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					c H Ief eXe c u t Ive’s r e vIew
mARkuS JooSte ceo
Our vertically integrated strategy has always proven its resilience in tough times, and this year was no exception.

Our investment and strategic initiatives embarked upon in previous years, meant that Steinhoff was able to face the economic downturn with an already restructured, flexible and competitive business. Our balance sheet strength and liquidity profile enabled our decentralised management teams to focus on the many opportunities brought about by the prevailing economic environment.

steinhoff euRope Within Europe, we have differentiated ourselves to concentrate our efforts on the massmarket volume segment of the furniture and household goods markets. Approximately 95% of our retail exposure within Europe is focused on this market segment. The flexibility within our European manufacturing and sourcing capacity, coupled with the mass-market biased product range, further enhanced our competitiveness within this market segment. This focus allowed us to grow our market share in a contracting market. In the UK, our industry was exceptionally hard hit and many worthy competitors were unable to survive the many challenges that confronted the industry. Whilst this prompted some irrational competition, particularly within the first half of the year, our retail business maintained revenues (compared to that of last year) and improved margins for the year under review. Priorities change during a recession. While we continue to support an integration strategy with 50% internal supply and 50% external supply, the credit risk inherent within the UK market meant that our manufacturing and sourcing operations increased their supply to group-owned UK retail operations and focused external supply on customers backed by credit insurance. The entrepreneurial spirit and sound financial management principles inherent in the manufacturing team, coupled with the focus on the business model and business fundamentals by our retail team, proved to be a winning combination.
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Continental Europe remains the backbone of the group’s European business, with R19 billion revenue earned in that region during the year under review. Whilst the massmarket retail business in this region benefitted from the more conservative consumer profile and buying down trends, the eastern European manufacturing operations experienced challenging trading conditions. The management team within the eastern European manufacturing and sourcing division has to be commended for protecting margins, while being faced with a volatile Polish zloty, decreased raw material prices, and resultant deflation. In addition, the team’s strategy to invest working capital to protect future supply and enhance margins from smaller suppliers; and to extend credit terms to creditworthy customers, especially in regions where the group previously had only limited exposure, translated into substantial growth and stable margins for this group. austRalia anD new ZealanD The Australian and New Zealand economies experienced a sharp decline in growth in 2008, resulting in a reduction in discretionary retail spending and a particularly low level of consumer confidence. In direct contrast to the European retail operations, the group’s retail operations in Australia and New Zealand are positioned to appeal to the more affluent market segment and therefore are more exposed to discretionary spend. Despite this, the division was able to retain market share. Each of the retail trading formats reduced their overheads and focused on regular tactical promotional activities to drive sales. Despite an overall decline in sales, trading densities improved in the second half of the financial year. The management team within this region forms the hub of the group’s innovation, sales and marketing skills, and acts as pioneers for the group in respect of new trends and products.

asia The changed business environment within the Asian sourcing business provided the group with some interesting opportunities and challenges. The slowdown in the global economy led to manufacturers in China struggling to fill their capacity. The strong growth, particularly within our group-owned retail divisions and the diversified nature of our external retail customers, gave our sourcing division a strong bargaining position with regards to suppliers. We were able to negotiate reduced prices and improve manufacturing lead times, benefitting the retailers within our European operations. Supplier evaluation became critical as many suppliers faced an uncertain financial future. The evaluation process focused on continuity and quality of suppliers with which we are able to ensure preferred status and significant influence. steinhoff afRiCa Steinhoff Africa comprises a diversified industrial group. The material capital investments of prior years in both our integrated logistics and raw material businesses have built scale and efficiencies within these operations. This enabled them to protect and enhance their competitive position within the markets that they serve. These investments were made in an environment when liquidity at competitive spreads were readily available, further benefitting the group’s current competitive position. The integrated timber and logistics businesses are positioned to participate in the emerging attributes of the African continent, and its infrastructure development, while Unitrans automotive and Steinbuild is consumer facing. The South African economy was affected by the global environment in different ways. Government spending on infrastructure continued during the year under review while construction and building industries slowed down considerably. Our raw material and Steinbuild divisions were adversely affected by trade customers buying lower specification product.

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Consumer debt levels and confidence were adversely affected, aggravated by relatively high interest rates during the year under review. However, our balanced industry exposure within our logistics businesses, and our mass-market positioning within our automotive businesses, shielded us, to a degree, from the severe slowdown that was experienced in many industries. The operations and results of the group are discussed in detail in the operational and finance reports. ContinueD investment foCus In many ways, this has been a year of consolidation in which we investigated, but did not pursue any material acquisitions, allowing us to focus on selective retail participation alliances across Europe. Our working capital investment strategy continues to secure global market share and growth. The demise of many of our competitors in Europe and the UK has enabled us to grow our business and market shares organically. We will continue to evaluate meaningful opportunities which could advance our strategic goals, increase our European retail footprint, enhance our existing supply chain, accelerate the consolidation in the fragmented markets of Europe and ultimately improve the group’s returns. Within Steinhoff Africa our investment focus will remain on opportunities that could unlock further value within our existing businesses. outlook The global economic conditions and financial markets appear to show signs of recovery. The resultant impact on consumer confidence and spending patterns, especially in respect of the market segments where Steinhoff operates, bode well for sustained performance in the current financial year. Flexibility in the way we approach business, and focus on our basic business model will remain key in managing our business through turbulent times. Our decentralised management teams remain focused on the fundamentals of running good businesses – operating excellence, customer focus, competent people, financial discipline and strong values.

This, coupled with our capital structure, gives us the ability to better plan and manage our future through challenging times. At the same time, we recognise that the economy will impact consumers everywhere, creating a degree of uncertainty surrounding the coming year. Steinhoff remains sensitive to this volatile environment, and will take decisive action to reflect on, and adapt to, the pressures affecting our consumer base. Despite challenging global economic conditions, we continue to see enormous opportunity for the group. Investing for growth, particularly in the fragmented European market, remains key to create value for our shareholders. appReCiation This was an extraordinary year that made extraordinary demands on our people. I would like to extend my appreciation to my fellow executive directors, for their dedication and continued unrelenting support to all group operations. My management team and I would also like to commend and thank our non-executive directors whose experience and guidance proved invaluable to us in these times. Thanks to our chairman for his continued hard work and dedication to the group. And finally, to our employees, a huge thank you, your spirit, loyalty and support make it such an exciting and fun group to work for.

markus Jooste 8 September 2009

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