Unaudited results. for the six months ended 30 November ISIN: ZAE Share code: ARH. ARB Holdings Limited

Transcription

1 ARB Holdings Limited Registration number: 1986/002975/06 Share code: ARH ISIN: ZAE ( ARB or the Company or the Group ) for the six months ended 30 November 2016 Unaudited results

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3 Disclaimer Forward-looking statements This presentation which sets out ARB s results for the six months ended 31 December 2016 contains 'forward-looking statements with respect to, inter alia, ARB s financial condition, results of operations and certain of its plans, strategies and objectives, which have not been reviewed or reported on by ARB s auditors. By their nature, forward-looking statements are not guarantees of future performance but are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future, involve known and unknown risks, uncertainties and other facts or factors which may cause ARB s actual results, performance or achievements to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. ARB Holdings Limited Unaudited results for the six months ended 31 December

4 Agenda Salient features Group financial review Divisional reviews Electrical Lighting Corporate Strategy Outlook Q&A

5 Salient features Revenue Operating profit HEPS Ungeared Up 3% to R1,3 billion Unchanged R104,5 million Up 1% to 28,07 cps R175 million cash on hand ARB Holdings Limited Unaudited results for the six months ended 31 December

6 Financial Review

7 Financial review 000 % change 6 months ended 31 December months ended 31 December 2015 Year ended 30 June 2016 Revenue 3,1% 1,273,791 1,235,804 2,489,791 Gross profit 4,8% 290, , ,114 Gross profit margin 22,8% 22,4% 22.0% Profit before interest & Taxation (0,2)% 104, , ,715 Operating profit margin 8,2% 8,5% 8.7% Profit for the period 0,4% 77,971 77, ,171 1,250 1,000 Revenue 1,154 1,100 1,236 1, HY2013 HY2014 HY2015 HY 2016 HY 2017 ARB Holdings Limited Unaudited results for the six months ended 31 December R'm

8 Financial review Sales by Customer Export, 5% Other, 6% Cash, 16% Retail, 21% Contractors, 34% Wholesale, 3% Mining, 3% Industry, 8% Government, 3% Low Voltage, 16% Lighting, 25% Sales by product Buy outs, 8% OHL, 14% Cable, 37%

9 Financial review Product category Cost drivers Source Customers Cable & wire Copper / Aluminium Predominantly Local Cable - mainly Steel / PVC ( Can be imported ) large Contractors Labour and projects Wire - Small contractors Retail / export OHL Steel / Wire Predominantly Local Municipalities Overhead Line Silicone / Labour Import some Eskom "designated products" Mines Exports Low Voltage Copper / Forex Local manufacture Local agents of All customers international brands Lighting Forex Imported All Customers ARB Holdings Limited Unaudited results for the six months ended 31 December

10 Financial review 30 HEPS HY2013 HY2014 HY2015 HY 2016 HY 2017

11 Financial review 25.0% 23.0% 21.0% Working capital as a % of revenue 24.3% 22.8% 20.9% 19.8% 20.0% 19.0% 17.0% 15.0% Debtors days Inventory days Creditors days ARB Holdings Limited Unaudited results for the six months ended 31 December

12 Financial review Cash generated by operations H13 1H14 1H15 1H16 1H17 -

13 Financial review Cash Flow 350,000 10,894 93,385 56, , , ,269 29, ,000 13, , , ,000 50,000 0 Balance 1 July Operations Interest Dividends Taxation Investing 30 Dec 2016 ARB Holdings Limited Unaudited results for the six months ended 31 December

14 Divisional Review

15 Divisional contributions 1,400,000 1,273,791 Revenue contributions 1,200,000 1,000,000 1,018, , , , , , ,556 19,235-34,247 Total Electrical Lighting Corporate Inter company ARB Holdings Limited Unaudited results for the six months ended 31 December

16 Electrical

17 Electrical division 000 % change 6 months ended 31 December months ended 31 December 2015 Year ended 30 June 2016 Revenue 2% ,095 2,006,038 Operating profit (2,1)% 62,805 64, ,991 Profit margin 6,2% 6,4% 6,7% 3 new Connect stores opened (Silver Lakes opened Dec 2015) Expansion of Connect branches led to marginal increase in revenue Sourcing and securing opportunities from smaller project orders Continues to operate in extremely challenging market margin pressure Delay in implementation of Municipal projects Slow to no roll out of other infrastructure projects Impact of volatile RCP ARB Holdings Limited Unaudited results for the six months ended 31 December

18 Electrical division RCP (Kg) 1st half comparison June July Aug Sept Oct Nov Dec RCP '15 RCP '16

19 Lighting ARB Holdings Limited Unaudited results for the six months ended 31 December

20 Lighting division 000 % change 6 months ended 31 December months ended 31 December 2015 Year ended 30 June 2016 Revenue 5,7% 270, , ,954 Operating profit 8,9% 32,468 29,804 59,546 Profit margin 12,0% 11,6% 11.7% Continues to expand product range to existing customers New Euro Nouveau lighting showroom opened Margin affected by volatile exchange rate Strong growth across all key customers and market segments Crabtree JV for distribution of products to retail growing but at a slower pace than anticipated Potential for future growth is promising

21 Lighting division Light Bulb Evolution Life hr Watt p/h 60W Retail R10.00 Life hr Watt p/h 42W Retail R25.00 Life hr Watt p/h 11W Retail R25.00 Life hr Watt p/h 6W Retail R30.00 ARB Holdings Limited Unaudited results for the six months ended 31 December

22 Lighting division US$ 1st half comparison June July Aug Sept Oct Nov Dec US$ '15 US$ 16

23 Corporate ARB Holdings Limited Unaudited results for the six months ended 31 December

24 Corporate division 000 % change 6 months ended 31 December months ended 31 December 2015 Year ended 30 June 2016 Revenue (2,1)% 19,235 19,642 39,311 Operating profit (2,5%) 14,067 14,427 26,854 Results in line with expectations Property portfolio 15 properties valued at R177 million, completely ungeared East London property sold subsequent to Dec for a net consideration of R12,4 million Offer made on vacant land in East London for development of ELO store

25 Strategy and Outlook ARB Holdings Limited Unaudited results for the six months ended 31 December

26 Strategy No change in previously communicated strategy and remains: Electrical Lighting Africa Acquisitions Mainly through new branch openings Relocating Alrode branch Will review opportunistic acquisitions opportunities Mainly organic through product extension and focused targeting of key customers and market segments Crabtree retail Both Electrical and Lighting divisions Ongoing engagement but a cautious approach Zambia in country rep related diversification

27 Outlook Electrical division Trading environment expected to remain tough Structural challenges continue Low growth forecast Decline in mining and manufacturing activities Volatile exchange rate and copper price Limited infrastructure spend Organic growth through new distribution outlets Continue to build customer loyalty to create new opportunities Eskom aim to increase its electrification target by 200,000 household by end March 2018 Proprietary products Chint/Copperweld/CTC ARB Holdings Limited Unaudited results for the six months ended 31 December

28 Outlook Lighting division Continue to expand product offering to existing customers Additional space acquired in Johannesburg to accommodate retail ready pack plant Plus additional capacity for new cut wire products No change expected in the competitive environment Exchange rate volatility Crabtree product range to gain momentum LOA delays Life expectancy of lamps with technology changes

29 For further information, please contact: Q&A Billy Neasham CEO Lynne Bothma Keyter Rech Investor Solutions ARB Holdings Limited Unaudited results for the six months ended 31 December

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31 Unaudited interim results Unaudited interim results for the six months ended 31 December ARB Holdings Limited (Registration number: 1986/002975/06) Share code: ARH ISIN: ZAE ( ARB or the Company or the Group )

32 SALIENT POINTS Revenue up 3% to R1.3bn Profit before taxation increased to R111m Headline earnings per share up 1% to cents Ungeared, with R175m net cash on hand

33 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 noncontrolling shareholders may now put their shares to the Group. They have not indicated any intention to do so. ARB Holdings Limited Unaudited interim results for the six months ended 31 December

34 COMMENTARY continued 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 households by the end of March ARB Holdings Limited Unaudited interim results for the six months ended 31 December 2016

35 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 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. ARB Holdings Limited Unaudited interim results for the six months ended 31 December

36 CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME % change Unaudited six months to 31 December 2016 Restated Unaudited six months to 31 December 2015 Audited 12 months to 30 June 2016 Revenue Cost of sales Gross profit Other income Operating expenses 8 ( ) ( ) ( ) Impairment of goodwill (5 500) Profit before interest and taxation Interest received Profit before taxation Taxation Profit for the period Items that will not be recycled into profit or loss Revaluation of property, plant and equipment (net of taxation) Total comprehensive income for the period Profit for the period attributable to: Non-controlling interests Ordinary shareholders Total comprehensive income attributable to: Non-controlling interests Ordinary shareholders ARB Holdings Limited Unaudited interim results for the six months ended 31 December 2016

37 RECONCILIATION BETWEEN EARNINGS AND HEADLINE EARNINGS % change Unaudited six months to 31 December 2016 Restated Unaudited six months to 31 December 2015 Audited 12 months to 30 June 2016 Profit for the period attributable to ordinary shareholders Impairment of goodwill (net of minorities) Loss on disposal of property, plant and equipment (net of taxation and minorities) Headline earnings Number of ordinary shares in issue (000 s) Weighted average number of ordinary shares in issue (000 s) Diluted number of ordinary shares (000 s)* Basic earnings per share (cents)* Headline earnings per share (cents)* * There are no dilutive instruments in issue. ARB Holdings Limited Unaudited interim results for the six months ended 31 December

38 CONDENSED GROUP STATEMENT OF FINANCIAL POSITION % change Unaudited six months to 31 December 2016 Restated Unaudited six months to 31 December 2015 Audited 12 months to 30 June 2016 ASSETS Property, plant and equipment # Intangible assets (7) Deferred taxation Total non-current assets Current assets Inventory Trade and other receivables (9) Taxation Cash resources (8) Total assets EQUITY AND LIABILITIES Share capital and premium Revaluation reserve Accumulated profits Attributable to ordinary shareholders Non-controlling interests Total shareholders funds Non-current liabilities Put option liability # Deferred lease payments Deferred taxation # Fair value adjustments to financial assets and liabilities done only at year-end. 7 ARB Holdings Limited Unaudited interim results for the six months ended 31 December 2016

39 % change Unaudited six months to 31 December 2016 Restated Unaudited six months to 31 December 2015 Audited 12 months to 30 June 2016 Current liabilities Trade and other payables (22) Put option liability # Taxation payable (65) Total equity and liabilities Net asset value per share (cents) Net tangible asset value per share (cents) Property, plant and equipment Capital expenditure for the period Capital commitments contracted for Depreciation and amortisation # Fair value adjustments to financial assets and liabilities done only at year-end. ARB Holdings Limited Unaudited interim results for the six months ended 31 December

40 SUMMARISED GROUP STATEMENT OF CASH FLOWS Unaudited six months to 31 December 2016 Restated Unaudited six months to 31 December 2015 Audited 12 months to 30 June 2016 Cash generated by trading activities Increase in net working capital (53 533) (30 122) (68 139) Cash generated by operating activities Net interest received 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) 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) Cash resources at beginning of the year Cash resources at end of the year ARB Holdings Limited Unaudited interim results for the six months ended 31 December 2016

41 CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY Share capital and premium Revaluation reserve Accumulated profit Noncontrolling interests Total Balance at 30 June 2015 (audited) Total comprehensive income Dividends paid (70 735) (15 600) (86 335) Balance at 30 December 2015 (unaudited and restated) Transfer realised on disposal (1 749) Total comprehensive income Balance at 30 June 2016 (audited) Total comprehensive income Dividends paid (77 785) (15 600) (93 385) Balance at 31 December 2016 (unaudited) ARB Holdings Limited Unaudited interim results for the six months ended 31 December

42 CONDENSED GROUP SEGMENT REPORT Electrical Lighting Corporate Inter-Co Total Unaudited six months to 31 December 2016 Segment revenue (34 247) Profit before interest and taxation (4 796) Segment assets ( ) Segment liabilities ( ) Net segment assets ( ) Unaudited restated six months to 31 December 2015 Segment revenue (38 850) Profit before interest and taxation (3 600) Segment assets ( ) Segment liabilities ( ) Net segment assets ( ) Audited 12 months ended 30 June 2016 Segment revenue (62 512) Profit before interest and taxation (5 076) Segment assets ( ) Segment liabilities ( ) Net segment assets ( ) ARB Holdings Limited Unaudited interim results for the six months ended 31 December 2016

43 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 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 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. ARB Holdings Limited Unaudited interim results for the six months ended 31 December

44 NOTES TO THE FINANCIAL STATEMENTS continued This restatement and its effect on earnings per share ( EPS ), which is the same as headline earnings per share, are set out below: Gross amount EPS effect (cents) Effect on basic and diluted earnings per share in 2015 Profit for period as previously reported 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 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. 13 ARB Holdings Limited Unaudited interim results for the six months ended 31 December 2016

45 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 ARB Holdings Limited Unaudited interim results for the six months ended 31 December

46 NOTES 15 ARB Holdings Limited Unaudited interim results for the six months ended 31 December 2016

47 NOTES

48 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