Steinhoff pays another R1.3bn in advisory fees

Embattled global retailer Steinhoff International forked out another R1.3bn in advisory fees as it continued to repair the damage caused by a massive accounting fraud that unfolded in December 2017.

The third set of financial statements to be released within two months continued to be dominated by hefty advisory fees and near-crippling finance costs and revealed a loss of about R9bn for the six months to end-March 2019.

The advisory fees included R176m relating to the forensic investigation and technical accounting support, as well as R480m relating to creditor adviser fees.

In financial 2018 Steinhoff paid R2.4bn in advisory fees.

And the company has warned: “While every effort is made to limit costs, we expect this to remain our reality for some time.”

Adding to the fee burden is that as part of the lock-up agreement with its creditors — which provides for the suspension of claims to the end of 2021 — Steinhoff is required to pay the adviser costs of each of its

creditor groupings. The finance costs for the six months almost doubled to R7.7bn from R3.9bn as a result of increased interest on borrowings following the group’s wide-ranging financial restructuring.

Despite the sale of a number of assets, including Austrian retailer Kika-Leiner and its stake in Poland-based Poco as well as its remaining shares in SAbased KAP, the group’s balance sheet continued to be weighed down by net debt of R145bn.

In its forensic investigation, which was completed earlier in 2019, PwC revealed that profits had been overstated by about R100bn over nine years.

Once again Steinhoff has reminded shareholders of its precarious going-concern status. It said that based on “certain critical assumptions” its cash flow forecast indicated the group could continue in operational existence for the next 12 months. One of those critical assumptions relates to the several legal claims lodged by shareholders and vendors.

In April 2018 former chair Christo Wiese instituted a R59bn claim relating to the 2015 sale of his controlling Pepkor stake to Steinhoff in exchange for shares in Steinhoff.

The company states that one of its key assumptions underpinning its cash flow forecast “is that no material claims or fines are awarded against the group or company and will become payable during the next 12 months”.

There is also material uncertainty about the tax implications of the accounting irregularities that have been identified since December 2017. The cash flow forecast also assumes that “no unexpected material assessments are received”.

Nineteen months into the wide-ranging restructuring of the group sees SA-based Pepkor Holdings and Pepkor Europe as the major contributors to Steinhoff’s R4.1bn of profits before interest and tax.

Pepkor Holdings’ contribution edged up to R3.4bn, while Pepkor Europe recorded a 33% increase to R1.9bn.