OREANDA-NEWS. Fitch Ratings has affirmed the ratings of The Interpublic Group of Companies, Inc. (IPG) including its Issuer Default Rating (IDR) at 'BBB'. The Rating Outlook has been revised to Positive from Stable. A full list of rating actions follows at the end of the release.

The positive outlook reflects Fitch's belief that IPG's credit protection metrics and credit profile are strong for the 'BBB' rating. IPG's operating profile has shown marked improvement since FY 2012 (EBITDA margins have improved more than 200 bps), and the company continues to make progress to close the gap relative to its peer group. Fitch believes this improvement will continue as the business grows and IPG further scales its cost structure while maintaining its conservative financial posture.

KEY RATING DRIVERS
--IPG's ratings reflect its position in the industry as one of the largest global advertising and marketing services holding companies, its diverse client base, and its ample liquidity.

--The ratings incorporate the cyclicality of the advertising industry and potential top-line volatility due to client wins or losses in any given year. IPG has reduced its exposure to U.S. advertising cycles by diversifying into international markets and marketing services businesses. For FY 2015, approximately 41% of IPG's revenues were generated outside the U.S. IPG delivered organic revenue growth of 6.1% and 6.7% in 2015 and first quarter 2016, respectively. The company expects organic growth in the range of 3% to 4% in 2016. Fitch believes this is achievable given its current forecast for U.S. GDP growth and Worldwide GDP growth of 1.8% and 2.1%, respectively, for 2016.

--Digital ad spend continues to capture more of the total advertising market. IPG remains platform agnostic and the company remains focused on growing and strengthening its digital capabilities across their agency portfolio in line with market trends.

--The risk of revenue cyclicality is balanced somewhat by the flexible cost structures of IPG and the other global advertising holding companies. IPG has made significant progress in improving margins from 10.7% in FY 2009 to 14.4% in FY 2015. Fitch expects the EBITDA margin to continue improving reaching 14.7% by year-end 2016 and expects IPG to achieve peer level margins within the next two to three years, assuming low- to mid-single-digit organic revenue growth over this timeframe.

--The ratings reflect Fitch's expectation that IPG will manage unadjusted gross leverage to a level below 2.0x. Fitch expects capital deployment to go toward acquisitions, share buy backs and dividend growth. However, Fitch expects any such deployment to remain in the context of current ratings.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for IPG include:
--Margins expected to improve from cost controls and operating leverage;
--Model assumes constant dividend growth;
--Model assumes share buyback near prior ranges as well as ongoing acquisitions.

RATING SENSITIVITIES
Fitch would consider an upgrade if the Company continues to demonstrate improvement in its operating profile, specifically EBITDA margin of approximately 15%, to bring them more in line with industry peers while maintaining leverage below 2.0x.

Fitch is comfortable with management's willingness and ability to maintain its 'BBB' rating. However, a change in the company's posture regarding adequate bondholder protection over the near and long term could negatively affect the rating. This may include an unadjusted gross leverage greater than 2.75x, significant margin erosion, or sustaining free cash flow (FCF) margin below 3%.