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Alpha shares relisted as investigation completedAlpha shares relisted as investigation completed
John Rimmer
An investigation into the UK group's deal with Excel Airways has been completed and its results for the year ended January 31 reconfirmed, but the crisis is likely to cost Alpha about £3m
Trading in Alpha Airports Group shares has recommenced after the completion of an investigation into a catering contract gain made by the company last year. Alleged irregularities concerning the deal with Excel Airways led to auditor PricewaterhouseCoopers (PwC) withdrawing its approval of Alpha's preliminary results for fiscal 2005/6, forcing the resignation of Alpha CEO Kevin Abbott and finance director Heather McRae. Following an investigation conducted by a special committee made up of non-executive directors Terry Stannard and Lesley James plus new CEO Peter Williams and McRae's interim replacement Tim Redburn, Alpha's results have now been reconfirmed with no adjustment.Alpha confirmed that the crisis is likely to cost the company about £3m ($5.5m).
Alpha group chairman Graham Frost has stepped down from his role, which will be filled by the company's new CEO Peter Williams until a permanent replacement is found.
In a statement Williams said: "I am delighted that last year's results have been confirmed. The special committee's conclusions have been considered by the board and a number of actions are now under way to ensure appropriate internal controls and corporate governance procedures are in place. We can now move to put the distraction of recent events behind us and focus on taking the business forward.
"With strong finances and sound trading prospects, Alpha is in good shape and has a bright future."
In a statement signed by Frost, the outgoing chairman admitted that the crisis had "overshadowed what was otherwise a period of ongoing progress for the group". He insisted that no Alpha board member had gained financial or other advantage from the Excel deal, but acknowledged that the conduct of the deal "[fell] short of the levels of corporate governance that a public company should adhere to".
Frost confirmed that first-half profit from Alpha's UK and Ireland business had been "disappointing", but added that cost reductions had prompted an improved performance in the second half. "With competition set to intensify as European competitors seek to expand their presence in the UK and Ireland, improving our domestic return on sales is an absolute priority if we are to retain our market leading positions in the UK and Ireland," he said.
As reported on RavenFox.com on March 31, the threat to UK and Irish profits led Alpha to embark on an extensive restructure of the company, dividing the UK and international businesses into separate business units and creating two divisions in its UK operations, Alpha Airline Services and Alpha Airport Services. Frost said: "While we will continue to explore further international development opportunities, it is clear that management's focus must remain on improving the profitability of our business in the UK."
Alpha's underlying pre-tax profit for the year ending January 31 increased by 6.3% to £18.5m ($34.3m), while sales grew by 13% to £551m ($1.02bn). However, operating profit in the UK and Ireland declined by 33% to £8.8m ($16.3m). Alpha's international business almost doubled its operating profit to £12.5m ($23.1m).
Summarising the company's 2006 outlook, Frost said that profit for the first four months of the fiscal year were ahead of 2005 partly thanks to an improved performance in the UK airline business. He admitted that the loss of the ThomsonFly catering contract, which expired in April, would affect the yearly results. "The aviation services market remains highly competitive but we are confident that the new senior management team has made a good start by restoring confidence with all our stakeholders and will bring fresh impetus to drive Alpha forward," he concluded.
In its statement Alpha also published the conclusions of the special committee appointed to investigate the Excel deal. It made the following observations:
"The October 2005 arrangements purported to make material changes to the structure of the commercial dealings between the Group and the customer in 2005/06, but did not significantly change the amounts payable to or services provided by the Group in its financial year. Material aspects of the October 2005 arrangements were not intended to have proper commercial effect and were therefore not genuine transactions.
"A five-year contract between the Group and the customer associated with the October 2005 arrangements is an agreement with proper economic substance.
"By entering into the October 2005 arrangements, the Group consciously assisted that customer to put itself in a position in which it might have been able to manipulate its own financial statements in circumstances in which the customer's parent company was preparing for an initial public offering. No claim has been brought or asserted against the Group to date as a result of these circumstances. It is not possible to say at present whether any such claims might be brought in the future or, if they were brought, whether they would be successful in any material respect. If any valid claim were to be brought, the Group would seek to pursue its own claims against third parties.
"In connection with the audit, the Group made certain statements to PwC which misrepresented the true effect of the October 2005 arrangements. In some respects that was the result of a conscious decision by some senior personnel of the Group.
"The legal advice taken by the Group was a very significant factor in the thinking of all those in a position of responsibility in relation to the October 2005 arrangements. It remains the case that those responsible for the Group entering into these arrangements considered them to be in the best interests of the Group, because the arrangements involved a long-term contract. No evidence has been found of personal gain by anyone at the Group involved in the matter. The Special Committee has considered the roles of those in the Group who were responsible for the Group entering into the October 2005 arrangements and has already taken appropriate action.
"The Special Committee concludes that the level of corporate governance fell short of the standards expected and the Board expects to take various steps to strengthen the corporate governance, internal control and risk management of the Group and to review the advice received from its advisers on this matter."Keep an eye on RavenFox.com for updates.
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