Steinhoff International Holdings will hold a shareholders’ meeting on March 16 to vote on an equity reorganisation that will see their voting rights reduced significantly in terms of a restructuring of more than €10bn debt.
The debt, incurred mostly as the group struggled to survive following massive accounting fraud exposed in 2017, matures in June this year, and a debt-maturity-extension plan was hatched in December because the uncertain global economic conditions have meant the group has not performed as well as it had hoped, while it has become difficult to raise capital.
Steinhoff said in its annual report released on Friday that it faced many challenges associated globally with increased interest rates, higher inflation and elevated supply-chain costs in the year to September 30, 2022. Operational management teams had to implement various initiatives to mitigate the potentially negative impact on their business results.
The board said while the lifting of COVID-19-related trading restrictions, with the emergence of a larger discount and variety market in some of the key markets where the group operates, was positive for its businesses, the invasion of Ukraine, a country that borders three of Pepco Group’s largest operating territories, created volatility and unpredictability.
Individual businesses, such as Pepkor Holdings and Pepco Group, with their everyday value focus, continued to perform well, while others, such as Greenlit Brands and Mattress Firm, had reported declining trade. Overall, operational results came under pressure as costs increased with rising inflation while revenue was dampened by the economic uncertainty.
The aim of the debt extension was to create a stable platform across the group “to optimise the orderly, expeditious and value enhancing monetisation of assets.”
During the past year, the group also moved into technical insolvency with net equity moving from positive €121m at September 30, 2021 to negative €3.5bn at September 30, 2022, mainly due to the decline in the Pepco Group share price and accrual of debt interest.
On the operational outlook, the group said that while markets remain far from normal, the emergence of a larger discount and variety market in some of key jurisdictions was having a positive effect on some of its businesses. Growth showed at operational level supported by both acquisition and continued store growth and refurbishing.
However, making new investments at group level was not part of the strategy. Significant trading and operational uncertainties persist. Rising inflation together with increasing interest rates were putting both consumers and businesses under pressure and markets were likely to remain volatile in the near term.
In the annual report, the most significant change in the proposed remuneration policy for executives 2023 in comparison to the policy that was proposed in 2022, was an increase in the short-term incentive and the reduction in the long-term incentive scheme, due to the various changes taking place in the group.
The equity portion would remain the same at 75% of base salary, which meant the balance of cash and equity in the hybrid long-term incentive scheme had shifted from a fifty-fifty ratio to a forty-sixty ratio cash and equity award in the form of phantom shares.
“By doing this, retaining the managing directors the longer-term opportunities for the company will be optimised,” the supervisory board said in the annual report.
The share price nudged up 4.1% to 51 cents on Friday on the JSE, having fallen steadily from 70.03 cents a year ago.
BUSINESS REPORT