A massive loss from yesteryear

● The sheer scale of its impairments and write-downs swung Steinhoff International from profit to a massive loss, its long-delayed financial results for the year to endSeptember 2017 showed this week.

In that year alone, the company had to swallow one-off expenses and impairments, mostly on goodwill and intangible assets, of nearly à4bn (R64bn). The result was an operating loss of around à3.7bn.

The next two sets of financial results will show a substantial increase in operating expenses, mostly due to adviser costs and professional fees associated with the extensive investigation and the restructuring efforts.

“We shall therefore experience an adverse impact on our consolidated operating income, before impairments, in both 2018 and 2019 financial years.”

The company expects operating expenses to be significantly higher than in 2017.

Shortly after long-time CEO Markus Jooste’s departure and with creditors starting to close in, Moelis & Co was appointed as independent financial adviser to support and counsel the company on the lender discussions.

Steinhoff also tapped AlixPartners as operational adviser to help with liquidity management and operations. And PwC got the job of investigating accounting irregularities, which turned into 15 months of combing through mountains of data to finally enable Steinhoff to release its financial results.

The company had to sell assets and cut new, less-favourable deals with financiers to stay afloat.

“We also expect net financial expenses, excluding the impact of currency exchange rates, to be higher than in 2017. This will adversely affect net income,” Steinhoff added.

And it plans to continue cutting administrative costs.

Steinhoff has tightened the belt on capital expenditure since late in 2017 to conserve its cash flow. Nice-to-haves such as store remodelling were either delayed or cancelled.

But it will not abandon the idea of increasing its retail footprint altogether.

Other “initiatives, including the opening of new stores … are critical for us to remain competitive in our markets”, the company said. Steinhoff plans to fund such initiatives largely through cash generated by its operations as opposed to the debt-fuelled or share-swopping acquisitive expansion of previous years.

Steinhoff retail brands that are still operating include Ackermans, Incredible Connection and Pep in SA, all of which are owned through its 71% stake in Pepkor.

On Friday Pepkor said in a trading update that for the six months ended March 31 earnings per share were expected to rise between 34.4% and 54.4%.