The Rudolf Leiner GmbH flagship store, operated by Steinhoff International Holdings, in Vienna, Austria. Picture: Akos Stiller/Bloomberg
Nicola Mawson
Through a three-step dance, Steinhoff and related companies managed to fudge the purchase and sale price of a group of furniture companies and related properties.
This process allowed Steinhoff to reduce the value of receivables that it created for “various business reasons” as well as use the rationale of commission on the sale of the properties to manipulate money flows.
One of the accounting techniques Steinhoff used before it imploded to manipulate its accounts included selling technical “know how,” or expertise from one Steinhoff entity to another, when this knowledge was without economic value.
In the case of the kika Leiner property companies, a lengthy PwC investigation lays bare how Steinhoff moved money around to balance its books and to appear to comply with German regulations.
The three-step process started when companies in the Genesis Group, nominally independent of Steinhoff, bought the Austrian furniture retailer. This company, the kika Leiner Group, was then split into property and retail companies.
In June 2014, the Steinhoff Group acquired the kika Leiner property companies. The Talgarth Group, also purportedly independent of Steinhoff, received commissions on the sale of the kika Leiner properties to the Steinhoff Group.
However, it paid more for the property portfolio than the purchase price of the entire kika Leiner Group, which included these properties. In addition, the property portfolio was overvalued when compared to the rentals they earned.
Steinhoff indicated when it bought the entity that the rationale for the purchase was part of its strategy to bulk up across Europe. Kika/Leiner had 70 stores in Austria and other parts of Europe. In January 2018, Steinhoff conceded that it was selling the entity, claiming it had been loss-making for some time.
A close reading of the 7 000-page PwC report shows that the Genesis Group was the holding company of which ultimately became Steinhoff International. Steinhoff was delisted in both Johannesburg and Frankfurt in October 2023, some six years after then auditors Deloitte raised serious concerns about financial misconduct at the entity.
Talgarth Group, meanwhile, was a planned joint venture through several intermediate companies between Austrian businessman, Andreas Seifert, and Steinhoff, which subsequently fell apart.
The former, deceased, and disgraced CEO of what was Steinhoff, Markus Jooste, long blamed Seifert for the company’s demise, arguing that it was Seifert who instigated investigations in what has become known as South Africa’s biggest corporate scandal to date.
In the PwC report, a copy of which Business Report secured through a Promotion of Access to Information Act application, the advisory consultancy found that prepayments, or advances allowing for the deal to be funded, as well as the final commission on the sale together totalled €820 million (R15.7 billion at the current forex rate).
This amount was accounted for to decrease receivables owed by Talgarth to the Steinhoff Group, PwC said. The advisory firm noted that, it appeared from the documents identified, that the agreements on the prepayments were created and backdated.
“As a result, the recorded transactions reflecting the prepayments and the final commission may be without economic substance,” PwC’s report stated.
Overall, PwC found that €6.5bn – or R125bn – artificially went through Steinhoff's books between 2009 and 2017 when the lid was on what is South Africa’s biggest corporate scandal to date was blown.
Jooste, the kingpin behind what has become known as the biggest corporate scandal in South Africa, reportedly killed himself on March 21 last year, a day before he was scheduled to hand himself over to law enforcement officers.
Several people have been arrested in connection with the fraud.
BUSINESS REPORT