Top 150 - 2005: Overview - Building on an upward trend

Last year saw an upturn in PR agencies' fortunes, though many companies are still having to keep their noses to the grindstone to increase revenues, says Robert Gray.

Have the good times returned? For many UK PR consultancies, calendar year 2004 was a much better one than its predecessor, according to PRWeek's 2005 Top 150 league tables. While increasing revenues in 2003 was extremely hard work, the business climate this time around was more favourable. Client confidence has risen and, as a result, budgets have been unlocked.

Yet while the green shoots of recovery are discernible across most sectors, we are still not talking about a bullish boom. This is not a return to the explosive growth of 2000 when nearly every agency seemed to be revelling in hefty upsurges in income. Rather, in an age when clients are far more procurement-conscious and results more scrutinised than ever before, steady growth is the reality for many of the agencies in our rankings. Moreover, while the outbreak of the Iraq war in 2003 made clients twitchy and put a brake on some spending, by 2004 it was clear that the global ramifications of the conflict were not as profound as some had feared.

Although this is not news to set the world on fire, the widely held sentiment is that growth is being developed on far more sustainable foundations than was the case amid the near-hysteria of the dotcom bubble and the period of nervousness and uncertainty that followed the crash. Furthermore, the majority of agency heads appear sanguine about 2005 on the basis of performance during its first few months.

Unfortunately, as has been the case in the previous two years, many leading consultancies are again absent from the main league tables, owing to the Sarbanes-Oxley Act. The Act was introduced in the US as a response to high-profile corporate financial scandals, requiring US-listed companies to be far more circumspect on the release of unaudited financial information. This means many of the biggest names in the PR consultancy world belong to parent companies with a listing in the US and, consequently, have been prevented from releasing figures that cover the 12 months ending December 2004. Weber Shandwick, Hill & Knowlton, Burson-Marsteller, GCI, Porter Novelli, Ketchum, Fleishman-Hillard, Cohn & Wolfe, Fishburn Hedges and others are unable to enter the main table.

It would serve no purpose to pretend that some of the biggest businesses in PR do not exist, so PRWeek has asked accountants Willott Kingston Smith to comb Companies House for audited financial statements. As most of this information is more historic than the 2004 calendar year numbers provided by the entrants in our main league table, we are unable to directly compare like-with-like in every case. For this reason also, our profiles of agencies run in alphabetical order rather than from highest to lowest league table ranking.

To ensure that we present readers with the fullest insights possible, PRWeek has interviewed heads of those leading agencies who would figure in the main table were it not for regulatory barriers. Although the Top 150 cannot display detailed fee income figures for these agencies, it does provide the best available guide to the fortunes of the industry.

There is positive news; 24 new entries were welcomed into the tables, many of which are independent agencies. The fastest-growing agency in the top 100 is healthcare specialist Resolute Communications, which continued to better its impressive 87 per cent growth between 2002 and 2003 to 91 per cent growth between end of 2003 and December 2004. Brands2Life is the top performer over five years, averaging a 37.25 per cent rise in fees per year, leaving it within striking distance of a top 30 spot with fees of nearly £2.3m. And agencies outside London appear to have performed particularly well, often snapping up, and building on, substantial national accounts, in addition to more locally focused briefs.

Bell Pottinger, which heads the table as it did 12 months ago, saw its total PR income rise by nine per cent to £37.4m. The figures for the Chime Communications-owned business include other PR brands Harvard, Good Relations and, in a change from last year, Insight. The latter has been included as it now reports to chairman of Chime's PR division Kevin Murray and because Bell Pottinger North was launched out of Insight's Macclesfield offices last year.

'Last year was certainly a much better one after what had been a few challenging years before it,' says Murray. 'The market didn't grow that much, I suspect, and it has become even more competitive, but our conversion rates improved handsomely.

'Also, we've put a big focus on retaining clients. It's no good winning lots of new clients if they're falling off the back of the lorry through not servicing them properly.'

Murray points to TMT (technology, media and telecoms), financial services, government and political, and property as sectors in which the group has done well. Corporate has improved, he adds, after a few quiet years, while consumer continues to be both active and highly competitive. Public affairs has stayed buoyant, even into 2005 with a general election looming.

Acquisitions and consolidation were big news for the industry in 2004. At Edelman, the world's largest independently owned PR business, its acquisition last May of leading consumer consultancy Jackie Cooper PR (JCPR), whose clients include Allied Domecq, Mary Kate & Ashley, Wembley Stadium, Kerzner International Resorts and the Sherry Institute of Spain, was the key change. Edelman, whose fee income now stands at £13.4m, also expanded its specialist research group, StrategyOne, into Europe by opening a London office headed by Janette Henderson. StrategyOne London provides Edelman's European offices with customised research to inform corporate reputation, public affairs and crisis management campaigns, as well as the branding and marketing of consumer products and services, and the positioning of new products.

'We recognised we had to have a weighty, quality, creative hub in London to get our slice of pan-European consumer work,' says Edelman president and chief executive Europe David Brain of the JCPR purchase.

Brain cites the work Edelman carried out last year relating to the creation of brewing giant InBev from the merger of Interbrew and AmBev. Having shown its expertise in this area, Edelman was then able to win a chunky consumer brief from InBev for the launch of Brahma beer owing to JCPR's marcoms clout.

In addition to the Edelman/JCPR deal, in 2004 Huntsworth bought Grayling, Trimedia and Hudson Sandler; Golley Slater bought NP, the PR firm with 45 staff at offices in Leeds, Newcastle, Manchester and London; Surrey-based William Murray bought What Matters; and Cardiff agency Howell Petersen acquired Reekie PR and became Freshwater UK.

Harrison Cowley (HC) is not in the table, in part because of two acquisitions it made this year - Sinclair Mason, technically completed in February, and Strategy Communications - which meant its numbers were still being factored at our figures submission deadline.

'We found that 2004 was a mixed year for us. Some of our regions and sectors had a very good year, others less so, as is always the case with a network,' says CEO Paul Kelly. 'We believe that 2005 will be better across the board, and the early signs are promising.' HC has also made particular gains in the property, environment, education, public and consumer sectors in 2004, including wins for Jaguar and the Home Office.

For Beattie Media, the pharma, property and construction and retail sectors were its big stars of 2004, with a new pharmaceutical division set up. 'We have virtually pulled out of the public sector, because we can't make the margins we want,' admits CEO Gordon Beattie. 'If this trend continues, it will result in public sector organisations not getting top-level PR support.'

Meanwhile,Burson-Marsteller's (B-M), 22-year agency veteran Per Heggenes replaced Allan Biggar as UK CEO in spring 2004, relocating from New York. Corporate reputation and intellectual capital are seen as key areas for growth by Heggenes. With research showing that 50 per cent of a firm's reputation is dependent on its chief executive, B-M sees real opportunities in the area of CEO reputation management. 'If you're not doing your utmost in this area, you're missing out,' says Heggenes.

Heggenes believes that B-M, owing to its long track record and global reach, is better placed than most to recruit top-calibre staff, but concedes that this can be a challenge. 'Healthcare is an area where it's hard to find the right people,' he says. 'There's a limited number of qualified people and big demand for them.'

Consolidated Communications MD Sarah Robinson concedes that the agency experienced a 'roller coaster 12 months' in 2004. Indeed, it saw fee income decline by six per cent to £4.8m. 'We entered 2004 thinking it would be a buoyant year, but found we were operating in a tougher climate than anticipated,' she explains. 'This, combined with our determination to continue to invest in the people and clients to fuel future growth, resulted in a poor first half and a good second half, but we're now reaping the rewards.'

Part of this included opening a Scottish office in March, which now has a seven-strong team. Ian Hagg, formerly head of social policy at Centrica, was hired to develop the agency's public affairs business. In the second half of the year, Consolidated won Buena Vista Home Entertainment at repitch.

'It is taking longer to convert business, but once converted, business is more secure and on longer-term contracts,' says Robinson. 'Clients are spending more and looking for retainer rather than project-based relationships. There seem to be more briefs looking for one agency to provide an integrated consumer and business communications response. And procurement departments are now well established and becoming more familiar with how PR agencies work.'

But Consolidated's experience with a move towards more retainer work is not necessarily the norm. Other agency heads point to a shift in the opposite direction, as clients look for better value for money and set clearer communications objectives.

'There is an increasing amount of project work,' claims Brahm joint MD Phil Reed. 'We saw that in 2003 and it continued last year. The split between retainer and project is not quite 50:50, but it's starting to edge towards that.'

Murray has noticed that more clients are interested in defined project work. But while the number of projects is increasing, those clients on retainer are tending to spend more, which means overall income split has stayed at around 60:40 in favour of retained business.

'We've heard lots of talk about increased project work, but most clients still seem happy with the predictability of retainers,' argues Ketchum London chief executive David Gallagher. 'Some are moving to hourly based billing, which may give them a higher degree of control over their spend, but I wouldn't call it a major trend.'

Gallagher describes 2004 as a 'fantastic' year for Ketchum, which has been building a corporate capability to parallel its better-established offers in consumer and healthcare. This, claims Gallagher, is 'paying off nicely', with assignments from FedEx, Ace Insurance and Genworth.

'All sectors seem to be spending again, with many offering PR a bigger role in the marketing mix,' adds Gallagher. 'We feel especially good about prospects in the FMCG and ethical healthcare areas, and we're confident we'll see growth in sports marketing, entertainment and issues management work.' The ongoing obesity debate is continuing to create issues management opportunities in the food and drink sector, and Gallagher feels that travel and tourism are also on the rise.

At Porter Novelli, which last year dropped Countrywide from its name in a rebranding exercise to underline its global credentials, focus has intensified on stakeholder management and holistic communications consultancy. 'Growth sectors for us were healthcare and technology - both very strong for growth from existing clients, as well as busy new business areas,' says former MD Fiona Joyce. 'Consumer goods has seen a considerable uplift, with real focus on long-term market penetration and brand revitalisation as critical areas.'

However, stock market depression in the early part of this decade has made life tough for financial PR practitioners, with many companies putting IPO plans on ice until equities began to rally. Last year's improved stock market situation saw an upsurge in flotation activity. Buchanan CEO Richard Oldworth says his firm handled 32 IPOs during 2004, a level approaching the 37 achieved at the height of the boom during 2000. There was M&A activity for the agency too, notably working for Hugh Osmond's Life Company Investor Group in its £1bn bid for the closed life assurance business of HHG.

Citigate, at second position in the table, saw its fee income rise by five per cent. Citigate Dewe Rogerson chief executive Jonathan Clare says that the agency benefited from a strong rise in its retainer base and an uplift in M&As, including work for Morrisons on its successful bid for Safeway. But huge M&As and IPOs were still thin on the ground. 'I'm still instinctively cautious about the outlook,' says Clare. 'There's no sign of anything tailing off, but there's still uncertainty out there.'

Write Image CEO Steve Ellis says: 'Clients are smarter about sourcing different services from specialists with expertise in specific areas; for example, our analyst relations practice or our development team, which builds software tools and services that support or manage marketing and PR programmes. Clients are thinking more about taking an integrated approach - it's not just about PR any more.'

In conclusion, there were some stellar performances, but for most agencies 2004 was solid rather than spectacular. Yet healthy M&A activity hints at growing confidence that clients have increased spend power, although client desire for value for money and accountability continue to put pressure on margins. There is little easy money to be made and agencies still have to work very hard to push up revenues.

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