UK agency profit margins hit 10-year low

Profit margins at the top 40 UK PR agencies declined last year to the lowest level for a decade, according to the latest survey of company results by accountants Kingston Smith.

UK agency profit margins hit 10-year low

Operating profit margins declined by nearly a sixth in 2013 to just 11.9 per cent, the lowest level since 2004. The absolute level of profits also declined by 10 per cent in real terms year on year, with the top 40 making £68m of operating profit compared with £73m last time round.

The study paints a picture of an industry skewered by stalled revenue growth and rising costs.

READ MORE: The top 40: A snapshot of the industry

Employment costs grew by 5.25 per cent and other operating costs soared by 7.47 per cent. Wages accounted for 62 per cent of gross income in 2013 compared to 61.2 per cent in 2012. The number of employees working for the top 40 increased slightly by three per cent to 5,500 last year.

This meant that gross income per head, the key measure of productivity, was just £105,000. That is a significant decline in real terms on last year’s figure of £107,000.

Gross income grew by just 4.24% to £571.4m. But with inflation around three per cent, real growth was negligible.

The report’s author said she was surprised by the findings. "2013 was always going to suffer by comparison with the 2012 the bumper Olympic year. But even if you take 2012 as an anomaly, growth is down. It’s all a bit gloomy," said Esther Carder of Kingston Smith.

She said the results partly reflected a change in the top 40 sample, which lost four agencies and included four new ones.

Carder added that other contributory factors included the shift away from retainers to project work, which makes it harder to predict resource levels accurately; and the booming economy, which unleashed pent-up wage and cost increases and the move to digital, which increased wage costs.

Kingston Smith W1’s Financial Performance of Marketing Services Companies annual survey reviews the most recently filed accounts of the top 40 PR consultancies, mostly to year-end 2013.

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