Industry Specific Advice

Branding and design: Gross income increases and operating profit margins improve.

30 Nov 2016

Branding and design has seen the best performance across the digital marketing sectors with Gross income climbing and operating profit margins significantly improving. We take a look at the numbers and to find out what’s driving such strong performance. 

Strong gross income growth

The branding and design sector has continued to grow, the top 30 firms, seeing gross income rise by 9% - a £30m increase - to a high of £374m. This is in line with the last four years performance and represents industry consistency.

This growth has been delivered by two underlying drivers. Firstly, relative stability in technology, whilst other sectors within the digital marketing industry have been fighting to update technologically and sourcing staff with the know how to deliver that capability, branding and design has remained relatively stable. This technological stability has allowed the sector to stabilise consolidate and deliver strong performance. Second, the sector has seen sustained brand and packaging investment across all industries – particularly food – this has ensured significant increases in sales volumes which have translated directly to gross income.

Operating profits rise

Operating profits rose significantly last year by 17.7% or £6.5m to £43.1m  a number which has translated directly to PAT (Profit After Tax) which rose by a staggering 40.9% on last year’s numbers.

However, it isn’t all good news as underlying movement is relatively stable with employment costs ratio remaining relatively flat.

Figure 1 presents operating profit margins over time which despite showing a consistent upward trend over the past five years have remained relatively subdued in 2014-15. This is in part due to stable but slightly extended employment costs which sit above the 55% benchmark of gross income at 59% but also due to continued spending on freelancers.

Branding And Design Ratios

Operating profit margins, despite their upward trend, are still sitting behind benchmark targets of 15%, again this is in part due to freelancers cost which have become an accepted but expensive component of the industry.

Staffing number grow but employment ratios kept in check.

Staffing numbers rose by 8% last year with two thirds of the top 30 branding and design firms increasing their head count. However, despite an investment in human capital employment costs have remained in check. Further, gross income per employee has remained stable at £102k per person which again has translated into £12k of operating profit per head.

Conclusions

Branding and design has seen consistent performance over the past 3 years, this is expected to continue even in the light of EU Referendum. With multiple companies performing constantly and agency groups already out performing independents the sector is ripe for consolidation, we expect mergers and acquisitions to continue as firms compete for market share through inorganic growth. 

Keir Wright-Whyte

photo

Managing Director

0207 043 4000

About the author

Originally graduating with a degree in geography from Edinburgh University, Keir claims that he was then tricked into becoming an accountant by one of the UK's top 5 accountancy practices.The deception extended to the usual training in audit and associated activities.

Keir subsequently worked in a number of advisory roles with clients including in the energy trading, pharmaceuticals and financial services sectors.

He loves working at Accounts & Legal because of the variety of work and clients, the excellent team ethos and morale, the importance placed on genuinely helping and being useful for clients and because he believes what he does matters to clients and helps the firm.

Keir's primary role is to ensure that new clients with complex businesses or needs are on-boarded in the best way and he is a "trouble shooter" both for clients and where complex issues arise internally. He also helps the accounting teams strive to improve what we do for clients, whether processes or services.

When not debiting or crediting, Keir has a penchant for fixing old buildings, skiing, surfing and cycling.

  

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