However miserable the gloomy economic conditions may have made us feel, they do not seem to have done much harm to the five biggest marketing groups in the world (with years ending 31 December 2011, thus excluding Dentsu). Each of them recorded better revenues and better profits in 2011.
But two of the biggest contributions to the improved profits had nothing to do with marketing activities at all. Interpublic booked a profit of $126 million from the sale of shares in Facebook, contributing 24 per cent of the profit it reported for the year. And WPP enjoyed the benefit of some skilful tax-planning advice that produced a tax credit relating to prior years of £106 million, or 13 per cent of its total profit.
Those exceptional items explain why there was a 31 per cent rise in profits from the global groups in 2011, when revenues climbed by a far more modest 8.5 per cent.
Yet, even an 8.5 per cent rise in revenues would normally be applauded in such inclement economic conditions. Inevitably, most of that growth came from growth markets such as Asia-Pacific, Latin America, Africa and the Middle East. Those territories contributed 24.3 per cent of the combined groups' revenues in 2011, compared with 22.2 per cent in 2010. By comparison, growth of 4.3 per cent in North America was sluggish and growth of 7.2 per cent in Europe was pretty average.
Perhaps more surprising is revenue growth in the UK, which exceeded 10 per cent, with the strong showings at Omnicom and Interpublic helped by favourable exchange rate movements.
Omnicom reported the biggest revenue growth in percentage terms - up by 10.6 per cent to nearly £9 billion - while Havas had the lowest at 5.6 per cent. Thus the gap between the biggest and the smallest of the Big Five expanded further, leaving Havas with some serious questions to face about its long-term future. Omnicom may have grown at the highest rate, but it failed to regain the lead from WPP as the group with the biggest revenue overall.
The good news is the improvement in operating profit margins by all groups - again, something that comes as a surprise during poor economic conditions. Taking the five groups together, operating margins on revenue improved from 11.7 per cent to 12.6 per cent. Some of the individual companies will probably claim even higher margins than shown here, because they adopt a more benevolent definition of operating profit.
At WPP, the margin improvement was achieved because it contained the rise in its operating costs at 6 per cent while its revenues rose by 7.9 per cent. Among the operating costs, staff costs increased in proportion to revenues, but property and other expenses hardly increased at all.
Interpublic, too, was able to increase revenues without a proportionate increase in staff or other operating costs. And while this improved its operating profit margin from 8.4 per cent to 9.8 per cent, the group still has a long way to go before it is as productive as its rivals.
The position at Omnicom was a little more worrying, insofar as its staff costs increased faster than revenues. If the group had not been able to contain other operating cost increases to a modest 4.4 per cent, its operating margin could have come under serious pressure.
Havas achieved a similar operating profit margin to Omnicom, albeit on a smaller amount of revenue. Omnicom is more than six times the size of the French group, which lags behind the other four.
The best operating profit margin was achieved by Publicis last year. Somehow, it manages to operate the tightest cost controls or else it defines operating costs in a subtly different way from its competitors. Revenues grew by 7.3 per cent and staff costs grew by 8 per cent. But other operating costs grew by only 5.6 per cent, with Publicis claiming that administrative costs benefited from the operation of its "shared service centre program" - what might otherwise be described as a centralised buying system.
It is impossible to establish the impact of the shift towards digital on revenues earned by discipline. At WPP, revenues from the businesses that are explicitly engaged in digital and interactive services - such as 24/7 Real Media - are included with direct marketing, design and healthcare. Yet the proportion of WPP's revenue derived from that mixed bag of activities remained almost static, while the proportion of revenues derived from advertising and media management increased at the expense of its research operations.
WEAK RESEARCH DIVISION
Research continues to be the lame duck of the business, with static revenues and operating profit margins well below other disciplines. However, WPP claims it has taken an axe to the cost base and achieved a modest improvement to the profit margin when compared with the previous year.
Compared with WPP, Publicis is less explicit in the detail it provides about the profitability of its activities. Put at its simplest, Publicis breaks down its revenues between advertising and media, and then lumps everything else into a single pot called SAMS that accounts for half of the group's entire revenue - hardly in the spirit of helpful segment reporting. Into that pot go all the discrete digital businesses such as Digitas and Razorfish, as well as other activities such as sales promotion, public relations, direct marketing, event management and healthcare marketing.
All we can deduce from Publicis is that traditional advertising and media buying stood still in terms of revenue, while the SAMS pot grew by about 14 per cent. So, on the face of it, WPP did better than Publicis in its advertising and media buying activities in 2011, while Publicis seems to have done better elsewhere, unimpeded by any major research activities and benefiting still from its strong Digitas and Razorfish brands.
ADVERTISING AND MEDIA FOCUS
Omnicom's revenue growth by discipline seems to have followed closely to that of WPP, with a very slight gravitation towards advertising and media, and slightly slower growth at what Omnicom calls its diversified agency services (embracing PR, design, CRM, direct marketing and much more).
If Publicis could be accused of being less than helpful in its analysis of revenues by discipline, then Interpublic deserves at least as much criticism. It, too, divides its activities into two divisions, IAN and CMG - neither of which give a clue as to their composition.
After digging around among various other documents, we learn that "IAN comprises McCann Worldgroup, DraftFCB, Lowe & Partners, IPG Mediabrands and our domestic integrated agencies. CMG comprises a number of our specialist marketing services offerings."
So it would appear that 84 per cent of Interpublic's revenues come from the IAN division, comprising advertising, media buying, CRM and direct marketing, while the remaining 16 per cent - comprising activities such as public relations, design and a few genuinely specialised activities - fell within CMG. That's not a very helpful analysis. Suffice it to say that the mix remained unchanged between 2010 and 2011.
Bob Willott is the editor of Marketing Services Financial Intelligence
THE AEGIS CONUNDRUM
No-one can doubt the financial benefits that Aegis Group, led by the chief executive, Jerry Buhlmann, will enjoy after disposing of Synovate. Its preliminary results for 2011 showed that Synovate had made no profit contribution to the group whatsoever in that year - apart from a profit on its disposal.
Furthermore, operating profits from the residual media buying division grew by 121 per cent in 2011 to £145.8 million, while the operating profit margin rose from 7.2 per cent to 13.2 per cent. And the group's balance sheet is extremely solid, thanks to Synovate's sales proceeds.
While a measured celebration may be in order at Regent's Place, questions about its financial performance remain unanswered.
Top of the list is where and how the remaining components of the group make their profits. Geographically, Aegis breaks down revenues by three regions - EMEA, the Americas and Asia-Pacific. Nowhere can we see how much revenue (let alone profit) comes from the UK, the US or growth markets such as China, which Aegis says was "an outstanding performer".
Difficulties also arise when trying to establish how much revenue and profit is derived from digital operations. Of course, Aegis can argue that its digital activities are integrated into its mainstream media operation, but shareholders are still entitled to know how this very big investment in the future is working out. At the very least, Aegis could report on the progress of iProspect, Isobar, Posterscope, Carat and Vizeum.
Apparently, digital contributed 35 per cent of revenue in 2011, better than the 32 per cent of the previous year. Both figures are impressive, but what does that mean? Who defines digital (admittedly hard to do on an integrated communications programme)? And how profitable was it?
This article was first published on campaignlive.co.uk