Omnicom prepares for COVID-19 to have a ‘material’ effect on operations and financial position as it reports first quarter results
COVID-19 impacted Omnicom Group’s revenue in the back part of the first quarter, but the holding group is battening down the hatches for a rocky year as clients continue to cut costs and the business turns to redundancies and stand downs.
Omnicom Group Inc’s net income for the first quarter of 2020 dropped by 1.9% to US$258.1m, while worldwide revenue dipped to US$3.4bn, back 1.8%. The business said that it expects the revenue impacts of COVID-19 to worsen across the rest of the year, which “could adversely impact our ongoing results of operations and financial position and the effects could be material”.
“While we expect the pandemic to affect substantially all of our clients, certain industry sectors have been affected more immediately and more significantly than others, including travel, lodging and entertainment, energy and oil and gas, non-essential retail and automotive,” the company said in a statement.
“Clients in these industries have already acted to cut costs, including postponing or reducing marketing communication expenditures. While certain industries such as healthcare and pharmaceuticals, technology and telecommunications, financial services and consumer products have fared relatively well to date, conditions are volatile and economic uncertainty cuts across all clients, industries and geographies.
“Overall, while we have a diversified portfolio of service offerings, clients and geographies, demand for our services can be expected to decline as marketers reduce expenditures in the short-term due to the uncertain impact of the pandemic on the global economy. As a result of the impact on our business, each of our agencies is in the process of aligning their cost structures, including severance actions and furloughs to reduce the workforce, and tailoring their services and capabilities to changes in client demand.”
In the first quarter, organic growth was down 0.1% in advertising, -1.3% in CRM consumer experience, and -0.9% in CRM execution and support, but PR (+0.2%) and healthcare (+9.6%) experienced growth.
Earnings before interest, taxes and amortisation (EBITA) was down 2.1% to US$441m, and operating profit was back 2% to US$420.2m. The UK was the best-performing market, up 3.7%. Asia-Pacific grew 2%, the US 1.7%, and North America 0.6%. Europe (-2.3%), Latin America (-5%) and Middle East and Africa (-28.4%) all experienced declines.
In an effort to mitigate the impacts of COVID-19, Omnicom added that it has amended and extended its US$2.5bn credit facility to February 2025, and suspended its share repurchase program. In February, it issued US$600m 10-year 2.45% senior notes (a type of bond that must be repaid before other debts if a business declares bankruptcy), has begun redeeming the remaining US$600m of 4.45% senior notes early, that were originally due in August 2020, and this month issued an additional USD$600m in 10-year 4.2% senior notes.
Earlier this month, it completed a US$400m 364-day revolving credit facility, in addition to the existing USD$2.5bn revolving credit facility.
Omnicom’s agencies in Australia include Omnicom Media Group’s PHD and OMD, as well as creative outlets DDB and Clemenger BBDO.
Brittney Rigby was Mumbrella's deputy managing editor - news and analysis. She left Mumbrella in April 2021.
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