Report fears for industry growth Willott report

The faltering economic recovery among Britain’s agencies is threatening to grind to a halt as profit margins fail to increase and rival marketing services lay siege to business.

The faltering economic recovery among Britain’s agencies is

threatening to grind to a halt as profit margins fail to increase and

rival marketing services lay siege to business.



The verdict is delivered by the accountancy firm, Willott Kingston

Smith, and will come as a blow to those who believe the industry is

staging a post-recession comeback.



Although agency profits have shown modest increases, this is due to

tight controls on operating costs rather than billings increases, which

remain minimal, according to the firm’s report.



Bob Willott, a partner at Willott Kingston Smith, said: ’The results

show that the recovery is still very patchy, with some agencies doing

well while others are frustrated about not making the profits that their

efforts justify.’



To make matters worse, agencies are losing ever greater slices of their

clients’ marketing budgets to direct marketing specialists and media

independents.



’The changes presumably reflect clients’ perceptions of their needs and

the consequential allocation of resources between different marketing

sectors,’ the report says.



The predicament in which agencies find themselves is starkly illustrated

by the meagre average increase in operating margin on gross income,

which rose from 4.7 per cent to 4.9 per cent between May 1995 and

September 1996.



The report welcomes the increase, but points out that it hardly stands

comparison with the mid-80s, when agencies delivered double-figure

margins. Today, only 40 per cent of the top 50 agencies record margins

in double figures, it says.



A positive by-product of the harsh economic climate has been the higher

productivity of agency staffers, gross income per head having risen by

2.5 per cent in the four months to last September.



In real terms, profits earned per head by agencies are only 63 per cent

of those 11 years ago, the report concludes.



’The increase in below-the-line activity suggests clients want to target

markets more accurately and cost effectively,’ it adds. ’In some cases

the clients are also treating direct marketing agencies as their first

point of call for a wider range of services, sometimes including

advertising.



In addition, media independents continue to win work from agencies.’



The downside is that agency profits per head - which stood at 100 on the

firm’s index in 1985 - should now be 156.3 if they had kept pace with

inflation rather than 98.



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