Steinhoff lays bare the cost of fraud


Steinhoff lays bare the cost of fraud

Published Date: 2019-05-09 | Source: Stephen Gunnion | Author: Stephen Gunnion

Steinhoff lays bare the cost of fraud

The embattled retail group has finally released its 2017 accounts and says sales for the following two years are likely to be a lot worse.

Steinhoff International has reported its much-anticipated 2017 financial statements after a series of delays as it waited for the results of a forensic investigation by PwC into financial irregularities at the global furniture retailer. The results were the catalyst for a slump in its share price and the resignation of CEO Markus Jooste after auditors Deloitte refused to sign off on them in December 2017.

The numbers show a massive loss for the year due to a significant writedown in the value of its assets due to the fraud. In March, Steinhoff released some details of PwC's investigation, which identified more than R100 billion of irregular transactions between 2009 and 2016.

For the year to end-September 2017, the group reported consolidated net sales of €18.8 billion, compared with €16.1 billion for the 15 months to 30 September 2016. It said the rise was largely due to the first-time inclusion of Mattress Firm in the US and Poundland in the UK for a full year. Sales were also boosted by the acquisitions of Fantastic in Australia and Tekkie Town in SA.

It reported a €3.68 billion operating loss for the year to end-September 2017 from a restated profit of €278 million in the 15 months to September 2016. Its net loss swelled to €4.03 billion from €279 million in 2016, resulting in a 95.9c loss per share from a 7.6c loss previously, Its total assets were marked down to €17.5 billion from a restated €21 billion a year earlier.

Steinhoff said the publication of its 2017 annual report, including restated figures for both 2016 and the opening balance of 2016, was an important milestone for the group. Preparation of the financial statement was extremely complex, especially determining the correct IFRS implications of accounting irregularities that covered an extended period and involved a substantial number of entities, both within and outside the group.

It warned that net sales for its 2018 and 2019 financial year would be impacted by a number of disposals, a weaker global economy and stronger competition in its markets. These factors were compounded by reputational damage following the disclosures in December 2017, constraints from supplier credit lines and the related uncertainty associated with the ongoing expenses. Operating expenses will be much higher than in 2017 due to the big increase in adviser costs and professional fees associated with the investigation and restructuring of the group.

The group expects to release its 2018 accounts next month.

Its shares closed 1% higher at R2.01 on the JSE on Tuesday ahead of the release of its results. They fell more than 6% on the Frankfurt Stock Exchange yesterday.

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