A cautious confidence is returning to Britain’s recession-battered
agencies with signs that profits are growing and more staff are being
hired, according to recently published figures.
However, the recovery remains fragile because of fierce competition in
an over-populated market. Agencies will have to work harder to justify
their expense to cost-conscious clients, the accountancy firm, Willott
Kingston Smith, warns.
The evidence of improving financial performance comes in Willott
Kingston Smith’s latest three-monthly monitor of the country’s top 50
agencies, based on results posted at Companies House.
They show a steady rise in operating profit per head, which has grown by
21 per cent since the last survey, suggesting healthier gross margins
and a further shift to fee-based income.
But this is still only 88 per cent of the level achieved during the boom
years of the mid-80s and takes no account of inflation.
Bob Willott, the firm’s managing partner, said agencies’ recovery was
being held back by the ongoing shift of media buying into media
independents and the continued attempts by clients to screw down
margins. ‘Agencies will have to continue working hard to justify what
they do because they’ve always been poor at extolling the value of their
work,’ he commented.
‘But agencies also feel things are a lot better, and those that were
worried two years ago now find themselves with much stronger levels of
income,’ Willott added.
The monitor suggests agencies have learned lessons from letting staff
costs run out of control, although it shows they have risen by 2 per
cent compared with an RPI increase of only 0.7 per cent.
The most likely explanation, according to Willott, is that agencies are
taking on more staff - particularly graduate trainees - as their
economic outlook improves.
The combined effect of this has been to virtually halt the rise in the
ratio of gross income per head to employment costs per head, which,
using the firm’s own scale, stood at 190 in 1985 and has only moved by
0.6 to 193.9 in the past three months.
The monitor also predicts that the recovery could spark a fresh round of
merger activity. ‘I know of a number of big players who are looking to
acquire agencies,’ Willott added.