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Accounting mess prompts major clean up at Zenith

Written by Sam Fountain

Monday, 25 February 2008

Departure of CEO, Francis adds to the woes at Zenith Tripled losses after a difficult year have prompted a full business review at cleaning and hygiene products company, Zenith Hygiene involving a major board reshuffle that has seen the departure of chairman and CEO, Ringo Francis. Zenith had issued a profits warning for the second half of the year in May 2007 after challenging trading conditions, but it said that accounting errors had exposed a considerably graver deficit than previously anticipated. "As previously reported in a number of announcements during the second half of 2007 this has been a very difficult year for Zenith with challenging integration of previous acquisitions, poorer trading and the emergence of significant accounting issues which has led to restatement of the accounts for 2006 and a significant loss for 2007," it said in a statement. It said that issues concerning GRNI (goods received not invoiced) and customer rebates had come to light in the second half of financial year 2007 which, upon further investigation, warranted the appointment of forensic accountants, Quest. In the course of Quest's investigations it quickly became apparent that Zenith's internal controls were being circumvented, and ledgers, procedures and results reported were unreliable. The Herts-based firm said that pre-tax losses had widened to £8.6m for the year to August 2007, almost tripling the restated £3.1m it managed last year, despite a £3.8m rise in revenues to £38.1m. It said that losses for the first half of the year, previously announced as £500k, were considerably greater after further investigation, and that full year losses had accrued more or less evenly across the full year. Shares in the company have plummeted almost 14 per cent on the news, including the resignation of chairman and CEO, Francis, who issued a statement highlighting the steps taken by the company to get back onto track. "Significant steps have been taken to put Zenith back on the right path in all areas of our business. New management is in place targeting customer service levels, funding has been agreed and there is a hugely positive atmosphere in the business," he said. Gavin Gracie, who has significant turnaround expertise, according to Zenith, will  take up the full time role of CEO and Simon Barrell will take on the chairmanship in an acting capacity. The two new appointments were just a small part of the group-wide restructuring that Zenith has implemented, including the appointment of a new FD and finance team, the appointment of consultants to review of warehouse and distribution operations and new management teams across all areas. The company said it has also introduced new systems and controls and increased banking facilities to provide adequate working capital headroom. "As a result, costs are being better controlled, margins are increasing, customer service is improving, but, the major impact of the changes that have been made will not be fully realised until fiscal year 2009," it said.

 

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