D.E Master Blenders 1753 fell the most since the beverage business began trading as a separate company after saying it will restate earnings because of accounting irregularities and tax provisions in Brazil.
The stock fell as much as 8 percent. The shares traded 6.9 percent lower at 8.83 euros as of 10:47 a.m. in Amsterdam. Sara Lee Corp. spun the unit off in June.
The adjustments will reduce shareholders’ equity by as much as 95 million euros ($116.2 million) and its 2012 net result by about 55 million euros, the Amsterdam-based company said yesterday in a statement. The irregularities at its Brazilian operations involve uncollectible accounts receivable and incorrect recognition of sales and make up less than half the total cut to stockholders’ equity, said Michiel Quarles van Ufford, a company spokesman.
“This is not what you want when you’ve just become a stand-alone company, but I believe it will be mostly ring-fenced in 2012 and they’ve taken the right action quickly,” Marco Gulpers, an analyst at ING Groep NV in Amsterdam, said by phone. “It doesn’t help” the company’s credibility.
The maker of Pickwick tea and Senseo coffee discovered the accounting irregularities after the end of Sara Lee’s fiscal year that month, as new management conducted an investigation of the accounts, Quarles van Ufford said.
Master Blenders said it will adjust financial statements for fiscal years 2009 through 2011 and the first half of fiscal 2012. Some items will also affect forthcoming results this year, according to the statement. The adjustments aren’t expected to affect results for fiscal 2013 ending in June, the company said.
Master Blenders said it is conducting a “comprehensive investigation” of the irregularities and will take “appropriate actions” to enhance internal controls in Brazil. The probe should be completed within a month, said Quarles van Ufford. There’s no evidence yet that the issues appeared in other parts of the company’s business, he added.
On July 3, Master Blenders rose 6.8 percent, the most since its June spinoff, after investment company JAB Holdings said it may increase its stake in the tea and coffee maker. JAB said it plans to remain a minority investor.
The spinoff of Master Blenders has come as Sara Lee splits in two and unwinds its conglomerate structure. The concentration on coffee and tea should allow Master Blenders to focus on investment and innovation at Senseo and its ground coffee business, which it failed to do under Sara Lee’s management, Master Blenders Chairman Jan Bennink said in a 2011 interview.
Master Blenders has said it plans to invest heavily in marketing Senseo and expand into new regions. The company will also introduce a new machine that uses whole beans and is aimed at coffee aficionados. Master Blenders gets about three quarters of its revenue from retail sales, about half of which come from roast and ground coffee, according to Pablo Zuanic, an analyst at Liberum Capital.