Steinhoff International is living on the edge.
The global retailer at the centre of South Africa’s biggest corporate scandal cut the value of its assets by 15.3 billion euros ($17 billion) because of accounting irregularities. The company also warned it won’t be able to keep going longer than 12 months unless its debt is reorganised and it skirts mounting lawsuits and possible regulatory fines.
At risk is a business with 120 000 employees across chains including Mattress Firm in the US, Conforama in France, Poundland in the UK and European clothing retailer Pepco.
“It’s hard to believe it’s so big,” Peter Armitage, the chief executive officer of brokerage and money manager Anchor Group, said in reference to the magnitude of the writedowns. The impact is “staggering” and “sadly, in my opinion, there is no value left.”
The Stellenbosch, South Africa-based company released its 2017 annual report minutes before a self-imposed deadline on Tuesday. The results came 17 months after Steinhoff’s auditors refused to sign off on the accounts, leading to the resignation of then-Chief Executive Officer Markus Jooste and a 97% drop in its share price. Investigations have since found deals were structured to inflate profits and asset values.
Steinhoff had 17.5 billion euros of assets at the end of September 2017, compared with total liabilities of 15.4 billion euros, the report showed. The firm reduced its assets by 11.4 billion euros in the 15 months through September 2016 to 21 billion euros — the bulk of which related to wrongdoing that occurred before mid-2015. Further writedowns came from additional impairments of 3.9 billion euros for fiscal 2017.
“The position is likely to look worse” when Steinhoff releases fiscal 2018 earnings in a few weeks time, Armitage said. Steinhoff said that sales for last year and this year will drop because of asset disposals, increased competition and a weak trading environment, while operating expenses and financing costs will be higher.
The outlook comes as the list of those seeking compensation for losses keeps rising, with former Chairman Christo Wiese alone demanding about 3.8 billion euros. More uncertainties include ongoing efforts to restructure borrowings, which Steinhoff said is critical to the group’s liquidity, and the need to negotiate with various authorities about the tax implications of the accounting wrongdoing.
The shares fell 6.2% to 0.1064 euros as of 1:25 pm in Frankfurt, where the stock is primarily traded, extending Wednesday’s 11% drop. The stock slumped as much as 19% in Johannesburg after South African equity markets were closed for national elections on Wednesday.
There is “significant” doubt on the company’s ability to continue as a “going concern beyond the foreseeable future,” Steinhoff said. Management needs “sufficient time to stabilize the group and re-establish value at operational level.”