Feature

Agency Performance League

Kingston Smith W1's latest annual survey on financial performance reveals for the first time the effects of the recession on the bottom lines in the advertising industry, Mandy Merron writes.

The top 50 advertising agencies' accounts reviewed here contain the first full look at the effects of the recession.

Looking mostly at results from 2009, agencies have reported a reduction in operating profit for the first time in six years. Operating profit margin decreased to 11.3 per cent from 12.6 per cent and overall operating profit was down by 15 per cent for the top 50.

Nearly two thirds of agencies reported a fall in operating profits, although only three agencies recorded an operating loss.

Fall in operating profit margin

Operating profit decreased by 15 per cent compared with a 7 per cent decrease in gross income. While this was the first decrease in six years, it compares favourably with other sectors.

Operating profit margin on gross income is 11.3 per cent. Of the top 50 ad agencies, 47 recorded an operating profit with 18 reporting an increase in operating profit. Leo Burnett (£3.6 million increase or 179 per cent) and Mother Advertising (£3.3 million increase or 135 per cent) recorded the biggest increases in monetary terms.

The biggest falls in operating profit in both monetary and percentage terms came from Publicis (£6.4 million or 75 per cent), Young & Rubicam Group (£5.9 million or 46 per cent) and Bartle Bogle Hegarty (£5.4 million or 49 per cent).

A well-run and profitable agency should be able to generate an operating profit margin of 15 per cent or more. Of the top 50 agencies, 16 beat this benchmark and ten generated an operating margin in excess of 20 per cent. Albion Brand Communication led the way with 32 per cent.

Agencies that consistently achieve higher profit margins tend to be those that ensure that staff costs are kept in check. Of the 13 agencies that kept staff costs as a percentage of gross income below the recommended benchmark of 55 per cent or less, ten generated operating margins in excess of 15 per cent. This year, staff costs on average absorbed nearly 60 per cent of gross income - considerably higher than last year but showing a commitment to retaining staff in recession.

Independently owned agencies tended to have higher employment costs compared with gross income although the ability of owner-managers to take shareholder return influences this figure so the true position may be worse than reported.

Don't Mind the Gap

Independently owned agencies' gross income fell by 2.5 per cent, less than one third of the 8 per cent fall reported by the group-owned companies. Traditionally group-owned agencies have been better at converting gross income into profits, this no longer appears to be the case.

Independent agencies' operating profit decreased by 2.4 per cent but group-owned agencies' operating profit decreased by 17.6 per cent. Of the independents, Wieden & Kennedy, WCRS and Mother all saw an increase in operating profit of more than £1 million. Bartle Bogle Hegarty, Accord Group and CHI & Partners reported significant falls in operating profit but all remained profitable in the period.

Of the group-owned agencies, only five reported operating profit increases of more than 25 per cent with TBWA\London reporting an increase of 258 per cent and a return to profitability after a poor 2008.

The gap in salary between group-owned and independent agencies narrowed for the second year in a row.

Group-owned agency staff still pick up an extra £4,200 per employee on average compared with a differential in gross income per head of £10,100, which is also a reduction from last year. This equates to a premium of 7 per cent per person. Not only are independent agency staff improving their relative productivity, they are also being remunerated better as well compared to gross income. The gap is certainly closing as independent agencies appear to have benefitted from a more competitive market.

Productivity

Productivity, as measured by gross income per head, decreased to £102,000 per head. Operating profit per head reflects a combination of productivity and how effectively an agency converts revenue into profit. This decreased by 11 per cent to £11,500 per head. Albion Brand Communication led the way with £37,000 per head and 15 of the top 50 agencies achieved in excess of £15,000 per head.

Operating profit fell by 15 per cent but pre-tax profit by only 7 per cent.

This was due to a large decrease in the amount of exceptional costs. Goodwill amortisation and impairment remained constant at £3.7 million, which is reflective of the belief in the stability of the market as additional write downs were not deemed necessary.

Conclusion

Most if not all agencies in the top 50 were better prepared for this recession. While the results do not entirely reflect the full effects of the downturn, it is unlikely that we will experience further, significant reductions in margins and growth. According to Kingston Smith W1: "As we predicted in last year's survey, in an industry where client service has always been the most important factor and with nearly all clients looking to make savings without compromising quality, the independently owned agencies have prospered and narrowed the gap in terms of productivity and even overtaken their often more illustrious group-owned rivals in terms of profitability."

The survey is available to purchase at a price of £460. Contact Antonia Munro at amunro@kingstonsmith.co.uk. It is available either in hard copy or online.

TOP 50 ADVERTISING AGENCIES

Rank Rank Agency Year end Gross income
latest prev Latest Previous Change
(pounds (pounds (%)
000s) (000s)

1 2 M&C Saatchi 31/12/2009 103,435 104,383 -0.91
2 1 Young & Rubicam Group 31/12/2009 98,614 108,955 -9.49
3 3 Ogilvy & Mather Group
(Holdings) 31/12/2009 63,953 73,378 -12.84
4 4 Bartle Bogle Hegarty 31/12/2009 55,406 65,066 -14.85
5 7 Abbott Mead
Vickers BBDO 31/12/2009 46,926 48,635 -3.51
6 8 DDB UK 31/12/2009 46,234 47,267 -2.19
7 9 Saatchi & Saatchi Grp 31/12/2009 44,219 42,504 4.03
8 6 JWT Group 31/12/2009 44,199 48,909 -9.63
9 5 McCann Erickson
Advertising 31/12/2009 31,420 51,030 -38.43
10 10 Publicis 31/12/2009 28,360 31,608 -10.28
11 11 Leo Burnett 31/12/2009 26,489 28,110 -5.77
12 20 Wieden & Kennedy UK 31/12/2009 23,118 18,731 23.42
13 12 Grey Advertising 31/12/2009 22,460 25,798 -12.94
14 17 McCann Manchester1 31/12/2009 21,231 22,468 -5.51
15 14 Euro RSCG London 31/12/2009 21,062 23,992 -12.21
16 13 CHI & Partners 30/09/2009 20,596 24,392 -15.56
17 18 Bray Leino 31/12/2009 19,656 21,149 -7.06
18 15 Fallon London 31/12/2009 18,862 23,256 -18.89
19 21 TBWA\London 31/12/2009 18,050 18,248 -1.09
20 25 WCRS 31/12/2009 16,825 16,928 -0.61
21 19 Delaney Lund Knox
Warren & Partners 31/03/2010 16,775 19,272 -12.96
22 23 MCBD 30/09/2009 16,757 17,077 -1.87
23 16 Accord Group 31/12/2009 16,068 22,352 -28.11
24 26 VCCP 31/12/2009 15,528 14,919 4.08
25 28 Mother Advertising 31/12/2009 15,480 12,886 20.13
26 22 Golley Slater Group 31/03/2010 14,954 17,567 -14.87
27 27 Leagas Delaney 31/12/2009 14,343 14,899 -3.73
28 24 Lowe & Partners 31/12/2009 11,751 17,063 -31.13
29 30 Adventis Group 31/12/2009 10,810 12,260 -11.83
30 35 DraftFCB London 31/12/2009 10,292 8,571 20.08
31 31 The Red Brick Road 31/12/2009 10,001 11,082 -9.75
32 37 Tangible UK2 31/12/2009 9,930 7,686 29.20
33 33 Beattie McGuinness
Bungay 31/12/08 9,115 5,983 52.35
34 32 Brahm 31/07/2009 8,682 10,017 -13.33
35 36 Lawton Communications
Group 31/12/2009 7,456 8,190 -8.96
36 38 Nitro 31/12/08 7,129 3,019 136.14
37 34 TBWA\Manchester 31/12/2009 6,581 8,673 -24.12
38 - Cogent Elliott 31/12/2009 6,461 6,035 7.06
39 46 Langland Advertising
Design & Marketing 30/09/2009 5,830 5,129 13.67
40 29 The Gate Worldwide 28/02/2010 5,823 8,076 -27.90
41 41 Robson Brown 28/02/2009 5,810 5,516 5.33
42 39 Albion Brand
Communication 31/07/2009 5,554 6,308 -11.95
43 44 Advertising
Principles (Group) 31/03/2009 5,461 5,403 1.07
44 43 Cheethambell JWT 31/12/2009 5,405 5,450 -0.83
45 40 WFCA Integrated 30/06/2009 5,309 5,904 -10.08
46 42 BJL Group 30/06/2009 5,078 5,652 -10.16
47 - Karmarama LLP 30/04/2010 5,076 3,110 63.22
48 - Libertine London 31/01/2010 4,790 275 1,641.82
49 47 ThinkBDW3 31/12/2009 4,217 4,821 -12.53
50 48 Big Communications 31/12/2009 3,926 3,963 -0.93

Rank Rank Agency Operating profit
latest prev Latest Previous Change
(pounds (pounds (%)
(000s) (000s)

1 2 M&C Saatchi 10,178 11,612 -12.35
2 1 Young & Rubicam
Group 6,853 12,792 -46.43
3 3 Ogilvy & Mather
Group (Holdings) 1,406 5,705 -75.35
4 4 Bartle Bogle
Hegarty 5,593 11,032 -49.30
5 7 Abbott Mead
Vickers BBDO 10,621 10,401 2.12
6 8 DDB UK 10,030 7,432 34.96
7 9 Saatchi & Saatchi
Group 8,557 5,962 43.53
8 6 JWT Group 4,189 5,809 -27.89
9 5 McCann Erickson
Advertising 3,748 6,973 -46.25
10 10 Publicis 2,148 8,542 -74.85
11 11 Leo Burnett 5,571 1,994 179.39
12 20 Wieden & Kennedy UK 3,613 1,253 188.35
13 12 Grey Advertising 3,950 4,570 -13.57
14 17 McCann Manchester1 2,893 3,494 -17.20
15 14 Euro RSCG London 915 940 -2.66
16 13 CHI & Partners 2,702 4,068 -33.58
17 18 Bray Leino 3,995 5,109 -21.80
18 15 Fallon London 1,791 3,716 -51.80
19 21 TBWA\London 449 -285 257.54
20 25 WCRS 2,254 948 137.76
21 19 Delaney Lund Knox
Warren & Partners 1,997 2,282 -12.49
22 23 MCBD 2,137 2,341 -8.71
23 16 Accord Group 3,649 5,405 -32.49
24 26 VCCP 1,455 1,487 -2.15
25 28 Mother Advertising 864 -2,453 135.22
26 22 Golley Slater Group 1,693 1,948 -13.09
27 27 Leagas Delaney 990 958 3.34
28 24 Lowe & Partners 167 1,306 -87.21
29 30 Adventis Group 1,765 1,789 -1.34
30 35 DraftFCB London -2,127 -3,535 39.83
31 31 The Red Brick Road 233 396 -41.16
32 37 Tangible UK2 667 593 12.48
33 33 Beattie McGuinness
Bungay 2,475 1,150 115.22
34 32 Brahm 727 995 -26.93
35 36 Lawton Communications
Group 420 410 2.44
36 38 Nitro 1,185 677 75.04
37 34 TBWA\Manchester -638 259 -346.33
38 - Cogent Elliott 192 217 -11.52
39 46 Langland Advertising
Design & Marketing 1,040 1,332 -21.92
40 29 The Gate Worldwide -84 17 -594.12
41 41 Robson Brown 237 498 -52.41
42 39 Albion Brand
Communication 1,801 2,476 -27.26
43 44 Advertising
Principles (Group) 181 419 -56.80
44 43 Cheethambell JWT 412 768 -46.35
45 40 WFCA Integrated 605 1,031 -41.32
46 42 BJL Group 396 850 -53.41
47 - Karmarama LLP 1,072 469 128.57
48 - Libertine London 387 -110 451.82
49 47 ThinkBDW3 877 874 0.34
50 48 Big Communications 1,148 1,374 -16.45

Source: Kingston Smith W1 has used figures filed at Companies House,
covering periods ending predominanntly in 2009 with some 2008 and 2010
year ends. 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 is excluding the
amortisation or impairment of goodwill. Where it is obvious that
significant staff costs have been included in cost of sales we have in
some cases made a compensating adjustment based on the data available
and our experience.
Notes: 1 prev. McCann Erickson Communications House 2 prev.
Tangible:Leith 3 prev. Bastin Day Westley


MEDIA AGENCIES

Rank Agency Year end Gross income Operating profit
Latest Change Latest Change
(pounds (%) (pounds (%)
000s) 000s)

1 Aegis Media 31/12/08 128,326 9.07 21,433 -36.82
2 Mindshare
Media (UK) 31/12/2009 84,918 -6.09 13,095 -18.97
3 MediaCom UK 31/12/2009 62,523 -2.72 15,046 -27.80
4 OMD Group 31/12/2009 52,379 2.90 12,506 17.61
5 PG Media
Services 31/12/2009 42,900 -5.16 399 -88.06
6 ZenithOptimedia 31/12/2009 23,188 -13.26 4,911 51.20
7 Mediabrands 1 31/12/2009 21,032 53.46 4,420 70.32
8 PHD Media 31/12/2009 19,545 -1.51 3,188 -7.62
9 Mediaedge:cia UK 31/12/08 19,104 9.62 -5,086 -3,968.8
10 Mediaedge:cia
International 31/12/08 19,100 -0.43 1,053 -47.06

Rnk Agency Operating profit
margin on gross income
Latest Prev
(%) (%)

1 Aegis Media 16.70 28.84
2 Mindshare
Media (UK) 15.42 17.87
3 MediaCom UK 24.06 32.43
4 OMD Group 23.88 20.89
5 PG Media
Services 0.93 7.39
6 ZenithOptimedia 21.18 12.15
7 Mediabrands 1 21.02 18.93
8 PHD Media 16.31 17.39
9 Mediaedge:cia UK -26.62 -0.72
10 Mediaedge:cia
International 5.51 10.37

Notes: 1 prev. Initiative Media London

The media buying sector has continued to be one of the most productive, efficient and profitable of the marketing and communications sectors despite the difficult market conditions. Media buyers were well placed to deal with the recession but the reduction in interest rates has significantly affected the net interest earned, which for many media buyers is a key component of their profit before tax.

The productivity of the top 30 media buyers was healthy, with an average gross income per head at £107,000. Other operating costs per employee continued to be considerably higher than other sectors but media buyers were still able to achieve an impressive operating profit per head thus firmly establishing themselves as one of the best performing sectors of the marketing disciplines.

Operating profit decreased by 16 per cent despite gross income actually increasing by 1 per cent. This was largely due to a 10 per cent increase in staff costs and other overhead costs remaining unchanged. Of the top 30 media buyers, 17 recorded an increase in gross profit.

Kingston Smith W1 recommends an operating profit margin benchmark figure of 15 per cent, which 22 of the top 30 media buying companies achieved. All but three agencies achieved at least 5 per cent with an average of 18 per cent, which was ahead of other marketing and communications sectors.

Operating profit per head fell from £25,500 to £19,200. Average gross income per head, at £107,000, is still above the Kingston Smith W1 benchmark figure of £100,000 but does represent a 7 per cent decrease on last year. Given that last year's survey results were the best ever recorded for media buyers, this year's results were always going to struggle to surpass them.

Independent agencies continue, on the whole, to be in the bottom half of the tables as they cannot benefit from the sheer economy of output from well backed group-owned agencies.

The group-owned agencies recorded no growth in gross income and a 23 per cent decrease in profitability. Independently owned agencies' gross income increased by 9 per cent, with a 38 per cent increase in profitability. Whereas group-owned agencies were much better at turning the increase in gross income into profitability, this no longer appears to be the case.

The sector has coped well with the recession and did at least enter it in the best possible financial health. The success of the independently owned agencies is encouraging and shows there is always a place for niche operators in competitive markets.

The top 30 media buying companies generated £14 million of net interest income this year, representing 12 per cent of the pre-tax profits. This is large decrease on last year's 21 per cent and has traditionally been a key source of profit for media buyers but with continuing low interest rates will no longer be the case.

Most media buyers have adapted well to the needs of the market with innovation and an expansion of their offering despite limited resources.

Cliff Ireton, partner, Kingston Smith W1

DIGITAL AGENCIES

Rank Agency Year end Gross income Operating profit
Latest Change Latest Change
(pounds (%) (pounds (%)
000s) 000s)

1 Digital Marketing
Group 31/03/2010 35,460 -14.66 2,310 -37.92
2 Progressive
Digital Media
Group1 31/12/2009 34,003 156.74 -2,626 47.15
3 AKQA 31/12/2009 29,682 -2.45 2,665 422.55
4 LBi 31/12/2009 22,038 1.43 4,110 37.73
5 Dare Digital 30/09/2009 14,796 2.03 1,993 4.62
6 Bigmouthmedia 30/06/2009 13,339 9.42 6,546 -2.02
7 Razorfish UK2 31/12/08 12,965 17.56 2,934 6.65
8 Profero 31/12/08 12,144 41.51 413 1,314.71
9 Investis 31/12/2009 10,536 25.41 912 -1.51
10 Amaze 31/12/2009 9,703 -9.82 524 -70.14

Rank Agency Operating profit
margin on gross income
Latest Previous
(%) (%)

1 Digital Marketing
Group 6.51 8.95
2 Progressive Digital
Media Group1 -7.72 -37.52
3 AKQA 8.98 1.68
4 LBi 18.65 13.73
5 Dare Digital 13.47 13.14
6 Bigmouthmedia 49.07 54.80
7 Razorfish UK2 22.63 24.95
8 Profero 3.40 -0.40
9 Investis 8.66 11.02
10 Amaze 5.40 16.31

Notes: 1 prev. TMN Group 2 prev. Avenue A/Razorfish

The digital sector encompasses the top 30 digital agencies, ranked by gross income. Most of the agencies reviewed have filed accounts for 2009, which gives an indication of the effects of the recession. Merger and acquisition activity has remained very low, as expected in these difficult economic times, although reorganisations and restructuring occurred, as well as some casualties of the recession. These include i-level's liquidation in May 2010, and Latitude Group's administration in January 2010 and subsequent buy-out.

Revenues increased by 6 per cent across the digital sector, making digital the fasting growing sector of all the marketing disciplines reviewed in our survey, albeit at a much slower pace than previously. This continued growth suggests client spend is still moving towards online and digital methods of communication. On the back of fee growth, operating profits across the sector rose by nearly 13 per cent; an impressive result considering the global economic downturn. Nearly all the companies with increased operating profits reported a corresponding increase in fees.

While two thirds of agencies reported increased operating profits, five agencies failed to make an operating profit, with four of these reporting losses in excess of £1 million.

Operating profit margins increased from 5.7 per cent to 7.5 per cent, which is commendable in light of increased client pressure on fees. This still remains some way short of Kingston Smith W1's 15 per cent target margin for a well-run agency but it is encouraging to see nearly one third of agencies achieving this goal.

Employment costs across the sector rose by 8 per cent and total headcount by nearly 3 per cent. Some agencies were forced to trim their staffing levels, the majority of which were those that suffered a decline in fees.

The sector's key ratio of employment costs to gross income improved to just below 62 per cent - edging closer to but still some way short of - the target ratio of 55 per cent. Despite 16 agencies improving their staff costs to income ratio, just eight agencies managed to equal or better the 55 per cent target, seven of which achieved high operating profit margins of over 15 per cent.

Gross income per head, used to measure productivity, was on average £73,327, representing a 3 per cent improvement on last year. This result is not unexpected in a recession, as clients demand increased scope of work for the same agreed fee, and generally become much more price-sensitive. More than one third of agencies achieved or bettered the £100,000 per head target and 14 companies in all reported an increase in productivity.

Operating profit per head, the combination of both productivity and profitability, across the digital agencies has increased by 4 per cent to £5,531 per head, despite difficult market conditions. However, digital remains the poorest performing of the marketing sectors in terms of operating profit per head.

Independent agencies (those not listed or part of a listed group) continued to grow at a faster rate than the group-owned agencies, and have increased their headcount to service the new business, compared to group-owned agencies which decreased headcount. Total fee growth among independents rose 10 per cent in contrast to groups whose income increased by just 4 per cent.

Digital agencies have come through a difficult economic period with increased fees and profits, yet the sector remains some way behind in terms of productivity and profitability of other marketing disciplines.

Esther Carder, partner, Kingston Smith W1

DIRECT MARKETING/SALES PROMOTION AGENCIES

Rank Agency Year end Gross income Operating profit
Latest Change Latest Change
(pounds (%) (pounds (%)
000s) 000s)

1 GyroHSR1 31/12/2009 30,828 4.26 -1,346.00 -121.02
2 Rapp2 31/12/2009 30,536 42.66 1,967.00 344.65
3 Proximity London 31/12/2009 24,432 -8.03 3,752.00 20.26
4 Motivcom 31/12/2009 22,775 -2.56 3,391.00 32.10
5 Tullo Marshall
Warren 31/03/2009 22,456 25.53 3,225.00 40.83
6 Iris London 31/12/2009 18,763 -5.59 953.00 -12.81
7 EHS Brann 31/12/2009 16,539 -11.38 -18.00 -100.75
8 The Marketing
Store Worldwide 31/12/2009 15,270 18.14 950.00 96.28
9 Carlson Marketing
Group (UK) 31/12/08 12,890 -0.22 -1,627.00 -18.59
10 Chemistry
Communications Grp 30/11/2009 12,888 45.50 1,625.00 76.06

Rank Agency Operating profit
margin on gross income
Latest Previous
(%) (%)

1 GyroHSR1 -4.37 -2.06
2 Rapp2 6.44 3.76
3 Proximity London 15.36 11.75
4 Motivcom 14.89 10.98
5 Tullo Marshall
Warren 14.36 12.80
6 Iris London 5.08 5.50
7 EHS Brann -0.11 12.82
8 The Marketing
Store Worldwide 6.22 3.74
9 Carlson Marketing
Group (UK) -12.62 -10.62
10 Chemistry
Communications Grp 12.61 10.42

Notes: 1 prev. Gyro International 2 prev Rapp Holdings (UK)

The top 40 DMSP agencies reported very modest total growth in gross income of just 0.4 per cent in their most recent filed accounts with more than half of the top 40 companies reporting a fall in their income levels. The only good news was that the falls in income were relatively widely and thinly spread with only two companies reporting a fall of more than 25 per cent and almost half seeing a fall of less than 10 per cent.

Despite the absence of growth in gross income and against a very unfavourable macro-economic outlook, the total operating profit generated by the top 40 DMSP agencies has actually risen for the first time since 2008, with the average operating profit margin improving to 8.5 per cent. While this is encouraging and is the first improvement since 2006, don't break out the Champagne just yet. This is still the second-lowest level of profitability recorded by the sector since 1993. At its peak in 2000, the average operating profit margin of the DMSP sector was 15.6 per cent.

Employment costs are the biggest expense for DMSP agencies and controlling these is key to profitability. On average, staff costs consumed 61.7 per cent of gross income (up from 61.2 per cent last year). There is a recommendation that employment costs take up no more than 55 per cent of a company's gross income, a target that was met by only five of the top 40 agencies, which helps to explain the poor operating profit margins being reported. The average operating profit margin of the agencies that met this target was 20.7 per cent, while the average operating profit margin of agencies that spent more than 6 per cent of their gross income on staff costs was just 5.1 per cent.

Productivity, as measured by gross income per head, has improved by 2.9 per cent since the last survey and now stands at £86,080. Employment costs per head have risen by 3.4 per cent to £53,090. This increase in staff costs per head comes as a surprise given that most of the results concern the year to 31 December 2009, during which there was a stream of staff cutbacks being reported in Campaign. If the sector wants to see improvements in profit margins, it is essential that cuts in staff numbers are not accompanied by an increase in the costs of employing the remaining staff. As the economy picks up, it is going to become difficult to rely on reduced wage expectations to ensure that any increases in gross income are not all taken up by an increase in wages.

With that in mind, there are mixed messages being sent out by the boards of the top 40 DMSP agencies. Almost half saw the total amount paid to directors increase compared with their previous results. This included seven companies where total directors' remuneration has increased, despite a fall in gross income, and three companies, all group-owned, which have increased directors' remuneration while cutting their headcount and reporting a drop in operating profits (or an increase in operating losses).

Ian Graham, partner, Kingston Smith W1

TOP TEN BY OPERATING PROFIT MARGIN ON GROSS INCOME

Rank Company name Latest Previous Change
(%) (%) (%)

1 Albion Brand Communication 32.43 39.25 -17.39
2 Big Communications 29.24 34.67 -15.66
3 Beattie McGuinness Bungay 27.15 19.22 41.27
4 Accord Group 22.71 24.18 -6.09
5 Abbott Mead Vickers BBDO 22.63 21.39 5.83
6 DDB UK 21.69 15.72 37.97
7 Karmarama LLP 21.12 15.08 40.04
8 Leo Burnett 21.03 7.09 196.49
9 ThinkBDW1 20.80 18.13 14.72
10 Bray Leino 20.32 24.16 -15.87

Notes: 1 prev. Bastin Day Westley


TOP TEN BY REVENUE PER HEAD

Rank Company name Latest Previous Change
(pounds) (pounds) (%)

1 Lowe & Partners 172,809 145,838 18.49
2 Grey Advertising 152,789 157,305 -2.87
3 Beattie McGuinness Bungay 147,016 106,839 37.60
4 Nitro 145,490 137,227 6.02
5 CHI & Partners 145,042 160,474 -9.62
6 The Red Brick Road 144,942 149,757 -3.22
7 Saatchi & Saatchi Group 143,104 139,357 2.69
8 Wieden & Kennedy UK 140,963 130,986 7.62
9 Abbott Mead Vickers BBDO 139,246 141,381 -1.51
10 Mother Advertising 138,214 121,566 13.69


BOTTOM TEN BY OPERATING PROFIT MARGIN ON GROSS INCOME

Rank Company name Latest Previous Change
(%) (%) (%)

41 Robson Brown 4.08 9.03 -54.82
42 Advertising Principles (Group) 3.31 7.75 -57.26
43 Cogent Elliott 2.97 3.60 -17.35
44 TBWA\London 2.49 -1.56 259.27
45 The Red Brick Road 2.33 3.57 -34.80
46 Ogilvy & Mather Group
(Holdings) 2.20 7.77 -71.72
47 Lowe & Partners 1.42 7.65 -81.43
48 The Gate Worldwide -1.44 0.21 -785.30
49 TBWA\Manchester -9.69 2.99 -424.64
50 DraftFCB London -20.67 -41.24 49.89


BOTTOM TEN BY REVENUE PER HEAD

Rank Company name Latest Previous Change
(pounds) (pounds) (%)

41 BJL Group 69,562 85,636 -18.77
42 Advertising Principles
(Group) 64,247 58,728 9.40
43 Golley Slater Group 62,569 65,549 -4.55
44 Cogent Elliott 61,533 64,892 -5.18
45 Accord Group 61,328 61,238 0.15
46 Bray Leino 59,027 61,301 -3.71
47 Robson Brown 58,687 59,312 -1.05
48 TBWA\Manchester 55,771 60,650 -8.04
49 Lawton Communications Group 52,879 57,273 -7.67
50 Brahm 45,695 49,103 -6.94

Rank Agency Year end Gross income Operating profit
Latest Change Latest Change
(pounds (%) (pounds (%)
000s) 000s)

1 BBH Holdings 31/12/2009 81,724 -9.62 4,141.00 -65.72
2 Bezier
Acquisitions 30/04/2009 63,967 7.10 -686.00 -106.75
3 The Engine Group 31/12/2009 59,102 0.68 5,857.00 322.89
4 Iris Nation
Worldwide 31/12/2009 44,472 16.72 -1,182.00 -111.07
5 Kinetic Worldwide
Group 31/12/08 39,227 -6.18 11,038.00 14.22
6 Mother Holdings 31/12/2009 36,716 20.44 2,502.00 45.21
7 The Imagination
Group 31/08/2009 33,239 -9.12 -1,473.00 -142.94
8 GyroHSR 1 31/12/2009 30,828 4.26 -1,346.00 -121.02
9 Loewy Group 31/12/2009 30,653 -11.23 -823.00 -147.06
10 AKQA 31/12/2009 29,682 -2.45 2,665.00 422.55

Rank Agency Operating profit
margin on gross income
Latest Previous
(%) (%)

1 BBH Holdings 5.07 13.36
2 Bezier
Acquisitions -1.07 17.02
3 The Engine Group 9.91 2.36
4 Iris Nation
Worldwide -2.66 -1.47
5 Kinetic Worldwide
Group 28.14 23.11
6 Mother Holdings 6.81 5.65
7 The Imagination
Group -4.43 9.38
8 GyroHSR 1 -4.37 -2.06
9 Loewy Group -2.68 5.07
10 AKQA 8.98 1.68

Notes: 1 prev. Gyro International

This is the first year that the full effect of the economic downturn has been reflected within the results of the top 50 independent marketing services groups' results.

Gross income across the top 50 rose by less than 1 per cent compared with an increase of nearly 20 per cent in last year's survey - showing just how much growth has slowed as businesses were impacted throughout 2009 by the unprecedented global recession. Individually, 26 groups reported a decrease in gross income.

Encouragingly, 28 groups managed to make an operating profit exceeding £1million and a further six groups broke the £500,000 profit level. At this level of operating profit, groups are a very attractive acquisition target.

The average operating profit margin across the top 50 was 8.9 per cent, compared with 10.2 per cent in the comparative year. This is disappointing as it follows a decrease in the past two years. Seven groups generated an operating profit margin in excess of 25 per cent. However, eight groups reported an operating loss.

One feature of the businesses generating the highest margin is that they have generally contained staff costs effectively. Staff costs should absorb no more than 55 per cent of gross income, but this year the ratio worsened to 61.3 per cent. Individually, just 12 groups managed to contain this ratio to 55 per cent, and a further six contained it to within 60 per cent.

Of the ten agencies that achieved margins of 20 per cent or more, eight had managed to contain their staff costs to within 55 per cent of their income, highlighting the importance of this key performance indicator.

Productivity is measured by considering how much revenue is generated by each person within the business. In a well-run marketing services business, gross income per head of between £80,000 and £120,000 should be achievable. Overall, 31 groups were in or exceeded this target. On average, productivity decreased by 2 per cent to £85,437. Employment costs per head increased by 3 per cent to £52,408 per head. However, the 7.8 per cent per head decrease in non-staff costs was not enough to save operating profit per head from decreasing by 14 per cent to £7,641.

The top 50 independent groups failed to put the brakes on increasing employee numbers as income growth almost ground to a halt. This meant that the ratio of gross income spent on employment costs increased, causing a reduction in margins. This was the third year in a row that margins reduced and the second year in a row that they have been below 10 per cent. As an average, across 50 of the largest independent groups, this is disappointing. The independent groups need to find ways of working more efficiently with clients in order to improve margins going forward.

Esther Carder, partner, Kingston Smith W1

TOP TEN BY EMPLOYMENT COSTS PER HEAD

Rank Company name Latest Previous Change
(pounds) (pounds) (%)

1 Lowe & Partners 118,912 82,906 43.43
2 The Red Brick Road 111,609 109,568 1.86
3 CHI & Partners 89,218 85,447 4.41
4 JWT Group 83,829 80,435 4.22
5 Mother Advertising 83,384 90,858 -8.23
6 Wieden & Kennedy UK 80,256 77,930 2.98
7 Saatchi & Saatchi Group 77,518 80,708 -3.95
8 Euro RSCG London 75,988 75,513 0.63
9 Publicis 75,575 95,498 -20.86
10 Bartle Bogle Hegarty 73,160 70,489 3.79


BOTTOM TEN BY EMPLOYMENT COSTS PER HEAD

Rank Company name Latest Previous Change
(pounds) (pounds) (%)

41 Big Communications 44,740 35,750 25.15
42 Cheethambell JWT 43,276 41,195 5.05
43 ThinkBDW1 42,086 41,155 2.26
44 Robson Brown 41,202 38,581 6.79
45 Golley Slater Group 41,184 42,030 -2.01
46 Lawton Communications Group 37,553 36,524 2.82
47 TBWA\Manchester 36,059 39,650 -9.06
48 Bray Leino 35,691 35,041 1.86
49 Accord Group 33,351 33,359 -0.02
50 Brahm 32,484 34,353 -5.44
Notes: 1 prev. Bastin Day Westley


UK QUOTED GROUPS - HIGHEST-PAID DIRECTORS

Rank Group Director Latest Previous
(pounds (pounds
000s) 000s)

1 WPP Group1 Sir Martin Sorrell 2,705,000 3,544,000
2 Chime Communications Lord Bell 1,117,258 1,154,964
3 Aegis Group2 Jerry Buhlmann 974,000 2,325,000
4 Creston Plc Don Elgie 694,592 548,039
5 Huntsworth3 Lord Chadlington 673,000 646,000

Notes: 1 Includes £546k (previous £753k) worth of incentives
paid in shares 2 Includes deferred annual bonus of £334K (previous
£324K) 3 In 2009 Lord Chadlington was awarded a bonus of £449,250, which he has waived in full


HIGHEST-PAID INDEPENDENT AGENCY DIRECTORS

Rank Group Director Latest Previous Change
(pounds (pounds (%)
000s) 000s)

1 Abbott Mead Vickers BBDO undisclosed 708 615 15.12
2 Wieden & Kennedy UK undisclosed 647 606 6.77
3 Leo Burnett undisclosed 630 456 38.16
4 JWT Group undisclosed 584 514 13.62
5 Ogilvy & Mather
Group (Holdings) undisclosed 553 425 30.12
6 Bartle Bogle Hegarty undisclosed 525 935 -43.85
7 Advertising Principles
(Group) undisclosed 510 316 61.39
8 DDB UK undisclosed 502 468 7.26
9 CHI & Partners undisclosed 499 363 37.47
10 The Red Brick Road undisclosed 464 494 -6.07

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