Wrap Text
Unaudited interim results for the six months ended 31 December 2016
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 2016
Salient points
Revenue up 3% to R1.3bn
Profit before taxation increased to R111m
Headline earnings per share up 1% to 28.07 cents
Ungeared, with R175m net cash on hand
Commentary
Nature of Business
ARB is an investment and property holding company with investments in closely
related trading and distribution businesses, including 74% of ARB Electrical
Wholesalers (Pty) Ltd, a level 3 B-BBEE company which operates 21 electrical
wholesale branches throughout South Africa, and 60% of Eurolux (Pty) Ltd which
imports and distributes light fittings, lamps and related accessories.
Commentary
The Board of Directors of ARB ("the Board") is pleased to present the Group's
interim results for the six months ended 31 December 2016 ("the period").
Financial Review
The Group's revenue for the period increased by 3,1% to R1.27bn (2015: R1.24bn).
The Electrical Division was able to grow its turnover marginally in an extremely
challenging market, through the expansion of its Connect branches, while the
Lighting Division continues to increase revenue with its strategy of expanding its
product offering to existing customers. The Electrical Division's revenue was
adversely affected by the delay in the implementation of municipal projects.
Changes in the product mix and the emphasis on ensuring trading disciplines were
maintained, resulted in the gross profit margin increasing narrowly to 22,8%
(2015: 22,4%). The Group's operating profit decreased slightly to R104.5m
(2015: R104.8m) at an operating margin of 8,2% (2015: 8,5%) of revenue.
The Group continues to be cash generative, is ungeared and has net cash on hand
of R174.8m (2015: R190.9m), after the payment of dividends during the reporting
period of R93.4m. Tight cash management resulted in an increase of 30% in net
interest received to R6.6m (2015: R5.1m).
Despite the continued emphasis on working capital management, net working capital
as a percentage of annualised revenue increased to 24,3% (2015: 20,9%). This increase
remains within the targeted range of 20% to 25% of revenue. Net working capital last
year was significantly lower due to the reduction in inventories in the Electrical
Division as a result of the prolonged strike at a large supplier. Receivables and
payables have decreased over the comparative period as the previous period included
the effect of a large project which had extended payment terms to customers with
back-to-back terms from suppliers. The Eurolux minority shareholders' put option, in
respect of their shareholding interests, is reflected as a current liability as these
non-controlling shareholders may now put their shares to the Group. They have not
indicated any intention to do so.
Gross capital expenditure for the period was R13.6m, which in the main relates to
the replacement of vehicles, the costs involved in the roll-out of the additional three
Connect stores in the Electrical Division and computer equipment in the Lighting
Division.
Divisional reviews
Electrical Division (revenue up 1,9% and operating profit down 2,1%)
The Electrical Division's revenue increase was generated by sourcing and securing
opportunities from smaller project orders, while continuing to expand its geographic
footprint with three new Connect stores in an effort to compensate for the decrease
in project revenues, particularly in the last quarter of the 2016 calendar year. With
limited trading opportunities, the gross margin remained under pressure, predominantly
in the high value cable-related products. Operating profit decreased by 2,1% to R62.8m
(2015: R64.1m), with an operating margin of 6,2% (2015: 6,4%).
Lighting Division (revenue up 5,7% and operating profit up 8,9%)
The Lighting Division continues to expand its product range to existing customers.
This division continues to show pleasing results with revenue up 5,7% to R270.6m
(2015: R255.9m). The volatile exchange rate again put pressure on margins. However,
through the management of overheads, the operating profit increased by 8,9% to R32.5m
(2015: R29.8m), and operating margin improved to 12,0% (2015: 11,6%). The new Euro
Nouveau lighting showroom, which was opened in the period, with a new range targeting
the more discerning buyer, received positive responses from the market. The joint
venture with Crabtree to distribute their products to our retail
customers has had little effect on the current earnings but is expected to show
potential for future growth.
Prospects
The Group foresees little or no change in the general trading environment given the
low economic growth forecast for South Africa. We remain confident that the Group
has the resources to continue to build customer loyalty which will open new opportunities
for the Electrical Division. This division will continue to invest, in the medium term,
in organic growth opportunities through the establishment of new distribution outlets.
Trading margins are expected to remain under pressure and costs and working capital will
continue to be closely managed. The Electrical Division also has opportunities to supply
product from its overhead line department to Eskom which is aiming to increase its
electrification target to over 200 000 households by the end of March 2018.
The Lighting Division will continue to expand its product offering to existing
customers. Additional space has been leased in Johannesburg in an adjourning property to
provide capacity for the new cut wire products and to accommodate a retail "ready pack"
plant. The expansion of the Crabtree product range of electrical accessories will give
further momentum to this initiative.
The Euro Nouveau concept has been successfully launched in November 2016. Stock orders
are currently being placed and delivered to the approved distributors nationally. The
expectation is that this ultra-premium range of products will grow to be a meaningful
contributor to company sales within the short to medium term.
Whilst no new corporate activity has taken place during the period, the Group continues
to evaluate acquisition opportunities.
These interim statements, including these "prospects", have neither been reviewed
nor reported on by the Company's auditors.
Condensed Group statement of comprehensive income
Restated
Unaudited Unaudited Audited
six months to six months to 12 months to
31 December 31 December 30 June
% 2016 2015 2016
change (R000's) (R000's) (R000's)
Revenue 3 1 273 791 1 235 804 2 489 791
Cost of sales 3 983 549 958 790 1 941 677
Gross profit 5 290 242 277 014 548 114
Other income 7 2 691 2 520 6 231
Operating expenses 8 (188 389) (174 754) (332 130)
Impairment of goodwill - - (5 500)
Profit before interest and
taxation 104 544 104 780 216 715
Interest received 30 6 563 5 055 11 911
Profit before taxation 1 111 107 109 835 228 626
Taxation 3 33 136 32 158 68 455
Profit for the period 77 971 77 677 160 171
Items that will not be
recycled into profit or loss
- Revaluation of property,
plant and equipment (net of
taxation) - - 2 449
Total comprehensive
income for the period 77 971 77 677 162 620
Profit for the period
attributable to: 77 971 77 677 160 171
- Non-controlling interests 12 536 12 568 24 594
- Ordinary shareholders 1 65 435 65 109 135 577
Total comprehensive
income attributable to: 77 971 77 677 162 620
- Non-controlling interests 12 536 12 568 24 594
- Ordinary shareholders 1 65 435 65 109 138 026
Reconciliation between earnings and headline earnings
Restated
Unaudited Unaudited Audited
six months to six months to 12 months to
31 December 31 December 30 June
% 2016 2015 2016
change (R000's) (R000's) (R000's)
Profit for the period
attributable to ordinary
shareholders 65 435 65 109 135 577
Impairment of goodwill (net
of minorities) - - 4 070
Loss on disposal of
property, plant and
equipment (net of taxation
and minorities) 540 203 747
Headline earnings 65 975 65 312 140 394
Number of ordinary shares
in issue (000's) 235 000 235 000 235 000
Weighted average number
of ordinary shares in issue
(000's) 235 000 235 000 235 000
Diluted number of ordinary
shares (000's)* 235 000 235 000 235 000
Basic earnings per share
(cents)* 1 27.84 27.71 57.69
Headline earnings per
share (cents)* 1 28.07 27.79 59.74
* There are no dilutive instruments in issue.
Condensed Group statement of financial position
Restated
Unaudited Unaudited Audited
six months to six months to 12 months to
31 December 31 December 30 June
% 2016 2015 2016
change (R000's) (R000's) (R000's)
ASSETS
Property, plant
and equipment(#) 4 230 664 222 338 225 313
Intangible assets (7) 77 925 83 581 78 003
Deferred taxation 3 008 9 944 6 957
Total non-current assets 311 597 315 863 310 273
Current assets 1 029 807 1 011 656 1 123 287
Inventory 18 463 032 390 880 439 913
Trade and other
receivables (9) 392 013 428 500 440 105
Taxation - 1 399 -
Cash resources (8) 174 762 190 877 243 269
Total assets 1 341 404 1 327 519 1 433 560
EQUITY AND LIABILITIES
Share capital and premium 116 174 116 174 116 174
Revaluation reserve 71 002 70 302 71 002
Accumulated profits 625 662 565 795 638 012
Attributable to ordinary
shareholders 812 838 752 271 825 188
Non-controlling interests 158 530 149 568 161 594
Total shareholders' funds 971 368 901 839 986 782
Non-current liabilities 42 445 118 189 126 372
Put option liability(#) - 79 174 84 510
Deferred lease payments 844 309 393
Deferred taxation 7 41 601 38 706 41 469
Current liabilities 7 327 591 307 491 320 406
Trade and other payables (22) 236 896 302 125 317 556
Put option liability(#) 88 841 - -
Taxation payable (65) 1 854 5 366 2 850
Total equity and liabilities 1 341 404 1 327 519 1 433 560
Net asset value per
share (cents) 345.89 320.11 351.14
Net tangible asset
value per share (cents) 318.42 287.29 321.96
(#) Fair value adjustments to financial assets and liabilities done only at year-end.
Property, plant and
equipment
Capital expenditure
for the period 13 610 7 520 19 943
Capital commitments
- contracted for 8 096 1 525 3 308
Depreciation and
amortisation 7 337 5 682 11 517
Summarised Group statement of cash flows
Restated
Unaudited Unaudited Audited
six months to six months to 12 months to
31 December 31 December 30 June
2016 2015 2016
(R000's) (R000's) (R000's)
Cash generated by trading activities 109 931 110 318 236 058
Increase in net working capital (53 533) (30 122) (68 139)
Cash generated by
operating activities 56 398 80 196 167 919
Net interest received 10 894 8 915 19 631
Dividends paid (93 385) (86 335) (86 335)
Taxation paid (29 055) (32 198) (67 092)
Cash flows from operating activities (55 148) (29 422) 34 123
Cash flows from investing activities (13 359) (6 481) (10 345)
Cash flows from financing activities - - (7 289)
Increase in cash resources (68 507) (35 903) 16 489
Cash resources at beginning
of the year 243 269 226 780 226 780
Cash resources at end of the year 174 762 190 877 243 269
Condensed Group statement of changes in equity
Share Accumu-
capital Revaluation lated
and reserve profit
premium (R000's) (R000's)
Balance at 30 June 2015 (audited) 116 174 70 302 571 421
Total comprehensive income - - 65 109
Dividends paid - - (70 735)
Balance at 30 December 2015
(unaudited and restated) 116 174 70 302 565 795
Transfer realised on disposal - (1 749) 1 749
Total comprehensive income - 2 449 70 468
Balance at 30 June 2016 (audited) 116 174 71 002 638 012
Total comprehensive income - - 65 435
Dividends paid - - (77 785)
Balance at 31 December 2016
(unaudited) 116 174 71 002 625 662
Non-
controlling
interests Total
(R000's) (R000's)
Balance at 30 June 2015 (audited) 152 600 910 497
Total comprehensive income 12 568 77 677
Dividends paid (15 600) (86 335)
Balance at 30 December 2015
(unaudited and restated) 149 568 901 839
Transfer realised on disposal - -
Total comprehensive income 12 026 84 943
Balance at 30 June 2016 (audited) 161 594 986 782
Total comprehensive income 12 536 77 971
Dividends paid (15 600) (93 385)
Balance at 31 December 2016 (unaudited) 158 530 971 368
Condensed Group segment report
Electrical Lighting Corporate
(R000's) (R000's) (R000's)
Unaudited six months to
31 December 2016
- Segment revenue 1 018 247 270 556 19 235
- Profit before interest and taxation 62 805 32 468 14 067
- Segment assets 851 568 295 768 523 898
- Segment liabilities 233 333 142 318 190 628
- Net segment assets 618 235 153 450 333 270
Unaudited restated six months to
31 December 2015
- Segment revenue 999 095 255 917 19 642
- Profit before interest and taxation 64 149 29 804 14 427
- Segment assets 871 325 279 849 531 296
- Segment liabilities 286 191 152 604 218 950
- Net segment assets 585 134 127 245 312 346
Audited 12 months ended
30 June 2016
- Segment revenue 2 006 038 506 954 39 311
- Profit before interest and taxation 134 991 59 946 26 854
- Segment assets 931 305 316 836 539 187
- Segment liabilities 290 553 170 318 209 733
- Net segment assets 640 752 146 518 329 454
Inter-Co Total
(R000's) (R000's)
Unaudited six months to 31 December 2016
- Segment revenue (34 247) 1 273 791
- Profit before interest and taxation (4 796) 104 544
- Segment assets (329 830) 1 341 404
- Segment liabilities (196 243) 370 036
- Net segment assets (133 587) 971 368
Unaudited restated six months to 31 December 2015
- Segment revenue (38 850) 1 235 804
- Profit before interest and taxation (3 600) 104 780
- Segment assets (354 951) 1 327 519
- Segment liabilities (232 065) 425 680
- Net segment assets (122 886) 901 839
Audited 12 months ended 30 June 2016
- Segment revenue (62 512) 2 489 791
- Profit before interest and taxation (5 076) 216 715
- Segment assets (353 768) 1 433 560
- Segment liabilities (223 826) 446 778
- Net segment assets (129 942) 986 782
Notes to the financial statements
Basis of preparation
These condensed unaudited consolidated interim financial statements for the six
months ended 31 December 2016 have been prepared in accordance with the framework
concepts and the measurement and recognition requirements of International Financial
Reporting Standards ("IFRS"), the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee, Financial Pronouncements issued by the Financial
Standards Council, the requirements of the SA Companies Act, the JSE Listings
Requirements and the information required by IAS 34 Interim Financial Reporting.
This report was compiled under the supervision of Grant Scrutton CA(SA) (Group
Financial Officer). The Board takes full responsibility for the preparation of these
financial results.
Except for the new standards adopted as set out below, all accounting policies
applied by the Group in the preparation of these interim financial statements are
consistent, in all material respects, with those applied by the Group in its audited
consolidated financial statements for the year ended 30 June 2016.
The Group has adopted the following new standards: IAS 34 Interim Financial Reporting,
IFRS 7 Financial Instruments: Disclosures, IFRS 5 Non-current Assets Held-for-Sale
and Discontinued Operations, IAS 1 Presentation of Financial Statements, and IAS 16
Property, Plant and Equipment. There was no material impact on the interim financial
statements identified based on management's assessment of these standards. The Group
measures its properties and put option liability at fair value; these fair values are
determined annually and accordingly, no fair value adjustments were made for the
interim period. For more information on the annual fair value adjustments, refer to
the annual report for the year ended 30 June 2016.
Restatement of prior period amounts
The December 2015 results have been restated for the recognition of the put option
liability granted to Eurolux minorities and the de-recognition of the associated
non-controlling interest, as set out fully in the summarised audited consolidated
results released on SENS dated 24 August 2016 and the associated Integrated Report.
These minorities now have the right to put these shares to the Company. Should this
occur, the Company has the option to make payment of the consideration due within
six months from the date that the put option was exercised. Full details of the
accounting policy are set out in the 2016 Integrated Report available on our website.
This restatement and its effect on earnings per share ("EPS"), which is the same as
headline earnings per share, are set out below:
Gross EPS
amount effect
(R000's) (cents)
Effect on basic and diluted earnings per share in 2015
Profit for period as previously reported 65 096 27.70
Dividend paid to derecognised NCI now expensed (3 600) (1.53)
Unwinding of present value of put liability (3 860) (1.64)
Derecognition of NCI 7 473 3.18
65 109 27.71
Changes to the Board
There were no changes in the Board of Directors during the period under review.
Financial assistance to related or inter-related companies (s45)
The holding company has provided financial guarantees and cessions of loan
accounts to the Group's bankers on behalf of the subsidiary companies as security
for facilities granted to the subsidiary companies.
Contingent liabilities and subsequent events
As previously reported, the Electrical Division received a summons from a major listed
construction company, in December 2015 as the third defendant for an amount totalling
R76.4m. This claim is primarily against the construction company's insurer in terms of
a professional indemnity policy "as a result of the incorrect cable being procured or
incorrect cable being installed incorrectly". Attorneys have been appointed to defend
the matter. No provision has been made as the Board believes that there is no
reasonable justification for this claim.
Subsequent to 31 December 2016, the Company concluded an agreement to sell its
East London property for a net consideration of R12.4m and to buy another property in
East London for R7.5m to develop as a replacement branch. There is no effect on HEPS
and the transaction is uncategorised in terms of the JSE Listings Requirements.
No other 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 up to a
maximum of 40% of net profit after taxation attributable to ordinary shareholders.
In line with this policy, no interim dividend has been declared.
Appreciation
The Directors and management once again would like to acknowledge and thank
our customers, suppliers, business partners, advisors, shareholders and staff for
their continued support.
For and on behalf of the Board
Alan R Burke
Chairman
W (Billy) Neasham
CEO
16 February 2017
Directors
AR Burke (Chairman)*
JS Dixon#*
ST Downes#*
WR Neasham (CEO)
RB Patmore^#*
GM Scrutton (CFO)
* Non-executive
# Independent
^ Lead independent
Auditors
PKF Durban
12 on Palm Boulevard
Gateway
4319
Sponsor
Grindrod Bank
Grindrod Tower
8A Protea Place
Sandton
Company secretary
M Louw
11 Larch Close
Centurion
0046
Date: 16/02/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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