Q4 2022 Omnicom Group Inc Earnings Call
If you need assistance during the call. Please press Star then zero as a reminder, this conference call is being recorded.
At this time I'd like to introduce you to your host for today's conference Senior Vice President of Investor Relations Gregory Lundberg. Please go ahead.
Thank you for joining our fourth quarter and full year 2022 earnings call with me today are John Wren, Chairman and Chief Executive Officer, and Phil Angela Ostrow, Executive Vice President and Chief Financial Officer.
On our website Omnicom group dotcom.
Posted a press release, along with the presentation covering the information will review today as well as a webcast of this call an archived version will be available on today's call concludes before we start I would like to remind everyone to read the forward looking statements and non-GAAP financial and other information that we have included at the end of our Investor presentation.
Certain of the statements made today may constitute forward looking statements and these statements are our present expectations relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings, including our Form 10-K, which should be filed tomorrow during.
During the course of today's call. We will also discuss certain non-GAAP measures.
You can find a reconciliation of these to the nearest comparable GAAP measures in the presentation materials. We will begin the call with an overview of our business from John and Phil will review, our financial results for the quarter and after our prepared remarks, we will open up the lines for your questions I'll now hand, the call over to John Thank.
Thank you Greg.
Afternoon, everyone and thank you for joining us today for our fourth quarter and full year 2022 results.
I'm pleased to report our fourth quarter performance was very strong on both the top and bottom lines and we finished an outstanding year. In 2022, we entered 2023 with a high level of confidence in our strategic and financial position, while remaining cautious and being prepared for.
Possible changes in the geopolitical and macro economic environment.
For the fourth quarter organic growth of seven 2% exceeded our expectations.
Growth was broad based across our disciplines geographic regions and client sectors.
We again saw a double digit growth in our precision marketing public relations and experiential disciplines.
Full year organic growth was nine 4%.
Operating margin for the fourth quarter was 16, 6% an increase of 50 basis points compared to the prior year.
For the full year operating margin adjusted for certain non-GAAP items illustrated on page 10 of our Investor presentation was 15, 4%.
Which is 40 basis points higher than our operating margin in 2021.
Earnings per share for the quarter was $2.09.
Seven 2% versus the fourth quarter of 2021.
The negative currency impact on EPS of the strong U S dollar was approximately 6%.
On a constant currency basis EPS increased by approximately 13%.
It could be year, we generated over $1 7 billion in free cash flow and returned more than 65% to shareholders in dividends and share repurchases.
Our liquidity and balance sheet remain very strong and continue to support our primary uses of cash dividends acquisitions and share repurchases.
Our strong performance validates the growing role we play as clients increasingly turn to us for advice and navigating through a complex marketing and communications environment.
We're also revising our clients on transforming their organizations by deploying new processes and marketing technology platforms that can provide more connected experiences for their consumers.
During the quarter, we expanded and further strengthening our talent.
At the time of our Q3 remarks, we have just appointed Andrea lending to new role of Chief client Officer.
In the fourth quarter, we added two prominent leaders.
Celine Saxon previously immediate link joined as Chief Marketing Officer, and Alex has previously about them any DDB joined as Chief strategy Officer.
Andrea Kathleen and Alex will strengthen our position in the marketplace identify and pursue new business opportunities and work with our global client leaders and agencies to deliver innovative and transformational ideas to our clients.
We're fortunate to be adding this team from a position of strength.
We ended 2022 with significant new business wins and deepened our relationship with many of our enterprise level clients.
In the fourth quarter L'oreal named Omnicom Media group.
U S media agency of record.
This marked one of the biggest wins of 2022 with an estimated 1 billion in U S media billings as reported by <unk> Com Virgins L'oreal selected O M. G. Due to its deep specialization and integration expertise talent and technology to do it.
Martin marketing outcomes, our recently launched E Commerce agency transact.
Along with our best in class analytics and insights team at Antelope, which supports the omni operating system played an instrumental role in winning a l'oreal business.
Also on the media front OMD secured a major win as it was named media agency of record for Burberry.
The win includes an innovative and bespoke agency model created specifically for Burger.
Our health care group, which had 6.4% growth in the fourth quarter.
One is significant new business pitch with Merck capping off the year and wish it one therefore, our largest health care pitches of 2022.
A key component of our new business success was driven by our e-commerce capabilities in the area, where we've made and continue to make significant investments.
We recently expanded our e-commerce capabilities through a partnership with Albertsons media collector.
Retail media arm for the Albertsons companies. This partnership will provide first to market solutions that will enable marketers to better target and measure our O I and connected TV environments.
Going forward, we plan to continue to invest in and expand our capabilities to solidify our position as best in class provider of retail media and E Commerce services as well as in other high growth areas, such as precision marketing performance media.
In house.
Wanted to thank our people around the world for helping US close out 2022 on such a positive note.
It's your dedication and commitment and outstanding work that allows our agencies clients and omnicom to succeed.
We entered 2023 in a very strong position supported by our strong financial performance, new business wins and steady progress on our key strategic initiatives. We also continue to see strong demand for our services.
Based on current market conditions, we're targeting 2023 organic revenue growth.
3% to 5% and expect our operating margin to be between 15% and 15, 4%.
At the same time, we remain extremely cautious macroeconomic and geopolitical factors, including the ongoing war in the Ukraine.
The economic risk posed by rising interest rates and higher inflation around the world.
To be prepared we continue to actively develop plans to respond to the headwinds for macro factors.
And I'm confident we can manage through this economic cycle and.
And we have the leadership teams in place to minimize the impact on our top and bottom lines.
I'll now turn the call over to Phil for a closer look at our financial results Joe.
Thanks, John we're pleased to be closing 2022 with solid fourth quarter results driven by strong organic revenue growth.
Operating profit growth and earnings per share growth.
We finished the year with a healthy balance sheet and excellent liquidity a.
Our strong credit position.
The operating flexibility of our business positioning.
Position us well for any macro uncertainty ahead.
Please turn now to slide three I will begin our review with the summary of the fourth quarter income statement.
Reported total revenue in the fourth quarter was flat year over year at $3 9 billion.
With organic growth of seven 2% offset by the negative impact of foreign currency translation.
Our net disposition revenue in excess of acquisition revenue.
Since most of our expenses are incurred in local markets, where our revenue is earned.
Foreign currency translation also reduced our operating expenses, which were flat versus last year.
Reported operating profit for the fourth quarter increased 3.2%.
And on a constant currency basis and increased eight 4%.
Moving down the income statement higher interest income again helped lower our net interest expense, which decreased by $18 5 million.
Our tax rate of 26.5% was as expected.
2023.
Spite, the increasing interest rate environment. We currently expect interest expense to approximate 20 twenty-two levels and interest income to increase moderately in Q1, and Q2 of 2023 compared to the first half of 2022.
And approximate 2022 levels in the second half of 2023.
We also currently expect our effective book income tax rate in 2023 to be approximately 27%.
The increase relative to our 2022 rate primarily due to the UK tax rate, which is scheduled to increase in April of 2023.
Overall, our Q4 22 net income rose three 3% on a reported basis.
Combined with a reduction in shares year over year.
Diluted EPS rose seven 2%.
Without the headwind from negative foreign currency translation.
EPS for the quarter increased 13.3%.
For a review of the full year, please turn to slide four where we show certain non-GAAP adjustments to make the periods more comparable.
None of these adjustments are new this quarter. They were discussed earlier this year and last year.
For the year to date 2022 period operating expenses and income taxes were impacted by charges in the first quarter arising from the effects of the war in Ukraine.
For the year to date 2021 period.
Operating expenses benefited from a gain on sale of a subsidiary and both interest expense and income tax expense reflects the impact from the early extinguishment of debt in 2021.
Continuing on slide four similar to the quarterly results, we just discussed.
Rents in the dollar this year also impacted our year to date results.
Foreign currency translation reduced revenues by four 8%.
Operating profit on a non-GAAP adjusted basis of $2 2 billion was up 2.3% without the headwind from negative foreign currency translation increased six 8%.
non-GAAP adjusted diluted EPS of $6.93 Rose eight 5%.
Or without the headwind from negative foreign currency translation increased 13, 6%.
Let's now go into some more detail on our results beginning on slide five with an analysis of the change in our revenue.
As discussed organic growth was seven 2% for the quarter and nine 4% year to date.
The quarterly impact from foreign currency translation was negative five 5%.
Worth, noting that for financial reporting purposes. The U S dollar strengthened against the currencies every country, we operate in except for Brazil, when compared to Q4 of 2022.
However, this impact was slightly less than it was in the third quarter. So it did move in the right direction.
The impact of acquisition and disposition revenue was negative one 4%.
Primarily reflecting the disposition of our businesses in Russia during the first quarter 2022.
Looking forward foreign currency exchange rates stay where they were as of February 1st.
We estimate that the impact will reduce our revenue by approximately 3% in the first quarter.
And moderate for the remainder of 2023 to be approximately flat for the year.
Based on deals completed to date.
We expect the impact from net acquisitions and dispositions will result in a reduction of our revenue by approximately 1.5% in the first quarter.
I'm really resulted in the disposition of our businesses in Russia in the first quarter of 2022.
Turning to slide six for the quarter. We once again showed organic growth across all of our disciplines with the exception of execution and support as we expected.
As you can see performance in each of our other disciplines remains solid with double digit organic growth in three of them.
Advertising and media, our largest category posted 6% organic growth in the quarter.
Led by strong performance in our media businesses.
Precision marketing continued its strong performance, 11.6% organic growth as clients continue to turn to us for digital transformation.
Digital customer experience and data analytics services.
Although this growth rate moderated a bit relative to the third quarter.
We're excited about the outlook and we'll continue to invest in this space.
Commerce and brand consulting was up seven 2% organically on the strength of our branding and design agencies experiential organic growth was a strong 17%.
Where we saw more benefits than we expected from the FIFA World Cup and other year end projects.
Execution and support which we expected would be choppy in the second half at a decline of 2.8% against the comp of five 2% growth in last year's fourth quarter.
Public relations grew a strong 12.7% organically in the quarter.
Keeping up with double digit trend, reflecting continued client demand across many industries and geographies.
Including increased revenue of approximately $10 million, resulting from increased election spending in the U S. In the second half of the year.
And health care delivered solid organic growth of six 4%.
Turning to slide seven for revenue by region. We're pleased to see continued positive growth globally and.
In the U S. Our 5.6% quarterly organic growth was led by advertising and media precision marketing and public relations.
International growth of 8.7% was also led by advertising and media and precision marketing.
And also saw the strong contribution from experiential that I mentioned earlier.
Regionally, we saw some expected slowdown compared to the first half of the year in the UK and Europe .
The organic growth of 10% and 5% respectively still quite healthy.
Asia Pacific also improved led by China, and also driven by most of our other markets in the region.
Looking at revenue by industry sector on slide eight relative to the fourth quarter of 2021 the mix of our client portfolio was broadly stable.
Categories that moved year over year included an increase in exposure to pharma and health and a decrease in exposure to technology.
Let's now turn to slide nine and look at our operating expenses for the quarter.
You referenced slide 17 in the appendix presents this on a constant currency basis.
Our total expenses were essentially flat at 3.2 billion due primarily to the weakening of almost all foreign currencies against the U S dollar.
Salary and related service costs decreased as we saw an increase related to organic revenue growth and additional head count.
All set by the effects of foreign currency translation.
Third party service costs increased due to an increase in organic revenue Aki.
Occupancy and other costs increased primarily due to some growth in <unk>.
General office expenses as our workforce returns to the office.
Partially offset by lower rent.
On the topic of rent you may have seen in January that we moved the Madison Avenue headquarters for T V. W. E.
To a location that houses other omnicom agencies.
It is an open modern and collaborative space with an efficient design.
This is another example of the rationalization of our rooftops, which we expect will continue in the future.
SG&A expenses were down year over year due to lower professional fees lower marketing related costs and reductions from the effects of foreign currency translations.
Turning to slide 10, our fourth quarter operating profit was $643 million.
3.2% increase from last year net of a reduction of $32 3 million from the impact of foreign currency translation.
Our operating profit margin reached 16.6% on total revenue compared to last year's margin of 16.1%.
Please turn now to slide 11 for our cash flow performance on a full year basis.
We define free cash flow as net cash provided by operating activities, excluding changes in operating capital free cash flow for the year was approximately 1.8 billion.
That compared to last year.
Regarding our uses of cash we used $581 million of cash to pay dividends to common shareholders.
And another 80 million for dividends to Noncontrolling interest shareholders.
Capital expenditures of $78 million or at normal levels.
Acquisition spend net of dispositions and other items was $330 million.
And lastly, our net stock repurchases for the year were $594 million at the high end of our expectations of 500 to 600 million.
2023 we expect that we will also repurchase shares within this historical range.
Regarding the changes in our operating capital for the year, which resulted in use of cash of approximately $840 million.
The principal factors that caused this reduction included.
The reduction in billings in 2022, resulting from certain client losses in 2020 one.
The disposition of our businesses in Russia, including cash for operations.
In Q1 of 2022.
Disposition of our specialty media business in 2021.
Impacts from increased client activity related to the reopening in China at the end of the fourth quarter.
And timing differences compared to the prior year cash collections and cash payments at year end.
We look forward, we expect changes in operating capital to be a source of cash again in fiscal year 2023.
Slide 12 is an overview of our credit liquidity and debt maturities.
During the quarter the impact of foreign exchange rates on our euro and Sterling denominated debt.
Cause the book value of our outstanding debt to decrease to 5.6 billion from $5 7 billion as of December 31, 2021.
No changes in outstanding balances during the quarter, and our 2.5 billion revolving credit facility, which Backstops, our 2 billion dollar U S. Commercial paper program remains undrawn.
Cash and cash equivalents were $4 3 billion at year end.
The reduction relative to year end 2021 is due primarily to the changes in operating capital that I just discussed.
As well as the effect of foreign exchange rate changes, which reduced our cash balance by $219 million for the year.
Turning to slide 13, our operating capital discipline consistently drives above average returns on both invested capital and equity.
<unk> months ended December 31st 2022 regenerated.
We generated a solid return on invested capital of 28%.
And a strong return on equity of 40%.
The strength of our business delivers attractive returns on a relative basis in both strong and weaker macroeconomic environments.
In closing as 'twenty twenty-three unfolds, we're prepared as always for an uncertain business environment.
We have a strong track record of providing attractive returns through dividends and share repurchases, while maintaining a strong balance sheet and managing our business through challenging market conditions, and we will do so while continuing to invest in our strategic future growth.
Operator.
Please open the line.
<unk> and answers thank.
Thank you.
And our first question comes from the line of Steven Quay Hawk with Wells Fargo. Please go ahead.
Thank you so.
John maybe to start off with you said you enter 2023 with a lot of confidence and you're also being cautious and that caution certainly serves you well last year as the macro really got worse throughout the year you. All did an impressive job of setting achievable targets. So how should we think about the amount of kind of healthy caution that's in this guidance and in May.
Related to that as you came through the fourth quarter and into January did you see trends were either improving or deteriorating on a sequential basis to kind of set you up for how you are looking at the rest of the year.
Okay.
Thanks, Steve There's a couple of questions in there let me start with first with the guidance.
In the guidance that we gave you.
Remind everybody we're five weeks into the year.
Three three plus percent I'm extremely comfortable about there's a lot of reasons for that there are some puts and takes depending upon the industry that clients are in but on the whole we feel very good our client base and what their planned spending is for.
For the forthcoming future as far as we can say it.
And then in true in 2022.
We entered the year challenged by facing some losses from 'twenty one.
Which we're not up against in the first quarter.
And this and as well as Russia. So previously mentioned.
But more importantly, if you look at me.
Media wins for instance.
Using the only reliable outside source, which I believe is convergence.
Youll find that on a net billings basis.
One far more business.
And in 'twenty two than any of our competitors.
So the combination of stability in our client base.
Those new business wins, which will start to contribute.
For the most part in and around April , but April and the rest of the year.
I'm extremely comfortable we'll know more obviously as we go.
Get a little bit further into the year and.
Hum continue to have conversations about stretch plans.
With our operating divisions.
So that's that.
Having spent so much time on that I've forgotten. Your second question in terms of the month.
Second one was the month of January so we don't we typically don't place a lot of our emphasis on one month.
In any quarter, but we didn't see anything in terms of january's results that would cause us to change the commentary John just you just laid out.
Thanks, Phil maybe if I could just follow up on the margin guidance could you just confirm if that EBITDA or operating profit and I know you had the $113 million adjustment in 'twenty two so what would be the comparable number for 2022 versus the 15 to 15, 4%.
Thank you.
Sure. So so the number without the charge for Russia, which was about $113 million.
Is 15, 4% that's in operating margin.
Percentage.
Operating profit divided by revenue.
So that that's the that's the guide in 2014 to 15 four.
Operating profit growth there.
You.
Sure.
And the next question comes from the line of David Karnofsky with J P. Morgan. Please go ahead.
Alright, Thanks, Bill just to follow up on the margin guide.
I think we're generally condition to see organic growth at the level that you guided to kind of filtering down to margin expansion. So wondering if you could kind of speak to the puts and takes of the margin guide any cost pressure that you know potentially offsetting any gains that you might get from the incremental growth.
Sure I think you know I think given the on some of the uncertainty of the macro and yep.
Business conditions currently we certainly plan.
The business to align our cost structures with our expected revenues as we know them well.
We always have done that.
We're somewhat conservative about how we do it.
Because we don't want to be relying on plans that have unsupported new business assumptions.
Where we maintain a cost structure that isn't.
Stable.
It is an effective and efficient in.
In achieving our margin objectives, so we like everyone else.
Have experienced some wage pressures, but there's a number of other initiatives. We've been pursuing we're going to continue to pursue around outsourcing.
Oh offshoring and automation.
And we were pretty comfortable with the margin targets that we've laid out.
But in terms of the general macro there's some things that that may be out of our control.
So we've given the guidance, we have which is 15% to 15 four.
Yeah embedded exactly just add one thing to that.
Embedded in that.
And we're not always successful, but we have added a lot more success than I would've.
Hope for and going back to clients and getting increases.
Which will help mitigate that issue.
And we've also gotten a lot more sophisticated it as we've gone through a couple of these recessions.
Our near.
In that if a client is not willing to give us.
It's more.
What we've been able to do is to increase the length of our contracts with those clients therefore, increasing the stability of our revenue forecast.
Okay.
John You also noted in your prepared remarks.
E Commerce capability is playing a role in winning new business and I was just wondering if you could speak to that and maybe the increase in rural retail media is playing in terms of client allocation right.
Yes.
At this point.
Selling client products in.
And what Covid did for online sales.
Never going backwards, it's only going to further increase as we move further.
No.
Into the future.
Mergers like Kroger's and Albertsons.
We'll set up a third competitor to the Walmart and the targets that are out there as well as Amazon's.
Hmm.
Budgets.
That sales departments.
Traditionally you had to motivate those stores to feature those products.
I mean in essence, becoming types of media budgets.
And there's a lot of overlap and convergence in terms of the skills that you need.
Having said that there are some very special skills that you need to focus on retail and sales at most.
Moment of notice or when you when you get to the customer's attention.
We've.
Looked at.
Seeing if there is much to acquire.
21, and 'twenty two.
But at the same time, because we were a bit hesitant.
And so we've been building it for well over two and a half years.
And I think if you ask us or any of our competitors.
Every media request for a bid for the <unk>.
Last several years.
You have to come in and.
Straight to that potential client.
The strength of your e-commerce capabilities.
It's something that we are focused on and remain focused on and we think is going to play a very important role.
In future business.
Not only here in 'twenty three but beyond.
Thank you.
And the next question comes from the line of Ben Swinburne with Morgan Stanley . Please go ahead.
Thanks, Good afternoon.
John you talked about the strength and then fill in the media business advertising and media had another nice quarter similar growth to last quarter.
And you called out media strengths and it's interesting because if we look at the.
Whether it's TV or digital advertising because it got pretty bleak in the back half of last year. So it's clearly a separation here can you take us inside of the advertising and media.
Flynn at Omnicom, and sort of help us understand the drivers of that continued growth.
In the business it doesn't sound like new business wins really were a factor in last year's results I just want to make sure I got that right and then I had a follow up for Phil.
Okay.
Let me let.
Let me start off media.
Wins creative wins as well as maybe your wins as well as precision marketing wins.
All contributed to the performance that we had last year.
And going into last year, we were still cycling on a couple of our key.
Count losses that we've had previously so new business did have an impact.
And getting us to where we were in 2022.
That strength.
Batting above.
Yes.
At a very high average at or above our weight because.
I think we deserved everyone we got.
Yes.
But.
There was quite a bit of activity.
At the end.
In this second half and dish last four months of last year.
And we were very successful with it and we continue to be successful as we go into this year on things that we announce.
And we don't have a crystal ball as Phil said earlier.
But.
We do have some site.
In terms of.
Accounts that are stable, because we have multi year contracts and accounts that people are have moved into review.
Maybe not become public yet or not and we're not.
In a defensive mode.
And it's already February .
Where I still and we were on our front foot and we continue to be on our front foot.
So I'm very comfortable that the wins that we had in the latter part of last year will be contributing starting in the second quarter of <unk>.
This year.
And then it'll benefit the rest of shining through.
And I'm also confident in the teams that we have.
Answering these briefs and the collaboration that is not just media.
Just creative or just precision marketing, but our holistic approach.
Responding to clients business needs.
And my reference in my first answer to convergence.
For media in.
In truth, that's the only third party that accurately.
Accumulates and follows.
Wins and losses, but they only do it in the media sector.
There are a heck of a lot of wins.
In all of the other areas of our business as demonstrated in the growth areas that you saw with the exception of yeah.
Covid closing China.
And some other headwinds had on our execution business, but those should even.
They haven't lightened up just quite yet.
But they will and in truth China.
Opened up extraordinarily well in that area in the month of December .
We were unprepared to handle the demand that there was in December .
So I'm bullish on.
With that particular business can be as we get further and further into the year.
Contributing to the strength that we have across all of our other areas.
Got it.
Oh go ahead.
Alright, well in terms of <unk>.
Growing.
Their businesses and and you know there isn't a direct correlation necessarily between.
The media industry endure the pricing of media.
And our revenue streams I think the more complexity there is in that landscape and and I think it's clear.
It's a much more complex landscape today than even just a few years back retail media being one of.
You know those examples the more complexity of the the more in demand our services are.
Got it no not tell fulfil and then maybe just I don't know if there's a connection between the new business wins in your margin targets, though I didn't totally understand your answer earlier on why we're not wide margins would be flat to down in a year with this much top line is is there some staffing up.
Head of new business coming on that's part of that is is anything structural change like if you continue to put up three to five per cent growth in you know 24 and beyond I I think we should see margin expansion, but to make sure. There's nothing we're missing.
I I think it's the first week in February is John It said and.
You know I think if we were sitting here 12 months ago looking out at 2022 is a very different macro outlook than it is today in 2023.
And given that uncertainty you know we expect that is going to be some challenges that we're gonna have to manage through and we expect to do it successfully and you know we're not going to be overly optimistic in terms of you know our guidance at this point.
I mean, the only other thing I would add is that.
[noise] when we issue RK will probably be.
I'm sure, we'll be talking about our head count on our head count definitely went up.
In 22.
Throughout the year. So we're looking at a full year's cause for those incremental employees right now.
It's it's hard to.
Really predict what's gonna happen.
And the payroll of environment.
Because we're going to and start doing says you'll see some.
Reports that.
You know we are consistently bringing people back at least three days a week.
And that'll.
That'll be finished and completed by.
Way before the end of this quarter.
And there are costs associated with those people coming back that we.
We haven't necessarily had to bear as we were working remotely in the past.
So we're being very cautious, but I think we're being very sensible.
And.
You know with the fed raising interest rates and as well as some of the other challenges that are going on.
With the war the earns there are uncertainties out there. So we plan for what we know that's not what we're hoping for.
We.
We will do everything in our power to reasonably.
Control our cause.
While attracting the best and brightest people.
That are out there in the marketplace.
And we will get some relief.
Some of the challenges that the tech companies or.
Going through but we haven't seen the full impact of that yet.
Got it.
Thank you both I appreciate it.
Sure.
[noise] next question comes from the line of Michael Nathan with S. V V. Moffitt Nathan. Please go ahead.
Right and I wanted to fulfill.
I'll go with you guys one of the challenges we have is trying to figure out.
What's normal right. We had 21 laughing 20, and 22 is a bit of recovery or to the growth was extraordinary 9%. When you look at your <unk>. Your your revenue buckets. What businesses you think we're expecting to slow right and is there a big it's kind of a normalization and in your forecasts three 5%.
Is there just some acknowledgement.
Acknowledgement of maybe the 22 growth rate is a bit of ketchup or anything and help on looking at kind of the normalization of growth and looking at 22, and maybe like experiential maybe there's some places are caught up and then bill can you remind me a bit up your currency and words moving is that a positive or negative for margin I know would translate.
And in fact, but you know is there a kind of a bogey on margin due to wear currencies moved Newark, possibly go too as well thanks.
Yeah.
Yeah, when we look at revenue when we look at our clients. We look at what their business needs are and in terms of selling their products. So we are most interested in share of wallet.
As opposed to.
Yeah.
Individual expertise or crafts.
Within the marketing experience.
So.
And.
We've we've gotten better and better at this so we're on our front foot.
So we're not only answering the brief that the clients unnecessarily.
Putting to us we're not just answering questions. We're taking a look at their business their sector.
And trying to be helpful as a partner.
[noise] them in growing their businesses. So we don't really make the distinctions other than what the accounting.
Systems Spew out.
It's relevant to me and.
In today's environment.
Marketing final continues to collapse.
And there's a lot of overlap between the.
The skills are the areas in which.
We call out for.
For historic purposes.
I started off in an earlier answer explaining the.
How retailer.
E Commerce type of spending and media spending.
R.
Overlapping.
Yeah, almost completely overlapping today not every client's organization.
Has separated the responsibility for those two areas of this yet but in essence, all of those costs and all those different areas.
Are being spent to get a great R O y and to move the client's product and.
And that's what our real focus is.
On on.
On the the F X brown or the currency front and margins.
There really hasn't been much of an impact on our margins from our currency perspective, maybe 10 basis points plus or minus.
Each quarter, this year or less than 10 basis points.
And that's typical when you know most currencies are headed in the same direction relative to the dollar so.
Yeah. The costs are coming down the revenues are coming down roughly in proportion to.
Yeah, the change in the currency because of the local currencies Hum.
Are you know naturally hedged so unless we get a big swing in you know a particular currency where.
Yeah, the revenue drivers from the calm.
Are you know, there's there's a big a larger change or a larger proportion of revenue coming from a market, where we have an overly high margin or or or a lower margin that are average.
Yeah, we typically don't get margin swings caused by currency.
Because of the natural hedge of.
Our people are located in the same markets.
As revenue is generated so so it's a natural hedging effect.
For for the vast majority of our business.
That doesn't have any impact on margins.
Okay can you ask for more.
I don't think you quantified what what it's gonna be this here divesting into acquisitions to total revenues.
You know I might've missed that we got the first quarter, but what's your estimate for the year of the revenue changes from divestments.
Right now we're gonna, we're gonna kind of cycle on Russia. After the first quarter that was the main okay that was the main disposition.
Ah that's still out there and yeah, we would expect the number for the rest of the year based on deals that are actually closed.
To be to be small kind of close to a push because we don't have any sizable acquisitions or dispositions.
That you know that are contributing as of now we expect that to change if we can get some acquisitions done.
But I think for the balance of the year, it's gotta be flat after the first quarter okay.
Okay. Thank you sure.
Sure.
And the next question comes from the line of 10 Nolan with Macquarie Group. Please go ahead.
Hi, Thanks, I actually wanted to ask you a question might acquisition divestitures too if I look back several years, you've got six or seven years worth of dispositions not acquisitions and if I go back even to about 10 years ago, you were kind of at about zero acquisition disposition for for a number of your.
Years now so you know you used to be a more acquisitive company, you've clearly been clearing out some of the businesses have not been working and focusing on organic growth I just wonder if there might be more opportunities to go for more acquisitions, you know I know you're not gonna call. What you might do in queue to for example, but is is this a more acquisitive.
<unk> emerging for you and if so what kinds of things might you look at it.
Yeah, I think we outlined pretty much too.
What.
Areas, where most interested in.
I think I'd call out as being e-commerce.
Geographic expansion.
And skill.
Expansion of our precision marketing.
Group.
And are very strong a health care group.
So those are the areas that we're constantly.
Scraping the market talking to everybody we have our entire group.
That's dedicated to that in terms of mergers.
I think.
This is a generalization so.
Making a general statement.
It's not 100 per cent true, but it's mostly true.
And that is I think what the what the feds dining increasing.
Interest rates, which I believe.
Yeah, it's pretty permanent.
I.
I don't think sellers.
I have quite a bizarre that yet and bringing their.
The pricing in line to what.
Yeah.
Any reasonable business person would anticipate as a terminal rate for buying <unk>.
Buying an enterprise.
But we continue to negotiate and most of the deals that we've been able to do.
Have been strategic in nature, and they have to be good family members or does it have to be able to operate in the environment that I'll Omnicom operates yeah.
You are correct in making you know calling out.
The fact that.
We have the vested.
A number of companies.
Pretty consistently over the last five years.
But.
But that shouldn't really come as a shock to anyone.
We identify.
And we're not just getting rid of things that are.
Anchors around our neck today, we're constantly reviewing the portfolio.
And also constantly talking to people who are M&A group.
Who are doing roll ups in certain areas where.
When you become aware of that and we have to make decisions that Gee. This company has value to us now.
Are we gonna double down and.
And support it to compete with what we anticipate this roll ups gotta be able to accomplish or are we going to just take a healthy profit and return it to our shareholders.
And that's what we've elected to do over the course of.
The last five years and we're an acquisition has become you know.
Fall short of our standards.
Or we deem to be too expensive.
We've not been shy and and we spend a lot of money.
Each year investing in building those businesses.
Which are reflected in lowering our margins in many ways.
If we were running the business for any short period of time you.
You could.
Stop some of those investments and increase your margins temporarily but it would hurt longterm growth. So.
We're constantly looking at the present.
Learning hopefully from mistakes of the past.
But it also.
With a keen awareness about where our expertise is and where it's going to continue to be.
Thanks, John if I could maybe ask one more there's been a lot of discussion this week about a I and this this chat G. P. T functionality that Microsoft has been investing in and of course. He was it last week the week before that we had to Doj lawsuit against Google. These are huge topics I don't expect.
You know a precise answer I just wonder if you have any initial thoughts on how these developments may affect your business in the AD market as a whole.
Sure.
Yeah, we ourselves.
Not chat, but found that interesting.
Are constantly looking as a group.
That is looking to automate.
Part of the functions that we perform on a regular basis.
And that those are some of the investments that I alluded to.
When.
I first became aware of chat the first phone call I made was to the head of a P. R.
And I said.
Using historic.
Performance I Wanna test.
Yeah. It was this product and see.
It is good yet.
As you know it portends to be.
And.
Get in and now as for now this is from the people on the ground doing those type of task.
As to how they viewed it.
And they came back very positively.
It's a good product, it's not a perfect product.
I I think when Microsoft really integrated into the system.
It will be able to ramp up so it doesn't crash British right now and there's a lot of people.
Trying to play with it and it uses a lot of whatever it's available.
Hosting capabilities are.
But in general.
Yeah, I, probably would've given you a different answer two years ago, then I'm all right now.
All the automation that we're looking at.
Enhance is.
The cable at ease and makes the job's easier for our best and brightest people.
And it eliminates.
A lot of the otherwise mundane.
Projects or or activities that we also get paid for it so net net net.
Not everybody will love it will be embracing it as quickly as we possibly can but it is what do you think it's good for our.
Smartest people and therefore there'll be good for <unk>.
What the the work they do on behalf of our clients. So so I'm I'm looking forward to it and I'm looking forward to Microsoft.
Getting behind it and making it something that.
<unk> everybody's desktop.
Great Thanks for that [noise].
And the next question comes from the line of Jason Bassinet with City. Please go ahead.
I don't want to take away from.
The results you guys put up cause they're very good and I heard what you said about account wins and we can all see the numbers but.
You know your your competitors are also doing remarkably well recently.
And when I listen to the words you guys used to describe why there are all these tailwinds, whether its e-commerce or connected T V or digital transformation.
At least to my layman's hears it feels like those things have been going on you know as as sort of trends for the last five years and yet.
All the holding companies are putting up great numbers sort of post COVID-19 and so I'm still I feel like I'm missing the the thread in terms of what's really caused your growth and your peers goes to accelerate so much so.
If you were just gonna conveyed as to an institutional investor.
And you said you know if you buy omnicom's stock you are net long.
What you.
You're you're.
Just two or three things that we'd all understand exactly what's happening, it's causing clients to use your services. So much more than they were in the past.
Sure.
The.
Is the complexity.
Of the marketplace and the complexity of marketing itself.
Okay, the whole customer journey has changed.
I'll just change that.
A lot of things, which they didn't in fact exist.
In yeah.
The Internet marketing companies exhibited in 1997, when I first made my first investments in them.
But they weren't really protracted into social media.
The Instagram and other things until the period in which you're talking about.
So yeah.
So if I had to sum it up in two words and I can go deeper if you'd like.
It's <unk>.
Businesses requirements to transform themselves in a digital environment.
And the complexity that that brings.
And the reason I believe this sector is benefiting.
Is for the most part not everybody and I hope to be at the head of the pack.
But I'm happy that my competitors doing well as well we've changed our <unk>.
Product and in our approach to be responsive to lose client requirements caused by those.
Two broad categories.
Okay.
Okay. That's great. Thank you.
And our next question comes from the line of Craig humor with Huber Research partners. Please go ahead.
Oh, great. Thank you my first question, Sean and on pricing historically this industry might not have had great pricing power out on a like for like basis and I'm wondering if you could help us here. How we think about you think about pricing for this year do you have more pricey opponents higher inflation environment.
Should be yes.
Are we.
Speaking to our clients about that.
Yes.
Do.
Do they.
Understand.
That the best and brightest people that are servicing them.
Can demand more because of the inflationary periods that we're all living through yes.
I I think I tried too quickly.
Quickly breezed out of it as an earlier answer.
But we've had some very good success and going to clients and.
And getting increases.
In our pricing.
Not everything we wanted by any standard but.
The getting that movement and that recognition.
And clients, who themselves are facing difficult times.
And there really are more difficult times.
Ah really maybe not in a position to give us the level of increase that we weren't.
But we don't stop there even say well.
Guess, what in the past you've been able to fires and give us six months notice.
We want to extend our contract to be 36 month contract before you could possibly review it.
Hoping that you don't need to spend the 36 months either but.
In getting that in lieu of a price increase.
We're able to add stability to our revenue base.
So we are benefiting.
One's more miserable than another but.
And and the reason for that is because I think our product alignment is correct in terms of what the market needs are.
And I think our clients.
Respect the intelligence and the sophistication of the people that we have servicing them on their accounts.
My My second question join them for two dozen twenty-three what industry sectors that your most bullish about when you compare it to that 3% to 5% initial organic revenue growth outlook for this year said health care travel retail what would you point to please.
Well, the one that I complain too.
Confidence is health care.
I think they're increasingly new discoveries new products.
All the time and the health care area.
I'm confident that.
Everybody on the planet is gonna have to eat food.
And and drink beverages, so that sector of our business I'm comfortable with.
Our tech sector I.
I think we're gonna suffer get a little pain there.
And we plan to corner.
Cause of the payment those some of those companies are going through.
But.
They'll reinvent themselves very very quickly and I'm very happy to have them as clients, even if they're facing challenges.
New auto sector, I think two or two interesting things are going on.
And clients.
Have to continue to market in order to address this.
One is there hasn't been a lot of new product in the past three years because of supply chain problems, which have now been for the most part.
Solved by most major car manufacturers.
And the second thing which clients.
Have to continue to bring their brands and promote their brands and ordered B R.
Participants in this area.
Electric cars and and the requirements of the.
That to show progress in their product so.
You know travel I'm not gonna comment.
I can speak for the Red householders Nobody's shied away from it but.
I don't know that much about.
Anything else our clients are bullish.
But everybody.
Every C E O at that I speak to.
Truly believes in their products.
Believes in their future.
And is cautious and appropriately cautious.
About.
The financial conditions.
Yeah.
Central banks, and the fed and where.
Interest costs are gonna go.
So.
Hopefully that answers your question that's about the best I can do and.
That's very good thank you.
And with no further questions in queue I'll turn it back to her house for closing comments.
Thank you all for joining us on the call today. We appreciate you taking the time and and we'll talk to you again soon.
Thank you.
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