Ipsos SA

PAR:IPS

Earnings Call Analysis

Ipsos achieves 4.5% organic growth amid mixed regional performance

Ipsos reported a 4.8% revenue growth for Q1 2024, reaching EUR 558 million, with organic growth at 4.5%. Noteworthy regional performances included nearly 10% organic growth in EMEA and over 9% in Asia Pacific, especially in India and Southeast Asia. However, U.S. revenue declined by 3% due to market softness and election uncertainties. Despite challenges, Ipsos remains confident about achieving over 4% organic growth and maintaining a 13% operating margin for the year, thanks to strong consumer and new services growth.

Strong Start to 2024

Ipsos began 2024 with a solid performance, reporting revenue of EUR 558 million, marking a 4.8% growth. This growth was driven by a combination of organic growth of 4.5% and a 2.7% increase attributed to recent acquisitions. However, the company faced some negative foreign exchange impacts.

Regional Performance Insights

The company's regional performance was notably varied. The EMEA region showed exceptional strength with nearly 10% organic growth, particularly in Switzerland and Germany, benefiting from recent management changes. Asia-Pacific also performed well, with organic growth exceeding 9%. Notably, both India and Southeast Asia experienced double-digit growth, while performance in China remains cautious due to macroeconomic challenges. Meanwhile, the Americas faced obstacles, particularly in the U.S., where overall revenues declined by about 3% due to market softness leading up to the presidential election.

U.S. Market Analysis and Outlook

In the U.S., mixed trends emerged. On one hand, the tech sector experienced moderate recovery, while public affairs and healthcare segments struggled due to a lack of recurring contracts and election-related uncertainties. Notably, the company's order book in the U.S. is ahead of revenue, suggesting potential catch-up in performance later this year. A new country manager set to arrive in May aims at revitalizing growth in this key market, which represents about half of the global market research sector.

Resilience and Growth Across Client Groups

Ipsos showed resilience particularly in consumer activity, with double-digit growth reflecting strong performance with Consumer Packaged Goods (CPG) clients. Although public affairs and healthcare segments faced challenges in the U.S., excluding the U.S. markets, overall performance across various audience segments remained solid.

Innovation and New Services Driving Growth

Ipsos introduced new services through its digital platforms, which collectively achieved 15% organic growth in Q1 and now represent 21% of total revenue. Launching innovative tools, including the Ipsos Facto platform and generative AI capabilities, reflects Ipsos’s commitment to leveraging technology for increased productivity. These innovations, like the InnoExplorer product for rapid idea generation, are expected to enhance service delivery and drive further growth.

Guidance and Expectations

Looking ahead, Ipsos remains confident in achieving its target organic growth of over 4% and maintaining an operating margin around 13%. Management's focus on careful payroll management and strategic hiring in high-growth areas such as India aims to support these goals as the company navigates through the uncertain economic landscape.

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon, ladies and gentlemen. This is the conference operator. Welcome and thank you for joining the Ipsos Q1 2024 Results Conference Call and Webcast. [Operator Instructions]

At this time, I would like to turn the conference over to Ben Page, CEO. Please go ahead, sir.

[Ben Page, executive]

Thank you very much, and thank you to everybody on the call for joining. Good afternoon and good evening. It gives me great pleasure just to take you through the first 3 months results of the year. And the headlines are 4.8% growth with revenue of EUR 558 million. That growth is comprised of 4.5% organic growth, but also a 2.7% scope effect because of acquisitions that we added last year. There is a negative FX effect, but overall, 4.8% in absolute terms.

What I'd now like to do is just hand over to my CFO, Dan Levy, who will take you through a few more of the details, Dan.

[Dan Levy, executive]

Thank you very much, Ben. So let's start with the revenue breakdown by region. As you can see on this table, we realized a very strong performance in EMEA in Q1 with an organic growth, which is nearly 10%. Performance is very good in most Continental Europe markets and in particularly in Switzerland and Germany, Germany is doing far better this year as compared to what it used to do in the past years. It seems that the recent change in management in Germany is starting to pay off.

Very good performance as well in Asia Pacific, which recorded an organic growth of above 9%, as you see on the chart. India and Southeast Asia, which had already done very good performance in 2023 are continuing their momentum with double-digit growth. We see also some growth in China in Q1, but we prefer to remain cautious at this stage on China, given the lack of macroeconomic visibility and the structural challenges that the Chinese economy is currently facing.

In the Americas, we keep a good momentum in Latin America but as you see on the chart, the Americas globally are down by around 3% coming from the United States. We are facing the United States some market softness impacting most professional services sectors. And we observe also from our clients to kind of wait-and-see attitude due to the forthcoming presidential election in November that certainly creates uncertainty.

So our performance in the U.S., as you have understood, is uneven. On the one hand, we have made progress, and we have seen some recovery from most of the major tech clients, and we expect on tech clients moderate growth in 2024, both in the U.S. and globally speaking.

Our service lines dedicated to consumers in the U.S. are also doing very well. But on the other hand, our public affairs business is suffering from the end of a few nonrecurring contracts that we had in 2023 and also a slowdown ahead of the presidential election, which is the usual pattern when you have general election on public affairs.

Health care activity is temporary down in the U.S. as well, but it should recover in the coming months. We have here a timing effect because some contracts were booked a bit later in 2024 that compared to 2023. And so all in all, the market will remain difficult in the U.S. in the short term, but we expect performance to improve during the course of the year. And our order book in the U.S. at the end of March is ahead of our revenue, so there should be some catch-up during the course of the year.

I also would like to point out that a new country manager is going to be appointed in May in the U.S. with a new managerial organization, which will be put in place in North America to support our strong ambition in North America. America, I remind that to you, represents half of the market research globally. It is a very fragmented market, and it is a market in which we have a lot of growth opportunities.

Turning now to the performance by audience. As you see on the chart, we have very good performance on consumer activity with double-digit growth. This reflects the very strong resilience of our activity with CPG clients, which is particularly driven by our service line, which focus on innovation, on brand tracking, on market positioning and on qualitative studies.

The other audiences would it be clients and employees, citizens, doctors and patients are impacted by the unfavorable environment that I described in the United States. But if you exclude the United States, all these audiences are showing very solid growth.

We are doing well as well on our new services. So our new services, I remind you, encapsulate all our platforms, Ipsos.Digital, Ipsos Facto, our ESG offer, science and data, in particular, our data analytics work, advisory. And this is growing nicely at 15% organic growth in Q1 and now represent 21% of the group's revenue.

And so now I leave the floor to Ben for a focus on the last development of generative AI that will obviously develop more during our Investor Day in June.

[Ben Page, executive]

Thank you very much, Dan. And I wanted to just include a brief update on where we are on GenAI because it one of the areas where we've seen some of the most rapid transformation at Ipsos starting from virtually nothing in some ways, in early 2023. So we were using algorithms. We were using machine learning before ChatGPT was launched in November 2022. But of course, as soon as it was available and visible, it was immediately obvious that we would be able to use that across our business and make some significant changes to how we do things.

So in early 2023, we launched our own platform, Ipsos Facto. I think we believe we're ahead of our competitors in that space. And there, we are trying to let people use it to be more productive on a daily basis. We are building now prompt libraries for each part of our business. And some of these are now 30 pages long. If you just imagine 30 pages of text printed out. That's the type of thing that we're doing.

Because we can now, of course -- and one advantage is a larger company in this space we can bring together thousands of people's work together and then share it to even more people in order to use it to make a difference to what they're doing. So whether it's translation, summarizing documents, creating ideas and I'll show you an example in a minute, we are finding it applicable across the business.

So we're democratizing it. We're operating it and we're innovating it. But of course, we're able to do that on a secure platform that allows us to use client data with their permission in a way that you can't if you're just using a public one.

This year, we've gotten most of our employees now using it. We are launching 12 new products and solutions this year across 9 different service lines. And what this fundamentally shows is that we are combining our human intelligence, which is something that distinguishes Ipsos. We're always about the people and the skills of our people, but enhancing that with artificial intelligence.

So we think we have some of the best large language models on the market that we're deploying. We've got over 13 now being used inside Ipsos Facto, but also combined, of course, with all of our benchmark and historic data.

So to give you an example of that, these are some of the new products that we're launching. InnoExplorer is a way of rapidly generating new ideas and I'll show you how that works in a second. That is one of our clients said to us, when we showed them, just said take my money, they want to use it immediately.

Product transfer, looking at how well products might move from one culture and one market to another, and again, using AI in that sense. Our Signals GenAI offer allows us to take all of the social data that we have farmed and gathered together and collated over the last few years, billions of bits of data and then immediately analyze that to look for insights that haven't been detected before. An one of our major clients has already given that apprise last year.

AI boosted workshops being used by our qualitative researchers to create new ideas and deal with the fact that -- and however skilled individuals are, every single human being carries some sort of bias or perception bias or focused bias compared to another. And this -- using AI in this context allows a more comprehensive view and just checks that we haven't -- nobody has forgotten anything.

We also will be launching shortly in this -- in the next coming quarter an AI maturity model to allow people to predict how the -- how their own business could use AI. We're using better segmentations, mimicking consumers with synthetic personas, and we will be helping people, our clients curate this vast quantities of data that we -- that they hold and that we often hold on their behalf, using AI assisted curation later this year. And that's hugely important when people can just ask what does the data show about something. So there are some of the examples.

InnoExplorer is a particularly interesting one. It's an end-to-end solution for identifying new innovations. It creates ideas, new concepts and products, but it leverages the database of 150,000 previously tested innovations. So the way it's different to many other things on the market is that it builds in authentic consumer experiences from fresh data to train an AI model.

We then, of course, use our own expertise and experience in working on CPG innovation, other sorts of innovations with engineered prompts of the type that I've just described. And then, of course, we can fine-tune the algorithms using the data bases that we already have. So it's using this -- it's finding new uses, the large volumes of extent data that we have collected over decades that is really exciting about this.

And one example that we've done recently is for Arena. In the pet food market, here, they're trying to find new products, new services in the United States. What this allowed us to do is identify 42 new ideas for different types of cat and dog food, very competitive market, rapidly identify the ones that might have the most potential using InnoPredict, which looks at once you've created the idea how well it might perform and then, of course, let the client go with that concept to full development much more quickly and much more cost effectively, which is precisely, of course, the type of advantage that we believe generative AI will give many consumer-facing businesses.

So in terms of the outlook going forward, I hope that's whetted your appetite for one of the events coming up. The first is, of course, the Annual General Meeting on the 14th of May, for those of you who enjoy annual general meetings. And then a longer session on the -- at our Annual Investor Day on the 12th of June where we will take you through what we're doing on AI, but also what we are doing on speeding up and modernizing our digital backbone in general and how technology is playing out according to our road map across the business.

So I look forward to seeing many of you at 1 or 2 of those or both of those events. And just to confirm, given all of the numbers that we can see, we are on course for our organic growth as predicted of over 4%, but confident about that and absolutely on the operating margin of around 13%. But I'm sure that colleagues on the call will have questions and Dan and I are very happy to take them now. Thank you.

[Operator]

[Operator Instructions]. The first question is from Conor O'Shea with Kepler Cheuvreux.

[Conor O'Shea, analyst]

Two questions from my side, on the U.S. business, probably won't be too surprised at that. But first question, I wonder, can you give us just a clearer sense of how much of the decline in the U.S. was so stripping out the LatAm growth?

Secondly, can you say whether to what extent do you think that, that decline was related to market effect as Kantar had weak numbers still in the U.S. into the end of the year, but you had some management say, disruption there, and a bit of a vacuum. To what extent do you think that played a part and looking ahead with the arrival of new management in May. To what extent can that be rectified quickly?

And then the third question, just if you can give us a sense of the proportion of revenues that the public affairs business represents in the U.S. -- in your U.S. activity?

[Ben Page, executive]

Let me try and answer a few of those. We aren't doing a running commentary, I'm afraid, on individual countries, Conor, but you can probably make some kind of estimate. I think it's a mixture of the market effects that you can indeed see as you've remarked in the Kantar numbers as well. We're actually, according to the numbers they've just published, if I understand them correctly, they actually declined by 2% in the U.S. last year, we grew slightly. So it is a slightly more disrupted and tough market.

The PA business in America is a large -- slightly larger proportion than globally because, of course, it's a very large government in Washington. And I think having spent a fair amount of time there in the process of choosing the new CEO. I've been going there for around 10 days a month for a few months now. I think it's clear, what I find encouraging about the situation, although the numbers, of course, are less so at the moment is that there's a -- we have a very clear view about what we need to do.

I've been spending time with the senior leadership team there. We've already spent time with the new CEO who we, for contractual reasons, we can't announce yet exactly who it is, but we spent time and then we know what we're going to do, and I'm confident that we will start to make progress, but it is a big and complex country.

[Conor O'Shea, analyst]

Understood. Fair enough.

[Dan Levy, executive]

And as for the share of public affairs in the global business in the U.S., it's roughly 12%.

[Operator]

Mr. Page, Mr. Levy, there are no more questions registered at this time. I'll give the word back to you. Sorry, we've got a follow-up from Conor O'Shea.

[Conor O'Shea, analyst]

Take a couple of more questions. So do you think -- going back to the U.S. business, you're quite happy that the market effect there's no risk of AI already being deflationary in the market that some of your clients...

[Ben Page, executive]

Yes. It's still -- I think it's still too early to see that actually, Conor. And it's -- there's as much opportunity and new opportunity and excitement in terms of the potential as there is -- it isn't yet like PowerPoint. I'm still one of those people who believe that ultimately, it will tend to be like PowerPoint rather than something that eats the world or something that's fundamentally different.

But no, I think it's a bit too early to tell. What we can see is real excitement about some of the new services that we're offering and which is driving engagement with our clients and helping the growth. But let's wait a bit longer. Because I think the other thing to say is that it's moving so quickly that it's the potential applications change almost every week that you can think about.

[Conor O'Shea, analyst]

No, no, fair I think. And can you give us a little bit -- you used to give this number in the past, maybe in the half year, maybe you have it done. Emerging market -- growth in emerging markets versus developed markets overall in Q1 -- the organic growth? Is it faster in, I guess, with the U.S. dragging down, it should have been faster in the emerging markets? Is that -- is that fair to assume?

[Dan Levy, executive]

Yes. yes. So we have not -- we don't communicate this number, but qualitatively speaking, as you said, given the dynamics is in different regions, it's what you say, which is basically that the emerging markets will be growing quicker than the other markets, yes.

[Ben Page, executive]

Yes, because apart from Europe is doing well, Africa, LatAm, AsiaPac all doing well.

[Conor O'Shea, analyst]

Okay. And last question, just in terms of the mix of growth in the first quarter. I think in theory, the U.S. business is a higher margin business. That may or may not be the case in the public affairs, health care activities in the U.S. for you. Does that mix effect so far make it a little bit harder for you to achieve your margin target, although you obviously confirmed it, but does that make it hard to work or...

[Ben Page, executive]

Actually, no. I think it's evening out, and we are seeing margin improvement across the business. And as we systematically deploy things like Ipsos.Digital, which is growing well, the Harmoni platform, which speeds up production of reporting Ipsos Facto itself. Again, we are seeing the same trends on margin, but it's across the piece. So, yes, volume is a challenge in the United States, but margin globally, we're feeling reasonably comfortable -- pretty comfortable about, to be honest.

[Conor O'Shea, analyst]

Okay. So did headcount increase overall at the end March versus December or not? Group headcount excluding the acquisition.

[Ben Page, executive]

I don't think we're publishing the headcount figures, but we are managing, as we did last year, and you know that we manage the payroll very carefully, which is why we were able to deliver good margin, even though the growth wasn't quite as much as we expect -- we'd be hoped for. We will do precisely the same thing this time. But where we are growing and need some people, we will get them, we will also look at, of course, we continue to look at hiring people when we do hire them in places like India.

So actually, the other thing is really the payroll is one -- is slightly different from the headcount potentially because, of course, if you're hiring in markets like India for back office and support functions or even integral parts of teams, it starts to become a slightly academic question.

[Dan Levy, executive]

As you have seen, we are growing 10% in Asia Pacific. We're growing by 10% in Europe globally. We are doing very strongly as well in LatAm. And so obviously, you have to fill the growth from that perspective as well. As Ben said, we manage very carefully the operating costs.

[Operator]

[Operator Instructions] Gentlemen, there are no more questions registered. I'll give again the word back to you.

[Ben Page, executive]

Okay. Well, thank you, everybody. And as I say, we look forward to seeing some of you at the AGM and at the Investor Day. Thank you.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.