OMNICOM GROUP INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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ABSTRACT

Risks and uncertainties

Global economic challenges, including the impact of the war in Ukraine, the
COVID-19 pandemic, rising inflation and supply-chain disruptions could cause
economic uncertainty and volatility. The impact of these issues on our business
will vary by geographic market and discipline. We monitor economic conditions
closely, as well as client revenue levels and other factors. In response to
reductions in revenue, we can take actions to align our cost structure with
changes in client demand and manage our working capital. However, there can be
no assurance as to the effectiveness of our efforts to mitigate any impact of
the current and future adverse economic conditions, reductions in client
revenue, changes in client creditworthiness and other developments.

Impact of the war in Ukraine

We have historically conducted operations in Russia and Ukraine through local agencies in which we hold a majority stake. The minority partners of these agencies are the local management, attached to the management of the network concerned.

During the first quarter of 2022, the war in Ukraine required us to suspend our
business operations in Ukraine. The war resulted in the imposition of sanctions
by the United States, the United Kingdom, and the European Union, that affect
the cross-border operations of businesses operating in Russia. In addition,
Russian regulators have imposed currency restrictions and regulations that
created uncertainty regarding our ability to recover our investment in our
operations in Russia, as well as our ability to exercise control over the
operations. Also, many multinational companies, including many of our large
clients, ceased or suspended their operations in Russia. Therefore, the ability
to continue operations in Russia without additional funding, which we will not
provide, is uncertain. As a result, we have sold, or committed to dispose of,
all of our businesses in Russia. Accordingly, we recorded pretax charges of
$113.4 million in the first quarter of 2022, primarily consisting of the net
investment in our Russian businesses, and also including charges related to the
suspension of operations in Ukraine.

We evaluated the effects of the war in Ukraine and the geopolitical events in
the region on our forecasted consolidated operating performance and concluded
that we do not have a trigger event that would result in an update of our
evaluation of goodwill for impairment that we performed in June 2021. We will
continue to monitor these ongoing geopolitical events, evaluate available
options to seek to mitigate further risk of loss and continue to evaluate the
impact, if any, on our goodwill impairment test, which will be performed in June
2022.

Impact of the COVID-19 Pandemic – Update

Beginning in March 2020 and continuing through the first quarter of 2021, our
business experienced the effects from reductions in client spending due to the
economic impact related to the COVID-19 pandemic. While mixed by business and
geography, the spending reductions impacted all our businesses and markets.
Globally, the most impacted businesses were our Experiential discipline,
especially in our event marketing businesses, and our Execution & Support
discipline, primarily in field marketing. Most of our markets began to improve
year in April 2021, and the improvement continued through the first quarter of
2022 as clients substantially increased their spending on our services.

Operating results

Revenue for the three months ended March 31, 2022 decreased $16.6 million, or
0.5%, compared to the three months ended March 31, 2021. Organic growth
increased revenue $408.0 million, or 11.9%, primarily reflecting increased
client spending in all our disciplines and across all our geographic regions
compared to the prior year period. The increase in organic revenue was offset by
the reduction in acquisition revenue, net of disposition revenue of $339.6
million, or 9.9%, reflecting dispositions in the Advertising & Media discipline
in the second quarter of 2021, and the negative impact of changes in foreign
currency exchange rates of $85.0 million, or 2.5%.

We are a strategic holding company providing advertising, marketing and
corporate communications services to clients through our branded networks and
agencies around the world. On a global, pan-regional and local basis, our
networks and agencies provide a comprehensive range of services in the following
fundamental disciplines: Advertising & Media, Precision Marketing, Commerce &
Brand Consulting, Experiential, Execution & Support, Public Relations and
Healthcare. Advertising & Media include creative services across digital and
traditional media, and strategic media planning and buying and data analytics
services. Precision Marketing includes digital and direct marketing, digital
transformation and data and analytics. Commerce & Brand Consulting services
include brand consulting, strategy and research and retail ecommerce.
Experiential marketing services include live and digital events and experience
design and execution. Execution & Support includes field marketing, sales
support, digital and physical merchandising and point-of-sale, as well as other
specialized marketing and custom communications services. Public relations
services include corporate communications, crisis management, public affairs and
media and media relations services. Healthcare includes advertising and media
services to global healthcare and pharmaceutical clients. Our business model was
built and continues to evolve around our clients. While our networks and
agencies operate under different names and frame their ideas in different
disciplines, we organize our services around our clients. Our fundamental
business principle is that our clients' specific marketing requirements are the
central focus of how we structure our service offerings and allocate our
resources. This client-
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centric business model requires that multiple agencies within Omnicom
collaborate in formal and informal virtual client networks utilizing our key
client matrix organization structure. This collaboration allows us to cut across
our internal organizational structures to execute our clients' marketing
requirements in a consistent and comprehensive manner. We use our client-centric
approach to grow our business by expanding our service offerings to existing
clients, moving into new markets and obtaining new clients. In addition, we
pursue selective acquisitions of complementary companies with strong
entrepreneurial management teams that typically currently serve or could serve
our existing clients.

Driven by our clients' continuous demand for more effective and efficient
marketing activities, we strive to provide an extensive range of advertising,
marketing and corporate communications services through various client-centric
networks that are organized to meet specific client objectives. These service
offerings include, among others, advertising, brand consulting, content
marketing, corporate social responsibility consulting, crisis communications,
custom publishing, data analytics, database management, digital/direct
marketing, digital transformation, entertainment marketing, experiential
marketing, field marketing, financial/corporate business-to-business
advertising, graphic arts/digital imaging, healthcare marketing and
communications, in-store design, interactive marketing, investor relations,
marketing research, media planning and buying, merchandising and point of sale,
mobile marketing, multi-cultural marketing, non-profit marketing, organizational
communications, package design, product placement, promotional marketing, public
affairs, public relations, retail marketing, sales support, search engine
marketing, shopper marketing, social media marketing and sports and event
marketing.

We continually assess our portfolio of companies to identify areas of investment and acquisition opportunities, as well as to identify non-strategic or underperforming businesses for disposal.

As a leading global advertising, marketing and corporate communications company,
we operate in all major markets and have a large and diverse client base. For
the twelve months ended March 31, 2022, our largest client accounted for 3.3% of
our revenue and our 100 largest clients, which represent many of the world's
major marketers, accounted for approximately 51.8% of our revenue. Our clients
operate in virtually every sector of the global economy with no one industry
representing more than 16% of our revenue for the three months ended March 31,
2022. Although our revenue is generally balanced between the United States and
international markets, and we have a large and diverse client base, we are not
immune to general economic downturns.

Certain global events targeted by major marketers for advertising expenditures,
such as the FIFA World Cup and the Olympics, and certain national events, such
as the U.S. election process, may affect our revenue period-over-period in
certain businesses. Typically, these events do not have a significant impact on
our revenue in any period.

Global economic conditions have a direct impact on our business and financial
performance. Adverse global or regional economic conditions, such as those
arising from the war in Ukraine, the COVID-19 pandemic, severe and sustained
inflation in countries that comprise our major markets and client supply chain
issues, pose a risk that our clients may reduce, postpone or cancel spending on
advertising, marketing and corporate communications services, which would reduce
the demand for our services. Revenue is typically lower in the first and third
quarters and higher in the second and fourth quarters, reflecting client
spending patterns during the year and additional project work that usually
occurs in the fourth quarter.

General marketing communications trends impact our business and industry and, on
balance, we believe that these effects are generally positive. These trends
include integrating traditional and non-traditional marketing channels, as well
as utilizing new communications technologies and emerging digital platforms, and
clients increasingly expanding the focus of their brand strategies from national
markets to pan-regional and global markets. As clients increase their demands
for marketing effectiveness and efficiency, many of them have made it a practice
to consolidate their business within one or a small number of service providers
in the pursuit of a single engagement covering all consumer touch points. We
have structured our business around these trends. Certain trends such as
increased spending on digital marketing platforms, and our key client matrix
organization structure approach to collaboration and integration of our services
and solutions provide a competitive advantage to our business, and we expect
this advantage to continue over the medium and long term.

Given our size and breadth, we manage our business by monitoring several
financial indicators. The key indicators that we focus on are revenue and
operating expenses. We analyze revenue growth by reviewing the components and
mix of the growth, including growth by principal regional market and marketing
discipline, the impact from foreign currency exchange rate changes, growth from
acquisitions, net of dispositions, and growth from our largest clients.
Operating expenses are comprised of cost of services, selling, general and
administrative expenses, or SG&A, and depreciation and amortization.

Revenue for the quarter ended March 31, 2022 decreased $16.6 million, or 0.5%,
compared to the prior year quarter. Organic growth increased revenue $408.0
million, or 11.9%. Changes in foreign exchange rates reduced revenue $85.0
million, or 2.5%, and acquisition revenue, net of disposition revenue, reduced
revenue $339.6 million, or 9.9%. The reduction in acquisition revenue, net of
disposition revenue, primarily due to dispositions in the Advertising & Media
discipline in the second quarter of 2021. The change in revenue across our
principal regional markets was: North America decreased $133.5 million, or 6.8%,
Europe increased $51.0 million, or 5.4%, Asia-Pacific increased $29.7 million,
or 7.4%, and Latin America increased $4.5 million, or 7.1%. In North America,
the increase in organic revenue across all our disciplines, especially in our
Advertising & Media and Precision Marketing disciplines, was offset by a
reduction in acquisition revenue, net of disposition revenue, primarily due to
dispositions in the Advertising & Media discipline. In Europe, organic revenue
increased in substantially all countries and in all disciplines, especially
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our Advertising & Media discipline, which was led by our media business, and our
Experiential discipline, as it continues to recover from the impact of the
pandemic. The increase in organic revenue was partially offset by the
strengthening of the U.S. Dollar against the British Pound and the Euro. In
Latin America, revenue increased due to organic growth in most countries in the
region, especially Brazil and Colombia, which was partially offset by negative
performance in Mexico. The strengthening of the U.S. Dollar against most
currencies in the region partially offset the increase in organic growth. In
Asia-Pacific, revenue increased due to strong organic revenue growth in all our
major markets in the region, particularly Australia, Greater China and India,
and in all disciplines. The strengthening of the U.S. Dollar against
substantially all currencies in the region partially offset the increase in
organic revenue in the region. The change in revenue in the first quarter of
2022 compared to the first quarter of 2021 in our fundamental disciplines was:
Advertising & Media decreased $234.3 million, Precision Marketing increased
$66.6 million, Commerce & Brand Consulting increased $23.4 million, Experiential
increased $54.1 million, Execution & Support increased $7.7 million, Public
Relations increased $43.4 million and Healthcare increased $22.5 million.

We measure cost of services in two distinct categories: salary and service costs
and occupancy and other costs. As a service business, salary and service costs
make up the significant portion of our operating expenses and substantially all
these costs comprise the essential components directly linked to the delivery of
our services. Salary and service costs include employee compensation and
benefits, freelance labor and third-party service costs, which include
third-party supplier costs when we act as principal in providing services to our
clients and client-related travel costs. Occupancy and other costs consist of
the indirect costs related to the delivery of our services, including office
rent and other occupancy costs, equipment rent, technology costs, general office
expenses and other expenses.

Operating expenses for the quarter ended March 31, 2022 increased $95.8 million,
or 3.2%, period-over-period. Operating expenses reflect pretax charges arising
from the effects of the war in Ukraine of $113.4 million. Salary and service
costs, which tend to fluctuate with changes in revenue, decreased $53.2 million,
or 2.1%, compared to the quarter ended March 31, 2021, reflecting an increase in
salary and related service costs of $145.4 million, offset by a decrease in
third-party service costs of $198.6 million. The increase in salary and related
service costs primarily resulted from the increase in organic revenue, and an
increase in headcount as well as an increase in travel and related costs,
partially offset by the weakening of most foreign currencies, especially the
British Pound and Euro, against the U.S. Dollar. Third-party service costs,
which fluctuate with changes in revenue, decreased during the quarter primarily
due to dispositions in the Advertising & Media discipline in the second quarter
of 2021. Occupancy and other costs, which are less directly linked to changes in
revenue than salary and service costs, increased $8.6 million, or 2.9%,
period-over-period, primarily due to an increase in office and other costs
resulting from the return of our workforce to the office. For the quarter ended
March 31, 2022 compared to the prior year period, operating profit decreased
$112.4 million to $353.0 million, operating margin decreased to 10.4% from
13.6%, and EBITA margin decreased to 10.9% from 14.2%, primarily as a result of
the charges arising from the effects of the war in Ukraine of $113.4 million,
which reduced both operating margin and EBITA margin by 3.3%.

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

Net interest expense in the first quarter of 2022 decreased $4.7 million
period-over-period to $42.8 million. Interest expense on debt in the first
quarter of 2022 decreased $0.9 million to $47.0 million, primarily as a result
of the benefit from the early redemption in May 2021 of all the outstanding
$1.25 billion principal amount of 3.625% Senior Notes due 2022, or 2022 Notes,
which was partially offset by the issuance of $800 million 2.60% Senior Notes
due 2031, or the 2031 Notes, in May 2021 and the issuance of £325 million 2.25%
Senior Notes due 2033, or the Sterling Notes, in November 2021. Interest income
in the first quarter of 2022 increased $1.9 million period-over-period to $8.2
million.

Our effective tax rate for the three months ended March 31, 2022 increased
period-over-period to 37.2% from 26.8%. The higher effective tax rate for 2022
was predominantly the result of the non-deductibility of the $113.4 million
charges arising from the effects of the war in Ukraine, as well as an additional
net charge of $4.8 million in connection with these charges. These charges were
partially offset by the tax benefit arising from our share-based compensation
awards. We expect our tax rate for the remainder of the year to approximate
26.5%, similar to the rate for this quarter after adjusting for the charges
arising for the effect of the war in Ukraine.

Net income - Omnicom Group Inc. in the first quarter of 2022 decreased $114.0
million to $173.8 million from $287.8 million in the first quarter of 2021. The
period-over-period decrease is due to the factors described above. Diluted net
income per share - Omnicom Group Inc. for the first quarter of 2022 was $0.83,
as compared to $1.33 in the first quarter of 2021. The period-over-period change
was due to the factors described above, as well as the impact of the reduction
in our weighted average common shares outstanding resulting from the resumption
of repurchases of our common stock during the quarter, net of shares issued for
restricted stock awards, stock option exercises and the employee stock purchase
plan. The impact of the after-tax charges arising from the effects of the war in
Ukraine reduced net income - Omnicom Group Inc. in the first quarter of 2021 by
$118.2 million and diluted net income per share - Omnicom Group Inc. by $0.56
per share.
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RESULTS OF OPERATIONS - First Quarter 2022 Compared to First Quarter 2021 (in
millions):
                                                                        2022               2021
Revenue                                                             $ 3,410.3          $ 3,426.9
Operating Expenses:
Salary and service costs                                              2,491.8            2,545.0
Occupancy and other costs                                               300.2              291.6
 Charges arising from the effects of the war in Ukraine                 113.4                  -

Cost of services                                                      2,905.4            2,836.6
Selling, general and administrative expenses                             96.7               71.6
Depreciation and amortization                                            55.2               53.3
                                                                      3,057.3            2,961.5
Operating Profit                                                        353.0              465.4
Operating Margin %                                                       10.4  %            13.6  %
Interest Expense                                                         51.0               53.8
Interest Income                                                           8.2                6.3

Profit before income taxes and loss on investments under the equity method 310.2

              417.9
Income Tax Expense                                                      115.5              111.9
Loss From Equity Method Investments                                      (0.1)                 -
Net Income                                                              194.6              306.0
Net Income Attributed To Noncontrolling Interests                        20.8               18.2
Net Income - Omnicom Group Inc.                                     $   173.8          $   287.8


Non-GAAP Financial Measures

We use EBITA and EBITA Margin as additional operating performance measures that
exclude the non-cash amortization expense of intangible assets, which primarily
consists of amortization of intangible assets arising from acquisitions. We
define EBITA as earnings before interest, taxes and amortization of intangible
assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margin are
non-GAAP financial measures. We believe that EBITA and EBITA Margin are useful
measures for investors to evaluate the performance of our business. Non-GAAP
financial measures should not be considered in isolation from, or as a
substitute for, financial information presented in compliance with U.S. GAAP.
Non-GAAP financial measures reported by us may not be comparable to similarly
titled amounts reported by other companies.

The following table reconciles WE GAAP financial measure of net income –
Omnicom Group Inc. to EBITA and EBITA margin for the periods presented (in millions):

                                                                        2022               2021
Net Income - Omnicom Group Inc.                                     $   173.8          $   287.8
Net Income Attributed To Noncontrolling Interests                        20.8               18.2
Net Income                                                              194.6              306.0
Loss From Equity Method Investments                                      (0.1)                 -
Income Tax Expense                                                      115.5              111.9
Income Before Income Taxes and Loss From Equity Method Investments      310.2              417.9
Interest Expense                                                         51.0               53.8
Interest Income                                                           8.2                6.3
Operating Profit                                                        353.0              465.4
Add back: Amortization of intangible assets                              19.4               19.9
Earnings before interest, taxes and amortization of intangible
assets ("EBITA")                                                    $   372.4          $   485.3

Revenue                                                             $ 3,410.3          $ 3,426.9
EBITA                                                               $   372.4          $   485.3
EBITA Margin %                                                           10.9  %            14.2  %



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Revenue

Revenue for the quarter ended March 31, 2022 decreased $16.6 million, or 0.5%,
compared to the prior year quarter. Organic growth increased revenue $408.0
million, or 11.9%. Changes in foreign exchange rates reduced revenue $85.0
million, or 2.5%, and acquisition revenue, net of disposition revenue, reduced
revenue $339.6 million, or 9.9%. The reduction in acquisition revenue, net of
disposition revenue, primarily due to dispositions in the Advertising & Media
discipline in the second quarter of 2021. The change in revenue across our
principal regional markets was: North America decreased $133.5 million, or 6.8%,
Europe increased $51.0 million, or 5.4%, Asia-Pacific increased $29.7 million,
or 7.4%, and Latin America increased $4.5 million, or 7.1%. In North America,
the increase in organic revenue across all our disciplines, especially in our
Advertising & Media and Precision Marketing disciplines, was offset by a
reduction in acquisition revenue, net of disposition revenue, primarily due to
dispositions in the Advertising & Media discipline. In Europe, organic revenue
increased in substantially all countries and in all disciplines, especially our
Advertising & Media discipline, which was led by our media business, and our
Experiential discipline, as it continues to recover from the impact of the
pandemic. The increase in organic revenue was partially offset by the
strengthening of the U.S. Dollar against the British Pound and the Euro. In
Latin America, revenue increased due to organic growth in most countries in the
region, especially Brazil and Colombia, which was partially offset by negative
performance in Mexico. The strengthening of the U.S. Dollar against most
currencies in the region partially offset the increase in organic growth. In
Asia-Pacific, revenue increased due to strong organic revenue growth in all our
major markets in the region, particularly Australia, Greater China and India,
and in all disciplines. The strengthening of the U.S. Dollar against
substantially all currencies in the region partially offset the increase in
organic revenue in the region. The change in revenue in the first quarter of
2022 compared to the first quarter of 2021 in our fundamental disciplines was:
Advertising & Media decreased $234.3 million, Precision Marketing increased
$66.6 million, Commerce & Brand Consulting increased $23.4 million, Experiential
increased $54.1 million, Execution & Support increased $7.7 million, Public
Relations increased $43.4 million and Healthcare increased $22.5 million.

The components of revenue change for the first quarter of 2022 in the United
States ("Domestic") and the remainder of the world ("International") were (in
millions):
                                                  Total                             Domestic                           International
                                            $                 %                $                 %                  $                   %
March 31, 2021                         $ 3,426.9                          $ 1,868.1                          $     1,558.8
 Components of revenue change:
Foreign exchange rate impact               (85.0)           (2.5) %               -               -  %               (85.0)            (5.5) %
Acquisition revenue, net of
disposition revenue                       (339.6)           (9.9) %          (341.6)          (18.3) %                 2.0              0.1  %
Organic growth                             408.0            11.9  %           198.1            10.6  %               209.9             13.5  %
March 31, 2022                         $ 3,410.3            (0.5) %       $ 1,724.6            (7.7) %       $     1,685.7              8.1  %


The components and percentages are calculated as follows:
•Foreign exchange rate impact is calculated by translating the current period's
local currency revenue using the prior period average exchange rates to derive
current period constant currency revenue (in this case $3,495.3 million for the
Total column). The foreign exchange impact is the difference between the current
period revenue in U.S. Dollars and the current period constant currency revenue
($3,410.3 million less $3,495.3 million for the Total column).
•Acquisition revenue is calculated as if the acquisition occurred twelve months
prior to the acquisition date by aggregating the comparable prior period revenue
of acquisitions through the acquisition date. As a result, acquisition revenue
excludes the positive or negative difference between our current period revenue
subsequent to the acquisition date and the comparable prior period revenue and
the positive or negative growth after the acquisition is attributed to organic
growth. Disposition revenue is calculated as if the disposition occurred twelve
months prior to the disposition date by aggregating the comparable prior period
revenue of dispositions through the disposition date. The acquisition revenue
and disposition revenue amounts are netted in the table.
•Organic growth is calculated by subtracting the foreign exchange rate impact,
and the acquisition revenue, net of disposition revenue components from total
revenue growth.
•The percentage change is calculated by dividing the individual component amount
by the prior period revenue base of that component ($3,426.9 million for the
Total column).

Changes in the value of foreign currencies against the U.S. Dollar affect our
results of operations and financial position. For the most part, because the
revenue and expense of our foreign operations are both denominated in the same
local currency, the economic impact on operating margin is minimized. Assuming
exchange rates at April 15, 2022 remain unchanged, we expect the impact of
changes in foreign exchange rates to reduce revenue for the full year by
approximately 2% to 2.5%. In addition, based on acquisition and disposition
activity to date, including the disposition of our businesses in Russia (see
Note 1 to the unaudited consolidated financial statements), we expect the effect
of net acquisitions and dispositions to reduce revenue for the second quarter of
2022 and for the full year by approximately 6.5% and 4.5%, respectively.
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Revenue and organic growth in our geographic markets were (in millions):

                                            Three Months Ended March 31,
                               2022           2021         $ Change      % Organic Growth
Americas:
North America              $  1,839.0      $ 1,972.5      $ (133.5)                10.6  %
Latin America                    67.7           63.2           4.5                  9.3  %
EMEA:
Europe                          992.0          941.0          51.0                 12.5  %
Middle East and Africa           81.9           50.2          31.7                 63.8  %
Asia-Pacific                    429.7          400.0          29.7                 11.1  %
                           $  3,410.3      $ 3,426.9      $  (16.6)                11.9  %


Revenue in Europe, which includes our primary markets of the United Kingdom, or
the U.K., and the Euro Zone, increased $51.0 million for the first quarter of
2022. Revenue in the U.K., representing 11.4% of consolidated revenue, increased
$32.2 million. Revenue in Continental Europe, which comprises the Euro Zone and
the other European countries, representing 17.7% of consolidated revenue,
increased $18.8 million. The increase in revenue in Europe is due to strong
organic growth in all disciplines and substantially all countries, partially
offset by the strengthening of the U.S. Dollar against the British Pound and the
Euro.

In the normal course of business, our agencies both gain and lose business from
clients each year due to a variety of factors. Under our client-centric
approach, we seek to broaden our relationships with all of our clients. For both
the twelve months ended March 31, 2022 and 2021, our largest client represented
3.3% of revenue. Our ten largest and 100 largest clients represented 21.1% and
51.8% of revenue for the twelve months ended March 31, 2022, respectively, and
21.5% and 54.2% of revenue for the twelve months ended March 31, 2021,
respectively.

To monitor the changing needs of our clients and to further expand the scope of
our services to key clients, we monitor revenue across a broad range of
disciplines and group them into the following categories: Advertising & Media,
Precision Marketing, Commerce & Brand Consulting, Experiential, Execution &
Support, Public Relations and Healthcare.

Revenue and organic growth by discipline were (in millions):

                                                                                          Three Months Ended March 31,
                                                            2022                                    2021                                  2022 vs. 2021
                                                                      % of                                    % of                                     % Organic
                                                   $                Revenue                $                Revenue               $ Change               Growth
Advertising & Media                           $ 1,769.4                 51.9  %       $ 2,003.7                 58.5  %       $      (234.3)                 9.1  %
Precision Marketing                               336.1                  9.8  %           269.5                  7.8  %                66.6                 20.3  %
Commerce & Brand Consulting                       237.9                  7.0  %           214.5                  6.2  %                23.4                 13.8  %
Experiential                                      142.5                  4.2  %            88.4                  2.6  %                54.1                 68.0  %
Execution & Support                               254.3                  7.4  %           246.6                  7.2  %                 7.7                  6.3  %
Public Relations                                  360.9                 10.6  %           317.5                  9.3  %                43.4                 14.0  %
Healthcare                                        309.2                  9.1  %           286.7                  8.4  %                22.5                  7.7  %
                                              $ 3,410.3                               $ 3,426.9                               $       (16.6)                11.9  %


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We provide services to clients who operate in various industry sectors. Revenue by segment was:

                                       Three Months Ended March 31,
                                             2022                  2021
Pharmaceuticals and Healthcare                           15  %      15  %
Food and Beverage                                        14  %      14  %
Technology                                               11  %       9  %
Auto                                                     10  %      10  %
Consumer Products                                         8  %       8  %
Financial Services                                        7  %       7  %
Travel and Entertainment                                  6  %      10  %
Retail                                                    7  %       7  %
Telecommunications                                        5  %       5  %
Government                                                3  %       3  %
Services                                                  2  %       2  %
Oil, Gas and Utilities                                    2  %       1  %
Not-for-Profit                                            1  %       1  %
Education                                                 1  %       1  %
Other                                                     8  %       7  %
                                                        100  %     100  %


Operating Expenses

Operating expenses were (in millions):

                                                                                    Three Months Ended March 31,
                                                       2022                                   2021                                2022 vs. 2021
                                                                % of                                   % of                   $                     %
                                              $                Revenue               $                Revenue               Change               Change
Revenue                                  $ 3,410.3                              $ 3,426.9                              $       (16.6)               (0.5) %
Operating Expenses:
Salary and service costs:
Salary and related service costs           1,794.6                52.6  %         1,649.2                48.1  %               145.4                 8.8  %
Third-party service costs                    697.2                20.4  %           895.8                26.1  %              (198.6)              (22.2) %
                                           2,491.8                73.1  %         2,545.0                74.3  %               (53.2)               (2.1) %
Occupancy and other costs                    300.2                 8.8  %           291.6                 8.5  %                 8.6                 2.9  %
Charges arising from the effects of the
war in Ukraine                               113.4                 3.3  %               -                   -  %               113.4                   -  %

  Cost of services                         2,905.4                                2,836.6                                       68.8                 2.4  %
Selling, general and administrative
expenses                                      96.7                 2.8  %            71.6                 2.1  %                25.1                35.1  %
Depreciation and amortization                 55.2                 1.6  %            53.3                 1.6  %                 1.9                 3.6  %
                                           3,057.3                89.6  %         2,961.5                86.4  %                95.8                 3.2  %
Operating Profit                         $   353.0                10.4  %       $   465.4                13.6  %       $      (112.4)              (24.2) %


Operating expenses for the quarter ended March 31, 2022 increased $95.8 million,
or 3.2%, period-over-period. Operating expenses reflect pretax charges arising
from the effects of the war in Ukraine of $113.4 million. Salary and service
costs, which tend to fluctuate with changes in revenue, decreased $53.2 million,
or 2.1%, compared to the quarter ended March 31, 2021, reflecting an increase in
salary and related service costs of $145.4 million, offset by a decrease in
third-party service costs of $198.6 million. The increase in salary and related
service costs primarily resulted from the increase in organic revenue, and an
increase in headcount as well as an increase in travel and related costs,
partially offset by the weakening of most foreign currencies, especially the
British Pound and Euro, against the U.S. Dollar. Third-party service costs,
which fluctuate with changes in revenue, decreased during the quarter primarily
due to dispositions in the Advertising & Media discipline in the second quarter
of 2021. Occupancy and other costs, which are less directly linked to changes in
revenue than salary and service costs, increased $8.6 million, or 2.9%,
period-over-period, primarily due to an increase in office and other costs
resulting from the return of our workforce to the office. For the quarter ended
March 31, 2022 compared to the prior year period, operating profit decreased
$112.4 million to $353.0 million, operating margin decreased to 10.4% from
13.6%, and EBITA margin decreased to 10.9% from 14.2%, primarily as a result of
the charges arising from the effects of the war in Ukraine of $113.4 million,
which reduced both operating margin and EBITA margin by 3.3%.
                                       20

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Net debit interest

Net interest expense in the first quarter of 2022 decreased $4.7 million
period-over-period to $42.8 million. Interest expense on debt in the first
quarter of 2022 decreased $0.9 million to $47.0 million primarily as a result of
the benefit from the early redemption in May 2021 of all the outstanding 2022
Notes, which was partially offset by the issuance of the 2031 Notes in May 2021
and the issuance of the Sterling Notes in November 2021. Interest income in the
first quarter of 2022 increased $1.9 million period-over-period to $8.2 million.

Income taxes

Our effective tax rate for the three months ended March 31, 2022 increased
period-over-period to 37.2% from 26.8%. The higher effective tax rate for 2022
was predominantly the result of the non-deductibility of the $113.4 million
charges arising from the effects of the war in Ukraine, as well as an additional
net charge of $4.8 million in connection with these charges. These charges were
partially offset by the tax benefit arising from our share-based compensation
awards. We expect our tax rate for the remainder of the year to approximate
26.5%, similar to the rate for the this quarter after adjusting for the charges
arising for the effect of the war in Ukraine.

Net profit and net profit per share – Omnicom Group Inc.

Net income - Omnicom Group Inc. in the first quarter of 2022 decreased $114.0
million to $173.8 million from $287.8 million in the first quarter of 2021. The
period-over-period decrease is due to the factors described above. Diluted net
income per share - Omnicom Group Inc. for the first quarter of 2022 was $0.83,
as compared to $1.33 in the first quarter of 2021. The period-over-period change
was due to the factors described above, as well as the impact of the reduction
in our weighted average common shares outstanding resulting from the resumption
of repurchases of our common stock during the quarter, net of shares issued for
restricted stock awards, stock option exercises and the employee stock purchase
plan. The impact of the after-tax charges arising from the effects of the war in
Ukraine reduced net income - Omnicom Group Inc. in the first quarter of 2021 by
$118.2 million and diluted net income per share - Omnicom Group Inc. by $0.56
per share.

CRITICAL ACCOUNTING POLICIES

For a more complete understanding of our accounting policies, unaudited consolidated financial statements and related MD&A of financial condition and results of operations, readers are encouraged to review this information along with our discussion of our significant accounting policies under the “MD&A and Analysis of Financial Condition and Results of Operations” section in our 2021 10-K.

NEW ACCOUNTING STANDARDS

Note 14 to the unaudited consolidated financial statements provides information on the new accounting standards.

CASH AND CAPITAL RESOURCES

Cash sources and needs

Our primary short-term liquidity sources are our operating cash flow and cash
and cash equivalents. Additional liquidity sources include our $2.5 billion
multi-currency revolving credit facility, or Credit Facility, maturing on
February 14, 2025, uncommitted credit lines aggregating $807.5 million, the
ability to issue up to $2 billion of U.S. Dollar denominated commercial paper
and issue up to the equivalent of $500 million in British Pounds or Euro under a
Euro commercial paper program and access to the capital markets. Our liquidity
funds our non-discretionary cash requirements and our discretionary spending.

Working capital is our principal non-discretionary funding requirement. Our
typical working capital cycle results in a short-term funding requirement that
normally peaks during the second quarter of the year due to the timing of
payments for incentive compensation, income taxes and contingent purchase price
obligations. In addition, we have contractual obligations related to our
long-term debt (principal and interest payments), recurring business operations,
primarily related to lease obligations, and contingent purchase price
obligations (earn-outs) from acquisitions. Our principal discretionary cash
spending includes dividend payments to common shareholders, capital
expenditures, strategic acquisitions and repurchases of our common stock.

Cash and cash equivalents decreased $1,391.3 million from December 31, 2021.
During the first three months of 2022, we used $544.5 million of cash in
operating activities, which included the use for operating capital of $884.2
million, primarily related to our typical working capital requirement during the
period. Our discretionary spending for the first three months of 2022 was $822.3
million as compared to $172.5 million for the first three months of 2021.
Discretionary spending for the first three months of 2022 is comprised of
capital expenditures of $23.2 million, dividends paid to common shareholders of
$147.4 million, dividends paid to shareholders of noncontrolling interests of
$14.0 million, repurchases of our common stock, net of proceeds from stock
option exercises and related tax benefits and common stock sold to our employee
stock purchase plan, of $286.8 million, and net acquisition payments, including
payment of contingent purchase price obligations and acquisition of additional
shares of noncontrolling interests of $258.9 million. In addition, we purchased
short-term investments of $92.7 million, which reduced our cash and cash
equivalents but had no impact on our liquidity. The impact of foreign exchange
rate changes reduced cash and cash equivalents by $8.7 million.
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Based on past performance and current expectations, we believe that our cash flow from operations will be sufficient to meet our non-discretionary cash requirements for the next twelve months and that the availability of our credit facility will be sufficient to meet our long-term liquidity needs. .

Finance management

Our regional treasury centers in North America, Europe and Asia manage our cash
and liquidity. Each day, operations with excess funds invest those funds with
their regional treasury center. Likewise, operations that require funds borrow
from their regional treasury center. Treasury centers with excess cash invest on
a short-term basis with third parties, generally with maturities ranging from
overnight to less than 90 days. During the quarter, we purchased $92.7 million
of short-term investments that mature at various times during the year. Certain
treasury centers have notional pooling arrangements that are used to manage
their cash and set-off foreign exchange imbalances. The arrangements require
each treasury center to have its own notional pool account and to maintain a
notional positive account balance. Additionally, under the terms of the
arrangement, set-off of foreign exchange positions are limited to the long and
short positions within their own account. To the extent that our treasury
centers require liquidity, they have the ability to issue up to a total of $2
billion of U.S. Dollar-denominated commercial paper and issue up to the
equivalent of $500 million in British Pounds or Euro under a Euro commercial
paper program, or borrow under the Credit Facility or the uncommitted credit
lines. This process enables us to manage our debt more efficiently and utilize
our cash more effectively, as well as manage our risk to foreign exchange rate
imbalances. In countries where we either do not conduct treasury operations or
it is not feasible for one of our treasury centers to fund net borrowing
requirements on an intercompany basis, we arrange for local currency uncommitted
credit lines. We have a policy governing counterparty credit risk with financial
institutions that hold our cash and cash equivalents and we have deposit limits
for each institution. In countries where we conduct treasury operations,
generally the counterparties are either branches or subsidiaries of institutions
that are party to the Credit Facility. These institutions generally have credit
ratings equal to or better than our credit ratings. In countries where we do not
conduct treasury operations, all cash and cash equivalents are held by
counterparties that meet specific minimum credit standards.

At March 31, 2022, our foreign subsidiaries held approximately $1.8 billion of
our total cash and cash equivalents of $3.9 billion. Most of the cash is
available to us, net of any foreign withholding taxes payable upon repatriation
to the United States.

At March 31, 2022, our net debt position, which we define as total debt,
including short-term debt, less cash and cash equivalents and short-term
investments increased $1,262.1 million to $1,640.6 million from December 31,
2021. The increase in net debt primarily resulted from the use of cash of $884.2
million for operating capital principally related to our typical working capital
requirements during the period, acquisition payments of $246.6 million and
repurchases of our common stock of $300.3 million.

The components of net debt were (in millions):

                                                                            December 31,
                                                    March 31, 2022              2021              March 31, 2021
Short-term debt                                   $          12.4          $        9.6          $          5.9
Long-term debt                                            5,646.4               5,685.7                 5,754.4
Total debt                                                5,658.8               5,695.3                 5,760.3
Less: Cash and cash equivalents                           3,925.5               5,316.8                 4,897.3
Less: Short-term investments                                    92.7                  -                       -
Net debt                                          $       1,640.6          $      378.5          $        863.0


Net debt is a Non-GAAP liquidity measure. This presentation, together with the
comparable U.S. GAAP liquidity measures, reflects one of the key metrics used by
us to assess our cash management. Non-GAAP liquidity measures should not be
considered in isolation from, or as a substitute for, financial information
presented in compliance with U.S. GAAP. Non-GAAP liquidity measures as reported
by us may not be comparable to similarly titled amounts reported by other
companies.

Debt securities and related liabilities

Our 2.45% Senior Notes due 2030, 4.20% Senior Notes due 2030 and 2.60% Senior
Notes due 2031 are senior unsecured obligations of Omnicom that rank equal in
right of payment with all existing and future unsecured senior indebtedness.

Omnicom and its wholly owned finance subsidiary, Omnicom Capital Inc., or OCI,
are co-obligors under our 3.65% Senior Notes due 2024 and 3.60% Senior Notes due
2026. These notes are a joint and several liability of Omnicom and OCI, and
Omnicom unconditionally guarantees OCI's obligations with respect to the notes.
OCI provides funding for our operations by incurring debt and lending the
proceeds to our operating subsidiaries. OCI's assets primarily consist of cash
and cash equivalents and intercompany loans made to our operating subsidiaries,
and the related interest receivable. There are no restrictions on the ability of
OCI or Omnicom to obtain funds from our subsidiaries through dividends, loans or
advances. Such notes are senior unsecured obligations that rank equal in right
of payment with all existing and future unsecured senior indebtedness.

Omnicom and OCI have, jointly and severally, fully and unconditionally
guaranteed the obligations of Omnicom Finance Holdings plc, or OFH, a U.K.-based
wholly owned subsidiary of Omnicom, with respect to the €500 million 0.80%
Senior Notes
                                       22

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due 2027 and the €500 million 1.40% Senior Notes due 2031, collectively the Euro
Notes. OFH's assets consist of its investments in several wholly owned finance
companies that function as treasury centers, which provide funding for various
operating companies in Europe, Brazil, Australia and other countries in the
Asia-Pacific region. The finance companies' assets consist of cash and cash
equivalents and intercompany loans that they make or have made to the operating
companies in their respective regions and the related interest receivable. There
are no restrictions on the ability of Omnicom, OCI or OFH to obtain funds from
their subsidiaries through dividends, loans or advances. The Euro Notes and the
related guarantees are senior unsecured obligations that rank equal in right of
payment with all existing and future unsecured senior indebtedness of OFH and
each of Omnicom and OCI, respectively.

Omnicom has fully and unconditionally guaranteed the obligations of Omnicom
Capital Holdings plc, or OCH, a U.K.-based wholly owned subsidiary of Omnicom,
with respect to the £325 million 2.25% Senior Notes due 2033, or the Sterling
Notes. OCH's assets consist of its investments in several wholly owned finance
companies that function as treasury centers, which provide funding for various
operating companies in EMEA, Australia and other countries in the Asia-Pacific
region. The finance companies' assets consist of cash and cash equivalents and
intercompany loans that they make or have made to the operating companies in
their respective regions and the related interest receivable. There are no
restrictions on the ability of Omnicom or OCH to obtain funds from their
subsidiaries through dividends, loans or advances. The Sterling Notes and the
related guarantee are senior unsecured obligations that rank equal in right of
payment with all existing and future unsecured senior indebtedness of OCH and
Omnicom, respectively.

The Credit Facility contains a financial covenant that requires us to maintain a
Leverage Ratio of consolidated indebtedness to consolidated EBITDA (earnings
before interest, taxes, depreciation, amortization and non-cash charges) of no
more than 3.0 times for the most recently ended 12-month period. At March 31,
2022, we were in compliance with this covenant as our Leverage Ratio was 2.4
times. The Credit Facility does not limit our ability to declare or pay
dividends or repurchase our common stock.

Borrowings under the Credit Facility may use LIBOR as the benchmark interest
rate. The LIBOR benchmark rate is expected to be phased out by June 2023. We do
not expect that the discontinuation of the LIBOR rate will have a material
impact on our liquidity or results of operations.

At March 31, 2022, our long-term and short-term debt was rated BBB+ and A2 by
S&P and Baa1 and P2 by Moody's. Our access to the commercial paper market and
the cost of these borrowings are affected by market conditions and our credit
ratings. The long-term debt indentures and the Credit Facility do not contain
provisions that require acceleration of cash payments in the event of a
downgrade in our credit ratings.

Credit markets and credit availability

In light of the uncertainty of future economic conditions, we will continue to
take actions available to us to respond to changing economic conditions, and we
will continue to manage our discretionary expenditures. We will continue to
monitor and manage the level of credit made available to our clients. We believe
that these actions, in addition to the availability of our Credit Facility, are
sufficient to fund our near-term working capital needs and our discretionary
spending. Note 5 to the unaudited consolidated financial statements provides
information regarding our Credit Facility.

We have typically funded our day-to-day liquidity by issuing commercial paper.
Beginning in the third quarter of 2020 and continuing through the first quarter
of 2022, we substantially reduced our commercial paper issuances as compared to
prior years primarily as a result of our cash management during the recovery
from the pandemic. Additional liquidity sources include our Credit Facility and
the uncommitted credit lines. We did not issue commercial paper in each of the
three months ended March 31, 2022 and 2021.

We expect to resume issuing commercial paper to fund our day-to-day liquidity
when needed. However, disruptions in the credit markets may lead to periods of
illiquidity in the commercial paper market and higher credit spreads. To
mitigate any disruption in the credit markets and to fund our liquidity, we may
borrow under the Credit Facility or the uncommitted credit lines or access the
capital markets if favorable conditions exist. We will continue to monitor
closely our liquidity and conditions in the credit markets. We cannot predict
with any certainty the impact on us of any disruptions in the credit markets. In
such circumstances, we may need to obtain additional financing to fund our
day-to-day working capital requirements. Such additional financing may not be
available on favorable terms, or at all.

CREDIT RISK

We provide advertising, marketing and corporate communications services to
several thousand clients that operate in nearly every sector of the global
economy and we grant credit to qualified clients in the normal course of
business. Due to the diversified nature of our client base, we do not believe
that we are exposed to a concentration of credit risk as our largest client
represented 3.3% of revenue for both the twelve months ended March 31, 2022.
However, during periods of economic downturn, the credit profiles of our clients
could change.

In the normal course of business, our agencies enter into contractual engagements with media providers and production companies on behalf of our clients at levels that may significantly exceed revenues from our services. These commitments are

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included in accounts payable when the services are delivered by the media
providers or production companies. If permitted by local law and the client
agreement, many of our agencies purchase media and production services for our
clients as an agent for a disclosed principal. In addition, while operating
practices vary by country, media type and media vendor, in the United States and
certain foreign markets, many of our agencies' contracts with media and
production providers specify that our agencies are not liable to the media and
production providers under the theory of sequential liability until and to the
extent we have been paid by our client for the media or production services.

Where purchases of media and production services are made by our agencies as a
principal or are not subject to the theory of sequential liability, the risk of
a material loss as a result of payment default by our clients could increase
significantly and such a loss could have a material adverse effect on our
business, results of operations and financial position.

In addition, our methods of managing the risk of default, including obtaining credit insurance, requiring prepayment, mitigating potential market losses or negotiating with suppliers of media, may be insufficient, less available or unavailable in the event of a severe economic downturn. .

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