M&C Saatchi issues profit warning as cost of accounting error escalates

Advertising giant M&C Saatchi's accounting woes continue as the cost of its accounting error was revised up to £11.6m, and its shares plunged 40 per cent.

The firm revealed a £6.4m drop in profits in August, but has revised the figure after an independent audit by PwC. The adjustment will be shared across M&C Saatchi’s 2018 and 2019 financial years.

The company said that a "very significant" proportion of its profit arises in the final quarter of the year, although it admitted the additional costs and underlying profits before tax would be lower than expected.

The marcoms group said profit for the full year is expected to be between 22 per cent and 27 per cent below the level it hit in 2018.

In response to the accounting error, the group announced it would reorganise its finance function, as well as creating a new standardised policies for all subsidiaries, with a greater focus on cash management.

Earlier this week, PRWeek's sister title Campaign reported M&C Saatchi’s advertising arm has offered voluntary redundancy to all of its 178 staff after the loss of the NatWest business, one of its biggest accounts. M&C Saatchi Spots & Entertainment is still working with the bank.

In addition, M&C Saatchi will restructure its UK office at a cost of £2.5m with expected annual savings of £6m in 2020 and beyond.

The company said it expects to have net cash of around £5m at the end of 2019.

In September, M&C Saatchi boss David Kershaw remained optimistic the business would continue to expand, despite its share price collapsing to £1.26 as earlier news of the accounting error broke.

However, the share price dipped below 90p this morning as traders heard of the revised figures.

"This restatement of our numbers and the reduction in forecasts make for very difficult reading – both for us as a management team and for all of our stakeholders," Kershaw said.

"The only positives that we can offer are that a robust review has been undertaken and we have, under our new group finance director, started implementing processes and procedures to prevent such issues arising again.

"The trading performance in the second half of this year is disappointing. However, our operating businesses remain strong, creative and competitive, and we expect that, when combined with the impact of our restructuring coming through, we will have a stronger trading performance in 2020."

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