If you accept the company’s own spin on its 2012 numbers it had a stonking year, with revenue rising about 11 per cent to £169m (17 per cent in the UK) and pre-tax profit before accounting charges rising ten per cent to £16m.
But the key item above is ‘accounting charges’ or impairments and these dragged actual profits down to £9.8m.
Publicly-quoted companies are always eager to present their figures without such items as interest, tax and depreciation (and write-downs, as above) but that’s ridiculous: these are the consequences of doing business.
And, in M&C’s case, these amounted to £7m including £4.4m which is the estimated cost of (eventually) buying out its overseas partners (and probably some minority shareholders in the UK): earn-outs in other words.
Such things can be dangerous. The old Saatchi & Saatchi of Charles and Maurice fame (left) eventually became unstuck when the company found it couldn’t afford all the earn-outs it had committed to when the recession of the early 1990s hit. These arrangements, devised largely by former financial director Martin Sorrell, fuelled the agency’s growth to biggest in the world. But the rush to size meant that it wildly overpaid for some agencies, most notably Bates in the US.
Investors in M&C (also started by Charles and Maurice although Charles is no longer there) will be alarmed to see a few signs of the same model, which is why the shares fell yesterday despite the company’s heroic spin on its figures.