TheChek News Flow

Muddy Waters’ latest target has an error in its balance sheet

Vivion is a Luxembourg-based real estate company with a €3.7bn portfolio of investment properties across Germany and the UK.

It is also the latest target of feared short seller Muddy Waters.

The US hedge fund and its pugnacious founder Carson Block are best known for publishing short reports dissecting the finances of public companies, so FT Alphaville was intrigued to see the firm shorting the bonds of a closely held private business instead.

The report on Vivion is long and probes many aspects of its business, from related party transactions involving controlling shareholder Amir Dayan to the occupancy rates of its core properties. Vivion on Thursday issued a brief riposte stating that Muddy Waters’ report “contains numerous factual inaccuracies” and that it “intends to respond to the report shortly”.

In the meantime, however, FT Alphaville has discovered one thing that does appear to contain a clear inaccuracy: Vivion’s own balance sheet.

The first section of Muddy Waters’ report questions the validity of a series of shareholder loans, flagging a series of apparent discrepancies with the balances reported at the holding companies above Vivion.

FT Alphaville decided to take a look at how Vivion reported the shareholder loans in its balance sheet. Here’s a table of Vivion’s non-current liabilities taken from its interim financial statements for the first half of 2022 (the numbers are in thousands of euros, with the left-hand column representing 30 June 2022 and the right-hand column 31 December 2021):

Have you spotted the mistake?

Vivion’s calculation of non-current liabilities for June 30 is incorrect. Instead of the €3,961,851,000 listed, the line items actually sum to €3,691,851,000. This suggests that Vivion got its 6 and 9 muddled up.

The mistake does not appear to flow through the rest of the balance sheet, as the sum of Vivion’s total liabilities and equity incorporates the correct €3,691,851,000 figure. But it appears to be a major mistake to the tune of €270mn in a crucial part of the company’s financial statements. It also suggests the numbers were inputted manually given the seeming fat-finger mistake on swapping the 6 and the 9.

The usual question in these sort of situations is: why did the auditor not catch this?

The simple answer is that the financial statements are unaudited. 

The more nuanced answer, however, is that they were “reviewed” by the Luxembourg branch of KPMG. The audit firm concluded that nothing came to its attention that indicated that the accounts were “ not prepared, in all material respects, in accordance with IAS 34, “Interim Financial Reporting”, as adopted by the European Union.”

While not an audit, KPMG said it still entails some degree of checking the books:

FT Alphaville asked KPMG Luxembourg about the error and it responded:

We asked Vivion for some context around the error and the company provided us with the following statement:

Is this a mundane typo or an error that is indicative of wider issues with Vivion’s financial reporting? We imagine that the company’s supporters and sceptics might reach opposite conclusions.

Volkswagen’s new chief says at public meeting with investors that he intends to keep both jobs ‘long-term’

Volkswagen’s new chief executive Oliver Blume has been criticised by investors in his first public meeting since he took the top job at the world’s biggest carmaker while also remaining boss of Porsche.

Blume, who has been chief executive of VW subsidiary Porsche since 2015, took on the dual role in September after Herbert Diess was ousted from the parent company by shareholders and unions.

His dual role was the first point that Blume addressed in a speech to investors on Friday, arguing that the arrangement was “working out well” and that rules were in place “should there be potential conflicts of interest”.

“The two roles complement each other perfectly: like in soccer, where players give everything for their league club and at the same time play in the national team,” he said.

Investors did not appear reassured. Hendrik Schmidt, governance expert at DWS, which owns about 2 per cent of VW, said Blume’s dual role had caused “considerable unrest” among shareholders for months.

“Such an [arrangement] is so far unique in Germany and, from our point of view, cannot be considered responsible corporate management”.

Volkswagen has a complex ownership structure but is ultimately controlled by the Porsche-Piëch family, the heirs of the Porsche founder.

In September, Porsche was listed in one of Europe’s largest-ever initial public offerings, allowing the Porsche-Piëch family to acquire a larger stake in the sports car brand. Days after going public, Porsche overtook its parent company as the region’s most valuable carmaker.

VW shareholders on Friday voted to approve an extraordinary dividend of €19.06 per share — totalling €9.6bn, or 49 per cent of the proceeds of the Porsche IPO.

Marc Liebscher, a board member at small shareholder lobby group SdK, said Blume “cannot be a servant of two masters”.

Blume defended his position and said he intended to keep both roles “long-term”.

In his first months in the VW job, Blume has had to review the software strategy of the group, which also owns brands including Audi and Škoda.

Under Diess, the group created a unit called Cariad to develop software in house for VW’s various brands, but it has been plagued by delays.

Blume said creating Cariad had been the “right decision” but added that the company was now also considering external partnerships on software.

Accounting firm was hired by Binance and other crypto exchanges to conduct key reports

Outflows from Binance accelerated to $6bn in the first half of this week, while accounting firm Mazars has halted its work on crucial “proof of reserves” reporting, as the crypto exchange battles to avert a crisis of confidence.

The net withdrawals increase pressure on Binance, which suffered $1bn outflows in a single day on Tuesday and is battling to reassure investors of its financial strength following the collapse of rival crypto exchange FTX.

Mazars had produced “proof of reserves” reports for Binance and other exchanges, including Crypto.com and KuCoin, as they rushed to persuade nervous clients that they hold sufficient assets to match all customer deposits.

However, the accounting firm said on Friday that it had “paused its activity relating to the provision of proof of reserves reports for entities in the cryptocurrency sector due to concerns regarding the way these reports are understood by the public”.

According to communications seen by the Financial Times, the level of media focus on the matter was also a factor in Mazars’ decision.

The willingness of auditors such as Mazars to issue proof of reserves reports has been a key factor in soothing nervous investors as crypto exchanges seek to prevent “run on the bank” scenarios of the kind that sank FTX, which is alleged to have fraudulently made off with customer assets leaving a multibillion-dollar shortfall in client funds.

The reports are far more limited in scope than a traditional audit of a company’s accounts, including its liabilities, and are much less robust.

To prepare a proof of reserves report, an auditor uses procedures agreed with the company but does not vouch for whether those procedures are appropriate. The auditor also does not give any assurance or opinion over the numbers in the report, as it would in a full financial audit.

Mazars’ decision to halt work on proof of reserves reports was not driven by specific financial problems at any of the companies, said a person briefed on its decision. The firm’s work was so limited that it had “not looked that much” into the financial position of the companies.

Some people at Mazars feared that despite caveats in its reports the firm was “lending credibility to a very volatile sector” and felt it had been “naive” and “silly” to take on the work, the person added.

Binance said the Mazars report was “additional validation” that the exchange’s assets were equal to or greater than its liabilities to customers.

“Over the past week, Binance passed a stress test that should give the community extraordinary comfort that their funds are secure,” the exchange said on Friday, adding that it was able to fulfil recent withdrawals “without breaking stride”.

Binance has said it holds more than $60bn in assets, enough to honour withdrawals. The company’s disclosures do not include its liabilities, which makes it difficult to ascertain its financial health.

In a recent interview with CNBC, Binance’s chief executive Changpeng Zhao refused to confirm whether the exchange would be able to finance a potential $2.1bn clawback from FTX in the event that funds were requested as part of FTX’s bankruptcy proceedings.

“We are financially OK,” said Zhao, adding that he would leave such issues to Binance’s lawyers.

On Friday, Binance re-emphasised its plans to deliver proof of reserves to its customers but did not commit to a timeline.

“We have reached out to multiple large firms, including the Big Four, who are currently unwilling to conduct a proof of reserve for a private crypto company and we are still looking for a firm who will do so,” the exchange said.

“We embrace additional transparency and we are looking into how best to provide those details in the coming months,” Binance added.

However, some auditors are sceptical of the crypto industry’s commitment to transparency.

Following the collapse of FTX, Paul MacIntosh, EY’s US financial services crypto co-leader, said on LinkedIn that proof of reserves reports do not assess companies’ internal controls, “which ultimately was the downfall of FTX”.

“To move to true transparency and trust in the industry requires a much bigger step up,” he said, calling for the industry to invest in better accounting systems, IT controls and independent corporate governance.

Several audit firms have said they had elevated some or all of their crypto-related clients to the status of “high risk”, triggering more thorough work that will take longer and lead to higher bills.

KuCoin said it was aware of Mazars’ decision and was “open to work[ing] with any leading and reputable audit[or]”.

Crypto.com said it would “continue to engage with reputable audit firms in 2023 and beyond”.

Both KuCoin and Crypto.com said they had provided customers with the ability to verify their own holdings individually online.

Sacai designer Chitose Abe sees her small but perfect collaboration with Moncler as an intellectual exercise that reflects on the distant future of Remo Ruffini’s skiwear behemoth, writes Tim Blanks.

As forward-looking as fashion claims to be, it’s rarely thinking more than a season or two ahead. I’ve certainly never heard any designer talk about seven decades hence. But Chitose Abe isn’t any designer. Like her mentor Rei Kawakubo, Abe, the driving force behind the Japanese label Sacai, has created her own fashion vocabulary, hybridising fashion’s most familiar forms to create designs of a seductively skewed, sci-fi elegance. So it makes perfect sense to me that she can imagine them living on into a distant future, long after she herself has gone.

Remo Ruffini, who acquired Moncler in 2003, clearly felt the same way when he enlisted Abe to help him celebrate the brand’s 70th anniversary. They’d already worked together in 2010 on the Moncler X Sacai project when, as Ruffini sagely observes, “collaborations were not as popular as today, and sometimes they were viewed with a sort of scepticism for the fear of contaminating the ethos of the brand.” But Moncler X Sacai lingered with him as a particularly powerful moment in his company’s evolution, so there was an emotional resonance in bringing Abe back for Moncler’s 70th.

“Extraordinary Forever” was the celebration’s theme and that is, to be fair, why Abe was looking down the pipeline at another 70 years. Think of it as a metaphor for the future. It wasn’t like she jumped out of bed one morning with the 22nd century zapping her synapses. But Ruffini had faith that “forever” actually meant something to her. “Always looking ahead and designing for what is yet to come, Chitose and Sacai’s design mindset mirrors my own because in a way, we are never satisfied with the now and strive to offer something unexpected that will be a catalyst for future creativity.” In other words, what the next 70 years of Moncler might look like.

If that presents itself as a weighty challenge for a billion-dollar brand, the collaboration itself sounds appropriately intense. For starters, there are a mere four looks. In a spirited Google Meet with Abe, her right hand Daisuke Gemma and translator Kaori Funaki who were all in Tokyo, I tried to extract from the transcontinental ether what the essence of a four-look distillation of Sacai’s interpretation of Moncler’s future might be. Ruffini has made his fortune by morphing Moncler’s functional quilted down ski jackets into a broad-based luxury fashion statement. From mountain-top to Michelin restaurant without changing your jacket: that’s a potent transmogrification right there. Add to which the natural Sacai appetite for hybrids and you’ve clearly got a recipe for something. But what?

Gemma offered “transformation” as a clue. “The same garment, but a completely different feeling.” He added, “While we respect what Moncler has been doing, at the same time, what we can bring to the brand is a more creative way of dressing.” Take the normal human response to cold weather, which is layering. “Of course, you can just put everything on top of everything,” Gemma mused, “but we have a little bit more interesting idea of doing layers to create a new silhouette.” To me, a transformation is when a chrysalis becomes a butterfly. There is a notion of emerging. My past experience of Sacai suggests a similar process will be at work here, and the layering will probably be a trick of the eye. But how that will actually work in practical terms clearly needs to be experienced to be fully understood, which means we have to wait until January, when the four designs will debut at Sacai’s men’s show in Paris.

Unseen, they already embody the core of the Sacai philosophy. The Japanese concept of kachikan, the importance of a personal value system, has always been Abe’s motivation, much like her mentor Kawakubo. It has shaped Abe’s past collaborations, most recently with Jean Paul Gaultier and Cartier, even as those collabs also pragmatically represented something that Sacai normally couldn’t do (the fine jewellery aspect of Cartier, for example) or chose not to do. “We don’t make sneakers,” said Gemma. “We work with Nike to make sneakers.” That attitude was, in fact, the basis of Sacai’s original collaboration with Moncler in 2010. “When we first worked with Moncler, it was when we didn’t have a down jacket in the Sacai collection, so that was new for us,” said Abe. “Now, we have a down jacket, so we were thinking what would be new for us. And it was not about the creation, or the technical issues. It was more about being able to work with a powerful company like Moncler on a more focused intellectual project, very edited, very small, but being able to share this intellectual vision together. That was very much the difference from the first collaboration.” And also the point of departure from the other designers who worked on the “Extraordinary Forever” initiative.

Sacai and Moncler's 70th anniversary collaboration logo.

Ruffini proposed they re-interpret Moncler’s brand icon, the Maya 70 jacket, for the anniversary. Rick Owens, Pierpaolo Piccioli, Giambattista Valli and Thom Browne were among those who took up his challenge. But Abe’s approach was unique. “The project this time was a heartfelt vision, more about how we express the kachikan than the business side,” she said. “Of course, it needs to be commercial when we are producing something, but this was more about how we respect our culture. More connected with our minds.” And for her, that had a lot to do with the idea of creating something that would endure beyond mere fashion cycles. “Something to be able to feel proud of the future, to be able to coexist in this precious world in a sustainable way.” This is Abe’s kachikan.

It’s coming up to Sacai’s 25th birthday. “We don’t really talk about it,” said Gemma. He claimed the future, not the past, is what absorbs Abe and him, though he had no idea what it might look like yet. Abe insisted they’re very positive. She is driven by a hunger for new perspectives. So far Sacai has a successful track record in satisfying that hunger. The brand’s foundational concept of hybrids, of merging and transformations, tracks fashion’s own evolving ideas about identity, gender, diversity. Did the duo think Sacai has been ahead of its time? “We believe in what we have been doing, we haven’t really changed so much,” said Gemma. “Luckily we had our own signature,” Abe agreed. “For us, being able to create something very unique hasn’t changed, but the society that accepts what we create has changed a lot. In the past it was more exclusive. Now it’s more inclusive.”

Of course, there have been other massive changes. A brand whose very raison d’être is all things snow-related must surely regard a world of rising temperatures with trepidation. It’s no surprise that Moncler’s own commitment to best environmental practice has won wide respect. It’s not something that Sacai, on the other hand, has really talked about. “It’s always a hidden message, you know?,” Gemma said, hesitantly. “All the people we work with, we borrow their voice basically. We don’t say it very loud ourselves but we borrow those people to express our attitude,” suggesting that working with a brand as huge as Moncler is one way for Sacai to acquire an activist voice of its own.

Sacai’s character lends itself to commitment. As curatorially inclined as Japanese fashion so often is, Sacai has taken the magpie impulse to extremes. A random grab-bag of past references includes the master of funk George Clinton, New York club Paradise Garage, cult movie The Big Lebowski… and Albert Einstein! For our interview, Gemma sported a sweatshirt from Sacai’s Tokyo pop-up celebrating new graphic designers and 90s house music. Abe was wearing a T-shirt featuring the singer Sade, guiding light for one of Sacai’s lockdown collections. It poured during that show. The raindrops sparkled like diamonds on the clothes. “Nature is more powerful than anything else,” Gemma murmured.

When I asked Remo Ruffini what his hope for Moncler’s future was, he said, “I wish to see a world where meaningful creativity and innovation remain as powerful as ever, and a place where relationships with communities and powerful experiences will be key to remaining a meaningful brand.” Rooted in these aims, Moncler’s Instagram-savvy Genius strategy, currently on pause, returns in 2023, this time with creatives from arenas beyond fashion offering their interpretations of the brand. But for now, the label has turned to Chitose Abe and Sacai, and the potent promise of four looks. In this case, less is more. Much more.