Steinhoff Urges Investors to Help Save `Burning Building'

(Bloomberg) -- Steinhoff International Holdings NV’s chairwoman likened the embattled retailer to a burning building when the accounting scandal broke four months ago, appealing for shareholder support for an ongoing investigation into the smoldering wreckage.

The owner of Conforama in France and Mattress Firm in the U.S. said an investigation by auditors at PwC is well underway and has already uncovered the inflation of income and asset values over several years. More than 320,000 documents have been studied and 4.4 million records gathered in an attempt to find out what happened and who’s responsible, Steinhoff said. The probe is expected to be completed by the end of the year.

“There was a time in early December that it could be likened to finding oneself in a burning building,” Heather Sonn said at the retailer’s annual general meeting at an airport hotel in Amsterdam, where the Stellenbosch, South Africa-based company is registered. “Typically when in a burning building you run out. Some stayed. We are happy some stayed in the burning building to help.”

Steinhoff was facing up to investors Friday in its first AGM since reporting a hole in its accounts in December. After laying out salmon wraps and fresh fruit juice, senior management gave an update on the state of the retailer’s finances and took questions on everything from debt levels to the reappointment of auditor Deloitte LLP, which was later approved with 73 percent of the vote.

Steinhoff Urges Investors to Help Save `Burning Building'

“We want to uncover the truth, show the world what has happened, prosecute any wrongdoing and reinstate trust in the company,” Sonn said. She reiterated that Markus Jooste, the former chief executive officer who quit when the financial irregularities were disclosed, has been referred to law authorities. All other board members have agreed to quit immediately if they are implicated in any wrongdoing, she said.

Steinhoff has said it has to restate accounts dating back to at least 2015. The retailer said it plans to publish audited financials for 2017 -- which it was scheduled to do when the accounting scandal broke -- by the end of 2018.

Finances Drained

The shares reacted wildly, soaring as much as 23 percent before paring gains to trade 2 percent higher at the close in Frankfurt, where Steinhoff moved its primary listing from Johannesburg in 2015.

“The market is telling you it’s turmoil, that there is so much rot there,” Bobby Snodgrass, who holds about 100,000 shares, said in Cape Town, where Steinhoff hosted a live broadcast of the event. Investors “were misled by a charismatic leader and everyone listened to him. Those that saw red flags were at the trough and didn’t want to upset the apple cart.”

Steinhoff’s financial situation remains “very challenged” and the company has been “drained of working capital,” the company said. Even so, liquidity has been assured for now after 750 million euros ($922 million) was raised. The retailer has also sold stakes in South African companies PSG Group Ltd., KAP Industrial Holdings Ltd. and Steinhoff Africa Retail Ltd. to shore up its balance sheet, though it said the strategy is unsustainable and 10.4 billion euros of debt, mostly in Europe, needs to be restructured.

Fighting Hard

“There are a number of technical breaches of covenants in our loans,” Commercial Director Louis du Preez said at the AGM. “We have engaged with lenders to ensure these technical breaches do not turn into formal default.”

Steinhoff is seeking to extend a 750 million-euro loan maturing in August and issued out of Hemisphere International Properties BV, the group’s real estate arm, the company said. Several of Hemisphere’s original bank lenders have sold the Hemisphere loan at discount prices.

A review of Hemisphere completed this month showed that the portfolio’s value is 1.1 billion euros, compared with a previous book value indicated at 2.2 billion euros. The company has also engaged with lenders of Steinhoff Europe AG, the European operational holding, as 770 million euros of loans come due in July and August. It is also talking to holders of convertible bonds.

“It is difficult, but the team is really fighting,” Chief Executive Officer Daniel Van Der Merwe said after the meeting. “We have 130,000 people and we said we’d fight for that and that’s what we’ll do.”

©2018 Bloomberg L.P.