JSE-listed ARB Holdings posted a decline in earnings for the six months ended December 31, 2021, as its major divisions were impacted by the riots experienced in Gauteng and KwaZulu-Natal in July and a slowdown in the lighting division after the surge in spending post the initial Covid-19 lockdown in 2020 subsided.

The company posted a 4.9% decrease in earnings a share to 39c apiece, while headline earnings a share declined 5% to 39.07c.

Profit after tax contracted 3.2% to R106-million; however, operating profit increased 1.9% to R172-million and revenue was up 7.5% to R1.6-billion during the first half of the year.

The group’s tangible net asset value a share decreased 1% to 507.28c.

Cash-on-hand increased from R305-million in 2020 to R337-million.

The company noted that its major divisions were directly affected by the riots, as all of the electrical division’s KwaZulu-Natal branches were closed for the week and 200 of the lighting division’s customers’ stores were affected, some to the extent that they are unlikely to reopen.

Further, the lighting division’s record performance during the year ended June 30, 2021, could not be replicated in the first six months of the current financial year.

“While the electrical division continued to perform well, with an increase in both revenue and operating profit, the lighting division experienced a slowdown as the well-documented discretionary spending with major retailers after the initial lockdowns in 2020 subsided,” ARB said in the financial results report for the first half of the year.

In the electrical division, which comprises ARB Electrical Wholesalers, GMC Powerlines, ARB Global, CraigCor and Consolidated Electrical Distributors, revenue increased by 16% and operating profit improved by 16.4%.

The increase in revenue contributed to a 16.4% improvement in the gross margin in rands, while the increase in overheads operating margin remained consistent at 8.7%.

The lighting division, home to Eurolux, Radiant and Cathay Lighting, reported a 15.3% decrease in revenue and a 26.4% decline in operating profit.

The drop in revenue, attributed mostly to the impact of the July riots on the division’s customers, the slowdown in discretionary spending experienced by retail customers and the continuation of the supply chain challenges over the past 12 months, was partially offset by an improved gross margin.

The division’s overhead costs were static but the net effect was a drop in operating margin to 11.2% from 12.9% in 2020.

“The working capital management improvement achieved in the previous financial year could not be maintained, largely owing to ongoing supply chain issues, where delays of up to seven months have been experienced as a result of pandemic-driven shipping issues, container shortages and local port inefficiencies,” the company added.

“While the division has secured enough stock to ensure uninterrupted supply to its customers, this, in turn, has put pressure on in-house logistics, particularly in terms of storage space, creating pressure on cash flow. The start of the Chinese New Year early in January is expected to further negatively impact this situation.”

Meanwhile, in the corporate division, revenue increased by 6.9% and operating profit was up by 13%.

This division comprises the group’s property portfolio and the Xact ERP Solutions business.

Moving forward, ARB will focus on managing both working capital and supply chain challenges in both divisions.

“Unfortunately, the expected increase in infrastructure development from which the electrical division should benefit, has not yet materialised, although the proposed restructuring of South Africa’s energy utility Eskom into three separate divisions holds potential opportunities, particularly for the overhead line business.”

The challenges in the local market in terms of the subdued economy and the lingering effects of the pandemic are also expected to continue for the foreseeable future.

ARB did not declare a dividend for the six months under review.