宏盟集團 (OMC) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Omnicom fourth quarter 2015 earnings release conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. At this time, I would like to introduce you to your host for today's call, Vice President of Investor Relations, Shub Mukherjee. Please go ahead.

Good morning. Thank you for taking the time to listen to our fourth quarter 2015 earnings call. On the call with me today is John Wren, President and Chief Executive Officer, and Phil Angelastro, Chief Financial Officer.

We hope everyone has had a chance to review our earnings release. We have posted on our website at www.omnicomgroup.com this morning's press release, along with the presentation which covers the information that we will review. This call is also being simulcast and will be archived on our website.

Before we start, I've been asked to remind everyone to read the forward-looking statements and other information that we have included at the end of our investor presentation and to point out that certain of the statements made today may constitute forward-looking statements and that these statements are our present expectations and that actual events or results may differ materially.

I would also like to remind you that during the course of the call, we will discuss some non-GAAP measures in talking about Omnicom's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials.

We're going to begin this morning's call with an overview of our business from John Wren. Then, Phil Angelastro will review our financial results. And then we will open up the line for your questions.

Thank you, Shub. Good morning. I'm pleased to speak to you about our fourth-quarter and the full-year 2015 business results. As you will hear this morning, it was an excellent quarter for Omnicom. We recruited some of the best talent in our industry, continue to win significant new business, and made a couple of important agency acquisitions. It was a terrific way to end the year.

Our financial performance was also solid. We posted organic revenue growth of 4.8% in the fourth quarter, resulting in 5.3% growth for the full year. We also achieved our margin and net income targets for the quarter and the full year despite significant strengthening of the US dollar and its impact on revenue and EBIT.

FX reduced our revenue in the fourth quarter by $236 million, or 5.6%. For the year, currency impacts reduced our revenue by just over $1 billion. As we enter 2016, FX will continue to be a headwind on our revenue and earnings, but hopefully at a less significant rate. Phil will provide more details about the impact of FX later in the call.

Turning now to organic growth by region, North America increased by 4.7%, reflecting very strong performances in our brand advertising and media businesses. This was offset by public relations and specialty disciplines, both of which had difficult comps versus prior year. In the fourth quarter of 2014, PR was up 9.9% and specialty was up 8.9%. The UK was up 4.9% in the quarter and ended the year, up 7.1%.

Overall, growth in our Euro region was 3.5%. In the Euro markets, Germany was in the mid-single-digits and Spain and Italy also outperformed while France and the Netherlands continued to weigh on the performance in the region. Outside the Euro countries, Russia, Sweden and Turkey had above average results.

Moving to Asia Pacific, organic growth was 8.6%. We had solid growth across almost every market and double-digit growth in Australia, China, Indonesia, Korea, Thailand and Vietnam. Latin America was slightly positive for the quarter, as strong performances in Mexico offset weaknesses in Brazil.

Looking at our bottom line, EPS for the quarter was $1.35, up 3.8% versus prior year. For the year, EPS was up 4% to $4.41. Excluding the impact of currency, earnings per share would have been 8% higher for both the quarter and the year. For 2015, we generated over $1.6 billion in free cash, an increase of 2% year over year and returned almost $1.2 billion to the shareholders through dividends and share repurchases.

Finally, our balance sheet and liquidity remain very strong. Overall, I'm very pleased with our performance for the quarter and the full year. Looking forward, the consistency and diversity of our operations and results, combined with our very strong liquidity and balance sheet, will allow us to capitalize on opportunities when they arise.

Turning now to some of the events of last year. As widely reported 2015, had a significant number of media reviews. As I mentioned on previous calls, we were very selective in accepting only a handful of invitations to pursue new media business and declined a few others in order to stay focused on our existing clients.

And as I am sure you have seen, we ended the year winning most of Procter & Gamble's North American Media Planning and Buying business, which was perhaps the most extensive and certainly the most closely watched review of 2015. This win is a reflection of the talented people and the capabilities we have within Omnicom's Media Group and Annalect, our open-sourced data and analytics platform.

You've heard me talk about the investments we've made in this area and they're paying off for our clients and our business. We now have data and analytic experts, or marketing scientists, as we call them, embedded in many of our account teams. Clients increasingly recognize this alignment leads to better data-informed strategies that are more effective in today's fluid and personalized marketing environment.

Overall, we're very pleased with our results on these media reviews for the year as we came out of the net winner. An independent third party, RECMA, recently reported that we ranked ahead of our main holding Company competitors and that includes us passing on some of the pitches I mentioned earlier. Since year end, Sony concluded its global review, OMD, adding substantially to its music business and entertainment business while trading off some gaming businesses principally out of the UK.

Looking ahead, there are also a few mid-sized opportunities and risks that are more typical of a normal review year. Whether the pace of 2015 continues into 2016, it is too early to say but we will not be surprised if the patterns continue. At the same time, our Media Group is in the process of developing a third global brand, in addition to our successful OMD and PHD brands.

You can expect our Media Group to announce the official launch of this third media brand in the next few weeks. In the year ahead, they will be establishing network offices in key markets around the world, leveraging other in-country media assets. This will give us additional capacity to manage more client relationships as well as leverage the investments we have made in media capabilities across our businesses.

Turning to the topic of talent, we announced last quarter that Wendy Clark would become the CEO of DDB North America. Wendy is highly respected in the marketing world and joins DDB from Coca-Cola, where she was the President for Sparkling Brands and Strategic Marketing. We're excited to have her a part of the DDB and Omnicom team.

We also had a number of other important recruits in the quarter from leading marketers. These senior talent additions are a testament to Omnicom's ability to attract top people from iconic brands. I mentioned at the beginning of the call that we had made two important acquisitions in the fourth quarter, one in Latin America and one in the UK.

In November, DDB Worldwide announced the acquisition of Grupo ABC, the largest independent advertising and marketing communications group in Brazil. Grupo ABC has 2,000 people in 30 locations, with the best-in-class advertising brands as well as offerings in public relations, CRM, digital, promotion, and events.

Their blue-chip client roster includes names like Procter & Gamble, J&J and Anheuser-Busch InBev. We have known the co-founders of Grupo ABC since we invested in DDB's operation in Brazil in 1997, so I'm especially pleased to officially welcome them back to the Omnicom family.

Importantly, ABC has outstanding creative talent that will strengthen our capabilities not only in Brazil but also around the world. Despite its current economic challenges, we're fully committed to the Brazilian market as one of the largest for our services. The ABC acquisition closed at the end of January, and Omnicom's 2016 results include 11 months of their operations.

In December, BBDO Worldwide acquired a majority stake in Wednesday Agency Group. With over 100 people in London and New York, Wednesday is the leading creative agency focused on fashion and luxury lifestyle brands, a specialized niche in our business. The firm is known for its creative excellence and passion, which makes it a great fit for BBDO.

Grupo ABC and Wednesday are perfect examples of agencies founded by leading industry talent with strong creative cultures that also strengthen our geographic and service capability. Another barometer that we use to measure our success in cultivating the best talent is the performance of our work for clients in award shows. Once again, our agencies and networks continue their tradition of being the most creatively awarded companies in the world.

Let me mention just a few, just to highlight them. Omnicom's swept Campaign Magazine's prestigious 2015 Agency of the Year awards. BBDO was awarded Agency Network of the Year, PHD Media Network Of the Year and [Adam and Eve] DDB picked up Agency of the Year. BBDO topped The Gunn Report for the 10th year in a row.

At the Campaign Asia Pacific Agency of the Year Awards, TBWA and DDB won Creative Agencies of the Year in Japan, Malaysia, New Zealand, Southeast Asia, Philippines and Indonesia. They were many others throughout our disciplines and I want to congratulate all of our people and agencies for their outstanding work.

Operationally, we continue to drive greater efficiencies throughout our business in 2015. We are constantly challenging our people to find ways to manage their cost agency by agency. On a regional and global basis, we're leveraging our scale in areas such as information technology, real estate, back-office services and purchasing to deliver further cost improvements.

We believe that these and other initiatives will allow Omnicom to deliver a 30-basis-point-margin improvement for the full year 2016 or 13.7% EBITDA versus 13.4% for this past year. Before I hand the call over to Phil, I want to touch on the importance of innovation and collaboration in our business as we continue moving forward towards more interconnected activities.

In January, I attended the Consumer Electronics Show in Las Vegas. I'm always amazed at the pace of technological change from virtual reality, which is now reads the tipping point to the Internet of Things, which is resulting in automation and interconnection of homes, cars and personal devices.

Many of these innovations were still in the concept stage just a few years ago and are examples of technologies that will create new opportunities for marketers. For Omnicom and our agencies, it is critical to continue and hire and develop talent and build capabilities to keep pace with these changes as well as to align our businesses and people in a manner that allows us to best service our clients.

Partnerships will also help drive our success. Partnerships between our clients and agencies, across our different types of agencies and partnerships with companies that complement our capabilities. From shopper marketing to PR to media to advertising to CRM, our agencies are increasingly working together seamlessly on behalf of our clients.

They are also collaborating with tech companies, entertainment companies, fashion and design firms to create the innovative award-winning work that they are known for. We believe we are the best-in-class in doing this, and our 2015 performance demonstrated it.

Omnicom continues to be an industry leader, strengthening our talent, embracing new technologies and collaborating to deliver outstanding creative work for our clients and their brands. I want to recognize and thank the 74,000 people at our agencies for their world-class integrated campaigns, outstanding new business wins and all the great work that enabled us to deliver these results. I will now turn the call over to Phil for a closer look at the fourth-quarter and the full-year results. Phil?

Thank you, John. And good morning. During 2015, our businesses continued to focus on meeting the needs of their clients and winning new business, as well as enhancing efficiencies within their organizations to improve their operational profitability.

For the fourth quarter, our organic revenue growth of $200 million, or 4.8%, once again exceeded our expectations and capped the year where organic growth was 5.3%. The US continued its strong performance to close out the year, with Q4 organic growth of almost 4%, coming off a particularly difficult comp versus last year's Q4, where organic growth was 9%.

Internationally, we again experienced solid growth in all of our regions, with strong country performance in the UK and Canada and across most of our major Asia-Pacific markets. Continental Europe was positive, driven by Germany and Spain, while revenues in the Netherlands and France declined.

While we continue to have solid organic revenue growth overall, in the fourth quarter, exchange rates continued to create a considerable headwind on our international revenue, as almost all foreign currencies, again, weakened versus the dollar in Q4. The negative FX impact of 5.6% in Q4 was somewhat lower as a percentage than the previous three quarters of 2015, as declining currencies began in the fourth quarter of 2014.

Revenue for the quarter, after considering a small reduction in revenue from the impact of our dispositions, net of acquisitions, was $4.15 billion, down 1% versus Q4 last year. We will go over our revenue growth in detail in a few minutes.

Now we will move to EBITDA and operating income. EBITDA for the fourth quarter of 2015 decreased $5.4 million to $604 million versus $609 million in Q4 of last year. As we have discussed previously, the vast majority of our expenses are denominated in the same local currency as their revenue, which operationally serves as a natural hedge.

However, in several of our higher margin markets, including Australia, Canada and Brazil, FX had a relatively larger negative impact this quarter than in previous quarters this year. However, through our ongoing initiatives to increase efficiency throughout the organization, we have enhanced the flexibility in our cost structure.

These efforts have allowed us to offset the FX headwinds on EBITDA. As a result, the EBITDA margin for the fourth quarter of 2015 was 14.5%, which was unchanged versus Q4 of last year. Operating income decreased by $3.9 million to $575.5 million for the quarter, which was also negatively impacted by FX. Operating margin of 13.9% was up slightly compared to 13.8% in Q4 of 2014.

Turning now to Page 2 of the presentation. Net interest expense for the quarter was $36.8 million, up $6.8 million versus the fourth quarter of 2014, and up $900,000 from the third quarter of this year.

Versus Q4 of last year, the increase in net interest expense related to an increase in rates on our floating rate debt and the termination in Q4 of the floating interest rate swaps on our 2020 senior notes and a portion of the swaps on our 2022 senior notes. This brought our ratio fixed rate to floating rate debt from 50/50 to 60% fixed and 40% floating at year end. The gain that we realized on the termination of the swaps will be amortized over the life of the debt.

The amortization of that gain in Q4 of 2015 was lower than the benefit recorded from the swaps in Q4 of 2014. Additionally, interest income on our cash balances held internationally decreased year over year by approximately $1.1 million due to negative FX. On a constant currency basis, interest income was up slightly year over year.

Versus Q3 of 2015, the increase in net interest expense was the result of a decrease in the interest benefit from terminating our floating interest rate swaps in Q4, partially offset by an increase in interest income from our international treasury centers, resulting from our higher-than-average cash balances in the fourth quarter as compared to the third quarter.

Our quarterly tax rate of 32.2% (sic - see press release "32.8%") was in line with the full-year tax rate of 2015 and consistent with our projections for the year. Earnings from our affiliates of $2.2 million is down versus last year which was related to a reduction in the contribution of certain international affiliates, primarily as a result of the negative impact of FX.

On a constant dollar basis, our earnings from affiliates was flat. The allocation of earnings for the minority shareholders in our less than fully owned subsidiaries decreased nearly $11 million to $32.6 million.

While negative FX was the primary reason for the decrease since a large number of our less than fully owned subsidiaries are located outside the US, the decrease was also due to the purchase at the end of the third quarter of one of our larger non-controlling interest of one of our agencies in Latin America. As a result, net income for the quarter was $332 million, that's up $2.1 million, or a little less than 1%, versus our Q4 results last year.

Turning to Slide 3, the remaining net income available for common shareholders for the quarter, after allocation of $3.3 million of net income to participating securities, which for us is a dividend paying on vested and restricted shares held by our employees, was $328.3 million, up slightly from last year.

Our diluted share count for the quarter was 243.8 million, that is down 2.4% versus last year, which has been driven by our share buyback activity over the last 12 months. The resulting diluted EPS for the quarter was $1.35 per share, an increase of $0.05, or 3.8%, versus Q4 of 2014.

On Slides 4 through 6, we provide the summary P&L, EPS, and other information for FY15. Brief highlights are as follows: our full-year 2015 organic revenue growth was 5.3% while the FX headwind decreased revenue by 6.6%, net of the impact of this year's acquisitions and dispositions, which added $15 million; our total revenue was $15.1 billion, down 1.2% versus last year; and as was the case with our Q4 results, FX negatively impacted our full year EBITDA and margins.

EBITDA decreased 1.1% to $2.03 billion and FX negatively impacted our margins by about 20 basis points for the year, with almost all of the impact coming in the second half of the year. As a result of our ongoing efficiency efforts, we were able to maintain our full-year EBITDA margin of 13.4%, consistent with last year.

Turning to taxes on Page 5, our effective tax rate for 2015 of 32.8% was in line with our expectations for the year. At this point, we expect our 2016 tax rate to be fairly consistent with the 2015 rate.

On Page 6, you can see our 2015 diluted EPS was $4.41 per share, which is up $0.17, or 4% versus 2014's reported amount of $4.24 per share.

On Slide 7, we turn to the discussion of our revenue performance. First, as I mentioned, we saw positive organic growth across all of our regions this quarter. The fourth quarter's growth was driven by the performance of our traditional advertising and media disciplines while our other disciplines had a mixed performance across the regions, which I will discuss later.

FX continues to be significant drag on our revenues. On a year-over-year basis, in the fourth quarter, once again the US dollar strengthened against every one of our major foreign currencies. This decreased our revenue for the quarter by $236 million, or 5.6%. While the decline in the value of the Euro accounted for over one-third of the overall FX reduction, we also saw significant declines related to the Australian and Canadian dollars, the Brazilian Real and the British Pound as well as the Russian Ruble.

As of the end of the fourth quarter, we have now seen five consecutive quarters of large negative movements in FX due to currencies weakening against the US dollar. As we enter into 2016, based on our most recent projections, and assuming currencies stay where they currently are, FX could negatively impact our revenues by approximately 3% during the first quarter of 2016 and 2% for the full-year 2016.

Revenue from acquisitions, net of dispositions, slightly decreased revenue by $6 million. While we have added businesses, both domestically and internationally over the past year, we are continually evaluating our businesses and making strategic dispositions as deemed appropriate.

Finally, organic growth was $200 million, or 4.8% this quarter. We had another quarter with solid organic growth across all of our major regions, with the notable country exceptions being France and the Netherlands, which struggled in 2015 and Brazil, which continues to face an uncertain economic outlook.

Looking at our disciplines, our traditional media and advertising businesses led the way. The performance of the businesses in our CRM discipline was mixed, with our field marketing and events businesses having a challenging quarter. Although our specialty and public relations disciplines were down organically for the quarter, both of them faced difficult comparatives to last year's Q4 performance when they each achieved organic growth in excess of 8%. Overall, our below-the-line disciplines did not achieve as much of the year-end client project spend as they did in Q4 of 2014.

On Slides 8 and 9, we present our quarterly regional mix of business. During the quarter, split of revenue was 59% from North America, 10% from the UK, 17% for the rest of Europe, 11% for Asia-Pacific, with the remainder coming from our Latin America and our Africa and Middle East regions.

For the full year, the split was much the same as in the fourth quarter. In North America, both the US and Canada contributed to another solid performance, with organic revenue growth of 4.7% for the quarter and 5.4% for the full year. Internationally, our UK agencies continue to perform well across our businesses.

The rest of Europe was up 3.5% for the quarter and 3.7% for the year, led by Germany and Spain as well as Italy. France was still negative organically, and Netherlands continues to lag behind our other major markets in Europe. Asia-Pacific was up 8.6% in the quarter and 7.9% for the year, with the major markets again performing well, including China, South Korea, Thailand and Australia, with the exception being Hong Kong, which was up slightly in the quarter but down for the year.

In Latin America, our Brazilian agencies had another negative quarter in the face of uncertain economic conditions but we had strong performance from our agencies elsewhere in the region, in particular, Mexico. This resulted in a slightly positive organic growth for the region in Q4 but the region as a whole was negative for the year.

Finally, our Africa/Middle East region, although relatively small, was up 5% in the quarter driven by a strong performance in South Africa and the region was up 6.8% for the year.

Slide 10 shows our mix of business. For the quarter, they split 53% advertising services and 47% marketing services with the full-year split being similar. As for their performance, our advertising discipline was up 12.6% in the quarter and 9.3% for the year, driven by the outstanding performance of our media businesses across geographies. CRM was down 1.5% in Q4 and for the year, had positive growth of 1.9%.

Our field marketing and events businesses had a challenging quarter. Most businesses in the category were up on a full year basis versus 2014, with the exceptions being field marketing and sales promotion, which were down for the year.

PR was down 6.9% in the quarter and was our only discipline that was down a bit for the full year; it was down by 1.4%. The fourth quarter decrease was due to difficult comp compared to Q4 of 2014 when the PR discipline posted growth of 8.5%. Specialty communications was down 5.9% in Q4, but up 2.2% for the year. The fourth-quarter decrease was due to a difficult comp compared to Q4 of 2014 when the specialty discipline, driven by our full service healthcare businesses, posted growth of 9.4%. Overall, as I said previously, our below-the-line disciplines did not capture as much year-end client spend as they did in Q4 of 2014.

On Slide 11, we present our mix of business by industry sector. In comparing the full-year revenue for 2015 to 2014, it was minimal change in the mix of our client revenue by industry.

Turning to our cash flow performance on Slide 12, in 2015, we generated over $1.6 billion of free cash flow, excluding changes in working capital.

As for our primary uses of cash on Slide 13, dividends paid to our common shareholders were $497 million, up when compared to last year. Dividends paid to our non-controlling interest shareholders totaled $129 million; capital expenditures for the year were $203 million.

Acquisitions, including earn-out payments, net of the proceeds received from the sale of investments, totaled $150 million and stock repurchases, net of the proceeds received from stock issuances under our employee share plans, totaled $680 million. As a result, we outspent our free cash flow by just under $44 million for the year.

Turning to Slide 14, focusing first on our capital structure. Our total debt of about $4.6 billion is up about $20 million from this time last year. The increase is primarily due to the change in the fair value of our debt's carrying value, related to the in-the-money amount of our interest rate swaps at year-end 2015.

Our net debt position at the end of the quarter improved to $1.95 billion compared to $2.16 billion at year end 2014. The decrease in our net debt of $209 million over the past 12 months, using period end spot rates, was driven primarily by the positive contribution from operating capital of about $550 million, partially offset by the negative impact of FX translation on our cash balances over the last 12 months, or approximately $265 million, and the use of cash in excess of our free cash flow of $44 million as well as some other smaller items.

As a result, our ratios were strong. Our total debt to EBITDA ratio was 2.1 times. Our net debt to EBITDA ratio was 0.9 times and our interest coverage ratio was 12.2 times.

Turning to Slide 15, we continue to successfully manage and build the Company through a combination of strategic acquisitions and well focused internal development initiatives. For the last 12 months, our return on invested capital increased to 21.5%, and our return on equity increased to 41.3%.

Finally, on Slide 16, we track our accumulative return of cash to shareholders since 2004. The line on the top of the chart shows our accumulative net income from 2004 through year end, which totaled $11.1 billion. The bar shows the accumulative return of cash to shareholders, including both dividends and net share repurchases, the sum of which during the same period, totaled $12 billion for a accumulative payout ratio of 108%.

That concludes our prepared remarks. Please note that we have included a number of other supplemental slides in the presentation materials for your review. But at this point, we're going to ask the operator to open the call for questions. Thank you.

(Operator Instructions)

Peter Stabler, Wells Fargo.

Thanks for the questions. Two, if I could. First of all, John, I was wondering if you look at your businesses, your segments outside of traditional advertising and you did call out the difficult comps but on a full-year basis, if you look at those segments, organic growth was about, according to our math, 1.2% for the year.

So just wondering outside of comps, whether there is any sort of mix shift happening within the business? And as you look forward to FY16, would you expect a more balanced performance across the operating segments? And then a quick one for Phil, could you let us know what Accuen's contribution in the quarter was?

Thanks Peter. The below-the-line specialty service businesses that you are referring to are the most numerous of -- within the portfolio of Omnicom. We're constantly looking at that portfolio to find out, are they growing and are they growing in a particular market at a rate that we are satisfied with?

It is a constant evaluation. It's a constant review, it is done by the people here at Omnicom corporate; it is also done by the people at DOS. So and unlike most of the advertising and media services, they tend to be projects. They tend to be projects with existing clients who repeat at a certain amount of spending every single year but it is not as precise and it is not as predictable.

So this year, we were particularly happy with our healthcare companies and the growth that they achieved but also the business that they have won, particularly critical, in a very positive way, of some of our PR operations. Some of them advanced lot further than others and we have been spending the last several months getting everybody up to par. So it's -- there is no easy answer, it is a constant battle, but I would say on balance today, we're pretty comfortable with the portfolio in which we're going into next year with -- or into this year with.

Just to add to that your second question, Peter, the contribution in terms of growth from Accuen this quarter was about $45 million.

Alexia Quadrani, JPMorgan.

This is David Karnovsky on for Alexia. Can you provide a bit more color on how clients are looking at spending for this year and maybe how that translates into organic growth? We have heard good growth domestically in Q4 is continuing to Q1 but don't really have a lot of insight yet into full-year spending plans. And then how much, if at all, do you think that the weak financial markets might influence those spending decisions?

So that I can share this, the world is, as it seems to be reported every single day. US continues to be strong and the markets that we're reporting growth are okay, but there are a lot of transition spots and weaker spots around the world. China is in a transition although its business for us has been good.

Brazil, we're expecting weakness and we're expecting weakness to continue throughout 2016, even despite the Summer Olympics. So when we take a look at organic growth based upon what we have seen, we think 2016 can be very similar to what we experienced in 2015 and if we had to throw a number at it, we would say 3% to 3.5% based upon what we know now.

I think our expectations heading into the year are somewhat similar. We're certainly not sitting here today, it's very early in the year, very early in February, committing to or I guess, implying that the overall growth for 2015 will be the same. I think our expectations are the same sitting here in February of 3% to 3.5% organic.

I think for us, we haven't seen a correlation between the discussions our agencies have been having with their clients, with respect to what our clients' goals and strategies are in 2016 and what their spending might be at correlation to what is going on in the financial markets.

I think the themes John touched on more broadly, as far as the global economic situation and some pockets of uncertainty, those we expect will correlate a little more directly with what our clients ultimately decide to do from a spending perspective less so what is going on specifically in the financial markets over the last month or so. I think time will tell whether the current volatility is a forecast of something that is going to impact the economy more broadly.

Okay, great. Can you provide an update on capital returns? I think some investors are may be surprised at the lack of a dividend increase this past week. Anything we should read into that and then maybe just your updated thoughts on priorities for a dividend buyback in general? Thanks.

Phil, do you want to take it?

Sure. I think from our perspective, we don't expect any change in our capital allocation strategy. I think the dividend, as we have said before, is a Board matter. It's certainly on the Board's agenda. I think our expectation is they will deal with it some time in the near future, at one of the next Board meetings.

Their agenda has been a little crowded with plenty of things, as it always is, but we expect that they will get back to that evaluation and consideration as it relates specifically to the dividend. As far as the rest of our strategy, I think our perspective is going into 2016 more of the same. To the extent we can find acquisitions that fit strategically, culturally and pricing makes sense we're going to continue to look to do more acquisitions rather than less.

We expect that activity will pick up, we closed the Grupo ABC deal in the first quarter of 2016. And we have got a pipeline that we continue to pursue. To the extent that deals happen, we will have less free cash to use to buy back shares. To the extent the deals don't happen, we will continue to deploy the cash through share buybacks, as we have pretty consistently.

Julien Roch, Barclays.

The first one is on the many reviews from last another now that we have gone through all of them. John, maybe an assessment of the overall impact of the industry, was it led by pricing and therefore, will it have a deflationary impact on overall industry growth in 2016 or what you have done on other consideration and have an impact? That is the first question.

The second one is, again on the review, but on your remark at the beginning of the call that you said. You said that we potentially might see a similar level, which I guess the market will take negatively if of digital utilization year over year so if you could give us some idea why you are thinking that is going to be the case. These are my two questions. Thank you.

Julien, our experience was that it is a new environment and with digital being a very much an important component of what happens from a media perspective and also the utilization of data and analytics and making decisions because of all of the channels that are out there, I would say on balance, in the reviews we participated in, pricing was not primary.

It was really those capabilities and whether or not the service provider, in this case, us, was the correct partner, moving into this next period which is very, very -- it is interesting, it is exciting, it is changing very rapidly. And if you do not have the right capabilities, it is very difficult to catch up in a short period of time so that is what our clients, I believe, were looking at.

I also believe that they are probably some, especially on our wins who actually confirmed that separately and independently in the press so it's not -- so it's a very strong feeling that have so I don't see pricing erosion and certainly not in 2015. My comments in my prepared remarks were such that we have not been informed or been notified of any opportunities or risks, other than a few minor accounts that are currently in review.

And we're hopeful that we see a more normal year in 2016 where there aren't as many large media accounts put up for consideration. But at this point, preparing for that would be foolish. We're much better off being prepared to face a similar type of level. So I -- until it is confirmed, I would ask the market not to read too much into my comment but we certainly stand ready.

I think we go into 2016 trying to be prepared for what we wouldn't be surprised if more reviews occur than maybe the pace of reviews two years and prior. I don't think we're sitting here saying, it is an expectation or we've got some information directly from either clients or potential targets that would lead us to conclude that it is imminent but certainly, we want to prepare ourselves and our businesses to be ready to compete on that basis.

Overall, the more and more complexity there is in the landscape, the media landscape, the more clients are looking for a provider with what we think we have now demonstrated in some of the wins that we have had. We've got the capabilities and we've got the right people. We've made the right investments and the more complexity, we think the better off it is ultimately going to be for our business.

One more comment, Julien. The clients that I would characterize as blue-chip clients, were out there looking for the right partner. There is always clients out there looking for the cheapest price but you will find that business goes into reviews quite often.

Very clear. And maybe a very quick one. Impact of M&A in 2016 on revenue based on the current deal we -- you have closed?

I think probably right now, we're looking at about $100 million of net acquisition growth, or acquisition growth net of dispositions based on everything we have completed to date. We're going to continue to look to find and close more deals, as I said before.

And we're always constantly reevaluating our portfolio and making sure we have got the right business mix and the right strategic assets. And if we don't, we're going to look to prune the portfolio of businesses that either aren't on strategy or are not performing to the point where we think that is appropriate to make a disposition.

Craig Huber, Huber Research.

There's a lot of concern out there in recent quarters from investors that guys like Google and Facebook are going to take much of your business, the media side, in particular. Could you just comment on that, as the concerns seems to come and go over the years, but what is your latest thoughts on that? Why is it not a concern for you as people say?

Well, our relationships with both of those companies are very strong and they have only improved in 2015. We view them really as a partner, a neutral partner, maybe, but they have assisted us in many things. They're not looking to provide many of the services that we provide our clients.

And we have learned to work very well with them in most instances. The -- I think clients are looking to us to be the neutral partner in evaluating whether or not we use the media that you would find at Google versus the approach that you would take at Facebook.

And I think that is really -- it has been a question in the past as to whether they were going be our competitors or going to be an effective media, for a way for us to reach consumers. And I think right, today, I would say it is settling in on them being a partner and clients increasingly depending upon us to do their planning and to do their buying off of their -- whatever platforms are available.

We certainly see our clients looking to us to help them make the evaluation across the various media options that they have. Google and Facebook are certainly huge players in the digital space so they are part of any and every evaluation that we do on behalf of our clients. But I don't think our clients have reached a comfort level or will reach a comfort level where they are just willing to turn over a big part of their budget to Google and Facebook directly and feel comfortable that it is going to fit into their overall strategy in a consistent way.

In recent conversations I have had with one of the two, but it is true of both of them, is, an early tell, I think is to watch their employment numbers. How many people are Google hiring? How many people are Facebook hiring and what type of people are they hiring? I think in earlier years, there was confusion as to whether they wanted to hire marketers or engineers. I have a very strong impression that as they look at their businesses, they are hiring more and more engineers every day than there are marketers who could potentially compete with us in any way.

Two more quick questions, please. The fourth quarter, what was your net new business wins? Your future goal was usually about $1 billion there. And then also, could you speak quickly about China? It's at about 2% of your revenue, I believe, and you said it was up 10%-plus. What is your outlook for growth in that market; it comes up a lot with investors. Thank you.

I will take the new business one. So the overall number was probably just shy of $2 billion but that included a large number on the P&G front. I think the number from our perspective, although we don't place a great deal of weight on a billings number, a new business billings number, was probably in the neighborhood of what we would typically expect our businesses to deliver on a typical quarter.

With respect to China, the Chinese market is absolutely changing but it is still growing at a really decent pace and our market share in China, that we have a lot of headroom. We have a lot of opportunity to win new business, both -- other multinational companies doing business in China, Chinese multinational companies which are looking to develop their markets in China, and then go outside of China.

And in major markets, the more successful domestic companies. It is interesting conversation when we discuss what is happening with China and what is the impact of growing 7% in the year versus 5.6% in the year but we still have a lot of work and a lot of opportunity just in gaining market share in that market.

I think, overall, given what is going on, comes down to your individual client base. Our clients, the majority of our clients, certainly in our agencies in China, are large multinationals who are trying to grow their business in that market. And we think they tend to be a little bit more stable and that is just a little bit of a difference in terms of the mix of our business versus some others.

And I think overall, it is probably not the worst time to be underindexed in the Chinese market. Our focus has always been on the quality of the agencies that we have in that marketplace and agencies that can meet the requirements of our clients in a satisfactory way and it hasn't necessarily been on quantity.

Tim Nollen, Macquarie.

I'm pleasantly surprised my question has lasted this long. I wanted to ask about margin expansion in 2016. I'm very pleased to hear, John, you talking about 30 basis points of upside. I would assume your foreign exchange numbers of minus 2% of negative impact are included in that. I just wondered if you can put a little bit more color on to what goes into thinking there, as you have been basically flat for about four years now. And I know you've been investing in Annalect and so on and it's clearly been generating some returns, for example, with the P&G win, but what other color could you give on the margin expansion outlook regarding revenues and also regarding cost? Thanks.

First of all, I think 13.7%, based upon what I know today is inclusive of the impact of foreign exchange as we know it today. If we repeated, if we had another $1 billion impact because central banks went crazy. We've talked to you about it during the year but based upon everything we know and everything that we have told you this morning, those are our expectations.

The reason for it, is -- and Phil can chime in, it's -- the revenue growth has been solid and has continued to be solid. But we've been able to take a lot of actions in a lot of programs which take a long time to get started but once started, we're starting to realize the benefits of the things like real estate. I don't know what else you want to add, Phil?

Yes, certainly, we're focused on real estate, technology, back-office administrative costs and a few other areas. I think John is right. They do take awhile to get started but the goal for us is to make sure that the efficiencies that we implement are sustainable.

And that is what we have been pursuing for the last while here. We're going to continue to pursue it in the future and although we think we are pretty efficient in all of our operations overall, we know we're going to continue to try and improve in the area of efficiency and effectiveness as it relates to the cost space.

That is certainly the plan. On the FX front, just to echo what John said, a typical year for us, we would expect is plus or minus 1% or 2% in terms of FX impact and things continue in that zone, we're certainly comfortable with our current expectations. If things go back beyond that to where we were this year, although it depends on where the FX negatives occur, I think we will reevaluate it as the changes occur.

I wouldn't have said it, Tim, if I didn't believe it.

(laughter) Can I ask a follow-on which is related and I understand what you're saying about FX obviously. You mentioned earlier in the comments, John, about you have been recruiting some of the best talents. Just wonder -- have you found it easier going or tougher going on recruiting and on wages given some of your competitors may not be hiring as aggressively, if that is true, but on the flip side, I would imagine you have got intensifying competition from Silicon Valley for talent. What you say about recruiting and pricing?

Well, our recruiting efforts have been very specific based upon our companies and our Company needs and requirements. And we have had people on our list for a long time and many of my network CEOs, who you don't have the occasion to speak to on a regular basis, have identified these folks and they have been working them very, very hard.

Now there is no question that there are changes in the laws of -- in terms of what people can make at the bottom end of the equation and as you get more and more of these analytical-type people, I would say that, maybe less creative, more highly mass-oriented type of folks. You are competing with some other companies that we traditionally haven't competed with but so far, we've been able to obtain and acquire and have joined Omnicom, the people that we have looked for.

Certainly, more of an ongoing component of the business day to day as opposed to when we get a win, we then start thinking about where do we find these people or we have a need -- the businesses start thinking about where we find these people, I think it is much more embedded in the ongoing business operations.

Finally, this is intangible but I believe it really, really counts and I always have. Culture counts, when you -- when somebody gets down to making decisions as to where they want to spend their time, the culture of the organization there change -- moving into is a contributor as well as pay to the main thing decisions people make.

So far, so good. We are happy. We can always use more talented people. If there are some extraordinary ones, you can drop me an email. But that's what we're doing.

Operator, I think we have time for one call.

Dan Salmon, BMO Capital Markets.

Good morning, everyone. I'll keep it to one, as I know the opening bells are ringing here. John, as you start the third media buying agency, how are you doing it differently than when, if you might have done that, say, 10 years ago? I am sure there's lots of industry slang we could use like digital native and things like that but I'm thinking a little bit more tactically, smaller office footprint, different org chart? But any insights you can offer on how it will be differentiated would be appreciated.

Sure. First, it will be different than if we were doing this in 1996. We have quite a number of hubs out there where we have a lot of talented people that, that is what we're going to build around. There are key, very important markets, whether it will be standalone companies under this new brand but there will be many other markets that the service level is required by the particular client is not the same and so that becomes an important factor.

Plus, what is different today is our platforms for data and analytics are much easier leveraged over geographies than they were in the past. So that is what we will be doing, and we will be leveraging this next network-based upon those key markets and the various capabilities that are required to fully service clients in those markets. But I would say, unlike in OMD, you'd find more hubs other than some of our competitors, you wouldn't have an office, say, in every single country because we would be able to fulfill our clients' requirements through different means.

Great. Thank you.

You're welcome. Well, thanks, everybody for --

Thanks for taking the time to join the call. We know it's a busy earnings morning.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect. You may now disconnect.