Omnicom Group Inc (OMC) — Q1 2015 Earnings Call Transcript

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, which 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 have 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 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 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 results. And then we will open up the line for your questions.

Thank you, Shub. Thank you for joining us this morning. I am pleased to speak to you about our first quarter results. As I am sure you have 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 U.S. 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 U.S. FX reduced our non-U.S. 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-U.S. 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 the 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 U.K. 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 remained negative. Outside the Euro markets, the Czech Republic, Russia, and Turkey outperformed during the quarter. Although results in the Euro market this quarter are somewhat encouraging, the pace of growth is still somewhat sluggish across the region. We are 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. 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. Just last week, Bacardi announced the global consolidation of their 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 our agencies and people for their ongoing success on this front. Looking at our bottom line, despite the currency impacts on the U.S. 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%, or $0.83 per share for the quarter. Overall, we had solid organic growth. Our margins remained 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 are 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 are moving from marketing to broad audiences to marketing to people. A recent example of this trend in the U.S. is the direction linear TV is headed. In the last few months, we’ve 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 when they want it, on the device of their choice, and at their timetable. Another consequence of the rapid transformation of the industry is the huge amount of data that has been generated from new marketing technologies and platforms. As said before, an idea is brilliant only if it is both brilliantly executed and grounded in meaningful consumer insight, because the volume of data is important, our ability to drive results. Doing so is the real value we bring to the table. As marketers, our people fundamentally 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 on continuously improving and developing our talent, enhancing our capabilities in new markets, and driving ideas and creativity through consumer insights. In short, we need to ensure our people 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 drive insight and execute marketing programs on behalf of our clients across all media. 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. Our PR agencies are now experts in navigating social media channels. We are 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. You 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. 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 Lab, 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 their latest knowledge in their planning and creative processes. Similarly, our media network, Omnicom Media Group has a rigorous program of online and in-person coursework for all their people. Omnicom also co-hosts regular training summits for all our agencies in the United States, Europe, and in Asia in partnership with companies such as AOL, Facebook, Google, Twitter, and Snapchat, where our people can experience the latest technologies rolling into 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 for our clients. In summary, we are heading into 2015 from a position of strength. We are 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.

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 continued 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. As was the case last quarter, FX was negative across every one of our significant foreign markets. As a result, inclusive of the slightly positive impact from our net acquisition, revenue for the quarter was about $3.5 billion, down nine-tenths of a percent versus Q1 last year. I will discuss our revenue growth in detail in a few minutes. FX also had a negative effect on our EBITDA 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 revenue and currencies in virtually all markets were down, the negative impact of FX on our operating margins was not significant for the quarter. Additionally, we continue to see the positive impact of our efforts to increase efficiencies throughout the organization. EBITDA margin for the quarter was 11.7%, up 10 basis points versus Q1 2014. 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 a floating interest rate swap we entered into during May and September of 2014, as well as the small increase in interest income from our cash management efforts, partially offset by the additional interest expense related to the issuance last October of $750 million of 10-year senior notes. Vs. 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 the 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. Any allocation of earnings for the minority shareholders and our less-than-fully owned subsidiaries decreased by $1.8 million to $20.7 million primarily due to the purchase of minority interest in certain subsidiaries in 2014 as well as FX, because a significant portion of our less than fully owned subsidiaries are located outside the U.S. As a result, net income was $209.1 million, an increase of $3.6 million or 1.8% versus Q1 last year. Turning to slide three, 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 four, we shift to discuss our revenue performance. First, with regard to FX on a year-over-year basis in the first quarter, the U.S. dollar continued to strengthen against every one of our major currencies. The decrease in the value of the euro had the largest translation impact on our revenue. But all currencies weakened significantly year-over-year versus the U.S. 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 U.K. pound was another 15% of the total FX impact. Looking ahead, considering the steep decline in the value of all major currencies against the U.S. dollar, the freights 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’s 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 U.S. over the last 12 months. Lastly, organic growth was positive $179 million or 5.1% this quarter. It was another quarter with solid organic growth across all 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 in our CRM and PR categories turned in solid performances this quarter. The continuation of strong performance in the U.K. across most of our businesses as well as excellent performances in the emerging market this quarter, including Brazil, Mexico, India, Thailand, and our Middle East agencies. In the euro markets, overall organic growth was positive, including France for the first time in a while. Across the Asia Pacific region, our performance was strong. On slide five, we present our regional mix of business. During the quarter, the split was 60% from North America, 10% for the U.K., 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, where the U.S. 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 U.K. 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 once 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 with positive performances in Brazil, which faced difficult comp versus Q1 of last year, as well as Mexico, 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 the Middle East regions, 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 six 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%, 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 seven, 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 eight. 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 nine, dividends paid to our common shareholders increased to $126 million, reflecting the 25% increase in our quarterly dividends 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 the proceeds received from stock issuances under our employee share plans totaled $256 million. Since we restarted our share repurchase program in mid-May, post the termination of the merger, we spent about $1.25 billion to purchase about 17.4 million shares net. All in, we outspent our free cash flow by about $156 million in the quarter. Turning to slide ten, focusing first on our capital structure. As a reminder, we issued $750 million in 10-year senior notes, a 3.65% during the fourth quarter of 2014. This, coupled with the $75 million adjustment to our debt carrying value related to the in-the-money amount of our interest rate swap as required by U.S. 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 translations 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 use as working capital that historically occurred 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. 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 eleven, we continue to successfully manage and build the company through a combination of prudently priced acquisitions and well-focused internal development initiatives. For the last 12 months, our return on invested capital increased to 18.6%, and return on equity increased to 36.3%. Finally, on slide twelve, 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 2004 through Q1 2015, which totaled $10.2 billion. 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%. That concludes our prepared remarks. Please note that we have included a number of other supplemental slides on the presentation materials for your review. But at this point, we are going to ask the operator to open the call for questions.

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

Thank you. John, I think in your opening remarks, you mentioned that you are on track to meet your internal target. I am sure if that was the margins or 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 margin if that was what you’re implying?

Sure. This is terribly conservative, Alexia. I think from the point of view that with currencies moving and the changes around the world, we’re very comfortable by keeping our revenue target at 3.5%. Whereas I am 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 am sorry if I missed this, the impact on a programmatic on the organic revenue growth rate in the quarter?

Yes, 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 can update us on what you’re seeing generally in advertising trends going into the second quarter. I guess any commentary about upfront would be great? Thank you.

Well, it’s still — Alexia, it’s still early in terms of confirmed client budgets for the upfront of course. But on the other hand, we do have expectations, and the expectations are that the trends that we’ve really seen over the past 18 months or so are going to continue. And what that means on balance, we’ve seen, of course, above-average growth in digital, and that’s been driven by premium video, which we see continued increased interest. On the TV upfront side, I think we should expect a continuation of the cautious approach that 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 really has become, I think, the beginning of the annual sale season. And it’s an important part of it, that’s the beginning of the year — of the sale season.

Thank you very much.

Okay. Thank you. I want to follow up on some of the kind of the broad thematics. I think John opened with resisted temptation to drill down further on the quarter. And I think used 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, the biggest thing now I will talk about in terms of technology offering us, and we’re really beginning to see it, is kind of more efficient achievement of reaching impressions we target, right. That’s the part of all this. And in the long run, people really seem to think that advertisers will increase budgets as long as the return on 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 don’t — I am not really sure how much of that efficiency they are 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 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 that of the efficiencies. I think clients start — each brand starts with targets and goals and objectives that they have to reach. 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’s not a bad thing for Omnicom. The principal way that we earn our revenues and profits is really in helping clients navigate through the complexity of this new marketplace and where audiences are, how to reach them, how to obtain quality content so they’ll be interested in it. So where something which might have been invested in traditional TV in the past, if we found an alternative way to get that audience for less money, our part of that might have increased, whereas the traditional TV seller might not see the decline in their sales.

Okay. Thank you.

Hi. It’s Tim Nollen from Macquarie. I wanted to ask about your comments on the upfront market, the TV market. Clearly, seeing some of 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 maybe from volume perspectives, what are doing that might be a little bit different this year with the TV companies to work beyond just the TV ad sale into a broader behavior or targeting ad sale, incorporating TV and digital viewing?

Daryl, you might want to try this one?

Yes, absolutely. I mean, this is 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 traditional providers, others coming from full episode providers like Hulu, others coming from more pure digital plays like the YouTube, the Yahoo’s, the AOL’s, and whatnot. As we go into sale season, what we’re seeing are real initiatives that are coming from some of the more traditional providers in terms of not just offering of digital video but offering of — I would say packages or ideas and concepts that allow us to bridge between — more aggressively between the conventional sale and the digital capability and the digital products that they now have. I anticipate that that’s going to be an ever more significant part of the conversations going ahead. We’ve certainly seen coverage over the past few days of major media companies' leaders discovering they like talking about that very concept. It’s 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 the traditional definition of TV advertising, they become archaic? I mean, it’s — how content they consumed? And 'TV' lose a share of ad revenues that that might not necessarily matter as long as there are more and more dollars being placed across different points 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 the movement of video, it’s not necessarily exclusively away from television simply because of its sight, sound, and motion. Advertisers look at their plan and their strategy to reach consumers holistically, and they are zero basing it year-on-year increasingly as opposed to just looking at it within a bucket called television and reallocation. It’s coming from a number of different sources. 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. Can I ask one more question please? It’s totally unrelated? John, you’re talking about your emphasis on training. It struck me on these things a bit more about your trending focus on economy at university at this time in the previous calls. I just wonder how you look at an organic development, organic talent development versus acquisition, which have been fairly slow. I don’t know if it’s an apples-to-apples comparison or if you can maybe talk a bit more about that please and your expenditure of capital on that?

Sure. Well, training, we opened Omnicom University in 1995, and it’s been dedicated through recessions to good times to bad times. So we at the top put a lot of time and attention into training and developing our people. 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 ‘95 is more important today than it’s ever been. Not only do our data scientists and I’d say 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’s out there and 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 it adjusting and adding to it. That asset which was developed in ‘95 for a long time was really principally based just in the U.S. Over the last couple of years, we’ve taken that throughout our entire global portfolio, and we’ll continue to do that. I forgot the first part of your questions.

Acquisition?

Acquisitions. We just formed the new dedicated acquisition group, one that we haven’t 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. I expect over time we will be doing more, but nothing — no big bang type of things. Sensible acquisitions — midsized 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.

Yeah. I mean, just to add on that, I think we’ve always been consistent in saying and it still holds true. As we approach our capital allocation process to the extent that we can find more acquisitions that meet our strategic requirements, we’re going to try and do more acquisitions in any given year than less. We don’t have a fixed box of acquisition dollars and/or share buyback dollars that we intend to spend going into a year. I think the pipeline is good, and to the extent, we can do more than we’ve done in the past in a 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’ll continue to operate as we have.

To give you a very timely example, when we’ve done with this call, my next two hours after that is with an acquisition candidate.

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.

So, Phil, do you have the number?

Yeah. The number was just below $1.1 billion for the quarter. That doesn’t include — does not include the most recent Bacardi one.

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 are talking to, we feel very good about it. It’s changed here a little bit. You still get formal bids and competitions, but increasingly, we are getting assignments as we did with Bacardi, which did not require a bid. There was a consolidation with certain objectives that were approved. We are going to help that company reach. So it’s healthy; it always could be. We have a very good track record. The more or somebody else's business that goes into review, the better opportunity there is for us to win. But, it’s pretty decent though.

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

I think our leverage is probably right where we have historically been. Our focus is primarily on maintaining our rating as that is the principal focus in terms of how we look at our capital structure. 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’ve bought back about 1.250 billion of stock. 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 in the context of continuing to pay dividends. What acquisitions are out there that we do endeavor to do is going to reduce the number. But certainly, prospective activity as we look at the next 12 months is going to be down relative to the last 12 months.

John, since your last call, there has 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 am just trying to understand the risk if any to Omnicom?

I’ll let Daryl, who heads the group, answer that first and then I will add my comments.

Right. Well, there’s certainly been a lot of coverage on it. Certainly, from our standpoint, our media agencies in the U.S. don’t seek rebates and the U.S., of course, is not a rebate-based marketplace from a negotiation standpoint. So in terms of our media agency clients in the U.S., they receive all value that gets negotiated on their behalf, whatever that form is, whether it’s discounts, other quantitative benefits, or qualitative benefits. They are negotiating in a very competitive marketplace. Our buyers are pushing hard to, frankly, extract maximum value out of those vendors to meet our individual client expectations. All of the clients that we engage with, we have comprehensive contracts that govern not only the services we provide them but specify performance requirements as well. That’s kind of the cornerstone of trust, I think, in terms of how we run our business.

I am happy for the question because there has been a lot of innuendo and comments against the industry, and 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, and there is now, I think, a working group between the ANA and the AAAA’s to go through this. It was somewhat odd to me that no specific allegation came against anybody, even though in that presentation there were redacted contracts and other things. So we are a little bit confused. We don’t find it helpful. The quicker jointly the ANA and the AAAA can get to the conclusion, the better off we all will be.

Yeah. Thanks, John. Maybe separately, I think you’ve been somewhat cautious on the potential for U.S.-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 is a sense. I don’t have the proof. But the U.S. economy appears to me to be getting stronger. If history guides anything, those budgets will increase as demand increases for clients are going to support their strongest growth areas. So I’m cautiously optimistic; I’m going to, I just am not willing to publicly forecast the year more than I can see at the moment.

Good morning. I have a few housekeeping questions. First, programmatic, you touched on this briefly, but in dollars how much programmatic training efforts on that half of your clients help your revenue on a year-over-year basis in 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. Then also for your share buybacks in the quarter just 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. So in the quarter, the buyback number was in shares; I think was 3.4 million shares.

Do you have that net number?

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

Okay. And then also your comments on acquisitions, I think you said that you have a new team that’s looking at acquisitions on the corporate level. Should we — and further, you may start to do some larger acquisitions that just sort of tuck into -- you mentioned midsized. In my mind, you have been more doing tuck-ins over there over the many years, maybe giving a much larger company looking for something a little bit larger than you historically have done?

Really, it all comes down to the opportunity, but the areas that we’re focused on are geographic in nature, which means that they certainly fit within our historical profile. Different forms of partnerships over the last several years, we’ve formed over 100 plus partnerships with various companies either in technology and some other areas. In very rare instances, but a couple, we might be interested in becoming partners with some of those folks. If you’re characterizing what I said, and thank you for asking the question, they are going to be — they are not going to be large. They are going to be closer to our historic pattern than developing any new pattern. Let me put it that way.

Okay. My last question, please, on the U.K. You obviously had very strong performance of 9.3% of organic growth. Is there anything one-time in nature there? I just want to get little more clarity on 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 relatively small quarter. You can’t draw too many trends when you start narrowing it down to regions or disciplines, etc. So the more you narrow that number, especially in a quarter, a 90-day period, we don’t think it’s going to drive the trend for that particular, in this case, country. Our businesses in the U.K. have been performing very well, very consistently actually over some time. They have done very well in the market. We expect them to continue to perform well as the year goes on. But I wouldn’t draw too much of a trend other than the trend that our businesses in the U.K. continue to perform well is something that we expect to continue.

I echo exactly what Phil said. I guess we were aided by the change in management of one or two major subsidiaries, and they’ve gotten off to a great start. So, the market share and not the economy in the U.K.

Can I just sneak in one more question please? I appreciate your guys’ comments on the upfront market. Talking of linear TV as you call it here for 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?

Obviously, it’s a supply and demand marketplace, and there are still supply issues in the linear TV marketplace that keep pressure on prices beyond what you might reasonably normally expect, defining your ratings would be less valuable at lower prices — not necessarily the case. I think the 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. The general trend here is a 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 they are making across media types do to move their business with the data capabilities that we have? They are somewhat less inclined to focus simply on what may be called process measures, which are the CPMs reaching frequencies, 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 the sales standpoint will dictate that.