Magazine article Marketing

Agency Pips Squeak as Recession Bites

Magazine article Marketing

Agency Pips Squeak as Recession Bites

Article excerpt

The continuing recession has left ad agencies with the legacy of falling profit margins, increased borrowings and declining productivity.

The bleak picture is painted in accountancy firm Touche Ross's ninth annual survey on the financial performance of the top 50 UK advertising groups.

The industry has been hit by the double whammy of falling ad expenditure -- down 20% over the past two years -- and clients determined to squeeze the best value for money possible from their agencies.

The end result has been even more pressure on agency profit margins. The average margin -- as a proportion of overall turnover -- fell from 1.9% to 1.8%. Meanwhile 31 of the 50 agency groups reported a reduction in operating profit margins.

The equivalent figure based on an agency's gross income -- the money it receives after it has paid the costs of providing a particular service -- dropped from 10.2% to 9.7%.

In sharp contrast the long term debt of the 50 agency groups scrutinised increased by 15% to |pounds~1.1bn. That means that, on average, agencies paying |pounds~36 in interest for every |pounds~100 earned in pre-tax profit. …

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