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Steinhoff produces radioactive report

Cautionary notices, caveats and disclaimers abound.

Steinhoff imploded in December 2017. Deloitte Accountants BV, which had been appointed as auditor of the group on May 30, 2016, was kept on as auditor – but 18 months later was still not able “to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the consolidated and separate financial statements”.

To paraphrase, the 2017 and 2018 reports were prepared under exceptional circumstances, and management was required to make significant judgements. However, multiple uncertainties remain, and these can have a significant impact on the financial statements as a whole. The annual report contains forward-looking statements based on management’s current views and assumptions. Factor in the unlimited multitude of risks and uncertainties … and it appears that no one will take responsibility for anything. Hot-to-the-touch, radioactive, treat-with-caution, readers of the report are cautioned “not to place undue reliance on these forward-looking statements”.

Read: Steinhoff’s path to recovery not enough as shares tumble

Deloitte, in issuing a disclaimer of audit opinion, cited the following problem areas:

  • Material uncertainty related to going concern.
  • Material uncertainty with respect to litigation.
  • Material uncertainty with respect to taxation effects on the restatements and adjustments made in the 2017 annual report.
  • Material uncertainty with respect to the control conclusion on certain entities.
  • Material uncertainty with respect to the share in the investment in [European retail chain] Conforama.
  • Material uncertainty with respect to the timing of the results of certain prior year real estate transactions.
  • Material uncertainty with respect to the foreign currency translation reserve.
  • Material uncertainty with respect to not having access to information [regarding Austrian retail chain Kika-Leiner).

Key financial results

Revenue for the year to September 30, 2018, is €12.8 billion (2017: €12.5 billion), gross profit is €4.9 billion (2017: €4.9 billion), the loss for the period is €1.2 billion (2017: €4 billion), and the total comprehensive loss for the period is €1.2 billion (2017: €4.2 billion). International Financial Reporting Standards (IFRS) 15 will be applied the following year, and the group has not intimated what the impact will be.

The large write-downs were effected mainly in 2017. Impairment of goodwill, intangible assets, and property plant and equipment for the year amounted to €27 million (2017: €437 million), and impairment of financial assets (Brait/Fulcrum UK and Top Global) was €42 million (2017: €103 million). Goodwill and intangible assets constitute 38.5% of the total assets (2017: 41.4%). The risk is that these could be further impaired in the future. The forensic, advisory and restructuring fees came to €117 million (2017: nil).

Finance costs came to €655 million (2017: €410 million). This included €166 million in fees payable on the Steinhoff Europe AG (SEAG) and Steinhoff Finance Holdings GmbH (SFHG) lock-up agreements.

Losses from discontinued operations amounted to €518 million (2017: €3.2 billion). Accumulated losses amounted to €9.8 billion (2017: loss of €8.5 billion), exacerbated by a further knock against equity simply referred to as “other reserves” of an amount of €1.0 billion (2017: €1.2 billion). The explanatory note 25 to the financial statements does not give a breakdown. Was the financial team pressed for time? Or is this simply a balancing figure? Go figure.

Debt

Non-current interest-bearing loans and borrowings amount to €2 billion (2017: nil) and the current interest-bearing loans and borrowings amount to €8.3 billion (2017: €8.6 billion). 

The group is in the process of restructuring its debt. Pepkor has now refinanced its group loans with facilities from various banks and financial institutions. The group envisages that its debt profile will change significantly after September 2018. The debt restructuring progress will be discussed in a future article.

Remuneration of the managing directors

The remuneration in itself is staggering. But the bonuses?

€’000

Base salary

Pension plus other contributions

Bonuses

Total remuneration

         

Markus Jooste

322

4

 

326

Ben La Grange

219

6

965

1 190

Danie van der Merwe

992

36

1 136

2 164

Louis du Preez

792

44

1 082

1 918

Philip Dieperink

1 180

87

1 200

2 467

Theodore de Klerk

629

43

894

1 566

Alexandre Nodale

809

188

1 159

2 156

 

4 943

408

6 436

11 787

 

No clawbacks were made during the period. However, “the current management board and supervisory board confirm their respective commitment to make use of their clawback rights where appropriate”. And the appropriate trigger would be?

Tax

Steinhoff is registered in Amsterdam, and is tax resident in South Africa. The tax irregularities impact multiple jurisdictions. Tax uncertainties include tax adjustments that will have to be made because of accounting irregularities, ongoing transfer pricing investigations, and the tax consequences of the company voluntary arrangements (CVAs), in respect of SEAG and SFHG. The future tax consequences could impact the future tax liability, and the cash forecasts.

The South African Revenue Service (Sars) is not only in possession of the financial statements and the income tax return, it can call for additional information – and it has the benefit of exchange of information with many jurisdictions. Sars could perhaps play its part in unravelling any complex tax arrangements, even though the public wouldn’t be privy to this information.

The next steps

The group is endeavouring to improve its cash position, and has instituted tight control over capital expenditure and the management of working capital. The divestment programme has also stepped up, with the sale of several investments, and more may be on the cards. It is unlikely that further investments will be made in the foreseeable future. The group is defending numerous legal claims, briefly summarised and concerning mainly share exchange agreements and cancellation of subscription agreements “based on false and misleading representations”, further adding to the climate of uncertainty.

In releasing the long-awaited 2018 report, the group has surmounted its first hurdle. The six-month interim report will provide a better picture of any financial gains and the debt restructuring progress. Its struggles are not over.

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Seriously how can they still pay Louis du Preez R30m to flog this dead horse?? It is outrageous!

Agreed 100%. I would’ve been at R 4 – 5 m for a job like that if I was a board member. He’s basically just the undertaker

@grhamcr typed a long message fixing all your factual inaccuracies.

Not being published. However, not going to argue with someone who refers to interim unaudited results as an annual report. You can keep on living in the fake news world.

If I held Steinhoff shares at the time of its demise I would be sueing the pants off the Board and the Auditors for fraud.
No matter how you word it – this is premeditated theft on a grand scale based on the “ Too big to fail or Too much to lose theory’s. In my opinion.

du Preez is ex attorney on record for Steinhoff – brought there by Wiese and – MY VIEW – he is protecting Mr Wiese’s interest above shareholders.

It is time for SA Commercial and Criminal laws to be expanded so that Attorneys and Auditors could be held liable – civilly and criminally – for assisting / hiding / facilitating major frauds to take place

Guys I am really concerned about KAP. If there is some serious auditing to be done there than this company will also tank like Steinhof. It was created by Steinhof and operate in the exact same way Steinhof operated. Its balance sheet is a real fraud. I think heads will roll if proper auditing is carried out. Its balance sheet is over valued with some serious fabricated and embellished assets that will not stand if there is a cash flow crunch.

I hope you’re joking?

He is probably spending more time in meetings and flying to europe back and forth than ANY CEO in South Africa. And it’s not even close.

On top of trying to steer the company from an operational perspective, the negotiations with creditors is basically a 24 hour job.

While ZAR30 M is too much, you are all missing the point. ZaR30 M is too much for ANY CEO in South Africa. Especially for companies that basically run themselves. If there’s ahyone that deserves than JSE counterparts its the current board, but anything above zar10 M is well aboce what any CEO in SA should earn. Consider a doctor at 65. In south africa, working 16 hour days earn around 5-8 million. How do these fat cats justify their pay.

A long position on Steinhoff cannot even beginning to explain or justify your stand/bias on matters relating to Steinhoff; more so in the past two days.

I trust you are joking – he was installed as director commercial (20th April 2018) and enjoys this fat salary – his travel/accommodation/meals costs backwards and forwards would be picked up by the company (think shareholders) so his salary is excessive. If you look at the composition of the supervisory board you have Heather Zinn who is now chairman and has/had ties with Pepkor and Wiese – so it looks like the Stellenbosch mafia are running the show – whilst shareholders pick up the costs of people with inflated emoluments and ego’s.
Also the supervisory board seems rather lethargic in getting things done and have stalled the production of the 2017 and 2018 annual reports for a considerable time and have only just recently produced such reports but with a caveat that there could be errors in the numbers. Can’t wait for July 12th when the next annual report is due for release

@grahamcr There are quite a few statements in your reply which points to wards a general lack of understanding, so I will take it with a pinch of salt.

1. How is it relevant that the company cover his meals and accommodation. This is covered for first year article trainee at any public accounting firm. So what? My comment was towards the exhausting schedule he is working on.

2. The primary listing is in Frankfurt, hence payment is in Euro. You will find that his payment is well below other companies CEO on the FSE. By taking the translated figure, you and many other are making a classic error of simply translating currencies. Just wrong. An accounting trainee in their third year at Deloitte make around $70 000 (that’s around zar800 000. In SA, trainees make ZAR 350 000 a year. Just a simple example, but shows how dumb the argument is.

3. Sonn and Wiese are not related parties. Factually incorrect.

4. Steinhoff needs a lawyer as a leader given all the incoming litigation. Not a smooth talking operational expert that will annoy creditors with the words “synergies” and “vertigal integration”.

5. An interim report, covers a 6 month period. This is what is being released on July12th. It will be unaudited figures. An annual reprt you refer to is 12 months and auditef. Again, lack of knowledge. Which is okay, but also necessary that you be corrected.

6. The audit committee is the main line of communication with the external auditors, so how are the suoervisory board to blame for the delay? Goodness gracious. It’s like you’re a clickbait. “I rose to the bait” – Rickie Gervais

Lawyers will AWLAYS “milk the cow” while there is money to grab.

Also, what an absurd headline and lazy article.

Clearly the author just took a copy/paste job.

Why are there no balances views of steinhoff. Yes, shed light on the bad. But that has been done over and over. Imagine someone writing at some of the good the board has done and how profits are likely to be earned in 2020.

What a lazy country we have become. From politicians to everyone else. Content with clocking out at 5pm. Putting on our k-way jackets and talking about game of thrones. Inspiring stuff.

The ONLY thing we can be proud of in SA at the moment is our amazing group of small investigative journalists who are basically doing the government’s jobs.

Honestly MW, what is different to this article than the one posted yesterday. Except for the word “radioactive”, which in itself is a ludicrous word choice. We get it you watch chernobyl.

The bonuses are staggering and many of these directors were in senior position pre #steinhoffgate.
This is on the back of shareholders revolt over previously announced bonuses. This time they just avoided announcing the intention and paid them. They are a bunch of scoundrels and some knew more than they are letting on.

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