Omnicom Group Inc (OMC) — Q1 2019 Earnings Call Transcript

Good morning. Thank you for taking the time to listen to our first quarter 2019 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 to omnicomgroup.com this morning's press release along with the presentation covering the information that we will review 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 materials. 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 for the quarter. And then we will open up the line for your questions.

Thank you, Shub. Good morning. I am pleased to speak to you this morning about our first quarter 2019 results. It's been two months since our last call and a lot has happened in that time, including kicking off a few strategic initiatives, promotions in our agency network leadership, and some notable industry awards. Importantly, we got off to a good start with our financial results. In the first quarter, organic growth was 2.5% and was in line with our internal targets. Our operating profits and EBITDA margins of 13% for the quarter exceeded our expectations. The improved performance is attributable to several factors, including the continuing benefits from Omnicom-wide cost initiatives, the impact of dispositions completed in 2018, and a small gain from a few additional dispositions completed in the first quarter of 2019. The upsides were offset in part by the negative effect of foreign exchange on our operating results. Phil will provide you more detail when he gets to his remarks. EPS for the quarter was up 8.3% to $1.17 per share, excluding the impact of one-time tax benefit from the successful resolution of foreign tax claims recorded in the first quarter of 2018. The results continue to demonstrate the consistency and diversity of Omnicom's operations, our ability to deliver consumer-centric strategic business solutions to our clients, and our best in industry creative talent combined with market-leading digital, data, and analytical expertise. In the quarter, we grew organically in every geographic region of the world with the exception of Latin America. This growth was achieved through broad participation across all of our agencies, disciplines, and client sectors. Looking first across disciplines, advertising and media was up 5.1%, CRM consumer experience was down less than 1%, strong performance in our precision marketing group business was offset by negative performance in our events business. Healthcare was up 6.8% with virtually all of our businesses in this discipline performing well. PR was down 1.5%. We're seeing some positive signs in certain areas of our PR operations and believe the growth strategies being implemented by our management teams will result in better performance. And as expected, CRM execution support was down 3.3%. During the quarter, we sold MarketStar, a provider of outsourced sales support and services based in Utah. MarketStar is a very similar business to Sellbytel, which we sold in the third quarter of 2018. As I previously mentioned, we also divested a few other small businesses in our portfolio during the quarter in line with our strategy of divesting non-core and underperforming operations. Turning now to our performance by geography. The U.S. was up 2% in the quarter, driven by strong performance in advertising and media, healthcare, and our precision marketing group, offset by the decline in our events business. The Omni U.S. for the North American region, primarily consisting of Canada, was up 6.1% in the quarter. The UK was up 1.3% led by advertising and media, precision marketing, and healthcare. This performance was offset by declines in our events and CRM execution businesses. Overall, growth in Euro and non-Euro regions was 4%. In the Euro markets, the Netherlands and Spain have better than average growth, and Germany also performed well. France was negative in the quarter, primarily due to the loss of the specialty print production client. In the non-Euro markets, the Czech Republic and Russia had very good growth. Asia-Pacific's first quarter organic growth was 2.1% as Australia, India, and New Zealand performed very well in the quarter. China was negatively impacted by the delay of several projects and events. It's our current expectations that these projects will go forward but later in the year. Latin America was down 3% as another quarter of solid operating results in Mexico was offset by the continuing negative performance in Brazil. We expect 2019 will continue to be a difficult year in Brazil. Our smallest region, the Middle East and Africa, grew 12.8%. Let me now discuss what we're seeing in the industry and how our strategies enable us to achieve consistent financial performance. Over the past couple of years, Omnicom initiated numerous changes in response to our clients' needs. As a result, we are continuing to adjust and reorganize our businesses and management teams. To improve the speed of decision-making, we're organized within our network structure into 12 practice areas. The last practice area we formed, the Omnicom Retail Group, was announced in March. We've expanded the number of top clients in our global client leaders group from 25 to 100. We have further consolidated our data and analytics, and technology services and investments at Annalect. We launched Omni, our proprietary data and analytics platform. The platform is in the process of being rolled out to our top clients. We've also expanded our investments in training and development of our people so they can use these tools. We have expanded our consulting services and capabilities. And we've consolidated our production services across all major markets. As I will get to in a couple of minutes, we continue to streamline our media offerings. Expanding on some of these initiatives, in March, we announced the formation of a new center of excellence to advance our commerce capabilities, the Omnicom Retail Group. The new group is leveraging expertise to increase conversion and transactions for clients, both online and offline. It brings together five award-winning agencies with exceptional creativity, strategic thinking, and deep client and category experience. The Integer Group, TracyLocke, Haygarth, TPN, and The Marketing Arm. These agencies together employ over 2,500 people across 19 markets. Omnicom's retail group agencies will continue to invest in advancing shopper knowledge and drive innovation and thought leadership in shopper and retail marketing. Sophie Daranyi, formerly the CEO of Haygarth, a creative agency specializing in brand, shopper, and retail marketing, was named CEO of Omnicom Retail Group. Turning now to our global client leaders group, we've expanded this group to 100 clients. The responsibilities of the global client leaders include ensuring our clients are receiving the highest quality marketing and communication services from our agencies; creating and managing agile client teams with the best talent and skills; breaking down existing agency silos by organizing internal teams within and across practice area groups; and offering our clients the breadth of our services as their needs change. We also expanded our C-suite consulting services. Last year, we added Credera and Levo to our other consulting services, which include Batten, Daggerwing, Sparks and Honey, TLGG, and several other consulting units that have been developed organically to serve our client needs. As a result, we are increasingly changing the manner in which we engage with our clients. As these practices develop, we expect to have more opportunities to offer our clients top-of-the-spear solutions that tackle business challenges. During the quarter, we also made some important strategic changes in our media operations. As you may recall, about a decade ago, we formed Accuen for programmatic services and Resolution Media for search, social, and performance marketing. At the time, these services were in their formative stages, and we needed dedicated units with real subject matter experts to support our media agencies. Today, these services are no longer a specialty. They are at the core of how we work with our media clients. As a result, we are fully integrating these capabilities, involving about 600 people in the United States alone, into our media agencies, Hearts and Science OMD, and PHD. With this reorganization, we've simplified our structure by expanding the capabilities of our client teams. We expect these changes to increase our speed, agility, and the quality of service to clients. To further this effort, Omnicom Media Group made several management changes to ensure that the next generation of media agency leaders have an understanding of creativity and deep expertise in digital, data, and analytics. Scott Hagedorn was named CEO of North American operations at Omnicom Media Group, following his previous positions as the CEO of Hearts and Science and CEO of Annalect. He began his career as a brand planner at RAPP. Scott will be partnering with John Swift, who was named COO of Omnicom Media Group North America. John has substantial operating experience having led our U.S. media buying organization, as well as developing a number of our specialty media business units. With Scott's move, Erin Matts, who previously served as CEO of Annalect North America, has been named CEO of Hearts and Science in the U.S. Following the integration of Resolution Media and Accuen capabilities into our media brands, George Manas has been named Chief Media Officer of OMD U.S. and Anthony Koziarski is taking the same role at PHD USA. Resolution Media will continue as an agency focused on non-network clients that seek dedicated performance-only media services. While we have undertaken numerous organizational changes, our philosophy to support strong brands and cultures, so they can be vital incubators for creativity and innovation, as well as magnets for the best talent, has not changed. We believe our approach is a significant competitive advantage in retaining and hiring the best people and in servicing our clients. Our major brands have their own unique positioning and go-to-market strategies, but a common overarching theme is our commitment to the concept of connected creativity. We're using data, analytics, cultural insights, and technology tools from our Omni platform to create and deliver a powerful brand voice that connects with consumers across every touchpoint, whether it's marketing, sales, service, or support, and through all mediums. It's important to distinguish that Omni serves as a platform of extremely valuable information. Just as important, our agencies continue to significantly invest in educating and training their people and hiring new talent that can interpret and use this information. This is a fundamental and constant change at our agencies and one that will allow us to remain a key partner for innovation to our clients, especially as the marketplace rapidly evolves. As evidenced by these key themes and strategies positively impacting our work, let me just mention a few of the recent highlights of our agencies being recognized around the globe. OMD was named Adweek's 2019 Global Media Agency of the year; in WARC's best of the best rankings, BBDO was ranked the number one network, BBDO New York received the number one agency, followed by Adam and Eve, DDB. Omnicom won the world's most awarded holding company. Ketchum was named best agency of the past 20 years at the 20th annual PRWeek awards. At the 2019 Dubai Lynx Awards, BBDO Worldwide won network of the year with TBWA Worldwide coming in second. The Media Network of the year went to OMD Worldwide. As always, these awards are a true testament to the talent here at Omnicom. We've always strived to be a great place for people to work, which includes creating a safe and inclusive environment for all employees regarding race, religion, gender, or sexuality. Part of the commitment to attracting, retaining, and developing the best talent means continuing to place a strong emphasis on our diversity and inclusion efforts. Indeed, we've made some strides in diversity and inclusion in the first quarter. For the third year in a row, we received 100% on the Human Rights Campaign Corporate Equality Index, the national benchmarking tool on corporate policies and practices pertaining to LGBTQ employees. Omnicom also received distinction as the best place to work for LGBTQ equality. And Omnicom is an official member of the Valuable 500, a global movement putting disability inclusion on the leadership agenda of businesses. In summary, we've made significant strides in changing our services, capabilities, and organization. We are pleased with our financial performance in the first quarter, which continues to reflect the benefits of our strategies. While it is early in the year, we're on track for where we expect to be for the full year 2019. I will now turn the call over to Phil for a closer look at the first quarter results.

Thank you, John, and good morning. As John said, our results for the first quarter of 2019 were better than our expectations. While organic revenue growth was within our expected range, our operating profit and margins were stronger than we expected. Our results were driven by several items, including the strong performance of our agencies, the continuing impact of our cost efficiency initiatives, and benefits from the repositioning actions we took in the third quarter of 2018, including a favorable change in business mix in the quarter from the disposition of certain non-strategic underperforming agencies in the second half of 2018. In addition, we recorded a net gain on a few smaller dispositions in Q1, which after considering the effect of the negative impact of FX translation on our operating profit also had a slightly positive impact on our margins. Turning to Slide 3. For the first quarter, organic revenue growth totaled 2.5% or $91 million. Additionally, due to the continued strengthening of the U.S. dollar since the second half of last year, changes in currency rates negatively impacted our reported revenue by $122 million or 3.4%. And finally, dispositions in connection with our repositioning actions, primarily in our CRM execution and support discipline, exceeded revenue from acquisitions in the quarter as we continue to cycle through the disposals we made in the second half of 2018. The net impact from acquisitions and dispositions reduced our first quarter revenue by $130 million or about 3.6%. In total, our reported revenue decreased 4.4% to $3.5 billion in the quarter. In a few minutes, I will discuss the drivers of the changes in revenue in more detail. Turning to Slide 1 and the income statement items below revenue. Our Q1 EBITDA was $451 million, up $1 million from Q1 of '18 or three-tenths of a percent with the resulting margin of 13%, up 60 basis points. Our operating income or EBIT for the quarter was $429 million, up 1.7% when compared to the first quarter of last year. While our operating margin of 12.4% represented an 80 basis point improvement over Q1 of last year. A few key points in regards to our margin improvement. We continue to seek out opportunities to increase operational efficiencies. These initiatives are primarily focused in the areas of real estate, back office services, procurement, and IT, and continue to positively impact our operating performance. Additionally, as we described last quarter, we continue to see benefits from the change in business mix, resulting from the disposition of several non-strategic, lower-margin or underperforming agencies. And lastly, during the quarter, we recorded a net gain on the disposition of a few agencies, including MarketStar, a U.S. based sales support business, which after considering the effect of the negative impact of FX translation on our operating profit had a slightly positive impact on our margins. Net interest expenses for the quarter were $46 million, down $900,000 compared to the first quarter of 2018, and down $7.1 million versus Q4 of 2018. Interest expenses on our debt increased $3.1 million in the first quarter of 2019 versus Q1 of '18. We saw slightly higher rates on our fixed to floating interest rate swaps, which is partially offset by a decrease in interest expenses on commercial paper compared to the prior year. To take advantage of a unique opportunity, in February 2019, we issued €520 million of short-term senior notes via a private placement to investors outside the United States. The notes are unsecured, non-interest-bearing, and mature in August 2019. As a result, in the first quarter of 2019, we were able to substantially reduce our other short-term borrowing needs, including our commercial paper issuances. The reduction in commercial paper borrowing is expected to continue through the maturity of the notes in Q3. Interest income increased $1.6 million versus Q1 of 2018, reflecting higher cash balances available for investments. And when compared to Q4 of 2018, interest expenses on our debt decreased $2.9 million, due to the decrease in commercial paper activity as described above. Interest and amortization expense on our pension obligations also decreased versus last quarter. Lastly, we also saw an increase in our interest income versus Q4. Regarding income taxes, our reported effective tax rate for the first quarter was 26.8%, in line with our expected 2019 full-year rate. As a reminder, last year's Q1 tax rate benefited from the successful resolution of foreign tax claims, which reduced last year's quarterly income tax expense by $13.3 million. Earnings from our affiliates were marginally negative in the first quarter of 2019, while the allocation of earnings for the minority shareholders on our less than fully owned subsidiaries decreased to $16.5 million due to our disposition activity, as well as the impact of FX. As a result, net income for the first quarter was $263 million, down slightly when compared to our reported Q1 2018 net income. After excluding the $13.3 million addition to net income from the settlement of the foreign tax claims from last year, 2019's net income would have increased 4.9%. Now turning to Slide 2. Income available for common shareholders for the quarter was also $263 million and our diluted share count for the quarter decreased 3.1% versus Q1 of last year to $224.2 million. As a result, our diluted EPS for the first quarter was $1.17, which increased $0.03 or 2.6% when compared to our reported Q1 EPS for last year. The positive impact from the settlement of the foreign tax claims increased last year's EPS by $0.06, so excluding this item, the increase versus last year's first quarter would have been $0.09 or 8.3%. Turning to the components of our revenue change in the first quarter, which are detailed on Page 3. On a year-over-year basis, the U.S. dollar's continued strengthening created large headwinds in our reported revenue. The impact of changes in currency rates decreased reported revenue by 3.4% or $122 million in the quarter. And as has been the case for the last two quarters, the strengthening was widespread. On a year-over-year basis in the first quarter, the dollar strengthened against every one of our major foreign currencies. The largest FX movements in the quarter are from the euro, the UK pound, the Australian dollar, and the Brazilian real. Looking forward, if currencies stay where they currently are, FX could negatively impact our revenues by approximately 2.5% during the second quarter, then moderate in the second half of the year, resulting in a negative impact of approximately 25 basis points for the second half and 1.5% for the full year. However, it's difficult to make assumptions on how foreign currency rates will move over the next few months, let alone for the balance of 2019. The impact of our recent acquisitions, net of dispositions, decreased revenue by $130 million in the quarter or 3.6%, primarily driven by the Sellbytel disposition and other actions we took in the second half of last year, and a few dispositions we completed in the back half of the first quarter. Based on transactions we completed to date, and since we will cycle through the most significant of last year's dispositions by the end of the third quarter, our current expectations are that the impact of our acquisition activity, net of dispositions, will continue to be negative; approximately 4% for the second quarter, and approximately 3% for the third quarter, and for the full year. Turning to organic growth, which was up $91 million on a global basis for the quarter, or 2.5%. The performance of our disciplines was mixed. Our advertising and healthcare disciplines both had solid organic growth in the quarter. Year to date, consumer experience was marginally negative due primarily to reductions in revenue at our events business, which offset strong performance in our precision marketing agencies in the quarter. PR was down a bit, while CRM execution and support continued to underperform. Geographically, all regions were positive in the quarter except for Latin America, with our domestic and Continental European regions having the strongest performance. Slide 4 shows our mix of business by discipline. For the first quarter, the split was 55% for advertising and 45% for marketing and services. As to their organic growth by discipline, our advertising discipline was up 5.1%. Advertising's organic growth continues to be led by our media businesses, notably the continued strong performance by Hearts and Science, while our global and national advertising agencies performed well with only a few exceptions. CRM consumer experience was down six-tenths of a percent for the quarter, primarily driven by declines in our events business, which faced a very difficult comp partly driven by last year's Winter Olympic in South Korea. Results for the rest of the discipline were mostly positive, driven by strong performance from our precision marketing group, branding, which also showed growth, while our shopper and sales promotion businesses were down slightly. While CRM execution and support continued to underperform this quarter, our domestic businesses, while negative versus the prior year, did show improvement versus Q4. PR was down five-tenths of a percent. Performance in this discipline was also mixed by geographic regions. The UK and Asia were both positive. North America was marginally negative, with Continental Europe and Latin America both lagging in the quarter. Healthcare was up 6.8%. As has been the case over the last few quarters, growth has been well balanced with positive results across all regions. On Slide 5, which details the regional mix of business, you can see during the quarter the split was 54% in the U.S., 3% for the rest of North America, 10% in the UK, 18% for the rest of Europe, 11% for Asia Pacific, 3% for Latin America, and the balance for the Middle East and African markets. As for the details of our performance by region, organic revenue growth in the first quarter in the U.S. was 2%, led by our advertising and media agencies, as well as our healthcare agencies, with mixed performance from our CRM consumer experience agencies, while our CRM execution and support agencies declined. Our UK businesses were positive again this quarter, up 1.3% and led by our advertising, healthcare, and PR agencies. However, the continuing uncertainty surrounding how the British government will formalize its departure from the EU certainly clouds the outlook for the market. The rest of Europe was up 4% organically in the quarter. In the Euro markets, Italy, the Netherlands, and Spain continue to produce strong performances across disciplines this quarter; Germany returned to positive organic growth, while France lagged; our organic growth in Europe outside the eurozone was positive as well; organic growth in the Asia-Pacific region was facing a fairly strong comp to Q1 of 2018 at 2.1%, with Australia, India, Japan, and New Zealand leading the way this quarter; our Greater China agencies were down organically in total for the quarter, largely from the impact of non-recurring project revenue in Q1 '18 and our events agencies in that market. Latin America was down 3% in the quarter, with continuing issues in the Brazilian economy dragging down the region's performance overall. Elsewhere in the region, we continue to see positive performance from our agencies in Mexico. The Middle East and Africa, which is our smallest region, was up 12.8% for the quarter. On Slide 6, we present our revenue by industry sector. Comparing the first quarter revenue for 2019 to 2018, you can see a slight shift in our mix of business, an increase in the contribution from our former industry clients, offset with a decrease in the percentage of revenue from our technology clients, primarily resulting from the Sellbytel disposition. Turning to our cash flow performance. On Slide 7, you can see that in the first quarter, we generated $341 million of free cash flow, including changes in working capital. As for our primary uses of cash on Slide 8, dividends paid to our common shareholders were $135 million, down slightly versus Q1 last year, due to a reduction in our outstanding common shares as a result of repurchase activity over the past year. The $0.05 per share increase in the quarterly dividend that we announced in February will impact our cash payments from Q2 forward. Dividends paid to our non-controlling interest shareholders totaled $17 million. Capital expenditures were $27 million, down compared to 2018 due to less leasehold improvement activity. Acquisitions, including earn-out payments, totaled $7 million, reflecting a decrease in activity so far this year compared to our Q1 activity last year. And stock repurchases, net of the proceeds received from stock issuances under our employee share plans, totaled $284 million, reflecting an increase in the activity this year versus last year. All-in, we outspent our free cash flow by about $130 million in the first quarter. Regarding our capital structure at the end of the quarter, our total debt is $5.5 billion, up about $600 million since this time last year and from year-end. As we mentioned earlier in February of 2019, we issued short-term senior notes of €520 million in a private placement to an investor outside the United States. The notes are unsecured, non-interest-bearing, and mature this August, and therefore are classified as short-term on our balance sheet. Our net debt position at the end of the quarter was $2.04 billion, up about $800 million compared to the year-end balance of December 31, 2018. The increase in net debt was a result of the typical uses of working capital typically seen in our first quarter, which totaled about $740 million, as well as the use of cash in excess of our free cash flow of approximately $130 million. These increases in net debt were partially offset by the cash we received from our disposition activity of $65 million and the effect of exchange rates on cash during Q1, which increased our cash balance by about $25 million. Compared to March 31, 2018, our net debt is down $282 million. The decrease was primarily driven by the positive change in operating capital, which totaled approximately $340 million over the past twelve months, and the cash proceeds received from the sale of subsidiaries during the last year of $370 million. Partially offsetting these increases over the past 12 months was the over-spend of our free cash flow of approximately $170 million and the negative impact of FX on our cash balances, which totaled just over $200 million. As for our debt ratios, they remain solid. Our total debt-to-EBITDA ratio was 2.3 times, reflecting the issuance of euro-denominated debt this quarter, while our net debt-to-EBITDA ratio fell to 0.9 times. Due to the year-over-year increase in our interest expense, our interest coverage ratio decreased to 9.8 times but remained strong. And finally, on Slide 10, you can see we continue to manage and build the company through a combination of well-focused internal development initiatives and prudently priced acquisitions. For the last 12 months, our return on invested capital ratio was 25%, while our return on equity was 52.6%. 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.

Just a couple of questions, if I may. John, maybe if you can provide a bit more color on what you are seeing behind the healthy underlying business, especially in the U.S., which has seen some improvement the last couple of quarters after lagging for a couple of years. You gave some broader color. But I'm wondering if there is anything specific that's driving improvement in the U.S.? And then maybe for Phil, I think you have highlighted a couple of divestitures that you've identified over the last 12 months or so, which has helped improve the profitability of the business. I guess I'm wondering if you could tell us if that's going to help improve the profitability going forward. Should we see some margin benefit in the next couple of quarters? And maybe how many more of these underperforming businesses you think you still have that we could see the opportunity of further divestitures?

Alexia, in terms of the color of our outperformance this quarter versus previous years, the marketplace is changing all the time. It's changing in several ways. The competition set is pretty much what it was last year. At the end of last year, we had a very good run in the third quarter in terms of new business. So we're seeing some of that reflected in the performance of the first quarter, and you'll see it throughout the rest of the year; that's probably the biggest single component. The other thing, as you know, is organic growth is the net of what we win, how our clients grow or decline, and what we lose. And we've been fortunate of late not to have the 'leaky bucket' syndrome. So I'm pretty optimistic.

And then just to follow up on terms of divestitures, Alexia. I think for future expectations for the balance of the year and the rest of the quarters, I think our expectation is for the businesses to continue performing well. We expect to achieve probably 20 to 30 basis points of improvement over last year. The first quarter, relatively speaking, is traditionally small compared to the rest of the quarters, so the first quarter doesn't always necessarily make a definitive trend for us. But we are going to continue to focus on EBITDA as we always do, and we would expect 20 to 30 basis points for the balance of the year. But we will also continue to invest in the business and for growth as we always do and try to find the right balance so that we can find and fund sustainable growth. In terms of future divestitures and the process we go through, you've seen over the last three or four years that it is part of the process we follow. I think we're through a lot of what we planned to do strategically, but we're going to continue that process. We look at it every quarter, and annually we evaluate where the businesses still fit strategically and what might be some opportunistic things that come up, which is essentially what you saw with the Sellbytel disposition in the third quarter of last year and the market saw a disposition in the first quarter of this quarter, both of those were similar businesses in different geographies. But there were opportunities for us to take advantage of situations where we weren't prepared to continue to invest in what was needed for the future of those businesses, yet we're able to find buyers that made much more sense than us for those businesses.

I think that was very helpful. Can I just ask you one quick follow-up? Could you quantify the gain of MarketStar that you captured in the quarter?

I don't think from our perspective it's significant enough to quantify. I think between MarketStar, as we said, as far as the gain and the translation loss we had on FX, those two together were essentially less than 10 basis points.

John, maybe with your comments earlier about the competitive set not changing that much. Ultimately, the answer to this question may be no, but nevertheless, I'd be just interested in your thoughts at a bit more high level. When you look at some of the moves in recent weeks where non-traditional competitors like Accenture have been buying what we viewed as a bit more traditional competitors like Droga, or the transaction we saw over the weekend with Publicis and Epsilon. If I put aside everything to talk about disciplines and capabilities and where the future of the business heads, if I put that aside, if I put aside your normal discipline on M&A and valuation in the past and just what deals may be available. And just try to isolate the variables in your head that line up to say: Does M&A in a mid-to-larger scale make more sense or less sense based on what's going on around you? Do you sense any notable change in how you might look at the landscape in that sense?

Speaking solely from an Omnicom point of view, we take these examples apart - as examples in two parts, Accenture buying Droga, which is a very good agency. I already have a lot of really good agencies, so that is not something that we're buying another agency, it wouldn't be of appeal to me. Hiring, which we're requiring larger end consultative type of IT practices, not Sapiens of the world, because we think there were big builds of the past, but like Credera, which we did last year and a few others. We will continue to do those but I don't see them to be terribly expensive. I haven't looked at Epsilon in a while, but from what I've seen, they are a solid company with some good clients. However, I haven't noticed anything particularly unique or proprietary about their offerings that wouldn't be easily replicated. Jonathan Nelson, who leads our digital practice at Omnicom, is here with us today. Jonathan, do you have anything to add?

At Omnicom, we have been working on this idea of mass personalization and scale for well over a decade. Our investments in Annalect, our platform Omni, and the Precision Marketing Group, along with Hearts and Science, are just the latest examples of how we're focused on this. As we proceed on this, we are really focused on three key areas. One is to keep the platforms open. As I've previously talked about, we would rather rent and partner on data and technology rather than own. That's not to say that in a few strategic instances, we won't develop our own data assets; we do develop our own data assets, like our inventory graph, but we generally believe a modular open approach is best for ourselves and our customers. Two, we have been doing this on a global basis for over a decade. Our data platform and our technology platforms have been rolled out in every major region of the world as of right now. And three, the hardest part about this is doing integration without your traditional assets at scale. Anyone who does this can tell you that mass personalization at scale is extremely hard, and we have been dedicated to training thousands of our employees across every major discipline across Omnicom for the entire time that we've been doing this. So those three things - open versus closed, global, and integration at scale - are how we're approaching this problem.

And the final answer to your question, if I or my team felt threatened in any way, we would look for the appropriate acquisitions to complete our offerings to our clients. I simply don't feel that way right now.

Actually a very easy one, I don't think you really repeated your 2019 outlook for 2% to 3% organic sales growth. So could you just say whether you are still happy with this? Thank you very much.

I don't think there's anything in our view that would change the outlook for the year at this point; we expect 2% to 3% growth for the year.

And also would you mind sharing how much did Accuen grow year-on-year dollar-wise Q1 versus Q1?

So actually, Accuen grew in the U.S. by about $2 million, so it's basically flat. And on a worldwide basis, Accuen was down $4 million, which also is roughly flat. Overall, just to comment on the programmatic business, we think the programmatic business continues to be strong, but we continue to see the transition of some clients from our performance-based bundled solution to the traditional agency approach. Going forward, as John had said earlier, programmatic offerings will be integrated into our agencies and into the agency offerings. So we think that's the right answer for the business ultimately, because it is something that is just part of what our agencies do on a day-to-day basis. But ultimately, the business is strong and continues to perform well.

My strategy question has been asked, so I will do a more simple number question. For Phil, if FX is minus 100 basis points across the board, i.e., no big impact from one country to another. What's the rough impact on margin? That's my first question. The second one is for a while, you said that you've done the bulk of dispositions, but you're looking at the portfolio on a continuing basis, and you've increased the guidance from 2.5 to 3. Going forward in 2021, what's the best way of thinking about acquisition less disposition: put a flat number or put like a minus one number, because you will continue to trim the portfolio? And then, last question is interest guidance for the full year, because of the benefit of the projects until August? Thank you.

So on FX, I think your question is a hypothetical one. If FX was down 100 basis points, what would the impact on margin be? I think the answer is it depends on whether FX moves positively or negatively. But I think it's pretty direct to say if FX is up or down 100 to 200 basis points, typically, the impact on our margins is minimal. In this quarter, the negative FX impact on margins was less than 10 basis points, which sometimes when FX moves up or down in that range we do tend to see a larger impact on our margins. However, that didn’t happen this quarter; the FX decline was not across the board. As far as dispositions go, we don't forecast certainly into 2020 and 2021. I think the bulk of the dispositions we've done to date, we will cycle through by the end of Q3 of this year. The size of the dispositions we did this quarter are just not that large that they're going to have a significant impact on the numbers going forward. And as far as strategically, we'll continue to pursue the same strategy as far as acquisitions are concerned. We'd rather do more than less. Our capital allocation strategies are going to change to the extent that we can find accretive acquisitions that fit our strategy, fit the culture, and meet the needs of what we think work well and integrate with the business. We're going to try and find more of those deals and do more of those deals. We're not going to set an acquisition dollar target and then have an M&A group chase deals to meet that target. But we're going to continue to pursue deals. We're pursuing them today, but less of the right fit. We're pretty disciplined about that. Ideally, as we get out a year or two, the goal would be to be back in more acquisitions mode. The disposition process will continue but certainly we've bulked our intentions, and we're through the bulk of it, but we're going to continue to look at opportunistic things as they come up, and if they're right for the business, disposition might be the right answer, but the goal is to do more acquisitions certainly. On interest expense, I think we don't have the number in front of me. We could take that offline. But we certainly expect that the reductions we've been able to achieve in our fee borrowings because of the opportunistic debt offering we did, private placement we did in January, or in early February, is going to reduce our CP borrowings. And we'll probably have a little bit of negative year-over-year increase in interest from our floating fixed swaps. But we do have a debt offering coming. We do have a 10-year bond offering that's coming due that we're going to replace, and there should be some savings from that offering because ten years ago, the rate was certainly higher than we expect to refinance today. So we can take that offline and give you some more detail.

Can I just ask one on the numbers and then one if I could to Jonathan? So just on the numbers, when I look at salary and service change, I know there are a lot of moving pieces from dispositions and currency. Is there any way you can give me a sense of what was - what do you think your organic growth is for Omnicom on salary and services? How do we think about it for the year? Just trying to strip away all these moving pieces.

I don't know if Phil can, but I know I can't. We don't really look at it that way or attempt to look at it that way, unfortunately, in terms of having a specific answer for your question.

Okay, and do you guys mind if I ask Jonathan a question? Jonathan, my question for you is last year we spent a lot of time at the beginning of the year thinking about GDPR and its impact on the market and on agencies. I wonder when you look back on what happened last year with GDPR. What did you learn? And looking forward, what has happened within the U.S. that you think will likely turn into privacy outcomes here for the U.S.?

I think there will be more regulation around privacy in the U.S. that's nearly inevitable. With the comments made by a number of people in the industry, legislation is going to happen in the U.S. At Omnicom, we did a deep audit of all of our assets looking at all of our different data providers and partners and came up with policies and procedures to protect ourselves and our clients. What we're trying to do is find that fuzzy line of privacy and take a few steps back from it. And I think that policy has worked so far, and it will likely work going forward.

And you didn’t see any material change in how you guys run your business because of it?

Not a material change. I mean when it comes down to actually on a day-to-day basis, of course, it's evolving every day, but in the macro, it keeps moving forward.

I think we have time for one more question.

Okay, if not, we're right on time. So thank you, everybody, for joining the call. I appreciate it.