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A faster than expected recovery in 2010

Following a rough 2009, growth returned in the second quarter of 2010 as predicted, but faster than anticipated, particularly in traditional geographic and functional areas. The mini-quadrennial events of 2010 also helped – the Winter Olympic Games in Vancouver, the World Cup in South Africa, the World Expo in Shanghai, the Asian Games in Guangzhou and the mid-term Congressional elections in the US, all helped push up advertising and marketing services expenditure by around 1% above trend.

Chart showing GDP projections 2010-2012 percent change
Source: IMF/GroupM
f: Forecast.
Prior to events in 11 March 2011.

Although 2009 was an extremely challenging year, the Group responded well, particularly in the second half. That was all the more gratifying, given that 2009 had none of the maxi-quadrennial stimulative events of 2008. That year was a record in terms of billings, revenues and profits, bolstered by a Summer Olympics, a European football championship and an American presidential election. Surprisingly, by the end of 2010, business was back to pre-Lehman levels, faster than many had anticipated. This was a relatively quick recovery and certainly faster than we could have possibly anticipated following that momentous weekend in September 2008.

Shape of global recovery
Source: IMF/GroupM
f: Forecast.

Overall, in 2010, spending on worldwide communications services – advertising and marketing services – rose by 6.5% to $798 billion from an actual spend of $757 billion in 2009. WPP’s market share stood at around 10%. Despite the uncertainties, the industry will probably grow by 4-5% in the current year. GroupM forecasts a 5.8% rise in advertising, which now accounts for approximately 40% of our business. GroupM also predicts a 4.4% increase in marketing services, which affects the other 60%. Our conservative budgeted revenue increase of 5% probably means increased market share.

As a proportion of worldwide GDP, communications services probably stayed constant in 2008, falling in the sharp recession of 2009, but rising again in 2010. 2011 and 2012 should see further increases, particularly in the ‘V’-shaped economies of the BRICs and Next 11 and in the US, although in the ‘L’-shaped economies of Western Europe, it is likely to remain a slog, but we believe WPP is well placed to make the most of it. On the following pages, we explain why.