Multimillion-rand provisions for executive remuneration schemes are behind an expected 52% knock to Steinhoff Africa Retail’s (Star’s) interim earnings to March 2018, due to be released on Tuesday.
The hefty knock was announced in a trading update released on Sens after the close of trade on Friday, when the share had closed 1.65% higher at R17.90. A Star spokesman told Business Day on Sunday that the reason for the last-minute disclosure was "reasonable certainty of the results" was only confirmed following the audit committee’s meeting, which took place on Friday.
Star, which was wholly owned by Steinhoff until listing in September 2017, comprises retail brands including Pep, Ackermans and Tekkie Town. Steinhoff now holds 71% of Star.
The earnings knock stems from the board’s decision to compensate senior executives for the loss to the value of their remuneration packages caused by the collapse of the Steinhoff share price.
Before the collapse
The remuneration schemes were based on the Steinhoff share price before the collapse and apparently assumed the share price would appreciate.
Star said provision for a guarantee for a third-party debt related to a historical Pepkor Holdings management investment scheme, which was linked to an executive remuneration scheme. In addition, Star had to provide for a retention scheme for key senior management.
Star said the effect of the Steinhoff collapse had been significant and was continuing.
"Star is party to a guarantee of third-party debt related to a historic Pepkor Holdings management investment scheme, which is underpinned by the Steinhoff share price.
"Since the collapse of the Steinhoff share price, the risk of liability in this regard can no longer be considered to be remote," it said.
At the weekend, shareholder activist Theo Botha slammed the Star board for not providing more disclosure about the possible additional management-related expenses in the group’s integrated report.
He said that while the retention scheme had been discussed at the group’s annual general meeting in March 2018, little was known about the Pepkor management investment scheme.
At the meeting Steve Muller, chairman of Star’s remuneration committee, said the 2018 income statement would take a R90m hit to bail out senior Star executives who had been awarded Steinhoff share options in 2016. These were now without value.
Meanwhile, the Star spokesman said Friday’s trading update referred to both the R90m cash incentive scheme and the guarantee of third-party debt related to the management investment scheme.
In the Sens statement, the Star board acknowledged there was a reasonable degree of certainty that earnings per share would be between 33.4c and 39c for the six months ended March 2018, which is between 44.2% and 52.2% lower than the 69.9c reported for the six months to March 2017.
In addition, the board said it had put in place a cash retention scheme for key senior management at Star to supplement the existing long-term Steinhoff share incentive scheme.
At the annual general meeting, Muller had said it was crucial to keep such executives.
Meanwhile, also on Friday, Braam van Huyssteen, the founder and chairman of Tekkie Town, resigned as chairman of Star’s property division.
Van Huyssteen will remain as chairman of Star’s speciality fashion and footwear division, but will no longer be a member of its executive committee.
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