You can also listen to this podcast at iono.fm.
advertisement
Continue reading below
Download the free LiSTN audio app on Google Play, Apple, or here.
Jimmy Moyaha: As you've heard David Shapiro mention, Cashbuild is a company he's liked for quite some time. We have reported interim results for the six months ended December 24, 2023. Dividends have been declared. This is lower than the previous comparison period.
I'm joining CEO Werner de Jager on the phone now to look at the company's performance and talk to him to understand how the company is performing. Good evening, Werner. Thank you very much for your time. Looking back at the first half of this year, I think there were some challenges from an operational perspective that were outside of the control of the business.
But no matter how you look at it, for things that are within the control of the business, the business's revenue has increased. You tried to do the best you could under the circumstances. How do you look back on that period?
Werner de Jager: thank you. That's very well said. The market is currently in a difficult situation. People and consumers are under extreme pressure and we are in the category of discretionary spending.
So it's hard to fight for revenue, and unfortunately, we've been pretty aggressive with our pricing, which has affected our gross margin, and it's gone down a little bit in percentage terms.
And so it's been a very tough six months for us on a fairly stable or increasing fixed cost basis.
Jimmy Moyaha: Mr. Werner, how is the consumer situation compared to previous periods? Unlike other companies, Cashbuild actually had a good time during the pandemic. In other companies, everyone was doing home renovations, everyone wanted to be involved, and so on.
In fact, unlike companies like City Lodge, no business travel was allowed. We've actually had a pretty good time, but given the company's current performance and consumer demand, do you feel like we're back to pre-pandemic levels at this point, so to speak? Back to pandemic levels? Or are you still struggling because of interest rates?
Werner de Jager: I think if you look at the profits, they were actually down from pre-pandemic levels. Sales increased slightly, but profits decreased. Sure, there was, as you say, a two-year boom period where everyone was finding cracks in the walls and fixing them and just doing it.
There are no major projects underway at this time. People are buying decorative items like floor tiles and paint, which remains strong. However, things like cement and bricks are currently in contention.
Jimmy Moyaha: Werner, let's look at the impairments that the business had to go through. As a result of this impairment, the net asset value decreased to just under R140 million. Could you tell me more about that?
Werner de Jager: Unfortunately, in the second quarter of last year, we were forced to write down some of the goodwill of our acquired income statement hardware business. And during his six months in a difficult environment, our business plans and turnarounds have not yet achieved the results we had planned. Therefore, we were forced to further undermine our goodwill and trademarks, which are now actually fully written or embedded in our books.
Jimmy Moyaha: Understood. So even if it's a partial impairment, it's taken into account and it doesn't affect the full-year numbers at this point, and it doesn't have any additional impact.
Werner de Jager: No, it's not. Has completed. There will be no new impairment of goodwill and trademarks.
Jimmy Moyaha: I think that's something to consider when thinking about the outlook for the second half of this year and into the second half of the year. I was going to ask if you expected the failure to occur again. But if that is fully taken into account, then the worst is over, so to speak. Only positive things can come from here.
advertisement
Continue reading below
Let's look at the margins you mentioned, Werner. You mentioned that clearly margins have become much tighter and expenses have increased. However, profits have also decreased significantly, which is not a comfortable situation at the moment. But how do you think the second half of this year will play out? Is it usually the better part of Cashbuild in the second half of this year, or is it a better performance?
Werner de Jager: Typically, the returns are around 55% in the first half and 45% in the second half, so that's usually when returns are a little lower.
In terms of expenses, excluding operating expenses and new store impairments, expenses increased 5%. So at least one thing the company is very good at is cost control. And we will continue to do that in the second half.
It's very difficult just to see what happens. This is an election year, which would normally pose some transactional challenges for us. I think it will be a very interesting and difficult six months.
Jimmy Moyaha: Well, if things go well, it looks like you'll be a lot better in 6 months.
Mr. Werner, before we get into that, I would like to touch on earnings per share. That's obviously the result of all the things you've had to work on. So I would rather be more cautious at this stage than to face the brunt of that impact by the end of the year. So while there will be an impact on headline revenue and underlying revenue, I think the second half of the year could still be in good shape if revenue continues to grow at 2% or 3% and we can contain those costs. .
I believe that companies like yours that are able to control costs at this stage, where business performance is being forced to deteriorate due to the effects of the economic cycle, will often gain an advantage by controlling costs.
Do you think we'll see results in line with expectations by the end of the year, both from a dividend perspective and from an overall return perspective?
Werner de Jager: yes. As I said, it's hard to try to think too far ahead, but you have all the fundamentals in place to aggressively fight for revenue. Cost control is always very strong. And as you say, in the second half he won't have an impairment of R100 million.
So the second half should be better from that perspective and hopefully the dividend will be better as well.
Jimmy Moyaha: Well, Werner, you and I will definitely catch up at the end of the year. We wish you and your team the best of luck. I hope the second half will be gentler than the first half.
But let's leave it at that, and we'll definitely catch up once the full-year results come out. Werner de Jager, CEO of Cashbuild, spoke about the company's performance in the first half of this year. Dividends decreased slightly and earnings increased slightly.
But on top of that, we had to take a large impairment charge for accounting and probably goodwill for our trademark business.