Adecco strikes fear into European markets

Adecco's share price plunged amid news of accounting irregularities Keystone

Shares in Adecco, the world’s leading employment agency, plunged more than 35 per cent on Monday after the company announced it would delay publication of its 2003 results.

News that Adecco had found accounting irregularities sent European stock markets sliding.

Within seconds of the announcement, around SFr7 billion ($5.7 billion) was wiped off the company’s value as investors rushed to sell their shares.

“Investors are rightly saying that they want to keep very clear of the shares until they become more sure about the scale of the problems,” Hilary Cook, an analyst from Barclays in London, told swissinfo.

Adecco, which is based in Glattbrugg near Zurich, said in a statement that it had discovered “material weaknesses” in its internal controls in North America.

The company also said it had found “possible accounting, control and compliance” issues at operations in “certain countries”.

The problems came to light in a routine audit of the company’s numbers.

Results postponed

The world’s largest provider of temporary staff, which had originally planned to release its results on February 4, said its audit committee had appointed an independent lawyer to conduct an investigation.

The company could not say when the audit of its consolidated financial statements would be completed or whether its 2003 figures would be affected.

A company spokeswoman said she could not give further details due to “legal restrictions”.

“There is a great deal of surprise that this is a Swiss firm,” said Cook. “In a sense, the reaction about Parmalat was, ‘Gosh, you invest in Italy a bit at your peril.’ This is certainly never the case in Switzerland.”

Dealers have expressed concern that the situation could balloon into an accounting scandal similar to those at energy trader, Enron, and the Italian food giant, Parmalat.

Market uncertainty

Brokers rushed to downgrade the shares, with Bank Leu in Zurich recommending that clients avoid the company’s stock until more information was forthcoming.

“Risk-averse shareholders should sell, shareholders happy to take risks should hold on and those very brave indeed could buy more,” added Barclays’ Hilary Cook.

One trader suggested the problem at Adecco “has got to be something big” as the company could not give a new date for publishing its 2003 figures.

“Whenever something like this happens,” said Nigel Cobby, managing director of European equities at JP Morgan, “there is always a fear that runs around the market that it will be the tip of the iceberg.”

American problems

The US market accounts for about a quarter of Adecco’s overall revenues.

Cook said she was not surprised that the problems stemmed from the company’s American units.

“There does seem to be much more scope for lax accounting procedures in the United States. And that seems to be where most problems originate,” she said.

Adecco Staffing accounted for about 90 per cent of the group’s 2002 turnover of SFr25 billion.

Adecco’s share price plunged to SFr47.60 ($39.17) on the news, down more than 40 per cent on Friday’s close of SFr81.80. They recovered slightly by the end of the day, closing down 35.2 per cent at SFr53.

“If the problems are relatively contained and it’s just a case of restating some American numbers… then the shares could bounce back very sharply from today’s lows,” added Cook.

swissinfo with agencies

Key facts

Shares in the employment services firm, Adecco, have taken a nosedive at the stock exchange on news of accounting irregularities.
The company has delayed publication of its 2003 results and is conducting an investigation.
The 2003 figures were due out on February 4.
Brokers are warning investors to steer clear of Adecco stock.