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Steinhoff shares plunge after CEO Markus Jooste quits

Shares fall by more than 60% in Johannesburg and Frankfurt amid a storm over the global retail giant’s accounting irregularities.

Steinhoff International CEO Markus Jooste has resigned with immediate effect amid the retail giant’s admission of irregularities in its financial accounts that has sparked an investigation and a free fall in its shares. 

Jooste, who has been with Steinhoff sine 1988 and has been crucial in turning the company into Europe’s second-largest homeware retailer, will be replaced by the 76-year old business baron Christo Wiese.

Steinhoff’s share price finished 61.42% lower to R17.61/share on Wednesday, wiping out R121 billion from its market capitalisation. Its share price in Frankfurt suffered a similar fate, crashing by 63.25% to €1.10.

Jooste’s resignation was announced by the Johannesburg and Frankfurt-listed Steinhoff after markets closed on Tuesday evening. 

Jooste also resigned with immediate effect from the boards of Steinhoff Africa Retail (Star), which is Steinhoff’s unbundled African subsidiary in which it owns a 76.8% stake, PSG Group and PSG Financial Services, and Phumelela Gaming and Leisure

Ben la Grange, the CEO of Star, also resigned with immediate effect, sending the company’s share price down by 22.76% on Wednesday, losing R19.3 billion in its market capitalisation. La Grange was Steinhoff International’s CFO before Star listed on the JSE in September. 

Wiese, who is the present chairman of Steinhoff, will run the company on a temporary basis. Pieter Erasmus, the previous CEO of Pepkor Group, will join Wiese in an executive advisory capacity to assist with managing the group’s various retail interests globally.

“Wiese and the board will supplement the management team and will embark on a detailed review of all aspects of the company’s business with a view to maximising shareholder value,” Steinhoff said in a statement.

The retailer also announced that it has approached PwC to perform an independent investigation.

Steinhoff’s share price collapse intensified on Tuesday after releasing a trading update on Monday that its annual financial results for the year-ending September would be presented in an unaudited format.

The company was meant to release its annual results on Wednesday but will only release results “when it is in a position to do so.”

Steinhoff said that its auditors “had not yet finalised their review of certain matters and circumstances, most of which were raised by the criminal and tax investigation in Germany.” 

It said new information has come to light relating to accounting irregularities, which might see the company having to restate previous financial statements.

Steinhoff’s share price has sunk by 72.35% so far this year.

Steinhoff share graph

Steinhoff has been forced to defend itself from damaging European media reports on numerous occasions about accounting irregularities and non-disclosures relating to its acquisitions, which has sullied its reputation.

Read: Steinhoff’s unravelling

In November, Steinhoff rejected media reports that revealed that the retail conglomerate did not inform investors about deals worth $1 billion (R14.2 billion at the time of writing).

Reuters report said Steinhoff did not inform investors about material transactions with a related company despite European laws that require it to do so.  

The transactions relate to Steinhoff’s purchase in 2015 of a 45% stake in Swiss company GT Branding Holding and loan to it of about 810 million Swiss francs (about R11.5 billion). The loans came shortly after Steinhoff bought the 45% stake in GT Branding Holding. In denying the allegation, Jooste said at the time: “all reporting requirements have been met. This has been confirmed by our internal legal team and external experts.”

Read: Steinhoff shares down on allegations of $1bn non-disclosures in Europe

Over the last two years, Steinhoff has transformed from being an Africa-focused retailer to a global retailer as it acquired global furniture and homeware businesses including Poundland in Britain, Mattress Firm in the United States and Conforama in France.
 
In August, a leading German business magazine alleged that a public prosecutor was investigating Jooste on suspicion of accounting fraud. In September, a Dutch court heard an application brought by for an investigation into Steinhoff’s 2016 annual accounts. The application, which was brought by businessman Andreas Siefert, alleged that Steinhoff did not properly account for the joint-venture nature of Conforama.

Steinhoff denied all allegations of wrongdoing.

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First they deny the truth and then admit.

That is the trend in SA…..absolutely no integrity left.

Chevvy you are quite right!

This is a European company…

In the last 2-3 weeks on one of the business day programs – two so called share experts espoused the virtues of Steinhoff as being a big BUY. That was just before the latest troubles started. I emailed them both warning abt making big calls like that. I got no response (of course). I will dig out their details & advise!

Robert, you should be more concerned on YOUR calls on Alibaba, Naspers (the only share you would buy on the JSE) and Bio-Tech. The reason they (share experts) did not answer you is because your opinion does not really matter.

Hee – & I thought it was because they were so embarrassed abt losing people 50% of their money! As u obviously hang off everything I comment – I’m sure you will noticed that my major biotech stock was bought after I had made 400% in 8 months. And no doubt u would have noticed that I am slowly selling out of my BAT shares – but not tencent – as I ever owned any. Plse let me know how else I can help.

Robert Smith is there anything in Australia that you identify with?

I have left Hungary 50 years ago, despite this I regularly comment on different Hungarian websites. Why should not have Robert the right to comment? Lot of South Africans seem to think that they are the centre of the universe and anybody outside the country is wrong. I have met lot of people claiming that they could never live in Australia, the US or Europe but they never even visited those places. My favourite was from a woman who is so used to having servants that she said : I rather get killed in my own home than clean it.

Thank you

I couldn’t live in Autralia either – it’s full of Australians…..and Bobby.

Agree with The Hun. I am a South African that has been living in Australia for the past 8 years. I still regularly follow South African financial news as I have family and friends who will be impacted by these sorts of disasters. As for Vlad the Impala – have you ever been to Australia? Many a day goes by that I do not speak to Australian born Australians. There are immigrants from everywhere and a very large number of South Africans where I live. I speak more Afrikaans on a daily basis than I did in Johannesburg. To simply knock it because it is full of “Australians” is a very limiting point of view.

Don’t flatter yourself Robert – You always have the winning stock after it has had its run – Very convenient – So why not call the next 400% stock (over 12 months) and if you do I will never comment on any of your posts again – As for Tencet Robert, you made it very clear you would buy it if you could but you cant because its not listed on the USA stock market – You also went on to say that the only JSE share worth owning is NASPERS – You cant even keep track of everything YOU say – As for the Hun and Ryan – I have no problem if anybody outside SA comments on SA but if ALL the comments from that person is negative I will reply.

Not sure the point u are making. Tencent is up 2.73% today (7 dec) so naspers will follow. I looked at Tencent but because it’s not listed in America – didn’t buy. I want liquidity so I can get out with one phone call- can’t get that in Hong Kong. As regards my current holdings am selling out of Chinese stocks & IA . I am not a wealth manager & don’t give recommendations So I can make commission. I am here to help & had u followed MH & my suggestions to invest off shore direct a lot of people would be much happier today. Clearly you didn’t – so why shld I pass on any recommendations?

Shame Robert – Touched a nerve did we? You can dish it out but you can’t take it. As always you choose to respond only certain questions. So now you are not a wealth manager? – But you have no problem punting shares and shooting down any dissenting views/authors? I wont labour the point out of respect for other contributors to this forum.

I have seen this coming – Mr Jooste was too arrogant and thought he would get the world to conform to his standards, only to find out he, and Wiese are just two unimportant players in a massive market.

Whats worse than Jooste running Steinhoff??? Wiese running Steinhoff!!

I wish I was party to the conversation between the two when Wiese realised he is losing billions on his latest punt on Steinhoff.

COME BACK WHITEY – – WE WILL PAY YOU WHATEVER YOU WANT TO SORT THIS MESS!!

When are these ” grootkoppe” going to learn there is no place for arrogance in SA…huh!

Ray – once again, my comment is not placed.
Why?
Who are you protecting? Wiese? Jooste?
You should not pick sides.

Please don’t get personal with journalists and accuse them of having agendas when your comment isn’t published immediately. An automated system flagged the particular comment for moderation and it was therefore not published immediately. In fact, Ray has absolutely nothing to do with the moderation of comments.

Ryk – you know I have a lot of respect for you and your journalists (even Heystek, although he does not respond to criticism or questions), but I would suggest you improve your “automated system” as it is strange that every time I mention Wiese your system does not place my comment until I raise an issue.

Other than that – keep up the good work.

When something sounds too good to be true, it usually is. (Making all those acquisitions in such a short space of time raised the question whether Steinhoff could digest it.)

….. hey, hey, Bluh, bluh, bluh parastatals and SOE are froth with corruption… when are we going to admit the filth in listed companies. There is greater reputational damaged for our country from that sector of business. Let’s be aware of where this is all going….

One of South Africa’s bigger Ponzi schemes – the sum of the parts says it all

Ray van Niekerk and Theo Botha please comment on my personal letter i wrote to you both a few months ago regarding moral issues!

They have been found out! Too big to put in a suitcase Christo?

smoke and mirrors. the big Stellenbosch mafia boss replacing his lieutenant.
i mean really guys who do you think was pulling Joostes strings.?

Share down 61% this morning.Did they really have to resort to this accounting fraud and whatever else they have been up to?Maybe some jail time would not be out of order.This on top of the shenanigans at Naspers,and you wonder is their any hope left

I guess the chicken have come home to roast. Have to admit Markus is definitely a smart guy, but his ego is something else. I wonder from his Executive team who will be following him shortly.

To think market commentators they’ve been of late shouting buy. Anyway I do not think it will be a bad move at all to get some cheap Steinhoff shares now.

Buy your cheap shares now!

And what if it turns out that the company is actually bankrupt?

They will be cheaper!

R91bil erased in market cap in 10min. It’s becoming hard to distinguish who is govt. and corporate these days. BUY!BUY!BUY!

Don’t – it’s what they said during GFC & before that Great Depression- only to see shares fall even further

Notwithstanding all the self-righteous comments & judging, this is a very another VERY SAD date for SA Business, end the implication will be rippling through out pension fund investments.

Self-righteous? You have to be kidding. These two should have known better. Absolutely no excuse.

What amazing torque and acceleration Steinhoff has! Better than a Ferrari! 100 to zero in 1 week!

In my short career + mid level academic studies in accounting, the only conclusion that I can draw from the situation is that there may be:

a. Material mistatements.
b. Going concern issues.
c. The financial statements do not possess the fundamental and qualitative attributes required.

The board also said that prior financials may have to be restated. So it looks like the auditors may have found something material.

Second note, be very wary of a company with accounting practice concerns. During every global recession and business scandal, shady accounting practice was used as a tool means to alter the economic reality of the company

My gut feel says (b) Going concern issues. I think their liabilities exceed their assets.

Ive seen quite a few rumors today. Many of them were to do with inflated earnings through shady accounting practice. Apparently transfer pricing was used as a mechanism. All rumors though.

The group had a pattern of perpetual acquisitions and restructuring that made it impossible to assess its core business and business performance. Certainly neither Wiese or Jooste had to steal money under the table as they took enough above the table. So I doubt fraud in its usual manner.

Likely:
– manipulation of acquisition accounting in all those invisible periods between the target last reporting publicly and the effective date of the acquisitions.
– related party transactions at inflated values to evade taxes and shift profits to low tax jurisdictions
– classification of transactions to suit the narrative that management wanted to tell investors.
– classification of subsidiaries / associates / joint ventures to suit the accounting result that management wanted

It is not appropriate to appoint Shoprite’s auditor as the “independent” reviewer. PwC can in my opinion NOT accept this appointment under professional rules.

Wow, this is some serious stuff.

Theres a book written by a very highly regarded author and scholar called creative accounting. Everything you have just said falls within the scope of the model he designed, companies use the flexibility in accounting to derive the results that managers want.

Interestingly, in every case that he investigated, the auditors contributed to the failure.

If I may ask, what was the effect of these practices on the financials?

I think if you do not live and work in SA you have forfeited your right to make snooty comments about it and should shut up. You have made your choice. Go and play with Bob in Australia or wherever. Any case-all the expat comments are more about their stupid ego’s than anything else.

This has the same smell as Tollgate – remember the late 90’s?

One Christo Wiese (and friends) was intimately involved and a lot to say about the ethics of all concerned and how they did not need the likes of Julian Askin in South Africa. Well it appear that the wheel has tuned and so has the worm.

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