Adrien de Saint Hilaire

Adrien de Saint Hilaire asked for more details on the increase in third-party costs in Q3, specifically if it was driven by faster growth in media or principal trading, and sought an update on the impact of tariffs and supply chain issues on marketing budgets, following previous discussions about potential relief.

Answer

CEO John Wren noted that while tariffs are part of the conversation, supply chain issues have a greater impact on marketing budgets, with companies adapting. He expressed optimism for Q4 project spending. CFO Philip Angelastro attributed the rise in third-party costs primarily to growth in media and execution and support disciplines, explaining that these variable costs typically grow with revenue and contribute to overall profit growth.

Adrien de Saint Hilaire from Bank of America inquired about the faster increase in third-party costs in Q3 compared to Q2, specifically whether it was driven by media growth or principal trading, and asked for an update on marketing budgets and client sentiment regarding tariffs and supply chain issues.

Answer

CEO John Wren noted that supply chain issues are more impactful than tariffs on marketing budgets, with automotive industry challenges improving. He observed 'green shoots' and positive client conversations for Q4 project spending. CFO Philip Angelastro clarified that media and execution & support were the primary drivers of increased third-party service costs, which typically grow with revenue, and that proprietary media is a relatively small proportion of overall media spend.

Adrien de Saint Hilaire of Bank of America inquired about the new business pipeline, the expected total for repositioning and acquisition costs for the year, and whether current costs were a pull-forward from IPG synergies.

Answer

Chairman & CEO John Wren stated that while some client decisions are slower, Omnicom is still invited to every major pitch and noted some unusual pitch activity during the summer. Executive VP & CFO Philip Angelastro confirmed the Q2 repositioning charges were not part of the $750M IPG synergy target and that no further charges are planned for Q3, though deal-closing charges are expected later.

Adrien de Saint Hilaire from Bank of America asked for comments on a media report about a potential WPP-Accenture partnership, Q3 trading updates, expectations for full-year average net debt, and whether the new 31% tax rate is sustainable.

Answer

CEO Mark Read dismissed the partnership report as not 'entirely accurate.' CFO Joanne Wilson stated that Q3 trading remains challenging and consistent with revised guidance. She declined to guide on working capital but affirmed a focus on reducing average net debt. She explained the 31% tax rate is a mechanical effect of lower profits and the future rate will be updated in February.

Adrien de Saint Hilaire from Bank of America asked for comments on a rumored partnership with Accenture, an update on Q3 trading, expectations for full-year average net debt, and whether the new 31% tax rate guidance is sustainable.

Answer

CEO Mark Read dismissed the rumor as speculation. CFO Joanne Wilson stated that while the Q3 environment remains challenging, there's nothing to change the full-year guidance. She declined to guide on working capital or average net debt but affirmed the focus on debt reduction. She also clarified the 31% tax rate is a mechanical result of lower profits and not necessarily the new sustainable rate.

Adrien de Saint Hilaire of Bank of America questioned if IPG would need to significantly increase headcount to support future growth, whether the business model can achieve better operational leverage, and how healthcare policy reforms might impact client spending.

Answer

CEO Philippe Krakowsky expressed confidence in navigating potential healthcare policy shifts due to IPG's deep expertise. He affirmed the belief that the business model has further margin improvement potential. CFO Ellen Johnson added that the recent cost reductions are structural and enduring due to process re-engineering and automation. She noted that while future growth will require adding staff, they will be "different heads," and the company has been able to eliminate open positions and not backfill all attrition.

Adrien de Saint Hilaire asked about the drivers behind the implied Q4 2024 revenue improvement and the potential size of the net new business headwind for 2025.

Answer

CEO Philippe Krakowsky explained that the business tone is improving as clients look past macro uncertainty. He noted a strong Q4 project pipeline and new, unannounced media wins are contributing to the optimistic outlook. Regarding 2025, he acknowledged that recent account losses will create headwinds but stated it was too early to quantify the exact impact.

Asked for elaboration on the 'negative repertoire mix' cited in the earnings release, questioning if it was due to more distribution contracts before the line was disconnected.

Answer

The analyst's connection was lost before the question could be fully asked or answered directly. However, the topic was later addressed in a response to another analyst, explaining the mix impact was from factors like the growth of lower-margin physical sales and the administrative-fee nature of certain publishing catalog deals.

Adrien de Saint Hilaire from Bank of America questioned if localized ad spending cuts had worsened during Q2, why H2 2023 margin guidance implies a level below H2 2019, and asked for confirmation on full-year CapEx and M&A spending plans.

Answer

Chairman & CEO Arthur Sadoun responded that the trend of localized cuts has not worsened and that the company's guidance is prudently built on the assumption of no macroeconomic improvement. CFO Michel-Alain Proch explained that the H2 margin comparison is affected by the recent adverse move in the USD/EUR exchange rate. He reconfirmed the full-year CapEx forecast of €230-€250 million and the M&A envelope of €500-€600 million, noting €170 million was spent in H1.

Adrien de Saint Hilaire of Bank of America asked about the potential for margin outperformance beyond the guided 17.5-18% range. He also inquired about the project pipeline for Publicis Sapient, specifically RFP volume, and requested details on the Sonepar business transformation contract and its split among partners.

Answer

CFO Michel-Alain Proch affirmed the 17.5-18% margin guidance, stating that while they could potentially exceed it, the current range is sustainable and allows for crucial investments in talent and technology. Chairman & CEO Arthur Sadoun described the Sapient pipeline as strong but noted the need for caution regarding potential client delays. He confirmed the Sonepar win was a fantastic partnership but declined to provide specific details on the contract split, citing client confidentiality.

Adrien de Saint Hilaire asked if the strong 2023 growth forecast in a soft economy implies potential for even better growth in a stronger future economy, and whether the company is seeing benefits from China's reopening.

Answer

Chairman & CEO Arthur Sadoun stated it was too early to speculate on future growth acceleration but expressed confidence in the company's ability to continue outperforming the market due to its differentiated model. Regarding China, he praised the local team for delivering strong growth in 2022 despite lockdowns, driven by a modern offering and new business wins, which he sees as very encouraging for the future.

Adrien de Saint Hilaire of Bank of America asked about the expected seasonality of adjusted EBITDA between the first and second halves of 2023.

Answer

CEO Jitse Groen explained that while GTV growth is skewed to year-end for mathematical reasons, EBITDA faces a headwind from wage inflation at the start of the year. This is expected to be offset by significant ongoing business improvements and efficiencies gained from consolidating platforms and systems.

Adrien de Saint Hilaire of Bank of America asked why Just Eat Takeaway.com has not cut its 2022 GTV growth guidance when most peers have, questioning if favorable currency movements were masking an underlying downgrade.

Answer

CEO Jitse Groen responded that the company had already lowered its guidance earlier in the year. He reiterated that current confidence is supported by tailwinds from rising ticket sizes due to inflation, the positive impact of the Amazon deal in the U.S., and easier year-over-year comparisons in the second half of the year.