Steinhoff’s window-dressing reveals the devil is in the details

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It’s quite understandable that Steinhoff International Holdings [JSE:SNH] wants to create a favourable impression. The embattled retailer is in the final month of debt-restructuring talks, after all.

In its results presentation last week, Steinhoff proclaimed in standout pink letters on the first page that it operates in “more than 12 000 stores with 40+ brands in 30+ countries.” Zoom in and the small print below reveals this includes discontinued operations.

It comes after revelations of accounting irregularities that have wiped out more than 95% of its share price. The scandal has made the company and its auditors particularly careful, with disclaimers throughout its financial statements. Plus, accounting rules force the scandal-hit furniture, shoe and clothing retailer to book some assets as discontinued.

That includes Steinhoff’s stake in US bedding retailer Mattress Firm, which it bought for $3.8bn in 2016 - a 115% premium. After Mattress Firm emerged from bankruptcy in November, Steinhoff’s stake dropped to 50% from 100%, and will probably decline further. The number of Mattress Firm stores were cut by 23% year-on-year to about 2 700 outlets.

Making its situation look good enough, but not too good is all part of a fine balancing act. After announcing the financial irregularities late 2017, funders got jittery and Steinhoff started struggling to meet its interest payments. Much of the debt was racked up through a buying spree that picked up pace in the two years before the problems were uncovered.

The new leadership is seeking to make the company look attractive and stable in order to avoid distressed sales, while remaining transparent with the market about its precarious status as a going concern. The firm has also indicated that there isn’t much to go around for those bringing legal claims against it. 

Steinhoff has said it needs time to prepare some units for an eventual sale to help it to repay creditors. So beyond Mattress Firm being classified as an associate company in future reports, the number of stores it can claim to own are likely to drop.

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