Publicis Groupe S.A. (PUB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Full Year 2020 Results Presentation of Publicis Groupe. For your information, this conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Arthur Sadoun, Chairman and CEO of Publicis Groupe. Please go ahead.

Thank you, Maria. [Foreign Language], and welcome to Publicis Group 2020 Full Year Result Call. I am Arthur Sadoun, and I'm here in Paris with Anne-Gabrielle Heilbronner, our Secretary General; Steve King, COO of Publicis Groupe. He's actually joining us from London. Also in the room, we have not 1 but 2 CFOs. Jean-Michel Etienne. He's here for his last earnings call, along with our future CFO starting today, Michel-Alain Proch. Michel-Alain, welcome. [Foreign Language].

Thank you, Arthur, and good morning, everyone. I'm thrilled to be with you today. As you may know, I joined Publicis 3 weeks ago. So this is still early days, but Arthur, Jean-Michel and I have been working since last December at organizing the transition. So I kind of already feel at home. I think this is clearly a great time for me to join Publicis as the new CFO, I will strive to contribute to the future of the group by leveraging my experience, particularly in 3 areas: digital and technology, transformation and optimization and obviously, my U.S. background. There is a lot, really a lot in common between Publicis today and the tech world from which I'm coming. To succeed in this transition, I have an ace up my sleeve. Jean-Michel is going to be by my side, actually just the office next door while he will be managing resources, and we're seeing the continuation of the real estate consolidation plan. Seriously, I really feel blessed that he accepted to dedicate this next 6 months to showing me the group and its subtleties and they are numerous. For this and your kind, welcome, thank you, Jean-Michel. I will finish up this short introduction by giving you some elements of background. For those of you who don't know me. After starting my career with Deloitte in 1991, I worked at Herms for 8 years, while I was notably an operational CFO in the U.S. At Atos, I was a group CFO for another 8 years during which we deeply transformed and doubled the size of the company while doubling its margin rate, too. The company became comparable size and probably in complexity to Publicis at around EUR 10 billion. I then took the position of country CEO in North America for 3 years, leading a $2.5 billion operation, where I notably launched the Atos Digital transformation plan and improved operation profitability. More recently, I contributed to the full turnaround of Ingenic Co. in my position as the CFO-CEO, next to the company's CEO, Nicolas, until the compact was acquired by Worldline. That's pretty much when I had the opportunity to join Arthur and the team in this Publicis adventure, so I simply jumped on it. All right. I'll meet with you and probably virtually, I guess, in the coming months, and we'll catch up together for our Q1 revenue in April. With this, I now hand over to Arthur and Jean-Michel for the 2020 results.

Thank you, Michel. I will now get into the core of the presentation. I will start with the 2020 highlights. After Jean-Michel will give you the full detail of our numbers. I will then give you a brief strategic update. And finally, we will take all of your questions with the Director. Before we start the presentation, please take the time to read the disclaimer, which is an important legal matter. Okay. Now let's dive into the presentation. 2020 was, as everyone knows, a difficult year, wrapped by the COVID-19 pandemic. The global economy suffered and our industry was hit hard with a significant drop in marketing spend. In this tough context, we posted solid performance, thanks to our transformation. Our long-term investments in data and technology, our country model, but also our platform Marcel have enabled us to contain the revenue decline and actually maintain strong financial in this multi-crisis year. First, we outperformed the industry average in terms of organic growth for the full year 2020. Coming at minus 6.3% with Q4 ahead of market and our own expectations at minus 3.9%. This was mainly driven by the U.S., which turned slightly positive in Q4, with organic growth at plus 0.5% and posted a minus 2% for the full year. In Q4, Epsilon saw positive growth at plus 5.5%, contributing to the U.S. positive performance. The acceleration of Epsilon performance was driven first by digital media and the recovery in automotive. Overall, Epsilon contributed positively to our organic growth in 2020. Our digital media arm grew in Q4 by double digits, supported by the growth of CG affiliate. Publicis Sapient returned to slightly positive organic growth in Q4 as the encouraging pipeline we saw in Q3 began to materialize. Our production activities were also up. And more generally, our creative and media operations showed good resilience in the current climate. Finally, our health activities recorded double-digit growth both in Q4 but also for the full year. Meanwhile, Europe remained challenging in Q4 with minus 9.1% organic decline reflecting the various lockdown restrictions in all of our main countries there. U.K. was down 11% organically as well Germany. Our operations in France improved sequentially with an organic growth of minus 7.2%, supported by a positive media performance in Q4. The situation was similar in Asia. Where many countries continue to be impacted by COVID measures and organic growth was at minus 8.6% in Q4. In this context, China improved to minus 4.2% and recorded an encouraging series of win, most recently, L'Oreal media business. Second, we have continued to gain market share despite a slowdown in pitch activities. Thanks to our unique offer, we have retained and reinvented our relationship with clients like Kraft-Heinz and Reckitt Benckiser. Consolidated our partnership with others, such as GSK, by bringing Pfizer on board and Visa and won the trust of new clients like [indiscernible] globally, Sephora, Hulu and Viva Tech. Last but not least, we continue to deliver the best financial ratios of the industry. Our activity mix, combined with our strict cost and cash discipline, helped us deliver an operating margin rate of 16%. Our free cash flow is at almost EUR 1.2 billion. And we have significantly reduced our net debt to around EUR 830 million at year-end. But it is important to note that we have an average net debt of EUR 3.3 billion, in line with our pre-crisis forecast. Today, our solid results mean we are able to pay a dividend at EUR 2, slightly below our pre-pandemic levels. Corresponding to a payout ratio of 46.8% of headline net income and over 80% when calculated on net income. This will be proposed at our next AGM in May. It is important to note the sustainability of our performance, which was achieved with virtually no benefit from any government help and with absolutely no help from the French state. We are also pleased to have been able to repay the voluntary salary sacrifice made by 6,000 of our people when the crisis first hit, to protect jobs and the company. In April, we worked on a plan to beat our worst-case scenario, and thanks to everyone out in work, we were able to deliver above the average industry results. This allows us to properly and fairly reward our team performance with their abilities. I would like to take this opportunity to thank everyone in the group for their extraordinary efforts and our clients for their trust and partnership. Now for the very last time, I will leave the floor to Jean-Michel, who will take you through our numbers in detail. Jean-Michel?

Thank you, Arthur. So it has been a great journey for me with ups and downs and always rewarding as Publicis is an incredible company. I have tried during all these years to be as transparent as I could be in working professionally with you and our investors. And I am sure I leave you in good hands with Michel-Alain. Separately, I hope that you and your families are still safe as the situation continues to be difficult everywhere. I will now detail our fourth quarter and full year 2020 results and hand the floor back to Arthur who will go through our priorities and strategic outlook for next year. Let's start with net revenue on Page 9. In Q4 2020, net revenue is EUR 2.595 billion, down by 9.6% versus last year as reported. Currencies have 5.4% negative impact with the U.S. dollar explaining more than 60% of the impact. The other noticeable impacts include the Brazilian real and the British pound. Acquisition have no major impact this year at minus 0.5% given that Epsilon is included in our organic growth performance since 1st of July 2020. All in all, the organic growth is at minus 3.9% in Q4. For the full year 2020, net revenue is EUR 9,712 million, down 0.9% versus last year as reported. Currencies have a 2.2% negative impact. Acquisitions have a positive impact of 7.4% due to the consolidation of Epsilon in H1. Therefore, the organic growth for the full year of 2020 is at minus 6.3%. On Page 10 I will be quick on Q4 net revenue, as I will give more details in the following slides on the analysis by region, like I did it in Q3 and following the implementation of our country model, which is allowing us to do that. Organic growth in Europe is at minus 9.1%, as expected, Q4 continued to be impacted by the pandemic pushing local governments to take new measures to mitigate its health impact. North America performs well at plus 0.2% in Q4, a significant sequential improvement versus Q3 and a solid figure given the current context. Situation remains difficult in Asia Pacific, delivering an organic growth at minus 8.6%, although a slight sequential improvement versus Q3. Latin America is sequentially improving at minus 10.8%, Middle East and Africa is at minus 12.1%. Overall, Q4 organic growth for the group is at minus 3.9%. Turning now to Page 11. We detail the performance of our main countries in Europe. In the U.K. which represents 8% of our net revenue in Q4. Organic growth is at minus 11%. Our creative activity continues to be impacted by the current context we saw an improvement at year-end for the media activity, which is slightly positive this quarter. Epsilon International in the U.K. continues to grow fast, although on a small base. Our U.K. health business also continues to perform well in Q4. All in all, our U.K. marketing transformation business is posting a positive growth rate in Q4. However, Public Sapient U.K. is still impacted by the freeze of some project-based activities. In France, which represents 7% of our net revenue in Q4. The situation improved sequentially for all our activities. As a result, organic decline is at minus 7.2%. Relative entities performed in line with our organic growth in the country, media being slightly positive. We note also reduced negative impact of our outdoor media activity and the drug store in Q4. Finally, Germany, 3% of the group net revenue in Q4 posted an organic growth at minus 10.9%. Creative and media are ahead of our performance industry. Moving to Page 12. Let's focus now on the U.S., representing 57% of the group net revenue in Q4. In the U.S., we resisted very well in the current context, recording a positive organic growth of plus 0.5%. It highlights further strength of our model. Our creative and media activities remained negative in Q4, still impacted by COVID. Within those, however, some activities performed pretty well. This is the case for production of dynamic contents, growing by mid-single-digit in Q4, offer the digital media investments and for [indiscernible], which are growing double-digit in Q4. This has helped to mitigate the impact of the prices on the overall creative and media businesses. Epsilon 2.0, which is the core of Epsilon, grew by 5.5% in the quarter, thanks to the good performance of conversant and the continuous improvement of the automotive practice. This performance is also a good sequential improvement over Q3. Publicis Health U.S. continue to deliver a strong double-digit growth in Q4. Last but not least, Publicis Sapient in the U.S. returned to positive growth in Q4 confirming the encouraging trends that we saw in Q3 and the increasing needs for -- of our clients to accelerate their own transformation. On Page 13, we detailed 3 regions that represent together about 15% of the group net revenue. Asia Pacific sequentially improved versus Q3, reflecting contrasted trends in some countries. Northeast and Southeast Asia improved significantly versus Q3, notably thanks to China, which post a minus 4.2% organic growth in Q4, while the Pacific region declined sequentially mostly due to a weak performance in media in Australia due a few client losses and the effect of the pandemic. Publicis Sapient continued to record a double-digit growth in the region. This is due to several new business wins mostly in India and Australia. Latin America slightly improved sequentially, although with an organic growth of minus 10.8%, still impacted by the warring sanitary situation in Brazil. Finally, Middle East and Africa is down by 12%, mostly due to South Africa and Israel and the slowdown of the overall business activity due to COVID as well as the postponement of some projects for Sapient in Middle East. Page 14. Regarding group's net revenue by geography on a full year basis in 2020. Europe is at minus 12.7%. Growth would have been minus 10.8%, excluding our French outdoor media activities and the drug store, which had a significant impact in Q2 and to a lesser extent in Q3 and Q4. North America is at minus 2.4%. Asia Pacific is at minus 6.7%, Latin America is at minus 13.9%. Middle East and Africa is at minus 11.7%. Overall, Publicis Groupe's organic growth for the year is at minus 6.3%, much better than what we feared at the beginning of the pandemic and the lockdown. On Page 15, as usual, we give you our organic growth performance in some countries. Among the countries with positive organic growth. In Q4, we have New Zealand at plus 12.6% and South Korea at plus 1.7%. And as I said before, the U.S. are also positive in Q4 at plus 0.5%. On a full year basis, we have Argentina at plus 14.7% and Saudi Arabia at a plus 10.8%. Between minus 10% and 0% in Q4, we will find Brazil at minus 9.5%; Canada at minus 9.3%; and Spain at minus 5%. And on a full year basis, we have China at minus 8.1%; Germany at minus 7.7% and the U.S., at minus 2%. Between minus 20% and minus 10%.in Q4, you will find India at minus 11.5%; Italy at minus 13%; and Mexico at minus 10.1%. On a full year basis, you have Australia at minus 10.1%; France at minus 12.5%, excluding the impact of our outdoor media activities and the Drugstore and Russia -- Russia, at minus 11.9%. Europe minus 20%. In Q4, you have Australia at minus 21.2%; and Portugal at minus 20.7%. In full year, on a full year basis, you have Denmark, at minus 20.3%; and Israel at minus 25.1%. Turning now to our consolidated income statement on Page 16. First, EBITDA for 2020 is at EUR 2.158 billion, down by 3.9% year-on-year, leading to an EBITDA margin of 22.2% versus 22.9% in 2019. Our operating margin declined by EUR 100 million at EUR 1.558 billion or minus 6.1% year-on-year, leading to an operating margin rate of 16%. This remarkable performance is the result of all the efforts undertaken by our teams during this crisis. Second, headline group net income is down by 13% at EUR 1.034 billion after taking into account net financial expenses of EUR 489 million, and income tax of EUR 340 million that I will detail later in this presentation. Third, group net income is down by 31.5% at EUR 576 million, and it includes a profit relating to a change in fair value of financial instruments net of tax of EUR 9 million and a net of tax charge of EUR 11 million related to the unwinding of some cross-currency swaps during H2. Group net income also includes other noncash items, namely the amortization of intangibles for EUR 254 million net of tax increase versus last year is related to the acceleration in the amortization of some intangibles arising at time of acquisition and also the full year impact this year of the amortization of our brands, which has started in July 2019. It includes also an impairment and a real estate consolidation charge for EUR 185 million of which EUR 170 million relate to our real estate consolidation plan. The remaining amount being an impairment charge on goodwill for EUR 50 million. On Page 17, I will go now in the details of our operating margin. Personnel costs increased by EUR 110 million year-on-year. Representing 62.5% of net revenue, up by 170 basis points versus 2019. This increase is mainly due to the addition of Epsilon in H1 partly offset by the impact of our 2020 cost-reduction plan. Restructuring costs represent EUR 175 million in 2020, up by EUR 59 million versus 2019 in line with what we announced in July. It reflects the full impact of severance charges related to our cost-reduction plan. The other operating expenses amounted to EUR 1.432 billion, are down by 9.7%. It represents 14.7% of net revenue versus 16.2% in 2019. This is mostly driven by a reduction of G&A with some expenses that have been drastically reduced during most of the year, like travel cost, for instance. Depreciation is EUR 480 million, in line with what we had in the previous years, also it takes into account the full year impact of Epsilon. All in all, operating margin came ahead of our expectations due to a better-than-expected Q4, notably in the U.S. It stands at EUR 1.558 billion, representing an operating margin rate of 16%, down by 90 basis points versus 2019 and if we exclude the Epsilon transaction cost, the operating margin rate declined by 130 basis points. Moving to Page 18, we are providing here the details of our cost-reduction plan. On a comparable basis, we reduced our net cost base by EUR 467 million in 2020, notably with a better Q4 than expected. We demonstrated this year and despite the circumstances, we have been able to be very flexible and agile when it comes to our cost structure. As expected, the main bucket of savings is G&A as our employees were mainly working from home and not traveling during most of the year. As a result, we were able to save EUR 258 million in G&A, which is more than half of our total cost reduction. Second bucket of savings is personnel cost with EUR 169 million. This was achieved thanks to all the measures we took early on, allowing us to save EUR 96 million in fixed personnel costs, net of severance; and EUR 73 million on freelancers. Last but not least, this includes the impact of the repayment of salary sacrifices accepted by our employees, our managers during the tough times of Q2 and Q3. So bucket is the cost of sales, which mechanically decreased with revenue leading to a cost reduction of EUR 89 million. The next bucket is the third wave of our real estate consolidation plan initiating 2018 that allowed us to save in 2020, EUR 51 million of occupancy cost. As you can see, the vast majority of our cost reduction is variable and correlated with the revenue decline. As a result, most of these costs will come back in 2021 with revenues however, we expect that roughly 20% of the 2020 savings will be permanent, but we know that we will have to reinvest part of it to strengthen our talent pool in order to support the expected gross recovery. All in all, we have been able to reduce our OpEx base by 5.4% in 2020, partly offsetting the organic growth decline in revenue of 6.3%. On Page 19, I will present a change in the operating margin. Reported operating margin rate is 17.3% in 2019. Excluding Epsilon acquisition costs, excluding -- sorry, excluding Epsilon acquisition costs, exchange rates and structural changes as a 60 basis point impact and restructuring has an impact of 80 basis points. All in all, our margin rate was 15.9% at comparable exchange rates, structure and level of restructuring charges. Fixed personnel costs have a 250 basis point negative impact in 2020. I remind you that the impact was 460 basis points in H1. So we were able to reduce the impact by close to 50%, thanks to the restructuring measures that we took in H1. In parallel, we continue to invest in our transformation to make us ready for the recovery. Additionally, and given our relatively good performance in H2, we had a very limited recourse to COVID governments subsidies. In total, these subsidies amounted to EUR 20 million in 2020 for our international subsidiaries. It is important to note that, for instance, that we decide not to ask for any government subsidies in France. Our talent incentive charge increase in 2020 having an impact of 120 basis points. We think it is important to recognize the exceptional work performed by our people in this tough year. The impact of bad debt decrease in H2, the impact for the full year is 30 basis points. We reduced the use of freelancers as part of our cost reduction plan. This results in a 60 basis point positive impact on our margin in 2020. Occupancy costs have a 70 basis point positive impact on margin, thanks to our real estate consolidation plan. We have generated with this plan a total saving of EUR 132 million during the last 3 years. As in H1, G&A was the main saving source some expenses did not resume as government continued to take lockdown measures until year-end. All in all, as you can see, our operating margin is very resilient at 16% in 2020. Regarding now the net financial expenses on Page 20. Interest on net financial debt totaled EUR 103 million. It is mainly composed by the interest expenses that have an increase at the EUR 143 million. This include the full impact of Epsilon acquisition debt in 2020 for EUR 96 million. We have as well the interest expense on the RCF revolving trade facility line that was drawn from March to September for EUR 11 million of interest. Net interest income is at EUR 46 million, which includes EUR 6.5 million on the interest earned on deposit from the drawing of the RCF. When we add to these 3 elements, which are: first, the interest on lease liabilities for an amount of EUR 77 million; second, the net foreign exchange general loss, which is a very small amount; and third, the other financial expenses, the headline, net financial expense, these expense is at EUR 189 million. After a change in the fair value of financial instruments and the financial charge related to the unwinding of cross-currency swaps that we made in H2, the net financial expense in 2020 is at EUR 198 million. Moving to Page 21 on taxation. To calculate the headline income tax, we are adding to the report income tax, the tax effect linked to the amortization of intangibles for EUR 85 million and the tax effects related to the impairment and the real estate consolidation charge for EUR 56 million. Then the headline income tax is at EUR 340 million. The 2020 effective tax rate is at 24.7%, improving by 30 basis points compared to 2019. On Page 22. The headline earnings per share fully diluted is decreasing by 14.9% year-on-year to EUR 4.27. This is the result of, first, the reduction of our net revenue and operating margin; second, the increase of our financial expenses coming mostly from the interest paid on the Epsilon acquisition debt on a full year basis. And finally, the increased number of shares related to the higher proportion of our shareholders that decide to opt for the payment of the dividend in shares in September. Moving to Page 23, relating to the dividend after having -- after reduced the dividend in order to preserve our balance sheet at the beginning of the crisis and given our resilience in 2020, we are pleased to return close to the previous level of dividend. As a result, we will propose a dividend of EUR 2, representing a payout ratio of 46.8%. This is coming back to the precrisis level and above our commitment of 45% for the payout ratio. The dividend will be submitted to the AGM on May 26. Turning now to the Page 24. The free cash flow before change in working capital is EUR 1,190 million, down by 5% and is composed by EBITDA for EUR 2,158 million, interest paid for EUR 130 million. It was an inflow of EUR 11 million in 2019. Repayment of lease liabilities and related interest for EUR 461 million. The tax paid is EUR 293 million. CapEx is at EUR 155 million, down versus last year as we were very selective on our CapEx allocation, giving a priority to IT spending, especially to support work-from-home initiatives and Epsilon, which represents EUR 82 million on this CapEx amount. Turning to Page 25, showing the use of cash. First, we delivered a positive change in working capital of above EUR 1 billion. We have been very disciplined in our working capital management from the beginning of the crisis to the end of the year. We were actually expecting a significant outflow for the month of November and December. So we move ahead trying to mitigate this potential negative impact, which did not materialize. The working capital position did not reverse as we anticipate in December as the environment was not as bad as anticipated, confirming the good end of year that we had in many aspects. Some other factors also had an impact at year-end. For instance, first, our entities. Our entities that have a structurally negative working capital have performed better than the entities with a structurally positive working capital. Second, our team's effort that results in a higher collection rate. And finally, some items had a significant positive impact on our non-trade working capital as provision for restructuring, not paid at year-end as well as the increase in bonuses. Additionally, the U.S. government has also postponed the payment of social charges to help companies to face the COVID crisis. All these non-trade working capital items represent an impact of roughly EUR 300 million in the change in working capital, leaving roughly EUR 700 million for the inflow coming from the trade working capital. In addition, acquisitions had almost no impact this year. The earn out and buyout paid represents EUR 144 million. Dividends paid amount to EUR 112 million due to the fact that we reduced the dividend and more -- ends up more than 60% of our shareholders took their dividend in shares. Noncash impact on net debt is minus EUR 89 million mainly due to the impact of exchange rates, which is partly compensated by the change in fair value of cross currency swaps. As a result, the reduction in net debt is EUR 1,880 million at year-end reflecting an exceptional seasonality impact. Turning to Page 26 on balance sheet. Our total assets are EUR 10.8 billion at the end of December. The value during the period is a decrease of EUR 1.2 billion in goodwill and intangibles due for a part to the amortization of intangibles arising from acquisition and amortization of brands initiated in 2019. Currency had also a big impact this year as most of goodwill is located in the U.S., a decrease in the net write off use of EUR 477 million due to the amortization and an impairment on vacant space, mainly in New York. The decrease in current and deferred tax of EUR 172 million and a significant change in working capital of EUR 762 million, also impacted by exchange rates. On the liability side, the decrease in net debt is mostly related to our strong free cash flow position at the end of December, as described before. On Page 27 now, the net financial debt. To be fair, the most important metric to look at, especially this year, is our average net debt position. Average net financial debt is EUR 3.286 billion in 2020. The increase compared to EUR 2.4 billion last year, as explained by the integration of Epsilon acquisition debt for 12 months. Comparable average net debt in 2019 will have been EUR 4.3 billion if Epsilon was acquired on 1st of January and instead of 1st of July 2019. Net financial debt at the end of December is EUR 833 million, thanks to our very favorable working capital position at the end of December. On Page 28, we are moving to our key financial ratios. Our average net debt-to-EBITDA ratio, including lease liabilities increased year-on-year to 2.6x due to the consolidation of Epsilon acquisition debt for 12 months. This ratio improved since end of June as expected and should continue to improve before returning to a normalized level. Now I'm reaching the last slide on Page 29, with our liquidity position, which has increased to EUR 6.3 billion at year-end. After having preventively drawn our EUR 2 billion RCF in March to face any potential liquidity impact related to the global pandemic, we decided to repay half of the line in June and the other half in September. Additionally, as we were reassured by our treasury situation, we decided to make an early repayment of 2 term loan tranches in Q4 of respectively, $900 million and EUR 150 million. This will have also a favorable impact on our financial expenses going forward. I will now give the floor back to Arthur who will give you an update on our priorities and strategic outlook. And of course, I remain available for your questions during the Q&A session. Thank you.

Thank you, Jean-Michel. In 2020, we were actually prepared for the worse. Thanks to our transformation and also our ability to act fast. We managed the crisis pretty well. But looking at the pandemic situations in most countries, it's fair to say that it is far from being over. There are some encouraging signs. When it comes, for example, to the moral of the business leader, and consumer health. But the new variant of the virus and the uneven progress of global vaccinations means that the world will continue to be marked by the social and economic effect of the pandemic for some time. So we will need to double down on our efforts in 2021. First, we must continue to keep our people stronger. After an entire year of lockdowns and restrictions for many of them. Their physical safety, but also mental health will remain our top priorities as we control not only the virus, but also its wider effects on their well-being. Through Marcel, we will bring them increased flexibility in the way we work and allocate resources. Our platform was at the core of how we distributed our workforce in 2020. By identifying and moving talent from decreasing operations to growth areas. This year, Marcel will be even more central to filling roles within our organization, creating a fluid ecosystem between working from home and the office. It will also be the hub for all learning and development and carrier tracking activities. We will accelerate on our diversity, equality and inclusion agenda, building truly diverse and inclusive environment with concrete action, supported by our diversity progress [indiscernible]. Second, we will continue to help our clients, we live in a world increasingly dominated by platforms to drive profitable growth for them and also for us. More than ever, our clients will need real identities to better know their customers in a cookie-less world, highly creative dynamic content, to strengthen their brands and justify their premiums, smart scale media to find their way to the right audience and direct channels to customers through own digital ecosystem to win in e-commerce. Thanks to Epsilon, our leadership in Creative and Media and Publicis Sapient business transformation capabilities, we have all the expertise our clients need at scale to win in this platform world. We have made the demonstration in 2020 of the value we can create for them. And the growth we can generate. This is visible not only in our new business results, but also in our revenue with our top 200 clients, which rose by 1.8% this year with an acceleration in Q4. It is worth noting that FMCG and health care were key to that growth, more than compensating for automotive and finance which were hit hard by the crisis. Now we will go even further in leveraging our unique offer to partner with all of our clients across every category, in the year to come. Our third priority is to continue to improve our efficiencies in what is an uncertain world. Our global delivery centers, shared service backbone, country model and Marcel are 4 structural competitive advantages that have allowed us to maintain industry high financial last year. It is through this platform organization that we will deliver strong financial ratios in 2021, while preserving our best talent, rewarding our teams and investing in the future, just as we did in 2020. In conclusion, our transformation helped us stand stronger in the storm of the past year. Looking ahead, it has also placed us in the right track to be a good performer in our industry while maintaining our best-in-class financials. But the crisis did not end with 2020. And the uncertainty caused by the virus will continue to dominate our daily life. 2021 is already off to a difficult start for the world as a whole. This context prevents us from giving an organic growth guidance for the full year 2021. We anticipate that Q1 will be negative as it is faces an unfavorable comparable and positive growth to return in Q2, supported by a favorable basis. We will, of course, update you as we gain more visibility on the evolution of the health situation in July. When it comes to operating margin. We can expect our operating margin rate to improve by up to 50 basis points in 2021. Our ongoing cost discipline and country model will give us the necessary flexibilities to adapt to the evolution of the situation as we demonstrate in 2020 and invest accordingly in our tenant. Last but not least, our free cash flow before changes in working capital should be around EUR 1.2 billion in 2021, contributing to our deleveraging as initially planned after the acquisition of Epsilon. Again, the crisis is far from over, and we are clear sighted about the challenges that lies ahead. But thanks to our assets, our model, our people and the trust of our clients, we are confident that we will emerge as a stronger company. That's it for the presentation. Now if I may, before moving to the Q&A, I would like to take a moment to say a few words for Jean-Michel. Today, it is his last call with all of us. After roughly 80 earnings presentation and 20 years as the CFO of Publicis. Jean-Michel joined us in 2,000 when revenue was at roughly EUR 1 billion. Publicis has changed drastically since then. But what have stayed the same, is the determination and the dedication he has brought to the group, together with a great team he has built. On behalf of everyone at Publicis, the Board and its Chairman, Maurice Lvy, I would like to truly and sincerely thank him for everything he has done. On a more personal level, I want to thank him deeply for his partnership and his support over the last 4 years, where I have learned so much from him. As you know, Michel-Alain will be our new CFO starting today. By the way, Jean-Michel is not going very far, as he has agreed to stay in the group until July to help us managing share services and ensure a smooth transition with Michel. [Foreign Language] for everything. Now the Director is here to answer any of your questions.

[Operator Instructions] We'll take our first question from Lina Ghayor from Exane BNP Paribas.

Congratulations on the results. I have 3 questions in my hand. The first one is on Epsilon. So it is favorably contributing to the growth in the U.S., but can you further comment on the moving parts of that and particularly in automotive and [ non-Epsilon ] clients? Also what's about elsewhere and outside of the U.S.? How far are we in the Epsilon rollout in other geographies? The second question is on the U.S. Clearly, you had an impressive growth in the country in Q4. Can you maybe help us understand why the U.S. had such a good performance? And to what extent was the market-related as opposed to being more specific to Publicis? And should we expect the U.S. to continue to outperform versus the rest of the group? And lastly, on your talent, how much do you intend to reinvest in your talent and in your platform to prepare the recovery? I hope it's clear.

Well, there is a lot there. So I'm going to try to make a complete answer. And maybe, Jean-Michel, if you want to complete, but I'll try to cover everything. I'll start with Epsilon. As I said, if you look at Q4, the acceleration in growth came mainly from 2 areas. The first is digital media. That came back strong in Q4. You need to understand that at the time we have the pandemic hit in Q2, our client cut everything they could cut. And they actually cut a lot of digital media because it was a kind of thing that was not too much planned ahead. It might have been the wrong decision strategically because digital media was what was needed to deliver personalization at scale. But it was the first thing they could cut, and it's perfectly understandable when you remember the situation were there. So we see a good acceleration in digital media. And by the way, we see a great connection, and I'll come back later on that with Publicis Media, with our media operation. Our ability to link our IDs and our platform to delivering personalization at scale with Publicis Media and our clients on this side has been paramount to see this acceleration. And out of the 5.5% growth that we saw in Q4, which is, by the way, historically, a very good performance for Epsilon, which shows complementarity of Publicis with Epsilon. They have been a big contributor. The second big contributor is auto -- automotive. As actually, the market is coming back. And they have been able to come back to a level of growth that is more than satisfactory, and they have been contributing to the growth. This doesn't say, by the way, that take and data, take mainly did not perform, but they were small growth compared to those two. It's interesting to note, CJ, by the way, if I can take a second on that because as you know, it was part of Epsilon, although we moved it to PMX, which is our digital arm that, by the way, has grown double digits on this quarter. You would remember that before the crisis, we were strategically thinking about what we should do with CJ. We moved it back -- but we moved it to Publicis Media, and we actually shift from decline to organic growth by the synergy we have been able to create. And I will remind you that CJ was mainly on a business model that was working with leisure. And so you can imagine the kind of shift we have been able to bring. On international for Epsilon, I mean I could have told you, which is true that we have a double-digit growth on Epsilon at the international and that we feel very confident in what we are building. But the truth is that it's 5% of revenue so far. So it's too premature materially to talk too much about it, at least in the script we delivered earlier on. But the truth is, it's very encouraging. We have a parallel team totally connected to the U.S. working, but we want a parallel team because we don't want to disturb what the U.S. is doing at the moment. We are growing, as I said, double digit. And the rest, and maybe we'll come to that later is how much IDs can we build globally. We have 250 million individual profile in the U.S. We are reaching 50 million in Europe at the moment. And the question is how fast can we move that to accelerate our growth. We are, of course, very focused on this. U.S. having a positive growth in the fourth quarter reinforce our feeling that we are taking the right decision in 2019. If -- I want to remind you the big numbers because they are actually the outcome of what we put in place. We talked about Epsilon. I'm not going to come back on that, and the growth of Epsilon is definitely due also to the country model we have put in place, which is to work without silos and cross leveraging our expertise at the service of our clients. We saw a strong growth coming from digital media, I said it, double digit. Sapient came back to positive. If you remind the challenge we're having with Sapient. We changed the team, we changed the go to market. We organize ourselves. We saw some early good sign in Q1 that was positive. Then, of course, because our clients are cutting CapEx, it went down. And now, it's coming back with an encouraging pipeline. So that's pretty good. And health, did perform very well. I don't want to undermine health performance because it's really outstanding. But the health sector has been doing pretty well. And although it's smaller for us than for other competitors. It has, of course, a material impact. What is important to take here is a point you made about is our model specific? Or is it an industry thing. We believe that our model is unique. I mean, under the vision of Maurice Lvy, we started to invest very early in technology with Sapient. I mean, in digital, it seems like digital and [indiscernible] is actually coming back very strong in technology with Sapient and more recently with Epsilon on data. And the truth is 2020 has been the year where we have seen an accelerated shift to digital media, double-digit growth for us, to CRM and commerce. Sapient coming back to growth and everyone preparing for a third-party cookie-less world, which means that Epsilon is positioned at the right place. So we believe that through those expertise, first, we are specific, and that's the first point. The second point, we believe our organization is specific. As you know, we have only 1 P&L in the U.S. now that are managing directly, which means that we can work end-to-end with our clients. So hopefully, I answered part of it with U.S., but I can go, of course, on and on. Your point on talent. We are now in a place where we have completed our transformation in term of assets. We have a lot of confidence in the model we are building. And I guess, you can see it in our results in 2020. The way to accelerate is to make sure that at our talent not only fill part of the journey, and this is why we wanted to incentivize them and reward them for the year, but also feel strong in a moment where many of them have been in lockdown. We are living in the world that is more volatile than ever. It's true particularly for industry. It's true for everyone. I mean you can quit on the phone call. You don't even have to come back to your office to take your stuff. And our ability to actually keep our talent, retain our talent, grow our talent and attract more is going to be critical. You need to know that before taking this decision of reimbursing the salary sacrifice of course, I've tested with our leaders, and we decided to go. But I also tested with some clients. And the answer was very clear. What we need at the moment is continuity. And the more you can give strong sign to your people that they are in the right place, the better. And this is why we took this decision. I see we move to the next question. I can go for 2 hours on this one, but I guess we need to move on.

We'll now take the next question from Tom Singlehurst from Citi.

First, thank you, Jean-Michel, for all the hard work over the years. It's been an enormous pleasure working with you, and you'll be very much missed. I'm sure you're looking forward to taking a well-earned break from checking the cash balances daily. Although I'm sorry, you're probably going to be stuck at home for a little bit, at least. But thank you for all your hard work. The questions, a couple of if that's okay. The first one was on just the nature and the shape of the fourth quarter, which was obviously better than expected. One of the features of the fourth quarter normally is that there's project-based work. And otherwise there's risk that ad budgets might get cut at the last minute because advertisers are desperate to make margin. And maybe this year around, you've got -- you have the reverse problem of advertisers, which is they had cash sitting around. So I just wondered whether there was any sense do you think that, that fourth quarter performance was one-off in nature? That was the first question. Second question was actually about the working capital performance. I mean, obviously, huge -- a huge number relative to the working capital outflow we all expected. You already outlined some of the growth -- the non-trade elements will probably reverse. But I'm just wondering whether you have any views on the overall picture for the trade working capital element, whether that will continue to be neutral or whether we should expect some of that to flow back out again this year. And then very finally, CapEx, obviously, a big saving in the year, will it have to go back up again and maybe even catch up some of the decline last year. So 2 questions for Jean-Michel.

So I'm going to answer the first one on the fourth quarter, and then I will leave the floor to Jean-Michel. So again, we are trying to be granular more than ever to make sure that we give you some context and some flavor in what is still a very uncertain context. So if you look on a monthly basis, we actually had an encouraging and positive October. In what was at the moment, a relatively quiet environment and very few lockdown. But after this positive October, November turned negative. As you would remember, we start to face again new containment measure by the different governments. I mean, lockdown directly related to our growth. December was actually the weakest month in Q4, and it was anticipated, but it was ahead of our expectation, mainly in the U.S. So again, it's very difficult to draw a conclusion on a monthly basis, but it's to give you a bit of granularity. And yes, we have seen a correlation between organic growth and lockdown so far. Jean-Michel, maybe you'd like to take the 2 others.

Yes. Thank you, Tom, for the nice words, first of all. Then working capital, of course, we have been reassured on the trend that we will obtain at the end of the year, very late in the year. In fact, it was mid-December that we saw a trend going in the direction that you saw in the numbers. And we have been helped by the day-to-day monitoring also that we put in place early in the crisis, which has created a comfortable situation at the end of October. We had a positive variation year-on-year already at the end of October. Because we were feeling very difficult year-end on both side. So collection and payments. So -- but we had an expectedly high level of collection at the end, at the very last days of December surprisingly. So obviously, this is clear that an outflow is expected in 2021 and nobody will blame Michel-Alain for an outflow in 2021 is based on what we know as of today, the calculation that we made, we are estimating this outflow around EUR 500 million, around EUR 500 million. So this is something which seems at this day, reasonable. Now coming back on the CapEx. Where also CapEx, you saw EUR 155 million of CapEx. This is something that we have never seen as a [indiscernible], but the context was also the people were working from home. We did not renovate the agencies and so on. So we see a lot of spending has been not done, for sure, due to the fact that people were working from home. And we gave priority to the IT CapEx for sure. And of course, Epsilon, Epsilon all the CapEx they wanted, of course, because this is a priority for us. You heard the numbers that I said on the EUR 155 million of CapEx, EUR 82 million related to Epsilon. This is a big part of the amount of our 2020 CapEx. Obviously, in 2021 and onwards, we will resume our investment in CapEx and the spend should be around EUR 250 million. And 2.5% of revenues as we used to do before the pandemic. So this is a one-off. The CapEx of 2020 is a one-off, and we will resume, of course, in 2021.

Very clear. And just briefly, the EUR 1.2 billion of free cash flow that incorporates that back to normal profile in CapEx?

Of course.

We will now take the next question from Lisa Yang from Goldman Sachs.

The first one is on Epsilon. So you sort of explain why the business has improved so much in Q4. But I'm just wondering like looking ahead, do you see that sort of mid- single-digit growth rate has been the new normal for Epsilon in the U.S.? I appreciate you have tougher comps in Q1, but I think I'm more interested in the sort of longer-term midterm trajectory for Epsilon? Secondly is on Sapient. I mean it's great to see Sapient recovering in the U.S., it looks like international is getting impacted. So maybe could you talk about the platform of new projects like the phasing that you were talking about, should we expect to see a more meaningful tailwind in the U.S. internationally in the quarters to come? And the third question is related to the margin. So you guided to up to 50 basis points of improvement in 2021. Could you maybe help us walk through the moving parts? I guess restructuring should be quite a boost here. You talked about the savings already, there will be structural. Wondering if there's any additional things you can think about for 2021 related to COVID? And how should we think about the operational leverage in there and reinvestment? That would be really helpful.

Thank you, Lisa. So again, I won't insist enough. We are very confident in the model we are building. And we think it's reflected in our 2020 number, but we also have to be very, very cautious. I guess most of you on the call are still working from home. And it's important for us to again, be very cautious on what will happen in the coming months. But coming back to Epsilon, yes, we said from day 1 that come back to mid-single-digit growth should be our first objective. That's, of course, our goal. We believe that not only we can create the synergy to get there. But more importantly, Google withdrawing from third-party cookies will mean that identity resolution, your ability to build real IDs is going to be paramount. And in the U.S., for the moment, still to be built in the rest of the world, we have a unique position. So of course, this is very encouraging. But again, I want to stay cautious. On Sapient, you're right. We have seen a good momentum in the U.S. first of all, we are -- because we have changed our structure. We have changed our leadership. We move to industry practices organization as we were having in the rest of the world, where we have been growing significantly in the last 5 to 6 years. And we see, again, the pipeline in terms of projects, I don't want to say good because, again, it's related to CapEx. So the good news is when people start spending, it has a big impact, but the first thing they cut is this kind of thing. So we have to be careful, but the pipeline of project is good, okay? For the rest of the world, obviously, it's a bit different. And it's two tails of story. On 1 side, you have countries like the U.K., which is the second biggest country for Sapient, where some of our big projects have been postponed, mainly in the financial services for reasons that you know very well. It Doesn't mean that it's not going to come back. It means that for the moment, it's postponed. On other areas, like Asia or the Middle East, we are seeing increasing projects that make us confident but I would say, overall, the project pipeline is pretty good for the U.S. and the lockdown in the rest of the world we actually determine whether we can accelerate further and so now that what we have planned for the moment. I'm going to try to answer briefly your question on margin, which is an important one. I mean, as we did, I would say for the last decade, but I think you can go until the day Jean-Michel arrive and maybe before as Jean-Michel was already there, we will definitely continue to manage our costs with a very straight discipline as, by the way, the crisis, again, is far from being over. If I want to try to answer your question and make a very high-level bridges for the margin of 2021. There are definitely some items that will play positively. The first is we will have fewer restructuring costs. We believe it will be contained to circa EUR 100 million, where we spent EUR 175 million in 2020. The second thing, and as Jean-Michel insisted on that, 20% of recurring savings out of EUR 467 million generated in 2020. So that, of course, will play positively. And obviously, the contribution from additional revenue. But it's important to note that this is going to be partly offset by 2 main buckets, I would say. First, some costs like the G&A will mechanically go up when people return to the office and start traveling again. Again, too early to say when, but we have to be prepared to that. But I would say way more importantly, and we discussed that before. 2021 is definitely a year where we will invest in our talents. Again, we have made the demonstration that with the model and the strength of our model. The question is how do we encourage, reward and bring on board the best people to accelerate on organic growth. So taking all of this factor into consideration looking at the fact that, by the way, thanks to our acceleration in the U.S., we have posted what we consider as a solid margin at 16%. We expect to improving 8% up to 50% for the year, hopefully. It's giving you positive -- 50 bps for the year -- yes, 50 bps. That's hopefully answering your point.

Right. So based on your answers, you're not expecting additional structural cost savings in 2021, partly related to like real estate or things that you've been doing in the last few years?

No. First of all, it's part of the 20%, but more importantly, again, we consider that our transformation in terms of model, in terms of culture, in terms of leadership, is on its way. It's completed. And now, we are really focusing on the execution. And the execution is returning to growth as fast as we can, taking into account the very difficult global context. That's it.

We will now take the next question from Conor O'Shea from Kepler Chevreaux.

Congratulations as well. And many thanks to Jean-Michel for his hard work and professionalism and help and welcome to Michel-Alain. Three questions quickly on the organic growth. Just wondering -- thank you for the detail also, on the Q4 by month. I wonder if you could maybe say if January for the moment, is also a little bit weaker than December? I know it's smaller month, but that could be helpful. And also, on the top 200 clients, just to declare the 1.8% growth, is that reported growth or organic growth? Second and third question is on the margins. Just on the margins in the European business, they responded and recovered remarkably in the full year, over 10% versus the first half. I think they were below 2%. Could you just talk us through what was happening there? And then if you could perhaps give us an indication of roughly how much it costs to reimburse the salary sacrifices, how much that weighed on margins at the full year?

I'm going to let 3 and 4 to you, Jean-Michel. On 2, its organic growth on the top 200 clients. And I'm going to spend a second on Q1. So first of all, we don't have, at the time we're talking, the January number. So we can't take any assumption until a couple of days, I guess. As I said, we know that Q1 is going to be negative. I call Q1 2021, kind of Q5 2020. And honestly, this is a mood we are finding everyone. I guess every one of you, or at least every one of us had a good week during Christmas, where e-mail stopped. But then [indiscernible] came back, and it's the Groundhog Day as it is a day in the U.S., we're exactly in the same place. I think it's important, if I may, to remind you that when you look at January and February for Publicis last year, we were off to a very good start. We were positive at the end of February. And then things start to deteriorate with the situation. So it's way too early to say whether our Q1 turns better or worse than Q4. It will really depend on the evolution of the pandemic. And again, I can't give you more detail on January because we don't have it. Hopefully, give you a bit of color, and I will let Jean-Michel take the 2 other questions.

Okay. Thank you, Conor. Thank you for your words, too. Regarding the margin in Europe, there is an improvement in H2. This is due for a better growth rate, to be clear. And then also due to less impact of outdoor activity in the second half of the year compared to the first half. This is worse in France, mostly. In France, per se. This has improved. This has a significant weight in the improvement. But you should not under estimate the weight of the restructuring that we had in Europe in the second part of the year also, which has -- we have some significant restructuring costs in H2 in Europe because among the objective that we have is a force to improve the margin in Europe in the next years. This is something, which is clearly on the right screen. Now the cost of the reimbursement of the -- repayment of salary sacrifice is roughly EUR 30 million -- EUR 30 million. So I guess you have the answer to your question, Conor.

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

[Foreign Language] Three questions, if I may, as usual, and I'll ask them one by one, if that's okay. So you guided to EUR 1.2 billion of free cash pre-working capital. You told us that working capital should be about minus 0.5%. So debt pay down of EUR 0.7 million. So net debt of EUR 0.1 million at the end of 2021. So when do you start a buyback? Or are you going to buy another big digital asset in 2022?