SFI 'ignored crisis warning'

Pub group continued to expand against the advice of its accountants.

SFI Group, the owner of the Slug and Lettuce, Bar Med and Litten Tree pub chains, was warned in the spring that it was facing a cash crisis and would have to rein back its ambitious bar opening programme.

The warning, from accountants within the group, came a full six months before the group admitted to the financial crisis that had led to its shares being suspended, a £20m write-off and talks with its banker after it breached the covenants on its £130m of borrowings.

Andrew Latham, the chief executive, is understood to have been warned that unless the company made disposals or stopped its expansion plans it would run out of cash.

However, he decided to press on and opened 14 more sites before the end of the group's financial year in May.

Mr Latham was not available to comment about the cash crisis but Tim Andrews, who joined the group in the summer as finance director, was willing to confirm that the expansion programme had been a major factor in the write-off by the group.

Mr Andrews said that a lot of SFI's troubles had come from an "aggression in recognising assets but a laziness in admitting to liabilities".

Analysis by The Independent on Sunday has found a number of anomalies in the group's most recent accounts, which have contributed to the £20m black hole.

These include £2.95m owed by trade debtors – an increase of £2m in the year – which is mainly made up of discounts given by suppliers, such as brewers.

Another issue is £5.6m of "base stocks", essentially cutlery, glasses and crockery used by the bars, an increase of £2.5m from the year before. This would imply that the average amount of base stocks in each pub was now £30,000, an increase of £8,000 on the year before. However, nowhere else in the accounts is there any indication of SFI having bought lots of extra glasses for its pubs.

The group's biggest problem, though, may come from the expansion programme, and the fact that SFI may not have revealed the full extent of what it owes to contractors for the refitting of the new outlets. This may account for as much as £10m of the write-off.

None of these issues was contradicted by Mr Andrews, who said the group would make a full statement about its provisions when a report by accountants PricewaterhouseCoopers was completed.

Tony Hill, the former chairman of SFI, has already cast doubt on the size of the £20m black hole revealed by the group. He said: "I find the magnitude of it unbelievable ... I don't understand it and I don't think it is credible."

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