LONDON: UK PR agencies have experienced their most profitable year since the global economic downturn and a sharp drop in redundancies, but the industry still faces a testing time in 2013.
The PRCA's annual consultancy Benchmarking Survey found a healthy increase in average pre-tax profits and income in 2012, along with a sharp fall in redundancies across the agency world.
The figures, which encompass the calendar year 2012 and are derived from the responses of 169 agencies, found the number of consultancies reporting redundancies dropped from 33% in 2011 to 18% in 2012.
Average profit margins across the surveyed agencies rose from 16% to 17.7%, while average pre-tax profit increased by 18% after a 1% drop in 2011.
Finance specialist Esther Carder, who helped oversee the survey, said the agency sector is entering “a new normal” after a long spell of uncertainty.
Carder, a partner at accountancy firm Kingston Smith W1, said the findings suggested agencies were finally coming out of a sustained period of restructuring - activity that peaked in 2010.
Agency restructures triggered 52% of last year's redundancies, compared with 81% in 2011.
Additionally, the quarterly PRCA barometer for Q1 2013 found that 49% of agency chiefs expected to increase headcount in Q2 and just 6% expected to cut it.
“If agencies hadn't made the redundancies then and cut their cloth, they wouldn't still be operating,” contended Carder. “Conditions are not as good as before, but we are back to a landscape where we can begin to predict without the surprises of before.”
Continuing the positive trend, the average minimum monthly retainer rose compared with the previous year, while over-servicing levels fell by two percentage points to 20%.
However, a number of agency sources told PRWeek UK that market conditions appeared to have deteriorated during the early part of 2013.
One consumer agency boss noted that, while plenty of opportunities for new business remained, both projects and retainers were typically getting smaller.
“It feels like conditions have worsened quite drastically in 2013. From a commercial point of view, this year has been one of the most challenging I can remember,” the source said.
PR pay rises outstrip inflation for first time since 2008
Account executives top the 2012 pay rise list with an average increase of nearly 6%. Salary increases have risen above the rate of inflation for the first time in four years, according to the PRCA findings.
The survey showed that during 2012, salaries rose 4.7% - two percentage points above inflation - reversing the trend from 2009. Between 2009 and 2011 (inclusive), inflation rose faster than salaries, with the biggest gap being 0.9%.
In 2012, account executives enjoyed the biggest rise, at 5.8%, while partners and those on agency boards had the lowest rise of 2.4%. Those at account director and director level, meanwhile, saw salaries rise 4.5% on average.
HOW I SEE IT
Mike Morgan, CEO, Red Consultancy
“What we are looking at is the new normal. There is more professional practice and there are more robust businesses now as a result of what has happened in recent years. On the plus side, the status and prestige of PR has grown during these times in the eyes of clients, but the challenge remains for that value to be translated financially.”
Francis Ingham, director general, PRCA
“These figures represent a turning point for the industry. The recovery for PR is well and truly here. Even though we are not in the boom years of a decade ago, if you can prove your value, growth is back.”
- 18% -- Percentage change in agencies' average net pre-tax profits in 2012.
- 1% -- Percentage change in agencies' average net pre-tax profits in 2011.
- 20% -- Agency over-servicing rates as a proportion of net income.
- 34% -- Agency project work as a percentage of net income
Source: PRCA Benchmarking Survey 2013