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Cashbuild agrees to buy Pepkor subsidiary TBC

Despite the poor economy, such a sizeable acquisition shows Cashbuild expects ‘a bright future for this industry’: CEO Werner de Jager.

NOMPU SIZIBA: Building materials player Cashbuild has announced it’s to buy The Building Company Proprietary Limited, which is owned by Pepkor Holdings, for R1.07 billion. The deal will enhance Cashbuild’s retail presence in regions such as the Western Cape, Eastern Cape and KZN.

Separately, Cashbuild reported that revenue in the quarter ended June, 2020 declined by 23%, largely due to the lockdown restrictions that saw the building material retailer inactive. For the year ended June, revenue declined by 7%, while headline earnings per share fell by 20%.

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Earlier my colleague Ryk van Niekerk caught up with Cashbuild’s CEO, Werner de Jager.

RYK VAN NIEKERK: The hardware and building construction materials group Cashbuild wants to buy Pepkor subsidiary, The Building Company, TBC, for R1.1 billion. The Building Company owns businesses such as Buco, Timbercity, Tiletoria and Bildware. It has more than 180 outlets in South Africa, Zambia, Botswana and Namibia. The Building Company earned a revenue of over R8 billion in its most recent financial year.

On the line is Werner de Jager, the chief executive of Cashbuild. Werner, thank you so much for joining me. How significant is this transaction for Cashbuild?

WERNER DE JAGER: Good evening, Ryk. Thank you. It’s a fairly substantial transaction for the business. If you look at the revenue of The Building Company, it  is R8.2 billion, and Cashbuild nearly R10 billion – or just over R10 billion. So it’s substantial. The number of stores we are adding to our 318 Cashbuild stores is 181 TBC stores.

And the transaction value is nearly a quarter – or slightly over a quarter – of our market capitalisation. So, all in all, fairly substantial for us.

RYK VAN NIEKERK: It seems very substantial. Why did you buy it?

WERNER DE JAGER: Ryk, part of our strategy that we agreed upon quite a couple of years ago is that part of our growth aspirations are acquisitions. And, when you look at what The Building Company offers us in terms of access to regions that were previously underrepresented, especially the coastal areas and the market sectors, and the building contractors that we don’t really serve in Cashbuild at the moment, those are all aspects that tick the boxes for us and make TBC a good acquisition and a strategic fit for Cashbuild.

RYK VAN NIEKERK: We live in an interesting economic environment. Covid-19 has really turned our economic prospects on their head. When did you start to talk to Pepkor about this deal?

WERNER DE JAGER: We started talking to them late last year. That continued through the lockdown period and we got to an answer this week. So it has been quite a long hall, and probably would have been quicker had we not had the lockdown. But all hopefully ends well.

RYK VAN NIEKERK: Did the price change due to the lockdown and the economic prospects?

WERNER DE JAGER: I wouldn’t say that’s the main driver of the price. You buy a company for the prospects and what you expect out of it in future, not necessarily based on historical results. So I don’t think that played a major role. It probably did add a bit to a better price, but I don’t think that’s a major factor in the bigger scheme of things.

RYK VAN NIEKERK: There are many retail brands within The Building Company. Are you going to make any significant changes to the brands and the businesses, following the conclusion of the transaction?

WERNER DE JAGER: The plans are not to do anything drastic at this stage. I think, like we did with our P&L acquisition, we are buying it for the brands, and we’ll certainly keep the bigger brands, the Buco and the Timbercity names, and not necessarily change those. So at this stage there are no major plans for big changes.

RYK VAN NIEKERK: Will you integrate these brands within your core Cashbuild systems to see if you can maybe save money from a centralised admin system, for example?

WERNER DE JAGER: Yes, there’s always opportunity. Both businesses are fairly well run in terms of lean back-offices, but there are always opportunities, I think, especially in supply-chain and delivery-route optimisation. If you’ve got more stores in one town, it’s certainly easier to fill a load and get the vehicles out there.

RYK VAN NIEKERK: The retail environment is under immense pressure currently. How are your markets performing where you do business in the building construction type of materials? Are there any significant trends following the lockdown?

WERNER DE JAGER: Yes, indeed. We saw during lockdown there was no turnover, but post lockdown there’s been a renewed interest in building materials and unrelated products. Cashbuild’s results for turnover for the month of May were up 12%, and in the month of June actually up 13%. So that is significantly better than pre-lockdown. It’s a trend that we expected. It’s probably lasting longer than we expected, but it’s a trend that we’ve seen worldwide in other countries as well – that there’s been a renewed interest in housing.

RYK VAN NIEKERK: That is interesting, indeed. Is this because people are sitting at home, they’re working from home, and then they say, “Listen, we need to do a bit of maintenance or maybe redo the cottage at the back.” Are those the typical consumers or clients of yours who are investing in their properties?

WERNER DE JAGER: That’s certainly a fair portion of them, but I think for our customer base in the rural areas, and sort not-that-urban areas, we are well positioned to serve them. They’ve spent quite a bit of time at home, also having a bit more time to do projects. And I do think a lot of our customers have saved quite a bit of money on transport during the lockdown period, while still getting paid their wages. They have had some spare cash, too, that they can invest in and improve their properties. A primary goal of most people is to improve their housing.

RYK VAN NIEKERK: There are some very dire economic prospects. Some economists even predict a recession for the whole year of around 10%, or even more than 10%. How do you foresee the economic environment in your industry for this year?

WERNER DE JAGER: That’s pessimistic, but we believe that until November we should still see some decent results coming through. The uncertainty is what will happen in December. A lot of companies have indicated that thirteenth cheques and Christmas bonuses are not going to be paid this year. Traditionally November, December – or December specifically is a good driving month for any retailer.

But from a longer-term perspective, we are still very positive about the economy as a whole. We know that there are some tough times in the interim, but the fact that we are still investing in Cashbuild, and also prepared to invest in an acquisition of this size in South Africa, is that in the longer term we believe that there’s a bright future for this industry in the country.

RYK VAN NIEKERK: Werner, thank you so much for your time.

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They must know something ?
I’ve been in building materials for 48 years and now is not a time for anything but watching and waiting….

They must know something ? I’ve been in building materials for 48 years and now is the time for watching and waiting…..

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