Steinhoff: ‘Big mistakes’
EVIDENCE SURFACING: THE ‘ERRORS’ APPEAR TO GO WAY BACK IN YEARS
How did it come to be that one man could treat a large multinational like it was his personal ledger? Moneyweb
This is the first in a series of articles following a joint investigation by Moneyweb and Jan Strozyk and Benedikt Strunz from German publisher Norddeutscher Rundfunk.
Leaked documents and e-mails appear to show how then-Steinhoff CEO Markus Jooste, Steinhoff Europe CFO Dirk Schreiber and Siegmar Schmidt (who previously occupied Schreiber’s role and had left to found Genesis Investment Holdings) seem to have conspired to manipulate Steinhoff’s accounts as far back as 2014, possibly even further back.
The e-mails were exchanged in August 2014, as Steinhoff was preparing its accounts for the financial year ending June. Genesis was fingered in Viceroy’s report as having been enriched at Steinhoff shareholders’ expense.
E-mails
Jooste told Schreiber he’d decided to impair the JD Group’s book by R3.6 billion, which “put [his] consolidated results out of balance”.
To remedy this, Jooste proposes paying Genesis a €130 million (about R1.9 billion) commission for negotiating the sale of the JD Consumer Finance Book to BNP Paribas. In turn, Genesis would pay Steinhoff €100 million to boost profits in line with guidance.
Schreiber says he still has a €82 million gain from an “old item” with Genesis dating back to financial year 2011/12. He asks Jooste to cover it with a letter of confirmation or guarantee, otherwise the link between Steinhoff and Genesis would be “dangerous under IFRS 10”.
Jooste says he’s oblivious to there being such an amount accrued from Genesis and suggests rather paying the €130 million commission, then booking €100 million income from Talgarth. Talgarth Capital Limited appears to be controlled by Schmidt.
Jooste then refers to “cleaning up” for the following year. Presumably, this refers to preparing Steinhoff for the Frankfurt listing, which eventually happened in December 2015.
Jooste then asks Schmidt to provide Schreiber with his “support and guidance” again.
Schmidt tells Jooste one of his divisional CFOs is “fighting with CT [understood to be some sort of accounting consultant to the company] to get everything through the books. “But your additional entries without any proper documentation will not be accepted by CT”.
Schmidt alludes to “old balances” that have been moved from Steinhoff to Triton-KLS, adding: “You will remember all the balances we pushed up in the last years.”
Jooste responds, saying: “Of course we will make sure that all the balances clean out and you know that I will not let Triton sit with any problem of ours! You can understand that we need a strong base behind us to do all the entries we plan to do to clean up the past. If we stop now short, my concern is that the rest is then more difficult.”
What transpired?
Steinhoff published its annual financial statements for the year ending June 2014 on September 9, signed off by auditors Deloitte & Touche.
But instead of impairing the JD Consumer Finance business, as per the e-mails, Steinhoff notified the market that it had received an offer from BNP to buy the business on June 30 2014.
Based on this offer, it treated the business as a discontinued operation in the income statement and as a held-for-sale item on the balance sheet. The purchase price realised by Steinhoff for JD Consumer Finance fell from R6.7 billion as per the e-mails, to R4.7 billion as announced to the market – a R2 billion difference. It’s unclear why.
The gross profit margin for the group remained at 35% for financial year 2014, exactly in line with 2013. Interest income from “loans” and “other” sources rose by €530 million over 2013.
Analysis
At the very least, the wide-ranging discussion around how to get the books to balance and reach a pre-determined outcome, get transactions past consultants, make things acceptable to auditors, and ensure that the company delivers on its guidance, reveals just how free-wheeling Jooste was in preparing the company’s financial statements.
These exchanges also seem to indicate how many aspects of the group’s accounting – going back to periods far longer than those under investigation – were extensively engineered: How can losses be offset? How much should the income from investments or joint ventures be? Where should profits come from – this vehicle or that one? How do we deal with outstanding balances from transactions done years ago? These all seemed to have flown in the face of conventional accounting principles.
But what really needs to be probed is where were the people who were meant to be safeguarding and probing these books? Starting with Group CFO Ben la Grange, who didn’t appear to be a concern in these exchanges. Then too, Deloitte: where did its oversight begin and end? And finally: the board.