What's wrong with me being a rich man?

Chapter 623 Supporting Evidence (4k)

The financial statements were checked recently, the common sense questions were just asked, and the non-standard items were marked out one by one by everyone.

The short sellers did not conclude that Steinhoff had committed fraud.

But once someone at the scene shouted such a thing, the related discussions could no longer be suppressed.

The European trio inexplicably felt...uncomfortable.

Bowman glanced at the short seller still reading the information, then at George who had made the whistleblower report. Could it really be... an unexpected situation? Or was it a fraudulent company that had already been under investigation by Guo Shanfeng?

The former is terrifying, and the latter may also come at a high cost.

Many thoughts raced through Bowman's mind, but the last thought made him pause, as if he had already assumed that the Teinhof Company had engaged in fraudulent activities!
Within a short period of time, the topic trended on Weibo, Baidu Baike, Twitter, and other domestic and international social media platforms.

—The king of short sellers shorts live!
—Unexpected events occurred frequently, and fans tested the value of short selling on the spot!

—The conventional king of short selling, the unconventional Steinhoff!

Yu Xing at the scene then engaged in a ten-minute reading and deep contemplation session.

Ten minutes is undoubtedly a short time for a company's research, but the discussion and short-selling participation were also high. Everyone was waiting for the big short seller to make more "unconventional" moves, and so they waited without any urging.

What is called unconventional is, in other words, abnormal.

However, saying something is abnormal in public seems too suggestive, but abnormalities often have underlying causes.

Yu Xing grasped the common sense and the unusual nature of the merger and acquisition, and followed the clues to examine the key data in the financial reports of the past three years. The net profit growth of retail companies generally relies on the support of operating cash flow, that is, sales revenue.

However, Steinhoff's net profit growth did not come from its own business, but from the "consolidation of the performance of acquired targets." The "other receivables" in the consolidated financial statements increased by 180% year-on-year, which far exceeded the revenue growth rate.

Yu Xing pointed this out and said in a low voice, "This kind of large profit is book income without any actual cash inflow."

The figures in the financial statements look good, but they are just on paper and may be inflated through related-party transactions.

His voice wasn't loud, but the room suddenly fell silent. Most people didn't immediately understand what he meant, but a small number realized that what Mr. Yu was referring to was also a common example of paper wealth in financial reports.

The financial statements look great, but the company's actual usable cash flow is not optimistic, and the real net profit is likely far lower than it appears.

Following the three anomalies quickly marked ten minutes earlier, Yu Xing simply opened a document and listed all the anomalies together. In addition to the increase in net profit, the official statements of Steinhoff regarding emerging markets were also questionable.

Steinhoff claims that revenue in emerging markets grew by 28% year-on-year last year, but its South African counterpart, Lewis Group, the leading furniture retailer, only grew by 4%.

The former's revenue structure is publicly available in its financial report, with 6% coming from South Africa and Eastern Europe. However, South Africa's retail inflation rate exceeds 6%, and its consumer confidence index has just hit a 5-year low. Many Eastern European countries have been affected by the refugee crisis in recent years, and furniture retail sales have declined by 4% year-on-year.

Despite the overall sluggishness in its core markets, Steinhoff has delivered figures far exceeding those of its peers, which is undoubtedly a perfect narrative.

One anomaly is understandable, two anomalies are acceptable, three, four, five anomalies...

This is only a reasonable judgment based on financial reports and publicly available industry data.

Everyone knows that given more time, short sellers have the ability to conduct more verification.

Yu Xing didn't read out the next few points, but at the end he read out a piece of publicly available information that could serve as evidence: "Last year, three senior financial executives from Steinhoff left the company, all citing 'personal reasons' as the reason, hmm."

The fact that three senior financial executives voted with their feet within a year is probably a case of ducks being the first to know when spring waters are warm.

Yu Xing had some preconceived notions about Steinhoff emerging in this way, but judging from the combination of "unconventional" information, the probability was indeed not low.

"I am a conservative short seller, and my judgments based on financial reports and publicly available information are not instructive."

"Given the circumstances, I must reiterate that I do not believe Steinhoff has engaged in any fraudulent activities, and I have no interest in the company."

“I have never met Mr. George from Germany, and I have not shorted Steinhoff.”

Yu Xingdie listed a series of "A"s, then looked back at the document on the screen, pondered for a few seconds, and gave his assessment of the current stage: "However, Steinhoff Corporation may indeed need to explain the questions raised by Guo Shanfeng."

He raised his wrist, glanced at the time, and said, "Steinhofer has four and a half hours left. They can explain or they can not."

Pre-market trading on the German stock market takes place from 3 p.m. to 4 p.m. Beijing time.

Yu Xing faced the EU investigation team in his capacity as Guo Shanfeng, and also publicly questioned them in the same capacity. Furthermore, he used this capacity to issue a statement to the German listed company Steinhoff.

Given his position, this is still legal and compliant, which is the accurate legal support just provided by senior lawyer Deng Ning.

Institutional research on listed companies' financial reports is a permitted information disclosure and price discovery activity in the market, and it is also protected by regulatory agencies. The boundary of illegality lies in the authenticity of information, compliance of transactions, and completeness of interest disclosure, rather than the research activity itself.

The scene erupted in excitement as Yu Xing resumed his communication, with many audience members and reporters eagerly raising their hands.

A back-row audience member, whom Yu Xing casually called upon, excitedly grabbed the microphone: "President Yu, President Yu, assuming, assuming we need to conduct research based on some unconventional information to cross the mountain peak, what should we do next?"

Listing out the anomalies of a listed company is like a public dissection, especially considering the past performance of Guoshanfeng, which gives one the thrill of witnessing a massive loss of market value.

“Studying financial statements is very important,” Yu Xingxian explained his previous actions, and then said, “Verifying information is not complicated. For companies like Steinhoff, researching their main suppliers is a high priority, because it may involve related-party transactions.”

Related-party transactions are a neutral term; the key point is the hidden related-party transactions.

This answer was not too surprising to those present.

However, Yu Xing did not finish his answer. After a pause, he reached out and typed three words on the screen document: "Luxembourg".

At this moment, a reporter sitting next to the audience asking questions couldn't help but lean closer to the microphone and ask, "Mr. Yu, what do you mean by mentioning Luxembourg? Does Steinhoff's financial statement include Luxembourg? Why Luxembourg?" "Luxembourg is not in the financial statement," Yu Xing said with certainty. "Its financial statement only has aggregated categories like 'Other Suppliers' and 'Other in Europe,' while the suppliers mentioned in the required related-party transactions are Italy, Germany, Poland, and Portugal."

"These countries that were explicitly mentioned are precisely the core production areas of European furniture manufacturing, and they do indeed dominate the related-party transactions and suppliers in the financial statements. However, if there are any doubts, we must look for them in this category that has been aggregated."

Suppliers from Italy, Germany, and other countries are disclosed separately because, according to the "related party disclosures" of international accounting standards, suppliers with significant transactions must disclose important information such as the transaction amount and percentage.

Therefore, they generally don't have major problems; if there are problems, they can only be hidden among the small and medium-sized suppliers that are disclosed in the summary.

The reporter understood the meaning, but still didn't understand why Luxembourg was singled out.

He had been closely watching President Yu's actions and quickly browsing Steinhoff's financial statements. He also learned from President Yu that there was absolutely no information about Luxembourg during this period, so why was it suddenly listed?

The first thirty-five minutes were all gone, and this is written in the document... If there really is a problem, it's practically a stroke of genius.

Faced with persistent questions from reporters, Yu Xing took a sip of tea, considering the appropriate wording.

However, Baumann, a member of the EU investigation team who had remained silent, spoke up with a sarcastic tone: "Because Luxembourg is a country that short sellers like to register companies in."

"Luxembourg allows anonymous shareholding and multi-layered structures of offshore companies and trusts to isolate the actual controller. The actual controller can remain anonymous, and its non-listed company shareholders are not disclosed to the public!"

As Bowman spoke, his gaze met Yu Xing's eyes, and he indeed saw a hint of a smile.

Over the Mountain Peak has a registered scarecrow company in Luxembourg! This information was discovered last year!
After his sarcastic remarks, Bauman still offered a relevant explanation: "If there are abnormal related-party transactions, based on the experience of short sellers, Luxembourg is a good place to hide them."

Everyone present suddenly realized that this was based on experience.

Yu Xing did not refute Bauman's statement, but simply gave his own reason, smiling slightly as he said, "Because Luxembourg has very good tax incentives."

This...this is a very normal answer when faced with a problem.

Looking at the laughter and applause, Yu Xing added, "After all, it's Lux Leaks."

The term "Lux Leaks" was explained in whispers among some of the people present.

Lux Leaks refers to the "Luxembourg Leaks," a well-known scandal that broke in 2014. Luxembourg secretly signed tax agreements with over 300 multinational corporations to attract them, with some tax rates below 1%. It even offered tax breaks for "fictitious interest," involving at least tens of billions of dollars and covering globally renowned brands such as Amazon, IKEA, Pepsi, and Deutsche Bank.

To put it bluntly, Luxembourg directly provides cover and compliance endorsement for companies' substantive violations.

If you break the rules, I'll take responsibility.

The EU is still investigating Luxembourg. Last year, it formed a special committee ostensibly to investigate member states’ tax ruling practices, and subsequently summoned the former Luxembourg prime minister and others.

This will obviously not end anytime soon, because it essentially involves balancing the EU legal framework with the tax sovereignty of member states.

Bowman met the short seller's gaze again, vaguely sensing the other's mockery.

"We will not short Steinhoff; the above was just a simulation of the fundamental information of a listed company," Yu Xing stated. "But Steinhoff needs to answer questions. Short selling is neither complicated nor mysterious."

"The common method used by Guoshanfeng is to conduct fundamental research through financial statements, compare them with industry benchmarks, and then conduct on-site investigations and customer interviews to answer questions."

Yu Xing earnestly cultivated Guo Shanfeng's public image: "Guo Shanfeng doesn't believe in perfect stories, and the big short seller always questions everything."

This time, there were almost no boos; the entire audience was filled with praise and anticipation for the king of short sellers' public short-selling performance.

The analysis has been conducted, but we need to see what the results are.

Now that things have come to this, the EU investigation trio, who had originally wanted to leave, have sat down again.

Yu Xing reiterated that the focus of today's media conference is to promote the listing of the Silicon Carbon Group.

Perhaps to thank the short seller for his public performance, the media reporters present did ask a few related questions.

Cui Zhiyu, who had been holding his breath almost the entire time, finally managed to catch his breath after answering the professional questions. He had come, he had seen, he was shocked, and he was at a loss.

At 11 a.m., just as a Japanese reporter was about to stand up and challenge the reporter after repeatedly failing to get a chance to ask a question, shouts of excitement erupted from the audience.

"An organization has come forward to accuse Steinhoff of fabricating data!"

"Daniel Loeb has released a short-selling report!"

"Someone is shorting Steinhoff!"

Daniel Loeb is a short seller who focuses on uncovering corporate governance issues; his hedge fund, Third Point, is worth a staggering $140 billion.

The Q&A session was stopped again, and the room was filled with murmurs once more.

Upon hearing this news, Yu Xing estimated that there was an 80-90% chance that Steinhoff had problems, and that Daniel, who had jumped out this time, was probably investigating the abnormal situation of this German listed company. However, when faced with the questions raised by him, he simply announced it directly.

He displayed the short-selling report from Daniel Loeb on the screen with great interest.

The financial report shows more comprehensive data on abnormalities, with a focus on his analysis of related-party transactions. He used mathematical models to identify anomalies and concluded that Steinhoff had hidden at least 15% of ghost suppliers.

Meanwhile, Daniel's team conducted on-site warehouse inspections, observed the actual operation of the Steinhoff logistics center, and discovered a huge discrepancy between the book inventory and the actual inventory, indicating that there was fictitious inventory.

Perhaps because the investigation into Steinhoff has not been fully completed, the actual evidence presented is still somewhat weak, and further work is needed to penetrate related-party transactions. However, this short-selling report has once again greatly amplified the "unconventional" situation of Steinhoff.

Sitting in the corner, Li Song quietly loosened his mask, glanced at Yu Xing who remained composed on stage, took a deep breath, and couldn't help but send Xu Xin a message: "Wife, come out and see the King of Short Sellers..."

(End of this chapter)