ARB CORPORATION LIMITED. — Annual Report 2022

Aug 22, 2022

Dear Shareholder

RESULTS

The Directors of ARB Corporation Limited (“ ARB ” or the “ Company ”) are pleased to report that the Company achieved a net profit after tax of $122.0 million for the financial year ended 30 June 2022, up 8.1% on the reported net profit after tax of $112.9 million in the previous year.

Profit before tax of $165.7 million for the financial year ended 30 June 2022 represents an increase of 10.4% compared with the previous year.

Sales for the year were $694.5 million, an increase of $71.5 million or 11.5% over the previous year sales of $623.1 million. Continuing sales growth was particularly pleasing as the Company consolidated and built upon the significant 33.9% sales growth achieved last year, despite continuing constraints in new vehicle availability and ongoing personnel and supply chain challenges.

The full year results are summarised below:

Year ended 30 Jun 22 30 Jun 21 $'000 $'000	Change
Sales 694,525 623,072 Other Revenue 2,751 2,785	11.5%
Total Revenue 697,276 625,857 Profit before Tax 165,678 150,023 Tax (43,672) (37,128)	11.4% 10.4%
Profit after Tax 122,006 112,895 EPS - cents 149.4 140.0 DPS - cents Interim 39.0 29.0 Final 32.0 39.0 Total 71.0 68.0 Franking (at 30% tax rate) 100% 100%	8.1% 6.7% 4.4%

The Company has declared a final fully franked dividend of 32.0 cents per share. This brings total dividends for the year to 71.0 cents per share fully franked, an increase of 4.4% compared with last year. The final dividend will be paid on 21 October 2022 and the Record Date will be 7 October 2022. The ARB Dividend Reinvestment Plan and Bonus Share Plan (the “ Plans ”) will be in operation for the final dividend to assist with the funding of ARB’s ongoing expansion programme.

Information about the Plans, which will apply to the final dividend, can be found on the Company’s website at https://www.arb.com.au/about/investor-relations/. Investors wishing to make or change an election to participate in either of the plans can do so online via the Computershare Investor Centre website at www.computershare.com.au/easyupdate/arb or by phoning Computershare on 1300 850 505.

APPOINTMENT OF CHIEF EXECUTIVE OFFICER

The Board was pleased to appoint Mr Lachlan McCann to the role of Chief Executive Officer in early July 2022.

Lachlan commenced with ARB in 2001 and has been a key driver and leader in the business for the last 10 years, overseeing the Company’s operations in Thailand (2010-2014), as General Manager of International and OEM Sales (2014-2018) and most recently as the Group Chief Operating Officer.

Shareholders will have the opportunity to hear from Lachlan during the Results webcast at 11.00am on 23 August 2022 and to meet him at the Company’s annual general meeting on 28 October 2022 at the RACV Club in Melbourne.

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10 YEAR HISTORICAL PERFORMANCE

The sales, profits and dividends per share performance of the Company over the past 10 years are illustrated in the graphs below:

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Aust Aftermarket OEM Export
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SALES REVENUE

Annual sales revenue has grown at an average compound rate of 10.0% over the past 10 years.

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NET PROFIT AFTER TAX

Net profit after tax has grown at an average compound rate of 12.2% over the past 10 years.

DIVIDENDS PER SHARE

Dividends per share have grown steadily over the past 10 years with a special dividend of 100 cents paid in 2014/15.

All dividends have been fully franked.

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HIGHLIGHTS OF THE 2021/22 YEAR

Sales and Distribution

Sales revenue increased by 11.5% in 2021/22 over the previous year. Reasonably solid sales growth was achieved in the Australian Aftermarket and Export categories, whilst sales to Original Equipment Manufacturers were in line with last year as previously communicated:

Customer Category	Percentage of Sales	Percentage of Sales	Sales Growth
	12 months to Jun 2022	12 months to Jun 2021
Australian Aftermarket Exports Original Equipment	53.8% 38.7% 7.5%	54.9% 36.7% 8.3%	9.2% 17.4% 0.2%
Total	100.0%	100.0%	11.5%

The Company achieved very strong sales growth of 25.6% in the first half of this financial year which contrasts to a small decline of 1.1% in sales in the second half compared with the corresponding period last year.

Sales to the Australian Aftermarket and Export markets were significantly impacted in the second half by the emergence of the Omicron COVID-19 variant in January and February 2022, resulting in abnormally high staff absenteeism, and by ongoing limited new vehicle availability. Sales into Export markets were also impacted in the second half by the outbreak of war in Ukraine.

The following table shows the sales mix between the two halves of this financial year:

Customer Category	Sales ($	millions)	2H v 1H	Variance
	1H FY2022	2H FY2022	$ millions	%
Australian Aftermarket Exports Original Equipment	191 138 30	183 131 21	(8) (7) (9)	(4.0%) (5.1%) (29.8%)
Total	359	335	(24)	(6.6%)

ARB’s distribution network to the wider Australian aftermarket is a key competitive strength, incorporating sales through the ARB branded store network, to ARB stockists, to new vehicle dealers and to fleet operators. ARB also distributes to niche Australian aftermarket segments through its GoActive Outdoors (THULE products), Kingsley Enterprises and SmartBar divisions. Australian Aftermarket sales remained relatively consistent at 53.8% of the Group’s sales.

New vehicle sales in Australia declined by 2.1% over the last financial year, however new vehicle sales of ARB’s target vehicles, being four-wheel drive utilities and SUVs, grew by 0.3%. Demand for second hand 4WD vehicles globally continues to be strong and product sales for used 4WD vehicles remains an important part of ARB’s business.

Branded ARB stores are an integral part of the Company’s distribution network throughout Australia. Four new stores were established since this time last year in Melton and Sale, Victoria, in Rutherford, New South Wales, and in Karratha, Western Australia. This brings the total number of ARB stores to 74, of which 30 are Company owned. All new stores were established in ARB’s flagship store format.

Export sales grew by 17.4% for the year and now represent 38.7% of ARB’s sales, up slightly on last year. ARB continues to focus on overseas markets and sales growth was achieved in all regions: the Americas, Asia/Pacific and the Rest of the World. Constraints in new vehicle availability continue around the world, however these constraints have been particularly severe in the UK where ARB's operations are heavily reliant on product fitment to new vehicles rather than fitment to used vehicles.

Sales to Original Equipment Manufacturers represented 7.5% of ARB’s total sales during the year. Although OEM sales declined by 29.8% in the second half compared with the first half, the overall OEM sales growth of 0,2% for the full year was achieved after a record 73.9% sales increase last year. The decline in second half OEM sales was expected and reflects the timing of new contracts and OEMs stocking up during calendar 2021 for new model releases.

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Products and Engineering

ARB maintains its long-term competitive advantage through investments in product development and innovation. A significant element of the Company’s investment in product development is the permanent employment of in excess of 100 engineers across Australia, Thailand, New Zealand and the US. A new Engineering centre located at the Company’s corporate head office in Melbourne, Australia, is under construction and due for completion in October 2022. The new centre will consolidate the Australian engineering teams and provide state of the art facilities for collaboration, design, product development and testing.

Significant resources were used in the development of a comprehensive range of ARB and Old Man Emu accessories for the recently released Toyota Landcruiser 300 series and the new Ford Ranger, Raptor and Everest models. Engineering and development also continue on a full suite of premium, aftermarket products for the new Ford Bronco in the USA.

ARB’s strategic partnership with Ford Australia via its Ford Licensed Accessories program provided ARB with early access to Ford vehicle designs, ensuring ARB was first to market with a complete range of accessories at the time of the vehicles’ release.

Several long-term development projects will culminate with new products being released to market throughout 2022/2023. They present exciting growth opportunities and collaboration across the engineering, manufacturing, marketing and sales teams at ARB.

The Company’s website at www.arb.com.au provides further information on ARB’s new product releases.

Financial

Growth in profit before tax of 10.4% was broadly in line with sales revenue growth of 11.5%. Growth in profit after tax of 8.1% was slightly lower due to higher profits being generated in higher-taxing jurisdictions.

Cash flows generated from operations of $84.6 million declined by $18.6 million compared with the previous year due to an increase in inventories of $50.7 million as the Company sought to mitigate increased supply chain lead times and ongoing disruptions. Cash flows from operations were broadly used in the purchase of property and equipment of $58.1 million and the payment of dividends in cash of $50.3 million.

The Company’s larger than normal capital project expenditure programme will continue throughout 2022/2023 with the anticipated completion of the new 30,000 square metre factory in Thailand in December 2022, ongoing construction of the corporate head office in Melbourne, Australia, and development of the ARB New Zealand site in Hamilton, New Zealand, to consolidate the Beaut Utes and Proform businesses.

ARB’s cash reserves of $52.7 million and no debt as at 30 June 2022 ensure the Company is well placed to continue investing in people, new products, property, distribution networks, machinery and businesses to facilitate ongoing growth.

THE FUTURE

The Company’s growth in 2021/2022 was achieved in a very challenging and uncertain global environment, particularly in the second half of the financial year. These conditions have persisted into the first half of the current financial year and it is not possible to provide further financial or operational guidance in the short term with any level of confidence due to the continuing and significant global economic uncertainties.

Nonetheless, the Board remains positive and expects that the Company should benefit by the end of calendar 2022 from recent new vehicle models, a strong customer order book sitting well above historical levels, a number of all-new products due for imminent release, healthy demand for the Company’s products around the world and the prospect of increasing supply of new vehicles to the market.

The Board remains focussed on the long-term growth of the Company as it develops and pursues a number of exciting opportunities, some of which have already been announced to the market. These include further growth in export markets and overseas opportunities, new products, improved distribution and increased manufacturing capacity.

ARB is well positioned to achieve long-term success with strong brands around the world, loyal customers, capable senior management and staff, a strong balance sheet and growth strategies in place.

A first quarter trading update will be provided to shareholders at the AGM on 28 October 2022.

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Roger Brown Chairman, 23 August 2022

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