Luckin Coffee sticks by chairman despite scandal over fake sales

Embattled Luckin Coffee chairman Charles Zhengyao Lu. (Reuters)
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Updated 04 July 2020

Luckin Coffee sticks by chairman despite scandal over fake sales

  • Luckin suspended trading on June 29 and will be delisted from the Nasdaq by the end of next week.

BEIJING: Embattled coffee chain Luckin Coffee has decided against ousting its founder and chairman, despite an internal investigation concluding that last year’s revenue included millions of dollars in fake sales.

The massive financial scandal has already cost the company two top executives, caused shares to plummet more than 70 percent and put its billionaire founder Charles Zhengyao Lu in the line of fire — and will see it delisted from the Nasdaq in New York.

But the directors decided Lu would remain chairman, the company said, a day after an internal probe found its 2019 net revenue was inflated by 2.12 billion yuan ($311 million).

A proposal to oust Lu failed to get the necessary two-thirds majority vote on Thursday, Luckin said in a filing to the US Securities and Exchange Commission.

The company’s shares went into freefall after it revealed in April that a top officer may have faked billions of yuan worth of sales.

The chain has since fired CEO Jenny Zhiya Qian and chief operating officer Liu Jian.

On Wednesday, Luckin said in a separate filing that a special committee investigation had found the fabrication of sales traced back as early as April last year.

Apart from the inflated revenue, Luckin’s 2019 costs and expenses were also found to be inflated by 1.34 billion yuan.

The committee’s recommendations — which led to Qian and Liu’s removals — brought about a proposal to oust Lu as well.

While it eventually failed to garner enough support to remove Lu, the board earlier announced its decision to fire another 12 employees involved in the fake transactions.

Luckin suspended trading on June 29 and will be delisted from the Nasdaq by the end of next week, having been asked to do so by the exchange.

The chain launched in 2017 and raised $561 million in its initial public offering less than two years later, with plans to dethrone Starbucks in China via an aggressive growth strategy, enticing customers with an app-based purchasing model that prioritized takeaway and delivery options, and generous mobile coupons.

By the end of 2019, the Xiamen-headquartered firm’s 4,500 outlets in mainland China had already surpassed Starbucks’ local footprint, and investors touted the company’s potential to go global. 

The scandal has dealt a blow to US-listed Chinese firms, who find themselves under increased scrutiny as tensions flare between the two superpowers.

Lu must still face a vote of confidence by shareholders on Sunday at an extraordinary general meeting.


Bailout will keep Air France-KLM afloat for less than year: CEO

Updated 21 September 2020

Bailout will keep Air France-KLM afloat for less than year: CEO

  • ‘If we base it upon the past few weeks, it is clear that the recovery in traffic will be slower than expected’
  • Governments are coming under pressure to tie airline bailouts to environmental commitments

PARIS: Bailouts provided to Air France-KLM by the French and Dutch governments will keep the airline flying less than a year, its CEO Benjamin Smith said Monday and evoked the possibility of injecting new capital.
In an interview with the French daily l’Opinion, Smith also warned that calls for airlines to contribute more to fight climate change could be catastrophic for their survival which is already under threat due to the coronavirus pandemic.
When countries imposed lockdowns earlier this year to stem the spread of the coronavirus airlines faced steep drops in revenue that have claimed several carriers.
A number of countries stepped in with support, including France which provided $8.2 billion to Air France and the Netherlands which received a $2.9 billion package.
“This support will permit us to hold on less than 12 months,” said Smith.
The reason is that air traffic is picking up very slowly as many northern hemisphere countries are now fearing a second wave of infections.
“If we base it upon the past few weeks, it is clear that the recovery in traffic will be slower than expected,” according to Smith, who said when the bailout was put together the airline was expecting a return to 2019 levels only in 2024.
Smith said discussions were already underway with shareholders on shoring up the airline group, and steps would be taken before the next regular annual meeting in the second quarter of next year.
“One, three or five billion euros? It is too early to put a figure on a possible recapitalization,” he said.
The airline group had $12.12 billion in cash or available under credit lines.
Major shareholders include the French government with a 14.3 percent stake, the Dutch government at 14 percent, as well as Delta and China Eastern airlines which each hold an 8 percent stake.
Governments are coming under pressure to tie airline bailouts to environmental commitments.
One proposal that has come from a citizen’s convention convoked by President Emmanuel Macron would cost airlines an estimated $3.6 billion.
Smith said the imposition of environmental charges on the industry would be “irresponsible and catastrophic” for Air France-KLM.