Agency Performance League 2007

campaignlive.co.uk, Friday, 09 November 2007 12:00AM

Despite more competition than ever, overall profitability last year remained good in all sectors, especially for the big agencies. Mandy Merron analyses the results.

Willott Kingston Smith's annual survey of the financial performance of the UK's top agencies this year reveals a strong performance across all marketing disciplines led by the top advertising agencies.

Some global groups found that the UK market remained relatively "moribund", while others detected signs of improvement both here and in Western Europe. The truth seems to be that the UK may have been growing less quickly than Asia and Africa, but it is still a strong market based on the results of the top agencies.

Turnover across the top 50 advertising agencies increased by 7 per cent in total, building on the 11 per cent increase reported last year.

Gross income is a more comparable figure. The news was good here too with 70 per cent reporting increased gross income across the top agencies. Overall gross income increased by 7 per cent, with 35 of the Top 50 reporting an increase. Two companies grew revenue by more than 50 per cent: the business-to-business specialist CCHM:PING and the property, healthcare and financial specialist agency Adventis.

Profitability improved. Pre-tax profit increased by 24 per cent as a result of improved operating profit (profit before interest, exceptional costs and tax), increased interest income and despite higher exceptional costs.

Operating profit rose by 20 per cent and represents a significant improvement over the performance of the past few years with only five of the top 50 agencies reported an operating loss.

Young & Rubicam group continues to be the largest advertising agency in the UK as ranked by gross income. It also generated the highest pre-tax profit of £19.3 million, which represented a 9 per cent increase over the previous year. Ogilvy Group was again in second place, but its pre-tax profits declined to £16.1 million.

The biggest increase in operating profit was reported by Saatchi & Saatchi Group, which increased operating profit to £6.5 million, representing a £9.8 million uplift from the operating loss reported in its previous figures. Bartle Bogle Hegarty increased operating profit by £4.7 million to £9.6 million and VCCP vindicated Chime's acquisition of the agency by generating an operating profit of £2.8 million, which was a £4.2 million improvement over the previous year's operating loss.

A number of agencies reported significant increases in operating profit and nine more than doubled their previous profits, in particular The Gate Worldwide, JWT and Wieden & Kennedy Group.

One dramatic reversal of fortune was suffered by BDH\TBWA, which reported a pre-tax loss of £9.6 million. While its operating profit fell by 40 per cent, the real dent in its profitability was a write-off of goodwill related to its investment in Tequila\ Manchester.

DraftFCB London's pre-tax loss grew from just over £1 million to just under £5 million. This is despite a 42 per cent increase in gross income. This Interpublic-owned agency, in common with some of its fellow subsidiaries, incurred significant exceptional costs.

The £5.7 million reported by DraftFCB as exceptional related to "misstatements arising from incorrect recognition of income from customer contracts". This happened in 2004, which is the most recent year the company has filed accounts. At that time it was FCB London. Subsequently, FCB merged with Draft London and the combined entity was renamed DraftFCB.

Another Interpublic subsidiary, Lowe & Partners, once again recorded the highest pre-tax loss, but at £1.6 million, this was half the loss reported in the previous year.

Independent agencies generated stronger income growth and group-owned agencies were better at converting income into profit. The independent agencies reported a total increase in gross income of 9 per cent compared with group-owned agencies, which managed to increase gross income by only 6.5 per cent.

However, their fortunes are reversed when we consider operating profit. Independent agencies increased their overall operating profit by 16 per cent, while group-owned agencies improved operating profit by 22 per cent.

If we remove the impact of the £4.4 million increase in profits at BBH, the remaining independent agencies actually reported a decrease in operating profit of just over 1 per cent.

Saatchi & Saatchi Group increased its gross income by 42 per cent to £42.8, million, which led to a 300 per cent improvement in operating profit from a loss of £3.3 million to a profit of £6.5 million. CHI & Partners continued to grow, by 25 per cent in its most recent figures.

This was also reflected in its increased profitability. Operating profit grew by 14 per cent to £2.2 million. Langland Advertising Design & Marketing increased revenue by 24 per cent and operating profit by 44 per cent to £1.5 million.

M&C Saatchi was the second-largest agency having grown revenue by 12 per cent to £75.9 million, although profit increased only marginally. M&C Saatchi pushed Ogilvy Group (Holdings) into third place.

Not all businesses which grew revenue increased profits. Souk Communications increased gross income by nearly 27 per cent, but despite this suffered an increased operating loss.

The merger and acquisition market continued to be strong. This has partly been driven by overseas acquirers such as Cossette Communications Group, which bought Dare this year having bought Miles Calcraft Briginshaw Duffy last year. As well as overseas groups, private equity-backed UK groups, such as The Engine Group and Loewy Group, were also active acquirers. The listed groups - Creston, Chime, Huntsworth, Cello Group, M&C Saatchi, Digital Marketing Group and The Mission Marketing Group - also continued to be active.

Following its 2004 management buyout from Havas, WCRS's parent, The Engine Group, has added to its early acquisitions most recently with the purchase of the digital specialist DC Interact. AIM-listed Cello Group made several acquisitions in 2006/7, most notably a controlling interest in CCHM:PING.

M&C Saatchi bought Clear Ideas, a leading brand consultancy, and Creston acquired the healthcare specialist Pan Advertising. But the deal people talked about the most was the acquisition by WPP of a 49.9 per cent stake in CHI & Partners.

Productivity, as measured by gross income per employee, has increased by 3 per cent - roughly in line with inflation. Average gross income per head was £100,755. This is a welcome result as a well-run agency should be able to generate gross income per head of £100,000 to £120,000. As well as achieving this on average, some 26 of the Top 50 agencies generated gross income per head of £100,000 or more.

Profit margins also improved dramatically. Operating profit increased by just over 20 per cent compared with a 7 per cent increase in gross income. As a result, operating profit margin increased to 12 per cent. While this is an improvement on the average, it is disappointing compared with the target range of 15 to 20 per cent.

Nonetheless, 14 agencies achieved an operating profit margin of 15 per cent or more and five of more than 20 per cent.

All of the ten agencies with the highest operating profit margins generated an operating profit margin of 17 per cent or more. Of these, VCCP reported a good improvement, turning around an operating loss the previous year. Generally, the other high-margin agencies have been consistently operating at this level. This suggests that once agencies have made changes necessary to attain these margins then sustaining them becomes easier.

Staff numbers increased from 9,529 to 9,752. Young & Rubicam added 90 new staff and M&C Saatchi's headcount rose by 74. Across the Top 50 agencies operating profit per head, which is the ultimate measure of both profitability and productivity, increased by almost 9 per cent to £11,672. This is a little short of a £15,000 per head target, but 16 agencies managed to achieve that or more.

In part, improved profitability can be attributed to controlled employment costs. The key ratio of staff costs to gross income improved from 59 to 57.6 per cent. If an agency can contain staff costs to within 55 per cent of gross income it is far more likely to generate an appropriate profit.

The Top 50 advertising agencies paid their directors £34.4 million in total - a 2 per cent increase. The highest-paid directors earned slightly less on average in the most recent results. Significant reductions were reported at DDB UK, Euro RSCG London, TBWA\London, WCRS, VCCP, Robson Brown and Draft London.

But it wasn't all doom and gloom for leading directors. The highest-paid director at Abbott Mead Vickers BBDO saw pay increase by 17 per cent to £745,000, while Grey's highest-paid director received a 38 per cent pay rise to £613,000.

Overall, the Willott Kingston Smith survey paints a picture of a prosperous UK ad sector operating with sound financial dynamics.

Financial Performance of Marketing Services Companies 2007 is available from Willott Kingston Smith (020 7566 3850), price £440. The findings of the survey will be presented at a seminar on Tuesday 13 November 2007.

TOP 50 ADVERTISING AGENCIES
Rank Rank Agency Year end Gross income
latest prev Latest Previous Chg
(pounds (pounds (%)
000s) 000s)
1 1 Young & Rubicam Group 31/12/2005 101,605 92,992 9.3
2 10 M&C Saatchi 31/12/2006 75,877 68,001 11.6
3 2 The Ogilvy Group
(Holdings) 31/12/2005 68,859 68,306 0.8
4 3 Bartle Bogle Hegarty 31/12/2006 56,990 49,960 14.1
5 4 JWT Group 31/12/2006 49,562 49,537 0.1
6 7 McCann Erickson
Advertising 31/12/2005 46,961 44,615 5.3
7 5 Saatchi & Saatchi
Group 31/12/2005 42,790 30,036 42.5
8 6 Abbott Mead Vickers
BBDO 31/12/2006 42,673 40,521 5.3
9 9 DDB UK
(formerly BMP DDB) 31/12/2006 42,309 38,602 9.6
10 11 Publicis 31/12/2005 31,989 32,604 -1.9
11 12 Leo Burnett 31/12/2005 31,415 31,814 -1.3
12 8 Lowe & Partners 31/12/2005 21,969 19,651 11.8
13 13 Grey Advertising 30/12/2005 21,143 25,677 -17.7
14 19 McCann Erickson
Communications House1 31/12/2005 21,098 19,773 6.7
15 15 Accord Holdings 31/03/2007 21,094 23,486 -10.2
16 17 TBWA\London 31/12/2006 18,241 20,545 -11.2
17 14 Euro RSCG London2 31/12/2005 18,016 23,986 -24.9
18 20 Bray Leino 31/12/2006 16,597 13,643 21.7
19 22 Delaney Lund Knox
Warren & Partners 31/03/2006 15,147 12,521 21.0
20 21 Golley Slater Group 30/11/2005 14,791 13,357 10.7
21 23 CHI & Partners
(formerly CHI) 30/06/2006 14,719 11,815 24.6
22 29 VCCP 31/12/2006 14,507 11,860 22.3
23 18 WCRS 31/12/2005 14,193 15,482 -8.3
24 16 Mother Advertising 31/12/2005 13,963 12,544 11.3
25 24 Fallon London 31/12/2006 12,382 9,567 29.4
26 37 DraftFCB London
(prev. FCB London) 31/12/2004 10,995 7,738 42.1
27 25 Miles Calcraft
Briginshaw Duffy 30/06/2005 9,905 7,090 39.7
28 26 BDH\TBWA 31/12/2005 9,569 10,889 -12.1
29 28 Leagas Delaney 31/12/2005 9,550 8,583 11.3
30 - Adventis Group 31/12/2006 8,754 5,256 66.6
31 - Draft London 31/12/2005 8,544 5,590 52.8
32 27 United London
Communications3 31/12/2005 8,291 9,232 -10.2
33 34 The Gate Worldwide 28/02/2007 7,581 6,618 14.6
34 30 Wieden & Kennedy UK 31/12/2005 7,247 5,910 22.6
35 - The Leith Agency 31/12/2006 6,935 6,709 3.4
36 32 BRAHM 31/07/2006 6,918 7,010 -1.3
37 33 St Luke's
Communications 31/12/2005 6,516 7,451 -12.5
38 35 Advertising
Principles (Group) 31/03/2006 6,002 6,007 -0.1
39 36 CCHM:PING4 30/09/2005 5,720 3,258 75.6
40 31 Cheetham Bell JWT 31/12/2006 5,572 7,096 -21.5
41 39 Mustoe Merriman Levy
Group Holdings 31/12/2005 4,881 4,848 0.7
42 - Langland Advertising
Design & Marketing 30/09/2006 4,440 3,574 24.2
43 42 BJL Group5 30/06/2006 4,225 3,982 6.1
44 38 Robson Brown 28/02/2006 4,050 5,098 -20.6
45 - Souk Communications 31/12/2006 4,017 3,175 26.5
46 41 Nexus/H UK 31/12/2006 3,994 3,487 14.5
47 - Cogent Elliott 31/12/2006 3,939 3,237 21.7
48 46 Big Communications 31/12/2006 3,798 3,188 19.1
49 48 WFCA Integrated 31/12/2006 3,725 3,008 23.8
50 - Cravens Advertising 31/10/2006 3,424 3,791 -9.7


Rank Rank Agency Year end Operating profit
latest prev per head
Latest Previous Chg
(%) (pounds) (%)
1 1 Young & Rubicam Group 31/12/2005 18,957 19,032 -0.40
2 10 M&C Saatchi 31/12/2006 7,111 7,664 -7.21
3 2 The Ogilvy Group
(Holdings) 31/12/2005 10,921 20,212 -45.97
4 3 Bartle Bogle Hegarty 31/12/2006 19,377 11,878 63.14
5 4 JWT Group 31/12/2006 5,736 898 538.86
6 7 McCann Erickson
Advertising 31/12/2005 13,601 8,210 65.65
7 5 Saatchi & Saatchi
Group 31/12/2005 17,622 -9,695 281.76
8 6 Abbott Mead Vickers
BBDO 31/12/2006 27,565 25,302 8.94
9 9 DDB UK
(formerly BMP DDB) 31/12/2006 12,872 11,819 8.90
10 11 Publicis 31/12/2005 4,564 18,274 -75.03
11 12 Leo Burnett 31/12/2005 17,386 14,297 21.60
12 8 Lowe & Partners 31/12/2005 -8,713 -15,240 42.83
13 13 Grey Advertising 30/12/2005 -3,395 3,202 -206.03
14 19 McCann Erickson
Communications
House1 31/12/2005 6,449 8,130 -20.69
15 15 Accord Holdings 31/03/2007 9,995 11,075 -9.75
16 17 TBWA\London 31/12/2006 16,289 13,723 18.70
17 14 Euro RSCG London2 31/12/2005 5,559 10,397 -46.54
18 20 Bray Leino 31/12/2006 15,383 12,258 25.50
19 22 Delaney Lund Knox
Warren & Partners 31/03/2006 10,409 13,282 -21.63
20 21 Golley Slater Group 30/11/2005 6,992 8,983 -22.16
21 23 CHI & Partners
(formerly CHI) 30/06/2006 20,676 23,805 -13.14
22 29 VCCP 31/12/2006 19,636 -13,274 247.94
23 18 WCRS 31/12/2005 11,841 24,455 -51.58
24 16 Mother Advertising 31/12/2005 16,523 19,629 -15.83
25 24 Fallon London 31/12/2006 13,426 7,886 70.24
26 37 DraftFCB London
(prev. FCB London) 31/12/2004 13,762 -10,453 231.65
27 25 Miles Calcraft
Briginshaw Duffy 30/06/2005 18,868 7,382 155.58
28 26 BDH\TBWA 31/12/2005 6,265 10,261 -38.94
29 28 Leagas Delaney 31/12/2005 4,960 9,500 -47.79
30 - Adventis Group 31/12/2006 16,392 14,076 16.46
31 - Draft London 31/12/2005 16,519 -13,859 219.20
32 27 United London
Communications3 31/12/2005 -8,200 10,424 -178.67
33 34 The Gate Worldwide 28/02/2007 8,781 1,394 529.74
34 30 Wieden & Kennedy UK 31/12/2005 10,500 2,872 265.56
35 - The Leith Agency 31/12/2006 10,022 9,897 1.26
36 32 BRAHM 31/07/2006 3,860 3,713 3.95
37 33 St Luke's
Communications 31/12/2005 5,528 5,463 1.18
38 35 Advertising
Principles (Group) 31/03/2006 3,102 2,244 38.26
39 36 CCHM:PING4 30/09/2005 8,746 3,333 162.36
40 31 Cheetham Bell JWT 31/12/2006 2,361 13,960 -83.09
41 39 Mustoe Merriman Levy
Group Holdings 31/12/2005 10,804 14,385 -24.89
42 - Langland Advertising
Design & Marketing 30/09/2006 n/a n/a n/a
43 42 BJL Group5 30/06/2006 8,111 8,672 -6.47
44 38 Robson Brown 28/02/2006 -36 3,366 -101.08
45 - Souk Communications 31/12/2006 -4,643 -4,297 -8.04
46 41 Nexus/H UK 31/12/2006 n/a n/a n/a
47 - Cogent Elliott 31/12/2006 n/a n/a n/a
48 46 Big Communications 31/12/2006 18,407 11,774 56.34
49 48 WFCA Integrated 31/12/2006 23,043 17,256 33.54
50 - Cravens Advertising 31/10/2006 n/a n/a n/a

Source: Willott Kingston Smith has used figures filed at Companies
House, covering periods ending in 2004, 2005, 2006 and 2007.
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 or
impairment of goodwill from acquisitions of other businesses,
exceptional items, income from (or losses of) related companies or
interest receivable and investment income less interest payable.
NOTES:1 prev. McCann-Erickson Manchester; 2 prev. Euro RSCG Wnek Gosper;
3 prev. HHCL/Red Cell Advertising; 4 prev. Camp Chipperfield Hill
Murray; 5 prev. Barrington Johnson Lorains & Partners.

Media buyers again showed improved financial performance in increasingly better economic conditions. The sector saw a 12 per cent increase in turnover converted into a 19 per cent increase in gross income. Operating profits increased by 34 per cent due to control of staff costs and other operating costs, such as property. As a consequence they achieved a further increase in operating profit margins to 19 per cent. Media buyers also continued to outperform the Top 50 marketing services groups.

Some of the highest rates of growth in gross income were achieved by those media buyers who increased their digital offerings including i-level, which grew by 69 per cent, Walker Media, which grew by 53 per cent, and Zed Media, which grew by 48 per cent. This was also translated into higher profits and operating profit margins. These companies have also reported increases in productivity levels, which would suggest that they have now started to reap the benefits of the investment they made in recruiting and developing skilled staff in previous years. For the first time in years, group-owned companies outperformed independents. Groups saw increased turnover of 12 per cent, gross income by 20 per cent and operating profits by 38 per cent compared with 7 per cent, 10 per cent and 12 per cent respectively for independents.

Independents maintained operating profit margins at 16 per cent, but the groups have shown an impressive increase in profit margin from 17 per cent to 20 per cent. This suggests the group-owned companies benefited from economies of scale and being able to service, perhaps from spare capacity, higher gross income, while maintaining control of costs. Operating profits increased by 34 per cent across the sector to almost £85 million. The Top 30 media buying companies generated £28 million of net interest income, representing 26 per cent of the pre-tax profits of the sector.

Eighteen companies achieved the benchmark operating profit margin of 15 per cent. Of these, seven achieved a margin in excess of 25 per cent. Two-thirds of the companies improved margins, the most notable being i-level and TCS Media (Planning & Buying).

There was an improvement in the Top 30's productivity as gross income per head increased by nearly 7 per cent, while employment costs per head increased by just over 2 per cent. This lead to an increase in operating profit per head of 20 per cent. Average gross income per head at £99,327 is now very close to the benchmark of £100,000, which we would expect from a well-run agency.

- Cliff Ireton, partner, Willott Kingston Smith.

MEDIA BUYING AGENCIES
Rank Agency Year end Gross income
Latest Change
(£000s) (%)
1 Aegis Media UK & Ireland 31/12/04 80,274 13.5
2 MindShare Media (UK) Ltd 31/12/05 44,834 38.4
3 D'Arcy Masius Benton
& Bowles 31/12/05 44,788 27.1
4 MediaCom UK 30/12/05 41,154 31.2
5 ZenithOptimedia 31/12/05 21,999 -3.9
6 OMD Group 31/12/05 20,345 11.8
7 PHD Media 31/12/2006 18,788 22.9
8 Manning Gottlieb OMD 30/04/2006 15,678 14.0
9 Initiative Media London 31/12/05 14,365 7.8
10 Media Planning 31/12/05 13,792 4.1
11 Mediavest (Manchester) 28/02/2006 13,750 10.2
12 Mediaedge:cia UK 31/12/05 13,362 17.9
13 Walker Media 31/12/2006 10,598 53.5
14 Kinetic Worldwide 31/12/05 8,993 13.9
15 Mediaedge:cia
International 31/12/05 8,463 51.2


Rank Agency Operating profit Operating profit
margin on gross
income
Latest Change Latest Previous
(£000s) (%) (%) (%)
1 Aegis Media UK & Ireland 25,075 15.7 31.2 30.6
2 MindShare Media (UK) Ltd 4,006 217.7 8.9 3.9
3 D'Arcy Masius Benton
& Bowles 7,377 70.3 16.5 12.3
4 MediaCom UK 11,361 68.1 27.6 21.6
5 ZenithOptimedia 3,030 15.8 13.8 11.4
6 OMD Group 4,788 2.2 23.5 25.7
7 PHD Media 3,918 43.6 20.9 17.9
8 Manning Gottlieb OMD 3,225 7.2 20.6 21.9
9 Initiative Media London -555 16.5 -3.9 -5.0
10 Media Planning 3,403 -15.9 24.7 30.5
11 Mediavest (Manchester) 3,385 17.2 24.6 23.2
12 Mediaedge:cia UK 1,640 160.3 12.3 5.6
13 Walker Media 4,371 99.9 41.2 31.7
14 Kinetic Worldwide 1,100 -40.2 12.2 23.3
15 Mediaedge:cia
International -3,661 14.0 -43.3 -76.1

TOP TEN BY OPERATING PROFIT MARGIN ON GROSS INCOME
Rank Company name Latest Previous Change
(%) (%) (%)
1 Langland Advertising Design & Marketing 33.8 29.2 15.7
2 WFCA Integrated 29.1 24.7 17.9
3 Big Communications 28.6 19.6 46.1
4 Bray Leino 25.4 20.9 21.3
5 Abbott Mead Vickers BBDO 20.3 18.2 12.0
6 VCCP 19.4 -11.9 263.2
7 Young & Rubicam Group 19.1 19.0 0.8
8 Adventis Group PLC 19.1 17.7 8.1
9 Accord Holdings 18.5 22.0 -15.9
10 Miles Calcraft Briginshaw Duffy 17.3 7.1 144.8

BOTTOM TEN BY OPERATING PROFIT MARGIN ON GROSS INCOME
Rank Company name Latest Previous Change
(%) (%) (%)
41 Euro RSCG London 4.47 8.63 -48.1
42 JWT Group 4.04 0.69 483.4
43 Publicis 4.02 17.77 -77.4
44 Cheetham Bell JWT 3.64 19.67 -81.5
45 Robson Brown -0.10 7.40 -101.3
46 Cravens Advertising -0.29 -1.08 73.0
47 Grey Advertising -3.13 2.59 -220.7
48 Souk Communications -4.85 -5.01 3.1
49 United London Communications -7.42 9.60 -177.3
50 Lowe & Partners -7.46 -17.45 57.3

TOP TEN BY REVENUE PER HEAD
Rank Company name Latest Previous Change
(pounds) (pounds) (%)
1 DraftFCB London (prev. FCB London) 174,524 122,825 42.1
2 JWT Group 142,011 141,940 0.1
3 CHI & Partners
(formerly Clemmow Hornby Inge) 136,287 109,398 24.6
4 Abbott Mead Vickers BBDO 135,470 128,638 5.3
5 Leo Burnett 134,828 136,541 -1.3
6 Fallon London 131,723 101,777 29.4
7 TBWA\London 128,458 144,683 -11.2
8 McCann Erickson Advertising 127,611 121,236 5.3
9 Mother Advertising 125,793 113,009 11.3
10 Euro RSCG London 124,248 165,421 -24.9

BOTTOM TEN BY REVENUE PER HEAD
Rank Company name Latest Previous Change
(pounds) (pounds) (%)
37 McCann Erickson Communications House 72,253 67,716 6.70
38 BJL Group 67,063 63,206 6.10
39 Cheetham Bell JWT 64,791 82,512 -21.48
40 Big Communications 64,373 54,034 19.13
41 Bray Leino 60,573 49,792 21.65
42 Golley Slater Group 60,371 54,518 10.74
43 Advertising Principles (Group) 55,574 55,620 -0.08
44 Accord Holdings 54,087 60,221 -10.18
45 BRAHM 46,120 46,733 -1.31
46 Robson Brown 36,818 46,345 -20.56

NB: employee numbers are unavailable for Cravens Advertising Ltd, Cogent
Elliott Ltd, Nexus/H UK Ltd, Langland Advertising Ltd which is the reason
for rankings to be to no. 46.

Income increased by more than one-third across the Top 20 digital agencies surveyed, indicating that specialist digital marketing is still a high-growth area. However, in the scramble to win market share in this competitive space, are agencies able to charge the premium fees their expertise ought to command? Margins would indicate the answer is no.

Surprisingly, average margins are still the lowest of all marketing disciplines at a disappointing 8.7 per cent. However, three agencies posted large operating losses and this had a significant distorting effect - removing these improves margins to a much healthier 13.8 per cent. However, it is still disappointing that average margins were not higher than their more traditional counterparts.

Growth income across the digital sector was higher than any of the other individual marketing disciplines surveyed. Independent agencies showed a much higher average gross income growth (39 per cent) than the group-owned and listed agencies (26 per cent). This is perhaps indicative of greater autonomy which enables them to respond quickly to market changes and demands.

Employment costs per head (excluding the distorting effect of one particular agency) was nearly £47,000, a 3 per cent increase from the previous year, but significantly less than all of the other marketing disciplines surveyed. The small increase and low average are surprising given the problems of staff retention and recruitment digital agencies have been experiencing. The lack of experienced digital people and the need to recruit staff at a more junior level and train them up, could explain both the relatively low staff costs per head and the disappointing productivity levels of £79,000 per head.

There continues to be a direct correlation between agencies that have reported low employment costs to gross income ratios, and those that have delivered impressive margins. The average margin was 14.1 per cent where staff costs beat our target, and consumed less than 55 per cent gross income. This compared with 9.3 per cent for those agencies where staff costs consumed between 55-60 per cent, and 4.1 per cent for those consuming above 60 per cent.

The amount of digital agencies is still increasing. While they are still lagging behind other marketing disciplines, both profitability and productivity have improved. We would expect this trend to continue as the digital marketplace stabilises and the talent pool becomes wider and more experienced.

- Esther Carder, partner, Willott Kingston Smith.

DIGITAL AGENCIES
Rank Agency Year end Gross income
Latest Change
(£000s) (%)
1 LBI (formerly Framfab UK) 31/12/05 13,913 79.57
2 AKQA 31/12/05 13,608 9.07
3 Agency.Com 31/12/2006 8,466 17.58
4 Digital Marketing Group PLC 31/03/2007 8,389 n/a
5 Deal Group Media PLC 31/12/2006 7,137 6.76
6 Avenue A-Razorfish 31/12/2006 6,930 81.18
7 Agency Republic 31/12/2006 6,344 42.50
8 Glue London 31/12/2006 6,193 38.45
9 Wheel 31/12/05 6,092 12.21
10 Dare 30/06/2006 5,602 46.61
11 Good Technology 31/12/2006 5,157 37.67
12 Dialogue DLKW 31/03/2006 4,731 66.94
13 Profero 31/03/2006 4,625 29.99
14 Nucleus 31/12/2006 3,471 3.06
15 cScape Strategic
Internet Services 30/06/2006 3,252 7.58


Rank Agency Operating profit Operating profit
margin on gross
income
Latest Change Latest Previous
(£000s) (%) (%) (%)
1 LBI (formerly Framfab UK) 2,180 129.96 15.67 12.24
2 AKQA -857 -296.76 -6.30 -1.73
3 Agency.Com 1,004 -12.39 11.86 15.92
4 Digital Marketing Group PLC 1,837 n/a 21.90 n/a
5 Deal Group Media PLC -1,188 -291.92 -16.65 9.26
6 Avenue A-Razorfish 1,484 126.56 21.41 17.12
7 Agency Republic 1,076 33.00 16.96 18.17
8 Glue London 517 58.10 8.35 7.31
9 Wheel 820 130.34 13.46 6.56
10 Dare 694 11.58 12.39 16.28
11 Good Technology 681 550.99 13.21 -4.03
12 Dialogue DLKW 512 2,126.09 10.82 0.81
13 Profero 273 28.77 5.90 5.96
14 Nucleus 180 -71.06 5.19 18.47
15 cScape Strategic Internet
Services 235 -29.00 7.23 10.95

TOP TEN BY EMPLOYMENT COSTS PER HEAD
Rank Company name Latest Previous Change
(pounds) (pounds) (%)
1 JWT Group 85,957 84,031 2.3
2 CHI & Partners
(formerly Clemmow Hornby Inge) 85,713 86,976 -1.5
3 Publicis 79,131 74,754 5.9
4 The Ogilvy Group (Holdings) 78,526 89,654 -12.4
5 Fallon London 77,574 62,739 23.6
6 Euro RSCG London
(prev. Euro RSCG Wnek Gosper) 76,303 74,548 2.4
7 Mother Advertising 74,099 71,485 3.7
8 Souk Communications 73,190 53,216 37.5
9 The Gate Worldwide 72,753 65,465 11.1
10 Leo Burnett 72,442 73,685 -1.7

BOTTOM TEN BY EMPLOYMENT COSTS PER HEAD
Rank Company name Latest Previous Change
(pounds ) (pounds ) (%)
37 WFCA Integrated 44,596 40,442 10.3
38 BJL Group 42,603 40,820 4.4
39 The Leith Agency 42,374 56,821 -25.4
40 Advertising Principles (Group) 39,213 38,087 3.0
41 Golley Slater Group 38,645 34,601 11.7
42 Big Communications 36,729 37,698 -2.6
43 Bray Leino 33,661 33,348 0.9
44 Accord Holdings 32,508 30,620 6.2
45 BRAHM 32,407 32,480 -0.2
46 Robson Brown 31,891 37,357 -14.6

NB employee numbers are unavailable for Cravens Advertising Ltd, Cogent
Elliott Ltd, Nexus/H UK Ltd, Langland Advertising Ltd which is the reason
for rankings to be to no. 46.

HIGHEST-PAID GROUP DIRECTORS
Rank Group Director Latest Previous Change
(pounds (pounds (%)
000s) 000s)
1 WPP Group PLC Sir Martin Sorrell 3,631 3,621 0.3
2 Aegis Group PLC Robert Lerwill 1,386 1,274 8.8
3 Huntsworth PLC Lord Chadlington 1,078 679 58.8
4 Dewynters1 Undisclosed 1,013 806 25.7
5 Chime
Communications PLC Lord Bell 919 877 4.8
6 Omnicom Europe Undisclosed 915 1,165 -21.5
7 Havas Group of
Companies in UK Undisclosed 752 892 -15.7
8 BBH Holdings Undisclosed 707 592 19.4
8 College Hill
Holdings2 Undisclosed 707 593 19.2
10 Creston PLC Don Elgie 680 619 9.9
1 formerly Dewynters PLC; 2 formerly The College Group.

HIGHEST-PAID INDEPENDENT AGENCY DIRECTORS
Rank Group Director Latest Previous Change
(pounds (pounds (%)
000s) 000s)
1 Bartle Bogle Hegarty Undisclosed 715 667 7.2
2 Accord Holdings Undisclosed 514 340 51.2
3 CHI & Partners
(formerly CHI) Undisclosed 507 559 -9.3
4 Mother Advertising Undisclosed 485 430 12.8
5 Wieden & Kennedy UK Undisclosed 302 217 39.2
6 Advertising Principles
(Group) Undisclosed 283 215 31.6
7 WCRS Undisclosed 277 423 -34.5
8 Souk Communications Undisclosed 227 152 49.3
9 St Luke's
Communications Undisclosed 224 192 16.7
10 CCHM:PING Undisclosed 202 145 39.3

The marketplace for direct marketing and sales promotion companies improved steadily. The sector serviced 12 per cent more business (turnover), which converted into growth in gross income of almost 9 per cent, resulting in an increase in operating profits of just under 14 per cent. However the sector has not performed well in comparison with the Top 50 marketing services groups. In particular, the operating profit margin for the Top 50 was 13.4 per cent, which was some way ahead of the sector margin of 10.3 per cent.

The Top 40 direct marketing and sales promotion companies' total gross income rose by 8.7 per cent, which equates to an increase of £30.3 million. Size was again a factor in performance this year, as small independent companies grew fastest, averaging an increase in gross income of 13 per cent compared to a 6 per cent rise amongst the subsidiaries of large groups.

Tequila London reported the highest increase in gross income, a massive 64 per cent which appears to be the result of organic growth and the first full year of the TBWA\GGT merger, followed by Chemistry Communications Group with a 51 per cent increase explained by three acquisitions.

The impact of the increase in gross income has filtered down to operating profits, despite an increase in employment costs of 5.6 per cent and a large rise in other operating costs of 13.6 per cent. This indicates that companies have managed to maintain some degree of control over costs, allowing growth to be achieved in a profitable manner.

Pre-tax profits fell by 6 per cent to £33.2 million, the second fall in as many years. This is despite a 13.6 per cent increase in operating profits, confirming once again that increases in exceptional costs were a major factor in the decline.

Operating profit margins declined to 10.3 per cent from 11.9 per cent last year. As with last year, only 15 of the Top 40 reported an increase in operating margins. Notable improvements were made by Geoff Howe & Associates (19.2 per cent), ARC Integrated Marketing (14.6 per cent) and Gyro International (11.9 per cent).

Productivity, as measured by gross income per head, increased by 1.8 per cent to £82,608. Nine companies had a gross income per head higher than our £100,000 benchmark with Publicis Dialog reporting a gross income per head of £131,575.

- Cliff Ireton, partner, Willott Kingston Smith.

DIRECT MARKETING/SALES PROMOTION AGENCIES
Rank Agency Year end Gross income
Latest Change
(£000s) (%)
1 Proximity London 31/12/2006 29,017 24.3
2 WRC Holdings 31/12/2006 28,791 13.9
3 Tequila London 31/12/05 19,367 64.4
4 EHS Brann 31/12/05 17,721 0.6
5 Carlson Marketing
Group (UK) 31/12/05 16,846 -18.8
6 Publicis Dialog 31/12/2006 16,710 -11.0
7 Gyro International 31/10/2006 14,629 21.1
8 Motivcom PLC 31/12/2006 14,026 28.7
9 Tullo Marshall Warren 31/12/05 13,989 27.3
10 ARC Integrated
Marketing 31/12/05 13,382 15.5
11 Joshua Agency PLC 31/12/05 13,369 -7.9
12 Iris Nation 31/12/05 12,816 49.6
13 RMG:Connect 31/12/2006 10,881 11.4
14 Haygarth Group 31/12/05 10,125 11.3
15 The Marketing
Store Worldwide 31/12/2006 10,094 -0.7


Rank Agency Operating profit Operating profit
margin on gross
income
Latest Change Latest Previous
(£000s) (%) (%) (%)
1 Proximity London 5,659 51.4 19.5 16.0
2 WRC Holdings 1,921 182.4 6.7 -9.2
3 Tequila London 228 -83.2 1.2 11.6
4 EHS Brann 2,241 -23.6 12.7 16.7
5 Carlson Marketing
Group (UK) -1,897 -23.6 -11.3 -7.4
6 Publicis Dialog 3,262 -43.8 19.5 30.9
7 Gyro International 1,735 126.2 11.9 6.4
8 Motivcom PLC 2,660 33.5 19.0 18.3
9 Tullo Marshall Warren 3,062 695.3 21.9 3.5
10 ARC Integrated
Marketing 1,949 173.0 14.6 6.2
11 Joshua Agency PLC 572 86.9 4.3 2.1
12 Iris Nation 789 18.3 6.2 7.8
13 RMG:Connect 1,794 -1.3 16.5 18.6
14 Haygarth Group 1,724 105.7 17.0 9.2
15 The Marketing
Store Worldwide -242 72.2 -2.4 -8.6

This article was first published on campaignlive.co.uk

X

You must log in to use Clip & Save

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Additional Information

Campaign Jobs