Steinhoff news trickles out in dribs and drabs

Steinhoff recently published its unaudited trading update for the quarter ended December 31, 2018. Group revenue from continuing operations, propped up by Pepkor, increased by 3%. Management is of the view that trading is starting to show signs of stabilisation. Many capital expenditure projects remain on hold and new store openings will only be considered on a highly selective basis.

 * It is to be noted that these figures have been disclosed in the interests of transparency and to ensure comparability and do not necessarily reflect statutory reported revenue for accounting purposes.

Pepkor Europe showed strong revenue growth and it is anticipated that Dealz will provide further growth potential. Pepkor Europe is trading from 2 451 stores, an increase of 17% from 2017. Pepco has expanded its store portfolio and shows growth potential. Poundland continues to rationalise its store portfolio and has gained from the failure of a business competitor.

Conforama, showing a 3% decline, was negatively impacted by gilets jaunes (‘yellow vest’) protests in Paris which led to temporary store closures. In comparison, the general furniture market in France was down by 5% in the last six months of 2018, according to Ipea, a local market research organisation.

Disposals

The manufacturing operations (Puris, Impuls and Steinpol) made limited sales. Transactions to dispose of Puris and Impuls were concluded in September 2018. Steinpol, with eight factories in Poland and one in Hungary, was sold for €26.5 million, of which €9 million is deferred. This sale is still subject to merger control clearance.

The Extreme Digital operations were sold in January 2018, and the sale of Kika-Leiner will be recognised in the last quarter of the 2018 financial year.

Pepkor Africa increased revenue by 6% in local currency to R19.5 in the first quarter of 2019. Retail space also increased by 4% compared with the comparative quarter. The PEP and Ackermans brands reported sales growth of 7% and like-for-like sales growth of 5%.

Mattress Firm in the US successfully completed its restructuring on November 21, 2018. It remains the largest speciality mattress retailer in the US with over 2 550 stores. It now has significant financial liquidity. Sales for the first quarter were down, but the second quarter shows a positive improvement.

Preference dividend

A preference share dividend of 418.09418 cents per share – payable on April 29 in respect of the period July 1 to December 31, 2018 – was declared. There were 15 million cumulative, non-redeemable, non-participating, variable rate preference shares in issue at the date of declaration. 

Annual financial statements and forensic investigation

In December 2018 the group expected that it would publish its audited financial statements for 2017 and 2018 by the middle of April 2019 (and that the 2017 and 2018 financial statements for Steinhoff Investment Holdings would be released shortly thereafter). This date has now been pushed out to sometime before the end of May 2019.

The finalisation of the financial statements also depends on the finalisation of the forensic investigation being undertaken by PwC.

The final report will be legally privileged and may be used in legal proceedings. The market will only be provided with an overview of PwC’s findings. It is to be expected that these findings will materially alter the group’s valuations of goodwill and intellectual property, as well as revenue figures for previous periods which will have to be adjusted to any related party dealings that were incorrectly included.

Ongoing litigation

LSW GmbH, a company related to former Steinhoff business partner Dr Andreas Seifert, launched an application to challenge the Steinhoff Europe AG (SEAG) company voluntary arrangement. This may further delay the finalisation of the 2018 financial statements. LSW claims to be a creditor of SEAG. The LSW application will be held in the English High Court before the end of March 2019.

LSW also launched in application in Austria to commence insolvency proceedings over the assets of SEAG, which was subsequently withdrawn; as a result, the Austrian court has dismissed the application.

A group of shareholders has launched a petition for an inquiry to be held before the Enterprise Chamber of the Amsterdam Court of Appeal. A hearing is scheduled to take place on May 23.

Financial stability and liquidity challenges

David Pauker, a financial advisor and turnaround manager, has been nominated for appointment to the Supervisory Board until 2023, to be approved at the next annual general meeting.

In December 2018 the group granted a short-term bridge funding facility of €50 million to Conforama to provide working capital support.

The main priorities of the group are addressing the group’s debt, dealing with the ongoing litigation in different jurisdictions and improving operational performance while managing its complex international financial restructuring process. Management is engaged with funders, suppliers and credit insurers on an ongoing basis.

The group’s debt levels, finance costs and liquidity status will be revealed when the audited financials are finally released. In the meantime the group is actively monitoring cash flows and managing other liabilities.

The author holds shares in Steinhoff.