WH Smith Probed by Regulator Over Accounting Error
The UK’s financial regulator is currently investigating WH Smith after the retailer identified accounting errors within its North American division earlier this year. This scrutiny stems from concerns regarding potential breaches of regulations related to investor communication.
Key Details from the Investigation
– Regulatory Oversight: The Financial Conduct Authority (FCA) is examining whether WH Smith failed to provide accurate information to investors about its financial status.
– Delayed Annual Results: After uncovering these discrepancies, WH Smith postponed the announcement of its annual results, which were initially scheduled for November 12. This delay occurred twice, raising eyebrows among investors and analysts.
– Impact on Leadership and Shares: Following the revelation of these accounting issues, WH Smith’s chief executive, Carl Cowling, resigned. Consequently, the company’s shares plummeted by 42%, compounded by concerns over trust and accountability.
– Profit Overstatements: Investigations revealed that WH Smith’s North American division potentially overstated its revenues by as much as £50 million.
Financial Outlook and Company Changes
– Revised Financial Performance: The company reported a pre-tax profit, excluding one-off charges, of £108 million for the fiscal year ending in August. However, forecasts were downgraded in light of the recent revelations.
– Bonus Recovery Plans: WH Smith announced plans to recoup overpaid bonuses that were awarded to certain executives in the previous year, further highlighting the need for accountability within the organization.
– Strategic Restructuring: Earlier this year, WH Smith sold its 480 High Street shops, which have since been rebranded as TG Jones by their new owner. The remaining business now consists of around 1,300 locations in rail stations, airports, and other transportation hubs.
Future Plans to Rebuild Trust
Andrew Harrison, the interim group chief executive, acknowledged the challenges the company faces: It has been a difficult end to the year for the group. The board and I are acutely aware that we have much to do to rebuild confidence in WH Smith and deliver stronger returns. He confirmed the company’s commitment to enhancing financial controls and governance moving forward.
Additionally, WH Smith plans to revamp its stores by 2026, aiming to develop one-stop-shops that cater to travel essentials, health and beauty products, and food-to-go options, indicating a forward-thinking approach to recover from these setbacks.
In summary, WH Smith is undergoing significant scrutiny as the FCA investigates its accounting practices. The retailer is determined to regaining investor trust while adapting its business model to navigate future challenges.