The Interpublic Group of Companies, Inc.
Q4 2010 Earnings Call Transcript

Published: 25 Feb 2011

[Operator:]

Good morning, and welcome to the Interpublic Group Fourth Quarter and Full Year 2010 Earnings Conference Call. [Operator Instructions] I would now like to introduce Mr. Jerry Leshne, Senior Vice President of Investor Relations. Sir, you may begin.

[Jerome Leshne:]

Good morning. Thank you for joining us. We have posted our earnings release and our slide presentation on our website, interpublic.com, and we'll refer to both in the course of this call. This morning, we are joined by Michael Roth and Frank Mergenthaler. We will begin with prepared remarks to be followed by Q&A. We plan to conclude before market open at 9

[Michael Roth:]

Thank you, Jerry, and thank you, all for joining us this morning. I'll begin by covering the highlights of our performance, as well as the share repurchase program and quarterly dividend that we are pleased to announce today. Frank will then take us through the financial results in detail, and I'll close with some additional color about what's taking place in our agencies and the tone of the business. As always, we'll make sure we leave plenty of time for Q&A. Well, as you can see, we recently completed a very strong year. Coming off a brutal recession, we entered 2010 uncertain as to the strength of the recovery and therefore focused on managing our costs. As the year unfolded, the economy stabilized and began to improve. And we were able to capitalize on these changes in the macro-environment to achieve strong growth in revenue and profits, which was apparent in Q4 and for the full year. 2010 was significant in that we put our company back on the track of competitive organic revenue growth and margin expansion that we had established before the recession hit the marketing services sector in 2009. For the year, organic revenue growth was 7% towards the top end of our peer group. Operating margin of 8.4% represented a significant recovery of 270 basis points compared to 2009. Looking more closely at the quarter, it's clear that the business ended the year on a strong note. Revenue increased 11.7% and 11.2% organically. As in all previous quarters of 2010, contributions to our growth came from the extremely broad range of the portfolio. Regionally, U.S. organic revenue growth was 13.1%. We saw a double-digit growth in the U.K., as well as in key emerging markets, such as India, China and Brazil. Looking at client sectors, almost all verticals posted double-digit growth during the fourth quarter, including auto, financial services, packaged goods, health and personal care, food and beverage and tech and telecom. The retail sector posted solid growth on top of a very strong Q4 '09. At the agency level, we had strong organic growth at all of our global networks. Marketing services performed very well, and our digital offerings and integrated U.S. independence continued to make significant contributions with outstanding performance during the quarter. This growth reflects the improved economic climate and growing confidence on the part of the marketers compared to a year ago. It's also a direct result of the investments we’ve made during the past year in talent, especially in developing markets and emerging media, as well as the strategic actions that we've taken to strengthen and reposition a number of our key agency brands. Q4 operating income was $331 million, an increase of 23% compared to a year ago. Operating margin was 16.4% compared to 14.9% in Q4 '09. Turning to EPS, earnings per diluted share for the quarter was $0.36, up from $0.24 in the comparable period last year, and for the full year, earnings per diluted share were $0.47, more than double the 2009 EPS of $0.19. Over the course of 2010, we continued to reduce debt, improve cash flow and greatly add to our company's overall financial strength. As a result, in addition to the strong operating performance that we are announcing today, we are very pleased to inform you that our Board of Directors has approved two important measures to further enhance shareholder value. First, our board has declared a cash dividend on our common stock in the amount of $0.06 per share, payable on March 25 to holders of record at the close of business on March 11. We expect to continue with this dividend on a quarterly basis. Second, our board has authorized the common share repurchase program of up to $300 million, which will go into effect immediately. These programs will not prevent us from investing in the many growth areas that are required to continue providing leading-edge solutions to our clients. They do however, represent significant milestones for our company, which demonstrate the great progress we've made in recent years and our confidence that we can continue to build on this success. At this point, I'll turn things over to Frank for an in-depth look at our financial performance.

[Frank Mergenthaler:]

Good morning. As a reminder, I will be referring to the slide presentation that accompanies our webcast. On Slide 2, you'll see an overview of the quarter and the year. Q4 revenue growth was strong in both the U.S. and the international markets. During the fourth quarter, operating profit increased 23% year-over-year. We realized 190 basis points of operating leverage on combined base payroll and temporary labor expenses. We also reduced occupancy expense by 120 basis points of revenue. With improved performance, incentive compensation increased 60 basis points as a percentage of revenue compared to a year ago. We also took strategic headcount actions in Q4 that resulted in a somewhat elevated severance expense of $55 million, below the level of last year, but higher than our quarterly run rate for the first nine months. Severance expense was 2.7% of revenues in the quarter, compared to our 1% run rate over the first nine months of the year, which is a reasonable annual estimate going forward. This is an investment to continue to drive efficiency, as we identify and act on opportunities to reduce our expense base. We ended the quarter and the year with $2.69 billion of cash and marketable securities on the balance sheet, an increase of $183 million from a year ago. That comparison includes having used approximately $480 million during the year to pay down debt and redeem convertible preferred stock. Full year operating cash flow was $817 million compared with $541 million a year ago. Turning to Slide 3, you see our P&L for the quarter. I'll cover revenue and operating expenses in detail in the slides that follow. Turning to operations in more detail in Slide 4 beginning with revenue. Revenue in the quarter was $2.01 billion, an increase of 11.7%. Compared to Q4 '09, there was almost no impact from exchange rates, while net acquisitions contributed 50 basis points. Our organic revenue change was an increase of 11.2%, a terrific result due to growth from existing clients, as well as new business wins across all of our disciplines. Regionally, we had double-digit organic growth in North America, Lat Am, the U.K., China and India. As Michael mentioned, our gains in the quarter were broadly distributed across client sectors. On the bottom half of the slide, you can see the revenue performance of our operating segments. At our integrated agency networks, Q4 organic growth was 10.1%. We were pleased with performance in both the U.S. and international markets, and to see contributions by all of our global agencies. At our CMG segment, revenue increased 18.5% on an organic basis, reflecting double-digit advances in both the U.S. and internationally. We had growth across the board in all the principle operating units and disciplines, led by our events business. It's worth pointing out, as we have in the past, in connection with strong growth in events, our increase includes higher pass-through revenues that are offset dollar-for-dollar in direct expenses, which are reflected in our office and general expenses. Moving on to Slide 5, which provides a look at revenue by region. In the U.S., the organic increase of 13.1% was driven by broad participation across client sectors and disciplines. We were led by Mediabrands, Draftfcb, Jack Morton and Mullen. International organic growth was 9.4%. In the U.K., revenue increased 16.7% organically, led by our marketing service specialist agencies and notably, our events business. In Continental Europe, the increase was 2%. We saw mixed results by country, with growth in France and Germany, but decreases in Italy and Spain. The markets at the center of sovereign debt concerns remain weak, though we did not see any incremental softening during the quarter. In Asia Pac, organic growth was 7.5%, led by China and India, which was tempered by slower growth in Japan, where we have a significant presence. Organic growth in Lat Am was again outstanding at 20.1%, reflecting the strength of all of our global agency networks in every key market in that region led by Brazil. Our other markets grew 13.2% organically, reflecting strong performance in South Africa, Canada and the Middle East. On Slide 6, we chart the longer view of organic revenue change in a trailing 12-month basis. The most recent data point is 7%, which reflects our growth for all of 2010. On Slide 7, we took a closer look at operating expenses. Q4 operating margin was 16.4% compared with 14.9% a year ago, an improvement of 150 basis points. Salaries and related expenses decreased to 56.6% of revenue from 58.4% in Q4 '09, an improvement of 180 basis points. The total SRS was $1.14 billion compared with $1.05 billion, an increase of 8.2%. Underneath that result, there were a number of moving pieces that reflect improved operating leverage as well as increased investment in certain areas of our business. Base pay, benefits and tax was 42.8% of revenue compared with 45% a year ago, an improvement of 220 basis points. For the full year, our base pay ratio improved 340 basis points. We continue to invest finding [ph] (28

[Michael Roth:]

Thank you, Frank. Our performance in Q4 and for the full year demonstrated the strength of our agencies, their people and their professional offerings, particularly in growth areas like digital, marketing services and the emerging economies. We saw vitality across the full cross-section of client sectors. We also continued to demonstrate our ability to manage the business effectively and convert revenue gains into significantly increased levels of profitability. Competitive organic revenue is the best indicator that we are building a terrific talent base, and that our strategic decisions our paying off. Key developments in this area during the latter part of 2010 included successful completion of the management transition at McCann. The team there now includes new leadership in the creative area, digital, healthcare communications, strategic planning and finance. During the fourth quarter and full year 2010, Mediabrands continued to deliver an outstanding performance. We've successfully recruited terrific talent to join IPG media agencies, and we're seeing more new business wins and continuing industry recognition. Our decision in January of this year to name Matt Seiler, Mediabrands CEO, and Jacki Kelley as his successor at UM, along with the strong leadership provided by Richard Beaven at Initiative and Matt Freeman at Mediabrands Ventures, will contribute to further positive momentum at this dynamic unit. Draftfcb continues as a major contributor to our success. The agency once again grew its revenue and delivered strong profitability. Their integrated model, which increasingly features digital and sharper marketing capabilities, is getting very positive reviews from clients, and the global buyers [indiscernible] (36

[Operator:]

[Operator Instructions] Our first question today is from Alexia Quadrani with JPMC.

[Alexia Quadrani:]

Thanks for the color on the outlook for 2011. I was hoping you'd drill down on it a little bit further. Would you say that the momentum in the advertising market has generally continued into the first quarter, and your sort of range of 4% to 5% is much more reflective of not any kind of change in attitude but just a more difficult comparison?

[Michael Roth:]

Yes, absolutely. We have not seen -- obviously, the next question is, what have we seen January? Or actually, what have we seen in the last week? We continue to see strong performance and there's no reason for us to expect a pullback. And you're absolutely right, as I indicated, the comps that we start comparing to get a little more difficult. So at this point in time, we see no reason to pull back in terms of our expectation of a positive performance in 2011.

[Alexia Quadrani:]

And when you look at your margin goals for 2011 and beyond, can you give us a bit more detail in terms of what are the levers behind sort of getting to the next level from where you are right now?

[Michael Roth:]

Yes, I mean, I think we've shown, just look at our 2010 results, our ability to convert incremental revenue. And we always say we use about a 30% conversion. For 2010, we actually achieved 40% conversion, if you pull out the additional severance that we had. So I think what you'll see is us continuing focusing on the efficiencies and our staff-to-cost ratios as we increase revenue. I think you can't get there without revenue increase. I know we've always stated that, and I think as you see our revenue throughout the year increase, we will manage our business to achieve the goals we set forth.

[Alexia Quadrani:]

And last question, just if you could give us an update on the new business outlook right now. I know you have a couple of accounts in review, but if you can also try -- if you want to comment on them, but if not, if you can also talk about the pipeline and what you're seeing about potential new wins?

[Michael Roth:]

Actually the pipeline is pretty solid. We've had a couple of announcements that will be coming out in the future. We can’t obviously, put them out there right now. So we're feeling good about our pipeline and our competitive offerings. The three reviews that are out there, let me go one by one. First, we have the Army, which is a mandatory review, as you know. There are four finalists, we have two of them, McCann is defending and Draftfcb is the other finalist. We're feeling real good in terms of the outcome there, and so we're anxious to see the results there. But I think we're in good position to, if not retain that business, to keep it within the IPG fold. The Microsoft review, it's currently going on right now. We're feeling very positive about that. We entered into that review with the client indicating how satisfied they are with our performance and we continue to show and build upon that. So we're working that through right now. And SCJ, we have a very strong relationship with SCJ, and we're working very hard to make sure that we continue that into the future.

[Operator:]

Our next question is from John Janedis with UBS.

[John Janedis:]

Frank, given the situation in the Middle East, can you tell us what your people are seeing at MCN? And is your sense of any slowdown will be confined to those markets and not spread into Europe?

[Michael Roth:]

I think right now, the feeling, as the MCN leadership, is just one of concern in the certain markets that are going through the traumatic turmoil that we're watching on television every day. The markets that are mostly impact are relatively small for us but they're important. So we're keeping an eye on it and they're keeping us updated. But with the volatility in that part of the world, it's going to have an adverse impact on the business.

[John Janedis:]

So is it like a 1% or 2% of overall revenue?

[Michael Roth:]

It's about 2% for the entire region, and the specific markets that are most volatile right now are de minimis to that.

[John Janedis:]

And just you've historically had a lot of volatility in the U.K. And I think you guys mentioned some projects stuff, but with GDP slowing in the fourth quarter there, did your agencies get any sense that clients are going to be a little bit more cautious here, heading into this year?

[Michael Roth:]

In the U.K., we've seen some positive results. A lot of that is driven by events. We had some very strong events going on in the U.K. We think the U.K. is a good place to be. It's just not going to have the rapid growth that we see elsewhere, but it's certainly a key strategy for us to move forward. We haven't built into our plans any huge growth in those areas either. So we're going to see slow, gradual recovery there, and we're going to manage our business. The other thing we've done, as you saw in 2010 and 2009, is we right sized our business in those markets. At McCann, we've made some changes in leadership. Bringing Gustavo on board is an important addition for us. So we're going to continue to be strong in those markets, but we're not counting on the kind of recovery in that market as we are elsewhere.

[John Janedis:]

Just speaking of that. On the severance side, was it disproportionate in Europe relatively speaking to historical levels? Or was it pretty balanced between the two, meaning U.S. and Europe?

[Michael Roth:]

It was pretty much there and U.S. Those are the two key parts of the severance. And again, it's in those markets and disciplines that aren't showing the growth. Remember, we're investing strongly behind digital and media, and some of the other areas we're rightsizing.

[Frank Mergenthaler:]

And John, we've been aggressive in Europe on the severance front for three years.

[Operator:]

Our next question is from Matthew Chesler with Deutsche Bank.

[Matthew Chesler:]

The first question is, if you revisit the 2011 margin outlook, which we appreciate that you're providing to us this morning, besides revenue, can you talk about some of the variables that might sort of lead you to sort of comment in the bottom or the top end of that range? Because if I just, basically, if I do a quick de-composition of those portions of your outlook, while not trying to get too specific, it does look like there's greater variability on the margin that would imply a 30% incremental margin to your revenue guidance or initial revenue thoughts?

[Michael Roth:]

Well, look, we're in February, okay? And we are just completing our business plans for 2011. We have a very robust process where we go bottoms up for our networks. We meet with them, we go over the strategic requirements. Their staffing needs and their growth opportunities. And obviously, this is not an exact science. And frankly, it's early in the year. And as we go through the year and certainly, at our Investor Day, we're going to put a little color in terms of how we're going to achieve our targets. But I think we don't give guidance the way I know you would like us to do. This is directional, and this is how we're going to be managing our business, and how we think it's a safe and conservative approach to managing our business. And I think as you've seen, we've proven our ability to manage our business through all types of environments. So as the economy, if it gets stronger, then we'll be able to respond. And as the economy gets -- if for some reason it pulls back, we have levers that we can pull to make sure that we achieve our target. Our businesses are managed to achieving margin and revenue, and it's up for our business units to focus on specifically achieving that. So if we're falling short on the revenue side, then there's actions that we have to take on the expense side. So we're all marching towards the same objectives.

[Matthew Chesler:]

Frank, at this point, after you've gone to the market with your capped call on the converts, how are you feeling about any further opportunities to address the share count?

[Frank Mergenthaler:]

Matt, we're constantly looking at it. I think that the buy-back program that we announced today is a big step for us. We've got some converts that are out there, and we've got the capital in place. So we're constantly looking at dilution and multiple factors will contribute if we decide to do more. But from where we are today, we're pretty set on the actions we've announced.

[Michael Roth:]

Yes, and I think all these actions, when we undertake decisions like this, we're looking at the long-term financial position of the company, not the short term. And as that improves, then we look at what other opportunities we have out there, whether it is buying in some of our debt, if possible, reposition the share buyback. I mean, that's all those things -- frankly, this is a great conversation for us to have. I know many of you have been waiting for us to be in this position, and we've always said, we like to keep a conservative balance sheet. And the answer is, we do. We like to keep a conservative balance sheet. But at this point in time, we think this is the appropriate move at these levels, and as we see our performance towards achieving our goals get closer, then we'll take a harder look at that.

[Frank Mergenthaler:]

And Matt, as Michael pointed out in his comments, we're still going to be looking at opportunities to invest behind growth in our business. So we've got to balance that in the discussion.

[Operator:]

Our next question is from Ben Swinburne with Morgan Stanley.

[Benjamin Swinburne:]

I wanted to ask about the NOLs and the tax rate in the quarter. Frank, you guys came in lower than we were expecting this quarter, and I know there's sort of a relative mix of international versus domestic that matters there, but just a broader question about the tax trends from here, as you guys feel very good about what's happening across all your agencies, but particularly international seems to be picking up?

[Frank Mergenthaler:]

On the NOL front, Ben, there's about $1.7 billion of NOLs remaining. During the year, we utilized about $190 million, which had a cash tax savings of about $65 million or $70 million. So we are seeing cash generation and as we return to profitability and leveraging those NOLs to give us some cash cover. With respect to our rate for the year, we had some positive impact on our effective rate based upon where we saw earnings, both in the U.S. and outside the U.S. We think, going forward, for modeling purposes, a 40% effective rate is a reasonable rate. We did a little better than that this year. And as it relates to cash taxes, we were about 18% or 19% this year, which is a very, very good result. And I think that the tax team did a terrific job. We think, again going forward, that number should be 20% or 21%.

[Michael Roth:]

We think there's still a real opportunity out there in terms of leveraging the tax NOLs, and those are real assets. And obviously, by using some of them in terms to avoid cash tax [ph] (52

[Benjamin Swinburne:]

And just looking at the Slide 26 where you guys give the verticals, I mean auto and transport really jump out as huge drivers, but I just wanted to get a sense -- I don't know if this makes sense to look at it this way, this has been a very cyclical area of ad spend, stating the obvious, but if you go back, how far away are we, or are we already there if you look at your auto business versus where it was back in '06, '07 before that business really started to fall apart, the auto business in particular? I mean, I know you had a huge growth rate in '10 but that's probably coming off a pretty low base.

[Michael Roth:]

Yes, actually, it's a fair point. It came off a very low base. But actually, look at it on another way, too. In prior years, we were pretty much generating Auto business from General Motors. I mean we were a GM -- and the whole industry has changed dramatically. And as you know, we picked up some additional Auto in terms of Volkswagen, Chrysler Media, we do Subaru. So the mix of our Auto business has become a little more fragmented than it used to be. So whatever was driving on the General Motors side, we're picking up some new business in the other areas, which is frankly consistent with the whole industry right now. And clearly, as you said, 2010 was a strong year in terms of the auto sector coming back and spending large amounts of money, and in particular, the recovery at General Motors is remarkable, with their IPO. So we benefited from that, as did our whole sector. So I think we're getting back to a more normalized level on the Auto sector, and we were just coming off a horrific period in 2009.

[Benjamin Swinburne:]

And last question, Frank, just on the buyback, I know the timing of that buyback will depend on the fundamentals of the business, but just from a conceptual perspective, whatever your free cash flow is in '11 and you have some acquisition [indiscernible] (55

[Frank Mergenthaler:]

We'll look at the entire cash need, Ben, in the portfolio, whether it be on acquisition front, or whether it be investment in CapEx. But we put a plan in place, we tend to execute that plan in a reasonable timeframe.

[Operator:]

Our next question is from James Dix with Wedbush.

[James Dix:]

Just three things, I guess if you could do any kind of 30,000-foot compare and contrast to two years ago, or maybe a little over two years ago, which is probably the last time you guys with 15% [ph] (56

[Michael Roth:]

Okay. In terms of the changes from where we were prior to the recession, our industry has changed dramatically. I mean, if you look at our -- just look at the actions we've taken from a strategic point of view from that period. We put Lowe and Deutsch together, we put Draftfcb together. Our media offerings have changed dramatically, and the great success of our Mediabrands is an indication that the marketplace has changed dramatically. So the offerings in the digital space, in the emerging markets, in the emerging media have taken front and center in terms of the recovery. And what's really interesting to see is that during this period when the economy was in the tank, we continued to invest behind these things. So that when, and if the recovery came, we were well positioned to do that. So we took some very hard severance actions during this period, but we've also reinvested in our businesses. So I think the difference between where we were and where we are now is in the business mix. And the type of offerings that we have now are much more sophisticated, they're much more accountability-driven. Digital, the emerging markets, double-digit growth in China, Brazil and India is an indication of the future. But let’s not forget, we have very strong waiting in the U.S. and North America, which has performed very well. So that's clearly an important engine that is helping us get back to those margins. But I think our business mix in terms of our offerings is much broader, it's much deeper, and the relationships in this market with our clients is a little more complicated. But complications and disruption is good for our business, because we have to be able to help our clients navigate that. So I think it's a robust environment, but we're much more in the fold in terms of the competitive set that we're dealing with. It's no longer that you can count on a relationship lasting 100 years. We have to earn our business every day, and we've invested in people and tools to make sure that, that happens. So I think that the nature of our business has changed dramatically, and the fact that we are able to start showing the improvement in the margin and revenue as we come out of the recession is an indication of our competitive positioning. So I feel good about that.

[Frank Mergenthaler:]

The Other two questions, James, severance, 1% is probably a reasonable number. And on the incentive asked, 3.5% to 4% of revenue is probably reasonable, and on the capital return and the rating agency discussion, we've being talking to rating agencies throughout this process, so that they were well aware of what we were doing and supportive of it. The dialogue with all three agencies has been good. We've been upgraded by one agency and the other two have us on positive outlook. So we'll continue to be transparent and work with them. And our expectations are, we will be investment grade in the not-too-distant future with the other two agencies.

[Operator:]

Our next question is from William Bird with Lazard.

[William Bird:]

I was wondering if you could tell us what you expect free cash flow to do in 2011? And also, if you could just talk about what you're seeing on pricing?

[Michael Roth:]

I'll talk about pricing. I'll let Frank talk about free cash flow. Obviously, we're coming off a pretty strong year on free cash flow. So we don't see anything stopping that. But I'll let Frank comment it on. Pricing is competitive. And our challenge is to make sure that we're moving the needle. There's no question that in 2009, the procurement involvement in pricing was significant. It still is. But I think right now, our clients are in a very competitive set as well and they have to be able to move the needle. We just have to show that we're effective in terms of the offerings that we're making. And pricing, although it's competitive, given the efficiencies on how we operate our businesses, we're comfortable with our ability to deliver margins. But it's competitive. And what's good is that we're in all the pictures that are out there. We're winning our share, if not more. And in the end, winning and investing in some clients for a long-term relationship and continuing to performance is critical, and that's how we'll maintain our margins.

[Frank Mergenthaler:]

Going to free cash flow, we expect it to be strong, and it was one of the factors we considered when we were determining that moving forward on the dividend and the share buyback. We're not ready to put a number on it now, but we feel pretty good about.

[William Bird:]

But I guess just to be a little more specific, do you expect it to grow?

[Frank Mergenthaler:]

Yes.

[Michael Roth:]

Look, in a solid environment where we are growing, you would expect it to grow, and that's part of our plan.

[William Bird:]

And also, I was wondering on incremental margin, you've done a great job kind of converting incremental revenue. If we think about a range of incremental margins for '11, how best to think about it?

[Michael Roth:]

Well, I think we said 30% to 40% was where we were looking to convert revenue at, and we've shown we can do it, and that's what we're trying to do.

[Operator:]

Our next question is from David Bank with RBC Capital Markets.

[David Bank:]

Two questions, I guess the first one is if you look at the turmoil in the Middle East and you look at the big picture aside from the volatility involved in the region specifically but rather, its impact on oil. Is there a point at which -- do you guys have a view of kind of a level of really the price of oil at which you start to see kind of disruption to the macro advertising market and how much room do we have from here? And I guess the second question is, and I suspect they'll be giving us a little bit more color and thoughts on this at the Investor Day, but when you characterize the target for margins as competitive, and no good deed goes unpunished, but because you're making such great progress, I think people start to ask themselves well kind of competitive with who, right? There is some variability in the space. And like, I guess, could you be a little bit more specific, because there really is some variability. Do you mean competitive with like your closest domestic competitor or globally? And the second part of that question is do you see any headwind ultimately because of scale? Do you feel like you are scaled enough such that with any of your given competitors, you really should be able to kind of be on par over time in terms of margins?

[Michael Roth:]

Okay first of all, we don't see any issue on scale. I think, as I said, we're competitive on all the major pictures, we win our fair share. We have strong presence in all the markets, certainly in the emerging markets. We've always said that China, although we're not as large as some of our competitors, if you pull out the media side, we have a very strong offering in China, and we've always indicated our intention to invest in China and grow. And frankly, as we speak right now, we're out there looking, and we will be investing strongly behind China because we think that's opportunity. But we already have a good presence there, and we expect to grow it. So scale is not an issue in any of our offerings, whether it be digital, media, PR, certainly, not, and in the integrated offering, which is where the competitive situations are falling right now. As far as the question of the macroeconomics, we don't have a specific target on oil. I think if you broaden your question to the issue of, as the price of oil gets high, the cost of commodities, if you will, for our client base, becomes to be a pressure, and therefore, if I might -- I assume your question will lead to, will that impact the advertising spend? And I think the answer to that is we've seen that already happen in 2010. We see the pressure on our clients, particularly in the consumer goods, packaged goods marketplace, where the cost of raw material has gone up. And yet our clients continue to have to invest in their brands on the marketing services. So I think we have a ways to go before this is going to directly impact their need to spend behind on the marketing dollars. So I don't have a specific -- lower is better. But global economics is not something that I want to comment on right now other than, we've seen some ugly stuff out there, and our clients have realized that the best thing to do in a difficult environment is invest in their brands, and we see that continuing. There was a third question.

[Frank Mergenthaler:]

David, your third question. We've been pretty consistent when we make reference to competitive margins, we're talking to about U.S. competitor.

[Michael Roth:]

And by the way, the range on that competitive margins we said is around 13%. So, we'll put a stake in the ground and say that's what we're driving to. If the overall economic environment changes and our competitor set change, we obviously will want to stay competitive.

[Operator:]

Our next question today is from Craig Huber with Access 342.

[Craig Huber -:]

You guys are roughly about 100 countries around the world. If currency stayed flat, can you help us, what are you budgeting for currency impact on your revenues for the first quarter and for the full year?

[Frank Mergenthaler:]

About 1% for the full year. We didn’t give you an answer for the first quarter, Craig.

[Craig Huber -:]

Do you have it though or no? Could you give it?

[Frank Mergenthaler:]

For the year, as Michael said, 1%.

[Craig Huber -:]

You don't have anything for the first quarter?

[Frank Mergenthaler:]

No, we do not.

[Craig Huber -:]

And then also on your cash balance, Frank, you and I have talked about this many times, the $1.9 billion to roughly $2.7 billion of cash at the end of the last fourth quarters last year, any point last year, what was the low point in your cash balance in your balance sheet?

[Frank Mergenthaler:]

I don't have that, Craig, with us. I think that way back, when we were addressing this issue and we talked about intra-quarter swings, we said intra-quarter swings were roughly $200 million $300 million. I think that trend, if you model that to the elevated cash balance we are, you could probably come up with a reasonable level. But we haven't gone back to look at that in any great detail.

[Craig Huber -:]

Your 4% to 5% organic revenue growth assumption for this new year, I assume you're thinking the Continental Europe piece that would be what, low-single digits? Your Continental Europe organic revenue growth?

[Michael Roth:]

I think we've already said, we don't see a big recovery in Continental Europe. So in the low-single digits would be consistent with that.

[Frank Mergenthaler:]

I mean, continental Europe was down a little bit this year and so it's probably flat to slightly up, Craig.

[Craig Huber -:]

Lastly, if you could just -- what were the major wins and losses that you had here in the fourth quarter?

[Michael Roth:]

We didn't have any major losses in the fourth quarter. We've already indicated we have a couple of reviews out there. Frankly, there weren't a lot of major wins in the fourth quarter. Certainly, none that we've announced. [indiscernible] (01

[Operator:]

Our next question is from Daniel Salmon with BMO Capital Markets.

[Daniel Salmon:]

Maybe a little bit more color on acquisitions? Maybe where -- you mentioned that the brick countries are a focus but maybe some insight on what disciplines you're looking to add and if you maybe have a, maybe a rough dollar amount in mind that you'd like to be spending?

[Michael Roth:]

Yes, we model out about $150 million in acquisitions and we usually come in within that range. We have a couple of transactions in the pipeline already. Mostly in the digital space. Obviously, that's a hard -- a strong growth area for us. And all of our networks, as well as the group here are looking at digital transactions. And we expect to be announcing a few, no major transactions, but a few of them in the upcoming weeks, if you will. Brazil continues to be a strong market for us. We keep looking for opportunities there. Obviously, I just mentioned China. We'd like to find some transactions in China, but we're not going to chase transactions in a market like that. We want to make sure that the people and the offerings are consistent with our strategic direction. And obviously, we've shown a growth, if you will, in Brazil. We've shown a growth in the U.K., actually, with the addition of Delaney, London, we're actually looking at the digital opportunities there, as well.

[Operator:]

And we are approaching 9

[Michael Roth:]

Great. Well, as you can see, we're quite pleased with the results for 2010 and the fourth quarter. I think we're going into 2011 with a lot of momentum behind us. And we look forward to talking to you and with our first quarter results and we appreciate all your support. Thank you very much.

[Operator:]

Thank you. This does conclude today's conference. Thank you for participating. You may disconnect at this time.