Steinhoff International Holdings N.V. : Process and liquidity update and waiver proposals to certain financial creditors

Steinhoff - Process and liquidity update and waiver proposals to certain financial creditors

Steinhoff International Holdings N.V. (the "Company" and with its subsidiaries, the "Group")

Process and liquidity update

The Company announced on 5 December 2017 that its Supervisory Board (the "Supervisory Board") had appointed PwC to investigate certain accounting irregularities that had come to light and that the publication of the Company's consolidated financial statements for the year ending 30 September 2017 ("2017 Consolidated Accounts") would be postponed.

Since the Company's announcement on 5 December 2017:

- The Group appointed Moelis & Company ("Moelis") and AlixPartners as independent financial advisor and operational advisor, respectively. Moelis continues to support and advise the Group on its debt financing and its discussions with lenders, while AlixPartners continues to assist with the Group's liquidity management and operational measures.

- The uncertainty relating to the accounting irregularities and unavailability of audited financial statements led to liquidity issues for the Group. As a result, the Company has been engaged with lenders, bondholders, other financial creditors and its key credit insurers to ensure that sufficient liquidity has been maintained for the Group's underlying operations and to seek additional liquidity funding for the central treasury functions of the Group and the various operating businesses.

The Company has acted on a number of fronts in order to stabilise the Group's operations and the main developments since 5 December 2017 are summarised below.

1. Governance changes

Several steps have been taken to strengthen the governance of the Company. On 8 December 2017, it was announced that the Supervisory Board had established a sub-committee of three independent non-executive directors (Heather Sonn, Johan van Zyl and Dr Steve Booysen) to provide a regular interface with the senior management team. On 14 December 2017, the Company further announced that Heather Sonn had been appointed as the acting Chair of the Supervisory Board. Following recent changes, the Management Board of the Company now comprises: Danie van der Merwe (acting Chief Executive Officer) and, pending formal appointment at the general meeting of the Company, Philip Dieperink (Group Chief Financial Officer and continuing Chief Financial Officer of the Steinhoff UK sub-group, a position held since September 2007), Alexandre Nodale (deputy Chief Executive Officer and continuing Chief Executive Officer of the Conforama business) and Louis du Preez, who joined the Group in June 2017 as Group Legal Counsel after more than 20 years in private practice (Commercial Director).

On 4 January 2018, the Company also announced that it is looking to appoint an external independent Chief Restructuring Officer and steps to secure this appointment are underway. The Supervisory Board continues to keep the governance of the Group under review and a number of candidates are in the process of being approached to strengthen the independence of the Supervisory Board.

2. Accounting investigation

The Company's announcement on 5 December 2017 included reference to the fact that PwC had been engaged to perform an independent investigation into those matters that had been raised by Deloitte in relation to the 2017 Consolidated Accounts. PwC has been working with the Company and its legal advisers in relation to the accounting irregularities and the necessary preliminary steps in relation to their investigation have been taken. The Supervisory Board has instructed that the scope of the investigation is not limited in any way, so as to allow those investigations full access to the Group. The Group aims to provide an update on progress with the accounting enquiries as soon as it is able to do so.

3. Engagement with financial creditors

Members of the Management Board of the Company and representatives of the key business units met with representatives of the Group's European banks and credit insurers in London on 19 December 2017. The related presentation and recording was made available on the Company's website on 19 December 2017. That meeting was followed by a separate meeting with the Group's lenders in South Africa on 21 December 2017 and more recently, on 10 January 2018. In those meetings, the Company was able to reiterate the strength of the financial position and trading performance of the businesses and investments in South Africa and the trading performance and opportunities in the businesses outside South Africa. At those meetings, the Company emphasised the priority of achieving stability across the Group's operating companies and the continuation of the European central office functions. It was confirmed that there was a need in the short term to obtain liquidity for the central functions within Europe. The Group has provided notice to certain of its European-based financial creditors of a meeting to be held in London on 26 January 2018.

4. Local financing updates and liquidity measures

USA

On 22 December 2017, the Mattress Firm business in the United States announced that it had succeeded in obtaining a new US$75 million asset backed financing for its business which includes the option to upsize the financing up to US$225 million, subject to certain conditions.

UK

On 4 January 2018, it was reported that the Pepkor Europe (which includes Poundland UK) and Steinhoff UK sub-groups had entered into a credit facility of up to £180 million to finance its working capital and operational requirements.

Australia

The Australian business announced in its trading update on 28 December 2017 that it is an independent, profitable and financially strong business delivering positive cash flows with its own banking facilities and is not dependent on working capital support from the Company.

France

In relation to the Conforama sub-group, Conforama is currently exploring options for its own financing should such a requirement arise. Conforama also reached an agreement on 11 January 2018 to sell its 17% stake in Showroomprivé for approximately EUR79 million (subject to regulatory consent), a transaction which will raise further liquidity for the business.

South Africa

As noted above, at the South African lenders' meetings on 21 December 2017 and 10 January 2018, the Company and its advisers were able to reiterate the positive financial position and trading performance of the businesses and investments in South Africa.

Central Europe

At a central European level, AlixPartners continues to work with senior management to assist with liquidity and cash management requirements to support the European business units and assets. Philip Dieperink, as new Group Chief Financial Officer, and the management team are working closely with AlixPartners in respect of the cash management analysis being undertaken, and on the practical implementation of identified cash management measures. The foregoing measures, when combined with a small number of non-core asset sales, have resulted in liquidity being maintained across the Group during this period.

5. European financing

The Company has obtained the support of its lenders in South Africa for interim liquidity support for the Group's European operations from the Group's subsidiaries in South Africa. Based on current projected near-term liquidity requirements in Europe, the Company is seeking support in the amount of EUR200 million. The first installment of EUR60 million will be received in the week ending 19 January 2018 (for which the Company has obtained the approval of the Group's lenders in South Africa and the necessary regulatory consent). The Company is seeking the necessary approvals and consent for further installments of the balance. It is expected that any funds so received will be available to meet business critical payments during the next phase of the Group's stabilisation plan.

The Company has also been in recent discussions with several potential funders to provide liquidity facilities to the Group, including those who are existing creditors and/or investors in the Group. To date, additional external liquidity has not been obtained in the time available given the complexity of the Group structure and the terms of the existing financings, although additional external liquidity may be required in the future.

Timing of trading update

In prior years, the Group has reported on the trading performance of its underlying businesses for the quarter ending 31 December in the last week of February. The Group expects to keep to that timetable this year, when it will report on the trading performance of the Group's business units.

Debt service

The Group currently expects to be in a position to pay cash interest on all its existing financial indebtedness at the ordinary contractual rate over the near term forecasted period.

Way forward

The Company's objective of achieving stability within the Group and, more specifically, its financing arrangements, is being sought by the implementation of the following measures:

- maintaining trading performance of the individual business units;

- detailed cash management actions and liquidity support for the Group; and

- a commitment to resolve, as soon as possible, the uncertainties around any accounting issues.

In the coming months, the Group expects to undertake the following measures to put in place further stabilisation measures and a de-leveraging plan, namely:

- a refinancing and redemption of some or all of the financial indebtedness within South Africa. It is anticipated that this will have the effect of releasing additional funds which will be used to provide any additional necessary liquidity for the remainder of the Group. The Company aims to complete this process as soon as practicable with the support of its lenders in South Africa;

- the realisation of a limited number of assets to support additional liquidity for the Group as required, together with any external financings if needed; and

- development of a plan to address the Group's financial indebtedness.

Waiver proposals to be made to certain financial creditors

The Company has received support from its financial creditors in recent weeks in its efforts to maintain stability. To further build on those recent measures and to achieve a continuation of the Group, protection of its valuable trading assets and development of a plan to address its financial indebtedness, the Group will shortly be recommending that certain of its financial creditors support the Group by providing limited waivers under certain of the Group's existing European financing arrangements. It is important to note that the waivers will not be proposed in respect of: (i) the new and any subsequent financings of the Mattress Firm business; (ii) the recent financings of the Pepkor Europe (which includes Poundland UK) and Steinhoff UK sub-groups (and any subsequent financings for those sub-groups); (iii) the financing arrangements of the South African businesses of the Group; (iv) the financing arrangements of the Australian businesses of the Group; or (v) the local financings of the Conforama sub-group.

The Group will be seeking responses to its proposals for the above-mentioned waivers in the coming weeks and will provide an update in due course. While the Company is confident that it will receive sufficient support from its relevant finance providers to obtain these limited waivers (once proposed), there can be no assurance that the Company will be able to reach agreement with its finance providers on acceptable terms or at all.

Shareholders and other investors in the Company are advised to exercise caution when dealing in the securities of the Group.

Stellenbosch, 18 January 2018