宏盟集團 (OMC) 2014 Q3 法說會逐字稿

Good morning ladies and gentlemen, welcome to the Omnicom Group third-quarter 2014 earnings release conference call.

(Operator Instructions)

As a reminder this conference call is being recorded. At this time I'd like to now introduce you to the host for today's conference call, Shub Mukherjee. Please, go ahead.

Good morning. Thank you for taking the time to listen to our third-quarter 2014 earnings call. On the call with me today is John Wren, President and Chief Executive Officer and Phil Angelastro, Chief Financial Officer. We hope everyone has had a chance to review our earnings release. We've posted on the omnicomgroup.com website, both our press release and the presentation covering the information that we will be reviewing this morning. This call is also being simulcast and will be archived on our website.

Before we start, I've been asked to remind everyone to read the forward-looking statements and other information that we have included at the end of our investor presentation. And to point out that certain of the statements made today may constitute forward-looking statements and that these statements are our present expectations and that actual events or results may differ materially. I would also like to remind you that during the course of the call, we will discuss some non-GAAP measures in talking about Omnicom's performance. You can find a reconciliation of those measures to the nearest comparable GAAP measures in the presentation material.

We are going to begin this morning's call with an overview of our business from John Wren. Then, Phil Angelastro will review our financial performance. And then John and Phil will be happy to take questions.

Thank you, Shub. Good morning. Before I get started I wanted to welcome Phil to the call as Omnicom's new Chief Financial Officer. In the last weeks, many of you have had a chance to speak or even meet with Phil. He's been a key member of our executive management team for over 15 years and has worked closely with Randy and me on our quarterly calls and our key financial and operational strategies. At Omnicom we place a considerable emphasis on succession management planning. For several years, Phil had been designated as Randy's successor as CFO, our Board of Directors, our senior management team, and I are confident this will be a seamless transition for Phil and I'm pleased to have him by my side.

Before getting to the quarter, let me emphasize that Omnicom's operational and financial strategies remain unchanged. Turning to the quarter, we delivered good results with organic growth up 6.5% over the same quarter last year. Our growth was driven by new business wins in late 2013 and earlier this year, as well as strong performance in some of our core strategic growth areas, which I'll touch upon in a few minutes.

Year to date our organic growth rate is 5.6%. So we are on track to exceed our target for the full year. On the margin front we had a slight decrease year over year of 1/10 of 1%. In absolute dollars, that difference to flat margins was insignificant, less than $4 million and the result of several factors. Phil will provide more color on the margins in his remarks. At this point we remain committed to maintaining flat margins year over year in the fourth quarter. Even in the face of ongoing challenges in the macroeconomic environment and increased volatility and currencies.

Turning to our cash flow, we remain committed to our long-standing capital allocation strategy. Using our strong cash flow generation to first pay dividends; second, to make acquisitions that are accretive to our shareholders; and lastly, employing the remaining cash to repurchase shares. As you recall, in May we increased our quarterly dividend by 25%. Since 2010, we have increased our quarterly dividend from $0.20 a share to $0.50 a share.

On the acquisition front, during the quarter we acquired the Planning Shop International, a research-based consultancy focused on the healthcare industry, and COZUM a full service agency with shopper marketing, and promotional capabilities in Turkey. And since we resumed our repurchase program in mid-May, we've purchased approximately 11.7 million shares totaling $830 million. Our repurchase program will continue in the fourth quarter and for 2015.

We continue to be committed to our key strategic initiatives, which, as you know, are - - attracting, retaining, and developing top talent. Expanding our global footprint and moving into new service areas. Building our digital, data, and analytical capabilities by investing in our agencies and partnering with innovative technology companies. And delivering big ideas based upon meaningful consumer insights across all marketing communication channels.

Let me now provide some more detail on our revenue. As I said, total organic growth for the quarter was 6.5%. Our results were broadly positive across disciplines and geographies with our media business performing very well. About 1.5% of our total organic growth is due to our programmatic buying business, which is included in our media operations. Recently there's been a great deal written about programmatic buying and there's a lot of client and investor interest in this area. To put it in perspective, we expect for the full year 2014, programmatic buying will be less than 2% of Omnicom's revenue. So while this area is relatively new, and presents good opportunity for growth and we are very comfortable with our position and investment, it is still small today.

Looking at revenue by geography, North American growth was 8.9%, which was driven by continuing strong performance in brand advertising and specifically our media business as well as in PR. In Europe organic growth was 2.6%, with broadly positive results across the region. The UK was relatively strong. Continental Europe was mixed, with the euro markets slightly negative overall. And the non-euro markets performing quite well in the quarter. At this stage we are not seeing any significant effect due to the geopolitical risks in Eastern Europe, but given the macroeconomic environment, we remain cautious about the region generally.

In Asia growth was 4.4%. China and India experienced double digit increases. And Australia also performed well. And in Latin America, Brazil had high-single digit growth, although results were way down by individual agency performance in some of the small markets in the region. Overall, I'm pleased with the performance of our agencies during the quarter and through the first nine months of the year. Our management teams continue to be focused on executing for our clients, winning new business, and remaining diligent in controlling their costs.

I'd like to now take some time to discuss our data and analytic strategy in more detail. It was a notable quarter for Omnicom in terms of the partnerships with technology companies we signed. We signed new agreements with both Salesforce and Facebook. These agreements are part of a multi year effort that began when we founded Annalect, our primary data and analytics product platform five years ago. Data and the insights we gather from it provides a foundation that can be leveraged by all of our agencies.

Annalect is an Omnicom-wide platform that is used by our media, advertising, CRM, and PR companies. Starting in 2009, Annalect began investing in a data management platform, or DMP, to provide our agencies a common set of products to unify and analyze data. Since that date, we've invested tens of millions of dollars in the business and it now has over 1500 people around the world. Annalect's products give us a competitive advantage both in measurement and in insights that can be leveraged across all of our businesses.

In conjunction with our already existing partnerships, the recent Salesforce and Facebook agreements add more capabilities to our DMP. Salesforce's first-party customer data will be of particular value to our CRM agencies as they use Annalect products. The Facebook deal provides first-party social media profile data, linked for the first time to a specific consumer and across devices. Securing first-party data increases our ability to target consumers, customize content, and measure results. All of which are increasingly important as advertisers shift from mass marketing to mass personalization.

One of the primary businesses leveraging Annalect's product is our programmatic buying operations. This is a rapidly changing area and we are also evolving our businesses to ensure that we have the capabilities to service all of our clients. As you know, Accuen is our largest display mobile and online video programmatic buying unit. It is a performance-based business which employs people, data, and technology to deliver precise audiences to advertisers. As a result, advertisers who opt in achieve their desired performance objectives in greater efficiencies at an all-in price as compared to conventional digital media buys.

We also offer programmatic buying services through our media agencies. Our media agencies use the same underlying technology platforms to offer these services to their clients, although the agency-based operations are a much smaller part of the programmatic revenues. Programmatic is an important offering for our clients and for Omnicom due to the expected growth in mobile and online video. Forrester Research recently projected that North American display spend, while still a relatively small part of the overall ad market, will almost double to $38 billion by 2019, driven by these areas.

Since the fourth quarter of 2013, due to improvements in audience data management derived from our DMP and our rapid expansion in international markets, we have been seeing a meaningful increase in demand from our clients for our programmatic buying services. Today we offer these services in more than 30 markets around the world to more than 1000 advertisers. Overall, we are extremely well-positioned to capitalize on this opportunity because of our early and ongoing investments.

While Annalect provides a foundation for data and insights for Omnicom's agencies, it is the talent that these agencies and the collaboration across our companies that allow us to consistently deliver on our strategies. I've spoken many times about the growing importance of collaboration in servicing our clients to provide seamless execution of big creative ideas across disciplines and geographies. As one example of this, you may have seen the campaign for SAP, which was launched yesterday. We won the account in July with multiple Omnicom agencies working together to create a simple, powerful brand story for SAP.

Omnicom agencies also continue their tradition of being the most creatively awarded companies in the world, which is a credit to the talent that we have in place. Let me just mention a few of the highlights from the Spikes Advertising Festival which is considered the Cannes of Asia. BBDO received the top honor winning network of the year with DDB placing second. This is the second time in three years that the BBDO was named network of the year at Spikes and Omnicom networks have finished in the top three networks for six consecutive years.

PHD won media network of the year with OMD placing second, DDB's group in New Zealand was runner-up as agency of the year. All told, 40 agencies in 12 countries contributed to Omnicom's performance at this year's Spikes. I want to congratulate all of our people and agencies for their award-winning work on behalf of our clients in this very important Asia Pacific region. Our investments in talent, technology, and partnerships are making a difference for Omnicom and our agencies. They are critical to our success. We will continue to strategically invest in these growth areas as the marketing environment becomes increasingly complex.

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

Thank you, John. And good morning. As John said, I've worked closely with him and Randy and the rest of Omnicom's senior management team for a long time. And although this is my first earnings call as CFO, I've been a part of more than 60 of these calls in my prior role as Controller. I want to start by thanking Randy for all of his guidance and support over the years. I will certainly benefit from it in my new role and it has helped to prepare me for the transition. I've met many of our stakeholders over the last month and I look forward to meeting more of you over the next several weeks and months. And now I'll focus on our results for the quarter.

As John said we are very pleased with the performance of our operating companies. They've continued to deliver against their operating and strategic objectives while maintaining their focus on meeting the needs of their clients. Their continued excellent performance has also helped make this an easier transition for me.

As a result of the excellent performance of our agencies, revenue for the quarter came in at $3.75 billion, up 7.4%. Year-over-year increase was driven by continued strong organic growth of 6.5%, with small contributions to our growth in the quarter also coming from net acquisitions and FX net. We will review our revenue growth in further detail in a few minutes.

A quick note before we review our operating income and the rest of our results. As a reminder, we terminated our proposed merger with Publicis in the second quarter of this year. In the third quarter of 2013 we incurred $28.1 million of costs related to the transaction. These costs are included in our reported GAAP results for 2013.

In reviewing our performance for the quarter, my comments will compare the current quarter, to last year's Q3 results, excluding the impact of the merger related expenses. Which you can find in supplemental non-GAAP information on slide 19 through 25.

Our EBITA for the quarter increased to $461 million from $433 million an increase of 6.3%, compared to Q3 last year. The resulting EBITA margin for the quarter was 12.3%. Down about 10 basis points versus Q3 last year. The slight decline can be attributed to FX impacts and business mix. Keep in mind that a 10 basis point decline is less than $4 million.

Although FX this quarter had a slightly net positive impact on revenue, the increase was largely driven by the strengthening of the British pound against the dollar compared to the third quarter of 2013. Almost all other major currencies weakened against the dollar this quarter. And in some of our higher-margin markets, mainly Russia and Canada, where FX was negative in the quarter, this also negatively impacted our margins.

In addition to the FX impact, our margins were negatively impacted to some extent by our mix of business in the quarter. From the bottom up this quarter, as an offset to the items that negatively impacted our margins, we had a solid performance across the portfolio in our efforts to drive efficiencies throughout our organization and our agencies.

Operating income or EBIT performed similarly to EBITA increasing $26 million or 6.4% to $434 million. And as was the case with our EBITA margin, our operating margin of 11.6% was down about 10 basis points versus Q3 2013, due to the items I described earlier.

Net interest expense for the quarter was $31.4 million, down $2.3 million from $33.7 million in the second quarter. The decrease in net interest expense versus Q2 is primarily related to the full quarter impact on the fixed to floating interest rate swaps we entered into during the second quarter of this year related to our 2022 senior notes. Versus last year, net interest expense was down $11.4 million in the quarter due to the positive impact of the interest rate swaps, plus benefits from our cash management efforts in the form of increased interest income earned by our international treasury centers.

Our quarterly tax rate of 33.4% is in line with our normal expectations. While we are 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 continue to stay around 33.2%.

Earnings from our affiliates increased $1.5 million in the quarter to $5.8 million and the allocation of earnings to the minority shareholders and our less than fully owned subsidiaries increased $1.1 million to $29.8 million. As a result, net income was $244 million, that's an increase of $26.1 million or 12% versus Q3 last year. And an increase of 24% compared to the 2013 reported amount.

The remaining net income available for common shareholders for the quarter after the allocation of $4.3 million of net income to participating securities was $239.5 million, an increase of 12.8% versus the third quarter last year. You can also see that our diluted share count for the quarter was $252.4 million, which is down 2.9% versus last year. As a result of the resumption in the second quarter of our share buyback program.

Given our overall strong performance in the quarter, diluted EPS for the quarter was $0.95, an increase of $0.13 or 15.9% versus Q3 2013. Or up $0.21 and 28.4% compared to the 2013 reported amount. In the presentation, we also provide the summary P&L, EPS and other information for the year-to-date period. To save some time, I'll just give you a few highlights.

Revenue was up about 5.7% for the nine months, driven predominantly by organic growth, with FX a net positive and acquisitions a slight negative as we cycled on the disposition of our recruitment marketing business in Q2. EBITA increased 4.6% to $1.44 billion, and our EBITA margin was 13% year to date, and similar to Q3 was down about 10 basis points versus last year. Also included in the current year's EBITA amount is a reduction of about $8.8 million from merger related costs incurred earlier in the year.

Now, moving back to the top line, revenue performance on slide 7. First with regard to FX, while overall it was a net positive, it remains very mixed. On a year-over-year basis, the US dollar weakened significantly against the UK pound. However, on a year-over-year basis, the US dollar also strengthened against most other currencies, most notably Canada and Russia, as well as Japan. The net result increased our revenue for the quarter by $13 million or about 4/10 of a percent.

Looking ahead, if FX rates stay where they are currently, FX could be a negative to revenue by approximately 220 basis points in Q4. And it could also turn negative for the year by over 50 basis points. Revenue from acquisitions net of dispositions increased revenue by $20 million as mentioned during last quarter's call, we've now cycled through the Q2 2013 sale of our recruitment marketing business. And our recent acquisitions in the UK, Germany, and Brazil, are positively impacting revenue. With the transactions that we've completed through September 30, we currently expect acquisitions net of dispositions to add about 60 basis points to revenue in the fourth quarter, making the full year acquisition impact about flat.

Organic growth was positive $226 million or 6.5% this quarter. It was a strong quarter with positive growth across most of our major markets with the exceptions being Canada, Chile, France, Italy, and the Netherlands. The primary drivers of our growth this quarter included continuing excellent performance across our media businesses especially in the US. This is being driven by both new business wins and the continuing development of new media offerings.

Also, in addition to strong performance in the US, our agencies in emerging markets continue to perform very well. This quarter we had excellent performance in Brazil, China, India, and Mexico. As well as South Africa and the UAE. Our businesses in Russia are still performing well, but the rate of growth slowed a little in Q3 relative to prior quarters. And while remaining on uneven by individual markets, we continue to see generally good performance in our businesses in the non-euro markets in Europe, including Poland, Turkey, and Sweden. And flat to slightly down performance in our businesses in the euro markets. With the larger French market still struggling.

Slide 8 covers our year-to-date results which are basically in line with the quarter, although net acquisition disposition revenue was marginally negative year to date. 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 organic growth rates, brand advertising was up 12.5%, primarily driven as I mentioned by the excellent performance of our worldwide media businesses.

And marketing services overall was up 1.1%. Within marketing services, CRM was up 1%. We experienced mixed results in our businesses in the discipline. Our field marketing and sales promotion businesses had strong performances this quarter, offset by weaker performances in some of our events and branding businesses in Europe.

Public relations was up 2.5% reflecting strength in the US and Germany. And specialty communications was down about 10 basis points. However, the underlying performance in the quarter remains good as we were up against difficult comp number from last year on our healthcare businesses which had a year-over-year organic growth nearly 15% in the third quarter of 2013.

On slides 10 and 11 we present our regional mix of business. During the quarter the split was 57% for North America, 28% for Europe, 11% for Asia Pacific, with the remainder split between Latin America and Africa and the Middle East. Turning to the details on slide 11, in North America we had organic growth of 8.9%, again, primarily driven this quarter by the performance of our media and PR businesses. Our other major regions all continue to have positive organic growth as well. Europe was up 2.2% led by continuing strong performance in the UK and solid performance in our other non-euro markets in Europe. While France and Netherlands continue to struggle.

Asia Pacific was up 4.4%. We had strong performances across most of the region with China and India leading the way with double-digit growth. Australia also had a solid quarter and Japan had modest growth. Latin America was up 2.5%, led by Brazil and Mexico, and offset by weakness in Chile related to a client specific spending reduction. And Africa and the Middle East was up 18.1% as mentioned earlier, albeit off a relatively low base led by a very strong quarter from our businesses in South Africa and the UAE.

On slide 12 we present our mix of business by industry sector. Keeping in mind these are the year-to-date figures for total growth not just organic growth. With one item of note to mention, the telecom sector is down primarily from the loss of Blackberry. Turning to our cash flow performance on slide 13, we generated almost $1.125 billion of free cash flow excluding changes in working capital during the first nine months of the year.

As for our primary uses of cash on slide 14, dividends pays to our common shareholders were $341 million. This was up significantly from last year. As a reminder, in 2013, we only made three dividend payments because we paid our normal Q1 dividend in the fourth quarter of 2012. Additionally, this quarter's dividend payment reflects the 25% increase in our quarterly dividend to $0.50 per share that was approved by our Board earlier this year.

Dividends paid to our non controlling interest shareholders were $83 million. Capital expenditures of $138 million was up about $15 million from the same period last year, in line with our expectations. Acquisitions including earn out payments net of proceeds received from the sale of investments, totaled $155 million. And finally, stock repurchases net of the proceeds received from stock issuances under our employee share plans totaled $830 million.

As I mentioned earlier, we restarted our share repurchase program in mid-May and so far we have purchased about 11.7 million shares net. As a result, we outspent our free cash flow by about $422 million for the nine months.

Turning to slide 15, focusing first on our capital structure. As you may be aware, in June we called our last convertible notes for redemption at the end of July. As a result of the redemption, our gross debt position decreased by about $240 million to $3.8 billion as of September 30. And our net debt position, at the end of the quarter, was $2.96 billion, up about $440 million. The increase in our net debt over the past year was driven in large part by the use of our cash to increase our share buybacks by $220 million. Also to increase our dividend payments by $70 million, as well as the negative impact of FX translation, which was in excess of $100 million.

Our ratios remain very strong at the end of September. Our total debt to EBITDA was 1.7 times and our net debt to EBITDA ratio was 1.3 times. Due to both a decrease in our interest expense and increase in EBITDA, our interest coverage ratio improved to 12.0 times.

I should also mention that during the quarter we amended our bank credit facility, extending the term of the facility to July 2019 from 2016, while the size of the facility remains unchanged at $2.5 billion. Turning to slide 16 we continue to successfully build the Company through a combination of prudently priced acquisitions and well focused internal development initiatives. Over the last 12 months, our return on invested capital increased to 17.2% and return on equity increased to 33.7%.

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 September 30 of this year, which totaled $9.7 billion. And the bars show the cumulative return of cash to shareholders including both dividends and net share repurchases. The sum of which during the same period totaled $10.5 billion for cumulative payout ratio of 108%.

And that concludes our prepared remarks. Please note that we've included a number of other supplemental slides 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)

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

Thank you. Thanks very much. Can you let us know how much momentum I think you're seeing in your programmatic buying business. I mean, once you start circling the comps, I guess, do you think there's still going to be great growth of that business -- any sort of color in terms of giving us where we are in the cycle. And also, on the margin front, do you think it has a negative impact on overall profitability or less than 2% of revenue's really not making impact at this point?

Good morning, Alexia. I think it's early days with respect to programmatic. We're just developing the skills and refining them, and the technology's come on -- really on board in the last 12, 13 months, which enables us to better target our audiences. If what projections we read and we're told by our own media people are true, more and more media will be purchased in this fashion as we get into 2015 and into the future.

We don't have, at this point -- because it's so new, because these shifts are happening at such a rapid pace -- we don't have a accurate forecast to give you over the phone as to how fast this business, which is currently 2% of our business, is going to grow in the fourth quarter and throughout next year. But we're very comfortable that it's going to be at least double digits.

And with respect to margins, I don't believe you can attribute the margin decline of 1/10% to any one particular item. Phil mentioned a few and we continue to invest in the very bright people that come available on the marketplace, when they come available on the marketplace, because we know that we'll be -- they'll pay huge dividends to our growth in the future.

And that --

One thing to add, Alexia, we certainly did see an increase in programmatic demand beginning in the fourth quarter of last year, late in the third quarter and into the fourth quarter. So, you know, we're certainly aware of them this year but optimistic about the growth in the future.

Thank you. And, John, one follow-up. You've got such a great perspective on the overall advertising market, if you can give us your opinion or some color on how advertisers are sort of seeing, you know, overall budgets and spending levels. Sounds from everything you've said here, and your great results, that clearly spending seems very healthy. But there's a bit of a nervousness among the investor community through the perception that advertisers are kind of abandoning TV and moving to digital.

I guess, in your opinion, do you think there's sort of a big, a much more notable change this year on that front, or is it more of a continuation of a trend we've been seeing for a while?

First of all, marketing budgets continue to grow. Clients, though, especially when it comes to TV, there has been, I'd say, a shift. When you look at traditional areas like the upfront and the scatter market, and you went back a couple of years, there was an urgency on the part of clients to make certain that they didn't miss out on the programming that they wanted. With all the various choices of how to reach the audiences you need to reach today, and our ability to do it, there wasn't that urgency going into the first -- into the upfront this year.

And with respect to the scatter market, I think you're seeing money being diverted into other areas. I believe that trend will continue. I don't think TV's dead. I just think that there's going to be a shift. And oddly enough when you look at it -- or when I look at it as an investor -- so the people, a great number of the people that own the content that we're going to want to be able to use to put online is part owned by what you would refer to as the traditional media owners. So, they may not get the money out of TV, they may get it out of some other source. But I just see the complexity changing some of the rules that were easy to live by in the past.

All right. Thank you very much.

And next we'll go to the line of Craig Huber with Huber Research Partners. Please go ahead.

Yes, good morning. John, if you could just give us your current thoughts. I know it's early here, but as you think out to 2015, what your general sense is from your clients, what their marketing budgets may look like next year. And I have a follow-up question, too. Thank you.

Okay. It's a bit early for me to be giving you forecast at the moment, Craig. We -- our companies, our agencies are in the process of doing that right now. And we'll be reviewing it with them from, I think, starting next Monday, all the way, probably, through December.

My sense is that the United States remains healthy. It's a good market to be in and I don't see too much in the way -- that it's going to get in the way of slowing down the pace of growth in the States. But once you get outside the United States, there's a lot of trouble in the world. We don't have much hope for real economic growth in the euro for next year. Again, we haven't seen it reflected in our budgets, but we still haven't done that budgeting yet. But the euro is a concern, certainly. Africa, although it's small for us, remains a concern. Brazil's had some difficulties, which I think will continue and may impact us a little bit.

So, we're pretty balanced and conservative in the anticipation of getting the information. So, I don't know how helpful that is. I feel cautiously optimistic, I guess, you'd say.

It's certainly still early for us, but the process at our operations in our agencies has begun. In addition to spending some more time with the agencies on Q4 in the next few weeks, we'll be spending more time on 2015 as we go.

One other things that bodes well for us -- and the year's not over -- is we've had fewer losses this year to cycle against next year. So, putting currency aside, there is less headwind as we sit here today.

Yes, I think we're certainly confident that we're well positioned, both in terms of the disciplines we've been investing in and the overall balance in the Company.

Then also, John, in North America, organic revenue growth up 8.9%, this is obviously quite an acceleration from the first half of this year, prior three years frankly. What has changed, in your mind, in your business why it was up so strong here North America?

Well, as I said, programmatic came on board for us. We really -- even though we've been investing in it, it came on in earnest in the fourth quarter of last year. So there was a contribution from that. Again, at the end of last year we had fewer losses than in the same period the prior years to cycle through and we're up against. And we've had a pretty good run this year from a new business point of view and securing client budgets. And so I think it's the cumulative of all of that -- and probably one or two things I'm forgetting to mention -- that has contributed to our growth.

And then, finally, Phil, if I could just ask you, for the UK you guys mentioned was relatively strong in the quarter, does that mean organic revenue in the UK was up say 7% to 9% versus a year ago?

I don't have the number in front of me at the moment. But it was certainly -- just give me a second here and we'll check it. I think that's probably a good range. Maybe it's a little on the high side. Just probably more in the 5% or 6% range this quarter.

Okay. Thank you.

And our next question is from the line of Dave Bank with RBC Capital. Please go ahead.

Thank you very much, guys. So, I want to follow up on the first question a little bit that Alexia asked, which is I know we're dealing with a lot of small numbers today, right, but at what point does that revenue contribution from programmatic need to be before you indicate that it is moving a toggle and profitability? So, the quarter when you say: Hey, 10% of our revenue is now coming from programmatic. And that's moving the toggle. Is there some moment like that?

And then, the second question is, when you look at the (technical difficulty) programmatic business mix, if you look at that kind of 200 basis points of contribution, how much of that is coming from owned media in the sense that you're sort of profiting from your owned media? Thanks very much.

Well, I'd be happy for it to be 10% of a growing business. I just -- I'm certain I don't have those projections in front of me. My media people aren't signing up for those kinds of numbers yet. I would imagine it will take that level of contribution before it starts to impact the rest of Omnicom, because the rest of Omnicom is so large. I don't know if I'm answering your question exactly, but if not --

Okay. So, you're quite a ways away before it's a toggle on margin?

Yes. I think so. I think so. In any meaningful fashion, because the Company is so large. We run the business --

And then on the --

I'm sorry go ahead.

I'm just saying on the owned media contribution --

Yes, if you're comparing us to, say, what Xaxis claims it does, we haven't -- we don't -- haven't gone out yet and looked for non-Omnicom clients, nor gone out and purchased inventory in any meaningful fashion. We're studying what they're doing. And when you -- when I also listened to them, and I listen as carefully as I can, they claim to have a significant business in Xaxis in Europe -- much more significant than ours. I view that as a huge opportunity that we have to sort through and -- because there's no reason to believe that we can't be impactful there as well.

Yes, I think we -- it's early days, so we've certainly been exploring a number of different approaches, but from early occasion -- sorry. We've only occasionally, occasionally opportunistically moved forward on --

Okay. Thank you.

Sorry about that.

Should we go to the next question?

Sure.

Okay. We'll go to the line of William Bird with FBR. Please go ahead.

Thanks for the additional detail on margins. Phil, when you referred to the negative impact of mix, what areas specifically are you referring to? And then, on programmatic, are the margins for that business any lower than your other businesses?

Can you repeat the second part, Bill?

Sure. How does the margin profile look like for programmatic -- is it at the average or is it below?

Well, I think, we've got a limited history with Accuen at this point. It's relatively new, it's obviously rapidly growing. We've been making some significant investments over the last few years here. You know, we expect it's going to achieve margin levels over time, similar to the rest of our media business. So we're taking a longer-term view on the business itself. And we're very excited about the opportunity, but we're trying to find the right balance for our overall business and for that business in particular.

We do have, you know, some fulfillment businesses that we've talked about in the past. Certainly, in those businesses, that they don't require a lot of capital, they give great returns, and our primary focus is on EBIT dollars, as opposed to the absolute margin percentage. So that, certainly, in any one quarter, can have an impact on our mix.

And just separately on programmatic, is there any difference in the way you account for it and recognize revenues versus your other media-buying businesses?

I think we follow GAAP and we've always tried to be clear and consistent and straightforward about it. But you know the vast majority of our media businesses we act as an agent, so there is a difference in the model versus the Accuen model.

In the Accuen model, we agreed to some specific advertiser performance objectives up front. We agreed to the price. And the price includes the whole package. And the cost and execution risk is Accuen's. So it's not an agency model, so there is a difference there.

Thank you.

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

Hi. Thanks. A couple things, please. If I could just try to characterize your comments on life outside the US, is it fair to say that you haven't necessarily seen any risk or pull back to spending, but you're certainly wary of issues, not just political issues or health issues in some regions, but just the growth in the euro zone and some emerging markets? Is that a fair characterization?

And, secondly, I wanted to ask you about your IT and software partnerships. You mentioned Salesforce and you've got a couple of others. Is there anything you can say in terms of what the scope of work is with these arrangements, help explain what they are what type of revenue-sharing agreements you might have, what the potential for growth from these might be? Thanks.

With respect to your first question, Europe -- I think by all accounts -- has just introduced their own version of QE, and so we're not expecting much gross to come out of the big countries in Europe, as to distinguish it from the rest of the world. In other parts of the world -- leaving aside wars and illness -- I think what we've seen is, they're still growing and, God knows, we still have plenty of room to gain market share. But they're not growing at the same pace of growth that we were experiencing in the past. Your second question -- and pardon me for not being fast enough to write it down -- could you repeat it?

Sure. It's about the IT and software partnerships that you've had, you mentioned salesforce.com and you've done some others. Just, if you could explain a bit more what those are, what is the scope of work -- are these like revenue-share agreements? What's the growth profile of these? Just explain a bit more what those are, please.

Sure. The partnerships -- and there's over 100 of them -- are designed to do different things. And I'm sure our technology partners want access to our systems and, therefore, access to our clients' spending. From our perspective, they offer technology that -- we are not a technology company, but we are a user of technology, and we look to partner with the best person at the time, or in the period, that can help us achieve our goals. And our goals are, really, to reach the right customer at the right time, when they're in the right mood, with the correct message.

And all of these various partnerships, in one fashion or another, are to refine our data and to perfect the information that we require in order to accomplish those things. But -- and to your other question, there aren't any specific set of revenue-sharing or payment streams. These are partnerships which benefit both parties in terms of the task and the scope we're asking each party to perform.

Just to add to that a little bit on the Salesforce front, you know, essentially the partnerships are CRM data-sharing initiatives that's going to help us and help our agencies create a more personalized communications to connect the dots between this marketing, sales, and customer service information. You know, we think that, that agreement's going to be of particular use for our CRM agencies. So it's really about the data sharing.

And on the Facebook front, you know, as John said, it's a partnership that's going to provide our clients, ultimately, who choose to use Atlas, all the benefits of people-based marketing and being able to target and measure based on people in both the online and offline measurement world. So, it's really getting access to the technology and the platform. But, again, it isn't a deal that has commitments on our side.

Okay. Thank you.

Our next question today comes from the line of Ben Swinburne with Morgan Stanley. Please go ahead.

Thank you, good morning. And thanks for the color on programmatic, which of course I'm going to ask some more questions on, if you'll humor us. A big topic. So, can you help us think about -- from an Omnicom perspective -- how incremental programmatic is to your business from your clients? Because, I guess what I'm struggling thinking about is, if a client spends X amount of dollars on media buying through Omnicom traditionally, either on TV or through direct digital platforms and then shifts to buy it through your Accuen platform, is that generating incremental revenue for you?

And if it is, is it primarily because the accounting is different because you're acting as principal, as you said before, on programmatic? And if it isn't incremental, where is that money coming from? Because obviously a client -- I wouldn't imagine clients are spending more money in aggregate because of programmatic, but maybe that's incorrect.

I would agree that I don't see more new money coming into the overall spend. I see a shift. Our objective through all of this is to improve the ROI of the money spent by our clients. And them achieving their objectives of reaching customers.

And technology allows you to do that when you're -- we have traditional customers that are trading on trading desks that are embedded in our agencies, and there we're just in the marketplace bidding against whoever else is out there. We also have an opt-in model where we are, in a sense, taking the risk of achieving objectives that the clients laid out in reaching those audiences.

One is more of a known to the client; one, since you don't know who you're bidding against at any given time, you don't quite know what the environment's going to be. So, the accounting is pretty straightforward. The accounting is defined by a bunch of people who sit behind GAAP and, depending on -- and I've learned years ago simply to accept what they say, not to argue with what they say. So, I'm not sure if I've answered your question, but it is an increasing area where we can be more effective with the client's dollars.

Okay. I think that makes sense. In other words, the clients want to pay Omnicom more as a percent of its overall spending because the buy is more valuable from there, from an ROI perspective. I think that's what you're indicating.

Right. And we're the agnostic player in the marketplace. And, as we move forward and some of Forrester's predictions come true, there are only going to be a couple of players. There's always going to be Google, there's always going to be Facebook. In all likelihood there'll always be WPP -- and then us, who has the scale and the source. And we are agnostic. We're not attempting to sell inventory that we own in mass. We're simply going after audiences that we know our clients need to reach. So it's --

That was actually what I wanted to go to last. Your relationship with Facebook and particularly on Atlas because it would seem, over time, you're competing for economics with Atlas from an Accuen perspective, both trying to get a fee on mobile spending for advertisers. And maybe there's a -- maybe there's an analogy with Google and DoubleClick that you could point us to as to how that works well over time.

Yes, and right now I'd consider both companies friends, not enemies. There isn't that much conflict between what we're trying to do and what they're trying to do. We are cognizant every day that, that could change at some point in the future. But right now, they're big clients of ours and we're big clients of theirs, and we've entered into economically sound deals with both.

Yes. I mean we certainly we see them as partners. And, keep in mind, you know, no single media vendor sees the whole landscape quite like we do. And, as John had said, we're a neutral third party, so we see search, social, display, video, you know, across all devices, and we try to link to customers across all of them, which not everybody can do.

Thanks for the color.

Sure. I think, operator, I think we have time for just one last quick question.

Okay. Our final question today will come from the line of John Janedis, representing Jefferies. Please go ahead.

Thank you. I'll try to make these fast. First, just going back to the fulfillment business, Phil, have you seen any change to the margin profile over the past year or so, and has the growth been similar to the rest of Omnicom?

And then, secondly, you talked briefly about Russia -- there seems to be maybe some change on the table there that'll impact advertising. Are you seeing any kind of early signs of further slowing, and can you remind us about its revenue contribution? I'm assuming low singles.

Yes. In terms of size, it's definitely low singles -- on the low end of the low singles, yes. For Russia.

Back to your -- the margin point, I think the profile hasn't really changed. You know, we approach each of our agencies, each of our operations, and work with them to try and find the margin that's right for them -- and, again, we're focused on the margin dollars, not just a percentage that you can't really feel and touch -- and we think they're great businesses, great returns, and we're happy to have them. They've been performing well, I think. On the whole, over a period of time, that they've kind of performed similar to Omnicom overall. I think probably a little slower rate than we've seen in Accuen and the media businesses lately, but you know, we're happy with their performance.

Thanks. And just quickly on Russia, though, anything in terms of the tenor of the business? I know you mentioned it's slowing a little bit, but any sense that slow is more so going forward or not yet?

Not yet. The business has actually been doing well, not just for the external environment in Russia. The business has been solid. We haven't seen any signs yet of that. Other than a slight slowdown and some excellent performance, it's still performing really well.

Great. Thanks.

No reason to think anything is imminent.

Thank you.

Okay. Well, thank you, everyone, for joining the call and we'll talk to you again soon.

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