GENERAL OPERATIONAL PERFORMANCE REVIEW
The results for the period under review were achieved in a year which saw the continued implementation of various strategic initiatives that position the group to perform in years to come. The business model of geographically spread operations, accompanied by vertically integrated supply chain participation, remains effective and provides the platform for increasing market share and delivering sustainable earnings growth. Our competitive position has continued to benefit from our strategy to acquire and own important brands, our ability to secure product from our own and third-party production facilities, expanding our retail alliances and the consolidation brought about by the exit of major competitors in certain regions.

In some ways, it was a demanding year with the rate of growth of many economies across the world slowing and several of our key markets being affected by various macro-economic factors that resulted in reduced consumer spending. However, the strength that our group derives from the international spread of its operations was again emphasised and the potential for growth is evident. The group has again demonstrated its capabilities to increase market share despite tough market conditions.The year was also one of important strategic development and investment in the future. In the United Kingdom and Australia, following an exhaustive review, our manage-ment teams have implemented a focused action plan to revitalise the brands used by these businesses.

The European division performed well, and benefited from increased intra-group trading, especially its supply to our retail operations in the United Kingdom, and the sound performances of our retail-related investments on the continent. The liquidation of two major competitors in the German region and our subsequent increased orderbooks augur well for the future. As a result, the group’s position as a supplier of choice in terms of reliable appropriate products, financial strength and substance has been further entrenched. The variety of Steinhoff’s product and price ranges and its ability to provide customers with exclusivity arrangements, as well as sourcing capabilities and flexibility, supplemented by own manufactured products, remains a distinct competitive advantage. 

The Eastern European mail order and mass market division showed good growth, although profitability of the Polish operations was adversely affected by the strength of the zloty relative to the euro in the latter half of the year as well as the migration of labour from Poland. The Hungarian operations had another satisfying year and retail activities have been aggressively expanded to a point where approximately 50% of sales distributed through the group’s own retail network in Hungary was own-manufactured product. Production capacities in the Ukraine will be increased and will continue to be dedicated as low-cost producers for the group’s mass market retail partners in the German region. 

The roll-out of the retail studio concepts of Esprit and Henders & Hazel continues as planned. The Henders & Hazel concept has proven a most successful brand and sales development tool, and is expected to contribute significantly to profitability in the future. The group also recorded substantial sales growth in countries surrounding Germany and Austria, resulting in an increased level of sales and customer diversity, as well as an enhanced geographical spread of business.