宏盟集團 (OMC) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Omnicom first quarter 2015 earnings release conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. At this time, I would like to introduce you to today's host for today's conference call, Vice President of Investor Relations, Shub Mukherjee. Please go ahead.

Good morning. Thank you for taking the time to listen to our first quarter 2015 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 have posted on our website at www.omnicomgroup.com 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 statement 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 the reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials.

We're going to begin this morning's call with an overview of our business from John Wren. Then Phil Angelastro will review our financial results, and then we will open up the line for your questions.

Thank you, Shub. Thank you for joining us this morning. I'm pleased to speak to you about our first quarter results.

As I'm sure you've seen, Omnicom had a solid first quarter with organic growth of 5.1%, giving us a strong start to the year. We also met our margin targets for the quarter and are on track to meet our internal targets for the full year.

As reported in February, the strong US dollar versus other currencies in the world will have a negative impact on our results for 2015. In the first quarter, 44% of our total revenue was derived from markets outside the US.

FX reduced our non-US revenue by $226 million, representing 13.9% of international revenue and 6.5% of our total revenue. It is important to point out that our non-US operations are naturally hedged as both revenue and expenses are in the same currency.

As a result, the primary impact of these FX movements is in our dollar reported revenue and earnings. Phil will provide more details about the impact of FX on our results later in the call.

Our operational results excluding the impact of currencies were excellent during the quarter. More specifically, looking at organic growth by region, North America was up by 4.8% primarily driven by brand advertising and more specifically our media operations.

Our UK growth was very strong at 9.3% reflecting solid results across our portfolio of agencies and disciplines. Euro markets showed improvement and there are signs of stability in most countries in the region. Growth during the quarter was 2.7%. France had slightly positive growth, Germany continued to be positive, and Spain performed very well, while the Netherlands remain negative.

Outside the euro markets, Czech Republic, Russia and Turkey outperformed during the quarter. Although results in the euro markets this quarter are somewhat encouraging, the pace of growth is still somewhat sluggish across the region. We're hopeful that the ECB actions and other structural reforms will be successful and help restore growth in the region.

Turning to Asia, it was up 6.7%, with most markets performing very well including Australia, China, India, Korea, Singapore, and Thailand. And Latin America saw growth of 3.4%, with strong growth in Brazil and Mexico, offset by a client loss in Chile.

Our ability to consistently win more than our fair share of new business has helped us deliver our organic growth. For the quarter, and as we recently announced, we had some very good wins including the consolidation of Wells Fargo media and digital business at OMD and Organic.

TBWA was awarded Thomson Reuters, Travelers, and the Royal Caribbean business during the quarter. And just last week, Bacardi announced the global consolidation of the creative and media across all their brands with BBDO and OMD.

These are just a few of the key wins and there are many more throughout the Company. I want to congratulate all of our agencies and people for their ongoing success on this front.

Looking at our bottom line, despite the currency impacts on the US dollar, our net income was up just over 2%. And our average share count was down over 5% from the prior year.

The combined result was an increase in EPS of almost 8% to $0.83 per share for the quarter. Overall, we had solid organic growth, our margins remain strong and in line with our expectations, and we are on track to meet our targets for 2015.

Before turning the call over to Phil, I would like to make a few comments on what we're seeing in the industry and how our strategies allow us to achieve consistent financial results. As I have discussed in our previous calls, our industry is undergoing a major transformation as new digital tools and platforms emerge, with media and technology evolving at an accelerating pace.

As a result, we're moving from marketing to broad audiences to marketing to people. A recent example of this trend in the US is the direction linear TV is headed.

In the last few months, we have seen announcements from Apple, DirecTV, Dish, HBO, NBC, Sony, and others on the launch of some form of web streaming service. These announcements further demonstrate consumers' desire to access content where they want it, on the choice of their device, and on their timetable.

Another consequence of the rapid transformation of the industry is the huge amount of data that is being generated from new marketing technologies and platforms. I've said before that an idea is brilliant only if the idea is both brilliantly executed and grounded in a meaningful consumer insight. While the volume of data is important, our ability to drive results through insights is the real value we bring to the table.

As marketers, our people fundamentally need to connect brands with consumers using all relevant insights and across all platforms and devices. With the increasing complexity of the marketing landscape, our clients' demand for our services is only increasing.

As you know, Omnicom has several core strategies to drive growth in this environment. These strategies are focused around continually improving and developing our talent, enhancing our capabilities in new markets, and in driving ideas and creativity through consumer insights.

In short, we need to ensure our people can understand and apply new technologies in their creative thinking across disciplines. And we need to invest in tools and platforms that enable our people to derive insight and execute marketing programs on behalf of our clients across all mediums.

To achieve this, our strategy has been for our agencies to invest in developing digital capabilities from within. For example, our media agencies are reinventing themselves into technology and analytics driven businesses.

Our creative agencies are building capabilities and using insights to produce new types of creative content. And our PR agencies are now experts in navigating social media channels. We're also continually investing in the reach and functionality of our tools and platforms.

All of our agencies, from PR to media, to advertising and CRM have access to centralized analytics and technology platforms. Of course, technology is not enough. We need smart, talented people who know how to use it. It is here that I think Omnicom truly leads our industry.

Omnicom University, which is run in partnership with Harvard Business School, and is considered one of the foremost executive education programs in our industry, has digital skills training and strategy embedded in all aspects of the curriculum. And at the local level, our networks and agencies do an excellent job of training and development within the context of their specific disciplines.

For example, BBDO and Proximity have a practice called Digital Labs which leverages blogs, white papers, seminars, and data [hackathons] to keep their people on the leading edge of developments in both digital and interactive marketing. This enables them to apply the latest knowledge in their planning and creative processes.

Similarly, our media network, Omnicom Media Group, has a rigorous program of online and in-person course work for all their people. Omnicom also cohosts regular training summits for all of our agencies in the United States, Europe, and in Asia in partnership with companies such as AOL, Facebook, Google, Twitter, and Snapshot where our people are able to experience the latest technologies available in the marketplace.

This training is critical. It is our way to ensure that our talent around the globe has the technology know-how and digital insights needed to deliver solutions to our clients.

In summary, we're heading into 2015 from a position of strength. We're on track to meet our full-year growth targets and have made great strides against our key strategic objectives. Omnicom continues to be an industry leader embracing new technologies and delivering outstanding creative results.

I will now turn the call over to Phil for a closer look at the numbers. Phil?

Thank you, John, and good morning. As John said, our businesses have continued their strong operating performance, delivering against their financial and strategic objectives and maintaining their focus on meeting the needs of their clients. Our organic revenue growth for the quarter of 5.1% was above our expectations.

While our underlying businesses continue to perform well, the negative impact of FX continues to create a considerable headwind on our revenue. This quarter, the impact of FX reduced revenue by 6.4%, or $226 million. And as was the case last quarter, FX was negative across every one of our significant foreign markets.

As a result, and inclusive of the slightly positive impact from our net acquisitions, revenue for the quarter was about $3.5 billion, down 0.9% versus Q1 last year. I will discuss our revenue growth in detail in a few minutes.

FX also had a negative effect on our EBITA for the quarter, which decreased $2.1 million to $405 million versus our reported figure of $407 million in Q1 last year. However, because the vast majority of our expenses are denominated in the same local currencies as our revenues, and currencies in virtually all markets were down, the negative impact of FX on our operating margin was not significant for the quarter.

Additionally, we continue to see the positive impact of our efforts to increase efficiencies throughout the organization. EBITA margin for the quarter was 11.7%, up 10 basis points versus Q1 2014. And operating income, or EBIT, decreased $5 million to $378 million, and our operating margin of 10.9% was unchanged versus Q1 2014, primarily due to the year-over-year increase in the amortization of our intangible assets resulting from our recent acquisitions.

Now turning to the items below operating income. Net interest expense for the quarter was $34.2 million, down $4.8 million versus Q1 of 2014, and up $4.2 million from the fourth quarter. As compared to Q1 of last year, net interest expense was down $4.8 million, primarily due to the positive impact of the floating interest rate swap we entered into during May and September of 2014, as well as a small increase in interest income from our cash management effort, partially offset by the additional interest expense related to the issuance last October of $750 million of 10-year senior notes.

Versus the fourth quarter, the increase in net interest expense reflected a full quarter's interest on the senior notes issued during October of last year, as well as a reduction in interest income earned by our international treasury centers in Q1 when compared to Q4, driven by lower cash and working capital levels which are typical after year end. Our quarterly tax rate of 32.8% is in line with our current tax rate projection for 2015.

Earnings from our affiliates were slightly negative during the first quarter and the allocation of earnings to the minority shareholders in our less than fully owned subsidiaries decreased by $1.8 million to $20.7 million, primarily due to the purchase of minority interests in certain subsidiaries in 2014, as well as FX because a significant portion of our less than fully owned subsidiaries are located outside the US. As a result, net income was $209.1 million. That's an increase of $3.6 million or 1.8% versus Q1 last year.

Turning to slide 3, the remaining net income available for common shareholders for the quarter, after the allocation of $2.8 million of net income to participating securities, which for us are the dividend paying unrestricted shares held by our employees, was $206.3 million, an increase of 2.4% versus last year. You can also see that our diluted share count for the quarter was 247.4 million, which is down 5.4% versus last year as a result of the resumption of our share buyback program during the second quarter of 2014. As a result, diluted EPS for the quarter was $0.83 per share, an increase of $0.06, or 7.8% versus Q1 2014.

Turning to slide 4, we shift the discussion to our revenue performance. First, with regard to FX, on a year-over-year basis in the first quarter, the US dollar continued to strengthen against every one of our major currencies.

The decrease in value of the euro had the largest translation impact on our revenue, but all currencies weakened significantly year-over-year versus the US dollar during the quarter. This decreased our revenue for the quarter by $226 million or 6.4%.

The decline in the value of the euro represented approximately 45% of the total FX impact. Other non-euro currencies in Europe were approximately 15% and the UK pound was another 15% of the total FX impact.

Looking ahead, considering the steep decline in the value of all major currencies against the US dollar, if rates continue to stay where they are FX could negatively impact our revenues by approximately 7.5% during the second quarter and approximately 6.5% for the full year. That being said, with the current volatility in currency markets, it is hard to pinpoint what will happen to FX rates over the remaining eight-plus months of the year. Revenue from acquisitions, net of dispositions, increased revenue by $14 million driven by our acquisitions in Latin America, Europe, and here in the US over the last 12 months.

And finally, organic growth was positive $179 million, or 5.1% this quarter. It was another quarter with solid organic growth across all of our major markets with a few exceptions.

The primary drivers of our growth this quarter included continued excellent performance across our media businesses driven by the continuing expansion of our media offerings and new business wins, the most recent being Wells Fargo and Bacardi early in the second quarter. Our full-service healthcare businesses and our CRM and PR categories turned in solid performances this quarter, the continuation of the strong performance in the UK across most of our businesses, as well as excellent performances in the emerging markets this quarter including Brazil, Mexico, India, Thailand, and our Middle Eastern agencies.

In the euro markets, overall organic growth was positive, including France for the first time in a while. And across the Asia-Pacific region, our performance was strong.

On slide 5, we present our regional mix of business. During the quarter, the split was 60% from North America, 10% for the UK, 16% for the rest of Europe, 10% for Asia-Pacific, with the remaining 4% being split between Latin America and Africa and the Middle East. In North America, in which the US and Canada turned in solid performances, we had organic revenue growth of 4.8%, again, primarily driven this quarter by the performance of our media, full-service healthcare, and PR businesses.

Turning to Europe, the UK once again had a very strong quarter. The rest of Europe was up 2.7% led by our agencies in Germany and Spain, as well as the positive performance of our non-euro markets in Europe.

The Netherlands and Italy were again negative for the quarter and France crossed into positive territory this quarter, albeit slightly. We are still cautiously optimistic about Europe as we head further into 2015, especially in view of the macroeconomic changes being pursued in the region.

Asia-Pacific was up 6.7% with strong performances from most of our major Asian markets including China, India, Japan, Singapore, and South Korea, with one exception being Hong Kong. Latin America overall was up 3.4% organically.

The positive performance in Brazil, which faced difficult comps versus Q1 of last year, as well as Mexico, was tempered by continued weakness in Chile. As we mentioned on the last few calls, the decrease in Chile was related to the loss of a significant local client in that market which we will finish cycling through in the second quarter of 2015. In the Africa and Middle East region, although off a small base, was up 10.6% led by a strong quarter from our businesses in Qatar, the UAE, and South Africa.

Slide 6 shows our mix of business for the quarter which, again, was split evenly between advertising and marketing services. As for their respective organic growth rates, brand advertising was up 7.7%, and marketing services overall was up 2.7%.

Within marketing services, CRM was up 2.6%, while almost all of our categories within the CRM discipline were up a bit year-over-year. Public relations was up 3.1%, and specialty communications was up about 2.6% on the strength of our full-service healthcare businesses.

On slide 7, we present our mix of business by industry sector. There were no meaningful changes in this mix during the quarter despite the significant impact of FX, which is a good indication of the diversity of our portfolio of clients.

Turning to our cash flow performance on slide 8, in the first quarter, we generated $322 million of free cash flow excluding changes in working capital. As for our primary uses of cash, on slide 9, dividends paid to our common shareholders increased to $126 million reflecting the 25% increase in our quarterly dividend that was approved in the second quarter of 2014.

Dividends paid to our non-controlling interest shareholders totaled $25 million. Capital expenditures were $38 million. Acquisitions, including earn out payments and net of proceeds received from the sale of investments, totaled $32 million. And stock repurchases, net of proceeds received from stock issuances under our employee share plan, totaled $256 million.

Since we restarted our share repurchase program in mid-May, post the termination of the merger, we have spent about $1.25 billion and purchased about 17.4 million shares net. All in, we out spent our free cash flow by about $156 million in the quarter.

Turning to slide 10, focusing first on our capital structure, as a reminder, we issued $750 million in 10-year senior notes at 3.65% during the fourth quarter of 2014. This, coupled with the $75 million adjustment to our debt's carrying value, related to the in-the-money amount of our interest rate swaps, as required by US GAAP, increased our total debt to $4.6 billion as of March 31, while our net debt position at the end of the quarter was $3.1 billion.

The increase in our net debt of $1.1 billion over the past 12 months was driven primarily by the use of cash in excess of our free cash flow of $681 million, as well as the negative impact of FX translation on our cash balance over the last 12 months of approximately $415 million. Net debt increased by $891 million compared to year end as a result of the negative impact of FX translation on our cash balances of approximately $140 million, the use of cash in excess of free cash flow for the quarter of $155 million, and the typical uses of working capital that historically occur in our first quarter.

Although our net debt has increased our ratios remain very strong. Our total debt to EBITDA was 2.1 times, and our net debt to EBITDA ratio was 1.4 times. And due to both the decrease in our interest expense and the increase in EBITDA, our interest coverage ratio improved to 12.9 times.

Turning to slide 11, we continue to successfully manage and 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 18.6% and return on equity increased to 36.3%.

And finally, on slide 12, we track our cumulative return of cash to shareholders since 2004. The line on the top of the chart shows our cumulative net income in 2004 with Q1 2015 which totaled $10.2 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 $11.2 billion for a cumulative payout ratio of 109%.

And that concludes our prepared remarks. Please note that we have 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)

Excuse me, operator, I forgot to mention, before we start the questions we are happy to have Daryl Simm, the CEO of Omnicom Media Group, with us here today for the Q&A session.

Alexia Quadrani representing JPMorgan.

Thank you. John, I think in your opening remarks, I think you mentioned that you are on track to meet your internal targets. I'm not sure if that was for margins or for just organic growth or just in general. I guess my question is, can you update us on your targets for organic growth for the year, and also for margins, if that was what you were implying?

Sure. This is terribly conservative, Alexia, only from the point of view that with currencies moving and the changes around the world we are very comfortable by keeping our revenue target at 3.5%, and whereas I'm not 100% ready to forecast margins for the balance of the year, our internal goal, starting now for the second quarter, is to hold our margins from what they were the prior year.

And then any impact, if you can highlight -- I'm sorry if I missed this -- the impact on a programmatic, on the organic revenue growth rate in the quarter?

Alexia, the programmatic business grew sequentially from Q4 to Q1 by about 10%.

Okay. And then since you have Daryl in the room, just one more, and maybe Daryl could update us on what you're seeing generally in the advertising trends going into the second quarter? I guess any commentary about upfront would be great. Thank you.

Alexia, it's still early from -- in terms of confirmed client budgets for the upfront, of course. On the other hand, we do have expectations. And the expectations are that the trends that we have really seen, I would say, over the past 18 months or so are going to continue. And what that means, on balance, we have seen above average growth in digital and that is been driven by premium video which we see continued, increased interest in.

On the TV upfront side, I think we should expect a continuation of the cautious approach we saw this past year between upfront and short-term. Naturally, some clients are going to want to secure specific properties, particularly if they have initiatives during the year. But outside of that we see a somewhat cautious approach. For those of us that have been following the upfront for a long time, I think we are used to the past where the upfront was really a selling time for the entire year that set the market, and it has to become, I think, the beginning of the annual sales season. It's an important part of it, but it's the beginning of the sales season.

Thank you very much.

David Bank with RBC Capital Markets.

Okay, thank you. I want to follow up on some of the broad thematics, I think, John opened with, and I'm going to resist the temptation to drill down further on the quarter, and I think, use the opportunity to ask some sort of bigger picture questions here.

It seems to me that as we speak with industry players on the advertiser side, the agency side, the media operating side that the biggest thing they all talk about in terms of technology offering us, and we're really beginning to see it as more efficient achievement of reaching impressions we target. That is the heart of all this. In the long run, people really seem to think that advertisers will increase budgets as long as the return on the investment is positive.

But in the short run I am not so sure. There seems to be such pressure on the multinational public companies with their FX pressures and dealing with shareholders that I'm not really sure how much of that efficiency their reinvesting. How do you feel about that right now?

Do you think clients are redeploying the savings that you're bringing them in terms of the efficiency of reach, or are they sort of banking it? And how do you see that developing over time? Thanks for the long question.

Yes, sure. I would say many clients are reinvesting those efficiencies, and there are a few that, as you suggested, have other challenges which they put in front of them. They are still supporting their brands, but maybe not to the level of the efficiencies. I think clients start -- each brand starts with targets and goals and objectives that they have to reach. And if we're able to assist them in achieving those targets in a more efficient way, which is the hope, the money doesn't always have to be reinvested back directly into advertising.

For the most part, that is not a bad thing for an Omnicom. The principal way that we are earn our revenues and profits are really in helping clients navigate through the complexity of this new marketplace and where audiences are and how to reach them, how to obtain quality content so they will be interested in it. Whereas something which might have been invested in, say, traditional TV in the past, if we found an alternate way to get that audience for less money, our part of that might have increased, whereas the traditional TV seller might not -- might see a decline in their sales.

Okay. Thank you.

Tim [Norene] with Macquarie.

Hi, it's Tim Nollen from Macquarie. I wanted to ask about your comments on the upfront market, the TV market. Clearly, seeing some the changes coming, you talk about a lot more streaming activity going on.

I wonder if you could talk about from the agency perspective, from Omnicom's creative and media planning and buying perspectives, what are you doing that might be a little bit different this year with the TV companies to work beyond just a TV ad sale into a broader behavioral targeting ad sale incorporating TV and digital viewing?

Daryl, you might want to take this.

Yes, absolutely. This something we're very interested in. In fact, as we look at video, video is across a number of different platforms, some of it coming from the so-called traditional providers. Others coming from full episode providers like Hulu, others coming from more pure digital plays like the YouTubes, the Yahoos, the AOLs and whatnot.

But as we go into sales season what we're seeing our real initiatives that are coming from some of the more traditional providers in terms of not just offering up digital video, but offering up, I would say, packages, or ideas and concepts that allow us to bridge between, more aggressively, between the conventional sell and the digital capability and the digital products that they now have.

And I anticipate that that is going to be an ever more significant part of the conversations going ahead. We have certainly seen coverage over the past few days of, I think, leaders of major media companies, Discovery and the like, talking about that very concept, and it is it something that both our clients and we as agencies are very interested in discussing, how we extract more value for our clients using that kind of approach.

So does that mean -- you think maybe that what we consider traditional definition of TV advertising may become archaic? It's how content is consumed, and, quote/unquote, TV loses share of ad revenues, that that might not necessarily matter as long as there is more and more dollars being placed across different forms of viewership, is that a fair assessment?

Yes, I think from a high level that's exactly right. But you also need to consider that when we look at movement of video, it is not necessarily exclusively away from television simply because it's sight, sound and motion.

Advertisers look at their plan and their strategy to reach consumers holistically. And they are or zero-basing it year-on-year increasingly, as opposed to simply looking at within a bucket called television and reallocation. It's coming from a number of different sources. So I think we have to look at the whole environment in a much more fluid basis than we had in the past, as you assess those kinds of companies.

Great, thanks. Could I ask one more question, please, it's totally unrelated. John, you are talking about your emphasis on training. It struck me, (inaudible) a bit more about how your training focus on Omnicom University this time than in previous calls. I just wonder how you look at organic development, organic talent development, versus acquisitions, which have been fairly slow. I don't know if it's an apples-to-apples comparison, but if you could maybe talk a bit more about that, please, and your expenditure of capital on that?

Sure, well, training -- we opened Omnicom University in 1995. It's been dedicated through recessions, through good times, through bad times. We at the top put a lot of time and attention into training and developing our people. And that is also true if you go to each one of our major subsidiaries.

With the environment and the changes in the environment, what we started in 1995 is more important today than it's ever been. Not only do our data scientists and, I'd say, [media] people need to keep up with all the changes that are going on, our creative people, our account people -- everyone of our employees has to be very current in terms of what is out there, how it can be used to creatively create the tools and products that we need. We're very pleased to have the foundation that we have and we keep adjusting and adding to it.

And that asset, which was developed in 1995, for a long time was really principally based just in the US. Over the last couple of years, we've taken that throughout our entire global portfolio and we will continue to do that. And I forgotten the first part of your question?

Acquisitions.

Oh, acquisitions. We just formed a new dedicated acquisition group, one that we have not had in several years. We're looking at quite a number of opportunities, probably on a more formal basis than we have in the last several years. And so I expect over time we will be doing more.

But nothing -- no big bang type things. Sensible acquisitions -- mid-sized that fit what we see as our strategic growth areas, both in the United States, in certain product areas, and in certain key emerging markets.

Just to add on that, I think we have always been consistent in saying, and it still holds true, that as we approach our capital allocation process to the extent that we can find more acquisitions that meet our fit and strategy requirements, we're going to try to do more acquisitions in any one given year than in the last. We don't have a fixed box of acquisition dollars and/or share buyback dollars that we intend to spend going into a year.

So I think the pipeline is good, and to the extent we can do more than we've done in the past in any particular year we will, but to the extent that we don't find deals that meet our strategic requirements or the fit requirements then we will continue to operate as we have.

And to give you a very timely example, when we are done with this call, my next meeting, my next two hours after that is with an acquisition candidate.

Great, thanks very much for the color.

Bill Bird with FBR.

Good morning. I might have missed it, John, but could you give the net new business figure for the quarter, and maybe speak to just the new business pipeline overall? Thank you.

Phil, you have the number?

Yes, the number was just below $1.1 billion for the quarter. That doesn't include, does not include the most recent Bacardi win.

In terms of the pipeline, it's pretty good. We have one or two we're going to wind up defending, but for the most part, the people and potential clients we're talking to we feel very good about. It's changed a little bit.

You still get formal bids and competitions, but increasingly, you're getting assignments, as we did like in Bacardi, which did not require a bid. There was a consolidation with certain objectives that we are going to help that company reach. So it is healthy. It could always be -- we have a very good track record, so the more of somebody else's business that goes into review, the better opportunity is for us to win. But it's pretty decent, Bill.

And what are your current thoughts on the phasing of your stock buybacks and your leverage? Are you at a level of leverage that is consistent with your target, or could you see it going higher?

I think our leverage is probably right where we have historically been, right around that. And our focus is primarily on maintaining our rating, that is the principal focus in terms how we look at our capital structure. I think it's probably safe to say that you shouldn't expect to see the next 12 months in terms of buyback activity to be anywhere similar to the last 12 months. Over the last 12 months, we bought back about $1.25 billion of stock. So we had some catching up to do, as we had discussed last May.

But I don't think you can expect the activity to be at that level. Certainly, we will continue to look at it in the context of our free cash flow as far as continuing to pay a dividend. What acquisitions are out there that we do endeavor to do is going to reduce the number, but certainly the activity, prospectively, as we look at the next 12 months is going to be down relative to the last 12.

Thank you.

John Janedis representing Jefferies.

John, since your last call there's, obviously, been a lot of talk around rebates and general business practices across the industry. Can you remind us to what extent you use them and the transparency with clients? I'm just trying to understand the risk, if any, to Omnicom?

I will let Daryl -- why don't I let Daryl, who heads the group, answer that first, and then I will add my comments.

There's certainly been a lot of coverage on it, but certainly from our standpoint, our media agencies in the US don't seek rebates. And the US, of course, is not a rebate-based marketplace from a negotiation standpoint. In terms of our media agency clients, in the US, they receive all of value that gets negotiated on their behalf.

Whatever that form is, whether it's discount, whether it's other quantitative benefits, whether it's qualitative benefits. They're negotiating in a very competitive marketplace, so our buyers are pushing hard to, frankly, extract maximum value out of those vendors in order to meet our individual client expectations. And, of course, all of the clients that we engage with we have comprehensive contracts that govern not only the services that we provide them, but they specify performance requirements, as well. So that is kind of the cornerstone of trust, I think, in terms how we run our business.

I'm happy for the question because there's been a lot of innuendo and comments against the industry. We know how we operate and have consistently operated. So clearing the air on this is a positive thing. One other thing is we are fully participating -- I think the ANA, after having allowed that presentation to occur -- there's now, I think, a working group between the ANA --

And the AAAAs.

And the AAAAs to go through this.

Yes, to go through the presentation that was provided at the ANA.

It was somewhat odd to me that no specific allegation came against anybody, even though in that presentation they had redacted contracts and other things. We are a little confused, we don't find it helpful. So as quickly, as jointly the ANA and the AAAAs can get to a conclusion the better off we are all going to be.

Thank you. John, maybe separately, I think you've been somewhat cautious on the potential for US-based multinationals to adjust budgets based on the moves in currency. Is there any evidence of that, and do you think that risk has diminished somewhat for the year?

There's a sense. I don't have the proof, but US economy appears to me to be getting stronger. And if history is a guide to anything, those budgets will increase as demand increases, and clients are going to support their strongest growth areas. So I'm cautiously optimistic. I'm just not willing to publicly forecast the year more than what I can see at the moment.

Thank you very much.

Craig Huber representing Huber Research Partners.

Good morning. I have a few housekeeping questions. First, programmatic, you touched on this briefly, but in dollars, how much of your programmatic training efforts on behalf of your clients help your revenues on a year-over-year basis on the quarter, please?

In the first quarter, that number was about $40 million of year-over-year growth in the quarter versus the first quarter of last year.

Okay. And then also for your share buybacks in the quarter -- just so we're on the same page -- what was the gross number of shares you bought back and what was the net number of shares, please?

Just give me a second to get that number. In the quarter, the buyback number was, in shares, I think, was 3.4 million shares.

Do have that net number?

I don't have the net number handy, but we can get that for you.

Okay. And then, also, your comments on acquisitions, I think you said you have a new team that's looking at acquisitions more at the corporate level. Should we infer that you may start to do some larger acquisitions than just these sort of tuck-ins? You mentioned mid-sized. In my mind, you've been more doing tuck-ins over the many years. Are you, maybe, given you're a much larger Company now, maybe looking at something a little bit larger than you have historically done?

No, it really all comes down to the opportunity. But the areas that we're focused on are geographic in nature, which means that they are not -- they certainly fit within our historic profile. And different forms of partnerships over the last several years -- we have formed over 100-plus partnerships with various companies, either in technology or in some other areas.

In very rare instances, but a couple, we might be interested in becoming partners with some of those folks. But if you are, in characterizing what I said, and thank you for asking the question, they are going to be -- they're not going to be large. They are going to be closer to our historic pattern than us developing any new pattern. Let me put it that way.

Okay, my last question, please, on the UK. You, obviously, had very strong performance there of 9.3% organic growth. Was there anything one-time in nature there? I just want to get a little more clarity why it was so strong there, and how do you feel about that market for your operations for the rest of the year? Do you think that's possible to be up in the high-single-digits for the rest of the year?

I think our view is, especially in the first quarter, which is a relatively small quarter, you can't draw too many trends when you start narrowing it down to regions or disciplines, et cetera. So the more you narrow that number, especially in a quarter, a 90-day period, we don't think, is going to drive the trend for that particular, in this case, country. Our businesses in the UK have been performing very well, very consistently actually over some time.

And they have done very well in the market. We expect them to continue to perform well as the year goes on. But I don't think I would say we expect, based on our internal forecast today, that we're going to be in the high-single-digits to low-double-digits for the UK the rest of the year.

Some of that could be a bit of timing in a quarter, some of it could be just the fact that is the first quarter and the number is a relatively small number compared to the number for the year. So I wouldn't draw too much of a trend, other than the trend that our businesses in the UK continue to perform well is one that we expect to continue.

And I echo exactly what Phil said. I guess, we were aided by the change in management of one or two of our major subsidiaries and they've had -- they have gotten off to a great start. So market share and not the economy in the UK, though.

Could I just sneak in one more question, please, and I appreciate your guys' comments on the upfront market. Talking about linear TV, as you call it here, the upfront market, do you guys think it's possible this year that CPMs for traditional television in the upfront could actually be down this year?

Daryl?

Obviously, it's a supply and demand marketplace. There are still supply issues in the linear TV marketplace that keep pressure on price beyond, I think, what you might reasonably normally expect. Declining ratings would be less value and lower prices, it's not necessarily the case. I think it's, a major part of that formula is going to be the balance between the long-term and short-term strategies that sellers take in this marketplace. I would add, I think that CPMs, of course, are one way to look at the marketplace.

I think the general trend here, or the longer-term trend, is more significant and that is that generally speaking our clients are moving to -- many clients, at least -- are moving to looking at business measures, what do the aggregation of the investments that they are making across media types do to move their business with the data capabilities that we have. And they are somewhat less inclined to focus simply on what might be called process measures which are the CPMs reaching frequency. It's becoming increasingly an overall ROI discussion with our clients. But specifically to your question on CPM, I think the balance between long-term and short-term strategies from a sales standpoint will dictate that.

Operator, we're getting close to the market open, so I think we have time for one more call. Thanks, Craig.

Ben Swinburne with Morgan Stanley.

Thanks, good morning. I just want to pick up on the programmatic question, and maybe broaden it a bit for Daryl and for Phil. Phil, I think the comps got harder for you in the first quarter in programmatic, but the number was bigger than at least we expected. Can we assume that is mostly or all domestic?

And if I strip that out, it looks like the organic US growth was a little bit -- maybe around 3%, maybe a little bit less, which is slower than it's been for the last three quarters. I don't know if you look at it that way, or if you think that's the right math, but I just wanted to get your commentary on whether that business is bigger than you thought and what the impact is to your overall organic growth?

And then, since it is the last question, I will ask Daryl. One of the things on programmatic we've heard is just a lack of premium inventory, generally, particularly around video and that the TV networks have been very reluctant to move inventory into these platforms, and even some of the digital players are a little nervous about it, though.

Can you just give us an update on whether you're seeing a change there, and whether that is something that you think can make this business grow even faster in 2015?

Well, I think it can. It certainly helped the business grow faster, but if we look at the programmatic business today there is no question that the great majority of it as it exists today is display-based business.

But the client requirements that we are seeing from the plans that we put together show a great demand for programmatic video. So there's little question in my mind that the demand is there, and where there is demand, generally speaking, we will see supply respond to that. But the availability of, I would say, premium video is not simply a programmatic question. It goes beyond that as our clients look at it.

But programmatically and as alternatives in the upfront marketplace because content and context are so important to the kind of clients that we have. Whether it's, the content has the right affinity or whether it's simply just wholesome enough for their brand is key. And access to that kind of premium video is key to growth. There's no question, though, that the demand is there for it.

Thank you.

On the specifics to your question, Ben, the programmatic growth was not just US only. That is pretty much, we're in many markets throughout the world now. We started that ramp-up back in Q4 of 2013. The growth relative -- the growth in the quarter itself relative to Q1 of 2014, we thought, was pretty good.

Again, though, we are not really drawing too many trends on one particular quarter as it relates to the rest of the year. I don't think the first quarter is going to tell the story for the year, but I would say that the programmatic business in Q1 of 2014 was probably still continuing to ramp up and the performance this year in the first quarter was good. But I don't think we're drawing any trends that that level of growth or that that number is necessarily going to continue throughout the rest of the year.

Thank you.

Thank you. Thank you, everybody. Thanks for joining the 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.