UK agencies bracing for 20% drop in income

Almost half of financial bosses at 25 leading UK agencies are expecting a drop in income for the current financial year of at least 20% as a result of the coronavirus pandemic, according to research carried out by wealth management company Connor Broadley.

Conducted via a live forum just before Easter (on 9 April), the study found that a third (32%) of chief financial officers and finance directors predicted a 20-30% hit to their agencies' income, while one in six anticipated more than a 30% decline. 

A further 32% expected a decline of 10-20%, with the remaining 23% expecting a fall of less than 10%.

More than half of respondents (52%) said they were likely to furlough workers, while just over a quarter (26%) predicted the need to make job cuts.

However, 43% believed it is too early to tell whether redundancies will be necessary.

Despite 100% of respondents expecting the pandemic to hurt their income to some degree this year, 41% said they expected to still achieve a profit margin of at least 10% in 2020, with one company anticipating a margin of above 20%.

Following this research, one anonymous CFO said: "My agency is in the fortunate position of having our income risk spread across different client sectors, which insulates us somewhat from total wipe-out. Clients in some sectors have stopped spending, others are very active. 

"I know of agencies dependent on one sector (ie events/entertainment) whose workflows have dried to nothing. It will be difficult for them to survive if the lockdown continues beyond three months."

Another said: "It is some comfort that the challenges our business faces are macro challenges. That said, as income uncertainty prevails, if we don’t keep a fluid real-time focus on our cost base, then there is a risk that management inaction could compound the problems for our business."

In light of the current lockdown, one in five participants (22%) expected to see staff working from offices in June, while the remainder expected it will take longer for working life to return to "normal".

In recent days, Omnicom chief executive John Wren announced plans for staff reductions, salary slashes and furloughs, while plans also emerged at Publicis Groupe for redundancies across its UK agencies.

A recent survey conducted by Campaign found that businesses in adland are turning to temporary cuts in pay and hours for staff to hedge the financial impact of the pandemic.

Colin Fleming, chief operating officer of Connor Broadley, said: "The temptation for agency FDs is to keep two eyes on their real and pressing short-term challenges, but one eye should always be on the longer-term future of their businesses to ensure the actions of today protect the needs of tomorrow. 

"It is encouraging therefore that so many agencies surveyed appear to have comfort that this disruption will have a short-term impact that they can manage through."