Steinhoff halves debt, eyes the globe

Markus Jooste.

Image credit: Financial Mail

The South African furniture retailer bolstered headline earnings by 36% to R12.4bn in the year ended June by leveraging off its integrated supply chain model, which provided price advantages despite the challenging consumer environment.

Steinhoff last year conducted the country's biggest corporate transaction through its acquisition of Pepkor.

Market participants welcomed the better than expected results, sending the share price shooting through the roof.

"The stock traded at around R79.40 ahead of the results but (moments) after the results were released the share shot up to an all-time high of R82.16," said Nicholas Sorour, a portfolio manager at Sasfin Securities.

During the year, Steinhoff took advantage of cheap lending rates in Europe through a series of corporate bond issuances, which enabled it to reduce its total debt by 46% to R26bn during the year.

The group conducted an inaugural German bond transaction during the year, which attracted more than 80 investors and raised ¤650m at funding rates ranging from 1.25% to 3.08%. The highest lending rate is half what the company would have paid to raise cash in SA after interest rates where raised to 6% in July.

Subsequent to its year end, Steinhoff had raised this amount to 730m, making it the biggest non-German bond issue yet.

"There are a lot of exciting opportunities to apply our cash," Steinhoff International CEO Markus Jooste said of the R67bn lump sum the group was sitting on at its year end.

The companies in the group's stable had submitted plans to grow their business this year, particularly to increase their retail space as there were "opportunities all over the world", he said.

Steinhoff operates in Europe (where it derives 60% of its revenue), the UK, Asia and Africa.

Jooste cautioned against looking at the R1bn cash pile, which also comprises unutilised facilities, in isolation of "the lefthand side of the balance sheet", referring to the group's debt.

Attempts to reduce this further would be made during the next financial year, he said.

Steinhoff, preparing to list on the Frankfurt Stock Exchange in December to access a global pool of capital markets, plans to allocate some of its cash resources to buying back up to 190-million of the company's shares that were issued mainly to fund the Pepkor transaction.

Investment house Brait, which recently bought controlling stakes in gym group Virgin Active and London-based fashion chain New Look, owns 200-million Steinhoff shares and has indicated it will offload them as they do not fit into its strategy.

Steinhoff's R63bn bid for discount retail group Pepkor took effect in March.

Pepkor contributed R12.1bn to Steinhoff's R134.8bn revenue for this year.

"Pepkor's performance (for the three months) exceeded our expectations," said Andrew Bishop, an investment analyst at Element Investment Managers.

Another positive surplus was the 10% increase in the full-year dividend to R1.65 per share, Bishop said.

Shareholders in the low-cost building materials group Illiad are scheduled to vote later this month on a proposal from Steinhoff to acquire the company at a cost of R1.3bn.