Publicis Groupe SA: Impact of Application of IFRS15 and IFRS16 Accounting Standards

PARIS--()--Regulatory News:

Publicis Groupe SA (Paris:PUB) [Euronext Paris: FR0000130577, CAC40] has applied IFRS15 “Revenue” accounting standard since January 1, 2018 and will also apply IFRS16 “Leases” accounting standard in advance, as of January 1, 2018. In so doing, the Groupe will have, as soon as 2018, implemented all major account principle changes expected over the next 3 years of its “Sprint To The Future strategic plan, and will have numbers on comparable basis for the plan. This will provide a better understanding of a strategic plan that covers 2018, 2019 and 2020, which was presented at the Investor Day on March 20, 2018. Organic growth and operating margin rate improvement objectives communicated at that time remain unchanged.

IFRS15 “Revenue”: This accounting standard increases IFRS revenue insofar as certain costs re-billed directly to clients are excluded from revenue. These costs mainly concern production activities as well as various expenses incumbent on clients.

In this context, as the items that can be re-billed to clients do not come within the scope of assessment of operations, Publicis Groupe has decided to use a different indicator, i.e. Net Revenue (1), which is a more relevant indicator to measure the operational performance of the Groupe’s activities. The bridge from IFRS15 revenue to net revenue is provided below.

This press release aims to provide:

- 2017 quarterly and full year revenue before and after IFRS15 impact (see Appendix 1),

- 2017 net revenue by quarter and by geography (see Appendix 2),

- The main items of 2017 half year and full year results before and after IFRS15 impact (see Appendix 3).

_______________
1 See definition in Appendix 5

IFRS16 “Leases”: Publicis has also decided to early adopt IFRS16 accounting standard as of January 1, 2018.

This accounting standard considers all lease contracts under a single model by which a lease contract is accounted for as a liability (discounted future payments), and a right of use is accounting for as an asset. The right of use will be amortized over the period of the lease contract (taking into account option periods during which the exercise is reasonably certain).

Contracts committed by Publicis for which this accounting standard applies, are:

- Mainly, real-estate leases: Publicis is a tenant of the offices in most cities where the Groupe operates,

- And to a lesser extent, outdoor activities: the Groupe has committed to advertising contract concessions in its advertising sales activity where minimum guarantees apply, as well as vehicles and IT hardware leases.

Publicis has retained the “prospective method” allowed by the accounting standard by which the cumulative effect of the standard will be accounted for as an adjustment to the opening equity, considering the “right of use” asset equals the amount of the lease commitment, adjusted for rents paid in advance. The opening balance sheet with the application of IFRS16 as of January 1, 2018 is provided in appendix 4. Besides, the 2017 consolidated income statement will not be restated. The Groupe will communicate 2018 half-year and full-year results including IFRS16 and will provide those financial items excluding IFRS16.

The information communicated in this press release are currently reviewed by auditors as part of the half-year review process as of June 30, 2018.

About Publicis Groupe - The Power of One

Publicis Groupe [Euronext Paris FR0000130577, CAC 40] is a global leader in marketing, communication, and digital transformation, driven through the alchemy of creativity and technology. Publicis Groupe offers its clients seamless access to its tools and expertise through modular offering. Publicis Groupe is organized across four Solutions hubs: Publicis Communications (Publicis Worldwide, Saatchi & Saatchi, Leo Burnett, BBH, Marcel, Fallon, MSL, Prodigious), Publicis Media (Starcom, Zenith, Spark Foundry, Blue 449, Performics, Digitas), Publicis.Sapient (SapientRazorfish & Sapient Consulting) and Publicis Health. These 4 Solution hubs operate across principal markets, and are carried across all others by Publicis One, a fully integrated service offering bringing together the Groupe’s expertise under one roof. Present in over 100 countries, Publicis Groupe employs nearly 80,000 professionals.

www.publicisgroupe.com | Twitter:@PublicisGroupe | Facebook: www.facebook.com/publicisgroupe | LinkedIn : Publicis Groupe | http://www.youtube.com/user/PublicisGroupe | Viva la Difference!

 

APPENDIX 1 : 2017 revenue with IFRS15 (million euros)

   
Q1 2017 Q2 2017
  As reported,

with net revenue

& pass-through

  IFRS15 impact   Restated As reported,

with net revenue

& pass-through

  IFRS15 impact   Restated
NET REVENUE 2,267     2,267 2,397     2,397
Pass-through revenue 61   161   222 118   117   235
IFRS REVENUE   2,328   161   2,489   2,515   117   2,632
 
 
Q3 2017 Q4 2017
  As reported,

with net revenue

& pass-through

  IFRS15 impact   Restated As reported,

with net revenue

& pass-through

  IFRS15 impact   Restated
NET REVENUE 2,185 2,185 2,483 2,483
Pass-through revenue 79   127   206 100   151   251
IFRS REVENUE   2,264   127   2,391   2,583   151   2,734
 
         

APPENDIX 2: 2017 net revenue by geography

 
(million euros)   Q1 2017   Q2 2017   Q3 2017   Q4 2017   2017
Europe 619 670 589 718 2,596
North America 1,274 1,300 1,205 1,253 5,032
Asia Pacific 238 261 238 300 1,037
Latin America 77 96 88 126 387
Middle East Africa 59 70 65 86 280
Net revenue   2,267   2,397   2,185   2,483   9,332
 
 

APPENDIX 3: 2017 results with IFRS15 (million euros)

   
H1 2017 FY 2017
  As reported,

with net revenue

& pass-through

  IFRS15 impact   Restated As reported,

with net revenue

& pass-through

  IFRS15 impact   Restated
NET REVENUE 4,664   -   4,664 9,332   -   9,332
Pass-through revenue 179   278   457 358   556   914
IFRS REVENUE 4,843 278 5,121 9,690 556 10,246
 
Personnel costs (3,095) (3,095) (5,977) (5,977)

Other operating expenses excluding pass-through costs

(850) (850) (1,689) (1,689)
Pass-through costs (179)   (278)   (457) (358)   (556)   (914)
Other operating expenses (1,029) (278) (1,307) (2,047) (556) (2,603)
Depreciation (81) (81) (161) (161)
 
OPERATING MARGIN 638 - 638 1,505 - 1,505
Operating margin rate as a % of revenue 13.2% 15.5%
Operating margin rate as a % of net revenue 13.7%       13.7% 16.1%       16.1%
 
     

APPENDIX 4: Simplified balance sheet with IFRS16 (unaudited)

 
(million euros) December 31, 2017 IFRS16 impact January 1, 2018
ASSETS
Rights of use relating to leases - 1,906 1,906
Property, plant and equipment, net 590 (43) 547
Other financial assets 169 23 192
Other non-current assets 9,768 - 9,768
Non-current assets 10,527 1,886 12,413
Other current receivables and assets 649 (4) 645
Other current assets 12,604 0 12,604
Current assets 13,253 (4) 13,249
 
Total Assets 23,780 1,882 25,662
             
LIABILITIES
Total equity 5,958 10 5,968
Long term borrowings 2,780 (89) 2,691
Long term lease liabilities - 1,681 1,681
Deferred tax liabilities 419 - 419
Long term provisions 591 (11) 580
Non-current liabilities 3,790 1,581 5,371
Short term borrowings 350 - 350
Short term lease liabilities - 356 356
Short term provisions 107 (4) 103
Other creditors and current liabilities 1,814 (61) 1,753
Other current liabilities 11,761 - 11,761
Current liabilities 14,032 291 14,323
 
Total Equity and Liabilities   23,780   1,882   25,662
             
Net debt (1)   727   (89)   638
 

Impact of first application of IFRS16 on balance sheet opening are:
- Accounting of rights of use and lease liabilities;
- Reclassification of assets and debts relating to existing finance lease as of December 31, 2017;
- Reclassification of incentives to rights of use;
- Reclassification of provisions for vacant spaces as a deduction to rights of use;
- Reclassification of advanced rent payments to right of use;
- Reclassification from right of use to financial assets for sub-leases on the residual period of the contract leases.
1 See definition in Appendix 5

APPENDIX 5: Definitions

Net revenue or Revenue less pass-through costs: Pass-through costs mainly concern production and media activities, as well as various expenses incumbent on clients. These items that can be re-billed to clients do not come within the scope of assessment of operations, net revenue is a more relevant indicator to measure the operational performance of the Groupe’s activities.

Organic growth: Change in net revenue excluding the impact of acquisitions, disposals and currencies.

EBITDA: operating margin before depreciation.

Operating margin: Revenue after personnel costs, other operating expenses (excl. non-current income and expense) and depreciation (excl. amortization of intangibles arising on acquisitions).

Operating margin rate: Operating margin as a percentage of net revenue.

Headline Group Net Income: Group net income after elimination of impairment charges, amortization of intangibles arising from acquisitions, main capital gains (or losses) on disposals, effect of US tax reform and revaluation of earn-out payments

EPS (Earnings per share): Group net income divided by average number of shares, not diluted.

EPS, diluted (Earnings per share, diluted): Group net income divided by average number of shares, diluted.

Headline EPS, diluted (Headline Earnings per share, diluted): Group net income after elimination of impairment charges, amortization of intangibles arising from acquisitions, main capital gains (or losses) on disposals, effect of US tax reform and revaluation of earn-out payments, divided by average number of shares, diluted.

Capex : Net acquisitions of tangible and intangible assets, excluding financial investments and other financial assets.

Free Cash Flow before changes in working capital requirements: Net cash flow from operating activities before changes in WCR linked to operating activities.

Net Debt (or financial net debt): Sum of long and short financial debt and associated derivatives, net of treasury and cash equivalents.

Average net debt: Average of monthly net debt at end of month.

Dividend pay-out: Dividend per share / Headline diluted EPS.

Contacts

Publicis Groupe
Peggy Nahmany, + 33 (0)1 44 43 72 83
Corporate Communications
peggy.nahmany@publicisgroupe.com
or
Jean-Michel Bonamy, + 33 (0)1 44 43 77 88
Investor Relations
jean-michel.bonamy@publicisgroupe.com
or
Chi-Chung Lo, + 33 (0)1 44 43 66 69
Investor Relations
chi-chung.lo@publicisgroupe.com

Release Summary

Impact of Application of IFRS15 and IFRS16 Accounting Standards

Contacts

Publicis Groupe
Peggy Nahmany, + 33 (0)1 44 43 72 83
Corporate Communications
peggy.nahmany@publicisgroupe.com
or
Jean-Michel Bonamy, + 33 (0)1 44 43 77 88
Investor Relations
jean-michel.bonamy@publicisgroupe.com
or
Chi-Chung Lo, + 33 (0)1 44 43 66 69
Investor Relations
chi-chung.lo@publicisgroupe.com