Four years and many sleepless nights later, Steinhoff has taken a big step on the road to corporate rehabilitation after receiving an unqualified audit for its 2021 financial results released on Friday with its annual report.
The debt-laden multinational furniture retailer is still running at a loss but has managed to reduce the red ink to €850m in 2021 from €2.3bn (R39bn) a year earlier.
The clean sheet, which means the auditors regard the financial statements as transparent and accurate, comes days after an SA court approved a R24bn Pepkor shares and cash settlement, ending two years of litigation against it by more than 8,500 claimants who argued they had been duped into buying worthless shares.
The annual report reveals that Steinhoff spent €57m (almost R1bn) on legal and corporate advisory fees leading up to the final settlement at the end of 2021 and a further €58m the year before.
CFO Theodore de Klerk spoke to the media on Friday and said he was pleased the company had finally reached a settlement: “It’s taken a lot of time and a lot of energy. It’s been a lot of negative energy. But it’s also something that I think we’re proud of achieving.”
While investors won’t recoup their losses, “people will receive almost R30bn in compensation, and it’s not nothing”, De Klerk added. “We are quite happy as a team that we can now focus on more positive projects as opposed to delving into the past with litigation.”
The company now has to focus on reducing its almost R170bn debt pile, though the amounts due at the end of 2022 are likely to be granted an extension to June or even December 2023.
De Klerk told Business Day cutting debt was the most pressing issue as that could enable a restructuring and refinancing of the remaining debt.
Steinhoff is mulling the sale of more Pepco shares. It owns 78% of Pepco and sold 20% of its shares when it listed the European discount retailer on the Warsaw stock exchange in 2021.
“We actually need to improve the liquidity in that stock. From a trading perspective, we’ve said we will do further selldowns [of Pepco] in the future. At the moment, world markets are not most conducive to placements of equity.”
The listing of Steinhoff’s Australian furniture retailer and manufacturer Fantastic Furniture was delayed by a year due to the pandemic, but De Klerk said it was ready to list on the Australian Stock Exchange. Mattress Firm’s listing in the US, the proceeds of which will be used to pay down debt, is imminent.
One option under consideration is for lenders to take shares in Steinhoff, but a debt-for-equity swap could prove difficult because it will dilute existing shareholders’ stakes in the company.
De Klerk said the company was mindful of existing shareholders. “We need to be cautious [and consider] shareholders who have been supportive through a very difficult period. So we will not recklessly just do massive swaps of debt for equity without taking the rights and the value into account,” he said.
Asked about a rights issue — selling shares to existing shareholders — that also would be dilutory, De Klerk said Steinhoff was not contemplating it as a means to cut debt.
Steinhoff shares closed 8.52% higher at R4.97 on Friday.
As the company looks to engage with institutional shareholders and entice them to invest, it still has a reputational risk. Not one director has been prosecuted for SA’s largest financial fraud.
De Klerk said Steinhoff was co-operating fully with the investigating authorities.
“I think everybody wants to see those who did wrong in the past taken to task for it. From the company’s perspective, we have extensive interactions with all sorts of regulators and prosecuting authorities. We make a lot of information available to them. I cannot comment on their mandate or progress.”
The annual report shows CEO Louis du Preez received more than €3.4m (R64m) in pay in 2021 after achieving short-term targets that included restructuring parts of the business and the successful listing of Pepco on the Warsaw stock exchange.
The AGM in March will discuss executive remuneration that will offer directors more shares instead of cash to incentivise them to keep shareholders in the front of their minds.
Steinhoff will be in court on Monday to oppose an application by the Financial Mail to have a report by PwC into the scale of the fraud released. Steinhoff has kept the report under wraps.
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