No. 1 Omnicom

Analysis of Omnicom Activities in 2006

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Omnicom Group, the world's largest ad industry holding company, reported record revenue, net income and earnings per share in 2006. Omnicom continued the pace into 2007, reporting first-quarter revenue and net income growth greater than 10%.

Wall Street liked the results: On April 24, 2007, the day Omnicom announced first-quarter results, the stock reached an all-time high of $109.35. That surpassed the previous peak of $107.50 set on Dec. 17, 1999, near the height of the dot-com-infused advertising bubble. Omnicom in 2006 generated about 43% of revenue from traditional media advertising. The rest came from a range of marketing services. The New York-based company at year-end 2006 employed about 66,000 people, up 6.5% from a year earlier (62,000).


Omnicom in April 2006 named Charles (Chuck) Brymer president-CEO of one of its three global ad networks, DDB Worldwide, after the death of DDB Worldwide CEO Ken Kaess. Mr. Brymer had been chairman-CEO of Interbrand Group, an Omnicom branding business. At the same time, Omnicom gave DDB's chief creative officer, Bob Scarpelli, the added title of DDB Worldwide chairman, succeeding Keith Reinhard.

Omnicom in March 2007 opened a San Francisco ad agency, Cutwater, that absorbed a majority of clients and employees of the San Francisco office of Omnicom's TBWA/Chiat/Day. With the move, TBWA no longer had a presence in San Francisco. Cutwater was run by Exec Creative Director Chuck McBride (formerly exec creative dir-North America of TBWA, San Francisco) and President Brad Harrington (formerly co-president of WPP's Cole & Weber United, Seattle). Omnicom owned 100% of Cutwater.

Omnicom holdings include:

Three global advertising networks: BBDO Worldwide, DDB Worldwide and TBWA Worldwide, each of which offers various marketing services and specialty communications.

Local, regional and national U.S. ad agencies: Includes Arnell Group; Cutwater; Element 79; Goodby, Silverstein & Partners; GSD&M; Martin/Williams; Merkley & Partners; Roberts & Tarlow; Rodgers & Townsend; Zimmerman Advertising.

Global creative boutique: Majority stake in 180 Communications, Amsterdam and Los Angeles.

Media agencies, part of Omnicom Media Group: Two global networks, OMD and PHD; Prometheus Media Services; Fuse Sports & Entertainment Group (Optimum Entertainment, Optimum Sports, Full Circle Entertainment, Highway Entertainment); media specialist agencies (Davinci Selectwork, Icon International, Ketchum Directory Advertising, Novus Print Media, OMG Direct, Outdoor Media Group, Resolution Media, Singer Direct).

Customer relationship management: Promotion marketing and sales promotion (Alcone Marketing Group, TracyLocke); direct marketing ( Rapp Collins Worldwide, Targetbase); branding (Interbrand); interactive (, Organic).

Public relations/public affairs: networks Fleishman-Hillard, Ketchum and Porter Novelli; specialty shops including Brodeur Worldwide, Clark & Weinstock, Gavin Anderson & Co. and Cone.

Specialty communications: Healthcare agencies; recruitment agency Bernard Hodes Group; financial ad shop Doremus.


Omnicom's 2006 revenue increased 8.5% to $11.4 billion. Organic revenue, which factors out currency changes and acquisitions/divestitures, grew 7.6%.

Net income in 2006 rose 9.3% to $864 million. Diluted earnings per share jumped 14.4% to $4.99.

Omnicom's operating margin (operating income divided by revenue) increased to 13% in 2006 from 12.8% in 2005. Omnicom said in its 10-K annual-report filing in February 2007: "We expect that we will be able to maintain operating margins at 2006 levels and we will continue to pursue a strategy of optimizing our operating margins and maintaining a high level of investment in our people and our businesses."


New business: Omnicom in 2006 had a loss of $90 million in reported net new billings, reflecting about $3 billion in account wins and $3.1 billion in account losses, according to the tally of Bear, Stearns & Co. analyst Alexia Quadrani. It scored fourth among the six ad holding companies ranked by Bear Stearns.

Omnicom in 2006 had an adjusted net new billings gain of $106 million, taking fourth place, according to Bear Stearns; the investment firm's "adjusted" billings reduce media accounts to 25% of reported billings to more closely correlate with anticipated revenue. The adjusted net new billings translated to an expected annualized revenue gain of $13 million.

Bear Stearns aggregates account shifts reported in media, but it doesn't claim its new-business tally is all-inclusive, particularly in marketing services and outside the U.S. and U.K. Omnicom, for its part, said it had 2006 worldwide net new business of $4.2 billion to $4.3 billion. Commenting on 2006 net new business, CFO Randall Weisenburger in February 2007 said: "It was a very solid year."


Omnicom in 2006 generated 3.6% or $410 million in revenue from its largest client, DaimlerChrysler, which drew on work from more than 100 Omnicom agencies. Omnicom shops have worked with DaimlerChrysler units since 1926, when Chrysler hired ad agency Ross Roy (now folded into BBDO). After Daimler bought Chrysler Corp. in 1998, the Chrysler Group consolidated at Omnicom in 2000. In February 2007, DaimlerChrysler said it was reviewing strategic options for Chrysler Group, raising sale speculation; in April 2007, the parent said it was in talks with "potential partners" for Chrysler.

Beyond DaimlerChrysler, no client accounted for more than 2.9% of 2006 revenue. Omnicom's top 10 clients accounted for 18.3% of 2006 revenue. The top 100 clients contributed 46.2% of 2006 revenue; the top 100 clients on average used services from more than 40 Omnicom agencies.


In 2006, Omnicom pulled in 42.8% of revenue from traditional media advertising. The rest came from a mix of marketing services: Customer relationship management accounted for about 35.9%; specialty communications generated 11.2%; public relations represented 10.1%.

Omnicom in February 2007 revealed a few details about the specialty communications sector: Mr. Weisenburger said healthcare accounted for "I'd guess the cuff" of that sector's revenue, implying about $896 million worldwide in 2006. Recruitment advertising--Bernard Hodes--is "the bulk of the balance" of specialty communications, he said. CEO John Wren added that recruitment work represented about 2% of Omnicom total revenue, implying about $228 million worldwide in 2006. Recruitment is "the cyclical part of the specialty" communications sector, Mr. Wren said.

Traditional media advertising revenue in 2006 grew by 6.0%. CRM rose 13.0%; specialty communications edged up 3.7%; PR grew 10%. Omnicom in 2006 generated 54.4% of revenue from the U.S.; 31.1% from Europe (including 10.8% from the United Kingdom); and the rest from other regions.

U.S. revenue grew 7.8% in 2006 (down from 10% in 2005); Europe, excluding U.K., rose 7.3%; U.K. increased 11.6%; and other regions rose 10.9%. Non-U.S. revenue (factoring out currency changes) rose 7.9% in 2006, up from 3.5% in 2005.


Omnicom made 16 acquisitions in 2006 and made additional investments in some companies where it had an ownership stake. Amount paid in 2006: $152.8 million. Omnicom also paid $158.6 million in earn-outs for deals done in earlier years. So in total, Omnicom in 2006 paid $311.4 million in cash, stock and assumption of liabilities.


Mr. Wren told Ad Age in January 2007 that the company planned to build up operations in China and India in 2007, "the only two markets we don't have leadership parity with the best of my competitors."

Omnicom did several China deals in 2006. In June 2006, it partnered with Citic Group, a Chinese state-owned conglomerate with interests in construction, satellite communications, energy, manufacturing and financial industries as well as an advertising unit.

Omnicom said the first phase of that partnership would be formation of an ad agency, DDB Guoan Communications Beijing Co., created by the merger of DDB China and Beijing Guoan Advertising Corp. Beijing Guoan Advertising ranked among China's top 10 agencies in revenue. Omnicom ended up with a majority stake in DDB Guoan. When it teamed with Omnicom, Citic Guoan ended a long-standing alliance with WPP's Grey Worldwide.

Omnicom in April 2006 opened a corporate office in China (in Shanghai). Many Omnicom operating units already had a presence in China at that point, including ad agencies BBDO, DDB and TBWA/Tequila; media shop OMD; PR shops Bentley Communications, Fleishman-Hillard and Ketchum Newscan; branding outfit Interbrand; and interactive shop Tribal DDB. Omnicom in March 2006 bought a majority stake in Shanghai-based Unisono Fieldmarketing International, a field-marketing company.

Omnicom also made a move in India: In mid-2006, it struck a deal to buy a majority of Gotocustomer Services, New Delhi, a provider of field and retail marketing services to national and multinational clients across India from its eight offices in the country. Gotocustomer became part of Diversified Agency Services (DAS), which oversees Omnicom's marketing-services holdings.


Omnicom in November 2006 bought a majority stake in 180 Communications, a hot creative shop that shared the Adidas account with Omnicom's TBWA Worldwide. 180, based in Amsterdam, employed more than 100 people from more than 25 countries. 180's other clients included Amstel, Motorola, Omega Watches and Sony. Sony Electronics in the U.S. hired 180 to work with Omnicom's BBDO, New York, on its account; 180 opened a Los Angeles office in January 2007 to serve Sony.

In fourth quarter 2006, Omnicom also bought BBL-HFM, a full-service agency in The Hague, which merged with a TBWA Worldwide shop to create HFM Bovaco; Flamingo International, a market research company with offices in London, San Francisco and Singapore, and now a DAS agency; and Weapon 7, a digital interactive TV consulting agency operating in Europe and the U.K. and now part of Omnicom's Zulu Group in the U.K.

Omnicom in 2006 acquired in the third quarter: Go Productions, a meetings and trade-show firm based in Atlanta with offices in Los Angeles (now part of Radiate Group's auto group); Rodgers Townsend, a St. Louis full-service agency; and Colangelo Synergy Marketing, a sales promotion office with shops in Darien, Conn., and Chicago.

The arrival of internet-delivered video on the nation's TV sets was the object of a venture struck in September 2006 between Intel Corp. and Omnicom Media Group.

Intel was working on software and chip installation into TV sets to make them accessible for downloading video programming from the web. OMG was developing templates with Intel for ads that had interactive features and usage-measurement features typical of web ads.

In the second quarter, Omnicom added Entertainment Marketing Partners, Los Angeles and New York (now part of Ketchum PR); Harrison & Wolf, a Paris-based corporate communications agency (now part of TBWA's corporate communications group); and a majority stake in EVB, a San Francisco ad agency (now part of DAS).

In the first quarter, Omnicom bought Gplus Europe, a PR shop in Brussels and London; Kaleidoscope Marketing Group, a South Carolina youth marketing consultancy (now part of Radiate Group); and Singer Direct, an insertion media specialist based in Scarsdale, N.Y. (now part of Omnicom Media Group).

In 2006, Omnicom disposed of a U.S.-based healthcare business and several small businesses.

Omnicom in first quarter 2005 sold its 55% stake in SafirRosetti, an investigative and security firm run by Howard Safir, a former New York City police commissioner and a friend of Mr. Wren. SafirRosetti then was acquired in May 2006 for $15.3 million by GlobalOptions Group, another security firm. SafirRosetti in 2004 had a $2.4 million net loss on revenue of $9.4 million. In 2005, it made $255,140 on revenue of $11.9 million.

SafirRosetti had been a curious entry among Omnicom's holdings. GlobalOptions' explanation of SafirRosetti: "[SafirRosetti] help(s) clients solve problems that fall outside the scope of mainstream management resources by providing highly specialized and customized security services. We provide security assessments, executive protection, anti-terrorism training, threat analyses, fraud prevention techniques, special event security, protection from stalkers, private travel management and the design, implementation and management of total security systems."

GlobalOptions' description of SafirRosetti continued: "We have performed risk assessments of corporate headquarters, chemical weapon stockpiles, nuclear installations and reactors, factories, yachts, private aircraft, homes, transportation systems, government facilities, political conventions, sports stadiums and sporting events.... Representative risk management and security projects have included conducting threat and vulnerability assessments of Russian facilities containing nuclear materials and conducting site surveys and security assessments for a major corporation facing violent threats and attacks."
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