Agency Performance League 2006

campaignlive.co.uk, Friday, 03 November 2006 12:00AM

With the recession passing unmourned into history, are advertising agencies transforming the improved trading conditions into better margins and profits? Mandy Merron reports.

Willott Kingston Smith's annual survey of the financial performance of the UK's top agencies this year, reveals an industry turning its back on recessionary woes and continuing to grow, with turnover returning to double-digit growth.

The majority of international groups reported slower growth in Western Europe in general, and the UK in particular, than in emerging markets such as Central Europe and Asia-Pacific. Nevertheless, the increase in turnover to £154.6 million - an 11 per cent rise this year on the back of a 5 per cent rise the previous year, will be a shot of good news for an industry that no longer needs to cross its fingers or find wood to touch when it dares to suggest that its downturn may be over.

The rise in turnover reflects an improvement of agency fortunes across the board, with 35 of the top 50 agencies reporting an increase in the volume of their business.

While the increase in turnover will be heartening to agencies, gross income (revenue) is perhaps a better measure by which to compare agencies, taking into account as it does fee income and any profit on production or other recharged costs.

Good news again: more than half of the top 50 agencies reported an increase in revenue, with the average up by 7.5 per cent compared with a more modest 2.7 per cent the previous year.

Overall, pre-tax profits were up at more than half of the top 50 agencies, with an average increase of 34 per cent as a result of improved operating profit, reduced exceptional reorganisation costs and increased interest earned on surplus cash.

The Young & Rubicam Group held on to its top spot, with the highest pre-tax profit of £19.4 million, an improvement of 9 per cent on last year. Second place again this year was the Ogilvy Group, where pre-tax profit rose to £15.5 million, an increase of 453 per cent on last year's pre-tax profit of £2.8 million. This is attributed to a strong directorial focus on cost control, although the agency also reported a marginal increase in investment income.

Euro RSCG (up five places to 14 in the table this year) improved its gross income by 24 per cent and pre-tax profit by a massive £8.3 million after converting its £2.4 million loss the previous year to a £5.9 million pre-tax profit in its most recent accounts.

The Interpublic Group agencies FCB London, McCann Erickson London and Lowe London continue to struggle. While their income kept Lowe and McCann in the top ten, it was down 9.1 per cent and 14.6 per cent, respectively. Bearing in mind the financial woes of the agencies' parent company, and the fact that accounts for Lowe and McCann were only as recent as December 2003, the next few years are likely to see a deterioration in their performance.

UK independent agencies continued to outperform their network-owned rivals, with more than 75 per cent of the former reporting increased gross income, compared with 60 per cent of group-owned companies. The independents also tended to be more profitable: 60 per cent report increased operating profit as opposed to half of those owned by a group.

Mother's 41 per cent improvement in revenue (a 3 per cent rise on last year) led to a 46 per cent rise in operating profit. As a result, pre-tax profit nearly doubled from £1.8 million to £3.5 million. Meanwhile, Miles Calcraft Briginshaw Duffy increased its gross income by 40 per cent, operating profit by 217 per cent and pre-tax profit by 209 per cent, all of which made it an exciting acquisition prospect for its Canadian suitor, Cossette. WCRS reported a relatively modest increase in revenue of just 6 per cent, but a 15 per cent reduction in employment costs resulted in an impressive 129 per cent improvement in operating profit. Exceptional costs in relation to the agency's restructuring dented pre-tax profits, which nonetheless rose by 37 per cent.

At 23, Clemmow Hornby Inge continues its steady rise up the independent ranks. Its gross profit rose by 27 per cent and employment costs rose by just 11 per cent, leading to an impressive increase in operating profits of 174 per cent. This fed straight into pre-tax profit, which rose by 180 per cent.

Such results mean Mother, CHI and WCRS continue to be attractive acquisition targets among the independent agencies, following a period of consolidation during which the likes of Delaney Lund Knox Warren & Partners, MCBD and VCCP were snapped up by investors.

The continued trend for mergers and acquisitions brought its rewards. VCCP increased revenue by 69 per cent and generated an increase in pre-tax profit of 89 per cent, despite having taken on an additional 36 members of staff. This will have dispelled any fears at Chime that it had potentially over-paid for its £30 million acquisition for an agency which appeared at the time to be overly reliant on its O2 account. Meanwhile, the business-to-business specialist cchm:ping reported an increase in gross income of 76 per cent, which covers the first period of operations following the merger of CCHM and Ping Communications.

Revenue growth for independents has not come without its costs, though. The attendant staff increases to service new business led to a lacklustre productivity performance. Fewer than half the independent agencies generated improved gross income per head, compared with growth in productivity at 52 per cent of group-owned shops.

Alongside account wins and improvements in administrative structures, much of the growth in revenue can be attributed to agencies' exploitation of new revenue streams. A number of the agencies claiming a strong digital capability reported above-average revenue increases this year. Bartle Bogle Hegarty enjoyed a 14 per cent rise; CHI reported a 27 per cent increase, while Mother Holdings' digital arm, Poke, contributed to the agency's impressive 41 per cent increase.

The only negative note sounded in a refreshingly buoyant year was the continued failure of the top 50 agencies to increase operating profit margins (operating profit expressed as a percentage of gross income).

Overall, ad agencies' operating profit margins compare unfavourably with those generated by other marketing disciplines. Even removing the impact of IPG's high-loss-making agencies FCB London, Lowe London and McCann Erickson, advertising operating profit margin was only 13 per cent on average. Media buyers and public relations consultancies still generated a better margin of 18 per cent and 14 per cent respectively.

Margins across the top 50 rose just 0.3 per cent to 11 per cent as rising costs outstripped increased income. The figure is some way adrift of the ideal of 15 to 20 per cent, although ongoing pressure from clients' procurement departments has put significant pressure on achieving this basic.

Key to poor margins, though, were the rising staff costs, which also led to poor productivity performance.

The ratio of staffing expenditure to gross profit increased to 59 per cent this year, up 3 per cent on 2005 figures.

Ideally, staff costs should be pegged to 55 per cent of gross profits, although in general, the time and money spent restructuring recently has paid off.

WFCA Integrated generated the highest operating profit margin of 25 per cent. Accord Holdings and Bray Leino were the only other agencies to generate an operating profit margin in excess of 20 per cent. Neither of these businesses is particularly representative of the overall top 50 agencies, though: Accord specialises in direct response advertising and Bray Leino is a well-established regional agency, where salaries will no doubt be lower.

Some 16 agencies in total generated an operating profit margin of more than 15 per cent, with significant improvements reported by WCRS, Campbell Doyle Dye (now Shop), CHI, MCBD and Saatchi & Saatchi. The overall operating profit margin was significantly decreased by losses at FCB London, which reported a negative margin of 87 per cent.

Directors' emoluments among the top 50 agencies were cut overall by 14 per cent. Significant reductions in the directors' remuneration was reported by BJL Group, DFGW, Leo Burnett and McCann Erickson Advertising.

Any fears among directors that such reductions are the shape of things to come are allayed by an overall 39 per cent increase in the salaries of the highest-paid directors at agency groups. Those highest paid at agency groups can be found at Euro RSCG London and Lowe & Partners, where the executive creative director, Ed Morris signed a very lucrative golden handcuffs deal this year.

At the independent agencies, employment costs and, consequently, profit will be influenced by the level of remuneration extracted by the shareholder directors.

Last year, BBH had the highest-paid agency director with a salary of £666,803 - a 10 per cent increase on last year. CHI came second, with its highest-paid director taking £558,771 out of the company - a 21 per cent decrease on the previous year, while Mother Holdings has the third-highest-paid director at an independent agency, with one director trousering a cool £485,345 - an increase of 13 per cent on the previous year.

The Financial Performance of Marketing Services Companies 2006 is available from Willott Kingston Smith (PH: 020 7566 3850), priced £425. The survey findings will be presented at WKS's seminar on 14 November

TOP 50 AGENCIES
Rank Rank Agency Year end Gross Chg
latest prev Income (%)
Latest Prev
(pounds (pounds
000s) 000s)
1 1 Young & Rubicam Group 31/12/2005 101,605 92,992 9.3
2 2 The Ogilvy Group (Holdings) 31/12/04 68,306 64,823 5.4
3 5 Bartle Bogle Hegarty 31/12/2005 49,960 43,710 14.3
4 3 J Walter Thompson Group 31/12/2005 49,537 50,490 -1.9
5 10 Saatchi & Saatchi Group 31/12/2005 42,790 30,036 42.5
6 8 Abbott Mead Vickers BBDO 31/12/2005 40,521 37,604 7.8
7 4 McCann Erickson Advertising 31/12/03 38,641 45,244 -14.6
8 9 Lowe & Partners 31/12/03 36,207 39,842 -9.1
9 13 BMP DDB 31/12/04 34,776 29,627 17.4
10 12 M&C Saatchi (UK) 31/12/2005 32,512 30,589 6.3
11 6 Publicis 31/12/2005 31,989 32,604 -1.9
12 11 Leo Burnett 31/12/2005 31,415 31,814 -1.3
13 14 Grey Advertising 30/09/04 25,677 23,991 7.0
14 19 Euro RSCG London 31/12/04 23,986 19,349 24.0
15 15 Accord Holdings 31/03/2006 23,486 24,531 -4.3
16 22 Mother Holdings 31/12/2005 21,136 15,036 40.6
17 17 TBWA\London 31/12/2005 20,545 23,583 -12.9
18 20 WCRS 31/12/04 15,482 14,613 6.0
19 - McCann Erickson
Communications House 31/12/04 15,062 23,136 -34.9
20 38 Bray Leino 31/12/2005 13,643 5,334 155.8
21 21 Golley Slater Group 30/11/04 13,357 11,255 18.7
22 23 Delaney Lund Knox
Warren & Partners 31/03/2005 12,521 10,962 14.2
23 32 Clemmow Hornby Inge 30/06/2005 11,815 9,312 26.9
24 25 Fallon London 31/12/04 10,289 9,949 3.4
25 30 Miles Calcraft
Briginshaw Duffy 30/06/2005 9,905 7,090 39.7
26 24 BDH\TBWA 31/12/2005 9,569 10,889 -12.1
27 28 HHCL/Red Cell Advertising 31/12/04 9,232 7,651 20.7
28 - Leagas Delaney - London 31/12/04 8,583 0 n/a
29 26 VCCP 31/01/2005 8,267 4,898 68.8
30 36 Wieden & Kennedy UK 31/12/2005 7,247 5,910 22.6
31 37 Cheethambell JWT 31/12/2005 7,096 5,856 21.2
32 31 Brahm 31/07/2005 7,010 6,334 10.7
33 29 St Luke's Communications 31/12/2005 6,516 7,451 -12.6
34 35 The Gate Worldwide 28/02/2005 6,245 5,919 5.5
35 33 Advertising
Principles (Group) 31/03/2005 6,007 5,984 0.4
36 46 CCHM:Ping 30/09/2005 5,720 3,258 75.6
37 27 FCB London 31/12/04 5,575 7,738 -28.0
38 42 Robson Brown 28/02/2005 5,098 4,600 10.8
39 40 Mustoe Merriman
Levy Group Holdings 31/12/2005 4,881 4,848 0.7
40 39 Burkitt DDB 31/12/2005 4,656 4,884 -4.7
41 - Group Nexus/H 31/12/2005 4,176 3,366 24.1
42 43 BJL Group 30/06/2005 3,982 3,883 2.6
43 44 Maher Bird Associates 31/12/04 3,681 3,868 -4.8
44 47 Beechwood Group 31/12/2005 3,504 3,144 11.5
45 45 BCMB 31/12/2005 3,371 3,339 1.0
46 - Big Communications 31/12/2005 3,188 2,954 7.9
47 48 Poulter Group 04/10/04 3,135 4,605 -31.9
48 - WFCA Integrated 31/12/2005 3,008 1,848 62.8
49 - Campbell Doyle Dye 31/12/04 2,922 2,177 34.2
50 41 DFGW 30/09/2005 2,880 3,984 -27.7

Rank Rank Agency Operating
latest Prev profit per Chg
Latest head (%)
Previous
(pounds)
1 1 Young & Rubicam Group 18,957 19,032 -0.4
2 2 The Ogilvy Group (Holdings) 15,058 5,767 161.1
3 5 Bartle Bogle Hegarty 11,878 22,598 -47.4
4 3 J Walter Thompson Group 5,971 18,311 -67.4
5 10 Saatchi & Saatchi Group 17,622 -9,695 281.8
6 8 Abbott Mead Vickers BBDO 25,296 20,986 20.5
7 4 McCann Erickson Advertising -18,548 -4,214 -340.1
8 9 Lowe & Partners 22,777 26,974 -15.6
9 13 BMP DDB 10,075 6,911 45.8
10 12 M&C Saatchi (UK) 15,873 13,685 16.0
11 6 Publicis 4,564 18,274 -75.0
12 11 Leo Burnett 17,386 13,108 32.6
13 14 Grey Advertising 3,202 -481 765.5
14 19 Euro RSCG London 10,397 12,876 -19.3
15 15 Accord Holdings 11,075 15,762 -29.7
16 22 Mother Holdings 18,482 16,976 8.9
17 17 TBWA\London 13,723 16,553 -17.1
18 20 WCRS 24,455 10,849 125.4
19 - McCann Erickson
Communications House 8,130 15,827 -48.6
20 38 Bray Leino 12,253 6,760 81.3
21 21 Golley Slater Group 8,983 11,757 -23.6
22 23 Delaney Lund Knox
Warren & Partners 13,282 9,924 33.8
23 32 Clemmow Hornby Inge 23,805 13,222 80.0
24 25 Fallon London 12,476 26,053 -52.1
25 30 Miles Calcraft Briginshaw Duffy 17,495 7,382 137.0
26 24 BDH\TBWA 6,265 10,261 -38.9
27 28 HHCL/Red Cell Advertising 10,424 8,282 25.9
28 - Leagas Delaney - London 9,500 #REF! n/a
29 26 VCCP 10,488 10,500 -0.1
30 36 Wieden & Kennedy UK 10,500 2,872 265.6
31 37 Cheethambell JWT 13,960 9,593 45.5
32 31 Brahm 3,713 4,234 -12.3
33 29 St Luke's Communications 5,528 5,463 1.2
34 35 The Gate Worldwide 5,324 3,178 67.5
35 33 Advertising Principles (Group) 2,243 1,632 37.5
36 46 CCHM:Ping 8,745 3,333 162.4
37 27 FCB London -76,952 -10,453 -636.2
38 42 Robson Brown 3,366 6,418 -47.6
39 40 Mustoe Merriman Levy
Group Holdings 10,804 14,385 -24.9
40 39 Burkitt DDB 21,079 20,870 1.0
41 - Group Nexus/H 10,593 10,365 2.2
42 43 BJL Group 8,672 7,033 23.3
43 44 Maher Bird Associates 11,647 19,233 -39.4
44 47 Beechwood Group 2,489 -3,930 163.3
45 45 BCMB 12,171 10,875 11.9
46 - Big Communications 11,755 14,870 -21.0
47 48 Poulter Group -1,718 4,407 -130.0
48 - WFCA Integrated 17,256 5,917 191.7
49 - Campbell Doyle Dye 23,762 5,667 319.3
50 41 DFGW 3,393 5,029 -32.5
Source: Willott Kingston Smith has used the figures filed at Companies
House, covering periods ending in 2003, 2004, 2005 and 2006.
Definitions: gross income - turnover less direct costs of sales, if any;
employment costs - the total of gross salaries, employers' NIC and
pension costs; operating profit - pre-tax, excluding the amortisation of
goodwill from acquisitions of other businesses, exceptional items,
income from (or losses of) related companies and interest receivable and
other investment income less interest payable.


MEDIA BUYING AGENCIES
Rank Agency Year end Gross income
Latest Change
(pounds (%)
000s)
1 Aegis Media UK & Ireland 31/12/2004 80,274 13.5
2 MindShare Media UK 31/12/2004 32,403 19.6
3 MediaCom UK 30/09/2004 31,361 13.5
4 ZenithOptimedia 31/12/2004 22,885 2.9
5 OMD Group (prev OMD UK) 31/12/2005 20,345 11.8
6 PHD Media 31/12/2005 15,286 -2.4
7 Manning Gottlieb OMD 31/12/2004 13,749 6.8
8 Media Planning 31/12/2004 13,248 -1.2
9 Mediavest (Manchester) 28/02/2005 12,476 8.8
10 Mediaedge:cia UK 31/12/2004 11,329 -4.5
11 BLM Holdings 31/05/2005 7,512 3.3
12 Media Campaign Services Holdings 31/01/2005 5,885 20.6
13 Walker Media Holdings 31/12/2004 5,848 2.5
14 Mediaedge:cia International 31/12/2004 5,598 -19.1
15 Total Media Group 31/12/2005 5,358 15.8


Operating profit Operating profit
margin on gross
income
Rank Agency Latest Change Latest Prev
(pounds (%) (%) (%)
000s)
1 Aegis Media UK & Ireland 25,075 15.7 31.2 30.6
2 MindShare Media UK 1,261 583.1 3.9 -1.0
3 MediaCom UK 6,748 38.9 21.5 17.6
4 ZenithOptimedia 3,077 -25.2 13.5 18.5
5 OMD Group (prev OMD UK) 4,788 2.2 23.5 25.7
6 PHD Media 2,728 -25.1 17.9 23.2
7 Manning Gottlieb OMD 2,848 -7.2 20.7 23.8
8 Media Planning 4,045 6.3 30.5 28.4
9 Mediavest (Manchester) 2,888 15.1 23.2 21.9
10 Mediaedge:cia UK 630 136.2 5.6 -14.7
11 BLM Holdings 808 10.2 10.7 10.1
12 Media Campaign
Services Holdings 1,484 77.3 25.2 17.2
13 Walker Media Holdings 1,405 -0.9 24.0 24.9
14 Mediaedge:cia International -4,257 -14.1 -76.1 -53.9
15 Total Media Group 200 4.2 3.7 4.2

As a sector, media buyers demonstrated how tightly a marketing services business can be run. Media buyers handled an additional 6 per cent of business as measured by turnover, but managed to convert this into an 8 per cent increase in gross income and a 13 per cent increase in operating profit. The sector also generated the highest operating profit margin on gross income of 18 per cent, a big improvement on the 15 per cent achieved last year.

Reversing the trend identified for ad agencies, independents tended to do less well at the operating-profit level than group owned media buyers. While independents benefited from a proportionately higher increase in volume of business, operating profit increased by less: The economies of scale available to large media buyers remain inaccessible to smaller independent companies.

Growth in the sector was considerable. Thanks in no small part to the launch of its digital media and direct response brand, Mindshare Media increased gross profit by 20 per cent as well as improving its operating profit margin.

Fifteen media buyers generated an operating profit margin in excess of 15 per cent. ZenithOptimedia International showed a substantial improvement in its operating profit margin to 37 per cent, a function of improved income and tightly controlled staff costs and overheads. This may have been influenced by the fact that during the year, the company transferred the billing arrangements for a customer to a group company.

MediaCom UK also performed well, with operating profit increased by 39 per cent to £6.7 million; gross income increased by 13.5 per cent, while employment and overhead costs pegged to only 9 per cent.

Mediaedge:cia UK's group reorganisation is clearly paying off. The company converted a loss in its previous year of £1.7 million into an operating profit of £630,000. As a result, its margin of 6 per cent. While hardly impressive, this is a significant improvement on its 15 per cent operating loss margin last year.

Media Campaign Services achieved a margin of 25 per cent, an increase of 47 per cent on the previous year. This was a result of increased gross income and tightly controlled increases in employment and overhead costs, and staff numbers at the company actually declined.

Media buyers with a digital offering experienced some of the highest rates of growth in gross income. I-level grew by 31 per cent, MindShare by 20 per cent and Zed Media by 18 per cent. Digital businesses also generated higher profits and operating profit margins.

However, productivity levels at these companies declined on last year, probably as a result of optimistic recruitment in the light of rapid growth in income.

Across the top 30, however, there was a small improvement in productivity in that gross income per head remains static while employment costs per head fell. As a result, operating profit per head improved by 5 per cent to £17,803.

Exceptional costs ate into pre-tax profits. Target NMI incurred exceptional costs of £2.1 million in relation to writing off a loan owed by its parent company ahead of a management buyout in September 2005.

Interest income continues to be a major contributor to the profits of media buyers. This year was no exception with the top 30 media buying companies generating net interest income of £22.4 million, compared with total operating profit of £61.4 million.

DIGITAL AGENCIES
Rank Agency Year end Gross income
Latest Change
(pounds (%)
000s)
1 Framfab UK 31/12/2005 13,913 79.6
2 AKQA 31/12/2004 12,476 2.3
3 Agency.com 31/12/2005 7,200 -11.5
4 Deal Group Media 31/12/2005 6,685 16.1
5 Wheel 31/12/2005 6,092 12.2
6 Dialogue DLKW 12/03/2006 4,731 66.9
7 Rufus Leonard 30/04/2005 4,697 8.2
8 Zentropy Partners UK 31/12/2004 4,619 -1.9
9 Green Cathedral 31/12/2005 4,488 49.6
10 i-level 31/03/2005 4,481 31.0
11 Agency Republic 31/12/2005 4,452 52.2
12 Zed Media 31/12/2004 3,800 17.6
13 Dare 30/06/2005 3,752 65.4
14 Profero 31/03/2005 3,558 21.4
15 Beechwood Group 31/12/2005 3,504 11.5


Operating profit Operating profit
margin on gross
income
Rank Agency Latest Change Latest Prev
(pounds (%) (%) (%)
000s)
1 Framfab UK 2,177 134.1 15.7 12.0
2 AKQA -216 -119.8 -1.7 8.9
3 Agency.com 1,146 -10.6 15.9 15.8
4 Deal Group Media 800 -41.6 12.0 23.8
5 Wheel 779 168.6 12.8 5.3
6 Dialogue DLKW 512 2,126.1 10.8 0.8
7 Rufus Leonard 436 138.3 9.3 4.2
8 Zentropy Partners UK -75 -109.2 -1.6 17.4
9 Green Cathedral -310 64.2 -6.9 -28.9
10 i-level 440 84.1 9.8 7.0
11 Agency Republic 821 72.5 18.4 16.3
12 Zed Media 358 62.0 9.4 6.8
13 Dare 552 132.9 14.7 10.5
14 Profero 212 241.9 6.0 2.1
15 Beechwood Group 117 169.2 3.3 -5.4

Specialist digital agencies are becoming increasingly influential and sought after. But is that reflected in the sector's financial performance?

Operating profit margins improved, but only to 9.6 per cent, surprisingly small given the combination of growing client demand for digital and the huge increase in online adspend.

One possible explanation might be the ongoing "land grab" for digital talent, which is driving up staff costs. This isn't evident from the figures under review here, though, where such costs were lower on average than any other marketing discipline.

Digital specialists' operating profit margins were disappointing and exceeded only those of the top 30 design consultancies. Otherwise, the industry lagged behind all other marketing disciplines, although this may just be teething pains.

Nonetheless, Equi Media and Outrider reported high operating profit margins, which both achieved more than 20 per cent. For Outrider, this will be a function of lower-than-average staff costs and higher-than-average productivity per employee.

The real impact of growth in digital is more obvious when looking at increases in gross income, which increased across the sector by 24 per cent; compared with an 18 per cent increase across the top 50 groups and 7.5 per cent for ad agencies.

Six digital businesses boosted revenue by 50 per cent or more: Agency Republic, Dare, Dialogue DLKW, Equi Media, Framfab (now LBi, following the merger with Wheel) and Green Cathedral. Of these, Agency Republic, Dialogue DLKW and Framfab are owned by larger groups.

The 101 per cent increase in gross income at Equi Media appears to result from organic growth, but the 81 per cent improvement at Framfab related in part to its amalgamation with fellow subsidiary Oyster Partners.

Productivity across the digital agencies was largely consistent with the previous year. At £79,400 per head, this exceeds the average for design consultancies and the top 50 marketing groups, but is beaten by all of the other individual disciplines. Again, this is probably owing to fast growth and the need to recruit staff ahead of income to ensure capacity.

So maybe not quite the high margins that the analysts were expecting, but the increase in income shows what a high-growth area digital is. Traditional agencies must watch out - if they cannot move quickly and develop in-house digital capability, or at least have an investment in, or strategic relationship with, a digital agency they will soon start to see themselves losing out.

DM AND PR SPECIALIST AGENCIES
Rank Agency Year end Gross income
Latest Change
(pounds (%)
000s)
1 Proximity London 31/12/2005 23,337 9.3
2 Carlson Marketing Group (UK) 31/12/2004 20,734 -4.3
3 Tequila\London 31/12/2005 19,200 65.6
4 Publicis Dialog 31/12/2005 18,768 11.0
5 EHS Brann 31/12/2004 17,608 -14.7
6 Tullo Marshall Warren 31/12/2005 13,989 27.3
7 Joshua Agency 30/09/2005 13,369 -7.9
8 ARC Integrated Marketing 31/12/2004 11,589 -13.1
9 The Marketing Store Worldwide 31/12/2004 11,119 3.7
10 Haygarth Group 31/12/2005 10,125 11.3
11 RMG:Connect 31/12/2005 9,768 5.0
12 Craik Jones
Watson Mitchell Voelkel 31/12/2005 8,853 7.2
13 Rapier 31/12/2004 8,624 8.5
14 Dialogue Marketing Partnership 31/12/2004 8,075 -15.7
15 Triangle Holdings (UK) 31/12/2004 7,925 -28.4


Operating profit Operating profit
margin on gross
income
Rank Agency Latest Change Latest Prev
(pounds (%) (%) (%)
000s)
1 Proximity London 3,739 66.4 16.0 10.5
2 Carlson Marketing Group (UK) -1,166 -334.6 -7.4 2.3
3 Tequila\London 228 -82.8 1.2 11.4
4 Publicis Dialog 5,928 -3.0 31.6 36.2
5 EHS Brann 2,934 118.0 16.7 6.5
6 Tullo Marshall Warren 3,062 695.3 21.9 3.5
7 Joshua Agency 572 86.9 4.3 2.1
8 ARC Integrated Marketing 714 -60.1 6.2 13.4
9 The Marketing Store Worldwide 72 -89.8 0.7 6.6
10 Haygarth Group 1,724 105.7 17.0 9.2
11 RMG:Connect 1,817 55.3 18.6 12.6
12 Craik Jones Watson
Mitchell Voelkel 1,691 2.8 19.1 19.9
13 Rapier 1,753 33.1 20.3 16.6
14 Dialogue Marketing Partnership 2,314 -45.8 29.1 44.6
15 Triangle Holdings (UK) -115 -107.3 -1.5 14.2

While ad agencies and media buyers appear to have come through a period of restructuring and returned to growth and profitability, sadly, the same does not seem to be true for the direct marketing and sales promotion sectors.

The volume of business as measured by turnover for the top 40 direct marketing and sales promotion businesses increased by just 3 per cent.

Total gross income rose overall by 3.9 per cent, with slightly more than a quarter of the top 40 companies reporting an increase in gross income of more than 15 per cent. Only eight direct marketing consultancies suffered a decrease in gross income of 10 per cent or more. Income declined for Triangle Holdings and Finex Communications but increased significantly at Gyrogroup and Iris Nation.

Because the relatively small increase in gross income was outweighed by rises in employment costs and other operating overheads, operating profit fell by 7 per cent overall, reflecting growing client pressure on what DM agencies can charge in a market where budgets are increasingly being targeted digitally.

And while only three companies reported an operating loss, more than half of the top 40 suffered a decline in operating profit.

Tullo Marshall Warren achieved the largest increase in operating profit with an improvement from £385,000 to £3 million. This will have made it an attractive acquisition target for the AIM-listed acquirer Creston, which subsequently bought it in May 2006.

Profit before tax fell by 15 per cent. Decreased operating profit was the most significant cause, but exceptional costs, which doubled for the sector, also ate into profit. These mainly related to onerous leases, redundancy costs, restructuring costs and the write-down of investments.

DM agencies' operating profit margins fell a point this year to 12 per cent and only 15 of the top 40 reported an increase in operating profit margin.

There is some good news, however: 13 companies in the top 40 managed to generate an operating profit margin of 15 per cent or more.

EHS Brann, Scope Creative Marketing and Tullo Marshall Warren reported strong individual results, boosting operating profit margin to 16 per cent or more.

Productivity improved marginally and, at £83,000 on average, just falls into the £80,000-£100,000 benchmark range that Willott Kingston Smith advocates.

TOP TEN BY OPERATING PROFIT MARGIN ON GROSS INCOME
Rank Company name Latest Previous Change
(%) (%) (%)
1 WFCA Integrated 24.7 11.5 114.0
2 Accord Holdings 22.0 25.9 -15.1
3 Bray Leino 21.0 12.7 65.1
4 Cheetham Bell JWT 19.7 14.9 32.0
5 Big Communications 19.5 27.2 -28.1
6 WCRS 19.1 8.8 116.3
7 Young & Rubicam Group 19.1 19.0 0.8
8 Abbott Mead Vickers BBDO 18.2 16.4 11.1
9 Lowe & Partners 17.8 20.9 14.9
10 McCann Erickson
Communications House 17.4 20.5 15.3


BOTTOM TEN BY OPERATING PROFIT MARGIN ON GROSS INCOME
Rank Company name Latest Previous Change
(%) (%) (%)
41 St Luke's Communications 6.1 6.0 1.6
42 Advertising Principles (Group) 4.6 13.6 -66.2
43 Publicis 4.3 3.1 38.2
44 Beechwood Group 4.0 17.8 -77.4
45 DFGW 3.3 -5.4 -162.1
46 Saatchi & Saatchi Group 3.3 4.4 -25.3
47 Grey Advertising 2.6 -0.4 710.1
48 Poulter Group -7.8 13.4 -158.1
49 McCann Erickson Advertising -21.8 -4.3 -406.4
50 FCB London -87.0 -10.1 -758.3


TOP TEN BY REVENUE PER HEAD
Rank Company name Latest Previous Change
(pounds) (pounds) (%)
1 Clemmow Hornby Inge 144,085 172,444 -16.5
2 Abbott Mead Vickers BBDO 139,247 128,341 8.5
3 Campbell Doyle Dye 139,143 120,944 15.1
4 Leo Burnett 134,828 137,129 -1.7
5 J Walter Thompson Group 129,678 134,282 -3.4
6 WCRS 127,950 122,798 4.2
7 Lowe & Partners 127,940 128,939 -0.8
8 Mother Holdings 124,329 118,394 5.0
9 Grey Advertising 123,447 113,165 9.1
10 Burkitt DDB 122,526 106,174 15.4


BOTTOM TEN BY REVENUE PER HEAD
Rank Company name Latest Previous Change
(pounds) (pounds) (%)
41 BJL Group 65,279 63,656 2.5
42 Big Communications 60,151 54,704 10.0
43 Bray Leino 58,554 53,340 9.8
44 Golley Slater Group 57,326 60,838 -5.8
45 Advertising Principles (Group) 52,235 52,491 -0.5
46 Accord Holdings 46,776 60,871 -17.2
47 McCann Erickson
Communications House 46,733 77,120 -39.3
48 Brahm 45,518 51,081 -8.5
49 Robson Brown 22,077 50,549 -10.0
50 Poulter Group 22,077 32,893 -32.9


TOP TEN BY EMPLOYMENT COSTS PER HEAD
Rank Company name Latest Previous Change
(pounds) (pounds) (%)
1 The Ogilvy Group (Holdings) 89,654 75,994 18.0
2 Clemmow Hornby Inge 86,976 119,481 -27.2
3 Campbell Doyle Dye 84,857 79,167 7.2
4 Publicis 79,131 74,754 5.9
5 Fallon London 77,583 79,987 -3.0
6 Euro RSCG London 74,548 63,290 17.8
7 J Walter Thompson Group 73,887 70,532 4.8
8 Leo Burnett 72,442 73,685 -1.7
9 Wieden & Kennedy UK 71,667 79,745 -10.1
10 Bartle Bogle Hegarty 68,537 62,442 9.8


BOTTOM TEN BY EMPLOYMENT COSTS PER HEAD
Rank Company name Latest Previous Change
(pounds) (pounds) (%)
41 Poulter Group 38,725 36,557 5.9
42 Advertising Principles (Group) 38,086 37,947 0.4
43 Big Communications 37,716 30,944 21.9
44 Robson Brown 37,357 30,703 21.7
45 BCMB 37,268 35,325 5.5
46 McCann Erickson
Communications House 36,133 38,613 -6.4
47 Golley Slater Group 34,600 35,173 -1.6
48 Bray Leino 33,347 36,960 -9.8
49 Brahm 32,480 35,306 -8.0
50 Accord Holdings 30,620 27,442 11.6


HIGHEST-PAID GROUP DIRECTORS
Rank Group Director Latest Previous Chge
(pounds (pounds (%)
000s) 000s)
1 WPP Group Sir Martin Sorrell 2,740 2,740 0
2 Aegis Group Undisclosed 1,274 1,626 -21
3 Omnicom Europe Undisclosed 1,007 895 13
4 Havas Group of
Companies in UK Undisclosed 892 1,271 -30
5 Chime Communications Lord Bell 877 784 12
6 Write Image Undisclosed 799 503 59
7 Monster
Worldwide Group Undisclosed 740 327 126
8 Huntsworth Undisclosed 679 486 40
9 Jack Morton Europe Undisclosed 675 262 158
10 Creston Undisclosed 619 460 35


HIGHEST-PAID INDEPENDENT AGENCY DIRECTORS
Rank Group Director Latest Previous Chge
(pounds (pounds (%)
000s) 000s)
1 Bartle Bogle Hegarty Undisclosed 666,803 606,869 10
2 Clemmow Hornby Inge Undisclosed 558,771 710,081 -21
3 Mother Holdings Undisclosed 485,345 430,088 13
4 Accord Holdings Undisclosed 340,000 430,000 -21
5 Group Nexus/H Undisclosed 325,000 311,000 5
6 Wieden & Kennedy UK Undisclosed 301,578 217,092 39
7 Robson Brown Undisclosed 234,783 87,635 168
8 Beechwood Group Undisclosed 223,860 208,029 8
9 St Luke's Communications Undisclosed 223,518 192,274 16
10 Advertising
Principles (Group) Undisclosed 214,841 187,871 14

This article was first published on campaignlive.co.uk

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