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Steinhoff casts doubt on future as writedowns hit $17bn

Steinhoff warned it won’t be able to keep going longer than 12 months unless its debt is reorganised.
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. Picture: Mike Blake, Reuters

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.

Read: Steinhoff gives investors hope but they will need even more patience

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.

Read: 

Steinhoff reports $4bn operating loss in 2017

Steinhoff raises questions on future as legal claimants circle

Tougher times

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.”

© 2019 Bloomberg L.P

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It is clear that Steinhoff was a listed Ponzi-scheme. It lasted so long, because, like with all Ponzi-schemes, the participants all wanted to believe that the profits are legitimate. The listing requirements are supposed to protect investors against disasters like these. Steinhoff won’t survive as a going concern. It is a zombie at this moment. There is zero value for shareholders. This will shake the trust in the JSE and it makes a farce out of listing requirements.

To see this catastrophe in perspective though, we have to remember that the NYSE had Enron, Worldcom, Tyco, Madoff, Refco and the DotCom bubble.

Nobody likes to hear it, but these kind of events are the costs of ignoring, or not using the tool of the technical analysis of share prices.

Of course Steinhoff will survive. Creditors have already signalled their willingness to save the company by agreeing to the LUA, debt restructure will follow shortly. With regards to the lawsuits, the largest threat is CW. Even if he has a case and wins it (which I sincerely doubt), the creditors are first in line and will leave nothing for CW. Same applies to all shareholders trying to sue Steinhoff. All shareholders have no option but to compromise, or settle for zero. It’s that simple.

run forest run, there is no value at all left in this company. its as easy as walking into any one of their “stable” of retailers to see. No clients, no tills ringing, only staff…

its been smoke and mirrors for a very long time. If i was a supplier, I would be very very concerned extending credit in any form, shape or size.

What a bunch of thieves they are.

Now that Steinhoff knows the details of these illegal acts when will Steinhoff lay civil & criminal charges against implicated person ? If not, then Steinhoff is hiding the full facts & truth. This will show that Steinhoff feels zero for the shareholders and the Company’s Act of South Africa

End of comments.

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