Blow for investors as M&C Saatchi’s profits set to dive

M&C Saatchi, one of the most iconic advertising agencies in London, is preparing to deliver another blow to investors with a profits slump.

The firm, set up by Maurice and Charles Saatchi after a spat with shareholders at their previous company, has been in the spotlight following an accounting scandal last year that prompted four directors to leave.

The accounts, which are being redrafted, so far have no scheduled release date. But there is growing speculation that auditor PwC could mark down 2018 profits to almost zero.

The latest bad news is likely to place beleaguered chief executive David Kershaw, who helped to launch the firm in 1995, under renewed pressure. There is speculation the company may be forced to carry out an equity capital fundraising to prop up its finances and even that Kershaw may step down.

In March last year, the company originally said it had generated post-tax profits of £21 million from revenues of £255.3 million in 2018.

But by December, following the departure of the previous finance chief, it announced ‘the misapplication of accounting policies’ that resulted in an £11.6 million charge.

The accountancy scandal has triggered an 80 per cent share price crash and a boardroom bust-up in December that led to the departure of senior board directors, including Lord Saatchi, Lord Dobbs, the author of House of Cards, Sir Michael Peat, who is the former private secretary to Prince Charles, and City stockbroker Lorna Tilbian.

At the heart of the resignations was a row about responsibility for the hole in the accounts, with Kershaw being left to resolve the matter. The company, whose creative mantra is ‘ brutal simplicity of thought’, has also recently issued a series of profit warnings following weak spending by customers.

PwC has been carrying out an independent review of the agency’s accounts after KPMG, the firm’s auditor since 2012, resigned last September after clashing with the agency over fees.

Kershaw founded M&C Saatchi with Jeremy Sinclair, now the chairman, Bill Muirhead, Charles Saatchi and Maurice Saatchi 25 years ago after the brothers were pushed out of Saatchi & Saatchi.

M&C Saatchi said: ‘As we said in our market update…the 2019 audit – which has been a very thorough process conducted by PwC – is nearing completion and we look forward to engaging with our shareholders when the results are published.’