Q4 2019 Earnings Call
[noise] Your conference will begin momentarily please continue to hold.
[music].
Entirely please continue to hold.
[music].
Good morning, ladies and gentleman welcome to the Omnicom fourth quarter 2019 earnings release Conference call.
At this time all participants are in listen only mode. They do have cut a question and answer session and instructions will follow at that time do you need assistance during the call. Please press Star then zero as reminder, this conference call is being recorded at this time I'd like to introduce your host for today's conference Senior Vice President Investor Relations Schumacher. Please go ahead.
Chairman and Chief Executive Officer, and Phil Angelastro, Chief Financial Officer.
We hope everyone has had a chance to review our earnings release.
We've posted two www Dot Omnicom group Dot Com. This mornings press release, along with the presentation covering the information they'd be build with you. This morning.
This call is also being Simon cast and will be archived on all that site.
Before we start I've been asked you remind everyone to read the forward looking statements and other information that we have included at the end developed presentation.
And you point out it said one of the statements made today may constitute forward looking statements under these statements are our present expectations and that actual events or results may differ materially.
I would also like to remind you did during the course of the call. We will discuss some non-GAAP measures in talking about omnicom's performance.
You can find reconciliation of those measures to the notice comparable GAAP measures in the presentation materials.
We are going to begin this morning school with an overview of our business from John drain.
Then Phil Angelastro will review, our financial results for the quarter.
And then be open the line feel questions.
Thank you good morning.
Thank you for joining the call this morning.
I'm pleased to speak with you about fourth quarter in the full year 2019 results.
Fourth quarter performance was very solid with organic growth of 3.5%.
For the year organic growth was 2.8%.
We also exceeded our margin targets for the quarter and for the year EBIT margin for the quarter increased 30 basis points to 15.6%.
For the year EBIT margin was up 40 basis points to 14.2%, excluding the effect of a third quarter 2018 dispositions and repositioning actions.
And if yes for the quarter was up 6.8% to $1.89 for sure.
In the face of a dynamic yet challenging environment I'm very pleased that our strategies talent and execution have allowed us to consistently deliver solid financial results.
I will speak more about our achievements in these areas later in my remarks, but let me first provide more color or financial performance.
Looking at fourth quarter organic growth across the disciplines advertising and media was up 5.1 present.
CRM consumer experience was up 3.3%.
Healthcare was up 12.9% PR was down 2.5% and as expected CRM execution support was down 6%.
By region. The U.S. was up 2.8% driven by solid results in advertising and media and CRM consumer experience and we had double digit growth in health care CRM execution and support was down double digits in the U.S. and public relations also had negative gross.
The UK was up 3.3% advertising and media health care MPR performed well offset by weaker performance in both our CRM disciplines.
Overall growth in the Euro and non Euro region was 4.7%.
Results in the Euro markets was mixed Germany, and Spain performed well, France had negative growth as it continued to be impacted by weak performance.
Specialty print production business.
Our events business was also negative due to difficult comps.
The non euro markets perform quite well overall led by the Czech Republic in Russia Asia.
Asia Pacific growth was 4.5% as China, and Australia had good results in a quarter Latin America was down 1.3% due to challenges in Brazil in Chile.
Smalls region, the Middle Eastern Africa was up 19.5%.
Looking at our cash flow in 2019, Omnicom generated 1.7 billion in free cash flow and returned more than 1.1 billion to shareholders through dividends and share repurchases.
Approximately 120 million in cash was used for acquisition related spend during the year.
At this point our acquisition pipeline is good and we expect activity to pick up in 2020.
Our plans for the use of free cash flow remains unchanged paying our dividend pursuing strategic acquisitions and repurchasing our shares.
Finally, our balance sheet and credit ratings remain very strong.
Turning now to our strategy and operations. We are focused on key strategic objectives that have consistently served us well.
These strategies are centered around hiring and retaining the best talent driving organic growth by evolving and expanding our service offerings investing in areas of growth with a particular focus on data analytics digital transformation, CRM and precision marketing E Commerce and health care.
And remaining vigilant on managing our costs and improving operational efficiencies in areas, such as real estate accounting purchasing and I T.
To meet our clients desire for simplicity and to be better able to recruit and deliver the best talent to them, we've structured our service offerings around our practice areas and our global client Levy's group.
The global client leaders group provides clients a single point of access to our network of thousands of industry specialist in a variety of marketing disciplines.
From late 2017 through early 2019, we established 12 practice areas, including CRM and precision marketing.
Advertising media public relations retail branding health care experience, Joel and several others.
The practice areas bring together strong expertise within a particular discipline provide our people greater opportunities for training and development better match the needs of our clients with our service offerings and help develop strategies for internal investments and acquisitions.
Together the global client in practice area leaders can deliver expertise in talent to our clients that is aligned with their business strategies and can tackle their marketing challenges.
One of our longstanding practice areas, which is very well aligned with our global client leaders group is Omnicom Health group.
This group had an outstanding year, which contributed to our overall growth in 2019.
Omnicom Health group is one of the largest health care communications groups in the world. The group's services over 250 different client companies, including the top 25 pharma and biotech companies in the world.
Omnicom Health group is able to manage communications across the entire health care ecosystem due to its breadth and depth of specialty healthcare agencies that are focused on four key health care customers.
Healthcare professionals payer organizations patients and consumers.
In medical experts and regulatory stakeholders.
The group success is driven by its talent in 2019. The group added 300 health care specialists to its roster, which now numbers more than 4300 people.
Omnicom Health group has invested in training and Upskilling its people in health care marketing through programs such as its oncology University.
The group's success is also due to its use of our data and analytical tools.
Over the past year. It has begun to use omni our people based precision marketing and insights platform to better understand healthcare professionals and patients online behavior in doing so omnicom health group has successfully created more insightful targeted and personalized communications strategies for its clients.
Our agencies have access to our data and analytics tools, which we've invested in for over a decade. Ami is now available globally and the majority of markets in which we operate.
Armies open platform allows us to continually evolve and expand its capabilities to serve the specific needs of our agencies in clients.
As an example, our pioneering cultural consultancy Sparks and Honey recently launched Q.
First of its kind SaaS platform that combines human in a high powered intelligence to help organizations predict change before it disrupts their business the capabilities of Q are fully embedded within omni.
Well data and analytics remain a top investment in priority for us we understand that data can only take us. So far it is our IP, our creativity that truly sets us apart. It is creativity and innovation informed by data and analytics that will drive the most meaningful business results.
One barometer, we used to measure our success in cultivating the best talent and the strength of our agency brands is the performance of our client work in award shows here are a few recent highlights.
Omnicom was named holding company the year by media post for the second year in a row why BBD L. One agency of the year.
The Euro best 2019, two of our networks are in the top three with be video coming in first and DDB coming in third.
In addition, Abbott meet Vickers Bibbo took the top spot for agency of the year. Indeed, we Paris came in second.
Phd also one media network or the year for the second your critical mass was named customer engagement agency of the year in campaign U.S. agency of the year Awards and the PR weeks inaugural purpose Awards Porter Novelli was named agency or the year.
None of these awards would have been possible without our top notch agency brands, there rich history, and well established cultures have shaped our industry for decades, and we applaud The award winning work they create year after year for our clients. We remain steadfast in the leaving in the value of our individual brands and we'll continue to.
Support their unique cultures and go to market strategies.
It is the people within our agencies, who make omnicom, what it is today and our commitment to attracting retaining and developing talent remains our top priority.
This includes fostering diverse and inclusive work places, where all employees feel comfortable confident and supported.
Well. This is a longstanding continuous effort 2019 said several milestones that highlight our dedication and commitment.
In 2019, we recognized by Fortune magazine as one of only six fortune 500 companies that have more women than men on its board of directors.
The Wall Street Journal also recently released its own diversity and inclusion ranking of companies and the S&P 500, and I'm proud to say that were tied for third.
In addition, omni women are employee resource group continue to serve as a catalyst for increasingly influence a number of women leaders throughout the Omnicom network. The program. Currently has 14 chapters globally and we'll be hosting several events across the globe in honor of the upcoming International Women's day on March Dave.
In May 2019, we launched open disability plus allies. The launch of this group when hand in hand, with our ongoing strategic partnership with valuable 500.
Global initiative, putting disability inclusion on business leaderships agenda.
Finally for the fourth consecutive year Omnicom received a perfect score on the corporate equality index conducted by the human rights campaign, which highlights our commitment to an inclusive workforce and designates us as a 2020 best place to work for LGBTQ equality.
I'm extremely proud of our leadership teams and all our people for these achievements.
In addition to our employee resource groups, we continue to invest in our talent development programs.
In December we announced the appointment of Karen Vanbergen as Dean of Omnicom University.
Our longstanding management development program.
Karen previously served as CEO Omnicom's PR group.
2019 marked the 25th anniversary of this prestigious program from its modest beginnings in Boston with only one program, we've expanded Omnicom University to 12 programs a year on three continents.
Only 5400 global alumni is considered one of the preeminent professional development programs in our industry.
Our strong financial performance underpins the outstanding work of our people and agencies. We look forward to continued success in the year ahead.
In closing, we're pleased with our performance for Q4, and the full year 2019, and I'm confident that we are very well position as we enter 2020.
I'll now turn the call over to fill for a closer look at the results.
Thanks, John and good morning.
John just described the fourth quarter results represented a very solid ended the year for us.
Reflecting the quality of our employees and the services they deliver to help our clients achieve their goals.
And for the full year, our results were inline with the upper end of the range of our expectations.
As always our agencies remain focused on responding to our clients ever changing requirements.
And delivering effective solutions to meet their needs.
And at the same time, managing their agency cost structures in an efficient manner.
We also continue to see the positive effects are ongoing companywide efforts to identify opportunities for improvement and efficiencies.
Starting on slide seven regarding our revenue for the fourth quarter, we had organic growth of 3.5% as our agencies overall that good job capturing yearend client project spend.
For the full year organic growth was 2.8%.
Which was at the upper end of the range of our expectation of 2% to 3% growth as we had positive performance across most regions and major markets.
FX was once again negative reducing our revenue by 0.9% in the fourth quarter.
And while a reduction in revenue from dispositions made during the last 12 months exceeded revenue from acquisitions in the quarter.
The net reduction of 1.2% this quarter is lower than it was in the previous four quarters as we cycle to the largest tranche of our 2018 dispositions during third quarter.
As a result, our reported revenue in the fourth quarter increased 1.3% to 4.14 billion when compared to Q4 of last year I will discuss the components of the changes in revenue in more detail later in my comments.
Turning back to slide one our operating profit for the quarter was 646.4 million up 3.1% when compared to Q4 of 18, while our operating margin of 15.6% represented a 30 basis point increase over last year's fourth quarter.
EBITDA for the quarter increase 2.5% and Q4's EBITDA margin of 16.1% was up 20 basis points when compared to last year.
The improvement in margins when compared to Q4 last year, primarily resulted from the change in business mix, we've experienced from the strategic disposition of several non core or underperforming agencies.
And our ongoing efforts to be more efficient throughout the organization, particularly in the areas of real estate back office operations, I T and procurement.
Net interest expense for the quarter was 38.6 million down 14.5 million versus Q4 of last year.
Largely driven by the refinancing activity that took place in the third quarter 2019.
And down 10.7 million compared to third quarter of this year.
As a reminder, I'll recap the refinancing activity.
In early July we issued one.
1 billion Euro senior notes in two parts, we issued 500 million euro of eight year senior notes due in 2027.
Effective rate of 0.92%.
An additional 500 million euro of 12 year senior notes.
During 2031 had an effective rate of 1.53%.
Together, the euronote issuance after deducting the underwriting discount and offering expenses resulted in net proceeds of 1.1 billion U.S. dollars at an average rate of 1.23%.
Proceeds were used to retire the 500 million of six on a quarter 2019 senior notes, which came due in mid July and to retire on August 1st 400 million of the 4.4 or 5% 2020 senior notes through a partial redemption.
As a result of the refinancing activities are expected ongoing long term debt portfolio will be comprised of $4 billion in dollar denominated debt.
And 1 billion euro in euro denominated debt.
In addition, with the drop in long term interest rates, we settled our fixed or floating rate interest swaps for small game.
As a result, our debt portfolio is now 100% fixed rate debt at very attractive rates and effective rate of approximately 3.3%.
In total third party interest expense for the fourth quarter decreased by 15.2 million when compared to Q4 of 2018.
In addition interest income decreased $1.8 million period over period at the reduction in interest rates on our cash deposits over the past year more than offset the increase in our cash balances.
When compared to third quarter of 29 team interest expense decreased 10.8 million.
Driven by the refinancing activity in the third quarter, while interest income was flat.
Note gross interest expense in Q4 was approximately $7.6 million lower than in Q3, because Q3 included incremental net interest expense recorded as a result of the early redemption of 400 million of the 2020 senior notes.
For the full year 2020.
We expect net interest expense savings of approximately $20 million, primarily from the refinancing activity when compared to 20 Nineteens reported results.
However, total interest expense for 2020 and going forward.
We will be subject to changes due to the translation of interest expense into us dollars related to the euro notes that we issued in 2019.
Our effective tax rate for the fourth quarter was 26.1%, bringing the 2019 full year effective tax rate to 26%.
As previously discussed the annual rate for 2019 includes a benefit of approximately $11 million, resulting from the favorable settlement of uncertain tax positions in Q2 2019.
Heading into 2020, we expect our effective tax rate to be in the range of 26.5% to 27%.
Before considering the impact of the tax effect from our share based compensation, including the impact of any future stock option exercises both of which are subject to changes in the value of Omnicam stock price.
Earnings from our affiliates were less than a million dollars for the quarter.
Down versus Q4 of last year, primarily due to lower earnings at our affiliates as well the negative impact of FX.
And the allocation of earnings to the minority shareholders and are less than fully owned subsidiaries was up $4.3 million to 34.8 million during the quarter.
Due to the strong performance from several of our last and fully owned agencies.
As a result net income for the fourth quarter was 415 million up 4% or 15.8 million when compared to Q4 of 2018.
Now turning to slide two.
Diluted share count for the quarter decreased 2.8% versus Q4 of last year to 219.3 million shares as a result, our diluted EPS for the fourth quarter was $1.89, which has an increase of 12 cents or 6.8% when compared to our Q4 EPS for last year.
Next I'll provide a quick recap of the summary, TNL es and other information for the full year results.
As a reminder, in the third quarter 2018, we closed on the disposition of cell bitel as well as other dispositions that resulted in a net pre tax gain of $178 million at the time. We also recorded charges of $149 million for repositioning actions, primarily resulting from.
Severance and lease terminations.
And lastly, we recorded additional tax expense of approximately $29 million, resulting from adjustments of the provisional amounts originally recorded in connection with the 2017 tax Act.
As we reported last year, the net impact of these items on our full year 2018 results increased our reported operating profit by $29 million net income by 18.2 million and diluted earnings per share by eight cents.
Therefore on slides five and six we presented the fiscal 19 results in comparison to 2018, both with and without the impact of the net gain from dispositions the repositioning charges and the tax adjustments in connection with the tax Act.
The non-GAAP adjusted amounts to these items show, how our underlying business performed year on year on a comparable basis, which we believe is a meaningful presentation for investors and is consistent with how management measured at our 2019 operating performance.
Since the full year results for 2019 were in line with our quarterly performance.
I will just gave you a few headlines.
Organic revenue growth for the full year was 2.8%, which was in line with the upper range of our expectations for the year of between two and 3%.
FX translation decreased revenue by 2.1%.
And the net impact of acquisitions and dispositions reduced revenue by 2.9%.
So for 2019, our reported revenue totaled 14.95 billion, a decrease of 2.2% compared to 2018.
Our reported operating profit for 2019 was 2.12 billion down slightly when compared to our reported results last year, well operating margin improved 20 basis points year over year to 14.2% on a reported basis.
And 40 basis points. After adjusting 2018 is operating income for the net gain from the dispositions and repositioning actions we undertook during Q3 of 2018.
And our full year reported diluted EPS for 2019 was $6 in six cents, a share up 23 cents or 3.9% compared to the reported amount of $5, an 83 cents a share in 2018.
Adjusting for the impact of 2018 net gain from the dispositions repositioning actions and tax reform activity.
20, Nineteens diluted EPS represents a 31 cents improvement or 5.4% over the 2018 non-GAAP adjusted amount of 575 a share.
Turning to the details of our revenue performance in the fourth quarter starting on slide seven.
FX once again was negative in the quarter, but not as negative as the impact we saw in the first nine months of the year.
FX reduced revenue by nine tenths of a percent in the fourth quarter or $37 million.
This impact remains fairly widespread.
On a reported basis consistent with the year over year impact the dollar strengthened against practically every one of our major foreign currencies.
In the quarter, only the Japanese yen and Russian ruble strengthened against the dollar.
The FX movements, creating the largest reductions in the quarter continue to be from changes in the dollar compared to the Euro Chinese won freezing and Ray I and the Australian dollar.
As for our projection of the FX impact for the upcoming year any assumption of how foreign currency rates will move over the next few months, let alone the balance of 2020 at this point of speculative.
But if currencies stay where they currently are based on our estimates.
Effects could reduce our reported revenues by approximately 50 basis points in the first quarter and be slightly negative over the balance of 2020.
The impact of our recent acquisitions net of dispositions decreased revenue by $51 million in the quarter or 1.2%.
This is lower than earlier quarters, as we cycle through much of our recent disposition activity during the third quarter of 2019.
Based on transactions completed to date.
We estimate the impact of our acquisition activity net of dispositions will be a net reduction of about 75 basis points on the first quarter of 2020 and close to flat over the remaining threequarters of the year, resulting in a projected net negative impact of 25 basis points for the year.
And finally, our organic growth for the quarter was 3.5% growth this quarter was fairly well distributed and reflective of the positive effects of yearend Klein project spending.
Graphically.
Our domestic Asia Pacific in European regions, all had good performances.
Within our service disciplines, our advertising media and CRM consumer experience agencies, all experienced positive organic growth this quarter.
While our CRM execution and support NPR Agency group once again lagged.
Slide eight shows our mix of business by discipline.
For the fourth quarter, the split was 58% for advertising and 42% for marketing services.
As for their organic growth by discipline, our advertising discipline was up 5.1%.
We saw solid performances from our global advertising agency networks.
Several of our regional brands as well solid performance at our media businesses.
CRM consumer experience was up 3.3% organically driven by continued strong growth from our precision marketing agencies as well as from our events businesses outside the U.S.
CRM execution and support was down 6% this quarter across most of the service offerings and disciplined.
PR was down 2.5% reduction is consistent with the performance of our PR discipline throughout earlier quarters in 2019.
Lastly.
Healthcare was up double digits organically at 12.9%.
And the growth continues to be well distributed both domestically and internationally.
On slide nine which details the regional mix of business you can see during the quarter. The split was 52% in the U.S., 3% for the rest of North America, 9% UK, 19% for the rest of Europe, 11% for Asia Pacific.
3% for Latin America, and 3% for the Middle East an African markets.
Turning to the details of our performance by region on Slide 10.
Organic revenue growth in the fourth quarter in the U.S. was 2.8% led by our CRM consumer experience health care and advertising media disciplines, with our CRM execution and support and PR Agency group lagging.
Outside the U.S., our other north American agencies were down 2.3% due to the sluggish performances that our advertising and media businesses.
Our UK agencies are once again positive up 3.3% driven by the strong performance, our advertising PR health care and feel marketing agencies. The rest of Europe was up 4.7% organically in the quarter.
And the Euro zone, we saw solid performance across most markets, the strongest being Germany, Belgium, Portugal and Spain.
The Netherlands was slightly positive in the quarter, while France was once again negative.
Driven by continued weak performance and a few of our CRM execution and support businesses in that market.
Our organic growth outside the Euro zone also continues to be positive across most markets Ghana growth in Asia Pacific for the quarter was 4.5%.
Our greater China agencies performed well this quarter after coming off a poor performance in Q3, primarily driven by growth from our media events agencies on the mainland.
However, we do not expect this to continue in the first half of 2020, given the uncertainty in China.
Elsewhere in the region, we saw somewhat mixed performance by market.
Solid performance by our agencies in Australia, South Korea, and Thailand was partially offset by reductions in Japan and Singapore.
Latin America was down 1.3% organically in the quarter.
Brazil, once again return to a negative organic performance as the Chile, and Colombia offsetting some growth in Mexico in the quarter.
And lastly, the middle Eastern Africa, which is our smallest region was positive for the quarter.
With guitar and the way turning and strong performances.
Turning to slide 11, we present, our mix of revenue by our clients industry sector.
As we saw throughout the year when comparing the full year revenue for 2019 to 2018, there was a small shift in our mix as a result of the sell by tell this position the mix of revenue from technology clients has been reduced.
Turning to our cash flow performance on slide 12, you can see that for the year, we generated 1.73 billion or free cash flow excluding changes in working capital.
As for our primary uses of cash on slide 13 dividends paid to our common shareholders were 564 million up about 16 million year over year.
As you recall, we increased our quarterly dividend by five cents a share effective with april's payment.
The increase in the cash payment was partially offset by a reduction in common shares over the past 12 months.
Dividends paid to our Noncontrolling interest shareholders totaled $97 million.
Down versus the prior year.
Due to a combination of dispositions and the repurchase of shares from on minority shareholders.
Capital expenditures were $102 million year to date down compared to 2018, primarily due to reduction and leasehold improvements from our real estate activities year over year.
Acquisitions, including earn out payments totaled $124 million.
As we've mentioned previously this is a decrease when compared to last year, when we opportunistically executed on several acquisitions.
And stock repurchases net of the proceeds received from stock issuances under our employee share plans.
Were $604 million.
All in we generated $239 million, a net free cash flow over the past year.
On page 14, we present, our capital structure as of yearend, which reflects the changes we discussed earlier regarding the refinancing actions we took in the third quarter.
Regarding our capital structure at the end of the year, our total debt was 5.14 billion.
And our net debt position as of December 30, Onest was 835 million down almost 400 million from this time last year.
Year on year the improvement in net debt is primarily due to our positive free cash flow of $239 million and changes in operating capital of 125 million.
Which includes the year over year improvement of 45 million, our working capital management.
As for our debt ratios they remain solid.
Our total debt to EBITDA ratio was 2.2 times and our net debt to EBITDA ratio was 0.4 times.
And our interest coverage is 10.4 times, which has improved over the past year due to the reduction in our interest expense.
And finally on slide 15, you can see we continue to manage and build the company through a combination of well focused internal development initiatives and prudently priced acquisitions.
The last 12 months, our return on invested capital ratio was 29.5%, while our return on equity was 49.6%.
And that concludes our prepared remarks. Please note that we've included several other supplemental slides in the presentation materials for your review, but at this point, we're going to ask the operator to open the call for questions. Thank you.
Thank you and ladies and gentlemen, if you do wish US a question. Please press one deal on your Touchtone phone, you'll hear an acknowledgment that you've been placed in Q you may remove yourself in queue at a time by pressing one zero again once again, ladies and gentlemen, if you do wish has a question at this time. Please press one and then zero on your touched on.
Phone.
Our first question will come from line of Alexia Quadrani from JP Morgan. Please go ahead.
Hi, Thank you very much and my first question is really on more detailed the outlook for 2020, if you can give us incented, how we should be thinking about organic growth and then the margin efficiencies that you had highlighted that benefited Q4, I'm actually a full year 2019 can they continue in Q.
I think twice how should think about profitability as well. Thank you.
Well I'll start and then.
Sure John can add his comments I think I think for 2020 in terms of where we are planning cycle.
For the year right now.
Our our expectations are similar to what they work.
At this point in.
2019.
So.
We see we see it on an organic growth range of 2% to 3% again.
For 2020.
And with respect to margins.
We're going to continue to focus on growing EBIT dollars, that's been our focus all along.
That's how we approach.
Planning.
Executing in our business and it's been successful where we're always looking for.
Opportunities.
The improvement in efficiencies throughout the organization I'm, more particularly focused or have been the last.
Three or four years in the areas or real estate and back office.
And I see a we're going to continue to do that.
And at same time, we're going to continue to invest for growth.
Especially in the areas.
Of data and analytics.
Training and some other initiatives as we always strive to find the right balance between.
Those investments.
And finding sustainable growth so for a 2020 at this point our planning cycle, we expect margins.
To approximate what they were in 2019.
So so flat right now.
Well see how it goes as the year evolves.
Hi, John Kerry.
The question is you touched on or any thoughts on China Asia region anywhere in your opening remarks, I'm curious you know and outside of huge market for you, but how are the multinational sort of dealing with AD spending in China right now.
And then just your last question Kirchner, John on the CRM execution business, which continues to be a tough area for you.
More divestiture is there opportunity it could take to sort of I guess, what's the how do we how do we fix that business to begin added submitted businesses or is it a question intuitive badges cyclical and it will come back.
Our first lexi with respect to China.
We are we like most other people are playing day today at this point.
Our primary focus is the safety of our employees.
Our.
January.
Which we know the results were fine it wasn't until after that.
This became a full blown.
Crisis.
How long it goes on our people have been working primarily from home.
And work goes on for most current some carriers when they're more.
Because regardless of concerns the marketplace.
One area for the quarter anyway that I think will be affected will be our defense business in China because several.
Any planned events have been canceled the sport and we don't know Adobe.
One later in the year or whatever.
You said in your comments.
China is an important market, but it's Scott.
Terribly large market for us in our numbers.
And your second question.
CRM execution, just a question that you get there more divestiture, there or how whats your outlook really.
You are there for sure.
Yes, I think we're going to continue to look at.
The entire portfolio.
As we go through our planning process and and all throughout the year.
Identify businesses that.
Yes strategically.
They make sense for disposition, we've been through we believe we've been so the bulk.
Oh that process.
As far as acquisition of size, but we're always open to.
Consider reconsideration and there's a lot of change that's happened in our industry, we expect that change to continue.
We don't have any particular meaningful.
Businesses targeted for disposition at this point and we think a bunch of the execution and support businesses that we have.
Our are going to get back to being in a positive.
Positive growth, maybe not high growth businesses with.
Good returns.
With some exceptions there are some that are still cycling through some of the issues that they faced in 2019.
But the the part of the portfolio represents a smaller part of our portfolio now than it was over the last few years.
Yeah.
So some of those businesses are really good businesses and have always been.
They've been overshadowed by some of the.
Underperformers within that group.
Or grouping.
So.
I think I think you can expect.
We're going to continue to work with the management team.
So look for.
Opportunities for growth and improvement.
And to the extent that we feel strategically.
We're not going to continue to invest in them and they're not and they are opportunities.
For good returns.
For disposition, we may continue to consider going down that route to.
Thank you very much.
Our next question that'll come from line of Craig Huber from Huber Research partners. Please go ahead.
Hello. Good morning. Thank you got a few questions can you just size force few would the China revenues for last year what percent of revenues that was and what was the organic revenue there we get the question a lot.
The size of China for US is it's probably a little bit less than one of the half percent of our revenues.
And and you know I think given that size, we typically don't disclose.
Every country by country organic revenue growth.
Percentage, but if you give me a minute all.
Double check it.
So.
For the year.
The year, China's China's organic growth was negative so.
No I think in that in the mid single digits.
In 2019.
Thank you for that next question John I guess.
Your various conversations you've had with your larger customers, particularly here in the us.
Just curious though.
Well, how the Toyota businesses with them and as you sort of think about the U.S. economy, which is sort of sensor that is at holding you back is it helped knew it was the same questions free Cardinal Europe as well, what's your sense of economy in both places please.
Sure.
Most of the conversations we've had.
Right.
Clients in the U.S.U.S. economy continues to be strong and clients or.
Trying to figure manager or the growth that this in the marketplace.
Obviously with the election coming up for some cautious this that goes along with that but.
But for most part of that sits in a positive.
Where do you get into Europe.
The market.
Changes marked by market.
The real beyond the scene conversations about Brexit or is uncertainty I'm not so much for 2020, but post 2020.
Sure.
Businesses decide where they have to reposition and what needs to get done.
Transfers to the markets. Okay. We've suffered an individual loss in some of our execution businesses, which affect our numbers, but the market's okay.
In Germany, Germany.
Is the question Mark at this point not a negative critic question Mark, especially since.
I think it was last night the expected.
Successor to Angela Merkel decided she would not be running through that position. So we don't have any better information and moment.
ER.
Russia continues to be a stroke foreign market force.
I wrote that covers most the things you weren't coming to cover.
No I appreciate that.
It every year in the fourth quarter tend to have some variability on your project related work, obviously here in the fourth quarter can you maybe size that for US added to the dollars name have you want to do it the fourth quarter this year versus last year. Please.
You know I think I think we typically see a as we head into the fourth quarter.
Somewhere around 200 $250 million a project work that.
It is typically available.
Our agencies to to achieve at our agencies do typically achieved something in that range. Some years, it's a little bit lower some years.
They actually do a little bit better.
And as a whole variety of factors and it's not just.
When we when we speak about that in the fourth quarter, it's not just our project base businesses alone.
That are you actively pursuing yearend project opportunities with our clients.
So I think this year.
<unk> was probably similar to maybe a little bit better than last year's fourth quarter and I think if you go back to 18 it probably.
Wasn't.
As good a performance where there wasn't as much of it that we were able to convert.
In that fourth quarter, but.
You know that that's the typical range that we see it's hard to actually you know put your finger on every dollar and weather.
Yeah.
[noise], where where what exactly the client situation was that that you know led to us being able to capture those dollars.
That's traditionally what we found that it's been pretty consistent over the years.
Thats it thank you very much sure.
Our next question will come when of Dan Salmon from BMO capital markets. Please go ahead.
Hi, Thanks for taking the questions and good morning, everyone I'm, John I was hoping you could comment on a the recent news about Accenture reportedly closing their media auditing Division you commented I think on that specific issue on prior calls and would love to hear an update on that specifically, but really more importantly, I'd love to hear.
We're just your broader thoughts, particularly as we enter 2020 about the competitive environment and particularly with that group.
And then just Ah you mentioned all that sort of success at the health care Division and ER and the numbers are clearly robust there I hate to ask about a one of them work that or are seeing challenges, but I'd just love to hear an update on the PR Division.
In particular, just we know that that's a business where you might have lagged in adopting technology within marketing traditionally, but where it does appear to be really picking up and I'm wondering how you see the role of technology in helping.
Thing that division back to growth going forward this year. Thanks.
Sure on Accenture.
I did comment that winners crack louder.
Some of their ambitions insights there is still in the media for the business.
Consistent.
And I'm happy to see that they got out of that business and we'll continue to compete with them, where we see them. Although we haven't run into a very often are major pictures.
Second question was or the healthcare and could you just referring referred me for a second.
Rather you emphasize the strength in health care with what I was hoping to just here a little bit more about was the PR division and how you're able to get it back to growth and in particular, the role of technology, and whether you're seeing that become more significant within those businesses sure.
Well I think the utilization of omni and especially Q, which I mentioned in my remarks will benefit.
PR business and some of their assignments.
The other.
Activity, that's going on now.
Let me frame it even though we've had some difficulty with.
A couple percentage points loss here in there, but profitability was a PR division.
Been and remains very strong so the opportunity to Merck creates opportunity, it's not anything structurally to deal with the business at this point.
And we're continuing to go through and evaluate.
Recently, John Doolittle took over her career Vanbergen.
As as the head of that practice area, and we're sitting down and taking into the hard work.
Where we get our revenue.
What we could expect in the future machines, we want to make to the business. So it.
An opportunity from my perspective, it's not really a problem, it's just too.
Constantly running.
One or 2%.
Below prior year, and technology will help that as well too, especially we should just been.
It's been in developing these girls five years, but it's just been added to the omni offering I believe a little particularly help.
The PR businesses some of the things that they're doing.
Great. Thank you.
Sure.
Our next question that'll come from line of Julian Rose from Barclays. Please go ahead.
Yes, Hi, Dan. Thank you very much for taking the questions I'm coming back on China quickly.
You said it was less than one enough revenue and not so far the only impacts where you havent business because no event was taking place in China.
How much is event.
The or out of the Chinese revenue out of the 1.5, that's my first question.
The second one is could you give us some color.
On the organic growth of your immediate practice in full year 19, you say was solid it's one of your largest practice and that's been the gross engine of agents in the last she is.
So organic would be great and if you don't want to give a precise number may be a range I don't know two and a half to five or five to 7.5.
And then last question is on the number of shares as Uh Huh was flat in Q4 was usually it goes down.
By about a one plus million a quarter, so what I put intends a number of shares in a.
Thank you for.
Thank you.
Phil answer some of these are you applying for jobs.
[laughter] [laughter] through some of the detailed questions.
Probably precious few employees that actually looked at it when on the business or segregating our businesses in a particular market, we haven't gotten in the past, but our events business. Our main businesses media advertising public relations in that market.
Event add something to it but.
Not going to getting the dissection of that for the disclosure so.
Oh does that.
What was the second.
It's a sign that Lewis.
Scott.
No I mean, if you knew that I just wanted to have an idea of a the gross of media in 2019.
So you know I think I think overall.
It wasn't disproportionately.
Higher or lower than our overall growth right I think.
If you if you go through the numbers, we we've been through on the call.
Yeah, you can see media advertising and health care grew better than.
The overall portfolio in some of the overall portfolio, namely PR.
Hi, I'm execution and support in particular.
Either didn't yeah didn't grow so so by that you can include the three that did grow are the primary drivers of our growth grew at a little bit higher rate than our overall average rate for the quarter in the year.
And and I think yeah each of those businesses had a good year and did well and then drove our growth overall, but as far as the specific percentages I think.
You know, we provide quite a bit of information.
To give you good sense of that but you know I don't think there's any.
Dramatic anything dramatically different about that part of our portfolio and some of our some of our media businesses actually unlike markets, such as Brazil, and some others are integrated into the advertising businesses.
They aren't Standalone media businesses, so it's hard to pull out.
Exactly how much.
Yeah the growth in those markets came from a standalone media versus advertising because they are integrated.
And as far as shares go.
In the first for in the fourth quarter I'm not quite sure.
I follow.
Detail your observation what we can go through that after the call I think certainly.
We bought back through share repurchases, a little bit more in the fourth quarter. This year than we did in the prior year.
And maybe maybe what you're seeing has something to do with just the way the yearend averages. It compiled oh, he said and we have using in fact just yet.
Oh is a is that just a timing because you had 219.3 diluted number shows in Q4 and you've got 219.4 in key in Q3. So it's it's just the timing of the of the average again, yes. Yeah, you kind of if you will see I think more of that or an acceleration of that effect when you get into.
2021, <unk> as the averages start over.
Okay very clear. Thank you very much sure I think I think given a when the market so going to open we probably have time for one more call. Thank you well.
Thank you a final question that will come from Adrian they'll say inhaler from <unk>. Please go ahead.
One moment. Please go ahead, maybe quake I'll try and things like thanks.
Very much so first of all a on the Chinese points are you city was down mid single digits. I'm. Just curious if you have any explanation why could easily be down mid single digits in an economy, which is still growing five to six.
Second question is on your expectations around the phasing out of cookies set at Google using that's bad news in the short using a long run or maybe the other way around or is that good news in all cases, a and then lastly about your performance in the Middle East should we expect some carry over into the first off of Twentytwenty as well. Thank you.
Okay.
I'll take the China question, So I I think.
You know our growth this year in China was was largely due to.
Some performance challenges I think we lost a couple of clients and and frankly as a portfolio our agencies out with some exceptions, but our agency that didn't perform as well as they did you ever for frankly.
The current situation Israel presents a very different set of challenges so.
You know until we get some more clarity.
And so lets situation resolves itself.
You know I think our expectations are similar everybody else's. There there is just a little bit too much uncertainty to have a clear picture.
As to how it's going to roll out in China and in the Middle East.
I think.
Yes, I think we've got some good businesses that we expect to continue to grow but as an overall percentage of omnicom's portfolio and omnicom's growth.
We don't expect that to be significant or meaningful, but it's it's been a nice it's been a nice.
Part of our portfolio and and we've got some nice businesses over there that have been doing well and we certainly expect them to continue to do well.
With respect to your first question regarding cookies.
[music].
Honestly, we've been expecting this for some can now I'm just not news to us.
It will make targeting a little bit more challenging than it was in the past it certainly make Google stronger.
But in anticipation of it that's why we worked so diligently on the creation of omni and the enhancements that we've made to it.
In the future, it's not just going to be the data. It also has a lot to do with the execution of what you actually do with that data.
Processes.
Clients other people have other sources, which we <unk> access to first party data, which can be used to accomplish many of the objectives that were made a little bit easier with good.
<unk>.
So you don't expect any impact on your media activities just to be clear from from that use.
A very minor, but I expect.
No because we've been adjusting and we've been anticipating this for some period of time Devry changes to everything that happens today will be different what happens tomorrow, but we're not threatened by it and if it makes us more valuable.
Yeah, I think more complexity there isn't in the marketplace, the more client need our expertise and need.
Cost to help them.
Some of the challenges that says that this creates for them.
I'm not just for us.
Many thanks.
Okay. Thank you everybody for taking the call a and for joining us and and.
And I have a good wrestle day.
Thank you.
Thank you, ladies and gentlemen that does conclude or conference for today. They have your participation for using 18 T. executive teleconference.
Yes.
[noise].
We're sorry your conference is ending now please hang up.