宏盟集團 (OMC) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Omnicom fourth-quarter 2013 earnings release conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded.

At this time, I'd now like to 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 2013 earnings call. We hope everyone's had a chance to review the earnings release.

We've posted to our website both the press release and the presentation covering the information that we will be presenting this morning. This call is also being simulcast, and will be archived on our website.

Before we start, I've been asked to remind everyone to read the forward-looking statements and other information that's 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'd 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 materials.

We are going to begin the call with some brief remarks from John Wren. Following John's remarks, we will review our financial performance for the quarter, and then both John and I will be happy to take questions.

Good morning, everyone. Thank you for joining today's conference call. As you have seen in our results, Omnicom has had a very solid fourth quarter, giving us a strong finish to the year.

Thanks to an exceptional list of clients, and the commitment, talent, and creativity of our people, we are in an excellent position going into 2014. I am both encouraged and cautiously optimistic about our business outlook for the year. This morning, I'm going to talk about what drives this performance, some of the many operational highlights, and then I will provide an update on our proposed merger with Publicis.

Hopefully, all of you had a chance to review our financial results, which continue to demonstrate the strength, diversity, and stability of our Business. Organic growth for the quarter was 4.2%.

On a regional basis, our performance broadly reflected macroeconomic conditions, although in many markets the performance of our individual businesses allowed us to continue to grow at rates faster than the underlying economies.

In the US, it feels like the economy is showing consistent forward momentum. These positive dynamics were reflected in our US business, which continue to grow steadily, driven this quarter by our media, specialty healthcare, and field marketing operations.

In the UK, where the economic environment is also slowly strengthening, we turned in a very solid performance, spread across most of our operations in that market. Continental Europe, by comparison, is more a tale of east versus west. Eastern Europe performed well for the quarter and the year, led by Russia. We expect this region to continue to have a positive impact on Omnicom's results.

In western Europe, we are seeing greater stability with some bright spots. Germany, our largest market in the region, had positive growth for the first time in several quarters. France, on the other hand, continued to be negative, as did several smaller countries in the region. Overall, we judge the recovery in western Europe as somewhat subdued, and expect business will be slow there for some time.

In the developing markets, we continue to experience strong growth, particularly in Asia and Latin America, even as these economies have slowed. Our success has been driven by both our consistent focus on organic investments, as well as through our targeted acquisition strategy. Our clients remain committed to the developing markets for the long term, even in the face of more modest forecasted economic growth for 2014. We are extremely well positioned to serve both local clients and multi-nationals.

Looking at the full year of 2013, Omnicom achieved solid organic growth of 3.5%, well balanced between the US at 3.7% and international at 3.4%. Excluding western Europe, which I mentioned earlier, international growth was over 6%, in large part due to our strong performance in the developing markets.

On the margin front, we achieved our target for the year by driving operational efficiencies while maintaining key investments in both our talent and new service areas. And our cash flow and return on capital were extremely strong in 2013.

Randy will cover our results in more detail, but I'd like to first touch upon the strategies that have allowed us to continue our market-leading organic growth performance. These strategies share a goal of helping to meet the rapidly changing needs of our clients by giving them access to the best people and the latest technologies, when and where they need them. First, by attracting, retaining, and developing top talent. Today, virtually all of our 70,000 employees are skilled in using digital media and new technologies.

Next is expanding our global footprint and moving into new service areas. Third is leveraging our digital and analytical capabilities, and utilizing new mediums and technology platforms. Finally, we continue to deliver big ideas based upon meaningful consumer insights across all marketing disciplines and communication channels.

One way we judge our investment in talents, and the success of the many talent development programs Omnicom and our agencies offer, is through industry recognition and awards. Omnicom's agencies continued their tradition of being the most creatively awarded companies in the world. Let me mention just a few highlights.

At the Cristal Festival, Omnicom Media Group's PHD and OMD were the first and second most awarded networks in the Media Category. In addition, Adweek named OMD, Global Media Agency of the Year.

DDB was named Network of the Year at the Eurobest Festival, Europe's leading annual awards show for creativity and communications. And for the third consecutive year, The Marketing Arm was the most awarded agency, winning 15 Pro awards, which annually recognizes the best in promotional marketing.

Finally, Advertising Age recognized LatinWorks and 180LA as 2 of the top 10 agencies of the year, and Alma DDB was honored as the Multicultural Agency of the Year. I want to congratulate all of our employees and their agencies for their outstanding creativity and effectiveness for 2013.

Importantly, much of the award-winning work is the result of Omnicom's agencies working together to provide integrated solutions for their clients. These integrated solutions are very successful because we are bringing together subject-matter experts from a range of disciplines to address our clients' needs. The manner in which we deliver these services is dependent on the client's organization. Increasingly, teams are structured and centralized with the key purpose of delivering integrated solutions, building brands, and driving sales.

With the development of new targeted ways to reach consumers, the marketing world has become much more complex. Increasingly, our large multi-national clients are asking us to manage their entire marketing process, bringing big creative ideas, and delivering them seamlessly across disciplines, media, and geographies. This is changing the manner in which we offer our services, and enhancing the growth of our largest clients.

The recent launch of Visa's new campaign is a specific example of a very important client asking us to customize an integrated process to fit their business needs. A number of Omnicom's agencies were involved in the campaign, which was led by BBDO. The effort employed experts from agencies including media, digital, public relations, and sports marketing.

All of our agencies across these disciplines worked closely together on the development and implementation of Visa's new brand platform: Visa, everywhere you want to be. This was a first for Visa: A global program that spans all channels, including mobile, and speaks to all of Visa's audiences, including consumers, businesses, governments, and employees. The campaign is currently running, and you will see it in many forms throughout the world.

Managing integrated marketing campaigns is more complex today than ever before. Last year alone, almost 1 billion smartphones were sold globally. And every one of those phones is video-enabled. With 40% of all YouTube traffic coming from mobile, more people than ever before are watching video on their second and third screens.

In this always-on, always-connected world, marketers face more complexity, but also have a huge opportunity to deliver their messages to the consumers they want to reach. As consumers move effortlessly and seamlessly from one device to another across multiple screens, so too must ads and all forms of communication. That's why Omnicom's agencies are delivering creative ideas using social, mobile, and other digital mediums, which are at the heart of every campaign.

This next generation of storytelling is being amplified by informed insights and new technologies that allow us to deliver personalized and relevant brand messages in real time. We develop these capabilities by ensuring that each of our agencies, at a very early stage, invested in digital skill sets and talent. As a result, we are extremely well positioned and equipped to assist clients in building their brands and communicating the brand message across multiple channels.

An example of our capabilities is our work for AB InBev, which hired us last year to handle Bud Light, and attract millennial consumers. The Bud Light BBDO team elected to give one person a truly epic experience that would become the center of a completely integrated Super Bowl program. BBDO centered a multi-agency, multi-partnered team to deliver the integrated plan. The campaign generated 18 pieces of unique content that was distributed through YouTube, Facebook, Twitter, and Vine.

A consumer call to action was created to fuel mass engagement on social media and at events through New York during Super Bowl weekend. The results are surpassing all expectations.

In addition to the 112 million viewers of the Super Bowl, the 3.5-minute film was the most-watched video worldwide on YouTube for over 24 hours leading into Super Bowl Sunday. The online content has already generated 25 million views, and 33 million total minutes of time spent with the brand. And it is still growing.

The growth of new digital mediums has also resulted in the creation of an immense amount of usable data. Omnicom's strategy is to aggregate this data on a single, actionable technology platform, to develop and hire talent that can analyze it, and to ultimately provide better consumer insights, target audiences, and evaluate the results of marketing programs.

It's about reaching people at the right time in the right place when they are in the right mood, resulting in improved marketing ROI for our clients. Annalect, our data, analytics, and marketing technology business, is helping our agencies do just that for their clients.

Today, Annalect has over 850 data scientists and programmers across 50 markets. To further drive our strategy, Annalect is launching a global data management platform, which is now live in the US, UK, and China. The platform will support audience segmentation and ad optimization, allowing all Omnicom agencies to analyze audiences across media publishers, and provide greater marketing insights for their clients. In a short period of time, it is already generating 50 million new, unique audience records, on average, per day.

This consisted view of data on a global basis is a first in our industry. We've distinguished Annalect's capabilities by leading the way in forming global relationships with major technology and media companies like Google, Yahoo, AOL, salesforce.com, and Facebook. We continue to be first movers in employing the latest media, technology, data, and eCommerce tools through the more than 100 partnership agreements that they are leveraging on behalf of our agencies.

Our service capabilities and the top talent, combined with our open-source approach to technology and extensive partnerships, are unique in our industry. We are working hard to make sure our people are trained to deploy these tools, so that Omnicom is not dependent on any single technology platform or approach that could quickly become obsolete.

In sum, Omnicom is extremely well positioned to compete in an ever-changing and increasingly complex environment. I'm also confident we have the top talents and tools available to deliver best-in-class services to all of our clients, and strong financial results for our shareholders.

Now I'd like to spend a few minutes updating you on the proposed merger with Publicis Groupe. This transaction is highly complex, and is taking longer than we originally expected. The integration teams, with approximately 70 workstreams that were launched in late 2013, continue to make progress.

With respect to the three tracks of regulatory approvals, the first, the antitrust regulatory track, has progressed well. At this point in time, China is the only market where we are still working towards receiving clearance. And we received clearance from all other jurisdictions. The second track, tax approvals, is also progressing well.

As we work through the remaining open issues, we will continue to work on our filings with the SEC and the AFM, the final track. However, at this point in time, this step cannot be completed until after each side finalizes its audited 2013 financial statements.

As we look to 2014, we are encouraged by our solid growth in the fourth quarter and the full year of 2013, and the execution of our key strategies. The Winter Olympics and the World Cup should also provide a little tailwind, so we enter 2014 optimistically.

Before handing the call over to Randy, I once again want to thank the people of our agencies for the world-class integrated campaigns, outstanding new business wins, and all the great work that has enabled us to deliver a strong 2013 for Omnicom, our clients, and our shareholders. Thank you.

Randy?

Thank you, John. It was an excellent quarter and a strong finish to a good year. As John pointed out, in addition to strong financial results, our agencies made excellent progress against both their strategic and operational objectives. As a result, we were able to again report strong results for the quarter and for the full year.

To make our financial presentation easier to follow, we've again this quarter added a third column of numbers labeled non-GAAP. The only difference between the GAAP and non-GAAP figures is that we've excluded the incremental costs that we've incurred related to the potential merger from the non-GAAP figures. These costs, which are predominantly professional fees, totaled $13.3 million during the fourth quarter and $41.4 million for the full year. For the most part, these costs are not tax deductible.

For the quarter, net income was reduced by $13.3 million, and EPS was impacted by $0.05. For the full year, net income was reduced by $34.9 million, and EPS was reduced by $0.13.

We believe that the non-GAAP figures help in evaluating the performance of our operations. For the presentation, I will focus most of my comments on the non-GAAP column, but we have the reported GAAP numbers side by side for easy reference and clarity.

As I mentioned, our agencies had a strong finish to a good year, with net new business wins in the fourth quarter topping $1.5 billion, and helping to position us well going into 2014. In the fourth quarter, revenue came in a little below $4.1 billion. Organic revenue growth increased 4.2%, while FX was negative 6/10%; and acquisitions, net of dispositions, decreased revenue by another 7/10%. I'm going to give more detail on the revenue growth in a few minutes.

Now moving down the P&L, our non-GAAP EBITDA increased 2.6% to $589 million. The resulting EBITDA margin was 14.5%, which was flat year over year.

Non-GAAP operating income, or EBIT, for the quarter increased 3% to $565 million, and the operating margin of 13.9% was also flat with last year. Again, the only difference between the non-GAAP and GAAP numbers is the exclusion of the $13.3 million of incremental merger-related cost.

Turning to page 2 and looking at the items below operating income -- first, net interest expense for the quarter was $39.8 million, down about $0.5 million year over year, and down about $3 million from the third quarter. Versus Q3, as you may recall, we were required to accrue in Q3 a potential interest payment on our remaining convertible notes. In accordance with GAAP, due to the structure of the securities, we were required to accrue basically a full year of interest as expense in Q3.

Our operating tax rate for the quarter continues to be about 33.6%; and the reported, or GAAP, tax rate, was 34.5%. The higher rate was due only to the merger cost not being tax deductible.

Last year, our reported tax rate for the quarter was much lower, at 27%, due primarily to the one-time benefits resulting from the reorganization we completed in the Asia-Pacific region. That benefit was partially offset by one-time charges related to various US states and local tax items. As we noted last year, and as we expected, our operating tax rate this year declined to about 33.6%, as a result of that Asia Pacific reorganization.

Finally, non-GAAP net income for the quarter increased 2.2% to $314 million.

On slide 3, we show our diluted EPS calculation. On a non-GAAP basis, EPS increased 4.4% to $1.18. Although we suspended our share repurchase program when we announced the potential merger, our year-over-year share count is still down about 2%. On a reported basis, including the incremental merger cost, our diluted EPS was flat at $1.13.

On slides 4, 5, and 6, we present this same material, but for the full year. To save some time, I will leave those pages for you to review separately.

On slide 7, we take a closer look at our revenue performance. First, with regard to FX -- on a year-over-year basis, the US dollar strengthened against many of our major currencies, the most impactful being the yen, the real, the rupee, the Aussie dollar, and the rand. Going the other way, the dollar weakened against the euro and the RMB.

The net result reduced our revenue for the quarter by $24 million, or about 6/10%. Looking ahead, if FX rates stay where they are currently, we expect FX to be negative by about 1% in Q1, and by about 35 basis points for the full year.

Revenue from acquisitions, net of dispositions, decreased revenue by about $29 million, or 7/10%. This is primarily due to the sale of our recruitment marketing business in the second quarter. Acquisitions have partially offset the impact of this disposition, but for now, we expect acquisitions net of dispositions to continue to be negative through the second quarter.

With regard to organic growth, we had a good quarter, up 4.2%, or $167 million. This was driven by a combination of items.

First, our agencies have continued to benefit from their development of integrated digital capabilities. Virtually all of our agencies are aggressively taking advantage of new technologies and communications platforms to broaden the scope of services they're offering to their clients. Some of the best examples of this trend are in our media businesses, where we had another excellent quarter.

We also benefited this quarter from the continuing strong performance of our agencies in the emerging markets. This quarter we had standout double-digit organic growth in a number of the emerging markets, including Russia, Brazil, China, India, Malaysia, Vietnam, Colombia, and Chile. Finally, modest stabilization in Europe, bolstered by the continuing strong performance of our UK agencies.

Looking forward, while it's still very early in the year, for all of the reasons John mentioned in his comments, business feels better than it did at this same time last year. Coming off of two consecutive quarters of 4% organic growth, as well as solid new business performance in Q4, we think a reasonable full-year estimate for organic growth would be around 4%.

Turning to our mix of business on slide 8 -- for the quarter, revenue was split nearly 50/50 between brand advertising and marketing services. As for their respective organic growth rates, brand advertising was up 4.1%, driven by strong growth in our media businesses, and marketing services was up 4.3%.

Within marketing services, CRM was up 6.8%, with strong performance across the board, but especially in our field marketing, events, and print and custom publishing businesses. Public relations was down 3.7% in the quarter, but was up for the year. Although down, the performance in PR this quarter was pretty good. The year-over-year decline is more due to exceptional performance in the fourth quarter of 2012.

And specialty communications increased 2.5%, driven by a strong quarter in our healthcare businesses, partially offset by declines in a couple of our smaller specialty businesses. For the full year, specialty communications had positive organic growth of 4.8%.

On slide 9, our regional mix of business in the quarter was split approximately 55% in North America, 30% Europe, 11% Asia Pacific, 3% in Latin America, and 1.6% in Africa and the Middle East.

Moving to slide 10, in North America, we had organic revenue growth of 3.2%, driven by strong performance in our media, field marketing, and print businesses. Our other regions all had positive organic growth this quarter as well. Europe in the aggregate was up 2.6%, driven by strong performance in Russia and the UK. AsiaPac was up 10%, Latin America up 18%, and Africa and the Middle East was up 1.1%.

In our larger European markets, as I mentioned, Russia and the UK continued to perform very well. Germany, Italy, and Norway were positive, and France and the Netherlands continue to struggle. Although the Eurozone markets in aggregate were down 6/10% in the quarter, this represented the third consecutive quarter of sequential improvement. So, while it's still not positive, it does seem to be stabilizing.

In Asia Pacific, we had strong performances across most of the region, with Malaysia, Japan, China, India, New Zealand, and Vietnam all with strong double-digit organic growth. And with the exception of Mexico, our Latin American markets, Brazil, Argentina, Chile, and Colombia, each turned in double-digit organic results this quarter. Mexico was also positive, just not quite double digits.

We've also provided two additional slides, on 11 and 12, that present our revenue by geographic subsets: US, Euro markets, the UK, and the rest of the world. Obviously, this is the same revenue data, just grouped differently. I will leave those slides for your review separately.

On slide 13, we present our mix of business by industry for the year. These numbers are total growth, not organic growth.

As for our mix of business by industry sector, there was very little change year over year. And fortunately, we had positive growth in almost all of the sectors. The exceptions were auto and financial services. The negative growth in these sectors was primarily driven by one or two larger account losses.

Turning to slide 14, we had another very strong year from a cash flow perspective. We generated almost $1.5 billion of free cash flow, excluding changes in working capital.

On slide 15, we break down our primary uses of cash for the year, which included dividends to common shareholders of about $318 million. The year-over-year decrease occurred because we accelerated one dividend payment into late 2012. So, as a result, we only made three dividend payments in calendar-year 2013 versus five payments in 2012. Partially offsetting that reduction was a year-over-year increase of 33% in the amount of our quarterly dividend per share.

Dividends paid to minority interest shareholders of $101 million was about flat with 2012. And capital expenditures of $212 million was down about $14 million, primarily because we had several larger office build-outs in 2012.

Acquisitions, including earn-out payments, net of the proceeds received from the sale of investments, totaled $96 million. This was down about $93 million, in part due to a couple of larger acquisitions completed in 2012, as well as the proceeds received from dispositions.

Finally, share repurchases, net of the proceeds received from stock issuances under our employee share plans, totaled $485 million. The decline from 2012 is because we were required to suspend our share repurchase program in July, following the announcement of the potential merger with Publicis.

All in, on a net basis, we generated $246 million in net free cash during the year; again, excluding changes in working capital.

Turning to slide 16 -- focusing first on our capital structure, the primary year-over-year change was a redemption of $407 million of our convertible notes earlier in the year for a combination of cash and stock. As a result, our total debt at year end was down to just over $4 billion.

And our net debt position at the end of the quarter was $1.3 billion, down about $445 million from last year. $246 million of the decline was the result of our positive net cash flow, as we outlined on the prior slide, and $199 million was the result of further improvements in our working capital management. As a result of the decreased debt, our total debt-to-EBITDA ratio improved to 1.9 times, and our net debt-to-EBITDA ratio improved to just 0.6 times.

Moving to slide 17, this chart shows that again we delivered excellent returns on both total invested capital and equity. Although both return figures were negatively impacted by the suspension of our share repurchase program halfway through the year, they remained industry-leading at 18.1% and 28.1%, respectively.

Finally, on slide 18, we track our cumulative return of cash to shareholders. The line on the top of the chart shows our cumulative net income from FY02 through year end, which totaled just over $10 billion. The bars below show the cumulative return of cash to shareholders, including both dividends and net share repurchases, the sum of which during the same period totaled $9.9 billion, for a total cumulative pay-out ratio of about 98%. During this period, we were also able to more than double both our revenue and our net income.

That concludes our prepared remarks. There are several other supplemental slides included in the presentation materials for your review.

At this point, we are going to ask the operator to open the call for questions.

(Operator Instructions)

John Janedis with UBS.

Randy, you spoke about the improving trends in Europe. I know you don't give formal guidance, but assuming it continues, would you expect to get maybe a slightly better margin lift across the Company this year when you compare it to 2013?

Well, certainly, broad-based improvement across Europe is probably one of the better things that can happen from a margin perspective. But I think it's going to take a little while for that to be the case.

While we are getting an improvement in Europe, or in the euro markets, it's still negative. If we had 3% or 4% positive organic growth across Europe, that would be excellent from a margins perspective. I don't see that pick-up quite yet.

Thank you. Maybe one quick one. Was there any benefits to the Olympics in the fourth quarter?

No.

I don't think so.

Great. Thank you very much, guys.

Craig Huber with Huber Research.

The UK obviously had a very strong quarter for, I think, the third straight quarter in a row year over year. Can you give us some more highlights of the great out-performance there relative to the economy, and I guess relative to your peers, probably, too?

I can't speak to my competitors. The economy is stabilizing. I would attribute it more to the individual performance of our companies in the UK.

We have some great brands and we have some fabulous people. They've been winning business, and they've been winning business for well over a year, and you are starting -- you see it reflected in our results.

Also, John or Randy, when do you expect the form 10 here in the US to be filed? Once it is filed, how long would you expect it would take for the merger to close after? How many weeks and months would you expect?

Well, we need the audited statements from both companies, and then we have to do a bunch of things like reconcile to IFRS, and they have to reconcile to GAAP. On our side, we are hoping to file our 10-K by the end of this week, which means that we will be done with that.

And we have a little bit of work to do then on the results. I know that Publicis is making progress. I would defer the question to them later in the week as to where they are on their audit.

As soon as those things are done, we can proceed. Then, the timing will be down to the SEC, their comments. And on the European side, I am going to get this wrong, the AFM, I got it right for the first time.

So then we are just going back and forth and answering comments, and making certain that we are in compliance with all their requests before we can go to our shareholders and schedule a meeting. So it's possible that my original comment of we being done by June 30 will slip now a little bit into the third quarter. But until we start the process, we won't know the answer to that question definitively.

My third and final question, if I could, please, Randy or John. As you think about margins, excluding Publicis here in the new year, are you guys expecting margins to be flat? Or do you think you could actually eke out a slight margin increase this year?

We're aimed at eking out a slight margin improvement this year with or without Publicis, and you have to put aside the merger-related cost.

Very good. Thank you.

Alexia Quadrani from JPMorgan.

Just a couple questions. First following up on the comment about timing of the merger. When you think about your share repurchase program, do you know when you would be green lit to perhaps get back into the market?

Is it after the filing comes out? Or do we have to wait till the merger actually closes?

I believe the agreement, and Mike O'Brien, our Chief Legal Counsel is here, requires us to wait until after the agreement. But I'm not certain.

I'm sorry. Please repeat the question, just to make sure I get it right?

The question was, when would you be green lit? I'm not asking about when you would actually go forward back in the market, but when you do allowed, as far as you understand, to reactivate your share repurchase program?

Is it after the filing comes out? Or do you have to wait till the merger actually closes?

That is something we have to analyze at the time. We might be able to go in after the -- it depends on volume, depends on a couple of other things. We'd probably be able to go in after the filing.

Okay, I'm just --

The agreement precludes it with Publicis. We would have to work through that, as well.

Okay. That's helpful. Thank you. One follow-up. Just generally on industry trends in terms of what you're seeing on the account movement.

From our database, it looks like the new business has been fairly strong. If you could comment on if you think the account movement level has increased or if it's been influenced at all by the pending merger? Any color on that would be great.

I certainly don't think it's been impacted by the pending merger. The accounts that are in review, typically every year there's business that goes into review.

Normally we perform better than our peers in that regard. Right now, there is some business in review, some business, as you know, has been recently decided. I wish there were more new business opportunities, but I'm happy with our performance.

Okay. Thank you very much.

William Bird with FBR.

Slide 18 on cash return is really quite impressive. How are you thinking about capital return plans post-deal? And I guess, what are your post-deal leverage thoughts? Thank you.

As Omnicom's management, which has been consistent for a very, very long period of time, I could answer from an Omnicom perspective. What we have agreed, as part of the merger of equals with Publicis, is we've only agreed to a stated dividend policy.

I think formally the comments that we've made, is that acquisitions, which is consistent with Omnicom's past, acquisitions will take precedent in terms of the use of capital, more free capital earned from the business. The board of directors, or the new board of directors, will make a determination as to what the share repurchases should be.

I also think we've made -- I know we've made a commitment to stay BBB-plus and to maintain that rating as a new company, as well as our prior commitment to maintain that. I don't know.

I think that' s right. The new company on a combined basis would generate pretty close to $2 billion a year free cash flow. That's a lot of money.

The company has said it wants to maintain at least a BBB-plus credit rating. We have some room in the current combined debt structure.

Frankly, both companies have generated a pretty significant amount of cash since the merger announcement. There is a lot of cash to deal with.

We've said that it's going to be -- that it's a board decision, which I think in every company, capital structure and use of capital is a board decision. I've said a couple times that I can't really envision that at the first board meeting, the board would jump and have at the first item on its agenda. I wouldn't expect to see any rapid change of policy or utilization of cash immediately after the close of the deal.

Now, having said that, the reason for the merger is that both companies think that we benefit and complement each other, and that we will generate some very, very positive results as an impact to it. So, that's about as much as we can say at the moment.

Thanks. Separately, I may have missed it, and I apologize if I did. Can you quantify net new business in Q4?

$1.5 billion, just over $1.5 billion.

If I could sneak in one more. On the Olympic affect, are you likely to see a little bit of a pull forward in growth in the first quarter, or not?

I don't think so. The Winter Olympics are not a huge marketing event. There is a little bit. The Olympics for us, we tend to see some event business pick up.

There was quite a bit of that with the Summer Olympics. But there's not a lot with the Winter Olympics.

I think the World Cup later in the year will be more of a benefit.

Thank you.

Ben Swinburne with Morgan Stanley.

Sticking on the cash flow theme, and Randy you touched on it a bit in your prepared remarks, you had a big positive working capital benefit this year. I think that's pretty unusual.

I would ask if you could give us some color. If you are willing to talk about it in the context of the merger, any expectation around how the new company might or might not see consistent working capital positives or negatives? Or does it tend to be a wash?

Certainly, our push this year was, frankly, a lot of internal focus starting from the top, going down to every single agency. Pushing on working capital management, and doing everything we can do to make our systems and processes and practices as efficient and fluid as possible.

You are not going to get that type of an improvement, because frankly a lot of this was cleaning up our own inefficiencies. We still have inefficiencies, we will probably always have some inefficiencies, but we want to have a lot less of them.

From what I can gather, Publicis does a really good job on its working capital management. It has, as far as I can tell, a pretty similar focus to ours. So I don't expect the two companies together are going to be any better than each of us is individually.

Which is to say, are focused.

Yes. Based on my conversations with Jean-Michel, they are focused, as well.

I think it was on this call maybe a year ago where we were talking about payment terms with clients. John, maybe your quote was, we are not a bank. It's interesting to see the good numbers in the context of that trend.

Then, I just had one more. You've talked a lot about the process to close the deal. At this point, I don't know if you can give us a forecast. Is it your expectation this transaction closes in the second quarter?

It's getting very difficult, but it really comes down to the regulators. So, I mean, if I was being -- it's the middle of February.

Based upon all of the advisors that we have, it most likely will slip into the third quarter. But that's all I can tell you. Until that track of regulatory action starts, that's the best I can guess, as we sit here today.

Got you. Thank you very much.

David Bank with RBC Capital Markets.

With all that insight on the changing landscape and digital and data and the new platform, I hate to ask about something as mundane as the weather. But I have to ask you about the weather.

Do you anticipate any impacts on the unusually extreme weather across the US that seems to have the potential to impact productivity? Have you seen any impact to the advertising market, and do you expect any? Thanks.

Just let me comment on that. The weather does have a serious impact on many of our clients' business. If that happens on a sustained basis, I guess eventually it might impact ours.

I've been at this for a very long time. I've yet to use weather on a conference call as an explanation for our performance. So we are not there yet. We proceed.

Okay. Thank you.

Doug Arthur with Evercore.

John, I think you mentioned that there were 70 working tracks on the integration process in the merger. Is there anything at this point you can comment on in terms of your initial forecast of $500 million of synergies and $400 million of spend to get there? Any color on that at this point?

I don't have any color at this point. We are focused on arriving at the best conclusion for each of those aspects.

It gets, in many cases, very small areas. We haven't, nor -- that hasn't been a focus yet. Doing the right thing's been the focus.

I mean, step one is to make sure we identify all the things that have to get, I will say done or integrated the day we close. No matter when we close, we are going to be reporting numbers and having to operate the company the next day.

So I think all the teams are focused first on identifying those. Second, trying to identify how each company operates, the differences, so we can try to identify the better practices, or the best practices of the two, and then think about how we can over time move towards those best practices.

Just one final comment on that. Randy points out the most important part, is what do we have to be able to do day one. But the two groups and the benefits that they bring will take a little bit of time.

When we first made comments about synergies, we indicated that they weren't going to come in the first quarter or the first year, per se, that we couldn't predict. But we are confident that we would be able to achieve them because of opportunities that we see that both companies together offer.

Okay. Great. Thank you.

We're also are getting pretty close to the market opening. Why don't we take one more question, and then we will say goodbye.

Thank you, and that will come from the line of Tim Nollen with Macquarie.

I wanted to follow up on the merger operations and opportunities questions that we've seen so far. If there's a little bit more you can say about what you've been able to do, other than regulatory and tax work that you mentioned, what have you been able to do to prepare for the merger operationally?

A follow-on with that, is you mentioned when you made the merger announcement that you expected did an incremental 1% revenue growth from the merger. I'm guessing that has a lot to do with the scale and with the opportunities to work more in integrated marketing and digital, which you also highlight in your comments here. Is this a realistic longer-term trend that you can continue to push revenue growth up in that type of a range because of that type of digital work?

I think as I said in my prepared remarks, there are a lot of complexities associated with the transaction. We are working through all of them.

We've focused a bit on the questions here on the regulatory ones. But there are others, as one would expect.

It has been the policy, I would think, and the intention of managements, both of Omnicom and of Publicis, to grow in excess of the GDP of the markets in which we operate. The shorthand of that has always been we've expected to do 1% better.

Nothing's come to my attention which would take me off of that statement at this moment. Now, there might -- Omnicom has been able to do that, as I said on a consistent basis, and there hasn't been, except for when the markets almost melted in 2008, there hasn't been much of an interruption in that.

I'm not suggesting that's going to be every single month, but over the business, over a year, over the business cycle, that's our intention. If we ever change it as a combined company, we would come out and we would let you know ahead of time.

You also asked what have we've been able to do to date. From an operations standpoint, we've talked a lot. We've talked about these integration teams.

As far as actually working together, our attorneys have made it explicitly clear that we have to continue to operate as two separate companies, and in some respects we've actually operated almost more independently than we would have if we hadn't announced the deal. People have been extremely cautious on breaking the rules of working together before the merger has been closed.

There's a couple of new business pitches that are outstanding around the world, and there have been since we announced the deal, where we've been pitted against each other. I expect that to continue.

Okay. Thanks very much.

Thank you all very much for listening to our call. Have a great day. Bye-bye.

Thank you. Ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation, and for using AT&T Executive Teleconference service. You may now disconnect.