2008 Annual Report

2008 ANNUAL REPORT A LETTER FROM THE CHAIRMAN TO OUR SHAREHOLDERS: In recent years, our company has made significant progress that the business environment deteriorated so dramatically during in improving its competitiveness and financial performance. It’s the final six weeks of the year. Last year’s organic revenue growth gratifying to report to you that this trend continued in 2008. of 3.8% was equal to or better than that of all our principal We achieved very strong results in terms of revenue growth, competitors. Every one of our major global networks — from cash flow and profitability. IPG’s organic growth performance advertising to media to marketing services — posted organic placed us at the top end of our peer group, reflecting our growth, as did all world regions. leadership in delivering innovative marketing solutions. What is Progress in margin performance also continued throughout more, our agencies’ best-in-class professional offerings were 2008. IPG’s trailing 12-month operating margin trend has now recognized by several of the most prestigious honors our industry shown improvement for 10 consecutive quarters. In the fourth has to offer. Cash flow from operations has improved by close to quarter, despite an organic revenue decrease due to the broader a billion dollars in just a few years’ time. Operating income and economic conditions, we were nonetheless able to increase earnings were at the highest levels since 2000. operating margin by close to 400 basis points. These results demonstrate the kind of progress we foresaw For the full year, operating income jumped from $344 when the current management team set out a little over three years million in 2007 to $590 million in 2008, an increase of 71%. ago to transform IPG. The strategic actions we have taken, the Earnings per diluted share of $0.52 for 2008 — double the financial infrastructure that’s been put in place and the talent that previous year’s result. Cash flow from operations showed has joined our ranks, across the organization, are clearly paying dramatic improvement at $865 million for 2008, compared to off. Of course, our strong performance is ultimately a testament to $298 million in 2007. Our continued commitment to the talent and commitment of our people — for which we both conservatively managing the balance sheet has placed us on solid recognize and thank them. financial footing, which will be vital as we move through the uncertain economy that we will all be facing for the remainder of OVERVIEW OF RESULTS 2009. It’s worth noting that important contributions to achieving Overall, we met the ambitious targets we set for the these results came from the broadest cross-section of our agencies. company. This is notable in and of itself, but even more so given Those companies and areas of the business that were most THE INTERPUBLIC GROUP OF COMPANIES 2008 ANNUAL REPORT 1 challenged a few years ago are consistently showing improvement marketing with the creativity of traditional brand advertising, in growth and profitability. under a unified leadership team and P&L. Lowe Worldwide is living up to its promise of becoming a LEADING EDGE OFFERINGS leading global creative resource known for “High Value Ideas.” The agency not only won new clients during the past twelve I have previously written to you about the changes that are months, it added significant new business from its existing shaping our industry. From fragmented media that requires multinational clients and returned to profitability. Lowe’s increasingly complex channel planning, to new technology that turnaround is a significant accomplishment for our holding allows consumers to determine how and when they’ll interact with company. the messages we create, the business landscape in which we Media services companies, which help clients plan where operate is being re-defined. New technologies that allow and how they should deliver their messages, are increasingly vital marketers to deploy ever more personalized messages and track partners to major marketers. To solidify IPG’s position as a leader their effectiveness will continue to be introduced and to gain in in deploying strategic media solutions, during 2008 we launched prominence. Yet people’s usage of media will also continue to Mediabrands, a management entity to oversee our media assets. include traditional vehicles, particularly television content. The success of Mediabrands was evident in its strong financial Understanding these changes and their implications, identifying results, in the widespread “Agency of Year” recognition and the key consumer trends and insights that allow us to reach outstanding new business record we saw at Initiative and in the consumers and crafting messages that connect and motivate in this continued re-invigoration of Universal McCann, which works new world — these are the challenges we face. They represent with many of the world’s leading global companies and most both risk and opportunity for providers of marketing services, as sophisticated technology clients. clients look to us for guidance in this era of digitally-enabled Our U.S. independent agencies offer integrated marketing communications. programs to their clients. This group includes industry leaders To meet these evolving client needs, our most significant such as Campbell-Ewald, Carmichael Lynch, Deutsch, Hill investment during the past three years has been in talent and Holliday, The Martin Agency and Mullen — agencies that professional development. The result of this commitment is that performed well in 2008 and provide us with a unique set of digitally-conversant practitioners are now embedded in the core offerings for clients seeking full service solutions from mid-sized offerings at our agencies, in all marketing disciplines, from companies with entrepreneurial cultures. R/GA enjoyed great advertising, media and CRM, to public relations and event success last year and continues to be universally recognized as the marketing. As a result, our powerful range of agency brands is industry’s pre-eminent digital agency. Its offerings and its model positioned to play an increasingly important role in the ongoing push the boundaries of marketing into areas as diverse as conversation between marketers and consumers. applications development, systematic design and the integration of McCann Worldgroup remains a dominant player in online media with retail marketing and even a client’s physical delivering best-in-class communications tools and resources to product. Our healthcare marketing agencies at Draftfcb, McCann major multinational clients. In 2008, its operating units McCann and Lowe also excelled, in terms of their individual offerings and Erickson Advertising, MRM Worldwide and Momentum their ability to collaborate on a number of major consolidation Worldwide continued to win market share and deliver highly wins with both existing and new clients. innovative and effective marketing programs. We see marketing services as a growth sector for IPG, driven STRATEGIC INVESTMENTS by our world-class capabilities in public relations, experiential marketing, branding and design, as well as sports marketing. Last In 2008, we continued to take important steps in building year, the companies in our CMG group — Weber Shandwick, tools and capabilities to capitalize on high growth segments of the Golin Harris, Jack Morton, Futurebrand and Octagon — once business. This will ensure that we can keep delivering the highest again distinguished themselves in the marketplace. standard of marketing communications. Draftfcb completed its first full year of operations in 2008, To that end, we completed a major transaction in the Middle meeting the demanding financial targets we set for the agency. It East and North Africa (MENA) region, increasing our stake in the achieved these goals by delivering on its promise of creating Middle East Communications Network (MCN) from a minority programs that combine the accountability of behavior-based position to majority ownership. MENA countries are home to over 2 THE INTERPUBLIC GROUP OF COMPANIES 2008 ANNUAL REPORT 300 million people, a growing and dynamic population, as well as integrated services to our clients — whether through a single economies with some of the highest per capita GDP in the world. agency brand or a custom, collaborative approach that taps into Our long-time partners at MCN operate the region’s leading full- multiple resources from across IPG. Because, at the end of the service network of marketing agencies and we look forward to day, it’s all about our clients. continued success with them. As of this writing, the economic climate during the first Combined with similar transactions in India and Brazil in quarter of 2009 has proven to be extremely challenging for all recent years that have solidified our leadership position in these companies, as well as for the consumers with whom we must key markets, our close association with one of Russia’s most connect on behalf of our clients. Our plan is therefore to remain powerful agency groups and continued investment behind our focused on the basics: delivering value to clients and managing global agencies in China, we are well positioned to benefit from the business proactively and conservatively. These are the future growth in these vital, developing economies. fundamentals that will allow us to come through this difficult Along with our ongoing, organic development of native period having consolidated the gains made in recent years and digital expertise within

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