ARB Holdings’ healthy profit boosts share price
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ARB HOLDINGS’ share price shot up 6.8 percent to R5.80 by midday yesterday after the electrical and lighting products distributor reported a 37.6 percent increase in headline earnings to 82.49 cents a share for the year to June 30.
Profit for the year shot up 126.5 percent over the same period last year and by 45.6 percent compared with 2019.
A dividend of 42.5c per share was declared in view of strong cash generation, comprising a 32.5c ordinary dividend and a 10c special dividend, which was passed in 2020.
The share price has notched up a gain of 45 percent over 12 months.
Chief executive Bill Neasham said while they had performed well in the 2021 financial year, their outlook for 2022 was cautious.
This was due to global supply chain disruptions, which were impacting the group through its lighting imports, and in the electrical division through manufacturers having difficulty in obtaining raw materials.
This was offset by opportunities in the rebuilding that would be required following unrest in KwaZulu-Natal and parts of Gauteng, and possibly also from opportunities from the local government election.
Municipalities traditionally spent more on electrification in the run-up to the polls, although it had not happened in the last local government election, said Neasham.
Cash stood at R345.2 million at the 2021 financial year-end, from R151.9m at the same time in 2020.
Revenue improved 24.2 percent versus 13.1 percent in 2020, mainly as a result of market share gains; the significant rise in the copper price which impacts cable sales, and the lost revenue in the comparable period from April to June 2020.
Neasham said inventories were carefully managed to take account of the volatility of the copper price.
The copper price was about 40 percent up on April last year in rand terms, and the company benefited not only from a higher selling price, but also on a higher margin on the selling price, he said.
Gross margins had improved primarily due to the change in product mix, the advantages of a well-priced stock holding at the beginning of the year and the rising value of copper stock on hand throughout the year.
Although closely managed and constantly reviewed, overheads rose 4.5 percent, largely as a result of the variable cost increases attributable to the growth in revenue.
Operating profit increased 102 percent to R294.8m, while the operating margin improved to 10.1 percent from 6.2 percent, principally from cost controls in all divisions.
Net interest received increased by 42.4 percent despite the lower prime interest, mainly due to the cash generated from the improved management of working capital, particularly in the lighting division.
Working capital was now within a targeted range of 20 to 25 percent, in line with management’s view last year that excess working capital was a short-term phenomenon.
In the electrical division revenue increased by 25.5 percent and operating profit improved by as much as 107 percent.
The division, comprising ARB Electrical Wholesalers, GMC Powerlines, ARB Global, CraigCor and Consolidated Electrical Distributors, saw a revenue increase.
This was due to the implementation of projects that were initially delayed by the first lockdown; the improving rand value of cable sales from an increase in the rand copper price and a gain in market share; reduced revenue during the initial lockdown last year and the sale of cable management product.
Lighting division revenue increased 20.4 percent and operating profit improved 266.8 percent.
The division, comprising Eurolux, Radiant and Cathay Lighting, benefited from improved Do-it-Yourself expenditure during the lockdowns, the lack of revenue in the comparable period following a loss of about six weeks of trading, and the availability of stock.
ARB Holdings shares later dropped but still closed 1.29 percent higher at R5.50 on the JSE yesterday.