Omnicom Group Inc (OMC) — Q1 2016 Earnings Call Transcript

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 uncharted actions of central banks around the world and the tragic events in Brussels, Paris and other cities is creating uncertainty for consumers and corporations and a cautious approach to spending. Given this environment our operational results were very good for the quarter. Looking at organic growth by region, North America was up by 4.5%, driven by performance in media and advertising. UK growth was up 2.2%. Media as well as specialty healthcare performed well in the quarter. However, the UK faced difficult comps versus the first quarter of 2015. Like you, we are tracking the potential outcome of the EU referendum in June. However, 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, and 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. Lastly, 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’ve 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 remain very strong. During the quarter, we generated $360 million in free cash flow and returned over $320 million to shareholders through dividends and share repurchases. In April, we announced a 10% increase of our quarterly dividend to $0.55 per share. We also raised $1.4 billion through the issuance of senior notes, which closed the first week of April. The majority of the proceeds from the bond offering were used to repay $1 billion worth of debt that matured on April 15. On January 29, we closed the Grupo ABC acquisition. The first quarter includes two months of the Grupo ABC results. Following these events, our credit ratings remain unchanged and at our target level, while our leverage and interest coverage ratios remain very strong. Looking forward, we stay committed to our priorities for the use of free cash flow, paying dividends, pursuing acquisitions with the right fit and price, and share repurchases. Overall, I 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 would 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.

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, 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 from 3.5% to 2.7%. 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, the negative impact of FX on our reported revenue may continue to moderate, reducing revenue by about 1.5% during the second quarter and approximately 1% for the full year. That being said, it 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 their current year results for two months, 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 of 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. 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, while the Netherlands continued to struggle, and Poland had a down quarter. Asia Pacific was up 5.1%, with solid performances from most of our major Asian markets, including China and India, with Japan down slightly. Africa and the Middle East, although of a small base, was marginally positive. Our UAE businesses were strong performers 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 that 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 to our purchase in prior periods of additional interest 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. Stock repurchases net of the proceeds received from the stock issuances under our employee share plans totaled 193 million. All in, we outspent our free cash flow in the quarter by about $129 million. Turning to Slide 10. Regarding our capital structure at the end of the quarter, our total debt at March 31st, 2016, at $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 on our issuance of $1.4 billion in 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 were used to retire the $1 billion of 2016 senior notes at the maturity date on April 15th. The 2016 notes had a coupon of 5.9% and an effective rate of 5.25%. Though even with the increased principal, 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, this 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 in interest savings over the remaining life of the 2022 bonds. However, in the short term, we will receive less floating rate benefit from the swaps in 2016 when compared to 2015. The increase in our cash and short term investments of $218 million over the past 12 months was driven primarily as a result of positive changes in our operating capital of $310 million, which were partially offset by the negative impact of FX translation of approximately $45 million on our cash balance over the last 12 months, as well as the slight overspend of our free cash flow of $17 million. Net debt increased by $951 million compared to year-end as a result of the use of cash in excess of our free cash flow of approximately $130 million. Adjustments to the carrying value of our debt of about $45 million and typical uses of cash for working capital that historically occur in our first quarter of approximately $805 million. These increases in net debt were partially offset by the 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 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. Over the last 12 months, our return on invested capital increased 19.3% and return on equity increased 46.3%. Lastly, on Slide 12, we track our cumulative return of cash to shareholders over the past 10 plus years. The line on the top of the chart shows our cumulative net income from 2006 to Q1 of 2016, which totaled 9.8 billion. The bars show the cumulative return of cash to shareholders including both dividends and net share repurchases, the sum of which during the same period totaled 10.9 billion, with our cumulative payout ratio of 111%. 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.

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 overall 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 into the upfront. You have to keep in mind that many clients hold back money in order to create flexibility in this. There are many different channels that they can get their messages through these days. With respect to P&G, we don't have any revenue in the first quarter from P&G, even though we are on it. We haven't really started to ramp up for it yet; I think it really starts in earnest in the third quarter.

the cost savings.

In terms of how much time we 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 of 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 have to 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 taking a big charge for vacating real estate. We haven’t taken that approach; we’ve been more patient. Some of the actions we put in place a number of years ago are starting to yield benefits in late '15 and then really on into '16. As far as our other initiatives in areas like IT back office spending, strategic purchasing, etc., I think they are the ones we are continuing to pursue. This isn’t just a nine-month or a 12-month thing. We are going to see benefits from those I think throughout over the next year and we are going to continue pursuing them long after just 2016. We are after efficiency broadly but we don’t look at it just as a one-time effort.

The another thing I would add to that would be the real estate because we feel certain that we will gain benefits from our leases expiring. We will also continue in the future, not only '16 but '17 and '18, to draw our benefits.

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

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

And your comments Phil, on the cost front that you could keep up looking at the cost hard here going forth back office, IT, etc. Do you think long term as you think about your business, that there is some margin upside assuming that you can hold that 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 2016 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 over EBIT dollars that’s going to continue vehicle. So, when we get to 2017, and think about 2017, when we evaluate where we expect to be, there are an awful lot of uncertainties and a lot of things that can happen between now and then. So, we are not making any commitments beyond 2016 other than we expect the margin improvement achieved in 2016 will be sustainable. Beyond '16, we're not making any commitments beyond that other than our commitment to pursue the initiatives we have begun to pursue into the future; we're going to continue trying to be as efficient as possible, 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.

The number of shares bought back in the quarter is 2.7 million.

Hi, thank you. I have a couple of questions. First, when considering the timing of the new business ramp and its effect on organic revenue throughout the year, will it be more like business as usual, or can we expect a gradual increase each quarter? Given the significant win with P&G, which is expected later in the year, possibly in Q3, should we anticipate a stronger boost to organic revenue growth in the latter half of the year?

Well, let me clarify. Currently, we are maintaining our guidance for the year, but regarding our media wins, there’s a positive trend over the last six months, and in some cases, even longer. There is a transition period for projects that are part of our operations, as Phil mentioned when discussing CRM. We are learning about many of these around 60 days in. It varies across the business; for instance, with P&G starting in the second quarter, as we have been hiring, we will receive some partial reimbursement as we incur those costs, but we won’t see significant revenue growth until July 1.

And then just a follow on, and you gave some good color on the weakness in Brazil on the quarter. Is there 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; God knows what the attendance is going to be. So, Brazil will be challenging I think for 2016 but it's not important for us; it's less than 1%. So that — between 1.5% to 2% of our revenue annually. So, that's with Grupo ABC included in our revenue numbers. So, while it's a drag, we have very healthy, the most creative businesses in Brazil and our folks are working hard there now to optimize revenue and manage their expense basis.

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

Thank you very much.

Good morning, John, Phil, and Shub. My first question is about the impact of the new account wins on the 2016 organic performance. I understand you secure accounts every year, but P&G is a significant win this time, so any insights on its impact would be appreciated. My second question pertains to the negative M&A in Q1; could you clarify what contributed to that and provide a breakdown between the positive acquisitions and negative disposals? Lastly, could you share the percentage of total revenue that comes from project-based activities compared to annual contracts? 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 a 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, etc. 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 have that are primarily project-based. 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. 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 business.

We really can't. That's — it goes into a much larger calculation, and what makes up our organic growth are the contributions from wins and organic growth, growth of existing clients. We expect to see new clients cut back on projects. So, we don’t really sit down to provide a number, but we do our best to come up with a number that's somewhat consistent in terms of the way we report. We don't place any emphasis on it in terms of how we actually run the businesses themselves. We are focused on the revenue contributions from those businesses, and when we say our expectations are a 3% and 3.5% growth, 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 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 to be; 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 for multiple reasons. One, it validated all the work we've been doing in the digital space 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 to 2017 and 2018 now is going to provide us opportunities to pitch our business that we might otherwise have been pretty close from pitching.

Okay. Thank you very much, very useful.

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

Very little. The margin impact in this quarter was less than five basis points, three to four basis points. 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 the 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 to get more folks. Even though they are growing, PR has had a little trouble in the last quarter or two. Healthcare has always been strong; it’s to get more line managing people who are operators in charge of those groups or companies to continue to drive growth and to make recommendations for incremental acquisitions that supplement and complement the products that we have. You’ll see, 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 as we go out. But we don’t rush and, as I said in my prepared remarks, we respect the brands, and 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?

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 an 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 need to 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 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, we will do a better job, I think, of increasing our opportunities of winning new business simply from the knowledge and the control of somebody that's focused 100% of the time on managing our PR assets. I hope that answered your question? Thank you everyone for joining the call, have a great day.