You are currently viewing our desktop site, do you want to visit our Mobile web app instead?
 Registered users can save articles to their personal articles list. Login here or sign up here

The scale of the Steinhoff deception

Group’s restated results paint quite a different picture.

When Steinhoff International released its interim results for the six months to March 31 last year, it reported a healthy operating profit of €903 million (R14.5 billion). The group’s operating margin was 7.5%.

Markus Jooste, the CEO at the time, hailed the group’s performance.

“This solid revenue and margin performance underscores the resilient model of the group,” he said. “This has been further underpinned by both our product and geographical diversification in what remains a resilient discount market. The strong leadership and execution from our operationally focused management teams also continues to deliver good growth.”

However, on Friday Steinhoff restated these 2017 numbers when it reported its 2018 results, and what emerged is something astonishingly different.

Revenues for the six months to March 31, 2017, which were originally quoted as €10.2 billion (R163.6 billion), were restated as €9.9 billion (R158.8 billion). The operating profit had vanished entirely, and was instead an operating loss of €168 million (R2.7 billion).

In other words, Steinhoff had overstated its operating profit for this period by more than €1 billion (R16.1 billion).

The restated results also show that the group’s operations in the US and UK were both heavily loss making last year. In the USA, the operating loss was €80 million (R1.3 billion) for the six months to the end of March, while in the UK it was €14 million (R225 million).

The group also noted a substantial change in its reported total equity position. For the year ended September 30, 2016, Steinhoff reported a total equity position of €16.6 billion (R266.9 billion). However, its restated total equity is just €5.7 billion (R91.4 billion), which is 65.8% lower.

In total, when re-stating the accounts, the group impaired overstated assets and the reversed non-arms’ length transactions worth €6.1 billion (R98 billion).

However, as these remain unaudited results, these are not definitive amounts. It remains possible that even larger restatements could follow.

As one local asset manager noted: “You have to be very careful not to draw conclusions. It could be even worse.”

Negative tangible net asset value

Steinhoff’s balance sheet also reveals to what extent its position is highly precarious. Of its total assets of €19.838 billion, €9.359 billion, or 47%, is listed as goodwill or intangible assets.

The group’s total liabilities, however, are €16 045 billion. These exceed its tangible assets by more than 50%.

This negative tangible net asset value remains this high even after an impairment of €1.5 billion to goodwill and a further €144 million to trade names relating to Mattress Firm.

The PSG guarantees

Of further concern to shareholders was the revelation in the results that Steinhoff had entered into derivative contracts with two PSG Group investors when it increased its shareholding in that company in 2015. This appears to be new information that had not been previously disclosed.

At the time of the transaction Steinhoff agreed with a number of PSG shareholders to swap their PSG shares for Steinhoff shares. However, two shareholders entered into derivative agreements through which they retained economic exposure to PSG.

Through these agreements, Steinhoff was liable to pay out the difference in value if PSG shares outperformed Steinhoff shares. If Steinhoff outperformed, then Steinhoff would receive the difference in value.

The amounts concerned were not enormous, but nevertheless created a liability for Steinhoff. The group settled one contract for €0.7 million (R11.3 million) and the second for €13 million (R209 million). This again raised concerns about companies doing deals that create a potential liability for shareholders without those shareholders being aware of them.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

AUTHOR PROFILE

COMMENTS   33

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

Why is Maak-us-poor still not under arrest? Are there too many zero’s in the fraudulent amounts for our law enforcers to comprehend them? In any non-banana republic the court case would have been over and the big-jowled ones sweating in jail already.

In other news, looks like the share price is starting to move.

The police is waiting for him to move to Australia like in the case of the Bobroffs and others, then they can say that they can not do anything.

To be fair to police, I think the lack of arrest stems from :

You need a claimant and allegations and evidence and cooperation to prosecute; yet it is unlikely that the Steinhoff gang will want to air all their laundry in public.

This was not a one man robbery – Jooste can bring down twenty others if they go after him.

Steinhoff International are out of money, operations are continued at huge month to month losses, impairments are far from completed and yet Sonn has seven months down the line not started to close down loss-making stores, to cut the staff complement, to cut deep into the expenses, to sell of loss-making affiliates and to turn the ship around. This ignorance will lead to Steinhoff bleeding out and breaking-up at fire sale valuations.

The scale of deception that occured and allowed to be permitted is in direct proportion to the lack of regulatory oversight by SAICA and the JSE.

I’m keen to hear your views on what oversight would have been appropriate to prevent such a large scale corporate scandal.

Refer numerous press articles on:
– insider stock trading;
– certain accounting irregularities resulting from the concerns raised by Deloitte;
– the five different probes the company is facing in South Africa and Europe, in addition to the PwC probe (but not one by SAICA or the JSE).

Honest Auditors, for a start.
A Board of Directors not just collecting windfalls, but actually querying how it was generated.
You must surely know some of the rest.

The high percentage of goodwill and intangible assets.

Consistent,low tax rates.

If not satisfied, ask Magda.

@Africa Pragmatist I am familiar with those articles however my question is what active measure would you have expected to prevent the occurrence of fraud in the first place.

One has to ask what the previous financial director Ben le Gransie did at steinhoff. But, no problem he still works there. I figure Des van Rooyen would have done a better job. I bet a lot of the steinhoff directors have a lot to say about the anc government, but, even Zuma could recognize that Dez was clueless. I kind of wonder if Zuma would not to a better job on this board. Lets vote him in.

Not a chance this boy did this on his own – more heads should be rolling & especially the auditors.

I agree, not a chance he did this on his own. In fact, many people think he is taking the fall. Other people on that Board had far more dirty dealings in the past. Some masterful ones that fell into grey areas. If it was not picked up by overseas regulators one has to wonder if our local financial enforcement agencies ( such as they are) would ever had had the courage to investigate. Too many big names.

Methinks, Markus Jooste – ‘’He writes like a Pakistani who has learned English when he was twelve years old in order to become a chartered accountant’’ John Osborne (1929 1994)

I also don’t think that the JSE, SAICA and Steinhoff’s external auditor will ever run the risk of being ‘’expropriated without compensation ’’ by the ANC, as their ‘’ignorance is encyclopedic’’

Wow what racist/jingoist rubbish. Fed up with people linking Joostes fraud to his Afrikaans background. What his command of the english language has got to do
with the price of eggs only you will know.

and Jooste walks free……………..

He’s not walking free. Haven’t you ever heard of due process.

He’s going to sit for a lonnnnnnng time. It’s the perfect time to make an example of a businessman. The evidence is already overwhelming (e-mails). But this is complex and in order to properly convict, it will take time.

Bottom line, prison isn’t going to help anyone who lost money. It will make an example, but to think that this will stop future greedy CEO’s is ludicrous. We must only hope that he is prosecuted outside of South Africa, because no way in hell he goes to jail over here. Too many easy pockets to fill and lack of expertise.

I hear Plea Bargain being struck as we read this – – he is spilling the beans on the Chairman and non-exec managers – – – – –

Not an attorney never heard of due process.

Because of “due process” the Bobroffs and others had time to skip the country. Would not be surprised if Jooste does the same.

It would be better if the article, which is about restated accounts, actually explained/reconciled what the restatements were for – starting with EBITDA.

Is there a reason why Jooste and Wiese have not been arrested yet? Overseas they would have been in custody while investigations are ongoing, instead of being left free to try and wheel and deal their way out of their mess. And the rest of the Main Board’s Directors. Those innocents, just coining millions, but not knowing for what reason or how it was generated, or not generated?

So now the “private sector”, economists, opposition politicians etc are still shouting at SOCs re their corrupt activities. What will happen is that corruption shifts from one sector to the other. Which sector in the RSA economic sphere is the most corrupt?

The “Wheels of Justice grind slowly”

However, in the case of Steinhoff the scam was outed — albeit belatedly — by the company’s checks and balances (external auditors, directors refusing to support Jooste, etc). Whether these checks should have kicked in sooner is another matter and will not doubt be reported in due course.

Now look at the serial cover-ups, demonisation and sacking of honest state “watchdogs” — e.g. Pikoli and Madonsela”, votes against No Confidence in crooked ANC politicians, the bleeding of the country through tenderpreneurs and “invest in the ANC”, Chancellor House, backhanders and kickbacks.

Granted two wrongs do not make a right, but the scale and effect — especially of the poor, who can only fantasise about pensions or shareholdings — of public sector graft is multiple times worse.

My question is simply how is it possible that so many Fund Managers slipped on their due diligence as far as the company is concerned?It seems impossible to do a proper due diligence on any company because you do not know it you can trust the auditors, management of any company. The only thing you can work with is track record and that has also been proven wrong more than once. My predicament and those of other investment brokers is you simply do not know which figures can be believed and we will get in trouble if our client loose money on this scale, for sure. It would really be interesting to see how this one ends

You are right: “trust nobody, not even your father” In this context with reference to unaudited numbers we have seen the reports from commentators and analysts that I have seen focussed on the past, getting confused between 2017 published and restated and 2018 and even Euros and Rands. We want to see comments focussed on the future based on the 2018 numbers we have seen (knowing that it is unaudited) and the business environment they are operating in. Let the other peopledo their job as to what has happenned. We all know that in most cases new CEOs will brak down good work of the previous one. I think it is the situation now: Are those impairments profuse?

Crime in the country is full of surprises. Heads have got to roll. The authority must take all to task and show strength and be resolute in their quest to show the country can grow and prosper. We can if only the mondsets will change. Is it going to happen………. doubtful.

Marcus and pals were doing to shareholders what JZ and pals were doing to the country! And in the process, all parties have trashed South Africa’s reputation as a country in which to invest and trust. What price do you put on this??? No prison term or fine will re instate what we ALL ( black white Coloured Christian, Jew HIndu Moslem Buddhist ) have lost. What a travesty.

Nowhere is there a single report on what the administrators/trustees/curators of Steinhoff are doing to the directors and Jooste family. Why have they not frozen all his and his families assets locally and internationally. When they ultimately can afford to live than maybe he will willing spills the beans and go to jail of his own accord. This guy is no different to Bernie Madoff

Not condoning it but the amounts involved here are small change compared to what the likes of Zuma has done to the country. No one was forced to invest in Steinhoff whereas we are all exposed to the Zuma deception.

Load All 33 Comments
End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

SHOP NEWSLETTERS TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: