Steinhoff’s European cheap-cheap shops are doing brisk business, but could be sold off

While Steinhoff continues to grapple with large legal claims from angry shareholders and a massive debt burden of €9.09bn (R154bn – or more than 30 times its current market value on the JSE), its European businesses continue to do brisk business.

The group reported on Thursday that sales at Pepkor Europe rose by 13% to €2.567bn (R43bn) for the nine months to end June, compared to the same period in 2018.

This includes Pepco, which provides cut-price clothes, shoes and household goods in Poland, Romania, Hungary and other Central and Eastern European countries, as well as the UK chain Poundland, which famously sells branded products for a pound. (Current specials include two cans of Heinz chicken soup for £1.) Poundland’s subsidiary Dealz does business in Ireland, Poland and Spain.

Pepkor Africa – owner of, among others, Pepkor, Ackermans, Tekkie Town, HiFi Corp and Buco – saw sales grow by +3% to €3.292bn (R56bn).

These businesses in Europe and Africa are currently delivering by far the strongest performance of the Steinhoff-owned companies, which also include the American company Mattress Firm, which previously filed for bankruptcy.

But while Pepkor Europe and Africa remain shining stars, together producing almost 60% of its turnover, Steinhoff this week implied that they may end up on the chopping block.

"We must provide our strongest performing businesses with the opportunity to perform to their full potential and ensure that Steinhoff’s shareholding is not a hindrance to their growth. As part of our debt reduction strategy all options will be considered. Therefore, as we continue with our restructuring, we will keep the future ownership of these businesses under review."

It will make the decision in the coming year, after finalising its financial restructuring, which included securing agreements with creditors.

"Critically, it secures a period of financial stability for the Group until the end of 2021, during which we can restructure our businesses, dispose of assets to reduce debt to more manageable levels and/or restructure the debt as part of our plan to recover value for all our stakeholders."

In total, net sales from Steinhoff’s operations for the nine-month period to end-June 2019 increased by 4% to €10.1bn. Conforama, Europe's second largest home furnishings retail chain, contributed €2.6bn, followed by Mattress Firm (€1.9bn).

Steinhoff’s share price recently slumped to a new record low of 87c – after almost reaching R97 in 2016. Since then revelations of fraudulent accounting, which amounted to more than R250bn, have wreaked havoc on its share price and beleaguered investors.

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