Every year the figures look better and every year it is tempting to
say that the advertising industry has recovered from the recession.
But the relief may be premature. There are better profits, more staff
and yet, after adjusting for inflation, agencies are still not
generating as much profit per head as they did a decade ago.
One reason for the tougher trading climate is the more demanding nature
of clients. Agencies have to work harder to please their paymasters who
want more for their money. This is the message to emerge from the annual
performance survey of the top 50 advertising agencies prepared by
Willott Kingston Smith using figures taken from audited accounts filed
at Companies House.
The survey performs several roles. One is to give an overall view of
what is happening to major UK ad agencies.
Another is to provide instant data on any of these agencies. As the
tables stick to fundamental ratios based on income, profits and
employees, even people who are balance-sheet illiterate can see at a
glance from these tables whether an agency is doing well or badly.
Four companies from last year’s survey are not included. Kevin Morley
Marketing and CM Lintas were transferred during the year to Ammirati
Puris Lintas, as was Laing Henry to Saatchi & Saatchi. Maher Bird
Associates has not filed new accounts since last year’s survey and,
based on gross income, the agency does not make the top 50.
St Luke’s and M&C Saatchi appear for the first time as they have both
filed accounts for their first year of trading. M&C Saatchi clocked up a
pre-tax loss of pounds 642,000, although the agency reported reasonable
levels of turnover and gross incomes that were inevitably wiped out by
set-up and borrowing costs.
A few overall figures - gross income earned by the top 50 agencies has
risen by 9.8 per cent year on year and operating profits rose by an
impressive 22.5 per cent as overheads were kept in check. However,
operating profit margins could average only 6.3 per cent (4.9 per cent
last year) compared with an industry target of 15 per cent. Large rises
in gross income were seen at Young & Rubicam, Abbott Mead Vickers BBDO,
DMB&B, Bartle Bogle Hegarty (aided by growth in the Asia Pacific region
where the agency has opened a Singapore office) and the Ogilvy group.
They all added at least pounds 4 million to their income.
In general, London agencies could pick up some tips from the part or
wholly foreign-owned shops. After years of unexciting performances, some
of these are now at or near the top of the efficiency tables. Companies
such as BST-BDDP, Publicis and Euro RSCG have taken over the running
with profit margins of 17 per cent or more and above-average
productivity. Meanwhile some UK agencies - notably GGT, whose parent
company bought the French-owned BDDP in 1996 - are less impressive.
GGT Advertising (the London agency, that is) is quick to point out that
it suffers unfairly at the hands of the group’s number crunchers.
Although the agency’s accounts show an operating profit of pounds
273,000 they reckon that is after bearing nearly pounds 600,000 of head
office costs relating to surplus premises. GGT argues that the agency’s
’true’ results would have registered a pre-tax profit of about pounds
1.3 million.
Even so, the next accounts are expected to be bleaker, showing a pre-tax
loss at the London agency after suffering central costs of pounds 1
million for surplus accommodation and a new management charge.
The group’s BDDP acquisition has not been without its financial
blood-letting either. Nearly pounds 2.3 million has been spent on
reorganising the group, including the integration of the below-the-line
outfits, Tequila/Option One. A further pounds 1.4 million was spent on
acquisition and related administration.
On top of all that, a final price of pounds 4.4 million has been paid
for the unsuccessful excursion into Europe on the back of the old GGK
network, in the form of a goodwill write-off.
Grey has also reviewed how it presents its figures. The figures shown
here relate to its principal agency, Grey Advertising, while smaller
firms within the group including Greycom, the (now defunct) Chelsea
Partnership and the Art Company (studio) are also in advertising-related
activities. Sensibly, all these units, which would have added pounds
768,000 to last year’s profits, are to be combined into a single figure
from October 1996.
Nonetheless, Grey’s future may not be quite as bright as it appears.
The agency’s accounts don’t mention the pay packets of senior directors
like the chairman, Roger Edwards, whose salary is paid by a UK holding
company. In fact, more than pounds 1.6 million left the group in this
way and there must have been other group costs on top because the UK
holding company alone reported a loss of pounds 6.8 million.
As usual, the performance statistics of agencies that are part of larger
groups do not always tally with those claimed by the parent
companies.
Management charges, allocation of revenue from multinational clients and
tax considerations all muddy the water, and no more so than for the
Cordiant subsidiaries, which show losses here (Saatchi & Saatchi’s
operating profit down more than 11,722 per cent, for example), while the
parent company swears blind that the UK agencies were profitable. Of the
Cordiant agencies, only Bates Dorland has filed 1996 accounts which
showed a loss of pounds 2.6 million. KHBB, of course, merged with
Saatchis in 1996 and consequently will disappear from the survey next
year.
It’s fair to assume that plenty of balance-sheet gymnastics have gone on
at Cordiant for tax or other reasons - notwithstanding the need to
unravel the finances of the Bates and Saatchi networks in advance of the
demerger.
Not every company is allowed to play such games under new rules. For
instance, subsidiaries of privately-owned groups such as DMB&B now have
to disclose amounts paid between group companies and what they were
for.
WPP’s main agencies, the Ogilvy Group and J. Walter Thompson, also have
their individual figures distorted by group arrangements. The Ogilvy
Group, unlike the previous year, recorded a pounds 53.5 million pre-tax
profit, mainly because of a profit of more than pounds 40 million from
selling its stake in WPP Holdings Spain to WPP Group Holdings. A more
realistic measure of O&M’s group performance is in the operating profit
league table (not shown here) where it is ranked eighth most
profitable.
By giving the figures a good shaking, WKS comes up with two key ways of
measuring ad agency health: operating profit margin and profit per head.
Both have improved over the past year. Operating profits of the top 50
agencies are running at 6.3 per cent of gross income (1985, 10.3 per
cent) and operating profit per head is averaging pounds 4,858 (1985,
after adjustment for inflation, pounds 5,735).
Finally, a few snippets on the industry high-rollers. Overall,
directors’ salaries rose 3 per cent, compared with 9 per cent last year.
This year’s highest-paid director was McCanns’ chairman, David Warden,
who earned pounds 663,000. Second highest was at Ammirati Puris Lintas
where the unnamed highest-paid director (Terry Rosenquist?) pocketed
pounds 548,964, a 179 per cent increase on last year. The largest pay
rise went to third-placed Alasdair Ritchie of TBWA, who earned pounds
483,788 in the year, compared with pounds 143,785 earned by the previous
highest-paid director at TBWA.
Apart from these three, there are now ten agencies where the
highest-paid director earned more than pounds 300,000. The others are:
WCRS, Lowe Howard-Spink, Bartle Bogle Hegarty, J. Walter Thompson,
Leagas Delaney, BMP and DMB&B.
Of the top 50 agencies, 42 companies achieved pre-tax profits. DMB&B and
Collett Dickenson Pearce both recorded pre-tax profits of more than
pounds 1.5 million compared with a similar loss previously, and Young &
Rubicam reported a profit for the first time in several years. An
operating profit margin on gross income of 15 per cent represents,
according to WKS, a target that most well-run agencies should be capable
of achieving. Twelve companies hit the target this year, compared with
15 last year, and three companies entering the group are Simons Palmer
Clemmow Johnson (before the TBWA merger), Euro RSCG and Arc. Euro RSCG,
in particular, had a stonking year (its figures relate to 1995). By
increasing its income by 24 per cent the agency, run by Brett Gosper and
a solid management team, now enjoys profit margins similar to those of
top performers like its stablemate, WCRS. Duckworth Finn also did well,
increasing income while maintaining margins and establishing its
financial credentials after eight years in the business.
Although WKS reports that the survey reflects trends accurately, it
acknowledges that advertising groups can distort the results of their
subsidiaries by the judicious use of management charges that enable the
group to report profits where they are most tax effective. GGT’s
managing director, Grant Duncan, would argue that his agency is a victim
of this (see main copy) although we cannot let its profit slump (30 per
cent) and that of its Manchester stablemate, BDH (28 per cent), go
unremarked.
In a reversal of the trend of the past two years, the regional shops
have not performed as well as the sector as a whole. This is mainly
because of poor showings from the Brahm Agency and Cogent Elliott, which
closed its London office during the year.
Drops in gross income per head were recorded, among others, by HHCL &
Partners and Banks Hoggins O’Shea, although Banks Hoggins’ drop may be
because of the staff numbers in BRAD being incorrect: the agency does
not file this information in contravention of the Companies Act.
The Financial Performance of Marketing Services Companies is available
for pounds 175 from Willott Kingston Smith Associates, 10 Bruton Street,
London W1X 7AG, telephone 0171-304 4646
Top 50 agencies
Rank Rank Agency Year end Gross Change
lat- prev- income %
est ious pounds m
1 2 The Ogilvy Group (Holdings) 31.12.96 51.591 8.41
2 3 Young & Rubicam Group 31.12.95 50.760 16.36
3 1 Saatchi & Saatchi Group 31.12.95 48.688 -3.57
4 4 J. Walter Thompson Group 31.12.95 39.909 7.49
5 6 BMP DDB Needham Worldwide 31.12.96 33.092 11.95
6 7 DMB&B 31.12.96 32.747 17.12
7 8 McCann-Erickson Advertising 31.12.96 31.370 10.36
8 5 Abbott Mead Vickers BBDO 31.12.95 30.120 24.50
9 9 Bates Dorland 31.12.96 27.919 0.23
10 11 Bartle Bogle Hegarty 30.06.96 25.184 20.86
11 10 Lowe Howard-Spink 31.12.95 23.626 8.20
12 12 Leo Burnett 31.12.95 21.304 2.68
13 13 Publicis 31.12.95 17.610 -5.91
14 17 Ammirati Puris Lintas 31.12.95 15.606 33.74
15 16 Austin Knight Group 30.09.96 14.248 12.06
16 15 WCRS 31.12.96 13.970 -0.65
17 14 Grey Advertising 30.09.96 13.682 -6.70
18 18 Euro RSCG 31.12.95 13.079 24.14
19 19 McCann-Erickson Manchester 31.12.95 9.717 13.50
20 21 The Leagas Delaney Partnership 31.12.96 9.202 14.71
21 20 HHCL & Partners 31.12.95 8.791 7.77
22 23 GGT Advertising 30.04.96 8.096 12.57
23 22 Collett Dickenson Pearce 31.12.95 7.501 1.58
24 27 BST-BDDP 31.12.96 6.923 16.39
25 - M&C Saatchi 31.12.95 6.661 -
26 25 KHBB 31.12.95 6.434 -14.10
27 28 TBWA 31.12.95 6.308 17.25
28 26 FCB Advertising 31.12.95 6.191 37.82
29 30 BDH Advertising 30.04.96 5.601 12.20
30 36 Delaney Fletcher Bozell 31.12.95 4.813 39.22
31 35 Griffin Bacal 31.12.96 4.231 15.98
32 46 Arc International Advertising 31.12.95 4.125 75.83
33 33 Mellors Reay & Partners 30.09.96 4.115 6.86
34 38 Clark & Taylor Advertising 31.07.96 4.035 27.69
35 32 Simons Palmer Clemmow Johnson 30.06.96 3.953 20.08
36 31 Advertising Principles 31.03.97 3.702 23.48
37 40 BDDH 31.12.96 3.619 25.22
38 37 Leagas Shafron Davis 31.12.95 3.447 8.70
39 - St Luke’s 31.12.96 3.301 -
40 48 Burkitt Edwards Martin 31.03.96 3.262 49.09
41 43 Duckworth Finn Grubb Waters 30.09.96 3.223 26.74
42 41 Faulds Advertising 31.12.95 3.212 15.91
43 - The Morgan Partnership 31.01.96 3.185 24.17
44 29 Cogent Elliott 31.12.96 3.176 -21.25
45 45 Banks Hoggins O’Shea 31.08.96 2.919 19.68
46 44 Roose & Partners 30.09.96 2.824 11.44
47 39 Lansdown Conquest 31.12.95 2.658 -14.34
48 34 The Brahm Agency 31.07.96 2.328 -37.72
49 - Mustoe Merriman Herring Levy 30.06.96 2.282 53.05
50 47 Warman & Bannister 31.12.95 2.262 -3.33
Rank Rank Agency Operating Change Operating
lat- prev- profit % profit
est ious pounds m margin %
1 2 The Ogilvy Group (Holdings) 3.038 5.67 5.89
2 3 Young & Rubicam Group 1.936 164.66 3.81
3 1 Saatchi & Saatchi Group -10.693 -11722.83 -21.96
4 4 J. Walter Thompson Group 0.172 -56.12 0.43
5 6 BMP DDB Needham Worldwide 4.606 18.13 13.92
6 7 DMB&B 3.766 209.20 11.50
7 8 McCann-Erickson Advertising 2.819 38.59 8.99
8 5 Abbott Mead Vickers BBDO 6.119 23.49 20.32
9 9 Bates Dorland -1.980 32.21 -7.09
10 11 Bartle Bogle Hegarty 3.366 1.42 13.37
11 10 Lowe Howard-Spink 4.555 -6.89 19.28
12 12 Leo Burnett -1.598 -255.11 -7.50
13 13 Publicis 3.441 -12.53 19.54
14 17 Ammirati Puris Lintas 0.271 29.05 1.74
15 16 Austin Knight Group 3.583 6.42 25.15
16 15 WCRS 2.998 11.82 21.46
17 14 Grey Advertising 1.693 121.89 12.37
18 18 Euro RSCG 2.224 221.39 17.00
19 19 McCann-Erickson Manchester 1.491 11.69 15.34
20 21 The Leagas Delaney Partnership 0.408 49.45 4.43
21 20 HHCL & Partners 1.531 -29.96 17.42
22 23 GGT Advertising 0.273 -41.29 3.37
23 22 Collett Dickenson Pearce 0.565 141.0 7.53
24 27 BST-BDDP 2.065 46.45 29.83
25 - M&C Saatchi -0.511 - -7.67
26 25 KHBB -3.149 -20.10 -48.94
27 28 TBWA 0.836 48.23 13.25
28 26 FCB Advertising 0.801 269.34 12.94
29 30 BDH Advertising 0.392 -35.21 7.00
30 36 Delaney Fletcher Bozell 0.189 268.75 3.93
31 35 Griffin Bacal 0.563 1182.69 13.31
32 46 Arc International Advertising 0.651 251.89 15.78
33 33 Mellors Reay & Partners 0.510 3542.86 12.39
34 38 Clark & Taylor Advertising 0.026 -94.13 0.64
35 32 Simons Palmer Clemmow Johnson 0.794 97.51 20.09
36 31 Advertising Principles 0.313 67.38 8.45
37 40 BDDH 0.448 768.66 12.38
38 37 Leagas Shafron Davis 0.050 -77.78 1.45
39 - St Luke’s 0.266 - 8.06
40 48 Burkitt Edwards Martin 0.138 159.48 4.23
41 43 Duckworth Finn Grubb Waters 0.556 34.30 17.25
42 41 Faulds Advertising 0.474 -8.67 14.76
43 - The Morgan Partnership 0.245 315.25 7.69
44 29 Cogent Elliott 0.077 107.94 2.42
45 45 Banks Hoggins O’Shea 0.384 89.16 13.16
46 44 Roose & Partners 0.139 93.06 4.92
47 39 Lansdown Conquest 0.065 -41.44 2.45
48 34 The Brahm Agency 0.146 -81.35 6.27
49 - Mustoe Merriman Herring Levy 0.085 -64.14 3.72
50 47 Warman & Bannister 0.069 -22.47 3.05
Rank Rank Agency Employment Change
lat- prev- cost %
est ious pounds m
1 2 The Ogilvy Group (Holdings) 21.463 -1.06
2 3 Young & Rubicam Group 25.144 0.53
3 1 Saatchi & Saatchi Group 26.854 5.66
4 4 J. Walter Thompson Group 22.051 17.43
5 6 BMP DDB Needham Worldwide 17.927 13.83
6 7 DMB&B 16.861 3.17
7 8 McCann-Erickson Advertising 16.861 10.91
8 5 Abbott Mead Vickers BBDO 14.290 42.49
9 9 Bates Dorland 14.986 3.86
10 11 Bartle Bogle Hegarty 13.466 26.33
11 10 Lowe Howard-Spink 10.198 10.24
12 12 Leo Burnett 10.856 8.43
13 13 Publicis 8.317 0.31
14 17 Ammirati Puris Lintas 7.410 39.63
15 16 Austin Knight Group 15.412 14.51
16 15 WCRS 8.049 0.26
17 14 Grey Advertising 7.921 3.04
18 18 Euro RSCG 6.513 21.67
19 19 McCann-Erickson Manchester 5.374 17.95
20 21 The Leagas Delaney Partnership 4.893 12.30
21 20 HHCL & Partners 4.353 15.01
22 23 GGT Advertising 4.431 15.60
23 22 Collett Dickenson Pearce 4.310 6.60
24 27 BST-BDDP 2.903 4.76
25 - M&C Saatchi 3.445 -
26 25 KHBB 2.934 -34.29
27 28 TBWA 3.421 22.44
28 26 FCB Advertising 2.715 -2.13
29 30 BDH Advertising 3.686 20.03
30 36 Delaney Fletcher Bozell 2.240 21.21
31 35 Griffin Bacal 2.201 9.39
32 46 Arc International Advertising 1.965 -0.30
33 33 Mellors Reay & Partners 2.467 25.29
34 38 Clark & Taylor Advertising 3.056 68.28
35 32 Simons Palmer Clemmow Johnson 1.707 7.77
36 31 Advertising Principles 1.883 10.63
37 40 BDDH 1.957 7.88
38 37 Leagas Shafron Davis 1.621 2.21
39 - St Luke’s 2.022 -
40 48 Burkitt Edwards Martin 2.043 40.12
41 43 Duckworth Finn Grubb Waters 1.628 28.39
42 41 Faulds Advertising 2.717 25.55
43 - The Morgan Partnership 1.799 27.23
44 29 Cogent Elliott 1.633 -6.58
45 45 Banks Hoggins O’Shea n/s -
46 44 Roose & Partners 1.303 7.60
47 39 Lansdown Conquest 1.683 -16.85
48 34 The Brahm Agency 1.209 -27.43
49 - Mustoe Merriman Herring Levy 1.464 78.97
50 47 Warman & Bannister 0.898 -6.56
Source: Willott Kingston Smith has used the latest figures filed at
Companies House, the majority of these covering periods ending in
1996.
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: pre tax, excluding the amortisation of
goodwill from acquisitions of other businesses, exceptional items,
income from (or losses of) related companies and interest receivable and
other investment income less interest payable.
Top ten groups
Rk Agency Operating Operating Gross income
margin on per
profit pounds m gross income % head pounds
Latest Previous Latest Previous Latest Previous
1 WPP Group 159.200 124.700 11.08 9.39 67,868 65,899
2 Cordiant 48.000 48.600 6.36 6.39 73,945 72,006
3 Aegis Group 40.000 36.000 22.28 21.79 92,193 89,491
4 Interpublic 32.751 18.308 14.03 9.35 89,181 88,158
5 Diversified
Agency
Services 20.402 15.950 14.19 13.03 51,308 51,523
6 Abbott Mead
Vickers 13.777 10.389 16.16 15.93 86,218 83,852
7 DMB&B 7.142 2.519 12.90 5.26 79,517 73,002
8 BNB Resources 6.497 5.875 11.66 11.33 79,973 81,407
9 The GGT Group 5.617 5.032 8.95 8.76 65,274 63,171
10 CIA Group 5.228 5.795 11.83 13.88 72,792 80,745
As the health of individual agencies within groups cannot be gauged from
their own figures, we also publish details of the performance of the top
ten advertising groups.
These figures, which have the advantage of being more up to date than
those of their subsidiaries, show that by most key measures UK-based
holding companies, such as WPP and Cordiant, still lag behind
foreign-based competitors such as Interpublic. Foreign groups’ financial
performance recovered well from previous years’ impressive figures.
Interpublic - the parent of McCann-Erickson, the Lowe Group and Ammirati
Puris Lintas - performed particularly well. DMB&B Holdings was quick to
file its 1996 accounts, which showed a pre-tax profit of pounds 7.5
million, while in 1995 the group recorded a loss of pounds 757,000,
mainly because of reorganisation and other costs.
The Aegis Group continued to record the best operating profit margins on
gross income at 22.28 per cent. Abbott Mead Vickers delivered the best
margin for a diversified marketing services group, fully justifying its
careful acquisition strategy.
Cordiant, headed by Bob Seelert, recorded lower margins than the
previous year, and now enjoys the dubious honour of delivering the worst
margins on the table, at 6.36 per cent. Meanwhile, the WPP chairman,
Martin Sorrell, can do little wrong at the moment - despite the
occasional carping about his five-year bonus. The world’s top marketing
services group justified its status with operating profits up from
pounds 124.7 million to pounds 159.2 million.
Top ten media independents
Rk Agency Year end Gross Change Operating
income % profit
pounds pounds m
m
1 Aegis Group 31.12.96 179.500 8.66 40.000
2 CIA Group 31.12.96 44.185 5.85 5.288
3 The Media
Business Group 30.04.96 4.387 16.30 0.802
4 New PHD 31.12.95 3.144 22.62 0.470
5 Manning
Gottlieb Media 30.06.97 3.039 60.37 1.286
6 John Ayling &
Associates 31.12.96 2.525 -11.43 0.072
7 Amcom Resources 30.03.96 2.322 122.63 0.023
8 Media Buying
Services Group 29.02.96 2.288 -13.14 0.169
9 Media Campaign
Services 31.01.97 1.808 -8.08 0.196
10 Total Media 31.12.96 1.649 11.34 0.007
Rk Agency Change Operating Change
% profit %
margin %
1 Aegis Group 11.11 22.28 84.600
2 CIA Group -9.78 11.85 22.384
3 The Media
Business Group 12.48 18.28 2.309
4 New PHD 39.05 14.95 1.558
5 Manning
Gottlieb Media 224.75 42.32 0.949
6 John Ayling &
Associates -77.78 2.85 1.649
7 Amcom Resources -73.86 0.99 1.262
8 Media Buying
Services Group -46.86 7.39 1.172
9 Media Campaign
Services -29.75 10.84 0.978
10 Total Media 250.00 0.42 0.716
A mere glance at the media independents’ performance reveals one
over-riding fact - there are quite a few minuses.
As the media independent sector continues to shrink (the appearance of
New PHD and Manning Gottlieb here is misleading - both have since been
bought by agency networks) there are clear signs of malaise.
The mighty Carat - whose UK interests include TMD Carat and BBJ Media
Services - continues to storm ahead and, even though here there is a
slowdown in growth, margins are up. But for the CIA Group, that other
bastion of the media independent sector, 1996 was not so positive. The
year yielded a 10 per cent decline in operating profits against an
increase in turnover of 5.8 per cent (34 per cent in 1995) as the group
concentrated on developing internationally.
The Media Business turned in a strong performance - proof that you don’t
have to be big or beautiful to make money - which has helped fuel
expansion into Scotland and has kept the City analysts happy since the
flotation in 1996.
But life is less cheerful towards the bottom of the table. Overall, you
can’t help wondering what the future holds for the media
independents.
If you’re successful and smart you’ll get bought (as has New PHD by the
Abbott Mead Vickers Group and Manning Gottlieb Media by Omnicom). And as
the industry gains a more international footing, even Carat and CIA look
set to join forces with the multi-national agency networks.
Small, niche operations such as Total Media and Amcom, the holding
company for AMS Advertising, are showing signs of life, but for the
rest?
Claire Beale
Top ten by operating profit per head
Rank Agency Operating profit
per head pounds
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