What retail chain Steinhoff’s accounting troubles mean for Australia
Wednesday, December 6, 2017/
One of Australia’s largest retail chains is now enmeshed in claims of accounting irregularities.
For months now, the management of South Africa-based (but German listed) retailer Steinhoff have rejected stories of accounting problems, but Tuesday evening it surprised by revealing that chief executive, Markus Jooste, was resigning, and that new information had surfaced regarding the previously mentioned “accounting irregularities requiring further investigation”.
The chief executive’s resignation will take effect immediately showing how serious it is. Supervisory board chairman Christoffel Wiese will take over as executive chairman on an interim basis. Pieter Erasmus, former chief of Pepkor Group, will join Wiese to help manage Steinhoff’s global retail interests, the company said. Jooste had been due to release the unaudited 2017 figures later today.
Steinhoff is a global giant with annual sales of more than €18 billion (and well over €1 billion in Australia). Besides Australia and South Africa, it owns retail chains in the UK, Europe and the US, as well as controlling other African retailing businesses.
And why is this important in Australia?
Well, Steinhoff employs around 3000 people as perhaps the biggest foreign investor in Australian retailing. It controls Freedom Furniture and Snooze, Bay Leather Republic, Plush Le Cornu, the Original Mattress Factory, and the discount furniture outlet Poco (with huge stores in Sydney’s west and southwest).
In 2014, it bought the South African retail chain, Pepkor, which gave it control of Harris Scarfe and Best & Less chains in Australia. The various Australian chains are heavy advertisers in print, on TV and radio through Best and Less, Freedom, Snooze and Harris Scarfe, as well as Fantastic Furniture, which it bought in 2016.
Stories of the “accounting irregularities” surfaced first in 2015 and then again in August of this year in a German magazine that German authorities were investigating a claimed fraud. The Manager Magazin reported that Steinhoff’s chief executive, Markus Jooste was among employees under investigation for what was called a fraud in the “three digit millions”.
The magazine report relates to a case which began in late 2015, just before Steinhoff moved its main sharemarket listing to Frankfurt from Johannesburg. In November of that year, German authorities searched Steinhoff offices in the town of Westerstede and visited private homes as part of an investigation by prosecutors in the German town of Oldenburg (near where Steinhoff’s European HQ is based) into four current and former managers. Steinhoff said at the time it was “fully committed” to support the probe. The claims were that the company inflated revenues.
Overnight Tuesday, the South African head office said in a statement that it had approached auditing firm PwC to carry out an independent investigation. Steinhoff said it plans to issue audited 2017 consolidated financial statements “when it is in a position to do so” and will determine whether it needs to restate financial statements from past years.
Steinhoff had denied the allegations when they surfaced again in August. But in its announcement on Tuesday, it said: “The Supervisory Board wishes to reassure shareholders that Steinhoff has a number of high quality profitable businesses around the world. Shareholders and other investors in Steinhoff are advised to exercise caution when dealing in the securities of the Group.”
That is an unusually worded warning to sharemarket investors.
This article was first published by Crikey.
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