Hudaco Industries Limited · JSE:HDC
Hudaco Industries — FY2022 Earnings Presentation
61 slides from Hudaco Industries's earnings presentation, Nov 30, 2022
Slide 1: Results Presentation for the year ended 30 November 2022
RESULTS PRESENTATION For the year ended 30 November 2022
Slide 2: Agenda
AGENDA ▪ Overview and general business environment ▪ Hudaco in the general business environment ▪ Exchange rates ▪ Business model ▪ Reporting segments ▪ Operating profit and margins ▪ Financial review ▪ Outlook 2
Slide 3: Overview and General Business Environment
OVERVIEW AND GENERAL BUSINESS ENVIRONMENT 3
Slide 4: General Business Environment
GENERAL BUSINESS ENVIRONMENT ▪ Another challenging year ▪ Hudaco has once again shown its resilience ▪ Government’s dismal leadership and poor execution ▪ Floods and associated business disruption in KwaZulu-Natal ▪ Inefficient ports made worse by the floods and strike action ▪ Degradation of the na
Slide 5: Overview
OVERVIEW ▪ Return on equity increased from 19,5% to 21,7% ▪ Cash generated from operations R893m ▪ Shareholder value creation – approx R1,1bn (R400m back to shareholders) ▪ Hudaco has a track record of delivering highly commendable results in tough times. 5
Slide 6: Hudaco in the General Business Environment
HUDACO IN THE GENERAL BUSINESS ENVIRONMENT 6
Slide 7: Hudaco in This Environment
HUDACO IN THIS ENVIRONMENT ▪ Stuck to our strategy and core business model ▪ Managed the elements within our control ▪ Made sure we did the basics right ▪ Maintained increased stock levels ▪ Hudaco, in most businesses, has pricing power ▪ Acquired CADAC ▪ Repurchased shares 7
Slide 8: Results Summary 2022 vs 2021
RESULTS SUMMARY 2022 VS 2021 Turnover 12,3% to R8,2bn Operating profit 23,4% to R1,0bn Profit for the year 22,8% to R675m Comparable earnings per share 21,0% to 1951 cps Headline earnings per share 22,3% to 2007 cps Total dividend per share 21,7% to 925 cents Cash generated from operations R893m 8
Slide 9: Results Summary 2022 vs 2019
RESULTS SUMMARY 2022 VS 2019 Turnover 22% Operating profit 45% Profit for the year 44% Comparable earnings per share 57% Headline earnings per share 48% Total dividend per share 54% 9
Slide 10: Major Shareholders / Fund Managers
MAJOR SHAREHOLDERS / FUND MANAGERS ▪ Government Employees Pension Fund 12% ▪ PSG Asset Management 10% ▪ Ninety One 8% ▪ Old Mutual 7% ▪ Foord Asset Management 5% ▪ Bateleur Capital 5% ▪ Aylett 5% ▪ Abax Investments 4% ▪ Sanlam Investments 4% ▪ Alexander Forbes 4% 64% 10
Slide 11: Exchange Rates
Hudaco EXCHANGE RATES
Slide 12: Exchange Rate Volatility ZAR to US$
R13.0 R14.0 R15.0 R17.0 R18.0 R19.0 R16.0 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21 Jan 22 Feb 22 EXCHANGE RATE VOLATILITY ZAR TO US＄ Mar 22 Apr 22 May 22 Jun 22 Jul 22 Aug 22 Sep 22 Oct 22 Nov 22 12
Slide 13: Exchange Rate Environment
EXCHANGE RATE ENVIRONMENT ▪ We import directly 70% of group cost of sales ▪ On average these cost 6% more in 2022 than in 2021 and 13,5% more than in 2019 ▪ We do not take a house view on exchange rates ▪ We hedge all liabilities and on average 30% of orders Import currencies USD* 65% Euro 26% CNY 3
Slide 14: Business Model
_ Hudaco BUSINESS MODEL
Slide 15: The Hudaco Business Model
THE HUDACO BUSINESS MODEL ▪ Hudaco’s main business is the importation and distribution of high-quality branded automotive, industrial and electronic consumable products ▪ The concept of “value-added distribution” is key to our business model ▪ Agency agreements generally restrict our activities to A
Slide 16: Features of Value-Added Distribution
FEATURES OF VALUE-ADDED DISTRIBUTION ▪ Focused business units with application advice ▪ Technical specification and product knowledge ▪ Training ▪ Credit provision ▪ Drives customer retention and supplier loyalty Inventories R2 355m ▪ Instant availability ▪ 29 warehouses ▪ 800 international supplier
Slide 17: 2022 Sales by Market Sector
2022 SALES BY MARKET SECTOR (%) 27 Wholesale and retail 28 18 Automotive 19 15 Manufacturing 15 15 Mining 15 10 Exports 10 6 Security 5 5 Alternative energy 4 2 Construction 2 2 Agriculture 2 2022 2021 17
Slide 18: Reporting Segments
REPORTING SEGMENTS 18
Slide 19: Contribution by Segment
CONTRIBUTION BY SEGMENT Contribution to 2022 operating profit (before shared services and head office) 40% 60% 2021 42% 58% Consumer-related products Engineering consumables 19
Slide 20: Consumer-Related Products
CONSUMER-RELATED PRODUCTS Consumer-related products segment imports and distributes branded products driven by consumer spending and generally sold to installers. Consumer-related products (12 businesses) ▪ Automotive aftermarket products ▪ Power tools and fasteners ▪ Data networking equipment ▪ Bat
Slide 21: 2022 Consumer-Related Products Sales by Market Sector
2022 CONSUMER-RELATED PRODUCTS SALES BY MARKET SECTOR 37 Wholesale and retail 40 30 Automotive 30 12 Security 9 7 Exports 7 9 Alternative energy 7 3 Manufacturing 4 2 Mining 2 0 Agriculture 1 2022 2021 21
Slide 22: Consumer-Related Products: Automotive Aftermarket
CONSUMER-RELATED PRODUCTS AUTOMOTIVE AFTERMARKET Principal Businesses Principal Brands Main markets Used for ▪ Automotive aftermarket ▪ Automotive oil seals ▪ Automotive parts and accessories ▪ Ignition leads ▪ Construction machinery ▪ Light duty clutch kits ▪ Spares shops ▪ Truck clutch components
Slide 23: Consumer-Related Products: Power Tools and Fasteners
CONSUMER-RELATED PRODUCTS POWER TOOLS AND FASTENERS Principal Businesses Principal Brands Main markets Used for ▪ Agriculture ▪ Building ▪ D.I.Y. ▪ D.I.Y. ▪ Commercial marine ▪ Fastening in all industries ▪ Construction ▪ Installations ▪ Manufacturing ▪ Propulsion of boats ▪ Mining ▪ Surveying ▪ Rec
Slide 24: Consumer-Related Products: Data Networking Equipment
CONSUMER-RELATED PRODUCTS DATA NETWORKING EQUIPMENT Principal Businesses Principal Brands Main markets Used for ▪ Security ▪ Data solutions ▪ Technology resellers ▪ Fibre optic networks ▪ Telecommunications operators ▪ Network infrastructure ▪ Transport ▪ Outdoor wireless network ▪ Wireless, interne
Slide 25: Consumer-Related Products: Batteries and Sustainable Energy
CONSUMER-RELATED PRODUCTS BATTERIES AND SUSTAINABLE ENERGY Principal Businesses Principal Brands Main markets Used for ▪ Alternative energy ▪ Back-up power (UPS, inverters, ▪ Battery bays alarms) ▪ Mining ▪ Distribution centres ▪ Motor industry ▪ Energy load shifting ▪ Security ▪ Generator starting
Slide 26: Consumer-Related Products: Security and Communication Equipment
CONSUMER-RELATED PRODUCTS SECURITY AND COMMUNICATION EQUIPMENT Principal Businesses Principal Brands Main markets Used for ▪ Commercial security ▪ Access control ▪ Military and police ▪ Control centres ▪ Mining ▪ Fire detection ▪ Municipal ▪ Intrusion detection ▪ Residential security ▪ Mobile commun
Slide 27: Consumer-Related Products: Gas and Outdoor
CONSUMER-RELATED PRODUCTS GAS AND OUTDOOR Principal Business Principal Brand Main markets Used for ▪ Camping and outdoor living ▪ Cooking ▪ Alternative energy ▪ Lighting ▪ Households and residential ▪ Heating ▪ Catering ▪ Braaiing ▪ Hiking and outdoor recreation ▪ Coolers ▪ Camping 27
Slide 28: Segment Results for Consumer-Related Products
SEGMENT RESULTS FOR CONSUMER-RELATED PRODUCTS Turnover Op Margin Operating Profit Rm 2022 % ch 2021 2022 2021 2022 % ch 2021 Ongoing 4 034 6,8 3 777 15,7 14,6 634 14,9 552 operations Acquisition 235 11,6 27 Segment total 4 269 13,0 3 777 15,5 14,6 661 19,8 552 ▪ The security and communications group
Slide 29: Engineering Consumables
ENGINEERING CONSUMABLES Engineering consumables segment imports and distributes branded products generally used in the repair and maintenance of machines. Engineering consumables (18 businesses) ▪ Bearings, belting and power transmission ▪ Diesel engines and spares ▪ Electrical power transmission ▪
Slide 30: 2022 Engineering Consumables Sales by Market Sector
2022 ENGINEERING CONSUMABLES SALES BY MARKET SECTOR 28 Manufacturing 28 28 Mining 28 16 Wholesale and retail 16 12 Exports 12 6 Automotive 6 5 Construction 5 4 Agriculture 4 1 Other 1 2022 2021 30
Slide 31: Engineering Consumables: Bearings, Belting and Power Transmission
ENGINEERING CONSUMABLES BEARINGS, BELTING AND POWER TRANSMISSION Principal Businesses Principal Brands Main markets Used for ▪ Automotive OEM’s ▪ Automotive OE supply ▪ Construction ▪ Conveyor systems ▪ Food processing ▪ General machinery and equipment ▪ General industry ▪ Maintenance ▪ Manufacturin
Slide 32: Engineering Consumables: Electrical Power Transmission
ENGINEERING CONSUMABLES ELECTRICAL POWER TRANSMISSION Principal Businesses Principal Brands Main markets Used for ▪ Automation ▪ Automation and control of electric ▪ Manufacturing motors ▪ Materials handling ▪ Connection of electrical power in ▪ Mining industry ▪ Ports ▪ Electrical panel building ▪
Slide 33: Engineering Consumables: Hydraulics and Pneumatics
ENGINEERING CONSUMABLES HYDRAULICS AND PNEUMATICS Principal Businesses Principal Brands Main markets Used for ▪ Food processing plants ▪ Breweries ▪ Industrial ▪ Fluid conveyance & control ▪ Manufacturing ▪ Industrial automation ▪ Mining ▪ Mining equipment ▪ Process automation 33
Slide 34: Engineering Consumables: Specialised Steel
ENGINEERING CONSUMABLES SPECIALISED STEEL Principal Businesses Principal Brands Main markets Used for ▪ General industry ▪ Aerators and mixing ▪ Manufacturing ▪ Conveyor systems ▪ Mining ▪ Fabrication ▪ Pressure vessels ▪ General steel applications ▪ Road tankers ▪ Mining equipment ▪ Sugar industry
Slide 35: Engineering Consumables: Other
ENGINEERING CONSUMABLES OTHER Principal Businesses Principal Brands Main markets Used for ▪ Agri equipment ▪ Condensate drain management ▪ Construction ▪ Industrial air filtration ▪ Earthmoving equipment ▪ Generator sets ▪ Irrigation ▪ Materials handling ▪ Mining ▪ Mining equipment ▪ On and off-road
Slide 36: Segment Results: Engineering Consumables
SEGMENT RESULTS ENGINEERING CONSUMABLES Turnover Op Margin Operating Profit Rm 2022 % ch 2021 2022 2021 2022 % ch 2021 Ongoing 3 907 11,6 3 501 12,0 10,4 470 28,5 366 operations Acquisition Segment total 3 907 11,6 3 501 12,0 10,4 470 28,5 366 ▪ Almost all businesses performed well ▪ Benefited from
Slide 37: Combined Segment Results
COMBINED SEGMENT RESULTS Turnover Op Margin Operating Profit Rm 2022 % ch 2021 2022 2021 2022 % ch 2021 Consumer- related 4 269 13,0 3 777 15,5 14,6 661 19,8 552 products Engineering 3 907 11,6 3 501 12,0 10,4 470 28,5 366 consumables Head office, shared (25) (20) (112) (92) services and elimination
Slide 38: Operating Profit and Margins
OPERATING PROFIT AND MARGINS 38
Slide 39: Operating Profit Margin
OPERATING PROFIT MARGIN 2022 2021 Margin (%) Turnover 100% 100% Gross profit 36,7% 37,0% Sundry income 0,3% Operating expenses (24,5%) (25,6%) Operating profit 12,5% 11,4% 39
Slide 40: Turnover
TURNOVER R billion 4.5 4.4 4.0 3.9 3.8 3.5 3.5 3.6 3.4 3.4 3.0 3.2 3.2 3.0 2.5 2.7 2.6 2.0 1.5 1.0 0.5 0.0 2017 2018 2019 2020 2021 2022 H1 H2 40
Slide 41: Operating Expenses to Turnover
OPERATING EXPENSES TO TURNOVER % 30.0 25.0 25.8 26.1 26.0 26.6 25.6 24.5 20.0 15.0 10.0 5.0 0.0 2017 2018 2019 2020 2021 2022 41
Slide 42: Operating Profit Margin
OPERATING PROFIT MARGIN % 14 12 13.0 12.5 12.1 11.9 12.0 11.4 10 10.7 10.6 10.1 9.8 9.3 8 6 4 2 3.0 0 2017 2018 2019 2020 2021 2022 H1 H2 42
Slide 43: Financial Review
FINANCIAL REVIEW 43
Slide 44: Profit
PROFIT Rm 2022 % ch 2021 Turnover 8 151 12,3 7 258 Ongoing operations 7 916 9,1 7 258 Acquisition 235 Gross profit 2 992 11,3 2 687 Sundry income – insurance proceeds 27 Operating expenses (2 000) 7,4 (1 861) Ongoing operations (1 954) 5,0 (1 861) Acquisition (46) Operating profit 1 019 23,4 826 Ong
Slide 45: Profit
PROFIT Rm 2022 % ch 2021 Operating profit 1 019 23,4 826 Fair value adjustments (1) 10 Net interest on funding (58) (36) Imputed interest on leases (29) (32) Profit before taxation 931 21,3 768 Taxation (256) (219) (Rate 2022: 27,6% 2021: 28,5%) Profit after taxation 675 22,8 549 Non-controlling int
Slide 46: Comparable Earnings
COMPARABLE EARNINGS Rm 2022 % ch 2021 Attributable earnings 596 19,6 499 Profit of disposal of PPE (1) Headline earnings 596 19,7 498 Fair value adjustment to estimated capital value (10) of vendor liabilities Insurance proceeds (27) Non-controlling interest and tax 10 2 Comparable earnings 579 18,3
Slide 47: Comparable Earnings
COMPARABLE EARNINGS R million 330 300 322 270 280 240 257 243 210 227 230 215 210 180 150 164 165 153 120 90 60 30 22 0 2017 2018 2019 2020 2021 2022 H1 H2 47
Slide 48: Earnings per Share and Dividends
EARNINGS PER SHARE AND DIVIDENDS Cents 2022 % ch 2021 Earnings per share Comparable 1 951 21,0 1 613 Basic 2 007 22,2 1 643 Headline 2 007 22,3 1 641 Dividends per share - Interim 300 25,0 240 - Final 625 20,2 520 Total 925 21,7 760 Dividend cover (times) 2,1 2,1 48
Slide 49: Share Repurchase Programme
SHARE REPURCHASE PROGRAMME (excludes treasury shares) Weighted avg Cost No. of shares % shares Rm 30 Nov 2019 31 645 703 100 31 645 703 2020 Repurchases 1 024 600 82 30 Nov 2020 30 621 103 96,8% 31 529 399 2021 Repurchases 609 211 69 30 Nov 2021 30 011 892 94,8% 30 356 525 2022 Repurchases 928 740 1
Slide 50: Statement of Financial Position
STATEMENT OF FINANCIAL POSITION Rm 2022 2021 Working capital 2 399 1 977 Inventories 2 355 2 004 Receivables 1 366 1 245 Payables (1 322) (1 272) Property, plant and equipment 309 285 Right-of-use assets 382 422 Goodwill and intangibles 1 221 1 196 Tax 83 75 Net assets 4 394 3 955 50
Slide 51: Statement of Financial Position
STATEMENT OF FINANCIAL POSITION Rm 2022 2021 Equity 3 254 2 976 Bank borrowings 621 469 Lease liabilities 440 477 Due to vendors 24 Tax 55 33 Total equity and liabilities 4 394 3 955 51
Slide 52: Working Capital Elements
WORKING CAPITAL ELEMENTS In months of sales 5 4 3 2 1 0 H2 17 H2 18 H2 19 H2 20 H1 21 H2 21 H1 22 H2 22 -1 -2 Inventory Payables Receivables Net W Cap One month of sales 2021 = R564m (H1) 2022 = R630m (H1) 2021 = R646m (H2) 2022 = R728m (H2) 52
Slide 53: Inventory
INVENTORY In months of sales 5 4.4 4 3.5 3.6 3.4 3.3 3 3.2 3.2 3.1 3.1 3.1 2.9 2.7 2 1 0 2017 2018 2019 2020 2021 2022 H1 H2 53
Slide 54: Cash Flow
CASH FLOW Rm 2022 2021 Cash from trading 1 249 1 026 Increase in working capital (356) (116) Cash from operations 893 910 Tax paid (244) (220) Cash from operating activities 649 690 Invested in new business (81) 9 Invested in software and plant & equipment (76) (67) Cash flow after investing activit
Slide 55: Key Financial Points
KEY FINANCIAL POINTS ▪ Operating margin up ▪ Expenses tightly managed ▪ Strategic increase in inventories ▪ Businesses remain cash generative ▪ Borrowings well within capacity and covenants ▪ All capital allocation options are still considered • Acquisition • Share repurchases • Debt repayment • Div
Slide 56: Outlook
| Hudaco OUTLOOK
Slide 57: Outlook for 2023
OUTLOOK FOR 2023 ▪ Hudaco is in a strong position to weather the storms that may come our way in 2023 ▪ Small players in the market do not have our resilience and may not be sustainable, so we should gain market share ▪ We expect even better results from the security and communications businesses ▪
Slide 58: Outlook for 2023
OUTLOOK FOR 2023 ▪ The synergies in our route to market and cost structures should continue to yield benefits ▪ The degradation in public sector infrastructure can create opportunities for Hudaco ▪ Strengthening the team • Ernie Smith - alternate director • Burtie Roberts and Lavern Jacobs - Exco ▪
Slide 59: S 1) S =
S 1) S =
Slide 60: 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
Slide 61: 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 61