Managing director
Markus Jooste (44) CA(SA)
Group financial officer
Jan van der Merwe (46) CA(SA)
Financial director
Siegmar Schmidt (46) (Accountant General)

Divisional management
German region
Frank Eberle (42) (MD), BBus Admin
Gerrit Venter (32) (FD), CA(SA)
Thomas Schmidt (42) (Marketing)
Thomas Möller (44) (Case Goods)
Michael Miebach (41) (Upholstery)
Uwe Smidt (44) (Logistics)

Hungary
Gabor Wilheim (51) (MD), BSc Eng, HDip Design
Management

Eastern Europe (Poland and Ukraine)
Andreas Bogdanski (43) (MD), Econ (cum laude)

United Kingdom
Homestyle Group plc
Ian Topping (45) (CEO), MA (Eng Sci, Eco), MBA
Tim Kowalski (46) (FD), BSc Econ, FCA
Neil Allen (49) (MD: Furniture division)
Bill Carrahar (42) (MD: Beds division)

Steinhoff
(including manufacturing in The Netherlands)
Ian Topping (45) (chairman), MA (Eng Sci, Eco), MBA
David Shaw (53) (FD)

The Netherlands, Belgium and France
Paul van den Bosch (43) (MD), BEcon, MBA
Theo Prinsen (62) (FD) SPD Accountancy
Danny van den Bosch (41) (New Development)
Bernd Niessen (40) (Logistics and HR), University Logistics
Franz Herman (49) (Purchasing) Nevi purchase/Nima
Marketing

Pacific Rim
Michael Gordon (39) (FD), BAcc, CA(SA), CA(Aus)
Tim Schaafsma (32) (Director, Secretary and Counsel)
LLB, Grad Dip Leg, FCIS, Solicitor
Leo Watling (41) (Retail Director)
Gary Horwitz (41) (Property and Special Projects Director)

Steinhoff International Sourcing
Geoff McIntosh (51) (MD)
Tom Huang (31) CA(SA) (Chief Representative)

Strategic objectives and advantages

The division’s strategic objective is to strengthen its position as one of the leading manufacturers and distributors of quality household goods and furniture retail in the European Union, eastern Europe and the Pacific Rim. To achieve this, we intend to:

• increase our wholesale and distribution business to expand our product offering and enhance the utilisation of capacities
• continue to increase our productivity and operating efficiencies to reduce cost of sales
• increase our vertical integration with investments in the retail sector of the household goods industry
• increase our market share of furniture and household goods sold in the region
• maintain and continue to invest in a low operating cost environment in central and eastern Europe
• increase the intragroup supply of raw materials and components
• increase efficient sourcing from Far East.

The division has several strategic advantages:

• a diverse product range, including successful brands and products at various price points
• strategic relationships with selected and valued retail customers and buying groups
• our centralised warehousing and distribution facilities, which are strategically located, allow us to centrally plan and manage our distribution and logistic needs. It also gives the division greater control over stock levels, providing more efficient services to customers and reduced delivery times
• our market leadership in each of our chosen markets
• a competitive cost advantage by virtue of the location of our manufacturing facilities and sourcing our products in low-cost countries and distribution of products into developed countries
• experienced and proven management teams

Steinhoff Europe consists of a network of trading, manufacturing, retail and distribution operations and comprises a wide range of brands and trade names as set out in the operating structure. The trading companies are situated throughout Europe, the United Kingdom, the Pacific Rim as well as China from where products are sourced, whereas the manufacturing companies are mainly situated in the eastern regions of Germany, Poland, Hungary, Ukraine, the UK and The Netherlands.

Market
Against the background of the world economy, trading conditions in the market which this division serves remain tough. As a result of the strengthening of the euro and difficult local conditions, business failures are expected to continue, providing our group with further opportunities for acquiring market share.

Of significance to the group was the investment towards year end of our interest in Homestyle Group plc, a London-listed retail group. This group provides significant opportunities for our manufacturing and sourcing operations.

The Polish zloty will remain floating against the euro until 2007, albeit within a target range.

Revenue
Revenue from our operations for the year was € 1 137,9 million, increasing 20% from €949,5 million. In rand terms, revenue was R8 999,9 million over the period, increasing 15,4% from R7 799,8 million. The real growth was principally as a result of increased sales volumes in the German region pursuant to market share gains, the growth in the mail order market and the relative weakness of the Polish zloty against the euro which resulted in the pricing of the products produced in Poland becoming more competitive.

Germany, Austria, Switzerland and Scandinavia
We are one of the leading suppliers and distributors of furniture in Germany, Austria, Switzerland and Scandinavia. Our primary customers in the region are large mail order companies, discount mass market retailers and members of independent buying groups. During the year under review, we added dedicated Steinhoff retailers to our customer mix which allows us access to a previously untapped market.

Our main product offering in this region remains case goods and upholstered furniture, and our repositioned product offering and increased upholstered sales mix proved successful in increasing our margins in a period of immense pricing pressures.

Germany has the largest furniture market in Europe, estimated by Market Direkt to be approximately €32,0 billion at retail level for the 2002 calendar year, and has the highest spending per capita on furniture of any country in the world. The German market is highly fragmented with no manufacturer having more than a 5% market share, and we believe our market share to be between 3% and 5% at the manufacturing level. Our existing retail partners in Germany are benefiting from the associated consolidation trend which often prevails in such a fragmented market. We are able to benefit from their market share gains. Although we estimate that the overall furniture retail market in Germany decreased by over 15% during the 2001 calendar year and by 11% during the 2002 calendar year, our sales in Germany, Austria, Switzerland and Scandinavia increased by 20% in euro terms for the eighth consecutive year during 2005.

Given tough market conditions during the year, our German division entered into agreements to purchase the assets and brand names of Hukla Möbelwerke GmbH from the liquidator concerned. Hukla is a well-known brand in Germany and is already exceeding our initial expectations.

We sell furniture in the German region through our various trading companies. One of these companies specialises in case goods sourced from third parties and the others concentrate on sales of our own products sourced principally from Poland. We distribute products to this region either directly from our central and eastern European factories or via our central distribution centres in Germany, including our fully-automated distribution warehousing facility in Westerstede (with a capacity of 63 200 square metres which we plan to renovate in the year ahead) and the distribution centre in Leinefelde. The majority of our sales in Germany, Austria, Switzerland and Scandinavia consists of sales of products produced in our Polish factories.

In the financial year ended 30 June 2005, we restructured the Visita and Schönbrunn production sites and expect to absorb this capacity into our remaining factories in central and eastern Europe. During the year under review, we consolidated two more factories and merged some into the plant acquired at Genegenbach in the south of Germany. We currently have five production facilities in Germany, one of which operates mainly as an assembly plant. In addition, we recently extended our product range to include children’s furniture under the Janosch and Lego brands, in line with our strategy of expanding our product base. We added the Esprit brand to our product collection.

Central and eastern Europe
Our central and eastern European operations consist of our own manufacturing facilities in Poland, Hungary and Ukraine. We also source goods from independent suppliers in this region.

The benefits from our centralised Pacific sourcing and sufficient infrastructure in China paid off, and we are already experiencing growth as a result of the Pacific and China sourcing functions

Our four case goods facilities in Poland produce a wide range of bedroom furniture, wall units, wardrobes and laminated wood products for export into Germany, Austria and Switzerland, in both flat-pack and fully-assembled form, which we sell at both mass market and upmarket price points. Three factories are dedicated to the production of products sold under our Klose brand.

Of our seven upholstered furniture plants in Poland, two currently produce upholstered furniture for German mail order customers and one is focused on the UK market which we have identified as a significant growth opportunity for our Polish and Hungarian operations. Of these, the Ukraine plant also produces furniture for the Russian market.

During the year, we added the French mail order market which grew to expectation. The Hukla brand also provided exposure to French and Spanish markets.

The remaining facilities produce goods for Germany, Austria, Switzerland, Scandinavia and the local Polish market.

We operate two manufacturing facilities in Hungary. One is a mid to upmarket leather upholstered furniture producer that sells approximately 35% of its products within Hungary and exports the remaining 65% to Germany, Austria, Switzerland, the Benelux countries and the United Kingdom. Our other Hungarian facility is a chair factory specialising in leather diningroom chairs, most of which are exported and sold in Germany, Austria and Switzerland. Products are distributed and sold into the local market through our retail operations, Quattro Mobili and Andante. We have undertaken our own retail operations in Hungary due to the absence of existing independent retail distribution channels for our products there.

We have one production facility in Ukraine which started production in 2001. This facility produces upholstered furniture predominantly for the local Ukrainian market as well as for export to Russia. However, the facility also produces components for our Hungarian leather upholstered furniture plant. As our Ukrainian operations develop, we intend to export more of these products into western Europe. Production costs in Ukraine are the lowest among our European operations and we are seeking to expand our manufacturing operations in Ukraine to further benefit from these cost savings. To help achieve this goal, we recently increased our investment to make it a wholly owned subsidiary.

We have been sourcing high-quality timber from Russia since the early 1990s. We continue to investigate the possibility of relocating certain of our timber operations in Poland to Russia in line with our drive to improve efficiency and reduce transportation costs.

The Netherlands, Belgium and France
In The Netherlands, we have held a 50% interest in Van den Bosch Beheer BV, a joint venture with the Van den Bosch family, since 1991. The group sells a wide range of household goods to retailers in The Netherlands, Belgium, Luxembourg and Germany. The joint venture does not conduct manufacturing operations.

We sell, among other brands, Habufa branded products, comprising a range of rattan, antique reproduction and upholstered furniture. We implemented a new lifestyle ‘Shop in Shop’ concept in our European market under the Henders & Hazel trading name. The products are presented as a modular concept with a combination of living rooms and specialist displays designed as part of a ‘furniture fashion’ concept. We have 40 dedicated retailers which hold the exclusive rights to this concept in Belgium, The Netherlands and Germany. We intend to add a further 70 stores. These products are sourced from a wide range of producers globally, including our own group companies in central and eastern Europe and southern Africa as well as independent third-party suppliers.

The majority of Steinhoff Europe’s revenue is generated from products produced in Poland

Our acquisition of UK bedding producer Relyon in October 2001 included Norma, a leading upmarket bedding manufacturer in The Netherlands. We believe synergies exist in the bedding market between Norma and Hukla mattresses. We have also completed construction of a new distribution centre in Holland to efficiently accommodate a planned increase in activities there.

During 2005 we increased our penetration in the French market. However, we continue to view this market as an opportunity for growth and will seek to expand this market in the medium term. The acquisition of the Hukla assets has assisted in this regard. The informal supply arrangements with a leading French retailer for the supply of products manufactured at our facilities in Poland, where the retailer has recently established a purchasing office, paid off with volumes growing.

United Kingdom
In October 2001, we acquired Relyon plc, a major UK upmarket bedding brand manufacturer. Relyon has four UK manufacturing facilities which produce Relyon-branded bedding and non-branded bedding. Relyon's manufacturing facility in The Netherlands designs and manufactures bedding products under the Norma brand, one of the leading brands of bedding products in The Netherlands.

The acquisition of Relyon added a dimension to Steinhoff Europe’s manufacturing activities in terms of geographic reach and diversification. We believe that Relyon's product ranges and markets are complementary to our existing product offerings and areas of operation.

Pritex, a division of Relyon in the United Kingdom, is a foam-converting facility supplying the furniture, automotive, aviation and other industries.

Steinhoff UK furniture sources furniture both from the Polish and South African production sites, and the Steinhoff representative office in China. This business, through its convenient location in Tewkesbury, is now well established and improving margins, and reducing overheads, through its ‘direct ship’ offering which imports and delivers full containers directly to the customer warehouse.

In October 2003, we acquired the bedding manufacturer, Sprung Slumber, from Airsprung Furniture Group plc. Sprung Slumber trades in the midrange of the UK beds market and its products, which are complementary to Relyon's products, are sold under the Sprung Slumber and Enchanted House brands.

Homestyle
In June 2005, Steinhoff Europe acquired 60,8% of Homestyle’s issued share capital, pursuant to a subscription for 157,6 million shares in Homestyle at 55 pence per share and through a series of placements of shares for cash underwritten by Steinhoff Europe. As the investment was only concluded shortly before year end, none of Homestyle’s results were included in our results, although the balance sheet was consolidated.

Homestyle enjoys leading positions in each of the home-related markets in which it operates, through strong high-street brands including Harveys and Bensons. The group’s aim is to maximise shareholder value by improving the profitability of its retail businesses.

Refinancing and benefits
Reducing debt was a key priority this year. After exploring a number of options to achieve this, including the possible sale of the beds division, Homestyle considered refinancing the business to be the most attractive option and its shareholders overwhelmingly passed all resolutions associated with this. The financing, by way of an open offer and placing of 191 million shares at 55 pence per share, raised a net GBP100 million for the company. This has enabled Homestyle to remain intact, return the balance sheet to a net asset position, eliminate debt, settle its outstanding dispute with HM Customs & Excise and begin to realise commercial benefits from the strategic investment by Steinhoff Europe. Our dealings with Homestyle are governed by an arm’s-length relationship agreement and we are confident that our manufacturing, sourcing and logistics expertise and capabilities will prove invaluable to its development over the longer term.

Financials
Turnover on continuing Homestyle businesses for the 52 weeks to 30 April 2005 increased by 20% to GBP453,6 million
(2004: 53 weeks GBP379,5 million). Total sales for the prior year were GBP588,7 million, which included a full-year contribution from Rosebys (the home textiles business disposed of in May 2004) of GBP201,5 million. In comparison, total sales from textiles this year were GBP11,4 million.

Operating profit before exceptional items and goodwill amortisation was GBP15,6 million (2004: GBP18,3 million). The net interest charge before exceptional charges for the period including pension finance costs was GBP4,5 million
(2004: GBP6,6 million).

Earnings per share adjusted for exceptional items and goodwill amortisation were 11,3 pence (2004: 12,4 pence).

During the year, there was an overall pre-financing cash inflow of GBP16,5 million versus a cash inflow last year of
GBP20,7 million, reducing net debt from GBP85,6 million at 1 May 2004 to GBP70,2 million at 30 April 2005 being year end. Since the year end, there was a net cash injection of a further GBP100 million from the refinancing and consequently the group is free of bank debt with a committed debt facility of GBP20,0 million from Steinhoff Europe AG on a commercial basis. After adjusting the net liability balance sheet position of GBP15,2 million at 30 April 2005 for the net proceeds from the refinancing of GBP100 million in June 2005, the group has pro-forma net assets of GBP84,8 million (2004: May GBP13,2 million).

Furniture division
The furniture division trades under the Harveys brand and operates from 177 locations across the UK. Now that the refinancing is complete, management is fully committed and focused on driving Harvey’s performance by differentiating the in-store environment and product offer.

Total sales in the year were GBP253,5 million (2004: GBP223,6 million excluding textile sales), despite a 12% reduction in space, following the transfer of beds-related space to the beds division. Operating profit before interest, exceptional items, goodwill amortisation and tax was GBP1,0 million (2004: GBP2,0 million).

The newly-strengthened management team implemented a number of trading initiatives to improve the performance of the business. A renewed emphasis on retail disciplines to enhance the presentation of the offer and improved in-store marketing has established the foundations for long-term recovery. Positive momentum has now been quickly re-established following the refinancing. The key element of this is a cost-effective store refurbishment programme that is being rolled out. The refurbished stores will include a more subtle lifestyle-orientated point of sale, expanded room sets – particularly bedroom ranges – simpler ranging, voiles to soften and better articulate the in-store environment, as well as promotional ‘feature’ bays to excite customers and drive aspirational purchases. The initial customer response has been positive and management will be evaluating performance at selected trial stores to refine this new approach.

Beds division
The beds division operates from 436 (2004: 396) outlets through three formats: Bensons for Beds (274), Sleepmasters (121) and The Bed Shed (41). It has achieved another strong performance this year, building on its position as the UK’s leading bed specialist. Total sales increased by 33% to GBP200,1 million (2004: GBP150,3 million), largely attributable to the additional space transferred to the business from Harveys. Operating profit for the year was GBP14,1 million (2004: GBP13,5 million).

In terms of space, the beds division has increased by 25% this year, and this has resulted in an increase in overall costs, as well as having to open two new warehouses in Thurrock and Gillingham, to support increased volumes.

The focus on product innovation and re-engineering products continues to drive sales, as well as helping to offset considerable rises in raw material costs. A great deal of emphasis continues to be placed on customer service through a series of regular training seminars. Promotions were significantly keener this year, with sales being extended and advertised extensively through local media.

Although the performance of the division was encouraging during the year, consumer spending on ‘big ticket’ household items has slowed and this has impacted trading.

Outlook
As recently widely published, trading UK home-related markets has been highly competitive and consumer confidence weak. However, current tough trading conditions are also presenting opportunities to the group in consolidation trends that are prevalent in its markets.

Following the refinancing, management now has a strong balance sheet which has enabled it to keep the group intact, eliminate debt, improve competitiveness, and begin to realise the commercial benefits from the strategic relationship with the Steinhoff group.

We expect to continue to seek opportunities to expand our presence in the UK bedding and furniture market, through organic growth and by acquisition.

Further information regarding Homestyle may be obtained from its annual report 2005 or on its website www.homestylegroup.com.

Pacific Rim
In 1 October 2001, we formed a joint venture, Steinhoff Pacific, which acquired the manufacturing operations of Australian retailer Freedom Group Limited and combined them with our Australian operations. We have concluded a comprehensive supply and strategic alliance agreement with Freedom, the second-largest retailer of furniture and household goods in Australia. Steinhoff Pacific’s operations include Freedom group’s manufacturing facilities in Sydney and Auckland, as well as Marshall Furniture, one of the largest case goods manufacturers in Australia, which we acquired prior to the formation of the venture, and our pre-existing sofa manufacturing facilities in Adelaide. We have merged the Marshall operations with Nexus, a solid case goods manufacturer located in Victor Harbour.

In December 2003, the privatisation of Freedom group was sanctioned and implemented. Our division supported management in the buyout and simultaneously increased our total investment in imports, sourcing and distribution in the Pacific Rim with AUD115 million.

Freedom increased operations in New Zealand through the acquisition of the Levene stores during the previous financial year.

Retail conditions were extremely tough during the year under review with a significant decline in consumer confidence caused by macro-economic effects including a stalling of the housing boom, escalating fuel prices, interest rate increases and record high levels of consumer debt. The trading conditions led to the collapse of a number of retailers and have resulted in high level price discounting in the furniture and homeware markets and other retail sectors.

The forthcoming financial year will again present challenging conditions in Australia and New Zealand, particularly should the negative conditions experienced in the previous year continue. It is the overall aim of the businesses in the division to grow sales by increasing market share and profit by capping overhead cost increases. During May 2005, we commenced operation of the LivingRoom concept at the existing Guest location in Balgowlah and Norwest, New South Wales. LivingRoom is a retail outlet predominantly focused on leather furniture, which we plan to promote as Leather Republic. Through these concepts we have an opportunity to establish a significant presence in the leather furniture market and replace the Guest division with a more profitable division.

The most significant project for the forthcoming financial year is Project Renew. A comprehensive strategic review of the Freedom brand was conducted, leading to a range of actions, some of which are currently being implemented. We expect to see an improvement in retail sales as a result of the planned changes. We have further restructured the businesses so that each retail brand operates individually, focusing on maximising sales and profit.

We view our partnership with Freedom group as an excellent growth opportunity for Steinhoff Pacific in the region and seek to expand the range of manufacturing and distribution activities we conduct in partnership with Freedom group. We intend to increase substantially the supply of Steinhoff Pacific furniture sold to Freedom group over the next several years, and to expand our product ranges in sofas, lounge suites, metal and timber case goods. With tough trading conditions, comes the potential for appropriate acquisitions of retail and manufacturing businesses. The division continues to identify and evaluate acquisition growth opportunities in Australia and elsewhere. We also intend to investigate opportunities to expand into bedding and motion furniture.

China
Our German division initiated opening a representative office in Shenzhen, China to source products efficiently. This office also draws on the sourcing experience of Habufa and Freedom. During the year, we established our Steinhoff International sourcing division which supports sourcing products for each division and territory where we operate, at competitive prices with quality review and planning.

Focus on product innovation and re-engineering products continues to drive sales