Publicis Groupe SA
PAR:PUB
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Publicis Groupe SA
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Good day, and welcome to the Publicis First Quarter 2021 Revenue Conference Call. Today's conference is being recorded.At this time, I would like to turn the conference over to Mr. Arthur Sadoun. Please go ahead.
Thank you, Marion. Bonjour, and welcome to Publicis Groupe First Quarter 2021 Revenue Call. I am Arthur Sadoun. I'm here in Paris with our CFO, Michel-Alain Proch; and our Secretary General, Anne-Gabrielle Heilbronner. Steve King, COO of Publicis Groupe, is joining us from London. As usual, we'll take all of your questions together after the presentation. Alessandra Girolami is also here and will be available to take your question offline after this session. I will start this call by sharing our Q1 highlights. Then Michel-Alain will detail our revenue and net debt numbers. I will conclude with our 3 priorities for the rest of the year. Before we start, please take the time to read the disclaimer, which is an important legal matter. Okay. Now let's dive into the presentation. The Q1 business environment was the expression of 2 different stories: on one hand, the rising vaccination rates in some countries and major government stimulus plan, notably in the U.S., led to improved global economic prospects for '21 and '22; on the other hand, major health issues remained, as demonstrated by recent new waves of lockdowns, mainly in Europe, risking further economic and social impact. In this challenging environment, Publicis Groupe is returning to growth in Q1 with a solid plus 2.8%, thanks to the effects of our transformation. This marked continued sequential improvement since Q2 2020 and was ahead of our expectations. This performance is mainly driven by the U.S. and Asia, which already outperformed all of our competitors in 2020. Our U.S. operations were positive for the second quarter in a row at plus 5.1% organic growth. This is the result of the conjunction of 2 factors: first, the uplift of the U.S. economy, which is beginning to recover faster than expected; second, the strength of our model, which has enabled us to capture a disproportionate amount of the shift in client investments toward digital channels, e-commerce and DTC.The best expression of that is Publicis Sapient organic growth at plus 11.2%. The reorganization that we put in place at the end of 2019 is starting to pay off with a pipeline that has picked up since Q3 2020 and is particularly strong in Q1. Epsilon is at plus 4.7%, posting mid-single-digit growth for the second quarter in a row. Digital media, through PMX, was up double digits, supporting the growth of our media operation overall. Our creative activities were broadly flat, showing resilience with sequential improvements. Meanwhile, our health operations once again saw double-digit growth. Asia also had a positive impact, accelerating its organic growth in Q1 at plus 5.7%. China is gradually returning to growth at plus 3% as it began to benefit from a better sanitary context and a strong series of wins over the past 18 months. When it comes to Europe, our performance was slightly down in Q1 at minus 1.8%, showing, nevertheless, sequential improvement. It is important to note that excluding MediaTransports, our historic outdoor media activity in France, and the Drugstore, our restaurant on the Champs-Élysées, which were mostly shut down, our organic growth in Europe was at plus 2.8%. Some countries, like France and Germany, are returning to growth at plus 4.9% and plus 6%, respectively. But ongoing lockdowns and new restriction in the region continued to weigh on our largest operation, the U.K., at minus 3.4%. Turning to new business. Q1 has been very busy with some structural wins like L'Oréal Media business in China, Infiniti global creative, Unilever Shopper Marketing in the U.S. and AB InBev data with Epsilon. We retained Samsung media in the U.S., and we also extended our remit with Inspire Brands for their global media business and with Toyota for their entire advertising portfolio in Australia. Finally, in such an uncertain global context, we continue to efficiently manage our cash on a daily basis, which resulted in a net debt of EUR 1.9 billion at the end of March. I will now hand over to Michel-Alain, who will take you through the number in details.
Thank you, Arthur. Good morning to all of you and glad to be with you today. I will begin with Slide #8, which is presenting you with the evolution of the net revenue for the quarter. The group reached a net revenue of EUR 2,392 million, representing an organic growth at same exchange rate and same scope of 2.8%. Reported growth is negative by minus 3.6%. There is almost no impact from acquisition and disposals this quarter. The difference between the 2 numbers is coming from foreign exchange rates, a bit more than minus 6% of impact or minus EUR 151 million. This exchange rate impact of minus EUR 151 million is derived from the appreciation of the euro against all currencies and particularly the U.S. dollar. Indeed, U.S. dollar foreign exchange impact is minus EUR 122 million, so about 80% of the total. Let's move to the next slide, which is giving the dynamics of the 2.8% of organic growth by geography. First, it's important to note that out of the 5 group geographies, 3 of them, North America, Asia Pac and Latin America, are posting mid-single-digit organic growth and up to almost 8% for Latin America. North America was, by far, our main growth engine this quarter and posted an impressive performance of 4.7%, and even more so, while considering the Q1 2020 comparison base, which, as you may remember, was a slight positive at 0.5%. So this performance was clearly beyond our expectations. Second growth driver was Asia Pacific with 5.7%, fueled mostly by China, Australia and India. And we'll get back to that in a couple of slides. What's important to note is that this 5.7% over-recovers the minus 1.9% of organic decline posted last year as a consequence of the COVID impact. You remember that this region was the first one impacted by the pandemic. So this performance, too, was better than expected. Latin America posted 7.7% this quarter, which is great to see. It's a good start of the year for sure and a strong organic growth, but on a relatively easy comparison base. Europe is still negative this quarter, posting minus 1.8%. But while excluding the group's historic activities in France, first, MediaTransports, our French outdoor media activities unit; and second, the Drugstore restaurant, Europe posted a 2.8% organic growth. We'll get into the details in a couple of minutes, but the situation is quite diverse in the European major countries. Finally, Middle East & Africa had a tough quarter with a minus 11% organic decrease, mostly coming from the United Arab Emirates. So let's move to the next slide, which is showing the detail of the performance of North America, plus 4.7% of organic growth. The performance in the region was fully driven by the U.S., which posted 5.1%, Canada being mid-single-digit negative.So let's now focus on the U.S., which, as you know, represents 60% of the group revenue. Media grew by mid-single-digits this quarter, a better-than-expected performance. As explained by Arthur, the growth was driven by our PMX unit, which posted a double-digit growth, mainly thanks to digital media. Also worth noting that our CJ Affiliate activity, our other digital media unit, which is addressing smaller clients and retailers, was also up strongly. Traditional media was broadly flat this quarter. Creative resisted well, posting a broadly flat performance, with some clients still clearly aiming at optimizing spend. Comparison base was actually quite tough as Q1 2020 was flat, too. Of course, our creative activity remains one of the most impacted by the crisis globally, but this performance in the U.S. demonstrates some resilience this quarter. Publicis Sapient is growing by 11.2%. This performance is even more remarkable when you remind that it was slightly positive in the same period last year. We saw a better pipeline as from Q3 2020, and it started to materialize earlier than expected. We benefited from both new business wins and scope extension with some clients that accelerated their digital business transformation projects. In the meantime, some sectors like travel, hospitality, energy and retail are still affected by COVID. Epsilon posted mid-single-digit growth for the second consecutive quarter at 4.7%. This performance was sustained by growth in digital media, data practice and automotive that is starting to recover after being heavily impacted in 2020. We are also pleased by the ramp-up of cross-fertilization with Groupe existing clients. This performance was unfortunately mitigated by some retail clients' bankruptcies due to the COVID context. Finally, Publicis Health continued to deliver strong double-digit growth for the fourth quarter in a row. It's important to highlight that comparable will become much tougher by Q2 on this activity. So now let's switch gears and get into more granularity on the performance of Europe. As I was mentioning, Europe remained negative this quarter, impacted by the group historic activities in France. Excluding those activities, Europe organic growth was 2.8%. U.K., representing 8% of group net revenue, posted an organic decrease of minus 3.4% and is the only large European geography in negative territory. You should remember that U.K. was under lockdown almost the entire Q1. It very heavily affected the project-based activities of Publicis Sapient, mostly because of co-production in the financial and retail sectors. Production was affected, too, by reduced outdoor activity, while media continued to recover, thanks to good new business ramp-up and digital activities. Epsilon continued to record encouraging double-digit growth, although on a small base. France, representing 5% of group net revenue, reached 4.9% organic revenue growth, excluding MediaTransports and the Drugstore. The growth was mainly driven by production, notably in March, and by media due to 2020 new business wins. Creation show a good resilience with a stable performance, while our event unit was still heavily impacted by the COVID. Germany, representing 3% of group net revenue, posted a promising 6% organic growth. It benefited of new business ramp-up in both creation and media, with contracts signed in 2020 ramping up in 2021, and this overcompensated a negative Publicis Sapient impacted by the COVID situation. Finally, the rest of Europe posted a double-digit organic growth, mainly driven by Italy, mostly due to a comparison basis impact and the dynamism of Central and Eastern Europe, with Poland, Russia, Hungary and Czech Republic being the larger contributors. On the next slide, let me give you a bit more color about our performance in the rest of the world. In Asia Pac, representing a bit less than 10% of group net revenue, we delivered organic growth of 5.7%. Performance was particularly driven by gradual recovery in China, growing by 3%, as well as dynamic organic growth in Australia and New Zealand and India, which are our second and third countries in the region. Performance was also very positive in other countries like Japan, Thailand and Korea. In China, the better sanitary condition and the strong series of wins that we recorded over the last 18 months drove recovery, both in media and creative, with a slower recovery for the latter. Growth in India was fueled by media and Publicis Sapient, while growth in Australia and New Zealand was derived mostly from media, commerce and Publicis Sapient, notably thanks to a good series of wins. In Middle East & Africa, performance was more challenging with an organic growth of minus 11%. This is mainly due to Publicis Sapient, which had a high comparison base last year and remained strongly impacted by the sanitary situation. We obviously expect an improvement from Q2. We recorded our highest growth in our smallest region, LATAM, at 7.7%. Most of our countries in the region are growing, in particular Colombia, Argentina and Mexico, notably thanks to good performance in digital media. In Brazil, where the economic and sanitary environment is still very challenging, we managed to record a flat performance. On the next slide, you will find a new disclosure. We present the group performance by industry verticals on the basis of an analysis of our main clients, representing 92% of our net revenue and excluding MediaTransports and the Drugstore. Out of this 92% of net revenue, as you can see, all our industry verticals posted positive growth this quarter, apart from leisure and travel, which remain heavily impacted by the crisis at minus 25%; as well as energy and manufacturing, which recorded a decline of minus 7%. Both industries represent 6% of the group revenue. Among the best performers, we logically find health at plus 24%, TMT at 9% and the continued good performance for food and beverage at 7%. Retail is clearly recovering, mostly because of the development of the online business during the crisis and posted 5%, with an uneven recovery worldwide, U.S. being much more positive than Europe. Financial sector returned to slight positive. Automotive is flat, which is really good to see. And nonfood consumer products is slightly positive, driven notably by the good performance in luxury. Moving to the next slide, net debt. The group closing net debt at the end of March is EUR 1,866 million, representing a negative net debt valuation of minus EUR 1,033 million over the quarter. This negative valuation of net debt was expected and was mainly driven, as usual, by the traditional negative valuation of working capital. This was partly mitigated by a positive foreign exchange rate impact due to the dollar-denominated net debt. Our average net debt is EUR 1,497 million in Q1. This is a result of our continuous efforts in terms of cash and working capital management. On that topic, it's important to highlight that we had a reversal in working capital, in line with what we expected in Q1. This reversal of working capital will pursue in Q2. All in all, we are on track to reach an average net debt of EUR 2 billion for the year. Finally, on the next slide, you can see that our liquidity position is very strong at EUR 5.1 billion, improving by EUR 400 million compared to March 2020. This EUR 5.1 billion liquidity position is composed by EUR 2.6 billion of available credit facility and EUR 2.5 billion of cash, marketable securities. We are currently reviewing the possibilities to optimize both the average maturity and the total amount of our committed credit facilities and, obviously, their costs. This situation makes me comfortable to fully repay our EUR 700 million bond due to -- due in December 2021. This concludes the financial presentation. Back to you, Arthur.
Thank you, Michel-Alain. Of course, returning to growth earlier than expected is raising even further our confidence in our model. But we remain cautious in what is still a very challenging environment. We are in a race to lead the change in our industries, and it is a marathon, not a sprint. We need to stay very focused on the execution of our road map. So I would like to conclude this short presentation with our 3 priorities for the rest of the year: our people, our clients and our products. Let's start with what has been our #1 focus throughout this crisis, our people. In H2, hopefully, we will bring them back to real life and back to the office. Of course, we will reopen agencies only when we can be certain of meeting or actually surpassing local health and safety regulations. But when this is possible, it would be as effective as moving back to the office on a country-by-country basis as we were at shifting to working from home at the beginning of the pandemic.Let's be clear, it won't be easy. We should not underestimate the psychological impact created by more than a year of working from home. We believe it is becoming urgent for the mental health of our people to reconnect physically, and the office will remain the primary place of work for all of us. Marcel will play a critical role in facilitating our return as soon as the health conditions allow it. Our second priority is our clients, of course. We may be their preferred partner in their transformation at the moment where many of them are under pressure. They are under pressure to reinvent their model. This will generate a high level of new business with more offensive pitches than defenses for us this year. They are under pressure on costs, which means we have to continue to simplify our structure to remain agile and maintain our price competitiveness. To do this, we will continue to leverage our country model, our shared services and our delivery centers.And they are under pressure to deliver immediate business outcomes while limiting their risks. We need to scale offers like The Pact that are guaranteed to drive real business outcomes to give our clients the confidence to make the right investment for the future of their business.Last but not least, our third priority is our product. During this crisis, I think we can all agree that the shift in the marketing landscape toward more personalization at scale has drastically accelerated. In this context, we have to be all over the rise of advanced TV with PMX. We need to make sure our clients are able to capitalize on the exponential growth of e-commerce through Publicis Sapient and Razorfish. And we need to bring them ID resolution for a cookieless world with Epsilon. This last point deserve more detail. The disappearance of third-party cookies may be the biggest disruption that our market will experience in the coming years. Our clients will have to shift from cookies to real IDs if they want to continue to engage on an individual basis with their customer. Thanks to Epsilon, we are the best positioned in our industry to help them take back control of those relationships. This is supported by the latest Forrester reports that have recognized Epsilon as the leader in identity resolution, but also in loyalty, e-mail, customer database and customer engagement. With the partnership we announced with The Trade Desk last week, we are going one step further in our product road map. Extending the reach of Epsilon, 250 million transaction-verified core ID through The Trade Desk DSP, means we are enabling our clients to benefit from even more attributes, more channels and more inventories for a better return on their investments. They will have access to a single, full-channel measurement when they engage directly with their customers, going seamlessly from one platform to another, all of this in a totally transparent way, in a self-service mode and in full compliance with privacy regulations. By combining The Trade Desk industry-leading DSP with the power of Epsilon CORE ID, we are creating the next generation of personalized media platform. This is a decisive competitive advantage for Publicis. It cannot be delivered by any of our peers, and it will give us the opportunity to capture more than our fair share of digital media investment in a cookieless world. Well, our positive growth in Q1 is, of course, encouraging. But I would like to take this opportunity to thank our people for their incredible efforts and our clients for their trust. But let's be clear, the crisis is far from over. We do not underestimate the challenges that are ahead of our clients, the economy and ourselves. In this context, we continue to focus on the wellbeing of our people, staying closer than ever to our clients and executing our plan. When it comes to our outlook, we believe that we still do not have the necessary visibilities to provide you with a precise revenue guidance for the full year. We had a start of the year that was better than expected, but we still have 3 quarters to go. We all know Q2 will be positive for sure, but we do not expect to fully recover 2020 organic decrease for this quarter. Last year, in Q2, we had a decline of minus 13%. This year, we anticipate a recovery ratio of 60% to 80% of what we lost, implying Q2 organic growth between 8% to 10%, assuming no further deterioration in sanitary conditions. When it comes to H2, as we have already said during our full year call, we will update you in July at H1 results. At that time, hopefully, the visibilities of the economic and sanitary situation will have improved. What is sure in this uncertain world is that we will continue to manage our cost base and our cash tightly while preserving our agility and investing in our future growth. This makes us confident in delivering on the margin and cash objectives we have set for the year. Thank you for listening. We will now take all of your questions with the director.
We will now take the first question from Lina Ghayor from Exane BNP Paribas.
Congratulations on the results. Three, my side, please. The first one is on your U.S. performance. So clearly, you had an impressive growth. What portion of that was purely macro-related? And what portion was more Publicis-specific? My second question is on Sapient. The asset performed strongly on projects, restarting alongside the economic recovery. And I guess I'm trying to understand how much visibility you have on this performance continuing into Q2 and the rest of the year. And what kind of growth we can expect for the asset after the rebound? And my last question is on the shape of the first quarter, which was better than expected. Would it be fair to think that March was substantially better than January and February? Or have we seen a more sequential improvement on a monthly basis? Any color would be very helpful.
Thank you very much. I'll start by the last one, which is shorter. When you look at the monthly trend, we were positive in the 3 months with sequential improvements. Now if I move to the U.S. performance first. Yes, I mean, when we presented our results for the year on the 3rd of February, if I remember well, we didn't have the Jan numbers. Honestly, we were not also anticipating the kind of rebound on the macro side of the business that we have seen in the U.S. To answer your question, I will say, again, it's a tale of -- it's a story of 2 tales. On one side, we have seen the kind of incentive package and the rise of the vaccine in the U.S. giving confidence to marketers, for sure. And in the other, our model have accelerated there in a great way. If I want to make it short, I think there are 3 points that you need to take about our performance there when it comes to Publicis. The first is really our abilities to capture a disproportionate part of digital channels, e-commerce and D2Cs, which is really something that is specific to Publicis. When you see that Epsilon is growing at 4.7% after a 5.5% in Q4, in Q1, you realize the need of our clients to go into identity resolution before the cookieless world arrive.When you see Sapient growing at 11.2% after being positive also in Q4, you realize the need for our clients to get more of e-commerce and more to direct-to-consumer brands. Same thing, I would say, for digital media. Digital media PMX branch growing double digit, the shift that is being operated at the moment between linear TV and advanced TV is really a big trend. So to make a long story short, most of our acceleration is due to the uniqueness of our model, our ability to take and capture a disproportionate part, again, our digital channel, e-commerce and D2C, and by the way, do that in an integrated way because, as you have seen, our creative activity is still resilient and our media overall is increasing. If you add to this main point the fact that we are continuing to see double-digit growth from our health practice and the fact, by the way, that we still have some new business tailwind coming from our wins the year before, 2019, that have been postponed in '20 and starting now, you understand overall why we had this number in the U.S. Hopefully, this is clear for the year. If there is more question, we can come back. It's 60% of our business. This is definitely where the market is leading. I talked a bit about our deal with The Trade Desk. There are many things happening there that make us confident. Sapient. So first, it's important to put vaccines into perspective. Globally, Publicis Sapient was up by low single digits globally. And the performance was largely driven by the U.S. And as we said, the performance was negative in Europe and mainly in the U.K. for a very simple reason. It's not that we have lost clients. It's only that there is a reduction of CapEx in many of those clients for reasons you can understand, and so we have seen our revenue being reduced. But again, a great performance, double-digit growth in the U.S., by the way, on a positive growth in Q1 2020, which shows that this is serious improvement, and it's due definitely to the repositioning we have done in 2019 around business transformation per industry practices. Europe, that is still complicated for Sapient, as I just said. And to end it up on that, we are clearly confident for what is coming. The way we are building Sapient, I think we have to stay very cautious because every project is related to CapEx, and CapEx is one of the first things that you cut when problems come back. But overall, we feel that we are building a very strong offer that our clients are only using, and by the way, a strong competitor to the other system integrators with this added value in creative and data that makes a big difference.
The next question comes from Lisa Yang from Goldman Sachs.
Congratulations on the result as well. So the first one is on basically your assumption for Q2. Could you maybe share the math behind the sort of 60% to 80% recovery ratio? And I'm asking because when you look at Q1 2021, you're already flat versus Q1 '19 at the group level, and it seems like the U.S. is 5% above the Q1 2019 level. So given the reopening and all the fiscal stimulus impact, I'm wondering why should we not see a similar level at least for the second quarter. That's the first question. The second one is on Sapient in the U.S. I'm just wondering if you could maybe tell us like how long typically all the projects that you've been winning. You talked about strong pickup in new wins and scope extension. So just like wondering like how does this contract work? Like how long does it typically last to sort of be able to assess the impact for the remaining year? And if you can share as well the pipeline of new contracts of Sapient U.S. and international, that will be really helpful. And the last question is on the review activity. I think you said it's going to be more sort of offensive than defensive pitch. Like could you maybe share a bit more color on what you're seeing in terms of the review activity? And how much is sort of an opportunity for Publicis here?
Thank you very much. I'm going to take the question in the other order. So I'll start with the new business activities. First of all, of course, we don't comment any specific activities. So far, we are seeing more opportunities than risk, i.e., more offensive pitch than defensive. But I want to be very clear on this to actually pitch 3 times a day at the moment is that until we win, the stats is nothing. So I don't think you should extrapolate anything from that, except that at the moment, we are not being too disturbed, and I'm crossing finger because it can change during that call. It's -- we have to be very humble and very cautious. We are not being disturbed by too many defensive pitches. That will actually take time from progressing on our road map, gaining new clients, bringing the right talent on board and accelerating for 2022. Okay? Sapient, what is clear is that now that we have an organization that is run through industry practice focusing on business transformation, we are seeing a momentum in the U.S. that is here to stay. Okay? Where we have to be very careful is that Q1 has been particularly busy with a lot of projects. So is there a bit of phasing, i.e., is there some projects that should have happened in 2020 that finally has started in 2021? Maybe. But what I can tell you is that there is a real trend.And to come back to your question, it's a mix of some long-term projects, which is, by the way, what we see in Europe. Most of the decline we are having in Europe is coming from long-term relationship where they are just stopping a bit before starting over to more project-based. It's a big market with very different clients. But the pipeline is there. As you would remember, we started to tell you in Q3 that the pipeline were getting stronger. And again, we feel confident we should have a good year.I don't think you should draw any conclusion from Q1, except the fact that for those that have been following us for many years, Sapient is turning back to growth, mainly in the U.S. that has been declining for years. By the way, Razorfish, that we have disconnected from Sapient to simplify and give to everyone real leadership, is working well, too. So we are on track. We're still cautious. We work and we convince more client every day that our models that collect data, creativity, media and the technology of Sapient is making the difference. On Q2, what can I tell you? It is clear that the strength of our model that, again, we have demonstrated not only in Q1, but last year, it's important to note again for those that are following us for a while that, will it be in the U.S. or in Asia? Now that we have all the results, we published first, so will it be in the U.S. or in Asia? We outperformed all of our peers last year. And so it's a good beginning of the year. We have a model in which we are very confident. We have low comparable, minus 13%. So we are very confident to deliver strong growth as we planned. By the way, sorry to be a bit blunt, but it's going to be a quarter that is going to be a bit special because when you look at the spread of the decline versus all the competitors, that roughly goes from minus 11% to minus 25%, it's going to be very difficult to read. But we expect strong growth in Q2. But on the other hand and to come back to your question, there are 4 main reasons why we expect not to fully return to 2019 level this quarter, this quarter in Q2, of course. The first reason, and I said that in my presentation, is that our clients are still very cost-conscious as the crisis for many of them is far from being over. And we have to take that into account. There have been a change of behavior there, and things won't come back overnight. The second is 2020 has seen very, very, very few, actually I don't know one, big [ whale ] pitches that could be transformative in terms of organic growth. I'm not talking about it, in particular, the market. And so this year, we are not going to benefit as we did in 2020 or, by the way, as we did in the past because we have been having a good new business track record of this kind of big account that normally you win in H2 that are having an impact for the year. In the pitch that I named, there are some that are critical in China, in Europe. We retained a few big accounts because we are having some defensive pitch last year that will make a difference. But we don't have this kind of tailwind with the new business that is coming and making a difference in Q2. One point that is very important, and I won't go in detail, but Alessandra can come back to you, is that our health activities will annualize. And the strong growth that we have seen starting in Q2 last year, of course, won't be at the same level. And then, and it's also part of the difference, still 60% to 80% of recovery ratio is that some activities like events won't recover by Q2. So when you add all of these reasons, you understand 2 things. First, we need and we are confident in our model because quarter-after-quarter, we are progressing, being able to capture a disproportionate share of digital from our clients that are focusing there. But uncertainty remains, and the uniqueness of our model doesn't mean that we're going to recover in a year. We have, again, to be cautious, to continue [ as well ] be close from our people, very close from our clients for the reason I just mentioned and continue to produce and protect our road map.
A very quick follow-up, if I may. Could you maybe tell us where was March 2021 versus 2019? Because obviously, you saw the impact of COVID last year, so just wondering where we are in terms of recovery ratio in March.
I mean I already gave you the 3 months for the year. I think it's pretty good. When you know us, you will see that there is a change here with Michel-Alain being here.
The next question comes from Conor O'Shea from Kepler Cheuvreux.
And congratulations from my side on the Q1 as well. Three quick questions, if I could. Just on the second quarter, Arthur, and I appreciate having the specific guidance. But maybe if you could just give a little bit more color, if possible, on the 8% to 10% growth, which regions would you expect to accelerate the most compared with Q1 given the very mixed performance in Q2 last year by region?Second question, if we could just have a reminder of the percentage of revenues roughly that Sapient structure globally represents in its reconfigured state. And what percentage the U.S. is of that business? And then last question, if you could just remind us, I think you gave us these numbers a couple of quarters ago, in the U.S. activity, how much the creative business roughly represents of the total?
So we're going to look for exactly the detail of the U.S. activities because I've got a number in mind, but I prefer that we check. On Sapient, it's roughly 1/3, 2/3: 2/3, the U.S.; 1/3, outside. Okay?And while we are looking for the U.S., let me come back on your Q2 question that, by the way, we'll give a further indication on Lisa when it comes to March. It's important to understand for the reason I just mentioned that recovering 100% of what we have lost last year is very difficult when you look at our health activities, when you look at events still down, when you look at the pressure we're having on price and the fact that there have been very few new business. Now to be clear and to answer your question, we will see a big acceleration everywhere. Again, if you take March, the recovery ratio is far from being 100%, but we have recovered part of it. This is, at the same time, encouraging because this is something that we should see everywhere. But again, I will not invite you to draw any conclusion from our Q2 number because the comparable, in some cases, are so big that the difference will be very difficult to make.But you will see growth, I would say, almost everywhere. I'm taking under the control of Michel-Alain everywhere, but we won't tell you that it is a good performance. We will tell you what is the recovery ratio because, again, this is what will matter. And to come back to what I said about Q1 and March, this is exactly what we did, sequential improvement with 3 months positive, but of course, a recovery ratio in March that was not and far from being 100%. U.S., what is creative in the U.S.? How much? Because I want to say well on creative. How much it is?
25%.
25% creative in the U.S., that's flat. But it gives me an opportunity to make a point that is important there, which is we should not separate creative and media on one side and data and tech on the other when it comes to growth. We need to separate it when it comes to our products because data and tech make Publicis unique in this industry, and this is why we are performing and we are in the U.S.But every time we sell a Sapient project, you have some creativity inside. Every time we increase some revenue, not every time, but most of the cases when we increase Epsilon, it's because they have been collaborating with Publicis Media. I mean it is a fact. You will remember that when we bought Epsilon, it was declining. This is why, by the way, we got such a low multiple at the time of the acquisition. 2 years later, the integration is done. The dynamic between Publicis Media and Epsilon is excellent. And we see a mid-single-digit growth for the second quarter in a row. Even in Q4, that was a tough month for everyone -- a tough quarter for everyone.
Understood. And sorry, just last thing on the Sapient global revenues as a percentage roughly of group revenues, if you have that number.
I would say 5%, no?
Sapient global is...
Sapient international is what you mean, no?
I'm sorry. Sorry, Sapient, including U.S., so both U.S. and international as a percentage of the overall group...
Oh, no, 15%. 15%.
So 15%. 15%.
15% for the group. To make the long story short, Sapient is 15% of our revenue; and the U.S., 5% outside.
Okay. Excellent. Maybe...
By the way, what is interesting to see is that if you forget the crisis, once again, which is a difficult exercise to do, you would remember that what we are doing in the U.S. is to apply the model that we have developed for Sapient outside of the U.S. And when we acquired Sapient, it was not even 5% of total revenue, okay, international versus U.S. We put in place, under the leadership of Nigel Vaz that now is the CEO of Sapient, this model that focus on business transformation, and we shifted from less than 5% to 15% in 5 or 6 years. Now we are applying the same model in the U.S. What is interesting to see, this is exactly what we are doing with Epsilon. Epsilon today is 5% international, 95% in the U.S., okay? We are starting to apply Epsilon model in Europe and in Asia. And guess what, it's a very small number in absolute value because it's only 5%, but we are growing in Q1 by 25% on Epsilon outside of the U.S.
The next question comes from Tom Singlehurst from Citi.
Tom here from Citi. Actually, I suppose, really, just one question actually, and I wanted to ask about Epsilon. The overall growth rate at plus 4.7%, maybe a little bit below -- well, it was a bit below the sort of digital media sort of double-digit growth rate. I think you mentioned some bankruptcies in the retail segment.But I was just wondering what we should read into the disconnect between Epsilon and digital media revenue growth, if anything at all. It might well be that you'll say Epsilon's role is a bit like creative in the sense that it helps you win business. But yes, if you could give us a bit more detail on that, that would be very much appreciated.
Yes. Thank you. So first of all, digital media is actually, for Epsilon, also growing double digits. So there is a huge trend here. It has been hurt by some bankruptcy for mainly small retailer, but nothing is small in the U.S. So it's having a direct impact and a material impact on the percentage of our growth. What you need to understand, Tom, because this is a great question, and thank you for asking it, is Epsilon does, if I want to make a long story short, 3 things, okay? They are building first-party data out of the first-party data of our clients to make sure that they own the data. And I want to be clear that for them to own their first-party data, so that's the tech part of the business. They are enriching our client first-party data with our own data. This is the Epsilon CORE ID that we talked about, 250 million people IDs based on sales transaction that we can activate around 7,000 attributes, and that represents roughly 54% of every noncash transaction in the U.S. So this is the core ID that we can put at the benefit of our client. And then they can activate first-party data, and this is the digital media part of it. What you need to understand is that the pace at which we can grow digital media is faster than the tech, but the future is the tech. The future is our ability, again, to help our clients shift from third-party cookies where they're going to lose their contact with their customers, not even talking about the publisher, by the way, and actually start to really build, enrich and activate first-party data with us. So it's great to see that we are coming back to growth with mid-single-digit because, okay, 5.5%, 4.7%, despite the bankruptcy, is a good number. But again, what you need to take out of that, and this is what I tried to explain in my conclusion, is our focus is our product road map with Epsilon because what will happen with the third-party cookie disappearance is going to change the rule of marketing. And the one that will have the tech, the first-party data and the relationship with our clients and publisher, by the way, to build an alternative to the walled garden, even if it's a small one, will make a big difference.
That's very clear. And then one very quick follow-up. Overall, autos for your top clients was flat. It's obviously a big part of the Epsilon client base. Should we infer, therefore, that sort of ex auto, the growth rate of Epsilon would be better?
Auto is actually positive for Epsilon. It's auto overall that is flat, which is not a bad number when you know the problem the industry has been facing. It's actually a very encouraging number because, to make a long story short, it shows that we are able to compensate some [ C cuts ] that we can see in many places by additional products like data, like tech, to actually really transform an industry that, in my opinion, has a lot of future. By the way, I forgot to mention something, as you were talking about the reason why Epsilon has been growing, is that there is a story that we like a lot, which is what is happening at CJ Affiliate. If you would remember, this is an activity that was part of Epsilon that was declining strongly. It's an affiliate business. We thought at one point that maybe we should separate it from the group, and then we decided to keep it. We actually put it into Publicis Media activities. And this quarter, it is actually growing by 16%, and this is not including into the 4.7%. So I mean it's not material, but it shows that we have made the best of every assets. And this is something that is a demonstration that the synergy we can create within the group are making a difference.
The next question comes from Matti Littunen from Bernstein.
First question, on Sapient, a very impressive growth there in the U.S. Is it fair to assume that some of the project-based work in general, particularly in business transformation that you previously had said was on hold because of the pandemic, has now started coming back in the U.S., but perhaps not in Europe? And the second question, on Epsilon CORE ID, you had on the slide 250 million IDs in total. Could you tell us how many of those roughly are in the U.S.? And then what kind of match rate are you able to achieve with those, for example, on Safari where the third-party cookies have already gone dark? And then finally, congratulations on the recent partnerships with the trade desks -- The Trade Desk, sorry, and Verizon. Very exciting. Could you just give us a bit more color on those? Is the bigger opportunity differentiation that you can now give to Publicis Epsilon clients as a result or perhaps obviously the revenue streams you can now expect from licensing the service outside of Publicis clients also material?
Wow, that's a lot of questions. Some that I can answer, some that I won't answer publicly because, of course, it's part -- you're touching to our commercial offer and our competitive advantage that we are playing with our client. But I want to try to be as granular as possible. I'll start with Sapient. Yes, the answer is yes, some project-based contracts have started again in the U.S., while for the moment, they are still on hold in Europe. This explain also a part of the difference. On Epsilon, I won't give you the detail of the match rate. What I can tell you is that when you compare to any other offer, which is this is why I don't want to go into too much detail, which is something that we do on a one-to-one basis with our clients, you understand that it is the highest of the industry.It's important to understand why, if I may, because it leads to another question, which is, are we with Epsilon dependent on third-party cookies? I think what you need to get, which will confirm the fact that we have the best match rate, is that the way we enrich our data, the Epsilon data -- and by the way, I need to answer the 250 million because you have a question. So the way we actually enrich our 250 million IDs that are roughly 200 million in the U.S., 50 million outside of the U.S., to answer one of your questions, is not through third-party cookies. It is through transaction sales. And the reason why the match rate is way stronger through sales data than cookies is because, guess what, you are what you buy. The behavior and the buying intention we can get through sales transaction is way higher than third-party cookies. And this has been at the base of what is Epsilon. Where we got lucky, honestly, is that when we made the acquisition, we were not expecting third-party cookies to disappear. And so what we thought at the time was the superior advantage will become the norm in the future.And this is why we feel very good because it's a big opportunity not only to enrich within the Epsilon ecosystem our offers, and this is why we are seeing the growth that you are seeing at the moment, but it's also a new source of growth outside of the Epsilon ecosystem. And this is exactly -- and thank you for that because it's -- The Trade Desk partnership is something we worked very hard, and it's an industry-leading offer. This is why now we're able to take our Epsilon assets and move it with more partners. I'd be very happy to tell you more about The Trade Desk. Do I have time, Alessandra? I know it's -- yes?
I think we have time for one last question.
So maybe I'll take a second on The Trade Desk before we take the last question. I see those guys pressuring me because we said 1 hour, but as I've got the question, I want to take it. So I'm not going to tell you what is The Trade Desk. It is the leading DSP, as I guess many of you know. If you need more detail, we are here for you. But roughly, what they do is that they are the last mile between the media planner and the publisher. Okay? When you bring together, coming back to your question, your 250 million Epsilon IDs with The Trade Desk DSP, actually, you are creating what we call the next-generation personalized media platform. And there will be a benefit for us, which is obvious, which is we want to take a kind of a leadership at the moment where the third-party cookies will disappear. It will give us an opportunity to have a disproportionate share of digital media. But even more importantly, let's see at the moment, where our clients need to transform, our clients will have a decisive competitive advantage versus their competitors. The number of attribute channels and inventories they will have access in a totally transparent way when they can measure the full funnel is going to be unique. I don't want to go too technical here. Again, happy that we take this question offline. But hopefully, what you will take out of that is we are, of course, very confident in what Sapient, Epsilon, PMX, with our strength in media and creative can offer today. But we are still focused in developing the product of the future in order to have the right balance between, again, being a partner to all of those platforms, the Facebook, Google of the world, because our clients are spending a lot of money there. And honestly, as every other holding company, we're having a great relationship with those guys, and we are helping our clients move into this platform world. But on the other hand, shifting from only a service company to building products that can deliver the growth, you are starting to see with Epsilon and Sapient. Thank you very much. Sorry for those which whom I've been a bit too technical. We're going to take the last question, I guess.
We'll take the last question from Julien Roch from Barclays.
My first question is -- thank you very much for giving us the growth rate of your 5 business line in the U.S. Two questions here. One, is health care in the U.S. broadly now with group level, i.e., up 24%? And two, can we have the weight of those 5 business lines? At the 3Q results, you said 25% creative, 30% media, 20% Epsilon, 15% Sapient, 10% health. Any changes? Or can we have a slightly more precise split than the nearest 5%? These are my first 2 questions. And then the last one for Michel-Alain. Impact of contemplated change in U.S. tax rates, supposed to go up from 21% to 28%. Trump took it down from 35% to 21%. The average tax rate of '14, '15 was 30%. It went down to 26% over '19, '20. So by how much do you expect tax rate to go back up? That's it.
Yes. Julien, I'm going to let Michel-Alain take the 3 questions, actually. So over to you.
Thank you, Arthur. I'll begin with the last one, Julien, on the tax rate. As you know, the final tax rate has not yet been finalized in the U.S. So we don't know yet if it is going to be 28% or something else. And more importantly, we don't know if this is going to add up on the existing tax provision of the Trump administration or if some of them are going to be reversed. So obviously, we'll be waiting for the full details of the Biden administration tax proposal, and then we'll get back to you, I suppose, hopefully, by H1. On the -- on your second question, which was the weight of each practice, we're not providing them. And the important thing about health that you -- so I think now what is important is that you look at, Julien, the industry verticals that we are providing in this new disclosure, which is giving you really the dynamics of the business on a holistic way. And by doing so, you'll see that, indeed, the weight of [ health ] that you've mentioned was very important during Q1.
Sure. So like the question was, sorry, was the -- is in the U.S., was health in the U.S. different than the plus 24% at group level? Because you gave us health at group level, which is great because now you're giving the vertical on an organic basis. But in the U.S., is health in line with the 24% or better or worse?
I'll take this one. In health, as you see it in this chart, there is a lot of things that goes beyond our health practice, which is a specialist practice in the U.S. So the 24% is not the number of Publicis Health in the U.S. To make a long story short, it is the accumulation of everything we are doing in the health sector from OTC to very specialized industry and practices. So it's just to give you an idea of the industries. I would -- I could say the same on auto to give you a point of view. You see that auto is flat. But within auto, you have Epsilon that is growing. So I can be a bit confusing here, but at least it gives you a trend, and hopefully it was helpful, and we think it is. We are trying, as you can see, and maybe I close with this, to give you a bit more granularity. We did it with Q1. We are doing it with the industry practices. We are doing it, giving you the stream of growth in the U.S. and some other countries making the difference between Publicis Media and creative and Sapient. It's, as I said, still a challenging time for our industry and for the world. We are encouraged and very confident on our model. Let's see, it was -- we are not expecting this ability to capture such a disproportionate part of e-commerce, digital channel and data with our clients at the moment where there are massive [ pressure ] in those areas with the rise of personalization at scale. But as you will have heard hopefully, we remain very cautious. There is still a lot of uncertainty. I was again with my team in Brazil on the phone yesterday, and it reminded me the time when I was talking with the one in China. So I think we have to be very, very, very careful. And I will end up, by the way, by thanking you and our [ people side ]. Take care of you and your family in this time, and talk very soon. [Foreign Language]
Thank you.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.