Steinhoff shareholders clearly believe their investment is in safe hands – or as safe as it can be under the circumstances – just 37 shareholders arrived at the AGM in the Netherlands on Friday, and seven at the simulcast in Cape Town. Of the shares that could be voted, just 25% were voted.

It’s either that or the shareholders are resigned to sitting it out for the long haul. Management pulled no punches.

“In March I said that the group faces a grave and uncertain future,” said Heather Sonn, chairman of the supervisory board. “We have worked tirelessly since then, but much work remains.”

Betting people may believe the odds have tilted in Steinhoff’s favour, but so many uncertainties remain that auditors Deloitte gave the group a disclaimer in both its 2017 and 2018 financials and are likely to do the same in 2019.

Of the nine reasons provided by Deloitte for the original disclaimers, just one has been resolved.

Chief among the concerns is the litigation and uncertainty as regards the group’s going concern status.

“The litigation we face is complex and diverse and some of our businesses are operating in very challenging environments,” says Sonn.

The litigation is one reason why the supervisory board has decided not to release the full PWC forensic report (a summary was released in March 2019), despite earlier promises to do so, to the chagrin of some shareholders.

“Why is the report not being released?” asked one shareholder. “Is it because you have made a deal with the regulators? Or is there something that shareholders should be concerned about, but which is not being disclosed?”

“We were promised maximum transparency with regards to the contents of the report,” said another. “All we got was a summary of a summary.”

“It is hard to understand why the company does not disclose more,” said a third. “We know the names of eight culprits, but we don’t know who did what with who and how they enriched themselves. We would like clarity.”

“There seems to be a sentiment that there is something sinister in the board’s decision not to release the report,” said Sonn.

“We have made a decision based on what we think is in the company’s best interest. In this instance, full transparency may work against the best interest of the shareholders and the company. We are not protecting personal interests or doing deals with regulators, although we are co-operating with them.”

“There is further forensic work being done in order to investigate possible claims against third parties,” added group CEO Louis du Preez. The report will also be instructive when the time comes for the company to defend itself against the significant volume of inbound litigation, he says.

Another big concern is the debt overhang, which although restructured to provide management with breathing room to December 2021, accrues at very expensive rates.

Source: Steinhoff presentation to shareholders, August 2019

Source: Steinhoff presentation to shareholders, August 2019

Regardless of the cost, completing the financial restructure (on August 13, 2019) has enabled the management team to stabilise the underlying business, says Du Preez. The process involved at least 20 separate agreements.

“To say it was highly complex and demanding is an understatement.”

It provides the group with much-needed stability, it will help to ensure fair treatment across all creditors and gives management time to deleverage the group.

The financial investigations have also provided the board with a clearer idea of the value of the company, which unsurprisingly, has reduced alarmingly, and has implications under Dutch law, where Steinhoff is incorporated.

The equity value has decreased to less than one half of the paid-up portion of the company’s capital, a situation that requires that a general meeting must be held with shareholders to discuss measures taken to remedy the situation.

The equity value of the company now stands at negative €5.3-billion, or negative €1.24 per share.

The last published equity figure was €16-billion in 2016, before the restatements.

As such, management has made the decision to reduce the nominal value of the shares from the current €0.50 each, to €0.01 each.

“The outstanding value of the company will be €43-million once the revaluation takes place,” says Du Preez.

“There is still lots of uncertainty in the group and we must manage Steinhoff NV as an investment holding company in order to protect and maximise value for shareholders.”

Other measures taken to restore the company to stability include those mentioned; restructuring the debt, completing the financial reporting backlog, managing the litigation risk and restoring value to the operations.

It is an enormous task and there is no doubting that this management team is up for the task.

There is also no doubting that righting the ship is an expensive exercise. Advisory fees for 2018 and the first half of 2019 tipped €238-million, however, shareholders will be relieved to know that these fees should reduce now that the financials have been restated, the debt restructured and the forensic investigation completed.

Cleaning up after someone else’s fraud was always going to be a pricey business. BM