Shareholders of M&C Saatchi (LON: SAA) have seen their shares crash, after the firm issued a major profit warning to shareholders and unveiled an accounting error in the Wednesday update.
M&C Saatchi is an international advertising agency network formed in January 1995 by Jeremy Sinclair, Bill Muirhead, David Kershaw and the brothers Maurice Saatchi and Charles Saatchi.
Shares of M&C Saatchi crashed 46.17% on Wednesday afternoon to 79p. 4/12/19 14:30BST.
The firm said said profit for the full year is expected to be between 22 and 27 per cent below the level it hit in 2018, which alerted shareholders.
The firm also mentioned in the Wednesday update that it had experienced an accounting error after an independent review conducted by PWC.
The adjustment will be shared across Saatchi’s 2018 and 2019 financial years.
Chief executive David Kershaw said: “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 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.”
Kershaw concluded: “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.”
In response to the error, the company announced that it would undertake a reorganisation of the group’s financial function, as well as creating new standardised policies for all of the company’s subsidiaries.
Russ Mould, investment director at AJ Bell said: “It may be a fabled name in UK advertising circles but M&C Saatchi would have a really tough time selling its own update this morning. A mess would be a polite description.
“This bad news is compounded by a pretty serious looking profit warning, and the company’s reliance on fourth quarter trading is proving to be an Achilles heel.
“Longstanding chief executive David Kershaw, a founding director of the company, may take more of the flak given the problems arose under his watch.”
CMC chief markets analyst Michael Hewson agreed: “This is about as bad as it gets for Saatchi, with the sector already under pressure due to the changing dynamics of the digital advertising world on its traditional business model, to score an own goal of this magnitude is excruciating, and calls into question how the business was being run over the last few years.”
The advertising giant blamed weaker than expected trading in the final quarter for the fall in profit.
“They are 110% a takeover target,” said Alex DeGroote, an independent media analyst. “M&C Saatchi has had a bull run and been a stock market success story and its value is not reflected in the share price. But it is about the sum of the parts, the value is in arms like sport and mobile, not the traditional advertising agency business.”
