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Text: An archived version will be available when today's call concludes.
During the course of today's call, we will also discuss certain non-GAAP financial measures.
We will begin the call with an overview of our business from John, then Phil will review our financial results for the quarter.
I'll now hand the call over to John.
We're pleased to share our fourth quarter and full year performance.
We exceeded our expectations for the quarter and for the year.
Our organic growth for the fourth quarter was 9.5%, and was broad-based across geographies and disciplines.
The full year finished at 10.2% organic growth.
Our improved performance was underpinned by our precision marketing discipline, which is helping clients transform their business so they can engage directly with their consumers through digital platforms.
We also benefited from the continuing rebound in our experiential discipline as more in-person events resumed in Q4.
Our revenue performance flowed through to our operating profit and bottom line.
Our operating profit margin for the fourth quarter was 16.1%, resulting in full year margin of 15.4%.
Earnings per share for the quarter was $1.95, up 6% versus 2020.
For the full year, earnings per share increased 49%.
Finally, our cash flow and balance sheet remain very strong.
Overall, I'm very pleased with our financial performance for the quarter and year and optimistic about our prospects heading into 2022.
Looking forward, we're forecasting organic revenue growth of between 5% to 6% for the full year 2022, and we anticipate delivering the same strong margin that we delivered in 2021.
With the pace of change in the digital space accelerating, we've continued to evolve our existing capabilities and invest in new and innovative offerings to meet the needs of our clients and future prospects.
These efforts have allowed us to be extremely competitive in the marketplace by providing a suite of services and capabilities that position us to reimagine and strengthen our clients' businesses brands, services and products; seamlessly connect them with their consumers across the marketing journey by leveraging Omni, our insights and orchestration platform; transform their marketing and customer relationship technology platforms; and innovate in digital, e-commerce and new media channels.
One area where these investments are making a demonstrable impact is in our Omnicom Precision Marketing Group, which offers MarTech and digital transformation consulting, decision sciences, customer experience design and targeted customer marketing programs for our clients.
In November, we closed on the acquisition of BrightGen, a Salesforce Summit Partner that will extend OPMG Salesforce capabilities and reach in Europe.
The success of Omnicom's Precision Marketing offering is reflected by the group's wins with some of the world's largest brands such as Philips, Mercedes, Nike and Diageo and by its financial results.
The Precision Marketing discipline grew by 19% in 2021.
Much of the work conducted within Omnicom Precision marketing is supported by foundational AI decisioning layer and technology integrated with Omni, our open operating system that orchestrates better outcomes.
Omni is built for collaboration across the entire company, acting as a single source of data and process workflow from insights to execution.
It empowers our people and clients to make better and faster decisions, maximizing efficiency and ROI.
A key emphasis for us going forward is to continue to fill the demand for services across the marketing journey by offering more services to our existing clients and winning new business relationships.
Our objective in part is to increase the number of clients who consolidate more of their services with Omnicom.
These are significant growth opportunities for us where our suite of services, creativity and culture of collaboration, all supported by Omni give us a competitive advantage.
In addition to our integrated wins, our world-class talent and agencies had numerous recent new business wins within their specialties and across geographies.
Our success on our wins in 2021 has resulted in us expanding our services and continues to inform our priority investments and M&A strategies.
We are also increasing our investment in such areas as AI and automation, e-commerce, performance media, data and analytics, as well as in high-growth industry opportunities such as gaming and the metaverse.
We recently completed the acquisition of Propeller a digitally native engagement agency that specializes in healthcare, another area we expect will continue to see strong growth.
Propeller is a fast-growing omnichannel strategy, content and delivery agency that embraces and mobilizes data to deliver meaningful results for its clients.
At Omnicom today, our emphasis is around developing our future talent and continuing our disciplined succession planning.
With this in mind, we made important senior management changes this past quarter.
Daryl Simm moved into the newly created position of President and Chief Operating Officer of Omnicom.
After serving as CEO of Omnicom Media Group for more than two decades, Daryl will now work directly with me to oversee business operations across Omnicom.
Florian Adamski, who was previously CEO of OMD Worldwide, and help the agency earn back-to-back Adweek Global Media Agency of the Year titles in 2019 and 2020, has succeeded Daryl as the CEO of the Omnicom Media Group.
After more than two decades of overseeing the growth of our DAS network, Dale Adams, as planned, stepped down as Chairman at the end of 2021.
Michael Larson and John Doolittle have been promoted to CEO of DAS and CEO of the newly created Communications consultancy network, respectively, reporting to me.
Both of them have worked closely with Dale and have been a driving force within DAS for many years.
They are highly talented executives who are skilled at managing agencies in a range of disciplines.
With these leadership changes, I couldn't be more confident about the continued success of our group.
Our people are our greatest asset, and we are constantly looking to invest and create opportunities for them across the enterprise, especially during the time when the war for talent is fierce, attracting and retaining talent is a top priority.
We have made many changes.
We've also instituted new programs that provide greater career mobility across our agencies, allow for agile and flexible work arrangements, and expand our investments in technology, learning and development programs while maintaining competitive benefits and compensation programs.
We also want Omnicom to be a company that our people can be proud of and want to work for.
Over the years, we've been focused on the role we play in critical areas such as environmental, sustainability and diversity, equity and inclusion.
In 2021, we named new leadership and expanded our teams in these high-priority areas so that we can continue acting on our goals and implement new initiatives.
In fact, this past year, we are the only company in our industry named to Newsweek's list of America's most responsible companies.
We aim to achieve more in the new year so we can ensure Omnicom agencies are a destination of choice for top talent.
We're entering the new year in a very strong position with a sharp eye on our key strategic initiatives, which remain our talent, dedication to creativity and building our already strong capabilities in precision marketing and MarTech consulting, e-commerce, digital and performance media and predictive data-driven insights, all of which are fully supported by Omni.
You are the reason we delivered such strong results this quarter and for the full year.
You kept your focus and commitment to Omnicom's client and operations, even with the ongoing challenges of the pandemic.
Your efforts in these tough times are noticed and appreciated.
Our fourth quarter results continued the momentum of the third quarter and helped us finish the year in a strong position.
While the world isn't the same as it was pre-pandemic, we are in a stronger position to serve our clients in 2022 and beyond.
Let's begin with a brief look at our income statement on Slide 3.
Growth in revenues and operating profit flowed through to net income for both the quarter and the year.
Combined with the resumption of our share buyback program, we had 6% growth in diluted earnings per share.
Dividends grew 7.7% in 2021, and we're pleased to resume this growth after maintaining our dividend payments throughout the pandemic.
Our total revenue growth in the quarter was 2.6%, while our organic growth for the quarter was 9.5% or $358 million.
The impact of foreign exchange rates decreased our revenue slightly in the quarter by just 30 basis points.
However, if rates stay where they were at January 31, we estimate that the impact of foreign exchange rates will reduce our revenue by approximately 2% in both the first and second quarters of 2022.
The impact on revenue from our net acquisitions and dispositions decreased revenue by 6.6%.
This was consistent with our expectations and is primarily the result of disposition activity from Q2 of 2021.
We have also acquired some excellent businesses in key growth areas, which I will discuss later.
Based on transactions completed to date, we estimate the impact of acquisitions net of dispositions will reduce our revenue by approximately 9% in the first quarter and by approximately 5% in the second quarter of 2022, and we expect positive acquisition growth in the second half of 2022.
Slide 5 presents the changes in our total revenues by business discipline.
Advertising, our largest category, posted 7.4% organic growth in the quarter.
Both our media agencies and our creative agencies contributed nicely to this growth.
Precision Marketing grew 19.6% organically in the quarter and is now 8% of our total revenues.
As John discussed, the businesses in this discipline are doing exceptionally well and have a great pipeline for their work in digital and marketing transformation consulting services, e-commerce, marketing sciences and digital experience design.
Commerce and Brand Consulting was up 12.4%, with widespread strength across our larger agencies.
In Commerce, our agencies experienced strong growth, although off a reduced base.
In Brand Consulting, we're seeing benefits and good activity in the technology sector and from corporate branding aimed at reputation, ESG and DE&I.
Experiential's growth in excess of 50% benefited from a return of some in-person events throughout the fourth quarter before the Omicron variant took hold, and we expect continued growth in 2022, although likely choppy, as brands look to engage with consumers in person.
Execution and support was up 5.2%, with growth in the U.S. businesses exceeding the performance of our businesses in Europe, where our field marketing business was impacted by the new variant.
PR was up 4.4% and healthcare was up 4.5%.
Both of these disciplines reflected strong performance across their agencies.
It's worth remembering that they performed relatively well throughout the pandemic.
So we are pleased with the results.
Flipping to Slide 6, you can see that we grew organically in each of our regions and growth came from most of our disciplines within these geographies.
In the U.S., our 7.8% organic growth was slightly higher than last quarter, led by advertising and media, as well as precision marketing, where growth remains over 20%.
Also, results for our experiential business in the U.S. this quarter were quite strong, as I mentioned.
and the Asia Pacific region, with strong PR, media and commerce and consulting results in the U.K. and broad strength across the board in Asia.
It's worth mentioning the strong organic growth of 48% for the Middle East and Africa, our smallest region.
Revenue in Q4 of 2020 was down over 35%.
In Q4 2021, advertising and media performance was strong.
And this quarter's results were also positively impacted by experiential revenue related to the Dubai Expo, which was initially scheduled for 2020.
Looking at revenue by industry sector on Slide 7.
Relative to full year 2020, there was a two-point increase in our revenue mix from technology clients, offset by a 1 point reduction in the revenue mix from pharma and health.
Salary-related service costs, our largest category, increased by 11.1%.
As expected, these costs, which include freelance support increased along with our increase in revenue as did travel and entertainment costs, which aligns with the fact that our people are slowly going out in certain markets and meeting with clients in person.
The next line item, third-party service costs, were down 11.2%.
They decreased by approximately $220 million from dispositions and were offset by an increase of approximately $100 million from growth in our businesses.
Occupancy and other costs, which are less directly linked to changes in revenue, were up 4.2% year on year due to higher general office expenses as we return to the office, offset by lower rent and other occupancy costs as we continue to use our spaces more efficiently.
SG&A expenses were up 8.4% on a year-over-year basis due to an increase in marketing, professional fees and new business costs.
In total, our operating expense levels were up slightly, less than 3% from the fourth quarter 2020 to 2021.
We're comfortable with this growth because it is linked to a return to the pre-pandemic environment, as well as our continued revenue growth, new business opportunities and investments for future growth.
For the quarter, operating profit increased 1.3% and represented a 16.1% operating margin.
This is a slight margin decline from the fourth quarter of 2020 when expense levels were well below normal.
Our fourth quarter EBITDA change in margin performance was similar.
For the full year, operating profit was up 37.5% with a margin of 15.4%, and EBITDA was up 35.4% with a margin of 15.9%.
As we look forward, while we expect to continue to see a return of certain costs to more normalized levels, we also expect that they will be offset in part by reductions in certain discretionary and infrastructure costs resulting from new ways of working and efficiencies achieved during the pandemic.
As John mentioned earlier, for the full year 2022, we anticipate delivering the same strong reported operating profit margin of 15.4% that we delivered in 2021.
And as always, we will continue to focus on growing our operating profit dollars.
Let's now turn to our cash flow performance on Slide 10.
We define free cash flow as net cash provided by operating activities, excluding changes in working capital, which are generally positive for us on an annual basis.
Free cash flow of $1.8 billion, grew 5.4%.
We're pleased with the strength of this important metric.
Regarding our uses of cash, we used $592 million of cash to pay dividends to common shareholders and another $113 million for dividends to noncontrolling interest shareholders.
We maintained our dividend throughout the pandemic in 2020 and increased it by 7.7% in 2021 to a quarterly rate of $0.70 per share.
I'm going to discuss capital expenditures in two pieces.
Our normal capital expenditure levels were unchanged from 2020.
Additionally, in the fourth quarter of 2021, we had a very unique opportunity to purchase our primary office building in London for approximately $575 million.
Subsequent to the purchase during the fourth quarter of 2021, we issued GBP 325 million sterling notes due in 2033, with an attractive 2.25% coupon.
To give you some background, we have more than 5,000 people at work there for multiple agencies.
It's our largest office building globally in our second largest market.
We've been consolidating space in London for some time and have exited 31 buildings since 2015.
London is a key market for our future.
And this building is in the South Bank area west of London Bridge near to Tate Modern, culturally vibrant area of London key to attracting and retaining talent.
Financially, it's an attractive opportunity for our business.
And we will avoid expected market increases on our rent that didn't compare favorably to outright ownership.
The purchase of this building has not changed our capital allocation strategy and did not impact our credit rating.
Acquisitions picked up relative to 2020 at $202 million.
As we talked about last call, we are investing in the areas most important to our clients and therefore, to our future revenue growth.
Two acquisitions in the fourth quarter of 2021 are highlighted at the back of this deck.
Jump 450 Media, a performance media agency that is now part of Omnicom Media Group; and BrightGen, a digital business transformation specialist that is a significant implementation partner for the Salesforce marketing stack.
BrightGen is now part of our Precision Marketing Group.
And lastly, we ramped up our stock repurchases during the fourth quarter, bringing the year to $518 million.
As you know, our pre-pandemic annual range was $500 million to $600 million.
So we are solidly back on track with this important total return component for our shareholders.
Our historical capital allocation has been very consistent.
Using our free cash flow for dividends stock repurchases and acquisitions.
We don't expect this to change going forward.
Although we do see more opportunities for acquisitions similar to those we completed in 2021.
These tuck-in type acquisitions are efficient for us because the acquired agencies and their service offerings can contribute across our group to serve an embedded base of clients and to help win new ones.
Slide 11 shows our credit and liquidity.
Notwithstanding the sterling note I just mentioned, you can see that our other financing activities throughout the year lowered our outstanding debt from December 2020 to December 2021.
At year-end, our total leverage was 2.4 times.
In addition to the $5.3 billion of cash on the balance sheet at year-end, we also have a USD 2 billion commercial paper program backstopped by our $2.5 billion revolving credit facility.
We chose our strong return on invested capital of 33.4% for the fiscal year 2021 and 44.3% return on equity.
Both of these took notable steps up from 2020 and remain very healthy indicators of the strength of our business and its attractiveness to shareholders.

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q4 earnings per share $1.95.
q4 revenue rose 2.6 percent to $3.856 billion.

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