宏盟集團 (OMC) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Omnicom first-quarter 2016 earnings 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 conference, Vice President of Investor Relations, Shub Mukherjee. Please go ahead.

Good morning. Thank you for taking the time to listen to our first-quarter 2016 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.

2016 marks Omnicom's 30th anniversary, and I'm pleased to report that we're off to a good start. First-quarter organic growth was 3.8%. We also improved our margins by 30 basis points in the quarter, and are on track to deliver a 30-basis point margin improvement for the full year 2016, or 13.7% EBITDA versus 13.4% for this past year.

The effect of large currency swings in 2015 continued to negatively impact us in the first quarter, leading to a reduction in revenue of $97 million or just under 3%. At this point, we expect the impact of foreign exchange rates to moderate to more neutral levels in the second half of 2016. Phil will cover the impact of currencies on our business in more detail later in the call.

As I look at the broader economy and geopolitical environment, there's still quite a bit of hesitation in the marketplace. The capital market swings we saw in the first quarter, the uncharted actions of central banks around the world, and the tragic events in Brussels, Paris and other cities, is creating uncertainty for consumers and corporations, and a cautious approach to spending.

Given this environment, our operational results were very good for the quarter. Looking at organic growth by region, North America was up by 4.5%, driven by performance in media and advertising. UK growth was up 2.2%. Media, as well as specialty healthcare, performed well in the quarter. However, the UK faced difficult comps versus the first quarter of 2015.

Like you, we are tracking the potential outcome of the EU referendum in June, but it's too early for us to speculate on what the direct or indirect impact of Brixit would be on our operations in the UK, or the rest of Europe. In continental Europe, our organic growth was 3%.

In the Euro currency markets, Germany continued to perform well, with single-digit growth. France also had growth in the quarter, while the southern countries of Portugal, Spain, Italy, all outperformed. Outside the Euro markets, the Czech Republic and Turkey generated solid results.

Turning to Asia-Pacific, it was up 5.1% in the quarter. China, Malaysia, the Philippines and Thailand led the way with double-digit increases.

And, finally, Latin America was down 7.8%. A significant decline in Brazil was offset in part by double-digit organic growth in Mexico. Brazil, given its size, had a disproportionate large effect on our Latin America results for the quarter.

The current political and economic uncertainty in Brazil makes it difficult to predict top line trends. However, all of our agencies are closely scrutinizing their operations to manage costs in this environment. Despite the current situation, we remain committed to, and bullish on the long-term prospects in Brazil.

As I mentioned earlier, our margins in the quarter improved 30 basis points versus the prior year. The initiators we have undertaken in areas such as information technology, real estate, back office services, and strategic purchasing, as well as our agencies continuous focus on cost management, were the drivers for this improvement.

Looking at our bottom line, despite the currency impacts on the US dollar, our net income was up 4.4% in the quarter, and our average share count was down over 2.5% from the prior year. The combined result was an increase in EPS of 8.4% to $0.90 a share for the quarter, versus $0.83 per share for the same quarter a year ago.

Our cash flow, balance sheet, and liquidity remain very strong. During the quarter, we generated $360 million in free cash flow, and returned over $320 million to shareholders through dividends and share repurchases. In April, we announced a 10% increase of our quarterly dividend to $0.55 per share. We also raised $1.4 billion through the issuance of tenure notes, which was closed the first week of April. The majority of the proceeds from the bond offering were used to repay $1 billion worth of debt that matured on April 15.

On January 29, we closed the Grupo ABC acquisition. The first quarter includes two months of the Grupo ABC results. Following these events, our credit ratings remain unchanged, and at our target level, while our leverage and interest coverage ratios remain very strong.

Looking forward, we stay committed to our priorities for the use of free cash flow: Paying dividends, pursuing acquisitions with the right fit and price, and share repurchases. Overall, I'm very pleased with our performance for the quarter. While it is still early at this point, we are on course to meet our internal targets for the full year.

Before I cover some other changes occurring in our industry and business, I would like to address a few Board and governance changes we have recently made, which we disclosed in our proxy. Our Lead Director, Len Coleman, has been given additional authority and responsibilities, including taking a more active role in our shareholder engagement process, providing a direct channel of communication between our shareholders and the Board.

Additionally, we've taken concrete steps to refresh the Board. A new director, Debbie Kissire joined the Board and our audit committee in March. Debbie is a former Vice Chair and Regional Managing Partner of Ernst & Young, and will be a valuable addition.

In addition to our long serving Board members, Gary Roubos and Errol Cook will be stepping down before the annual meeting in May. I want to welcome Debbie, and thank Gary and Harold for their many years of dedicated service, leadership, and commitment to Omnicom. These changes and others will be taking place over the next several years, will strengthen Omnicom's government structure and improve communications with our shareholders.

Let me now discuss what we're seeing in the industry, and how our strategies allow us to achieve consistent financial results. In a changing and uncertain world, some things are constant. Our steady and strategic focus on our growth priorities has served the Group well.

We remain focused on attracting, retaining, and developing top talent, expanding our global footprint, and moving into new service areas, and leveraging our data and analytical capabilities, and delivering break-through creative ideas and solutions, based upon meaningful consumer insights across all marketing disciplines and communications. These areas of focus, combined with our world class agency brands, and deep client relationships, are keeping our company ahead of the competition, in the shifting marketing landscape.

The first quarter of this year reflected our focus on talent and broadening our service offerings to meet the changing needs of our clients. Clients want best-in-class agencies and specialty services. Our agencies and people need to be connected, to achieve the end-to-end integration our clients demand.

We call our approach of assembling the best talent from across our Omnicom network to serve clients at the C suite level, Connected Brilliance. As the name implies, Connected Brilliance is an organizing principle and business philosophy, that says no matter where a person sits in the Omnicom network, she or he can be connected and involved as part of one team to drive superior results on behalf of a client.

Our efforts in this area are driven through both formal and informal practices, that preserve the individuality and culture of our agency brands and deliver customized and integrated solutions to our clients. We believe our networks and agencies are already ahead of the competition on this front. However, to build our leadership position, in February, we announced the formation of specialized groups in healthcare and public relations.

The healthcare organization, Omnicom Health Group, offers clients a single point of access to our network of over 3,000 dedicated communication and scientific specialists, working in the largest, strongest individual healthcare specialty units in the business. The group is led by one of our seasoned executives, Ed Wise, former CEO of CDM Group. Ed and his team will make it easier for pharmaceutical clients, as well as direct to consumer healthcare brands, to tap into our service offerings in this area.

As part of that healthcare offering, we also recently announced the launch of TBWA World Health. TBWA World Health brings together the pharmaceutical brands and professional expertise of two of our healthcare agencies, with the consumer brands and creative skill sets of TBWA. Together, the people in this group excel at delivering differentiated offerings to both our professional and direct to consumer brands.

Sharon Callahan, another seasoned executive, and former CEO of Professional Healthcare Agency LLNS, will be CEO of TBWA World Health, and will continue to serve as Chief Client Officer for Omnicom Health Group. Robin Shapiro, former CEO of Corbett, will serve as the President.

The PR organization, Omnicom Public Relations Group, encompasses 10 public relations agencies, including three of the top global PR agencies worldwide. Fleishman Hilliard, Ketchum, and Porter Novelli, with over 6,000 employees. Industry veteran, Karen van Bergen, formerly CEO of Porter Novelli, will lead Omnicom Public Relations Group.

The benefits from forming these groups are numerous. We will be better equipped to deploy and align our agencies and talent, with the capabilities and expertise that best fits our clients' needs. We will be able to hire, train and develop top talent, and provide greater career opportunities across each of these categories.

The alignments will also provide know-how and economies in areas such as technology, data solutions, production, and analytics, as well as digital development. Lastly, we'll be able to make investments and pursue acquisitions that will benefit all agencies across the groups.

However, in making these changes, what we are not doing is combining or eliminating our individual agencies' distinct cultures. As I mentioned earlier, it's part of our heritage to respect the individuality and culture of our agency brands, and it sets us apart from the competition. So we will ensure that our people will benefit from being part of these new groups, while remaining connected to the individual culture of their agencies.

I'm pleased to report that after a short period of time, we are seeing results from both of the new groups. Omnicom Healthcare Group has already been invited to participate in a global creative review for all of the consumer health brands from one of our clients, and Omnicom PR is currently working on several new business opportunities, including a significant global pitch that is underway across multiple PR firms, in collaboration with other Omnicom agencies.

Together, and as strong independent brands, I'm confident that both Omnicom Public Relations Group and Omnicom Healthcare Group will provide the best of the best in the business, from talent and ideas to innovation and creativity, for the benefit of our people and our clients.

Another area where we are both broadening and deepening our service offering with the best talent and latest technology, is in media. Technology and data have radically changed the media business. Years ago, when media was unbundled from creative agencies, the focus was on buying scale and efficiency. And this goal has stayed front and center with global advertisers for many years.

Today, while scale and efficiency remain important, targeting, measurement and effectiveness have become essential in the fluid and personalized world where consumers are accessing a wide variety of content on different devices. The rise of digital data and analytics has given us the ability to more precisely understand how consumers are accessing media, and how they're responding to messages.

Given this new reality, it's not surprising that an increasing number of clients are becoming more focused on how data informed media can be effective at driving business results, and then less focused on legacy-media specific measurements. As an example, our data platform contains audience behavior information, and we're now going a step further by integrating cultural trends, using information derived from our cultural intelligence system. This system allows us to understand shifts in cultures, and gives insight into where the world is going.

We can then fuse the behavioral and cultural insights to provide our creative and media agencies with more informed briefs, that can tap into these trends. All of this is done 24 hours a day, and in realtime.

As I mentioned on our last conference call in the fourth quarter of 2015, Omnicom was awarded the Media Planning and Buying business of Proctor & Gamble North America. The win is a great example of how our media organization has integrated data and analytics and marketing science capabilities into its core service.

Coming out of this, our Media Group has launched a new media agency, alongside our leading OMD and PHD plans. We recently announced the formation of Hearts & Science, which is being led by Scott Hagedorn, formerly CEO of Annalect, with Kathleen Brookbanks, previously of OMD, serving as COO.

Hearts & Science has a unique position in the media space, as a data-driven marketing agency. It has been established from day one to share the same qualities as our Annalect data and analytics platform, which is now at the foundation of all of our media agencies. That means Hearts & Science will strive to be agile in process, to use technology at scale, and to employ open standards and to excel in an addressable media world. Given Scott's new role at Hearts & Science, Slavi Samardzija as Global CEO and Erin Matts as North American CEO will succeed him at Annalect.

Now I would like to turn to a topic that has always been a priority for Omnicom, creating a great environment for great people to work. A critical aspect of achieving our talent development goals is creating a diverse and inclusive workplace. That means diversity in backgrounds, race, gender, age, and experience.

Quite frankly, we need to look more like the businesses, people, and consumers we do business with, and it has been a priority at Omnicom to create a diverse, world-class workforce that reflects our global community. Omnicom's commitment to diversity starts from the top, with our independent Board members now including four women and two minority members.

In 2009, Omnicom created a role of Senior Vice President and Chief Diversity Officer. This role has since expanded throughout the Company. Our individual networks now employ their own Directors of Diversity or Chief Diversity Officers, and 12 professionals are dedicated full-time to overseeing and advancing diversity and inclusion efforts at every level of our organization.

A few years ago, a leading group of women at Omnicom launched Omniwomen, an effort designed to increase the influence and number of women leaders throughout the Company. Recently, Omniwomen hosted a historic panel with our Network CEOs discussing the topic of women's leadership and its importance to doing business in the 21st century. The leadership of Omniwomen, and I firmly believe that this is not a women's issue but a business issue, that needs commitment from the top.

But words are just words, if actions don't follow, and I'm proud of the actions we have seen within Omnicom. A number of our networks have launched their own programs to increase the influence of women, including TBWA, Take the Lead 2020, DDB, Talent Has No Agenda. BBDO is seeking to double its senior women creatives over the next 12 months. In our US Media Group, 50% of the people that are director level or above, and work in data and analytics are women, and women run 40% of the top performing agencies in the DAS network.

These are just a few of the many initiatives and data points that illustrate the focus Omnicom places on the topic of diversity and inclusion. We have made great strides in the area of diversity. But as Wendy Clark, CEO of DDB North America recently said, and I agree, we need to remain restless on the discussion of gender and diversity, and not allow it to become a conversation only when something wrong happens.

Omnicom enters its 30th year as a talented and more diverse organization, all around the world. We achieved our goals for organic revenue growth, margins and profitability in the first quarter, and we are on track for a successful 2016.

I'll now turn the call over to Phil for a closer look at the first quarter results. Phil?

Thank you, John, and good morning. As John said, during the first quarter of 2016, our businesses continued to meet the financial and strategic objectives we've set for them, as well as adapt to the ever-evolving needs of their clients. As a result of these efforts, our businesses have continued their strong operating performance.

Our organic revenue growth of 3.8% in Q1 was a little bit better than our expectations. As has been the case for over a year, FX continues to create a negative headwind on our revenue. Although this past quarter, it was at a lower level than it's been in quite a while.

In Q1, the impact of FX reduced revenue by 2.8%, or $97 million. Except for Japan, reported FX was negative again across every one of our significant foreign markets. As a result, total revenue for the quarter was about $3.5 billion, an increase of just shy of 1% versus Q1 last year. I'll discuss our revenue growth in detail in a few minutes.

Moving down the P&L, below revenue, our EBITDA increased 3.8% to $420 million. The resulting EBITDA margin was 12%, which was up 30 basis points over Q1 of last year. The margin improvement, which was in line with our expectations for the full year of 2016, is the result of our continuing efforts to leverage our scale, to increase operating efficiencies throughout the organization, as we continue to pursue several initiatives in the areas of real estate, information technology, back office services, and strategic purchasing. Operating income, or EBIT, for the quarter, increased 3.8% to $392 million, with operating margin improving to 11.2%, in line with the increase in our EBITDA margin.

Now turning to items below operating income. Net interest expense for the quarter was $40.1 million, up $3.3 million from the fourth quarter of last year, and up $5.9 million versus Q1 of 2015. Compared to the fourth quarter of 2015, the increase in net interest expense of $3.3 million resulted from the impact of the termination in January of the $1 billion of fixed to floating interest rate swaps we had on our 2022 notes, as well as some additional interest expense on debt we assumed in the Grupo ABC transaction, which has since been refinanced.

By terminating the swaps, we locked in interest savings over the remaining life of the 2022 bonds, reducing the all-in effective rate to 2.7% from 3.5%. However, in Q1, there was less floating rate benefit from the swaps, and this will also be the case for the balance of 2016, when compared to 2015. Additionally, interest income earned by our international operations in Q1 was lower, compared to Q4 of 2015. Driven by lower cash balances available to invest as a result of higher working capital needs, which are typical, as we move through the first half of the year.

As compared to Q1 of last year, the increase in net interest expense of $5.9 million, also related to the termination of the fixed to floating interest rate swaps on our 2022 notes, as well as some additional interest expense on local debt we assumed in the ABC transaction, which has since been refinanced. When analyzing the impact of the termination of the 2022 swaps on a year-over-year basis, the benefit we received from the swaps in Q1 of 2015 was larger than the benefit we received in Q4 of 2015, because the underlying floating interest rate on the swaps increased during 2015.

As a result of closing out the swaps, we reduced some of our exposure to the volatility of potential further increases in the underlying short-term interest rates. Partially offsetting the additional expense was an increase in interest income from cash invested in our international treasury centers, net of some negative FX translation impact in the quarter.

Our quarterly tax rate of 32.8% is in line with our current tax rate projection for 2016. Our earnings from affiliates were slightly negative during the first quarter, but up versus the prior year. We saw improvements in the quarter in the performance of some of our European and Asian affiliates, which was offset by sluggishness at certain affiliates in Latin America.

The allocation of earnings to the minority interest shareholders in our less than fully-owned subsidiaries decreased $2.8 million to $17.9 million from $20.7 million, primarily due to the purchase of minority interests in certain subsidiaries over the past year, as well as FX, because a significant portion of our less than fully-owned subsidiaries are located outside the US. As a result, net income was $218 million. That's an increase of $9 million or 4.4% versus Q1 of last year.

The remaining net income available for common shareholders for the quarter after the allocation of 1.5 million of net income to participating securities, was $216.9 million an increase of 5.1% versus last year. You can also see that our diluted share count for the quarter was 241.1 million, which is down 2.5% versus last year, as a result of share buybacks over the past 12 months. As a result, diluted EPS for the quarter was $0.90 per share, an increase of $0.07, or 8.4% versus Q1 of 2015.

Turning to slide 4, we shift the discussion to our revenue performance. For the quarter, FX decreased our revenue by $97 million or 2.8%. While the US dollar has continued its strength year-over-year on a global basis, we've begun to see that moderate somewhat on a reported basis, when compared to what we've seen over the last several quarters.

The decrease in the UK pound has the largest translation impact on our reported revenue in Q1, accounting for approximately 20% of the FX-driven revenue reduction. While the Euro and the Brazilian real were the next largest negatives. When combined with the UK pound, three currencies made up almost one half of the FX-driven reduction in our first-quarter revenue.

Looking ahead, if rates stay where they are, the negative impact of FX on our reported revenue may continue to moderate, reducing revenue by about 1.5% during the second quarter, and approximately 1% for the full year. That being said, it is exceedingly difficult to estimate what will happen to FX rates over the remaining eight-plus months of the year.

Revenue from acquisitions, net of dispositions, decreased revenue slightly in the quarter. At the end of January, DDB completed the acquisition of Grupo ABC in Brazil, so our current-year revenue includes two months of their current-year results, and our acquisition revenue includes their revenue for the same prior period in 2015.

As a reminder, the net decrease in the quarter reflects the continuing impact of a few acquisitions and dispositions that we completed during 2015. Going forward, we expect that revenue from our collective recent acquisitions will be a net positive next quarter, and for the year. And, finally, organic growth was positive $131 million, or 3.8% this quarter.

It was another solid quarter of growth across all of our major markets with the exception of Brazil, the Netherlands, and to a lesser extent, Japan. The primary drivers of our growth this quarter included the continued strong performance across our media businesses, and notable performances by several of our advertising brands across our geographies, as well as our full-service healthcare businesses, which turned in solid performances in the quarter.

The Euro markets overall had positive organic growth. The Asia-Pacific region continued to show solid performance across most markets, particularly China and India. And we also benefited from good performance in both Mexico and the UAE.

On slide 5, we present our regional mix of business. During the quarter, the split was 61% for North America, 10% for the UK, 16% for the rest of Europe, 10% for Asia-Pacific, with the remainder being split between Latin America and Africa and the Middle East.

In North America, both the US and Canada turned in solid performances. We had organic revenue growth of 4.5%. Again, primarily driven this quarter by the performance of our advertising and media discipline, and our healthcare businesses.

Turning to Europe, the UK had another quarter of positive organic growth, up 2.2%. The rest of Europe was up 3%, led by our agencies in Germany and Spain, as well as good performance in Italy. Additionally, France had positive organic growth for the first time in a while, while the Netherlands continued to struggle, and Poland had a down quarter.

Asia-Pacific was up 5.1%, with solid performances from most of our major Asian markets, including China and India, with Japan down slightly. Africa and the Middle East, although off a small base, was marginally positive. Our UAE businesses were strong performers, offset by year-over-year reductions in the quarter in other smaller markets in that region.

The one region that was down organically was Latin America. Our Brazilian agencies continue to face uncertainty in both the economic conditions, and the political climate in the country. Revenues were down about 20% organically in the quarter.

And while the quarter included the successful acquisition of Grupo ABC, the increase in revenue in the quarter from Grupo ABC was more than offset by the significant reduction and revenue resulting from both the negative impact of FX translation, and the negative organic growth of our operating companies. As such, our reported revenues for Brazil were down in Q1, when compared to the prior year. In the region, the performance in Brazil overshadowed the strong performance by Mexico, which had double-digit organic growth in the quarter.

Slide 6 shows our mix of business. For the quarter, the split was 52% for advertising services, and 48% for marketing services. As for their performance, our advertising discipline was up 7.9% in the quarter, driven by the strong performance of our media businesses, and notable performances by several of our advertising brands across our geographies.

While CRM was down 7/10%, results were mixed across businesses and geographies. Our field marketing and point of sale businesses had a challenging quarter, and our activation and events businesses were flat, while our research businesses performed well. PR was down 9/10%. We expect this performance to improve in the second half of the year. Specialty communications was up 2.2%, driven by the solid performance of our full-service healthcare agencies, that was partially offset by the other smaller businesses in this discipline.

On slide 7, we present our mix of business by industry sector. In comparing the Q1 revenue for 2016 to 2015, you can see that there are minor changes in the mix of our client revenue by industry, but nothing worth special notice.

Turning now to our cash flow performance, on slide 8, you can see that in the first quarter we generated $346 million of free cash flow, excluding changes in working capital. As for our primary uses of cash on slide 9, dividends paid to our common shareholders were $122 million. As you know, we announced a 10% increase in our quarterly dividend. The increase is scheduled for our next dividend payment.

Dividends paid to our non-controlling interest shareholders totaled $15 million, down due to our purchase in prior periods of additional shares from our local partners. Capital expenditures were $41 million, and acquisitions, including earn-out payments, and net of proceeds received from the sale of investments, totaled $103 million. And stock repurchases, net of the proceeds received from the stock issuances under our employee share plans, totaled $193 million. All-in, we outspent our free cash flow in the quarter by about $129 million.

Turning to slide 10, regarding our capital structure at the end of the quarter, our total debt at March 31, 2016 of $4.65 billion is up about $70 million from this time last year. That's primarily due to the change in the fair value of our debts carrying value, as required to be reported on the balance sheet under US GAAP. Our net debt position at the end of the quarter was $2.9 billion, down principally as a result of the increase in our cash balances versus this time last year.

As you may know, after March 31, we closed on our issuance of $1.4 billion in 10-year senior notes, at an effective rate of about 4.05%. So our quarter end debt levels did not reflect this new issuance. Most of the proceeds of this issuance were used to retire the $1 billion of 2016 senior notes at the maturity date on April 15.

The 2016 notes had a coupon of 5.9%, and an effective rate of 5.25%. So even with the increased principle, the interest expense on new debt, compared to the debt that recently matured, will only be $4 million to $5 million higher on an annualized basis. However, for the year, we expect interest expense to increase in excess of $20 million, primarily due to the changes that we previously mentioned to our fixed and floating interest rate swaps.

As a result of these changes, we've adjusted the effective mix of our fixed to floating rate debt from approximately 50/50 a year ago, to a 70% fixed, 30% floating mix today. By terminating some of these swaps, we reduced our exposure to further interest rate volatility, and we locked in interest savings over the remaining life of the 2022 bonds. However, in the short term, we will receive less floating rate benefit from the swaps in 2016, when compared to 2015.

The increase in our cash and short-term investments of $218 million over the past 12 months was driven primarily as a result of positive changes in our operating capital of $310 million, which were partially offset by the negative impact of FX translation of approximately $45 million on our cash balance over the last 12 months, as well as the slight overspend of our free cash flow of $17 million.

Net debt increased by $951 million compared to year-end. As a result of the use of cash in excess of our free cash flow over approximately $130 million, adjustments to the carrying value of our debt of about $45 million, and the typical uses of cash for working capital that historically occur in our first quarter of approximately $805 million. These increases in net debt were partially offset by the effective exchange rates on cash during Q1, that increased our cash balance by about $80 million.

As for our ratios, our total debt to EBITDA was 2.1 times, and our net debt to EBITDA ratio was 1.3 times, essentially unchanged since this time last year. And due to the increase in our interest expense, our interest coverage ratio went down to 11.9 times, but it remains very strong.

Turning to slide 11, we continue to manage and build the Company through a combination of well-focused internal development initiatives, and prudently-priced acquisitions. For the last 12 months, our return on invested capital increased 19.3%, and return on equity increased 46.3%.

And, finally, on slide 12, we track our cumulative return of cash to shareholders over the past 10 plus years. The line on the top of the chart shows our cumulative net income from 2006 through Q1 of 2016, which totaled $9.8 billion, and the bars show the cumulative return of cash to shareholders, including both dividends and net share repurchases, the sum of which during the same period totaled $10.9 billion for a cumulative payout ratio of 111%.

And that concludes our prepared remarks. Please note that we've 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.

(Operator Instructions)

Our first question today comes from the line of Tim Nollen, representing Macquarie. Please go ahead.

A couple things, please. First, I was wondering if you could comment on the mix of spending amongst clients. There's been a lot of discussion about the strong TV ad market in the US, and some comments about viewability concerns and ad blocking and so forth in digital media. I wonder if there's anything in general, or even specifically regarding P&G. I don't know if you want to address a particular client, but I have read about them being involved in that sort of a mix, so just discussion of the mix shift on advertising.

I just wanted to ask you as well about your cost savings initiatives. Is it possible to say maybe how much you invested, or how much time you spent on things like the real estate and the IT and the shared services, or perhaps how much of the 30 basis points margin guidance upside for this year is derived from these efforts? Thanks.

On the mix of business, this is an overall statement. I'd say that the trend continues towards digital, and there is some concern on viewability. But we've seen a solid TV demand pick up, over the past few months, as we are expecting spending growth only a few points going into the up front. You have to keep in mind that many clients hold back money in order to create flexibility, because there's so many different channels that they can get their messaging through these days.

With respect to P&G, we don't have any revenue in the first quarter from P&G, even though we won it. We don't really start to -- we're stepping up for it now. I think it really starts in earnest in the third quarter.

I'll take the cost savings. So in terms of how much time spent, I'm not sure I got that part of the question clearly. But as far as our expectations for the year and the timing, certainly, we have probably spent more time pursuing initiatives in the area of real estate here.

It's an initiative that's taken quite some time, major market by major market, and there's still more to come, because we've had the plan and line-up and number of leases in each of our major markets, as opposed to moving out of less efficient real estate into hub buildings, and taking a big charge for vacating real estate. We haven't taken that approach. We've been a little more patient. But certainly some of the actions we have put in place a number of years ago are starting to see the benefits of that in late 2015, and then really on here into 2016.

As far as our other initiatives in the areas of IT back office spending, strategic purchasing, et cetera, I think they're ones we're continuing to pursue. This isn't a 9-month or 12-month thing. We're going to see benefits from those, I think, throughout, over the next year, and we're going to continue to pursue them long after just 2016, or after efficiency broadly, by saying that we don't look at it as just a one time effort.

The only thing I would add to that would be the real estate, because of what Phil said. We'll wait until our leases expire. We'll also continue in the future, not only 2016 but 2017 and 2018 for broad benefits.

Okay. Thank you.

Our next question comes from the line of Craig Huber with Huber Research. Please go ahead.

I have a couple housekeeping questions to start with. Your guidance you gave on your last quarterly call of organic revenue up 3%, 3.5%, I presume you're still sticking with that. And do you think it will be fairly level, over the course of the year? And the other question I want to ask you is, net new wins in the first quarter. What was that? You targeted about $1 billion.

I'll take the first question. Yes, we're still between 3% and 3.5% for the year in terms of what we expect our overall revenue growth to be. That's principally because there's a lot of unknowns out there, and we're planning our business and our costs and our expenses to be consistent with that growth, because for the most part, that growth is fairly known to us.

Yes. As far as wins and losses in the quarter, the number net is just above $1.250 billion.

And your comments, Phil, on the cost front that you can keep looking at the costs hard here going forward, back office IT, et cetera, do you think long-term, as you think about your business, that there is some margin upside, assuming the economy holds together on a long-term basis, or are you advising your investors to maintain in their models flattish-type margins?

I think we're looking at 2016 to deliver what we said we were going to deliver for the year. From our perspective, we've always said we're pursuing EBIT dollar growth. We're not obsessed with margin percentage, because you can't touch and feel margin percentage. We can deliver EBIT dollars. That's going to continue to be the goal.

So, when we get to 2017 and thinking about 2017, we'll reevaluate where we expect to be. But there's an awful lot of uncertainty and an awful lot of things that can happen between now and then. So we're not making any commitments beyond 2016, other than we expect the margin improvement that we're going to achieve in 2016 will be sustainable on beyond 2016. We're not making any commitments beyond that, other than we're committed to pursue the initiatives we've begun to pursue.

On into the future, we're going to continue to try to be as efficient as we possibly can. But we're not obsessed with margin percentages. We're focused on delivering EBIT dollars.

Lastly, Phil, if I can just ask you, what was the gross amount of shares you bought back in the quarter? Thank you.

Just give me one second. That number is -- I think the shares number is 2.7 million shares, gross.

Thank you.

Sure.

Our next question is from the line of Alexia Quadrani with JPMorgan. Please go ahead.

Just a couple of questions. First, when you think about the timing of the new business ramp, and how it impacts the organic revenue throughout the year, is it more business at usual, where you get a little bit every quarter, or given the timing of P&G, which is more of an outside win hitting later in the year, maybe Q3? Should we see maybe a bit more of a tailwind in the back half of the year to organic revenue growth? Then I have a follow-up.

Well, let me just make the overall statement that right now for the year, we're staying with our guidance. But on the media wins, they tend to have at least a six month, in some cases even longer, channel to them, when somebody loses an account, and when a new person comes and picks it up. On the agency business, it tends to be a 90-day changeover period. And projects, which are a part of our business, as Phil was mentioning, when talking about our CRM, those have even shorter windows. We learn about quite a number of those 60 days in advance.

So if areas across the business, hard to say, when you take a look at something like P&G starting in the second quarter, where we've been hiring -- we've been getting, we'll get some partial reimbursement as we incur those costs. But there really won't be what I'd call revenue growth. That really starts to kick in, as I said, July 1.

And then just a follow-on, and you gave good color on the weakness in Brazil in the quarter. Any reason why that shouldn't continue to be a big headwind in Q2? I mean, it sounds like there are economic conditions that are mostly driving that, not any change in client spend necessarily. So I assume that's a headwind for a little while now, at least in the foreseeable future. And then just last question if I can squeeze it in, if you could let us know what the impact of programmatic was in organic growth in the quarter?

Sure. Brazil, right now, we don't know necessarily any more than the IMF or anyone else. So we are planning to face headwinds throughout the rest of the year. It might get mitigated a little bit in the second half from the Olympics, but we're not certain.

Unless they come up with a cure to the virus they have, God knows what the attendance is going to be. So Brazil is going to be challenging, I think, for 2016. But it's not -- it's important, but it's, what, less than 1%.

It's about -- between 1.5 to 2% of our revenue annually. So that's with Grupo ABC included in our revenue numbers.

So, while it's a drag, we have very healthy, the most creative businesses in Brazil. And what our focus is doing there now, is they're trying to optimize revenue, and they're working very hard on their expense basis. Phil, do you want to --?

As far as Accuen in the first quarter, growth from Accuen was $25 million.

Thank you very much.

Our next question comes from the line of Julien Roch, representing Barclays. Please go ahead.

Good morning, John, Phil, and Shub. My first question is, can you give us some impact of the new account winds on 2016 organic? I know you win accounts every year. But P&G is quite big this time. So I think an impact in terms of spend would be great.

That's the first question. The second one is what did you sell in Q1 leading M&A to be negative, and whether we can get the split of the minus 0.1 between the creative acquisition and negative disposal? And third question is, would it be possible to have an idea of your percentage of total revenue coming from project-based activities as opposed to annual contract? Thank you.

I'll take the middle question which I think -- I have forgotten it. M&A. I think what you'll see is M&A as a result of actions that we took last year, I don't even recall.

There is no real outlier in terms of one big disposal. It's a number of small businesses, actually, across a few different geographies. We expect that the number in the second quarter, given where we are with acquisitions, completed as of now, will be positive through the rest of the year, probably in the neighborhood of all in for the year about $80 million to $90 million of acquisition contributions, net.

In terms of other businesses, I don't have that number for you. I'm sorry.

We don't really track it that way, Julien. Because in each of our disciplines, there's some component of the business, even traditional -- our traditional advertising agencies, our media business, as well as PR, healthcare, CRM, et cetera, there's a component of both private-based business and retainer business. We'd prefer the retainer business.

But certainly there are some businesses we have, that are primarily project-based. And on an overall basis, more of those businesses are probably in our CRM discipline than the others. But each of the businesses does have a project-based component. And, you know, we don't really segregate the revenues that way within those businesses.

Okay. And on the net new business?

Yes. If you could just repeat that one, Julien.

I mean, you have net new business every year, but this year you have P&G, which is quite a big one. So I was wondering whether you could give us like maybe an annual number of the benefits of the larger than usual net new businesses.

We really can't. It goes into a much larger calculation than what we show our organic growth and contribution from wins to organic growth, growth and reducing clients. We fully expect there to be losses during the year, without adding impact for clients coming back on projects. So we don't -- we don't really sit down.

I think the check -- I think maybe one way of answering as directly as we can is, we don't place very much of an emphasis on what the billing number is, when new business gains and losses or net new business, billing on gains and losses in that calculation. So a lot of the numbers -- a lot of the businesses we have, the billings number really isn't relevant to the revenue that's being driven from gaining that business from a client.

It's an approach and a methodology that the industry follows. Everybody wants us to provide a number. We do our best to come up with a number that's somewhat consistent, in terms of the way we report it. But we don't place any emphasis on it, in terms of how we actually run the businesses themselves.

We're focused on the revenue contribution in those businesses. And when we say our expectation is 3% to 3.5% growth, that includes an expectation -- or that includes both new business wins and losses that we know of, and new business -- some aspect of new business that we expect businesses to obtain.

But in terms of this year, even with P&G, which from an Omnicom perspective is a fantastic win from a revenue perspective, it's nothing out of the ordinary, when you combine it with the rest of what we expect to be in excess of $4 billion of wins net for 2016. That's a normal year. We expect our growth is going to be a relatively normal year in that context.

One thing I would add about P&G is it was a wonderful win, for multiple reasons. One, it validated all the work we've been doing in the digital space. And what we can -- and the services we can provide clients. And, two, I'm not expecting much of it in the second half of this year, because we are going to be primary focussed on P&G. But it allows us to open up a third media network, which in 2017 and 2018 and out, is going to provide us opportunities to pitch our business that we might otherwise have precluded from pitching.

Okay. Thank you very much. Very useful.

Our next question comes from the line of Ben Swinburne with Morgan Stanley. Please go ahead.

Phil, any impact from currency on margin in the quarter?

Very little. The margin impact in this quarter was less than 5 basis points. So 3 or 4 basis points. So for us, that's a non-event, which is what we would expect in an environment of plus or minus 1% or 2% FX.

And, John, if you look back at your revenue by discipline, you don't want to look at any one quarter, but I think it's been a couple years now, where advertising has been growing high single-digits organically, and that's about half your business. And the other half has been growing low singles. In fact, I think it was down organically this quarter. So that's a two-year plus phenomenon. Secularly in your business, what's driving that variation in performance if you cut your revenues in half that way?

Well, we have -- we are probably focused more in some ways on improving the service offers, because of the fact that it's hanging both in the way that creative is done, media is executed with all of the channels. One of the reasons that we announced the formation of two of the groups that are included in DOS, both the public relations and the healthcare, was to getting more focus -- even though they're growing, PR had a little trouble in the last quarter or two, healthcare has always been strong. Is to get more line management, people who are operators in charge of those groups or companies, to continue to drive growth and to make recommendations for incremental acquisitions, which supplement and complement the projects that we have.

As we go through the rest of the DOS, which is a very large part of our group, we're taking a look at other areas, where a similar approach might add to net growth, and as we go out. But we don't rush, and as I said in my prepared remarks, we have great respect for the brands. And so we want to make sure that we can strengthen individual brands, in whatever process we take on board.

Thanks a lot.

And the market is open, so I think we can have one more question. Go ahead.

All right. Our final question today will come from the line of Dan Salmon with BMO Capital. Please go ahead.

I'll ask maybe one on the PR agency, specifically with the new organization and leadership in place there. John, could you maybe tell us a little bit more detail on what type of strategies you may see implemented there, to pick up the growth where it has been lagging to an area where social media is very impactful, I'm wondering if there are specific initiatives around there, to help get the PR agencies back up consistently growing again.

Sure. Well, first of all, you're absolutely right. They're great investments that have to be made in the changing social media environment. When you focus only on brands, and you don't have any central leadership, you tend to make those investments multiple times. I think by having central leadership we'll basically be able to do a better, faster job in creating platforms that will be able -- which we'll be able to white label, and therefore use across our goods.

The other thing that we've been seeing is an increasing number, not complete number of briefs coming from multi-national clients, looking for different types of services to be included in our responses. While we have a lot of similarity in our largest groups, there are a lot of specialties in some, that are not included in others. By having a single individual or team that becomes intimately familiar with the 6,000 people we have there, we will do a better job, I think, and increase our opportunities of winning the business, simply from the knowledge and the control of somebody that is focused 100% of the time on managing our PR assets. I hope that answered your question.

Yes. That's great. Thank you.

Okay. Thank you, everyone, for joining the call. Have a great day.

Ladies and gentlemen, that concludes our conference for today. We thank you for your participation, and using the AT&T Executive Teleconference. You may now disconnect.