Scandal sinks Steinhoff shares

Chairman Wiese takes interim charge as chief executive Markus Jooste quits

STEINHOFF International’s shares crashed yesterday after it revealed accounting irregularities and its chief executive officer, shocking investors who had backed the rapid reinvention of a South African furniture chain into an international retail empire.

The company said late on Tuesday that “new information has come to light today which relates to accounting irregularities requiring further investigation” and that billionaire Christo Wiese, its largest shareholder and chairman, would take charge.

Steinhoff said chief executive Markus Jooste, who had been at the helm for nearly 20 years and oversaw its expansion to one of the world’s largest household goods retailers, had resigned with immediate effect and consultants PwC would undertake an independent investigation.

“It’s a red flag. This is something very serious,” Peter Brooke, portfolio manager at Old Mutual Investment Group, a top 20 shareholder in Steinhoff, said. It also raised wider questions about South African corporate governance and would have a negative impact on the country’s assets, he said.

Steinhoff has been aggressively expanding in developed markets since moving its primary share listing from Johannesburg to Frankfurt in 2015, snapping up Britain’s Poundland, US-based Mattress Firm and Australia’s Fantastic.

Steinhoff said Wiese would embark on a detailed review of all aspects of the company’s business with a “view to maximising shareholder value”, but its South African shares had slumped 67% to R14.77 by midday, after hitting an eightyear low of R13.50 in earlier trading, on investor fears.

Steinhoff stock was down by 68% in Frankfurt, while its latest bond sold in July fell by more than 40 points.

A spokeswoman for Deloitte Accountants BV, which signed off Steinhoff’s 2016 results, declined immediate comment.

Steinhoff, which said yesterday it was postponing the release of its 2017 results until the probe was over, has been under investigation for suspected accounting irregularities by the state prosecutor in Oldenburg, Germany, since 2015.

The company has said that related to whether revenues were booked properly, and that taxable profit was correctly declared.

Reuters reported last month that Steinhoff had not told investors about almost $1-billion (R13.5-billion) in transactions with a related company, despite laws that some experts say require it to do so.

It is unclear what accounting irregularities the company was referring to in its statement yesterday.

A spokesman declined further comment and attempts to contact Jooste were not successful.

There were wider repercussions in the Steinhoff group, with Ben la Grange, chief executive of Steinhoff African Retail (STAR), which includes control of Shoprite, also resigning and STAR shares falling more than 30%.

Omri Thomas, of Abax Investments, the 15th largest investor in Steinhoff, said because its numbers had been thrown into doubt and there was no immediate prospect of any clarity, it was hard to put a value on the business and this had prompted the severe share reaction.

Steinhoff, which employs 130 000 people, did not respond to requests for information about what, if anything, Wiese knew about the accounting problems now being investigated.

Investors also said they were concerned Wiese might be forced to sell shares he bought last year with borrowed money, which would depress Steinhoff’s stock further.