Tag: investments

How Steinhoff affected us normal folk

Most South Africans who invested are poorer today due to Steinhoff’s business collapse and are asking for answers from fund managers.

But‚ many say‚ the business was so complicated‚ with its audited financial statements appearing so reasonable‚ that it was easy for investors to miss red flags pointing to the alleged multi-billion dollar fraud.

Steinhoff’s share price dropped from R46.60 at close of trading on Tuesday to R12.74 a week later. The company has reported a missing R100-billion in the company’s European operations.

Fund Manager Simon Brown said the easiest explanation is to say South African pension holders and investors are R160-billion poorer since the crash. As hundreds of funds would have lost money it is difficult to put an exact figure on the losses.

Many furious South Africans are demanding answers from investors. But multiple fund managers explained that until Tuesday the numbers looked reasonable and “fraud by its nature is subtle”.

The search for answers follows Parliament’s Standing Committee on Public Accounts on Monday calling for the Hawks‚ SARS‚ Reserve Bank and Independent Regulatory Board of Auditors to investigate Steinhoff’s implosion and financial losses.

Not everyone however‚ is buying the investors’ explanations‚ with some Steinhoff critics questioning the company’s executives “loose accounting practices”.

Futuregrowth chief investment officer Andrew Canter said they stopped lending money to Steinhoff roughly eight years ago.

He said they avoided Steinhoff for multiple reasons‚ which included their business’ horrendous complexity‚ involving different brands and companies across different jurisdictions in multiple currencies‚ along with their never-ending acquisitions which rendered year-on-year analysis difficult and credit ratios unreliable.

“If we can’t understand the business‚ why would we lend to it?”

Canter said key to Futuregrowth was being wary of the way Steinhoff’s management conducted business.

He said there were enough signs “which evidently some chose to ignore”.

“From what we know today‚ Steinhoff’s management appears to have been playing fast and loose with the tax laws and accounting practices.”

Investor Karin Richards who has looked back at the Steinhoff cash flow‚ and ratios investors use when scrutinising businesses since the implosion‚ however said: “There is nothing here for me that says ‘oh my … here is a big problem’.”

She said as a former auditor she had a better idea than the average person on how to “window dress accounts”. “But the numbers look reasonable.” She said many funds would have lost their first inflation bases gains in three years. Fund manager Keith McLachlan commented on how people started claiming investors should have spotted the fraud: “Everyone knew it was fraud‚ after the fact.

“Intuitively‚ if one ignores the complexity of the Steinhoff business‚ if it was obviously fraud‚ not only would the stock market have seen it‚ but the auditors would have picked up on it long before it even saw the light of day.

“Nothing in the Steinhoff financial statements really screamed fraud or deep obfuscation of the numbers.

“At best‚ it perhaps looked like a business that was growing a bit too fast. At worst‚ it showed a business whose fundamentals weren’t particularly great. Fraud by its very nature is subtle.”

Wits governance expert Alex van den Heever‚ however‚ said that one needed to question why some investment and equity loan companies saw the red flags‚ but others didn’t.

“That some firms didn’t pull their funds despite other companies’ concerns points to a bit of an ‘old boys club’ operation with people just accepting the word of others in the industry.”

Brown said the financial industry needed introspection.

“Should we not at least as an industry that after looks after people’s pension have some introspection how we got this wrong?

“There are a lot of people saying I can’t see fraud‚ but I can’t see a quality business. Yet‚ we put R400-billion in pension money into this business.”

The R400-billion is when business was R95 a share some time last year.

Financial analyst Stuart Theobald agreed that numbers appeared reasonable but said people trusted Steinhoff main shareholder Cobus Wiese. “Wiese had a certain halo effect. People had committed faith in his abilities to manage complexity and stay on the right side of the law‚ while sometimes going close to the line.”

By Graeme Hosken and Katharine Child for The Sunday Times
Image – The Sunday Times

South Africa still ranks as the most attractive economy for investments destined for the continent despite challenges emanating from slow growth, a gloomy ratings outlook and waning perceptions, according to an index released by EY.

The auditing and advisory company has also predicted a tough few years ahead for the continent. The global economy is struggling for growth amid slowing down commodity prices and a less rosy outlook for China’s economic transformation and growth outlook.

EY ranks South Africa, the region’s most industrialised and second largest economy, as the most attractive investment destination in Africa in its Africa Attractiveness Index. Morocco, Egypt, Kenya and Mauritius are ranked second, third, fourth and fifth respectively.

“Despite macroeconomic challenges (and a low-growth environment), South Africa still outperforms most other African economies due to relatively high scores across every other dimension (partly a reflection of the fact that the South African economy is more developed than any other African economy),” EY says.

A weaker rand currency has also hobbled South Africa, although this is a problem that is shared with most regional peers such as the Malawi kwacha and Nigerian naira.

Economic growth in SA is likely to be 0.6% this year, according to the IMF, although South Africa Reserve Bank governor Lesteja Kganyago was quoted on Wednesday by the Financial Times as saying “green shoots” of recovery are beginning to appear.

Botswana is ranked seventh while Nigeria – Africa’s largest economy – is ranked fifth. SA’s neighbours, Zambia and Mozambique are ranked 17th and 20th while Botswana is ranked in seventh position.

EY explained that Nigeria’s relative under-performance on the Africa Attractiveness Index was as a result of lower scores on the business enablement, governance and human development pillars which reflected in its overall ranking.

Experts say economic growth across Africa will likely remain slower in the next few years than it has been over the past 10 to 15 years. The International Monetary Fund’s (IMF) baseline projection for 2016 has now been revised downwards to 3%.

“From an investment perspective, the next few years may be challenging – this is not because the opportunities are no longer there, but rather because these opportunities are likely to be more uneven than they have been.

“It is now more important than ever for organisations and investors, who sometimes place too great an emphasis on shorter term economic growth trends, to adopt a granular, fact-based approach to assessing investment and business opportunities for the long-term,” said Sugan Palanee, Africa markets leader at EY.

The EY Attractiveness Index aids in measuring “likely resilience in the face of current macroeconomic pressures, as well as progress being made (by governments) in critical areas of longer-term development, namely governance, diversification, infrastructure, business enablement and human development”.

Source: www.fin24.com

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