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Pepkor struggles to shrug-off Steinhoff effect as JSE slaps fine

Retailer fined R5m for breaking listing rules when it was spun off in 2017.

Pepkor’s efforts to distance itself from majority owner Steinhoff International received a blow as Johannesburg’s stock exchange fined the South African retailer for breaking listing rules when it was spun off in 2017.

Key insights

Part of the censure related to a R500 million writedown Pepkor took in May, related to a controversial management-incentive plan that pre-dated the listing. The R5 million fine imposed by the JSE on Monday may make investors nervous about the potential of other, as-yet-unknown problems related to Steinhoff, which almost collapsed amid an accounting scandal a year ago. The operator of clothing chains including Pep and Ackermans is also embroiled in a court battle against former executives of shoe retailer Tekkie Town, which Steinhoff bought in 2016.

 Market reaction

Pepkor shares have slumped 25% since Steinhoff’s announcement almost a year ago that it had uncovered accounting irregularities and its CEO had resigned.

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Pepkor said it’s working “intensively to improve its disclosure where necessary and appropriate.” The extent that Steinhoff-related issues distracts management from running the business should not be underestimated, said Syd Vianello, an independent retail analyst in Johannesburg. 

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It is very concerning, especially as shareholders, that Pepkor could have future liabilities associated with Steinhoff NV.

It would be prudent of Pepkor to disclose all and any possible liabilities rather soonest than later.

Secondly, does Pepkor have the right person as CEO?

One would assume that the Pepkor board will have the “guts” to recover the 5 million JSE fine from Steinhoff if they were the cause ….. from dividend payout.

If Pepkor was the cause of the non disclosure and fine from JSE then the exec Board members must “PAY BACK THE MONEY” and the CEO should go.

There must be consequences !

How do you fail to tell your shareholders that the company stood surety for R15bn of Steinhoff International’s debt and also fail to inform them about loans worth R440m to senior management? Either your company secretary and legal dept is useless or they were told not to do it. Either way, it doesn’t look good.

Exceptionally underwhelming set of results. Especially if compared to MrP. People sometimes forget that this is not the “old” Pepkor. This is a shelf company in which Steinhoff bundled assets after they had been scrubbed. The JSE fine shows that. Only way that any form of confidence and credibility will return is if an outside CEO and CFO arrive on the scene. Both current incumbents too well versed in the way of Steinhoff and given exposure to the previously undisclosed loan they are both probably not in a position to apply independence. Would be good to know how many executives have loan exposure and are impacted by the loan being under water?

The “old” Pepkor was run very well when Pieter Erasmus was CEO for many years, over 20 years, who built “Old” Pepkor.

Agree the current CEO is “out of his depth” and lacks inspirational leadership and respect.

But, the current CFO is the right person for the job and is well qualified and respected.

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