Half-Year Financial Report - For the Six Months Ended June 30, 2020

Asia Pacific net revenue was down by -2.3% on a reported basis and down by -3.9% on an organic basis. China reported an organic growth of -10.2%, Australia was down by -5.4% on an organic basis, while India and Singapore grew respectively by +3.6% and +1.5% on an organic basis.

Net revenue in Latin America was down by -27.8% on a reported basis, with a significant negative impact from currencies in the region, especially in Brazil. On an organic basis, the decline was -15.7%. This is mostly due to an organic decline of -22.8% in Brazil and of -14.4% in Mexico.

Net revenue in the Middle East and Africa region was down by -11.2% on a reported basis, and -11.8% on an organic basis.

Operating margin & operating income

EBITDA amounted to euro 923 million in H1 2020, compared to euro 885 million in H1 2019, up by 4.3%, including the contribution of Epsilon. The impact of the cost reduction plan announced in April was euro 286 million in H1, on a comparable basis and excluding Epsilon acquisition costs. This translates into a margin rate of 19.3% of net revenue (compared to 20.3% in H1 2019).

• ▶ Personnel costs totaled euro 3,224 million at June 30, 2020, up by 12.0% from euro 2,879 million in H1 2019. This evolution reflects the integration of Epsilon during H1, as well as the continued investment in the Groupe’s transformation. This was partly offset by the impact of the first measures of the cost reduction plan. As a percentage of net revenue, the personnel expenses represented 67.5% in H1 2020, compared to 66.1% in H1 2019. Fixed personnel costs were euro 2,862 million represented 59.9% of net revenue versus 57.7% in H1 2019. On a comparable basis, fixed personnel costs declined by euro 61 million year-on-year, thanks to the actions taken by the Groupe, as hiring freeze, pause in internal promotions, shorter work week or voluntary salary cuts. Moreover, the Groupe decided to limit the use of freelancers. As a result, the cost of freelancers declined by euro 43 million in H1 2020 on a comparable basis, representing euro 141 million. Restructuring costs reached euro 69 million (euro 61 million in H1 2019), reflecting additional charges related to the cost reduction plan.
• ▶ Other operating expenses (excluding depreciation & amortization) amounted to euro 1,131 million, compared to euro 1,104 million in H1 2019. This represents 23.7% of net revenue compared to 25.4% in H1 2019, implying that the cost reduction measures more than offset the negative impact of Epsilon cost structure on this ratio. The Group was able to make significant savings on other operating expenses in H1 2020, thanks to the actions taken as part of the cost reduction plan, and thanks to some expenses that drastically reduced during the lockdowns. This was notably the case with travel, recruitment and seminar related expenses.

Depreciation and amortization charge was euro 301 million in H1 2020, up by 10.3% compared to H1 2019. The increase is largely due to the consolidation of Epsilon over the period.

The operating margin amounted to euro 622 million, up by 1.6% compared to H1 2019. This represents a margin rate of 13.0%, down by 110 basis points from 14.1% in H1 2019. When compared to the H1 2019 margin excluding Epsilon acquisition costs, the margin declined by 200 basis points. This decrease is due to the decline in organic growth related to the impact of the Covid-19 crisis, partially offset by a 6.4% reduction in the cost base.

Operating margin rates by major geographic areas reflected the various challenges faced by the different regions in H1 2020, in the context of the global pandemic. It was 1.8% in Europe, 16.4% in North America, 22.5% in Asia‑Pacific, 5.7% in Latin America and 3.0% in the Africa/Middle East region.

Amortization of intangibles arising from acquisitions totaled 142 million euro in H1 2020, up from 27 million euro in H1 2019. This increase is mainly due to the amortization from July 1, 2019 of new intangibles arising from Epsilon acquisition and the amortization of tradenames arising from acquisition. Starting from July 1, 2019 tradenames are amortized, following the implementation of our country-model organization. Impairment losses amounted to euro 23 million, and are exclusively related to the real estate consolidation plan “All in One”, which leads to a reduction in the number of sites, while allowing better collaboration between the teams. In H1 2019, impairment losses were euro 113 million (of which euro 90 million related to real estate plan “All in One”). In addition, net non-current income is positive at euro 5 million H1 2020, compared to an income of euro 17 million in H1 2019.

Operating income totaled 254 million euro in H1 2020, after 489 million euro in H1 2019.