Eurolux switching off costs

Eurolux switching off costs.

ELECTRICAL conglomerate ARB Holdings’ expanded lighting division – which is still mainly charged by Cape Town-based Eurolux – will be looking at enhancing cost cutting initiatives to ensure a brighter year in financial 2021.

ARB’s lighting division – which also includes recently acquired Radiant and Cathay – saw revenue up 4% to R675 million. But operating profit switched down 19.5% to R28 million.

The revenue growth can be considered disappointing since the sales figure included recently acquired Radiant’s turnover for a full 12 months. ARB directors said the sluggish revenue increase was mainly attributable to the delivery challenges experienced by the division during the third quarter as the consolidation of the Johannesburg warehouses resulted in unnecessary congestion in the operations. This impacted service delivery.

Once the consolidation issues were sorted out, the lighting division had to deal with the complications of the Covid-19 lockdown. Six weeks of trading were lost.

Directors said once the lockdown was reduced to level 4, the cost and effect of operating protocols continued to constrain operations in the fourth quarter.

One bright spot was that the lighting division was overstocked at the end of 2019. This enabled the division to meet customer demand when the supply chain from China was severely interrupted during January to March. This over-stocking situation was also helped the exchange rate deterioration, which made it significantly more expensive for importers of these lighting products.

ARB directors noted that revenue from the lamps was still being negatively affected by the changes in technology – with the newer LED products being more durable and less expensive.

They said the lack of minimum prescribed technical specifications has resulted in an unregulated market, which has allowed lower quality lamps to compete in the consumer market where price is the major consideration for buyers.

The operating overheads in the lighting division increased by 8.9% – which appears satisfactory considering that Radiant accounted for a full 12 month trading period. But ARB directors did note that Covid-19 precluded the lighting division from extracting operational cost savings from warehouse consolidation.

ARB believed the restructuring of the lighting segment was now largely finalised. “The rightsizing of the business for the anticipated new normal should result in a significant reduction in the cost base.”