Adler shares fall 45% after KPMG refuses to sign off on results

Shares of the affected Adler Group fell 45 per cent on Monday morning following KPMG’s refusal to sign off on the German real estate company’s financial results and the resignation of half of its board members over the weekend.

Despite KPMG refusing to endorse its 2021 results on Friday, Adler on Saturday announced a net loss of €1.2bn after writing off €1bn from its property development operations, revealing that such It cannot raise additional funds to do so because it could trigger a breach. binding contract.

However, Adler said it did not violate a bond covenant on its obligation to publish audited financial results by April 30, arguing that it had met that requirement, despite KPMG’s disclaimer of opinion.

Adler, which has been fighting short seller allegations in recent months, was in danger of missing a crucial Saturday deadline for the publication of its results, which would have left €4.4bn in bonds payable immediately, said chairman Stefan Kirsten. he said.

“In that case, the company had hit a wall,” Kirsten told reporters on a call Monday.

He stressed that the annual report lays out the bond contracts, despite KPMG’s decision not to sign the results. “There was an audit, and we’ve audited the results,” Kirsten said.

The Big Four firm said that Adler’s management “denied us access to certain information” and was therefore “unable to obtain sufficient appropriate audit evidence”. Over the issue Adler has completed several transactions with third parties that were allegedly not independent of the short seller.

KPMG reported that it was unable to evaluate “whether the accounting treatments for at least some of these transactions are appropriate and consistent with their essence”. It also warned that it cannot evaluate “whether management’s assessment of certain account balances is adequate”.

Adler’s dividend payments for 2021 were at risk, Kirsten warned. “Legally, we are able to pay dividends,” he said, adding that it was a financial question dependent on cash flow. Kirsten said the company was cut off funding from the market following KPMG’s decision, but is sitting on €500mn in cash. Last year, Adler paid €0.46 per share, compared to what analysts were expecting €0.59 per share, according to S&P Global Market Intelligence.

On Saturday, Kirsten said she was “shocked” at how strongly KPMG had expressed its opinion. Hours after the company published its annual report with an auditor’s disclaimer, the company announced the immediate resignation of co-chief executive Maximilian Reinecker and three other board members.

Kirsten, who joined the company in February, said she is assessing whether previous board members have violated their fiduciary duties. The chair told reporters he had not seen evidence of criminally relevant misconduct.

A week after KPMG refused to sign off on its annual results, a separate team of forensic investigators from the Big Four firm uncovered widespread governance and compliance deficiencies.

Forensic investigators found extensive evidence that the mogul, a controversial asset with a formal role in the company, had significant involvement in strategic decisions, the recruitment of officers and their salaries, as well as other operational matters.

KPMG’s forensic team said it could not get to the bottom of some of the allegations. It could not access the 800,000 documents deemed relevant because its client cited “legal reasons”.

The forensic investigation was launched by the board in October after Fraser Pering-led short selling group Viceroy Research accused the firm of widespread fraud, improper related-party transactions and accounting manipulation. Adler denied any wrongdoing. Adler’s shares have fallen nearly 70 percent in the past year.

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