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Item 7. Management’s Discussion and Analysis

2024-02-07 compared with 2023-02-08 · 363 added, 411 removed, 345 unchanged (69% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in tables in millions, except per share amounts.)

EXECUTIVE SUMMARY

Risks and Uncertainties

Current global economic challenges, including the impact of the war in Ukraine, the lingering effects of the COVID-19 pandemic, high and sustained inflation, rising interest rates, and supply chain disruptions could cause economic uncertainty and volatility.

Global economic challenges, including geopolitical events, international hostilities, acts of terrorism, public health crises, high and sustained inflation in countries that comprise our major markets, high interest rates, and labor and supply chain issues could cause economic uncertainty and volatility.

The impact of these issues on our business will vary by geographic market and discipline.

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In response to reductions in revenue, we can take actions to align our cost structure with changes in client demand and manage our working capital.

However, there can be no assurance as to the effectiveness of our efforts to mitigate any impact of the current and future adverse economic conditions, reductions in client revenue, changes in client creditworthiness and other developments.

Impact of the War in Ukraine

Historically, we conducted operations in Russia and Ukraine through local agencies in which we held a majority stake.

During the first quarter of 2022, the war in Ukraine required us to suspend our business operations in Ukraine.

The war resulted in the imposition of sanctions by the United States, the United Kingdom, and the European Union, that affected the cross-border operations of businesses operating in Russia.

In addition, Russian regulators imposed currency restrictions and regulations.

All of these actions created uncertainty regarding our ability to recover our investment in our operations in Russia, as well as our ability to exercise control over the operations.

Therefore, the ability to continue operations in Russia was uncertain.

As a result, we disposed of all of our businesses in Russia.

Accordingly, in the first quarter of 2022, we recorded pretax charges of $113.4 million, which primarily consisted of the net investment in our Russian businesses, and included charges related to the suspension of operations in Ukraine.

Lingering Effects of the COVID-19 Pandemic

The COVID-19 pandemic adversely affected global economic activity.

Beginning in March 2020 and continuing through the first quarter of 2021, our business was impacted by reductions in client spending due to the COVID-19 pandemic.

While mixed by business and geography, the spending reductions impacted all our businesses and markets.

Globally, the most impacted businesses were our Experiential discipline, especially in our event marketing businesses, and our Execution & Support discipline, primarily in field marketing.

Most markets began to improve in April 2021.

there can be no assurance as to the effectiveness of our efforts to mitigate any impact of the current and future adverse economic conditions, reductions in client revenue, changes in client creditworthiness and other developments.

We are a strategic holding company providing advertising, marketing and corporate communications services to many of the largest global companies.

Our portfolio of companies includes our global networks, BBDO, DDB, TBWA, Omnicom Media Group, the DAS Group of Companies, and the Communications Consultancy Network.

All of our global networks integrate their service offerings with the Omnicom branded practice areas, including the Omnicom Health Group, the Omnicom Precision Marketing Group, the Omnicom Commerce Group, the Omnicom Advertising Collective, the Omnicom Public Relations Group, and the Omnicom Brand Consulting Group, as well as our Experiential businesses and Execution & Support businesses, which includes the Omnicom Specialty Marketing Group.

All our global networks integrate their service offerings with the Omnicom branded practice areas, including Omnicom Health Group, Omnicom Precision Marketing Group, Omnicom Commerce Group, Omnicom Advertising Collective, Omnicom Public Relations Group, and Omnicom Brand Consulting Group, as well as our Experiential businesses and Execution & Support businesses, which includes Omnicom Specialty Marketing Group.

As described in Note 5 to the consolidated financial statements, on January 2, 2024, we acquired Flywheel Digital, the digital commerce business of Ascential plc, for a net cash purchase price of approximately $845 million.

Flywheel Digital provides services in e-commerce operations, media execution, and market intelligence.

These services are complemented by a technology platform, which provides near real-time insights to clients.

We expect Flywheel Digital to be a separate practice area within Omnicom, and we expect to integrate their services across our Advertising & Media, Precision Marketing and Commerce & Branding disciplines.

On a global, pan-regional, and local basis, our networks, practice areas, and agencies provide a comprehensive range of services in the following fundamental disciplines:

Advertising & Media, Precision Marketing, Commerce & Brand Consulting, Experiential, Execution & Support, Public Relations and Healthcare.

Advertising & Media, Precision Marketing, Commerce & Branding, Experiential, Execution & Support, Public Relations, and Healthcare.

Advertising & Media includes creative services across digital and traditional media, strategic media planning and buying, performance media, and data analytics services.

Precision Marketing includes digital and direct marketing, digital transformation consulting and data and analytics.

Commerce & Brand Consulting services include brand and product consulting, strategy and research, retail marketing and ecommerce marketing.

Commerce & Branding services include brand and product consulting, strategy and research, retail, and e-commerce.

Experiential marketing services include live and digital events and experience design and execution.

Execution & Support includes field marketing, sales support, digital and physical merchandising, point-of-sale and product placement, as well as other specialized marketing and custom communications services.

Execution & Support includes field marketing, digital and physical merchandising, point-of-sale, product placement, as well as other specialized marketing and custom communications services.

Public Relations services include corporate communications, crisis management, public affairs, and media and media relations services.

Healthcare includes corporate communications and advertising and media services to global healthcare and pharmaceutical companies.

Our geographic markets include the Americas, which includes North America and Latin America, Europe, the Middle East and Africa (EMEA), and Asia-Pacific.

Our business model was built and continues to evolve around our clients.

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Our fundamental business principle is that our clients’ specific marketing requirements are the central focus of how we structure our service offerings and allocate our resources.

This client-centric business model requires that multiple agencies within Omnicom

collaborate in formal and informal virtual client networks utilizing our key client matrix organization structure.

This client-centric business model requires that multiple agencies within Omnicom collaborate in formal and informal virtual client networks utilizing our key client matrix organization structure.

This collaboration allows us to cut across our internal organizational structures to execute our clients’ marketing requirements in a consistent and comprehensive manner.

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In addition, we pursue selective acquisitions of complementary companies with strong entrepreneurial management teams that currently serve or could serve our existing clients.

We believe generative AI will have a significant effect on how we provide services to our clients and how we enhance the productivity of our people.

As with any new technology, we are working closely with our clients and technology partners to take advantage of the benefits of AI while being mindful of its limitations, risks, and privacy concerns.

We are committed to responsible AI practices and collaboration to harness AI's potential, while evaluating related risks, such as ethical considerations, public perception and reputational concerns, intellectual property protection, regulatory compliance, privacy and data security concerns and our ability to effectively adopt this new emerging technology.

The rapidly developing nature of AI technology makes it difficult to assess the full impact on our business at this time.

As a leading global advertising, marketing and corporate communications company, we operate in all major markets and have a large client base.

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Although our revenue is generally balanced between the United States and international markets and we have a large and diverse client base, we are not immune to general economic downturns.

Global economic conditions have a direct impact on our business and financial performance.

Adverse global economic conditions pose a risk that our clients may reduce, postpone or cancel spending on advertising, marketing and corporate communications services, which would reduce the demand for our services.

Revenue is typically lower in the first and third quarters a nd higher i n the second and fourth quarters, reflecting client spending patterns during the year and additional project work that usually occurs in the fourth quarter.

Certain global events targeted by major marketers for advertising expenditures, such as the FIFA World Cup and the Olympics, and certain national events, such as the U.S.

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Typically, these events do not have a significant impact on our revenue in any period.

Global economic conditions have a direct impact on our business and financial performance.

Adverse global or regional economic conditions pose a risk that our clients may reduce, postpone or cancel spending on advertising, marketing and corporate communications services, which would reduce the demand for our services.

Given our size and breadth, we manage our business by monitoring several financial indicators.

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cost of services, selling, general and administrative expenses, or SG&A, and depreciation and amortization.

Results of Operations

Revenue in 2022 decreased slightly to $14,289.1 million compared to $14,289.4 million in 2021.

Organic growth increased revenue $1,346.3 million, or 9.4%.

Financial Performance

Worldwide revenue in 2023 increased to $14,692.2 million compared to $14,289.1 million in 2022.

Worldwide organic growth increased revenue $584.5 million, or 4.1%.

Changes in foreign exchange rates reduced revenue $28.3 million, or 0.2%, and acquisition revenue, net of disposition revenue, reduced revenue $153.1 million, or 1.1%.

The reduction in acquisition revenue, net of disposition revenue, reflects dispositions in the Advertising & Media discipline in the second quarter of 2021 and the disposition of our businesses in Russia in the first quarter of 2022.

The change in revenue across our principal regional markets were:

North America increased $146.3 million, Europe decreased $209.1 million, Asia-Pacific decreased $49.5 million and Latin America increased $32.9 million.

In North America, organic revenue increased across all our disciplines, especially in our Advertising & Media, Precision Marketing and Public Relations disciplines, and was substantially offset by a reduction in acquisition revenue, net of disposition revenue, primarily due to the disposition in the Advertising & Media discipline in the second quarter of 2021.

In Europe, organic revenue increased in substantially all countries and in all disciplines, especially our Advertising & Media discipline, which was led by our media business, our Precision Marketing and Public Relations disciplines, and our Experiential discipline, as it continues to recover from the impact of the pandemic.

The increase in organic revenue was offset by the weakening of substantially all foreign currencies against the U.S.

Dollar, especially the British Pound and the Euro, as well as the disposition of our businesses in Russia in the first quarter of 2022.

In Latin America, organic revenue increased in most countries in the region, especially Brazil and Colombia.

The increase in organic revenue was partially offset by negative performance in Mexico and the weakening of most currencies in the region against the U.S.

In Asia-Pacific, organic revenue increased in most disciplines, especially our Advertising & Media discipline, which was led by our media business, and in most of our major markets in the region, particularly Australia, India, Japan, Korea and Malaysia.

The increase in organic revenue was offset by the weakening of all currencies in the region against the U.S.

Dollar and negative performance in our Experiential discipline, primarily caused by prolonged COVID-19 lockdowns in China.

The changes in revenue in 2022, compared to 2021, in our fundamental disciplines were:

Advertising & Media decreased $534.6 million, Precision Marketing increased $223.1 million, Commerce and Brand Consulting increased $47.7 million, Experiential increased $99.6 million, Execution & Support decreased $46.6 million, Public Relations increased $154.1 million, and Healthcare increased $56.4 million.

We measure cost of services in two distinct categories:

salary and service costs and occupancy and other costs.

As a service business, salary and service costs make up the significant portion of our operating expenses and substantially all these costs comprise the essential components directly linked to the delivery of our services.

Salary and service costs include employee compensation and benefits, freelance labor and third-party service costs, which include third-party supplier costs when we act as principal in providing services to our clients and client-related travel costs.

Occupancy and other costs consist of the indirect costs related to the delivery of our services, including office rent and other occupancy costs, equipment rent, technology costs, general office expenses and other expenses.

Adverse and beneficial fluctuations in foreign currencies from period to period impact our

results of operations and financial position when we translate our financial statements from local foreign currencies to the U.S.

However, substantially all of our foreign operations transact business in their local currency mitigating the impact of changes in foreign currency exchange rates on our operating margin percentage.

Operating expenses in 2022 increased $114.3 million, or 0.9%, to $12,205.8 million year-over-year.

Operating expenses for 2022 reflect charges arising from the effects of the war in Ukraine of $113.4 million.

Operating expenses in 2021 were favorably impacted by the $50.5 million gain recorded in connection with the disposition in the Advertising & Media discipline.

The weakening of most foreign currencies, especially the British Pound and Euro, against the U.S.

Dollar reduced operating expenses for 2022 as compared to the prior year, which was in line with the percentage reduction from changes in foreign currencies on revenue.

Salary and service costs, which tend to fluctuate with changes in revenue, decreased $76.1 million, compared to 2021, reflecting a decrease in third-party service costs of $303.0 million, partially offset by an increase in salary and related service costs of $226.9 million.

Third-party service costs decreased during the year primarily due to the disposition in the Advertising & Media discipline in the second quarter of 2021 and the disposition of our businesses in Russia in the first quarter of 2022.

The increase in salary and related service costs primarily resulted from the increase in organic revenue and an increase in headcount, as well as an increase in travel and related costs, reflecting the post-pandemic return to the office of our workforce in most markets.

Occupancy and other costs, which are less directly linked to changes in revenue than salary and service costs, increased $20.4 million year-over-year, primarily due to an increase in general office expenses and other costs resulting from the return of our workforce to the office, partially offset by lower rent and other occupancy costs.

Operating profit decreased $114.6 million to $2,083.3 million, operating margin decreased to 14.6% from 15.4%, and EBITA margin decreased to 15.1% from 15.9%.

Operating profit, operating margin and EBITA margin for 2022 were negatively impacted by the $113.4 million charges arising from the effects of the war in Ukraine.

Operating profit, operating margin and EBITA margin for 2021 were favorably impacted by the $50.5 million gain recorded in connection with dispositions in the Advertising & Media discipline.

SG&A expenses primarily consist of third-party marketing costs, professional fees and compensation and benefits and occupancy and other costs of our corporate and executive offices, including group-wide finance and accounting, treasury, legal and governance, human resource oversight and similar costs.

SG&A expenses decreased slightly year-over-year.

Net interest expense in 2022 decreased $71.2 million year-over-year to $137.9 million.

Interest expense on debt decreased $21.9 million to $191.3 million in 2022 compared to 2021, primarily as a result of the benefit from the early redemption in May 2021 of all the outstanding $1.25 billion of our 3.625% Senior Notes due 2022, or 2022 Notes, which was partially offset by the issuance of $800 million of our 2.60% Senior Notes due 2031, or 2031 Notes, in May 2021, and the issuance of the £325 million 2.25% Senior Notes due 2033, or Sterling Notes, in November 2021.

Interest expense for 2021 includes a loss of $26.6 million on the early redemption of the 2022 Notes.

Interest income in 2022 increased $43.4 million to $70.7 million year-over-year, primarily as a result of higher interest rates on our cash balances and our short-term investments.

Our effective tax rate for 2022 increased year-over-year to 28.1% from 24.6%.

The higher effective tax rate for 2022 was predominantly the result of the non-deductibility of the $113.4 million charge recorded in the first quarter of 2022, arising from the effects of the war in Ukraine, as well as an additional increase in income tax expense of $4.8 million related to the disposition of our businesses in Russia.

These charges were partially offset by the tax benefit arising from our share-based compensation awards.

The effective tax rate for 2021 reflects a nominal tax applied to the book gain on the disposition in the Advertising & Media discipline resulting from the excess of tax over book basis and a reduction in income tax expense of $32.8 million, primarily related to the favorable settlements of uncertain tax positions in certain jurisdictions.

The negative impact on revenue from acquisitions, net of dispositions, period to period was primarily due to dispositions in the Execution & Support discipline in the first and second quarters of 2023, including the sale of our research businesses, as well as the disposition of our businesses in Russia in the first quarter of 2022, partially offset by acquisitions in our Advertising & Media and Public Relations disciplines during the year.

The changes in worldwide revenue across our principal regional markets were:

North America increased $95.0 million, Europe increased $256.4 million, Asia-Pacific increased $31.0 million and Latin America increased $57.8 million.

In North America for 2023 compared to the prior year period, increased organic revenue was driven primarily by the performance in the United States, especially in the Advertising & Media discipline, led by our media business, and our Precision Marketing, and Healthcare disciplines, partially offset by negative performance in our Experiential and Commerce & Branding disciplines, which faced difficult comparisons to the prior year, and our Execution & Support discipline.

In Europe, organic revenue for 2023 increased compared to 2022 across most countries of our major markets and in substantially all disciplines, especially our Advertising & Media discipline, led by our media business, and our Experiential discipline, partially offset by a decrease in our Public Relations discipline.

Foreign currency changes increased revenue for 2023, primarily as a result of the strengthening of the Euro and British Pound against the U.S.

Dollar period to period.

In Latin America, organic revenue for 2023 increased in all of our disciplines, led by our Advertising & Media discipline, and in substantially all countries in the region.

The strengthening of most currencies, especially the Mexican Peso and Brazilian Real, partially offset by the weakening of the Argentine Peso against the U.S.

Dollar, increased revenue in 2023 compared to 2022.

In Asia-Pacific, organic revenue for 2023 increased compared to 2022 across most major markets in the region, especially China, India, Australia, and Japan, and was led by our media business in our Advertising & Media discipline and our Experiential discipline.

The organic revenue growth was partially offset by the weakening of certain foreign currencies against the U.S.

Dollar period to period, especially the Australian Dollar, Japanese Yen, and Chinese Renminbi.

The changes in worldwide revenue in 2023, compared to 2022, in our fundamental disciplines were:

Advertising & Media increased $457.3 million, Precision Marketing increased $46.9 million, Commerce & Branding increased $5.6 million, Experiential increased $15.8 million, Execution & Support decreased $189.1 million, Public Relations increased $26.2 million, and Healthcare increased $40.4 million.

A summary of our full year consolidated results of operations period-over-period is as follows:

2023 2022 $ Change % Change

Revenue $ 14,692.2 $ 14,289.1 $ 403.1 2.8 %

Operating Income 2,3

$ 2,104.7 $ 2,083.3 $ 21.4 1.0 %

Operating Margin 2,3

14.3 % 14.6 % (0.3) %

Interest expense, net $ 111.8 $ 137.9 $ (26.1) (18.9) %

Net Income - Omnicom Group Inc.

in 2022 decreased $91.3 million to $1,316.5 million from $1,407.8 million in 2021.

The year-over-year decrease is due to the factors described above.

Diluted net income per share - Omnicom Group Inc.

decreased to $6.36 in 2022, compared to $6.53 in 2021, due to the factors described above, partially offset by the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock, net of shares issued for restricted stock awards, stock option exercises and the employee stock purchase plan during the year.

The impact of the after-tax charges arising from the effect of the war in Ukraine reduced net income - Omnicom Group Inc.

for 2022 by $118.2 million and diluted net income per share - Omnicom Group Inc.

The combined effect of the after-tax gain on the disposition in the Advertising & Media discipline and the loss on the early redemption of the 2022 Notes increased net income - Omnicom Group Inc.

in 2021 by $31.0 million and increased diluted net income per share - Omnicom Group Inc.

$ 1,391.4 $ 1,316.5 $ 74.9 5.7 %

Net Income per Share - Omnicom Group Inc.:

$ 6.91 $ 6.36 $ 0.55 8.6 %

$ 2,185.0 $ 2,163.6 $ 21.4 1.0 %

EBITA Margin 1,2,3

14.9 % 15.1 % (0.2) %

1) Reconciliation of Non-GAAP Financial Measures on page 25 .

2) For the year ended December 31, 2023, operating expenses included real estate operating lease impairment charges, severance, and other exit costs of $191.5 million ($145.5 million after tax) related to repositioning actions we took in the first and second quarters of 2023 to reduce our real estate requirements, rebalance our workforce, and consolidate operations in certain markets (see Note 13 to the consolidated financial

In addition, in the second quarter of 2023, we recorded a gain of $78.8 million ($55.9 million after tax) on disposition of certain of our research businesses in the Execution & Support discipline (see Note 14 to the consolidated financial statements).

Included in the fourth quarter of 2023 within selling, general and administrative expenses are acquisition transaction costs of $14.5 million, primarily related to the purchase of Flywheel Digital in January 2024 (see Note 5 to the consolidated financial statements).

The net aggregate impact of these items on Operating Income for the year ended December 31, 2023 was a reduction of $127.2 million ($102.6 million after tax).

The net aggregate effect of these items for the year ended December 31, 2023 to diluted net income per share - Omnicom Group Inc.

was a decrease of $0.50 (see Notes 13 and 14 to the consolidated financial statements).

3) For December 31, 2022, operating expenses included $113.4 million of charges recorded in the first quarter of 2022, as well as an additional net income tax charge of $4.8 million, related to the disposition of our businesses in Russia, which reduced net income - Omnicom Group Inc.

by $118.2 million and diluted net income per share - Omnicom Group Inc.

by $0.57 (see Note 15 to the consolidated financial statements).

CRITICAL ACCOUNTING ESTIMATES

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The evaluation of potential acquisitions is based on various factors, including specialized know-how, reputation, geographic coverage, competitive position and service offerings of the target businesses, as well as our experience and judgment.

Our acquisition strategy is focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our various strategic business platforms and agency brands through the expansion of their geographic reach or their service capabilities to better serve our clients.

Our acquisition strategy is focused on acquiring the expertise of an assembled workforce, and in some cases their associated technological capabilities and assets, in order to continue to build upon the core capabilities of our various strategic business platforms and agency brands through the expansion of their geographic reach or their service capabilities to better serve our clients.

Additional key factors we consider include the competitive position and specialized know-how of the acquisition targets.

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In valuing these identified intangible assets, we typically use an income approach and consider comparable market participant measurements.

We evaluate goodwill for impairment at least annually at the end of the second quarter of the year and whenever events or circumstances indicate the carrying value may not be recoverable.

In 2023, to better align with our internal financial processes, the date of our annual impairment test was changed from June 30 to May 1.

We will continue to evaluate goodwill for impairment at least annually at May 1 and whenever events or circumstances indicate the carrying value may not be recoverable.

Under FASB ASC Topic 350, Intangibles - Goodwill and Other , we have the option of either assessing qualitative factors to determine whether it is more-likely-than-not that the carrying value of our reporting units exceeds their respective fair value (Step 0) or proceeding directly to the quantitative goodwill impairment test.

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We identified our regional reporting units as components of our operating segments, which are our six global agency networks.

The regional reporting units of each agency network are responsible for the agencies in their region.

They report to the segment managers and facilitate the administrative and logistical requirements of our key client matrix organization structure for delivering services to clients in their regions.

The regional reporting units and practice areas monitor performance and are responsible for the agencies in their region.

The regional reporting units report to the segment managers and facilitate the administrative and logistical requirements of our key client matrix organization structure for delivering services to clients in their regions.

We have concluded that for each of our operating segments, their regional reporting units have similar economic characteristics and should be aggregated for purposes of testing goodwill for impairment at the operating segment level.

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The main economic components of each agency are employee compensation and related costs, and direct service costs and occupancy and other costs, which include rent and occupancy costs, technology costs that are generally limited to personal computers, servers and off-the-shelf software and other overhead expenses.

Finally, the expected benefits of our acquisitions are typically shared by multiple agencies in various regions as they work together to integrate the acquired agency into our virtual client network strategy.

Finally, the expected benefits of our acquisitions are typically shared by multiple agencies in various regions as they work together to integrate the acquired business into our virtual client network strategy.

Goodwill Impairment Review - Estimates and Assumptions

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(1) the expected long-term growth rate of our reporting units' cash flows and (2) the weighted average cost of capital (“WACC”) for each reporting unit.

The assumptions used for the long-term growth rate and WACC in our evaluations as of June 30, 2022 and 2021 were:

The assumptions used for the long-term growth rate and WACC in our evaluations:

May 1, 2023 June 30, 2022

Long-Term Growth Rate 3.5% 3.5%

WACC 11.0% - 11.4%

Long -term growth rate represents our estimate of the long-term growth rate for our industry and the markets of the global economy we operate in.

11.1% - 12.0%

Long -term growth rate represents our estimate of the long-term growth rate for our industry and the geographic markets we operate in.

For the past ten years, the average historical revenue growth rate of our reporting units and the Average Nominal GDP, or NGDP, growth of the countries comprising the major markets that account for substantially all of our revenue, was approximately 3.5% and 4.4% , respectively.

We considered this history when determining the long-term growth rates used in our annual impairment test at June 30, 2022, and included in the 10-year history is the full year 2020 that reflected the negative impact of the COVID-19 pandemic on the global economy and our revenue.

We considered this history when determining the long-term growth rates used in our annual impairment test at May 1, 2023.

Included in the 10-year history are the full year 2020 results that reflected the negative impact of the COVID-19 pandemic on the global economy and our revenue.

We believe marketing expenditures over the long term have a high correlation to NGDP.

Based on our past performance, we also believe that our growth rate can exceed NGDP growth in the short-term, notwithstanding the current inflationary environment, in the markets we operate in, which are similar across our reporting units.

Accordingly, for our annual test as of June 30, 2022, we used an estimated long-term growth rate of 3.5%.

When performing the annual impairment test as of June 30, 2022 and estimating the future cash flows of our reporting units, we considered the current macroeconomic environment, as well as industry and market specific conditions at mid-year 2022 and projections through the end of the year.

The assumptions of economic conditions and our actual performance as of December 31, 2022 were in line with these estimates.

Accordingly, for our annual test as of May 1, 2023, we used an estimated long-term growth rate of 3.5%.

When performing the annual impairment test as of May 1, 2023 and estimating the future cash flows of our reporting units, we considered the current macroeconomic environment, as well as recent industry and market specific conditions.

In the first half of 2023, our organic revenue increase was 4.3%, which excluded our net disposition activity and the impact from changes in foreign exchange rates.

The WACC is comprised of:

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In addition, these differences as well as differences in book value, including goodwill, cause variations in the amount by which fair value exceeds book value among the reporting units.

The reporting unit goodwill balances and debt vary by reporting unit primarily because our three legacy agency networks were acquired at the formation of Omnicom and were accounted for as a pooling of interests that did not result in any additional debt or goodwill being recorded.

The goodwill balances and debt vary by reporting unit primarily because our three legacy agency networks were acquired at the formation of Omnicom and were accounted for as a pooling of interests that did not result in any additional debt or goodwill being recorded.

The remaining three agency networks were built through a combination of internal growth and acquisitions that were accounted for using the acquisition method and as a result, they have a relatively higher amount of goodwill and debt.

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Goodwill Impairment Review - Conclusion

Based on the results of our impairment test, we concluded that our goodwill at June 30, 2022 was not impaired, because the fair value of each of our reporting units was in excess of its respective net book value.

Based on the results of our impairment test, we concluded that our goodwill at May 1, 2023 was not impaired, because the fair value of each of our reporting units was in excess of its respective net book value.

For our reporting units with negative book value, we concluded that the fair value of their total assets was in excess of book value.

The minimum decline in fair value that one of our reporting units would need to experience in order to fail the goodwill impairment test was approximately 53%.

Notwithstanding our belief that the assumptions we used for WACC and long-term growth rate in our impairment testing were reasonable, we performed a sensitivity analysis for each of our reporting units.

The results of this sensitivity analysis on our impairment test as of June 30, 2022 revealed that if the WACC increased by 1% and/or the long-term growth rate decreased by 1%, the fair value of each of our reporting units would continue to be in excess of its respective net book value and would pass the impairment test.

We will continue to perform our impairment test each year at the end of the second quarter unless events or circumstances trigger the need for an interim impairment test.

Notwithstanding our belief that the assumptions we used for WACC and long-term growth rate in our impairment testing were reasonable, we performed a sensitivity analysis for each reporting unit.

The results of this sensitivity analysis on our impairment test as of May 1, 2023 revealed that if the WACC increased by 1% and/or the long-term growth rate decreased by 1%, the fair value of each of our reporting units would continue to be in excess of its respective net book value and would pass the impairment test.

We will continue to perform our impairment test each year at May 1, unless events or circumstances trigger the need for an interim impairment test.

There were no events through December 31, 2023 that would change our impairment assessment.

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Our revenue is primarily derived from the planning and execution of advertising communications and marketing services in the following fundamental disciplines:

Advertising & Media, Precision Marketing, Commerce & Brand Consulting, Experiential, Execution & Support, Public Relations and Healthcare.

Advertising & Media, Precision Marketing, Commerce & Branding, Experiential, Execution & Support, Public Relations and Healthcare.

Our client contracts are primarily fees for service on a rate per hour or per project basis.

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qualitative or quantitative incentive provisions specified in the contract;

and reimbursement for third-party costs that we are required to include in revenue when we control the vendor services related to these costs and we act as principal.

and reimbursement for third-party costs that we are required to include in revenue when we control the vendor services related to such costs and we act as principal.

The transaction price of a contract is allocated to each distinct performance obligation based on its relative stand-alone selling price and is recognized as revenue when, or as, the customer receives the benefit of the performance obligation.

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However, the inclusion of billings related to third-party direct costs in revenue depends on whether we act as a principal or as an agent in the client arrangement.

In most of our businesses, including advertising, which also includes studio production efforts and media planning and buying services, public relations, healthcare advertising, precision marketing, commerce and brand consulting businesses, we act as an agent and arrange, at the client’s direction, for third parties to perform certain services.

In most of our businesses, including advertising, which also includes studio production efforts and media planning and buying services, public relations, healthcare advertising, precision marketing, commerce and branding, we act as an agent and arrange, at the client’s direction, for third parties to perform certain services.

In these cases, we do not control the goods or services prior to the transfer to the client.

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See Note 24 to the consolidated financial statements for information on the adoption of new accounting standards and accounting standards not yet adopted.

RESULTS OF OPERATIONS - 2022 Compared to 2021 (in millions):

Year Ended December 31,

CONSOLIDATED RESULTS OF OPERATIONS

The period-over-period change in results of operations were:

Full Year 2023 v.

2023 2022 2021 $ Change $ Change

Revenue $ 14,692.2 $ 14,289.1 $ 14,289.4 $ 403.1 $ (0.3)

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Occupancy and other costs 1,168.8 1,168.6 1,148.2 0.2 20.4

Real estate and other repositioning costs 1

191.5 — — 191.5 —

Charges arising from the effects of the war in Ukraine 2

— 113.4 — (113.4) 113.4

Gain on disposition of subsidiary 1,3

(78.8) — (50.5) (78.8) 50.5

Cost of services 11,982.7 11,607.9 11,499.7 374.8 108.2

Selling, general and administrative expenses 1

Depreciation and amortization 219.4 212.1

393.7 378.5 379.7 15.2 (1.2)

Operating Profit 2,083.3 2,197.9

Operating Margin % 14.6 % 15.4 %

Depreciation and amortization 211.1 219.4 212.1 (8.3) 7.3

Total operating expenses 12,587.5 12,205.8 12,091.5 381.7 114.3

Operating Income 2,104.7 2,083.3 2,197.9 21.4 (114.6)

Interest Expense 218.5 208.6 236.4 9.9 (27.8)

7 unchanged sentences

$ 1,391.4 $ 1,316.5 $ 1,407.8 $ 74.9 $ (91.3)

Non-GAAP Financial Measures

We use EBITA and EBITA Margin as additional operating performance measures that exclude the non-cash amortization expense of intangible assets, which primarily consists of amortization of intangible assets arising from acquisitions.

We define EBITA as earnings before interest, taxes and amortization of intangible assets, and EBITA Margin as EBITA divided by revenue.

EBITA and EBITA Margin are non-GAAP financial measures.

We believe that EBITA and EBITA Margin are useful measures for investors to evaluate the performance of our business.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with U.S.

Non-GAAP financial measures reported by us may not be comparable to similarly titled amounts reported by other companies.

The following table reconciles the U.S.

GAAP financial measure of net income - Omnicom Group Inc.

to EBITA and EBITA Margin for the periods presented (in millions):

Year Ended December 31,

Net Income - Omnicom Group Inc.

Net Income Per Share - Omnicom Group Inc.:

Basic $ 6.98 $ 6.40 $ 6.57 $ 0.58 $ (0.17)

$ 6.91 $ 6.36 $ 6.53 $ 0.55 $ (0.17)

Net Income Attributed To Noncontrolling Interests 87.3 99.8

Net Income 1,403.8 1,507.6

Income From Equity Method Investments 5.2 7.5

Income Tax Expense 546.8 488.7

Income Before Income Taxes and Income From Equity Method Investments 1,945.4 1,988.8

Interest Expense 208.6 236.4

Interest Income 70.7 27.3

Operating Profit 2,083.3 2,197.9

Amortization of intangible assets 80.3 80.0

Earnings before interest, taxes and amortization of intangible assets (“EBITA”) $ 2,163.6 $ 2,277.9

Revenue $ 14,692.2 $ 14,289.1 $ 14,289.4 $ 403.1 $ (0.3)

Operating Margin % 14.3 % 14.6 % 15.4 % (0.3) % (0.8) %

EBITA $ 2,185.0 $ 2,163.6 $ 2,277.9 $ 21.4 $ (114.3)

EBITA Margin % 14.9 % 15.1 % 15.9 % (0.2) % (0.8) %

Revenue in 2022 decreased slightly to $14,289.1 million compared to $14,289.4 million in 2021.

Organic growth increased revenue $1,346.3 million, or 9.4%.

Changes in foreign exchange rates reduced revenue $681.0 million, or 4.8%, and acquisition revenue, net of disposition revenue, reduced revenue $665.6 million, or 4.7%.