Steinhoff weighs further disposals to focus on most profitable businesses

Global retailer Steinhoff [JSE:SNH] is considering selling more of its businesses to focus on the companies in its stable that are most profitable, its CEO told an investor conference in Cape Town on Tuesday.

This was Steinhoff's first public investor presentation since its share price plunged in late December 2017 at the start of an accounting scandal.

Steinhoff CEO Louis du Preez, who took over the role on a permanent basis at the end of 2018, told investors that while the group's turnover was solid, it was struggling with profitability.

"We have to make sure the strong businesses are given the opportunity to keep performing," he said near the end of his presentation. 

Du Preez said accounting irregularities, first flagged in December 2017 and then probed by PwC in a 15-month forensic investigation, had served to mask the poor financial performance of some of the group's businesses.

High debt 

Du Preez said total group debt at the Stellenbosch-headquartered retailer was €9.09bn (about R156bn at current exchange rates), which was "too high". This excludes operational financing raised independently by the some individual operations, which amounts to about €1.7bn. 

The CEO said Steinhoff had concluded a 20-month process with lenders to delay debt repayments. The process, which it has started implementing, replaces existing debt with new debt instruments guaranteed by the group's listed holding company Steinhoff International Holdings. This debt will now mature in December 2021, and Steinhoff will not have to make cash interest payments until this date. 

This, said Du Preez, had given Steinhoff much-needed stability to right its operations.

Steinhoff is also facing numerous litigation claims in South Africa, as well as in Europe - where it is domiciled - due to its share price plunge and misstatements in previous earnings reports.  

Managing litigation risk was one of management's key major priorities, said Du Preez, adding that a long and drawn-out litigation process would hurt the firm.

Everyday questions  

Du Preez said the most common questions he was asked were when a copy of PwC's forensic probe would be released, and when the group's former CEO Markus Jooste would be arrested. 

He told the conference the PwC report would continue to be confidential and privileged, adding that further investigations into the group's finances were ongoing, with a view to investigating claims against third parties and entities. 

"We do not anticipate any further impact on financial statements as result of the next phase of the investigation," he said. 

Du Preez said that while Steinhoff has instituted civil claims and will continue to do so, it cannot initiate criminal proceedings.   

"On the criminal side, I want to state it emphatically we are cooperating with authorities within SA," he said. 

Jooste, who resigned from Steinhoff in December 2017, has denied any wrongdoing. Steinhoff itself has instituted a civil claim against him, which Jooste is opposing

* This article was updated at 16:00 on August 13 to clarify that Steinhoff International Holdings is the guarantor of the €9.09bn in debt, and that companies in the Steinhoff stable will not need to make cash interest payments on this debt until December 2021.  

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