Agency performance league

This year’s agency performance survey shows that both gross margins and profit margins continue to rise. Is it back to the levels of the late 80s? Dream on, Caroline Marshall reports

This year’s agency performance survey shows that both gross margins and

profit margins continue to rise. Is it back to the levels of the late

80s? Dream on, Caroline Marshall reports

If 1996 goes down in history as the year when UK advertising saw some

spectacular displays of hubris and tantrums, it will also be remembered

for some good news. According to the annual performance survey of the

top 50 advertising agencies prepared by the specialist accountant,

Willott Kingston Smith, advertising agencies are continuing to recover

from the ravages of the recession.

But don’t be taken in. Profits are still far behind those earned in the

late-80s and not just because the economic recovery is in its first

stage. Say what you like about its unique emotional impact - advertising

has been losing market share to other communications sectors, notably

media independents and direct marketing agencies. Here is proof that

clients care less about the medium and more about the message.

The results are worrying for traditional advertising agencies. Operating

profit margins earned on average by direct marketing and sales promotion

agencies are almost three times those earned by advertising agencies.

This owes much to the fact that although dm/sp companies are less

productive when measured at gross income per head levels, their staff

are paid about 23 per cent less on average - and such agencies tend to

operate out of substantially cheaper premises.

As usual the figures used here were taken from audited accounts filed at

Companies House.

The problem is that 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 planning considerations all muddy the water. And, within

many groups, agencies are treated as divisions of a single company

leaving the original trading companies as dormant reminders of former


As an example, the Young and Rubicam Group is the depository for the

financial results of Landor (design), Wunderman Cato Johnson (direct

marketing) and Burson Marsteller (public relations). In the same light,

the Ogilvy Group and J. Walter Thompson show, on paper at least, very

little profit, distorted by WPP’s group arrangements.

This year, therefore, it seemed helpful to publish the performance of

the bigger groups (see top ten groups table) as well as their bigger

agencies. The group figures, which have the advantage of occasionally

being more up to date than those of their subsidiaries, show that some

UK-based holding companies, such as WPP and Cordiant, still lag

significantly behind foreign-based groups such as Interpublic and

Omnicom. They compare even less favourably against the worldwide

operations of Interpublic, Omnicom and Dentsu.

In simple terms, the two key ways of measuring the health of an ad

agency (no, not D&AD pencils and Cannes lions) are operating profit

margins and profit per head. Both, the survey shows, have improved

greatly over the last year.

Operating profits of the top 50 agencies are now running at 4.9 per cent

of gross income (1985, 10.3 per cent) and operating profits per head are

now averaging pounds 3,561 (1985, after adjustment for inflation, pounds

5,735). Output per head has improved substantially - five agencies

topped pounds 100,000 per head - as improved productivity has played its

part in the fight against fee pressure.

So who sets the gold standard? The best operating profit margin was

achieved by Howell Henry Chaldecott Lury at 26.8 per cent, closely

followed by the recruitment advertising specialist, Austin Knight.

Altogether eight agencies clocked up margins of more than 20 per cent,

including BST-BDDP, Lowe Howard-Spink, Abbott Mead Vickers BBDO, CM

Lintas International and Simons Palmer Clemmow Johnson. At the other end

of the scale, 70 per cent of agencies failed to achieve even the

industry norm of 15 per cent.

Agencies with the highest operating profit per head were, in the main,

the same as those with the highest profit margins, but Publicis, WCRS,

Bartle Bogle Hegarty and FCB also fared well.

Overall, this year’s survey once again shows the toll taken by other

sectors on the annual rate of growth among ad agencies. A total of14

agencies suffered a fall in income, with the biggest loss in percentage

terms - 33.2 per cent - reported by Arc Advertising which lost all its

News International business. Irrespective of their profit margins, seven

of the 50 agencies achieved income growth of more than 30 per cent. The

best performers in percentage terms were HHCL, Brahm, FCB, Duckworth

Finn Grubb Waters, Banks Hoggins O’Shea, Leagas Delaney and Austin


The best operating profits were reported by AMV with pounds 6.1 million,

up by 23.49 per cent on the previous year, followed by Lowes (pounds 4.9

million), BMP DDB Needham Worldwide (pounds 3.9 million) Publicis and

Austin Knight (pounds 3.4 million) and BBH (pounds 3.3 million).

Not surprisingly, some of the most profitable agencies also paid the

highest average salaries per head, that being the largest part of an

agency’s fixed costs structure. At one extreme, FCB Advertising, which

topped the table on agency gross income per head at pounds 108,614,

spent a meagre 43 per cent of that on staff costs. At the other extreme,

Leagas Delaney pays out 54 per cent of the pounds 100,275 gross income

per head on staff costs. Most of the others spent between 42 per cent

and 47 per cent of their income on staff costs.

One area of concern that the survey sheds light on is the pressure ad

agencies are feeling from direct marketing and media independents. We

have already referred to the impressive annual growth rates of these

sectors versus ad agencies, but isn’t this due entirely to the shift of

media buying away from ad agencies? Not necessarily, argues WKS,

pointing to tentative evidence that below-the-line agencies are managing

to muscle in on some of the creative work that ad agencies traditionally

regarded as their exclusive domain. Fine, if the work stays within the

group, but if not...

All this points towards the need for ad agencies to think long and hard

about how they organise themselves. This year’s survey provides evidence

that the single-discipline ad agency is beginning to lose share to the

multi-discipline group, even when creative excellence is unchallenged.

Where will it all end?

Overall, while advertising rests secure in its appeal at an emotional

level, and frequently accounts for the lion’s share of the client’s

marketing budget, it is more and more evident that most clients will

select the agency that it most closely identifies with producing a

meaningful strategic solution, irrespective of the main service it


Finally, for all the hundreds of hours spent poring over company

reports, the chaps at WKS still know how to spot the odd interesting


Snippet one. While Cordiant made a profit of pounds 44.5 million, it was

swiftly converted into a loss, partly by the shenanigans with its former

employees. The cost of Cordiant’s legal battle with Lord Saatchi and his

associates was pounds 3.3 million; reorganisation and severance costs

were pounds 17 million and the closure or sale of operations cost pounds

30.3 million.

Snippet two. This year’s highest paid director was WPP’s Martin Sorrell,

whose package amounted to pounds 2.3 million plus a pension contribution

of pounds 318,000.

Snippet three. Move over, Sorrell. In September 1986, Michael Baulk was

given the option to buy 996,000 shares at pounds 101.75p each. In

November 1995 he exercised that option when the market price was 471p,

netting a gain of pounds 3.69p per share and pounds 3.67 million before


Financial Performance of Marketing Services Companies is available for

pounds 150 from WKS at 10 Bruton Street, London W1 7AG, telephone 0171-

304 4646. Willott Kingston Smith specialises in advising people

businesses, and is part of Kingston Smith, one of the top 30 firms of

chartered accountants in the UK.

Going up

An operating profit margin on gross income of 15 per cent represents a

target that most well-run agencies should be capable of achieving.

Sixteen agencies hit the target in this year, with HHCL, albeit measured

by its figures for 1994, achieving 26.8 per cent.

Other prominent agencies scored on margin, including Simons Palmer (with

20.09 per cent). Simons Palmer’s management team deserves credit for its

impressive figures (unique in the top 50 apart from its sister agency,

Maher Bird) which relate to the financial year ending June ’96. So let’s

hear it for Sony.

BBH filed another set of sparkling figures - showing a 23.74 per cent

increase in gross income and a 44.87 per cent increase in operating

profit, both relating to 1994. Since these figures, BBH has channelled

investment into its new Singapore office.

If there is a question mark over BBH, it is whether in the near future

the founders will sell a stake to a larger group. TBWA and WPP have been

mentioned as potential suitors. Does even BBH have its price?

Going down

The five biggest percentage drops in income were recorded by Arc

International, Burkitt Edwards, Lansdown Conquest, KHBB and Butterfield

Day Devito Hockney.

WCRS may rank eighth in the league of agency profits per head, but 1995

was not a great year when you consider that profits were actually 11.66

per cent down on the previous year, which itself was 5 per cent down on

1994. Blame the loss of income from the Sega, Prudential and Daily

Telegraph accounts - all of which packed their bags at the end of 1994.

A couple of years ago, Lowes had a period of new-business doldrums, and

its figures here (which are for 1994) reveal a fall in income of about 5

per cent. However, Lowes will probably have righted itself by this time

next year. And its current performance - wins from Saab plus increased

spend from Vauxhall, Whitbread and Tesco - will shine through in 1996.

Burkitt Edwards Martin (operating profit down 1646.67 per cent) shows

the results of a merger and the departure of Bass from Edwards Martin.

Top ten groups

And you thought the Saatchi brothers’ ejection by angry shareholders in

1994 and their feud with Cordiant was the biggest news in advertising

holding companies.

The UK operations of two big US-owned groups, Omnicom (which owns the

BBDO, TBWA and DDB Needham networks) and Interpublic (the parent of

three competing networks, McCann-Erickson Worldwide, Lintas Worldwide

and the Lowe Group) have proved to investors that the top dozen global

companies have a distinct advantage over smaller national rivals.

Diversified Agency Services (part of Omnicom) achieved an operating

margin in the UK of 13.03 per cent, showing an excellent recovery from

5.9 per cent last year. BMP DDB Needham Worldwide itself reported an

operating margin of 13.19 per cent.

Interpublic’s margins in the UK were a more modest 9.35 per cent -

similar to those of WPP - but, thanks to its tough chairman, Phil Geier,

were a healthy 13.95 per cent worldwide.

The WPP Group achieved an operating profit margin of 9.39 per cent -

nothing to boast about as Sorrell has readily acknowledged. The Ogilvy

Group reported 6.04 per cent and JWT 1.06 per cent.

At the operating level, Cordiant made a profit of pounds 44.5 million in

1995 and the group operating profit in 1996 was 6.39 per cent, up from

5.74 per cent. However, reorganisation costs and the Saatchi legal

battle saw the main UK agencies reporting negative margins: Saatchi and

Saatchi reported -21.96 per cent, Bates Dorland managed -10.49 per cent

and KHBB (now K Advertising) reported a dire -48.94 per cent.

Top ten media independents

In the period of the survey, media independents certainly enjoyed

substantial growth, although according to WKS the rate of growth may be

slowing down. Overall, gross income climbed by 15 per cent and operating

profit margins (before interest) averaged 19 per cent. (Don’t forget,

these figures exclude giant dependants such as Zenith, the Media Centre

and Optimedia.)

The Aegis Group, which owns Carat, continues to hog the limelight as the

best performer in its sector. It is nearly four times the size of Chris

Ingram’s CIA Group, which in turn is nine and a half times bigger than

the Media Business Group.

The worst profit margins were recorded by the Media Shop Holdings (for

whom we have ’94 figures) and Total Media (with ’95 figures), although

this may well be due to the owners of these private companies

withdrawing profits by bonuses rather than dividends.

Will any other independents follow the example of Pattison Horswell

Durden, which gained instant muscle in May this year by selling out to

the AMV group? The deal is worth a juicy pounds 5 million divided on an

earn-out basis between PHD’s three partners - David Pattison, Nick

Horswell and Jonathan Durden. In the process of creating the new pounds

260 million billing company, John Ayling also sold his 20 per cent stake

in PHD to AMV.

Overall, all ten media independents recorded a growth in gross income -

which is more than some agencies could boast. Even the company that

showed the lowest growth in gross income, John Ayling, maintained a

healthy operating profit, up 22 per cent, on gross income.


Top ten groups (part one)


Rank  Agency                                 Operating    

                                          profit pounds m 

                                        latest    previous

 1    WPP Group plc                     124.700    111.300

 2    Cordiant plc                       48.600     44.500

 3    Aegis Group plc                    36.100     29.900

 4    Interpublic*                       18.308      9.691

 5    Diversified Agency Services*       15.950      3.674

 6    Shandwick plc    1                  2.139     12.157

 7    Abbott Mead Vickers plc            10.389      7.600

 8    BNB Resources plc                   5.875      4.362

 9    CIA Group plc                       5.795      4.213

10    Gold Greenlees Trott plc            5.032      4.193

*UK operations only



Top ten groups (part two)


Rank  Agency                        Operating margin on   

                                   gross income pounds m  

                                     latest    previous   

 1    WPP Group plc                    9.39      9.24     

 2    Cordiant plc                     6.39      5.74     

 3    Aegis Group plc                 21.85     19.99     

 4    Interpublic*                     9.35      5.68     

 5    Diversified Agency Services*    13.03      5.90     

 6    Shandwick plc    1              11.16     11.38     

 7    Abbott Mead Vickers plc         15.93     15.57     

 8    BNB Resources plc               11.33      9.69     

 9    CIA Group plc                   13.88     13.52     

10    Gold Greenlees Trott plc         8.76      7.96     

*UK operations only



Top ten groups (part one)


Rank  Agency                           Gross income per 

                                          head pounds     

                                      latest    previous

 1    WPP Group plc                   65,899      62,710

 2    Cordiant plc                    72,006      71,053

 3    Aegis Group plc                 89,491      84,807

 4    Interpublic*                    88,158      74,047

 5    Diversified Agency Services*    51,523      46,203

 6    Shandwick plc    1              58,115      58,416

 7    Abbott Mead Vickers plc         83,852      86,847

 8    BNB Resources plc               81,407      80,242

 9    CIA Group plc                   80,745      73,127

10    Gold Greenlees Trott plc        63,171      59,152

*UK operations only



Top ten media independents (part one)


Rank  Agency                         Year end   Gross      Change

                                                income     %     

                                     pounds m   pounds m         

 1    Aegis Group                    31.12.95   165.200    10.43 

 2    CIA Group                      31.12.95    41.745    34.00 

 3    The Media Business Group       30.04.96     4.387    16.30 

 4    Pattison Horswell Durden       31.12.95     3.144    22.62 

 5    John Ayling and Associates     31.12.95     2.851     2.19 

 6    Media Buying Services Group    28.02.95     2.634    14.52 

 7    Media Campaign Services        31.01.96     2.475    36.14 

 8    The Media Shop Holdings        30.09.94     1.604     6.37 

 9    Total Media                    31.12.95     1.481    12.80 

10    TCS Media (planning & buying)  30.09.95     1.364    25.14 



Top ten media independents (part two)


Rank  Agency                       Operating   Change   Operating

                                    profit     %        profit   


                                   pounds m

 1    Aegis Group                   36.000     20.40    21.79    

 2    CIA Group                      5.795     37.55    13.88    

 3    The Media Business Group       0.802     12.48    18.28    

 4    Pattison Horswell Durden       0.470     39.05    14.95    

 5    John Ayling and Associates     0.324     22.26    11.36    

 6    Media Buying Services Group    0.318     82.76    12.07    

 7    Media Campaign Services        0.394    447.22    15.92    

 8    The Media Shop Holdings       -0.029  -2800.00    -1.81    

 9    Total Media                    0.002    -84.62     0.14    

10    TCS Media (planning & buying)  0.071     16.39     5.21    



Top ten media independents (part three)


Rank  Agency                          Employment 

                                    cost pounds m

 1    Aegis Group                      76.500

 2    CIA Group                        19.623

 3    The Media Business Group          2.309

 4    Pattison Horswell Durden          1.558

 5    John Ayling and Associates        1.518

 6    Media Buying Services Group       1.248

 7    Media Campaign Services           1.279

 8    The Media Shop Holdings           1.034

 9    Total Media                       0.620

10    TCS Media (planning & buying)     0.756



Top ten by operating profit per head


Rank  Agency                Operating profit per head pounds     Change

                                  latest    previous                 %

 1    BST-BDDP                    25,636     15,137              69.36

 2    HHCL                        24,022     20,544              16.93

 3    CM Lintas International     21,158     18,947              11.67

 4    Lowe Howard-Spink           20,817     22,030              -5.51

 5    AMV BBDO                    20,603     18,489              11.43

 6    Simons Palmer               19,850      9,571             107.39

 7    Publicis                    19,663     19,769              -0.54

 8    WCRS                        15,864     17,853             -11.14

 9    Bartle Bogle Hegarty        14,184     11,342              25.06

10    FCB Advertising             14,053     -7,629             284.20



Bottom ten by operating profit per head


Rank  Agency               Operating profit per head pounds     Change

                                 latest    previous                  %

41    Mellors Reay and Partners     311     19,950               -98.44

42    Griffin Bacall               -963     -6,636                85.49

43    Leo Burnett                -1,590     -4,874                67.37

44    Butterfield Day            -1,811      3,361              -153.88

45    Delaney Fletcher Bozell    -2,732     29,182              -109.36

46    Young and Rubicam Group    -4,283     -7,774                44.91

47    Burkitt Edwards Martin     -7,030        366             -2021.62

48    Bates Dorland              -8,933    -13,918                35.82

49    Saatchi & Saatchi Group   -14,934        142           -10,618.98

50    KHBB                      -41,434    -23,000               -80.15



Top ten by employment costs per head


Rank  Agency                Employment costs per head pounds     Change

                                 latest    previous                   %

 1    Leagas Delaney             54,463     52,841                 3.07

 2    BST-BDDP                   50,382     42,000                19.96

 3    Butterfield Day            49,027     51,556                -4.90

 4    AMV BBDO                   48,114     37,422                28.57

 5    FCB Advertising            47,632     44,742                 6.46

 6    Publicis                   47,526     41,663                14.07

 7    DMB&B                      47,518     41,459                14.61

 8    WCRS                       47,503     50,959                -6.78

 9    Bartle Bogle Hegarty       45,551     43,262                 5.29

10    Delaney Fletcher Bozell    45,073     47,515                -5.14



Bottom ten by employment costs per head


Rank  Agency                Employment costs per head pounds     Change

                                  latest       previous               %

41    Duckworth Finn              31,700        31,733            -0.11

42    Laing Henry                 29,905        29,132             2.65

43    Leopard                     29,121        30,517            -4.57

44    Austin Knight Group         28,275        25,989             8.80

45    Cogent Elliot               27,806        24,838            11.95

46    BDH Advertising             26,025        25,339             2.71

47    Ogilvy Group Holdings       25,915        29,193           -11.23

48    Brahm Agency                25,631        26,047            -1.60

49    McCanns Manchester          25,171        25,006             0.66

50    Advertising Principles      23,763        20,656            15.04



Top ten by gross income per head


Rank  Agency             Gross income per head pounds     Change

                               latest    previous              %

 1    FCB Advertising         108,614     72,452            49.91

 2    BST-BDDP                108,145    101,745             6.29

 3    CM Lintas Intl          102,895     94,368             9.04

 4    AMV BBDO                101,414     90,269            12.35

 5    Publicis                100,629     94,050             6.99

 6    Leagas Delaney          100,275     93,937             6.75

 7    Simons Palmer            98,825     78,381            26.08

 8    Lowe Howard-Spink        92,915     99,813            -6.91

 9    HHCL                     89,637     82,281             8.94

10    Bartle Bogle Hegarty     89,051     83,366             6.82



Bottom ten by gross income per head


Rank  Agency               Gross income per head pounds     Change

                                latest    previous               %

41    Y&R Group                 62,408     62,867            -0.73

42    Laing Henry               61,524     64,579            -4.73

43    Clark and Taylor          59,623     50,745            17.49

44    The Brahm Agency          57,508     57,419             0.16

45    Arc Intl Advertising      53,318     68,863           -22.57

46    McCanns Manchester        47,298     45,479             4.00

47    Advertising Principles    43,918     40,300             8.98

48    BDH Advertising           42,305     41,130             2.86

49    Faulds Advertising        41,358     46,412           -10.89

50    Austin Knight Group       26,712     21,159            26.25



Quoted groups’ highest-paid directors


Company            Director         Remuneration  Dividends     Total

                                     pounds 000   pounds 000  pounds 000

WPP Group          Martin Sorrell       2,647         67        2,714

Aegis Group        Kai Hiemstra           917          0          917

Shandwick          Peter Gummer           758          0          758

Cordiant           Michael Bungey         728         83          811

BNB Resources      David Norman           765         36          801

AMV                David Abbott           535        130          665

Chime Comms        Sir Tim Bell           502          2          504

Colleagues Group   James Robson           171        395          566

CIA Group          Marco Benatti          367          0          367

GGT                Michael Greenlees      356          0          356



Top ten agencies by cash flow


Rank  Agency                    Cash inflow (outflow) pounds m    

 1    AMV BBDO                                4.012

 2    Publicis                                2.900

 3    BST-BDDP                                2.636

 4    Bartle Bogle Hegarty                    1.736

 5    HHCL                                    1.207

 6    Griffin Bacal                           0.873

 7    Roose and Partners                      0.743

 8    Mellors Reay and Partners               0.412

 9    FCB Advertising                         0.001

10    Clark and Taylor Advertising           (0.043)



Top 50 agencies (part one)


Rank    Rank   Agency                                Year end    Gross 

latest previous                                                  income 

                                                                pounds m    

 1       19    Saatchi and Saatchi Group             31.12.95    48.688 

 2        1    The Ogilvy Group (Holdings)           31.12.95    47.589 

 3       50    Young and Rubicam Group               31.12.94    43.623 

 4       43    J. Walter Thompson Group              31.12.94    37.128 

 5        8    Abbott Mead Vickers BBDO              31.12.95    30.120 

 6        5    BMP DDB Needham Worldwide             31.12.95    29.560 

 7        3    DMB&B                                 31.12.94    28.987 

 8       12    McCann-Erickson Advertising           31.12.95    28.426 

 9       49    Bates Dorland                         31.12.95    27.856 

10        2    Lowe Howard-Spink          &nbs


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