Publicis Groupe SA
PAR:PUB
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Publicis Groupe SA
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Good day, and welcome to the Publicis Third Quarter 2020 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, sir.
[Foreign Language], and welcome to Publicis Groupe Third Quarter 2020 Revenue Call. I am Arthur Sadoun, and I'm here in Paris with our CFO, Jean-Michel Etienne; and our Secretary General, Anne-Gabrielle Heilbronner. Steve King, COO of Publicis Groupe is joining us from London.As usual, the Directoire will answer all of your questions together after the presentation. Alessandra Girolami is also in Paris and will be available to take all of your questions off-line after this session, which will end at 10:30 Paris Time.Please take the time to read the disclaimer, which is an important legal matter. Now let's dive into the presentation. If I may, I want to start by giving some context to the current global situation. While the virus and its economic and social effects continue to spread, market conditions have improved as anticipated. According to forecasters, global ad spend in Q3 is broadly at minus 10% after a Q2 at minus 23%. When it comes to clients, they have continued to shift their spend to meet the changing consumer behaviors that have emerged in the last 6 months. We have seen them expand further into digital channels and increase their brand investments in e-commerce and direct-to-consumer. Those trends will continue in the post-COVID era. Looking at the rest of the year, I can tell you after meeting many clients that their fighting spirit is stronger despite the uncertainty ahead. They are ready for life with COVID. This means reinventing their business model when their industry has tumbled, accelerating their strategy to come back to growth in sectors that have been less impacted and maintaining market share in categories that have been able to expand during this crisis. In this context, and thanks to our unique model, Publicis has been less affected than the market. We have been able to capture part of the shift of our client investment. This has gone some way to mitigating the revenue decline we have seen due to the crisis. In Q3, our organic growth is at minus 5.6%. After a good start of the year and a resilient Q2, our 9 months organic growth is at minus 7.2%. These results demonstrates that we have the right assets and strong financial backbone to weather this crisis. And most importantly, we have our people to continue to manage the situation extremely well, both personally and professionally while most of them are still working from home. I want to thank them deeply for their dedication. There are 4 highlights of our Q3 numbers. First, the U.S. We delivered significant sequential improvements in Q3 with a minus 2.4% organic growth in a market that now represents 60% of our business. Taking into account our resilient performance in the first 6 months, we posted minus 3% growth on a year-to-date basis. After outperforming the industry in Q2, Q3 growth in the U.S. was again ahead of our industry estimates at minus 7% for advertising expenditure. That performance was supported by the solid revenue streams we built in the last quarters, thanks to both new business but also cross-fertilization. We have experienced double-digit growth on some strategic areas, including our ad solution, our production activity and our programmatic digital media arm. After some consulting projects were put on hold in Q2, Publicis Sapient U.S. showed a resilient performance and posted organic growth in line with our U.S. operations. Looking ahead, the pipeline is encouraging for the coming quarters. Finally, Epsilon played a vital role in this performance, as a key differentiator for our overall offering. It was included in our organic growth for the first time in Q3. With a strong improvement in Q3 versus Q2, it positively contributed to our U.S. organic growth by being flat. Second highlight, Europe posted significant sequential improvement in Q3 versus Q2. As advertiser resumes spending after lockdown in their region, organic growth was at minus 9% in Q3 compared to minus 23.5% in Q2. We saw these trends almost in every country. The U.K. was down at minus 10.6% organically, halving its rate of decline, thanks to improved performance in Media and Creative. A similar pattern was visible in France, with organic growth at minus 13.8%. Our Outdoor Media operation reopened. However, their activity remain impacted by slow resumption of the public transport use. These activities had a negative impact of 400 basis points on France organic growth in Q3. Germany posted negative organic growth at minus 8.6%. Italy and Spain were positive this quarter with organic growth at plus 7.8% and plus 8.6%, respectively, with new business momentum. Let's turn to our third highlight. In Asia, organic growth was at minus 9.2%, with several countries still impacted by the crisis. Greater China's organic growth remained negative, mainly reflecting its exposure to some industries, still impacted by the crisis. Finally, we continue to demonstrate the competitive nature of our model with significant wins, like Kraft-Heinz, Reckitt Benckiser, TikTok Global Media, Global Production at GSK and BT, creative and production accounts, among the others. So as you can see, we do have strong foundations to weather this crisis, thanks to our uniquely integrated model. This is why we are posting organic growth that is above-average industry estimates. That resilience was also visible financially, as demonstrated by our decision to fully refund our FCF in September, backed by our solid balance sheet. I will now hand over to Jean-Michel who will take you through the detail of our organic numbers and other specific financial indicators.
Thank you, Arthur. So good morning, everybody, and I hope that you and your families are still well and safe in this very specific context. I will now detail our third quarter and first 9 months 2020 regarding net revenue and net debt. I will then give the floor back to Arthur, who will go through our priorities and the outlook for the remaining part of the year. Let's start with net revenue on Page 8. In Q3 2020, net revenue is EUR 2.343 billion, down 9.1% versus last year as reported. Currencies have a 3.7% negative impact with U.S. dollar explaining half of the impact. Acquisitions has no impact at 0% given that Epsilon is now included in our organic performance for the first time this quarter. All in all, organic growth is at minus 5.6% in Q3. For the first 9 months of 2020, net revenue is EUR 7.170 billion, up 2.7% versus last year as reported. Currencies have a 0.9% negative impact. Acquisitions have a positive impact of 10.7% due to the consolidation of Epsilon, and therefore, the organic growth for the first 9 months of 2020 is at minus 7.2%. On Page 9, I will be quick as I will detail the performance by geography in the following slides. Organic growth in Europe is at minus 9%, significantly improving versus Q2 or minus 8%, excluding the impact of the -- our French outdoor activity and the drugstore. North America is delivering an organic growth of minus 3%, a significant improvement versus Q2 and a solid performance in the current context. In Asia Pacific, organic growth is minus 9.2%, impacted by a high comparable basis when compared to Q3 2019. Latin America is at minus 14.8%. Middle East and Africa is at minus 11%. Overall, Q3 organic growth for the group is at minus 5.6%. On Page 10, I will detail the performance of our main countries in Europe. First, in the U.K., which is our biggest country in Europe with 8% of our net revenue. Organic growth is at minus 10.6%. Our Creative and Media activity is broadly in line with the growth of the country with Media slightly ahead and Creative not very far from the average. Publicis Sapient is declining by mid-teens due to the phasing of the project-based activity. Regarding Epsilon 2.0, it is growing fast, although on a small base, as they start their international expansion from the U.K. Our U.K. health business now is also delivering strong growth in the quarter. In France, which represents 6% of our net revenue, organic growth is minus 13.8% in Q3 or minus 9.8%, excluding the impact of our Outdoor, Media activity and Drugstore. Media is slightly positive. Regarding our Creative business, which represents more than half of our activity in the country, it's tough to recover from Q2 but remains negative. The performance in France is also impacted by the phasing of some projects at Publicis Sapient France. Finally, Germany, 3% of the group net revenue is posting an organic growth of minus 8.6%, supported by the positive contribution of our Creative activities, and this is thanks to the new business wins. Media is in line with the growth of the country and Publicis Sapient, which represents less than 15% of the country, is down significantly during the quarter. On Page 11, I will only comment the performance of the U.S., which is our biggest country, accounting for 60% of the group, as Arthur said, of our group net revenue. We delivered, in the U.S., a solid performance with an organic growth of minus 2.4% in Q3, demonstrating the strength of our model. Our creative activities, which represents roughly 25% of the country, slightly deteriorated in Q3 versus Q2, partly due to the phasing of some clients' incentives and it was expected. Our Media activities, accounting for nearly 30% of the country, are broadly in line with the average growth of the U.S. Please note also that we delivered a strong growth in digital media investments. Epsilon 2.0, which is the core of Epsilon and accounts for 20% of the U.S., is flat in Q3 and recovering versus Q2, notably thanks to the improvement of the automotive practice and Conversant. Publicis Sapient, around 15% of the country, is broadly in line with the growth of the U.S., which is, of course, very encouraging. Last but not least, Publicis Health, U.S. further accelerates its growth in Q3, posting a double-digit growth rate. On Page 12, we detail 3 regions that account together for 15% of the group net revenue. First, regarding Asia Pacific. The region is impacted by a high comparable basis versus Q3 2019, especially in China. Growth is slightly positive for our Media activities, supported by China and India. In the meantime, the performance of our Creative activities is more constructed mostly in Southeast Asia. Publicis Sapient records a strong growth in the region, mostly in India and Australia. Regarding Latin America, the decline in organic growth is mostly due to Brazil, which is, as you know, still heavily impacted by COVID. Middle East and Africa are down by 11%, significantly improving sequentially versus Q2 with a balanced performance depending on countries. On Page 13, regarding the first 9 months net revenue by geography, I will be quick, Europe is at minus 14.1%. Growth would have been minus 11.4%, excluding our French Outdoor Media activities in the Drugstore. North America is at minus 3.4%. Asia Pacific is at minus 5.9%. Latin America is at minus 15.4%, Middle East and Africa are at minus 11.5%. And overall, Publicis Groupe organic growth for the first 9 months is at minus 7.2%. On Page 14, as usual, I will give you some color on our organic growth performance in some countries. I will mention only a few of them. In positive territory, we have Italy at plus 7.8%, Spain at plus 8.6% and New Zealand at plus 15%. Between 0% and minus 10%, Australia is at minus 1.3% and the Netherlands are at minus 5.3%. Between 10% and minus 20%, Brazil is at minus 17.2% and Canada is at minus 13.8%. In the current context, some countries continue to be highly impacted by the pandemic. This is still the case of Mexico and South Africa which are at around minus 26%. Now moving to net financial debt on Page 15. Average net debt at end of September is EUR 3.584 billion, up by nearly EUR 2 billion year-on-year. This is only due to the full impact of Epsilon acquisition on the calculation of the average net debt during the first 9 months versus only 3 months at the end of September 2019. Net debt position at the end of September 2020 is at EUR 3.181 billion, a significant reduction versus last year, thanks to a strong focus on deleveraging and a day-to-day cash management in the context of the crisis. And to finish my presentation on Page 16. As you can see, our liquidity position has been relatively stable since end of June, and you'll notice also that we fully refunded the remaining part of the -- our EUR 2 billion revolving credit facility that we preventively draw down in Q1 to face any potential liquidity impact relating to the pandemic. We first decided to refund half of the line in June and then we decided to fully refund the second half in September as we were reassured by our treasury forecast. I will now hand back to Arthur, who will give you an update on our strategic outlook, and I remain available for questions during the Q&A session.
[Foreign Language] Jean-Michel. As you can see, our performance has been ahead of the industry at this stage, both for organic growth and our financials. This is thanks to the work we have done to build and roll out our offer: By putting data and technologies at the core of our Creative and Media operation; we have what our client needs to unlock growth while reducing costs in this life with COVID and beyond; data platform to build, enrich and connect our clients' data assets with our first-party data, this is the only way to be truly customer-first in a cookieless world; personalized content that can deliver groundbreaking creativities; adapted to real-time customer experiences; a leadership position in the U.S.; to activate this personalized content at scale and optimize reach whatever the channel; last but not least, technologies, to create direct channels with customers in a marketplace where our clients are constantly challenged by direct-to-consumer brands. The integration of Publicis Sapient and Epsilon with our Creative and Media operation, through the power of one model, give us a unique competitive advantage. This is visible in our new business track record over the last 18 months and once again in Q3, but also with the performance of our top 200 clients. As you can see, despite automotive and financial services that have been negatively impacted, we are actually posting positive growth of 0.8% for our top 200 clients. Health care is an important driver. But it is also interesting to note that FMCG is at plus 5.5%. Not only we have built the right offer over the last years but we have also brought 3 structural competitive advantages to our organizations that make us confident we will continue to outperform the industry financials in the long term. Our global delivery centers, our country model and Marcel will enable us to deliver our cost reduction plan of EUR 500 million this year while preserving our talents, rewarding our teams and investing in the future. Our performance so far this year demonstrated that we continued to weather the crisis pretty well as we are posting organic growth above industry-average estimates for the second quarter in a row, thanks to our resilient model. When it comes to our short-term outlook, we believe that this relatively solid business trends will continue until the end. However, with the acceleration of the pandemic and the restrictions imposed we have to be cautious about Q4 which might be impacted further and come below Q3. In this context, our cost management make us confident in delivering our cost reduction plan this year and an operating margin rate slightly ahead of average analyst consensus at 14.3%. To conclude, these are unprecedented times for everyone and this is unlikely to change soon. We don't underestimate the challenges in front of us all, but we are convinced that we are well equipped to face them. We are a proven model that is driving value and demonstrating its abilities to weather the crisis. We are delivering what our clients need by seamlessly connecting data, creative, media and technologies. And we have our unique structure where we are well placed to continue to do better that are -- that the industry financials. Now if I may, I would like to once again thank our people for their hard work and dedication in those tough times but also our clients for their trust and their partnership. Thank you for listening and we'll now take all of your questions.
[Operator Instructions] We will now take our first question from Adrien de Saint Hilaire.
Yes. I hope you can all hear me well and I hope you're all fine. So I've got a few questions, please, if that's okay. First of all, Arthur, to come back on your comment, you said that Publicis is capturing the shift towards digital and e-commerce, yet you mentioned that Sapient is down about 2% organically. So can you help me understand reconcile those 2 statements? Secondly, I can see that China and Asia Pacific have slowed down between Q3 and Q2. Can you be a bit more specific around what happened there? It seems to be a bit peculiar given the improving GDP trends? And then maybe a last question for Steve. Can you discuss your expectations for the Q4 advertising markets? You said Q2 was down 23%, Q3 down 10%. What is your view for Q4? And what does that imply, therefore, for Publicis Groupe in Q4?
Thank you, Adrien. I guess we have already taken a lot in Paris, so we're going to start with London and Steve, I guess, with question #3, and then I'll move to 1 and 2.
Okay. Adrien, yes, as you say, the situation is changing literally every day. When we spoke to you last time, we saw that the -- we were predicting that Q2 was going to be down 23% and we were predicting that Q3 would be approximately half of that rate of decline. Over the intervening quarter, we've actually seen the rate of decline that we've actually experienced, we haven't finalized the numbers, but we think that's slightly lesser level of decline. So somewhere less than 12%, and maybe around 10% decline for the quarter. You're asking about Q4, and it's, as Arthur says, as you know, the situation is really uncertain. It's impossible to predict what's happening around COVID, literally just in the last few hours. You look at the announcement that's happened by President Macron in France, the situation in the U.K. We have regional spikes throughout the world and I guess most of you on this call are from Europe. So you can see regional spikes and you see lockdowns in many parts of north of U.K. and Benelux. And we have markets that are in shutdown, like Czech and Slovak and Moldova, et cetera. So the situation is really unpredictable, which is why when we've seen this improving sequential numbers in our performance, it's really difficult to predict what will happen in Q4. And we're very much in the hands of what's happening with COVID during the remaining quarter. The trend that we see at the moment was definitely looking to further improvement in Q3 in the overall advertising market with very different trends by market. And that would have -- that, we hope, is continued in Q4. But as I said, just to reiterate my comments, it's a huge amount of unpredictability, as I'm sure all of you can understand. You saw the impact and the suddenness of the decline that happened in Q2 and Q3 as the pandemic swept across the world. So we are predicting -- at the moment, better numbers, but it's very difficult to be objective due to the uncertainty.
If I may add just 1 point on that is that we have definitely solid, again, in this context, positive trends within Publicis until year-end. But as Steve said, we have to be extremely cautious, honestly, only because of the spread of the virus for Q4. I think the only thing I will add that I made in my comment at the beginning, which is very important for us, I've been able and Steve can confirm that, to meet many of our key clients and sometimes face-to-face, by the way, it kind of they like it in the last 2 months, with all the social distance, by the way. And as I said, it's good to see the fighting spirit wherever they sit in terms of business journey. And this is pretty encouraging, and it gives me the opportunity to switch to your question 1 because at the end of the day, the question is not would they spend less in the future, it is how are they going to spend their investments? And the demonstration we are making today is that, of course, we see some fee cuts on many clients and in many industries. But the fact that our clients are shifting now to more digital media, to commerce, to direct-to-consumer where we have a strong offer with Epsilon, and you have seen the performance and Sapient is helping us in a meaningful way to mitigate that. By the way, we should not forget something that is important is that there is -- the way we are able to grow organically, Sapient and Epsilon, but there is also the halo effect they are having on our clients to see us as a partner in their transformation, which is pretty important. And to be more specific about Sapient, I will make just a few points. First, it is important to remind that Sapient in the U.S. in Q1 was actually positive. So we were off to a good year. You need to know that it's, of course, a business that is run by projects and that many of their projects have been stopped or some of the projects have been stopped, but some very important in clients that have been particularly affected by the crisis. And not only we see a recovery when you see that they are roughly in the U.S. at the same level of the rest of our business in the U.S. that is pretty resilient, but we see a good momentum in the coming quarters. So again, I want to be very cautious because if, for example, financial services that could have started to invest again stopped for all the reasons, it's independent of our business trends. But we feel confident about what we are building with Sapient. And definitely, the move we have done onto industry practice under the leadership of Nigel Vaz and be able to connect that with our clients is making a big difference. If we had more time, I would tell you also, but that's a bit technical, but I'm sure we'll have a question on data later why it is so important in a company like Publicis to have a good balance between paid media, that you know very well, but also own channels, everything that has to do with commerce, with mobile app because the balance between both is going to be important, and this is what, of course, Sapient is bringing. On China, I'm not going to come back on the number because Jean-Michel gave you most of the expectation. It's comparable. We are very high. Yes, the performance has slightly deteriorated this quarter, but it is -- the truth is that it is mainly reflecting the country's higher exposure to some industries that continue to be impacted by the crisis, like automotive. So when you go into this exercise that we did for the top 200 clients, you see that we have -- to give you an idea, we are not heavy weight on luxury. We are evaluating on automotive. Now I feel -- I shouldn't say that, but I feel pretty confident for the quarter to come, just when I look at our new business pipeline. We won very recently McDonald, Nestlé for all the production. TikTok, which is an important win there because it shows how much advanced we are on a data-driven approach also in China. FCA, many new business make us feel that our offer is at the right place. And by the way, as you know, in terms of relative value, China is not that big for us and -- but it's a very important market for many of our clients. So the most important thing there for us is to have a competitive offer and we are definitely making the demonstration with new business.
We will now take our next question from Lisa Yang from Goldman Sachs.
The first one is on your client mix. You talked about the top 200 clients accounting for 60% of revenue and being flat to slightly up in the first 9 months, which I think implies the rest is probably down in the high teens. So I'm just wondering if you could give us a bit more color in terms of what's happening with the long tail and whether you expect that to potentially improve in Q4? So that's the first question. The second one is on the outlook. And I appreciate there's still a lot of uncertainty out there and you mentioned all the potential new restrictions being announced. But your comments so far on the U.S. sound pretty good to me at least. So I'm just wondering which markets do you see as potentially most at risk of a arbitration in Q4? Because you said Q4 could be slightly worse than Q3. So I'm just wondering what are the markets where you see a bit more risk at this point in time based on your sort of conversations with clients. And the third question is on Sapient. Just a follow-up to the previous question. I'm just wondering how much of the Q3 recovery was led by the catch-up effect there given all the projects were pulled in Q2 or do you expect more catch up to come in Q4? And also given clients are looking to accelerate their digital transformation, are you seeing a lot more pitches -- digital transformation pitches where Sapient is taking part at the moment? And maybe you can help sort of quantify that as well?
Thank you very much. Well, that's a lot. Maybe I'll start with Sapient because I couldn't note everything and I want to make sure that I answer that properly. So what we see in Q3 with Sapient is what we experienced in many of our places is that our client had more activities in Q3 that they had in Q2. I don't think it is a catch-up. It's just, again, some projects coming back. And we are hoping that this dynamic will continue. Again, I have to be extremely cautious, even more when I look at our President yesterday night. So I don't want to tell you that there is a good pipe. Is this pipe will materially transform? It's too early to say. But we are more in a slow recovery that can either accelerate or decelerate. But when again, I talk about the recovery, it's not our business trend. Again, remember that Sapient was positive in Q1 and we were off to a good year. But to win our clients' top project, the probability that they put it back on the table is massive because they will need to transform but there is definitely a lag time. The second thing that is important is what you say, and by the way, this is how we're trying to work now moreover is that the truth is that you don't really pitch a transformation. You have to do work with your client, and this will lead me to the top 200 clients in a second is you have to be on their side, will be because you have a Media relations, a Creative relation or even with Epsilon and actually, the synergy between Epsilon and Sapient are very, very interesting in terms of offer. And instead of pitching, you go as a consultant and you start by evaluating the potential. You then produce a road map and then you execute. And so we are not pitching that much. And by the way, when it happens, again, some of our competitors like Accenture, we're having a pretty good transformation rate, if not very good. But the truth is most of the projects are long-term projects with clients that we're partnering in their transformation. And this leads me to point #2, which is your question about the top 200 clients. This is a very important indicator for us because it is definitely on the top 200 clients that we are putting our model first. This is with their client where we have scale, where normally, we know them very well, starting with the CMO and sometimes the CEO, that we can gain their trust to do more than a normal ordinary companies and bring our integrated model in a business fashion way, which is really helping them to drive their journey of accelerating in growth while reducing costs. And so again, our top 200 clients are actually working better than the rest. First of all, for this reason, which is it is where our model has been mainly deployed to our largest clients. The second thing that is important and we have to be fair here is that the regional mix provision is of course very in favor of the U.S.-based clients with, as you have seen in our results, are having a better organic growth and as well the more resilient organic growth than the rest of the world. Then it's important to note also and this is why we wanted to show you for the first time by category is that we have a higher exposure in our top 200 clients to resilient industries, like health care and like FMCGs. Industries that have been hit harder by the crisis, like leisure, are less represented into the top 200. But the truth is and it's a reality, I guess, for everyone and you see it, by the way, between the big agencies and the small, and I'm not talking about Publicis, I'm talking about the market here, is that generally, smaller clients have been suffering more in this crisis than the larger. I think I touched on all your questions. Am I right? You had a question also about the outlook. That I see here. So it's a long answer, but hopefully, I'm touching many of the points or many of the questions that you could have.I don't want to comment into 1 country, particular to the other for a very simple reason is the main and almost only variable in Q4 knowing that we have very -- not very strong, strong business trend in the context. The main factor is the pandemic and is the one that will make the difference. So telling you how the pandemic will evolve, it's impossible at the moment, although what we have experienced in the last 2 or 3 days has actually accelerated our cautiousness. And by the way, it's important to note that in this context, Q4 is traditionally an adjustment period for advertiser. And so they will make the right arbitrage depending how things go in the coming weeks. And by the way, they will make arbitrage in things where we can suffer particularly and that are very present in this period like events, for example. So for all of these reasons, and I'm not going to go into the Presidential election in the U.S. or any other event like that, there are many reasons why we want to be cautious. And you can count on us as we did for the last 3 quarters to do everything we can to continue to help our client transform to mitigate the impact of the revenue cuts. And on the other side, as Jean-Michel said, manage our cost and our cash on a daily basis to make sure that we deliver on the objective we set.
That was really helpful. I'm just wondering if I could have a quick follow-up. You said the model has been mainly deployed amongst the top clients, which sort of clearly makes sense, and that's where you had most attrition in the past. But I mean if you look at the long-term trends, it looks like the smaller clients have been outperforming the top clients. I mean if you just look at the even performance of Google and Facebook in general. So like how long do you think it's going to take you to also roll out that model to maybe the long tail? And how far are you in that sort of migration process?
So yes, you're actually touching a very, very interesting topic, which is -- first of all, we don't have the same metrics as a Facebook on what we call small clients. For them, small clients are SMEs, roughly, which are clients that we don't work that much with. It's small clients that are putting most of all, all of their investments with a platform like Facebook and Google in order to deliver personalization at scale. So we don't have the same indicators for that, and this is very important. Once I've said that, what is true is that there is still potential for those SME clients. This is roughly, if you take the U.S., clients that have revenue that are below EUR 1 billion. And as you might have seen, we launched an offer in the middle of the crisis, called the Pact that was focusing on what Facebook and Google call smaller clients, where we have been able, thanks to the accuracy of our data due to the lockdown, to guarantee outcome. It is only starting but we see a potential for growth in an area that is honestly pretty new to us, not to Epsilon and not to Conversant in particular, but where there will be potential. So if I get to resegment taking your question, there is -- our top 200 clients that are significant in terms of size. They are what we call the smaller clients that are very big clients for Facebook and Google because they have a CMO, they have an organization, they have a multimedia plan. And by the way, they are building a system to transform, and there are other smaller SMEs where we might have opportunities in the future if we continue to build our offer as we are.
We will now take our next question from Tom Singlehurst from Citi.
A couple of very quick ones, both on exposure by sort of client type. First one, FMCG, you mentioned it's sort of broadly stable. There's been some commentary from individual clients that they are looking at expanding budget going forward. I suppose the question is, is this a sort of permanent change of direction, do you think, within FMCG? Are we past the hump whereby FMCG is now a tailwind rather than a headwind? That was the first question. And the second one, very briefly, feels like Epsilon is very reliant on autos. So it makes that performance in the third quarter, especially impressive. I'm just wondering whether that was because of autos or despite autos? And then the link to that, how you sort of diversify the sort of exposure at Epsilon going forward?
[Foreign Language] Tom. Thank you for that. I'm making sure that I don't forget anything. So I'm noting everything. So for me, it's always difficult as an account guy, it's very difficult to talk about FMCG because it is a mixed bag, honestly. You have clients that are doing great and particularly well in this period and you have others that are still struggling. I will say the difference between the ones that are succeeding and the ones that are having difficulties at this stage is how they have entered the crisis, although it's true for almost every industry. But if they entered with a strong strategy with good product with an innovation investment and investing in their brand overall, you can see that some of them are doing brilliantly. And by the way, I come back to the segmentation I was making earlier, I think it is the first time in my life as running an agency since 20 years that I'm having meeting with clients that have been performing so well in the last quarter, that now their obsession is, okay, we are an FMCG company, we have seen the kind of growth that we haven't seen in decade, how we're going to be able to maintain this growth in the future. And that's particularly interesting for us because it comes back to first-party data. It come backs to their ability to treat those new clients at an individual level and activate new product and offer to keep the kind of sales they're having. So it is a mixed bag. In this mixed bag, I would say that the reason why we are doing well is mainly because we had a new business trend that is definitely supporting this kind of number. So to make a long story short, we have some FMCG clients that are doing very well, and we are growing with them. We still have that are in difficulties, and we are bearing the pain with them and we are here to help. But overall, our new business momentum has helped us in this category. Your question on Epsilon is absolutely keys and it gives me the opportunity to tell you if you're saying while I'm answering your question. First, it's very important to note that Q3 has improved significantly versus Q2 for Epsilon. And bear with me a second because you're going to understand how its split and how we can explain those numbers. The auto but also the retail practice, which are mainly nonfood retailer, by the way, represent 40% of their revenue. And it has been declining year-to-date, double-digit for the reason you know. If you are a nonfood retailer, mainly a small one, of course, and auto, I'm not going to come back on that, so 40% of their business on auto and retail practice has been declining double digits. But, of course, what is very encouraging there is that the other 60% of the revenue at the opposite has been largely positive. So it makes a demonstration that, of course, we are not immune to industry impact, for sure. And car manufacturer of course they are using that. It's, by definition, creating a problem that we have to manage in terms of finance. But at the end of the day, I think it's very interesting to say it like this and it explains the contribution of Epsilon to the group growth. As you know, it was flat in the U.S., and it's making a difference in our overall results in the U.S. I would answer just on one thing there, and then I promise we pass to the next question, but it's something that honestly strikes me and make me confident for the future is that one thing is to track Epsilon organic growth and, of course, we are, and we want this business to deliver growth. But what impressed me the most at the moment is the halo effect it's having on our other business, and by the way, a very good reason why we have won what we have won in new business again. At the moment, where we are going into a fair cookieless world, our abilities to come with data that are real identities, real people with their name, with their address, with their e-mail, with their mobile number that we can follow through 7,000 attributes looking at more than half of what they buy with a credit card, this is a massive asset for the client that want to start to build direct relationships with our clients. And this halo effect goes beyond the results we can have with Epsilon.
We will now take our next question from Conor O'Shea from Kepler Cheuvreux.
Yes, sir. Three, hopefully, quick questions for me as well. Firstly, Arthur, on Sapient. Just wanting to understand why the phasing of projects is so different in Q3 for the U.S. business relatively positive versus some of the European countries that you called out where we're down double digit? Second question, in terms of the top 200 clients, you mentioned finance and autos down, I think, significantly. That's, I think, 1/3 of your client revenues group-wide. Can you give us a sense of how much that was down is for the top 200 clients for those 2 sectors? And then the last question, maybe for Arthur or Jean-Michel on margins, you called out that you're trading ahead of forecast for the full year margins. Is that -- could that send a sign to your staff that they could increase their expectations for incentives at the end of the year? Is that a potential risk? And linked to that, can you give us a sense of how much the permanent headcount has reduced since January?
I'll go first on Sapient. It is a phasing issue in terms that what you need to get there. And, I guess, you have experienced it around you is that end of March, every project that could have been stopped have been stopped brutally for obvious reasons. And then the question is how fast the confidence of our client is coming back to start building your pipeline and investing again in business transformation. And it's true that the U.S. went faster than the rest of the world, as simple as that. They have been more bullish into that and they are definitely there. I have to admit that I didn't get exactly your question on the top 200. Could you just -- what's your information?
Yes, just for the finance and the auto sector, I think you said that you grew at 0.8% overall despite a decline for those 2 sectors. Can you give us a sense how much those 2 are down?
Yes. So finance, year-to-date is down at minus 8.2%. And it's important to understand that here there is a mix that is mainly Sapient, by the way, because we are talking about big transformation projects that have been stopped for the moment. At the opposite on auto at minus 9%, it is through the Board because, of course, for several weeks, they have start to advertise because they didn't have anything to sell in their dealership. That's roughly. Jean-Michel?
Regarding the margins, you -- we have this cost reduction program that -- which has been launched Conor, as you know, that we will deliver the EUR 500 million. You will probably notice that already at the end of H1 we delivered almost EUR 300 million. So we are confident that we will realize that, but it will be a lot depending on the level of revenue with the uncertainty of Q4, see you understand that. So what is good is that in that difficult context we have demonstrated the variability of our cost base. This is very important. And of course, with -- the good thing is that if growth is back, we hope to be able to convert with this OpEx base having been reduced, we hope that we'll be able to convert the new revenues at a very good rate to deliver a good margin, of course. In terms of staffing, we have not communicated on that, but we have, of course, adapted the level of staffing to the level of revenue. We are rather lower than the level of deterioration of the growth rate but not very far to be clear. And regarding the incentive, of course, this year with the type of work that people have done, staying at home in very difficult context, in very difficult context. This is not the year where we will reduce the bonuses and so on. So incentive will be at the right levels this year to reward the work which has been done by our people.
Now I think that just to follow-up on that and it's true that the effort that has been done by our team in this period is absolutely outstanding and we should not undermine the difficulties that are creating the fact of working from home. There is good things about that. You can go through more transactional relationship. But at the end of the day, it is something that is difficult to manage, challenging, and we are trying to find the right balance now.
We will now take our next question from Matthew Walker from Crédit Suisse.
I've just got a couple of financial questions. So the first one is, just in terms of the shape of the different years. So if you think about it, as you improve your growth this year or the rate of decline is less this year, that creates a slightly harder comparison for next year. So do you think that growth that might be expected next year might come in a bit lower because the comparison is tougher? And then around Q1 for next year to that theme, do you expect a positive Q1 because they had a pretty tough comparison from last year? Or do you expect a negative Q1 to continue this trend? And then the other question is on the costs. How much of the EUR 500 million comes back into the cost base for next year? And do you think -- so what about the sort of wage and -- normal sort of wage inflation? Should we be thinking EUR 200 million and EUR 500 million come back in next year plus the wage inflation? Or will the wage inflation be included in the EUR 200 million? That's the sort of question I'm trying to ask.
Thank you. I'm going to take the first one pretty fast, which is honestly when it comes to 2021, it is far too early to give any kind of guidance at this stage when you take into account the current uncertainty, only linked to the virus, to be clear. As you know, we had a very good start of the year. We were feeling confident. Hopefully, today, we are making the demonstration that we have a very strong foundation, thanks to our model to weather the crisis. But it's far too early given the current uncertainties that all lead again to the virus to give you more color or more flavor at the moment. Jean-Michel, on the EUR 500 million?
Yes. The first point to answer, Matthew, in this question is we are not planning for wage inflation and so on. The way we manage the personnel cost, we manage that relatively to the level of revenue. Everything that we do in that respect is relative to the level of revenue. And this is very important to understand that this means that we want to protect a key ratio for the group, which is a fixed personnel cost plus freelance. This is in the key chain a little bit that I'm bringing you a little bit with that. But it is very important to understand that. So no projection of wage inflation as people have to budget for next year, understanding this fixed personnel costs and freelance ratio relatively to the level of net revenue. This is the first point. The second point, of course, in the EUR 500 million of cost reduction, a big part is on the personnel cost, but it is due to the downsizing in respect of the level of revenue. This means that if the revenue are back, okay, as this reduction that you will see in 2020 will partly disappear. We will keep only a part of this personnel cost saving coming from structural measures that we have implemented in 2022 and this will benefit to the future, for sure. But in the EUR 500 million, the big part, more than half is on the G&A part of the operating -- G&A part of our P&L, which a part will be kept because we don't do travel, for instance. We don't think that people will go back to travel next year as it was in the past for sure. So a significant part will be still saved in 2020, but also we have also another element, which are the effect of the real estate consolidation that we have still a new wave in 2021 that, of course, we are managing properly to crystallize that in our P&L for next year.
I promised that we will be done at 10:30. It is 10:30. So maybe we want to take a last question if there is one more because we want to make sure that we leave you on time. And of course, Alessandra will be there to take every question off-line. Is there one more or are we done?
Thank you. We will now take our next question from Julien Roch from Barclays.
Yes. The first question is on net debt. You gave the numbers at the first half and the 9 months. So net debt went down by EUR 40 million in Q3. We don't really know what the free cash was last year because net debt went up a lot through Epsilon acquisition. So anything you can tell us on free cash in Q3, but also your expectation for Q4 and the full year? That's my first question. Then the second question is, thank you very much for the new revenue disclosure with indication on growth of Creative and Media and the rest, that's fantastic. But could we have the same split than for the U.S. for the group. So in the U.S., you're 25% Creative, 30% Media, 20% Epsilon, and 15% Sapient, 10% Health. Can we have that for the group?
I guess the 2 questions are for Jean-Michel.
Okay. I will answer with the second one because this is fresh in my memory. Okay. We are not managing that way anymore. It is very important to stick to the country model. Country model, which is extremely important for us, everything is coming from that now in terms of managing the operation. And there is no more media solution, no more Publicis communication at a worldwide level. This is based on country and which is allowing us to do few changes and few transfers, few simplification within the countries which implies that it will be not very significant to give you Creative worldwide or Media worldwide or Sapient worldwide anymore. This is for the second question. Now on the net debt, you have to -- I saw your comment that you write this morning for sure, Julien, I'm following what you are seeing. There is something that you have to take into consideration that the comparison with Q2 -- Q3, sorry, 2019, which is extremely important. Also, so we have reduced significantly the level of debt versus end of September 2019. We have also to consider the following elements for this year. So we have a lower dividend paid in cash in Q3, there that you know, for all the reasons that you know that -- and you have a second element, also no M&A in Q3. And we have a third element also, which gives you what some explanation really in the net debt at the end of September. It is an FX impact on our net debt, which is mainly in dollars, as you know. Of course, we will continue to monitor our cash situation on a day-to-day basis. And we expect our net debt at the end of 2020 to be slightly below end of 2019.
Thank you, Jean-Michel. Look, I want to thank you again for listening this morning and asking the question. I'm sorry, we are a bit longer than expected. As I said, of course, Alessandra and boys are here to take all of your questions off-line. I mean, hopefully, what to took out of this call is that we have the offer that our client need and the structure to perform financially to make sure that we can weather this crisis. This is the main message we had for you. We will be, again very happy to give more color off-line. And I'm just going to hope that everyone is fine that you can take good care of you and your family in this period. And see you very soon. Thank you very much.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.