NEWS: Ad slump nearly over, study says

A cautious confidence is returning to Britain’s recession-battered agencies with signs that profits are growing and more staff are being hired, according to recently published figures.

A cautious confidence is returning to Britain’s recession-battered

agencies with signs that profits are growing and more staff are being

hired, according to recently published figures.



However, the recovery remains fragile because of fierce competition in

an over-populated market. Agencies will have to work harder to justify

their expense to cost-conscious clients, the accountancy firm, Willott

Kingston Smith, warns.



The evidence of improving financial performance comes in Willott

Kingston Smith’s latest three-monthly monitor of the country’s top 50

agencies, based on results posted at Companies House.



They show a steady rise in operating profit per head, which has grown by

21 per cent since the last survey, suggesting healthier gross margins

and a further shift to fee-based income.



But this is still only 88 per cent of the level achieved during the boom

years of the mid-80s and takes no account of inflation.



Bob Willott, the firm’s managing partner, said agencies’ recovery was

being held back by the ongoing shift of media buying into media

independents and the continued attempts by clients to screw down

margins. ‘Agencies will have to continue working hard to justify what

they do because they’ve always been poor at extolling the value of their

work,’ he commented.



‘But agencies also feel things are a lot better, and those that were

worried two years ago now find themselves with much stronger levels of

income,’ Willott added.



The monitor suggests agencies have learned lessons from letting staff

costs run out of control, although it shows they have risen by 2 per

cent compared with an RPI increase of only 0.7 per cent.



The most likely explanation, according to Willott, is that agencies are

taking on more staff - particularly graduate trainees - as their

economic outlook improves.



The combined effect of this has been to virtually halt the rise in the

ratio of gross income per head to employment costs per head, which,

using the firm’s own scale, stood at 190 in 1985 and has only moved by

0.6 to 193.9 in the past three months.



The monitor also predicts that the recovery could spark a fresh round of

merger activity. ‘I know of a number of big players who are looking to

acquire agencies,’ Willott added.



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