Publicis Groupe's (PUBGY) CEO Maurice Levy on Q1 2016 Results - Earnings Call Transcript

| About: Publicis Groupe (PUBGY)

Publicis Groupe SA (OTCQX:PUBGY) Q1 2016 Earnings Conference Call April 19, 2016 4:00 AM ET


Maurice Levy - Chairman & CEO

Jean-Michel Etienne - EVP & CFO


Lisa Yang - Goldman Sachs & Co.

Adrien de Saint Hilaire - Morgan Stanley

Tim Nollen - Macquarie Research

Lisa Hau - Jefferies

Annick Maas - Liberum

Charles Bedouelle - Exane BNP Paribas

Brian Wieser - Pivotal Research Group

Julien Roch - Barclays

Sarah Simon - Berenberg

Conor O'Shea - Kepler Cheuvreux


Welcome to the First Quarter 2016 revenue of Publicis Groupe conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Maurice Levy, Chairman & CEO of Publicis Groupe, and Jean-Michel Etienne, Executive Vice President and Group CFO. Please go ahead.

Maurice Levy

Thank you, Helen. Bonjour, everyone. Welcome to our Q1 2016 revenue call. Please pay attention to the disclaimer. It is now on the screen in our website and the presentation of our numbers is also on our website. I will go quickly through the presentation slides and leave time for your questions. As usual, Jean-Michel, Jean-Michel Etienne, we have now two Jean-Michels -- is here with me to answer any questions you may have, and Jean-Michel, the other one, Bonamy, is also with us to follow up offline if you have more questions. As a quick introduction, our Q1 organic growth performance is rather solid at plus 2.9%. This is above expectations, as we benefited from several accounts wins at the end of 2015 and a strong performance from our media operations and Publicis Health.

Let me mention a very, very strong performance of Sapient. For the first time, Sapient is taken into account in the calculation of organic growth from February 6 onwards, i.e., one year after the deal closed. I am happy to share that Sapient organic growth was above 10%. Of course, Sapient benefited from easy comps in the first months of the year and therefore, the Q1 performance cannot be extrapolated for the remaining months of the year. However, it clearly demonstrates that the growth potential of Sapient we have been expecting to see is now materializing and that the acquisition will bring a lot to the Publicis Groupe. This first quarter organic growth is obviously encouraging. However, we must remain cautious as growth is fragile. The economic environment is uncertain, visibility is slow and volatility prevails.

As you all know, we also suffered a few account losses last year which should represent a headwind to revenue growth of circa 1.5% on a full-year basis. Q2 and Q3 will be impacted, needless to say that we will do our very best to mitigate the negative consequences of those losses. The priority for the year is the implementation of the Publicis Groupe transformation announced in December 2015. The objective is to align our organization to meet our clients' needs in terms of digital marketing and business transformation. The enduring show we decided to indiscernible or if you prefer something a little bit softer, to walk away from the good old days, yet increasingly anachronistic holding company, a model which has been underpinned by silos. Going forward, Publicis Groupe will be a connecting company, integrated, modular, fast and agile, that will create superior value for our clients thanks to a brand new approach. We will be able to leverage our tremendous capabilities and to build unique offers through the alchemy of creativity and technology.

Our own transformation is being implemented according to plan and will be finalized before end of June 2016. Digital represents 55% of our revenues as of the end of March 2016 and our clients' response to not only digital but our own transformation has been extremely positive. I am enthusiastic about the prospects we're building as a result of that new organization. Our teams have embraced the transformation. Their motivation and commitment are well above our own ambitious expectations and it is with great satisfaction that they can say that we're creating the most compelling partner of our clients in the request for transformation and value creation. I would like to pay tribute to all our teams that had to deal with the transformation which requires a lot of effort, the Mediapalooza and growing the business. I admire their challenge and their courage.

Now let's get back to Q1 revenue. So the presentation is on our website and this slide number 3, Q1 revenue is at EUR2.291 billion which compares to last year revenue of EUR2.103 billion. On reported numbers, increase is at 8.9%. If we exclude Forex, it's at 10% and organic growth is at 2.9%. It is well above our most optimistic expectations. We have, as I said already in my introduction, very good performance of most of our operations and particularly media and health, and obviously, as I insisted, Sapient. Some of our operations are still in a recovery mode, so we're working in order to make them delivering the same kind of growth should. If we move now to the next slide and we have the revenue by geography. Europe is at a very good 3.4% organic growth.

On reported numbers, it's up by 7.3%. North America is up on reported numbers by 12.9%. Organic growth is at 3%. Asia Pacific on reported is at plus 4.1% and organic growth 3.8%. Latin American unfortunately is negative organically minus 3.1%, and due to the demise of some currencies we're down by 21.1%. Middle East Africa is up on reported number by 11.5% and organic growth is 0.7%. So we see a very good performance in Europe considering the market conditions. U.S.A, the market is up by 4% organically, and Latin America, I have already mentioned what it is. If we move now to the next slide, you have the breakdown by country and the organic growth considering the most important countries.

So we're back with something which is quite interesting which is that the tranche above 5% is now quite well nourished with Chile, Colombia, Germany, interesting, Italy which has been down, Japan which is very good, the Netherlands, the Philippines, Russia which was negative for more than 18 months, almost two years, South Africa which is back on growth, Thailand Turkey, UAE and Vietnam. In the bracket which is between 0% and 5%, we see Australia, France, Greater China, Indonesia, Korea, Malaysia, Poland Singapore, Spain more growth but positive, Sweden, Switzerland and U.S.A. And in the frozen zone which is below 0%, we have UK which is stabilizing, it's 0.5% but still negative. We believe that at the end of the year they will be positive, Brazil which is in a difficult situation. Canada, I think it's temporary. Egypt, Israel, Mexico which will probably last for a few quarters. So, geographically all in all a pretty good picture.

If we move now to our core strategy, since many years what we're doing is to build a very strong digital operation, digital which represents now on slide number 6 close to 55% of our revenue. So the majority of our revenue is clearly digital, EUR1.255 billion of revenue, up by 18.8% compared to last year, as reported and the organic growth is at 7.6%. If we had to show only one slide to demonstrate that our strategy works, this is the slide that we should show. One information, as you know, we said that we expect to deliver 60% of our revenue in digital by end of 2018. We think that we will be there by the natural growth of this segment. If we move now to slide 7 which is the organic growth per region, I think it's quite interesting to see that we had double-digit growth in all the region but North America, probably because in North America, it is a mature market and we have already 64% of our revenue in this market which is made of digital, 64%. And growth in North America is 4.3%. If we look now at the other region, Europe which represents 49%, digital represents 49% of our revenue in Europe, growth is at 13%. Asia Pacific 21%, Latin America 14%, Middle East Africa 13%.

So once again, this seems to be working quite well. The next slide is -- as you know, in the first quarter, in first and third quarter, we don't give the details of the whole presentation so you have not all the boring numbers regarding margin, etc., so we give you the revenue and we give you now an indication on cash. So our cash situation is relatively the same as that of last year. Net debt on average is well above last year because we have the impact of the acquisition of Sapient so we're at EUR2.092 billion compared to EUR776 million. But as of March 31, we're approximately on the same level, EUR2.864 billion compared to EUR2.966 billion. If we look at the next slide which is slide number 9, we have the detail of our liquidity as of March 31, 2016 and this is a level of EUR3.400 billion. So you see Jean-Michel has authorized me to present three slides with financial numbers. Thank you, Jean-Michel.

Now, with your permission, we will move to strategic update. As you know, we have done a lot of work and we believe that we should take roughly five minutes to present the strategic update in order that you know exactly what we're doing and that you see the potential of what we're doing. On slide number 11, there is a reference to the book of Professor Klaus Schwab, the founder of the World Economic Forum and this is the world we live in. We entered in the fourth industrial revolution, Industry 4.0 which is a revolution of connectivity. It is the connected world in which we live today. And if we look at the following slide, we're already in the age of the consumer empowerment and the era of convergence, two giant forces which are leading to the need for our clients to transform their own business or running the risk of being overt. The behavior of the consumer have changed dramatically and still changing and we can expect a lot of changes in the years to come.

The convergence, combined with this consumer empowerment, are giving birth to a new business model in the sharing economy. We all know what's happening with Uber, Airbnb, BlaBlaCar and they are all forcing large companies to change, to transform. Otherwise, as I said, they run the risk to decline and some may disappear. This is the biggest risk that our clients are facing. This, by the way, explained the cohort of CEOs going to the Silicon Valley to listen to the gurus of this new world. If we look now at the following slide, we see that our clients for the future need three key wins, transformation, competitivity, productivity.

Let's go through each of them. On transformation, what do they want? They have to transform themselves, they have to change. They know that. And they want us to be a trusted and strategic business partner in order to help them transform their own business, an end to end solution, something which is starting with concerting and which is helping with technology to transform their marketing and commercial solutions. On competitivity, they need to be more competitive and we understand that. They need to be more competitive on brand building, on sales and they want to access to the best assets simply and seamlessly. The idea of a silo is something which is belonging to the past. The idea of the complexity that has been created with the holding companies and all the organizations which is going away is something which belonged to the past, at least in the eyes of the clients.

And productivity, productivity, this is the price pressure that they are facing and that they are putting to us. This price pressure is steep and they want more for less, this famous sentence that we're hearing at almost every single meeting with our clients. So we listen to them and we adapt ourselves in order to deliver against their needs, but if we have to be honest with our clients, we have to say also that the first thing that they have to change is the way they are behaving themselves and the way they are operating and clearly, CMOs and CIOs have to work closely together to unleash the potential which is offered by the connected world and this is something which is a learning curve which is difficult and we see some changes with some of our clients, but clearly, this is the solution for the future.

We have studied the market. We have looked at our client needs and our ambition is clear. Still it is to be their most strategic partners and to be a key in their transformation organization and the era. If you look at the circles as they are and the mapping, we're putting ourselves in a position which is quite good, but it's not simply because we like ourselves and we're extremely pleased with what we're doing, it's simply rational. You have the IT integrators which are with the system integrators. You have the classic holding companies who are doing advertising pretty well and they are next to marketers. And we're at the crossroads of both and we're in what would be a magic quadrant if we had to do a mapping of the agencies of the new age. If we look now at the 4.0 companies and their characteristics and what makes them successful, what do we see? We see that there are, in fact, four key characteristics they have and they are technology platforms, they are modular, they are fused with innovation and they deliver a connected experience. And if you look at something which is of -- in today's paper which is Yahoo, why Yahoo has lost this way, it's simply because they have lost the notion of innovation and they are no longer fused and the connected experience has faded away.

So we have to look at this and we have to ask ourselves if we're or we're not aligned. But also, we have to see that we as advertising groups, all advertising groups not only Publicis, we have something which is quite unique which is our creativity. It is in our DNA, it is in the Publicis Groupe DNA. We're borne out of creativity and we grew thanks to our creativity. But in today's world, creativity is not enough and if you look at slide 18, you see that we have another very strong advantage which is our digital operations. This is the mapping which is delivered by Gartner and you see that Publicis is positioning all its networks, without an exception, all its digital networks, Razorfish, SapientNitro and DigitasLBi, in the magic quadrant.

So we're clearly leaders in that field, extremely well positioned and we know that creativity and digital is very good. It's a great combination. It is an even better combination if we can collaborate and this is on our next slide, technology. And it is the magic, the real magic alchemy of technology and creativity which unleash the extraordinary creative potential. I mentioned that we're changing in a new era and if we look at this new era what should be Publicis 4.0, I think I should insist on what I announced at the 4A's meeting in Miami and I said using the sentence, the title of the book of Sergio Zyman and Amin Brott, that we're at the end of advertising as we know it, I would say, as we knew it, when it comes to Publicis. We moved away from the holding company and going to a very different organization which is a connecting company.

We're not only at the end of the holding company, but also at the end of the silos which have been extremely beneficial for the advertising world, but now they are an impediment. If we want to best serve our clients, we have to change, we have to adapt and we have to be aligned with the new world. So we have to act as one and this is the Power of One. We have to be accessible at the join. We have to use the alchemy of creativity and technology. I'm not going back to the EQ, IQ, TQ, DQ, factored by CQ. This is clear. We have to deliver all this, the intellectual quotient, the emotional quotient, the technology quotient and we have to do it bloody quick and we need to be very different from the past.

We have to organize our operation in modules. We're from now on a modular organization which should help us to put a lot of pieces together in order to best serve our clients. The Power of One is putting the client at the center. We always have done this, we always had the client at the center. But it is embedded in all our operations. It is not about horizontality or verticality or about cross-selling. It has nothing to do with that. It is about unleashing the Power of One at the service of the client with four pillars, four solutions hubs. Our clients are coming with the problem. We have to have solutions at their service. We have not to have a cross-sell solution. And this is organized for the top markets and that in the smaller markets where it is complicated to have everything for each of the brand we're putting all our brands under one roof and this is Publicis One. If we look now at what is currently our journey, you see that we're crossing almost all the boxes, we're ticking all the boxes.

So if you look at the organization, all our operations are already well organized. The people have been designated, promoted, denominated, everything is up and running. And there is a few processes that are still underway and that is work in progress for Publicis Communication, Publicis Media and Publicis One. We said that we will finalize the operation by end of the first half. I am pleased to confirm that we will be up and running at that time and we're confident that we will be ready for the market with Publicis operations. And we will have also as of July 1 Sapient Inside embedded into the Publicis communication operations in order to ease the transformation of our client. On the next slide, you see that we're going to the conclusion and the top priorities for us is to finalize the transformation which will be done on H1 2016.

Obviously, we'll have a lot of training and a lot of operation which will continue in the second half and probably in the first half of 2017, but our organization will be up and running. Second priority and in no particular order, is to resume growth. We have started. We will be satisfied only when we will be outperforming the market and that you will see the benefit of the acquisition of Sapient. And we will increase our margin which is a commitment that we made for our 2018 plan. The outlook for 2016 is unchanged. We remain obviously optimistic, but cautious. Our new organization is tremendously well received by our clients. They see the difference with our competitors and they are very, very interested. The end-to-end solution is something that they were looking for and we're extremely pleased to be the first to bring that to them, and the Sapient integration is working pretty well. We also remain cautious as we have some headwinds and expect, as already stated, a modest growth for this year which I remind you is a year of transition. We expect all our indicators from revenue growth to EPS, to dividend, to increase.

And now I would like to thank you for your attention and Helen, I'm handing over to you so you can now lead the Q&A session.

Thank you.

Question-and-Answer Session


[Operator Instructions]. We will now take our first question from Lisa Yang from Goldman Sachs. Please go ahead.

Lisa Yang

I have a couple of questions, please. Firstly is on your expectations for Q2. Can you just run through the main differences versus Q1 in terms of the account losses, Publicis account losses in Q2 versus Q1? And also, do you expect the strong media momentum to continue to Q2 and also the performance of Sapient given that the comps are similar in the second quarter? The second question is on the account wins at the end of 2015 that you mentioned. It doesn't seem to be embedded in the press release.

Could you comment which ones they are? The third one is on your reorganization. Just wondering to what extent it has actually contributed to the strong momentum we're seeing right now. And also, the 10% growth we're seeing for Sapient, has it already benefited from the integration with Publicis or is this just a stand-alone performance and there's going to be more benefit to come? Thank you.

Maurice Levy

Okay. This is many questions. I will try to answer all your questions and Jean-Michel maybe will add something if he considers he should. Regarding Q1, the impact of the losses of last year is relatively modest while we will have a stronger impact on Q2 and Q3. Roughly, in rough numbers, we have 0.5% impact of losses in Q1, 150 basis points in Q2, 200 basis points in Q3 and we expect 150 basis points in Q4. This is not exactly how we expected it to be because with some clients that we have lost, we have continued to invoice in Q1 and that's the reason why also Q1 has been slightly better. Regarding the account wins, there are now and that is something that we have seen since a few years in the Publicis Groupe, we're having a few wins in some areas, some services in healthcare or some operations which are on digital, particularly in the field of one-offs and we're no longer publishing the wins from our side.

So there are a lot of wins which are not published because it's not a move of an account, it is a one-off contract. Sometimes these one-offs are extremely big and we have a few ones. Sometimes it's a few millions only. So I'm not going to enter into the details because the list is very long and as we're in the field of digital award on project base agreements, I cannot disclose the long list of all the contracts that we have won. Regarding Sapient, there is maybe three things which are worth noting.

The first one is clearly the fact that integration is doing extremely well. The second is that we're going to clients with Sapient and very often, this translates into a contract. Sometimes, it's just a consulting contract to see what could be the collaboration, sometimes it's a much bigger one. And that's the reason why we have decided that we will have embedded in Publicis' communication where we have most of our relationships with our clients Sapient Inside as in the good old days we had to make a computer working Intel Inside. Regarding the organization, what I can say is that the win that we had last week in the UK of Asda would not have happened without the new organization and would not have happened to that degree. We could have won one piece, so the creative or the media. We could not have won in the way we had, the whole account, without the combination of assets and without the solution that we have put forth. So this is how this is working. I think I have answered most of your questions and Helen, I guess that we can move to the next one.


We will take our next question from Adrien de Saint Hilaire from Morgan Stanley. Please go ahead.

Adrien de Saint Hilaire

So I've got a couple of questions, including for Jean-Michel. So first of all, can you give us some KPIs in terms of customer satisfaction or maybe employee satisfaction? Because you have said that people are very happy and clients are very happy, but if we can have any KPIs behind that, that would be quite helpful. Second question is for Jean-Michel. Do you think that generating about 2% to 3% organic growth is enough to get a bit of operating leverage? And maybe the last question back to Maurice. If I look at the last quarters, you've had numerous misses and bids, just like in Q1. Why is it so hard to predict your organic growth? What is fundamentally different for Publicis compared to others?

Jean-Michel Etienne

Talking about the growth rate that you quote, so with this kind of growth rate, of course, there is some operating leverage. But as you know, as I said always, our margin program, improvement program, is driven by a lot of initiatives which are not totally dependent on the top line. So you should not very worry on that. The program is in place and we're delivering what we said before to all of you. So this is something which is absolutely clear.

Maurice Levy

On KPIs, there is no global measurement of satisfaction by the client. We will certainly put that in place with the new organization. But for the time being, this is something which is measured by clients. And with the new organization, we will certainly have a few KPIs that we will put in place. Now what I don't know is if we will keep this information confidential or if we will share. We're working on and we're not yet at a point of a decision, neither on the nature of the KPIs that we will retain, nor on the use, heavy external use of those KPIs. To your question, this is either a EUR1 or a EUR1 million question. Why is it so difficult to predict? I wish I have a clear answer. In fact, it's more complicated. When we're doing our forecasts, we're taking the low end of what we can achieve in order that we don't disappoint you and also in order to make sure that we have our costs aligned with the forecast and there are some things which are happening.

The first one, when you have a client termination and the client termination is finally asking that we continue to work for one, two or three more months, this is not something that we have predicted and this is something which was unpredictable. The other thing is that we have an algorithm on the project-based wins which gives us an average. It happens that this average has been beaten and this is a number I can give you. We had an average of 1 out of 2 and in all the project bases, we have won something like 69%. So this is something which is well above what we expected to do.

So this is not to be cautious. This is not to try to give you an indication which is prudent. We try to be extremely fair in the direction that we're giving to you. And already, 1 out of 2, when you have so many competitors, it's quite a high number. And it happened that when you look at what happened in Q4 and in Q1 this year, the rate of wins has been much higher than what we planned, what we expected, what we had. Unfortunately, this has not applied to some accounts, some media accounts that we have either not won or we have lost. Otherwise, we would be dancing on the table with our numbers. Thank you, Adrien and we move now to the next question.


Our next question is from Tim Nollen from Macquarie. Please go ahead.

Tim Nollen

A couple of things, just a follow-up on the comments you made on the impact of the account losses, minus 150 basis points for Q2, minus 250 basis points for Q3. If I then look at your organic progression last year, it was quite weak in Q2 and Q3. So if anything, it maybe sets you up for, I don't know, maybe a smoother revenue progression as the quarters go through, meaning earlier you were saying you thought Q1 would be the weakest quarter and you would improve from there. Now Q1 has been quite strong, but putting together the losses and the year-over-year comparisons, maybe it's a more smooth progression or should we expect even perhaps down a bit in Q2 and Q3 with the impact of those losses? That's the first question.

And the second thing, I just wondered if you could speak a bit more about the nature of your IT services contracts and I'm wondering if these businesses are more sticky, more resilient, contractual businesses, subscription types of contracts which leads you to more consistent growth over time. Or is there something with all the account reviews that went on last year that speaks to just the fickle nature of clients and the fact that ad accounts can always move around? I guess the nature of the question is can we expect more resilient, consistent growth though the IT services over time? Thanks.

Maurice Levy

I'm telling you what we're expecting in terms of impact and in terms of impact, this is really the situation that we're facing when we look at the accounts we lost last year and what they represent in terms of revenue quarter per quarter. Obviously, we're doing our utmost and more than the utmost to mitigate the consequence and to avoid that we're showing bad numbers. So we're working extremely hard in order to have a good pipeline, good proposal and new solutions. So far, so good, we have been able to win more than our fair share, but the pipeline, the market, is less buoyant than what it was last year and the current pipeline of new business is not as strong.

And when you look at the price what is reported in terms of pitches, etc., it's not as rich as what we have seen last year. I do hope that we will see more competition coming up for a lot of reasons. The first one is that in terms of media, we had a disproportionate share of our clients which were under review so we had been more exposed in the Mediapalooza than any of our competitors. I would like to see the wheel of fortune turning in our direction. And the other aspect is that we have now a proposal for the market which is extremely compelling and convincing so we believe that we should have a higher share of wins than we had in the previous year. Regarding stickiness, it's a great question and in fact, when you look at Sapient, there are a lot of services which are sticky which are repeatable. For example, when people are using a platform where there is e-commerce or there are some other services, this is repeatable year after year and it's more sticky than in the digital services where there is a lot of volatility.

So we're first learning from Sapient and we're looking and Alain [ph] is looking at all the digital operations in order to see how we can have something which is more regular in terms of growth and that is delivering a higher percentage of growth than what we're enjoying today. We're quite confident and the work which is done currently is something which gives us hope to improve. We believe that there is room for improvement and we have not yet reached the level of perfection by far. But even if we're considered as being better than our competition, we believe that we can still improve on many aspects. So this is the answer which I can give you which is not a great answer, but it is based on the facts as I know them. Thank you, Tim and we move, Helen to the next question, if you may.


We will take our next question from Lisa Hau from Jefferies. Please go ahead.

Lisa Hau

I have two questions. The first is on Sapient. Can you please provide examples of Publicis clients moving to Sapient and also if there is evidence of Sapient clients moving to Publicis? And the second question is on bolt-on acquisitions for this year. What verticals and geographies will you focus on?

Maurice Levy

On acquisitions, can you elaborate a little bit on the second question?

Lisa Hau

Yes. I would just like to have some guidance on your acquisition strategy this year, if they'll be more on the bolt-on side and which geographies we should think of.

Maurice Levy

On Sapient, we had a few wins on many geographies, so in the U.S., in the UK and in France of a proposal, we went with Sapient to some Publicis Groupe clients and they got a contract. I'm a little bit embarrassed because I'm not sure as the client has not disclosed anything and in this area they don't, so I'm a little bit embarrassed to give names, but there is one packaged goods company, two bids. I'm sorry to not be more precise but I feel -- no, as they have not published anything and the client has not said anything, I don't feel that I have the right to disclose their names, but this pretty good. This is what I can tell you. And I have the feeling based on the first experience that it is the beginning of something which will be bigger.

On acquisitions we have, as you have maybe noticed, we have reduced enormously the flow of acquisitions as we need first to integrate properly Sapient and make sure that this is working well. And this is how we have been working always when we made the large acquisition, be it Digitas in the good old days or Bcom3 or Razorfish. We have always with such a large acquisition calmed down the number of other acquisition for two reasons. The first one is a financial reason. We want to control our debt level and our ratios, and the second, we want also to control the way we're integrating and we're doing the things progressively.

So we don't expect this year to be a year of numerous or large acquisitions, with one possible exception and I'm very cautious which is the conversation that we have since a long while with ups and downs with Shell. As I said in previous call, we're in a discussion, a strategic discussion and sometimes there is an acceleration, sometimes there is a slowdown. If I had to say we're in the plateau today, so it's difficult to say if this will happen or will not and it's difficult to measure when and if this will happen.


We will now move to Annick Maas from Liberum. Please go ahead.

Annick Maas

My first question is, could you actually give a comment on the churn rate that comes with the integration of the reorganization? Have you seen that this reorganization is more challenging to implement in some of the hubs than others? And then my second one was just, how do you view the development of the media spend on traditional media this year so far and going forward this year? Thank you.

Maurice Levy

For the time being, on the churn, we have not lost one single person that we didn't wish to lose due to the re-org. So we had a few people who left the Company which we always regret to see people leaving, but this was something which has not hurt in any given way the organization. And I think that this is normal churn based on what we were doing and we retained 100% of the people we wanted to retain which is the good news. I must say that I have done myself a lot of presentations and we had a few others which have been done by some other people of the management team and I have been speaking personally to roughly 3000 people, maybe slightly more, between 3000 and 3500 people and the response is tremendous.

Obviously, there are a few questions about the role of each one, how they will be trained, how they will be able to catch up with the new organization and what we're expecting from them, because obviously we're not changing without changing. So it's not that we're putting the same people with the same role everywhere. We're doing a lot of changes also in the way they have to work and what they have to deliver. So all this is a tremendous challenge and it has been extremely well received. There has not been the angst that we see traditionally when there is a big change. There has not been a lot of resume going out as we see. On the contrary. There is a lot of resume coming from a lot of other agencies because people are extremely interested by what we're doing and the people in the industry are either intuitively or through a very sound, reasonable rationale, considering that we're doing the right thing for the future. So we're receiving a lot of proposals coming from all our competitors without any exception, so this is something which is going extremely well.

Regarding the media, Steve King has taken a few weeks to look at the organization. The first thing that he did was to simplify, to clarify and to have an organization which is fairly simple, country and brands. And we have compacted a lot of brands in order to have something which is much more eligible by the clients so they understand exactly what we're doing. We have also organized something which was difficult in our organization which is to leverage the bargaining power that we have in many countries with one single trading organization and this is something which is being put in place and the first indication that we have based on the year front is that this is working extremely well. So we're confident that the new organization, be it for the classic media, analog media and the new media, digital media, is working pretty well. So we're very confident.


We will take our next question from Charles Bedouelle from Exane Paribas. Please go ahead.

Charles Bedouelle

Two questions, if I may. The first one is, should we expect in 2017 some impact from a client losses that may have been deferred or which are maybe still pending, some risk or actually losses? Number 1. And number 2, can you come back a little bit on the difference in the revenue visibility around Sapient versus the rest of the digital business? Because I think it was Tim's question which was actually quite good on the how can we be sure that Sapient will actually bring more visibility versus less visibility in terms of project-based businesses. Thank you.

Maurice Levy

On Sapient, it's relatively simple. If you look at the history of Sapient, you have in the last 10 years roughly an average of 10%/11% growth. So you have here the recipe of Sapient which is stickiness and resilience. And if you look at the impact that we have suffered at the beginning of last year and in the process of the integration, there is in fact two aspects. One is the issue of what they were calling at that time global markets which is the oil which has been civil impacted and the integration, where all the people have been busy, particularly in the first half of the year, to working that integration. We would not have been able to integrate as we have done without mobilizing all the energies and particularly management energy. So there are limits of what somebody can do in 25 hours in a day and they have worked enormously and we have seen how fast they have been able to catch up. So we expect that this year on average, for the full year there will be high single digit to double digit. I don't know. It will be between 8.5% and 10%. This is where they will be.

So maybe 8.5%/9.5%, so it's something which is working pretty well. The new aspect with Sapient which is something which will be unleashed as soon as July, is something that we're putting in place and that we have started to experience. The way we have experienced the growth of Sapient is -- in French, Charles, we would say artisanale. It is really something which was a few presentations that we have together because there were some opportunities. As of July 1 and probably it will be up and running at full speed as of October 1 or beginning of next year, we will see the machine of Publicis Communications taking Sapient Inside and bringing it to the clients. And this is something where we will see the growth really taking off. To your first question, for 2017 what we can say is that as of today, we have no clients who have put us on notice.

We have no major issue or difficulty. We're working with all our clients and we're looking at all the KPIs and for the time being, we don't expect anything major. The only question that we may have is how long we will work in 2016 for PMG Media in the U.S. Are we going to stop it in a sliding scale or brutally? For the time being, we still have the revenue and it is expected to move progressively and the vast majority will move July 1. And on Walmart, we have probably the vast majority of this year, so there will be a small impact next year.

Charles Bedouelle

And just a follow-up, if I may, to come back on Shell. And I know you're in a plateau at the moment, but can you give us a bit of the strategic rationale of the deal and why this is maybe not progressing? Is there any specific reason why? Thank you.

Maurice Levy

Why it's not progressing that's easy to say because it's a complicated operation which is not very easy. It's something which has been explored several times and there is lot of operations which are linked with Shell and I'm not sure that they have made a decision on all the terms which are something which would be satisfactory to them and to us. So there is a discussion underway why this would be a good acquisition.

So let's avoid the issue of timing and let's look at the operation per se without taking into account the timing at which this operation will happen. It is the second largest operation in Asia or the third, I don't know the number of [indiscernible] and the first outside Japan. Even if Asia is facing a few issues, clearly, it's a market which will go back to growth and it's a market where we're in a very good position and this would strengthen our position. The second is that they have skills which are extremely interesting in digital and it's not by chance, it's simply because they are part of the Samsung family. They have skills on stores, not only how to manage, how to organize, how to invent new solutions, super-marketing, how to bring clients/customers into stores and this is something which they are doing extremely well. And they have a knowledge in the event which is very complementary to ours.

So when you look at all this, they have also a very strong relationship with Samsung which represents slightly more than 50% of their business. So when you look at all the aspects, there is something which is quite compelling because with the strong position that they have in some key markets, the position that we have, the combination will be something quite unique. It's not that simple. It's not that easy. Otherwise, the deal would have been done already. It's not easy for them. It's not easy for us and that is the whole beauty of the discussion how we can bring closer the strategy of each one and the position of each one. But clearly, it's a great operation with great skills in many areas and skills which are not widely spread in the classic advertising agencies.


We will now take our next question from Brian Wieser from Pivotal Research. Please go ahead.

Brian Wieser

Regarding Sapient Inside, I was wondering if you could talk about the degree to which you expect the creative HD clients to buy consulting services versus digital creative. I'm just curious about that specifically. And separately, can you talk about the degree to which extra activities might have helped revenue this quarter? As we read about yesterday and I'm sure you did as well, your new principal trading arm, Apex Exchange, is now buying and reselling inventory, so I was hoping to clarify what, if any, impact that might be having.

Maurice Levy

Two great questions, on the second one, the answer is pretty simple and Dave Penski has answered pretty well the interview of Ad Age. In fact, what's happening is that there is a few clients who are interested by this approach and we have decided that we're going to explore and to deal with those clients in that way. The vast majority of our clients are still in total transparency and with our classic system. This is something which is extremely small and insignificant now. We will see if it will grow or not. We're extremely cautious. We have not been one of the greatest defenders of this operation simply because we don't apply it to our clients who are on the transparent contract. It's only a solution that we're putting in place to respond to the needs of some clients who are willing to get this.

So it's very tiny today. I don't know if it will grow and we're extremely cautious with this. Regarding now the question on Sapient Inside, we have made a few presentations and there are many aspects that our clients are interested in. The first one is obviously e-commerce. Many of our clients are saying that omni-channel is the answer of tomorrow's world and they are interested in the capabilities of Sapient in omni-channel and e-commerce solutions. The second is the platforms. It's not only the transformation of the business, it's not only transformation of the marketing approach. It is a step below, if I want to control my messages, if I want to know where I'm going, where I'm placing my ads, what is on air, if I want to avoid to have in the same screen three different ads for three different products or being in a situation which is not always a viable situation, I need to have a platform [in our days and this is something which is ringing a bell. And when we're showing what we can do, clearly, clients are interested.

And the third is obviously when we can go one extra mile which is to say we can help you re-thinking your marketing approach and we can help you being a good interaction between CMO and CIOs and working with both. And what we're bringing in that niche world is also the fact that with Sapient Inside and Sapient simply, we have people who understand the language of this and the needs and the constraints of the CIOs as well as the language, the needs and the constraint of CMOs. So we play a role that very few can play. And this was an intuition that I had before acquiring Sapient. This is something that I tested a little bit with a few clients. And after the acquisition, obviously, clients were curious and now they've passed the stage of curiosity and are in the stage of interested. They are interested. They are listening.

Some are putting their money where their mouth is and saying, okay, we're serious about transformation, we're expecting you to help us. Here is the deal. How can you help us? And this is what we're trying to do. So clearly, it will not be only about consulting. It will be also about building platforms and omni-channel. There is one other aspect which is extremely important which is what we're developing in the field of data and all the tools that we're developing as well as what we're learning from Sapient on IA, artificial or AI in English, sorry, artificial intelligence. And when you put all this together, I think that we have a compelling solution.

Brian Wieser

Do you think that the media agencies are also another appropriate sales channel for the Sapient solutions? In other words, would we expect to see a Sapient Inside inside of a [indiscernible] organization as well?

Maurice Levy

This is clearly a question that we're working on this, but we decided that we go one step after another one. So we won't be running.


We would take our next question from Julien Roch from Barclays. Please go ahead.

Julien Roch

The first one is on the volatility of the quarter versus your forecast. One of the explanation you gave was project base and you basing the budget on an average. So it would be really useful to have the percentage of Publicis revenue coming from project base so we can assess volatility. That's my first question. The second question is the ANA review. Any update? It's gone quiet. And then the third question which a lot of clients are asking. Maurice, you confirm you are to leave in May next year. Could you give us some color on who are the main candidates for your succession?

Maurice Levy

Julien, why haven't you started earlier? Because now we're close with the time and I will not be able to elaborate on, that's too bad. Regarding now the two other questions, on ANA, fairly simple. We don't know. We have no news. We don't know. We don't know where they are. We don't know what they are doing. We have no information. We feel extremely comfortable because everything which has been reported in the press are practices that are not applied in the Publicis Groupe. So we feel good about the outcome as far as we're concerned. On project base, I don't know if we have this number. Jean-Michel?

Jean-Michel Etienne

We don't have this precise number, but you know, Julien, that the acquisition that we made in digital all along these years are increasing obviously the percentage of our revenue which are project based. We have a lot of analogies regarding revenues stating by a lot of different nature, but this one we don't have yet.

Maurice Levy

Okay. So it's a good thing for improvement for the -- not, maybe not the next call, but Jean-Michel has now--

Jean-Michel Etienne

We will try to provide you with something on this.


We will now take our next question from Sarah Simon from Berenberg. Please go ahead.

Sarah Simon

I just had a question or two questions. One was on energy and how that part of the Sapient business was doing, because obviously, it was a reasonable proportion and it was quite a drag last year. And you've given us the phasing of the account losses, but obviously, there have been some decent size wins. Can you give us a general direction of travel in terms of how those will shape the quarters as well? Thanks.

Maurice Levy

I'm afraid but I have not very precise answers for this. What I can tell you is that energy has adapted to the new world and it has picked a little bit. I cannot tell you what would be the future, but this is something that Jean-Michel Bonamy will look for and we'll take offline maybe within 24/48 hours to get the information.

On the wins, we have several wins and we have a lot of wins in the digital field and in the Sapient world, also in Publicis communication and also media. Some are extension of collaboration that we have with clients. Some are new wins. I have not currently what could be the impact of these wins because I don't know at what speed they will generate revenue. So this is something for which we may look for more information and again, this is something that we will take offline. Jean-Michel will look for the indications and obviously, all the information that we're taking offline we will also put on the website in order that everyone has access to the information.


And your last question from Conor O'Shea from Kepler Cheuvreux. Please go ahead.

Conor O'Shea

Three very quick questions from me, first question just on the shape of organic growth in Q1. Can you say if growth accelerated in March or not just to understand how you managed to deliver almost 3%?

Second question just very quickly for Jean-Michel, I think the consensus you sent around suggests about 30 basis points of margin growth for 2016. With obviously quite disruptive transformation still working its way through in the first half and some headwinds from account losses building throughout the year, are you globally comfortable with that number at the moment?

And third question just very quickly, I think there was a report out today from LinkedIn suggesting that staff turnover in the agency industry, always very high, had stepped up a lot recently and had increased by a double-digit amount. Are you generally feeling that that is the case that it's harder to hold on to talent?

Maurice Levy

Okay. Jean-Michel will answer the second question. Regarding the first question, we have steady growth in the quarter. It's about the same, perhaps a few points of difference between January, February and March. So it's steady. Regarding the churn, our industry has a high rate of churn and depending on the horizons and the geographies, it's very high in the emerging market, China. And I will not go back to the BRICS, but all this region, people are turning at a very high rate, at high speed. It's more than 40% and it's very different in some other regions and very different according to the specificities and to the skills.

What I can say is that on average, if I look at the last three years, the rate of turnover in our Group has slowed down a little bit. We cannot say that it is a dramatic slowdown, but it's a small decline, very small. So we have a turnover which is slightly below what we had two or three years, but still high, in our industry, still high. And we're putting in place a lot of tools, particularly training tools in order to retain the people more longer and Jean-Michel is impatient to answer your question.

Jean-Michel Etienne

So Conor, very simple. So consensus is planning a 20 basis point improvement for the margin versus 2015. So what I can tell you is that I don't think it's appropriate to comment this at this stage, but I can tell you that the teams are working hard in order to implement this reorganization, implement the transformation. So okay, we will deliver cost management here which should be again okay, but talking about precisely about the margin at this stage is not right.

Maurice Levy

Thank you, Conor. Thank you, everyone. Thank you, Helen, for your help. And this completes our call and we'll meet again in Q3 in July where you will have a full presentation and Jean-Michel is already rehearsing. Thank you.


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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!