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Interim results presentation for the six months ended 31 December 2013

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Interim results presentation for the six months ended 31 December 2013

Agenda

• Six months in review

• Financial performance

• Divisional reviews

• Growth strategy

• Acquisition strategy

• Prospects

2

Six months in review

Financial highlights

4

+20% Revenue to R1.15 billion

+31% Operating profit to R100 million

+35% HEPS to 24.88 cps

Ungeared with R116 million net cash on hand

Achievements and challenges

5

Achievements Strong trading performances from both divisions

Improved performance from ICS

Elektro Vroomen achieved a level 1 BBEEE rating

New five year exclusive agreements signed – ACCC and Copperweld

Debuted in Business Day Top 100 companies - #92

Challenges

Tough market conditions persisted

Exchange rate volatility

Elektro Vroomen underperformed

Local adoption of new products remains slow

Financial review

Financial review

7

544 364 614 702

693 497

964 656

1 154 170

0

250 000

500 000

750 000

1 000 000

1 250 000

1H10 1H11 1H12 1H13 1H14

R’000

Revenue

Growth predominantly (>80%) organic

Market share gains in both divisions

20% increase

5 year CAGR = 20.7%

Financial review

8

Cash 13%

Contractors 39%

Government 2%

Industry 5%

Mining 4%

Retail 15%

Export 11%

Other 11%

Revenue by customer category

Cable 48%

Overhead line equipment &

conductor 15%

Low voltage products

18%

Lighting 19%

Revenue by product category

Retail, cash sales and exports performed well

Local mining and government disappointed

All product categories recorded double digit revenue growth

Financial review

9

98

76

0

11

4 6

94

13

0 5

58

19

5 9

91

24

9 5

46

18,14% 18,66% 18,83% 20,32%

21,62%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

0

50 000

100 000

150 000

200 000

250 000

300 000

1H10 1H11 1H12 1H13 1H14

R’000

Gross profit

Positively influenced by: Sales and customer mix Inclusion of higher margin CED and Elektro Vroomen businesses Better trading disciplines

Negatively influenced by:

Locally sourced electrical accessories (Lighting) Competitive market environment

27% increase

5 year CAGR = 26.1%

Financial review

10

51

78

5

55

34

4

60

00

8

76

47

6

10

0 3

48

9.51% 9.00%

8.65% 7.93%

8.69%

0%

2%

4%

6%

8%

10%

0

20 000

40 000

60 000

80 000

100 000

120 000

1H10 1H11 1H12 1H13 1H14

R’000

Operating profit

Overheads:

Well controlled ICS overheads reduced by 10% Elektro Vroomen overheads reduced by 30% (but not included in prior period) Some integration and restructuring costs – not material

Both divisions improved their operating margins

31% increase

5 year CAGR = 18.0%

Financial review

11

15.19 15.07 15.69

18.43

24.88

0

5

10

15

20

25

30

1H10 1H11 1H12 1H13 1H14

Ce

nts

per

sh

are

HEPS

Wound up old share option scheme – no future dilution replaced with cash-settled Share Appreciation Rights

35% increase

5 year CAGR = 13.1%

Financial review

12

Cash from trading activities

Ungeared with R116 million net cash on hand

37% increase

5 year CAGR = 19.1%

52 697 56 183

59 495

77 591

106 011

-

20 000

40 000

60 000

80 000

100 000

120 000

1H10 1H11 1H12 1H13 1H14

R’000

Financial review

13

Working capital as a % of annualised revenue

R83m invested since year-end - in line with % growth in revenue

Debtors days maintained at 42 days

Inventory days increased by 10% to 79 days

Creditors days increased by 10% to 41 days

19.8% 21.3%

18.7% 19.8% 20.0%

0%

5%

10%

15%

20%

25%

1H10 1H11 1H12 1H13 1H14

Financial review

Cash flow

14

202 753

106 011 (83 111)

6 102 (70 970)

(26 527) (17 067)

(791) 116 400

-

50 000

100 000

150 000

200 000

250 000

300 000

350 000O

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R’000

Divisional reviews

Electrical

Electrical

17

67%

33%

Contribution to operating profit

Electrical

Other

84%

16%

Contribution to revenue

Electrical

Other

Electrical

18

Products

Customers

Suppliers

Competitors

± 15,000 products across three main categories Power cable, overhead line equipment and low voltage products

More than 90% of products are locally supplied Aberdare Cables, CBi, Eurolux, Schneider, Osram etc

± 6,500 customers across seven main categories Large and heavy industry, government and parastatal, construction, Electrical contractors, mining, domestic market and retail and DIY

Voltex, Actom and ±1,000 independents

Value proposition Broadest product range / one-stop-shop Scale 34 year track record National footprint / proximity to market BBBEE profile Value added services

Electrical

19

R’000 1H 2014 1H 2013 % change

Revenue 984 850 829 035 18.8

Operating profit 67 072 46 419 44.5

Operating margin 6.8% 5.6%

New CEO settling in well

Intensified focus on trading facilitated revenue growth and margin improvement

ICS returned a much improved performance, scope for further improvement

Separate legal structure for ICS to be collapsed and integrated as ARB branches

Absorbed Bellville Connect back into Cape Town branch on expiry of lease

Elektro Vroomen reduced monthly overheads by ±30% - revenue trending up but still not performing to full potential

5 year extensions to exclusive distribution agreements for proprietary products concluded

Lighting

Lighting

21

20%

80%

Contribution to operating profit

Lighting

Other

15%

85%

Contribution to revenue

Lighting

Other

Lighting

22

Products

Customers

Suppliers

Competitors

± 4,500 products - lamps, lighting, electrical and related accessories

More than 95% of products are imported, mainly from China with some from Taiwan and Europe, no local manufacturers

± 2,000 customers across retail, independents/DIY/hardware, electrical wholesalers, lighting specialists and exports

Osram, Philips, Radiant, Ellies and independents

Value proposition Local, owned brand Synonymous with high quality and good value Market leader Unrivalled industry experience ‘Owner’ managed 23 year track record

Lighting

23

R’000 1H 2014 1H 2013 % change

Revenue 173 536 139 670 24.2

Operating profit 20 183 14 420 40.0

Operating margin 11.6% 10.3%

Good growth across all key customer segments

Electrical accessories gaining good traction after slow start

Gross margin slightly down

Cashbuild roll out progressing well

Projects completed inter alia – Hotel Verde, Old Mutual, V&A Waterfront and Sanlam Head Office (underway)

Stock slightly higher than desired due to next phase of Cashbuild roll out and ahead of Chinese New year

In-store promoters concept well received

Corporate

Corporate

25

1%

99%

Contribution to revenue

Corporate

Other

13%

87%

Contribution to operating profit

Corporate

Other

Corporate

26

R’000 1H 2014 1H 2013 % change

Revenue 17 533 20 455 (29.0)

Operating profit 13 076 15 637 (16.4)

Operating margin NM NM

Funded development of Nelspruit branch – R7 million – rented back to operating subsidiary from January 2014 Non-recurrence of Xact II ERP solution implementation revenue from prior period Reduced (inter company) vehicle rentals earned due to change in group policy

Growth strategy

Growth strategy

28

Electrical Grow market share Drive further operating efficiencies Integration / rebranding of ICS into ARB Electrical Wholesalers Improve performance of Elektro Vroomen Pilot refined Connect model before further roll-outs Continue to drive awareness and adoption of proprietary products

Growth strategy

29

Lighting Grow market share Local – new customers targeted Africa – customers expansion strategy offer exciting opportunities Drive further operating efficiencies Protect brand integrity Increase offering and share of LED market Continue to grow new customers and product categories

30

Group Related diversification Group – acquisition driven BBBEE and transformation Newly gazetted scorecard presents some challenges Not all operations are appropriately empowered African expansion strategy Electrical – driven by infrastructure, electrification and mining expansion Lighting – driven by a “follow the customer” strategy

Growth strategy

Acquisition strategy

Acquisition strategy

32

Business Date Purchase price NTAV Acquisition P/E

Rationale

Paragon Electrical

March 2010 Business R12.0 million Properties R10.7 million

R12.0 million R10.7 million

±2x

Geographic expansion into Pretoria and Centurion

Industrial Cable Suppliers

July 2012 Business R29.6 million Properties R8.7 million

R32.5 million R8.7 million

±4x

Geographic expansion into central Johannesburg and Rustenburg

Elektro Vroomen

January 2013 R1.00 n/a n/a Geographic expansion into Bloemfontein and Kathu

Electrical

Deals done to date:

33

Our approach: Acquisitions tend to be small (i.e. <R50m) due to highly fragmented market Price is NTAV driven (i.e. minimal goodwill) Focus on acquiring established market presence in new regions Typically cash funded, no profit warranties / service agreements but definite restraints of trade Integrate and rebrand to leverage operating efficiencies Limited number of suitable targets

Acquisition strategy

Electrical (continued)

Acquisition strategy

34

Business Date Purchase price NTAV Acquisition P/E

Rationale

Eurolux

January 2012 R78 million (60%)

R32.5 million (60%)

±7x Related diversification into aligned product category

Our approach: Trading and distribution businesses in similar/related product categories Larger deals – R100+ million – P/E between 4-7x Funded by combination of cash, debt and/or shares (profit warranties and restraints of trade)

Related diversification

Deal done to date:

Acquisition strategy

35

Established market players - no start-ups/turnarounds/distressed companies Retention of key operational management (with aligned vested interests) is critical Typically acquire less than 100% (with call and put options) Maintain as a stand alone, autonomous business unit but leverage any intra-group opportunities

Related diversification (continued)

Prospects

Prospects

36

Opportunities Improved performance from Elektro Vroomen Infrastructure and electrification spend in SADC is increasing Increased contribution from proprietary products

Challenges Slow rate of local infrastructure spend Labour strikes impacting on mining and manufacturing sectors Competitive market conditions

Electrical

Prospects

37

Opportunities Strong organic growth prospects (recently secured new customers, new market sectors targeted) Increased contribution from new product categories

Challenges Forex volatility Consumer under increasing pressure Lack of minimum standards for LED’s

Lighting

Prospects

38

No improvement anticipated in overall business environment but solid foundations have been laid

Both divisions are well placed to carry momentum into the second half

Overall

Q&A

Thank you for your attendance

www.arbhold.co.za

For further information, please contact:

Byron Nichles – CEO: (012) 663 5244

Lynne van der Schyff – Keyter Rech Investor Solutions: (011) 447 2993