Omnicom wary of 'wounded competitors' but delivers 2.6% organic growth

Investors reassured by steady results following Publicis shock.

Omnicom wary of 'wounded competitors' but delivers 2.6% organic growth

Omnicom chief executive John Wren has told analysts that the holding company’s "wounded competitors" have made the agency business more competitive over the past six months.

Wren made the reference when pressed to explain why Omnicom had produced organic growth of 2.6% in the course of 2018 and why he was forecasting a similar performance in 2019. 

"When you’re running a company, you don’t mind it when your competitors are weak," he said. "You really don’t like it when your competitors are wounded, because they tend to do things that they wouldn’t do if they were simply weak. It’s been a rather competitive environment the last six months or so." 

It is not clear which rivals Wren specifically had in mind, but WPP and more recently Publicis Groupe have been struggling to achieve growth. 

Another factor, according to Wren, is wider change in what services clients want – something that spurred Omnicom to sell a number of agencies, including Sellbytel, that it decided were unlikely to deliver long-term growth.

"The industry itself has been going though some changes in terms of the acceleration of digital and how that changes traditional forms of media. Some of the portfolio companies that we’ve had that have always contributed EBIT [earnings before interest and taxes], especially in the areas of CRM execution like field marketing – companies like Amazon and online delivery [specialists] have eliminated the need for the same type of activity to happen on a retail level that’s happened in the past," Wren said. "The last two years I’d say have been the years of transition."

Wren and chief financial officer Phil Angelastro added that this sort of review is ongoing. "We’re looking over our companies and those that we don’t think will contribute to our growth as we go forward [in the long term], we’re considering disposals," Wren added.

Overall annual revenues in 2018 rose just 0.1% to $15.29bn (£11.89bn), although the figure would have been $15.44bn if Omnicom had not changed its accounting standard at the beginning of the financial year to change the way it recognises revenue.

UK annual revenues reached $1.46bn (£1.13bn), with organic growth of 0.7%. 

Overall annual net income rose 22% on 2017 to $1.33bn, although the 2017 figure was depressed by the impact of changes to tax laws in the US. Operating profits totalled $2.13bn, up from $2.08bn in 2017. 

Wren also talked of investment in individual agency brands and further acquisitions, and his company’s results did not produce the depth of share price reaction that those of Publicis Groupe did last week. 

Publicis shares crashed 12% after it revealed US FMCG clients had cut their spending on traditional advertising by €150m (£132m) more than expected, with a knock-on impact on Omnicom and WPP. 

In contrast, Omnicom reported fourth-quarter organic growth of 3.2%, with both its US and advertising segments experiencing growth. Its share price opened down around 1% in early trading in the US this morning. 

One dampener on the shares was Angelastro’s warning that the strengthening dollar would continue to restrict the company’s growth going into the first quarter of this year.

Angelastro also noted that Omnicom’s global ad agencies "continued to experience a mixed performance" in 2018. 

Whereas WPP resorted to merging J Walter Thompson and Wunderman, and Y&R and VML last year, Wren defended Omnicom’s conservatism around its agency line-up. 

"It wasn’t about collapsing our agencies into one, but rather investing in our agency brands, connecting them through our practice groups, global client leaders and platforms like Omni, which allowed us to leverage our scale in an agile, fluid and diverse way," he said. 

"We know our clients are looking for greater simplicity from their partners as they are demanding award-winning creativity alongside deep expertise in technology, data and commerce in a single organisation."

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