Here’s Jeremy Sinclair’s entry into the book of silly things said by advertising folk: “2018 was our 10th year of growth,” declared the chairman of M&C Saatchi in the annual report in May. “Growth of profit, earnings and dividends. Whilst it might be too early to say we’ve cracked it, it does seem that the strategy is proving itself.”
M&C Saatchi’s share price at the time was 360p. Now it is 79p, a level last seen in 2010, so yes, it was a tad premature to declare a great triumph. Even Sinclair’s boast about profits growth last year may need to be revisited in light of the ad firm’s latest confessions. An adjustment of £11.6m to reflect “accounting misstatements” will be spread between the financial results for 2018 and 2019.
When the latter figures appear, let’s hope the chair of the audit committee, Sir Michael Peat, the former private secretary to the Prince of Wales and a member of the family that supplied the “P” in KPMG, will explain to shareholders what went wrong with the financial controls. The timing of revenue recognition, for example, is meant to be basic stuff.
For good measure, M&C Saatchi threw in a profits warning, plus news that it will be “restructuring its UK office,” by which it meant the people rather than the plush premises in Soho’s Golden Square. The departees, it is safe to assume, will not include the crew of famous Thatcher-era ad men who fled from Saatchi & Saatchi to found their new agency in 1995 – Sinclair, Maurice Saatchi himself, Bill Muirhead and the chief executive, David Kershaw.
And what about the strategy, the one that was “proving itself”? The goal is to “make people rich” – those at M&C Saatchi in the centre and the advertising startups who join the network. The carrot for the entrepreneurs is supposed to be the chance to earn some M&C Saatchi equity but that prize (expressed in fixed number of shares) will look substantially less glittering at the new sunken stock market value.
That’s the problem with a model of “shared ownership, shared objectives and shared ambitions”. It works splendidly when everyone is aligned to a share price that is rising, but there is potential for aggro after a big fall. It is why the City speculates that the tale will end in breakup or takeover.
Still, it’s fertile material for an adland drama and luckily Michael Dobbs, author of House of Cards, is on hand as a non-executive director in the star-studded boardroom. House of Hubris might work.
UK property investors head for the exit
Brexit is killing property investors’ appetite for risk. That statement is not fresh news, but the suspension of dealings in M&G’s £2.5bn Property Portfolio fund is a vivid example of what’s happening.
Property is an investment class where you’re supposed to sit tight, collect the rental income and ride a cycle or two. That invitation is easy to refuse, however, if, say, you are a foreign investor. You may still wish, in principle, to own property in the UK, but you don’t want to be exposed to a currency that could fall by 15% if Brexit goes badly.
Private investors in the UK, who are the main target for the M&G fund, can read the same breezes and are heading for the exit. Their mood may change if departure happens at the end of January, but don’t bet on it. Negotiation of the UK’s trading relationship with the EU has the potential to cause as much currency uncertainty.
However, the rotten retail climate, the other main factor cited by M&G, seems to be the main problem. The crisis on the high street shows no sign of abating. While property prices have fallen, we haven’t yet witnessed a cathartic moment, such as a big landlord going bust. That may lie ahead.
The M&G suspension also underlines the madness of offering daily dealings in funds that are invested in illiquid assets. Mark Carney annoyed the investment industry when he said such structures were “built on a lie”, but the governor of the Bank of England was essentially correct. Planned reforms, such as halting trading if a fifth of the assets can’t be valued accurately, can’t arrive soon enough.
Time was up for Metro Bank chief
Craig Donaldson tried to resign as chief executive of Metro Bank after the accounting calamity at the start of this year, but the board wouldn’t let him go. Now he’s off.
What’s changed, one assumes, is that Vernon Hill, Metro’s domineering founder and chairman, has also gone. It’s the right decision. Donaldson had his fans, but a chief executive can’t survive a horrible year like Metro’s. He had to go.
