| Three distinct strategies to ensure growth & reduce risk |
|
| |
|
 |
These results underscore the three distinct
strategic initiatives in place to ensure continued
growth, and measures to lessen the risks of
slowing growth rates in many economies across
the world with reduced consumer spending.
By spreading our operations geographically, and
vertically integrating our supply chain, we are
building the platform for increasing market share
and delivering sustainable earnings growth.
Each geographic region requires a dedicated
strategy for that market. We concentrate on
acquiring and owning important brands, securing
product from our own and third-party production
facilities, expanding our retail alliances and
capitalising on consolidation opportunities
when major competitors exit certain regions. |
CHAIRMAN | Bruno Steinhhoff
GROUP CEO | Markus Jooste. |
|
|
|
|
|
| |
|
| Dear shareholder |
|
Our group’s primary objective remains to
strengthen our position as a leading provider
of lifestyle improvement through the supply
of household goods, automotive products
and vehicles, and related raw materials and
services. We operate in three distinctive
markets – Europe, the Pacific Rim and Africa
(including India). The relevant strategy focuses
on the region and the most appropriate value
chain solution is assessed for each market.
The distinct strategies dictate the extent and
depth of vertical integration
and/or
diversification. |
|
| |
|
| GENERAL OPERATIONAL PERFORMANCE REVIEW |
|
| |
|
 The results for the period under review were
achieved in a year which saw the continued
implementation of various strategic initiatives
that position the group to perform in years to
come. The business model of geographically
spread operations, accompanied by vertically
integrated supply chain participation, remains
effective and provides the platform for
increasing market share and delivering
sustainable earnings growth. Our competitive
position has continued to benefit from our
strategy to acquire and own important
brands, our ability to secure product from our
own and third-party production facilities, and third-party production facilities,
expanding our retail alliances and the
consolidation brought about by the exit of
major competitors in certain regions.
In some ways, it was a demanding year with
the rate of growth of many economies
across the world slowing and several of our
key markets being affected by various
macro-economic factors that resulted in
reduced consumer spending. However, the
strength that our group derives from the
international spread of its operations was
again emphasised and the potential for
growth is evident. The group has again
demonstrated its capabilities to increase
market share despite tough market
conditions.
The year was also one of important strategic
development and investment in the future.
In the United Kingdom and Australia,
following an exhaustive review, our management
teams have implemented a focused
action plan to revitalise the brands used by
these businesses.
The European division performed well, and
benefited from increased intra-group
trading, especially its supply to our retail
operations in the United Kingdom, and the
sound performances of our retail-related
investments on the continent. The liquidation
of two major competitors in the German
region and our subsequent increased order books augur well for the future. As a result,
the group’s position as a supplier of choice in
terms of reliable appropriate products,
financial strength and substance has been
further entrenched. The variety of Steinhoff’s
product and price ranges and its ability
to provide customers with exclusivity
arrangements, as well as sourcing capabilities
and flexibility, supplemented by own
manufactured products, remains a distinct
competitive advantage.
The Eastern European mail order and mass
market division showed good growth,
although profitability of the Polish operations
was adversely affected by the strength of
the zloty relative to the euro in the latter half
of the year as well as the migration of labour
from Poland. The Hungarian operations had
another satisfying year and retail activities
have been aggressively expanded to a point
where approximately 50% of sales
distributed through the group’s own retail
network in Hungary was own-manufactured
product. Production capacities in the Ukraine
will be increased and will continue to be
dedicated as low-cost producers for the
group’s mass market retail partners in the
German region.
The roll-out of the retail studio concepts of
Esprit and Henders & Hazel continues as
planned. The Henders & Hazel concept has
Assess most appropriate value
chain solution by market
Principal strategy
Focused by region
Steinhoff
Europe
Steinhoff
Africa
Europe
Africa
and India
Asia Pacific proven a most successful brand and sales
development tool, and is expected to
contribute significantly to profitability in the
future.
The group also recorded substantial sales
growth in countries surrounding Germany
and Austria, resulting in an increased level of
sales and customer diversity, as well as an
enhanced geographical spread of business.
In the United Kingdom, the group will benefit
further from its investment in Homestyle
which became a wholly owned subsidiary of
Steinhoff earlier in the year. Operationally,
Harveys identified areas for improvement
mainly through repositioning its product
offering. The general state of the retail
environment in the United Kingdom remains
very competitive. The acquisition of minority
shareholders’ interests and delisting of
Homestyle facilitated the full integration of
the group’s United Kingdom activities and was
followed by centralising the management
function at our existing base at Tewkesbury.
Ian Topping and his management team have
been further supplemented by the
appointment of Philip Dieperink (ex Unitrans)
as chief financial officer during September
2007. The new management team has
a significant challenge but, with the
encouraging progress made to date, we are
confident that our core business will start to
deliver improved returns as the benefits of
the recovery plan begin to emerge. The new business strategy and intra-group initiatives
are well on their way, with both Harveys and
Bensons implementing innovative advertising
campaigns, including a prime-time national
television campaign in association with ITV.
The Cargo Home Store chain improved its
performance compared to last year. The
remainder of Steinhoff’s United Kingdom
businesses (manufacturing and distribution
operations) again delivered good results.
In the Pacific Rim region, the Freedom brand
performed well in Australia, and made good
progress in New Zealand. BayLeatherRepublic
continued to perform well in its specific
market niche as a specialist retailer of leather
upholstered furniture. The Bayswiss chain
was discontinued and Freedom Home Stores
launched. The specialised bedding chain,
trading as Snooze, was affected by
corrective measures which included
management changes, following the chain’s
flat performance during the year. The
manufacturing facilities are now fully
integrated and produce exclusively for
the group’s retail chains, completing
the fully integrated model in that region.
International Sourcing expanded its presence
in China and opened a new office in
Vietnam. This support division continued to
exceed expectations and budgets, almost
doubling its activity levels and revenues, on
a cost base well within the operating cost
levels budgeted a year ago.
The southern African region delivered an
exceptional performance with all divisions
contributing. We disinvested from one of our
original businesses through the sale of the
furniture manufacturing interests to a
management and private equity consortium
(refer to corporate activity section). The
rationale for the transaction was twofold in
that it enables this business to pursue growth
opportunities that would not be available to
it as part of the greater Steinhoff group and,
secondly, it enables Steinhoff Africa to
expand into household goods retail without
any possible regulatory constraints. Following
this sale, Steinhoff Africa now comprises the
timber and panel products businesses of
PG Bison, the logistics businesses and vehicle
retail business (all formerly part of Unitrans
Limited), and the raw materials interests
which supply foam products, textile products
and bedding components and springs,
mainly to the furniture and automotive
industries in South Africa. The Unitrans
businesses had another strong year, aided by
favourable economic conditions and the
buoyant consumer market and wider
consumer base in general. PG Bison
performed well but its results were affected
by capacity constraints and substantially
increased raw material prices. Capacity
limitations will, however, be rectified when
the North East Cape Forests (NECF) project
becomes operational early next year, and approximately 50% is added to PG Bison’s
existing capacity. Following the restructuring
steps undertaken during the previous year,
the raw materials division delivered an
improved result. |
|
| |
|
| The continued rise in
intra-group sales is in line
with the business model of
vertical integration. |
|
| |
|
| PERFORMANCE |
|
The group’s gross revenues before intersegment
eliminations grew by 20%,
reflecting the increased activity levels. After
eliminating intra-group trading, net revenues
increased 13% from R30 159 million to
R34 229 million. The continued rise in intragroup
sales is in line with the group’s
business model of
vertical integration.
The group generated 49% of its reported
revenues in currencies other than South
African rand, principally euro, pound sterling
and Australian dollar, with approximately
two thirds of operating profits generated in
these currencies.
Headline earnings attributable to ordinary
shareholders grew by 31% to
R2 558 million
from R1 955 million in 2006.
Headline earnings per ordinary share
increased by 25% to 215 cents
(2006: 173 cents) with earnings per ordinary
share improving 46% to 242 cents (2006:
166 cents). The profit on the sale of the
Southern African furniture manufacturing
interests was excluded from the headline earnings calculation. The weighted average
number of ordinary shares in issue was
1 188,0 million (2006: 1 133,3 million), with
the increase mainly attributable to the
transactions in which Homestyle and the
Unitrans businesses were effectively
constituted as wholly owned subsidiaries of
Steinhoff.
Cash flow from operations was
R3 454 million (2006: R3 486 million). Cash
generation is stated after taking account of the
net increase in working capital of R476 million
(2006: net decrease R134 million). This was
mainly as a result of difficulties experienced by
the vehicle retail division in not being able to
register vehicles during June 2007.
The group’s operating margin improved to
9,4% (2006: 8,6%). The improvement was
achieved despite continued tough trading
conditions in the United Kingdom and
Australia, which led to repositioning and
rebranding strategies. These steps were
implemented at substantial cost, with
anticipated benefits to be realised in future
years. The group continues to benefit from
improved efficiencies throughout the supply
chain and operating margin is targeted to
improve further as the integration model
unfolds to its fullest potential.
Retail activities now comprise in excess of
50% of Steinhoff group’s
global revenues.
We intend to expand this segment to include
further European retail opportunities in areas
where we currently have no presence. South
Africa will similarly be targeted as a retail
expansion area, particularly after the sale of
the furniture manufacturing interests. |
|
| |
|
| Retail activities now comprise
in excess of 50% of Steinhoff
group’s global revenues. We
intend to expand this
segment to include further
retail opportunities in both
Europe and South Africa. |
|
| |
|
| BRANDS |
|
We continued to develop and invest in the
Steinhoff brands during the year.
The strength of the Steinhoff-owned brands
is derived from four key
elements – our
people and their goal of providing excellence
in customer service; our ability to bring
internationally renowned and high-quality
local products to markets at good value; our
expertise in manufacturing and retailing on
an international scale and in marketing our
products and services; and our ability to
provide a broad range of products in various
categories and price points. The combination
of these elements has made Steinhoff the
leader in almost all the international markets
in which we operate. To maintain our leading
position in the various regions and to support
the growth of our United Kingdom and
Australia businesses, we have worked
continuously in all four areas to improve our
offerings, taking full account of the
developing needs and aspirations of
our
customers. |
|
| |
|
The strength of the Steinhoffowned
brands is derived from
four key
elements – our
people and their goal of
providing excellence in
customer service; our ability
to bring internationally
renowned and high-quality
products to markets at good
value; our expertise in
manufacturing and retailing
on an international scale and
in marketing our products
and services; and our ability
to provide a broad range of
products in various categories
and price points. |
|
| |
|
|
