宏盟集團 (OMC) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Omnicom Fourth Quarter 2012 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'd like to now introduce you to today's conference call host, Executive Vice President and 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 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 the last page of our investor presentation. I've also been asked to point out that certain statements made today may constitute forward-looking statements, and that those statements are our present expectations and actual events or results may differ. We also want 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. Now we're going to begin the call with remarks from John Wren. Following John's remarks, we'll review our financial performance for the quarter, and then we'll open the call up for questions.

Good morning. I'm pleased to speak to you this morning about our fourth-quarter business results, and the progress we are making against our key strategic initiatives, and my thoughts about the rest of the year. Hopefully, all of you have had a chance to review our financial results, and have seen our press release this morning increasing our quarterly dividend 33% to $0.40 per share. Thanks to an exceptional list of clients and the commitment, talent, and creativity of our people, we finished the fourth quarter and the full year 2012 in a very strong position. We enter into 2013 well-prepared to respond to the continued changes in the market place.

While the macro-economic environment appears to be stabilizing and even improving in some areas, issues in several markets still remain unresolved. As a result, we've planned for another year of modest global growth, but remain nimble enough to take advantage of opportunities as they arise. At this point in our planning, we remain focused on controlling our costs and increasing productivity. But we are cautiously optimistic as we look into the latter part of 2013 and into 2014. Let me discuss our key markets in more details.

In the US, the election has settled one set of questions, but long-term fiscal imbalances and the mounting government debt still needs to be addressed. The impending decisions to be made by Congress and the administration will impact overall economic growth this year. As we have proven in the past, our operations have consistently out-performed GDP in the US, and we are hopeful that the slow but steady economic improvements we've seen will continue.

In Europe, we sense greater stability, but many markets remain weak, and growth is likely to be slow for some time, as governments pursue structural changes in their economies and continue to operate with fiscal restraint. In the developing markets, we see stronger growth, particularly in Asia and Latin America, as those economies appear to be navigating well, despite challenges in other parts of the world. For 2012, despite all the challenges offset in part by the Olympic contribution, we generated solid organic growth and achieved our margin objectives.

Before getting into specifics of our fourth quarter and 2012, I'd like to highlight the strategies that have allowed us to continue to grow and achieve our results -- first, our investment in the best talent; next is our expansion of our global footprint and moving into new service areas; third, investing in our digital and analytical capabilities and assets around the world; finally, we continued to deliver innovative and integrated solutions using meaningful consumer insights across disciplines and platforms for the benefit of our clients. Throughout the economic cycle, we have maintained our investments in our talent development programs, and these will continue as a key priority across our Company. It is this culture that allows our agencies to consistently attract the best talent, which once again was recognized around the world for their work in 2012. Let me mention just a few awards.

Adweek named PHD Media Agency of the year. DDB was Campaign's Advertising Network of the year. BBDO finished first in the Gunn Report 2012 Most Awarded Agency Networks in the World for the seventh year in a row, and topped the Big One Awards for the sixth consecutive year. Ketchum was named 2012 Agency of the Year by PR Week. And in December, our agencies won a record number of creative awards at the 2012 Campaign Asia-Pacific and Greater China Agency of the Year Awards held in Singapore and Shanghai, significantly out-pacing our competition. I want to congratulate all of our employees and agencies for their outstanding creativity in 2012.

During the year, we continue to expand our presence in key emerging markets through strategic acquisitions. Most recently, we completed the acquisition of Magnon Group, one of India's leading and most comprehensive digital agencies. Last year, we also completed the acquisition of NIM Digital, a leading agency in China specializing in media planning and buying, search, and digital production services. In the fourth quarter, we also acquired a number of companies that extended our capabilities in consumer insights and analytics. Equally as important as these acquisitions are the ongoing organic investments we are making in our networks and agencies. In 2012, our networks extended their geographic reach in countries including India, Indonesia, Pakistan, and Vietnam; and partnered with agencies in Myanmar to support the efforts of our clients.

Our agencies are also experimenting with new technologies and building new platforms at an astonishing pace. We continue to support them with a strategy that remains distinct in the industry, by building our digital capabilities within our agencies, not beside them. From shopper marketing to CRM to PR to advertising and to media, and across all of our disciplines, I am extremely pleased with the ability of our agencies to innovate and be leaders in using the new digital mediums and technologies to better service our clients. These new technologies are also generating terabytes of data that is changing the way advertisers buy and sell ads, target audiences, and measure campaigns' effectiveness.

At Annalect, Omnicom's primary data and analytical business, our team is aggressively working with partners and clients to collect this vast array of global and local data, centralize it, secure it, analyze it, and translate it, empowering users to make better marketing decisions. Our agencies are hiring talent with new skill sets such as PhD's, behavioral analysts and data scientists to provide actionable insights using this trove of data. These efforts are driving a tangible shift in how our agencies work together, and are delivering benefits to our clients in the form of stronger, more consistent, and ultimately more effective communications, and they are allowing us to deliver integrated campaigns across disciplines and platforms.

With that said, technologies will come and go at Mach speed. We believe the world will become increasingly complex and fragmented. As a result, we've maintained an open-partnership approach with technology leaders, as opposed to making bets on specific platforms. This approach allows us to have access to the latest technologies and to adapt our services, and seamlessly integrate digital within our clients' marketing strategy. Overall these acquisitions, investments, and partnerships serve multiple roles in supporting our strategic direction. They expand our footprint, increase our talent base, and deepen our capabilities. We've made tremendous progress in 2012, and we will continue to pursue these strategies in 2013 and beyond.

Now I want to talk briefly about how our efforts impacted the fourth quarter and 2012. Organic growth in the fourth quarter was 2.7%. This performance was driven by both the US and international markets, with the notable exception of the Euro countries, which was a drag on growth. For the full-year, organic growth was a very strong 4%. Randy will cover the performance by market during his remarks.

On the margin front, we achieved our target margins for the year of 13.4%. As you know, this was the result of a thorough process to review our portfolio of businesses and drive operational improvements that began at the end of 2010. Even with this progress, we will continue to pursue operational improvements on an agency-by-agency basis in 2013.

Looking at our capital structure and use of cash during 2012, we continue to look for ways to maximize the use of our strong cash flows while maintaining a solid balance sheet, and we were successful on both counts. For the year we returned over $1.2 billion to shareholders through dividends and share re-purchases, while our credit ratings and leverage ratios remained extremely strong. Since 2002, we have returned approximately 99% of net income to our shareholders. Looking forward, our philosophy on use of cash will be consistent with our past practices. We will deliver steady cash payments through our dividends. With our announcement to increase our dividend this morning, we have doubled our dividend per share since 2010. We will seek acquisitions that expand our capabilities in new practice areas and markets, and we will continue to return cash to shareholders through share re-purchases.

Similarly, our core strategies to achieve growth remain the same -- find and maintain the best talent; build a presence in markets that matter today and for the future; improve operating margins through greater productivity; and create deep expertise in partnerships and consumer insights, analytics, social, mobile, and other emerging platforms.

As I visit our agencies, I'm consistently impressed by the high caliber of talent that we have, from Management on down. Our talent pool is also expanding as we grow our geographic footprint in developing markets. Omnicom today operates in over 100 countries around the world. Our focus on expanding our local presence is allowing us to better serve our global clients, and is giving us access to local clients in the developing markets that may be the next decade's biggest brands. Even as we expand, we are driving greater collaboration and integration across our organization, and particularly for our largest clients. As a result, we are seeing better communication, more insights, better creative, and better business results on behalf of our clients.

I'll now turn the call back to Randy, who will take you through the numbers.

Thank you, John. It was a good quarter and a good year. There certainly was a lot going on this past year, with the Olympics, the US elections, a sustained economic recession across much of Europe, and at best a lackluster recovery in the US, to mention a few. But through it all, I think our agencies performed exceptionally well. As John pointed out, they again led the industry in each of the major markets around the world from a creative and innovation perspective. They led the industry in organic growth by delivering innovative solutions to their clients, using both new and established technologies; and through relentless focus on cost control, they were able to return our aggregate operating margins to their pre-recession levels.

Now for the quarter. Due to stronger-than-expected organic growth, revenue for the quarter came in a little better than we had expected, up 2.4% to $3.9 billion, and that resulted in full-year revenue of $14.2 billion, which was an increase of 2.5%. Organic growth for the quarter was 2.7%, and was just over 4% for the full year. Due to the outstanding efforts of our agency management teams in controlling costs, EBITA was very strong, increasing 12.3% to $574 million for the quarter. Margins were 14.5%, up about 120 basis points from last year. And, as expected, due to the combination of solid organic growth and our agencies' focus on containing costs, we were able to return our full-year EBITA margin to our 2007 level of 13.4%. Similarly, operating income or EBIT for the quarter increased 12.4% to $548 million. And our resulting operating margin was 13.9%, also a year over year improvement of about 120 basis points.

On slide 2 we'll address the items below operating income. First, net interest expense for the quarter was $40.3 million, up $10 million from Q4 of last year but effectively unchanged from Q3. The year over year increase is due to interest on the $1.25 billion of 10-year notes we issued in Q2 and Q3, then partially offset by additional interest income earned on our cash balances.

Next is taxes. Our effective tax rate decreased to 27% for Q4, and to 31.8% for the full year. There were several items both positive and negative that impacted our taxes this quarter. The two larger items were -- first, income tax expense was reduced by $53 million, primarily as a result of the completion in Q4 of a re-organization of our holdings in the Asia-Pacific region. As a result, our unremitted earnings in the affected countries in the region will be subject to a lower effective tax rate. Accordingly, we reduced our deferred tax liabilities to reflect these lower rates. Second, we took a tax charge of approximately $16 million in the quarter related to an ongoing state and local tax audit. The good news going forward -- we expect a recurring benefit of the re-organization to be approximately $11 million per year, which should bring our normal operating tax rate down from 34.3% to about 33.6%.

Next, income from equity-method investments or affiliates was down about $34 million from last year. In the quarter, we recorded an impairment charge related to our investment in an affiliate in Egypt. While the affiliate continues to be one of the leading agency groups in Egypt, due to the political and economic issues in the country over the past couple of years, it's financial performance has lagged. As a result, we determined that our investment was impaired, and we took a charge of $29.2 million. Excluding the impairment, income from our equity-method investments declined by $4.5 million. In part, because we no longer record affiliate income from our Turkish affiliate, after making an additional investment which resulted in that agency becoming a consolidated subsidiary. The balance was due to a combination of FX and operating performance.

Finally, income allocated to non-controlling interests, or our minority partners, increased by $1.2 million. That was mostly related to the positive performance of those agencies. As a result, net income for Q4 increased 12.9% to $307 million, bringing our full-year net income up to $998 million. On slide 3, we show the allocation of net income to common shareholders, and to participating securities, or our restricted stock. Net income for common shareholders increased 11.7% to $300 million. This chart also shows our diluted share count. As a result of our ongoing share re-purchase activities, our diluted share count for the quarter was down year over year about 5.3%. The combination of increased net income and reduced share count resulted in Diluted EPS of $1.13, which was a 17.7% increase.

On the next few slides, we'll take a closer look at our revenue performance. First, with regard to FX, unlike in previous quarters, in Q4 the dollar had mixed performance. Some of the larger markets that the dollar weakened against include the British pound, the Canadian dollar, the Renminbi, and the Aussie dollar; and the larger markets having a negative impact include the Euro, the Real, the Rupee and the Yen. The net result reduced our revenue for the quarter by 0.7%, or about $28 million. Looking ahead, if FX rates stay at their current levels, the FX impact on revenue would be minimal in Q1, and would be marginally positive for full-year 2013.

Revenue from acquisitions net of dispositions increased our revenue by $15 million in the quarter, or 0.4%. We completed five new acquisitions in the quarter, and I believe 14 over the course of the year. At this point, if we don't complete another acquisition or disposition, we expect net acquisition revenue to be positive about 50 basis points in Q1, and it will be positive about 20 basis points for the full year.

With regard to organic revenue growth, as I mentioned, it was a little bit stronger than we had expected coming into the quarter, but performance has been increasingly mixed by market and industry sector. Overall, organic growth was positive 2.7%, or about $105 million in the quarter. In general, we've performed well in North America, South America, Asia, and Russia; but Europe weakened further in a number of markets. Our new business performance continued to be solid in the quarter, with net wins of right around $1 billion.

Turning to our mix of business on slide 5, brand advertising accounted for 49% of our revenue, and marketing services 51%. As for their respective organic growth rates, brand advertising was up 5.4%, driven by continued strong growth in our media businesses, the emerging markets, and new technology services. Marketing services was up 0.2%. Within marketing services, CRM was down 1.6% in the quarter, in part due to weakness in Europe, and in part due to the performance of our field marketing businesses. Public relations had a great quarter, up 8.4%. Our large PR networks have been doing well for a couple of quarters now, but it wasn't really translating to the numbers, so it was nice to see their great work come through with the results this quarter. Finally, specialty communications was basically flat, which was a significant improvement over the last several quarters.

Turning to slide 6 and 7, our geographic mix of business in the quarter was split 51% US, 17% euro markets, 9% UK, and 23% rest of the world. In the United States, revenue increased $98 million, or 5.1%. Organic growth was 5%, or $96 million. The strong performance was led by our media businesses, but generally we had good performance across our agencies. Acquisitions net of dispositions was marginally positive, adding $2.4 million. International revenue decreased $6 million, or about 0.3%. As mentioned earlier, FX continued to have a negative impact, resulting in a decline of about 1.5%, or $28 million. Acquisitions net of dispositions increased revenue by about $13 million, or 0.7%; and organic growth in the aggregate was positive, $9.2 million or 0.5%. As I mentioned, it was very mixed by market.

In our larger European markets, Russia continues to perform very well, while the UK, France, and Germany remained weak. In aggregate, the euro zone markets were down 3.7%. In Asia, we continue to have strong performances across the region, with India, Japan, Hong Kong, Singapore, and Indonesia leading the way this quarter. In Latin America, our Brazilian operations continue to perform very well.

Slide 8 shows our mix of business by industry. Given the size and diversity of our client base, at this point our mix of business by industry sector is pretty stable. As for growth rates, for the year we had very strong performance in retail, driven by a combination of new business wins and client increases, and we also had good performance in the auto and technology sectors. On the other side of the spectrum, financial services was pulled down by the loss of Bank of America, and telcom was impacted by the loss of Sprint.

Turning to slide 9, we had another good cash flow year. In aggregate, our free cash flow increased about $179 million over last year -- that is excluding changes in working capital. On slide 10, the break-down of our primary uses of cash for the year included dividends to common shareholders of $398 million, the year over year increase reflects both the 20% increase in our quarterly dividend that we instituted at the beginning of last year, and the acceleration of our January dividend into Q4 -- in effect, paying five quarterly dividends in 2012. Dividends paid to our minority interest shareholders totaled $98 million. Capital expenditures totaled $226 million.

As we've mentioned before, CapEx was up due to a couple of sizable office make-overs related to long-term lease renewals. We also had the purchase of an office building for one of our agencies, and our ongoing IT consolidation initiatives. Acquisitions, including contingent purchase price payments, totaled $188 million; and share re-purchases net of the proceeds received from stock issuances totaled $832 million. In aggregate, we out-spent our free cash flow by about $317 million for the year.

Slide 11 shows our current capital structure. Year over year, our total debt increased by about $1.3 billion to $4.46 billion, almost entirely related to the issuance of the $1.25 billion in 10-year senior notes during the second and third quarters of the year. More important, our net debt position at the end of the year was $1.76 billion, an increase of $368 million from last year. As a result of the increased debt, our total debt-to-EBITDA ratio increased to 2.1 times, although our net debt-to-EBITDA ratio remained very low, at 0.8 times. Our interest coverage ratio remains robust, at 11.6 times.

On slide 12, as we continue to successfully build the Company through a combination of prudently priced acquisitions and well-focused internal development initiatives, both our return on invested capital and return on equity continue to lead the industry. For the last 12 months our return on invested capital remained pretty stable at 18.6%, and our return on equity improved a little further to 28.7%.

Finally, on slide 13 we track our cumulative return of cash to shareholders. The line on the top of the chart shows our cumulative net income from 2002 through year end, which totaled $9.12 billion. The line just below the top line shows our cumulative return of cash to shareholders, including both dividends and net share re-purchases, which totaled $9.05 billion. The result is a combined payout ratio of all almost 99%. I also want to point out that during that period our agencies were able to more than double revenue from $6.9 billion to $14.2 billion; and more important, they were able to more than double our net income from $455 million to $998 million. ¶ With that, that concludes the prepared remarks. There are several other supplemental slides included in the presentation, but at this point we're going to ask the operator to open the call for questions.

Thank you.

(Operator Instructions)

James Dix, Wedbush Securities.

Just two things. One, what was driving the particularly strong growth organically that you saw in the US in the fourth quarter? I know you've in the past cautioned people not to focus too much on particular quarters in particular regions, but it is an important region for you. Then, just looking into 2013, is your outlook for the US at the moment in line with your outlook for modest global growth, or is your outlook for the US a little bit faster or slower than that? Thanks.

First, with respect to the fourth quarter, I think we've been saying this consistently for a very long period of time -- there's a certain element of budget which is very difficult to predict as to whether clients are going to spend it; or if it's actionable, if they're going to delay spending. What we saw throughout the quarter, especially after the election in the US, was a commitment by clients to continue to spend those budgets to try to increase their market share. That's the attitude today across the board, I think, on most of our major clients, especially in the US.

At this point in terms of what we expect, there's still a bit of uncertainty out there. From a consumer point of view, we haven't had enough time or enough data to measure the impact of the -- not the upper bracket tax rates, but the payroll tax, $1,000, that Congress took away. There's still uncertainty on the part of many clients as to how the US government's going to deal with sequester. So it's a little bit too early for us to give you an accurate prediction, but we're planning our business for modest growth. Being a service business, we think that's prudent, because that helps us contain costs while staying nimble enough, as I said earlier, to take advantage of spending as it comes through.

This growth, do you mean growth slightly lower than what you saw in 2012? I know in some conferences you've made some allusions to what you mean by that, but if you had any more granularity given this opportunity, that would be great. Then I'm done, thanks.

This is Randy. My personal view is 2013 feels a lot like 2012 from an economic backdrop standpoint. But we don't have the Olympics this year, so I certainly think there's a little bit of spending a little bit of revenue in our numbers associated with the Olympics that's likely not to be there next year. That's probably about as accurate as we can get at this point.

Great. Thank you very much.

Alexia Quadrani, JPMorgan.

My question's just on the euro markets and the softening we saw in the quarter. Any comment on how that progressed? Did it get worse as the quarter went on? Should we assume it will continue to weaken a bit in the first quarter, or should it be -- are you looking at a bit more stability in 2013? I know it's difficult to predict, but any color you could give us would be great.

Some of the decline can be tracked to specific client reductions, as opposed to economic situations. The market place -- Europe is in an uncertain position. We don't expect any vast improvements any time soon, and we're planning accordingly, Alexia; and hopeful that it's brighter than that, but --

I think that's right. I can't tell you how it tracked over the course of the quarter. I haven't looked at that. I do think the positive performance that we had in Europe was really driven by strong specific agency performance -- new business wins, innovative ideas for clients, that drove the growth, rather than economic growth.

In terms of how you're budgeting, you're not necessarily assuming a step down, or are you just being very careful on costs, because you don't really know what the environment will come out in?

Sure. We're not planning a step down at this point, but we're not planning any outbreak of growth either; so it's a steady-state plus costs there. If you make the mistake of adding them, they get to be very expensive when you try to take them out. We've been prudent, but we haven't -- there hasn't been a dramatic change.

Jumping back to the US, the decrease in the pharma client base seemed to have lessened a bit. Do you think we're over the worst in that sector in terms of the drop-off, or do you think it will still be a challenge in '13?

A lot of what affected our pharma business is probably behind us. So that's a great area for us, I think, in 2013 as we move forward.

All right. Thank you very much.

Peter Stabler, Wells Fargo Securities.

Wondering if you could offer a little bit more color on emerging markets for the last eight quarters or so. I guess I should say rest of world segment, instead. The last eight quarters or so we've seen a significant out-performance versus the US. This quarter is only one quarter, we realize, but just wondering if you could give us some color on your expectations for 2013; whether we could see an out-performance in rest of world, or whether you think this one quarter portends a bit of a trend here? Secondly, if you can give us any CapEx guidance for the year, thank you very much.

We expect Asia to continue at or around the same pace that we saw in the fourth quarter. It's been strong. There's a lot of client activity going on. Clients have diverted money that was spent in other places to Asia, because that's where the consumer seems the healthiest. Japan showed signs of vitality in the fourth quarter, and we expect that to continue also, at least in the first half.

Were there any particular areas of weakness in rest of world, or is this indicative of maybe agency performance, the deceleration or, macro?

For rest of world? I think our rest of world numbers were -- I felt they were pretty good. We had strong performance in Brazil, Russia, Singapore, India -- this quarter, Japan, which is a large market for us. It's obviously a large market, and hasn't been a terribly robust economic back-drop, so our agencies in that market this quarter performed very well in that back-drop. The Middle East has been -- I'll say mixed, at times. That probably covers most of it.

Randy, any CapEx guidance for the year given the level of investments this year?

I think it will be probably down a little bit from this year. As I mentioned in 2012, we had a couple large real estate projects going on. We bought a building for one of our agencies, so that was $15 million, $16 million, obviously not a huge building. We still have some IT consolidation initiatives going on that will increase CapEx relative to a normal base, but I don't know of any major moves or rebuilds at this point. I would suspect it will come down a little bit.

Thanks a lot.

Tim Nollan, Macquarie.

Hearing your comments on the top line, could you please give a little color on the cost side for 2013? Understanding that you are paying your staff, and just wondering what sort of internal costs you may yet be able to squeeze out. In that context, if there is any sort of comment you could give on guidance on margins for '13, please?

At this point we have to manage our agencies' margins agency by agency. We certainly have some agencies that are not performing at the appropriate margin level for their type of business, and we need to try to get them, their costs, more aligned with where their revenues and where their business is at. Overall it's a difficult cost environment. We're four or five years into a relatively difficult economic environment, and 65% or 70% of our revenue market, so basically US and Europe.

So trying to hold costs flat or low growth is very difficult for that length of time. I feel comfortable being able to match our 2012 margins, and continue to be able to invest in the growth and the development of the business that we've been doing, and that we want to do. After that, we'll see how the margins ultimately work out, but our focus is on getting all of our agencies' margins right agency by agency, and continue to invest in our people and our business.

Okay. Your acquisition number was slightly lower in 2012 than previous -- many previous years, I guess. Is there any comment on acquisition pipeline for 2013, please?

Pipeline's always good. What generally makes that the difference in CapEx is if you are able to complete one or two large or mid-size deals. In 2011 that would have been Mudra and I think Communispace, and Clemenger, I guess. We didn't have deals -- we didn't have any deals of that size in 2012. I'm hopeful in 2013 that we will, but those deals are much more difficult to predict, I'll say, statistically. As far as another 10 to 15 similar acquisitions that we did in 2012, I think there's a pretty high probability that that will occur.

Okay, thanks.

Michael Nathanson, Nomura.

Thanks, I have two -- probably for Randy, but maybe for John too -- looking at slide 13, you look at the long-term return of capital to shareholders, it's pretty impressive. But the mix of the returns, about 75% buy-backs and 25% dividends. I wonder, looking at the next couple years, do you see those two areas converging a bit, maybe raising the dividend at the expense of the buy-backs? How do you think about the blend of capital returns?

John just pointed out since 2010 we've doubled the dividend. We had a 33% increase in the dividend this year. I think that's pretty much a sign that our expectation is that the dividend as a percentage of our payout is likely to go up.

Do you have a range of where you can get it to, you think, in terms of how you think about the payout ratio?

No.

Okay. Let me ask you this -- can you help us a bit on Q4 revenue of the expense line for O&G and salary, rather than wait for the other K to come out, I wonder if you can give it to us?

Just give us one second.

Thanks.

Maybe more than one second. We should go on and take another question and when we get the answer, we'll say it in the middle of the next question.

Thanks, guys.

Doug Arthur, Evercore.

My question is somewhat related. Do you have any sense of what your year-end head count was?

Yes. It was around 72,000, plus or minus a little bit. Maybe it was -- I don't have it exact off the top of my head. 71,000 and something, the way we count it.

Okay.

71,099.

71,099?

Yes.

Okay. Excluding acquisition impact, is it fair to say that given the revenue outlook, which is constructive but still a little iffy, that should be a relatively flat number in 2013?

Our objective is not to -- we're expecting to grow during 2013, but our expectation is that we're hiring behind our revenue, not in advance of our revenue, in most instances, unless we're making an investment from a start-up. There's one or two considered, but it won't drastically change that number.

Also keep in mind that we have a mix of businesses that head count to revenue and we have a mix of countries the head count to revenue are quite different. So if you're trying to use head count as a proxy for something, you're probably not really doing yourself a good analysis.

A lot of noise in the numbers basically.

We're in a lot of countries and a lot of different businesses that are service businesses, and we're largely getting paid our cost of labor plus overhead and a margin. That labor varies by skill level quite dramatically, and by country quite dramatically.

Okay. Thank you.

Ben Swinburne, Morgan Stanley.

I got a couple. Wanted to ask you about a couple --

Let me interrupt for just one second and answer, I think it was Peter's question. Salary and service cost for the year, was $10.387 million, and office and general was $2.0345 billion.

Great. Hopefully that doesn't count as my question.

(laughter) No, sorry.

Okay. Moving forward, so a couple of numbers you've spoken to in the past, either conferences or on earnings calls -- I think you had talked about '13 feeling like a 2% to 3% top line year, versus the 4% in '12. You called out the Olympics, and obviously it was a political year; but wanted to see if that was still how you were feeling about things, or maybe if there was some more up-side potential than you thought a couple months ago? The second number would be percent of free cash flow on dividends, buy-backs and acquisitions. I think you did about 20% above your free cash in '12. You're carrying $2.7 billion of cash. I didn't know if that was because of the converts that are portable coming up, or anything else you'd speak to. Any help on the free cash flow spending appetite this year would also be helpful?

Okay, let's see. A few questions here. I'll do the free cash flow, that's probably the easiest. We issued the bonds last year, and we said that we would out-spend our free cash flow in the $300-million to $500-million-per-year range for the next couple years. We out-spent our free cash flow in 2012 by about $313 million. I suspect we'll out-spend our free cash flow in '13 by again, $300 million to $500 million, with that combination of dividends, buy-backs, and acquisitions.

I made a statement earlier in the year trying to think about '13 versus '12. At the time I felt '13 felt a little bit more difficult than '12. That was a few months ago. That was kind of right around the end of the elections and wrestling with what the administration was going to do. I think today -- again, it's relatively unscientific -- I think '13 probably feels pretty much like it felt going into '12, except for the Olympics. I think the Olympics probably added maybe a half a point to our revenue growth or to our revenue in 2012. So we said we thought '12 was going to be 3.5% to 4% organic growth, I guess that would make it sort of 3% to 3.5% organic growth, is the way it feels, but again it's pretty early in the year.

Got it. Can I take a stab at the rest of world question again? For the first nine months, that business was organically up 11%, and then 4.4% in Q4. Again, doesn't sound like from your comments earlier there's anything to that that we should read going forward, but I wanted to revisit that one more time?

Could you repeat that question for us please?

Yes. The rest of world category was up 11% I think for the first nine months ending in the third quarter. For Q4, this is organic growth, it was up 4.4%, and obviously that's got Asia and Latin America in there. I didn't know if there was -- I think there was a question earlier didn't sound like there was anything to it, but I wanted to ask since it's such an important region?

I don't think there's anything in the numbers. Again, I wouldn't look at any individual quarter. I'd really look at the full-year numbers. I think our agencies in those markets are doing quite well. We do, as they grow, they become bigger numbers to grow on, which by definition over time will slow the growth rates down a little bit. But the region will become more impactful, which is obviously positive.

Thank you very much.

Craig Huber, Huber Research Partners.

This is Greg Stein for Craig Huber. I was wondering what the project-related revenue was in 4Q '12, and also what it was a year ago, as well?

I don't know. That's not something that we break out or collect.

Okay. How about your outlook for next year on auto? Obviously you had a strong year, up 15%. What are you seeing for 2013?

I think the auto sector overall looks relatively positive. In hearing the market commentary, people think the US auto unit sales as an industry will be up in 2013, so that's obviously a positive. The auto sector is one that our revenues have tracked, I think, fairly well to global auto sales. It should be -- if auto sales do take the positive trend people are talking about, it should be positive for our revenues in the sector.

Okay. Finally, sorry to do these specific, I was wondering if you'd potentially break out your interest expense and interest income lines?

Yes. We'll get that number for you in one second. Also want to go back and finish answering Peter's question. I gave you the break-out of salary and service and office in general for the full year. For Q4, the numbers were $2.8891 billion for salary and service, and $507.5 million for office and general. For interest expense and interest income, let's see. I guess full-year numbers interest expense was $179.7 million, and interest income was $35.1 million.

Okay. Thank you.

Thank you. Given that we're getting pretty close here to get 9.30, so we'll take one more question. Go ahead.

David Bank, RBC Capital Markets.

Two things. First, John spent a lot of time at the beginning of the call talking about technology and digital. You tend to capture more wallet share for yourselves rather than passing it on to media operators with digital, I would think. Can you talk about the time frame at which you think this -- could it lead to a break-out beyond typical historical growth rates, when you start skewing more digital after investing in it? Second question is, can you give us a little update about how things are going at Commonwealth, and review for us where the accounting for Commonwealth is? Is it consolidated, and where -- is it a consolidated account for a JV? Thank you very much.

Complexity is our friend. There's no doubt about it, because the more fragmented the market is and more complex it is in terms of reaching the target audiences, it takes very smart, insightful people to accomplish that. That's a long-term trend, and it continues. I don't see it as a major break-out impacting our numbers within the near term more in any great variance, though, to the steady-state of growth that we've had. There's a lot on the horizon. We think that trend is going to continue into the future; and it's again, good for us.

Even if you went out like three to five years, do you think it would have the ability to move the needle beyond average growth?

I think it's moving the needle now. It will continue to move the needle. You have to keep in mind this is a very large industry. We're in a lot of different marketing areas, and it's a fairly concentrated industry. New technologies are allowing marketing to evolve, but I don't think there's a revolution in the change of what's going on. Is it possible the revolution will happen some time in the future? I think it's possible. It's certainly not something that we predict at this point.

Technological ability to do things and permission to do things are really at the core of some of this. If you look at privacy policy in the United States versus privacy policy in Europe, which -- and who will -- they are different, and both regions are taking different approaches. We don't know how the rest of the world -- which policy the rest of the world is going to lean in to. The more targeting that we can do the better it is, because it's a greater ROI for the client, and everything becomes more and more measurable. That's the move, but there's a number of open questions. But it's positive at the back of our business.

On Commonwealth, we account for the revenues going to our agencies, or the work being performed by our agencies and IPG accounts for the revenue and the profits of the work that their agencies are doing.

So it's just consolidated within the agencies, right?

Yes. Each of us consolidate our piece. Neither one of us consolidates the aggregate of Commonwealth. So they -- IPG and consolidates the revenue of the work their agencies do, and we would consolidate the revenue of the work our agencies do.

Does the development with Silverado and some of the account shifts -- do they move the needle at all this year? Does it affect the venture? Can you talk a little bit about that?

To a Company our size, one account doesn't really move the needle one way or the other.

Okay. Thank you very much.

Thank you all very much and thank you for taking the time to listen to our call.

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.