Steinhoff slashes operating losses

Big improvement in its fortunes, but no profits just yet.
Image: Dwayne Senior/Bloomberg

Steinhoff finally released its annual report and financial statements for the financial year to end September 2021  just after lunch on Friday, with its hefty 276 pages of important information outlining the progress to get the group back into shape.

While the progress is notable – from settling litigation to streamlining and decentralising underlying operations – most shareholders would immediately turn to the income statement on page 97. It showed a big improvement in Steinhoff’s fortunes, but no profits yet.

Read:
Steinhoff: It’s just about settled then (for some)
Pepkor sales and revenue well ahead of 2019

Looking at the figures, shareholders would have had to grab their calculators too as the bean counters did not provide the usual percentages to highlight changes.

Revenue increased by more than 14% to €9.19 billion in the 12 months to end September 2021 compared to €8.03 billion for its 2020 financial year. But, cost of sales increased by nearly 11.5%, from €4.89 billion to €5.45 billion.

Taking all the other business expenses into account, the group delivered an operating loss of €85 million – a good 90% less than the loss of €916 million in the previous financial year.

Management points out that the improvement was achieved in an environment with many complexities, including Covid-19.

“The group’s results improved as the operating companies benefited from the hard work done on strategic alignment and performance improvement initiatives over the last four years, as well as fewer Covid-19 restrictions affecting trading,” CEO Louis du Preez and CFO Theodore de Klerk say in their commentary to the results.

“We continued to simplify the business as well as the group structure and took further steps to deleverage the balance sheet while progressing our transition to a global holding company focused on retail sector investments.”

Debt

While interest payable on its huge debt remained high at €1.9 billion (€1.95 billion in the previous year), the strong performance in Steinhoff’s underlying operations saw income from equity accounted companies increase to €519 million compared to a loss of €7 million a year ago.

The bottom line is a loss of €850 million for the 2021 financial year compared to the loss of €2.35 billion in 2020. This translates to a headline loss of €0.24 per share (a loss of nearly €0.52 per share in 2020).

The improvement in operations and restructuring of the underlying businesses, such as the listing on different stock exchanges in the main countries of operations, indicates that things are looking better.

Read: Steinhoff looks to list Mattress Firm on New York Stock Exchange

“Trading conditions in the second half of the financial year were more encouraging as the impact of Covid-19 broadly continued to reduce. The progress of vaccination rollouts, behavioural change and the lifting of restrictions impacting on Steinhoff businesses in most of our major markets have all had a positive effect.

“The operating companies continue to perform robustly and are well positioned for future growth. However, uncertainty over the future impact of the pandemic persists and trade will continue to be subject to any related restrictions,” notes Du Preez.

He adds that improving the terms of the litigation settlement was an important development and demonstrated the commitment to treat all stakeholders fairly as it sought to address its legacy issues.

Read: Steinhoff paves way to complete settlement of global claims

When the settlement is out of the way, Steinhoff will be able to focus exclusively on the next step of its strategic plan – that of simplifying the portfolio, according to management. It also involves reducing debt (and financing costs) through further asset disposals.

Shareholders seemed pleased as well. Steinhoff shares jumped around 8% after the publication of the annual report and financial statements, reversing the weaker trend of the last few days. This seems like a nice show of appreciation given that the JSE dropped close to 1% overall.

Listen: Louis du Preez, CEO of Steinhoff, discusses the court-approved R25 billion settlement, and the way forward (or read the transcript)

 

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