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Steinhoff - Audited results for the year ended 30 June 2004
STEINHOFF INTERNATIONAL HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 1998/003951/06)
Share code: SHF; ISIN : ZAE000016176
("Steinhoff" or "the Company")
Audited results for the year ended 30 June 2004
Our geographically expanded operations continue to deliver sustainable growth
Headlines
* Group revenues up by 22% in euros and 6% in rand
* 39% growth in headline earnings in euros and 21% in rand
* Strong regionally independent balance sheets
* Net income exceeds R1 billion
* Strong operating cash flows
* Dividends increased by 22%
Abridged consolidated income statement
for the year ended 30 June 2004
Audited
Audited restated*
year year
ended ended
30/06/04 30/06/03 %
Notes R"000 R"000 change
Revenue 10 572 130 9 948 595 6
Operating income 1 535 355 1 300 886 18
before depreciation
and exceptional items
Depreciation (214 302) (191 858)
Operating income after 1 321 053 1 109 028 19
depreciation
Exceptional items 1 (128 922) (79 389)
Earnings before 1 192 131 1 029 639 16
goodwill,
amortisation, interest
and taxation
Goodwill amortised (38 592) (31 429)
Earnings before 1 153 539 998 210 16
interest and taxation
Net finance charges (80 147) (121 177)
Earnings before 1 073 392 877 033 22
taxation
Taxation (150 381) (97 950)
Earnings after 923 011 779 083 18
taxation
Share of associate 117 853 91 056
companies" income
Attributable to (4 012) 2 881
outside shareholders
Income attributable to 1 036 852 873 020 19
shareholders
Number of shares in 1 122 966 942 472 19
issue ("000)
Weighted average 1 067 461 961 031 11
number of shares in
issue ("000)
Attributable income 1 036 852 873 020 19
(R"000)
Headline earnings 2 1 191 738 984 842 21
(R"000)
Earnings per share 97 91 7
(cents)
Headline earnings per 112 102 9
share (cents)
Diluted earnings per 95 88 8
share (cents)
Diluted headline 109 99 10
earnings per share
(cents)
Proposed dividend per 22 18 22
share (cents)
Note 1: Exceptional
items (R"000)
- Profit on disposal 234 12 000
of business
- Loss on disposal of (9 793)
business
- Impairment of (5 954)
intangible assets
- Discontinued (69 652) (37 362)
operations
- Impairment of (59 504) (38 280)
property, plant and
equipment
(128 922) (79 389)
Note 2: Headline
earnings calculation
Income attributable to 1 036 852 873 020
shareholders
Adjustment for:
- Exceptional items 128 922 79 389
- Goodwill 38 592 31 429
amortisation
- (Profit)/loss on (6 514) 4 977
disposal of property,
plant and equipment
- (Profit)/loss on (707) 107
disposal of property,
plant and equipment
included in share of
associate income
- Goodwill 3 493 4 590
amortisation included
in share of associate
income
- Negative goodwill (8 900) (8 670)
included in share of
associate income
Headline earnings for 1 191 738 984 842
the year
* Prior year figures have been restated to reflect the consolidation of the
share trusts, and adjusting the weighted average number of shares in issue with
the capitalisation shares issued during 2004, in terms of AC 104. These
adjustments had the effect to reducing earnings per share from 93 cents to 91
cents and headline earnings per share from 105 cents to 102 cents.
Abridged consolidated balance sheet
at 30 June 2004
Audited
Audited restated*
30/06/04 30/06/03
R"000 R"000
ASSETS
Non-current assets
Property, plant and equipment, 3 291 880 2 529 182
plantations and intangible assets
Investments and loans 1 371 016 1 172 180
Deferred tax assets 103 924 33 750
4 766 820 3 735 112
Current assets
Accounts receivable and short- 3 766 704 2 850 288
term loans
Inventories 1 348 515 893 754
Cash and cash equivalents 3 645 765 1 463 248
Net cash balances 3 645 705 1 316 873
Near cash financial instruments 60 146 375
8 760 984 5 207 290
Total assets 13 527 804 8 942 402
EQUITY AND LIABILITIES
Capital and reserves 6 525 251 4 929 247
Outside shareholders" interest 35 241 14 782
Non-current liabilities
Deferred tax liabilities 118 512 44 360
Long-term liabilities 3 088 178 1 437 591
Long-term licence fee liability 180 621 209 188
3 387 311 1 691 139
Current liabilities
Net interest-bearing 523 269 624 916
Accounts payable and provisions 3 056 732 1 682 318
3 580 001 2 307 234
Total equity and liabilities 13 527 804 8 942 402
Net asset value per share (cents) 581 523
Gearing ratio (net) (%) - 15
Closing exchange rate (rand: 7,5563 8,61
euro)
Prior year figures have been restated to reflect the consolidation of the share
trusts.
Abridged group cash flow statement
for the year ended 30 June 2004
Audited
Audited restated*
year year
ended ended
30/06/04 30/06/03
R"000 R"000
Operating profit before working 1 441 942 1 253 312
capital changes
Net changes in working capital 97 420 (355 069)
Cash generated from operations 1 539 362 898 243
Net finance costs (80 147) (121 177)
Dividends paid (34 333) (16 763)
Dividends received 21 869 17 230
Taxation (117 480) (85 749)
Net cash inflow from operating 1 329 271 691 784
activities
Net cash outflow from investing (1 363 982) (812 182)
activities
Net cash inflow from financing 1 688 230 993 710
activities
Net increase in cash and cash 1 653 519 873 312
equivalents
Effects of exchange rate changes 2 392 147 790
on cash and cash equivalents
Cash and cash equivalents - 2 000 531 979 429
beginning of period
Cash and cash equivalents - end of 3 656 442 2 000 531
period
Cash and cash equivalents can be
reconciled to the balance sheet as
follows:
- Cash and cash equivalents above 3 656 442 2 000 531
- Overdrafts included in financing 10 677 537 283
activities
Cash and cash equivalents per 3 645 765 1 463 248
balance sheet
* Prior year figures have been restated to reflect the consolidation of the
share trusts.
Statement of changes in equity
for the year ended 30 June 2004
Non-
Share distribu Distribut
capital table able
and reserves reserves Total
premium
R"000 R"000 R"000 R"000
Restated balance
at
30 June 2003* 2 240 944 251 788 2 436 515 4 929 247
Earnings 1 036 852 1 036 852
attributable to
shareholders
Dividends paid (34 141) (34 141)
Issue of shares 920 934 920 934
Decrease in (329 (329 837)
foreign currency 837)
translation
reserve
Share of associate (7 572) 7 572
companies"
retained earnings
transferred from
non-distributable
reserves
Financial (14) (14)
instrument
revaluation
reserve
Increase in 2 210 2 210
investment reserve
Balance at 30 June 3 161 878 (83 425) 3 446 798 6 525 251
2004
* Prior year figures have been restated to reflect the consolidation of the
share trusts.
Accounting policies
The consolidated abridged financial statements for the year ended 30 June 2004
are prepared in accordance with the South African Statements of Generally
Accepted Accounting Practice ("SA GAAP") applicable to financial reporting
(AC127). The accounting policies used are consistent with those used in the
annual financial statements for the year ended 30 June 2003 except for the
consolidation of the Steinhoff Share Incentive Trusts as required by a directive
issued by the JSE Securities Exchange South Africa during February 2004. The
effect on the net profit previously reported was immaterial.
From a dividend per share perspective of view disclosure has been provided based
on the period to which the dividends relate. Basic earnings per share is
calculated by dividing net profit by the weighted average number of ordinary
shares in issue during the 2004 year. Headline earnings per share is calculated
by dividing headline earnings by the weighted average number of ordinary shares
in issue during the year. Fully diluted earnings per share takes into account
the dilutive effect of share options held by employees.
Audit report
The consolidated financial statements for the year have been audited by Deloitte
& Touche and their accompanying unqualified audit report as well as their
unqualified audit report on this set of summarised financial information are
available for inspection at the company"s registered office.
Corporate governance
The Group subscribes to and complies with the Code on Corporate Governance
Practices as contained in the second King Report on Corporate Governance.
Commentary
Review of results
Performance
The Group"s headline earnings for the year grew to R1 192 million (2003: R985
million) on revenues, in rand terms, which increased by 6% to R10 572 million
(2003: R9 949 million). The average exchange rate used for converting euro
income and expenditure to rand was R8,2145: Euro1 compared to R9,415: Euro1 in
respect of the year ended 30 June 2003, representing a strengthening in the rand
conversion rate of 15%.
The Group generated 83% of its revenues in currencies other than South African
rand, principally euro, pound sterling, US dollar and Australian dollar ("AUD").
The revenue growth achieved in euro terms amounted to 22% from euro 1 057
million to euro 1 287 million. Organic growth was supplemented by the
acquisitions implemented during the year which are dealt with separately under
"Corporate activity" below.
Headline earnings per share increased by 9% to 112 cents (2003: 102 cents) with
basic earnings per share increasing by 7% to 97 cents (2003: 91 cents). The
weighted average number of shares in issue increased by 11% during the year to 1
067,5 million (2003: 961,0 million), principally as a result of the 145,3
million new shares issued in November 2003 pursuant to the international equity
placement.
Shareholders" funds grew to R6 525 million (2003: R4 929 million) and the return
on average shareholders" funds was stable at 21% (2003: 21 %) during the year.
The net asset value per share improved further by 11% from 523 cents to 581
cents per share, notwithstanding an increase in the number of issued shares at
30 June 2004 to 1 123,0 million (2003: 942,5 million).
The Group"s cash flow from operations reached an all-time high of R1 539 million
(2003: R898 million), demonstrating the extent of the Group"s sound working
capital management. Cash generation is after a net decrease in working capital
of R97 million (2003: increase of R355 million) created mainly by increased
suppliers" credit resulting from the inclusion of the PG Bison acquisition and
the Australian investment. Favourable suppliers" terms of trading benefited the
Group through enhanced critical mass and the addition of the import, sourcing
and distribution business acquired in Australia. Shareholders should note the
seasonal nature of the business, with June being the low ebb of the business
cycle in Europe, immediately preceding the summer holidays.
The Group"s strategy of low-cost sourcing in terms of own manufactured, and
third party manufactured products, is continuing to deliver the desired results.
This was particularly the case in relation to market share gains attributable to
the diversity of the product offering to Steinhoff"s customers and the relative
strength of the euro against the US dollar (in which most of the third party
products are sourced), and the Polish zloty in respect of the Group"s extensive
manufacturing facilities in Poland. The major portion of the European sales are
realised in euros which continued to benefit margins.
The average operating margin of the Group increased to 12,5% (2003: 11,2%) for
the year. The Group continues to benefit from enhanced efficiencies throughout
the supply chain as well as the critical mass achieved as a result of the
acquisitions in the United Kingdom, Australia and Germany.
Net finance charges for the year were R80 million (2003: R121 million). This
resulted from continued sound working capital management accompanied by the
beneficial rates of interest applicable to the Group"s European borrowings, as
well as the lower average exchange rate at which euro finance charges were
converted to South African rand. The Group continued to fund suppliers and third
party producers to secure preference of supply and obtain favourable settlement
discounts which, in turn, contributed to improvement in margins.
At 30 June 2004 Steinhoff had cash assets, net of interest-bearing debt, of R34
million
(2003: net debt of R746 million) resulting in an ungeared position (2003: net
debt: shareholders" funds of 15%). The independent balance sheets of Steinhoff
Europe and Steinhoff Africa are now appropriately structured and well
capitalised after the Group"s international equity placement in November 2003,
the rollover and increase in the European Syndicated Loan Facility and the R1
billion corporate bond issued in South Africa during December 2003. The gearing
capacity of the Group places it in a strong position to pursue acquisitive
opportunities. Part of the Group"s cash resources at 30 June 2004 was used to
discharge the cash element of the PG Bison purchase consideration. A further
portion is earmarked to fund the Unitrans acquisition.
The taxation charge increased to R150 million (2003: R98 million) in line with
expectations. Management remains confident that the average tax rate of the
Group will be maintained at these levels for the foreseeable future. Cognisance
has been taken of the reduction in the statutory tax rates announced when Poland
and other Eastern European countries joined the European Union on 1 May 2004.
SEGMENTAL ANALYSIS
The Group"s main activity as an integrated global lifestyle supplier is focused
on manufacturing and wholesale & distribution.
Segmental analysis in euro
Year ended 30 June 2004
Revenue Revenue* %
Euro "000 30 June 2004 30 June change
2003
Manufacturing 892 890 771 113 16
Wholesale & distribution 394 118 285 562 38
Total 1 287 008 1 056 675 22
Year ended 30 June 2004
Earnings** Earnings** %
Euro "000 30 June 2004 30 June change
2003*
Manufacturing 112 269 89 837 25
Wholesale & distribution 60 469 38 040 59
Total 172 738 127 878 35
Geographical analysis in euro
Year ended 30 June 2004
Revenue Revenue* %
Euro "000 30 June 2004 30 June change
2003
Southern Africa 337 487 283 400 19
European Community 818 022 720 006 14
Pacific Rim 131 499 53 269 147
Total 1 287 008 1 056 675 22
Year ended 30 June 2004
Earnings** Earnings** %
Euro "000 30 June 2004 30 June change
2003*
Southern Africa 44 173 25 094 76
European Community 119 559 100 680 19
Pacific Rim 9 006 2 104 328
Total 172 738 127 878 35
Segmental analysis
Year ended 30 June 2004
Rand "000 Revenue % Earnings**
Manufacturing 7 334 650 69 922 237
Wholesale & 3 237 480 31 496 720
distribution
Total 10 572 130 100 1 418 957
Year ended 30 June 2004
Net
Rand "000 % assets %
Manufacturing 65 4 371 922 67
Wholesale & 35 2 153 329 33
distribution
Total 100 6 525 251 100
*Year ended 30 June 2003
Rand "000 Revenue % Earnings**
Manufacturing 7 260 028 73 845 820
Wholesale & 2 688 567 27 358 149
distribution
Total 9 948 595 100 1 203 969
Net
Rand "000 % assets %
Manufacturing 70 3 504 396 71
Wholesale & 30 1 424 851 29
distribution
Total 100 4 929 247 100
Year ended 30 June 2003
Net
Rand "000 Revenue % Earnings**
Southern Africa 2 772 290 26 362 864
European Community 6 719 641 64 982 113
Pacific Rim 1 080 199 10 73 980
Total 10 572 130 100 1 418 957
Rand "000 % assets %
Southern Africa 26 1 529 620 23
European Community 69 4 381 961 68
Pacific Rim 5 613 670 9
Total 100 6 525 251 100
*Year ended 30 June 2003
Rand "000 Revenue % Earnings**
Southern Africa 2 668 211 27 236 245
European Community 6 778 857 68 947 915
Pacific Rim 501 527 5 19 809
Total 9 948 595 100 1 203 969
Net
Rand "000 % assets %
Southern Africa 20 1 276 730 26
European Community 79 3 590 835 73
Pacific Rim 2 61 682 1
Total 100 4 929 247 100
An amount of R947 million (2003: R962 million) of Africa"s revenue comprised
exports to the European Community and the USA amounting to approximately 34%
(2003: 36%) of its activities. The Group"s revenue exposure to the local South
African furniture market amounted to 17% (2004: 17%).
* Prior year figures have been restated to reflect the consolidation of the
share trusts.
** Earnings before interest, taxation, discontinued operations and impairment
write-offs including share of associate companies" income.
The Group concluded the following transactions during the period under review:
* 145 292 871 shares were placed in the international market in November 2003
pursuant to an international equity placement which raised euro 122,6
million. (R970,0 million). This placing resulted in an increase in
Steinhoff"s non-resident shareholder base, as well as a substantial
increase in the level of liquidity in Steinhoff shares. The net proceeds of
this issue were employed entirely outside of South Africa to fund the
acquisitions in the United Kingdom and Australia, as well as the
distribution centre at Leinefelde, Germany, and the balance for general
corporate purposes;
* The investment by a European subsidiary of AUD 115 million effectively in
the import, sourcing and distribution, and manufacturing (Steinhoff
Pacific) interests of the formerly listed Freedom Group Limited ("FGL").
This investment increased Steinhoff"s wholesale & distribution business. It
is expected that significant synergies will be realised from the increased
buying power through the combination of this sourcing business with
Steinhoff"s existing sourcing activities in the Far East;
* The acquisition by Relyon Group (UK) of the Sprung Slumber division of
Airsprung plc during October 2003. This acquisition, which complements
Relyon"s existing activities in the United Kingdom resulting in increased
market coverage, contributed significantly to the United Kingdom
operations" return to acceptable levels of profitability in the last six
months of the year under review;
* The Group launched a medium-term corporate bond issue of R1 billion in
South Africa, the proceeds of which were used to re-finance existing short-
term facilities, as well as certain capital expenditure and the cash
element of the PG Bison acquisition referred to below;
* The acquisition by the Group of the remaining 65,01% of the issued shares
in PG Bison Holdings (Pty) Limited on the basis of an immediate cash sale
applicable to mainly former corporate shareholders and an earn-out
applicable to shareholders comprising management and certain trusts which
held shares on behalf of other employees;
* Steinhoff Europe AG (Austria) concluded a new Syndicated Loan Programme
("SLP") for an amount of euro 300 million. The new SLP replaced the
previous syndicated loan of euro 175 million. This SLP was concluded at a
substantially improved margin, with a term of four years from 4 June 2004.
UNITRANS LIMITED ("Unitrans")
The exercise of Steinhoff"s pre-emptive right in respect of 34 216 680 ordinary
shares in Unitrans, constituting approximately 44% of Unitrans" existing issued
shares, was announced on 3 September 2004. Shareholders are advised that the
directors of Steinhoff have now resolved to acquire, for its own account, the
full 44% interest in Unitrans ("the acquisition"). The maximum purchase
consideration, which is in the process of final determination, will not exceed 2
800 cents per Unitrans share (cum the dividend of 100 cps declared on 24 August
2004), subject to certain adjustments relating to Unitrans" audited financial
statements as at, and for the year ended, 30 June 2004. Based on the
aforegoing, the maximum aggregate purchase consideration payable by Steinhoff
for the acquisition will amount to approximately R923,9 million. Payment will
be effected from internal resources and borrowing facilities.
Steinhoff has an existing interest of approximately 26% in Unitrans. This
investment was acquired on 30 June 2000 and thereafter for strategic reasons
relating to the oursourcing of Steinhoff"s logistics and distribution
activities. The acquisition represents an extension of the strategic rationale
for the existing investment.
Upon implementation, the acquisition will give rise to an affected transaction
as provided for in the Rules of the Securities Regulation Code on Take-overs and
Mergers. Accordingly, Steinhoff will extend an offer to all the current
shareholders of Unitrans (excluding Steinhoff Africa Holdings (Pty) Limited and
Murray & Roberts Holdings Limited) for the acquisition of all or any of their
shares for the same purchase consideration at which the acquisition will be
concluded ("the minority offer"). The confirmation required by the Securities
Regulation Panel ("SRP") as to the adequacy of Steinhoff"s cash resources to
implement the minority offer in full in accordance with its terms, has been
lodged with the SRP.
Based on the maximum purchase consideration as set out above, the acquisition
and 100% acceptance of the minority offer will have a positive effect on
Steinhoff"s earnings and net asset value per share, but not material as defined
by the Listing Requirements of the JSE Securities Exchange South Africa ("JSE").
The implementation of the acquisition and the minority offer is subject to the
relevant regulatory approvals being obtained, including the issue of a clearance
certificate by the South African Competition Authorities ("the clearance
certificate"), the approval of the documentation relating to the acquisition and
the minority offer by the JSE and the SRP. In the event of the clearance
certificate not being issued by 28 February 2005, the purchase consideration
payable in respect of the acquisition and the minority offer will accrue
interest at a rate of 70% of the prime bank overdraft rate from 1 March 2005 to
the date of payment.
A circular incorporating full details of the acquisition and the minority offer
will be sent to Unitrans shareholders in due course.
Steinhoff records its support of the black economic empowerment transaction
recently entered into by Unitrans ("the BEE transaction"). It is noted that the
BEE transaction is subject to conditions, including approval being obtained from
all relevant regulatory authorities.
MANAGEMENT SHARE INCENTIVE SCHEME
Pursuant to the approval at the annual general meeting held on 1 December 2003,
the company implemented a new share incentive scheme subject to certain
performance criteria being met. The total number of rights of 35 254 251 were
allocated to 157 participants. As announced on SENS on 4 May 2004, 18 903 653
rights have been granted. A further 16 350 598 rights have been allocated,
subject to ratification on 2 October 2004 by the Human Resources and
Remuneration Committee.
The company had these rights actuarially valued independently and each right at
the granting date carried a weighted average value of R1,53 per right. On the
assumption that the Group will adopt Accounting Standard IFRS in the next
financial year, the total charge to the income statement over the next seven
years will, based on certain actuarial assumptions, amount to approximately R54
million. This will have the effect of reducing earnings per share by not more
than 1,2 cents per share in any one financial year.
OUTLOOK
The European and Pacific Rim operations are continuing to grow through
leveraging their core strengths and competencies. The real benefits of combining
the existing European sourcing activities with those of the newly acquired
Australian sourcing businesses will be further developed.
In the German region, our principal market in the European Union, the Group
continues to gain market share on the back of its strategic relationships,
financial strength, wide product offering, logistical capabilities and corporate
failures of many of the Group"s competitors. Additionally the level of growth
achieved in certain segments of the market, eg mail order and mass discounters,
augurs well for the future.
The Group has significantly enhanced its production capacity in eastern Europe
to cater for increased exports to other countries in the European Union,
pointing to excellent prospects to serve new markets in countries where the
Group presently has limited or no presence at all.
The addition of complementary products and brands to the Group"s offering (eg
Puris Bad in Germany - bathroom furniture - and Sprung Slumber in the UK) has
shown its value and is continuing to grow the Group"s market coverage. The Group
also recently acquired the exclusive rights to manufacture and distribute
children"s furniture under the "Janosch" name (which is a popular animation
character on German television). The expanded product range, flexibility and
reliability of supply are increasingly contributing to the Group establishing
itself a supplier of choice to many of its retail customers.
The acquisition of PG Bison, a quality asset with good cash generation
capabilities, should result in improved recovery rates in respect of the Group"s
utilisation of raw timber resources. The Group"s new saw mill in George is
nearing completion and will be fully operational during the 2005 financial year.
Management expect to achieve growth in headline earnings from the continuing
operations for the financial year ahead.
On behalf of the board of directors
BE Steinhoff MJ Jooste
Chairman Chief executive officer
DECLARATION OF DIVIDENDS
The board has resolved to declare a dividend of 22 cents per share in respect of
the year ended 30 June 2004 (2003: 18 cents per share), payable on 8 November
2004 to those shareholders recorded in the books of the company at the close of
business on Friday, 5 November 2004.
The dividend is payable in the currency of South Africa.
Last date to trade cum dividend Friday, 29 October 2004
Shares trade ex dividend Monday, 1 November 2004
Record date Friday, 5 November 2004
Payment date Monday, 8 November 2004
No dematerialisation or rematerialisation of shares may take place between
Monday, 1 November 2004 and Friday, 5 November 2004, both dates inclusive.
ANNUAL REPORT
The annual report will be mailed to shareholders in due course. The annual
general meeting is scheduled to take place on Monday, 29 November 2004, at the
registered office of the company.
On behalf of the board of directors
SJ Grobler
Company secretary
13 September 2004
Administration
Registration number: 1998/003951/06
(Incorporated in the Republic of South Africa)
JSE share code: SHF
ISIN code: ZAE000016176
("Steinhoff" or "the company" or "the Group")
Registered office
28 Sixth Street, Wynberg, Sandton, 2090
Republic of South Africa
Tel +27 (11) 445 3000
Fax +27 (11) 445 3099
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street, Johannesburg, 2001
Company secretary
S J Grobler
Auditors
Deloitte & Touche
Sponsor
PSG Capital Limited
Directors
BE Steinhoff* (chairman), MJ Jooste (chief executive officer), DE Ackerman,
CE Daun*, JNS du Plessis, KJ Grove, D Konar, JF Mouton, FJ Nel, FA Sonn,
NW Steinhoff*, DM van der Merwe, JHN van der Merwe, RH Walker#
#Australian *German Non-executive
www.steinhoffinternational.com
Date: 13/09/2004 03:30:21 PM Supplied by www.sharenet.co.za
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