Steinhoff Paints Gloomy Outlook as 2017 Losses Shrink Assets

(Bloomberg) -- Steinhoff International Holdings NV expects more doom and gloom to follow the release of its long-awaited 2017 earnings, in which the retailer saw the value of its assets shrink amid massive losses and restatements in the wake of an accounting scandal.

The South African owner of Conforama in France reported a net loss of 4.03 billion euros ($4.5 billion) in the 12 months through September 2017, compared with a loss of 279 million euros in the prior 15-month period, Steinhoff said on Tuesday.

The release of the 2017 annual report comes after Deloitte LLP refused to sign-off the accounts in December of that year, a move that threw the company into crisis and led to the resignation of then-Chief Executive Officer Markus Jooste. Auditors at PwC then started a 15-month forensic probe, which found a small group of ex-executives -- with the help of outsiders -- allegedly structured deals that inflated profits and asset values.

Steinhoff shares rose as much as 7.2 percent early Wednesday in Frankfurt, but they’re down more than 90 percent since the announcement of the accounting irregularities.

While Steinhoff’s losses swelled, sales rose to 18.8 billion euros from 16.1 billion euros in the 12 months, boosted by the purchase of U.S. bedding chain Mattress Firm and Poundland in the U.K.

Sales in the 2018 and 2019 fiscal years are expected to drop because of asset disposals, more competition and a weak-trading environment, Steinhoff said. Operating expenses will be “substantially” higher and financing costs will increase, the firm said, adding that it’s working on lowering administrative costs, while spending less to bolster cash flows.

Legal Claims

Those seeking compensation may now have a better picture of the embattled global retailer’s assets as they prepare legal claims. Steinhoff last month called for potential claimants to come forward, seemingly opening the door for negotiated settlements with those who lost money.

But the pool is shrinking with total assets marked down to 17.5 billion euros in fiscal 2017, compared with a restated 21 billion euros in 2016, the report showed. That compares with claims highlighted in the annual report amounting to 6.2 billion euros, more than half of which is from former Chairman Christo Wiese. In addition, various class-action suits are planned.

The claims haven’t been provided for as the company is still in the process of “assessing the quantum and validity of all claims received to date,” Steinhoff said.

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