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CANCELLATION OF S434976 Summarised audited consolidated results for the year ended 30 June 2020, notice of AGM and BBBEE compliance
ARB Holdings Limited
Registration number: 1986/002975/06
Share code: ARH
ISIN: ZAE000109435
("ARB" or "the company" or "the group")
Summarised audited consolidated results for the year ended 30 June 2020, notice of
Annual General Meeting and BBBEE compliance report
KEY FINANCIALS:
• 40th anniversary of group’s establishment in 1980
• Revenue down 13.1% to R2 353m (2019: R2 706m)
• Despite the devastation of COVID-19 :
• Operating profit only down 6.1% to R145.9m (2019: R155.4m)
• Headline Earnings (HEPS) per share up 3.0% to 59.96 cents (2019: 58.20
cents)
• Basic Earnings per share (EPS) down 37.9% to 35.68 cents (2019: 58.20
cents)
• Cash resources of R151.9m (2018: R180.9m)
• No dividend declared
FINANCIAL PERFORMANCE
This 2020 financial year will certainly be remembered but probably for the wrong
reasons. In the nine months to March 2020 the South African economy on which the
group is largely dependent, failed to show any growth and continued to be hamstrung
by the collapse of business confidence and the construction industry, the lack of
any meaningful infrastructure development by any of government, Eskom or the private
sector and the damaging effects of Eskom’s load shedding. These challenges
subsequently became of secondary concern with the imposition of the national
lockdown on 27 March 2020 to assist in managing the health concerns for individuals
given the rapid international spread of COVID-19.
The group took the necessary immediate action to protect staff, preserve cash,
defend its balance sheet and minimise its operating costs by:
• allowing staff members to work from home where possible in terms of a work from
home policy;
• placing staff who were unable to work from home on paid leave, allowing them to
take up to 10 days of negative leave to soften the impact;
• subjecting all managers and directors who continued to work to a salary
reduction of at least 25% for two months;
• creating shifts for staff returning to work;
• curtailing capital and operating expenditure;
• limiting stock purchases under strict central control, and
• embarking on a review of all operations in order to reorganise the business in
anticipation of the new normal.
The group honoured all of its supplier payments on time during this period, which
did initially negatively impact cash resources by approximately R100m, as customers
delayed their payments. Our efforts in collecting these amounts due from the
customers after the hard lockdown, quickly recovered the initial cash outflow.
Our trading activities in all divisions were severely impacted in April as we were
only permitted to trade for the supply of emergency spares for essential services
and at best achieved 10% of our budgeted turnover for that month. The amendments
to the regulations from May enabled all our businesses to operate under strict
health and safety protocols which enabled us to achieve revenue of 60% and 80% of
budget in May and June, respectively.
The fourth quarter has understandably been significantly lower than prior periods,
but our mitigation strategies have ensured that we suffered minimal losses and have
retained a strong balance sheet which is substantially unencumbered.
Revenue declined 13.1%, mainly as a result of the revenue lost in the fourth quarter
with the lockdown of the South African economy. This decline in revenue occurred
despite the fact that Radiant revenue is included for a full year, as compared to
only six months in the previous financial year.
Gross margins improved slightly, from 24.0% to 25.0%, attributable mainly to a
change in product sales mix, with the inclusion of Radiant sales for 12 months
resulting in higher margin lighting sales now a larger proportion of the group’s
revenue. Likewise, while the cable and overhead line product margins remain under
pressure, as they are predominantly project related, the shift in the product mix
to higher margin low voltage products has helped to maintain margins in the
electrical division.
Overheads continue to be closely managed and are constantly being reviewed. These
declined by 9.0% during the year, even though the operating costs for Radiant for
the full 12 months were included. The overhead costs were affected by:
• the introduction of IFRS 16: lease capitalisation, where lease finance charges
of R8.9m are now included in interest paid;
• the non-reoccurrence of certain rationalisation costs in the prior year from
the integration of Radiant and Eurolux, despite additional costs being incurred
in the last six months with the final consolidation of the Johannesburg
facilities in the lighting division, and
• the staff cost savings implemented during the lockdown, including a minimum
salary reduction of 25% for all executives and senior management during the
months of May and June.
Operating profit decreased by 6.1% to R145.9m (2019: R155.4m), while operating
margin improved to 6.3% (2019: 5.7%). This improvement is largely as a result of
the focus on controlling cost increases in all divisions during the lockdown and
more particularly by the efforts of the electrical wholesale management to right-
size their business.
The decrease in interest received was caused by the inclusion of the finance element
of IFRS16 lease capitalisation, and the lower cash balances throughout the period.
Taking cognisance of the views expressed by economists, the board believes that it
will take at least two to three years to revert to the level of activity prior to
the lockdown necessitated by the COVID-19 pandemic. On this basis, evaluation of
the future cash flows has necessitated a write down of the Eurolux trademark and
CraigCor goodwill, and an impairment in the value of certain properties. This has
negatively impacted the earnings of the group, while the decline in profitability
of the Eurolux and CraigCor entities, together with a decrease in our price earnings
ratio, have resulted in additional income to the group as the values of the put
option liabilities continue to decrease. We again caution that these liabilities
are sensitive to the average earnings of the subsidiaries, Eurolux and CraigCor,
and to the price earnings ratio of the group.
Headline earnings per share increased by 3.0% to 59.96 cents per share, compared
to 58.20 cents in the prior period.
DIVISIONAL REVIEWS
The group is currently organised into three operating divisions which are the basis
on which the group reports its primary segmental information. Principal activities
are as follows:
• Electrical: distributors of electrical products across three main categories:
power and instrumentation cable; overhead line equipment and low voltage
products;
• Lighting: distributors of halogen, florescent and energy saving LED lamps;
light fittings and electrical accessories, and
• Corporate: property investment; specialist IT services; strategic and
technical consulting, and group head office companies.
ELECTRICAL DIVISION (revenue down 16.7% and operating profit down 14.3%)
This division comprises ARB Electrical Wholesalers, GMC Powerlines, ARB Global,
CraigCor and CED. Revenue continues to be hampered by the lack of any real economic
growth or infrastructure expenditure in South Africa. The effects of the COVID-19
lockdown negatively impacted the revenue generation of this division in the fourth
quarter of the financial year. Steps were taken to reduce overhead costs with a
“no work no pay” policy being applied across all levels of staff, and from securing
some rental relief from external landlords.
Revenue decline during the year has been attributable to:
• the loss of significant trading opportunities during the initial lockdown
period;
• the declining cable sales in a fragmented market as a result of the lack of
any significant infrastructure projects in the declining SA economy, even
before COVID-19, and
• the limited spend by Eskom and municipalities on electrification projects.
Gross margin improved 0.2% as a result of the change in product mix with the lower
volume of cable sales and increase in proportionate revenue of the higher margin
low voltage products.
Prior to COVID-19, this division had commenced a review of its operating structure,
which was noticeable in the December 2019 interim results. Although these efforts
were continued in the last six months, the savings during COVID-19 were insufficient
and this division made losses during April 2020.
However, despite significant reduction in revenue, the savings made in operating
costs ensured that the operating margin improved marginally to 4.2%. This division
is currently in the process of further staff rationalisation to restructure the
business in anticipation of reduced demand in an ailing SA economy.
This division’s management of working capital is commendable and this division
remains cash generative.
LIGHTING DIVISION (revenue up 4.0% and operating profit down 19.4%)
This division comprises Eurolux, Radiant and Cathay lighting. Revenue was higher
because of the inclusion of Radiant’s turnover for the full 12-month period as
compared to only six months to June 2019. The disappointing revenue increase is
predominantly attributable to the delivery challenges experienced by the division
during the third quarter as the consolidation of the Johannesburg warehouses
resulted in unnecessary congestion in the operations which did impact on service
delivery.
After these issues were resolved, the COVID-19 economic lockdown was put in place,
which resulted in a loss of approximately six full weeks of trading. Once the
lockdown was reduced to level 4, the cost and effect of operating protocols to
ensure compliance with health and safety protocols which were implemented to
mitigate the contamination risks of COVID-19, continued to constrain operations in
the fourth quarter.
The division was overstocked at December 2019, which enabled customer requirements
to be fulfilled when the supply chain from China was severely interrupted during
January to March and the ZAR exchange rate deterioration had made it significantly
more expensive for importers of these products.
As previously reported, revenue from lamps has been negatively affected by the
changes in technology, with the newer LED products being more durable and less
expensive. The lack of minimum prescribed technical specifications has resulted in
an unregulated market, which has allowed lower quality lamps to compete in the
consumer market where price is the major purchasing consideration.
Operating overheads increased by 8.9% from last year due to the inclusion of a full
12 months of Radiant’s trading, and the COVID-19 induced inability to extract
operational cost savings from the consolidation move from Linbro Park to Radiant’s
Wynberg warehouse. The restructuring of the division is now largely finalised, and
the rightsizing of the business for the anticipated new normal, should result in a
significant reduction in the cost base. The decline in revenue and the inability
to complete the facilities rationalisation process until June 2020 has resulted in
a further reduction in operating margin to 4.2% (2019: 5.5%) of turnover.
This division remains overstocked and management’s focus for the next six months
is to complete the rightsizing of the operation while actively focusing on cash
generation by the reduction in the stock levels.
CORPORATE DIVISION (Revenue up 10.9%, operating profit up 20.4%)
This division comprises the property portfolio and Xact ERP Solutions business.
The increase in operating profit has resulted mainly from the additional rental in
respect of the Lords View distribution centre development which commenced in January
2019.
Given the fixed nature of the property rental income, the results are in line with
expectations. The inclusion of the rental for the new Lord’s View facility for a
complete year is the main reason for the increase in revenue and in operating
profit.
Xact ERP Solutions is actively involved with the warehouse management system project
being undertaken by the electrical division, but still continues to develop a
stand-alone identity relevant to its target market. This operation has continued
to show customer gains, but remains a small revenue and profit generator for the
division.
CORPORATE ACTIVITY AND EXPANSION
Acquisitions remain an integral part of the group's growth and expansion strategy
and the board is cognisant of the opportunities which currently present themselves.
The immediate focus however, is to ensure that the full benefits are now finally
realised from the integrated Eurolux and Radiant operation, and to guide the
warehouse management system project implementation at the Lords View distribution
centre to optimise the opportunities that this facility offers the electrical
division.
PROSPECTS
The COVID-19 pandemic has exacerbated the pre-existing weakness in the Eskom,
building and construction sectors where business and consumer confidence was
already at historic low levels. It appears unlikely that even the turgid pre-
pandemic levels of confidence, economic growth in our business sector and normality
in markets and many aspects of daily life will return before the end of 2020.
While it is difficult to forecast the group’s performance with the current state
of the pandemic, we anticipate that ARB’s trading is likely to remain constrained
in the coming months while lockdown restrictions are slowly lifted. This has
necessitated both trading divisions resorting to staff rationalisation. The group
foresees difficulty in obtaining credit insurance for its customers in future,
which will increase the risk of credit loss to the group and could hamper revenue
generation as we limit our credit risk exposure. However, the group remains
committed to ensuring that the it maintains sustainable operations capable of
taking advantage of any short- or medium-term improvements in the South African
economy.
Notwithstanding the expected muted trading conditions, the group has significant
financial resources, geographical footprint, distribution capability and a well-
established solid management team that can manage the effects of COVID-19 on the
business and lead it out of the recession profitably.
A number of the rentals for property owned by the corporate division have been
renewed with effect from 1 July 2020 and rental rates have declined in line with
the rerating of market rentals in the wake of the economic effects of COVID-19.
While this will negatively impact the corporate division, it will benefit the
electrical division and should be earnings neutral to the group.
DIVIDENDS
Given the economic uncertainties which continue to prevail, the board is of the
view that cash preservation in the short term is essential, and consequently has
taken the decision not to declare a dividend at this time.
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting of shareholders of ARB will
be held at 10:00 on Wednesday, 4 November 2020, at the company's registered office
located at 10 Mack Road, Prospecton, Durban. The notice of annual general meeting
will be contained in the integrated report which will be posted to shareholders by
no later than Wednesday 30 September 2020.
The record date, for purposes of determining which shareholders are entitled to
receive the notice of annual general meeting, will be Friday 25 September 2020.
FINANCIAL ASSISTANCE TO RELATED OR INTER-RELATED COMPANIES AND CORPORATIONS (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. During the year, the Eurolux banking
facility was restructured and updated. Full details are set out in the 2020
consolidated financial statements. Shareholders will again be asked to approve the
company’s authority to provide s45 security, other than for loans to directors.
NOTIFICATION OF PUBLICATION OF ANNUAL BBBEE COMPLIANCE
The group holding company does not trade and has no BBBEE score. In accordance with
paragraph 16.20(g) and Appendix 1 to Section 11 of the JSE Listing Requirements,
notice is hereby given that the annual compliance report relevant to the ARB
operational group, in terms of section 13G(2) of the Broad-Based Black Economic
Empowerment Act is available on the company’s website at
https://www.arbhold.co.za/documents/Certificate-ARB-Electrical-
Wholesalers.pdf.
The last day to trade and the record date, in order for shareholders to be eligible
to participate in and vote at the annual general meeting, will be Tuesday 20 October
2020 and Friday 23 October 2020, respectively.
AUDIT OPINION AND RESPONSIBILITY
These summarised consolidated financial statements have been extracted from the
audited consolidated financial statements for the year ended 30 June 2020, but are
not themselves audited. The consolidated financial statements have been audited by
the group’s external auditors, PKF Durban, whose unqualified audit report,
including key audit matters, is included in the consolidated financial statements
available for inspection at the company's registered office and on the company’s
website at https://www.arbhold.co.za/documents/reports/’Group-consolidated-AFS-
30-June-2020.pdf.
The group’s external auditor’s report does not necessarily cover all the inforation
included in this announcement and therefore it is advised that in order to obtain
a full understanding of the nature of the external auditor’s engagement, the
external auditor’s report referred to above is inspected.
This short-form announcement is the responsibility of the directors of ARB.
This short-form announcement is only a summary of the information in the full
announcement and does not contain full or complete details. Any investment decision
by investors and/or shareholders should be based on consideration of, inter alia,
the full announcement. The full announcement has been released on SENS on 20 August
2020 and is available for viewing on ARB’s website document
https://www.arbhold.co.za/documents/results/Final-results-June-2020.pdf
and at https://senspdf.jse.co.za/documents/2020/jse/isse/ARH/ARHFY2020.pdf.
The full announcement is available for inspection at the offices of ARB (10 Mack
Road, Prospecton, Durban, KwaZulu-Natal, 4133)
and the offices of the Sponsor, Grindrod Bank Limited (Grindrod Tower, 8A Protea
Place, Sandton, 2196), at no charge during normal office hours on business days
from 21 August 2020 or may be requested by emailing info@arbhold.co.za.
21 August 2020
Sponsor Grindrod Bank Limited
Date: 24-08-2020 04:44:59
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