Hudaco Industries Limited · JSE:HDC

Hudaco Industries — FY2017 Earnings Presentation

54 slides from Hudaco Industries's earnings presentation, Feb 1, 2018

  1. Slide 1: Results Presentation for the Year Ended 30 November 2017

    RESULTS PRESENTATION FOR THE YEAR ENDED 30 NOVEMBER 2017

  2. Slide 2: Agenda

    AGENDA  Overview  The Hudaco business model  Operating segments and acquisitions update  Financial review  Outlook 2

  3. Slide 3: Overview

    OVERVIEW  Low business confidence (cabinet reshuffle, downgrades, state capture, corruption and unworkable new mining charter)  Difficult economy - pleasing results  Proven track record with acquisitions - manage them well  Powder for more acquisitions  Cash generation matches profit  ROE well

  4. Slide 4: Results Summary 2017

    RESULTS SUMMARY 2017 Turnover 7% to R5,9bn Operating profit 6% to R676m Comparable earnings 7% to 1 251 cps Headline earnings 3% to 1 256 cps Dividends per share 7% to 560 cps Cash generated from operations R 711m Return on equity 19% 4

  5. Slide 5: Market Information

    MARKET INFORMATION Market capitalisation @ R142 per share R 4,5bn Free Float 100% - no control P:E ratio @ R142 (ceps) 11,4x Dividend yield @ R142 3,9% Annual Trade (to Nov) 2012 R 1 062m 2013 R 1 496m 2014 R 1 354m 2015 R 2 007m 2016 R 1 341m 2017 R 1 224m 5

  6. Slide 6: Major Shareholders / Fund Managers

    MAJOR SHAREHOLDERS / FUND MANAGERS  PSG Group Asset Management 14%  PIC/Govt Employees Pension Fund 10%  Prudential Portfolio Managers 7%  Melville Douglas 6%  Old Mutual Investment Group 6%  36ONE Asset Management 4%  Foord Asset Management 4%  Sanlam Investment Management 4%  Nedgroup Inv

  7. Slide 7: The Hudaco Business Model

    Hudaco THE HUDACO BUSINESS MODEL up —————————— |

  8. Slide 8: 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

  9. Slide 9: Features of Value Added Distribution

    FEATURES OF VALUE ADDED DISTRIBUTION Value add is: Inventory R1 538m in 36 warehouses:  Instant availability  4 to 6 month supplier lead times  Application advice  800 international suppliers  Technical specification  over 230 000 line items  Training  Credit provision Receivables R1 156m: 

  10. Slide 10: Operating Segments and Acquisitions Update

    OPERATING SEGMENTS AND ACQUISITIONS UPDATE 10

  11. Slide 11: Operating Segments

    OPERATING SEGMENTS  Consumer-related products segment distributes products driven by consumer spending and generally sold to installers  Engineering consumables segment imports and distributes branded engineering consumables generally used in the repair and maintenance of machines 11

  12. Slide 12: Operating Segments

    OPERATING SEGMENTS Consumer-related products (11 businesses)  Automotive aftermarket products  Power tools  Batteries  Professional communication equipment  Security equipment  Data networking equipment Engineering consumables (21 businesses)  Mechanical power transmission  Electrical power

  13. Slide 13: 2017 Sales by Market Sector (%)

    2017 SALES BY MARKET SECTOR (%) Wholesale and retail 25 Automotive 20 Manufacturing 16 Mining 13 Exports 9 Security 8 Alternative energy 3 Construction 3 Agriculture 2 Public sector 1 13

  14. Slide 14: 2017 Sales by Market Sector (%)

    2017 SALES BY MARKET SECTOR (%) Consumer-related products Engineering consumables Manufacturing 3 30 Automotive 32 6 Wholesale and retail 33 17 Mining 2 25 Exports 8 10 Security 15 0 Alternative energy 6 0 Construction 0 6 Public sector 1 1 Agriculture 0 4 Other 0 1 14

  15. Slide 15: Segment by Contribution

    SEGMENT BY CONTRIBUTION Contribution to 2017 operating profit (before shared services and head office) 39% 61% Consumer-related products Engineering consumables 15

  16. Slide 16: Consumer-Related Products: Automotive Aftermarket

    CONSUMER-RELATED PRODUCTS AUTOMOTIVE AFTERMARKET Principal Businesses Principal Brands Main Markets Used for Competitors  Automotive aftermarket  Light duty clutch kits  Scheafler-Luk  Automotive parts and  Ignition leads  ZF Sachs accessories  Truck clutch components  Huco  Construction ma

  17. Slide 17: Consumer-Related Products: Batteries

    CONSUMER-RELATED PRODUCTS BATTERIES Principal Businesses Principal Brands Main Markets Used for Competitors  UPS / standby batteries  Back-up power (UPS,  First National Batteries  Solar system inverters, alarms) (Metair)  Security  Solar systems  Enertec  Motor industry  Generator starting

  18. Slide 18: Consumer-Related Products: Data and Communication Equipment

    CONSUMER-RELATED PRODUCTS DATA AND COMMUNICATION EQUIPMENT Principal Businesses Principal Brands Main Markets Used for Competitors  Military and police  Mobile communication  Motorola  Mining  Control centres  Hytera  Municipal  Personal communication  Icom  Security  Residential/commerci

  19. Slide 19: Consumer-Related Products: Power Tools

    CONSUMER-RELATED PRODUCTS POWER TOOLS Principal Businesses Principal Brands Main Markets Used for Competitors  Construction  Building  Bosch  Mining  Installations  Yamaha  D.I.Y  D.I.Y.  Suzuki  Agriculture  Propulsion of boats  National Socket Screws  Recreational boating  Fastening

  20. Slide 20: Consumer-Related Products: Security Equipment

    CONSUMER-RELATED PRODUCTS SECURITY EQUIPMENT Principal Businesses Principal Brands Main Markets Used for Competitors  Residential security  Intrusion detection  IDS  Commercial security  Video surveillance  Regal  Project consultants  Access control  ADI  Systems integrators  Perimeter de

  21. Slide 21: Engineering Consumables: Bearings and Diesel Engines

    ENGINEERING CONSUMABLES BEARINGS AND DIESEL ENGINES Principal Businesses Principal Brands Main Markets Used for Competitors  Mining  Mining equipment  Cummins  Construction  Construction equipment  Volvo  Power generation  Generator sets  Mercedes  General industry  General machinery and

  22. Slide 22: Engineering Consumables: Electrical Power Transmission

    ENGINEERING CONSUMABLES ELECTRICAL POWER TRANSMISSION Principal Businesses Principal Brands Main Markets Used for Competitors  Mining  Electrification of mobile  Aberdare Cables  Wholesale and retail machinery  Helukabel  Materials handling  Connection of electrical  Alvern Cables  Steel in

  23. Slide 23: Engineering Consumables: Mechanical Power Transmission

    ENGINEERING CONSUMABLES MECHANICAL POWER TRANSMISSION Principal Businesses Principal Brands Main Markets Used for Competitors  Mining  Materials handling  Lorbrand  General manufacturing  Fabrication  CPM  Earthmoving equipment  Conveyor systems  CIS Engineering  Opencast mining  Oil, air

  24. Slide 24: Engineering Consumables: Other

    ENGINEERING CONSUMABLES OTHER Principal Businesses Principal Brands Main Markets Used for Competitors  Industrial  Industrial automation  Festo  Manufacturing  Process automation  Pneumax  Marine and forestry  Condensate drain  Incledon  Food processing plants management  Parker Hannifin

  25. Slide 25: Decentralised Structure

    DECENTRALISED STRUCTURE  Many businesses across many sectors  Many products in many industries  Diversification reduces risk  Decentralised focused management - specialists  Control and accountability  Key performance drivers 25

  26. Slide 26: Acquisitions

    ACQUISITIONS Successful bolt-ons and acquisitions in stronger economic sectors are continuing to diversify our revenue base 2016  HERS  All-Trade  MiRO  Brewtech Engineering 2017  The Dished End Company  Eternity Technologies  Gear Pump Distributors – UK  SS Telecoms  Commercial ICT 26

  27. Slide 27: 2017 Acquisitions: Eternity Technologies

    2017 ACQUISITIONS Eternity Technologies  Supply of batteries, high frequency chargers and related battery equipment to the traction battery market.  They also design, build and manage battery bays for warehouse and distribution centres.  Estimated price R200m  3 year earn-out 27

  28. Slide 28: 2017 Acquisitions: The Dished End Company

    2017 ACQUISITIONS The Dished End Company  Manufacture of dished and flange ends, pressing and flanging of small conical sections, push thru’s and weld caps normally for cylinders and pressure vessels  Estimated price R71m  3 year earn-out 28

  29. Slide 29: Segment Results – Consumer-Related Products

    SEGMENT RESULTS – CONSUMER-RELATED PRODUCTS Turnover Op Margin Operating Profit Rm 2017 % ch 2016 2017 2016 2017 % ch 2016 Ongoing 2 434 (4,6) 2 553 14,7% 14.6% 357 (4,0) 372 operations New 617 249 11,5% 13.3% 71 33 businesses Segment total 3 051 8,9 2 802 14,0% 14.5% 428 5,7 405  Excellent year in

  30. Slide 30: Rutherford: New Premises

    RUTHERFORD : NEW PREMISES City Deep Industrial Park, Johannesburg m2 New Old Warehousing 10 000 6 120 Offices 2 500 1 680  Racking to 7.5m  Capacity is 3 times old warehouse  Room for expansion and/or acquisitions 30

  31. Slide 31: Rutherford: New Premises

    Hudaco : NEW PREMISES RUTHERFORD

  32. Slide 32: Segment Results – Engineering Consumables

    SEGMENT RESULTS – ENGINEERING CONSUMABLES Turnover Op Margin Operating Profit Rm 2017 % ch 2016 2017 2016 2017 % ch 2016 Ongoing 2 780 2,7 2 706 9,3% 9,1% 258 4,5 247 operations New 81 33 17,3% 24,2% 14 8 businesses Segment total 2 861 4,5 2 739 9,5% 9,3% 272 6,8 255  Electrical side of the busines

  33. Slide 33: Segment Results 2017

    SEGMENT RESULTS 2017 Turnover Op Margin Operating Profit Rm 2017 % ch 2016 2017 2016 2017 % ch 2016 Consumer- related 3 051 8,9 2 802 14,0% 14.5% 428 5,7 405 products Engineering 2 861 4,5 2 739 9,5% 9.3% 272 6,8 255 consumables Head office, shared services (10) (7) (24) (21) & eliminations Total Gr

  34. Slide 34: Financial Review

    Hudaco FINANCIAL REVIEW 33

  35. Slide 35: Profit for the Year

    PROFIT FOR THE YEAR Rm 2017 % ch 2016 Turnover 5 902 6,6 5 534 - Ongoing operations 5 204 (0,9) 5 252 - New businesses 698 282 Gross profit 2 198 10,0 1 998 Operating expenses 1 522 12,0 1 359 - Ongoing operations 1 395 6,0 1 315 - New businesses 127 44 Operating profit 676 5,7 639 - Ongoing operati

  36. Slide 36: Long-Term Operating Margin Performance

    LONG-TERM OPERATING MARGIN PERFORMANCE 16 14 13.4 12 12.7 12.5 12.2 11.9 11.6 11.6 11.5 10 11.0 8 6 4 2 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 Operating margin (%) 36

  37. Slide 37: Operating Margin by Half Year

    OPERATING MARGIN BY HALF YEAR % 16 14 13.6 12.9 13.0 12 12.4 12.5 11.4 11.4 11.7 10 10.8 9.8 10.1 9.5 8 6 4 2 0 2012 2013 2014 2015 2016 2017 H1 H2 37

  38. Slide 38: Turnover by Half Year

    TURNOVER BY HALF YEAR R billion 3.5 3.0 3.2 3.0 2.5 2.7 2.7 2.6 2.5 2.4 2.0 2.1 2.1 1.9 1.8 1.5 1.6 1.0 0.5 0.0 2012 2013 2014 2015 2016 2017 H1 H2 38

  39. Slide 39: Profit for the Year

    PROFIT FOR THE YEAR Rm 2017 % ch 2016 Operating profit 676 5,7 639 Fair value adjustment to amounts due 2 19 to vendors Net interest on funding (81) (87) Interest paid to vendors (imputed) (22) (13) Profit before taxation 575 3,0 558 Taxation 156 148 (Rate 2017:27% 2016:27%) Profit after tax 419 2,0

  40. Slide 40: Comparable Earnings for the Year

    COMPARABLE EARNINGS FOR THE YEAR Rm 2017 % ch 2016 Attributable earnings 397 2,3 388 Loss (profit) on disposal of PPE 1 (1) Headline earnings 398 2,8 387 Fair value adjustment of vendor liability (2) (19) Non-controlling interest 2 Comparable earnings 396 6,8 370 40

  41. Slide 41: Comparable Earnings by Half Year

    COMPARABLE EARNINGS BY HALF YEAR 275 250 243 225 231 200 197 175 181 175 172 173 150 153 125 139 139 131 123 100 75 50 25 0 2012 2013 2014 2015 2016 2017 1st half 2nd half 41

  42. Slide 42: Earnings per Share and Dividends

    EARNINGS PER SHARE AND DIVIDENDS Cents 2017 % ch 2016 Earnings per share Comparable 1 251 6,8 1 171 Basic 1 254 2,3 1 226 Headline 1 256 2,8 1 222 Dividends per share - Interim 180 170 - Final 380 355 Total 560 6,7 525 Dividend cover (times) for the year 2,23 2,23 42

  43. Slide 43: Cash Flow for the Year

    CASH FLOW FOR THE YEAR Rm 2017 % ch 2016 Cash from trading 772 8,4 712 Increase in working capital (61) 34 Cash from operations 711 (5,6) 746 Finance costs (81) (87) Tax paid (131) (174) Cash generated after tax 499 2,9 485 Share-based payments (16) (5) Dividends paid (177) (173) Invested in new bus

  44. Slide 44: Statement of Financial Position

    STATEMENT OF FINANCIAL POSITION Rm Nov 17 Nov 16 Working capital 1 751 1 656 Property, plant equipment 270 256 Goodwill and intangibles 1 550 1 311 Investment in joint venture 9 7 Tax 29 Net assets 3 580 3 259 Equity 2 376 2 130 Bank borrowings 860 905 Due to vendors 331 224 Tax 13 Total equity and

  45. Slide 45: Working Capital

    WORKING CAPITAL In months of sales 4.5  Working capital 4.0 traditionally 3.5 peaks end of 3.0 H1 to cope 2.5 with anticipated 2.0 increased 1.5 seasonal 1.0 demand in H2 0.5 0.0  Sales generally H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 split 45/55 2011 2012 2013 2014 2015 2016 2017 between H1 an

  46. Slide 46: Working Capital Elements

    WORKING CAPITAL ELEMENTS In months of sales 4 3 2 1 0 H2 12 H2 13 H2 14 H2 15 H2 16 H2 17 -1 -2 -3 Inventory Payables Receivables Net W Cap One month of sales: H2 2015 = R447m H2 2016 = R505m H2 2017 = R539m 46

  47. Slide 47: Exchange Rate Environment

    EXCHANGE RATE ENVIRONMENT  We import directly 65% of group Import currencies: cost of sales  USD* 66%  On average these cost 10% less in  Euro 25% 2017 than 2016  Yen 7%  We do not take a house view on  GBP 2% exchange rates  We hedge all liabilities and 20% - *Imports from China, Korea etc.

  48. Slide 48: Summary

    SUMMARY  Existing businesses generate strong cash flows  We continue to invest successfully in new businesses  Using surplus cash to repay borrowings  Exchange rate impacts working capital requirements  Bank facilities are available  Capacity remains for acquisitions  Hudaco is resilient in t

  49. Slide 49: Outlook

    Hudaco OUTLOOK

  50. Slide 50: Outlook - Reminders

    OUTLOOK - REMINDERS  Hudaco sales are predominantly driven by GDP activity  Any GDFI adds capacity for future GDP activity  Rand exchange rate has a big impact on pricing and profitability  Hudaco is a decentralised group that is made up of 32 separate businesses  There are 21 businesses in our

  51. Slide 51: Outlook 2018

    OUTLOOK 2018 Factors that should impact positively on 2018:  The year has started off in a much more positive vein with consumer and business confidence increasing  There are signs of improvement in certain sectors in which we operate  Mining and manufacturing are benefiting from strengthening co

  52. Slide 52: 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 52

  53. Slide 53: 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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