12th Aug 2019 09:34
(Alliance News) - Shares in M&C Saatchi PLC plunged Monday after the advertising company revealed "misapplication of accounting policies" at UK subsidiaries, resulting plans for a one-off exceptional charge of GBP4.9 million to 2019 results.
M&C Saatchi shares were down 21% at 268.00 pence each in London.
M&C Saatchi has decided to take a GBP4.9 million one-off exceptional charge in 2019 related to the accounting errors and has additionally set aside GBP1.5 million for further potential issues identified during an independent review.
"We believe we have discovered the full extent of the issues, but to be doubly sure, the board is appointing independent advisors to undertake a review of all the group's accounts and accounting systems, as well as setting aside an extra GBP1.5 million as a conservative measure to provide for any potential further items arising," the company said.
The company's board conducted an internal review following concerns raised by its auditor KPMG about accounting controls across the business, which were also raised by the audit committee of the board. The internal review found instances of "misapplication of accounting policies" in UK divisions, mostly relating to the timing of revenue recognition and incorrect accounting of some assets and liabilities.
M&C Saatchi, to avoid recurrence of accounting issues, has appointed a new finance director for its UK division and additional senior finance staff. The company also is in the process of appointing its first treasurer.
"We are determined that our strategy of winning new business by starting new businesses will not be undermined by this, but recognise that having so many young companies in the group requires extra vigilance," the company said.
The independent accounting review is expected to be completed by November.
On the trading front, M&C Saatchi said it expects a year-on-year fall in 2019 interim pretax profit due to a unusually strong comparative period. However, the company expects trading in the second half to be strong.
In the six months to June 30, 2018, the company recorded pretax profit of GBP10.9 million.
The company remains confident of meeting expectations of operating profit for 2019, excluding exceptional charges. These will include GBP1.4 million related to an office refurbishment in addition to the GBP4.9 million for the accounting issues. In 2018, adjusted operating profit totalled GBP30.3 million.
M&C Saatchi is set to release its interim results on September 24.
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