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Unaudited interim results for the six months ended 31 December 2017
ARB Holdings Limited
("ARB" or "the Company" or "the Group")
Registration number: 1986/002975/06
Share code: ARH
ISIN: ZAE000109435
Unaudited interim results
for the six months ended 31 December 2017
SALIENT POINTS
Revenue up 5% to R1 342m
Operating profit up 3% epto R107m
Headline earnings per hshare up 34% to 37.62 cents
20.9% (5.88 cents) of HEPS increase due to the put option IFRS adjustment
Ungeared, with R227m net cash on hand
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 2017 ("the period").
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 2 B-BBEE
company, which operates 22 electrical wholesale branches throughout South Africa, and 60% of
Eurolux (Pty) Ltd, which imports and distributes light fittings, lamps and related accessories.
FINANCIAL REVIEW
The Group's results for the six months to December 2017 have been positively affected by a
decrease of R13.8m in the IFRS fair value of the put option liability arising from the option
issued to the minority shareholders in Eurolux. This fair value is sensitive to movements in the
Company's share price (please see below). The Group produced a 2.8% increase in operating profit.
The Group's revenue for the period increased by 5.4% to R1.34bn (2016: R1.27bn). The Electrical
Division was able to grow its turnover marginally in an extremely challenging market, through the
expansion of its Connect branches and the successful pursuit of a number of projects, while the
Lighting Division's turnover decreased due to retail customers dropping stock levels in line with
a decrease in demand.
Changes in the product mix, and the emphasis on trading disciplines ensured that gross profit
margin were maintained in a tough trading environment. The Group's operating profit increased
slightly to R107.4m (2016: R104.5m) at an operating margin of 8.0% (2016: 8.2%) of revenue.
The Group continues to be cash generative, is ungeared and has net cash on hand of R226.6m
(2016: R174.9m), after the payment of dividends during the reporting period of R118.7m (2016:
R93.4m). Net interest received increased 110% to R13.8m (2016: R6.6m), R2.8m as a result of tight
cash management and R4.3m being the non-reoccurrence of an IFRS adjustment in the prior period.
With the continued emphasis on working capital management, net working capital as a percentage
of annualised revenue decreased to 21.6% (2016: 24.5%). This decrease is pleasing and is at
the bottom end of the targeted range of 20% to 25% of revenue. Inventories and receivables are
consistent with the comparative period. Payables have increased based on timing differences
mainly on foreign suppliers.
The Eurolux minority put option in respect of their shareholding interests is reflected as a
current liability of R77.2m (2016: R88.8m) as these non-controlling shareholders may now put
their shares to the Group. They have not indicated any intention to do so. This liability is
calculated in terms of a formula. A 13% reduction in the share price in the four months to
December 2017 resulted in this liability reducing by R13.8m. Given the sensitivity to the
formula and in particular the share price, shareholders are cautioned that this may reverse
in the short term.
Gross capital expenditure for the period was R61.9m (2016: R13.6m), which in the main relates to
the costs of vacant land for development of the new ARB Electrical warehousing facility in Lords
View, the completion of the new East London electrical branch and the replacement of vehicles.
DIVISIONAL REVIEWS
Electrical Division (Revenue up 8.7% and operating profit up 12.8%)
The Electrical Division's revenue increase was generated by sourcing and securing opportunities
from smaller project orders, while continuing to secure its market share from its geographic
footprint expansion in the prior years in an effort to compensate for the decrease in large
project revenues, particularly in the last quarter of the 2017 calendar year. With limited
trading opportunities, the gross margin remained under pressure, predominantly in the high value
cable-related products. Operating profit increased by 12.8% to R70.9m (2016: R62.8m), with an
operating margin of 6.4% (2016: 6.2%).
Lighting Division (Revenue down 6.1% and operating profit down 17%)
Revenue in this period disappointed as retail customer confidence reduced further and Retail
Chain stores managed their stocks down accordingly. As a result, revenue decreased by 6.1% to
R254.2m (2016: R270.6m). The volatile exchange rate again put pressure on margins. The operating
profit decreased by 17.0% to R26.9m (2016: R32.5m), and operating margin deteriorated to 10.6%
(2016: 12.0%). The Lighting Division continues to expand its product range to existing customers,
and the new Euro Nouveaux lighting showroom, which was opened in the prior year with a new
range targeting the more discerning buyer, received positive responses from the market.
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 create new opportunities for the Group.
The Electrical Division opened its new Connect branch in Randburg in January 2018 and the
development of the new mega branch in Lords View is expected to be completed in January 2019.
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 continue to be closely managed. The division also
has opportunities to supply product from its overhead line department to Eskom projects which are
aimed at increasing its electrification target by over 200 000 households by the end of
March 2018.
The Lighting Division will continue to expand its product offering to existing customers. The
additional space leased in Johannesburg to provide capacity for their new "cut wire" product range
and to accommodate the retail "ready pack" plant will be fully operational in the second half of
the year. It is anticipated that this facility will contribute positively to the next six months'
results.
The new Euro Nouveaux division is well positioned to take advantage of any improvement in
consumer confidence.
With effect from 1 February 2018, ARB Electrical Wholesalers (Pty) Ltd has acquired a 60% interest
in Craigcor Distributors (Pty) Ltd, a distributor of Rockwell Automation products, with
primary areas of responsibility in Gauteng, Western Cape, Namibia and Zambia. The acquisition
price is based on the average of three years' after tax profits, at a multiple of 6.5, with a
potential maximum of R30m. The transaction is uncategorised in terms of the JSE Listings
Requirements.
Whilst no other 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
Audited
Six months to Six months to year to
31 December 31 December 30 June
% 2017 2016 2017
change (R000s) (R000s) (R000s)
Revenue 5 1 342 403 1 273 791 2 479 418
Cost of sales 5 1 029 866 983 549 1 885 006
Gross profit 8 312 537 290 242 594 412
Other income 54 4 157 2 691 9 848
Selling, administration and distribution
expenses 11 (209 264) (188 389) (387 679)
Operating profit 3 107 430 104 544 216 581
Change in put option valuation 13 828 - (2 126)
Profit before interest and taxation 16 121 258 104 544 214 455
Net interest received 110 13 752 6 563 21 665
Profit before taxation 22 135 010 111 107 236 120
Taxation 3 34 207 33 136 64 654
Profit for the period 29 100 802 77 971 171 466
Items that will not be recycled into profit
or loss
- Revaluation of property, plant and
equipment (net of taxation) - - 4 945
Total comprehensive income for the period 29 100 802 77 971 176 411
Profit for the period attributable to: 29 100 802 77 971 171 466
- Non-controlling interests ("NCI") (3) 12 213 12 536 24 874
- Ordinary shareholders 35 88 590 65 435 146 592
Total comprehensive income attributable to: 29 100 802 77 971 176 411
- Non-controlling interests ("NCI") (3) 12 213 12 536 24 874
- Ordinary shareholders 35 88 590 65 435 151 537
RECONCILIATION BETWEEN EARNINGS AND HEADLINE EARNINGS
Audited
Six months to Six months to year to
31 December 31 December 30 June
% 2017 2016 2017
change (R000s) (R000s) (R000s)
Profit for the period attributable to
ordinary shareholders 88 590 65 435 146 592
(Profit)/loss on disposal of property,
plant and equipment (net of taxation and NCI) (175) 540 (1 150)
Headline earnings 88 415 65 975 145 442
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
Basic earnings per share (cents)* 35.4 37.70 27.84 62.38
Headline earnings per share (cents)* 34.0 37.62 28.07 61.89
* There are no dilutive instruments in issue.
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION
Audited
Six months to Six months to year to
31 December 31 December 30 June
2017 2016 2017
(R000s) (R000s) (R000s)
ASSETS
Property, plant and equipment 289 590 230 664 237 380
Intangible assets 77 769 77 925 77 848
Investment in joint venture 4 179 2 044 3 233
Deferred taxation 3 886 3 008 5 797
Total non-current assets 375 424 313 641 324 258
Current assets 1 080 681 1 027 763 1 198 311
Inventory 461 436 463 032 471 992
Trade and other receivables 392 683 389 969 419 677
Taxation - - -
Cash resources 226 562 174 762 306 642
Total assets 1 456 105 1 341 404 1 522 569
EQUITY AND LIABILITIES
Share capital and premium 116 174 116 174 116 174
Revaluation reserve 70 480 71 002 70 480
Accumulated profits 718 626 625 662 712 286
Attributable to ordinary shareholders 905 280 812 838 898 940
Non-controlling interests 146 681 158 530 170 868
Total shareholders' funds 1 051 960 971 368 1 069 808
Non-current liabilities 41 812 42 445 41 148
Deferred lease payments 1 093 844 677
Deferred taxation 40 719 41 601 40 471
Current liabilities 362 332 327 591 411 613
Trade and other payables 282 922 236 896 314 295
Put option liability 77 179 88 841 91 007
Taxation payable 2 231 1 854 6 311
Total equity and liabilities 1 456 105 1 341 404 1 522 569
Net asset value per share (cents) 385.23 345.89 382.53
Net tangible asset value per share (cents) 357.45 318.42 353.90
Property, plant and equipment
Capital expenditure for the period 61 935 13 610 33 894
Capital commitments - contracted for 2 367 8 096 53 448
Capital commitments - not contracted for 78 942 - 64 500
Depreciation and amortisation 7 085 7 337 13 828
CONDENSED GROUP STATEMENT OF CASH FLOWS
Audited
Six months to Six months to year to
31 December 31 December 30 June
2017 2016 2017
(R000s) (R000s) (R000s)
Cash generated by trading activities 113 206 109 931 226 167
Decrease/(increase) in net working capital 7 033 (53 533) (19 146)
Cash generated by operating activities 120 239 56 398 207 021
Net interest received 13 752 10 894 25 998
Dividends paid (118 650) (93 385) (93 385)
Taxation paid (36 126) (29 055) (62 486)
Cash flows from operating activities (20 785) (55 148) 77 148
Cash flows from investing activities (59 295) (13 359) (13 775)
(Decrease)/increase in cash resources (80 080) (68 507) 63 373
Cash resources at beginning of the period 306 642 243 269 243 269
Cash resources at end of the period 226 562 174 762 306 642
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Share Non-
capital Revalu- Accumu- control-
and ation lated ling
premium reserve profit interests Total
(R000's) (R000's) (R000's) (R000's) (R000's)
Balance at 30 June 2016 (audited) 116 174 71 002 638 012 161 594 986 782
Total comprehensive income - - 65 435 12 536 77 971
Dividends paid - - (77 785) (15 600) (93 385)
Balance at 31 December 2016
(unaudited) 116 174 71 002 625 662 158 530 971 368
Total comprehensive income - 4 945 81 157 12 338 98 440
Transfer realised on disposal - (5 467) 5 467 - -
Balance at 30 June 2017 (audited) 116 174 70 480 712 286 170 868 1 069 808
Total comprehensive income - - 88 590 12 213 100 802
Dividends paid - - (82 250) (36 400) (118 650)
Balance at period end 116 174 70 480 718 626 146 681 1 051 960
CONDENSED GROUP SEGMENT REPORT
Inter-
Electrical Lighting Corporate company Total
(R000's) R000's) (R000's) (R000's) (R000's)
Six months to
31 December 2017
- Segment revenue 1 107 263 254 180 28 579 (47 619) 1 342 403
- Profit before interest
and taxation 70 875 26 942 14 397 9 044 121 258
- Segment assets 845 988 329 466 497 919 (217 268) 1 456 105
- Segment liabilities 264 333 154 123 81 137 (95 449) 404 144
- Net segment assets 581 655 175 343 416 781 (121 819) 1 051 960
Six months to
31 December 2016
- Segment revenue 1 018 247 270 556 24 755 (39 767) 1 273 791
- Profit before interest
and taxation 62 805 32 470 14 067 (4 798) 104 544
- Segment assets 851 568 295 768 523 898 (329 830) 1 341 404
- Segment liabilities 233 333 142 318 190 628 (196 243) 370 036
- Net segment assets 618 235 153 450 333 270 (133 587) 971 368
Audited for the
12 months ended
30 June 2017
- Segment revenue 1 996 374 510 802 38 379 (66 137) 2 479 418
- Profit before interest
and taxation 134 199 57 822 29 723 (7 289) 214 455
- Segment assets 976 043 284 690 603 927 (342 091) 1 522 569
- Segment liabilities 298 071 114 277 244 459 (204 046) 452 761
- Net segment assets 677 972 170 413 359 468 (138 045) 1 069 808
NOTES TO THE FINANCIAL STATEMENTS
BASIS OF PREPARATION
These condensed unaudited consolidated interim financial statements for the six months
ended 31 December 2017 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 Reporting 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.
The accounting policies used in the preparation of these unaudited results are in accordance with
IFRS and are consistent, in all material respects, with those used in the audited annual financial
statements for the year ended 30 June 2017 and for the unaudited results for the six months ended
31 December 2016. Except for the new standards adopted, all accounting policies applied by the
group in the preparation of these interim financial statements are consistent with those applied
by the group in its consolidated financial statements as at and for the year ended 30 June 2017.
The Group measures its properties at fair value; this fair value is determined annually and
accordingly, no fair value adjustment was made for the interim period. For more information on the
annual fair value adjustments, please refer to the annual report for the year ended 30 June 2017.
Financial assets and liabilities that are sensitive to re-measurement are limited to the put
option liability, the fair value of which is calculated in terms of a contractual formula which uses
the average of Eurolux's past three years average results (unobservable data) multiplied by 60% of
the Company's PE multiple as determined by the 120 days volume weighted average share price on the
JSE (subject to a cap of 7.5x and a floor of 4.0x) (observable data). This calculation is sensitive
to changes in the Company's share price and Eurolux's results.
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 its subsidiary companies as security for facilities granted to them.
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. No provision
has been made as the Board believes that there is no reasonable justification for this claim.
Subsequent to 31 December 2017 the Company has received tenders and is in negotiation to
conclude formal contracts to build the Lords View facility in Gauteng totalling R82m. This capital
expenditure is disclosed above, and was included in the year-end results, as "budgeted but not
contracted for".
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 W (Billy) Neasham
Chairman CEO
15 February 2018
CORPORATE INFORMATION
Directors
AR Burke (Chairman)*
JS Dixon#*
ST Downes#*
WR Neasham (CEO)
RB Patmore^#*
GM Scrutton (CFO)
* Non-executive
# Independent
^ Lead independent
Registered office and telephone numbers
10 Mack Road
Prospecton
Durban
PO Box 26426
Isipingo
Beach
4115
Tel: +27 31 9100 100
Auditors
PKF Durban
12 on Palm Boulevard
Gateway
4319
Tel: +27 31 573 5000
Sponsor
Grindrod Bank
Grindrod Tower
8a Protea Place
Sandton
Tel: +27 11 459 1873
Transfer secretaries
Computershare Investor Services
15 Biermann Avenue
Rosebank
Johannesburg
2001
Investor relations
Keyter Rech Investor Solutions
Number 5, 2nd Road
Hyde Park
2196
Company Secretary
M Louw
11 Larch Close
Centurion
0046
Tel: +27 12 663 7989
www.arbhold.co.za
Date: 15/02/2018 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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