Clarity on accounting errors, but WHSmith is still on the backfoot. (Photo by Anna Barclay/Getty Images)
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The resignation, on Wednesday, of Carl Cowling, the group CEO of U.K.-based travel retailer WHSmith, is only the beginning of a long road to regaining market confidence. His departure follows a serious accounting error which heavily overstated profits in the company’s North American division that sent the stock into a tailspin in August. That revised figure was again downgraded on Wednesday.
On the back of the findings of an independent review by Deloitte into the reasons for the overstatement, released yesterday, Cowling stepped down “with immediate effect” according to a statement. However, he will remain employed by WHSmith until 28 February 28 next year “to ensure an orderly handover of his duties.”
While WHSmith looks for a successor—with a formal search process having already begun—the CEO of the U.K. division, Andrew Harrison, will become the interim group CEO. Harrison joined the company as managing director (MD) for the U.K. business in May 2021 having previously spent 15 years with Manchester Airports Group. There he held various roles including commercial director and MD of Manchester Airport, and MD of Stansted Airport, Britian’s second and third busiest airports respectively.
Markets had a positive reaction to the news with the stock up 5% since the announcement, but year-to-date WHSmith shares are down by 46%. Investors will be waiting to see who replaces Cowling as he or she will be tasked with overseeing and implementing a far-reaching remediation plan for North America.
Weak financial oversight and another profit revision
In its review, Deloitte cited a “target-driven performance culture”, weak financial oversight in North America, and a decentralised divisional structure as three reasons, among others, for the overstatement of profits. This stemmed from an accounting treatment for supplier income in the North America division that was not consistent with the group’s overarching accounting policy.
Moreover, Deloitte has further revised down profits from the August restatement for FY25. At that time, WHSmith announced expected North American trading profits of around £25 million ($33 million*) down from the previous market expectation of £55 million ($72 million). On Wednesday, the accountancy firm said that headline trading profit would now only be in the range of £5-£15 million ($6.5-$20 million).
Company chair, Annette Court, commented: “This is an extremely serious matter that has had the board’s full attention, and we sincerely apologise for the shortcomings identified. While the issues arose in our North America division, we recognise the importance of strengthening controls, governance and reporting procedures across the group. We have acted swiftly to build a comprehensive remediation plan and will reinforce the financial discipline and integrity that underpin our business moving forward.”
Cowling has led WHSmith as group CEO since November 2019 and took the company from a diversified domestic, e-commerce, and travel retail business, into a pure-play airport retailer. That process was completed in July with the sale of online greeting cards business FunkyPigeon.com.
As well as overseeing the remediation plan to the satisfaction of investors, the new CEO will have to lead the company through the next phase of the company’s strategy as a pure global travel retailer.
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 11 years. He successfully navigated the company through the global pandemic and, more recently, has strategically repositioned the group. We wish Carl every success in the future.”
* All FX conversions at today’s rates unless stated otherwise.