Omnicom Group Inc. (OMC) Q1 2016 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Omnicom First Quarter 2016 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I'd 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've 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 a 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 am pleased to report that we are 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 is still quite a bit of hesitation in the marketplace. The capital market swings we saw in the first quarter, the unchartered 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 is too early for us to speculate on what the direct or indirect impact of Brexit 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 market, the Czech Republic and Turkey generated solid results. Turning to Asia Pacific, it was up by 0.1% 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 and large effect on our Latin American 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 initiatives we have undertaken in areas such as information technology, real estate back-office services, and strategic purchasing as well as our agency’s 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 per share for the quarter versus $0.83 per share for the same quarter a year ago. Our cash flow, balance sheet and liquidity remained 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 senior notes, which was closed 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 am 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 of the changes occurring in our industry and business, I like to address a few board and governance changes we have recently made, which are 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 have 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, two of 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 to thank Gary and Errol for their many years of dedicated service, leadership and commitment to Omnicom. These changes and others that will be taking place over the next several years will strengthen Omnicom's governance structure and improve communications with our shareholders. Let me now discuss what we are 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 breakthrough 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 this 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 [Indiscernible] to assembling the best talents from across our Omnicom network to serve the clients at the C-Suite level [connected brilliance]. As the name implies, [connected brilliance] is an organizing principal 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 3000 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 the healthcare offering we also recently announced the launch of TBWA\WorldHealth. TBWA\WorldHealth 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\WorldHealth, 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 ten public relations agencies, including three of the top global PR agencies worldwide, Fleishman-Hillard, Ketchum, and Porter Novelli, with over 6000 employees. Industry veteran, Karen van Bergen, formerly CEO of Porter Novelli, will lead Omnicom's Public Relations Group. The benefits from forming these groups are numerous. We will be better equipped to deploy and align our agencies and talent to 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 in economies and areas such as technology, data solutions, production and analytics as well as digital development. Lastly, we will 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 is part of our heritage to respect the individuality and culture of our agency brands and it sets our 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 am 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 created 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 am 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 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 are responding to messages. Given this new reality it is 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 ordinance behavior information and we are 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 [Indiscernible] that can tap into these trends. All of this is done 24 a day in real time. As I mentioned on our last conference call, in the fourth quarter of 2015 Omnicom was awarded the media planning and buying business of Procter & 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 brands. 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 positioning 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 are seeing within Omnicom. A number of our networks have launched their own programs to increase the influence of women, including TBWA Take the Lead 2020, [TDB] talent as an agenda, [Indiscernible] is seeking to double its senior women creatives over the next 12 months. In the 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 a 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, that 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 will 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 have set for them, as well as adapt for 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 expectation. 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 has 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 will discuss our revenue growth in detail in a few minutes. Moving down the P&L, [low 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 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 of 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 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 ’15 was larger than the benefit we received in Q4 ’15 because the underlying floating interest rate on the swaps increased during ’15. 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 rate. 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 impacts 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 with 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 interest 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 last 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 four, 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 began to see that moderate somewhat on a reported basis, when compared to what we have seen over the last several quarters. The decrease in the UK pound had the largest translation impact on our reported revenue in Q1, accounting for approximately 20% of the FX driven revenue reduction. The Euro and the Brazilian reis 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, 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 was exceedingly difficult to estimate what will happen to FX rates over the remaining 8 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. Our current year revenue includes two months 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 the few acquisitions and dispositions that we completed during 2015. Going forward, we expect that revenue from our collective recent acquisition 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 growth across all of our major markets with the exception of Brazil, the Netherlands and to a lesser extent Japan. 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 benefitted 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 when 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 of a small base was marginally positive. Our UAE businesses were strong performance offset by year-over-year reductions in the quarter and other smaller markets in that region. One region that was down organically was Latin America. Our Brazilian agencies continued 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 in 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 a 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. Our CRM was down seven-tenths of a percent, results were mixed across businesses and geographies. A 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 nine-tenths of a percent. 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, we 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 then in the first quarter we generated 346 million of free cash flow, including 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 our purchase in prior periods of additional from our local partners. Capital expenditures were 41 million and acquisitions including earn-out payments net of the 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 outspend 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 31st 2016 a 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 debt carrying value as required to be reported on the balance sheet on the US scale. 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 31st, we closed in our issuance of $1.4 billion and 10 year senior notes at an effective rate of about 4.05%. Our quarter end debt levels do not reflect this new issuance. Most of the proceeds of this issuance, we used to retire the $1 billion of 2016 senior notes at the maturity date on April 15th. 2016 notes had a coupon of 5.9% and an effective rate of 5.25%. Though 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, 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 rates 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 to date. By terminating some of these swaps, we reduced our exposure to further interest rate volatility, and we locked an 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 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 overspent 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 of approximately 130 million. Adjustments that the carrying value of our debt of about 45 million and a typical uses of cash for working capital that historically occur in our first quarter of approximately 805 million. These increases in net debt partially offset by the effect of exchange rates on cash during Q1 that increased our cash balance by about 80 million. As per 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 an 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, 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 accumulative return of cash to shareholders over the past 10 plus years. Align on the top of the chart, shows our cumulative net income from 2006 to Q1 of 2016 which totaled 9.8 billion. And the bar show the cumulative return of cash to shareholders including both evidence and net share repurchases. The sum of which during the same period totaled 10.9 billion, our cumulative payout ratio of 111%. And that concludes our prepared remarks. Please note that we have included a number of other supplemental slides in the presentation materials for your review but at this point, we are going to ask the operator to open the call for questions.

Thank you. [Operator Instructions] Our first question today comes from the line of Tim Nollen representing Macquarie. Please go ahead.

Good morning. Thanks for taking the question. Couple of things, please. First, I was wondering if you could comment on the mix of spending amongst clients. There has been a lot of discussion about the strong TV ad market in the US and some comments about the ability concerns in that blocking and so forth in digital media. I wonder if there is anything in general or even specifically regarding P&G. I don't know if you want to address particular client but I have read about them being involved in that sort of a mix. So, just discussion about the mixed shift on advertising. And then I just wanted to ask you as well about your cost saving initiatives. Is it possible to say maybe how much you invested, how much of time you spent on things like the real-estate and the IT insured services or perhaps how much of this 30 basis points margin guidance upside for this year is derived from these efforts. Thanks.

On the mix of business this is an all gross statement. I'd say that this trend continues towards digital. And the areas I'm concerned are visibility. But we've seen a solid TV demand pick up over the past few months. We are expecting spending those on only a few points going in to the up front. You have to keep in mind that many clients hold back money in order to create flexibility in this. So many different channels that they can get their messages in through in these days. With respect to P&G, we don't have any revenue in the first quarter from P&A even though we are on it. We haven't really start to stepping up for it now, I think it really starts in earnest in the third quarter.

[Indiscernible] the cost savings.

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 probably spent more time pursuing initiatives in the area real-estate here. It's an initiative that's taken quite some time major market by major market and there is still more to come because we had the plan and line up a number of leases in each of our major markets as opposed to moving out of less efficient real-estate into hub buildings and take a big charge for vacating real-estate. We haven't taken that approach, we've been little more patient but certainly some of the actions we put in place a number of years ago we are starting to see the benefits of that in late '15 and then really on here into '16. As far as our other initiatives in the areas of IT back office spending strategic purchasing etcetera, I think they are the ones we are continuing to pursue, this isn’t a nine months or a 12 months thing. We are going to see benefits from those I think throughout over the next year and we are going to continue pursue them long after just 2016. We are after efficiency broadly but saying that not -- we don’t look at it as just kind of a one-time effort.

The another thing I would add to that would be the real-estate because we feel certain we are waiting for our leases expired, we will also continue in the future not only '16 but '17 and '18 -- will draw our benefits worth.

Okay. Thank you.

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

Yes, good morning. I have a couple of housekeeping questions to start with. Your guidance you've given in your last quarterly call of organic revenue up to 3% to 3.5%, I assume that 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 that new wins in the first quarter, what was that in place, typically talked about a billion?

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

Yes. As far as wins and losses in the quarter, the number net is just above the billion 250.

And your comments Phil, on the cost front that you could keep up looking at the cost hard here going forth back office, IT, etcetera. Do you think long term as you think about your business that there is some margin up side assuming that can't be hold together on a long term basis or are you advising your investors to maintain in their models flattish type margins?

I think we are looking at '16 to deliver what we said we're going to deliver for the year. From our perspective we've always said we are pursuing EBIT dollar growth, not we are not obsessed with the margin percentage because you can't touch and feel the margin percentage we can deliver EBIT dollars that's going to continue vehicle. So, when we get to '17, and thinking about '17, when we evaluate where we expect to be but there is an awful lot of uncertainties and awful lot of things that can happen between now and then. So, we're not making any commitments beyond '16 other than we expect the margin improvement that was achieved in '16 will be sustainable. On beyond '16, we're not making any commitments beyond that other than we're committed to pursue the initiatives we begun to pursue. On into the future we're going to continue to try and be as efficient as we possibly can, but we're not obsessed with margin percentages we're focused on delivering EBIT dollars.

Lastly, Phil, I want to ask you, what was the gross amount of shares that you bought back in the quarter? Thank you.

Can you -- in a second. That number is I think the share's number is 2.7 million shares. Growth.

All right. Thank you.

Sure.

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

Hi, thank you. Just a couple of questions. First, when you think about the timing of the new business ramp and how that impact the organic revenue throughout the year. Is it more sort of business as usual or you get a little bit every quarter or given the timing of P&G which is sort of an outsized win, hitting later on the year, maybe I think Q3. Shall we see maybe a bit more of a tailwind in the back half of the year to organic revenue growth [indiscernible]?

Well, let me just [indiscernible]. Right now for the year was we are staying with our guidance but on the media wins great trend. To have at least this six months, in some cases even longer, [indiscernible] to when somebody loses an account and when the new person comes and picks it up. On the agency business [indiscernible] and 90 day changeover period and projects which are part of our business as Phil was mentioning when talking about CRM, those are [indiscernible]. We learn about quite a number of those 60 days into that. So, it varies across the business, I would 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 call revenue growth. That really starts to kick in as I said July 1.

And then just a follow on and you gave some good color on the weakness in Brazil on the quarter. Any reason why that shouldn't continue to be a big headwind in Q2, I mean it sounds like their economic conditions that are mostly driving that, not any change in clients and necessarily. So, I assume that that's sort of 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 and we don't know necessarily anymore depending on IMF or anyone else, so we are planning for these headwinds throughout the rest of the year. We might get mitigated a little bit in the second half from the Olympics but we are not certain unless they come up with a cure to that virus that have God knows what the attendance is going to be. So, Brazil is going to be challenging I think for '16 but it's not it's important for us it's less than 1%. And so that -- between 1.5% to 2% of our revenue annually. So, that's with Grupo ABC included in our revenue numbers. So, well, it's a dry, we are very healthy, the most creative businesses in Brazil and what our folks is doing there now is they are trying to optimize revenue and they are working very hard on their expense basis. So, you want to?

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

Thank you, very much.

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

Yes, good morning John, Phil and Shub. My first question is could you give us some impact of the new account winds on 2016 organic? And I know you win account every year but P&G is quite big this time, so having an impact in terms of [indiscernible] 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 could get this split of minus the open one between the positive 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.

Okay, sure. I'll take the middle question which I think, I forgot, what was it?

The --.

Oh M&A. I think what you'll see is, M&A is result of Accuen that we took last year. I don't even recall, Phil may. And that, yes, there is no real outline in terms of one big disposal. It's a number of small businesses actually across a few different geographies. And we expect that the number in the second quarter given where we are with acquisitions completed as of now. We will be positive through the rest of the year probably in the neighborhood of all new for the year about $80 million to $90 million of acquisition contribution net. In terms of project businesses I don't have that number for you I am sorry.

Yes, we don't really track it that way, Julien, because in each of our disciplines there is some component of the business even traditional advertising agencies, our media business, as well as PR, healthcare, CRM etcetera, that there is a component of both project based business and retainer business. We prefer the retainer business but certainly there are some businesses we now 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 we don't really segregate the revenues that way within those businesses.

And on 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. That's -- it goes into a much larger calculation and what makes up our organic growth are the contribution from wins to organic growth, growth of existing clients. We fully expect --, during the year – for clients cut back on projects. So, we don’t really sit down.

Yes, I think the -- I think one 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 you know net new business billing on gains and losses in that calculation. So, 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 not about 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 reported. We don't place any emphasis on it in terms of how we actually run the businesses themselves. We are focused on a revenue contribution of those businesses and when we say our expectation is 3% and 3.5% growth, yes, that includes an expectation where that includes both new business wins and losses that we know of and new business some aspects of new business that we expect businesses to obtain. But in terms of this year even with P&G which from 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 say what we expect to be in excess of $4 billion of wins net for 2016. That's kind of a normal year we expect our growth, that's going to be a relatively normal year in that context.

One thing I would add to that is it was a wonderful win from 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 our clients. And two, I'm not expecting much of it in the second half of this year, we've stated we're primarily focused on P&G but it allows us to open up a third media network which once we get the 17 and 18 and now, it's going to provide us opportunities to pitch our business that we might otherwise been pretty close 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.

Thanks, good morning. Phil, any impact from currency on margin in the quarter?

Very little. But the margin impact in this quarter was less than five basis points. So, three or four basis points. So, for us that's kind of the normal and which is what we'd expect in an environment plus or minus 1% to 2% FX.

And John, if you look back, your revenue by discipline you don't want to look at any one quarter but I think it's been a couple of 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 single, in fact, I think it was down organically this quarter. That's a two year plus phenomenon. Secularly in your business, what's driving that variation in performance if you sort of cut your revenues in half that way?

Well, we probably focus more in some ways on improving the service offerings because the path is changing both in ways that greater is done, media is executed within all the channels. One of the reasons that we announced the formation of two of the groups that are included in DAS both the public relations and the healthcare, was getting more folks. Even though they are growing, PR it has a little trouble in the last quarter or two. Healthcare has always been strong is to get more line managing people who are operators in charges of those groups or companies to continue to drive growth and to make recommendations for incremental acquisitions with supplement and compliment the products that we have. You'll as we go through the rest of DAS, which is a very large part of our crew, we are taking a look at other areas where a similar approach might add to that growth and as we go out. But we don't rush and we have 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. And if the market is open, so I think we can have one more question. Todd?

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

Hey guys, good morning. I'll ask maybe one on the PR agencies 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 area where social media is very impactful. I am wondering if there are specific initiatives around there to help get the PR agencies back up consistently growing again.

Sure. Dan, well, basically you're absolutely right. Great investments that happen in the changing social media environment. When you focus only on brands and you don't have any in the central leadership, you tend to make those investments multiple times. I think by having central leadership, we'll basically be able to do it better, faster job in creating platforms that which we'll be able to white label and therefore use across the grids. The other thing that we've been seeing is an increasing number not complete number of briefs coming from multinational 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 6000 people we have there, well we will do a better job I think of and increase our opportunities of winning new business simply from the knowledge and the control of somebody that's focused a 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.