Gigaba to meet Steinhoff stakeholders on ‘debacle’
The retail group confirms it will restate its 2016 results, causing a renewed sell-off in the stock
Steinhoff has confirmed that it will have to restate its 2016 financial results, which “can no longer be relied upon,” causing a renewed sell-off in the stock, which closed 9% lower at R8.92 on Thursday.
The statement appears to vindicate the findings of Vicerory Research, a three-man US team that spent months prising open a series of opaque off-balance sheet deals to find that the furniture and household goods retailer’s 2016 results may have to be adjusted by up to €1.047bn lower.
Jason Forssman, a fund manager at Ashburton Investments said: “This is not a 2016-17 issue. I wouldn’t be surprised if prior year earnings need to be restated too.”
Steinhoff said that on the advice of an independent committee of the supervisory board, it had formed a view “that the validity and recoverability of certain Steinhoff Europe balance sheet assets under scrutiny in the 2017 audit work, are also relevant to the 2016 consolidated financial statements”.
Such has been the razing of shareholder value — almost R160bn wiped off its market capitalisation after CEO Markus Jooste quit last week — that the finance ministry has now become involved.
Finance Minister Malusi Gigaba will meet “various stakeholders” to discuss the Steinhoff “debacle” on Friday. The stakeholders include the CEO Initiative, the Manufacturing Circle, the JSE, the Government Employees Pension Fund, the Public Investment Corporation (PIC), the South African Revenue Service, the Financial Services Board and the Independent Regulatory Board for Auditors.
The PIC is the second-largest shareholder in Steinhoff after chairman Christo Wiese, who has taken on the role of executive chairman. At the time of Steinhoff’s collapse last Wednesday, the PIC held 8.5% of the stock, although it has since said that Steinhoff accounted for only about 1% of its total portfolio.
The European Central Bank is also a Steinhoff bondholder, and its president Mario Draghi said in response to questions on Thursday that “as soon as we got news of the Steinhoff scandal we stopped buying the bond”.
Draghi told reporters that losses on its bond holdings as reported in the media “are exaggerated by a factor of 10”.
There is still little clarity on the extent of Steinhoff’s financial “hole”, other than that it is reviewing the recoverability of assets amounting to about €6bn and may sell €1bn of assets to shore up its balance sheet.
Steinhoff said it was taking “all necessary steps to address the audit issues and will keep the market informed of any material developments”.
Steinhoff employs about 130,000 people across its chains, which include HiFi Corp, Incredible Connection, Ackermans, Pep and Bradlows, as well as Poundland in the UK, Mattress Firm in the US and Conforama in France.
The last unaudited results for its half-year ended March showed a 48% rise in revenue to €10.2bn, an operating profit of €903m and cash flow conversion of 101%. However, analysts are sceptical that Steinhoff’s cash-flow conversion rate is anywhere near this figure and Viceroy said that as much as 85% of Steinhoff’s earnings before interest and tax did not translate into free-cash flows.
Steinhoff is also saddled with debt after years of manic deal making. It has about €9bn in long-term debt — €2.5bn of which falls due in March 2018.
It is set to meet a group of its bankers on Tuesday.