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Unaudited Interim Results for the six months ended 31 December 2012
ARB HOLDINGS LIMITED
(Registration number: 1986/002975/06)
Share code: ARH ISIN: ZAE000109435
(“ARB” or “the company” or “the group”)
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2012
HIGHLIGHTS
- Revenue up 39% to R965 million
- Operating profit up 27% to R76,5 million
- Headline earnings per share up 17% to 18,43 cents
- Ungeared with R153 million cash on hand
- Acquisitions of Industrial Cable Suppliers and Elektro Vroomen
BASIS OF PREPARATION
The condensed unaudited consolidated interim financial statements for
the six months ended 31 December 2012 have been prepared in compliance
with International Financial Reporting Standards (“IFRS”), IAS34 –
Interim Financial Reporting, the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee, the South African
Companies’ Act and the Listings Requirements of the JSE Limited. The
accounting policies applied are consistent with those applied in the
annual financial statements for the year ended 30 June 2012 and the six
months ended 31 December 2011. The condensed consolidated interim
financial statements have not been audited or reviewed by the group’s
auditors.
The unaudited interim financial statements have been prepared under the
supervision of the Financial Director, WR Neasham, CA(SA).
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months 6 months year to
to 31 Dec to 31 Dec 30 June
2012 2011 2012
R000’s R000’s R000’s
Revenue 964 656 693 497 1 565 294
Cost of sales 768 665 562 939 1 258 142
Gross profit 195 991 130 558 307 152
Other income 5 394 2 812 6 282
Operating expenses (124 909) (73 362) (185 930)
Profit before interest and taxation 76 476 60 008 127 504
Interest received 4 665 9 238 17 985
Interest paid (846) (194) (710)
Profit before taxation 80 295 69 052 144 779
Taxation 21 810 22 812 43 799
Profit for the period 58 485 46 240 100 980
Revaluation of property, plant and
equipment (net of taxation) - - 3 240
Total comprehensive income for the period 58 485 46 240 104 220
Profit for the period attributable to: 58 485 46 240 100 980
Non-controlling interest 13 016 9 354 20 391
Ordinary shareholders 45 469 36 886 80 589
Total comprehensive income attributable to 58 485 46 240 104 220
Non-controlling interest 13 016 9 354 20 391
Ordinary shareholders 45 469 36 886 83 829
Unaudited Unaudited Audited
6 months 6 months year to
to 31 Dec 31 Dec 30 June
2012 2011 2012
R000’s R000’s R000’s
Reconciliation of headline earnings
Profit for the period attributable to
ordinary shareholders 45 469 36 886 80 589
Surplus on disposal of property, plant
and equipment (net of taxation) (2) (24) (109)
Bargain purchase price (net of minorities) (2 167) - -
Headline earnings 43 300 36 862 80 480
Number of shares in issue (000’s) 235 000 235 000 235 000
Weighted average number of shares (000’s) 235 000 235 000 235 000
Diluted number of shares (000’s) 235 360 235 480 235 460
Earnings per share (cents) 19,35 15,70 34,29
Diluted earnings per share (cents) 19,32 15,66 34,23
Headline earnings per share (cents) 18,43 15,69 34,25
Diluted headline earnings per share (cents) 18,40 15,65 34,18
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2012 2011 2012
R000’s R000’s R000’s
ASSETS
Non-current assets
Property, plant and equipment 173 315 153 939 162 871
Intangible assets 78 471 756 78 471
Deferred taxation 6 366 2 489 6 454
Current assets
Inventory 304 372 189 325 251 088
Trade and other receivables 255 224 171 994 300 073
Taxation 1 145 95 319
Cash resources 153 244 240 348 185 283
TOTAL ASSETS 972 137 758 946 984 559
EQUITY AND LIABILTIES
Equity and reserves
Share capital 24 24 24
Share premium 116 150 116 150 116 150
Revaluation reserve 49 629 46 389 49 629
Accumulated profit 429 840 372 863 416 566
Attributable to ordinary shareholders 595 643 535 426 582 369
Non-controlling interest 157 321 100 041 150 805
Total shareholders’ funds 752 964 635 467 733 174
Non-current liabilities
Deferred lease payments 771 296 395
Deferred taxation 38 843 20 517 40 655
Current liabilities
Trade and other payables 178 142 101 801 200 539
Deferred lease payments 69 18 109
Taxation payable 715 847 3 774
Bank overdraft 633 - 5 913
TOTAL EQUITY AND LIABILITIES 972 137 758 946 984 559
Number of shares in issue (000’s) 235 000 235 000 235 000
Net asset value per share (cents) 253,47 227,84 247,82
Net tangible asset value per share (cents) 231,50 226,46 225,82
CONDENSED GROUP STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months 6 months year to
to 31 Dec to 31 Dec 30 June
2012 2011 2012
R000’s R000’s R000’s
Cash generated by operating activities 110 711 25 223 95 191
Interest received 4 665 9 238 17 985
Interest paid (846) (194) (710)
Dividends paid (38 695) (34 326) (34 326)
Taxation paid (26 839) (18 807) (41 306)
Secondary tax on companies paid - (3 432) (3 433)
Cash flows from operating activities 48 996 (22 298) 33 401
Cash flows from investing activities (40 377) (2 888) (112 347)
Cash flows from financing activities (35 378) - (7 218)
Net decrease in cash resources (26 759) (25 186) (86 164)
Cash resources at beginning of period 179 370 265 534 265 534
Cash resources at end of period 152 611 240 348 179 370
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Revalu-
Share Share ation
Capital Premium Reserve
R000’s R000’s R000’s
Balance at 30 June 2011 (audited) 24 116 150 46 389
Total comprehensive income for the period - - -
Dividends paid - - -
Balance at 31 December 2011 (unaudited) 24 116 150 46 389
Total comprehensive income for the period - - 3 240
Pre-acquisition reserves arising from
significant business combination
effected during the period - - -
Balance at 30 June 2012 (audited) 24 116 150 49 629
Total comprehensive income for the period - - -
Dividends paid - - -
Balance at 31 December 2012 (unaudited) 24 116 150 49 629
Non-
Accumu- Control-
lated ling
Profit Interest Total
R000’s R000’s R000’s
Balance at 30 June 2011 (audited) 364 765 96 225 623 553
Total comprehensive income for the period 36 886 9 354 46 240
Dividends paid (28 788) (5 538) (34 326)
Balance at 31 December 2011 (unaudited) 372 863 100 041 635 467
Total comprehensive income for the period 43 703 11 037 57 980
Pre-acquisition reserves arising from
significant business combination
effected during the period - 39 727 39 727
Balance at 30 June 2012 (audited) 416 566 150 805 733 174
Total comprehensive income for the period 45 469 13 016 58 485
Dividends paid (32 195) (6 500) (38 695)
Balance at 31 December 2012 (unaudited) 429 840 157 321 752 964
CONDENSED GROUP SEGMENT REPORT
Unaudited for the 6 months ended 31 December 2012
Elec-
trical
Whole-
saling Lighting Corporate
R000’s R000’s R000’s
Segment revenue 829 035 139 670 42 869
Profit before interest and taxation 46 419 14 420 34 137
Segment assets 585 402 139 872 312 513
Segment liabilities 148 219 70 486 25 695
Inter-
company
eliminations
and re-
allocations Total
R000’s R000’s
Segment revenue (46 918) 964 656
Profit before interest and taxation (18 500) 76 476
Segment assets (65 650) 972 137
Segment liabilities (25 227) 219 173
Unaudited for the 6 months ended 31 December 2011
Elec-
trical
Whole-
saling Corporate
R000’s R000’s
Segment revenue 693 766 36 125
Profit before interest and taxation 47 899 27 871
Segment assets 491 494 343 612
Segment liabilities 105 347 71 156
Inter-
company
eliminations
and re-
allocations Total
R000’s R000’s
Segment revenue (36 394) 693 497
Profit before interest and taxation (15 762) 60 008
Segment assets (76 160) 758 946
Segment liabilities (53 024) 123 479
Audited for the year ended 30 June 2012
Electrical
Wholesaling Lighting* Corporate
R000’s R000’s R000’s
Segment revenue 1 449 098 119 800 33 951
Profit before interest
and taxation 96 345 5 073 30 307
Segment assets 625 030 115 203 416 911
Segment liabilities 198 658 55 416 129 474
Inter-
company
eliminations
and re-
allocations Total
R000’s R000’s
Segment revenue (33 555) 1 565 294
Profit before interest
and taxation (4 221) 127 504
Segment assets (172 585) 984 559
Segment liabilities (132 163) 251 385
*for the six months ended 30 June 2012
COMMENTARY
The board of ARB (“the board”) is pleased to present the group’s interim
results for the six months ended 31 December 2012 (“the period”).
The group’s strategy of achieving a level of revenue and profit
diversification through acquiring strategically aligned, related
businesses delivered top and bottom line growth.
Financial review
The group achieved revenue of R965 million representing growth of 39%,
the majority of which was contributed by the recent acquisitions of
Eurolux (Pty) Limited (“Eurolux”) and Industrial Cable Suppliers (Pty)
Limited (“ICS”). The group’s overall gross margin improved from 18.8%
to 20.3% due to the inclusion of the higher margin Eurolux results. The
increase in overheads reflects the inclusion of Eurolux’s and ICS’
overheads for the full period under review. Operating profit increased
by 27% to R76.5 million.
Net interest received decreased due to the cash-settled acquisitions of
Eurolux and ICS. These acquisitions proved to be earnings enhancing as
their contribution to operating profit substantially exceeded the
reduction in interest received.
The group’s effective tax rate was lower than in the prior period due to
the introduction of dividend withholding tax resulting in no STC charge
in the current period.
Headline earnings per share grew by 17,5% to 18,43 cents (2011: 15,69
cents).
The group’s statement of financial position remains robust reflecting a
net asset value per share of 253,47 cents (2011: 227.84 cents) and a net
ungeared cash position of R153 million.
Net working capital as a percentage of annualised revenue was maintained
at below 20% reflecting management’s disciplined approach to cash
management. Inventory days increased, as anticipated, due to increased
stock orders ahead of the Chinese New Year factory shutdowns. Despite
the major retail chains taking extended payment terms over the peak
Festive Season, trade receivable days (net of VAT) increased only
marginally to 42 days.
Net capital expenditure for the period amounted to approximately
R4,4 million. The ICS purchase consideration amounted to R36 million,
while a further amount of R35 million was used to settle ICS’ external
interest-bearing debt.
Segmental review
Electrical Wholesaling
The Electrical Wholesaling segment produced disappointing results for
the period as revenue growth, boosted by the acquisition of ICS, was
offset by a decline in gross margins during the period. The segment’s
results were further impacted by the costs associated with the
implementation of its new ERP software as well as the ICS integration
costs, the full benefits of which will only be realised in the second
half of the financial year.
Lighting
The Lighting segment produced very pleasing results for the period.
Strong revenue growth reflects market share gains and the combination of
improved margins and tight cost control produced an excellent trading
result for the period.
Corporate
The Corporate segment represents the group’s ungeared property
portfolio, comprising 17 properties valued at R140 million, the
centralised treasury function and ARB IT Solutions (Pty) Limited.
Results for the period were in line with expectations and better than
the prior period due to the non-recurrence of the Eurolux transaction
costs incurred in the prior period.
Corporate activity and expansion
The acquisition of 100% of both ICS, effective from 2 July 2012, and
Elektro Vroomen (Pty) Limited (“Elektro Vroomen”), effective from 1
January 2013, ensured that the period was a busy one from a corporate
activity perspective.
Through these acquisitions, ARB continued to expand its geographic reach
by adding 4 new branches across 4 provinces increasing ARB’s national
branch network to 19 branches across all nine provinces.
Acquisition of 100% of ICS
With effect from 2 July 2012, ARB acquired 100% of ICS. The fair value
of ICS’s net assets as at the effective date of the acquisition was
determined as follows:
R000’s
Total assets 124 794
Total liabilities (85 875)
Net assets 38 919
Bargain purchase price (2 928)
Total consideration settled in cash 35 991
For the period, ICS reported the following revenue and profit after tax:
R000’s
Revenue 103 970
Profit after tax 1 187
ICS’s revenue and profit included in the group statement of
comprehensive income form part of the “Electrical Wholesaling” segment
in the condensed group segment report.
Acquisition of 100% of Elektro Vroomen
The acquisition of 100% of Elektro Vroomen was announced on SENS on 11
December 2012 and became effective on 1 January 2013.
Established in 1959, Elektro Vroomen is an electrical wholesaling
operation with branches in Bloemfontein and Kathu. The acquisition
provides ARB Electrical with an established presence and customer base
in the Free State as well as in the fast-growing mining node of Kathu,
Northern Cape. Furthermore, the acquisition provides ARB with an
opportunity to expand Elektro Vroomen’s product offering to include a
full range of cable and overhead line products to complement its current
range of low voltage electrical products.
Although still subject to finalisation, the fair value of Elektro
Vroomen’s net assets as at the effective date of the acquisition was
determined as follows:
R000’s
Total assets 11 426
Total liabilities (16 926)
Net liabilities (5 500)
Goodwill 5 500
Total consideration settled in cash R1-00
Exclusive international distribution agreements
Consistent with its strategy to secure higher margin, proprietary
products, the group secured the exclusive distribution rights to several
international electrical products including ACCC® (a technologically
advanced, high performance transmission conductor), Copperweld (a range
of bimetallic wire products with significant anti-theft properties) and
the full range of Zhejiang CHINT Electrics Co., Ltd’s (the largest
manufacturer of electrical products in China) low voltage products. The
contribution from these agencies will only be evident in future periods.
With an ungeared balance sheet and significant cash resources,
management continues to explore acquisition opportunities aligned to its
long-term strategy of offering a diversified range of electrical and
related industrial products to a broad spectrum of industries and market
segments.
Prospects
While the group remains well positioned to benefit from any improvement
in public sector infrastructure spending, all indications point to a
continuation of the tough market conditions experienced over the past
few years. The recent corporate activity and more diversified revenue
and profit base should positively influence the group’s results for the
remainder of the financial year.
The above prospects statements have not been reviewed or reported on by
the company’s auditors.
Changes to the board
As previously announced, Craig Robertson resigned as an executive
director of the company on 1 July 2012 and as chief executive officer of
ARB Electrical on 31 December 2012 following the successful handover of
his duties to Blayne Burke.
Subsequent events
Save for the Elektro Vroomen acquisition becoming effective on 1 January
2013, no significant events have occurred in the period between the
reporting date and the date of this announcement.
Dividends
ARB’s policy is to distribute a single, annual dividend for the full
year of up to a maximum of 40% of net profit after taxation. In line
with this policy, no interim dividend has been declared.
Appreciation
We would like to acknowledge our management and staff, our fellow
directors as well as our valued customers, suppliers, business partners,
advisors and shareholders for their continued support.
For and on behalf of the Board.
Alan R Burke Byron Nichles
Chairman Chief Executive Officer
14 February 2013
Directors: AR Burke (Chairman)*; ST Downes*>; JR Modise*; WR Neasham
(Financial Director); B Nichles (Chief Executive Officer); RB
Patmore*>#; G Pretorius*>
*non-executive >independent #lead independent director
Registered office: 10 Mack Road, Prospecton, Durban, 4110 (PO Box 26426,
Isipingo Beach, 4115)
Company secretary: WR Neasham CA(SA), 10 Mack Road, Prospecton, Durban,
4110 (PO Box 26426, Isipingo Beach, 4115)
Auditors: PKF Durban, 12 on Palm Boulevard, Gateway, 4319 (PO Box 1858,
Durban, 4000)
Sponsor: Grindrod Bank Limited, 1st Floor, Building Three, Commerce
Square, 39 Rivonia Road, Sandhurst, 2196 (PO Box 78011, Sandton, 2146)
Transfer secretaries: Computershare Investor Services (Pty) Ltd,
70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown,
2107)
Investor relations: Keyter Rech Investor Solutions CC, Fountain Grove,
5 2nd Road, Hyde Park, 2196 (PO Box 653078, Benmore, 2010)
Date: 14/02/2013 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.