M&C Saatchi this week declared itself on course for profitability,
despite reporting a pounds 642,000 loss in its first year of
The deficit has surprised some industry observers, given the highly
profitable base of business which arrived at the Maurice Saatchi
breakaway shortly after it opened in early 1995.
But the agency claims that the loss, disclosed in figures released to
Companies House, was due to start-up costs and that it has been trading
profitably since September 1995.
The figures reveal that the agency’s turnover was pounds 15.3 million in
the year to 31 December 1995 and that the cost of employing 60 staff
during that period was pounds 3.4 million.
The highest paid director, presumed to be Bill Muirhead, earned pounds
162,000 during the year while four other directors drew salaries ranging
from pounds 85,000 to pounds 135,000.
Malcolm Summerfield, the former McCann-Erickson chief executive, said he
was surprised that the agency had made such a sizeable loss given the
amount of business - including Gallaher, Dixons and Mirror Group
Newspapers - that arrived at the agency soon after its launch.
’It can only reflect the low margins on some of the business the agency
is working on,’ he said.
Privately, insiders acknowledge that certain accounts, notably British
Airways, are hard to make money on. ’We have to work hard just to wash
our faces on that account, let alone make money from it,’ one said.
But David Kershaw, one of the agency’s founding partners, claimed that
the agency had done better than expected, having budgeted for a pounds 1
million loss in its first year of operation.
’As of September 1995 we have been been making a profit month by month
and this will be reflected in our 1996 figures,’ he said.
The optimistic financial forecasts come in the wake of last year’s
business record for the agency, which scooped more than pounds 70
million worth of new accounts.
One rival agency chairman said M&C Saatchi’s main problem in its first
year was so-called ’cash drag’, when overheads had to be met before
income from new accounts had come on stream. ’The agency has some heavy
hitters on board and its salary bill must be enormous,’ he added.
Meanwhile, M&C Saatchi has to continue to control costs that include the
renovation of its new Golden Square offices, estimated at pounds 3.5
million, and the wage bill of its 180 staff, which is believed to be
about pounds 6.5 million.
’I’m surprised the first year’s loss was so little and I expect the
agency to perform well next year,’ one agency group finance director
said. ’It’s well managed and Maurice won’t stay anywhere very long if
it’s not seen to be successful.’