Cashbuild eyes expansion despite tough times
● Cashbuild is expanding its footprint across the country and sees opportunities to add more stores in Namibia and Malawi.
The group, which sells cement, tiles, paint and other building materials, opened three new stores – two Cashbuild and one P&L Hardware – and refurbished three others in the six months to December. CEO Werner de Jager said the company will open small format stores as there is not much space for their traditional store sizes outside big towns.
“There are not a lot of new developments for us to have big stores. We are planning to be as aggressive as we can with small formats.”
By June the plan is to open 10 such stores. Cashbuild will also convert some of its 53 P&L Hardware stores, which it bought in 2016, into Cashbuild, while others may be closed as the unit struggles to grow.
“We fixed quite a few things during the last few months and made changes that we deem necessary for the business to return to profitability. We also started converting some of them into Cashbuild where it makes sense. We have done one so far and it’s delivered very good results. There might be a few that will be closed.”
De Jager said the group was looking at an additional three to five stores in Namibia.
Cashbuild, which sells directly to predominantly cash-paying customers via its 321-store network, reported a decline in earnings, but revenue was up 2% to R5.8bn for the six months under review. It said the results reflect challenging macroeconomic and trading conditions.
De Jager said the market was extremely tough at the moment.
“If you look at Stats SA’s retail sales, and specifically the hardware and paint category, it has been negative for quite a few reporting periods. In the latest report, it is down 5.3%. Our product is more discretionary. People are not building or extending their houses due to financial pressure.”
He said the decorating side of the business, which includes tiles and painting, was doing relatively well but structural items such as cement and roofing were not. “It’s an indication of the tough economy. People are doing smaller projects like painting and tiling.”
In the week leading up to Christmas, Cashbuild sold 1Ml of paint, one of the highest volumes in recent years.
Jan Meintjes, portfolio manager at Denker Capital, said it was clear that retail was a tough business “when your sales are growing below inflation and your costs are increasing ahead of inflation”.
“The negative operating leverage that this brings is brutal on the profit line. There is simply not enough economic activity and demand for your top-line to grow sufficiently to keep up with cost growth.”
Italtile last week reported a 6% decline in turnover for the six months to December at its retail division as the home improvement boom waned after the pandemic and activity declined to pre-pandemic levels.
Meintjes said changing the P&L hardware stores to Cashbuild would help, but the areas where they were located and their layouts might not support the full range of Cashbuild products.
De Jager said the rest of this year would still be tough given the high unemployment rate and high interest rates. He added that the election was also creating uncertainty.
Meintjes said Cashbuild was “very exposed to economic activity and employment and I think the outlook will only improve meaningfully when the broader outlook for the South African economy and employment improves.”
He said the fact that they were blocked by the Competition Commission from buying The Building Company from Pepkor in 2021 was a major setback. “The increased scale would have protected them a bit from the margin pressure they are feeling now.”
Pepkor announced this week that it will sell the unit to Capitalworks Private Equity and selected members of The Building Company’s management for R1.2bn.
The retailer said in a statement the disposal of the subsidiary “will streamline Pepkor’s portfolio of businesses, enhancing the group’s return on capital and optimise shareholder returns”.
After the deal, The Building Company will be “well positioned strategically and operationally to pursue growth”, Pepkor said.