Hudaco Industries Limited · JSE:HDC

Hudaco Industries — FY2015 Earnings Presentation

44 slides from Hudaco Industries's earnings presentation, January 2016

  1. Slide 1: Results Presentation for the Year Ended 30 November 2015

    RESULTS PRESENTATION FOR THE YEAR ENDED 30 NOVEMBER 2015

  2. Slide 2: Overview

    OVERVIEW  A year of two halves • H1 very strong, included a large contract • H2 engineering consumables and security products hit by economic down- turn and lack of business confidence  Acquisitions continue to grow our portfolio of businesses and reduce the group’s dependence on mining and manufa

  3. Slide 3: Business Highlights and Market Information

    BUSINESS HIGHLIGHTS AND MARKET INFORMATION 3

  4. Slide 4: Agenda

    AGENDA  Highlights of the year  Market information  The Hudaco business model  Operating segments and acquisitions update  Financial review  Outlook 4

  5. Slide 5: Highlights of the Year

    HIGHLIGHTS OF THE YEAR  Turning point where consumer-related products surpassed engineering consumables  Sterling performance from Partquip in their first year  Excellent performance from alternative energy businesses of Deutz Dieselpower, Specialised Battery Systems and Deltec  Acquisitions of

  6. Slide 6: Results Summary

    RESULTS SUMMARY Turnover ⬆ 17% to R 5.2bn Operating profit ⬆ 23% to R 605m Comparable earnings per share ⬆ 19% to 1 169 cps Dividends per share ⬆ 13% to 525 cps Net borrowings ⬆ R 603m to R 1 016m Return on equity (comparable earnings) ⬆ from 18% to 22% 6

  7. Slide 7: Market Information

    MARKET INFORMATION Market capitalisation at year end R 3.4bn @ R107 at 26 January 2016 R 2.8bn @ R90 Free Float 100% - no control P:E ratio @ R107 (ceps) 9.2x @ R90 (ceps) 7.7x Dividend yield @ R107 4.9% @ R90 5.8% Annual Trade (to Nov) 2011 R 757m 2012 R 1 062m 2013 R 1 496m 2014 R 1 354m 2015 R 2

  8. Slide 8: Major Shareholders / Fund Managers

    MAJOR SHAREHOLDERS / FUND MANAGERS  Old Mutual 12%  Sanlam Group 11%  Govt Employees Pension Fund 10%  Prudential 9%  PSG Group 6%  36One 5%  Foord 5%  Bateleur 4%  Argon 3%  Dunford Holdings 3% 68% Possibly some double counting 8

  9. Slide 9: The Hudaco Business Model

    THE HUDACO BUSINESS MODEL 9

  10. Slide 10: The Hudaco Business Model

    THE HUDACO BUSINESS MODEL  Hudaco’s main business is the importation and distribution of high quality branded automotive, industrial and electrical consumable products  The concept of “value added distribution” is core to our business model  Agency agreements generally restrict our activities to

  11. Slide 11: Features of Value Added Distribution

    FEATURES OF VALUE ADDED DISTRIBUTION Value add is: Inventory R 1 369m in 32 warehouses:  Instant availability  4 to 6 month supplier lead times  Application advice  750 international suppliers  Technical specification  over 225 000 line items  Training  Credit provision Receivables R 860m: 

  12. Slide 12: Operating Segments and Acquisitions Update

    OPERATING SEGMENTS AND ACQUISITIONS UPDATE 12

  13. Slide 13: Operating Segments

    OPERATING SEGMENTS  Consumer-related products distributes products driven by consumer spending and generally sold to installers  Engineering consumables imports and distributes branded engineering consumables generally used in the repair and maintenance of machines 13

  14. Slide 14: Operating Segments

    OPERATING SEGMENTS Consumer-related products  Automotive aftermarket products  Power tools  Batteries  Professional communication equipment  Security equipment Engineering consumables  Diesel engines and spares  Power transmission products: mechanical and electrical  Bearings 14

  15. Slide 15: 2015 Sales by Market Sector

    2015 SALES BY MARKET SECTOR Manufacturing 18 Automotive 18 Wholesale and retail 18 Mining 13 Exports 10 Security 8 Alternative energy 6 Construction 3 Public sector 3 Agriculture 2 Other 1 15

  16. Slide 16: Diversification of Sales by Market Sector

    DIVERSIFICATION OF SALES BY MARKET SECTOR 2010 2015 Manufacturing 26 18 Automotive 10 18 Wholesale and retail 13 18 Mining 24 13 Exports 5 10 Security 10 8 Alternative energy 0 6 Construction 6 3 Public sector 0 3 Agriculture 4 2 Other 2 1 16

  17. Slide 17: 2015 Sales by Market Sector

    2015 SALES BY MARKET SECTOR Consumer-related products Engineering Consumables Manufacturing 5 32 Automotive 30 6 Wholesale and retail 21 15 Mining 1 25 Exports 9 11 Security 17 0 Alternative energy 11 1 Construction 1 5 Public sector 0 5 Agriculture 4 0 Other 1 0 17

  18. Slide 18: Segment Contributions

    SEGMENT CONTRIBUTIONS 2010 Contribution to 2015 operating profit 64% (before shared services and head office) 36% 41% 59% Consumer-related products Engineering consumables 18

  19. Slide 19: Consumer-Related Products

    CONSUMER-RELATED PRODUCTS Principal Businesses Principal Brands Main markets: Used for: Competitors:  Building finishing  Woodworking  Bosch  Building additions  Grinding  Hitachi  Leisure  Renovations  Metabo  Residential and commercial security  Boating  Yamaha  Armed response provide

  20. Slide 20: Engineering Consumables

    ENGINEERING CONSUMABLES Principal Businesses Principal Brands Main markets: Used for: Competitors:  Manufacturing  Repairs  BMG  Mining  Maintenance  SKF  Sugar industry  Expansion  Altron/Altech  Resale  Siemens  Underground  Hytec mining  Zest  Gen sets  Caterpillar  Cummins 20

  21. Slide 21: Acquisitions: Sanderson Special Steels

    ACQUISITIONS Sanderson Special Steels  Specialised steel distributor  Bolt-on to Ambro Sales  Heat treatment plant  Estimated price R38m  3 year earn-out 21

  22. Slide 22: Acquisitions: All-Trade Distributors

    ACQUISITIONS All-Trade Distributors  Distributor of: • Industrial fasteners • Rivets • Bolts and nuts • Springs and clips • Machined parts  Estimated price R24m  2 year earn-out 22

  23. Slide 23: Acquisitions: Hydraulic Engineering Repair Services

    ACQUISITIONS Hydraulic Engineering Repair Services  Hydraulic cylinder repairs  Drivetrain repairs  Estimated price R64m  2 year earn-out 23

  24. Slide 24: Segment Results – Consumer-Related Products

    SEGMENT RESULTS – CONSUMER-RELATED PRODUCTS Turnover Op Margin Operating Profit Rm 2015 % ch 2014 2015 2014 2015 % ch 2014 Ongoing 1 947 13.3 1 718 13.4% 12.5% 261 21.4 215 operations New businesses 656 18.1% 119 Segment total 2 603 51.5 1 718 14.6% 12.5% 380 76.7 215  Rutherford - power tool sales

  25. Slide 25: Segment Results – Engineering Consumables

    SEGMENT RESULTS – ENGINEERING CONSUMABLES Turnover Op Margin Operating Profit Rm 2015 % ch 2014 2015 2014 2015 % ch 2014 Ongoing 2 609 (5.7) 2 767 9.8% 10.9% 256 (15.2) 302 operations New businesses 26 15.4% 4 Segment total 2 635 (4.8) 2 767 9.9% 10.9% 260 (13.9) 302  Deutz Dieselpower - sales to a

  26. Slide 26: Segments Results 2015

    SEGMENTS RESULTS 2015 Turnover Op Margin Operating Profit Rm 2015 % ch 2014 2015 2014 2015 % ch 2014 Consumer- related 2 603 51.5 1 718 14.6% 12.5% 380 76.7 215 products Engineering 2 635 (4.9) 2767 9.9% 10.9% 260 (13.9) 302 consumables Head office, shared services (8) (5) (35) (23) & eliminations T

  27. Slide 27: Financial Review

    FINANCIAL REVIEW 27

  28. Slide 28: Profit for the Year

    PROFIT FOR THE YEAR Rm 2015 % ch 2014 Turnover 5 230 16.7 4 480 - Ongoing operations 4 548 1.5 4 480 - New businesses 682 Gross profit 1 917 17.2 1 635 Operating expenses 1 312 15.0 1 141 Operating profit 605 22.5 494 - Ongoing operations 482 (2.4) 494 - New businesses 123 Margin (%) Turnover 100.0

  29. Slide 29: 10 Year Operating Margin Performance

    10 YEAR OPERATING MARGIN PERFORMANCE 18 16 15.4 14 14.3 13.4 12 12.7 12.7 12.5 12.2 11.9 11.6 10 11.0 8 6 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Operating margin (%) 29

  30. Slide 30: Profit for the Year

    PROFIT FOR THE YEAR Rm 2015 % ch 2014 Operating Profit 605 22.5 494 Fair value adj to amounts due to (2) 3 vendors Net interest on funding (73) (37) Interest paid to vendors (imputed) (3) (2) Profit before taxation 527 15.1 458 Taxation 141 128 (Rate 2015 : 27% 2014 : 28%) Profit before tax settleme

  31. Slide 31: Comparable Earnings for the Year

    COMPARABLE EARNINGS FOR THE YEAR Rm 2015 % ch 2014 Operating Profit 605 22.5 494 Net interest on funding (73) (37) Interest paid to vendors (imputed) (3) (2) Profit on PPE (1) - FV adjustment of vendor liability Profit before taxation 528 16.0 455 Taxation (141) (128) (Rate 2015 : 27% 2014 : 28%) Pr

  32. Slide 32: Comparable Earnings by Half Year

    COMPARABLE EARNINGS BY HALF YEAR 225 200 197 175 188 176 181 172 173 150 125 139 131 124 100 103 75 50 25 0 2011 2012 2013 2014 2015 1st half 2nd half 32

  33. Slide 33: Earnings per Share and Dividends

    EARNINGS PER SHARE AND DIVIDENDS Cents 2015 % 2014 Earnings per share Comparable eps 1 169 18.6 986 Basic eps 1 164 8 Headline eps 1 163 6 Dividends per share - Interim 180 155 - Final 345 310 Total 525 12.9 465 Divided cover (times) 2.23 2.12 33

  34. Slide 34: Cash Flow for the Year

    CASH FLOW FOR THE YEAR Rm 2015 2014 Cash from trading 653 525 Increase in working capital (153) (44) Cash from operating activities 500 481 Net finance costs (73) (38) Tax paid (excluding tax settlement) (186) (142) Cash from operations before tax settlement 241 301 Tax settlement (192) (80) Cash fl

  35. Slide 35: Statement of Financial Position

    STATEMENT OF FINANCIAL POSITION Rm Nov 15 Nov 14 Working capital 1 595 1 286 Property, plant equipment 261 257 Goodwill and intangibles 1 070 766 Investment in Joint Venture 7 Tax (excluding tax settlement) 18 7 Net assets 2 951 2 316 Equity 1 895 1 682 Bank borrowings 1 016 413 Taxation 192 Due to

  36. Slide 36: Working Capital

    WORKING CAPITAL In months of sales 4.5 4.0 3.5  Working capital 3.0 traditionally peaks end 2.5 of H1 to cope with 2.0 anticipated increased 1.5 seasonal demand in H2 1.0 0.5  Sales were generally 0.0 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 split 45/55 between H1 2011 2012 2013 2014 2015 and H2 (2015: 49/51

  37. Slide 37: Working Capital Elements

    WORKING CAPITAL ELEMENTS In months of sales 4 3 2 1 0 H2 11 H2 12 H2 13 H2 14 H2 15 -1 -2 -3 Inventory Payables Receivables Net W Cap One month of sales: H2 2015 = R447m; H2 2014 = R395m 37

  38. Slide 38: Exchange Rate Environment

    EXCHANGE RATE ENVIRONMENT  We import directly 60% of 170 US Dollar Euro Index group cost of sales 160  On average these cost 9% more 150 in 2015 than 2014 140  Spot 18 January 2016 is 33% up 130 on 2015 average 120  We do not take a house view on 110 exchange rates 100  We hedge all liabilities

  39. Slide 39: Summary

    SUMMARY  Businesses generate strong cash flows  Working capital (inventories) will cost more  We continue to invest successfully in new businesses  Bank facilities are available  Capacity remains for smaller acquisitions 39

  40. Slide 40: Outlook

    Hudaco OUTLOOK 40

  41. Slide 41: Outlook - Reminders

    OUTLOOK - REMINDERS  Hudaco sales are predominantly driven by GDP activity  GDFI adds capacity for future GDP activity  Rand exchange rate has a big impact on pricing and profitability  Exposure to mining and manufacturing has decreased significantly  Products linked to consumer spending now re

  42. Slide 42: Outlook 2016

    OUTLOOK 2016 Factors that should impact on 2016  Minimal growth in the economy  Benefit from a weaker Rand  Our earnings base is considerably broader  Management team is focused on managing the balance between margin, expenses and stock  Businesses well positioned for improvement in market cond

  43. Slide 43: Contact Details

    CONTACT DETAILS Graham Dunford Clifford Amoils Chief executive Financial director Tel +27 (11) 657 5004 Tel +27 (11) 657 5002 grahamd@hudaco.co.za camoils@hudaco.co.za www.hudaco.co.za 43

  44. Slide 44: 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

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