Analysis: Industry sees the return of optimism

The latest PR agency Economic Barometer survey suggest firms are going into 2004 with a marked increase in optimism. Mark Johnson sifts through the data

Despite much wringing of hands as the year got off to a shaky start, the PR consultancy sector has ended 2003 with a marked upturn in confidence, according to fresh research out this week.

The latest Economic Barometer, research for which was carried out by industry consultants AG Knowledge, indicates that agencies anticipate greater year-end profits than they did in January, show increased confidence in their own performance next year and are planning a hiring spree to handle the return to growth.

In the Barometer, carried out last month, 76 per cent of respondents said they expected annual fee income for the next 12 months to be greater than last year, with the average increase expected to be 19 per cent.

This shows a dramatic rise on the 47 per cent who predicted a rise in the same survey conducted in January, when the average rise expected was 21 per cent.

Profit predictions are rosier too. More than 63 per cent of respondents expect year-end profits to be higher than last year (with an average predicted rise of 26 per cent), compared with only 58 per cent in January. Seventeen per cent expect lower profits than last year, compared to 18 per cent in the last survey.

After more than two years of painful downsizing in the agency sector, the survey indicates the job market also looks set to bounce back in 2004.

Almost two thirds (65 per cent) said they expected to increase their total number of employees next year, on average by 17 per cent. This compares with 60 per cent in the January Barometer. Only five per cent still expect to cut staff.

The data corresponds to a generally positive outlook for the overall performance expectations CEOs and directors have for their businesses in the coming year. Whereas in January only 31 per cent said they felt 'very' positive about future performance, 38 per cent are now looking forward to better times ahead. Only three per cent were 'not at all' positive, compared with double that figure in January.

AG Knowledge managing director Alastair Gornall says the survey reveals encouraging signs for the next 12 months. 'Almost everybody is feeling better about next year, which has to be good for the sector, good for recruitment and, in the long run, good for the development of new talent,' he adds.

However, Gornall is concerned about the few agencies that were showing negative expectations. 'Fees are coming from quite a low level, and 17 per cent of the market - that's about 28 firms in this survey - are saying profits will be 15 per cent lower.'

And not everyone is upbeat. Chime Communications chairman Lord Bell says: 'It's an industry desperately hoping for a good year and, of course, after the years we've had, next year will definitely be better. But I think corporate spending will remain under pressure, fees for financial transactions will be far lower than in the past, and we need to worry about consumer spending as interest rates go up.'

Lord Bell says that, although fee income and profits will increase next year, this will be due to increased market share. He warns, however, that the market over-supply could lead to the closure of several small firms.

The survey received 170 responses from CEOs and directors of UK PR consultancies across a full range of company sizes. Eighty-five per cent of respondents had fewer than 30 staff, while three per cent were more than 100-strong.

The majority of agencies (63.5 per cent) had fees of less than £1m, and almost 24 per cent were in the £1m-3m bracket, while five per cent were in the £6m-plus fee bracket.

Gornall said the results were relevant to all sizes of PR firm. 'Some smaller agencies are making 30 per cent profit margins, but some are having a tough time,' he says. 'In the end, it comes down to the quality of management.

Well-run companies are in a good position to do well out of any market.

Many clients, as well as agencies, have told me they are feeling next year is going to be a much better year.'

But the fact that almost a quarter of respondents (23.5 per cent) said they were likely to look into leading a merger or being merged into another PR company as a result of the economic situation was an indication of personal exhaustion at director level among some agencies, said Gornall.

Four Communications managing partner Nan Williams agreed with the positive sentiment of the survey for next year, highlighting strong expectations for fee growth in corporate reputation, consumer and public sector work.

'There is a lot of new business and more decent in-house budgets around at the end of this year than there has been for a few years, which have mostly been periods of cutting back PR budgets,' she says.

Since the dotcom bust in 2000, consensus on the direction of the market has been divided or negative. This survey provides the first real sign of a widespread positive outlook.

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