Ipsos SA (OTCPK:IPSOF) Q3 2022 Earnings Conference Call October 27, 2022 12:00 PM ET
Company Participants
Sheryl Goodman – Group General Counsel
Ben Page – CEO
Dan Levy – CFO
Conference Call Participants
Operator
Hello, and welcome to the Ipsos 2022 Third Quarter Results. My name is George. I’ll be your coordinator for today’s event. Please note this conference is being recorded and for the duration of the call, your lines will be in a listen-only mode. However, you’ll have the opportunity to ask questions at the end of the call. [Operator instructions] I’m going to hand the call over to your host today, Mr. Ben Page, to begin today’s conference. Thank you.
Ben Page
Thank you, George. And my name is Ben Page. Good to meet you all again. My colleague, Dan Lévy, our Financial Director and CFO, who’s sitting here with me and it’s our pleasure to take you through the third quarter results, which are, I think you’ll find are impressive.
So we’ll look at the numbers, we’ll look at the regions and the various activities of Ipsos, our diverse portfolio of services and then we’d like to give you a bit of outlook for the rest of the year in terms of where we think we’re heading now, in light of the latest numbers. So if we look at our revenue now, we’re at €1.7 billion, and our total growth so far this year is now at 13.4%, helped by some currency effects, but the organic growth is 6.3%. And importantly, remember, this is a year where we faced a cliff edge with some major COVID contracts that now end this year. So the underlying business net of removing all of the COVID effects is actually growing at 9.2%.
If we look at Q3 in particular, what’s encouraging about Q3 is that the growth in Q3 is actually double the growth in Q2. So it’s 14.3% overall, organic at 5.3% and net of COVID effects 6.9%. So, again, we’re are very much encouraged by that despite all the headlines one reads, the business is in strong health. Dan?
Dan Levy
Thank you very much, Ben. So let’s go into a bit more detail. So starting with the revenue breakdown by region, obviously, we see zero gross in the EMEA region for obvious reasons. It’s the, it is this zone, which is the more impacted by the war in Ukraine, but it is also the zone where you have all these COVID contract that Ben just mentioned that are now over.
If you take out the effect of this big COVID contracts, the growth, the underlying of any growth would be above 5% and we have particularly good performance in this zone in the UK, in France and in Italy.
Turning now to the Americas, Americas doing very good performance both in North America and Latin America with a 14% organic gross year-to-date. So we have as you know, U.S., which is our most important country, and which is quite important as well, because that’s what’s of the most important priority in our strategic plan for 2025, which makes very good results as well, particularly driven by our DIY platform in sub digital, but also our TMT clients and our business in public affairs.
Very good results as well in Asia Pacific with the 10% organic growth as well despite the headwinds in China and the lockdown that China is experiencing for the time being and very good performance as well in the zone of India and Korea.
If we now turn to the breakdown by audience, we have a double-digit growth in our consumer’s bucket 12.5%. This is double-digit growth in the service line that work on Brand Health for our clients. It also reflects the fact that particularly for strategic clients, which are growing well, they need to understand the change in consumer behavior in an inflationary world. And this is driving our business with consumers. Ben will come back to that a bit later.
On clients and employees, we have an 8% growth organic year-to-date. This is linked to the reopening of the economy, to the reopening of hospitality, the resumption of travel, but also an increasing interest in our clients to assess their own clients’ experience. We have obviously a decrease on citizens minus 7.5% because of the end of the big COVID contract that we mentioned before.
When you take out this effect of this big COVID contract, citizens would be growing organically double digits, and doctor and patients, we are experiencing a 3.5% growth year-to-date after a very good year in 2021. So we have an unfavorable basis effect, which explain the relative low — relatively low growth of 3.5% on doctors and patients.
Turning now to the new services, which is a slide that you are, I guess, used to look at. So we have a double-digit growth as well on new services, 11.5% organic. The new services now represent 21% of our revenue. These new services are remembered to you is about web listening, Ipsos.digital, which is our DIY platform, data analytics and client advisory services. Ipsos.digital, which is, as you know one of our most important priority and our strategy plan is growing very quickly, plus 90% organic growth year-to-date. We have so far a €40 million revenue in September, and we target a €60 million at the end of the year.
Looking at the usual slide on the data collection, we can see continuity in the shift from offline to online. So it used to be — the online used to be 55% of our work in 2019. It’s now 64% although in some countries like India, for instance, and Ben will come back to that shortly, our offline business is growing as well very quickly.
So now over to Ben to give a few highlights on geographies and sectors.
Ben Page
Thank you, Dan. So, looking at our largest market and of course the largest market in the world for market research, we’ve got continued double-digit growth which is great, heavily concentrated in areas like government, which of course, as we said on the 14th of June, is one of our key sectors. And the American public sector is of course, one of the largest in the world, in healthcare for tech clients and social media clients, and of also in gaming and streaming. So that’s I think, again, very encouraging and just find news that you may have heard about major tech companies. We are not seeing any slowdown in our tech media and telecom’s work at all.
Overall then we have triple digit growth in some areas like Ipsos.digital, which is our software-as-a-service offering for our clients, but also in a range of complex data analytics type products. So things like our real time multi-source project monitoring that we do. So, for example, in Ukraine, where we are filming real time data using drones, measuring social media, such to understand the level of damage that’s taken place inside Ukraine, as well as interviewing the citizens.
So there’s a range of new services that we’re developing in America as well as what my colleagues there describe as very differentiated and scalable new offerings and two of those are for example, the work that we’ve done with the Association of National Advertisers in the United States to look at how women are basically being portrayed in the media in advertising. It’s creating a scoring model for gender equality. And what we can now do with their endorsement is add that to our Ipsos’ digital platform to allow advertisers to check exactly where they perform in terms of gender equality measures. And with the rising importance of ESG for all of our, or many of our clients, that’s particularly attractive.
Another example is using tools to measure the digital ecosystem among in terms of pharma and healthcare products. So we are understanding how doctors and patients are talking about kidney disease, mapping how the patient journey, how they talk about it, looking at different types of data, both in social media, it’s on the web generally. And then bringing all that together to get a full picture. So, we got more and more of these offerings that we’ve developed that we can scale and employ both in the United States and elsewhere. And thank you to my U.S. colleagues.
In Asia, we have seen with the reopening of the economy, some really great growth this year and despite China being impacted, we have double-digit growth or more in both India and Korea. I’ve just come back from Mumbai, really impressive in terms of the energy and diversity of what we’re doing there. We are diversifying our top 10 client list. We’ve always been strong in CPG, consumer package goods in the Indian market. We’re now seeing very strong growth in tech, in telecom, and also in the public sector. And of course, India is an incredibly diverse country.
We interview in up to 37 different languages offline interviewing in a country that still has very high rates of illiteracy is still important in a country like India. And just as some examples of that, as part of our growth, their work for the government, there is now expanding rapidly. We’ve just completed two major projects, one looking at sanitation in 4,000 towns and cities across India. Another looking at the water quality and cleanliness right across the country and that was released on Gandhi’s, on Mahatma Gandhi’s birthday by the President of India just a few weeks ago. So those projects really make a difference, and that the fact that our Indian team is trusted to do that type of work by the Indian Government is again, I think testimony to our strength in that market.
In Korea, we have a new strong female country manager who’s doing brilliantly in our work with Samsung, but also across the tech automotive and government sector and so a really impressive performance. One example of that is our multi-country studies launched from Korea looking at shopper experience, and one of those is for Samsung major, a major of course, Korean company. But looking at how people are, are shopping for mobile phones, the merchandising, the shopper experience ask what the sales people are actually doing in the store and bringing all those things together. So again, really positive growth in Asia, despite the headwinds that Dan has talked about in China.
If we look at government generally, we’ve seen very good growth this year, although we are showing at the headline level, the numbers going backwards, of course, that’s just because we had huge growth in 2020, 2021. And if you look at the underlying business, again, we have double digit growth, governments all over the world tackling problems like inflation, obviously poverty and inequality, employment which we are tracking in our what Worries the World Survey, but underneath all this, as government budgets remain under pressure as expectations of governments remain high everywhere, government needs help on things like policy making, how to spend money, the return on the money that they do spend from taxpayers, of course, who are not particularly happy about paying more taxes in those countries.
So two examples of the type of work that we are doing there, a major study for the Department of Veterans Affairs in the United States, we’re looking at 1.8 million veterans and the quality of care and satisfaction with healthcare that they’re receiving, or if you go across the Atlantic to Europe the European Commission is a major client for us, and one of the studies we’re doing for them among many is looking at quality of life across 84 European cities aren’t basically his urban policy working in Europe. And we know, and we can see that our government work will continue growing in future. Government in some ways is catching up with the rest of the world.
And then finally, brand health tracking. This is originally one of our sort of core businesses, how our brand, how the brands that we work for express themselves, and then how they’re recognized by the public. We’ve got over 20% growth in our tech, retail, e-commerce and financial services work in brand tracking. And the great thing, of course, about for us as a business about brand tracking is these are long term relationships. As it says here, over 60% recurring business, some of these clients we’ve actually worked for since the 1970s. And we are bringing together both tracking data from people, from humans, but also passive data from what people are saying online from social media and using machine learning and artificial intelligence then to really analyze and drive that data.
To give you a practical example of that, for Pernod Ricard, where we’ve got — we’ve built them a brand tracking framework, it brings together key brand KPIs, so how each brand is doing, links that to social media data, and then across 35 countries is looking at consumer behavior, consumer sentiments, and looking at what’s driving motivations and preferences on a real life, real-time basis. So again really encouraging to see the double-digit growth in brand health tracking one of our key businesses and you know, we don’t know what will happen in 2023. We can see lots of uncertainties out there.
I think the key point to remember, though, is that many of those uncertainties, whether its geopolitical tensions, we are doing research in Ukraine that we would never have imagined a year ago, to be quite honest, work around inflation. It’s obviously a challenge and we believe our business is dealing with it well. We’ll talk about that in a second, but also, of course, it’s triggering endless studies about how consumers are behaving. The pandemic in China, the climate change, and the technology tipping points, all of those things are challenges, but they are also opportunities for us because, it triggers the need on the part of our clients to know and that’s what Ipsos is built for.
So I think as we go into 2023, we should remind, it’s important to remember that one of the reasons for our strength this year has been our diversity, both in terms of our geographic footprint and the spread of clients. It’s an old saying that, war in Europe means business is good in Latin America, but that certainly seems to be the case now. And, I think we’ve seen in the last 24 months, China doing well, doing less well, Asia Pacific doing less well. But then actually now is that part of the accepting China has now taken off again. So we’ve slowed down in Europe, but we’ve taken off in Asia, and that spread of — spread of countries and regions that we represent means that we’re in a sense well placed for whatever happens in the global economy.
We are not too dependent on any one client. Only about 17% of our revenue comes from our top 10 clients, only a quarter from our top 20 clients. So again, we want to build strong relationships of all our clients, but we are not too dependent on any single one. And when you look at the different sectors that we are present in, and again, this is a deliberate strategy, as we discussed on our Investor Day on the 14th of June, we are not just concentrating like some competitors very heavily on consumer package goods important, though, they are and marketing tech, but our pharma business is growing at a compound rate of 9% a year. It’s become 16% of our revenue now back compared to 12% back in 2014. The public sector has grown from 6% to 11% of our revenues, and it’s pretty much countercyclical.
We, have seen for years and years and it’s my personal background, it’s countercyclical in a recession, 20% compound growth over the last few years. Our work for what we call our booster clients, Google, Amazon, Facebook, Apple, etcetera, growing by 15% compound growth over the last three years. And again, from only 1% back in 2014 to 6% now, those individual clients and consumer package goods are still a very important part of the sectors that we work in.
It’s historical, it’s resilient. People always need soap, toothpaste etcetera. So the fact that it’s diminished slightly as part of our portfolio in some sense it’s just protective in some ways. But overall, 5% compound growth. So again, we are in a range of sectors that mean that we feel that we are ready for whatever comes next in the global economy. And when we look at going forward into 2023, at this point, our order book for 2023 compared to last year at this point is up 8%. So again, we feel reasonably confident about the future.
I said that we talk about the outlook for the rest of the year, and I think all the signals that we’ve seen them mean that we could now say that it’s almost, we are pretty set that our organic growth will be closer to 6% than the 5% we were talking about at the beginning of the year. The operating margin is holding up well.
It will be comparable to last year and I think a key point for experienced Ipsos’ watches, Dan and I were just discussing this. What’s clear is that our — we are now — we have now moved to a new level of operating margin that we are able to maintain that is significantly above where we were four or five years ago and of course, we continue to aim for our 15%. But that is where we are. We feel pretty confident about the rest of ’22 and actually confident about 2023.
So thank you for listening. I think you can dial in if you want to ask any questions and we remain at your disposal. Thank you.
Question-and-Answer Session
Operator
[Operator instructions] Today’s first question is coming from [indiscernible]. Please go ahead. Your line is open.
For taking my questions.
Unidentified Analyst
Okay. So, I have several question. First you are talking about another book. You are talking about another book of 8% higher than last year at end of September for 2020. What does the order book level at the end of September means in terms of percentage jobs?
Ben Page
Good question. It’s about, I think from memory around 30%, 20% to 30% of the actual work that we will tend to do each year.
Dan Levy
So it’s 20% to 30% of the book of the beginning of the year. So what we have so far will be roughly 10% of the whole year. 2023. Is that clear Manual?
Unidentified Analyst
Okay. That’s clear. Yeah, that’s very clear, very useful. Second question still about the order book. Can we have delivered gross at the end of September of 2022?
Dan Levy
That’s an interesting one. I think basically we are saying that we are absolutely confident
Unidentified Analyst
I was not able to find the data.
Dan Levy
Yeah, if you — if we can do the math, but we are absolutely confident about 6% organic growth this year around arena [ph], closer to 6% and 5% as we’ve been saying. So we’re not at all worried about the last quarter.
Unidentified Analyst
Okay. Can you also remind us your exposure to the UK market and if we have to be worried for your business in that country following the political instability and the financial crazy, but that may be also an opportunity, at least in the short term.
Ben Page
Yeah, so as we showed you, I’ll go back, I don’t know, if you can still see the slides as well as, I don’t know if you still have vision, we are, it’s about 16% of our revenue this year. Actually the business is performing very strongly. So although the UK is one of the countries that has a strong COVID effect in its numbers, the underlying business is in double digit growth and is in one of our strongest countries.
And I think, to be honest, a bigger upset is actually a general election and a change of government than anything else because the other thing you should remember about the UK business, and indeed the UK stock market is of course that a lot of our business in the UK is not about the UK economy or even in the UK. A very large part of it is colleagues based in the United Kingdom, but actually working and doing research for global clients around the world, because London is one of the global cities in this industry. And that’s one of the reasons why we have such a strong UK business. So I’m not too worried about the state of the UK economy and its impact on our UK numbers, to be honest.
Unidentified Analyst
Okay. My last question about M&A from some negotiations progressing well. Are you confident to achieve some promising deals in the near future? The next 12 months to 18 months? I saw you have just appointed a new head of mergers and acquisition at Ipsos?
Ben Page
Yes. Well, precisely, his task is to help achieve that. So we do have some things that we will be — we think we’ll be able to announce very soon. We have a pipeline of over 20 companies that we are talking to. And we will — it’s certainly one of our top priorities and we’ll keep working hard on it.
Dan Levy
So we have more than 20 targets. There are small things, bigger things and things which are more advanced than others. And we should probably be able to on something at some point.
Unidentified Analyst
Okay. So we remain patient. Thank you very much.
Ben Page
No problem. Thank you.
Operator
And thank you very much, sir. The next question is coming from [indiscernible]. Please go ahead.
Unidentified Analyst
Hello. Hello everyone. Congratulations for the results and thanks as well for the very clear presentations. I do have some questions, though. Some have already been answered. Perhaps on — you elaborated a bit on this uncertainties becoming opportunities for your business. Could we try to quantify a bit this new contracts related to war inflation in terms of their share of revenues for Ipsos? That’s the first question.
Ben Page
Yeah, I don’t think we are going to be able to give you that level — or publish that level of granularity to be honest. But I think just as a very dramatic example the facts that we were able to only shrink by 6.5 % in the first year of COVID, and then in the second year of COVID 2021 to grow by 17.9%, that is actually a dramatic example of how the pandemic actually, for example, created a demand for work that we would never have anticipated.
So it’s hard to be specific. Each situation is different, but, we have one of the strengths of Ipsos is the diversity of the services it provides. The fact that we have physical infrastructure in many countries that allow us to do things that actually a competitor like YouGov couldn’t even begin to think about doing, to be quite honest means that, and the spread of countries, the spread of sectors means that I think we are as confident as we can be about the future.
And to give you one more data point on that, we were just looking at what happened after the global financial crash, and actually we shrank much less than we did during the pandemic. We only shrank by 3.5%. So the spread of countries, the spread of services, yes, it’s, I don’t think it means that growth is going to take off in 2023. We’re not — we’re not saying that, and we’ll come to our predictions for 2023 in due course, but it does mean that we are a resilient company that is able to pivot quickly and also is very experienced in controlling its costs.
Unidentified Analyst
Thank you. And so going on to 2023 just mentioned that you are confident in 2023, what should we take as a reference point although maybe it’s a bit early, too early to tell, but can we just base ourselves on the 2022, 2025 plan of 5% to 7% organic growth for 2023
Ben Page
Exactly. I think, Yeah, exactly, and we have absolutely no reason, as we say in the press release, to believe that we are not — we are not on track. We are on track to deliver that plan, and that’s what we expect to happen in 2023.
Unidentified Analyst
Thanks. Another one then on revenues diversification, which it was quite impressive to see that your top 10 clients share has been decreasing constantly over the last two years, or at least over the last two years, maybe perhaps more. Can you elaborate a bit on who — how are you diversifying with new clients? Who are your new clients? Are they only coming from new services or?
Ben Page
To be honest, it’s across the piece. So, it’s partly a reflection of our strategy of focusing on not just on the private sector, but also on the public sector. So there are public services all over the world that we add to our portfolio of major clients. It’s also our focus on, particularly in the United States on tech and media clients, which is in the — at the long — if you look at the long run, you are seeing a business that 10 years or 12 years ago was heavily focused on consumer package goods and has moved with the growth of the tech sector to have more clients in that sector.
But we have a — the other thing is that some of our new services offer — while offering us very good margins, So something like Ipsos’ Digital, they also open up a new addressable market of sometimes national rather than international clients who previously may have regarded us as too expensive, but now can buy Ipsos’ expertise at a slightly cheaper price, but actually at a better margin to us and so all of those things together are driving our diversification of our client base.
Unidentified Analyst
Okay, Thanks clear and just two other questions for me. One of them is that I saw that you scheduled a new Investor Day for June 2023. Should we expect a new financial plan or only you deep typing into the new service lines and so on so forth?
Ben Page
At the moment, I think we’re sticking with the plan that’s less than six months old and on the 14th of June. So yeah, so no, I think we might, we might give you more detail on the services, and particularly we want to talk about our focus on ESG. You mentioned the appointment of Jean-Michel Mabon, as our new Head of Mergers and Acquisitions, but we’ve also appointed one of our most senior executives, Lauren Demar, to lead and to help focus our work on ESG, which is also important both to us as a company, but also in terms of the services we provide to our clients who are increasingly, of course, interested in that. And the financial services sector is one of the sectors where our, clients are particularly interested. Of course.
Unidentified Analyst
Thanks clear. And last one that’s the one regarding inflation and wage growth. When we see WPP third quarter results, they were a bit less optimistic on operating margins and inflation pressure pressures. Could you comment and perhaps celebrate a bit on that? Have you passed on wage or salary increases for 2023, et cetera?
Ben Page
So, well, again, we’re not — we’re not going to give details on 2023 right now, but what we’ve been able to hold down our costs as more le more than our — less than our prices have gone in. In other words, the costs are rising less quickly than our prices, if you see what I mean. So, our margins are protected. We are passing on inflation. Remember as we’ve discussed on these costs before, a third of our projects last only three months. So we have a continual, in a sense, it’s a bit like an aircraft carrier. There’s planes coming in, there’s planes taking off. We are able to review our pricing on a very regular basis, on a substantial part of our portfolio.
Another third of our contracts have inflation baked in CPI or otherwise and another third of course, we will be negotiating. It’s something that we are acutely sensitive to. And of course, the fact that we operate in a very wide range of countries, including countries like Turkey and Argentina, means that we have a lot of very practical experience of dealing with the type of environment that we are moving into. And we have deliberately used that experience in markets that where many of the staff are less used to that type of environment. So, so far it’s not having an adverse effect on our margin. And, we obviously intend to continue that way.
Unidentified Analyst
Many things. Very clear.
Operator
[Operator instructions] At this time, we do have a question coming from [indiscernible] coming from BNP Paribas. Please go ahead. Your line is open. Hello? Do you hear me?
Unidentified Analyst
Hi Ben. Hi Dan. Actually, I just would like a follow up on one of your comment. This is about the first question regarding your order book, which is up for ’23, which is up by 8%. I’m not sure to well understand your comment about the 20% or 30% thing that you should recognize in ’23. If you can just be more clear on the what does it mean? Thank you.
Ben Page
I’ll give that one to Dan.
Dan Levy
So it just mean that the share of the of the order book that we go in 2023 that we have so far, the end of September is 30% of the whole order book that we will have at the end of the year for 2023. Is that clear?
Unidentified Analyst
Yes, much better. Thank you. And that’s it on my side. Other question have been answered,
Operator
[Operator instructions] We do not appear to have any further questions at this summer. Return to call over, back over to the — meeting organizers for sorry sir, they’re making a lawyer out of me. We have Emanuel [ph] calling in. Please go ahead.
Unidentified Analyst
Yes, sorry, just to follow up on digital the platform. Is that correct expectation for this a little bit lower than expectations? If I’m right, you don’t expect sales growth in H2 compared to H1 for this Ipsos Digital platform?
Ben Page
Well, I don’t why you said that, Manuel. So, as I said, we target to €60 million for 2022. We have a 90% organic gross. And so your point is, your point is that what the…
Dan Levy
It’s all in the first half and none in the second.
Unidentified Analyst
Seems you expect exactly the same level of sales in H2 compared to H1 €30 million of sale for Ipsos Digital, means no further growth. It seems a little bit soft for this year.
Ben Page
So we are €40 million year-to-date, so we are at the end of September and we expect €60 million at the end of the year. So that’s roughly, I think consistent with the 90% growth at the last year. I think it works. But yeah, so to answer your question beyond the numbers, they are absolutely no slow. They Ipsos Digital on the contrary. It’s growing very quickly.
Dan Levy
We’re adding new countries and new services to the platform all the time. So, no, it’s growing.
Ben Page
It’s growing very quickly.
Unidentified Analyst
Okay. Thank you very much.
Operator
Thank you, sir. At this time, we do not have any further questions. Thank you.
Dan Levy
Thank you, everybody. We will see you next time.
Operator
Ladies and gentlemen, that will conclude today’s conference. And thank you much for your attendance. You may now disconnect.
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