Lucky number 8?

There was a lot of talk during the Olympics about how the Chinese consider the number 8 to be lucky as the word for “8” sounds very similar to wealth. Well following on from my post on Tuesday about financial media language I couldn’t go home without a quick word on today’s events on the stock market. Shares have surged today with the FTSE-100 closing 8.8% up, it’s single biggest gain in a day and for once, unlike my earlier comments, any hyperbole will get no argument from me. In fact surged seems a little conservative, rocketed wouldn’t be overdoing it.

Will this “double 8″ change prove to be lucky? We can only wait and see, but I suspect we may not find out the answer to that question for quite a while yet. In the meantime we may all need to keep a thesaurus close at hand :)

A grade 3 back and sides and a trim on top

That’s what I ask for when I go to get my haircut – next one is due on Friday as it happens. Lee, who cuts my hair, understands what I mean by a “trim”. I don’t walk out looking like I’ve just been scalped – I have little enough hair as it is :)

With all the excitement yesterday over Lehman Brothers, the announcement that China was reducing interest rates got a little lost in the mix. The announcement was significant though as it represents China’s first cut in interest rates in 6 years. The cut was 0.27% from 7.47% to 7.20%; however two pieces of media coverage described this change in very different ways. The BBC described the change as a “trim“; however The Times view was that China had “slashed” rates. Now I don’t know about you, but if my bank told me that my mortgage interest payment had fallen by 3.6% (0.27%/7.47%) I wouldn’t really consider it had been slashed.

The serious point here is that in my experience the language that is used in reporting economic and financial matters can sometimes suffer from a lack of consistency. Share prices “plummet“ when the fall is a little over 1%, house prices “crash“ when they fall 2%, but oil prices only “fall“ when they reduce by 5%.

The lesson this has taught me though is if I ever need to get a haircut anywhere else I need to check first if the person about to cut my hair ever reads The Times!

150 equals 125? The Alternative PR Week 150

Following on from my post on Monday about the PR Week Top 150 I thought it might also be interesting to analyse the rankings from an ownership rather than a brand perspective. As I previously stated the largest player in the Top 150, if ownership is taken account of, is WPP with £81m combined fee income across its brands. Based on a little bit of analysis I think the Top 15 allowing for ownership and partial ownership would look something like this. (Hope I have these right anyone who wants to point out an error please do so).

1. WPP – £81m (Hill and Knowlton, Finsbury, Burston Marsteller, Cohn and Wolfe, Buchanan, Ogilvy, GCI, Clarion)
2. Omnicom – £62m (Ketchum, Fleishman Hillard, Porter Novelli, Gavin Anderson, Pleon, Fishburn Hedges*)
3. Huntsworth – £57m (Citigate, Trimedia, The Red Consultancy, Grayling, Huntsworth Health, Haslimann Taylor)
4. Bell Potinger – £53m (part of Chime Communications**)
5. Brunswick – £44m
6. Financial Dynamics – £42m (part of FTI Consulting)
7. Interpublic – £36m (Weber Shandwick, Golin Harris)
8. Publicis Groupe – £28m (Freud Communications, MS&L)
9. Edelman – £21m
10. Havas – £21m (Maitland, Euro RSCG, Cake)
11. Next Fifteen – £19m (Lexis, Bite, Text 100, Inferno)
12. College Hill – £13m
13. M Communications – £10m
14. The Photon Group - £10m (Hotwire, Frank PR)
15. Lansons Communications – £9m

* Fishburn Hedges is owned via BBDO Worldwide
** WPP holds a 21.8% stake in Chime Communications
Analysis based on company websites and/or publicly available annual reports.

Between them these 15 account for £505m or approximately 65% of the total fee income of the Top 150 of £781m. As you can see of the Top 10 only Brunswick and Edelman are not part of a wider group.

So why the title of the post? I suspect you have already worked this out, but if you haven’t it is because if each parent above were treated as an individual entry then the number of entries on the rankings would fall by 25. This revised listing would then fit the Pareto principle a lot more closely.

When is one greater than 150?

As a chartered accountant who has previously spent nine years working for PricewaterhouseCoopers I thought I would do some analysis comparing the accountancy and PR industries. The results are a bit one sided.

PR Industry

The total fee income of the PR Week Top 150 2008 is £781m. Within the Top 150 the single largest brand is the Bell Pottinger Group with fee income of £52m. However this is slightly misleading as the league table shows other brands that have common parent ownership separately. If common ownership is taken into account then the WPP plc brands (Hill and Knowlton, Finsbury, Burston Marsteller, Cohn and Wolfe, Buchanan, Ogilvy, GCI, Clarion) would represent the largest single entity with a combined fee income of £81m. Average fee income per head across the Top 150 is approximately £96,000 per employee.

Accountancy industry

All of the Big Four Accountancy firms  – PwC, Deloitte, E&Y and KPMG – have individual UK fee income that dwarfs the entire Top 150.

PwC (2007) – £1,872m
Deloitte (2008) – £1,725m
KPMG (2007) – £1,396m
E&Y (2007) – £1,226m

Total £6,219m – eight times greater than the Top 150.

Their fee income per head is also substantially better ranging from £127,000 per employee (PwC) to £152,000 (Deloitte).

But perhaps more surprising is to consider some of the mid sized accountancy firms. The figures for just three of the larger mid sized firms – Baker Tilly, BDO Stoy Hayward and Grant Thornton – combined actually exceed the Top 150 as well.

BDO (2007) – £300m
Grant Thornton (2007) – £298m
Baker Tilly – £204m

Total £802m

The average fee income per head of these three firms combined is exactly the same as the Top 150 at £96,000 per employee.

Analysis

Two results immediately jump out. Firstly UK plc obviously invests a much greater amount in the accountancy profession compared to the PR industry with the expenditure on financial advice representing many multiples of that invested in PR.

Secondly that individual brands are still seen as key in the PR industry. By contrast accountancy firms are happy to operate as what effectively amounts to hundreds of small businesses under an umbrella brand.

The first will be due to many reasons, not least the legal and regulatory need for financial advice in many situations. However that still exists to some extent with regards to communications as well, particularly in connection with public company investor relations and M&A transactions. It is also likely to be due to the measurable nature of financial advice. If I save you £1m tax or sell your company for a £1m more you can immediately see and value the impact. That age old problem of PR and measurement raising its head again. After a few years working in the PR industry here is one accountant who has no doubts about the value that good communications can add. Anyone who does should perhaps give some thought to whether Northern Rock’s demise was financial or communications led. With the benefit of hindsight which of these two areas of deficit really destroyed the trust in the brand?

I’m not sure I have an answer to the second observation of brand maintenance. Both types of firms have individual directors/partners in whom goodwill is invested and both provide added value advice. However over the years the Big Four in particular have merged/taken over other firms and have eliminated brands from their identities. Had they not done so Deloitte would by now be called Deloitte, Plender, Griffiths, Haskins, Sells, Touche, Ross, Bailey, Smart, Niven and Tohmatsu. Which would be a bit of a mouthful to say the least :) Why is the retention of identities seen as so key by the PR industry?

A £600m stamp and it’s still second class

Today’s announcement that the stamp duty threshold has been increased to £175,000 for the next year raises some interesting questions. Was it a coincidence that this announcement came on the same day as the OECD announced the UK would go into recession in the second half of the year? Let’s be generous and say that it was. However the wonders of the stamp duty system leads to this creating some interesting numerical anomalies. The stamp duty bands will now be as follows if I understand correctly:

0% – up to £175,000
1% – £175,001 – £250,000
3% – £250,001 – £500,000
4% – £500,001+

This means that if I buy a property for £175,000 I pay no stamp duty. But if I buy a property for £250,001 I pay£7,500 in stamp duty. This means I have to pay £7,500 more to buy a property that is £75,000 more expensive i.e. 10% of the extra cost of this property. Pressure had already existed on sellers just above the £250,000 level to reduced their price with the previous increases of the exemption in the last three years to £120,000 and then £125,000, but this change just made that pressure even greater.

The change may benefit housebuilders of properties between £125,000 and £175,000 as effectively the taxpayer has just subsidised the sale of those houses in that price bracket by 1% of their value, but it probably won’t help chains greatly due to the presence of the same substantial level of stamp duty on properties greater than £250,000.

The estimate of £600m also only represents less than 10% of the tax receipts from residential sales – a relative drop in the ocean. Delving further highlights the Treasury’s reliance on the tax generated from the higher bands. In 2006-7 (the last year I can find this analysis for) the stamp duty generated on sales of properties above £250,000 was £5.07bn of a total of £6.45bn, nearly 80% of the receipts. This compares with only £1.64bn of a total of £2.69bn in 2001-2, approx 60% of receipts.

This means that of the £3.7bn of additional receipts in 2006-7, £3.4bn came from the higher bands.

Conclusion – today’s announcement is all about trying to create a perception of action, when in reality the Government has become so reliant on this income stream that it can’t afford to reduce the amount it receives by very much so it looks for the way that will create the biggest headline for the smallest cost.