Alec Hogg: Thoughts after attending Steinhoff presentation (video)

Good morning.  I’m Alec Hogg and here’s the Rational Perspective.  Well, we’re on our semi-break here in Cape Town.  I went off to the Convention Centre yesterday to go and see the presentation by Steinhoff.  If you recall, they’ve just done the biggest deal in South African corporate history with the acquisition of Pepkor.  Two hundred people were at the Cape Town Convention Centre to listen to what Markus Jooste and his team had to say.  It wasn’t just Jooste himself, but many of the heavyweights of Stellenbosch as well.  Christo Wiese was there.  Jannie Mouton was there.  Claus Daun came out from Germany and I bumped into an old friend – Sean Summers – a former CEO of Pick n Pay, who now runs the U.K. and Australian operations for Steinhoff.  It was really, an interesting story that Markus Jooste was able to tell us about, and I think this is where it gets really fascinating.

Sean Summers, former CEO of Pick n Pay and now Steinhoff UK and Australia chief
Sean Summers, former CEO of Pick n Pay and now Steinhoff UK and Australia chief

This company was built as a conglomerate in a period where people didn’t like conglomerates.  It was also built as a vertically integrated business.  What that means is that they literally make or source the products, distribute or deliver the products to their own operations, and then sell them themselves.  This vertically integrated model takes out many costs that might otherwise affect the price of the product at the end of the day.  It’s not a simplistic model, but it’s a rather simple one in that you build the base and you throw volumes onto the base and that’s really, what Steinhoff’s about. Steinhoff AGM

The acquisition of Pepkor is going to increase the base by 3000 outlets.  Pepkor were telling us that they meet something like 300-million people’s demands around the world.  They’re not only in South Africa and there’s not only the Pep brand.  The main story here is that Steinhoff is looking to take its profit margin from the seven percent at the moment on sales, to ten percent by 2016.  With the base in place, with more volumes going through the system, who’s to say, Markus Jooste and his team won’t achieve it.

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