Another hefty loss for Steinhoff as high finance costs, litigation provisions bite

0:00
play article
Subscribers can listen to this article
(Getty)
(Getty)
  • Stellenbosch-headquartered furniture and household goods company Steinhoff has posted another multi-billion rand loss.
  • Despite a "resilient" operational performance, the group suffered from high interest payments and the need to set aside almost a billion euros to settle a host of lawsuits. 
  • The group has said that, if a settlement proposal with claimants is accepted, it will be able to focus on cutting debt and financing costs.

Furniture and household goods company Steinhoff has posted a loss of €2.3 billion (R41 billion)* for the year ended September 2020, after it incurred €1 032 in finance costs and put aside €943 million to settle legal claims against it.

While Steinhoff doesn't have to pay the €1 032 interest on its almost €10 billion debt immediately, it is still marked as a loss on its balance sheet. The holding company debt is classed as PIK interest, meaning it only has to be paid at a future date. 

"We are happy with our going concern assumption, we've got enough liquidity to keep on running the business, because we don't have to pay the interest immediately," said the group's CFO Theodore De Klerk. 

Meanwhile, fees related to a forensic investigation conducted by PwC and advisory services amounted to an additional €58 million.

In its annual report for 2020, released on Friday, Steinhoff said total revenues decreased by 2% to €7.9 billion from €8.1 billion in 2019.

The group said its performance through the period of global lockdowns caused by the coronavirus pandemic was "resilient", with a stronger post-lockdown recovery than expected.

Sales of a number of businesses, meanwhile, meant its total headcount fell from 110 000 to about 90 000.

Steinhoff now has three main operations:

  • the Pepco Group, the owner of Pepco, Poundland and Dealz
  • Australasian business Greenlit Brands, the owner of Fantastic Furniture
  • African retailer Pepkor, the owner of Pep and Ackermans & Russells.  

All three operations posted year-on-year increases in revenue, said Steinhoff, with Pepco increasing sales by +3%, Greenlit Brands by +9% and Pepkor by +4%.

However, due to the decrease in the rand/euro exchange rate, Pepkor's earnings fell by -8% in euro terms.

While Steinhoff is headquartered in Stellenbosch, its earnings are reported in euros as it is domiciled in the Netherlands and has its primary listing on the Frankfurt Stock Exchange.

The group's core earnings – or Ebitda (Earnings Before Interest, Taxes, Depreciation, and Amortization) – fell 21% from €733 in 2019 to €578 million in 2020. 

But high finance costs and the need to set aside almost a billion euros to pay out to litigants pushed Steinhoff into a loss of €2.36 billion, a 28% increase over its loss of €1.8 billion in 2019.

When the exchange rate loss from the group's South African operations is taken into account – its total comprehensive loss increased to above €3 billion.

Litigation 

Steinhoff is facing over 90 separate legal claims in South Africa, Germany and the Netherlands stemming from the precipitous drop in its share price in December 2017 when an accounting scandal was uncovered. 

On Friday it said that finding a solution to the mass of legal claims it is facing had been "almost impossibly challenging," but a resolution was "potentially now in sight".

The group has put aside €943 million to settle the claims it is facing as part of the "global settlement" it announced last year. It will do this without admitting to any liability or wrongdoing, in order to protect it from further claims.

The payouts first have to be accepted by claimants. Steinhoff has previously said that, if no settlement is reached, it may have to be liquidated, a "bad outcome" for all.

"A successful approval would also offer the Steinhoff Group, and all its stakeholders, the chance to move ahead and address the remaining challenges," it said on Friday. 

* Fin24 has used the average translation rate for FY2020 of R18.1836/euro for this calculation. As Fin24 noted above, PIK interest does not have to be paid immediately.

* This article was updated on March 1.  

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
Rand - Dollar
14.10
+0.3%
Rand - Pound
19.94
+0.0%
Rand - Euro
17.13
+0.2%
Rand - Aus dollar
10.95
+0.3%
Rand - Yen
0.13
+0.1%
Gold
1,866.10
+1.2%
Silver
28.17
+2.8%
Palladium
2,902.65
+0.3%
Platinum
1,244.04
+1.2%
Brent Crude
68.71
+2.5%
Top 40
61,193
+1.0%
All Share
67,217
+0.9%
Resource 10
70,663
+1.8%
Industrial 25
83,982
+0.9%
Financial 15
12,612
-0.6%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, and I've gotten it.
21% - 1471 votes
No, I did not.
52% - 3655 votes
My landlord refused
27% - 1944 votes
Vote