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Heather Sonn’s resignation may have been ‘a way out’

Steinhoff’s former chair was vital in overseeing efforts to unravel suspect dealings in the scandal-hit group.
Heather Sonn (foreground). Her departure 'will leave a big credibility hole in Steinhoff'. Image: Dwayne Senior, Bloomberg

For almost two-and-a-half years Heather Sonn was the acceptable face of Steinhoff. She took over the chairmanship in mid-December 2017 just weeks after the company’s announcement of ‘accounting irregularities’ pummelled the share price, destroying hundreds of billions of rands of shareholders’ money.

Her appointment was announced after investors had made it clear that Christo Wiese was no longer acceptable as chairman.

It proved to be an inspired choice.

Not only did she play a critical role in overseeing efforts to unravel the intricate web of suspect dealings that destroyed Steinhoff, she also had to deal with irate investors as well as incensed politicians.

Her dealings with politicians may have been the most stressful part of her job as MPs, with an eye to headline opportunities, quizzed her relentlessly on matters about which they evidently knew little. During each of the parliamentary portfolio committees at which she was called to given an account of the Steinhoff debacle, it was evident that few MPs other than the DA’s Alf Lees and the EFF’s Floyd Shivambu had bothered to do any preparatory research.

Commendable

Sonn’s clear and calm exposition was commendable in the face of remarkable hostility, whether in parliament or at an extremely long annual general meeting.

On Monday Sonn resigned following the acknowledgement of a conflict of interest with a company she was a shareholder in that transacted with Steinhoff.

Read: Steinhoff’s Sonn resigns

In a densely-worded Sens announcement Steinhoff explained that in 2017 Gamiro, in which Sonn has a major shareholding and her brother is a director, acquired a controlling stake in Blake and Associates from Geros. Blake is an external debt collector, whose clients include Steinhoff’s JD Group. Geros was apparently being funded by Steinhoff.

One long-term Steinhoff shareholder, who has abandoned hope of recovering any value from his investment, says the circumstances around Sonn’s decision is yet more evidence of the dense web of connections that former CEO Markus Jooste wove around the group.

“The Gamiro transaction with Geros looks like one of those deals Jooste used to co-opt people,” said the shareholder.

On Monday Steinhoff refused to respond when asked for some clarity as well as details about the sort of sum involved. “The company declines to comment further on this matter,” said a spokesman.

A tough and largely thankless job

The absence of detail has prompted speculation that Sonn may have used the opportunity to exit a tough and largely thankless job.

Read: Steinhoff to get record R53m fine after discount

“It may well have been a way out of Steinhoff for Sonn,” said Lees, who added that he is disappointed by her resignation.

“I have always found her to be well-informed and clearly trying to do what is correct,” he said. “Her resignation, while it does seem to be an overreaction, is evidence she has great integrity.”

Meanwhile, chief investment officer of Aeon Investment Management Asief Mohamed said Sonn’s departure may have been prompted by a showdown within the board.

Shareholder activist Chris Logan said even people with integrity seem to suffer from association with Steinhoff and Jooste.

Viceroy

He also said it’s puzzling that the company relied on the controversial Viceroy Report for its intelligence. Logan was referring to Sonn’s explanation for her initial concern, which she said had been prompted: “When a name in the shareholding structure of the shareholder of Geros was recognised as a name that also appeared in the Viceroy Report.”

At that stage she requested (in December 2017) that the Gamiro-Geros transaction be placed on the list for investigation by PwC. “Unfortunately, it has taken over two years to get to a conclusion as to the nature of the relationship between the company and Geros, but there were multiple priorities for the company at the time,” said Sonn.

One analyst remarked that clearing the directors of any suspicion of conflict of interest should have been a top priority.

Sonn, who was appointed to the Steinhoff board in December 2014 when her father stepped down, was the last of the ‘old guard’ on the supervisory board. All of the remaining supervisory board members were appointed in either April 2018 or August 2019.

Lees said Sonn’s resignation “will leave a big credibility hole in Steinhoff which will be difficult to fill and does not augur well for Steinhoff as it battles for survival”.

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How on earth Steinhoff declared itself to have a total assets of audited 34.5 billions Euros for 2015, then 32.5 billions Euros for 2016 (audited by Deloitte), then 7 months after the announcement of fraud Steinhoff declared in an unaudited financials a total assets of 20 billions Euros for 2017 and a NAV of 9 rands, which yet again mislead a lot of investors to believe that there is still value in Steinhoff, and then 10 months after came the PwC audited one that put the assets to 16 billions Euros for 2017 (but now restated to 17), then audited 15 billions Euros for 2018 (but same now is restated to 16) and audited 172 million Euros of Equity (but same now is restated to below zero, so NAV is now restated to be below zero).

Just read Rob Rose’s “Steinheist”. They constantly used related party transactions (which they didn’t disclose) – Sold assets (especially properties) to related parties, of which Jooste or someone closely related to him have influence or control over the related party, then few years down the road bought back those assets at large inflated prices (5x or 10x more than what they sold it to the related party), paying with, of course, Steinhoff shares. They also manipulated earnings from investments by giving loans to related parties, which these related parties would then “pay back” but Steinhoff wold disclose these amounts received as interest or dividends from investments (i.e. circular flow of money).

Jooste also manipulated cash (yes, I know), by creating debtors (selling something to a real debtor or related party), then giving that party a guarantee on the debt they owed (i.e. Steinhoff guaranteed the debtor’s debt – which was effectively its own money) – Under German laws, these guarantees were seen as cash & cash equivalents. Therefore:

Step 1: create fictitious debtor

Step 2: guarantee fictitious debtor’s debt owed to Steinhoff

Step 3: recognise the debt owed by the fake debtor as cash and cash equivalents in the B/S and cash flow statement

Step 4: give loans to related parties and let them pay you back (without disclosing anything) and recognise payments received as investment income

Step 5: sell properties to related parties, acquire them in c. 2 years’ time at heavy inflated prices. Now you have bolstered the balance sheet artificially, as well as made the underlying shareholders in the related party company very, very rich (read Jooste and co.)

Step 6: eventually, acquire related party company somewhere in the future, so that you can consolidate any amounts owed/received away

Step 7: When auditors ask for documents and supporting evidence, stall, delay, talk in circles, then let them panic and sign off on accounts as reporting deadlines loom

Step 8: Shout at and bully investment analysts if they dare to write anything negative about Steinhoff – invite the willing analysts to the AGMs and let them have a drink with the boys, make them feel as if they are part of the “in” crowd and the inner circle

Step 9: Always, and I mean always, meet investor expectations regarding operating profit growth, GP margins and EPS growth. If that means cooking the books, then so be it.

Step 10: Further distort comparable years’ disclosures and information by going on an M&A frenzy (oh how the bankers and investment banks just loved Markus for this) – buy every and any business you think will add value & “synergies” to your business (even if they are bankrupt) – wave your Markus Jooste magic wand, and you will get a profitable business, ALWAYS being accretive to your EPS and bottom line. (just remember to get rid of those pesky liabilities, no one wants them, so just shift them off to a related party that is off-balance sheet – remember JD Group?)

Step 11: Re-do Steps 1 – 10 until your balance sheet looks so shiny and bright, that you get to list on Frankfurt Stock Exchange (oh and remember to take money for yourself in the meantime as well)

Step 12: Get big name investors like Christo Wiese and GT Ferreira and Jannie Mouton to invest in your company – convince them to swap their shares in PSG/Shoprite etc for Steinhoff shares, and boom, you can now say that the best business minds and business savvy people invest in your company – so what is there to worry about? If Oom Christo can put all of his fortunes in your company and rely on you to be the captain of the ship, why can’t anybody else? How can an investment analyst possibly know more and be skeptical about Steinhoff, if Oom Christo can put all his money in Steinhoff and have so much skin in the game?

Spot on, except that Wiese was 1000% part of the scheme. Look up Southern View Finance. Basically a R16,000,000,000 scheme to launder worthless (and credit regulator condemned) debt through an (undisclosed) related party (wiese) entity that “bought“ the debt at face value (bought is a loose term because it never paid nothing) then “paid” Steinhoff investment income (again accrued not paid) on the unpaid purchase price while it cleaned the bad book against its other taxable incomes. then when eventually the book was suitably rinsed, it sold the book to Steinhoff for a swap of Steinhoff shares being the debt owed for the overvalued book plus unpaid investment income. Extinguished

OMO has nothing on their detergent

Dozens of “investment professionals” and almost not one could spot the hole in their cashflow statement for years and years.

Sceptical that Jooste will ever see the inside of a jail….

This whole Steinhoff story is a big joke. PwC spent a year doing a detailed forensic investigation and found a US$7,4/R129 billion accounting fraud in the financials. However, they then claimed their report is confidential. Why can’t the NPA use that report to prosecute? In SA there is a minimum 15-year sentence for fraud over R500,000. So if Jooste forged some silly document, lock him up for 15 years and he will start talking quickly. Sadly either there are no skills left in the NPA to prosecute white-collar crime or they are getting paid to look the other way. Pathetic.

Jooste knows that everybody knows, and that not even his dog would pee on Jooste if he were on fire. His ego will be battling with this

Not sure about that, his ego is probably now believing that he screwed half of the world, and he is so brilliant, such a genius, that he is’t going to go to jail ? What a man, what a businessman, what a champion !

Sounds like something very similar to how the country is run by the anc – cadre employed government employees do as they like and nobody is charged to account for their actions – a case of i know what you did wrong, so keep quiet about my wrong doing.

Despite huge accolades by politicians, I still wonder if the South African Judicial system is a workable system that can be relied on by the public. The system is overly slow, hardly any persons if any who were involved in state capture or governance fraud have been through the courts. Hardly any one if any have been convicted and sentenced for stealing tax payers money while employed as an MP, Minister, or any other person employed in the political arena or connected politically. The chief justice remains distant and silent as does most of the other judges. They all hide behind the constitution on which they preside and give judgements on. Do they have credibility? History will decide that. So just why would an insignificant case like Steinhoff make it to the courts?

Spot-on observation!

What’s the point of having watchdogs if they are lazy and asleep most of the time?

The SA legal system needs a SERIOUS “performance audit” from top to bottom.

Currently, it’s powered ENTIRELY by avarice and self-interest,and exudes outright resistance to any change that could threaten the present very comfortable (and profitable!) status quo.

Basically, just another business scam pretending to be what it is not!

she was clearly out of her depth and unqualified for the job

Exactly the point! She was in way over her head with a complex , global group peppered with crooked accounting. She certainly made an effort to get things right but sadly this deal was simply too big for her.

Get a Michael Jordaan, Brian Joffe or Jacko Maree level person to sort this mess out-if it can be sorted out!

It can’t be sorted out, that much is obvious.

Well, Daddy was there beforehand, its called nepotism.

Thanks Ann.
A nice piece with much to read between the lines.

Sweetpea has hit the nail on the head. The consequences of the judiciary not functioning are far reaching. We have lost all credibility as an investment destination. We need a couple of whistle-blowers with Steinhoff as well as state capture and prosecutors wth a conscience and cohones. When good men do nothing evil flourishes…

Of course it’s a way out.

Senior people in companies do business with each other all the time. Given the nature of the Steinhoff fraud and how is all occurred, I would think it highly unlikely that any senior person or board member was unaware of it given how long it was going, and even more facepalm would be that any of these board members (including the ex-chair) deserve to get any compensation for their shares in the company.

The chances of her not knowing that her company had dealt with Steinhoff are close to zero. I can only imagine how many staff are shaking their heads on this one.

I was wondering if she was related to cadre Franklin Sonn?

Yep. Franklin’s daughter. But before you cast aspersions on her character she is a highly qualified person and very, very capable.

There is only one way to deal with this mess – spin off all viable divisions and liquidate the rest of it.

Did she not take over from her father as a director, sort of inherited the post?

End of comments.

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