SFI bosses warned of cash flow crisis over a year ago
thePublican.com has learnt that members of the SFI Group management, including Tony Hill and Andrew Latham, the current chief executive, were warned about potential cash flow problems in August 2001, more than a year before a financial crisis gripped the operator.
Accountants within the group warned Mr Hill, who was executive chairman at the time, and Mr Latham, who was joint-managing director, that the company would, before long, be faced with potential cash flow problems.
Then in March 2002 a note was sent to Mr Hill, again from accountants within SFI, warning of the potential cash flow crisis that could engulf the operator given the company's growth plans. This was circulated to other board members.
The note warned that the company faced a tightness of cash and in order to manage this SFI would have to hit all the numbers, deliver on disposals, and possibly put pressure on creditors.
But what the warnings did not foretell was that the cash flow derived from the Parisa deal would fall short by £10m. "Nobody knew that the cash was not going to be there to fund expansion," said a person close to the company. The company pressed ahead with its opening of 14 more bars.
"After the Slug & Lettuce deal, the business was going like an absolute train," said an SFI insider. "It started to be less than brilliant in the summer of 2001. They [the board] wanted to do the Parisa deal and then address the problems after that."
Despite a good start to this financial year, trade had been weak. The company admitted it was experiencing cash flow problems in October after an analyst suggested it was having problems paying creditors.
Then it issued a profits warning in the light of trading, scrapped the dividend and then unveiled a £20m black hole in the accounts, the result of an overstatement of assets and an understatement in liabilities. The shares were suspended. Mr Hill resigned from the company.
"The sad thing is that the business is not performing to expectations but it's still performing bloody well," said the SFI insider. "It's just over-geared and under-funded."
Mr Latham told thePublican.com that the cash flow shortage was a symptom of problems on the balance sheet discovered last month. "People are under pressure," he said. "I don't think the interests of the company are best served with a public slanging match."
Related articles:
SFI 'ignored crisis warning' (25 November 2002)
SFI investors look to Hill for answers (19 November 2002)
Andrews: '£20m hole due to aggressive and lazy accounting' (13 November 2002)
SFI's Tony Hill leaves with nothing (13 November 2002)
Shares in SFI suspended (12 November 2002)
