15225 replies to this topic

[DayTraderDad]

 

 

 

 

 

Thank Captain much appreciated well explained.

Insert from latest news:

For those hoping for a wholesale castigation of all the directors, it will be a disappointment. For one thing, PwC found no evidence that any of the nonexecutive directors, including former chair Christo Wiese, knew about the fraud.

 

Says one of the sources: "The biggest issue the nonexecutive directors will face from that report is whether, in the last six months, it took them too long to take Deloitte’s concerns about the accounts seriously. There is a lot of scrutiny over their role."

Edited by DayTraderDad, 13 March 2019 - 02:06 PM.

[Captainfrom82]

Just to put some thoughts on management below link to a pdf that as the dutch regulatory requirements. So if one reads all that its impossible only MJ and a few outsider did all the irregular things. Captain one question for you - From your post below what is actually fraud? Or everything you mention is it possible to make use of the accounting standards to make this possible and not breaking any law? "The duties of the supervisory board include the supervision of financial policy and the financial reporting of the management board. It is becoming increasingly common for an audit committee to be set up as a sub-committee of the supervisory board. For Dutch listed companies, this principle has been set out in the Corporate Governance Code and – in certain cases – in EU directives. The supervisory board must be composed so that it is in a position to supervise financial policy and financial reporting properly." https://www.loyenslo...sory-boards.pdf

 

Hi DTD,

 

We have discussed this to death, but here goes nothing...

 

I thoughts are that if MJ disclosed that these were related party transactions, that the Accounting treatment would have been applied correctly.  Steinhoff's numbers would not have been overstated.   As it turns out, by not disclosing the related party transaction nature, the accountants processed the numbers accordingly.

 

It would not have been a fraud if the Accounting treatment had been carried and there were genuinely no related party transactions.  It would have been poor management and stupid short term investments decisions to pay 6x more for something three years later.  But stupidity is not illegal.

 

Note further, that some of the restatements are NOT  a result of a direct fraud as a result of an incidental impact.  For example, the heavy impairments of assets are deeply exaggerated/compounded by the fact that Steinhoff's  WACC have been enormously increased.  This increase in risk a secondary  impact that is obviously attributable to the alleged  fraud. 

 

Best Regards

Captainfrom82

[Captainfrom82]

Captain,

A few thoughts:
1. I don’t understand your comment re selling overvalued companies to snh. Steinhoff had/has an acquisition committee and surely they would have had more than 1 valuation. MJ surely could not have manipulated all these? Most basic procurement systems include 3 quotes. This was not buying a car or laptop, they were buying expensive companies and numerous people would have been involved in this process.
2. How could no-one else have been involved in treating guaranteed debtors as cash? This would have been entered by finance team and approved by Dof

 

Hey Larry,

 

1. It is a good point regarding the acquisitions committee/process.  But my point is, if they didn't check or get the three quotes, its hardly fraud.  It is an act of omission rather than commission.  It points more to be too trusting, exhibiting laziness, lack of skepticism, or at worst culpable negligence. 

 

There is another relevant question which actually suits your argument more than my own, is why did Steinhoff first choose to not pursue the acquisition immediately, and chose to wait 2 or 3 years to only then buy it at a huge premium.  This occurred repeatedly with SAFCol, Hemisphere and the Aussie businesses.  This is what allowed MJ to procure the assets under a different company eg. Talgarth Investments, then hold it for a few years and only then sell it to Steinhoff at a huge premium.   

 

It seems that the various authorising teams always deferred to MJ's requests and motivations for his decisions. 

 

You are going to say that they were committing a fraudulent transaction.  Where is the evidence of this?  I'm saying is that while MJ was committing the fraud, the guys who were meant to protect the company did not discharge their fiduciary duties.  You are saying through fraud, I am saying through negligence.

 

2.  This one is slightly more complex.  The principle of Werschel (treating a debtor who is guaranteed as cash) is an accepted accounting practice.  As long as the debtor could provide a guarantee, the CFO and his team could deem this as cash equivalent.

 

The problem here was the fact that the debt was not really a debt, the loans should never have been made, and Steinhoff should not be acting for guarantor.  It also was not quite as simple as this.  There were multiple layers between Steinhoff, the "debtor" and the round-trip of "income" and interest payments. 

 

MJ is no fool.  He never was.  He is by all accounts one of the smartest people you are ever likely to meet.  Unfortunately he was/is also corrupt.  That is a bad combination to have in someone running your business.

 

Buffett told an interesting story a while ago that always stuck with me.  It is better to have a slow, plodding corrupt person than a smart corrupt person running your business.

 

Best Regards

Captainfrom82

[DayTraderDad]

The cat is out of the bag!!!! https://www.business...einhoff-report/

[DayTraderDad]

The cat is out of the bag!!!! https://www.business...einhoff-report/

[DayTraderDad]

Just to put some thoughts on management below link to a pdf that as the dutch regulatory requirements. So if one reads all that its impossible only MJ and a few outsider did all the irregular things. Captain one question for you - From your post below what is actually fraud? Or everything you mention is it possible to make use of the accounting standards to make this possible and not breaking any law? "The duties of the supervisory board include the supervision of financial policy and the financial reporting of the management board. It is becoming increasingly common for an audit committee to be set up as a sub-committee of the supervisory board. For Dutch listed companies, this principle has been set out in the Corporate Governance Code and – in certain cases – in EU directives. The supervisory board must be composed so that it is in a position to supervise financial policy and financial reporting properly." https://www.loyenslo...sory-boards.pdf

[LarryK]

Captain,

A few thoughts:
1. I don’t understand your comment re selling overvalued companies to snh. Steinhoff had/has an acquisition committee and surely they would have had more than 1 valuation. MJ surely could not have manipulated all these? Most basic procurement systems include 3 quotes. This was not buying a car or laptop, they were buying expensive companies and numerous people would have been involved in this process.
2. How could no-one else have been involved in treating guaranteed debtors as cash? This would have been entered by finance team and approved by Dof

[Captainfrom82]

Thanks for the response captain.

Taking my 2 posts into account, how would you suggest only a few at the top managed to collude to this magnitude without anyone knowing? Again, we all know some bad stuff happened. I am not contesting this. I simply don’t believe only a couple of people right at the top could have known.

My mention around assets is that I believe there’s good assets in this company, thus my reason for investing.

 

Hi Larry,

 

You asked: "how would you suggest only a few at the top managed to collude to this magnitude without anyone knowing"

 

My Response:

 

The events post December 2017 led to a massive destruction of value both in the archaic value determined by share price; but more importantly in the actual valuation as determined by the financials.  In other words, the losses are a combination of the negative sentiments due to the fraud perpetuated BUT ALSO the enormous impairments as a result of the materially higher weighted cost of capital (WACC). 

 

Regarding the fraud, it is my contention quite simply that the nature of the fraud,  the manner in which MJ carried out the fraud, and what he actually did, was not an easy thing to uncover.  This was not straightforward theft.

 

1. Overstated assets eg. Hemisphere

Every financial year he got independent assessors who provided valuations that confirmed his own numbers.  With the benefit of hindsight, it is clear that the external people performing this task were overly generous in their estimates.  There is no proof that this valuation was a fraud but they suited MJ.  There was a fraud in that MJ sold these companies to Steinhoff via a related party for a huge profit.

 

The result was that Steinhoff had the properties on their books at the high valuation (due to the overstated purchase price which was a related party fraud transaction - but Steinhoff did not know it at the time). 

 

What has been done to correct this? This value has been impaired by over €1.1b

 

2. The overstated Cash balance

Again, the fact that the the company Fulcrum/Capfin who bought the GD Finance bad loans business was a related party in that it was controlled by MJ and his cronies - this was not known.  In fact when it was queried MJ repeatedly stressed that Fulcrum/Capfin was in this business of buying poor performing debtor books and collecting on these at a premium. 

 

Steinhoff loaned this company funds to buy the JD business and then booked the interest received from these loans as income.  Even worse, Steinhoff used the fact that the debts had guarantees to treat these "guaranteed debtors" as cash.

 

It is clear now that these were related party transactions and should never have been processed as they were.  However, at the time, the directors at Steinhoff swallowed MJ's lies.  They actually had no reason to doubt him since his story was plausible.

 

What has been done to correct this?  It is unlikely that these funds will be fully recovered.  Steinhoff is looking at the recovery, but has impaired this cash by almost €2.5b.

 

These are just two examples, but the story was repeated many times. 

 

As I said, the Board and other senior managers were not skeptical enough.

 

Best Regards

Captainfrom82

[Tom]

https://www.moneyweb...ders-pull-plug/

[LarryK]

Thanks for the response captain.

Taking my 2 posts into account, how would you suggest only a few at the top managed to collude to this magnitude without anyone knowing? Again, we all know some bad stuff happened. I am not contesting this. I simply don’t believe only a couple of people right at the top could have known.

My mention around assets is that I believe there’s good assets in this company, thus my reason for investing.

[Captainfrom82]

This company is made up of
Shops - regional - area - divional. Up it goes and the relevant DOFs will sign off their P&Ls and balance sheets.
This is then condensed into snh.

How do you simply manipulate all this info and data without someone picking it up?
Even stuff like selling and re-buying property. The regional/area DOF and ops directors will pick it up. Actually, even the junior accounts staff will pick it up as someone has to run this through the books.
Just my 5c

Then at the end of all of this, the company is still trading and increasing revenue. I’m not an expert at calculating share price value but I see a company with a positive future should they sort out the crap that happened before the poef hit the fan. If somoene contacted you and offered you an opportunity to work for Steinhoff and contribute towards Moving the company forward wouldn’t you consider it looking at their assets? I would

 

Hey Larry,

 

Every heard the expression, "three can keep a secret if two are dead"? Hindsight is 20-20 vision.  Everyone is clever looking backwards.

 

What you stated above about the consolidation process does not preclude any fraudulent transactions.  A general rule of thumb for almost fraud or thievery is to keep the list of accomplices as small as possible. 

 

The salient point is:  How would you pick up a related party transaction?  They performed various due diligence.  For every query MJ had a satisfactory response.   You ask about looking at their assets.  Can you advise what specifically they should have done that was not done?  

 

Some of the behavior of BS and his daughter A K-S, and the Steinhoff CFO was "strange" (for want of a better word) in some transactions.  I recall reading some of their action and thinking that it was strange.  But these were not related to MJ's fraud.

 

Best Regards

Captainfrom82

[Captainfrom82]

A new thought... Could there be a situation where creditors delist the entity. Buyout shareholders at 100-200% r4-5 today's price. And then resolve issues in background. Refinance debt and walkway with all entities and property portfolio. Realist individual entities etc.....just a thought...
Many years before this gets resolved....
Sent from my SM-G950F using Sharenet Sharechat mobile app

 

It is not impossible but unlikely.  The Steinhoff market cap is less than the debt so this is arguably do-able.  However, they would need to convince the large shareholders that they would be better off accepting the price offered.  CW would never accept this price.  Neither would I accept an offer at this price (not that I am remotely close to CW's holding).

 

Regards

Captainfrom82

[Bubble]

Hi DVD,

 

Regarding your reluctance to accept that there was an overt fraud, you are in for a nasty surprise then.

 

Regarding the Deloitte "complaint", this was only brought it to CW's and Steve Booysen's attention on 29 Nov 2017 (not Sept 2017 as you assert).

 

 

Deloitte only brought this to CW and Steve Booysen's attention on 29 Nov 2017.   Hardly time to consider the complaint.  Prior to this the various media stories, were just this...stories!!

 

Buying various companies and properties were what Steinhoff was doing during the acquisition phase.  It was not considered out of the ordinary.  MJ specifically had a distance created between the  parties.  Now we know of course that they were related parties.

 

Regarding CW:  being a tough businessman does not make you impervious to errors.  CW made errors of omission, not commission.

 

And yes, MJ did have this ability to make people trust him and then abuse that trust. 

 

CW sold MJ the Pepkor company in 2014 on a handshake.  He trusted MJ.

 

 

Best Regards

Captainfrom82

 

Many were in the dark, your correct.

 

The reason why I strongly believe and know a big crony/maatjies setup ran this in the background I cannot/do not want to say here. Besides, it will only ever end in a his-word-against-mine. Just trust me, "bolt from the blue" my a$$. (I am ex-Stellenbosch)

 

You are correct, my statement is speculation for some of the people I mentioned, but some are not. The dots guide me to the statements.

 

We all wait for the 3000 pages(or at least what they going to provide). Stuff will get real soon.

[LarryK]

This company is made up of
Shops - regional - area - divional. Up it goes and the relevant DOFs will sign off their P&Ls and balance sheets.
This is then condensed into snh.

How do you simply manipulate all this info and data without someone picking it up?
Even stuff like selling and re-buying property. The regional/area DOF and ops directors will pick it up. Actually, even the junior accounts staff will pick it up as someone has to run this through the books.
Just my 5c

Then at the end of all of this, the company is still trading and increasing revenue. I’m not an expert at calculating share price value but I see a company with a positive future should they sort out the crap that happened before the poef hit the fan. If somoene contacted you and offered you an opportunity to work for Steinhoff and contribute towards Moving the company forward wouldn’t you consider it looking at their assets? I would

[DayTraderDad]

Hi Captain,

 

Thank you yes lets agree to disagree I am not convinced that MJ all alone fooled everybody.

[Captainfrom82]

This is non kosher at several levels...
Self enrichment through profiteering from property transactions is an example. This is not pure accounting practice. Examples similar to this will be the downfall of MJ and friends. Left to be seen who also profited. CW?.
Accounting practice is also a fair point though but I have limited to comment on.. Especially where debt was transferred between companies to reduce tax obligations. And create interest revenue flows for other entities.
Fortunately due to all the write downs it may be unlikely there would be a tax issue.. Maybe not.
Perpetration occurred at many levels.
Pic involvement through Jay Naidoo. How has this not come to the fore as yet, this is independent to PWC. How was the pwc investment case motivated. Prof len on the board could not see the wood from the trees with this. I think the entire board are in trouble at steinhof. Surely they have documented engagements on the Pic acquisition of a large chunk of snh. All of these questions point to a long and drawn out legal issue where shareholder will rightly be able to claim back from the directors, their insurance companies, auditors, related business entities. Etc.. Snh themselves will be required to hase afte perpetrators.
MJ.. And his friend JN... And anyone else smart, foolish enough to have been on gravy train... Need to be weary now.... Everyone may be on trial. After 3000 pages worth of reporting

Sent from my SM-G950F using Sharenet Sharechat mobile app

 

I think that we must agree to disagree regarding the fraud guilt cutting across the Board.  It does not make sense to me, and I have researched this a fair bit.  We will disagree on this point.

 

Regarding JN and PIC, these guys glibly approved almost anything that needed funding if the beneficiary was a cadre of the ruling party in South Africa.  But even if they carried out due diligence, how would they have proved anything?  Steinhoff had audited financial results that fooled the best minds at some of the top investment houses (Allan Gray, Coronation, etc).  The guys at PIC would never have picked up on anything.

 

Best Regards

Captainfrom82

[DayTraderDad]

There was no scheme pumping up of assets is the norm just spend sometime googling financial fraud and you going to get surprised.

That why for me the start of all the fraud is charter accountants that allow that to happen.

People forget a charter accountant has a integrity to upheld and the responsibility to report illegal practice.

 

From the CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS 

 

A professional accountant is required to comply with the following

fundamental principles:

(a) Integrity

A professional accountant should be straightforward and honest in

all professional and business relationships. 

( Objectivity

A professional accountant should not allow bias, conflict of

interest or undue influence of others to override professional or

business judgments.

© Professional Competence and Due Care

A professional accountant has a continuing duty to maintain

professional knowledge and skill at the level required to ensure

that a client or employer receives competent professional service

based on current developments in practice, legislation and

techniques. A professional accountant should act diligently and in

accordance with applicable technical and professional standards

when providing professional services.∗

(d) Confidentiality

A professional accountant should respect the confidentiality of

information acquired as a result of professional and business

relationships and should not disclose any such information to third

parties without proper and specific authority unless there is a legal

or professional right or duty to disclose. Confidential information

acquired as a result of professional and business relationships

should not be used for the personal advantage of the professional

accountant or third parties.

(e) Professional Behavior

A professional accountant should comply with relevant laws and

regulations and should avoid any action that discredits the

profession. 

 

[Captainfrom82]

Hi Captain,

 

I still believe there was no blatant fraud/corruption in Steinhoff the alleged over inflated profits, dodgy deals that looks like not at arms length etc. were all done with accountants blessing with the possible exclusion the MJ string of companies trading with Steinhoff.

 

The fact that Deloitte complained should be sufficient for any astute person to question in view that there was more information coming to light from Germany so I am sorry there was smoke!!

 

How can it be possible that property was being sold then bought back etc surely the money involved would have required director approval. Now I ask you if you a director and I kept on trading property would it not put questions in your mind?

 

The real fraud is the poor accounting standard that allows different accountants to interpret it as they wish to the expense of the shareholders. Just go into the internet and see how many cases of poor auditing are there.

 

What I find strange in one hand you say CW is a tough businessman then on your last note you say he could be accused of possible gross incompetence and/or negligence.

 

So basically what you say is MJ has the ability to reduce ones ability and financial skills???

 

Hi DVD,

 

Regarding your reluctance to accept that there was an overt fraud, you are in for a nasty surprise then.

 

Regarding the Deloitte "complaint", this was only brought it to CW's and Steve Booysen's attention on 29 Nov 2017 (not Sept 2017 as you assert).

 

Hi Captain,

 

I still believe there was no blatant fraud/corruption in Steinhoff the alleged over inflated profits, dodgy deals that looks like not at arms length etc. were all done with accountants blessing with the possible exclusion the MJ string of companies trading with Steinhoff.

 

The fact that Deloitte complained should be sufficient for any astute person to question in view that there was more information coming to light from Germany so I am sorry there was smoke!!

 

How can it be possible that property was being sold then bought back etc surely the money involved would have required director approval. Now I ask you if you a director and I kept on trading property would it not put questions in your mind?

 

The real fraud is the poor accounting standard that allows different accountants to interpret it as they wish to the expense of the shareholders. Just go into the internet and see how many cases of poor auditing are there.

 

What I find strange in one hand you say CW is a tough businessman then on your last note you say he could be accused of possible gross incompetence and/or negligence.

 

So basically what you say is MJ has the ability to reduce ones ability and financial skills???

 

Deloitte only brought this to CW and Steve Booysen's attention on 29 Nov 2017.   Hardly time to consider the complaint.  Prior to this the various media stories, were just this...stories!!

 

Buying various companies and properties were what Steinhoff was doing during the acquisition phase.  It was not considered out of the ordinary.  MJ specifically had a distance created between the  parties.  Now we know of course that they were related parties.

 

Regarding CW:  being a tough businessman does not make you impervious to errors.  CW made errors of omission, not commission.

 

And yes, MJ did have this ability to make people trust him and then abuse that trust. 

 

CW sold MJ the Pepkor company in 2014 on a handshake.  He trusted MJ.

 

 

Best Regards

Captainfrom82

[Polly]

This was an over valued entity, not a pyramid scheme.


 

Dont agree In....This one committed fraud to buff up the share price...The only way to grow and grow was by committing fraud and this goes way back....

and the amount of fraud had to grow at a faster pace to keep up with the growth and share price.,...perfect pyramid scheme...and all comes crumbling down...and the master pyramid designer disappears... havent you heard this before??

[DayTraderDad]

A new thought... Could there be a situation where creditors delist the entity. Buyout shareholders at 100-200% r4-5 today's price. And then resolve issues in background. Refinance debt and walkway with all entities and property portfolio. Realist individual entities etc.....just a thought...
Many years before this gets resolved....
Sent from my SM-G950F using Sharenet Sharechat mobile app

IN my thoughts: We must remember SNH was not bankrupt simply due to the financials not being posted the long term debt became current debt. In view that the EBITDA at present is much the same as the EBITDA before 7 Dec 2017 a R4 or R5 is well below the true value of SNH. Further the reason for the need to restructure the debt is to avoid fire sales and make the company operating normally. I don't think PIC and CW would agree to sell for that price.

If SNH sold all the European business and kept only PEPKOR  Holdings which is 71% share holder the value of SNH would be about R13 because would be a ration of 71% PEPKOR share distributed to the SNH shareholders. So my guess the minimum selling price would be around R13.