AGENCY PERFORMANCE LEAGUE: This year’s survey finds income and profit margins up, but the advertising sector still trails other marketing services areas. By Caroline Marshall

Advertising agencies’ aggregate income and profits grew by just over 10 per cent in their last recorded year-end figures - a respectable, if not a stellar, figure and one which finds them lagging behind almost every other part of the marketing services sector.

Advertising agencies’ aggregate income and profits grew by just

over 10 per cent in their last recorded year-end figures - a

respectable, if not a stellar, figure and one which finds them lagging

behind almost every other part of the marketing services sector.



This is the message to emerge from the annual survey of the UK’s top 50

advertising agencies, prepared by Willott Kingston Smith using figures

taken from accounts filed at Companies House, and published exclusively

in Campaign.



While a 10 per cent growth rate is not to be sniffed at, there are

continuing signs that market share is shifting - but not so much to the

sales promotion and direct marketing sector as is so often claimed.

Media independents continue to take a bigger slice of clients’ money and

design consultancies and PR outfits have also enjoyed very healthy

growth.



The survey performs several roles. One is to give an overview of what is

happening to major UK ad agencies. Another is to provide instant data on

these agencies. As the tables on the following four pages stick to

fundamental ratios based on income, profits and employees, the idea is

to see at a glance whether an agency is doing well or badly.



One of the notable overall conclusions is that agencies have had to

recruit more staff in response to increasing demands from clients for

broader and better services. The survey shows a jump of 7.5 per cent in

staff numbers and a 12.2 per cent rise in staff costs. So it is only by

keeping other overheads under control that agencies managed to hit that

10 per cent income and profits growth.



Inevitably, more staff means lower productivity as junior personnel

learn the ropes, but agencies still managed to increase output per head

by 3 per cent. With employment costs on the increase, the comparison to

make is between average staff costs per head and the average gross

income handled per head: Lowe Howard-Spink is one agency that performs

well by this measure.



And so to the most robust performers in our survey. Young & Rubicam

reported the highest income for the year of pounds 59 million, up almost

17 per cent.



(’Gross income’ means the revenue earned from clients and retained by

the agency after deducting external costs such as media.) Note that

Y&R’s figures are for 1996, and its recent wins - Ford and Schweppes -

are not reflected here.



Other top performers in income terms included the Ogilvy & Mather Group

with pounds 55 million - the figure incorporates below-the-line

operations - and the demerged Saatchi & Saatchi Group with pounds 53

million.



The other success stories of the year are those agencies that have

increased their income from an already strong position. M&C Saatchi,

with 1996 figures, almost doubled its first-year achievement when

respectable levels of turnover and income were wiped out by set-up and

borrowing costs.



Y&R, Saatchis, Bartle Bogle Hegarty and Ammirati Puris Lintas all added

more than pounds 4 million to gross income. Unfortunately, Y&R’s profit

went in the opposite direction, falling by 67 per cent to pounds 972,000

after paying out more than pounds 1 million in redundancy payments and

setting aside pounds 1.9 million under its deferred remuneration scheme.

Y&R’s UK operations as a whole depended heavily on profits from the

group’s public relations and design subsidiaries.



Abbott Mead Vickers BBDO made the biggest operating profit - pounds 6.25

million - followed by Lowes with pounds 5.4 million. Both figures are

for 1996, and it is worth noting that AMV’s 1997 figures will not be as

strong for three reasons. First, its media income and profit was

accounted for in New PHD for the first full year, while AMV booked only

half of the 1996 spend.



Second, the agency incurred one-off costs from moving offices. Third,

paternalistic as ever, it celebrated its 20th birthday by buying shares

for every member of staff.



Although Collett Dickenson Pearce UK - now called Dentsu Europe -

reported only a modest operating profit, this was supplemented by an

exceptional gain of pounds 4.8 million. It turns out that between 1990

and 1993 the company had contributed pounds 4.8 million to an employee

share trust run by the group.



Now the parent company has reimbursed the agency and boosted profits as

a result.



Among the loss-makers were two shops with big reputations - Saatchis and

BBH. At BBH, the loss arose from the decision to pay bonuses to many

staff in recognition of their contribution over time. Leo Burnett, which

now has a minority stake in BBH, also made an operating loss thanks to

employment costs rising faster than gross income.



WKS reckons that profit margins as a percentage of gross income should

be about 15 per cent. The biggest improvement was recorded by St Luke’s

- up from 8.06 per cent to 19.3 per cent.



But the average for the agencies surveyed here is less than half of that

15 per cent target - 6.8 per cent - and shows no sign of improvement

over the previous year. While Euro RSCG and Arc



International slipped below the 15 per cent margin this time, a number

of companies managed to secure very respectable profit margins. Examples

include BST BDDP with 29.8 per cent, HHCL with 26.5 per cent and the

recruitment advertising agency, Austin Knight, with 25.1 per cent.

Interestingly, these figures are for 1996 and all three have since been

sold or merged.



Mergers and demergers are a feature of this year’s survey, which records

Saatchis detaching itself from Bates Dorland, which remained within

Cordiant (see box above). Then there’s the complicated merger that has

yet to make its presence felt at Companies House: TBWA, Simons Palmer,

BST BDDP and GGT Advertising have been pooled into one mega-agency and

no mega-accounts are yet available (see box right).



The other significant merger was at HHCL, which was sold to Sir Tim

Bell’s Chime Communications. Chime spent considerably more on

acquisitions and new assets than it generated from trading. It overcame

the problem by securing a share subscription from WPP for 29.9 per cent

of its enlarged share capital.



The last accounts available for HHCL, from 1996, showed pre-tax profits

of pounds 3.1 million. The HHCL Group as a whole for that year -

comprising the agency, HHCL Brasserie, In Real Life and a 50 per cent

stake in Michaelides & Bednash - made profits of pounds 3.8 million

before tax (pounds 2.5 million after tax) in the 13 months to December

1996. Chime paid up to pounds 24 million for the group, representing a

multiple of between nine and 10.3 times post-tax profits. However,

Chime’s latest accounts say that the HHCL Group’s pre-tax profits

dropped to just under pounds 2 million in 1997. Either that reflects

clever financial gymnastics to save tax on the deal, or Chime has been

more generous than might be expected.



Finally, a few snippets on executive pay. The increased salaries offered

to Rupert Howell and his colleagues following the Chime deal pale into

insignificance when compared with the packages earned by managers at

some of the US-owned shops. The top earner at Y&R, for example, enjoyed

pounds 430,000 in 1996. But it is Interpublic which appears to offer the

fattest packages to top executives in its UK agencies. The highest paid

director at Ammirati Puris Lintas earned pounds 594,000 in 1996. Your

guess is as good as Campaign’s, but could APL’s high roller be Terry

Rosenquist? Over at McCann-Erickson, chairman David Warden suffered a

pay cut to take home pounds 540,000 in the same year (tough, that).



Overall, however, directors’ earnings increased by a modest 3.6 per

cent.



At 15 of the top 50 agencies, the highest paid director earned more than

pounds 300,000 and very few agencies paid the top director less than

pounds 100,000.



The Financial Performance of Marketing Services Companies survey is

available for pounds 175 from Willott Kingston Smith, Quadrant House,

80-82 Regent Street, London W1R 5PA.





TOP 50 AGENCIES

Rank   Rank  Agency                     Year end        Gross     Change

latest prev                                            income          %

                                                   pounds 000

1      2     Young & Rubicam Group      31/12/96       59,368      16.96

2      1     The Ogilvy Group

             (Holdings)                 31/12/97       54,989       6.59

3      3     Saatchi & Saatchi Group    31/12/96       52,923       8.70

4      4     J. Walter Thompson Group   31/12/96       43,473       8.93

5      5     BMP DDB                    31/12/97       36,741      11.03

6      6     DMB&B                      31/12/97       35,639       8.83

7      7     McCann-Erickson

             Advertising                31/12/97       34,635      10.41

8      8     Abbott Mead Vickers BBDO   31/12/96       30,102      -0.06

9      10    Bartle Bogle Hegarty       30/06/97       29,650      17.73

10     9     Bates Dorland              31/12/97       26,024      -6.79

11     11    Lowe Howard-Spink          31/12/96       25,712       8.83

12     12    Leo Burnett                31/12/97       21,843       1.74

13     14    Ammirati Puris Lintas      31/12/96       21,169      35.65

14     13    Publicis                   31/12/96       18,827       6.91

15     16    WCRS                       31/12/97       15,500       2.99

16     17    Grey Advertising           30/09/97       15,317      11.95

17     18    Euro RSCG                  31/12/96       14,880      13.77

18     15    Austin Knight              30/09/96       14,248      12.06

19     25    M&C Saatchi                31/12/96       12,910      93.81

20     19    McCann-Erickson

             Manchester                 31/12/96       11,704      20.45

21     21    HHCL & Partners            31/12/96       10,797      29.54

22     20    The Leagas Delaney

             Partnership                31/12/97       10,085       9.60

23     n/a   TBWA Simons Palmer         31/12/96        9,884      56.69

24     22    Collett Dickenson

             Pearce UK                  31/12/96        8,233       9.76

25     24    BST BDDP                   31/12/96        6,923      16.39

26     28    FCB Advertising            31/12/96        6,885      11.21

27     22    GGT Advertising            30/04/97        6,530     -19.34

28     29    BDH Advertising            30/04/97        5,892       5.20

29     39    St Luke’s Holdings         31/12/97        5,491      66.34

30     -     DMB&B Financial            31/12/97        5,053      12.06

31     34    Clark & Taylor

             Advertising                31/07/97        4,667      15.66

32     37    Partners BDDH              31/12/97        4,580      26.55

33     30    Delaney Fletcher Bozell    31/12/96        4,530      -5.88

34     45    Banks Hoggins O’Shea       31/08/97        4,395      50.57

35     31    Griffin Bacal              31/12/97        4,273       0.99

36     33    Mellors Reay & Partners    30/09/97        4,106      -0.22

37     35    Simons Palmer Clemmow

             Johnson                    30/06/96        3,953      20.08

38     42    Faulds Advertising         31/12/96        3,881      20.83

39     -     Advertising Principles     31/03/97        3,702      23.48

40     41    Duckworth Finn Grubb

             Waters                     30/09/97        3,569      10.74

41     46    Roose and Partners

             Advertising                30/09/97        3,357      18.87

42     -     Court Burkitt & Company    31/03/97        3,277       0.46

43     44    Cogent Elliott             31/12/97        3,154      -0.69

44     32    Arc International

             Advertising                31/12/96        2,818     -31.68

45     47    Lansdown Conquest          31/12/96        2,777       4.48

46     43    The Morgan Partnership     31/01/97        2,734     -14.16

47     -     Osprey Park                30/09/97        2,731     -29.38

48     -     Rainey Kelly Campbell

             Roalfe                     31/12/96        2,646      52.42

49     50    Warman and Bannister       31/12/96        2,559      13.13

50     -     BCMB                       31/12/97        2,121       2.61

Rank   Rank  Agency                    Operating    Change %   Operating

latest prev                               profit                  profit

                                      pounds 000                margin %

1      2     Young & Rubicam Group           635        0.47        1.07

2      1     The Ogilvy Group

             (Holdings)                    5,180       70.51        9.42

3      3     Saatchi & Saatchi Group      -8,714       18.51      -16.47

4      4     J. Walter Thompson Group      2,176    1,165.12        5.01

5      5     BMP DDB                       4,239       -7.97       11.54

6      6     DMB&B                         4,038        7.22       11.33

7      7     McCann-Erickson

             Advertising                   2,517      -10.71        7.27

8      8     Abbott Mead Vickers BBDO      6,255        2.22       20.78

9      10    Bartle Bogle Hegarty           -973     -128.91       -3.28

10     9     Bates Dorland                -2,986      -50.81      -11.47

11     11    Lowe Howard-Spink             5,382       18.16       20.93

12     12    Leo Burnett                  -1,045     -652.91       -4.78

13     14    Ammirati Puris Lintas           482       77.86        2.28

14     13    Publicis                      3,479        1.10       18.48

15     16    WCRS                          2,986      - 0.40       19.26

16     17    Grey Advertising              1,522      -10.10        9.94

17     18    Euro RSCG                     1,837      -17.40       12.35

18     15    Austin Knight                 3,583        6.42       25.15

19     25    M&C Saatchi                     632      223.68        4.90

20     19    McCann-Erickson

             Manchester                    1,861       24.82       15.90

21     21    HHCL & Partners               2,859       75.18       26.48

22     20    The Leagas Delaney

             Partnership                     423        3.68        4.19

23     n/a   TBWA Simons Palmer            1,956      133.97       19.79

24     22    Collett Dickenson

             Pearce UK                       536       -5.13        6.51

25     24    BST BDDP                      2,065       46.45       29.83

26     28    FCB Advertising                 706      -11.86       10.25

27     22    GGT Advertising                -875     -420.51      -13.40

28     29    BDH Advertising                 390       -0.51        6.62

29     39    St Luke’s Holdings            1,057      297.37       19.25

30     -     DMB&B Financial                 825       17.35       16.33

31     34    Clark & Taylor

             Advertising                     169      550.00        3.62

32     37    Partners BDDH                   817       82.37       17.84

33     30    Delaney Fletcher Bozell         352       85.26        7.77

34     45    Banks Hoggins O’Shea            637       65.89       14.49

35     31    Griffin Bacal                   492      -12.61       11.51

36     33    Mellors Reay & Partners         561       10.00       13.66

37     35    Simons Palmer Clemmow

             Johnson                         794       97.51       20.09

38     42    Faulds Advertising              888       87.34       22.88

39     -     Advertising Principles          313       67.38        8.45

40     41    Duckworth Finn Grubb

             Waters                          751       35.07       21.04

41     46    Roose and Partners

             Advertising                     204       46.76        6.08

42     -     Court Burkitt & Company         203       47.10        6.19

43     44    Cogent Elliott                  281      264.94        8.91

44     32    Arc International

             Advertising                     250     - 61.60        8.87

45     47    Lansdown Conquest               -32     -149.23       -1.15

46     43    The Morgan Partnership           20      -91.84        0.73

47     -     Osprey Park                     -40     -290.48       -1.46

48     -     Rainey Kelly Campbell

             Roalfe                          527       76.25       19.92

49     50    Warman and Bannister         -1,107   -1,704.35      -43.26

50     -     BCMB                            182     - 54.95        8.58

Rank   Rank  Agency                             Employment      Change %

latest prev                                          costs

                                                pounds 000

1      2     Young & Rubicam Group                  28,291         12.52

2      1     The Ogilvy Group

             (Holdings)                             24,310         13.26

3      3     Saatchi & Saatchi Group                26,749         -0.39

4      4     J. Walter Thompson Group               25,053         13.61

5      5     BMP DDB                                19,939         11.22

6      6     DMB&B                                  18,627         10.47

7      7     McCann-Erickson

             Advertising                            18,745         11.17

8      8     Abbott Mead Vickers BBDO               14,429          0.97

9      10    Bartle Bogle Hegarty                   19,443         44.39

10     9     Bates Dorland                          14,675         -2.08

11     11    Lowe Howard-Spink                      11,341         11.21

12     12    Leo Burnett                            13,296         10.51

13     14    Ammirati Puris Lintas                   9,691         30.78

14     13    Publicis                                8,944          7.54

15     16    WCRS                                    8,746          8.66

16     17    Grey Advertising                       10,713         35.25

17     18    Euro RSCG                               6,813          4.61

18     15    Austin Knight                          15,412         14.51

19     25    M&C Saatchi                             6,847         98.75

20     19    McCann-Erickson

             Manchester                              6,456         20.13

21     21    HHCL & Partners                         4,986         16.39

22     20    The Leagas Delaney

             Partnership                             5,144          5.13

23     n/a   TBWA Simons Palmer                      5,184         51.53

24     22    Collett Dickenson

             Pearce UK                               4,181         -2.99

25     24    BST BDDP                                2,903          4.76

26     28    FCB Advertising                         2,992         10.20

27     22    GGT Advertising                         4,148         -6.39

28     29    BDH Advertising                         3,652         -0.92

29     39    St Luke’s Holdings                      2,834         40.16

30     -     DMB&B Financial                         2,332          4.39

31     34    Clark & Taylor

             Advertising                             3,460         13.22

32     37    Partners BDDH                           2,161         10.42

33     30    Delaney Fletcher Bozell                 2,269          1.29

34     45    Banks Hoggins O’Shea                    2,257         43.58

35     31    Griffin Bacal                           2,463         11.90

36     33    Mellors Reay & Partners                 2,304         -6.61

37     35    Simons Palmer Clemmow

             Johnson                                 1,707          7.77

38     42    Faulds Advertising                      3,354         23.44

39     -     Advertising Principles                  1,883         10.63

40     41    Duckworth Finn Grubb

             Waters                                  1,726          6.02

41     46    Roose and Partners

             Advertising                             1,518         16.50

42     -     Court Burkitt & Company                 1,600        -21.68

43     44    Cogent Elliott                          1,604         -1.78

44     32    Arc International

             Advertising                             1,901         -3.26

45     47    Lansdown Conquest                       1,583         -5.94

46     43    The Morgan Partnership                  1,762         -1.78

47     -     Osprey Park                             1,318        -13.91

48     -     Rainey Kelly Campbell

             Roalfe                                  1,078         48.48

49     50    Warman and Bannister                    1,028         14.48

50     -     BCMB                                      879          3.66

Source: Willott Kingston Smith has used the latest figures filed at

Companies House, covering periods ending in 1996, 1997 and 1998.

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.

TOP TEN GROUPS

Rk  Agency                      Operating      Operating           Gross

                                   profit         margin      income per

                               pounds 000       on gross     head pounds

                                                income %

                           Latest    Prev  Latest   Prev  Latest    Prev

1   WPP Group             182,900 159,200   12.45  11.08  64,110  67,868

2   Cordiant Comms. Group  57,800  48,000    7.85   6.36  69,457  73,945

3   Aegis Group            43,600  40,000   22.73  22.28  84,643  92,193

4   Diversified Agency

    Services               29,980  19,739   16.96  13.73  55,571  51,308

5   Interpublic            21,227  32,751    8.33  14.03  93,808  89,182

6   Abbott Mead Vickers    15,599  12,772   14.75  14.98  84,619  86,218

7   Shandwick Intl         13,410  14,053   10.66  11.49  60,186  62,228

8   CIA Group               7,540   5,228   13.47  11.83  76,372  72,792

9   DMB&B Holdings          6,457   7,142   10.83  12.90  86,664  79,517

10  BNB Resources           6,167   6,497   10.86  11.66  72,251  79,973



It’s clear from this table that marketing services and media buying -

rather than straight advertising - is where the action is: in terms of

operating profit margin, the three best-performing companies are two

pure media buyers, Aegis and CIA (now known as Tempus), and Omnicom’s

Diversified Agency Services, a profitable grouping of a wide range of

marketing services companies.



Indeed, Aegis’s margin of 22.73 per cent is the third highest among the

entire Top 50, outstripping the recognised industry high-fliers, Abbott

Mead Vickers BBDO and Martin Sorrell’s WPP, neither of which reached 15

per cent.



AMV’s gradual decline in margins is probably due to the group’s

continued expansion through careful acquisition of related companies. In

contrast, WPP is making significant efforts to improve its margin to

compete better with US-based multinationals.



However, US-based Interpublic has seen profitability decline because

employment costs raced ahead of improvements in gross income. While

Interpublic still has the best productivity levels of the major

international groups, an 11.6 per cent rise in employment costs per head

- twice the rate of productivity increase - meant that none of the extra

income translated into operating profit.



Meanwhile, better market conditions failed to prevent a profits decline

following the exit of senior staff at executive search and recruitment

advertising company, BNB Resources.



The most notable omission from this year’s table is the GGT Group, which

as a whole made a pre-tax loss and is now part of Omnicom. The reason

for this fall in operating profit? Acquisition, reorganisation of its

below-the-line interests and related administration costs, and writing

off goodwill on its old GGK network. - By John Tylee





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1 Job description: Digital marketing executive

Digital marketing executives oversee the online marketing strategy for their organisation. They plan and execute digital (including email) marketing campaigns and design, maintain and supply content for the organisation's website(s).