Scandal-hit Steinhoff says will suffer more in 2019

Steinhoff International warned of the lingering damage from a massive accounting scandal after the South African retail group reported a 1.2 billion euro ($1.3 billion) annual loss, sending its volatile shares down 8 percent.

Steinhoff first flagged holes in its accounts in December 2017 — the warning shot for an accounting fraud since put at over $7 billion — shocking investors that had backed its transformation from a small South African outfit to discount furniture retailer straddling four continents.

While it reduced losses by 70 percent compared to the 4 billion euro figure in 2017, Steinhoff warned that the reputational damage it had suffered and advisor and professional fees would weigh on its performance this year.

These would compound a number of other factors dragging on net sales, including asset disposals, a weaker global economy and increased competition, its CEO Louis du Preez said in message from management in the 328-page 2018 annual report posted on its website.

“The company and group continue to work hard to recover from the consequences of the announcement of 5 December 2017,” the message added.
Shares in Steinhoff, which owns Mattress Firm in the U.S., Fantastic chains in Australia and Conforama in France, fell 8 percent in Johannesburg on Wednesday morning after the news, but had recovered to 1.42 rand per share by 0920 - a 5.3% decline.

In Frankfurt, where it has a secondary listing, its shares fell more than 10 percent but have since regained some ground.

DELAYED EARNINGS

Steinhoff, under new management and working to clean up its balance sheet after the fraud, blamed one-off expenses including professional fees of 117 million euros and impairments for its 2018 loss.

The consequences of the scandal had a “severely negative” impact on its results, the annual report said.

The retailer had to repeatedly delay the release of its results for 2017 and 2018 as it waited for the outcome of an investigation by auditor PwC into the scandal and for audits from external auditor Deloitte, which kept missing deadlines due to the complexity of the fraud.

PwC’s probe found eight people, including former Steinhoff executives, were involved in a scheme where potential intercompany transactions worth 6.5 billion euros were fraudulently recorded as external income to prop up profits and hide costs in money-losing subsidiaries.

In the 2018 reporting period, Steinhoff said sales were affected by asset disposals to shore up liquidity as well as tough trading conditions, with revenue from continuing operations up 3% to 12.8 billion euros.

Asset disposals include a majority stake in a South African auto dealership unit, Conforama’s 17% stake in online fashion retailer Showroomprive.com, Steinhoff’s 13.5% stake in investment firm PSG Group, a 43% stake in KAP Industrial as well as property in Austria.

Its 2019 half-year results are scheduled for release on July 12. Net finance costs are expected to be higher than in 2018 as fees related to the probe and restructuring effort inflate expenses for another year.