Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Publicis Groupe SA (PGPEF, Financial) achieved a strong first half of 2024 with a 5.4% net revenue organic growth.
- The company upgraded its full-year organic growth guidance to 5-6%, reflecting confidence in its performance despite macroeconomic pressures.
- Epsilon and media segments, representing circa 50% of revenue, showed double-digit organic growth in Q2.
- Operating margin remained strong at 17.3%, consistent with 2023 levels, while investing significantly in talent and IT.
- Publicis Groupe SA (PGPEF) continued to win market share, outperforming peers by close to 400 basis points on average in Q2.
Negative Points
- Publicis Sapient experienced a slight decline due to client cautiousness and reduced CapEx spend.
- Despite strong performance, the macroeconomic landscape remains challenging with ongoing political uncertainty and high interest rates.
- The company faces continued delays in client business transformation projects and reductions in advertising spend.
- Working capital outflow guidance remains between EUR100 to EUR200 million for the full year, reflecting strong commercial activity and ERP implementation delays.
- The company is investing heavily in AI and other technologies, which could impact short-term profitability.
Q & A Highlights
Q: Hi, good morning, everyone. I want to ask a couple of questions on Sapient. And I just wanted to understand where you think that the pipeline is at the moment for new work versus where it was, say, 12 months ago. Has there been any improvement at all? Or was it still kind of roughly the same level?
A: Thanks, Adam. Let me take a step back on Sapient and of course, answer your question. As you know, we have restructured pretty massively Sapient in 2019, and it has been a very strong growth driver for the group. We have grown by 30% over the last four years. Even last year, which was a year where most of the IT consulting firms were negative, we actually grew 3%. The pipeline is as strong as it was a couple of quarters ago. We are winning clients, meaning we are presenting some bids and winning them. We are building strategic phases, but the execution phase is where clients need a material amount of CapEx, and this is where they are in a wait-and-see attitude to see how the macro improves.
Q: First on the full-year guidance change, since you are upgrading the H2 from 3% to 5% to 5% to 7%. What are the key drivers of that upgrade and is it linked mostly to your own initiatives while you're also becoming a bit more optimistic about the market conditions?
A: Thank you, Nicolas. Actually, we are passing from 4% to 5% to 5% to 6%. We had a stronger than expected H1, which gives us more confidence. The combination of data and media allows us to lead in personalization at scale, and our new business performance is very strong. We now see 5% as a new floor, factoring in continued cuts in classical advertising and ongoing delays in client business transformation projects. The 6% is a stretch but achievable if macroeconomic conditions improve, clients resume CapEx plans, and there are positive impacts from increased client budgets in Q4.
Q: I wanted to ask a few questions on the topic of personalization at scale, which you've mentioned a few times on the presentation. I would like to better understand how personalization at scale is linked to the Creative business?
A: Thank you very much. On the creative business, personalization at scale means more content. We are in a position today where maybe on the ideation part, we might be stagnant, but our ability to have a production backbone that truly links data to content is a huge opportunity to grow. We are growing double digits in this portion of our business. The opportunity for creative in personalization at scale is in production, and we are already seeing growth in this area.
Q: On the increase of guidance, you are confident, but macro is still a factor and we could have a big macro slowdown in Q4. Can you give us some concrete numbers on what benefit you see in the second half in terms of acceleration?
A: First, we are confirming our guidance for the full year. We had some material wins and no material losses in H1, which gives us tailwinds. The combined performance of Epsilon and Publicis Media is strong, and we see continued growth. The variable between the 5% and 6% is definitely Sapient. If the market picks up, we could go closer to 6%. We are winning market share, and our performance in the US and China shows the strength of our offer.
Q: Can you talk about how the landscape has changed as a result of the challenges faced by GroupM in China? Can that growth continue to sustain, if not accelerate?
A: Our performance in China is not recent; we have been outperforming the market for the last three years. We posted 10.5% organic growth in Q2 after a strong Q1. The outperformance is attributable to our investments in differentiating capabilities, our media offering, and our leadership and talent pool. We have been winning against all competitors across multiple pitches. Our ability to lead on innovation in China is having an aloe effect with our clients that goes beyond China.
Q: Just to be clear on Sapient, Accenture said they expected a better performance in the next quarter, but you're not necessarily seeing that. Do you see a risk that the pace of innovation is making clients reluctant to commit?
A: Currently, we don't see one client that is not excited and committed to an AI-led transformation. Clients understand the necessity to do it. The question is when are we starting with the CapEx to put that in place. There is no fear when it comes to that. We are winning clients and building strategic phases, but the execution phase is where clients need a material amount of CapEx.
Q: On Epsilon, seeing above-average growth but growth slowing a little bit sequentially in the last couple of quarters, are you concerned your growth could return below mid-single digit going in the next few quarters?
A: When we made the acquisition, we assumed a growth of 5% CAGR. Epsilon has been growing double digits for the last three years. This year, we are roughly at 6%, which is strong given the market conditions. It is becoming increasingly complex to disconnect Epsilon's performance from Publicis Media's performance. One is nourishing the other. Our focus is on accelerating market share growth, and we are combining the performance of Epsilon and Publicis Media to achieve that.
Q: On the margin side of things, growth is being driven by the high-margin areas of media and Epsilon. Why are we not seeing a benefit on the margin guidance from the higher organic sales growth?
A: We are outperforming on growth and margin. We are absorbing the EUR100 million cost on AI while maintaining the highest margin in the market. We want to make sure that we continue to sustain the momentum we are having. We are investing in talent, building AI solutions, and investing in new capabilities. We are focused on staying ahead as the market leader.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
