Dearth of infrastructure projects hurts ARB Holdings
Companies / 14 February 2020, 08:00am / Edward West
CAPE TOWN – ARB Holdings, the investment and property holding company that owns ARB Electrical Wholesalers and half of lights distributor Eurolux, lifted revenue only 4.5 percent to R1.42 billion in the six months to December 31 due to the dearth of infrastructure projects.
The group foresees little or no improvement in the trading environment, directors said on Thursday.
The lighting division’s turnover increased by 36.1 percent to R396 million, due mainly to the inclusion of newly acquired Radiant.
Group operating profit increased by 16 percent to R106.3m (R91.6m) at an operating margin of 7.5 percent of revenue (6.8 percent).
Expenditure grew only due to the inclusion of Radiant lighting and foreign exchange losses.
The group remained cash generative, and largely ungeared, other than for the IFRS 16 Right-Of-Use lease liabilities. Net cash came to R84.9m (R147.8m).
Net interest received fell 78.7 percent to R6.7m (R12.6m), with the interest expense recognition aspect of the IFRS 16 Right-Of-Use liability for the first time (R3.9m); investments over the last two years of R296m – mainly to the establishment of the Lords View distribution centre – the acquisition of Radiant Lighting (R96m) in the prior year and improvements to Radiant properties of R19m.
Investment in working capital increased by R98m, with the major portion of this being the annual payment of accounts payable due to the earlier Chinese New Year and more stock having to be imported and paid for earlier in the December season cycle.
In addition, Eurolux increased stock levels to improve service to chain stores.
Earnings per share and headline earnings per share increased by 7.06 cents per share as a result of the IFRS fair value adjustment of a put option liability.
This adjustment resulted in an increase in profit of R6m (2018: a reduction in profit of R10.6m), with the net effect of a year-on-year change of R16.6m.
The electrical division, comprising ARB Electrical Wholesalers, GMC Powerlines, ARB Global, CraigCor and CED reported a 4.5 percent decline in revenue from the lack of major infrastructure projects, low spend by Eskom on electrification projects, and the impact of load shedding on manufacturing and mining.
The DC at Lords View had already contributed to increased margins for the division.
Power cable sales continued to decline with reducing margins. Overhead line product sales were disappointing, because of inconsistent spend by Eskom on electrification.
Low voltage sales continue to improve. Operating expenditure was reduced but operating profit increased by 13.5 in this division.
The lighting division, comprising Eurolux, Radiant and Cathay lighting, increased revenue by 37.3 percent and operating profit by 2.2 percent.
The inclusion of Radiant was partially offset by the volatile exchange rate and the lack in consumer confidence, which impacted retailer customers.
Lamp sales were negatively affected by changes in technology, which resulted in the division pursuing a strategy of substitution with other products that were less expensive and more durable.
These changes, together with delays in the implementation of retailer forex-related price increases, resulted in a decline in gross margin in the lighting division.
The corporate division, which comprises the property portfolio and Xact ERP Solutions lifted revenue by 34.9 percent while operating profit was up by 62.5 percent.
The increase in operating profit has resulted mainly from the additional rental in respect of the Lords View development from January 2019.
The board was exploring acquisition opportunities, but the immediate focus was to fully integrate Radiant with Eurolux and manage the Lords View DC into an effective facility.
The share price closed unchanged at R3.54 on Thursday.