Special Report: Direct Marketing - DM's profitability paradigm

The latest league table of direct marketing agencies, covering 2002-3, shows a few outfits outperforming the market against a sector down overall.

DIRECT MARKETING AND SALES PROMOTION - TOP 40 AGENCIES RANKED BY GROSS

INCOME

Rank Company name Year end Gross income

Latest Change %

pounds m

1 WWAV Rapp Collins 31/12/02 27.5 18.8

2 Proximity London 31/12/02 23.5 37.6

3 EHS Brann 31/12/02 21.7 4.1

4 Carlson Marketing Group 31/12/03 21.7 -17.5

5 TBWA\GGT 31/12/03 15.9 -10.3

6 ARC Integrated Marketing 31/12/02 14.0 -3.0

7 Joshua Agency 30/09/03 13.9 13.2

8 Draft Worldwide 31/12/02 13.5 -0.2

9 Brann 31/12/02 13.3 -45.3

10 The Marketing Store

Worldwide 31/12/01 11.4 5.3

11 Tequila London 31/12/03 11.2 0.6

12 Haygarth Group 31/12/02 11.1 -25.6

13 The Triangle Group 31/12/03 11.1 -10.4

14 KLP 31/12/03 10.2 -10.4

15 Dialogue Marketing

Partnership 31/12/03 9.6 24.6

16 Tullo Marshall Warren 31/12/02 8.9 9.0

17 G.H.A. Holdings 31/03/03 8.7 1.9

18 Craik Jones Watson

Mitchell Voelkel 31/12/02 8.4 20.4

19 Claydon Heeley Jones Mason 31/12/02 8.1 2.9

20 Rapier 31/12/03 7.9 30.5

21 Finex Communications Group 28/02/03 7.8 -5.3

22 Black Cat Agency 31/12/03 7.5 -20.0

23 Chemistry Communications

Group 30/11/03 6.4 44.5

24 Clark McKay & Walpole 31/12/02 6.1 25.1

25 DraftWorldwide London 31/12/02 6.1 -13.7

26 Marketing Drive 31/12/02 5.7 1.4

27 Billington Cartmell 31/12/02 5.6 43.6

28 Tri-Direct 30/11/02 5.5 28.9

29 Logistix 31/12/02 5.2 32.5

30 Publicis Dialog 31/12/02 4.8 4.8

31 Dynamo Marketing 28/02/03 4.8 -13.4

32 WWAV Rapp Collins North 31/12/02 4.7 -6.6

33 Exposure Promotions 31/12/02 4.2 53.5

34 Lowe Broadway 31/12/02 3.9 -11.1

35 Iris Promotional Marketing 31/12/02 3.3 61.9

36 Perspectives Red Cell 31/12/02 3.2 -50.6

37 WWAV Rapp Collins Scotland 31/12/02 3.2 -20.9

38 LIDA 31/12/02 3.1 12.3

39 Mercier Gray 1 30/04/02 2.9 33.6

40 Cramm Francis Woolf 31/12/02 2.7 -15.0

Rank Company name Turnover Pre-tax profit

Latest Change % Latest Change %

pounds m pounds

'000

1 WWAV Rapp Collins 77.8 22.7 5.342 8.8

2 Proximity London 50.0 21.5 4.589 1.214.9

3 EHS Brann 39.6 13.6 2.223 0.3

4 Carlson Marketing Group 39.2 -13.3 -311 -123.5

5 TBWA\GGT 29.1 4.1 1.373 -42.9

6 ARC Integrated Marketing 29.5 10.0 558 -67.6

7 Joshua Agency 23.2 -15.1 382 42.5

8 Draft Worldwide 24.7 -6.0 -13.808 -883.2

9 Brann 41.9 -33.9 3.253 179.8

10 The Marketing Store

Worldwide 23.4 13.4 -943 -73.0

11 Tequila London 21.8 -2.2 1.464 -12.5

12 Haygarth Group 20.7 -21.4 912 -80.8

13 The Triangle Group 20.4 -6.4 1.674 -42.2

14 KLP 21.2 -15.5 -1.345 -186.5

15 Dialogue Marketing

Partnership 18.1 6.0 4.435 48.4

16 Tullo Marshall Warren 14.2 12.0 545 164.6

17 G.H.A. Holdings 18.9 -9.1 -153 -132.5

18 Craik Jones Watson

Mitchell Voelkel 15.2 10.6 2.097 120.7

19 Claydon Heeley Jones Mason 13.4 10.9 1.633 330.0

20 Rapier 9.0 39.6 1.338 29.5

21 Finex Communications Group 11.8 -13.3 2.402 -24.6

22 Black Cat Agency 10.6 -25.4 1.867 -14.5

23 Chemistry Communications

Group 11.2 65.0 -487 -52.7

24 Clark McKay & Walpole n/a n/a 605 57.6

25 DraftWorldwide London 8.4 -44.7 -775 -174.7

26 Marketing Drive 9.2 2.7 -1.853 -1.119.1

27 Billington Cartmell n/a n/a 185 160.6

28 Tri-Direct 37.8 8.7 1.326 90.2

29 Logistix 19.0 39.1 605 2.340.7

30 Publicis Dialog 9.3 -29.9 1.176 149.2

31 Dynamo Marketing 12.4 9.3 2.731 94.1

32 WWAV Rapp Collins North 8.6 -4.2 1.371 -6.5

33 Exposure Promotions n/a n/a 178 -39.5

34 Lowe Broadway 17.3 -6.0 55 -88.7

35 Iris Promotional Marketing n/a n/a 851 186.5

36 Perspectives Red Cell 6.7 -42.2 -2.440 -284.4

37 WWAV Rapp Collins Scotland 9.2 -19.8 537 -35.6

38 LIDA 6.4 21.6 543 -33.5

39 Mercier Gray 1 n/a n/a 95 320.9

40 Cramm Francis Woolf n/a n/a 21 -91.4

Rank Company name Employment costs Operating profit as

per employee a % of gross income

Latest Change % Latest % Change %

pounds

'000

1 WWAV Rapp Collins 51.6 6.9 19.1 -6.5

2 Proximity London 52.1 -3.2 18.8 1.048.8

3 EHS Brann 43.2 -1.1 9.6 -14.0

4 Carlson Marketing Group 33.8 6.2 2.3 -57.3

5 TBWA\GGT 53.6 0.2 7.8 -38.6

6 ARC Integrated Marketing 43.1 1.1 4.0 -66.6

7 Joshua Agency 56.6 19.8 1.7 21.8

8 Draft Worldwide 46.7 2.9 24.9 4.1

9 Brann 25.2 -9.2 2.6 -66.6

10 The Marketing Store

Worldwide 39.9 7.3 0.0 108.0

11 Tequila London 54.0 5.8 11.5 -13.0

12 Haygarth Group 42.4 0.9 8.8 -72.6

13 The Triangle Group 52.0 7.2 14.2 -38.1

14 KLP 35.6 -5.5 9.2 -40.6

15 Dialogue Marketing

Partnership 42.3 0.1 44.6 19.2

16 Tullo Marshall Warren 56.6 2.2 5.9 163.1

17 G.H.A. Holdings 42.7 6.9 -0.4 -105.6

18 Craik Jones Watson

Mitchell Voelkel 63.1 -6.0 23.9 24.3

19 Claydon Heeley Jones Mason 58.9 16.3 24.0 450.3

20 Rapier 67.1 17.8 16.6 0.0

21 Finex Communications Group 58.0 13.1 30.7 -18.6

22 Black Cat Agency 52.0 0.3 22.7 3.2

23 Chemistry Communications

Group 51.4 8.5 3.1 172.5

24 Clark McKay & Walpole 54.1 3.4 8.8 47.6

25 DraftWorldwide London 43.8 3.3 0.5 -96.4

26 Marketing Drive 30.5 -40.8 -4.8 -41.2

27 Billington Cartmell 92.4 49.9 3.1 384.6

28 Tri-Direct 57.8 18.8 24.5 66.7

29 Logistix 47.3 27.2 19.9 1.279.8

30 Publicis Dialog 62.5 7.8 24.4 136.6

31 Dynamo Marketing 40.4 -2.4 58.0 131.0

32 WWAV Rapp Collins North 37.0 -11.1 28.3 4.6

33 Exposure Promotions 43.8 52.4 11.8 -27.4

34 Lowe Broadway 37.4 1.5 4.3 -67.4

35 Iris Promotional Marketing 48.6 0.1 24.9 86.9

36 Perspectives Red Cell 43.9 14.6 -76.4 -465.8

37 WWAV Rapp Collins Scotland 39.9 -2.5 16.2 -15.9

38 LIDA 78.2 30.9 17.5 -40.8

39 Mercier Gray 1 45.6 26.6 5.6 1.027.1

40 Cramm Francis Woolf 44.6 1.1 0.2 -96.6

Rank Company name Employees Gross income per head

Latest no. Latest Change %

pounds

'000

1 WWAV Rapp Collins 260 105.7 11.5

2 Proximity London 267 88.0 7.7

3 EHS Brann 267 81.3 2.2

4 Carlson Marketing Group 409 53.0 -4.3

5 TBWA\GGT 186 85.2 -7.4

6 ARC Integrated Marketing 156 89.6 2.5

7 Joshua Agency 190 73.2 19.2

8 Draft Worldwide 158 85.3 1.1

9 Brann 841 37.1 -6.0

10 The Marketing Store

Worldwide 162 70.6 4.0

11 Tequila London 130 85.8 -8.7

12 Haygarth Group 151 73.7 -25.1

13 The Triangle Group 129 85.8 -2.1

14 KLP 144 70.8 1.4

15 Dialogue Marketing

Partnership 92 104.2 13.8

16 Tullo Marshall Warren 116 76.2 3.3

17 G.H.A. Holdings 145 59.7 1.9

18 Craik Jones Watson

Mitchell Voelkel 63 132.8 12.7

19 Claydon Heeley Jones Mason 74 110.1 57.2

20 Rapier 75 106.0 16.6

21 Finex Communications Group 72 108.4 -14.5

22 Black Cat Agency 79 94.7 4.3

23 Chemistry Communications

Group 88 72.4 18.2

24 Clark McKay & Walpole 73 83.3 4.6

25 DraftWorldwide London 90 67.4 -13.7

26 Marketing Drive 71 80.0 12.9

27 Billington Cartmell 51 109.7 43.6

28 Tri-Direct 58 94.931 22.2

29 Logistix 47 109.660 26.9

30 Publicis Dialog 40 120.7 23.2

31 Dynamo Marketing 56 85.8 25.3

32 WWAV Rapp Collins North 62 76.2 -12.6

33 Exposure Promotions 69 60.7 29.1

34 Lowe Broadway 106 48.5 -38.8

35 Iris Promotional Marketing 36 92.5 16.9

36 Perspectives Red Cell 67 15.8 -25.7

37 WWAV Rapp Collins Scotland 45 70.6 -8.6

38 LIDA 25 123.9 -1.2

39 Mercier Gray 1 39 74.4 26.7

40 Cramm Francis Woolf 44 61.3 -7.3

Source: Willott Kingston Smith 2004 survey "Financial Performance of

Marketing Services Companies" Notes: 1. Liquidatiors called in at

Mercier Gray w/c 22 November 2004.

At first glance it's hard to come up with a wholly positive view of the performance of the top direct marketing and sales promotion agencies in the latest league table. The combined pre-tax profit of the 40 largest agencies has plummeted by more than 40 per cent and gross income has dropped by 0.5 per cent. In short. the UK's largest below-the line-agencies are making a lot less profit from a slightly smaller pot of income.

But this somewhat bleak prognosis does not reflect the most up-to-date picture. The first important point to make is that this year's league table. compiled by Willott Kingston Smith. covers accounts filed at Companies House in either 2002 or 2003. Most agencies are ranked according to their 2002 figures. a year which saw many agencies experience a flattening-off of business. post-11 September.

Some. such as Carlson Marketing Group. with its heritage in the travel and leisure sectors. suffered more than others. It lost the British Airways account and saw other accounts scaled back. resulting in its demotion from the top of last year's league table to fourth position. Its 2003 gross income was down 17.5 per cent and the group's pre-tax profit slumped into the red after a 123 per cent drop on 2002 figures.

The second point to make is that there are some absences from the table - most notably OgilvyOne. McCann Relationship Marketing and Harrison Troughton Wunderman. part of WPP's Young & Rubicam. This is partly because their accounts are filed at group level. rather than on an operating company basis. and partly because of the US Sarbanes-Oxley legislation covering the release of financial information.

And while the overall health of the below-the-line industry in 2002/2003 gave direct marketers little cause for cheer. there were plenty of individual success stories. Proximity London. for example. saw its income grow by 37 per cent. boosted by the absorption of the sales promotion agency Clarke Hooper and the digital agency Traffic in December 2001.

Iris enjoyed the biggest leap in gross income. up 62 per cent. The agency has continued along this growth curve since. with staff numbers having jumped to 132 from just 36 in 2002.

Meanwhile. the UK's largest independent direct marketing agency. Tullo Marshall Warren. moved up from 21st to 16th position. fuelled by new-business wins in 2002 including assignments for Coca-Cola. Tesco. Morgan Stanley and Diageo. Tullo Marshall Warren also counts British Airways as one of its top-five clients after the airline consolidated its agency relationships and folded Executive Club into TMW.

WWAV Rapp Collins now sits at the top of the table and is one of only ten agencies in the top 40 to boast a gross income of more than £100.000 per head. Chris Gordon. the WWAV Rapp Collins group chairman. says the agency's investment in its consultancy division. Zalpha. and its digital business contributed to growth in 2002. But he adds that the market began to tail off at the back end of that year.

"At the end of 2002 and going into 2003 it started to get tougher. Both the financial services and charity sectors were spending less." Gordon says.

Little wonder. then. that of the 13 agencies in the league table ranked according to 2003 figures. more than half saw their turnover drop. If this trend is reflected across the board. next year's figures are unlikely to show any dramatic improvement in the health of the industry. But results could pick up in 2004 and 2005. if the current spate of pitches is anything to go by.

"It's the busiest it has been for several years." Gordon says. "There are some quite significant new-business prospects around. as well as some good international opportunities."

Jonathan Clark. the chairman of Clark McKay & Walpole. agrees. "We've got five pitches on right now. which isn't bad for a medium-sized agency." he says. Now merged with the mini-conglomerate Media Square. it is getting cross-referrals. Clark says.

The business environment might well be picking up. but the below-the-line industry still needs to work hard to improve its profit margins. Cliff Ireton. a partner at Willott Kingston Smith. says. "There has been a huge improvement in profit margins in advertising. up from 8.8 per cent to 13 per cent. Media buyers have stayed the same. However. DM has fallen from 13.2 to 12.4 per cent. making it the least profitable of all the disciplines in terms of its margins." he adds.

The profit margin of a well-run agency should be between 15 per cent and 20 per cent. WKS believes. This year's league table includes new figures showing operating profit as a percentage of gross income and revealing that only 17 agencies can boast profit margins of more than 15 per cent.

This is not necessarily a function of size. Apart from WWAV and Proximity. the two Omnicom-owned market leaders. including the former's North and Scottish subsidiaries. there is a clutch of agencies in the middle and bottom parts of the table by size all reporting decent margins: they include well-known names like Dialogue. Craik Jones and Claydon Heeley. as well as the likes of Logistix and LIDA.

One anomaly in the table is the Havas-owned Brann brand. which has two entries: the digital and direct agency EHS Brann. at number three. and Brann. at number nine. which handles lower-margin activity such as print. fulfilment and contact-centre operations from its Cirencester base. Future league tables will show a single merged entity.

One of the keys to future growth and prosperity. observers believe. is likely to be in the convergence of data mining and manipulation with research and digital marketing. Focus on this area will allow agencies to get out of the increasingly commoditised implementation activities into value-added. higher margin business.

Most of the big agencies - WWAV. Proximity. EHS Brann and TBWA\GGT. for example - are already well advanced in this field. But they may face a threat in the future from media agencies who are increasingly attempting to muscle their way into this field. Nonetheless. with a tough 2002-3 behind it. there's definitely a feeling of optimism in the air.

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