JSE-listed investment and property holding company ARB Holdings has published record results for the year ended June 30, 2021.
The group, which owns investments in related trading and distribution businesses, including 74% of ARB Electrical Wholesalers and 60% of Eurolux, reported a 126.5% surge in profit for the year to R211.4-million.
Basic earnings a share increased 128.3% to 81.45c in the 12 months to June 2021, from 35.68c in the prior year, and headline earnings a share were up 37.6% to 82.49c, compared with the 59.93c reported in the year ended June 30, 2020.
“Despite the headwinds, 2021 has been a stellar year for the group, and one which has produced a record performance against all odds,” said ARB outgoing group CEO Billy Neasham.
“Last year, the board and executive management took a number of proactive decisions to ensure the sustainability of the business through the Covid-19 pandemic, including reviewing and rightsizing all operations, curtailing capital expenditure, holding back dividends to defend cash and tightly managing operating and working capital expenditure.”
Revenue improved by 24.2% to R2.92-billion, mostly attributed to market share gains, the significant rise in the copper price, which impacts cable sales, and the lost revenue in the comparable period from April to June 2020.
During the year under review, the company’s gross margins improved from 25% to 25.6%, owing to a change in product mix, well-priced stockholding at the start of the year and the rising value of copper stock-on-hand throughout the year.
Operating profit increased by 102% to R294.8-million, while the operating margin improved from 6.2% last year to 10.1% during the year under review, owing to the focus on controlling cost increases in all divisions.
For the year ended June 30, 2021, ARB declared a dividend of 42.5c a share, including a 10c special dividend in order to return excess cash to shareholders.
Neasham commented that the financial year under review started during the peak of the first wave of the Covid-19 pandemic in South Africa, with the ability to trade affected by different levels of lockdown that were in place.
However, he said that trade was not unduly hampered by incidences of infections among employees or by the lockdowns over December 2020 and January 2021 and during the peak of the third wave in May and June 2021.
Despite this, the pandemic did cause ongoing supply chain issues in both major divisions.
“Eurolux was particularly affected by the shortage of containers and other shipping-related issues. The group also faced supply shortages from major local suppliers that rely on imported products in their manufacturing processes,” he explained.
Further, the global shortage of steel, polyvinyl chloride and the dramatic increase in the copper price also impacted supplies, with the manufacturing of cable coming under severe pressure and, in some cases, resulting in the inability of suppliers to achieve on-time and in-full deliveries.
The divisions weathered these setbacks through high stock levels at the start of the year and the favourable rand/dollar exchange rate at which the stock was purchased.
The good stock levels provided a considerable advantage when compared with many of the group’s competitors, he said.
“The lack of stock has challenged some smaller competitors and the group has been able to capitalise on this, resulting in market share gains.”
ARB also benefited from the restart of projects that had been delayed by the first wave of Covid-19, including the construction of a major new data centre.
“We anticipate that more projects of this nature will be undertaken in the short term, accelerated by the trend of remote working,” Neasham added.
“Both the electrical and lighting divisions benefited from the increase in discretionary expenditure as consumers were unable to travel, dine out or participate in other forms of entertainment that were restricted as a result of the pandemic.”
The lighting division particularly gained from these trends, as people worked from home, embarking on do-it-yourself projects, building home offices and redecorating their homes.
The lighting division, which comprises Eurolux, Radiant and Cathay Lighting, reported a 20.4% increase in revenue, with operating profit increasing by a significant 266.8%.
Other factors that contributed to the improved results for the division included the lack of revenue in the comparable period, in which the division experienced a loss of about six weeks of trading; and the availability of stock, given the relatively high stockholding at the end of the prior year, which the group indicated would be proactively addressed and this proved to be a competitive advantage owing to international supply chain issues.
The finalisation of the Radiant integration and the rightsizing of the operations in September 2020 resulted in a significant reduction in the cost base.
The overall increase in revenue, with constant gross margin, and a significant reduction in overheads, has resulted in an improvement in the operating margin to 12.9% of turnover during the year under review, compared with 4.2% in 2020.
The electrical division, comprising ARB Electrical Wholesalers, GMC Powerlines, ARB Global, CraigCor and Consolidated Electrical Distributors, posted a 25.5% rise in revenue and a 107% improvement in operating profit.
The revenue increase during the year is attributable to the implementation of certain projects – particularly in the first half of the financial year – that were initially delayed by the first lockdown; the improving rand value of cable sales from an increase in the rand copper price and a gain in market share; the reduced revenue during the initial lockdown in the previous financial period; and the sale of cable management products.
Gross margin improved by 0.2%, predominantly owing to the effort by management to increase margin wherever possible and to changes in product mix.
The division restructured certain operations in September 2020 and the resulting cost savings helped to improve the operating margin to 6.9%.
“Management of working capital remains a high priority, and the business remains cash generative,” Neasham said.
In the corporate division, revenue increased by 9.7% and operating profit reduced by 7.1 %.
The division comprises the group’s property portfolio and the Xact ERP Solutions business.
“For the past year, the emphasis of Xact ERP Solutions has been diverted to the electrical division’s software integration of the warehouse management system and enterprise resource planning systems at the Lords View distribution centre.
“While this has not been without significant challenges, the implementation is now well on track, and is expected to deliver results in the six months after the year-end through significant operational efficiencies and overhead savings,” Neasham noted.
“Unfortunately, the premises that housed Xact ERP Solutions were destroyed during the civil unrest that erupted in KwaZulu-Natal in July 2021, and new premises are now being sought. Once the business has been relocated, the emphasis will revert to external customer relationships. Xact ERP remains a small revenue and profit generator for the division and the group,” he added.
Meanwhile, with the restructuring of both major divisions completed, the emphasis for the next six months would be to ensure a smooth handover for incoming CEO Blayne Burke, who will take the helm effective January 1, 2022.