Speedy Hire Plc (SDY) Chief Executive Officer Steve Corcoran resigned after the U.K. construction-equipment provider uncovered repeated false accounting at its Middle East operations. The stock fell the most since 2009.
“Information has very recently emerged indicating the misstatement of a number of accounting balances within the International Division over recent accounting periods,” the company said in a statement today.
The company estimates the total impact of the irregularities at 4.5 million pounds ($7.4 million) to 5 million pounds. Pretax profit for the financial year ending March 31 will probably be reduced by around 3 million pounds, and the remainder will affect the two preceding periods, it said. The finance director of the international division, which serves clients in the oil and gas industries, has been suspended and other senior divisional management are the subject of further investigation, Speedy said.
Speedy dropped as much as 22 percent, the steepest intraday slide since January 2009, and was trading down 16 percent at 54.50 pence as of 10:39 a.m. in London. The decline was the biggest on the FTSE All-Share Index. (ASX)
“Whilst the financial impact is not huge and is non-cash, and the issues are not in the core U.K. business, the hit to sentiment is likely to be significant,” Andrew Brooke, an analyst at RBC, said in a note. “We would expect to see a big de-rating until we get clarification of the issues and of new management.”
The stock had gained 66 percent this year to yesterday, compared with an increase of 23 percent for the broader index, as investors anticipated the equipment-leasing company was placed to benefit from a resurgence in British construction.
Corcoran, who has headed the Newton-Le-Willows, England-based company since April 2005, will remain at the company pending the appointment of a new chief executive, Speedy said. He wasn’t available for an interview.
The accounting difficulties come after Speedy “has spent the last few years restoring its reputation and improving the business model,” Brooke said.
Speedy said the accounting irregularities probably involved “a limited number of smaller contracts” in the international division, which the company established in the Middle East about four years ago after what it called a successful trial period at the time. The division accounts for about 5 percent of Speedy’s revenue, which was 340.4 million pounds in the latest fiscal year.
The company said Nov. 12 that it was “building upon its international reputation and experience, especially in the oil and gas sector” in response to a challenging U.K. construction market. Its Middle East emphasis was on “secure, high quality transparent revenues from key clients in selected markets,” Speedy said at the time.
The group’s international operations are mainly focused on the United Arab Emirates, and it expanded to Qatar and Kazakhstan this year. The accounting irregularities do not relate to contracts to supply support services and equipment to the Upper Zakum oil field in Abu Dhabi, nor to its joint venture to supply maintenance and turnaround services to oil fields in Kazakhstan, Speedy said.
While the irregularities “seem to be confined to a limited number of small contracts,” there are many unanswered questions about the matter, Andrew Gibb, an analyst at Investec, said today in a note. Gibb placed his buy rating on the shares under review.
Company controls “have been repeatedly and deliberately circumvented,” Speedy said of the accounting flaws.
Speedy appointed Andy Wright as managing director of its Middle East and North Africa operations earlier this month and said today the information on false accounting had emerged following the management change. The company said it hired Addleshaw Goddard LLP to conduct an independent legal investigation and said forensic accountants are being appointed.
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