Omnicom took a $119 million real estate-related charge in the first quarter.
Omnicom Group CEO John Wren laid out the holding company’s real estate plan during the company's first-quarter earnings call today, including a requirement that its 70,000-plus employees return to the office at least three days a week.
The company decided to exit more than 1.6 million square feet of office space around the world during the first quarter of the year—in line with Omnicom's massive consolidation plans reported by Ad Age last week.
Wren said employees in other countries have already been coming into the office for a set number of days and that employees in Asia have been back five days a week. Most of Europe, he said, has been in the office at least four days a week.
“The great resignation is over,” Wren said. “You see it in the layoffs that the tech industry's doing and some other areas. So we believe that we'll be just fine. Naturally, there'll be individual cases where people won't want to come back and they'll seek other alternatives, but in the scheme of things it is not going to be significant.”
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Since 2018, Omnicom has reduced its office footprint by 35%, while its employee headcount increased by approximately 4,000, Wren said.
Omnicom will open satellite offices in suburban areas for employees who can’t frequently make it into an office in a major city. Wren gave as an example “satellite” offices in Long Island, New Jersey, and Connecticut for New York City office employees.
“We're trying every sensible thing to look out for the benefit and the welfare of our employees, and it's time for them to come back because we're a creative services company and we work better when we're together,” Wren said.
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The holding company took a first-quarter charge of $119.2 million for real estate repositioning costs.
“The charge is primarily related to the non-cash impairment of a portion of our operating lease, right of use assets, and the write-off of the network value of leasehold improvements at the affected locations,” said Chief Financial Officer Phil Angelastro said, adding that the holding company's “rent and occupancy expenses will be reduced in the future and substantially all of the charges will be paid out of the remaining lease terms over the next few years.”
The real estate decision will be a “benefit,” according to Angelastro, who claimed it will allow the holding company to close the year on the higher end of its full-year operating income margin guidance, estimated to be between 15% to 15.4%.
Wren also spoke about Omnicom's growing use of generative AI tools within the holding company, including a partnership with Microsoft to use ChatGPT within its own data tool Omni.
“We think for clients that want to participate in this, they'll add their data and we'll create new models of how we do things to identify consumers,” Wren said. “So we're putting it all together, and I think presently we have in excess of 20 projects going on, testing different things. I'd say a good five of them are directed at the back office and a balance of them are directed at the client side [and the] revenue side of the business. It has a lot of potential to positively impact the business.”
However, Wren said Omnicom's AI efforts are unlikely to see significant positive impact in 2023 and will require caution moving forward. He predicts workers will see their jobs enhanced by AI five years from now.
“You have to be very careful with this and maybe one of the Microsoft picked us is because we are very careful,” Wren said. “There's a lot of ethical questions and there's a lot of privacy questions. There's a lot that this incredibly powerful tool can do, but you have to draw guidelines and put the rules in place before you can actually use it efficiently.”
Omnicom’s organic revenue grew by 5.2% in the first quarter of 2023.
Year-over-year organic revenue growth by discipline was as follows: Advertising & Media grew by 5.1%; Precision Marketing grew 7%; Public Relations grew 5.8%; Healthcare grew 4.8%; Experiential grew 8.4%, Execution & Support grew 3.6%; and Commerce & Brand Consulting grew 3.3%.
Organic revenue growth by region: The U.S. rose 5.1%; Europe was up 5.4%, the U.K. grew 5.9%; Asia Pacific increased 2.8%; Latin America jumped12.2%; the Middle East and Africa were up 9.5% and the rest of North America grew 6.6%.
Omnicom was the first of the major agency holding companies to report first-quarter 2023 results.
