| Wed 9 Feb 2011, 8:00 | | ARH - ARB Holdings Limited - Unaudited interim results for the six months ended |
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ARH
ARH
ARH - ARB Holdings Limited - Unaudited interim results for the six months ended
31 December 2010 and change to the Board
ARB HOLDINGS LIMITED
(Registration number: 1986/002975/06)
Share code: ARH ISIN: ZAE000109435
("ARB" or "the company" or "the group")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2010 AND CHANGE
TO THE BOARD
HIGHLIGHTS
* Revenue up 13%
* Gross margin improved to 18,7%
* Ungeared with R187 million cash on hand
* Launch of "ARB Connect"
ABRIDGED GROUP STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months 6 months year to
to 31 Dec to 31 Dec 30 June
2010 2009 2010
R000`s R000`s R000`s
Revenue 614 702 544 364 1 186 507
Profit before interest and taxation 55 343 51 785 96 635
Investment income - 594 594
Interest received 9 353 8 275 18 004
Interest paid (70) (109) (240)
Profit before taxation 64 626 60 545 114 993
Taxation 21 120 16 807 31 868
Profit for the period 43 506 43 738 83 125
Other comprehensive income - - 6 437
Total comprehensive income for the period 43 506 43 738 89 562
Profit for the period attributable to: 43 506 43 738 83 125
Non-controlling interest 8 092 8 051 14 433
Ordinary shareholders 35 414 35 687 68 692
Total comprehensive income attributable to: 43 506 43 738 89 562
Non-controlling interest 8 092 8 051 14 433
Ordinary shareholders 35 414 35 687 75 129
Other comprehensive income for the year ended 30 June 2010 consists of the
revaluation of property, plant and equipment net of taxation.
Unaudited Unaudited Audited
6 months 6 months year to
to 31 Dec 31 Dec 30 June
2010 2009 2010
R000`s R000`s R000`s
Reconciliation of Headline Earnings
Profit for the period attributable to
ordinary shareholders 35 414 35 687 68 692
Headline earnings adjustment net of
taxation - - (14)
Headline earnings 35 414 35 687 68 678
Ordinary number of shares in issue (000`s)235 000 235 000 235 000
Weighted average number of shares (000`s) 235 000 235 000 235 000
Diluted number of shares (000`s) 235 480 235 620 235 480
Earnings per share (cents) 15,07 15,19 29,23
Diluted earnings per share (cents) 15,04 15,15 29,17
Headline earnings per share (cents) 15,07 15,19 29,22
Diluted headline earnings per share (cents) 15,04 15,15 29,16
The headline earnings adjustment for the year ended 30 June 2010 relates to the
surplus on disposal of property, plant and equipment.
ABRIDGED GROUP STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2010 2009 2010
R000`s R000`s R000`s
ASSETS
Non-current assets
Property, plant and equipment 146 266 111 057 138 724
Intangible asset 465 302 372
Deferred taxation 3 061 2 497 3 165
Current assets
Inventory 191 752 174 194 181 048
Trade and other receivables 145 526 120 580 176 175
Deferred lease payments 27 11 -
Taxation overpaid 822 34 467
Cash resources 186 857 239 108 260 938
TOTAL ASSETS 674 776 647 783 760 889
EQUITY AND LIABILTIES
Equity and reserves
Share capital 24 24 24
Share premium 116 150 147 875 147 875
Revaluation reserve 43 587 37 150 43 587
Accumulated profit 328 163 286 769 319 774
Attributable to ordinary shareholders 487 924 471 818 511 260
Non-controlling interest 87 654 77 341 83 723
Total shareholders` funds 575 578 549 159 594 983
Non-current liabilities
Deferred lease payments 156 94 94
Deferred taxation 19 584 16 931 19 198
Current liabilities
Trade and other payables 75 989 78 743 142 519
Provisions 2 013 1 395 3 207
Deferred lease payments - - 3
Taxation payable 1 456 1 412 885
Bank overdraft - 49 -
TOTAL EQUITY AND LIABILITIES 674 776 647 783 760 889
Number of ordinary shares in issue (000`s)235 000 235 000 235 000
Net asset value per share (cents) 207,63 200,77 217,56
Net tangible asset value per share (cents) 206,12 199,58 216,05
ABRIDGED GROUP STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months 6 months year to
to 31 Dec to 31 Dec 30 June
2010 2009 2010
R000`s R000`s R000`s
Cash generated by operating activities 9 598 72 451 133 359
Interest received 9 353 8 275 18 004
Interest paid (70) (109) (240)
Investment income - 594 594
Dividends paid (31 185) - -
Taxation paid (17 396) (18 454) (35 379)
Secondary tax on companies paid (3 019) - -
Cash flows from operating activities (32 719) 62 757 116 338
Cash flows from investing activities (9 637) (713) (32 415)
Cash flows from financing activities
Capital distribution from share premium (31 725) (23 500) (23 500)
Net decrease in cash resources (74 081) 38 544 60 423
Cash resources at beginning of period 260 938 200 515 200 515
Cash resources at end of period 186 857 239 059 260 938
ABRIDGED GROUP STATEMENT OF CHANGES IN EQUITY
Revalu-
Share Share ation
Capital Premium Reserve
R000`s R000`s R000`s
Balance at 30 June 2009 (audited) 24 171 375 37 150
Total comprehensive income for the period - - -
Reduction of share premium - (23 500) -
Balance at 31 December 2009 (unaudited) 24 147 875 37 150
Total comprehensive income for the period - - 6 437
Balance at 30 June 2010 (audited) 24 147 875 43 587
Total comprehensive income for the period - - -
Dividends paid - - -
Reduction of share premium - (31 725) -
Balance at 31 December 2010 (unaudited) 24 116 150 43 587
Non-
Accumu- Control-
lated ling
Profit Interest Total
R000`s R000`s R000`s
Balance at 30 June 2009 (audited) 251 082 69 290 528 921
Total comprehensive income
for the period 35 687 8 051 43 738
Reduction of share premium - - (23 500)
Balance at 31 December 2009 (unaudited) 286 769 77 341 549 159
Total comprehensive income
for the period 33 005 6 382 45 824
Balance at 30 June 2010 (audited) 319 774 83 723 594 983
Total comprehensive income
for the period 35 414 8 092 43 506
Dividends paid (27 025) (4 161) (31 186)
Reduction of share premium - - (31 725)
Balance at 31 December 2010 (unaudited) 328 163 87 654 575 578
ABRIDGED GROUP SEGMENT REPORT
Unaudited for the 6 months ended 31 December 2010
Elec-
Investment trical
and rental Whole- IT
income saling Services
R000`s R000`s R000`s
Segment revenue 26 761 615 527 2 236
Profit before taxation 29 485 46 570 412
Depreciation 848 1 128 25
Capital expenditure 8 861 1 229 12
Segment assets 320 300 420 769 2 410
Segment liabilities 60 536 82 657 347
Inter-
company
eliminations
and re-
allocations Total
R000`s R000`s
Segment revenue (29 822) 614 702
Profit before taxation (11 841) 64 626
Depreciation - 2 001
Capital expenditure - 10 102
Segment assets (68 703) 674 776
Segment liabilities (44 342) 99 198
Unaudited for the 6 months ended 31 December 2009
Elec-
Investment trical
and rental Whole- IT
income saling Services
R000`s R000`s R000`s
Segment revenue 13 963 544 188 2 033
Profit before taxation 18 200 41 776 569
Depreciation 1 139 839 17
Capital expenditure 1 206 227 108
Segment assets 298 489 395 326 1 023
Segment liabilities 20 597 98 758 82
Inter-
company
eliminations
and re-
allocations Total
R000`s R000`s
Segment revenue (15 820) 544 364
Profit before taxation - 60 545
Depreciation - 1 995
Capital expenditure - 1 541
Segment assets (47 055) 647 783
Segment liabilities (20 813) 98 624
Audited for the year ended 30 June 2010
Elec-
Investment trical
and rental Whole- IT
income saling Services
R000`s R000`s R000`s
Segment revenue 24 654 1 087 571 5 373
Profit before taxation 41 868 77 284 1 686
Depreciation 2 226 2 471 35
Capital expenditure 20 261 3 192 29
Segment assets 346 998 474 332 2 149
Segment liabilities 51 508 152 232 394
Inter-
company
eliminations
and re-
allocations Total
R000`s R000`s
Segment revenue (31 091) 1 086 507
Profit before taxation (5 845) 114 993
Depreciation - 4 732
Capital expenditure - 23 482
Segment assets (62 590) 760 889
Segment liabilities (38 228) 165 906
BASIS OF PREPARATION
The abridged unaudited consolidated interim financial statements for the six
months ended 31 December 2010 ("the period") have been prepared in compliance
with International Financial Reporting Standards ("IFRS"), IAS34, AC500, the
South African Companies` Act, 1973 and the Listings Requirements of the JSE
Limited. The accounting policies applied are consistent with those applied in
the annual financial statements for the year ended 30 June 2010 and the six
months to 31 December 2009.
COMMENTARY
The board of ARB ("the Board") is pleased to present the group`s interim results
for the period.
A 7% increase in operating profit ensured that the group remained ungeared with
net cash of R187 million as at 31 December 2010 notwithstanding the increased
dividend and the capital reduction payments amounting to R62 million (including
STC) made during the period.
FINANCIAL AND OPERATIONAL REVIEW
The group`s strategy of expanding its branch network through the acquisition of
Paragon Electrical and the opening of a branch in Polokwane proved successful as
the group`s revenue increased by 13% despite a marked slowdown in activity
levels across all key market segments after the FIFA 2010 Soccer World Cup(TM).
In spite of the very competitive trading conditions experienced during the
period, the group`s gross profit margin increased to 18,7% from 18,1% in the
comparative period. This improvement reflects the contribution of the higher
margin, cash sales component of the Paragon branches as well as the group`s
focus on leveraging its strong cash position to negotiate better trading terms
from its suppliers.
The vast majority of the 26% increase in total overheads is directly
attributable to the inclusion of six new branches in the current period, being
the five Paragon branches acquired in March 2010 and the Polokwane branch opened
in July 2010, including certain restructuring and branch establishment costs.
All new branches are performing in line with expectations and will increase
their respective contributions going forward. The overheads attributable to the
group`s remaining seven branches remained flat from the comparative period.
Despite lower interest rates and shareholder payments during the period of
approximately R62 million (including STC), net interest received increased by
14% to R9,3 million reflecting management`s disciplined approach to cash
management.
The above factors enabled the group to report a 7% increase in pre-tax profit
for the period.
The group`s effective tax rate increased from 28% in the comparative period to
33% due to the payment of STC amounting to R3,0 million on dividends paid during
the period, whereas in the prior year, a capital distribution, which does not
attract STC, was paid to shareholders.
Consequently, the group achieved headline earnings per share of 15,07 cents
(2010: 15,19 cents).
Despite the payment of 25 cents per share to shareholders during the period, the
group`s net tangible asset value per share declined by only 10 cents to 206
cents as at 31 December 2010.
Notwithstanding the increase in the number of branches, from 7 in the
comparative period to 13 in the current period, management`s disciplined
approach to cash and working capital management resulted in a decrease in
inventory levels to 70 days, receivable days being maintained at below 40 days,
while payable days decreased as advantage was taken of the group`s strong cash
position to maximise early settlement discount received from suppliers.
The decline in cash generated by operating activities is due to the R48 million
investment in working capital discussed above. Cash generated from operations,
before the above investment in working capital, amounted to over R57 million.
Capital expenditure for the period amounted to approximately R10 million of
which the majority related to the purchase of fixed property in Durban North
which will house the soon-to-open "ARB Connect" branch (discussed below).
Notwithstanding the Group`s recent expansion initiatives and the decision to
return almost R62 million (including STC) to shareholders during the period, the
group`s balance sheet remains ungeared with net cash holdings of R187 million.
CORPORATE ACTIVITY AND EXPANSION
During the period, several potential acquisitions were assessed; however, none
fulfilled the group`s stringent acquisition criteria. Management continues to
evaluate further strategic growth initiatives, both organic and acquisitive.
LAUNCH OF "ARB CONNECT"
In line with the group`s strategy of expanding its national branch network, the
Board is pleased to announce the launch of "ARB Connect", a chain of smaller,
more centrally located retail stores ("satellites") aimed predominantly at the
smaller electrical contractor and domestic market segments. Currently, ARB`s
larger branches, save for the Paragon branches in Pretoria, are located in
industrial areas and, as such, are not designed to attract this custom. The
satellites will therefore provide ARB with access to a new target market segment
which should provide further impetus to the group`s growth strategy.
Premises for the first two "ARB Connect" stores have been secured and both
stores are planned to open in the second quarter of 2011. The group has
earmarked several other regions for future "ARB Connect" store rollouts which
will occur once suitable premises are secured.
BUILDING ORGANISATIONAL CAPACITY
In order to ensure that the group has both the necessary management skills and
capacity to successfully undertake the planned expansion activities discussed
above, the group has invested significantly in enhancing its organisational
capacity. Areas of focus include improved corporate governance through the
adoption of King III, enhancing the management information system, Xact, which
is currently being completely rewritten and should be completed by mid-year,
formalising the group`s succession plan and implementing improved retention and
incentive schemes. From a more operational perspective, during the period the
group established a dedicated internal audit function, appointed a specialist
group human resources manager, launched a new training programme designed to
ensure a consistent pool of available talent to resource future growth
initiatives and has appointed a specialist consultant to advise on the creation
of a centralised group procurement function, amongst others.
These initiatives, together with the group`s successful track record established
over the past 31 years and its ungeared, cash-positive balance sheet, will
ensure that the group is well placed to not only deliver on its existing growth
initiatives but also to capitalise on any strategically aligned acquisition
opportunities which may arise.
PROSPECTS
Trading in recent months suggests that the post-World Cup hangover is slowly
lifting however, the extent and sustainability of any recovery is uncertain and
as such, the group expects the highly competitive trading environment to
continue for the foreseeable future.
ARB will continue its focus on profitable market share accretion through the
continued expansion of its national branch network. This will be achieved
through a combination of opening new branches - such as the recently opened
Polokwane branch and the launch of "ARB Connect" - and through value-adding
acquisitions - such as Paragon Electrical. Closely related diversification
opportunities will also be pursued provided that such opportunities meet the
Board`s strict vetting criteria.
The group remains committed to delivering sustainable earnings growth and value
to its shareholders.
The above prospects statements have not been reviewed or reported on by the
company`s auditors.
CHANGE TO THE BOARD
In order to align the composition of the Board with the recommendations set out
in King III, Dumisani Muhlwa, CEO of Batsomi Investments Holdings (Pty) Limited
("Batsomi"), has resigned as a non-independent, non-executive director with
immediate effect.
The Board would like to extend its gratitude to Dumisani for his contribution
during his tenure as a director and looks forward to his continued involvement
on the board of the group`s main trading subsidiary, ARB Electrical Wholesalers
(Pty) Limited, wherein Batsomi has a 26% shareholding.
Jacob Modise, Chairman and Founder of Batsomi, will continue to serve on the
boards of both the Company and ARB Electrical Wholesalers (Pty) Limited.
Following Dumisani`s resignation, the Board comprises 3 executive directors and
4 non-executive directors, of whom 2 are independent. The Board intends to
appoint an additional independent, non-executive director in due course.
DIVIDENDS
ARB`s dividend policy is to distribute a single, annual dividend for the full
year of up to a maximum of forty percent of net profit after taxation. In line
with this policy, no interim dividend has been declared.
SUBSEQUENT EVENTS
No significant events have occurred in the period between the reporting date and
the date of this announcement.
APPRECIATION
We would like to acknowledge the unwavering commitment and passion of our
management and staff in a trying economic environment. To our fellow directors
for their wise counsel, we express our gratitude. Lastly, we convey our
appreciation to our valued customers, suppliers, business partners, advisors and
shareholders for their ongoing support.
For and on behalf of the Board.
Alan R Burke Byron Nichles William Neasham
Chairman Chief Executive Officer Financial Director
07 February 2011
Directors: AR Burke (Chairman)*; ST Downes*>; JR Modise*; WR Neasham (Financial
Director); B Nichles (Chief Executive Officer); RB Patmore*>#; CC Robertson
*non-executive >independent #lead independent director
Registered office: 10 Mack Road, Prospecton, Durban, 4110 (PO Box 26426,
Isipingo Beach, 4115)
Company secretary: WR Neasham CA(SA), 10 Mack Road, Prospecton, Durban, 4110 (PO
Box 26426, Isipingo Beach, 4115)
Auditors: PKF Durban, 12 on Palm Boulevard, Gateway, 4319 (PO Box 1858, Durban,
4000)
Sponsor: Grindrod Bank Limited, 1st Floor, Building Three, Commerce Square, 39
Rivonia Road, Sandhurst, 2196 (PO Box 78011, Sandton, 2146)
Transfer secretaries: Computershare Investor Services (Pty) Ltd, 70
Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107)
Investor relations: ChilliBush Investor Relations, Chilli House, 58 Jan Smuts
Avenue, Forest Town, 2000 (PO Box 1432, Cramerview, 2060)
Date: 09/02/2011 08:00:03 Produced by the JSE SENS Department.
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