宏盟集團 (OMC) 2006 Q1 法說會逐字稿

Ladies and gentlemen, good morning. Welcome to the Omnicom first quarter 2006 earnings release conference call.

[OPERATOR INSTRUCTIONS].

At this time, I would now like to introduce you to today's conference call host, Executive Vice President, Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead, sir.

Good morning and thank you all for taking the time to listen to our first quarter 2006 earnings call. We hope everyone had a chance to review our earnings release. We have also posted to our website both the press release and a presentation covering the information that we'll present this morning. This call is also being simulcast and will be archived on our website.

I have been asked to remind everyone to read the forward-looking statements and other information that's included on page one of our investor presentation and to point out that certain of the statements discussed today may constitute forward-looking statements and that these statements are present expectations and actual events or results may differ materially.

With that out of the way, we will begin the call with some general remarks from John Wren, following which, we will review our financial performance for the quarter in more detail and then both John and I'll be happy to take questions.

Good morning. Thanks for joining us. We are very pleased with the company's performance for the first quarter. Revenues for the first time in several years were actually positive across the board. That reflects both the growth of our existing clients and the impact of new business won last year. The momentum from last year is continued for the first four months of 2006 and we are making significant progress in several areas. We are making progress and we are ahead of schedule, I believe, in our efforts in areas of emerging markets such as China.

Our global expansion of our PHD brand, which is our equally important media brand, is being rolled out on schedule and I believe it will provide for additional growth in the latter part of this year and next. And we continue to make significant progress in tracking the best talent in the marketplace. We are very, very pleased with our ability to continue to operate talent, market by market as we look around the world, especially in areas such as emerging markets.

From a margin point of view, Randy will take you through all that in a few minutes when he takes back the call. But our performance certainly was on track with our objectives for the year which is to improve margins while continuing to make important investments both in the training and development of our people and in the new talent when we can acquire them.

One sad note in the quarter was our colleague Ken Kaess passed away in March 2006 after a rather brave battle with cancer. Ken was one of the driving forces at DDB Worldwide over the past several years. And we will certainly miss him in that role and I will miss him certainly as a friend.

In terms of transition, Bob Scarpelli has been the creative leader of DDB, has taken over the role as Chairman. This is something that he has been trained to do and looking forward to do under different circumstances for the last 20 years.

And Chuck Brymer, Interbrand's -- formerly Interbrand's Chairman and Chief Executive Officer has been appointed to the role of President and CEO of DDB. They inherent from Ken one of the world's greatest agencies and we're very confident that they will continue to grow and DDB will prosper, as we go forward.

2006 is the 20th anniversary of Omnicom and our strategic priorities remain the deepening of our relationships with our existing clients and obviously new business where we can develop new clients when the opportunity provides itself.

And just on one note, Asia, certainly will figure prominently, I think, in our investment strategy this year. The performance of the team that we put out there in last April is exceptional and we look forward to a great progress in that region of the world.

With that, I will turn the call over to Randy and then we will answer whatever questions you have later on.

Thank you. As John pointed out, Q1 was a very strong, kicking the New Year off to a very good start. Specifically, revenue for the quarter increased $159.9 million to 2.56 billion, that was an increase of 6.7%. Operating income was 284.4 million, up 10.5% and operating margins were 11.1% which was about a 40 basis point increase over last year's reported results.

There are two anomalies in the year-over-year comparisons that we would like to mention. The first, as you may recall, in Q1 of 2005, we recorded a gain of $6.9 million primarily related to the sale of a business in Australia, New Zealand. And the second, this year, with the adoption of the 123[R], we were required to record a cumulative adjustment of $3.6 million to provide for an estimate of forfeitures on all unvested employee stock-based compensation awards, as of January 1, 2006.

Since we have already been expensing stock options for the past several years, this adjustment was fairly insignificant for us. Adjusting for both of these items, our year-over-year operating increased 12.1% and our operating margin increased from 10.4% last year to 11% this year or about 60 basis points.

Net interest expense for the quarter was 15.1 million, that was an increase of $3 million over last year. The increase was primarily the result of increases in short-term interest rates which resulted in us paying a larger supplemental interest payment or sweetener last August on our 2,032 convertible bonds.

As many of you already know, at the very end of Q1, we issued $1 billion of 10 year fixed rate bonds. The bonds pay a coupon of 5.9% per annum and we will have an all end cost including the amortization of issuance cost of approximately 6.1%.

Since the bonds were issued at the end of Q1, there was no incremental interest cost in Q1. We anticipate that with the proceeds of the issuance, we will fund the 2,032 convertible bond issue in August in the event that it put back to us. In the interim, we used a portion of the proceeds to accelerate at the end or at the beginning of Q2 the repurchase of 5.5 million shares or $458.7 million of our common stock. That common stock we had respectively purchased over the balance of the year. The remaining funds are being used for general corporate purposes.

On the tax front, our tax rate for the quarter was 33.8%, which is down over last year's reported rate of 35.1%. However, similar to our discussion of operating margin, last year's reported tax rate was impacted by the high booked tax rate related to the sale of the business in Australia and New Zealand. And this year's rate was impacted by the accounting catch-up that I mentioned. Absent these two anomalies, our tax rates are similar year-over-year at about 33.6%.

Net income increased 10.1% to 165.7 million, and diluted earnings per share increased 13.4% or $0.11 to $0.93 per share. Analyzing our revenue performance, our organic growth accelerated in the quarter to 8.7%, accounting for $207.9 million of our revenue growth. As we expected, foreign exchange had a negative impact in many of our international markets, reducing our overall revenue growth by 2.7% or $65 million.

FX in the quarter was a bit unusual in that the effect was split by markets. For example, the European markets and the UK were very negative, while Canada and Mexico were marginally positive and Latin America; specifically, Brazil and Chile were very positive. Based on current rates, we expect Q2 to be negative again, about 1.5%, and Q3 and Q4 to be much closer to breakeven.

On the acquisition front, after cycling through the impact of the divestiture we made in Q1 of last year, acquisition revenue turned positive in this quarter, adding $17.3 million to our revenue, or about 7/10ths of 1%. As for our mix of business in the quarter, traditional media advertising accounted for 43.1% and marketing and services 56.9%. As for their respective growth rates, traditional media advertising grew 5.2%, while marketing and services grew 7.8%.

Breaking down our marketing and services revenue a bit. CRM was approximately 34.8% of revenue, public relations 10.1, and specialty communications 12%. As for their respective total growth rates, CRM continued to be strong and steady increasing 10%; public relations increased 1.4% in the quarter, although organic growth for PR was better at 1.3%; and specialty communications increased 7.1%.

As for geographic mix of business in the quarter, the United States was 55.9% and international 44.1%. In the United States, total revenue growth for the quarter was 120.9 million or 9.2%, acquisitions totaled 16.9 million of that growth or about 1.3%, and organic growth remained very strong totaling $104 million or about 7.9%. Our international revenue increased 39 million or 3.6%.

Acquisitions were marginally positive in the quarter adding $400,000 to revenue. Foreign exchange was negative 65.3 million. And organic growth due to continued strong performance in Latin America and Asia now combined with significantly improved results in Germany and the UK accelerated to 9.5% adding 100.3 million to our revenue.

Our primary source of available cash -- and so if to not be confuse what we mean by available cash is not GAAP cash flow from operations; rather it's simply net income adjusted for basic non-cash charges, which for us are primarily stock-based compensation charges and their related tax benefits and then depreciation and amortization.

For Q1, our available cash flow again excluding working capital changes was approximately $248.7 million. The change in the working capital was also a significant benefit to our cash flow in the quarter, although this had more to do with the yearend cutoff than it did changes in the current quarter.

While working capital is generally a modest source of free cash flow, as we grow, due to larger swings in these numbers day to day and as the yearend and quarter-end changes demonstrated, we believe that analyzing our cash flow excluding changes in working capital is more appropriate.

As for our primary uses of cash, there are four CapEx, which is generally limited to furniture and fixtures, leasehold improvements, and in basic PCs and servers, totaled $33.5 million in the quarter. Dividend payments, which are currently running at $0.25 per share per quarter, totaled 45.2 million for the quarter.

Acquisitions including earn-out payments on prior acquisitions in the quarter totaled 35.4 million. In addition, we issued a short-term note in connection with one of our new acquisitions, which we expect to be paid in Q2.

And finally, share repurchases in the quarter. We've repurchased 4.33 million shares for a total of about 359 million. We also received $21 million of proceeds from option exercises and stocks sold under employee stock purchase plan, bringing the net amount down to 338 million. As a result of these repurchases, we reduced our outstanding share count from 178.3 million at the end of 2005 to 174.6 million at the end of Q1. That also brought our average diluted share count for the quarter down to about 177.8 million.

And with that, we will now open the call for questions.

Great. Thank you very much.

[OPERATOR INSTRUCTIONS]

Our first question this morning comes from Jason Helfstein with CIBC World Markets. Please go ahead.

And sir, we're unable to hear you, if your line is muted.

Sorry about that. Can you hear me, now? International organic growth was quite strong in first quarter. Randy, could you give us a breakdown, perhaps, of how much ad-related businesses grow that organic number versus marketing and services? And then I have two follow ups. Thanks.

No. I don't have that number.

Okay. But then it would seem that with the overall numbers, I guess, the 5.2 -- overall ad-related business is about 5.2 and marketing and services about 7.8. Is it fair to say that trends were similar with marketing services growing faster globally or you can't say because you don't have it?

I don't have it. That would -- I think that would generally be pretty safe bet. I think what happened in the quarter with the step-up in organic growth from the last couple of quarters is basically the UK and Germany started to kick in. We had very strong organic growth in those markets. I think that was largely driven by our marketing services businesses, and I think more driven by performance than just economic improvements in those markets.

Okay. And then, just two other questions. So what's your -- basically, the 457 that you said you had bought back following the -- how many shares did that represent? I missed that.

The accelerated buyback at the beginning of Q2 related to the bond offering was 5.5 million shares.

Okay. And then, can you update us, you know, what your yearend target leverage is? As far as debt to EBITDA --

No, that's not something that we basically target. We are -- with the bond offering that we did that was not intended to add significant leverage in the, I'll say, medium term and sort of the 12-month timeframe to our balance sheet. We effectively, with that bond offering, were getting ready to refund or refinance the [point] of 2002 -- 2032 convertible bonds that is likely to occur at the very beginning of August or the end of July.

Assuming that happens, the $1 billion we raised will basically refinance that offering and the tax payments on that offering. In the interim, we used the cash or at least part of the cash for the accelerate of stock repurchase, but that's really just buying in shares as we would have likely repurchased over the balance of the year anyway.

So you just want us to look at this is a timing thing, not that you are choosing to perhaps increase the leverage profile of the Company?

This is not an increase leverage transaction.

Okay. Lastly, any update on the pace of acquisitions as far as, I guess, first quarter was a little bit more than we thought, but not a huge number as far as the outlook for the pipeline for the rest of the year? And that's all I had, thanks.

Pipeline looks pretty full. We're going to close acquisitions when the timing is right. We're going to do acquisitions on an economic basis that's consistent with our past experience and consistent with the guidelines that we've set out in the past. So they happen when they happen. We don't try to push to hit, you know, some number over one quarter just to make the numbers look good. The acquisitions have to fit into our strategy. They have to be economically on the favorable terms that we've laid out. The first quarter, I think, we closed four acquisitions. We have a number of things that are in the pipeline. I expect that we'll have more acquisitions closed than we did last year.

Okay. Thank you very much.

Thank you.

Thanks. And we have a question now from the line of Michael Nathanson with Sanford Bernstein. Please go ahead.

Hi, thanks. I have a three -- let me give you what they are. The first one is the US strength was really impressive given what [Dennis Hewitt] put up the other day. I wonder what's the source of this trend, is it creative, is it media, and how much is from new business? That's one.

Secondly, you mentioned Germany was strong. Your targets held because of currency, but do you have any sense of what European organic growth was and the sustainability of that?

And lastly, Randy, I think you've said in previous call that you expect about $100 million of net interest expense. I wonder if that's what you expect given the refinancing?

Let's see. Let me give you some of the easy ones.

Okay.

I'll do them in reverse.

Okay.

Now interest expense for the year will increase from that $100 million target that I've laid out before. We will also, however, have reduced average share count for the year because we, basically -- in Q2, here we've got the increased leverage that will dissipate as the year goes on, because it basically accelerated the stock repurchase.

All right.

I'll go through and do some calculations, and we'll give some -- a little bit better guidance as we go as far as interest expense. But definitely with the bond offering, we will have increased interest expense. Now going back to your other two questions --

It was, if you can give a sense for what organic was in the European continent, because Dennis Hewitt said that they just use some acceleration on the continent. I wonder what it was for you.

We definitely saw acceleration. I don't have the exact number in front of me. We saw acceleration largely driven for us in the UK and Germany, which had very strong organic growth this quarter. I believe looking at the numbers that that organic growth was driven more by great performance of a few of our agencies in those markets versus just a general economic improvement, although it may well be a combination of the two of them.

Most of our other markets continue to perform fairly similar to the way they did at the end of last year. Asia was very strong, led by China. Latin America was very strong across the board, but Brazil in particular. North America, the US, Mexico, Canada were all quite strong. The emerging markets of Europe were quite strong.

To your first question, we don't really follow the competition's performance. We're just focusing on our own strategy. So I think it's a reflection of the portfolio. CRM was up significantly in the US as well as on a global basis. And I think it's a combination of new business wins that we've had and there is a real correlation between, I think, what we report in expected revenue and just a general healthy performance across the board. So I really can't do an adequate comparison between us and any of our competitors. We're just typically focused on ourselves.

Okay. Thanks.

Thank you.

Thank you. And we do have a question from now from the line of Lauren Fine with Merrill Lynch. Please go ahead.

Great. Thank you. I just had a couple of questions. One, if the stock response nicely to what was a very good quarter and continues to stay up, what happens if the bonds aren't put back to you, what kind of decisions might you make then?

And then secondly, you gave organic growth for public relations. I'm wondering if you could give us either for marketing services overall what the organic growth was or some of the other pieces?

And then finally, I joined the call a bit late, so if you did give this I apologize, but could you talk about what the total net new business was in the quarter?

Yes. Net new business was just over $1 billion. Let's see, I'm trying to grab the organic growth number for -- I thought I gave it on the call.

You gave it for public relations, but I don't think you gave --

Yes, I broke it out specifically for that one because there have been questions in the past. Organic growth for marketing and services was 9.8%, and traditional media advertising was 7.2%. And as far as the -- what do we do if the 2032 bonds it is input, we will have to answer that, I think, as we get closer.

In other words from your lips to God's ears.

And then I guess if I could sneak in one math one, on the margin improvement in the quarter on an underlying basis was quite good.

Yes.

Anything in particular that added to that? And are you still more comfortable with longer term with 20 to 30 basis points in the given year?

Yes, I think, the 20 to 30 basis points is, probably, is very good performance in this kind of an environment. We obviously are going to do as well as we can do that we've balanced out, a combination of investments and margin improvements all the time.

This quarter's results were very strong, 8.7% organic growth in the improved performance, I think, what steps at 3.7% in the quarter was really that the performance in the UK and Germany, which would definitely a step up. The other markets continue to perform well.

The underlying -- some of the underlying numbers, we continue to have improved utilization rates on our -- I'll will say infrastructure costs, namely proper utilization ramps, computer software, etcetera. So we're pretty happy with the performance of the business.

If I were able to see a geographic breakdown of margins, did you get most of the improvement overseas where you might have been surprised on the revenue strength?

I think so. It was just a general -- it was general performance that Europe year-over-year was, I believe, up in terms of performance. But at the same time, if you -- we have also made heavy investments in places like China and our whole Asian theater in terms of placing out a full headquartered capability in those markets.

We made investments because we entered into a relationship with a Tsinghua University in Beijing, where we changed the name of Omnicom in China and named [our] business school to better develop our relationships as part of a longer-term strategic plan to improve our performance there. So whilst the underlying business in terms of operating performance of individual units, I believe, improved, we did invest some of those dollars back into things, which I believe will provide us with additional growth this year, next year and the thereafter. So this is just part of a very comprehensive plan to not maximize our margins, but to -- we think is to optimize them and improve them constantly - or endeavor to improve them constantly as we go forward.

Great. Thank you.

Thank you Lauren.

Thanks and we do have a question out from the line of Troy Mastin with William Blair and Company. Please go ahead.

And sir, if your line is muted, we aren't able to hear you.

Yes. Is that better?

Yes.

Thanks. You just talked in the past about the mix of business between new business and existing clients and how they driven growth. I was wondering, if you can give us any color on your organic growth and how that mix played out?

And you did have very strong new business obviously last year; can you give us some characterization of how much of that we're seeing in this first quarter of 2006? Thanks.

We really don't know, Troy. We don't tie the numbers out that close that would be virtually impossible given the huge number of client engagements that we have globally. What we've said in the past is that, you know, we expect 65% to 75% of our organic growth to come from the conversion of our net new business wins to revenue.

Again, those numbers are very hard to tie up specifically but we -- you know, we generally think that our net new business wins over any, sort of, trailing fourth quarter period, 10% or 12% of that ought to turn into revenue growth over the next, sort of, 12 months period. And because the different start -- started times between wining the business or announcement of a win of a business and when it gets converted into revenue, so it can -- it can certainly vary.

We think that ought to be generally a substantial portion of our organic growth in that 65% to 75% range. I think that those relationships are probably true now as well. They certainly seem like that's working out the way the organic growth and the way the revenues are coming in.

In terms of how much of the new business wins we saw -- you reported last year are being felt in the result of the first quarter, any qualitative or quantities data you can give us?

You know, as Randy said, if you cannot get quarter-by-quarter historically, and whatever reported billings are, historically although there no science to this. We generate 10% to 12% of those reported numbers in revenue. This is generally at least of a quarters' delay between the time that we reported and the time will start cycling it.

So you know, business win on January will come on stream in May, business win in March won't come on stream until July. But that will average out over time and then it contributes over the next four quarters, before we cycle through it. So that's generally the relationship, but we don't track it specifically.

And you know those things can vary win-by-win.

Right.

Sometimes you have a win and it's -- you know, they want to start work extremely quickly and you get their some of the larger accounts. In particular, there is more transition time, certainly, to ramp-up to the full quarterly or full monthly revenues that the win might translate into. It's -- there is not a hard science, and frankly, there is too many client engagements, to try to track it specifically.

I'm really just trying to get a sense that there is additional pay or win through organic growth from the strong new business, when do you have last year? It sounds like you can't really definitively say.

It's -- we can't, largely because we don't try to track it. What we're doing is constantly looking at our portfolio and adjusting our decisions based on what it looks like today. So we really don't. But I think that is -- you know, this is our 20th year. That's a lot of quarters. That's a lot of new businesses wins. So the trends, the momentum I think continues to exist.

When it comes to new business, 95% of the time you have to be invited to pitch and that's in control of the prospective clients, not in our control in terms of driving it. So it's the one area where I think you have to look at historic performance and the formula that won this for us, not hard and fast, but it's our strong sense of what's -- what -- how much things contribute over a period of time. That doesn't mean that there can't be aberrations at a particular moment of time. But I think they are pretty fairer to look at.

Okay. And then one final one, if I may. Your PR division or units have been a little bit light on growth relative to the rest of the business. Can you give us some insight on if there is an industry issue or something specific to your properties that's leading to that lower growth rate? Thanks.

You know, I -- you know, maybe our PR units have the problem of comparing against some of our other units. You know, I broke out this time PR's organic growth specifically, because I was -- you know, these questions come up. Our PR unit this quarter had 4.3% organic growth. I think that's in line or better than our competition's PR units. And it's just marginally short of what our competition's average organic growth rates were. So I think -- you know, I think the PR units are doing fine. They are compared -- we -- when we report number they are comparing against the very strong performance of our CRM businesses and our creative agencies and our media agencies that are, frankly, doing exceptionally well right now.

Thank you.

Thank you.

Thanks. And we have a question in from the line of Alexia Quadrani with Bear Stearns. Please go ahead.

Thank you. How would you characterize I guess the current new business environment? Is there a healthy pace of account movement we saw -- we've seen for last couple of years, particularly the second half of last year continuing? And do you have some particularly notable wins in the third quarter of last year? Do you see any of those potential, I guess notable wins, on the horizon, given what you know about what's in review?

I don't have -- I do have some thoughts in terms of what we can notably win. I don't know that there are new business that they are in review right now. So if you'll just forgive me, because some of my competition is on the line, I'll withhold that information from you.

It's also worth noting that the B&A win was an extremely large win. There are not very many wins -- there are not very many single accounts of that size that are ever available.

It's -- well, yes. And when Randy says that, it moved the needle in the Company less than 0.5 percentage point of growth. So you have to keep in mind the diversity of our portfolio and that everything can contribute. So it's a lot of effort throughout the world. There's a lot of focus here on what happens that would, you know, S&P companies that hit the media everyday -- you know, media in New York and major cities in the United States.

But the company is a worldwide company, so there is a lot of activity going on in just about every single market around the world. And that's what ultimately contributes to our growth, not just the big names that you might pick up on because there is a lot of reporting about it domestically here.

The diversity, the size of the portfolio, the fact that people are taking advantage and getting invited to pitch for new assignments from existing clients to obtain newer clients when they become available that's all, it's an ongoing processing. The list of actual wins is quite significant. It will fill up a book, in terms of if you listed it out individually market-by-market -- unit-by-unit.

So it's an ongoing effort and as I said earlier, we can't control who puts what in review. We can try to grow our existing relationships with people we have -- who are clients -- roster clients. And that's probably, where most of the new business comes from. And things like Bank of America, which a wonderful -- have been that whenever pace that happens so.

But is it the -- the key for us is really the three R's and the [inaudible].

Right.

It's the day in and day out hard work that thousands of people are involved in all the time and it kind of moves the needle from a quarterly new business reporting number to -- that makes it skew high is periodically, you get a very large win but those happen, like that fairly irregularly. And what may happen, they happen, it's not something that you can really plan on.

I know you don't give guidance and you're not and economist necessarily but I guess, looking out into Q2 and the rest of the year, you've got a new business really kicking in from last year and continues to be healthy. Europe at least for know looks like its picked up a bit particularly for you guys. US looks healthy, I mean, what acquisition activities taking out anything that you, stands out in your mind that would suggest that this healthy growth rate we saw in Q1 wouldn't continue?

Well, It certainly there after the first four months of the year and we are in very positive conversations with quite a number of clients in terms of obtaining additional assignments or in winning new business or getting new product lines that many of which are handled already by competitors. Those conversations going on constantly and so again we don't forecast, but I think if you look at our history, the organization is geared toward this hunting culture in terms of going out and trying to deepen the relationships we have with our existing clients.

And it's not just advertising, it's certainly in marketing services and all the other services that we provide. And as I briefly mentioned, I mean, there is a few initiatives that are going on, which I can't tell you the quarter or the timeframe that it's going to kick in but arguably, given our size, and our competitors point to set all the time. We are probably the third largest in China which is a high-growth market, especially for our competitors. And there is no reason in the world that given our initiatives that 18 months from now we won't be as strong as we are in other places.

And when you look at that, it's really a glass half full story because as we get up to our proper weight class in those markets, we should be enjoying wins and growth that are coming at a greater pace than in some of the more mature markets around the world. So I can't predict it, I wouldn't try to. But I think we are making all the right moves in terms of getting to a position where we continue to grow the company for the benefit of the shareholders and the benefit of our employees.

And just one last question on Asia. I assume given your comments, you are somewhat in investment mode over there which may be weighing on profitability. But longer term, do you see, the Asian marketplace having I guess the potential of being just as profitable as the United States?

Certainly. I think that would be consistent with what others in the industry are saying as well.

Thank you.

Thank you.

Thanks then, we have a question now from the line of William Bird with Citigroup. Please go ahead.

I was wondering if you could try to quantify the Olympic impact on the quarter and also I was wondering if you could just elaborate a little bit on what you are seeing in terms of client demand for capabilities in Asia? Thanks.

I don't think the Olympics had any significant impact on the quarter. I am not sure it had really any impact on the quarter; although I couldn't -- it would be small enough that would be almost impossible to identify. Your second question was what again I am sorry?

Yes, I was wondering if you could just describe what you are seeing in terms of client demand for capabilities in Asia?

Certainly, there is a -- when you say Asia is a huge place. So I mean it's probably -- you look at China, you look at how many major cities there are. You look at the proliferation of cellphone use in those markets, those are services that are going to develop -- telephone for instance, marketing in telephones is going to develop faster in Korea and China than it is say in the United States. So we are gearing up to do that.

Certainly, your ability to service clients in 30 plus cities in China is significant. A lot of that is local promotions. It's making certain that your message is in the right place in those cities. It is not necessarily just TV advertising. So you have a lot of outdoor, you have a lot of feet on the ground making sure that clients products are properly merchandized and moved.

So the demands change market by market in Asia and we have been gearing up and making the investments to make sure that we have the right services in the right markets to be able to service the clients that we are going after. It is a very interesting marketplace because it is not only multinationals, where we can deepen our relationships and we are making strides to do that, there are also increasing number of Chinese companies, which are going to be looking for help to market their products outside of China. And that's a huge opportunity as move forward.

And by the way I don't know if you can quantify this, but did the revenue ramp on new business have much of the margin impact on the quarter?

I don't know if new business with just utilization, you know, the revenue growth in general helped the utilization rates.

Sure. The most expensive time from a margin point of view, is when you win something and you get the highest margins when you get fired from something. It's the way it really works out. So you're making investments, you're stepping up. You're doing things when you win an account. So you know we don't look at the margins on a quarterly basis for those activities. We look at the relationship what it's going to yield over time.

Thank you.

And we're getting, I think we're just after 915 so we'll try to do one or two more questions here. We'll take one at a time, and see how we - how fast they are.

Pretty good. Then our next question comes from line of Steven Barlow with Prudential Equity. Please, go ahead.

Thanks. Two quick ones, can you talk about the cost of talent with IPG potentially trying to pay more to retain people?

And secondly, going back to sort of the bonds and the sweeteners and puts and things, would you win if the bonds are not put, I guess in general, would there be sweetener payments that you think you would have to make in 2006?

Well, let's see bonds in -- for that, I just firstly decided I don't like the term, sweetener, so we're using supplemental interest payment.

Okay.

The 2033 bond that's a bond we want to keep outstanding depending upon where the stock price is at. We may or may not be required to make a supplemental interest payment on it. That bond is puttable in June. So we'll hit that date sooner. Given where the stock prices are at today, we would need to make a supplemental interest payment with respect to that bond.

As far as the 2032 bond goes, we said before that our intent and our expectation is that bond will be put to us at the end of July and we'll take it back. Obviously, depending upon stock price etcetera, we'll evaluate those decisions as we go. The only way we would ever consider keeping that bond outstanding, is if the financing -- the cost of financing was extremely good. But that's --

Yes, that's not what we expect.

That's not -- you know right now, that's not the expectation.

And your first question, I'm sorry.

About talent cost?

You know great talent cost what it costs and it's embedded in system with tens of thousands of people. So we're not seeing inflation in that area that's out of line with what we expect to receive from the upgrades. I mean each one of our acquisitions of talent is based upon those people what we're trying to accomplish. So and I don't know what our competition is doing, nor what they have to do. We pay certainly as well, if not better than the rest of the marketplace and our incentive pools are significant based upon people achieving our objectives.

Thanks.

Okay. We're at [not in drive] I think we got time for one more question. And then we'll call it before the market opens.

Great. Thank you. And we do have a question. And our last question comes from the line of Craig Huber with Lehman Brothers. Go ahead.

Good morning. Thank you. You are just from the trenches, I was wondering if you could just comment, if you see anything significant, one way or the other on how in a public assuming as you go head-to-head with them. That's the first question?

And then secondly, is there anything like Google is doing here over the next 6 to 9 months that worries you guys, maybe you think you are not well positioned for going forward? Thank you.

I think it would be, inappropriate for me to discuss the competition. You know, they are performing as they report, in terms of their operations.

And I think, as they want to say they're still going through some restructuring challenges. But, we need competitors and we certainly have competitors, and there are a lot of quite good ones out there. So, that is as much as I'd like to say about them.

In terms of Google, you know, Google's, primary focus is small business advertisers, which really, are not the client base that we serve. We look at Google I have my own personal belief, that everything that looks too good to be true is always too good to be true. So there is, they continue to grow and we are client of theirs, actually, on their major advertiser side. And so we have a good working relationship with them, but I don't see any shifts fundamentally to what we do in the client base that we serve in the things that we're trying to accomplish with some of their initiatives are going on account.

In general. We get better -- we are better off when there are more media's developing, more technology developing, because it gives our clients more opportunities to improve the efficiency and effectiveness of what they are doing. It also means more and different executions that they're trying to accomplish in the marketplace which again, generally means more work for our agencies and more opportunities for our agencies to develop services for clients. Generally, all of these things that enable marketers to better market their products. And better reach consumers and in a sort of a dynamic change in marketplace is positive for us.

Thank you.

Thank you all very much. We'll turn it off at this point. We look forward to next quarter. Talk to you soon.

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thanks for your participation and for using AT&T's Executive Teleconference. You may now disconnect.