While little improvement is foreseen in South Africa’s general trading environment, given the low economic growth prospects, JSE-listed investment and property holding company ARB Holdings believes that it is well placed to ride out the tough times ahead.

The six months to December 31 were littered with negative aspects, such as a lack of business confidence, the perilous state of the construction industry, power cable supply challenges, a lack of consumer confidence and a volatile rand:dollar exchange rate, exacerbated by copper supply challenges, the continued reduction in Eskom spend and a lack of infrastructure and development projects, besides others, says CEO Billy Neasham.

However, despite experiencing a contraction in the first half of the year, unsatisfactory half-year financial results and operating in a bleak economic environment, Neasham tells Engineering News he is confident that the group is well positioned and has the resources to continue to build customer loyalty, secure a fair share of the limited project opportunities available and leverage any improvement in trading conditions.

“We have not been aggressive with borrowings and acquisitions in the past, so we do have a strong balance sheet to carry us through. We focus heavily on our working capital management,” he says.

With trading margins expected to remain under pressure in the near future, ARB’s costs and working capital continue to be closely managed.

Speaking on the sidelines of the group’s financial presentation, in Johannesburg, earlier this month, he said that ARB, over the next few months, would focus on bedding down its most recent addition, the Radiant Group, which its lighting division acquired for R96.4-million, effective January 1.

The group is in the final stages of acquiring the properties Radiant operates from for R88-million.

ARB is now focusing on addressing the operational challenges that were haunting Radiant, which had resulted in a decline in recent years, says Neasham, who cited the fact that Eurolux, in the early stages of its acquisition, had been half the size of Radiant.

“It is now the other way around.”

However, Radiant remains a well-known, good brand with a large following in the wholesale space, he adds.

ARB plans to rationalise and integrate the logistics and back office functions of both Eurolux and Radiant; however, Radiant will remain an independent brand and reclaim its market share in the retail, wholesale and contractor markets.

The acquisition also bolsters the lighting division’s continued strategy of expanding its product offering to existing customers, with the new cut wire, moulded plug and ready pack ranges having increased with the addition of Radiant.

The Radiant operations will be rationalised and consolidated, with expectations that this will contribute positively to the financial results of the next six months of the year.

The acquisition also exposes Eurolux to the wholesale segment, allowing it to “piggy- back” off Radiant’s already established base.

“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,” he adds.

Meanwhile, the electrical division completed the development of – and subsequently operationalised – the new megabranch in Lords View in December.

The 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,” Neasham says.

“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.”

During the six months to December 31, 2018, ARB posted a double-digit decline in headline earnings per share (HEPS), exacerbated by an increase in the put option liability in Eurolux.

The group reported a contraction of 12.8% in HEPS in the first half of the financial year as operating profit fell by 15% to R92-million.

the negative impact of the International Financial Reporting Standards fair value adjustment of the put option liability, HEPS plunged 38% to 23.17c.

The liability increased by R10.6-million in the half-year under review, compared with a decrease of R13.8-million in the comparative period last year, resulting in a net year-on-year change of R24.4-million.

ARB’s revenue for the period increased by 1.1% to R1.36-billion.

The electrical division’s turnover declined marginally, despite the inclusion of the February 2018 acquisition of CraigCor and the expansion of the Connect branches.

Revenue was down 1.8% and operating profit contracted 26.9% during the six months to December 31, 2018.

“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, [namely] Aberdare; and the continued reduction in Eskom spend on electrification projects,” Neasham notes.