BUILDING: Iliad's Cape Odyssey
Recent Western Cape Business News
IS building supplies conglomerate Iliad Africa – which had ambitions to expand its Western Cape presence – finding that cracking the local market an epic headache?
Recently Iliad closed its Ferreira’s Décor World outlet in Paarden Eiland, and CBN was rather surprised to see the company disclosing a hefty R249.5 million goodwill impairment on businesses that included well known Cape Town hardware specialists Campwell Hardware.
Readers may remember that in mid-2006 Iliad acquired Campwell Hardware for R165 million – a price tag that raised some eyebrows even though the building sector was enjoying boom conditions at the time.
The acquisition gave Iliad a sizeable footprint in the Western Cape with Campwell selling a wide variety of building materials through 11 stores in the region.
The impairment – disclosed in Iliad’s interim results to end June 2011 - covers two businesses - Campwell and Thorpe Timbers. It is not clear how much each business is being impaired.
While a goodwill impairment is much more an accounting entry than a physical loss, the decision to impair such a large chunk of goodwill prompted CBN to have a closer look at Iliad’s interim results.
Unfortunately there is no detailed divisional breakdown, or much detail on Campwell. But interim commentary suggested results from the Coastal sub-division – of which Campwell forms a large chunk – were “more subdued but profitable”.
The way CBN understood it, Campwell formed part of Iliad’s stated strategic intent of growing its geographical presence (and complemented Iliad’s existing operation in Somerset West).
At the time of doing the deal there were plans for Iliad to expand Campwell Hardware (predominantly a cash business) through its expertise in both the credit advancement and procurement disciplines.
As far as CBN can see the Campwell branch network has not expanded as planned, which maybe suggest Iliad is finding the going in the Cape much tougher than expected.
Looking back to the annual report covering the year to end December 2010, there are clues that Iliad is having to sweat for a return in the moribund Western Cape building sector.
Directors noted that an improved performance was expected from Campwell “after refining its strategy”. Directors stayed positive, noting that this relatively recent acquisition still presented good opportunities for growth.
The annual report disclosed that results from Iliad’s Western Cape operations were down for the year. “Appropriate management actions included consolidation and re-alignment of structures, and the implementation of a common information technology platform.”
Iliad must be hoping these initiatives will pay off. The company’s annual report estimates that the Western Cape accounts for around 30% of the national market, which means the region remains a key market for Iliad. But right now, R165 million looks like a lot of money to have paid to increase a footprint.
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