Omnicom Group Inc. (OMC) Q3 2006 Earnings Report, Transcript and Summary

Ladies and gentlemen, good morning. Thank you and welcome to the Omnicom Q3 2006 Earnings Release Conference Call. [Operator instructions]. At this time, I would like to now introduce you to today's host, Executive Vice President and Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

Good morning, thank you all for taking the time to listen to our Q3 2006 Earnings Call. We hope everyone has 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 will present this morning. This call is also being simulcast and will be archived on our website. I have also 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 discussed today may constitute forward-looking statements and that these statements are our present expectations and actual events or results may differ materially. We are going to begin the call with some brief remarks from John Wren. Following John’s remarks, we will review the financial performance for the quarter and the nine-month period in more detail, and then both John and I will be happy to take questions.

Good morning, and thank you call for joining the call with us today. We are exceptionally pleased with the company's performance for the Q3 and for the nine months. Revenue for the quarter continued to be strong across the board. The notable performance was in the major markets namely North America, Europe which was really led by Germany, the UK and France, and in China where our strategic investments beginning to yield pretty incredible results. Randy is going to take you later on through the details but it's worth noting that we are very pleased with performance also across each of our service disciplines. They are all performing well more specifically our pure business are now performing at a level that we have being expecting for quite a while. And this is reflective of both the quality of these firms and the quality of their work. Net new business wins continue to be very strong even with the tough loss during the quarter and we were able to balance it off to achieve our targets. I am bullish on the future in terms of business becoming available on a global basis. Operationally, our strategic goals and objectives are moving along nicely and they continue to yield very positive results. From an operating margin point of view, which Randy will cover in a minute, we continue to make significant progress while meeting our increasing investment objectives. These objectives include, and I have said this before quite often expanding our training and development for our staff and in market related investments such as China and in India we have made selective acquisitions during the quarter, we continue to look at opportunities in those regions and that’s a focus were for now and for I think the foreseeable future. I will now ask Randy to take you through our results in a lot more detail. Thanks Randy.

As John noted we are very pleased with the strong performance of our agencies. Revenue growth in Q3 increased $251 million to $2.77 billion that was an increase of 10%. For the nine months revenue increased 8.2% to $8.16 billion. Operating income for the quarter was $307.4 million, up 12% that’s an operating margin with about 11.1%, which was up about 20 basis points from last year. For the nine months operating income increased 10.5% to just over $1 billion and the operating margin was 12.4%, which was up about 30 basis points from last year. There are a couple of anomalies in our numbers this quarter worth noting that impact operating income, taxes, and net income, I will try to cover all three of those topics now. First, during the quarter we disposed off the US based healthcare business and several small businesses. With respect to the healthcare business, after deducting goodwill to transaction resulted in a small pre-tax loss. However, for tax purposes the pre-tax gain cannot be reduced by the goodwill amount, because the goodwill deducted for book purposes could not be deducted on the tax return, we will require to record tax expense for book purposes, resulting in the high book tax rate for this transaction. The second event in the quarter was the favorable resolution of uncertainties related to changes in certain foreign tax laws that occurred last year. As a result in the quarter there was a one time true up tax benefit. In the aggregate, the impact of these items in the quarter was a decrease in profit before tax of a half a million dollars, and a decrease in tax expense or a tax benefit of $1.8 million resulting in an increase in net income of $1.3 million. Adjusting for these items our year over year operating income in the quarter increased 12.2% and our operating margin increased from 10.9% to 11.1% or about 20 basis points. Moving down to P&L, net interest expense for the quarter was $26.7 million that was an increase of $10.4 million versus Q3 last year. And for the nine months net interest was $67.4 million up $24.7 million compared to last year. The year over year increase is due to primarily to our issuance of a ten-year fixed rate note at the end of Q1, if you recall that was a billion dollar issue with an annual interest rate of about 6.1% or about $15 million a quarter. This increase in interest was somewhat offset by reduction in other debt as we used some of the proceeds of that financing to pay down our outstanding bank loan, and part of it converts. On the tax front, our reported tax rate was 33.1% after adjusting for the unique items that I mentioned earlier. Our operating tax rate for the quarter and for the nine months were pretty much unchanged at 33.7%. Net income for the quarter increased 9.5% to $177.1 million brining the year to date net income to $586.8 million that was an increase of 9.1%. Fully diluted earnings per share for the quarter increased 15.6% to a $4 per share again adjusted for the net impact of the unique items I mentioned, EPS was a $3 or about 14.4% increase. For the nine months diluted earnings per share increased 14.6% to $3.38 per share. Analyzing our revenue performance FX was positive 1.9% or $47.9 million in the quarter. However, year-to-date it remains marginally negative at 0.002% or about $13.4 million. If you recall in Q1 FX was negative of about 2%, in Q2 it was neutral and now in Q3 it’s a positive 1.9%. If rates stay where they are FX should be positive about 1.5% in Q4. Acquisition growth net of dispositions was marginally negative in the quarter reducing revenue by $4.4 million or about one tenth of 1%. This decrease is primarily the result of the disposition of the previously mentioned healthcare business. For the year however, acquisitions have added about $29.2 million or four-tenths of point of our revenue. And organic growth again was very strong this quarter accelerating to 8.2% and accounting for about $207.9 million of our revenue growth. For the nine months organic growth was increased to 8% adding about $603.2 millions to our revenue. As for our mix of business in the quarter, traditional media advertising accounted for 41.4% of our revenue and marketing services 58.6%, for the first nine months the ratios were 42.6 and 57.4 for marketing services. As for their respective growth rates advertising grew 6.5% in the quarter and 5.8% year-to-date and marketing services which has been driven by the continuing strong performance of our CRM business and now resurgence in the PR sector grew 12.6% in the quarter, bringing the nine-month growth rate up to 10.1. Breaking down our marketing services revenue for the quarter CRM was approximately 36.9%, PR 10.5% and specialty communications 11.2%, as for their respective total growth rates CRM accelerated to 16.7% in the quarter, public relations as I mentioned picked up significantly growing 13.1% and specialty communications which would adversely impacted by the healthcare business disposition we discussed increased four tenth of 1%. Adjusting for the sale that I mentioned specialty communications would have grown about 7%. Our geographic mix of business in the quarter was 55.5% US, 45.5% international. In the US total revenue growth for the quarter was $111.9 million or 7.8%. Acquisitions were effectively neutral; I think they ended up with the net negative $100,000 in the quarter. Organic growth remains strong and steady at about 7.8%, adding about $112 million for revenue. The international front revenue increased by $139.5 million or 12.7%, acquisition growth was a net negative $4.3 million, FX had a positive impact of $47.9 million and organic growth due to largely the strong performances in the UK, Germany, France and China with $95.5 million or about 8.8%. Cash flow in the quarter and year-to-date has been very 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, adjusted for basic non-cash charges which for us are primarily stock based compensation charges and they relate to tax benefits as well as depreciation and amortization. As for our primary uses of cash, there are four dividends, which are currently running at $0.25 per share per quarter have totaled $133.1 million year-to-date. Capital expenditures totaled approximately $119.5 million. Acquisitions, net of dispositions and asset sales, including earned out payments on prior acquisitions have totaled approximately $178 million. And share repurchases which in the quarter totaled $123.5 million bringing our year-to-date total to about $1.1 billion. We also received $167 million of proceeds from option exercises and stock sold under our employee stock purchase plan resulting in net repurchases year-to-date of $916 million. As a result of our net repurchase activity year-to-date, our diluted share cap for the quarter was about 170.9 million shares and for the nine months 173.8 million. As a result of the strong cash management performance this year we finished the quarter with a net debt position of approximately $2.2 billion that’s roughly flat year-over-year. And we had available liquidity of about $3.3 billion. Now I’ll ask the operator to open the call for questions. Troy Mastin - William Blair & Company: Good morning, couple of quick questions. First you had mentioned China as having yielded incredible results, I wonder if you could maybe quantify that a little bit more of course in terms of size and growth rate and maybe any other anecdotes you might be willing to share.

You know, as we have said in the past, China and India are great geographic opportunities for us. Total revenue growth in China was…about $10 million in the quarter and so as organic growth and then we you know -- that’s without the acquisitions that we made. And our ventures that we you know, recently signed with in the last quarter, that’s starting to take effect now, it didn’t contribute really anything yet but it shall. And we have been winning business and I think the whole perception of Omnicom as a group has improved significantly. So we are very bullish about that. Also during the quarter we hired a very significant executive, he is the Non-Executive Chairman of India and India has become a focus for us as well and we expect great things. So we know that we have a lot of room to grow and we know that we have a lot of work to do but we have been investing for now almost two years in the teams and they are yielding results. Troy Mastin - William Blair & Company: In terms of the nature of the wins in those markets, are they principally domestic companies or are they international marketers that you have a good relation with or combination?

It’s a combination you know, the focus if I had to prioritize it is first servicing our international clients and getting back some of the opportunities where we have pre-existing relationships and expanding those. Next thing that we are focusing on is significant Chinese companies that will become exporters or they are currently exporters because we think that we can service them not only in China but service them in other places around the world and the third part which has not really kicked in but eventually will be local Chinese domestic companies that has been you know, those are the kind of the priorities of our focus and we are executing. We have the right people in place at this point and we’re doing all the things that we’ve traditionally done in other markets to make ourselves successful. Troy Mastin - William Blair & Company: And then if I could secondarily, how was your visibility the quarter in terms of the spending of your clients? Has it changed basically over the last couple of quarters, and is there any discernable trends, do you have visibility on trends, thanks?

We have 5,000 clients so our visibility really hasn’t changed one way or the other from anytime in the past, a lot of it comes down to market share gains and performance, our clients are in fact focusing on their brands so I don’t see any shift in the normal process of how our people become aware of what the clients are spending and not spending. Troy Mastin - William Blair & Company: Okay thank you.

Thank you.

Thanks and we have a question now from the line of Lauren Fine with Merrill Lynch, please go ahead.

Great thank you, looks like a really strong quarter I guess just a couple of small questions on the business. Could you actually quantify what the net of your business was in the quarter and I presume the loss you’re referring to is J.C. Penney, if you could highlight some of the wins and then I’ll go to my follow up when you answer that.

We’ll refer when you does that. I don’t believe we -- irrespective of the headlines lost all of J.C. Penney. We still do quite a bit of work for them since we lost the creative services for that account but it won’t have any impact on our financial results in this current year. Randy if you want to?

Net new business win in the quarter was just under $1 billion and J.C. Penney was I’ll say the big negative, safe way was you know the big positive not quite as big you know, not as big as J.C. Penney.

Okay and then what were the number of shares actually reported for this quarter and year-to-date?

That one is going to take time.

We are searching Lauren --

you can come back to that I guess you know the last question I have is, I guess I have been surprised that the acquisition activity has been you know, relatively modest maybe more from a dollar point of view not strategically. I’m curious what the pipeline looks like and if you would expect any pickup in activity?

The pipeline is strong; I think my focus has been really Asia. Other people are focused on you know, other markets around the world. We buy things when they fit and when they make sense and in some cases we have been updated by equity invest you know, just non strategic investors, little void companies by dimension we would all have to do something with those purchases so the activities there we are just very disciplined about what we do, and the primary focus has been you know, organic growth. Randy might have more detailed information because --quite a bit more of what the opportunities are that we don’t do.

I think the acquisition pipeline is actually you know, fairly fool, we certainly have a number of potential transactions that we're always in the process of reviewing. I think the results have gotten a little bit skewed and when we completed four acquisitions in the quarter I think we have done 11 or 12 or 10 or 12 or something year-to-date you know, so the track is not bad. We have also you know, go through a process of making sure that everything in our portfolio is what we wanted to be. We mentioned this quarter the sales of healthcare business that healthcare business had fairly substantial revenues although you know, less than spectacular earnings. So it tends to skew a little bit the net acquisition results you know, maybe disproportionately. As far as share activity in the quarter, we purchased 1.392 million shares and that brings the year-to-date gross repurchases to about $12.3 million.

Great, thank you.

And we -- on those acquisitions, I mean --

Net growth, obviously we issue shares under our employee stock purchase plan, under option exercises as well.

You know, the acquisition are their, the pipeline also takes a little longer now because we want to make sure that potential targets are SarbOx compliant or can be integrated and made SarbOx compliant, that’s a process we have been going through for a year. So, it takes a bit longer to actually execute on some of those than it maybe did in the past, but its all matter of focus and we are only doing things. We have never strayed from our internal disciplines about this, we figure the market place over the long haul comes to us and our focus has been new areas and our focus has been as I said Asia, where we have strong work to do but it’s truly a glass half full because we now know we can really add to our organic growth and our acquisition growth in those markets.

Okay, thank you.

Thank. We have a question now from the line of Craig Huber with Lehman Brothers, please go ahead.

Good morning thank you. My first two questions what were the shares at the end of the quarter and also what was the growth rate of revenues in China, the percentage change there couple of thoughts, thank you..

See, I don’t have the answer to give you one off the top of my head.

Okay, we would be doing offline later perhaps --

Yeah, I am sorry.

And then also I guess -- I would be curious what your thoughts are on just 2007 advertising, your expectations overall in the US, in the entire market. What is your sense from talking to your 5,000 or so clients, and obviously roughly are here in the US. What your sense is on advertising trends going to 2007, what should investors sort of expect from that front? Thank you.

Without being client specific, generally if you follow the cycle and I think some of our competitors have spoken more fully about this, generally you know, when you get into the third year of presidential cycle, performance is generally very good and also when you get in 2008, because the Olympics and people getting ready for the Olympics ahead it and just the general cycle is normally strong. We haven’t done our plans, they are just actually been prepared now at the company level. And we won’t see those actually until late November, December. In terms of what client’s expenditures are going to be. So the cycle says, we should be good you know, I mean that thing should be strong you know, in putting side geopolitical concerns, we have no reason to believe that this cycle is going to be different than any other. I don’t know how helpful that is but people have to market and they have to get out and promote their brands no matter what the medium they choose to do it --

And there is a thought that you generally still paid your organic revenue growth in various markets in roughly two percentage point above local normal GDP, that first statement.

I leave that to Randy.

You know, we think on a long-term basis we ought to be you know, 200 to 300 basis points ahead of say nominal GDP. I think we are probably tracking that and that’s probably more of a global statement rather than specifics by market. Obviously clients and generally we believe that clients will increase their marketing spend along with their revenues. We went off of that from consolidation from larger clients that you know, performing better, we also pick up more of their overall spend as they shift their spending maybe from traditional advertising towards other forms of marketing. All of those things help us you know, leverage that number a bit. But clients do share spending you know, from one country to another country depending upon what they are trying to accomplish you know, at a point of times, they are trying to look at individual markets is sometimes you know, misleading if you are trying to find and tune it.

You know on a granule basis my attitude, which is, we don’t own 100% market share and anyone of our subsidiaries anywhere. So there is always room for expansion in that area.

Great, thank you.

Thank you.

Thanks and we have a question now from the line of Jason Helfstein with CIBC World Markets. Please go ahead.

Thank you, maybe talk about your digital capability, so on a scale from one to 10 and I’ll try to keep this open and answer how you want, so on a scale from one to 10 if you are thinking about your domestic capabilities on the digital side, how would you rate where you are and what would it take to get to attain, and what do you think the upside would be if you got to attain overtime, thanks?

Well, without being cued if we ever get to attain you won’t need me, so kind of a moving target. I know that each one of our traditional businesses as now has an integrated strategy which they are deploying, which includes the use of digital as well as other traditional medias, and I know in some of our stand-alone businesses, ones which are more specialty and dedicated to primarily digital that in quite a number of cases we are turning pitches because we’re stepping up. And so I think and I’ve said this for the last 10 years. Ten years ago or eight years ago I’ve said in 10 years everything will be digital, I might be off for a couple of years but I’m not off in the concept, everything has a digital component to it at this point, every campaign that creative people, the people working in our company which tends to be very young are there is -- you know, unlike five years ago when you had a bunch of odd people like me to use technology as a tool, but the average population, the age population both the foreign and within our employees are younger folks who -- this is just an integrated part of the way that they enjoy media and there is a lot of self selection going on which is a sweet spot for us because marketplace becomes a little bit more fragmented and the marketplace becomes a little bit more complex. And so that’s why I think you’ll see overtime a shift in our overall revenue to more targeted you know, branch of our portfolio. So it’s all upside as a service provider -- media it’s all upside.

So you don’t want to rate yourselves right now?

Well you know, ratings are all relative; I think we list the competitors both in the breadth and depth of what we have on the digital front. The digital market is changing at a very rapid pace you know advancing, people are figuring out new ways of using digital communications, new methods to the market. We have to continue to push forward which I think John pointed out, everyone of our agency is doing that and they are working with the specific, you know, trying to serve the specific needs of their clients while keeping pace with changing technology and developing their own capabilities and understanding. We need to obviously continue to stay ahead of the competition and to continue to expand. So on a -- you know, relative to the market perspective we are in very good shape, relative to where we want to be. We are obviously going to continue to improve.

You know and by the time you know and this is a serious comment, I think by the time that we could actually sit down or even focus on it you know, in that kind of a scale. It will be so fully and totally integrated that at that time we’ll be referring to our business as opposed to distinguishing it in any other way. So it’s a journey that we are well-positioned forward, we are always looking to acquisitions kind of we are looking at currently capabilities, we are looking at currently -- and it also changes market by market. If you go to Korea or you go to China you know the use of mobile marketing factoring and other things is I think advanced beyond what it is here in the United States. So there is a moment here where if you look at our business in some of the traditional terms that it’s referred to and you went back 10 years, most innovation, most things came out of either the United States so parts of Western Europe. Now, today, it can come from anywhere in the world and especially emerging technologies which kind of are leapfrogging because they are not affecting old industries. So it’s a pretty exciting place and it’s a very dynamic environment.

Okay, just one quick follow up on that, so ultimately they will find budgets really aren’t expanding to accommodate digital. Do you think the money is coming more from the money they would spend coming up with let’s say creative and campaigns on the traditional side or it’s money that they would have spend buying media on the traditional side?

Well its not.

Or a little of both.

Yeah, you know I haven’t analyzed in that term, creative becomes more important was creative with a different, and times it just sounds like it is a (inaudible) just came you know, and being able to innovate and to change. Though what happened is the pace had changed, the pace and their needs of creative has increased because people’s attention spans have changed in a way that they digest media. You -- it’s very rare now to just make a commercial for TV. That almost doesn’t exist. The campaign is fully integrated looks at digital uses and the campaigns for significant brands are always being tested and evolving. And it’s a lot easier and quite frankly cheaper for the client to venture into some of these other medias and it will even get cheaper overtime I think as the more established companies are out there, have to compete with each other. So, you know, I’d rather be in my business than some old fixed media unless you know, because the growth rate should be greater because the challenge is greater to reach the audiences. But I -- you know I haven’t sat down and try to predict anybody else’s industry and as I said we are agnostic, we don’t care if we're on YouTube or we are in NBC or CBS I mean that’s -- we want to reach the consumers to find and search that we need to reach.

I think the innovation is where the lines blur and it takes -- you can go campaign by campaign with examples. The new Nissan Sentra work that’s’ being done by TBWA I think is a good example. You can certainly see the TV work, there is I think prep work attached, you can follow the campaign on the Internet -- you know, everything is coming up with multiple executions behind each idea.

Yes, and you know, and if you read or look at some of the trade magazines, I mean good to be service team which is always been famous for doing very effective regular TV, print, that type of advertising has named digital agency as the year this past week. So that’s also a demonstration of just how we have evolved.

Okay, thank you very much.

Thank you, Jason.

Thanks, and we have a question now from the line of Alexia Quadrani with Bear Stearns. Please go ahead.

Thank you, I have couple of question. First, it looks like the gross in UK was very strong in the quarter despite a generally lackluster economic backdrop, should we assume that the -- it was mostly share games or the advertising environment they are getting a bit better. And then my second question is just a general question, the new business outlook. As you take a look at the competitive environment right now and it maybe your current customer base and potential client conflicts, do you still feel you have lot of opportunity ahead to pull the new business from either existing clients or new clients going forward?

Well, the second part first; I think the new business opportunities are endless both geographically and even domestically. And that’s a quality question and I’m very, very comfortable with quality of our assets and the quality of our portfolio. And you have seen this over -- course over last year when we find something that isn’t hitting our standards, we are very open to divesting ourselves on it either because we have looked out and we have said, return today for selling if somebody is very interested in this space exceeds what we think value of that asset might be two or three years down the road. So, we have done some trimming and we’ll continue to. New business opportunities I think exists everywhere and your first question in UK, I think it -- correctly, I think it’s coming not only from traditional advertising, it’s coming from a lot of the other portfolio assets that we have which are dedicated to CRM and some of these other areas, that’s where I think the advertise is doing well, but you have the numbers.

Yeah, I think it’s both. UK organic growth was very strong, I think an awful of it is the execution of our agencies in that market but some of that seems like it must be resurgence in the economy a little bit. We have been talking about that for a couple of quarters now where our organic growth has accelerated a bit you know. We first started seeing pickup in the UK, this quarter we have had it in the UK, Germany, and France. And it’s been that way now for a couple of quarters.

And do you find that the -- with the good organic growth in Germany and France as well, do you find that the ad markets there might just be getting a bit more stable and a bit healthier in general as well as the marketing markets or the ad markets?

I guess, marketing in the full picture.

I think in the full picture we’re seeing first the markets firmed up and now we are growth, I wouldn’t to per se in terms of you know, which traditionally referred to is advertising even though continue to gain market share I think in those places.

It seems to me and again I’m not trying to be the economist, that the economies they are stabilizing, it looks like the performance of our business penetrating the accounts new business activities, etc. is certainly helping us on the organic growth front. I don’t believe the economies are doing as well as our organic growth.

So there is no reason which is sort of similar levels of growth in Q4 I mean there is nothing that is expected to change the trends?

No, we don’t you know, we try not to provide that kind of a forecast. We think our business is very strong and healthy right now. You know domestically we talk about the pickup that’s been going on for now a few quarters in those markets you know and very strong growth although of a relatively small basis in China and India.

But just -- and this is not to be negative at all but it doesn’t take much revenue movement in the quarter to move some of the percentages that we refer to and then are referred to about us, but the health of the business I believe is absolutely there and I think we are well-positioned versus the people we compete with on a regular basis.

Thank you.

Thank you, Alexia.

Thanks, and we have a question now from the line of Paul Ginocchio with Deutsche Bank. Please go ahead.

Thanks, couple of things for Wren. One, high revenues in Q4 end, do you know what it’s going to look like based on the deals you have done? And second on CRM, could you give us some color into why it was so strong in Q3, and finally do the changes in rules around UK, transferred employees, did that cause you any problems as grow that business or do business there? Thanks.

I don’t think that’s from past, does it?

I don’t think so, I guess what would happen if it was.

God knows, I mean some of the things that I read on that subject are beyond my belief, for instance, you have to not only save the employees but if one of those employees sexually harassed somebody else you would have to take that responsibility as well as is currently been drafted. I can’t imagine that, that kind of protective isn’t or actually go into plays but who knows you know --

We'll deal with it like everyone else.

Right, deal with, right.

You know, we have a pretty good track record of been able to work with local country rules and adjust and everyone’s business you know, we’ll obviously have to adjust to it. It will certainly be a bit of a change and you know it will probably change hiring and staffing practices and other things and maybe even assign the practices, there is something in those rules that says a person have to be predominately assign to an accountant then they transfer it if they are not predominately assigned to look how, I’m not sure there’s rules attached so I don’t --.

Right, the one big part about it is if they go through as us, look at them in a rolling glass that I am being one of the market leaders is probably a really good place to be if those rules don’t plays because it will -- it should slow down new business activity in that market. So I’d rather be at the top of the list with those rules in place than anywhere lower on the list. So I can always make lemonade out of lemons and in this case if that goes through we will.

We’ll probably jump around your questions, I remember the CRM question. CRM has been very strong across the board, that’s obviously one of our sweet spots. It’s a place where we have very significant share, we have I believe the leading companies you know, in most major markets and it’s the place where you know we focus for a number of years on trying to further expand our relationships with clients. You know, and that traction has been there for quite awhile. I don’t recall your first question, I apologize.

Okay, it was just about based on the acquisitions you have already completed, what the revenues will look like in the Q4?

I think right now it’s basically flat. Let me check, one second.

And would you expect CRM to continue -- I mean the 16% it grew in the quarter 17%, it seems even higher relative to historic patterns, was there anything in there in particular of just strong growth?

I think it was basically just strong growth are -- you know some of the acquisition activity was in that category, those and the total growth numbers that we are giving you.

Right.

But obviously, you know the -- and the acquisition activity in that category was a little bit stronger because we had the negative of acquisition, the big negative of acquisition was in especially communications. The positive of acquisition activity was probably at least half of that in the CRM space. Looking at the -- I think based on acquisitions today; acquisition growth would be about two-tenth of a point in Q4 if we didn’t complete anything else.

Thanks very much.

Thank you.

Thank you and we do have a question then from the line of William Bird with Citigroup. Please go ahead.

Yeah gentleman, are you concerned at all about the potential for slowing growth given the moderate net new business in the quarter is just the lapping of some big year-ago count win, thanks.

No, I don’t mean to be kid by that but we are invited to new business pitches. And we can always -- if we are not, we can create them. So it’s a belief that when we get up to the play we bat very well, but you know we can’t predict quarter-by-quarter, what the opportunity is going to be. I can tell you that I spent a good part of my time with existing clients and what their growth is and with potential clients that haven’t necessarily made any shift or formal announcements about making any shifts. And blue chip, real blue chip you know Fortune 50, Fortune 100 companies typically take their time and go through a lot of deliberations before they actually -- and do a lot of diligence before they put an account or an assignment in to review. Especially when you look at how the market place is consolidated and the number of possible competitors there are today versus you know, years back. So I don’t see quarter to quarter analysis for that being very important. But I do see you know, annual trends being important and there is a lot of conversations which are non-public which are going on right now.

There is a couple of other trends worth noting and that we have done a little bit over $3.3 billion I think year-to-date and that new business wins. That really tells us that the net new business engine is performing very well. Last year obviously in Q3 we had you know, a tough comp but when you look it year over year you can look at sort of three large accounts you know, be it of any lows and this year J.C. Penny you know, that kind of swings the each quarter there is hundreds of net new business wins that’s really be engine doing its job and while those big wins are exciting then we see lots of press, it’s really the breadth and depth of those smaller wins that continues to drive a consistency in our business. And shows the strong health of those agencies on a global basis and I think that is very strong, just as strong it was you know, last year maybe even improving.

But we would like the headlines to.

Thank you.

Thank you.

Thanks, then we have a question then from the line of Steven Barlow with Prudential. Please go ahead.

Given where we are at, we probably have this to be our last question.

Okay, Randy, on dividends and share repurchases, dividends you kept at the rate the same last four quarters it took you seven quarters, as the previous rate -- is it time to raise the dividend to share repurchase is only about 125 million or so, you have got obviously very strong balance sheet, because your authorization left to go on that and thoughts and then lastly big account out there is Wal-Mart, are your fearful that one of the competitor in particular is going to low ball the price in order to make good headlines.

Let me do with one or two of those questions and to Randy. The dividend is really a board matter and it is discussed periodically with the board. And you know, we are committed to periodically raising the dividend where as the board is committed to periodically-- we and the board are committed to periodically raising the dividend and I am sure that will be a topic over the next six months. In terms of Wal-Mart we are in a competitive bid and we have -- love Wal-Mart and GSD&M which is the agency on Wal-Mart, has been with them since the beginning. We are hopeful that we will be successful in defending the account. Some of the headline numbers that have been reported really are you know, where I have seen that its $570 million. That has a lot to do with a non Omnicom company, called Bernstein, which has been their media company for the last -- since Sam Walton started the company. So our exposure of Wal-Mart is more emotional than financial, but we continue to do everything that we possibly can to talk to them to make sure that they believe that it’s always hard when you are the incumbent to be successful. So, but the headline numbers that you see is really not Omnicom’s part of that. All we do there is creative services and some promotional work which is not in review which I have every reason to believe we will continue.

You asked about share repurchases as well. We bought $124 million roughly in stock in the last quarter. We bought a lot in year-to-date, we talked about that when we did the fixed rate note that was going to be an acceleration of stock repurchases. Yeah, I don’t believe we’re -- I mean its really important matter, but I don’t believe we are looking to increase the leverage on the company and the -- on a significant basis on a long -- certainly on some long-term basis obviously, quarter to quarter rate you know keeping up or down a little bit and basically as we said in the past, we take our free cash flow which is quite substantial you know we pay a dividend. We have some CapEx, we would prefer to do acquisitions as long as they are done on the basis that we want to do acquisition and the acquisitions are strategic and then with the balance of the cash we are looking to share repurchases. You know I would think that given the acquisition outlook that the share repurchases you know, for the near foreseeable future would be in line with you know what we’ve done in the past, absent that one time sort of accelerated stock repurchase.

Right and I think if you look back to our comments when we changed the capital structure and put in the long-term debt back earlier in the year. All our behavior has been 100% consistent with that -- is very flexible what Randy has said.

Thanks very much.

Thank you and thank you all for taking your time for our earnings call, we will talk again in the New Year, bye-bye.

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.