Steinhoff - not for the faint hearted: Too big to fail completely
|Published
By Corrie Kruger
Compulsory viewing for any aspirant Investment student, CA or RA and particularly Fund managers and analysts.
The documentary can be viewed on Showmax here.
There is a saying: “There are three kinds of people, 1) those who make things happen, 2) those who watch things happen and 3) the rest who asks what just happened.”
In the case of Steinhoff numero uno is Markus Jooste and a few other senior management members, and supposed to be independent people, Number 2 spot goes to Steinhoff board members and Exco, and Mr. Len Konar and Steve Booysen, and then at number 3, it appears the rest of the Investment community across the world. (There are a few exceptions: - Local star Jean Pierre Verster, Hedge Fund Manager, and the infamous Viceroy Group) And how did the demise of Steinhoff take place?
As stated in the documentary slowly at first and then suddenly.
The qualifications and track record of people involved in senior positions at Steinhoff, at least on paper are undeniable.
Dr. Deenadayalen (Len) Konar (South African) (Male) (date of birth: 19 February 1954) BCom, MAS, DCom, CA (SA), CRMA Len Konar was the Deputy Chairman of the Supervisory Board of the Company, having been appointed as a Supervisory Director on 30 November 2015.
Len Konar was first appointed to the SIHPL board in 1998, and later appointed chairperson of this board in September 2008.
He held various committee positions during his term as independent non-executive director of this board, including chairperson of the Audit and Risk Committee.
He functioned as chairperson of the Supervisory Board for the period 30 November 2015 to 31 May 2016 and was the chairperson of the Nomination Committee and the GS Committee and a member of the Audit and Risk Committee. Len Konar is an independent consultant and professional director.
He is a past patron of the Institute of Internal Auditors South Africa, a member of the King Committee on Corporate Governance in South Africa, the Corporate Governance Network, and the Institute of Directors.
He was appointed chairperson of the ministerial panel for the review of the regulation of accountants and auditors in South Africa in 2003 and served as chairperson of the external audit committee of the International Monetary Fund.
Dr. Steve Booysen was appointed to the Steinhoff Limited board as an independent non-executive director in September 2009 and as a Supervisory Director of the Company on 30 November 2015.
He completed his articles with Ernst & Young LLP and functioned as lecturer at the University of South Africa. Steve Booysen is the former group chief executive officer of Absa Group Limited.
Steve Booysen served as an independent non-executive director on the board of SINVH and is the chairperson of the Audit and Risk Committee and a member the GS Committee.
On 20 April 2018, the General Meeting reappointed Steve Booysen to the Supervisory Board for a term of 4 years
The annual results for the period ending 30 September 2017 holds some answers with the benefit of hindsight off course.
To start with I searched the word “Debt” in the annual report. The number of references that came up is an astonishing 198 times in a 329-page Annual Report. For what it is worth the same search on Sasol for the same period resulted in sixty-three references.
The result for a company such as Pick and pay shows references of only eleven.
The debt of the Group as at the 2017-year end was €8.8 billion at the Reporting Date.
To put the real numbers to this notation the debt in Rand terms were R123,200,000,000. To put this debt into context:
This debt was larger than the GDP of 26% of Countries in the world.
In the Financial Statements for the year end September 2017 the company states: “The Group deposits short-term cash surpluses with major banks of quality credit standing. Trade receivables comprise a large and widespread customer base and group companies perform ongoing credit evaluations on the financial condition of their customers, and appropriate use is made of credit guarantee insurance.”
It is quite remarkable how Steinhoff applied double standards, expecting more than what they themselves offered.
On 5 December 2017, the Company announced that its 2017 Consolidated Financial Statements could not be released when expected as it had identified potential accounting irregularities and questionable transactions.
As a result of these concerns, PwC was upon instruction of the Supervisory Board retained by the Group's legal advisors to conduct an independent forensic investigation.
Several accounting irregularities were identified by the Management Board:
• A small group of the Group’s former executives and other non-Steinhoff executives, led by Senior Management, structured, and implemented various transactions over a number of years which had the result of inflating the profit and asset values of the Group.
• Complex, fictitious and/or irregular transactions were entered into that involved many entities over several years, including parties said to be, and made to appear to be, third party entities independent of the Group and its subsidiaries but which, now appear to be closely related to and/or have indications of control by the small group of people mentioned above.
The Management Board determined that certain other transactions, which were not part of the investigation, required further consideration, and were also assessed by the Management Board to have been inappropriately recognised in the consolidated financial statements.
The Management Board identified several transactions with four principal groups of corporate entities which were not on an arm’s length basis.
The four principal groups are:
1) Campion and/ or Fulcrum Group,
2) Talgarth Group,
3) TG and/ or TG Management Group and
4) Fihag Group and certain individuals; Schmidt, Evans, Pasquier were purportedly independent, but were in substance closely related and/or controlled by the Group.
The Table below is an extract from the Financial Statements of Steinhoff for the year end 2017.
Corrie Kruger is an independent analyst.
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