Publicis Groupe SA
PAR:PUB
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Publicis Groupe SA
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Ladies and gentlemen, good day, and welcome to the full year 2018 results presentation for Publicis Groupe. For your information, this conference is being recorded. At this time, I'd like to turn the call over to Mr. Arthur Sadoun, Chairman and CEO of Publicis Groupe.
[Foreign Language] and welcome to Publicis Groupe's full year 2018 earnings call. I am Arthur Sadoun, and I am in Paris with our CFO, Jean-Michel Etienne. The 2 other member of the directoire are also in the room, our Secretary General, Anne-Gabrielle Heilbronner; and Steve King, CEO of Publicis Media. As usual, we will take your questions together after the presentation. Jean-Michel Bonamy is also here and will be ready to take your questions off-line after this session. In 2018, we set ourselves 2 very ambitious goals: develop winning model and reaffirm our strong financial foundation at a time where our industry is being challenged. It was not always easy, but we clearly delivered on those 2 objectives. We made the demonstration that we have the right model for our clients and for ourselves by winning a disproportionate share of the bigger pitches and ranking #1 in new business on every front. Our new business performance speaks volume about our attractiveness and our future. What is more, we transformed our organization to be more efficient and deliver the highest EPS ever, giving us the mean to invest in our future. This fiscal year, commercially and financially, would have been a complete success for us if we did not experience the higher-than-expected attrition coming from traditional advertising on some FMCG clients, mainly in the U.S., which had an impact on our organic growth and particularly in Q4. I will comment this in full detail later on. Despite Q4 weakness, we are actually extremely confident for the future. We have the model, the structure and the teams to continue to win, grow our clients and accelerate on organic growth. During this call, I will further go through the full year highlights, demonstrating how we plan to increase shareholder value, thanks to our model. Then Jean-Michel will take you through the detail of our financial where we are making progress on every financial indicator and over delivering on the main one. Finally, I will share with you the 4 key actions we are taking to overcome attrition and accelerate on profitable organic growth. We will then, of course, take your questions. Now if I may, let's dive into the presentation. I will take a second for you to look at the disclaimer on Page 2 as it is an important legal matter. Okay, let's begin with the 4 key highlights of 2018: new business, financial performance, organic growth and transformation. Despite anticipated modest organic growth due to client attrition, our model allowed us to outperform the market in new business and deliver record year financially. First, the shift we are operating from being a communication partner through a marketing and business transformation partner is making a massive difference commercially. We have proven that our model works beautifully and fits the current, and more importantly, the future needs of our client. Thanks to our ability to connect data, dynamic creativity and technology, we won the majority of the biggest pitch in 2018 such as Daimler, Campbell's, Marriott, Carrefour, Cathay Pacific, Smucker's, GSK and Fiat Chrysler, and actually, many local and regional accounts. These last 2 wins, GSK and Fiat Chrysler, each represent more than EUR 1 billion in billings per year. We have actually outperformed the market in new business on every front. At group level, we ranked first globally, as highlighted in several reports, including JPMorgan and Goldman Sachs. Publicis Media is definitely leading the patch in the media industry as stated in the RECMA ranking. Finally, on the creative field, our 2 biggest networks, Publicis Worldwide and Leo Burnett, ranked first and second, respectively, in R3's new business report. I don't need to insist on the fact that today's new business is tomorrow's growth. Second, we committed to deliver financially, while transforming. 2018 was definitely a record year when it comes to our financial results. We improved our margin rate by 60 basis points, above our objective of 30 to 50 basis points increase. Operating margin rate was actually at 16.7%. I would like to make 2 important comments on this margin. First, we did not deliver this performance at the expense of tomorrow's growth. We achieved around EUR 200 million of savings, thanks to all our work on structure simplification and the rightsizing of some operation. Out of this amount, about EUR 110 million were reinvested in talents and in our game changers. Second, we delivered on margin while increasing our incentive pool. We want to make sure that we can reward the outstanding work that was done by our team. To be clear, here, we are really talking about efficiencies. As a result, operating income stood at EUR 1,501,000,000, up 5% in constant currency. Thanks to this margin improvement, headline EPS reached EUR 4.72. It's growing at 10.3% on constant currency, above the objective that we have fixed during the Investor Day, growing from 5% to 10%. It is the highest EPS ever posted by the group. Finally, free cash flow remained very strong at EUR 1,311,000,000, up 2.4% in constant currency, fueled by a positive change in working capital for the second year in a row. This allowed us to reduce our net debt by EUR 923 million and turn net cash positive at EUR 196 million at the end of 2018, only 4 years after the EUR 3 billion acquisition of Sapient. This is a big strength in this time of economic uncertainty. Therefore, we will propose a EUR 2.12 dividend per share, growing by 6% and representing 45% of payout as we committed. In addition, we did not spend the full amount dedicated to acquisition in 2018, and we will implement, as we committed again during the Investor Day, a share buyback program for EUR 400 million. It is worth mentioning that this amount includes the proceed from the divestment of PHS for roughly EUR 100 million. So clearly, we have the right model, which is outperforming the market commercially. We have a record year in terms of financial results, and now I would like to move to organic growth.Excluding PHS, as the expected divestment to [ pass ] effectively, full year 2018 organic growth was at 0.8%, which is true to the objective we set early '18 with PHS. H2 is at plus 1.3%, and Q4 is at plus 0.5%. Regarding Q4, we were on track to achieve our objective, and we had very good reason to be confident. New business revenue was ramping up nicely and actually contributed 150 basis points to this quarter. We were continuing to experience strong growth with our game changer, as you will see, but as we repeatedly said for years, Q4 is an adjustment quarter for our clients to cut expenses to deliver earnings or other invest with a member of our group. Q4 is volatile and uncertain. In 2017, actually, it helped us with unexpected growth. It was the opposite in '18. On top, the phenomena the industry is experiencing with the impact of attrition on traditional advertising in the U.S. from FMCG clients that represent for us 25% of our revenue globally has been stronger than expected. Needless to say, without those 2 items, mainly coming from [ Enga ] [ Fuller ] of U.S. clients, we will have actually met our growth objectives. To give you a bit of perspective, on a full year basis, the strategic game changer represent EUR 240 million of incremental revenue, above our expectation. Attrition roughly reached EUR 150 million, above the EUR 100 million that we expected at the beginning of the year. Moving to geography. You can see that despite this attrition on traditional advertising, coming mainly from FMCG clients in the U.S., North America posted a positive growth with 0.5% for the full year. Europe performed quite well with full year growth at 1.4%, fueled by a strong Q4 at plus 4.3%. In particular, France and the U.K. are posting both 3.9% growth on a yearly basis. It is where our country model is the most advanced and processing starts with them. The 4 big things you should take out of 2018 is that we are creating a condition for growth to effectively accelerate. We are on track and actually right on schedule on all the strategic and organizational KPI that's in our plan to bring to the future. The best proof of that is the performance we are seeing with our game changer. Data, dynamic creativity and business transformation grew by 28%, now reaching 12% of the group revenue. From an operational standpoint, we are also ahead of our plan. 61 clients are benefiting from the client-centric organization with one global client leader, one P&L and seamless access to all the group capabilities. We have already defined 8 markets providing the entire group. Each of them benefit now from the single leadership overseeing all the operation with a single P&L. Our delivery platform in India has allowed us to [ grow ] our capabilities and contribute to several of our new business wins, showing once again the uniqueness and the attractiveness of our model. It does also have a direct impact on our achievement in term of efficiencies. As planned, we continue to invest in our future. We dedicated around EUR 100 million -- EUR 110 million to invest in our talent to activate our game changer, while strengthening further our leadership team. On M&A, we were focused on rigorous and selecting the few companies that will help us scale our model and accelerate our transformation. We spent slightly less than EUR 200 million, below the amount of EUR 300 million to EUR 500 million a year we allocated for acquisition. This is why, as we committed at the Investor Day, we will implement a share buyback program for EUR 400 million. [ Here are keys ] for the highlights. As you have seen, 2018 has been a very positive year. But let's be clear, we won't be satisfied until we bring back strong and profitable organic growth in a market that's experiencing attrition on its traditional business. What is making me confident is that in this industry that is facing challenges of transformation, we have a clear plan, as you will see, for '19 and beyond. And as you will see later on in the presentation, we will make sure that we apply this plan with the same rigor as the one that we have put in '18. Nevertheless, in this challenging context, we are demonstrating that we have built a model that is highly attractive and competitive, while increasing shareholder value. This was a [indiscernible] commitment for '18, and it was what we are delivering today. I will now leave the floor to Jean-Michel, who will provide you the detail of our number. I will then come back with the 4 priorities for '19, and finally, we will take your question.
Thank you, Arthur. So good morning, everybody, and as usual, I will go now through a few slides detailing our 2018 results. I will start with revenue, Page 12 -- I will start with the net revenue on Page 12. Regarding Q4, first, net revenue was EUR 2,492,000,000, up 0.4% versus last year. Currencies have a 0.2% positive impact. As a result, at constant currency, growth is at plus 0.2%. Acquisitions added 0.4% positive impact. All in all, organic growth for our net revenue was minus 0.3% in Q4. Excluding the Publicis Health Services disposal at the end of January 2019, organic growth is plus 0.5%. For the whole of 2018, net revenue is EUR 8,969,000,000, down 3.9% versus last year as reported. Currencies have 4% negative impact, mostly in H1. At constant currency, growth is plus 0.1%. Acquisition impact is almost neutral because of the contribution of acquisitions being offset by disposals mostly the deconsolidation of Genedigi, a subsidiary in China at the beginning of 2018. Therefore, organic growth for net revenue in 2018 is plus 0.1%. Excluding PHS, which is more relevant, we are at plus 0.8%. On Page 13, regarding Q4 net revenue by geography. We focus on the performance, excluding Publicis Health Services. Europe is up 4.3% in Q4. As expected, we, benefited from the contribution of accounts won earlier this year, namely Daimler and Carrefour as it was already the case in Q3 2018. North America is down 1.1% in the quarter. We have the ramping up impact of accounts wins, notably Campbell's and Marriott, while experiencing attrition in our operative -- operation mainly coming from FMCG clients as Arthur already explained. Asia Pacific is down 2.8% in the quarter. We have the impact of several account losses in China, which is down 5.4% in Q4. Latin America is down 1.9% due to a couple of campaign cancellations in Brazil. Middle East and Africa are up 6.8%, mainly due to the good performance of our operation in the United Arab Emirates. Overall, Q4 organic growth for the whole group is at plus 0.5%, excluding Publicis Health Services. On Page 14, regarding 2018 net revenue by geography, I will only go through the numbers, excluding PHS, Publicis Health Services. Europe is up 1.3%; North America, up 0.5%; Asia Pacific, down 1.8%; Latin America, up 4.5%; Middle East Africa, up 4.6%; and we have plus 0.8% for the entire group. On Page 15, we highlight organic growth rates for the main countries for the full year 2018. I will only mention a few of them. Above 10%, we have mostly Turkey at the plus 11% and Vietnam at plus 19%. Between plus 5% and plus 10%, Mexico is at plus 5.5% and United Arab Emirates at plus 7.5%; between 0% and plus 5%, Brazil is at plus 1.1%; France at plus 3.8%; Singapore at plus 3.9%; the U.K. at plus 4%; U.S. at plus 0.4%, excluding PHS. Several countries reported negative organic growth for the year among which Germany, at minus 1.1%; China, minus 1.3%; and Spain at minus 1.3%. Let's continue now with the detailed analysis of the P&L on Page 17. Starting with the P&L before impact of IFRS 16 that we have implemented this year, this year 2018. 2018 revenue is EUR 9,951,000,000. Net revenue, that we are using for the calculation of organic growth, is at EUR 8,969,000,000. EBITDA is at EUR 1,652,000,000, slightly down at 0.8% year-on-year but up 4.2% at constant currency. Operating margin is at EUR 1,501,000,000, almost flat, and up 5.0% at constant currency. Operating margin rate is at 16.7%, 60 basis points higher than 2017. I will come back to this with the next slide, of course. I will cover also separately interest expense and income tax. Headline net income is at EUR 1,107,000,000, up 6.8% versus last year. The amortization of intangibles is at EUR 55 million, net of tax. We have an impairment charge and a real estate consolidation charge due to vacant locations for EUR 103 million, net of tax. We have a capital loss and a change in fair value of financial assets for EUR 10 million. The impact of U.S. tax reform is a profit of EUR 80 million and the revaluation of that amount represents minus EUR 30 million. All in all, the group net income is at EUR 944 million before IFRS 16. We also present the P&L with the impact of IFRS 16. EBITDA is at EUR 2,049,000,000. Operating margin is EUR 1,523,000,000 with a 17% margin rate. Headline group net income is at EUR 1,082,000,000, and the group net income after the impact of IFRS 16 is at EUR 919 million. All these figures, with the impact of IFRS 16, will be used as a basis for the comparison in the future. On Page 18, we show 2018 versus 2017 at constant currency to illustrate how material the adverse currency movements, where we're reporting in euros. Before IFRS 16, at constant currency, net revenue is up 0.1%. Operating margin is up 5.0%, we said that already. Headline group net income is up 12.2%, and headline EPS is up 10.3% on a diluted basis.Let me come back to the operating margin details now. We have 2 slides on this. First of all, personnel costs represent 62.9%, down 10 basis points. These include the investment in our talents to grow our game changers and the impact of higher incentives, showing that our margin has not been delivered at the expense of growth. I think it is important to say that. You will see the detail on the next slide. Restructuring costs are at EUR 104 million versus EUR 120 million last year. This is in line with our expectations presented at our Investor Day in March last year. For 2019, we expect the same level of -- as 2018, which is approximately EUR 100 million. Before IFRS 16. Other operating expenses represent 17.5% of net revenue versus 18.1% last year. This is mostly the result of our real estate consolidation plan as well as the savings on G&A as described during our Investor Day last year. Overall, the operating margin rate is at 16.7%, improving by 60 basis points versus last year. The improvement we are seeing here with the modest growth rate is confirming that our transformation program delivers also on the cost side. Our restructuring activity continues, and we are on track to deliver our multiyear cost-reduction program. And more importantly, as expected, it allows us to invest in our game changers. With IFRS 16, operating margin rate is at 17.0%, you noticed that already. If we move now to Page 20, we are presenting the change in operating margin as a percentage of revenue. Foreign exchange and M&A altogether add 30 basis points positive impact on operating margin rate, lower restructuring charge at 10 basis points positive impact on margin. Excluding these 2 items, operating margin rate increased 20 basis points, including 180 basis point savings for personnel expenses, 20 basis points for occupancy costs, and 10 basis points for other G&A, partly offset by the investment in our game changers, representing 120 basis points, and higher incentives for our talent for 70 basis points. All in all, we generate cost savings representing 210 basis points, and we have reinvested 120 basis points to build our future growth. This has led us to deliver an operating margin rate reaching 16.7%. IFRS 16 has a 30 basis point impact on operating margin, which is at 17% under this accounting standard. Regarding now the net financial expense on Page 21. You can see that we have a reduction of interest on financial debt of EUR 29 million, resulting from our cash generation over the last 12 months. Net interest on financial debt is at EUR 22 million versus the EUR 51 million charge in 2017. When including the impact of net exchange gains, the total net financial expense are at EUR 16 million versus EUR 61 million charge last year. With IFRS 16, we include an interest charge on leases of EUR 58 million and the financial expense is at EUR 71 million. Regarding taxation on Page 22. The 2018 tax rate is at 24.0%, resulting in more than 300 basis points reduction versus 2017. This improvement is mostly due to the decrease of U.S. income tax rate. To be fair with you, as 2019 -- as of 2019, we will have the impact of the big tax, which is a U.S. tax on imported high added value services. It will cost as a group roughly EUR 30 million per year. This should lead to an effective tax rate roughly at 26.5% on a regular basis. For illustration purposes, excluding this U.S. big tax, the effective tax rate will still be at 24% in 2019. On Page 23, the headline earnings per share is fully diluted, is growing year-on-year by 4.9% and reached EUR 4.72 in 2018. At constant currencies, the increase is 10.3%, above the top end of the objective set at our last Investor Day. After implementation of IFRS 16, 2018 headline diluted EPS is EUR 4.61. Obviously, this figure is not comparable with 2017, which is pre-IFRS 16, as you know. Regarding dividends on Page 24, we will propose a dividend of EUR 2.12 per share in 2018 to be paid in 2019. This represents a 6% increase and a dividend payout of 44.9%, as committed at the Investor Day. As usual, we will give our shareholders the option to choose for the dividend to be paid in cash or in shares. The dividend will be submitted through the AGM of May 29. Additionally, and you will consider this as a bold move, we are planning a share buyback for EUR 400 million. Importantly, if you add the dividend and the buyback, this is around EUR 900 million, which should be returned to the shareholders. This should represent more than 7% of the current market cap. On Page 25, free cash flow before change in working capital is EUR 1,182,000,000, down EUR 105 million year-on-year. This is due to a higher level of CapEx and a higher tax paid. As you remember, CapEx was particularly low in 2017. And as announced, we have deployed more CapEx in 2018 due to our real estate reorganization plan. We also have a higher tax paid in 2018 as we had significant tax reimbursements last year. In addition, this year, we also have the first payment for the toll charge in the U.S. for EUR 18 million. We delivered an improvement in change in working capital for the second year in a row and it has been the case during many years. This results directly from a strong cash management in our operations. Free cash flow is at EUR 1,311,000,000, up 2.4% at constant currency. IFRS 16 has little impact on free cash flow as it is presented here. It leads to higher EBITDA as we removed the lease payment charge. The actual lease payment is classified as repayment of lease liabilities and related interest. On Page 26, acquisitions net of disposals was EUR 128 million in 2018. This figure is made of acquisitions for EUR 154 million and disposal for EUR 26 million. This has led to a significant net debt reduction of EUR 923 million. Let's move now on Page 27 to the balance sheet. Not much to say here. Working capital is improved by EUR 419 million over the last 12 months. As explained during our H1 2018 results, the biggest impact is actually due to IFRS 16 as we see an increase of total balance sheet of EUR 1,892,000,000 with the accounting of right-of-use for EUR 1,732,000,000 on the asset side and the lease liability for EUR 2,041,000,000 on the liability side. [ Nothing ] to add, I guess, on the balance sheet. On Page 28, 2018 average net debt is EUR 1,430,000,000, down almost 30% year-on-year. Net cash position at the end of 2018 is at EUR 196 million, down more than EUR 900 million versus end of year last year. On Page 29, we are showing our financial ratios before the impact of IFRS 16. In line with net debt reduction, we see a good improvement in these ratios versus 2017. On Page 30, as a result of the implementation of IFRS 16, we are adjusting our financial ratios to take the lease -- to take the -- into account the leases accounting. Our target is to keep our average net debt, including leases, to EBITDA ratio below 2.2x, our net gearing below 0.8x and interest coverage above 7x. In fact, what we are doing here is simply aligning this methodology with rating agencies. And to finish my presentation, long presentation, I'm sorry for that, on Page 31. Our liquidity stands at EUR 5.9 billion. And now Arthur will continue with the strategic update. And as always, I will be available for questions at the end of the presentation. Thank you.
Thank you, Jean-Michel, for your long presentation. As I said in my introduction, in 2018, we accelerated our transformation while delivering record year financially and commercially. We engaged in a very disciplined approach to simplify our structure, resulting into a good cash management. In the same period, thanks to our model connecting data, dynamic creativity and technology, we outperformed the market in new business, demonstrating the attractiveness of our model for both our clients but also our talents. Last, but not least, we are on track and actually are ahead on our transformation plan, delivering on every KPI. So to date, we have the financial business, the model to winning the future and a clear road map for the next journey. We now need to deliver strong and profitable organic growth. There are 2 things to take out of our 2018 organic growth. Our 3 game changers in data, dynamic creativity and technology grew by 28%, representing EUR 240 million in additional revenue. On the other side, this performance has been partly offset by the client attrition in FMCG, representing roughly EUR 150 million, above the expectation we're having at the beginning of the year of EUR 100 million. Let me pause for a second and tell you more about client attrition. It is an industry issue and it does impact our traditional advertising operation, mostly in the U.S. And it's coming mainly from the FMCG sector that represents for us 1/4 of our revenue. The paradox is that it does not come from clients that are unhappy with us now that we have lost, by the way. We barely had such a good year in terms of retention. Now that it come from the performance of operating brand, as you have seen earlier, we are doing very well in the business. No, this attrition comes from clients with whom we have a great relationship but which are shifting or cutting their traditional advertising investment. What is extremely interesting, and by the way, very encouraging for the future, is that although we are actually experiencing the same kind of attrition on traditional advertising for financial services clients, the category for us is actually growing. Why? Because we are able to overcompensate the loss of revenue on one side by the growth of our game changer on the other. As you will know, this client sector has started this transformation much earlier than other, so our model is applying at full speed. To sum up, the good news is that we are ahead of our plan in our strategic game changer that are delivering strong growth at 28%, representing 12% of our business. But the flip side is that attrition has been higher than expected on traditional advertising, which is representing roughly 35% of our business today and with volatility in Q4 that has been even higher, and generally speaking, offsetting a part of the products we are making. This is why it is taking some time for the potential of our model to materialize overall -- on overall organic growth number for the full year. And this is why we need to accelerate our transformation in 2018 with 4 key priorities to deliver strong and profitable organic growth. Our first priority, and sorry, I'm going to get a bit technical, is to scale up our game changer even faster. To achieve this, we need to strengthen our practices in data, production, dynamic creativity optimization, [ products ] and investment to bring to every of our clients marketing transformation. We also need to strengthen our industry verticals in business transformation with auto, consumer products, energy and commodities, retail, financial services, health, media and telecom and travel and hospitality. Implementing those global practices in marketing transformation in every country in a very consistent way will be the top priority of Steve King, CEO of Publicis Media, Member of the Directoire, who is promoted to the role of Chief Operating Officer of the group. Steve has already successfully -- actually, very successfully achieved these at Publicis Media. Nigel Vaz is promoted to CEO of Publicis.Sapient. He will implement the business transformation industry verticals at global level as it is extremely successfully at Publicis.Sapient international. Alan Wexler will take on the role of Chairman and work directly with me on some key client transformation, as you will see later. Our second priority for 2019 is definitely to accelerate the transformation of our relationship with active clients. They all need to benefit from our unique ability to bring them marketing and business transformation in a connected way through data during their business. I will take direct responsibility for this and work closely with our Groupe Client Leaders with Carla Serrano, Nick Law and Ros King, who is joining Publicis Groupe as EVP, Global Clients. Ros was previously Director of Marketing Innovation and Communication at Lloyds, a solid interpreter and [indiscernible], sorry, in our industry. For all of our top clients, this team will actually focus on 3 areas: putting data at the core of our client relationship, thanks to our platform, People Cloud, that some of you have seen at the Investor Day; shifting from linear to dynamic creativity; and bringing our business transformation industry capabilities to reinvent our business model, thanks to technologies. This is a huge show of value for them, and of course, of growth for us. The third priority is to put in place our country model in all of our markets. We have already defined 8 markets covering the entire group. Each of them benefits now from a single group leadership, overseeing all operation with one single P&L. They will now operate the management team with one single organization per market for finance, talent, client, new business and communications. Shifting to a country organization is critical to accelerate cross-optimization. And by the way, it is already producing results. For example, France is posting positive growth at 3.8% despite flattish markets, thanks to the effect of cost optimization between Publicis.Sapient and the rest of the group. I should mention that implementation of a country model is also critical to discuss and adapt our organization to the current market environment. Client attrition oblige us to be more drastic in the way we manage our campaign, to simplify our structure and reduce the number of layers. This is what we have started to do, and it's already having some effect as you have seen. We have been able to increase our margin in our main geography, and particularly in North America, despite attrition. We will continue to accelerate in this dimension, too. Last, but not least, our fourth priority is to heavily invest in our model. It is a no-brainer that we need to invest in the capabilities of the future if we want to strengthen our growth, while increasing margin. In 2018, we invested around EUR 110 million in our talent to activate our model. We will continue to do so in '19. We are taking various initiatives to put up the product at the core of our organization.Let me give you 2 concrete examples. First, as you may have seen, we have launched a very ambitious learning and development program last week with the game changer at the core of the experience. Second, we are creating a development model of our AI platform, Marcel. We have completed the beta test, and we will announce major next steps through the coming weeks. The good news is that thanks to the efforts on cost and our discipline, there is no need to choose between investments and margin improvement. This is an additional proof that we are not sacrificing the long term to boost our short-term performance. On M&A, we have been very focused and disciplined in facing the company that will help us sell our model and accelerate our transformation. As you know, we spent slightly less than EUR 200 million in '18. We will redouble our effort in '19 but with exactly the same rigor, focusing on data, dynamic creativity and technology. To sum up, we are confident that by scaling up our game changer, bringing our model to our key clients, putting our organization in place and continuing to invest in our future, we will deliver our 2020 objectives. Before talking about the outlook, let me come back on 4 indicators for '18. Growth for strategic game changer were higher than expected. Attrition was also higher than expected. Operation margin rate improvement was higher than expected, and EPS growth at constant currency was also higher than expected. Based on those outcomes, how do we see the future? We confirm our 2020 objective to deliver 4% organic growth. We also expect our operating margin rate to improve by 30 to 50 basis points and headline EPS to grow by 5% to 10% in constant currency in '19 and in '20. We are committed to increase shareholder value during our transformation. We have started 2019 with optimism and confidence. We expect a better '19 than '18. As attrition of Q4 continue to weight on the first month of the year, we expect the best Q1. But the significant account win that we have in Q4 should allow us the steep acceleration in Q2. This should lead to an accelerated H2 versus H1 and to the 4% objective in 2020. Now as we have seen, 2018 was a very busy and productive year despite these challenges. We put a huge amount of effort, and we are pleased to see that this is paying off with a record year, financially and commercially. I would like to sincerely thank the team for their incredible work and our clients for their trust. Of course, we are still facing some headwinds, which are having an impact on our organic growth, but we are confident in the future. We have the right model to win in new business and with our clients, where our game changer are growing by almost 30%. We are putting in place the right organization to scale up our model, accelerate organic growth and reduce our cost base. And we have strengthened the very robust financial foundation of the group to continue to invest in our future. So we are committed to transform Publicis to deliver strong results and increase shareholder value. Thank you very much for your attention, and we are now available with all the directoire to take your questions.
[Operator Instructions] We'll now take our first question from Mr. William Packer from Exane BNP Paribas.
Will here. Three, please. Firstly, Q4 organic growth was weak and the Q1 outlook sounds bumpy with, as you kind of explained in the call, weakness in FMCG. Could you just talk us through in more detail the factors that make you confident in an H2 rebound? Many of these issues are still structural. And isn't there attrition -- isn't there a risk attrition is worse again and when you expect it? Secondly, there's been a healthy boost to the bonus pool in 2018. Should we expect a further growth in that bonus pool in 2019 or do you think it's suitably replenished? And then finally, could you discuss the weakness in China a little bit? How are you dealing with the disruptive impact of the Chinese Internet giants on the ad market? And are you hopeful of a return to growth in 2019?
Thank you, William. I guess, we're going to take the question in that order on. So I'm actually going to start with Q4 and Q1. I mean, let's be clear, Q4 again, growth has been a disappointment for us. Without the strong organic growth, as I said in Q4, we would have had the total success in '18. To give you a bit of sequence because I guess we owe you that, the total on November was slightly below our expectation, but exactly as it was in 2017. The big difference, as I said, is that in 2017, we have been helped by an adjustment quarter that was favorable where it was the opposite in '18. To be clear, there's 2 main reasons for this shortfall. As I said, is that -- it was, first, the quarter that is a quarter of adjustment, which is something that we repeatedly said. And second, because we have seen this attrition from traditional advertising to actually be stronger. That's why we expected mainly, as you can see in our number, coming from the U.S. and FMCG. Now, there is one point that I want to mention, is that despite this number, we have been managing our cost base in a way that we are also over-delivering on margin. What you should take out of that beyond the number is how we are simplifying our model to make sure that we win and that we develop our game changer. Honestly, what is very tough for me in Q4 is we have this disappointed organic growth. And from the other side, we won 2 biggest pitch of the year, GSK and Fiat Chrysler, that are both more than EUR 1 billion of billings, actually, not hopefully, by the way, will have a big impact for us next year. And so of course, it was very mixed. I think the question you are raising about Q1, what we should expect is what we see at the moment for Q1 is pretty simple. First of all, we see a continuation of attrition, which -- or the one that we have seen in Q4, hopefully will start to decrease after and we have planned -- we have very clear plan for that. But we continue to see some attrition in Q1. Second, we have tough comparable, honestly. And last, but not least, and this is a technical point but it's an important one, let's be clear, when I'm talking about attrition, I'm not talking about clients lost. I'm talking about clients that are very happy with us, with whom we are doing a good job and with whom, by the way, we are suffering today, and hopefully, when they will start to succeed, which is the case of some today, we will see some growth again, so we feel confident about that. But it's important to note that Q1 is typically a month where you take a hit on what you have lost in Q3 and the one thing you have of what you have won in Q4 is not that high for the moment. So when you take attrition on one side, the comparable, and this kind of sale between what you have won and what you have lost in the prior year, you'll find the reason why we believe that Q1 is going to be tough. I'm not going to go in detail about the values, but Jean-Michel can. I just would like to give you our feel on that. I mean, we truly believe that we have the model for the future. And by the way, hopefully, you will judge that at the number of pitch we have been winning. The reason why we are seeing so much on new business is because it is a proof of the attractiveness of the model. By the way, the success of the model of today is the growth of tomorrow for sure. When you look at the objective we set for the group, which is on one side, put the model, start doing, start to find strong and profitable organic growth for the future, and more importantly, make sure that you bring your value to the market that is creating value for our shareholder on the long term. I think that this objective has been fulfilled, again, with a fit on organic growth. The second thing we said very clearly is, let's be clear, in a market that is being challenged on the value we could deliver, we need to demonstrate to everyone, not only to you, but also to our people, that we're having a model that is healthy, that we can simplify and that can continue to create value for everyone. And in the everyone, of course, there is our [ credible writers ]. So our ability to increase the valuable path is very important. Will we do the same in '19? Of course. It will depend on our results, but this is clearly designed and we are very confident, as I said, that reaching our target, we'll be able to do the same thing. When it comes to China, I think I'm going to pass to my friend, Steve, and maybe I'll add one later.
Okay. Thank you, William. Thank you, Arthur. So just coming to China, I think, as you know, that we have been active in the market. We were one of the first groups into the market and have been working there over 25 years. And we've obviously been a beneficial -- beneficiary of the huge growth that's occurring in that market. We're actually predicting, as you probably know, that China next year will contribute the second-largest level of growth outside of the U.S. I'll come back to our performance and expectations. You're right in suggesting that there's some moderation in the rates of growth because of the macro and microeconomic environment in China. We are and -- but we are still predicting that next year, we will see something -- sorry, 2019 and '20 through to '21, we will see a growth of an average of about 6.2%. So even though it is subdued compared to what we've seen over the last decade, it's still, let's say, double the level of growth that we're predicting for the U.S. at about 3%. In terms of our own performance, you saw that we, like a number of other markets, had some account losses, which accounted for our weak performance in 2018, particularly in Q4. Those are losses, you should be noted, that were in 2017. We actually had a successful year in 2018, and we have some further quite significant new business successes, which we have not yet announced. So I think we can be confident that we are on a growth trajectory for China. There's a couple of other scenarios in China, which will give us further confidence. You mentioned about the digital players, which, of course, are very different to those we see in the rest of the world. The market is not dominated by Facebook or Google or Amazon. And as you know, when we previously communicated, we have very strong and unique market-leading partnerships with some of those digital players. Secondly, is that we have a very strong and growing position in e-commerce. China currently, in terms of the ad market, 18% of the total market is accounted through e-commerce, which is an indicator of what might happen in the rest of the world. China definitely leads the world in terms of e-commerce and e-retailing. So I think our position in terms of account wins, our situation and relationship with the key market players and our strong position in terms of the growth category in e-commerce, mean we feel confident of returning to strong growth in China in 2019 and beyond.
Thank you, Steve. I will make 2 comments on China. The first is we're actually doing a great job for our global clients. It's not an easy market for most of them. And this is where the Power of One is playing at full speed, i.e. it's extremely difficult to scale balance. Because we are putting under one roof all our capabilities and reinventing the model of tomorrow, we're having good attraction with talent and we can provide to our global clients the kind of great resources. To give you an example, when I sent -- I sent a film yesterday night to our 80,000 employees explaining what we are discussing today, maybe I will encourage you to look at it. It's pretty simple and self-explanatory on how we see our vision for people and for the group in the future. And maybe because of time zone, but you can't imagine the answer I had from China and from our people there that actually said that what we are doing with our game changer could have an impact on their future. The second thing I will say, and by the way, we still cross finger because I'm a bit superstitious on that, is, as Steve said, we had some loss in '17 that had an impact on '18. Actually, we are starting the year pretty well when it comes to new business. It's a market that is pretty challenging because there are many who are pitching our business very often and we have a series of definitive bids that we won recently and offensive one that could really make a difference. So now it's work to deliver. And the good news is that the opposite of the U.S., which most of them are slipping. I know that our leaders in China are listening, so it's a message for you guys. I think we're going to move to the next question with Omar. Omar? No, I think it's Omar.
[Operator Instructions] We are now going to our next question from Omar Sheikh from Morgan Stanley.
So just a couple for me. The first question is on the U.S. business. You've been very clear in identifying that, that was the reason for the disappointment in organic growth in the fourth quarter of last year. I just wondered for 2019, do you expect there -- or is your planning assumption for the level of attrition that you were seeing in the last quarter of last year, do you think that's going to improve during 2019 or perhaps stay the same? And do you think the U.S. business in 2019 can grow versus 2018? That's the first question. And then longer-term target, 4%, which you highlighted at the Investor Day last year. Right at the beginning of this call, I think I heard you say that you -- that target was very ambitious. And looking back at what you said this time last year at the Investor Day, I think you -- I don't think you referred to it in that way. So I'm just wondering, has that target got to achieve now given everything that's happened, the level of attrition you're seeing in the U.S. business and perhaps the macro headwinds getting a little bit worse? Some commentary on that would be helpful.
Thank you very much, Omar. No, I didn't say that 4% was very ambitious. What I say in my introduction is that the goal we set for 2018 were very ambitious. Again, and remember at the Investor Day, I say, make good sense. We presented to you our model that was very new at the time. We won already Daimler but it was too early to say, and we said clearly during that day that we have the winning model. And so it was pretty ambitious, actually, to say that, that day. Hopefully, you will agree on one thing, which is we have made the demonstration that this is a winning model that now we need to scale. The second thing that was ambitious is to say we're going to grow our margin by 30 basis points, 30 to 50. We actually delivered 60. Was it easy, no, it was not easy. We had to do a lot of things. We had to simplify structure. We have to change structure. We have to make sure that people work better together, but we did it, and those 2 things were definitely ambitious. The reason why we are confident on the 4% is actually four-fold. The first is, I mean, we have some game changer that are growing by almost 30% this year. By definition, the weight, just organically, will be bigger, not even considering the acquisitions we are doing at the moment. Just to take the French example, in the last 2 months, we bought a construction company for Sapient that is going to give us big strength in the U.S. in business transformation, and we are about to finish -- we actually did finish the completion of the acquisition of the data company that will put us first on data. So those 2 acquisitions will bring us very strong growth in France. I'm taking this example because I think it's important to understand the model we are trying to build. We know that we have some difficulties that we need to fix. We are fighting against attrition and I'll come back to that later. But the first thing that make us confident for 2020 is we have seen the power of our model. More importantly, in the positive impact it's having on our client business because this is what matters the most. Our model are helping them to sell more, while reducing their costs. And we have seen, consequently, the, actually, impacts of the game changer in our goals. And so the first reason why we are confident about 2020 is that in the first year when we met in March, we have been able since to win such big new business and increase that we did, there should be a ramp-up effect in the future. The second thing, and by the way, I can mix that with your first question, is that we believe that the attrition will slow down now for a very simple reason is that there is -- adding more pressure on our FMCG client to fund that growth. I don't want to go into any American client. I will let you read the press and talk to the competition. But honestly, you are starting to see that in this category, where, by the way, we should not put every client in the same basket. We have an FMCG client that are doing brilliantly. But as I said, although we're not suffering and we are incredibly confident, honestly, that the effort we are making today to adjust our structure to their need, to actually suffer with them and be there with them, where they will accelerate growth, it will have a benefit impact for us. So again, coming back to your question about the 4%, acceleration on our game changer, attrition that should slow down and I will add 2 more points. The first and -- I mean, this is going to help a lot. Our country model is accelerating cross-optimization in a way that is pretty outstanding. It's too early to be happy because, again, we still need to do a lot on organic growth, but delivering 3.6% of growth in France in a market that is, as you know, a bit difficult and that has been difficult in Q4. At the moment, where we are able to put this model in place and it doesn't play at full speed yet is extremely encouraging. And last, but not least, we're going to continue to pitch because, again, we have the model and we want to make sure that we use the time we've got. And by the way, the advance that Maurice Lévy gave us a couple of years ago when he created the Power of One and bought Sapient to actually grow again on the market and continue very aggressively on commitment to win new business. So is that an ambitious target? I think it's another target that we can confidently achieve. It will have a lot of work. It will mean that we are growing a game changer and still we'll have a big role to play on that because the problem we're having at the moment, honestly, is not to sell, is to deliver, is to make sure that we can treat more clients. This is something, if we find the right acquisition, if we're able to stop the people as we do, investing the right money on this, you will see some growth there and strong growth. We are confident that attrition at one point will start. We are certain, by the way, that the country model will deliver because it's already delivering and we're going to continue to pitch, hopefully, with the same kind of luck we have this year. Some will tell you that the more we work, the more we get lucky, but we want to continue to work very hard on that. Just one comment on the U.S. and attrition as a whole.
Okay. And then just so -- is the U.S. business going to grow in 2019 after all? Sorry, that was just the follow-up.
On this, we will see -- yes, yes, we're going to see some growth definitely in the U.S. We are extremely optimistic about the model we are putting in place. We're actually having a management committee on Monday in New York to accelerate on what is 50% of our business and is going to be an effort coming from everywhere. You know the example I took, which is a good one, is what we are doing with Nigel Vaz, the CEO of Publicis.Sapient. Those industry verticals are something that are delivering huge growth internationally and should have an immediate impact in the U.S. So just this make us confident. So yes, we will see growth in the U.S. Again, I want to start with [indiscernible] for a very simple reason, which is we are, for the moment, planning for attrition in 2019. And we don't want to overstate anything once we are mature, that our client will react to the general context, and more importantly, our [indiscernible] will transform.
We will now take our next question from Adrien de Saint Hilaire from Bank of America Merrill Lynch.
I hope you can hear me well. So I've got a few questions, please, on your top line outlook. So just a simple one to begin with. Is the starting point for organic sales growth including or excluding PHS, i.e., are you expecting to grow faster than 0.1% or faster than 0.8%? That will be the first question. Secondly, I think in your press release, you called for some volatility on your strategic game changer activities. Can you give us some outlook perhaps for your effectivity, which grew, as you said, 28% in 2018? And then on your part about attrition from strategic clients, I mean, do you feel that's coming from cuts in their marketing spending? Or is it perhaps some market share losses to other agencies? Or could it be also that they've increasingly in-sourced some of their marketing duties?
Thank you, Adrien. The first question is going to be very simple. Our top line objective is obviously starting at 0.8% so it's better than 0.8. Productivity on our game changer, I won't talk about volatility on our game changer. I mean, understand that we have experienced 30% growth from this, this year. We are confident that organically we can deliver that again. The question is how can we grow faster. The question is how can we make sure that we accelerate that also for acquisition. As you have seen, we have been extremely rigorous in the acquisition we made because we said very clearly in March that it would be only about data, dynamic creativity and technology. Believe me, we have seen great agencies or companies that could have boosted our growth in a few areas but that we are not clear what our model should be, and we are fast because we want to be the model of the future. So I won't talk about volatility. I will say that we are pretty confident today about the same kind of number. But more importantly, we hope we can bridge it more, doing -- as you know, if we do that for acquisition, it will not have direct impact on our organic growth in the first year. On attrition, maybe I will let Steve tell you a word first and then we'll conclude. But it's a big topic because the question you raised is very well raised, by the way. There is a mixed bag of different things that we are putting attrition, and we can talk to you a bit about in-sourcing and explaining how it works. Of course, there is some project that are cut, is definitely not going to other agencies because what is going to other agencies is considered for us like lost, not like attrition. I mean -- so -- and I want to be clear on that. This is why, by the way, we are seeing for the moment is very soft Q1 is at the end of the day, what is lost is lost and will never come back. In the case of attrition, we are very confident that we can continue to grow. So maybe Steve, you can tell us a word on that.
Yes. So I think maybe where we start in terms of the attrition, as Arthur just said and just to confirm, this is not us losing market share to competitors. And you mentioned in your question, Adrien, about was this because of in-housing. I would also suggest it is not because of in-housing. And just to tackle that particular question, there is certainly a trend for clients, particularly in the U.S., to consider in-housing and -- but that does not necessarily lead to a loss of revenue because many of those clients still need strategic support. We also have seen a number of clients set up in-housing on areas like programmatic. And of course, although there are technology systems out there, access to talent and scale and have the right degree of verification is very difficult to set up. We, of course, have, let's say, a 10-year experience and have scaled practices and we work with over 400 clients in the U.S. So we've actually seen a reversal of some major clients, both in the U.S. and global, reversing the in-housing trend. So just to give you some reassurance, the attrition that we saw in the U.S. was more of a reaction to the economic environment, particularly in one particular category in FMCG. It is not a factor due to in-housing, either in 2018. I do not believe that will have any material impact on our numbers in 2019 either.
Maybe to stay on this topic 1 second more. Talking about attrition, it's important to look at it category by category. I mean, we talked about FMCG. I'm not going to come back to that. But we talked also about the financial services. And the reason why I want to touch this point is really to try to explain why the model we are building today will actually deliver growth in the future. The attrition we are seeing on traditional advertising from a financial services client is actually at least at the level of what we are experiencing with FMCG. The difference is CMOs today not only have the power on advertising, they also have the power to put in place the digital transformation that the bank need to put in place, mainly because of retail, by the way, and because of the new entrants. And so it's not that CMOs in the financial services are spending less overall. They are spending less with traditional agencies. And so it's incredible to see that with the same kind of level of attrition that you can see in FMCG, we are actually growing our business in financial services in a very big way because we are the only one that have again, on one side, the credibility, the trust and the knowledge of the brand and the consumer of any of those banks and the capabilities with Sapient to add them, transform their business model from within. What is true there is that FMCG, as you know, is weighing more in our revenue, around 25%, than financial services. But the reason why we are so optimistic for the future is that you won't find any category that won't go through a digital transformation. And we will be there because all along the way, we are building the right relationship.
I'm sorry I interrupted your answer. Just perhaps one last view, hopefully. Can you tell us what was the impact of net new business on organic sales growth in '18? And what is the incremental impact that you expect for 2019?
Now, Michel has been quiet for too long. So I give this one for you.
The impact of net new business on '20 came mostly on -- during the H2, if you remember, and this has represent 150 basis points -- 50 basis points. And regarding 2019 now, the impact will be 150 basis points on H1 mostly, will come on H1 mostly.
Maybe I can add a point on that is the good news about winning accounts that are above EUR 1 billion in billing is that they will be structural for us, and as you know, we won 2 in Q4. The bad news is that we are talking about hundreds of people that are working for one company and will move to another in more than 50 countries when you are talking about the GSK in the U.S., when you talk to Fiat Chrysler, I mean, it's a big move that take a bit of time. So I think that we can actually plan exactly as we did in Q3 and Q4 on 150 basis points on one side. But hopefully and surely, by the way, in H2, you will see a ramp-up that will be bigger.
Next question comes from Conor O'Shea from Kepler Cheuvreux.
So just a couple of questions on FMCG. If you look at the split in group revenues of, I think, 28% to 26% for the full year, which could imply a high single-digit decline. I think previously we'd be looking at a mid-single-digit decline. So do you confirm that, that decline has accelerated to high single digits for the full year, and obviously, potentially more in Q4? That's the first question. Second question just on the U.S. in terms of competitiveness. I mean, this is an issue that -- where it seems that the European agencies over the last couple of years have struggled a lot more than historically in the U.S. business and WPP, I think, has also alluded to it. Just wondering obviously, though, that's the market where the industry problems are the strongest, but is it also a dimension in terms of your own hiring and key hires for key posts that you have developed more sort of the rollout of the European markets on a country model and so on and that the U.S. is more sort of work in progress for you and that it may take a little bit more time? And specifically, with that in mind, the latest management change at Sapient, I think that's 3 or 4 CEOs in the last 5 years. Is there an issue there? And could you maybe talk a little bit around that? And then just very specifically on the first quarter, just to give us an idea halfway through, do you expect the organic decline to be more than the -- than what we saw in the fourth quarter, obviously, like-for-like, excluding or including PHS?
Conor, I'm sorry, I didn't get the third question. So I'm going to make a quick answer on the first one concerning FMCG attrition. Again, we have seen an acceleration of attrition in Q4. It could continue in Q1. But we should not extrapolate at all the number that we have seen in Q4 because again, we are seeing positive sign on the other side. And more importantly, as I said, it is not client that we have lost. It's client that are either shifting their revenue to promotion, for example, they are putting their marketing money into the price or getting some projects. So we don't see a trend. We stay cautious, but we don't see a trend. The second question was on the...
On the U.S., on the U.S. business, yes.
U.S., I mean, first of all, the U.S. for us is a country that is very strong in terms of capabilities. We have a very strong creative brand. Two of them have been ranked first in new business. We are leading the market in media with Publicis Media. And we have Publicis.Sapient, which is again something unique when you look at our business. It's bigger. It's 50% of our business. So by definition, integration is, I won't say more complex, but take a bit more of time because where you have a CEO per country, France, which is a submarket, so it's a big one yet, so the decision to put Agathe Bousquet at the end of everything was not an easy decision that we took with [ moist ]. But at the end of the day, we have seen an immediate impact on the way we transform, in the products we deliver, in the value we create for our clients and in the roles. We have to do the same in the U.S. I am pretty optimistic, by the way, for several reasons. The first is we see that when we play together, we win. You will have been in the room in several of the pitches that has happened last year that were mainly U.S.-based. I guess, you would have understand why the model of tomorrow will deliver the growth -- well, the model of today will deliver the growth of tomorrow. No doubt. So people are experiencing what it means to work better together, and our key managers are. And we are the first line of people that get along well together. We're going to continue, Steve and myself, by the way, being very involved in how we manage the management committee there. And I'm actually very optimistic. And I'll be happy to come back to your question. I'm going to note it, at the end of Q1, to tell you what we are putting in place. And I think you will agree that it's tangible proof that we can actually put the country model in the U.S. Now I'm sorry, I couldn't hear the third question.
Yes. The third question, just very simply, as things stand today, do you think that the first quarter of 2019 could be materially worse than the fourth quarter of '18 in terms of organic declines like-for-like? And if you could also just say a quick word about Sapient, the latest change in the promotion of Nigel Vaz. You always referenced Sapient as being having really delivered since the acquisition. But this is, I think, the third or fourth change of CEO at Sapient since you've acquired it. And could you just maybe explain why that has happened, why there's another change being made there?
I'm going to start by this one, if you don't mind, and then I'll come back on Q1. I mean, no doubt, when the decision has been taken by Maurice Lévy to acquire Sapient, it was the right thing to do. It was the right vision because at least here, I mean, some of the other companies, more on the consultant side at least, we are absolutely convinced that there will be a convergence between marketing transformation and business transformation and that the player of tomorrow will be the one that can reinvent the consumer journey, thanks to data and creativity, but also can build the platform and the business model, thanks to technology to make it work. And to do that, you need creative and media agencies, but you need tech expert consultants that can work on how to define technological term, the experience that you're proposing to your clients. And so that was the right thing to do. Now the good news and the bad news is that there is a price to entry, which has nothing to do with money apart from the fact that if you look at what is available in the market, by buying Sapient, we have bought the only tech company at scale that could actually strengthen a group like ours, but there is another barrier that is a cultural barrier. You are asking creative people, media people, to work with engineer, to work with consultants to make the model of tomorrow work and actually work today to deliver the growth of tomorrow. This is what we are doing extremely well in pitch because it's a handful of people getting together, making it work and then we can flow and create best cases. It has been in the last 3 years, of course, a challenge to integrate. And why I said there is a good news and a bad news is that the bad news is it has been a challenge. The good news is good luck to whoever else wants to try it. It will take a lot of time. And I'm not just thinking about the system integrator. There is a reason why you are not finding any of the system integrator today, think that they're going to go for a big acquisition, it is extremely difficult to do. We did it. And I want to be very clear, you are right, we have made change of CEOs. But before making change of CEOs, and I'll come back on every CEO in a second, what we did is actually changing the parameter and the purpose of P.S. There is a jewel in P.S., which is business transformation. This ability to go and see any of our clients and explain them how, thanks to technology, working with a creative or media team, we can accelerate their growth while reducing their cost. You won't find one of our clients that is not interested about the next step. Okay? No one. And so what we have done, honestly, as you have seen, is we took P.S -- but we took Sapient. We called this -- or like say we -- Maurice called it Publicis.Sapient. We add Razorfish into that to bring the level of experience. And you know that we had some difficulties on that, but we fixed it and integrate it. And we took another decision, which is digital that was part of P.S actually moved into Publicis Media for a simple reason is this was more about personalization at scale and what's sitting better with the marketing side of our business. So what has changed is not the CEO. What has changed is the parameter. And I don't want to go into detail into that, but we have operator shift focusing on what is really delivering the value on P.S today, which is business transformation. And when you look at the CEOs that have been running P.S., they are all extremely talented. By the way, let's be clear, someone like Alan Wexler is today one of the best account guys that I know, and this is definitely what I need to let me transform our clients. But we will -- and by the way, with Alan, thinking that the right thing to do, what you say, we need to be extremely clear and extremely committed to deliver to every of our clients' business transformation through our verticals because you will know that in the consulting business, the opposite of the creative business is 2 clients is not complete, it is an expertise. And so we are building the expertise globally, led by Nigel Vaz that has done an incredible job. And Alan will lead me to make the bridge, because we are calling that a bridge, between the client driving of the business transformation side or the one that we are in marketing because, honestly, they are not talking the same language. So I need to make sure that I can have some translator that tells me any time we go into a creative meeting with someone from Sapient that people understand the value of what we bring, and this is what we do together. Now on Q1, as we said very clearly, we don't exclude Q1 to be negative. And this, for 3 reasons. First, as I said, you will see the continuation of attrition, which we have seen in Q4. Second, I'm not going to come back to that. That's comparable. But the big difference also, as I mentioned, is that at the end of the day, what we have won in Q4 will start to ramp up end of Q1, beginning of Q2, while we will have the impact of what we have lost in Q3 for Q1. So again, we are extremely confident in the fact that we will improve sharply in Q2 for the reason I just mentioned, but we are expecting a tough Q1.
We will now take our next question from Tim Nollen from Macquarie.
A question for you about the account wins, and I wonder if you could help us understand about the rate of revenues that you're taking on these. We've seen across much of the agency groups slower organic growth, of course, last couple of years. We see a lot of account moves. I'm just wondering if there's pressure on the rates that you're taking on the account wins. If there's anything you could enlighten on that, please. And then secondly, just a quick modeling question. Your interest expense line has moved around quite a lot, came down quite a lot, obviously paid down some debt. Just wonder what rate -- what level of interest expense we should be using for 2019, and also how should we model the other financial income line for 2019, given I think that has a lot to do with the IFRS 16?
Thank you. I'm going to go -- we can go -- start with question two, Jean-Michel, you take it?
Tim, okay, we are moving to IFRS 16, and the comparison in 2019 will be done with the IFRS 16 number, and we are at EUR 31 million. But entering in the 2019 with the slow position in debt, we should be able to improve that amount definitively.
So the impact, as we said, it has been roughly 150 basis points in Q4 and Q3 coming from the wins that we have at the beginning of the year, which by the way, were already pretty significant. We are expecting again to do better next year, but something ramping up in Q2 has, of course, it takes more time to integrate this kind of very big win. Now coming back to the transformation rate, I guess, you're also asking the question on this, it's very difficult to tell you. What I can tell you is that we are choosing very carefully our battles. We are making sure that we are going into the right pitch, the one that have client that understand our model and are advanced enough to believe that this is a solution so we can lead the race and win. And by the way, the one that we know we won't have to buy it at the end with price. We did this mistake once this year. I won't repeat it. So we went to a long process. And at the end of the day, we had to give up for the wrong reason because, as we said very clearly, we are not here to buy market share on any cost. We want to make sure that we're a valued business. But what is important there, and this is why, by the way, we were very happy to see what all the reports have been saying about our track record, is that it's easy to announce a win. We all have local wins with big names that we can make believe the market that it's a big thing. What you should look at, of course, is what are the global one that are really having an impact, of course, on our organic growth and our own model, but more importantly, on our ability to demonstrate that we have a model that is attractive and competitive for our client on a big scale. And this is what we have done. And the 2 last example, which are again, GSK and Fiat Chrysler for us are the best example of that, which made, by the way, again, Q4 a bit sour because we have done, on the one side, this Q4 organic growth that is not a delivery we expected, and on the other, those wins that are neither a delivery we're expecting or actually overdoing the probability. As you know, just to mention that because we should be celebrating, and we are not, of course. GSK, we were supposed -- GSK, I said very clearly, that they won't go with one holding company, okay? They decided that they will go at least with 2. And at the end of the day, they decided one, they decided us for several reasons. One of those was definitely our transformation; the other were capabilities of our talent. And they said, by the way, very clearly the price here, that we are not the lower in terms of price. So again, very difficult, the transformation rate. We are choosing our battle. We are making sure that we sell our model. We are making sure that we are not sacrificing our value, and we will continue in the same way in '19. Question please because time is flying.
We will now take our next question from Richard Eary from UBS.
Just a few questions from my side. Just the first one. Just so we can get some further color as we go into '19 in terms of the impact of attrition and game-changers. Just from listening to you speak, are you -- with the account wins, are you expecting the growth from game-changers in '19 of EUR 240 million or to be in excess of the EUR 240 million in '18? And looking at the attrition numbers, are we expecting a bigger attrition number in your guidance for FY '19 as well, just so I can understand that? That's the first question. The second question is just looking at the margin expansion in '18 and trying to understand that obviously there was a lack of project work that came in December. Was that a lower margin project work and, therefore, that didn't have a big a drag as we may have expected on margin? So we just understand what happens between loss of attrition and margin, that will be helpful. And then just the last question on cash flow. Clearly, a good performance on cash flow, EUR 1.3 billion. You've already allocated EUR 900 million to capital management, a further EUR 400 million to M&A, plus EUR 100 million windfall from the sale of PHS. That still means that the net cash position will grow in '19. How do we think about what you're going to use that cash flow? Are we going to see an acceleration in M&A? Or are we likely to see further basically buybacks as we go through later in the year?
I guess the 3 questions are for Jean-Michel.
Okay. Yes, Richard, the first one is the impact of the attrition in 2019. So we are expecting in 2019 an attrition, of course, in the range of EUR 150 million, like it has been in 2018. So it will be -- this is for sure conservative as we're already seeing clients asking themselves about their own transformation and new ways to engage definitely with consumers. But we won't remain cautious on attrition based on the experience of 2018, of course, and to continue our transformation on the strong pace. We are much more optimistic for 2020, to be fair. The outcome is expected to be a lower attrition and a higher contribution from our strategic game-changers leading to the 4% organic growth in 2020, which is our main objective, to be clear. In terms of game-changers in 2019, difficult to be too specific on that. On the one hand, as revenue from our game-changers now represent more than EUR 1 billion versus EUR 880 million a year ago. You remember that. It will be ambitious to assume that we could retain the same 28% growth rate as we delivered in 2018. On the other hand, the account wins of 2018 and the way we are now engaging with the clients make us very confident to deliver another very strong year for our game-changers. What is certain is that we are confident to achieve our target for 2020. EUR 1.5 billion revenue, knowing that we are already in advance at the end of 2019 compared to our plan. Second question, in terms of cash. We are returning EUR 900 million based on the cash generation and decision on dividend and the share buyback on 2018 results. We have an ambition to spend the M&A of about 350 -- EUR 300 million to EUR 500 million. Okay, you should have seen that we won't -- this is a priority. Priority is to boost our game-changers through M&A. I'm seeing that we need to understand if we want to get the growth we want, we need to boost our game-changer as fast as possible. And of course, with our organic growth, which is very high, as you saw, but of course, this -- the M&A, we'll have a lot. And as we are extremely disciplined, this is something that we will focus on boosting game-changers through M&A in 2018 -- '19, sorry.
Merci, Jean-Michel. Next question?
Can I just, Arthur?
Yes, yes, we hear you.
Yes, just to follow up on that. Just so, Jean-Michel, just to go back to the game-changer, you said you're confident going from EUR 1 billion in '18 to EUR 1.5 billion in FY '20. So I'm presuming that if we just do a normal step changer, you're confident of delivering at least the EUR 240 million in '19. Is that a correct statement or not?
Correct.
We will now take our next question from Chris Collett from Deutsche Bank.
Just had really a couple left. One was just if you could give us a word on competition with consultancy firms either on a more traditional marketing work but also some of the digital consulting and transformation work. Could you just let us know what you will have seen in terms of your win-loss rate? And then secondly, good to see the buyback that you've announced for this year. But just wondering, with the scrip dividend program that you continue to run, you continue to issue sort of a couple of percent of shares each year via the scrip dividend, so just wondering whether you would put in place a more permanent function that could then at least offset the dilution from the scrip dividend?
Thank you. I'm going to take the first question, and I will leave the second to Jean-Michel. So when it comes to the consultancy, again, I need to come back to the model we are building. What we are clearly saying is that we want to take the leadership in marketing and business transformation connected by data. On the marketing transformation side of our business where our traditional competitors are the Omnicom and WPP of this world, we actually don't see those consultants. We can call them some time in some pitch, but rarely at the second round. And honestly, we haven't seen anything significant that has been won so far. It could come because they're going to continue to aggressively make some acquisitions with very high multiples, so you will find some creative agencies belonging to a consultancy group that will -- that could win some marketing transformation business. But it will be traditional agency bought by those guys, put onto a pitch. For the moment, honestly, on this side of the business, we are matching them. Where we do see them as the basis and only as the basis is on the business transformation part of it, i.e., what we have with Publicis.Sapient. And I won't go into the wins we have this year in detail. But of course, every win we are making on this area is outcome from cross-optimization, i.e., we come with a solution that is stronger because it's integrated with our marketing clients. And by the way, normally, we exit a consultant to take his job or we pitch frontally. Sometimes we win, sometimes we lose. But I don't want to overpromise what we're having today in terms of transformation rate, but it's pretty high. So again, on the marketing side, further momentum. We don't see anything strong enough to compete with the so-called holding companies. On the other side, of course, with Sapient, we're growing very hard to get those guys. And we'd be indirectly, i.e., using the fact that we have built a relationship with our clients on the marketing side that makes sense to get relevant and converge or frontally in a pitch. Michel, second question is for you.
The second question on the scrip dividend, of course, this is clear. The buyback, to be short answer again, it's clear the buyback will offset the dilution. That's clear. No other answer on that point for sure.
I guess we still have a few questions on the line, 3, we have 3 questions on the line still, I guess.
We'll now take our next one from Tom Singlehurst from Citi.
It's Tom here from Citigroup. I suppose just the main one I had was about growth. I mean, obviously, I'm someone that's slightly more sanguine about the structural position of the agencies in general and Publicis, in particular. But the big question I always get is, how can we be comfortable in 2020 growth if we can't get comfortable on growth in the coming quarter? So I just wonder whether you could just give maybe a little bit more color on the mechanics of a miss, like the one we've just seen in the fourth quarter. I mean, is this -- as you -- I think you alluded to it, but just to be specific, is this money that's going out of advertising into promotional spend? Is it specific projects that were tagged as PBC that is specifically being cut and you've had to take them out, just so we can sort of really understand what the mechanics are when we see a sort of short-term miss like this and why it wouldn't be representative of a sort of bigger miss for the, let's say, for the whole of 2019? And then very briefly, second point. I understand the buyback, it is obviously helpful in terms of keeping earnings together in the book. Why aren't you more aggressive on the M&A? Is that a -- that would be a quicker way of getting growth back up. I know it's not necessarily high quality in the sense you're buying growth, but is there a lack of big deals to do? Are you consciously keeping the M&A deals smaller in nature?
No, thank you very much. And if you don't mind, I'm going to start with the share buyback because you said something very important at the beginning of your question, which is the trust you should have in the industry on it. When we came to the Investor Day, we chat, by the way, for 7 hours, where we showed you our model, where we showed you our target, we set ambitious goals in a lot of areas. And 1 year later, we came back delivering -- or ever delivering on every financial ratio and on share buybacks. What is important there is that the reason why we are doing the share buyback is extremely simple. Believe me, if we could have found the EUR 300 million or EUR 500 million of acquisition, we won't have hesitate one second. We know that when we do the right acquisition, it is immediate growth and profit. And by the way, you will see it in the small acquisition we have done so far. The question is we decided that first, we will be extremely rigorous in our acquisitions and we will only go for what is strategic because again, and it comes back to what you are saying about confidence, we committed to that. And then because we realize that we won't find any more target that can really strengthen our model, again, maybe target that will boost organic growth on the short term, but the question is not there, the question is how do we reinvent our model to continue to grow while increasing our margin. We decided that we had to do a share buyback because it was our commitment. And hopefully, next year, we will be able to find more acquisition. And believe me, we have a good pipe at the moment. And we will try to do everything we can to strengthen our organic growth through the acceleration of our game-changer, through acquisition. The only thing that matter a little bit is we won't, as much as we can, in every circumstances, try to deliver what we commit. And we said clearly that we won't do any acquisition that was not a game-changer. And if we don't find anything that can accelerate our growth and our profit in terms of acquisition, we will do the share buyback. So we are doing the share buyback. The second point you are pitching is 2020. Let's be clear, there is 4 reasons why, honestly, we are confident for 2020. Again, the game-changer. And maybe we should stop to close in the game-changer anyway because what you need to understand there is that we are talking about the 3 ingredients that are delivering growth and reducing cost for our clients. And when you put them together on our model that is unique for us because we are the only one who have at the same time the marketing and the business transformation skills, we know that we win. And so, of course, you will see an acceleration in '19. And believe me, you will see again an acceleration in '20. The second thing is hopefully, maybe too early to say, but we are pretty confident we're going to see attrition that is going to slow down. We have been very cautious for '19. But we do believe that this is going to shift for the reason that I just mentioned. And I want to make a point that is very important there, we are not blaming one second our client for our problem now. Our clients are doing the right thing. We are suffering because of that. And they will be winning tomorrow, and we will be winning with them. And so we are pretty confident again that in 2020, you will see a turnaround on that. Further, and for those who are in the Investor Day, you would see the progress that we have made so far. The country model will pay and we are seeing how much it's paying in France today and in the U.K. tomorrow. The question someone raised about the U.S. is the right one, 50% of our business, how can we accelerate the country model there? And this is why we are having this priority. And as promised, we will come back on that in Q1 because this will have a big impact on our business. And last, one of them has stopped to pitch. We are going to continue to put our model in front of our client. We're going to use the advance that we're having at the moment to continue to pitch. And for all of these reasons, by the way, not only we are confident on the 4%, we are confident in delivering the margin improvement. And again, we could have come back to you with 30 basis point improvement. We came back with 60, which means that we still have to find at least 60 in the next 2 years. And we know how to simplify our structure, accelerate on valued products that are having the right margin and actually deliver on both growth and profit because we do believe that these are the products, at least the 2 things that matter is making the demonstration that we have the right model and bringing additional value.
We'll now take our next question from Julien Roch from Barclays.
Two number questions. The first one, can you confirm that the account win benefit in 2018 from Q1 to Q4 were 70 basis points, 70 basis points, 100 basis points and 150 basis points? Then could you give us the split of the 150 basis point benefit by quarter in 2019? That's the first question. And then the second question is how much restructuring can we expect in 2019 versus the 104? That's it.
Julien, we don't want -- we don't have the details, to be clear. And the way you formulate it, we don't have, for 2019, the details. This is something that we are still looking at, of course. So we don't have it. I'm sorry for that.
But Arthur a couple of times said things will improve from Q2, so at least you have an idea or feeling. So maybe the starting point in Q1 and then we'll take an improvement from there?
This is 150 basis points above. So we have a Q1, which has been described by Arthur. And Q2, we will have the effect of the wins, which will be ramping up clearly during the Q2 and progressively in the rest of the year. This is only what we will comment at this stage. But you will see our network drives that we increased. By definition, we are talking about 2 accounts that are being more than EUR 100 billion -- EUR 1 billion. I wish it was EUR 100 billion. EUR 1 billion. So we are pretty confident on that. Again, because it's big business, it will really start to ramp up in Q2. I think we have a last question.
Okay. And there was just a question on restructuring?
Question on restructuring.
Yes, restructuring, as I said in my presentation, restructuring in 2019 will be at the same level roughly than 2018 as this is part of what has been announced at the -- during the strategic plan at the Investor Day. We are consistent with what we said before. We try to select the project which are bringing the most benefit in terms of profit, obviously. Knowing that in our industry, as you know, we have a churn rate which is very high, which is also helping us to limit the restructuring cost.
We'll now take our next question from Sarah Simon from Berenberg.
Just one question. I'm sorry to be a bit boring and come back on the attrition question, but it was really 2 things. Just following Tom's question. With this specific project, and are we talking here basically decisions to just not create new campaigns that spend money using old creative? And secondly, is this across-the-board FMCG or is it just a couple of clients or large clients who made this decision?
Well, thank you for asking the question because we have to be very clear on that. Yes, it is about specific project. And I mean, just look at how things are being done marketing-wise. When you are, for example, managing your large portfolio of clients, you're going to decide the one you're going to invest in and the one you're going to divest and, by the way, sometimes sell. And so you can lose on one day a brand that you have been managing forever, but that is going to be stuck in terms of investment or either sell or -- and so we are not talking about this kind of -- we are more talking about this kind of project that are being cut. Now the second question is extremely important. The problem is that you put so many things into FMCG that it's unfair for most of them to be associated to the problem of a few of them. And by the way, the one that are being challenged today could be the one that are successful tomorrow. You are actually showing exactly an example of that. So the problem I'm having, and this is -- again, I'm going back to what I said, I think that we have to fix our own problem. We have to continue to scale our model. And we have to bring back organic growth, and we shouldn't blame anyone else for that. The truth is we have a few clients that actually count a lot for us that we are continuing to invest on, by the way, but at the moment, has been cutting and helping us on our organic growth. And those clients will come back. We are with them on that. But I don't want anyone to think that we are talking category-wise. It is within this category for a very simple reason is we are talking about clients that, for the moment, are not accelerating in their transformation as we can see in other category. I talk about financial services, but retail is a great example. If you look at what we are doing with Carrefour that we won at the beginning of the year, it is a brilliant example of a client that has been spending maybe a bit less on saving but true on transformation with whom we are doing great things. So I don't think we should resume the category problem, not even as a trend. We are talking about a particular client that are pretty big for us where we need to do the work. Look, normally, we do 1.5 hours. This time, we did almost 2 hours. I will thank you for your time. I will finish very fast with, hopefully, with the 3 points you will retain of this call.First, we strongly believe that thanks to our transformation and despite low organic growth, we have delivered a record year commercially with our new business. And financially, I won't go into every ratio again [indiscernible]. We have done everything we could to make sure that we can raise our attractiveness on one side for our clients and for our talents; and on the other side, in a market that is under pressure, increase the value we are delivering.We are extremely clear that we need to accelerate on organic growth. And again, we are not looking for any excuses. We are trying to be overly transparent. We have a model that is growing by 30% on 12% of our business that is the target to make the parallel with the music industry, the equivalent of streaming that is proving to be working and will expand in time. And on the other side, we have experienced some attrition on some key clients that have offset part of whole year for us. Again, this would not have happened. We would have had a great year in every dimension.We are extremely confident on our ability to deliver our target for 2020, not only on growth, but also on profit for one reason, which is at the end of the day, we are intimately convinced that the model we have built today will deliver the growth of tomorrow. And this is the work we're going to do in the coming months, and hopefully, come back to you with good news.Thank you very much. Have a good day.
Thank you.
Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.