In the Q3 earnings presentation, Ipsos, a global market research company, reported a modest year-over-year growth, with a notable slowdown in the third quarter due to political and budgetary challenges in key markets. Despite these headwinds, the company remains optimistic about its long-term prospects, as evidenced by the recent acquisition moves and the investment by the Lac1 fund. Ipsos (ticker: IPS), which was also recognized by Newsweek and Time Magazine for its trustworthiness and workplace environment, is focusing on strategic acquisitions and technological advancements to bolster its future performance.
Key Takeaways
- Ipsos reported a 3.3% overall growth for the year, with organic growth at 2.4% and a scope effect from acquisitions at 2.8%.
- The company experienced a slowdown in Q3 with only 0.5% growth, significantly impacted by political uncertainty in France, budgetary indecision in the UK, and mixed results in the US.
- Ipsos Digital contributed significantly with a 32% organic growth, boosting gross margins.
- The company is in the process of acquiring infas, a German public sector research leader, and has received investment from the Lac1 fund.
- For 2024, Ipsos expects around 1% organic growth and an operating margin of approximately 13%.
Company Outlook
- Ipsos anticipates a Q4 organic growth of around 1%, with an operating margin estimated at 13%.
- Acquisitions have contributed approximately €60 million this year, with ongoing talks for further deals.
- The company is focusing on strategic acquisitions and leveraging advancements in automation and Generative AI to maintain margins in the future.
- Ipsos aims to improve its growth trajectory in 2025, particularly in the U.S. market.
Bearish Highlights
- Q3 saw a marked slowdown due to political instability and budgetary uncertainty in key markets like France and the UK.
- In the U.S., growth challenges were evenly split between internal management issues and external market conditions.
- The Citizens segment in the U.S. is experiencing a slowdown due to recent government changes, with a recovery expected in 2025.
Bullish Highlights
- EMEA region reported a strong 4.9% organic growth in Q3, with the Middle East, Germany, and Italy performing well.
- The company's digital segment grew by 32% organically, indicating a strong market position.
- The Lac1 fund's investment and the impending acquisition of infas demonstrate confidence in Ipsos' growth potential.
Misses
- U.S. market performance was mixed, with strong growth in Advertising and Innovation but significant underperformance in Public Affairs and Healthcare.
- The company's growth in the Americas was uneven.
Q&A Highlights
- New senior leadership has been appointed in the U.S. Government business to address growth challenges.
- The Consumer Packaged Goods sector remains resilient despite inflation concerns.
- Ben Page emphasized the importance of strategic fits in M&A discussions, focusing on small to mid-size companies.
- Visibility into annual revenue is about 30% at the start of the year, with some businesses showing up to 80% visibility.
- The next earnings update is scheduled for February, with management confident in the underlying structural growth.
Ipsos' third-quarter results reflect a company navigating through a turbulent period with strategic initiatives and a focus on long-term growth. The company's efforts to adapt to market conditions and invest in technology and strategic acquisitions are aimed at improving its growth trajectory and maintaining profitability. While the near-term outlook shows modest growth, the company's actions suggest a commitment to strengthening its position in the global market research industry.
Full transcript - None (IPSOF) Q3 2024:
Operator: Good morning, everybody. Welcome to Ipsos’ Q3 Results Presentation. We are going to take you through what we've seen overall this year and also in Q3 and discuss a little bit more about the situation. I'm joined, of course by my colleague, Dan Levy from Ipsos. Could somebody turn on the screens in the studio, please? Thank you. So, let’s look at the numbers to start with. Overall, at this point in the year, we have a total growth at Ipsos of 3.3% growth, of that 2.4% is organic with a scope effect from our acquisitions of 2.8% and a negative FX effect taking us to where we are. But of course in Q3, as we announced recently, greater slowdown at 0.5%, organically pretty much flat low 0.1% again with the scope effect and a negative FX effect. So, definite slowdown in activity, which we can now talk about. Let’s have a look at what we can see around the world. So, first of all, I think in France, where I am sitting today, we have a lot of political uncertainty and a clear slowdown in our French business. It’s around 5% of our revenue, but it is significant. In the UK, the new government is still deciding what to do. There is a budget there in six days’ time that will have some – set some clarity and of course, in some Asian countries we’ve also seen a slowdown. And that is compounded in a sense by the continued mixed performance in the United States. And there, we can see strong growth in our Advertising business and our Innovation business. But we also have some significant and major parts of that business that are underperforming where we are making changes. Overall, in the United States, we have a new management team now in place over the summer, and we're making significant changes inside that business. But it will take time of course for that to feed through. The challenge of course is that the world is volatile and uncertain and across the world we can see good performance, interestingly, in some other Continental European countries like Germany and Italy, the Middle East and LATAM are actually showing double-digit growth. We have resilient demand from CPG, which is important to major parts of our overall customer base. And our Ipsos Digital Solution is growing strongly as planned. And actually outside the United States, in the first nine months of the year, we’ve seen growth of 5.6% it’s just showing the heavyweight of the United States inside Ipsos’ numbers. So a mix picture, but also of course, some signs of slowdown. I'll hand over to Dan now, who will take you through some more of the details.
Dan Lévy: Thank you, very much Ben. So, let's start with the revenue breakdown by region and Ben has already spoken a little bit about that. The activity in the EMEA region is still strong with a 4.9% organic growth in Q3 and 6.7% over nine months. The Middle East records double-digit growth and we have also very good growth in several countries from Continental Europe, and particularly, Germany, and Italy. And conversely, as Ben said, we do see some slowdown in the UK and in France and in France, particularly on the back of the political uncertainty. In the Americas, the Latin America business is still growing very well, but our performance is penalized particularly by the situation in the US. As Ben said, the situation in the US is quite uneven. So we have good growth on some service lines and particularly Innovations, but also creative excellence, which are performing well. And this is penalized more by the specific situation in Public Affairs and Healthcare, which are declining. We have, as you know, appointed a new country manager in the US in May and we expect the situation to improve during the course of 2025. And finally, in Asia Pacific, we are growing by a bit more than 3% over nine months. The Chinese situation, the Chinese economic climate is still sluggish. So there is not a lot to expect in the short term from China. And we have seen also some slowdown in the rest of the region, particularly in countries like India, who used to grow by nearly 20% at the beginning of the year. But where we see some delays and some wait and see attitude, particularly by large international clients. Turning now to the performance by audience. The consumers’ activity are driving the Group growth, 6%, organic growth over nine months. And this is again coming from Innovation, Customer Experience and Advertising. The Citizens, doctors and patients audiences are shrinking and this is particularly linked to the specific situation in the US that I described before on the Pharma sector and on Public Affairs. By sector now, good growth, very resilient growth actually on the CPG client, plus 7% over nine months. I think, again, this is coming from the fact that these clients have been able to increase their prices during the inflation period. And it's probably also driven by the fact that consumer behaviors are changing a lot in this very moving world and that drives innovation for our new products and that drives ultimately a demand from market research. Technology, media and telecom is growing well, plus 5% over nine months. This is mainly driven by the big tech clients’ demand. As you remember, we had a very strong growth in 2022 on this big tech clients. Then we have a correction in 2023 and we are now back to a mid-single-digits organic growth in 2024, mainly on product development linked to a Generative AI developments. And I will not be commenting Pharma and Public sector that I commented in the previous slides. Very good performance of Ipsos Digital, our DIY platform, who is - which is currently growing at 32% organically. Ipsos Digital, as you remember, is typically twice the profitability of the Group and it is actually the very good success of Ipsos Digital, which is partly explaining the fact that we are increasing our gross margin in 2024, which enable us to confirm our guidance on the operating margin. We are also pursuing our investments in acquisition and we have launched, as you know a voluntary takeover bid for infas, infas is the leader in Germany on public sector research. Its 300 plus employees and €50 million revenue and we have purchased so far, nearly 90% of the share of infas. And so we expect to finish this deal within the next few weeks. And finally, as you know, the Lac1 fund managed by Bpifrance became a major long-term shareholder for Ipsos, which I think demonstrate the confidence in Ipsos long-term growth potential. Lac1 is targeting to hold between 5% and 10% of Ipsos capital. Thank you for your attention. And now, over to Ben for more business updates.
Ben Page: Thank you, very much, Dan. So, I just wanted to share with you the real world impact that Ipsos has for many of our clients in some examples now because of course, our whole job and the unique thing about the company is of course, our global footprint. But also now our unique position in the market, in terms of the range and diversity of services that we are providing to our clients. It's a very complex global context. We’ve recently released our latest Global Trends report. There is a link on this slide if you’d like to have a look at it. But it’s a reminder of the just the volatility of the world that we're now in and whether it's the environment, politics, which is froze up new surprises virtually every day, wherever they are geopolitical or indeed locally. The changes that we're announcing in our societies both with migration, but also of course the declining birth rates, which are going to become more and more of an issue right across the West. And then, of course, the impact of technologies like Generative AI and how people as individuals and just individual consumers are reacting to that. We can see, for example, the rise of a trend we call Nouveau nihilism, if you have a look at our report, the younger people who have just given up trying to get on because the cost of housing is so difficult, but chances of getting a good pension are too challenging. So, a lot of things that our clients are facing and we are helping them navigate. Some real world examples of work that we are currently doing, for the reno group, we are looking at behavioural change around mobility and this is helping reno to power up its individual brands. So reno, Dacia, Alpine and Mobilize really digging in deep into where people are on the migration to electrification of car use and how they're making choices over engine type, et cetera, their frequency of use and indeed attitudes to car ownership. So, pretty fundamental in terms of understanding the market. Over in the United States, where we have a very exciting election, which of course is producing huge uncertainty. It’s currently pretty much a tossup, although if you ask my personal opinion, Donald Trump is likely to win at the moment, but still some time to go. But of course, the challenge the United States has at the macro level is the – is becoming a multi-racial democracy that is at ease with itself. Many of America's biggest challenges are actually around becoming comfortable with itself, rather than any external challenges. So for paramount, we are looking at how do you serve a very diverse population. What are these different groups in the population looking for? How do you make your advertising effective? And interestingly, we can see in our in our latest work 6 out of 10 people in the US saying that people to that brands are actually are losing authenticity when they are trying to look diverse and inclusive, if you just look so fake. So how do you do that in an authentic way? Back here in France, during the Olympics, this summer, we’ve been looking at how the people actually get there. How did that work out across France? 13,000 interviews during the Olympics from dawn till dust in multiple languages, looking at all of the big games venues. Just again, an example of the diversity of the work that we are doing and helping SNCF do a brilliant job in terms of making the networks work much better than in my country, the UK. And then finally, in Britain, for the BBC, the British Broadcasting Corporation, looking at how the BBC can responsibly use AI. Of course, the BBC is responsible for the majority of broadcast content in the United Kingdom and looking there at exactly how do people react to the use of AI in the production of news and entertainment using AI. And that’s of course have shaped their editorial guidelines as they say, the Chief Technical Advisor says it’s fundamental in planning their future AI use. So, across the economy, across the world, Ipsos is making a difference, and it's one of the things that motivates our 20,000 keen employees. We've also just being named one of the world's most trustworthy companies by Newsweek and one of the best companies to work in the world by Time Magazine, which again, is nice to see. And so, overall, we can see some headwinds at the moment, but we're very positive about the overall direction. And when it comes to the outlook, of course, as Dan has already said, of course, we can see a slowdown in growth. We have depreciated our expectations for Q4, which takes us to an organic growth for this year of around 1%. But we are protecting our operating margin by managing our costs carefully and also helped of course by the ongoing improvement in our gross margins. So our operating margin will be around 13%. Acquisitions this year have added around €60 million and of course, we are in ongoing conversations about more. And with that, I will stop and take your questions. So, thank you.
Operator: [Operator Instructions] The first question is from Emmanuel Matot from ODDO. Please go ahead.
Emmanuel Matot: . Yes, good morning, Ben. Good morning, Dan.
Ben Page: Hi, Emmanuel.
Dan Lévy: Hi, Emmanuel.
Emmanuel Matot: Can you hear me?
Ben Page: Yeah.
Emmanuel Matot: Three questions for me. First, which part of the trade declined in the US in Q3 is related to difficult market condition? And which part is related to the lack of management leadership according to you? What measures have been taken in response to the serious difficulties you are facing there? Second, does the difficult situation in the US calling to question, your acquisition plans in that country? And third, do you feel confident about the business perspectives with the CPG customers in the short, medium-term? It seems that the sales growth from the segments has slowdown in Q3? Thank you.
Ben Page: Okay, well, why don't I take some of those? And then we can - then we we'll see where we come out. So in terms of the US, I will say it’s difficult to be precise, but it’s probably 50/50 in terms of internal versus external factors, in terms of what happened in Q3. And in terms of what we're doing about it, we have recently announced the appointment of some new senior leadership into our Government business in the United States, our PA business. We’ve got further announcement that we’ll be making in the next few days in terms of the leadership of that business. So, that’s a substantial part of the US. And we know that we will start to see some positive changes there. I don’t think it froze into question the possibility of further acquisitions in the US, because overall, the US market, we can see, if you look at the numbers, you can see continued growth in that market often, tech-enabled, but across the – the Government market in the US looks pretty strong and indeed government spending in the US continues. CPG, has been very resilient, post the pandemic and Dan has already referred to the sector’s ability to increase prices in the first part of the recovery, which protected their profitability. They're now of course, facing consumers who are still – I think even as inflation falls, still very worried about the cost of living. And what that means is that they need to keep working very hard on Innovation. I mean, it's very interesting when I spend time with our CPG clients just how much work they're doing around the world in terms of trying to respond to smaller brands coming into their categories? Anybody can sort of almost start a brand of an Instagram account anywhere these days. So, we expect that to be pretty resilient. It’s always innovative and it’s challenging in that sector. There that - it’s a very, very resilient sector, but also very innovative and trying - wanting to try new things, but we think the solutions that we have there to help them with their advertising and to help them with their innovation in particular, and we've just been one of the largest consumer good group groups in the world has just made us their main innovation partners for example. That means, that we stay, I think positive about that. Dan, if you want to add anything Dan?
Dan Lévy: I think it’s fine, yeah.
Ben Page: It’s fine? Yeah. Thank you, Emmanuel.
Emmanuel Matot: Thank you very much.
Operator: The next question is from Gregoire Hermann, Berenberg. Please go ahead.
Gregoire Hermann: Hey, good morning everyone. Thanks for taking my questions. The first one will be maybe on growth. I mean, if we look obviously the nine months organic growth and it’s quite decent on most regions and audiences, but if we look at Q3, we can clearly feel a slowdown on all regions and all audiences. So, I am just wondering how confident are you that next year you’ll be able to somehow recover or change the dynamic here? I guess, regardless of macro, which is a bit tough to forecast, but you’ve pointed that you had managerial issues in certain places and that we are just seeing a dynamic that is declining. So, yeah, how confident are you for 2025 to change the dynamic here? Maybe the second question would be on the margins, the – all that’s quite fairly, can you be a bit more specific on what exactly you have been improving on this – the much lower growth? And how are you confident if you can maintain this level?
Ben Page: Yeah.
Gregoire Hermann: And maybe just on M&A and potential return to shareholders, do you have a bit more visibility? I think you had the plan for a certain amount of returning by 2025. You have spent a little amount of money of that plan so far. Do you have more visibility? Do you or so think about potential share buyback? Is there anything you can update with at the moment, especially when we consider the current valuation of the firm? Thank you.
Ben Page: I think on growth, it's important to remember that while we're presenting data at sort of three or four regional level in this, which is what we share in these calls. If you look at Latin America for example, it's performing very, very strongly. The Middle East, the North Africa, very, very strong. Outside, France to the UK in Europe, again, strong growth. So, the geographic footprint, even with the macro slowdown it’s noticeable that quite a few companies have downgraded their revenue forecasts for 2024 at the moment. Even in that situation, we can see parts of the business that’s growing strongly. And that gives us some confidence that if we can get things right, particularly in the United States, where we are obviously making quite a few changes that we should see some decent growth. On the margin what we're seeing is obviously ongoing digitization, but importantly now, the ongoing application of automation and the use of Generative AI, the majority of our employees are now certified on the use of Generative AI. It's something that we've been doing over the last few months. And that really does improve productivity. So I think, those things together mean that we're pretty confident that we can protect our margin and continue to invest into the future. On acquisitions and share buybacks, I'll hand over to Dan. We are having conversations of a completely different magnitude to the deals that we have announced so far planned.
Dan Lévy: Yeah, so maybe just to start with the word on the margin. So as Ben said, we have made some productivity gains on the back of more automated platform and the investments we are doing on our platforms and also in the way we collect and manage the data, particularly on the direct costs are bearing fruits. That's, that's what you can see both on the improvement of gross margin, but also on the payroll. And also, be beyond the payroll, I think the ability to maintain the operating profit is coming from the improvement of the gross margin, which partly comes also from a favorable business mix and particularly from Ipsos Digital that I mentioned before, which is growing very nicely. On the M&A, we are, as you know, we have not reached the target that we set in 2022, but there is no point doing M&A for doing M&A. We are looking at small to mid-size companies currently. And we do have the possibility to invest given our low leverage.
Gregoire Hermann: Okay. Thank you.
Operator: The next question is from [Indiscernible] at Bernstein. Please go ahead.
Unidentified Analyst: Yes, good morning. Thank you for taking my two questions. The first one is for the Citizens business. Could you share the geographic mix US, Europe will bring off? And would you see potential for recovery in 2015 after 2014 with many elections? And the second question is about your visibility. What visibility have you got on your order book today? And what is the last trend?
Ben Page: So, on the Citizens segment I think the key, the US is a heavyweight in that business. A very, very heavyweight, much, much higher than the America was in the business as a whole. And as a result, the underperformance in the United States explains most, but not all of that. I mean, we’ve also seen, when governments change, which they have done recently in the UK and in France, both major countries in the Ipsos Group together with the US, it is the majority of our government there's more than a large part of our government business. What you tend to see is a slowdown both because in the UK for example, where I come from, there is something called purdah where all activity stops in the month before the election. You then have new ministers who need to learn about their jobs, their posts and their spending plans. And of course, in the UK, those are all on ice while they work out what they're doing with the deficit. Because of that, there has been a slowdown in government spending in the UK. And over time, of course the government, I mean, Rachel Reeves is in the - visiting the IMF to explain how we're going to borrow more money to spend on things, which should ultimately lead to the need for more research to understand how effectively those investments are playing out. But it will take some time into 2025. And that's the same situation in Washington D.C. with the US government, where again, the State spending, whoever wins the US election and Donald Trump has some fairly expansive ideas about various aspects of government spending, potentially it does take time, because these are very chunky contracts, $10 million plus. And those of course, take time to be allocated and then to start to play through in the account. So again, it will be in the - later in ‘25 that you would expect to see the Citizens segment really pick up to be honest. But overall, in terms of visibility, very roughly, we can – there are some of our businesses where we can see, we have 80% of the revenue visible at the end of the first quarter. But in general, we have about only 30% or so of our revenue visible at the end of January for the year. So, and you are roughly running very crudely at around three months visibility on the total envelope. So that’s how it’s looking at the moment. It is slower, but, I think we can see very clearly through that to the underlying structural growth.
Unidentified Analyst: Thank you.
Operator: [Operator Instructions] I turn the conference back to the management as there are no more questions from the conference call.
Ben Page: Well, thank you, everybody. And we will see you again in February for our annual results. Thank you.
Dan Lévy: Thank you.
Ben Page: Bye. Bye.
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