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OMNICOM : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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07/20/2017 | 10:51pm CEST
EXECUTIVE SUMMARY
We are a strategic holding company providing advertising, marketing and
corporate communications services to clients through our branded networks and
agencies around the world. On a global, pan-regional and local basis, our
networks and agencies provide a comprehensive range of services in four
fundamental disciplines: advertising, CRM, public relations and specialty
communications. Our business model was built and continues to evolve around our
clients. While our networks and agencies operate under different names and frame
their ideas in different disciplines, we organize our services around our
clients. The fundamental premise of our business is that our clients' specific
requirements should be the central focus in how we structure our service
offerings and allocate our resources. This client-centric business model
requires that multiple agencies collaborate in formal and informal virtual
client networks that cut across internal organizational structures through our
key client matrix organizational structure to execute against each of our
clients' specific marketing requirements. We believe that this organizational
philosophy and our ability to execute on it differentiate us from our
competition. We continually seek to grow our business with our existing clients
by maintaining our client-centric approach, as well as expanding our existing
business relationships into new markets and with new clients. In addition, we
pursue selective acquisitions of complementary companies with strong
entrepreneurial management teams that typically currently serve or have the
ability to serve our existing client base.
As a leading global advertising, marketing and corporate communications company,
we operate in all major markets and have a large and diverse client base. For
the six months ended June 30, 2017, our largest client accounted for 3.0% of our
revenue and our 100 largest clients, which represent many of the world's major
marketers, accounted for approximately 51% of our revenue. Our business is
spread across a number of industry sectors with no one industry comprising more
than 14% of our revenue for the six months ended June 30, 2017. Although our
revenue is generally balanced between the United States and international
markets and we have a large and diverse client base, we are not immune to
general economic downturns.
As described in more detail below, for the six months ended June 30, 2017,
revenue decreased $6.4 million or 0.1%, compared to the six months ended
June 30, 2016. Throughout 2016 and continuing into the second quarter of 2017, a
substantial number of foreign currencies weakened against the U.S. Dollar.
Changes in foreign exchange rates reduced revenue $98.0 million, or 1.3%.
Acquisition revenue, net of disposition revenue, reduced revenue $196.4 million,
or 2.7%, reflecting the disposition of certain non-strategic businesses in the
past year. Organic growth increased revenue $288.0 million, or 3.9%. In addition
to the recent dispositions, the effect of our prior year acquisition activity in
Brazil has cycled through in the first quarter of 2017. As a result, the
reduction in revenue from our disposition activity exceeded the revenue from our
acquisition activity in the period, and based on our activities completed to
date, we expect the net reduction in revenue for acquisitions and dispositions
to be between 3.5% and 4.5% for the full year.
Global economic conditions have a direct impact on our business and financial
performance. Adverse global or regional economic conditions pose a risk that our
clients may reduce, postpone or cancel spending on advertising, marketing and
corporate communications services, which would reduce the demand for our
services. In the first six months of 2017, North America continued its modest
economic growth as activity in the United States varied across disciplines.
Uncertain economic and political conditions in the European Union, or EU, have
resulted in uneven growth across the region and have been further complicated by
the official notification from the United Kingdom, or U.K., to the European
Council to withdraw from the EU. In Brazil, unstable economic and political
conditions contribute to the continuing volatility in the market. The major
economies in Asia continue their modest economic growth consistent with recent
periods. The economic and fiscal issues facing countries in Europe and Latin
America continue to cause economic uncertainty in those regions; however, the
impact on our business varies by country. We will continue to monitor economic
conditions closely, as well as client revenue levels and other factors and, in
response to reductions in our client revenue, if necessary, we will take actions
available to us to align our cost structure and manage our working capital.
There can be no assurance whether, or to what extent, our efforts to mitigate
any impact of future adverse economic conditions, reductions in client revenue,
changes in client creditworthiness and other developments will be effective.
Certain business trends have had a positive impact on our business and industry.
These trends include clients increasingly expanding the focus of their brand
strategies from national markets to pan-regional and global markets and
integrating traditional and non-traditional marketing channels, as well as
utilizing new communications technologies and emerging digital platforms.
Additionally, as clients increase their demands for marketing effectiveness and
efficiency, they require greater integration of their marketing activities and
tend to consolidate their business with one holding company. We believe these
trends have benefited our business in the past and over the medium and long term
will continue to provide a competitive advantage to us.

                                       13

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In the near term, barring unforeseen events and excluding the impact of changes
in foreign exchange rates, as a result of continued improvement in operating
performance by many of our agencies and new business activities, we expect our
2017 organic growth in revenue to increase modestly in excess of the weighted
average nominal GDP growth in our major markets. We expect to continue to
identify acquisition opportunities intended to build upon the core capabilities
of our strategic business platforms, expand our operations in the high-growth
and emerging markets and enhance our capabilities to leverage new technologies
that are being used by marketers today. In addition, we continually evaluate our
portfolio of businesses to identify non-strategic or underperforming businesses
for disposition.
Given our size and breadth, we manage our business by monitoring several
financial indicators. The key indicators that we focus on are revenue and
operating expenses. We analyze revenue growth by reviewing the components and
mix of the growth, including growth by principal regional market and marketing
discipline, the impact from foreign currency fluctuations, growth from
acquisitions and growth from our largest clients. Operating expenses are
comprised of cost of services, selling, general and administrative, or SG&A,
expenses and depreciation and amortization.
For the quarter ended June 30, 2017, our revenue decreased 2.4% compared to the
quarter ended June 30, 2016. Changes in foreign exchange rates reduced revenue
1.5%, acquisition revenue, net of disposition revenue, reduced revenue 4.4%, and
organic growth increased revenue 3.5%. Across our principal regional markets,
the changes in revenue were: North America decreased 6.6%, Europe increased
1.9%, Asia Pacific increased 1.3% and Latin America increased 22.5%. The
decrease in revenue in North America reflects the disposition of our specialty
print media business, which was partially offset by modest growth in the U.S.
and Canada. In Europe, growth in the U.K. and most markets in the Euro Zone was
offset by the weakening of the British Pound and Euro against the U.S. Dollar.
The increase in revenue in Latin America was a result of growth in Mexico, as
well as the strengthening of the Brazilian Real against the U.S. Dollar, which
offset negative growth in that market. In Asia Pacific, strong growth in
Australia, India and Japan was partially offset by the weakening of the Chinese
Yuan and Japanese Yen against the U.S. Dollar. The change in revenue in the
second quarter of 2017 compared to the second quarter of 2016, in our four
fundamental disciplines was: advertising decreased 2.3%, CRM decreased 4.0%,
public relations decreased 2.0% and specialty communications increased 2.5%.
For the six months ended June 30, 2017, our revenue decreased 0.1% compared to
the six months ended June 30, 2016. Changes in foreign exchange rates reduced
revenue 1.3%, acquisition revenue, net of disposition revenue, reduced revenue
2.7%, and organic growth increased revenue 3.9%. Across our principal regional
markets, the changes in revenue were: North America decreased 3.1%, Europe
increased 0.9%, Asia Pacific increased 3.4% and Latin America increased 30.8%.
In North America, moderate growth in the United States and Canada was offset by
our disposition activity and the weakening of the Canadian Dollar against the
U.S. Dollar. In Europe, growth in the U.K., Spain and Russia was offset by the
weakening of the British Pound and Euro against the U.S. Dollar and negative
performance in The Netherlands. The increase in revenue in Latin America was a
result of our acquisition activity in Brazil, and the strengthening of the
Brazilian Real, as well as growth in Mexico. In Asia Pacific, growth in the
major economies including Australia, India, Japan and greater China was
partially offset by the weakening of most currencies in the region. The change
in revenue in the six months of 2017 compared to the six months of 2016, in our
four fundamental disciplines was: advertising increased 1.8%, CRM decreased
4.2%, public relations decreased 0.1% and specialty communications increased
3.8%.
We measure cost of services in two distinct categories: salary and service costs
and occupancy and other costs. As a service business, salary and service costs
make up the vast majority of our operating expenses and substantially all these
costs comprise the essential components directly linked to the delivery of our
services. Salary and service costs include employee compensation and benefits,
freelance labor and direct service costs, which include third-party supplier
costs and client-related travel costs. Occupancy and other costs consist of the
indirect costs related to the delivery of our services, including office rent
and other occupancy costs, equipment rent, technology costs, general office
expenses and other expenses.
SG&A expenses primarily consist of third-party marketing costs, professional
fees and compensation and benefits and occupancy and other costs of our
corporate and executive offices, which includes group-wide finance and
accounting, treasury, legal and governance, human resource oversight and similar
costs.
Operating expenses decreased 3.0% and 0.4% period-over-period for the second
quarter and six months, respectively. Salary and service costs, which tend to
fluctuate with changes in revenue, decreased $87.9 million, or 3.1% in the
second quarter of 2017 compared to the second quarter of 2016 and decreased
$17.0 million or 0.3% in the six months of 2017 compared to the six months of
2016. Occupancy and other costs, which are less directly linked to changes in
revenue than salary and service costs, decreased $18.2 million, or 5.8%, in the
second quarter of 2017 compared to the second quarter of 2016 and decreased
$17.7 million or 2.9% in the six months of 2017 compared to the six months of
2016.

                                       14
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Operating margins for the second quarter and six months of 2017 were 14.9% and
13.2%, respectively, compared to 14.5% and 12.9% for the second quarter and six
months of 2016, respectively. Earnings before interest, taxes and amortization
of intangible assets, or EBITA, margins for the second quarter and six months of
2017 were 15.7% and 14.0%, respectively, compared to 15.2% and 13.7% for the
second quarter and the six months of 2016, respectively.
Net interest expense increased $0.5 million to $45.3 million in the second
quarter of 2017 from $44.8 million in the second quarter of 2016, and net
interest expense was unchanged at $84.9 million in the six months of 2017 and
2016. Interest expense increased $2.5 million to $56.8 million in the second
quarter of 2017 and increased $5.6 million to $110.2 million in the six months
of 2017. Interest income increased $2.0 million in the second quarter of 2017
and increased $5.6 million in the six months of 2017 compared to the prior year
periods.
Our effective tax rate for the second quarter and six months ended June 30,
2017, decreased period-over-period to 32.0% and 30.8% from 32.5% and 32.6%,
respectively. The decrease was attributable to the recognition of an additional
tax benefit from share-based compensation of $14.8 million, primarily in the
first quarter resulting from the adoption of FASB ASU 2016-09 (see Note 1 to the
unaudited consolidated financial statements), which requires that beginning in
2017 additional tax benefits and deficiencies arising from share-based
compensation be recognized in results of operations in the period when the
restricted stock awards vest or stock options are exercised. In the prior year,
the tax benefits and deficiencies were recorded in additional paid-in capital.
Because the income tax benefit is based on our common stock price on the vesting
or exercise date, it is not possible to estimate the impact on income tax
expense for the remainder of the year.
Net income - Omnicom Group Inc. in the second quarter of 2017 increased $2.5
million, or 0.8%, to $328.6 million from $326.1 million in the second quarter of
2016, and net income - Omnicom Group Inc. in the six months of 2017 increased
$25.9 million, or 4.8%, to $570.4 million from $544.5 million in the six months
of 2016. The period-over-period increase is due to the factors described above.
Diluted net income per common share - Omnicom Group Inc. increased 2.9% to $1.40
in the second quarter of 2017, compared to $1.36 in the second quarter of 2016,
and diluted net income per common share - Omnicom Group Inc. increased 7.6% to
$2.42 in the six months of 2017, compared to $2.25 in the six months of 2016,
due to the factors described above, as well as the impact of the reduction in
our weighted average common shares outstanding resulting from repurchases of our
common stock, net of shares issued for restricted stock awards, stock option
exercises and employee stock purchase plan.

                                       15

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RESULTS OF OPERATIONS - Second Quarter 2017 Compared to Second Quarter 2016 (in
millions):
                                                               2017           2016
Revenue                                                    $  3,790.1     $  3,884.9
Operating Expenses:
Salary and service costs                                      2,736.1        2,824.0
Occupancy and other costs                                       297.0          315.2
Cost of services                                              3,033.1        3,139.2
Selling, general and administrative expenses                    120.4       

110.9

Depreciation and amortization                                    71.1           73.0
                                                              3,224.6        3,323.1
Operating Profit                                                565.5          561.8
Operating Margin - %                                             14.9 %         14.5 %
Interest Expense                                                 56.8           54.3
Interest Income                                                  11.5            9.5

Income Before Income Taxes and Income From Equity Method Investments

                                                     520.2       

517.0

Income Tax Expense                                              166.7       

167.9

Income From Equity Method Investments                             1.6       

2.8

Net Income                                                      355.1       

351.9

Net Income Attributed To Noncontrolling Interests                26.5       

25.8

Net Income - Omnicom Group Inc.                            $    328.6     $    326.1



Non-GAAP Financial Measures
We use EBITA and EBITA Margin as additional operating performance measures that
exclude the non-cash amortization expense of intangible assets, which primarily
consists of amortization of intangible assets arising from acquisitions. We
define EBITA as earnings before interest, taxes and amortization of intangible
assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margins
are non-GAAP Financial measures. We believe that EBITA and EBITA Margin are
useful measures for investors to evaluate the performance of our business.
Non-GAAP financial measures should not be considered in isolation from, or as a
substitute for, financial information presented in compliance with U.S. GAAP.
Non-GAAP financial measures reported by us may not be comparable to similarly
titled amounts reported by other companies.
The following table reconciles the U.S. GAAP financial measure of Net Income -
Omnicom Group Inc. to EBITA and EBITA Margin for the for the periods presented
(in millions):
                                                               2017         

2016

Net Income - Omnicom Group Inc.                            $    328.6     $ 

326.1

Net Income Attributed To Noncontrolling Interests                26.5       

25.8

Net Income                                                      355.1       

351.9

Income From Equity Method Investments                             1.6       

2.8

Income Tax Expense                                              166.7       

167.9

Income Before Income Taxes and Income From Equity Method
Investments                                                     520.2          517.0
Interest Expense                                                 56.8           54.3
Interest Income                                                  11.5            9.5
Operating Profit                                                565.5          561.8
Add back: Amortization of intangible assets                      28.5       

28.5

Earnings before interest, taxes and amortization of
intangible assets ("EBITA")                                $    594.0     $    590.3

Revenue                                                    $  3,790.1     $  3,884.9
EBITA                                                      $    594.0     $    590.3
EBITA Margin - %                                                 15.7 %         15.2 %



                                       16
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Revenue

In the second quarter of 2017, revenue decreased $94.8 million, or 2.4%, to
$3,790.1 million from $3,884.9 million in the second quarter of 2016. Changes in
foreign exchange rates reduced revenue $57.2 million, acquisition revenue, net
of disposition revenue, reduced revenue $172.1 million, and organic growth
increased revenue $134.5 million.
The reduction in revenue in the second quarter resulting from our acquisition
and disposition activity arose principally from the sale of our specialty print
media business. Based on our acquisition and disposition activity completed to
date, we expect the net reduction in revenue for acquisitions and dispositions
to be between 3.5% and 4.5% for the year.
For the second quarter of 2017, changes in foreign exchange rates reduced
revenue by 1.5%, or $57.2 million, compared to the second quarter of 2016,
primarily resulting from the weakening of the British Pound, Euro and Canadian
Dollar against the U.S. Dollar, partially offset by the strengthening of the
Brazilian Real and Russian Ruble against the U.S. Dollar.
The components of revenue change for the second quarter of 2017 in the United
States ("Domestic") and the remainder of the world ("International") were (in
millions):
                                   Total                     Domestic                International
                               $             %            $             %            $             %
June 30, 2016             $  3,884.9                 $  2,190.5             

$ 1,694.4

 Components of revenue
change:
Foreign exchange rate
impact                         (57.2 )     (1.5 )%            -          -  %        (57.2 )     (3.4 )%
Acquisition revenue, net
of disposition revenue        (172.1 )     (4.4 )%       (133.4 )     (6.1 )%        (38.7 )     (2.2 )%
Organic growth                 134.5        3.5  %          3.8        0.2  %        130.7        7.7  %
June 30, 2017             $  3,790.1       (2.4 )%   $  2,060.9       (5.9 )%   $  1,729.2        2.1  %

The components and percentages are calculated as follows: • Foreign exchange rate impact is calculated by translating the current

period's local currency revenue using the prior period average exchange

rates to derive current period constant currency revenue (in this case

$3,847.3 million for the Total column). The foreign exchange impact is the

difference between the current period revenue in U.S. Dollars and the

current period constant currency revenue ($3,790.1 million less $3,847.3

million for the Total column).

• Acquisition revenue is calculated as if the acquisition occurred twelve

months prior to the acquisition date by aggregating the comparable prior

period revenue of acquisitions through the acquisition date. As a result,

acquisition revenue excludes the positive or negative difference between

       our current period revenue subsequent to the acquisition date and the
       comparable prior period revenue and the positive or negative growth after
       the acquisition is attributed to organic growth. Disposition revenue is
       calculated as if the disposition occurred twelve months prior to the
       disposition date by aggregating the comparable prior period revenue of
       dispositions through the disposition date. The acquisition revenue and
       disposition revenue amounts are netted in the table.


•      Organic growth is calculated by subtracting the foreign exchange rate

impact, and the acquisition revenue, net of disposition revenue components

from total revenue growth.

• The percentage change is calculated by dividing the individual component

amount by the prior period revenue base of that component ($3,884.9

million for the Total column).



Our results of operations are subject to risk from the translation to U.S.
Dollars of the revenue and expenses of our foreign operations, which are
generally denominated in their local currency. However, for the most part,
because the revenue and expenses of our foreign operations are denominated in
the same currency, the economic impact on operating margin is minimized.
Assuming exchange rates at July 14, 2017 remain unchanged, we expect the impact
of changes in foreign exchange rates to reduce revenue by less than 0.5% for the
third quarter and full year 2017.

                                       17

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Revenue for the second quarter of 2017 and the percentage change in revenue and
organic growth from the second quarter of 2016 in our principal regional markets
were (in millions):
                          2017         2016       $ Change    % Change     % Organic Growth
Americas:
North America          $ 2,175.6    $ 2,329.7    $ (154.1 )     (6.6 )%             0.2 %
Latin America              121.2         98.9        22.3       22.5  %             5.0 %
EMEA:
Europe                   1,012.5        993.8        18.7        1.9  %             8.4 %
Middle East and Africa      75.5         62.3        13.2       21.2  %            20.4 %
Asia Pacific               405.3        400.2         5.1        1.3  %             7.1 %
                       $ 3,790.1    $ 3,884.9    $  (94.8 )     (2.4 )%             3.5 %


Our primary markets in Europe comprise the U.K. and the Euro Zone. In the second
quarter of 2017, the U.K. comprised 9.2% of revenue and the Euro Zone and the
other European countries together comprised 17.5% of revenue. In the second
quarter of 2017, revenue, including the impact of foreign exchange rates,
decreased 3.7% in the U.K. and increased 5.1% in the Euro Zone and the other
European countries.
The decrease in revenue in North America reflects disposition activity,
including our specialty print media business, which was partially offset by
modest growth in the U.S. and Canada. In Europe, growth in the U.K. and most
markets in the Euro Zone was partially offset by the weakening of the British
Pound and Euro against the U.S. Dollar. The increase in revenue in Latin America
was a result of growth in Mexico, as well as the strengthening of the Brazilian
Real against the U.S. Dollar, which offset negative growth in that market. In
Asia Pacific, strong growth in Australia, India and Japan was partially offset
by the weakening of the Chinese Yuan and Japanese Yen against the U.S. Dollar.
In the normal course of business, our agencies both gain and lose business from
clients each year due to a variety of factors. The net change through the second
quarter of 2017 was an overall gain in new business. Under our client-centric
approach, we seek to broaden our relationships with all of our clients. Our
largest client represented 3.3% and 3.0% of our revenue for the second quarter
of 2017 and 2016, respectively. Our ten largest and 100 largest clients
represented 19.7% and 51.2% of our revenue for the second quarter of 2017,
respectively, and 18.1% and 52.7% of our revenue for the second quarter of 2016,
respectively.
Driven by our clients' continuous demand for more effective and efficient
marketing activities, we strive to provide an extensive range of advertising,
marketing and corporate communications services through various client-centric
networks that are organized to meet specific client objectives. These services
include advertising, brand consultancy, content marketing, corporate social
responsibility consulting, crisis communications, custom publishing, data
analytics, database management,
direct marketing, entertainment marketing, environmental design, experiential
marketing, field marketing, financial/corporate business-to-business
advertising, graphic arts/digital imaging, healthcare communications, instore
design, interactive marketing, investor relations, marketing research, media
planning and buying, mobile marketing, multi-cultural marketing, non-profit
marketing, organizational communications, outsource sales support, package
design, product placement, promotional marketing, public affairs, public
relations, reputation consulting, retail marketing, search engine marketing,
social media marketing and sports and event marketing.
In an effort to monitor the changing needs of our clients and to further expand
the scope of our services to key clients, we monitor revenue across a broad
range of disciplines and group them into the following four categories:
advertising, CRM, public relations and specialty communications. Revenue for the
second quarter of 2017 and 2016 and the change in revenue and organic growth
from the second quarter of 2016 by discipline were (in millions):
                                                     Three Months Ended 

June 30,

                           2017                      2016                             2017 vs. 2016
                                   % of                      % of                       %
                       $         Revenue         $         Revenue     $ Change       Change      % Organic Growth
Advertising       $  2,017.8       53.2 %   $  2,066.0       53.2 %   $   (48.2 )      (2.3 )%           4.2  %
CRM                  1,131.9       29.9 %      1,178.7       30.3 %       (46.8 )      (4.0 )%           3.7  %
Public relations       342.6        9.0 %        349.6        9.0 %        (7.0 )      (2.0 )%          (0.3 )%
Specialty
communications         297.8        7.9 %        290.6        7.5 %         7.2         2.5  %           2.2  %
                  $  3,790.1                $  3,884.9                $   (94.8 )      (2.4 )%           3.5  %



                                       18
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We provide services to clients that operate in various industry sectors. Revenue by sector for the second quarter of 2017 and 2016 was:

                                2017    2016
Food and Beverage                14 %    14 %
Consumer Products                10 %    11 %
Pharmaceuticals and Health Care  13 %    11 %
Financial Services                8 %     7 %
Technology                        8 %     9 %
Auto                              9 %     8 %
Travel and Entertainment          6 %     7 %
Telecommunications                4 %     4 %
Retail                            6 %     6 %
Other                            22 %    23 %


Operating Expenses
Operating expenses for the second quarter of 2017 compared to the second quarter
of 2016 were (in millions):
                                                     Three Months Ended June 30,
                                      2017                      2016                  2017 vs. 2016
                                               %                         %
                                              of                        of           $            %
                                  $         Revenue         $         Revenue      Change       Change
Revenue                      $ 3,790.1                 $ 3,884.9                 $  (94.8 )      (2.4 )%
Operating Expenses:
Salary and service costs       2,736.1        72.2 %     2,824.0        72.7 %      (87.9 )      (3.1 )%
Occupancy and other costs        297.0         7.8 %       315.2         8.1 %      (18.2 )      (5.8 )%
  Cost of services             3,033.1                   3,139.2                   (106.1 )      (3.4 )%
Selling, general and
administrative expenses          120.4         3.2 %       110.9         2.9 %        9.5         8.6  %
Depreciation and
amortization                      71.1         1.9 %        73.0         1.9 %       (1.9 )      (2.6 )%
                               3,224.6        85.1 %     3,323.1        85.5 %      (98.5 )      (3.0 )%
Operating Profit             $   565.5        14.9 %   $   561.8        14.5 %   $    3.7         0.7  %


Operating expenses decreased 3.0% in second quarter of 2017 compared to the
second quarter of 2016. Salary and service costs, which tend to fluctuate with
changes in revenue, decreased $87.9 million, or 3.1%, in the second quarter of
2017 compared to the second quarter of 2016. Occupancy and other costs, which
are less directly linked to changes in revenue than salary and service costs,
decreased $18.2 million, or 5.8%, in the second quarter of 2017 compared to the
second quarter of 2016. Operating margin increased 0.4% to 14.9% in the second
quarter of 2017 from 14.5% in the second quarter of 2016. EBITA margin increased
0.5% to 15.7% in the second quarter of 2017 from 15.2% in the second quarter of
2016. The increase in margins reflects our continuing effort to reduce occupancy
and other costs related to back-office and procurement functions and improve the
operational efficiency of our businesses, as well as a positive impact resulting
from our disposition activity.
Net Interest Expense
Net interest expense increased $0.5 million to $45.3 million in the second
quarter of 2017 from $44.8 million in the second quarter of 2016. In the second
quarter of 2017, interest expense increased $2.5 million to $56.8 million,
primarily due to higher rates on our commercial paper issuances. At June 30,
2017, our debt portfolio was approximately 75% fixed rate obligations and 25%
floating rate obligations, after taking into consideration our interest rate
swaps, and was unchanged from December 31, 2016. Note 5 to the unaudited
consolidated financial statements includes a discussion of our interest rate
swaps. Interest income increased $2.0 million in the second quarter of 2017
compared to the prior year period resulting from higher interest earned on the
cash held by our international treasury centers.

                                       19

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Income Taxes
Our effective tax rate for the second quarter of 2017, decreased
period-over-period to 32.0% from 32.5%. The decrease was primarily attributable
to the recognition of an additional tax benefit from share-based compensation of
$2.3 million resulting from the adoption of FASB ASU 2016-09 (see Note 1 to the
unaudited consolidated financial statements), which requires that beginning in
2017 additional tax benefits and deficiencies arising from share-based
compensation be recognized in results of operations in the period when the
restricted stock awards vest or stock options are exercised. In the prior year,
the tax benefits and deficiencies were recorded in additional paid-in capital.
Net Income Per Common Share - Omnicom Group Inc.
Net income - Omnicom Group Inc. in the second quarter of 2017 increased $2.5
million, or 0.8%, to $328.6 million from $326.1 million in the second quarter of
2016. The period-over-period increase is due to the factors described above.
Diluted net income per common share - Omnicom Group Inc. increased 2.9% to $1.40
in the second quarter of 2017, compared to $1.36 in the second quarter of 2016,
due to the factors described above, as well as the impact of the reduction in
our weighted average common shares outstanding resulting from repurchases of our
common stock, net of shares issued for restricted stock awards, stock option
exercises and the employee stock purchase plan.

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RESULTS OF OPERATIONS - Six Months of 2017 Compared to Six Months of 2016 (in
millions):
                                                               2017           2016
Revenue                                                    $  7,377.6     $  7,384.0
Operating Expenses:
Salary and service costs                                      5,430.3        5,447.3
Occupancy and other costs                                       598.9          616.6
Cost of services                                              6,029.2        6,063.9
Selling, general and administrative expenses                    229.1       

219.0

Depreciation and amortization                                   143.8          147.2
                                                              6,402.1        6,430.1
Operating Profit                                                975.5          953.9
Operating Margin - %                                             13.2 %         12.9 %
Interest Expense                                                110.2          104.6
Interest Income                                                  25.3           19.7

Income Before Income Taxes and Income From Equity Method Investments

                                                     890.6       

869.0

Income Tax Expense                                              274.7       

283.4

Income From Equity Method Investments                             1.6       

2.6

Net Income                                                      617.5       

588.2

Net Income Attributed To Noncontrolling Interests                47.1       

43.7

Net Income - Omnicom Group Inc.                            $    570.4     $    544.5



Non-GAAP Financial Measures
We use EBITA and EBITA Margin as additional operating performance measures that
exclude the non-cash amortization expense of intangible assets, which primarily
consists of amortization of intangible assets arising from acquisitions. We
define EBITA as earnings before interest, taxes and amortization of intangible
assets, and EBITA Margin as EBITA divided by revenue. EBITA and EBITA Margins
are non-GAAP Financial measures. We believe that EBITA and EBITA Margin are
useful measures for investors to evaluate the performance of our business.
Non-GAAP financial measures should not be considered in isolation from, or as a
substitute for, financial information presented in compliance with U.S. GAAP.
Non-GAAP financial measures reported by us may not be comparable to similarly
titled amounts reported by other companies.
The following table reconciles the U.S. GAAP financial measure of Net Income -
Omnicom Group Inc. to EBITA and EBITA Margin for the for the periods presented
(in millions):
                                                               2017         

2016

Net Income - Omnicom Group Inc.                            $    570.4     $ 

544.5

Net Income Attributed To Noncontrolling Interests                47.1       

43.7

Net Income                                                      617.5       

588.2

Income From Equity Method Investments                             1.6       

2.6

Income Tax Expense                                              274.7       

283.4

Income Before Income Taxes and Income From Equity Method
Investments                                                     890.6          869.0
Interest Expense                                                110.2          104.6
Interest Income                                                  25.3           19.7
Operating Profit                                                975.5          953.9
Add back: Amortization of intangible assets                      58.9       

56.8

Earnings before interest, taxes and amortization of
intangible assets ("EBITA")                                $  1,034.4     $  1,010.7

Revenue                                                    $  7,377.6     $  7,384.0
EBITA                                                      $  1,034.4     $  1,010.7
EBITA Margin - %                                                 14.0 %         13.7 %



                                       21
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Revenue

In the six months of 2017, revenue decreased $6.4 million, or 0.1%, to $7,377.6
million from $7,384.0 million in the six months of 2016. Changes in foreign
exchange rates reduced revenue $98.0 million, acquisition revenue, net of
disposition revenue, reduced revenue $196.4 million, and organic growth
increased revenue $288.0 million.
The reduction in revenue in the six months of 2017 resulting from our
acquisition and disposition activity arose principally from the sale of our
specialty print media business. Based on our acquisition and disposition
activity completed to date, we expect the net reduction in revenue for
acquisitions and dispositions to be between 3.5% and 4.5% for the full year.
For the six months of 2017, changes in foreign exchange rates continued to
negatively impact revenue. The impact of changes in foreign exchange rates
reduced revenue by 1.3%, or $98.0 million, compared to the six months of 2016,
primarily resulting from the weakening of the British Pound and the Euro against
the U.S. Dollar, partially offset by the strengthening of the Brazilian Real and
Russian Ruble against the U.S. Dollar.
The components of revenue change for the six months of 2017 in the United States
("Domestic") and the remainder of the world ("International") were (in
millions):
                                   Total                     Domestic       

International

                               $             %            $             %            $             %
June 30, 2016             $  7,384.0                 $  4,198.0             

$ 3,186.0

 Components of revenue
change:
Foreign exchange rate
impact                         (98.0 )     (1.3 )%            -          -  %        (98.0 )     (3.1 )%
Acquisition revenue, net
of disposition revenue        (196.4 )     (2.7 )%       (144.8 )     (3.5 )%        (51.6 )     (1.6 )%
Organic growth                 288.0        3.9  %         19.4        0.5  %        268.6        8.4  %
June 30, 2017             $  7,377.6       (0.1 )%   $  4,072.6       (3.0 )%   $  3,305.0        3.7  %

The components and percentages are calculated as follows: • Foreign exchange rate impact is calculated by translating the current

period's local currency revenue using the prior period average exchange

rates to derive current period constant currency revenue (in this case

$7,475.6 million for the Total column). The foreign exchange impact is the

difference between the current period revenue in U.S. Dollars and the

current period constant currency revenue ($7,377.6 million less $7,475.6

million for the Total column).

• Acquisition revenue is calculated as if the acquisition occurred twelve

months prior to the acquisition date by aggregating the comparable prior

period revenue of acquisitions through the acquisition date. As a result,

acquisition revenue excludes the positive or negative difference between

       our current period revenue subsequent to the acquisition date and the
       comparable prior period revenue and the positive or negative growth after
       the acquisition is attributed to organic growth. Disposition revenue is
       calculated as if the disposition occurred twelve months prior to the
       disposition date by aggregating the comparable prior period revenue of
       dispositions through the disposition date. The acquisition revenue and
       disposition revenue amounts are netted in the table.


•      Organic growth is calculated by subtracting the foreign exchange rate

impact, and the acquisition revenue, net of disposition revenue components

from total revenue growth.

• The percentage change is calculated by dividing the individual component

amount by the prior period revenue base of that component ($7,384.0

million for the Total column).



Revenue for the six months of 2017 and the percentage change in revenue and
organic growth from the six months of 2016 in our principal regional markets
were (in millions):
                          2017         2016       $ Change    % Change     % Organic Growth
Americas:
North America          $ 4,314.9    $ 4,453.0    $ (138.1 )     (3.1 )%             0.6 %
Latin America              227.8        174.1        53.7       30.8  %             5.2 %
EMEA:
Europe                   1,900.2      1,883.5        16.7        0.9  %             8.3 %
Middle East and Africa     154.4        118.9        35.5       29.9  %            28.7 %
Asia Pacific               780.3        754.5        25.8        3.4  %             8.1 %
                       $ 7,377.6    $ 7,384.0    $   (6.4 )     (0.1 )%             3.9 %



                                       22
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Our primary markets in Europe comprise the U.K. and the Euro Zone. In the six
months of 2017, the U.K. comprised 8.9% of revenue and the Euro Zone and the
other European countries together comprised 16.8% of revenue. In the six months
of 2017, revenue, including the impact of foreign exchange rates, decreased 5.9%
in the U.K. and increased 4.9% in the Euro Zone and the other European
countries.
The decrease in revenue in North America reflects disposition activity,
including our specialty print media business, which was partially offset by
modest growth in the U.S. and Canada. In Europe, growth in the U.K. and most
markets in the Euro Zone was partially offset by the weakening of the British
Pound and Euro against the U.S. Dollar. The increase in revenue in Latin America
was a result of growth in Mexico, as well as the strengthening of the Brazilian
Real against the U.S. Dollar, which offset negative growth in that market. In
Asia Pacific, strong growth in Australia, India and Japan was partially offset
by the weakening of the Chinese Yuan and Japanese Yen against the U.S. Dollar.
In the normal course of business, our agencies both gain and lose business from
clients each year due to a variety of factors. The net change through the six
months of 2017 was an overall gain in new business. Under our client-centric
approach, we seek to broaden our relationships with all of our clients. Our
largest client represented 3.0% and 2.8% of our revenue for the six months of
2017 and 2016, respectively. Our ten largest and 100 largest clients represented
19.5% and 52.0% of our revenue for the six months of 2017, respectively, and
17.7% and 52.7% of our revenue for the six months of 2016, respectively.
Looking ahead to the remainder of the year, barring unforeseen events and
excluding the impact of changes in foreign exchange rates, as a result of
continued strong operating performance by many of our agencies and new business
activities, we expect our organic revenue growth to increase modestly in excess
of the weighted average nominal GDP growth in our major markets.
Revenue for the six months of 2017 and 2016 and the change in revenue and
organic growth from the six months of 2016 by discipline were (in millions):
                                                     Six Months Ended June 30,
                           2017                      2016                            2017 vs. 2016
                                   % of                      % of                       %
                       $         Revenue         $         Revenue     $ Change       Change     % Organic Growth
Advertising       $  3,938.6       53.4 %   $  3,869.2       52.4 %   $    69.4         1.8  %            5.2 %
CRM                  2,203.0       29.9 %      2,299.0       31.1 %       (96.0 )      (4.2 )%            2.9 %
Public relations       667.9        9.0 %        668.4        9.1 %        (0.5 )      (0.1 )%            0.7 %
Specialty
communications         568.1        7.7 %        547.4        7.4 %        20.7         3.8  %            2.7 %
                  $  7,377.6                $  7,384.0                $    (6.4 )      (0.1 )%            3.9 %


We provide services to clients that operate in various industry sectors. Revenue by sector for the six months of 2017 and 2016 was:

                                2017    2016
Food and Beverage                13 %    13 %
Consumer Products                10 %    10 %
Pharmaceuticals and Health Care  12 %    12 %
Financial Services                7 %     7 %
Technology                        9 %     9 %
Auto                              9 %     8 %
Travel and Entertainment          6 %     7 %
Telecommunications                5 %     5 %
Retail                            6 %     6 %
Other                            23 %    23 %



                                       23
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Operating Expenses
Operating expenses for the six months of 2017 compared to the six months of 2016
were (in millions):
                                                      Six Months Ended June 30,
                                      2017                      2016                  2017 vs. 2016
                                               %                         %
                                              of                        of           $            %
                                  $         Revenue         $         Revenue      Change       Change
Revenue                      $ 7,377.6                 $ 7,384.0                 $   (6.4 )      (0.1 )%
Operating Expenses:
Salary and service costs       5,430.3        73.6 %     5,447.3        73.8 %      (17.0 )      (0.3 )%
Occupancy and other costs        598.9         8.1 %       616.6         8.4 %      (17.7 )      (2.9 )%
  Cost of services             6,029.2                   6,063.9                    (34.7 )
Selling, general and
administrative expenses          229.1         3.1 %       219.0         3.0 %       10.1         4.6  %
Depreciation and
amortization                     143.8         1.9 %       147.2         2.0 %       (3.4 )      (2.3 )%
                               6,402.1        86.8 %     6,430.1        87.1 %      (28.0 )      (0.4 )%
Operating Profit             $   975.5        13.2 %   $   953.9        12.9 %   $   21.6         2.3  %


Operating expenses decreased 0.4% in the six months of 2017 compared to the six
months of 2016. Salary and service costs, which tend to fluctuate with changes
in revenue, decreased $17.0 million, or 0.3%, in the six months of 2017 compared
to the six months of 2016. Occupancy and other costs, which are less directly
linked to changes in revenue than salary and service costs, decreased $17.7
million, or 2.9%, in the six months of 2017 compared to the six months of 2016.
Operating margin increased 0.3% to 13.2% in the six months of 2017 from 12.9% in
the six months of 2016. EBITA margin increased 0.3% to 14.0% in the six months
of 2017 from 13.7% in the six months of 2016. The increase in margins reflects
our continuing effort to reduce occupancy and other costs related to back-office
and procurement functions and improve the operational efficiency of our
businesses, as well as a positive impact resulting from our disposition
activity.
Net Interest Expense
Net interest expense was unchanged at $84.9 million period-over-period. In the
six months of 2017, interest expense increased $5.6 million to $110.2 million,
primarily due to a reduced benefit from the fixed-to-floating interest rate
swaps resulting from higher rates on the floating rate leg and higher interest
rates on our commercial paper issuances. At June 30, 2017, our debt portfolio
was approximately 75% fixed rate obligations and 25% floating rate obligations,
after taking into consideration our interest rate swaps, and was unchanged from
December 31, 2016. Note 5 to the unaudited consolidated financial statements
includes a discussion of our interest rate swaps. Interest income for the six
months of 2017 increased $5.6 million period-over-period to $25.3 million
resulting from higher interest earned on the cash held by our international
treasury centers.
Income Taxes
Our effective tax rate for the six months of 2017, decreased period-over-period
to 30.8% from 32.6%. The decrease was attributable to the recognition of an
additional tax benefit from share-based compensation of $14.8 million, primarily
in the first quarter of 2017, resulted from the adoption of FASB ASU 2016-09
(see Note 1 to the unaudited consolidated financial statements), which requires
that beginning in 2017 additional tax benefits and deficiencies arising from
share-based compensation be recognized in results of operations in the period
when restricted stock awards vest or stock options are exercised. In the prior
year, the tax benefits and deficiencies were recorded in additional paid-in
capital. Because the income tax benefit is based on our common stock price on
the vesting or exercise date, it is not possible to estimate the impact on
income tax expense for the remainder of the year. However, excluding the impact
of any stock option exercises, if the price of our common stock remains in the
range it was during the six months of 2017, we expect any additional tax
benefits for the remainder of the year to be less than the benefit realized to
date through the six months.
Net Income Per Common Share - Omnicom Group Inc.
Net income - Omnicom Group Inc. in the six months of 2017 increased $25.9
million, or 4.8%, to $570.4 million from $544.5 million in the six months of
2016. The period-over-period increase is due to the factors described above.
Diluted net income per common share - Omnicom Group Inc. increased 7.6% to $2.42
in the six months of 2017, compared to $2.25 in the six months of 2016, due to
the factors described above, as well as the impact of the reduction in our
weighted average common shares outstanding resulting from repurchases of our
common stock, net of shares issued for restricted stock awards, stock option
exercises and the employee stock purchase plan.

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CRITICAL ACCOUNTING POLICIES
For a more complete understanding of our accounting policies, the unaudited
consolidated financial statements and the related Management's Discussion and
Analysis of Financial Condition and Results of Operations, readers are
encouraged to consider this information together with our discussion of our
critical accounting policies under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our 2016 10-K.
Acquisitions and Goodwill
We have made and expect to continue to make selective acquisitions. The
evaluation of potential acquisitions is based on various factors, including
specialized know-how, reputation, geographic coverage, competitive position and
service offerings of the target businesses, as well as our experience and
judgment.
Our acquisition strategy is focused on acquiring the expertise of an assembled
workforce in order to continue to build upon the core capabilities of our
various strategic business platforms and agency brands through the expansion of
their geographic reach or their service capabilities to better serve our
clients. Additional key factors we consider include the competitive position and
specialized know-how of the acquisition targets. Accordingly, as is typical in
most service businesses, a substantial portion of the assets we acquire are
intangible assets primarily consisting of the know-how of the personnel, which
is treated as part of goodwill and under U.S. GAAP is not required to be valued
separately. For each acquisition, we undertake a detailed review to identify
other intangible assets that are required to be valued separately. A significant
portion of the identifiable intangible assets acquired is derived from customer
relationships, including the related customer contracts, as well as trade names.
In valuing these identified intangible assets, we typically use an income
approach and consider comparable market participant measurements.
We evaluate goodwill for impairment at least annually at the end of the second
quarter of the year and whenever events or circumstances indicate the carrying
value may not be recoverable. As of June 30, 2017, we adopted FASB ASU 2017-04,
Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment ,
which simplifies the subsequent measurement of goodwill and eliminates the
two-step goodwill impairment test. Under FASB ASC Topic 350, Intangibles -
Goodwill and Other, we have the option of either assessing qualitative factors
to determine whether it is more-likely-than-not that the carrying value of our
reporting units exceeds their respective fair value or proceeding directly to
the goodwill impairment test. Although not required, we performed the annual
impairment test and compared the fair value of each of our reporting units to
its respective carrying value, including goodwill. We identified our regional
reporting units as components of our operating segments, which are our five
agency networks. The regional reporting units of each agency network are
responsible for the agencies in their region. They report to the segment
managers and facilitate the administrative and logistical requirements of our
client-centric strategy for delivering services to clients in their regions. We
have concluded that for each of our operating segments, their regional reporting
units have similar economic characteristics and should be aggregated for
purposes of testing goodwill for impairment at the operating segment level. Our
conclusion was based on a detailed analysis of the aggregation criteria set
forth in FASB ASC Topic 280, Segment Reporting, and the guidance set forth in
FASB ASC Topic 350. Consistent with our fundamental business strategy, the
agencies within our regional reporting units serve similar clients in similar
industries, and in many cases the same clients. In addition, the agencies within
our regional reporting units have similar economic characteristics. The main
economic components of each agency are employee compensation and related costs
and direct service costs and occupancy and other costs, which include rent and
occupancy costs, technology costs that are generally limited to personal
computers, servers and off-the-shelf software and other overhead expenses.
Finally, the expected benefits of our acquisitions are typically shared by
multiple agencies in various regions as they work together to integrate the
acquired agency into our virtual client network strategy.
Goodwill Impairment Review - Estimates and Assumptions
We use the following valuation methodologies to determine the fair value of our
reporting units: (1) the income approach, which utilizes discounted expected
future cash flows, (2) comparative market participant multiples for EBITDA
(earnings before interest, taxes, depreciation and amortization) and (3) when
available, consideration of recent and similar acquisition transactions.
In applying the income approach, we use estimates to derive the discounted
expected cash flows ("DCF") for each reporting unit that serves as the basis of
our valuation. These estimates and assumptions include revenue growth and
operating margin, EBITDA, tax rates, capital expenditures, weighted average cost
of capital and related discount rates and expected long-term cash flow growth
rates. All of these estimates and assumptions are affected by conditions
specific to our businesses, economic conditions related to the industry we
operate in, as well as conditions in the global economy. The assumptions that
have the most significant effect on our valuations derived using a DCF
methodology are: (1) the expected long-term growth rate of our reporting units'
cash flows and (2) the weighted average cost of capital ("WACC").

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The assumptions used for the long-term growth rate and WACC in our evaluations as of June 30, 2017 and 2016 were:

                               June 30,
                          2017           2016
Long-Term Growth Rate      4%             4%
WACC                  9.6% - 10.3%   9.7% - 10.3%


Long-term growth rate represents our estimate of the long-term growth rate for
our industry and the markets of the global economy we operate in. For the past
ten years, the average historical revenue growth rate of our reporting units and
the Average Nominal GDP growth of the countries comprising the major markets
that account for substantially all of our revenue was approximately 3.6% and
3.5%, respectively. We considered this history when determining the long-term
growth rates used in our annual impairment test at June 30, 2017. We believe
marketing expenditures over the long term have a high correlation to GDP. Based
on our historical performance, we also believe that our long-term growth rate
will exceed Average Nominal GDP growth in the markets we operate in, which are
similar across our reporting units. For our annual test as of June 30, 2017, we
used an estimated long-term growth rate of 4%.
When performing the annual impairment test as of June 30, 2017 and estimating
the future cash flows of our reporting units, we considered the current
macroeconomic environment, as well as industry and market specific conditions at
mid-year 2017. In the first half of 2017, we experienced an increase in our
revenue of 3.9%, which excluded our net disposition activity and the impact from
changes in foreign exchange rates. Economic conditions in the Euro Zone are
unsettled and the continuing fiscal issues faced by many countries in the
European Union has caused economic difficulty in certain of our Euro Zone
markets. During 2017, weakness in most Latin American economies we operate in
has the potential to affect our near-term performance in that region. We
considered the effect of these conditions in our annual impairment test.
The WACC is comprised of: (1) a risk-free rate of return, (2) a business risk
index ascribed to us and to companies in our industry comparable to our
reporting units based on a market derived variable that measures the volatility
of the share price of equity securities relative to the volatility of the
overall equity market, (3) an equity risk premium that is based on the rate of
return on equity of publicly traded companies with business characteristics
comparable to our reporting units, and (4) a current after-tax market rate of
return on debt of companies with business characteristics similar to our
reporting units, each weighted by the relative market value percentages of our
equity and debt.
Our five reporting units vary in size with respect to revenue and the amount of
debt allocated to them. These differences drive variations in fair value among
our reporting units. In addition, these differences as well as differences in
book value, including goodwill, cause variations in the amount by which fair
value exceeds book value among the reporting units. The reporting unit goodwill
balances and debt vary by reporting unit primarily because our three legacy
agency networks were acquired at the formation of Omnicom and were accounted for
as a pooling of interests that did not result in any additional debt or goodwill
being recorded. The remaining two agency networks were built through a
combination of internal growth and acquisitions that were accounted for using
the acquisition method and as a result, they have a relatively higher amount of
goodwill and debt.
Goodwill Impairment Review - Conclusion
Based on the results of our impairment test, we concluded that our goodwill at
June 30, 2017 was not impaired, because the fair value of each of our reporting
units was substantially in excess of its respective net book value. The minimum
decline in fair value that one of our reporting units would need to experience
in order to fail the goodwill impairment test was approximately 72%.
Notwithstanding our belief that the assumptions we used for WACC and long-term
growth rate in our impairment testing are reasonable, we performed a sensitivity
analysis for each of our reporting units. The results of this sensitivity
analysis on our impairment test as of June 30, 2017 revealed that if the WACC
increased by 1% and/or the long-term growth rate decreased by 1%, the fair value
of each of our reporting units would continue to be substantially in excess of
its respective net book value and would pass the impairment test.
We will continue to perform our impairment test at the end of the second quarter
of each year unless events or circumstances trigger the need for an interim
impairment test. The estimates used in our goodwill impairment test do not
constitute forecasts or projections of future results of operations, but rather
are estimates and assumptions based on historical results and assessments of
macroeconomic factors affecting our reporting units as of the valuation date. We
believe that our estimates and assumptions are reasonable, but they are subject
to change from period to period. Actual results of operations and other factors
will likely differ from the estimates used in our discounted cash flow valuation
and it is possible that differences could be material. A change in the estimates
we use could result in a decline in the estimated fair value of one or more of
our reporting units from the amounts derived as of our latest valuation and
could cause us to fail our goodwill impairment test if the estimated fair value
for the reporting unit is less than the carrying value of the net assets of the
reporting unit, including its

                                       26

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goodwill. A large decline in estimated fair value of a reporting unit could
result in a non-cash impairment charge and may have an adverse effect on our
results of operations and financial position.
NEW ACCOUNTING STANDARDS
See Note 2 to the unaudited consolidated financial statements for additional
information.
LIQUIDITY AND CAPITAL RESOURCES
Cash Sources and Requirements
Our primary source of liquidity is operating cash flow. In addition to our cash
and cash equivalents and short-term investments, additional liquidity sources
include a $2.5 billion revolving credit facility, or Credit Facility,
uncommitted domestic and international credit lines, the ability to issue up to
$2 billion of commercial paper, and access to the capital markets. These sources
of liquidity fund our non-discretionary cash requirements and our discretionary
spending.
Working capital is our principal non-discretionary funding requirement. In
addition, we have contractual obligations related to our senior notes, recurring
business operations, primarily related to lease obligations, and contingent
purchase price obligations (earn-outs) from prior acquisitions. Our principal
discretionary cash spending includes dividend payments to common shareholders,
capital expenditures, strategic acquisitions and repurchases of our common
stock. As a result, we have a short-term borrowing requirement normally peaking
during the second quarter of the year primarily due to the timing of payments
for incentive compensation, income taxes and contingent purchase price
obligations.
Based on past performance and current expectations, we believe that our
operating cash flow will be sufficient to meet our non-discretionary cash
requirements, and our discretionary spending for the next twelve months. Our
cash and cash equivalents and short-term investments, access to the commercial
paper market, Credit Facility, uncommitted credit lines and access to the
capital markets provide additional sources of liquidity.
Cash and cash equivalents decreased $1.2 billion from December 31, 2016 and
short-term investments increased $19.8 million from December 31, 2016. During
the first six months of 2017, we used $331.0 million of cash in operating
activities, which included the use for operating capital of $1.1 billion, which
typically occurs in the first half of the year. Our discretionary spending
during the first six months of 2017 was: capital expenditures of $67.9 million;
dividends paid to common shareholders of $260.7 million; dividends paid to
shareholders of noncontrolling interests of $67.3 million; repurchases of our
common stock, net of proceeds from stock option exercises and related tax
benefits and common stock sold to our employee stock purchase plan, of $468.2
million; and acquisition payments, including payment of contingent purchase
price obligations and acquisition of additional shares of noncontrolling
interests, net of cash acquired, of $98.7 million.
Cash Management
Our regional treasury centers in North America, Europe and Asia manage our cash
and liquidity. Each day, operations with excess funds invest these funds with
their regional treasury center. Likewise, operations that require funds borrow
from their regional treasury center. The treasury centers aggregate the net
position which is either invested with or borrowed from third parties. To the
extent that our treasury centers require liquidity, they have the ability to
issue up to a total of $2 billion of U.S. Dollar-denominated commercial paper or
borrow under the Credit Facility or the uncommitted credit lines. This process
enables us to manage our debt more efficiently and utilize our cash more
effectively, as well as manage our risk to foreign exchange rate imbalances. In
countries where we either do not conduct treasury operations or it is not
feasible for one of our treasury centers to fund net borrowing requirements on
an intercompany basis, we arrange for local currency uncommitted credit lines.
We have policies governing counterparty credit risk with financial institutions
that hold our cash and cash equivalents and we have deposit limits for each
institution. In countries where we conduct treasury operations, generally the
counterparties are either branches or subsidiaries of institutions that are
party to the Credit Facility. These institutions generally have credit ratings
equal to or better than our credit ratings. In countries where we do not conduct
treasury operations, all cash and cash equivalents are held by counterparties
that meet specific minimum credit standards.
At June 30, 2017, our foreign subsidiaries held approximately $721 million of
our total cash and cash equivalents of $1.8 billion. The majority of this cash
is available to us, net of any taxes payable upon repatriation to the United
States. Changes in international tax rules or changes in U.S. tax rules and
regulations covering international operations and foreign tax credits may affect
our future reported financial results or the way we conduct our business.

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Our net debt position, which we define as total debt, including short-term debt,
less cash and cash equivalents and short-term investments, at June 30, 2017
increased $1.1 billion as compared to December 31, 2016. The increase in net
debt is due to a decrease in cash and cash equivalents and short-term
investments of $1.1 billion primarily arising from the unfavorable change in our
operating capital of $1.1 billion, which typically occurs in the first half of
the year. As compared to June 30, 2016, net debt decreased $422.3.
The components of net debt as of June 30, 2017, December 31, 2016 and June 30,
2016 were (in millions):
                                             June 30, 2017       December 31, 2016       June 30, 2016
Short- term debt                           $          19.3     $              28.7     $          11.5
Long-term debt, including current portion          4,930.0                 4,920.6             5,022.4
Total debt                                         4,949.3                 4,949.3             5,033.9
Less: Cash and cash equivalents and
short-term investments                             1,874.4                 3,022.8             1,536.7
Net debt                                   $       3,074.9     $           1,926.5     $       3,497.2


Net debt is a Non-GAAP liquidity measure. This presentation, together with the
comparable U.S. GAAP liquidity measures (see Debt Instruments and Related
Covenants), reflects one of the key metrics used by us to assess our cash
management. Non-GAAP liquidity measures should not be considered in isolation
from, or as a substitute for, financial information presented in compliance with
U.S. GAAP. Non-GAAP liquidity measures as reported by us may not be comparable
to similarly titled amounts reported by other companies.
Debt Instruments and Related Covenants
At June 30, 2017, our short-term liquidity sources include the $2.5 billion
Credit Facility, domestic and international uncommitted credit lines aggregating
$1.1 billion, and the ability to issue up to $2 billion of commercial paper.
The Credit Facility contains financial covenants that require us to maintain a
Leverage Ratio of consolidated indebtedness to consolidated EBITDA of no more
than 3 times for the most recently ended 12-month period (EBITDA is defined as
earnings before interest, taxes, depreciation and amortization) and an Interest
Coverage Ratio of consolidated EBITDA to interest expense of at least 5 times
for the most recently ended 12-month period. At June 30, 2017, we were in
compliance with these covenants as our Leverage Ratio was 2.2 times and our
Interest Coverage Ratio was 10.8 times. The Credit Facility does not limit our
ability to declare or pay dividends or repurchase our common stock.
At June 30, 2017, the total aggregate principal amount of our fixed rate senior
notes was $4.9 billion and the total notional amount of the fixed-to-floating
interest rate swaps was $1.25 billion. The interest rate swaps have the economic
effect of converting our debt portfolio to approximately 75% fixed rate
obligations and 25% floating rate obligations.
Omnicom and its wholly owned finance subsidiary Omnicom Capital Inc., or OCI,
are co-obligors under all the senior notes. The senior notes are a joint and
several liability of us and OCI and we unconditionally guarantee OCI's
obligations with respect to the senior notes. OCI provides funding for our
operations by incurring debt and lending the proceeds to our operating
subsidiaries. OCI's assets consist of cash and cash equivalents and intercompany
loans made to our operating subsidiaries and the related interest receivable.
There are no restrictions on the ability of OCI or us to obtain funds from our
subsidiaries through dividends, loans or advances. Our senior notes are senior
unsecured obligations that rank equal in right of payment with all existing and
future unsecured senior indebtedness.
Credit Markets and Availability of Credit
We typically fund our day-to-day liquidity by issuing commercial paper. As an
additional source of liquidity, we may borrow under the Credit Facility or the
uncommitted credit lines. At June 30, 2017, there were no outstanding commercial
paper issuances or borrowings under the Credit Facility or the uncommitted
credit lines.
Commercial paper activity for the three months ended June 30, 2017 and 2016 was
(dollars in millions):
                                                 2017          2016

Average amount outstanding during the quarter $ 1,189.8 $ 1,096.3 Maximum amount outstanding during the quarter $ 1,664.7 $ 1,608.9 Average days outstanding

                           13.3           9.5
Weighted average interest rate                     1.22 %        0.68 %



                                       28

--------------------------------------------------------------------------------



At June 30, 2017, our long-term and short-term debt was rated BBB+ and A2 by S&P
and Baa1 and P2 by Moody's. Our access to the commercial paper market and the
cost of these borrowings are affected by our credit ratings and market
conditions. Our senior notes and Credit Facility do not contain provisions that
require acceleration of cash payments in the event our debt credit ratings are
downgraded.
We expect to continue funding our day-to-day liquidity by issuing commercial
paper. However, disruptions in the credit markets may lead to periods of
illiquidity in the commercial paper market and higher credit spreads. To
mitigate any future disruption in the credit markets and to fund our liquidity
we may borrow under the Credit Facility or access the capital markets if
favorable conditions exist. We will continue to monitor closely our liquidity
and conditions in the credit markets. We cannot predict with any certainty the
impact on us of any future disruptions in the credit markets. In such
circumstances, we may need to obtain additional financing to fund our day-to-day
working capital requirements. Such additional financing may not be available on
favorable terms, or at all.
CREDIT RISK
We provide advertising, marketing and corporate communications services to
several thousand clients who operate in nearly every industry sector of the
global economy and we grant credit to qualified clients in the normal course of
business. Due to the diversified nature of our client base, we do not believe
that we are exposed to a concentration of credit risk as our largest client
accounted for 3.0% of our revenue for the first six months of 2017. However,
during periods of economic downturn, the credit profiles of our clients could
change.
In the normal course of business, our agencies enter into contractual
commitments with media providers and production companies on behalf of our
clients at levels that can substantially exceed the revenue from our services.
These commitments are included in accounts payable when the services are
delivered by the media providers or production companies. If permitted by local
law and the client agreement, many of our agencies purchase media and production
services for our clients as an agent for a disclosed principal. In addition,
while operating practices vary by country, media type and media vendor, in the
United States and certain foreign markets, many of our agencies' contracts with
media and production providers specify that our agencies are not liable to the
media and production providers under the theory of sequential liability until
and to the extent we have been paid by our client for the media or production
services.
Where purchases of media and production services are made by our agencies as a
principal or are not subject to the theory of sequential liability, the risk of
a material loss as a result of payment default by our clients could increase
significantly and such a loss could have a material adverse effect on our
business, results of operations and financial position.
In addition, our methods of managing the risk of payment default, including
obtaining credit insurance, requiring payment in advance, mitigating the
potential loss in the marketplace or negotiating with media providers, may be
less available or unavailable during a severe economic downturn.

© Edgar Online, source Glimpses

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Financials ($)
Sales 2017 15 263 M
EBIT 2017 2 074 M
Net income 2017 1 184 M
Debt 2017 2 282 M
Yield 2017 2,75%
P/E ratio 2017 16,25
P/E ratio 2018 15,06
EV / Sales 2017 1,39x
EV / Sales 2018 1,34x
Capitalization 18 950 M
Chart OMNICOM GROUP INC.
Duration : Period :
Omnicom Group Inc. Technical Analysis Chart | OMC | US6819191064 | 4-Traders
Technical analysis trends OMNICOM GROUP INC.
Short TermMid-TermLong Term
TrendsNeutralBearishNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 17
Average target price 84,4 $
Spread / Average Target 2,8%
EPS Revisions
Managers
NameTitle
John D. Wren President, Chief Executive Officer & Director
Bruce Crawford Chairman
Philip J. Angelastro Chief Financial Officer & Executive Vice President
John R. Purcell Independent Director
Leonard S. Coleman Lead Independent Director
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