Quindell – comments on business

Some observations regarding comments recently published about the Quindell business and its accounting practices.

1) Questions have been raised about the £14.5m gain in the accounts regarding the Himex acquisition.

Quindell Legal Services investment in Compass Costs is indicated as £14m but in the group accounts is indicated as approx £7m.

In responding to this it is worth reminding ourselves of what IFRS 3 says on the matter.

IFRS 3 states:

“In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss.”

The acquisition is at fair value (the number of shares at the market price at the time – approx 9p) whereas Quindell subsequently transferred Compass Costs to QLS for a consideration based on 17.5p.

It is also worth noting the £14.5m gain for Himex, it is not included in the adjusted KPIs.

ConclusionThis is how subsidiary accounts, according to accounting rules should be dealt with in relation to the group position.

2) Question regarding the number of Quindell subsidiaries.

Several FTSE 250 companies have far more subsidiaries than the 191 Quindell have. This isn’t an issue.

3) Filing subsidiary company accounts on time.

It is not uncommon for companies in the FTSE 250 to file subsidiary accounts slightly late. Managing 100+ subsidiary accounts can mean that occasionally dates are missed.

4) Companies having zero employees

Accusation is something is wrong with having zero employees yet business generates revenue and profits.

Responsemany organisations do this. This is normal, it reduces administration costs. Would you want to pay your employees using 191 different payroll systems?

All that happens is you have management recharges across the Group.

5) PT shares issued from Quindell to PT have been sold to boost operating cashflow.

Interim results include sale of £5.4m shares by PT to repay an earlier loan from Quindell.

Response In the cashflow statement it is shown under cashflow from financing activities, not operating activities.

In addition it is spelt out in note 15.

“Any gains or losses recognised in the subsidiary’s Income Statement have been removed on consolidation, and any proceeds from the sale of these shares recorded within Cash flows from financing activities within the Consolidated Cash flow.”

In other words PT shares issued from Quindell to PT have not been sold to boost operating cashflow.

6) Mark Hepworth the lawyer paid £150k via off the shelf company.

The inference has been this payment is underhand.

This payment would not have gone through the P&L as this related to acquisition fees and would not therefore go down as capital expenditure.

Why Quindell used this arrangement is speculation, we just don’t know the reason.

We do know it was not to artificially boost profits.

Summary

Many of the comments raised over tha last few days are repeats of previous accusations. These have all been found when scrutinised to be inaccurate.

You have to question why all these accusations have been regurgitated over the last few days!

Could it be to counter any expected good news RNS next week?

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2 responses to “Quindell – comments on business

  1. “many organisations do this. This is normal, it reduces administration costs. Would you want to pay your employees using 191 different payroll systems? ”

    Possibly true but doesn’t the company paying the payroll usually charge the subidiary benefitting a management charge (including fair proportion of other cost centre expenses) so that each company shows its true postion vis a vis income and expenses? Otherwise accounts wouldn’t show a true and fair view of whether it was profit or loss making?

    Like

  2. You just need to remove the 2nd ‘not’ in this sentence (the fee would be in capex within the balance sheet): “This payment would not have gone through the P&L as this related to acquisition fees and would not therefore go down as capital expenditure.”

    (no need to show this comment, feel free to delete)

    Thanks!

    Like

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