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JIMMY MOYAHA: As you heard David Shapiro mention, Cashbuild is a company he has liked for quite some time. It reported interim results for the six months ended 24 December 2023. A dividend was declared. It is lower than we saw in the previous comparative period.
I’m joined on the line now by CEO Werner de Jager to take a look at the company’s performance and make sense of how the company has been faring. Good evening, Werner. Thanks so much for taking the time. I suppose, reflecting on the first half of the year, a couple of challenges would’ve been there from an operating perspective, which would’ve been outside the control of the business.
But for all intents and purposes and for the things that were within the control of the business, revenues were up in the business. You tried to do the best that you could under the circumstances. How do you reflect on that period?
WERNER DE JAGER: Thank you. That’s very well put. The market is tough at the moment. People and consumers are under extreme pressure and we are in the discretionary spend category.
So it is tough to fight for revenue, and unfortunately, being quite aggressive on our pricing did have an impact on our gross margin, which is slightly down in percentage terms.
And that – with a fairly stable or fixed cost base that’s increasing – made it for a very tough half-year for us.
JIMMY MOYAHA: Werner, how is the consumer faring relative to previous periods? Unlike other companies, Cashbuild during the pandemic actually had a good time – as opposed to some of the other companies with everybody doing home renovations, everybody wanting to get involved, and all that.
It was actually not like companies such as City Lodge, where travel wasn’t allowed. So you actually had a fairly decent time, but are you finding with the performance of the company now and consumer demand, so to speak, at this stage is it back to pre-pandemic levels? Is it back to pandemic levels, or is it still struggling along because of the interest rates?
WERNER DE JAGER: I think we were actually down on pre-pandemic levels if you look at profits. Revenue is slightly up, but on profits we were down. We did have two years of boom time when, like you say, everybody was just doing spotting a crack in the wall, fixing and just doing it.
At the moment, we’re not seeing big projects happening. People are buying decorative items – which is still doing well – like floor tiles, paint, those things. But cement and bricks and those types of things are battling at the moment.
JIMMY MOYAHA: Werner, let’s look at the impairments the business had to go through. Net asset value came down as a result of that impairment – just under R140 million. Do you want to tell us more about that?
WERNER DE JAGER: Unfortunately, in the last financial year, the second six months, we had to take a partial impairment on goodwill for the P&L Hardware business that we acquired. And in the six months with the tough environment, the plans and turnarounds in our business haven’t yet reaped the rewards that we planned. So we were forced to impair the goodwill and trademark further, to the extent that it’s actually now written or embedded fully in the books.
JIMMY MOYAHA: Okay. So, even though it was a partial impairment, you’ve accounted for it and it won’t affect the full year’s numbers now, or won’t affect them additionally.
WERNER DE JAGER: No, it won’t. It’s done. There won’t be another impairment for goodwill and trademarks.
JIMMY MOYAHA: I suppose that’s something to consider when you look at the second half of the year and the prospects going into the second half. I was going to ask if you anticipate that you’ll impair again. But if it’s fully accounted for, the worst is behind you, so to speak. It’s only positive from here.
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Let’s look at those margins you mentioned, Werner. You said that obviously with margins coming in a lot tighter, expenditure was up. But also profits came down quite significantly and it’s not a comfortable space to be in at the moment. But how are you seeing the second half of the year playing out? Is it typically a better part, or a better performance for Cashbuild in the second half of the year?
WERNER DE JAGER: Normally revenue earned is about 55% in the first half and 45% in the second half, so it is a bit of a lower revenue period normally for us.
Just on the expenses, if you take out the impairment in our operating expenses and new stores, expenses grew by 5%. So at least something that the company’s been very good at is managing costs. And in the second half, we will continue doing that.
It’s very difficult just to see what’s going to happen. It’s an election year, which normally does come with some challenges in terms of trading for us. So it’ll be a very interesting and tough six months, I believe.
JIMMY MOYAHA: Well, hopefully, the six months do look a lot better.
Before I let you go, Werner, I want to touch on the earnings per share. That’s obviously a function of everything that you’ve had to contend with – to say we’d rather be more prudent, I suppose, at this stage, than have to bear the full brunt of the impact by the full year-end. So it’s had an impact on headline earnings and basic earnings, but I suppose if revenues continue to grow at 2% or 3%, and you are able to contain those costs, you could still have a good second half of the year.
I think cost containment often favours businesses like yours that are able to keep those manageable at this stage when cyclical forces are pushing guys to the downside.
Do you think that from a dividend perspective, from a headline earnings perspective, you would be able to see something in line with expectations by the end of the year?
WERNER DE JAGER: Yes. Like I say, it’s difficult to try and look too far forward, but all the fundamentals are in place to be aggressive and fight for revenue. Cost control has always been very, very strong. And, like you say there won’t be that R100-odd million impairment in the second half.
So we should see a better second half from that perspective, and hopefully a better dividend as well.
JIMMY MOYAHA: Well, you and I are going to definitely catch up come the end of the year, Werner, and I wish you and the team the best of luck. Hopefully the second half is kinder to you than the first half has been.
But we’ll leave it at that, and we’ll definitely catch up when those full-year results come out. That’s Werner de Jager, CEO at Cashbuild, on the first half of the year’s performance. Slightly lower dividends, slightly higher increase in revenues.
But alongside that, there was that big impairment that they had to put through for the accounting and the goodwill of their – I think – trademark business.
