AGENCY PERFORMANCE LEAGUE: This year’s agency performance survey shows that profit margins and productivity are up , but not to the dream levels of the 80s

Every year the figures look better and every year it is tempting to say that the advertising industry has recovered from the recession.

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     

Topics

Become a member of Campaign from just £46 a quarter

Get the very latest news and insight from Campaign with unrestricted access to campaignlive.co.uk ,plus get exclusive discounts to Campaign events

Become a member

Looking for a new job?

Get the latest creative jobs in advertising, media, marketing and digital delivered directly to your inbox each day.

Create an Alert Now

Partner content