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Ad Agency Left Hanging After Spanish Client Says "Manana!" to $52M Bill

Aegis (AGS.L), which owns the U.S. media buying company Carat, reported its full year 2010 results, which had been eagerly awaited ever since Feb. 22 when the company disclosed that a Spanish client had gone bankrupt owing the company €25 million in unpaid ad bills.

That €25 million turned out to be a post-tax charge. On a pre-tax basis Aegis lost €37 million ($52 million), after giving the client a bizarre two-year period in which to pay its bills. Clients are normally asked to pay their bills in 30-90 days.

The Spanish disaster is surrounded in mystery. The client, industrial group Nueva Rumasa, spent lavishly on advertising in 2009 and 2010 through Carat, according to the Spanish press. Aegis has offered no explanation of why the group, owned by the wealthy Ruiz Mateos family, was given such lax credit terms. As the Marketing Services Financial Intelligence newsletter put it:

Someone's head should be rolling.
Aegis is one of the more opaque ad agency holding companies. In Q2 2010 it settled allegations from former client Danone Groupe (DN.PA) that it had ripped stolen Danone's media credits -- as good as cash in the ad biz -- for itself, but the reported €30 million deal did not show up in the company's numbers. Aegis made the settlement in order to avoid opening its books to the client in litigation. Sometimes, Aegis reports its results only in percentages and not actual numbers.

That opacity leads one to ask whether there are any other timebombs waiting to go off within Carat or Aegis. On the company's balance sheet, "Trade and other receivables" (money clients owe the agency) increased 17 percent by €408 million to €2.4 billion. Generally, companies looking to improve cashflow work hard to reduce their receivables, not let them grow. Nonetheless, I'm sure Aegis will get its money -- mañana.

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