Phoenix IT Group fesses up to 'accounting irregularities'
'Repeated, deliberate circumventions' at Servo
Phoenix IT Group has suspended a business manager amid a probe into accounting irregularities that the firm reckons will result in £14m being wiped from net assets.
The listed IT services group revealed in a statement to the London Stock Exchange this morning that it has named PwC and Nabarro LLP to "carry out independent forensic investigations".
The financial issues came to light following a structural overhaul that included "organisational changes within the finance function" and led to numerous "internal reviews into working capital", the firm said.
"Information has very recently come to light indicating the mis-statement of a number of accounting balances within Servo Limited and its subsidiaries over a number of accounting periods," the firm said.
Current information suggests that "certain control processes" within the Leeds-based finance department at the mid-market focused Servo unit were "repeatedly and deliberately circumvented", Phoenix added.
PwC and commercial law firm Nabarro LLP are poring through the books but based on current info, Phoenix said the mis-statements are isolated to Servo.
However it also confirmed that the cost of addressing these wrongs "will result in a reduction to net assets of approximately £14 million on a post-tax basis".
It added that the substantial reduction, the majority of which is to be reflected as a prior year adjustment, will be made in the group's half year results.
"The group has informed its banks and will keep them abreast of developments. Based on the information to date, the board believes the group is and will remain in compliance with the convenants in its banking facilities and that its net debt and working capital requirements can continue to be provided by the current facilities," Phoenix added.
The company-wide restructure already battered results for fiscal 2012 ended 31 March, with sales down 2.5 per cent year-on-year to £264.6m, and underlying profits down from £32m to £28.7m.
As for Servo, sales fell 7.3 per cent to £91.1m in fiscal 2012 and underlying profit from operations was down 9.4 per cent to £7.5m. ®