Investment company ARB Holdings on Thursday reported that turnover growth in its lighting division had helped to offset turnover loss in the electrical division for the six months ended December 31.
The company’s revenue for the six months increased by 4.5% year-on-year to R1.42-billion, as a result of a 36.1% year-on-year increase in the lighting division’s turnover to R396-million, supported by the newly acquired Radiant lighting business.
The electrical division’s turnover decreased by 4.5% year-on-year to R1.04-billion.
The turnover growth translated to operating profit growth of 16% year-on-year to R106-million. Net profit after tax was up 33% year-on-year to R85-million.
ARB’s electrical division comprises ARB Electrical Wholesalers, GMC Powerlines, ARB Global, CraigCor and CED.
ARB attributed the revenue decrease in the electrical division to a lack of major infrastructure projects in the country, the lack of spend by State-owned power utility Eskom on electrification projects and the impact of load-shedding on the manufacturing and mining sectors.
The main focus of the electrical division in the six months under review was to fully establish the distribution centre at the Lords View operation, to achieve operational efficiencies.
The company said power cable sales continued to decline, as a result of the lack of infrastructure projects in the country and increased competition from other manufacturers.
“Despite the acquisition of GMC in March 2019, the overhead line product sales have been disappointing because of the inconsistent spend by Eskom on electrification projects.
“Low-voltage sales, which have benefited from the connect model expansion in prior years, continue to improve and margins are being maintained on these products.
Notwithstanding the abovementioned challenges, this division has reduced operating expenditure to achieve an increase in operating profit of 13.5%. The focus on working capital has ensured that this division remains strongly cash generative,” ARB said.
The company’s lighting division comprises Eurolux, Radiant and Cathay lighting.
The division’s revenue was positively impacted on by the inclusion of Radiant’s turnover in the reporting period for the first time. However, this was partially offset by the volatile exchange rate and the lack of consumer confidence, which impacted on the majority of ARB’s retail customers.
Sales in lamps were negatively affected by changes in technology, which had resulted in the division pursuing a strategy of substitution with other electrical products that were less expensive and more durable.
“These technological changes, together with delays in the implementation of retailer foreign exchange-related price increases, resulted in a decline in gross margin,” ARB stated.
Meanwhile, the division’s focus in the last six months had been to consolidate the Johannesburg operations into the Radiant premises in Wynberg.
Originally this was anticipated to be completed by August 2019, but delays in the software integration of Radiant resulted in the consolidation occurring over the December 2019/January 2020 shutdown period.
As a result, the envisaged cost saving from combined facilities would not be achieved until the last quarter of the 2020 financial year, ending June 30.
The management of working capital, particularly stock, remained a key focus for the company. Stock levels were particularly high at the end of December, owing to the additional orders placed in anticipation of the Chinese New Year, which was considerably earlier than in previous years.
Lastly, ARB’s corporate division reported increased revenue of 34.5% year-on-year, and increased operating profit by 62.5% year-on-year in the six months under review.
This division comprises the property portfolio and Xact ERP Solutions business. The increase in operating profit resulted mainly from the additional rental in respect of the Lords View development from January 2019.
Given the fixed nature of the property income and the low corporate head office costs, the results were in line with expectations.
Xact ERP Solutions continued to develop a standalone identity relative to its target market. This division continued to show customer gains, but remained a small revenue and profit generator for the division.
ARB did not expect an improvement in the general trading environment in the next six months, given the low economic growth forecast for South Africa.