Steinhoff moves to ‘final phase of recovery’

Topping the list of management’s priorities will be optimising the business, restructuring the group and managing litigation.
Image: Dwayne Senior/Bloomberg

JSE-listed retailer Steinhoff International says it has begun the final phase of its three-step recovery strategy which focuses on reducing debt levels and addressing the sustainability of the company’s balance sheet.

In a trading update to the market on Friday, the group also highlighted a 10% increase in revenue to €2 827 million for the quarter ending December 31 2021.

Steinhoff has been focused on completing phase one and two of its recovery strategy, which dealt with the company’s financial restructuring and litigation settlements with aggrieved investors.

The global retail group which was hit by a major accounting scandal in December 2017, has agreed to compensate shareholders who suffered as a result of the financial fallout from the scandal.

Read: Steinhoff starts payout in $1.62 billion settlement

“The primary focus of the Group is now on the implementation of step three of the three-step strategic plan – addressing the high debt,” Steinhoff said in a statement.

The group added that its management board will this year prioritise the following:

  • Business optimisation and value maximisation
  • Financial reporting controls and administration
  • Group restructure
  • Stakeholder interaction
  • Litigation settlement proposal – implemented February 2022
  • Litigation management

Africa business

The group’s Africa business, Pepkor Holdings, saw a revenue increase of 7% to  €1 294 million for the three-month period to the end of December 2021, up from  €1 208 million in the previous comparable period.

“Growth in revenue was impacted by the strong base in the comparable quarter in the previous financial year, following the easing of Covid-19 restrictions, and 161 looted stores that had not yet reopened at the start of the quarter following the civil unrest in South Africa [KwaZulu-Natal and Gauteng provinces] during July 2021.”

Pepkor saw 3.1% growth in sales in constant currency. A two-year overview, compared to the 2019 comparable period, shows a 10.9% increase in sales in constant currency.

The group noted that an uptick in festive season sales as well as back-to-school sales contributed sufficiently to the improved performance.

“While trading was weaker in October 2021, it normalised in November 2021 and strengthened in December 2021.”

“In some of the Pepkor Holdings business units the performance was inflated by the shift in back-to-school dates to January from February in the prior year,” the group added.

“The improved trading trajectory is very encouraging in contrast to the challenging operating conditions faced in the wake of a weak economy with record high levels of unemployment,” it pointed out.

The group also mentioned that 82% of 549 stores affected by the July unrests have reopened, this amounts to 450 store.

However, 99 stores remain unopened due to delays in infrastructure and shopping centre rebuilds.

European business

In its pan-European discount retail business Pepco Group, Steinhoff said it has seen a resumption of trading restrictions in territories in which it operates. The restrictions have had a negative impact on foot traffic to Pepco stores.

“These restrictions negatively impacted customer footfall as they included limits on customer numbers allowed in stores at one time which impacted over 50% of trading weeks and restricting entry to stores to vaccinated customers only which, given the average Central Europe vaccination level of 54%, impacted 14% of trading weeks,” noted Steinhoff.

Despite this, Pepco Group did see a 14% rise in revenue to  €1 352 million in the period, from € 1 188 million in the previous comparable period.

Steinhoff said its European business’s current debt position reflects a strong cash position and working capital efficiency.

“Closing net debt, on an IFRS 16 basis of €1 248 million [FY21: €1 174 million] reflects the strong cash EBITDA and working capital efficiency, offsetting increased lease liabilities from a record quarter of store expansion.”

“The closing net debt excluding leases, of €115 million (FY21: €187 million), similarly reflects strong cash generation while continuing to invest significantly in strategic growth initiatives,” it added.

Steinhoff’s share price was trading over 12% up (around R3.78 a share) in early afternoon trade on the JSE on Friday, following the trading update.

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