City & Business : Like many a DIY job, this will go on and on

Click to follow
The Independent Online
Investors with memories unfazed by the hangover after England's midweek defeat may well recall this particular wealth warning from the building trade. A darling of the stock market, this kitchens, doors and bathrooms outfit was voted "Company of the Year" in 1990 after a gravity- defying rise in the 1980s. Even as recession gripped, margins remained a wonder. Then suddenly in November 1992 came a profits warning, put down to "serious misrepresentation and false accounting" at one subsidiary.

Just one, mind you, and a fine-toothcomb search through all the books revealed nothing more untoward. Until the shares were suspended four months later, a few more "discrepancies" came to light and the finance director took the fall.

A further profit warning and the founding chief executive finally bows to pressure to relinquish the chairman's role. Bad news for him: two months later, in September 1993, in a move backed by institutions, he and most of the board are fired, auditors and advisers too, in one of the biggest corporate clear-outs ever.

Oh, and as for that "fine toothcomb", one "isolated" problem became the metaphorical kitchen sink: overvalued assets, doubtful debts not written off, inflated stock, the lot. All to keep the profits mill turning, hoping something would turn up, as recession bit. Roll on afterwards the obligatory rights issue to shore up the balance sheet.

For Spring Ram three years ago, read Wickes now? Well (hopefully) not quite, but you never know. Chairman and chief executive Henry Sweetbaum quit far quicker than Spring Ram's Bill Rooney when Wickes' shares were suspended last week and accounting inaccuracies announced.

Here the finance director, Stuart Stradling, seems the good guy, uncovering practices that were lib-eral at the very least, after his ap-pointment last year.

Wickes did not quite enjoy the meteoric, unchequered rise of Spring Ram, but its margins still led a DIY sector covered in blood.

Maybe this is a good old-fashioned piece of financial detective work uncovering a strictly limited problem. Wickes' review still goes on, however, and the full damage has yet to be stated. Just pounds 15m to pounds 20m of overstated profits perhaps, but history suggests the portents are not good.

For starters, similar problems came to light at Wickes' Benelux operations last year. And, if lax accounting has been tolerated, if not encouraged, by management in one area, who knows what the fine toothcomb will find next? Mr Sweetbaum certainly did well out of the overstatement, earning pounds 1.2m last year, including pounds 890,000 of performance bonuses. He should pay those back, but the music hardly stops with him.

Price Waterhouse has now been brought in as independent investigator by the new chairman Michael von Brentano and will grill the auditors, Arthur Andersen, to start with. And guess who was brought in before the night of the long knives at Spring Ram, and who audited the books? Uncannily, PW and AA. The fall-out has only just started.

Get me a liable lawyer

THERE seem to be a lot of nervous traders out there who profited from associations with Sumitomo's Yasuo Hamanaka and his 10-year grip on the world copper market.

Among them, evidently, Credit Lyonnais Rouse, a member of the London Metal Exchange and pro-vider of large credit lines to Mr Hamanaka. Starting a week ago, we tried to speak to CLR's managing director Bill Bradwell.

No such luck, but the following missive did come humming down the fax:

"We understand you have been trying to contact us over the last few days and intend to print an article mentioning our name. We would caution you that if you liable (sic) us, you must expect us to seek legal remedies against the Independent on Sunday".

Tough stuff, but hardly the way to start a friendly dialogue. Given Credit Lyonnais' impeccable performance in international banking to date, naturally there is no reason to suspect anything amiss.

Traders might well be worried, though, with revelations this weekend that UK, US and Japanese authorities are to investigate allegations of a much wider copper cartel around the world.

By all accounts Mr Hamanaka may have lost Sumitomo anything up to pounds 2.5bn. Throughout, though, three rather smaller numbers have been puzzling me: 999.

Why did nobody see fit to call the police as far back as 1991? Then, the LME and UK regulators accept- ed that a request by Mr Hamanaka for a false $225m (pounds 145m) invoice was for Japanese tax reasons. Pardon, but isn't that just plain old fraud?

Further clear warnings followed, so everything the authorities are doing now is just making up, yet again, for lost time. Whatever happened to the old maxim "prevention is better than cure"?


THE health sector is abuzz with it first ever hostile bid: Westminster Healthcare's pounds 75m assault on fellow nursing homes group Goldsborough, which was cut short and declared final last week.

Goldsborough are hardly best placed to complain about that: they are advised by SBC Warburg's Brian Keelan who famously cut short (and lost) Kvaerner's bid for Amec last year.

Arguments that Westminster needs the bid because it appears to have run out of steam cut more ice, however. This looks like an old fashioned earnings- per-share-driven, treadmill bid, while Goldsborough is on the cheap. Cutting short also gives less chance to parade the arguments, such as the growth potential for Goldsborough's home care activities, which Westminster does not possess.

The bidder has also been talking poppycock, saying the new timetable is aimed at cutting pain for staff and patients. In fact what it wants is to cut debate short and reduce the scope for a white knight. Like Kvaerner, it deserves to fail.

Sugaring the pill

MORE City treadmills, but this time Alan Sugar looks as if he might - just - get off. Three and half years after his 30p per share bid (worth 150p after a share consolidation since) failed, investors might yet get out at 200p or more.

Despite lots of grief in between, Mr Sugar has not done badly for shareholders. After giving up on the original Amstrad, the acquisitions of mobile phone maker Dancall, direct sales firm Viglen and modem maker Dataflex seem to have paid dividends.

These are the bits Psion wants and they cost pounds 67m, against the pounds 150m (adjusting for Amstrad's pounds 85m of cash), at least, it is prepared to pay. Admittedly that is just a rough calculation, but it shows that Amstrad investors have reason to thank Mr Sugar's deal-making skills as they once did his marketing flair.