5.3.2 Operating margin and operating income
Operating margin
The operating margin before depreciation and amortization was euro 2,245 million in 2019, compared to euro 2,049 million in 2018, a 9.6% increase, incorporating the contribution of Epsilon in the second half. The operating margin rate was 22.9% of net revenue (22.8% in 2018). Excluding transaction costs related to the acquisition of Epsilon, the operating margin before depreciation and amortization amounted to euro 2,285 million in 2019, a margin of 23.3%.
- Personnel expenses totaled euro 6,073 million at December 31, 2019, up 5.7% from euro 5,747 million in 2018. This increase is due to a number of factors: the consolidation of Epsilon in the second part of the year, investments in talent for our Game Changers and our creative and media services, totaling around euro 100 million, only partially offset by the adjustment of variable compensation linked to the organic growth target not having been met. As a percentage of net revenue, personnel expenses amounted to 62.0%, compared with 64.1% in 2018, reflecting in part the structure of Epsilon’s Income Statement, with personnel expenses accounting for a smaller share of revenue. Fixed personnel expenses amounted to euro 5,353 million, i.e. 54.6% of net revenue versus 55.4% in 2018. Freelance costs were euro 348 million in 2019, after euro 367 million in 2018. Restructuring costs totaled euro 116 million in 2019 (up from euro 104 million in 2018) as the Group continued to reorganize around The Power of One, which increasingly integrated structures and activities at country level.
- Other operating expenses (excluding depreciation and amortization) amounted to euro 2,683 million, compared with euro 2,155 million in 2018. This line item accounts for 27.4% of net revenue, compared with 24.0% in 2018. Excluding transaction costs related to Epsilon for an amount of euro 40 million, operating expenses in 2019 amounted to euro 2,643 million, i.e. 27% of net revenue. Once again, the increase in this ratio was due to the structure of the Epsilon Income Statement. The depreciation and amortization expense for the period amounted to euro 586 million in 2019, up 11.4% in comparison with 2018. The increase is mainly attributable to the consolidation of Epsilon in the second part of the year. The operating margin totaled euro 1,659 million, i.e. an 8.9% increase from euro 1,523 million in 2018. Excluding transaction costs related to the acquisition of Epsilon, the operating margin amounted to euro 1,699 million, or a rate of 17.3%, up 30 basis points on 2018. This improvement is mainly due to lower personnel expenses as a percentage of revenue, the disposal of PHS and the positive effect of translation, partially offset by an increase in the line item “other operating expenses”. These factors have helped to generate the necessary resources to invest in talent, whether for Game Changers or creative and media services. Operating margin rates by major geographic region, excluding Epsilon-related transaction costs, were 13.7% for Europe, 19.6% for North America, 17.7% for Asia-Pacific, 13.8% for Latin America and 10.9% for the Africa/Middle East region.
Operating income
Depreciation and amortization of intangible assets arising on acquisitions totaled euro 204 million in 2019, versus euro 69 million in 2018. This increase is mainly due to the depreciation and amortization of Epsilon’s intangible assets, and the implementation of our country organization which has resulted in a change in accounting policy relating to how trade names are valued upon acquisition. Since July 1, 2019, these trade names have been subject to depreciation and amortization. Impairment losses amounted to euro 209 million, of which 82 million in impairment mainly of intangible assets and 127 million linked to the All-in-One real estate consolidation which resulted in a reduction in the number of sites, whilst promoting improved collaboration among teams. In 2018, impairment loss amounted to euro 131 million (of which euro 114 million linked to the All in One plan). Other non-current financial income and expenses netted out at income of euro 21 million resulting from disposals of subsidiaries, compared with an expense of euro 20 million in 2018. Operating income for 2019 amounted to euro 1,267 million, versus euro 1,303 million in 2018.
