Wednesday, 26 April 2017
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Freeport accounts laid bareFreeport's 2012 accounts were recently published showing a £68,671 loss in the profit and loss account, the first loss in three years. The previous two years showed a profits of approximately £1.37 million (2011) and  £158,527 (2010).

Should anyone be worried, especially people who work for Freeport and those that are owed money by the company? It's hard to tell, as the accounts (being abbreviated) are still largely opaque.

What hasn't changed is that Freeport's balance sheet is still showing an overdraft of £3.6million; essentially the company is almost worthless.

Two main figures are important: the still existing provision for liabilities of £17.26 million (the amount the company expects to write off) and the debtors figure of just under £23 million. The problem is that part of the debtors figure includes a loan of £14.9 million (around 65% of the total debtors figure) from Freeport's main and only shareholder, CEREP UK Investment D GP Ltd. Despite having four directors - Hafiz MohamedAli, Robert Hodges, Iestyn Roberts and Eric Sasson - CEREP UK Investment is Freeport's only shareholder.
In others words, none of Freeport’s directors has a shareholding. This always worries me.

What also worries me is that CEREP UK Investment D GP Ltd has no assets or any form of income to back up its loan to Freeport. If anyone chooses to look at the accounts (you can get a copy from Companies House) they will see that there are only two figures on CEREP UK Investment's balance sheet: £1,018 in the bank and a loan to Freeport of £14.9million. The fixed assets columns are empty! Thus the company is also overdrawn (the balance sheet is negative) to the tune of around £14.9. If you add the two balance sheet figures together you end with approximately £18.5 million worth of debt with no real assets.

While Freeport's accounts are not nearly as complicated as Enron (remember them?) they are not far behind. Freeport is owned by CEREP UK Investment D GP Ltd which has no assets and this company is further owned by CEREP Investment I Sarl, a company registered in Luxembourg. But the ultimate backers are the Carlyle Group based in Washington DC, USA, a private equity firm who bought Freeport in 2007. In fact, when you look at the going concern statement in the notes to the accounts we read that that the companies (Freeport and CERP UK) are completely dependent on the 'ultimate parent company' (Carlyle) for their capital requirements. What does this mean? It means that if Carlyle decide to pull the plug it's goodbye Freeport.

Carlyle's slogan, according to its website, is: 'invest wisely and create value' - value for its shareholders/investors of course. The main men running the company are David Rubenstein and William E. Conway, both founders who started the company in the late 1980s. I am not too familiar with Carlyle's modus operandi at this present time, but these two stories may reveal a lot about the way Carlyle's top men think.

Around 1986, Stephen Norris, one of the original founders of Carlyle, although he was booted out nine years later, and David Rubenstein (who is still there) decided to exploit an obscure US tax loophole. In brief, unprofitable Alaskan companies were allowed to sell their losses to other profitable (US) companies. Companies which bought these losses then incorporated them into their own accounts – thus getting significant tax credits from the US government. Everyone benefited – apart from the US taxpayer. The loophole was later closed. How did Norris view it? He thought it was "a great scam."

I have no doubt that Carlyle would use any existing 'loopholes' in current EU tax laws to do the same to EU and Portuguese taxpayers (rip them off, in other words), or they may have already done so. Freeport's original value (as stated in a Financial Times article in 2007) of approximately £155 million has already disappeared.  Looking at CEREP UK Investment D GP Ltd's accounts we can see the that original value of the investment assets of £158.2 million have been completely written off. They are zero. Why? And where have they gone?

The second story involves William Conway. Quoted in Dan Briody's 2003 book about the company. Conway apparently laid into his employees about their attitudes to 'his' company, "I am sick and tired of people complaining about their offices and their office furniture. It's not your office or your furniture. It's mine." Conway also complained, loudly, that there were too may employees  "sitting around my offices, drinking strawberry flavoured water." Was there no tea and coffee?

But it's not difficult to see why Conway's employees (apparently) had so little motivation. According to Briody, at Carlyle deals were structured to ensure that the partners made all the money and employees saw virtually nothing outside their normal salaries. Conway would rub this fact into his employees' noses at the end of company meetings by telling them to go out "and make me money." Given these two stories there seems little doubt that Carlyle would take any action to maximise its profits with regards to Freeport, no matter what the consequences for Freeport's employees or creditors.

Two further important notes. In July 2013 CEREP UK Investment D GP Ltd was served a striking off order, under section 1000 of the Companies Act 2006, by the Registrar of companies. In other words the company could have been dissolved (what then would have happened to its £14.9 million loan to Freeport and the fact that it is it's only shareholder?) Interestingly, the document states, that if the company were to be dissolved, "all property and rights vested in, or held in trust for the company are deemed to be bona vacantia, and accordingly will belong to the crown." Given that CEREP UK Investment has no assets (in fact, a huge liability) and its only shares are in another company that has an overdrawn balance sheet, it does raise some interesting questions.

However, the action was terminated. According to the subsequent statement, sufficient (undisclosed) cause had been shown as to why the company should not be struck off the register of company names. Companies House has, so far, not divulged details for both actions, but I will continue ask it.

Freeport Retail Ltd., a different company to Freeport, will probably not publish its 2013 accounts until December or January. This will show us how much dividend the directors took out of the company, if they decided to take any. In 2012, £222,933 was issued in dividends by the shareholders, which includes CEREP Investment I Sarl, which also appointed two of the directors. The company, which unlike Freeport and CEREP UK Investment, does at least show a profit on its balance sheet (£85,668). Also, the company was showing a deferred tax liability, which I assume is corporation tax. The amount? £1,347…makes you wonder why they bother paying any tax at all...