Welcome to the Third Quarter 2021 Revenue Presentation of Publicis Groupe with Arthur Sadoun, Chairman and CEO. Today's conference is being recorded. Please go ahead, sir.
Thank you, Sergey. Bonjour and welcome to Publicis Groupe Third Quarter Revenue 2021 Call. I am Arthur Sadoun. I'm here in Paris with our CFO, Michel-Alain Proch, and our Secretary General, Anne-Gabrielle Heilbronner. Steve King, COO of Publicis Groupe, is actually joining us from London. As usual, we will take all of your questions together after the presentation. Alessandra Girolami is also here and will be able to take all of your questions offline after this session. I will start this call by sharing the main highlights of our Q3. Then Michel-Alain will take us through the detail of our numbers, and after that, I will come back on our model and conclude with the outlook. Finally, we'll take all of your questions with the director. But please, before we start, have a look at the disclaimer. Take a minute for that as it is an important legal matter.
Okay, let's dive into the presentation. In Q3, we posted 11.2% organic growth, which came ahead of our expectations. This performance was actually driven by two main factors. First, the global environment. We have seen a continued rise of consumer demand thanks to a solid U.S. economy and a fully reopened Europe. Second, the strength of our model, which continues to capture a disproportionate part of the shift in our client spend toward data management, digital media, direct-to-consumer, and commerce. In Q3, all of our regions posted double-digit growth. In the U.S., where we generate 60% of our net revenue, we grew at + 10.9%. This was fueled by the outperformance of Epsilon at + 13% and Publicis Sapient at + 20%. Our operations there also benefited from mid-single-digit growth in traditional creative and media and a sixth consecutive quarter at double-digit in health.
Asia was at 12.5% organic growth, with China up double digit this quarter. In Europe, our activities grew at 10% organic, which includes France at 10.8% and Germany at 10.5%. Overall, on the first nine months of the year, our net revenue was up 10.2% organic. Based on these numbers and our forecast for Q4, we are upgrading our 2021 organic guidance for the second time this year from 7% previously to between 8.5% and 9% organic. This is a strong performance compared to 2020. But given the impact of the pandemic last year, what really matters is to have a two-year perspective on our performance and measure real growth versus 2019. If I may, I will take a moment to go further into that. Compared to 2019, we grew 5% in the third quarter, accelerating after a flat Q1 and + 2% in Q2.
This acceleration was particularly visible in the U.S., as our operations grew 8% versus 2019 in Q3 after a Q1 at +5% and a Q2 at +7%. This is largely due to Epsilon and Publicis Sapient, which in Q3 accelerated to 14% and 17% respectively versus 2019. In the U.S. overall, we saw 7% organic growth in the first nine months of the year versus 2019. In Asia, we saw 2% growth in Q3 versus 2019, actually slightly lower than Q1 and Q2 in the context of renewed lockdown at a local level. Overall, with a 4% growth for the first nine months versus 2019, Asia will continue to outperform the industry on a two-year basis. Turning to Europe, our activities there returned to their pre-pandemic level in Q3 for the first time this year.
To sum up, it is now clear that we have moved beyond recovery and are actually proving our ability to grow compared to pre-pandemic levels. I will now leave the floor to Michel-Alain before updating you on our model and our reviewed guidance.
Thank you, Arthur. Good morning to all of you. I'm glad to be with you today. I will begin with slide seven, which presents the evolution of our net revenue for the third quarter and the first nine months of 2021. In Q3, the group posted a net revenue of EUR 2,621 million, representing an organic growth of 11.2%. After a - 5.6% posted in Q3 2020, that means we exceeded 2019 levels by 5%, well beyond recovery. Reported growth in Q3 is at 11.9%. Impact from acquisition and disposal this quarter was + 0.5%, notably with the contribution of CitrusAd and Boomerang for the first time this quarter. The impact from foreign exchange rates turned slightly positive at 0.2% this quarter, at the difference of the previous two quarters due to the stabilization of the USD versus Q3 2020, and supported by the British pound to euro exchange rate.
In the first nine months, net revenue was EUR 7,552 million, which is an organic growth of 10.2% versus 2020 and 2% over 2019, meaning there again that we grew above pre-pandemic levels. After taking into account the foreign exchange rate impact of EUR -272 million, mostly due to the USD evolution, reported growth in the first nine months 2021 was 6.1%. Let's move on now to slide eight, which shows the dynamics of the 11.2% Q3 organic growth by region. This quarter, we posted double-digit organic growth in each of our geographies, and all of them now fully recovered, if not exceeded, their 2019 levels. This was particularly notable in North America, which posted a 10.8% organic growth, implying an organic growth versus 2019 of 7%. On a reported basis, North America grew 10.2% in Q3.
It is worth noting that Europe bounced back this quarter with 10% organic growth and a full recovery over pre-pandemic level for the first time this year. On a reported basis, Europe grew at 13.2%. Asia was at 12.5% organic growth over 2020 and a + 2% over 2019, fueled by a strong performance in China. On a reported basis, Asia was at 15.7%. Middle East and Africa and Latin America both posted strong organic growth at 22.7% and 16.7%, respectively. On a reported basis, they were at 24.2% and 14%. So let's turn to slide nine and dig deeper into the detail of the performance of North America, which posted a very strong organic growth versus 2019 of 7%. With organic growth of 10.9% in Q3, the U.S. exceeds 2019 levels by 8%. The growth there is really impressive and drives the performance of the whole region.
Let's now focus on the U.S., which represents 60% of the group net revenue. Media grew by double digits this quarter, an outstanding performance driven by, first, a continued strong growth at PMX in digital media, second, a mid-single-digit growth in traditional media that showed sequential improvement compared to Q2, and third, CJ Affiliate, which was up strongly for the third quarter in a row. Creative also improved this quarter, posting a solid mid-single-digit growth with strong activity across the board and particularly at Razorfish and Saatchi. Publicis Sapient posted a strong 20% organic growth. This is an organic growth versus 2019 of 17%, demonstrating our ability to capture our client investment in digital business transformation. Since Q3 2020, Publicis Sapient pipeline built up steadily and is now materializing into revenues, particularly in the retail segment, both food and non-food.
Epsilon also posted strong performance in Q3, both versus 2020 at 13% and versus 2019 at 14%. Looking at the organic performance of 13% versus 2020, it was fueled by two main engines. First, digital media, which saw strong demand, like in Q1 and in Q2, and second, our tech division with a double-digit growth. Automotive stabilized in Q3 versus 2020. Finally, Publicis Health continued to deliver an impressive mid-teens double-digit growth for the sixth quarter in a row. Let's turn to performance in Europe on slide 10. As I was mentioning, Europe posted an organic growth of 10% this quarter, continuing to improve quarter after quarter versus 2019. Important to note that in Q3, it has fully recovered for the first time this year. The U.K., representing 9% of group net revenue in Q3, posted an organic growth of 5.8%, corresponding to a recovery ratio of 95%.
Media performed very well, notably thanks to ramp-up in some global contracts in health, TMT, and leisure and travel. Creative was also up double digit, fueled by a strong activity in production. Epsilon is growing more than 50% in the country from a low base. Publicis Sapient performance is improving quarter after quarter but is still in negative territory. Nevertheless, as we previously said in Q2, we confirm that we expect Publicis Sapient in the U.K. to stabilize in the fourth quarter. France, representing 6% of group net revenue in Q3, posted growth at 10.8%, excluding media transport and the Drugstore, fully recovering versus 2019. Media posted strong growth thanks to the ramp-up in new business signed during 2020, notably in the non-food consumer product sector and in the TMT sector. Creative also performed well thanks to our production activities.
Finally, Publicis Sapient grew at a strong double-digit growth due to the ramp-up of contracts signed in 2020. Germany, representing 3% of Group net revenue, grew 10.5% in Q3, which is a full recovery over 2019 levels. Growth was fueled mostly by media and production, with a mix of global contracts ramp-up and local wins. Finally, the rest of Europe posted double-digit growth, mainly driven by the dynamism of Central and Eastern Europe, with Poland, Czech Republic, and Russia being the largest contributors. On slide 11, let me give you a bit more color on our performance in the rest of the world. In Asia-Pac, representing 10% of Group net revenue in Q3, we deliver strong performance with an organic growth of 12.5% and a solid 2% growth versus 2019. Performance improved in all main countries in the region.
In China, we benefited from the ramp-up of new business wins, particularly in the non-food consumer product and automotive. In India, the health situation improved, and we grew at strong double digits. Also, it's worth noting that Thailand grew strongly thanks to the ramp-up of Publicis Sapient new business in the financial sector. In Australia, we recovered what we've lost last year thanks to a double-digit growth at Publicis Sapient and a positive performance of our media and creative activities. In Middle East and Africa, we posted 22.7% organic growth with a double-digit growth in both regions. It's worth noting that Publicis Sapient doubled its business in the Middle East. In LATAM, we registered a 16.7% growth over 2020 and fully recovered over 2019. Mexico grew at a strong double-digit pace thanks to media, while Brazil remained impacted by the health situation.
On slide 12, you'll find the group performance by client sectors. As in the last two quarters, this is based on an analysis of our main clients, representing 92% of our net revenue, and exclude media transport and the Drugstore. In the first nine months, all our client sectors are now posting positive growth, including leisure and travel that had started to recover in Q2 and is now at 4% year to date. Compared to the first half, retail, non-food consumer products, and food and beverage, as well as TMT, remain on the same high single to double-digit growth. Health continued to be the strongest growth among our client sectors, although normalizing as anticipated. Automotive and financial did improve in Q3, with financial posting double-digit growth after a low single digit in the first half. Moving to slide 13, net financial debt.
The group's closing net debt is reaching EUR 1.6 billion at the end of September 2021, and it is improving by almost the same amount, EUR 1.6 billion too, compared to the closing net debt in September 2020. The average net debt year to date is EUR 1.6 billion , which is a deleveraging of about 2 billion compared to a year ago. As you would remember, we've previously had an objective for full-year average net debt to be comprised between EUR 1.8 billion and EUR 1.6 billion . We are now upgrading this objective to circa EUR 1.6 billion on the basis of a better-than-expected cash performance on the first nine months, as well as the stability of the U.S. dollar parity to euro in Q4. This concludes my financial presentation, and now I give the floor back to Arthur.
Thank you, Michel-Alain.
As you have seen, since the beginning of the year, we have fully recovered the revenue lost in 2020, and we are actually growing year to date over 2019. Eighteen months after the beginning of the pandemic, we are emerging as a stronger company as we continue to work very hard to consolidate and strengthen our unique model. First, our differentiated go-to-market means we are confirming our leadership position in new business. After wins in H1, including Samsung media in the U.S., Infiniti global creative business, L'Oréal media in China, and Stellantis media and Commerce globally, just to name a few, Q3 has been a busy quarter with new wins like Ferrero in media, the full marketing scope of Planet Fitness, TD Bank media in North America, and the data management and media for Walmart in the U.S.
Second, through the acquisition of Publicis Sapient and Epsilon, we have a product and service offering that uniquely positions us to help our clients transform their marketing and business model today. Their need for data and technology capabilities and our ability to deliver is actually reflected in the U.S. growth of Epsilon at +13% and Publicis Sapient at +20%. Moreover, we are now ideally placed to help our clients lead the major revolutions to come in our industry, from the disappearance of third-party cookies, the acceleration of advanced TV and retail media, and the ongoing rise of direct-to-consumer channels. Last but not least, our platform organization, supported by our shared services and Marcel, is fit for the future of work, a future that will be more diverse, more inclusive, and more responsible than ever for the good of our people, our clients, and all of our stakeholders. Voilà.
As you have seen, Q3 came ahead of our expectations with 11.2% organic growth, which followed a strong H1. Looking at Q4, we anticipate the current positive trends to continue until the end of the year. That said, last year, we posted the best performance in the industry with a positive U.S. As a result, we are facing tougher comparables for the last quarter of the year. We forecast 4%-6% organic growth for Q4. This bracket includes two cautionary factors. First, and you know that, the usual volatility that characterizes Q4, which is a kind of adjustment quarter for advertisers. Second, we have also factored in the potential consequences of the ongoing supply chain shortage in some industries, for example, in the automotive sector.
As we said at the beginning of our presentation, with this Q4 forecast and a stronger-than-expected Q3, we are in position to upgrade our full-year guidance across all KPIs for the second time this year. We now expect organic growth to land between 8.5% and 9% versus 7% previously. For full-year 2021 overall, this means we will exceed full recovery, growing circa 2% organic growth in 2021 versus 2019. This upgrade means we are in position to increase our margin expectations to slightly above 17%. Finally, when it comes to free cash flow, we now expect to reach close to EUR 1.3 billion, the high end of the objective we previously gave for the year. With this, we will once again maintain the strongest financial ratio in our industry while continuing to invest in future growth and talent.
I would like to finish this short presentation by thanking all of our people for their incredible commitment and, of course, all of our clients for their trust. Thank you very much to you for listening, and now, with the director, we're going to take all of your questions.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing Star one on your telephone keypad. Please make sure the mute function on your phone is switched out to allow your signal to reach our equipment. If you wish to cancel your request, please press Star two. Again, it is Star one to ask a question. Our first question comes from Lina Gayer from Exane BNP Paribas. Please go ahead.
Hi, good morning, everybody. This is Lina from Exane. Congratulations on the results this morning. I have three questions, please.
The first one is on Epsilon. This quarter, you saw an acceleration of the two-year stack. Clearly, there is a strong demand. Could you maybe share with us what we should expect as normalized growth for Epsilon? I believe you previously mentioned mid-single digit, but any update would be great. Secondly, on your guidance, you mentioned the implied guidance for Q4 includes risks related with supply chain disruption. Have you seen anything so far material, like a brand postponing spending because its factories are on hold, or is it just a risk at this stage? More generally, how do you think about the rest of the year? That would be helpful. And lastly, on your margins, you now guide for margins above 17% while continuing to invest in talent.
Between some COVID habits staying, more work from home, likely less travel, and wage inflation in the context of a strong competition for talent, how do you think about the longer-term margin profile for the group? I hope it's clear. Thank you very much.
Thank you very much, L. It's very clear. I'm going to take the two first ones, and maybe I leave the last one to you, Michel-Alain. Sure. So I'll start with Epsilon. First of all, thank you for noting that. It's true that will it be Epsilon or Publicis Sapient? Looking at the growth over two years, which is 14% for Epsilon and 17% for Sapient, shows, first of all, how much our clients need data and technology for the future, and second, how our model is able to capture a disproportionate part of those revenues.
I think this is why it's so important to look at it on the two-year basis because it's interesting to see that in 2020, the demand was already there, and it's now accelerating. So hopefully, you will agree that we have made the demonstration that those two capabilities not only can deliver growth but can also secure what will be our future in terms of product and services. We don't want to make this presentation too long, but I can spend hours with you explaining why having Epsilon and Sapient is so important for a cookieless world, why when you look at how retail media or advanced TV is accelerating, we already have an answer, and why also the D2C rise that we see at the moment is going to be so critical for our clients, and we have at scale the capability to deliver.
To answer directly your question, it is too early to anticipate what kind of growth we can expect in 2022 for those two. What I can tell you is not only we are very confident in our model, but we believe that not only Epsilon but also Publicis Sapient in the year to come will continue to be significantly accretive to the growth of the group. So that was for question one. Question two about the risk of the supply chain shortage. I mean, believe me, we have looked at that very closely in every country. When you look at Q3, we have not seen any impact on our business from the supply chain shortage, any. We believe that there could be a potential risk for Q4, although again, we haven't seen anything yet.
And so, as I said, we have decided to factor this risk into our 4%-6% bracket. As you will remember, there are two things that we are putting there. First, it is an adjustment quarter, and so we have to take that into account. Second, if some supply chain shortage were to come, we need to anticipate it, and we did this exercise with every other agency to make sure that we will land between 4% and 6%. Okay? Now, what I don't want you to hear on this call is that it's not because it's not having an impact on our revenue that it's not something that we don't take very seriously because it does have an impact for our clients on their day-to-day business.
And this is where, again, and sorry because I'm coming back to Sapient and Epsilon, this is where our capabilities are so important. I am not going to compare the supply shortage with what we have seen with the virus. Of course, one is way bigger than the other. But the common point is we are living in a world where we need to adapt faster to what is coming. And so all the work we are doing at the moment with some of our clients is to make sure that if they have a shortage on one product, we can readapt that product portfolio and move fast. And then, and again, it's impossible to do it on the call, but start truly looking at the consumer journey.
Because, Lina, if you're about to buy a car, but the car is not ready, maybe I can convince you to wait for six months more. Maybe I give you a bit more of a discount. Or the opposite, I realize that you have the potential to pay a higher price to get it now, and so I will accelerate your sale versus another one. This is exactly what we do with Epsilon and our third-party data, and this is exactly how we build the journey through Sapient. So I'm going to stop there, and I guess pass on to you, Michel-Alain, for the margin.
Yeah, sure, Arthur. Hey, Lina. So maybe two parts in my answer related to margin. First, I give you a bit more color about our margin guidance that we have upgraded to slightly above 17%, and then I move on to 2022.
So first of all, you remember that in July at our H1 result, we gave you a high-level bridge to explain the expected evolution of H2 margin. So it was from 19% in 2020 to 17.5% in 2021. I'm not redoing it again because I'm sure you got it in your records. Compared to this H2 bridge that we gave you in July, we can now improve this guidance taking into account two new elements, one that you've mentioned, which is the EUR 150 million-EUR 200 million additional net revenue versus previous guidance of 7%. And that translates into an operating leverage positive impact of between 30-50 basis points, so + 30 to + 50. And as Arthur was saying, we are carrying on investing into talents, into people, in order to prepare for growth, and that's an additional -20 basis points.
So net-net between these two new elements, it's a circa 10-30 basis points positive impact on our full-year margin, which is the base of this upgraded guidance of slightly above 17%. That's for the guidance for 2021. As far as 2022 is concerned, I think two messages here. The first thing is that our priority, as you know, we've said it several times, is to support group growth while investing in talent and technology. First priority. In that context, as we previously said, we believe that the bracket 17%-17.5% is a good proxy for mid-term margin thanks to our rigorous cost management and the support of our shared services backbone.
Very clear. Thank you.
Merci beaucoup. Thank you.
Thank you. Our next question comes from Christophe Cherblanc from Société Générale. Please go ahead.
Yes. Good morning. I had two questions.
One was on staff turnover, staff attrition. We see a big headline on the subject. So where do you stand on that issue? And can you be more specific on whether it's more significant for, let's say, Creative versus Sapient or Epsilon, and how you deal with this? Is it whether through incentive or fixed salaries? And the second question was just to rebound on what Michel-Alain was saying on the 17%-17.5% margin, let's say, long-term perspective. Does it mean that if your top line was to grow in excess of what we've seen in the past, thanks to your changing shift, you would systematically reinvest excess result into top line so that not to go above the 17.5% level? Is that the right way to look at it?
Thank you very much, Christophe.
I'm going to take the first question on staff turnover, and then if Anne-Gabrielle wants to add something on everything we are doing, and then I'll pass the second question to Michel. So first of all, you are touching a very, very important topic for service and people business, which is what has been called in the U.S. the great resignation. Many people in every industry, though in every company, are asking themselves, are they doing the right job? Do they want to continue the same life? I mean, existential questions that, of course, are having an impact on our business. I think we are well prepared for that. And I'm not going to go into every detail of that. I will just give you a few concrete points.
When we decided several years ago now to move from what we call a holding company to a platform, we actually started to anticipate what should be the future of work, which is a place at Publicis where you can work with more flexibility, where you can grab more opportunity, where you can learn easily, and where you can progress. Okay? And so again, I'm not going to treat that in detail at this level, but the investment we have made in Marcel, the reinforcement that we have put in our shared platform, and you have seen, by the way, the recruitment of Sylvie Ouziel that is actually coming to accelerate on this, made us confident on several things.
First, as we have been able in 2020 to save many jobs thanks to the flexibility we were having on Marcel, i.e., if an agency was declining and we had great talent, we could reallocate them on agencies that were growing, like on health, for example. As we did that in 2020 to save jobs, we are doing exactly the same thing now to accelerate the hiring of people. It's important to note that since the beginning of the year, on the last nine months, our headcount has been growing net by 10%. Okay? It's a net of 8,000 people. This is possible thanks to everything we have put in place. And so again, I'm not going to go into more detail. Anne-Gabrielle will give you in a second.
The second point I will make that is definitely having an impact today is the decision we took at the end of Q4, which is despite a year that was difficult for the industry, although we did outperform the industry on growth and indeed on the rest of the financial ratios, although there was still some uncertainty, we decided to do two things. First is to pay at that time a significant amount of bonus that has been recognized by our people that the trust we're having on them. And second, and believe me, the impact has been massive, is what we did by reimbursing everyone that took a salary sacrifice. These are things that are helping us on top of the platform that we have put in place, not only to retain but to attract.
So far, although it is a challenge, and we'll have the opportunity to come back on that, I think we are well equipped. But maybe Anne-Gabrielle, you want to add a word on that?
Thank you, Arthur. It's true that we have developed a plan considering the situation that is much bigger than what's happening at Publicis. It's exactly like Arthur explained, a very general phenomenon. And we have a plan at each country combining short-term compensation measures, short-term non-compensation measures, and long-term measures. So just to give an example, of course, for bonuses, salary reviews only when necessary. We review the assessment and promotion cycles so that they are more fluid and more adapted to the expectations of our talent that are younger and younger.
Because as Arthur noted, we have recruited a lot of people in 2021, hires outpace leavers by far, and we have a very high percentage of young talent joining Publicis, so we also have to take into consideration their relationship with work and their expectations. Long-term, we are working on mobility in the country thanks to the country model and the fact that we are putting on Marcel all of our job offers before offering them outside and also geographically, so our employees can have a chance to discover a lot in the group when they join Publicis, and we are working on our purpose and ESG because it's extremely important to our talent to know why they're working for Publicis and what it means.
Thank you, Anne-Gabrielle.
As Anne-Gabrielle said, our talent are getting younger and younger, and we are getting older and older, but we actually take that very seriously. And I will leave you with a thought, which is something that we will develop by the end of the year. I am obsessed about one thing, which is how do you make sure that the youth continue to progress in an hybrid world? And I guess it's true everywhere, by the way, is you grow fast when you stay late, you're around the corridor, you propose your help, you're here for a project. In our business, you come with an idea. This is a thing that will be missing. And so we believe that through Marcel, we have worked to attract this young generation and to retain it by those kind of programs that we'll be developing.
But that will be for the end of the year. I will let Michel-Alain Proch go to your third question or second question.
Yeah, sure. Yeah, Christophe, so basically on the 17-17.5% and how to look at it. On the basis of what we see right now, which is the situation that we mentioned about both the global economy and the potential inflation and so forth and so on, we have in our hands four key things. We have a strong cost management monitoring, which has been in place for a long time. You already know that. We've got the competitiveness of our shared service center. We have the global delivery center, which are delivering the product service for the service we are providing to our clients. And finally, and you've mentioned it, obviously, there is a quality of our geographical mix and our activity mix within this geographical mix.
When you take all this and take into consideration the more global economy, what we see is that this bracket of 17-17.5% is what we have in front of us. So is it going to be forever? I'm not saying this. But what I'm saying is that we have sufficient flexibility to invest what we need to invest for growth. Because as we've said, both Arthur and myself several times, our priority on this basis is growth.
Merci, Michel-Alain.
Thank you again for the question. And if it's fine, Sergey, we're going to move to the next one.
Adrien de Saint-Hilaire, Bank of America. Please go ahead.
Yes, sir. Good morning, everyone. Sorry about this. So I've got a few questions, please, if that's okay. Arthur, in your prepared remarks, you mentioned the impact of supply chain disruption in the automotive sector.
I'm just wondering if this could also impact other sectors in your view, perhaps the FMCG category, for example. Second question more for Steve, I suspect. I think the ad market this year has been on fire. Growth seems to be in excess of 20%, maybe even better. Given the pressure points that Arthur mentioned around input costs, do you have an initial view on how the ad market could look like in 2022? And perhaps back to you, Arthur, around Sapient. I know you were working on improving perhaps the contract length around Sapient. So I'm just wondering what sort of progress you've made here. What is the visibility that you have on Sapient in the U.S.? In general, what is the backlog for Sapient, perhaps in terms of business transformation contracts? Thank you very much.
Thank you very much.
I propose we start with Steve that we lost at one point, but I guess he's back. Steve, you're with us?
Yes, I am. Yes, I am. Good morning.
Good. So I will let you take the second question first.
I know you were keen to take this question, Arthur, but I will take it. Okay. So if we look at the, I mean, you're absolutely right to reflect the fact that the ad market has recovered really strongly, as you've seen in the results across all geographies and across most categories. And as you know, our growth this year, we were predicting originally at the mid-year about just over 11% growth for this year.
Given the strength and the resilience across the different geographies, it's now, I think, pretty reasonable to anticipate an upgrade of that number following the stronger market performance already that we've seen in Q1, Q2, and now in Q3. Obviously, for Q4, we're being a little bit more cautious in our outlook. As you mentioned in your question, the way you framed that, there are some mounting supply chain issues in semiconductors and the price of raw materials and obviously issues with the supply chain with goods in stores, and as a result for this year in Q4, there is some potential for performance advertising could suffer if stocks or goods start to run out or fall low. At the moment, it's a small risk, but we're obviously paying very close attention to this as Michel-Alain and Arthur mentioned in their earlier comments.
When you come on to look at next year in terms of 2022, we see that spend continuing is growing, and what we see is particularly we look at the growth in digital, which is growing far more than our original forecast, which does indeed make our forecast look a little conservative, and we see two other further trends which have already been commented on, the e-commerce-related advertising, and particularly retail media is really booming as the digital transformation continues at record speed in all geographies, so as you know, we will be updating our Zenith forecasts in this quarter, and it's likely that we will be upgrading those forecasts for the ad expenditure in global terms.
There is no major indicator for that, but if I had to add on Steve's comment, I think now we need to broaden the question not only to how we see media investment in the future, but how we see our clients investing in their own transformation, and this is a topic that I touched lightly is that we should look as an industry very closely at how much our clients will spend in building first-party data for a cookieless world. This is going to be a significant investment. We need to very closely look at how advanced TV will progress. It might be $33 billion in 2023, if I'm right, spent on that in the U.S., and not mentioning our retail media.
I mean, any of our CPG clients will spend more time and more money actually to advertise on a retailer website than on retail TV by 2025. So these are things that are coming fast. They're here today, actually. And this is why we spend time. And I'm not going to say more about commerce and e-commerce because the rise at the moment is amazing. And this is why we see the growth we've seen in Sapient, which, by the way, gives me a good segue to your question on Sapient. So again, first of all, yes, we are improving our contract length with our different clients on Sapient for a very simple reason is that the consulting phase that was very strong the last year because clients were realizing is moving to implementation phase.
It doesn't mean that they're always doing it with us as we are the system integrator. But the job that Sapient has been doing by moving to industry vertical under the leadership of Nigel Vaz is now paying off exactly for the reasons that you just mentioned, which is work is getting broader over the year as we are getting traction with our clients. And I mean, it's important to note, although we went through this global crisis, is that the performance in the U.S. for Sapient has been strong for the last four quarters now. So it's not something that is happening now. If you would remember, there is a sustainable growth and a very solid model. And to come back on your question about the visibility, we feel very good about what is coming.
When it comes to the international, again, it's unbalanced, I would say, for a simple reason is that every of our countries are doing very well, but one, which is the U.K. And let me tell you why. EMEA and Asia have very strong growth, and it's boosting our performance there. And by the way, it's bringing to our clients in those regions a very modern approach that is making the difference on the long term. We see double-digit growth in all major European countries, again, except in the U.K., but with new business wins that make us feel very confident. In the U.K., Michel-Alain touched upon it. We have two clients that have cut significantly their investment for CapEx reason.
And the reason why we are confident that things are going to come back to normal starting in Q4, it's pretty simple, is that they are starting to reinvest again. So we feel good about that. On supply shortage, I went already very long, and I want to make sure that we can take all the questions. I will just add one thing, which is yes, there are other sectors that will suffer from supply shortage, some FMCGs, for example. But honestly, I don't know about you, but I've got a supply shortage when I try to find a cab within Paris or in New York at the moment. So things need to come back to normal. And again, this is an opportunity for us to partner our clients in this new challenge.
For the moment, we haven't seen any impact in Q3, but we are, of course, monitoring Q4 very seriously. And as I said, any potential risk is already baked in our guidance. I think we're going to have to accelerate because that's very long.
Thank you very much.
Thank you.
Our next question comes from Tom Singlehurst from Citi. Please go ahead.
Yeah, good morning. It's Tom here from Citi. Thanks for taking the question. And also, congratulations on the results. As a bull on agencies and Publicis in particular, one of the pushbacks I always get is this almost sort of muscle memory that advertising is in some way a sort of temporary spend. And in the context of inflation, this feeling that surely advertising will just be cut in order to act as a buffer for margins as input costs go up elsewhere.
Maybe this is a question for Steve rather than Arthur, but can you just talk about what your clients are saying about inflation and what that means for advertising? I mean, is there still that instinct to use advertising as a buffer? Is promotional spend being cut in its place? Any thoughts on just how advertising works in an inflationary environment would be very interesting because let's be frank, it's been quite a long time since we've had an inflationary environment. So that was the first question, and I'll have a follow-up if that's okay.
I'm sorry, Tom. I'm going to have to take it.
So Steve, maybe you can start, but I will add on this one because you're touching a very, very important point, which is at the heart of the shift we have brought to Publicis through Maurice's elevation to now, like seven or eight years, starting with the acquisition of Sapient. And maybe Steve, if you don't mind, I'm going to say a word first. At Publicis, I mean, don't get me wrong. Of course, advertising spend matters. And of course, there might be some inflation that we'll have to mitigate, and our structure enables us to do that. But I think it's time to stop thinking in terms of advertising and move to marketing transformation.
The conversation, to come back to your question, Tom, that we are having, but not specifically us, by the way, any of the other holding companies, is not a discussion about how much am I going to spend in media. The question is how much I'm going to invest in my transformation to accelerate my growth while reducing my costs at a time where I might have some inflation, and this is why, and sorry to come back on that, it starts with your ability to have a personalized approach through data because this is how you would know who should pay more versus another, and then the right balance between paid media, which is what you're discussing, and owned, and the ecosystem you can create with the right added value in terms of creativity.
At least on our side, and this is why we're insisting on how our different operations are going. And as you know, they are all at scale at the moment. The real question is not, will we see some inflation here and there? The real question is our clients have no other alternative than to invest in their transformation. And I'm sure this is something you see everywhere. Most of them are going to get a good year. They are all facing some challenges. But one thing is certain, they will continue to invest, and they will need a partner that can go end to end.
Steve, I don't know if you want to add something on that.
Yeah, maybe just a good morning, Tom, and thanks for your comments and the question.
I mean, first of all, I mean, I think what is unquestionable is that there's certainly strong media inflation. It's in a rapid recovery, and ad spend, coupled with the migration from audiences, from traditional to digital channels, is definitely fueling substantial increases in media pricing, particularly actually in TV. And of course, there's imbalance between media supply and demand, which is accelerating really, as you've commented, Tom, at sort of unprecedented rates, or certainly for one that's happening at a rate that's not happened for many years. After media pricing slowed to almost deflation in many markets last year, we've definitely seen inflation soaring as demand outstrips supply. But I think to the second point of your question, which Arthur has already touched on, I think that question seems slightly anachronistic when you're talking about advertising spend, as Arthur just said. It's really about investment.
I think one thing that has been proven over the last 18 months of the pandemic is the resilience of the category. That is largely fueled by the fact that we are not just spending advertising against mass audiences, hoping you can just reach some of those interested customers. Because of digital channels and because of the tools that we have that we've built through Epsilon and through Sapient and our ability to target specific audiences, and because digital channels are far more effective, we are now able to invest behind specific audiences and channels to target far more effectively. I think one of the reasons we've seen such a strong resilience in spend is that our clients recognize as their marketing transformation accelerates, and they've got to have direct relationships with their customers.
Arthur mentioned earlier in an answer to a different question about the auto category, and we can now track through the whole customer journey when someone's about to replace their car. We can target them with specific messaging and then right the way through, right to after purchase and then servicing messaging. So I think that the fact that we can now target far more effectively and track those customers, and we've got tools that allow us to use first-party data, it means we can build sustained relationships with the customers of our clients, whether they're current or potential or lapsed customers.
So I think that, Tom, I think the answer to your question is that dynamic has very much shifted and that acceleration towards far more targeted media, whether that's in general media or in e-commerce or in retail media, means actually that the spend that we're seeing in the marketplace is very much more of a long-term investment by our clients in marketing transformation, not just in marketing spend.
Thank you, Steve.
One quick follow-up maybe on that topic. I mean, I'm old enough to remember when everyone was very bearish on Epsilon and thought it was somehow a compromised asset. The question is, you were at one point considering sort of potentially selling CJ Affiliate, and now it's obviously contributing strongly to growth.
I mean, is there any scope for you to sell any part of that business, either because it's not sort of functionally relevant or maybe even to provide a reference value for it?
No, actually, so thank you for the question and mentioning CJ. It's something we're actually very proud of. It's a concrete example of good integration, which is we believe that CJ now is really benefiting from our expertise at Publicis Groupe level. And as you said, we moved this asset from being declining to now being growing steeply, which again, I'm not going to take too much time on that. But I guess coming back about what you said about when we made the acquisition, there were two questions. Is that a compromised asset? Hopefully, we have made a demonstration that it's not. Are we capable to integrate? CJ is a good example of that.
The other one, by the way, is Epsilon at international level. So don't get me wrong, it is a very small base. It's not even 10% of total revenue, but it's growing by 40%, which means that we have a huge potential in the development thanks to our international platform where we can leverage Epsilon technology. Thank you, Tom. I'm sorry, time is flying. And is there any other question? Because we wanted to do one hour, but I guess we're going to have to go a bit beyond. Sergey?
We have a question from Matti Littunen from Bernstein. Please go ahead.
Good morning. Thank you.
Just to follow up on that, what you're saying about the sort of transformation in how you think about pricing in the industry and client spend, just would it be fair to say that at group level, there's been a material shift from, say, scope of work-based billing and a percentage of media-based billing into something more performance-oriented? Or is that the trends you mentioned in digital media, would that just be that if the performance is good, the clients spend more on media and you get the same level of commission, but just the commissions are going to be higher? How should we think about that? And then another question on the Q4 adjustment quarter comment you made.
So do I understand correctly that last year in Q4, you had some budgets that had been left unspent, and that was a positive effect in Q4, whereas this year it's been robust ad spend? So perhaps some campaigns will be toned down in Q4 to sort of make sure that budgets are not exceeded. So some color on that would be great. Thank you.
Thank you very much. Maybe I'll start with the Q4 question and then we go on pricing. Again, for Q4, we are really anticipating that the positive trend that we have seen so far continue. But as you said, we had a very strong Q4 last year. We actually had the best performance of the industry with the U.S. that was positive.
And the reason why we gave this bracket from 4%-6%, we talked already about the potential risk that we have with supply shortage. Although for the moment, we are not seeing it. The other thing is the point that you mentioned, which is definitely our ability in what is happening now to mitigate any volatility on the quarter as it is an adjustment quarter. It's too early to say. We are actually, as you said, some clients that spent more than expected last year at the same period. We don't know yet how it will happen, but it's, again, very important to know that it is baked into our guidance. We are able, thanks to our forecast for Q4 and thanks to a better-than-expected Q3, to move for the second time our guidance from 8.5%-9%, taking into account the discussion we're having now.
By the way, we will be able to deliver versus 2019 a growth of circa 2%. Now, the point on pricing, I'm going to let Michel take the beginning of the answer, and then maybe I'll do a more general comment.
Sure, sure, sure. Yeah, maybe just Matt, I think you're overall, you're right. We clearly see a shift of our remuneration model from previously percentages of spend or from an FTE-based model to a more performance-based or outcome-based. When you look at the detail of our activity, clearly, the one which is leading the way is PMX in digital media, in which we have more and more performance-based remuneration with some commitment, and Arthur knows that very well, some commitment on media savings in a period of time.
Epsilon, which has a large part of its business, which is outcome-based too, and Sapient, which has moved from a previous model, which was a classical time and material, to a more fixed price, and then for a part of it, outcome-based or performance-based, which is a direct link to what Arthur was saying about the length of the contract that we are experiencing now at Sapient.
I think, and again, I'm getting a bit theoretical here, but it's just to give you a bit of texture. I think when it comes to pricing, it's time to look at the world in two dimensions. There are some clients that are willing to have what we call their hands on the keyboard. They want to make sure that they participate in all the strategic and buying media process. Okay? In those clients, we are normally paid on people time.
It could be on commission, but it's mainly people time, the number of people working. And by the way, it is very true for big global clients. Smaller clients, but also an increased number of mid-size and bigger clients, consider that what matters as long as what we do is based on first-party data, respecting the privacy and making sure that they can have transparent measurements, start to believe that performance media is a great way to move in. And so this one, we are starting to get paid by performance, if it's okay for some of them. We have great product for that, by the way. But I think it's important to start to look at the world like this. There won't be one model. There will be two.
One which is hands-on keyboards, where we sell people to deliver end-to-end with our clients the activation plan, and the other where, by the way, this is where Facebook or Google or whoever is, which is more paid on performance. And the truth is, we are the only one in our industry that can propose both models to our clients, depending on what they want, the kind of structure they have, and how they see media allocation. I think we're going to take a last one, as it's already 32, and Alessandra is telling me to stop. But I think we're going to take a last one, if it's possible. Alessandra, can we? We can. Thank you very much.
Conor O'Shea, Kepler Cheuvreux, please go ahead.
Yes, thank you. Thank you, guys, for taking the last questions. Congratulations on the numbers as well from my side.
Just a couple of quick questions. Just the first question in terms of your organization returning to sort of normality in terms of working in the office versus working at home, travel costs, and so on. Where would you say you are at the end of the quarter versus a normal level in 2019 at this stage? Second question, just maybe for Michel-Alain, on the free cash flow guidance. If I'm not mistaken, I think you suggested full year, there might be a working capital outflow of around EUR 500 million. Is that still your expectation at this stage? And then last question, just on Epsilon with the exit of Brian Kennedy, CEO at the end of the year. Could that bring any kind of changes in terms of approach from Epsilon moving forward under the new leadership? Thank you.
I'm going to let you take the second question, and then I'll wrap up with the two last, okay? If it's fine for you, Michel.
Sure. Sure, sure. Yeah. So on the free cash flow guidance, two things. The cash flow before working capital, you've seen we went up from a bracket between EUR 1.2 billion- EUR 1.3 billion to the higher part of the bracket, which is EUR 1.3 billion. As far as working capital is concerned, we said that we would have an outflow of EUR 500 million. It's right now baked in our Q4 cash performance, and it is consistent with a EUR 1.6 billion average net debt by the end of the year.
Understood. Thank you.
Thank you. So I'll start with Epsilon. To be clear, Conor, we're not going to change a winning team. So Brian Kennedy retiring was something that was anticipated.
Honestly, he has been kind enough, and I don't think he's listening because he's probably sleeping, but he has been kind enough to stay a bit longer in order to make sure that in this 2020, that was a particularly chaotic year for the world. He was there with his team, and so the transition couldn't be smoother as John Giuliani has been with the company. And again, we are not in a changing thing anymore. We did a lot of changes in 2018 and 2019. We knew we were entering strong in 2020. And although we delivered negative growth, we outperformed the market. And now we are delivering growth versus 2019 in 2021. So to make a long story short, we're not going to change a winning team. Your point about the future of work is very important and how people are coming back to the office.
And maybe I will conclude on that. My position on that is pretty simple. First, it is about local sensitivity. The situation is so different from one country to another. The kind of people we have in Publicis, and this is what is making our value today, is that we have creative, we have engineers, we have consultants, we have media planners, we have data analysts. We have them all around the world. We have a distributed workforce. It's impossible to draw a simple rule for everyone. I think that in this area, it is urgent to wait. It's not about leading the kind of change that needs to be happened. It's about listening, adapting, and making sure that we come with solutions that are made for every other operation sometime on an urgency basis. So this is a big thing for next year.
As I said, and maybe this will resume and we will leave you on that. It has been many years that we started our own transformation. I think we have reached a point now with two assets at scale in data and technology that are Sapient and Epsilon to have what our clients need to actually win in a platform world. Hopefully, we are making the demonstrations for our numbers today. We have an organization that is based on the platform now, where we can work fast, where we can adapt fast, where we've been able to save jobs and maintain very high margins in a difficult year, where we are able to hire fast and accompany our growth as we are doing this year. This has been difficult, but now it's in place, and it's all ended up with our people.
And though your question on Brian, and I think that today we have a team of people that know each other, work well with each other, have demonstrated that when you put the Power of One in place, as we did in the U.S. for the last two years, results are actually accelerating. So as I said, our transformation in terms of assets is past. Now it's all about execution. We take this quarter for what it is, a confirmation that we are going in the right direction, the confidence we have in our model. And just after this call, back to work and back to clients. So thank you very much for the call. Thank you for your time. Thank you for your questions. And take care of you. Take care of your family. And hopefully, see you soon. Merci beaucoup. Thank you.
This concludes today's conference call.
Thank you for your participation, ladies and gentlemen. You may now disconnect.