February 8, 2019 / 8:23 AM / 9 months ago

UPDATE 4-Spanish DIA announces loss and layoffs in midst of takeover bid

* Dia announces falling revenue, net loss in 2018

* Discount store plans to lay off around 5 pct of workforce

* Plans rights issue by mid-April to restore balance sheet

* Dia calls for prosecutor to press charges over accounts (Adds company asking for charges to be brought by prosecutor)

By Jose Elías Rodríguez and Andrés González

MADRID, Feb 8 (Reuters) - Struggling Spanish supermarket chain DIA said it had uncovered accounting irregularities in regard to a 2017 asset writedown as it came under pressure on Friday to urgently shore up its balance sheet.

In its annual results, DIA revealed plans to lay off thousands of staff in the face of falling revenues and a net loss for 2018. It is planning a 600-million-euro rights issue, which CFO Enrique Weickert said would be finalised before first-quarter earnings in mid-April.

The chain revealed in its annual report that it had completed an investigation into accounting irregularities in Spain which led to an asset writedown against 2017 earnings and was pushing for Spanish prosecutors to press charges.

“The investigations performed revealed the existence of irregular practices carried out by certain employees and management (including several former certain senior executives ... of the Group) aimed to override the internal controls established in the group,” the report said.

DIA continues to investigate possible irregularities in Brazil, it said. In October, the company announced writedowns of around 70 million euros..


The company has been steadily losing market share in Spain, where its low-cost model flourished during a painful recession. It is now finding it hard to keep up with competitors including Germany discounters Aldi and Lidl, and domestic rival Mercadona.

It has also received a takeover bid.

The company declined to comment on Friday on the bid by its largest shareholder, Russian tycoon Mikhail Fridman, who currently holds just under 30 percent of the company through his LetterOne (L1) investment company. On Tuesday, L1 offered to buy the whole group, valuing it at more than 400 million euros ($453 million).

On Friday, the company’s market value stood at just over 450 million euros.

After the L1 bid, DIA said its creditors had indicated support for extending financing until 2023, provided it went ahead with a rights issue to restore its net equity position which was negative to the tune of 166 million euros end 2018.

However, Fridman said on Tuesday that its takeover bid was dependent on the rights issue not going ahead, and added that if its offer was successful, it would raise some 500 million euro through its own capital hike.

DIA has said it would explore L1’s bid, but has noted that it was concerned over the feasibility and timing of the refinancing strategy.

In the meantime, the store group said 2,100 workers or around 5 percent of its total workforce would lose their jobs.

DIA’s core profit fell 25.6 percent in 2018 to 385.4 million euros, in line with guidance of between 350 and 400 million euros which did not include the impact of inflation in Argentina.

The company gave the guidance figure in October after issuing three profit warnings in 12 months.

Dia posted a net loss of 352.6 million euros in 2018, compared to a profit of 101.2 million euros a year earlier, and said sales were 7.3 billion euros for the full year, down from 8.2 billion euros in 2017.

Dia shares were flat, having fallen almost 85 percent in 2018.

$1 = 0.8822 euros Reporting by Jose Elias Rodriguez; Writing by Paul Day; Editing by Elaine Hardcastle

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