RMB Morgan Stanley Off Piste Conference - arbhold.co.za · • Average electrification rate in SADC...
Transcript of RMB Morgan Stanley Off Piste Conference - arbhold.co.za · • Average electrification rate in SADC...
RMB Morgan Stanley Off Piste Conference 2 October 2013
Agenda
• About ARB
• Divisional overviews
• Financial performance
• Market performance
• Strategic intent
• Outlook and market potential
• Questions and answers
Overview
• Largest independent electrical distributor in sub-Saharan Africa
• Focused on electrical, lighting and related products
• Supply across all market segments
• Extensive distribution network across South Africa
Power cables
Overhead line
conductors and
equipment
General low
voltage products Lighting and lamps
Milestones
Founded by Alan R Burke
National branch network established
Listed on Johannesburg Stock Exchange
Opened Nelspruit and Polokwane branches
Acquired Paragon Electrical
Acquired 60% of Eurolux
Acquired 100% of Industrial Cable Suppliers
1980
2007
2010
2012
2012
2012
2013
Secured exclusive international agencies
Acquired 100% of Elektro Vroomen
84%
14%
2%
Revenue – FY2013
63%
19%
18%
Operating profit - FY2013
Group structure
ARB Holdings Limited
Corporate Electrical Lighting
100%
74%
60%
100%
Electrical
Wholesaling
Proprietary
Products
Directorate
Non-executive Chairman
Executive directors
Independent, non-executive directors
Non-executive director
Alan R Burke - Founder
Billy Neasham – FD
CA(SA)
Byron Nichles – CEO
CA(SA), ACMA, CGMA
Jacob Modise
CA(SA), MBA
Ralph Patmore – Lead Independent
B.Com, MBL
Boel Pretorius
B.Sc, B.Eng, LLB, PMD
Simon Downes
CA(SA), FCMA, MBA
Electrical
• Founded in 1980 (i.e. 33-year track
record)
• Largest independent distributor of
electrical products in sub-Saharan Africa
• 19 branches across SA
• ±600 staff
• Approx. 20 000 individual stock items
(R280m stock holding)
• Over 6 500 customers (no customer > 3%
of total revenue)
• Well established in industrial, mining,
public sector and contractor markets
• Revenue approaching R2 billion p.a.
Electrical
0
2
4
6
8
10
12
14
16
18
20
1980 1988 2000 2002 2003 2004 2008 2009 2010 2011 2012 2013
# of Branches
Electrical
Market segments serviced:
Large and Heavy Industry
Government and Parastatals
Construction Industry
Electrical Contractors
Mining Industry
Domestic Households / DIY
Electrical
Brands supplied include:
Electrical
Proprietary products – ACCC®
ACCC®
Conventional ACSR
Conductor Comparison
Steel Core Composite Core
• High performance transmission conductor
• Composite core
• 28% more aluminum
• High tensile strength and low thermal sag
• Can be reconductored under live conditions
• Over 22 000 km installed worldwide at over
260 sites in 28 countries
• Over 400km installed in SA (pilot project)
• Used in repair of Cahora Bassa line
• Local adoption remained slow - contribution
over medium term
Electrical
020406080
100120140160180200
Cable Theft - Transnet
2006/7
2007/8
2008/9
2009/10
2010/11
2011/2a
0102030405060708090
Cable Theft - Eskom
2006/7
2007/8
2008/9
2009/10
2010/11
2011/2a
Rm
Rm
Electrical
Proprietary products - Copperweld
• Unique patented bimetallic wire
• Variety of applications especially earthing of sub-
stations
• Benefits:
• Weight savings
• Lower cost
• With 10% of the copper, you get 63% of the
conductivity at 60% of the weight of pure copper
• Anti-corrosive properties
• Anti-theft properties – harder to cut / no scrap
value / pigmented to look like steel
• Included in NRCS standards
• Strong interest – BPC, Sasol, MTN, Eskom, Anglo, etc
Electrical
Proprietary products – Nexans Olex
• Niche mining and VSD cables
• Nexans - leading global cable manufacturer
• Olex – largest cable manufacturer in Australia
• Exclusivity for SADC over:
• Mining cable
• Varolex – variable speed drive cable
Electrical
8
Proprietary products – CHINT low voltage
• Largest manufacturer of electrical products in China
• Well established in local market
• 5 year agreement effective 1 May 2013 with renewal option
• Territory: SA (exclusive) and SADC (preferential)
• Sales, technical and marketing support from CHINT
Lighting
• Acquired 60% of Eurolux in January 2012 for
R78 million
• A leading importer and distributor of light
fittings, lamps and accessories
• 22-year track record
• Two custom designed and built distribution
centres (Johannesburg and Cape Town) with
state of the art lifestyle showrooms
• ±200 staff
• ±4 400 individual stock items
• Over 1 600 customers
• Launched range of pre-packed electrical
accessories
• Entered project and commercial lighting
market
• Revenue approximately R300 million p.a.
Lighting
Customers include:
Lighting
• Eskom — No funding for RMR project — Tendered for 5 million CFL contract, awaiting feedback — Did not stock up in anticipation of the above blue-sky opportunities!
Corporate
• Centralised treasury, IT, internal audit, HR and strategic leadership provided
• Successful deployment of Xact II ERP Solution across all 19 branches and CED
• Property portfolio:
• 17 properties countrywide measuring 85 950m2 in extent
• Ungeared and independently valued at R155 million
• Property project update:
Project Status
Extensions to:
- Durban head office
- Alrode branch
Completed
Completed
Renovations to:
- ICS (Johannesburg)
- Richards Bay branch
Completed
Completed
Nelspruit Construction commenced (occupation early 2014)
Rustenburg Awaiting approval of plans (to commence in 2014)
Polokwane Planned for late 2014 / early 2015
Financial
performance
Revenue increased by 24% R1.94 billion (2012: R 1.57 billion)
1 086 507
1 256 330
1 565 294
1 944 541
-
500 000
1 000 000
1 500 000
2 000 000
2 500 000
2010 2011 2012 2013
R'000
Revenue
CAGR =
21.4%
Financial
performance
Contractors, 42%
Government, 3%
Industry, 7% Mining, 4%
Retail, 16%
Other, 17%
Cash, 11%
Revenue by customer category
Cable, 48%
Overhead line, 15%
Lighting, 15%
Low voltage, 22%
Revenue by product category
Financial
performance
200 222
234 831
307 152
425 120
-
50 000
100 000
150 000
200 000
250 000
300 000
350 000
400 000
450 000
2010 2011 2012 2013
R'000
Gross profit
18.4 18.7 19.6
21.9
0
3
6
9
12
15
18
21
24
2010 2011 2012 2013
Gross profit margin (%)
CAGR =
28.5%
Financial
performance
HEPS increased by 15% 39.6 cps (2012: 34.3 cps)
29.2 30.6
34.3
39.6
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
2010 2011 2012 2013
Cents HEPS
CAGR =
10.7%
Operating profit increased by 26% R160 million (2012: R128 million)
96 635 110 245
127 504
160 475
-
20 000
40 000
60 000
80 000
100 000
120 000
140 000
160 000
180 000
2010 2011 2012 2013
R'000 Operating profit
CAGR =
18.4%
Financial
performance
Cash generated increased by 107% R197 million (2012: R95 million)
133 359
104 889
95 191
197 156
0
50 000
100 000
150 000
200 000
250 000
2010 2011 2012 2013
R'000 Cash generated by operating activities
• Ungeared with R203 million
cash
Market
performance
Listing particulars
JSE ticker ARH
JSE Main Board
Electronic & Electrical Equip.
NAV 279 cents per share
Share price 510 cents per share
Market cap R1.2 billion
Free-float 40%
Dividend increased by 18% 16.2 cps (2012: 13.7 cps)
11.5 12.3
13.7 16.2
2.5 2.5 2.5 2.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
2010 2011 2012 2013
Times
Cen
ts p
er
sh
are
Dividends
Dividend Dividend cover
Special dividend of 10 cps
0
100
200
300
400
500
600
02-Feb-09 02-Feb-10 02-Feb-11 02-Feb-12 02-Feb-13
cen
ts
ARB Share Price
Strategic intent E
lec
tric
al d
ivis
ion
Strategic objective
• Extending agreements
• Continue process of
local acceptance and
adoption
• Add further products
Progress in 2013 Looking ahead
Grow market
presence and share
Differentiated
product offering
Further market
consolidation in
targeted regions
• 4 new branches
• 3 new provinces
• R200 million
additional revenue
Four international
exclusive agencies
secured
Strategic intent L
igh
tin
g d
ivis
ion
Strategic objective
• Expand range of
electrical accessories
• Direct sourcing
• Continue to grow into
new product categories
and markets
Progress in 2013 Looking ahead
Grow market share
Broader product
offering
Continue to grow
market share through
expanded product
offering and superior
service
Key customers
secured
• Agreement with leading
LED manufacturer
• Launched range of
electrical accessories
•Entered commercial and
project lighting markets
Strategic intent C
orp
ora
te d
ivis
ion
Strategic objective Progress in 2013 Looking ahead
Related
diversification Actively pursuing
further acquisitions
Added Lighting
division and
Proprietary products
Insert photo
Prospects
Economic environment
• Macro-economic climate likely to remain unchanged
• Consumer spending to remain under pressure
Electrical
• Further integration of ICS and Elektro Vroomen to drive top and bottom line growth
• Well positioned for any upturn in the construction, mining and public sectors
Lighting
• Key customer gains and new markets entered to drive top and bottom line growth
General
• Potential value-adding acquisitions continue to be evaluated
Africa
The Dark Continent
• Total power generated in Africa (1 billion people) = Spain (48 million people)
• Average electrification rate in SADC (excl SA and Mauritius) <20% (source: United Nations)
• Richest continent in natural resources and recent oil and gas finds
• Africa has 9 of 15 fastest growing economies over next 5 years (source: World Bank)
• Challenges: corruption, poor infrastructure, access to funding, language barriers, need for
local partners, Chinese and Indian threat
Market potential
(Source: A review of SA’s electricity sector – January 2013 by Research Channel Africa)
• Eskom requires 420 000 tons of new steel pylons over next 10 years –
ACCC can reduce this significantly
• DSM, RMR and 49M – all promote use of CFL and LED lighting – Eurolux
3%
15%
2%
4%
6%
8%
10%
12%
14%
16%
South Africa International benchmark
Reserve margin for electricity
Massive expansion required
Older than 35
year design
life
50%
Within design life
50%
Eskom Power Stations
Market potential
(Source: A review of SA’s electricity sector – January 2013 by Research Channel Africa)
10 year Transmission Development Plan (R180 billion) - ACCC
• R150 billion to expand the transmission network, over 12 700km of new lines
• R12 billion on refurbishing of existing infrastructure
Distribution infrastructure – Overhead line division
• Lifespan of a distribution network = 50 years (SA’s distribution network is 47 years old)
• Protracted uncertainty of EDI vs REDs structure resulted in reluctance to invest in
maintenance
• Current backlog = R35 billion
• Need to spend R6.5 billion per year (double the current spend)
Electrification programme – Overhead line and low voltage divisions
• Budgeted spend = ±R3.5 billionn per annum
• At current rate, will take another 20 years to achieve universal access to electricity
Value
proposition
Well-balanced, strongly independent board
Experienced management with aligned, vested interests
Only focused distributor of electrical and lighting products on JSE
Proven / robust business models through the economic cycles
Ungeared with R203 million cash on hand (June 2013)
Questions and
Answers
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