How good is your business at turning staff activity into revenue, and revenue into profits? Those are questions finance people are paid big money to answer - but as the business model of news, B2B and entertainment publishing adapts to a digital, mobile and more fragmented model - it's time everyone thought about these challenges.
Five very different media companies reported their results last week – Pearson, ITV, Reed Elsevier, and all of them appear to be headed in the right direction on one key metric: the ratio of operating profit to revenues.
Operating profit to revenue
The table below shows how each company increased the revenue/profit ratio between 2011 and 2012. (We've stripped out the effect of one-off exceptional items on Pearson's bottom line).
Each of these five media companies is struggling with transitions in the environment they operate in - volatile ad markets, struggling western economies, decline of print and the rise of technology.
-- Pearson: Pre-tax profits were down 59 percent to £434 million, but that was due to a boost in the previous year from the sale of a stake in FTSE International and costs from the closure of Pearson education. Sales were up four percent to £6.1 billion.
-- Reed Elsevier: A total revenue increase of four percent for 2012 to £6.1 billion and profits up six percent to £1.7 billion, but significant variation between and within groups with digital businesses growth being offset by - you guessed it - print decline. (TheMediaBriefing's coverage)
-- ITV: The broadcaster continued its shift away from a reliance on advertising as rising non-advertising revenue pushed pre-tax profits up 17 percent to £464m and revenues up 3 percent to £2.2 billion. (TheMediaBriefing's coverage)
-- UBM: An 18 percent increase in events sales helped drive a two percent increase in total revenues and a modest increase in profits - however, this was offset by declines in its Marketing Services segment, which includes print trade magazines. (TheMediaBriefing's coverage)
-- WPP made a profit of £1.1 billion for the year, on revenues up 3.5 percent to £10.4 billion. Strong emerging market growth was offset by economic conditions in Europe and the US, slowing growth in China, and uncertainty around the future of the UK in the EU and crisis in Israel, Syria and other parts of the Middle East. (TheMediaBriefing's coverage)
Another useful calculation is the amount of revenue each firm makes per-employee. Here there is a great deal of variation - with ITV way out ahead in terms of sales per employee.
ITV has the fewest employees, but a smaller workforce doesn't necessarily mean each is delivering more revenue.
Reed Elsevier has the second largest workforce, 30,000 people, yet the second-best revenue per-employee, £203,867 each. That's alongside the best profit to revenue ratio.
In contrast, WPP has far and away the highest revenue of any of the five, and the second-highest operating profit just behind Reed, yet also the largest workforce (165,000 people) and the lowest revenue per employee - £62,867.
The two firms who made the most of their efforts in emerging markets were UBM and WPP - and both have strong presences in China - with 1,000 and 2,500 people there respectively.
Intuitively, you might expect Chinese employees to generate much less revenue per employee in China, as average pay in the country is far lower and you would expect a more lax approach to hiring. However, the drop off is actually quite minimal, which might have something to do with this trend noted by Forbes back midway through 2012.
Image from images_of_money on flickr via a Creative Commons licence
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