Accounting problems ravage Wickes

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The Independent Online
Wickes, the UK's third-largest DIY company, was plunged into disarray yesterday when the company said the discovery of "serious accounting problems" may have led to the overstating of group profits and shareholders funds last year. Earlier years' profits may also have been overstated.

Wickes shares were suspended at 69p compared with Monday's 109p close. However, after-hours trades on Monday of 159,000 shares at 80p are expected to prompt a Stock Exchange enquiry.

The accounting errors will place considerable pressure on Henry Sweetbaum, Wickes chairman and chief executive who earned pounds 1.2m last year including a pounds 750,000 long-term bonus. Mr Sweetbaum had been expected to step down from the chief executive position next year. That move was now likely to be accelerated, some analysts said.

Mr Sweetbaum, who only returned from Russia earlier this week, was said to be "devastated" by the crisis. After the collapse of its share price Wickes will now be a takeover target. Analysts see it as a fundamentally sound business that might attract the attention of Kingfisher, which controls the B&Q chain or a builders merchant such as Graham. At yesterday's price, Wickes is valued at pounds 260m.

Though full details of the accounting problems have yet to emerge, they relate to the way the company has been accounting for supplier discounts and contributions towards in-store promotions. It is thought that long- term suppliers to Wickes give the company discounts on goods supplied, assuming Wickes will generate a certain volume of sales.

If those sales fail to materialise and the discounts are later rescinded, the group's profits margins could be affected. The practice of booking supplier discounts as profits is not uncommon but questions remain unanswered on Wickes' timing of the bookings.

A similar problem emerged earlier at a Wickes subsidiary in Europe and some analysts have been critical about the company's accounting practices.

"One might have expected Arthur Andersen [the company's auditors] to have looked carefully at the UK accounts after the situation in Europe," one analyst said.

The company will conduct an immediate investigation to discover the scale of the problem. There are no current plans to bring in outsiders to probe the accounting errors. A spokesman said: "There's no fraud. No cash has gone missing and there has been no personal gain. The stock and the cash position remain unchanged. It's is really about the timing of the way these discounts were booked."

Wickes said it was unlikely that Mr Sweetbaum might have to repay all or part of his recent long-term bonus payments even though were linked to profits as well as share price performance.

Last year, Mr Sweetbaum's pounds 750,000 bonus took his total pay to pounds 1.2m making him one of the highest earners on the high street. The previous year he earned pounds 1.1m including a long-term bonus of pounds 670,000

Last year Wickes recorded a pounds 258m loss caused by pounds 269m of exceptionals relating to the sale of Hunter Timber and Builders Mate. This compared with profits of pounds 30m the previous year.

Wickes recruited a new finance director, Stuart Stradlin, a year ago from SG Warburg. He replaced Trefor Llewellyn, who is now at Caradon, the building materials group. Wickes shares had been hit by a profits warning at the company's annual meeting in April when it said profits would fall significantly below those of the previous year due to a difficult first quarter an poor winter weather.

Prior to this, Wickes had been one of the most highly regarded companies in the difficult DIY sector. It appeared to have avoided the worst ravages of the recession by targeting the professional builder rather than the DIY enthusiast.

The company's supporters had been touting the shares as a good recovery play that would benefit from any upturn in the housing market.