ARB Holdings hurt by drop in spending on infrastructure

POWER and electrification equipment company ARB Holdings struggled to turn a profit in the year to June with revenue falling by 3 percent to R2.15 billion due to a decline in the electrical division’s turnover.

The drop in revenue was attributed to the lack of infrastructure spend and Eskom’s funding challenges, which have affected the sales of ARB’s overhead line division, particularly in the Eastern Cape and KwaZulu-Natal.

Chief executive Billy Neasham said on Friday that the firm was thankful to its lighting division for helping it at least maintain overall flat growth.

The lighting division, which distributes electrical equipment and components, grew revenue by 21.3 percent to R425.5 million, with its operating profit up by 10.9 percent, helped by the introduction of new product categories.

However, the division’s gross margins took strain and ended lower due to a competitive environment and the volatile exchange. The operating margin shrunk to 10.3 percent from 11.3 percent.

The electrical division, the previous mainstay of which was work on Eskom’s rural electrification programme, saw revenue decline 7.2 percent to R1.74bn. Operating profit decreased by 11.5 percent to R122.7m.

“This division has battled significant headwinds with the dearth of major infrastructure projects, and the lack of significant capital expenditure by Eskom in the rural electrification programme,” Neasham said.

But with more than R220m cash in hand, ARB is still keen to make acquisitions.

Neasham said: “We are constantly looking at acquisitions especially in the trade and distribution industries. That is where we have seen growth coming from in future. As far as electrical business is concerned, while we will take opportunities or acquisitions as and when they come along, we tend to look at growing the business organically by adding further branches.”

Net capital expenditure amounted to R13.9m compared with R24.7m the year before.

In the year under review, R5.1m was used to complete construction of the electrical division’s Rustenburg premises, started in April last year.

With its acquisition in 2013 of Elektro Vroomen, ARB established a physical presence in each of South Africa’s nine provinces. The acquisition and recent transformation of Elektro Vroomen to ARB Electrical Wholesalers enables the company to service local and cross-border customers through its 18 branches countrywide.

ARB shares closed unchanged at R5.80 on the JSE on Friday.