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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen, and welcome to the Omnicom Fourth Quarter 2017 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.
At this time, I'd like to introduce you to your host for today's conference, Vice President of Investor Relations, Shub Mukherjee. Please go ahead.
Good morning. Thank you for taking the time to listen to our fourth quarter 2017 earnings call. On the call with me today is John Wren, President and Chief Executive Officer, and Phil Angelastro, Chief Financial Officer.
We hope everyone has had a chance to review our earnings release we have posted on our Web site, www.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 Web site.
Before we start, I've been asked to remind everyone to read the forward-looking statements and other information that we have included at the end of our investor presentation, and to point out that certain of the statements made today may constitute forward-looking statements, and that these statements are our present expectation and that actual events or results may differ materially.
I'd also like to remind you that during the course of the call, we'll discuss some non-GAAP measures in talking about Omnicom's performance. You will 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 provide our financial results for the quarter, and then we will open-up the line for your questions.
Thank you, Shub. Good morning. I’m pleased to speak to you this morning about our fourth quarter and full-year 2017 results. 2017 was an eventful year for the marketing and advertising industry. Many of the world's largest marketers and best known brands continue to undergo major changes driven by advances in technology, new disruptive competitors and changing consumer behavior. The breath and rate of change has CEOs and CMOs focused on the ability of their marketing organizations to keep pace and that is presenting opportunities and challenges for our agencies.
During my remarks, I will discuss how we are continuing to develop and execute on our strategies, including changes in our organizational structure, an additional service capabilities to provide our clients with communication solutions that address their overall business challenges.
Before I do that, I will review our fourth quarter and 2017 results. I do want to point out that while the 2017 Tax Act resulted in a charge in the fourth quarter, Phil will cover this in his remarks. Moving forward, into 2018, lower U.S tax rates will have a direct positive impact on Omnicom and many of our clients. I’m pleased to report we achieved our internal organic growth and margin targets for the full-year of 2017.
Organic growth for the year was 3% at the low-end of our target. For the fourth quarter, organic growth was below our expectations at 1.6%. As I mentioned on our third quarter call, there's quite a bit of project work that occurs in the fourth quarter that impacts revenue. Client spending on these projects is typically concentrated in the U.S and is based on the individual client circumstances and general economic conditions.
In the fourth quarter 2017, our agencies only saw a partial benefit from this year-end project spend, which has historically been in the range of $200 million to $250 million. Looking towards 2018, the effects of the 2017 Tax Act and the stimulus from the recent budget deal should have a positive impact on consumer spending in the United States. We're optimistic we will see some of those benefits in the second half of 2018. Outside the U.S., the global economy appears to be in the best shape since the great recession.
Our fourth quarter organic growth of 1.6% varied across geographies and disciplines. North America organic revenue was down slightly less than 1%. Advertising and media was up 1.2% for the quarter, weighted down by lackluster performance in North America. In the U.S., several of our ad agencies and in particular our independent brands experienced client losses earlier in 2017 that are still cycling through and will continue to do so in the first part of 2018.
In 2017, we continue to move of our programmatic businesses upstream, so it is better aligned with our clients media strategies. As a result, Accuen is now an integrated offering within Omnicom's media agencies OMD, PHD and Hearts & Science. This realignment has changed the way we do business with many clients adopting a traditional approach, which has had a negative impact on our revenue growth in the U.S. The shift has not any significant impact on profitability from these activities and we expect this trend to continue into 2018.
To better capture the expanded scope of our services, we've broken our CRM into two categories, consumer experience and execution and support. Each CRM category grew 3.4% in the quarter. CRM consumer experience includes direct marketing, events, entertainment and sports, consulting and branding, and shopper marketing.
Events, entertainment and sports performed well in the quarter. Our branding business in the U.S., which had been a drag on growth earlier in 2017 began to stabilize. CRM execution and support includes our field marketing, merchandising and point-of-sale, not-for-profit research, sales support and custom communication services.
Our PR business was slightly positive in the quarter weighted down by results in the U.S where we have recently taken steps to turn around the performance of our operations. Also in the fourth quarter of 2016, we benefited from the U.S election-year spend that did not reoccur in 2017. For 2018, we expect political spending will increase for the midterm elections.
Our healthcare business, which is largely based in North America, was down 1.9% in the fourth quarter. Looking at our markets outside North America, a very solid fourth-quarter growth of 4.9%. The U.K was down 0.007% in the quarter. Our PR business in the U.K performed very strongly and media also had solid results, offsetting this performance were declines in brand advertising and field marketing.
Our Euro and non-Euro region was very strong at 8.2%. Germany and France were in the low single digits and the Netherlands, Spain, and Russia had double-digit growth. In the Asia-Pacific, fourth quarter organic growth was 6%. Australia and Singapore were in solid double digits, while Japan was slightly negative for the quarter. Latin America was down 0.003% in the quarter. Positive results in Mexico and Colombia were more than offset by continuing negative performance in Brazil.
EBITDA margin for the quarter was up 60 basis points over the last year to 15.5%. For the year, our margins increased 40 basis points to 14.2%. Before the impact of the 2017 Tax Act, net income for the quarter was $360 million and EPS increased 5.4% to $1.55 per share compared to the same period in 2016.
For the full-year 2017, we generated over $1.6 billion in free cash flow and returned almost $1.1 billion in cash to shareholders through dividends and share repurchases. In October, we increased our quarterly dividend by 9% to $0.60 per share.
Looking forward including benefit of lower U.S taxes, we expect our 2018 effective tax rate to decline by 350 to 450 basis points. Phil will provide more color on the impact of the U.S tax law changes on our 2018 effective tax rate during his remarks. Finally, our practice for the use of free cash flow remains unchanged. Dividends, acquisitions, and share repurchases, as does our commitment to a strong balance sheet and maintaining our investment-grade rating.
These result serve as a testament to the consistency and diversity of our operation, our strong competitive position across advertising and marketing disciplines and geographic markets, and our ability to adapt our services and expand our capabilities to serve changing client needs in areas such as digital media, data and analytics.
Let me now turn to our client wins, strategic initiatives, and operational achievements for 2017, as well as our plans for 2018. While the first nine months of 2017 saw less new business activity than the same period in 2016. The fourth quarter was a very busy end to the year. We continue to grow our business with our major long-term clients as well as with new business.
Let me just mention a few of our wins across the globe. HP's personal systems group chose to consolidate its global creative media and analytics with Omnicom. Consistent with HP's platform we formed an integrated agency that houses talent from nine Omnicom agencies located in San Francisco with data and analytics as its core it is a client tailored approach that matches HP's position as a premium brand that is constantly innovating for its customers.
In addition through We Are Unlimited, Omnicom's agencies continued to expand our relationship with McDonald's. In the U.S., Zimmerman became a certified local dealer agency and hit the ground running by being selected by several co-ops and RAPP has been appointed as the lead CRM agency in the U.S. The combination of TBWA and Hearts & Science captured QuickBooks assignment from Intuit in November.
In December, State Farm consolidated most of their business with Omnicom. This includes the existing advertising, media, promotional and experiential businesses along with new assignments for direct marketing, multicultural and music. The consolidated leadership of this business will be based at DDB Chicago. Also in December, Omnicom's Health Group was chosen as the partner for a major pharmaceutical company with an extensive oncology portfolio.
I want to emphasize that most of these wins are direct result of the organizational changes and strategic investments we’ve made over the past couple of years at Omnicom. As you know we’ve simplified our service offerings through our matrix organizational approach with our global client leader group and the establishment of practice areas. We've also made and expect to continue to make further investments in people and in our digital data and analytical capabilities.
Simply put, our clients understand the advantages of an agency model that puts the consumer at the center and is agile across disciplines. Based on the success under the leadership of Peter Sherman, we continue to expand the number of clients in the global client leaders group with a focus on our top hundred clients. In line with this expansion, we've recently hired a Chief Talent Officer, Torrey La Grange, who will support and build on the talent within the global leaders group.
We also continue to establish practice areas. They’re now in place for CRM experiential, healthcare, national brand advertising and PR. Planning is underway for a few more areas and that process should be completed by midyear. Our practice area and key client matrix structure is creating benefits through better sharing of expertise and knowledge, creating more career opportunities for our people, strengthening our new business development efforts, and leveraging our internal investments and identifying acquisition opportunities.
As an example of sharing of expertise and knowledge, Omnicom Health Group in partnership with Hearts & Science has created a data driven media offering that integrates market access data to help clients better invest their media dollars by reaching patients with more relevant messages. We started Omnicom Precision Marketing group for exactly what its name implies, to help clients get the right message to the right person at the right time on the right platform and in the right context.
Building on that goal, we recently combined best practices and tools across all of our data, intelligent and activation disciplines. The demands of clients, consumers and new technologies are pushing agencies to work faster and the way we organize ourselves is helping us to be more agile and responsive so that we can adjust quickly as our clients' needs change.
As always, we continue to make selective investments, partnerships and acquisitions that expand our capabilities and geographic presence. On the acquisition front, Omnicom Health Group recently acquired Snow Companies, based in Virginia, the agency specializes in direct to patient communications and research for major pharmaceutical and biotech companies around the world.
Turning to our operational initiatives. We remain focused on delivering efficiencies across the group. We are constantly challenging our people to find ways to manage their costs agency by agency. On a regional and global basis, we're making good progress on our real estate, information technology, back office, accounting services and procurement initiatives. These initiatives which are complex and take multiple years to execute will continue in 2018.
Our strategic goals for 2018 remain consistent. We will continue to hire and develop the best talents in the industry. We will be relentless in pursuing organic growth in servicing and expanding our offering to our existing clients and winning new business.
We will continue to pursue high-growth areas in opportunities through internal investments and acquisitions, and we will remain vigilant on driving efficiencies throughout our organization, increasing EBITDA and shareholder value. On the talent front, our commitment to hiring and developing the best people is unwavering. At Omnicom and our agencies, we strive to make our organization a place where people can build their careers.
We also place considerable effort on succession planning, advancement and diversity. A good example is the recent appointment of Wendy Clark as the new CEO of DDB Worldwide. Wendy joined DDB in 2016 and is passionate about our business and clients. Under her leadership the agency has grown by expanding existing relationships with State Farm, Mars, and McDonald's, and by winning new business. Chuck Brymer will remain with DDB as Chairman and will be assuming additional responsibilities when we announce the expansion of our practice areas later in the year.
On January 1, Barri Rafferty became CEO of Ketchum, making her the first woman CEO to lead a top five global PR agency. Throughout her tenure at Ketchum, Barri has areas held a number of strategic roles across the business. Most recently she was global President and CEO of North America.
As I stated before, our commitment to a diverse and inclusive workforce starts at the top. 2018 will see the completion of our Board refreshment program and we expect that following our May shareholders meeting, our Board will have a 11 members, including six women and four African-Americans.
Omniwomen continues to grow organically around the globe, leading up to International Women's Day on March 7. We plan to launch at least three new chapters in San Francisco, Chicago, and New York. OPEN Pride, our employee resource group dedicated to Omnicom's LGBTQ community launched global chapters in Hong Kong, London, Manila, New York City, Mumbai, and Shanghai. It is the depth and diversity of our talent that allows us to continue to win more than our fair share of industry awards.
There a few of the highlights from the fourth quarter. BBDO topped the Gunn Report as the most creative network for the 12th year in a row. Omnicom ranked the number one holding company. For the fourth consecutive year, Campaign Magazine named Adam & Eve DDB as agency of the year. At the festival of media in North America awards, Omnicom Media Group was media group of the year, PHD was named Agency Network of the Year, Touche! PHD Canada was awarded Agency of the Year.
At the Campaign Asia-Pacific agency of the year awards, TBWA and BBDO won creative and digital agency of the year in Hong Kong, Korea, Philippines, New Zealand, Singapore, Thailand, and China. I want to recognize and thank the people at our agencies for their world-class integrated campaigns, outstanding new business wins, and the great work that enabled us to deliver these results. In closing, we're pleased that our financial performance continues to reflect the excellence of our people and agencies.
I will now turn the call over to Phil for a closer look at fourth quarter and the full-year results.
Thank you, John, and good morning. As John said, 2017 proved to be challenging for our industry. Organic growth was 1.6% for the fourth quarter, below our expectations. While for the full-year, organic growth was 3% at the bottom of our range of expectations for the year.
As for FX, due to the weakening of the U.S dollar during the second half of the year, the impact of changes in currency rates increased our fourth quarter reported revenue by $102 million or 2.4%. We also continue to see the impact of the dispositions over the past year of several of our businesses that did not fit our long-term strategies.
These included the disposition in the second quarter of 2017 of Novus, our specialty print media business as well as some other agencies within our field marketing and events disciplines. These dispositions net of our recent acquisitions reduced our fourth quarter revenue by $235 million or 5.5%. I will go into further detail regarding our revenue growth later in my remarks.
Turning to the income statement items below revenue, operating income or EBIT for the quarter increased 3.0% to $620 million. With operating margin improving to 14.8% or 60 basis point improvement versus Q4 of last year. Our Q4 EBITDA increased 2.5% to $647 million and the resulting EBITDA margin of 15.5% also represented a 60 basis point increase over Q4 of last year.
The improvement in both our operating income and in our margins continues to primarily be driven on our ongoing companywide internal initiatives to increase efficiencies, particularly in our back office operations. Net interest expense for the quarter was $43.6 million, down $2.8 million versus the third quarter of 2017 and up $3.4 million versus Q4 of 2016.
Gross interest expense in the fourth quarter was down approximately $3.6 million compared to the third quarter, driven by a reduction in our commercial paper activity during the fourth quarter, partially offset by slight decrease in the benefit from our fixed to floating interest rate swaps. The short-term interest rates continue to rise. We'll continue to see a decrease in the benefit to interest expense from these swaps.
Interest income was also down slightly in the fourth quarter when compared to Q3. Compared to Q4 of last year, increasing gross interest expense of $3.1 million is primarily due to the increase in the interest rates on our commercial paper facility, as well as the reduced benefit from our interest rate swaps due to the increase in short-term interest rates versus a year-ago.
Turning to tax expense, in the fourth quarter we're required to record the impact of the enactment of the Tax Cut and Jobs Act of 2017 add on our prior period tax position. The impact of the new low require the recognition of a one-time transition tax or total charge on our cumulative foreign earnings that were not previously subject to U.S taxes. This was partially offset by a net benefit from the adjustment of our existing deferred and another tax balances to reflect the new lower federal statutory tax rate of 21%.
As a result, we recorded a net increase to income tax expense of $106.3 million during the fourth quarter of 2017. The impact of the Tax Act will require ongoing analysis, and we expect this estimate to change as further information becomes available during 2018. Including the additional income tax expense recorded, our effective tax rate for Q4 was 50.2%.Excluding the additional expense, the effective tax rate was approximately 32%, which was a bit lower than the priors rate of 32.5%.
On Slide 3, we provide a detail on how the Tax Act impacted our income tax expense, net income, and diluted earnings per share for the fourth quarter of 2017. For the full-year, our effective tax rate increased to 36.9% compared to 32.6% for 2016. The year-over-year increase in the rate attributable to the Tax Act was partially offset by the recognition of an additional tax benefit from share-based compensation of $20.8 million.
The majority of which was recorded in Q1 resulting from the adoption of ASU 2016-09. This benefit arises from the difference between the book tax expense and the cash tax deduction recorded on our tax return from share-based compensation, which at the beginning of 2017 was required to be recognized in income tax expense. In 2016 and prior, that difference was recorded directly to equity and not the P&L. The standard required prospective recognition and does not allow restatement of prior periods.
Without the effect of the Tax Act and the change in accounting for share-based compensation, our full-year expected tax rate for 2017 would have been 32.4%. As for our projection of our tax rate going forward, we’re still in the process of evaluating the impact of the Tax Act on our annual effective tax rate for 2018. However, based on current estimates, we expect the pro forma impact of the Tax Act to reduce our effective tax rate by about 3.5% to 4.5%.
Using our 2017 pre-tax income amount of approximately $1.9 billion, this would result in a pro forma reduction of income tax expense of approximately $75 million. The net cash impact of the total charge will be paid over an eight year period beginning in 2018, with the payment of approximately $9 million to be made this year.
At this point, we can't predict the 2018 tax benefit from the share-based compensation accounting change, because it is a subject of the changes and the value of Omnicom stock price and the impact of any future stock option exercises. However, because we expect to have less restricted stock vesting in 2018 versus 2017, at this point we expect the benefit will be lower in Q1 2018 and for the rest of the year.
Earnings from our affiliates totaled $800,000 for the quarter, down a bit from last year. And the allocation of earnings to the minority shareholders in our less than fully owned subsidiaries increased $3.3 million to $33.4 million. The year-over-year increase in minority interest expense was primarily the result of operational improvements in our less than wholly-owned subsidiaries over the past year.
As a result, net income for the fourth quarter including the incremental tax charge we incurred in connection with the 2017 Tax Act was $254 million. Excluding [ph] the impact of the tax charge net income for Q4 was $360.7 million, an increase of $10.4 million or 3% versus Q4 of last year.
Now turning to Slide 2. Net income available for common shareholders for the quarter was $254 million, which includes the impact of the $106 million tax charge. Excluding the impact of the 2017 Tax Act, the net income available to common shareholders increased $11.6 million or 3.3% when compared to last year.
You can also see that our diluted share count for the quarter decreased 2.3% versus Q4 of last year, $232.3 million. The decrease was driven by our share repurchases over the past year. Including the impact of the tax charge we incurred at the end of the year, our reported diluted EPS for the fourth quarter was $1.9. Excluding the impact of the tax charge, our Q4 EPS totaled $1.55, up $0.08 or 5.4% versus Q4 of last year.
On Slides 4 through 6, we provide the summary P&L, EPS, and other information for the full-year. 2017's full-year organic revenue growth was 3%, although net impact of FX in the year went up slightly positive at 0.3%. Factoring in the net impact of acquisitions and dispositions, which reduced revenue by about $650 million or 4.2% for the full-year, 2017 revenue totaled just under $15.3 billion, a decrease of $0.009 when compared to 2016.
For 2017, operating profit increased 2.5% to just under $2.06 billion, while EBITDA increased 2.3% to $2.17 billion. As for our annual margins, our operating margin increased 50 basis points and our EBITDA margin increased 40 basis points versus the full-year of 2016 results.
On Slide 5, you can see our reported 12-month diluted EPS was $4.65 a share. And on Slide 6. we provide the impact of the additional expense recorded in connection with the Tax Act ad on our full-year results. Excluding the impacts of the tax charge, our diluted EPS was $5.10 per share, an increase of $0.32 or 6.7% versus 2016.
Turning to Slide 7, we shift the discussion to our revenue performance. During the fourth quarter due to the weakening of the U.S dollar against most of the foreign currencies we operate in, the net impact of the change in currency rates positively impacted our revenue adding 2.4% or $102 million. The major driver of our FX movement in the fourth quarter versus last year was the euro, which accounted for nearly half the net revenue increase from FX during the quarter.
In addition to the euro, the dollar weakened against the Australian dollar, the Canadian dollar and the U.K pound. Making any assumption on how foreign currency rates will move over the next few months, let alone the balance of 2018 is of course highly speculative. However, as we enter into 2018, the currencies stay where they currently are based on our recent projections FX could positively impact our revenues by approximately 3% to 4% during the first quarter of 2018 and about 2% for the full-year.
The impact of our recent acquisitions net of dispositions decreased revenue by $235 million in the quarter or 5.5%. As we discussed throughout the year, we completed several dispositions during the past year, including the disposition back in April of Novus, our specialty print media business which operated in the U.S and Canada.
Consistent with our historical approach, we will continue to evaluate our portfolio of businesses, pursue acquisition opportunities like the recently announced acquisition of the Snow Group, as well as make internal investments in our agencies. Based on transactions completed to date, the current expectations are that the impact of our disposition activity net of acquisitions will reduce revenue by approximately 4% to 4.5% in the first quarter and then return to plus or minus 1% for the remaining quarters of 2018, with the effects of our prior year dispositions and acquisitions will have cycle through.
While decidedly mix by market and by discipline, organic growth was positive on a global basis for the quarter of about $67 million or 1.6% for the fourth quarter. Geographically, our European and Asian regions continued their improved performance, but were partially offset by weakness this quarter in the U.S as well as in the U.K., which had difficult comps versus the strong performance in prior year, and the continued negative performance of our agencies in Brazil, in light of the issues in that market.
Slide 8 shows our mix of business by discipline. As you can see, we revised the detail we provide regarding our marketing services agencies to reflect the realignment of our disciplines and better capture the expanded scope of our services. As a result of this realignment, our CRM discipline has been disaggregated into two separate categories: CRM consumer experience, which includes our direct and digital marketing agencies, and Omnicom precision marketing group, as well as our consulting and branding agencies, shopper marketing agencies, and our experience from marketing agencies.
CRM Execution & Support, which includes our field marketing, sales support, merchandising and point-of-sale, as well as other specialized marketing and customer communication agencies. We also realigned and renamed our specialty communications discipline, so that it now exclusively includes agencies offering healthcare marketing and communication services.
For the fourth quarter, the split was 54% for advertising and 46% for marketing services with the full-year split being similar. As for their organic growth by discipline, it was mixed. Our advertising discipline was up 1.2%. Growth continues to be led by our media businesses, particularly internationally. Our advertising agencies, and in particular, our regional agency brands, the mixed results this quarter resulting from last year-end project spend by clients in this discipline.
CRM consumer experience was up 3.4% for the quarter. We saw organic growth in every region within the discipline led by our events businesses which had a strong performance with year-end projects in the quarter, results for the rest of the discipline was mixed, with positive performance from shopper marketing offset by our direct and digital agencies which continues to cycle through some prior losses.
CRM execution and support was also up 3.4% organically in the quarter with growth in sales support and custom communications, as well as our nonprofit specialty agencies, which offset declines in merchandising and point-of-sale. PR was up marginally this quarter in light of the difficult compact Q4 of 2016 when we have some benefits in the U.S from spending related to the 2016 presidential election. And healthcare was down 1.9% resulting from last year-end project spend from clients in this discipline, which also faced a difficult comparison to very strong growth in Q4 of 2016.
On Slide 9. which details the regional mix of business, you can see during the quarter the split was 54% for North America, 9% for the U.K., 20% for the rest of Europe, 11% for Asia Pacific, 4% for Latin America and 2% for the Middle East and Africa markets.
Now turning to the details of our performance by region on Slide 10. Organic revenue growth in North America was down 0.8% due to the year-over-year reductions at our PR, healthcare, advertising and media agencies, which resulted primarily from last year-end project spend by clients, including political spend in PR related to the 2016 election as well cycling through some losses earlier in the year. This was partially offset by the positive performance of our CRM agencies, which was mixed by discipline.
Turning to Europe, the U.K was negative, down $0.007. Given the difficult comparison versus Q4 of 2017 when organic growth was 8.5%, results this quarter will mixed by discipline. With positive performances from our PR and media agencies which will offset by decreases in field marketing and at certain of our advertising agencies.
The rest of Europe was up 8.2% organically in the quarter. Within the Eurozone, Spain led the way and Netherlands had strong growth for the first time in a while. Additionally, Belgium and Italy performed well, while Germany was marginally positive. Growth in Europe outside the Eurozone was positive overall as well.
The Asia-Pacific region was up 6%. And we continue to see organic growth across most major markets in the region, including Australia, Singapore, New Zealand, and greater China, which grew but slower than the past. In Japan, however, was slightly lower in the quarter.
In Latin America the performance of our agencies in Brazil continues to mirror the economic instability of that market and overshadowed strong performances from our agencies elsewhere in the region, particularly in Colombia and Mexico. As a result, the region was marginally negative in the quarter. And Middle East and Africa, our smallest region, was up 1.9% in the quarter.
Turning to Slide 11, we present our mix of business by industry sector. And in comparing the full-year revenue for 2017 to 2016, not much has changed.
Turning to our cash flow performance, on Slide 12, you can see that we generated a little under $1.7 billion of free cash flow during the year, including the positive effect from changes in working capital. We made a big improvement in Q4 in working capital, more than making up for the decline in performance in the third quarter.
As for our primary uses of cash on Slide 13, dividends paid to our common shareholders were $515 million. As a reminder, the $0.05 increase in our quarterly dividend which we announced during the fourth quarter was effective with the payment we made last month, but that increase had no impact on 2017's cash flow.
Dividends paid to our noncontrolling interest shareholders totaled about $102 million. CapEx was $156 million, which is down a little from the prior year. Acquisitions including earn out payments totaled $85 million, down over $400 million versus 2016. And stock repurchases net of the proceeds received from stock issuances under our employee share plans totaled $558 million and were similar to last year's levels. All in, we generated $260 million in net free cash flow for the year.
Turning to Slide 14, regarding our capital structure at the end of the quarter, our total debt $4.92 5 billion, our net debt position at the end of the year was $1.13 billion, down nearly $800 million compared to December 31, 2016. The decrease was principally due to the positive change in operating capital of approximately $350 million.
Our excess free cash flow of $260 million for the year and positive impact of FX on our cash balances at year-end, which reduced net debt by about another $230 million. As for our debt ratios they remain solid. Our total debt to EBITDA ratio was 2.1x and our net debt to EBITDA ratio was below 1x and 0.5x. And due to the year-over-year increase in our interest expense, our interest coverage ratio decreased 10.4x, but remains quite strong.
Turning to Slide 15, 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 24.1%, while our return on equity was 45.6% or 48.9% excluding the impact of the Tax Act.
And finally on Slide 16, we track our cumulative return of cash to shareholders over the past 10 years. The line on the top of the chart shows our cumulative net income from 2008 through 2017 which totaled $10 billion. And the bar show the cumulative return of cash to shareholders, including both dividends and net share repurchases. The sum of which during the same period was about $10.6 billion, resulting in a cumulative payout ratio of 105% over the last decade.
And that concludes our prepared remarks. Please note, that we've included a number of other supplemental slides in the presentation materials for your review. But at this point, we’re going to ask the operator to open the call for questions. Thank you.
[Operator Instructions] First from the line of Alexia Quadrani with JP Morgan. Please go ahead.
Hi. Thank you very much. Just a couple of questions. First, on the shortfall in the project business in Q4. I think you mentioned it came in below your expectations. Could you give us a bit more color exactly maybe what didn’t materialize, is it certain verticals in terms of clients that didn’t spend, or was it certain types? Just any more color there would be great. And then, my follow-up question is just really on how we should think about organic revenue growth for 2018 in light of what you know from your budgeting plans to your clients and your recent performance? Thank you.
Sure. Good morning, Alexia. This is John. When you look through the project work, it's really between $25 million and $50 million in certain key areas that didn’t come through. That versus the headwinds that we had from some of the losses in some of our independent branded agencies, that were still cycling through and the change in the way that we recorded revenue programmatic business. It was the convergence of all those three things that really impacted the percentages that you’re seeing. There is nothing systemic or programmatic about it in any way. We also, the fourth quarter of '16 and all of '16 was when a lot of the activity was occurring which didn’t reoccur in the first nine months of 2017. So we weren't [technical difficulty] business. We started to see a pickup in activity that in [ph] business wise towards the end of the -- the middle of the fourth quarter and it continues into this year. So we believe we’ve taken all the actions that we need and it just turns out to be that it's regionally where the challenges showed up. I have to say that if you look at the first nine months of the year, we were performing -- or performing in what our range was, and so it was a little disappointing but nothing troubling. As we look at preliminary budget that we’ve looked at so far, for '18 we are suggesting that organic growth will be between 2% to 3%. I don’t know if you want to add anything here, Phil?
Yes, I think most with respect to the projects that I think most of it certainly occurred in the U.S and in particular as John have said in some of our advertising businesses in the U.S as well as in our PR businesses and healthcare businesses. Last year in the fourth quarter they both grew close to 8%, so they kind of outperformed with last year at this time, so we had some pretty difficult comps. And as far as the organic expectations at this point, the 2% to 3% that John mentioned, is our current expectations for the year 2018.
And then just follow-up on that, in terms of profitability or margins, I would assume we'd -- we should see some margin expansion maybe in Q1, given we’re still sort of cycling below our margin divestitures. Is that a fair way to look at the margin maybe outlook near-term?
I think you can definitely confirm that we’re going to continue to focus on EBIT dollars and not necessarily a margin percentage as we always said. We are going to continue to pursue our efficiency and effectiveness initiatives which we’ve gotten a lot of traction on the last two years as well as this year, particular. What we’re also going to continue invest in our agency is especially in the areas of data and analytics and in a number of digital transformation initiatives that we got going on. And we will continue to evaluate as we always do, finding the right balance between investing for sustainable growth and growing our EBIT dollars. So right now, I would say, we’re not prepared to commit to a margin expansion target percentage at this time. But we’re going to continue to reevaluate that as we reevaluate the investments we think we can make to continue to sustain our growth.
Thank you very much.
Sure.
Next, Craig Huber with Huber Research. Please go ahead.
Yes, good morning. Thank you. John, if you look back at 2017 and you think out to 2018, your 2% to 3% organic revenue growth perhaps target for the New Year. Can you just go through maybe the five or six areas that you think is holding back the organic growth and your peers as well? I mean, obviously, the economy seems like it's accelerating here in the U.S also around the world. But what’s holding back your customers from spending more towards the ad service dollars that you get is not growing as much as it might be in the prior cycles? I have a few other questions. Thank you.
Sure. There's a number of things. I mean, there are quite a number of areas were challenged by shareholder activism, changes in technology in a way that good s are distributed, because there's a lot of disruption going on out there, there's a lot of confusion as to what’s the most effective way to reach that consumer happens today. Those are the principal challenges. And in terms of the macro type of look at things, I think that in 2018, I’m -- what we’re hoping to see is that with the stimulus that’s been put, especially into the United States and the coordinating growth that we’re seeing in the other markets around the world that as you get not necessarily in the first quarter, but as that money gets into consumer's hands later on in the year that you will see an increase in spending and clients will be addressing the needs and requirements of the consumer. So at this point, what we've done is we've made quite a number of changes to the portfolio of companies in the way that we go-to-market, we’ve advanced our capabilities quite significantly, especially in the areas of data and digital and analytics. And we continue to double down those investments in what we are referring to the transformation effort, we will making internal investments as well as some external investments with new partners to make sure that we go all the way down the funnel and reach the consumer and only in reaching internal message, but also delivering the right message to try to get them to activate to buy and to sell things. So we believe we are taking quite a number of efforts in face of all these challenges that we’ve seen in '17 and we're hoping that they're going to pay off pretty confident, that they’re going to pay off as we get into '18.
And then, also Phil, if I could ask, just wanted to get a sense of how much your cash is sitting outside the U.S., you perhaps could repatriate?
I think it changes -- it certainly changes on a daily basis. But I think a substantial portion of our cash that’s on the balance sheet, at 1231 was outside the U.S. The ability to bring it back is going to be much simpler now with the passage of tax reform. And, I think, managing our internal treasury systems as far as what cash is overseas when cash is in the U.S., it should be a little easier and we intend to bring back as much as we can bring back in a timely and efficient manner.
And if you do bring that, still would it most likely to be for share buybacks?
No, I don’t think. When you go through the numbers, I don’t -- in terms of the impact of tax reform on us, we expected to have from a dollars perspective, somewhere in the neighborhood of $75 million of benefit in, say '18 annualized. That’s on a pro forma basis using our pre-tax income from '17 as proxy. So I don't think you’re going to see really any difference in our -- any substantial difference in our approach to capital allocation. We are going to continue to pay strong dividend. We are going to continue to pursue accretive acquisitions and certainly we've done one recently and we’re going to continue to look for more. And then with the balance of our free cash flow, we are going to invest that in share buybacks and some of it we’re going to invest it in our agencies as we’ve discussed just before. So I don’t think you’re going to see anything dramatically change in terms of our capital allocation approach.
Okay. Thank you.
Sure.
Our next question is from Ben Swinburne with Morgan Stanley. Please go ahead.
Thanks. Good morning. Thank you for the additional disclosure on the CRM segments. Maybe, John, could you talk a little bit about how you view those different disciplines in terms of the growth opportunity ahead of you? I know you made some management changes last year. The fourth quarter looked pretty healthy. Do you feel like those buckets -- those two CRM buckets are poised for growth in '18 based on what you’re seeing today? And how do you compare that growth outlook to what you've seen in advertising and media which has been at least until Q4, more robust? And then I had a -- just a quick follow-up. Go ahead
Sure. In the consumer experience bucket, I have a lot of hope for upside, because we made changes in branding and we’re starting to see some stabilization and we will see growth. Our shopper promotion business increasingly is a digital activity where we’re doing a lot of advice and changing to the -- changing delivery methods that you see in places like Amazon and others. Events and sports, we should get a bump somewhat this year principally because of the -- principally because of the improving economy plus in the first quarter there is a little bit of benefit associated with the Olympics in Korea. And where we’re really doubling down is in digital and precision marketing and taking that activity as I mentioned and marrying it to the expense of investments we made in Analects, so we can better target the consumer for delivery, more effective messages for our clients. The other areas, there is a field marketing, sales support, specialty production and merchandising POS, those are the activities which have growth, but they're not as cutting edge, I would say as the first aim of CRM activities and we expect it to have our fair share of growth in those areas as we’ve had in the past several years. So it's -- there's one -- thinking in one group, I would say and executing on the other and clients needs will be taken care accordingly.
Okay. And just, Phil, just on the margin comment, if you guys land in your guidance range for organic, are you suggesting margins will be kind of flat plus or minus? I just wanted to see if you could add a little more color to the margin outlook for the year?
I think, again, we’re more focused on growing the dollars, but I think by not committing to a margin expansion number now as we're looking out of the year and evaluating what we’re going to invest in and how much we need to invest. I think our expectation is margins are flat for the year. And if that evaluation changes, we will certainly let everybody know as we go through the year.
Okay. Thank you both.
Sure.
And next go to Steven Cahall with RBC. Please go ahead.
Yes, thank you. Sorry to kind of ask somewhat critical and big picture question. But I was wondering if you could just kind of circle back on your organic growth guidance. To be honest, it didn’t sound entirely confident. So do you feel firmly that that 2% to 3% or the midpoint of it is something that you can look forward to the full-year based on your budgeting process, or should we kind of read a lot of risk into that statement? And then, relatedly, you talked about the impact from Accuen and political this year as well as net new business. So should we think about a lot of this growth as backend loaded, as we approach the year?
Well, to answer your question, I was told after I first mentioned it, that my mic was weaker and I should speak up. So willingly confident, 2% to 3%, I hope you’re hearing me clear now.
Yes, absolutely.
And some of those activities -- the political spending for the midterm elections which we suggest will be coming back similar to almost what happened in the presidential elections going to occur is not going to occur in the first quarter, it's going to start to occur as you get little later into the year. There are also the stimulus that people are going to start to see in their paychecks from tax cuts and some other activities. They’re not there in January and February, but they will start to creep into people's pockets as we get later -- a little bit later in the year. So this year with the level of activity, the level of stimulus that’s occurring, the calendar itself we don't expect a radical shift from what our past performance has been, but we do expect some shift. So having said, I’m not saying it's all going to occur like some of our competitors in the fourth quarter.
I think, just one specific follow-up on the Accuen reference. So in '17, Accuen -- in the fourth quarter of '17, Accuen was down about $12 million globally and $17 million in the U.S. That’s the trend that we expect to continue. So overall, the programmatic business is very strong, but we continue to see a transition of some clients moving toward a more traditional agency pass-through [ph] solution from our performance-based bundled solution. Plenty of clients are very comfortable with the performance-based solution, want to continue down that path, but ultimately, the business itself is growing. We are happy with it, and we expect the base business to grow -- to continue to grow in '18. But I think the shift will continue, which will have similar negative impact on the reported result.
I just want -- I want to add, the billings associated with that activity which are now up double-digits from what we can see sitting here today for programmatic activity. The way we report them on a -- in a more traditional sense rather than in a bundled sense has an impact on reported revenue. It doesn’t have an impact really on our profitability associated with those activities.
Am I correct that, that started kind of late first half of last year, that shift in behavior, so you will start to cycle through that maybe through the -- by the second half or is it really just the Q4 when you start to cycle through it?
No, I think it's a change -- it's a trend, it's a change in the business. So our activity, our expertise, our profitability from those activities, we fully expect to go up. We don't expect the same contribution in revenue that we receive in the past, because of the way the clients are purchasing new services from us.
Yes, I think if you look back the business grew quite a bit because it was brand-new in '14 and '15. And in '16 it's when the transition started to occur. So in '16 the number is in terms of the growth rate came down and that in '17 we've seen some net negatives in terms of reductions overall in that business.
The other thing that we're hopeful, we can predict. As we sit here today, there's probably $15 billion worth of new accounts that are in review, of which I think we're at risk defending about $2 billion of that. The rest of it is an opportunity for us to win our fair share and that should contribute to our overall growth.
Great. Thank you.
I think, operator, given that the market's open or just about to open, I think we’ve time for one more question.
And that will be from Tim Nolan with Macquarie. Please go ahead.
Great. Thanks very much. You actually got most of the questions I had. I wonder though you mentioned a number of divestitures you’ve done last year. I wonder if there might be more to come in 2018? You’re talking about some organizational efficiencies and so forth. And is it possible to say if that affects your guidance for 2018? Do you have a better growth rate in '18, given having reduced some of the underperforming or less strategic businesses last year?
I think we’re going to continue to reevaluate the portfolio, we do that on a regular basis. And we're continuing to go through our final planning cycle here for '18 with all of our agencies and networks. So as of now we don't have an expectation that beyond early -- very early in the second quarter when we cycle through large disposition we completed last year to be back at a similar number for the rest of '18. That said, I think our expectations of plus or minus 1% from the second quarter of '18 on as far as the net acquisition disposition activity, it's based on what we know today. So deals we've completed either acquisitions or dispositions, we’ve completed as of now, that could change and the expectation right now is it's not going to change significantly. And if and when we close new acquisitions, the number will grow. But that’s not to say that when opportunities come along to divest and dispose of nonstrategic assets, which I would say we continue to evaluate we're going to take advantage of those opportunities if they make sense for us and for shareholders. Hello? Okay. Well, thank you all for joining the call and we appreciate it.
Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.