M&C Saatchi’s share price has crashed again, taking the drop to 55% in six weeks, after the agency group admitted that an investigation into accounting woes won’t finish until November and cut its annual profit forecast.
The group is facing the "most painful" moment as a corporate brand in its 24-year history, David Kershaw, the long-serving chief executive, admitted to Campaign, although he maintained that it is not as bad as losing the British Airways account in 2005.
M&C Saatchi’s share price fell about 10% today to nearly 150p in early trading after the company warned at its half-year results that annual profits will be between 5% and 10% below expectations.
Net revenue fell 4% in the first six months of the year.
The stock was trading at 339p before the accounting woes first emerged on 12 August, when M&C Saatchi warned of an accounting charge of up to £6.5m.
The 55% drop in the share price means M&C Saatchi’s value has fallen from more than £300m to below £150m in six weeks.
The company told investors in a new update that auditing firm PwC, which recommended an internal review of the accounts in May, is set to complete its investigation in November.
"Initial indications are that this review will result in the restatement of prior year results" for 2018 and earlier, "rather than an exceptional charge in 2019", M&C Saatchi said.
PwC has highlighted a series of accounting problems or misstatements, including "overstated accrued income" of £2.6m; "irrecoverable receivables" of £1.7m; "pre-payments" of £0.9m; "other debtors" amounting to £0.5m; and "impairment of intangible assets" of £0.7m. Those accounting hits should be partially offset by a corporation tax adjustment of £1.2m.
It is thought that there is no indication of fraud, according to a source familiar with the company.
Not considering a sale
Kershaw insisted that he and M&C Saatchi’s three other co-founders – Lord Saatchi, Jeremy Sinclair and Bill Muirhead – are not considering a sale of the business.
"No, we haven’t considered the idea," Kershaw said. "We are totally focused and the fundamentals of the business are still very good, but we have a big job to do in terms of the corporate brand and that’s the focus for the next 12 months."
He added: "There is no plan to sell the business and certainly not at the current price. We are very, very focused on continuing to drive the business and to regain the trust and respect of shareholders, which is clearly required and for which I take full responsibility."
Kershaw dismissed an industry rumour that M&C Saatchi has spoken to Accenture about a potential M&A deal, emphasising he has "never spoken" to the acquisitive consulting giant.
Asked to assess the scale of the crisis facing M&C Saatchi during its 24-year history, since the founders quit Saatchi & Saatchi in 1995 to launch the agency, Kershaw said: "It’s up there with losing British Airways."
He explained that the BA loss "had a bigger impact" when the fledgling M&C Saatchi lost the account in 2005 "in terms of the operations of the business because it was so huge and dominant", whereas the current accounting woes are "nothing like as damaging".
However, Kershaw said: "In terms of the corporate brand, this is without doubt the most painful thing, which I feel deeply apologetic for."
M&C Saatchi had net cash of £9.5m on 30 June, after enjoying a windfall from selling its remaining 24.9% stake in Blue 449, formerly known as Walker Media, to Publicis Groupe in March – a deal that looks well-timed given the subsequent accounting woes.
Kershaw said "we remain confident in and committed to our strategy of winning new business and investing in new, fast-growing businesses", adding: "Looking to the second half, our pipeline of new business is strong across the network and our newest businesses are performing well and expected to start making a meaningful contribution to the group."