KPMG is set to cut the
number of companies it
audits to focus on improving
standards after a string of
scandals, including the
collapse of its client Carillion.
Its decision to rein in its
number of clients comes as
more than 70 stock market
companies put their audit
contracts out to tender under
rules demanding that they
rotate every ten years.
Last week, KPMGconfirmed it had stepped
down as auditor of fund
management giant M&G, to
be replaced by PwC.
Cath Burnet, head of UK
audit for KPMG, said the firm
had already stopped working
for some clients and would
now be “selective” about
competing for tenders as they
were put out.
KPMG has been stung by
scandals, notably its failures
over Carillion, for which the
Financial Reporting Council
fined it £14 million. Only lastweek, it was fined
£3.4 million for failures at
Rolls-Royce, in what was its
fourth such payout this year.
Burnet recently warned
clients that the fees it charges
for audits will rise by as much
as 20 per cent as it deploys
more auditors to trawl
through the figures.
Fierce competition for staff
is pushing up wages, while
regulatory requirements to
separate audit from the rest
of the firm will also put
pressure on fees.“We need to make sure
that we have the right size
book of business. We need to
make sure that we’ve got the
right pricing to deliver
operational separation ... and
the right clients who also
focus on investing in good
finance teams,” said Burnet.
She denied talk of plans to
shrink revenues generated by
audit work from £700 million
to £600 million, or to cut
back on the 6,900 staff.
Regulators have been
trying to inject competition inan audit world dominated by
the “big four” of KPMG, EY,
Deloitte and PwC. Adviser
Rankings data showed that
PwC audits 102 of the
companies in the FTSE 350,
while EY, KPMG and Deloitte
have 74, 73 and 70 clients
respectively. BDO has the
largest number outside the
big four, with 18.
The structure of the big
professional services firms
has been thrown into focus by
EY’s decision to consider
breaking itself up by spinningJill Treanor and Anna MeninOne of London’s most
illustrious casinos is poised to
collapse, two years after
Britain’s gambling watchdog
suspended its licence.
For eight years, Park Lane
Club in Mayfair’s Hilton Hotel
has offered its millionaire
clientele the chance to play
roulette and blackjack in a
casino dripping with black
marble. However, in 2018 its
founder, a controversial
Latvian businessman named
Vasilijs Melniks, lost controlPark Lane casino’s last roll of the dice
of the club and Riccardo
Tattoni, a Swiss Italian
banker, replaced him as a
director. By the end of 2020,
Park Lane’s new Swiss owner,
a bank operated by Tattoni,
failed to satisfy the Gambling
Commission of its source of
funds, and its licence was
revoked. Now, it looks to be
on shaky financial footing.
This month the company
filed notice of its intention to
appoint an administrator.
Park Lane Club is operated
by Silverbond Enterprises,
which made sales ofSabah Meddings £8.3 million in the year to
September 2020, down from
£17.6 million in 2019, as the
pandemic-induced
lockdowns battered trading.
It also swung from a profit of
£212,502 to a loss of
£2.7 million.
The Financial Times
reported this month that the
casino was up for sale, and
the company has appealed
the decision by the Gambling
Commission, meaning it can
continue to trade. Chances of
a solvent sale now look
limited. The company did notrespond to multiple requests
for comment.
lThe owner of TGI Fridays
has been targeted by an
activist investor, as the
London-listed casual dining
chain struggles with rising
costs and weaker customer
demand. Oryx International
Growth Fund, managed by
Harwood Capital
Management, has taken a
4 per cent stake in Hostmore,
which is down more than
64 per cent since it listed on
the London Stock Exchange
last November.EU ports welcome back Russian goods
Laith Al-KhalafSome European ports are
importing more iron, coal
and wheat from Russia than
before the Ukraine war,
despite boycotts.
The Netherlands, Italy and
Belgium were among the
world’s top-ten receivers of
Russian dry bulk goods this
month, marking a rebound
from the early stages of the
war in Ukraine. According to
data compiled for The
Sunday Times by maritime
analyst Signal, Belgium wasRussia’s fifth largest trading
partner, taking 23 shipments
in May, up from 12 before the
war. Holland and Italy
brought in 20 and 16 ships of
goods respectively.
Richard Meade, editor of
Lloyd’s List, said the
shipments were “a proxy for
EU imports”.
After the invasion of
Ukraine, the EU imposed five
packages of sanctions, which
included bans on importing
Russian luxury goods,
technology and equipment.
Last week it also proposedphasing out imports of
Russian crude oil. However,
shipments of coal, iron and
grain are not affected by
sanctions. After the outbreak
of war, 347 ships transported
dry goods from Russia in
March, but this had
rebounded to 412 this month.
China and Turkey were by
far the biggest importers,
having welcomed 50 per cent
more cargo ships from Russia
in May than in February.
In third was South Korea,
whose ports received 35 ships
— similar to pre-war numbers.The blockade on Ukraine, a
major wheat exporter, has
helped increase demand for
Russian goods. “Basically,
Ukraine has stopped
exporting, and Russia has
kept exports to more or less
the same levels,” said
Semiramis Assimakopoulou
of Signal. “It’s not straight-
forward [for countries] to get
these volumes from
alternative locations.”Wheat traders reel amid
fears of worst famine since
WW2 — page 2Jamie Nimmo and Sabah MeddingsConcerns over
Abramovich sale
Chelsea FC owner Roman
Abramovich and his Russian
business partners are set to
lose more than £300 million
on their investments in a
British telecoms company as
it closes in on a rescue deal.
Hakan Koc, the Turkish-
born entrepreneur behind
Berlin-based used-car
marketplace Auto1, has
emerged as the preferred
bidder for Truphone, which
has been forced into a pre-
pack administration because
of the sanctions imposed on
Abramovich because of the
Ukraine war.
Truphone, which was
valued at £410 million in
2020, hired FRP in April to
carry out “an immediate
review of its strategic
options” in response to the
sanctions on Abramovich.
The oligarch has a 23 per
cent stake in the business,
which provides electronic
SIM cards to allow
smartphone users to avoid
roaming charges abroad. His
associates Alexander
Abramov — who is sanctioned
in Australia — and Alexander
Frolov own most of the rest of
the company. The trio have
invested more than
£300 million in Truphone inthe past decade. However,
rivals are concerned about
Koc’s links to Frolov.
His Auto1 company has
received funding from Target
Global, a venture capital firm
run by Frolov’s son Alex,
which has received funding
from Frolov Sr.
A source close to Koc
denied any links to the
Russians.
However, the deal is
controversial because it could
allow the Russians to recoup
as much as a third of their
investment, if the company
performs well over the
coming years.
It is understood that before
it goes through a pre-pack
deal, the Russian
shareholders will inject up to
£10 million that will go
towards running costs. That
could include paying a
$660,000 fine that was
handed to Truphone last
month by the US telecoms
regulator for
“misrepresenting” its
ownership structure.
Abramovich is unlikely to
see any return given the
sanctions. He has regularly
invested alongside Abramov
and Frolov, notably in Evraz,
the sanctioned Russian
steelmaker. Truphone, FRP
and Koc did not comment.Jamie NimmoJust Eat to
slash £5bn
from value
of US arm
riorated in what some compare to the
dotcom bubble bursting. Private food
delivery start-ups such as Gorillas and
Getir have announced job cuts.
A source said: “I’d be amazed if this
does get done now because I don’t know
how management can credibly stand up
and go ‘you know, we’ve paid billions of
dollars for this asset and now we’re going
to take a massive bath on it’.”
Just Eat Takeaway, which is run by
chief executive Jitse Groen, 43, has lost
more than three quarters of its value on
the stock market since September. The
entire company is worth just £3.7 billion.
Tech companies have been battered in
the past six months amid concerns about
inflation and rising interest rates, driving
investors away from growth stocks.
On top of that, Just Eat has had a torrid
time after it received a formal complaint
regarding personal misconduct by Jorg
Gerbig, the chief operating officer. It said
the misconduct had taken place at a cor-
porate event, thought to be a ski trip to
Switzerland this year for 5,400 staff,
which cost $16 million. Gerbig is “fully
co-operating” with the inquiry, and has
“full confidence” in the outcome, accord-
ing to Just Eat.
It suffered a shareholder revolt at its
annual meeting this month after reveal-
ing falling orders. The company reported
a pre-tax loss of more than €1.1 billion for- In a letter to shareholders, Cat Rock
called for a block on the re-election of the
chief finance officer Brent Wissink.
Chairman Adriaan Nühn quit on the
eve of the meeting. Sources said two sen-
ior female figures in British tech had been
asked by investors about replacing him in
an effort to boost the company’s image.
Just Eat Takeaway declined to com-
ment.
FEVER-TREE’S BUBBLE IS BURSTING
Hedge funds have taken a
multimillion-pound punt
against Fever-Tree, betting
that shares in the posh tonic
maker will continue to fall as
the cost-of-living crisis bites
into household spending,
writes Sabah Meddings.
Some 6.2 per cent of the
Aim-listed company’s shares
are out on loan to short-sellers
— a 92 per cent rise since last
month,data from S&P Global
Market Intelligence shows.
An FCA disclosure of short
positions shows BlackRock
Investment Management with
a 2 per cent bet against its
shares, while Greenvale
Capital, a London hedge fund,
has taken a 2.7 per cent punt
that its stock will fall.
Shares in Fever-Tree have
dropped 43 per cent this year
to £17.76 on Friday, valuing thecompany at £1.8 billion. That
compares with a peak of
£38.63 in September 2018.
Founded in 2004 by
Charles Rolls and Tim
Warrillow, Fever-Tree has
benefited from the trend for
at-home cocktails and
premium gins. Fever-Tree
listed in 2014 in a float that
valued it at £112 million. It
later jumped to almost £40 ashare, giving it a £4.5 billion
valuation.
However, despite Fever-
Tree’s strong start to the year,
and continued expansion in
the US, its shares have gone
into reverse. At the start of the
year the company said rising
costs from lorry driver
shortages and soaring energy
prices would affect margins.
Analysts at RBC Capital
Markets said that Fever-Tree
was on track for its fifth year
of substantial margin
declines. Soaring inflation
squeezing household incomes
is likely to slow the trend of
shoppers switching to more
upmarket drinks, RBC added.
According to the data from
S&P, the number of shares out
on loan has not been this high
since October last year, when
it hit 6 per cent.Price shock puts
up living wage
An annual review of the living
wage is to take place eight
weeks earlier than usual,
piling pressure on 10,000
employers to raise the pay of
their staff in the face of the
cost-of-living crisis.
The Living Wage
Foundation, which accredits
employers who sign up to its
voluntary pay scheme, is to
bring forward the
announcement to the end of
September from November to
address the financial squeeze
facing 4.8 million low-paid
workers across Britain who
are being left behind by an
inflation rate of 9 per cent.
The review could ignite
fears that inflation will be
stoked by higher wages.
Andrew Bailey, governor of
the Bank of England, has
urged people to “think and
reflect” on whether they
need a pay rise as it could fuel
inflation and “embed” higher
prices into the economy. His
remarks were aimed
particularly at “people who
are on higher wages”.
Last year the living wage —
voluntarily paid by 10,000
employers — rose by 4.2 per
cent across the UK to £9.90
and by 1.8 per cent in London
to £11.05. The smaller rise in
London was caused by an
increase in rents outside theJill TreanorFever-Tree has always fizzed but some fear its sales will be slowed by the pressure on incomesCARLES NAVARRO PARCERISAS/GETTY
IMAGESoff non-audit businesses,
such as its operations
advising on tax and
takeovers.
The Financial Times said
EY could float or partially sell
its advisory arm. Other firms
said they did not intend to
follow. Deloitte said it
“remains committed” to its
current model. PwC said it
had “no plans” to change.
KPMG has already sold off
some its businesses,
including its restructuring
arm for £400 million.Takeaway giant struggles to sell
Grubhub as markets collapse
Just Eat Takeaway’s sale of Grubhub has
been thrown into disarray as bosses pre-
pare for a multibillion-pound writedown
on the US business in what could go down
as one of the tech sector’s most disas-
trous deals.
Bankers from Bank of America have
the task of finding a buyer or strategic
partner for the American food delivery
operator, which Just Eat Takeaway
bought for $7.3 billion (£5.8 billion) less
than a year ago.
However, sources said Grubhub was
being offered to potential bidders at a
fraction of that amid a global tech stock
sell-off — and it may not find a buyer at all.
It is the latest crisis for the takeaway
giant, which has suspended a senior
executive and is seeking a new chairman.
Multiple sources said expectations for
the sale had been slashed to as low as
£1 billion after it failed to drum up signifi-
cant interest from any strategic buyers. A
number of private equity firms are
understood to have expressed an inter-
est, but it is not known if there have been
any serious approaches.
Just Eat Takeaway, formed from a
merger of UK-listed Just Eat and Dutch
rival Takeway.com, is offloading Grub-
hub after investors led by US activist Cat
Rock Capital attacked the deal as the
company struggled to compete with
larger rivals UberEats and DoorDash.
Cat Rock is run by Alex Captain, who
has been a vocal critic of Just Eat Takea-
way’s management.
Last November, the activist, which has
a 5.1 per cent stake, said there would still
be benefits of the sale at a value of €3 bil-
lion including debt. However, since then,
investor appetite for tech stocks has dete-capital. The national living
wage — the legal minimum for
workers over 23 years old and
formerly known as the
minimum wage — is £9.50.
Low-paid workers are hit
hardest by inflation as they
spend more of their
household income on
essential items such as food
and energy. The Institute for
Fiscal Studies has calculated
that inflation for the poorest
tenth of households is already
running at more than 10 per
cent while for the richest it is
rising at about 8 per cent.
Household energy bills are
at record highs; when the
energy price cap rises again
in October bills will have
more than doubled in a year.
Rishi Sunak last week
unveiled £21 billion worth of
measures that will give every
household £400 off their
bills, partly funded by a
windfall tax on oil and gas
companies.
Supermarket group
Sainsbury’s faces a face-off
with its shareholders, led by
campaigners at ShareAction,
at its annual meeting in July
over its refusal to commit to
raising pay in line with the
living wage.
It is resisting calls to pay
the rate to contract staff such
as cleaners. Sainsbury’s has
told investors it needs
flexibility over pay.BUSINESS
&MONEY
May 29, 2022 · thesundaytimes.co.uk/business thesundaytimes.co.uk/money
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