Independents lead the way as market picks up

Independent design consultancies are financially outperforming those groups owned by global networks, says a key report out this week.


According to accountant Willott Kingston Smith’s annual Branding and Design Survey 2005, of the ten independents included in the top 30 groups, eight reported increased gross fee income.


This compares favourably with combined results, including network-owned groups, which see operating profits down by 26 per cent. Willott Kingston Smith partner Amanda Merron attributes the success of the independents to their flexibility and speed of response.


‘Independents are a lot more focused and able to react more quickly to market trends. They have the freedom to make decisions relevant to their business rather than a parent group and that appears to have paid dividends in the recent, difficult trading conditions,’ she explains.


Merron believes that despite the drop in operating profits, the industry as a whole is over the worst of the economic slump, with groups that filed results for 2004 showing significant improvements over those that filed earlier results.


Twelve of the top 30 groups achieved increased turnover and 16 showed improved gross income – the growth coming primarily in those consultancies reporting 2004 results. Among groups filing 2002 and 2003 results, Enterprise IG showed a gross income downturn of 53 per cent, Fitch fell by 34 per cent and Interbrand by 25 per cent.


‘Those design groups publishing accounts covering the most recent period [year ending 2004] did better than those publishing for 2003, which suggests an improving trend,’ says Merron. ‘The overall poor operating profit is unduly skewed by consultancies that filed late.’


But, adds Merron, the industry is some way away from a boom. ‘It’s a gentle relaxing of a very tight and difficult market. Design groups that have tightened up [their business] should be in a good position to benefit from an upswing.’


No single discipline stands out as being more successful, with the Imagination Group, Wolff Olins, Lambie-Nairn, Addison Corporate Marketing and Sandom Group all showing improvements.


Merron believes that those groups that are thriving have successfully differentiated themselves in what, she says, is still ‘an oversupplied marketplace’.


‘Finding ways to distinguish your offering is more and more important – be that by sector, by discipline or by a service offering,’ she says. ‘Groups need to be offering a detectable difference, and they need to be able to articulate the value their consultancy brings to improve negotiation of rates with clients.’


Productivity remains a key ratio for the industry and designers are recognising this, with overall productivity improving, for the second year running, to an average gross income per employee of £78 049, compared with £74 028 last year.


Merron says those consultancies that ‘have a clear understanding of the relationship between employment costs and income’ will be best placed to benefit from growth opportunities.


She counsels against an immediate tactic of employing more staff in response to bigger workloads and says groups should focus instead on the search for more profitable clients to replace those that are less lucrative.


She concedes that this continues to be the industry’s major challenge, with clients across the broader marketing services ‘spending more but wanting more bang for their buck,’ according to Merron.


The report also highlights that pre-tax profits are up 11 per cent, mainly due to reduced exceptional costs. This suggests, says Merron, that consultancies took the difficult decisions, such as redundancy and office closures, last year, ‘putting them in a better position this year’.


It was always likely that 2004 would be a strong year for marketing services – the Olympics, US elections and European Cup were all delivering opportunities.


Merron believes 2005 is likely to bring lower growth levels. However, she says the consensus is that the industry will experience a gentle improvement in trading conditions over the next three years, with 2008, the next Olympic year, likely to be a bumper year.



Headline Results




• Operating profits down 26 per cent


• Pre-tax profits up 11 per cent


• Independent groups outperform global networks


• Balance sheets improve – more than half of the top 30s show an increase in net current assets


• Long-term debt reduced by 37 per cent


• Productivity improves as staff numbers are contained



Is the downturn over? percentage change in gross income 2003-2004




GROUPS FILING 2003 ACCOUNTS:


• Fitch: down 34 per cent


• Interbrand: down 25 per cent


• FutureBrand: down 33 per cent


• 20/20: down 20 per cent



GROUPS FILING 2004 ACCOUNTS:


• Addison Corporate Marketing: up 20 per cent


• Sandom Group: up 21 per cent


• Lambie-Nairn: up 10 per cent


• Jones Knowles Ritchie: up 9 per cent

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