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Penny Machines

oil on canvas
22 x 20 in

Penny Machines
oil on canvas
23¾ x 29¾ in

Stack of Books
oil on canvas
30 x 24 in

Seven Suckers
oil on canvas
19 x 23 in

Twin Jackpots
oil on canvas
30 x 46 in

oil on canvas
20 x 26 in

Cake Slices
oil on canvas
20 x 16 in

The longer term

Worries continue about how and when governments and central banks will withdraw the considerable fiscal and monetary post-Lehman stimulus, as well as the likely impact. These already approximate to $13 trillion or approximately 20% of worldwide GDP of $64 trillion. Withdrawal of the automotive ‘Cash for Clunkers’ stimulus in North America reduced demand for cars and trucks in the US from an annualised level of 14 million units to 10 million units. This should serve as a warning.

The more interesting question, probably, is how the West, in particular, will emerge from the current crisis and reduce the colossal government deficit needed to fund the early stage of the recovery. There seem to be two possible routes. First, the more prudent and painful – reduce government spending, increase taxes and unemployment and learn to save again, with the risk of a double-dip. Secondly, inflate our way out of the problem and continue to spend and lend, with likely significant resultant increases in inflation and long-term interest rates. The UK election, for example, is being fought on these issues.

Given the politically unpleasant implications of the first route and the proximity of elections, the second course is more likely. As a result, those countries that are capital rich and have saved – like Brazil, China, India, Japan and eventually, with strong oil prices, Russia – will benefit even more. And the Group’s strategic focus on the BRICs and Next 11, on the new media and on consumer insight will benefit accordingly.

In any event, consumers and clients exhibit continued caution – consumers concerned about high levels of unemployment and clients continually conservative in a low-growth environment, achieving lowered market profit expectations, by getting there ‘ugly’ – by cutting costs and focusing on efficiency. Sadly, the fact that you cannot cost-cut your way to prosperity has not been accepted – as yet. Long-term growth depends on brand-building and revenue growth. Promote on price and you create commodities. Innovate and differentiate, you create brands and the right to demand a premium from the consumer. Maybe the change we have seen in the first three months of 2010 signals first, the end of the post-Lehman cost and liquidity-driven terror evident in budgeting in 2009 and, secondly, the realisation that revenue growth requires marketing investment and a loosening of the marketing purse strings.

According to the recent Deutsche Bank investment research note* on more than 30 large European and US consumer staples companies over a period of more than 15 years, those companies that increase advertising and promotion spending deliver sales growth 30% faster and profit growth 50% faster than their peers. Including leverage would increase the differential profit returns and advertising and promotion expenditure cutters had the benefit of increased short-term profitability in the comparison.

In the long term, the outlook for the advertising and marketing services industry appears favourable. Increasing globalisation, overcapacity of production in most sectors and the shortage of human capital, the developments in new technologies and media, the growth in importance of internal communications, the need to influence distribution, the new focus on corporate responsibility issues such as climate change, the growth of government as a client and the focus on global and country organisational structures, underpin the need for our clients to continue to differentiate their products and services both tangibly and intangibly.

Moreover, the continuing growth of the BRICs, and other faster-growing geographical markets, will add significant opportunities in Asia Pacific, Latin America, Africa and the Middle East and Central and Eastern Europe – along with the growth of the Next 11 such as Vietnam, Pakistan, Indonesia and Bangladesh. Advertising and marketing services expenditure as a proportion of gross national product should eventually resume its growth. Meanwhile, in these difficult times, we are committed to working with our clients to improve the effectiveness (quality) and efficiency (cost) of their spending, or as we prefer to call it, investment.

Given these short-term and long-term trends, your Company believes it has the correct strategic priorities – new markets, new media and consumer insight.

Including associates, the Group had over 138,000 full-time people in almost 2,400 offices in 107 countries at the year end. It services 354 of the Fortune Global 500 companies, 28 of the Dow Jones 30, 60 of the Nasdaq 100, 33 of the Fortune e-50, and 698 national or multi-national clients in three or more disciplines. 443 clients are served in four disciplines and these clients account for over 56% of Group revenues. The Group also works with over 327 clients in six or more countries.

These statistics reflect the increasing opportunities for developing client relationships between activities nationally, internationally and by function. We estimate that over 35% of new assignments in the year were generated through the joint development of opportunities by two or more Group companies. New integration mechanisms, sensitive to global and local opportunities, including WPP global client leaders for our top 30 clients and country managers, continue to be developed. There is an increasing number of major client creative and integration opportunities at a Group level. The Group continues to be extremely successful in most, if not all, of the integrated marketing competitions that clients are increasingly initiating. These opportunities range from the creation of teams across the Group to the integration of various operating units and to the creation of individually tailored agencies to meet clients’ needs. The Group’s integration record leads its competitors by a considerable distance.

You can read more about this report in Jeremy Bullmore's essay here.

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