Print Published 13th Dec 2013, 07:45

Essence Digital Group tops rankings in “Private Plums” awards for 2013

purple hanging plumsEssence Digital Group has come top of our annual awards scheme that assesses the financial credentials of privately-owned marketing agencies.

The “Private Plums” scheme was launched by Marketing Services Financial Intelligence in 2002 to recognise good financial management among privately owned UK marketing agencies irrespective of size.  Companies are awarded up to eight plums for meeting various financial criteria.    This year the survey examined 73 private-owned companies and only two were awarded the maximum eight plums.Top 5 Plums 2013

Alongside Essence Digital came advertising agency Beattie McGuinness Bungay in its last year as an independent privately-owned agency.  It has recently sold a controlling shareholding to the Korean group Cheil Worldwide.

Winners of the maximum number of plums are likely to become some of the juiciest targets for potential acquirers, as demonstrated by the companies in last year’s survey that are no longer privately owned – companies like Adam and Eve Group and Response One Holdings.

The overall picture of financial performance among privately-owned marketing businesses last year reflected the depressed economic conditions.   There was a sharp fall in the number of agencies that had achieved revenue growth of 15% or more over two consecutive years. Fewer agencies achieved an average operating profit margin of 15% or more, and fewer generated an operating profit per head of £12,500.

“Given the recent economic doldrums, it was good to find that an increasing number of companies had succeeded in keeping staff costs at or below 55% of gross income.  But it was not so good to find that financial and non-operating items ate into over 25% of operating profits at more companies than previously”, the report says.

Despite the frosty economic climate, the survey found that the level of net borrowings relative to equity seemed to have improved, with slightly fewer companies having net debt equal to one third or more of the funds provided by shareholders. “It is not clear whether that improvement reflected prudent financial management by the companies or increased pressure being exerted by the banking community”, the report says.

Less encouraging was the decrease in number of companies (now 35%) that retained working capital (net current assets) sufficient to meet three month’s operating costs in the hypothetical circumstances where there was no client income at all. “A strong working capital position gives a company a great deal of financial flexibility and the ability to withstand unexpected shocks without putting the entire business at risk”, the report adds.

The survey points out that one of the most significant developments over the last decade has been the increasing role of private equity investors in funding the sale of a founder’s shares when it is either not convenient or not desirable to sell to a trade buyer or undertake an initial public offering on the stock exchange.   Private equity can enable an individual shareholder to exit or a continuing management team to realise some of the value they have created without giving up ownership control.

“Today no less than 10 of the 73 companies examined in this survey are relying on private equity capital”, the report says.