PUBGY - Publicis Groupe S.A. (PUBGY) Q4 2022 Earnings Call Transcript

Publicis Groupe S.A. (PUBGY)

Q4 2022 Earnings Conference Call

February 2, 2023 03:30 ET

Company Participants

Arthur Sadoun - Chairman & Chief Executive Officer

Michel-Alain Proch - Chief Financial Officer

Anne-Gabrielle Heilbronner - Secretary General

Steve King - Chief Operating Officer

Conference Call Participants

Lina Ghayor - BNP Paribas

Lisa Yang - Goldman Sachs

Matti Littunen - Bernstein

Julien Roch - Barclays

Omar Sheikh - Morgan Stanley

Christophe Cherblanc - Societe Generale

Jérôme Bodin - ODDO

Adrien de Saint Hilaire - Bank of America

Tom Singlehurst - Citi

Presentation

Operator

Good morning. This is the conference operator. Welcome and thank you for joining the Publicis Groupe Full Year 2022 Results Presentation and Webcast. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Arthur Sadoun, Chairman and CEO. Please go ahead, sir.

Arthur Sadoun

Thank you, Judith. And welcome to Publicis 2022 full year results. I am Arthur Sadoun and I'm here in Paris with our CFO, Michel-Alain Proch. Alessandra Girolami is also here and will be available to take all of your questions off-line after this session. I will start this call by sharing the main highlights of our performance. Then Michel-Alain will take you through the detail of our numbers. I will conclude with our outlook for 2023. After that, as usual, we will take all of your questions together. But first, please take the time to read the disclaimer as it is an important legal matter.

2022 was another record year for the group in what is still a challenging global environment. Thanks to our revenue mix, our go-to-market and our platform organization, we actually outperformed the market on every KPI. Reported net revenue was up plus 20%, including acquisition and ForEx impact. For the second year in a row, we delivered double-digit organic growth at plus 10.1%. Our operating margin rate reached 18% which is 50 basis points above 2021 while maintaining record high bonuses. Headline EPS came at €6.35, 26% above 2021. And lastly, free cash flow was at €1.7 billion, €300 million higher than 2021.

Let's turn to the highlights of our performance. When it comes to organic growth, we posted a strong Q4 at plus 9.4%. This performance were ahead of expectations, allowed us to deliver double-digit organic growth in 2022. Once again in Q4 and actually throughout 2022, we continue to capture the shift in client spend towards first-party data management, digital media, commerce and business transformation. This is clearly demonstrated in the very solid numbers of Epsilon and Publicis Sapient. They delivered plus 13% and plus 18% organic growth, respectively, in the quarter and full year growth at virtually the same levels. Together, they represent 1/3 of our revenue and almost half of our growth this year.

Our data and technology capabilities also had an impact on the rest of our business. This is particularly the case in Media which achieved double-digit organic growth both in Q4 and for the full year. It is also important to note that our Creative business gained traction, delivering mid-single-digit organic growth with another good performance from production. The overall momentum is actually visible is a very solid number of our key geographies. The U.S. which represents 60% of our net revenue, continued to perform very well at plus 10.1% organic growth in the quarter with Epsilon and Publicis Sapient accretive once again.

For the full year, this led to 10% organic growth in the country, equaling the strong performance of 2021. Europe accelerated in the quarter to plus 13.2% organic. This included an outstanding performance in the U.K. at plus 38% led by Publicis Sapient and mid-single-digit growth in France and Germany. Europe finished at plus 12.3% organic growth for the full year. Asia grew plus 2.9% organically in Q4, with a notable acceleration in China to plus 8.1% despite lockdowns and finishing at plus 6.5% for the full year.

Turning to our second highlight. We posted strong financial KPIs, thanks to our platform organization. Operating margin came at 18% in line with our upgraded guidance, up 50 basis points compared to 2021. This performance included an historically high margin in the first half as well as continued efficiencies from our shared global delivery platform through the year in the context of rising inflation. Very importantly, this margin was achieved while paying for the second year in a row a record high bonus pool to our teams and an additional 1 week salary in November to 45,000 of our people with no variable remuneration.

Combining our strong growth in net revenue and our 18% margin rate, our free cash flow came at €1.7 billion. In line with our capital allocation, we invested over €500 million in bolt-on acquisition to complement our capabilities in data, commerce and digital business transformation with Retargetly, Yieldify, Profitero and Tremend, just to name a few. We did this while continuing to deleverage and reached an average net debt of €685 million for the year.

Finally, our headline EPS grew to €6.35, 26% above 2021, also a record high level. This put us in a position to propose to our shareholders a €2.90 dividend per share, fully paid in cash. This is 21% higher than 2021 and represents a payout of 45.7%.

Third highlight, our performance on a 3-year basis. As you know, we believe that comparing ourselves against prepandemic levels is the best way to truly measure our performance. Since 2019, we grew organically by 13%, notably driven by the very impressive performance of our U.S. operations at plus 18%. Epsilon and Publicis Sapient were strongly accretive over this period with plus 21% and plus 25% organic growth, respectively. It is also important to note that compared to 2019, H2 accelerated to plus 15% after H1 at plus 11%.

Fourth highlight, our continued new business momentum. After a record 2021, we once again captured a disproportionate share of new business wins in 2022 which is a concrete result of our go-to-market. This puts us at the top of the ranking for the fourth time in 5 years. Thanks to the competitiveness of our integrated offer, we were able to secure the vast majority of our defensive reviews, extend our relationship with major existing clients and win some of the largest offensive pitches this year. This included Global Media for IBI and Mondelez, Stellantis Global CRM, McDonald's in the U.S., PepsiCo in Asia, LVMH in EMEA and the global creative business of Standard Chartered Bank and Siemens, just to name a few.

Last but not least, we also continued to be an industry leader in ESG. Our efforts in sustainable business practices around D&I, responsible marketing and the fight against climate change, meaning we were ranked number 1 in the industry by far by most leading rating agencies. We have also recently been named for the first time into Dow Jones Sustainability Index for Europe and the world.

I will now leave the floor to Michel-Alain, who will provide you further detail on our full year number and I will then come back to give you the outlook for 2023.

Michel-Alain Proch

Thank you, Arthur and good morning to all of you. Glad to be with you today. I will begin on Slide 14 with the evolution of our net revenue for the fourth quarter and full year 2022.

In Q4, the group posted net revenue of €3,462 million. Q4 organic growth came at 9.4% versus 2021, ahead of expectation and 15% versus 2019. Reported growth in Q4 was at 18%. This included a €15 million positive impact from acquisition and disposal and a positive impact from foreign exchange rate at €215 million, mainly due to the USD to euro exchange rate.

Full year net revenue was €12,572 million which is an organic growth of 10.1% and performance similar to the one of 2021 with a steady performance quarter after quarter. Compared to 2019, net revenue grew by 13% organically on the year. After taking into account a positive foreign exchange impact of €864 million in the year, mostly due to the USD to euro rate evolution, reported growth was at 19.9% in 2022.

Let's move on to Slide 15 that details our Q4 organic growth by geography compared to prior year and to 2019. North America posted another very strong quarter. This was visible in the region performance on a 1-year basis and on a 3-year basis at respectively 10% and 20% organic growth. Europe posted 13.2% organic growth versus 2021, broadly in line with the 3-year stack. Asia Pac grew at 2.9% organic growth versus 2021 and the same versus 2019. Middle East and Africa recorded 2.4% organic growth and 4% compared to prepandemic period. Finally, Latin America posted a minus 4% organic decline versus 2021 but was up 5% versus 2019.

I will detail the performance of each region in the following slide. So let's begin with more detail on North America on Slide 16. Our organic growth in the region was double digit this quarter after 9% in the same quarter last year. In the U.S., the group's largest country, all activities continued to perform very well at 10.1%. Media posted double-digit growth, fuelled by strong underlying trends and new business won in the last 18 months, notably in the TMT, health care and food and beverage sectors. Creative activities posted a solid mid-single-digit growth fuelled by production that materialized mostly in automotive and health care sectors.

Publicis Sapient reached 15.4% organically on top of 22% last year as we were able to capture the very dynamic demand in digital business transformation, particularly in the retail and financial services sector. Epsilon grew 13.5% organically, with a particularly strong performance in Digital Media and in CitrusAd, fuelled by the success of our data-driven marketing and retail media solutions. The automotive and data divisions at Epsilon were positive again, while tech was broadly stable on a high comparable basis. It is worth noting that in Q4, in the U.S., both Publicis Sapient and Epsilon grew strongly compared to pre-COVID levels at 42% and 26%, respectively, compared to 2019, highlighting the relevance of our offerings to address the structural shift towards those capabilities.

Let's turn now to the performance in Europe on Slide 17. As I mentioned earlier, Europe recorded double-digit growth this quarter after plus 9% in Q4 last year. Excluding Outdoor Media and Drugstore, our activities in the region grew by 17.7%. The U.K. which represents 9% of our net revenue, significantly contributed to the growth in the region by accelerated to 38% organic. This performance included a particularly strong quarter for Publicis Sapient, thanks to the ramp-up of large contracts in financial services and in retail but also notable was a double-digit growth both in Creative and in Media, largely driven by global clients.

France which represents 6% of our net revenue, posted a 5.3% growth excluding Outdoor Media activities and the Drugstore, thanks mostly to a double-digit performance in Media, notably in the automotive sector. Germany which represents 3% of our net revenue posted a 7% organic growth with a very solid Media that more than offset a softer Creative, Publicis Sapient in the country accelerated with a double-digit organic growth in the quarter, driven by new business wins. Lastly, our operation in Central Eastern Europe recorded 7.5% on an organic basis. Poland, Romania, Hungary and Turkey all posted double-digit growth. This performance was achieved despite almost no activity in Ukraine.

On Slide 18, let me give you some details on our performance in the rest of the world. In Asia Pac, representing 9% of group net revenue in Q4, we delivered 2.9% organic growth. This was led by a remarkable performance in China at 8.1%, especially considering tough comps and continued lockdown during most of the quarter. China benefited from new business wins, notably in the food and beverage sector as well as increased activity from global and local clients.

In the rest of the region, the performance by country was more contrasted. Japan and Singapore recorded double-digit growth, while India and Thailand were down this quarter, mostly reflecting a very high comparable base at Publicis Sapient. Australia and New Zealand contributed positively to growth in the region.

In Middle East and Africa, we posted a 2.4% organic growth, supported by continued strength in Media, while Publicis Sapient remained broadly stable due to a strong comparable base. Latin America representing 3% of the group, decreased by minus 4% organically this quarter, mostly driven by a negative performance in Brazil. However, the region faced a particularly high comparison basis of 23% last year and overall grew by 5% when compared to prepandemic level.

Let's now turn to Slide 19 which summarizes organic growth by region for the full year. North America posted a consistently strong performance throughout the year, leading to 9.9% growth versus 2021 and 18% versus 2019. In Europe, our activities were up 12.3% for the full year with a particularly strong contribution of the U.K. in the second half of the year. Asia Pacific grew 6.5% organically over the year, mainly driven by China and, reached double-digit growth over 3 years. Middle East and Africa saw its net revenue grew by 7.5% organically. And finally, Latin America was up 10.4% in 2022, also double digit on a 3-year basis.

On Slide 20, you can see the group performance by client industry for the full year. This is based on an analysis of our main clients representing 92% of our net revenue. It also excludes media transfer and the drugstore. In 2022, all of our client industry were positive for the second year in a row. Half of them recorded double-digit growth and half of them recorded mid- to high single-digit growth. Retail posted the strongest growth over the year at 24%, gaining strength quarter after quarter. Automotive was up 7% in 2022, growing almost twice as fast in H2 than in H1. The financial sector grew 12% in 2022, as did food and beverage. Healthcare recorded 11% growth for the full year with a strong end to the year. Finally, TMT and non-food, while decelerating in Q4, still posted respectively 8% and 5% growth for the year.

Moving now to Page 21, our consolidated income statement. Our net revenue in 2022 was €12,572 million and our EBITDA was €2,801 million, up respectively, 20% and 21% on a reported basis. Operating margin was €2,266 million which is a margin rate of 18%, up by 50 basis points year-on-year. This actually represents a record high for the group, driven by an exceptionally strong first half. I will provide more details on this in the next 2 slides.

Headline group net income was €1,611 million, an increase of 27% versus 2021. Headline net financial expenses came at €126 million while income taxes increased to €536 million, mostly reflecting higher profit before tax. Amortization of intangibles was up €24 million, reaching €215 million in 2022. Impairment and real estate restructuring charges further decreased to €80 million, reflecting the completion of the third all-in-one rationalization wave and an impairment in Brazil for circa €20 million net of tax. Main capital gain and losses included €87 million loss related to the exit of our Russian operation accounted for in H1. Taking all this into account, the group net income was at €1,222 million in 2022, up 19% versus 2021.

Let's now turn to Slide 22 which details our operating margin performance. Our operating margin rate improved by 50 basis points overall or 20 basis points at constant perimeter and FX. This evolution includes 2 main items in line with our H1 performance, first, an increase in personnel costs that amounts to 210 basis points as a percentage of net revenue of 230 basis points, including restructuring, reaching in total 65.3% of net revenue, in line with the cost modeling we shared with you in July. This was more than offset by a decrease in other operating expenses, including depreciation, for a positive 250 basis points, reaching 16.7% of net revenue, here again, in line with our expectations.

I will now detail the evolution of these different items in the next slide which is a bridge from 17.5% reported operating margin rate in 2021 to 18% that we are reporting for the full year 2022. So going from the left to the right, let's begin with the 17.5% that we reported in 2021. First, FX and perimeter had a positive impact of 30 bps on the operating margin rate, mostly due to the USD to euro rate. Taking this into account, 2021 comparable margin stood at 17.8%.

Starting from this base, personnel costs represent an increase of 210 basis points, as I just mentioned. In those 210 basis points, fixed personnel costs represent an increase of 200 basis points, while freelance costs decreased by 10 basis points, in line with our commitment to reduce the use of freelancers in the second half, mainly at Publicis Sapient. As Arthur mentioned, we kept bonuses at a record high level, close to €500 million, rewarding our talent for the outstanding performance. This included an exceptional 1-week salary paid in November to our staff with no variable remuneration. Overall, the increase in variable remuneration meant an additional investment of 20 bps on the operating margin.

Let me provide a bit more detail on the fixed personnel cost evolution. First, we added 9,700 net recruits, mostly in H1, to complete the resource catch-up of 2021 and support our strong growth in 2022. As I told you, we would do during our last call, we have fully stabilized our headcount in Q4 versus Q3. Second, salary inflation was in line with our initial assumption and mostly in the U.S., the U.K. and India, as anticipated. Thanks to our platform organization, we've been able to absorb a large part of these 2 effects by further expanding the footprint of our global delivery center and shared service centers. On top of this, we have also continued to delayer our structure. This led to a rise in our restructuring cost of 20 basis points from what was a historical low in 2021. All these actions allowed us to maintain in 2022 the average cost per employee at the level of 2021.

Now let's turn to the operating leverage of the group. Other operating expenses, including depreciation, contributed to an improvement of 250 basis points. First, we posted an improvement of 160 basis points of other operating expenses, reflecting the strong cost monitoring of the group while growing the top line by over 10% on a comparable basis. Second, depreciation improved by 90 basis points, mostly driven by the continued benefit from our action to reduce our real estate footprint over the last few years. As we described in H1, other operating expenses and depreciation were adjusted by minus 75 basis points and plus 75 basis points, respectively, with no impact on the total operating leverage of 250 basis points in full year. This reflected the renewal of 2 French outdoor media contracts for 5 and 10 years in December 2021. This led to accounting them as right of use and lease liability leading to depreciation in 2022 rather than as in other operating expenses in 2021, all this in accordance with IFRS 16.

As a result of all these different items, our operating margin rate in 2022 amounted to 18%, an increase of 20 bps compared to the previous year on a comparable basis.

Let's move now to our headline net financial expenses on Slide 24 which are down by €34 million, beginning with the interest on net financial debt which has improved by €58 million reaching €17 million in 2022. This was largely due to an increase in interest income, reflecting higher interest rates as well as larger cash balances in the U.S., while our gross debt is entirely at fixed rates. Interest on lease liabilities increased by €17 million to reach €87 million, reflecting the renewal of the 2 outdoor media contracts I just mentioned earlier. The other lines are nonsignificant. This results in a €126 million headline net financial expenses of €34 million improvement versus €160 million last year.

Now on Slide 25, income tax. Reported income taxes stood at €431 million, up by €124 million. The increase largely reflected the rise in profit before tax. To calculate the headline income taxes of €536 million, we are adding the noncash element of our P&L i.e., the tax effect and amortization of intangibles and impairment and real estate consolidation as well as other noncash items. Effective tax rate was 24.8%, up 140 basis points compared to 2021. That was exceptionally low and is now in line with the group's previous year ETR.

On Slide 26, the headline earnings per share fully diluted is growing by 26% year-on-year to €6.35. This strong growth reflects not only the improvement in our operating margin but also a significant reduction of net financial charges. The average number of shares on a diluted basis was up only by 1% compared to 4% the prior year as we removed the scrip option and paid our dividend fully in cash in July.

Moving to Slide 27, free cash flow. Our reported free cash flow before change in working capital was €1.8 billion in 2022 compared to €1.4 billion in 2021. The largest positive impact obviously comes from the increase in EBITDA by €484 million, reflecting the strong activity over the year as well as from the decrease in interest paid that I described earlier. This is partly offset by the following items: an increase of €39 million in our lease liabilities repayment linked to the 2 outdoor media contract in France I mentioned earlier; a rise in CapEx to €194 million at 1.5% of net revenue after a low point in 2021.

Let me add that we expect CapEx to further increase in 2023, reaching around €250 million, reflecting the continued investment of the group in its platforms, particularly at Epsilon and Publicis Sapient. Finally, an increase in tax paid of €68 million, largely reflecting the rise in the group PBT.

Let me explain you why we have deducted an extra €110 million from 2022 reported free cash flow, as you can see on the slide. The new tax legislation in the U.S. called the Tax Cuts and Jobs Act, in short TCJA, was confirmed by Congress late December 2022. According to this new fiscal rule which largely affects tech and IT companies, R&D expenses spent in the U.S. now need to be capitalized and amortized over 5 years instead of being fully deductible like in the past. I want to be clear that this has no impact on the ETR but only on cash tax payments from 2022. This additional cash tax payment will progressively run down to reach 0 by 2026.

With our data and tech R&D activities, this has led us to pay an additional €110 million cash tax in January 2023 related to fiscal year 2022. Taking this into account, the free cash flow before change in working capital reached €1.7 billion, up €270 million compared to 2021.

Next slide, use of cash, starting from reported free cash flow before change of working cap at €1.8 billion. As you remember, I told you that working capital at the end of 2021 was normalized and that our objective for 2022 was to have a variation roughly at 0. This has been effectively achieved. Acquisitions, including earnouts and net of disposal amounted to €558 million, in line with the capital allocation. This included, first, for about €400 million, the acquisition of Tremend for Publicis Sapient, Profitero in Commerce, Yieldify and Retargetly target for Epsilon; second, around €100 million of earnouts on previous acquisitions; and finally, we took, as you may remember, a €49 million cash charge in H1 for our exit from Russia that I previously mentioned.

As planned, dividend was fully paid in cash on July 6, resulting in a cash-out of €600 million. Overall, as a result of this variation, we further reduced the group net debt by circa €700 million.

Moving to Slide 29, net financial debt. With this improvement of about €700 million that I just described, we closed the year with a net cash position of €634 million at the end of 2022. The average net debt on the last 12 months is €685 million, an improvement of about €850 million compared to last year and better than our latest guidance. Including leases, this represents a leverage of 1.2x EBITDA, an improvement versus the 1.6x in 2021.

Before leaving the floor to Arthur, a few words now on our 2022 dividend, our free cash flow forecast and cash allocation for 2023. First, on Slide 30, our dividend. We are pleased together with the Board to propose a dividend per share of €2.90 at our next AGM in May. This would represent a payout of 45.7%, in line with the group financial policy and an increase of 21% versus 2021 after an increase of 20% the previous year. Like last year, this dividend will be fully paid in cash.

Now the cash allocation for 2023 on Slide 31. Our outlook for 2023 is a free cash flow before change in working capital of circa €1.6 billion. This includes all the transitional TCJA R&D cash tax payment that we anticipated in 2023 which consist of €110 million related to 2022 that we already paid in January, as I said earlier and an estimated €90 million related to 2023 which will be paid in tranches throughout the year.

Let me add that these transitional cash tax payments will progressively decrease to reach 0 by 2026. For 2023, this means that excluding the €110 million exceptional payments related to 2022, free cash flow is expected to be stable at €1.7 billion compared to 2022.

Going into the expected cash allocation now for 2023. First, we are planning, as I told you, a dividend of €2.90 per share, representing a cash out of €740 million. Second, we are continuing to invest in data, tech and commerce with the M&A envelope between €500 million to €600 million in 2023 which is broadly comparable to 2022. Third, we are planning a share repurchase of 3 million shares, representing circa €200 million to cover for long-term incentive in order to stabilize the total number of shares of the group as we've committed. And fourth, we will use the remainder of our free cash flow generation to pursue the deleveraging of the group by around €100 million in 2023.

This concludes my financial presentation. And now I give the floor back to you, Arthur.

Arthur Sadoun

As you saw, we outperformed the market on all KPIs in 2022.

Looking at our performance over the last 3 years, we have emerged as a stronger group. Thanks to the profound transformation we've been through, today our business is firing on all cylinders. Our revenue mix, our go-to-market and our platform organization set us apart from competition and also make us confident for the year to come. In 2023, despite a challenging environment, we anticipate delivering another very strong performance ahead of current expectations. Concretely, this means organic growth of 3% to 5% with Q1 in this range, an operating margin between 17.5% and 18% and a free cash flow at circa €1.6 billion. Free cash flow is actually stable at €1.7 billion, excluding the exceptional U.S. and R&D tax that Michel-Alain has already covered.

Let me give you more detail on that guidance. First, our differentiated revenue mix increases our resilience to business cycles. Thanks to the acquisition and the integration of Epsilon and Publicis Sapient, 1/3 of our revenue is composed of real-time third-party data and best-in-class technologies. This is precisely what our clients need in a tough macroeconomic context to continue to drive growth while optimizing their spend. This starts with first-party data management. With Epsilon, we are in a unique position to provide our clients with true identity resolution to fuel their entire marketing activities with the most accurate real-time customer insights in a soon-to-be cookie-less world.

What makes us truly unique is our ability to combine our best-in-class data with our scale in media to build new digital media offerings and optimize our client spend. We are actually leading in the 2 major revolutions in our industry: Connected TV and retail media. On Connected TV, we created PMX LIFT to accompany our clients is the shift from linear TV. On retail media, CitrusAd has doubled in size since we acquired it in 2021. We have fully integrated its technology with Epsilon to create a new generation of retail media platform that provides clients with unparalleled customer knowledge directly linked to sell activities. Thanks to our recently announced JV with Carrefour, we will actually expand these capabilities beyond the U.S. and the U.K. into Europe and LatAm by 2024.

Last but not least, with Publicis Sapient, we have the technology and 20,000 engineers and developers to create the platform experiences that our clients need for direct customer relationships and true personalization at scale in their own ecosystems. The strength of our future-facing expertise has been acknowledged by Forrester in 2022 with our assets being ranked number 1 in first-party data, loyalty, retail media and digital experience services. Consequently, there is no doubt that Epsilon and Publicis Sapient will be accretive to our growth in the year ahead. They will address the critical need of our clients to transform despite the current global pressure.

Second reason why we are confident in 2023 is our go-to-market. It positions us as a key partner in our client transformation by seamlessly integrating data and technologies into all of our operations, we have been able to top the new business ranking again for the first time in 5 years and consequently boost not only our Media but also Creative agencies. This was already visible in our performance in 2022. Our Creative and Media activities together contributed to half of our growth over this period.

Last but not least, our unique platform organization will allow us to sustain very solid financials while improving even more our competitiveness. Our country model with a single P&L and unified management per geography help us maximize resource allocation locally and encourage cross-selling utilization. Our global delivery centers and the access they give to our local team to scale talent pool makes our model unique. We have expanded this access since the acquisition of Publicis Sapient to support the entire group.

For back-office needs, we also have resource, our shared services backbone. Together, they represent 25% of our workforce. Our model is increasingly supported by our platform, Marcel. With 83,000 unique user elements, Marcel has become not only central for fostering collaboration but also created significant development opportunities for talent. All of this makes our organization a real platform that is supporting growth while creating efficiencies.

Well, as you have seen, thanks to our unique model, we have outperformed the market in 2022, with double-digit organic growth for the second year in a row and very solid financials. As we enter 2023, we are confident that the same combination of revenue mix, go-to-market and platform organization will continue to deliver profitable growth despite macroeconomic challenges. In 2023, we expect to sustain the momentum we have built since the beginning of the pandemic, delivering 3% to 5% organic growth, in line with our 3-year CAGR while maintaining an operating margin between 17.5% and 18%.

This year, as we did in 2022, we will focus on delivering our commitments: accompany our clients in what is still a challenging time and continue to develop our protocol map to lead the change in our industry. All of this will not be possible without the trust of our clients and the outstanding effort of our people. I would like to deeply thank them.

Thank you all for listening. And now with Michel-Alain, we are ready to take all of your questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Lina Ghayor with BNP Paribas.

Lina Ghayor

I hope you can hear me well. Well, impressive set of numbers. So congratulations. I have 3 questions, please. The first one is on the general environment. You provided a Q1 and 3-year organic growth guidance between 3% and 5%, suggesting momentum should continue into Q1. But after that, what are your clients sort of budgeting for the year? Are there any contingency planning? Are they pushing from a performance based? Any indication on your conversation with them will be great.

The second question is on your organic growth guidance. Could you elaborate on the moving parts between business win contribution, underlying revenue inflation/pricing and [indiscernible]. And lastly, on the margin guidance, it would be great to understand how you thought of your guidance and what you have baked in basically in terms of wage inflation and progress on offshoring.

Arthur Sadoun

Thank you very much, Lina. I'm going to take the environment and the growth guidance and I will leave you with the margin, if it's fine for you, Michel-Alain.

Michel-Alain Proch

Sure. So I mean, first of all, when -- I'm going to distinguish what we think is general to the industry and what is specific to Publicis your question about the environment. When you look at the industry, if you take the glass half empty, as we said, you're going to continue to see some budget cuts in the traditional marketing. Don't get me wrong. We don't see any big change of client behavior at the moment. But we do see locally some marketing budget cuts and it's one of the reasons, I'll come back to that on the 3% to 5%, okay? The other thing that we are seeing is, of course, the salary inflation, okay? So that's the thing in the market that gets a bit difficult.

When you look at the glass half full and this is what you see in our results and in the current dynamic overall, is that despite the fact that our clients are facing some challenges, inflation, supply shortage, war in Europe, tension in general, they understand that they have no other alternative than to continue to transform their marketing and their business model. And again, this is where we are making a difference. Again in Q4 and by the way, better than the expectations, is that despite, again, those micro challenges, clients will continue to invest in their transformation. And you can see that in our offer and because, again, getting back to what is specific, what we have seen with our clients in the last year and what we're anticipating for 2023 is they will continue to go to us whatever happens to make sure that they can shift from cookies to first-party data management, for sure. They will continue to make sure that the content they put on the platform is more dynamic and driven by AI and technology and they will continue to transform digital user business. And so when you look at what we have built with Epsilon and Publicis Sapient at the heart of our Media and Creative operation, we have the right answer.

And again, the best way to specify that is the way we are going to market and our new business track record again in 2022. When you take the guidance in terms of growth, first of all, coming back to what has happened in '21 and '22, we did actually outperform our guidance significantly. I think there are 3 elements that explain that. And that, by the way, explain also Q4. The first is our revenue mix with 1/3 of our revenue in data and technology, we thought that Epsilon and Sapient will do well. They did extremely well. The second thing is our new business performance and the tailwind we had from 2021 has, of course, resolved in 2022 and a better macroeconomic context than expected. So overall, for those 3 reasons, we outperformed in '21 and '22.

Now when you look at 2023, it is important to understand that when you talk about organic growth, the lower end of our guidance at plus 3% is already a high target in the current environment. But we believe it is a realistic one. We know that it is well above consensus but we feel that it is realistic. The question you're going to ask is how can we deliver the 5%. And we believe it will depend on 2 things, first, the level of potential budget cut in traditional marketing, the one I talked before. Again, we don't see any big change in client behavior but we see some cuts here and there in some countries.

And the second is the new business dynamic but honestly mostly with existing clients, because whatever we're going to win in the next 6 months big will have an impact for next year more than for this year. You are talking between 3% to 5%, about €250 million additional growth which is, of course, a gap to fill that we could fill with those 2 variables. It is clearly ambitious and very sizable given the current macroeconomic but we feel that 3% is realistic, 5% is ambitious and we're going to do everything we can to fill the gap.

By the way, it is very important to note because, hopefully, we've been clear through the last quarter about that, the way we measure our performance internally, I'm not even talking about what we said to the market, is on the 3-year stack because what we want to make sure is that we build sustainable goals that can outperform the market with the best margin. And so when you look at our CAGR over 3 years at 4%, we are exactly at the midpoint of this range.

I take the question on the margin. Let me give you a bit more color about our guidance. I think first important thing to have in mind, in that the midpoint of the 17.5% to the 18% guidance is about 50 bps above the average of the last 3 years. And as Arthur mentioned, we did all this while increasing the group bonus pool from circa €200 million in 2019 to close to €500 million in 2023, stable with 2022. So if I look at the hydraulics for 2023, as I normally do, after -- and I begin with personnel costs which I think was the heart of your question, Lina.

After major investment in the last 2 years in the group talents to sustain double-digit organic growth, we expect personnel costs in 2023 to evolve broadly in line with the net revenue of 2023 which means establishing it slightly above 65% that I was mentioning in my presentation, pretty much like in 2022. So to achieve this, we will actually absorb wage inflation through 4 major actions: offshoring, extension of our shared service center, delayering and obviously, as Arthur mentioned, the country model. So that's for personnel costs.

When it comes to other operating expenses, we expect to have higher depreciation derived from the increased investment in group platform that I mentioned as well as some more travel expenses as people increasingly return to face-to-face meeting with clients. So this means that other operating expenses which is the second part of our cost structure, should grow about 30 bps to circa 17% of net revenue. So when you take these 2 points into consideration, you reach the midpoint of the guidance for 2023.

Arthur Sadoun

You asked a question about inflation, that is between revenue and margins. I'm going to take this one and then I'll make a comment on the operating margin. I mean, when it comes to inflation, thanks to our platform model and again this is a big competitive advantage, for those who followed us for a while, when Maurice Lévy put in place resource and our shared services when he started to develop through Sapient the global delivery model and then when we implemented the country model and Marcel, I guess, we made a big difference in our ability to fuel our growth while keeping our high level of margin that is paying off today. It is important that it is the same platform model that allow us to absorb most of the inflation through the efficiency of our operation. And this is how we do. To be clear and we said it already in 2022, the impact of inflation on our top line was very limited.

When it comes to '23 which was your question, we expect the impact of inflation on our revenue to be circa 1%. And it's going to be largely driven by the contract renegotiation we'll have with Publicis Sapient. But again, we consider that it's our role to absorb inflation and this is why we are very happy to be able to maintain the same level of margin. It's our role to absorb because there is a part that we can pass to our clients but it is limited in our industry.

I would like to make more of a comment for those that have been following us for years and with whom we had the debate between margin and growth when our organic growth was not where we wanted it to be. I mean, as Michel-Alain told you, H1 margin was extraordinarily high because we have a huge amount of business and there were some undocumented, okay? That's a very important point. And we always say and we will continue to say that as we are building a business based on capabilities exactly for our client needs where we believe there is some organic growth to extract in the future, we believe that the normalized operating margin is between 75 -- 17.5% and 18%.

And we believe and this is an important point, that this is the right balance between what is today's highest margin of the industry that is also capable of absorbing inflation and the right level of investment in our talent to actually support the growth. That was a long answer but hopefully, we've covered some of the questions that are coming.

Operator

The next question is from Lisa Yang with Goldman Sachs.

Lisa Yang

Congratulations on the results. I also have a couple of questions, please. Firstly, on M&A, obviously, you guided to over €500 million, €600 million, you did €500 million last year. Could you maybe just comment on what level of contribution to the top line you would expect in '23 and then potentially in outer years? That would be helpful.

Secondly, you announced this €200 million buyback to offset the impact of the LTI. Is that something that we should basically treat as recurring? So basically assume basically your share count going forward should remain flat, so beyond 2023 as well? And the third thing, again, is just to come back on the margin. Obviously, 3% to 5% growth is pretty strong, I understand the comp base is difficult. Are there any other elements which basically would prevent margins from growing in 2023? Maybe you can mention like maybe FX or anything else we are -- we may be missing here.

And on the margin as well, could you also comment on where you are in terms of the margin for Sapient and Epsilon. Obviously, these are growing extremely strongly. So I'm just wondering at what point we will see Sapient and Epsilon margin also catching up with the rest of the group or even becoming accretive to the group margin.

Arthur Sadoun

Thank you very much. I'm going to take the last question on Epsilon and Publicis Sapient margin. And then I will let Michel-Alain go onto the first 3 ones. What is important to understand here is we have really shifted from a model with global brands where we were looking at P&L per activities to country P&L. And so the reason why we are not disclosing the margin per operation is because you can find yourself, let's say, on a media pitch where Epsilon will be a key contributor to a win for [indiscernible] and where actually the margin impact will be shared between both entities.

So because we have moved to a country model, what matters to us is, of course, the margin at country level more than on the global operation because, again, true integration means that we have to keep the P&L cycles. As you know, this is something that we started to do with the Power of One that has been created by Maurice in -- 8 years ago, 7 years -- 8 years ago, I guess, now that we have accelerated in '18 by putting the country model and makes a big difference, not only our ability to win but also on our ability to manage cost and make sure that we make the best use of our resources. Michel-Alain, take that [ph].

Michel-Alain Proch

Yes, sure. So Lisa, we -- beginning with acquisition, we can assess an impact of M&A between 1% and 1.5% on top line. The second point related to LTI, so maybe you remember, Lisa, that we did exactly the same thing in 2021 in which we bought for about €140 million of euro of shares. Here, we have a larger program with €200 million representing about 3 million of shares. And our objective here, as I think we have shared with you several times with Arthur, is to stabilize the share count. So yes, indeed, going forward, the idea is to buy the share of our managers on the market. So that's for the LTI.

The third point which is about margin. So maybe before addressing 2023, let me just have a word about 2022 and FX. I think on 2022, first, obviously, we landed at the upper part of the bracket. And this includes, as you may remember, 40 bps that we cashed out on the exceptional 1-week salary. But we were able to do so because we experienced, as Arthur told you, a very high H1 2022 margin. Maybe you remember that it was up 80 bps versus H1 2021. We saw strong revenue growth while we were still catching up in terms of resources. So it's really this 80 bps in H1 which represented 40 bps on the year which has allowed us to invest these 40 bps in exceptional 1-week salary. Or another way to say it is that these 2 elements actually compensated in shoulder in 2022. So there is no 1-week salary buffer in a certain way for 2023.

And finally, on the FX, just have in mind that the dollar is representing 30 bps of tailwind in 2022, while in the guidance 2023 I think it's important that we tell you that we have taken a dollar to euro rate of 1.08, that's what's factored in the guidance which is compared to 1.05 for the average of 2022. So, it means that we are already factoring a headwind of about 3% coming from the dollar.

Arthur?

Arthur Sadoun

If you don't mind, I would like just to come back on the contribution of the acquisition in order to give you a bit more color on how we deal with acquisition. It's still €500 million next year. It was -- this year, it was €500 million last year. It's -- hopefully, the message you're going to get from this call is that our transformation, all the efforts we have to make in terms of organization, in terms of investment, in terms of repositioning, in terms of changing the management is behind us.

We have spent a huge amount of time to do it. It has been disturbing at one point. And now for the last 3 years and again, this is why we look at the 3 years stack, you can see the momentum. We have with 1/3 of our revenue in data and technology of fantastic assets. Fantastic assets because it's accretive to our growth. and a fantastic asset because it also boosts the rate of our business, as you can see in the business. And so the way we approach acquisition now is really looking for bolt-on acquisitions that can bring us 2 things: new tech capabilities or new kind of talents. And on top of that, companies that can fit either with Publicis Sapient or with Epsilon or sometimes smaller innovative company we have in the group but also reinforcing and leveraging everything we have created and integrated so far.

So we are very, very picky on what we do and it's not a coincidence if you have a Citrus that has already double sized because we took an asset that we plugged into Epsilon. We came with the best offer today in the market in retail media which is a booming segment, as you know. And you can see the results not only in Citrus but also in Epsilon, as Michel-Alain just mentioned.

Lisa Yang

May I have a quick follow-up question?

Arthur Sadoun

Of course.

Lisa Yang

Great. I'm just looking at your guidance of 3% to 5% for the full year and you're talking about 3% to 5% for Q1. So if I look at what that implies versus 2019, it's about 14%, 15% growth for Q1 and 70% to 80% for the full year. So I'm just wondering, are you being a bit conservative with that 3% to 5% for Q1? Or basically, why would the full year stack basically will accelerate, what gives you confidence the full year stack rate throughout the rest of the year to achieve your full year targets?

Michel-Alain Proch

I think, I if I may -- yes, I think on the 3% to 5% for Q1, we -- with the macro uncertainties that remain, we think that this is, as Arthur was saying for the entire year, I mean, the 3% is already high but realistic. And for the 5%, we've got a couple of things to happen in order to reach this. Missing -- basically, we see it in the line of the full year organic range, mostly driven by the robust trend of our underlying business. And then another way to look at it which I think is the most important, in our view, is the fact that it's fully in line with our last 3-year CAGR of 4%. I think that's the -- what is underlying our guidance for the year and for Q1.

Arthur Sadoun

And the way we manage our team, this is very, very important. We are here for the long run to build a business that outperformed the market in terms of growth and deliver the best financial KPIs. And so we look at the 3-year stack. By the way, just a detail but -- it's true that our Q1 guidance is already 300 to 500 basis points better than consensus. And I think were there, so we feel it is a good performance in a very uncertain context. But as I said, we feel that it's realistic.

Operator

The next question is from Matti Littunen with Bernstein.

Matti Littunen

The first question on the commerce business. Clearly, very strong performance from Retail Media there and some bolt-on focus there as well. Now comes lots of elements. So is Retail Media where you see your strength and focus going forward? Or is it a more sort of a broad-based development where you're seeking to lead in other areas of commerce as well? The second one on restructuring costs. Now it seems like you've reached a new milestone in terms of the rationalization program. So could you just give us an update in terms of where you stand now after moving to the country model? And what kind of level of cost could we expect going forward? And what the next kind of steps to rationalize are?

Arthur Sadoun

Thank you very much, Matti. I'll take the first question. I'll leave the second one for Michel-Alain. I mean, there is 2 dimensions in retail in what we presented. There is retail when we talk about our retail clients. And as you have seen, it is an industry vertical that is growing very fast and there is retail media when we play our media role and help our client win in this channel. When it comes to retail as a client first. It's very important to note the strengths we are having today with Publicis Sapient to help retail transform. The reason why the number is so high is that it is definitely a category where we have totally shifted from being a communication partner to truly be at the heart of the transformation of our clients and helping them in every dimension. I guess, you will agree with me that retail needs a big transformation but the ones that are doing it faster than the other are winning bigger and this is where we are. So this is a very, very important thing for us because it's a big part of our business and we are seeing a huge momentum with Sapient. And I mean Nigel Vaz is spending a lot of time with CEOs of different retail companies just advising them and then we can follow up with this in place.

The second thing is retail media. Retail media, again, is a new booming channel for our clients. We believe that -- we know, by the way, that CPG companies will spend more on retail media than on linear TV by 2025. And to come back to your question, where we have a huge advantage which is true for retail media but in general for commerce or for connected TV or for anything that I think it's important for you guys to get, is that on one side, we have with Epsilon leading capabilities in terms of data management and delivering precision based on identities. On the other side, we have Publicis Media that is a leader in media and definitely number 1 in the U.S. Our ability to combine our data expertise with our scale in media allow us to build new products and services that are exactly what our clients need in terms of investments to actually grow faster while spending less. And the reason why, again, we are insisting on retail media or in connected TV is that it's 2 booming areas where our client needs data on one side to personalize and scale because they still need to reach a lot of people, where we have a unique position on the market.

Now, I'll stop one second on commerce because retail commerce, it's a lot of work and it's pretty complicated. We believe that we are now experiencing the third biggest revolution in the marketing industry. The first one was digital 20 years ago. The second one was social 10 years ago. The next one and the one that we're experiencing now is commerce. And just for a simple reason which is every marketing experience that our clients are existing in could turn into a commerce experience. Everything you see, you'll be able to tie it. And again, at the heart of this transformation, what our clients will need is better understanding of customer which is what we bring with Epsilon and direct access to them which is what we can build with Sapient. And so it's a big thing for us. It's not something that we're going to resolve overnight but it's definitely things that are already impacting our business, allowing us to win more new business and grow Sapient and Epsilon as you have seen.

Michel-Alain?

Michel-Alain Proch

Yes, sure. On the -- Matti, on the second question, you have about restructuring, there's 2 parts in it. I mean, there is the delayering we're doing on our organization related to people, so -- and there is the real estate consolidation. I'm going to address both of it. So basically, on the restructuring part of people restructuring, as you've seen in our margin in 2022, we spent about €80 million and we expect to have the same level roughly in 2023. So that's for people restructuring.

For the real estate consolidation, you're right. We have finalized in 2022 the third wave of all-in-one consolidation plan which since the beginning, total accumulated savings of €200 million roughly. We are working on a new plan which we will be integrating in the future of work with the hybrid mode we all know. But it's too early to announce any future savings yet. We're working on it in the first -- on the first semester. We'll get back to you on that one.

Operator

The next question is from Julien Roch with Barclays.

Julien Roch

Three questions. Coming back on the full year '23 guidance. I mean, you've already answered and you said that it was in line with your 3-year CAGR. But obviously, there are macro uncertainty this year. So -- and I assume some of your guidance is based on client budget. So what happens if clients do cut their budget? How much of that 3% to 5% is already booked in, cannot be cut if the macro disappoint because it's digital transformation? How much conservatism you have in your guidance? So some color on what happens if the macro disappoints, that's my first question.

The second question is very clear on margin guidance for 2023. But what happens in further years, so in '24, '25, if you continue to do 4% organic top line. Do the margins stay at 18% because it's best in class and you're fully streamlined? Or can we have some operational gearing? That's my second question. And the third one is on cash. You're now comfortably net cash. You will add €100 million to your cash pile in '23 if you deliver on cash flow. So when can we expect a bigger buyback?

Arthur Sadoun

I'm going to take number one and I will leave you 2 and 3 and then make a comment on 3 to you. What happens if macro uncertainties, I mean, the macro starts to get tougher, as you said, Julien and thank you for your comment. Again, what we have tried to demonstrate today is that we believe we have strong -- I mean, we have 3 very strong competitive advantages that make us confident. I won't say whatever the macro but definitely in a tough environment.

The first and I won't insist enough, is our revenue mix because I can tell you something, is that things can get tougher, client won't stop to invest in their data, in their technology, in their commerce, in making sure that they digitally transform their business. They have no alternative than to do it. And so we believe it is a huge advantage because I think 1/3 of our revenue will be accretive to our growth and will also help us to boost the rest of our business, will make a difference. We have, as you have seen, very good new business tailwind. Let's be clear. again, 2021 was an exceptional year that translated very strongly into 2022. '22 was a good year. We had a transformation rate where that was as high but the level of activities was lower. But still, it's going to be a tailwind. And when you take one plus the other, again, we feel that the lower end of our guidance at 3% is definitely a right target. And you're right, in the current environment but is a realistic one. We are very confident to deliver it even if the macro starts to disappoint to be very clear.

Now getting into the 5% is another challenge and this is why we're giving you a big bucket because we are talking about €250 million. And if I want to summarize, I would say half of this is eventual traditional marketing budget cuts, again, if things get worse; but also the same as of opportunity on clients, if we're able to transform. And this is why you have this bracket between 3% and 5%. So again, we feel that 3% is very realistic anticipating many things. And the 5% is more ambitious but of course, this is a target we set to our team.

Michel-Alain Proch

Yes, Completing your 2 other points, Julien, about margin and cash. So on margin, I think I'm going to repeat what I think I said in July, if I'm not mistaken which is that the bracket 17.5% to 18% is, we believe, the right one in order to sustain the level of growth we want to sustain and to sustain a profitable growth. So you can have it as a good proxy for the years to come. The second thing I would like to add on that point is that can we do more on the margin? We certainly can. But is it the point? No, it's not the point. The point is really about supporting our growth which, as Arthur is sometime mentioning it, was missing in some previous years. So, I think we are very clear on the relationship between margin and growth.

Arthur, you want to say one more thing about the margin?

Arthur Sadoun

No, I just want to say that we are very proud of what we are doing when it comes to variable compensation, will be the 1-week salary that we gave to 45,000 of our people. You need to understand that not only it has an impact on those people, that had a plus for the organization but it was felt as a moment of pride for our team in general and their manager and even for our clients that felt that we are doing the right thing for our talent. And this is maybe the most important point, is -- you know the scarcity of talent today. You know the difficulty to get the best and you know that we are a people business. And we believe that the more we invest in our talent, the better growth we have. And so again, we are very, very proud to be able to sustain such a level of margin in an inflationary context while rewarding our people in this way. And this is something that we're going to continue to do. By the way, you just have to look at the kind of talent we are able to attract at the moment within Publicis to understand that the policy we're having with our manager, talents and our people in general is truly making a difference.

Michel-Alain Proch

Yes. I just follow up on the cash point. I'm not obviously going to repeat the capital allocation for 2023. It's quite clear. The ones -- there are 1 or 2 things that I would like to underline. The first one is that based on €1.6 billion of free cash flow, with a dividend of €740 million, we are returning to the shareholder more than half of our free cash flow, so 50%, 55%. And the important thing is that it's an increase of €130 million compared to 2021. So we did -- I mean, sounds nothing but we did several things on this. We took out the scrip dividend and then we increased the dividend to a massive number of €740 million in 2023.

The second point, I'm not going to comment about acquisition. I think Arthur has been super clear on the fact that we are directing them on bolt-on in order to boost our capabilities and our growth. But on the share repurchase, I think you have a clear commitment from our side to have this scrip purchase in place in order to stabilize our share count. Now, don't count on a big share buyback like others are doing because this is clearly not our financial policy. And we believe that the capital allocation I just described quickly is in line with our group strategy and that is creating more value than a purely financial share buyback.

Julien Roch

Okay. Very, very clear. If I could do a really quick follow-up. As you talked about tailwind on that new business, could you maybe quantify that for 2023? Are we talking about 1%, 2%?

Arthur Sadoun

It's actually too early. They are going to be a tailwind for sure. We need to see how fast it ramps up. Again, it wouldn't be at the level of what we have experienced last year because the level of activity was higher but we expect that to be a tailwind. We will tell you more for sure later in the year as we did last year.

Operator

The next question is from Omar Sheikh with Morgan Stanley.

Omar Sheikh

I've got 3 questions as well, please. So first of all, you mentioned the Sapient and Epsilon are going to be accretive to growth in '23. Could you maybe just quantify whether that's either mid-single digit, high single digit or maybe low double digit in '23? That's the first question. And then, Arthur, you mentioned some budget reductions in traditional marketing. Could you maybe just highlight where you're seeing those which territories? And which segment is that kind of going to be coming through, in Creative, in Media or is that somewhere else?

And then finally, as you just mentioned, the leverage that you have now doesn't appear to be, let's say, optimal. So could you maybe just talk about just long term where you think optimal capital structure should be for the company? And then Arthur, are you not tempted by maybe something a bit more transformational on the M&A side, if not this year but then at some point, particularly given the strength that you're seeing for demand in things like digital transformation consulting.

Arthur Sadoun

Omar, I guess, you will agree that in terms of transformation, we have done a lot already. So our job now, that we have fully integrated those 2 very big acquisitions and one that was extremely visionary with Sapient and we see the result now thanks to what Norris has put in place and another one that was pretty bold at that time because it was a difficult time for us with Epsilon. What is coming now is bolt-on acquisition where we can leverage those 2 platforms that we have put in place. When it comes to Sapient and Epsilon, as you have seen, they have been performing very, very well this year. We know that they will be accretive next year. I think it's important to put things back in perspective. In 2019, Publicis Sapient was negative. We changed the model, we changed the management. We asked Nigel Vaz to take care of it and we have 18% growth this year and the 3-year stack that is pretty impressive.

We bought Epsilon and the market recognized at the time that the multiple we paid were good on the premise of the growth that could go from 0 to 3, okay? We have delivered this year, 12 or 13, I mean depending if you take on the quarter on the year but we're way beyond that. Why? Because we have been able to integrate it properly with our activities. I mean, we talk a lot about Epsilon and Sapient but if you take both of those activities and particularly Epsilon, a big part of their success is due to the work they have been doing to truly continue to transform and bring new expertise but also how they have been working particularly with Publicis Media.

And the ability of Dave Penski, for example, to -- that is now a member of the Director, to really bring, as I said, data with the scale of media. So again, what would be the growth of both of those entities, it's too early to say or at least too early to make a clear plan. I can tell you again that they will be accretive. And what we're going to look is, of course, their own growth but also the growth they will bring to other operations and other countries which is what matters at the end for us.

Michel-Alain Proch

Yes. Maybe on the complementing -- Omar, it's Michel. On the cash balance, maybe just to remind the numbers and then I go to the -- to your question. Just reminding the number is the following. In terms of average net debt for 2022, as I mentioned, we have reached €685 million. What we are planning in terms of average net debt for 2023 will be to be between €200 million and €300 million, reflecting the deleveraging I was just mentioning. I think what's important for us is that we have always been cautious on liquidity. And actually, when you look at the structure of our balance sheet, today, I think we are even more right than ever. We have a debt which is at fixed interest rates. So we are not suffering from the increase in interest rates on both sides of the Atlantic. That's number one.

And number two, when you will look into the detail of our P&L and I hope I've been clear on this, the higher interest rate is actually benefiting us particularly on the dollar. You know that we have a large amount of dollars in cash which is helping our financial charges and will help our EPS for 2023. So when you combine all this, cautious on liquidity, large amount of dollars which are actually benefiting us in terms of interest rate, financial charges and EPS, I think the capital allocation is really making sense for 2023. And you know we don't have -- we don't provide a net debt-to-EBITDA long-term objective but I want to be clear on what we provide which is the capital allocation for 2023.

Omar Sheikh

And on the budget reductions, do you have any color of where you're seeing that?

Michel-Alain Proch

Budget reduction, I think Arthur mentioned it. We saw some in Q4 in traditional marketing. Arthur, do you want me to take this one?

Arthur Sadoun

Yes. No, no, no, sorry for that. I'll take this one. I mean, this is what I said. It's difficult to tell you where because it's everywhere but it's small. We are talking about, I don't know, a campaign in Mexico that has been cut because the client has decided to postpone it or just to change the product line or decided to reduce this product portfolio. It could be a transformation project for Sapient in Asia, where there is lack of CapEx and they decided to go over. So we are talking about the sum of mostly traditional marketing things. That doesn't add to global number that is material but does impact here and there are different entities.

So again, no major change in our client behavior which is what we could have expected. It is not happening. Of course, some cautiousness where necessary because everyone has to make sure that they can find some savings will be to absorb the inflation. But more importantly, on the other hand, clients that understand that their transformation needs to happen despite the challenges they are encountering.

Operator

The next question is from Christophe Cherblanc with Societe Generale.

Christophe Cherblanc

I had 2 actually. First one is on the edge of Publicis vis-a-vis competition. You -- we have Sapient and Epsilon at 1/3 of revenues. I'm sure your peers are also aware of the commerce media opportunity, the demand for first-party data analytics from their clients. So I'm sure you're monitoring competition. What would you say the 1/3 of revenues is for your big peers? Is it 15%, 20%? Any number would be very useful.

And the second one is, on -- sorry to bring up the subject but we have seen a lot of news flow on a ChatGPT AI. Actually, you did mention AI in your comments. So do you see demand from your clients for Publicis to use those tools? Do you see room to use them in production? Or do you think it's just best?

Arthur Sadoun

No, we don't see our clients asking us to use this tool, in particular. What we do experience which is very important for us, is how we can put AI at the servings of our platform and services. I think we have to be very, very careful is that AI can be at the service of modern marketing but AI can't be modern marketing in itself. It will make absolutely no sense. You still need the strategic and creative mind to make things happen. Once I've said that, I'm going to take -- give you a very precise example that gets you into your other question which is our competitors, okay? I'm not going to talk about competition. You just have to look at who has made acquisition or had divested assets in the last 5 years to understand who has truly invested in data and technology. But having said that, I'll take the example of the data we're having in Epsilon.

So one of the differences in the data we have in Epsilon, first, they are based on transaction. So we know what people buy and you are what you buy. Second, they are real-time. They are optimized real-time at the nanosecond, thanks to AI. So this is a great example of how AI can help you know your customer better but then you still need strategies to make something out of that. And so just to go faster because time is flying and we still have a couple of questions, when I come back to your first question, it's very simple, 1/3 of our revenue in data and technology which roughly represents €4 billion, no one has something even close to this. And this is what is making a big difference for us, not only in our revenue mix but also in our go-to-market, as you can see in new business.

Michel-Alain Proch

Actually, if I can just add one sentence. There's actually a good comparison. It's one of your colleagues, Christophe -- Adrien has provided a comparison of the different data assets in between the different holding companies in the last note which I think is interesting.

Operator

The next question is from Jérôme Bodin with ODDO.

Jérôme Bodin

Yes. First question on pricing. I just want to make sure I got the right numbers. So you said almost nothing in 2022 and plus 1 in 2023. So my question is, do you think there is room for further increase in the midterm? Because it doesn't look so much regarding the general inflation. And second question in terms of headcount. So you mentioned stabilization in Q4. So how should we expect Q1 and full year on that regarding your growth guidance.

Michel-Alain Proch

Okay. I'll begin -- thank you, Jérôme. I will begin by the second one, if you allow me. So on headcount, you're right. Just to remind you a bit the big picture here. Looking at the last 24 months, we increased in 2021 our headcount by 9,300 people, net hires. And then in 2022, we increased by 9,700 people. And during the year 2022, we really caught up on 2021 because in the second quarter of 2021, suddenly, we had the acceleration in the growth and we have difficulties to keep up in terms of resources. So that's the reason why at the call in October, we told you our objective in Q4 is stabilizing our headcount because we're there. And we did it. I think it was almost 0, actually, the variation of headcount for the Q4.

Now looking at Q1, as Arthur is saying, we want to have a slight increase of our headcount for Q1 due obviously to the macroeconomic environment we know. But just to be clear, in 2023, as the difference of some tech companies, we don't plan any layoff, it's just obvious and we are going to carry on hiring to support our growth of 3% to 5% but obviously not in the amount that we did in the last 2 years.

Now on the price thing, I want to come back on this. So yes, in 2022, indeed, we believe that the impact of prices on our revenue is really limited, where there is one in Sapient because of the demand in this sector which is really -- which was extremely hard and carry on to be extremely hard. But in the rest of our operation, we did not increase prices during 2022 and it was really at the end of 2022. And on 2023, Arthur mentioned 1% of impact in our top line. It's obviously always complicated to modelize. I want to be really humble on this. But that, I think, is our best estimate as of now. Obviously, we'll see if we get back to you while the year is progressing.

Arthur Sadoun

Again, just 2 quick comments and I know we got to go fast. But on head count don't underestimate what we have developed with Marcel over the last 6 years in what is today an hybrid world. We have an ability to manage our capacity and our talent that is unique in the market and to make sure that we allocate resources properly. That has been a huge advantage during the crisis because we could allocate people and actually do well on our margin while not hiring too many people. And it's a huge advantage in terms of growth and particularly at a time where we know we have to be cautious and we have to give the priority for the next big job to our own people, okay?

Second, on inflation, sorry, I want to make an account comment, not accounting but as a sales guy. The truth is we have been growing with our clients in 2022. And hopefully, we will continue to grow in 2023, for sure. But the 2 real reasons why we are growing is first, the quality of our people and our ability to upgrade the talent and get better organized for that and this is a discussion we're having on a daily basis because they want the best talent and the scope and our ability to win more scope within the client. Then what we can get through inflation is, of course, very minimal and not really material compared to the 2 first.

Operator

The next question is from Adrien de Saint Hilaire with Bank of America.

Adrien de Saint Hilaire

First of all, Arthur, I hope you've made a speedy recovery. And then I've got 2 quick questions, please. So you're guiding at about 3% to 5% growth in what is a pretty soft year for the economy with real GDP growth being fairly limited. Does that mean that you think your like-for-like growth could actually turn out to be better in the future if we assume that GDP growth accelerates, for example, in '24?

And then, the second question is hopefully a fairly simple one. Are you seeing any benefits from reopening from China, either on your local activities in China or from your clients that are exposed to China?

Arthur Sadoun

Adrien, thank you very much and thank you for the personal wish and I'm actually in great shape. So thanks a lot for that. It's too early to tell you if we can deliver more growth in the future, I think it will depend on how the world goes and how things normalize at the world level before us. What is certain and hopefully, you have seen that on our 3-year stack because, again, this is what matters, we have the revenue mix, we have the go-to-market and we have the platform organization to deliver the best financial KPIs while growing above market. Thank all of those 3 reasons and we feel confident that we're going to continue to do that clearly.

I'm very proud about what our teams have done in China under the management of Jean-Michel Etienne. Very proud because they have by far the most modern offer in this country. And again, it is not a big country for us when you look at our revenue but it is a big country for our big clients, okay? And it is a big country in terms of local opportunities. And so we definitely have there a bunch of talent that has been created at the time by Loris Nold but now he is in charge of Europe and is incredibly well led there, where we have made the demonstration that thanks to this offer, not only we can lead the business stable and you have seen what we have been winning but also continue to deliver very strong growth in a very challenging environment. I think this is very encouraging.

And as it is not too early in China, if we have our people listening, a big thank you to them because it has been a very tough year with lockdowns as you know and they have been just outstanding.

Operator

And the last question is from Tom Singlehurst with Citi.

Tom Singlehurst

It's Tom here from Citi. And yes, congratulations on the results. One or 1.5 questions. The first one I wanted to ask about was the special incentive payment to staff. We know that obviously went down well because some of your competitors made a big fuss about it. So clearly, a good initiative. I'm interested in whether you can share any sort of either anecdotal or even quantitative metrics on what impact that has had on staff retention. It feels like an important development. That was the first question.

And then, the other one I had was on the U.K. That 38% organic is obviously extraordinary. It's thrown out by Sapient and Epsilon, obviously. I'm just wondering whether regional or even global business is being channeled through that U.K. number so it's not sort of truly, truly representative?

Arthur Sadoun

Thank you, Tom. I'll start by the U.K. So first of all, yes, U.K. on its own is doing very well on every business and better than expected. A great job that has been there. You're right to say that U.K. is also a global platform. So we have seen some growth coming from our global clients and outstanding performance of Sapient. I mean, I told you 2 years ago, I guess, when the performance at Sapient in the U.K. was not that good, I told you we are not worried. It is not clients that we have been losing, it is clients that have massively and drastically reduced their spend and their CapEx and it will come back and not only it came back very strongly but they have been winning incredibly there. They have a fantastic team. And we are seeing at the moment a great dynamic that make us very confident for the future.

I'm going to end up with your question on the staff impact on the bonus we gave. First of all, if we are thinking about the same percent, it is definitely not a competitor for us. But more importantly, you can't imagine the impact this special bonus got because -- and I will close with this, thanks to all the hard work that has been made since the last 10 years, we have built a unique offer, our revenue mix, hopefully, you got that 30% in data and technology, accretive to our growth, transforming the rest of our business exactly where our client is, make a big difference. We have been working like crazy to win new business and have a go-to-market that is truly differentiated. That, by the way, I think this is something you need to take into account. We are the one winning more divisions than the other. And over the last 4 years, we have -- all over the last 5 years, we have been number 1 4x in a row. And during all of this period, we have continued to increase our margin which means that we are not buying market share. At the opposite, we said something special that can justify a premium.

So this, again, is due to our capabilities. And we have built this platform capabilities that make us confident to deliver still the best margin in the industry while investing in our people and absorbing inflation. But all of this doesn't work if we don't have people that wants to work as one for the company. And so when we do something like the 1-week salary which, honestly, I shouldn't say that but at the end of the call and maybe this will be a comment I should make, we did that in Q3, while we didn't know exactly where we are on the land and how Q4 will look. But we consider that we were strong enough and our model was strong enough to actually reward people when they need it the most. And to come back to what you are saying, it had an amazing impact on the people that got it, an amazing impact on the leader that said that they were in the right place, an amazing impact on our clients and also a big question mark for our competition.

So, I will leave you there. I thank you all very much for the call. Sorry to have been so long. Alessandra and the team are here for you all. And see you soon. Bye, thanks.

Operator

Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.

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Publicis Groupe S.A. (PUBGY) Q4 2022 Earnings Call Transcript