Latham's cool £1/2m at trouble-torn SFI

CE earned £597,000 as shareholders suffered by The PMA Team Former SFI Group chief executive Andrew Latham earned more than £597,000 ­ including a £217,000 pay-off ­ during the two-and-a-half years that saw shareholder value in the company completely eroded. Latham, who quit the company last October, earned £179,000 in 2002 when the company ran out of cash after overspending by £16m. The problem arose despite warnings by finance director James Kowszun and joint managing director Clive Eplett in September 2001 that the company risked "terminal damage" if it did not "pause for breath". The following year Latham earned £201,000 as the company suspended and then de-listed its shares. His departure in October last year saw Latham ­ who moved from the position of joint MD to that of chief executive, despite promises to fellow director James Kowszun that an external candidate would be appointed ­ receive a pay-off of £217,490. Latham's salary increase in 2003 came as trading at many of SFI's brands fell off a cliff. Café bar chain Bar Med like-for-like trading dropped by 23%, Break for the Border was down by 25% and Latin bar chain Fiesta Havana saw sales plummet by 7%. SFI Group's Litten Tree division also saw a big drop in trading with like-for-like sales down by 9%. Only the Slug & Lettuce chain maintained growth with a 1% increase in like-for-like sales. SFI shareholders are now being offered a 12.5% stake in a new company, SFI Holdings. The company's banks will write off debt of £83.4m in return for a 75% stake in the company. Former auditors Horwath Clark Whitehill are likely to be sued by SFI over £58.8m in fundamental accounting errors found in SFI's books. One former senior SFI employee told the Morning Advertiser: "Some of the claims against the auditor are laughable. The whole thing leaves quite a nasty taste in the mouth." Of the £58.8m in fundamental errors, one City analyst said: " It's incredible, equating to 79% of 2001's £74.4m of group net assets. "The whole thing is utterly outrageous and, in a way, the banks were right to force this company off the equity market because shareholders could not rely on a word it was saying." Another City analyst said: "SFI's performance in 2002 was shocking. The profits of this business bore absolutely no resemblance to what it told the markets. If profits had been reported properly, its share price would have tanked much earlier." A second former SFI employee said: "All the dirty washing is being done in one fell swoop now. And it would seem that everything is a fundamental accounting error rather than a failure to manage the company's cash properly in 2002." l City ­ p12 What other SFI directors earned: Former chairman Tony Hill (resigned 12/11/02) earned £460,000 in 2002 and £62,000 in 2003. Former deputy chairman Robert Lo (resigned 7/11/03) earned £30,000 in 2002 and £25,000 in 2003. Fundamental errors' worth £58.8m were found in SFI's accounts: 1 Tangible fixed assets: In previous years the company had capitalised items of a revenue nature including repair and renewals costs, aborted costs of landbank sites and IT and development team costs. Costs inappropriately capitalised in the year to 31 May 2002 amounted to £10,783,000. 2 Stocks: In previous years, when a new site was opened, an initial level of non-sale consumables would be capitalised as base stock to be used in running the outlet. All future expenditure on non-consumables of this nature should have been expensed through the profit-and-loss account. This policy was not applied in a consistent manner and a number of sites were found to be carrying an inappropriate level of base stock. 3 Cash: Main bank accounts were reconciled by clearing items into a number of (other) accounts. These accounts were never reconciled and were found to largely comprise irrecoverable balances. 4 Debtors: A detailed review of debtors at each year-end revealed a number of old irrecoverable balances. The age of these balances was such that a provision should have been made using the information available at the time the accounts were finalised each year. 5 Creditors payable within one year: ...Incorrect and insufficient provisions had been made in prior years for other liabilities such as rent, rates, utilities, staff holiday pay and VAT.