Publicis Groupe SA
PAR:PUB
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Publicis Groupe SA
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Bonjour, and welcome to Publicis Group First Half 2022 Call. I am Arthur Sadoun, and I'm here in Paris with our CFO, Michel-Alain Proch; our Secretary General, Anne-Gabrielle Heilbronner; and Steve King, our COO. As usual, we will take your questions together after the presentation. Alessandra Girolami is also here and will be available to take all of your questions offline after this session.
I will start this call by sharing our H1 highlights. Then Michel-Alain will take us through the detail of our numbers. After that, I will conclude with an update on our 2022 outlook. Finally, we will take all of your questions with the director. But before we start, please take the time to read the disclaimer, which is an important matter.
Let's dive into our results. We have delivered a record first half. After a strong start to the year with plus 10.5% organic growth in Q1, we recorded plus 10.3% in Q2, well above expectations. This meant H1 net revenue grew at plus 10.4% organically. On a reported basis, our net revenue actually reached €5.9 billion, which is 19% higher than H1 2021 and actually 35% higher than pre-pandemic H1 2019.
It's interesting to look at our first half performance on a 3-year basis to really understand our momentum versus '19, Q1 grew by 10% and Q2 by 12% organically, which lead to H1 at plus 11% versus '19 despite all the consequences of the pandemic.
Financial ratios were also at record high with an operating margin at 17.3% and a free cash flow of €708 million. This strong H1 performance and the current momentum we are seeing for H2 puts us in a position to upgrade our full year 2022 guidance on all of our KPIs.
Let's now go into the detail of our plus 10.3% organic growth in Q2. There are 3 reasons behind this strong performance, considering we grew by plus 17.1% in Q2 last year, a solid performance across all regions, further acceleration at Publicis Sapient and Epsilon and new business momentum.
First, all geographies performed well. The U.S., which represents about 60% of group's net revenue were strong again at plus 10.1% after 15.2% last year benefiting from the ramp-up of our new business wins and solid activity across all divisions. Media, Epsilon and Publicis Sapient were all accretive to our performance while Creative grew high single digits. Europe also grew plus 10.1% after 23% last year. The U.K. was up 15.5% organically, as it continued to benefit from Publicis Sapient contribution. France grew 9.3% organically on a particularly strong 31% in Q2 last year. Central and Eastern Europe posted a solid mid-single-digit performance despite the war in Ukraine. Asia grew plus 6.5% after a plus 13.6% last year. Organic growth in China remained positive at plus 2.7% despite lag down, slowing down the activity this quarter.
Second, we saw further acceleration of growth at Publicis Sapient and Epsilon, which were both significantly accretive to the group. Publicis Sapient grew plus 19.1% organically as client demand for direct-to-consumer capabilities and need for digital business transformation continue to be very strong. This come after plus 15% in Q2 2021 with a particularly high comparable base in the U.S. at plus 27% last year.
Epsilon performance also came significantly ahead of our expectation at plus 13.7% organic on top of a strong 33% growth last year. We saw a notable recovery in the Auto division, which returned to positive territory after declining in Q1. All other Epsilon divisions were up by double digits, benefiting from sustained demand from third-party data management.
Third, we benefited from the ramp-up of our new business wins. After record gains in 2021, we continue to have significant wins in H1, including McDonald's, ABI, LVMH, Pepsi, China Media and Pepsi India for Creative, just to name a few. With this, Publicis continued to rank first over the last 12 months in the latest brokers report on new business win well ahead of the rest of the industry.
Turning now to the group financial ratios. All of them significantly improved throughout the last 3 years. They actually reached new historical highs in the first half. Thanks to the combination of better-than-expected revenue growth, our unique operating model and as expected, our ability to control costs. H1 operating rate came at plus -- came at 17.3%, up 80 basis points versus last year and 230 basis points above 2019 levels. Our headline EPS increased by close to 30% at €2.88. Our free cash flow before working capital reached €708 million, giving us a comfortable advance on reaching out our initial €1.4 billion target for the year-end.
Overall, we have significantly progressed on all our financial KPIs in the last 3 years to emerge as a larger and stronger companies. But we are not only larger and stronger. We are also acting as a better company, thanks to the progress we have made as a leader in the industry in ESG. Our climate targets, both for the near term in 2030 and the long term to become net zero in 2030, have again been validated by the SBTi, and we'll continue to double down on our commitment on this front.
I will now leave the floor to Michel-Alain, who will provide further detail on our H1 results, and I will come back later to share our outlook for 2022.
Thank you, Arthur. Good morning to all of you, glad to be with you today. I will begin with Slide 12, which is presenting you with the evolution of the net revenue for the second quarter and first half of 2022.
The group posted a net revenue of €3.73 billion in Q2, representing an organic growth of 10.3%. This is a very strong performance as we have maintained a strong growth rate of Q1 and this despite a high comparable base of 17.1% organic growth in Q2 last year. Reported net revenue growth was 21% in the quarter.
Looking at the semester, net revenue was €5.873 billion, up 19% on a reported basis. This includes a €548 million contribution derived from a 10.4% organic growth. The positive impact of ForEx for €354 million, out of which €300 million linked to the USD to euro rate. Assuming the USD to euro exchange rate remains at Q2 average level, it would mean a circa €550 million positive impact on the group reported top line for the full year.
Finally, a contribution of acquisition net of disposal of €40 million. This includes the revenue of our 2021 acquisition of CitrusAd that saw triple-digit growth in the quarter, Boomerang and BBK as well as our most recent acquisition of Tremend and Profitero for about €55 million. The contribution of acquisition was partly offset by some disposal representing circa €15 million. The most important being, obviously, the exit of our operation in Russia from April 1.
Let's move on to Slide 13, which is giving you the dynamics of our Q2 organic and reported growth by region. North America saw its performance accelerate this quarter posting a 10.3% organic growth, in line with the group. Additionally, the impact of ForEx was obviously significant because of the USD to euro rate bringing the region reported growth to 25%. Europe also recorded double-digit growth this quarter at 10.1% organically. This came on top -- on top of a very strong comparable of 23% in the prior year. Asia Pac posted 6.5% organic growth, another very solid quarter, given, first, the high comparable base of 14% last year, and second, the severe lockdowns that affected China, our main country in the region. Middle East and Africa and Latin America continued to perform very well with 15.3% and 20.7% organic growth, respectively.
So let's begin with more detail on North America on Slide 14. As I have just said, our operation in the region saw the performance accelerate this quarter to 10.3% organic growth after 8.1% in Q1. Both the U.S. and Canada posted double-digit organic growth, respectively, at 10.1% and 15.6% despite a high comparable basis. In the U.S., the group's largest country, all activities continue to perform very well. Media posted double-digit growth, fueled by strong underlying trends and new business won in the last 18 months, notably in the TMT and the retail sectors. Creative activities recorded one of their best quarterly performances of the last years, particularly in the automotive and financial services sectors with net revenue growing in the high single digits, notably with strong production.
Publicis Sapient grew 17.2% organically as the demand for digital business transformation continued to accelerate, in particular, in the financial service and retail sector. Epsilon grew 13.7% organically as its automotive division recovered faster than anticipated and return to positive growth in while its other division of tech, data and digital media grew double digit, fueled by strong demand for data-driven marketing and advertising solution. It's worth noting that both Publicis Sapient and Epsilon grew strongly compared to pre-COVID levels at 30% and 20%, respectively, compared to 2019, highlighting the structural demand for those capabilities.
Let's turn to the performance in Europe on Slide 15. As I mentioned earlier, Europe recorded double-digit growth this quarter after 23% in Q2 last year. Excluding outdoor media activities in the drugstore, our activities in the region grew 10.7%. Half of the organic growth actually came from the contribution of the U.K. which represents 9% of our net revenue. In the U.K., organic growth accelerated to 15.5%. This performance included a strong Publicis Sapient confirming the turnaround that we operated in Q4 last year with a large contribution from financial services and retail clients.
Also notable was a double-digit growth in media, supported by new business win and positive Creative driven by production after double-digit growth in Q2 last year. France, which represent 5% of our net revenue, posted a 9.3% growth, excluding outdoor media activities and the direct store. This came on top of a strong 31% growth in Q2 last year implying a significant acceleration this quarter included -- including on a 3-year basis. The country saw strong growth in media, notably in the automotive sector and a Publicis Sapient. Germany, which represents 3% of our net revenue, posted 6.5% organic growth with strong media, mostly thanks to new business and sequential improvement at Publicis Sapient that posted positive growth this quarter.
Lastly, our operation in Central and Eastern Europe grew by 6.4% on an organic basis despite no activity in Ukraine. Poland, Romania and Turkey, all posted double-digit growth. As I said earlier, our activities in Russia have been deconsolidated since April 1.
On Slide 16, I will detail our performance in the rest of the world. In Asia Pac, which represents 9% of group net revenue in Q2, we delivered a very solid performance. Organic growth in the region was 6.5% after 14% in Q2 last year. China was positive at 2.7% organically, supported by new business and despite the strict lockdowns that impacted several cities in the country. The improvement was notable in June when the economy reopened. Other countries recorded very solid performances, in particular, India, Australia and New Zealand supported by media. Thailand performed well again, thanks to Publicis Sapient. In Middle East and Africa, we posted a 15.3% organic growth. It was largely driven by Creative activities and by Publicis Sapient in the Middle East and Media in Africa. Latin America posted a plus 20.7% organic growth with most countries growing double digit this quarter, largely driven by Media.
On Slide 17, I will be quick on our H1 regional performance. All regions posted very strong organic performances in the first half, leading to 10.4% in total for the group on top of the 10% growth we made in H1 2021. North America grew 9.3%; Europe, 12.3%; APAC, 10.1%, Middle East and Africa, 14.5%. And finally, Latin America, 17.3%.
On Slide 18, you will find the group performance by client industry for the first half. This is based on an analysis of our main clients, representing 91% of our net revenue and it excludes outdoor media activities and the drug store. In H1, all of our client industries posted positive growth. Most of them close or above 10%. Automotive continued to perform well at 5%, in line with the first quarter and despite supply chain issues. Nonfood and food and beverage also continued with a similar growth rate in Q2 as in Q1 and posted 9% growth over the first half. Financial saw strong acceleration in the second quarter, leading to 14% in the first half notably thanks to Publicis Sapient. The retail sector saw significant acceleration in Q2, thanks to new business across different capabilities.
Moving now to Page 19, our consolidated income statement. For the first half 2022, net revenue was €5.873 billion and EBITDA was €1.287 billion up, respectively, by 19% and 22% versus last year. Operating margin was €1.18 billion. This is a margin rate of 17.3%, up by 80 basis points year-on-year, the highest on record for the group in H1. I will explain in the next slide what drove this better-than-expected performance. Headline group net income was €727 million in H1, an increase of 31% versus last year. Headline net financial expenses came as expected at €74 million, while income taxes increased to €226 million, mostly reflecting higher profit before tax.
Amortization of intangibles were mostly stable while real estate restructuring charges decreased, reflecting the near completion of the third all-in-one rationalization wave. We have accounted a disposal loss for the exit of our Russian operation for a total of €87 million, out of which €49 million in cash, as mentioned in Q1. Taking all this into account, the group net income was at €537 million in H1 2022, up 30% versus 2021.
Let's now turn to Slide 20, which details our operating margin performance. Our operating margin rate improved by 80 basis points overall of 40 basis points at constant perimeter and FX. This evolution includes 2 main items as we anticipated at the beginning of the year, an increase in personnel costs that amounts to 180 basis points as a percentage of net revenue and this was more than offset by a decrease in other operating expenses for a positive impact of 240 basis points or actually 250 basis points, including depreciation.
I will now detail the evolution of these different items in the next slide, which is a bridge from the 16.5% reported operating margin rate last year to the 17.3% we are reporting in H1 2022. So let's begin with the FX and perimeter effect, which had a positive 40 bps on the operating margin rate, mostly due to the USD to Euro rate. So taking this into account, H1 2021 comparable margin stood at 16.9%. Starting from this base, personnel costs represent an increase of 180 basis points, as I just mentioned. In those 180 basis points, fixed personnel costs represented an increase of 120 basis points, which is broadly in line with our expectation of circa 100 basis points that I shared with you at the beginning of the year. This 120 basis points reflect both the headcount net recruitment and salary inflation, partly mitigated by the efficiency of our organization.
When it comes to headcount, you may remember that in H1 2021, we had a particularly low level of headcount as we were exiting the pandemic. So obviously, we caught up in terms of recruitment for April 2021 onwards to support our strong activity. This represents a major part of the 120 basis points.
With regards to salary inflation, the impact was mostly in the U.S., the U.K. and India and was in line with our initial assumptions. We were able to contain the increase in our fixed personnel cost to those 120 bps by strongly developing the footprint of our global delivery center, expanding our shared service centers and delayering further our structures. The remaining 60 basis points that explains the evolution of the personnel cost come from our cost of freelance resources due to the higher-than-expected growth the group posted in the first semester and particularly at Publicis Sapient that achieved almost 20% of organic growth.
When it comes to our restructuring costs, the increase of 30 basis points is mostly linked to the digital transformation of our outdoor media activities in France.
Now let's turn to the operating leverage of the group. Other operating expenses, including depreciation, contributed to an improvement of 250 basis points. First, we had posted an improvement of 160 basis points of other operating expenses, reflecting the strong cost monitoring of the group which allow us to roughly stabilize them in million of euros, while growing the top line by over 10% on a comparable basis.
Second, depreciation improved by 90 basis points, driven by: first, the continued benefit from our action to reduce our real estate footprint over the last few years as well as our decision to expense rather than capitalize IT development costs. Other operating expenses and depreciation were adjusted by minus 80 basis points and plus 80 basis points, respectively, with no impact on the total operating leverage of 250 basis points in H1.
As I mentioned in February, we have renewed 2 French outdoor media contracts for 5 and 10 years. This led to accounting them as right of use and lease liability leading to depreciation in H1 2022 rather than in other operating expenses in H1 2021 in accordance with IFRS 16. As a result of all this, our operating margin rate in H1 2022 amounted to 17.3%, an increase of 40 bps compared to H1 2021 on a comparable basis.
Let's move to our headline net financial expenses on Slide 22, which are down by €8 million, beginning with interest on net financial debt, which is down by €18 million. This was largely due to an increase in interest income linked to higher cash balances and interest rates in the U.S. Interest on lease liabilities increased by €10 million to reach €45 million in total, reflecting the renewal of the outdoor media contracts I just mentioned. The other line being nonsignificant, this results in €74 million headline net financial expenses versus €82 million last year.
Now on Slide 23, income tax. Reported income taxes stood at €189 million. The increase reflects the rise in profit before tax, partly mitigated by an improved effective tax rate compared to H1 2021 to calculate the headline income taxes of €226 million, we are adding the noncash element of our P&L, i.e. the tax effect on amortization of intangibles on impairment and real estate consolidation as well as other noncash items. Effective tax rate was 23.4%, down by 130 basis points compared to H1 2021, but in line with full year 2021.
On Slide 24, the headline earnings per share fully diluted is growing by 29% year-on-year to €2.88. This is an increase of 45% versus 2019. This strong growth reflects not only the improvement in our operating margin, but also a reduction of net financial charges and of the effective tax rate. It's worth mentioning that the average number of shares on a diluted basis was up by only 2% compared to 4% in the prior year. The number of shares will stabilize in the second part of the year, as we remove the scrip option and paid our dividend fully in cash in July.
Moving to Slide 25, free cash flow. Our free cash flow before change in working capital reached €708 million, up €103 million, this is an increase of 17% year-on-year or 9% at constant FX. The largest positive impact obviously comes from the increase in EBITDA by €235 million, reflecting the strong activity in the first half. Partly mitigating this are the following items: an increase of €36 million in our lease liabilities repayment linked to the outdoor media contracts I mentioned earlier and our real estate consolidation program, a rise in CapEx by €32 million after a particularly low point in H1 2021.
And finally, an increase in tax paid by €88 million, largely reflecting the rise in group PBT, some true-ups in the U.S., Canada and the U.K. And finally, higher withholding taxes in India.
Next slide, use of cash. In H1 2022, change in working capital representing an outflow of minus €858 million, which is an improvement of €333 million compared to H1 2021. This materialized the fact that working capital in December 2021 balance sheet was normalized, as I told you last February.
Acquisitions, including earn-outs and net of disposal, amounted to €376 million. This included for €286 million, the acquisition of Tremend in Romania, Profitero in the U.S. and Wiredcraft in China, all closed in the first half as well as earn-outs on previous acquisition, which amounted to €90 million. As a reminder, we planned on dedicating a €400 million to €600 million envelope to bolt-on M&A for the year after spending €376 million in H1 we will likely be at the upper part of this range, further strengthening our data, tech and commerce capabilities. Additionally, as I previously mentioned, we took a €49 million cash charge for our exit from Russia. All the noncash item increased by €57 million largely coming from the change in fair value of cross-currency swaps and the currency translation adjustment on the balance sheet due to the USD to Euro exchange rate.
Moving to Slide 27, net financial debt. The group closing net debt reached €464 million at the end of June 2022. It's an increase of about €400 million compared to the end of December due to the cyclical nature of working capital. The average net debt on the last 12 months is €1.24 billion. When we include the average lease, this represents a leverage of 1.3x EBITDA, an improvement both versus the 1.6x at the end of December and the 1.9x of a year ago. Taking into account our better-than-expected cash performance in the first half, we now aim at €900 million of average net debt for the year instead of €1 billion previously. This concludes my financial presentation, and I now give back the floor to you, Arthur.
Thank you, Michel-Alain. As you saw, our first half 2022 was at an all-time high. This performance, combined with our better visibilities of our solid H2 and most importantly, the strength of our model make us confident for the future. For 2022, we are able to upgrade our full year guidance on all of our KPIs. We are now anticipating organic growth to land between 6% and 7% versus 4% to 5% previously.
It is important to note that this upgrade is not only a consequence of our better H1. It also comes from an upgrade of our H2 expectation that we raised from 0% to 2% to now 2% to 4%. When it comes to operating margin, we now anticipate to be between 17.5% and 18% versus circa 17.5% previously. And finally, we anticipate free cash flow of at least €1.5 billion versus €1.4 billion previously.
When it comes to 2023, we are ready to face the ongoing uncertainties. On the one hand, we have all the capabilities our clients will need to weather any potential challenges. On the other hand, we have an agile platform organization to sustain the highest industry ratios in all scenarios. Let me break those 2 points down. First, our capabilities. As the macroeconomic environment is getting cloudy. Our clients will need to reassess their strategies in order to adapt to this new situation. The good news is that we have all the tech and data assets fully integrated with our creative and media expertise to help them drive growth but also generate efficiencies depending on the situation.
First, in an ultra-competitive context, more than ever, our clients will have to accelerate their sales and justify their price premium. We have the creative agencies to deliver the superior content they need and the global production backbone to do it faster and cheaper. Second, at a time where they need to reduce their costs and optimize the ROI, thanks to Publicis Media, we have the scale and the digital media capabilities to help clients expand their reach and allocate spend effectively across all channels. This includes connected TVs and retail media, where the group most recently launched a new CitrusAd platform powered by Epsilon. Third, after 2 years of COVID, leading to new customer behaviors, clients will continue to accelerate on transforming their business model, shifting towards B2C and building their own channels and ecosystem. With Publicis Sapient we have the tech capabilities to continue to meet that demand and drive digital solution to deliver savings and protect margins for our clients.
Last but not least, they will need to do all of this in an increasingly personalized way to be even more efficient. With Epsilon, we can enable more targeted advertising for our clients to find their consumers where they are and maximize return on investment while complying with the highest privacy standards. The superiority of our capabilities was acknowledged in all of the latest Forrester Waves with Publicis Media, the Group Digital Experience Services and Epsilon all named as leaders with higher scores in their respective categories.
Second, on the top of all of this, we have an agile platform organization, which is a strong competitive advantage. This organization helps us constantly to adapt the group structure to sustain industry high ratios while investing in our people and products. At the heart of the organization is a country model, a single P&L for all group activities in a single geography, uniting resources and boosting cross fertilization. Supporting this is our decade long investments in the group backbone resource, our global shared services center that we continue to expand. This has been accelerated by the strong expansion of our global delivery centers that are not only supporting Sapient and Epsilon, but also today media and production through an increasingly distributed model. This simplified structure are providing us the ability to manage inflation and invest in our people who are at the heart of this success.
As you have heard, our record H1 will allow us to deliver another year of strong profitable growth in 2022 with an organic growth between 6% and 7% and an operating margin between 17.5% and 18%. During the last 3 years, not only we have significantly increased all of our financial ratios, but we also became a bigger, stronger and better companies. Of course, we are very conscious of the ongoing macro uncertainties but we are confident that we have the capabilities, the model and the talent bench to weather any potential challenges for our clients and for ourselves.
I would like to finish this presentation by thanking all of our people for their incredible commitment. It is a lot of our work and our clients for their trust. Thank you for listening. And now with that, we will take all of your questions.
[Operator Instructions] We will now take our first question from Lina Kim Ghayor from BNP Paribas.
I hope you can hear me well. Firstly, huge congratulations on the results. And then I have 3 questions, if that's okay. The first one is obviously on the macro, well, I have not lived to as many recessions as some others on this call, but I would be interested to hear from you around the tangible elements that you are seeing or not regarding the slowdown for H2. And I guess my question is, does the pessimism of investors seem reasonable to you based on what you are hearing from clients this year but also next year?
My second question is on Publicis Sapient. Can you explain a bit how resilient could the asset be when we think about the macro and can the investments from brand being postponed or reduced? Or is it actually more visible and the investment brands are doing are structural and unlikely to be impacted by the macro environment? Any color would be appreciated.
And lastly, capital allocation. We are midway through the year. You just upgraded free cash flow guidance. When will we have more visibility around what you want to do with the cash in the coming future? That's it for me.
Thank you, Lina. I'm going to let Matt take the capital allocation first. And then I will answer your 2 questions that are very broad. I try to be concise. But Matt I propose that we start with the capital allocation.
Yes, sure, sure. Let me remind you of the 2022 capital allocation that we shared at the beginning of this year. Remember that based on the initial guidance of circa €1.4 billion free cash flow, we expected first to return €600 million of dividend to our shareholders fully in cash, invest between €400 million and €600 million in bolt-on acquisitions and use the remainder of the free cash flow is between €200 million to €400 million to pursue the deleveraging of the group. We now expect our free cash flow, as you were mentioning, to be at least €1.5 billion for 2022 with the following updated capital allocation.
So first, obviously return to shareholders. Following the removal of the scrip dividend, we paid €608 million fully in cash to our shareholder early July for an all-time high payout ratio of 47.8%. Second acquisition that was -- I was mentioning it, after spending €375 million on targeted M&A in H1, we will likely be at the upper part of our M&A envelope, so €600 million. And then finally, deleveraging, finally, we will use the remaining circa €300 million free cash flow to pursue the deleveraging of the group beyond the €1 billion initial average net debt target, this takes obviously into consideration the deterioration of the economic outlook since the beginning of the year. We believe this capital allocation is in line with the group's strategy and creates more value than a purely financial share buyback. Arthur?
Merci, Michel. Lina is that fine for you on this one, and I can move on the 2 others that are pretty broad. So coming back to 2022 and what we see coming. Honestly, for the moment, we haven't had any impact from our clients cutting any kind of revenue. I think that they've been through many crises already, and they know that when you start to cut spend, which might have to do at one point, by the way, but the market share you lose fast are actually very difficult to recover. So for the moment, we are seeing clients that are transforming, but not clients that are cutting, and I'll come back to that in a second.
When you see what we wanted to deliver in terms of guidance for Q2 -- for H2, sorry, it's definitely a message of confidence. We have a lot of visibility about what is coming, but we have baked also a lot of cautiousness into that. What I mean by that is, as you know, we have upgraded our guidance to 6% to 7%. And as I said in introduction, it's important to note that it's not only the consequences of a better H1. It's also come with an upgrade in our H2 expectation, which again shows the confidence we've got in the second part of the year because we were planning for 0% to 2% growth before. We are now between 2% and 4%. And there are 2 comments to make that I think are important. The first one is that when you look on a 2-year basis, which is definitely what we should do if it's not on a 3-year basis, to be honest here, you see that H1 2021 was flat when H2 was at 5%. And so the comparable is way different. The second thing that is very important is that when you look at our current momentum, we should be at 4% in H2, honestly. But we are factoring some cautiousness due to the macro uncertainty, of course, but also due to the fact that, as you know, Q4 is an adjustment quarter though the fact that we set for H2 from 2% to 4% is to give us some room if things were to worsen, which again, we don't see at the moment, okay?
So what really matter at the end of the day for us is that we feel very comfortable in delivering a strong performance in 2022. We don't see anything that could prevent us from that. We will deliver between 6% and 7% whatever of the economical situation on the top last year. And we will improve our margin despite salary inflation. I think this is what needs to be taken for this question.
On the pessimism of the market, honestly, it's not for me to judge because something wrong we're doing there, honestly. I think that we need to do a better work to make investors understand that we have shifted from a partner and communication to our clients to a partner in their transformation. This means that we are well dependent on the media fluctuation, for example. This means also that whether they are growing or actually having some issues, they still need our help. They need our help to actually advertise more. If they've got projects they need to sell because, for example, they've got to pass inflation into their price. But on the other hand, they could use Sapient to help them reduce their cost by reviewing their marketing mix and really bringing business transformation. So we have a pallet of expertise today that is well broader than it was 5 or 6 years ago. And by the way, this is what we are trying to demonstrate through the 3-year tax. This is why we spent time showing you how we have improved organically but also in terms of net revenue since '19 despite the COVID effect. And we have to do a better job with the market for them to understand the shift we have brought that is now a reality in our H1 number, which is what really matter, of course.
On Sapient, honestly, the progress we have made since '19 are very strong. Michel-Alain, you correct me if I'm wrong, but I think that on the 3-year stack and despite all the difficulties, we have grown by 30%. We have totally repositioned Sapient, as you might remember, in 2019. It has been a very difficult exercise. It penalized us very strongly in '19. We changed the management. We changed the go-to-market, we reinforced the team. And we are delivering a very strong 19% growth in H1 after 9% last year. And we are actually increasing our forecast for Sapient for the year. We were at 10%, we are moving to 15% now. So 15% is what we are expecting, which implied by the way, double-digit growth in after 19% last year. So again, almost 30% growth, at least for H2 on a 2-year stack.
Lina, I hope it answer -- sorry for the rest, I took my time, but hopefully, I have covered some topics through your questions.
Yes. And just a quick follow-up, if I may, on capital allocation. I guess my question was more post 2022 and the eventuality of a share buyback as deleveraging is progressing pretty well.
I think -- yes, okay. So we've been clear on the -- on our trajectory for the year with the capital allocation that I just indicated, we will review any potential changes to that early next year when we have closed 2022 and looking into 2023 but it's too early to mention anything here.
Thank you. We will now take our next question from Lisa Yang from Goldman Sachs.
Congratulations as well on the outstanding performance today. Three questions, if I may, as well. So the first one is to follow up on the prior questions for H2. I mean clearly, you're saying you're not seeing any change in advertising behavior so far. So July should potentially continue to be very strong. So how are you thinking about the phasing of flows between Q3 and Q4? Is it fair to assume maybe Q3 pricing [indiscernible] going to be more flattish to slightly down because sort of what you're baking into your H2 guide? That's the first question.
The second one is on the margins. Can you help us go through the moving parts. Your guidance for the full year now implies that in H2, you margin would be down 70 basis points to up 30 basis points, obviously down 80 basis points in H1. So can you really go through your expectation in terms of assumption for FX, I would see there was a big boost in H1 what you're assuming for H2? Or are you assuming like leverage, more personnel cost? That's the second question.
And the third one, I appreciate that's really theoretical at this point, and you're probably not projecting for 2023 yet, but how do you think Publicis as a whole will perform in a recession? And then how would your performance compare versus for 2009 and 2020 when I think organic growth was down 6%. Do you think if we were to basically face similar macro downturn, your organic growth decline will be less than in private sessions given all the changes you mentioned about your relationship with clients and your business mix? And have you already done any changes, made any changes to your plans in terms of hiring or anything like that on the cost structure to plan for a potential recession?
I'm going to take 1 and 3. I will leave you to -- okay, I will do 1 and then you'll do 2 and then I'll do 3. Okay, that's fine?
Good.
H2 -- I mean, I have to be careful with my words. We don't see any change at this stage, any, for the reason I mentioned earlier. Now we are very conscious of the macroeconomic uncertainty and getting prepared for that. I want you to be very clear on that. And by the way, we come here, we talk for an hour, but the truth is the work that is being done by the teams together there is immense. The efforts that it required at the moment to maintain double-digit growth in H1 after the year we had is not something that come from coincidence because there is a good trend on the market. It's a lot of work. It's very hard and we are very conscious that it's precious, and we have to be very careful for what is coming. So hopefully, we found the right tone on that.
Your question on Q3 and Q4. So we have a good visibility on H2, honestly. And as I told you, our current momentum should actually drive us close to 4% organic in the second half. And this, again, taking into account, and this is very important, that H2 is facing way tougher comps on a 2-year basis. As I said, we were flat in 2021 in H1 and we were at plus 5% on a 2-year tax in H2. So the comps are way different.
Now when you're going into the sequence of Q3 to Q4, actually, we believe that both quarters will grow in line with this 4%. That's what we believe, and this is what we see when we look at our current dynamic. But we have decided to factor in some cautiousness in Q4 due to the macro uncertainty. And as I said, the fact that Q4 is a potential adjustment quarter, okay? But this is why we are between the 2% to 4% and not at 4% because we want to be absolutely certain to deliver whatever the macroeconomics. And I can tell you that we will deliver from 2% to 4%, whatever the macroeconomics everything is baked in.
I'll let you take 2, and I'll come back on 3.
So maybe explaining a bit Lisa, the moving part on the margin. Let me begin by H1 and then go to H2. So in H1, as you've seen, we have an improvement of 80 basis points versus last year. In this 80 basis points, you actually have 2 parts: you've got 40 bps, which are related to the exchange rate and 40 bps, which are our operating performance for the semester. Now we are guiding to 17.5% to 18%. And exactly, as Arthur said, for the second semester that we are guiding on 2% to 4%. And clearly, we've got the momentum to get to 4%. In the same way, we have the momentum to get to the 18% operating margin for the year. We have baked the macro uncertainties that Arthur was referring to and that's the reason why we kept this range of 17.5%.
So again, 18% on the year, what does it mean for H2? It mean 18.5% for H2. And what I want to be clear on is that we took a decision while giving you this guidance, not to bake any effects into H2, okay? So the 18.5% that I'm referring to, to reach 18% for the year, there is no effect in there. If the Euro to USD remains at the average of what we've seen in Q2, it would translate to an extra 20 bps in H2 on of this 18.5%, okay, that would be additional to our range of margin for the year. We didn't want to take a position of FX, as it always difficult to do that. Well, I hope I'm clear on this part. I'll let you the third question, Arthur.
So for 2023, honestly, it's too early to tell how the world economy will perform next year. And I guess we will all agree on that. What we have tried to demonstrate in this presentation is that we are ready to face any kind of uncertainties. And it's true for our offer and it's also for our structure. But when it comes to our offer, to come back to your question, what are the change between '20 and '23? Well, I guess, again, as we have changed our model that is proven to work now when it comes to us in 2023, I think there are 3 main things you can count on. The first, as I discussed before, is the balanced mix of activities, which definitely derisked our revenue in case of downturn because here, again, we have products that our clients will need even more in the case of downturn. And we are working with blue chip companies that will continue to invest. Maybe they will invest less, but they will need more of some products that we are uniquely positioned on. I'm not going to come back on that, but the fact that we have this balanced mix of activities make a big difference.
We are pretty optimistic. It's not to say more that we will continue to see a booming demand for digital business transformation. This is a no-brainer. This is something that company can't stop now, and it will continue to support growth at Sapient. We feel very good about that.
And finally, the duplication of third party cookies that Google will help even more and the Metaverse will help even more, by the way, although I think there is time before we can redo business there, is the structural shift we are seeing towards everything that has to be done with data and advertising. We're going to be more personalized. Look at what has happened with Netflix recently or Disney+. I mean we're going to go into personalized content and the investment we made 4 years ago, that again, was really [indiscernible] from our side, which has been pretty painful at the beginning that need to be well integrated is giving us a huge advantage.
So to come back to your question, of course, we are very cautious and aware of the difficulties on the economy. And our job is not that much to predict what is coming. Our job is to make sure that we are ready to face any scenario for our clients and for ourselves. For our clients, we have the expertise. And by the way, for ourselves, the least we can say is that we have made the demonstration that even in time of big downturn like 2020, we know how to protect our margin and deliver the best of the market despite investment, thanks to our platform organization.
Maybe I'll do a last comment and maybe I'm too obsessed about this 3-year stack, but this is also how we manage our people. When we had a great year last year, we say, well, it's not a great year as long as it's not a better year compared to '19. And now this is also how we manage our business. We do look at midterm and long-term perspective. And what has happened in H1 is interesting is that when you take the 3-year stack, again, we grew by 10% in Q1 and by 12% in Q2 on a 3-year basis. And so this gives you an H1 at 11%, which means a CAGR between 3% and 4% which shows that even in the period that was so tough, we know how to grow and sustain growth in the long term.
We will now take our next question from Tom Singlehurst from Citi.
It's Tom here from Citi. I mean there will be some people on the call who've just come off a call with S4 Capital, where they've effectively downgraded margin guidance on sort of higher staff costs personnel. It's partly that and also partly just a difference of opinion with divisional management over where organic growth is going to settle. But can you just talk about staff costs and incentives in the context of the margin performance, which is obviously very impressive for the first half and the guidance for the full year is very encouraging. How have you just philosophically factored in the risk of wage inflation and all of that? That would be the first question.
And then secondly, I'm interested that maybe it's linked on how inflation gets passed through to customers. I mean I've always just used the rule of thumb that you're a cost-plus model. And therefore, if you're seeing higher wage inflation, it will or other inflation in other cost lines that will largely be passed through and recognized as sort of incremental revenue. Is that the right way of thinking about it? Very simply.
I'm going to start with inflation. I mean, we are managing inflation as we have always done [indiscernible]. First of all, is by driving our own savings through the efficiency of our operation. And when you look at our hiring costs and how we have been able to continue to hire and raise our people, it was not at the expense of a margin that has improved, thanks to our model. If you want more, maybe we can come back on the staff cost a bit more, but this is what we are doing. Of course, we are sharing its impact and trying to share this impact between ourselves and our clients when it's possible. But I think it's important to know that when you look at the effect it's having on our top line, starting with H1, we had no or very little impact in Q2 and actually, it's likely to be very limited in H2. So I think what you should take out of that is that for the moment, we did not bake any potential revenue tailwind from inflation into our guidance for H2, okay?
I mean, on your first question, first of all, of course, we won't -- we never comment on competitors and even less when they are naturally competitors. So we won't say a word about S4, but we can talk on staff cost, but please not in the context of S4, Michel, don't talk.
Yes. I was not planning to. Okay. All right. So maybe before -- Tom, before getting into the wage inflation and the cost by staff. Maybe -- and I think your question is very close to the one of Lisa. So I give you the dynamics of the 18%, which is really what we should lend on with the momentum that we have. If I take the same bridge that I did for H1, okay, we will have for the year a personnel -- fixed personnel cost which will increase by 120 bps or about 120 bps, okay, for the year. That's one point.
Second point on the freelance, I think for the year, we will be around 40 bps so a bit less than H1 because obviously, we don't have the same explosive growth. Restructuring should be the same as H1, so 30 bps. So on the negative part, you've got 120 fixed personnel costs, 40 bps freelance, 30 bps restructuring.
Now on the operating leverage of the group, it's going to be pretty much the same. So 240 bps for the year, and that brings you to the 18%. Now on the -- on cost and inflation on wages, the first message I have is that the assumption we had for inflation on wages that we shared at February, have so far been proven right. So we didn't have any surprise. We experienced it mainly in the U.S., in India, in China, in the U.K. and only modestly in Continental Europe. And the important point is that, as a reminder, in order to mitigate this wage inflation and the increase of headcount to the 120 bps that I was mentioning, we have 3 things in our hand.
First, one that has been mentioned already by Arthur, which is we are operating as a platform. It's giving us agility and flexibility between the country model and our shared service center resource. That's the first lever. The second one, which is very important, is that when it comes to offshoring and nearshoring part of our workforce, we have already shifted and we carry on shifting a significant portion of our talent base to our global delivery center. So not only, by the way, for Publicis Sapient and Epsilon, but also in media and production. And today, altogether, they represent 25% of our headcount. And even more importantly, over 50% of our net recruits in H1. And then finally, the third lever we have, which is not different than before, but I'm mentioning it. We are obviously constantly working at simplifying our structure, delayering our organization and by all this, that's how we mitigate this cost inflation.
Does that answer your point, Tom?
Yes, that's very clear. And maybe one follow-up, if I can. I'm conscious that you do but you shouldn't compare yourself to S4, that's a very valid point. But the other thing that was interesting out of that call was a disconnect between their central management, who are more cautious than the operational management. I'm just interested in whether you're seeing a sort of a similar trend evolving within -- with your discussions with your operational teams, are the people on the ground more optimistic than you and you're layering in a degree of caution into your forecast? Or are you on the same page?
I mean, we can't be more on the same page for many reasons. First, as you know, we have put in place the power of one, and we are really truly acting as well, and maybe Steve can add something on that. Second, we have created the country model. That means that there is a direct relationship between countries and corporate, which means that we are able to, on a daily basis, adjust depending on what we hear on the field with our clients. And by the way, this is why we are so confident about H2. But maybe, Steve, you want to add something on that?
Sure. Tom, it's Steve here. Yes, I think, look, I mean, I think the tone of these quarterly updates have changed quite dynamically for since Arthur and I and Gabriel started. I think what we see is the ability to manage our markets locally with a single P&L has become so much easier. And so we have a much more immediate grasp on the business. So I would say the opposite than maybe we have in the past. I'm not comparing ourselves to our competitors, but I think there's an immediacy and a really strong contact between our local markets. So we are, [indiscernible] absolutely on the same page.
The second thing is that we're also seeing, I think, the real benefit of the breadth of capabilities that we've now got and the breadth of expertise. We used to focus just on our media and creative. And now you can really see how data and technology is really empowering our businesses in every single market in the world. So I would say the very opposite of the suggestion that there's some sort of disconnect between regional, local management and central management. I think we're very much on the same page and align both in terms of the strategy and importantly, about the resilience of our business.
Every top executive, part of the management committee has a P&L responsibility on the ground. So it's pretty simple.
We will now take our next question from Julien Roch from Barclays.
I have 2 questions, actually, not -- could somewhere add. First one, if organic is 0 next year, what happened to margin? Because you talked about platform flexibility. But based on 0, do you think broad brush margin will be flat, down 50 basis points, down 100 basis points? That's my first question.
And then the second question is what percentage of your revenue is not cyclical in our view. Now I get that digital transformation is far more important than media spend. You're not going to cut a project when it's underway. But if we're in a recession next year, maybe new projects don't start and are postponed by year and therefore, digital transformation is more lead cycle than not cyclical, but you might disagree. So what percentage of your revenue would still grow at 5% when global advertising is down 10%, is another way to ask the same question.
I'm going to leave you the question on the margin of organic first, and then I'll take the cyclical one.
Yes, yes. So Julien, thank you for the question. Just -- maybe just to set the scene, looking at the potential impact of a slowdown or a recession on the margin, we have a data point, which is very clear, which is we faced COVID. And you remember that we were able to contain margin declined to 130 bps on with a top line decrease of minus 6% for full year 2020. So that's the first data point.
I don't believe that there's anybody among you, even the most bearish -- I'm not saying you are the most bearish, I'm just saying the most bearish which anticipates a similar decline for 2023. But now taking your assumption of 0, I mean, obviously, it's -- and it's too early to give a proper official guidance for 2023. But the bracket that we have 17.5% to 18%, I think is a reasonable bracket in such a situation.
On your second question, again, I'm insisting on the fact that today we have a very balanced mix of activities. And that's derisked revenue decline in case of economical downturn. To give you just one number, when you take Epsilon plus Sapient, we are above 30% now on businesses that are needed, whatever happens. So I'm not going to go into the detail of our offer, but that's the first point.
The second one is, again, I think it's good to look at the past as Michel made the demonstration on the margin, honestly it's also true for revenue. And I'm not talking specifically about us first. I think our industry is well more resilient that what we have been reading in the last weeks and particularly Publicis that has outperformed the market in the downturn in terms of growth and definitely in terms of margin. So again, don't get me wrong. We don't want to paint a too rosy picture because we don't know what it's coming, but we are ready.
We have to accelerate a bit because we still have time for questions.
Maybe 2 more question?
Let's take 2 more questions then because I want to make sure that we have the most we can but I don't want everyone to wait for too long. So let's take 2 more.
Certainly. We will now take our next question from Christophe Cherblanc from SocieteGenerale Cross Asset.
First one is on what you highlighted, the shift to Global Delivery Center to shared services centers. So Michel-Alain mentioned 25% of staff, 50% of staff addition. What is the percentage of staff cost? Is 10% a realistic order of magnitude? And related to that, a quick one on FX. You mentioned FX sensitivity on margin. The Indian rupee has not strengthened as much as the dollar versus the euro. So is it a positive in terms of margin? Is it significant and visible in your numbers? That's the first one.
The second one is on staff. What is the percentage of headcount increase year-to-date? And we're all reading about staff shortage. Are you missing some staff in some business lines? So could you do more if you had more, let's say, more bodies?
And the third one, which is a very quick one is you had a real estate charge again in H1. So where are you on that program? Should we assume it's a never-ending process and that in 2023, we're also going to see real estate one-off charges because it's never going to stop?
I'm going to let Michel-Alain take the 3 questions, but I will make one remark before that, that is in the midst of what you said about missing staff and the global delivery center. When we say that our resource backbone, our country model and particularly our global delivery center are a huge competitive advantage for us. It's not only because of costs. And I want to be very clear on that. It's -- we have created a model that actually we inherited from Sapient of building talent pool that are in most of the cases very high-end engineer or data analysts that can work remotely from places where you find those talents. And in a world where we want to have a country model that is able to go to every of our client with no silos, you also need to have some global resources that you can plug and play in every of our countries. And the global delivery center is exactly this is highly talented people, highly skilled people that we can find at scale in countries where they are very well trained and distributed depending on the need. This is also why we can maintain margin when there are some difficult time because we allocate the resource remotely wherever the growth is versus if you have some decline somewhere. So hopefully, it answers a bit of your question about missing staff. We have an ability to hire that is better than our competitor and an ability to actually manage our staff to make sure that we can allocate that properly in case of downturn. But now I'll let you answer more in detail the questions.
Yes. Thank you, Arthur. So I mean, we're not disclosing the mix of the personnel cost by country, but I -- what I can indicate is a percentage you are mentioning seems rather low to me, that's the first point. The second point in terms of recruitment, we've recruited about 7,000 net new recruits in H1, as I was mentioning, about 3,500 of them being into our global delivery center. With these recruits, we believe that when you look at these recruits and when you look at H2 2021 recruits, when you look at the last 12 months, we believe we've caught up what we needed to recruit in order to support the growth. And then when we look at our H2 growth, we will be slowing down the pace of this recruitment to match the growth that Arthur mentioned, the 4% in H2 that we mentioned several times, obviously, focusing on our tech and data jobs, and we will carry on our efforts to transfer more resources into our global delivery center and use less freelance. That's what I was mentioning to Lisa and Tom with my analysis of bridge in the bids.
Finally, I think you've got a question on the real estate program. I think you're very familiar with our all-in-one consolidation program that has been launched by Jean-Michel. In 2022, we are in the third year of this program, which is going to be concluded with this. Actually, the charge that you are referring to is much less than the one in H1 2021. You remember that it's representing in H1 2022 to €44 million, and it's half of H1 2021. It's now too early to be completely clear to analyze 2023 because this is obviously a very financial question, but very much linked to the return to the office, to the future of work to what we would be -- we will be deciding into -- in the allocation of time of our employees between the home office and working the office. We may have another program in the future. But again, it's too early to talk about it. We'll have better visibility by the end of this year after.
We will now take our final question from Sarah Simon from Berenberg.
Yes. I just have one question. And that was just in terms of advertising spending. Are you seeing any shift in terms of what your clients are spending on? So for example, from brand to performance? I get that you're saying they're not really spending any differently in terms of absolute something that's the mix in terms of where the spending is changing.
Thank you for the question, Sarah, and it will give me the opportunity to conclude also. Yes, we are seeing some shift, but I would say that maybe the shift has accelerated a bit but it's something that is profound. And there are 2 very big shifts in the market that we are addressing and actually leading. The first shift, I'm sorry to be a bit technical is the shift from third-party cookies to third-party cookies to first-party data. This ability to move from cookies to identity and really create real profile based [indiscernible] where you can create a direct relationship with our customer. This means a change in the media mix and this means also a change in how you approach marketing as a whole. And what we have created with Epsilon is something pretty unique to help our clients address this change that they will have to put in place and this is what you see in our Epsilon result because you should not forget that our Epsilon results are a bit lower because of auto. But if you take everything I just mentioned, the growth is at the level of Sapient to make it sure. So it's important to understand that this shift is central in how you approach media.
The second shift we are seeing is a shift actually from paid media to own media, i.e., we will continue to rent audiences for our clients through traditional media or the world garden, by the way, and we'll try to do it better in a personalized way with first party data, that our clients now consider that not only they need to rent some audiences, but they need to own their audience. And to own their audience, they need a digital ecosystem to go direct to them, which is, again, what we do with Sapient.
Where I'm coming there is, I think that thanks to the vision of Maurice Lévy and all the hard work we have all done for the last 5 years. We have taken a big advantage in what our clients will need in the future. As you know, it has been pretty painful. It has a one point be a distraction. Again, it has been a lot of hard work. But at the end of the day, we have now 2 engines in data and in technology that enables us to boost our media and Creative business in a unique way. This is what makes us confident in the fact that we think we are ready to face any kind of uncertainty because what I just told you won't stop. Our clients will not stop despite the difficulties to go direct to their clients and to move to digital ecosystem and so our job is to continue now what we have started to implement in and make sure that we listen very carefully, which came back to some question to what our clients need in those in certain time.
Well, I thank you very much for your time. Hopefully, you will agree with us that we had a very strong H1. I hope we gave you a flavor of the confidence we have for the second part of the year. And I'm sure we are just starting the discussion about '23 and how we are prepared to face any kind of uncertainty and whatever will be happening for our clients and for ourselves. I thank you very much and talk very soon, merci.