Oct 19, 2017
Executives
Arthur Sadoun – Chairman and Chief Executive Officer Jean-Michel Etienne – Chief Financial Officer
Analysts
Annick Maas – Liberum Charles Bedouelle – Exane Julien Roch – Barclays Tom Singlehurst – Citi Brian Wieser – Pivotal Research Tim Nollen – Macquarie Chris Collett – Deutsche Bank Conor O’Shea – Kepler Cheuvreux
Arthur Sadoun
Welcome to Publicis Q3 Revenue Call. I am Arthur Sadoun.
And I’m here in Paris with our CFO, Jean-Michel. As you know we have put in place in the 1st of June the new Director.
And we thought it was important for this earning call to have them with us today. That is why our Secretary General, Anne-Gabrielle Heilbronner, is here.
And Steve King, CEO of Publicis Media, is on the phone live from New York. Steve, sorry for the early wake-up call, and thank you for being with us.
Jean-Michel Bonamy is also with us and will be available to take your question offline after this session. During our last earning call, we said we would expect organic growth to show a sequential improvement in Q3 versus Q2.
This has been the case even after a slightly better-than-expected Q2. After a minus 1.2% in Q1 2017, a plus 0.8% in Q2, our organic plus 1.2% in Q3.
We take it as an encouraging sign in what we will call a challenging environment. During the summer, the financial market had been exposed to negative news flow regarding our industry.
And if you don’t mind, I would like to take the opportunity of this introduction to briefly give you our point of view on what has been said but, I would say, more importantly to reinforce Publicis’ commitment to turn our industry challenges into opportunities by accelerating our transformation. We all know it.
Consumer is changing. Media landscape is being disrupt.
We are confronted to new competition. And our client are facing growth, cost and brand trust challenges for years.
There is absolutely nothing new there, so instead of listing our difficulties endlessly, we better focus on how fast we can transform our own operation to be able to offer to our client the kind of ideas, product and services that will create the value they are expecting from us and deliver the financial result you should expect from us. This is our only priority at Publicis, and it has been for the last two years now, thanks to the vision of Maurice Levy.
We have taken our client challenges as the starting point of our transformation. We make no mistake.
We know our client will change with or without us. We are engaged in a radical but consistent transformation to help them change for better.
With the acquisition of Sapient, we have now the technology assets to be at the core of the business transformation of our clients. With The Power of One, we have broken the silos, making us able to offer a unique end-to-end solution with consulting, technology, creative, data, digital and obviously media in a totally seamless way.
For the last 12 months, we have been accelerating in the execution of our plan by shifting our model from a communication to a transformation partner, building our organization as a platform and putting our people first. We are starting to see progress, would it be in new business, in talent joining the group or in the sequential improvement of our organic growth in Q3 versus Q2.
We are only at the middle of our transformation journey, and it is a profound change. It is not an easy ride.
I think we have to admit that. And it will continue to have some bumps in the road, particularly in a market which is highly volatile.
That is why, even though we have some first encouraging sign, we will remain very cautious and determined to win. We know we have an unparalleled position in the market with our ability to help our clients with marketing transformation and digital business transformation.
We are committed to achieve our transformation, which will put us in a position to drive strong organic growth and deliver operating performance. Today, the way we would like to run the presentation is very simple.
First, I will give you some quick highlights of the Q3 revenue. Then Jean-Michel will provide you more detail.
And finally, I will give you some strategic updates, then the four of us will answer any of your question. I know it is important to keep our promise to you.
During the last earning call, my objective was to make shorter presentation than in the past, so let’s start with some color on our performance for 20, 25 minutes; and then we will take your question, with the aim to finish in roughly an hour. Now if you may, let’s dive into the presentation.
I won’t read the disclaimer, but please, we’re going to take a second for you to look at it, as there is some important legal matter. Okay, we’re going to start with Chart 4.
I will begin by saying a few words on what has been achieved to date concerning growth and new business. On the year-to-date revenue, we reached EUR7.1 billion, up 0.2% on the reported basis and up 0.8% on the constant currencies.
Organic growth was plus 1.2% in Q3, as I just mentioned, we said during our last earning call that we will expect organic growth to show a sequential improvement in Q3 versus Q2. This has been the case, as I said, despite a Q2 that was slightly better than expecting; and much more importantly, challenging market condition that has – that you know all very well and heard a lot about it.
I would say that the good news come from the performance we see in North America at plus 3%, with the benefit of last year account wins such as Lowe’s, Walmart or USAA. There is a very important point there.
It’s that we are starting to really see the benefit of The Power of One that is getting traction in the U.S., which is as you know representing roughly 50% of our revenue, whereas after a good H1 when it comes to growth at plus 4.3%, Europe showed a slight decline at 1.5% in Q3, where we are facing actually very tough comparable at plus 7.6% in Q3 2016. In new business, we have positive account win momentum.
In Q3, we have made the demonstration that our model is able to win in each of our expertise. I won’t go through everything we have won, but I will take actually three example to give you a bit an idea of the breadth of what we can win today.
On the creative front, we have won the iconic account of Diesel globally. On the media front, we won Southwest Airline and just recently Lionsgate.
And on the digital business transformation front, we redesigned the McDonald’s digital experience with Capgemini, which include significant technology work. These give you an overview of the scope of capability our group is leading.
I will now leave the floor to Jean-Michel, who will go through the detail of the numbers.
Jean-Michel Etienne
Thank you, Arthur. So good morning, everybody.
And as usual, I will go through a few slides detailing our revenues and financial net debt at the end of September 2017. So we start with revenue on the Slide number 6.
Revenue for the third quarter of 2017 was EUR2.264 billion down 2.2% versus last year. Currencies had a 4% negative impact, and acquisition impact was very small at plus 0.7%.
As already covered by Arthur, the most important is the organic growth at plus 1.2% for the quarter. As expected, we delivered a sequential improvement after plus 0.8% in Q2.
This might be a touch below our own expectations, in particular for September. And surprisingly, this is due to the – some greater market weaknesses than expected.
Revenue for the first nine months of 2017 was EUR7.107 billion up 0.6% versus last year. Impact of currencies was a very small negative of 0.2%, and acquisition contribution was plus 0.5%.
Hence, organic growth at end of September was plus – 0.3%, back to positive territory after minus 0.2% at end of June. One indication regarding FX impact which could be interesting for you.
If exchange rates were to stay at – in Q4 where they are today, negative impact of currency movements will be above 5% in Q4. And given the volatility of exchange rates, please don’t take this as – this percentage as a guidance.
When we look now on Page 7, our Q3 revenue by geography, Europe was minus 1.5% after the plus 4.3% in H1. There is the impact of a few accounts losses, but this is mostly coming from a tougher comparison.
I’ll remind you that Q3 2016 was up almost 8% in Europe. As a result, all the main countries in Europe posted a slower growth in Q3 versus Q2.
The most important is that we are really – and we are very pleased with that, is to see North America confirming its positive growth rate at plus 3% after a minus 5% in Q1 and a plus 0.2% in Q2. The region benefited from accounts wins, including Molson Coors and FirstNet, partly offset by some pressure in FMCG sector.
It is also worth mentioning some revenue decrease at SapientRazorfish due to the voluntary ending of non-profitable contracts. For the latter, there still – there will still be some negative impact in Q4.
Asia Pacific was down 3.1% in the quarter, mostly due to China where one of our agency is under strategic review. We also had a couple of small account losses in Australia.
Latin America was up 2%, driven by the strong growth in Mexico and some other markets such as Argentina and Chile. Brazil was down 4% in Q3 after a plus 1% in H1 due to the unfavorable basis of comparison of the Olympics in 2016.
Middle East and Africa were up 9.7% mainly due to some phasing in United Arab Emirates, plus 7% in Q3 after minus 3% in Q2. Overall, the Q3 organic growth for the entire group was plus 1.2%.
If we analyze now the organic growth by geography at the end of September 2017 on Page 8. I will just read the slide: Europe, plus 2.4%; North America minus 0.8%; APAC minus 2%; Latin America, plus 3%; and Middle East and Africa, plus 3.6%, leading to an organic growth rate for the group at plus 0.2% at the end of September.
Now looking at the organic growth of our main countries on Slide 9. These are organic growth rate at end of September 2017.
Growing above 10% we will mention Chile up 21%, Mexico plus 12%, Russia plus 19%. Between plus 5% and plus 10%, India is up 6%, Italy plus 9%, the UK plus 6%.
For the latter, growth slowed down in Q3 due to tougher comps, and those comps will get even tougher in Q4. Between zero and plus 5%: Australia, plus 3%; China, just above zero, and I have already explained why; France, plus 2%.
As for the UK, the same comments can be made for France, above the tougher comps in Q3 and getting even tougher in Q4. Below zero percent: Brazil, minus 1%, with a minus 4% in Q3, due to challenging comps because of the 2016 Olympic games; Germany, minus 5%, as growth was plus 10% at the end of September 2016; USA, minus 0.6% but, just to remind you, a good plus 3.5% in Q3.
On Page 10. Average net debt at end of September 2017 was EUR2.66 billion down to 15.4% year-on-year.
Net debt at the end of September was close to EUR2.3 billion; and included more – and includes, sorry, more than EUR 470 million of cash which has been returned to shareholders through dividends and share buybacks over the period. And to finish my presentation on Page 11, our liquidity is close to EUR 3.6 billion.
And now Arthur will continue with a strategic update. And I will be available, of course, for the question at the end of the presentation.
Thank you.
Arthur Sadoun
Thank you, Jean-Michel. 14 minutes, so I guess we can take another five to six to go into a quick strategic update.
Here again we thought it will be important to give you a brief strategic update on where we stand in our journey for transformation as we share it with you in July already. Let’s be clear.
We have one ambition: become the market leader in marketing and business transformation. It takes a unique position in the industry bringing what our clients really need the most.
To win, as you can see on the chart you’ve got in front of you, our clients have to become the champion of consumer engagements and own the consumer journey. And that mean the need to adopt technology and transform not only their marketing approach, where you can see that we have a lot of assets, but also their business model and their core operation, as we can do with SapientRazorfish and Sapient Consulting.
Thanks to our assets and our direct access which is quite unique to both CMO and CIO, we are the only company in the world that can deliver both marketing transformation and digital business transformation at scale in a connected way, thanks to data with the knowledge we’ve got of consumers. By being present on those two markets, we want to become the indispensable partner of our client in their transformation and obviously accelerate our growth by multiplying our business opportunities with all of them.
We are now committed to roll out this unique model in a consistent way. Everything we are doing at this stage is to make sure that, in the consistent and radical way, we go through this model.
Last week, again we announced three important actions that are part of our strategic road map and will continue to strengthen our offer. We have created the spine, gathering the data expertise of the group under the same roof.
And I guess Steve will be able to take any question you have later. We are aligning DigitasLBi under the responsibility of Steve to make sure that they can take advantage of the scale of Publicis Media, whether it be in term of data or in term of media.
Personalization at scale is at the core of Digitas. Thanks to The Power of One, we can amplify them and accelerate our positioning when it comes to marketing transformation, which is obviously a big part of our business.
We are also organizing our digital business transformation activity through industry practices, and we have appointed a global leader to leverage our capabilities with Nigel Vaz. We’ll be able for any practice to make sure that we get the best experts that can serve our clients on a global basis.
Now we are currently making sure that our model is clear for everyone. This is a very important point.
We have to start by our people, and they get to understand what we do. I’m going to give you two example.
We have trained and appoint 35 client leaders to deeply transform the relationship we’re having with our clients through this model. 35 client is one-third of our revenue.
If we succeed to change our relationship with those clients, we are immediately changing the course of where we’re bringing the group. Mid-September, we have engaged with, I guess, 2,000 key people, but we don’t know exactly because with the WebEx you don’t know if it’s not even more but it was at least that; in interactive WebEx to make sure that every of our manager are actually embracing this transformation.
Our model is generating amazing interests from our clients, for sure, upon opening opportunities both in new business and developing existing relationship. And I hope that, in the next future, we’ll be able to share more about that.
It definitely should give us a huge competitive advantage and a leading seat in an industry that is changing so fast. I just would like to spend a minute on the priorities that we’ve got at the moment because we are moving with speed and method to bring this model to life but we know that there are things where we have to deliver and we have to focus on a day-to-day basis.
Obviously, our number one priority is to improve our organic growth. We have a clear plan to accelerate for it; first, bringing to our clients, thanks to cross fertilization, the kind of product and services they need at country level.
Group leadership team has been put in place in every of the country, with one focus in mind, break our own silo to build end-to-end model for each of our clients. This is something that could look simple to you, but it is revolutionary in the way people from different brand and different solution are working together in the interest of the client to transform our relationship and bring the kind of growth we deserve to deliver.
Second, our organic growth will come from our ability to be even more focused and to accelerate on our new business pipeline. We are going to be extremely aggressive on that.
We are attacking with a unique combination of three capabilities, creative, media and tech. And our recent wins illustrate the strengths of the model.
This is extremely important because, when we are pitching for media, when we are pitching with creative, we are not only going with media and creative. We make sure that we come with an end-to-end model.
And even though we can’t disclose any number, some wins that could seem reasonable then becomes much more important because we are placing ourself from being in advertising to really be at the core of the transformation with our clients. Finally, and I would love to spend more time on that, we see an unprecedented opportunity to help our clients rebuild their business to drive both growth and efficiency for their company.
As I mentioned it quickly earlier, we will deliver on this opportunity by leveraging our digital business transformation expertise by industry practice. This is obviously unique to a communication group and, as I said, so related to what we can do in marketing, that our clients and, by the way, our people see the immediate interest.
As I said in introduction, we are staying very cautious with this moving and volatile market, but we are committed to execute our strategy to deliver strong results. And as you will see on Chart 16, we believe obviously that growth does not compete against efficiencies.
In what remain a challenging context, we will use our transformation as an opportunity to be more efficient to gain in competitiveness and reduce our cost base. To that end, we will continue to simplify our organizational structure.
This is absolutely essential to find greater efficiencies for the good of our clients but also for the good of our people. First, we are pursuing a country-led organization, leading to synergy and enhanced capabilities.
We have announced, and it’s a big thing, that France, the UK, Germany and China will be the first markets where we implement this new organization. We have recently added Italy to this model.
Second, we are leveraging our delivery platform in India for all the solution hubs to globally scale our best-class tech capabilities in the most efficient ways and make sure that we take these capabilities and we can use it seamlessly around the world. Let’s not forget that we are talking about high-end capabilities, people that can work directly with clients from India, bringing the level of technology that is better to none.
Third, and here again it’s short on the chart but a lot of work on our part, we have implemented new management tools such as utilization rights, allowing for greater efficiency, thanks to resource planning. Last but not least, on Chart 17, and we should not underestimate the importance of this third priority, we need to reinvest in our talents.
The change in our industry lead us to rethink the kind of profile we need for the future. This is an investment we have to make now.
The value we bring to our clients come from our talents, for sure. They are our most important assets.
This is why we are redesigning a culture that attracts and retain the best of them. We have appointed, as I said in July, and we signed him, a Chief Talent Officer, Emmanuel Andre, that will be responsible for the career and the talent developments within our group.
We are rebuilding, and this is an incredibly important point, the training and learning program to make sure it fits with our transformation and the one of our clients. This is something that we take time to make sure that 80,000 people are trained, but it is our commitment.
We have a fantastic company with great talent. We need these shifts, and we need to embark our people into this transformation.
We are designing an incentive system so that our best performers get rewarded for their outstanding jobs. Finally, we are happy to greet in Publicis new high profile who will lead the group in some of our top countries.
This has been the case recently in France with Agathe Bousquet that is already there and already having an impact. And three weeks ago, we announced in the UK.
Annette King that will join from Ogilvy. It is a very important sign that we are attractive, but I would say more importantly, at the moment, our industry is being challenged.
It is also the demonstration that the most talented people in the markets believe the model of Publicis is future proof. They see us as a place where we can transform challenges into opportunities.
Talking quickly about the outlook. As you know, Q4 is the adjustment quarter for our industry, and you have seen that from one year to another it has been very difficult to predict.
Hence, we won’t do a forecast at this stage, as it is very difficult, but I will obviously stick to what I said end of July, which is that we expect to show an improved H2 versus H1. With Q3 results, I want to believe that we are on the course to deliver that.
Well, how long, Jean-Michel?
Jean-Michel Etienne
25 minutes.
Arthur Sadoun
25 minutes. I would like to thank you for listening.
I hope that you will see that Publicis is engaged in an ambitious journey. We are really obviously committed to bring back organic growth and the margin one should expect from us after the reorganization we have implemented.
I know that you won’t judge us on words, for sure. I don’t even think you’re going to judge us on action, but we know that you will judge us on results.
And even though we have some first encouraging signs when it comes to growth, we are still very cautious because of the volatility of the market, but at the same time, we are very excited about the uniqueness of our model we are building. And we are extremely committed to bring back the growth and the kind of margin this model deserve in a world where I want to believe we are taking leadership.
We are giving you, maybe as you have seen, a rendezvous on March 20, 2018, in London. I would have loved to do this meeting in India actually because you would have seen how powerful our model is, but Jean-Michel told me that it was a bit complicated, yes.
So we will have this Investor Day, and we will share with you in detail why we believe Publicis is best fit for the future of our industries. I guess we are now available to take any of your question, so let’s start.
Operator
Thank you. [Operator Instructions] We’ll now take our first question from Annick Maas from Liberum.
Please go ahead.
Annick Maas
Good morning. My first question is, so I understand you don’t give a clear guidance on Q4, but could you please tell us if the weaker September trends that you’ve seen have continued in October?
My second question is one of your peers has suggested that – having spoken with European FMCG CEOs, that advertising spend would still be on the plan to come back in the second half of this year, so I was wondering if you see the same trends. And then my last question is, given you now become this business transformation agency, what do you actually think are the 3 key KPIs we would judge – we should judge you on going forward?
Thank you.
Arthur Sadoun
Thank you very much, Annick. I guess, the September, October question, I’m going to leave it to Jean-Michel.
We had difficulties to hear the second question. And I will take the third one, on business transformation KPI, but maybe let’s go first on to September and October.
Jean-Michel Etienne
Okay. I think, regarding September, this is true, that September has been weak, to be fair; and which has explained partially the percentage that we have delivered for Q3 in term of organic growth, but in our forecast October is not at all on the same level.
October seems to be far better, so there is no reason to see a trend between September and October. And we don’t have, by the way, the October numbers yet.
This is only forecast. That’s clear.
Arthur Sadoun
Maybe I will take the question on business transformation and KPIs. And I’m sorry we have to repeat the second question, but I’ll start with this one.
There are three KPIs that are key for us. The first, and let’s face it, it is growth.
Digital business transformation has to be a big driver for growth in the future. As you can imagine, it is bigger scope.
And it takes a challenge to deliver because we are talking about everything that we are putting in place at the core of the business model of our clients. So when you take something like McDonald’s or other that I can’t disclose, obviously there is a second phasing that will come on, but it has to be a factor of growth.
I invite you to look at the kind of trends you could see on competitor that are doing the same thing. This is definitely our ambition.
The second point, which is actually critical for me, is there is nothing that I hate more than to lose a client. This is terrible for me.
And when you get into the business model of your client; and you create the kind of dynamic between marketing and enterprise; and you come with a solution that is not a communication solution but a solution actually to accelerate the growth, reduce the cost and give a new dynamic to the client, you are creating a stickiness and an intimacy that is really different from being, to be a bit blunt, a supplier of advertising. And the second point is very important.
So you should see our relationship with our clients getting stronger. And we know that, when it comes to profit, this is a very, very important point.
And last but not least, and Jean-Michel is not normally like that, I want to believe that it’s, at one point, somebody will realize that it will change our valuation because, at the end of the day, we are shifting from a model that is really an advertising to a model that is closer to some other competition we can have in those areas. And so at least, and I will talk about valuation but I will talk about positioning, we want to show that our model is unique with the kind of value we can bring in the future because what matters for us is obviously to deliver quarter after quarter.
But we are putting ourselves also on a much mid and long-term issue: how can Publicis could be positioned in a unique way and valued in this way. This is what we believe we can achieve, thanks to digital business transformation at the core of what we do, by the way.
Because what we should not forget, it is always this alchemy between creativity and technology that makes the difference and that created added value. I’m sorry, Annick.
We didn’t hear the second question.
Annick Maas
Yes. So the second one was just one of your peers seemed to suggest that – having spoken with European FMCG CEOs, that – these guys would suggest that, in the second half, you still see the advertisement spend accelerating.
So is that a trend that you are seeing as well, speaking with these FMCG CEOs? Or do you think that FMCG spend is going to stay under pressure in the second half of this year?
Jean-Michel Etienne
It’s Jean-Michel speaking here. For the time being, we have not seen any sign of recovery or from that sector client, so it is something that we have not seen on our side.
So we hopes that it will be good news, but this is not the case for the time being in our numbers.
Arthur Sadoun
But when you take it on a strategic level and again not maybe so much short-term where there is definitely an impact, I think that there is two important things to say about FMCG. The first is that they all not look the same.
And we have to be very careful because we put a lot of thing into FMCG, as we can put in together, by the way, things that you don’t understand why you make so much in a world that has been changing so fast. And more importantly, and this is what I was trying to say in introduction, they are not waiting for anybody to transform.
And the way FMCG is taking the subject, will it be in a way that we like it or not? But they are doing things to operate differently.
And I would say that despite the difficulties they could have at the moment that could have an impact on us, the real question is not how we’re going to look at the decline in our revenue with them, for how long. The subject is much more important.
It’s they are transforming, and how can we help them in this transformation? We at Publicis want to believe it is a major opportunity for us because here again it will be a mix on how do you transform marketing and how do you reinvent your business model, putting consumer and brands at the core.
And guess what, we are the only one that can at the same time reinvent that business model and be an expert on brand and consumer. I am sorry, but I’m going to insist on that.
Never forget something, which is the biggest trend we’ve got on our industry today is that there is no more gap between the brand and the experience. And thinking that we can manage a company through experience without having the branding understanding is a mistake.
Annick Maas
That is very clear. Thank you very much.
Arthur Sadoun
Next question?
Operator
We will now take our next question from Charles Bedouelle from Exane. Please go ahead.
Charles Bedouelle
One for Arthur, one for Jean-Michel [indiscernible] A couple of questions, if I may. So the first one is maybe to rebound on the former question in terms of KPI.
Can you tell us what the organic growth of Sapient or maybe Publicis. Sapient, the way you want, was in Q3 and how that compares maybe to the year-to-date performance?
My first question. And the second question, you’ve talked a lot about the talent, the retention and how to be attractive.
And I would like to understand, what’s the key KPI we should look at here? Is it how the bonus pool is improving?
Is it how the staff costs are moving? Is it how you are able to bring in some high-profile people from other companies or maybe some other industries?
And the background maybe behind my question is really that we’ve seen a number of high-level executives from agencies going to either consulting, other client or the Internet players, but we haven’t really seen the other way around. So what’s your take on that?
Thank you.
Jean-Michel Etienne
I will start on the first one, Charles, obviously regarding – we will not comment giving the detail of our organic growth by entities. It’s something that we don’t do that, but you must know that the Q3 of – has been solid.
And we are happy with the performance of Sapient during the Q3.
Arthur Sadoun
And just, Charles, to make one point about this is – and I’m not trying to avoid this question, but I think there is something that is extremely interesting. It’s that sometimes it’s become more difficult to make the difference on who is having the impact and who is getting the revenue.
This is why we have created Sapient Inside, which is working extremely well, because once you start to break the P&L silos, you actually realize that [indiscernible] creates a kind of fused way of recognizing revenue that makes things a bit more complicated. Thank you for asking the question on talent.
And I will go first, but I will spend a minute. First, and this is an important point, the reason why we are doing an Investor Day is obviously to show the strategies, talk about numbers, but it’s mainly to show you our talents because we, as I say, are moving into a platform organization.
We’re having a flat management. And the quality of the people we have brought onboard but more importantly the quality of the people we have already onboard is amazing.
And we want you to judge because we believe it is our first assets. So we will make sure that you can see by yourself what we mean about investing in great talents.
I think the big question you are raising there is attractiveness, and it’s a big one. It’s a big one because remuneration is one thing, but the other is what plan could you give to great talents.
And it’s true at two level, and I’ll go fast, because for me this is the biggest KPI. First of all, are we able to keep senior talents?
And the only way to do that is to give them a perspective about the model we are building. And this is why we are so thrilled about the fewer equipment that we have been doing.
We went all the way for the best in their own country, home country, I would say, for a very simple reason. It’s that we are able to demonstrate that even sometime we are smaller, but we are in the UK or in the U.S., our model makes more sense for the future.
And so if you are 40, 45, 50; and you still want to work 15 to 20 years, you need to find a place where there is a future. And we are able to sell it through our model.
The second thing, and this I could spend hour on that, is the new generation because, at the end of the day, I consider myself as already older in the – in this new world. Look at the French President.
And what matters is how do we attract the young talents. And the difficulty there is that the young talent are looking for very different things.
They want to be recognized faster. They want to do things.
They want to have more opportunity because this is what happen in their life, thanks to digital, and we have to bring that to life to them. This is what we are doing with Marcel.
We are making sure that we have the technological platform at the service of everyone in order tomorrow, for somebody based in Singapore, to be able to work on the next Oscar work in the U.S. and get more opportunity.
And though be attracted by a company like Publicis.
Charles Bedouelle
Okay. Thank you very much.
Arthur Sadoun
Thank you, Charles. Next question please.
Operator
We will now take our next question from Julien Roch from Barclays. Please go ahead.
Julien Roch
Yes. Good morning Arthur, Jean-Michel and Steve.
First question is on guidance. You’re saying better second half, i.e.
at least minus 1.3% in Q4, which is not saying much. Can we expect at least positive growth?
And do you think you can deliver sequential improvement? That’s my first question.
The second question in press release you talk about impact on revenue of ending nonprofitable contract. I might have missed the previous reference, but I checked Q1 and Q2 results, and I didn’t find anything on that.
Can you tell us, one, what countries these contracts are in? Two, Jean-Michel, so they were linked to SapientRazorfish, so is it 100% there?
And is it Sapient or Razorfish? And maybe you have an idea on numbers of impact on revenues and margin.
Arthur Sadoun
Julien, as you know, we have always said that Q4 is an adjustment quarter for the advertiser, hence it is very difficult to predict what we should expect. And sorry to say that to Jean-Michel, but when you look at last year, we were expecting better.
It was less. The year after, it was near budget.
We were expecting less, and we did better. So it is really a quarter where there is some adjustment.
And here again we want to make sure that we deliver what we promise, and so at this stage, we won’t make any comment beyond the fact that H2 has to be better than H1 and obviously that H2 will have to be positive.
Jean-Michel Etienne
Regarding SapientRazorfish, these contract finishing, ending that we have also stopped because they were not bringing what we were expecting. These are small contracts, to start.
This is not big stuffs. This is small but see some of the effect because there are a few which are concerned by that.
And this is mostly located in the U.S. This is why the performance in the U.S.
is something that we have to highlight a little bit which is a very good performance, taking into account this fact that we have stopped this contract in the U.S.
Arthur Sadoun
Next question please.
Operator
We will now take our next question from Tom Singlehurst from Citi. Please go ahead.
Tom Singlehurst
Good morning, It’s Tom here from Citigroup. A couple of questions.
First one, for those of us sort of bullish on the agencies, I mean, obviously one of the challenges is convincing people, but disconnect in terms of organic growth and macro isn’t down to structural factors. It’s encouraging to see U.S.
rebounding, but I noticed in the release you highlight Germany as being weak. I can’t quite tell whether it’s year-to-date or just in the third quarter, but can you just talk about some of the trends, in particular in Germany and Europe more broadly, which have sort of driven the slight disappointment today?
That was the first question. Second question, fourth quarter, obviously I can see you – I can see exactly why you don’t want to leave yourself hostage to fortune on the growth – on growth expectations.
Can you just talk about some of the sort of known unknowns, if that’s the right way of putting it, on new business? I know you’ve lost – won some and lost some year-to-date.
Will new business be a headwind or a tailwind in the fourth quarter? That would be great.
Thank you.
Arthur Sadoun
I’m going to let maybe Jean-Michel give you more detail on Europe in a second, but I would like to make a few comments. Sorry, but I mean we promised sequential improvement in Q3, which we have delivered.
And we are delivering that on a consistent basis, as we said. I think that you are right to say that you could expect and you should expect more from us when you look at the kind of transformation we are putting in place, but when you look at the results, I can’t actually tell you that there is such a disconnect because, at the end of the day, if you look at the glass half full, you would say that we have a good sequential growth.
If you look at the glass half empty, yes, I will agree. It’s slow because it takes time, but this is where we are at the moment.
And when you take Europe, just to make a comment, here again I think it’s interesting to see that, for four quarters in a row, we have been highly positive. We have this scope that is very high at 7.8%, and we have delivered on minus 1.5%.
We are not worried at all on this. It is something that is controlled.
And we would have hoped to do a bit better and then come to a better number, but here again we don’t see anything worrying, what is happening in Europe. By the way, we are very strong and winning, so we can talk a bit more about new business later on if you want, but I think we have to take it like that.
When it comes to new business, we don’t make any comments. The only thing I will invite you to do, because we are doing this on a regular basis – when we won thing, we issue some PR.
And by the way, when you look at this summer what we are winning or losing, I would say that for the momentum it’s positive, but I don’t want to say – I prefer to be transparent. It is very difficult to measure today the impact of new business on the number that are coming, will it be positive or negative, by the way.
Jean-Michel Etienne
If – I want to add some comments regarding Europe. Tom, you should note that, at the end of September, Europe is positive by plus 2.4%, which is a very nice percentage, to be fair, despite this Q3 at minus 1.5%.
And talking about Germany: Germany, this is only the comps which are – which matter in that, in this performance for the quarter. You should not forget that Germany was very strong in 2016, plus 10% at end of September and plus 10% including plus 11% in Q3.
So comps were exceptional, to be fair, in 2016.
Tom Singlehurst
That’s very clear…
Arthur Sadoun
Thank you very much. Yes?
Tom Singlehurst
I was going to say I have one follow-up actually. Earlier in the year, I think we asked Maurice about whether there was any scope of a large-scale consolidation between a company like Publicis and, I think what the example he used was, Capgemini.
And he said he was – he felt that it was more likely Publicis would merge with Lafarge than Capgemini. But I can’t help but notice you’ve won – there are now a couple of...
Arthur Sadoun
Lafarge. You – he is better than I am.
He is seeing a strategic direction that I’m incapable to see, but this is why he’s the Chairman of the Board, I guess.
Tom Singlehurst
Yes, exactly. I was going to say, and I may have missed some joint projects with Lafarge, but I mean you have done a couple of joint projects with Capgemini.
Can you just talk a little bit about each side is doing when you’re winning a contract just so we can understand what you provide and what they do? That will be great.
Thank you.
Arthur Sadoun
So that was supposed to be a small last question at the end of two, and it’s a big question actually, so I guess I will have to take a step back and maybe answer on a few point at the same time, which is we have been talking a lot about the combination with Accenture or Capgemini et cetera. And so let’s take a second on that, but I need to take a small step back.
When it come to strategy of acquisition or merger, and just look at our past and look at how Maurice has been running Publicis for all of these years: We are asking ourself only one question: Does it make sense for our clients? And if you look at the acquisition we have been doing with Saatchi, Leo Burnett, Digitas, I can go on and on, until Sapient, we have – always do the same.
Does it make sense for our clients? Because at the end of the day, this is the only way to create sustainable value.
So when you look at their clients, there are no doubt, and I hope that I’ve been convincing on that, that they need marketing and business transformation in what we call the digital age. This is the model we are building.
And even though the rates are down that we are expecting at the moment, we do believe that it is a unique position to lead these markets. And we believe that nobody else can do it in the way we do.
So what is interesting to see is that while we have been moving in consulting and technology, some other system integrators, one starting with A in particular, are moving in the space of marketing. And you have seen what’s they have said yesterday, for example.
So it’s true that we have done the other way around. So it’s normal that there is encouraging sign and say, "Okay, it’s the advertising is moving to technology, and technology moving to advertising.
Why don’t we cross?" To be transparent, and maybe I’m too blunt on that, but we definitely don’t take these dynamics as a threat but we are already taking it as in fact a confirmation that we are going in the right direction and that our model that will integrate creative and tech is actually the model for the future.
So to make a long story short: We believe that the convergence between marketing transformation and digital business transformation is the future. We believe that we are on our way to get there in a unique way.
We understand that some competitors are doing the same. And to be honest, for us, it is not the strategy is the good news.
It’s means that the market is converging around that. Now to be clear, and this is a very important point, I can’t tell you that we are working as a platform and not work on an open-source mode.
So we will continue to do partnership. We have done one that we really like with Capgemini.
We have done other with management consulting. We are doing it with platforms like Facebook and Google.
And changing the model from a communication company to a – to transform it to a transformation partner actually put all of those guys not anymore as competitors but as partner because what we bring to our clients is a way to transform from within. And if you want to do it well, you have to do it in their interests, with the right partner, as we did with Capgemini in the U.S.
But it was a long answer to a short question, but I couldn’t avoid it.
Tom Singlehurst
Okay. Thank you.
Arthur Sadoun
Thank you. Next question.
Operator
We will now take our next question from Brian Wieser from Pivotal Research. Please go ahead.
Brian Wieser
Thanks for taking the question. I was wondering.
To what degree do you think that enhanced contract scrutiny is causing any drag on revenue growth at this time? Certainly we’re hearing a lot of that from – whether at pitch consultants or from marketers that is something that’s happening at the industry level at least.
And maybe, is it more or less of a factor than, say, marketers who are applying zero-based budgeting or similar concepts or just more general budget cuts or absence of growth rather than changing contract language? I’m wondering if you could just talk about that in maybe contract terms and how that’s evolving more generally?
Arthur Sadoun
So I’ll let Jean-Michel start, and then I’ll make comments.
Jean-Michel Etienne
Okay, okay. We should not – this is a very specific situation that we have highlight regarding Razorfish.
It is a good way to exit from the issues that – the past issues that we had with Razorfish. This is the end of the process, and this is something we did.
It is at group relatively small. For Razorfish, was – it was not so small, but it is something which has been done.
It is part of the integration of Razorfish within the new organization SapientRazorfish, by the way, which is working rather well. So this is – but we should not exaggerate the impact.
This is not a tendency that we cut revenues where – like that. This is not something that we do, for sure
Arthur Sadoun
But maybe a more general comment. And I will say – I will leave Steve – I – it should be almost 5:00 for you, Steve.
So I guess that was a good coffee. You should be fine now.
Talk about one thing that is true. It’s that when it come to renewed contract, where we see the most today pitch and where to get into competition is on media.
And media has been obviously very – there has been an intense activity. And maybe, Steve, you can tell us some word which is also obviously related to transparency and trust, which are extremely important for Publicis and that have been at the core of everything we do as we know that restoring trust with our client is first priority.
Steve, the floor is yours.
Steve King
Okay. Thank you.
Good morning, Brian. Yes, I think, firstly, on your question, which I understand as it relates to media, are about the enhanced contract scrutiny.
I understand some of our competitors have made those comments and suggested that might have a negative impact on their business. I have not seen any significant impact from changes in contracts.
As you know, we’ve reported previously, after the ANA investigation last year, we had over 30 of our key clients went through audits. And we passed each of those without any significant change and managed to achieve full audit scrutiny.
So I think that actually resulted in improved scopes with our clients. And I think they’ve increasingly felt that an organization such as us which is – one of our key pivots is about trust.
Publicis Media as a new organization has actually give us in a position where we could actually increase our scope of work rather than diminish. And that’s certainly been the case across our major clients.
And in terms of the point that Arthur was introducing, we also know that, this positioning that we have around trust and transparency which we put out as the founding tenets of Publicis Media when we created the organization under the change that Maurice instigated two years ago, it’s actually allowed us to have some material benefits, as you as I’m sure know and reported previously. We know we do not – we have no arbitrage.
We don’t have a position in barter companies. We don’t have a position in technology companies etcetera.
So I think one of the reason for this suggests that we’ve had in-media assignments. And we’d certainly see a very, very active pipeline there in the future and right now and then going into 2018.
I think one of the reasons that we’re continuing with that is because of the position that we’ve got, the model that we’ve got in terms of trust as well as the ability to connect now much more effectively with other parts of the group, as you’ve heard, this combination of marketing and digital business transformation. But definitely, the point that we’ve got our positioning around trust and transparency is becoming a competitive advantage; and is, I’m sure, going to be a tailwind as go forward into 2018 and 2019
Operator
We will now take our next question from Tim Nollen from Macquarie. Please go ahead.
Tim Nollen
Good morning, thanks. Another question on the U.S., please.
Is it possible to give us a sense of how much of the recovery growth was from account wins versus any underlying improvement in spending? I know you did not highlight CPG sector, FMCG sector as helping much, but I wonder if there’s a general comment on new business wins versus underlying growth contributing to the U.S.
I assume it’s more the new business wins. And then secondly, you had mentioned on your second half – or on your First Half Call that you would have some incremental restructuring costs in the second half.
And I’ve seen some announcement you’ve made about some reorganization recently. I just wonder if that – if you have any more comments on that, if the restructuring plan is on track; or anything more you can say about second half costs, please.
Arthur Sadoun
Thank you very much, Tim. I’m going to – we’re going to start with the second question, and I guess Jean-Michel is going to take it.
Jean-Michel Etienne
Thank you. Tim, the – it is true that, when we are transforming the company the way we are doing it, you can imagine that we are incurring some costs to do that.
So it is true that we will have a very significant cost regarding restructuring in – for 2017, after an H1 which was at the level you know. So this is clear, that we have to do that, so we have no point to slow down the transformation to avoid the restructuring costs we – that we have to incur.
Arthur Sadoun
I’ll take the question on the U.S., if I may. The first thing that we should note is that, when it comes to the U.S., we are actually at 3.5%.
And what is interesting there is that we were coming for a three or fourth quarters negative. And in Q2, we were just flat, so it’s really for us a very positive trend, for sure.
Here again, the way we want to handle this call is to be very transparent in what we think is working and what is not. I think that, when you look at our assets in the U.S., they are impressive because obviously this is a place where companies like Sapient, like Digitas, obviously like our creative brands like Leo Burnett are extremely strong, not mentioning Starcom and Publicis Media with having a leadership position.
So we have incredibly strong assets. And maybe one of the reason why it has been tough in the past quarters is, first of all, because it is a tough market.
And you see that with our competitors, and it is a very competitive market. But I can tell you something, and I hope we’ll be able to make you feel that when we do the Investor Day: When we bring all of those assets together at the service of our clients, would it be new business or existing relationship that obviously we don’t disclose, it is paying incredibly.
And when you look at the series of win we have had like HP; USAA; Walmart; Lowe’s; McDonald’s; Southwest Airlines; more recently or Lionsgate, what is important there is to understand that it’s not only one agency going to pitch alone. It is The Power of One.
It is our ability to break the silos, to go together in the room and to reinvent the model of our client, not coming as a communication provider. And this is what is making a big difference in the U.S.
As I said, difficult to tell which brand is doing better because you can have Sapient making an extraordinary job for a Publicis Worldwide communication and you will see the revenue on one side, while it could be on the other, but the truth is we don’t care because we have killed the P&L. And we are making sure that we are working in the interest of our clients, of our people; and delivering the kind of results we owe you.
Operator
We will now take our next question from Chris Collett, Deutsche Bank. Please go ahead.
Your line is open.
Chris Collett
Good morning, thanks for taking my question. Just had two.
One was I know you don’t break out your growth or the numbers by the solution hubs, but I wonder even if you could just give us qualitatively. Could you just tell us if you were looking at the business according to those hubs, the communications, media, Sapient and health?
Are there any of them that are growing above trend? And which ones are growing below trend?
And then second question, which sort of follows some from that, just a little confused about your organizational structure because you seem to be now talking much more rather than on a hub basis. You’re talking much more about a country-level organization.
So just really wondering, what is the new structure that you’re putting in place? Is it hub based?
Is it country based, or is it a matrix structure between the two?
Arthur Sadoun
So I guess I’m going to take the two questions. The first, when it come to the solution, as we say, we don’t disclose number and so competitive manner we can do right.
I mean I’m trying to answer the question as best as I can and be as transparent as I can, but when it come to qualitative, don’t ask me to decide among all of our child because, at the end of the day, they all have their strengths and weakness, but I’m not going to disclose that. I would say that they are strong alone and much stronger together.
And I would say that, where some would say that the communication agencies are suffering at the moment, I would agree. They could suffer, but without the communication agencies, you don’t grow the rest of the business either because our point of difference will always still be creativity.
Having said that, and it comes to a second point and I wish we could have talked about that, we took a major initiative. We low play it because there is still work to do, but when you decide to aggregate under one roof all the data expertise of the group to create an engine that will be at the core of everything we do with our client, it’s difficult to say if it’s come from media, from creative, from Sapient, but we are building something that will be essential.
And here again the sum of the part is always stronger than any of our agency separately. The second question, on the country-level organization, is a great question; and thanking for – thank you for asking it.
We have a very simple view on that. We have created, thanks to The Power of One, those top solution hubs that are working and getting traction.
You can see actually the result from the U.S., where obviously we have 50% of our business, but we feel – and we are committed to that, by the way. We feel that we have to go even deeper in integration.
And so what we have decided to do is to make sure that, in the countries where we have the right leaders, put somebody in charge of all operation at country level with, by the way, full authority on the P&L to make sure that we bring The Power of One at a faster pace and that, by the way, we create a leaner organization. But the question for me is not which country is eligible to that.
The question is who is the leader that is capable to do that. And you take Agathe Bousquet, or you take Annette King.
Or you take John Dixon that was actually with us already that is taking South Africa. They are people that know how to lead through their ability to grow, to transform and actually to make our agencies more competitive.
So one, we have the people. We are accelerating on this model but taking into account that what matter there is to have the right leaders.
Last question I guess. No.
Maybe not. Thank you for this one.
Or is – there is no more question.
Operator
You’d like to take another question. Is that correct?
Arthur Sadoun
Can take last question, yes, it’s already 11:01. So...
Operator
That will be from Conor O’Shea from Kepler Cheuvreux. Please go ahead.
Conor O’Shea
Yes, taking the last question. Just a couple of questions from me.
I know you say you didn’t want to comment on the new client wins and losses, but in Asia Pacific, obviously a weak quarter. And you highlighted some issues with one of your Chinese subsidiaries, though I think that was less weak than the first half.
You’ve had some account wins and losses quite significant, LBMH loss, AB InBev win and Alibaba media planning win. Sort of just looking into the fourth quarter, do you sense that the decline in Asia has bottomed in the third quarter?
Or what’s your sense of how we’re working through those various issues? Then the second question, just in terms I saw some reports that – this morning, Arthur, you – there’s some mention about a three year plan to get back to growth, normalized growth.
Is that your vision? Or is that more relating to the build-out of the Marcel platform?
And just wondering, relating to that: One of your big competitors, Omnicom, has been selling some underperforming non-strategic agencies, disposing of that. Is that something that you might look at?
And then the final question is on Amazon. I think your largest client has mentioned how they’re working with Amazon to help them in terms of their targeting reach and so on as they start to use their data as an advertising platform.
And your largest sort of agency competitors mentioned Amazon is the biggest concern in terms of data sharing and so on. Can you just say a couple of words in terms of your strategy on how to treat that to remain relevant going forward?
Thank you.
Arthur Sadoun
Thank you, Conor, for the question. Actually, time is flying.
So to be clear, on Amazon, I’m not going to disclose this into this – at this call. As you know, we don’t talk about any client or competition in this kind of call, so, I’m not going to answer.
But I’m going to answer on Asia and the three years plan. I’m going to try to do it fast but fast but still.
On Asia Pac, there is two to mention. The first is, yes, we have one brand in China that is under a strategic review.
That is having a negative impact. Without this, we’ll be better.
And when it comes to the win and the loss, to go fast. We see some wins.
We see some loss. We want to believe that there is a positive momentum.
I was in China again last week. I am extremely proud of the team we’re having there.
And we are pretty confident with, by the way, Australia that has been winning a bit on the beginning – at the end of last year. That was winning a lot of new business, as you might have seen.
So we are cautiously optimistic. Thank you for asking the question on three year plan.
It means that my English is still not perfect. Let’s be clear.
When I talk about the three year plans, and maybe I will finish by that, by the way, is the point is that we have to manage short-term and long-term objectives. The short term is clear.
We need to recover a good organic growth. We need to do a very strong work on costs in order to gain on competitiveness, and this could not wait.
So we are doing this in a very committed way. We are also trying to stay cautious because we believe that there is strong volatilities in this industry.
And here again we want to deliver what we promised, but we know that on the short term our abilities to find the organic growth and on the same time gain in term of competitiveness, to improve our margin and also to invest in our talent, as we discussed later on, is a top short-term priority. When I was talking about three years, and I will finish by that because I know that there is some of our people that are on the call, so it will give me an opportunity also to thank them for that, is it’s obviously about our people.
We are running a company that is 80,000 people in more than 100 countries. And the kind of shift we are taking is obviously quite radical because this is what our industry needs, and it come back to my point.
Make no mistake. Our client are changing in a radical way, and our ability to change at least at the same pace is vital.
So we will do it fast on our top 55 clients because there is a scale, to make it short, but we will have to do it for the entire organization. And what I was talking about three years is I consider that my job is to take care of our people, and taking care of our people means that we can give them a future.
It’s what we think is the best adventure of this industry. And yes, this could easily take three years.
Arthur Sadoun
So I would like to thank you all here again, but I didn’t keep my promises, it’s 11:06, but I hope you will forgive me. And I’ll thank you again.
Jean-Michel Bonamy will be with you, whenever you want, to take any of your question. And I’m giving you a rendezvous actually much closer on the Investor Day in three months.