Good morning ladies and gentlemen and welcome to the Omnicom Fourth 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 and instructions will follow at that time. If you need assistance during the call, please press star then zero. As a reminder, this conference call is being recorded. At this time, I’d like to introduce to 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 expectation 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 materials. 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 were 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 organization, 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 a billion dollars. As we wrap up the year, I will cover our fourth quarter and the 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 6/10ths of a percent. 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…

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. 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. 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. Our Q4 EBITDA increased 4.5% to $631 million. 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 company-wide 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…

[Operator instructions] Our first question comes from the line of Alexia Quadrani with JP Morgan. Please go ahead.

Hi, thank you. I’ve got a couple of questions. The first really is sort of zoning in on the weakness in the branding and the field marketing businesses that you highlighted. Does any one of those of the two stand out as a particular drag, and I think you also mentioned research as sort of an areas of weakness too. So I guess really wanted to dig in to 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 might be losing share there, and I guess are you committed to those businesses? I think you mentioned you’re going to reassess everything and look for potentially a pick-up in divestitures. Would those naturally be the area of focus? And then I have a follow-up.

You’ve 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 to do promotions and to 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 this year was--it’s 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’re never very deep in research. We have several companies in that area. They tend to be custom research shops. That with digital is changing - it’s not going away, but we are planning further consolidation in that area. 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 smart people. It’s just a speed bump at the moment, and it will be getting better as you go through ’17.

Then just to follow up, you mentioned on the growth outlook in 2017, organic growth outlook should be similar to 2016. Should we assume that’s very much weighted towards international growth over the U.S., given the relative U.S. sluggish performance, at least in the back half of the year? How quickly can the U.S. bounce back, I guess dependent--is it dependent on how quickly some of those divestitures potential 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 outlook, personally I’m more optimistic than I’m willing to say on the call. I’m 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 U.S. government’s doing, I can’t figure it out. I do believe that animal spirits have been kind of released in the U.S., 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. Until something other than an executive order gets signed and a law gets passed, we’re just being conservative. The 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.

Yes, and as far as the buyback question, Alexia, I think--I don’t think you’ll see much change, actually. If we accomplish a couple more divestitures than 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 our normal dividend. If we find some additional acquisitions that fit our criteria and strategy, we’re going to want to pursue those acquisitions, that will 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.

Our next question comes from the line of Julien Roch with 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’s more and more talk and actually action of competition from consultants, like Accenture would come to my mind in the U.K., 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 consultants in big pitches against Omnicom. Thank you.

So I’ll take the first one. On Accuen, Julien, the growth number for the fourth quarter was $33 million in terms of the contribution, which brings the full year to 86 in terms of revenue growth from that business. As we’ve said before, the programmatic business continues to evolve beyond just the original core group of advertisers who were focused primarily on achieving an ROI. Overall, we expect the programmatic business to continue to grow, whether it’s through a 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 continued to see reduction in the share of programmatic that’s executed on a bundled basis and growth in programmatic that’s executed on a traditional basis.

To answer your second question, Julien, I’ve anticipated the consulting firms attempting to pick up some aspects of what we do for at least--seriously, for the last 20 months. We have not run into them, though, in terms of in pitches for serious pieces of business as of yet, but it’s something that we’re 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’re very vigilant on the topic.

If you haven’t seen them yet encroaching on your business in big pitches, have you conversely started to encroach on their business, and one piece of business that you might not know--not have won five years ago because you have a more rounded offering, or similarly that’s something to come as well?

Well, I’m not sure I got your question completely, but our business has change completely over the last five years, and I expect it’s going to--that pace is just going to continue. We make significant internal investments in math, data, data analytics, and that--as we go into ’17, those are only increasing, also the type of people, the type of skills that we have. One major advantage that Omnicom has that we’re able to capitalize on is we have built most of what we win on internally, or we’ve 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. So we capitalize on that quite a bit. It’s been--I know that eventually when I’m gone, it will be 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’re going to continue on the pace, but 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.

We have a question from the line of Ben Swinburne with Morgan Stanley. Please go ahead.

Thanks, good morning. One for John and one for Phil. John, we all on the call I think hear Marc Pritchard’s comments or read his comments from last week. You’re 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 you 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’s 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 ’17. I just want to make sure that’s accurate. Then second, is there a margin impact from that net disposition? I assume there’s still marketing to this, is there probably lower margin, but I wanted to hear any comments you had.

Sure. I won’t pretend to speak for Marc, but I’ll tell you what I believe he was saying, because I’ve heard not only publicly in Marc’s comments but I’ve heard it in any one of a number of places. The amount of spending that’s 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 ad verification strategy to track and to measure, and to eventually value what we’re willing to pay for or what 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 where--because it is the most mobile platform for people to get their content. In terms of what we do, we’ve personally installed integral ad science verification to make sure that our client has default protection--

And we’ve been doing that for several years now.

Yes, not just for them but since we’ve 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 - this is my view - in what you’re buying is what you’re getting. So it’s almost like being in--you’re not quite in the little leagues, we’re in tee-ball at the moment, but the amount of money that is being spent requires these standards to get created, to get accepted by the various people spending money, because there’s an awful lot of money being spent.

Got it, thank you.

So on the margin front, we certainly expect--I guess first on the dispositions, as far as the dispositions that we’ve completed to date, we expect they’ll 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’re going to incur. It’s largely going to continue to be driven by our efficiency initiatives. To the extent that we’re able to dispose of a couple businesses that we go through in our evaluations, which will start in a couple weeks, incremental dispositions in ’17 are largely going to be businesses that have margins on average, because of performance issues largely and the type of businesses they are, the revenues may come down more, as John had referred to, and there may be some margin improvement as a result of that. That’s 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 often speak about what happens in my board meetings, but we concluded one last week when--I have my own wish list within Omnicom. We are interested in growth and we are interested in profit. I made a prediction about how fast I can move, Phil just sat there very politely and grinned and said, you may not be that lucky. But it’s a serious, earnest review and we still think there’s value in the companies that we’re targeting, but I’m of the 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.

Our next question comes from John Janedis with Jefferies.

Hi, thanks. Just a couple quick ones for me. First, 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?

Well, we’re 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, and we have a lot of clients, so a little bit amount of money can drag that down a bit, so it’s a net number that you’re seeing, not a gross number. But we’ve been doing very well and our clients, I think especially the U.S. clients, are--and they tend to be multinational, they’re bullish. They’re hopeful, there is confidence out there, so as long as something geopolitically doesn’t get screwed up or--you know, 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, very difficult to look at it on a 90-day basis.

Yes, 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’ve 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. 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’re not in and of themselves material to our overall results, and 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’re 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.

Sitting here today, the platforms and the agility that we have brought into our abilities out of market, it changes all the time, you can never get too comfortable with it, but it’s working today and we continue to evolve.

Maybe a related question, John, just on the U.K. 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?

Well, we certainly have--there’s two things we have. We have some of the greatest agencies in the world in our major European markets, and so they’re 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’re not going backwards, we’re going forwards for the most part. We have to see what’s 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’s going to happen in France and 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 and profit we get, and that’s what we’re doing.

Thank you.

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

Certainly. Our last question comes from the line of Dan Salmon with 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’ve seen that really driven by media and continues to be strong, but you mentioned them specifically. 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? Then second, I think 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’ve 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’re speaking about there, and whether it is or not, can you tell us about how much you’re seeing that happening across your business these days? Thanks.

Sure. Well, we do go to market differently, and one client you point out is one where we certainly have. We’ve brought people in from different skills, we are working differently, some of our media scientists are the people briefing creative people as to what audience 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 ones. They’re working much more closely in fewer silos than ever before. It wasn’t so much the Googles or the Facebooks, although they’re very supportive of Omnicom. It was more like other vendors that the client has selected and uses, like in some cases it’s Adobe, in some cases it’s Salesforce or CRM. To date, we’ve been able to draw lines and figure out, this is what your role is, this is what our role is - by the way, here’s your desk because I need to speak to you every day and we want to improve communications. We’ve just gotten better at. We were always a pretty good partner, 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’re just building it--we’re building it for the client, with the client’s interests in mind, not necessarily the traditional - and I’ve been around a long time - silos or particular agency brand. It’s morphing, it’s changing because the marketplace has.

Great, thank you.

You’re welcome.

Thank you all for joining the call today. We appreciate it, and we’ll talk to you 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.