From another Forum by stksat
Good morning,
In general, I would like to say that I am satisfied on the whole. On the one hand there was little news, but on the other hand the lecturers confirmed a lot what some of you have found out here in the forum during the last months. That alone has already taken me a whole chunk of uncertainty. But one after the other:
1) Governance
This contribution by Heather Sonn was indeed one of the least new contributions for me. We all know that there has been a lot of work done on governance and that Heather Sonn's company and the new compliance and risk officer that PwC has enticed away will become transparent again. That was nothing new for us. The only thing that made me stop was that she said that the company's restrictive communication with the market will end here and now. That's a good thing!
2) Financial Restructure & Forensic Investigation
Here are the first true news of the day announced by du Preez. The CVA is imminent - as we all know the news came in the evening. He also showed in retrospect what the management has achieved in the past 20 months (slide 10). He said that when his kids ask him what he does in the office, he explains it to them like with a knotted plate of spaghetti - his job is to thread the noodles apart again without them tearing. That's why he pulls out each noodle separately - not like our "why the hell doesn't the course go up?!!!" desperate pusher fraction who would rather pull on the spaghetti heap until the noodles tear and stick to the wall in the whole kitchen ;-) ...all in all my esteem for the management, it has worked through the problems step by step over the past 20 months!
Slide 11 gave an overview of the PIK interest rates. If you have recalculated, you will get an average of 860 million EUR interest per year - the Forist Damage had already recalculated this once, that was the confirmation for me. PIK has been running since December 2018 (Diepernik mentioned this again later), so the increase in finance costs (other borrowings) in the half-year figures can be explained by this. With the CVA, these will now be deferred until the end of 2021.
There was nothing really new about Forensic Investigation. Only the note that there will be no further impact on the figures 2017 & 2018 is good to know again.
3) Litigation
Du Preez has noted here that they currently have a good overview of the lawsuits. A general distinction is made between "vendor claims", e.g. Wiese's suit, and "shareholder claims", e.g. TILP's claims. Du Preez said that the lawsuits in South Africa are more likely to be successful, in the Netherlands it is usually faster. This is likely to come to the fore in 2020 as well. He has also announced that further legal action will probably be taken against Jooste's environment in the current phase 2 of the PwC investigation. As far as Jooste is concerned, it is working together with the South African authorities on which it is also necessary to initiate criminal prosecution. To me, however, it sounded as if this was only a matter of time.
4) Financial Reposting and Restatement Process
With Alex Watson, an independent professor has been appointed to the Supervisory Board who has promoted the preparation of the 2017 & 2018 balance sheets from an independent perspective. Everything was done to get it ready as quickly as possible, but they had to wait for PwC's results. She said "students will study this process for decades" - she's right, because this restatement process really must have been a huge task that you mastered very competently. The lady is certainly a bonus for us when it comes to transparency.
5) Financial Results Overview (half-year 2019)
Diepernik basically didn't bring us any big news, because we already knew the numbers. However, as already mentioned, Diepernik once again made the comment that the SEAG and SFHG interest rates will be deferred until 2021 with the CVA. With 188 million EUR SEAG and 104 million EUR SFHG interest in the first half of the year, that is almost 300 million EUR - a whole chunk. Another positive note was that Easter 2019 fell to the second half of the financial year (April) and Q3 will therefore be comparatively strong. So we can already look forward to the 29.08.!
6) Strategy and Management Focus
This part was certainly one of the more interesting parts of the presentation. Du Preez has revealed the future vision of Steinhoff, which some forists like Mysterio have already foreseen here. They want to move away from a centrally controlled holding company (remember the time before 2018 with cash pooling & co) to a retail investment company. On the one hand, this has the reason that one wants to raise money with further sales and IPOs like e.g. Pepkor Europe in order to then also pay off the debts (and not only the interest). Christo Wiese had already announced this in an interview on CNBC Africa that the company would repay the debts with assets. On the other hand, this structure has the advantage that the treasury costs of the holding company (administration costs & co) can be reduced even further. If you only have a <50% stake and receive dividends from it, then you can save the majority of the holding structure. Whether one will also give up control over the two Pepkors is questionable, I think one will keep at least 50% here.
The 3 steps of the plan (CVA -> complaints -> restructuring and refinancing) also make sense. Here you also mentioned Preez again that these steps will take place in parallel (!) so you don't wait with a refinancing until the last complaint is solved. However, it makes absolute sense to solve most of the lawsuits before going to the banks. With a corporates rating also legal disputes of the potential debtor are included, this leads to a higher risk for the bank, ergo to a worse rating of the client (thus Steinhoff), ergo to a higher interest rate for a refinancing. Therefore, the lawsuits will eliminate those that can be clarified at short notice and then get a refinancing. Basically, you have until the end of 2021 to do so. At this point one will then settle the PIK interest with the cash which one has already generated to a large extent and possibly lower the debt a little bit (by some further asset sales which do not originate from the core area, and/or the IPO of Pepkor Europe). If you then have cleared most of the legal disputes out of the way, then you get an acceptable interest rate from the banks and the interest burden is reduced significantly. Due to the segmental EBIT, which has increased further until then (and which is already impressive!), there is more EBT left and you can continue to pay off your operating business after 2021. All in all a good strategy - not to say the only plausible strategy.
7) Questions
Here did not come any more too much meaningful from the spectators. Du Preez mentioned that since 12.08. the management is no longer in a Closed Period according to 5.2.3. of the Insider Trading Policy and theoretically for the first time since December 2017 it is allowed to buy shares again. What he has forgotten to mention is that according to 5.2.2. of the same document there is a 30-day blocking period for the management before quarterly figures, in which we are already. Anyone hoping for purchases by Louis & Heather in this regard will have to wait until 29 August 2019.
You answered Preez's question about "what are you doing for the share price" absolutely correctly. Namely that a price finds by supply and demand based on the results of a company itself. Although some of you in the forum have had half a nervous breakdown on this statement, you are of course absolutely right about Preez. Because he and his colleagues have been doing nothing else for 20 months than ensuring that the company survives and at some point is able to operate profitably again from the operative business - and this also maximizes shareholder value (as mentioned in his introduction), which basically only means one thing: namely rising share prices.
Sorry for the horrible english but just used google to translate haha