M&C Saatchi’s share price took a hit recently, dipping by more than 40%, after an independent audit review by PwC saw an approximately US$14.88 million adjustment made to 2018 and 2019 financial results.
According to multiple media reports including Financial Times and Reuters, this was the second profit warning issued by M&C Saatchi in less than three months as a result of an accounting scandal which was previously reported in August. Media reports added that when the accounting error was discovered in August, the “on-off charge” initially amounted to about US$8.39 million. The accounting errors reportedly only concerns the UK business. Media reports said the agency predicts that underlying profit before tax for its 2019 financial year will decrease by 27% compared to the US$38.68 million it amassed in 2018. This is reportedly the second profit downgrade following a warning in September of a decrease of up to 10%.
According to PwC’s audit review, M&C Saatchi practised “revenue over-recognition” by placing 12-month contracts into the first half of the year for 2018, and similar practices have been occurring since 2014. It was also reported that the agency had counted outstanding fees as revenues and listed obsolete assets on its balance sheet, such as old software.
David Kershaw CEO commented, “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. 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,”he said.
The agency is also undergoing an approximately US$3.2 million cost-cutting exercise in the UK, which holds a third of its 2,600 headcount globally, The Guardian reported. It added that the job cuts are predicted to amass annual savings of approximately US$7.8 million in 2020 and onwards. M&C Saatchi is present in Singapore, Malaysia, Indonesia, India, Australia, Japan, and Hong Kong.