COMMENT: EDITORIAL; We’re not out of the woods yet

The picture painted by this year’s survey of the financial performance of the top 20 PR consultancies is of an industry now shrugging off the legacy of the recession, but still lagging in the marketing services sector on several key indicators.

The picture painted by this year’s survey of the financial performance

of the top 20 PR consultancies is of an industry now shrugging off the

legacy of the recession, but still lagging in the marketing services

sector on several key indicators.



Aggregate turnover for PR is up by a disappointing 2.5 per cent (two per

cent last year) compared to 5.8 per cent for advertising.



However, the much larger increase in gross income - 6.4 per cent,

compared to 7.8 per cent for advertising - is a further indication of

the decline in rechargeable, bought-in work and the shift to fee-based

income. It is an encouraging trend in an industry trying to take the

more profitable ground of strategic consultancy rather than the thinner

pickings of PR donkey work.



Operating profit showed a healthy increase of 20.3 per cent, while pre-

tax profits rose by 21.7 per cent, helped by a 13 per cent reduction in

interest charges.



The margins of both operating profit on gross income and turnover are up

- the former (at 11.2 per cent) is now higher than the 11 per cent

achieved before the recession. This compares to 4.9 per cent for

advertising and 9.3 per cent for the marketing services sector as a

whole. Four of the top 20 PR agencies managed to push operating margins

(operating profit as a proportion of gross income) over 20 per cent, a

further eight achieved margins of more than ten per cent.



In general, says the report’s author, specialist accountant Willott

Kingston Smith, PR consultancies are being more successful than others

in the marketing services sector in managing to contain their operating

costs in the face of improving gross income. But before we get too

complacement. The number of consultancies in the top 20 who achieved a

margin of 15 per cent, the benchmark to provide an acceptable return and

fund future growth, is actually down - from six to five. And PR still

lags behind the star performers of the sector: direct marketing and

sales promotion, which combined achieve an operating margin of 14 per

cent.



Gross income per head is up only slightly, by one per cent to pounds 62,

792 - seven per cent lower than the average among the top 50 marketing

services group. But it is in the area of employee costs that agencies

must show greatest vigilence. A one per cent rise in employment costs is

hardly out of control. Indeed the ratio of gross income to staff costs

has remained constant (at 1.79:1). Yet it still lags behind advertising

(1.95:1) and the marketing services sector as a whole (1.83:1).



Telephone number salaries for even middle ranking directors of agencies

seems to be be an increasingly common feature. It is dangerous trend and

one the industry has got to watch.



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