With the experience of more than 40 years in the financial industry, The Old Dog always try to share some insights on a lighter and uplifting note. Unfortunately, the world is not perfect, and sometimes we must note bad cases. I could not ignore sharing some detail after reading an article in Moneyweb on 7 July 2023. Below is an edited summary of some information.
As Steinhoff limps off the market, here’s who made billions
Read the full article on Moneyweb on 7 July 2023
It appears increasingly probable (in case it wasn’t evident in December 2022 already) that shareholders in Steinhoff International will walk away with nothing.
Shares in the zombie listing are trading between 4c and 5c (with a market value of R400 million if one accounts for the additional shares issued). It is a fait accompli that the group will be delisted and become a subsidiary of a new unlisted entity under the direct control of creditors.
Since the then-auditors refused to sign off accounts in December 2017, shareholders have lost 99.9% of their investment. Over the last five years, the stock attracted its fair share of speculators. It crested R5 at the end of 2021, but as prospects became gloomier, it traded consistently lower until the collapse in December to a few cents.
Over this time, however, the executives in charge of trying to rescue the company were paid handsomely for their efforts. Steinhoff CEO Louis du Preez has been paid €15.5 million in the last five financial years (2023 excluded). It equates to R266 million at the respective average exchange rates. In the days following the “events of December 2017”, as the group terms it, Du Preez was paid €482 000 (R7.5 million) in strategic and retention bonuses.
CFO Theodore de Klerk (who acted as COO until he was appointed CFO on 1 September 2019) has been paid a total of €11 million (R198 million). The four executives in the CEO and CFO roles after the collapse have been paid over R600 million. Below is the total of the management board and excludes other “key management personnel”.
* Including Louis du Preez’s remuneration as commercial director.
** Dieperink (former CFO) and De Klerk served for various periods this year.
This number pales insignificance compared to the fees paid to auditors over the five years. It took about two years to restate prior accounts for €75 million, or over R1 billion. Even this looks cheap compared to the amounts paid to various firms for the “forensic investigation [PwC], advisory and restructure of the business”.
In 2018, it said, “It has been necessary for the group to engage with a wide range of professional advisors, to assist the group with its investigative, legal, financial and regulatory requirements, as it seeks to stabilise and restructure the group”. “The scale and complexity of this task has meant that the aggregate advisor costs for the reporting period have been substantial,” it added.
“The principle advisor relationships included legal advisors, financial restructuring and corporate advisory functions that support the Group on discussions and engagement with its creditors, liquidity management and operational measures, forensic investigation services and regulatory and taxation advisory services.”
In addition, it explains, “as part of the restructuring process, the Group is required to pay the advisor costs of each of the respective creditor groupings including legal advisors, financial structuring advisors and regulatory and taxation advisors”.
* Forensic investigation, advisory and restructuring of the business.
In the first year, the cost of this amounted to €117 million, or nearly R2 billion. In 2019, it peaked at €158 million (R2.5 billion). The spending has moderated, but the current run rate is still around €30 million (close to R500 million).
In the five years since “the events”, Steinhoff has paid forensic accountants, lawyers and advisors a total of €447 million, or R7.5 billion. It includes more than R500 million spent in the financial year’s first half (€29 million). Auditors, advisors and the top two executives have been paid over R10 billion since December 2017. And these fees continue to rack up.
What’s that saying … ‘Heads I win, tails you lose?’
The last words of the article made me think that entering the senior years of my career, I could not accumulate in more than 40 years what any party mentioned above earned in a single year. We comment on the Zondo commissions findings, but the Steinhof case – with the former CEO still around – left many pensioners out of pocket and sad consequences. Since then, Afribank and Tongaat shareholders have lost millions – also in listed companies where they trusted the management – which will happen again, and corporate will look the other way again.
