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Steinhoff reports multi-billion rand loss

Despite the holding company staggering under its massive debt burden, stores in all company geographies are holding heir own: Theodore de Klerk – CFO, Steinhoff.

NOMPU SIZIBA: JSE-listed retail holding company Steinhoff released a quarterly update for its operations and financials between October and December 2020. The company reported sales revenue from continuing operations of €2.5 billion, up 1% on the year prior, noting revenue increases in all their geographies.

Well, to give us the back story to the business, I’m joined on the line by Theodore de Klerk. He’s the CFO at Steinhoff. Thank you so much, Theodore, for joining us. Now you have your Pepco Group operations in Europe. Just tell us broadly about the business you have there, how they’ve been faring, and the state of the European consumer in light of the pandemic.

THEODORE DE KLERK: Good evening, Nompu. Thank you. Yes, we’ve got the Pepco Group, which consists of Pepco, which is a clothing and apparel store in Eastern Europe. It also has a chain called Poundland, which is fast-moving consumer goods, mainly in the UK and Ireland.

NOMPU SIZIBA: Please elaborate in terms of how the consumer is doing, and so on.

THEODORE DE KLERK: All those territories were quite heavily hit by the lockdowns. So it really varies from territory to territory. I think most people are under pressure post-Covid – although our brands operate towards the lower end of the market, and we’ve seen some resilience. So, coming out of lockdowns in the various territories, we’ve seen good pent-up demand. And, as you can see in the numbers from the Pepco Group, it’s been growing its business notwithstanding the fact that stores really only opened towards the middle or the back end of December.


NOMPU SIZIBA: Then of course, there’s the company we’re more familiar with here in South Africa, Pepkor – formally Steinhoff Africa – which has the likes of Pep and Ackerman stores in its stable. Revenue was up 7% there. Have you found that many of your brands were quite resilient during the pandemic – also given the related restrictions?

THEODORE DE KLERK: Yes, definitely so. And Pepkor also managed to gain significant market share. So the team really did an incredible job. Not only did they continue to grow the business at the top line, but they’ve also managed liquidity exceptionally well, bringing debt levels down as they reported in the year-end results to less than R7 billion, which is a significant achievement.

Overseas markets

NOMPU SIZIBA: It’s always tricky speaking to a global player, but I do want to get a sense of how you’re doing in your other territories as well – Australia and New Zealand, as well as the United States. How have those markets fared?

THEODORE DE KLERK: Australia has been most resilient. It’s a very sophisticated market and it’s also the market where we were able to substitute offline sales most effectively by online sales. So Australia, especially our chain there called Fantastic Furniture, has really, really done well.

America has been very resilient. Those restrictions weren’t as strict as in many other countries. Also our American business was able to grow online sales; they almost doubled their percentage. So you would have seen that in dollar terms in the first quarter we grew sales in America by 21%, which is a really exceptional performance.

NOMPU SIZIBA: Just as well you didn’t get rid of Mattress Firm, because I think I read somewhere that was one of the assets that you were trying to sell off.

THEODORE DE KLERK: Yes, we still own just more than 50% of that business. We restructured that in late 2018, and currently we hold 51% of that business.

Litigation settlement

NOMPU SIZIBA: One of the issues you’re working on resolving is coming to a meeting of minds with shareholders who lost massive equity from the 2017 accounting scandal. Where are you guys with the whole litigation-settlement proposal that you’ve advanced? What’s the detail there?

THEODORE DE KLERK: We’ve put a proposal out to the market. It’s really a two-pronged approach. There’s a proposal in the Netherlands that will be subject to a Netherlands legal process. And then there’s also a South African process, very similar.

So the scheme of arrangement in the South Africa process was launched a couple of weeks ago, and similarly the suspension of payment process in the Netherlands. So the terms of our offer are out in the market, and litigants must now assess the terms. We expect scheme meetings to be held towards the end of June, early July, where the creditors will be able to vote on the terms that we put to them. If approved, hopefully thereafter the court will sanction it, and then we can implement the litigation settlement.


NOMPU SIZIBA: Now you may have fairly decent retail assets around the world, but then of course the big problem is that you’re saddled with massive debt. Where does your debt currently stand, and what’s the plan?

THEODORE DE KLERK: Correct. The operational debt is really not our issue, because all operations are independently funded and they service their debt.

But the big issue is the debt that we sit with at holdings level, approximately €10 billion, and it’s got a hefty finance cost to it. So, post the legal settlement, which we believe will be successfully implemented, we can really start focusing on addressing the debt burden. That will have to coincide with a sale of assets.

We can never trade ourselves out of that debt number, so we will have to sell some assets, some large assets, wholly or partially – that strategy we still have to define – and then restructure the balance sheet post that.

Level 1 lockdown

NOMPU SIZIBA: In terms of the South African context we’ve moved to Level 1 of the lockdown, which is positive. It means more economic activity. Does that change anything for you guys at all in terms of your operations?

THEODORE DE KLERK: My guess would be that it would increase footfall. Footfall is good for our stores. If I look at our African footprint, kids going back to school is a big plus for the Pepkor Group, because they do a lot of sales in the children’s market in school clothes. So, as people start moving around far and wide, hopefully the activity will also support sales.

NOMPU SIZIBA: Indeed. Of course you were reporting for the quarter October to December. We’re now in 2021. What’s the outlook – not just for South Africa, but all of your territories?

THEODORE DE KLERK: We’re cautiously optimistic. Our operations have shown that they can deal with trading restrictions, but I think one’s got to have a pragmatic or have a very realistic outlook should we go into a third wave in territories and stores shut down, especially our Pepco brands and mostly our Pep stores in South Africa. Online sales are not a major part of our turnover so, if our stores are closed, it does hurt turnover. Even though our management teams have been very resilient and they’ve got proven plans in place, one’s got to be cautious and ready when things happen.

NOMPU SIZIBA: Do you think Steinhoff can be a great company again?

THEODORE DE KLERK: That’s the million-dollar question. I think there’s a lot of work ahead. We really need to find a solution for all the litigation against the group before we can start really planning the future, because it involves multiple billions and there are numerous claims. So until we resolve that it will be a bit premature to make big plans for the future.

NOMPU SIZIBA: Very true. Theodore, thank you so much for your time, sir. That was Theodore de Klerk, the CFO at Steinhoff.

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