Top 30 media agencies' turnover surpasses £1bn

Kingston Smith digs into UK media agencies' financial results to work out what's really going on in the sector.

Jerry Buhlmann: stepping down as Dentsu Aegis Network boss at the end of the year
Jerry Buhlmann: stepping down as Dentsu Aegis Network boss at the end of the year

It was another strong year for the top 30 media buying agencies, with gross income topping the previous year’s record to reach more than £1.1bn.

Total billings for the top 30 remained relatively static. However, the ratio of gross income to billings
has increased to 11.2% compared with 10.2% in the previous year. Agencies are reporting that client
budgets are falling, but appear to be controlling direct costs in response to this in an attempt to
maintain their profitability.

Total gross income (on which we rank the media agencies) has increased by 9.2%, which shows resilience in the face of the challenges the sector has been facing with regard to transparency and programmatic digital media. These increases were widespread across the sample, with only four suffering a reduction in gross income, the largest being Havas Media with a drop of 21.7% compared with last year. Some 18 agencies grew their gross income by more than 10%.

Total operating profit for the top 30 has grown by a healthy 11.9% and the average operating profit margin stands at 12.2% – a reduction on the previous year. However, this picture is distorted by the fact that Dentsu Aegis London made significant losses of nearly £40m. If we exclude Dentsu Aegis Network (as well as those that haven’t filed their most recent accounts), we see a rather rosier picture, with operating profit margins at a much healthier 19.6%. However, this would still be a decrease on the comparative year’s 20.4%. Given the challenges that media agencies are facing, it is no wonder that margins are under pressure.

The star performer is PG Media Services, which has increased profits by some £10m, with a combination of top-line improvement from new client wins and increased business from existing clients, combined with close management of operating costs. There has been strong growth for M/SIX, which has seen operating profits increase by 88%, as well as the newly renamed Zenith, which increased operating profits by 142%.

For the past two years, the same three agencies have generated losses: Dentsu Aegis Network, Havas Media and Wavemaker. All three made bigger losses than for the comparative year and continue to be funded within their groups. The agencies are all in different network groups and it appears that there is no correlation between their losses and the profitability of the groups they are in. The effects of transfer pricing within these group agencies are also unknown and could contribute to the losses reported.

The top 30’s average gross income per head increased at roughly inflationary rate to £107,634, although this varies significantly between agencies. Our target gross income per head is £120,000 for media agencies. Some 13 agencies achieved that this year, compared with 11 last year and just six in the 2016 survey.

Overall, staff numbers have increased by 7.4%, with the number of employees in the top 30 breaking the 10,000 barrier for the first time. Total staff costs have increased by just 3.5%, reversing the trend of previous years, meaning that average staff costs per head have reduced to £62,364. We have been reporting for a number of years that employment costs per head have been increasing as media buyers are finding their feet in the digital world, and this is a sign that staff costs may be coming under control and perhaps also reflective of a slightly more junior staff mix.

The ratio of employment costs to gross income is a further indicator that agencies are getting staff costs under control as the ratio has improved to 58.8% this year, which continues the downward trend over the past four years. We would recommend that a media agency contain its staff costs to within 55% of gross income; more than half of the top 30 managed to do this.

There were seven independent agencies in the 2018 survey compared with six in the 2017 study. However, while small in number, the independent agencies continued to produce stronger margins. It has been another strong and steady year for the top 30 media buying agencies, with continued growth in gross income and operating profits.

Agencies are concentrating on new opportunities, including the use of technology, which is crucial for maintaining margins while meeting clients’ objectives with lower client budgets. Adaptability continues to be key for media buying agencies, particularly during these challenging times and with the changes arising from technology. With the current uncertainty and with new opportunities opening up, there is an exciting future ahead for media buying agencies.

Top 10 media agencies

Gross income Operating profit Operating profit : gross income
Company name Year end Latest Change Latest Change Latest Previous
£000s % £000s % % %
1 Dentsu Aegis London Limited 31/12/2017 156,410 5.39 (39,840) (4.52) (25.47) (25.68)
2 Mediacom UK Limited 31/12/2017 115,910 (0.56) 11,121 (36.12) 9.59 14.94
3 OMD Group Limited 31/12/2017 93,599 (7.95) 26,716 10.64 28.54 23.75
4 Mindshare Media UK Limited 31/12/2017 93,264 10.18 10,004 (28.94) 10.73 16.63
5 PG Media Services Limited 31/12/2017 81,151 20.17 14,068 288.51 17.34 5.36
6 Wavemaker Limited (formerly Mediaedge:Cia UK Limited) 31/12/2016 49,146 13.54 7,703 (26.92) 15.67 24.35
7 PHD Media Limited 31/12/2017 48,556 19.80 13,937 52.42 28.70 22.56
8 Dentsu Aegis Manchester Limited 31/12/2017 41,140 11.59 16,446 16.20 39.98 38.39
9 Zenith UK (Media) Limited (formerly Zenithoptimedia Limited) 31/12/2017 35,338 0.80 2,660 142.26 7.53 3.13
10 Mediabrands Limited 31/12/2017 33,073 18.03 4,834 25.40 14.62 13.76

Esther Carder is partner and media specialist at Kingston Smith

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