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

Good morning. This is the conference operator. Welcome, and thank you for joining the Publicis Groupe First Quarter 2023 Revenue Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Arthur Sadoun, Chairman and CEO. Please go ahead, sir.

Thank you, Sherry. Bonjour and welcome to the Publicis Groupe First Quarter 2023 revenue call. I am Arthur Sadoun, and I'm here in Paris with our CFO, Michel-Alain Proch. As usual, we will take your questions together after this presentation. Alessandra Girolami is also here and will be available to take all of your questions off-line after this session. I will start this call by sharing our Q1 highlights. Then Michel-Alain will provide more details on our numbers, and I will conclude with our outlook for the rest of the year. But before we start, please take the time to read the disclaimer, which is an important legal matter. Okay. In an increasingly uncertain global macroeconomic context, the strength of our model with our revenue mix, our go-to-market and our platform organization gives us full confidence to deliver the 2023 guidance we set in February. I would like to start by actually giving you a broader context about what we have delivered. After 2 years of double-digit growth, we posted a strong start to 2021. Our Q1 net revenue was up plus 10% on a reported basis. Organic growth was ahead of expectations at plus 7.1%. It is important to note that this performance came on the top of a very solid plus 10.5% organic growth in Q1 last year. If we start to deep dive deeper into our Q1 highlights. In a market that will continue to change dramatically, we were able to capture once again, the shift in client investments towards first-party data management, digital media and commerce with, as you will see, a direct positive impact on our creative and media operations. First, this was clearly visible in the double-digit performance of our activities in data and tech that together represent 1/3 of our revenue and were again this quarter, accretive to our growth. Epsilon was up plus 10% organically on the top of plus 7% in Q1 2022 with solid growth across all divisions. Publicis Sapient continued to gain market share with net revenue up plus 11% organically after plus 19% in Q1 2022. The relevance of our offer with real-time data and tech at the core was also visible in the rest of our business with very solid performance of media and creative this quarter. Media grew high single digit organically, fueled by new business gain and after a double-digit increase in 2022. Creative sustain is solid momentum with mid-single-digit growth this quarter, thanks mainly to scope extensions, notably in production. Let's turn now to our regions. The U.S., our largest geography continued to post a strong performance this quarter with a plus 5.8% organic growth on the top of a plus 8% last year. Epsilon and Publicis Sapient stood out by contributing again significantly to the country growth. Europe confirmed the very strong dynamic of the previous quarters. The region posted plus 12.3% organic growth on top of a plus 14.9% last year. This performance was largely driven by the U.K., our largest country in Europe. Organic growth was plus 24%, led again by outstanding numbers at Publicis Sapient but also the contribution of global 2022 media wins that we actually have in London. France was up low single digits despite a high comparable base last year, fueled by several new business wins, notably in big accounts in media. Germany is actually accelerating to double digits this quarter. In Asia, organic growth was up plus 0.8% this quarter, due to a very high comparable base of 14% in Q1 last year and a decline in revenue in Thailand due to delays in phasing of a large business transformation project. But actually, more importantly, China posted very solid numbers with plus 3.7% organic growth despite the difficult health situation in January and a high comparable base of plus 10.6% in Q1 2022. Let's be clear, we are confident that Asia will accelerate growth as early as Q2. Thanks to a sustained new business momentum, the current improvement of the health situation in China and easier comparable in Thailand. Beyond the short-term numbers, it is important to put our performance in perspective to truly appreciate the strength of our model. Since the pre-COVID situation, the group has changed dimension by growing its Q1 net revenue by plus 45% on a reported basis of which plus 18% organically. Our long-term investments in Epsilon and Publicis Sapient have boosted organic growth at plus 24% and plus 28%, respectively, compared to Q1 2019. And our model has leveraging strength in all of our regions with the U.S. up plus 20% organically versus 19%, Europe, up plus 15% and Asia up plus 20%. Last but not least, our unique go-to-market continue to drive new business gains and also external recognitions. Our new business momentum that saw us top industry ranking for the fourth time in 5 years has been further confirmed in the past weeks by several reports. And after a record 2022 commercially, we are off to a very solid start to the year across all of our capabilities. Of note, we won Adobe International Media, Walgreens Media as well as Sonepar in Business Transformation and expanded our [ net ] with mobilizing production. We also scored a number of local creative wins of which Dunkin' U.S., KB Home, Premier League and King in the U.K. When it comes to external recognition, not only did we score high in the industry for creative and media but we also received acknowledgment by leading industry analyst firms for our data and tech expertise that not only set us apart from competition, but also place us well ahead of some of the most renowned tech service companies. This was notably the case with Epsilon that Forrester named a leader once again in Loyalty Technology Solution. I will now leave the floor to Michel-Alain who will give you further detail on the numbers, and I will come back to talk to you about our prospects for the year.

Thank you, Arthur. Good morning to all of you. It's a pleasure to be with you today. I will begin with the evolution of our net revenue for the first quarter of the year. The group posted a net revenue of EUR 3,079 million in Q1, which represents an organic growth of 7.1%. This comes on top of 10.5% last year and is ahead of our expectation, as Arthur just explained. Reported growth was at 10%. We recorded a EUR 40 million positive impact from acquisition and disposal. On the one hand, this includes EUR 31 million net revenue from our acquisition, the most significant contributions being Profitero, Tremend, Yieldify and Retargetly acquired in the last 12 months. On the other hand, it takes into account the impact of the disposal for EUR 17 million, mainly the exit of our operation in Russia that we will annualize from April 1. This quarter, foreign exchange rates contributed a positive EUR 61 million, which is equivalent to circa 2% of net revenue. This was driven by a positive EUR 78 million related to the evolution of the USD to euro FX rate, while the GDP had a negative impact of EUR 13 million. Let's move on to the next slide, which gives the dynamics of our Q1 organic growth by geography. North America posted another very solid quarter with 5.7% organic growth. The impact of the USD to euro was a positive 450 bps on growth this quarter. Together with the impact of acquisitions, this led to a 10.9% reported growth overall in the region. With 12.3% organic growth, Europe accelerated, largely driven by the very strong performance of Publicis Sapient in the U.K. Asia Pac posted a slight organic growth of 0.8%, including a solid performance in China despite the health situation in January. Middle East and Africa and Latin America both posted solid organic growth at 16.6% and 7.8%, respectively. I will detail the performance of each region in the following slides. So I begin with North America in this slide. As I have just said, our operation in the region posted a 5.7% organic growth in Q1, mainly driven by the U.S. at 5.8%, while Canada was at 3.2%. Let's now focus on the U.S., where our operation grew 5.8% organically with solid momentum for all our activities in the country. This is all the more remarkable that it comes on top of 8% organic growth in the same period last year. With a 20% organic growth since 2019, our performance in the U.S. confirms the strength of our offer in this geography where our model is the most advanced. Media grew at mid-single-digit rate this quarter on top of double-digit last year. This was supported by both positive underlying trends with existing clients and new business won in 2022 particularly in food and beverage, retail and health care sectors. Creative came in stronger than anticipated and posted mid-single-digit growth this quarter. This was achieved, thanks to fewer budget cuts than expected, solid production and scope extensions with existing clients, notably in automotive, food and beverage and retail. Publicis Sapient posted 8% organic growth in Q1. This performance was particularly solid considering the 16% growth in Q1 last year and confirms the ongoing demand for digital business transformation. Epsilon posted a double-digit organic growth in Q1, thereby remaining very accretive to the country's number. All of its divisions posted very solid performance in the quarter. And it's worth noting that CitrusAd, our retail media activity continued to grow at a very high pace. Let's turn to the performance of Europe in the following slide. As I mentioned earlier, Europe recorded an organic growth of 12.3%, including our outdoor media activities and the Drugstore and 12.8%, excluding those activities, the U.K., which is 9% of group net revenue in Q1 recorded organic growth of 23.9%. Like in Q4, Publicis Sapient, which represent 1/3 of revenue in the country, was the largest driver of the U.K.'s outstanding performance. Publicis Sapient activity continued to benefit from ongoing large projects, particularly in the financial and retail sector. Media activities grew double digit, driven by global new business wins signed in 2022, notably in the automotive and nonfood consumer sectors. Creative activities were up high single digits this quarter. France, which represents 5% of group net revenue in Q1, posted organic growth of 2.9%, including our outdoor media activities and the Drugstore, organic growth reached 2% this quarter. Media was very solid, particularly in the automotive, food and nonfood consumer sector and Publicis Sapient was softer on the back of a very high comparison basis. Germany representing 3% of group net revenue posted a double-digit organic growth. Media grew by a strong double digit, mostly on the back of global clients. Publicis Sapient also posted a strong performance, supported by the win of local clients and Creative was broadly flat. Let's finish by a few words on Central and Eastern Europe. The performance in the region was very strong at 11% organic, with Turkey, Czech Republic and Hungary largely driving growth. Turning now to the next slide where I will detail our performance in the rest of the world. In Asia Pac, which represents 8% of group net revenue in Q1, we delivered 0.8% organic growth. Overall, in the region, Media grew double digit, while Creative remained stable. The activity at Publicis Sapient declined in the region due to the delayed phasing of a large project in Thailand. Without this impact, the region would be close to 4% organic growth. Let me break this down for the main countries. China posted a solid performance at 3.7% organic growth this quarter despite the health situation in January. And that's notably thanks to new business wins in food and beverage. Australia, Malaysia and Vietnam were also growth contributors. In Middle East and Africa, we posted a 16.6% organic growth in Q1, benefiting from strong Creative and Publicis Sapient in the Middle East and a very solid media activity in Africa. Latin America posted a 7.8% organic with most countries recording positive growth this quarter especially in Argentina, Mexico, Colombia, largely driven by media. On the next slide, you'll find the group performance by client industry for the quarter. This is based on the analysis of our main clients representing 92% of our net revenue. It also excludes outdoor media activities and the Drugstore. This quarter, all of our client industry were positive, but 1 with 6 of them growing double digits. Among those, I would like to highlight the following ones. Food and beverage grew 19%, continuing to perform very well on the back of last year new business ramp-up. Health care was up 13% this quarter on top of 12% last year with Media in the U.S. and Publicis Sapient being the main contributors. We saw a similar dynamic in retail, which grew 16% in the quarter. Leisure and travel was up 14%, continuing to benefit from the momentum in tourism and hospitality. On the contrary, TMT posted a 7% decline in the quarter. This performance was notably due to some phasing in Media, combined with a particularly high base last year. Finally, it's worth noting the solid performance in the financial sector on top of a double-digit organic in Q1 2022 as well as in nonfood consumer and automotive, which grew in line with full year 2022. Moving to the next slide, net debt. The group closing net debt at the end of March was EUR 442 million representing a negative net debt variation of circa EUR 1.1 billion over the quarter, showing the usual seasonality of working capital at this period of the year. This is compared to a net debt variation of circa EUR 640 million in Q1 2022. This stronger variation of circa EUR 400 million is largely explained by several reasons. First, the EUR 220 million share repurchase fully executed in the quarter in order to cover employee long-term incentive plans. Second, EUR 110 million cash tax payment made in January 2023 related to 2022 and reflecting the new application of U.S. Tax Cuts and Jobs Act on the capitalization of R&D expenses, as I explained in February in our full year earnings call. And finally, about EUR 100 million additional outflow in working capital versus Q1 2022, due to some phasing effects, and it will normalize during the year. The 12-month average net debt was EUR 563 million at the end of Q1 2023. This is EUR 714 million below end of Q1 2022 and EUR 122 million below end of 2022 level. We are fully on track to meet our average net debt objective for the full year at circa EUR 300 million. This concludes my financial presentation, and I now give the floor back to you, Arthur.

Thank you, Michel-Alain. As you saw, we had a strong start to the year that again proves the ability of our unique model to actually gain market share. It is clear that the current macroeconomic environment is increasingly challenging. With the recent tension in the banking system, adding to the ongoing war in Ukraine, high inflation and interest rates. But as demonstrated previously, our revenue mix, our go-to-market and our platform organization gives us greater resilience to business cycle. This is why we are able to confirm all of our guidance KPIs for 2023 despite this challenging context. Actually, when it comes to organic growth, our strong Q1 and our expectation for a solid Q2 between 3% to 5%, increased our confidence to reach the top half of the 3% to 5% range for the full year. This means 2023 organic growth is now expected between 4% to 5%. Let's now go through the drivers of this differentiation that makes us confident for the rest of the year. It starts with our revenue mix. As we said in the past, thanks to our decade long investments, we now have 1/3 of our revenue in real-time data and technologies. This is the reason why we have grown faster than the industry and the global economy, particularly since the pandemic. Concretely, in 2022, we outperformed the industry average organic growth by 300 basis points on a 3-year basis, led by Epsilon and Publicis Sapient which again will be accretive in 2023. But we are not stopping there. We keep on adding value and scale to our future-facing expertise to actually strengthen our competitive advantage. This is the case in identity marketing, where we constantly enrich Epsilon capabilities and its EUR 300 million profiles globally. More recently, with the acquisition of Yieldify to increase brand online personalization but also Retargetly that extends our footprint in LatAm. In Digital Media, we are building solutions based on our real identities, to increase our client business outcomes through fast-growing new channels by connecting Epsilon to our scaling media for connected TVs and to CitrusAd for technology and retail media. Next year, when it comes to business transformation, we will and we will continue to further our scale and our global footprint in everything we do. This is what we have done when we have gone through the acquisition of Practia, making sure that we add not only capabilities in LatAm, but also a new global delivery center to our global map. It is very important to note that we can today count on 1/3 of our talents working in data and technology. This puts us at the heart of our client structural needs, as you have seen. But it is also a huge asset to lead in areas like AI. Since the rise of ChatGPT, everyone has been talking about the future of AI. In our case, it is already a reality that is accelerating the value and the speed of everything we do. AI is at the core of Publicis operating system and at the service of our clients. When we launched Marcel in 2017, with the support of Satya Nadella and Microsoft, it was on the promise that AI will help us identify the best suited talent for any given brief, purpose tailor-made learning and development programs for everyone and make sure industry knowledge was better shared and used. Today, the vast majority of our people are connected to Marcel and are already using AI regularly. It is now a huge competitive advantage, not only in recruitment but also, of course, in retention. To fully harvest the power of AI to the benefit of our clients, we have equipped our team with AI-driven tools. This is, of course, true at Publicis Sapient where we offer to our clients new AI capabilities to deliver enhanced customer experience with faster project development and at Epsilon that use AI model to update, to enrich and activate real-time our first party data. But that capabilities further extend to media where AI is playing a key role to optimize playing and buying, but also powers our retail media and advanced TV offering currently for accretive business, where AI optimize production process and boost dynamic creativity. In fact, we entered in partnership with OpenAI before its recent popularity to deliver innovative, personalized and sell solutions to our clients. I mean there is no doubt that AI will radically change the shape of workforce and skills quickly. So we must make sure that all of our people are capable of harvesting the machine capabilities at the service of our clients. We are committed to empower all of our people, integrating AI in their daily work. Secondly, what drive our confidence for this year is our go-to-market. Not only do we have differentiating assets that perform well on a stand-alone basis, but they also contribute materially to the performance of our Creative and Media. What sets us apart from competition is actually our ability to connect our different expertise, by integrating real-time data and technology into Creative production and Media, we are positioning ourselves as a true marketing transformation partner for our clients. The strength of our model has been visible in our new business track record in the last 5 years. The momentum continued in Q1 and will contribute to our growth. Of note, our recent win of Walgreens Media show the indisputable superiority of our model, run on real IDs that not only bring efficiencies in terms of investment, but also competitive advantage for our clients. In 2023, our focus will be on delivering the best services to our existing and recently won clients while winning market share with the right value. And lastly, our platform organization provides us with agilities which is increasingly required to navigate a more complex world. With our country model, our global delivery centers and our shared services, we have the ability to maximize resources allocation locally, manage recruitment closely and benefit from scale talent pool globally. Not only does our platform create efficiencies to mitigate wage inflation and post year after year, the best financial KPIs, but it also enable us to invest in our growth and in our people. To wrap up, we are confirming our 2023 expectations set in February despite the rising macroeconomic uncertainties. When it comes to revenue, our better-than-expected Q1 and a very solid anticipated Q2 make us confident to now deliver between 4% to 5% organic growth this year. And this will come while maintaining industry high financial ratio with an operating margin rate of 17.5% to 18% and free cash flow of circa EUR 1.6 billion. Thanks to the combination of our revenue mix, our go-to-market and our platform organization that definitely set us apart from competition. We will continue to deliver on our commitments and accompany our clients in their transformation. I would like to thank our talents for their continued efforts and of course, thank our clients for their trust. And now with Michel-Alain, we are ready to take all of your questions.

[Operator Instructions] First question comes from Lina Ghayor of BNP Paribas Exane.

I hope you can hear me well and congrats on the results. I have 3 questions. The first 1 is on Sapient, and the performance is impressive, particularly in the context of the tough comparatives. However, could you just explain a little bit more what happened by geography and client vertical particularly U.S. grew 8%, which is strong, but half of the rest? So any update on the asset dynamics and your thoughts around the growth outlook would be appreciated. The second question is on trends. You now expect organic growth for the year to be between 4% and 5% with 3% to 5% for Q2. So back of the envelope, it implies 3-ish for H2 if my calculation is correct, which is still healthy given the macro environment. So my question is, what do you see in your client behavior at the moment? And what have you baked in on the macro side in your guidance? And the last question is on ChatGPT-like technologies and AI mostly. So you mentioned some elements in the presentation. But where do you see generative AI impacting your business on the unit economics? So typically, for example, pricing, but also on the cost front. And I would be also interested to hear what -- which is the client appetite either on the training side or media buying side? Any concrete examples will be highly appreciated.

Wow, that's a lot Lina, thank you. So if I'm well, we have a question on Sapient mainly on the U.S. and client vertical. We have a question on the rest of the year. And then a question on ChatGPT. I'm going to start, if it's fine for you, Michel-Alain, if you want to add anything, please do so. Maybe I'll start by your second question about the trends for the year and how we anticipate the rest of the year. What can I tell you on that? First of all, as we said, for Q2 we expect a very solid quarter between 3% to 5%. And again, it's very important to consider that we are going through a higher comparable in Q2 than in Q1 on a 3-year basis. When we go to H2, we are, of course, taking 3 factors into consideration. The first is, as everyone has mentioned, increasingly macroeconomic challenges that are raising for sure. Second, which is important for us, a higher comparable base since pandemic with H2 last year that was growing 400 basis points faster than H1. So a big gap, and you have seen the acceleration we had last year. And also, Q4, which is always an adjustment quarter even more in such a volatile year. So that's the assumption we're making. But despite those 3 factors, it's very important to note that we have not changed our assumptions for H2, thanks to the strength of our model. All that I explained about our revenue mix that will continue to be accretive, the new business tailwind but also our platform organization when it comes to margin. And so what we have done to actually move from 4% to 5% is simply reflecting on the full year or longer than expected Q1 that came at 7.1%. When I move on to -- I'm going to move into Sapient, why not? Let's do Sapient in the U.S. I mean, I should start by the beginning. Overall, having Sapient again, double-digit growth in Q1 after the track record they were having on the 3-year basis is something that is a good news for us. And it happened higher than expected for a single reason is that we were expecting that some business transformation project could have been delayed. They have not been delayed so far. I think, again, in the economic challenges that our clients are facing, we don't think they're going to cut their investments on transformation, we can expect that some will postpone some decision. And we are prepared for that. We were in Q1, we are in Q2, and this is a very important element. Now when it comes to the U.S. I mean, I will start by reminding you that Sapient had an outstanding performance in the U.S. in 2022, 17.5%. For those who were there with us a couple of years ago, this is incredibly strong and building on already a very good momentum. And despite this very high comparable, we are delivering 8% in Q1, which means that we have delivered plus 36% organic growth since the start of the pandemic. So they have grown by 1/3 inorganic. I mean, we are absolutely convinced that Sapient will be accretive to our growth again this year despite, as I said, some slower decision process in smaller projects. You might have heard that, by the way, from other system integrators, I think that in the U.S., everyone will agree that on smaller accounts, there might be some delay. But we are absolutely certain that Publicis Sapient not only will continue to be very solid in the U.S., and this for the third year consecutively, but will also accelerate elsewhere, particularly in the U.K. I think the UK case, if I can UK case, if I can spend a minute on that is very interesting. You would remember that in '20 and 2021 and maybe the beginning of '22, the performance was pretty poor. And we told you the reason why the performance is poor, is because of a few clients that are very loyal and very happy with us have decided to stop and postpone their investments. We had to take the heat at the time. And now that they have started to invest again, we are taking the benefit of it. As you can see in our results in the U.K. AI, you're asking all the questions. What can I tell you about generative AI? I mean, clearly, I'm not going to come back on everything I said by why AI is already at the core of Publicis operating model. And by the way, why AI is already at the service of our clients. It is, if I may, native at Sapient. It is absolutely core in the way we refresh our data in Epsilon. It's having a massive impact on how we can maximize our client investment in Media and even more importantly, how we can boost our retail Media offer. And it has a player also in Creative in production and ideation. And this is where, at the moment, generative AI is having the biggest impact. And of course, I guess, the question you got behind that is can generative AI hit our Creative business in the future? I mean I've been working in creative agencies for the last 25 years now. So if there is an area that I know pretty well, it's definitely this one. And I have seen the ideation process when we create that and the production purchase changed radically several times over the last 2 decades. And it's very interesting to see that every time Creative agencies has always been able to adapt to new technology and continue to deliver great value for their clients. So to be clear, I think that generative AI for the Creative business is going to be an opportunity. I am definitely not worried about the ability of our agency to adapt and leverage the potential of AI. But I also want to be clear, but the fact that it's going to take time before it become a reality across the board. This is not something that will change overnight. But what is certain is that what we might lose in terms of our revenue through a faster process because maybe there was a less account, which would be fine, will be largely compensated by the necessities to multiply the number of creative assets due to personalization at scale. And by the way, you see size up in our production number today. As you have seen, Creative is strong in Q1. It's partly due to the fact that we have to produce more assets. So if I want to make a long story short on this one, it's possible that tomorrow, we get paid less for a single ad, but we will have to deliver way more volume as personalization increase. So definitely, we see generative AI as long as we are capable of mastering it more as an opportunity than a threat. Sorry, I've been long, but I think it was 3 important questions.

The next question comes from Julien Roch of Barclays.

[Foreign Language] Two easy questions for Michel-Alain. The first 1 is indication for working capital in 2023. To the split between Media and Creative in the 2/3 you're talking about? And a more difficult question for Arthur following up on the theme of artificial intelligence. I just said -- I just heard what you said in terms of less revenue per ad but more ad for net-net, the same. But historically, you run your business on a cost-plus basis. So let's say you win a content creative budget where a client will spend 100. Historically, you say we're making 18 on margin. So we're going to spend 82 on what the client want. Thanks to AI, it will cost you far less to deliver the same value add illustratively, let's say, 40. So if the clients were still spending 100, you'd make a massive margin of 60 rather than 18. So I would think the client will say, well, I'm going to pay you less, 60-70. So you make a higher margin and I pay less and everybody is happy. So why in that specific case, why don't you think that AI will lead to lower revenue but higher operating profit?

Okay. So first, I'm definitely not saying that AI will lead to lower revenue. What I'm saying is that we might get paid less for a single ad 1 day. We are far from that, but it will add to the volume of ads that we have to produce because of personalization at scale. But actually, I need to answer your question a bit differently, Julien, because this is a critical question, the one you're asking. And this is where we still have a lot of work to do to change the perception of what we do for our clients and why what we do not only make us unique, but we believe creates the opportunity to be the only one that can truly outperform the market is we have shifted from a communication partner to a transformation partner, where we make our money and our margin because this is valued services, is in our ability to accompany our clients in the transformation you just talked. And so the reason why we see AI as an opportunity is that, you know what, maybe one day on what we were doing in the past, will get paid less on creative. But it will be more [indiscernible] by our ability to bring what is needed for generative AI creative work, which is first-party data, which we are the only one that can deliver with Epsilon, we're only one among the holding company, the necessary technology and technological ecosystem to produce it which is what we do, of course, with Publicis Sapient that work with -- as a system integrator with all the platform like Adobe and our ability to help our clients build the overall model for this to work. So don't get me wrong. I am not saying that generative AI will skip our Creative revenue at the moment. What I'm telling you is that because we are not of the same positioning that our competition because thanks to the vision of Maurice 10 years ago with Sapient, we have started to invest in technology and data differently from our competitors and integrate it at the heart of our Creative and Media business. You should have said the question why we are winning in Creative, but also why we are winning so much on media. It's because of this integration. The ability we have today to take generative AI and see it as an opportunity for our client to further accelerate the transformation, represent more source of revenue as a transformation partner than risk as a former communication partner. Now I think I gave enough time for Michel-Alain to take the 2 other questions.

Thank you, Arthur. So on the working cap, yes, so the -- on the first quarter, as I was commenting the variation of net debt, part of the EUR 400 million stronger variation of net debt we had in Q1 2023 versus Q1 2022 is coming from about EUR 100 million of outflow in working capital, which is really phasing effect, nothing to worry about, will normalize during the year. And to give you a data point, like last year, I'm targeting to be roughly at zero in working capital for the year. On your second question, which was the split between Media and Creative, I think you are referring to one of the first slides of Arthur when we say 2/3. So yes, it's 1/3, 1/3 roughly. The mix of the company hasn't changed compared to 2022. So answer that take 1/3 creative and production, obviously, it's in there, and 1/3 media. And as Arthur was mentioning in the beginning of the call, a strong performance of Media high single digits and actually a better performance than expected in Creative with mid-single digit.

By the way, it's important to note that when we say data and technology, we are talking about engineering and actually AI capabilities, which we have with 1/3 of our revenue. We should not underestimate how much we have digitalize and bring technology into our media business, for example, and starting to do it very well in production and ideation, we have the discussion on AI.

The next question is from Christophe Cherblanc of Societe Generale.

Yes. First one was on headcount. Can you give us the headcount at the end of Q1? And what are your plans for Q2 at that stage? I think, Arthur, you mentioned some consultants were slowing down a bit. So do you plan to soft land the Sapient workforce? That's the first one. The second one was on offshoring. What room do you see to increase the share of offshoring in your setup? I mean if we speak again in 5 years, will the mix be 30%-70% versus 25%-75% today? And Arthur, you mentioned the fact there was a balance between the cost advantage and the flexibility and the ability to tap talent. If you had to pick a number, would you say it's a balance between the cost issue and the flexibility issue? And the last one is team offshoring on Practia, I guess that's for Michel-Alain. Can you give us some numbers, orders of magnitude of margin revenues? And more importantly, maybe how many Practia, do you see on the market because that kind of asset for us is very hard to see from the outside?

I'm going to let Michel-Alain answer the 3 and then maybe I'll make some comment on the [indiscernible].

Sure. Okay. Christophe. So on the headcount, at the end of the quarter, we are a bit more than 98,000 people. We have added during the first quarter, a net hiring of 700 people. Maybe Christophe, just for you to remember, what we've decided with Practia is to stabilize the headcount in Q4 of 2022. You remember that we were hiring for the first 3 quarter of 2022 between 2,500 and 3,000 people as we -- we were still catching up on our revenue trajectory. We stabilized in Q4 with -- in Q1, we have 700 more in net hiring that we have concentrated mostly on Epsilon. As you have seen, Epsilon is delivering double-digit growth on our global delivery centers, that's the second place. I will make the link with your second question about offshoring. And finally, in Europe, because in Europe, we are delivering, as you see, a 12% growth. So we have a very granular monitoring of the accounts on a monthly basis, operation by operation. On the second part, which is the offshoring, in terms of global number, you remember them. We have about 25% of our headcount, which are based in global delivery center. This is obviously different practice by practice. As I have already mentioned, Sapient is already at a high number, which is about 70% of its headcount. Epsilon is just below with a bit more than 50% of its headcount. Media is around 30% and production is about 20%, and it's not significant for Creative. So as you can see, first, I think we are leading the industry in terms of offshoring leverage, first point. And the second point is that we still have a way to go in some practice on the basis of the numbers that I just explained. I finish up on Practia, if it's okay with you on Practia. So on Practia, you understand the move we are making. It's a move which is very comparable to the one we've made with Tremend in Romania. Going back a bit in time, Sapient was relying on 1 very large global delivery center in India. We have double-digit with the acquisition of Tremend in Romania last year. And here, we are creating a third global delivery center for Sapient in order to better serve our client base in North America having this global delivery center on the same time zone. So Arthur, do you want to intervene? No, no. Okay. All right. So maybe that's the first reason, Global Delivery Center. And the second reason is obviously entering a new market, which is one of the fastest markets for DBT, which is Latin America. Arthur?

No, maybe to build a few points and to come back to your point, Christophe, it's very interesting to see what we are doing with Practia or what we have done with Tremend because it come backs about your point on offshoring and what we're expecting from the trend. The reason why we are putting a new center in Latin America is for timezone reason more than anything. Why? I come back to the question you are asking me between expertise and cost, et cetera, is that you need to understand that the platform model we have put in place that was initiated 20 years ago, maybe with the shared services that was complemented with the global delivery center and the consumer get a similar success is making a huge difference in terms of managing our cost base, and you see the kind of financial ratio we're having, but also to make sure that we get immediate and direct access to data and technology to our clients. And so the reason why it's so important to be in Latin America is that we want to make sure that we can serve the needs, real time of the West Coast of the U.S. And Nigel Vaz has built a model now with all 3 centers where we can work 24/7 without any bumps in the communication. I'm coming back on the question you raised about why are we doing this? I mean it's 3 reasons. And believe me, they are in this order. First is expertise. I mean, when you look at the high-end service we are bringing with Publicis Sapient with Epsilon or even with our Media now, but mainly with Publicis Sapient. We have access to high-end, high skilled, high trained engineer, and this is making a big difference. And to be clear, I have been -- my first trip as a CEO 6 years ago, now I'm getting older, was to go to India. I started by India because I wanted to understand exactly what we are doing there and how we are working directly with our clients. And I found there very high skilled engineer, and that's the second point I found them at scale. Because if you look at how we have been developing our workforce there, it makes a huge difference. And then cost come because yes, if you allocate resources better, by definition, it is less expensive. But you need great talent at scale and those global delivery centers allow us to do that in India, in Eastern Europe and now in Argentina. And I went there actually to make those guys and make sure that the feeling was the same. We were there with Nigel and we consider that we have a great thing to do. I will finish with a point that again come back on where we have to do a better job to explain our differentiation. Building global delivery center in India is extremely hard because you have to start small, while scale matters. You have to start new when young engineer will look for established brand where they can grow faster. And so we have been incredibly lucky again when Maurice decided to buy Publicis Sapient. And I know that at one point, it was a bit controversial, but now it's proving its full power. What we have bought there is not only a great company with great brand and great talents, but also an organization that is the organization of the future. And so we started immediately, but I think it was 10,000 or 12,000 engineers based in India on the global delivery model that we have been able to scale. But it's very important to say that the first mover advantage and the fact that we are already there. In our opinion, give us a 5- to 10-year advance to anyone who wants to start to bid that.

The next question is from Conor O'Shea of Kepler Cheuvreux.

Congratulations on the numbers as well from my side. I just had 3 quick questions. if I could. First on Epsilon. Can you give us a little bit of detail behind which activities within Epsilon, how fast it's growing? And if there's a big gap between the growth in the various activities within Epsilon? Second question in terms of just the digital advertising market in general, particularly in the U.S. Are you seeing any signs of that bottoming out? And in particular, with regard to your CJ Affiliates activity, CJ is now within the media business, is that our revenues declining for that unit from your perspective as well? And then the third question, just in terms of the U.K. business, obviously, an excellent performance again. those announcements in the last week or so that ahead of the U.K. business, Publicis UK business and Annette King is leaving to Accenture. So just wondering if that has any potential destabilizing impact on the business in the coming quarters?

Great. Thank you, Conor. What we're going to do is maybe you can give the number on Epsilon and I'll make a comment and then I'll take the 2 others, okay?

Yes, sure. So Conor, as I was saying on the call, the 4 divisions of Epsilon have been growing this quarter, tech, auto, digital media and data. We say with an organic growth for Epsilon at 10%. And we see a good distribution of the performance among these 4 divisions. There is not an outlier. It's pretty much within the average number of 10% for Epsilon.

I mean we are very pleased to see Epsilon performance. I'll start by that. We have been talking a lot about Sapient so far. But for those who were there, 4 years ago now when we made the acquisition. And at the moment, where the market gave us a credit to have paid a good price but was anticipating a growth between 0% to 3%, continuing to deliver double-digit growth is remarkable. If I want to be honest I think it is 80%, thanks to the work of the team that is outstanding today and the integration of this team within Publicis Groupe to really bring together identity marketing and our scale in media and creating new products for retail media, winning the biggest pitch at 80% to their credit. But I have to admit that there is a good 20% that is due to 4 years ago, no one was anticipating that the shift from third-party cookies -- to third-party cookies to first-party data will be so fast and will be in every client line so quickly. And this, of course, represent a massive trend, the third-party cookies to first-party data management in order to make sure that you can build digital ecosystem and truly transform your business that is giving us a fantastic tailwind also. On media and digital media, look, first of all, we had an outstanding year last year on media in general. We are having a good quarter, as you have seen. What really defines the trend is what happens at the upfront in the U.S. in a couple of weeks. So I think it's too early to draw any conclusion. What I can tell you is so far, as we said, we have seen some localized chats in more traditional advertising, but nothing material. And more importantly, no real movement into that. I propose that we wait for the upfront and maybe we can take back the discussion after when we talk in July, it's too early. When it comes to the U.K., first of all, again, one of the good surprise of Q1 is Europe. As you have seen on the kind of 4-year stack, we are closer from the 15% when the U.S. is at 20%, but they're coming back, which is a great news. I would say U.S. is more on the kind of 3-year stack of a competitors in Europe. So it's keeping up and progressing. But when you look at the number, it's particularly due to the U.K. as you commented. But for 2 reason and we want to be very transparent on that, and we have been transparent even with the price. The first one is Sapient coming back very strongly because some projects that have been stopped are starting again, and the team there is doing an outstanding job on the top of that, winning new business in other industries. And the side effect of the global pitch we have won in the U.S. that are now starting to deploy in the rest of the world and mainly Europe. And we took the strategic decision to make U.K. the base for our business when it comes to Europe in media. And this, of course, is having an impact on the organic growth. And when it comes to Annette King I will first start by thanking her for tenure at Publicis. We are very happy to have her with us. And I would say it is the life of the agencies. We have taken a strong decision in September when we decided to put in place a new director at Publicis and then a new organization for Europe, where I have asked [indiscernible] that was truly outperforming the market in Asia to come and take Europe. We decided to make an external recruitment with Demet from one of our competitors that is definitely somewhere that is already having a big impact. And you have to understand that in this condition, people decide to move on. I can't blame them for that. I can just thank them for the time they spend with us.

The final question, gentlemen, is from Adrien de Saint Hilaire of Bank of America.

I've got a few questions, if you don't mind. So all of your peers are now talking of margins being flat at worst or up at best. I know at Publicis, you run a slightly different model, but I'm just curious, given the slightly better organic sales growth, if you see any scope, let's say, for outperformance there, perhaps some extra work done around real estate optimization. And then I have 2 more questions around Sapient. Perhaps Arthur, you can talk about the pipeline of projects that you see. Do you see a lot of RFPs at the moment around digital transformation compared to previous years? And then maybe more specifically, I was interested with this contract with Sonepar, not a company I'm very familiar with, but I noticed that they are ready to spend EUR 1 billion around digital transformation over 5 years. How does that contract specifically split between Sapient and the 2 other partners, which have been selected?

Okay. So I begin -- if it's okay Arthur, I begin with margin?

Okay. All right.

So as far as margin is concerned, we're very confident into our operating margin guidance, a with 17% to 18% for 2023. And we are delivering, as you know, the industry highest ratio while supporting growth. I just want to add 1 point here, which is if you take the midpoint of this guidance, it's actually 50 bps above the average of the last 3 years. And we are doing all this while maintaining a high bonus pool at about EUR 500 million, which is the same level of 2022. And again, if we go back a bit in time, remember that this bonus pool was EUR 200 million in 2019. So we, on average, we're doing 50 bps better than the last 3 years. All this while absorbing EUR 300 million more bonuses. I'm not going to go in the detail of our cost assumption. I just want to tell you, I gave you cost assumption for the year for fixed PC and for G&A. They haven't changed. Fixed PC will evolve broadly in line with the revenue. G&A will increase slightly as we are progressively seeing return to more face-to-face meetings with clients. So long and short, can we do more than 18% if we decide, yes, I mean, we can. I mean, are we doing to do more? No, because we want to place a guidance which is sustainable for our business to support goals and allowing us to invest into talent and technology, Arthur?

Yes. I mean, as I'm already in my seventh year now, so things are moving very fast. I remember the time, everyone was telling us, you should sacrifice margin to get growth. And we say it's not about sacrificing margin because we are not here to buy market share. We are able to build a model for the future that, by the way, lies on growth pillar that are sustainable on the long term. And what we are achieving here, at least what we achieved last year and what we aim to achieve this year again, is outperforming on growth, outperforming our margin and rewarding our people better than anyone else because we know that talent matters. And honestly, if you ask me what we are the most part of today, looking at the Q4 season, as we are going first is not only we raised our salaries, not only we gave 2 weeks of additional salaries to everyone that doesn't have a variable remuneration, but we actually increased our bonus pool that was already historically high in 2021 by 20% while again delivering the best margin while our competitors were actually declining their bonus pool. That's very important for us, and this has been perceived not only by our people, but by our clients. On Sapient, look, we are extremely happy with the Sonepar partnership. It is a great company. It has been done by Publicis Sapient in France and Liz and her team with, of course, the support of [indiscernible]. This is a fantastic win. I'm sorry, I can't give you more detail. I shouldn't say win. It's a fantastic partnership. And I don't want to get into too much detail as we are again not giving any specifics on our clients. But maybe a bit more of color on the Sapient pipeline as you asked. I mean those guys are doing an outstanding job when it comes to securing development with our existing clients, when it comes to winning new clients, double-digit growth, again, in this context is truly strong. I will not compare to other system integrators and the leader of the market in particular, but we are at least at the same level, which I think it's a good sign of our competitiveness. And although they are more selective in the kind of [indiscernible] they are taking on new clients, they are showing the superiority of their offer. And what we see at the moment, again, is a strong pipeline. But again, as the system integrators, competitors told you already in their call, we have to be cautious because we consider it will be normal for some of our clients to sometimes delay a bit some investment just because they are going through a couple of quarters of uncertainty. So we have, on one side, to be pretty excited about the pipeline we're seeing. And on the other, pretty cautious when it comes to the ability of some of our clients. But again, we haven't seen in Q1, though outperforming -- performing better than expected in Q1, but we need to stay cautious. I think that was the last question. So maybe I'll take one second more to wrap up what we discussed today. I hope that what you want to take out of this call is that despite the increasingly challenging macroeconomic context that you know, this is why we did not come back on that so much we definitely feel confident in delivering a very solid Q2 and organic growth for the full year that is now between 4% to 5%. We believe we're going to do all of this while reaching once again the highest financial KPIs of the market, Michel-Alain just came back on that. We need to do a better job at explaining what we do. And I want to just wrap up with the 3 reasons why we believe that actually, we are the only one that can truly outperform the industry this year. The first is the uniqueness of our revenue mix. When you have 30% of your revenue in data and technology that will be accretive of our growth. We know that our clients are going to continue to transform, again, some projects could be delayed, but this is a massive strength, not only in terms of pushing our growth but also pushing our business and helping us to really be at the cutting edge of our offer. So this is something that no one else has in this business. It has been built over time. It has not always been easy, but we actually made the right acquisition at the right time with the right integration. The second, and as you have seen, we are being more cautious, not spending too much time in any of the particular wins. But the tailwinds that are coming for [indiscernible] to continue to top the new business chart will help us again this year. It did in Europe in Q1, and it will continue over the year. And last but not least, but I guess this is something we will discuss more in Q2, our platform organization is definitely giving us the agility to deliver on our financial objective while continuing to invest in our people and in our technology. I mean I had a few questions with the price and with you and in the last meeting about where are we in terms of transformation? And what are the next steps? Hopefully, you are feeling now that our transformation is really behind us. And we can only focus on 1 thing, which is the execution of our road map with the team despite all the uncertainties and with real success at the moment. So you can be sure that what we're going to do in the coming months is to be closer to our clients than ever because as we discussed, every challenge they are facing is something that we need to face with them and can represent an opportunity to be an even better partner in their transformation. We're going to take particular care of our people. We did talk about returning to the office and what we are doing there, but a lot is being done. And we will continue constantly to innovate, we talked a bit about AI. Well, I thank you very much. I wish you a great day and any further questions, Alessandra here for you. Merci.

Merci. Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.