Omnicom Group Inc. (OMC) Q4 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, good morning and welcome to the Omnicom Fourth Quarter 2014 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to now introduce you to your host for today’s conference call, Vice President of Investor Relations, Shub Mukherjee. Please go ahead.

Good morning. Thank you for taking the time to listen to our fourth quarter 2014 earnings call. On the call with me today is John Wren, President and Chief Executive Officer and Phil Angelastro, Chief Financial Officer. We hope everyone has had a chance to review our earnings release we have posted on our website at www.omnicomgroup.com website, both our press release and the presentation covering the information that we will be reviewing this morning. This call is also being simulcast and will be archived on our website. Before we start, I have been asked to remind everyone to read the forward-looking statements and other information that we have included at the end of our Investor Presentation and to point out that certain of the statements made today may constitute forward-looking statements and that these statements are our present expectations and that actual events or results may differ materially. I would also like to remind you that during the course of the call, we will discuss some non-GAAP measures in talking about Omnicom’s performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation material. We are going to begin this morning’s call with an overview of our business from John Wren. Then Phil Angelastro will review our financial results. And then we will open up the line to your questions.

Thank you, Shub. Thank you for joining us. Good morning. I am pleased to speak to you about our fourth quarter and the full year 2014 business results. As you have seen in our press release, Omnicom had a solid fourth quarter with organic growth of 5.9% giving us strong finish to the year. Before I discuss our results in detail, I want to reflect upon a number of factors that impact Omnicom, our clients and their consumers in countries where they operate. First, from a macroeconomic perspective, recent declines in oil and commodity prices are helping the consumer and many industries and countries. At this point, the U.S. economy looks to be the biggest beneficiary of these changes with the decline in oil prices likely being additive to U.S. GDP in 2015. When you move from the U.S. to the global economy, we are seeing a divergence for the first time in central bank policies and actions. Central banks from Australia to Europe, Canada have been lowering borrowing cost to try to kick start growth in their economy. As a result, their currencies have declined versus the U.S. dollar. At Omnicom, a little over 46% of our revenues are generated outside the United States. The significant change in exchange rates resulted in a 3.1% reduction in our revenue in the fourth quarter and will impact our reported results in 2015. At the same time, it’s important to point out that most of our non-U.S. operations are naturally hedged as both revenue and expenses are in the same currency. Both Phil and I will discuss the impact of foreign currency fluctuations in more detail later in the call. From an industry perspective, we are undergoing a major transformation as new digital tools and platforms emerge with media and technology evolving at an astonishing pace. In 2014, digital ad spend worldwide exceeded $137 billion, a 15% increase. We expect that shift to digital will only accelerate over the next 5 years. There are also changes at Omnicom in 2014. In May, we made a mutual decision with Publicis to terminate our proposed merger, which had been announced in July 2013. And later in the third quarter, we made leadership changes in top positions at Omnicom corporate and the TBWA network. Given these macro industry and company events, I am delighted with the results we report this morning. Our performance in this environment says a lot about the strength of our culture, the quality of our people and the depth of our leadership and governance. Let me now turn to our revenue performance by region. In the fourth quarter, North America grew 8.3% driven by the continued strong performance of our media business as well as solid results from public relations and our specialty healthcare business. In the UK, our agencies continued to perform very well with revenue up 6.2% in the quarter. On the continent, overall growth was 1.2%. More specifically, the euro currency markets were flat. Germany was positive, while France and the Netherlands continued to drag on the region. We are hopeful that the latest central bank actions combined with structural reforms will lead to stability and ultimately economic growth. Growth in the rest of the region was relatively strong led by Sweden and Turkey and Russia was up despite economic turbulence. Latin America was down slightly in the quarter due to the loss of government accounts in Chile in mid 2014. Asia’s growth was up 3.2%, with key contributors this quarter being India and Singapore. We also had strong growth throughout the Middle East. As promised, our margins for the quarter were on plan. This result was achieved despite negative margin pressures due to the currency declines I discussed earlier. For the full year 2014, Omnicom’s worldwide organic growth was 5.7%. Our total revenue increased to $15.3 billion and our earnings per share was $4.23, a 10.2% increase from 2013 after excluding related costs to the proposed Omnicom Publicis merger. Turning to our cash flow and return on capital, in 2014, we generated just shy of $1.6 billion in free cash flow, an increase of $125 million year-over-year. We returned approximately $1.5 billion of cash to shareholders through dividends and net share repurchases. As you may recall, post the termination of the proposed Publicis Omnicom merger, our Board of Directors increased our quarterly dividend by 25% to $0.50 per share and we resumed our share repurchase program. Looking forward, our practice for use of cash, dividend, acquisitions and share repurchases remains unchanged as does our commitment to the strong balance sheet and then maintaining our credit rating. As we move into 2015, given the current environment we remain focused on the things we can control. Our management teams are dedicated to servicing their client needs, attracting and retaining the best talent, while at the same time being laser focused on managing costs. I want to thank our people, our clients and all of our stakeholders for their contributions to our fourth quarter and for the full year results for 2014. Our strong and consistent performance, are a testament to the fact that Omnicom’s long-term strategies are working. As I have said before we are attracting, retaining and developing top talent, expanding our capabilities in both new markets and new service areas, building our digital data and analytical capabilities by investing in our agencies and partnering with innovative technology companies and delivering big ideas based upon meaningful consumer insights across all of the channels that we operate. Our ability to stay on top or ahead of the change simply puts we have the best talent in the business which is why we win more than our fair share of the industry’s recognition awards and business. Last quarter Omnicom agencies continued their tradition of being most creatively awarded company in the world. Let me just mention a few of the highlights. BBDO was named most awarded agency network in the world in 2014 by the Gunn Report for the ninth consecutive year. DDB was the second most awarded network. OMD was named global media agency of the year by Adweek. Advertising Age honored Adam&Eve DDB as international agency of the year. And Alma DDB won multicultural agency of the year. At the Campaign Asia-Pacific Agency of the year award, TBWA and DDB won creative agencies for the year in Japan, Korea, Malaysia, New Zealand, Southeast Asia, Philippines and Indonesia. And there were many others. I want to congratulate all of our people and agencies for their outstanding performance and creativity in 2014. As I mentioned earlier and as you all know, our industry is becoming increasingly complex and our clients are looking to us for ways to navigate this rapidly changing landscape. At Omnicom we are continually expanding our capabilities to meet our clients’ needs. Technology is providing tools and we are providing the brain to deliver actionable consumer insights, develop better ways to target consumers and then reaching them across many different disciplines in media to give Omnicom clients the best possible solution. Our internal investments in people, our technology partnerships and our acquisitions have allowed us to expand our company and participate in these rapidly growing areas. 2014 more than any year I can remember was the year that we truly saw the convergence of technology creativity and media changed the way our agencies operate. Several events come to mind, as part of our partnership deals with tech companies our creative talent is working side by side with engineers from Facebook, Google, Instagram, Twitter and others. And the net result is increasing innovative solutions to our clients. As an example Lowe’s, which was among the first to use Vines as a marketing tool with its award-winning Fix in Six campaign launched it’s Next Generation of Vines, using Tap Thru and HyperMade. These are new, innovative technologies that deliver unique and differentiated content to consumers. The campaign for Lowe’s is a fully integrated effort together our agencies and tech partners did everything from creative and targeting the media placement and analytics. We are seeing this trend to play out as we broaden our reach and functionality of Annalect Data Management Platform, an investment we began in 2013. As an example data analysts from Annalect are part of the creative and digital teams servicing multiple clients. These teams are leveraging data and analytics to help inform planning and creative to deliver relevant content to optimize campaign with the real-time insights. The result is much greater precision delivering the right message to the right audience at the right time and on the right device. Finally, our acquisitions are also supplementing our expansion into rapidly growing areas. Earlier this month, we acquired TLGG, a strategic consulting and digital agency in Germany. Late in 2014, we have purchased Washington-based DDC Advocacy, an innovative CRM agency for clients in the Public Affairs space. And Omnicom’s DAS took full ownership of Critical Mass, a leading global digital shop. In 2015, we continue to focus our acquisition efforts in key markets and areas of growth, including media, data and analytics, CRM, production and healthcare. Looking back on a year of unprecedented changes, Omnicom continues to be an industry leader embracing new technologies, delivering outstanding creativity for our clients and their brands and generating an exceptional total return to shareholders. I want to recognize a more than 70,000 people for bringing their A games to our clients everyday. I will now turn the call over to Phil for a closer look at the numbers.

Thank you, John and good morning. As John said, our operating companies have continued to perform very well delivering against their operating and strategic objectives and maintaining their focus on meeting the needs of their clients. As a result of the excellent performance of our agencies, revenue for the quarter came in at just about $4.2 billion, up 3.4%. The year-over-year increase was driven by continued strong organic growth of 5.9%, this despite a considerable FX headwind this quarter of 3.1%. FX was negative this quarter across virtually every currency we operate in. I will discuss our revenue growth in detail in a few minutes. Turning to the figures below revenue, a quick reminder, as you know, we terminated the merger this past May. During the fourth quarter of ‘13, we incurred $13.3 million of merger-related costs. These costs are included in our GAAP results for 2013. In discussing our performance for the quarter, my comments will compare the current quarter to last year’s Q4 results excluding the impact of the merger-related expenses. You can find this non-GAAP presentation in the supplemental financial information section on Slides 19 through 24. Turning to Slide 19, our EBITDA for the quarter increased to $609 million from $589 million, an increase of 3.5% compared to Q4 last year. The resulting EBITDA margin for the quarter was 14.5% unchanged versus Q4 last year. As said previously, the sharp decline in value relative to the U.S. dollar of virtually all currencies we operated in negatively impacted our revenues across all of our international operations, because the vast majority of our expenses are denominated in same local currencies as our revenues, the negative impact of FX on our margins in the quarter was manageable. Despite this FX headwind, we continue to see a positive impact from our efforts to drive efficiencies throughout our organization and our agency and to control our cost. Operating income or EBIT performed similarly to EBITDA increasing $15 million or 2.6% to $579 million. And our operating margin of 13.8% was down slightly versus Q4 2013 due to the increase in amortization on our intangible assets. Now, turning to the items below operating income, net interest expense for the quarter is $30 million, down $1.4 million from the third quarter and down $9.8 million year-over-year. As compared to Q3 while we incurred additional interest expense related to the $750 million of 10-year senior notes that we issued early in the fourth quarter, the increase was effectively offset by the impact of the fixed to floating interest rate swaps we entered into late in the third quarter related to our 2020 senior notes. Net interest expense was also reduced by additional interest income earned by our international treasury centers as a result of higher than average cash balances in Q4 as compared to Q3. Versus last year, net interest expense was down $9.8 million in the quarter. This was primarily due to the positive impact of the interest rate swaps we entered into over the past year in mid Q2 and late Q3, net of the additional interest expense related to the new issuance of senior notes in Q4 of 2014 plus benefits from our cash management efforts in the form of increased interest income earned by our international treasury centers. Our quarterly tax rate of 33.2% is in line with our normal expectations. Earnings from our affiliates were up slightly in the quarter to $5.7 million and the allocation of earnings to the minority shareholders and our less than fully owned subsidiaries increased $3.4 million to $43.4 million as a result of improved performance at several of our existing subsidiaries that have local minority owners as well as at several of our new acquisitions. As a result, net income was $329.5 million, that’s an increase of $15.7 million or 5% versus Q4 last year and an increase of 9.7% compared to the 2013 reported amount. Now, turning to Page 21, the remaining net income available for common shareholders for the quarter after the allocation of $5.6 million of net income to participating securities, which for us or the unvested restricted shares held by our employees, was $323.9 million, an increase of 5.7% versus Q4 last year. You can also see our diluted share count for the quarter was $249.9 million, which is down 4.1% versus last year as a result of the resumption of our share buyback program during the second quarter of 2014. Given our overall strong performance in the quarter, diluted EPS for the quarter was $1.30, an increase of $0.12 or 10.2% versus Q4 2013 or up $0.17 and 15% compared to the 2013 reported amount. On Slides 22 through 24, we provide the summary P&L, EPS and other information for the full year. To save some time, I will just give you a few highlights. Full year revenue was up 5% driven predominantly by organic growth of 5.7% with FX going from positive for the first nine months of the year to slightly negative for the year and net acquisitions turning from negative for the first nine months of the year to slightly positive for the year. EBITDA increased 4.3% to $2.05 billion, while our full year EBITDA margin was 13.4%, down about 10 basis points versus last year. As a reminder, the 2014 EBITDA amount include $8.8 million from merger-related costs incurred earlier in the year. Our effective tax rate for the year was 32.8% slightly below our operating rate of 33.2%, reflecting the impact of the tax benefit we recognized upon termination of the merger in the second quarter. The benefit related to merger expenses recognized in 2013 which are required to be capitalized for tax purposes at that time. Net income for the year was $1.1 billion, up 7.6% over 2013 and our full year diluted EPS was $4.24 per share, up $0.40 versus 2013 non-GAAP amount of $3.84 and up $0.53 versus our reported 2013 amount of $3.71. Excluding the impact of merger expenses and the related tax benefits from both years, full year diluted EPS for 2014 was $4.23 per share, up 10.2% versus 2013 diluted EPS of $3.84. Turning back to Slide 7, we shift the discussion to our revenue performance. First, with regard to FX on a year-over-year basis in the fourth quarter, the U.S. dollar strengthened against every one of our major currencies, most notably the euro as well as the Australian and Canadian dollars, the real, the ruble and the yen. This decreased our revenue for the quarter by $129 million or 3.1%. Looking ahead, considering the recent steep decline in the value of all major currencies against the dollar in a relative short period of time, these FX rates for 2015 stay where they are. FX could have a negative impact on our revenues approximately 5.5% during the first quarter of 2015 and approximately 5% for the year. Given it is only early February, it’s hard to predict what will happen to FX rate for the balance of the year. Revenue from acquisitions, net of dispositions, increased revenue by $26 million driven by our recent acquisitions in Brazil, Chile, Germany, Turkey, and the UK as well as here in the U.S. With the transactions that we have completed through December 31, we expect acquisitions net of dispositions to add about 50 basis points to 60 basis points to revenue in the first quarter and the year. And finally, organic growth was positive $240 million or 5.9% for the quarter. It was another strong quarter with positive organic growth across all of our markets, with the exception being France, Italy, the Netherlands, Japan and South Korea and the smaller markets of Latin America. The primary drivers of our growth this quarter included the continued excellent performance across our media businesses driven by the continuing expansion of our media offerings and new business wins, continuing strength domestically and in the UK with the PR and specialty businesses turning in solid performances this quarter. In addition to the strong performance in the U.S. and the UK, our agencies in the emerging markets continue to perform very well. This quarter we had excellent performances in India, Mexico and the UAE. In the euro markets, overall organic growth was basically flat. Germany and Spain were again positive as they have been for several quarters, while the French and Dutch markets are still struggling. And we continue to see generally good performance across our businesses in our other markets, including Brazil, China, India and our non-euro markets in Europe, although the rate of growth continues to be somewhat uneven market by market. Slide 8 covers our full year revenue performance, which is basically in line with this quarter’s results, except for FX, which was slightly positive for the first nine months before turning slightly negative for the year. On Slides 9 and 10 we present our regional mix of business. During the quarter, the split was 57% for North America, 10% for the UK, 18% for the rest of Europe, 10% for Asia-Pacific, 3% for Latin America and 2% for Africa and the Middle East. Turning to the details on Slide 10, in North America, we had organic revenue growth of 8.3% again primarily driven this quarter by the performance of our media businesses, healthcare and PR businesses. The UK once again had a very strong quarter and has been consistently positive organically for the last two years. The rest of Europe was up 1.2% led by a solid performance in Germany, continuing strong performance in Spain and our other non-euro markets in Europe. On the downside, France and Netherlands continue to struggle. Asia-Pacific was up 3.2%. We had strong performances across the region with India and Singapore leading the way with double-digit growth. China also had a solid quarter, especially in light of a difficult comp versus Q4 of 2013 while Japan and South Korea also facing difficult comps versus Q4 of 2013 experienced softness in the quarter. Latin America overall was down slightly. The positive performance in Brazil also facing a difficult comp versus Q4 of last year and Mexico was offset by weakness and Chile related to the loss of the significant decline in that market, which will continue to cycle into the first half of next year. In Africa and the Middle East regions, although off a small base was up 14% led by a very strong quarter from our businesses in the UAE. Slide 11 shows our mix of business for the quarter, which again was split about evenly between advertising and marketing services. As for their respective organic growth rates, brand advertising was up 8.5% primarily driven by the excellent performance of our media businesses and marketing services overall was up 3.4%. Within marketing services, CRM coming off a robust performance in Q4 of 2013 was up 1%. The performance was mixed by business and discipline in Q4. Our events in fuel marketing businesses had a challenging quarter, while the direct marketing sales promotion and research businesses had strong performances with trends across several markets. Public relations, was up 8.5% relative to a challenging Q4 2013 and reflecting strength in the U.S. and the UK in 2014. Specialty communications was up about 9.4% on the strength of our healthcare businesses in the U.S. and the UK partially offset by some weakness in Japan. On Slide 12, we present our mix of business by industry sector, keeping in mind these year-to-date figures, total growth, not just organic growth. As you can see, we are up in almost all categories. The larger changes were in our telecom and other industries group. Telecom continues to be impacted by the loss of Blackberry and within other, we benefited from new business wins and project spending from our services clients. Turning to our cash flow performance on Slide 13, in 2014, we generated $1.58 billion of free cash flow, including changes in working capital, an increase of 8.6% versus 2013. As for our primary uses of cash on Slide 14, dividends paid to our common shareholders were $468 million, up significantly from last year. As a reminder in 2013, we only made three dividend payments, because we paid our normal Q1 dividend in the fourth quarter of 2012. Additionally, we increased our quarterly dividend earlier this year. Dividends paid to our non-controlling interest shareholders totaled $111 million. Capital expenditures were $213 million, which was in line with our expectations for the year. Acquisitions including earn-out payments net of proceeds received from the sale of investments totaled $207 million and stock repurchases net of the proceeds received from stock issuances under our employee share plans totaled $994 million. Since we restarted our share repurchase program in mid-May post the termination of the merger, we have purchased about 14.3 million shares net. As a result, we outspent our free cash flow by about $410 million for the year. Turning to Slide 15 focusing first on our capital structure, as you maybe aware, we issued $750 million in 10-year senior notes, a 3.65% during the fourth quarter. As a result, our total debt increased to $4.6 billion as of December 31 and our leverage approximates our historic norms. And our net debt position at the end of the quarter was $2.2 million. The increase in our net debt of $869 million over the past year was driven primarily by the use of cash in excess of our free cash flow as we just discussed as well as the negative impact of FX translations on our cash balance at December 31, 2014 of approximately $275 million. In spite of the increase in our debt, our ratios remain very strong. Our total debt to EBITDA was two times and our net debt to EBITDA ratio was one time. And due to both the decrease in our interest expense and the increase in EBITDA, our interest coverage ratio improved to 12.6 times. Turning to Slide 16, we continue to successfully build the company through a combination of prudently priced acquisitions and well-focused internal development initiatives. For the last 12 months, our return on invested capital increased 20.3% and return on equity increased 34.3%. And finally on Slide 17, we track our cumulative return of cash to shareholders since 2004. The line on the top of the chart shows our cumulative net income from fiscal 2004 through 2014, which totaled $10 billion. And the bar show the cumulative return of cash to shareholders, including both dividends and net share repurchases to some of which during the same period totaled $10.8 billion for cumulative payout ratio of 108%. And that concludes our prepared remarks. Please note that we have included number of other supplemental slides on the presentation materials for your review. But at this point, we are going to ask the operator to open the call for questions. Thank you.

Thank you. [Operator Instructions] Our first question today comes from the line of Alexia Quadrani representing JPMorgan. Please go ahead.

Thank you. My first question is just on the strong growth you saw the organic growth picks in the U.S. in the quarter, is there anyway you can give us the sense about how much contributions the programmatic was to that growth in the quarter. And then I have a follow-up question really about the FX headwinds you are going to be seeing in 2000 – or continue to be seeing in 2015, do you think it’s possible to still maintain your margins in ‘15 with that headwind maybe from the natural leverage you get from the healthy organic growth you are seeing? Thanks.

Good morning, we were cycling on our programmatic business during the fourth quarter. And I believe the contribution to the gross in the quarter was about $20 million. Your second question on FX, at this point we are hoping that FX moderates as we go through the year. And looking at the first quarter and we have looked at in detail we believe we can maintain the margins in the first quarter. As Phil was speaking, I am looking at the news of a little bit and seeing Egypt came out this morning, every central bank seems to do something new everyday. So I can give you the assurance through the first quarter.

Okay. And then just a quick follow-up on the client loss in Latin America, I think you mentioned which created difficult performance in that quarter, do you know if that was the one-time sort of project or is that something that will be a headwind for the whole year?

That was a project – that was the client in Chile. We expect in the first half of ’15, that’s going to have a bit of a headwind as we cycle on it. It started kind of the end of the second quarter of ’14, so there will be a little bit of negative impact in showing that beginning in next year.

Okay. Thank you very much.

Sure.

Our next question comes from the line of David Bank with RBC Capital Markets. Please go ahead.

Hey, thanks very much. Actually a little bit of a follow-up to the first question on the margin target, I guess which realizing the difficulty of reading the tea leaves in a macro landscape that’s hugely volatile and central banks doing all kinds of conflicting things, but can you give us a broad sense of what the organic top line range needs to be in order for you to maintain your current level of margins?

I will let Phil take a shot of this and then I will add.

Yes. I mean I am not sure that we – I am not sure we look at it that way, but certainly the key to a lot of our businesses is being able to manage utilization rate. And the more growth we have the easier it is to manage those utilization rates, the easier it is to maintain and/or grow your margins. What we strive to do that regardless of what the growth rates are across all of our businesses. So FX has certainly posed a bit of a challenge for us from the margin perspective which is why I think we are not projecting and predicting and committing to what our margin is going to be for the full year ’15. But we always strive to find the right balance, we are always looking for efficiencies and trying to make our businesses more effective in the way they manage their cost structure. We had a number of initiatives that have been going on for sometime in the areas of real estate, IT and some others that we certainly continue to see the benefit of. And we are expecting if we need to push those initiatives in ’15, so that they can help us to offset whatever challenges the FX does present. And as we have said earlier, the businesses themselves are largely hedged naturally in terms of the local currency of the expenses is the same as the local currency of the revenues. So, that’s helpful, but it’s still certainly a challenge and we are going to continue to work through it everyday.

Okay. John, you said you had a follow-up?

As soon as I said I have listened to Phil and he added all.

Thanks. Thanks guys.

Our next question is from the line of Peter Stabler with Wells Fargo securities. Please go ahead.

Good morning. Thanks for taking the question. John, want to ask you about the media business separate from the programmatic stuff, media has been called out by you guys and your leading competitors as a significant contributor and outperform our – I don’t know maybe for the last four to six quarters, wondering if you could give a little perspective on what you think the drivers of this outperformance is? Is it the complexity of the landscape? We hear a lot about pricing pressure in media pitches, but it just doesn’t seem to be the case. So, any perspective here would be great? Thanks very much.

Certainly. I do think the complexity of the marketplace has caused people to pay more attention to media and in the thinking about media, God knows how many places you can place your messaging today, but focusing and getting that right is becoming increasingly important. So, the analysts, the people that we employ, the digital channels or channels that we select through the client to place that media is a critical attention in this environment. And we won I believe more than our fair share of media accounts being planning assignments or buying assignments over the last several years and it’s being reflected in the numbers now. If you saw the trade magazines yesterday, OMD was named agency of the year. So, we are getting the recognition not only in the business that we get, but also from peer groups and industry groups.

I know, it’s tough for you to forecast, but as you look at ‘15, do you think media could be an out-performer for this year as well?

I do.

Thanks very much.

Our next question is from the line of Tim Nollen representing Macquarie. Please go ahead.

Hi, thank you very much. I wonder if you could give a comment please at this stage beginning of the year of what client, how client budgets feel if I could put it that way. It seems like your organic performance has been very strong despite what is felt like some crimping of budget. I wonder if you would comment a bit on if there is any expansion of budget opportunities this year in general or maybe if you are seeing some pent-up demand or do you still feel like advertisers are just kind of holding back? And if you have any specific sector commentary that will be great considering especially the consumer packaged goods sector? Thanks.

In general, what we have seen to-date in process is the budgets are similar to the budget for ‘14 with growth in few categories more so than others. I think the other dynamic that’s occurring is as channels are developed and utilize them and you measure a better ROI on them, you will see a shift in the dollars, which for some it will look like growth, because it will be and for others as that money shifted from different channels in media, it will seem like there is the lack of growth. So, overall though, I think budgets are growing consistent with GDP growth in most markets.

Any specific sector commentary?

I suspect that German Cargill is going to have a brand time in 2015 because of the currency slinks. There are different sectors, different dynamics which drove those sectors.

Okay, thanks so much.

And we have a question from Craig Huber with Huber Research Partners. Please go ahead.

Yes, good morning. I have got a few questions. Your comment about the currency impact on the margin in the quarter, I think you said was a slight, should we assume that’s zero to 7 basis points year-over-year, it’s my first question?

I didn’t understand the question.

What was the impact, please on currency on margins year-over-year in the quarter, can you quantify that number?

In Q4, I would say that there was an impact, but it was relatively small less than 10 basis points in the quarter.

Okay. And then typically each quarter you guys shoot to have net new business wins of $1 billion and a little bit higher, what was that in the fourth quarter, please?

That was about $1.25 billion for the quarter.

Okay. Phil on the debt side, how much room do you think you have to add more debt potentially to buyback more stock or small acquisitions and not impact your credit rating?

I think we don’t exactly look at it that way in terms of how much more leverage we could or we would like to add. I think the goal here and the approach has always been to maintain our rating, which I guess you commented on there. But I think we are going to look at our free cash flow in ‘15 the same way we always have. And I think I am calling it up what we do with our cash. We are going to continue to pay healthy dividend. We will do acquisitions opportunistically as the opportunities arise. And we would certainly like to do more of those in ’15, there maybe some opportunities given some of the weaknesses in currencies, perhaps. But we don’t have a fixed number going into ‘15 that we plan on expending on acquisitions or plan on spending on share buybacks, but certainly it will be a healthy component of how we use our cash.

And then lastly John, if I could ask as you think about this year in terms of organic revenue growth for 2015, if I recall correctly, I think a year ago you guys thought organic revenue for 2014 would be up 4% to 4.5%, is your feeling somewhat similar as you are heading into 2015?

I am actually a little bit more cautious than that. At this point, I see it is more around 3.5%. And then we will see as markets and the business develop. That – I mean the way to read that prediction is, I am cautiously optimistic. And we will do our best to beat it, but that’s as much as I will be willing to commit over phone in February.

Thank you.

Our next question is from the line of Julien Roch representing Barclays. Please go ahead.

Yes, good morning. Thank you for taking the question. The question on use of cash, I know you have just said that you didn’t have a fixed number in mind in terms of buyback and M&A for 2015, but it would be a healthy proportion of the cash, but I guess if we start with your current net debt-to-EBITDA, maybe you have an indication of where you would like to be at the end of the year, in that way we can make our own assumption between dividend, buyback and M&A, but having a – maybe an indication of the overall envelop for 2015 would be useful, that’s my first question. The second one is on programmatic, you said that the impact was about $20 million in Q4, could we have the same number for the full year, please? These are my two questions.

On the first one, I think where we are at year end ‘14 in two times range for total debt to EBITDA is probably where you can expect us to be. That’s roughly then where we have been historically, we continue to look to maintain that ratio and I think that would be a good guide. I think the net debt number is a little bit harder to predict given the currency impact on that number. So I think we are going to focus on the later or the gross debt number a little bit more. And in terms of programmatic, I think we may have mentioned it earlier in our responses, but the contribution to growth was about $20 million or so that reflects from the cycling in Q4 on a strong performance in Q4 of ‘13 that we had mentioned, you can recall.

No, you did mention the $20 million that was for Q4, I was hoping we could get that number for the full year.

While the full year, the business itself for the full year is little less than 2% of our revenues and for the full year I think the number was just give me a minute – okay, the full year, the number was probably around in the $140 million range.

Okay, thank you very much. Very useful.

Our next question today is from the line of Dan Salmon with BMO Capital Markets.

Hey, good morning, everyone. Phil, just a quick one for you, you’ve noted in your prepared remarks a little higher international cash balance contributing to investment income, I was just curious are we facing a situation where that balance is growing a little bit faster than you are finding uses of it for considering that’s largely M&A. Do we have a situation where you feel like you are feeling a little constricted in what you can do with that? I am just curious to hear how those dynamics of where the cashes are changing?

No, I think the comment specifically related to higher international cash in Q4 versus Q3 of this year, so that we typically see in the fourth quarter relative to the third quarter. I think it was part of the explanation of the change in interest from Q3 to Q4. So, we don’t see it growing any different than we have in the past. I think we certainly are focused on bringing as much cash that’s overseas back to the U.S. as we can in a tax efficient way. That’s something we focus on a daily basis frankly, because we would rather have it back to the U.S. to deploy it, but I think given the current FX environment, current economic environment, we think we are likely to see some opportunity in Europe and frankly in some of the other markets outside the U.S. that might be a little more traffic to us from a pricing perspective. And if we do find them in ‘15, we are going to be happy to complete those acquisitions.

Okay, great. Thank you.

We have a question from the line of Ben Swinburne representing Morgan Stanley. Please go ahead.

Thanks. Good morning. Two questions. John, just going back to your outlook for ‘15, last year you guys did almost 6% organic, I realized programmatic drove part of that strength, but the underlying business grew quite nicely. Why do you think ‘15 will grow couple of 100 basis points slower? Is programmatic part of that deceleration? It would seem like the macro tailwinds in the U.S. are strong, QE in Europe is potentially going to help. I am just curious to get a little more color there? And then I just wanted to ask you about the Facebook relationship there.

Sure. Well, the programmatic, we have cycled on that and we have not gone into the supply side of that. So, I am expecting good growth from it, but not the type of growth we have had as we were starting it up. In terms of the marketplace, we continue to win business, there is no question, thank God we do, but with all the unrest in the world, I am just being optimistic but conservative in observing the obvious that it appears that the entire world’s economy is slowed down a bit. And we can make claims that we are going to outgrow that historically. We have been – historically, we do at least 100 basis points better than GDP growth. But there is a great deal of unrest out there. And so we will alter that estimate as we get more sight on it, as we go through the year, but right now, very comfortable with the 3.5% and I think that’s what we are going to see for – until some of these things start to clear up.

Got it. And just on the Facebook relationship announced with a lot of fanfare back in the fall, can you just update us on client response and sort of how that partnership is progressing from a data perspective? And if I could sneak one more back on programmatic to Phil on, is there is any impact to free cash flow particularly working capital from programmatic, a big year-over-year swing in working cap that impacted free cash flow, just wanted to see if that had to with programmatic?

Programmatic, no, not at all.

Okay.

And our relation with Facebook has been outstanding. They have been – they have given us a great deal of resources associated with the projects we are working on together, and relationship between Omnicom, Annalect and Facebook is very, very strong. We are good partners.

Okay. Thanks.

Yes, one more.

I think, given the timing operator of the market open, I think we have time for one more call.

Thank you. Our final question today will come from line of James Dix with Wedbush Securities. Please go ahead.

Good morning, guys. Just one follow-up on your growth outlook for 2015, John you mentioned the potential impact in the U.S. from lower energy prices, just curious whether you are seeing any impact on the client budget planning so far or is that just something you expect to see, if those lower oil prices continue. And then secondly just longer-term, John, you also mentioned you expect an accelerating shift to digital. Some of your senior operating management has been public about, trying to get clients to think about moving more of their budgets to video, in particular just curious to what is your view is of the potential impact on television budget since that’s really biggest source of spending for most of your clients globally and how do you think that dynamic plays out of the digital shift? Thank you?

The first part of your question, gas prices at this point, we haven’t seen clients come in with new budgets as a result of it. It just seems the current gas prices from where we said is like a tax break for the American consumer. And if history bears out that consumer will be out spending money. Clients will anticipate and react to that as it becomes reality later and I think later throughout ‘15. At least, we are hopeful that that’s going to be the case. And the second part of your question, I am sorry, I didn’t write it down, can you repeat the second part?

Sure, just what you think the impactions are in particular for TV budgets given your commentary that you think the shift to digital could be accelerating over the longer term and some public commentary by some of your senior operating management, the clients should be thinking about shifting more of their budget to video in particular?

Yes. Our folks too believe that there will be a shift – a greater shifts or continuing shift to digital or really streaming type of activities. The device in which it gets streamed on is not as important to us, so we don’t focus on it. So, there are lot of TV owners that own, media owners that own ultimate channels or own content that would be interested in order to get it to be streamed. So, I am not expert enough to comment in general on the TV business, but I do see anything that can be streamed on whatever device, you have to stream it on that’s where I see the increase coming.

Great. Thank you very much.

Thank you. Thanks everybody for joining the call.