As clients retained a tight rein on budgets, 2003 was tough and challenging for many PR agencies as they struggled to build up their income or turn a profit. The bigger the agency, the harder it seemed to be to perform well. More than half of those in the Top 20 saw fee income decline below 2002 levels. But it wasn't only the big guns that took a pounding. Many smaller agencies also had to lick their wounds.
Unfortunately, as was the case last year, many leading consultancies are absent from the main league tables, owing to the implementation of the Sarbanes-Oxley Act, introduced in the US in the wake of high-profile corporate financial scandals, in particular the Enron fiasco. The Act requires US-listed companies to be far more circumspect on the release of unaudited financial information, as well as staff and client numbers.
Many of the major players in PR belong to parent firms with a listing in the US, and they have had their hands tied over releasing figures that cover the 12 months ending December 2003. Big names missing once again from this year's table include Burson-Marsteller, Cohn & Wolfe, Ketchum, Hill & Knowlton, Golin/Harris International, the Shire Health Group, Manning Selvage & Lee, Ogilvy, Brodeur Worldwide, Buchanan Communications and Grayling Group.
It is hoped that a workable compromise can soon be found that allows major players to release figures in a timely way, permitting a direct and fair comparison of all the significant PR businesses operating in the UK. Meanwhile, PRWeek has, as it did last year, asked accountancy firm Willott Kingston Smith, which specialises in advising creative communications and consulting businesses, to comb Companies House for financial statements to year end 31 December 2002.
Obviously, this information is more historic than the 2003 calendar year numbers provided by the 150 audited entrants in our main league table, so we are unable to compare like with like. Yet it would clearly be nonsensical to overlook some of the UK's, indeed the world's, most significant PR agencies, and their Companies House figures have been included in a separate table. For this reason also, our agency profiles run in alphabetical order rather than from highest to lowest league table ranking.
Shortcomings aside, the Top 150 table still provides an insight into the year gone by - a year of mixed fortunes, which saw some agencies post healthy growth while others suffered painful fee income decline. For many, this was also a year of two halves, beginning slowly owing to an uncertainty and lack of confidence rife among clients in the build-up to, and aftermath of, the war in Iraq. Bullishness was more widespread on the client side in the second half and seems to be continuing into 2004, sparking hopes that next year's tables will paint a picture of recovery.
'It's been a mixed year,' says Biss Lancaster Euro RSCG and PRCA chairman Graham Lancaster. 'My impression is that the larger members have found fee income a bigger problem than did smaller or medium-sized firms.
Most agencies with £3m or more a year fee income have had fairly modest growth and some have seen decline, but not as badly as in 2002. There's a feeling the market bottomed last year, but we're optimistic it's on its way back.'
Bell Pottinger/Good Relations/Harvard again tops the league table, although its figures show a seven per cent drop in fee income to £32.6m. An internal reorganisation mean Harvard Communications has this year also been consolidated with its Chime stablemates at the top of the tree. Last year, it was ranked as a separate entity, with fee income of £4.2m.
Electronics giant Philips taking business back in-house was the main blow of the year, but many clients reduced their spend across the Chime businesses. Chime Communications chairman of the PR division Kevin Murray says the final three months of the year showed a marked improvement on the third quarter. 'We are cautiously optimistic. For the first time we can see the way in which things might start to improve, with clients starting to sound more bullish.'
Citigate deals with both corporate and financial PR, and it occupies a distant second spot with fee income of £19.7m. But if holding firm Incepta had taken the same approach as Chime and combined its PR brands together, the gap would have been much smaller. The Red Consultancy has fee income just shy of £8m, and the £3m contributed by Citigate Public Affairs would take Incepta's PR fee income above £30m, were the three businesses combined in our chart.
'We've seen growth in our consumer brand Red and a slight decline in the Citigate brands, which are driven by corporate activity,' says Incepta chief executive Richard Nichols. 'The first half of the year had clearly been affected by the Iraq conflict and SARS, but in the second half we started to see pick-up and recovery, with more appetite in the IPO market.'
Hill & Knowlton UK chief executive Marie Louise Windeler also says margins became better later in the year. 'We had a very good finish to 2003 in healthcare, a strong year in marcoms and a pretty good year in sports marketing and sponsorship.'
It has been more of a turbulent year for Edelman, the only global PR brand still privately owned. The firm, ranked third in our table this year, saw fee income slump 25 per cent to £10.9m. In October, UK chief executive officer James Thellusson left to set up his own venture, just days after former joint Weber Shandwick head David Brain joined as European CEO. Thellusson was replaced by joint CEOs Stuart Smith and Nigel Breakwell, who were promoted internally.
'Everybody knows our consumer business has had a tough time, but we've restructured that group and are a lot happier with it,' says Breakwell.
'I think we'll be back on track this time next year, but we are seeing a lot of projects and not as many retainers. Encouragingly, the tech area is warming up again.'
Weber Shandwick has also found the going hard this year. UK and Ireland CEO Colin Byrne typifies 2003 as being 'bloody difficult' for corporate PR and 'pretty rough' for public affairs, even if there was a discernible revival in the last quarter. Public relations in technology 'plateau-ed', but consumer came back 'very strongly' in the second half.
'Thank God for public affairs and healthcare,' says Kevin Bell, UK managing director of Fleishman-Hillard and lobbyist GPC. Bell, who took over from Scott Clark at the helm of F-H in the UK last month, describes 2003 as 'challenging' for the business. But he too has seen an improvement in the technology PR sector since October. And although a lot of the agencies admit to a slump in public affairs work, Bell claims GPC was particularly strong in London and Edinburgh, achieving 'noticeable growth' from its existing clients.
Red chairman Lesley Brend witnessed a similar trend. 'We came in every day expecting the worst to happen - but it didn't. The year 2003 was about being in a state of alert all the time, but in the end it was a surprisingly stable year. It was good for business practice, as it makes you focus on being commercial and delivering value,' she says.
Omnicom-owned Fishburn Hedges, too, can't participate in the league tables owing to Sarbanes-Oxley. But CEO Neil Hedges claims it had a good year - achieving 'double digit' growth - and that public affairs is a key area. He feels that a good spread of public and private sector clients has helped to insulate the business from the downturn. New mandates last year included work for the NHS, Investors in People and a corporate brief from Pfizer.
An FH sister consumer PR agency is also soon to be launched.
GCI chief executive Adrian Wheeler says his firm is hiring staff again after a difficult start to 2003. In April, City PR arm GCI Financial was closed down after losing clients and staff, with four redundancies.
GCI's senior team was boosted by the arrival of Richard Medley from Countrywide Porter Novelli to head up the marketing communications business.
'GCI's experience in 2003 was probably similar to that of most agencies of our size and style,' says Wheeler. 'We had a reality check after the excesses of the 1990s.'
Countrywide Porter Novelli European CEO Neil Backwith says 2003 was, like 2002, an 'unpredictable' year, during which clients were uncertain as to the state of the world and the economy. He is optimistic about 2004, foreseeing a growing role for PR in explaining consumer technology, and in practice areas such as internal communications and change management.
City and corporate specialist Financial Dynamics was among those that chose not to submit figures this year, but chief executive Charles Watson says it will 'probably' be back in next year. The reason for staying out, he says, was the completion last July of an MBO, in which private equity firm Advent International, Watson and his colleagues paid £26m to acquire the firm from Cordiant Group.
'The first eight months of the year were tough,' says Watson. 'The period leading up to the Gulf War was one of enormous uncertainty - there were no IPOs and very little M&A activity. But the last four to five months of the year saw a big pick-up in the market.'
Watson adds that there was good growth in retained fees for advisory work - with clients relying on high-level counsel to help them through hard times. FD's international capabilities are also helping it pick up business on cross-border assignments, a classic example being its work helping Aventis fend off a 50bn euros hostile bid from Sanofi-Synthelabo.
Healthcare PR specialist Chandler Chicco similarly chose not to enter this year, concerned that the non-appearance of the global groups might make this year's exercise less meaningful. MD Jennie Talman says she will 'wait and see' what happens before deciding whether the company, which stood at number 37 last time, will submit figures next year.
Talman admits that 2003 started slowly for the firm, but gathered momentum.
Important wins included a programme to promote the therapeutic benefits of Allergan's Botox drug, work on Viagra for Pfizer and UCB's epilepsy product Keppra. Innovative programmes included commissioning journalist and social commentator Polly Toynbee to write a play on breast cancer called Breast, which was performed to 400 top oncologists to promote AstraZeneca's hormonal therapy, Arimidex.
'We saw more clients in 2003 looking for fully integrated comms programmes than in previous years, including medical education, media and patient advocacy,' says Talman.
There is some irony in that whereas Chandler Chicco is not in our Top 150, Biosector 2, for the first time, is. It was set up in the US by Chandler Chicco founders Bob Chandler and Gianfranco Chicco, and is headed in the UK by Danish-born MD Charlotte Ersboell. It only opened its doors in the UK in autumn 2002, but has since generated more than £500,000 in fees last year. 'We think the big pharma companies are looking for smaller boutique agencies for support,' says Ersboell.
Last year, Geronimo Public Relations was the fastest-growing agency in the Top 100. This year, it continues to perform strongly, posting a 48 per cent rise in fee income to more than £2.8m. 'I've always put our success down to our client transparency,' says MD Karen Harris. 'We offer full-time dedicated teams on a campaign. It goes down exceptionally well with clients. Our teams therefore become more integrated with the firm or public sector.'
Harris believes CSR will continue to grow, as the behaviour of corporations is subjected to ever-closer scrutiny. One of Geronimo's biggest CSR wins last year was BSkyB's Reach for the Sky programme. Harris notes clients' growing demand for agencies to demonstrate effectiveness. She believes that agencies will be under even greater pressure to demonstrate the value of their work and its impact on target group behaviour.
One agency with an interesting business model that prospered in 2003 was London Communications Agency (LCA). The firm was created five years ago to take advantage of opportunities arising out of London getting an elected mayor and Assembly. Handling PR for major London regeneration projects helped it to lift its fee income 18 per cent and has taken it close to the Top 100.
'Big London projects are coming forward in a way they weren't before there was a mayor,' says LCA director Jonny Popper. 'We set up as a response to the greater regionalisation of the UK. We don't charge mark-ups and we have a flexible and transparent pricing structure.' But it was a regional-based agency, Haslimann Taylor, who is this year's top performer over five years, with a 509 per cent growth over that time.
Another strong performer in the lower reaches of the Top 150 is B2B specialist Mulberry Marketing Communications, which has enjoyed a 70 per cent leap in its fee income in the last year. Growth has come organically and through new business from clients such as retail logistics technology company Intermec and hygienic cleaning firm Unger.
Last year incontrovertibly presented a stiff challenge to PR agencies in the UK. Those that performed well deserve plaudits for excelling against the backdrop of a tough market. But with more green shoots of recovery discernible in the second half of 2003 than its first six months, and confidence growing as 2004 unfolds, it's hoped next year's league table presents more positive figures than this time.