Steinhoff must slim down, sell assets

Steinhoff said yesterday its European subsidiaries have implemented a financial restructuring plan.

15 August 2019 | Business

There is a lot of work still to be done, but I think management is doing the right things. - Sarine Barnard, Analyst: Investec Asset Management

Wendell Roelf - Scandal-hit Steinhoff's only hope for survival is to sell off assets to become a retail-focused holding company, it says, as it fights to recover from a US$7 billion accounting fraud and share price crash.

Established more than 50 years ago, the firm transformed itself from a small South African outfit to a furniture and household goods retailer straddling four continents before it shocked investors by flagging holes in its accounts in December 2017.

Since then, it has had to stomach losses of up to US$4 billion a year and a dramatic fall from grace that has left it fighting to stay afloat.

CEO Louis du Preez on Tuesday delivered a stark assessment of Steinhoff's options at the company's first public investor presentation since the scandal took hold, saying a radical transformation into a retail-focused investment holding company was its "only way to survive".

Steinhoff has already sold a number of assets that do not align with that plan, and is looking to sell off others as well as cut jobs at its French retail chain Conforama, its management said during the presentation.

‘Mountain to climb’

In a subsequent interview, Du Preez said this would also give individual units more operational independence and decision-making power by reducing services like human resources and financing at group level.

The company's Johannesburg-listed shares were up 3.88% at 1109 GMT as investors welcomed the news.

"There is a lot of work still to be done, but I think management is doing the right things and focusing on the right things, although it still has a mountain to climb," said Sarine Barnard, an analyst at Investec Asset Management who attended the presentation.

Litigation key

The company has already sold off a number of assets, including an Austrian furniture chain and stakes in firms like KAP Industrial Holdings.

Its remaining portfolio includes furniture and household goods firms such as Mattress Firm Inc in the United States and the Fantastic chain in Australia, general merchandise outlets including Britain's Poundland, and a host of clothing stores.

Asked about reports it was considering an initial public offering of its Pepkor Europe unit, which owns Poundland as well as retail chains Dealz and Pepco, Du Preez said Steinhoff was considering all options and that no decision had been made.

Attendees said another big problem for Steinhoff is litigation. The company's stock tanked after the scandal, and numerous investors are claiming compensation for losses.

Du Preez said the company was in talks to settle the lawsuits out of court, and hoped to deal with them in a single action.

"How to solve the litigation is key," said Barry Cadle, a stockbroker with a personal shareholding in Steinhoff. If the company can get past the litigation, he said, it may lead to a rights issue.

Executives at the presentation said the ongoing impact of the fraud would leave Steinhoff fighting for profitability for years to come, even with strong turnover.

Overhaul

As part of its overhaul it may look to restructure struggling French retail unit Conforama - which has had to raise hundreds of millions of dollars to fund its business amid mounting debt and falling sales - and cut jobs, executives said.

Steinhoff's total debt, at 9 billion euro (US$10.09 billion), is also too high and needs to be addressed, Du Preez said. Measures will be taken to deal with this, including the re-issuance of previous debt instruments, he said.

Steinhoff said yesterday its European subsidiaries have implemented a financial restructuring plan, after pushing the deadline date back repeatedly.

Steinhoff Europe AG (SEAG) and Steinhoff Finance Holding GmbH (SFHG) entered into a company voluntary arrangement (CVA) in 2018 with its creditors.

A CVA is a UK legal process that allows a company with debt problems to reach a voluntary agreement with creditors over the payment of its debts while continuing to trade. – Nampa/Reuters

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