John Wren: Certainly, there’ll be easier comps. But as you suggest, I don’t think in our prior calls, we’ve been learning too much about the impact that technology has had whereas I think our competitors have had much greater hits, which probably means that they buy have much easier comps going forward. But yes, we expect an uplift from the base of technology clients that we have in the forecast as it rolls through the rest of the year.
Operator: And the next question comes from the line of Adam Berlin with UBS.
Adam Berlin: I’ll ask two questions, if I can? And the first one is, can you say a bit more about why advertising and media was so strong in the fourth quarter? Was it to do with account wins? Can you quantify how big the account wins were? And can you say something about how much was media and how much was created within that segment?
John Wren: Well, I’ll answer the second part of your question first. Media certainly was stronger in advertising, but we choose to treat it as one reporting entity when we put both of those numbers together because quite often, they’ve come together. More specific than that, I don’t think is a protective way to look at the business. Yes, there are a lot of strength in the fourth quarter in media. There are a great number of projects and spending that was conservatively held back and then released into the fourth quarter, and we benefited from it, as you can see in the numbers. And I would say that was through the West including Western Europe.
Adam Berlin: And can I ask one more question then about working capital. I know you exclude it from your free cash flow but it was still quite a large number, $460 million. Do you expect that to come down in 2024? Or can you say a little bit about why it’s still so high?
Philip Angelastro: Sure. For the year, certainly, the change in working capital was positive almost a $400 million improvement which we’re pretty satisfied with. I think relatively speaking, though the overall negative reflects the fact that the actions of the Fed and over time, global treasuries have obviously made it a more challenging area to manage. I think the fact that we cut the change in half where we cut the number in half in 2023 is really reflective of good performance all throughout the organization. It’s really a matter of 3 yards in a cloud of dust in terms of blocking and tackling to improve those numbers. We’re certainly going to strive to get the number back to neutral, if not positive as we go but that isn’t going to happen overnight.
I think as the economic environment changes and as the rates eventually come down, I think you’ll see some continued improvement. It’s certainly an area we’re very focused on and we’re not done in terms of improving our performance. But it has been more challenging in the last few years than in half.
Adam Berlin: Thank you very much.
Philip Angelastro: Sure.
Operator: And the next question comes from the line of Steven Cahall with Wells Fargo. Please go ahead.
Steven Cahall: Thanks, maybe to first just to expand on the question around advertising and media. So I think you talked about how creative has been lagging, and then you’ve had a lot of strength in media, and you’ve definitely showed off strong capability there and want a lot of business. John, I’m just wondering if there’s anything bigger to read about how the industry is changing and the acceleration in media with the slowdown in creative, do you think that’s a change in the way marketers just think about the future of marketing and marketing spend is much more about the delivery than the content? And if so, are there any other changes that you might think about to your business longer term, if that is, in fact the case. And then just in Q4, your organic growth was pretty similar to what you’ve guided to for 2024.
The EBIT margins were solid. They weren’t necessarily up year-on-year. I know there’s a lot of moving pieces then this year with Flywheel. But can you just talk about what’s holding those margins a little flattish, like the guidance that you gave? And is there anything that could drive more margin expansion in the future? Thank you.
John Wren: Sure. There’s a lot there. You bring up an interesting point, and I probably won’t do justice to it in my response. But creative is our IP at the end of the day. What you see in a reflection or your guess as to the impact on the way that the business has been organized and then reported. What you see is technology has probably had a greater impact on the traditional setup of an agency in terms of how we can utilize great ideas and through algorithms and through automation, deliver those ideas to the right venue to present them to reach customers. And so that has an impact. That in fact, is why we don’t separate the two because they feed off each other. But I think one of the things, that is always differentiated us is actually the quality of our creative products and the quality of our agencies and people that we’re able to attract and that’s not to be diminished because some is trying to do an analysis, which doesn’t — is not really reflective of what we’re trying to accomplish.
And so you have to — you do have to look at them jointly. And we fully expect that it’s going to continue to shift. But to our benefit, as we bring other technologies and benefits to the client because any time we can save $1 and prove that we’ve saved it effectively for a client, then my experience that the client expands their relationship with this. So I’m very confident about that. I would never want to lose that IP that created IP because of shift in the way that organizing. The second question?
Philip Angelastro: Yes, I’ll give one on margins and expectations. I think as we’ve said in the past, we certainly strive over time to make steady progress on margins and make improvements. Certainly, in our two of our largest expenses, salary and service costs and occupancy and another, we see future opportunities. Certainly, on the salary-related side, there’s still quite a few initiatives we have benefit from offshoring and automation. There are strong initiatives that we’re pushing, and we’ll continue to push in those areas. And we continue to go through a real estate rationalization and expect to benefit from that over time as well, and we continue to make some improvements there. I think, however, we talked a lot about AI on this call.
That will be part of what helps us be more efficient and generate some of these benefits. But at the same time, it requires investments that we’re going to continue to make in the business that, as we’ve talked about in the past, many of the investments we’ve made have run through the P&L, it’s the right thing to do to make sure that our platforms are ready to give us the sustainable growth that we’ve been able to achieve and expect to achieve in the future. So it’s a continual balance that we go through in terms of making those investments and generating the appropriate returns from a margin perspective and benefits for our shareholders ultimately as well. So I think that’s a balance that we continue to manage. We look at it every year. We look at it every day.
It’s both. So hopefully, that’s helpful.
Steven Cahall: Thank you.
Operator: The next question comes from the line of Michael Nathanson with MoffettNathanson. Please go ahead.
Michael Nathanson: Thanks. I have one for Duncan and John. Duncan, can you give us a sense of your client mix, you see Omnicom kind of you know their clients and their exposures. Can you talk a bit a bit of your biggest clients for verticals you serve? And then John, this is a big deal to you obviously. Anything you said about channel conflict, client conflict. When you look at Dunkin’s list in euros and perhaps either the ability to upsell your common list of clients or any kind of challenges? And then Phil, over the years, we’ve asked you about media and then third-party service costs. This quarter looks like you grew media or the media line very, very quickly organically. But your service costs, we’re actually pretty glad on a constant currency basis. Can you talk a bit about what’s happening on the ground on margin when you dig into that sector between organic and service costs? Thanks.
John Wren: Sure. Conflicts really are not. It’s been quite a while since it really has become a topic or an item that concerns us. Most clients are very sophisticated these days and they’re more interested in the teams of people that are servicing them on a consistent basis. And we — and I think you’d see this experience throughout the industry have been able to cope very comfortably with that because those people never meet, it’s only at the holding company level that they get consolidated. With respect to sectors, there will be challenges and all, and there will be benefits in some, and some will have low comps, and some will have more difficult comps. The one area that has never been strong or as strong maybe as it could be for Omnicom is in CPJ.
And I think that with changes that we made first to the Commerce Group in terms of leadership, and then with the addition of Flywheel and the expertise that it brings, Omnicom now has thousands of more people who are confident in addressing the needs of CPG type of cans. And I think we’ll be more competitive than we’ve been historically in that area as a result. So I’m very excited about that. We’re still doing this. I think maybe, Duncan, if we turn it over to you first, if you want to comment on — add some commentary on your side.
