Picture: SUPPLIED
Picture: SUPPLIED

Embattled retailer Steinhoff International, whose chains include Pepkor and Conforama, says it will consider letting go of its best businesses as it struggles to stay afloat.

“We must provide our strongest-performing businesses with the opportunity to perform to their full potential and ensure that Steinhoff’s shareholding is not a hindrance to their growth,” the group said in a statement on Thursday.

“As part of our debt-reduction strategy, all options will be considered. Therefore, as we continue with our restructuring, we will keep the future ownership of these businesses under review.”

The group reached a milestone earlier in August with the conclusion of the company voluntary agreements (CVAs) for its two highly indebted finance companies — Steinhoff Europe AG (SEAG), which holds €5.79bn in debt, and Steinhoff Finance Holding Gmbh (SFHG), which holds a further €2.94bn.

The debt instruments associated with both companies, which equates to €8.73bn, were reissued on August 13 when creditors and the company agreed to the CVA. The instruments expire on December 31 2021, which means Steinhoff now has just over two years to restructure its business. 

This will entail selling off its assets in an orderly manner to repay creditors. Steinhoff stated it currently has €1.6bn worth of assets up for sale, including its automotive division in SA that has been on the market since 2018.

“Steinhoff’s problem is that it has approximately €9bn in debt which is costing it 10% per annum. But, with the exception of Pepkor Europe and Pepkor Holdings, it does not generate a return on invested capital above that,” said Jean Pierre Verster, founder of Protea Capital Management.

“So, while it has bought itself time after concluding the lock-up agreements with creditors, it has almost €900m being added to its debt burden every year,” he added.

Steinhoff said legal claims against it remain “a significant outstanding challenge”. This provides a source of huge contingent liability, says Verster.

“If they chose to sell some of the crown jewels, like Pepkor, they face the risk of having to reverse the transactions in the event that the courts pronounce favourably on the claims of the litigants,” he said.

The debt will continue to accumulate as litigation plays out in various courts in Europe and SA. For this reason Verster thinks it is very unlikely that there will be any positive resolution for Steinhoff shareholders in the end.

Steinhoff said consolidated net sales from continuing operations in the nine months to end-June rose 4% to €10.1bn (R171.9bn).

This was thanks to “strong contributions” from Pepkor Europe and Pepkor Africa, whose chains include Pep, Ackermans and Incredible Connection.

Pepkor Africa increased revenue in constant-currency terms by 8.5% to R53.1bn in the nine-month period, boosted by a stronger third quarter, the group said.

“However, trading remains volatile in an environment of continued pressure on consumer spending.”

hedleyn@businesslive.co.za