JOOSTE’S DEAL MAKING
Inside the mind of Markus Jooste
FM's interview with Markus Jooste before Steinhoff imploded: Jooste, the CEO of SA’s most ambitious company, Steinhoff, may evoke comparisons with Fred Flintstone, but he’s a man who has piloted the evolution of a company that is now Africa’s largest retailer
He might be less reclusive than Hollard’s Dick Enthoven or Caxton’s Terry Moolman, but encountering Steinhoff CEO Markus Jooste in the flesh these days still seems akin to spotting the Yeti or the Loch Ness monster.
It’s clear that Jooste (55), a charming accountant with ladies-man appeal who also happens to own the largest number of racehorses in the country, doesn’t much like the public eye. Perhaps it’s the strain of marshalling 130,000 staff across 32 countries.
Steinhoff has evolved into a retailer with brands across the world
Or perhaps it’s that Steinhoff is a company in such flux that even the loquacious Jooste doesn’t like to be tied down to what his grand vision for the company might be. "To be very honest, if you asked me [what our vision was] 10 years ago I would have been totally wrong," Jooste tells the Financial Mail. "To have become the number one in Africa, yes," he says.
But to hear him tell it, the kick-up in Steinhoff’s international expansion — into the UK with Poundland, the US with Mattress Firm and Australia with Fantastic Holdings, all in the past two years — sounds like a series of happy accidents.
Only, it wasn’t. Over the past decade, Steinhoff has evolved from a dour manufacturing company to a retailer with brands across the world. Clearly, this was also part of the plan.
"If we had stayed in manufacturing furniture, which was what Bruno [Steinhoff] was when we bought his business, we’d be bankrupt today. Every competitor of Steinhoff in my 29 years, we either own today or they are bankrupt — all of them," he says.
Retailers, says Jooste, have the power today. It seems counterintuitive, considering consumer power is weaker than ever, with growth barely peaking over 1%.
Yet Steinhoff has just listed Star in the past weeks — ostensibly the "African retail champion", which houses discount retail giants such as the mighty Pep, Ackermans and JD Group, which owns Joshua Doore.
Star, in which Steinhoff holds 78%, is worth a not-inconsiderable R81.8bn, having risen 10.1% since it listed in September.
It’s immense. But it’s a growth trajectory that has made Steinhoff the second-largest retailer in Europe, labelled by some analysts as "the Ikea of Africa" — following in the footsteps of the world’s largest furniture retailer, founded in Sweden in 1943.
Jooste quite likes Ikea, it turns out.
"We learnt that from [Ikea’s founder] Ingvar Kamprad. He’s the guy who showed it to us. He produces his own stuff, sells his own stuff and owns his own property. We purely follow what he did. Our only problem was we couldn’t build a brand — so our strategy was to buy the number one or two around Ikea in every country," he says.
If it sounds simple, it wasn’t. The Steinhoff today only began its quest for expansion about a decade ago. This is decades after it was founded by German entrepreneur Bruno Steinhoff, whose origin story involved importing cheap furniture made in East Germany into West Germany, and flogging it.
In 1993, Bruno Steinhoff tied up with tax lawyer Claus Daun, and his sidekick, Jooste, who convinced him to merge his European assets with the SA operation.
Every competitor of Steinhoff in my 29 years, we either own today or they are bankrupt — all of themMarkus Jooste
Today, with 6,500 retail outlets, and a market value of R250bn on Steinhoff (in addition to the R82bn of Star), you’d have to say it’s been a big success.
In 2015, Steinhoff moved its primary listing to Frankfort’s DAX — ostensibly a decision to make it easier to raise funding in Europe for deals.
Jooste says this caused a fair amount of consternation that Steinhoff was fleeing SA — a perception allayed to some extent by the recent listing of Star.
"When we told them [the JSE] we were going to list in Frankfurt they were obviously very upset because they were losing their number 10 or 12 market cap ... but I told Nicky [Newton-King, the JSE’s CEO] that day in her office: don’t worry, within two years we’ll bring the African businesses back to the JSE — and now it’s happened."
And yet, despite Steinhoff’s size and apparent success, an air of cynicism still hangs heavy over the company.
There are reasons for it, of course. There are awkward reputational issues (a tax investigation in Germany that seems to be becoming increasingly serious), as well as a belief that Steinhoff’s recent corporate restructuring has been gerrymandered solely to benefit its largest shareholder — SA’s wealthiest man, Christo Wiese.
Earlier this year, Wiese tried to combine Steinhoff (in which he owns 34%) and SA’s largest retailer Shoprite (of which he owns 51% of the votes), but failed.
Jooste dismisses any notion that Steinhoff’s strategy has been changed to fit Wiese’s desires, rather than those of the wider body of investors.
"I have the highest respect in the world for the guy and to have him today as a chairman and anchor shareholder, together with Bruno and Claus [Daun], it’s a club of friendship and trust. But I’ll tell you categorically one thing: Christo has never ever asked me to do anything to favour or to help him, whatsoever," says Jooste.
You could argue Jooste would say that. It’s clear he reveres Wiese, a man he met as a bright-eyed 21-year-old auditor and whom he credits as opening his eyes to retail.
However, Jooste says Steinhoff stood up to Wiese when it mattered.
"In February, we decided that a 100% bid for Shoprite is not what Steinhoff would like to do and he took it, he was not upset ... Steinhoff is not Christo’s parking place for his assets."
Wiese is, of course, one of the de facto dons of the "Stellenbosch mafia" — a group so-named by critics as it includes several members of the business elite, who all happen to live in the small winelands town, about an hour’s drive from Cape Town.
Another member is Jannie Mouton, the founder of high-flying investment firm PSG, which controls banking group Capitec (stock up 2,100% over a decade) and education group Curro (stock up 351% since 2011).
Mouton sits on Steinhoff’s board, and though he differs with Jooste on several issues (like Steinhoff’s almost embarrassing willingness to issue shares), he says they "remain close friends and loyal supporters".
At last count Steinhoff owned 25% of PSG.
Jooste says PSG operated "like an incubator" for companies — an approach he favours. As soon as PSG built businesses to maturity (think Capitec, Curro, Zeder), Jooste says Mouton "believed you list them off separately — that’s the ultimate empowerment of management, it improves governance because they’ve got to stand on the stage.
"That was sort of always in the back of my mind and quite frankly I think that people forget we did exactly the same with KAP," says Jooste.
In KAP’s case, Steinhoff gathered together all its industrial assets — like timber company PG Bison and logistics company Unitrans — and reverse-listed them into KAP, in 2012.
"When we started to move out of manufacturing and sourcing [in about 2007] and [into] the retail businesses, obviously it became more questionable: do you really have to own all the trees in Africa or the trucks of Unitrans?" he says.
Jooste is openly proud of KAP’s growth in value. "It’s just an unbelievable story, nè? When we took it from Claus Daun it had a R2.5bn market cap. We moved a couple of assets in for R4bn or R5bn, so the market cap was R7bn and five years since then, the market cap is R23bn."
Though Steinhoff still controls 43% of KAP, asset manager Allan Gray owns 13% and the Government Employees Pension Fund owns 7.7%. They’ve all benefited from the 120% rise in KAP’s stock over the past decade.
The problem with Steinhoff, however, has been its constant corporate activity. Shares are issued apparently with little discretion, deals are announced seemingly every week, and it’s hard for analysts to figure out what’s happening.
But Jooste says the overhauls are unlikely to stop anytime soon.
"It’s something we debate very often in Exco: is it better for Australia to eventually list separately in Sydney, for example? Because then your Australian people get incentivised at that level, where they work, where they understand it, so we look at those kinds of opportunities all the time," he says.
In part, it seems Jooste and Wiese’s thinking is that they should never give up control. As he says of the Star listing: "There was a clear undertaking by us to never give control of the African businesses to anybody else."
But if Jooste knows what Steinhoff doesn’t want, it’s a lot harder to say what it does want to be — in other words, what its vision for the future will be.
Asked this question, he hesitates.
"There’s not really anything else we would like to own. Now it’s organic growth. The general merchandise division of Europe is the fastest growing but we’re not going to buy anything after Poundland, we’re just going to grow the store base."
It’s hard to swallow this line entirely however, considering Jooste, Wiese and all his Steinhoff colleagues are deal makers at heart.
But Jooste points out that KAP "didn’t buy anything for four years" — until last year’s purchase of plastics manufacturing company Safripol.
"We’re not hunting for acquisitions. I promise you, the past 10 years, every acquisition came to me. So, to answer your question, it’s pretty much bedding America down, supporting [Poundland’s] Andy Bond to expand variety discount throughout the whole of Europe ... the new CEO in Australia, top guy Michael Ford, is going to take that whole business and build it up. So at the end it’s a very simple business."
And yet, the market doesn’t think so. Steinhoff’s shares, down 10% over the past year, have spent 2017 in the doldrums.
In part, this was because of the German tax investigation, which commenced after Steinhoff’s offices were raided in December 2015 over suspected accounting fraud.
A report in Germany’s Manager magazine said Steinhoff’s empire may be "built on quicksand" because Wiese and Jooste "quite often sail close to the edge of legality".
The magazine spoke of how Steinhoff’s accounts are bolstered by "dubious asset values", while German investigators are now probing whether accounts have also been fraudulently signed. Jooste himself is apparently a suspect in the probe.
Asked about this investigation, Jooste dismisses it as part of a global bid to hoover-up more taxes. "At the end of the day, the authorities worldwide are looking for more tax. And you can imagine, with 32 countries, there’s transfer pricing between every country. Just for the record, we have an agreement with the tax authorities — neither they nor we comment on this and we are on a very good footing with them," he says.
He says the deals around 2010, which are apparently being focused on by investigators, "do not concern me at all".
"You must remember: it’s a game for money. How do you settle tax? It’s either right or it’s wrong. This is a normal tax investigation," he says.
Jooste adds that in Germany, there’s a raid almost every day on companies.
"The criminal part comes only from one thing — if you haven’t paid the proper tax. At the end of the day, what will happen will happen and we are more than adequately provided for," he says.