Steinhoff suffers new blow in Dutch court
Retailer ordered to amend its 2016 accounts Ruling seen as a victory for former partner
As recently as November 20 2017, the Steinhoff board said it remained confident that a Dutch court would dismiss the action brought by a former jointventure partner, but on Tuesday the court ordered Steinhoff to amend its 2016 accounts in what has been described as a victory for one-time business partner Andreas Seifert.
The ruling by the Dutch court may also have implications for Steinhoff’s accounting treatment of Conforama in which Seifert, who owns German furniture chain XXXLutz, claims to have a 26.5% stake.
The Dutch court ruling will force Steinhoff to restate its 2016 accounts from a 100% controlled interest in Poco to a 50% controlling interest. It must also record that Seifert holds a 50% non-controlling interest. The Dutch court also requires Steinhoff to revise the payable liability included in its 2016 accounts to cover payment to Seifert for the disputed 50% stake.
One analyst, who did not want to be named, said the sums involved were unlikely to be substantial, but the news added to investors’ concern about the integrity of Steinhoff’s accounts.
The share price was down 3.49% to close at R5.25 on Tuesday, in reasonably heavy volume trade.
The dispute with Seifert dates back to September 2016 when Steinhoff acquired Poco.
Seifert claimed to have a 50% stake in Poco as a result of the 2007 sale of 60 XXXLutz stores to Poco. Steinhoff has denied Seifert’s claim on the grounds that he violated his fiduciary duty. The company approached the German courts to resolve the dispute and determine the parties’ respective ownership interests in Poco.
As a result of that action, and in line with German requirements, Steinhoff provided a “payable liability” in its 2016 accounts. This amount will be paid to Seifert once the German court action has been finalised. A
Steinhoff spokesperson said they were not in a position to disclose the amount.
The analyst said he understood the provision for both Poco and Conforama was equivalent to about 2.5% of Steinhoff’s gross assets.
“Even if they’ve significantly understated the value, it wouldn’t have a major impact on the company’s value.”
The Conforama claim dates back to Steinhoff’s acquisition of the French-based retailer in 2011. Seifert has also demanded a review of the 2016 accounts, claiming that Steinhoff did not take into account the jointventure structure of Conforama. The legal battle with Seifert was extensively aired by the German media in August 2017 in what proved to be the first significant blow against Steinhoff.
In September, Steinhoff issued a SENS statement denying anything untoward.
Former CEO Markus Jooste said he was confident Seifert’s petition would be dismissed. “The annual accounts of Steinhoff International were established according to all applicable rules and to our best knowledge,” Jooste said.
“The 2016 annual accounts are correct and received an unqualified opinion by our financial auditors,” he said.
On December 5 2017, Steinhoff announced that PwC had been appointed to undertake an investigation into accounting irregularities resulting from concerns raised by the group’s auditors, Deloitte. A week later the company informed shareholders that the 2016 consolidated financial statements would need to be restated and could no longer be relied on.
On January 2 2018, Steinhoff informed shareholders that the 2015 financial statements would also need to be restated and could no longer be relied on. While the worst outcome of the legal battle is unlikely to do much damage to Steinhoff’s balance sheet it will draw further unwelcome attention to the group’s accounting policies.
“It suggests it’s not just Campion and other off-balancesheet entities that are cause for concern,” said the analyst.
During a review before three parliamentary portfolio committees in January, former Steinhoff chairman and major shareholder Christo Wiese said news of the “accounting irregularities” had hit him like a bolt out of the blue.