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Aegis Earnings: Business as Usual in Q4 -- I.e., Accounting Errors and Musical Chairs

Another quarter, another round of accounting restatements and musical chairs at Aegis (AGS.L), the scandal-plagued, non-transparent European media buying company that also controls an American billboard network and Carat, the respected ad airtime buyer. Its clients include Kellogg (K) and Johnson & Johnson (JNJ).

The company recognized developments in two screwups on its books in today's earnings release, one from the 2006 kickback scandal in Germany, and a new event involving its U.S. Posterscope billboard business. Both items were buried on page 20 of its Q4 2009 earnings report, under good topline revenue results and the appointment of a new CEO.

The word "Danone" -- a former Aegis client -- was nowhere to be found in the statement, even though Danone (BN.PA) is suing Aegis for the return of up to $22 million (€15m or £13.2m) in media rebates that a former Aegis executive allegedly diverted to his own, separate company. Rather, Aegis presented the fallout from that kickback scandal as a financial windfall: its insurance company paid out £9.5 million to reimburse it as result of "the fraud perpetrated against Aegis Media":

Recovery of funds relating to the fraud perpetrated against Aegis Media Germany between 2003 and 2006

During 2006, the Group became aware of a fraud perpetrated against Aegis Media Germany. In prior years the recovery of funds, although probable, was not sufficiently certain to be recognised as an asset. In 2009, the Group has recognised £9.5m in respect of recoveries under insurance policies relating to this fraud.

In the same item, Aegis restated revenues at Posterscope USA, its joint billboard venture with rival media buyer Havas (HAV):
In December 2009, an internal review process initiated by the new regional management team, supported by a comprehensive investigation into the business unit's accounting practices, concluded that former senior managers at Posterscope USA had improperly reported over-stated revenues and profits between 2004 and 2008 by an aggregate £10.5m. This has been reversed in full through underlying revenue in 2009 with no restatement of prior periods. There was no direct cash impact.
Aegis gave no explanation for exactly how that error was made. In what I'm sure is just an amazing coincidence, the restatement comes right after Posterscope's president was ejected from the company in a management reshuffle.

That's not the only reshuffle going on at Aegis. Interim CEO John Napier stepped down in favor of new CEO Jerry Buhlmann (pictured), whose appointment comes after the sudden departure of Robert Lerwill in November of 2008. Lower down the Aegis food chain, in what I'm sure is just another unfortunate coincidence that no one in any way should link to the kickback mess, three Aegis regional CEOs were ejected or replaced, in Austria and the Adriatics, Switzerland, and Germany.

Memo to Mr. Buhlmann: Congratulations on your new job. Please use this opportunity to come clean with your clients and shareholders. Introduce a new culture of transparency and honesty at your network, and by doing so put this messy decade behind the company.


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