MEDIA BRIEFS: Rimmel to provide readers via text messages

The whispers of recession in PR are growing louder and the

'streamlining' of PR firms after frenzied hiring is well underway. But

until now there has been little hard evidence of how the people running

UK consultancies feel about the state of the industry, and their

expectations of income, profits and staff numbers in the years

ahead.

The Madsen Clark PR Economic Barometer of 59 consultancy bosses from

within the PRWeek Top 150 appears to reveal what is really going on in

the industry, since it is done on an anonymous basis. It's not all doom

and gloom, and some bullishness remains, but respondents with downbeat

views of their firm's health are more plentiful than might be

desired.

Most striking is that the amount of consolidation in the industry during

the past couple of years is not about to slow down soon. Almost half (49

per cent) of those surveyed said they were very or quite likely to

consider leading a merger or being merged with another company in the

next 12 months.

This is good news for Madsen Clark, which brokers mergers, acquisitions,

MBOs and MBIs for PR companies, but may be worrying for the industry:

that's a great deal of companies not feeling strong enough to stand

alone into 2002.

According to non-exec Alastair Gornall, it isn't all negative: 'We're

seeing six to ten agencies a week that are "interested in exploring

strategic options". Some want to talk because they are nervous, others

see the current climate as an opportunity to go for market share, so

they're in a position to be bought in three to five years.'

Other agency heads speak of the 'clustering' of PR consultancies,

particularly small to medium-sized businesses: 'In a recession people

don't like standing on their own too much. Mergers allow restructuring

and allow companies to get back into profitability and cash flow and a

more solid footing,' says one.

There is a view that no giant mergers of the sort seen in 2001 are on

the horizon: 'I would like to see how deep the pockets of the big

players are in the current climate - many are still working out the cost

benefits of all the agencies they bought during the past couple of

years.'

Expectations of income or profit during the next year point to

polarisation in the industry. There is a fairly even split between those

who expect year-end profits to be up (53 per cent) and those who expect

them to go down (34 per cent) or be the same (13 per cent). Half the

industry seeing profits declining or stagnating is hard evidence to back

up stories of redundancies across the industry.

The average PR firm makes margins of something like 12 to 15 per cent.

As Gornall says: 'It doesn't take a big drop to wipe that out'. Most

agencies have also been affected by clients freezing their spend in the

wake of 11 September, which added to a pre-existing slowdown.

'The conversations I've had with people show many are trading in a

break-even situation. If agencies have a strong balance sheet and have

been prudent they can sustain that for a while. If they haven't, they

can't. I suspect many companies are under-capitalised and will feel

exposed,' says Gornall.

Other agency bosses agree, but suggest that getting through the

recession depends on being strong in a few key areas. There are plenty

of comms challenges in the corporate arena as firms downsize, merge or

restructure. More bleakly, some areas of healthcare will require work

tackling stress, depression and the associated illnesses that go with

uncertainty and redundancy.

Weber Shandwick Worldwide joint CEO David Brain remains upbeat. 'We

shouldn't lose sight of the fact we are in the right industry at the

right time. We just have to be good managers over the next year. The

economic conditions will weed out those bosses who are simply good at

PR, rather than good at managing a company.'

It is no surprise, given half the industry expects growth to end, that

many consultancies are either not hiring, or are letting people go.

There have already been a number of high-profile culls as the

enthusiastic recruitment of last year proves unsustainable.

Although 41 per cent insist they plan to take on more people, increasing

numbers by an average 13 per cent, a further 35 per cent say staff

numbers will stay the same. Nearly a quarter of firms plan on

redundancies in the next 12 months, reducing headcount by an average 16

per cent.

Even the leading lights in the industry may not stick around: 24 per

cent of respondents said they were not sure they would be in PR in three

years. But Gornall isn't surprised: 'It's difficult running an agency in

a recession. A lot of people have been through it before and are asking

themselves if they want to carry on. Many are thinking that if they are

able to sell in a few years they will have a chance for another career

in their 40s, and for many people that's exciting.'

Madsen Clark plans to repeat the survey every six months, and Gornall

says he expects the picture to be a good deal worse come the spring. His

prediction is that the number of firms saying income and profits will

fall will be greater, and fewer will be planning to increase staff.

It looks like the worst is yet to come.