Q2 2019 Earnings Call
Good morning, and welcome to be entered public group second quarter 2019 conference call. All parties are in a listen only mode until the question and answer portion at that time, if you would like to ask a question you May Press Star. One. This conference is being recorded if you have any objections you may disconnect at this time.
I would now like to introduce Mister Jerry <unk> Senior Vice President Investor Relations for you may begin.
Good morning, Thank you for joining us.
Yep.
Our our slide presentation on our website.
Dot com.
This morning.
And Frank.
We will begin with prepared remarks to be followed by a q. in it.
We plan to conclude before market open at 930 am.
During this call we will refer to forward looking statements about our company.
These are subject to the uncertainties cautionary statement that is included in our earnings release.
And the slide presentation.
And further details.
10, Q. and our other filings with.
We will also referred to certain.
Measures.
We believe that these measures provide useful supplemental data that.
Substitute for GAAP measures .
Allow for greater transparency in the review of our financial performance.
And operational performance.
At this point it is my pleasure to turn things over to Michael rough.
Thank you Jerry and.
Morning, as we review our results for the second quarter.
First six months of 2019.
As usual I'll start out like covering the highlights of our performance.
Well then provide additional details.
Update on our agencies to be followed by our.
We used to report another quarter.
Financial performance.
Organic growth.
Three point.
Zero percent in the corridor.
That's on top of 5.6% a year ago.
And brings organic growth over the first six months of this year.
4.6%.
Organic growth.
International markets.
Can you to be strong at 6.5% in the corridor.
Driven by a performance across let Tam.
I've mentally Europe and the U.K.
In the U.S. organic growth was 0.6%.
Against 4.6% growth last year.
This result reflects growth in the corridor across many of our U.S. agencies and disciplines.
Followed by Headwins from the account activity toward the end of last year.
Which we have talked about on previous call.
These losses year over year resulted in the U.S. headwind, 3.8% in the corridor.
Well, we saw despite the headlines and industry leading comes from last year.
Along with our when rate this year.
Demonstrates that our business remain solid.
In our integrated agency networks or I A.N. segments.
Global organic growth was 3.2% in the second quarter.
Led by Mediabrands, and F.C.B. health, along with contributions from my <unk>.
Our G.A. Mullen low and huge.
R.C.M.G. segment grew 1.9% organically.
Paste by another advance in public relations.
With notably strong performance by Weber, Shandwick, and by Octagon and future breath.
One client sectors globally, we saw a strong growth across health care.
Financial services, Industrials consumer goods tech and telecom and retail.
The total growth of our net revenue was 9.1% in the second quarter and was 11% in the first half.
That includes organic growth.
Acquisitions, and dispositions as well as the impact of the year over year currency changes.
But then that we continue to be pleased with the growth of axiom.
Which remains on track with our expectations and continues to be creative to growth in March.
Turning to <unk> and the operating income.
Second quarter it'd be top was 285.5 million.
An increase of 12.2% from last year second quarter.
Operating income was $264.2 million.
If it out margin as a percent of net revenue in the quarter increase 30 basis points to 13.4%.
From last year's he bit out margin.
For the first six months are adjusted EBITDA margin increased 140 basis points from a year ago.
Second quarter diluted earnings per share was 43 cents and was 46 cents as adjusted which compares to 44 cents a year ago.
Looking at the quarter in the first half our performance means that the air is off to a solid start.
Our client centric integrated offerings continued to drive highly competitive global growth.
And the quality of our talent continues to strengthen our offerings.
This is further reflected in very high levels of recognition accorded our people and our agencies. Once again this year and industry awards, such as the Pan festival of creativity and and other key industry rankings.
Turning to our outlook, you'll recall that we came into the year with financial targets, a 2% to 3% organic growth and 40 to 50 basis points of margin expansion.
At mid mid year, we're confident.
At our performance today and the current tone of business habits on track to deliver at the high end of that range.
And that is inclusive of headwinds.
In addition, we continue to be comfortable with our target for a bit of a margin expansion of 40 to 50 basis points over the last years, 13.5%.
As always will update our outlook as the year progresses.
At this point, it's my pleasure to turn things over to Frank for additional detail on our performance and I'll return with an update and highlights of our business Frank.
Thank you Michael in the morning.
As a reminder of referring to a slide presentation that accompanies our web cast.
On slide too you'll see a summary by results.
Second quarter net revenue growth was 9.1%.
Organic growth was 3% with the U.S. being 0.6% international 6.5%.
Q to eat up to 85 million, which compares with 254.4 million a year ago and increase of 12.2%.
Or the quarter adjusted diluted earnings per share was 46 cents.
The adjustments exclude the amortization of acquired intangibles.
And exclude not operating losses due disposition of certain small nonstrategic agencies.
He also adjust for the benefit of certain tax title settlements in the quarter.
Turning slide see slide three you'll see or piano for the border.
<unk> Oh cover revenue when operating expenses in detail in the slides that <unk>.
Here, it's worth, noting small restructuring charge 2.1 million to fine tune the expense of the actions we took in the first quarter.
Although operating income or net interest expense continues to be higher year over year.
During the financing we added in late September last year due to do to actually.
Turning to two two in first half net revenue one slide four.
Net revenue in the quarter was 2.13 billion.
Compared to Q to 18, the impact of the change in exchange rates was a negative 2.4%.
With the U.S. dollar stronger against every functional international currency.
And acquisitions investors edit, 8.5%, which includes the impact of axiom.
As well as smaller acquisitions less surface positions.
Resulting organic revenue increase was 3%.
At the bottom the slide we break our operating segments.
As you can see our I A.N. segment grew 3.2% organically.
Underneath that result.
Was growth in media led by I.P.G. Mediabrands in our global creatively, but integrated offerings I'd actually be Mccann worldgroup and melon low.
And our digital specialists agencies are G.N.U.H.
Total growth at I.N. was 10.8%.
Which reflects acquisitions, including axiom disposition and a drag drag them crunchy changes.
At R.C.M.G. segment.
Organic growth was 1.9 per cent of the quarter.
Driven by another quarter of strong growth Weber shandwick, along with Octagon in sports and entertainment marketing and Futurebrand.
The impact of revenue headwinds from accounts lost in Q4 18 was felt in both segments.
Moving on to slide five revenue by region.
In the U.S. second quarter organic growth of net revenue was 0.6%.
We continue to see solid growth former global integrated offerings.
From original standpoint. This was also where we have begun to see the impact of the revenue headwinds from a crouch last last year.
Namely F.C.A. media.
Army and V.W. creative.
It's worth noting.
A total U.S. growth was 14.2%.
Do the impact of acquisition dispositions, which include actually.
In our international markets, we had another strong quarter with organic growth of 6.5%.
In the U.K. organic growth was 4.7% a very solid increase on top of double digit growth in Q2 18.
We had terrific contributions from both R.I.N.C.M.G. segments.
I live by Mediabrands, Mccann and Weber Shandwick.
In Continental Europe organic growth was also strong at 9.2%.
On top of 11.7% of two 218.
This was highlighted by very strong growth in some of our largest national markets.
Namely, Germany, Italy, and Spain.
And Asiapac net organic revenue decreased 0.3% of two two.
Among our largest markets, we'd strong growth in India and Japan.
That was upset by soft results in China and Australia.
I damn grew 25.1% organically into too.
We had strong organic growth across the region led by Brazil, Mexico, Argentina and Columbia.
Organic growth in the region was 24.5% in the first half of the year.
In our other markets group organic growth was 44.8% led by very strong growth in Canada.
Moving on to slide six an operating expenses, which were again well controlled and a quarter.
Compared to net revenue growth of 9.1% or net operating expenses increased only 8.7% as adjusted for the amortization of acquired intangibles.
A ratio of total salaries annoyed expense to revenue was 65% improvement of 140 basis points.
Improve it reflects disappeared discipline in the or organic growth of expenses and the benefit from a consolidation of axiom.
[noise] underneath that the ratio based payroll and benefits to net revenue decreased to 54.9% of the quarter and improvement of 90 basis points.
You also so solid operating leverage on temporary labor in our expense for severance and a quarter.
Well they expense a performance based employee incentive compensation as a percentage of revenue was flat with a year ago with 3.2%.
[noise] at quarter end total headcount was approximately 54200.
An increase of seven <unk>, 7.1% from year ago with most of the increase due to the addition of actually.
Our office and other direct expenses was 18.2% of second quarter net revenue.
Compared with 17.1% a year ago.
Within office in other direct.
We Labrador expenses for occupancy by 10 basis points from a year ago.
That was more than offset by the expense profile actually which is a creative to our margins overall, well consolidating relatively more investment in data and technology.
R.S.G.N.A. expense was 80 points 80 basis points of two two net revenue.
Which reflects lower professional fees in general expenses a corporate.
Our expense, where depreciation increase due to the consolidation of actually this year.
As was the case with our amortization expense, which was 21.3 million and a quarter.
You're all set of restructuring charge of 2.1 million a quarter, which represents a small expense adjustment to the actions taken in this year's first quarter.
[noise] on slide seven we present detailing adjustments to reported results in a quarter in order to provide better transparency and a picture of comparable performance.
This begins in the left hand side with a reporter results and steps through to even taught.
And are adjusted diluted D.P.S.
Amortization expense required intangibles is 21.3 million, resulting in either of 285.5 million.
Hello operating expense, we'd have lost and a quarter of 6.1 million.
And other expense related to the disposition of a few small nonstrategic businesses.
A reporter results also include a benefit of 13.9 million from the settlement of certain tax positions in a quarter, which we have just four as well.
At the foot of a slide you can see the after tax impact per diluted share of each of these adjustments.
They need to three cents per share the difference between report any P.S. at 43 cents, an adjusted a 46.
I'm slide eight we show similar adjustments to the first six months, which bridge to be adjusted earnings 57 cents per diluted share.
On slide nine we turned a cash flow of the second quarter.
Cash from operations was 293 million compared with 172 million a year ago.
Within that working capital generated 553 million compare to use of 63 million into 218.
Messing activities used 47 million for cap X. and a quarter.
Our financial activities use 207, 8 million, including 100 million toward the repayment of our term note and 91 million for our common stock dividends.
Or a net decrease in cash for the quarter was 16 million.
Slide 10 is the current portion of our balance sheet.
We ended the quarter 614 million of cash and equivalents.
Light 11 depicts the maturity of our outstanding debt with total debt at quarter end of 3.8 billion.
And diversified term attorneys going forward.
In summary, and slide 12.
First half growth and margin expansion have as well positioned at mid year to deliver on our financial targets.
Our teams continue to execute very well.
Our balance she continues to be a strong and meaningful source of value creation.
All of which has us well positioned.
With that I'll turn it back over to Michael.
[noise]. Thank you Frank.
Our results reflect the strong corridor.
Organic revenue growth despite the headwinds faced in the U.S. is an encouraging sign that our clients remain in an investment mode.
When it comes to their engagements with us.
I'll performance is also a reflection of the strength of our offerings are people and a differentiated strategy.
Specific to the U.S., we're well positioned to both resume market share gains and leverage a growing economy in our largest market.
We are net new business positive year to date.
Both internationally and in the U.S.
As such we've been able to offset significant domestic headwins and once we cycle through those losses, we expect to see returns a solid U.S. growth rates.
I continued strength is due to a strategic position.
That differentiates I.P.G.
First.
Our open architecture model is is the most client centric approach in the market.
It integrates marketing channels across creative media.
Public relations and data management.
In a model that continues to resonate with clients.
When architecture is a solution that consultants cannot deliver.
And one our peer said has been trying to emulate.
We're seeing it and work with major clients in health care.
Financial services and other sectors.
In addition, we include environmental.
Social and governance issues as value creators.
That means we consistently take public positions unimportant social issues.
We feel doing so is in line with our values of transparency ethics.
Inclusion and community involvement.
It makes us a company people can believe it.
With values that are backed by actions.
Doing so makes us a company clients want to do business with and people want to work for.
Our hallmarks include having embedded integrated digital capabilities.
As foundational to our operations.
A step we took many years ago.
Having strong agency brands.
Joined by a collaborative culture.
And seeing transparent transparency as a core value.
Thanks to this differentiated go to market strategy.
I.P.G. received a host of recognition and accolades related to wear affect them. This our creativity and our powerful agency brands during the quarter.
For the third year in a row.
P.G. was named the most creatively effective holding company at the North American F.B. Awards.
This award recognize all forms of marketing that contribute to a brand success.
And I P.G. had 15 agencies among the top winners across all marketing disciplines.
At the Cannes Festival of creativity, we had a particularly impressive performance.
I.P.G. agencies took home 11.
Of the festivals highest honor the Grand Prix.
This is more than all other global holding companies and consultants combined.
Graham pretty one by our agencies wearing categories.
Including brand experience.
Industry craft health and wellness.
Creative data innovation mobile and others.
These Graham priests were won by a variety of our agencies across many clients.
Again, showcasing the breath and strength of her agency brands.
In addition, our agencies one more gold Lions the festivals next highest honor.
Than any other holding company.
Notably in terms of awards per dollar of revenue.
Hi, P.G. topped the rankings among holding companies at the festival.
While there we hosted our ninth annual women's breakfast.
Partnering with the United Nations, we attracted a standing room only crowd.
And features top marketers from Adobe Levis Strauss Mars, Microsoft in you to leave it to examine advertising influence and impact on societal inequalities.
As we noted on these calls the future of our industry rests on the ability to combine transformative data capabilities with creativity.
I.P.G.'s performance throughout the year.
Coupled with adding axiom to our existing tools and expertise.
Enables us to provide clients with the industry's most forward looking and creative marketing solutions.
<unk> continued to believe in the power of the idea.
And look to us as the as the most valued partner to use creativity to drive business results.
We've been able to perform at this level.
Thanks to our investment in vibrant.
And differentiated agency brands.
In our integrated agency network or I, I, I A.N. reporting segments, which now includes axiom as well as a rather global networks.
Mediabrands again led growth in the quarter.
Posting a very strong performance.
U.M. was a watered its first ever Grand Prix for five B.
Document Terry.
Created specifically for Johnson and Johnson that chronicles the work done by nurses during the 19 eighties in one of the country's first H.I.V. hospital wards.
This marked the first time that immediate agency won the Grand Prix in the entertainment category.
In addition, U.M. kicked off the third quarter by winning the Mattels business across Europe , the Middle East and Africa and Asia <unk>.
They should've picked up a number of new business wins, including high growth tick tock in the U.S.
And an eight pack carnival and Groupons APEC and the me immediate count.
The agency also took home a number of top honors at Cannes.
Including sharing a Grand Prix with F.C.B., Canada.
F.C.B. posted very strong performance.
Especially in its healthcare operations.
Area 23, part of F.C.B. health, one a grand Prix this year for a highly innovative connected wellness device.
The New York Office, one three Gram freeze as well.
Recently, the network name, a new C.E.O. of Canada, and New York as well as a new President in New York.
<unk> so it continued growth in the quarter.
Driven by increases with existing clients.
On a new business front, they add and A.D.T. among others.
Addition, mccann continued to see very high levels of industry recognition.
Following their Rafi index recognition is the most creatively affected network in the world, but the second year in a row.
The network continued its momentum by being named network or the year at Cannes.
Mccan Health was also named Health care network of the year and Mccann Health, China named Healthcare agency of the year.
Well in low group had a strong quarter on several fronts.
The network has a number of new business wins.
Including media have adding Fox sports and Fox Entertainment at the end of the first quarter.
And more recently the home automation company <unk>.
The media arm also promoted a leading digital innovative T.U.S. president.
And added a number of senior leaders all as a result of new business growth.
You'll note or three global creative networks Mccann.
F.C.B. and Marlon low.
Continue to perform well.
Which demonstrates the value of our strategy to invest in our brains.
And the embedded digital services that are a whole market over offerings.
As noted axiom is also doing very well.
All of the strategic reasons to bring axiom into our company have only accelerated since the acquisition.
Giving us an unrivalled industry position in data management capability.
This allows us to help marketers get the best out of all their data assets.
Driving better and more efficient one to one connections with consumers at scale.
We are pleased with how integration is progressing.
Performance is in line with our expectations.
And results continue to be creative to I.P.G.
We see opportunity bring new innovative products and services to market.
As well as the upside of continuing to grow their existing data management business.
This quarter axiom continued expanding its global data offerings.
Most recently in Japan, Australia, Spain, and Canada.
The company also expanded its relationship with a major ordeal distributor in the U.S. with respect to managing its customer data.
And ended a new multi year engagement with a financial technology and marketing clients looking to expand audience measurement and reporting capabilities.
We continue to be impressed with the team and business.
Axiom has a rich and promising pipeline of opportunities.
Brooklyn base huge partner with Amazon during the quarter to create the Earth Challenge 2020 initiative.
Together with their thing network. They design Tech solutions to help citizens solved key environmental challenges.
Facing humanity in the 21st century.
Also in the corridor Pantone selected in the agency.
To handle global.
Earn first campaigns and the Toronto office, one the Sinai health business.
I like I said, our g., eight and a quarter, including growth with their existing clients.
It's a partnership between the agency ventures studio with kinship.
The newly launched innovation on Mars Petcare.
Together they created the innovation exchanges startup of Academy and mentored eight purpose led.
Female founded companies from Pakistan, Kenya, Brazil, Uganda, and the U.S.
And the new business from our G.A. was recent so recently selected.
By game stop to redesign their culture cultural gaming experience.
U.S. integrating independent agencies continue to round out our portfolio.
They deliver the full suite, a marketing services to their clients and can also combined with the best of the I.P. do operating on our collaborative open architecture solution.
Ilyce with this group within this group come from the marketing agency.
Which continues to expand its culture department.
And recently welcomed its first ever talent engagement and inclusion specialist and onboard a new clients Carmax and Buffalo <unk> Wild wings.
At C.M.G., we're also seeing positive developments.
As you saw last week, I, P.G. announce new leadership at C.M.G. and Weber Shandwick.
Promoting from within our ranks.
This leadership team has worked together to keep wherever sham work at the forefront of contemporary brand building during a transformative era of marketing and communications.
We're pleased to have them move into these new roles.
As we've previously she called out wherever Sham working Golan <unk> are among the most highly awarded P.R. agencies in the business.
Weber Shandwick received the number of accolades this quarter.
The agency was the most awarded at the 2019, North America Saber Awards and the agency recently name C.E.O. receive global professional of the year at the P.R. week.
Global Awards shortly after she was named agency professional of the year at the P.R. week U.S. Awards last quarter.
With her added C.E.O. title I.P.G. has one of the highest ranking women leaders into P.R. space appoint we'd take particular pride in.
Poland has all had an exciting corridor.
P.R. week recently named the agency Global agency the year.
On a new business front Golden had a number of wins, including <unk>.
A.I.A. and in Hong Kong.
And I T. service management company <unk> mobility.
In total we are happy that through the first half of the year.
We continue to perform at the top end of the industry.
It shows that our investment in people.
And in a modern data fueled offering is succeeding.
And that our focus on a client centric open architecture model.
Is the right formula.
We are pleased with the results and we continue to feel confident in a long term plans and prospects.
As always we remain committed to strong financials.
Significant reduction in debt over the next few years.
As well as continuing to grow our dividend.
We also expect to return to share repurchases after a period of time.
Turning to our outlook, we're confident that our performance to date.
As a soundtrack to deliver growth at the high end of a 2% to 3% organic growth range.
Position, we continue to be comfortable with our target for adjusted EBITDA margin expansion of 40 to 50 basis points over last year's 13.5%.
We view our current performance.
In long term strategy as significant factors that will continue to enhance shareholder value.
Now, let's open it up.
The call to your question.
Thank you.
[noise]. Thank you.
<unk>.
Yeah.
Whitening airline is open from J.P. Morgan.
Thank you so much [noise] microphone.
However on the U.S. isn't that you mentioned.
How about a 3.8% <unk>.
Oh, how about trends.
Yeah, we get worse look like a better or something you can oh, seven I run right.
I don't have multiple friends earlier yeah.
Corny.
Yeah. Thank you will like the.
Well as I indicated would net new business positive through the corridor through the first half on both U.S. in worldwide.
Unfortunately, the headwinds get a little worse in the second half of the year and frankly runs a little bit into the first quarter of next year.
But but what's important to note here is that despite these headwins.
When we say, we're we're comfortable with our 2% to 3% organic growth that's net of the headwinds. So if you if you.
You're I go if we if it wasn't for the losses, we would continue to have extremely high organic growth. Unfortunately, we have those losses, but the fact that we're overcoming those those losses with net new business wins is indicative of the strength of our our offerings and the frankly, the economic tone that's out there.
[laughter] the follow up I you can <unk> you know a lot of your peers, you know you're kind of Europe , especially.
Germany was an area that you highlight in English.
I'm not a proponent I can't keep it. So many times you think that's mostly sharing things going on grounds in the market.
Okay.
Right, Yeah, well frankly, it's reflective of some new business was wins, notably Mccann and it's <unk>.
In June in Germany in Continental Europe , So that's reflected again.
The size of our businesses in those markets are 8% to 9%.
So the winds in law.
Thank you very much.
Thank you.
Thank you. Our next question comes from 10 Nolan <unk>. Your line is open.
Oh, Thanks, one other geographic region I'd like to ask about is China, you're not the first to mention the China was negative in the in the court I Wonder if you could elaborate a bit on.
Why that is I know, it's not been a strong staring for some time, but.
Let us give us a sense of what's going on there and then another compared and a comparison in terms of sector. You <unk> you you highlight of consumer goods as being a strong sector for <unk> amongst many other sectors pretty broad based growth I guess.
Again pairs of years have talked about attrition and declines and fees in an ad spending.
It's come down to the work you do does it come down to the client that you have I wonder if you could help us understand why you're talking about good consumer growth and others are not x.
Yeah, I told the above.
Again, you know consumer goods is 80% of our business. So there again the notion of we had good client winds and consumer goods with respect to the markets and those environs, we had a little bit of cutback in some of our consumer goods businesses, but it was overtaken by the growth of our new business when so that accounts for the strength.
Consumer goods I said this before what what we're seeing is is we're not raising a flag and saying all consumer goods are back again, I think the entire industry is going to face.
Challenges as the consumer <unk>, particularly the package goods.
Continue to focus on margin and and and cutbacks with respect to our largest C.P.G. clients. We believe we've seen the leveling off.
That's been and our goal is to grab a more brands if you will from those companies.
And and if you couple that with the winds that we have in those markets a that reflects the strength that we have in consumer goods I might add that's that's that growth is good in both the U.S. and worldwide.
Given where our new business wins.
Pull out.
I think there's no question in China that we're starting to see the impact of of the economy there.
The good news for us that the losses in China are being lost said by growth in India, Japan and Singapore.
But we don't see a big recovery in China on the Horizon again, it's not our largest market with their to service.
Nationals.
We continued to invest in China in terms of our people and our brands.
But I believe we don't see a big turnaround in that environment anytime soon.
Okay can I ask a quick follow up on that.
It's a response again, thanks for the explanation there.
Michael I just wonder.
<unk> what is it that you're doing that might be a little different from other <unk>. You mentioned your open architecture, a couple of times in your marks or something with the with the Daddy you can provide with axiom, but maybe it's not consumer goods question, just and you know what are you doing that helping you do better than your peers.
Well I've said this before I other than that we're just better than they are.
I'll take the liberty of saying that.
Our our open architecture is is really a a key and I you know when we you know I've attended a number of the Ah top the tops, particularly in Europe .
And I'm sitting in a room and you know we have F.C. me, we have Mccann, we have Weber shandwick, we have actually we have the R.G.A. and you know all sitting at a table servicing an existing client that that's a pretty powerful group to having a room.
And and and when I sit in a room and I look at the the leadership of our clients and they say look you know. This is this is the new <unk> go to market strategy of I.P.G.
You're entitled to the Best I.P.G. has to offer you see it coming to light in the room, you probably don't even know which agencies that people who are sitting in this room or from it's a total collaborative client centric offering that that the also purpose is to to help you move your needle and and all the old silo issues that are present in our industry, our our problem not yours.
And and it resonates with clients and mean and in fact.
One of our biggest clients actually colds their model open architecture, which I got a kick out of you know of course, I didn't complain to them using our terminology, but it's the way it's the wave of the future and you put axiom in that group.
You have a very powerful offering in terms of giving clients in one place.
<unk> they need to focus on targeting the right consumer with great creative.
With with a C.R.M. capabilities with with the expertise in particular in this case health care.
Which we have a a you know the best in the business in terms of Ah Ah those offerings. So I I firmly believe we we launched open architecture you know early in the in the stages of our our new management team.
And it really resonates in the marketplace.
And and I think that's the right way to protect your brands because they they look to our brands.
As those are the people that are working on their engagement, but they include I.P.G. as a brand and and it's up to us to make sure that our the collaboration of all our agencies are working the way they should and I'll tell you something else when it doesn't go well.
You know I I get the email.
And says by the way, we're having some problems here can you make sure you put the teams together to make sure they respond and that's the way, it's supposed to work and and and and it really resonates well with our clients.
Oh, great. Thanks, Thank you.
Thank you our next question comes from.
Then swinburn airline is open.
Thank you good morning, two questions one on margins one on a axiom Michael you'd have very strong first half in terms of margin expansion and I'm sure you don't want to called the second half or the full your conservative but just wondering if you could talk about the margin outlook for the year, because you're certainly pacing nicely ahead of the 40 to 50 I know you've taken some restructuring activities you've got the account headwins, but anything else you'd want to call out on back half margin performance, realizing that up to the fourth quarter as a wild card and then second an axiom yeah. There there continues to be the sort of discussion in the market of sort of rent versus own on data and I'm. Just wondering if you think.
That by buying axiom, you've made a decision to own or if that's sort of a mischaracterization of the strategy and any early examples of you talked about it being a creative to I.P.G. I know financially it is but in terms of the strategic focus of the company and that new business any early.
Even anecdotal data points you'd like to throw at us about how that business is helping would be great.
Thank you I too great questions been let me focus on <unk> I I think it's a mischaracterization of of why we bought axiom okay.
<unk>, we continue to say and if you listen to my prepared remarks axiom, it's core competency as data management first party data management.
And and and that's not a question of buying or renting.
That's a strong core business that axiom has and and and and you see the new business wins, an axiom of relates to the first party data management.
So that's where that we're seeing the girls we haven't yet.
Introduced a new products that we talked about in terms of the synergy opportunities on revenue.
Using mediabrands, coupled with the axiom capabilities. So I I think when people talk about us buying axiom, and whether there's conflicts or rent or buy the totally misunderstanding. The the the core competency of axiom.
When you say when you think of privacy when you think a first party data management.
And they'd cleansing and organizing data.
To reach the right consumer that's what axiom does they have an a third of their business is using 22000 sources of maybe $2 billion 2 billion individuals and third party data management.
Ah it's like our clients don't have to use that they have choices in terms of who do the work with with respect to that it just so happens a number of them use that.
But that's a third of the business the core competency of axiom is being able to target and claims and really work with the data that clients have within their own.
Company and.
The opportunity to the tune of these there are significant and what's great about those companies are the long standing relationship we have with those clients.
You know we are we're part of their business.
So the retention on those businesses the ability to to grow with our clients. It really is the key to this and and their recognize you know the number you know the the top rated from forester.
In terms of the quality and transparency and safety of their offerings I mean, that's a compelling story. So it's not that we bought data and then <unk>.
And the data that you know the core competencies a much bigger than that.
And that's where we see the opportunities in terms of margin you know when you have those kind of headwinds yeah. You know a number of those clients carried some some good margins in with it. So you know at this point I'm not going to comment on on any upside on the margin. Our goal is the 40 to 50 basis points. We believe we can achieve that and and that's what and then frankly if you. If you if we achieve that when we achieve that I think it's another example of how we continue to focus both on top line.
And cost containment and and and that's that's what our goals are and and if you look at the history of our performance over the last 20 quarters I think you've <unk>, you've seen a pretty impressive organic growth in margin expansion, which is what we say we are going to accomplish.
Makes sense. Thank you thank you but.
Thank you.
Salmon a C.M.L. your line is open.
Yeah. Good morning, everyone. Michael could I just returned back to the guidance. You. You is you know did before we don't want to get too bogged down in the losses, which we you know we're well well known before this and just if we can return basically to the commentary about being more comfortable at the higher end of your organic revenue growth gardens.
Maybe just.
What leads you to that sort of confidence I know, there's always a number of variables that can be in their <unk> current client spending more net new business account record back doors been you know nicely closed and we're moving along through the year and you've got more cushion on losses are there <unk>, maybe it's macro where there are one or two things in there that give you that confidence to get towards the that's how 'bout commentary there about being towards the higher end of it and then you know just odd axiom I know that working with media brands has been sort of the immediate focus out of the box and sounds like that continues to be the focus but.
I know, we're not quite to the one year anniversary, yet, but any hints on sort of where you can see those capabilities flowing too you know most effectively beyond mediabrands within the holding company.
<unk>.
Yeah, Let me you know, we don't make up the numbers.
Oh, [laughter] I always tell the team we I I don't couldn't stripes. So, let's let's let's work up from the bottom up we we just got through with most of our of operating reviews, and we really have our unions come in and present from a bottoms up we we we see where the opportunities are we see where the agency of record fees are coming from where they see their pipeline.
So this number is a number that's developed based on our reviews with each of our business units and each of the C.E.O.'s is a business unit sit and talk about the tone of the business.
And frankly, we we we go over the the up and the good the bad the ugly.
Of of their pipelines in their existing clients, including the health of their clients and when we look at the health of their clients we look at.
How much of open architecture are they really utilizing because if the more you you have an open architecture collaborative base. The sticky other clients are right. So that's how we we do a health test. So when you when you put all that together, we do a forecast by agency, we do and overlay from corporate and that's where we get the number and and and and you know I know in in the past in in in June by the half year, we've upped our guidance Ah considerably in the past couple of years.
Frankly, I was telling them hitting the team that in a in a way we upped our guidance by saying we're in the high end of the range, because that's a real number and and and and the AD and said one of the questions before.
The rest of the year of the headwinds get a little more difficult.
So in order to overcome the more difficult Headwins, we actually have you know additional clients spend I, let's not lose sight of the fact that you know our existing client base is the key source of our growth.
So the health of our businesses, how we're using all the resources within I.P.G. to bring to bear with respect to those clients.
So all of that goes into the mix and then we just make up the numbers.
[laughter], Oh, but that's where it comes from an X.M. you you're you're you're correct. I mean, we said that the first way the first wave.
Integration with I.P.G. was going to be on Mediabrands, and that's what we've been focusing on.
Ah but.
In our business plan.
We indicated either the <unk> latter part of this year and certainly next year, we're going to be bringing new new products to bear utilizing for example, cadre on an axiom and all the data.
Capabilities that we have within mediabrands as well as axiom with respect to new products. We've already started introducing axiom to all of our creative capabilities and all of our agencies, both with respect to their own data analytics capabilities and how can they can leverage.
Axiom with respect to their own capabilities and more importantly.
How they can introduce axiom to their existing clients and how axiom candidly can introduce I.P.G. assets to their existing clients. So we're in the process well. The one thing I said for this year is we didn't want to rush out and and force everything on everybody. Because you know I know a lot of comments are out there that the most difficult thing about these transactions are the ability to integrate.
And it was imperative our commitment to our board was that we were going to integrate these businesses on a smooth.
Basis without breaking into an asset that we paid significant dollars for but we very much view it as as the future and transformations transformative acid within I.P.G.. So we didn't want to rush into it we're very happy with the integration, we're not having any problems with respect integration.
And I think frankly next year, it's going to be pretty exciting.
To see the stuff that's going to come out of this.
That's very helpful. Thanks, Michael Thank you my pleasure.
Thank you Adrian <unk> Bank of America. Your line is open.
Yes, good morning, everyone and thank you very much for for taking the questions I've got three of them. Please so first of all Michael I'm under the impression that the back to for countless is is a bigger than we expected and then Mrs. Despite the the U.S. army being still I'm still being handled by by my count. So I can just explain what what we've missed.
Secondly back to the the marching question can you give us a bit more details on what would what would be margins in the first off excluding the first time contribution effects from and then thirdly a bit of a bigger question. There are a number of companies. Mcdonald's. This morning is another one where the C. and my title is is being.
Changed just wondering how this is impacting your your day to day operations and kind of relationship with clients. Thank you very much.
Okay. The three questions. Let me take your margin question, we don't breakout business units and and and give out mortgages on that so when we give you a number or margin 40 to 50 basis points, it's inclusive of all of our businesses.
And that's how we manage our business. So I I know your question, but we we you know we're not we just don't disclose that information.
You didn't miss anything on the losses a weighting.
We first of all there was another client in there that you didn't mention was a F.C.A. media.
Which frankly was a bigger one of the three.
And and again when we started the year, we started the year and we put out as a guidance 2% to 3%.
That number reflect.
We knew we had these losses going into the year. So when we forecast the timing of these lawyers in the magnitude of those losses.
It's already reflected in the 2% to 3%. So yeah, maybe some analysts may have missed that number we didn't.
You know so far it's exactly where we thought it was going to be and it's it.
And by the way Mccain is no longer do business for for the Army. So that's why we're saying in the second half of the year that number gets a little bit harder.
But the good news is as as as the one of the other questions were we hope the back doors close right now and now we just see opportunities in our in our in our pipeline.
The question of the C. a mole <unk>. It's it's you know it's.
It's kind of interesting businesses go in waves in terms of centralized versus local that's why if you look at our global networks 10, F.T.V. moan low.
The distribution the capabilities on a global basis are are very relevant to what global clients are looking for because if they're going to be using a less centralized basis, you need local prices in the markets that they they they Wanna competed and we have to be in a position to offer.
The talent to help navigate through the various local markets.
So that's what you get when you get you come to an I.P.G. and that is the ability.
To reach all the markets when local markets are important.
And and you know and so far we haven't seen any any any big impact yet on on the changes of of the structures of from centralized to decentralize, but candidly it's it it it it paste it plays to our strengths when they do that 'cause she's now you really need a third party arbiter to help them navigate.
Wheezes immediate starting a business the local customs of the business and focusing on a centralized business plan and help our clients move the needle. So I think the changes their clients are seeing are focusing on the efficiency that they need in their local markets.
And that's frankly.
What what I.P.G. can offer that many of our competitors are not you know the consultants is someone that don't that don't have that kind of capability.
Particularly from a creative point of view what is created for example in Latin America is different than with creative in in in Europe , and you have to have that kind of capability and expertise that we we we've through our global networks.
Offer.
Thank you very much if I could just trying to sneak in one quick follow up do you can it's been a very strong area for Oh agencies and are they just corner and in in recent years.
How sustainable is this given the the <unk> and she in the end devoted to the t. in in politics.
Yeah. It's a it's a good question, we haven't yet seen a big impact it maybe because the financial services in the U.K. or not quite Oh, you know overweighted for us.
And so we're seeing a P.R. was seeing media, we're seeing creative capabilities.
Continue to be strong in U.K. So.
But you know you know all bets are off depending on how the new leadership handles his Brexit and and what impact it has but so far we have not seen it.
And again.
Ah, it's 9% of our business. So on the good side, we're doing very well.
On the hinge on the downside is it's 9% of our business. So.
I I.
Yeah.
<unk>, it's all baked into our numbers.
Okay. Thank you very much indeed.
My pleasure.
Thank you David choice of Evercore. Your line is open.
Thank you from where you sit at axiom, how do you see targeted advertising developing from here.
Are there are too many disparate platforms, where do you see the strategies and technologies, perhaps aligning well enough to accelerate.
Advertising.
<unk> going forward in with that view.
When I guess, if you could clarify in some form that.
Advertising drive incremental spending and does this open up opportunity work with smaller marketers like.
Yeah. Good luck I think targeted marketing is the whole purpose of of the home acquisition of axiom think of the power instead of just buying audiences.
We can buy specific consumers and their likes and dislikes in in order to be able to do that you have to have the capability of the insights and through first party data management is how you do that.
You know by the way, let me just comment that someone is a indicated that we're selling that first party data.
That first party data is first party data to our clients. What we're talking about is helping clients who have that first party data maximize the efficiency of that data.
And and and and use potential other resources to enhance those capabilities. So that's what we're doing.
And and yes, I think clients are are are amenable to watch putting forth a value proposition that shows how we can target specific individuals.
And and and particularly on the digital side of the business, which is why you're seeing a continuation of digital spend.
To reach those consumers. So I I use that all is an opportunity for us because of the axiom capabilities, but also because we have the creative capabilities.
To create that messaging that's relevant to that consumer.
And putting the two together is is a pretty powerful voice.
So I see I see that as as growing and I see it continuing and I think it also it adds to the value of our proposition.
And working with our clients and frankly.
That's one of the key reasons, we bought accent.
And from the technology and platform perspective, as it's still.
There are too many players at this point as it too confusing for marketers or things starting to a line.
Well you know I always say confusion as good for us because if clients if clients are confusing me someone to figure it out and that's what we do.
You know we <unk>.
Our our strength is in our ability to work with different technologies.
Alright, and cleanse it and put them altogether.
That's exactly what clients are looking for you know the the better mousetrap out there and and it is confusing.
And we have expertise that helps clients to solve that so it plays right into our strength. That's why I think you know the notion of putting data management, you know Ah creativity digital P.R., all together in a room focusing on what clients needs.
That's that's the Holy Grail of our business.
And and we built I.P.G. based on that premise creativity talent.
Tools.
<unk>, helping our clients move the needle and and and.
Where we sit right now there isn't offering out there that we don't have a best in class capabilities.
And frankly I you know I believe that's why we will continue to outperform because we you know we put together the best Pal is in the business with the best tools and that's what clients are looking for.
Great. Thank you.
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