| Wed 8 Mar 2006, 15:25 | | Steinhoff - Interim results for the six months end |
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SHF
SHF
Steinhoff - Interim results for the six months ended 31 December 2005
Steinhoff International Holdings Limited
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)
RAW MATERIALS | MANUFACTURING | WAREHOUSING | DISTRIBUTION AND RETAIL
INTERIM RESULTS
for the six months ended 31 December 2005
- Group revenues increase by 143% in Euros and 144% in Rands
- Headline earnings per ordinary share increased by 28% in both Euro and Rand
terms
- Strong balance sheet
- UK retail investment successfully integrated
Expanded distribution base provides impetus for sustainable growth
Condensed consolidated income statement
for the six months ended 31 December 2005
Unaudited
Unaudited restated* Restated#
*
six six year
months months
ended ended ended
31/12/05 31/12/04 % 30/06/05
Notes R"000 R"000 change R"000
Revenue 17 234 7 058 754 144 19 114
548 369
Operating income 1 525 624 913 177 67 2 420 776
before depreciation
Depreciation (332 517) (140 203) (424 691)
Operating income 1 193 107 772 974 54 1 996 085
after depreciation
Capital items 1 (10 875) (134) (46 074)
Earnings before 1 182 232 772 840 53 1 950 011
interest,
associated earnings
and taxation
Net finance charges (99 384) (56 541) (166 299)
Earnings before 1 082 848 716 299 51 1 783 712
share of associates
and taxation
Share of profit of 20 152 40 646 49 568
associated
companies
Profit before 1 103 000 756 945 46 1 833 280
taxation
Taxation (164 533) (94 862) (216 197)
Profit for the 938 467 662 083 42 1 617 083
period
Attributable to
Equity holders of 875 071 662 783 32 1 555 278
the parent
Minority interest 63 396 (700) 61 805
Profit for the 938 467 662 083 42 1 617 083
period
Number of shares in 1 134 394 1 129 321 1 130 584
issue (`000)
Weighted average 1 132 260 1 126 257 1 1 128 054
number of shares in
issue (`000)
Earnings 2 839 937 662 783 27 1 555 278
attributable to
ordinary
shareholders
(R`000)
Headline earnings 3. 4 850 998 659 640 29 1 575 569
attributable to
ordinary
shareholders
(R`000)
Earnings per 74 59 26 138
ordinary share
(cents)
Headline earnings 75 59 28 140
per ordinary share
(cents)
Dividend per share 22
(cents)
Average currency 7,8714 7,8312 1 7,9091
translation rate
(rand: euro)
Note 1: Capital items (R"000)
Loss on disposal of (1 434)
businesses
Closure costs (18 302) (7 400)
Profit on disposal of 482
business
Profit on disposal of 6 945
property, plant and
equipment
Negative goodwill released 1 434
Impairment of property, (134) (38 674)
plant and equipment
(10 875) (134) (46 074)
Note 2: Earnings attributable to ordinary shareholders (R"000)
Earnings attributable to 875 071 662 783 1 555 278
equity holders
Dividend entitlement on (35 134)
non-redeemable cumulative
preference shares
(including STC)
839 937 662 783 1 555 278
Note 3: Headline earnings calculation (R"000)
Earnings attributable to 875 071 662 783 1 555 278
equity holders
Adjusted for
- Capital items 10 875 134 46 074
- Profit on disposal of (4 571) (27 077)
property, plant and
equipment
- Loss on disposal of 186 1 183 1 294
property, plant and
equipment included in
share of associate income
- Impairment/amortisation 111
of goodwill included in
share of associate income
886 132 659 640 1 575 569
Note 4: Headline earnings attributable to ordinary shareholders (R"000)
Headline earnings 886 132 659 640 1 575 569
attributable to equity
holders
Dividend entitlement of (35 134)
non-redeemable cumulative
preference shares
(including STC)
850 998 659 640 1 575 569
* Prior period and year figures have been restated to reflect the effects of the
transition to IFRS.
# These balances have been audited with the exception of the effects of the
change in accounting policy relating to the adoption of IFRS.
Condensed consolidated cash flow statement
for the six months ended 31 December 2005
Unaudited Unaudited Audited
six months six months year
ended ended ended
31/12/05 31/12/04 30/06/05
R"000 R"000 R"000
Operating profit before 1 497 673 930 432 2 414 635
working capital changes
Net changes in working (1 256 031) (479 531) (990 526)
capital
Cash generated from 241 642 450 901 1 424 109
operations
Net finance costs (99 385) (56 542) (165 728)
Dividends paid (624) (333 013) (333 076)
Dividends received 19 957 19 957
Taxation (119 338) (115 326) (201 083)
Net cash (outflow)/inflow 22 295 (34 023) 744 179
from operating activities
Net cash (outflow) from (1 840 514) (817 389) (2 479 035)
investing activities
Net cash inflow from 2 937 818 686 187 2 996 213
financing activities
Net (decrease)/increase in 1 119 599 (165 225) 1 261 357
cash and cash equivalents
Effects of exchange rate (35 194) 8 275 (502)
changes on cash and cash
equivalents
Cash and cash equivalents 4 917 297 3 656 442 3 656 442
- beginning of period
Cash and cash equivalents 6 001 702 3 499 492 4 917 297
- end of period
Cash and cash equivalents
can be reconciled to the
balance sheet as follows:
- Cash and cash 6 001 702 3 499 492 4 917 297
equivalents above
- Overdrafts included in (1 992 609) (366 383) (731 948)
financing activities
Cash and cash equivalents 4 009 093 3 133 109 4 185 349
per balance sheet
Condensed consolidated balance sheet
at 31 December 2005
Unaudited
Unaudited restated* Restated#*
31/12/05 31/12/04 30/06/05
R"000 R"000 R"000
Assets
Non-current assets
Property, plant and 8 774 189 3 464 635 8 833 336
equipment, plantations and
intangible assets
Investments and loans 2 155 585 1 423 564 1 418 834
Deferred tax assets 366 642 165 468 410 129
11 296 416 5 053 667 10 662 299
Current assets
Accounts receivable and 6 874 928 4 301 985 5 877 610
short-term loans
Inventories 2 858 473 1 509 357 2 937 671
Cash and cash equivalents 4 009 093 3 133 109 4 185 349
Near cash financial 13 742 494 8 944 451 13 000 630
instruments
Total assets 25 038 910 13 998 118 23 662 929
Equity and liabilities
Capital and reserves
Ordinary share capital and 8 377 231 7 027 915 8 221 663
reserves
Preference share capital 926 061 643 879
9 303 292 7 027 915 8 865 542
Minority interest 1 181 587 32 890 1 239 969
Total equity 10 484 879 7 060 805 10 105 511
Non-current liabilities
Deferred tax liabilities 887 217 146 701 900 633
Long-term liabilities and 6 675 635 2 999 374 5 672 622
provisions
Long-term license fee 120 655 135 548 143 893
liability
7 683 507 3 281 623 6 717 148
Current liabilities
Net interest bearing 1 142 347 1 049 884 763 444
Accounts payable and 5 728 177 2 605 806 6 076 826
provisions
6 870 524 3 655 690 6 840 270
Total equity and 25 038 910 13 998 118 23 662 929
liabilities
Net asset value per share 738 626 727
(cents)
Gearing ratio (net) 39% 12% 22%
Closing exchange rate - 7,4670 7,6623 8,0965
Rand: Euro
* Prior period and year figures have been restated to reflect the effects of the
transition to IFRS.
# These balances have been audited with the exception of the effects of the
change in accounting policy relating to the adoption of IFRS.
Condensed statement of changes in equity
for the six months ended 31 December 2005
Share
capital Non-
and distri- Distri-
share butable butable
premium reserves reserves
R"000 R"000 R"000
Balance at 30 June 2004 as 3 161 878 (93 983) 3 386 711
previously stated
Effects of transition to 118 758 (67 445)
IFRS
Balance at 30 June 2004 3 161 878 24 775 3 319 266
restated
Profit for the period 1 555 278
Dividends paid (248 970)
Foreign currency 345 351
translation reserve
Issue of shares 28 977
Decrease in investment (3 638)
reserve
Restatement of available- 482
for-sale financial assets
to fair value
Net increase on
acquisition of
subsidiaries and issue of
treasury shares by
subsidiary
Exchange differences on
consolidation of foreign
subsidiaries
Share-based compensation 38 264
Balance at 30 June 2005 3 190 855 405 234 4 625 574
restated
Profit for the period 875 071
Dividends paid (83)
Capital distribution (340 228)
Foreign currency (374 340)
translation reserve
Issue of shares 18 898
Decrease in investment (205)
reserve
Net decrease on (44 912)
acquisition and disposal
of subsidiaries and issue
of treasury shares by
subsidiary
Exchange differences on
consolidation of foreign
subsidiaries
Share-based compensation 21 367
Balance at end of period 2 869 525 7 144 5 500 562
Total Preference
ordinary share
share- capital
holders" and
equity premium
R"000 R"000
Balance at 30 June 2004 as 6 454 606
previously stated
Effects of transition to IFRS 51 313
Balance at 30 June 2004 restated 6 505 919
Profit for the period 1 555 278
Dividends paid (248 970)
Foreign currency translation 345 351
reserve
Issue of shares 28 977 643 879
Decrease in investment reserve (3 638)
Restatement of available-for-sale 482
financial assets to fair value
Net increase on acquisition of
subsidiaries and issue of
treasury shares by subsidiary
Exchange differences on
consolidation of foreign
subsidiaries
Share-based compensation 38 264
Balance at 30 June 2005 restated 8 221 663 643 879
Profit for the period 875 071
Dividends paid (83)
Capital distribution (340 228)
Foreign currency translation (374 340)
reserve
Issue of shares 18 898 282 182
Decrease in investment reserve (205)
Net decrease on acquisition and (44 912)
disposal of subsidiaries and
issue of treasury shares by
subsidiary
Exchange differences on
consolidation of foreign
subsidiaries
Share-based compensation 21 367
Balance at end of period 8 377 231 926 061
Total
share-
Minority holders"
interest equity
R"000 R"000
Balance at 30 June 2004 as 35 241 6 489 847
previously stated
Effects of transition to IFRS 51 313
Balance at 30 June 2004 restated 35 241 6 541 160
Profit for the period 61 805 1 617 083
Dividends paid (248 970)
Foreign currency translation 345 351
reserve
Issue of shares 672 856
Decrease in investment reserve (3 638)
Restatement of available-for-sale 482
financial assets to fair value
Net increase on acquisition of 1 140 404 1 140 404
subsidiaries and issue of
treasury shares by subsidiary
Exchange differences on 835 835
consolidation of foreign
subsidiaries
Share-based compensation 1 684 39 948
Balance at 30 June 2005 restated 1 239 969 10 105 511
Profit for the period 63 396 938 467
Dividends paid (83)
Capital distribution (340 228)
Foreign currency translation (374 340)
reserve
Issue of shares 301 080
Decrease in investment reserve (205)
Net decrease on acquisition and (120 427) (165 339)
disposal of subsidiaries and
issue of treasury shares by
subsidiary
Exchange differences on (1 351) (1 351)
consolidation of foreign
subsidiaries
Share-based compensation 21 367
Balance at end of period 1 181 587 10 484 879
Segmental analysis in euro "000
six months ended 31 December 2005
Revenue Revenue %
31/12/2005 31/12/2004 change
Manufacturing 711 340 610 733 16
Wholesale, distribution and 1 478 175 290 630 409
retail
Total 2 189 515 901 363 143
six months ended 31 December 2005
Earnings Earnings** %
31/12/2005 31/12/2004 change
Manufacturing 85 360 68 065 25
Wholesale, distribution and 60 745 35 501 71
retail
Total 146 105 103 566 41
Geographical analysis in euro `000
six months ended 31 December 2005
Revenue Revenue %
31/12/2005 31/12/2004 change
Southern Africa 1 212 506 320 716 278
European Community 817 851 424 378 93
Pacific Rim 159 158 156 269 2
Total 2 189 515 901 363 143
six months ended 31 December 2005
Earnings* Earnings** %
31/12/2005 31/12/2004 change
Southern Africa 60 726 29 184 108
European Community 70 576 60 212 17
Pacific Rim 14 802 14 170 4
Total 146 105 103 566 41
Segmental analysis in rand "000
six months ended 31 December 2005
Revenue % Earnings* % Net %
assets
Manufacturing 5 599 244 32 671 902 58 5 665 427 61
Wholesale, 11 635 304 68 478 147 42 3 637 865 39
distribution and
retail
Total 17 234 548 100 1 150 049 100 9 303 292 100
six months ended 31 December 2004
Revenue % Earnings* % Net %
assets**
Manufacturing 4 782 771 68 533 028 66 4 676 146 66
Wholesale, 2 275 983 32 278 016 34 2 394 986 34
distribution and
retail
Total 7 058 754 100 811 044 100 7 071 132 100
Geographical analysis in rand "000
six months ended 31 December 2005
Revenue % Earnings* % Net %
assets
Southern Africa 9 544 119 55 478 002 42 2 136 655 23
European Community 6 380 636 37 555 531 48 6 278 050 67
Pacific Rim 1 309 793 8 116 516 10 888 587 10
Total 17 234 548 100 1 150 049 100 9 303 292 100
six months ended 31 December 2004
Revenue % Earnings* % Net %
assets**
Southern Africa 2 511 591 36 228 546 28 1 630 538 23
European Community 3 323 389 47 471 530 58 4 740 310 67
Pacific Rim 1 223 774 17 110 968 14 700 284 10
Total 7 058 754 100 811 044 100 7 071 132 100
* Operating income after depreciation including share of associated company"s
income, including headline adjustments in share of associated income, including
profit on disposal of assets (not included in capital items) and excluding
minority portion.
** Prior year figures have been restated to reflect IFRS adjustments.
During the period under review, all export door facilities have been
discontinued, but re-directed to doubling the manufacturing capacity of doors
for the local market. This restructure, as well as the closure of the facility
of Steincraft (outdoor furniture) were necessitated by substantial increases in
local timber prices, coupled with other factors which led to uncompetitiveness
in Steinhoff"s traditional export markets, mainly due to an oversupply of
related products in those markets.
NOTES
1. BASIS OF PREPARATION AND CHANGES IN ACCOUNTING POLICIES
The Group has adopted International Financial Reporting Standards (IFRS) for the
year ending 30 June 2006. The condensed consolidated interim financial
statements have been prepared in accordance with IAS 34: Interim financial
reporting, and in compliance with the Listing Requirements of the JSE Limited.
These are the Group"s first IFRS condensed consolidated interim financial
statements (for part of the period covered by the first IFRS annual financial
statements) and IFRS 1 - First-time adoption of International Financial
Reporting Standards has been applied.
The financial statements are presented in rand, rounded to the nearest thousand.
They are prepared on the historical cost basis except certain financial
instruments and plantations, which are carried at either fair value or amortised
cost, as appropriate.
These condensed consolidated interim financial statements have been prepared on
the basis of IFRS and interpretation statements in issue that will be effective
at the Group"s first IFRS annual reporting date, 30 June 2006. As a result of
ongoing review and possible amendments by interpretive guidance from the
International Accounting Standards Board and International Financial Reporting
Interpretations Committee, IFRS finally in effect at 30 June 2006 may differ
from IFRS and interpretation statements applied in preparing the condensed
consolidated interim financial statements.
An explanation of how the transition to IFRS has affected the reported financial
position and financial performance of the Group is provided in note 2. Note 3
includes reconciliations of equity and profit or loss for comparative periods
reported under South African Statements of Generally Accepted Accounting
Practice (SA GAAP) to those reported for those periods under IFRS.
2. EXPLANATION OF TRANSITION TO IFRS
As stated in note 1, these are the Group"s first condensed consolidated interim
financial statements for part of the period covered by the first IFRS annual
consolidated financial statements prepared in accordance with IFRS.
The accounting policies adopted under IFRS have been applied in preparing the
condensed consolidated interim financial statements for the six months ended 31
December 2005, the comparative information for the six months ended 31 December
2004, the financial statements for the year ended 30 June 2005 and the
preparation of an opening IFRS balance sheet at 1 July 2004 (the Group"s date of
transition).
In preparing its opening IFRS balance sheet, the Group has adjusted amounts
previously reported in financial statements and interim reports prepared in
accordance with its previous basis of accounting, SA GAAP.
A summary of significant changes to the Group"s accounting policies following
the adoption of IFRS and exemptions elected under IFRS 1 - First time adoption
of IFRS is contained in note 4.
An explanation of how the transition from SA GAAP to IFRS has affected the
Group"s financial position and performance is set out in the tables in note 3
and the notes accompanying them.
3. RECONCILIATION BETWEEN IFRS AND PREVIOUS SOUTH AFRICAN GENERALLY ACCEPTED
ACCOUNTING PRACTICE
The following reconciliations provide a quantification of the effect, after
taxation, of the transition to IFRS:
RECONCILIATION OF EQUITY AND PROFIT AND LOSS
1 July 31 30 June
December
2004 2004 2005
Notes (R"000) (R"000) (R"000)
Reconciliation of equity
Equity previously reported 6 489 847 7 120, 051 10 193 882
under SA GAAP
Retrospective application
of previous
SA GAAP accounting policy (76 163) (49 881)
changes and restatements
- Adjustment for change in (65 605)
accounting policy in
respect of straight-lining
of operating leases
- Adjustment for associate (10 558)
company"s change in
accounting policy for
foreign operations
- Black Economic 4.4 (33 473)
Empowerment minorities in
subsidiary eliminated
pending derecognition
criteria
- Impairment losses (16 408)
adjusted for
Adjustment upon adoption 51 313 16 917 (38 490)
of IFRS
- Business combinations 4.1 64 060 27 427 (45 490)
adjusted retrospective to
1 April 2004 - IFRS 3/IFRS
1
- Property, plant and 4.2 (17 109) (19 341) (12 651)
equipment - IAS 16/IFRS 1
- Share based payments - 4.3 4 362 8 831 13 642
IFRS 2/IFRS 1
- Re-designation of 4.6 6 009
financial instruments to
fair value through income
statement - IAS 39/IFRS 1
Equity reported under IFRS 6 541 160 7 060 805 10 105 511
Six months Year
ended
ended ended
31 December 30 June
2004 2005
Notes (R"000) (R"000)
Reconciliation of profit
for the period
Profit for the period 680 846 1 591 555
attributable to equity
holders of parent
previously reported under
SA GAAP
Retrospective application (5 519) (16 408)
of previous SA GAAP
accounting policy changes
and restatements
- Adjustment for change in (5 519)
accounting policy in
respect of straight-lining
of operating leases
- Impairment losses (16 408)
adjusted for
Adjustment upon adoption of (12 544) (19 869)
IFRS
- Business combinations 4.1 1 404
adjusted retrospective to 1
April 2004 - IFRS 3/IFRS 1
- Property, plant and 4.2 810 1 328
equipment - IAS 16
- Share based payments - 4.3 (13 354) (28 610)
IFRS 2
- Re-designation of 4.6 6 009
financial instruments to
fair value through income
statement - IAS 39/IFRS 1
Profit for the period 662 783 1 555 278
attributable to equity
holders of parent reported
under IFRS
4. SIGNIFICANT CHANGES TO THE GROUP"S ACCOUNTING POLICIES FOLLOWING ADOPTION OF
IFRS AND IFRS 1 - FIRST TIME ADOPTION ELECTION OF EXEMPTIONS
4.1 Business combinations
The Group previously applied the requirements of AC 140 and applied the revised
accounting policy to all business combinations with an agreement date on or
after 31 March 2004.
The Group has made an election in terms of IFRS 1 to apply the requirements of
IFRS 3 to all business combinations with effective dates on or after 1 April
2004. The classification and accounting treatment of business combinations with
effective dates prior to 1 April 2004 has not been reconsidered and previously
reported goodwill has been included on the basis of its deemed cost.
4.2 Property, plant and equipment
IAS 16 - Property, plant and equipment (IAS 16) differs in certain respects from
the previous SA GAAP equivalent, AC 123 - Property, plant and equipment (AC
123), applied by the Group until 30 June 2005. IAS 16 states that an entity is
required to measure the residual value of an item of property, plant and
equipment as the amount the entity estimates it would receive currently for the
asset if the asset were already of the age and in the condition expected at the
end of its useful life. The Group has previously, under SA GAAP, accounted for
residual values based on the requirement of AC 123.
Where parts (components) of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items of property,
plant and equipment. Residual values and useful lives of all assets are assessed
annually. In addition, depreciation of an item of property, plant and equipment
is to begin when it is available for use and ceases at the earlier of the date
it is classified as held for sale or the date that it is derecognised.
The Group has assessed the useful lives and residual values of all individual
components of property, plant and equipment and adjusted the carrying values of
some items at the date of transition accordingly.
The adjustments to the residual values and useful lives of certain items of
property, plant and equipment and the corresponding change in their carrying
values at 1 July 2004 has also impacted depreciation charges subsequent to 1
July 2004.
The Group has made an election in terms of IFRS 1 to measure certain items of
property, plant and equipment at the transition date to IFRS at their respective
fair values and used those fair values as deemed cost at that date. The Group
adjusted the carrying values of the individual items of property, plant and
equipment for those specified items to which the exemption was applied.
Changes in estimated decommissioning and restoration liabilities that occurred
before the transition date to IFRS have been adjusted for at the transition date
on a net basis in accordance with the provisions of IFRIC 1 and the applicable
exemptions under IFRS 1.
4.3 Share based payment transactions
The fair value of share options under employee share incentive schemes and other
equity instruments granted to Group employees is recognised as an employee
expense with a corresponding increase in equity. The fair value is measured at
grant date and expensed over the period during which the employee becomes
unconditionally entitled to the equity instruments. The fair value of the
instruments granted is measured using generally accepted valuation techniques,
taking into account the terms and conditions upon which the instruments are
granted. The amount recognised as expense is adjusted to reflect the actual
number of share options that vest except where forfeiture is only due to market
conditions not being met. This accounting policy has been applied to all equity
instruments granted after 7 November 2002 that had not yet vested at 1 January
2005. The fair value of share based payments was not recognised under the
Group"s previous accounting policies.
4.4 Black economic empowerment transactions
a. Transaction recognition criteria
In circumstances where portion of the equity in a subsidiary company is disposed
and serves as security for the funding of the proceeds receivable, the
accounting recognition of the disposal of such shares in the Group financial
statements is deferred until the funding subject to the security of the equity
sold has been fully repaid. In previous years, such transactions were recognised
upon entering into the respective sale agreements. The comparative results and
financial position have been restated accordingly, which has had no effect on
profit attributable to ordinary shareholders.
b. Share based payments
The group is extending the scope of IFRS 2 - Share based payments to include the
Group"s black economic ownership initiatives in accordance with international
interpretations in this regard. Where goods or services are received from black
economic empowerment partners as consideration for equity instruments of the
Group, these transactions are accounted for in terms of IFRS 2, even when the
entity cannot specifically identify the goods or services received. This
accounting policy is applicable to equity instruments that had not yet vested by
1 January 2005 and thus had no application in the current period.
4.5 Foreign operations
The Group has made an election in terms of IFRS 1 that cumulative foreign
currency translation reserves in existence at the transition date, 1 July 2004,
arising from the previous application of SA GAAP have been reset to zero by
being transferred to opening retained income.
4.6 Designation of previously recognised financial instruments
The Group has elected, in terms of IFRS 1, to designate certain financial
liabilities previously recognised at amortised cost to fair value through profit
and loss. The rationale for the designation was to eliminate an accounting
mismatch arising from measuring related assets and liabilities and recognising
gains and losses on them on different bases.
4.7 Common control transactions - premium and discount arising on subsequent
purchases from (or sales to) minority interests in subsidiaries
Following the presentation of minority interests in equity any increases and
decreases in ownership interests in subsidiaries without a change in control are
recognised as equity transactions in the consolidated financial statements.
Accordingly, any premium or discount on subsequent purchases of equity
instruments from or sales of equity instruments to minority interests are
recognised directly in equity of the parent shareholder.
Previously a premium on subsequent purchases of equity instruments from
minorities were recognised as goodwill and premium or discount on subsequent
disposal of equity instruments to minorities were taken to profit or loss as a
capital item in the income statement.
4.8 Deferred contingent purchase considerations
Where a structured business combination contains a puttable instrument on the
interest of apparent minority shareholders, then a financial liability for the
present value of the best estimate thereof is recognised upon initial accounting
for the business combination.
The liability arising is regarded as a deferred contingent purchase
consideration and the unwinding of the present value discounting is presented as
an interest expense. Any other change in the liability is recognised through
goodwill as an adjustment to the cost of the business combination, including the
impact of changes in interest rates on liabilities measured on the fair value
basis.
If the puttable arrangement is not exercised and settled, the derecognition of
the financial liability is treated as a disposal of the anticipated interest in
the subsidiary in accordance with the group"s accounting policy for common
control transactions.
4.9 Earnings per share - cumulative preference shares
In order to calculate earnings attributable to ordinary shareholders, the amount
of preference dividends (taking into account STC) for cumulative preference
shares required for that period, whether or not declared is deducted from profit
attributable to equity holders in determining earnings per ordinary share. The
amount of preference dividends for the period used to calculate earnings per
ordinary share does not include the amount of any preference dividends for
cumulative preference shares paid or declared during the current period in
respect of previous periods.
Increasing rate preference shares provide for an above-market dividend in later
periods to compensate investors for purchasing preference shares at a premium.
Any original issue premium on increasing rate preference shares is amortised to
retained earnings using the effective interest method and treated as a
preference dividend for the purposes of calculating earnings per ordinary share.
4.10 Capital items
Capital items are defined as items of income and expenditure relating to the
acquisition, disposal or impairment of investments, businesses, property, plant
and equipment and intangible assets, closure of businesses as well as the
impairment of the goodwill.
COMMENTARY
REVIEW OF RESULTS
INTRODUCTION
The Group"s business model comprising an expanded geographical base, combining
and growing the mix between third party sourcing and own manufacturing and
diversification and integration, remains effective. The results were delivered
in a period where the market conditions in Continental Europe and the United
Kingdom continued to be competitive (although encouraging signs of recovery are
becoming evident). Trading conditions in the Pacific Rim remained challenging,
inter alia, as a result of deflation in product prices due to the strength of
the Australian dollar. South Africa continued experiencing strong demand as a
result of consumer confidence, a wider consumer base and economic fundamentals
conducive to increased consumer spending. The acquisition of the listed
retailer, Homestyle Group Plc effective from July 2005, has been integrated
satisfactorily and augurs well for exciting growth opportunities in the UK,
benefiting the Group globally.
The average exchange rate used for converting Euro income and expenditure to ZAR
was R7,8714: 1 Euro compared to R7,8312: 1 Euro in respect of the corresponding
six months in the previous financial year.
PERFORMANCE
The Group"s revenues increased by 144% from R7 059 million to R17 235 million. A
substantial portion of this increase was attributable to the consolidation of
the results of Unitrans and Homestyle which became subsidiaries with effect from
January 2005 and July 2005 respectively.
The Group generated 47% (2004: 71%) of its revenues in currencies other than
South African Rand, principally Euro, Pound Sterling, US Dollar and Australian
Dollar. The larger proportionate South African contribution to Rand-denominated
revenue was caused by the inclusion of the results of Unitrans as a subsidiary,
with revenue of R6 809 million for the period under review. The actual foreign
revenue achieved in currencies other than South African Rand, but denominated in
Euro, grew by 68% from Euro 581 million to Euro 977 million.
Headline earnings attributable to ordinary shareholders grew by 29% from R660
million in the six months ended 31 December 2004 to R851 million.
Headline earnings per ordinary share increased by 28% to 75 cents (2004: 59
cents) with basic earnings per ordinary share increasing 26% to 74 cents (2004:
59 cents). The weighted average number of ordinary shares in issue increased by
1% during the period to 1 132,3 million (2004: 1 126,3 million).
Ordinary shareholders" funds at 31 December 2005 amounted to R8 377 million (30
June 2005: R8 222) million. The annualised return on average ordinary
shareholders" funds increased to 21% (2004: 20%). As at 30 June 2005 the net
asset value per ordinary share grew to 738 cents from 727 cents per share. This
increase is stated after the payment, in December 2005, of a 30 cents cash
distribution per share from share premium (R340 million) and an adverse movement
in the foreign currency translation reserve (R374 million) as a result of the
strengthening in the spot Rand: Euro conversion rate of R8,0965: 1 Euro to
R7,4670: 1 Euro at 30 June 2005 and 31 December 2005 respectively.
The Group"s operational cash flow was R1 498 million (2004: R930 million). The
net increase in working capital of R1 256 million (2004: R480 million), was
attributable to an increase in accounts receivable commensurate with the Group"s
higher activity levels, particularly in South Africa which experienced strong
growth, and, in the case of Homestyle, a reduction in creditors which included a
once-off settlement with the UK Revenue Authorities of the VAT claim relating to
past structural guarantee practices.
In order to compare the Group`s operating margin on a like-for-like basis, the
lower margins of Unitrans" Motor retail business and Homestyle should be
eliminated. On this comparable basis, the Group"s operating margin increased to
11,7% (2004: 10,9%). The Group continues to benefit from enhanced efficiencies
throughout the supply chain, capacity utilisation as a result of, particularly,
the addition of Homestyle (with a substantial retail distribution base),
economies of scale and the Group"s favourable terms of supply of finished
products for resale.
Net finance expense for the period rose to R99 million (2004: R57 million) in
accordance with the expanded Group operations. This expense included the funding
costs incurred on the acquisition of Homestyle (being a net investment of
approximately GBP 87 million) and the consolidation of Unitrans" own net finance
expenses.
At 31 December 2005, Steinhoff had net interest-bearing debt of R3 596 million
(30 June 2005: R1 988 million) resulting in a debt: equity ratio of 39% (30 June
2005: 22%), well within the Group"s targeted debt : equity range. The increase
of some R1,6 billion was mainly attributable to the investments in KAP
International Holdings Limited (KAP) and Amalgamated Appliance Holdings Limited
(Amap), amounting to R316 million and R281 million respectively. A further R514
million was due to the consolidation of Unitrans" debt, with the balance mainly
relating to restoring Homestyle"s creditors to normalised levels. The Group"s
permanent capital base was further enhanced by the issue of R650 million in
perpetual preference shares in June 2005, followed by a further tranche of R350
million in November 2005.
The Group"s taxation charge increased to R165 million (2004 : R95 million) in
line with expectations. Management remains confident that the average tax rate
of the Group will be stable at this level of approximately 15% of pre-tax income
for the foreseeable future.
The Group"s International Sourcing division has continued to perform well within
the budgeted plan. The centralisation of all third party sourcing and
distribution activities under the Pacific Rim division are delivering positive
results. The wholesale, distribution and retail business segment, which, after
the inclusion of Homestyle and Unitrans, now comprises 68% of Steinhoff"s Group
revenues, enhances the Group"s flexibility and product offering and facilitates
participation through additional added value segments of the supply chain.
Unitrans and Amap"s results for the six months ended 31 December 2005 were
pleasing with both companies reporting operating profit increases in excess of
20%. KAP has further released a positive trading statement relating to its next
results to be reported on for the year ended 31 December 2005, wherein it states
that it expects headline earnings per share to improve by between 20% and 30%
compared to the prior period.
CORPORATE ACTIVITY
In addition to the corporate transactions concluded by Unitrans and reported on
in its own results announcement dated 23 February 2006, the Group concluded the
following corporate transactions during the six months under review:
- Steinhoff participated in the book-build process relating to the disposal of
Salton Inc"s 52% interest in Amap. Steinhoff currently holds 26,5% of Amap, an
associated company, which is equity accounted. Markus Jooste remained on, and
Danie van der Merwe joined, the Board of Amap as non-executive directors and Jan
van der Merwe (Steinhoff"s Chief Financial Officer) was appointed to the Audit
Committee;
- in November 2005, Steinhoff Investment Holdings Limited (Steinhoff
Investments) issued a further tranche of R350 million variable rate, cumulative,
non-redeemable, non-participating preference shares (perpetual preference
shares);
- on 30 November 2005, Steinhoff Africa acquired 88,76 million shares in KAP for
a total consideration of R316 million, equivalent to 356 cents per share. This
holding represents an interest of 21% in KAP and Daun & Cie AG agreed to certain
"lock-up" restrictions and pre-emptive rights in favour of Steinhoff, in respect
of its 44% remaining interest in KAP. Following this acquisition, which is also
equity accounted, Markus Jooste and Danie van der Merwe joined the board of KAP
as non-executive directors and Jan van der Merwe joined KAP"s Audit Committee;
- in December 2005, The Competition Tribunal approved the acquisition of the
Group"s 67% interest in the North Eastern Cape Forests Joint Venture (NECF) from
Mondi South Africa Limited. These assets will form part of the establishment of
a new chipboard plant and cluster development in that region. The Industrial
Development Corporation will retain its 33% interest of the land and forests in
question and Steinhoff has assumed management control with effect from 1
February 2006. The current estimated capital expenditure related to this project
is R1,4 billion and it is anticipated that, directly and indirectly,
approximately 3 000 new jobs will be created.
OUTLOOK
The new management structure at Homestyle is now fully operational and a strong
turnaround is expected during the remainder of the current financial year. The
consumer spending environment in the UK continued to be tough during the period
under review, with only slight improvements being noticed since the January
sales period. As a result, the consolidation trend prevalent in that market is
expected to continue. Steinhoff and Homestyle stand to benefit substantially due
to Homestyle"s footprint and sound financial position (after its
recapitalisation in July 2005), coupled with Steinhoff"s world-wide sourcing and
manufacturing capabilities.
In the German region, the Group continues to gain market share on the back of
its existing relationships with major retailers and buying groups. Steinhoff has
experienced good incremental business as a result of both organic and
acquisitive growth achieved by Steinhoff"s strategic retail customers in
Germany. This should accelerate further consolidation and stand the Group in
good stead as our partners continue their aggressive expansion plans. The German
economy is showing moderate signs of recovery and increased consumer confidence.
The level of order books in respect of both our main product categories and new
ranges are growing.
The Steinhoff International Sourcing division is faring well and is making
progress through supplementing the range and quality of the product offering
worldwide. Management expects this division, in conjunction with an extended
distribution base elsewhere in the world, to become a primary source of growth
into the future. In Australia, the aggressive roll-out of the Leather Republic
brand will continue. In addition, new store openings under existing brands and
new marketing initiatives such as the launch of monthly catalogues, all bode
well for increased activity in the second six months of the current financial
year in this region.
The continued buoyancy in the South African retail sector is evident from recent
results of, and reports on, Steinhoff"s major customers. The expansion of PG
Bison"s Piet Retief plant, commissioned in May 2005, is running at full capacity
and, as a result of the huge demand in the building and construction industry
which outstrips the available supply, excess demand is satisfied through
imports. Consequently, further investments in raw material production
facilities, notably the NECF particle board plant and cluster development, will
be made to secure future sustainable sources of supply.
Management expects to achieve growth in headline earnings from continuing
operations for the remainder of the current financial year.
ORDINARY DIVIDEND OF STEINHOFF
It is the Group"s policy to declare ordinary dividends once a year after its
financial year end at 30 June.
GENERAL
CORPORATE GOVERNANCE
Steinhoff has embraced the recommendations of King II on Corporate Governance
and strives to provide reports to shareholders that are timely, accurate,
consistent and informative.
SOCIAL RESPONSIBILITY
Steinhoff continues to be recognised for its corporate social investment
activities. Management remains committed to the related initiatives and is
conscious about the needs in this regard. A number of social responsibility
projects are continuing. A good working relationship is maintained with the
relevant Unions. Ongoing skills and equity activities continue to ensure
compliance with current legislation.
Plans are also afoot in terms of initiatives embarked upon that will contribute
to broader skills development and sourcing appropriately qualified staff on an
ongoing basis.
RELATED PARTY TRANSACTIONS
The company entered into various related party transactions. These transactions
are no less favourable than those arranged with third parties.
SUBSEQUENT EVENTS
No significant events, except for the NECF transaction referred to under
"Corporate Activity", have occurred in the period between the reporting date and
the date of this report.
OTHER INFORMATION
Further information in relation to recent results and other announcements of
Steinhoff"s listed investments can be obtained from the following websites:
- Unitrans Limited - 22 February 2006 www.unitrans.co.za
- Homestyle Group Plc - 26 January 2006 www.homestylegroup.com
- Amalgamated Appliance Holdings Limited www.amap.co.za
- 8 February 2006
- KAP International Holdings Limited www.kapinternational.com
- Trading update 10 February 2006
On behalf of the Board of Directors
BE Steinhoff MJ Jooste
Executive Chairman Chief Executive Officer
8 March 2006
STEINHOFF INVESTMENT HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1954/001893/06)
(JSE share code: SHFF) ISIN: ZAE 000068367)
(Steinhoff Investments)
Steinhoff Investments is a wholly owned subsidiary of Steinhoff International
Holdings Limited (Steinhoff) except for the 10 million variable rate,
cumulative, non-redeemable, non-participating preference shares with a par value
of 0,1 cent each in the capital of Steinhoff Investments, issued at a premium of
R99,99 per share (the preference shares). The initial tranche of the preference
shares were listed on the JSE Limited on 15 June 2005 and the second tranche
listed in November 2005. Steinhoff Investments holds the entire issued share
capital in the Group"s two principal subsidiaries, Steinhoff Mobel Holdings
Alpha GmbH and Steinhoff Africa Holdings (Proprietary) Limited.
The relevant financial information on Steinhoff and Steinhoff Investments for
the six months ended 31 December 2005 is identical. Accordingly, no consolidated
financial statements for Steinhoff Investments have been prepared in respect of
the six months period under review, but preference shareholders are referred to
the above results of Steinhoff for a full appreciation of the consolidated
results and financial position of Steinhoff Investments.
DECLARATION OF DIVIDEND NUMBER 1 TO PREFERENCE SHAREHOLDERS
The board of Steinhoff Investments has resolved to declare a dividend of 431,507
cents per preference share in respect of the period from 15 June 2005 up to and
including 31 December 2005 (the dividend period), payable on Monday, 24 April
2006, to those preference shareholders recorded in the books of the company at
the close of business on Friday, 21 April 2006. This dividend has been
determined on the basis of 75% of the prime bank overdraft lending rate of ABSA
Bank Limited prevailing over the dividend period, applied to the nominal value
plus premium of R100,00 per preference share, in the aggregate.
The dividend is payable in the currency of South Africa.
Last date to trade cum dividend Wednesday, 12 April 2006
Shares trade ex dividend Thursday, 13 April 2006
Record date Friday, 21 April 2006
Payment date Monday, 24 April 2006
No demateralisation or rematerialisation of preference shares may take place
between Thursday, 13 April 2006 and Friday, 21 April 2006, both dates inclusive.
On Monday 24 April 2006, the preference dividend will be electronically
transferred to the bank accounts of preference shareholders. In all other
instances of certificated holders, cheques dated 24 April 2006 will be posted on
or about that date. Preference shareholders who have demateralised their shares
will have their accounts credited on Monday, 24 April 2006.
On behalf of the Board of Directors
D Konar JHN van der Merwe
Non-executive director Executive director
8 March 2006
Administration
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:
SJ 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*, IM Topping#, DM van der Merwe, JHN van der Merwe
Alternate directors:
SJ Grobler, HJK Ferreira
#British
*German
Non-executive
www.steinhoffinternational.com
Date: 08/03/2006 03:25:39 PM Produced by the JSE SENS Department
