South African retailer Steinhoff International Holdings NV has reported a narrow loss of €1.2 billion for the 2018 fiscal year, in a much-delayed earnings report revealing the impact of an accounting fraud put at €6.49 billion.
Steinhoff, which is also listed in Frankfurt, delayed the results after finding holes in its accounts in December 2017, shocking investors who had backed its reinvention from a small South African furniture outfit into a discount furniture retailer straddling four continents.
The owner of Mattress Firm in the U.S., Fantastic chains in Australia and Conforama in France said the loss narrowed to €1.2 billion in the year ended September 2018 from €4 billion in fiscal 2017, as impairments came down.
One-Off Expenses
The retailer, with more than 12,400 stores, blamed one-off expenses including professional fees of €117 million and impairments for the loss as it cleans up its balance sheet after the fraud.
Segmental operating profit from continuing operations and before capital items rose by 13% to €504 million.
"During the reporting period the group and its operating entities had to deal with the consequences of the events at the Steinhoff parent company level. This had a severely negative impact on the group's operational results," the company said in its 328-page annual report posted on its website.
An investigation by auditor PwC released in March found eight people, including former Steinhoff executives, were involved in a complex scheme where potential intercompany transactions worth €6.5 billionwere fraudulently recorded as external income to prop up profits and hide costs in money-losing subsidiaries.
Shares in Johannesburg-listed Steinhoff, which have tumbled more than 97% since December 2017, closed more than 2% higher.
The retailer has delayed releasing 2017 and 2018 results several times as it waited for the findings of the PwC investigation and audit process of its external auditor Deloitte.
It said its 2019 half-year results are scheduled for release on July 12.
Negative Outlook
Net sales in the 2019 fiscal year are expected to drop because of asset disposals, a weaker global economy and stronger competition in the markets it has presence in, Steinhoff said.
"These factors have been compounded by the ongoing reputational damage associated with the disclosures in December 2017, constraints from supplier credit lines and the related uncertainty associated with the group," it said.
While operating expenses will remain under pressure because of the continued inclusion of adviser costs and professional fees associated with the probe and restructuring effort, with net finance costs expected to be higher than in 2018.
Asset Disposals
In the 2018 reporting period, sales were affected by asset disposals to shore up liquidity as well as tough trading conditions, with revenue from continuing operations marginally up 3% to €12.8 billion.
Asset disposals include a majority stake sale in a South African auto dealership unit, Conforama selling its 17% stake in online fashion retailer Showroomprive.com, sale of Steinhoff's 13.5% stake in investment firm PSG Group, a 43% stake in KAP Industrial as well as property in Austria.
The 2018 results also showed the value of its assets had shrunk further to €16.3 billion, compared with €17.5 billion in 2017 due to impairments.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
