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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.

A game of two halves

Our reported revenue growth of over 16% reflected the strength of the euro and US dollar against sterling, as well as the impact of the first full-year inclusion of Taylor Nelson Sofres plc (TNS) in our results. On a constant currency basis, which excludes the impact of currency movements, revenues were up almost 5%.

On a like-for-like basis, excluding the impact of TNS, other acquisitions and currency, revenues were down 8.1%, reflecting ‘less worse’ trends in the second half and final quarter of the year. On the same basis, gross margin was down even less at 7.9%. We seem to have moved from staring into the abyss post the Lehman Brothers crisis, to a ‘less worse’ phase in the second half of 2009 and a stabilisation phase towards the end of 2009 and the beginning of 2010. Revenue, including 100% of associates, is estimated to total over £10.4 billion.

2009 was a very difficult year and a tale, or game, of two halves. Like-for-like revenues, although relatively stable in the final quarter of 2008 post the Lehman crisis, fell by almost 6% in the first quarter of 2009 and the rate of decline accelerated to almost 11% in the second quarter. The Group was relatively slow to react to this in the first half, with headcount only falling by 2.8% on average and 5.8% point-to-point, although a more rapid response of cost reduction, in response to these accelerating revenue declines, might have damaged the franchise.

However, as like-for-like revenue declines started to become ‘less worse’ at -9% in quarter three and -7% in quarter four, the headcount average fell by 9% and by 12% respectively and point-to-point by 7.4% between 30 June and 31 December. As a result, operating margins in the second half were the same as pro-forma margins in the second half of 2008. We have clearly moved from a period of staring into the abyss to ‘less worse’ and now to stabilisation, if not growth, as yet.

Geographically, the impact of the recession was least felt in the UK and Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe. It was most keenly felt in North America and Western Continental Europe, particularly in the first six months. There was relative improvement in the US in the third quarter, which continued into the final quarter of the year, with like-for-like revenues down 6.1%. Although the UK showed some softening in the third quarter compared with the second quarter, there was a marked ‘less worse’ improvement in the final quarter, with like-for-like revenues falling less at -4.6%. The relative improvement in Western Continental Europe and Asia Pacific in the third quarter continued, with both regions showing significantly ‘less worse’ growth in the final quarter. The Middle East continued to be challenging in the second half, while Latin America had a relatively strong year overall.

Markets outside North America now account for over 65% of our revenues, up from 61% five years ago. The influence of the faster-growing markets outside North America is increasing rapidly.

Constant currency by geography
          Headline PBIT by geography
Revenue by geography
1
See definition in the Glossary
2
The calculation of headline PBIT is set out in note 31 of the financial statements.

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