ARB's growth in subdued electrical and lighting markets

ARB's Byron Nichles says despite tough trading conditions the company has managed to perform well and provide healthy dividends to shareholders. Image: LinkedIn

"The solid rise across all the group's earnings divisions came even though SA's promised infrastructure plans failed to take off," the company's executive said.

ARB Holdings provides services and goods to heavy industry, government agencies and parastatals, the construction sector, electrical contractors and the mining industry. It also provides products for the domestic electrical and lighting markets.

The group said both its electrical and lighting divisions were able to gain market share and improve operating margins in the year, while overheads were well-controlled throughout the group.

Revenue rose 14%, while gross profit margins for the period were up from 21.9% to 23.8% mainly on better trading, disciplined procurement and strong growth in higher margin cash and retail sales. Operating profit rose 27% to R203m, while headline earnings per share were up 27%.

"It was a great set of numbers in an incredibly tough market," Chief Executive Byron Nichles said.

Getting the basics right

Strong cost controls and a good performance from retailer sales after tough buying negotiations have resulted in increased profits from ARB's retail operations. Image: ARB Holdings

He said a combination of factors drove the result, including getting the basics right. "There is an old adage - you only sell as well as you buy," he said, referring to the group's disciplined procurement practices.

"The company had seen good export growth, particularly in the first half of the year, and very strong growth in over-the-counter cash sales through its 18 branches across the country's nine provinces," Nichles said.

Exports were focused on Southern African Development Community countries, including Zambia, Mozambique, Namibia and Botswana.

But cash generated by operations fell 27% to R143.7m. This came after they were boosted last year by the sale of excess product stockpiles at Industrial Cable Suppliers that ARB had inherited when it bought that business.

However, Nichles said, because of the strongly cash-generative nature of the business, ARB had increased its annual dividend and also approved an additional special dividend of 10c a share.

Vunani Securities Anthony Clark says that if ARB Holdings can perform this well in a subdued market imagine what it will achieve when its markets pick up. Image: Twitter

He said that cash sales, which made up about 14% of group business, had grown between 30% and 40% over the previous year.

Ungeared with millions in hand

ARB had also remained ungeared at year end, with R198m cash on hand.

Vunani Securities Small- and Mid-Capitalisation Analyst Anthony Clark said that ARB had implemented a strategy of extending its nationwide footprint during the global recession by means of buying well-placed assets at distressed prices.

This had added to its strong branch network, while the acquisition of its Eurolux brand had also paid off.

"If the company did this well, how well will the business do when economic recovery returns to SA?" Clark asked.

Nichles said Eurolux had gone from strength to strength since ARB bought it two-and-ahalf years ago. The brand was sold in major retail stores, including Game, Makro, Builders Warehouse and Cashbuild.

Source: Business Day via I-Net Bridge