Information can no longer be relied on

Transcription

1 STEINHOFF INTERNATIONAL INTEGRATED REPORT

2 B

3 THIS IS STEINHOFF STEINHOFF IS AN INTEGRATED RETAILER that manufactures, sources and retails furniture, household goods and general merchandise in Europe, Australasia and Africa 1

4 THIS IS STEINHOFF THE GROUP S INTEGRATED BUSINESS MODEL is based on a strategy of sourcing and manufacturing products at low cost and distributing them to the group s value-conscious customer base through its extensive retail footprint AS AT 30 JUNE 2015 THE GROUP OPERATIONS INCLUDED: 30 COUNTRIES 40+ RETAIL BRANDS ± RETAIL OUTLETS EMPLOYEES 2

5 WE STRUCTURE OUR OPERATIONS in terms of retail product markets, being household goods, general merchandise and automotive INTEGRATED RETAIL 20 countries 24 retail brands retail outlets ± 3.1m m 2 retail space ± employees 20 countries retail outlets ± 1.9m m 2 retail space Founded in 1965 ± employees 2 countries 87 dealerships 46 rental outlets ± employees 3

6 AT A GLANCE Information can no longer be relied on FOR THE YEAR ENDED 30 JUNE 2015 Revenue from continuing operations increased 15% to R134.9 billion ( 9.8 billion) Operating profit before capital items increased 21% to R15.3 million ( 1.1 billion) EBITDA increased 20% to R17.5 billion ( 1.3 billion) Headline earnings from continuing operations increased 36% to R12.4 billion ( 907 million) Net cash inflow from operating activities increased 26% to R20.3 billion ( 1.5 billion) Dividend increased 10% to 165 ZAR cps Frankfurt listing approved Read more: page 18 Pepkor acquisition completed Read more: page 20 CONTENTS This is Steinhoff 1 At a glance 4 Strategy and business model 6 Management structure 8 Reports to stakeholders 16 Chairman s report 18 Chief executive officer s report 20 Significant progress in the strategic development of the group and capital structure Read more: page 18 The year under review has been transformational for Steinhoff Read more: page 50 A vertically integrated value retailer, diversified across markets and geographies Read more: page 20 4

7 HouseHold Goods comprises a vertically integrated furniture, household goods and related retail business serving the discount and value consumer market segments in Europe, Australasia and Africa. The retail operations are supported by the integrated supply chain, which includes manufacturing, sourcing and logistics operations, as well as an extensive and strategic property portfolio. Read more: page 24 General MercHandise comprises the operations of the Pepkor Group, acquired during the 2015 financial year. Pepkor is a leading retailer selling a range of everyday necessities (excluding food) to its price-sensitive and value-conscious customer base, including clothing, footwear, household goods, personal accessories and cellular products. Its operations include a production facility in Cape Town, and it also provides selected financial services to its customer base, such as utility bill payments and money transfer services. Read more: page 40 Operational performance 22 Integrated retail: Household goods 24 Integrated retail: General merchandise 40 Integrated retail: Automotive 44 automotive comprises the group s automotive retail businesses in South Africa. Unitrans Automotive represents a number of international automotive brands and services its customers from its network of dealerships located throughout southern Africa. Hertz car rental conducts its business in Namibia and South Africa. Read more: page 44 Financial performance 48 Finance report 50 Summarised financial statements 58 Ten-year performance review 66 In reference 68 Retail markets 70 Remuneration report 72 About this report 80 Share performance and exchange rates 82 Analysis of shareholding 83 Shareholders diary 84 Corporate information 84 Further reading on the group s website: in addition, Steinhoff is invested in companies that provide essential products, services and knowledge to the group. Accordingly, the group holds a 43% associate investment in KAP Industrial Holdings Limited, a JSE-listed diversified industrial company with leading market share positions in the logistics, integrated timber, integrated bedding and other industrial sectors within South Africa. Steinhoff also holds a 27% associate investment in PSG Group Limited, a JSE-listed investment company. Read more:

8 STRATEGY AND BUSINESS MODEL A STRONG, EFFICIENT BUSINESS MODEL Steinhoff s strategy of sourcing and manufacturing products at low-cost and distributing them to the group s value-conscious customer base through its extensive retail footprint has underpinned the group s growth since listing on the JSE Limited in In the recent economic climate, consumers have become increasingly price-sensitive, resulting in them prioritising lower value price segments. Steinhoff s business is focused on this value-conscious consumer with operations predominantly positioned in the growing discount market segment. This value proposition has facilitated sustained growth in profitability in volatile economic climates. The European household goods markets are fragmented and remain competitive. This has created opportunities for market share growth, benefiting from Steinhoff s diverse, multi-brand retail strategy that targets local consumer brands in each of the regions where the group operates. In addition, competitively priced properties in these markets created the opportunity for the group to grow its owned property portfolio. The licence to retail household goods is frequently attached to a particular property, making property ownership a strategic investment. This has also created an effective barrier to entry for the group. Operating in the discount market segment requires good cost control to protect and increase margins. The group s decentralised vertically integrated business model provides significant influence over, and in-depth knowledge of the entire supply chain (from raw material input cost to end-consumer delivery costs), enhancing the group s ability to manage costs, thereby protecting margins. Global purchasing power and scale of operations have allowed the group to benefit from its ability to source and produce in bulk quantity, negotiating long-term, competitive agreements in order to decrease fixed overhead costs and increase volume and other supplier rebates. Active involvement in the supply chain further provides assurances as to the quality of products, while ensuring availability of products and raw materials and timeous delivery. Maintaining flexibility between sourcing and manufacturing remains key in the group s ability to effectively manage its product range and pricing strategy. Development of consumer preferences relating to how purchases are made requires continuous evaluation of the retail concepts applied in stores. Continued refurbishment and upgrade of stores support new market trends and product demand. The development of e-commerce drives the group s integrated omni-channel approach, providing the same service and customer experience regardless of how, where and when transactions are made. As a result of the group s expansive operating footprint, a decentralised management structure is employed throughout the group, entrenching an entrepreneurial culture. Each division is empowered to innovate and adapt in a way that is responsive, while still being responsible. Operations are supported by the Steinhoff International group services team, located in various regions, providing assistance in matters including treasury, mergers and acquisitions, financial reporting and taxation. 6

9 The environment shaping Steinhoff s strategy The impact on Steinhoff s strategy Growth in the value retail market Flight to value Steinhoff predominantly positioned in the value retail market Highly fragmented European furniture and household goods market Diverse, multi-brand strategy Ownership of strategic properties Operating in the value segment places pressure on margins Vertically integrated supply chain Increase scale to leverage supply chain Maintain flexibility between sourcing and manufacturing Secure supply of and access to raw materials Continuous development of consumer trends Continuous investment in new stores, store refurbishments and new store formats E-commerce strategy Expansive operations across countries and territories Decentralised management structure, entrepreneurial culture, with group services support and risk management Today, Steinhoff has leading market positions in a number of countries in which it operates. * Steinhoff s operating performance has historically been strong in terms of revenue growth, margin expansion and cash generation. This can be ascribed to the underlying strength and efficiency of its business model and highly experienced management team. The group further recognises the importance of sustainability, which management views as a nonnegotiable business imperative. * According to Euromonitor 7

10 MANAGEMENT STRUCTURE A DECENTRALISED APPROACH MANAGEMENT Notwithstanding the group s decentralised approach, the ultimate responsibility for retaining full and effective control rests with the Steinhoff International board of directors. The group applies the third King Report on Governance for South Africa and the King Code of Governance Principles (jointly King III). King III operates on an apply or explain basis and the group has applied an alternative approach in certain instances. Explanations of these instances are included in the corporate governance report. Steinhoff has met the reporting requirements relating to King III, the Listings Requirements of the JSE and the 2008 Companies Act (as amended) together with the Companies Regulations (jointly the Act). Further reading is available on the group s website: Corporate governance report King III table of 75 principles Reporting lines are defined from divisional level to the board of Steinhoff International to ensure that the divisions approach to their business and their corporate governance is in line with group policies. Various committees, at divisional and subsidiary level, are in place to review and report on business and strategic aspects. The main board committees are in turn supported by divisional committees. Key policies are in place to guide management and employee behaviour and cover important social, environmental and business aspects. A zerotolerance policy has been adopted with respect to compliance with the legislation of each country where the group has a presence. FRANKFURT LISTING Upon listing on the Frankfurt Stock Exchange, there will be little to no change to the management structure of Steinhoff International Holdings Limited. Steinhoff International Holdings NV will be subject to the Dutch Corporate Governance Code and will have a two-tier board structure consisting of the management board and the supervisory board. The management board is the executive body managing the company s operations and strategy, subject to supervision by the supervisory board. The management board will include the chief executive officer, chief financial officer and chief operating officer. The supervisory board oversees the management board and the general course of affairs of the company and the business connected with it. In performing its duties, the supervisory board is required to be guided by the interests of the company and its business enterprise, taking into consideration the interests of the group s stakeholders (which include, but are not limited to, its customers, its employees and its shareholders). The supervisory board will also observe the corporate social responsibility issues that are relevant to the group. These will continue to be managed by the existing social and ethics committee of Steinhoff International Holdings Limited, being a subsidiary of Steinhoff International Holdings NV (refer below). The supervisory board will include the independent chairman and nonexecutive directors. Similar to the current structure, the supervisory board will establish the following committees: Executive committee, which consists of the managing directors and selected senior executive officers (being the executive directors) Audit and risk committee Nomination committee Human resources and remuneration committee The social and ethics committee in the current structure will remain as part of Steinhoff International Holdings Limited as required by the South African Companies Act No. 71 of Read more: Frankfurt Stock Exchange prospectus available on 8

11 Summarised group structure following the Frankfurt listing STEINHOFF INTERNATIONAL HOLDINGS NV GENESIS INVESTMENT HOLDINGS GmbH STEINHOFF INTERNATIONAL HOLDINGS LIMITED 100% STEINHOFF INVESTMENT HOLDINGS LIMITED 100% 100% STEINHOFF AFRICA HOLDINGS (PTY) LTD STEINHOFF FINANCE HOLDINGS GmbH 100% 100% 100% 100% 100% 100% PEPKOR HOLDINGS (PTY) LTD STEINHOFF SERVICES LIMITED STEINHOFF PROPERTIES (PTY) LTD JD GROUP LIMITED STEINHOFF EUROPE AG HEMISPHERE INTERNATIONAL PROPERTIES BV 43% 27% KAP INDUSTRIAL HOLDINGS LIMITED PSG GROUP LIMITED 9

12 BOARD OF DIRECTORS EXECUTIVE DIRECTORS* Information can no longer be relied on MARKUS JOHANNES JOOSTE (54) BAcc, CA(SA) ANDRIES BENJAMIN LA GRANGE (41) BCom (Law), CA(SA) DANIËL MAREE VAN DER MERWE (57) BCom, LLB Markus is the chief executive officer of Steinhoff and was appointed to the Ben is the chief financial officer of Steinhoff and was appointed as Danie is the chief operating officer of Steinhoff and was appointed to the FREDRIK JOHANNES NEL (56) BCompt (Hons), CA(SA) HENDRIK JOHAN KAREL FERREIRA (60) BCompt (Hons), CA(SA) Frikkie is the financial director of Steinhoff and was appointed to Piet is executive director: mergers and acquisitions and was appointed * Detailed CVs are available on the group s website at 10

13 STEPHANUS JOHANNES GROBLER (56) BCom (Hons) (Economics), LLB JOHANNES NICOLAAS STEPHANUS DU PLESSIS (66) # BCom, LLB Stéhan is an executive director: group treasury and financing activities and Johann is an executive member of Steinhoff International s group services team and was appointed to the board # Alternate executive director to Stéhan Grobler KAREL JOHAN GROVÉ (66) # AMP (Oxford) MARIZA NEL (42) # BCom, ACMA (UK) Jo is the executive deputy chairman of KAP Industrial Holdings Limited. Mariza is an executive member of Steinhoff International s group services team, appointed to the board as an and was appointed global head of # Alternate executive director to Piet Ferreira # Alternate executive director to Danie van der Merwe 11

14 BOARD OF DIRECTORS NON-EXECUTIVE DIRECTORS* Information can no longer be relied on DEENADAYALEN KONAR (61) BCom, MAS, DCom, CA(SA), CRMA STEFANES FRANCOIS BOOYSEN (53) BCompt (Hons) (Accounting), MCompt, DCom (Accounting), CA(SA) DAVID CHARLES BRINK (75) MSc Eng (Mining), DCom (hc), Graduate Diploma in Company Direction Len is the independent non-executive chairman of Steinhoff International and Steve was appointed to the board as an independent non-executive director Dave was appointed to the board as an independent non-executive director in CLAAS EDMUND DAUN (71) BAcc, CA THIERRY LOUIS JOSEPH GUIBERT (44) MBA (FR) MARTHINUS THEUNIS LATEGAN (58) BAcc (Hons), MCompt, DCom (Accounting), CA (SA), Advanced Diploma Banking Law Claas is an independent non-executive director. Thierry is a non-executive director. Theunie was appointed to the Steinhoff International board as an independent non-executive director * Detailed CVs are available on the group s website at 12

15 JOHANNES FREDERICUS MOUTON (68) BCom (Hons), CA(SA), AEP HEATHER SONN (44) BA (Political Science), MSc (International Business) BRUNO EWALD STEINHOFF (76) Jannie was appointed to the board as an independent non-executive director Heather was appointed to the board as an independent non-executive director Bruno is the founder of the Steinhoff group PAUL DENIS JULIA VAN DEN BOSCH (52) BEcon, MBA CHRISTO WIESE (74) BA, LLB, DCom (hc) ANGELA KRÜGER-STEINHOFF (43) # BCom (Economic Science) Paul was appointed to the board as non-executive director in Christo was appointed to the board as an independent non-executive director Angela was appointed to the board as an alternate non-executive director # Alternate non-executive director to Bruno Steinhoff 13

16 MANAGEMENT Information can no longer be relied on Group chief executive officer Group chief financial officer Group chief operating officer Chief financial officer: Steinhoff Europe Financial director INTEGRATED RETAIL Household goods Conforama Chief executive officer Chief financial officer and company secretary Managing director: International Chief operating officer: France Director: Commercial marketing and e-commerce Director: Strategy Director: Human resources Director: Communications Director: Retail network France Managing director: Iberian Peninsula Managing director: Switzerland Managing director: Italy and Croatia ERM Chairman, supervisory board: ERM Chief executive officer: Poco Chief financial officer: Poco Chief executive officer: Lipo Chief financial officer: Lipo Chief executive officer: Abra Chief financial officer: Abra United Kingdom Chief executive officer: UK Retail Chief financial officer: UK Group Managing director: UK Retail services Managing director: UK Retail operations Habufa Managing director Director: Commercial Director: Habufa Research and development Operations manager Australasia Managing director: Group services and chief financial officer: Steinhoff Asia Pacific Managing director: Freedom and Poco Managing director: Snooze African operations Chief executive officer Chief financial officer Chief executive: JD Financial Services Chief executive: JDG Insurance Managing director: SteinBuild Integrated supply chain Chief operating officer: European manufacturing Managing director: UK and European bedding manufacturing Joint managing directors: Select-O-Pedic Managing director: Puris and Impuls Executive: Steinhoff International Sourcing Chief executive officer: SIST* (Asia) Chief executive officer: Steinhoff International Logistics Properties Managing director: Hemisphere International Property Services UK Chief executive officer: Steinhoff properties Africa * Steinhoff International Sourcing and Trading 14

17 Director: Group treasury and financing activities Director: Legal services Director: Mergers and acquisitions Director: Corporate services Executive: Group audit INTEGRATED RETAIL General merchandise INTEGRATED RETAIL Automotive Pepkor Group managing director Group chief financial officer Business development executive Marketing executive Chief executive officer: Pepkor Europe Executive: Group services Managing director: Pep Managing director: Ackermans Managing director: Pepkor Africa Managing director: Speciality Managing director: Pepkor SEA Chief executive officer: Harris Scarfe Managing director: Pepco Managing director: Pep & Co Executive: PPS Automotive Managing director: Unitrans Automotive Chief financial officer GROUP SERVICES 15

18 REPORTS TO STAKEHOLDERS A VERTICALLY INTEGRATED VALUE RETAILER, diversified across markets and geographies 16

19 Chairman s report page 18 Chief executive officer s report page 20 17

20 REPORTS TO STAKEHOLDERS CHAIRMAN S REPORT T he board and I are particularly pleased with the Steinhoff results reported for the financial year ended 30 June The Pepkor acquisition and various other corporate transactions strengthened the group s balance sheet and business model ahead of the listing on the Prime Standard of the Frankfurt Stock Exchange (FSE) on 7 December During the year under review, the group raised revenue by 15% to R135 billion, supported by a growing discount retail environment. Headline earnings from continuing operations increased by 36% to R12.4 billion, reflecting the increased operating margin of the group. The board was especially satisfied with the cash flow generation of the group that improved by 26% to R20.3 billion, and consequently the board has approved and declared a dividend from retained earnings of 165 cps, representing a 10% increase compared to 150 cps declared in FY14. The acquisition of the Pepkor Group, supported by 95% of shareholders, became wholly unconditional on 31 March 2015 and consequently Pepkor is consolidated for three months of the 2015 financial year. The weighted average number of ordinary shares in issue increased to 2.7 billion, mainly as a result of the foreign placement (announced on 2 July 2014) and the Pepkor acquisition. Despite this 38% increase, diluted headline earnings per ordinary share from continuing operations increased by 1% to cps (FY14: cps). Net asset value per share increased by 22% to R48.25 (FY14: R39.46). STRATEGIC DEVELOPMENT This financial year was a busy one for the corporate team, marked by various successful transactions in line with the group s strategy, and included some significant developments in terms of the group s strategy and capital structure. Apart from the numerous successful funding initiatives discussed in detail in the finance report, the group completed many strategic investments as highlighted in the CEO s report. These transactions will enhance the group s ability to further expand into the growing discount market in Africa and Europe. In addition, the group s growing presence and expertise in Africa, Europe and Australasia continues to benefit the group. This is highlighted by its ability to remain competitive on price, owing to its well established supply chain, supported by the existing infrastructure. CORPORATE GOVERNANCE Steinhoff s board of directors and management team are committed to sound governance and good corporate citizenship. We accept that good governance practices are fundamental to creating, protecting and sustaining shareholder and stakeholder value. Our consolidated approach to corporate governance, at both divisional and group level, are in line with King III and the South African Companies Act No. 71 of 2008, as amended (the Companies Act). The group s approach to governance focuses on its ability to manage its businesses and affairs to ultimately assist with the creation of value in the short, medium and long term for all stakeholders. Group-wide corporate governance frameworks and standards are adopted by all subsidiaries, and new governance developments are continuously being monitored in all jurisdictions to ensure that local requirements are met and that developments are adopted, where relevant. Our group approach to risk management is functional and effective. The focus of managing the risks facing Steinhoff is based on identifying, assessing, mitigating, managing and monitoring all known forms of identifiable risks, while accepting that there must be an appropriate balance between risk and reward. We evaluate the composition, skills set and effectiveness of our board and all committees on an annual basis. I am pleased to report the positive feedback and momentum emanating from the current year s process. ENVIRONMENT, SOCIAL AND GOVERNANCE (ESG) Local socio-economic and environmental challenges, as well as key stakeholder requirements, guide the group s integrated approach to business and the management of ESG matters. This is part of the mandate of the group s social and ethics committee, 18

21 a statutory committee prescribed by the Companies Act. The board of directors and executive management recognise the importance of group reputation and that it should represent an ethical, profitable and responsible brand in order to continue its success in attracting affordable capital and retaining a loyal workforce and sustainable customer base. Across the group, ethical trading practices incorporate standards for suppliers of goods and services, and the requirement to work with suppliers to ensure compliance with these standards. Steinhoff is conscious of its own responsibility to protect the environment and also of the market advantage that sound environmental policies and practices can afford us, with increasingly environmentally aware consumers and other stakeholders. For more detailed information on our ESG initiatives, including our health and safety strategies, our commitment to prevention, detection and treatment of HIV/Aids and transformation, please refer to the corporate responsibility section on the company s website: The broad-based employee share scheme that Steinhoff concluded in December 2008 made B-BBEE and ownership a reality for the company. Through Steinhoff s special purpose vehicle, S khulasonke Investments (RF) Proprietary Limited, Steinhoff International shares were acquired for the benefit of approximately South African employees, the majority of whom are previously disadvantaged individuals. This scheme continues to make a significant and meaningful contribution towards South Africa s broad-based empowerment initiatives, through both capital appreciation and the payment of substantial cash dividends to employees who are beneficiaries. LISTING ON THE PRIME STANDARD OF THE FSE Steinhoff was listed on the Johannesburg Stock Exchange (JSE) in 1998 through the merger of European and South African furniture and household goods businesses under Steinhoff as their common holding company. Steinhoff has developed into an integrated retailer with revenues from its international operations comprising the majority of its global revenues. Given that the majority of Steinhoff s revenues are generated outside South Africa, a listing on a major European stock exchange would more accurately reflect the geographic location of its revenues, customers and store locations, accompanied by an enhanced ability to access global capital markets. Steinhoff s listing on the Prime Standard of the FSE, together with an inward listing on the JSE, is expected to raise the international profile of the group. The Steinhoff board is of the opinion that enhanced access to international capital markets on terms which are better reflective of its spread of activities and revenues, is a pre-requisite to sustain and grow its business. By virtue of its equity being traded on the FSE and JSE, Steinhoff will become accessible to a wider global investor base and will be able to adapt its existing employee share incentive schemes to become more relevant, appropriate and valuable for its European recipients. Consequently, and as announced on 7 September 2015, shareholders approved all resolutions required to implement the Steinhoff scheme of arrangement, and on 7 December 2015 Steinhoff will list on the Prime Standard of the FSE (while maintaining an inward listing on the JSE). APPRECIATION I would like to express my gratitude to all the people who contributed to Steinhoff s success in the current year, including the board, management, employees, customers, shareholders and stakeholders. I also look forward to your continued support and a successful 2016 financial year. len Konar Chairman 19

22 REPORTS TO STAKEHOLDERS CHIEF EXECUTIVE OFFICER S REPORT T he year under review has been very exciting for the Steinhoff group. A few transactions in particular are worth highlighting: The acquisition of Pepkor, being Steinhoff s largest corporate transaction to date, enlarged our exposure to the discount retail segment, and further diversified the group s product mix within this growing market segment. Following the transaction, the group operates approximately retail outlets across 30 countries, with a product range now including general merchandise. In May 2015, Moody s Investors Service upgraded the long-term issuer rating of the group to Baa3 from Ba1. As part of the rating action, Moody s assigned an A3.za national scale issuer rating to the company. The outlook on the ratings is stable. During the year the capital structure of the group was further enhanced through various initiatives that included the group s inaugural Schuldschein transaction of 730 million at favourable interest rates, starting from 1.25% above Euribor. Additionally, in July the group raised a 1.1 billion convertible bond due 2022, at a 35% premium priced at 1.25%. In order to obtain long-term exposure to the underlying investments held in the PSG Group Limited, Steinhoff increased its investment in PSG to an associate investment by increasing its shareholding to 27%. In July 2015, the group acquired the remaining shares in JD Group Limited. The JD Group was subsequently delisted. In addition to the transactions highlighted above, the group reported pleasing results for the period under review, with market share growth supporting good operating leverage and profitability. INTEGRATED RETAIL: HOUSEHOLD GOODS Now trading from more than stores, with over 3.1 million m 2 of trading space, the household goods business continued to take market share, supported by the resilient and growing discount market segment. The investment in its store network during the past three years continued during the current year, providing the group with a good pipeline for future growth and improved operating leverage. Sales for this segment increased by 4% in euro terms, led by a strong performance in continental Europe and the United Kingdom. Margins increased by 40 basis points to 12.5%, demonstrating the benefit of the integrated supply chain in securing additional margins for the retail operations via selective participation in key areas of the supply chain. Growth in online sales drives good performance in France Conforama continued to take market share, supported by double digit growth in online sales that now represent in excess of 7% of total sales. The initial success of this omni-channel approach in the group s largest market is encouraging, and will assist the rest of the group businesses that choose to introduce digital sales channels to their transactional mix. Continued investment in stores Spain and Portugal remain the priority for Conforama in terms of further store expansions. The success of the brand, evidenced by strong like-for-like sales growth in mature stores, will continue to pave the way for the store expansion strategy in this region. In addition, the increased brand awareness that resulted from the prior year s store expansion in Switzerland and Croatia, has led to increased sales densities and market share gains and continues to support growth in these regions. Resilient economies in Germany further support investment in the ERM store network, creating good operating leverage opportunities for the group. In the United Kingdom, trading densities improved as a result of the refurbished store estate. In addition, the enhancement of the quality of the store estate further strengthened the brand and performance. The new store concept in Australia and New Zealand also proved successful, yielding an improved sales mix and benefiting margins. In contrast, the store rationalisation programme in South Africa is continuing in respect of the household goods store network. 20

23 Vertically integrated supply chain At the heart of Steinhoff s retail operations lies the integrated supply chain, which reinforces the ability of the group to effectively deliver on its price and service proposition. While much scope remains for the supply chain to integrate further, its flexibility remains key in securing the best price. This flexibility was put to the test in the current environment, with fluctuating currencies and decreasing oil prices influencing the competitiveness of Asia as a procurement destination, compared to eastern European manufacturing on some product categories. Encouragingly, both the sourcing and manufacturing businesses grew revenue and efficiencies (margin contribution), demonstrating the capacity of the supply chain to integrate and grow further. In addition, the central logistics division continues to reduce costs, support suppliers and optimise infrastructure through the group s inbound and outbound logistics functions. In particular, optimisation of warehousing facilities has supported margin improvement in the group. The group secured double digit savings in ocean freight costs by aggregating container volume of containers. Strategic property portfolio The group continued its investment in its property portfolio during the year under review. These investments remain a key strategic component in securing a relevant infrastructure and store network for its household goods retail business, while protecting the long-term cost base of the business. In support of the rapid growth experienced in Spain and Portugal, the group acquired two large stores in Portugal from a key competitor. INTEGRATED RETAIL: GENERAL MERCHANDISE The Pepkor acquisition became effective on 31 March 2015 and, as such, was only included for three months in the audited results reported for the year ended 30 June The Pepkor group remains focused on their growth mandates throughout the regions where they operate, and the FY15 year was no exception. Strong like-for-like growth was supported by the rapid footprint expansion, particularly across emerging markets. During the year the group expanded its operations into France (via the acquisition of the MacDan retail business) and, shortly after year-end, into the United Kingdom with the rollout of 50 new Pep & Co stores. Pepkor s operations in Australasia continue to improve and are expected to start contributing to the overall group profitability in the near future. INTEGRATED RETAIL: AUTOMOTIVE The automotive business in southern Africa has, true to its history, reported good performance in terms of revenue growth and maintaining operating margins. Challenging economic conditions are impacting the new vehicle market, however, this is offset by good performance in the pre-owned vehicle market. Strong performances were reported by both the parts and service and Hertz car rental divisions. OUTLOOK During the next financial year, further growth is expected as a result of growing market share in the discount retail market. Organic growth will be supported by additional investments in the store networks. Cost saving will be prioritised, mainly in Africa and Australasia, as a result of the common infrastructure between the general merchandise and household goods divisions in these regions. In addition, decreased freight rates, an optimised warehouse and supplier network, and strong demand in eastern Europe should result in savings and increased service levels. Listing on the Prime Standard of the Frankfurt Stock Exchange. Following the 89% shareholder approval obtained on 7 September 2015, the listing of the group by introduction on the Prime Standard of the Frankfurt Stock Exchange will be completed on 7 December At the same time, the group will obtain an inward secondary listing on the Johannesburg Stock Exchange. Given that the majority of Steinhoff s revenues are generated outside South Africa, a listing on a major European stock exchange would more accurately reflect the geographic location of its revenues, customers and store locations, accompanied by an enhanced ability to access global capital markets. Appreciation I thank our shareholders, board of directors, employees, business partners and advisors for their continued support and commitment to the group, and I look forward to the next chapter in Steinhoff s exciting history. MarKus Jooste Chief executive officer 21

24 OPERATIONAL PERFORMANCE GROUP STRUCTURE Retail operations are positioned towards price-conscious (value) consumer segments, providing them with affordable products through a vertically integrated supply chain. INTEGRATED RETAIL 22

25 HOUSEHOLD GOODS Furniture and homeware retail businesses. page 24 Your Project Partner GENERAL MERCHANDISE Clothing and footwear, accessories and homeware. page 40 AUTOMOTIVE Dealerships and rental outlets in southern Africa provide vehicles, parts, insurance, accessories, servicing and car rental. page 44 INTEGRATED SUPPLY CHAIN AND PROPERTIES The integrated supply chain sources from across the world and supplies both external and group-owned retailers. The property segment includes all properties managed centrally by Steinhoff Properties. page 36, 38 23

26 INTEGRATED RETAIL Information can no longer be relied on EUROPE UNITED KINGDOM AFRICA Your Project Partner AUSTRALASIA 24

27 20 COUNTRIES 24 RETAIL BRANDS RETAIL OUTLETS ± 3.1 million m 2 RETAIL SPACE ± EMPLOYEES 25

28 INTEGRATED RETAIL Information can no longer be relied on 3 RETAIL BRANDS 8 COUNTRIES 280 * RETAIL OUTLETS ± EMPLOYEES ± 1.2 million m 2 RETAIL SPACE * Excluding ConfoDeco stores 26

29 PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2015 REVENUE 4% MARGIN 5.0% Conforama is a leading European retailer of furniture and household goods. Its core product lines include furniture, decoration and large homeware appliances. Conforama employs a multi-style product strategy and also operates an online sales platform via a click-and-collect model, which is supported by its physical store network. As at 30 June 2015, Conforama operated a network of 280 retail outlets, of which 204 are located in France, making it France s second-largest furniture and household goods retailer by market share. 1 In addition, Conforama has leading market positions 1 in Switzerland (2nd), Iberica (3rd), Italy (4th) and Croatia (3rd). As at 30 June 2015 Conforama operated 76 retail outlets located in seven other European countries: 30 in Spain and Portugal, 15 in Italy, 22 in Switzerland, seven in Croatia, one in Luxembourg and one in Serbia. Conforama s DNA is that of a discounter with multi-channel leadership and international presence, focused on investment in people. 1 According to Euromonitor, GFK, IpEA In France, the group s omni-channel strategy and investment in a customer-centric convenient store network to optimise its clickand-collect capabilities, continue to prove successful. Online sales increased by 22% and now represent 7.2% of total revenue in this country. Despite the impact of the strengthening of the Swiss franc on volumes, the combined group increased revenues and market share in constant currency. Profitability in Switzerland was impacted by the re-branding and restructuring costs resulting from the combination of the separate regional retail businesses and the decision to exit the remaining Fly stores during the period. Excellent revenue and profitability growth were recorded in Spain and Portugal, bolstered by critical mass benefits being achieved as a result of new store openings in previous years. MARKET SHARE GAINS ACROSS MOST TERRITORIES French furniture category grew 3% compared to furniture market growth of 1% 1 Online sales increased by 22%, representing 7% of total revenue in France GROWTH IN STRATEGIC PRODUCT CATEGORIES Furniture 7% White goods up 9% Homeware 6% Brown and grey goods (non-strategic) 3% 27

30 INTEGRATED RETAIL Information can no longer be relied on 3 RETAIL BRANDS 4 COUNTRIES 228 RETAIL OUTLETS ± EMPLOYEES ± m 2 RETAIL SPACE 28

31 PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2015 REVENUE 12% MARGIN 10.1% The group s ERM division has an extensive retail footprint across Germany, Poland, Switzerland and recently entered the Netherlands. This division operates primarily through large-scale discount retail outlets, offering a full range of furniture and household goods. As at 30 June 2015, the ERM retail network comprised 228 retail outlets, including 107 large format furniture and homeware goods retail outlets in Germany, one in both the Netherlands and Poland; 22 Lipo furniture stores in the German-speaking regions of Switzerland and 97 Abra retail outlets in Poland. The German household goods market remained strong and continues to grow year on year, benefiting the group s growing footprint in the region. Another six large format stores were opened during the year, with the group now trading from 107 stores in this region. Despite the costs associated with the store openings, margins continue to improve due to increased brand recognition and trading densities. The German concept store was introduced to Poland and the Netherlands during the year under review. Both stores are performing well, with further expansion planned in the Netherlands during the next year. The eastern European region performed strongly during the year under review, supporting both the group s retail and manufacturing divisions in these countries. GOOD GROWTH RESULTING FROM: Resilient economies German furniture market 2% for the 2014 calendar year * Continuous investment in stores in Germany (6 new stores) INCREASED TRADING DENSITIES IN GERMANY Improved brand recognition due to enlarged footprint GOOD GROWTH IN SWITZERLAND THROUGH CONVERSION OF FLY STORES TO THE LIPO BRAND EASTERN EUROPEAN RETAIL ENVIRONMENT IMPROVES Smaller concept stores in Poland prove to be successful * BVDB 29

32 INTEGRATED RETAIL Information can no longer be relied on 2 RETAIL BRANDS 419 RETAIL OUTLETS ± EMPLOYEES ± m 2 RETAIL SPACE 30

33 PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2015 REVENUE 17% MARGIN 8.6% The UK group delivered a credible performance, led by market share gains in the bedding retail division and a refurbished store network. The integrated mattress and bedding supply chain enables the group to benefit from the entire supply chain margins, from raw material to end consumer, in our group-supplied product ranges. Performance was further supported by Harveys achieving good results despite a deflationary environment and strong competition. The group s retail division in the United Kingdom operates through Steinhoff UK and focuses on the retailing of beds, furniture and homeware. Steinhoff UK currently has two retail chains in the United Kingdom: Bensons for Beds and Harveys, both of which operate through a network of retail outlets and an online platform. Steinhoff UK is the ninth-largest furniture retailer in the United Kingdom. 1 Bensons for Beds is the United Kingdom s largest bed retailer (according to management s estimates), offering customers a wide range of mattresses, divans, bed frames, children s beds and bedroom furniture. As at 30 June 2015, Bensons for Beds operated 262 retail outlets in the United Kingdom. Harveys is a speciality furniture retailer in the United Kingdom, with a focus on lounge and dining furniture in the value segment of the market. As at 30 June 2015, Harveys operated 157 retail outlets in the United Kingdom. Revenue, as measured in pound sterling, increased by 7% Bedding market continues to grow Bensons remains the #1 bedding retailer in the UK 2 Improved performance by furniture brand despite deflationary market environment and strong competition Improved trading densities resulting from store refurbishments 63% of UK estate refurbished 1 According to Euromonitor 2 Management estimate 31

34 INTEGRATED RETAIL Information can no longer be relied on 3 RETAIL BRANDS 2 COUNTRIES 138 RETAIL OUTLETS ± EMPLOYEES ± m 2 RETAIL SPACE 32

35 PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2015 REVENUE 1% MARGIN 6.2% The group trades from three retail chains in Australia and New Zealand: Freedom, Snooze and Poco Australia, all of which operate through a network of retail outlets and an online platform. With 138 retail outlets, the group is the third-largest furniture retailer in Australia and New Zealand. 1 Freedom retails an extensive collection of leather and fabric sofas, dining furniture, bedroom furniture and homeware. As at 30 June 2015, Freedom operated 61 retail outlets in Australia and New Zealand. Snooze is predominantly a franchise mattress and bedding specialist with 76 retail outlets. Poco Australia is a one-stop home solution superstore offering a wide range of consumer goods at low prices. The brand and concept originated in Germany, however, the product offering at Poco Australia is tailored to the Australian consumer. As at 30 June 2015, Poco Australia operated one store in Australia. The retail operations in Australia and New Zealand performed well during the year under review, increasing margin on a relatively stable turnover compared to that of the previous year. The acquisition of the Australian bedding manufacturer Select-O-Pedic was completed during the year, with good initial results being achieved by the combined group. Australian furniture market remains challenging More regular promotional events drive increased trading densities Sales from new store format exceed expectations Supply chain and logistics restructure improves efficiencies and margins Improved sales mix supports gross margin Good progress on integration of Select-O-Pedic acquisition (mattress manufacturer) 1 According to Euromonitor 33

36 INTEGRATED RETAIL Information can no longer be relied on 15 RETAIL BRANDS 6 COUNTRIES RETAIL OUTLETS ± EMPLOYEES ± m 2 RETAIL SPACE 34

37 PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2015 REVENUE 2% MARGIN 4.2% JD Group is one of the largest furniture and household goods retailers in southern Africa. JD offers a diversified mix of products, including furniture, household appliances, consumer electronics and technology goods, building materials and DIY products and accessories. JD Group operates through a multi-branded retail network representing nine furniture brands, two consumer electronics and appliances brands and four building materials and DIY brands. As at 30 June 2015, the group operated retail outlets in southern Africa. Major strides have been made in the restructuring of the household goods retail brands in South Africa during the year under review. The focus to drive more sustainable cash sales compared to a credit sales mix has proved successful. In support of this sales strategy, the brand and cost rationalisation programmes are progressing well and will result in a more sustainable business model going forward. The DIY and building material business has performed well, assisted by its investment in its store network during the past few years. The business is well positioned for continued growth in the large building materials market. CHALLENGING ECONOMIC ENVIRONMENT FURNITURE BUSINESS RESTRUCTURING IS GAINING TRACTION More sustainable cash versus credit mix Credit sales mix reduced to 55% in FY15 (FY14: 63%) Focus on lower risk credit consumers Good growth in lay-by category Successful introduction of Sleepmasters brand enhances trading densities Good progress made with brand and cost rationalisation programmes STEINBUILD (DIY) DELIVERS STRONG PERFORMANCE Proposed Iliad acquisition expected to provide scale benefits 35

38 INTEGRATED RETAIL Information can no longer be relied on 8 SOURCING OFFICES SOURCING FROM 44 COUNTRIES MANUFACTURING IN 5 COUNTRIES 21 MANUFACTURING FACILITIES CONTAINERS 36

39 PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2015 The group s integrated supply chain division focuses on the sourcing and manufacturing of raw materials and household goods, which it sells to other group-owned companies and third-party retailers. The group s integrated supply chain division s proximity to the large European household goods market; its ability to assemble furniture sourced from Asia and Europe, and its ability to replace and/or repair products subject to stringent European warranty requirements are key competitive advantages. The sourcing and logistics division operates through eight sourcing offices across eastern Europe and Asia, with a primary objective of creating competitive advantages for the group by providing speed-to-market of exclusive quality products at competitive prices. The group operates 50 distribution centres across Europe and the United Kingdom. The group s own manufacturing operations include integrated furniture and household goods manufacturing operations in Europe, the United Kingdom and Australia. As at 30 June 2015, manufacturing operations were carried out in 21 facilities across five countries. The flexibility and efficiencies inherent in the group s supply chain continue to underpin the group s ability to deliver product to its internal and external customer base. During the year under review, dollar strength had a positive impact on the competitiveness of the group s European manufacturing operations. Increased volumes and an improved product mix improved efficiencies and margins. The Asian sourcing operations performed well, reducing quality-related returns to record low levels and improving on-time deliveries, resulting in reduced costs across the business. The specialist central logistics department supports group operations by managing the logistics performance and reducing associated costs during the year in many territories. In particular, optimisation of warehousing facilities has supported margin improvement in the group. The group secured double digit savings in ocean freight costs by aggregating container volume of containers. 37

40 INTEGRATED RETAIL Information can no longer be relied on 3.1 billion EUROPEAN PROPERTY PORTFOLIO (AT COST) 4.1 million m 2 TOTAL EUROPEAN PROPERTY PORTFOLIO 38

41 PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2015 During the economic downturn in Europe and the resultant pressure this placed on retailers and proprietors, various retail properties became available at affordable prices. The group used this opportunity to acquire a number of the retail properties it operates from. Given the restricted planning permission requirements and the trading licences attached to some retail properties, the value and competitive advantage of owning these properties remains a key strategic focus for the group. The group s property investments comprise an extensive footprint of retail properties situated in Europe and Africa, as well as manufacturing facilities located in Germany, eastern Europe, the United Kingdom and Australia. Centralised property teams provide a wide range of specialised services to the group, including: Management of the internally and externally leased property portfolio Development of existing and new properties Centralised management of sustainable energy, water and waste Management of risk, security and insurance costs Management of maintenance costs The group continued its investment in its property portfolio during the year under review. These investments remain a key strategic component in securing a relevant infrastructure and store network for its household goods retail business, while protecting the long-term cost base of the business. In support of the rapid growth experienced in Spain and Portugal, the group acquired two large stores in Portugal from a key competitor. MANUFACTURING 10% WAREHOUSE 8% SQUARE METRES DISTRIBUTION RETAIL * 82% * Warehouse space attached to stores are included in retail 39

42 INTEGRATED RETAIL Information can no longer be relied on EUROPE AND UNITED KINGDOM AFRICA SOUTH AFRICA, BOTSWANA, LESOTHO NAMIBIA, SWAZILAND AUSTRALASIA 40

43 FOUNDED IN % OF REVENUE IN DISCOUNT SEGMENT 35% OF REVENUE IN VALUE SEGMENT 4% OF REVENUE IN SPECIALITY SEGMENT The group s general merchandise segment comprises the operations of the Pepkor Group, a leading retailer selling a range of everyday necessities, including clothing, footwear, household goods, personal accessories and cellular products to its price-sensitive and valueconscious customer base. Pepkor also provides selected financial services to its customers, such as utility bill payments and money transfer services. Founded in 1965 and headquartered in Cape Town, Pepkor serves discount and value-oriented customers through its conveniently located and extensive store footprint. Operating in 20 countries across three continents, Pepkor retails from nearly 2 million m 2 of retail space in more than retail outlets, employing approximately full-time employees as at 30 June Pepkor operates through well-known retail brands, with approximately 61% of revenue being generated within the discount segment of the market, 35% in the value segment and 4% in the speciality market segment. 41

44 INTEGRATED RETAIL Information can no longer be relied on DISCOUNT South Africa and rest of Africa Trading through more than retail outlets, Pepkor sells a discount range of merchandise, including clothing, footwear, homeware and cellular products. Today, Pep is one of South Africa s top three retail names in terms of brand recognition among consumers of all income groups. In addition to this, through its involvement with Flash, more than Flash traders selling airtime and electricity and providing bill payment facilities were operative in the informal discount sector. Pepkor expanded its footprint into Africa following its success in South Africa by opening its first store in Zambia in Staying close to its solid foundation in South Africa and keeping its brand positioning consistent, Pepkor s African expansion accelerated and extends across nearly m 2 of retail space through more than 250 retail outlets situated in Zambia, Mozambique, Malawi, Angola, Nigeria and Zimbabwe. Eastern Europe Pepco, one of the group s fastest growing retailers, was founded in Pepco is a leading non-food retailer in Poland, serving customers with a diverse product range comprising clothing, footwear, homeware and a core range of basic household consumables. Pepco operates nearly 700 stores, mainly located in small to medium-sized cities in Poland. Pepco recently expanded its concept to the Czech Republic, Hungary and Slovakia. VALUE South Africa Founded in 1916, Ackermans is the group s oldest African retail brand. Ackermans primarily sells clothing, footwear, homeware, clothing accessories and cellular products at competitive prices. At 30 June 2015, Ackermans operated more than 480 urban retail outlets across southern Africa. SPECIALITY South Africa Pepkor s speciality retail division comprises three well-known retailers focused on a diverse customer base, including John Craig, a premium-branded menswear retailer; Dunns, a mid-market fashion retailer; and Shoe City, a value-oriented footwear retailer. The division provides customers with clothing, footwear, accessories and cellular products and trades through approximately 450 retail outlets located in South Africa, Namibia, Botswana, Lesotho and Swaziland. Australasia Pepkor s retail division operates through more than 300 retail outlets in Australasia and comprise a collection of speciality retailers located across Australia and New Zealand, including Best & Less, Harris Scarfe, Mozi, Store & Order and Postie. Best & Less, which is typically located in shopping malls, and Harris Scarfe, which operates from larger, stand-alone retail outlets, are Pepkor s largest speciality retailers in Australasia and focus on the valueconscious clothing, footwear and houseware markets. 42

45 PERFORMANCE FOR THE YEAR ENDED 30 JUNE COUNTRIES 17 RETAIL BRANDS RETAIL OUTLETS ± EMPLOYEES ± 1.9 million m 2 RETAIL SPACE The trading environment in Africa remained challenging during the year under review. Despite this, the group performed well, increasing market share in the clothing, footwear and home product segment and through the introduction of a broader and wellsupported product range. Strong sales growth and improved margins were realised in the eastern European retail cluster. During the year the eastern European division expanded its operations outside of Poland, with more than 10% of sales now being contributed by territories other than Poland. New store performance was very strong in all territories, particularly in Romania and Hungary. The group experienced good turnover growth in Australia, supported by like-for-like sales growth, particularly in the two main retail brands. Margins remained under pressure, impacted by the newly acquired New Zealand business. SUPPORT SERVICES Pepkor s central group services division offers credit, IT, property management, treasury, logistics and quality control support. In addition, Pepkor s retail operations are supported by sourcing offices, located in China, that focus on supply chain optimisation to help protect and enhance Pepkor s discount market positioning. Pepkor also operates a m 2 production facility in Cape Town that manufactures approximately nine million school uniforms each year. PEPKOR PRODUCT SOLUTIONS The Pepkor Product Solutions (PPS) division supports the Pepkor Group s retail brands, offering specialised services aimed at connecting suppliers with buyers. With offices in Shanghai and Shenzhen, China, and dedicated employees in Hong Kong, Taiwan, Bangladesh and India, the PPS division oversees all functions in the Pepkor Group s sourcing supply chain. Resilience in value discount segment Store network increased by ± 400 stores Acquisition of MacDan in France (13 stores) Acquisition of Postie in New Zealand (64 stores) 43

46 INTEGRATED RETAIL Information can no longer be relied on SOUTH AFRICA AND NAMIBIA 44

47 The group s automotive segment comprises Unitrans Automotive and Hertz car rental. Unitrans Automotive represents a number of international automotive brands, and services its customers from its dealership network located throughout southern Africa. Hertz car rental conducts its business in Namibia and South Africa. 45

48 INTEGRATED RETAIL Information can no longer be relied on 46

49 PERFORMANCE FOR THE YEAR ENDED 30 JUNE COUNTRIES 87 DEALERSHIPS 46 RENTAL OUTLETS ± EMPLOYEES The pre-owned vehicle division performed relatively well, with a strong contribution from parts and services. In contrast, the new vehicle market was under pressure during the year under review, adversely impacting margins. Hertz achieved good volume growth, and the focus on customer service, efficiencies and cost control resulted in much improved profitability in this division. Revenue 6% Margins maintained at 3% Good performance in pre-owned vehicles Hertz improved profitability 47