Sketchley director set to quit after accounting fiasco

Click to follow
The Independent Online
Sketchley last night looked set to part company with Richard Meyers, finance director, after the dry cleaning to road duct group announced its second profits warning in just over a year.

Joe Jackson, chief executive, said in a statement yesterday that "certain accounting deficiencies'' uncovered by outside auditors during preparation of the company's results would mean a ''moderate'' loss for the year. Analysts who had pencilled in an pounds 8m profit for the year to March now expect a loss of between pounds 1m and pounds 4m.

Sketchley was due to present its final results next Tuesday when it was also going to announce a change of name. Shares in the group plummeted 26 per cent to 65p.

A source close to the company said that, as Sketchley was without a retail division manager, Mr Meyers would have to take responsibility for the accounting fiasco. "That business needed most surgery and was gripped directly from the top," said the source.

Mr Meyers could leave as early as today. He has been with Sketchley for 11 years and received a basic salary of pounds 109,000 last year. He is on a one-year rolling contract. It is not known whether he will receive compensation.

Analysts said that though there were no suggestions of impropriety, the timing of yesterday's announcement was remarkable.

"I do think it's very odd that a week before the chief executive is due to announce his company's results, he doesn't know if he will make an pounds 8m profit or a pounds 4m loss. It stretches the imagination," said one. Another said: "This is just one more nail in their coffin - another sorry episode in a sorry 15 years."

Sketchley has been criticised for the slow recovery of its dry cleaning shops and diversification into duct laying with the acquisition of ARM this February.

Sketchley's statement said the accounting problems were limited to its group's retail division, a third of its total business, which incorporates dry cleaning shops and photo-processing outlets.

Sketchley said the retail division would make a second-half loss "in excess of the profit generated by that division in the first half". Analysts estimated the retail division made pounds 3m profits in that period. It said there would be a further provision relating to the reorganisation of the retail side against future rental shortfalls on properties vacated by the group and sublet to third parties.

Though details were sketchy and the company was not returning calls, the two areas of concern appear to be provisions for shop disposals and creditor and stock accounting.

Sketchley appears not to have written down the value of its stock adequately which could cost up to pounds 3m. Moreover the group may now have to double the pounds 7.5m provision it made last year for closing or letting 150 shops. Early suggestions are that the group may let out some of these shops for less than its own costs, charging the difference each year to expenses. However the auditors are thought to have asked the group to make another one-off provision of pounds 7m.

Analysts said that though these were mainly non-cash adjustments, the effect would reduce Sketchley's shareholders' funds, taking gearing to over 100 per cent.