I will invite you to look at the press release of some of the client that we win, and you will understand that they are not seeing us as a communication partner but as a transformation partner. And again, it's not me saying this. It's our clients. But coming back: In the U.S., we have a very different position because it was organized by geographies. It was a mix of marketing services, a bit of consulting here and then different things. And we took the hard decision to rationalize, obviously. Nigel Vaz, that hasn't slept a lot for the last year, has done an outstanding job since he took his job in March to actually come with industry verticals with new kind of leaders. We brought people from the Accenture, BCG and McKinsey of the world to help us bring this culture in the U.S. And we are starting to see the beginning of traction, but we had all those people working in digital marketing services that are actually brilliant. It's great talent. It's people that we have here. And this is exactly what our creative brands need to actually come with a fully fledged offer that goes end-to-end in term of marketing transformation. So again, we didn't think in term of operation. We thought in term of talent. We brought -- I'm not going to give you all the name, but we brought, at least I'll give you one, the CEO of our East operation on creative, Jem Ripley, that came from Capgemini but that of -- were the former Sapient manager, so new in the company, to actually take on our creative agencies there and bring with him all the marketing services expertise and, more importantly, talent that we were having in Sapient. It made 2 things. First, it's enabled Nigel Vaz and his team to focus on business transformation and on experience because -- don't get me wrong. The difference at Sapient compared to an Accenture is we know the brand. We understand creativity, and we're able to deliver experience. And so they brought that to their client and focused on that, while all of these people, and you will forgive me if I can't give you the detail of the number, moved into our creative agencies. And again I have to be realistic: We will see progress on our growth, but it's going to come step by step. But what we are seeing there is, for sure, incredibly encouraging when you look at the dynamic of the talent; very encouraging when you look at our new business; and hopefully, will start to pay in our organic growth.

Now the Google question is a key one. And again, I'm sorry, my friends. I -- probably the next question is for you, whatever it is. If it's on the creativity, we'll give it to Jean-Michel. The decision announced by Google will have a significant impact on the entire marketing ecosystem, agencies; publisher, a lot publisher actually; clients; and customers. The truth is we still don't know at this stage what will replace cookies at Google Chrome, so I have to be cautious in what I'm telling you, but there are some certainties that I can share with you at this stage. First, when it comes to Publicis, these announcements implied limited risk and a far bigger opportunity, thanks to the acquisition of Epsilon. If you give me a minute, let me remind you what is Epsilon, why it will not be affected and how it will be an opportunity for us. First, I have read during the quiet period in some reports that Epsilon is heavily reliant on cookies. This is completely inaccurate. Why? Let me explain you why. Because the data gathered by Epsilon is actually very diverse. It's online and off-line, also off-line. It's behavior and social demographic. It's intent and transaction. Let's go into facts. Epsilon can see more than 55% of a noncash transaction -- of the noncash transaction in the U.S. You are what you buy. We see 1 bought by out of 2 on the credit card in the U.S., okay? They have gathered -- and this is critical. They have gathered 200 million individual IDs, which is the base to create customer relationship. And out of those 200 million individual IDs, they are going up to 7,000 attributes to look at how people behave. So clearly, this is why any decrease in third-party cookies will not materially impact Epsilon rich datasets. That's the first point, but there is a second one. We believe that what has been announced will be an opportunity for us. As our clients, we need to find alternative ways to deliver personalization at scales with transparency in measurements; I mean it's as important to deliver personalization at scale then to deliver it with transparency in measurement. If you don't have the transparency, you won't build a long-term relationship with your clients. We can do both. And where it gets very interesting, and maybe Steve can elaborate a bit on that, when you combine Epsilon expertise with the leadership position of Publicis Media in the U.S., we are building a unique point of difference in the market that is evolving constantly. We have seen that in the recent past through our new business track record. And you already have -- I mean I won't comment on any client that we won, but if you take some clients that we won and you compare with the kind of results they have post on things that we have done together, you will understand that our unique capabilities to understand customer; to build, enrich and activate first-party data; and bring the scale of media makes the difference. Everyone talks about personalization at scale. We know how to personalize, but you should never forget that we also have the scale with media. You need both. If not for our big clients, and you named a few, they won't be able to fight against a direct-to-consumer brand. Steve?

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Steve King, Publicis Groupe S.A. - COO & CEO of Publicis Media [4]

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Thank you, Arthur. I hope you can understand my accent. I think, as Arthur says, the -- what Epsilon very simply brings us is technology and data and scale and helps our clients manage their own data and other first-party data much more effectively. I think you saw that, during 2019, we finished #1 in new business again. And certainly for the major clients that we converted in the second half of the year, after we closed the Epsilon transaction, Epsilon was a core fundamental component of those successful wins. I suspect that without Epsilon I don't think we would have had the same differentiated offer for those clients. So you could see the scale of those clients. Arthur referred to some of those earlier. So in the same way that we've been using Sapient behind all of our successful pitches before 2019, the second half of the year, we really saw how clients were reaching into how we could use technology and data in a really compelling way.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [5]

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I mean, I think everyone need to assume that the role of the walled garden will get higher, and we want to make sure that we can help our clients build an alternative when they want to take back control on their customer. And again, we should not oppose both. As I said in the presentation, we need to make sure that we leverage the scale of those platforms. And Publicis Media is doing an outstanding job on that, but in the same time, they need to build a direct relationship with their customer. Thank you, Lisa. Sorry for the long answer, but I guess it was an important point, so hopefully, it was not too long, yes.

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Operator [6]

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(Operator Instructions) We will now take our next question from Conor O'Shea from Kepler Cheuvreux.

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Conor O'Shea, Kepler Cheuvreux, Research Division - Head of Media Sector [7]

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Three quick questions as well. And first question, just on following up on the -- from the previous question on the repositioning of Sapient U.S., just to clarify. Did that already start in the fourth quarter? And in your guidance of -- for 2020 of minus 2% to plus 1%, what kind of range of sort of headwind are you assuming for that repositioning? Second question, on Epsilon. I think on the previous -- Q3, you gave the number for the organic growth for Epsilon, and I wonder. Could you share it for the fourth quarter as well? And then the final question, maybe for Jean-Michel, could you give us some guidance on financial costs and restructuring costs in 2020?

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [8]

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Thank you. If you don't mind, I'm going to take question one, on Sapient. Then I'm going to give Jean-Michel, and I will end up with Epsilon for the last quarter. Sapient U.S., yes we did start it, and again this had a big impact in 2019. And it is one of the well-identified elements that will make the difference next year. Let me tell you quickly what we did. We changed the management team in February or March; and put Nigel Vaz that is the one who made the success of Publicis Sapient internationally, to build it in the U.S. He know how to do that. He has a fantastic group with clients. He has been with Sapient for 20 years, but he's a very modern manager. And I hope he's not listening to the call. And he is doing a very tough, because we are talking about a big, big shift, but a great job at the moment. And as I said, we are starting to see the results, but it's way too early to see it in our numbers. So to make a long story short: We have not waited to start it. Actually, the structure is in place. The organization is in place. Most of the talent are there. For example, we brought a fantastic creative called John Maeda because, again, one of our differentiator is that we take an experienced view and a customer view on business transformation. So this is actually starting to get traction. We have taken the tough decision to cut the long tail, to move from project-based to long-term contracts. We have decided to focus our best people on the projects of the future versus short-term organic growth. Now as you rightly pointed out, in the well-identified elements that will make the difference between the minus 2% and the plus 1%, Sapient in the U.S. has definitely an important role to play. No pressure, Nigel. I think, Jean-Michel, you want to take the next one. And then I answer on Epsilon.

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Jean-Michel Etienne, Publicis Groupe S.A. - Group CFO, Executive VP & Member of the Management Board [9]

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So Conor, I will answer regarding the restructuring charge for 2020. So we expect restructuring charges to be at a similar level as in 2019, with some postponement from 2019 to 2020. So we should expect that amount between EUR 110 million and EUR 120 million, okay?

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Conor O'Shea, Kepler Cheuvreux, Research Division - Head of Media Sector [10]

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Okay. And the financial costs with a full year of debt sort of from Epsilon?

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Jean-Michel Etienne, Publicis Groupe S.A. - Group CFO, Executive VP & Member of the Management Board [11]

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Regarding the financial costs, we should -- we could expect plus EUR 60 million for -- regarding the acquisition of Epsilon. This is what we have in our forecast.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [12]

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So on Epsilon, I will answer. First of all, most of them are in the U.S., so I guess not a lot of them are listening to this call, but the least we can say is that the Epsilon team had a very, very busy year. When you take it back, we had the sales process during all H1. We had the integration as soon as H2, and honestly, it is almost completed. And more importantly, so far, it is really a success. What we didn't wait actually 1 day, for them to focus on new business with us. And this is what you see, what you have seen on the Novartis and even more importantly on Disney. And if it was not enough: We have done everything that we said in term of efficiencies, which had obviously very important impacts on the top line. So a very busy year. Now as anticipated and as we said from day 1, Epsilon total organic growth for the year is at minus 2% on the full year. This is, and it's a very important point, fully explained by CJ Affiliate and the agencies. The truth is we did not wait 1 second to address the difficulties of these both businesses that represent more than 100% of the decline. CJ Affiliate, I told you quickly, we placed them under a strategic review to explore different ways to extract value while they are starting to collaborate with Publicis Media. The agency took a week. We merged it with Leo Burnett and Arc, which by the way is giving great talent to those networks. I was talking about our win on Bank of America with Leo Burnett. You can see how energized the brand is. And we created immediately, thanks to those capabilities, center of excellence in [shopper] and CRM in Chicago with Leo Burnett and Arc, but we did that, I would say, in the first month, which by the way had an impact. Again, this is why you have this number. We cut the long tail. We kept the good people. I mean we did the work that needs to be done when you start it.

Now let's focus on Epsilon 2.2, which is roughly 80% of the business, which is what we -- which is our expertise in building, enriching and activating first-party data. The growth of 80% of Epsilon, which is what we bought, what is making the difference in new business and will help us and help our client to navigating the change we just talked, the growth over the year is a plus 1%, with a flat H2, which is exactly in line with what we are expecting. So we are on track. Now it's really about using our Epsilon PeopleCloud platform to actually deliver personalization for our clients, continue to grow our business through cross-fertilization and new business and don't miss the culture. I made the point about learning and development. This is also why we are increasing our pool there, is we have a fantastic engine that represents a massive opportunity to help our clients in a new way. And again, the Google Chrome announcement helped that, but we need to make sure that it's spread everywhere. Hopefully, we made a simple and comprehensive presentation about our 4 pillars. Epsilon is the new one in the family. And we need to make sure that people that are not part of Epsilon but we'll need them in media and creative in Sapient can understand how it works.

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Operator [13]

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We will now take our next question from Julien Roch from Barclays.

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Julien Roch, Barclays Bank PLC, Research Division - MD & European Media Analyst [14]

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I have 4 questions, but they're all numbers driven, and you can answer in less than 1 minute. I'll ask them one by one, if that's okay with you. You're moving to one Publicis, but you still have verticals like communication and media. How much did media grow in 2019? If you don't want to give us an exact number, and I would prefer an exact number, can you tell us whether it was negative, 0 to 2.5, 2.5 to 5 or 5 to 7.5?

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [15]

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No. as you know, we don't give -- we don't give the number per expertise, but the reason why we are doing it, honestly, is because it's becoming more difficult also to differentiate the value that each of our operation brings. I'm going to give you a very simple example. When you win Disney, it is a media pitch, okay? But when we go on stage, we said we're not going to give you a media proposal. We're going to explain you how we can help you to transform your marketing. True for Beiersdorf, true for Novartis, true for Daimler before that. It's we come on stage and we explain that. And so the winner is going to be Publicis Media, but the different component of the pitch: We'd love to help and then follow up in the same way. This is why we are moving to a country model. I think that, I guess, it's difficult for you to understand how much of a shift it is. When you start to say in the U.K., not to talk all the time about the U.S., that you're going to have a single CEO with a single team under a single P&L; and that what our client needs is more integration, it's to connect creativity with media, with data and technology -- and for the sake of this transformation, we start to -- we need to start thinking in term of the Power of One and bring an end-to-end solution. This changed the culture definitely but also changed the way we report our number. And so I can't give you a detail on that. I can tell you that, if you look at the new business table, you will see that Publicis Media won most of the pitches; and at least the 2 biggest in 2018, which were GSK and AXA; and this year, again not most but all the significant pitches, with a significant difference which is we haven't lost any major accounts in 2019. That was the first one. Sorry. It was not a 1-second answer.

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Julien Roch, Barclays Bank PLC, Research Division - MD & European Media Analyst [16]

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It's okay. That's okay. Attrition costs, 200 basis point in 2019, but how much was attrition in terms of revenue either in euros or percentage in 2018, the starting point; or in 2019, the ending point?

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [17]

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Roughly the same, I mean, that size now. Really, the size was roughly the same. This is why we are staying very realistic for next year. Again, we are feeling that attrition is slowing down mainly because we are cross-fertilizing better, but for the moment, there is no impact on our number. And by the way, we continue to see some clients that are calling you and you just have to look at the earnings and compare it with our clients that are saying, "We are in a significant, massive cost-saving plan. And as a partner, you will have to take a part of it." And as you know, we are very, very exposed in traditional advertising, which is a good news for our margin but not always a good news for our revenue because this is what they cut first. And we have to assume at this stage that, if we want to be realistic, there will be attrition, for sure. Will it be the same level of '18 and '19? Too early to say. We'll tell you more at the end of H1.

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Julien Roch, Barclays Bank PLC, Research Division - MD & European Media Analyst [18]

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And then sorry, Arthur. I wasn't clear. I'm not asking what's the impact of attrition, which was 200 basis point in 2019. I'm asking what is the percentage of revenue that you consider to be attrition. So did you start -- is attrition 30% of revenue? Is attrition 50% of revenue?

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [19]

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If I understand well your question, it touched -- you're asking what part of our activities is impacted by attrition. Or...

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Julien Roch, Barclays Bank PLC, Research Division - MD & European Media Analyst [20]

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I'm asking what percentage of revenue. When you say attrition impacted revenue by 200 basis points, which is the annual impact, what is the starting point or the ending point? When you say...

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [21]

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I've got it. So we are talking about the creative business. That is roughly 30% of our revenues or roughly EUR 3 billion.

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Julien Roch, Barclays Bank PLC, Research Division - MD & European Media Analyst [22]

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Okay. Third question is impact of net new business in 2019 overall. You said negative, but how much? And whether you can give us any indication on 2020 already.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [23]

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Net new business is positive. You just have to look at the different report, but I can't give you a number.

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Julien Roch, Barclays Bank PLC, Research Division - MD & European Media Analyst [24]

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I thought you say in the statement that net new business in 2019, if you include the losses in 2018, was negative.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [25]

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No -- or I missed something, yes, but maybe, Jean-Michel, do you want to add something on that?

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Jean-Michel Etienne, Publicis Groupe S.A. - Group CFO, Executive VP & Member of the Management Board [26]

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The contribution is positive. There are other factor which explain, of course, our negative organic growth of the year...

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [27]

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No, no. If you want to decompose our organic growth, it's pretty simple. There is 2 good news and 2 structural headwinds. The good news is our game changer are continuing to grow, of course less than the past year because the scale is bigger but 18%. And our net new business is definitely positive. But then when you add to that the attrition we're having on our traditional business, on one side, and the costs of our transition, you understand the net. And what I was saying earlier on my presentation is that, although our game changer are progressing in a good way and although new business is helping our growth, it's not enough to compensate the headwinds we are seeing on the both item I just mentioned.

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Julien Roch, Barclays Bank PLC, Research Division - MD & European Media Analyst [28]

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Okay. And last one, CJ Affiliate, which you're selling. What were the revenues and operating profit in 2019. So we can have the base and deconsolidate CJ Affiliate.

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Jean-Michel Etienne, Publicis Groupe S.A. - Group CFO, Executive VP & Member of the Management Board [29]

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Not a lot of change compared to what you know already regarding CJ, Julien. This is roughly $150 million revenue with a high margin, as you know.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [30]

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But again, we put it under strategic review, and we are exploring the different option at this stage. The thing is, hopefully, you would agree that we did not lose a second to integrate Epsilon. And the reason why, honestly, integration is going so well is that it's not 1 or 2 people that bought Epsilon. It's an entire management committee that decided that this is what we needed. And once we did that, the integration has been way faster. We have spent most of our time on what is the future of Epsilon and the future of Publicis. We share their ability to build, enrich and activate first-party data, which is 80% of the business. We have been fast in integrating the creative business because we knew that for revenue and cost reason it was making sense. And by the way, the expertise they were having was precious for Leo Burnett. On CJ, we're taking our time. It's we're going to do what is best for everyone, starting with our shareholders. We're taking our time.

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Operator [31]

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We will now take our next question from William Packer from Exane BNP Paribas.

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William Henry Packer, Exane BNP Paribas, Research Division - Executive Director of Media Equity Research [32]

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Three, please. Firstly, you didn't really want to comment on the performance by vertical, so could we have a performance by client type? So FMCG, it was around 25% of revenue in 2019, I think. How rapidly did it decline in 2019, and can it improve in 2020? Secondly, could you just remind us with -- on Publicis Sapient what percentage of group revenue is still exposed to those difficult dynamics that you mentioned on the call? And then finally, if we rewind to this time last year, we had an outlook which was focused on an improvement in the second half of the year. We don't have the same by now, but that certainly is going to be second half weighted. Could you just talk us through what's different this time? What gives you that added confidence that the second half of the year should improve?

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [33]

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Maybe I'll start with the outlook. And hopefully, what you will feel here is we have decided in 2019 to do the hard work. I mean the country model, the repositioning of Sapient, the acquisition of Epsilon, bringing more than 150 new talents, doing ongoing promotion, investing EUR 100 million in talent at the moment where we have a negative growth. We need a lot of things to make sure that we can come back to organic growth. We have been feeling good about it because, whether you like it or not, winning new business shows that you have the right model for the future. And we have been able to sustain a very strong financial, which by the way shows the fantastic work that has been done to simplifying our structure, which is not only for cost reason. It's, first, because this is how you should manage your company in a leaner and more agile way, but it's also showing that, despite the negative growth, we have improved our margin, which means that something should happen in what we are winnings versus what we are losing. So all of this is good.

Now we know that organic growth is our top priority and focus. We have a very clear road map, as I described, to create cross-fertilization. Will it be at country level or at client level? We know how we can turn-around Sapient because it was the case outside of the [U. K.]. So we need to bring it there. We have an Epsilon that is starting very good momentum and traction that has already won new business with us. That will, of course, bring new thing next year. And we have very solid financial ratio, which mean that we can continue to invest. So you take all of this. You look at the dynamic we are having at the moment, again Bank of America yesterday, and yes, we feel confident that you will see sequential improvement over the time. And although, I mean, H1 should be negative, particularly in Q1, we think that we will see some improvement in H2. And time will tell, but we are focusing only on that. We have a large guidance from minus 2% to plus 1% for the same reason, which is we know that if we want to have a good H2, attrition has to go down. New business ramp-up has to accelerate. Sapient in the U.S. has to inject and the contribution of Epsilon should be better, but that things that are underway. We are doing these 20 hours a day. And the truth is it will take time. We have to be realistic. We need to make sure that we manage that through time and we do that properly, but we feel extremely confident in the model we are building. We went through a tough time. We took tough decision. It's a moment where we are working like crazy, but there are signs of the fact that, yes, contribution in H2 should be better. Well, that was for this.

Then Publicis Sapient. Well, just by memory, Publicis Sapient is roughly 20% of our revenue. And the U.S. is roughly 2/3. And out of those 2/3, you can extract the marketing services, the part that which is small compared to the rest of the deal; and you have an idea of the level.

Now I'm not going to comment on every industry vertical and how they are growing, but I'm happy to take the FMCG question. I mean, for those that are European, for me, FMCG is a bit like [data]. We are mixing things that are completely different. Within the FMCG, you have roughly those that have been investing in technology, investing in their brand, investing in innovation and that having a fantastic track record. And I guess, during this year earning results, you will see some and other that did not enough. And the truth is the good news is, the one that are winning, we have some. The good news is, the one that are not winning yet, we are doing everything we can to be on their side to help them grow in the future. But it's true that for some of them we have to take the pain for them -- with them and sometime for them, and we will make sure that in the future we leverage our loyalty and our commitment. But honestly, it becomes more difficult every day to talk about FMCG in general. Thank you.

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William Henry Packer, Exane BNP Paribas, Research Division - Executive Director of Media Equity Research [34]

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And just in terms of improvement in trends with those customers, are you expecting an improvement?

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [35]

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Improvement with what? Sorry.

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William Henry Packer, Exane BNP Paribas, Research Division - Executive Director of Media Equity Research [36]

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With the FMCG -- what FMCG client spends with you, do you expect that to improve this year?

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [37]

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So when thinking about attrition. We are seeing some early sign of slowdown in attrition, but when I say we are seeing, it's more in the commercial relationship, in the time we spend with clients, in the way they want to invest in their business in general, but it is not yet materialized in our number. And this is why, again, we presented the minus 2% to plus 1%.

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Operator [38]

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We will now take our next question from Adrien de Saint Hilaire from Bank of America.

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Adrien de Saint Hilaire, BofA Merrill Lynch, Research Division - VP & Head of Media Research [39]

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So I've got a few of them, please. First of all, we saw this week that Accenture decided to stop their media auditing practice. Do you expect Accenture to be more aggressive around media buying and planning for 2020 as they drop this activity? Secondly, can we have an idea of the different growth rates between Sapient's international and Sapient U.S., if the international bit is the blueprint for the U.S.? And then thirdly, actually I'm very sorry to press you around short-term trends, but should we deduct from your comments that you expect Q1 to be in line with the Q4 trends?

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [40]

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Thank you, Adrien. So first of all, as I said, H1 should be negative, mainly in Q1, but we expect sequential improvement. So we are not expecting Q1 to be at the level of Q4, but Q1 will be negative. H1 should be negative. So you understand that, again, if we are negative on 6 months, the impact on our growth in Q1 will still be significant, okay? The second question was on the growth rate of Sapient internationally and in the U.S. Let me do a short answer that is in line with what I just said before. We are growing outside of the U.S. We are not growing in the U.S. That's it.

And then the question of Accenture is a very important one actually. And let's start by where we are. I mean, first of all -- and they said it properly well, by the way. In shutting down their media audit department, Accenture is aligning itself with a kind of new non-conflict rule that are in our business and that are very important. So they had to do so. You can take the glass half full or half empty. If you take it half empty, you say, okay, you have a company that is very powerful that is coming into our field, yes, because the truth is they are coming into our field, yes. If you take the glass half full, opportunity for us, this is actually -- and this is very important because this is something that we have been discussing for a while. We had the discussion when they did Droga5. And more importantly, this is something that we are claiming since Maurice Lévy did the acquisition of Sapient, which was honestly maybe the most visionary acquisition that we did so far. What is happening with Accenture today is definitely an additional sign that the convergence between marketing transformation and business transformation is happening. And so if you believe that Accenture is going to spend more time on our field, the fact that we have with Sapient the 15,000-strong engineer, data analysts, consultants that can bring the same firepower in term of technology and data to a pitch or to a client put us in a unique situation. I won't mention any pitch, but you will find it in the press. It will not be the first time that we have been opposed with them. And on every big pitch where we have been confronting to Accenture in our marketing field where they were bringing their expertise, we were able to win for 2 reason. The first is we knew our field for decades, and the second is we have an arm with Sapient that can fight back pretty big. So it doesn't mean that we're going to win everything. We are in a $1 trillion market. So it's not like the market of transformation. The truth is there is room for everyone, but this is an additional sign of the convergence between marketing transformation and business transformation.

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Operator [41]

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We will now take our next question from Matthew Walker from Crédit Suisse.

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Matthew John Walker, Crédit Suisse AG, Research Division - Research Analyst [42]

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Thanks for some of the explanations around Epsilon. If you could just clarify: So within Epsilon, you have a lot of client first-party data. That is usually matched with third-party cookies to see how people are moving around the web and what they're doing, so could you say how much revenue in Epsilon does come from that area where you are matching first-party data with third-party cookies? Second thing is could you maybe explain the costs of expanding Epsilon around the world. You mentioned that you are expanding it into markets outside the United States. So if you could tell us, how much is that going to cost? And how long it's going to take.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [43]

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Okay. So as I said, on the first question, we are definitely not depending on third-party cookies. We can't give you the detail. Maybe Steve can tell you what, by the way, on how it move also with media because this is more. On Epsilon, it's an opportunity, way more than a risk. On media, it will mean some changes that we can't anticipate too much at the moment, but it will have, it will mean some changes. So maybe, Steve, you can tell us a word on that.

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Steve King, Publicis Groupe S.A. - COO & CEO of Publicis Media [44]

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Yes. Matthew, yes, I mean, as we said earlier, this decision which was just announced by Google, but what we have anticipated, as you'll have seen and heard earlier, it is definitely going to have a significant impact on the entire ecosystem that we operate in; and the sort of whole marketing sphere on -- obviously on agencies, on publishers, clients and, of course, customers. The impact probably is going to be on clients, as you asked. It's probably going to be threefold. Enriching their own data is going to become more difficult, definitely. And it's going to narrow the number of potential partners that are able to do the activation. And it's going to limit their ability to measure effectiveness in a really transparent way, so this is likely to translate into less-relevant advertising for consumers and more marketing waste. I think, as you've seen earlier, when we first met with Epsilon, during the due diligence, one of the most impressive things is they have been planning for a cookie-less world back from 2012. They are really prepared for this. So this, we think, is a huge opportunity for us and as our clients need to find other ways, alternative ways to deliver personalization at scale with transparency in measurement. And obviously, with Epsilon we can do 2 things. One, we can find alternative ways of reaching these consumers. And two, we can use the technology to help them build their own first-party data solutions; the datasets that they're going to build to enrich it; and of course, a platform in order to activate it. So the fact that we have Epsilon at the core of our business, as you can see, is something that we actually see as a huge opportunity, although the impact of this -- by Google Chrome is difficult to predict on the whole environment. But certainly I think our clients are going to see this as a positive momentum from us.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [45]

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Thank you, Steve. On international, I know that time is flying, but I will have to take a second. Again, Epsilon does 3 things. The first is they have the technology to build first-party data. This is a technology that we can export in our main countries, and we have a plan for that. This is not a huge sort of investment. We need to make sure that we have the people in the countries that can do it. The second point is the opposite. Epsilon in the U.S. have these massive datasets that, again, is a fantastic opportunity at the moment where the wall of the walled garden are getting higher that, of course, is not exportable. And so the question is what kind of data do we have in the different countries, okay? And in some countries we are pretty advanced, like in France or in Germany. In other, we need to make sure that we build the right dataset, and this is where there might be some investment to make. It's too early to say because we can start with what we've got. That's, to answer your question, this could be an area in investment, which is data that could be activated at the local level. And then the platform is going to be only one platform. It's the Epsilon PeopleCloud. And you will see the interface, the way we can work with that, the way we can boost it from, by the way, our Publicis PeopleCloud, for those that remember the Investor Day. It's not that we started 8 months ago, thinking that data were at the core of what we do and that first-party data will be the future. We started 2 years ago, but we put a big investment on the table to make sure that we can accelerate and get the scale. And the Epsilon PeopleCloud is something that we're going to export fast. That is going to help us, by the way, with Epsilon but also with our media operation.

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Operator [46]

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We will now take our next question from Omar Sheikh from Morgan Stanley.

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Omar Farooq Sheikh, Morgan Stanley, Research Division - Equity Analyst [47]

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So in lieu of the time, I'll ask just a couple of quick ones, if that's okay. So first of all, on -- actually on Sapient, could you just quantify what the -- you expect the shift from project-based work to have on organic growth in 2020? So what drag do you expect during this year? That's the first question. And secondly, on attrition, you've kind of tantalized us with the comments you made about seeing encouraging signs and that it could slow down. Could you just maybe just quantify that? You highlighted 200 basis points of drag in 2019. Do you expect that to be better in 2020?

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [48]

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Okay. So I guess my English is not good enough. I'm going to have to make sure that we are very, very clear on that. We see some early sign of our clients starting to spend and understand that there is a future in spending more in data, in technology and creativity, which is a good thing. The problem we're having there is that we don't see that in our numbers, so we need to be realistic for the moment. I can promise you that, at the second we see this improvement, we will come back to you and starting with you, Omar, but for the moment, we need to be very, very realistic on that. On Sapient, I can't give you the detail of the project-based because, again, it's going from 1 year to another. And it's something that we have stopped this year. We -- last year. We still have an impact this year, but again as I said earlier, definitely Sapient is the well identified -- one of the well-identified elements that will make the difference between the minus 2% and the plus 1%. I'm sorry. I can't give you more detail at this stage, but hopefully, we'll understand at least that we are sharing all of this with you to put you in our kitchen, to understand the kind of decision that we are putting on the table to make sure that we come back to any growth. And to come back to one of the previous question: We sequentially improve our organic growth while maintaining our financial ratios and bringing to our clients what they need for the future. I see we have time for one last question.

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Operator [49]

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We will take our next question from Laurie Davidson (sic) [Davison] from Deutsche Bank.

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Laurence Davison, Deutsche Bank AG, Research Division - Research Analyst [50]

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Okay, just one question for me, I mean, in the interest of time. The CapEx to -- the CapEx of EUR 300 million. When we're thinking about the new level of CapEx intensity for this business going forwards, can you give us some idea of where you're thinking about CapEx-to-sales now going forwards?

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Jean-Michel Etienne, Publicis Groupe S.A. - Group CFO, Executive VP & Member of the Management Board [51]

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This is Jean-Michel. So I'm taking you through this CapEx. When we say EUR 300 million of CapEx for 2020, this has increased due to Epsilon, of course, which is a techno company. So this mean that we have more CapEx on the internal part of the group, for sure. We should also take into consideration that, in 2019 and 2020, we have still some CapEx which are incurred for -- to support the real estate consolidation program, which is something which will be finished at the end of 2020. So we could have a little bit less CapEx in 2021, but we have also to invest in the platforms that we have, the various platforms. So we consider that the EUR 300 million of CapEx that we have in 2020 is something sustainable for the future.

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Arthur Sadoun, Publicis Groupe S.A. - Chairman of Management Board & CEO [52]

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Well, it come back to the previous question about the investment on Epsilon. Part of this CapEx is the development of Epsilon internationally in term of technology and assets. So it's all in our plan. And it's again the good news about Epsilon is that this is what people wants now, our client wants now. And this is why we are accelerating on the international side. It's that our clients have seen the kind of traction we are starting to have in the U.S., and they want to make sure that we can expand that.

Look, just to wrap up. I mean 2019 has definitely been a year of transformation and a tough year in a way and a very exciting year in others. We have adapted our structure with the country model. We are -- and we have transitioned Publicis Sapient in the U.S. to make sure that we can bring business transformation as we are doing outside of the U.S. And finally, we have acquired and, I would say sincerely, successfully integrated Epsilon. As you have seen in the operation -- in the presentation, we definitely have the profiles, the assets to deliver what our client needs; and we are obsessed by that at the moment. What has happened with Google Chrome, what has happened with Accenture, the way our client are moving now mean that what will make the difference tomorrow, if we want to sustain a very valuable business and grow, is to bring what they need, which will always be creativity, which will always be media because they need the scale, but they will need the data to take back control. And there we need the technology to transform their business. It's very difficult to bring all of these people together. It's very difficult to make them understand that what matters is an end-to-end model, but when we do it well, we win, as we showed in our new business. And by the way, when we are doing well, we are improving our financial ratios.

So to be clear: Our main focus in 2020 is the execution of our plan to further organic growth, and we will be focusing on that every day.

I will just thank you very much for this attention and this long call. Normally we do shorter. And I hope to see you soon. (foreign language) Thank you.

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Operator [53]

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Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.