Hudaco Industries Limited · JSE:HDC

Hudaco Industries — FY2014 Earnings Presentation

47 slides from Hudaco Industries's earnings presentation, January 2015

1. Slide 1: Audited group results for the year ended 30 November 2014

   Audited group results for the year ended 30 November 2014

2. Slide 2: Overview

   OVERVIEW  The year turned out to be very eventful  Economic conditions didn’t turn out the way we expected  The length and violence of the strikes took us by surprise  On 1st July we appointed a new CEO HUDACO Audited group results  Acquisitions continued to grow our portfolio of businesses and

3. Slide 3: Business highlights and shareholder information

   BUSINESS HIGHLIGHTS AND SHAREHOLDER INFORMATION

4. Slide 4: Agenda

   AGENDA  A hindsight view - January 2014  Business highlights 2014  Shareholder information  Business model HUDACO Audited group results  Operating segments and acquisitions update  Financial review and tax settlement  Outlook 4

5. Slide 5: A hindsight view - January 2014

   A HINDSIGHT VIEW - JANUARY 2014  There is going to be a five month strike in the Platinum industry  There will be a violent NUMSA strike and we will have to completely close five of our businesses for the month of July  The country will run out of electricity during the course of the year HUDACO

6. Slide 6: Highlights of the year

   HIGHLIGHTS OF THE YEAR  2013 acquisitions (Dosco Group and SBS) performed above expectation  FHS and Rutherford performed well (but BI disappointed)  Acquisition of the Partquip Group  Sales up 14% HUDACO Audited group results  Sales into Africa grew 39%  Stock up only 0.5% (excl acquisitions)

7. Slide 7: Results summary

   RESULTS SUMMARY Turnover 14% to R 4.5bn Operating profit 5% to R 494m Comparable earnings per share up 0.3% to 986 cps HUDACO Audited group results Headline earnings 99% to R 2m HEPS 99% to 6 cps Dividends per share unchanged at 465 cps Net borrowings R209m to R413m 7

8. Slide 8: Market information

   MARKET INFORMATION Market capitalisation at year end R 3.0bn @ R96 Market capitalisation after tax settlement (28 Jan) R 3.6bn @ R113.50 Free Float 100%, no control P:E ratio @ R110 (ceps) 11.2x HUDACO Audited group results Dividend yield @ R110 4.2% Annual Trade (to Nov) 2010 R 822m 2011 R 757m 201

9. Slide 9: Major shareholders/fund managers

   MAJOR SHAREHOLDERS/FUND MANAGERS  Old Mutual 22%  Govt Employees Pension Fund 10%  Prudential 10%  Foord 9% HUDACO Audited group results  Sanlam Investment Management 5%  Argon 3%  Bateleur 3%  Investec 3% 65% Possibly some double counting 9

10. Slide 10: The Hudaco business model

    THE HUDACO BUSINESS MODEL

11. 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 HUDACO Audited group resu

12. Slide 12: Features of value added distribution

    FEATURES OF VALUE ADDED DISTRIBUTION Value add is: Inventory R1 141m in 30 warehouses:  Instant availability  4 to 6 month supplier lead times  Application advice  700 international suppliers  Technical specification  Training  over 200 000 line items HUDACO Audited group results  Credit pro

13. Slide 13: Operating segments and acquisitions update

    OPERATING SEGMENTS AND ACQUISITIONS UPDATE

14. 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 HUDACO Audited group results generally sold to installers 14

15. Slide 15: Operating segments

    OPERATING SEGMENTS Engineering consumables  Bearings  Power transmission products: mechanical and electrical  Diesel engines and spares HUDACO Audited group results Consumer-related products  Power tools  Security equipment  Professional communication equipment  Automotive aftermarket product

16. Slide 16: 2014 segment sales by market sector

    2014 SEGMENT SALES BY MARKET SECTOR Engineering consumables Consumer-related products Manufacturing Mining 56 Security HUDACO Audited group results Wholesale/retail Automotive Exports Construction Agriculture Public Sector Other 16

17. Slide 17: 2014 sales by market sector

    2014 SALES BY MARKET SECTOR % Manufacturing 25 Wholesale & retail 19 Mining 17 HUDACO Audited group results Exports 13 Security 9 Automotive 8 Construction 4 Agriculture 2 Public Sector 2 Other 1 17

18. Slide 18: Segment contributions

    SEGMENT CONTRIBUTIONS Contribution to 2014 operating profit (before shared services and head office) HUDACO Audited group results 58% 42% 18

19. Slide 19: Engineering consumables

    ENGINEERING CONSUMABLES Principal Businesses Principal Brands Used for: Competitors:  Repairs  BMG  Maintenance  SKF  Expansion  Altron/Altech  Resale  Siemens  Underground  Hytec HUDACO Audited group results mining  Zest  Gen sets  Caterpillar  Cummins Big customers:  Sandvik Main ma

20. Slide 20: Consumer-related products

    CONSUMER-RELATED PROCUTS Principal Businesses Principal Brands Used for: Competitors:  Woodworking  Bosch  Grinding  Hitachi  Renovations  Metabo  Boating  Yamaha  Intruder detection  ADI  Access control  Inhep  Video monitoring  Regal HUDACO Audited group results  Communication  Luk

21. Slide 21: 2013 and 2014 acquisitions

    2013 and 2014 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 HUDACO Audited group results Specialised Battery Systems (R75m)  Distributor of m

22. Slide 22: 2015 acquisitions

    2015 ACQUISITIONS Partquip Group  Wholesale distributor of:  automotive spares and accessories  wheels  Ironman 4X4 accessories (50% held by Ironman 4X4 in Australia) HUDACO Audited group results  Price R450m (net) 22

23. Slide 23: Partquip

    PARTQUIP 23 HUDACO Audited group results

24. Slide 24: Ironman

    IRONMAN HUDACO Audited group results 24

25. Slide 25: A-Line

    A-LINE HUDACO Audited group results 25

26. Slide 26: 2015 acquisitions

    2015 ACQUISITIONS Berntel  Importer and distributor of pneumatic and process components  Bolt-on to Ernest Lowe  Estimated price R15m  2 year earn-out HUDACO Audited group results 26

27. Slide 27: Segment results - engineering consumables

    SEGMENT RESULTS – ENGINEERING CONSUMABLES Turnover Op Margin Operating Profit Rm 2014 % ch 2013 2014 2013 2014 % ch 2013 Ongoing 2 423 - 2 412 10.2% 11.9% 248 (13) 286 HUDACO Audited group results operations New businesses 344 66 15.7% 9.1% 54 6 Segment total 2 767 12 2 478 10.9% 11.8% 302 3 292  D

28. Slide 28: Segment results - consumer-related products

    SEGMENT RESULTS – CONSUMER-RELATED PRODUCTS Turnover Op Margin Operating Profit Rm 2014 % ch 2013 2014 2013 2014 % ch 2013 Ongoing 1 536 7 1 440 12.3% 13.5% 189 (3) 194 HUDACO Audited group results operations New businesses 182 30 14.3% 16.7% 26 5 Segment total 1 718 17 1 470 12.5% 13.5% 215 8 199 

29. Slide 29: Segment results 2014

    SEGMENT RESULTS 2014 Turnover Op Margin Operating Profit Rm 2014 % ch 2013 2014 2013 2014 % ch 2013 Engineering 2 767 12 2 478 10.9% 11.8% 302 3 292 consumables HUDACO Audited group results Consumer- 1 718 17 1 470 12.5% 13.5% 215 8 199 related products Head office, shared services (5) (6) (23) (22)

30. Slide 30: Financial review and tax settlement

    FINANCIAL REVIEW AND TAX SETTLEMENT

31. Slide 31: Profit for the year

    PROFIT FOR THE YEAR Rm 2014 % Ch 2013 Turnover 4 480 14 3 942 - Ongoing operations 3 954 3 3 846 - New businesses 526 96 Gross profit 1 635 11 1 479 HUDACO Audited group results Operating expenses 1 141 13 1 010 Operating profit 494 5 469 - Ongoing operations 414 (9) 458 - New businesses 80 11 Margi

32. Slide 32: Year operating margin performance

    10 YEAR OPERATING MARGIN PERFORMANCE HUDACO Audited group results 32

33. Slide 33: Profit for the year

    PROFIT FOR THE YEAR Rm 2014 % Ch 2013 Operating profit 494 5 469 Fair value adj to amounts due to 3 (23) vendors Net interest on funding (37) (8) Interest paid to vendors (imputed) (2) (5) HUDACO Audited group results BEE financing arrangements (8) Profit before taxation 458 8 425 Taxation 128 120 (

34. Slide 34: Comparable earnings for the year

    COMPARABLE EARNINGS FOR THE YEAR Rm 2014 % Ch 2013 Operating profit 494 5 469 Net interest on funding (37) (8) Interest paid to vendors (imputed) (2) (5) Profit before taxation 455 - 456 HUDACO Audited group results Taxation (Rate 2014:28% 2013:28%) (128) (131) Profit after taxation 327 - 325 Non-co

35. Slide 35: Comparable earnings by half year

    COMPARABLE EARNINGS BY HALF YEAR 200 180 160 140 120 HUDACO Audited group results 100 80 60 40 20 91 128 103 188 124 176 139 172 131 181 0 2010 2011 2012 2013 2014 1st half 2nd half 35

36. Slide 36: Earnings per share and dividends

    EARNINGS PER SHARE AND DIVIDENDS 2014 2013 Earnings per share Comparable eps 986c 983c Basic eps 8c 930c HUDACO Audited group results Headline eps 6c 928c Dividends per share Interim 155c 155c Final 310c 310c Total 465c 465c Dividend policy: annual dividends = approximately 40% of ceps 36

37. Slide 37: Cash flow - for the year

    CASH FLOW – FOR THE YEAR Rm Nov 14 Nov 13 Cash from trading 525 513 Increase in working capital (44) (138) Cash from operating activities 481 375 Net finance costs (38) (16) HUDACO Audited group results Tax paid (222) (169) Cash flow from operations 221 190 Dividends paid (148) (164) Invested in new

38. Slide 38: Working capital

    WORKING CAPITAL 4.5 4.0 In months of sales 3.5 3.0 2.5 2.0 HUDACO Audited group results 1.5 1.0 0.5 0.0 H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 H1 14 H2 14 One month of sales: H2 2014 = R 395m; H2 2013 = R 355m  Working capital traditionally peaks end of H1 to cope with anticipated increase

39. Slide 39: Working capital - elements in months sales

    WORKING CAPITAL – ELEMENTS IN MONTHS SALES HUDACO Audited group results Inventory Payables Receivables Net W Cap. One month of sales in H2 14= R395m H2 13= R355m 39

40. Slide 40: Exchange rate environment

    EXCHANGE RATE ENVIROMENT  We import directly 60% of group cost of sales  On average these cost 13% more in 2014 than 2013  We do not take a house view on exchange rates HUDACO Audited group results  We hedge all liabilities and 20% - 30% of orders  Import currencies: USD* 48% Euro 40% Yen 9% GB

41. Slide 41: Tax settlement

    TAX SETTLEMENT  Comprehensive SENS announcement  Existence of Big Toolio added significant risks  Worst case scenario was R1.4bn  Settled for R312m  Approximates fair value of the benefit to Hudaco under the structure  BEE shareholders and credentials remain in place HUDACO Audited group resul

42. Slide 42: Summary

    SUMMARY  Tax challenge is behind us  Businesses generate strong cash flows  Working capital (inventories) coming in line  Continue to invest successfully in new businesses HUDACO Audited group results  Bank facilities are available  Capacity remains for smaller acquisitions 42

43. Slide 43: Outlook

    OUTLOOK

44. Slide 44: Outlook - reminders

    OUTLOOK - REMINDERS  Hudaco sales are predominantly driven by GDP activity  GDFI adds capacity for future GDP activity  Exposure to South African mining and manufacturing down to 42%  Rand exchange rate has a big impact on pricing and profitability HUDACO Audited group results 44

45. Slide 45: Outlook 2015

    OUTLOOK 2015  Factors impacting positively on 2015  Should have fewer strikes – ongoing businesses will benefit  Benefit from weaker Rand  Continued growth in export sales HUDACO Audited group results  Partquip acquisition to add 117cps in 2015  Benefit from turnaround in Bearings Internationa

46. Slide 46: Contact details

    CONTACT DETAILS Graham Dunford Clifford Amoils Chief executive Financial director HUDACO Audited group results Tel +27 (11) 657 5004 Tel +27 (11) 657 5002 grahamd@hudaco.co.za camoils@hudaco.co.za www.hudaco.co.za 46

47. Slide 47: 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 HU

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