M&C Saatchi in crisis as it plummets 50% on profit warning

M&C Saatchi, the advertising agency with close ties to the Conservative party, issued a brutal profit warning that sent the shares down 50% and raised serious questions about the future of the business.

The City was already unnerved by accounting issues at the firm, revealed in August. Today after a review by PwC, the accounting “adjustment” went from £7.8 million to £11.6 million. The questionable accounts stretch back to 2014, a statement showed.

News on current trading was even more alarming, with profits now likely to be “significantly” below the previous expectation of roughly £17 million.

The shares halved as trading began and were later down 43% to 84.5p, leaving the company valued at £78 million. Top board members, including chief executive David Kershaw, own 4.5% of the shares each.

M&C Saatchi is perhaps the most famous of the Soho ad agencies. It was behind the notorious New Labour, New Danger campaign that had Tony Blair with the eyes of a devil. The ad was criticised by politicians on both sides of the House. Blair won the election anyway.

The Tory party remains a client of M&C but the firm hasn’t yet contributed to ads for this general election. Kershaw, fighting to keep his job, said: “This restatement of our numbers and the reduction in forecasts make for very difficult reading. 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.” M&C appointed Mickey Kalifa as finance chief last January, replacing James Hewitt, seen to take the blame for accounting woes that occurred on his watch.

Russ Mould 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. The backdrop is not helpful, but the agency has largely been the author of its own misfortune.” PwC is replacing KPMG as auditor. Ad industry bible Campaign this week reported M&C has just lost a major client, NatWest. Staff were reportedly offered voluntary redundancy following this loss. M&C was founded in 1995 soon after the Saatchi brothers fell out with shareholders in their original ad agency.

It listed on AIM in 2004. Charles Saatchi sold his remaining stake soon after, while Maurice remains a shareholder and a director. According to the City rumour machine, M&C has been considering a sale, perhaps to boutique rival Clarity, for some time. M&C denied the rumours when they surfaced. Recent M&C campaigns include the Animatronic Arnie ads featuring the head of Arnold Schwarzenegger to promote the deadline for PPI mis-selling claims. Lately, it has been buffeted by clients’ reluctance to splash out on expensive ads until Brexit is settled.

Peel Hunt said in a note: “The magnitude of the downgrade will no doubt be at the top of investors’ concerns, which will drive weakness in the share price in the near term. We place our recommendation and target price under review.”