interim results presentation - arb holdings limited -...
TRANSCRIPT
Agenda
• Six months in review
• Financial performance
• Divisional reviews
• Growth strategy
• Acquisition strategy
• Prospects
2
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
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
pen
ing
bal
ance
1 J
uly
20
13
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20
13
R’000
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
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
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
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
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
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