IPG
#Yes, I've said this before, and if I didn't believe this, we would have changed our strategy.
Conversations with our clients and the pitches that we've been involved in, although I can't say specifically it was the reason that we either win businesses or not, our transparency reputation and the fact that we are media-agnostic makes a difference with our clients.
The more you see in the price about questions on that, the more it becomes relevant in our conversations.
Yes, I do believe it enhances our opportunity to expand our media offerings.
As I said, rather than us changing to what our competitors are doing, we're going to see a slowing down of that on the other side because clients deserve the transparency that we give them and they are entitled to realize and know where their profitability is coming at their expense.
That's the right way to approach this environment.
Yes, that's a fair question, <UNK>.
We had said before, we didn't see a big impact on the Olympics.
We did have some ---+ obviously, our marketing services businesses, Octagon and Jack Morton, obviously had events in the Olympics, which affected results, not materially.
But no, actually, that's real growth (laughter) and you were kind in your question.
We did on-board some new clients in Latin America in terms of LATAM Airways and Bradesco, and we see some client spend increasing there.
So that's what you're seeing, the reason for our growth in Brazil.
It's client specific, it's on-boarding, and frankly, what I like about it, it's across the regions in Latin America.
It's not all Brazil; we're seeing strength in the other markets.
We're seeing our digital offerings do very well in South America.
R/GA and Huge are doing very well down there because the digital environment is ripe for growth.
<UNK>ly, we use those markets for production facilities, given the talent base that we have in Latin America, and the effectiveness that we've been able to utilize that talent on a worldwide basis.
R/GA, in particular, as well as Huge, use that as a base to service global clients, if you will, in the connected world, as I'll quote Bob Greenberg.
And we're seeing that come to fruition using those resources in Latin America.
I appreciate your question.
Right now, we're really focused on getting through 2016.
We haven't started our 2017 forecasting models yet in terms of our business reviews.
The only way to look at this is that 61% of our business continues to be in the US.
The tone of the business is solid.
If you look at Magna, in terms of their forecast of US advertising, roughly 4% is the growth expectations.
If you use that as a guideline, we should be plus or minus that, and we'll talk to you more about 2017 when you give you our full results for 2016.
I had said I didn't say 2016 was going to be as manic as 2015.
That was true, except for certain holding companies had particular items in review.
Fortunately, that wasn't us.
I do think that whole spectrum of transparency raises legitimate questions for clients to look at their service providers.
We're doing a very strong and effective communication with our clients in terms of our transparency.
<UNK>ly, some of our clients have audits out there in terms of what we're doing, and fortunately, we're coming through those orders pretty well.
That's good.
From a tone point of view, clients will continue to look at this.
Whether it gives rise to pitches and reviews, I can't say, but I would expect we'll see a fair amount of reviews coming into 2017, not the least of which is these goes in cycles.
We're heading into a third of a third year of cycles, and clients have three-year contracts, and as an order of business practices, they put in a number of their businesses in review every two or three years, so I expect to see ---+ I'll call that normal.
It's not normal what it used to be, but it seems to be normal what's happening in our industry.
Okay (laughter), thank you.
Sure.
Look, data analytics is an important part.
We historically, we've done strategic acquisitions, we see most of our growth coming organically, for example, in Cadreon.
We've expanded it internationally.
We've coordinated their offerings among all resources and agencies within US, and we will continue to do that, so the bulk of the growth will come organically, however we are looking at strategic acquisitions in that space.
We also are looking at a more coordinated basis in terms of our database, if you will, in terms of the DMP.
That will be a key focus for us in 2017, to make sure that all the agencies within IPG have a consistent offering and utilizing the unique capabilities we have at Mediabrands.
I see that as an important growth vehicle for us.
Clients are looking for it.
That's the area where we are seeing a lot of competitors, if you will, trying to have in-roads in our clients, so that's when I talk about investment in data analytics, and we're going to be stepping up our efforts in those parts.
<UNK>ly, if we don't have it organically and we don't have those capabilities internally, we will look to add-ons.
Look, with Mediabrands, we added two very nice agencies this past year, one in the SEO space, and one in the mobile space.
Those are growth vehicles for us.
Mobile, clearly, is going to be a key driver for business going forward.
Our Ansible offering, we've consolidated a number of businesses with the new acquisitions to make sure that we have full integrated mobile offering across our various brands.
So this is the value of a holding company across all of our networks and we continue to focus Mediabrands as a key source of providing those unique competencies utilizing these kind of data.
<UNK>, the margin question, we target our agencies to deliver a margin improvement target, and whether we get leverage from both major cost buckets, one major cost bucket, it's somewhat irrelevant to us.
With that said, <UNK> made a comment early on about the importance of talent, so right now we attribute our growth being tied to the investments we've made against talent.
We're constantly looking at that, so to the extent we can squeeze more out of O&G to help support those investments in talent and still meet our margin objectives, that's a good answer.
But with that said, <UNK> mentioned 50% of our profit is in the fourth quarter, so I would imagine that our salary line is a contributor of leverage in the fourth quarter, and as we move into 2017, in 2017, as well.
You're welcome.
Thank you, <UNK>.
You've got 1.5 hours, <UNK> (laughter).
Let me start, 10 years ago, we started open architecture, okay.
It was our belief that clients, in a client-centric environment, that we should be focusing on the needs of the clients, not our particular silos.
When we looked at open architecture, the issue is do we, in essence, mold all of our agencies together and say, by the way, here is our best people, and irrespective [of the silos].
Obviously, there are conflict issues, there are cultural issues, there are different go-to-market strategies, and frankly, that serves us well in a marketplace.
We don't believe that we need to restructure our entire Company to make open architecture work.
We've been doing open architecture for 10 years, and frankly, some of our most profitable and growing clients utilize an open-architecture model.
The reason it works is because we've made it part of the DNA of our Organization.
People within the, quote, silos, know that if they don't have the capabilities within their agencies, they could raise their hand and we can bring in an expertise that will work closely with them on a collaborative basis and meet the needs of our clients.
You don't need to restructure your entire Company to do that.
The reason we're comfortable with that is we hold our agencies responsible for collaborative work, so when we do compensation and incentive compensation, we look at the degree of open architecture and collaboration.
On many of the engagements, there are multiple agents serving one client, and they don't have to worry about whose silo it belongs in because, frankly, we do that.
We work closely with the agencies and we determine what's the proper allocation.
Clients shouldn't be involved in it.
We think that's a better way of doing this because when you have one single-purpose agency doing this ---+ we have a number of those, but most of the time when you have a single-purpose agency, it's harder to recruit talent, it's harder to keep talent, it's harder to get a sustainability of the quality of the people within those agencies.
Open architecture is serving us very well.
We get the highest grades of our reviews when we have open-architecture models because the clients realize that we're putting them first.
And by the way, our definition of open architecture includes third-party providers, so if our clients come to us and say we would like you to work with X, Y, Z, in addition to your resources, sometimes we work better with third-parties, unfortunately, than our own, but that's part of the model.
If you collaborated everyone and put them all into one silo, you will never get that, okay.
So the notion of providing all the resources IPG has to a client is the correct one, which is why, frankly, we started it 10 years ago, but I don't believe you have to restructure the Company to do that.
You lose a lot of the culture, you lose a lot of the accountability, and you lose the focus that our core agencies have within those particular agencies.
Of course not.
The first year we came in, we got rid of 50 agencies all over the world.
I've said this.
We got rid of Uzbekistan.
We didn't need agencies in those markets, and because the world doesn't operate that way anymore, so yes, we constantly are looking at that, and ensure the dispositions that we've made are consistent with getting rid of non-producing agencies that are costing us money and aren't adding any value, so that's what we've been doing.
On the question of Cadreon and Mediabrands and whether we are decentralizing, it doesn't make sense to invest all of that money in one particular offering and not have it available for all of the other agencies.
When I first came to this business, I used to walk around ---+ travel to our different agencies and they would all wheel out what they believed is best-in-class offerings, in particular on the media side.
We were spending a lot of money in a lot of things that we didn't have to duplicate, if everyone were able to raise their hand and work closely with the competencies in for example, Mediabrands, whether it be UM, Initiative, or Mediabrands as the holding company, if you will, of media.
I think that's the right way to do it and we've done a terrific job on that.
For example, if you look at MullenLowe and Mediabrands and Mediahub at MullenLowe working with Mediabrands on the Western Union pitch, that was a great example of competencies within an agency, as well as tapping into particular resources we have in Mediabrands.
The same thing as Harley-Davidson.
The same thing in all of our open-architecture wins.
So that is the most efficient way to use our expertise and the most efficient way to meet the needs of our clients.
More and more of our agencies are realizing that if they can do it that way, they get a better offering, and it's much more efficient, and clients realize that they're locking out for their behalf instead of their own silo.
You're welcome.
Other than that, I don't feel strongly about it, though (laughter).
Yes, <UNK>, we look very closely at sequential progression of our salary line, whether that be in headcount, whether that be in other components.
If you look from first quarter to second quarter to third quarter, it's clear our operators are managing that quite efficiently.
As you point out, the fourth quarter is our largest revenue and profit quarter.
So do we expect as that revenue starts to ramp up that we're hiring massive heads.
We don't.
We should get appropriate leverage through the salary line in the fourth quarter.
Again, we take a lot of comfort in our operators' ability to manage sequential headcount progression and they've been doing a very good job.
Let me add one other point to that, <UNK>.
New clients tend to have less margins than more mature clients, and that's a fact in our business.
So what ---+ I'm tempering a little bit the expectation, frankly, that as we on-board all this new business that we have, it's coming in at very high margins, and the margin number of expectation should be a lot higher than, frankly, as this business matures as we go through it.
That said, we do have some revenue coming in, in the fourth quarter that we have already incurred a significant amount of expenses.
Obviously, that revenue comes with a higher margin, so this is not an exact science.
The timing of how we get our revenue and how our expense is, is fluid, if you will, because we have to manage to make sure we have the right people on-boarding new business, as <UNK> said, but we also have to realize that expectations of new clients takes a period of time for it to mature.
It just doesn't happen overnight, which is why, even when we started the year, everyone said well why are you being so conservative in terms of your organic growth and margin, and the answer to that is staffing and on-boarding new clients and macro-economics all coming into play at one-time is a tricky thing to model.
That's why we like to look at this on a full year basis as opposed to quarter-to-quarter, so we manage it as best we can, but if 50% of our margin comes in, in the fourth quarter, we can't, with a high degree of accuracy, tell exactly where that's going to come.
Thanks, <UNK>.
Yes, those are two great questions.
Shopper marketing, it's important to FCB to have a great competency in it.
I would say it's not big overall.
I wouldn't say it's a major part of our business as IPG as a whole.
That said, there are opportunities for those off-agencies that offer it on a very effective basis, and we will continue to invest behind it when we see opportunities.
But I wouldn't call it out as one of the major growth vehicles around the world, if you will, but it is very important to FCB, and they do a great job at it.
In fact, that's one of the agencies we pull out when we have RFPs that call for shopper marketing expertise because they do it so well.
The more broader questions on the convergence is really how we have to look at the transformation of our industry.
I do believe we are seeing new competitors entering our business and they are bringing with them CRM expertise.
They are basically system integrators, and because they are already in our clients, they view it as an opportunity to bring in CRM expertise, as well as creative.
Which is another reason why when we compete against those, the fact that we have standalone agencies with strong creative talent, it's very hard for these other parties to compete against what a McCann or an FCB or a MullenLowe, or our independent agencies.
The fire power we can bring in on creative work, there's no way that these new competitors, if you will, can compete with that, and the results show that.
Even though these outliers who are coming into our business are trying to get there, if you look across all of the holding companies, we've been pretty successful when it comes to those integrated offerings that we provide versus what they're providing.
That said, we have to watch it very carefully, and clearly, they are going to be coming at it pretty strongly, so we have to be well-suited.
I believe the open-architecture integrated offering is a very compelling argument against them trying to get into our business.
Thank you.
Operator, thank you.
We'll conclude the call now.
Thank you all very much for participating.
Look forward to giving you the results for the full year.
