The company said it appears that certain control processes in the finance division at its Servo site in Leeds have been "repeatedly and deliberately circumvented". One manager has been suspended, while auditors PwC and City law firm Nabarro have been appointed to carry out independent forensic investigations.
The company estimates the impact of correcting these misstatements will result in a £14m hit, after tax, and now expects EBITDA to be between £38m and £44m for the year to March 2013, compared with previous forecasts of £48m.
However, Phoenix makes it clear that this estimate excludes "the impact of any further disruption to business that this issue may of itself cause", which seems a little optimistic.
George O'Connor, analyst at Panmure Gordon, is not convinced. "We caution that when there is more clarity there are likely to be further exceptional costs."
What's more, the company will have to deal with the reputational damage of such "irregularities". O'Connor goes on:
For a company where credibility is already at a low ebb, this news will test investors patience. The news, which brings fresh downgrades, will act like a dead weight on the share price.
He maintains a 'hold' recommendation on the shares purely because their valuation of just 9.1 times price earnings, is likely to make the company an attractive takeover target.
The FTSE Allshare index is up 0.5% in early trade at 2,987 points. The FTSE 100 is 0.6% higher at 5745 points; and the mid-cap index is up 0.75% at 11496 points.
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