FCA makes inquiries into WH Smith accounting error that wiped almost £600m off value | WH Smith

The council watchdog contacted WH Smith to find out more about the accounting error that led to almost £600 million being wiped off the company’s stock market value overnight and the departure of its CEO.

The Financial Conduct Authority (FCA) said it had begun investigating the company to assess whether it had breached UK disclosure rules for listed companies, but had not yet launched a formal investigation.

A spokesman said: “We are aware of the reports and are in contact with the company.”

The newspaper, book and stationery chain cut its financial forecasts in August and launched an independent review led by Deloitte, which found an accounting error at its North American arm.

The announcement comes just months after the chain sold its high street business, which was rebranded as TGJones by new owners. WH Smith had identified North America as a growth opportunity in its new focus on branches in airports and train stations.

The Deloitte review found that the division’s profits had been overstated by £50 million, and following its publication on 19 November, Carl Cowling left his post as WH Smith chief executive. He has been replaced by Andrew Harrison, the company’s UK CEO, on an interim basis until a new leader is found.

The FCA’s engagement with listed companies is primarily through investigations rather than comprehensive investigations, and it believes that sanctions-free referral powers can achieve results without penalties.

WH Smith discovered the accounting error when it was preparing its year-end results and said in August it was “largely” due to it recording some of its revenue too early.

The error concerned arrangements the retailer had with suppliers who offered discounts if they met sales targets on certain products and made marketing and promotional payments. It was understood that the revenues should be recorded in the accounts for the next financial year instead of the 12 months until 31 August.

WH Smith warned earlier this month that it expected profits for its US arm to be between £5 million and £15 million in the year to 31 August, down from the £55 million first predicted by analysts and below the £25 million announced on 21 August when the accounting blunder first emerged.

As a result, group full-year profits are now expected to be between £100 million and £110 million; This is approximately 55% lower than the previous year.

Cowling will remain at the company until the end of February to ensure an orderly transition. WH Smith wants its new leader to “implement the recovery plan” and move into the next phase of its shift to focus on stores in global travel hubs. The group’s shares rose 1.5% on Tuesday but are still down 45% so far this year.

WHSmith has been contacted for comment.