Philip J. Angelastro
Executive Vice President and Chief Financial Officer at Omnicom Group
Thanks, John. We're pleased to be closing 2022 with solid fourth quarter results, driven by strong organic revenue growth, operating profit growth and earnings per share growth. We finished the year with a healthy balance sheet and excellent liquidity. Our strong credit position and the operating flexibility of our business position us well for any macro uncertainty ahead. Please turn now to slide three, and we'll begin our review with a summary of the fourth quarter income statement. Reported total revenue in the fourth quarter was flat year-over-year at $3.9 billion with organic growth of 7.2%, offset by the negative impact of foreign currency translations and net disposition revenue in excess of acquisition revenue. Since most of our expenses are incurred in the local markets where our revenue is earned, foreign currency translation also reduced our operating expenses, which were flat versus last year. Reported operating profit for the fourth quarter increased 3.2% and on a constant currency basis, it increased 8.4%.Moving down the income statement. Higher interest income again helped lower our net interest expense, which decreased by $18.5 million. Our tax rate of 26.5% was as expected. In 2023, despite the increasing interest rate environment, we currently expect interest expense to approximate 2022 levels and interest income to increase moderately in Q1 and Q2 of 2023 compared to the first half of 2022 and approximate 2022 levels in the second half of 2023. We also currently expect our effective book income tax rate in 2023 to be approximately 27%. The increase relative to our 2022 rate is primarily due to the UK tax rate, which is scheduled to increase in April of 2023. Overall, our Q4 2022 net income rose 3.3% on a reported basis.
Combined with the reduction in shares year-over-year, diluted EPS rose 7.2%. Without the headwind from negative foreign currency translation, diluted EPS for the quarter increased 13.3%.For a review of the full year, please turn to slide four, where we show certain non-GAAP adjustments to make the periods more comparable. None of these adjustments are new this quarter. They were discussed earlier this year and last year. For the year-to-date 2022 period, operating expenses and income taxes were impacted by charges in the first quarter arising from the effects of the war in Ukraine. For the year-to-date 2021 period, operating expenses benefited from a gain on sale of a subsidiary and both interest expense and income tax expense reflect the impact from the early extinguishment of debt in 2021. Continuing on slide four, similar to the quarterly results we just discussed. The strength in the dollar this year also impacted our year-to-date results. Foreign currency translation reduced revenues by 4.8%. Operating profit on a non-GAAP adjusted basis of $2.2 billion was up 2.3%. And without the headwind from negative foreign currency translation, it increased 6.8%. Non-GAAP adjusted diluted EPS of $6.93 rose 8.5% or without the headwind from negative foreign currency translation, it increased 13.6%.Let's now go into some more detail on our results, beginning on slide five with an analysis of the change in our revenue. As discussed, our organic growth was 7.2% for the quarter, and 9.4% year-to-date.
The quarterly impact from foreign currency translation was negative 5.5%. It's worth noting that for financial reporting, the US dollar strengthened against the currencies of every country we operate in, except for Brazil, when compared to Q4 of 2022. However, this impact was slightly less than it was in the third quarter. So it did move in the right direction. The impact of acquisition and disposition revenue was negative 1.4%, primarily reflecting the disposition of our businesses in Russia during the first quarter of 2022. Looking forward, foreign currency exchange rates stay where they were as of February 1. We estimate that the impact will reduce our revenue by approximately 3% in the first quarter and moderate for the remainder of 2023 to be approximately flat for the year. Based on deals completed to date, we expect the impact from net acquisitions and dispositions will result in a reduction of our revenue by approximately 1.5% in the first quarter, primarily resulting in the disposition of our businesses in Russia in the first quarter of 2022. Turning to slide six. For the quarter, we once again showed organic growth across all of our disciplines with the exception of execution and support as we expected. As you can see, performance in each of our other disciplines, remain solid, with double-digit organic growth in three of them. Advertising and media, our largest category, posted 6% organic growth in the quarter, led by strong performance in our media businesses. Precision Marketing continued its strong performance, 11.6% organic growth as clients continue to turn to us for digital transformation, digital customer experience and data analytics services.
Although this growth rate moderated a bit relative to the third quarter, we're excited about the outlook, and we'll continue to invest in this space. Commerce and Brand Consulting was up 7.2% organically on the strength of our branding and design agencies. Experiential organic growth was a strong 17%, where we saw more benefits than we expected from the FIFA World Cup and other year-end projects. Execution and support, which we expected would be choppy in the second half had a decline of 2.8% against the comp of 5.2% growth in last year's fourth quarter. Public Relations grew a strong 12.7% organically in the quarter, keeping up a double-digit trend, reflecting continued client demand across many industries and geographies and including increased revenue of approximately $10 million, resulting from increased election spending in the U.S. in the second half of the year. And Healthcare delivered solid organic growth of 6.4%.Turning to slide seven for revenue by region, we're pleased to see continued positive growth globally. In the U.S., our 5.6% quarterly organic growth was led by Advertising & Media, Precision Marketing and Public Relations. International growth of 8.7% was also led by Advertising & Media and Precision Marketing and also saw the strong contribution from experiential that I mentioned earlier. Regionally, we saw some expected slowdown compared to the first half of the year in the U.K. and Europe, with their organic growth of 10% and 5%, respectively, is still quite healthy. Asia Pacific also improved, led by China and also driven by most of our other markets in the region.
Looking at revenue by industry sector on slide eight, relative to the fourth quarter of 2021, the mix of our client portfolio is broadly stable. Categories that moved year-over-year included an increase in exposure to pharma and health and a decrease in exposure to technology. Let's now turn to slide nine, and look at our operating expenses for the quarter. We are reference slide 17 in the appendix presents this on a constant currency basis. Our total expenses were essentially flat at $3.2 billion, due primarily to the weakening of almost all foreign currencies against the U.S. dollar. Salary and related service costs decreased as we saw an increase related to organic revenue growth and additional head count offset by the effects of foreign currency translation. Third-party service costs increased due to an increase in organic revenue. Occupancy and other costs increased primarily due to some growth in general office expenses as our workforce returns to the office, partially offset by lower rents. On the topic of rent, you may have seen in January that we moved the Madison Avenue headquarters for TBWA to a location that houses other Omnicom agencies. It is an open, modern and collaborative space with an efficient design. This is another example of the rationalization of our rooftops, which we expect will continue in the future. SG&A expenses were down year-over-year, due to lower professional fees, lower marketing-related costs and reductions from the effects of foreign currency translations.
Turning to slide 10, our fourth quarter operating profit was $643 million, a 3.2% increase from last year, net of a reduction of $32.3 million of the impact of foreign currency translations. Our operating profit margin reached 16.6% on total revenue compared to last year's margin of 16.1%.Please turn now to slide 11 for our cash flow performance on a full year basis. We define free cash flow, as net cash provided by operating activities, excluding changes in operating capital. Free cash flow for the year was approximately $1.8 billion, flat compared to last year. Regarding our uses of cash, we used $581 million of cash to pay dividends to common shareholders and another $80 million for dividends to non-controlling interest shareholders. Capital expenditures of $78 million were at normal levels. Acquisition spend, net of dispositions and other items was $330 million. And lastly, our net stock repurchases for the year were $594 million, at the high end of our expectations of $500 million to $600 million. 2023 we expect that we will also repurchase shares within this historical range. Regarding the changes in our operating capital for the year, which resulted in a use of cash of approximately $840 million, principal factors that caused this reduction, included reduction in billings in 2022 resulting from certain client losses in 2021; disposition of our businesses in Russia, including cash for operations in Q1 of 2022; disposition of our specialty media business in 2021; impacts from increased client activity related to the reopening in China at the end of the fourth quarter; and timing differences compared to the prior year in cash collections and cash payments at year end.
As we look forward, we expect changes in operating capital to be a source of cash again in fiscal year 2023. Slide 12 is an overview of our credit, liquidity and debt maturities. During the quarter, the impact of foreign exchange rates on our euro and sterling denominated debt caused the book value of our outstanding debt to decrease to $5.6 billion from $5.7 billion as of December 31, 2021. There were no changes in outstanding balances during the quarter and our $2.5 billion revolving credit facility, which backstops our $2 billion US commercial paper program, remains undrawn. Our cash and cash equivalents were $4.3 billion at year end. Reduction relative to year end 2021 is due primarily to the changes in operating capital that I just discussed as well as the effect of foreign exchange rate changes, which reduced our cash balance by $219 million for the year. Turning to slide 13. Our operating capital discipline consistently drives above-average returns on both invested capital and equity. The 12 months ended December 31, 2022, we generated a solid return on invested capital of 28% and a strong return on equity of 40%. The strength of our business delivers attractive returns on a relative basis in both strong and weaker macroeconomic environments. In closing, as 2023 unfolds, we are prepared, as always for an uncertain business environment. We have a strong track record of providing attractive returns through dividends and share repurchases, while maintaining a strong balance sheet and managing our business through challenging market conditions and we will do so while continuing to invest in our strategic future growth.
Operator, please open the line for questions and answers. Thank you.
