Q4 2016 Real-Time Call Brief

Highlights

Organic revenue growth was 5.3% in the quarter, bringing full year organic growth to 5%.

In the fourth quarter US organic growth was 3.3% and was a very strong 4.7% excluding the impact of lower pass-through revenues.

Excluding the impact of lower pass-through revenues, worldwide organic growth was 6.4% in the quarter, an outstanding result.

Fourth quarter operating margin was 21.4%, an increase of 60 basis points from a year-ago.

Full year operating margin was 12%, an increase of 50 basis points from 2015 achieving our margin target for the year.

2016 full year diluted earnings per share were $1.49 and were $1.37 as adjusted for certain items, a 13% increase over comparable 2015 diluted earnings per share.

Over just the last three years in our very fast changing and competitive industry, we have achieved total organic revenue growth of 17% which surpasses the performance of our principle peers.

During that three year span, we increased operating margin by 270 basis points, operating profit by $279 million or 42% and comparable diluted earnings per share by 76%.

Fourth quarter organic revenue growth was 5.3%.

Currency had a negative 2% impact on revenue while net business disposition were a negative 20 basis points.

Regionally as I mentioned, US organic growth was 4.7% excluding the impact of lower pass-through revenues.

International growth in the quarter was 7.8%, reflecting strong Q4 performance in every major international region.

Regionally as I mentioned, US organic growth was 4.7% excluding the impact of lower pass-through revenues.

International growth in the quarter was 7.8%, reflecting strong Q4 performance in every major international region.

Under our reported revenue growth of 3.1% in the quarter, our operating expenses increased 2.3%.

The result was Q4 operating margin expansion of 60 basis points.

For the full year margin expansion of 50 basis points reflects strong leverage on our office and general expense and on expenses for based payroll benefits and tax.

Turning to share repurchase, during Q4 we repurchased 5 million shares using a $110 million.

For the full year we utilized $303 million for the repurchase of 13 million shares, which compares with 285 million in 2015. Our total share count eligible for dilution at year-end decreased 2% compared to 2015.

Since 2011 we have returned a total of $3 billion to shareholders through a combination of common share dividends and repurchases and we have reduced our outstanding shares eligible for dilution by 28%.

In addition, on the strength of our operating results, we are pleased to announce this morning our Board's decision to raise IPG's quarterly dividend by 20% to $0.18 per share. This marks our fifth consecutive year of higher dividends with annual increase of 20% and more tripling our quarterly dividend per share over the last five years.

We also announced that our Board has authorized an additional $300 million for repurchase combined with $155 million remaining on our existing authorization as at the beginning of the year. This brings the total amount available for share repurchase to $455 million.

On balance for 2017, we are targeting 3% to 4% organic growth.

On a reported basis our net business dispositions to-date will be a negative 90 basis points to our top-line.

Our estimates are that FX at current rates should impact our top line as well as our operating expenses by approximately a negative 1% for the full year.

We are targeting an additional 50 basis points of margin improvement in 2017, which will bring us to 12.5% closing in on our objective of 13% operating margin.

Fourth quarter organic growth was 5.3%,

US organic growth was 3.3% and was 4.7% excluding the impact of lower pass-through revenue.

International organic growth was 7.8% with increases across all region

For the full year organic growth was 5% and all regions increased organically.

Q4 operating margin was 21.4% compared with 20.8% year-ago.

For the full year, operating margin expanded 50 basis points to 12% and operating profit increased 8%.

For the quarter, diluted earnings per share was $0.78 with $0.75 excluding expenses of $0.06 per share for business dispositions, which is reflected pretax in our other expense line.

And also excluding the impact of certain discrete items that benefit our tax provision and total $0.09 per share.

Full year diluted EPS was $1.49 per share and would have been $1.37 per share excluding loss on dispositions and the benefit of certain discrete items in our tax provision.

We have purchased 13 million shares for $303 million during the year.

We announced this morning that our Board has once again significantly increased our common share dividend by 20% to $0.18 per share quarterly and added $300 million to our share repurchase authorization.

The $25 million of net expense from business dispositions is reflected in our other expense line below operating income hence primarily non-cash.

Our effective tax rate, as reported in quarter was low at 24.1%.

Adjusted for dispositions and for discrete tax items, our adjusted effective tax rate was 31.2%. For the full year our adjusted tax rate was 33.4%.

We expect our normalized effective rate will be in the range of 35% to 36% in 2017, which is a couple of percentage points better than we have targeted in recent years.

Our cash tax rate in 2016 was 29% of pre-tax income which is also are expected 2017 tax rate.

Fourth quarter revenues were $2.26 billion. Compared to Q4 ‘15 the impact of changes in exchange rates, was a negative 2%, while net dispositions were negative 20 basis points and resulting organic revenue increase was 5.3%.

Revenue growth for the full year was 3.1% consisting of 5% organic growth the positive 20 basis points from net acquisition while currency was a negative 2.1%.

Our organic pass-through revenue decreased $24 million in Q4 excluding net impact organic growth would have been 6.4%.

For the full year our organic pass-through revenue decreased $17 million organically and reduced organic growth by 20 basis points.

CMG's organic growth was a solid 4.7% in quarter led by mid single-digit performance for Public Relations Agencies.

For the full year, you see that organic growth rates were 5.3% IIN and 3.6% in CMG.

In the US, Q4 organic growth was 3.3% and was 4.7% excluding the change in pass-through revenues on top of 6.2% a year-ago.

For the full year, US organic growth was 4.4% with increases across all of our principle disciplines in most client sectors including food and beverage, telecom, healthcare, retail and government services.

Turning to international markets the UK grew 11.7% organically in Q4.

For the full year UK organic growth was 8.5% and was still strong at 5% including the impact of higher pass through revenue.

Total revenue growth was 1.2% which includes both a positive impact of acquisitions in the market and a negative impact of FX in the pound's sharp depreciation.

In Europe we had another double-digit quarter with 11.1% organic growth helped by new business wins.

For the full year organic growth for Continental Europe was 5.7%.

In Asia Pacific, organic revenue growth was 7.5% in Q4, on top of 7.9% a year ago.

We had double-digit increase in three of our four largest markets; India, China, and Japan, Australia grew in the mid single-digits.

For the year organic growth in the region was 1.7%, or what have been 4% of not regional decreases in the pass-through revenues.

In LatAm we grew 5% organically in the quarter. For the year organic growth was 12.2%, with strong growth in all of our major country markets

In our other markets Group revenue growth was 90 basis points in quarter. This group is made of Canada, Middleeast and Africa. For the year, organic growth was 4.8% with very strong performance from Canada.

On slide 6, we chart the longer view of our organic revenue change on a trailing 12-month basis and most recent data point is 5% for calendar year 2016 on top of 6.1% in 2015 and 5.5% in 2014.

Our operating expenses increased 2.3% paired with reported revenue growth of 3.1%.

For the full year, operating expenses grew 2.5% supporting revenue growth of 3.1%.

Our ratio of total salaries and related expenses to revenue for the full year was 64.2% compared with 63.8% year-ago.

Underneath that we continued to drive efficiencies on investments based payroll benefits from tax, which is our largest cost, 10 basis points of operating leverage for the year and 30 basis points excluding the impact of lower pass-throughs.

Our expense for incentive compensation increased in 2016 to 4% of revenue from 3.7% in 2015.

Expense for temporary labor was 3.7% revenue for the full year in 2016 compared with 3.6% a year-ago. Severance expense was 0.9% of revenue, the same levels a year-ago. Our other salaries and related categories 3% of revenue compared with 2.9% in 2015.

Yearend headcount was approximately 49,800, an increase of 1.3% from a year-ago while average headcount over the course of 2016 increased 2.4%.

Ops & General Expense: O&G was 23.8% of full year revenue compared with 24.7% a year-ago, 90 basis points of operating leverage.

We had 20 basis points of leverage on our expense for TNE, Office Supply and telecom as well as 10 basis points professional fees. In addition 1we have 80 of leverage on our category of all other O&G expense

We show operating margin history on a trailing 12 month basis, with most recent data point at 12%.

We had a loss in the quarter of $25 million in other expense related deposition of a few small non-strategic businesses. The after tax impact was $0.06 per share.

We reported benefit amounting of $37 million for US Federal Tax Credits which benefited from our diluted earnings per share by $0.09 resulted this fourth quarter adjusted diluted EPS $0.75 per share.

Valuation allowance reversals related to business sales were a benefit $0.03 per share.

We also released tax reserves of product conclusion previous years tax examinations, which is a benefit of $0.06 per share. Result is an adjusted full year diluted EPS for $0.37.

We ended the year with $1.1 billion of cash in short-term marketable securities.

We returned $542 million to shareholders during the year with share repurchases and common stock dividends and the current liabilities to the increase to the current portion of long term debt reflects the outcome of our $300 million 2.25% due in November of this year.

Cash from operations in 2016 was $513 million compared to $689 million year-ago. The comparison includes $414 million used to working capital compared with the use of $99 million a year-ago.

Investing activities used $268 million in the year including $201 million for CapEx and $52 million for acquisitions.

Financing activities used $666 million, mainly $303 million for repurchase our common stock, $238 million for common stock dividends.

2016 our net decrease in cash and marketable securities was $409 million.

Slide 13 is our long view of our debt decreasing from $2.3 billion in 2007, to our current debt total $1.69 billion at the end of 2016.

Out average total shares decreased by 156 million shares over this period, while our starting position for 2017, as $402 million on the right.

We believe that we should continue to see competitive organic revenue performance, and we are therefore targeting 3% to 4% for 2017 Along with this level growth, we expect to further improve operating margin by an additional 50 basis points, which will result in 2017 operating margin of 12.5%.