Seventeen months after Steinhoff’s market value went up in a cloud of suspicious accounting, the company finally released its restated 2017 financials this week.
And, although the belated report provided greater clarity on the financial hole left under the watch of former chief executive Markus Jooste, it is still not clear how the company will survive, or when anyone will be criminally charged for the chicanery that led to its collapse.
The police’s elite investigative unit, the Hawks, confirmed this week that it had still not been granted access to the full PwC forensic report that Steinhoff commissioned in December 2017, after auditors Deloitte refused to sign off on its financial statements because of suspected accounting fraud.
Hawks spokesperson Brigadier Hangwani Mulaudzi said: “Discussions are under way to find an amicable solution [to] the matter.”He added that Steinhoff had thus far refused to share the full report on the basis of legal privilege. Along with the Hawks’probe, the company faced a range of other legal matters, said Mulaudzi, but he could not give further details. Steinhoff said it was “co-operating with all regulators and will continue to do so”.
The tussle with the Hawks is just one of the many fights Steinhoff faces while it battles to stay afloat, with one analyst likening the firm to the walking dead.The restated results revealed a comprehensive loss of just over €4-billion (R64.2-billion) for the year ended September 30 2017. It also revealed that the previous year’s profits —initially reported at €446-million (R7-billion) —as an actual comprehensive loss of more than €1-billion (R16-billion).
The company’s assets in 2017 were revealed to have halved to €17.5-billion —after having initially been reported at just over €32-billion in 2016. Despite the extent of PwC’s forensic investigation, Steinhoff’s auditors Deloitte issued a disclaimer of opinion, citing reasons such as material uncertainty over the company’s status as a going concern; material uncertainty about litigation; and uncertainty over the taxation effects resulting from the restatements.
In the report, Steinhoff’s board, chaired by Heather Sonn, notes that “the tax impact of the irregularities … remains uncertain”. The company is currently subject to on going transfer pricing probes by tax authorities in Austria, Germany, Australia and South Africa. It is also facing more than R104-billion in law suits from investors and shareholders,including Christo Wiese and GT Ferreira, as well as Steinhoff’s empowerment partner the Lancaster Group, led by Jayendra Naidoo, the chairof Pepkor, which houses Steinhoff’s Africa businesses.
The audit disclaimer raised questions about its listing on the JSE and the Frankfurt stock exchange, said one portfolio manager. It would also add to complications in the conversations the company is having with a range of financial institutions that it is looking tofor, among other things, credit insurance and funding.
Jean Pierre Verster, portfolio manager at Fairtree Capital, said the extent of the restatements was largely in line with his expectations. The report revealed that the biggest portion came from correcting the effect of transactions made with companies purportedly deemed independent third parties, but were later determined not to be arms-length transactions. The bulk of these transactions —which required restatements of about €11-billion —was with entities within the Campion group of companies and the Talgarth group, noted Verster.
Looking forward, the restated results did reveal the poor profitability in the Steinhoff group’s European operations and the problems this posed for managing the vast pool of centralised debt it held.
“Notwithstanding the current supervisory and management boards’ valiant efforts, it is very difficult to see them coming out of this hole,” said Verster, describing Steinhoff as a “zombie company”.
The group’s value is concentrated inits African operations —essentially, Pepkor —as well as Pep&Co, its Eastern European operation. The majority of Steinhoff’s debt, however, has been principally issued by the group’s central European entities.
“What is needed is a transfer of value from the South African assets to the European balance sheets of Steinhoff,” said Verster. But this is likely to be difficult considering the legal claims that have been instituted against Steinhoff’s South African subsidiaries and South Africa’s foreign exchange control environment.