STEINHOFF INTERNATIONAL
PROPOSED ACQUISITION OF PEPKOR HOLDINGS
25 NOVEMBER 2014
THE CREATION OF A LEADING GLOBAL DISCOUNT RETAIL PLATFORM
Presenters
Markus Jooste
Chief Executive Officer of Steinhoff International (“Steinhoff” or the “Company”)
Joined Steinhoff in 1988
Pieter Erasmus
Chief Executive Officer of Pepkor Holdings (“Pepkor”)
Joined Pepkor in 1998
1
Agenda
1
Salient Terms of the Acquisition
2
Pepkor Overview
3
Steinhoff & Pepkor – Strategic Rationale
4
Key Transaction Terms and Timetable Overview
5
Q&A
2
SALIENT TERMS OF THE ACQUISITION
MARKUS JOOSTE, CEO - STEINHOFF
3
Salient Terms of the Acquisition
›
Steinhoff to acquire 92.34% of the share capital of Pepkor from the Wiese group, Brait Mauritius Limited
(“Brait”) and Pepkor management
−
−
›
Purchase consideration of R62.8 billion
Values 100% of the share capital of Pepkor at R68.0 billion
Purchase consideration to be settled through the issue of 839 million new Steinhoff shares at R57 per share
and R15 billion cash
−
−
Dr Wiese will receive all new shares whilst Brait will receive a combination of new shares and cash
Steinhoff will fund the cash portion of the purchase consideration from existing cash reserves
›
Pepkor management will hold approximately 7.7% of the share capital of Pepkor and will be invested in
another 2.8% of Steinhoff shares
›
Pooling arrangements between the Wiese group, Steinhoff shareholders (including the Steinhoff family and
Brait) and Steinhoff and Pepkor management, together holding more than 35% of the share capital of Steinhoff,
subject to the requisite regulatory and shareholder approvals, coupled to pre-emptive rights
›
Proposed transaction subject to shareholder, regulatory approvals and consents – 50% of the share capital
indicated their support for the acquisition
›
›
Expected completion by the end of Q1 2015
No impact on plans for primary listing in Frankfurt, expected in Q2 2015
4
Steinhoff & Pepkor - a Leading Global Discount Retailer
›
Combined PF 2014 Annual Sales in excess of R156bn (€11.27bn) generating Annual EBITDA of R19bn
(€1.35bn)
›
Global Footprint of 6,000+ stores accessing close to 1 billion customers across the globe
›
Brands and retail formats tailored to local market conditions and customer needs
›
Diversified and complementary product range providing an attractive mix of cyclical and defensive high-growth
retail categories
›
Enhanced growth profile through operational efficiencies and accelerated top-line growth
›
Developed market retail revenue stream supplemented by meaningful emerging market consumer exposure
›
Substantial buying power and economies of scale provides distinct supply chain cost advantages
›
Strong balance sheet to capitalise on future opportunities
›
Management team of highly experienced international retailers with proven track records
−
Dr Wiese and Pieter Erasmus to join Steinhoff International’s executive committee
Source: Company filings. Note: Sales, EBITDA and cash flow figures based on FY2014 reported figures. ZAR converted to EUR at a rate of 13.84
5
Steinhoff & Pepkor - Household Names in Value Discount Retail
Steinhoff Retail International
Pepkor
Steinhoff Retail Africa
6
Steinhoff & Pepkor - Significant Sales and EBIT Growth Potential
›
›
International will represent 67% of Annual Sales and 74% of Annual EBIT
Africa will represent 33% of Annual Sales and 26% of Annual EBIT
Revenue to increase by 33%
R’(bn)
Revenue
(R'bn)
83.9
EBIT (R'bn)
9.0
30.6
1.2
2.9
38.6
2.7
3.2
R156.0bn
(€11.3bn)
R16.1bn
(€1.2bn)
38.6
156.0
Pepkor
Combined
117.4
Steinhoff
EBIT to increase by 25%
R’(bn)
3.2
16.1
Pepkor
Combined
12.9
Stores (#)
1 097
1 224
3 742
International Retail
African Retail
International Properties
Pepkor
6,063
Steinhoff
Source: Company filings as of FY2014. ZAR converted to Euro at a rate of 13.84. Note: Figures represent actual reported FY2014 figures as combined. International Retail includes International operations,
manufacturing sourcing, logistics and corporate services. African Retail includes African operations, manufacturing sourcing, logistics and corporate services. Pepkor revenue includes other operating income of R400m.
7
Steinhoff & Pepkor – a Leader Amongst European Discount Retailers
Top European Non-Food Retailers by Revenue (€ billion)
46.3
Discounters
Apparel / Department Store
28.5
General Retailers
DIY / Household Goods
17.6
Cellular / Electronics
16.7 16.3 16.2
14.3 13.9
13.4 12.9
11.8 11.3
10.0 9.7
8.5 8.0
7.8 7.5 7.2
7.1
CCC
Gerry Weber
Dunelm
LPP
Halfords
Howdens
Poundland
Nobia
1.6 1.3 1.2 1.2 1.2 1.0
0.9 0.9 0.4
B&M
OJSC Company M.Video
Pepkor
Debenhams
Praktiker
Hornbach-Baumarkt
Groupe Vivarte
Karstadt Warenhaus
Dixons Carphone
3.4 3.2 3.2 3.2 3.2 3.0 2.9 2.8
2.6
Sports Direct
Bauhaus
Darty
Deichmann
Next
Home Retail Group
Reitan Group
Dansk Supermarked
Tengelmann Group
NorgesGruppen
Steinhoff
Kering
DIA
Combined Entity
Jeronimo Martins
Marks & Spencer
X5 Retail Group
Kingfisher
El Corte Ingles
H&M
Groupe Adeo
Inditex
Makro SHV Holdings
IKEA
Metro
4.7 4.6 4.5 4.4
Source: Company filings, Factset and industry research. Note: Figures are for the last reported period for the companies listed.
8
PEPKOR OVERVIEW
PIETER ERASMUS, CEO - PEPKOR
9
Pepkor Overview
›
Established in 1965, Pepkor is a leading South African based retailer selling mainly clothing, footwear,
household goods, personal accessories, cellular products and providing financial services
›
Pepkor serves discount and value-focused cash consumers in the higher growth LSM 1-6 segment
37%(1)
Household Goods
& Personal
Accessories
12 main retail brands
16 countries on 3 continents
(553 Stores)
2014 revenue: R38.2bn (€2.8bn)
2014 EBITDA: R4.0bn (€0.3bn)
+102
3,742 stores across 1.7 million m2
c.32,000 employees
Footwear and
Clothing
Cellular
50%(1)
13%(1)
Speciality
2%
(92 Stores)
+173
(84 Stores)
Value
39%
Discount
59%
(12 Stores)
(436 Stores)
+64
(58 Stores)
(13 Stores)
(253 Stores)
(50 Stores)
(6 Stores)
(196 Stores)
(1,883 Stores)
Revenue Split by Operating Segment
+#
(50 Stores)
(64 Stores)
Number of stores added in each region in FY2014
Retail related businesses include: Clothing factory (SA), sourcing offices in China, a cellular wholesale distributor (SA) and a wholesale business (Australia). (1) Contribution to revenue.
10
Pepkor Brand Portfolio Overview
DISCOUNT: Pep Group – South Africa, Rest of Africa
Number of stores
Product Range
Number of Employees
1,933
Discount Clothing, Footwear, House
wares, Clothing Accessories, Cellular
Airtime
16,115
Average Store Size (m2)
387
Average 2014 Store Sales (Rm)
9.6
DISCOUNT INFORMAL SECTOR– South Africa
Cellular distribution company
Number of stores
Product Range
Flash outlets serviced
63 558 outlets
Airtime, Electricity, Bill payments
13 154
11
Pepkor Brand Portfolio Overview
VALUE: Ackermans – South Africa
Number of stores
Product Range
Number of Employees
436
Clothing, Footwear, House wares,
Clothing Accessories, Cellular
5,415
Average Store Size (m2)
738
Average 2014 Store Sales (Rm)
14.0
12
Pepkor Brand Portfolio Overview
DISCOUNT: Pepco – Poland, Slovakia, Czech Republic
Number of stores
Product Range
Number of Employees
553
Discount Clothing, Footwear, House
wares, Clothing Accessories, Cellular
Airtime
4,386
Average Store Size (m2)
328
Average 2014 Store Sales (Rm)
6.3
13
Pepkor Brand Portfolio Overview
SPECIALITY: SA Speciality Retail – South Africa, Rest of Africa
Number of stores
Product Range
Number of Employees
479
Clothing, Footwear, Clothing Accessories,
Cellular, Insurance
2,508
Average Store Size (m2)
276
Average 2014 Store Sales (Rm)
2.1
VALUE: Pepkor South East Asia – Australia, New Zealand
Number of stores
Product Range
341
Clothing, Footwear, House wares
Number of Employees
4,251
Average Store Size (m2)
1,015
Average 2014 Store Sales (Rm)
24.6
14
Pepkor – Key Business Attractions
1
Strong Market
Positioning
2
›
›
›
›
Highly recognisable brands, including Pep, Africa’s largest retailer
›
Operates in high-growth, value-orientated market segment (LSM 1-6), providing goods to the lower-end consumers
while looking to move up the value chain, potentially disrupting established players
›
Highly cash generative sales model with limited credit sales – average cash sales over past 3 financial years:
Robust Operating
Model
3
Strong multinational footprint, operating in 16 countries across 3 continents
Excellent track-record of mid-teens sales growth
– pre-capex: 99% of EBITDA
– post-capex: 69% of EBITDA
›
›
Allows rapid growth to be self-funded – no pressure on Pepkor’s balance sheet
›
Multi-brand strategy focused on discount and value-focused market segments in Southern Africa, Eastern Europe and
Australia
›
›
Future expansion into Eastern Europe, Western Europe and Africa
Clear Strategy
4
Pepco #1 non-food retailer in Poland and one of the fastest growing in Eastern Europe
Stable Southern African operations provide a solid foundation for its international expansion
Significant further growth potential in existing and new markets
– Successful growth track-record in Eastern Europe with substantial future growth potential
Pepkor Growth
Opportunity
– Poised to embark on expansion into Western Europe
– Well-positioned for further expansion in Africa
– Established Australian platform, currently undergoing a 3-year turnaround plan
5
Experienced
Management Team
›
Highly experienced management team, with interests aligned to shareholders
Source: Company filings
15
STEINHOFF & PEPKOR
MARKUS JOOSTE, CEO - STEINHOFF
16
Discount Retailing Trends Provide Attractive Market Opportunity
Steinhoff to Further Benefit from Recent Discount Retailing Trends
›
›
›
›
›
›
›
Weak macro-economics have resulted in a discretionary income decline since 2008
The discount retail market has benefited from the “flight to value” trend
Most noticeable impact has been among less affluent customers, but customers across the spectrum are “trading down”
Shopping at discount retailers has also recently become more socially acceptable, given improved variety and quality
Responding to increased demand, discount retailers have expanded operations through new store openings
The discount retail sector is continuing to gain market share
The discount supply chain provides distinct cost advantages and is supported by scale efficiencies
Last 10 Years CAGR by Market
Over last 10 years the Discount segment has grown significantly faster than the broader market(1)
Sub-Saharan Africa
Eastern Europe
Western Europe
42%
40%
Discount Segment
36%
34%
Total Retail Market
27%
22%
21%
21%
18%
14%
12%
10%
9%
8%
13%
9%
11%
8%
9%
8%
Mozambique
Botswana
Lesotho
Angola
South Africa
Namibia
Poland
Czech
Republic
8%
5%
3%
Zambia
8%
Slovakia
3%
UK
1%
Italy
2%
Netherlands
4%
0%
Spain
3%
2%
France
1%
Germany
Source: Planet Retail. Note: Discount retail data is aggregated for the three discount retail segments (Discount Stores, Discount Superstores and Discount Variety Stores) reported by Planet Retail. (1) Last 5 years CAGR used where 10 year data
unavailable.
17
Discount Retailing Trends Provide Attractive Market Opportunity (Cont’d)
Underlying Consumer Trends Show there is a Growing Position for Discounters within the Market which will
continue after the Economic Recovery, due to:
1. Continued roll-out of discount retailers providing greater access to the consumer
2. Increasing transparency (especially online) across retailers’ prices allowing consumers to bargain hunt more
effectively
3. Increased transaction volumes and basket spend as the discount channel is increasingly accepted as a
complementary shopping channel
4. Strong support from FMCG companies and other non-grocery suppliers
Discount Retail Sector Market Share
Discount’s share of the overall retail market in each of Steinhoff’s growth markets continues to increase
8.0%
0.5%
10.0%
0.4%
8.0%
0.3%
6.0%
0.2%
4.0%
0.1%
2.0%
7.0%
6.0%
5.0%
0.0%
0.0%
2002
2004
2006
2008
2010
Sub-Saharan Africa
2012 2013
4.0%
2002
2004
2006
2008
Eastern Europe
2010
2012 2013
2002
2004
2006
2008
2010
2012 2013
Western Europe
Source: Planet Retail. Note: Sub-Saharan Africa includes Angola, Botswana, Zambia, South Africa, Namibia, Mozambique and Lesotho; Eastern Europe includes Poland, Slovakia and Czech Republic; Western Europe includes France, Germany, Italy,
Netherlands, Spain and the UK.
18
With Over 6,000 Stores the Combined Group is Strongly Positioned to
Take Advantage of the Market Opportunity
+6,000 stores (4.7m sqm), Generating Net Revenue of >R150 billion (€11 billion)
Combined Group Retail Presence
Combined Group Manufacturing and
Sourcing Presence
Europe:
1,514 Stores
c.2.3 million m2
Asia:
Factories and Sourcing Offices
Rest of Africa:
230 Stores
c.87,000m2
South Africa(1):
3,842 Stores
c.1.8 million m2
Australia:
477 Stores
c.549,000m2
Note: (1) Includes Botswana, Lesotho, Namibia and Swaziland.
19
Strategic Rationale Aligned with Steinhoff’s Competitive Strengths
Steinhoff’s Key Competitive Strengths
Pepkor Acquisition Alignment
1
Largest household goods and furniture retailer
in Europe
›
Expand footprint and product offering in the growing value discount market sector
2
Strong recognition of multiple locally-positioned
brands
›
Pepkor’s multi-brand strategy of 12 main retail brands in 3 operating regions fits with
Steinhoff’s own multi-brand retail strategy
Specialist in household goods and furniture
products
›
3
Expansion of Steinhoff’s retail footprint to include apparel, footwear and cellular
phones, yet the focus remains on the same value-focused, mass-market consumer
demographic
4
Leverage benefits associated with a vertically
integrated supply chain
›
Benefit from greater efficiencies and savings from supply chain
5
Continued
market
consolidation
through
›
Further consolidate its operating markets via M&A
6
Strong record of profitable growth and cash
generation
›
Strengthens Steinhoff’s growth and creates solid underpin to cash flow profile
7
Significant growth potential
›
Combined group will have an enhanced growth profile through operational
efficiencies and acceleration of Pepkor’s European expansion
›
8
Highly experienced management teams
Pepkor’s highly experienced discount-focused management team adds additional
management expertise and bench-strength to Steinhoff
- Dr. Wiese and Pieter Erasmus to join Steinhoff International’s executive committee
share
gains
20
Pepkor Enhances Steinhoff’s growth trajectory
1
Further
Accelerate
Growth Across
Europe
Complementary discount retail footprints and opportunity to leverage Steinhoff’s decades
worth of experience in multiple European markets
›
Profitable expansion of the Pepco business model within Steinhoff’s existing European
discount formats, thereby:
› Diversifying product mix with faster moving, less cyclical products
› Increasing per square metre sales densities on existing overhead base
›
2
Leverage off
Steinhoff’s
Property
Portfolio
3
›
Significant
Synergy
Potential
Expanding Pepco’s standalone store network within Steinhoff’s owned property portfolio
− Potentially increasing utilisation and property yields
− Enhancing operating leverage
›
Steinhoff’s large European property portfolio provides an ideal platform for Pepco’s
expansion
›
Combined supply chain and logistics functions, increasing profitability
− Greater buying power and economies of scale
›
Substantial operational and supply chain overlap and cost saving opportunities in:
− Eastern Europe, Australia and Africa
4
Combined
Marketing
Opportunities
›
›
Re-branding opportunities of existing trading formats
− Optimising South African store footprint and network
Increasing omni-channel initiatives
− Potential to deliver seamless consumer experiences across all retail channels
21
KEY TRANSACTION TERMS AND TIMETABLE OVERVIEW
MARKUS JOOSTE, CEO - STEINHOFF
22
Key Offer Terms & Transaction Details
Stake
Selling
Shareholders
Purchase
Consideration
Settlement
Funding
Pooling
arrangement
Management
Shareholder
Approvals
Regulatory
Approvals
Other
Conditions
Precedent
›
›
92.34% of Pepkor
›
›
Brait, holding an effective 37.06% in Pepkor
›
Total purchase consideration of R62.8bn
›
›
Dr Wiese to be settled via the issue of 609.1m new Steinhoff shares at R57 per share translating to total consideration of R34.7bn
›
›
›
Pepkor management to be settled via the issue of 29.9m new Steinhoff shares at R57 per share translating to total consideration of R1.7bn
›
Pepkor management holding approximately 7.7% of the share capital of Pepkor and will be invested in another 2.8% of Steinhoff shares
›
›
›
›
›
›
›
›
Related party transaction per Companies Act requires >75% by number of votes, present and voting(1)
Titan Premier Investments Pty (Ltd) (“Premier”) and Thibault Square Financial Services (Pty) Ltd (“Thibault”) together hold an effective interest
of 52.47% in Pepkor. Dr Christo Wiese is a beneficiary of a family trust which is the ultimate controlling shareholder in Titan and Thibault
Pepkor management holding a direct interest of 2.81% in Pepkor
Brait to be settled via the issue of 200m new Steinhoff shares at R57 per share and a cash consideration of R15bn translating to a total
consideration of R26.4bn
R15bn of cash for Brait funded from its existing cash resources and debt facilities
The directors (including the Wiese family that already owns ±46m shares) Pepkor and Steinhoff management and other Steinhoff shareholders
(including Brait and the Steinhoff family) will collectively hold in excess of 35% of Steinhoff and will enter pooling arrangements, subject to
requisite regulatory and shareholder approvals, coupled to pre-emptive rights
Approval of Voting Pool waiver by requisite majority (50% + 1) of independent Steinhoff shareholders
JSE, TRP & Relevant Competition Authorities
TRP exemption required from the obligation to make a Mandatory Offer
Conclusion of the Voting Pool agreement
Favourable fairness opinion
JSE granting a listing of the 839m new Steinhoff shares in lieu of the proposed transaction
Other conditions precedent customary for a transaction of this nature
Note: (1) Companies Act shareholder vote requirement supersedes the JSE’s Cat 1 related party vote approval threshold of 50%.
23
Indicative Timetable – Proposed Transaction and Frankfurt Listing
Transaction Terms Announcement
Steinhoff AGM
Posting of Proposed Transaction Circular to Steinhoff / Brait Shareholders
Steinhoff / Brait General Meeting to approve Proposed Transaction
25 November 2014
2 December 2014
by 15 December 2014
January 2015
Condition Precedent Fulfilment, Steinhoff Finalisation Announcement and Settlement of
Purchase Consideration
March 2015
Announcement and Posting of Scheme Circular regarding Frankfurt Listing
March 2015
Steinhoff General Meeting to approve Scheme
Q2 2015
Implementation of Scheme and Finalisation Announcement for FSE Listing
Q2 2015
Listing of HoldCo AG on the FSE
Q2 2015
24
THANK YOU
25
APPENDIX
26
Overview of Standalone and Pro forma Financials
Steinhoff Standalone
FY 14A Sales (Geography)
Pepkor
3%
Steinhoff + Pepkor
8%
9%
26%
21%
Continental Europe
Africa
50%
37%
Pacific Rim
63%
8%
70%
United Kingdom
5%
14A Revenue: R117.4bn
14A Revenue: R38.6bn
14A Revenue: R156.0bn
2%
2%
FY 14A Sales (Segment)
18%
24%
32%
Retail - International Operations
Retail - African Operations
Manufacturing, sourcing, logistics
and corporate services International
International Properties
FY 14A Operating Profit
(Segment)
47%
52%
68%
22%
14A Revenue: R117.4bn(1)
33%
14A Revenue: R38.6bn
5%
21%
Retail - African Operations
Manufacturing, sourcing, logistics and
corporate services - International
Manufacturing, sourcing, logistics and
corporate services – African Operations
International Properties
17%
29%
35%
Retail - International Operations
14A Revenue: R156.0bn
2%
3%
28%
34%
14A EBIT:
7%
95%
R12.9bn(2)
14A EBIT: R3.2bn
24%
14A EBIT: R16.1bn
Note: (1) Assumes even distribution of intersegment revenue eliminations of R22,777m across business segments. (2) EBIT equals operating profit from continuing operations of R14,122m less capital items of R1,500m and plus R324m from KAP equity
accounted earnings at 45%.
27
Disclaimer
Certain statements in this document may constitute 'forward looking statements'. Such forward looking statements reflect the
company's beliefs and expectations and involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of Steinhoff International and its subsidiaries to be materially
different from the future results, performance or achievements expressed or implied by such forward looking statements. The
company undertakes no obligation to update publicly or release any revisions to these forward looking statements to reflect
events or circumstances after the date of this document, or to reflect the occurrence of anticipated events. Past performance
of the company cannot be relied on as a guide to future
performance. Forward-looking statements speak only as at the date of this document. You are cautioned not to place any
undue reliance on such forward looking statements. No statement in this document is intended to be a profit forecast.
This document is being supplied to you for informational purposes only. This document is not a prospectus or an offer or
invitation or inducement to subscribe for or purchase any securities, and nothing contained herein shall form the basis of any
contract or commitment whatsoever. This document does not constitute a recommendation regarding the securities of the
company.
No representation or warranty, express or implied, is given by the company, its subsidiaries or any of their respective
directors, officers, employees and affiliates or any other person as to the fairness, accuracy or completeness of the
information (including data obtained from external sources) or opinions contained in this document, nor have they
independently verified such information, and any reliance you place thereon will be at your sole risk. Without prejudice to the
foregoing, no liability whatsoever for any loss howsoever arising, directly or indirectly, from any use of information contained
in this document, or otherwise arising in connection therewith is accepted by any such person in relation to such information.
None of the data in this document has been reviewed or reported on by the group‘s auditors and no guarantee or warranty
as to the data's accuracy, expressed or implied, is given.
28