Media Perspective: Spanish debacle throws new light on Aegis' transparency
A view from Jeremy Lee

Media Perspective: Spanish debacle throws new light on Aegis' transparency

As regular as the clock on the town hall, Aegis has had to announce accounting irregularities ahead of its results announcements, next due in mid-March.

This time, it's the turn of its Spanish subsidiary to issue a mea culpa, with the disclosure that the company has had to make a provision of around £25 million bad debt after one of its former clients faced insolvency, but owed it money. The company claims that the one-off exceptional charge, which came to light when the Spanish industrial conglomerate Nueva Rumasa stopped buying media through the Aegis subsidiary, will "have no impact on underlying results".

Before we get to that point, there are questions about how Aegis allowed itself to get into this position in the first place. The problem of bad debt is not a new one and the fragile state of the economy has meant that agencies have had to be more careful about overexposing themselves to it. Many demand - or should demand - that media is prepaid if it cannot be insured. Aegis claims an exception was made for Nueva Rumasa because they had a long-standing relationship.

Just how many other clients also benefit from such a deal is a question Aegis shareholders should demand is answered. Bob Willott, the editor of Marketing Services Financial Intelligence, takes a stronger line and points out that failure to collect the money due for media transactions from this client "seems about as fundamental to the delivery of underlying results as anything could be". He also says that "heads should roll".

But haven't we been here before on other occasions and didn't heads roll then? At this time last year, Aegis was forced to acknowledge (albeit carefully buried in its earnings report) two other accounting cock-ups that had an impact on its 2009 figures. The first came from Posterscope USA. It was discovered that former senior managers had been overstating revenues and profits between 2004 and 2008 by an aggregate £10.5 million. Curiously, there was no explanation for how the error was made.

Second, there was mention of the recovery of funds relating to the media rebates fraud scandal perpetrated by Aegis Media Germany senior executives between 2003 and 2006. Presented as a windfall, there was no mention of the events that preceded it and involved the misappropriation of media owner kickbacks that should have gone to its Danone client.

When these came to light, Aegis tried to submerge the bad news with the big announcement that Jerry Buhlmann had been made its new PLC chief executive, while three regional chiefs had been moved on, suggesting that an era of greater transparency for clients and shareholders had dawned.

Given what has emerged in Spain, this still looks like a work in progress.