Markus Jooste is building for life
Q You’ve gone very quiet on the Frankfurt listing since first announcing it — when is it likely to happen?
A There are quite a few conditions to it because Treasury and certainly we as management as well would like to make sure that the South African identity of the company does not disappear in the process.
The whole top management of the company will continue to be based locally. The company that we list in Frankfurt will be an Austrian company which is our holding company outside SA, but will be registered in SA for tax purposes because it’s managed from here … so now you have an Austrian company that you’re going to list in Frankfurt but with a South African domicile. Sorting out the prospectus, disclosure and all the legalities that go with this is quite an ask and we’ve had a full team working on this since late June.
The biggest condition that the Reserve Bank imposed on this was that we would repatriate €1.2bn to SA and we had to raise that money from non-South African residents. Now you need a bit of luck in life, nê? You would recall in June and July the markets were hot and something we learnt many years ago is that you must always raise money when you can, not when you need it, because when you need it they won’t give it to you.
We launched a bookbuild on July 5 and we raised that whole €1.2bn and brought it back to SA, and I think if we’d left it till October or November, as most of our advisers told us to do, it would have been impossible to raise that money.
In Frankfurt you have to report quarterly … Deloitte has worked it out that the ideal date for us to list is the first week of March because then you announce your interim [results] together with your listing, and then you are in a cycle where your first-quarter results run into that slipstream.
The target date that everyone is now focused and working on is the beginning of March.
Q So nothing to do with wobbly markets of late?
A We eliminated that by raising the capital in July.
Q Was it a bit of a sacrifice for South African shareholders, that they weren’t allowed to participate in the capital raise, and got diluted?
A I think it was great of SA institutions to have waived their right to participate in the rights issue. Everybody we asked did it.
Q It didn’t take much convincing?
A We as management did it first. The Steinhoff family and all of us waived our rights and then it was a bit of an easier discussion with the institutions.
Q With Steinhoff now such an international company, do you care much about the South African assets, JD and KAP? Are they going to become increasingly irrelevant in your lives?
A There might be that perception. But you must remember that those companies you’re referring to are where we started our careers. Sentiment must not run a business but we see them as very much part of Steinhoff.
Taking the shareholding down from 63% to 45% in KAP was twofold: to get a retail rating in Frankfurt, it would have complicated things if you had consolidated 80,000 hectares of forest and the KAP type of assets onto the balance sheet.
Q Is it important that you’re considered to be a retailer?
A Your rating will be much higher. But the close relationship with KAP has commercial reasons as well: timber, steel, foam and fabric are the four main components of virtually everything we sell. And the advantage that KAP gives us is that we will always have firsthand knowledge of the base price … having access to all that information puts our buyers and our sourcing people all over the world in a very strong negotiating position.
JD today, if you take the financial services out, is one of the nicest balanced retail businesses in the country. It does R40bn turnover and covers all areas of life.
Automotive is also not foreign to us — in KAP we make every spring, every seat, every leather cover in every car in this country. You think about a lounge suite and a car seat — it’s exactly the same thing.
In our raw material companies in Europe, we are the number one supplier of sound-dampening foam to all cars in Europe. So it’s a big part of our strategy.
We will hopefully [close] the JD financial services sale in the next two weeks.
Q The South African assets then are still key to your future?
A Well, let me put it to you this way: we sit with almost R16bn of cash in SA that is designated for investments in SA and Africa. We’re going nowhere.
Q Would that be from the Ellerines ashes?
A No, that story has passed.
Q What about the Shoprite furniture arm? I’ve heard talk you might be interested.
A I think OK through this whole period has been probably the best furniture retail company in SA. None of the JD, Ellerines, Lewis drama got to OK — they’ve done well. Just shows you: it’s always management, nê?
We would rather build JD organically. In September we opened our first Big Box discount store in the Western Cape and it’s trading phenomenally well, so I think our path for the furniture side is to rather bring our very successful European discount concepts here. It’s quite amazing that in the first three months, cash sales are 92%.
If you sell for cash but at the right price and the right look, the market is there.
Q Are there other markets abroad that interest you? Where would you like to increase market share?
A Our goal over the next three to five years is we would not like to operate in any country where we don’t have 10% or more market share. Germany is a big priority. Our real growth area at the moment is Eastern Europe. With the Kika-Leiner acquisition we got a fantastic footprint in Hungary, Czech Republic, Slovakia, Serbia, Croatia and Romania. Suddenly you’ve got new countries where you had no presence, and the beauty there is that you have no competition. You mustn’t underestimate [Eastern Europe]: Poland is a country of 4-million people and the average income is double SA’s.
The China, India phenomenon is probably where big players like us must wait a bit. I don’t think you must go and try to be a pioneer. Our idol in life — Ikea — has gone to China, but it’s cost him a fortune.
America is always interesting for any business if you start to play in the top 10 in the world, but it has also crippled many European companies. The huge challenge of America is whether you should try to do a national thing, because of logistics. You’ve got three time zones and huge distances, and most successful retailers are dominant either on the west coast, the middle of the country or the east coast.
We bid on a major American company two years ago; we walked away because the competing buyers were prepared to pay more.
Q You’re quite capital flush; gearing is down to 12% — is that where you want it?
A I think if you don’t gear you can’t make money, but you must gear responsibly. We always had an internal covenant that we would never borrow more than three times Ebitda, and we’ve always stuck to that.
I think if you live in a world where interest rates are between 2% and 3% — the lowest since the Second World War — and you as management don’t take the opportunity to borrow and buy assets and build your business, you’re actually just lazy.
All that I own is invested in this company. We’d like to build the business and if you take the last six years, with Conforama and Kika-Leiner, if we hadn’t done it, we would have been a minute player in SA.
Q Your property portfolio is worth a huge amount and some analysts reckon you could unlock significant value. What are your intentions there?
A You must remember in Europe a property is zoned and licensed for a specific type of retailing. You can’t change that. So we learnt very quickly that you had better own the property you’re in, because in five years’ time if it belongs to some old Frenchman, can you imagine, the more successful you are the more rent you’ll pay because you can’t go anywhere else.
From a strategic point of view it’s absolutely critical, otherwise you’re going to become the slave of the landlord. We’ve got a rent that’s capped for life and gives you an enormous advantage against your competition.
So to unlock value with the property portfolio — I’m just giving you an example — could be later to put some of these properties into a property trust company with other people, but retain a stake in it so that you can protect the longevity or write a 100-year lease on it, and then sell the yield.
There are ways of getting money out of it, but it’s not as if we need cash. When you can buy a property at a 7% yield in euros, and you borrow money at 3%, you don’t need to go to fancy business schools to work out that’s nogal a good business model, nê?
Q Do you think some investors who have a view on Steinhoff are of an asset-stripping mind-set?
A Investors are in a very different position from us. We plant trees every day that we’re going to harvest when I’m dead … If we had a short-term view I could stop all the forestry tomorrow and print R400m or R500m profit a year for the next 29 years, but then it would be gone. That’s not what we’re building.
You build a new store in Bucharest: you’re going to lose money for the next three years on that store before it’s in the game. We started in Spain four years ago, and this year it’s making the first big profits. But if you hadn’t invested that money, you wouldn’t have a business.
You’re either a short-term player who plays for the pavilion, or you build something for life.
Steinhoff employs 100,000 people … plus all our suppliers … we must have more than a million people who live off us every day. That’s much more important to me than maybe selling a property for €100m that I paid €50m for.
I’d rather use that property, borrow money against it, and build another three properties. And that is the philosophy of our business.