Omnicom revs up consulting and commerce offer as advertising drives Q1 growth
Omnicom’s first quarter results appear to buck the holding companies’ chase for diversified budgets, with its advertising and healthcare businesses fueling organic growth of 2.5%. Yet on a call with investors this morning (16 April), chief executive John Wren was keen to lay down a futureproofing strategy based outside of these practices.
Omnicom’s year-on-year net income fell from $264.1m to $263.2m in 2019, a drop of 0.3%. Worldwide revenues also decreased by 4.4%, which it partially attributed to negative effects of foreign exchange rates.
However overall organic growth was posted at 2.5% year-on-year, a figure in-line with its targets that also beat analyst expectations. It was led by its advertising and healthcare businesses, which grew by 5.1% and 6.8% respectively, while public relations slumped slightly by 0.5%.
Omnicom's Wren highlighted the streamlining of the holding co's media division
Both of Omnicom's CRM operations shrunk between Q1 2018 and Q1 2019: execution and support decreased 3.3% and consumer experience decreased 0.6%.
Wren cited the sale of outsourced sales support provider Marketstar, as well as the divestment of “a few other smaller businesses in our portfolio during the quarter”, to explain the dip of the former practice, adding the gains from these offloads were minimal.
Market growth was steady in every region excluding Latin America, where business dropped by 3% due to difficulties experienced primarily in Brazil. Omnicom saw its biggest success in the Middle East and Africa, which, as its smallest market, posted growth of 12.8%.
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Data, commerce, consulting
Advertising and media still account for the majority of Omnicom’s business, bringing in 55.5% of all worldwide revenue. However, echoing the sentiment of his earnings call for the financial year ending 2018, Wren laid out a futureproofing strategy less reliant on such budgets.
Omnicom has expanded its “C-suite consultative services” in order to compete with the likes of Accenture, Deloitte and Publicis Sapient. The company’s growth in this area has so far been organic and, as such, is rather more fragmented that other offers, comprising the likes of Batten, Daggerwing, Sparks & Honey and TLGG, and new additions Credera and Lev.
“As these practices develop, we expect to have more opportunities to offer our clients ‘tip of the spear’ solutions that tackle business problems, leading to incremental revenue sources and growth across a range of services,” said Wren.
When asked about Accenture's purchase of Droga5, he quipped: "I already have a lot of really good agencies". He also dismissed Publicis' recent purchase of Epsilon, dubbing the data business "a good company ... [that] doesn't have anything, from what I can observe, as unique or so proprietary in terms of what it does that, if necessary, is not replicated".
"If I or my team felt threatened in any way, we would look for the appropriate acquisitions to complete our offerings to our clients. I simply don’t feel that way right now."
Wren's Q1 focus appears to have been less on M&A and more on consolidating and revamping its internal offer. He highlighted the launch of Omni as its proprietary data and analytics platform, and the Omnicom Retail Group as a new key practice.
Wren explained the latter would bring together expertise of five of its agencies – The Integer Group, TracyLocke, Haygarth, TPN and The Marketing Arm – to increase clients’ conversion and transaction both online and offline.
Yet more inorganic growth looks to be on the horizon, with Wren confirming he'd rather see "more [M&A] than less" going forward.
"We’re not going to set an acquisition dollar target and then have our M&A group chase deals so we can meet that target," he caveated, "but the goal would be to be back in [an] acquisitions mode. We will continue to look at opportunistic things when they come up."
The CEO also noted the streamlining of Omnicom Media Group – namely, the absorption of trading desk Accuen, and search, social and performance shop Resolution Media into its three media agencies: Hearts & Science, OMD and PHD.
Resolution Media will continue to serve performance-only, non-network clients as a standalone agency, however.
“Today, with digital media spending at similar levels as TV, these services are no longer a specialty, they are at the core of how we work for our media clients,” Wren said.
“With this reorganization, we have simplified our structure by expanding the capabilities of our client teams. We expect these changes to increase our speed, agility and quality of service to clients.”
He concluded: “While we have undertaken numerous organizational changes, our philosophy – to support strong brands and cultures so they can be vital incubators for creativity and innovation as well as magnets for the best talent – has not changed. We believe our approach is a significant competitive advantage in retaining and hiring the best people and in serving our clients.
“While it is early in the year, we are on track for where we expect to be for the full year 2019."