宏盟集團 (OMC) 2009 Q2 法說會逐字稿

Welcome to the Omnicom second quarter 2009 earnings release conference call. (Operator Instructions) As a reminder, this conference call is being recorded. 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.

Thank you and good morning. Thank you for taking the time to listen to our second quarter 2009 earnings call. We hope everyone has had a chance to review the earnings release. We have posted to our website both the press release and a presentation covering information that we are going to present this morning. This call is being simulcast and will be archived on our website as well.

Before we start, I have been asked to remind everyone to read the forward-looking statements and other information that is included on page one of our investor presentation and to point out that certain of the statements made today may constitute forward-looking statements and that these statements are our present expectations and that actual events or results may differ materially. We are going to begin the call with brief remarks from John Wren. Following John's remarks, we will review our financial performance for the quarter and then both John and I will be happy to take questions at the end.

Good morning and thanks for joining our conference call this morning. Given the continued economic downturn, our agency has done a very good job adjusting to the environment. Despite pressure on our top line, I believe we are very well positioned going forward. The revenue decline in the second quarter was slightly greater than we had anticipated with the greatest pressure occurring in just a few areas. The decline correlates closely to industry sectors under stress and the elimination of discretionary projects and events in individual countries where GDP remains negative.

The organic growth decline was pressured by a couple of areas. Automotive was down more than we had anticipated in part because of the reduction caused by the Chrysler bankruptcy, although we did see declines in all of our automotive client spending. Several specialty businesses and areas continued to decline. Our recruitment business, which we discussed in prior quarters, still remains under pressure and will for the next several quarters. Our yellow page business, which we discussed many times in the past, was sold late in the quarter, so it impacted organic growth a bit. Our events in sports marketing businesses were down reflecting, as you might anticipate, reduction in client spending in these areas. Finally, our not-for-profit business declined reflecting a reduction in charitable activities. These reductions will take some time to recover, but turning to our core business, organic growth was down about 5.5% during the quarter and that is purely a reflection of a reduction in consumer activity in most of the economies around the world.

At this point, with the exception of those specialty businesses, I believe that the top line pressure has stabilized and while top line growth will still take several quarters to achieve, we expect modest economic growth going into 2010 and new business activity will benefit the Company. From a cost perspective, our agencies have done an excellent job in adjusting to the reset in the economic environment and we are well positioned for any turn around in the economy when it comes. I am encouraged especially by discussions that I have had primarily in the last six to eight weeks with major global advertisers and I expect that new business opportunities in the second half of this year will exceed prior year activity. At this point, I will turn this over to Randy who will go through this in a lot more detail and then we will be available to answer your questions. Thanks.

Thanks, John. It is safe to say this was a very interesting quarter. While we continue to broadly experience pressure to our top line due to global recession, it appears that revenue levels have for the most part stabilized and other than a couple of isolated areas that were more negatively impacted than we anticipated, which we will talk about a little more later, our agencies broadly performed in line or better than we expected. I also think our agencies have done an exceptional job taking the appropriate actions necessary to adjust their cost structures to reflect current revenue levels and market conditions which I believe will position us well going forward.

Due to the combination of the continuing overall weak economic environment and the strong US dollar relative to Q2 of last year, our revenue declined 17.4% to $2.87 billion. Operating income for the quarter decreased 23% to $398 million and, with that, we were largely able to offset the decrease in revenue with aggressive cost actions that began in Q4 of last year and continued through Q2 of this year. These actions, while properly positioning the Company for the future, have added substantial one-time cost, particularly with respect to severance.

As a result, our operating margin for the quarter was 13.9%, down just under 100 basis point from last year and our EBITDA margin for the quarter was down about 65 basis points, that translates to about $19 million. Adjusting for the cost of severance actions taken in the quarter, which total about $32 million, our EBIT margin was 15% down 40 basis points from the comparable number last year and our EBITDA margin, again ex-severance, was 17% which was down only about 10 basis points. Year-to-date severance has totaled $70 million and our EBIT margin ex-severance was 13.3%, down 30 basis points, and our EBITDA margin ex-severance, was 15.4% which was about flat for the same period. So all in, we believe our agencies have done an excellent job of rapidly adjusting the cost structures to get them aligned with current market conditions. They have also done an extremely good job controlling the current discretionary spending levels.

Net interest expense for the quarter was $21.9 million which was up $3.2 million from last year and up about $0.5 million from the first quarter. The increase versus Q2 of 2008 was primarily the result of having to make supplemental interest payments on our 2032 notes in July of last year at a decrease in the interest earned on our foreign cash balances combined with the negative FX impact on those earnings versus last quarter the increase was primarily due to lower interest earned on our foreign cash balances. On the tax front, our reported tax rate for the quarter was 34.5% bringing the year-to-date tax rate up to 34.3% which is up a bit from 33.7% last year. The increase in the tax rate was primarily due to two one-time discrete tax events in Europe that occurred in the quarter, one negative and one positive. The aggregate result of all of this was net income for the quarter declining 24% to $233.4 million and diluted earnings per share in the quarter declined 21% to $0.75 per share bringing the year-to-date total EPS to $1.27.

Now, analyzing the performance a bit further. As everyone is aware, most major currencies were weaker versus the US dollar compared to the second quarter 2008. That caused a significant negative FX impact. In the quarter, $235 million, or about 6.8% of our revenue decline, was the result of FX. Looking ahead, if rates stay where they are, we expect FX will be negative between 3% and 4% in Q3 and will turn to be positive between 1.5% and 2.5% in Q4. Growth from acquisitions net of dispositions added about $5.6 million to the revenue in the quarter or about 0.2%. We did complete three smallish acquisitions in the quarter, a research agency in China, a media agency that will add the global network of PHD in Australia, and a full service agency in South Africa which has been the long-standing associate agency of the DDB in that market. Also, as John mentioned, late in the quarter we finally completed the divestiture of our yellow pages or directory business.

Organic growth declined 10.8% which was about $50 million more than we anticipated going into the quarter. While almost all of our businesses have been impacted by the recession to some extent, a few areas have been impacted more severally that are worth noting. First, a recruitment marketing business that we have talked about for a couple of quarters now was down almost 45% in the quarter and alone accounted for almost 1% of our organic revenue decline. The auto sector as a whole was down 30% organically, or about $105 million. The auto sector was down more than we anticipated driven in part by further reductions at Chrysler while they were in bankruptcy.

Our events and sports marketing businesses were also down almost 40% organically or about $65 million. This is also a bit more than we anticipated. And our not-for-profit marketing businesses, which is a group, were down about 40% in the quarter. These areas, the special areas, in total account for 16.5% of our revenues in Q2 of 2008 and in the quarter in Q2 of this year accounted for almost half of our total organic revenue decline. At this point, while we don't see these areas rebounding quickly, they do appear to have stabilized. Our remaining business areas which account for 83.5% of our revenue are performing fairly well given the economic environment with organic growth rates down about 5.5%.

As for a mix of business, brand advertising accounted for 44.6% of our revenue and marketing services 55.4%. As for their respective growth rates, brand advertising declined 15.5% in the quarter, 8.3% organically, and marketing and services declined 18.9% of which 12.8% was organic. Breaking down our marketing services revenue further, CRM was down 18.7% with negative organic growth of 12.6%. However, within this category our performance was very mixed. Specifically, our events and sports marketing businesses and our not-for-profit businesses, as I mentioned, were impacted very significantly, both of these areas being down almost 40% organically. Excluding their results, CRM was down about 8%, public relations was down 18.5% or 11.8% organic and specialty communications, the toughest sector, was down 20% with the organic growth down 14.7%. Again, this category includes, among others, specialty media, recruitment advertising and our health care businesses.

Specialty media, which is primarily our directory or yellow pages business, as I mentioned given the lack of strategic fit late in the quarter we finally completed the divestiture. As a result, the second quarter reflects only two months of the directory business results. Recruitment advertising, probably our most economically sensitive business as I mentioned, was down almost 45% in the quarter and our health care business had mixed performance, some doing very well and others less so depending upon their specific client assignments, but overall the sector performed well with organic revenue down only about 2%.

Our geographic mix of business in the quarter was 53.1% US and 46.9% international. In the United States, revenue declined $227 million or 12.9%. Acquisitions net of dispositions reduced revenue by about $1 million or a little bit less than 0.1% and organic growth was negative 12.9% or about $226 million. As I previously mentioned, there were a couple of areas of business that had a disproportionate impact on our results in the quarter. Of those, our recruitment marketing and not-for-profit marketing businesses and Chrysler business are almost exclusively in the United States and our events business is weighted more heavily towards the United States as well. Together, those businesses accounted for about half of our US organic revenue decline.

International revenue decreased $379 million or about 22%. FX reduced revenue by $235 million or 13.6%. Acquisitions added $6.5 million to our revenue. Organic growth was negative 8.8% or about $151 million. Internationally, we had relatively strong performances in India, China, Middle East and Latin America. While the developed markets of Asia, including Japan and Korea, continue to be down sharply and western Europe was mixed with the UK, France and Germany performing at better than average while the other Western European markets as well as the developing markets of Eastern Europe performed below average.

Operating cash flow for the quarter and year-end to date was strong. Our overall working capital performance has been extremely good. As I mentioned last quarter, we have experienced considerable added working capital pressure due to the overall economic environment and credit environment. However, in response, we have redoubled our own efforts. I am happy to say that due to the considerable efforts on the part of our agencies globally, we have more than held our ground to date and our bad debt losses have been minimal.

Our primary sources of cash, net income adjusted for stock-based compensation and depreciation and amortization, totaled $547 million for the first six months. Our primary uses of cash were dividends which totaled $93.5 million, capital expenditures which totaled $63 million versus $93 million last year. Acquisitions including earn out payments totaled $61 million versus $210 million last year and share repurchases net of new issuances was only $3 million this year versus $344 million for the first half of last year. As a result, we have reduced our overall leverage by about $325 million since the end of last year.

As for operating leverage ratios, EBITDA to gross interest was down from last year due to the combination of higher gross interest and the decline in EBITDA. However, it remains very strong at 14.2 times and total debt to EBITDA improved to 1.4 times given the reduction in our debt balances. It is also worth noting that on July 1 we completed the issuance of $500 million of 10 year senior notes. We were able to issue those notes at an all in rate of about 6.44% which, at the time, was a 10 year treasury's plus 275 basis points plus about 10 basis points in issuance cost. Net proceeds from the issuance were used primarily to repay amounts outstanding under revolving credit facility. We have also included a pro forma cap table as of June 30 on page 12 and a summary term sheet of the issuance on page 13 of the investor presentation. And, finally, from a liquidity perspective we finished the quarter in a very strong position with cash and undrawn committed credit facilities totaling just over $2.7 billion and we had uncommitted facilities available totaling an additional $380 million. With that, now I will open the call for any questions. Hello?

(Operator Instructions) Our first question this morning comes from the line of Jason Helfstein with Oppenheimer. Please go ahead.

Hi. Thanks. One slightly longer one and then a shorter one. So, historically advertising is a two-year cycle with respect to the economy. 2009 is the trough with respect to GDP, then in 2010 total advertising marketing presumably should grow in line or modestly below GDP and then outperform in 2011. That kind of a long-term trend. So in the interim year, which is 2010, typically marketing services and direct marketing outperforms branded. So I guess as you are thinking this recession and recovery, is there any reason to think there is a paradigm shift relative to these historical patterns why marketing services and direct response wouldn't outperform branded advertising in 2010, and then obviously you are seeing some of your specialty businesses particularly weak. So the question is once you get past those difficult compares or once you get past those declines, do you expect your marketing services business to accelerate relative to branding advertising? Then I have one quick follow up.

This time around is different than, every time you get into an economic downturn it changes a bit. But, sitting here today, I fully expect that your thesis will hold as you get into next year and beyond. The difference will be our individual performance as new business opportunities come up and what impact they will have.

I think you are also seeing a little bit more blending in some of the reported numbers. Integrated marketing and the way the revenues are being reported and where they are being generated is slightly different and than it was probably 10 years ago.

Okay. And then just a question on margins. Obviously you have very impressive expense control in the quarter. Any reason why you won't be able to hold costs flat as we move in to the back half of the year which presumably should drive margins even further?

We said before that we think we should be able to hold margins inside of 100 basis points decline from last year. We still think that we are able to do that even with the organic growth where it is at.

Thank you.

Thank you.

Great. Thanks a lot. We have a question from the line of Alexia Quadrani with JPMorgan. Please go ahead.

Thank you. Thank you, Randy, for all the detail you gave us on organic revenue growth in the quarter. I just have a couple of follow ups on that. Can you give us any sense really on what is really one time in the quarter, meaning the impact on Chrysler bankruptcy, the yellow pages business? I am trying to get a sense if we should see the similar level of decline in Q3 and organic revenues Q2 and then also any color on how maybe the organic revenue decline progressed throughout the quarter?

At this point, Alexia, Chrysler did contribute because there was a mandate during the two-month period where there was a one [off] reduction in our fee income during that period while they were in bankruptcy. What do we see? Automotive, there has been a real reduction in activity and a reduction in labor force in the scope of work that we are required to do. That will take time to come back in the aggregate. It will come back over time but -- and the worst should have been in the second quarter of this year but there are still some challenges ahead.

I think some of the areas that we highlighted, as I mentioned, I don't see, rebounding quickly. Events, I see those being down, events was hurt by auto and events in general. The auto sector which was down about 30% for us as a category, I don't see the auto sector rebounding quickly in the second half. I hope I am wrong, but I don't see that. I don't read any reports. It doesn't seem like the auto companies think that. Obviously, Chrysler may be a bit better but I think it is still very early in that process. And Chrysler is only one of our auto accounts, the whole sector is down. And recruitment advertising, again, I certainly don't see that picking up in the next three or four months. Obviously as we cycle on these numbers year-over-year, that will be improvement. And with the business activity, our successes already in the first half and the end of last year, I think we will start seeing some of that come through in the second half of this year which gives us a bit of confidence that the second quarter is probably the low point. But off of that sort of reset of the second quarter is I think the threshold to measure from.

Was June significantly worse than the beginning of the quarter or not necessarily?

I don't think so. No. I mean, we saw this pressure through the whole entire quarter.

The big step change from Q1 was sort of the full quarter effect of a lot of fee adjustments, statement of work adjustment that occurred in the first quarter and into the second quarter. So, that pretty much rolled through the entire quarter.

With regard to severance, should we assume it will be a little bit more modest in Q3?

Yes. Most of our actions given the level of business, have been taken. There is some anticipated severance in the third quarter and we believe that we have done a very good job of identifying those areas where we can take action. So you should see far more modest in the second -- in the third quarter and hopefully then close to done.

Just the last question on use of cash. What are your priorities for use of cash in this market? When do you think we might see the share buy back resume and what your appetite is for acquisitions right now?

Well, we are well positioned for acquisitions. I think our capital structure is the best in the industry, our balance sheet certainly is. And we have been very conservative, as you know, with cash. At this point, any sensibly priced acquisition would be prepared to do and we are looking at several areas of opportunities. In terms of cash buy back, that is something we discussed with the Board. We will use our cash in the future as we have done historically. First, we will look to acquisitions and then as we generate excess cash flow that is not needed to service debt or other needs, we will look to buy back shares. I don't see a pick-up in that activity in the next three or four months.

Thank you very much.

We have a question from the line of Michael Nathanson with Sanford Bernstein. Please go ahead.

Thanks. I have a couple on costs for Randy. Randy, can you give me a sense on what was severance last year in this quarter?

Yes, we are going to scramble and look for numbers. Give me just one second.

Okay.

I think it was about $15 million. $16 million.

And then one other question is you guys took out a ton of costs this quarter, almost $500 million, what percentage of the cost reduction was translation based from the currency decline, was it similar to the change in revenues? Is that the way you think about it?

Yes, it pretty much flows through this, probably a little bit of difference but it would be pretty marginal.

Okay. And then on incentive comp this quarter, what was the change in your incentive comp accruals year-over-year? Was that a big factor in getting costs down this quarter?

It was not. Hold on one second. We will find the number.

Okay.

(Operator Instructions) Thank you.

It wasn't that tough a question that I wanted to cut you off. It was down about $10 million in the quarter. Hello?

(Operator Instructions)

Am I back on?

You are back on.

Thanks, Randy.

Sorry about that. We don't know what happened.

You guys hung up on me.

The question wasn't that tough.

So, basically most of the cost savings in employment were heads -- jobs severed and the benefits from those reductions?

Yes, they were real adjustments to our cost basis.

Last thing, let me just play devil's advocate. You've listened to (inaudible) this morning they were slightly more negative on the first half of 2010. If we are in a situation where the first half of 2010 is still negative organically with a better second half, do you think the environment is one where margins can grow or remain somewhat stable? Or if this is a multi-year decline in organic revenues, do you think there will be problems in maintaining margin strength you've shown this year?

No. But let me comment a little bit on the organic piece, which I think is kind of the case. Basically, been a reset in I will say organic revenues or revenues. It as pretty significant step down. I think Q2 is, we are pretty confident is the low point. And the step between Q1 and Q2 was meaningful, so if from these levels our new business activity actually generates positive organic growth off the sequential quarter, so off of Q2, but to get the year-over-year organic growth would be very difficult given the size of the step down until you get to Q2 of next year, possibly Q1 but that's pretty close.

As far as margins go, we have certainly done what we can to adjust the cost structures which is quickly largely labor and discretionary cost based. The more fixed costs, or semi fixed cost, things like real estate infrastructure costs, we are doing what we can to get those costs readjusted as well and that certainly takes more time. And we have to balance incentives with I will say a rebound in margins because obviously in this time period I would have to say that most of the people in our agencies are probably working even harder than they have ever had to work and are making more sacrifices and will likely in the current environment, because of incentives, get paid somewhat less money. So we have to keep that in mind as well and reward them as the business comes back also. So, it is a bit of a balance. Thanks, guys.

Great, thank you. We have the line of Craig Huber from Barclays. Please go ahead.

Yes. Good morning. Thank you. First question. This yellow page business that you guys were finally able to sell, just so people can adjust their models probably, would you be willing to give us what the annual revenues are and what the margins are like?

Well, margins were pretty low when we sold it. Annual revenues were around $100 million.

It was slightly positive for the margins?

Yes.

Yes.

Okay. Secondly, most quarters you give out -- almost every quarter you give out your net new billings and your winnings in the market place. Usually targets about $1 billion. What was that number in the second quarter?

I think it was $938 million.

Okay. And then historically your company has been generally unwilling to do large and medium sized acquisitions. There are decent medium sized acquisition out there in the states right now. Do you have any interest in going out of your comfort zone with these smaller acquisitions?

We never had a problem against larger to medius sized acquisitions. We have a problem against expensive dilutive acquisitions. So, it is not a size issue, it is really we are out for our shareholders, not the seller's shareholders. And so if we can find acquisitions that are fairly priced that fit well with our existing businesses and client base, we are more than interested.

Then back a little bit on why are you relatively comfortable thinking in the second -- I'm sorry, third quarter year-over-year organic revenue decline probably won't be as severe as the 10.8% number in the second quarter. What are some factors there if that's what you are thinking about?

At this point it is been based upon a review of what we anticipate revenue to be across large geographies and disciplines. And, again, we don't see a recovery. What we are saying is that we should have hit the trough in the second quarter of this year. It is going to take a couple of quarters before we cycle on that. And it's going to take a couple of quarters before growth returns.

Is there anything else you can point to maybe if selling this under performing yellow page business that you think will help the third quarter so it won't be down as severe as the second quarter number?

There is a handful of small things. Chrysler's revenues while they were in bankruptcy were further reduced. The business that you mentioned is a relatively small number. The new business activity that we had at the end of last year and beginning of this year starts to have a positive impact. And it looks to us that for the most part we have gone through the changes, certainly the bulk of changes, and it seems like the project activity probably hit a low point, we believe hit a low point certainly in the first half of the year, and think there is opportunities for some recovery, not a lot of recovery but a bit of recovery, certainly not getting any worse in the second half.

Thank you.

Thanks.

Our next question comes from the line of [Scott Weberman] with Goldman Sachs. Please go ahead.

Yes, thanks for taking the question. Two if I may. One, if you could just give us an update on client fee negotiations. Have we cycled through those or are clients still pushing back on fees. And then secondly if you can just give us any update on the July 2032 convertible bonds. I believe those are putable in about a week. Just curious if you guys have had any discussions with bondholders and how you are thinking about that. Thanks.

First one. Repeat the first part again, I am sorry.

On the client negotiations on fees.

Well, there are always negotiations going on with some client in the 5,000 client base that we have.

Right.

I would say most of those conversations occurred in the first half, really in the first four months of the year, where we have adjusted in many instances not only the fees but the scope of work that we have to perform against those fees. So I would say most of that is finished. There are always going to be one off switch or exception to the rule.

From the bond standpoint, the bond is putable at the end of July. We have not had discussion was bond holders. We are currently evaluating the right economic answer to potentially offer as a supplemental interest payment to bond holders. I don't know that the bond holders will accept it. Obviously, we have the revolver, a large piece of the revolver earmarked to replace those bonds as they are put back to us that revolve for people who aren't immediately aware of it. In runs until June 2011, so it is a good replacement. Our challenge is borrowings under the revolver. We borrow right now at between 0.5% and say 0.6%. It is a 30 day LIBOR plus 17 basis points. That alone would not be sufficient to keep the converts outstanding. There are some other economic benefits for keeping the -- potentially keeping the converts outstanding for another year. So we are debating offering a supplemental interest payment certainly larger than half of 1%. What that number is we are not sure yet. We will put out an announcement some time next week.

That is great, thank you.

We have a question from the line of Benjamin Swinburne with Morgan Stanley. Please go ahead.

Thanks, good morning. Randy, you talked in the prepared remarks about core revenue declines or core business declining 5.5% organically. If you could just clarify exactly what is in that. I am wondering what is excluded from core, and then more interestingly how did that trend -- what was that trend in the first quarter and do you also expect as you commented that 2Q would be the bottom for organic declines overall? Is that also the case for the core organic number? And then I have one follow up.

I didn't quite phrase it as core. What I said is we have a few areas, four that I mentioned, that were more severely down. So severely down or disproportionately down that I thought it was worth analyzing them and then talking about the two pieces of businesses. So, it wasn't like auto is one the sectors that I carved out. Clearly, core piece of business for us and cuts across many of our disciplines. But the areas that I outlined was recruitment marketing which I would argue is not core, it is down about 45% in the quarter. The auto sector as a whole, which is 13% of our revenue, it was down 30% organically. Our events and sports marketing business was down about $65 million or 40% organically and our not-for-profit marketing business, which I would probably argue is not core, is down about 40% in the quarter. So those four sectors accounted for about 16.5% of our business in Q2 of 2008. And since they were down pretty heavily, obviously they didn't account for 16.5% of our business this year. But that group accounted for almost half of our total organic growth -- organic decline. And the remaining 83.5% of our business was only down 5.5%. I didn't do that analysis for Q1.

Okay.

It would have been a similar result.

Okay. And then if I could just ask on a couple of categories. You did say that auto would be tough for awhile. But I was wondering if the Cash for Clunkers program at all was big enough to matter which I think will have some ad spend associated with it over the next couple of months? I don't know if you have a view on the retailers, how big your retail exposure is, but any body language or tone of conversation was those advertisers around the holidays, back to school, Christmas would be interesting as well?

I don't think the Cash for Clunkers is going to move our revenue line very much as that project goes into effect now. Hopefully, it will benefit the auto companies which will have a longer term impact on their confidence and spending. So I don't see anything moving our needle. And Randy is looking for the data on the second point.

Retail was down pretty good in the quarter, about 15 --

Figure out how to read this.

We could pick it up off line.

Retail was actually up for us in the quarter. I would have to dig behind why. It was probably a combination of new business as well as the performance of the sectors.

Got you. Okay. Thanks.

Thank you.

Our next question comes from the line of John Janedis with Wells Fargo. Please go ahead.

Hi, thank you. Randy, just a bit of a follow up to an earlier comment you made. I'm wondering when organic revenue ultimately turns positive, can you maybe share your thoughts on the margin opportunity here? So assuming you see a margin decline in that 100 basis point range in organic down in the high singles this year, I am just trying to understand if there is a lot of investment people to be made or if you can get the margin all back and more in a recovery year? Thanks.

Not sure I understand the question fully.

I am not sure I fully understand it either. Our margins are depressed by the severance cost that we have to take. The severance cost in and of themselves won't repeat if business is growing again, so there is a bit of a benefit there. We did record and we have been recording some incentives, probably the incentives that we have been recording are reflective of the business performance that we see unit by unit. When there is a recovery in growth coming back, our incentives cost will increase from where they are now. So, we should be able -- as we get to positive growth, be able to restore our margins.

In general, we think our 2007, 2008 margins, EBIT or EBITDA margins, are pretty good margins where we are able to invest pretty heavily in our own business and in developing the business, growing the business for organic growth, attract and retain the best talent and generating a great return for shareholders and good return on capital. I don't see a recovery year automatically accelerating margins past those levels. Obviously, if we were in a very significant, I will say boom period, more like in the 2,000 time frame margins were up another 100 basis points or so from those 2007 levels, I guess I don't anticipate 2000 economic environment coming back quickly.

Thank you.

Thanks we have the a question from the line of John Dix with Wedbush. Please go ahead.

Good morning, gentlemen. Just two questions. First, looking at 2010, are there any particular items of your business which you expect clearly to bounce back stronger either because of the easier comp against the new level business which has been reset or something else that you are seeing. And then, Randy, just a follow up on your point on regaining -- it sounds like you think you can regain the 2007, 2008 level of margins kind of in an investible time horizon. Do you see the same for regaining the level of organic growth that you had at that time or do you think it is going to be harder to get back to that 2007, 2008 level of organic growth than margins?

Well, I think we are experiencing a reset and in our case some of the specialty businesses that we have, have more negatively impacted us than the general economic environment that we face. We will cycle through on those businesses as we get into next year. Overall, looking forward, historically, our business we have been able to grow slightly better than GDP. And I would fully anticipate that as you move into 2010 will continue -- will reflect our historic performances as we move forward from a revenue point of view. I don't see any single sector exploding in a way to impact the numbers very significantly. It is going to be an overall reflection of our portfolio and the diversity of clients that we have around the world.

I think that is certainly right, the digital space.

Yes.

The sector growth rates that probably occurred in 2007, 2008, digital was faster growth. The emerging markets are faster growth. Digital overall is a harder and harder thing to capture. Our view is that digital effects all of our businesses and it is really engrained. Jason's early point about some of these things is integrated marketing really has changed the way some of these numbers are being collected versus what they were a few years ago, but those digital trends are very positive for us and we think they will continue.

Thank you.

Thank you. I think we have time for one more question, assuming there is one more question out there.

Yes, it comes from the line of Meggan Friedman with William Blair. Please go ahead.

Hi, thanks for taking my question. Just wanted to see if you can provide a little more color on how you are handling the client requests for fee renegotiations. Can you maybe put this in a historical perspective? I mean, is this the worst you have ever seen in such a concentrated time period and how should we thinking about this impacting the industry structurally, if at all?

I can't speak -- I should be able to speak for the industry, but I can speak for Omnicom. In most instances where, as I said, most of these conversations occurred in the first four months of this year, they are not an every day discussion item at this point in the year. Most of the declines were accompanied by scope reductions where the amount of work that we were required to do decreased because of client's reduced spending. You see that reflected in the severance actions that we have taken. In most cases, with very few exceptions, we don't have 100% of clients spend when you go through our 5,000 clients. In most cases where clients are looking for efficiencies or looking for other ways to save, the conversation is accompanied by, can you give us additional parts of the business which we are not currently servicing in order to make any overall reduction in activity more efficient for both you, the client and for us. So, there is an ongoing dialogue. Even where there is an affirmative response to that, it sometimes takes months to get that business and to transition it over, so the process is slow. I think given the portfolio of companies we have, the quality of the companies we have, in most cases we are successful when we sit down and have those kinds of conversations.

Thank you.

Thank you all for taking the time to listen to our call and if we missed any questions, we will be happy to try to answer them off line as well. Thank you all very much and have a great day.

Thank you. Ladies and gentlemen, there does conclude our conference for today. Thanks for your participation and for using AT&T's executive teleconference. You may now disconnect.