ADDING ON WITH­OUT CHANG­ING TOO MUCH

Af­ter a few years of lack­lus­tre per­for­mance, build­ing ma­te­ri­als re­tailer Cash­build has hit its stride. Now it has an­nounced its first ma­jor deal, a R350m swoop on hard­ware group P&L. Gi­uli­etta Talevi put CEO Werner de Jager on the spot

Financial Mail - Investors Monthly - - Interview - Werner de Jager CEO: Cash­build

Q You’ve made your first ma­jor ac­qui­si­tion. Why, af­ter so long grow­ing the busi­ness or­gan­i­cally, have you splashed out so much money for a com­peti­tor? A You’re right, it is the first one of this size ever. We’d pre­vi­ously bought one or two stores, but I’m talk­ing 10 years ago. About two years ago, we changed our strat­egy in terms of how we’re go­ing to ap­proach the mar­ket by ex­pand­ing fur­ther into other African ter­ri­to­ries where we’re not trad­ing, al­ter­na­tive store for­mats, grow­ing the cur­rent store base, and ac­qui­si­tions. Q So is P&L quite an en­trenched brand? A It’s a very well es­tab­lished busi­ness (in Lim­popo and Mpumalanga specif­i­cally). It’s a well-run busi­ness and there are lots of po­ten­tial syn­er­gies to be had out of it.

In terms of what we paid, it works out to about a 10 PE if you look at the prof­itabil­ity only. [It] is not the rich­est deal, but we be­lieve it’s fair.

It’s a fam­ily busi­ness but as close as you’re go­ing to get to a very cor­po­rate-run fam­ily busi­ness. Ob­vi­ously be­cause of the size — 39 stores — they were quite good at fol­low­ing cor­po­rate gov­er­nance struc­tures. Q You may also have to pay R80m over and above R350m over the next three years. Are P&L’s man­age­ment stay­ing in the busi­ness? A Ex­ist­ing man­age­ment will stay in place — they will be on a re­tainer. They need to de­liver those prof­its to us that they’ve guar­an­teed and that’s how they’ll earn the R80m. It’s a fairly stiff tar­get. Q You haven’t ever done a big ac­qui­si­tion like this be­fore, which will raise ques­tions about your abil­ity to bed it down. A The plans are not to change any­thing in the in­terim. We’ll han­dle it as an in­vest­ment and leave man­age­ment to get on with what they’ve been do­ing well over a num­ber of years. Luck­ily we’ve not had to re­trench one per­son in our history so it should give the guys some fair in­di­ca­tion that we’re not there to cut. Q Cash­build it­self seems to be in­cred­i­bly re­silient, in de­fi­ance of eco­nomic con­di­tions out there. How is that pos­si­ble? A I wish I could tell you there’s one spe­cific thing that drives it, but it’s a num­ber of dif­fer­ent fac­tors re­sult­ing in the mar­ket still be­ing fairly de­cent for us.

We’ve in­vested lots of time in­ter­nally in get­ting the busi­ness what we call “ready for busi­ness” — mak­ing sure we’re well stocked and ready to serve cus­tomers. So we’ve done a lot of work to be­come a bet­ter busi­ness [from the cus­tomers’ per­spec­tive].

Then the mar­ket in which we op­er­ate has been fairly re­silient over the years.

Through good and bad eco­nomic times, Cash­build has al­ways had de­cent growth. Q Are you ever tempted to add a credit of­fer­ing? A No. Years ago we had a com­pany called Cred­itBuild and we sold it off and that’s how it’ll stay for the fore­see­able fu­ture. We tried to do a bit of credit here and there but it’s not our game; we’re not good at it. You trade for a year with some­one, then they have a bad debt and you lose all your money. Q How big is the home ren­o­va­tions or “bakkie builders” mar­ket re­ally? For­mer CEO Pat Goldrick al­ways used to say that it was worth about R100bn/year. A We still be­lieve that the build­ing ma­te­ri­als mar­ket via dis­tri­bu­tion is about R103bn/year — that’s [count­ing] ev­ery­thing and ev­ery­body. If you look at the large-chain builders’ mer­chants, of which we’re one, we be­lieve the mar­ket is about R52bn/year. The lo­cal hard­ware stores and in­de­pen­dents do about R31bn and then some of our prod­ucts go through su­per­mar­kets and spe­cial­ist stores, which [ac­count for] about R10bn each. Q Your full-year rev­enue for 2014 was R6,8bn. How do you view Cash­build’s growth ca­pac­ity in view of the size of the mar­ket? A One of the pil­lars in our strate­gic growth ob­jec­tive is our ex­ist­ing busi­ness and the cur­rent Cash­build model, where we cur­rently have 22 stores. We still want to grow that to the 300 mark at least in the ter­ri­to­ries where we trade.

We’ve got a store that’ll do R100m turnover, which tells you that there’s not a lim­i­ta­tion on

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