Former Chair and CEO give evidence to Business and Trade Committee on Wilko's collapse

perhaps I could start with you could you tell the committee did your greed bankrupt Wilco I don't believe so no do you want to just tell us why Wilco collapsed would you like me to do that or Mark I would like your perspective first please so um in essence wico failed because we ran out of cash that is what is called that's what caused um the downfall in the end there were a lot of contributory factors that led to that over quite a long period of time and clearly we had a strategy to deal with those factors that were hitting us but Wilco went out of business before that strategy was fully implemented there were a series of external factors and there were a series of internal factors and I'm mindful that you'll want me to keep my answers short so I I need to try and do that externally we're all familiar with the landscape we had declining High streets and Wilco is very much a High Street based stores retailer was very much a High Street based stores retailer with long leases and high rents uh that kept us on those High streets we of course faced the cost of business rates we faced covid like um all business did and during covid we stayed open we didn't fow any team members and I like to think that we were supportive of team members who had high risk because of medical conditions they had we also I think relatively unusually paid our landlords in full throughout covid so the things we took advantage of were the delays in paying vat which we paid off and the business rates um concessions but other than that we stayed open uh during covid and covered our costs and I think there's some debate that Mark will bring into the picture about whether we should or shouldn't have done that but we did we were about to enter in we we are to business with a history of debt so if you look at our accounts which are publicly available at company's house we don't have a history of carrying debt um and then during 2022 we were trying to move from a revolving credit facility which we didn't use but to a more secured debt position we were about to enter into secured lending arrangements with mcui when the um 2022 mini budget happened literally we were in the midst of that and at that point the interest um terms on that loan were hiked massively and that became infeasible and so that was a contributor externally financially our revenues were falling faster than our cost cost pace could be uh reduced which was eroding cash as you can see in the figures for 2022 we lost the confidence sadly of key allies so we lost the confidence of Lloyd's bank which had been our bank for 90 years and they pulled away from us in 2022 we lost the confidence of the credit assurers who pulled away from us in Autumn 2022 we got some amazing support from some of our goods for resale and goods not for resale suppliers but we didn't get support from enough of them to sustain us through that um we couldn't manage to obtain the further inward investment we needed either by way of debt or Equity to continue to trade and Implement our strategy our customers and you can see this in the figures over time have gradually reduced shopping with Wilco lots of people have their theories as to why some on my list if you're interested are that we fail to to grow and scale our online business the cost of living crisis clearly reduced our sales we had big internal challenges around product availability that was caused by many internal difficulties to do with things like Lorry driver shortage defy distribution centers sorry infrastructure changes lack of credit assurance and low supplier confidence we had moved to a position where we had an unclear customer proposition and I've heard some of the statements people have made as against the Discounters we're a value retailer but our proposition was unclear against the Discounters we failed to satisfact address our category and product offer and move to something different and better we had huge pressure on margin rate spiraling costs and I think it's been alluded to that Wilco was over rented on the High Street and we had weak processes and infrastructure I'm sure there are more sir but those are the ones in my mind that's a long list of failures and the failure of that strategy has now left the taxpayer on the hook for over40 million pounds worth of financial support for those made redundant we have a pension fund deficit of over50 million p and we have creditors who are at best going to see 4p in the pound on the debts that Wilco owes to them do you want to just take this moment to apologize to those workers who are facing Christmas without work so I am thankful to so many people for so many things that they have done to help Wilco not least amongst those the fantastic team members that have always worked at Wilco the amazing suppliers and advisers who have supported us and of course top of that list has got to been the Fantastic customers who shopped with us for over 90 years in our stores I am devastated that we have let each and every one of those people down with the insolvency that Wilco has done I don't know how to put into words how sad I am that we have let down all our customers all our team members our suppliers our advisors genuinely I don't know what you want me to say but I have always gone was the one word I was looking for you can have the word sorry of course I'm sorry if you wish me to say the word sorry iated no I thought devastated covered it I apologize I wasn't trying to be clever uh I am sorry that we are not there supporting all those people anymore it was a long list of problems that you identified from the prime minister's budget through to the uh partners that you had for example your financial partners what were the mistakes that you made what would I do differently if I had the time again it's question I ask myself all the time I would do differently that year that was 2022 we we started out that year not as strong as we should have done but strong we had positive cash we had positive eicar we had decent trading sales we had no debt position at all at the beginning of 2022 and in each 4-week period of 2022 by trading down on our numbers we were eroding cash so the first thing I would like to do differently if I could was be more Pro active on that declining um sales that was dropping into cash through 2022 the next two things aren a popularity vote I'm afraid I wish I had brought Mark in earlier I think he could have made a difference if we had brought him in earlier and I wish I had taken the advice of price waterhous Coopers earlier those are the three things I wish I had done earlier Mr McDon uh thank you chair well indeed the problems didn't start in in uh 2022 of course PWC had already identified issues just something that came out in the previous session I just want to clear up if I could U the last set of accounts for the year 29th of January 2022 was signed off by ey in November of 2022 um now if the if the if if the business wasn't sustainable at that point what was the conversation going on in that interim period opposite the sale of a major asset to try to uh improve the situation was there a conversation about trying to make uh the picture look a little bit better uh with the sale of a major asset so I am going to answer the question but before I answer the question I need to say I am not a financially qualified person I don't come from a financial background and to get that question answered as I suspect you would like it answered I would need either my CFO or member of my finance team to do it or the chair of my audit committee who is also financially qualified that doesn't mean I'm not going to answer answer it I am going to answer it can I just check M wion that you are a family director of the company I'm a family director of the company with the fiduciary duties that go with that I have the fidu and of course that's why I'm going to answer the question but I can't answer it from that financially qualified perspective so my understanding as a director was that two things had to be true for us to sign off our accounts for that year end one we had to have sufficient cash and liquidity to ensure that we could continue to trade as a going concern and the second one was that we had to have reasonable and achievable sensible Financial trading numbers that we were predicting we were going to deliver through 2023 we were put under enormous pressure by our then Auditors ey to prove both of those things that we would have adequate cash and that our numbers were reasonable and achievable the adequate cash as you've seen because it's on record was coming from either secured lending against our distribution center in worksop or as it transpired to sell and Lease back of worksop and secondly through an a assets based lending which we secured ultimately through hilco which was secured against many things but principally against from memory stock and intellectual property but there were other things too within that so on the one Dynamic we needed to prove to our Auditors that we had sufficient cash the second side of it was that we had to prove that we had reasonable and achievable trading numbers that we were likely to hit as we went through the financial year which is 23 we ran more sensitized versions of those numbers than even I can remember to do a worst case scenario and then an even worst case scenario and then an even worst caseen okay well can I just inter interrupt there because we're we're up against time to some degree but according to the Sunday Times uh wilker was advised in 2022 by restructuring advisors from Teno to use a a company voluntary arrangement to close some stores and renegotiate rents on others how did you respond to that advice so my understanding because I was not Direct ly involved with too in early but as a as a director as a director it was reported to me at holding board absolutely right so uh my understanding is that in early 2022 verbal discussions took place with too about whether a creditor voluntary Arrangement a CVA was an appropriate route for wilker and at that time I understand that my CEO my property director were told that it was not because our financial position was not sufficiently baned had to do a CVA by September I believe it was of 2022 we had a long report into the holding board and within that long report as part of the contingency planning if trading continued to deteriorate a CVA was discussed it was not proposed as a do it right now scenario it was proposed that if trading continued it was a contingency plan that can can about that but but you say it wasn't to do it right now but wasn't that wasn't it the advice from T to do it right now no it was not in November they repeated the advice around a CVA again as a contingency for if trading continued to decline and the consensus was we did a step plan step number one was to do the secured lending or the sale and Lease back step number two was to do the ab step number three to be planned in the first quarter of 2023 was to consider doing a um CVA with the suggestion that we would have an implementation date of April 2023 because that would release the most cash onto the balance sheet my understanding is you get a better business rat position if we had done it at the beginning of April I do not know the detail of it but that is my understanding which is what we did did so during the first quarter of 2023 we did the planning for acva we did it at that point with price Waterhouse Coopers not with too and there was a subtle difference in the original report too had believed that the CVA would be largely a pension scheme Ved CVA because it had the pension deficit as a very high figure in its report as it transpired that was not accurate and we we were doing predominantly a landlord voted CVA that meant we had to do a much tighter cost Reduction Program in order to try to secure the votes of the landlords in favor of that CVA and that took us over the April date in doing that cost cutting exercise before we could put the CVA position before the landlords but the nub of it is did we listen to the advice and did we follow it yes we listen to the advice yes we followed it okay well that's not everybody's interpretation of those events and I'll perhaps put to to you Miss Wilkinson and Mr Jackson the Sunday Times quoted a restructuring source as saying Wilco failed due to naivity incompetence a failure to listen to people who've done these things for a long time and just stubbornness resulting in a complete car crash and the loss of a third generation business which could have been saved Mr Jackson how accurate is that if that's referring specifically to the CVA then it's inaccurate I think no it's it's referring to the failure of the business I mean I I can't comment on I was appointed at Christmas 22 and I have to say that most of my time was spent looking forward on what needed to be done and at what pace you you had to look back to understand what had gone wrong so how accurate is that characterization you've heard different conjecture this morning and I will call it conjecture that the reality is at the end of January 21 the balance sheet of the business business was pretty well placed well placed okay despite views on discounting versus value retail in the right or wrong place on the High Street all of those are issues and they all impacted the business but there was over 100 million of cash over 100 million of p&l reserves there in in my view the biggest contributory factors to the cash flow were of course to increase competition but Global Supply Chain issues cost increases failing to act on cost reduction um but Mo most importantly I I believe that with hindsight I would not have fured oh I would not have stayed open I would have taken advantage protected the business on the fur scheme and rents like 90% of other retailers there was a warehouse management system implementation that was nothing short of a disaster that led to a shortage of availability in store stock therefore project Optimus is it yes um project Optimus is a wider project that included spending 60 million on bringing warehouses up to scratch so you can quickly see covid impact of not furing yes stayed open and traded but cash was going out the door um the DC sale and Lease back became necessary as did the a the AL gave us a window when I came in a sufficient window it required a lot of things to be done quickly we took 90 million of costs out on an annualized basis we planned very detailed a CVA with CBR uh who are the same people that too would have used um there wasn't a change in strategy around the CVA that fundamentally underpinned so the 90 million of cost out of the structure then 35 to 40 through a CVA but most importantly we had to get suppliers back on board a large number of them had restricting credit or were on stop if you if you read the Press then most of this was driven most of the sales shortall in the last two years was driven by poor availability it's poor availability because they didn't have the cash to pay the suppliers so going through the a taking all of the suppliers through the cost Reduction Program showing the window showing that was a plan CVA it still required funding post CVA actually that turnaround plan could have been delivered okay um actually the biggest single factor in it not being delivered was news of the CVA leaking into the Press which made suppliers who had got back on board very nervous again and availability started to fall and then it became a vicious circle as wilon do you do you recognize that characterization and in addition some inform uh observers uh felt that with a cost of living crisis and Shoppers looking for bargains this should have been wilco's time to shine as it's been described do you do do you recognize that and the characterization of others I recognized Mark's characterization I'm sorry I forgot what your characterization was in the first well it was simply that um uh the naivity and incompetence and failure to listen to people who had done these things for a long time in stubbornness resulting in a complete car crash and the loss of a third generation business which could have been saved that's the that's the charge that's put to you well I don't recognize not not listening no um I do recognize the devastation in losing third generation business it is devastating um I don't know what you want me to say you know I do believe Wilco could have been saved but it was not Mr Gull thank you very much chair Miss Wilkinson I'm just a bit baffled because you've talked about 2022 a lot of course I totally accept that there were economic impacts external to the business that have impacted we heard from I'm pretty sure it's Professor sha if not I apologize the other panelists pointed out in the first panel that in the audit accounts of 201819 in the last sentence of the going concern section the financial viability of the business was in question so why was that not acted upon and why is it all the blames being put on 2022 I feel a slight of hand here it's easy to point fingers at the government it's easy to talk about Co it's easy about cost of living the reality is you had the warning signs in the last sentence was it simply the case that you and the directors didn't read the audit report I I don't know how to answer that question we did read the audit report we are taken through the audit report by our Auditors in holding board meetings whichever Auditors we have we go through that and we always scrutinize it um it is true that the trading position of wios in terms of turnover was weakening over the years I think we always scrutinized and took steps to address everything we we could we had relatively not as strong trading performance but we had relatively strong trading performance until we hit Financial year 2022 so in you know we're still in 2021 we're still taking 1.36 billion turnover we've got ebit D of 48.3 million we've got net assets of 11 18.4 million we're still in a relatively good position by the end of 2021 it is during 2022 that that position declines the truth is though the warning signs were written in 2018 and action wasn't taken until 2022 so there's a 4-year period of inaction in essence in my opinion and Mr McDonald earlier who's no longer in this place was just raising about the fact that you've been sort of warned about maybe looking at some of the high streak shops and renegotiated the leases and you said that the advice wasn't sort of told to do it now it was just given to you well when my partner tells me to put the rubbish out and I ignore it the first time and then she tells me to put it out the second time that means do it now so I'm a bit confused when a business has repeated its advice twice that that's not been taken as a bit of a hint at the very least that you need to do something I'm sorry if I gave you the impression we weren't doing anything about the fact that we were over rented and that as stores were in the wrong place of course we were that was a active stream of work for as long as I can remember in reducing our lease obligations and I would have to bring the relevant um head in to enable you to have the detail I just don't have the deta on that today I'm sorry I thought you were referring to the more aggressive approach through the CVA mechanic but yes we had been working for many years to reduce our rent Bill and to reduce the length of our leases and to get our store into the right places it is a on it was an ongoing job of work chair thank you Mr Mr Jackson was it your view that the Teno advice was inaccurate I think we have to separate out was a CVA inaccurate MH no a CVA would have put the business in a much better position but a CVA is an insolvency process it's an insolvency process that requires funding on the other side otherwise you won't get through it their analysis was incorrect their analysis 75% of people who vote by value have to vote in favor for it to go through their analysis of voting had a pension scheme that could put it through on its own and no other creditors mattered the reality is that wasn't true and the all landlord needed to be taken through all suppliers did so the planning detail behind a successful CVA was not the same as what T had proposed does that mean that in your judgment it couldn't be implemented no no it could have been implemented it could have been implemented uh but it couldn't have been implemented until you've got funding and you are in solvent so it couldn't have been implemented when they recommended which was back end of 22 it could it you you can't it couldn't have been done at the time it was a deferred recommendation it wasn't to do it now absolutely not it couldn't that's just impossible you have to be insolvent to do a CVA the business was not insolvent it had a declining uh cash base it had Freehold property of 80 million in value it wouldn't have been possible until all of those plans be work through was there a way therefore to pursue that reform I I I believe so I with again all of this is with hindsight we had a window if we could have got suppliers on board uh we then went to with the detailed CVA plans we went to at least 20 potential investors both private equity and debt and actually looking at full sale of the business you had to get funding secured throughout the CVA process because suppliers will say oh hang on am I going to get paid only in when I know that we got through this and then you need funding the other side that funding required a detailed plan MH uh and we had funding agreed the other side but the funding up front still required um you know we had an a agreed with hco hilco didn't want to be in the long term so we had to get the two parties to work together as time ran on the lack of availability of stock in store made the position worse each day but there was definitely a window where the turnaround could have been done and and actually the difference in funding that we could raise and the funding that was required is quite a bit less than the cost to the taxpayer why was that opportunity not seized if there was a window of opportunity because we couldn't get the funders to back it so it was an external constraint rather than a decision of the business yes absolutely we it was pursued I knocked down an awful lot of doors more than once and we had interested parties right up to the beginning of August who were really Keen to save the business and I thought still a very good chance of of doing so and what was stopping these credit ultimately the amount of secured Security in the balance sheet was falling every day so the amount of people on who were secured lenders were prepared to lend was also reducing the climate that we are in um the UK economic climate particularly for retail with future cost increase es the investment Community were not overly Keen um so I could get about 15 million unsecured and I could get 40 to 45 of secured lending bringing a total of around 60 65 maybe 75 to 90 was was the need you see our problem our problem is is that in um 2021 you we've got 108 million in cash on the balance sheet we've got a deterioration in trading conditions but that affects every business on the High Street other players seem to have been able to weather the storm and you did not so we're trying to understand why you didn't when others did when you started with such a strong cash position I wasn't in the midst of the decision making but if you can imagine paying rents which I think are 90 million a year year not fur people and spending 60 million on two warehouses the impact of Credit Insurance being pulled accelerating cash out to suppliers that can happen quite quickly but those are all examples of management failure I wasn't there at the time so I can't comment on the decisions and the reasons why they were made you were there at the time so why were those decisions taken why was so there were many um decisions that Mark talked about which ones do you want me to well let's go through all of them so let's go through the fur let's go through the failure of project Optimus let's start with those two we took a decision to stay open the history of wico is that it has always stayed open it stayed open throughout World War II it's always stayed open when challenges happen we were an essential retailer we debated it at Great length as as a board whether we should stay open and the decision we took was to stay open to not fur our team members to support those who were medically vulnerable and to pay our landlords in full that is the decision we took and the warehouse project we have had two warehouses DC one and dc2 one is in meor and Wales one is in worksop um the warehouse project was Tak there there were two forms to the warehouse project there was warehouse management system implementation across both distribution centers and there was a relay of the racking and the layout of both distribution centers that that was taken many years ago the decision to implement and then was a phased program that started with magor which is the was the smaller of the two distribution centers so it was an implementation of warehouse management system and of um relay of racking and then that moved on to uh Distribution Center uh one clearly it was done with the intention to improve at the processes in our warehouse we had out-of-date Machinery it was very manual uh we weren't as efficient as we could be in a decision was taken by the board collectively as a capital investment to to do that work so um M venning what advice did you give to the business about the too advice um well firstly thank you to the committee to for inviting us here to today to talk about our role as Auditors of Wilco and indeed on audit reform as well we have listened quite carefully to the last panel and do welcome the opportunity to offer some corrections and to answer your questions turning to your specific question chair um it's not our role as Auditors to offer advice to the company um the company will make management decisions uh they are involved in the day-to-day running of the business our role as Auditors is to assess ass the status of the business the position of the business and to um and to come up with an independent view an independent opinion as to whether the accounts as presented by management uh and signed off by the directors are indeed true and fair and provide the users with a um with an appropriate view in terms of the position that the company's in at no stage did you give advice about whether to pursue the kinds of ideas that were in the too proposal it wasn't appropriate for us to do that in the RO as Auditors we wouldn't give advice on that it's very it's very important that we are independent that no did you give advice on whether to pursue the ten proposal yes or no it wasn't our role to do so is that a no it's a no okay thank you what advice did you give the business about the steps that it might need to take in order to remain a going concern for example around the sale of the warehouse so so again it's not our position as Auditors to offer advice to the business um it would be highly inappropriate for us to do so we are an independent um body that assesses the um decisions that management make in terms of how they feed themselves through into the into the accounts to be sure that they are true and fair um in in terms of the assessment that we went through from a going concern perspective I think it's very important actually for the committee to understand and hopefully it's helpful for us to jump to what our opinion actually said in terms of our um in terms of our view in terms of uh the position of the business so um if you wouldn't mind just for two minutes for me just to read out the very specific in our opinion I think it really is quite important actually chair for the whole committee to understand the specific words that we said in our opinion because I do think it frames the rest of the discussion that we'll have here today so in our opinion it says very clearly Under The Heading of material uncertainty related to going concern it says at the date of approval of these financial statements the group had insufficient committed financing in place to withstand a severe but plausible downturn in conditions sorry a severe but plausible downturn in trading activity through the going concern period to January 2024 these events and conditions indicate that a material uncertainty exists that may cast significant doubt on the group and Company's ability to continue as a going concern so to the point that Mr sha raised in the first panel um this was not hidden away this was not um loose language this was very very clear language in our audit opinion that brought um serious attention to the situation that the business self found found itself in and Drew Drew the attention of the users to the fact that um there was a plausible scenario whereby the company could run out of cash if sufficient financing wasn't raised so did you before you published that judgment did you warn wilco's management that there was a risk that they were not going to meet the going concern test yeah so um as part of our audit we do a lot of work in terms of challenging management around the forecasts that they prepare um it's important for the committee to understand that the preparation of the forecasts are Management's responsibility our role as Auditors is to challenge those to challenge all the assumptions within them so our audit for the January 2022 year end uh started in May of 2022 and we um obtained those forecasts that management had prepared and set about um assessing whether the assumptions within them were appropriate um we do that in a number of ways so we do that by looking back at the Historical accuracy of Management's forecasting we look at um what industry predictions are saying around the business and around the sector sector and we use our own uh understanding of the business and indeed involve our internal retail Specialists to help us with that and and when we did all of that work we concluded that the that the forecasts that management had prepared at the time were optimistic uh and we challenged management to go away and revise those forecasts um to take account of some of the challenges that we'd raised in relation to the assumptions that process went on for a number of months it was an iterative process where we continue to challenge management around the forecasting that they had presented to us um we ended up with four different versions of the forecasts and uh found ourselves in September um with a a sort of final position that had been put forward by management which we still um considered could be even more severe so they went away diligently and prepared a final a final forecast for us which in our view um took account of the the sort of severe but plausible downside um that that could be experienced in the business and and only at that point actually were we prepared to sign our opinion to uh to conclude that the financial statements that the directors had prepared were true and fair and that last scenario entailed the sale of the warehouse the last scenario included the sale of the warehouse because that had happened in November before we signed off I think what we're struggling to understand is how you've got a set of accounts which are obviously bleeding cash pretty quickly at this stage um we've got some of the challenges around getting um further agreements with creditors on board and the accounts are basically being plugged with a oneoff sale of a warehouse and yet a going concern judgment is given so I come back to the fact that the going concern assessment that is a basis of preparation of accounts that is dictated within the accounting standards our audit opinion drew a serious uh warning flag to the users of the accounts around the risks U that were very plausible risks uh in the business um when we signed the accounts there was 58 million pounds worth of cash in the business um part of that was from the S and Lease back but equally part of that was uh part of the part of the uh receipts from the sing back went to repay the RCF um so you know we we got to a place where we were comfortable that the audit opinion that we signed and we still standby today was the right opinion because it drew uh the users's attention to the serious warning flag Ju Just the comment that Mr sh bust and you signed off the accounts and you stand by that judgment that's an extraordinary conclusion we we don't sign off the accounts the directors sign off the accounts we sign an audit sign it off as a going concern the directors sign the accounts as a going concern we offer an opinion in relation to whether that set of accounts is true and fair and and and in terms of the various other options that were available to us that Professor sha mentioned earlier um the other options we had in terms of signing our opinion could have entailed firstly a clean opinion with no reference to any warning signs in the in the business at all or it could have been a disclaimed opinion and and we we issue a disclaimed opinion if we don't have access to um the books and Records sufficient to be able to make our judgment or the third option would be an adverse opinion which was the one that Professor sha was alluding to um that opinion would have only been relevant in in one of three situations firstly the company had already take taken the decision to put the business into liquidation secondly the the directors had already taken the decision to cease trade in the business or the third option would have been that the directors had no realistic alternative other than to do so so that that is the criteria that we were assessing at the date of our sign off and and and to have concluded with an adverse opinion at that point would have been a very extreme view there were realistic uh alternatives for the business you've heard today from U management and also from the previous panel that this was not um inevitable um there were options that the business was pursuing there were financing options there were a number of cost cutting initiatives that were already in train as well as growth opportunities so for us to give that opinion would have been the wrong answer so we stand by the opinion that we gave okay so M Wilkinson what advice did you receive from ey about the decisions that you needed to take in order to keep the business as are going concerned we didn't take advice from ey ey were our Auditors not our advisers we took advice from too and from Price Walter has Coopers in 2223 your point of view I mean I again go back to Christmas 22 I joined I am aware of the T report and I'm aware that PWC were appointed subsequent to to um and and yes therefore we're providing advice and can I add we we did do as we were advised and pursue a CVA in the first quarter of 2023 the implementation date was pushed back further than April because we needed to do the cost cutting and to secure the support of the landlords but that CVA advice was followed it wasn't ignored it was always intended that it was a contingency if trading continued to deteriorate with planning in the first quarter of 23 and implementation from April we did it later for the reasons I've given but it I don't know how else to put it was not ignored I think you said earlier that you wish You' done it earlier we couldn't have done the CVA earlier what I'd like to have done earlier was scrutinize those trading figures earlier yeah thanks very much I'm just want to just come back to um vs point about the discussions that you did have with at the time what what was the sort of tone of the discussions that you had because that's I mean you you've laid out you know the number of steps that youve you've suggested and response but you know what was there a feeling of a rejection of what you were putting forward or sorry or was it you know how difficult were these discussions that you were having with the the board of local or the the financial director at the time um It's Not Unusual for directors to be optimistic about their business um our role is to challenge those forecasts and to challenge the assumptions within it how was that CH challenge responded to yeah so so uh as I said it started in May um the directors were open to the challenge they were receptive uh and responsive um they went away and revised the forecast as I said a number of times in respon resp to our challenges and indeed as the trading activity panned out over the course of the Year this went on for a number of months so um they were entirely professional and responsive to our Challenge and do do you think that the you know you've said before just about the fact that you've you've um in your reports that you've suggested the companies are going concern Looking Back Now I mean is there a a point or a thought that goes through your head and and from your um sort of through of audit as well is there a thought that goes through your head that you know you should have been given a a contrary opinion at that point based on the information that you have how things are played out in the in the intervening period yeah look um you know I have every sympathy for all the individuals at Wilco who have lost their jobs and clearly when there's a corporate collapse uh it is time for reflection um we have thought long and hard um since the news have work is collapse about whether we would have done anything differently um when we've done that uh we've gone back to all of the steps that we did take the challenge that we posed to management the robustness with which we did our work and the opinion that we um got to was the right opinion and we stand by that opinion right and is there a review process within your company to to allow you to do that within the audit team and reflect on the you know your audit fee and so on what how much youve yeah I may I add to that um uh yes absolutely I mean one of one of the critical things is that that we've introduced as a as a lesson learned from previous uh corporate failings is the need for broader consultation internally to make sure that the partner signing the opinion uh feels both supported and challenged in the decisions that they're making and one of the critical things in this situation is to make sure that the the distinction between whether to sign an opinion with a material uncertainty as we did or to sign an adverse opinion which would undoubtedly have have resulted in the um earlier windup of the company that public interest is taken into account in that decision- making and was that part of the discussions you had with V at the time to say there will be an adverse opinion that we might have to give here unless you take the action that's you know that is required to actually make the the company long-term solve and sustainable the discussion that was had at the time was around um the understanding of these realistic Alternatives that the that the business had so you know assume as soon as we were comfortable that there were realistic Alternatives other than for the company to collapse and they included the ongoing discussions that they were in with lenders the ongoing cost cutting exercises that they were involved in and the growth opportunities that they were exploring as soon as we knew that they were realistic opportunities and and alternatives to collapse then it was very clear to us that an adverse opinion would have been the wrong answer and every final question would be just when you took over the audit responsibilities um from PWC um was anything at that point red flagged from the previous auditor to suggest that you know this is a company that you needed to take especially careful uh consideration of given the the the previous history and the fact that the the whole market and the the declining sort of footfall for the company was was on the on the down you know was it a something that you were concerned about as a as an auditor that you thought well you know we need to put in almost like a good team here or special measures team to make sure that the the company's protected or that you can give the best advice possible there were no red flags raised To Us by PWC when we took on the audit um we go through a very careful uh process of client acceptance um as you would expect and we assess the financial health of the business as well as the um directors that are involved at the time and when we went through that we didn't have any concern around taking on wico as an audit clienty thanks um M wilon the you mentioned before that uh you know under your guidance the company Wilmer was a really friendly company the workforce felt part of the family uh and everybody respected each other I wonder if the the workforce actually think that now um as a result of of what has happened because at the same time as everybody was part of this huge welcoming embracing family um the Wilkinson family creamed off nearly 150 million in in dividends over a period of 20 years and that includes £ 3.75 million in the year preceding the collapse of wilg now the the the question would be of course is if that amount of profit has been made the fam's creamed it off and then you look at the 12,000 people who lost their jobs through the cler of 400 Plus stores uh the had the livelihood taken away from them uh not only that the potential for fi Financial Security in terms of a pension scheme is in Jeopardy as well why on Earth did this familyfriendly company with 12,000 dedicated workers uh why did they decide not to invest more in the company and indeed why did they not put any finances any of the profits which you creamed off for your family into the the pension scheme which I think is being suggested this morning the estimated pension scheme now is a deficit of 76 million pound on a bio basis there's a lot in there uh yes the team members in Wilco did feel like one big family and I am sure that as between themselves feel like that now as between themselves I'm sure they still do I'm sure I am no longer included in that family but I am sure that as between themselves they still do and I'm very proud of them for feeling that way they're an amazing group of people um I've not worked in many businesses but I've always been proud to be part of the team members in will and will continue to thank them for everything they did in trying to save it should we do pension deficit so the pension deficit that is visible to the directors is the deficit that is on a going concern basis this was our understanding of the numbers so um when in the last couple of years so in financial year ending 2022 we understood the deficit to be minus 12.2 million and in financial year 2023 we understood the deficit to be 7.4 million respectively those dates in both of those years we made pension contributions in financial year 2022 of 8.4 million and in financial year 23 again 8.4 million so the director's belief at the time was that the scheme this the group retirement benefits scheme was being funded with a view to it in a short period of time not having a deficit at all in addition to that towards the tail end of 2022 we agreed that there would be a security for the group retirement benefit scheme over our second Distribution Center in May I believe that equated to about2 million if you were sitting in the boardroom of Wilco at that point you would have believed that the deficit was 8 was 12.2 and then 7.4 so going down and that you were paying in two lots of 8.4 plus a security of 20 million I'm not suggesting that we were being smug about it we were still focusing on the pension but were we focusing on the pension and doing our best to ensure that that pension was covered we were I don't understand myself again I apologize for not being financed where the new pension deficit number comes from but I believe it is valued on a different basis because we are no longer in business so it's valued on a discontinuance basis which gives us a higher deficit but the figure that you talk about is not the figure that I would have recognized when I was sitting in the boardroom and when we collectively were making decisions around pension contributions and pension deficit now I can give you the pension deficit and the contributions for the 9-year period if if you would like them but I'm trying to keep it I think I think the point Mr lvery is is really underlining is that you were taking dividends out of a business that was failing that had a pension deficit okay how can that be justified so the way in the the easiest way I can explain the dividend is yes there was a return made to shareholders by way of dividend my understanding is that is when you say shareholders you mean you so I did not receive any dividends in my personal capacity MH there were no dividends paid to individual people I was not a shareholder in my personal capacity the dividends presumably went to the holding company the dividends went to Amalgamated Holdings Wilkinson limited which was put in place in I believe 2017 you're a shareholder in that no there are a series of family trusts who are a shareholder in that so I I genuinely am not fibbing when I say I was not I did not hold a share in a personal capacity Amalgamated Holdings Wilkinson limited was put in place contrary to what one of the earlier panels said to give everybody visibility because sometimes trusts in this country of viewed as being opaque we put that vehicle in actually not as a defense mechanic for family but as a means of people being able to see what went out of the Wilco group into the Family holding company and then if anything had been paid out of the Family holding company what came out nothing came out we didn't pay anything out in that those years Mr ly I I can cover the dividends if you would like me to I think we've we've got the information we need s the the question I would just conclude on uh Miss wil is that we we've heard evidence this morning from the the jmb Union which states quite clearly that you you haven't once uh offered an apology you haven't communicated with the stuff you haven't acknowledged that the company and how the company have ended up in the position where it is and at the question of the the chair this morning you said you offer an apology I mean will you be offering an apology are you sincere in an apology to the 12,000 people who you've said twice this morning are like being the the the basically the the Bedrock of your company why have you not apologized until this morning I'm not sure I'm allowed to say this but before you're under parliamentary privilege you can say what you like before Wilco went into Administration or actually it might have been shortly after I might have got my timing right I asked to do a announcement to all team members to thank them and to say all of the things that you have said but the advice from the directors and from the administrators was that I should not do that subsequently of course I've responded to anybody who messaged me and I'm not difficult to get a hold of and in addition I did what I'm a very private person who doesn't do interviews to the Press but I did an interview with Oliver sha at the times in order to say thank you to my team members and he asked me what the one thing I wanted to get out was and it was to thank my team members and my customers and my suppliers for everything they had done and that is the only reason I did that interview and yes you can say it's not an appropriate newspaper doing that in I agree it's not it's not necessarily my team members and my customers first newspaper of choice but it was the only means I had of getting a thank you out to my team members you today thank you have given me another opportunity to thank my team members and my customers I will be thanking my team members and my customers to my dying day you will never find me saying anything else I appreciate each and every one of them and I Echo your words they were the Bedrock of Booker let me just uh wrap up this point with a a question about the profitability between 2019 and 2022 the profits for that period of time was 11.6 million the dividends that were paid out over that time was 7.5 million that's 2/3 23s of the profits of a company that was in trouble were paid out in dividends how on Earth can that be justified so I I'm sorry off the top of my head I don't recognize that time per I'm not disputing it of all but I don't recognize the time period in the nine years since the Dem merger we have taken out about the shareholders have have had about1 15 million worth of dividends which is about 1.7 million per year each of those dividends would have followed the correct corporate governance they would have been recommended by the CFO as prudent they would have gone through the boards of directors we would only have paid those dividends if we had either the right profit in year or reserved profit profits and I don't believe that they fell below 100 million and we had cash to do that we also over that 9-year period invested 273 million in the business and 36 million in the pension scheme I hear you when you say we took 50 let me just go through it 2019 profit 32.6 2020 11.4 2021 4.4 2022 36.8 uh dividends over that period 1.5 1.5 2.25 2.25 that that's 11.6 million p in profit and 7.5 million in dividends that is 65% of the profit between 2019 and 2022 was paid out in dividends from a business that was in trouble and what is especially Stark is that as the business plunged into deeper trouble the dividends went up how can that be justified so my understanding is that we looked at that the directors looked at the EIT Dar figures and the reserves and cash and that was the dividend that was recommended but it looks to us just on the numbers like you're burgling a failing business I can't answer the question in any other way that is my understanding of how dividend is arrived at Stephen Tims thank you um Wilkinson family is among the wealthiest families in the country thanks to the the Wilco business over 90 years as things stand there's a 50 million pound hole in the Wilco pension fund shouldn't the family be making good that hole so that at least the full pensions owed to people are paid I I don't recognize that statement that we are one of the wealthiest families in the country and I don't have assets to to fill A50 million hole in a pension scheme I don't can I ask you you explained to us that the dividends that were paid went into the holding company rather than to individuals but yes but I mean what happened to them is it still sitting in that holding company what what became dividends from 2017 were paid into hwl they are sitting in awl they are invested in startup businesses UK properties and a limited amount of stock market Investments so are there not resources there that can be used to fill the pension hold no they are not they are tied up in other things and my understanding is as a director of awl I have legal obligations to act in the best interests of awl H having taken into account its stakeholders and those do not include the group retirement benefits the we heard certainly wouldn't add up to anything like that figure because as we've pointed out since 2017 there's not been anything like that money come out of the business in in order to to do that you you can see it at company's house the assets that uh Amalgamated Holdings Wilson limited has are fully visible at company's house it's why we put the vehicle there in the first place so people could see we we're told that the family has received nearly 50 million in in dividends from will go admittedly over over 20 years there surely must be some resources there that could be applied to the do I have time sir to cover the dividends I'm sorry do I have time to cover the dividends CU I can't I can't do a piffy one liner on the dividend no no that's fine we're quite interested in how so much money has come out leaving a great big deficit which now somehow can't be filled because you got fiduciary duties to the company that it was siphoned into so since April 2014 and there's a reason I'm taking these dates I'm not trying to be tricky but since 2014 which is since the remaining shareholders the shareholders that retain the business have been in the business the total dividends have been 15.6 million which is an average I hear sir the the figures an average of 1.7 perom the P reserves and assets were well over 100 million we didn't carry any debt the cash at the year end has averaged 7 7 million over that period with a low of 58 and a high of 108 the pension contributions were 36.5 million and investment decisions which are made prior to Dividend decisions as per the cash flow statements we invested 273 million so that is the period from 2014 the 2014 63 million dividend in specii was what is called a Dem merger which in my terms is instead of pushing businesses together you'll splitting them apart and that secured the exit of shareholders who wish to leave the business the easiest way to think about it is that that consideration that that 63 million was consideration for their shares so those shareholders who wish to exit exited the business taking the 63 million the remaining shareholders the ones that stayed behind received no dividend that year so that that is where the 63 million comes in my understanding prior to 2014 and we're going back a a period of time now but my understanding prior to 2014 is that the dividends were higher reflecting a more profitable business and a higher number of shareholders much of the funds in that period were used by the remaining the shareholders who were to remain in 2014 to do the initial buyout stages for the shareholders who were ultimately to leave on the Dem merger in 2014 that is where how the figures break down not withstanding that buyout that would still leave 100 million in dividends I'm sorry sir that would still leave 100 million in dividends so our understanding is that um about 180 million has been removed uh about 80 million of that was relating to um the buyout that was um recorded in the 2015 account that that would still leave about a 100 million that has come out of the business between 2003 and and 2022 um that then leaves us with a pension fund that is still short and 100 million dividends that has come out and we're asking why can't the dividends that have come out be used to fund the pension fund deficit I don't recognize those numbers I'm happy to sh they're from your accounts yes I'm I don't recognize them I'm happy to share what they are I'm happy to go back dig through and share what they are there's no I'm not trying to be um Difficult about it the the dividends that the remaining share holders had out prior to the 2014 demerger date largely went into the early stage transactions of buying out the shareholders who were exiting in who exited in 2014 so the dividends that the remaining shareholders have are the dividends that have been paid since 2014 which over that period was I think it was the 15.6 million so you you so I can't answer the questions as to the others because I do we do not have it the remaining shareholders do not have that money where's it gone in buying out the shareholders who have left but there's 100 million in dividends that have gone into whatever the holding company is over and above the 80 million that was gone to consolidate your control no there is not there is not so the dividends that were paid before 2014 yeah the departure of the exiting shareholders took place in three transactions it took place in a standard share buyback a buyback and cancellation and then a Dem merg it was in three phases over a series of years those dividends that predate 20 4 that were larger amounts those shareholders who remained used that money to buy the shares in the phase one and phase two transactions so they did not retain that money they had it in the first place but they did not retain that money because that money too went not strictly speaking back into Wilco but into other shareholders so the money that the remaining shareholders have is only the money that came out from 20 from after the Dem merger in 2014 and they spent it so there's two chunks to that there's the I don't believe sir that it has been spent I believe it is either sitting invested in the trusts or it is sitting invested where you can see it in Amalgamated Holdings will Co limited even any further well I I just I wonder those shareholders who departed as you explain isn't there some obligation on them to to contribute towards filling this very large hole at the moment in the pension fund you know a large amount of their wealth was derived from the business isn't there an obligation that on them I am conscious that I am not them and I cannot answer for them I'm not their spokesperson but that was a considerable time ago they have not been shareholders of Wilco for since 2014 so for 9 years since 2014 the business has traded successfully for quite a considerable period of time before we hit 2022 and the situation we find ourselves in today thank you very much and my questions are to both uh Lisa wikinson and Mark Jackson and we've covered quite a bit of what I was going to ask but let me just let me just State this 12,000 people made unemployed many worked for decades including some of my own constituents you have anchor stor very high reputation throughout many of the towns in this country rents 40% above market rate you're a cash company and you had cash hared in 2122 but actually you then talked about covid but actually you weren't doing so well in 2018 either the gmbb say in 2014 the writing was on the wall as you were ma moving away from being a cash retailer in 2017 you set up Amal Amalgamated Holdings you talk talked about global supply chain Mr Jackson being an issue but if I think about walking around Home Bargains B&M or the range I think of color and lots and lots of things on the shelves whereas for quite some time now if you go if you were to go around will codes you would see beige shelves empty shelves that's not something that's happened just in this last few years so what could and should have been done differently in running Wilco first of all Miss Wilkinson but then also Mr Jackson I do understand you were only there since Christmas 22 so if you had been there since say 2018 what would you have done in the meantime so Mr rinon first please so what should we have done yes what could you have done differently in running the company um we should have had exactly as you described higher stock availability on shelf we should exactly if you described um done taken greater steps to re half of wco sales were will own Brand Products so not branded products so we should have taken steps to reinvent our category and product offer so it was different and better and kin I I believe it was referred to as win earlier was part of our strategy to do that to reinvent our product offer so it was different and better we could and were have been trying to rework our um stores portfolio so that our stores were not over entered and so that they were in either the right towns the right place in towns on the right retail Parks did I say already we should have gone larger on our digital offer did I no so we should have built wco.com faster and better we were contrary to what has been suggested still a value retailer we have always being a value retailer and value sits at the heart sat at the heart of the willco offer but value has well in Wilco World value has three components to it one is price one is experience and one is quality and there was never a desire to erode the experience or the quality of our product or offer for our customers uh there was a great concentration on how you do that and still deliver um product at Great Value to the uh customer could we have worked harder at that I'm I'm sure more energy and effort should have gone into it I think those are my main there was a whole load of others that I could raise but if you're asking me to go back in time and what do I think was super important I think those things were super important okay thank you Mr Jackson do you agree and and if so what could have been done hindsight is always brilliant I mean I just want to go back to the sort of 1819 that keeps being brought up as year of when um everything started to go wrong it's my understanding and I'll caveat this with I I may be wrong but it's my understanding that this was a disastrous year over a load of Foreign Exchange derivatives nothing to do with underlying trading and a a significant restructure was required to recover the business from that which was the process that they went through and I go back to what I said earlier the January 21 the business was in decent shape with over it was flying yeah so I kind of I'm dismissive of everyone's comments of what the strategy should have been in 18 19 17 when so it wasn't covid and it wasn't Global LLY because it was flying Co the decision I'm talking about the decision to stay open not Furlow and and pay rents that was a big drain of of cash mhm um in the earlier covid periods that was fine the 60 million of Warehouse spends what would I have done differently it is who who knows uh but the second I went in I accepted that with the trading environment that existed with the availability cost out was the first action 90 million of costs out on an annualized basis uh property was still over rented and kicked off detail planning on on CVA yes were you shocked when you arrived um well I I knew what I was coming into so I I came in knowing that this the the business was in I'll call it distress uh and that there was a window of opportunity to turn it around and I still think it was a decent opportunity a number of things went against us I still think this business should exist and I think somebody should have invested in it you just run out of time is that what you think run out of liquid the sufficient liquidity to get suppliers back on board to get the stock on the shelves um would have given us a bigger window and it's very investable um the management team was a new management team went round to 20 s private Equity um type of investors as well as de providers and and we got very close right thank you what was the point about the Forex derivatives please I think that that's when the uh there was a big loss in 2018 19 which was referred to and I have to say it's conjecture as the start of wil Go's problems was it it bought all of its Far East product in US Dollars it took out forward rate contracts to fix the price it was was buying it and it made an enormous mistake and there was I think I believe a loss in the region of40 million on the FX derivatives in that year yes that I can't give you the full full detail on it so I'm sorry I could outside here but I'd have to remind myself but yes that was the year of the FX issues just yeah just just one question um Mr Jackson you've mentioned a couple of times just about the lack of action taking over fur loan if you know the company had maybe decided to take that as a an option and M wi you said that you know under no circumstances which allowed that to have happen our stores to close during that period but I just wonder if that was a it was not under no circumstances we took a decision not to not to right but did you what kind of advice did you take at that time from your accountants and financial advisers uh to say you know if you even did fur on a on a uh you know looked at your your your least profitable stores for example or most problem problematic stores if furo had been committed to at that point what what sort of information did you have that allow you come to that decision based on the finances sorry I'm interrupting I need a CFO here to remind me of what the modeling was we did we did a load of modeling around what would happen if we did or didn't um but in the end a decision was taken by the boards to remain open it was felt to be the right thing for customers it was felt to be the right thing for team members it was not a decision that was by it was not a unanimous decision so there were directors who had to disagree and commit rather than um so it was by no means an easy or ill thought through decision there was a lot of discussion around a figure that was banded around at the time how much I cannot I cannot and we were largely in Uncharted ter remember on the fur and um Co but we did a lot of companies were in the same territory and made they made what might be seen as the right call we just finally bring in Mr Mills R could you just I just want to get back to the questions about your Amalgamated Holdings Wilson limited I I think the last balance sheet I could see it had 16 million of net assets of which 9 million were listed Investments and you said there was some stakeholders interest that prevented you offering that up as sort of compensation for those who've lost in the administration well which stakeholders my understanding is as a director of um hwl myself and my co-director have a duty to act Beni in the best interest of that company that is my understanding but usually you have to act in the interest of your creditors or your shareholders which are you and there really weren't many creditors of that company I mean I were you never attempted when the crisis hit and you got 9 million of listed Investments to realize them and tip them in the company and try and save it oh that debate we had yes was there anything we could or should do to invest in Wilco we didn't have sufficient funds to make a difference to wco start of Interest how much is sitting in the Family Trust is that tens of millions or is no it is a small number of properties because we tried in if you remember in 2017 there was a whole load of adverse publicity about not being able to have visibility of private limited companies shareholders assets and our response to that was to put in a vehicle that gave visibility so in so far as we could we got all of the assets from the trusts into the limited companies so that everybody could see it and the ones that are difficult to get into the limited companies so you can see them or property assets because of course that incurs stamp Duty Etc they're not worth tens of millions they're not worth tens of millions no um but it's a small I'm going to say three but I could be wrong uh I'd have to check but the intention was to put what limited and they're not inconsiderable funds but they're not considerable in the context of what we are talking about here into a place where they could be seen so that we weren't accused of being opaque as a family just finally Mr Walton you've not had much chance to say much but have you reviewed M benning's audit file and are you happy that everything met in Wise standards and you'd have done nothing differently yourself we we're we stand by the opinion that we we signed yes so stepen and then I'll ask James you might well have heard on the radio this morning as I did Doug pman pman his name talking about his efforts to buy the business to which he he says he thought he'd got very very close to a deal and at the end it failed he says because everyone just got a little bit greedy what what's your understanding of of what went wrong there Mr pman was one of 20 minimum of 20 conversations that were going on he was 11th hour so and we heard from the insolvency expert earlier he actually came in after the business had gone into admin um what he means by everybody being a little bit greedy I am fairly sure is the creditors that were owed money at the point of admin if a newco was to buy the business out of administration that those creditors sap who kept your it infrastructure going would want paying what they were Ro from the old company so that's what he's referring to as greed in my view okay he wanted to pick up for not very much and not pay people who were the creditors who were um owed money was he the one who got closest to doing a deal I I I don't think he was uh he he was one of a number but there were it became complicated because of needing funding pre VA and post CVA so we always had bilateral conversations going on with Al lenders and Equity investors and there were 20 and different combinations of them would have had the same conversation just very briefly then Jane just to wrap up thank you very much indeed Mr Walton um we have in your brief that you're the ey UK head of audit and um most notably in the consumer products sector so I would have thought great experience in one of the big four um we had in 2019 e was called before the our predecessor committee to explain its role in the failure of Thomas Cook since then serious questions have been raised about the quality of your audits of London capital and finance and nmc health why does this keep happening where is the public interest and should the big four be broken up few few questions there let me let me try and take them in turn so we take all of those uh all of the outcomes of those previous failings um uh or corporate collapses I should say very very seriously and the important thing is to try and learn from from those mistakes so if um if we look at the uh specific work around going concern which is the most pertinent Point here since that time we've introduced new training and guidance for all of our people we've invested in new external data sources to make sure that we can challenge management uh and we've encouraged the use of specialists as Victoria did in this situation to make sure that um the forecasts that are being produced by management um are subject to sufficient scrutiny plus the independent consultation requirements I talked about before so all of all of those procedures have been introduced to improve the audit quality and the reliability of the opinions that we provide in terms of public interest um since the firms voluntarily separated operationally um and and that process started back in uh 2020 the the issue of public interest is front and center so having a separate ring fenced business having independent governance that holds me to account holds the rest of ey audit to account to remove any of the financial subsidies that may have existed between the non-audit side of the business and the audit side of the business and to make sure there's adequate investment in in audit quality public interest is very much front and center of our culture so why does it keep happening well I I would respectfully put into context the number of um cases that you you uh quoted versus the volume of activity that we undertake each year we s we sign over 4,000 audit opinions each year some of those um some of those instances you talk about go back to 2018 so we've signed 20,000 audits in that understood okay there are some big cheeses including willco anyway okay I'm Keen to get on to the minister so let me wrap this session up I think this has been a sorry story that we've heard today we have had you as well concerned admit to a number of significant management mistakes around stock around uh range around Furlow we've heard about a 60 million pound Warehouse modernization that went wrong a 40 million pound loss on financial derivatives a process of restructuring rents that didn't go through and despite those problems we can't you can't explain why dividends went up we have money slushing around in trusts that somehow can't be used uh to refund a pension scheme and we've got accountants who are prepared to stand by the judgments that they made we have at least had an apology but I think we have got a number of questions to now put to ministers thank you very much indeed for your evidence today order order that concludes the session

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Length: 84min 17sec (5057 seconds)

Published: Tue Nov 28 2023