UK VFX Industry: A Financial Health Check

The last five years have been a brutal stress test for our industry. First, the pandemic shut down physical production. Then, just as we were catching our breath, the WGA and SAG-AFTRA strikes turned the tap off again. We all felt the impact, but what did that chaos look like on the balance sheets of the larger companies?

I want to take a dive into the "VFX Companies" dashboard on Reportly, which tracks the financial health of 14 of the UK's leading studios. You can explore the full interactive dashboard and all 14 companies here.

This data tells a fascinating, and sometimes worrying, story. It shows an industry that has fundamentally changed, breaking historical safety nets and splintering into very different survival strategies. Here is what the numbers tell us about the state of UK VFX.

Part 1: A Look at the Average

Before we look at individual studios, we have to look at the industry's health, to do this we have a per-year health score for each company and all of those get averaged together into this chart. The way this works is that for each year of the companies financials we rank it in 5 key metrics:

1. Profitability: Is the company making a profit from its day-to-day operations?

2. Liquidity: Can the company comfortably pay its bills and short-term debts?

3. Solvency: How stable is the company's long-term financial structure?

4. Operational Efficiency: How effectively is the company using its assets to generate sales?

5. Growth & Sustainability: Is the company showing a trend of sustainable growth?

   
   

The breakdown of the health score shows these 5 metrics:

For nearly 20 years, the UK industry’s aggregate Health Score operated within a channel between 50 and 65.

The industry average is now back at 50 for the 3rd time. And the first few financial filings coming through for 2025 are showing a drop well below 50 so far. This isn't just a blip, it suggests that structurally, the old ways of operating (massive overheads and razor-thin margins) are no longer sustainable. We are moving through a "Great Shakeout" defined by three distinct phases:

2020–2021 (The Artificial Survival): When sets went dark, studios didn't make money; they stockpiled it. They took on massive loans and government support to stay alive. On our charts, this looks like high Liquidity, but it was the start of a dangerous debt mountain.

2021–2023 (The Gold Rush & Wage War): As production returned, turnover shot up. To win the work, studios entered a bidding war for talent. Senior rates jumped massively, juniors being hired as mid, mids being hired as seniors, we all witnessed it. While Productivity (revenue per person) looked high, the money was being eaten up by this sudden jump in wages. Studios won the work but destroyed their profit margins to do it.

2024–2026 (The Strike Lag & Hiring Drought): The fallout. High debt and zero profit led to the "Zombie" state we see today. Bectu research found that as of late 2024, 52% of the UK’s film and TV workforce remained out of work. Studios are now keeping teams "lean" to try and claw back the money lost during the bidding war.

Part 2: The Studio Profiles

To understand survival in this climate, we have to look at the three radically different strategies being played out by the big players. We are going to take a look at Framestore, DNEG and ILM.

Framestore

On paper, Framestore looks like the ultimate winner. Their turnover chart is a rocket ship, hitting record highs as they aggressively won market share.

The Reality: If you look closer, as turnover soared, profit margins slipped below 0%. They chose to absorb the massive costs of the "Wage War" to maintain their market position.

The Red Flag: For the first time, our dashboard shows Framestore falling into Negative Equity. In plain English: They owe more than they own. They are currently reliant on their backers to keep them liquid while they wait for the industry to recover.

Solvency: This is the "Safety Net." When the green bar (Equity) disappears, the safety net is gone, and the company is walking a tightrope.

DNEG

DNEG operates a "high-octane" model. They utilise significant Leverage (Debt) to fuel their massive global pipeline. When the work is flowing, it works brilliantly. When it stops, the debt becomes a noose.

The Reality: They carry hundreds of millions in liabilities—including a reported £260 million loan—and have spent the last decade dipping in and out of negative equity.

The Artist Impact: This model makes them incredibly sensitive to shocks. Their Quick Ratio (the "Panic Fund" test of whether they can pay bills today) is often much tighter than the industry average. It’s a high-growth, high-risk game.

Quick Ratio: A score of 1.0 means you have exactly enough cash for your bills. DNEG often hovers near this line, while the industry average is roughly 1.5.

ILM

ILM acts as our "control group." They prove that stability is possible in the UK if you resist the arms race for market share.

The Reality: Their growth is disciplined rather than explosive. They are the only one of the three consistently posting a healthy net profit margin (~10%) throughout the chaos.

The Advantage: Being part of the Disney ecosystem provides a "safety net" of internal work, but their financial health comes from having a steadily increasing Quick Ratio, currently above 2.0. They have double the cash they need to pay their bills.

The Takeaway: They prioritised a financial cushion over top-line growth. They are "boring," and in finance, boring is good.

Part 3: The Debt Trap

The 2025 UK VFX tax changes (the 39% uplift) have injected hundreds of millions into the ecosystem. For giants like DNEG and Framestore, this is the "recovery fuel" they desperately needed. But will it be used to build a sustainable future, or simply to pay down the "interest mountain" of the last five years? Can a studio ever truly recover from Negative Equity in a fixed-bid industry, or are we simply waiting for the next "Grand Restructuring" that wipes the slate clean for shareholders while leaving the workforce in limbo?

This is the "billion-dollar question" that keeps studio CFOs awake at night. To answer it, we have to look at the cold math of how a fixed-bid contract interacts with a balance sheet that is already underwater (Negative Equity).

The Mathematical Trap of Fixed Bids

In a healthy company, a fixed-bid contract is a gamble on efficiency. If you bid £1M and execute for £800k, you keep £200k.

However, when a studio has Negative Equity, they aren't just trying to cover just the production cost; they are trying to:

1. Pay the interest on the debt that caused the negative equity.

2. Slowly chip away at the "principal" debt to move back into positive territory.

   
   

The Problem: In a fixed-bid environment, there is almost no "margin for error." If a director asks for a "slight change" that costs an extra £50k and the studio swallows it to keep the relationship (which happens constantly), the profit that was supposed to pay the debt vanishes. You aren't just "not making money" you are actively digging the hole deeper.

Part 4: The Path to Recovery

For companies like DNEG and Framestore, recovery from negative equity requires more than just a "busy" slate. They need a structural margin reset. While technology is a pillar, it is part of a broader survival toolkit.

The 39% Tax Credit

The UK’s new 39% tax credit (effective since 1 January 2025) is the most immediate weapon for recovery. 

The "Net" Gain: Because the 80% cap on qualifying spend has been removed, productions can now claim relief on 100% of their UK VFX expenditure, providing a net rebate of 29.25%.

Debt Repayment: This extra margin is essentially "free growth" that can be used to pay down the interest and principal on the "debt mountain" rather than just funding operations.

Revenue Diversification

To avoid the "Strike Lag" of 2024, studios are moving beyond fixed-bid movie contracts. We are seeing studios moving into new areas like immersive, theme parks, as well as focusing on improving specific departments for visualisation services (previs, virtual production), which often have different risk profiles.

The Technology Factor

Automation is being used to lower "unit costs" and protect margins from creative volatility:

DNEG & Brahma: By launching Brahma AI, DNEG is attempting to pivot toward a "Tech-Licensing" model, aiming for higher-margin services that don't rely solely on billable hours. The ultimate test of the AI pivot is the Productivity line (Yellow). For years, this line has been 'tethered' to the headcount—to make more money, studios had to hire more people. If the AI strategy works, we will see this line finally break free and rise independently of hiring trends. If it stays flat while turnover grows, it means the 'tech' is still just a buzzword, and the studio is still just trading human hours for cash.

Framestore & Internal ML: Framestore is embedding Machine Learning directly into their technology team to vastly improve the speed of repetitive tasks. For a studio currently in negative equity, this isn't just a tech upgrade, it's a survival necessity. If these ML tools successfully lower the "unit cost" of production, we should see their Productivity (Yellow line) rise significantly. Whether this allows them to claw back enough profit to pay down their debt is the question only time (and the 2026 data) will answer.

Part 5: What to Watch for in the Data (2026–2028)

To see if these companies are actually recovering or just surviving, we must watch the Reportly dashboard for four specific trends. These charts are your "early warning system":

1. The Quick Ratio (Target: 1.5): Look for the Quick Ratio line chart (typically blue with circular markers). If it continues to hover at 1.0, the studio is a "Zombie" with no cushion. A move toward 1.5 signals the return of a genuine safety net.

2. Equity Movement (The "Green Bar" Test): Monitor the Equity vs. Total Liabilities bar chart. Recovery is only confirmed when the green bar stays consistently on the positive side of the zero line. If it remains negative, they owe more than they own.

3. Debt Reclassification: Watch the total liabilities (pink bars). If they stay high while the Quick Ratio stays near 1.0, the studio is trapped in a cycle of short-term refinancing. Real recovery involves moving debt to "Non-Current" (long-term).

4. Productivity (Revenue per Head): Compare the Productivity graph (yellow line) against the Employees line. This is the ultimate test of the AI pivot. If productivity climbs while headcount drops or flattens, the "Margin Expansion" is working.

The Question

As we move further into 2026, we have to ask ourselves: What kind of industry do we actually want to work in?

Do we want the high-stakes rollercoaster, where growth is fuelled by debt and a single strike can collapse the house of cards? Or do we want the "Sustainable Fortress"—where turnover is lower, but cash reserves are high and "boring" is the ultimate goal?

What do you see when you look at the studio you’re in today? Are you on a ship that’s finally finding its heading, or are you just waiting for the next wave to hit?

Want to view the full analysis? Click here to view.