2017 FINANCIAL ACCOUNTS
Steinhoff’s gaping R250bn hole threatens its existence
Steinhoff’s delayed 2017 financial accounts released on Wednesday showed alleged fraud that drew comparisons to Enron and raised questions about the viability of what was once the world’s second-largest furniture retailer.
The company’s shares were down almost 8% in Frankfurt at 8.15pm SA time, leaving it with a market valuation of just €490m (about R7.9bn) — from more than €14bn just before the accounting scandal broke in December 2017 — after it said the value of its assets had dropped by about R250bn compared with previously released 2016 numbers.
After the write-downs, the firm was left with a €4.03bn loss, a swing of nearly €5.5bn over the previous period.
"Sadly, in my opinion, there is no value left," said Peter Armitage, founder of Anchor Capital. "It’s hard to believe
it is so big. Remember the world’s biggest fraud was R650bn," he said in reference
Enron was a Houston-based energy trading company that used off balance sheet entities in much the same way as Steinhoff is alleged to have done to hide debt and cover up losses. Two of its senior executives were found guilty of fraud. Kenneth Lay, the founder, died of a heart attack in 2006, weeks before his sentence was to be announced.
Steinhoff, which is worth a fraction of the legal claims it faces, including one of R59bn from former chair Christo Wiese, itself cast doubt in its ability "to continue as a going concern beyond the foreseeable future". The results will give claimants a better picture of the true state of its finances.
The publication of the 2017 results, which follows the release of an overview of a PwC probe into the company in March, comes 17 months after Steinhoff shocked markets by admitting to accounting irregularities. That came after its previous auditor, Deloitte, refused to sign off on the numbers, sparking a slide in the shares that has wiped off more than R200bn of the company’s value.
Then CEO Markus Jooste resigned, only admitting to having made some "mistakes". PwC’s 15-month forensic investigation found that a group of executives, aided by others from outside the company, structured deals that artificially boosted profit and the value of its assets.
Steinhoff has declined to publish the full PwC report, instead opting to provide an "overview" of its findings in March that revealed fictitious and irregular transactions of about R106bn.
Under pressure from MPs, Steinhoff CEO Louis du Preez later named eight individuals blamed in the report.
Four of those named were Steinhoff executives, including Jooste; Ben la Grange, the previous CFO; Stehan Grobler, who headed the treasury division; and Dirk Schreiber, CFO of the European division.
The results published after SA markets closed on Wednesday showed that the balance sheet was €14.6bn smaller than the one published in 2016, which was subsequently withdrawn. Total assets shrunk to €17.5bn from €32.1bn.
The biggest restatements of balance sheet items were to goodwill, intangible assets, and property, plant and equipment, which were reduced by a combined €10.9bn.
Steinhoff expects to publish its 2018 financial statements in June. With Bloomberg