A €4bn net loss and dubious bonuses – 7 key highlights from Steinhoff's 'midnight special' results


Just before the stroke of midnight on Tuesday - the day before South Africans headed to the polls - Stellenbosch-headquartered retail conglomerate Steinhoff [JSE:SNH] published its long-delayed audited annual report for 2017.  

The report was due to be published back in December 2017, but was in the end delayed for 17 months after auditors Deloitte flagged accounting irregularities in the retailer's financial statements. Shortly thereafter, Steinhoff's former CEO Markus Jooste abruptly resigned and Steinhoff engaged PwC to investigate the financials of all its businesses.

PwC handed the results of its 15-month probe over to Steinhoff leadership in March, meaning the group could at last proceed with the finalisation of its audited financial statements. 

The 356-page report that Steinhoff published on its website on Tuesday evening includes the company's delayed 2017 results, as well as its restated results for the 15 months ended September 2016. 

Here are seven highlights: 

1. The group posted a net loss of 4bn for the 2017 financial year.

The 2017 results make for glum reading. The group posted an operating loss of €3.67bn for the financial year ended September 2017. Steinhoff announces its results in euros, as it is domiciled in the Netherlands and has its primary listing on the Frankfurt Stock Exchange. 

For 15 months ended September 30, 2016, it posted a profit of €278m. When finance costs and impairments are taken into account, this amounts to a net loss of €4.03bn for 2017 and a loss of €279 for the previous period. 

2. Former CEO Markus Jooste was awarded millions in bonuses without approval. 

Markus Jooste in Parliament in 2018 (Getty)

Jooste resigned from Steinhoff in December 2017, when the group's auditors flagged accounting irregularities, and protested his innocence when he appeared before Parliament in September 2018. 

According to the annual report, in March 2017, he was awarded a bonus payment of €500 000 (R8m at current exchange rates) without requisite approval.

"The payment of the €500 000 was neither proposed by the Human Resources and Remuneration Committee nor approved by the Supervisory Board," said Steinhoff. A separate bonus of €1.57m (R25.2m at current exchange rates) was approved by the group's board but was paid to Jooste before its due date. 

Steinhoff said the group's board was still committed to using clawback provisions to recoup bonuses, but did not provide further details. 

3. The PwC forensic report is still privileged.

When top Steinhoff executives appeared before a joint sitting of three Parliamentary committees in late March 2019, they told MPs that the 3 000-page, 15-month forensic probe of the group by PwC would not be made public. The group has since handed the report over to a parliamentary oversight committee.

In the 2017 annual report, it restated that it views the PwC investigation report as "confidential and .. subject to legal professional privilege".

"Consequently, the investigation report will not be published." 

4. The group's financial statements for 2018 and 2019 may make even gloomier reading 

The report published Tuesday evening covers the 2017 and 2016 financial years. Steinhoff is set to publish its 2018 financials on Tuesday, June 18. And the group says these may make even gloomier reading. 

"In the 2018 and 2019 financial years, we expect that our consolidated net sales will be reduced by the impact of several factors including a number of disposals, a weaker global economy and stronger competition in our markets," it said. 

These factors had been "compounded by the reputational damage associated with the disclosures in December 2017" as well as constraints from supplier credit lines and uncertainty associated with the ongoing investigations.

It also expects that operating expenses will be significantly higher than in 2017 due to adviser costs and fees associated with the investigation and restructuring effort. 

5. A German criminal investigation into two senior managers is ongoing

While South Africans have been focused on the investigation into Steinhoff by the Hawks, a parallel investigation has been ongoing in Germany into two as yet unnamed former senior managers. As Fin24 reported in April 2018, the German criminal investigation is looking into probing accounting fraud at Steinhoff subsidiary Steinhoff Europe Group Services, or SEGS. This probe has been delayed due to the translating of documents from English to German, and the number of documents under investigation. The public prosecutor's office of Oldenburg in Germany has not yet made the names of the former senior managers public. 

When Steinhoff last appeared before Parliament in late March, MPs questioned why the Hawks – after having had over a year to investigate – said they had only probed one suspicious transaction, an investigation which is yet to be completed. According to Business Day the directorate for priority crime investigation has appointed forensic accountants to help finalise the Steinhoff probe. 

6. Steinhoff is facing a large German fine 

Steinhoff has been threatened with a fine of €1 150 000 (R18.5m at current exchange rates) by Germany's financial supervisory authority - known as BaFin.

This after BaFin issued an administrative order back in March 2018, requiring Steinhoff to publish its financial reports for the 2016 and 2017 financial years by June 2018. Steinhoff filed an objection against the order, which was rejected by BaFin in December 2018.

According to its annual report Steinhoff has since appealed the rejection. It has also been fined by about €108 000 (R1.7m) by the Frankfurt Stock Exchange, which it has also appealed. 

7. Steinhoff executives bought Portuguese property to get 'Golden Visas'

A number of top managers at Steinhoff in December 2016 together bought a property in Portugal from one of the group's subsidiaries to get golden visas for themselves and their families. Such visas let foreigners obtain residency in Portugal for a family and dependents if €500 000 is invested in real estate and they spent two weeks a year there.

The annual report states that the property in question was bought for €7m, which "approximates the net book value of the property on the date of the sale". The report did not say who the executives were or where the property was located.  "Each of the executives raised their own funding to buy the property," it stated. 

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