Tragedy of Steinhoff: The fives things that you were too embarrassed to ask

A sign hangs outside a Mattress Firm store  in Chicago, Illinois. Steinhoff International Holdings shocked the South African market siwhtr a spectacular crash this week which saw its stock value plummet more than 60 percent this week after the resignation of CEO Markus Jooste. Picture: Getty

 

By Fin24 and TimesLive

The five questions about the tragedy of Steinhoff International you were too embarrassed to ask.

Who is Steinhoff and where did it all start? 

While it has often been lauded as one of SA’s most successful global companies, Steinhoff was originally a West German firm.

The company’s somewhat complicated history was laid out in its 1998 prelisting prospectus before when it went public on the JSE, some 17 years before it listed in Frankfurt.

According to the prospectus, the group’s origins date to 1964, when German businessman Bruno Steinhoff, a furniture sales agent, decided to start his own business.

He was successful, especially in forging links with upholstery and furniture producers in the then East Germany.

In 1989, following the fall of the Berlin Wall and the reunification of Germany, Steinhoff aquired a number of business in the former East Germany. It later expanded to Poland and Hungary.

Gommagomma Holdings

In the 1990’s Bruno Steinhoff’s family bought an 35% interest in in Gommagomma Holdings, a SA company that manufactured things like lounge suites, bedroom units and dining furniture.

Steinhoff apparently liked what he saw in SA and in 1998 Gommagomma, who had by then bought Victoria Lewis, changed its name to Steinhoff Africa.

Steinhoff International Holdings, meanwhile, became the umbrella parent firm under which Steinhoff Europe and Steinhoff Africa fell.

Steinhoff listed on the JSE in 1998. But it already had its eye on further expansion.

“Our business model is to be a low-cost producer and distributor of furniture. Our marketing thrust is global, catering for the mass middle market,” stated its chairman’s report in 1998.

A 2015 company report that looked back at the history of the firm notes that the years between 1998 and 2004 were when it “established the base”.

It invested in further low-cost manufacturing, and dipped its toes in the UK and Australian markets.

The years between 2004 and 2015 were a time of “consolidation”.

Major investments include discount furniture and household retailer Poco in 2008, and pan-European home furnishings company  Conforama in 2011, as Steinhoof tried to stand toe to toe with the likes of Ikea.

In 2015 it acquired Christo Wiese’s Pepkor Holdings for around R60bn. This was paid for via the “issue of 839 million new Steinhoff shares at R57 per share and R15 billion cash,” according to a November 2014 presentation.

This meant that Wiese, at a stroke, become one of Steinhoff’s largest shareholders, although the value of his shares have fallen sharply in line with the groups share price decline.

Bruno Steinhoff, the firm’s founder relinquished executive duties in April 2008, but continues to serve on its supervisory board as a non executive director.

What is Steinhoff today then?

Steinhoff International Holdings NV is a furniture company and multinational retailer.  It also sells shoes, computers, hi-fi’s, tiles, children’s clothes, kitchen furnishings, smartphone apps, mattresses and everything from bathroom accessories to short term insurance.

In short, it’s massive multinational company with over 12 000 stores in some 30 countries, employing over 130 000 people.

These 12 000 stores belong to some 40 local brands. In South Africa these include Ackermans, Pep, Tekkie Town, Russells, HiFi Corp, Incredible Connection and Hertz car rental, among others.

In Germany, where the company is listed on the Frankfurt Stock Exchange, its subsidiaries include discount furniture and household retailer Poco, with its distinctive red and yellow branding.

If you pop into a Conforma store in France, Spain, Portugal, Italy, Switzerland or Serbia to pick up a new couch, you’ll be buying a Steinhoff product. There are 204 Conforma outlets alone in France.

Buying a mattress from Plush in Queensland, Australia? It’s a Steinhoff mattress. If you are doing online shopping in Hungary via Extreme Digital, you’ll be shopping via a Steinhoff subsidiary. In the UK, meanwhile, Steinhoff owns Bensons for Beds, Harveys, and discount homeware retailer Poundland.

Since September 2016, meanwhile, Mattress Firm, America’s biggest mattress retailer, has been one of the group’s subsidiaries.

 

These 12 000 stores belong to some 40 local brands. In South Africa these include Ackermans, Pep, Tekkie Town, Russells, HiFi Corp, Incredible Connection and Hertz car rental, among others. 

But it is a South African company, right?

Steinhoff has its headquarters in South Africa and a secondary listing on the Johannesburg Stock Exchange.

But it is registered and has what is termed its “corporate seat” in Amsterdam in the Netherlands.

It also has, since 2015, had its primary listing on the Frankfurt Stock Exchange in Germany. So you could refer to it as a South African-headquartered, Dutch-registered, German-listed company.

Steinhoff listed in Germany in late 2015 because, in the words of its then CEO Markus Jooste, a majority of the firm’s stores, customers and revenues were in Europe.

According to the company’s latest (and unaudited results) for the nine months ended June 30 2017, some 52% of its total revenue came from its European operations. This was followed by 27% from Africa, 15% from the US and 6% from Australasia.

In these nine months – or three quarters of a year – the firm’s revenues amounted to just under €15bn. This would be approximately R242bn at Thurdsday’s exchange rate.

So what has been happening to its share price?

Steinhoff’s share price has suffered a precipitous decline since its board announced on Tuesday that its CEO Markus Jooste was stepping down “with immediate effect”.

The board also announced that new information had come to light relating to “accounting irregularities requiring further investigation”.PwC will be carrying out this internal investigation.

Steinhoff International has lost over 80% of its market capitalisation since the announcement, wiping tens of billions of rands off the JSE.

It’s shareprice has from R46.24 at close of trade on Wednesday to under R6 on Friday morning.  By 13:30 on Friday. the share had risen somewhat to R8.82 a share.

The company has not provided more information about what type of accounting irregularities were redflagged, how or whether they related to Jooste, or even whether they are connected to an on-going probe by Germany’s prosecutor’s office into Steinhoff.

The firm’s share price was also on a steady decline for the few days before the news of Jooste’s resignation broke.

On Monday, in a market update, Steinhoff’s board had said its results for 2017 would be released unaudited – which for many investors was the first indication that something was amiss.

 

Markus Jooste (Photo: Gallo Images)

What has happened to Markus Jooste since he resigned?

Jooste has seemingly gone underground and has been silent since the board abruptly announced his resignation on Tuesday.

But as Fin24 previously reported, he admitted in a letter to a colelague he made “some big mistakes”.

In what seems to be an informal, personalised letter, which Fin24 received from two independent sources who confirmed it to be from Jooste, the former CEO apologised for the bad publicity he caused Steinhoff over the past few months.

“Now I have caused the company further damage by not being able to finalise the year end audited numbers and I made some big mistakes and have now caused financial loss to many innocent people,” he wrote.

“It is time for me to move on and take the consequences of my behaviour like a man. Sorry that I have disappointed all of you and I never meant to cause any of you any harm.”

He encouraged his colleagues to “continue to live the Steinhoff dream”. After his resignation it was announced that Steinhoff’s chair Christo Wiese will run the company on a temporary basis.

 

Christo Wiese (Netwerk24)

 

And then there is some sort of criminal investigation?

People connected to Steinhoff are being probed by German authorities for possible accounting fraud.

This investigation is not new however, and German authorities have not named the people in question.

The public prosecutor’s office of Oldenburg in Germany told Fin24 in a statement this week that “four current and former managers of a group” are being investigated for possible accounting fraud.

The statement said the balance sheet of the company in question may have been inflated. German authorities, meanwhile, are still scrutinising and evaluating the “extensive documents and data” obtained during searches.

It did not say when these searches took place. And the prosecutor’s office said it could not yet say when its investigation would be complete.

In November 2015, ahead of its listing of the Frankfurt Stock Exchange, Steinhoff said in a media announcement that German authorities had searched the Westerstede offices of Steinhoff Europe Group Services (SEGS), a German subsidiary of the group.

“SEGS is fully committed to support the authorities, and has begun to take immediate steps, in clarifying and resolving these matters,” it said at the time.

Meanwhile, when it announced earlier in the week that it would not yet be publishing its audited results, Steinhoff said this was, in part due to “the criminal and tax investigation in Germany”.

It did not however say what the link was.

Here are some of the companies that Steinhoff owns – and from which most South Africans have bought something in their lifetime:

JD Group – Russels‚ Bradlows‚ Hi-Fi Corp‚ Rochester‚ Sleepmasters‚ Incredible Connection Steinhoff acquired a majority stake in JD Group in 2012‚ and effectively turned it around. Some of these brands have been consolidated.

Pep / Powersales According to Steinhoff’s website‚ Pep is the largest single-brand retailed in southern Africa. In the early 1990s‚ the group opened the first store outside of South Africa.

“The expansion soon gained momentum‚ and Pepkor Africa is now trading successfully in several African countries including Zimbabwe‚ where it trades as Powersales.”

Timbercity‚ Buco‚ POCO‚ The Tile House – SA and southern Africa Timbercity is described as a leading “DIY retailer specialising in timber‚ board and hardware for cabinetry and carpentry” while POCO is “South Africa’s biggest furniture and homeware store”.

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