Markus Jooste, former CEO of Steinhoff, said that the net effect would be that “we have written off the debtors’ book in this year but achieved our overall group target”. Picture: Henk Kruger/Independent Newspapers
UNDER the then Steinhoff CEO Markus Jooste, who apparently killed himself almost a year ago to avoid facing charges of fraud relating to the company’s failure, the company’s European unit claimed fake revenue of R6.4 billion while also engaging in some creative accounting to balance the books.
Steinhoff, which had operations in about 30 countries through some 650 entities, was South Africa’s largest corporate scandal, collapsing after accounting irregularities were uncovered by then auditors, Deloitte, in 2017.
In the 7,000-page PwC report into the wrongdoings at the company, which was officially liquidated on October 13, 2023, the consultancy firm details several accounting shenanigans. One of these included Steinhoff failing to reverse revenue for the sale of an entity that fell through.
Towards the end of 2013, Steinhoff Group entity JDG Trading decided to sell JDCF, which provided unsecured lending to consumers shopping at JD Group outlets – at the time including names such as Joshua Doore.
However, the complexity of the agreements, as well as the number of suitors, created opportunities for Jooste to cook the books, a process that then Steinhoff Europe chief financial officer, Dirk Schreiber, vehemently opposed, saying he could only fix so many mistakes at a given time.
The rationale for the sale was ostensibly to enable JD Group South Africa to focus on its core business of retail through exiting financial services. PwC’s report noted that when the decision was made to sell JDCF, it was making a loss.
Steinhoff acquired the financial services unit when it bought control of JD Group in 2013, subsequently buying the rest of the company it did not own two years later. JD Group is now part of Pepkor, which is owned by Ibex Holdings along with some other former Steinhoff brands.
A decision was made to sell JDCF to BNP Paribas’ South African subsidiary, RCS Cards, in January 2014, a move that was approved by JDG Trading’s board a few months later. This deal was approved by the Competition Commission in May 2015, subject to conditions.
That deal was, in September of the same year, scuppered because of “onerous conditions”. Yet, Steinhoff Europe – a subsidiary of the overall Steinhoff Group – booked revenue of €335 million, or R6.4 billion at current conversion rates, despite this deal being “ultimately abandoned” and did not reverse this amount.
Subsequently, JDCF was sold to a company called Fulcrum FS in January 2016. It was alleged that this sale “contained conditions that were similar to the that JD Group South Africa cited as the reason for abandoning the sale of JDCF to BNP Paribas in September 2015,” the PwC report stated.
However, the commercial rationale for the sale to Fulcrum FS was questionable and was also funded through unsecured loans advanced by the Steinhoff Group.
Around the same time as the JD decisions were being made, in August 2014, Jooste told Schreiber to adjust the books. In an email extracts of which are contained in the PwC report, Jooste wrote: “We have decided to impair JDs book so that it looks good for all the investors that the risk is gone, the amount involved is R3.6bn and you can imagine it makes … Deloitte very happy/comfortable.”
As this would put his “consolidated results out of balance,” Steinhoff would buy back the JDCF book for R6.7bn “so I will recoup R1.850bn in October when they pay but cannot provide for that according to IFRS,” Jooste’s email read.
After some more complicated money manoeuvres, Jooste said that the net effect would be that “we have written off the debtors’ book in this year but achieved our overall group target”.
Schreiber, however, was aghast and said: “Interesting for me, that you cannot book the ‘profit’ for the book you sale [sell] to BNP and your impairment is higher! … I have enough problems to solve.”
The former chief financial officer was not censured by the Financial Sector Conduct Authority as he co-operated, but was found by German courts to be guilty of fraud.
By: Nicola Mawson