Nicola Mawson
Steinhoff’s indirect move to create a subsidiary called Hemisphere to consolidate its properties was to decrease the amount that the company needed to pay in tax through frequent changes in the unit’s shareholding.
This is detailed in a comprehensive PwC probe, a copy of which is in Business Report’s possession, which was instigated as the result of Steinhoff’s auditors, Deloitte, flagging accounting irregularities in 2017.
Hemisphere was incorporated on June 25, 2008, as an “entity limited by liability” in the Netherlands and holds a significant portion of Steinhoff Group’s properties in Europe, a lengthy report by PwC into Steinhoff Group’s accounting manipulations noted.
Between the date it was incorporated and just more than a year later, Hemisphere’s majority shareholders changed four times before Steinhoff Finance finally gained full ownership in 2012.
Various items of evidence suggests that three of these majority shareholders, Cotracot, Dislog and Steinhoff Investment Holdings, were related to the Steinhoff Group and its key individuals PwC noted.
PwC’s 7 000-page report into the Steinhoff Group corporate scandal, the biggest so far in South Africa, also questioned the reasonableness of the value of Hemisphere’s property value as recorded in the company’s 2008 financial year-end.
According to the consultancy firm’s probe, Hemisphere’s top 20 properties were overvalued by 30% in Steinhoff’s 2017 financial year. PwC noted that it could not confirm the independence and expertise of the entity that did the valuation.
“We further question whether they were independent, as the identified information suggests that Hemisphere provided instructions concerning valuation-related key parameters to them to use in undertaking their work,” stated PwC.
In addition to this, it said that the increase in the property value was mainly a result of the sale and buyback of three companies.
PwC also noted that Steinhoff again used the ploy of terming transactions “marketing services,” which Steinhoff recorded as a profit in 2008 for one of its German subsidiaries, SEGS.
What PwC explained was that Hemisphere owed a Steinhoff company called Koenig some €293 million (currently worth R5.6 billion) for a purchase of another company, Genesis Investment, which was an Austrian company.
This was offset by a receivable of €289.7m (R5.5bn) due to Steinhoff by Koenig for predominantly “marketing-related services allegedly provided by the Steinhoff Group to Koenig” in the 2008 financial year.
Through using 21 different financial terms such as marketing contributions, professional fees, rebates, retail concepts, and rent, rates and services, Steinhoff helped poorly performing business units either inflate revenue or reduce cost.
This, a comprehensive PwC investigation showed, had been ongoing for, in some cases, 10 years.
While it is not clear whether this money was ever paid, it is evident according to PwC’s probe that the rest of the amount due was written off and, somehow, recorded as income in the 2011 financial year.
Overall, PwC found that R125bn artificially went through Steinhoff's books between 2009 and 2017 when the lid was on what is South Africa’s biggest corporate scandal to date was blown.
The news of what has become known as South Africa’s largest in the business world resulted in Steinhoff losing 97% of its market capitalisation between August 2017 and March 2019 as investors reacted to the news.
The revelations also resulted in the then, and since disgraced, CEO Markus Jooste, apparently kill himself. Several arrests and convictions have also occurred post the blow out.
BUSINESS REPORT