Ann: Preliminary Final Report, page-2

This is quite a phenomenal business.

Given that a large part of its perceived "market", namely the resources sector, has been in the toilet for the past 12 months, for ARB to still have grown its bottom-line profitability is highly noteworthy, I think.

And I think that, on closer inspection, the quality of this result is even more commentworthy:

In analysing the true underlying performance of the business, it is important to do the following:

1. focus on half-years, given the inherent seasonality in ARB's business (at the EBIT level June halves are typically around 10% stronger than Dec halves...in the FY2015 year, the June half was 15% higher the Dec half), and

2. look at the EBIT line to get a feel for true operating performance (as NPAT tends to be clouded by non-operating items such as depreciation policy, varying interest expense/income and vagaries in tax rates from one period to another)

So, EBIT growth over the past few quarters (that coincided with the slump in the resources sector) are as follows (growth is measure vs previous corresponding period in order to eliminate seasonality):

JH2014: 2.7%
DH2014: 3.0%
JH2015: 7.1%

So while growth in Pre-Tax Profits and NPAT for the full-year look acceptable under the circumstances, at 3.6% and 4.8%, respectively, this masks the underlying operating momentum, is, that the growth actually accelerated in the June half, (something that the full-year numbers, on their own, tend to mask).

So to the extent that the company has exited FY2015 at an accelerating rate (and again, this is at stark odds with the increasing rate of deterioration of the resources sector during the past 6 months) bodes well for the growth in FY2016.

In a financial model that I maintain for ARB, I compile a series of charts for some salient ARB financial parameters, eg, Revenue, EBITDA, EBIT, Gross Profit Margins, Cost of Doing Business to Sales, EBIT Margins, Free Cash Flow, Current Ratio.

These are derived from financial data going back to 2001, when I first acquired shares in ARB.

And every result, after I update my model, I look at those graphs and all I see are lines that go from the bottom left-hand corners to the top, right-hand corners, without interruption.

So that's a decade-and-a-half during which we've had all sorts of things happen in the world (recessions in 2002/3, and the GFC, a war in Iraq, exchange rates moving all over the place, steel prices moving all over the place, commodity price boom and bust, oil prices high and low, consumer sentiment ranging from strong to gloomy)... all these continuously changing external factors that you would think might affect a company in ARB's position, but no... nothing at all.

Just sheer consistently improving operating and financial performance, year-in and year-out.

'Tis a thing of rare beauty.


(If somehow could tutor a technology-averse neanderthal like me on how to do it, I could upload some of those charts onto this thread. For they make for highly instructive viewing for any investor - prospective and even existing - in ARB.