Advertising agencies’ aggregate income and profits grew by just
over 10 per cent in their last recorded year-end figures - a
respectable, if not a stellar, figure and one which finds them lagging
behind almost every other part of the marketing services sector.
This is the message to emerge from the annual survey of the UK’s top 50
advertising agencies, prepared by Willott Kingston Smith using figures
taken from accounts filed at Companies House, and published exclusively
in Campaign.
While a 10 per cent growth rate is not to be sniffed at, there are
continuing signs that market share is shifting - but not so much to the
sales promotion and direct marketing sector as is so often claimed.
Media independents continue to take a bigger slice of clients’ money and
design consultancies and PR outfits have also enjoyed very healthy
growth.
The survey performs several roles. One is to give an overview of what is
happening to major UK ad agencies. Another is to provide instant data on
these agencies. As the tables on the following four pages stick to
fundamental ratios based on income, profits and employees, the idea is
to see at a glance whether an agency is doing well or badly.
One of the notable overall conclusions is that agencies have had to
recruit more staff in response to increasing demands from clients for
broader and better services. The survey shows a jump of 7.5 per cent in
staff numbers and a 12.2 per cent rise in staff costs. So it is only by
keeping other overheads under control that agencies managed to hit that
10 per cent income and profits growth.
Inevitably, more staff means lower productivity as junior personnel
learn the ropes, but agencies still managed to increase output per head
by 3 per cent. With employment costs on the increase, the comparison to
make is between average staff costs per head and the average gross
income handled per head: Lowe Howard-Spink is one agency that performs
well by this measure.
And so to the most robust performers in our survey. Young & Rubicam
reported the highest income for the year of pounds 59 million, up almost
17 per cent.
(’Gross income’ means the revenue earned from clients and retained by
the agency after deducting external costs such as media.) Note that
Y&R’s figures are for 1996, and its recent wins - Ford and Schweppes -
are not reflected here.
Other top performers in income terms included the Ogilvy & Mather Group
with pounds 55 million - the figure incorporates below-the-line
operations - and the demerged Saatchi & Saatchi Group with pounds 53
million.
The other success stories of the year are those agencies that have
increased their income from an already strong position. M&C Saatchi,
with 1996 figures, almost doubled its first-year achievement when
respectable levels of turnover and income were wiped out by set-up and
borrowing costs.
Y&R, Saatchis, Bartle Bogle Hegarty and Ammirati Puris Lintas all added
more than pounds 4 million to gross income. Unfortunately, Y&R’s profit
went in the opposite direction, falling by 67 per cent to pounds 972,000
after paying out more than pounds 1 million in redundancy payments and
setting aside pounds 1.9 million under its deferred remuneration scheme.
Y&R’s UK operations as a whole depended heavily on profits from the
group’s public relations and design subsidiaries.
Abbott Mead Vickers BBDO made the biggest operating profit - pounds 6.25
million - followed by Lowes with pounds 5.4 million. Both figures are
for 1996, and it is worth noting that AMV’s 1997 figures will not be as
strong for three reasons. First, its media income and profit was
accounted for in New PHD for the first full year, while AMV booked only
half of the 1996 spend.
Second, the agency incurred one-off costs from moving offices. Third,
paternalistic as ever, it celebrated its 20th birthday by buying shares
for every member of staff.
Although Collett Dickenson Pearce UK - now called Dentsu Europe -
reported only a modest operating profit, this was supplemented by an
exceptional gain of pounds 4.8 million. It turns out that between 1990
and 1993 the company had contributed pounds 4.8 million to an employee
share trust run by the group.
Now the parent company has reimbursed the agency and boosted profits as
a result.
Among the loss-makers were two shops with big reputations - Saatchis and
BBH. At BBH, the loss arose from the decision to pay bonuses to many
staff in recognition of their contribution over time. Leo Burnett, which
now has a minority stake in BBH, also made an operating loss thanks to
employment costs rising faster than gross income.
WKS reckons that profit margins as a percentage of gross income should
be about 15 per cent. The biggest improvement was recorded by St Luke’s
- up from 8.06 per cent to 19.3 per cent.
But the average for the agencies surveyed here is less than half of that
15 per cent target - 6.8 per cent - and shows no sign of improvement
over the previous year. While Euro RSCG and Arc
International slipped below the 15 per cent margin this time, a number
of companies managed to secure very respectable profit margins. Examples
include BST BDDP with 29.8 per cent, HHCL with 26.5 per cent and the
recruitment advertising agency, Austin Knight, with 25.1 per cent.
Interestingly, these figures are for 1996 and all three have since been
sold or merged.
Mergers and demergers are a feature of this year’s survey, which records
Saatchis detaching itself from Bates Dorland, which remained within
Cordiant (see box above). Then there’s the complicated merger that has
yet to make its presence felt at Companies House: TBWA, Simons Palmer,
BST BDDP and GGT Advertising have been pooled into one mega-agency and
no mega-accounts are yet available (see box right).
The other significant merger was at HHCL, which was sold to Sir Tim
Bell’s Chime Communications. Chime spent considerably more on
acquisitions and new assets than it generated from trading. It overcame
the problem by securing a share subscription from WPP for 29.9 per cent
of its enlarged share capital.
The last accounts available for HHCL, from 1996, showed pre-tax profits
of pounds 3.1 million. The HHCL Group as a whole for that year -
comprising the agency, HHCL Brasserie, In Real Life and a 50 per cent
stake in Michaelides & Bednash - made profits of pounds 3.8 million
before tax (pounds 2.5 million after tax) in the 13 months to December
1996. Chime paid up to pounds 24 million for the group, representing a
multiple of between nine and 10.3 times post-tax profits. However,
Chime’s latest accounts say that the HHCL Group’s pre-tax profits
dropped to just under pounds 2 million in 1997. Either that reflects
clever financial gymnastics to save tax on the deal, or Chime has been
more generous than might be expected.
Finally, a few snippets on executive pay. The increased salaries offered
to Rupert Howell and his colleagues following the Chime deal pale into
insignificance when compared with the packages earned by managers at
some of the US-owned shops. The top earner at Y&R, for example, enjoyed
pounds 430,000 in 1996. But it is Interpublic which appears to offer the
fattest packages to top executives in its UK agencies. The highest paid
director at Ammirati Puris Lintas earned pounds 594,000 in 1996. Your
guess is as good as Campaign’s, but could APL’s high roller be Terry
Rosenquist? Over at McCann-Erickson, chairman David Warden suffered a
pay cut to take home pounds 540,000 in the same year (tough, that).
Overall, however, directors’ earnings increased by a modest 3.6 per
cent.
At 15 of the top 50 agencies, the highest paid director earned more than
pounds 300,000 and very few agencies paid the top director less than
pounds 100,000.
The Financial Performance of Marketing Services Companies survey is
available for pounds 175 from Willott Kingston Smith, Quadrant House,
80-82 Regent Street, London W1R 5PA.
TOP 50 AGENCIES
Rank Rank Agency Year end Gross Change
latest prev income %
pounds 000
1 2 Young & Rubicam Group 31/12/96 59,368 16.96
2 1 The Ogilvy Group
(Holdings) 31/12/97 54,989 6.59
3 3 Saatchi & Saatchi Group 31/12/96 52,923 8.70
4 4 J. Walter Thompson Group 31/12/96 43,473 8.93
5 5 BMP DDB 31/12/97 36,741 11.03
6 6 DMB&B 31/12/97 35,639 8.83
7 7 McCann-Erickson
Advertising 31/12/97 34,635 10.41
8 8 Abbott Mead Vickers BBDO 31/12/96 30,102 -0.06
9 10 Bartle Bogle Hegarty 30/06/97 29,650 17.73
10 9 Bates Dorland 31/12/97 26,024 -6.79
11 11 Lowe Howard-Spink 31/12/96 25,712 8.83
12 12 Leo Burnett 31/12/97 21,843 1.74
13 14 Ammirati Puris Lintas 31/12/96 21,169 35.65
14 13 Publicis 31/12/96 18,827 6.91
15 16 WCRS 31/12/97 15,500 2.99
16 17 Grey Advertising 30/09/97 15,317 11.95
17 18 Euro RSCG 31/12/96 14,880 13.77
18 15 Austin Knight 30/09/96 14,248 12.06
19 25 M&C Saatchi 31/12/96 12,910 93.81
20 19 McCann-Erickson
Manchester 31/12/96 11,704 20.45
21 21 HHCL & Partners 31/12/96 10,797 29.54
22 20 The Leagas Delaney
Partnership 31/12/97 10,085 9.60
23 n/a TBWA Simons Palmer 31/12/96 9,884 56.69
24 22 Collett Dickenson
Pearce UK 31/12/96 8,233 9.76
25 24 BST BDDP 31/12/96 6,923 16.39
26 28 FCB Advertising 31/12/96 6,885 11.21
27 22 GGT Advertising 30/04/97 6,530 -19.34
28 29 BDH Advertising 30/04/97 5,892 5.20
29 39 St Luke’s Holdings 31/12/97 5,491 66.34
30 - DMB&B Financial 31/12/97 5,053 12.06
31 34 Clark & Taylor
Advertising 31/07/97 4,667 15.66
32 37 Partners BDDH 31/12/97 4,580 26.55
33 30 Delaney Fletcher Bozell 31/12/96 4,530 -5.88
34 45 Banks Hoggins O’Shea 31/08/97 4,395 50.57
35 31 Griffin Bacal 31/12/97 4,273 0.99
36 33 Mellors Reay & Partners 30/09/97 4,106 -0.22
37 35 Simons Palmer Clemmow
Johnson 30/06/96 3,953 20.08
38 42 Faulds Advertising 31/12/96 3,881 20.83
39 - Advertising Principles 31/03/97 3,702 23.48
40 41 Duckworth Finn Grubb
Waters 30/09/97 3,569 10.74
41 46 Roose and Partners
Advertising 30/09/97 3,357 18.87
42 - Court Burkitt & Company 31/03/97 3,277 0.46
43 44 Cogent Elliott 31/12/97 3,154 -0.69
44 32 Arc International
Advertising 31/12/96 2,818 -31.68
45 47 Lansdown Conquest 31/12/96 2,777 4.48
46 43 The Morgan Partnership 31/01/97 2,734 -14.16
47 - Osprey Park 30/09/97 2,731 -29.38
48 - Rainey Kelly Campbell
Roalfe 31/12/96 2,646 52.42
49 50 Warman and Bannister 31/12/96 2,559 13.13
50 - BCMB 31/12/97 2,121 2.61
Rank Rank Agency Operating Change % Operating
latest prev profit profit
pounds 000 margin %
1 2 Young & Rubicam Group 635 0.47 1.07
2 1 The Ogilvy Group
(Holdings) 5,180 70.51 9.42
3 3 Saatchi & Saatchi Group -8,714 18.51 -16.47
4 4 J. Walter Thompson Group 2,176 1,165.12 5.01
5 5 BMP DDB 4,239 -7.97 11.54
6 6 DMB&B 4,038 7.22 11.33
7 7 McCann-Erickson
Advertising 2,517 -10.71 7.27
8 8 Abbott Mead Vickers BBDO 6,255 2.22 20.78
9 10 Bartle Bogle Hegarty -973 -128.91 -3.28
10 9 Bates Dorland -2,986 -50.81 -11.47
11 11 Lowe Howard-Spink 5,382 18.16 20.93
12 12 Leo Burnett -1,045 -652.91 -4.78
13 14 Ammirati Puris Lintas 482 77.86 2.28
14 13 Publicis 3,479 1.10 18.48
15 16 WCRS 2,986 - 0.40 19.26
16 17 Grey Advertising 1,522 -10.10 9.94
17 18 Euro RSCG 1,837 -17.40 12.35
18 15 Austin Knight 3,583 6.42 25.15
19 25 M&C Saatchi 632 223.68 4.90
20 19 McCann-Erickson
Manchester 1,861 24.82 15.90
21 21 HHCL & Partners 2,859 75.18 26.48
22 20 The Leagas Delaney
Partnership 423 3.68 4.19
23 n/a TBWA Simons Palmer 1,956 133.97 19.79
24 22 Collett Dickenson
Pearce UK 536 -5.13 6.51
25 24 BST BDDP 2,065 46.45 29.83
26 28 FCB Advertising 706 -11.86 10.25
27 22 GGT Advertising -875 -420.51 -13.40
28 29 BDH Advertising 390 -0.51 6.62
29 39 St Luke’s Holdings 1,057 297.37 19.25
30 - DMB&B Financial 825 17.35 16.33
31 34 Clark & Taylor
Advertising 169 550.00 3.62
32 37 Partners BDDH 817 82.37 17.84
33 30 Delaney Fletcher Bozell 352 85.26 7.77
34 45 Banks Hoggins O’Shea 637 65.89 14.49
35 31 Griffin Bacal 492 -12.61 11.51
36 33 Mellors Reay & Partners 561 10.00 13.66
37 35 Simons Palmer Clemmow
Johnson 794 97.51 20.09
38 42 Faulds Advertising 888 87.34 22.88
39 - Advertising Principles 313 67.38 8.45
40 41 Duckworth Finn Grubb
Waters 751 35.07 21.04
41 46 Roose and Partners
Advertising 204 46.76 6.08
42 - Court Burkitt & Company 203 47.10 6.19
43 44 Cogent Elliott 281 264.94 8.91
44 32 Arc International
Advertising 250 - 61.60 8.87
45 47 Lansdown Conquest -32 -149.23 -1.15
46 43 The Morgan Partnership 20 -91.84 0.73
47 - Osprey Park -40 -290.48 -1.46
48 - Rainey Kelly Campbell
Roalfe 527 76.25 19.92
49 50 Warman and Bannister -1,107 -1,704.35 -43.26
50 - BCMB 182 - 54.95 8.58
Rank Rank Agency Employment Change %
latest prev costs
pounds 000
1 2 Young & Rubicam Group 28,291 12.52
2 1 The Ogilvy Group
(Holdings) 24,310 13.26
3 3 Saatchi & Saatchi Group 26,749 -0.39
4 4 J. Walter Thompson Group 25,053 13.61
5 5 BMP DDB 19,939 11.22
6 6 DMB&B 18,627 10.47
7 7 McCann-Erickson
Advertising 18,745 11.17
8 8 Abbott Mead Vickers BBDO 14,429 0.97
9 10 Bartle Bogle Hegarty 19,443 44.39
10 9 Bates Dorland 14,675 -2.08
11 11 Lowe Howard-Spink 11,341 11.21
12 12 Leo Burnett 13,296 10.51
13 14 Ammirati Puris Lintas 9,691 30.78
14 13 Publicis 8,944 7.54
15 16 WCRS 8,746 8.66
16 17 Grey Advertising 10,713 35.25
17 18 Euro RSCG 6,813 4.61
18 15 Austin Knight 15,412 14.51
19 25 M&C Saatchi 6,847 98.75
20 19 McCann-Erickson
Manchester 6,456 20.13
21 21 HHCL & Partners 4,986 16.39
22 20 The Leagas Delaney
Partnership 5,144 5.13
23 n/a TBWA Simons Palmer 5,184 51.53
24 22 Collett Dickenson
Pearce UK 4,181 -2.99
25 24 BST BDDP 2,903 4.76
26 28 FCB Advertising 2,992 10.20
27 22 GGT Advertising 4,148 -6.39
28 29 BDH Advertising 3,652 -0.92
29 39 St Luke’s Holdings 2,834 40.16
30 - DMB&B Financial 2,332 4.39
31 34 Clark & Taylor
Advertising 3,460 13.22
32 37 Partners BDDH 2,161 10.42
33 30 Delaney Fletcher Bozell 2,269 1.29
34 45 Banks Hoggins O’Shea 2,257 43.58
35 31 Griffin Bacal 2,463 11.90
36 33 Mellors Reay & Partners 2,304 -6.61
37 35 Simons Palmer Clemmow
Johnson 1,707 7.77
38 42 Faulds Advertising 3,354 23.44
39 - Advertising Principles 1,883 10.63
40 41 Duckworth Finn Grubb
Waters 1,726 6.02
41 46 Roose and Partners
Advertising 1,518 16.50
42 - Court Burkitt & Company 1,600 -21.68
43 44 Cogent Elliott 1,604 -1.78
44 32 Arc International
Advertising 1,901 -3.26
45 47 Lansdown Conquest 1,583 -5.94
46 43 The Morgan Partnership 1,762 -1.78
47 - Osprey Park 1,318 -13.91
48 - Rainey Kelly Campbell
Roalfe 1,078 48.48
49 50 Warman and Bannister 1,028 14.48
50 - BCMB 879 3.66
Source: Willott Kingston Smith has used the latest figures filed at
Companies House, covering periods ending in 1996, 1997 and 1998.
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
profit margin income per
pounds 000 on gross head pounds
income %
Latest Prev Latest Prev Latest Prev
1 WPP Group 182,900 159,200 12.45 11.08 64,110 67,868
2 Cordiant Comms. Group 57,800 48,000 7.85 6.36 69,457 73,945
3 Aegis Group 43,600 40,000 22.73 22.28 84,643 92,193
4 Diversified Agency
Services 29,980 19,739 16.96 13.73 55,571 51,308
5 Interpublic 21,227 32,751 8.33 14.03 93,808 89,182
6 Abbott Mead Vickers 15,599 12,772 14.75 14.98 84,619 86,218
7 Shandwick Intl 13,410 14,053 10.66 11.49 60,186 62,228
8 CIA Group 7,540 5,228 13.47 11.83 76,372 72,792
9 DMB&B Holdings 6,457 7,142 10.83 12.90 86,664 79,517
10 BNB Resources 6,167 6,497 10.86 11.66 72,251 79,973
It’s clear from this table that marketing services and media buying -
rather than straight advertising - is where the action is: in terms of
operating profit margin, the three best-performing companies are two
pure media buyers, Aegis and CIA (now known as Tempus), and Omnicom’s
Diversified Agency Services, a profitable grouping of a wide range of
marketing services companies.
Indeed, Aegis’s margin of 22.73 per cent is the third highest among the
entire Top 50, outstripping the recognised industry high-fliers, Abbott
Mead Vickers BBDO and Martin Sorrell’s WPP, neither of which reached 15
per cent.
AMV’s gradual decline in margins is probably due to the group’s
continued expansion through careful acquisition of related companies. In
contrast, WPP is making significant efforts to improve its margin to
compete better with US-based multinationals.
However, US-based Interpublic has seen profitability decline because
employment costs raced ahead of improvements in gross income. While
Interpublic still has the best productivity levels of the major
international groups, an 11.6 per cent rise in employment costs per head
- twice the rate of productivity increase - meant that none of the extra
income translated into operating profit.
Meanwhile, better market conditions failed to prevent a profits decline
following the exit of senior staff at executive search and recruitment
advertising company, BNB Resources.
The most notable omission from this year’s table is the GGT Group, which
as a whole made a pre-tax loss and is now part of Omnicom. The reason
for this fall in operating profit? Acquisition, reorganisation of its
below-the-line interests and related administration costs, and writing
off goodwill on its old GGK network. - By John Tylee
TOP TEN MEDIA INDEPENDENTS
Rk Agency
