Group Press Releases

Carat Adspend Forecast Raised for 2004, Europe In Solid Recovery

03 September 2004

September 2004 Forecast – Year On Year % Growth At Current Prices

	2004	2005
Global	5.7% (was 5.3%*)	5.0% (was 4.4%*)
USA	5.8% (was 5.3%*)	4.8% (was 3.8%*)
Asia Pacific	6.2% (was 6.1%*)	5.8% (was 5.7%*)
Europe	4.4% (was 4.0%*)	4.4% (was 4.2%*)

*Figures in brackets represent the previous forecast issued in March 2004

Doug Flynn CEO of Aegis Group plc, Carat's parent company, said:
"Carat is raising its forecasts for global advertising growth in 2004 to 5.7%. This growth is being led by the US and European markets, although growth in Asia-Pacific remains robust. We have also raised our forecasts for 2005 and now expect to see global adspend growth of 5% as early signs from advertisers suggest that their confidence remains stable."

GLOBAL OVERVIEW
Carat is forecasting 5.7% global advertising expenditure growth in 2004. This is slightly higher than its March forecast of 5.3% growth. The revision is mainly attributable to continued improvements both in Europe, which is now in solid recovery, and the US. Although the forecast for Asia has only been marginally raised, a return to positive growth in Japanese adspend (the world's second largest adspend market) now seems confirmed for this year.

The long-awaited recovery in advertising is now global, led primarily by strong macro-economic drivers in the first quarter and helped in some part by incremental adspend stemming from this year's major sporting events and the US presidential election. The advertising pattern now appears to be set through the end of 2004, despite slower economic indicators in the second quarter.

Carat's forecast for 2005 global advertising expenditure growth is 5%, up from its March forecast of 4.4%. This is based on a combination of very early client indications together with its assessment of the impact of macro-economic indicators. Economic uncertainty following the US election and the current oil price levels mean that there could be economic challenges ahead. Currently advertisers' confidence levels on advertising spend appear stable, however, as marketers are in the process of setting next years' adspend budgets, Carat's market outlook for 2005 will become firmer over the next three months.

Looking at specific media, a significant trend has been the rise in internet advertising which, in 2004, is predicted to grow at 15% or growth of 20%+ when looking at all internet marketing. The internet's share of global adspend is currently 3%, but this is expected to increase substantially in the next few years as the medium becomes an essential part of the marketers' armoury.

Impact of the Olympics
Carat's conversations with clients have provided little evidence that the Olympic Games has been as significant a driver of global advertising expenditure as previously expected. Most advertisers' budgets for the year will remain steady although a few have re-allocated a portion of their spend around the time of the Olympics. Of the 46 countries surveyed for this report, only 9 reported an actual increase in advertising expenditure around the time of the Olympic Games: Australia, Austria, Germany, Greece, Hong Kong, Israel, Japan, Malaysia and Taiwan.

REGIONAL REVIEWS

USA: Very strong first quarter should lead to good growth for the year

An encouraging first quarter for the economy with growing consumer confidence, strong consumer spending (+3.8%), and a decline in unemployment.
The second quarter has been softer with concern over increasing oil prices and rising interest rates; the first decline in consumer spending since September 2003, and growing fiscal deficit and inflationary pressures.

In terms of advertising expenditure, all media segments enjoyed a strong first quarter. Expectations are now for a strong 3rd quarter, followed by a softer 4th quarter.

The period Q403 to Q304 (the 2003/2004 upfront market) saw a record amount of advertising committed across national broadcast, cable and syndication. The total upfront committed in the 2003/2004 year was $19.4 billion (16% increase over previous year). Negotiations have just finalised for the 2004/2005 year, and although broadcast spending was flat versus last year, cable and syndication dollars have helped push commitments just north of $20 billion. Retail, telecoms and pharmaceuticals increased their spending significantly and automotive made a come back.

There is no doubt that the presidential election has boosted advertising expenditure so far. The 2 main drivers of growth in the first half of the year were paid political messages and an increase spend by traditional advertisers including General Motors, Nissan and Procter & Gamble. The political advertising war generated over 356,000 spot-TV commercials in the January to June period, according to Nielsen Monitor Plus.

Europe: advertising expenditure growth is gathering pace this year
European advertising expenditure is now showing solid recovery, led by good growth in the UK, Italy and Spain, an upturn in the French advertising spend. There is also a slightly more optimistic outlook for Germany which is predicted to return to growth in 2005.

The UK's GDP forecast has recently revised upwards to 3.4%, retail sales remain robust.
First signs of weakening consumer confidence and softer housing market suggest that economic activity could slow down a little further ahead.

The outlook for advertising expenditure is improving over 2003 with good growth in adspend amounting to a 4.6% rise expected in 2004. Television was up 3% in the first 5 months of the year and June and July saw good growth. Outdoor keeps growing strongly (+9.1% in the first quarter); online advertising is showing the highest rise (+17% in the first quarter)

Germany

The German economic recovery is not yet in place affected by ongoing structural problems in the labour market and social systems.
Employment will decline in 2004 and the latest business climate index showed deterioration.
Exports are still supporting growth but are showing a disappointing performance compared to previous recoveries.

Advertising expenditure is still expected to decline but only by 1% in 2004, returning to positive growth in 2005. Adspend in 2004 has been helped by this year's major sporting events and also by the retail sector where competition between Lidl and Aldi is boosting adspend, a trend likely to continue in the second half of the year. Television is expected to improve in the second half of 2004, boosted by new car launches, the start of UMTS and the introduction of new mobile phones. Online advertising is growing fast.

France

The upturn in growth was confirmed by first quarter GDP figures (+ 0.8%) and rise in personal consumption.
However, current growth is partly boosted by tax incentives aimed at personal consumption, suggesting that the upturn could be short-term; household confidence remains affected by the high level of unemployment.
Necessary long-term structural reforms to labour markets and pensions are yet to be implemented

General media ratecard prices rose 9.9% in the first half of 2004 but an increase of discount means that we expect the net market to rise 3.2% in the year. Television is performing well, boosted by the new inclusion of press advertising on TV. Press is benefiting from the launch of new magazine titles and Internet advertising has increased by 67% in the first six months.

Italy

The Italian economy is on the verge of recovery indicated by a +0.6% rise consumer spending and +0.4% GDP growth in the first quarter. However, consumer confidence has reached one of its lowest levels in recent years.
The lack of fiscal and political reforms remains a major concern and the extent of the recovery will depend on the government's ability to implement social and political reforms.

Advertising expenditure is very strong, boosted by rises in some categories particularly telecom and automotive. Television is performing very strongly, boosted by the new availability of Sky and the good audience performance of Euro 2004. Across all media adspend is expected to rise by 5.7% during the year.

Spain

The economic outlook remains favourable for 2004, but the rise in inflation (3.5% in June) and recent increase in interest rates could have a negative impact on consumer consumption.
The recent uncertainty seen on Spanish market (Ibex 35) could spread to business and consumer investment.

Advertising expenditure growth prospects are good for the year with an estimated 4.0% growth and the terrorist train attack in March does not appear to have affected long term trends. Television and Internet have shown the highest growth rate in the first half and their good performance is expected to continue throughout the year. Automotive and food are the two most dynamic categories.

Asia-Pacific: robust growth and maintaining momentum
Asian advertising expenditure growth remains robust (+6.2% in 2004), with particularly impressive growth rates in China (+15%), Hong Kong (+13%) and Singapore (+10%). Japan's current recovery is translating into improved advertising expenditure forecasts for 2004 (+2.1%)

Japan

Japan's economy continues to expand led by increased consumer spending. Business confidence is at its highest in 13 years and with employment improving, indicators suggest that domestic demand is turning into source of growth.
There is more caution for prospects in 2005 as deflation remains a concern

Advertising expenditure is expected to increase in 2004. Japan is one of the countries experiencing a boost from the Olympics. Advertising for digital products is also expected to stimulate spend, particularly television spend.

China

Economic growth was over 9% in the first half of 2004, despite regulatory measures introduced to address concerns over overheating in some sectors.
The rate of growth slowed down a little in quarter 2, easing concerns over overheating and pointing to a soft landing

Marketers, particularly foreign multinationals, continue to invest heavily in advertising. This year's sporting events (the Olympics and the AFC Asian Cup China) will help to a certain extent. Television is the fastest growing medium, pushed by the government's new regulations forcing TV owners to lower prime time commercial time.

For further information contact:

Richard Walters
Aegis Group plc
+44 (0) 20 7070 7700

Caroline Leroi
Aegis Group plc
+44 (0) 20 7070 7746

Charles Palmer
Financial Dynamics
+44 (0) 20 7831 3113

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