Interpublic Group of Companies Inc (IPG) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Interpublic Group of Companies first quarter earnings conference call. At this time all participants are in a listen-only mode. My name is Mike and I will be your conference coordinator today. If at any time during the call you require assistance please press star followed by zero and a conference coordinator will be happy to assist you. As a reminder this conference is being recorded. I would now like to turn the program over to your host for today's conference, Director of Communications, Mr. Philippe Krakowsky. Please proceed, sir.

Thank you. Good morning. We've posted our earnings release and the company slide presentation both of which we will refer to on this call on our web site at www.interpublic.com. This morning, we're joined by David Bell, Chairman and CEO, and Chris Coughlin, COO and CFO. We will begin with comments from management to be followed by a question-and-answer session. We plan to complete the call by market open at 9:30 a.m. eastern time. During this call we will refer to forward-looking statements and non-GAAP financial data. Forward-looking statements about the company are subject to uncertainties that are referenced in the cautionary statement included in the earnings release and slide presentation. And further detailed in our annual report on form 10-K, and other filings with the SEC. We also refer you to the press release and slide presentation for detailed definitions, explanations, and reconciliations of non-GAAP financial data. Without further adieu I would like to turn the conference over to David Bell.

Thank you all for joining us. As you can see from our press release and results we posted this morning, Interpublic's performance provides further evidence of progress on a number of fronts. Last quarter, we indicated to you that the first phase of our turn-around was successfully nearing completion. Great strides have been made against all of the strategic priorities we set for ourselves during the past year. Many of which require that we grapple with issues born in the past. We made major inroads in defining a new culture of collaboration and accountability. The company's balance sheet and financial condition have been considerably strengthened. Numerous legacy issues have been addressed and only a few remain. The restructuring program announced in the second quarter last year is substantially complete. In the quarters ahead you will increasingly see us look ahead, defining the next phase of our change process and articulating the new vision for Interpublic. We will of course continue to emphasize and honor the power of our individual agency brands. They, and our people, are our most important assets. We will keep on recruiting the best talent at both the corporate and operating unit level. We will support our company brands, as they hone their offerings and go to market positionings, but we will also look for new ways to partner together this to bring custom tailored approaches, clients demand in today's new marketing reality.

Let me begin by covering with you key highlights from the quarter, the headlines and the latest chapter of the Interpublic story. At the top of my list, you will find organic revenue which was down less than 1% overall. But swung to a positive in the United States. A number of you have asked about the new method of calculating this measure that we introduced last quarter, which we believe provides the truest sense of underlying vitality in the business. Regardless of the method used, however, the big news for me is that for the fourth consecutive quarter we posted sequential improvement in organic revenue. And what's more from the fourth quarter to the first quarter we appear to have closed the gap with a number of our primary competitors on this key indicator. We're also pleased that our organic growth initiative has picked up steam and in a few short months has generated between $65 to $75 million of new anticipated revenue.

A quick aside here, last quarter, we indicated we would no longer provide quarterly net new business numbers because this non-GAAP measure is nearly impossible to track in a way that is meaningful for investors. How many account wins can you recall roaring in as a $200 million billings lion, only to be dismissed by the press by the same agency a year later as a $20 million land. More than you can name, I'm sure. Some of our cynical competitors suggest that our decision to move away from announcing new business numbers was to cover weak results. And that simply is not true. Suffice it to say we were more than competitive with our peers in new business in this quarter. We had the huge Microsoft consolidation win in CRM. Media consolidation wins at Inter Brew and Levi Strauss, as well as the successful defense of our media assignment at AOL. And we won great new assignments, Miller Genuine Draft and Marriott International. On the PR front, big wins like Cisco, [Unilever], Kraft and the Federal Reserve Bank. We also started the second quarter with the successful defense of Verizon Wireless, another indicator of strong vitality. We remain committed to provide investors with information that is meaningful. Regardless of our business development results in a given quarter, we don't believe net new business billings numbers meet that criteria. We will continue to discuss internally whether there is a method where by we can more effectively communicate to you the size and nature of the new business stream in a way that is GAAP compliant. For the moment though organic revenue will be the best evidence of our best results in attracting new clients and winning new assignments from existing client relationships.

The second headline that bears mention is our operating margin performance. And I continue to be encouraged by our progress if this area. Excluding restructuring, and long-lived asset impairment charges, operating margin nearly doubled compared to the same measure in the first quarter of '03. The restructuring program has been implemented in a very disciplined and exacting manner. And there has also been excellent team work on the part of both corporate and operating unit finance. With the teams at the business units taking the lead in many, many instances. The result is apparent in our numbers which clearly demonstrate that the restructuring is yielding sustainable positive results. We've identified for you other key initiatives under way, such as real estate master planning, expanded shared services, and unified information technology to name only a few, which will be increasingly turning to in order to keep up the momentum we've begun in the area of margins.

A third headline concerns our motorsports holdings. As you know, subsequent to the quarter we announced we reached agreement to terminate our contract and related guarantees with the Formula One administration limited related to the British Grand Prix, and this contract would otherwise have been in effect through 2015. My very first earnings call, we clearly signaled that Interpublic needed to be out of the motorsports venue ownership. But to achieve this goal would be an arduous task. We have made great progress to date in keeping this commitment to you and we continue to explore options regarding the last remaining obligations.

At this point, I would like to briefly review for you the state of our various companies. As mentioned earlier, our agency brands are our most leverageable and powerful assets. Their strengths are reflected in our performance. The areas they need to address represent opportunities for the group as a whole to improve results. Once again, the high point within the operating unit performance can be found at McCann within the independent, fully-integrated agencies. In the fourth quarter of last year, we saw organic revenue growth at McCann World Group. And this growth trend continues in the first quarter. It is a testament to the leadership and the changes that have been made within that organization. And it is also a clear signal that clients continue to value the contributions that the strongest global network can make to their business success. The Verizon win mentioned earlier is indicative of the breadth and power of the McCann offering. Our domestic independent agencies large and small also posted strong results in the quarter. We always mention the high performers like Campbell-Ewald, Deutsch, and Hill, Holiday, but we also have a number of marquis brands beyond that The Martin Agency Carmichael Lynch, Mullen, Gotham, Dailey, at a time at which clients are looking for ideas no matter where they originate there is great interest in such strong independent points of view. Our agencies are clearly taking advantage of this opportunity.

As we've indicated previously, Lowe is going through a difficult patch because of legacy issues. Their biggest challenge is on the top line and their organic revenue is far from where it should be and reversing this trend will take time because Lowe has never been systematically organized to pursue new business. The new management has, however, made major strides in changing the culture that long prided itself on resisting change. This has already had a positive effect on margin performance. And their new willingness to partner with Interpublic companies will help in the pursuit of business, as will the hire of Mark Goldstein, the global Chief Marketing Officer, now at Lowe from Fallen. Mark is one of the best in the industry and he will help drive Lowe's organic growth and we will also see benefits as Lowe increasingly focuses on emphasizing its heritage as an agency built on creative excellence. Lowe's new leadership in London is having a significant impact. The recently installed CFO of the partnership who came out of the Interpublic treasury group, will also be a terrific addition. As will their new brand planner on European Unilever business. They have moved aggressively to strengthen talent at Lowe.

FCB's international organic revenue performance improved relative to the fourth quarter which should help their margins. They're vigorously defending the Samsung business on which they've done terrific work that has helped that client grow by leaps and bounds over the past few years. We see that as an opportunity. Jonathan [Harries] is a strong leader for them at FCB Chicago and partnering with Mark [Pecheny] and Mark [Madesto] we believe will continue that office's historic strength.

Grass U.S. performance in the first quarter was nothing short of stellar. The performance of their smaller international operations acquired in the late '90s continued to struggle. Initiative media saw a strong surge in its domestic organic revenue but struggles in those international markets with difficult economies. Our public relations group saw its best quarter in two two years and our strength was principally at Weber Shandwick and very strong in the United States. Elsewhere, there are still declines driven in no small part by acquisition overhang issues. But the quality of the work being done at our PR and event marketing companies is clearly top notch. As evidenced by the results at industry award shows and by the new business wins I mentioned earlier. On the collaboration front, our marketing services companies within CMG continue to hit it out of the park and we're seeing them work with, and derive new business from our three major advertising agency networks, even more, we're seeing them work to increase the amount of shared business within the group. Using our organic growth initiative as a stimulus.

On our last call, I shared with you the key growth areas we see for Interpublic and for our industry. And these included beyond the obvious geographic ones. The need for greater accountability in quantifying the results generated by our programs. The resurgence of the internet as a marketing medium. As well as the confluence of branding, sports and entertainment and the consequent growth and embedded content in proprietary programming. It is interesting to note that our events and experiential marketing companies such as Jack Morton and Momentum, saw growth in the quarter. And I believe clients will increasingly turn to these types of marketing vehicles and opportunities in our increasingly cluttered media landscape.

A final overarching trend that will also increasingly affect us is the role the holding company is called upon to play in major consolidation opportunities, such as Samsung mentioned earlier, and HSBC. One of our competitors recently indicated with the bulk of the HSBC business, which is not quite true now, but which we very much hope will be true in the very near future. In order to win such competitions, holding companies must address the needs clients express. Clients want to feel all of the holding company's resources brought to bear on their business through a single portal and they don't want to hear about process or deal with silos. They want the best brains from the strongest agency brands creating transformational ideas to drive their business. They want the recipe, not just strategy and messaging, but also how much of each discipline to use and how to optimize channels they're using to connect to consumers. The reality is that the holding company model is not broken. What does need fixing, though, is the way in which holding companies have delivered their assets and capabilities to clients. Our performance this quarter demonstrated that we've essentially reached the end of the first stage in our turn-around. We will continue to work our plan against the 24 to 36 month time frame we set for ourselves nine months ago, but as we look to the next phase, we've begun to formulate the new set of priorities that position us to become the organization that best leverages the new realities that are transforming how our clients approach marketing. And this requires that we continuously rethink everything about how we do business. On future calls, I look forward to sharing with you the new ideas we have that will define our new vision.

And now, I would like to turn it over to my partner, Interpublic's COO and CFO, Chris Coughlin.

Thank you, David. Good morning, everybody. As David mentioned, the quarter saw further progress on both the top line and in our operating results. The restructuring program is essentially complete. And has stabilized the company, as have all our financing activities. We have posted a presentation deck on our web site in conjunction with this earnings release and going forward I will refer to the information contained in that presentation.

You will see on slide four, which contains highlights from the quarter, organic revenue declined less than 1%, at .6%, improving sequentially for the fourth consecutive quarter. Our U.S. business performed well with organic revenue growth of 1.3%, while the non-U.S. operations posted organic revenue decline of 3%. As David mentioned, last quarter, we put into place a new methodology in calculating our organic revenue growth. The adjustments we added at that time consist primarily of excluding pass-through revenue. Without this adjustment, we would have reported consolidated organic revenue growth of 2.3%, with U.S. organic growth of 4.9%, and an international organic revenue decline of 1.2%. As part of the metrics discussed on our last call I mentioned our goals in terms of closing the growth gap. We've clearly made a good start in that regard. We also are pleased with our operating margin performance. On a reported basis, operating margin actually declined from 1.6% last year, to a .7% loss this year. However, excluding impairment and restructuring charges, operating margins nearly doubled from 2.4% to 4.7% this year. This 4.7% margin was also negatively impacted by our motorsports operations, which reduced it by approximately 60 basis points. So we are very much on target to deliver the 125 to 150 basis points improvement in 2004 that we discussed on our last call.

We also reported a $70.2 million in restructuring in the quarter, of which $7.6 million is included in our operating results in our office and general expenses. Our total restructuring expense will be approximately $300 million, of which $30 million will have been recorded as office and general expenses. This total amount represents a slight increase over our original projection, as we are moved more aggressively in certain of our restructuring actions. This restructuring is now essentially complete. However, certain charges will continue to impact the P&L through the third quarter of 2004. From actions taken to date, we expect $200 million in gross annualized savings.

Our balance sheet remains strong. Net debt at the end of the quarter was $894 million, down $1.2 billion from last year. Our debt to capital ratio was 47.1% an improvement from 60.4% just just a year ago. We are pleased with our balance sheet position and continue to believe improved operating performance will result in strengthened credit ratings. In April, Moody's completed their review and affirmed their investment grade rating on our senior debt with a stable outlook. In addition, Fitch recently upgraded their outlook on our senior notes from negative to stable.

On slide five, we provide information on the resolution of another overhang item. On April 19, we announced that we had reached an agreement with the Formula One to terminate our obligations relating to the British Grand Prix following this year's race in July. In exchange for our early exit from our guaranteed commitments, which would have run through 2015, we will pay $93 million and record a pre-tax charge of approximately $80 million in our second quarter financial results. Our last motorsports commitment is the lease of the Silverstone racetrack. We intend to exercise our early termination option now at the end of 2007. Our estimate of the total lease obligation through that time as well as the 2004 Grand Prix promoters fee is approximately $62 million. That figure does not include the operating performance of the track, nor does it include capital expenditures if any which we expense as we incur them. Our intention remains to exit this business all together as soon as we possibly can. Two other items deserve mention here. The shareholder class action lawsuits for which we announced a proposed settlement during the fourth quarter of last year and are waiting certain procedural items, including final court approval. If the settlement is consummated as expected, all pending shareholder suits will be resolved by the end of this year. The next item is the SEC investigation that began back in January of 2003. And we continue to cooperate fully but have no news or developments to report to you at this time.

Moving to slide seven, on a reported basis, salary and related expenses increase 2.3%. On a constant currency basis, however, salary and related expenses were down 2.8%. Versus March of last year, our head count has decreased from 45,500 to 43,700. Office and general expenses were up 8% again on a reported basis and 1.4% in constant currency, office and general expenses include, as I mentioned, $7.6 million of restructuring costs, and also include out-of-pocket expenses that are passed on to clients and included in our revenue. Excluding the impact of currency, dispositions and out-of-pockets, our operating -- or our office and general decreased 4% compared to the same quarter a year ago. Versus that same quarter, we continued to realize savings in the areas of procurement, including travel, supply, telecommunications, and real estate, where we have made progress in the subletting of vacant space. In the quarter, we recognized impairment charges of $8.8 million. Of this total, $4 million is related to the write-down of a business we are in discussions to sell. A further $1.6 is capital expenditures related to Silverstone which I mentioned we expense as we incur them. The remaining $3.2 million relates to impaired marketable securities that the company holds in trust to support certain retirement plans. With a total value of the marketable securities in this trust has appreciated, accounting rules require us to recognize losses in those securities, whose decline in value has been deemed to be other than temporary.

Provision for taxes was a benefit of $26.8 million, on our pre-tax loss of just under $42 million, while our tax rate continued to be negatively impacted by restructuring charges, nondeductible impairment charges and the continued poor international performance which received little or no tax benefit. We did recognize the tax benefit on some payments that were made in the motorsports business. Profit and loss statements for the first quarter are provided on slide eight. As well as the earnings release itself. Slide nine provides a margin reconciliation to show the impact of excluding restructuring and impairment charges from our operating income in the quarter. Slide 10 shows a comparison of the quarter from 2002 to the first quarter 2004, from revenue through down to earnings before taxes. This shows each line item as a percentage of revenue. And as you can see, we have progressed significantly from last year, but still have a ways to go to get back to our historical levels, and I would like to remind that you the first quarter is our lowest operating margin quarter. Slide 11 contains the same analysis excluding our motorsports operation, slide 12 provides detail on organic revenue performance. To arrive at an organic revenue, we adjust out the impact of foreign exchange, acquisitions and divestitures, as well as out-of-pocket expenses. We had a minimal impact from acquisitions but we did have a number of dispositions in 2003, including motor sports businesses and some other small pruning we did in our portfolio noting some failed acquisitions in the marketing services sector.

Slide 13 shows a digraphic mix of business and the reported and organic revenue figure for each region. The United States and Latin America led by Brazil were very strong. Asia-Pacific fell off a little bit from the fourth quarter but overall organic revenue growth was a positive 1.5%. In constant currency, China and Singapore were the strongest and growth was positive virtually throughout the region but moderated relative to fourth quarter's growth in Japan. In Europe, we continue to struggle. The U.K. was stronger than the larger continental European markets but in France, Germany and Spain were somewhat weak. Slide 14 covers the specifics of the restructuring while slide 15 depicts our motorsports business.

Slide 17 through 20 cover the balance sheet. As mentioned we are pleased with our balance sheet and liquidity position. Our 364-day credit facility comes due late this month. We expect to have news to share with you regarding that in the next week or so. And we have minimal maturities due in 2004, and we have over $2.1 billion in available liquidity. Slide 21 shows our declining cash requirements, resulting from having curtailed our acquisition activity. Our obligations for earn-outs are expected to decline significantly this year, and into the future. In my earlier comments, I addressed a number of our key metrics. Slides 23 through 26 provide you with some additional detail regarding those. As David indicated, we have done a good job in getting through the first phase of the turn-around. The focus will increasingly turn to operational issues, growth, and our vision for evolving the holding company model. Now what we would like to do is open it up to any questions you might have.

Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone. If your question has been answered, or you wish to withdraw your question, please press star two. Once again, please press star one to ask a question. And the first question comes from [Joe Stauf] with Schwab Soundview. Please proceed.

Great. Thank you. Good morning. Four question, please. As it related to your European operations, organically they were down about 5.5% in the quarter. One, can you just sort of outline, you know, strengths and weaknesses in terms of the continent where you saw strengths and weaknesses, and to give us a sense of when you made more significant management changes in that geography last year, again, to get a sense of when performance here could sort of revert. And then I've got three smaller follow-ups.

Again, I think in Europe, we have had a little bit of a mixed bag in terms of our performance. We have, as you indicated, made certain management changes. Those management changes will take time and I will ask David to comment on that. We have to give those individuals time to reset those operations. We are seeing some strengthening in our advertising sector within Europe, so I think that as this year progresses, we will see some continued strengthening in the European sector.

Some of the key hires that we've made in Europe have already begun to have some impact. I mentioned a few of them, as you recall, we changed all of our lead agency managers in the U.K., FCB, Lowe and McCann-Erickson. Matthew Bull at Lowe has already stepped out and had three nice wins. Rupert Howell is making great progress against a very difficult situation at McCann. And the FCB management in London as well have begun to show improvement. We have also added recently at Lowe Phillip [perDunn] in France who is beginning to have a strong impact. We've also changed management at Lowe in Scandinavia, specifically Sweden, where that has produced a couple of nice new business wins. We've changed management as well at FCB Germany, and we have a great belief that will have a good result as well. So in terms of the traction that's being achieved, it differs. I would say that some of our companies that were built on acquisitions in the late '90s are struggling more than those already had strong foundations.

Great. And so just to clarify, I guess most of the changes occurred then in the second half of '03? Would that be fair?

That's fair.

I would say yes, although we continue to look and will always be in the talent business, but those that we mentioned certainly.

Understood. And then, you know, I guess just one follow-up question, I mean can you discuss any changes I guess in your comp structure that you've made, I don't know, over the last two or three quarters, and sort of the reasoning behind that? And then that's it.

You know, I think we are in the process of making some changes in the comp structure. I said in the last part of last year, there wasn't much of a change, but as you will see, we are making some changes this year in terms of changing our long-term compensation to make it more equity-based for our senior management. I think that is the most significant change that you will see as opposed to a cash-based long-term program.

Also, the move from a large number of options to more of a restricted stock or restricted stock unit environment better aligning, we believe, the operating unit performance with shareholders.

Great. Thank you.

The next question comes from Lauren Fine with Merrill Lynch. Please proceed.

Thank you. Just a few questions here. First of all, I would love to hear how you believe you closed the gap with your peers on organic revenue in terms of if you have recalculated their organic revenue, using your methodology and if you could share that with us. And then secondly, I'm wondering if you could help us sort of size Foote, Cone and Lowe and if you can do that combined or separately relative to the size of the total. And I guess my impression is that Lowe has sort of been under pressure for years now and just wondering sort of how much longer do you really think it is going to take. And then on international, I couldn't tell Chris, from your remark, last quarter as I recall I think you were unprofitable as a whole internationally. I don't know if the same is true now and where the tough spots, specifically Foote, Cone or is McCann unprofitable as well? Overseas?

I will take the first and last question there. First, in terms of organic revenue growth, our competitors, some don't disclose it at all, and others don't disclose exactly how they get there. I think if we exclude these out-of-pocket expenses which now flow through to revenue, as again they're just pass-through costs, and we don't -- we don't earn money on those, so I think the truest measure of organic revenue is how we do it. If we want to compare ourselves, though, externally, I think you would use the 2.3% positive growth and I think based on what we can figure, that's probably as close as are you going to get to a comparison with our major competitors. So if you look at their growth, and our growth, versus what it has been for the past few quarters, we've closed the gap rather dramatically. In terms of international and the profitability, you're right, we have struggled we have lost money outside the U.S. and primarily in Europe in the past. I would say that is pretty much -- that is across the company. We don't expect that to continue, and I think that this year, we expect to be profitable in primarily in Europe.

And then sizing Foote, Cone and Lowe?

Let me talk about that. As you know we have not disclosed on either Lowe or Foote, Cone & Belding. I'll comment on the Lowe piece, because I think it is important in that Lowe is really a different agency, Lowe really is the result on the part of Interpublic of a wrong strategy. Wrong strategy in that several attempts have been made to move Lowe up the league tables with mergers, et cetera, et cetera. Reality is, Lowe is an agency that does not have media. It has a very strong partnership with initiative media. It doesn't have below the line. But it has very strong recent partnerships with draft, even with MRM. The reality is, is as the energy in the business moves towards centers of creative excellence, which we've seen in lots of parts of the world, and as the growth in that sector increases, Lowe really is at the top of that sector, rather than at the bottom of the league standings size for size stake sector. And we view that as a real strength, particularly as that culture changes, as they move from a way for the clients to come culture to a very aggressive player in that space including the most recent hire of Mark Goldstein and all of the things they're doing in that arena.

One last question, Chris, if I could, could you give us maybe a little bit more information on motorsports in terms of the savings, and are those savings included in the $200 million of projected annualized savings? And how much of the total savings of the company are actually incremental this year?

The motorsports is not included in the restructuring or in those $200 million of savings. So we will continue this year with our obligation to run the race. Pay the promoters fee and the lease. And maintain the track. But then once we're out of that, there will be certainly improvements on an ongoing basis in terms of our earnings performance as the operating losses will be gone.

And the incremental annualized savings -- of the annualized savings of the 200, how much of it is actually increment that will hit this year?

We haven't disclosed exactly how much of it is but we had some savings in the back half of last year as a result, and the substantial portion of it will come this year, and into next year.

All right. Thank you.

And the next question comes from Steven Barlow with Prudential. Please proceed.

Good morning, it is Steve Barlow of Prudential. We've seen auto manufacturers -- hoping to reduce up front ad spending this year. What are you hearing from your clients regarding the allocation of marking budgets and networks versus other mediums as cable, internet and outdoor, is one question. And we've seen the big pictures here of HSBC, Samsung, is there a trend toward this global holistic frame of mind and do you think more of that will continue from your side of the business? And lastly Chris what kind of tax rates should we be using here?

All right. Let's take the first one, you mentioned auto manufacturer, obviously we don't disclose specific information about an individual client. I can, however, tell you that there is a great interest on the part of many clients, in many, many forms, and many touch points, as it relates to the consumer, beyond just traditional. And that interest level is increasing, the power of some of those disciplines is increasing, and that is not to take away from the importance of broad-reach vehicle, but it is to say that the mixes are under constant review, and as the clients look at new means, we're seeing the benefit of that. I think we mentioned that a couple of our event companies, and we have many, certainly Jack Morton and Momentum, are experiencing a lot of growth in that sector, and if we think we will continue to see that happen. In terms of the consolidation piece, with HSBC, and Samsung, I think that you know, in the '90s, many people believed that the consolidation and below the line disciplines, such as CRM and public relations would occur globally. I think you're beginning to see a trend in that regard now, certainly the Microsoft signal was one, HSBC is another, that kind of consolidation tends to be perhaps a bit more difficult than the advertising consolidation was among major multi-nationals but there will continue to be interest in that arena, and the reality is, is where where there may be a large supply of global advertising agencies, there is a relatively limited supply of global CRM and PR companies, and we should be a beneficiary of that, if it does indeed come across as a trend.

Steven, I wish I could give you a better guidance on our tax rate. But with the moving parts that we have, in terms of restructuring, the motorsports activities, and some of our international operations, we're going to have a swinging tax rate here from quarter to quarter, and most of this will clear out. I mean the best way I think to track our performance is to do it on a pre-tax basis, and then going forward, once we get past this year, I think we will be able to provide a clearer idea of the ongoing tax situation.

Thank you.

And the next question comes from Alexia Quadrani from Bear Stearns. Please proceed.

Hi, good morning. David, back to your comments about the holding company reviews, would you say that -- I mean you mentioned your strength in CRM and PR and obviously advertising on a global basis. Would you say if we see more of these reviews, that maybe you're even more encompassing, of, you know, picking and choosing the best part was each holding company in terms of different disciplines, is there any areas sort of beyond the three that you've highlighted that you may not have the best of breed in terms of your assets? Or where you feel you may not be competitive in?

No, as a matter of fact, we're feeling very sanguine about our competitive lineup. Arguably we have some assets that are unique. For example Jack Morton is the only global player really in experienced branding with that kind of arena. Momentum has proven itself with major multi-nationals. Very strong in that arena. And we didn't mention Octagon but without the motorsports piece, that whole arena is very strong, with a lot of interest in the part of major clients, and leveraging that capability, particularly the consulting arena that they have. I will also tell you that in the confluence between entertainment and branding, as we look at magna programming, as we look at their increasing work that they're doing, with Momentum, Octagon, with some of our Hollywood assets, like BNC, PMK, where we have assets, major Hollywood talent. And we view that whole confluence area as an area of growth for us and feel anything but disadvantage.

And both yourself and Chris mentioned sort of the next stage of the process of turning around Interpublic Group in your comments. Any chance that next stage is going to require more -- another restructuring charge or more restructuring beyond I assume sort of the $12 million or so that still remains that you can expense in Q2 and Q3?

You know, I think we're going to continue to look at the organization, how we're structured, and right now, we don't anticipate another major restructuring charge. We will continue to look at how we can efficiently move this business and become more cost efficient through areas like shared services, continued real estate, but that's going to be an ongoing process in running our business.

And just lastly, on the Silverstone lease, is there a way you can quantify the operating loss on an annual basis with regard to that piece?

We have disclosed the total operations of motorsports and the charts that we have provided. We have also disclosed that our commitments are -- remain at about $62 million, I believe, for the remaining piece, so we've given those components of the change.

I thought you might have said unless maybe I misheard you that the $62 million did not include capex and operating losses. Is that correct?

That's correct. And until we figure out what we're going to do with this track and are working with the British racing authority on what capital is going to be required, now that there has been a significant change and we're not required to run the race after this year, it is not possible to give you an accurate, you know, outlook as to what that is going to be as we will be in discussions with them.

But as you can imagine, Alexia, a lot of capex is required to maintain a track for the Formula One Race, which has extraordinarily exacting kind of standards. So that is all part of the discussions that we will have going forward.

And certainly compared to what would have been required between now and 2015, and being able to extricate ourselves from that is a very positive benefit.

Okay. Thank you.

And the next question comes from William Bird from Smith Barney. Please proceed.

I was wondering if you could talk a little bit about just what remains to be done on procurement real estate and infrastructure initiatives an also just an undate on the amount of vacant real estate and what the annual carrying cost is on that. Thanks.

William, you know, we're really just getting started in certain areas of procurement. Obviously, we've taken some initiatives here in the United States in major areas like telecommunications. But we're now spreading that on a global basis and we'll continue to make improvements. And that's something that probably never ends. But we will continue to make some significant inroads there. The other thing is on real estate, we have made some significant moves in putting together a master plans, as you can imagine those take quite a bit of time to actually execute, as you have existing lease commitments, and we have to honor those commitments, look to sublet those, so we have something just over a million square feet of space right now, I believe, that is being offered for sublet and I think that will again continue to increase.

I think as well, you may -- we have not discussed publicly, but we have hired a very serious shared service executive named Joe Sycola who has done these kinds of things many times in the past who is already beginning to have a major impact, not just in this country in his approach to it but in Europe as well and that will be aggressively moving forward.

Thank you.

And the next question comes from [Brian Chipman] with UBS. Please proceed.

Thanks. Good morning. I was wondering if you guys might just discuss what some of your goals will be in negotiating the new debt facility. Is it possible that you will lift the covenants on paying a dividend? And could we see a dividend policy reinstated this year? And what are your thoughts on how acquisitions might be worked into those negotiations? Thanks.

We will be finalizing the -- again, our new banking arrangements and more information will be disclosed at that time. It would be premature. I will say that it is our stated objective that we remain to be an investment grade and that with our financial position, having improved through a number of activities that we've had our liquidity position, and our anticipated improvement in operating performance, that our goal is clearly to reinstate a dividend as soon as that is practical for our shareholders. Additionally, it is our belief that we need to get ourselves and are in fact in a position to make certain strategic acquisitions if it is appropriate. We don't see the need of making any very large acquisitions, but certainly need to be able to have the financial flexibility to do so. We think these banking arrangements, as they are completed, will enable those things to happen.

Brian, we would like to also disclose that you have a new baby son and we would like to congratulate you.

Thank you, David.

And the next question comes from Michael Russell with Morgan Stanley. Please proceed.

Thank you. I was wondering, could you just review for us the restructuring charges kind of before and after, correct me if I'm wrong, but before you had about 180 million in savings, on restructuring charges that were like about 250 million, and now it is 200 million in savings on about -- on a different level. Could you just review for us, I think, you know, the incremental chart, incremental benefits and I just want to make sure we get them down correctly.

Yes, Michael, I think we disclosed before, a savings of about $150 to $170 million on about $170 million in charges. Now, we're up, and as I said there was going to be a slower pay back on some of these longer-term real estate actions that we're, do and we now anticipate about $200 million on the actions that we've taken to date. Which on the restructuring line amount to about $233 million.

$233 million of total restructuring is the current level?

Yes, and that generates, we anticipate, on an annualized basis about $200 million in savings.

Got it. And then what was the head count? You mentioned the head count year over year was down about 4%. What was the head count in the fourth quarter and more importantly when do you think that number kind of stabilizing or actually starts to even slightly increase?

I think we're up actually slightly from the fourth quarter, as we've seen some of our organic growth in certain of our businesses in the United States. So I think we're -- we're at somewhat of a stable kind of a position right now. And we will monitor that obviously very closely. We don't see any big spike-up or big spike down in the near term.

And do you imagine that there is a certain amount of revenue you can take on without having to hire, or does hiring having to occur before revenue? Or does revenue come beforehand? Just give us an idea what is the the leader and what is the laggard.

We don't anticipate having to make hiring spikes or hiring in advance of revenue. Clearly, we have an ability to expand given our current employee base but as revenue continues to improve, clearly there will be an upside in the amount of people. But not in advance of revenue.

And last question, just to clarify something Lauren was going into, since it is not clear how the peers are calculating their organic revenue growth, and you have goals that are kind of relative to peers, is there kind of a bogey of a number that you think you should be at, if everything was kind of hitting full stride for this quarter? Or can you just give us some way of thinking about how far you have to go in your perceived progress on organic revenue growth.

Well, again, I think we're making great progress. We've seen four -- you know if you look at how we calculate, we've seen four quarters in a row of improvement, and again, I think that based on the calculations I've seen from the competitive step, probably the closest comparator is the -- on our point would be 2.3%. So if you look at our competitors growth, and the gap on that basis, from where we were to our competitors during those last four quarters you're going to -- you're going to see very significant improvement. In fact cutting it in half in most cases or getting it almost close to a number of large companies as well, so we're pleased with that organic revenue growth, but I again, there isn't a standard way to calculate it, and you don't get a lot of details.

We would be happy to have a standard way to calculate it.

So would we. Thank you very much.

Operator I think we have time for two more questions.

Great. The next question will come from Jason Helfstein with CIBC. Please proceed.

Thanks. I guess three questions. First, just on your comments, that relate to the collaboration activities in the press release, do you think you can achieve higher margins when you generate revenue from collaborative activities? Second question relates to given that the first quarter, the low revenue quarter of the year, essentially would this be kind of like the peak quarter for year over year expense growth or core expense growth? And then just lastly, Chris, I don't remember if you said you wouldn't -- would or would not break these out any more but do you have numbers that relate to professional fees in the quarter, bank fees, and bad debt expense? Thanks.

Let me, Jason, first take that collaborative one. Yes, I think over any period of time, collaborative growth should be additive to margin. Because the acquisition costs are low. It depends of course, though on the transactions what kind of hiring is necessary to service those businesses. But in terms of the way we view it, we view it as adding to margin, yes.

Jason, we haven't given all the break downs of our expenses, as we felt now, that, you know, we need to manage these in total as our operating results. But I will say that professional fees continue to be high, and in fact, growing in 2004, as a result of, you know, the continuing SEC investigation, on the legal front, as well as the Sarbanes-Oxley requirements, and the internal control documentation that we are going through. Once we're through this year, we believe that we will start seeing a decline in those. And we're also going to be seeing and are seeing declines in our bank fees.

Okay. And then the comment on kind of the seasonality of expenses?

You know, many of our expenses are fixed. Obviously, we have rent and salaries as the major piece of that. So again, as our revenue increases, and the first quarter being a lower quarter in terms of our revenues, we see some margin expansion going forward.

So just generally speaking, if we were looking at kind of constant currency, salary and related and office and general, from a year over year impact, kind of first quarter would typically be a higher impact to the extent you can keep those relatively flat? Is that a correct way to think about it?

Well, you know, I think we're seeing some improvements in the first quarter as they relate to the restructuring actions that we're taking. So you know, I think that is the -- you know, the way we see this thing moving.

Okay. Thank you.

And the final question will come from Troy Mastin with William Blair. Please proceed.

Good morning. Thank you. I just wanted to clarify on the restructuring charges, is there $67 million left on what you've identified? And it sounds as if these will hit in Q2 and Q3 if you can give some color as to where those might be more heavily weighted and should we expect to see your level of savings which you are currently saying as $200 million to increase as a result of the remaining restructuring?

Yeah, Troy, I think just to be clear, I thing we probably have $25-$35 million of additional restructuring that will impact us going forward. And we would anticipate additional savings as it related to those expenses. What we were looking at when we talked about the total restructuring was, you know, there are restructuring expenses that are reported on the restructuring line, and then there are certain restructuring expenses, primarily certain of those that relate to real estate transactions that end up in the office in general so you have to add those up together to come up with the total amount.

Okay. Good. And then one final question. David said that you're more than competitive in peers in new business wins. I was hoping you could provide a little more color to that, specifically are you doing better than your peers as far as you can see in terms of winning new business or any other commentary there?

Well, as you know we are no longer providing net new business wins, but our look at the metrics internally, even though they are non-GAAP tied, give us feeling that we are showing strength.

Okay. Thank you.

Thanks very much for joining us this morning.

This concludes your Interpublic Group of Companies first quarter earnings conference call. Thank you for your participation today. You may now disconnect.