The gross revenue of the top 30 branding and design consulting firms fell for the first time in nine years, according to accounting firm Moore Kingston Smith.
Total gross income fell 2.3% while operating profits overall fell 31.2%. While branded company The Imagination Group reported the highest gross income of Â£ 76million, it was down 6% from Â£ 81.3million the previous year .
Significant declines include Wolff Olins who reported a drop of Â£ 16million to Â£ 9.9million (38.1%) and Start whose revenue fell from Â£ 9.9million to Â£ 6.2 million pounds sterling (35.1%). In the top 30 companies, growth was less than 3%.
Profits plummet in 20 of the top 30 studios
20 of the top 30 companies have seen their profits drop this year, according to data collected. Average operating income fell from 14.9% to 9.9%, marking the first drop in margins below 10% since 2012.
DCA Design International, which posted the fourth highest operating profit, fell more than 30% from 2018. Fitch’s profits were also down 34%, Design Bridge 65% and Conran Group 64%. 4%.
The sector has been hit by economic uncertainties, which has resulted in lower customer spending and project delays, says Moore Kingston Smith, who specializes in the creative industries. Attracting and retaining talent also remains an ongoing problem.
Operating profit per capita
According to Esther Carder, partner at Moore Kingston Smith, one of the most important performance indicators is operating profit per capita, because it combines profitability and productivity. This year operating profit per capita has increased from Â£ 16,668 to Â£ 10,742.
Independent studios have also been able to fare better here, as they can “manage their costs more tightly.” In this category, studios reported an average figure of Â£ 11,202, compared to Â£ 9,761 for group agencies.
All results fall far short of Moore Kingston Smith’s suggested target of Â£ 15,000 per head.
Increased expense costs
Moore Kingston Smith also reports that spending costs fell from 23.3% to 29.1%. This is likely due to costs associated with premises and freelance writing fees, Carder says.
While freelancers provide useful flexibility for studios working on large projects, they are often more expensive than full-time employees.
Carder says, âThis has been a difficult year for branding and design agencies as declining revenues put additional pressure on personnel cost management, resulting in significantly lower operating profit margins.
âUnfortunately, with continued economic uncertainty and changes to unpaid workers, pressures on performance and margins are expected to continue.â
Effective from April 2020, the updates for unpaid workers include changes in the responsibility for deciding employment statuses, which will affect the amount of workers’ wages, as well as taxes and national insurance.