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Cashbuild Limited - Audited Interim Results December 2003
CASHBUILD LIMITED
(Registration number: 1986/001503/06)
(Incorporated in the Republic of South Africa)
Listed on the JSE Securities Exchange South Africa
JSE Share code: CSB ISIN: ZAE000028320
AUDITED INTERIM RESULTS DECEMBER 2003
- Headline earnings per share up 10%.
- Operating profit up 25%.
- Cash resources up 25%.
- Revenue up 16%.
SUMMARISED GROUP INCOME STATEMENT
26 weeks 26 weeks 52 weeks
ended ended ended
December December % June
R"000 2003 2002 Change 2003
Revenue 835 646 721 475 16 1 394 783
Cost of sales 663 068 565 831 17 1 081 880
Gross profit 172 578 155 644 11 312 903
Operating expenses 134 342 124 993 7 249 366
Operating profit before
financing income 38 236 30 651 25 63 537
Net financing income 3 615 6 316 (43) 9 489
Profit before taxation 41 851 36 967 13 73 026
Taxation 13 405 11 116 23 039
Profit after taxation 28 446 25 851 10 49 987
Minority interest 2 261 2 272 4 792
Attributable earnings 26 185 23 579 11 45 195
Reconciliation of attributable
earnings to headline earnings:
Attributable earnings 26 185 23 579 45 195
Amortisation of goodwill 100 - 133
Impairment of property 307 - -
Loss/(profit) on sale of assets
after taxation 103 57 (235)
Headline earnings 26 695 23 636 13 45 093
Earnings per share (cents):
Fully diluted headline 114.9 101.8 13 194.2
Headline 114.9 104.6 10 196.8
Fully diluted basic 112.7 101.5 11 194.6
Basic 112.7 104.3 8 197.3
Dividend per share (cents):
- interim (note 6) 29 25 16 25
- final 40
Number of shares
in issue (000s) 23 225 23 225 23 225
Weighted number
of shares (000s) 23 225 22 604 22 912
Fully diluted number
of shares (000s) 23 225 23 225 23 225
SUMMARISED GROUP BALANCE SHEET
December December June
R"000 2003 2002 2003
Assets
Non-current assets 104 690 82 470 95 225
Property, plant and equipment 89 444 62 014 73 676
Intangible assets 1 796 3 1 875
Loans receivable 3 452 7 658 6 882
Deferred taxation 1 343 2 020 3 097
Other non-current assets 8 655 10 775 9 695
Current assets 501 507 461 000 385 156
Inventories 265 218 266 933 249 263
Trade and other receivables 25 707 25 421 29 503
Tax paid in advance 82 87 -
Cash and cash equivalents 210 500 168 559 106 390
Total assets 606 197 543 470 480 381
Equity and liabilities
Shareholders" funds 148 823 116 119 131 928
Minority interest 14 178 9 398 11 918
Non-current liabilities 279 329 297
Interest-bearing borrowings - 64 -
Deferred taxation 279 265 297
Current liabilities 442 917 417 624 336 238
Short-term borrowings - 60 63
Tax liability 9 875 7 058 16 433
Trade and other liabilities 428 492 407 460 315 446
Employee benefits 4 550 3 046 4 296
Total liabilities 443 196 417 953 336 535
Total equity and liabilities 606 197 543 470 480 381
Capital expenditure 22 245 17 066 35 184
Depreciation of property, plant
and equipment 5 010 3 609 8 028
Amortisation of intangible assets 102 1 134
Net asset value per share (cents) 641 500 568
Capital commitments 20 853 17 633 8 107
Contingent liabilities 1 996 7 265 1 576
SUMMARISED GROUP CASH FLOW STATEMENT
26 weeks 26 weeks 52 weeks
ended ended ended
December December June
R"000 2003 2002 2003
Net cash inflows from operating
activities 121 996 60 388 15 283
Net cash (outflows) from investing
activities (17 823) (19 731) (36 734)
Net cash (outflows)/inflows from
financing activities (63) 5 312 5 251
Net increase/(decrease) in cash
and cash equivalents 104 110 45 969 (16 200)
Cash and cash equivalents at
beginning of period 106 390 122 590 122 590
Cash and cash equivalents at
end of period 210 500 168 559 106 390
GROUP STATEMENT OF CHANGES IN EQUITY
Foreign
currency Distribu-
Share Share translation table
R"000 capital premium reserve reserves Total
Opening balance at
1 July 2002 226 35 606 2 730 56 617 95 179
Effect of change in
accounting policy (97) (97)
Attributable earnings
for the year 45 195 45 195
Dividends paid (13 936) (13 936)
Dividend received on
repurchased shares 221 221
Repurchased shares
sold 6 2 446 2 452
Surplus on sale of
repurchased shares 2 914 2 914
Balance at
30 June 2003 232 40 966 2 730 88 000 131 928
Attributable earnings
for the period 26 185 26 185
Dividend paid (9 290) (9 290)
Closing balance at
31 December 2003 232 40 966 2 730 104 895 148 823
SUMMARISED GROUP SEGMENTAL ANALYSIS
26 weeks ended December 2003
Other
R"000 South Africa Botswana countries Group
Income statement
Revenue
- External 621,843 95,875 117,928 835,646
- Internal 18,440
Operating profit before
financing income 24,668 6,322 7,246 38,236
Balance sheet
Segment assets 497,242 53,002 55,953 606,197
Segment liabilities 334,715 45,445 63,036 443,196
Depreciation 4,180 564 266 5,010
Amortisation 101 1 - 102
Capital expenditure 21,663 254 328 22,245
26 weeks ended December 2002
Other
R"000 South Africa Botswana countries Group
Income statement
Revenue
- External 506,897 106,085 108,493 721,475
- Internal 15,349
Operating profit before
financing income 16,914 6,040 7,697 30,651
Balance sheet
Segment assets 422,217 64,699 56,554 543,470
Segment liabilities 298,684 59,377 59,892 417,953
Depreciation 2,804 475 330 3,609
Amortisation - 1 - 1
Capital expenditure 13,224 3,701 141 17,066
52 weeks ended June 2003
Other
R"000 South Africa Botswana countries Group
Income statement
Revenue
- External 984,425 198,606 211,752 1,394,783
- Internal 30,662
Operating profit before
financing income 28,484 20,026 15,027 63,537
Balance sheet
Segment assets 375,371 54,732 50,278 480,381
Segment liabilities 255,992 36,525 44,018 336,535
Depreciation 6,383 1,048 597 8,028
Amortisation 133 1 - 134
Capital expenditure 29,134 5,544 506 35,184
NOTES TO THE SUMMARISED GROUP INTERIM FINANCIAL INFORMATION
1. Audit opinion. The summarised announcement of interim results has been
derived from the consolidated interim financial statements, prepared in
accordance with South African Statements of Generally Accepted Accounting
Practice and in the manner required by the Companies Act. PricewaterhouseCoopers
Inc. have audited the consolidated interim financial statements and their
unqualified audit report as well as their report on the summarised announcement
are available for inspection at the registered office of the company.
2. Accounting policies. The accounting policies used in the preparation of the
consolidated interim financial statements are consistent with those used in the
annual financial statements for the year ended 30 June 2003.
3. Reporting period. The group adopts the retail accounting calendar, which
comprises the reporting period ending on the last Saturday of the month (2003:
27 December (26 weeks); 2002:
28 December (26 weeks); June 2003: 28 June (52 weeks)).
4. Repurchased shares. The company purchased 631 296 ordinary shares of
Cashbuild Limited through its subsidiary Cashbuild (South Africa) (Pty) Limited
during the period December 2001 to February 2002. These shares were sold to The
Cashbuild Share Incentive Trust in December 2002. The surplus realised on the
sale of shares and the dividend received on these shares were transferred
directly to equity.
Number of shares reconciliation: Dec 03 Dec 02 Jun 03
Shares in issue/fully diluted
number of shares 23 224 812 23 224 812 23 224 812
Weighted number of shares
repurchased - (621 003) (313 054)
Weighted number of shares 23 224 812 22 603 809 22 911 758
5. Earnings per share. Basic earnings per share is calculated by dividing the
earnings attributable to shareholders by the weighted average number of 23 224
812 ordinary shares in issue during the period (December 2002: 22 603 809; June
2003: 22 911 758 shares). To calculate the headline earnings per share, the
earnings attributable to shareholders is adjusted for the loss/(profit) on sale
of assets after taxation, the impairment of property and the amortisation of
goodwill. This headline earnings calculation is in compliance with SAICA
Circular 7/2002 as directed by the JSE Securities Exchange South Africa.
6. Declaration of dividend. The board has declared an interim dividend (No. 22),
of 29 cents per ordinary share to all shareholders of Cashbuild Limited.
Date dividend declared: 09/02/2004
Last day to trade "CUM" the dividend: 27/02/2004
Date commence trading "EX" the dividend: 01/03/2004
Record date: 05/03/2004
Date of payment: 08/03/2004
Share certificates may not be dematerialised or rematerialised between Monday, 1
March 2004 and Friday, 5 March 2004, both dates inclusive.
On behalf of the board
DONALD MASSON PAT GOLDRICK
Chairman Chief executive
Johannesburg 11 February 2004
COMMENTS
NATURE OF BUSINESS
Cashbuild is southern Africa"s largest retailer of quality building materials
and associated products, selling direct to a cash-paying customer base through
our constantly expanding chain of stores (118 at the end of this reporting
period). Cashbuild carries an in-depth quality product range tailored to the
specific needs of the communities we serve. Our customers are typically home
builders and improvers, contractors, farmers, traders and, increasingly, large
construction companies and government-related infrastructure developers, as well
as all discerning customers looking for quality building materials at lowest
prices.
Cashbuild has built its credibility and reputation by consistently offering
lowest everyday prices, and through a purchasing and inventory policy that
ensures that customers" requirements are always in stock.
FINANCIAL HIGHLIGHTS
Headline earnings per share have increased by 10% and operating profit (before
financing income) improved by 25% for the 26 weeks ended 27 December 2003. Net
asset value per share has increased by 28%, from 500 cents (Dec 2002) to 641
cents. The board has declared an interim dividend (No. 22) of 29 cents per
share.
Revenue amounted to R836 million, a healthy increase of 16% on the comparative
period. Half of the increase is attributable to stores in existence since the
beginning of the prior reporting period (pre-existing stores) and half to the 16
stores the company has opened since the end of the 2002 financial year (new
stores).
Given deflation of 1% in relation to the comparative period, real growth in
revenue in excess of 8%, and the growth in market share achieved through the
opening of the new stores is considered satisfactory. The positive macro-
economic environment has supported the improvement in revenue. Cashbuild has
maximised the advantages of this environment by focusing, over the last 12
months, on the fundamentals of the business, i.e. customer service, "always in
stock", "always lowest prices" and product ranging and merchandising. The
company has developed and implemented a structured methodology and approach to
customer service to ensure ongoing customer satisfaction. Continuous training,
application and improvement in this regard is expected to ensure continued
customer support and growth. Cashbuild has honed its product range within each
store to ensure it meets the requirements of the local market, and as a
consequence, the optimisation of our stock holding. Merchandising, layout and
overall store structure has been improved with the research and implementation
of appropriate planograms and store layouts specific to each market. Not only
have these initiatives provided positive results to date but they are also
expected to deliver future benefits. These initiatives were further enhanced by
our focused micro-marketing specifically aimed at each target market within
which we trade. This has resulted in the group (including new stores) growing
transactions through the tills by an encouraging 19% and the number of units
sold improving by an impressive 25%. Within pre-existing stores, customer
transactions grew by a strong 6% and the number of units sold improved by 10%.
Cashbuild"s continued commitment to its "always in stock" policy and to its
"always lowest prices" strategy has placed the group"s margins under pressure.
Though deflation had adversely affected rand margins this has been more than
compensated for by the growth in unit sales over the period.
Deflation on specific large commodity lines has, however, required Cashbuild to
lower its prices on stock purchased at pre-deflationary prices with the result
that the group"s percentage margins have been adversely affected. The effect has
been limited to a fall of 0.9% in percentage margin terms when compared to the
prior period. This has been achieved whilst maintaining good overall stock
management with shrinkage maintained at less than 0.4% of revenue and continued
control of inventory ranging and obsolescence. Management is satisfied with this
outcome as Cashbuild"s policies and strategies have paid off in terms of
customer satisfaction, which is apparent from the growth in transactions, unit
sales and market share, as well as improving rand margins.
Operating expenses continue to be well managed and controlled.
Cashbuild is exceptionally cash generative, and previously enjoyed substantial
earnings from its financing activities. The reduction in interest rates has
severely impaired its ability to generate income from this source. With interest
rates at almost half of last year"s level, net financing income is 43% or R2.7
million down on the prior period.
Cashbuild"s balance sheet remains solid. Working capital continues to be well
managed with stock levels (in spite of the stocking of 10 new stores opened in
the last year) in line with management"s expectations and unchanged in relation
to the prior period. This has been achieved with the implementation of the
company"s "optimum stock model" determined through a project completed in the
first half of 2003. The implementation of this model has resulted in the
reduction of stock days from 92 days in June 2003 (December 2002: 79 days) to 66
days and an overall reduction in stock levels in existing stores of R22 million
or 8%, whilst ensuring customer requirements are always met. The success of this
approach can be seen in the lower stock levels whilst experiencing strong growth
in transactions, unit sales and revenue. These improvements were also supported
by the initiatives mentioned earlier, i.e. better ranging and merchandising.
Debtors" levels remain unchanged through improved debt collection management.
The company"s strong cash generating ability and its strict management of
working capital resulted in an overall increase in cash levels to R210.5
million, representing a 25% improvement on the prior period (with no interest-
bearing borrowings).
Commitments of R20.9 million is attributable to the new IT systems due for
implementation by mid 2004 (see notes under prospects) and to new store
developments.
PROSPECTS
The current market for total building materials is estimated to be between R30
and R60 billion per annum and growing. Cashbuild is currently achieving revenue
of in excess of R1.5 billion, giving a market share of between 3% and 5%.
Cashbuild"s objective is to grow profitable revenue over a period of time by:
- Ratcheting growth in existing store locations through continuous focus on the
business fundamentals and core strategies, store refurbishments and store
relocations;
- Cashbuild is aiming to either refurbish or relocate all pre-existing stores
over a period of five years;
- Growing the store base each year by at least 10 stores;
- Cashbuild has a strategic and well-planned approach to the expansion of its
store base. In the past three years the company has added an additional 20 new
stores. Each new or relocated store has to have a local market to support the
forecasted revenue and must also meet strict operational and financial criteria
prior to approval. Each new store"s progress is monitored monthly and corrective
action is taken where required, to support growth and ensure success for all
stakeholders.
Our prime target customer is unchanged and remains the cash-paying consumer
intent on necessary domestic improvements and structural repairs plus the
contractor who services the consumer. Cashbuild is also making headway in
increasing the volume of revenue generated from contractors involved in
government-related contracts.
Management is confident that Cashbuild"s markets will continue to grow,
supported by a property culture which has arisen from government"s drives to
increase home ownership and the continued striving of private home builders and
developers to meet the aspirations of more and more home owners for larger and
better housing. In all of the countries in which Cashbuild trades, home
ownership is increasingly seen as a dependable and profitable investment.
Short-term outlook
Revenue growth since the end of December continued to be strong and trading
conditions look positive for the remainder of the financial year.
Cashbuild"s objective for the second half of the current financial year is to
grow revenue by more than 16%. This will be achieved by maximising on the
existing property culture and macro-economic environment and by continuing to
focus on our business fundamentals and core strategies that have proven to be
successful in the first half, i.e.:
Lowest prices;
Quality products (never sell seconds quality);
Always in stock;
Product ranging;
Focused micro-marketing;
Customer delivery service;
Excellent in-store customer service.
Margins are expected to return to prior year levels as the deflationary
environment abates and inflation albeit at low levels returns, largely as a
result of the Rand/Dollar exchange rate and the world steel markets. With the
stock model now firmly in place, lower levels of stock will, in future limit any
deflationary impact on margins. Cashbuild has a proven strategy, as can be seen
from the first half results, to deal with a deflationary environment and will
continue to apply this strategy should the need arise.
Costs will continue to receive management"s attention and will continue to be
reduced or justified.
Financing income is a direct function of interest rates, and as shown in the
last six months, will continue to have an impact on Cashbuild"s results.
Working capital is well under control and Cashbuild will continue to apply its
now tried and tested strategies and approach to working capital management.
Cashbuild will continue to utilise its excess cash for expansion,
refurbishments, relocations and dividend flows.
Cashbuild"s dividend policy of four times cover at half year and three times
cover based on the full year"s earnings, at year-end, will remain in place for
the foreseeable future.
Information technology
Cashbuild initiated a project 18 months ago with the intention of determining
the company"s IT requirements for the next five to ten years. This project was
initiated given the risks associated with the current systems and the planned
future expansion of the company. The project concluded that the current systems
were unable to provide Cashbuild with its information needs into the foreseeable
future and at the same time posed certain risks to the company given its age,
capacity and structure. The project went on to identify the systems that could
take Cashbuild forward. A strategic decision was made to outsource the entire
solution i.e. hardware and software, networks and all associated maintenance.
The project identified Datacentrix as the ideal outsource partner and the
software solutions to be Great Plains at head office and UCS"s ActiveRetail at
store level. The proof of concept has been successfully completed and the
initial implementation plans have been put in place, with head office and one
store being rolled out mid 2004. The remainder of the roll out to all other
stores will be determined over the next six-month period. The total cost of
ownership for the new system is aligned with inflation growth and current cost
trends and is expected to provide additional benefits.
People
The results achieved within the business to date show a committed, experienced,
dedicated and knowledgeable team of people. Our management and store staff play
an invaluable role in our success through their commitment to a consistently
outstanding level of customer service. Cashbuild remains committed to the
training and development of its people and promotion from within the
organisation. Expansion plans require detailed and comprehensive succession
planning and this is performed at all levels of management. Cashbuild also
believes in rewarding outstanding performance and structures are in place within
the business to achieve this.
Cashbuild"s management is confident of being able to deliver consistently
improving, sustainable results into the future and will stay focused on its
proven key business strategies.
Directors: D Masson* (Chairman), P K Goldrick (Chief executive) (Irish), C T
Daly, F M Rossouw* (*Non-executive)
Company secretary: Alan C Smith
Auditors: PricewaterhouseCoopers Inc.
Sponsor: Nedbank Corporate
Registered office: cnr Aeroton and Aerodrome Roads, Aeroton, Johannesburg 2001.
PO Box 90115, Bertsham 2013
Transfer secretaries: Computershare Limited, 70 Marshall Street, Johannesburg
2001. PO Box 61051, Marshalltown 2107
Visit our website at www.cashbuild.co.za
118 stores and expanding
Largest retailer of building materials in southern Africa
Date: 12/02/2004 07:00:18 AM Supplied by www.sharenet.co.za
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