From golden visas to airplane deals – what we've learned from Steinhoff's 'real' results
- After long delays, Steinhoff has finally released its restated results from 2017.
- Steinhoff has written off billions, and its total assets for that financial year are now estimated at €17.5 billion. In 2016, Steinhoff claimed its assets came to €32.2 billion.
- Markus Jooste is fingered for various transgressions in the results.
- For more, go to Business Insider SA.
On 5 December 2017, Markus Jooste resigned as Steinhoff CEO after auditors Deloitte refused to sign off on the company’s results for the financial year to end-September of that year.
Those results have now finally been released after long delays – scrubbed clean of dubious accounting and fraud. The numbers were released at midnight on Tuesday, and incorporated the findings of a PricewaterhouseCoopers forensic investigation. (Steinhoff is still refusing to release the PwC report due to its “privileged nature”.)
Apart from restating dubious transactions that Jooste apparently concluded with close associates, Steinhoff also wrote off €838 million that puffed up its financial statements. It found that in 2016 and 2017 Steinhoff accounts included inflated values for property and other assets, as well as for goodwill and other "intangibles" .
Its total assets fell to €17.5 billion in 2017 from a restated €21 billion in 2016. In 2016 Steinhoff claimed its assets came to €32.181 billion.
It is now clear that the accounting irregularities were efforts to mask "challenged" profitability, Steinhoff says in the report.
The company suffered an operating loss of almost €3.7 billion in 2017, from a profit of €278 million in 2016. Steinhoff currently has net debt of €8.8 billion - while it is also facing to €6.2 billion in legal claims – excluding various class action suits.
Steinhoff 2017: total of R246bn of writeoffs and now R140bn of debt. Sustainable Ebitda probably around R6-8bn. I don’t think the share has any value whatsoever. Horrific outcome. 2018 numbers coming soon ... and will be worse.— Peter Armitage (@peterarmitage) May 8, 2019
Enron, the worlds biggest fraud, was R650bn. At R250bn of fraud related writeoffs, Steinhoff is right up there on the biggest ever ranking table.— Peter Armitage (@peterarmitage) May 8, 2019
Here’s what we learned from the restated results:
In 2017, Jooste ordered that a bonus of R23 million be paid out to him – months before it was due
Steinhoff found that a bonus of €1.571 million (R23.333 million, at the time) was paid to Jooste in May 2017. The bonus was only supposed to be paid to him in three instalments in October 2017, November 2017, and October 2018.
“This amount was pre-paid by a Group company, SEAG, on instruction from Markus Jooste and management could not find evidence of approval by the (remuneration committee) authorising this upfront payment.”
Jooste also paid himself another undeclared €500,000 bonus
In March 2017, Jooste also received a €500,000 bonus – which was not approved by anyone in the company.
“The payment of the €500 000 was neither proposed by the Human Resources and Remuneration Committee nor approved by the Supervisory Board."
Jooste received a forbidden personal loan of £50 million
Jooste’s family trust, Mayfair Holdings, agreed to receive an undeclared loan of £50 million from a subsidiary of the Dutch company Habufa. Steinhoff owned 50% of Habufa. Executives are not allowed to receive loans from Steinhoff without board approval.
Christo Wiese’s company gave Steinhoff a loan
Upington Investments, which is controlled by former Steinhoff chairman Christo Wiese, granted a loan of €47.4 million to Steinhoff, with an interest of 0.5% per year. Steinhoff says that it does not appear from the minutes of board meetings that Wiese reported his potential conflict of interest, in accordance to company rules.
While Wiese hold 90% of Upington, other Steinhoff directors including Jooste hold 10%. Upington also purchased 315 million Steinhoff shares as part of a capital raising, for which it received a “underwriting commission” of €39.7 million.
Steinhoff’s airplane deals
The report found that Steinhoff paid for aviation services from a company owned in part by Markus Jooste and former CEO Danie van der Merwe. Steinhoff also struck a deal with a company controlled by Wiese to rent its Boeing Business Jet for €19 631 (excl. VAT) an hour.
In total, more than €844,000 was paid to Wiese’s company.
Details of a shape-shifter loan
A legal firm part-owned by Stéhan Grobler (who previously held various positions in Steinhoff including company secretary, head of legal, and director of treasury and financing) received a €4 million loan to buy shares in Steinhoff subsidiary KAP.
“During the process where the shares were sold in the open market, the proceeds were transferred to the Group; resulting in the loan fluctuating between a loan payable and a loan receivable until the transaction was finally settled,” Steinhoff said.
In 2017, Grobler’s firm also received provided legal services to Steinhoff to the amount of €2 million.
Steinhoff execs received ‘golden visas’ in a property transaction
In 2016, a group of unnamed Steinhoff execs bought a property in Portugal from the group’s subsidiary Conforama. The property investment allowed them and their families to get “golden visas”, which fast-track residency permits in Portugal. The execs paid €7 million for the property, with the agreement that they can sell it back after five years at the original purchase price.
The execs then rented it out to Conforama at below market rates, which benefited the company.
Pepkor bought products from a Jooste company
Pepkor purchased products from Lodestone Brands, a company believed to be indirectly controlled by Jooste. The purchases amounted to approximately €3 million annually, Steinhoff said.
Jooste's 'buying group' was fake
In his book, Steinheist: Markus Jooste, Steinhoff and SA's biggest corporate fraud, journalist Rob Rose chronicles how Jooste told Steinhoff directors that he was part of a “buying group” which was supposed to negotiate rebates and bonuses from suppliers on behalf of the larger Steinhoff group of companies.
Steinhoff would list various “rebates” and other “bonuses” secured by the TG Group in its accounts. These entries in its financial statements helped to bolster Steinhoff’s profitability.
But Steinhoff says the group's activities were fake.
“TG did not in fact negotiate or collect contributions from third parties on behalf of the group. Payments received in respect of the amounts owing by TG were received from entities within the Group i.e. there were no external cash flows into the Group.”
All contributions were reversed, reducing Steinhoff's net assets by €2 billion in 2015 and 2016.
A JD Group deal is now confirmed to be suspect
Siegmar Schmidt, the former head of finance of Steinhoff in Europe, launched a company called Campion Capital five years ago.
One of its subsidiaries bought the consumer finance arm of JD Group – which handles all credit transactions for furniture and appliance retailers Joshua Doore, Russells, and HiFi Corp - from Steinhoff in 2016.
“It appears as if Steinhoff was instrumental in setting up the structure to facilitate the sale of the (JD Group) Loan Book and insurance operations and that certain key management of the Group did have some form of special relationship with the Campion Group,” Steinhoff said.
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