Badly timed acquisitions, the weak economy and a downturn in the building sector have left building materials retailer Iliad Africa reeling. Compared to its competitors in the sector, which have also been affected by the downturn, Iliad’s performance has been dismal, forcing it into a strategic rethink.
Iliad reported a 212,2c/share loss for the six months to June, compared with earnings of 15,1c/share for the previous corresponding period.
CEO Eugene Beneke concedes that acquisitions made at the height of the stock market boom were ill-timed. He adds, however, that the impact of the recession on the building and construction industry, felt in 2009, was crippling.
Iliad shareholder Francois Nortje says the company’s problems began when its management announced it intended to double the size of the company in 2005. That decision was made when money was cheap and share prices were inflated. Using past growth as an indicator, it expanded too rapidly just before the financial crisis hit.
Nortje has repeatedly accused Iliad of bad management. He adds that its institutional shareholders, Coronation, the Public Investment Corp and Sanlam, have “allowed Iliad directors to destroy value” by failing to hold them accountable. Nortje decries the lack of activism from shareholders in SA, saying they have let companies destroy assets that would otherwise secure the pensions of ordinary South Africans.
The company says it does have a turnaround plan. Last year, Beneke says, Iliad did some introspection. It identified its areas of weakness and has begun to steer back towards profitability.
It intends to broaden its portfolio of products to cater to different sectors of the market. Similar to competitors like Italtile and Ceramic, Iliad wants cashpaying lower-income customers.
Its current urban bias will be retained, but Beneke says it will also expand into some rural areas for better balance.
After a weak showing, Iliad closed nine underperforming branches in the interim period and put some of its businesses up for sale. Some of those were profitable before the downturn, but have been unable to recover.
Beneke says Iliad’s general building materials stores will be united under one brand, a process that could take up to 18 months to complete. The company’s recent growth has largely been acquisitive, leaving it with a number of brands, with different operational structures. It is also implementing one IT platform, which Beneke says will allow the company to explore other synergies in future.
Both processes, he says, will enhance competitiveness. Though the main aim is to restore profitability, the full benefit is unlikely to be felt in the short term.
Nortje himself has had previous dealings with the company. He was commissioned to open 20 new stores for Iliad before the recession. After the company cancelled its expansion plans, Nortje claimed compensation, a matter that was later settled out of court.
He says his intention is to achieve a socially just outcome, and that led him to raise questions about Iliad’s management. Institutional shareholders in SA, he says, need to pay better attention to management, as well as demand. An exercise as simple as walking into a store owned by Iliad would reveal its plummeting sales. Asset managers, he says, should also be able to identify when cheap money and artificially high share prices are driving inorganic growth.
His view is that “major surgery” is required to return Iliad to profitability.
Institutional shareholders like Coronation say they intend holding the shares in expectation of a recovery. Iliad’s path to better days, however, is a long one.
