| Tue 16 Mar 2004, 9:49 | | Steinhoff spreads its global options |
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Steinhoff spreads its global options in successful bid to counter volatile rand
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Furniture manufacturer enjoys success from its divisions around the world
Industrial Reporter
IF there is a company that can teach lessons on how to operate in a volatile currency market, it is furniture manufacturer and distributor Steinhoff International.
The group's strategy of manufacturing goods in developing countries for sale in developed ones means that, as the rand falls, its manufactured goods gain in value. And this is in the face of the strengthening of the local currency the group's divisions in Africa, Europe and Australia performed well in the year to December.
Revenue rose 2% to R5,38bn, and operating profit increased 17% to R714m. When measured in euros, revenue jumped 22% to à 657m and operating profit rose 45% to à 73m.
The global spread of Steinhoff's operation meant it was not just operating in rand, but also in the euro, the Australian dollar and the Polish zloty.
Operating in all currencies was a complex affair for Steinhoff says CEO Markus Jooste.
"This is a real business where prices are negotiated every day", Jooste said.
Careful negotiation of the currency market is, however, only part of the reason for Steinhoff's success. The scale of its manufacturing operation means it has the capacity to make furniture cheaper than many of its South African competitors.
This production capacity and its close relationship with its furniture and appliance retailer JD Group has led many of the smaller furniture makers to believe they were being squeezed out of the market by Steinhoff.
This concern saw the Competition Tribunal impose a condition in the JD Group's merger with Profurn last year.
The tribunal demanded the merged entity continue to supply Profurn's chains in the same proportion for the next three years to protect the country's smaller furniture makers.
The decrease in the number of furniture makers over the past few years, along with JD Group's strong preference for Steinhoff, were given as reasons for this condition.
At the tribunal's hearing into the matter, the name of Claas Daun, the German entrepreneur, was continually brought up by small manufacturers.
Daun became a shareholder in JD Group after it issued 53,7million ordinary shares to Profurn shareholders to pay for the company. FirstRand, which held 78% of the Profurn, sold these shares to Daun. But the Competition Appeal Court ordered that all conditions imposed by the tribunal be set aside.
Jooste said if the these manufacturers were serious about the issues, they would have asked the Competition Appeal Court to keep the condition.
Even so, Daun has been involved with all three companies. Aside from now being a shareholder in JD Group, he was once a director at Profurn and is currently a director at Steinhoff.
Daun's involvement with the Steinhoff family in SA stretches back to 1997, when they bought 35% of Daun's local furniture interest.
Daun's interest in Steinhoff is understandable considering how well the group performed. This is seen in its southern African operations increasing operating profit 37% and 8% in euro and rand terms respectively.
Despite the strength of the rand, Steinhoff expected to continue growing its exports from southern Africa on the back of better economies of scale and improved efficiencies.
While the group has done well, it was still a difficult time for Jooste. The rand, along with the slowdown in Europe, made conditions difficult for the group.
However, Steinhoff still expected to grow earnings for the remainder of the financial year.
