宏盟集團 (OMC) 2002 Q2 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the Omnicom Group Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. If you wish to ask a question you may press the 1 on your touchtone phone at any time during the conference. You will hear a tone indicating that you have been placed in queue. You may remove yourself from queue at any time by pressing the pound key. If you are using a speakerphone we ask that you pick up the handset before pressing the number. If you are on a cellphone and you wish to ask a question, the host requests you dial back in a regular phone for better sound quality. If you should require any assistance during the call, please press the 0 and then star. As a reminder this conference is being recorded. I will now turn the conference over the Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger.

Thank you. And thanks everyone on the call for taking the time to listen to our Second Quarter 2002 Earnings Call. Like normal we are going to begin the call with some brief remarks from John Wren regarding our performance and the state of the industry. And following John's remarks we will review the financial performance of the quarter in more detail, and at the end both John and I will be happy to take any questions. We will be sure to plan to end the call right before the market opens. Thank you.

Thank you for joining the call this morning. Our performance this quarter ends at the sixth month, is in line with our expectations. As stated in the past, that the advertising and marketing communications industry has been difficult and our objectives for this year has been to achieve 10 percent reported growth. Those objectives remain unchanged. Our operating companies continue to perform very well despite the challenges. Our strength versus the rest of our sector can be attributed really to our people. They have done an outstanding job and remain totally focused in servicing our clients. When we have given the opportunity to increase our market share by winning new business, they have. The greatest strength of our people and the close management of cost on a local basis, remains the keys to our continued performance. Moving forward we will continue to adjust our cost in a balanced fashion, which will permit the company to continue to deliver outstanding service, increase our market share, and achieve our long-term objectives. Now I will turn over to Randy, who will take you through our financials in greater detail.

Thanks John. Hopefully everyone has had a chance to see our earnings release this morning. In addition, as we started a tradition last quarter we placed on our website a more detailed presentation, I think we have expanded that even further this quarter more along the lines of the presentation as an update of the presentation that we have put out about a month ago. But in any event most of you know that in the first quarter of this year in compliance with FAS 142, goodwill and other intangible assets, we will require to stop amortizing goodwill, so to make the year over year analysis comparable for this call, we refer to our 2001 numbers and it will also exclude goodwill amortization as if FAS 142 took effect at the beginning of 2001. So let us begin. For the past several quarters we have predicted that Q2 will be our most quarter for 2002, due to strong comparable figures of last year. Well basically we were right. In addition to the difficult comp it is obviously also been somewhat of a roller coaster ride for the economy. I think it is safe to say that the equity markets have created a few distractions all round. Fortunately due to the strength of our agencies and their ability to stay focused on continuing to build their key client relationships we are pleased to be able to report the second quarter with Omnicom's 44th consecutive quarter of year over year growth in both revenue and earnings. In summary, revenue for the quarter increased by $170 million to $1.917 billion. That was an increase of 9.7 percent over last year and net income increased by 9.3 percent to 187.3 million. As mentioned in last quarter a portion of the increase in that income is due to the conversion of the 2-1/4 percent convertible bond issue that occurred at the end of 2001. That conversion we do start interest expense an increase by our outstanding shares. While the conversion had no effect on our diluted EPS, it did increase net income. So excluding the impact of that conversion, net income increased approximately 8.1 percent. Diluted earnings per share for the quarter increased 9.9 percent to $1 from 91 cents last year, again that 91 cents has been restated for 142. For the six months, revenue increased 9 percent to 3.649 billion and net income increased 10 percent to 315.9 million. Earnings per share for the six months increased 8 percent to $1.67 from $1.54 last year. Breaking down our revenue a little bit, organic growth in the quarter totaled 25.7 million that accounted for about 1.5 percent of our total year-over-year revenue growth that was down also marginally from the 3.7 percent we achieved in Q1. For the six months organic growth totaled 83.7 million accounting for 2.5 percent of our year-over-year growth. Incremental revenues in the quarter from acquisitions totaled 142.8 million adding 8.2 percent to our growth and for the six months acquisition added 233.6 million or 7 percent to our revenues. Just for a point of interest, the substantial portion of the acquisition revenues actually came from transactions that were completed in the second half of last year. For the first time in recent memory, FX actually had a positive impact on our reported revenues, although a small increase $1.3 million or 0.1 percent, it was at least positive. However, for the six months, it remained negative reducing revenue by 16.2 million or about a half of 1 percent. FX in the quarter [indiscernible] the UK pound and the Euro both significantly strengthened and versus the dollar, while most other currencies remained weak. As a result the positive impact of the pound and the euro were really offset by the negative movements in Asia, Latin America, and South Africa. We don't have an economist on staff, it seems that the strengthening of the pound and Euro may have had more to do with the turmoil of the US equity markets than the relative economic conditions of the various international markets. From our experience, generally across to our businesses, we continue to experience weaker market conditions in the UK and Europe than in the US. On a constant currency basis, revenue growth was approximately 9.6 percent for the quarter and 9.5 percent for the six months, which compared to 19.4 percent and 19.9 percent for the quarter and six months last year. Our revenue mix for the quarter marketing services accounted for approximately 57.1 percent of our revenue, and traditional media advertising 42.9 percent. For the six months, marketing services accounted for 56.2 and traditional media advertising 43.8. Marketing services year-over-year growth was 10.3 percent in the quarter and 8.9 percent for the six months. While traditional media advertising was up 9 percent for the quarter and 9.1 percent for the six months. Breaking down our marketing services revenue into the groups, CRM was approximately 30.7 percent, specialty communications 13.6 percent and public relations 12.8 percent in the quarter. As for the respective total of growth rate, CRM was up 15 percent year-over-year for the quarter and 14.8 percent for the six months. Specialty communications which was driven by strong healthcare market and acquisition growth, somewhat offset by weaker conditions and recruitment in financial advertising sectors increased 26.7 percent for the quarter and 20.2 percent for the six months. In public relations, which continues to face difficult year-over-year accounts and continued weakness in the Tech area as well as a generally slow new product introduction environment was down approximately 10.7 percent for the quarter and 10.1 percent for the six months. Our chief graphic mix of business in the quarter was 58 percent US and 42 percent international as compared to 59 percent US and 41 percent international for the six months. While our US business was stronger than our international business in the quarter our international revenue mix benefited from a weaker dollar basically the conversion of the foreign currencies back to the dollar. The UK and Euro markets combines for approximately 29 percent of our revenue for the quarter and for the six months. [indiscernible] rose for the quarter was 192.2 million or approximately 20.8 percent. Incremental revenue from acquisition totaled 122.8 million, accounting for 13.3 percent growth and organic revenue totaled 69.4 million accounting for an additional 7.5 percent year-over-year growth. For the six months total revenue growth in the US was 317.7 million of 17.4 percent with acquisitions totaling 189.5 of that or 10.4 percent. An organic growth 128.2 million which accounted for 7 percent year-over-year growth. International revenue for the quarter actually decreased 22.4 million or 2.7 percent year over year. Organic growth in the quarter was a negative 5.3 percent or $43.7 million offset by incremental acquisition revenues of 20.1 million and a positive FX impact, I mentioned before, of 1.3 million. That nets to a negative 2.7 percent growth. For the six months international revenues declined by 16.7 million or 1.1 percent consisting of negative organic growth of 44.5 million and negative FX growth of 16.2 million offset by incremental acquisition revenues of 44.1. In a large part, in analyzing the negative year-over-year international performance for the quarter, it was really due to an event that occurred in Q2 of last year that did not repeat this year. Absent that event, international revenue for the quarter would have been about flat year over year. Net new business wins, the level of account activity overall has continued to be slow, although in the second quarter it did pick up a bit. As a result, we are able to exceed our goal of a billion dollars achieving 1.2 billion of net wins for the quarter. That was a year-over-year increase of about 16 percent and an increase from the first quarter of about 18.7 percent. Some of the significant wins and losses in the quarter are, first, Charles Schwab, that was both a win and a loss; it was lost by BBDO and won by GSTN and M. On the win side, Novartis, the Skittle's brand by Mars, [Hogindoff], HomeDepot and Ace Hardware. And in the losses side as I mentioned Charles Schwab, [Nestle Perina] petcare; that was a media only account and the Children's Miracle Network. Moving down the income statement, operating income for the quarter was 330.5 million that was up 5.2 percent and for the six months it was 559.3 million up 5.9 percent. However, operating margins which were 17 percent for the quarter declined approximately 80 basis points year over year and for the six months were 15.3 percent, which was down about 50 basis points year over year. The cause of the year-over-year declines in margin were primarily due to increased severance and other personnel related cause which resulted from our agencies' actions to manage the cost structure on a location-by-location basis. And the lingering excess infrastructure cost that we mentioned last quarter. Net interest expense for the quarter was approximately $5.9 million it's down from [93.4] million in the second quarter of last year and down from a 11.3 million reported in the first quarter of 2002. For the six months, interest expense was 17.3 million down from 39.7 million last year. The year over year decrease in interest for the quarter was doing par to the conversion to equity of the 2.25 percent convertible bond issue at the end of 2001 as I mentioned earlier. Generally lower short-term interest rates, I mean in Q2 will be the first benefit that we've gotten the flow to the P and L of the current convertible bond issues. Our tax rates for the quarter was 37. 6 percent, which was a 20 basis point improvement over last year and for the six months the rate was 37.2 percent, which was also about a 20 basis point improvement over the last year. While we continue to improve on the tax front, we still have ways to go. And finally EPS as previously mentioned, diluted earnings for the quarter was $1 per share that was 9.9 percent increase from the comparable 91 cents last year, that 91 cents as I mentioned was adjusted to reflect the elimination of goodwill amortization as well. For the six months, diluted earnings were $1.67 that was an 8.4 percent increase. From a share's perspective for the quarter, the weighted average number of shares outstanding for the basic calculation was 185.7 million and for the diluted calculation was 188.1 for the six months period the weighted average outstanding for the basic calculation was 186.2 and for the diluted calculation was 189.1. Now with that I will turn the call over for questions.

And ladies and gentlemen, once again if you do have a question at this time please press the one on your touchtone phone. Our first question today comes from the line of [Lauren Fine] Merrill Lynch. Please go ahead.

Thank you that was helpful disclosure. I am just curious if you could comment on a couple of things? One, how is the negotiation going for the I guess you have to re-negotiate your revolver at this point. I am wondering how morale is. You mentioned that because of your personal you think you are outperforming your peers, but is morale coping up with the current turmoil on the markets? And then on the net new business side I didn't see Quest, I thought that had been a big win and I just wondered if you were not including that for some reason.

Now, Quest is a win. It is included in the numbers. We don't include them all, we you know this is a selective group of the account, frankly it will be too long a list to mention. As far as morale goes, fortunately you know we have great people on the agencies. They are focused on their business and their clients. It seems that morale has remained quite strong although it has been pretty much on roller-coaster ride.

Let me comment on that line it's just I have been personally it's been incredible the support for the company that's occurred. It was always there, but the increased efforts on the part of everyone that I have come in contact with basically well everybody else has been doing accounting that's what I have been doing and their re-dedication to their clients to how proud they are about the individual brands that they represent and it has just reflected in I think people have worked harder this summer then they have been as many years I can remember, just re-dedicating themselves to their clients to winning business when there has been an opportunity and to the company because of their underlying beliefs, in themselves and the company, in total. And your first question, since we decided to answer these backwards was

On the revolver.

Oh, yeah we have started preliminary conversations with banks [indiscernible]. We have a lot of time to go as well. Our objectives was to get this financial earnings out to get the [q] done before we really you know get into serious conversations.

One last question if I could. Could you comment on KPMG. I was under the impression that you might be able to comment on how they were doing at both in looking at the Seneca transaction or anything else.

Sure that's actually a great lead in. Lets see, to review it all, KPMG was appointed on June 13th, by the board of directors to be the independent auditors for the company for 2002. At their request they should say that they have not been engaged to re-audit of 2001. However, as the successor auditor, in order to express an opinion about the 2002 financial statements, they do have to get themselves comfortable with the impact of the opening balance sheets on the current year financials. While KPMG is not required, nor expected to fully complete the success review procedures and tell they forgot their audit opinion as to the full year 2002 financial statements. As an interim staff, they have reviewed the Seneca transaction. And based on that review, we are very pleased to say that KPMG has not advised the company of any changes to be made to our accounting for the Zeneca transaction. In addition, as part of their engagement with respect to 2002 audit, KPMG is performing the FAS 71 review of our quarterly financial statements or quarterly results as regard to the year. The first of these reviews has been completed for Q2, I should say, while substantially completed for Q2, that review will not actually fully be completed until we file our 10-Q, which we expect to do on August 14. From our perspective, it was always pretty time consuming and potentially disruptive to change order firms especially for a company as geographically diverse as Omnicom, and then potentially compounded by the current circumstances in a short time frame that has been involved, we are pleased with the result of the transition so far. We think it has gone pretty smooth one.

Great, thank you.

The next question is from our line of Alexia Quadrani with Bear Stearns. Please go ahead.

Good morning, with regards to the acquisition activity. Could you comment a bit on, I guess, the overall activity industry-wide, is it, would you, say it picked from last year and then may be talk specifically on Omnicom in terms what you anticipate on roughly your total acquisition dollars beginning this year inclusive of earn-outs?

Industry-wide, I think, acquisitions are probably, you know, I mean in terms of people making decisions, which actually [applier] companies that has, you know, our objectives, last year, this year, going forward, certainly have not changed. I can't speak for others in the industry. The acquisition stat, [indiscernible], we've made with companies that help us to expand our relationships with our largest clients and to improve or increase the service, capability that we have in servicing those clients as it's been in the past, at least in the past several years. These acquisitions tend to be small, very purposeful acquisitions, and where we have a fair amount of visibility because we either share clients or we know that a client might be interested in being serviced by this newly acquired company. And so, those objectives are going to continue and if strategy require companies we have visibility, tell me, where we are able to find visibilities is really where we can share clients and we know what these clients are going to spend to get the level of assurance that we need when we get the returns that we need. And so,

I guess given the overall turmoil in the equity markets in general that that the larger transactions everywhere are going to be a lot slower that's never really been a focus of Omnicon's strategy anyway. So it should matter. As far as the dollars go, I had estimated I guess about a month or so ago, having looked through the last couple of years of activity, I estimated this years activity to be between $625 and $675 million. I don't have any new information that would make me think those numbers are, you know, not just as accurate as they were.

And that is inclusive of earn outs, right?

Absolutely, yes.

Okay and then.

And those are estimates Alexia.

Sure.

Cash is kidding through in this environment

Sure, and just a followup question on the new business activity, you guys had a very impressive quarter, any comments on the any signs of a pickup in the overall market or how does the pipeline look?

New business is a funny thing and that you have to be invited by a client who wants to make a change. There is not a lot you can do to stimulate the activity, so it's sort of, very you know, you are reacting to what is possible. Having said that, maybe for the last two months there has been a total focus of each one of our operating companies on the importance of increasing share of clients, especially our largest clients as well as pitching new business, I think we have been aided by, in that regard, by OM fees starting to come together this year and some other changes which have, you know, occurred earlier in the year, so we are very pleased with our batting average and so and it's been our view because of the creative strength of the organization and because of the balance and diversity of the organization and the quality of the management people running the individual companies; that when when we get up to the [place] we can bat pretty to run well and the other thing which continues, is this always the case in the past, the best things that aids us is mitigating losses which is natural. You know, in this particular quarter Charles Schwab is an example of that where, they decided to make a change from one of our agencies, but rather than go out and put it in [review], selected another one of our companies, and so whilst there was a shift within subsidiaries which causes us to shift costs into lot of other things. The net to Omnicom was zero, and so net new business means just that, it's the wins less the losses, and by mitigating losses and continuing to have that kind of experience has aided us quite well in what we have been able to do.

Okay, Mr. Randy one quick question on your comments you made earlier. You mentioned there was a one-time benefit in the second quarter of last year, which made the counts particularly tough, is that just.?

I didn't say benefit, I said events.

Events, that's what you said. Is that just upon a project or something like that for major client?

Yeah.

Okay, thanks very much.

Thank you. Our next question is from the line of [Louis Sullivan] with Fidelity, please go ahead.

Yes, I just had one question. On the severance cost, how much actually did that hurt the margin of the quarter and how much was it?

The increase over last year was about $10 million.

$10 million. Okay, thank you.

And our next question from the line of William Burgles, Solomon Smith Barney, please go ahead.

Yeah, hi John, I was wondering if you can talk a little bit about, you know, what are some of the factors you are looking at to kind of a gauge a turn in the business and just was wondering if you can give us a little bit of flavor for, you know, what clients are saying about, you know, future spending patterns and is there a catalyst or event that you are looking in order to gauge the health of the market? Thank you.

Market continues to be difficult, there is no question it was difficult last year and very difficult, it remains difficult this year. The catalyst, there are a number of things we have been looking at, there were a number of things we planned for and expected this year too. One is you have front market, and it was strong. People have the right to cancel and to adjust that in the coming weeks we are going to be watching that very very closely in talking our clients to what they want to do and then what their plans are has been in the share market in the fourth quarter. I think for those companies after they pass August 14, and the turmoil of you know all accounting questions of people having the issue of the certifications will become even increasingly focused on their brands. There has been a lot of costs taken out of the lot of businesses over the past two years, ours is an example as well. And I think that companies realize that the only way that they are going to be able to sustain themselves, is in something of marathon is to continue to support the brands that they have and build those brands and the more enlightened clients that are out there realize that the solid, consistent revenue growth is key to their continuing strength and coming out of this cycle. Now having said that we are monitoring it, and we are monitoring it at every day, our accounts in the third quarter you know certainly allow us to achieve our objectives and obviously starting to trail down in the second half of last year on a comparable basis. I think, currencies when they settle are going to make it easier for us to accomplish our objectives in the second half as well. So, by no means is there a huge recovery that we expect, we expect that it is going to be tough going for the remainder of the year. But, we think that based on what we know, based upon what we promised, we have staying with our objectives. The other part of that coming with through prior recessions is where are a service business so keeping that balance of people where the best people in the industry are trying to gain share during this period of time is what is going to contribute to our overall growth once we get past the next couple of quarters. And there is there is kind of an old saying you can't service clients you don't have. So by keeping us clients, by sharing their pain, by sharing their growth, by encouraging in the ways to effectively spend their money we think in more enlightened ones are going to do just that. And so we are just monitoring it constantly. But there is no you know there is no red light, there is no great, bright green light, its just business as usual staying to the strategy that we have, and working through those whole processing with the clients that we have.

Also, I was wondering, if you could talk a little bit about the ratings agencies, and maybe give us an update on kind of what the situation is? And are there any specific provisions that you may have to live with in order, you know, to sustain your A rating, and is it still important to you to sustain that rating?

Yeah, I said it before. We have tried to manage the capital structure to have a balance between keeping an A credit rating and giving the best returns to our shareholders. You know, we have gone through review after the, I guess, the Wall Street Journal article. We have gone through a review with each of the rating agencies. Yeah, they were basically, I think, comfortable with our business. We have got a long history with the agencies, you know, they ... everyone wanted to see how this quarter obviously turned out, how the year's turn out, how the transition with the KPMG is going, etc. All of those things are really going, you know, well, so you know, I think it is going to be positive with the agencies going forward.

Thank you.

Our next question from the line of Michael Russell with Morgan Stanley. Please go ahead.

Thanks. Hi John. Hi Randall.

Hi, Michael.

I was wondering if you could help us understand the acquisition growth. The level of 8.2 percent is kind of at its highest level since 2000 ... and how do we, if last quarter it was 5.4 percent growth from acquisitions, how do you suggest we think about it for the rest of the year going forward? Is that the number that we are going to see kind of in the 5 or 6 percent range or is it just kind of establishing a new level going forward?

I don't know. I have to do some work to give you the answer. Some of this is rolling through acquisitions that were, you know, it's the full year with the final quarter of acquisitions that were completed in the second half of last year. So, yeah, those are going to cycle, yeah, at the end of their four quarters. The acquisition activity in the first half has not been nearly as high as the acquisition activity in the second half of last year. So, yeah, depending upon the acquisition activities going forward, they will probably come down a bit.

You know, I mean, the only thing Michael it depends on the period of time that you are talking about? You know, if you look at the industries under, you know, stress, you know, just the first time, we have ever experienced public relations for instance which has [indiscernible] down year-over-year, that has the numbers affect the percentages in this kind of an environment. But, we would have to look at it rolling out; if you look, I think, historically, at our numbers, it's been probably, what, a third of our growth historically. If that's the average over long periods of time, there is no change in strategy to suggest that on a long-term basis that would be more than that, so I think during that kind of period of some aberration.

Another aberration is that you have been doing a lot with investor relations at this point and I was just wondering, in terms of acquisitions, how involved are you guys usually in these acquisitions and because you are probably more involved in some of the crisis management issues of recent weeks, is that slow down the acquisition pipeline somewhat?

May be a little bit, but I don't think a lot that the ... key to our acquisition activity is the relationships between the acquired company and the, I will say that, the network or the strategic platform that's making the acquisition, a lot of work gets done from the client perspective to make sure that there is a great ... from the client perspective with a great cultural fit that has a lot to do with a lot of people other than [Ausceria] Corporate. We probably slowed down, may be some of the approval processes a little bit primarily because we have been busy doing other things, but I don't think the depth of the Omnicom is strong enough that the people are out, you know, continuing to pursue their strategies, you know everyday.

Yeah, also the timing of ours has been the summer which ... if you had gone to Europe, you would find everybody at the beach not ... kind of common pattern which happens and that activity going in the summer, conversations continue, but the pace and the frenzy of that activity is not as great so, as Randy said we've probably slow downed the approval process, somewhat we also wanted to make sure that all our objectives including returns, and what we can expect there, but people continue to look at acquisitions, in accordance with, their approved strategic plans, which we have done much earlier and suggest where geographic expansions permitted, where buying versus building is a better suggestion, or an idea where you can find the right target. So those dialogues continue with an operating basis.

And then lastly just on organic growth going from 3.7 down to the 1.4 percent for first quarter, second quarter, is there a sense that now these are comparisons of the third quarter that we can see that number pick backup to, you know, is there some guidance you can give us to the range that, you think, given the easier comparables in the second half?

I would be pretty careful not to give specific guidance, but I think it would be safe to say that it would be logical that it would increase.

Right, and we are just staying with our 10 percent total reporting growth until we get clear signs of the catalysts, that we need for increasing those targets.

Thank you very much.

Thank you, Michael.

Our next question from the line of [Troy Mastin] from William Blair, please go ahead.

Thank you, I want to ask quickly something about your new business, whence the strong track record that you had over the last really several years just applying that through your income statement, at say 12 percent of new business, whence would suggest that your existing clients must be spending money less at [Equipo] 3 or 4 percent versus previous years, is that consistent or has new business plans or have they not been materializing as quickly as you have been normally expected or is that a combination of both?

I think realistically it's a combination of both. We didn't go case by case to some of the larger events where there have been you know very large pitches, lots of business being aggregated and if the client activity doesn't get to that level as fast, you know, it's just not going to ..., you know, its not going to come through quite as quickly. It's a hard one to predict in this environment. Historically, [indiscernible] towards the 12 or 13 percent rate to our last 12 months net new business events. You know it tended to work out pretty well to about two-thirds of our organic growth. Last year, we stated if that was the case in sort of a normal market and in a tougher market it might be you know closer to 80 or 90 percent. Now with a prolonged tougher market, yeah it's a bit more difficult to predict.

We have to get through constant sectors like PR which, you know, there is a wholesale to the client year-over-year, you know, its 10 percent or 10.7 percent as to get [indiscernible] number [n years], so there has been shifts in and also lot of clients both [double event] business and there is also lot of clients we continue to service in lot of different sectors and so it is just the next and so we have been careful since forever and especially since September 11 last year to not to suggest that the growth is going to be more than the 10 percent reported growth in this period as long as this period continues. Thus those are our objectives that's what we are striving to accomplish and we think total growth in a recession that's positive is quite an achievement and so we can be more specific in that at the moment.

Okay, next I want to ask the question about domestic and international business. It seems that you are outperforming your competitors fairly significantly here in the US, overseas, you may still be outperforming your competitors but probably not by the same amount, a jargon in the US. Is there something characteristic to the US market and may be agency-specific within the markets or international that is striving that outperforming if I guess in the US versus International?

I would think probably marketing services, we are, you know, we are stronger in marketing services domestically than we probably are internationally partially. I would think that those sectors, some of their services are, you know may be more developed domestically than in some markets around the world.

I think the other impact is the US last year starting to lead us into this recession, there was kind of a back ending before it really started to affect Europe a little bit and I think the feeling in Europe right now the US is going to have lead the world out as well. Our focus, our attention has been worldwide but the cost of marketing services, the cost of the mix, because of the way we can go to market here. We had more success here than we had outside individual European markets and certainly Asia and Latin America has been a huge challenge year and the last. So, but US let us in and US is going to lead us out, I think from our perspective my perspective.

Now, yeah that yes sounds right. Okay then, finally one more quick question. The reacquisition of the some of the Seneca component is there any update there or is that on hold for the time being?

First part, let me make sure one thing is clear. Reacquisition is not quite right where we had, you know, investments in the companies that were transferred over. The two businesses that you are talking about, Organic and Agency.com, we have stated that we have an interest in acquiring a 100 percent interest in Agency.com and Organic if were, you know able to do it, those negotiations have been on hold, as we have been, you know busy doing other things, but it is something that you know we still think it would be a good fit.

Those companies continue to, you know, interesting in that, you know [indiscernible] selected on 100 percent of those what's interesting is almost as we predicted it, their competitions have fallen away. There is a lot of bankruptcies and there is lot of retreats going on, you know in terms of that sector, and those two companies continue to win new business every ..., you know for them, you know very interesting consistent pattern, and so long-term we believe the Internet is part of the marketing mix, of how you talk to consumers, so when it's appropriate and with the proper review, whoever needs to review it, guidance and counsel, we will we are still interested in those companies, right, but we have done nothing as Randy was suggesting.

But the key is that they have both business are doing quite well. Their management teams have done you know a great job in positioning them, you know, and keeping their business, you know, moving forward especially, you know now it is only tough economic environment, but a fairly dramatic change in their industry. So you know we can do it. We certainly like them to be part of the Omnicom group.

Thank you

And next question from Kevin Sullivan with Lehman Brothers. Please go ahead.

Very good morning. Randy, margins being down 80 basis point, and they had been, you know mentioned historically flattish slightly up margin improvement year in and year out. Could you just talk about what we can expect from margins in the back half of the year?

You know margins were little bit lower this quarter than, you know, I thought they were going to be. I'd really focused on sort of the, I will say, the lingering infrastructure costs, severance and some personnel costs and some professional fees were up quite a bit year-over-year that, you know, they impacted this quarter. You know I would have to think of those things are really isolated costs and were for the most part behind this. We start to get into easier comps as we move into next quarter in the fourth quarter, so I go back to the [indiscernible] that we are going to get a lot closer to flat year over year. And our long-term basis we continued to you know development drive more efficiencies in our operations and those margins should revolve through pretty consistently, but you know on a slow basis and I think I said for a long-term about 10 basis points a year. I would tend to be pretty good performance given a level that we are at or I should given a level that we were at. Getting back to those say 2001 sort of levels is probably the right start.

You know the only thing I really asked about is we have a quite a number of objectives and hitting our objectives in total. We are adjusting constantly based upon market conditions and so we will continue to do the right thing from a overall prospective. And in that requires some adjustments some [indiscernible] whatever you know whatever requires moving forward. We are going to continue to do that but margin improvement is clearly something that we are very concerned about as we are about revenue growth and many other aspects of all our other objectives. But we are going to monitor them all and then do the right thing for the long-term growth of the company. And sometimes you are holding on to people that you don't want to manage from a quarter-to-quarter basis because the people are so, ...they are great people. And when the recovery happens if you have to go on and try to retrain them or do things. It becomes expensive to do that. I mean trying this during trial period we will increase the amount of money we have been spending on training and developing our people. And that's something that we believe

You can't look at you know the impact of short-term decisions on. So this awful lot goes into it but it is the long-term health and benefit of the company that is in focus.

Understood. Thank you

Thank you. Then we got time for may be one more call, one more question.

And that will be from the line of David Drought with CIBC Markets. Please go ahead.

Good morning.

Good Morning, David.

Just a follow up on the agency in organic question from before. You guys have obviously made it known you would like to acquire those businesses at some point. Do you have any sort of exclusive negotiating arrangement or can anyone come in and potentially come on top or do you want to beat those away?

We don't have any exclusive relationship so yes someone can come in and you know top us if you know if they do. We have got some, you know we have got pretty good relationships with their companies and you know we certainly hope that we are going to able to get to an agreement.

It does give you the right to block anything I mean, seems like you have [indiscernible] plans.

We absolutely have no rights to block anything, have no [excuses], no options, you know etc.

Okay, thank you.

And thank you all for taking the time to listen to the call. I think we have run out of time if [indiscernible] the market open. So thank you again.