Delving into the minutiae of Willott Kingston Smith’s latest report, The Financial Performance of Marketing Services Groups 2005, makes for some illuminating study.
Not only did independent design groups massively outperform their network-owned rivals over 2003/2004 as reported in Design Week (DW 6 October), but the big branding groups, with the exception of Landor Associates – whose results are rolled into Young & Rubicam – and Wolff Olins, which ranked second, all appear to have clocked up substantial operating losses, which ‘dragged down the sector average’, according to the WKS report.
Because of Sarbanes-Oxley legislation, we don’t get a feel these days for how the majors are performing, until they file their results at Companies House. While this means that there is a significant lag between what is ‘happening now’ and what is filed on record, the benefit of studies like this from WKS is the depth of information available.
WKS was unable to discern one single discipline which outshone the others over the timeframe. Across the Top 30 surveyed groups, productivity levels improved again, though this was due to ‘reduced employee numbers’ among their ‘lower paid staff’, the accountant concludes. Total Top 30 staff levels fell by 10.4 per cent to 2309 people. However, this resulted in employment costs falling by only 4.1 per cent.
After years of decline in the all-important figure of average productivity per head, WKS has finally stated that, ‘it seems we are starting to see a sustained growth in this key ratio which is vital to the recovery of the sector’. The measure of average gross income per employee has risen for the second successive year to £78 049, though consultancies should be aiming for £100 000 per head, the accountant points out. Furthermore, the largest groups were not the most productive, the report concludes.
The data reveals that independent group Imagination not only still leads the pack in terms of turnover (£92 848 000) and gross fee income (£27 919 000), but also employs the most staff (357 – down from 375 reported the previous year) and generates the second highest level of turnover per head (£260 081 per employee).
It’s perhaps appropriate that the size of the salaries in the ‘Highest paid directors’ table have diminished substantially in recent years. Fewer groups seem to have made this information available this time round though, such as Radley Yeldar, which ranked first with £884 000 in WKS’s analysis of branding and design groups last year. Top of the current table is FutureBrand, whose highest paid director received £368 000 in 2003, according to the report (see table below). As far as directors’ emoluments (excluding compensation) were concerned, the report shows that seven groups paid more than £1m over 2003/2004 and one – Interbrand – more than £2m, all of which is similar to the previous year. Moreover, the net overdraft positions reported for FBC (FutureBrand) and Wolff Olins – £7.8m and £4.5m respectively – were singled out by the report as ‘massive’.
Few design and branding groups encumbered themselves with long-term loans during 2003/4, according to the report. Only seven of the top 30 groups had loans of any size. Of these, only Coutts Retail Communications, Springer & Jacoby and Design Bridge had loans worth more than £500 000 – and only the latter group had increased the value of its loan year-on-year, according to the WKS figures. Overall, long-term debt was reduced by 27 per cent.
The study concludes by stating that the ‘painful restructuring’ of previous years seems to have ‘helped to stabilise the sector and give companies a solid base’ for doing future business.
For further details of the report see www.kingstonsmith.co.uk