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SIMON BROWN: I’m chatting with Werner de Jager, CEO of Cashbuild. Results for six months ending 24 December 2023. Revenue up 2%, HEPS down 20%, dividend off 19% at R3.25. Werner, I appreciate the time. A tough period. We saw that coming from the previous corresponding period, but also from the trading update. Who is your typical customer, because I look out across South Africa and consumers are under the cosh and likely to still be for a while?
WERNER DE JAGER: Simon, yes. You are 100% right. Our typical customers are bakkie builders who make up a good 60% of our revenue. And then the rest are people out there in South Africa who are building their own houses and doing renovations and upkeep. But you’re right, we are seeing that they are under pressure.
SIMON BROWN: My thinking was, as you talk in the results, around the sort of decorative, which is 15%, and I would imagine that’s very discretionary. Cement is your big one, 22%. If you add roofing and brick, it’s 38% of revenue. But that’s still discretionary to a degree – I don’t need to build that extra room or a new house or something like that.
WERNER DE JAGER: Yes. If bricks are on special and you don’t need them, you’re not going to buy them and put them in your yard ‘just in case’. But, funnily enough, the decorative part of our business is still the part that’s doing well. Although it’s highly discretionary, it does indicate that people are doing smaller projects – just painting, putting tiles on the floor and doing these types of things, and putting these decorative ceilings in. So [they are] doing some projects but don’t have the money to add a room or to build a wall or do something like that.
SIMON BROWN: I hear you. Perhaps add a smaller thing and that t can sort of spruce up and beautify a place. The increase in stock holdings and in inventories – what was driving that?
WERNER DE JAGER: When you look at the inventory days, it’s been very stable at 90 days, so exactly the same as the prior year – and one day more than December last year. So it was driven a bit by a higher quarter two. We saw sales growth of 5% in quarter two. We’ve an algorithm that runs on that. So yes, it is slightly higher. It’s nothing that we are concerned about, but we always have our eye on that. It’s nothing out of the ordinary.
SIMON BROWN: What’s your internal inflation like, and are you managing to pass that on to the customers?
WERNER DE JAGER: Our inflation came out – and I must just say how we calculate inflation is obviously using our basket weights, and it’s just a snapshot. So it compares December with December [the previous] year. We saw it just over 3%, and we did not manage to pass all of it on to customers because you’ve seen our gross margin has come down a few basis points, the percentage. That’s an indication that we could not necessarily pass everything on to consumers.
But that inflation is driven by cement, cement bricks, etc. In steel products we actually saw some deflation, so that sort of kept it at the 3%-odd.
SIMON BROWN: Your P&L stores? Everyone understands the Cashbuild brand. You’ve also got the P&L stores, which are, as I understand, the slightly – I don’t want to say, ‘lower income’, but maybe that is the correct space. You’ve done an impairment there. It was R137 million, and you had notified the market around it. How are they operating? Is that looking in much better shape now?
WERNER DE JAGER: Not yet. This morning we released the results on Sens, so P&L stores are still struggling. We’ve put a lot of effort into making the changes that we need, and you are 100%right. It is right at the lower end of the market, and unfortunately that’s also the end where we have the independent space, where you’re fighting against mom-and-pops and not necessarily on an equal footing in terms of product quality.
But again, we need to make sure that, if we want to play in that market, we need to offer the correct product range and the right type of service and that for the customer. So we’ve worked on it and I’m confident that we’ll start seeing a bit better trading coming from there. But that’s the end of the market that’s really suffering at the moment.
SIMON BROWN: I take your point on that, and you do make the point in your sort of forward-looking statement. You say, and I quote, ‘Management expects trading conditions to remain challenging’. I suspect that trading since 24 December has been tough. And, if nothing else, we need interest rates to start coming down to really get the consumer back on a good footing.
WERNER DE JAGER: Correct. And unfortunately part of the reason why we have that sort of statement is also that election years are normally not the greatest time – heading into in an election. So for the next few months we’ll need to watch that space very carefully.
SIMON BROWN: I take your point on that. A last comment for me. The interim results detailed board meetings and member attendance. Usually I have to dig through annual reports to find that data. I have to say, Werner, I really like to see that in an interim result. That was a highlight for me.
We’ll leave it there. Werner de Jager, CEO of Cashbuild, I appreciate the time.
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