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Unaudited interim results for the six months ended 31 December 2018
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 2018
SALIENT POINTS
- Revenue up 1% to R1 357m
- Operating profit down 15% to R92m
- Headline earnings per share ("HEPS") down 38% to 23,17 cents
- HEPS, excluding the put option valuation, is down 12.8%
- Ungeared, with R148m net cash on hand
COMMENTARY
The Board of Directors of ARB ("the Board") presents the Group's interim results for the six months
ended 31 December 2018 ("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
Shareholders have previously been advised that the valuation of the put option liability in favour
of minority shareholders in Eurolux, is volatile and may increase or decrease in the short term.
The Group's results for the six months to December 2018 have been negatively affected by
the IFRS fair value adjustment of the put option liability. This constituted an increase of R10,6m
(2017: decrease of R13,8m) in the liability, resulting in a net year-on-year change of R24,4m.
Without these valuation adjustments, the HEPS were down by 12.76%, in line with the operating
profit which is down 15% year-on-year. This fair value adjustment of the put option liability is
sensitive to movements in the Company's share price.
The Group's revenue for the period increased by 1.1% to R1,36bn (2017: R1,34bn). The Electrical
Division turnover is marginally down, despite the inclusion of the CraigCor acquisition in
February 2018 and the expansion of its Connect branches, while the Lighting Division's turnover
increased due to increase in market share from improved "fill rates" at retail stores and turnover
from the Crabtree distribution JV now being included in revenue.
The Group's operating profit decreased to R91,6m (2017: R107,4m) at an operating margin of 6.8%
of revenue (2017: 8.0%). The gross margin remained unchanged, while the expenditure grew due to
inflationary increases, the inclusion of CraigCor and the new branches added.
The Group continues to be cash generative, remains ungeared and has net cash on hand of R147,8m
(2017: R226,5m), after the payment of dividends during the reporting period of R109,3m (2017:
R118,7m). Net interest received decreased by 9% to R12,6m (2017: R13,7m), mainly as a result of
an IFRS adjustment of R1,6m, being the effect of net present value adjustments to the CraigCor put
option. Interest income remains high despite "special dividends" of R23,5m and significant capex
of R65,2m which related mainly to the Lords View Distribution Centre in Gauteng, being built as an
investment for the future and represents a step change in the business's infrastructure capability.
With the continued emphasis on working capital management, net working capital as a percentage
of annualised revenue increased marginally to 21.9% (2017: 21.6%). This level is pleasing and is at
the lower end of the targeted range of 20% to 25% of revenue.
The Eurolux minority put option is reflected as a current liability of R75,1m (2017: R77,1m).
These non-controlling shareholders may now put their shares to the Group but have not indicated
any intention to do so. The CraigCor put option is only able to be exercised in March 2022, and is
reflected as a non-current liability. These liabilities are calculated in terms of a formula as set
out under basis of preparation below and in note 20 to the annual financial statements, which is
available on the Group's website.
DIVISIONAL REVIEWS
Electrical Division (Revenue down 1.8% and operating profit down 26.9%)
The Electrical Division's revenue decreased despite the increase in revenue from CraigCor and the
new branches. This is primarily as a result of a lack of infrastructure and development projects
of any size; the entry as a direct competitor into the market of a major cable supplier, Aberdare,
and the continued reduction in Eskom spend on electrification projects This has been partially
mitigated by leveraging off good customer relationship to retain business in the declining market.
The acquisition of CraigCor on 1 February 2018 has helped to expand the product offering to
customers in Ekurheleni, Gauteng, Tshwane and the Western Cape. The new stores in Port Elizabeth
and Randburg have increased the geographic footprint of the electrical wholesale division. With
limited trading opportunities and the gross margin under pressure (predominantly in the high value
power cable-related products), operating profit decreased by 26.9% to R51,9m (2017: R70,9m), at a
margin of 4.8% (2017: 6.4%).
Lighting Division (Revenue increased 13.4% and operating profit by 1.1%)
Consumer confidence in this period reduced further and "hardware" revenue in the retail sector
has decreased by 2.5% (2017: flat) in the last six months. The revenue increased due to the inclusion
of the Crabtree retail sales, but more importantly to a revised strategy to grow market share with
the major retail customers via an increase in inventory to ensure we meet customer requirements
in an environment where everyone is reducing inventory levels. This has resulted in a number of
customers moving their orders to the Eurolux brand. As a result, revenue increased by 13.4% to
R288,4m (2017: R254,2m). The volatile exchange rate and increased competition for business,
continues to put pressure on margins. The operating profit increased marginally by 1.1% to R27,2m
(2017: R26,9m), but operating margin deteriorated to 9.4% (2017: 10.6%).
PROSPECTS
The Group foresees little or no improvement in the general trading environment, given the low
economic growth forecast for South Africa. We remain confident that the Group is well positioned
and has the resources to continue to build customer loyalty; to secure a fair share of the limited
project opportunities available and remain capable to take advantage of any improvement in trading
conditions when the South African economy improves.
With effect from 1 January 2019, the Lighting Group acquired 100% of the shares of The Radiant
Group (Pty) Ltd for a purchase consideration of R96,4m, and is in the final stages of acquiring
the properties out of which this business operates for R88,0m. The Radiant brand is well known
and well specified. Between Eurolux and Radiant, the Group has more Letters of Authority (the
government electrical product approval certificates) than any other company and is in the best
position to provide product to the wholesale and retail industries. The logistic and back office
functions of both businesses will be rationalised and integrated but the Group intends to develop
and retain the independence of the Radiant brand and reclaim its market share in the retail,
wholesale and contractor market.
The Lighting Division will continue to expand its product offering to existing customers. The new
cut wire, moulded plug and ready pack ranges will be increased with the acquisition of the
Radiant and these operations will be rationalised and consolidated at Radiant. It is anticipated that
this facility will contribute positively to the next six months' results.
The Electrical Division completed the development of the new mega branch in Lords View in
December and is currently operational. The current strategy is to redevelop the operation from
a large branch into an automated distribution centre with a modern warehouse management
system. This division will continue to invest, in the medium term, through targeted acquisitions and
in organic growth opportunities through the establishment of new branches. 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 should any of these become available in the lead up to the general elections.
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
% 2018 2017 2018
change (R000's) (R000's) (R000's)
Revenue 1 1 356 730 1 342 403 2 590 150
Cost of sales 1 1 037 946 1 029 866 1 974 964
Gross profit 2 318 784 312 537 615 186
Other income (89) 474 4 157 5 987
Selling, administration and
distribution expenses 9 (227 650) (209 264) (416 847)
Operating profit (15) 91 608 107 430 204 326
Change in put option assumptions (10 618) 13 828 26 000
Profit before interest and taxation (33.2) 80 990 121 258 230 326
Net interest received (9) 12 555 13 752 24 541
Profit before taxation (31) 93 545 135 010 254 867
Taxation (13) 29 850 34 207 63 220
Profit for the period (36.8) 63 695 100 802 191 647
Items that will not be recycled into
profit or loss
- Revaluation of property, plant and
equipment (net of taxation) - - 2 429
Total comprehensive income for the period (37) 63 695 100 802 194 076
Profit for the period attributable to: 63 695 100 802 191 647
- Non-controlling interests (NCI) (26) 9 048 12 213 23 151
- Ordinary shareholders (38) 54 647 88 590 168 496
Total comprehensive income
attributable to: 63 695 100 802 194 076
- Non-controlling interests (NCI) (26) 9 048 12 213 23 151
- Ordinary shareholders (38) 54 647 88 590 170 925
RECONCILIATION BETWEEN EARNINGS AND HEADLINE EARNINGS
Audited
Six months to Six months to year to
31 December 31 December 30 June
% 2018 2017 2018
change (R000's) (R000's) (R000's)
Reconciliation between earnings
and headline earnings
Profit for the period attributable to
ordinary shareholders 54 647 88 590 168 496
(Profit)/loss on disposal of property,
plant and equipment (net of taxation
and NCI) (193) (175) 3
Headline earnings 54 454 88 415 168 499
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)* (38.3) 23,25 37,70 71,70
Headline earnings per share (cents)* (38.4) 23,17 37,62 71,70
* 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
% 2018 2017 2018
change (R000's) (R000's) (R000's)
ASSETS
Property, plant and equipment 34 387 900 289 590 331 323
Intangible assets 23 95 558 77 769 95 638
Investment in joint venture 3 698 4 179 -
Deferred taxation 7 032 3 886 8 218
Total non-current assets 494 188 375 424 435 179
Current assets 991 782 1 080 681 1 161 501
Inventory 15 529 619 461 436 508 174
Trade and other receivables (20) 314 388 392 683 393 907
Cash resources (35) 147 775 226 562 259 420
Total assets 1 485 970 1 456 105 1 596 680
EQUITY AND LIABILITIES
Share capital and premium 116 174 116 174 116 174
Revaluation reserve 72 909 70 480 72 909
Accumulated profits 750 790 718 626 778 393
Attributable to ordinary shareholders 939 873 905 280 967 476
Non-controlling interests 132 551 146 681 150 543
Total shareholders' funds 1 072 424 1 051 961 1 118 019
Non-current liabilities 78 155 41 812 76 028
Put option liability 35 061 - 33 475
Deferred lease payments 858 1 093 631
Deferred taxation 4 42 236 40 719 41 922
Current liabilities (7) 335 391 362 332 402 633
Trade and other payables (9) 256 865 282 922 332 011
Put option liability (3) 75 128 77 179 65 007
Taxation payable 52 3 398 2 231 5 615
Total equity and liabilities 1 485 970 1 456 105 1 596 680
Net asset value per share (cents) 399,95 385,23 411,69
Net tangible asset value per share (cents) 363,26 357,45 374,47
Property, plant and equipment
Capital expenditure for the period 65 222 61 935 106 299
Capital commitment - Radiant shares 96 400 - -
Capital commitment - Radiant Properties 88 000 - -
Capital commitments - contracted for 18 461 2 367 44 526
Capital commitments - not contracted for 2 000 78 942 27 106
Depreciation and amortisation 7 286 7 085 13 695
CONDENSED GROUP STATEMENT OF CASH FLOWS
Audited
Six months to Six months to year to
31 December 31 December 30 June
2018 2017 2018
(R000's) (R000's) (R000's)
Cash generated by trading activities 97 518 113 206 217 054
Increase in net working capital (19 819) 7 033 8 285
Cash generated by operating activities 77 699 120 239 225 339
Net interest received 14 141 13 752 26 099
Dividends paid (109 290) (118 650) (118 650)
Taxation paid (30 570) (36 126) (65 039)
Cash flows from operating activities (48 020) (20 785) 67 749
Cash flows from investing activities (63 625) (59 295) (114 971)
Cash flows from financing activities - - -
Decrease in cash resources (111 645) (80 080) (47 222)
Cash resources at beginning of the year 259 420 306 642 306 642
Cash resources at end of the year 147 775 226 562 259 420
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Revalu- Accu- Non-
Share ation mulated controlling
capital and reserve profit interests Total
premium (R000's) (R000's) (R000's) (R000's)
Balance at 30 June 2017 (audited) 116 174 70 480 712 286 170 868 1 069 808
Total comprehensive income - - 88 590 12 213 100 803
Dividends paid - - (82 250) (36 400) (118 650)
Balance at 31 December 2017
(unaudited) 116 174 70 480 718 626 146 681 1 051 961
Total comprehensive income - 2 429 79 906 10 938 93 273
Shortfall on
derecognition of NCI - - (20 139) (7 076) (27 215)
Balance at 30 June 2018 (audited) 116 174 72 909 778 393 150 543 1 118 019
Total comprehensive income - - 54 647 9 048 63 695
Dividends paid - - (82 250) (27 040) (109 290)
Balance at period end (unaudited) 116 174 72 909 750 790 132 551 1 072 424
CONDENSED GROUP SEGMENT REPORT
Electrical Lighting Corporate Inter-Co Total
(R000's) (R000's) (R000's) (R000's) (R000's)
Six months to
31 December 2018
- Segment revenue 1 087 614 288 350 30 581 (49 815) 1 356 730
- Operating profit 51 870 27 225 16 317 (3 804) 91 609
- Segment assets 837 157 321 951 504 674 (177 812) 1 485 970
- Segment liabilities 314 620 130 391 26 529 (57 994) 413 546
- Net segment assets 522 537 191 560 478 145 (119 818) 1 072 424
Six months to 31 December 2017
- Segment revenue 1 107 263 254 180 28 579 (47 619) 1 342 403
- Operating profit 70 937 26 942 14 397 (4 846) 107 430
- 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
Audited for the
12 months ended 30 June 2018
- Segment revenue 2 119 913 501 876 45 882 (77 521) 2 590 150
- Operating profit 129 036 45 891 33 698 (4 299) 204 326
- Segment assets 948 957 346 540 707 199 (406 016) 1 596 680
- Segment liabilities 341 195 161 238 252 883 (276 655) 478 661
- Net segment assets 607 762 185 302 454 316 (129 361) 1 118 019
NOTES TO THE FINANCIAL STATEMENTS
BASIS OF PREPARATION AND ACCOUNTING POLICIES
These condensed unaudited consolidated interim financial statements for the six months ended
31 December 2018 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 South African 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 full Board takes 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 2018 and for the unaudited results for the six months ended
31 December 2017. Except for the new IFRS 9 and IFRS 15 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 2018. 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 financial statements for the year ended
30 June 2018.
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 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.
The Group has applied the expected credit loss method as detailed in IFRS 9 by using the simplified
approach. The application of a provision matrix to the Group's trade receivables based on historic
default rates with an adjustment for forward looking events has not resulted in a materially
different position from the previous standard. The application of IFRS 9 has not resulted in a
reclassification of any of the Group's financial assets or liabilities. The Group has done an
assessment of its performance obligations under IFRS 15. The Group is satisfied that the performance
obligations are satisfied with the Group's existing revenue recognition criteria and, as a result,
there is no effect on the timing of revenue being recognised.
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 on SENS and as summarised above, the Group concluded the acquisition
of 100% of the shares of the Radiant Group for a provisional amount of R96,4m with effect from
1 January 2019. This amount is subject to confirmation of the auditors of Radiant and appeal if the
Group does not agree with this valuation. We do not believe this amount will change materially.
The acquisition of the buildings that Radiant operates out of in Gauteng for R88m is substantially
complete and we are awaiting Occupational Certificates and municipal rates clearance certificates.
These property acquisitions will be 70% funded by a bond and the balance of these acquisition
costs will be financed from existing cash resources and new loans funded proportionately by the
shareholders of Eurolux.
As previously reported, the summons from a major listed construction company, in December 2015
for an amount totalling R76,4m has been settled in full on the basis of each party bearing only
their own legal costs. No further exposure exists to the Group.
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 William (Billy) Neasham
Chairman Chief Executive Officer
8 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
Sandton
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
Company Secretary
M Louw
11 Larch Close
Centurion
0046
Tel: +27 12 663 7989
www.arbhold.co.za
Date: 08/02/2019 07:30:00 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
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
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.
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