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

Shares in stricken Adler Group tumbled 45 per cent on Monday morning following KPMG’s refusal to sign off the German real estate company’s financial results and half of the board resigning over the weekend.

Despite KPMGs refusal to endorse its 2021 results on Friday, Adler announced a net loss of €1.2bn on Saturday after writing off €1bn from its property development operations and disclosing that it could not raise additional funds as the impairment triggered a violation of bond covenants.

However, Adler stated that it did not breach a bond covenant over 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 over 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 immediately payable, said chair Stefan Kirsten.

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

He stressed that the annual report met the bond covenants despite KPMG’s decision to not sign off the results. “There was an audit, and we have audited results,” said Kirsten.

The Big Four firm said that Adler’s management “denied us access to certain information” and that it hence was unable “to obtain sufficient appropriate audit evidence”. At issue are a number of transactions Adler has completed with third parties that short sellers alleged were not independent.

KPMG pointed out it was unable to evaluate “whether the accounting treatments for at least some of these transactions are appropriate and consistent with their substance”. It also warned it could not evaluate “whether management’s assessment about the valuation of certain account balances is adequate”.

Adler’s dividend payments for 2021 are at risk, Kirsten warned. “Legally, we are able to pay a dividend,” he said, adding it was a financial question hinging on cash flow. Kirsten said the company was cut off from the funding market after the KMPG verdict, but is sitting on €500mn of cash. Last year, Adler paid €0.46 per share, with analysts expecting €0.59 per share according to S&P Global Markets Intelligence.

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

Kirsten, who joined the company in February, said that he was assessing whether previous board members breached their fiduciary duties. The chair told journalists that he did not currently see evidence for criminally relevant misconduct.

KPMG’s refusal to sign off the annual results came a week after a separate team of forensic investigators from the Big Four firm uncovered widespread governance and compliance shortcomings.

The forensic investigators found extensive evidence that Cevdet Caner, a controversial property mogul with no formal role at the company, had significant involvement in strategic decisions, the hiring of executives and their pay, as well as other operational matters.

KPMG’s forensic team pointed out that it was unable to get to the bottom of some of the allegations. It could not get access to 800,000 documents deemed relevant as its client cited “legal reasons”.

The forensic investigation was commissioned by the board in October after Fraser Perring-led short selling group Viceroy Research accused the firm of widespread fraud, inappropriate related-party transactions and accounting manipulations. Adler denied any wrongdoing. Over the past year, shares in Adler have lost about 70 per cent.

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