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Penny Machines

Cherries
oil on canvas
22 x 20 in
1981

Penny Machines
oil on canvas
23¾ x 29¾ in
1961

Stack of Books
oil on canvas
30 x 24 in
n.d.

Seven Suckers
oil on canvas
19 x 23 in
1970

Twin Jackpots
oil on canvas
30 x 46 in
1962

Ties
oil on canvas
20 x 26 in
1980

Cake Slices
oil on canvas
20 x 16 in
n.d.

2010 should be a more stable year

Despite the overall slow-down in the industry growth rate, three engines of relative growth remain: new markets, new media and consumer insight. Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe, iconically represented by the BRICs and those of the Next 11 markets where we are present (Bangladesh, Egypt, Indonesia, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam), continued to grow faster and now represent almost 27% of the Group’s approximately $14 billion revenue. As did new media and the application of technology in the form of internet, PC, mobile, video content, search and social networks, which also now account for almost 27% of Group revenues. And finally, as did Consumer Insight, which now accounts for over 26% of Group revenues.

2010 should be a more stable year (famous last words!). There are several mini-quadrennial events that will help – the Winter Olympic Games in Vancouver, the Asian Games in Guangzhou, the FIFA World Cup in South Africa, the IPL cricket league and Commonwealth Games, both in India, the World Expo in Shanghai and last, but not least, the mid-term Congressional elections in the US, all of which should, on the basis of past experience, add approximately 1 percentage point to industry growth rates.

Our budgets for 2010 indicate flat like-for-like revenue growth, with a mildly weaker first-half and stronger second‑half. The second quarter shows like-for-like top line growth – a budgeted return to growth for the first time in six quarters, although the second quarter of 2009 is the weakest comparator. GroupM forecasts that global advertising spending (which impacts approximately 39% of the Group’s revenues) will rise by 0.8% in 2010 versus a 6.6% fall in 2009. GroupM also forecasts that marketing spending, broadly the other 61% of WPP, will fall by 2% in 2010 against an 8% fall in 2009. On these forecasts, flat revenues would mean increased market share.

Geographically, there are relatively brighter spots budgeted in Asia Pacific, Latin America and the Middle East and Africa, reflecting the continued relative strength of the BRIC and Next 11 markets. Central and Eastern Europe, as a whole, remains relatively flat, with Russia recovering as the oil price rises. At $60-70 per barrel, the Russian economy works. Western Continental Europe is budgeted to be relatively weak, with France, Germany and Spain still challenged. The UK is budgeted flat (although there are post-election concerns), with the US showing a little growth. Latin America remains the healthiest region.

All sectors, other than Advertising and Media Investment Management, are budgeted to grow at a modest rate in 2010. Advertising remains challenged by clients’ continued demands for efficiency, particularly in mature markets. Media Investment Management is budgeted to recover in 2010, with growth reinforced by very significant new business wins so far this year.

Incentive plans for 2010 will place increased emphasis on revenue growth and improvement in operating margins in conjunction with operating profit growth, although objectives will continue to include improvements in staff costs-to-revenue ratios and qualitative Group objectives, including Group co-ordination and co-operation, talent management and succession planning.

At the time of writing, we have revenue and profit data for the first three months of 2010. Like-for-like revenues for the first quarter were flat on the first quarter of 2009, indicating an encouraging return to stability. This was first evident in November 2009, when revenue trends were markedly ‘less worse’ than before. Although this return to stability seems widespread both geographically and functionally, there is no marked growth as yet, even against weak comparatives, although the US did show an encouraging return to growth in the first three months. America is biting back. Operating profits for these three months were also better than budgeted.

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