Lisa Wilkinson ‘devastated’ and ‘sorry’ over collapse of Wilko, as MPs hear ‘weak leadership’ to blame – business live | Business
That’s a long list of failures, Liam Byrne MP points out, and one that has left the taxpayer on the hook for over £40m in redundancy payments, a £50m hole in the pension scheme, and creditors getting 4p in the pound, at best, on their loans.
Q: Will you apologise to workers who are facing a Christmas without work?
Former chair Lisa Wilkinson says she is thankful to many people who supported Wilko, including the “fantastic team members” who always worked there, “amazing suppliers and advisers” and Wilko’s “fantastic customers” over the last 90 years.
Wilkinson (who was singled out for criticism over ‘weak leadership’ by the GMB this morning) tells the committee:
I am devastated that we have let each and every one of those people down, with the insolvency that Wilko has done.
Wilkinson says she can’t put into words how sad she is that Wilko “let down all our customers, all our team members, our suppliers, our advisers”.
Genuinely, I don’t know what you want me to say….
Byrne says he was looking for the word “sorry”, which we haven’t heard.
Wilkinson insists she is sorry, adding:
I am sorry that we are not there supporting all those people any more.
Stephen Timms MP asked Wilko’s bosses about Doug Putman’s claim that he was very close to a deal, but it failed because everyone got a little bit greedy (see opening post)
Wilko CEO Mark Jackson says Putman was one of 20 potential bidders, who arrived at the 11th hour once Wilko was in administration.
The comment about greed, Jackson suggests, relates to the creditors who were owed money by Wilko (such as IT suppliers) and wanted paying if the business was rescued.
He wanted to pick Wilko up for not very much, and not pay the creditors who were owed money.
Jackson also disputes whether Putman actually came closest to a deal, saying the negotiations were complicated.
Q: How much is sitting in the Wilkinson family trusts? Tens of millions of pounds?
No, Lisa Wilkinson replies, there’s just “a small number of properties”, which might be worth £3m, she suggests.
She argues that the Wilkinsons moved most of its assets into AHWL, its family office, so there was visibility over what it owned, to avoid accusations of being opaque.
The former chief executive of Wilko, Mark Jackson, has also revealed that Wilko may have made an “enormous mistake” in an attempt to hedge against foreign exchange moves in 2018-19.
Jackson told MPs that:
It’s my understanding that this was a disastrous year, over a load of foreign exchange derivatives, nothing to do with underlying trading.
“It bought all of its Far East products in US dollars. It took out forward-rate contracts to fix the price it was buying at, and it made an enormous mistake.
“And there was, I believe, a loss in the region of £40m.”
Lisa Wilkinson confirms that Wilko suffered “FX issues: that year.
Jackson also repeats that keeping trading though the pandemic meant Wilko continued to lose cash as it paid rents to its landlords.
The committee then turned to the mistakes made in the run-up up to Wilko’s collapse.
Lisa Wilkinson says the company should have had better product availability, reinvented its product offering, reworked its stores so they were in the right places and at lower rents, and created a better online offering.
Q: The Wilkinson family are one of the wealthiest in the country, thanks to the success of Wilko, so shouldn’t you be making good the £50m hole in the Wilko pension fund?
Lisa Wilkinson doesn’t agree that they are one of the wealthiest families in the country, and she insists she doesn’t have the assets to fill a £50m hole in the pension fund.
Q: What happened to the dividends paid into your family holding company? Are they still there?
Wilkinson says the holding company, AHWL, has received dividends since 2017, and it has invested in start-up businesses, UK properties and a limited amount of stock market investment.
Q: So are there resources there to fill the pension hole?
No, Wilkinson insists. “They are tied up in other things”.
She adds that she, as a director of AHWL, has to act in the best interest of its stakeholders – which does not include the Wilko pension scheme.
It also wouldn’t add up to the shortfall.
Q: But we’re told the family has received £150m in dividends over the last 20 years…
Lisa Wilkinson turns to a sheet, showing that since 2014 (when one half of the Wilkinson family sold its 50% stake to the other half) total dividends are £15.6m – or an average £1.7m per year.
Over that period, Wilko had average cash reserves of £77m per year, no debt, and paid £36.5m into the pension scheme.
Wilkinson then explains that the £63m dividend paid in 2014 was a ‘dividend in specie’, to allow family members who were leaving to exit the business. Those who remained took no dividend that year, she says.
Q: But that would still leave around £100m in dividends since 2003….Why can’t that be used to cover the pension fund.
Wilkinsons says she doesn’t recognise those figures (which Liam Byrne says are from Wilko’s accounts).
She then suggests that dividends paid to the remaining shareholders before 2014 have largely been used for the ‘early stage transactions’ of buying out shareholders who left in 2014.
The remaining shareholders do not have that money (the £100m).
She insists that the remaining shareholders effectively only possess the dividends since the demerger in 2014.
Q: And they’ve spent it, Liam Byrne asks.
Wilkinson says she doesn’t believe it has been spent….
Q… Ah, says Byrne, in an interested tone:
Wilkinson suggests the money is either invested in trusts, or it’s in the family holding company we heard about earlier.
Q: But isn’t there an obligation on the shareholders who departed to address the pension fund deficit?
Wilkinson, who is the granddaughter of the Wilko founders, says she can’t speak for those ex-shareholders, and points out that 2014 was a long time ago….
Liam Byrne MP points out that Wilko paid out around two-thirds of its profits in dividends, between 2019 and 2022.
As the business plunged into deeper trouble, the dividends went up, he says – with £7.5m paid out in dividends, compared to £11.6m of profits.
Lisa Wilkinson says her understanding is that the directors looked at the EBITDA earnings figures, the reserves and the cash, and decided on the dividends that were paid.
It looks to us like you’re burgling a failing business, Byrne replied.
Q: The GMB have told us this morning that you have never apologised to staff or explained what went wrong. Why not?
Lisa Wilkinson sighs, and says she had wanted to thank all Wilko’s team members around the time of the administration, but was advised not to, by fellow directors and the administrators.
Wilkinson insists she has responded to anyone who had got in touch. And she did an interview with the Sunday Times, despite being a very private person, to say thank you to her team members, customers and suppliers.
With a sniff, an emotional-sounding Wilkinson says:
I will be thanking my team members and my customers to my dying day. You will never find me saying anything else… They were the bedrock of Wilko.
The committee then turns to the dividends that were taken out of Wilko by the Wilkinson family
Q: Nearly £150m was taken out of the business over the last 20 years, including £3.75m in the year preceding the firm’s collapse. Now, 12,000 people have lost their jobs, and the pension scheme is in jeopardy – so why did this family-friendly firm not put these profits into the pension scheme?
Lisa Wilkinson says Wilko’s staff did feel like one big family. She thinks they still do, but that she is no longer included in that family.
“They’re an amazing group of people,” she adds.
On the pension scheme deficit, Wilkinson says that in the year to 2022, the deficit was £12.2m, and £7.4m in 2023.
Wilko made contributions of £8.4m into the scheme on both years, she says.
Towards the end of 2022, the board agreed to give the pension scheme a security to Wilko’s second distribution scheme, worth £20m.
So the directors believed the pension scheme deficit was being tackled, and “doing our best” to cover it, she says.
Wilkinson says the pension deficit is now larger, because the scheme is being assessed on a different basis now that the company has closed.
Q: But you took a lot of dividends out of a company that was failing…
Wilkinson says dividends were paid to a holding company called Amalgamated Holdings Wilkinson Limited, owned by a series of family trusts, and that she wasn’t personally a shareholder.
Lisa Wilkinson then confirms that Wilko didn’t take advice from EY (as they were the company’s auditors).
EY’s Victoria Venning says Wilko’s directors were “open to the challenge” of revising their forecasts to meet the auditor’s concerns over the risks to the business.
Onto the auditors! (Who have been accused of not doing their jobs well)
Q: What advice did you give Wilko about Teneo’s recommendations about cost-cutting?
Victoria Venning, partner at EY (Wilko’s auditors since 2019), says an auditor’s role is not to advice management. It is to give an independent opinion if the company’s accounts, presented by management, are true and fair.
Q: So you didn’t give any advice about the ideas in Teneo’s proposal?
It wasn’t appropriate to, Venning says.
Q: Is that a no? Did you give advice?
Venning repeats that it wasn’t EY’s role, adding:
It’s a no.
Q: Do what advice did you give to Wilko about steps it might need to take to remain a going concern, for example around the sale of the warehouse? (the day before Wilko’s accounts were signed off).
Venning says it would be “highly inappropriate” to offer such advice to a business, given auditors’ need for independence.
She then pushes back against the criticism this morning from professor Atul Shah, of City University, and denies that the auditors ‘hid away’ their concerns over Wilko.
She says that EY stated clearly there was ‘material uncertainty’ over Wilko’s going concern status.
She reads out that EY had made clear that, at the date of approval of the financial statements, the group had insufficient commited financing in place to withstand a “severe but plausible downturn in trading activity” through the going concern period to January 2024”.
That was a warning there was a “plausible scenario” that Wilko could run out of cash if sufficent cash wasn’t raised.
Q: So did you warn Wilko’s management that they could miss the going concern test?
Venning says EY scrutinises the forecasts produced by management, and concluded that they were ‘optimistic’, and challenged them to revise them. That process took several months, and resulted in four different versions of the forecasts.
EY were only prepared to sign an audit of the accounts once a final forecast took account of the “severe but plausible” downside risks.
Q: And that last scenario included the sale of the warehouse?
Venning says it did, yes, because that had happened before the accounts were signed off.
Q: But why did Wilko fail, when it had £108m of cash on the balance sheet in 2021? Why did other players weather the storm better?
Former CEO Mark Jackson says Wilko’s rents were £90m per year, it didn’t furlough staff, and spend £60m on new warehouses.
Then, when credit insurance was pulled, cash accelerated out of the business to suppliers at a faster rate.
Q: They’re all examples of management failure….
Jackson points out that he only joined in December 2022….
…so the committee turns to Lisa Wilkinson to explain these decisions.
Wilkinson says the board debated at great length whether to close in the pandemic, but decided to stay open and not furlough staff, to support those who were medically vulnerable and to pay landlords in full.
On the warehouse projects… Wilkinson says the decision to implement warehouse management systems, and replace outdated equipment, was taken several years earlier to improve efficiency.
Wilko CEO Mark Jackson says he pursued efforts for a rescue deal for months, and there were interested parties keen to save the business right up until the beginning of August.
Q: So what went wrong?
Jackson says that the security on Wilko’s balance sheet was falling every day, so secured lenders were prepared to lend less and less.
The UK’s economic climate meant the investment community were not “overly keen” to lend, he says.
Jackson reveals he was able to agree £15m of unsecured support, and £40m-£45m of secured lending.
But Wilko needed £75m to £90m.
Q: Why did you not act on the warning signs from auditors, that the financial viability of the business was in question? Did you read the audit report?
Lisa Wilkinson says she did read the audit report, and went through it with Wilko’s auditors.
She insists that Wilko’s financial situation declined sharply in 2022.
She says Wilko was taking action to try to reduce its rents, and denies ignoring advice from Teneo to do a Company Voluntary Arrangement to cut its rents.
(One issue with the CVA recommendation, it seems, is that Teneo thought the support of Wilko’s pension scheme would have been enough to get the CVA agreed, but actually the company needed support from more creditors too).
Mark Jackson offers support too, saying Wilko couldn’t enter a CVA when it was recommended, as it wasn’t insolvent at that stage.
Q: Shouldn’t the cost of living crisis having been a time for Wilko to shine?
Ex-chair Lisa Wilkinson denies not listening to advice (see previous post), but agrees that the loss of a third-generation business is devastating.
I do believe Wilko could have been saved, but it was not.