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Wednesday’s resignation of Carl Cowling, the group CEO of British travel chain WHSmith, is just the beginning of a long road to regaining market confidence. His departure follows a serious accounting error that grossly overstated profits at the company’s North American division, sending the shares into a tailspin in August. That revised figure was adjusted again on Wednesday.
Following the findings of an independent investigation by Deloitte into the reasons for the exaggeration, which were released yesterday, Cowling has stepped down “with immediate effect,” according to a statement. However, he will remain employed by WHSmith until February 28 next year “to ensure an orderly transfer of his duties.”
While WHSmith conducts a search for a successor – with a formal search process already underway – UK division CEO Andrew Harrison will become the group’s interim CEO. Harrison joined the company in May 2021 as Managing Director (MD) for the UK operations, having previously spent 15 years at Manchester Airports Group. There he held various positions, including commercial director and MD of Manchester Airport, and MD of Stansted Airport, Britain’s second and third busiest airports respectively.
Markets reacted positively to the news, with the stock up 5% since the announcement, but WHSmith shares are down 46% this year. Investors will be waiting to see who replaces Cowling as he or she will be tasked with overseeing and implementing a far-reaching recovery plan for North America.
Weak financial supervision and another profit revision
In its research, Deloitte cited a “targeted performance culture,” weak financial supervision in North America and a decentralized divisional structure as three reasons for the overvaluation of profits. This was due to an accounting treatment of supplier income in the North America division that was inconsistent with the group’s overarching accounting policies.
In addition, Deloitte has further revised down earnings from the August restatement for FY25. At the time, WHSmith announced expected North American trading profits of approximately £25 million ($33 million*), lower than the previous market expectation of £55 million ($72 million). On Wednesday, the accounting firm said total trading profits would now only be between £5 million and £15 million ($6.5 million-$20 million).
Company Chairman Annette Court commented: “This is an extremely serious matter that has had the full attention of the board, and we sincerely apologize for the shortcomings identified. While the issues occurred in our North American division, we recognize the importance of strengthening the control, governance and reporting procedures across the group. We have acted quickly to put in place a comprehensive recovery plan and will strengthen the financial discipline and integrity that underpins our future operations.”
Cowling has led WHSmith as group CEO since November 2019, transforming the business from a diversified domestic, e-commerce and travel retailer into a pure-play airport retailer. That process was completed in July with the sale of online greeting card company FunkyPigeon.com.
In addition to overseeing the recovery plan to the satisfaction of investors, the new CEO will need to lead the company through the next phase of its business strategy as a pure global travel retailer.
Commenting on Cowling’s departure from WHSmith, Court said: “On behalf of the company and the board, I would like to thank Carl for his significant contribution to WHSmith over the past eleven years. He successfully steered the company through the global pandemic and, more recently, strategically repositioned the group. We wish Carl every success in the future.”
*All FX conversions at current exchange rates unless otherwise stated.
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