Summarised audited consolidated results for the year ended 30 June - - PowerPoint PPT Presentation

Summarised audited consolidated results

for the year ended 30 June 2019

Disclaimer

Forward-looking statements

This presentation, which sets out ARB’s results for the year ended 30 June 2019, contains 'forward- looking statements‘ with respect to, inter alia, ARB’s financial condition, results of operations and certain of its plans, strategies and objectives, which have not been reviewed or reported on by ARB’s auditors. By their nature, forward-looking statements are not guarantees of future performance but are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future, involve known and unknown risks, uncertainties and other facts or factors which may cause ARB’s actual results, performance or achievements to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements.

Agenda

▪ Highlights ▪ The year in review ▪ Group financial review ▪ Divisional review

• Electrical
• Lighting
• Corporate

▪ Strategy and outlook ▪ Q&A ▪ Appendix: Environmental, Social & Governance (ESG)

FINANCIAL REVIEW

Highlights

Revenue Up 4.5% to R2 706m Operating profit Down 24.0% to R155m HEPS Down 18.8% to 58.20 cps Ungeared R181 million cash on hand Dividend Maintained at 25.0 cents

The year in review

Low growth & unstable local economy Low business confidence Dire state of construction industry Radiant rationalisation Eskom in crisis Volatile Republic Copper Price Cable supply inconsistencies in the market Right-sizing

• perational structures

Poor payments by SOEs / parastatals Major supplier goes direct to customers

Experienced executive and management teams in place Sound business and financial fundamentals remain key Remain largely ungeared, with cash reserves

• n hand

The year in review – strong fundamentals

The year in review – strong fundamentals

Group financial review

% change Year ended 30 June 2019 R000’s Year ended 30 June 2018 R000’s Year ended 30 June 2017 R000’s Revenue 4.5 2 706 186 2 590 150 2 479 419 Gross profit 5.7 650 355 615 186 594 412 Gross profit margin 24.0% 23.8% 24.0% Operating profit (24.0) 155 367 204 326 214 455 Operating profit margin 5.7% 7.9% 8.6% Profit before tax (24.3) 145 165 191 647 171 466

Group financial review

196 222 214 204 155

50 100 150 200 250 '15 '16 '17 '18 '19

Operating Profit (Rm)

2 151 2 490 2 479 2 590 2 706

500 1 000 1 500 2 000 2 500 3 000 '15 '16 '17 '18 '19

Revenue (Rm)

51,71 59,74 61,89 71,70 58,20

0,00 10,00 20,00 30,00 40,00 50,00 60,00 70,00 80,00 '15 '16 '17 '18 '19

Headline earnings per share (cents) Cash generated from operations

205 236 226 217 168 167 168 207 225 226

50 100 150 200 250 '15 '16 '17 '18 '19 Cash generated from trading (pre working capital) Cash generated from operations (after working capital)

Group financial review

Unusual items in operating expenses: ▪ Reduction in put option liability R21.3m ▪ Negative goodwill on Radiant acquisition R18.8m ▪ Goodwill write off in Eurolux (R18.4m) ▪ Goodwill write off in ARB Electrical Wholesalers (R26.2m) ▪ Gauteng relocation costs (R0.8m) ▪ Radiant retrenchment costs and restructuring costs (R5.3m)

Group financial review

Unusual items in results (“attributable to ordinary share holders”) % change Year ended 30 June 2019 Year ended 30 June 2018 R000's R000's (24.0) 104 595 137 633 Put option liability adjustment 29 944 30 914

• Change in put option assumptions

17 025 26 000

• Dividends paid to NCI's

(3 735) (4 800)

• Undiscounting of liability net of minority

(1 304) (1 558)

• NCI's share of the results

18 010 11 272 Straight line of leases 389 (51) (19.9) 134 977 168 496

Group financial review

1 100 1 236 1 274 1 342 1 357 1 051 1 254 1 206 1 248 1 349 500 1 000 1 500 2 000 2 500 3 000 '15 '16 '17 '18 '19 First 1/2 Second 1/2 108 105 105 107 92 88 112 110 97 64 50 100 150 200 250 '15 '16 '17 '18 '19 First 1/2 Second 1/2

Revenue (Rm) Operating profit (Rm)

Group financial review

0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 '15 '16 '17 '18 '19 24,8 27,7 27,8 37,7 23,3 25,5 22,3 34,5 34,0 34,2

Earnings per share (cents)

First 1/2 Second 1/2 24,8 27,8 28,1 37,6 23,2 25,5 22,2 33,8 34,1 35,0 0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 '15 '16 '17 '18 '19

Headline earnings per share (cents)

First 1/2 Second 1/2

Group financial review

180 891 109 290 48 770

204 257

259 420 167 676 58 125 19 136 38 851 100 000 200 000 300 000 400 000 500 000 600 000 Opening Cash balance From

• perations

Net working capital Interest received Dividends paid Taxation paid Assets acquired Funding raised Closing cash balance

Cash flow 2019

Base End Fall Rise Start

Group financial review

20,1 23,1 25,0 25,0 25,0 10 10 10 10

5 10 15 20 25 30 35 40 '15 '16 '17 '18 '19

Ordinary Special

Dividends (cents)

Group financial review

87 83 91 94 108 60 64 62 56 56 (56) (60) (61) (61) (67)

(100) (50)

• 50

100 150 200

Inventory Debtors Creditors

Group days in working capital Group working capital as a % of revenue

‘15 ‘16 ‘17 ‘18 ‘19 ‘15 ‘16 ‘17 ‘18 ‘19 23% 22% 23% 22% 23%

Group financial review

18% 25% 2% 3% 6% 8% 5% 5% 22% 5%

Sales by customer 2019

Cash Contractors Government Mining Export Industry Wholesalers OHL contractors Retail & independents Other 17% 27% 4% 3% 7% 6% 6% 8% 19% 5%

Sales by customer 2018

Group financial review

34% 12% 28% 26%

Sales by product 2019

36% 13% 22% 29%

Sales by product 2018

Cable OHL Lighting General products

Group financial review

70 000 75 000 80 000 85 000 90 000 95 000 100 000 105 000

Republic Copper Price Cu/ton

Group financial review

11,00 11,50 12,00 12,50 13,00 13,50 14,00 14,50 15,00 15,50 5 000 5 500 6 000 6 500 7 000 7 500

US$ price of copper and average R/US$ exchange rate

Copper US$ / ton R/$ average

DIVISIONAL REVIEW

Divisional contribution

Revenue contribution per division (Rm) Operating profit contribution per division (Rm)

1 679 1 876 1 741 2 006 1 996 2 120 2 097 281 351 425 507 511 502 649 39 35 38 39 38 46 56

500 1 000 1 500 2 000 2 500 3 000 '13 '14 '15 '16 '17 '18 '19 Electrical Eurolux Corporate 101 139 123 141 134 129 86

30 40 44 60 58 46 35 30 27 30 27 30 34 45

50 100 150 200 250 '13 '14 '15 '16 '17 '18 '19 Electrical Eurolux Corporate

ELECTRICAL

Electrical Division

Good contribution from CraigCor Cable / copper supply challenges Reduced activity in infrastructure & development projects Eskom electrification projects Disruption to existing contracts large construction companies Volatile exchange rate and effect

• n commodity prices

Occupation taken of Lords View DC Loss-making branch closed

Electrical Division

1 679 1 876 1 741 2 006 2 120 2 120 2 097

500 1 000 1 500 2 000 2 500 '13 '14 '15 '16 '17 '18 '19

Revenue (Rm)

101 139 123 141 134 129 86

20 40 60 80 100 120 140 160 '13 '14 '15 '16 '17 '18 '19

Operating profit (Rm)

Electrical Division

% change Year ended 30 June 2019 R000’s Year ended 30 June 2018 R000's Year ended 30 June 2017 R000's Revenue (1.1%) 2 096 776 2 119 913 1 996 374 Operating profit (33.7%) 85 555 129 036 134 199 Profit margin 4.1% 6.1% 6.7% Profit before tax (42.8%) 85 748 149 841 154 275

• Good performance by CraigCor
• ARB Electrical Wholesalers suffered the most
• Major supplier goes directly to customers
• Cable supply challenges / change in route to market
• Increase in [low margin] cable distributors
• OHL sales still impacted by very low Eskom spend
• GMC acquisition not yet delivering to expectation
• Low voltage products growing but at a slower rate
• Bad debts remain a challenge
• Move to Midrand – short-term costs; long-term benefits
• Key focus on optimising existing operations and gaining efficiencies

LIGHTING

Lighting Division

Inclusion of Radiant for six months Current focus on Radiant integration Inventory management improved and still meet customer needs Consumer spending low – retailers results “Hardware” revenue decline at retailers Volatile exchange rate Supply challenges with packaging plant – still not fully

• perational

Inclusion of Crabtree sales

Lighting Division

281 351 425 507 511 502 649

100 200 300 400 500 600 700 '13 '14 '15 '16 '17 '18 '19

Revenue (Rm)

30,5 39,5 43,8 59,9 37,2 45,9 35,4

10 20 30 40 50 60 70 '13 '14 '15 '16 '17 '18 '19

Operating profit (Rm)

Lighting Division

% change Year ended 30 June 2019 R000’s Year ended 30 June 2018 R000's Year ended 30 June 2017 R000's Revenue 29.3 648 689 501 876 510 802 Operating profit (22.9%) 35 374 45 882 57 822 Operating profit margin 5.5% 9.1% 11.3% Profit before tax 6.8% 39 690 37 153 48 238

• Radiant included for six months
• Performed better than expectation despite lower revenue
• Crabtree sales continue to improve
• Stock levels improved but still maintain “fill rates” to retailers
• Rechargeable stock fully disposed of
• Packaging plant relocated, fully operational but supply challenges exist
• Curtailed offtake by retail customers continued
• No significant project revenue
• Year of consolidation and refocusing

CORPORATE

Corporate Division

% change Year ended 30 June 2019 R000’s Year ended 30 June 2018 R000's Year ended 30 June 2017 R000's Revenue 21.0 55 510 45 882 38 379 Operating profit 33.5 44 972 33 698 29 723 Operating profit margin 81.0% 73.4% 68.3%

• This division is always in line with expectations
• Property portfolio – 16 properties valued at R354 million
• Given beneficial occupation of Lords View site from 12 December 2018

STRATEGY AND OUTLOOK

Efficient hedge

(against volatile local business conditions)

Strength of management Cash generative | free cash flow focus Operational diversification Dividend payer

How to assess ARB

Geographic footprint

Strategy and outlook – Electrical Division

Strategy

• Focus on making ARB Electrical Wholesalers more efficient and effective in the new

norm

• Maximising value out of Midrand distribution centre
• Expanding range of products through introduction of new products or the acquisition
• f complementary businesses, such as CraigCor
• Leveraging new niche product offerings through national distribution footprint
• Proprietary products – CHINT / Copperweld / Rockwell / Honeywell

Outlook

• Right-sizing operational structures
• Operational efficiencies and savings from new Lords View distribution centre
• Little or no improvement in trading environment, coupled with low economic growth
• Volatile exchange rate and effect on copper price
• Limited infrastructure spend
• Customer credit outlook – little expected to change
• Opportunities in proposed changes to Eskom’s LAP list

Strategy and outlook – Lighting Division

Strategy

• Finalise rationalisation and integration of Eurolux / Radiant in JHB
• Improve Radiant offering to retail
• Increasing market share through expansion of customer base
• Broadening product offering to new and existing customers, including:

− electrical accessories sector (switches, sockets, double adaptors, cut cable, wire and extension leads, etc.) − Office systems

• Expanding into Africa with local logistics partners

Outlook

• Opening new showrooms in JHB and DBN will significantly increase exposure
• Radiant rationalisation benefits in Q3 and Q4
• Euro Nouveau growing inline with expectations
• Ensuring continuous product supply for packaging facility
• Exchange rate volatility expected to continue

Q&A

STRATEGY AND OUTLOOK APPENDIX

Environmental, Social & Governance (ESG)

ARB embraces leadership, ethics, and corporate citizenship in a wholistic manner ensuring it forms the DNA of the business

In our view, ARB is strategically well placed to leverage market opportunities. Although the current economic environment presents a high degree of uncertainty, we view management initiatives to drive growth through store/brand expansion coupled with acquisitive activities as a positive. Growing the brand portfolio to gain market share in existing and new markets remains one of the key priorities for the

• group. ARB is in the process of acquiring a new business, Radiant Lighting. Once

this acquisition is complete and the business is integrated within the group, we are positive that it should strengthen ARB’s competitive position and enhance its route to market.

Nedbank Private Wealth Investment Research and Fund Management

Environmental, Social & Governance (ESG)

Employees 53% Providers

• f Capital

22% Government 10% Retained in Group 15%

Wealth creation 2019

• ARB’s operations have a low impact on the

environment – no operations directly pollute or contaminate land, water or air.

• We are aware that SA is a water-scarce country and

water usage is monitored.

• A dedicated member of operational management at

each of our operations is responsible for waste and environmental management of their respective

• peration.
• The Carbon Tax introduced on 1 July 2019 is unlikely

to have any effect on us, but compliance will be monitored.

• The Lighting Division recycles all hydrocarbons and

dangerous substance wastes (e.g. fluorescent tubes) are removed by a registered waste management company, Interwaste.

• Eurolux offers a free service to customers, who can

drop off all used lamps at Eurolux’s premises. These are safely crushed and deposited into custom- manufactured recycling drums collected by Interwaste and delivered to the Holfontein Hazardous Waste Plant near Springs, Gauteng.

Environmental, Social & Governance (ESG)

72% 28%

Split of staff by gender

Male Female 52% 11% 12% 25%

Split of staff by race

African Coloured Indian White 7% 38% 32% 17% 5%

Split of staff by age

>25 25 - 35 36 - 45 46 - 55 <55 Our employees are critical to the achievement of our strategic objectives. Many of the business-critical skills that we require are in short supply and we recognise the importance of attracting, developing, rewarding and retaining the best people to deliver on our business goals. Our key focus areas include attracting and developing core skills, implementing sustainable leadership development and succession plan strategies, achieving transformation and maintaining our B-BBEE rating. However, we also continue to manage other areas important to human capital success, including employee engagement, health and safety,

• rganised labour relations, performance management and salary benchmarking.

Risk mitigation

SA country risk Volatile commodity markets Macro economic threats Construction industry pressure

Implementation by Government is critical

Environmental, Social & Governance (ESG)

Environmental, Social & Governance (ESG)

The board

Executive Non-executive Sub-committees

Remuneration & Nominations Committee Risk Committee Audit Committee Social & Ethics Committee Director Board Audit Committee Risk Committee Remuneration & Nominations Committee Social & Ethics Committee AR Burke (chair – retired 30 April 2019)* 4/4

• 3/3

1/3

• ST Downes**

5/5 3/3 4/4 3/3 2/2 JS Dixon ** 5/5 2/3 4/4 3/3 2/2 RB Patmore**> 5/5 3/3 4/4 3/3 1/1 # WR Neasham (CEO) 5/5 3/3 # 4/4 # 3/3 # 2/2 # GM Scrutton (CFO) 5/5 3/3 # 4/4 # 2/3 # 2/2

Board structure Meeting attendance

Thank you for your attendance and participation For any further Investor Relations questions please contact:

Billy Neasham (CEO) 031 910 0203 Deborah Chapman (Keyter Rech Investor Solutions) 087 351 3816