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M&C Saatchi UK to restructure following accounting scandal

The UK arm of M&C Saatchi is facing headwinds following an audit by PwC which has forced it to make £11.6m ($22.2m) in adjustments to its 2018 and 2019 financial results.

The issues were first revealed in August, when the agency said it would take a £6.4m hit, following “overaggressive” revenue recognition.

M&C Saatchi UK’s accounting review update (Click to enlarge)

The agency’s accounting issues also included understating project costs, listing obsolete assets on the balance sheet, and overstating the value of assets.

Alongside the adjusted figures, released overnight, M&C Saatchi UK revealed its underlying profit before tax is expected to be “significantly lower” than expected, and it had incurred “significant additional central costs”.

The result, it said, was that underlying profit before tax for the 2019 calendar year will be down between 22% and 27% from the 2018 figure on a like-for-like basis.

It also announced a restructure of its UK office, which will result in a £2.5m ($4.78m) exceptional charge for the calendar year. It said this will result in an annual saving of approximately £6m ($11.48m) from 2020 onwards.

CEO 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 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.”

M&C Saatchi in Australia is somewhat isolated from the international operation. It is majority owned by the listed business in the UK, but also has local shareholders and relies on local clients such as Tourism Australia and Woolworths.

M&C Saatchi Australia declined to comment on its UK counterpart’s struggles due to the independent nature of the businesses.

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