In their 2024 Half Year Results, Ipsos demonstrated a resilient performance with a 4.7% growth rate and 3.8% organic growth, though the second quarter showed a slowdown at 3.1%. Despite challenges in North America, particularly a -2.2% organic growth in the United States, the company achieved positive growth in other regions and is focusing on its technological advancements, including AI-powered products. Ipsos has revised its annual growth guidance to approximately 3%, aligning with the previous year's figures, while maintaining an ambitious operating margin target of 13% or above.
Key Takeaways
- Ipsos reports a total growth of 4.7% with 3.8% organic growth in the first half of 2024.
- Q2 growth slowed down to 3.1%, with the US experiencing negative organic growth at -2.2%.
- Positive growth was noted in EMEA with 7.6% organic growth and in Asia-Pacific with 4% organic growth.
- Technological advancements, including the launch of AI-powered products, are a strategic focus.
- Ipsos revised its annual growth guidance to around 3%, similar to the previous year.
- Operating margin guidance remains at 13% or above despite North American headwinds.
Company Outlook
- Ipsos expects continued growth, albeit at a rate close to the previous year's.
- The company aims to maintain an operating margin of 13% or above.
- A new strategic review for the years 2026 to 2030 has been announced.
Bearish Highlights
- North America presents headwinds, with a decline in the US due to the end of major contracts and industry restructuring.
- The company anticipates risks around the guidance due to a slowdown in Q2.
- The health sector is struggling post-COVID, although signs of recovery are expected in the second half of the year.
Bullish Highlights
- Ipsos made successful acquisitions in Europe.
- Positive growth is observed outside the US, especially in the CPG and Ipsos.Digital businesses.
- Ipsos is optimistic about a rebound driven by contracts in Asia, stabilization in the US, and election-related growth in the UK and India.
Misses
- The guidance revision indicates caution in the face of a weaker Q2.
- Ipsos has a small market share in the US, which is a current concern.
Q&A Highlights
- Analysts inquired about revenue guidance, the health sector, market share in the US, and operating margin targets.
- Opportunities in China are tempered by macroeconomic challenges and market competition.
- The new managerial organization in the US is slated to impact from early 2025, drawing from the German experience.
Ipsos (ticker: IPS), in its 2024 Half Year Results, has shown a mix of positive and cautious indicators, with overall growth and a focus on technological innovation, particularly in AI. While the company faces challenges, particularly in the North American market, it remains optimistic about its strategic initiatives and its ability to rebound in the latter half of the year. Ipsos continues to navigate a complex global landscape with a clear focus on maintaining profitability and growth.
Full transcript - None (IPSOF) Q2 2024:
Ben Page: Welcome to the 2024 Half Year Results for Ipsos. And it's good to be joined by you. I'm here with my colleague, Dan Lévy, our CFO. And I want to take you through where we find ourselves halfway through the year in this Olympic city of Paris. So, overall, we've seen good growth at 4.7% overall, organically that is at 3.8%. And if you look at Q2, it was a little weaker particularly at the end of Q2 at 3.1%. We have a positive scope effect, because of the acquisitions that we have successfully made over the last 18 months, and those are working well and adding to our growth, but a negative FX effect at minus 1.8%. The profitability is good 10.1% versus 8.7% for the same period last year. And we've also done well on our free cash flow, which is up nearly €60 million, is €80 million now for the first half. What I'd like to do now is pass over to Dan, who will take you through more detail behind some of those figures in a second. But one key thing that we need to remember is the mixed situation in the United States. Now here organic growth is negative at minus 2.2%. Outside the U.S. 6.5% growth, but in the U.S. negative, and that's a very mixed picture. It's caused by on the negative side the electro cycle, the end of some of the major contracts that we have which are one-off in our public affairs work, and of course, the restructuring that we're seeing in the pharma industry there, I think, 20,000 layoffs in the pharma industry in the U.S. in the first part of this year. On the positive side, of course, the business is facing CPG clients are in growth and in some of those cases double-digit, strong growth in our Ipsos.Digital business. So it really is a very mixed picture. We've seen as you will see in a minute recovery in growth in some of our big tech clients. And I just spent last week in the U.S. with our new CEO, Mary Ann Packo, our new management organization. And what we're expecting now is stabilization in H2 and a return to growth at the beginning of next year. So, outside the U.S. pretty good growth, but the U.S. is a challenge at the moment. But now Dan, please take us through the detail of the numbers.
Dan Lévy: Ben, thank you very much. Ladies and gentlemen, hello. As usual, I'd like to start by looking at a geographic breakdown of revenue. So we had a very good period in EMEA of 7.6% organic growth for the first half, and that was actually driven by Continental Europe and the Middle East. Good performance in Germany, where the new managerial structure is starting to bear fruit also solid performance in Italy. So, these two countries with double-digit growth. We're talking about organic growth. Talking about acquisitions, major acquisitions in Europe, I&O in Netherlands, Jarmany in the U.K. and an acquisition in Ireland. So, all solid performance for those acquisitions. And when we look at the scope effect of those acquisitions, we now have overall growth for EMEA at 10% for the first half of the year. Turning now to the Americas. It was slightly down 0.6%, Latin America is still doing well. However, the United States, they have a 2.2% negative growth. So, I won't spend too much time talking about that. Asia-Pacific now we have 4% organic growth for the first half of the year. Growth in China is still quite weak given the macroeconomic context, which is quite murky. For the rest of the zone, we had a pullback of business for the first half, despite a solid quarter here there. And the second quarter and the third quarter should see some of our contracts coming through which should buoy business as we go into the end of the year. And that's particularly the case for India. If I now look at revenue breakdown by audience, our consumer side business is still doing very well. Organic growth up 8% over the half and that reflects all of our business lines, our consumer side business lines so that is brand tracking, innovation, advertising creation content. And all of that needs to be compared with the major consumer division, which is also doing very well, and which buoys up the Consumer division. Talking about clients and employees, citizens doctors and patients. They are still being hard hit by business in the United States as we -- as Ben just mentioned. So if we were to remove the United States from those figures, all of those three segments -- all of those three audiences sorry I should say, they should be up 5% organic growth. Now looking at revenue by sector as a breakdown, I'll quickly sit through this because it's not quite repeating myself. We continue doing very well, when looking at major consumer divisions, because we had a huge inflation in 2022 2023 and we're able to stave off the effect of that inflation. We have 60% growth in TMT and that is predominantly thanks to the major tech companies in the United States coming back. For the rest, as I said, the Pharmaceutical division and public sector division, they are what they are. We're still having solid performance in new services with 13% organic growth for the first half of the year. Ipsos Digital in particular, is up 37% and all of the new services reflect 21.5% of overall total revenue. Let's now move to accounts. We have 6% growth on gross margin, which is 80 basis points up. So the margin there can be explained for two reasons. First, a solid digital business, which has a margin which is above the group average and that is still showing solid growth. And on top of that, we have also been doing a lot within Ipsos to internalize a lot of our panel and data collection work. So because of that, our data is now more reliable and it also costs less to collect all of that data. 3.3% growth compared to 6% for our gross margin. So what that means is, that we need to be a bit more cautious and we have an overall ratio, which is actually significantly up on last year, which is 68.3% compared to 70% last year. Now, overheads. Overheads are at €8.3 million. So that is predominantly due to a lot of tech and IT spending. Now for the first half of the year, we are 10.1% overall which is up considerably on last year. Now, when we look at the adjusted net profit group share, so that's roughly 18% up. Let's now, look at cash generation. So we are €35 million up in terms of contributions compared to the same time last year. As we saw, there was solid inflows in the first quarter and that's because we had solid revenue in the fourth quarter of last year, so 8% organic growth over that time period. In terms of investment, we have both tangible and intangible assets and we've still been investing in things such as, IT and our data sections. So we had €33 million in investments and this is in line with our tech road map. In terms of free cash flow, we are roughly at €80 million, which is up €56 million compared to last year. Moving on to M&A. We spent about €28 million in the first half of the year, by buying up Jarmany and I&O in the UK and the Netherlands. And we spent about $39 million on buying back of shares and that is predominantly due to the share -- employee shareholder program that we have been rolling out. And overall cash position is 28 -- sorry €280 million give or take. So we have a strong financial position. When we look at our leverage effect, 0.3 multipliers which is compared to 0.4 for the same period last year. So we're doing very well. We have no debt maturities coming in this year. We have €300 million in 2025, which is a public bond, which will come through in autumn. And we have strong liquidity position of roughly €500 million of undrawn credit lines, with our banks. And again, they will have maturities over one year. Well, that's it for me. I'll hand over to Ben now, who will go over our tech roadmap.
Ben Page: Thank you, Dan. And I'd just like to take you through where we are on our tech, our digital backbone and the changes we're making there, which are helping improve our profitability and also, of course, Generative AI, where we have some new products that we've talked about before, we can -- these are now going into the market, and receiving really positive responses from our clients. So whether it's PersonaBot, where we are creating synthetic profiles for different consumer segments that our clients can talk to directly using Ipsos Facto, our own proprietary platform or Signals Gen AI, which is allowing us to mine billions of social data points into insights in just a few seconds. All of those show real promise and are helping us engage more deeply than ever with our clients. So, I wanted to talk just a little about a few of those before we talk about the outlook. So, Creative Spark is a way of looking at ads based on 18,000 data points, previous cases that we have built now into Ipsos Facto, and it allows our clients to very quickly understand how a potential execution for TV or for social video might perform in real life. Could we run the launch video, please? [Video Presentation]
Ben Page: Thank you. And that's an example of a product that is helping our creative excellence business grow across the globe including very well in the United States itself. So, it's a reminder that innovation is fundamental to what we're doing here. PersonaBot. Ipsos PersonaBot is an AI-powered solution to use to enhance our segmentation research. And again, here, I won't run another video for you, but it's interesting to, for example, we're using it for launch in France to look at how different segments of the market react to different low-carbon solutions. And again, giving our clients faster decision making over how they position their brands, how they communicate, and how different segments of the market might react and really bringing to life using human intelligence, combined with artificial intelligence, masses of data at speed. So, again, a really important AI-led solution. And finally, HP (NYSE:HPQ), for example, has been using our Signals Gen AI and this allows them to take millions of social data signals about their brands, different categories, using thousands of different ratings to look for trend detection, allow them to benchmark themselves and see where there are opportunities for innovation, and their head of marketing, what do they say you gave us the insight that people want to save time to be able to focus more on the strategic, creative and fulfilling work. And I think that's a key point the fact that the Generative AI allows humans to do the more interesting and strategic work. That's precisely what we're trying to do internally with Gen AI at Ipsos, where the vast majority of people are now using it regularly and outside. So in terms of our outlook for the rest of this year, I think where we are at the moment is that we can see continued growth. We have -- the acquisitions we have made have been successful. Dan has already shown you the profitability and cash generation. We are rolling out our tech road map but we do have, of course, as you've seen headwinds, particularly in North America. We've strengthened the managerial organization there. I think, overall, having seen what we have seen in our review at the end of June and then in July when we start to analyze those numbers, our guidance now is that growth will be close to that of last year rather than what we originally thought at the beginning of this year. So, at around 3%, we have just kicked off a new strategic review for the next four years from 2026 to 2030 and I will be updating you on that. But we also are able to, of course, maintain and hit our operating margin guidance of 13% or above. So, thank you for your attention. Very happy to take questions and just talk through exactly what's going on.
Operator: [Operator Instructions] Our first question is from Emmanuel Matot from ODDO. The floor is yours.
Emmanuel Matot: Hello. Can you hear me?
Ben Page: I hear you.
Operator: The next question is from Line Fort Marie from Bernstein. Please, the floor is yours. [Operator Instructions] Our first question is from Emmanuel Matot from ODDO. The floor is yours.
Emmanuel Matot: [Foreign Language] Yes. I hope you can hear me now. I actually have three questions if I may. So when I look at your new guidance for revenue, it seems that there is a bit of risk given that there is a very high level compared to the first half of last year. So, I mean, can you give us a bit more information just to reassure us on that, especially as we go into the second half of the year? Next question. I remember that you were good in advisory services -- sorry, in the health services. Could you please give us a bit more insight into your business in the health sector, just to reassure us on that to see if you can get back to levels quickly? And final question, for the United States, can you tell us a bit about market share? I get a feeling that it's quite a tough market for all operators. But if you can tell us a bit about Ipsos' market share and is the new management there going to buck the trend, especially given that you are going to be incorporating the new teams of -- with the new management there. Tell us a bit about that.
Dan Lévy: Maybe I'll take the first question. I will answer it in English, because Ben has just had the translation. So, on the first question about the risk around the guidance, what I would say is that it's true that we have been slightly surprised by the slowdown in Q2 and particularly at the end of Q2. We have done a new forecast exercise with all our countries mid-July. And this new exercise has obviously led us to this new forecast of around 3 -- around the level of last year. Obviously, when you do a forecast, there are always some incentives around the forecast. So it could be 2.6, 2.7. It could be 3.1, 3.2. In terms of what we see, there are reasons for -- I mean for some element of rebound in H2. First of all there is the question that we have mentioned before, which is the fact that in Asia, particularly, we have had some contracts which were booked earlier last year and which are going to be booked in Q3 this year. So that should fill our growth in H2. We obviously have made the assumption of a stabilization in the US, which is what we see. We also have a good performance as you have seen in Europe, and we do think that this will continue during H2. And there is a very important point as well, which is the fact that as you have noticed there are a lot of elections around the world. And this election means for us electro cycles, which is basically lower growth on public affairs before the elections and then a rebound after the elections. And that should be happening particularly in the UK, in India as well, which should drive our public affairs business in the second part of the year. So I would say the new guidance obviously is a central scenario but there are obviously risks around it. On the healthcare sector, we had said when we released our Q1 results and it's still the case that the pharmaceutical sector it seems to be struggling in post-COVID restructuring, particularly in the US. You have probably noticed that in Q1 particularly but also in Q2 there has been some layoffs in the US on the pharmacal sector. Lower drug approvals as well by the American authorities. So these are obviously headwinds for health care business. But we do see some early signs of recovery which will be to be confirmed in H2.
A – Ben Page: I'd also just add on healthcare that this is an area where data analytics is moving incredibly quickly. There are all sorts of new opportunities. And actually for example there some of the Gen AI solutions are already attracting revenue and interest from clients. So it's a complex picture but overall the fundamentals of that market in the longer run is such that we are still confident about healthcare over time. On America, which you asked about specifically, our market share is tiny, probably between anything between 1% to 4% of a very large market. And that means that if the new management who are now in place and they're not all brand new, many of them have been with us for over a decade but they have a new leader and we've restructured the team that team really has plenty of opportunities. And what's so interesting when I was there, I spent a week with them last week is that you can see the parts of the organization that have got things working, doing the right things growing well and other parts of course need more attention. So again, I feel absolutely confident about the United States overall particularly, given our relatively small market share in the biggest market in the world.
Emmanuel Matot: Thank you very much.
Operator: The next question is from [indiscernible] from Bernstein. The floor is yours.
Unidentified Analyst: Good morning. I'd just like if you could come back to your operating margin targets. I imagine there's going to be a bit of bounce back for the second half of the year. But what in terms of investments for the second half of the year is that how you're going to bounce back? And second question I have about China. Do you expect that to be a bit of a bounce back? And what sort of opportunities are you seeing there?
Dan Lévy: Okay. Quickly about our operating margin, I think it was shown quite clearly in the presentation that we just gave you that we have some key drivers structural drivers to boost our operating margin be it Ipsos.Digital or be it internalizing our panels all the productivity against that we can bring through with AI type solutions. So that's our mid- to long-term solution which is really going to drive operating margin in the months and years to come. Now for Gen AI-type issues, but also when talking about our panels platforms we need to continue to invest in them. And we are doing that. And that is why we have our operating margin which would be high, if we were investing but we absolutely have to invest.
Ben Page: In China there is the beginning of some return to growth in China but the market remains depressed very competitive. The economy is still very uncertain. You've seen the rate cut by the bank in China. So I don't think, we're seeing -- expecting anything like a post-COVID rebound which of course we were all wrong footed about when China finally reopened in 2023. But we are seeing some recovery. The auto sector is busy et cetera, et cetera. But it is muted. And that's why again that I think we are being cautious about -- we would be pretty cautious about China.
Dan Lévy: I mean there are a lot of questions, macro questions about China. Obviously the unemployment for the young people is very high. There are questions about the real estate sector, whether the fiscal policy is going to help the growth come back or not is not clear and what the government going to do is not clear from that perspective. So we do face in China more macro challenges than anything else.
Ben Page: So on the M&A pipeline, it's very healthy. We're -- there are lots of interesting deals, exactly when they'll come through. However again there are lots of unknown. So, lots of activity but timing on that I think again really can't comment on. In terms of the new managerial organization in the US, of course I hope that it comes in the next few months. But I think realistically it's good to say the start of 2025, because if I look at Germany where after a long period of very low growth indeed we now have double-digit growth in the first part of this year. That manager there and then the changes that he made of course happened in the first part of 2023. So Christophe and the team are doing a good job but it takes time for these things to come through. So I would definitely say, the first part of 2025 onwards hopefully.
Dan Lévy: Are there any more questions on the chat, because Ben was answering some questions on the chat about M&A and the US? No more questions?
Ben Page: Thank you everybody.
Dan Lévy: Thank you very much.
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