Steinhoff has refuted a German media report on “balance sheet forgery”, which sent shares in the retailer into freefall.
Manager Magazin reported Thursday morning that German prosecutors are investigating at least four individuals associated with the retailer, including group chief executive Markus Jooste, for suspected balance sheet fraud.
According to the monthly business magazine, the public prosecutor’s office in Oldenburg suspects “excessive revenues have been included in the balance sheets of group-owned companies”, in relation to the sale of intangible assets and/or shares in the company. It also reported that raids were carried out at Steinhoff Europe Group Services (SEGS) headquarters as well as at the private homes of two Steinhoff confidants.
The report sent Johannesburg- and Frankfurt-listed shares in Steinhoff plummeting.
Johannesburg-listed shares in Steinhoff fell as much as 16% during intraday trade. A statement from the company, released just 30 minutes before the close, saw the stock attempt a recovery, eventually closing 9.81% lower at R59.59.
The company rejected the allegations of dishonesty, stating that the substantial facts and allegations made by the magazine are wrong or misleading. “In the information published we note that the source of some of the allegations is a former joint venture partner with whom the group’s subsidiaries are embroiled in litigation.”
It restated a 2015 disclosure that its German subsidiary SEGS is involved in an investigation related to the adherence to and arms’ length valuation and proper accounting pursuant to German Generally Accepted Accounting Principles (GAAP).
“[Legal and external audit firms in Germany] have concluded that no evidence exists that any of the transactions raised by the investigation in terms of section 331 HGB can give rise to any contravention of any provision of German commercial law and were reflected correctly in the statement of financial position of the company. The group has engaged constructively with the authorities to find a solution.”
It said no further investigations had been initiated nor have any searches, as alleged by Manager Magazin, been conducted.
In the detailed statement, Steinhoff said some allegations in the magazine article relate to ongoing civil litigation after its relationship with a joint venture partner ended in dispute. “These disputes relate to alleged breaches arising from agreements with the former joint-venture partner, who is seeking to obtain and/or retain shares in Steinhoff entities. Management believes that the outcome of the disputes should result in monetary remedy to be paid by the group. The payment of any such monetary remedy would not have a material adverse effect on the trading and/or financial condition of the group. Management believes that it has adequately provided for the related liabilities that could result from the dispute in the consolidated results.” It said the matter had already been disclosed to the market and accused its former joint venture partner of abusing the press as part of the litigation process.
Shaun Murison, a senior market analyst at IG South Africa, said that the selloff in Steinhoff caught many by surprise as the magazine article appeared to restate a 2015 tax dispute which is said to be near finalisation and should soon be closed.
“I think the initial shock move today was revisited as there was little communication to the market about what is actually going on. Uncertainty is breeding volatility and certainly some short-term fear,” he said prior to Steinhoff putting out a statement.
JustOneLap’s Simon Brown shared his sentiments. “Generally speaking, there are two views when it comes to Steinhoff. This first is ‘I don’t understand its balance sheet but I trust Markus Jooste and the second is I don’t understand its balance sheet so I’m not investing’. Stories like this take on a life of their own as they feed into fears that the balance sheet doesn’t make sense and their silence scares people,” he said at around 16.20pm, just 10 minutes before Steinhoff’s statement. He went on to add that Steinhoff’s balance sheet appears complicated due to its levels of debt and debt structures.
“It seems uncanny that this story circulated before the German listing in 2015 and now again right before the unbundling,” added Murison.
Shares in Steinhoff began trading in Frankfurt on December 7 2015, amid news that one of its German subsidiaries was being investigated for tax evasion.
On Wednesday, the group detailed plans to list Steinhoff Africa Retail Limited (Star) in Johannesburg by the end of September 2017. Star comprises its Sub-Saharan Africa businesses and was established in July after an internal restructuring of the group’s African retail assets.
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