A Letter from the President to Our Fellow Shareholders: Performance
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A Letter from the President To Our Fellow Shareholders: 2015 was an excellent year for Omnicom with a strong performance in earnings per share and organic growth, as well as margin performance. We achieved these results by growing our strong base of talented people around the world, making strategic acquisitions that enhance the competitiveness of our offerings and continuing our emphasis on investing in digital technology and analytics, as well as continuing to differentiate our ability to deliver custom, integrated solutions that drive results for our clients and their brands. 2015 was also a year in which our industry witnessed an unprecedented number of media service reviews where a great deal of client business changed hands from one agency or network across the industry. I am pleased to report that Omnicom emerged as a winner in this process driven by the competitive spirit of our people and their ability to leverage the investments we have made in our data and analytics platform over the past several years. It is gratifying to note that these efforts led to another year of industry-leading shareholder returns and we are in an excellent position going into 2016 which will mark Omnicom’s 30th Anniversary. Performance Overview Strong performance across the group, in terms of the quality of our work and the thinking we deliver to clients, drove results that were ahead of the internal targets we set at the beginning of the year. Omnicom achieved organic revenue growth of 5.3%, at the top end of our industry, reflecting particularly strong contributions from our advertising and media discipline. We achieved revenues of $15.1 billion compared to $15.3 billion in 2014. That figure includes the negative impact of foreign exchange rates of $1 billion dollars or a reduction of 6.6% when compared to 2014. At Omnicom, over 40% of our revenues are generated outside the U.S. In 2015 we faced a difficult macroeconomic environment outside the U.S. and most foreign currencies weakened against the U.S. dollar. Currencies also negatively affected our margins. Nonetheless we held our operating margin steady versus 2014, as a result of our agencies' continuous efforts to drive efficiencies in their cost structures. For the year, our diluted net income per common share was up 4% to $4.41. Excluding the negative impact of currencies, earnings per share would have been 8% higher for the year. Our performance continues to demonstrate the strength, diversity, and stability of our business. For 2015, we generated over $1.6 billion in free cash flow, an increase of 2% year over year, and returned almost $1.2 billion to our shareholders through dividends and share repurchases. Lastly, our return on equity was an outstanding 41.3% in 2015. Looking forward to 2016, we expect to further leverage our scale in areas such as real estate, information technology, back office services, and strategic purchasing to deliver greater cost improvements. We believe that these and other initiatives will allow Omnicom to deliver a 30 basis point margin improvement for the full year 2016. Strategic Direction It is an exciting time to be in the marketing and communications services business. Our industry is undergoing a major transformation as new digital tools and platforms emerge at an accelerating pace. With the increasing complexity of the marketing landscape – more than ever before – our clients need a valued partner and the demand for our services is only increasing. As marketers, our people fundamentally need to connect brands with consumers, using all relevant insights, and across all platforms and devices. I have said before that an idea is brilliant only if the idea is both brilliantly executed and grounded in meaningful consumer insights. While the volume of data available is important, our ability to deliver big ideas and drive results through insights derived from that data is the real value we bring to the table for our clients. While our strategies In a changing and uncertain world, some things remain constant. Our steady drive growth, it’s our strategic focus on our growth priorities has served the group well. We remain culture of collaboration focused on: and creativity that is • Attracting, retaining, and developing top talent the common core of Omnicom and our • Expanding our global footprint and moving into new service areas agencies. • Leveraging our data and analytic capabilities • Continuing to deliver break-through 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 in a shifting marketing landscape. This is what’s required to succeed in the face of the disruption caused by technology, coupled with changing demographics, and consumer behavior. While our strategies drive growth, it’s our culture of collaboration and creativity that is the common core of Omnicom and our agencies. This cultural foundation underpins everything we do for our clients, our people, our shareholders, and the communities we share. Innovation and Collaboration In a world of increasingly fragmented media, rapid technological change, and the exponential growth of consumer data, the need for truly integrated marketing services will only become more prevalent. We are fortunate to have some of the most celebrated agencies in our industry, all of which continue to be successful in their own right. It is part of Omnicom’s heritage to respect the individuality and culture of our agency brands and our “open architecture” approach to craft customized solutions for integrated offerings is a true differentiator for us. For large multi- national clients, we continue to form flexible and centralized teams of subject matter experts to create integrated solutions, build brands, and drive results. Our ability to show up for clients with unique integrated offerings will continue to set us apart in the marketplace and be an important driver of our future success. From our Promotional Marketing to PR to Media to Advertising to CRM, our It’s part of Omnicom’s agencies are working together seamlessly on behalf of our clients. We are also heritage to respect partnering with technology companies, entertainment companies, fashion, and the individuality and design firms to create the award-winning work that Omnicom agencies are known culture of our agency for. We call it Connected Brilliance and we are the best in class in doing this. brands and our “open Being the best requires top-shelf creativity, of course, but today it also means architecture” approach to having deep technical knowledge, because technology has radically changed our business. The rise of digital, data, and analytics has given marketers the ability craft customized solutions to more precisely understand how consumers are using media. We are moving for integrated offerings is from marketing to audiences to marketing to people. a true differentiator for Omnicom is especially well positioned for this change as a result of our us. investments in Annalect and our agile Data Management Platform. Using this platform, our people today are analyzing campaigns on a granular level for hundreds of Omnicom clients around the globe. Our strengths in these areas clearly showed themselves during the media review process in 2015. We successfully defended a number of accounts such as J.C. Penney and GlaxoSmithKline, and added significant assignments from Novartis. We also added new media business from well-known advertisers such as SC Johnson and Bacardi globally and Wells Fargo in the U.S. Finally, late in the year, Omnicom was awarded the media business of Procter & Gamble North America. This significant win has put our media group in the enviable position of creating and developing a third global brand, in addition to our successful OMD and PHD brands. This new brand will launch in the second quarter and will give us additional capacity to manage more client relationships, as well as to leverage the investments we’ve made in media capabilities across our businesses. In 2016, we foresee the further rise of game-changing technologies such as virtual reality for which our agencies are already developing content; and the Internet of Things, which is resulting in the automation and interconnection of homes, cars and personal devices, to name a few. Omnicom will continue to hire and develop talent and build capabilities to keep pace with these technological changes and, in many cases, we will look to form partnerships that can accelerate our success. Unsurpassed Talent As a shareholder you know that Omnicom has a deep and longstanding commitment to developing our people. For nearly three decades, it has been a priority to attract and retain the best people and make sure they are continuously being challenged. In terms of attracting talent, in 2015, we made a number of important hires as some of the world’s top marketers joined or rejoined the Omnicom family from the client side. For one example, Wendy Clark was named CEO of DDB North America. Previously, Wendy was Coca-Cola’s President for Sparkling Brands and Strategic Marketing and she started her career at GSD&M, an Omnicom agency. We also continued our commitment to education and training, from basic skills training all the way through to the advanced programs of Omnicom University. Each year for the past 21 years, Omnicom has invested millions in professional development of agency leaders through Omnicom University. Since its inception Omnicom University, in partnership with Harvard Business School professors, has provided one of the world’s foremost executive education experiences. In 2015, the program marked another milestone with the completion of our 200th At Cannes Lions, over 100 bespoke Omnicom case study. Omnicom agencies won Our dedication to hiring the best people in the business and staying current nearly 250 Lions – across 21 through education and training was recognized by the industry.