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.

Lufthansa to cut more jobs as it loses €500m a month

Updated 22 September 2020

Lufthansa to cut more jobs as it loses €500m a month

  • The largest German airline says it now plans to reduce its fleet by 150 planes by 2025

FRANKFURT: Lufthansa said Monday it will slash more jobs on top of 22,000 previously announced cuts and put more planes out of service with current losses running at some €500 million ($590 million) a month.

With demand set to be lower than expected through winter as the coronavirus pandemic continues to severely curtail travel, the airline said it now plans to reduce its fleet by 150 planes by 2025.

It had previously estimated it would have to scrap 100 aircraft in response to the unprecedented crisis in the aviation sector.

Lufthansa, which received a government bailout worth €9 billion in June, said it would have to book 1.1 billion in impairment over its fleet decision.

And “the previously announced personnel surplus amounting to 22,000 full-time positions will increase as a result of the decisions taken,” it said.

The group did not give a figure for further job cuts, but said it would engage in talks with labor representatives to “limit the number of necessary redundancies.”

Managers will also be hit, with one in five management positions to go in the first quarter of 2021.

A resurgence in infections across Europe meant that after a brief uptick in demand over the summer months, Lufthansa’s previous assumption that demand could reach half of last year’s “no longer seems realistic.”

Germany is also planning new rules from October, requiring travelers arriving from risk zones to go into quarantine for at least five days before taking a test.

That would essentially rule out intra-Europe weekend city hops — something which had resumed over the summer months.

“The continuing high level of uncertainty in global air traffic makes short-term adjustments to the current market situation unavoidable for the foreseeable future,” said the group.

As part of its fleet reduction, the airline said it has been forced to put its eight remaining A380s as well as 10 A340-600s into deep storage.

Six A380s had already been taken out of service earlier this year.