Steinhoff properties worth €1bn less than estimated

Steinhoff shareholders were dealt another blow on Tuesday, when the company announced that its European property portfolio might be worth only half of the €2.2bn at which it was previously valued by Steinhoff.

Indications are that the valuations may have been inflated as a result of related-party rental agreements. Before the announcement, after the close of trade, Steinhoff’s share price had edged up to R3.32, a fraction of the R56.50 at which it traded in December before the disclosure of “accounting irregularities”.

An independent valuation of Steinhoff’s Hemisphere International Properties shows the properties are worth only €1.1bn. Steinhoff said it was considering the revised valuation and working with its auditors to determine the book value of the properties. It said this would be materially lower than the €2.2bn disclosed by it as recently as February 2018.

The CBRE valuation is part of the investigation of the validity and recoverability of certain non-South African assets, and is critical to finalising the audit for the 2017 financial statements. The properties comprise about 140 entities, including stores, warehouses, offices, production sites and vacant land. They are in Austria, Germany, the Netherlands, Switzerland, the UK and eastern Europe. Most of the stores in Austria and eastern Europe are leased to KikaLeiner, which was sold out of the Steinhoff group in 2018.

The Hemisphere portfolio excludes retail stores relating to Harveys, Bensons for Beds, Conforama, Dealz, Pepkor Europe, Poco and Poundland. These either lease properties from third parties or own retail properties in companies that are not part of Hemisphere.

Steinhoff gave no indication of the reliability of the nonHemisphere valuations.

A spokesman said it had not provided guidance for the rest of the group’s property. The most recent information about its property portfolio appeared in its 2016 financial statements and was valued at €3.7bn.

CBRE’s valuation is based on “fair value” and assumes vacant possession, which disregards internal leases to related entities and only considers leases between Hemisphere and an external third-party tenant.

Steinhoff supervisory board member Johan van Zyl — who with Steve Booysen and chairwoman Heather Sonn have tried to salvage the group in the wake of revelations of gross accounting irregularities — has come out in defence of proposals for the three to be paid up to €200,000 extra for their work since December’s meltdown.

“There are different views in the board on this issue. The one view is that people should be remunerated fairly and what is on the table is fair,” Van Zyl said last week.

Steinhoff proposes to pay supervisory members €100,000 each for the 2018 year, with €130,000 for the deputy chairman and €300,000 for chairwoman, Sonn. The proposal that Booysen and Sonn receive an extra €200,000 and Van Zyl an extra €100,000 for “additional work undertaken” since December has been met with howls of derision by the market, in the light of the R300bn loss suffered by shareholders thanks to the collapse of Steinhoff’s share price.

Taxpayers, too, will ultimately end up on the hook for former CEO Markus Jooste’s misdeeds as the Government Employees Pension Fund is a defined-benefit scheme. It owned about 10% of the company’s shares through the Public Investment Corporation.

Mazi Capital founder and chief investment officer Malungelo Zilimbola was scathing about the proposals.

“It is disappointing that the same directors who failed to deliver on their duties have the audacity to request such monies from investors who have been hugely affected by their dereliction of duties.

“This is a barometer of how low the levels of morality and ethics are in our society.

“They have failed in their fiduciary duties to safeguard investors’ funds … and why should [investors] now foot the bill and pay the directors these obscene amounts?”

Lentus Asset Management portfolio manager Nic NormanSmith said that “for the people who joined very recently, I completely understand” the proposals, “but for those who have been there for a very long period overseeing that whole saga, I find it highly dubious”.

Capicraft’s Drikus Combrinck said investors were misdirecting their anger.

“You have to put yourself in the shoes of the exco: you have to keep a team motivated.”

While Van Zyl refused to comment on whether his additional payments were fair, he said there was an obligation to pay the directors properly.

“If we don’t do that, all the new directors that we have on board will simply disappear. I spoke to over 40 people and I barely scraped together five who were willing to take on this job. If people are not paid to work, why would they do it? This is my own view.”

Sonn, who was parachuted in as chairwoman of the supervisory committee after the resignation of Christo Wiese in December, said “we cannot change the past, but to protect value for the group’s

stakeholders, the company needs stability... this requires a successful annual general meeting, which will settle the governance structure of the company and allow the boards to focus on the next phase of the recovery”.

Sonn said that Steinhoff was “listening and [we] have heard shareholders’ concerns. We fully understand that the losses sustained by the company... warrant the anger we see in the public domain”.

She said the annual general meeting, to be held on April 20 in Amsterdam, was the first opportunity to consider compensation, following the initial work to stabilise the firm, investigate wrongdoing and uncover the true financial position of the company.

This is still not clear almost five months after Jooste’s resignation when auditors Deloitte refused to sign off on the group’s 2017 financials. Steinhoff has since indicated its 2015 and 2016 financials will also have to be restated.

Sonn has defended the company’s decision to retain Deloitte, notwithstanding its role in the scandal and the decision by the Independent Regulatory Board for Auditors to investigate Deloitte for its accounting of Steinhoff from 2012 to 2016. Sonn said changing external auditors at this time would be counterproductive and not in the interest of the company.

“We have to be practical and realistic. For now, we must do what is practically possible to get through the forensic audit and the 2017 and 2018 financial statements audit as effectively as possible.”

R300bn the loss that shareholders suffered in Steinhoff’s collapse

5 the number of people willing to become directors, according to a board member