Adecco results delayed by ‘accounting issues’
Employment giant Adecco has been hit by a raft of problems at its North American arm, resulting in a stock slide, rating downgrade and official investigations in New York. Geraldine Lambe reports.
Hot on the heels of Parmalat, another European company has had a bumpy ride in the markets because of irregularities in its accounting and disclosure practices.
On January 12, the world’s largest employment firm, Adecco, announced that its 2003 results would be delayed due to identification of “material weaknesses in internal controls” in the company’s North American operations, Adecco Staffing, and “possible accounting, control and compliance issues in the company’s operations in certain countries”.
That week, the value of its stock plunged by about one-third. Investor worries about the Swiss-based company’s changing fortunes were quickly reflected in credit default swap (CDS) prices. According to data from Credit Market Analysis (CMA), the cost of protection against any default by Adecco rose by 300 basis points in the space of four days.
While CDS levels have since recovered slightly, the asset swap spread – derived from CMA’s bond and maturity data – has shot out by about 325 basis points.
Investigation opened
Following the company’s statement, the US Securities and Exchange Commission and the US Attorney’s Office for the Southern District of New York opened investigations into the matter. Rating agency Standard & Poor’s (S&P) downgraded its long-term ratings on the company from BBB+ to BBB-.
The rating on the company was also placed on S&P’s CreditWatch. As The Banker went to press, this had been revised from developing to negative.
Subsequently, the group CFO, Felix Weber, and the CEO of Adecco Staffing North America, Julio Arrieta, have resigned.
“While we await further information from the company, it looks more a case of financial and administrative sloppiness than anything more sinister at this stage. Adecco’s group structure is relatively straightforward and disclosure within its accounts has been satisfactory. Furthermore, Adecco’s financial model appears transparent, and its liquidity position of around E900m at 31 December, 2003 has already been confirmed. However, the timing of this matter in coming so soon after Parmalat is lousy,” says Russell Jones, credit analyst at RBC Capital Markets.
