M&C Saatchi saw its share price implode today after issuing a profit warning and admitted an £11.6m accounting error.
The advertising giant said profit for the full year is expected to be between 22 and 27 per cent below the level it hit in 2018.
It also unveiled the accounting error after an independent review conducted by PwC.
M&C Saatchi’s share price crashed 39 per cent to just 89.2p in response as traders abandoned the firm.
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.”
The ad agency had already set aside £6.4m in August after it had spotted an error in its accounts.
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.
According to a statement, a very significant proportion of Saatchi’s profit arises in the final quarter of the year.
In addition, Saatchi said it would incure a £2.5m exceptional charge as a result of restructuring at its UK office.
It added that the move is expected to generate annual savings of £6m in 2020 and beyond.
The firm said it expected to have net cash of around £5m at the end of 2019.