Welcome to Publicis Groupe First Half 2019 Earnings Call. I am Arthur Sadoun and I am here in Paris with our CFO, Jean-Michel Etienne.

Two other members of the directors are also with us. Our Secretary General, Anne-Gabrielle Heilbronner here in Paris, and Steve King, CEO of Publicis Media and CEO of Publicis Groupe on the phone.

As usual, we'll take your questions together after the presentation. Alessandra Girolami is also here and will be ready to take all of your questions offline after the session.

During this call, we will do 3 things. First, we will go through the H1 highlights and results.

Then we will share with you our strategic update. And finally, we take your questions with the directors.

As it is already late in Paris, we will try to be short in our answers and finish by 7:30. Now let's dive into the presentation.

Please, first I will look to the disclaimer, as it is an important legal matter. Okay, let's begin with the highlights of the first half 2019.

There are actually 3 highlights to return from this semester. Our top line growth, our financials and the closing of Epsilon.

First, as anticipated, our organic growth in Q2 shows a solid sequential improvement of 170 basis points bringing the second quarter to positive territory with a growth of 0.1%. However, we cannot be fully satisfied as this growth is at the low end of our expectations.

But what makes us very confident about the future is that this growth is healthy, built on solid foundations, driven by the ramp up of our Q4 new business wins, and the solid growth of 21% of our strategic game changers. This demonstrates the strength and the attractiveness of our model.

In the U.S., our clients are suffering from pressures on their business, and actually the consequences are pretty well-known. They reduced their marketing spending and therefore our fees, particularly, in the field of consumer goods where we have a disproportionate market share.

As a result, the revenue decline in our creative agencies has impacted our growth in the U.S. overall by 300 basis points leading to an overall organic growth in the region of minus 1.7% in North America.

To better fix this issue, we are implementing a new organization in North America based on our country model in order to fully leverage the Power of One. In the three regions where we have already implemented this model, we actually did perform well in Q1 and in Q2.

Europe posted its fourth consecutive quarter of organic growth with 2.4% in Q2. In particular, both the U.K.

with 4.6% and France with 2.1% delivered strong performance. APAC posted its momentum with organic growth at plus 2.7%.

Middle East and Africa continued to grow at double-digit rates in Q2 at plus 12.9% due particularly to business transformation projects. To finish with our region, LATAM is delivering weaker than expected growth at minus 8.7% due to the economic situation in some countries in the region.

We are talking about a decrease of €8 million out of a total net revenue of €2.2 billion for the quarter. But it still represents 40 basis points of growth for the group that we were not anticipating and that we did not get.

Second highlight, we continue to post strong financials in the first half. Despite the lack of organic growth, our operating margin was up 5.7% reaching €652 million, excluding Epsilon acquisition costs.

We were able to deliver 40 basis points of operating margin improvement. This is ahead of our 2019 objective and Jean-Michel will detail this later.

What matters the most here is the fact that we are increasing our margin while continuing to invest in talent and expertise. In H1, we delivered €108 million of cost savings, of which €48 million has been invested in our talents and our game changers.

Our headline EPS was also up in the first half, growing at 2.5% at constant currency and excluding BEAT tax. Our free cash flow before change of working capital reached €491 million, broadly flat, but remaining at a high level.

Last but not least, the closing of Epsilon is now done, and it has been done in a record time. We completed the transaction at a competing price with the net value of $3.95 billion with very good financing conditions.

The acquisition is accretive for shareholder with 12.5% on headline EPS and 18.3% on free cash flow per share on a pro forma 2018 numbers. Closing happened in July 1, as announced.

We have had 25 combined teams working tirelessly and visiting clear integration plan with one major objective in mind, accelerate growth. The core activity of Epsilon in building, enriching and activating first party data will be put at the center of our group to irrigate every one of our operations.

This activity was up in H1 2019, and we are confident that we can accelerate this growth in the future. So creative agency and CG affiliate will naturally fit with our current media and creative activities, generating efficiencies and growth.

That part of the business declined in H1 2019, and merging it with our operation, we definitely create some leverage. Here it is for the update of H1, I will now leave the floor to Jean-Michel, who will detail our numbers.

And I will then come back to share with you our strategic update.

Thank you, Arthur. So good afternoon, everybody.

As usual, we go now through a few slides detailing our first half 2019 results and just to remind you that all the numbers are under IFRS 16, including for the 2018 comparative numbers. So, I will start with net revenue on Page 9.

Regarding Q2, net revenue was €2,234 billion, up 1.6% versus last year. Currencies have plus 3.2% positive impact as a result at constant currency, growth is minus 1.6%.

Acquisitions have minus 1.7% negative impact. And all-in-all, organic growth is back to positive at Q2 by plus 0.1%.

For the first half of 2019, net revenue is €4,352 billion, up 1.7% versus last year as reported. Currencies have plus 3.8% positive impact in H1.

At constant currency, growth is minus 2.1%. Acquisition impact is a reduction in net revenue because of the disposal of PHS at end of January 2019, and Proximedia at end of April 2019.

Therefore, organic growth for net revenue in H1 2019 is minus 0.8%, and excluding PHS, we are at minus 0.7%. On Page 10, regarding Q2 net revenue by geography.

Europe is up 2.4% as expected, we still benefit from the good growth in France and in the U.K. where the country model is clearly working very well and producing the expected growth cross selling.

North America is down by minus 1.7% in the quarter. We had in the U.S., the ramping up impact of account wins notably SCA and GSK, while experiencing attrition in our traditional advertising operations mainly coming from FMCG clients, as Arthur already explained in the highlights.

Asia-Pacific is up 2.7% in the quarter confirming the good start in Q1 2019. It is coming from countries such as Singapore or India where we are posting strong organic growth.

Latin America is down minus 8.7% due to tough comparables in this region and also a more difficult economic environment. To remind you last year the Q2 organic growth of this region was plus 7.2%.

Middle East and Africa are up 12.9% mainly due to the good performance of our operations in the United Arab Emirates, mostly in digital business transformation. Overall Q2 organic growth for the whole group is at plus 0.1%, confirming our expectation to return to positive territory.

On Page 11, regarding H1 2019 net revenue by geography, I will only go through the numbers very quickly. Europe is up 1.6%, North America down 3% excluding PHS, Asia-Pacific up 2%, Latin America down 7.6%, Middle East and Africa up 19.1%.

And we have a minus 0.7% for the entire group excluding PHS. On Page 12, as usual, we try to give you some color on our organic growth rates for the main countries for H1 2019.

I will only mention a few of them above 10%. We have mostly Colombia at plus 13.7%, India at plus 14.8%, and Italy at plus 11.4%., Singapore at plus 14.8%, and United Arab Emirates at plus 22.3%.

Between 5% and plus 10%, Israel is at plus 7.7%, Philippines at plus 6.4%, and Canada at plus 5.7%. Between 0% and plus 5%, France is at plus 3.1%, Mexico and South Africa are stable, and the U.K.

is at plus 4.8%. Several countries reported negative organic growth for H1 2019 among which Brazil, the U.S., Germany, China and Spain.

Let's continue now with the detail results. On Page 14, starting with the P&L, H1 2019 revenue is €4,868 billion.

Net Revenue is at €4,352 billion, EBITDA is at €885, slightly up at plus 0.3% year-on-year, but excluding the impact of the Epsilon transaction cost, the increase is plus 4.9%. The Epsilon transaction costs represent €40 million and have been entirely recorded in H1 2019.

So, for comparison purpose, these costs have been excluded from the H1 performance analysis. Operating margin is at €612 million, almost flat, but excluding the impact of the Epsilon transaction cost, the increase is plus 5.7%, which leads to a 60 basis point improvement on operating margin rate.

I will come back to this with the next slide. We cover also separately interest expense and income tax.

Headline net income is at €463 million, up 5.7% versus last year. The amortization of intangible is at €20 million net of tax.

We have an impairment charge on 2 non-consolidated investments, and the real estate consolidation charge due to vacant locations for a total of €90 million net of tax. We have also a capital gain on 2 disposals and a change in fair value of financial assets for €23 million.

The reevaluation of earn-out represents a small amount of minus €1 million, and all-in-all, the group net income is at €345 million, up by 14.6%. On Page 15, we have now to come back to the operating margin details.

We have 2 slides on this. First of all, personnel cost represents 64.8% of our H1 net revenue.

The ratio which is down by 60 basis points versus H1 2018. The personnel costs include the necessary recruitments and investments in our talents to grow our game changers, and also the impact of a higher incentives showing that our margin is not delivered at the expense of future growth.

I see it is important to be very clear on this matter. You will see the details on this topic on the next slide.

Restructuring costs are €61 million versus €36 million last year. For 2019, we now expect a higher level of than in 2018, which should be approximately between €120 million and €130 million versus €104 million last year.

This is a cost that we have to incur in the context of our transformation as well as the simplification of our organization in the context of our country model implementation. Other operating expenses represent 13.5% of net revenue and 12.6%, excluding the Epsilon transaction cost versus 13.2% last year.

This is mostly due to the benefit of our real estate consolidation plan as well as the savings on G&A as described during our investor day last year. Overall, and excluding the Epsilon transaction cost, the operating margin rate is at 15.0% improving by 60 basis points versus last year and 40 basis points, excluding the positive technical impact -- IFRS 16 technical impact we talked about.

If we move now to Page 16, we are presenting the change in operating margin as a percentage of net revenue. Excluding the positive technical impact of 20 basis points from IFRS 16, the increase is 40 basis points from 14.6% in H1 2018 to 15.0% in H1 2019.

Foreign-exchange mostly due to the U.S. dollar and M&A with the disposal of PHS and Proximedia altogether added 50 basis points positive impact on operating margin rate.

Higher restructuring charge had 60 basis point negative impact on margin. The cost saving plan continued to deliver these 250 basis points including 220 basis point savings coming from our cost reduction work streams as presented at time of our last Investor Day, and followed by 30 basis points for occupancy costs reduction in the context of our real estate consolidation program.

Those cost reductions have been partly reinvested in talent to grow our game changers and this represents 110 basis points. Higher incentives for our talents represent 70 basis points, and we are also 20 basis points of increasing cost coming from the few P&L items.

Overall, this has led us to deliver in H1 an operating margin rate reaching 15.0%, excluding the Epsilon transaction costs. Regarding now the net financial expense on page 17, you can see that we have a reduction of interest on financial debt of €24 million resulting from interest income, thanks to our cash generation over the last 12 months.

Net interest on financials debt is, in fact an interest income of €15 million versus a €9 million charge in H1 2018. When we include the impact of net exchange gains or loss, the interest on lease liabilities and the other financial expenses, the total net financial expense is a €1 million charge versus a €36 million charge in H1 last year.

Of course, after the Epsilon acquisition, we will have a complete reset and we will start a new chapter in this area. Regarding taxation on Page 18, the H1 2119 tax rate is at 25.8%, almost unchanged versus H1 2018.

But we should note that in H1 2019, we are -- additionally the impact of the BEAT tax, which is a U.S. tax on imported high added value services.

As already said, the BEAT tax will cost at this stage to the group roughly €30 billion per year. Including the BEAT tax, this should lead to an effective tax rate roughly at 26.5%, including Epsilon for the full year 2019.

On Page 19, the headline earnings per share fully diluted is growing year-on-year by 4.8% and reached €1.98 in H1 2019. At constant currency and excluding the BEAT tax the increase is plus 2.5%.

On Page 20, free cash flow before change in working capital is €491 million, broadly flat at a high-level. In details, on one hand, we had higher tax paid than last year.

This higher amount of tax paid is a result of 2018 and 2019 higher profitability in several countries as well as the impact of the U.S. tax reform, which is lowering the tax rate, but on a larger basis.

On the other hand, we have less CapEx than last year. This is mostly due to phasing, and on a full year basis our CapEx spending should be close to €200 million before Epsilon.

On Page 21, acquisitions net of disposals represents €17 million of cash inflow in H1 2019, with the impact of the disposal of PHS on one side but on one side -- but we had also a few bolt-on acquisitions. The change in working capital is negative in H1, as it is always a case in the first part of the year.

We have also reduced working capital outflow in H1 2019 versus H1 2018 by €64 million. To be clear, our cash management processes have been further reinforced in the context of the coming Epsilon integration.

Let's move now on Page 22 to the balance sheet. There is an improvement of roughly €600 million in working capital versus 30th of June 2018, which is due partly to exchange rates and also, as I said before, to the enforcement of our cash management processes.

Additionally, according to IFRS 16, we have in the balance sheet by now, all the leases, impacts have been already disclosed, in H1 we have an increase in lease liability due to lease extension in New York, which has been committed during the semester in the context of our real estate consolidation program. On Page 23, H1 2019 average net debt is €550 million, down €800 million year-on-year.

Net debt position at the end of H1 2019 is at €74 million, down roughly €1 billion versus end of H1 2018. This means almost 0 net debt before starting a new chapter with Epsilon.

So, the pro forma net debt after Epsilon closing at July 1 is €4 billion. On Page 24 we are presenting our financial ratios, we are below our internal ratios which have been restated after the IFRS 16 implementation.

And to finish my presentation on Page 25, we are calculating our liquidity with a bridge before and after the Epsilon acquisition. As you can see, our visibility stands after Epsilon at €4.5 billion.

And now Arthur will continue with the strategic update. And as always, I will be available for your questions at the end of the presentation.

Thank you, Jean-Michel. You are all very familiar with the disruption created by data and technology in our industries.

One number to illustrate it, 100% of the digital growth in the U.S. is actually captured by Facebook and Google.

The need for transformation has never been so strong in our sector. The consequences today vary from one company to another, but will be the same for everyone over time.

As Jean-Michel just presented, we have a model allowing us to address those challenges and invest in the talent and the expertise of the future while delivering strong financials. The best illustrations of that over the last 18 months, we have invested over €150 million in our talents and game changer.

And of course, we have invested in Epsilon circa $4 billion acquisition that we are confident to repay in 4 years, thanks to our strong cash generation. When it comes to organic growth, we should separate short-term from long-term.

On the short-term, 2 phenomena explain our situation. First our revenue mix is historically more exposed to revenue coming from traditional advertising, it represents 36% of our activities, particularly, in the upper end of the funnel in brand advertising.

With FMCG accounting in our case for more than 1/4 of our client portfolio. We are talking about revenues that are making us particularly exposed to few addictions at a time where our clients are having increased pressure on costs.

To give you one concrete example, one of our clients that is clearly very satisfied with us and we assume, we are actually winning market share has put in place a cost reduction plan at corporate level. It has impacted our organic growth by 70 basis points at group level in 2018, and further 75 basis points in the first half of 2019 alone.

The second reason, the profound transformation we have engaged during the last few years has implied a lot of changes while demanding extra focus and investments. Honestly it has been penalizing in the short term, but it is a clear strength for the longer-term.

The best illustration of this is our track record in new business and the growth posted by our game changer at plus 24% in the first half. We have accepted the consequences of this deep transformation in the short term as we believe it is the best way to secure our future.

With the acquisition of Epsilon, we are completing the transformation in terms of assets. It has been an intense journey.

Since the implementation of the Power of One and the acquisition of Sapient, but with a combination of our media and creative assets, we are uniquely positioned to help our clients acquire market share at a lower cost. So, when it comes to the second part of the year, we will show a sequential improvement in our organic growth versus H1, thanks to our game changer and our new business.

But as spending cuts are not going away, we are taking a conservative approach when it comes to our short-term growth. We expect that 2019 net revenue to remain broadly stable -- broadly the same, I would say, for the end of the year at similar parameter and exchange rate.

Despite broadly stable net revenue in organic basis, we are confident that the simplification of our structure will allow us to deliver, as planned, 30 to 50 basis point decrease in operating margin and a headline EPS, up by 5% to 10% including Epsilon. For 2020, the main structural change is integration of Epsilon.

Their number will be taken into account in organic growth from July 1, 2020. We expect to see growth and extension of our collaboration on data with our current clients while benefiting from cross fertilization between our assets and Epsilon portfolio of clients.

Conversely, we also believe that some of our clients will continue to reduce their spending in traditional areas. We will update you with our new forecasts taking into account those moving pieces in the coming months, but we can already tell you that we will grow our operating margin rate and we will increase the headline EPS by 5% to 10% in 2020.

Now spending most of my time with our clients, I can tell you that we have the unique combination of assets that they need. Their latest reaction to Epsilon acquisition has just been outstanding.

This is why we are confident that we will deliver strong growth in the future, thanks to 3 levers. The first one is clear, in the data-led digital first world, every one of our clients will have to transform.

When you know that on average a consumer has 900 digital interactions before buying a car, you understand why every one of our clients will need data, creativity and technology in a seamless way to deliver personalized experience at scale. This is exactly what we can bring to them with our unique set of assets and the Power of One.

We are now uniquely positioned to do it and we are talking about an addressable market of $1.5 trillion. To make it happen, we will leverage all the growth potential of Epsilon and Publicis Sapient that already represents more than 30% of our revenue together.

Second, our country model is already delivering results where it has been implemented first. With UK at plus 4.8% growth in H1, and France at plus 3.1%.

We will accelerate the rollout of our model, particularly, in the U.S., our largest market, where we have announced last week a major step forward with a new organization to further cross fertilization. The reason why we have been winning the 2 biggest pitch in the U.S.

last year is because we have implemented the Power of One by-the-book at those 2 great occasions. We will do the same at a broader operational scale.

With integration of Epsilon, we will break the silo between the different expertise by giving full authority to our U.S. connects that I will share.

Last but not least, we now have an unparalleled way to go-to-market that will create massive differentiation. We will leverage it for every pitch and are considering that we can make then an even further accelerate on our new business momentum.

After an impressive track record in 2018, we have a very good start of the year with NBCU, MediaCore or British Telecom to name a few. As you can see, on the one hand our new business track record, the rise of our game changer, and our strong financial results make us very confident in the unique model we are building.

On the other hand, the cut in advertising fee that we are experiencing mainly with our FMCG clients in the U.S. are leading us to take a conservative approach when it comes to short-term organic growth.

We know we will continue to deliver strong financial ratios. We have a plan to come back to growth, thanks to unique competitive levers, our only focus now is to the execution of our plan in order to create superior value for our stakeholders.

Thank you very much for your attention and we are now available with all the directors to take your questions.

Firstly, attrition once again is a major headwind on the business. Could you just talk us through what actions you're taking to reduce that pressure?

And when we can expect things to improve there? Connected to that, the economic cycle remains pretty mature and positive.

Should we be worried that in the event that the cycle does turn, the attrition would accelerate meaningfully as it's kind of more legacy media types? And then lastly, for the U.S.

business, which has had another more difficult quarter, could you just help us understand which bits of the business are doing well, and which bits are less well? Is most of the pressure on creative or is it also media, some kind of guidance for us to will be helpful there?

Thank you very much, Will. I'm going to start by 3, then move to 1 and leave 2 to Steve.

First the U.S. business, let's be clear, and you have seen that we gave you in total transparency the number.

We are seeing some attrition on our creative business that represents a 1/3 of our revenue. We are talking actually about a handful of clients; I gave you an example that are reducing our organic growth by 300 basis points overall in the U.S.

I mean, of course, without this attrition, we will be positive. Honestly, and let's come back to question #1, this is something that we have anticipated.

We said it very clearly earlier on. We have been consistent with this, and we are pretty optimistic on our ability over the long run to see this attrition disappear.

But we shouldn't stay still and I think that there are 2 things that are encouraging when it comes to compensate the attrition that we are seeing. The first one is, what you -- what we are experiencing in the U.K.

and in France, this ability to create a country model that will look for cross fertilization and make sure that you can compensate some of the key factors by other expertise. You're going to tell me why are you not doing it first in the U.S.?

it's pretty simple, it's a very big country, we are doing the Power of One really well when it comes to new business. We are doing it pretty well with our biggest clients.

We need to do it on a full level in order to compensate and actually go better than the attrition we can have on one side. So, the first reason why we are optimistic in the long run in our ability not to stop the attrition, again, it will slow down slowly, but we shouldn't expect this only to find that growth.

We need to be proactive and we need to find cross fertilization. The second area which is pretty interesting and very encouraging is that, honestly, FMCG is not the only sectors where we are seeing some advertising cuts.

I made the point last time, but when you look at the financial services and the relationship we're having with those clients, because our pressure on costs and you know that very well, they are also reducing their marketing, their advertising spends. So a big difference with the financial services is that we are able to compensate what we can lose on the advertising part by business transformation because we have this great relationship with the CMO and the CAOs, and that they are telling us that, "We are under pressure, we really like you, but we're going to have to reduce our fees because we're going to reduce our scope."

We say, "Fine." but we understand you better than others, and we have great capabilities that can help you transform, and then they see this is one of the reason, you see U.K.

in very strong shape is because we have applied our model to bring marketing transformation and business transformation connected by data under the Power of One to client that on side are suffering, but on the other need investment that we can do for them. So, to make a long story short, you look at our U.S.

business and the only real problem we're having is definitive or strong basis point of attrition that are putting in negative, but will be -- have been positive. And the other thing is we are not waiting for this to stop to take strong action.

We have a country model that could help us, and we have this business transformation activity that could compensate what we can lose on the other side. Steve, I guess I'm going to leave your question number two.

Okay, hi, and thank you, Will. So, I think in terms of the questions you've asked about the economic environment, you may have seen that we recently produced some revised ad forecast brought out a few weeks ago.

We actually predicted the ad is going to grow to 4.6% for the market in 2019, reaching just under USD 640 billion. That was just very marginally below the headline figure that we had for March.

And as you know from that, so we're not seeing a real significant change in terms of the total ad forecast. We are seeing all forecast -- all regions of forecast to grow in this year apart from MENA, which is Middle East because of the local economic difficulties there.

I think what you have seen is two trends that have previously been mentioned in this forecast. Firstly, we've seen the significant proportion of ad spend growth now being driven by small and medium-sized businesses and direct-to-consumer businesses.

These, of course, are the kind of businesses that advertising agencies and us tend not to have as clients, and they're fueling much of the growth that we've seen as Arthur has already mentioned. The growth that you're seeing from Google, Facebook and Amazon, et cetera, which is contributing the majority of growth in ad spend.

We've also seen everywhere globally, our clients operating in an environment of -- a low growth environment, which of course, is as we've already noted, has a particular effect on certain sectors and a consequent impact on their ad spend. I think against that, something that should make us think about more optimism for next year where of course, next year from a global perspective we're going to see a stronger ad market than this year.

We are actually forecasting the market is going to grow more than this year because if you've got 2 things, you've got the U.S. elections, and of course, the Olympics.

Secondly, the attrition through major clients cutting their investment in marketing, we have seen a handful of large scale advertisers in this category, particularly, the FMCG advertisers publicly talking about renewing the need and the focus on brand building. I'm sure you've seen this, I know you commented on this, Will, in your papers.

And their plans to increase spend on what we call working media dollars in order to boost business. So, I think we're going to begin to see some pickup in that area.

The third area for us, of course, is with the acquisition of Epsilon, it's going to do 2 things. It's going to allow us to help those clients who are suffering from this disruption, it's going to help us to reach consumers much more effectively, our ownership of data is going to allow us to build new products and to reach those consumers more effectively and with more innovation.

And finally, if we look through to 2021, the U.S. is going to contribute nearly half of total global ad spend growth, about 46%.

And of course, with our acquisition of Epsilon, that is going to increase the majority of our spend, which is going to come from the U.S. So, we are geographically well poised to capitalize on the growth of where the ad spend is going to be at the greatest level, which is in the U.S.

and the acquisition of Epsilon is going to help us capitalize on that.

Thank you, that's really useful. Just one quick follow-up.

Should -- do you think that if there is a slowdown in ad growth, globally or in the U.S., it would accelerate attrition or is that the wrong way to think about it?

Yes, I mean, first of all, I don't think we're really -- we're not really seeing that and I think in the question of attrition, I think my comments about some of the largest blue-chip advertisers. I think they have seen their own results suffer through an overzealous cutting of marketing expenditure.

So, I don't think that a softening of the market, which we're not currently predicting, would necessarily lead to a further rise in attrition that we've seen certainly in '18, and this year in '19.

It is a very important point because actually when we see attrition where there is a cost reduction plan at corporate level with our major clients that normally they make it public, by the way. And it's having an impact on marketing, that is having an impact on us.

It is not due to market condition; it is obviously due to their strategy.

Two things please, your guidance which includes the 30 to 50 basis points reiteration of operating margin expansion this year now includes Epsilon, which is new and that comes in at a higher margin. I'm assuming this means that with a bit of a reduction in your topline guidance, this means your underlying margin expansion guidance is down a little bit as well and Epsilon helps makes up the difference.

Can you please help me understand if I have that right? And I guess secondly on Epsilon, it being your largest acquisition I think ever and just having closed, what can you tell us about what you've seen now that you've got it in-house?

Anything you can tell us about the integration effort, any first learnings from the business, et cetera?

Thank you very much, I'm going to let Jean-Michel take the first question and I'll take the second.

Okay. Tim, so you notice that we're confirming our commitment to deliver 30 to 50 basis point improvement for the full year, and including Epsilon, as you said.

But now most probably at the bottom of the range, which is 30 basis points, it's something that we have to simulate. You need to understand that this is a very strong achievement regarding the fact that it includes first €20 million more in restructuring charges.

And second, Epsilon in H2 2019, we have the closing happen two weeks ago. So, we have to measure very precisely the impact on the margin rate, but I can already confirm the bottom of the range.

This is something -- so all the simulation, and you know that we have a some advance already in H1. You saw the margin in H1 2019, we are already a little bit more advanced than we thought, to be clear.

So sorry, can I just make sure I understand you, Jean-Michel, if Epsilon did not happen, are you saying you would be at more like 30 basis points or that? I mean it still seems like a slight [indiscernible] guidance with Epsilon?

We will have been in the high range of the bracket.

So, you would've been on high...

So, Epsilon is putting us more on the low range. And also, we have this €20 million more of restructuring costs -- restructuring charge that we need to take into account for the simulation, obviously.

So, coming back to your question about Epsilon. As we said at the closing, we haven't lost 1 second since the signing, I mean, what was possible to do of course, to create 25 work streams that goes from very strategic topic to very operational.

I'm not going to get into detail, but what you should take out of that is that the core activities of Epsilon, about building first-party data, enriching it and actually making it the core of our group. It is a vast majority of their revenue; it is growing today.

We think we can grow it better, even better. But what matters here is that we see perfectly how it's going to work with every -- of our solution we've been creative in media or in business transformation.

We talk roughly and quickly about the agency business and the CG affiliate business that is not growing that we are folding into our media and creative activities. What matters, to come back to your question, is that maybe I'll say three things about what we have discovered in the last weeks.

First thing is, we saw it before we bought it, but now it's obvious the strategic fit is just perfect. I mean our ability to go with them to a client and show how we can link data, creativity and technology to deliver personalization at scale is just extremely powerful.

And we do not have to reinvent anything about our strategy. We adjusted it in a way that is pretty significant.

The second thing is something that we checked before, but it's always better after and we have seen that through the work stream is we are sharing the same culture. Those people come from marketing.

We are sharing clients, by the way, we have been sharing talents in the past. And so, so far, maybe things will change and people will start to get grumpy.

But so far people are working extremely well together, and believe me, they are working in a very intensive way because we want to grow fast and want to make sure again that we can accelerate our organic growth. Last but not least, and I will invite you to do it because it's even better, I mean, the welcoming we had from our clients is pretty outstanding because what happened here is that they are all obsessed today about one thing which is, how can I take back control of my customer.

I mean, in a world that is being dominated by the platform, their ability to have direct relationship with their customer is key. And this is exactly what Epsilon brings.

And so honestly, the point I am having at the moment is that I need to make sure that we can actually meet our clients at the right pace in order not to disappoint anyone by not preparing well the meeting, but it has been warmly welcomed by our clients which is of course, a very good sign.

I got a couple of questions left. And maybe I am going start with North America.

So, Arthur, maybe if you could talk a little bit about the verticals where you're seeing the pressure of the attrition? You mentioned FMCG on a number of occasions, I just wonder whether there are any other verticals of note that you would highlight where you're seeing this pressure.

And you mentioned the 300 basis point headwind for a couple quarters now. I just wonder whether you could talk about whether you think that headwind will get less bad during the second half of the year and maybe even, where do you think North America can grow in the second half of 2019?

That's the first question. And then I wanted to turn to 2020 targets.

Obviously, I appreciate you will come back to us when you've done more work post betting in Epsilon, but I want to ask -- it is the obvious question. Should we assume that both the 4% organic revenue target for next year and the 30 to 50 basis points, margin expansion, both are going to come down?

Okay. so, I'll start with the vertical, which is a great question.

Honestly for the moment, we are only really seeing FMCG as an issue when it comes to attrition. I mean, I gave you a number.

Only 1 client representing 70 basis points on a yearly basis for the group. Imagine our organic growth, if you add this 70 percent -- 70 basis points basis point -- we won't because it is a reality.

And everyone has his own problem. But the truth is, we're talking about a handful of clients where we have difficulties.

And, and, and we have, by the way, to take the burden with them and we believe that if we do that in good partnership, it will help us in the future, and this is why we want to be confident. But I can't disclose more detail, but we are talking about a handful of clients in the FMCG with 1 or 2 that are taking the biggest bulk of it.

Budget cuts and how attrition will continue? As you might have seen, we want to take a conservative approach here, is that we are extremely committed to bring back organic growth through our game changer through new business by transforming our model and going into a country model.

We have seen a very strong result in our new business in our game changer, in the U.K., in France, in Asia. We need to transform the same in the U.S.

So of course, we believe that attrition will fade away because, again, we know the client with whom we are suffering. But honestly, we want to take this conservative approach because we believe it is a right thing to do to make sure that we can really focus on bringing the organic growth where it is, and be careful on the fact that, as you know, €20 million is 1% growth on a quarterly basis.

So, we have to be very careful with that. And when it comes to 2020, for all the reason that I just mentioned earlier and maybe more importantly with Epsilon being the main structural change, we believe that on one side we are going to see some growth with what we are building with Epsilon.

On the other, we should take into account the fact that attrition should or would continue, and we will update you certainly in the coming months with our objective. But what is important to take is in the meantime, we can confirm already in 2020 that we will grow our operating margin rate and we are confirming the increase in our headline EPS by 5% to 10%.

So, we want to be conservative, we are very strong on our financials. We know that our game changers are ramping up.

We have a new business track record, and a good momentum in the first part of the year, but we have to be conservative.

My first question is as you are talking a lot about game changer and attrition, you gave us a growth rate of game changer, 24%, you gave us the revenue, €580 million. But can we have the size of the attrition, revenue approved for the whole of the business?

So, the equivalent of the €580 million. And can we have the decline in first half for the whole group because you said minus 3%, but that's only the U.S.

So, can we get that breakdown? Then what percentage of Epsilon net sales will go into game changer?

Then you say margin will go up next year. So, the 2 strong year in a row in terms of growth rate, but what kind of maximum margin can you get to?

Shouldn't -- is there an optimal margin? Or is there a trade-off between margin and growth?

I'm going to take two. I guess on 1, I'll need more detail and then we'll see on three.

On two, it's pretty easy, 80% of what we do with Epsilon will go in our game changer. And that's very important because what you're going to see is that we're going to have roughly 30% of our revenue that will go into traditional advertising, still, and this is where we see the attrition, but we're going to get 30% of revenue that -- within data and technology.

And this is obviously very important for our ability to find organic growth. We are shifting the revenue mix.

And as I try to demonstrate it, this is where we are being impacted. And in terms of relationship and transformation with our clients, it makes a huge difference in the way we are being organized and what we can bring to them for the future.

When you look at attrition in Q2, we are talking roughly about €50 million. That's it.

And the actual amounts in terms of percentage of revenue? Because the €50 million, I guess, is the decline?

Jean-Michel?

We have the impact on the growth rate, but in terms of euros, how much it represents, it should be...

I mean, again, the synergy attrition is €50 million. The only number that is really important to take because most of the attrition is in the U.S.

is the 300 basis points knowing that U.S. is at minus 1.7%, and you would have had those 300 basis points.

And you get the growth, you could have had. If you need more detail on that, I have got Alessandra in front of me, she will give you the number that you haven't calculated may be.

Okay. And on the margin?

So, on the margin, Julien, you know that we have these work streams, which have been defined at the time of the last Investor Day. We are still working, using these work streams, we are tracking that and we will continue to deliver the cost-reduction in line with what we say.

This is €450 million gross cost-reduction in the 3 years period. So, we have been above what we plan to do in 2018.

For the time being, we're continuing in the same direction for 2019. So, in 2020, overall on the 3-year period, we would have delivered the €450 million growth.

So, I don't know exactly how much it will be in 2020 because the budget exercise has not started, as you can imagine. And the Epsilon contribution to that of course, will be critical and we have a lot of work to do.

We understand a little bit more of the metrics now in the way Epsilon is working. We know that we have a some restructuring costs that we will incur in order to protect the margin, and this is why I will confirm what I said before, we still have margin expansion, but to tell you how much it will be in 2020, it's still a bit premature, honestly, a little bit premature.

We want to be conservative and not making people dreaming on things that we will not be able to deliver. But we will improve, definitively we will improve the margin in 2020.

And again, if you look at our track record in the last 2 years, we have been consistently delivering on all the financials and what is important there is that it's not cost-reduction for cost reduction, I'm going to take one example. When we bring everyone into the same building, not only we find efficiencies, but we are putting the Power of One in place.

And on the other side when we look at the way we are investing in new talent, making sure that we can maximize our existing resources, it's making a big difference. And this is something that we are feeling.

Again, despite the growth, we are improving our number while investing and delivering quarter-after-quarter. And in this case, semester-after-semester, when it comes to our margin EPS of free cash flow.

So, first of all, on your guidance for 2019 of flat organic sales growth. I think it still implies that H2 goes back into a positive territory, despite the comparatives getting a little tougher.

And as much like before, the economy is slowing down. So perhaps, can you give us a bridge as to why things should pick up compared to the first half?

Secondly, can you provide a bit of guidance around what we expect for Epsilon revenue and EBITDA growth for 2019? And then lastly for now, perhaps, on your margin target, Jean-Michel, for 2019, does that include Forex, M&A and IFRS 16?

And perhaps, if you can isolate these elements, that will be quite useful because they were quite significant in H1?

I'm going to take 1 and I leave you 2 and 3, okay. So clearly, we anticipate H2 to be positive.

For two reasons, which are the same. Again, what you need to understand is that, okay, we have this attrition issue in the U.S., for sure, but on the other side, we are building the foundation of very solid growth.

We have new business that is going to continue to ramp up. We have our game changer that is actually having an impact on a broader scale.

And so, we are confident for this reason. The problem is how fast can we stop attrition and accelerate.

So again, H2 is positive, thanks to our new business and our strategic game changer. Jean-Michel, I guess the second question is for you.

Yes, in terms of revenue, we have the forecast for Epsilon. Of course, it needs to be reassessed for sure.

This is a focus which has been prepared and is the responsibility of ADS. We need to reassess that, of course.

It is -- today, we can't give a true number for you. We have some idea, of course.

But it is difficult to give you a precise amount. In term of EBITDA, we are keeping what you saw already at time of the announcement, the 15th of February for Epsilon.

We -- of course the savings, which are being recorded coming from the own internal cost-reduction plan, will not be delivered because it is a savings for -- on the 3-year period. We will have only a part, but that continues as they are working hard in order to deliver that.

And what we have seen a big piece already will be in the numbers in 2019. So, this is something which is rather satisfactory.

Talking about the guidance for the margin for 2019, we have considered that these are conservative assumptions. Of course, IFRS 16, effect will be in, as you saw, we have 20 basis point improvement regarding IFRS 16 compared to what we delivered in H1 2018, but the effect of IFRS 16 on a full year basis was already recorded in the full year 2018 numbers, and we had 30 basis points in total.

We had only recognized 10 at the end of H1 2018. And we are not expecting a change, an additional change for the full year 2019.

So, all in all, we are -- this is what we have seen. You have seen already in H1 2019 is right.

So, in terms of Forex, we're not expecting for the second part of the year. An effect of the Forex based on what we know today.

This is -- we will remain at the same level what you saw at the end of June 2019.

Okay, that's all very clear. And Arthur, I actually have a follow-up question, if I may.

So, you talked about the attrition of FMCG and we have seen a bunch of big FMCG clients, Kraft, biased towards Henkel, et cetera, talking about reinvesting beyond their brands. I am just curious for these brands that have already increased work in media spending, have you seen an increase in fees?

I mean, first of all, we shouldn't put every FMCG in same basket. We have some FMCG client with whom we are growing.

And so of course, you have FMCG that are doing well, continue to increase the way they are investing and we are growing with them. It's public, I mean, just look at who is doing good and you will see immediately who has put a cost-cutting plan at corporate level, and who did not.

Now, yes, hopefully we will see some of our clients that have been through a difficult moment starting to invest again. Would it be a lag time?

Maybe. Would it come on the mid-term, for sure?

The question is who is going to strive the most in this new world? How can we help them to transform?

And then of course, we are expecting to see some results. Honesty, this is what we are seeing in the financial service or in the retail now.

It's two areas that has been through difficulties and retail is a good example of that, but when this start to get back some momentum or at least some security and start to invest we are taking advantage of that and this is our plan. This is why you see us on the same time so conservative on the short-term growth and very optimistic for the future because we are what our client needs.

And this is why I try to say on the Epsilon question is that you can feel that what we are bringing to them today, which is our ability to understand better customer and bring back controls through data, dynamic content that will be personalized, and technology to actually deliver this personalization at scale is exactly what they need, if we can bring it in a seamless way with the level of trust we are having with them. We feel very confident.

A couple of questions from my side as well. First question, may be for Arthur, apart from the FMCG attrition, you also mentioned in your remarks that some of the reorganization efforts you are making is also having a short-term negative impact, I guess, on your organic growth.

Could you give may be some specific examples about what you mean? Second and third questions relating to Epsilon.

Firstly, Jean-Michel, is there any seasonality of profitability at Epsilon's, are margins notably higher in the second half of the year than the first half? And looking forward, you haven't put a cost synergy target out for Epsilon, if 20% of your revenues are not going into the -- of Epsilon's revenues are not going into game changers.

I guess, some of those activities are traditional agency and declining. Is it fair to assume that there will be some significant cost synergies that you can announce in time?

I'll start with the first question. I mean, as you have seen from the foundation of the Power of One, Sapient, our ability to put the country model in place, we have been through a major transformation.

This has taken time, this has taken energy, this means some investments in the area of tomorrow that maybe doesn't deliver the short-term growth that you can have when you invest in activation in the field, for example, but at the end of the day, we believe, this is the right model for the future and the balance we have tried to find in the last year, by the way, is knowing that this transformation, for us, at least is a must. You can't agree that we are living in a world that is dominated by Amazon, Google and Facebook and not move your business model to be ready to answer a question as simple as, okay, today there is 900 digital interactions before my customer buys a car, how are you going to help me out.

You need to have data, you need to have technology, you still need to be at the core of whenever you do creativity, but you need to transform. And yes, it takes time, it takes energy, it took investments.

Again, you are seeing the first results, I mean, 24% of growth on our game changer on something that represents roughly 13% of our revenue is something. We are in the business where you don't see this kind of growth.

It is the bids, the streaming of our activities. Okay, we need to provide some selling CDs and CD is still important.

But when you look at our streaming activity to take the analogy with the music industry, it's something that represents 13.5% of our revenue, which is at the core of what our clients need, we are growing by 24%, and so we see early signs and very strong sign actually of the fact that we have the right model in our game changer and in our new business, but yes, we have to admit that of course, it has taken time and energy.

Regarding the seasonality that Conor, you mentioned. Yes, there is a seasonality in the way Epsilon is delivering its results.

The second part of the year is significantly bigger to be clear. So, you can see that in the formal numbers published by ADS, by the way, this has not changed obviously, so this is interesting.

And of course, we factored that in our forecast already and yes, we have identified some areas -- where in the areas where Epsilon is not delivering growth that Arthur mentioned already, we have potential way to improve the profitability of course, by some restructuring, and as you know, this is in the U.S. and the cost is not huge to be clear.

This is not Europe.

The first one is, I'm not sure, if you're going to reveal it, but if you could us what was the Epsilon Q2 organic growth and EBITDA progression that ADS didn't reveal it today, so that would be interesting? And what's your objective on Epsilon for the full year this year once you get hold of it?

The second question is on FMCG and traditional, you said one was 35%, I think and one was 25% of revenue. Do those two overlap or is it 35% plus 25%, if that makes sense?

And then finally you probably listened to the Omnicom call yesterday. And obviously, they were talking about Axiom and Epsilon, and basically why they did not want to buy them and how renting data was about a strategy.

They have three points; one was that the data is legacy. Two, uncertain regulations, particularly what might happen in the U.S.

around privacy laws. And thirdly, integration risks.

How would you deal with each of those questions to convince us that Epsilon is going to be a good acquisition and it's going to be well-integrated?

Thank you for the questions. So, I'm going to let three to Steve in a second.

You want to take one or?

The first one, yes.

You want to take the first one, I could do it but you can do it too.

Okay. No.

No, Matthew, it is very clear that these are not our numbers, and these figures will never be part of our figures. So, it is very difficult for us, we are not owning these numbers, very difficult to give you this kind of detail.

So, I don't think it is correct for ADS to give you the detail of the performance in Q2. So -- but I can tell you, after that Q3 and Q4 you will have access to a few numbers regarding Epsilon.

But, again, the only thing we can say at this stage is that the core of Epsilon, which is what we'll be at the core, Publicis is actually growing. Why is CG affiliate and advertising being not and will be folded into an organization in the coming days actually, we're having a meeting on that on Monday -- by the way, on Epsilon, give us a bit of time.

We did not expect to close so fast. I think you can agree that it's a record time, and so it's great news for us because our client are extremely anxious to meet them, which we can do now.

But we still have work to do and we will come back to you. Yes, it overlaps, clearly, 35% percent of revenue that are in traditional advertising and among those 35%, we have 25% on CPG.

And so now we'll move on to Steve.

Okay, thank you for allowing me to answer on this question. I think, Matthew and others on the call, you've seen that we have taken, I think, arguably the leading position in terms of how we've been able to build data sets under the Publicis People Cloud over the last 2.5 years.

In the previous earnings calls, we've reported success in business development. You know that we were ranked #1 by all of the external sources in terms of new business.

And how we use data, and particularly Publicis People Cloud, it was absolutely at the center of those wins. And what Epsilon is going to do is allow us to accelerate our strategy, very simply.

It's going to allow us to connect data sets and to build IDs in a really deliverable way, and demonstrate provable return on investment for our clients. I think when you talk about those 3 points that I have just noted; I didn't listen into the Omnicom call.

If you talk about legacy, what we're seeing is a change because we are -- we know the marketing is changing. Is now mobile first and data led.

So, we are now seeing the cookies at risk and the future is about first-party data. You talk about uncertain regulations so this -- what Absalom is going to give us is going to be privacy by design and in terms of integration we have got a service where we are now seeing the opportunity through game changers to connect media, technology, creative, the missing link is data.

So, we can now provide that really powerful connecting asset, and I think our strategy has proved absolutely right to double down on data. It was the first of our game changers.

It has been the heart of the business, and I think if we have not had that experience, we would not have the confidence now to know that we can use data in a far more powerful way. We know we cannot rely on anonymous profiles in terms of securing our future, and I have clients, whatever category they are in, we have talked about those categories which are a challenge, we are seeing attrition, but all our clients need to understand real people and building around IDs.

That's really the future for us and whether those are clients in -- clients which not seeing the same rate of attrition and a point actually building on -- some of your questions about attrition earlier. One of the interesting factors for us is, of course, that Epsilon is generally operating in sectors which are less exposed to the FMCG and CPG category.

That's a huge asset for us and we talked previously, if you remember on the previous earnings call, they're very steep in retail and finance and auto. So, we've got a real opportunity to capitalize on those experience.

Arthur has talked about our new business and our headline new business gains, and we talk about these. But of course, the opportunity here is to uniquely develop a business, which is growing through cross-selling, it is absolutely enormous.

And just to conclude, when you talk about that point about integration with the data of the call, where you have got real IDs about individuals, not cookie-based, but first-party data, we're going to have a unique opportunity whether we are talking to clients, whether they've built, want to compete against the DTC brands, whether they're going through retail communications, is an ability to build real dynamic, creative, based on individual IDs, linking together media technology data in a really powerful way. So, as you can tell, we are hugely excited about Epsilon, and I think the time of us in terms of this integration could not have come better.

We've had 2.5 years’ experience now of putting data at the center of our transformation. And I feel our whole organization whether we are sitting in the technology area, whether we're sitting in media, whether we are sitting in creative or business transformation, I think everybody in our organization plus our new colleagues at Epsilon are hugely excited about the integration opportunities.

Thank you for that. You need an extra bonus.

It was a very enthusiastic response. Thank you very much.

No, no, you said it all. I mean again, coming back to Omnicom comment is one thing where we will all agree, I guess, is that creativity is at that the core of what we offer.

And actually, this creativity has to shift to more model creativities and be more dynamic, but when it comes to data we would have to determine because if we all agree, and I guess, we'll all agree that we are living in a digital world that is dominated by Amazon, Google and Facebook. Again 100% of the digital growth in U.S.

this year goes to Facebook and Google. Not owning data which is what we're doing now with Epsilon is exactly as, to take an example, in the '50s.

When we were as an industry shifting from press and radio to television, we decided that we will let the TV channels taking carefully of advertising. We believe it is a wrong thing to do.

We believe that we need to protect the interest of our clients, and aid them, as I said, to take back control on their customer to accelerate sales while reducing their cost. So, for us it was a priority.

I won't come back to everything that Steve has been saying. I will just maybe wrap up quickly, as there are no more questions and 7:30 PM is already past by telling you that the sequential improvement of our growth is definitely based on solid foundation and I hope that we have demonstrated that our strategic game changer, our new business track record, and our country model that is pretty advanced in the U.K.

and France are paying us. We are being very transparent.

We are still suffering from traditional advertising budget cuts, mainly in the U.S., mainly with FMCG, and this is inviting us to be very conservative in the short-term organic growth focus, as we need to shift our revenue mix. But and I do not want to spend too much time on that, but we believe that thanks to our strong financial, we can continue to progress.

We can continue to invest; we can continue to transform while delivering and improving our ratio. So again, we feel very confident because spending our time with our client, and this is a case for Steve too, we know that we are delivering what they need, data, creativity and technology to transform their business, bring personalization at scale, accelerate their sales while reducing their cost.

With do know that we still have a lot to do. But are pretty confident for the future.

So, we thank you very much. Sorry for the people in Europe as it is a bit late.

Thank you all for being there and see you soon. Thank you very much.