Air Partner Plc completion of accounting review
On 3 April 2018 the Company announced that, as part of its year end close process, it had identified an issue relating to its accounting for deferred income in previous Air Partner financial results (the “Accounting Issue”). A further update and commencement of an accounting review (the “Review”) was announced on 11 April 2018.
Today, the Board is pleased to confirm that the Review has completed. We committed to resolve this matter in a transparent, thorough and exhaustive manner. In line with that objective, the intention of this announcement is to provide an overview of the Review conclusions, clarity on the corrective accounting treatment agreed with Air Partner’s external auditors, Deloitte LLP, clarity on the costs incurred in the current period (financial year ended 31 January 2019) as a direct impact of the Review and provide additional relevant information and disclosure regarding the recent events.
• The Accounting Issue has been contained and resolved
• No evidence has been found of any cash or other assets being misappropriated nor of any customer, operator or supplier being impacted by this issue
• The total cumulative impact on net assets was an overstatement of £4.0m net of corporation tax; this is in line with guidance previously communicated
• No employee within the Group as at 1 February 2018, the start of the current financial year, has been identified as being responsible for, connected to, or had exerted influence over this matter
• Chris Mann was appointed Interim CFO on 27 April 2018 to complete a thorough review of financial controls and immediately address identified weaknesses
• In October 2017, as part of a planned policy to upskill the finance department, the Group restructured the finance team following introduction of the Navision finance system, which was part of an IT systems infrastructure modernisation project which began in 2015. The new finance team identified this matter as part of the year-end closing process, and they followed the correct procedure in escalating it to the Executive Team who notified the Board.
• The Board appointed PricewaterhouseCoopers LLP (“PwC”) and Rosenblatts Solicitors (“Rosenblatts”) to provide independent accounting and legal support as part of the Review. Both advisers were given full, unencumbered access to all management, staff, records and systems.
• The work undertaken was significant including: interrogation and reconciliation of all balance sheet accounts as at 31 January 2018, an extensive review of individual journal postings from 2010/11 to date, an investigation of credit notes and bank payments from 2010/11 to date, interviews with current employees, interviews with ex-employees and the mining, recovery and review of a considerable number of spreadsheets, emails and other accounting related documents of relevance.
• From our accounting data stretching back to 2010, over 430,000 journals were individually analysed and tested. Specific bank accounts were investigated to analyse all payment transactions posted, including a detailed audit of every payment processed from these accounts in the 12 months to 31 January 2018.
• The Review concluded that certain inappropriate financial journals had been deliberately processed without effective review. Journals had been processed incorrectly to the wrong general ledger accounts over this extended period and further journals were used to conceal the resulting accounting issues, which most notably included unreconciled balance sheet accounts and non-recoverability of debt on a major account dating back to 2010.
• Furthermore, supporting accounting records were inappropriately and repeatedly created and manipulated in order to minimise the chance of detection of these accounting issues.
• The accumulated accounting errors created considerable complexities for the Review process. The nature of the accounting information systems used over this period means that it has not been possible to reproduce all original supporting documents at given points in time.
• The Review concluded that there was no conceivable pattern or logic to the manifestation of the Accounting Issue and no clear motivation or evidence of personal gain.
• Independent verification concluded that the Accounting Issue was confined to the UK business of Air Partner and no employee with the Company as at 1 February 2018 was identified as being responsible for, connected to, or had exerted influence over this matter.
• The Review confirmed that no cash has left the Company, and no customer, operator or supplier has been adversely impacted or disadvantaged at any point.
Immediate corrective actions implemented post review announcement
• Following the resignation of the Chief Financial Officer, Neil Morris, on 13 April 2018 the Company moved swiftly to appoint Chris Mann as Interim Chief Financial Officer on 27 April 2018 to complete a thorough assessment of the financial control environment.
• Weaknesses were identified, and a course of immediate corrective actions is underway with a plan presented to the Board for future financial control enhancements to be rolled out across the Group.
• As part of the year end Accounts preparation, a thorough assessment of the balance sheet as at 31 January 2018 was completed, and verified by the year end external audit, providing a robust foundation for the accurate presentation of current year financial results.
• Air Partner produces unaudited interim results and audited full year results. The Board has committed to producing audited interim results for the next two years, in addition to the audited full year results.
• The Company is determined to record this matter in a transparent manner with appropriate qualifications, notes and annotations in the Annual Report & Accounts for the financial year ended 31 January 2018. It will be addressed in the Auditor’s Report and Financial Review sections in detail.
• The total cumulative impact on total net assets as at 31 January 2018 was an overstatement of £4.0m net of corporation tax (£4.4m gross); this is in line with the guidance previously communicated.
• Of the gross total, £0.9m was identified as relating to the year ended 31 July 2011. The nature of the accounting information systems meant that it has not been possible to reproduce all original supporting documents at given points in time and so it has not been possible to specifically attribute the remaining £3.5m to individual trading years, nor to individual lines in the Income Statement.
• The Directors deemed it appropriate to correct the unidentified £3.5m overstatement by apportioning this amount on a straight line basis across each trading period. The Directors believe that, after adopting this correction, the historic adjusted accounts broadly represent the growth pattern of the company since 2010.
• As a result of the Board’s apportionment the profit for both 2017/18 and the prior year is stated after a £0.4m pre-tax correction presented as exceptional costs in each of these years. There was no related impact on cash or debt balances.
Non-recurring costs as a direct impact of the review
In the current financial year ended 31 January 2019, the Company will recognise total non-recurring costs of £1.3m incurred as a direct impact of the Review. These costs are clearly attributed to professional fees (£0.8m) incurred with the Review, and a specific acquisition project in its final stage (£0.5m), where we let exclusivity lapse as our priority became the Review.
Final Dividend for the year ended 31st January 2018
The Board repeats the guidance given on 11 April 2018 that it will recommend a final dividend for the year ended 31 January 2018 of 3.8 pence per share, subject to shareholder approval at the AGM. If approved, total dividends paid for the year ended 31 January 2018 will therefore be 5.5 pence per share. Between the period financial year ended 31 July 2011 and financial year ended 31 January 2017, taking into account restatements, the Company had sufficient distributable reserves in each year to enable it to pay dividends legally.
Over this period, the company returned over £15.1m in cash to shareholders through interim and full year dividend payments.
Reason for requesting a temporary suspension of share trading
On 31 May 2018 the Company announced that the Board of Air Partner had agreed with the Company’s auditor, that the Company would not be in a position to publish its annual audited accounts for the year ended 31 January 2018 by close of business on 31 May 2018 due to the volume of work required to integrate the accounting review conclusions into the financial year audit.
As the Company would be unable to meet the requirement of UK Listing Authority Disclosure and Transparency Rule 4.1.3 that “An issuer must make public its annual financial report at the latest four months after the end of each financial year”, a temporary share suspension was requested until such time as the annual financial report is published.
Peter Saunders, Non-Executive Chairman of , said: “The accounting review has completed. In accordance with our promise to Shareholders to conduct a transparent, thorough and exhaustive review, we have provided a comprehensive update, which as we expected confirmed this was an accounting issue, not a business issue. This period has been both time consuming and costly, but we are now able to move on, and look to the future with renewed confidence.
I would like to thank our shareholders and stakeholders for their patience and support during this unwelcome and challenging time, and express my thanks in particular to our Chief Executive Officer Mark Briffa and the team for their tireless work and integrity in identifying and resolving the issue.”
Mark Briffa, CEO of Air Partner, said: “The accounting review has completed and we are publishing its findings so our shareholders, colleagues, and customers can rightly get some of their questions answered. Everyone who worked on this project had full-unrestricted access to any part of the organisation. The review asked for detailed answers to complex questions and though putting it behind us quickly was important, we had to get those answers, in order to emerge as a strong and clean organisation as a result. The review has been thorough – even the petty cash was interrogated – to ensure our review objectives were met, while completing the year-end financial audit took far more time than ever first envisaged.
We now move forward with confidence, business as usual serving our customers, focussed on executing our longterm strategy. We will also take the first steps on the long journey of rebuilding our shareholders and stakeholders trust and confidence, while recognising and appreciating the patience they have shown us during this period.”