宏盟集團 (OMC) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Omnicom fourth quarter 2011 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 today's conference call host, Executive Vice President, Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

Good morning. Thank you for taking the time to listen to our fourth-quarter 2011 earnings call. We hope everyone's had a chance to review our earnings release. We've posted to our website both the press release and a presentation covering the information that we'll be presenting this morning. This call is also being simulcast and will be archived on our website.

But before we start, I've been asked to remind everyone to read the forward-looking statements and other information that's included on Page 1 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 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 a reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials. We're going to begin the call with some brief remarks from John Wren. Then following John's remarks, we'll review our financial information for the quarter and then both John and I will be happy to take questions.

Good morning. I'm pleased to speak to you this morning about our latest business results, the progress we made in 2011 against our key strategic initiatives, and my thoughts for 2012. Thanks to an exceptional list of clients and the commitment, talent and creativity of our people, we have generated very strong results throughout 2011, and we end the year extremely well-positioned for future growth.

We recognized the global economy is operating at [three] speeds. As the European downturn continues to unfold, its impact for now is limited to Europe. Despite these problems, we continue to see significant opportunities for growth. Amidst the uncertainty, we continue to focus on the things we at Omnicom can control.

First, let me speak about the fourth quarter and 2011. Organic growth in the fourth quarter was up 5.2%. This reflected strong performance even in the face of difficult year-over-year comps. Our fourth quarter was driven by strong results across both disciplines [and] markets, with the notable exception of Euro markets, where growth was negative for the quarter. For the full year, organic growth was 6.1%.

In the quarter, we continued to expand our presence in key emerging markets. We announced the acquisition of a majority stake in Mudra Group, one of India's leading integrated marketing communication companies and we completed transactions in Turkey and South Africa. These transactions help us build our capabilities and expand our base of talent in these key markets.

During 2011, we also accelerated our investments in digital, social, mobile, and analytics across the networks. We continued to pursue a multi-pronged strategy built around the core idea that all of our agencies must have strong digital capabilities to compete in the future.

As a result, we are helping and pushing our agencies where needed to continue to accelerate the expansion of their digital expertise. We're also consolidating our expertise in knowledge and technology where appropriate.

Finally, we've acquired new capabilities to complement our existing skill sets. These investments are helping us to deliver innovative and integrated solutions for our clients and to expand our business into new areas. As one example of this integration, I'd like to highlight the [Bringing] Happiness Home campaign we just did for PepsiCo in China for the Chinese New Year.

It featured three of PepsiCo's strongest brands -- Pepsi, Lays, and Tropicana, and was delivered on TV, online, in-store and out of home. Two weeks into the campaign, the results have been outstanding. The 10-minute Mini-Movie at the center of the campaign has become China's number one online video and has been viewed more than 100 million times. That is what you call earned media.

Our agencies remain focused on delivering value for our clients and in promoting strong cultures built around talented and creative people who help us win in the market every day. You've all heard me say this before, in the battle between culture and strategy, culture eats strategy for breakfast every time. Driven by the creative cultures, Omnicom's agencies, together with their clients, were recognized around the world for their work in 2011.

While I can't mention all of the awards, I'd like to highlight a few. BBDO and DDB finished number one and number two in the Gunn Reports 2011 Most Awarded Agency Networks in the World. It was BBDO's sixth consecutive first-place finish, and DDB's third consecutive second-place finish.

BBDO was named 2011 Global Agency of the Year by both Adweek and Campaign magazines, and for the fifth year in a row, BBDO topped The Big Won. OMD was named Global Media Agency of the Year by Adweek and Media Agency of the Year by Ad Age. TBWA/Hakuhodo was named 2011 International Agency of the Year by Ad Age.

Ketchum was awarded the International Consultancy of the Year Honor by PR Week and LatinWorks was named Ad Agency Multicultural Agency of the Year. I want to personally congratulate all of our agencies for their outstanding work in 2011.

Finally, the strategic review of our portfolio of agencies, together with other steps we took during 2011 to improve our operation, resulted in significant progress towards our margin goal during the year. Randy will provide more detail on the specifics of our performance in the call. However, in 2012, we expect to achieve our goal of restoring margins to the 2007 level.

Now let me highlight a few key areas around our fourth-quarter and 2011 performance. By region, across our businesses and geographies, we saw a continued and often accelerating growth in the fourth quarter. Randy will take you through the details. Looking at our performance by industry, we continue to experience growth across almost all our segments.

Revenue during the quarter was particularly strong in auto, consumer products, financial services, and retail, while only a couple of areas had negative performance -- healthcare, pharmaceuticals, and travel and entertainment. For the year, all of our industry groups had positive organic growth.

On the new business front, we continue to see strong client retention rates, expansion of existing relationships, and meaningful new business wins. In the quarter, we generated in excess of $1 billion in net new business, bringing our total for the year to almost $4.5 billion.

Before turning to 2012, I'd like to point out a few measures that I think capture the value we have created for shareholders. First, our full-year 2011 net income increased over 15% and our EPS increased over 23%.

Second, we again generated over $1 billion in free cash flow, and taken together through share buybacks and dividends, we returned over $1 billion to shareholders in 2011. Last week, we also increased our dividend by 20%. Since 2009, we've doubled our dividend per share. And finally, our balance sheet remains extremely strong, providing us the flexibility to pursue attractive investments as they arise.

We believe our results reflect the highly diversified nature of our business by geography, by discipline, and by clients. All of these attributes allow us to take advantage of opportunities in fast-growing areas, while helping us to maintain greater stability in volatile economic environments.

As we look to 2012, we remain focused on returning our margins to 2007 levels, and we firmly believe that we will hit our targets. But that's not the end of the story. We'll continue to grow and strengthen our business performance in 2013 and beyond. With many of the actions necessary to achieve our margin goals significantly complete, we will turn a greater focus to accelerating growth.

As I previously mentioned, I think it is clear to everyone that we are operating in a world with three distinct speeds. And our efforts will be focused in the regions and areas where growth opportunities are most attractive.

Our core strategies to achieve growth remain the same. We believe that 2011 was the year in which the historical distinction between so-called traditional and digital media disappeared, as we had always said it would, at least with respect to the services we provide our clients.

Everything we do has a digital component to it, and the growth of mobile and IP TV is accelerating. As one of our clients put it, we have moved from an era of digital marketing to one of marketing in a digital world. This is a world in which everything is connected, and everything is always on. A world where new technologies emerge and disappear on an ever shorter cycle.

In this world, we believe that our competitive position is advanced by maintaining the flexibility to adapt fast to change by owning only those capabilities that allow us to add greatest value and developing mutually beneficial partnerships with companies and technologies, even those which are not yet proven. Our financial strength and our open-source approach to technology gives us the flexibility we need to succeed and limit the need to protect outdated services and platforms.

We believe we can add the greatest value to our clients by helping identify and find the most valuable audience segments, understanding their motivation and purchase behaviors, and then leveraging our creative strength to deliver compelling experiences to them at the most appropriate moments, and in a cost efficient way.

As I mentioned, our focus is not to own data or platforms, but on using the best data or platforms intelligently and on leveraging the many partnerships we have with media, technology, data and research companies to ensure we are maintaining access to the latest innovations and information in the marketplace.

We continue to invest in digital capabilities and expert people to build and expand our leadership in emerging service areas. And we are focused on taking advantage of the continued shift to a more interconnected activities by consumers and businesses as they extend further into social and mobile platforms.

We believe the world will become increasingly more complex, and our partnership approach versus making bets on specific digital platforms will allow us to adapt our services to new technologies that will help us seamlessly integrate digital within our clients' overall marketing strategies.

In 2012, we also plan to further expand our footprint in developing markets. Over the past few years, the percentage of our business generated from markets other than the US, UK, and Euro currency markets has grown significantly, and now represents over 22% of our business compared to 16.6% in 2009.

Our investments in digital and in developing markets will help us deepen and extend client relationships. Our top priority is to constantly challenge ourselves to add value to our incredible roster of clients.

None of this would be possible without the talented, creative and dedicated people at our agencies around the world. We continue to be a Company that believes that culture and talent are the essential ingredients for success and recognize that by investing in the training, development, and retention of our employees, we can drive long-term growth for the Company.

Finally, as I look across our agency networks, and talk to many of our leaders, I see more and more examples of integration and collaboration that drives client satisfaction. We continue to work to bring the best that we can offer to our clients across our networks, and to leverage our scale and specialization for their benefit. We expect more of that in 2012. I'll now turn the call back to Randy, who will take you through the numbers.

Thank you, John. Now turning to the details of our financial performance. Revenue for the quarter was up 7.4% to $3.85 billion, again exceeding our expectations due to the strong operating performance of many of our agencies.

Revenue for the full year came in up 10.6% at $13.87 billion. The strong revenue performance in the quarter, combined with our continuing emphasis on cost control, resulted in EBITDA of $511 million, up 11.2%. The EBITDA margins for the quarter was on target at 13.3% which was a year-over-year increase of about 50 basis points. For the full year, EBITDA increased 15.1% to $1.76 billion, and our EBITDA margin increased 50 basis points to 12.7%.

We did take a number of cost actions this year, including some 35 dispositions as well as severance actions costing more than $200 million. As a result, although not without challenges, we believe we're on track to achieve our previously stated target of 13.4% EBITDA margins for full year 2012. Net interest expense for the quarter was $30.3 million, down about $1.8 million from Q4 of last year, and down about $1.6 million from the third quarter.

The decrease versus Q3 was primarily the result of better cash management, resulting in increased interest income earned on our foreign cash balances. For the year, net interest expense was up $12.3 million, primarily related to the full-year impact of interest on the 10-year notes we issued in the middle of 2010. That increase was partially offset by increased interest income earned on our cash balances.

On the tax front, our reported tax rate for the quarter was 34.3%. And we expect our operating rates for 2012 to continue to be around 34%. Also worth noting, our income from equity method investments decreased about $3.5 million, and our minority interest increased about $3.3 million in the quarter.

Although there were a number of individual increases and decreases in these accounts, the primary driver for both numbers was our acquisition in the first quarter of an additional interest in the Clemenger Group, changing it from an affiliate to a consolidated subsidiary with a 26% minority interest.

As a result of all of that, our net income for the quarter increased a very solid 10.3% to $272 million. And for EPS, the 10.3% increase in net income, combined with the year-over-year share reduction of about 5%, resulted in diluted earnings per share increasing 15.7% to $0.96 - we believe a very solid quarter, and a good finish to the year. And with the significant actions taken this year, we believe we're well positioned going into 2012 for another successful year.

On Page 3, we take a closer look at our revenue performance. First, with regard to FX, over the course of the quarter, the US Dollar strengthened against many of our major currencies including the euro and the pound, which on a year-over-year basis resulted in FX adding only about $1 million to revenue this quarter.

Looking ahead, if rates stay where they are, we expect FX to be negative by about 1.25% in Q1, and about 1.5% for the full year 2012. However, FX rates have been pretty volatile recently, so we can't be certain how much they will change.

Revenue from acquisitions net of dispositions increased revenue by $80 million in the quarter, or about 2.2%. The more significant acquisitions this year include the Clemenger Group and Communispace, which we completed early in the year, and then Mudra, Marina Maher, and Medina/Turgul in Turkey late in the year. And as I mentioned previously, we completed a number of small dispositions during the year, mostly in the United States.

With regard to organic growth, we had another very strong quarter, well ahead of expectations, up 5.2%, or $185 million. For the full year, organic growth of 6.1% was driven by a combination of factors. First, very strong new business wins. Also rebound in spending by many clients, continued double-digit growth in the developing markets, and most importantly, our agencies continued to expand their capabilities and service offerings, utilizing the many new technologies and communication mediums that are being developed in the marketplace.

Turning to our mix of business, brand advertising accounted for 47.5% of our revenue, and marketing services, 52.5%. As for their respective growth rates, brand advertising to organic growth was 7.3% while marketing services was up 3.3%. Within the marketing services area, CRM had 6% organic growth and within this sector, sales promotion, branding, events and field marketing all had very strong performances in the quarter.

Public relations was marginally positive, and specialty communications decreased 5.1%. This was primarily the result of continuing declines in our recruitment marketing business and mixed performance in our healthcare businesses, with generally lower spending by a number of our pharma clients.

On Slide 5, our geographic mix of business in the quarter was split just about 50-50 between the United States and the international markets. In the United States, revenue increased $92 million, or 5%. Acquisitions, net of dispositions, reduced revenue by $4.5 million, and organic growth continued to be strong at 5.3%, even though we cycled on very strong year-over-year comparables.

International revenue increased $174 million, or about 9.9%. As I mentioned, FX was effectively neutral, increasing revenue by just under $1 million. Acquisitions, net of dispositions, increased revenue by $84.5 million, or about 4.8%, and organic growth while results were mixed by country overall increased 5% in the quarter or $88 million.

Specifically, in Asia we had very strong performances in Australia, India, Singapore, and China, while Japan was flat and Korea was marginally negative. We continued to have good results in Latin America, most notably in Brazil and Chile. We also had a strong performance in South Africa.

In Europe, results continue to be mixed. The UK and Russia performed very well, while France and Germany were basically flat. In southern Europe, results again were very mixed, with good results in both Spain and Portugal, while Ireland and Italy were marginally negative, and as you would expect, Greece had a difficult quarter.

Slide 6 shows our mix of business by industry. As you can see, we had growth in most industry sectors this quarter, with strong growth in autos, consumer products, retail, financial services, and telecom, and declines in pharma and travel and entertainment. The differences by sector were driven by a combination of business wins and losses in specific industry performance.

Turning to Slide 7, our year-end cash performance was in line with our expectations. We generated about $1.25 billion of free cash flow, excluding changes in working capital. Our primary uses of cash were capital expenditures of $186 million; acquisitions including earn-out payments net of proceeds received from the sale of investments of $428 million.

Dividends to common shareholders of $269 million; dividends paid to minority interest shareholders of $100 million; and share repurchases, net of proceeds, received from stock issuances under our employee share plans totaled $701 million. All in, we returned about $1 billion this year to our shareholders between dividends and share repurchases, and combined, this resulted in a net use of cash of approximately $438 million.

Also for anyone who missed the announcement, we recently increased our dividend again this year by 20%, so for 2012, we expect the dividend to be $0.30 per share per quarter. To better show the great cash flow characteristics of our business, we've added slide 8, which details the cumulative cash the Company's returned to shareholders over the past 10 years from 2002 through 2011. There are a few different lines on the chart. The top line is our cumulative net income over the period, which totaled a little more than $8.1 billion.

The bottom two lines show the cumulative dividends paid and the cumulative net share repurchases over that same period. The third line shows the combined cumulative cash return to shareholders. In total, just over $7.7 billion or about 95% of our cumulative net income for that period was returned to shareholders.

It's also worth noting that over the same 10-year period, the Company's revenue and net income both basically doubled from $6.9 billion to $13.9 billion in revenue this year and from $455 million to $953 million of net income.

Slide 9 shows our current capital structure. Our net debt position at the end of the quarter was approximately $1.4 billion, an increase of about $460 million. As a prior slide pointed out, the year-over-year increase was driven primarily by our return of about $1 billion to shareholders through the combination of dividends and share repurchases. Our leverage ratio or total debt-to-EBITDA ratio stands at 1.6 times, while our net debt-to-EBITDA ratio is below 1, at 0.7 times. Our interest coverage ratio remained very strong at 12.3 times.

Finally, on Slide 10, we continued to successfully build the Company to a combination of prudently priced acquisitions and well focused internal development. As a result, both a return on invested capital and return on equity continued to improve, reaching 18.8% and 26.9%, respectively, this year. There are several other supplemental slides included in the presentation materials for your review, but at this point, I'm going to ask the operator to open the call for questions.

(Operator Instructions) James Dix, Wedbush.

Just two questions. When you look at your progress towards your EBITDA margin target for the year, is there any particular seasonality that you think we should be thinking about by quarter? I know that can move around, but I'm just thinking in particular about the repositioning charges, which you took, which I think had some seasonality. Just wondering if there was any impact by season that we should be thinking about.

And then secondly, when you look at your outlook for growth by geographic region, and in particular Europe, is there any particular color you can provide on what you're expecting? Do you really expect much growth in particular from the Eurozone this year? Thanks.

The seasonality -- we do have seasonality across the different quarters. I think our improvement will probably be a little bit back-half weighted. We'll probably track our normal seasonality, but it shouldn't be a lot back-half weighted.

As far as geographic growth, I think there's a number of things to keep in mind. First of all, individual agency performance really supersedes the economy. If an agency goes out and through its innovation and creativity can grow its relationships with its existing clients, find new clients, then the economic backdrop, while it's always a factor, is really overwhelmed by the performance of the agency. So we're certainly looking to all of our agencies to use their creativity and energy to build their businesses, I'll say despite the economies.

The other thing I think that's important to keep in mind is that a large percentage of our client base are multinational clients. So they are connected -- the economies around the world are linked up through those individual clients.

The only thing I'd add to that is, depending on the day that you wake up, Europe is or isn't in the headlines. And we watch it as closely as everybody else does. And our statement that we're looking to similar growth is really reflective of that -- we know where we believe we will grow, we know what markets are growing at the present time that are not facing austerity and not facing the headlines every day. So we have very modest expectations across Europe.

Okay. Very good. Thanks.

John Janedis, UBS.

Randy, can you talk about how you're thinking about share repurchases here? Obviously, you upped the dividend last week. Should we expect the buyback to approach $1 billion again, and is the hope that acquisitions stay in that $400 million range for the year?

No, I don't think buybacks will approach $1 billion. We'll see. We made a commitment at the end of 2010 to, between 2010 and 2011, put that $1 billion of leverage back. If people recall, in 2009 we delevered the Company about $1 billion, so we decided at the end of '10 and '11 to put that back. So last year's share repurchases ended up where we overspent our free cash flow by about $450 million. We've basically committed to spending all of our free cash flow on the combination of dividends, acquisitions, and share repurchases. We haven't committed to go past that.

Thanks. Also quickly, can you speak to the project business during the quarter, what was the impact to organic?

In the fourth quarter?

Yes. I think the quarter came in basically as we expected, a little bit of a higher organic growth than we expected. But I think from a project standpoint, it was pretty much on track, and a normal year.

Thank you very much.

Alexia Quadrani, JPMorgan.

Thank you. Just first, a question to follow up, I think, on your earlier comment about the outlook in Europe. Would you say that the European performance, again, it's more the Eurozone, not UK, was relatively stable throughout the quarter, and into what you're seeing so far into Q1? Or was there any notable change that might give us a bit more insight in how this is progressing so far into 2012?

I'd characterize it as stable. When you look at the markets that declined, and then the underlying reasons, some of them were economic and some of the declines were us cycling out of changes in clients -- Netherlands comes up in particular, where we lost an account that was headquartered in the Netherlands. We won it back here in the United States; that had a slight impact. But Europe is a day-by-day event, where the conversation across the continent is austerity. So we can't be as clear or have as great a vision as we've had in the past until they get through the sovereign debt crisis.

Then on the budgets for, again, more globally now, for US as well, on the budgets for 2012 and I guess your conversations with your clients for spending this year. Could you give us a sense on how much of the increase in revenue that you're seeing is coming from just bigger budgets, more services provided to these clients? Or maybe the ability to regain some pricing or get back some of the discounting you may have given them in the downturn?

I don't think I've aggregated it client-by-client. But clients, I believe, are going to spend more money, and they want to spend it in the most efficient and targeted way that they can. So I think there is a commitment on the part of most clients to increase their spending. They want it to be in the absolutely most perfect spot. And where we can prove ROI, there's plenty of money and plenty of things for us to do. So that changes client-by-client, and industry-by-industry. But if I had to make a generalization, that's what I'd say to answer your question.

Just lastly, should we assume that the pharma stays weak for the foreseeable future?

Again, pharma's under pressure because drugs are coming off patent, and pharma's under a lot of pressure from the government. We did have one or two client losses which contributed to our weakness earlier in the year, which we should cycle out of in the first half of this year, which had an impact. I'm encouraged to say that offsetting those losses where we see the immediate impact, we had a very good season in the fourth quarter for winning some business, which we won't see the benefit for, for six to nine months, six months or so.

All right. Thank you very much.

Tim Nollen, Macquarie.

Hi, thanks. Two questions, please. One, I appreciate the information you gave on the amount you spent on cost cutting. It looks like $200 million you said, and the number of divestitures. Do you have any numbers you could give us in terms of what is left to do, what we can expect for 2012 in terms of divestitures and anything left to be spent on severance or other items?

And then secondly, touching back on something we haven't talked about in a few years, your convertible bonds. You have a put date coming up on one of them coming in July. What are your thoughts there on the two converts outstanding? Thanks.

Let's see. I know we have a couple of divestitures or dispositions that we continue to work on, so we know we at least have those to go. We will constantly evaluate businesses. We have a number of agencies that I'd say are on our very active watch list. So we have plans in place for them to change their business, and we'll monitor how that progresses over the course of the year.

As far as severance goes, every year there is some amount of severance. I don't think this year will be anywhere near as high as last year. We'll, again, monitor that as we go through the year. And as far as the converts go, based upon where the stock price and interest rates are at today, I don't believe we need to make any supplemental interest payment in order for the converts to stay outstanding.

Okay. Thanks.

Anthony DiClemente, Barclays Capital.

I have one for Randy and then one for John. Randy, forgive me, because we're a little bit newer to your model then maybe some other analysts on the call, but looking ahead to 2012, I think to get to that 13.4% margin, I feel like we either need to model a pretty high incremental margin year-over-year. I think that your incremental margin in 2011 was between 15% and 20%? Or we'd have to model accelerating revenue growth in 2012. So I'm just wondering if you could give us a little more on the margin outlook and dynamic, and if -- how headcount and personnel expenses would play a part in that?

Then I have a follow-up for John, which is -- you mentioned in your opening comments that all of your agencies are developing their digital capabilities; they're accelerating their expertise there. I'm curious on the digital side, are your agencies taking organic share of the online ad networks and online ad exchanges? Do you feel that those capabilities are being built up to a greater degree, such that it mitigates your need to go out and make acquisitions in the digital agency space? Or is your expertise the result of acquisitions that you have made? Just trying to understand that. Thank you for taking the questions.

Well, your first one is you're modeling the business incorrectly, or I should say you can't really model the business the way you're doing it from an Omnicom standpoint to have it work. I think the modeling the way you're at least describing it would probably be perfect for an individual agency, except in Omnicom there is effectively 2,000 of them to try to model that way. And the complexity of a model, trying to model each individual agency in that manner just doesn't work. We've made a commitment to achieve those margin levels for 2011. As I said in my comments, while it's not without challenges or difficulties, we think we're on track to being able to achieve those numbers.

I guess the question is to get to those numbers, you had to take some cost actions. I'm trying to figure out if similar cost actions are needed in 2012 to get to that 13.4% target?

Not similar levels of cost actions. I'm sure we'll be taking some individual cost actions. We need to manage the business agency-by-agency, and the only thing that is a constant is -- agencies change. They have client wins, they have client losses, and they need to continuously focus on managing their cost structures to keep them in line with the business levels that they have, again, agency-by-agency. The full effect of the cost actions that we took last year won't come into play at those individual agencies until this year. You'll also find that with business wins and losses, there's lag times in getting the full effect of those changes. Again, I'll just reiterate, we think we're well on track to achieving the objectives that we laid out.

Fair enough. Thanks, Randy.

You may have to repeat some of your question, but let me take a shot at least part of what you said. We've made a significant investment, and it runs through our P&L rather than through our capital acquisition accounting -- in hiring people, making investments and creating the proper platforms, our use and analysis of data, and the various partnerships that we've entered into. I don't have an exact number, but it approaches 90, to provide us with the information that we need. 2.5 years ago, sitting in a meeting with [Eric Schmidt], he predicted that -- and he saw the day where he thought ad exchanges might be given away for free, and he has one of the largest ones now. That won't happen anytime soon, but they'll be increasing pressure in pricing on the best ad exchanges out there.

What we're focused on is what I covered in the call. Having the smartest people, and the most creative people to properly use technology, to target clients, to find those opportunities at the absolutely proper moment, and deliver to our clients the most efficient buying and delivery of audience that we possibly can. We're looking at everything; we always look at everything. We don't exclude acquisitions. If we think it's going to add to our skill set or accelerate the process that we're -- the way we believe the marketplace is moving. The only thing that offends us is ridiculous pricing, where we don't get a proper return on investment, where we make a decision that building it is more expensive maybe to the P&L and to the margins, but is more sensible in the long run to the shareholders of Omnicom. So I don't know if I covered all of your questions.

Let me add one thing to John's comments that I find sometimes important. We're in a number of different marketing disciplines, and each of those marketing disciplines is developing the capabilities to utilize new technologies, like digital technologies but basically the breadth of technologies and marketing mediums that are out there in their discipline. And the utilization of those technologies is different.

So when you talk about ad exchanges, that comes up against our media buying and planning businesses, and it probably touches up against some of our creative businesses. When we get into mobile and apps and some of those, it affects different of our businesses. Even areas -- PR is hitting up with social very significantly; our branding businesses are going and touching up with digital technologies in different ways. So it's very important for each of our businesses to develop the capabilities to utilize those technologies to advance its discipline or its skill sets for its clients.

Again, then you can correct the questions. In looking at what's been done to-date is almost looking at the world through the rearview mirror. We've only seen the beginning of mobile, what its impact is going to be, and the way we're going to be able to use it. So the change which you've seen occur is just the beginning, and that's why we've kept a very flexible, open-source approach to this whole area.

Okay. Thank you both.

David Bank, RBC Capital Markets.

Thank you, guys. Historically, there have been a couple of swing factors in the fourth quarter, like performance-based fees, projects, true-ups on scope of business, the kind of things you really can't [call] toward the very end. So I was curious where that shook out versus -- those X-factors -- versus your expectations earlier in the quarter, and versus historical levels.

Then depending on how that turned out, how is the momentum building or looking in terms of first quarter as you entered the year, and on organic growth trends. Is it looking similar, does it feel like it's accelerating or decelerating? Guessing not much movement. Thanks.

I don't know how -- Randy can answer this question, separate from me. We always get into the fourth quarter, and with as many agencies as we have around the world, there's a relatively small amount -- when you're talking about a $14 [million] business, of $200 million, $300 million, which you cannot project whether or not clients across each one of those agencies are going to spend an incremental $50,000 or $100,000. Whether they do or they don't depends on what becomes very important to you guys -- whether or not organic growth is 0.2% higher or lower than what you're expecting. But that's all it means. And that's a company-by-company, market-by-market, case-by-case study.

If I had to categorize, and I haven't done the math, we got some of that spending in this fourth quarter, and it contributes to our results. We didn't get it to the level that -- as high a level as we've seen in the past, and we weren't as disappointed as we have been sometimes when there was an economic crisis going on. So I don't think that's going to change. I think we're going to get to every fourth quarter, and still have that level of noise in our system.

Yes, I'll just basically repeat what John said. Plus or minus $50 million, which is 1.5% organic growth or thereabouts in a quarter, is a pretty small number, given the breadth of our operations, the number of clients that we have. We'll have to take on both sides. We don't believe plus or minus $40 million or $50 million in an individual quarter is a big number. We know a lot of investors do. This quarter, we are on -- probably on the high side of maybe what the expectations were, in part, because we're coming off a very strong quarter last year, in the fourth quarter or 2010's fourth quarter, where things really rebounded to normal. I think this quarter was more or less in line with a normal fourth quarter.

And when you -- and momentum carrying into 1Q?

January, the numbers looked good. That's the best information we have at the moment.

Okay.

But again, that's one month, and it's the first month of the year. So we don't (multiple speakers) [write] too much into that.

Okay. Thanks, guys.

We are endeavoring to grow the Company. Let me put it that way.

Craig Huber, Huber Research Partners.

First, if I could ask -- your margin goal this upcoming year to get back to 2007 margin levels of 13.4%. Randy, do you think you could get to that level of growth and margin up there if you grew, say, organically 3% for this new year? Or would it be pretty tough at that level?

I think we're on track to hit those margin objectives. If we hit organic growth in that range, I'm pretty confident that we'll be able to achieve those numbers. There's a lot of -- I'll hedge a little bit because there's a lot of variables out there, but we think we're well along the way to being able to achieve it.

Also, John, if I could ask -- on page 6 here, your revenue by industry. As you think about 2012, and given the conversations you've had with your customers, what industries are you most worried about from an advertising digital spend for 2012 versus 2011 levels? And what areas are you most bullish on, if you will, for the new year?

What am I most -- let me start with what I'm most bullish about. Every one of our clients, the digital aspect of -- how does digital impact or extend to what earned media is, is an objective for each one of our clients. If I had to categorize it by industry, I'd say I'm seeing a move by packaged good companies, and a greater commitment from packaged good companies than I have in the past, as a general category, in using digital in every one of their campaigns, and trying to get the most efficient use of their media dollars.

What about on the other side, the negative side, what are you most worried about, what categories and industries?

Craig, you know me. I worry about everything; you should see my to-do list. But there's nothing specific or any specific client at the moment [couched] in that regard. My biggest concerns are, whereas the government claims we have no inflation in the United States, when you get outside the United States, there's huge inflation soaring. You never know what that's going to do to the consumer, and where they spend their money. That's probably in the top one to two or three of my concerns on behalf of my clients. How do we become more efficient? That's the challenge that every Omnicom employee has every day to make every dollar that our clients spend more productive.

Great. Thanks, guys.

Michael Nathanson, Nomura.

Thank you. I have a couple for Randy. Randy, if you can help us on page 6, keeping with that same theme, financial services grew 35%, looks like in the quarter. Many of us in financial services don't see anything wrong with 35% these days. So we wondered, where is that coming from, what kind of clients, what kind of markets, what was the source of that great -- ? (multiple

Wasn't your bonus up 35%? Some of this is the base that you're comparing off. This, in particular, was a combination of, I'll say, good, broad performance, as well as a couple client wins and some project revenue.

Was there any market in particular that was affected by that, by region?

I think the US was the bigger piece of it.

Okay. That's one. Second, on severance, to be sure, you're including -- when you say $200 million, that includes the action in the first quarter from Clemenger?

Yes.

Not Clemenger, but you see action in the first quarter based on [reposition] -- ?

That's full-year severance charges.

Okay. I know this -- .

In that repositioning charges, there were other charges other than severance that are not in that number; the $202 million is just severance.

Okay. I know -- listen, I've covered you long enough to ask you this without -- it's a loaded question. No year is typical, but in general, $200 million in what's a good growing year, if '12 looked like '11, what is a normal range of severance for Omnicom?

I would think $50 million to $60 million.

Okay. So that's definitely a place where you'll benefit this year. Then lastly, incentive comp, how big was incentive comp this year, and did that differ materially from last year?

It was up significantly year-over-year.

I think we had a -- I think this year's incentive comp was a full number. I don't think it was abnormally low. I think it was a pretty solid -- maybe another way to say it is the incentive comp bucket was full.

Okay. If you have a number, maybe I'll get it offline from you later.

Dan Salmon, BMO Capital Markets.

Given the timing, I think we're going to have this be our last question.

Good morning, guys. Randy, just to jump back to uses of free cash flow, you said -- you and John both mentioned in your prepared remarks a renewed focus on growth. I'm just wondering, I know you had a big chunk in Clemenger in the first quarter, but would you expect upwards of $400 million in acquisition spending again this year?

Then just secondly, any quick comments on changes you're seeing in the labor market these days, particularly around digital talent or consistent, upward trends there?

First, acquisitions within a band is hard to predict. This year, we did a handful of, I'll say, mid-size acquisitions, and they were done not on our typical earn-out basis. The Mudra deal wasn't really an earn-out. Clemenger was a large acquisition. Marina Maher wasn't done on an earn-out basis, and a couple of others were in that. Communispace was another -- (technical difficulty).

And that does conclude our conference for today. Thanks for your participation, and for using AT&T executive teleconference service. You may now disconnect.