Molson Coors has warned of "material weakness" in its financial reporting after the brewer identified accounting errors arising from a $ 12 billion deal fought with Britain's SABMiller three years ago.
The shares were down 9.5 percent at noon in New York after the company – whose brands including Blue Moon, Carling and Cobra – revised financial results and also reported a weaker demand for beer in the US and Canada.
The CEOs said the accounting problems stemmed from the Group's purchase of 58 percent of the shares that did not already take place in MillerCoors, its joint venture with SABMiller. The deal paved the way for SABMiller's takeover of Anheuser-Busch InBev.
The company identified problems with previously issued financial statements that arose in the treatment of so-called deferred tax liability (DTL) – taxes owed but not yet paid – in the joint venture.
For 2016, deferred tax liabilities and tax expenses had been underestimated. This meant that the net profit reported by the company for that year was nearly $ 400 million higher than it should have been.
The problem the following year was further complicated by US corporate tax credits. For 2017, the company had underestimated net profit by more than $ 150 million. All in all, the company stated that it had underestimated DTL's value on the balance sheet by $ 248 million, and thus followed its total equity by the same amount.
"One major weakness was that we did not design and maintain effective controls over the completeness and accuracy of the accounting and disclosure of the income tax effects of acquired partnership interests," the company said in a filing with the Securities and Exchange Commission.
The management and the members of the Board's Audit Committee evaluate the company's "policies and procedures for reporting income taxes", see the notification.
Molson Coors presented the accounting problems together with quarterly results that emphasized the press on mass market beer manufacturers. The industry has encountered fierce competition from craftsmen. More consumers also choose wine and spirits.
Net sales in the last three months of 2018 fell by 6.2 per cent from the same period a year ago to $ 2.42 billion. It reflected a 7 percent decline in US sales, a decline of 8.8 percent in Canada and a 1.9 percent decline in Europe.
Net profit fell sharply to $ 76 million from $ 717 million in the quarter, when results were flattered by the US tax transition. Non-recurring items, however, reported earnings of 84 cents per share, up from 62 cents last time.
Mark Hunter, CEO, said cost savings had helped isolate the company from weaker demand in North America and higher than expected inflationary pressures. Molson Coors plans to cut costs by $ 200 million this year.