Pub group suspends shares and ousts chairman over mis-stated accounts

Shares in SFI Group were suspended yesterday when the troubled pubs operator, whose chains include Slug & Lettuce and Bar Med, admitted it had mis-stated its accounts.

Tony Hill, SFI's chairman and former chief executive, has left with immediate effect and with no pay-off. The group's auditors, Horwath Clark Whitehill, are likely to be replaced.

Analysts said SFI might now be pushed into administration with its main chains sold off.

"The likelihood of this company being put into administration and disposal proceeds meeting no more than outstanding debt obligations is now quite high," said Greg Feehely, an analyst at Old Mutual Securities.

Possible bidders include Spirit Group, which was spun off from Punch Taverns, Six Continents, which owns All Bar One, and Laurel Group which includes the Hogshead pubs. "We would be interested in SFI," Laurel said.

One institutional shareholder said: "I am absolutely stunned by this development. It is an absolute disgrace. It is total corporate mis-management."

SFI, which issued a profits warning and cut its dividend last month after a period of over-expansion, said yesterday there had been "a significant over-statement of current assets and under-statement of liabilities" over a number of years. The net effect is expected to exceed £20m.

The company also admitted that its cash flow controls had been inadequate and that it had over-estimated the cash flow of the Parisa bars acquired in November last year by £10m.

SFI did not provide details on which assets and liabilities had been mis-stated. However, they are thought to include rents, rates, expenses and stock. "It's across the piece," said new finance director Tim Andrews, who joined in July.

Andrew Latham, who was promoted from managing director to chief executive in April, insisted the group still had a viable future. "I don't think it is likely to be put into administration. We have some good businesses and I think it has a good future. But we have inherited a very difficult set of circumstances."

Mr Andrews said the group was experiencing greater cash flow pressures than he expected. An analyst note issued by WestLB in September drew further attention to the problems and Mr Andrews brought in PricewaterhouseCoopers to conduct a formal review. A review of fixed assets has yet to be completed.

The group has bank debt of £135m and is still trying to negotiate fresh facilities with its major lenders, Barclays, after breaching its banking covenants.

Analysts said there was unlikely to be any equity left for shareholders as the value of SFI's 187 pubs is only likely to be about £120m. The shares were suspended at 31p.

Horwath, Clark, Whitehill received audit fees of £91,000 last year and other fees of £283,000 for tax and deal-related work. David Furst, the firm's, chief executive, said: "We don't know what has happened. The company has not stated what they believe has gone wrong. We are trying to set up meetings with them."

SFI, formerly known as Surrey Free Inns, includes 58 branches of Slug & Lettuce, 57 Litten Tree inns, 26 Bar Med units and a group of Latin themed bars.