Steinhoff International, the parent company of one of Australia’s biggest collection of retail chains is under enormous pressure with the shares plunging on Stock Exchanges South Africa and Germany the morning after the company sacked is CEO and finally confirmed media reports of what appears to be major “accounting irregularities.”
The news saw Steinhoff shares fall 62% at one stage in Joburg and 58% on the Frankfurt Exchange in Germany, inflicting more than 5 billion euros in losses on investors around the world. but especially in South Africa and Europe.
Steinhoff employs around 3,000 people as perhaps the biggest foreign investor in Australian retailing.
It controls Freedom Furniture and Snooze, Bay Leather Republic, Plush Le Cornu, the Original Mattress Factory, the discount furniture outlet, Poco (with huge stores in Sydney’s west and southwest).
In 2014 it bought the South African retail chain, Pepkor, which gave it control of Harris Scarfe and Best & Less chains in Australia.
It is a global giant with annual sales of more than 18 billion euros (and well over 1 billion euros in Australia). Besides Australia and South Africa, it owns retail chains in the UK, Europe and the US as well as controlling other African retailing businesses.
The various Australian chains are heavy advertisers in print, on TV and radio through Best and Less, Freedom, Snooze and Harris Scarfe, as well as Fantastic Furniture which it bought in 2016.
Short sellers have made a fortune from the news and the plunge in the Steinhoff shares.
The Financial Times reported that according to financial data group, Markit, around 40% of Steinhoff’s Johannesburg-listed shares were out on loan – an indicator of interest in short-selling the company’s stock – before Tuesday’s announcement. Over a quarter of Steinhoff’s Frankfurt-listed shares were also out on loan, Markit also said.
Supervisory board chairman Christo Wiese has taken over as executive chairman on an interim basis from CEO Markus Jooste who resigned on Tuesday night.
The FT reported that in 2016 Mr Wiese’s family investment vehicle borrowed 1.6 billion euros from banks in order to buy 314 million shares in a capital raising by Steinhoff to refinance loans that funded its acquisitions of Poundland chain in the UK and Mattress Firm in the US. Mr Jooste had been due to release the unaudited 2017 figures yesterday.
Stories of the “accounting irregularities” surfaced first in 2015 and then again in August of this year in a German magazine that German authorities were investigating a claimed fraud. The Manager Magazin reported that Steinhoff’s CEO, Markus Jooste was among employees under investigation for what was called a fraud in the “three digit millions”.
The magazine report relates to a case which began in late 2015, just before Steinhoff moved its main sharemarket listing to Frankfurt from Johannesburg.
In November of that year, German authorities searched Steinhoff offices in the town of Westerstede and visited private homes as part of an investigation by prosecutors in the German town of Oldenburg (near where Steinhoff’s European HQ is based) into four current and former managers. Steinhoff said at the time it was “fully committed” to support the probe. The claims were that the company inflated revenues.
Overnight Tuesday the South African head office said in a statement that it had approached auditing firm PwC to carry out an independent investigation. Steinhoff said it plans to issue audited 2017 consolidated financial statements “when it is in a position to do so” and will determine whether it needs to restate financial statements from past years.
Steinhoff had denied the allegations when they surfaced again in August. But in its announcement on Tuesday, it said: “The Supervisory Board wishes to reassure shareholders that Steinhoff has a number of high quality profitable businesses around the world.
Shareholders and other investors in Steinhoff are advised to exercise caution when dealing in the securities of the Group.”
That is an strong warning to sharemarket investors. Yesterday’s plunge justified the cautionary note.
