宏盟集團 (OMC) 2016 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Omnicom fourth-quarter 2016 earnings release conference call.

(Operator Instructions)

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

Thank you for taking the time to listen to our fourth-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, www.OmnicomGroup.com, this morning's press release along with the presentation covering the information that we will review this morning. 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 will find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation material.

We are going to begin this morning's call with an overview of our business from John Wren. Then Phil Angelastro will provide our financial results for the quarter. 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 results. As we will report this morning, we are very pleased with our performance for 2016.

Strategically we remain focused on growing and developing our talent, investing in new businesses and expanding our capabilities in digital, data, and analytics, making strategic acquisitions to better service our clients, and continuing to execute on internal organizational operational and diversity initiatives. The results of our strategies are reflected in our solid financial performance for the year.

We achieved our target for organic growth, exceeded our margin target, and delivered earnings per share growth for the year of 8.4%, or $4.78 per share. Additionally, in June we increased our quarterly dividend 10% to $0.55 per share, and for the year returned to our shareholders through dividends and share repurchases over $1 billion.

As we wrap up the year I will cover our fourth-quarter and full-year results, and then spend some time on our goals heading into 2017. Organic growth in the fourth quarter was 3.6%, bringing organic growth for the year to 3.5%.

FX reduced our revenues in the fourth quarter by 1.8% and 1.9% for the full year. As we enter 2017 we expect FX will continue to be a headwind. Phil will provide more details about the impact of FX later in the call.

Our fourth-quarter organic growth is a tale of varying performances across our portfolio. Overall, North America increased 0.6%. Growth was very positive in certain disciplines including public relations and our media businesses.

These positive results were dragged down by a few of our CRM businesses, particularly in branding, field marketing and events. These are project-based businesses with lower visibility than many of our other services.

The UK was up 8.5% in the quarter, as brand advertising, media, healthcare, and public relations were all very strong. With respect to the potential impact of Brexit in the UK and the rest of Europe, we've not seen any meaningful negative impact on our operations to date.

Our European region was up 6.2%. In the euro currency markets, Germany and Spain were in low single digits while Ireland, Italy and Portugal all significantly outperformed. In our non-euro markets, the Czech Republic, Poland and Russia delivered very strong results.

Asia Pacific growth in the quarter was 9.5%. We had solid performances across almost every market with India, Japan, and New Zealand leading the way.

Latin America underperformed for the quarter as Brazil return to negative growth, dragged down by continuing political turmoil which more than offset another very good quarter in Mexico. Earlier in 2016, we purchased Grupo ABC, the largest independent advertising and marketing communications group in Brazil. While Brazil's economic environment remains extremely challenging, given the strength of all of our assets we are hopeful that we will begin to turn the corner in 2017.

On the margin front, we increased our EBITDA margin for the quarter to 14.9% versus 14.5% in the prior year. We exceeded our 2016 goal to deliver 30 basis point EBITDA margin improvement for the full year.

In fact, I am pleased to report that we were able to achieve a full-year increase of 40 basis points, giving us an EBITDA margins of 13.8% for the year. This margin expansion reflects the success of our efficiency programs, which Phil will discuss during his remarks. For 2016 we generated over $1.6 billion in free cash flow and returned almost $1.1 billion to shareholders through dividends and share repurchases.

Finally, our balance sheet and liquidity remained very strong. Looking forward, our practice of the use of free cash flow, dividends acquisitions and share repurchases remains unchanged, as does our commitment to a strong balance sheet and maintaining our investment-grade rating.

Overall, I am very pleased with our performance for the quarter and for the full year. In the face of numerous global economic and political events in 2016 that affected an already tepid macroeconomic environment, we continue to address the things we can control. Our management teams remained laser focused on attracting and retaining the best talent, quickly adapting to delivering services better and faster for our clients, and managing our costs.

Let me now turn to some of our successes in the fourth quarter and in 2016. It was a very busy end to the year, especially for our advertising and media operations following another year of significant new business win.

We launched a new agency, We Are Unlimited, to service the McDonald's business which we were awarded last August. The group is based in Chicago and has people from seven Omnicom agencies together with teams from some of our key partners.

Our PHD media agency expanded its presence and more than 30 cities around the world to service the Volkswagen business it picked up in June, as well is a number of other global accounts it won including Carnival and Delta Airlines. Hearts & Science, our newest media agency which was launched earlier in 2016 now counts both Procter & Gamble and AT&T as its clients.

The agency has established new network offices in Atlanta, Dallas, Toronto, Puerto Rico, London and Dubai in the second half of the year and it will be soon launching an office in Tokyo after winning a large part of P&G business in Japan in partnership with Hakuhodo. Our major client wins and hundreds more smaller wins across our entire group are a testament to the success of our strategies.

These wins share a common thread, our investments in our people and in our digital data and analytical capabilities; our ability to act in an agile fashion to meet our clients' needs, which is grounded on a long-established culture of creativity and collaboration that is the common DNA at Omnicom. Annalect, our cornerstone data, marketing and science group, continues to be an important part of our success. Clients recognize that with Annalect we have the ability to apply marketing sciences to drive sharper, more relevant and dynamic creative to the most receptive audiences.

Across Omnicom in 2016 we continued to expand our capabilities, simplify our service offering, make investments in our agencies and through acquisitions. Earlier in the year we formed Omnicom Health Group and Omnicom Public Relations Group. More recently we formed a group comprised of independent national agencies, including Goodby Silverstein, GSD&M, Martin Williams and Zimmerman, among others.

The agencies within this practice areas continue to maintain their strong independent brands and cultures. With strong leadership in each of these groups we can better share expertise and knowledge across the management teams, maintain and create more career opportunities for our people, and we can better target our internal investments and pursue acquisitions to support outstanding brands within the specific practice areas.

At the same time, we continue to drive innovation in connected solutions for our clients across practice areas through our expanding global client leaders group. These leaders support our largest accounts fueled by programs that increase our ability to share intelligence and collaborate with partners.

Most important, the practice areas and global client leaders provide the capability to better leverage our resources, and when requested create bespoke solutions for our clients. The matrix structure has been very successful to date, and several new practice areas will be launched in 2017.

Also we continue to make selective investments, partnerships and acquisitions to expand our capabilities and geographic presence. In December, Critical Mass, a global digital agency, made an investment in Prolific, a leading mobile focused agency based in Brooklyn. Prolific's core capabilities include mobile strategy, design and engineering.

Also in December we completed the acquisition of Grupo Sancho, the premier marketing communications group in Columbia. BBDO has been a minority shareholder in Sancho since 2000.

We are now taking the partnership to a new level by fully integrating them into Omnicom. Grupo Sancho's network of agencies already include many of our leading brands.

Sancho BBDO is a top creative agency in Columbia. Our global media networks, OMD and PHD, are part of Grupo Sancho. And together with our ownership of DDB Columbia, we now have a fully managed media operation in the country. Proximity, our global CRM network, is also part of the group.

Turning to our operational initiatives, we remain focused on delivering efficiencies across the group. We are constantly challenging our people to find ways to manage their cost, agency by agency.

As part of the process we continue to review the individual performance of our agencies to insure each of them are implementing strategies to deliver organic revenue growth and EBIT growth. It's important to note that we have recently increased our focus on evaluating our portfolio of agencies that are faced with challenging growth and EBIT prospects in an ever-changing marketplace.

We plan to continue these evaluations as part of the process for assessing where to best deploy our investment dollars. A likely result for 2017 is we expect disposition revenue in excess of accretive acquisition revenue.

On a regional and global basis, we are leveraging our scale in the areas such as information technology, real estate, back-office services, and purchasing to deliver further cost improvements. Our margin improvement in 2016 was driven by these regional, global and local initiatives, and we expect these efforts will drive further value for us in 2017.

Our goals for 2017 remains consistent, we will continue to hire and develop the best talent in the industry, we will be relentless in pursuing organic growth by servicing and expanding our offerings to our existing clients and winning new business, we will continue to pursue high-growth areas and opportunities through internal investments and acquisitions, and we will remain vigilant on driving efficiencies throughout our organization, increasing EBITDA and shareholder value. With these goals in mind, our objectives in 2017 is to increase our EBITDA margin 30 basis points from the 2016 level of 13.8%.

Our revenue growth target for 2017 is similar to our target for 2016. Despite anticipated growth in the US, it's not known how changes in US policies will impact non-US trading relationships.

In 2017 we also continue to make meaningful steps on our Board refreshment project which we started in 2016. Refreshment is ahead of schedule, with two Board members having retired in 2016 and another scheduled to retire in May of 2017. In their place two new members have already been added to the Board, and more are being recruited.

At Omnicom and our agencies we have always strived to be a great place for people to work. Part of that commitment is a strong emphasis on talent development and diversity.

Since 1995, Omnicom University has focused on leadership programs for our senior managers. Along with our agencies, many professional development programs for our people at all levels, we remain strongly committed to investing in our talent in a way that sustains and accelerates our growth.

I was also very proud at last year's Cannes Lion's Festival to have joined our industry peers to launch Common Ground, an initiative where we pledged our collective support to the United Nations' sustainable development goals. Omnicom selected to focus on education for our sustainable development goal.

With respect to creating a diverse and inclusive workforce, our commitment starts at the top with Omnicom's independent Board of Directors now including five women and three minority members. In 2016 we expanded Omniwomen chapters in North America, Europe and Asia.

We also launched Open Pride, a resource group committed to inclusion and diversity efforts across Omnicom. I'm extremely proud of our efforts to create a better workplace for our people.

The Human Rights Campaign Foundation recently recognized these efforts by naming Omnicom one of the best places to work for LGBT equality. It's the depth and diversity of our talent that allows us to continue to be recognized in the industry.

Here are a few highlights. BBDO topped the Gunn Report as the Most Creative Network for the 11th year in a row.

For the third consecutive year, Adam and Eve DBD was named Campaign Magazine Agency of the Year and PHD was Global Media Network of the Year. Ad Agency named PHD Media Agency of the Year, Adam and Eve DDB International Agency of the Year, BBDO B2B Agency of the Year, and DDB's Amma Multicultural Agency of the Year. And at the Campaign Asia-Pacific Agency of the Year Awards, TBWA, DDB and BBDO won Creative and Digital Agencies of the Year in Tokyo, New Zealand, and China.

In closing, I want to recognize and thank the people at our agencies for the world-class integrated campaigns, outstanding new business wins, and 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. This year our agencies performed well in meeting the objectives of their clients as well as winning new business. And as John said, our businesses once again met the financial and strategic objectives we set for them.

For the fourth quarter, our organic revenue growth was 3.6% and for the full year, the total organic growth was 3.5%. As for FX, the negative impact of currency rates increased slightly in the fourth quarter versus what we saw in the last two quarters, driven in large part by the continued weakness of the British pound when compared to last year's reported revenues. For the fourth quarter, the FX impact reduced revenue by 1.8%, or about $75 million.

Including the positive impact from our net acquisition activity, total revenue for the quarter was $4.2 billion, an increase of 2.1% versus Q4 of 2015. In a few minutes I will go into further detail regarding our revenue growth.

Turning to the income statement items below revenue, operating income, or EBIT, for the quarter increased 4.6% to $602 million, with operating margin improving to 14.2%, a 30 basis point margin improvement versus Q4 of last year. And our Q4 EBITDA increased 4.5% to $631 million. And the resulting EBITDA margin of 14.9% represents a 40 basis point increase over Q4 of last year. The increase continues to be driven by our ongoing Companywide internal initiatives to increase efficiencies, particularly in our back-office operations. FX had a negligible effect on our operating margins for both the quarter and the year.

Now, turning to the items below operating income, net interest expense for the quarter was $40.2 million, down $1.8 million versus the third quarter of 2016 and up $3.4 million versus Q4 of 2015. Our gross interest expense was down approximately $700,000 compared to Q3 of 2016. This was driven by a reduction in our commercial paper activity during the fourth quarter, which was partially offset by a decrease in the benefit from our fixed to floating interest-rate swap.

The increase in three-month LIBOR rates reduced our benefit relative to last quarter, and will continue to do so as short-term interest rates move upwards. Interest income from our international treasury centers was higher in the fourth quarter when compared to Q3, resulting from the higher than average cash balance that we typically carry at the end of the year.

As compared to Q4 of last year, the increase in gross interest expense of approximately $5 million primarily is due to the reduced benefit from our swaps which resulted from the termination in January of 2016 of the fixed to floating rate swaps on our 2022 notes. And as reminder, we added $400 million in debt when we issued our $1.4 2026 billion senior notes last April.

The net effect of the reduction in rates on the new notes meant that we were able to replace $1 billion of debt without a significant increase in our interest expense. Interest income was a bit higher when compared to Q4 of 2015, resulting from higher interest earned on the cash held by our international treasury centers.

Our effective tax rate for the fourth quarter was 32.5%. For the full year, our effective tax rate was 32.6%, which was slightly lower than the prior-year rate of 32.8%.

Earnings from our affiliates totaled $1.4 million for the quarter, down a bit when compared to the fourth quarter of last year. The decrease is due to the acquisition of a majority interest in an affiliate earlier in the year.

The allocation of earnings to minority shareholders in our less than fully owned subsidiaries decreased $2.5 million to $30.1 million. The decrease is primarily the result of the purchase of additional minority interests in certain subsidiaries over the past year.

As a result, net income was $350.3 million. That's an increase of $18.7 million, or 5.6% versus Q4 of last year.

Now, turning to slide 3. The remaining net income available for common shareholders for the quarter, after the allocation of $1.6 million of net income to participating securities, was $348.7 million, or up $20 million, or 6.2% when compared to last year's Q4. You can also see that our diluted share count for the quarter was 237.8 million, which due to share repurchases is down 2.5% versus Q4 of last year. As a result, diluted EPS for the fourth quarter was $1.47, up $0.12, or 8.9% versus Q4 of last year.

On slides 4 through 6 we provide the summary P&L, EPS and other information for the full year. Since the annual results are essentially in line with the results for the quarter, I will just give you a few highlights.

While organic revenue growth was 3.5%, the FX headwind reduced revenue by 1.9%, or a little over $280 million. Factoring in the increase from acquisitions net of disposition of 0.3%, our total 2016 revenue increased by 1.9% to $15.4 billion.

Operating profit increased 4.6% to just over $2 billion. EBITDA increased 4.7% to $2.12 billion. Consistent with our fourth-quarter performance, our operating margin increased 30 basis points and our EBITDA margin increased 40 basis points versus the full-year 2015 results. And on slide 6 you can see our 12-month diluted EPS was $4.78 per share, which is up $0.37, or 8.4% versus 2015.

Turning to slide 7, we shift the discussion to our revenue performance. The negative headwinds from FX increased slightly this quarter versus the previous two quarters.

There was some increase in the volatility of the foreign currency markets after the US election, while the continuing weakening of the British pound after the Brexit vote in late June remained a significant drag. On its own, the FX impact of the pound's decline reduced our revenue by $75 million in the fourth quarter.

As for our other major currency moves in the quarter, they effectively netted themselves out in total. While the dollar strengthened in Q4 against the Chinese yuan, the euro, and the Mexican peso, the dollar weakened in the quarter against the Brazilian real, the Japanese yen and the Australian dollar. As a result, the net impact of FX decreased our quarterly revenue by $75 million, or 1.8%.

As we enter into 2017, if currencies stay where they currently are based on our most recent projections FX could negatively impact our revenues by approximately 1.25% during both the first quarter of 2017 and for the full year. However, making any assumption on how foreign currency rates will move over the next 2, let alone 11, months is highly speculative at this point.

Revenue from acquisitions net of dispositions increased revenue $13.9 million in the quarter, or 0.3%. We expect the net impact of acquisitions net of dispositions will be negative in Q1 of 2017 as we cycle through the Grupo ABC acquisition which we completed in January of 2016. And, as John commented earlier, as we continue to reevaluate our portfolio of businesses and focus on opportunities for growth.

And finally, organic growth was positive $149 million, or 3.6% this quarter. For the quarter, we had positive organic growth across all of our major markets, with the exception of Brazil and the Netherlands.

Some highlights of our growth this quarter include our advertising discipline, which performed well in the face of difficult comparisons to the growth of over 12% that was achieved in the fourth quarter of 2015. The strength of our media businesses, including Hearts & Science, which is now ready for its first full year of operation in 2017, as well as the solid performance of certain of our full-service advertising agencies continued.

Our public relations businesses performed well across most of our markets coming off the relatively easy comp of Q4 of 2015. Our PR discipline was also helped a bit in the quarter by some work related to the election.

Our full-service healthcare businesses had another strong quarter, albeit relative to a down quarter in Q4 of 2015. Our Omnicom Healthcare Group agencies saw particular strength internationally. On slide 8 highlighting our regional mix of business, you can see during the quarter the split was 58% from North America, 9% for the UK, 17% for the rest of Europe, 11% for Asia Pacific, and with Latin America and Africa and the Middle East making up the remaining portion.

Turning to the details of our performance by region on slide 9, our organic revenue growth in North America was up 0.6%. In particular, in the fourth quarter we saw positive performances from our PR and media businesses which was offset by declines in our field marketing, branding, and events businesses, as well as our research agencies.

In Europe, the UK had organic growth of 8.5% with similar good performances by brand advertising, media, PR, and specialty healthcare. The rest of Europe was up 6.2% organically in the quarter.

Within the Eurozone, Germany returned to a positive organic growth after its negative performance in Q3. Italy, Portugal, and Spain also performed well, while France was marginally positive and the Netherlands continued to struggle.

Growth in Europe outside the Eurozone was strong, and especially notable when the Czech Republic, Poland, Russia, and Switzerland. The Asia Pacific region was up 9.5%, and we continue to see organic growth across most major markets in the region, including Australia, India, Japan, Greater China, and New Zealand. Africa and the Middle East, which is our smallest region and starts from a low base, had growth this quarter driven by project business and was up double digits organically.

The one region that was down organically in Q4 was Latin America. After a positive third quarter, which included some Olympic activity, and in the face of continued uncertain macroeconomic conditions, our agencies in Brazil had negative growth in Q4.

Revenues were down by about 14% organically in the quarter. Partially offsetting the negative results from Brazil and the region, our agencies in Mexico continued to have strong performance.

Slide 10 shows our mix of business by discipline. For the quarter, split was 56% for advertising services and 44% for marketing services.

As for their organic growth performance, it was mixed. Our advertising discipline was up 4.6%. a solid performance compared to Q4 of 2015, given the double-digit growth we had in the discipline in Q4 of last year.

Our growth in this discipline continues to be led by the performance of our media businesses, which performed well across almost all markets. Our performance was also bolstered by the good performance of a number of our full-service advertising agencies.

CRM was up 0.4% for the quarter, and the results were mixed across businesses and geographies. Our direct and digital marketing agencies and our shopper businesses had a strong performance in the quarter. However, the performance was more than offset by declines in field marketing, branding, and our research businesses.

PR was up 7.7% this quarter. And as I said earlier, the positive performance of PR was broad-based across most of our markets, although coming off easier comps versus the prior year's fourth quarter. And specialty communications was up 5.7% organically, with our Omnicom health group agencies performing well, most notably in foreign markets. Recognizing, however, that this is compared to easier comps versus Q4 of last year.

On slide 11, we present our mix of business by industry sector. In comparing the full-year revenue for 2016 to 2015, you can see there were no major shifts in revenue.

Turning to our cash flow performance on slide 12, you can see that we generated just over $1.6 billion of free cash flow during the year, excluding the positive effect from changes in working capital. As for our primary uses of cash on slide 13, dividends paid to our common shareholders were $505 million. As a reminder, the 10% increase in our quarterly dividend was effective with the payment we made in July and therefore only half of payments this year were at the higher amount.

The cash flow impact of the higher payments was partially offset by a lower share count due to repurchase activity. Dividends paid to our non-controlling interest shareholders totaled $87 million. This is down versus last year, due to the purchase of additional shares from our local partners.

Capital expenditures were $166 million, a reduction compared to 2015, resulting from a decline in leasehold improvements, lower spending on technology purchases, as well is an increase in our equipment leasing program. Acquisitions including earn-out payments totaled just over $500 million.

Stock repurchases, net of the proceeds received from stock issuances under our employee share plan, totaled $554 million. All in, we out-spent our free cash flow by just over $200 million for the year.

Turning to slide 14, regarding our capital structure at the end of the quarter, our total debt at December 31, 2016 of $4.95 billion is up about $380 million from this time last year. This increase resulted from the incremental $400 million of borrowings related to the debt issuance back in April.

Our net debt position at the end of the year was $1.93 billion, down $25 million compared to December 31, 2015. The decrease was principally due to the positive change in operating capital of approximately $325 million which was offset by the overspend of our free cash flow of just over $200 million for the year, as well as the negative impact of FX on our cash balances at year end.

As for our debt ratios, they remain solid. Our total debt-to-EBITDA ratio was 2.2 times and our net-debt-to-EBITDA ratio was below 1 at 0.8 times. And due to the year-over-year increase in our interest expense, our interest coverage ratio, while still quite strong, decreased to 11 times.

Turning to slide 15. 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 ratio improved to 24.3%, while our return on equity increased to 49.8%.

And finally on slide 16, we track our cumulative return of cash to shareholders over the past 10 years. The line on the top of the chart shows our cumulative net income from 2007 through 2016, which totaled just under $10 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 $10.5 billion, resulting in a cumulative payout ratio of 106% over the last decade.

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 are going to ask the operator to open the call for questions. Thank you.

(Operator Instructions)

Alexia Quadrani, JPMorgan.

Hi, thank you. I've got a couple of questions. The first one really is zoning in on the weakness in the branding and the field marketing businesses that you highlighted. Did any one of those of the two stand out as a particular drag?

I think you also mentioned research as an area of weakness too. Really want to dig in and see if one is particularly weaker than the other.

Do you think it's more structural or cyclical, or do you think it's competitive in nature? You're maybe losing share there?

And are you committed to those businesses? I think you mentioned you're going to reassess everything and look for potentially a pick-up and divestitures.

I guess, would those naturally be the area of focus? And then I have a follow-up.

You got it, you hit the nail right on the head. Field marketing, which is not a strategic business to us, was particularly weak in the fourth quarter. And that's typically a business that you need big-box stores to hire people in do promotions and do some other things.

It's clearly on my list as a priority because I don't think the future for that business is anything even remotely close to what it has contributed in the past. In speaking to some of our credit card clients, the amount of online purchasing that went on in the fourth quarter of this year was -- it is hitting a tipping point. So we can still get some value out of the business, but it did harm our organic growth.

In terms of research, we are never very, very deep in research. We have several companies in that area.

They tend to be custom research shops That, with digital, is changing. It is not going away, but we are planning further consolidation in that area.

And in branding, branding really -- the outlook in the branding businesses has always been, the backlog has always been six to eight weeks. And we've had some difficulty with some of our rebranding efforts the entire year. It also reflected itself in the fourth quarter.

We have experts. That's a business I'm quite certain we can turn around because we have very, very, very smart people. It is just a speed bump at the moment, and it will be getting better as you go through 2017.

And then just to follow-up. You mentioned on the your growth outlook in 2017, organic growth outlook should be similar to 2016. Should we assume that is still very much weighted towards international growth, or the US, given the sluggish US performance at least in the back half of the year?

And how quickly can the US bounce back, dependent on how quickly some of those divestitures potentially happen? Lastly, just given maybe elevated divestitures this year, should we assume maybe a little bit of a pick-up in the buyback?

In terms of our revenue, personally I am more optimistic than I am willing to say on the call. I am very confident about our ability to increase our margins, just through a continuation of the efforts that we've had to date and they continue into this year.

In terms of what the US government is doing, I can't figure it out. I do believe that animal spirits have been released in the US. And with the fixes that we have and we're planning, I'm not concerned about Omnicom.

I have just no clue as to what the impact on trading is going to be. And until something other than an executive order gets signed, and a law gets past, we are just being conservative.

And one thing we don't want to do at this time of the year is to staff in anticipation of growth. It's always better to hire after you've gotten growth. So -- .

As far as the buyback question Alexia, I don't think you will see much change actually. If we accomplished a couple more divestitures then we might have in prior years, I'm not sure that's going to directly lead to an increase in buyback activity.

The primary driver of that is going to be how many acquisitions do we do once we get beyond paying or normal dividend. If we find some additional acquisitions that fit our criteria and strategy, we're going to want to pursue those acquisitions.

That'll have an impact on buybacks. The availability of those acquisitions and the number of acquisitions we close probably that will impact the buyback more so, either resulting in more or less free cash available for buybacks than the dispositions will.

Okay. Thank you very much.

You're welcome.

Julien Roch, Barclays.

Yes, good morning. Thank you for taking the question. First question is, could we get the contribution of Accuen [into growth] in Q4? And then there is more and more talk and actually action of competition from consultants like Accenture, [both Cameron] in UK, you had a couple of creative wins from consultants. So I wanted to see your point of view on that, and whether you are starting to actually see consultant in big pictures against Omnicom? Thank you.

I will take the first one. On Accuen, Julian, the growth number for the fourth quarter was $33 million In terms of the contribution, which brings the full year to (technical contribution) in terms of revenue growth from that business. And as we said before, the programmatic business continues to evolve beyond just the original core group of advertisers who were focused primarily on achieving in ROI.

And overall we expect the programmatic business to continue to grow, whether it is through the bundled offering we have or the more traditional model. We're happy to take the business growth either way, whatever our clients would prefer.

But we wouldn't be surprised if we continue to see reduction in the share of programmatic that is executed on a bundled basis and growth in programmatic that is executed on the traditional basis.

And to answer your second question Julian, I have anticipated the consulting firms attempting to pick up some aspects of what we do for at least (technical difficulties) seriously for the last 20 months. We have not run into them, though, in terms in pitches or serious pieces of business as of yet but it's something that we are very vigilant about.

And we also have plans to start to hire, and we have been hiring people with similar skills to the ones that they have to supplement the normal work that we do. So we have a lot of competitors, but so far our batting average has been very good, but we are very vigilant on the topic.

And if you haven't seen them yet encroaching on your business in big pictures, have you conversely started to encroach on their business and won pieces of business that you might not have won five years ago because you have a more rounded offering? Or similarly, that is something to come as well?

I'm not sure I've got your question completely, but our business has changed completely over the last five years. And I expect it's going to - that pace is just to continue.

We make significant internal investments in mass data, data analytics and that as we go into 2017, those are only increasing, also the type of people and the type of skills that we have. One major advantage that Omnicom has that we are able to capitalize on is, we have built most of what we win on internally or we have hired and incorporated these people into the Omnicom DNA.

When a company starts trying to gather these skills through acquisitions, it doesn't normally play very well within groups when you go in, and clients don't want to see people who are just meeting each other for the very first time or have different cultures. We capitalized on that quite a bit.

I know that eventually when I'm gone it will been remembered as a strategy. I don't know if it was a strategy or just good luck, but that's what I believe.

So we are going to continue on the pace. That's where I spend my time, looking, talking, learning, both from clients from their needs and from where we think the marketplace is going.

Thank you.

Ben Swinburne, Morgan Stanley.

Thanks, good morning. One for John and one for Phil.

John, we all on the call heard Marc Pritchard's comments or read his comments from last week. You are probably in a better position than anyone, at least on this call, to talk about what the audience was or is targeted for those comments.

How much do think of his frustrations are being expressed at digital media platforms, ad tech companies or his agency partners like Omnicom? Anything that you think the industry or Omnicom needs to do to address some of those issues? And maybe just comment on the state of the digital media landscape, given there is just a lot of focus there.

Then Phil, just on the margin guidance and the dispositions, I just want to make sure we understand clearly. It sounds like the expectation is net of acquisitions and dispositions that will be a drag on revenue in 2017. I just want to make sure that is accurate.

Then second, is there a margin impact from that net disposition? I assume those still marketing businesses are probably lower margin, but I want to hear any comments you had.

I won't pretend to speak for Marc, but I will tell you what I believe he was saying because I've heard it not only publicly in Marc's comments but I have heard it in any one of a number of places. The amount of spending that is being done on digital is increasing and has been, and will continue.

But we have to be able to measure the effectiveness of the media. And we have to be able to have a standardized, or get close to a standardized add verification strategy to track and to measure, and to eventually value what we are willing to pay for, or what our clients are willing to pay for.

The other challenge is the varying devices in which you can receive messages. And it's I think most people's guess that mobile will be the largest platform because it is the most mobile platform for people to get their content. In terms of what we do, we've personally installed integral add science verification to make sure that our client has default protection.

We've been doing that for several years now.

Not just for them, but since we have been doing it, and it just becomes challenging. And at some point, almost the equivalent of a Good Housekeeping Seal of Approval is going to have to get adopted for subscribers and publishers of content so you have automatic faith, and this is my view, in what you are buying is what you are getting.

So it's almost like being in -- you are not quite in the Little League, we are in T-ball at the moment. But the amount of money that is being spent requires these standards to get creative, to get accepted by the various people spending money because there's is an awful lot of money being spent. Got it, thank you.

On the margin front, we certainly expect -- first on the dispositions. As far as the dispositions that we've completed to date, we expect they will have a small positive impact on margins. But the vast majority of the margin improvement that we expect, that John talked about in his prepared remarks, are not based on assuming acquisitions. We are going to incur it, but it's largely going to be continue to be driven by our efficiency initiatives.

To the extent that we are able to dispose of a couple of businesses that we go through in our evaluations which will start in a couple of weeks, incremental dispositions in 2017, they are largely going to be businesses that have margins on average because of performance issues, largely. The type of businesses they are, the revenues may come down more as John had referred to, and there maybe some margin improvement as a result of that. That is not really factored into a significant portion of the margin improvement that we expect that John referred to in his earlier remarks.

I don't know if I speak about what happens in my Board meeting, but we had concluded one last week. I have my own wish list within we're interested in growth and we are interested in profit. I made a prediction about how fast I could move. Phil just sat there very politely and grinned, and said that you may not be that lucky.

But it's a serious earnest review, and we still think there is value in the companies that we are targeting, but I'm of a firm belief that 36 months from now that value will be greatly depleted from where it is today. So it's time to act.

Got it. Thank you both.

John Janedis, Jefferies.

Given the large account wins in the back half of last year, should we expect organic growth to ramp throughout the year or are there other factors we should consider?

We are trying to grow as fast as we can, is the answer. There's elements that we speak about on these calls and that you see that make up organic growth.

The first one and the most obvious one is when we win new business, obviously, because that can be calculated and other people speak about it and reporters report on it. What also comes out of that is where clients have a decline or change their spending habits a little bit.

We have a lot of clients so a little bit of amount of money can drag that down a bit. So it's a net number that you are seeing, not a gross number.

But we been doing very well and our clients, I think especially the US clients, and they tend to be multinational, they are bullish. They are hopeful. There is confidence out there.

So as long as something geopolitically doesn't get screwed up, or -- India didn't have the greatest quarter for the Indian economy because of the change in currencies. There are some decisions which get made which impact other parts of the business from time to time, quarter to quarter. It's very difficult to look at it on a 90-day basis.

In terms of the wins themselves, though, the more important part of the wins of say P&G, AT&T and Volkswagen, were how we have been able to establish or significantly enhance the platforms we have for growth Within PHD in the case of Volkswagen and Hearts & Science newly created in the case of P&G and AT&T. So we think those platforms provide us with some significant growth opportunities.

The actual amounts of revenue on the initial win, while very helpful and certainly very helpful to the businesses that won the work, they are not in and of themselves material to our overall results. There's certainly a lot of other factors that add and some that detract from our organic growth profile. John touched on them, certainly.

So we are more bullish about the benefits that we got from those wins on what our future growth profile can be going forward. But we've got to look at the overall portfolio, which is pretty diverse and hopefully balanced. And not everything is always going to be hitting on all cylinders.

That's helpful. Sorry.

Sitting here today, and the platforms and the agility that we have brought into our ability to go to market, changes all the time. You can ever get too comfortable with it. But it's working today and we continue to evolve.

Maybe a related question, John. Just on the UK and European growth, it's been, I'd say, a bit more resilient than I think the market would have expected given the macro headlines. Have you been gaining share there? And as you think about your outlook, do you expect that region to moderate?

We certainly have, two things we have. We have some of the greatest agencies in the world in our major European markets. So they are very attractive to clients.

We also, if we dissected our client base, we don't have large banks and things that are highly regulated that some of these recent changes will probably impact going forward. So we are not going backwards, we are going forwards for the most part.

And we have to see what is going to happen with the elections that are coming up in Europe. This time last year I would have never predicted the day before Brexit we were in Cannes. I didn't predict that vote.

I certainly didn't predict the presidential outcome. God knows what is going to happen in France and in a lot of other key markets in Europe.

So all we can do is make sure we maintain the quality of our agencies, continue to be agile as hell, and fight for every single dollar of revenue we get. And that is what we are doing.

Thank you.

Operator, I think we have time for one more call, one more question.

Dan Salmon, BMO Capital Markets.

Hey, guys. Good morning. I just had a few questions, John, on the full-service agencies. There were a couple things that you mentioned that were of interest.

One, you called them out for strength, whereas in the advertising segment we have seen that really driven by media, continues to be strong. But you mentioned them specifically. And I'm just curious, is that largely around share gains or is there something different going on with the way that they are approaching the business, either more horizontal approaches or whatnot where they may be playing the lead role.

And second on the McDonald's business specifically you mentioned obviously a number of Omnicom agencies involved. But you also mentioned some key partners on the team. And we have read a little bit recently about companies from some of the large digital ad sellers like Google and Facebook more frequently embedding themselves with agency teams.

Is that what you are speaking about there? And whether it is or not, can you tell us about how much you are seeing that happening across your business these days? Thanks.

Sure. We do go to market differently, and the one client you point out is one where we certainly have. We have brought people in from different skills, we are working differently.

Some of our media scientists are the people briefing creative people as to what audiences we should be attacking as opposed to traditional type of account people that you would have had in the past. Everything is a bit more bespoke in some of the larger wins.

They're working much more closely in fewer silos than ever before. And it wasn't so much the Googles and the Facebooks, although they are very supportive of Omnicom. It was more like other vendors that the client had selected and used, like In some cases Adobe, in some cases it is salesforce or CRM.

To date we have been able to draw lines in figure out this is what your role is, this is what our role is; by the way, here is your desk because I need to speak to you every day and we want to improve communications. We've just gotten better at it.

We were always pretty good partners, but I believe not just top management, but also upper middle management and middle management has gained confidence in the way that we can interface and work with some of these people. So we are just building it for the client, with the client's interest in mind, not necessarily the traditional, and I've been around a long time, silos, or particular agency brand. It is morphing, it is changing because the marketplace has.

Great, thank you.

You're welcome.

Thank you all for joining the call today. We appreciate it. And we will talk to after the first quarter is over. Thanks.

Thank you.

Ladies and gentlemen, that does conclude our conference today. We'd like to thank you for your participation and for using AT&T teleconference. You may now disconnect.