Thanks for your reply to my query. I guess I was scratching my head and looking for the "large deployments of capital", but maybe our definitions of large deployments are different. Yes, the actual cost of PPE in expanding (improving) their distribution overseas is minimal, with rented warehouses rather than purchasing. And, yes, the only real cost of the inventory and receivables. To me, these are very reasonable as they are current assets and are turned over every 3 months (or whatever it might be). I see the increasing warehousing overseas (and in Australia) as a very positive sign which is low risk and necessary. Yes, the reduced ROE is noticeable, but the margins overseas right now are lower than in Australia and I would like to think that in the USA, in particular, will have improved margins in the future.
Just a few other bits of information that I have been considering when reading the reports (more on the practical side of things, rather than the financial side):
- Capacity restraints is largely in the barwork, I suspect (bullbars, siderails, roofracks) as these are manufactured in both the Melbourne and Thailand ARB factories. They require large amounts of space and equipment. This is ARB's bread and butter and is what it is great at and is the "face" of the company. At a guess, I would think that this is 40%-50% of ARB's revenue. (I don't think I have seen the actual revenue split by product line anywhere) So capacity at Melbourne and Thailand factories does not affect all ARB products (and possibly less than half of their revenue)
- Possibly their second largest product range is Suspension. The vast majority of this is outsourced and is limited by warehouse space (and production planning), rather than manufacturing capacity.
- ARB don't make other major products in their Melbourne and Thailand factories apart from the Fuel Tanks, Canopies and Air Lockers & Compressors. They do sell ARB-branded products (such as driving lights, fridges, recovery gear) that are built specifically for ARB. Also, ARB are distributors or some major items such as Warn winches and Safari snorkels.
So, ARB does have a wide range of products to contribute to their sales. It is not just targeted at miners, farmers, recreational off-roaders or tradies but it is a real strength that the company is able to attract all of these customers (for both brand new vehicles and older vehicles). Improved warehousing will allow a better distribution of product and should also improve production as longer production runs and less tooling changes should improve efficiency.
It is worth going into an ARB store and picking up one of their magazines and other marketing items. They definitely do market themselves very well, both in their website and in-store. Some of the prices are eye-watering, but customers seem to pay for them and speak highly of them.
I look forward to seeing what products come out of the "long term development projects" and hope that these will help support the growth of the company.
The FY17 result was good and there are no signs of the company not continuing to do what it has done in the past - strong, steady, sustainable growth. I think that management have very clear long term growth plans for ARB and will continue to manage the company well into the future.
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