Pep, Ackermans drive Steinhoff Africa's star results

Johannesburg - JSE newcomer Steinhoff Africa Retail (STAR) [JSE:SRR] delivered strong results on the back of solid performances by Pep and Ackermans.

The retailer’s stock price on Monday rose nearly 5% on the results, which saw its revenue raise by 13.2%. It however, gave up most of the gains to trade 0.74% firmer at R25.90 by 12:41 on the JSE.

This was STAR's maiden release of its results, after listing on the Johannesburg Stock Exchange (JSE) in September.

STAR is South Africa’s largest non-grocery retailer. Its inaugural annual results announced on Monday was for the financial year ended 30 September 2017.

The results confirmed good growth momentum and underscore resilient market positioning, Steinhoff said.

The retailers projected revenue increased by 13.2% to R58.6bn and the projected operating profit before capital items increased by 25.2% to R6.1bn.

Steinhoff expected cash generated from operations to be R6.5bn.

A continued focus on price leadership and value offerings across its brand and its expanding store footprint drove market share gains in major retail brands, the company said.

STAR's listing in September resulted in a placement of 800 million shares (23.19% of share capital) at R20.50 per share, raising R16.4bn.

Pep and Ackermans

Its operating margin increased by 100 basis points to 10.4%, with Pep and Ackermans being the main contributors to group operating profit growth. Star's continued focus on lowering the cost of doing business while leveraging the expansive store network through complementary product and service offerings, further underscored margin improvements.  

“Steinhoff Africa’s maiden results and the growth achieved within a particularly challenging consumer environment, are most encouraging”, said chief executive officer Ben la Grange.

“Our strategic discount and value proposition and ongoing store roll-outs have enhanced the group’s ability to provide our customer better access to affordable products and services, resulting in continued growth momentum for STAR. Maintaining a low cost of doing business is always a core focus area within all our retail brands.”

The acquisition of Tekkie Town during the year saw an additional 308 stores being incorporated into the group.

The retailer’s total store network further expanded with 272 net store openings, resulting in a total store footprint of 4 953 stores covering 2.3 million square metres at 30 September 2017.  Trading space increased by 5% for the year.  

STAR's operations are made up of two segments, namely ‘Discount and value’ and ‘Speciality'.  

The discount and value segment, which includes the Pep, Ackermans, Flash, Russells, Bradlows, Rochester and Poco brands, generated revenue of R44.1bn from a total footprint of 3 679 stores and strengthened operating margin.

Revenue in Pep and Ackermans, which comprise 85% of this segment’s revenue, increased by 6.5% on a comparable like-for-like basis, the company reported.

Within product categories, kids’ wear and cellular delivered the stand-out performances, it said.

Its speciality division, which includes the do-it-yourself gear, building materials, electronics and appliances brands, contributed approximately 25% to the group revenue.

La Grange said it was the group’s bargain offers that were delivering the goods. “We believe our more affordable offering resonates well with the current consumer environment, and this will ensure that our positive sales momentum continues,” he said.

Shoprite options

Steinhoff also said that it had exercised call options whereby it will indirectly acquire 128.2 million Shoprite [JSE:SHP] ordinary shares from various parties.

“The required regulatory approvals will now have to follow before the call options will be implemented, and this is expected to be finalised around mid-2018”, said la Grange.  

“Once implemented, STAR will indirectly acquire a 23.1% economic interest in Shoprite and 50.6% voting control.

"A strategic investment in a leading African food and grocery retailer will support STAR’s ability to further enhance its relevance to the growing African consumer base, and better protect its ability to compete against international retailers.”

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