CASHBUILD
CASHBUILD
40 Years of Strength for Cashbuild PRODUCTION: David Napier
An acquisition strategy, and an expansion drive on the continent are taking Cashbuild to new heights. In its 40th year, now is an extremely exciting time for one of Southern Africa’s leading suppliers of quality building materials at the lowest prices.
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It’s all action at Cashbuild in the company’s 40th anniversary year. The construction retailer, which sells various building materials and related products, is not happy to sit on what has been built over the past four decades and is looking to cement its position in the upper echelons of Southern Africa’s highly competitive hardware retail industry. Founded in ’78 to serve the local markets with quality building materials, Cashbuild has been leading the way in the industry despite the ever-growing presence of competitors. And, as we quickly drive into 2018, the appetite for growth within the company has never been stronger. Enterprise Africa asks Cashbuild’s Financial Director, Etienne Prowse about the company’s targets for this year.
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“Growing our African and South African footprint, and all the time getting more profitable,” he says. Now with a network of more than 300 stores across the region, Prowse says that outlet positioning and an acquisitive strategy have fuelled growth over the past five years in particular. “During 2013, our earnings per share was 1036 cents. In 2016 it was up to 2048 cents per share so in five years we have doubled our earnings per share. Our share price in 2013 was R133 and it’s now R359 so that has almost tripled. Our employee count went from 4500 to 6300 and the number of stores went from 200 in 2013 to more than 300 now. All of that growth in the business drives the top line and drives the profits, and we’ve been doing it more efficiently as we move along.”
One decision that has flooded Cashbuild with obvious and widespread opportunity came in 2016 when the company acquired P&L Hardware. The R350 million deal added more stores and more revenue, and is being heralded as a big success. “We are now just over 6000 staff and we grew after acquiring P&L Hardware which had 44 stores when we made the acquisition. We have now expanded that brand and we are trading out of 55 P&L stores. In total, we have over 300 stores. “We recently acquired two builder franchises and converted them into the P&L portfolio, and a business called Buffalo Timbers which has seven stores. Before changing Chief Executive in 2012, we never looked at acquisitions as a growth strategy. The new Chief Exec,
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INDUSTRY FOCUS: CONSTRUCTION
// WE WANT TO KEEP OPENING NEW STORES, WE BELIEVE THERE’S STILL LOTS OF OPPORTUNITY IN SOUTH AFRICA TO GROW OUR STORES // who was the previous FD, is open to opportunities and that is why we have moved onto the acquisition path,” says Prowse. Werner de Jager is the CEO and the man behind the acquisition strategy, and he is keen to grow in all ways – at home in SA, across Southern Africa, and also internally; but pricing is something that the company does not want to increase. “We have an online catalogue and instore promotions but we also do what we call ‘knock and drop’; that’s leaflet drops in local newspapers and through people’s doors. We also advertise our prices clearly – we don’t have weekend specials, we have the lowest prices every day and if you see a price on an advert, it
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will remain the same for the whole month. “We serve the lower end of the market, we deal mainly in cash and that is the area where unemployment is rife and when mines close down, our customers start suffering. Unemployment now sits at around 27% and with these stats and politics in the country, it’s not an easy environment,” says Prowse. But despite negative sentiment in the local and global economies, some financial commentators are bullish about the current climate, and Cashbuild maintains a positive outlook. “The last few years have been great” says Prowse, “except for 2016 when the economy was under pressure and it was much tougher than what we’ve been used to. “We have an aspiration of achieving 30% market share but right now we only have half of that. We can’t achieve that goal through purely organic growth so we have to acquire,” he adds. With the home building market in South Africa one which receives plenty of attention from both the public and private sector (estimates suggest a housing backlog of around 2.5 million homes), Cashbuild has positioned itself perfectly to be the ‘go-to’ materials provider
for homebuilders, home improvers, contractors, farmers, traders and any persons wanting to purchase our quality building materials for cash. “We are not a home depot-type operation with general building materials. Our core product is cement,” details Prowse. “We have a focussed range of everything you would need to build a house but we don’t stock a major range of taps, lightings, or tiles and the like. The biggest new product we have introduced is something called decorative ceilings and the market loves it. We deal with a stable product environment.” Historically, Cashbuild’s competitive advantage comes through three pillars, namely location, access to stock and easy shopping environment. “We compete directly with a number of independents and a couple of major national brands. We differentiate ourselves through our reach; we are in the townships, we are everywhere our customers need us to be. We provide easy access to our shops. We are also proud to say that our products are always in stock. We design our stores and our ordering processes to ensure that everything is always in stock. We also ensure ease of
CASHBUILD
shopping; you can quite easily pick up a bag of cement, take it to the till and pay, walk out and load your car, and then drive away, and it’s not that simple in other stores. So location, stock and ease of shopping are our three areas of competitive advantage,” says Prowse. Of these three pillars, while all are equally important, perhaps location is the most prevalent right now, as the business targets 10 new openings each year. The strategy here is not a sledgehammerstyle approach but rather a much more targeted and considered tactic. “We don’t open up where we believe the market will be in five or ten years; we need enough households right now,” says Prowse. “When there is enough space in the area, we will open stores and stay for 20 years plus. Our first store, opened in 1978, is still in the same positions today and remains highly profitable. “We started in 1978 and we were listed on the JSE in 1986. We refer to ourselves as the biggest retailer of building materials in Southern Africa. We are in South Africa, which is the majority of our business, and we also trade in Lesotho, Swaziland, Namibia, Botswana, Malawi and now Zambia as of just a few months ago.” The Zambian expansion push started with the opening of the first Cashbuild in the country in August 2017, in Kabwe, north of Lusaka. The second Cashbuild opened in Zambia in December 2017, in Ndola. “Our big strategy surrounds achieving growth,” Prowse enthuses. “We want to keep opening new stores, we believe there’s still lots of opportunity in South Africa to grow our stores. We believe we can make a big success in Zambia and we want to have 20 stores there, becoming our biggest market outside of South Africa. We have a very simple business and a very simple strategy which works for us.” But expansion doesn’t come without its challenges, and for Cashbuild as the company has grown its footprint it has had to ensure its systems and processes
are up to date. A recent upgrade to new software and new systems has, according to Prowse, helped the business drive efficiency. “We’ve leapt forward with regard to technology,” he says. “We have just installed a new system and when we had that bedded in we realised it wasn’t going to help us grow so we had to get another one. We now use SAP and IQ Retail and that has allowed us to implement efficiencies, gain much more management information, run our stock ordering system, and become more effective overall. Looking at our cost ratio, we are much more competitive now compared to five years ago, and that’s thanks to our systems.” Clearly, Cashbuild is a business that is helping with the development of Southern Africa. Whether it’s through employment creation, infrastructure
development through the use of its products, contribution to supply chains, or its work in the communities in which it operates; this important business looks set to become even more significant. With the ambitious approach instilled by de Jager and Prowse, Cashbuild has everything required to assist in South Africa’s quest to fill the housing gap, and bring the best products at the best prices to customers all over its chosen markets. This is a company to watch, and one which is employing a strategy that should achieve robust growth in the future.
WWW.CASHBUILD.CO.ZA
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February 2018
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