Investor Open Day Wednesday, 9 th April 2014
Agenda 08h00 08h15 Byron Nichles Corporate division and Group strategy 08h15 08h30 Blayne Burke Electrical division 08h30 08h45 Peter Willig Lighting division 08h45 09h30 Q and A session
Group Structure ARB Holdings Limited 100% 60% Corporate Electrical Lighting 74% 100% Revenue HY2014 1% 15% Electrical Wholesaling Exclusive Agencies Operating profit HY2014 13% 20% 84% 67%
Corporate
Corporate Owner of property portfolio Owner of vehicle fleet (being phased out) Centralised treasury / capital allocation Internal audit function (reports directly into independent Chairman of Audit Committee) ERP system and network support Strategy / mergers and acquisition JSE compliance, investor relations and corporate governance Fixed annuity based revenue with largely fixed costs: Revenue Property and vehicle rentals Software, IT support and licensing fees Management fees Interest received Costs Salaries and non-executive directors fees Property and vehicle related costs Depreciation JSE related fees
Rm Corporate 16 properties totalling 86 000m 2 in extent Valued at R163m - completely ungeared Currently rent 8 properties, including the 2 Eurolux distribution centres Rationale: Entrepreneurs bias initially Security of tenure Strong underpin to balance sheet Ability to gear, if required Rationale regularly debated/reviewed 200 150 100 50 Property Portfolio 20 15 10 5 0 2010 2011 2012 2013 2014 Valuation No. of properties 0
Growth Strategy
Growth Strategy Listing 2007 2010 2014? Organic New branch openings Nelspruit, Polokwane Acquisitive Paragon, Eurolux, Industrial Cable Suppliers and Elektro Vroomen Electrical - 6 branches Electrical - 8 branches Electrical - 18 branches Lighting division 4 Exclusive agencies
Growth Strategy Evolution of Group strategy On listing Main focus = electrical wholesaling Backward integration considered a priority Acquisitions ad-hoc / opportunistic Opportunistic property development seen as a second business focus Now Main focus = trading and distribution Related diversification a key focus Acquisitions a key part of growth strategy but with a very structured / disciplined approach Only invest in Group occupied properties
Growth Strategy Organic Acquisitive Lighting Electrical Related diversification
Acquisition Strategy Electrical Our approach Acquisitions tend to be small (i.e. <R50m) due to highly fragmented market limited number of suitable targets Price is NTAV driven (i.e. minimal goodwill) Focus on acquiring established market presence in new regions Typically cash funded, no profit warranties / service agreements but definite restraints of trade Integrate and rebrand to leverage operating efficiencies
Acquisition Strategy Related diversification Our approach Trading and distribution businesses in similar/related product categories Larger deals of R80 to R400 million P/E between 4-7x Funded by combination of cash, debt and/or shares (profit warranties and restraints of trade) Established market players - no start-ups/turnarounds/distressed companies Retention of key operational management (with aligned vested interests) Typically acquire less than 100% (with call and put options) Maintain as a stand alone, autonomous business unit but leverage any intra-group opportunities
Growth Strategy Focus for 2014/2015 Continued market share gains by Electrical and Lighting Driving operational efficiencies across both divisions Adding a third pillar to the Group
Electrical Division
Group Overview Founded in 1980 Largest independent electrical distributor in sub-saharan Africa Supply across all major market segments Extensive distribution network 18 branches across all 9 provinces Power cables Overhead line conductors and equipment Low voltage products
Durban Head Office
Johannesburg Branch
Product Offering ±18 000 products held ex-stock Revenue by product category Low voltage products 26% Overhead line conductor & equipment 17% Cable 57%
Markets Served ±6 500 active accounts No single account >5% of revenue Large and Heavy Industry Government and Parastatals Construction Industry Electrical Contractors Mining Industry Domestic Households / DIY
Financial Overview Interim results: R 000 1H 2014 1H 2013 % change Revenue 984 850 829 035 +18.8 Operating profit 67 072 46 419 +44.5 Operating margin 6.8% 5.6%
Market Overview Highly fragmented: ±1 200 electrical wholesaling outlets in SA Main competitor: Voltex (Bidvest) and independents Cable market estimated at approximately R12 billion per annum OHL market estimated at R2 billion per annum General low voltage products market size unknown but hugely fragmented Activity levels have been low since 2008 end of commodity supercycle, mining sector challenges, slowdown in local construction activity and declining rate of public sector infrastructure spend Sub-Saharan Africa maintaining higher growth rates
Industry Potential South Africa s electricity related infrastructure is under severe pressure and requires urgent and significant refurbishment and expansion 16% 14% Reserve margin for electricity 15% Eskom Power Stations 12% 10% 8% 6% Massive expansion required Within design life 50% Older than 35 year design life 50% 4% 2% 3% South Africa International benchmark (Source: A review of SA s electricity sector January 2013 / February 2014 by Research Channel Africa)
Industry Potential (Source: A review of SA s electricity sector January 2013 / February 2014 by Research Channel Africa) Eskom 10 year Transmission Development Plan R150bn to expand the transmission network, over 12 700km of new lines R12bn on refurbishing of existing infrastructure Distribution infrastructure Lifespan of a distribution network = 50 years (SA s distribution network is 48 years old) Protracted uncertainty of EDI vs REDs structure resulted in reluctance to invest in maintenance Current backlog = R35bn and growing at R2.5 billion per year Need to spend R6.5bn per year (double the current spend) Electrification programme 2m households (15%) still to be connected to the grid Budgeted spend = ±R3.5bn per annum At current rate, will take another 20 years to achieve universal access to electricity
Industry Potential The Dark Continent Total power generated in Africa (1 billion people) = Spain (48 million people) Average electrification rate in SADC (excl SA and Mauritius) <20% (source: United Nations) Africa has 9 of 15 fastest growing economies over next 5 years (source: World Bank) Challenges: corruption, poor infrastructure, access to funding, language barriers, need for local partners, Chinese and Indian threat
Growth Strategy Further expansion of branch network: New branch openings (organic) Acquisitions Export growth: Targeted countries More structured and formalised approach Continue to leverage existing customer (contractors, power utilities, mining houses) relationships Drive local and SADC adoption of exclusive product agencies
Why ARB Electrical? National branch network / proximity to market Broadest product offering / one-stop-shop Well established and respected / 34 year track record Value added products / services Economies of scale / bulk purchasing
Thank you! For further information please visit our website: www.arb.co.za
Lighting Division
Our Vision To supply a comprehensive range of lamps and light fittings to our retail and wholesale customers at the right quality and at affordable prices To be a market leader within the lighting industry by introducing the latest European and global lighting décor trends to the southern African market
Our Business Founded in 1991 and acquired by current management team in 2002 Import and distribution of a wide range of domestic and commercial light fittings, light sources and related electrical accessories Supply most major retailers and wholesalers in sub-saharan Africa Two distribution centres in SA - over 13 000m 2 of warehouse space and over 2 000m 2 of showroom space Distribute to ±2 000 active customers throughout Africa
Cape Town Head Office
Johannesburg
Our Products Lamps / light sources incandescent / halogen / CFL / LED Light fittings Basic / Decorative / Project / Industrial / Designer Hazardous and warning lights Electrical accessories Fans Manufacturing components (ELT) Approximately 4 500 products stocked
Our Customers Independent Lighting Stores Project Lighting Specialists Electrical Wholesalers (e.g. ARB Electrical, Voltex, ElectroBase, etc) Major National Retailers (Massmart, Spar, Shoprite, Pick n Pay, etc) Major DIY Groups (Builders Warehouse, Cashbuild, BUCO, Build-It, etc) Eskom Purchased over 10 million CFL s since 2004 Nampower (Namibia s Power Utility Company) National CFL drive over 1 million units A growing client base across sub-saharan Africa Approximately 2 000 customers served
Financial Overview Interim results R 000 1H 2014 1H 2013 % change Revenue 173 536 139 670 +24.2 Operating profit 20 183 14 420 +40.0 Operating margin 11.6% 10.3%
Market Overview Suppliers mainly from Europe and the East Competitors International players (Osram and Philips), Importers (Radiant) and Wholesalers Market size (source: Frost & Sullivan research): Domestic/decorative: R3.5 billion Project and commercial: R7.0 billion
Industry Trends and Growth Strategy Trends: Energy efficient lighting Banning of incandescent lamps Consolidation within the industry More with less Retail expectations from suppliers Growth strategy: Positive outlook for continued organic growth New customers secured New product categories Export growth into Africa
Brand equity and integrity 23 year track record Unrivalled industry experience The widest range of high quality lamps and luminaires A unique lighting experience offered via our Lifestyle Showrooms and Lighting Application Centres A comprehensive logistic network able to deliver across South Africa within 24 48 hours SABS mark holder Why Eurolux? Service driven with a Can-Do approach Qualified technical back-up throughout South Africa
Thank you! For further information, please visit our website: www.eurolux.co.za
Q&A Thank you for your attendance www.arbhold.co.za For further information, please contact: Byron Nichles CEO: (012) 663 5244 Lynne van der Schyff Keyter Rech Investor Solutions: (011) 447 2993