ARB’s electrical division sees operating profit slump 27% in challenging market

ARB HOLDINGS’ electrical division struggled in the six months to end December saw its operating profit slump nearly 27 percent.

The entrance of a major cable manufacturer, Aberdare, into the contractor market as a direct competitor as well as the continued reduction in Eskom spend on electrification projects, tested the resilience of the company, leading it to report a 26.9 percent decline in operating profit to to R51.9 million, compared with last year. But revenue in the division was marginally down by 1.8 percent.

Chief executive Billy Neasham said the division did reasonably well to survive during the period, despite the challenges.

“The electrical division had to contend with a power cable accident in the Phalaborwa copper mine and it was difficult to transport the raw materials to the mine as a result of lack of electricity supply,” Neasham said.

ARB’s lighting division performed better during the period, with revenue up 13.4 percent to R288.4m and operating profit up 1.1 percent to R27.2m.

“Revenue in this division increased, thanks to the inclusion of Crabtree retail sales, which was previously not consolidated, but more importantly (due) to a revised strategy to grow market share with our major retail customers by increasing inventory levels to ensure we meet customer requirements in an environment where everyone else is reducing inventory levels,” Neasham said. The overall results saw revenue increasing by 1 percent to R1.36 billion, up from R1.34bn.

ARB has investments in closely-related trading and distribution businesses, including 74 percent of ARB Electrical Wholesalers, a level 2 B-BBEE company that operates 22 electrical wholesale branches in the country, and 60 percent of Eurolux, which imports and distributes light fittings, lamps and related accessories.

Operating profit was down 15 percent to R91.6m while headline earnings per share declined 38 percent to 23.17 cents a share. Post the reporting period, the lighting division acquired 100 percent of the shares of The Radiant Group for a purchase consideration of R96.4m, effective from January 1.

“The lighting division will continue to expand its product offering to existing customers. The new cut wire, moulded plug and ready pack range will be increased in light of the Radiant acquisition, and these operations will be rationalised and consolidated at the Radiant premises. It is anticipated that this facility will contribute positively to the next six months’ results,” Neasham said.

Neasham emphasised that the electrical division had completed the development of the new mega branch in Lords View in December last year and was currently operational.

“The strategy is to redevelop the operation from a large branch into an automated distribution centre with a modern warehouse management system. This division will continue to invest in the medium term through targeted acquisitions and in organic growth through the establishment of new branches.”

ARB’s share price closed 9.76 percent higher at R4.60 on the JSE on Friday