PERSPECTIVE: Account reports are strong indicators of top takeover targets

Looking at a company's annual accounts is like peeking into someone's underwear drawer. There's the sweet illicit pleasure of rifling through the silky bits on top, but you can bet you'll find some grey nasties lurking at the bottom.

Looking at a company's annual accounts is like peeking into someone's underwear drawer. There's the sweet illicit pleasure of rifling through the silky bits on top, but you can bet you'll find some grey nasties lurking at the bottom.

The silky bits from this year's Willott Kingston Smith survey on ad agencies' financial performance are really rather spectacular. Take salaries: top directors continue to take big pats on the back in the form of big wads in their back pockets. No prizes for guessing that Martin Sorrell lugged home a hefty pounds 1.3 million, virtually static on last year. Don't panic; as WKS points out, Sorrell holds share options and other prospective awards under long-term incentive schemes worth the best part of pounds 120 million.

Saatchi & Saatchi's Kevin Roberts is also doing pretty well on pounds 1.3 million, and Cordiant's Michael Bungey is clearly doing something right, with a 43 per cent increase in remuneration to a tad over pounds 1 million. And who's got the biggest packet in media? Media Planning's Bob Offen who, nevertheless, saw it shrink from pounds 981,000 to pounds 651,000.

But that pales in comparison with the wad snared by Aegis's former chief executive Crispin Davis, who trousered pounds 12.3 million by cashing in 9.4 million share options when he resigned last year (if he'd hung around he would have been eligible for 11.7 million new share options). The industry's average cost of an employee is pounds 37,543.

Young & Rubicam blew pounds 7 million on premises and equipment at a time when it had failed to generate any cash from trading. When it comes to debt collection, if Aegis could get its 50 days down to match WPP's sterling 30 days, it could enjoy an extra pounds 262 million; Banks Hoggins O'Shea/FCB lumbered with a debt collection period of 142 days.

The tatty grey items, which their owners would probably prefer to keep hidden under their skirts, include Saatchis' -pounds 7,941 operating profit per head, BDDP GGT's pounds 17,369 employment costs per head and Y&R's 'indescribably poor' margins. Then there are the eye-watering pre-tax losses at Omnicom Europe (-pounds 3.7 million) and Grey (-pounds 2.1 million).

It's fascinating stuff, and the full report is available direct from WKS. But where does it get us? Well, the overall industry prognosis is pretty damn rosy. Operating profits leapt ahead, pre-tax profits were up by more than 20 per cent, and operating profit margins crept up to 12 per cent. The best trading performance for a decade, apparently.

If you're St Luke's or M&C Saatchi, though, the real answer to the question 'where does it get us?' is probably pretty high up on the multinationals' shopping list. Both agencies are that rare commodity: independent groups whose profits top pounds 1 million. In a market consolidating as rapidly as this one, calculators are, no doubt, being flexed.

Agency performance league, p36

claire.beale@haynet.com.