宏盟集團 (OMC) 2014 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Omnicom second-quarter 2014 earnings release conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. At this time I'd 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, sir.

Good morning. Thank you for taking time to listen to our second-quarter 2014 earnings call. We hope everyone had a chance to review our earnings release. We've posted on the omnicomgroup.com website both our press release and the presentation covering the information that we'll be reviewing this morning. This call is also being simulcast and will be archived on our website.

Before we start, I have been asked to remind everyone to read the forward-looking statements and other information that'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're going to begin the call with an overview of our business from John Wren. Following John's remarks, we will review our financial performance for the quarter, and then both of us will be happy to take your questions.

Good morning. Thank you for joining today's conference call. As I am sure you have seen, Omnicom had a very strong second quarter, with organic growth up 5.8% over the same quarter last year, and we are on track to meet our revenue and margin targets for the full year.

Our results this quarter speak for themselves. Our agencies and our people have stayed focused on servicing their clients and building their businesses. At almost 6%, this is the best organic revenue growth rate we have posted since the third quarter of 2011. Since the beginning of the year, we have won approximately $2 billion of new business, including such well-known brands as Johnson & Johnson, CVS, Sony, Heinz, Dixon, and several new assignments in the pharmaceutical sector.

During the quarter we resumed our longstanding policies of returning our free cash flow to shareholders. In May we increased our dividend by 25% and resumed our share repurchase program. Since mid-May we've repurchased over $550 million in stock.

Examining our performance I will point to several factors which contributed to our revenue growth. The biggest driver was our performance in the United States, which was extremely strong, with organic revenue growth of 8.8%. This growth was fueled by our media operations, including continuing strong results in search, social and programmatic trading.

The UK also continued to perform well, with mid-single digit growth driven by strong performances in media and public relations. In other parts of Europe, Germany was positive for the third straight quarter, while France continued to be negative. And in the larger developing countries such as Brazil, India and Russia, we experienced strong double-digit growth. Our agencies also performed well in China, with high single-digit growth.

Our margins were off nominally due to several factors, which Randy will address in his remarks. But overall, I'm very pleased with our operating and financial performance as we go into the second half of the year.

Let me now provide you an update on the progress we are making against our core strategies to drive growth. These strategies share a goal of helping us meet the rapidly changing needs of our clients by giving them access to the best people and the latest technologies where and when they need it. They are the same as you've heard before: attracting, retaining and developing top talent; expanding our global footprint and moving into new service areas; building our digital and analytical capabilities by investing in agencies and partnering with innovative technology companies; and, delivering big ideas based upon meaningful consumer insights across all marketing communication channels.

Our progress is really a reflection of the caliber and contributions of the talented people, and that showed itself again this year in Cannes. Omnicom won more Grand Prix and Gold Lions combined than any other holding company. Let me mention just a few of the highlights from this year's festival. Adam & Eve DDB in the UK was named Agency of the Year, winning a total of 22 awards, including four Grand Prix Lions. Our media networks, OMD and PHD, dominated the Media Lions category, with 16 Lions. BBDO and DDB were among the top three networks for the 8th consecutive year. And, as a testament to the diversity of our service offerings from our largest creative networks, BBDO, DDB, and TBWA all won Grand Prix awards across multiple categories. I want to congratulate all of our people and agencies for their outstanding work that made Cannes 2014 such an amazing showcase for our industry.

The premium on big creative ideas has never been greater, but, as I have said before, an idea is brilliant only if brilliantly executed. As I look at the talent in Omnicom, I want to specifically mention several changes which have been announced in the past several weeks. Troy Ruhanen has become the President and the CEO of TBWA, succeeding Tom Carroll, who continues to serve as Chairman. This move demonstrates our emphasis on well-thought-out, long-term succession planning. Troy was identified as a potential network leader some time ago, and Tom Carroll and I decided together that when it came time, Troy would be the right leader for TBWA. His experience in leading Omnicom agencies across geographies, disciplines and categories makes this a seamless transition that will further enhance TBWA's capabilities and reputation.

Troy has been with Omnicom for over ten years and is now one of five network heads with long tenures. Troy's prior role at the holding company will be assumed by Peter Sherman, who recently rejoined Omnicom from J. Walter Thompson. Peter will be working to ensure we are driving agency collaboration and innovation for our largest clients.

And in terms of our ability to attract talent from the outside, last quarter we also filled two very important and strategic positions. Alexei Orlov joined as CEO of RAPP, and Emma Sergeant joined as President of DAS Europe, industry veterans with significant agency and client experience. Having experienced network and agency leaders who know each other well is increasingly important, because collaboration has become the new normal. The lines between disciplines have been blurred. Clients more and more want integrated solutions.

Turning now to our progress on expanding our capabilities, we made an important acquisition last quarter, with TBWA Worldwide acquiring Heimat, which is a leading independent advertising agency in Germany. Heimat will merge with TBWA's existing operations in that market. Also in Europe, RAPP announced its acquisition of Haygarth, a UK-based brand and retail agency. This is a smart transaction that will combine Haygarth's expertise in digital shopper marketing with RAPP's globally-focused data insight and technology expertise.

Yesterday, Omnicom's DAS group announced the acquisition of an interest in In Press, a leading PR company in Brazil. In Press has been an affiliate of Porter Novelli's network since 1999. As you know, Brazil is a key market for both our clients and our businesses, and formalizing this partnership will provide opportunities for growth in years ahead.

In addition to these acquisitions, we continue to make internal investments in our networks, agencies and platforms. On the topic of digital strategies, I will remind you of what I said in our last call about the way Omnicom breaks down the broad category of digital. First, we've always believed that anything that can be digital, will be, and that means pretty much everything we do. We have long encouraged and helped our agencies to invest in digital skill sets and talent, and they all have. Whether in brand advertising, shopper marketing, PR or any of our disciplines, all of our agencies have developed and hired talent to embed digital capabilities in our core offerings.

Second, there�san area of data and analytics, new platforms that enable marketers to identify and reach the right people at the right time in the right place, and even when they are in the right frame of mind. For us, that's Annalect, with more than 1,200 professionals in 45 markets. Annalect is a resource for all Omnicom companies.

Third, there's an area of technology-driven marketing, such as e-commerce and m-commerce, where firms like Deloitte, IBM, Wipro, and agencies like Sapient compete. We have some capabilities in this area, and we see it as a potential opportunity for further growth.

Looking at Annalect, we distinguish its capabilities by forming global relationships with major technology and media companies rather than in making bets on specific platforms. And we continue to be the first movers in employing the latest media technology, data and e-commerce tools through more than 100 partnership agreements, where we are levering on behalf of our agencies.

Last quarter, Omnicom signed a first-of-its-kind agreement with Twitter. There are at least three important features with this agreement. First, it gives first look to Omnicom's creative teams at any new ad formats being developed by Twitter. Second, it provides design and strategic collaboration support from Twitter for all of Omnicom's agencies. And finally, it integrates Twitter's recently-acquired mobile ad exchange, MoPub, with Accuen.

I mentioned at the beginning of the call that one of the main drivers of Omnicom's second-quarter performance is our media operations, which includes search, social and programmatic trading. For Omnicom, those capabilities are captured within Annalect. Over the last 3 1/2 years, Annalect has produced game-changing tools in the area of analytics, and built one of the industry's larger data management platforms.

They've also assembled a talented team of data scientists from other industry fields. Some of these analysts are now being deployed within our advertising networks, such as BBDO, working directly with our account teams and clients. And to further deliver on this front, Annalect recently hired a Chief Analytics Officer, who will expand our data science practice across Omnicom.

Before handing the call over to Randy, I will close it by saying it was a solid quarter for Omnicom on all fronts. We've posted the strongest organic growth we have had in quite a while, and we're on track to meet our 2014 revenue and margin targets. Our buy-backs have been resumed, and we've increased our dividend.

I said recently that Omnicom is strong, innovative, energized and ready for the future, and that is certainly the way we feel this morning, based upon our second-quarter results. I want to thank all the people at Omnicom, our many stakeholders who have supported us along the way, and our very, very important and supportive clients.

And with that, I'll turn this over to Randy and then he and I will be available for questions after. Thank you.

Thank you. As John pointed out in his comments, our agencies have done a great job and are on a good track. Over the course of the last year they�ve remained laser focused on serving the needs of their clients, and they've continued to make excellent progress against both their strategic and operational objectives.

And as you can see, they've again delivered excellent financial results. Revenue for the quarter came in at $3.87 billion, up 6.4%. The year-over-year increase was driven primarily by very strong organic growth of 5.8%, and for the first time in 10 quarters, FX was positive, at least from a revenue perspective. I'll go into more detail on our revenue growth in a few minutes.

Moving down the P&L, first, I want to point out that we've now fully recognized all of the expenses related to the terminated merger. During the quarter the pre-tax costs, which were predominantly professional fees, totaled $1.8 million. For the six months, the total is about $8.8 million.

In addition, for tax purposes, after the termination, we were able to deduct any previously capitalized costs associated with the merger. As a result, this quarter we realized an $11 million tax benefit. The net EPS benefit this quarter was about $0.03 per share, and for the six months, it's about $0.01. Because these numbers are not significant and they're behind us, we've eliminated the non-GAAP presentation we've shown for the past few quarters.

Back to the P&L, EBITA increased 4.7% to $574 million in the quarter, and the resulting EBITA margin was 14.8%, down about 25 basis points from last year. The decline in margins was due primarily to three things. First, although FX this quarter was positive for revenue, it had about a 10 basis point negative impact on operating margins.

In several of our larger, higher margin markets, primarily Australia, Brazil, Canada and Russia, FX was very negative and negatively impacted our margins. Also in the UK, where we have much of our European corporate infrastructure, while FX was positive to revenue, it also inflated those corporate costs, again hurting our margins.

In addition to FX, our margins were hurt to some extent by our mix of business in the quarter. And finally, as I mentioned earlier, we had approximately $1.8 million of costs related to the merger in the quarter. When we analyzed our businesses unit by unit in their local currencies, in aggregate, operating margins showed modest improvement year on year.

Operating income, or EBIT, performed similarly. It was up about 4.9% for the quarter to $548 million. And our EBIT margin was down about 20 basis points.

Turning to page 2 and looking at the items below operating income, first, net interest expense for the quarter was $33.7 million, down $7 million year over year, and down $5.3 million from the first quarter. The decrease in net interest expense is primarily related to the benefits we are realizing from the fixed-to-floating interest rate swaps we entered into related to our 2022 senior notes, which we executed early in the second quarter. We'd gotten to the point where virtually all of our debt structure was fixed rate. With this change, we're now about 25% floating rate, and we are evaluating moving closer to a 50/50 structure by year-end.

Our quarterly reported tax rate of 31.1% reflects the impact of approximately an $11 million tax benefit we recognized in the quarter related to the previously incurred merger expenses, which were required to be capitalized for tax purposes prior to the termination of the merger. Our underlying operating tax rate continues to be about 33.2%. And while we're always looking for ways to improve the efficiency of our tax structure, given where we are currently, we expect our operating tax rate for the year to stay around 33.1% or 33.2%.

Earnings from our affiliates increased $1.1 million in the quarter to $4 million. And the allocation of earnings to the minority shareholders in our less-than-fully-owned subsidiaries also increased $1.1 million to $33.2 million. As a result, net income increased 12.3% to $325 million.

On slide 3 we show the allocation of net income to participating securities, which are the unvested restricted shares held by our employees. The remaining net income available for common shareholders increased 13.2% for the quarter to $319 million.

This chart also shows our diluted share count. As you know, we restarted our share buyback program in mid-May. In the quarter we bought back about 7.9 million shares net, but since we didn't start buying until midway through the quarter, the share buyback is not yet fully reflected in the weighted average share count. As a result, the share count for the quarter is down only marginally year over year. Given our overall strong performance in the quarter and the $0.03 per share benefit I mentioned earlier, EPS increased about 13% to $1.23.

On slides 4, 5 and 6 we present this same P&L information for the six months to date. To save some time, I'll just give a few highlights. On page 4, revenue is up about 4.8%, driven predominantly by organic growth. EBITA increased about 4% to $981 million, and our EBITA margin was 13.3%, down about 10 basis points. Included in the EBIT is about $8.8 million of merger-related costs, which brought margins down about 10 basis points, and FX negatively impacted margins by another 10 basis points. The underlying operating margin year over year was actually up about 10 basis points.

On page 5, net interest expense for the six months is down $9 million, primarily due to the interest rate swaps we completed in Q2, as well as good cash performance. The reported tax rate was 32.2%, brought down by the $11 million tax benefit I mentioned. And equity and affiliate income was down $1.5 million, and the minority interest allocation was up $4 million. This all resulted in net income increasing 7.3% to $531 million. On page 6 you can see the weighted average share count is flat and EPS increased 8% to $2 per share.

On slide 7 we start reviewing our revenue performance, first with regard to FX. While overall it was positive, it was very mixed. On a year-over-year basis, the dollar weakened against both the euro and the UK pound; however, it strengthened against the currencies in a number of our other significant markets, including Australia, Brazil, Canada, India, Russia and South Africa. The net result increased our revenue for the quarter by $26 million, or about 0.7 of a percent. Looking ahead, if FX rates stay where they are currently, we expect FX to be positive to revenue by about 125 basis points in Q3, and by about 26 basis points in Q4.

Revenue from acquisitions net of dispositions decreased revenue by $5 million. Fortunately, we've now cycled through the Q2 2013 sale of our recruitment marketing business, and with the transactions that we've completed through June 30, we currently expect acquisitions, net of dispositions, to add about 50 basis points to our revenue in both the third and fourth quarters. And most importantly, organic revenue growth was positive $213 million, or 5.8%, this quarter.

It was a strong quarter, with positive growth across each of our disciplines and most of our major markets, with the exceptions being France and Canada. The primary drivers of our growth this quarter included excellent performance across our media businesses, driven by both new business wins and the continuing development of new media.

Also, our agencies in the emerging markets continue to perform very well. This quarter we had excellent performance in Brazil, China, Colombia, India, Malaysia and Russia. And we continue to see very modest recovery in Europe. Slide 8 covers the year-to-date results, which are basically in line with the quarter.

Slide 9 shows our mix of business for the quarter, which again was split about evenly between advertising and marketing services. As for their respective growth rates, brand advertising was up 10.5%, driven, as I mentioned, by the excellent performance of our media businesses. And marketing services was up 1.5%. Within marketing services, CRM was up 1.1%, with mixed results across businesses, mostly driven by individual agency performance. Public relations was up a very solid 4.1%, and specialty communications was up about 20 basis points; however, the underlying performance looks generally good. We're just up against the difficult comp number from last year in our healthcare businesses, which had growth of almost 10%.

Flipping to slides 10 and 11, we present our regional mix of business. During the quarter the split was 57% for North America, 29% Europe, 10% Asia-Pacific, with the remaining business split between Latin America and Africa and the Middle East.

Turning to the details on slide 11, in North America, we had organic revenue growth of 7.9%, driven this quarter by the performance of our media and PR businesses. Our other major regions all had positive organic growth, as well. Europe was up 2.1%, led by continuing strong performance in the UK and Russia, solid performance in Germany, Ireland, Portugal, Spain and Sweden, and as I mentioned, France continued to struggle.

Asia-PAC was up 5.1%. We had strong performances across most of the region, with Australia, China, India, Malaysia and South Korea leading the way. Latin America was up 7.8%, again, led by strong, double-digit performance in both Brazil and Colombia. And Africa and the Middle East was up 2%.

On slide 12 we present our mix of business by industry sector, keeping in mind, these are year-to-date figures, and are total growth, not just organic growth. As you can see, the larger changes year over year were in our retail, telecom and other industries group. The retail sector increased on the strength of new business wins over the past few quarters. And within other, we've benefited from both new business wins, as well as increased spending from our services, multi-industry conglomerate and government clients.

Turning to our cash flow performance on slide 13. First of all, it was a pretty good quarter. We generated almost $760 million of free cash flow, excluding changes in working capital during the first six months of the year.

As for our primary uses of cash on slide 14, dividends paid to our common shareholders was $212 million. This was up significantly from last year, when we paid our normal Q1 dividend in the fourth quarter of 2012, and it reflects the recent increase in our quarterly dividend to $0.50 per share. Dividends paid to our non-controlling interest shareholders increased with performance and FX changes to $66.5 million.

Capital expenditures of $92 million was up about $23 million from the same period last year. The increase is a combination of timing differences and a couple of larger office relocations during the period. Acquisitions, including earn-out payments, net of the proceeds received from the sale of investments, totaled $105 million. And finally, stock repurchases, net of the proceeds we received from stock issuances under our employee share plans, totaled $554 million.

As I mentioned earlier, we restarted our share program in mid-May, and have so far purchased about 7.9 million shares net. As a result of all of that, we outspent our free cash flow by about $270 million for the six months.

Turning to slide 15, focusing first on our capital structure, as of June 30th, it remains effectively unchanged compared to last year. But, as you may be aware, in June we called our convertible notes for redemption at the end of July. Our net-net position at the end of the quarter was $2.5 billion, an improvement of about $120 million from last year.

Our total debt-to-EBITDA ratio at the end of June stands at 1.9 times, and our net debt-to-EBITDA ratio was 1.2 times. And due to both the decrease in our interest expense and the increase in EBITDA, our interest coverage ratio improved to 11.2 times.

On slide 16 you can see we again delivered excellent returns on both total invested capital and common equity. While both return figures were impacted by the suspension of our share repurchase program over the last year, we remained very strong, with a return on invested capital of 16.9% and a return on equity of 31.5%.

And finally, on slide 17, we track our cumulative return of cash to shareholders since 2004. The line on the top of the chart shows our cumulative net income from FY04 through June 30th of this year. That totaled $9.4 billion. And the bars show the cumulative return of cash to shareholders, including both dividends and the net share repurchases, the sum of which during that same period totaled $10.1 billion, for a cumulative payout ratio of just over 107%.

And now, that concludes our prepared remarks. There are a number of other supplemental slides included in the presentation materials for your review. But at this point, we're going to ask the operator to open the call for questions.

Thank you.

(Operator Instructions)

And our first question today comes from the line of David Bank, representing RBC Capital Markets. Please go ahead.

OK thanks very much. Two quick ones. First, I think in the beginning of -- the very beginning of your commentary, you had said that you felt like you were on track for your full-year revenue growth and margin targets. Could you remind us of what it is you're on track for?

Then the second question is, kind of more big picture, as you look across the landscape now, especially having had time to contemplate the contrast in business mix with you guys and Publicis. But if you look more broadly to all of your competition, how would you say your business mix differs from other major players in the landscape? And how does that impact margin performance, both sort of near term and longer term? Thank you very much.

I think we started the year telling people that we expected organic growth to be in the 4% to 4.5% range for the full year. We did think it would bounce around a little bit. And we said flat to up 10 basis points in margins. I think right now, we certainly think from an operations or efficiency standpoint, that our companies are making all the right moves and the underlying operating performance is there.

The FX headwind is tougher than we expected starting the year. So, if you wait a week, FX will change. Which way it changes, I'm not sure. But if it stays where it's at, flat margins will be probably the better end of what we can achieve, given that FX impact.

We also had $8.8 million in these numbers of merger expenses. Going through that isn't something that we were contemplating when we were saying flat to up 10 basis points in margins, either.

Your second question was mix. Everyone's got a little bit of a, obviously, different mix. It's hard to know exactly what the revenues or margins from each of the different businesses people have are.

Certainly, WPP has a fairly large research business that I don't think any of us has of that type or magnitude. They have a large media business. Publicis has a large media business. We have a large media business, but on a relative scale. It would be a smaller percentage of our business than, say, it would be for Publicis. Not 100% sure from a WPP standpoint. I would think it would be a bigger percentage.

We have I think much larger field marketing and marketing services businesses, things in the area of branding, field marketing events, promotions, those sorts of things. I'm not sure from an IPG standpoint the relative size of those businesses in its mix. I know ours is quite a bit larger than Publicis or WPP's.

Everyone talks about digital. We tend not to. We don't actually think digital is a so-called business. Digital is a medium or a technology that we want every one of our businesses, irrespective of their underlying discipline, to be utilizing to figure out how to provide a better service to their clients and to grow their revenues.

I don't know. That probably covers it, I think.

Okay. Anything about the near term business mix that would make sort of margin performance different from the peer group, or are those all sort of more broader, bigger picture, longer term issues, or contrasts?

Well business mix can move your margins around a little bit. It affected us a little bit this quarter. It all depends on which business is doing well.

We certainly -- one of the reasons that I've told people that we're focused more on margin dollars than margin percentages, if we have a company that comes in that can win a client, win the next $100 million piece of business that's going to generate $6 million or $7 million of operating income, if it doesn't require capital, that's something that we wouldn't say, don't do it. We think that would be very positive for shareholders, very positive for our business overall.

If we were focused only on margins, that would be a piece of business that would be dilutive to our reported margins. And the natural outcome of that would be to not pursue that business, even though it's economically very accretive to shareholders.

So, that's not been our focus. We want each of our businesses to be as efficient as possible and to grow their businesses economically for all of our shareholders.

Okay. Thank you very much.

Sure. Thank you.

Our next question today comes from the line of Alexia Quadrani with JPMorgan. Please go ahead.

Thank you. Just a couple questions. My first question is on the impressive organic revenue growth you guys saw in the quarter. I know you gave a lot of detail what was behind it, and I appreciate that. But if you were to pinpoint what was the delta this quarter to give it -- the best quarter you've seen in several years, as you highlighted, what was different this quarter?

I'd say a few things, and John can comment, too, if he wants later. First is, less negatives. So we had -- Most of our businesses did fairly well, so we didn't have a lot of, I'll say, headwinds in any one spot. So that's always a plus.

Our media businesses did very well. A lot of that is some new business wins that happened last year in the third and the fourth quarter, and some this year in the first quarter. So that rolling through was very helpful.

Accuen is doing well. That was up I think $30 million or $40 million year over year. That's a business that is, I'll say, a newish business. It's been around, I guess, for a couple years, but is starting to have more attraction, as is everyone's, and ours is doing quite well. We think our technology is very good and industry-leading.

Just a follow-up question, then, on Europe. You'd seen some better performance in continental Europe. Lately, France continues to be real negative. I think it's sort of an industry-wide issue. Can you -- how much are you dependent on that stabilizing, or can you continue to see better performance or some signs of recovery, and further signs of recovery in Europe with the trends still staying weak?

This is John, Alexia. I think Europe, we're pleased that it's stable to flat. From what we see right now, we're not expecting any grand move from there. There's no one country that's going to lead all of -- to us, one country that's going to lead Europe out of this current malaise that it's in. In reverse, we don't see anything backing up beyond what we've already seen.

And critical is individual agency performance. Agency, even in a difficult market, goes out, wins a few clients, comes up with innovative ideas for their clients, and they're going to be able to drive their top line revenue. We can't lose track of that.

Obviously, economic headwinds make it more difficult, but the individual agencies need to perform. And fortunately, ours have been doing a pretty good job.

Okay. Thank you very much.

Our next question today comes from the line of Craig Huber, with Huber Research Partners. Please go ahead.

Good morning. I have two questions. My first one is, appreciate the new revenue regional breakdown that you guys gave. I was just wondering, when will you be making available perhaps back to the beginning of last year on a quarterly basis of those breakdowns, just so we can all update our models for that? Will there be an 8-K going out soon on that?

Wasn't planning on it. Let me try to pull the numbers together and see what we can do.

It would just be very helpful I think for everybody. I�ve had a number of questions this morning from the analysts out there.

Okay.

And then also, just you�ve mentioned what the net share buyback was in the quarter. Just wondering, what was the gross amount of shares that you guys bought back in the quarter, please?

Give us a second. 8.031 million, plus, I think there was 147,000 shares that we effectively bought, if I'm reading this right, for basically withholding taxes on the exercises of restricted stock. So it's effectively bought in. They weren't open market purchases, really.

Okay. And then also, just back on the revenue breakdown. You mentioned UK was up mid-single digits organically. What was the euro on the old basis, if you have it, the euro-denominated markets, just so we can compare to what people were estimating in the quarter?

I don't have it. Sorry.

Okay. And then lastly, John, if I could ask you, you mentioned a bunch of internal investments that you guys were doing here, which is ongoing theme with Omnicom for many years, obviously. Is there anything you'd want to highlight that you're doing differently here on the internal investments that you can talk with us about, please?

Well we're following very much the patterns and making similar investments as we've made for at least the last 8, 10 quarters. We spend a lot of money on education, development of our people, and that's spread throughout the globe now in a fairly consistent basis.

There's a lot of investing that's gone on in Annalect and all the associated digital capabilities that we're increasingly able to do. And I see that as something we will only continue and increase as time goes past, because we're spreading those tools and that capability into the creative departments of our various agencies, at this point.

Another line worth mentioning is the eg+ platform.

Yes, production digital, right.

That will be -- it is off to a great start. It will be, I predict, a fairly high growth area over the next several years.

Okay. Thank you.

Our next question today comes from the line of Julien Roch, representing Barclays. Please go ahead.

Good morning thank you for taking my questions. The first one is on revenue. WPP has moved from reporting or telling us to focus on revenue to gross margin because of the proprietary revenue they�re taking on with Xaxis

And this morning, Publicis said there was $17 million to $18 million of principal revenue in their numbers. I was wondering whether there is some of that in your revenue? If we could get a number, or if it is actually zero. That's my first question.

The second question, on the very good Q2 organic, I know you said it was due to individual agency performance, to your focus on technology, but Publicis had a pretty dire quarter. And when you look at what Interpublic has reported, what WPP and Havas are supposed to report, clearly, everybody's taking market share from Publicis this quarter. Do you feel there's a bit of your revenue that's coming from that, is my second question?

And then the third question is on share buyback. Historically, you were doing all your cash flow in buybacks and dividends. You have overspent last quarter to catch up the pause due to the merger. Could we get a sense of how many more quarters will you overspend and the run rate of buyback for the coming quarters? Thank you.

Okay, yes.

Let me take a shot at it.

Yes, sure. Go right on.

First of all, we obviously all report in accordance with GAAP or IFRS. I think they are reasonably consistent on the points. So if we end up taking principal position, basically, buying an asset that we're reselling to a client, we'll need to take it on a principal basis.

I don't fully understand everyone else's business. I did hear what WPP said. I have not yet heard what Publicis said. The WPP numbers for Xaxis. Again, I don't fully understand everything that's there.

I think our business that's like that is Accuen. And as I mentioned in my comments, Accuen is doing very well. Year-over-year growth was about $40 million for us.

How much of that you'd attribute to its services or just the media costs, because the way it makes its money is it buys media and sells it. So it's obviously, its service intact is embedded in that number. But that year-over-year growth number is about $40 million for us.

Let's see, you asked -- I am probably skipping question two, because I don't remember exactly what it was, but I remember the share buyback question. What we told people coming out in mid-May, is that we were going to resume our share buyback.

We wanted to refocus that our first priority is to pay a solid dividend. We've been increasing our dividend fairly substantially over the last several years. We did it again. We're up to just shy of probably $500 million a year of dividends.

We want to make all of the acquisitions that we can that are accretive for our shareholders that are on strategy for Omnicom to build our business for the long term. And then the balance, we're going to balance out our capital structure with share buybacks.

We had accumulated quite a bit of cash during the period that we were not buying in stock. We estimated that we�d buy about $1.25 billion of shares by the end of the first quarter of 2015. We've made a lot of progress towards that this quarter, with $550 million or so. We didn't say the specific timing of how fast we would do that. We'll obviously keep track of it and stay focused on our overall business.

(multiple speakers) The second question had to do specifically with Publicis. And whilst we've won a lot of business this past quarter, I don't believe Publicis is where we've gotten it from. I think our wins really have come from Interpublic and from WPP, and that's where the growth and expansion has come out of.

Some of it hasn't been announced yet, either. It'll get announced shortly. But that's principally where it's been.

To go futher on Accuen-- thank you very much for giving the $40 million figure. But as you said, everybody is doing it differently. And you said, you don't fully understand what exactly it's been doing.

On this business, the $40 million of revenue is something you'd take and then you buy and sell for clients. So I assume that you make no margin on that $40 million, or you just make the normal margin on what would have been the old commission, so say 5% of $40 million, and then a 15% margin on that. Is that correct?

No, the business is a little bit different than that. We're taking ownership of media. We're placing a principal -- I don't want to say bet -- but a principal bet. We are buying specific media and we are re-selling that at a -- hopefully, an increased price, in most circumstances, since the profit that we make our revenue or our return is going to be based upon the difference between that purchase price of the media and the sale price of the media.

We then have to provide all of the services, all of the underlying technology, build the platforms, do the insights and take the risk. So it's a little bit of a different business model than a straight agency-type model. And, again, I think everyone's accounting for that is probably pretty similar. I don't know that there's a difference in IFRS and GAAP. The size of people's businesses or how they specifically trade, that's business by business.

Yes. And I think there are some pretty vast differences. They're small numbers, first of all, at this point, but there's some vast differences in the way I think WPP approaches it versus us.

In our case, it's an opt-in. It's not all of our clients; it's only the clients that choose to participate in it. I even think one of our competitors has an independent sales force and is going out and trying to resell inventory that it might own to non-clients, other agencies, in some cases.

So at this point in its early days, this business isn't fully developed, and we've just reported what we did. I don't know that you can draw a straight line and compare all the groups at this moment.

No, but we're trying. So that's why your answer is very helpful. Thank you very much.

Sure, thank you.

And we have a question from the line of William Bird, with FBR. Your line is open, sir.

Good morning. John, you talked a bit about some of your businesses that are seeing high client demand, like Accuen. I was wondering if you could talk about maybe some of the other services that are currently in greatest demand, particularly by those clients that tend to lead the ad market.

And then, Randy, I was wondering if you could just talk about salary trends, the negative leverage in the quarter, and what you expect going forward? Thank you.

Sure. The clearest businesses in terms of immediate growth that we have are the media and media-related activities. That's because of the complexity of the marketplace and the changing channels. I see that only increasing in the near term as share of budgets on clients goes to video display, versus where it's being spent now, which is in more traditional TV, in some cases. In the near term, there'll be greater immediate growth there.

Also the other trend is clients, as evidenced in Nissan United, are looking for increasing help in us taking responsibility for simplifying a complex marketplace in order for them to achieve their goals and objectives. And so there are shifts going on within the business, a realignment of some of the activities, some of the ways we approach and we administer activities. Those are the two principal thrusts at the moment. And then the healthcare industry separately as an industry has been very active.

Thank you.

Your negative leverage question -- we didn't have negative leverage in the quarter. Obviously, on an aggregated basis the margins were down. I went through the -- there's three primary drivers to that. First was FX. Second was the merger costs that we went through. And then third was mix.

The statement I made is if we -- if you actually go agency by agency, so basically, like-for-like in the common currency, margins were up a little bit. Not a significant amount, but 4 or 5 basis points, at least. From a salary leverage standpoint, we did not have a negative salary leverage in the quarter.

Okay. Thank you.

Sure. Thank you.

Next, we'll go to the line of James Dix, with Wedbush Securities. Your line is open.

And we're getting close to the opening, so I think we're going to have this be our last question, as well.

Okay. Well, hopefully it's worth it. Good morning, guys. (laughter)

If not, we'll cut you off.

Okay, good. Fair enough. (laughter) Just one question, honestly, and following up a little bit on what you called out, John. I assume if you looked at your clients and you looked at their media mix over time, it's been shifting to be a little bit more towards certain large digital platforms and away from certain traditional ones.

Are you seeing any change in the rate of that trend if you look at that media mix? In particular, for search, social and programmatic, those channels which you called out. If you're seeing a change in trend there, do you think that's having any impact on the spending that's going to your media agencies, who you've called out as having a particularly strong growth? Thanks.

The answer is, I believe it is. Can I pinpoint it or predict it with any grand accuracy, no. In speaking to my media leadership, they believe more and more the shift is now permanent and it's only going to increase as we're able to measure and increasingly measure results.

And there's a lot of chatter from clients in terms of a desire to spend more money in this area, but we haven't seen a wholesale move. What we've seen is the same trend that has been developing for the past several years just continuing. But everybody who's working in it every single day thinks there is going to be an increasing shift. I don't know if that's helpful, but it's really what we see at the moment.

And you specifically previously called out the visual video display versus traditional TV. Is that part of the shift that you think is --?

Oh, yes. That's going on. Facebook's getting a lot smarter. Every one of the key players is getting more competitive, offering different ways to do things, which are proving to be effective.

Okay. And my second part of the question is just, do you think that's having an impact on the spending that's going to your media agencies, on the fees or other types of revenue streams you're getting there?

Yes. The amount of work that goes into some of these, I'll say newer mediums, is a greater amount of labor. Our agencies are generally getting paid for insights and creativity. The rep of the executions they're doing is much broader because of all these different mediums. The complexity of these new mediums is higher, so the labor required and the insights required is more.

We're really at a -- we're kind of at a stage that I think people need to be careful about on a longer term basis. These are new mediums that are finding their spot in the world as a very useful medium. The old mediums, the traditional mediums, are also very useful for their right spots. So the breadth of opportunity is increasing, but I'm not sure anyone -- anything is getting eliminated. They're just being utilized differently.

Inevitably, with anything new, you're going to see a very rapid growth period once people find out its appropriate use, but then it should level off at some point in time. Whether that's a year from now or five years from now or ten years from now is impossible to say, because, frankly, new valuable uses of each of these new mediums is coming along every day as smart people with great creative ideas and insights figure out more and more ways to utilize them.

Great. Thank you very much.

Thank you. And thank you, everyone, for taking the time to listen to our call.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and using the AT&T Executive Teleconference Service. You may now disconnect.