The Times - UK (2022-06-08)

the times | Wednesday June 8 2022 41

Business

stake in Britain’s nuclear energy

generating fleet. At its annual general

meeting yesterday, Scott Wheway,

Centrica’s chairman, told shareholders

that the tax and any move by the Trea-

sury to extend it could cause damage to

investment in the UK.

In comments reported by the Finan-

cial Times, he said the taxes could cause

a “medium and long-term problem”,

adding: “We know that the industry

we’re in is a very long-term industry

and we urge everyone thinking of those

things to strike the right balance.”

Despite Centrica’s previous criti-

cisms of Ofgem, the energy regulator,

that its oversight of failures in the

market had been “both predictable and

predicted”, Wheway said the company

would not be challenging the windfall

tax. “We don’t see any scope or

requirement or necessity for a legal

challenge to those things that have

been brought forward,” he said.

Osborne, 57, who was promoted from

chief financial officer. The board is still

searching for a replacement chairman

after the death of John Barton, former

chairman of Next and easyJet, in

December.

Soon into her tenure as chief

executive, Osborne had to issue a

savage profit warning after discovering

an accounting error was twice as big as

initially thought. The pandemic also

dealt a heavy blow to the business as

sales slumped during shop closures and

amid a drop in demand for its formal,

tailored style of clothes. Since then,

Osborne has focused on stripping out

discounting across the business, closing

unprofitable wholesale accounts and

cutting costs, including moving its

headquarters.

Recent trading has been more

encouraging, however, as weddings

frontrunner pulls out

and other formal events have returned.

Last month the company reported a

narrowing of annual losses from

£107.7 million to £44.1 million as sales

rose by 20.5 per cent to £428.2 million in

the year to the end of January. It said

that sales in the second quarter were

increasing in Britain and the European

Union, although its North American

business had suffered from supply

chain delays.

Watchdog fines

PwC £5m over

audit failings

The accountancy watchdog has fined

PwC a total of £5 million for failings in

its audits of Kier and Galliford Try, the

construction companies.

This year it emerged that the

Financial Reporting Council had

opened two separate investigations

into PwC’s audits of Galliford Try for

2018 and 2019, and Kier for 2017.

In its final decision notices, published

yesterday, the regulator was critical

of how PwC, one of the Big Four

accountancy firms, had examined both

companies’ long-term contracts and it

criticised the auditor for its “lack of

professional scepticism”.

Galliford Try, which builds roads and

bridges, had to restate its accounts two

years ago after it was rebuked by the

watchdog, which decided that

the infrastructure special-

ist should not have rec-

ognised an £80 million

legal claim related to

the ill-fated

Aberdeen bypass

project as an asset.

PwC audited the

company’s books for

20 years until it was re-

placed by BDO in 2019.

Kier is the govern-

ment’s largest construction

contractor and has worked on the

Hinkley Point C nuclear plant and HS2.

PwC still audits Kier’s accounts, a job it

has held since 2014. In March 2019,

months after a £250 million rights issue,

Kier told investors that there had been

an accounting error: net debt was said

to be £180.5 million, £50 million more

than it had thought previously.

Auditing long-term contracts is

notoriously difficult because of the

guesswork, often presented by man-

agement, required to calculate how

profitable a contract might be several

years down the line. Auditors’ work on

such construction contracts was

thrown into the spotlight after the

collapse of Carillion four years ago.

“Rigorous auditing of long-term con-

tract accounting is particularly

important [with] construction firms,

where many contracts are spread over a

number of years,” Claudia Mortimore,

the watchdog’s deputy executive

counsel, said. “Auditors must not only

ensure they obtain sufficient appro-

priate evidence to support the

accounting of the contracts, but also

apply sufficient professional scepticism

... so investors have confidence in the
financial statements.”
With Kier, the regulator found that
PwC had identified contract account-
ing as a “significant risk”, but despite
this had still failed to challenge or ade-
quately test the company’s estimates.
However, the watchdog accepted that
the errors “did not cause the 2017
financial statements to be misstated”.
Similarly, with Galliford Try, the
regulator concluded that PwC
should have more thor-
oughly questioned the
company’s revenue and
cost estimates and
should have pulled to-
gether more evidence
explaining their deci-
sions. The FRC added
that the breaches were
not “intentional, dis-
honest or reckless”.
For Kier, PwC was fined
£3.35 million; for the Galliford
Try audits, it was hit with a further
£5 million penalty. Reflecting the firm’s
“exceptional level of co-operation”, the
combined penalty was reduced to
£5 million.
Jonathan Hook, who led the audits of
both Kier and Galliford, was fined a
total of £240,000, reduced to £136,000.
He retired last summer.
The money will go to the gov-
ernment, rather than the Institute of
Chartered Accountants in England and
Wales, which controversially has
pocketed some recent fines.
“We are sorry aspects of our work
were not of the required standard,”
PwC said in a statement. “We have
invested heavily in an ongoing pro-
gramme to strengthen audit quality.”

Tom Howard

Windfall tax on North Sea

oil will ‘damage confidence’

The windfall tax on energy companies

will damage investors’ confidence in

Britain, according to Centrica, one of

the largest businesses in the sector.

The Treasury is to introduce a 25 per

cent levy on North Sea oil and gas com-

pany profits to raise up to £5 billion,

needed to help to pay for the support it

is giving to eight million households to

help them with the soaring cost of

living. Oil and gas companies have been

reporting huge profits on the back of

sharply rising prices exacerbated by the

embargo on Russian imports.

It is not certain how long the windfall

tax will stay in place or whether it will

be extended to energy generators. The

imposition of a windfall tax has further

split the Conservative Party.

Centrica is the company behind the

British Gas energy supply business and

it also has assets in the North Sea and a

Robert Lea

Women lose out in the quest for equity

Women who raise equity for businesses

that they started find that their stake is

diluted far more than companies

founded by men, according to a report

by JP Morgan Private Bank.

The bank and Beauhurst, its research

partner, identified 5,142 companies

founded by a woman. They owned on

average 57.7 per cent of the business

before any external equity fundraising,

and after a stake was sold they held on

average 32.9 per cent.

The average stake of a male founder

before raising equity was 40.4 per cent,

but he gave away less to raise funding,

retaining on average 27.1 per cent.

Charlotte Bobroff, a senior adviser at

the bank, said the statistics showed that

women struggled to access capital in

the early days of their businesses. She

said that for men, “access to capital to

grow is easier. When females are rais-

ing equity, the amount they then give

away is significantly more than men

give away.” One reason, she said, was

that venture capital funds were mostly

run by men.

The report ranked what it called “fe-

male-powered companies” — either

owned or led by a woman or in which

women made up more than half the

management team — on the average

annual growth in their workforces over

the past three years. Beauhurst identi-

fied 10,647 such businesses and in total

last year they had sales of £84.7 billion

and employed 700,000 people. They

attracted £5.05 billion of equity invest-

ment that year.

The list was topped by VogaCloset,

which sells European fashion in the

Middle East, and Trinny London, the

make-up brand founded by Trinny

Woodall, the television presenter.

Woodall said that 85 per cent of the

company’s staff were women. “The dy-

namic of the people and personalities is

key in a business that is made up of

majority women,” she said. The com-

pany was valued at £46 million at its

most recent fundraising in 2020.

VogaCloset, run by Hanin Hamar-

neh, was ranked second in terms of job

creation. Last year it sold a majority

stake to Alhokair, a Saudi property

company, and Arabian Centres Com-

pany, valuing the company at $60 mil-

lion.

The companies on the list are con-

centrated in clothing, healthcare and

ecommerce. They include Africa

Mobile Networks, a company based in

Milton Keynes that operates mobile

phone towers in Africa. Featurespace,

which is based in Cambridge and run by

Martina King, also appears on the list. It

is a specialist in using behavioural ana-

lytics to prevent financial crime.

The highest concentration of such

businesses was in London and the

southeast.

Richard Tyler

weddings and other events have returned, enabling the company to put the shock of a severe profit warning behind it

57.7%

Average stake of a female founder

Source: JP Morgan Private Bank

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