宏盟集團 (OMC) 2006 Q4 法說會逐字稿

Good morning and welcome to the Omnicom fourth quarter and year-end 2006 earnings release conference call.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [OPERATOR INSTRUCTIONS] As a reminder, this conference call is being recorded.

At this time I would like to now 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. Thank you for taking the time to listen to our fourth quarter 2006 earnings call.

We hope everyone's had a chance to review our earnings release. We've also posted to our Web site 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 Web site.

I've been asked by the attorneys to remind everyone to read the forward-looking statements and other information that is included on Page 1of our investor presentation and to point out that certain of the statements discussed today may constitute forward-looking statements and that these statements are our present expectations and actual events or results may differ materially.

We're going to begin the call with some brief remarks from John Wren. Following John's remarks we'll review our financial results for the quarter and the 12-month period in more detail and then at the end John and I will be happy to answer any questions.

Good morning and thank you for joining our call today.

2006 was an excellent year for the group and as Randy's just mentioned, he'll take you through all the details in just a couple of minutes.

Revenue growth for the quarter and for the year was very strong in all of our markets, I think with the exception of Japan, where that can be traced to a single client and some restructuring that we've done during the year. Despite this one market revenue growth has been very strong across the board.

In the United States growth is strong in all our services. In Europe especially, we were especially strong in Germany, Spain, The Netherlands and the other non euro countries.

Asia, we made real progress during the year in China and our other markets are performing very, very well. South Africa -- excuse me, South America, the Middle East and Africa are all exceeding planned revenue growth for the year.

From a portfolio perspective we continue to make investments in new areas. They're not large investments. They're rather small but they're really reflective of the shifts that are occurring in client spending. In our traditional agencies by every measure continue to be the best in the industry.

With that as brief comments, I'll turn this back over to Randy who will take you through in more detail, and then as he suggested, we'll answer as many questions as we can. Thanks you.

As John noted, we're very pleased with the overall performance of our agencies. 2006 was another outstanding year from a financial perspective. Bit more importantly, our agencies continue to distinguish themselves in the marketplace in terms of creativity and innovation.

As a result revenue growth in the fourth quarter increased $277 million to $3.2 billion. That was an increase of 9.4%. And for the year revenue increased 8% to $11.4 billion.

Operating income for the quarter was $474.2 million. That was up 11.3%. And that was an operating margin of about 14.7% which was about a 20 basis point increase from last year.

For the year operating income increased 10.7% to about $1.5 billion and our operating margin was 13%, which was also about a 20 basis point increase from last year.

Net interest expense for the quarter was $24.1 million. That was an increase of $7.6 million versus Q4 of last year and a decrease of about $2.6 million from last quarter. For the year net interest expense was $91.6 million, up $32.4 million compared to last year.

The year-over-year increase both in the quarter and for the year is due primarily to our issuance of the 10-year fixed rate notes at the end of Q1. If you recall, that was $1 billion issue with an annual effective interest rate of about 6.1%, or roughly $15 million a quarter.

The increase from that issue was somewhat offset by a reduction in other debt as we used some of the proceeds of the issue to pay down outstanding bank lines and approximately $300 million of our convertible notes, as well as continuing improvements in our cash management efforts.

I'm also happy to point out that last Tuesday was the annual put date for our 2031 convertible bond issue, and given where the stock is trading and general market conditions, we did not offer a supplemental interest payment to bondholders and no bonds were put back to the Company. As a result of that, our interest expense for 2007 will be reduced by about $30 million.

I also need to point out that we'll have an additional quarter of interest, or about $15 million on the 10-year fixed rate note, again, that we issued at the end of Q1 last year. So combined these two items will result in a reduction in interest expense of about $15 million year-over-year for 2007.

On the tax front our reported tax rate was 33.6% for the quarter and 33.5% for the year. As you may recall from our third quarter call, we mentioned our tax rate was affected by the unfavorable tax impact resulting from the disposition of a healthcare business and the favorable resolution of various uncertainties related to changes in certain foreign tax laws.

Absent the impact of these items in Q3, our tax rate for the year would have been about 33.7%. We don't expect our operating tax rate for 2007 to change significantly from the 2006 rate.

Net income for the quarter increased 9.7% to $277.2 million bringing the total for the year up to $864 million. That was an increase of about 9.3%.

Fully diluted earnings per share for the quarter increased 14.9% to $1.62 per share and for the year increased 14.4% to $4.99. The strong EPS growth for the quarter and for the year was driven by a combination of solid net income growth and the year-over-year reduction in our diluted average share count.

Analyzing our revenue performance a bit further, FX in the quarter was positive 2.9%, or $85.8 million and as a result, turned the FX impact for the year around to being marginally positive at seven-tenths of 1%, or $72.3 million. Looking ahead to Q1 2007 if rates stay where they are FX should be positive about 2.5% for the quarter.

Growth from acquisitions net of divestitures was marginally negative in the quarter reducing revenue by about $3.5 million, or one-tenth of 1%. This decrease is primarily the result of the divestiture of the healthcare business that we mentioned at the end of, or in the third quarter of 2006.

For the year acquisitions added about $25.9 million, or two-tenths of a point to revenue. We did close about 16 new acquisitions over the course of 2006 and the potential acquisition pipeline continues to be fairly strong and our investment objectives and criteria have remained consistent.

Based on the activity through year-end our acquisition growth in Q1 will be basically flat. Again, that's impacted primarily by the divestiture in the third quarter of last year. That should rollout or cycle out by Q3 of next year.

As for our mix of business in the quarter, traditional media advertising accounted for 43.3% of our revenue, and marketing and services accounted for 56.7%. For the year the ratios were 42.8% advertising and 57.2% marketing and services.

As for their respective growth rates, advertising grew 6.6% in the quarter and 6% for the year, while marketing and services, which was driven by the continuing strong performance of our CRM businesses and the 2006 resurgence of our PR businesses, grew 11.6% in the quarter bringing the 12-month growth rate up to 10.5%.

Breaking down our marketing and services revenue for the quarter, CRM was approximately 36.9%, public relations, 9.7% and specialty communications, 10.1%.

As for their respective total growth rates CRM's growth accelerated to 15% in the quarter, public relations continues to pick up speed growing 16.3%, and specialty communications, which was impacted by the disposition, decreased 2.4%. Adjusting for that disposition specialty communications would have grown about 2.3%.

Organic growth was again very strong in the quarter at 6.6% accounting for $194.5 million of our revenue growth. And for the full-year organic growth, which was driven in part by very strong new business activity in 2005, was $797.6 million, or about 7.6% which brought the, that was an increase of about 30 basis points over 2005.

Our geographic mix of business in the quarter was 52.4% U.S. and 47.6% international. In the United States total revenue growth for the quarter was $109.6 million, or 7%, acquisitions were positive about $1.2 million, and organic growth remained very strong at about 6.9%, adding $108.4 million to our revenue which brought our year-to-date organic growth in the U.S. up to 7.2%.

The international front revenue increased $167.2 million, or 12.3%, FX had a positive impact of $85.8 million, acquisition growth was marginally negative at $4.7 million, and organic growth, due largely to strong performance in the quarter in Germany, Spain, China and Australia, was $86.1 million, or about 6.3%.

Moving to cash flow. Cash flow in the quarter and for the year has been extremely strong and our cash management programs have continued to perform very well.

As we believe everyone already knows, our primary source of cash flow is net income. That adjusted for basic non-cash charges, which for us is primarily stock-based compensation charges and the related tax benefits and then depreciation and amortization.

As for our primary uses of cash there are dividends which are currently running about $0.25 per share. For the year they totaled $175.8 million. Cap Ex totaled $177.6 million.

Acquisitions net of dispositions and asset sales including earn out payments on prior acquisitions netted $204.9 million. And then share repurchases, which in the quarter totaled $262.4 million, that brought the year-to-date repurchase activity to $1.344 billion.

For the year we also received $298 million of proceeds from option exercises and stocks sold under our employee stock purchase plan. That resulted in a net repurchase activity of just over $1 billion.

As a result of these items and continued improvement in our cash management efforts we finished the year with net debt of just over $1.1 billion. That was about a $26 million reduction from last year.

And our average diluted share count for the year was 173.1 million. The average for the fourth quarter was 171.3 million. I think that 171.3 million number looks like a pretty good estimate for Q1 as well.

And with that, now we'll open up the call for any questions.

Thank you very much. [OPERATOR INSTRUCTIONS] Our first question this morning comes from the line of Alexia Quadrani with Bear Stearns. Please go ahead.

Hi. Good morning and thank you. A couple of questions.

First on the specialty growth in the quarter, I guess the organic growth when you take out the divestiture of about 2.3%. Is that a good run rate that we should assume for 2007? Then I have a couple of follow-up questions.

We don't forecast, Alexia, number one and, number two, I can't really tell you. That really is the smallest division that we have.

It principally is recruitment advertising and healthcare. Healthcare for the year was much stronger than that overall number and recruitment advertising, which is a specialty company that we have, was not.

They're all profitable. They're all tracking to plan. They're all tracking to cycle. But in the aggregate, you know, it's the smallest part of our business.

I'm sorry, go ahead.

I was going to move on to the next question which is, the international marketplace. You gave us some colors in terms of which markets were better than others. Could you also comment on how the U.K. is tracking and any comments on France as well?

And then my last question would be on the use of cash. You did, Randy, go through your historic priorities use of cash.

Given that you have such impressive cash flow in the fourth quarter particularly and would we expect a change in the priority in 2007? Would you expect to be maybe more acquisitive in 2007 given your very healthy cash flow?

Let me do part of that.

For the year the U.K. and France were very good and very strong compared to all the prior years. In the quarter itself, the U.K. was a little less than it was for the preceding nine months but we were very, very happy with the performance.

We had a change in management where the new CEO was delayed because of his contract in one of our units and he's on board now and so we're seeing new leadership emerging there. That was a quarterly event which really impacted the fourth quarter more than anything else.

So it was all -- it was a very decent year in both of those markets. Better than I would have projected this time last year.

I think it's very difficult to look at, to break our numbers out by quarter by country. I've said that to all of you many times.

You can get some very misleading numbers. It's some relatively small changes in revenue can move those growth rate percentages 2, 3, 400 basis points in a quarter. For the year both the U.K. and France were quite strong.

As far as the cash flow numbers go, our first priority has always been acquisitions. We would prefer to make good acquisitions that are strategic and accretive to our investors on the basis, financial basis that we want to do acquisitions.

That's sort of first and foremost. The remaining cash flow is used to repurchase shares.

I think just to put a finer touch on that, Alexia, we're very pleased with our portfolio. We think that if you look at our portfolio, especially compared to our competitors, we're in the right places to continue to gain share of wallet from our clients.

There are things that we have planned to purchase areas geographic and some service additions. But we're not going to over pay for them because we don't need to. So we're very vigilant about it but we're still very, very disciplined about it.

Has the environment gotten more competitive from a pricing standpoint or has it pretty much been the same all year?

Well, our behavior hasn't changed all year.

I think the competitive environment's been about the same all year which for larger acquisitions, and larger, I'll say mid-size acquisitions, things with $20 million of EBIT, it's pretty competitive.

The financial buyers are private equity, you know, seem to be very aggressive. Smaller acquisitions, I think, have very pretty consistent for quite a while.

Nobody's sent the private equity guys the note saying that there's probably only three or four guys that could actually buy these things after they restructured them and our discipline is not going to change.

So some of this is just sloshing money around but, again, we have always been very, very disciplined and we always seem to manage to grow I think faster than anybody in our space. So we haven't had to over pay or pay what we would believe are unjustified prices under the guise of it's strategic.

Okay. Thank you very much.

Thank you, Alexia.

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

Randy, just looking at cash flow it looked like cash flow from ops was up about 75% for the year. But if you exclude a big swing in working capital and subtract Cap Ex it looks like you're up just about 2% for the year. Just wondering if you could elaborate on what's driving this.

I haven't done quite the analysis that you did. Our cash flow basically follows net income. Depending upon, I mean, it depends on how you want to account for it.

If you take the four categories that I just described, cash flow is very much in line. Then you get into working capital changes, [or] cash management programs which this year were extremely strong. We've got renewed efforts in that area to try to continue to improve our systems and our performance.

When you get into some of the other cash flow lines in more of a GAAP cash flow statement you have to get into changes in FX and all kinds of other relatively small movements that kind of go back and forth. But basically our cash flow is net income.

Okay. And just a follow-on for John.

I was wondering if you could just talk in general about what clients are saying on '07 and I guess as you look at the year what are some of the key priorities you're looking to improve upon? Thanks.

Sure. Well, let me just talk about cycle first.

Typically, the 18 months preceding an election have classically, historically been very strong for the industry. So for the full-year I expect the second half spending to kick up a little bit and then that continue into 2008 if historical trends carry through.

The first half I know what January was and that was very, it was stronger than I expected it to be, not, you know, we're a big company so these are big numbers and currency helped a little bit and we haven't fully factored that through, but January was a good month.

Client spending depends really on the industry sector. Will really, I think, be reflective of a continuation of '06 based upon what I see right this minute. But I have a suspicion that once you get to the third and fourth quarter, because of the election cycle and some other things, the industry will see a positive situation over the course of the next 24 months.

And then what was the second part of that?

Just key priorities as you look at '07.

Well our, I guess geographically the number one priority is still Asia. We made great progress in China over the last 18 months and that continues. We seem to be -- we have momentum there and I think that's going to continue.

And in India where there's been -- it's a relatively small advertising market even though it's got such a huge population, we are still, we still have things to do. I think with the appointment of [Kiki] who's our non-executive Chairman in India, we made a lot of progress in the last four or five months that he's been on board and I'm expecting that to turn into results as we get later into the year in terms of broadening our service capabilities across the subcontinent and that will allow us to do what I think we've accomplished in China over the last 18 months, which was our first priority, which was to gain back our global clients in those markets.

Our second priority is then to look to domestic companies in those markets which want to be exporters. And so we're proceeding very rapidly at that pace.

In terms of the portfolio we're very happy with the advertising assets that we have. We think longer term they will become completely fully integrated and if you go out just a couple of years you won't be able to truly tell the difference between what is called general media advertising today and CRM and other things.

But in terms of investments that we continue to make, it's really reflective of shifts in client spending. We have a lead, I believe, in things like the Internet and CRM. And it's been my belief for over a decade, even longer, anything you can measure you can get clients to spend money on.

And so our focus from an acquisition perspective tends to be, and from a growth perspective, is to continue to make investments in those areas.

Thank you.

And then low hanging fruit, there's a lot of accounts. There's a lot of new business activity, unreported new business activity going on very quietly at the moment. Which is a very positive thing for a company like ours.

Great. Thanks.

Thank you, Bill.

Thank you. And we have a question then from the line of Steve Barlow with Prudential Equity. Please go ahead.

Thank you.

Randy, I know you don't measure your digital revenue as an overall percent on [other] day-to-day operations but I wonder if there's a way to give us a sense of what is the dollar amount of your digital businesses and how that grew from '05 to '06?

I really don't have a very good way of doing it. Our digital businesses are, I'll say divided.

We have some standalone digital businesses. Those companies show up in our CRM category and we can, we track, we can track those because they're all digital. And they're growing quite well.

A lot of our digital activity, probably more than half of our digital activity, actually, I'd say well more than half of our digital activity, is integrated into our other agencies. A good example of that, just to name one, would be something like Goodby, Silverstein.

Obviously, we all think of it as a traditional media advertising firm from its history. It was digital agency of the year last year. That type of digital activity we just don't break it out in our collections systems.

And one of the reasons over the past 18 months we moved CRM assets, interactive assets under our agency umbrellas was to drive this process in a very sensible fashion and with the demographics of the average age of our employees and the average age of our creative people, these lines are going to get increasingly blurred. And I think you see the -- we've been reacting to it for the last several years.

I think now you see mainstream media companies in the United States finally reacting to it but we've been ahead of the curve with respect to that and we've even referred to media planning as communications planning now because it's not just to traditional media that we look to service our client's needs or reach the customers that they're trying to reach. So because I think we've stayed ahead of it it's an evolution not a revolution for us.

And to go back to [the answer] we just don't have a way of breaking out numbers [inaudible] accurately quite the way you're asking for it.

And from a business perspective we think long-term we're going to see more and more complete integration of the two. Some clients will still want digital or purchase digital activity separately at least for a more few years but more and more it's on an integrated basis.

Another related category question. Is there any way to isolate sort of where the momentum is coming from some of the various product categories, whether it's telco on a worldwide basis or auto or anything that's really helping driving all the organic revenue growth? Is there any way to say which categories are sort of leading the charge here a bit?

Not really. It shifts, number one, year-to-year, quarter-to-quarter. It also, because we're a holding company and we service many companies within an industry, our largest single client this year will probably be 3.6% of our revenue, that's down from 4.[7]% last year, but the overall category which it's in grew, so because of other clients that we have in the category.

So it's difficult to say with any accuracy and we certainly didn't compare the data, [inaudible] so soon --

You're still correct.

We didn't prepare and refine the data for this call. And truthfully, we don't really look at the business --

Okay. I just wanted to see if there was a way for us on the outside to look at any trends as we see things out in the press. But thanks for your help.

No, I mean, but, you know, here's the important point of that point is we built a portfolio of Omnicom from both a geographic and a service point of view that a particular event in a particular company or in a sector of a particular industry really shouldn't drive our numbers too much. Because we have -- we're not, we're dependent on every one of our clients and not dependent on any one of our clients, if you can make sense of that.

I understand. Thank you.

And that's intentional and not strategic so we suffer with the clients that are suffering and we grow and prosper with the clients that are growing and prospering but that shifts all the time.

We're also continuously trying to penetrate our clients further grabbing more share of wallet. To the extent we're successful any of that activity really and somewhat overwhelms just general market conditions. The client may not be increasing their overall spend but if we can grab a bigger piece of their services we can be doing quite well in a category.

Obviously, it works the other way, too. If we lose a piece of business, even a portion of a client's business in a category, the category's performance really gets overwhelmed by that activity.

Thanks.

Thank you.

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

Thank you. A couple quick questions.

One, just if you could comment on net new business in the fourth quarter and then for the year.

And then given the, I guess, the change that you anticipate in interest expense for the year historically that's money you would reinvest in the business and maybe not show as much margin expansion. If that is the case what kind of investments would you anticipate making?

Okay.

Let's see, net new business activity in the fourth quarter was about $950 million. That makes the year about 4.2 to $4.3 billion. So it was a very solid year. Not a lot of big account activity in the fourth quarter.

With the exception of we suffered by withdrawing from Wal-Mart I think. That kind of skewed the number down a little bit. Go ahead.

And as far as, you're absolutely right on your second point. We continue to make investments in our people, in training, development. Several new initiatives from a training and development standpoint in the Asian region that are fairly exciting.

And we obviously continue to make investments on the technology front in a number of areas. There was a recent interesting article on a technology called pick and click that one of our agencies in Florida has developed and is starting to rollout.

So those investments will continue and, frankly, the reduction of interest expense in this category or year in, year out continuing improvements in the operating efficiency at the agency level gives the Company overall the opportunity to invest more money for the long-term.

But our objectives, Lauren, and this is not a forecast, but our objectives are the same and they've been the same for a long time, not to squander shareholders money on acquisitions that can't be justified and are not accretive. To really grow our top line and our bottom line and to always continue to look for those efficiencies in margin improvement.

When you get into, we've been doing this for 18 months now, two years. When you get into places like China and India, not a lot of big acquisitions you can do to put down a footprint. A lot of that is start up activity that costs you money currently in your P&L.

We continue to look at our portfolio now and what it will yield this year and next year and the year after when we're making all those decisions and so we're not picking up any one line item and saying, ah, it's an overall mosaic of reaching our objectives that we're after.

And then one last question.

Randy, would we expect share purchase activity to be as vibrant this year given that you are looking mostly at smaller acquisitions and the free cash flow generation still to be pretty good and you don't seem inclined, [inaudible] your structure you could pay down a lot of debt at this point.

I think that's right. We've, so far in the first quarter we've had pretty good share repurchases. I think it will continue throughout the year.

The cash flow in the business is very strong right now. As I mentioned, our cash management programs. We've stepped it up another notch which you can see in some of the year-end results.

And the underlying cash flow, the operating cash flow of the business remains consistently very strong. I can't say there that it's an improvement because, frankly, it's been the same which is very, very good for a number of years.

I think we focus on a very conservative capital structure, Lauren, at least in this century. We always have but certainly in the last four or five years. And we use our cash to, in the most sensible fashion that we can come up that we can come up with and that includes share repurchases.

And just one last [inaudible].

In the specialty area could you break down the relative importance of the businesses? So how big is recruitment relative to healthcare and the other things that are in there?

Healthcare is the largest piece of it, probably I'd guess 70% without having the, you know, that's sort of an off-the-cuff response. Recruitment advertising is the bulk of the balance of it. There's a couple other small specialty businesses but they're not huge on a relative perspective.

I mean recruitment is a, the total percentage of our revenue is, what, 2%?

That's about right.

So in the aggregate recruitment, which is the cyclical part of specialty advertising, is about 2% of our overall revenue. So a decrease or an increase in that really doesn't have a heck of a lot of impact on Omnicom. If that makes sense to you.

No, it does. Thank you very much.

Thanks. And we have a question then from the line of Craig Huber with Lehman Brothers. Please go ahead.

Good morning. A few questions.

First on China, John, I remember roughly last spring you mentioned on your conference call you thought in 18 months your company would be positioned to be number one over in China. I wonder how you're tracking toward that?

And I sort of ask that in light of WPP had a presentation in recent months talking about how they thought they had about $500 million of revenues over in China including the revenues associated with their equity investments. I just wondered how you think you're tracking towards your goal of being number one in China? [Inaudible] nine months.

I never said being number one, although we will be, but I never said that. We saw a presentation at our board meeting last evening from Michael [Berkin], who's the head of Asia, who did a comparison for our board as to where we were in in China two years ago, where we were ranked number four in terms of revenue, and based upon his source, which was Media Magazine, I think in, we've moved up to number two over the last 18 months.

If you take on board our associates, the full revenue of our non-consolidated subsidiaries, because in several of the acquisitions that we did over the last year, we made purchases on the 40, 45% level with an option to go to majority more or less any time we wanted to in the future. The reason we did that is so we could bed down and integrate our partners as partners and as we gained confidence and gained business and gained back those type of clients that we're looking for we will trigger those options.

So we made a heck of a lot of progress. We made more progress in the last two years than we did in the 15 years that preceded it. And there's a lot of activity going on and it's getting a lot of time and attention, especially from me and the senior management group, to make certain that the quality of our groups and therefore what we believe is growth comes out of quality is there.

I think if you were to Google the Chinese awards, which just recently occurred, there's only two companies you'll see who received awards, it'd be WPP companies and/or Omnicom companies. And so we really, and if you look back two years at those awards you wouldn't have seen our name at all.

So I'm very happy with the progress that we're making. It could always be faster but I think that marketplace, especially with the onset of the Olympics and then the Shanghai World Expo in 2010, I'm very bullish given the position that we have, that we're going to move forward and very, very fast.

Also, in a funny way, and this is the glass half full, because we were late in the marketplace we don't have a lot of legacy businesses which may be losing favor. We're able to make investments in what's appropriate to that marketplace right now.

And so I think the position that we're getting ourselves in not only benefits us currently but it's going to benefit us for quite a number of years to come because we're not protecting old types of ways of doing things. We're making an investment in what's appropriate for the China of today.

Very good. And a question for Randy.

In the past, Randy, you've talked about a change of your various client to more of a monthly retainer-based contract supposedly being paid on a per project basis of a more of a smoothing effect for revenues [over] the course of the year. Are you expecting that further for 2007?

And I believe you said you think it roughly it would add about one percentage point to growth to the first and third quarters relative to the second and fourth quarter organic revenue growth. Could you just flush that out please? Thanks.

I don't know when the trend is going to work itself out but I certainly think that's been a trend over the last couple of years. You can see it in the organic growth rates in Qs one and Q3 relative to two and four. We're getting closer now that Q2 and Q3 are almost equal in size.

Q1's still is a little bit smaller quarter and Q4 is obviously quite a bit bigger quarter for a variety of reasons. But I think that trend will continue maybe at a more moderate level in 2007 because eventually it works it's way through.

I mean I also think you have to keep us in perspective of the industry. If you take the number three player in the industry, our fourth quarter alone is probably about 50 to 55% of their annual revenue and if you take the fourth largest guy in the industry, I think it's closer to 58, what we do in the fourth quarter alone is probably equal to 58% of what they do for the entire year.

So it's also a lot of big numbers and we have 5,000 clients which means we have 5,000 different compensation arrangements. But the trends that Randy's talking about are correct.

Great. Thank you.

Thank you, Craig. Given the time I think we've probably got time for one more call, or one more question.

All right. Thanks. And that question then comes from the line of Michael Nathanson with Bernstein. Please go ahead.

Okay. Thanks. I have one for Randy and one for John.

For Randy, I remember last year at this time there was questions about the fourth quarter closing and how one less day affected working capital last year in the fourth quarter. I wonder was anything unusual this year in the fourth quarter relative to last year?

No, we probably didn't have that day so that probably, you know, it probably helped some of the working capital movements but I don't think there was anything else unusual this year.

So it was, again, not apples-to-apples again?

Well, whatever negative trend that was there last year was probably not there this year.

Okay. And then one for John.

You mentioned it with Wal-Mart but in the past couple of months there's been a lot of headline client reviews or losses, you said Wal-Mart, there's Saturn, McDonald's breakfast. I wondered should we be concerned that there will be an effect from these reviews or losses and is there anything different that the agency's doing to combat potential, you know, these reviews or is that just a factor of timing?

Well, in the case of Wal-Mart we withdrew from the pitch and did it for very sound business reasons, which I think two or three years from now or two years from now, or two years from now, we'll have gained more revenue than we surrendered.

And there was a lot of morale reasons surrounding, you know, we're in the creative business and we're in a people business and once a client is, especially if you're the incumbent, has made a decision even if they subsequently reverse that decision, to select somebody other than you, unless in the second go around they're going to stay with you it's unfair and ultimately demotivating to your staff if you ask them to go back and play in the losers bracket. Right?

So we care as much about our people. We have the three Ps, it's our people, our product and then profit's a result of it, and so we guard every one of those aspects very carefully.

Saturn was a surprise to everyone but when you look at Omnicom and the size of Omnicom, these are not impactful to our ability to continue to deliver the numbers and I don't think they're reflective of a trend or an issue. I think we have on average, and I think you have to look at this on average not in any particular quarter, a very good track record of adjusting to our clients needs where there's a shift, doing I think a better, much better than average job of keeping that client within the Omnicom Group even if it shifts from one shop to another shop.

And every once in a while everything isn't perfect. But it's not impactful to our overall performance.

Okay.

Backing up it was pointed out to me actually this year ended on a weekend as well so the year-over-year improvement is more attributable to improved working capital management, maybe offsetting the fact that it was a weekend impact. But both years ended on a weekend so that alone was not the difference.

Okay. Thanks, Randy.

Thank you.

And with that question it's now almost the bottom of the hour so we'll thank you guys for listening to our call and we'll talk to you again shortly. Thank you.

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.