Hudaco Industries Limited · JSE:HDC
Hudaco Industries — FY2013 Earnings Presentation
48 slides from Hudaco Industries's earnings presentation, November 2013
Slide 1: Audited group results for the year ended 30 November 2013
Audited group results for the year ended 30 November 2013
Slide 2: Overview
Overview Benefit of Rand weakness counteracted by volatility and strikes in mining and automotive sectors Finish to year not as strong as we expected Tax rate higher because of BEE financing restructure Dividend maintained despite higher tax rate Tax challenge progressing slowly Hudaco h
Slide 3: Agenda
Agenda Introduction Business highlights 2013 Shareholder information Business model Operating segments and acquisitions update Financial review and tax issue update Outlook 3 Hudaco Audited group results
Slide 4: Business highlights and shareholder information
Business highlights and shareholder information
Slide 5: Results summary
Results summary Turnover 13% to R 3.9bn Operating profit 7% to R 469m Comparable earnings 4% to R 311m Headline earnings 13% to R 294m HEPS 13% to 928 cps Dividends per share unchanged at 465 cps Net borrowings R187m to R204m 5 Hudaco Audited group results
Slide 6: Business highlights
Business highlights Nearly R200m spent on acquisitions in 2013 Sales to neighbouring countries up 40% Finish to year not as strong as usual Weak performances from Deutz Dieselpower and Bearings International Hudaco’s traditional strong second half severely impacted by strikes for the secon
Slide 7: Value added for shareholders
Value added for shareholders ceps 6-yr CAGR: 10% 1000 900 800 CAGR is above inflation 700 notwithstanding that the 600 500 six year period includes 400 the sharp decline in 300 earnings in 2009/10 and 200 the slow recovery years 100 0 of 2011-13 2007 2008 2009 2010 2011 2012 2013 ceps div ps spec
Slide 8: Market information
Market information Market capitalisation R 3.5bn @ R110 Free Float 100%, no control P:E ratio @ R110 (ceps) 11.2x Dividend yield @ R110 4.2% Annual Trade (to Nov) 2010 R 822m 2011 R 757m 2012 R 1 062m 2013 R 1 496m 8 Hudaco Audited group results
Slide 9: Major shareholders/fund managers
Major shareholders/fund managers At 30 November 2013 Old Mutual 23% Foord 12% Govt Employees Pension Fund 9% Prudential 8% Nedgroup Investments 5% Sanlam Investment Management 5% Peregrine 4% 36One 4% 70% Possibly some double counting 9 Hudaco Audited group results
Slide 10: The Hudaco business model
The Hudaco “fm business | model
Slide 11: The Hudaco business model
The Hudaco business model Hudaco’s main business is the importation and distribution of branded industrial and electronic consumable products generally used in the repair and maintenance of machines The concept of “value added distribution” is core to our business model Agency agreements gener
Slide 12: Features of value added distribution
Features of value added distribution Value add is: Instant availability Inventory R1 014m in 29 warehouses: Application advice 4 to 6 month supplier lead times Technical specification 700 international suppliers Training over 200 000 line items Credit provision Receivables R780m: Tec
Slide 13: Operating segments and acquisitions update
Operating segments and acquisitions update
Slide 14: Operating segments
Operating segments Largest segment imports and distributes branded engineering consumables generally used in the repair and maintenance of machines About one third of our business is distribution of consumer related products generally sold to installers 14 Hudaco Audited group results
Slide 15: Operating segments
Operating segments Engineering consumables Bearings Power transmission products: mechanical and electrical Diesel engines and spares Consumer related products Power tools Security equipment Professional communication equipment Automotive aftermarket products Batteries 15 Hudaco A
Slide 16: 2013 segment sales by market sector
2013 segment sales by market sector Engineering consumables Consumer related products (%) Manufacturing 33 14 Mining 33 7 Security 0 66 25 Wholesale/retail 11 13 Automotive 5 17 Exports 7 13 Construction 4 5 Agriculture 3 1 Public sector 1 5 Other 3 0 16 Hudaco Audited group results
Slide 17: Segment contributions
Segment contributions Contribution to 2013 operating profit (before shared services and head office) 59% 41% Engineering consumables Consumer related products 17 Hudaco Audited group results
Slide 18: Engineering consumables
Engineering consumables Principal Businesses Principal Brands Competitors: Used for: BMG Repairs SKF Maintenance Altron/Altech Expansion Siemens Resale Hytec Underground Zest mining Caterpillar Gen sets Cummins Big customers: Sandvik Main markets: Toyota Sasol Man
Slide 19: Engineering consumables
Engineering consumables DDP - diesel engine sales still feeling effects of 15 30 reduced underground 12 25 mining activity MARGIN 20 RONA BI - bearings and power 9 transmission sales and 15 profits disappointed – 6 mines are big customers 10 Bosworth – pulley sales 3 5 recovered well from disa
Slide 20: Consumer related products
Consumer related products Principal Businesses Principal Brands Used for: Competitors: Woodworking Bosch Grinding Hitachi Renovations Metabo Boating Yamaha Intruder detection ADI Access control Inhep Video monitoring Regal Communication Luk Motor vehicles Motorola
Slide 21: Consumer related products
Consumer related products Rutherford – power tool sales up but margin 20 40 declines, problems 18 35 16 pricing to replacement 30 14 Global – communication MARGIN 12 25 RONA equipment sales and 10 20 profits up, strong 8 15 6 demand continues 10 4 Elvey – security 2 5 equipment sales and 0 0 p
Slide 22: 2013 acquisitions: 3D Agencies
2013 acquisitions 3D Agencies – R30m Distributor of electrical accessories Bolt-on to Powermite 22 Hudaco Audited group results
Slide 23: 2013 acquisitions: SBS Batteries
2013 acquisitions SBS Batteries – R40m Distributor of maintenance free batteries Used in stand-by & solar applications 23 Hudaco Audited group results
Slide 24: 2013 acquisitions: Dosco, GPM & Joseph Grieveson
2013 acquisitions Dosco, GPM & Joseph Grieveson – R154m Manufacturer and distributor of specialised castings & own brand gear pumps Customers: sugar mills, mines & general industry. Large export component 24 Hudaco Audited group results
Slide 25: Segment results – Engineering consumables
Segment results – Engineering consumables Turnover Op Margin Operating Profit 2013 % ch 2012 2013 2012 2013 % ch 2012 Rm Ongoing 2 273 3 2 216 12.0% 12.1% 272 1 268 operations New businesses 205 64 9.8% 18.8% 20 12 Segment total 2 478 9 2 280 11.8% 12.3% 292 4 280 25 Hudaco Audited group results
Slide 26: Segment results – Consumer related products
Segment results – Consumer related products Turnover Op Margin Operating Profit 2013 % ch 2012 2013 2012 2013 % ch 2012 Rm Ongoing 1 291 12 1 155 13.9% 14.0% 179 10 162 operations New businesses 179 68 11.2% 10.3% 20 7 Segment total 1 470 20 1 223 13.5% 13.8% 199 18 169 26 Hudaco Audited group resul
Slide 27: Segment results 2013
Segment results 2013 Turnover Op Margin Operating Profit 2013 % ch 2012 2013 2012 2013 % ch 2012 Rm Engineering 2 478 9 2 280 11.8% 12.3% 292 4 280 consumables Consumer 1 470 20 1 223 13.5% 13.8% 199 18 169 related products Head office, shared services (6) (11) (22) (12) & eliminations Total Group 3
Slide 28: Financial review and tax update
Financial review and tax update
Slide 29: Restructure of BEE financing arrangements
Restructure of BEE financing arrangements BEE structure financed internally since 28 February 2013 Net effect on profit after tax is R33m pa – 103 cents per share BEE shareholders and credentials remain in place 29 Hudaco Audited group results
Slide 30: Profit for the year
Profit for the year Rm 2013 % Ch 2012 Turnover 3 942 13 3 492 - Ongoing operations 3 558 6 3 360 - New businesses 384 132 Gross profit 1 479 9 1 355 Operating expenses 1 010 10 918 Operating profit 469 7 437 - Ongoing operations 429 2 418 - New businesses 40 19 Margin (%) Turnover 100.0 100.0 Gross
Slide 31: 10 year operating margin performance
10 year operating margin performance 20 15.4 14.3 15 13.4 12.7 12.7 12.5 11.8 12.2 11.9 11.2 10 5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Operating margin (%) 31 Hudaco Audited group results
Slide 32: Profit for the year
Profit for the year Rm 2013 % Ch 2012 Operating profit 469 7 437 Fair value adj to amounts due to (23) 8 vendors Net interest on working capital (8) (5) Interest paid to vendors (imputed) (5) (11) Interest paid on sub. debentures (58) (234) Preference dividend received 50 202 Profit before taxation
Slide 33: Comparable earnings for the year
Comparable earnings for the year Rm 2013 % Ch 2012 Operating profit 469 7 437 Net interest on working capital (8) (4) Interest paid to vendors (imputed) (5) (11) Interest paid on sub. debentures - - Preference dividend received - - FV adjustment of vendor liability - - Profit before taxation 456 8 4
Slide 34: Comparable earnings by half year
Comparable earnings by half year 200 180 160 140 120 100 80 60 40 20 128 103 188 124 176 139 172 91 - 2010 2011 2012 2013 2nd half 1st half 34 Hudaco Audited group results
Slide 35: Earnings per share and dividends
Earnings per share and dividends 2013 % Ch 2012 Earnings per share Comparable eps 983c 4 947c Basic eps 930c (13) 1 074c Headline eps 928c (13) 1 071c Dividends per share Interim 155c 155c Final 310c 310c Total 465c - 465c Dividend policy: annual dividends = approximately 40% of ceps 35 Hudaco Audit
Slide 36: Cash flow – for the year
Cash flow – for the year Rm Nov 13 Nov 12 Cash from trading 513 458 Increase in working capital (138) (121) Cash from operating activities 375 337 Net finance costs (16) (37) Tax paid (169) (54) Cash flow from operations 190 246 Dividends paid (164) (163) Invested in new businesses and property, pla
Slide 37: Statement of financial position
Statement of financial position Rm Nov 13 Oper Restru Div Acq Nov 12 Working capital 1 211 137 63 1 011 Property, plant equipment 214 4 5 205 Goodwill and intangibles 658 (16) 31 643 Tax in advance 40 40 Tax normal 7 8 (6) 5 Net operating assets 2 130 133 40 93 1 864 Investment in pref shares - (2 1
Slide 38: Working capital in months of sales
Working capital 4.5 4.0 3.5 3.0 In months of sales 2.5 2.0 1.5 1.0 0.5 0.0 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 One month of sales: H2 2013 = R 355m; H2 2012 = R 316m Working capital traditionally peaks end of H1 to cope with anticipated increased seasonal demand in H2 Sal
Slide 39: Working capital – elements in months sales
Working capital – elements in months sales 4 3 2 1 0 H2 09 H2 10 H2 11 H2 12 H2 13 -1 -2 -3 Inventory Payables Receivables Net W Cap. One month of sales in H2 13= R355m H2 12= R316m 39 Hudaco Audited group results
Slide 40: Exchange rate environment
Exchange rate environment US Dollar Euro Index 150 140 We import directly 60% of group cost of sales On average these cost 16% 130 120 Index 110 more in 2013 than 2012 100 We do not take a house 90 view on exchange rates 80 We hedge all liabilities and 2006 2007 2008 2009 2010 2011 2012 2013
Slide 41: Tax challenge
Tax challenge Objections lodged – await response High Court action to have assessments set aside “Pay now, argue later” – agreed to pay R20m per quarter until legal process concluded – had no practical alternative We remain very confident of our position Will take time to run its course
Slide 42: Summary
Summary Healthy financial position Working capital (inventories) a little high Continue to invest successfully in new businesses R300m revolving credit facility raised Capacity remains for more acquisitions Tax issue will take time to resolve Rand weakness should be positive for Hudaco
Slide 43: Outlook
Outlook
Slide 44: 2013 sales by market sector
2013 sales by market sector % Manufacturing 26 Mining 23 Wholesale & retail 12 Security 9 Exports 9 Automotive 9 Construction 4 Public Sector 3 Agriculture 3 Other 2 44 Hudaco Audited group results
Slide 45: Outlook - reminders
Outlook - reminders Hudaco sales are predominantly driven by GDP activity Exposure to South African mining and manufacturing still high at 50% GDFI adds capacity for future GDP activity Rand exchange rate has a big impact on pricing and profitability 45 Hudaco Audited group results
Slide 46: Outlook
Outlook Factors impacting positively on 2014 R25m pa cost reductions in BI and DDP Benefit from weaker Rand Growth in mining activity in neighboring countries 2013 acquisitions to add 70cps in 2014 Beyond 2014 Nascent global recovery underway – commodity prices to rise New electricity co
Slide 47: Contact details
Contact details Stephen Connelly Clifford Amoils Chief executive Financial director Tel +27 (11) 657 5001 Tel +27 (11) 657 5002 sjc@hudaco.co.za camoils@hudaco.co.za www.hudaco.co.za 47 Hudaco Audited group results
Slide 48: Disclaimer
Disclaimer The preceding presentation contains forward looking statements about the Hudaco Group’s operations and financial position. They are prepared in good faith and are based on Hudaco’s best estimates and information at the time of preparing the presentation. They are nonetheless subject to si