Steinhoff: Now for the restructuring

When he was asked at Steinhoff’s annual general meeting (AGM) on Friday how he would characterise the group’s financial position, chief financial officer Philip Dieperink took a moment to search for the right words.

It’s certainly no secret that things are bad, given that the management team had already revealed that the group had outstanding debt of €10.4 billion at March 31. This is against a market cap that is now under €1 billion.

Steinhoff’s commercial director, Louis du Preez, had also acknowledged that the group was technically in breach under some covenants with lenders, but that a lot of work was being done to ensure that these did not result in payment defaults.

Dieperink was therefore being asked to sum up an extremely fraught situation.

“If you look at the amount of interaction we are having with our lenders on a daily basis to ensure that all operations have sufficient cash, it is both delicate and challenged,” he said. “Delicate and challenged.”

Since Markus Jooste’s resignation in December last year and the liquidity crisis that hit immediately thereafter, the group has been struggling to find the cash it needs to sustain its operations. So far it has managed to do so, but this has been through falling back on some very short-term solutions.

“The group has been relying on asset realisations to fund ongoing working capital, which is obviously, in the long run, not sustainable,” said acting group CEO Danie Van der Merwe.

This included the sale of Steinhoff’s interest in PSG Group, some of its shares in KAP Industrial and Steinhoff Africa Retail (Star), as well as certain assets in Europe.

The group, however, revealed at the AGM that a restructuring plan will be presented to creditors next month.

“We now have the stable centre of leadership that the group needs to navigate through this crisis,” said chairperson Heather Sonn. “The crucial next stage rests on our ability to assess the group’s strategic options and produce a feasible restructuring plan that can be implemented in a controlled manner to ensure that value is maximised for all stakeholders.”

Although it wasn’t said directly, any restructuring plan will almost certainly include the further sale of assets. There has to be some rationalisation to find a more optimal balance of group assets against liabilities.

Steinhoff’s creditors will be the first to see this plan, since their continued involvement is essential to keeping the group afloat. However, a number of institutional shareholders at the meeting told Moneyweb that they would want to see this plan as well before any final decisions are made.

“Certainly in South African law if it entails a major restructuring it would be considered a material transaction, in which case it ought to be put to shareholders for approval,” said Rob Lewenson, governance and engagement manager at Old Mutual Investment Group. “Shareholders should be engaged to hear what their views are.”

While no specific commitment was made on this point, Van der Merwe did suggest that it would have to happen.

“We have to come up with a restructuring plan that is acceptable to all stakeholders, including the shareholders,” he said.

What Steinhoff at least has in its favour now is a reconstituted board. Following the resignation of Johan van Zyl just days before the AGM, there were only two members left, being Angela Krüger-Steinhoff and Stefan Booysen. Heather Sonn’s term had officially ended on March 31.

Effectively, therefore, the board had collapsed. Five new members have now joined the board, and Sonn has been reappointed. This creates some stability for taking decisions forward.

“I think the board could sense the urgency that shareholders are feeling to have matters resolved as soon as possible and establish those lines of communication that they have undertaken to do,” Lewenson said.

Steinhoff committed to producing unaudited financial statements in June that would show the group’s position at March 31 2018. However, there will be no audited results until at least December this year.

This is because the auditors, Deloitte, will not sign off on any financials until the forensic investigation by PwC is complete. That is only expected at the end of the year.

“We need to restore regular financial reporting cycles,” Van der Merwe noted. “Without that it is not possible to restore the trust in the group.”

Sonn gave her commitment to ensuring that shareholders would receive as much information as the company could release without compromising the investigation or causing itself further legal problems.

“I wish I could say what I think, but I don’t think that’s appropriate right now,” she said.

She reassured shareholders that the board will continue to do all it can to get to the bottom of what has happened.

“If one thinks of all the things one could rather be doing, then this is not something that one would automatically choose,” said Sonn. “Those of us who are still here do believe that this is something that we have to carry through.”

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