Seat at top table for Steinhoff after years out in the cold

24 May 2015 - 02:00 By ADELE SHEVEL

Steinhoff's low-key head office, wedged between panel beaters and manufacturers in semi-industrial Wynberg, on the outskirts of the more commercial Sandton, is as unpretentious as the man who heads the company, Markus Jooste.

The company is now a R274-billion cross-border behemoth with 100000 employees, and its share price has climbed 193% in the past three years - more than triplethe performance of the JSE's All Share index, which has climbed 63% in that time.

Recently, the mood has brightened for Steinhoff. For most of its existence as a listed company - which it has been since 1998 - the furniture manufacturer and retailer was largely ignored by investors, even as it expanded in new directions and geographies.

But since Jooste unveiled Steinhoff's most ambitious deal yet on November 25 - the R63-billion takeover of Pepkor, the largest deal in South Africa - this investor reticence has evaporated. The market is lapping up Steinhoff shares (which are up 37% since then), and the company is its new darling.

It might seem to be an overnight phenomenon, but the company's success has been anything but sudden. Founder Bruno Steinhoff began trading in 1964 when, under the shadow of communist rule, he started a business sourcing furniture from Eastern Europe, which he would sell on the other side of the Iron Curtain in Western Europe. After the Berlin Wall came down in 1989, and Steinhoff began making furniture, the company gathered speed.

In 1994, Steinhoff Europe and a company called GommaGomma established Steinhoff Furniture in Cape Town and Ga-Rankuwa, north of Pretoria.

When, four years later, Jooste led the listing on the JSE, analysts did not like it much. The criticism was along these lines: the group was an entity of moving parts, it issued too many shares too often, and its labyrinthine structure confused the market. There were accusations of too much debt and insufficient transparency, and others were not even sure if it was a manufacturer or a retailer.

block_quotes_start This is the space where the growth will be.... The people that need to be able to buy quality and value with as little money as possible - this segment is increasing every day. block_quotes_end

One analyst said that up to 75% of the investment community was not keen on Steinhoff because it was seen as pretty much just a big corporate finance play - too little substance and too much debt.

But, the analyst said, the mood has shifted since the Pepkor deal.

Not that these concerns kept Jooste awake at night.

Speaking to Business Times recently, he said: "Everybody is entitled to an opinion, everyone is not going to like the same thing. I can only comment on how I see the world. If you start with nothing and want to become a player in the world you have to work hard, raise capital and incur debt. You have to start somewhere.

"We started from one factory in Ga-Rankuwa and R20-million turnover and now it's a R150-billion turnover business ... how do you do that without incurring debt? ... We were on a journey to build a business and we did it."

Pepkor was not its first big deal. The purchase of French furniture retailer Conforama in 2011 for à 1.2-billion (R15.7-billion at today's rates) made the group the largest furniture retailer in Europe. The buyout of 92.3% of Pepkor for R62.8-billion bolsters this portfolio by adding further interests across Africa, Australia and Eastern Europe. And with it come main operating subsidiaries Pep and Ackermans in South Africa, Best & Less and Harris Scarfe in Australia, and Pepco in Poland.

Said Jooste: "There's a perception that I make all the deals, but I've got great CEOs in every country. We want entrepreneurial management; nobody in life is so smart they can run such a company and know everything."

Maybe, but he directs the group, and his view seems to prevail. A few years back, Steinhoff's board apparently mooted the idea of moving the focus upmarket. Jooste believed in going more mass market - and, as the purchase of JD Group and Pep illustrate, Jooste's view prevailed.

"Our customers are special people who make ends meet with so little money. We provide goods available at the best price. We're going to build this value discount chain globally."

 

Jooste may have put together complex financial transactions, but he has a straightforward and often slightly left-field way of communicating. He once said that he tested products by showing products to his wife: if she did not like them, he knew they would fit into his target market.

The former accountant has been with the company for 27 years, having joined as financial director of GommaGomma Holdings, which folded into the group.

Jooste prefers to keep a low profile, although this is likely to change as he runs an increasingly prolific multinational from South Africa - and has become, unbeknown to many, the single largest racehorse owner in the country.

Jooste moved from Johannesburg to Stellenbosch a few years ago while retaining Steinhoff's head office in Gauteng, but spends little time in South Africa.

What of the so-called Stellenbosch mafia? Has Jooste joined this unofficial club now that he lives there?

"I'm in the country so little, three weeks of the month I'm in Europe. I've unfortunately never met this mafia. I wish I also had time to lunch every day," he quipped.

Steinhoff's overall vision is to be a mass discount retailer in all categories, except food. "That is the space where the growth will be. The people that need to be able to buy quality and value with as little money as possible - this segment is increasing every day."

What keeps him awake at night? "We're all concerned about xenophobia, it's shocking and sad and I hope it stops immediately. Eskom is a big concern for all businessmen. We should all contribute to help solve the problem. We're not the type to criticise our local country - we must all continue to solve the problems."

Quite how Jooste can top the Pepkor deal will be interesting to see. There is speculation that Steinhoff might be interested in buying Edcon, or at least part of it - perhaps Jet.

Jooste said the biggest attraction in taking over Pep was the management, Pieter Erasmus and his team.

"We are one of the biggest players in southern Africa - we want to stay invested and grow South Africa and elsewhere. It's a fabulous advantage to have - to build the business in Nigeria, Angola, for example, and by the same token, Pieter Erasmus and his team opened in Romania and Hungary, and we soon will have 50 to 60 stores in France."

Ackermans plans to open 40 stores in South Africa this year. "We are very comfortable that every cluster can grow with themselves. Our role is to facilitate and support ... we're not looking to reduce our exposure to South Africa, but will continue to increase it."

Jooste said he did not have set goals.

Where to now?

"Life has got a mission with you and it's a question of how you make use of those opportunities. I'm at a very nice stage of my life, at 54 now, to be part of this business.

"At the end of the day, I think it's like anything in life. It takes time to prove yourself and prove your reputation. We've been listed for 17 years ... I don't comment on criticism, I take it, see what you can learn, continue to deliver the profits and just do the best you can do."

sub_head_start Following in the steps of a master deal-maker sub_head_end

Christo Wiese, South Africa's richest resident and arguably its most skilled deal-maker, is the most influential person in Jooste's business life.

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The two met in 1982 when Jooste, a freshly minted 21-year-old accountant, was auditing Wiese's companies. At the time, Wiese was buying out Renier van Rooyen from Pep.

"Some people like deal-makers, others like operators," said Jooste. "I walked into my first day of [my] work career 33 years ago [and] Christo impressed me - he built things, put deals together. I thought I wanted to be like that."

The Pepkor deal, unveiled in November, brings the two even closer. As part of the complicated takeover, Wiese will emerge as the 20% owner of Steinhoff, as well as the single largest owner in Brait.

"I learnt so much from him and here we are now, 30 years later, this is like a dream come true," Jooste said.

"Christo is obviously a fantastic sounding board and now he's such a big shareholder. He's always been available to give advice. To have that knowledge available ..."

The deal was a natural fit: Wiese had been on the board of Steinhoff for a number of years.

Jooste said he was looking forward to working with Wiese to "leave a company behind that will always be there".

sub_head_start 'It's more about the breeding' sub_head_end

Many people who have never glanced at a balance sheet in their lives know the name Markus Jooste all too well.

This is because Jooste is one of the biggest racehorse owners in South Africa and his name is emblazoned on racing cards the world over. His stallion Variety Club is currently rated the second-best racehorse in the world.

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But while he may have made some money on the ponies, Jooste says racing is not about investment - it is about enjoyment.

"It's a fantastic game and again South Africa breeds some of the best horses in the world. The interest is more the breeding ... it's like seeing your own children run on the athletics track. It's fantastic."

Back in 2011, Jooste told Sporting Post that his interest in racing was sparked by his father, a keen punter.

"Every race day, he would go to the Bosman Street Tattersalls and have a few bets. In the early '90s I was approached ... to be a partner in a horse called National Emblem. The success of National Emblem then, and now, is probably the cornerstone of my involvement in racing," he said at the time.

Though Jooste says no one should go into racing to make money, he adds that he runs his racing operation like he does Steinhoff.

He is not sure how many horses he owns - a racing manager deals with that - but he buys between 30 and 40 horses a year.

He says he is campaigning to improve South Africa's reputation as a quality exporter of horses.

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