CHRIS GILMOUR: Retailer Cashbuild released their final results this morning and, against a very, very difficult background they produced a reasonable set of results – although I suspect CEO Werner de Jager, whom I’m about to interview, is probably not going to be too pleased with them. Werner, good evening.
WERNER DE JAGER: Good evening, Chris.
CHRIS GILMOUR: Werner, in the body of the results you say this is the most challenging period that you’ve experienced in your 15-year history with Cashbuild. I would add to that. I’ve been looking at the retail sector for almost 40 years, and I’ve never seen anything like this.
WERNER DE JAGER: Yes, Chris, it’s extremely tough. It’s so unpredictable, as well. You do a lot of work, things pick up a bit and then next week it’s totally gone again. So, it’s really tough for the consumer at the moment.
CHRIS GILMOUR: And the consumer is taking a beating on all sides, assailed by higher input costs as far as they are concerned and there is just no relief with the weaker rand and this type of thing.
I would have thought, though, given the fact that the housing market (in terms of the house-sales market), has been in steep decline now for quite a while. Traditionally – and correct me if I’m wrong – when that happens, doesn’t the DIY sector get a bit of a buzz?
WERNER DE JAGER: Indeed. We can see it in our product categories. If we look at the categories that performed well – our tiling, all the decorative type of stuff, the sanitaryware, plumbing, paint – those categories still did very well for us during the year. The structural items, though, the cement, the timber, the bricks, all those type of things, window frames, roofing, those are the sort of items that really struggle.
CHRIS GILMOUR: I suppose that relates directly to new house construction, rather than more in the way of DIY?
WERNER DE JAGER: Correct. Even additions and alterations sell less; it’s more just actual DIY and beautifying the house.
CHRIS GILMOUR: Your gross profit margin has stayed pretty static around 25.1%. That is no mean achievement in this kind of market. How did you achieve that?
WERNER DE JAGER: Chris, we’ve got excellent management information and it’s a decision we’ve taken not to give away margin in tough times, because you are not going to stimulate better sales. So we’ve been focusing on it, we are protecting what we’ve worked hard for, and we didn’t want to just give it away.
CHRIS GILMOUR: A broad question now. Over the years I’ve looked at Cashbuild, there has always been quite a distinctive difference between the rural and urban environments. In other words, sometimes, if you’ve had good agricultural crops, the rural side does better, and vice versa. Have you noticed any particular difference between rural and urban at this point in time?
WERNER DE JAGER: No, not really, Chris. It’s been fairly evenly spread. It’s fair to say Gauteng, which is an urban province, is probably struggling more than the rest of the provinces. The competition is stronger here, and consumers here feel the brunt of that. Consumers in the rural areas tend to be a bit more self-sufficient in terms of food production and transport and those types of thing. So, it’s probably fair to say that those provinces in the rural areas performed slightly better than our Gauteng business.
CHRIS GILMOUR: How closely do you watch the weather patterns? Do they have a particularly pronounced influence on Cashbuild?
WERNER DE JAGER: No, not really. Obviously if it rains one day you don’t sell much cement; but, other than that, there’s not really a direct correlation.
Builders Warehouse vs Cashbuild
CHRIS GILMOUR: One of the factors I picked up at Massmart’s presentation, Builders Warehouse particularly, was they said that Builders had a far higher degree of promotional activity last year, and they related that directly to the fact that the traders had virtually gone, and it was largely a retail business. Are you seeing a similar trend developing within Cashbuild?
WERNER DE JAGER: Quite the contrary. In our business we’ve seen our average basket go up, which is a typical sign that our trade customers are a bigger portion of the customers that come through the stores. So, although our customer numbers declined, the average basked grew. And that is typically your traders that have bigger baskets when they come at shop at your store.
CHRIS GILMOUR: That’s fascinating. I suppose … that kind of highlights the difference between the likes of a Builders and a Cashbuild. Cashbuild is much more into the heavier side, if you like; Builders is much more into the convenience side.
WERNER DE JAGER: Correct. [We’re] also serving different LSMs, aiming at a different market sector. But that’s fair to say. We do have our walk-in retail customers. We can see that on weekends when you get a bit of better margin, and more customers come through the door, individual customers. But our business is aimed at structures and necessary big items, as you said.
CHRIS GILMOUR: Just looking at the balance sheet, [there’s] no debt. Now, that’s been a feature of Cashbuild for quite a few years. How on earth do you manage to achieve that? That is a phenomenal achievement.
WERNER DE JAGER: Chris, we try to keep it simple. Our model is very simple. We are in the fortunate position that a high percentage of our sales are cash. And when I say ‘high’, it’s probably in the 95%. So, our cash conversion is quite good. Our working capital cycle is zero, basically, because when we sell the stock at the same time we have to pay for it. So, really, when you open stores and trade you add cash to the bank every day – that’s if you manage the working capital and you manage your costs. So, for us, to keep the model simple is the key.
CHRIS GILMOUR: There can’t be too many retailers around at this point that have got such an enviable balance sheet as you guys have. That is something else. That’s great.
In terms of your outlook, you don’t expect the situation to change markedly over the next six months to a year, I guess. What would change things for the better as far as you are concerned?
WERNER DE JAGER: Do we need employment? That’s obviously key for the consumers to start recovering. I do think we need a bit of help from the government’s side in terms of sorting out quite a few of the issues. This morning we had one of our P&L stores completely gutted by protesters in Alexandra. So, you know, these types of thing. We need to get stability and people need to have confidence to invest in their properties again.
CHRIS GILMOUR: As I said, it’s a fairly bleak sort of environment. And, other than government, do you see the possibility of the private sector being able to do much on that front?
WERNER DE JAGER: Not really. We’ve not been exposed to contracts and contract businesses as such. So, we are very much reliant on, let’s call it, the bakkie builder brigade that needs to do renovations and additions and build houses. We do not necessarily get the government housing projects but, after they’ve been built, we do get some spin-off business from that, where people would put tiles in the house, and put baths in. They would paint it a different colour. So, all those types of thing play into our hand. That’s why there needs to be a bit of headwind or tailwind in terms of that.
CHRIS GILMOUR: And then, just to finish off, Cashbuild’s been around for I guess the best part of 40 years now, or even longer.
WERNER DE JAGER: We just had our 40th birthday in December.
CHRIS GILMOUR: It was a guy called Albert Koopman, if I’m not mistaken, who started this whole thing. The basis of his philosophy was participative management. Is that still pretty much ingrained in the company?
WERNER DE JAGER: Yes, that is. That has been one of the key success factors for Cashbuild over the years. It’s a very participative style. We still have consultative employee forums in the business, and things get done by involving people. Everybody has a say.
CHRIS GILMOUR: Thanks indeed, Werner, for giving us a rundown of the results for the year to the end of June.