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[February 04, 2014]
Autonomy arm profits 80% short, says HP: US firm says investigation revealed accounting flaws: New report shows drastic revision of 2010 figures
(Guardian (UK) Via Acquire Media NewsEdge) Hewlett-Packard's long-running investigation into claims of accounting irregularities by the former management team of Autonomy, the British software company it bought for more than pounds 7.1bn, has concluded that the firm's main UK trading company made 80% less profits and 54% less revenues than originally stated.
Accounts to be published this week at Companies House will show HP has drastically revised the 2010 performance of Autonomy Systems Ltd (ASL), and its holding company Autonomy Corporation Ltd (ACL). HP has been combing through Autonomy's books since May 2012, when it says a whistleblower claimed that false accounting was used to flatter its performance during its period as one of the largest technology companies on the London Stock Exchange.
After buying Autonomy in 2011, HP wrote down the value of the company by pounds 5.5bn in November 2012. The writedown drove the US firm to a $6.9bn quarterly loss at the time, and led to furious accusations from the British company's founder Mike Lynch that he and his management team were being made "scapegoats for HP's own failings".
"These restatements, and the reasons for them, are consistent with HP's previous disclosures regarding accounting improprieties in Autonomy's pre-acquisition financials," HP said in a statement released yesterday. "The substantial work necessary to prepare these accounts has revealed extensive accounting errors and misrepresentations in the previously issued 2010 audited financial statements, including the exact problems previously identified by HP." The findings in the UK will have a substantial impact on Autonomy's overall performance for the year before it was sold, because ASL accounted for roughly one third of the company's stated $870m (pounds 565m) revenues in 2010.
According to the accounts, many of the issues related "to the overstatement of revenues in Autonomy's US operations".
Profit at ASL has been revised down from pounds 106m to pounds 20m. Its revenue number was originally stated as pounds 176m, but is now reported as pounds 81m. The 2010 loss at ACL, the holding company, has been restated from the original pounds 12m to pounds 22m.
The former Autonomy management team released a statement saying: "We continue to reject these allegations by HP. Given the size of HP's writedown, we are very surprised by the small size of the adjustments in ASL that are attributed to the ongoing accounting dispute, which represent a few per cent of group revenue. We know even these include revenue that will be recognised at a later time, under HP's new approach." HP chief executive, Meg Whitman, has vowed to recover the money lost on Autonomy for her shareholders, although doing so could take years. In the meantime, HP and its directors are being sued by shareholders, who claimed they ignored red flags from analysts and industry experts questioning Autonomy's accounts. An update on the case is expected on 28 February.
HP's complaints about Autonomy's financial reporting are being investigated by the US justice department and the UK's Serious Fraud Office. Among the issues HP said it uncovered was: revenue being recognised for products where payments were unlikely to be made by the buyers; barter-type transactions where the value of the sale could not be properly assessed; and sales of hardware wrongly logged as software.
HP found the ownership of a 20% stake in Realise Ltd, an IT consultancy, was recorded as being held by ASL, when it should have been recorded as belonging to its holding company, ACL. HP also corrected sums relating to staff expenses.
A spokesperson for the former senior management of Autonomy said: "We continue to reject these allegations by HP. Given the size of HP's writedown, we are very surprised by the small size of the adjustments in Autonomy Systems Ltd that are attributed to the ongoing accounting dispute, which represent a few per cent of group revenue. We know even these include revenue that will be recognised at a later time, under HP's new approach." Captions: 80% The amount by which HP concludes that Autonomy's profits were less than stated in its 2010 accounts (c) 2014 Guardian Newspapers Limited.
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