Steinhoff : Strong likelihood of accounting irregularities

Steinhoff announced yesterday evening that new information had come to light about accounting irregularities requiring further investigation. The supervisory board, in consultation with the company's statutory auditors, has approached PWC to perform an independent investigation. Markus Jooste, Steinhoff's long-standing CEO, has resigned and will be replaced by Christoffel Wiese on an interim basis. Steinhoff will update the market as the aforesaid investigation proceeds. The company will publish audited 2017 consolidated financial statements when it is in a position to do so. In addition, it will assess whether any prior years' financial statements will need to be restated. - This discovery of new information about accounting irregularities was clearly unexpected after the group claimed the opposite in a statement published on Monday 4 December ("No additional information came to light to change the previous views expressed regarding the investigation") in which it announced the release of unaudited financial statements. The magnitude of these irregularities is unknown at this juncture. - This announcement, which could not be more negative – especially in the light of the warning to investors at the end of the press release – clearly casts doubt on our investment case on Steinhoff credit. - As we noted in our special comment of 20 November 2017, our analysis was valid on condition that the financial statements published by the group were accurate. In this regard, note that auditor Deloitte did not express any reservations about the last annual consolidated financial statements (FYE 30 September 2016). - Since this Special Comment was published, we have continued our investigations into the following areas, among others: the search for the location of cash held by European legal entities, the search for information about the absence of reporting of a list of SPVs and non-consolidated subsidiaries by POCO, and the probable sale of JD Financial Services to Campion Capital. - This additional and, to date, inconclusive research (for lack of sufficient information) did not seem sufficient to us to cast doubt on the entire financial statements, and we were awaiting the company’s conference call scheduled today before publishing an update. - Because of the cancellation of this call and the fact that we are unable to rely on reliable financial information, we are suspending our recommendation. We shall resume coverage of the issuer once its audited full-year consolidated financial statements have been published. - >