Slide 1: Results Presentation for the Year Ended 30 November 2018
RESULTS PRESENTATION FOR THE YEAR ENDED 30 NOVEMBER 2018
Slide 2: Overview
OVERVIEW § Difficult economic condi?ons in 2018 • First two quarters -‐ economy was in recession • Disappoin?ng last 3 months of FY 2018 • Extreme vola?lity in the Rand throughout the year • Ended year with R290m more in working capital (excluding acquisi?ons) § Comparable earnings per share down 4
Slide 3: Overview
OVERVIEW § Confident for a beXer 2019 § Final dividend maintained at 380 cents giving a total dividend of 570 cents up 1,8% § Investment in Hudaco returned CAGR over the 5 years to 31 August 2018 of 13,4% § Higher than company that was 23rd on Sunday Times Top 100 3
Slide 4: Hudaco
Hudaco
Slide 5: Agenda
AGENDA § Results summary and market informa?on § General business environment § Business model and opera?ng segments § Financial review § Outlook 5
Slide 6: Results Summary 2018
RESULTS SUMMARY 2018 Turnover 8% to R6,4bn Opera?ng profit 3% to R655m Basic earnings 4% to 1 202 cps Headline earnings 3% to 1 289 cps Comparable earnings 4% to 1 198 cps Dividends per share 2% to 570 cps 6
Slide 7: Market Information
MARKET INFORMATION Market capitalisa?on @ R142 per share R 4,5bn Free Float 100% -‐ no control P:E ra?o @ R142 (ceps) 11,9x Dividend yield @ R142 4,0% 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 234m 2018 R 1 272m 7
Slide 8: Major Shareholders / Fund Managers
MAJOR SHAREHOLDERS / FUND MANAGERS § PSG Group Asset Management 14% § Public Investment Corpora?on 10% § Old Mutual Investment Group 6% § Investec Asset Management 4% § Pruden?al Poraolio 4% § Laurium Capital 4% § Dimensional Fund Advisors 3% § Bateleur Capital 3% § Foord Asset Management 3
Slide 9: General Business Environment
GENERAL BUSINESS ENVIRONMENT 9
Slide 10: General Business Environment
GENERAL BUSINESS ENVIRONMENT § South Africa is an extremely challenging place to do business § The op?mism around Ramaphoria is being strangled by Zuma hangover § This tough environment in some sectors resulted in lower demand and created aggressive pricing pressure § Exchange rate vola?lity is
Slide 11: Exchange Rate Volatility ZAR to US$
EXCHANGE RATE VOLATILITY ZAR TO US＄ R15.5 R15.0 R14.5 R14.0 R13.5 R13.0 R12.5 R12.0 R11.5 2017-‐11-‐30 2018-‐03-‐27 2018-‐11-‐30 2018-‐09-‐05 11
Slide 12: Business Model and Operating Segments
BUSINESS MODEL AND OPERATING SEGMENTS 12
Slide 13: The Hudaco Business Model
THE HUDACO BUSINESS MODEL § Hudaco’s main business is the importa?on and distribu?on of high-‐quality branded automo?ve, industrial and electronic consumable products § The concept of “value added distribu?on” is core to our business model § Agency agreements generally restrict our ac?vi?es to A
Slide 14: Operating Segments
OPERATING SEGMENTS § Consumer-‐related products segment imports and distributes products driven by consumer spending and generally sold to installers § Engineering consumables segment imports and distributes branded products generally used in the repair and maintenance of machines 14
Slide 15: Features of Value Added Distribution
FEATURES OF VALUE ADDED DISTRIBUTION Value add is: Inventory R1 822m in 36 warehouses: § Instant availability § 4 to 6 month supplier lead ?mes § Applica?on advice § 800 interna?onal suppliers § Technical specifica?on § over 230 000 line items § Training § Credit provision Receivables R1 278m
Slide 16: Operating Segments
OPERATING SEGMENTS Consumer-‐related products (14 businesses) § Automo?ve agermarket products § Power tools and fasteners § BaXeries § Professional communica?on equipment § Security equipment § Data networking equipment Engineering consumables (21 businesses) § Mechanical power transmission
Slide 17: Contribution by Segment
CONTRIBUTION BY SEGMENT Contribueon 2018 operaeng profit 39% (before shared services and head office) 61% 2017 35% 65% Consumer-‐related products Engineering consumables 17
Slide 18: 2018 Sales by Market Sector (%)
2018 SALES BY MARKET SECTOR (%) Wholesale and retail 27 Automoeve 19 Manufacturing 16 Mining 14 Exports 8 Security 7 Alternaeve energy 3 Construceon 3 Agriculture 2 Public sector 1 18
Slide 19: 2018 Sales by Market Sector (%)
2018 SALES BY MARKET SECTOR (%) Consumer-‐related products Engineering consumables Manufacturing 6 28 Automoeve 29 6 Wholesale and retail 36 17 Mining 3 27 Exports 6 11 Security 12 0 Alternaeve energy 6 1 Construceon 0 5 Public sector 1 0 Agriculture 1 4 Other 0 1 19
Slide 20: Consumer-Related Products: Automotive Aftermarket
CONSUMER-‐RELATED PRODUCTS AUTOMOTIVE AFTERMARKET Principal Businesses Principal Brands Main Markets Used for Compeetors § Automo?ve agermarket § Light duty clutch kits § Scheafler-‐Luk § Automo?ve parts and § Igni?on leads § ZF Sachs accessories § Truck clutch components § Huco § Construc
Slide 21: Consumer-Related Products: Batteries
CONSUMER-‐RELATED PRODUCTS BATTERIES Principal Businesses Principal Brands Main Markets Used for Compeetors § UPS / standby baXeries § Back-‐up power (UPS, § First Na?onal BaXeries § Solar system inverters, alarms) (Metair) § Security § Solar systems § Enertec § Motor industry § Generator
Slide 22: Consumer-Related Products: Data and Communication Equipment
CONSUMER-‐RELATED PRODUCTS DATA AND COMMUNICATION EQUIPMENT Principal Businesses Principal Brands Main Markets Used for Compeetors § Military and police § Mobile communica?on § Motorola § Mining § Control centres § Hytera § Municipal § Personal communica?on § Icom § Security § Residen?al
Slide 23: Consumer-Related Products: Power Tools and Fasteners
CONSUMER-‐RELATED PRODUCTS POWER TOOLS AND FASTENERS Principal Businesses Principal Brands Main Markets Used for Compeetors § Construc?on § Building § Bosch § Mining § Installa?ons § Yamaha § D.I.Y § D.I.Y. § Suzuki § Agriculture § Propulsion of boats § Na?onal Socket Screws § Recrea?o
Slide 24: Consumer-Related Products: Security Equipment
CONSUMER-‐RELATED PRODUCTS SECURITY EQUIPMENT Principal Businesses Principal Brands Main Markets Used for Compeetors § Residen?al security § Intrusion detec?on § IDS § Commercial security § Video surveillance § Regal § Project consultants § Access control § ADI § Systems integrators § Pe
Slide 25: Engineering Consumables: Bearings and Belting
ENGINEERING CONSUMABLES BEARINGS AND BELTING Principal Businesses Principal Brands Main Markets Used for Compeetors § Mining § Mining equipment § SKF § Construc?on § Process control and § BMG § Power genera?on measurement § SEW § General industry § General machinery and § Bearings traders
Slide 26: Engineering Consumables: Electrical Power Transmission
ENGINEERING CONSUMABLES ELECTRICAL POWER TRANSMISSION Principal Businesses Principal Brands Main Markets Used for Compeetors § Mining § Electrifica?on of mobile § Aberdare Cables § Wholesale and retail machinery § Alvern Cables § Materials handling § Connec?on of electrical § Hellerman Tyton
Slide 27: Engineering Consumables: Specialised Steel
ENGINEERING CONSUMABLES SPECIALISED STEEL Principal Businesses Principal Brands Main Markets Used for Compeetors § Mining § Mining equipment § Bohler Uddeholm § Manufacturing § Sugar processing § Steel merchants § Pressure vessels § General steel applica?ons § Lorbrand § Road tankers § Pr
Slide 28: Engineering Consumables: Hydraulic and Pneumatics
ENGINEERING CONSUMABLES HYDRAULIC AND PNEUMATICS Principal Businesses Principal Brands Main Markets Used for Compeetors § Industrial § Industrial automa?on § Festo § Manufacturing § Process automa?on § Pneumax § Food processing plants § Breweries § Incledon § Mining § Mining equipment §
Slide 29: Engineering Consumables: Other
ENGINEERING CONSUMABLES OTHER Principal Businesses Principal Brands Main Markets Used for Compeetors § Mining § Materials handling § Cummins § Earthmoving equipment § Oil, air, fuel and hydraulic § Volvo § Opencast mining filtra?on § Perkins § Construc?on § Industrial air filtra?on § Caterp
Slide 30: Decentralised Structure
DECENTRALISED STRUCTURE § Many businesses across many sectors § Many products in many industries § Diversifica?on reduces risk § Decentralised focused management -‐ specialists § Quick decision making, control and accountability § Key performance drivers 30
Slide 31: New Businesses
NEW BUSINESSES Successful bolt-‐ons and acquisi?ons in stronger economic sectors con?nue to diversify our revenue base 2018 § Boltworld – H2 only § TPA Security Distributors -‐ 3 months 2017 (aier Dec 2016) § Eternity Technologies § The Dished End Company § Gear Pump Distributors – UK 31
Slide 32: 2018 Acquisition: Boltworld
2018 ACQUISITION Boltworld § One of the largest stockists of a wide and comprehensive range of high-‐ quality industrial fasteners § Merged with FTS division of Rutherford § Price R105m, including R24m excess inventory § Effec?ve date 1 June 2018 32
Slide 33: 2018 Acquisition: TPA Security Distributors
2018 ACQUISITION TPA Security Distributors § Distributors of electronic security equipment, including the Texecom range of intruder detec?on solu?ons as well as related consumables § Synergies and efficiencies with security division § Price R31m § Effec?ve date 1 September 2018 33
Slide 34: Segment Results – Consumer-Related Products
SEGMENT RESULTS – CONSUMER-‐RELATED PRODUCTS Turnover Op Margin Operaeng Profit Rm 2018 % ch 2017 2018 2017 2018 % ch 2017 Ongoing 3 128 5,7 2 958 13,2% 14,2% 414 (1,3) 419 opera?ons New 363 93 13,4% 10,2% 48 9 businesses Segment total 3 491 14,4 3 051 13,2% 14,0% 462 7,9 428 § The automo?ve, data
Slide 35: Segment Results – Engineering Consumables
SEGMENT RESULTS – ENGINEERING CONSUMABLES Turnover Op Margin Operaeng Profit Rm 2018 % ch 2017 2018 2017 2018 % ch 2017 Ongoing 2 859 0,8 2 836 8,0% 9,4% 228 (14,1) 265 opera?ons New 51 25 34,7% 27,5% 18 7 businesses Segment total 2 910 1,7 2 861 8,4% 9,5% 246 (9,7) 272 § Deutz Dieselpower and our s
Slide 36: Segment Results 2018
SEGMENT RESULTS 2018 Turnover Op Margin Operaeng Profit Rm 2018 % ch 2017 2018 2017 2018 % ch 2017 Consumer-‐ related 3 491 14,4 3 051 13,2% 14,0% 462 7,9 428 products Engineering 2 910 1,7 2 861 8,4% 9,5% 246 (9,7) 272 consumables Head office, shared services (20) (10) (53) (24) & elimina?ons Total G
Slide 37: Financial Review
Hudaco FINANCIAL REVIEW 37
Slide 38: Profit for the Year
PROFIT FOR THE YEAR Rm 2018 % ch 2017 Turnover 6 381 8,1 5 902 -‐ Ongoing opera?ons 5 967 3,2 5 784 -‐ New businesses 414 118 Gross profit 2 321 5,6 2 198 Opera?ng expenses 1 666 9,5 1 522 -‐ Ongoing opera?ons 1 569 4,7 1 499 -‐ New businesses 90 23 -‐ Learnership programme (Maharishi) 7 Operaen
Slide 39: 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 10.3 8 6 4 2 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Operaeng margin (%) 39
Slide 40: Operating Margin for the Year
OPERATING MARGIN FOR THE YEAR % 16 14 13.6 12.9 13.0 12 12.4 12.5 11.4 11.4 11.7 10 10.8 10.7 9.8 10.1 9.8 9.5 8 6 4 2 0 2012 2013 2014 2015 2016 2017 2018 H1 H2 40
Slide 41: Turnover for the Year
TURNOVER FOR THE YEAR R billion 4.0 3.5 3.4 3.0 3.2 3.0 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 2018 H1 H2 41
Slide 42: Profit for the Year
PROFIT FOR THE YEAR Rm 2018 % ch 2017 Operaeng profit 655 (3,0) 676 Net interest on funding (91) (81) Fair value adjustment to amounts due 11 (20) to vendors -‐Adjustment for ?me-‐value of money (23) (22) (imputed interest) -‐Adjustment to es?mated capital value 34 2 Impairment of goodwill and int
Slide 43: Comparable Earnings for the Year
COMPARABLE EARNINGS FOR THE YEAR Rm 2018 % ch 2017 Akributable earnings 381 (4,1) 397 Impairment of goodwill and intangibles 34 Non-‐controlling interest (5) (Profit) loss on disposal of PPE (2) 1 Headline earnings 408 2,6 398 Headline earnings 408 2,6 398 Fair value adjustment to es?mated (34) (2)
Slide 44: Comparable Earnings for the Year
COMPARABLE EARNINGS FOR THE YEAR R million 275 250 243 225 231 200 215 197 175 181 175 172 173 150 164 153 125 139 139 131 123 100 75 50 25 0 2012 2013 2014 2015 2016 2017 2018 1st half 2nd half 44
Slide 45: Earnings per Share and Dividends
EARNINGS PER SHARE AND DIVIDENDS Cents 2018 % ch 2017 Earnings per share Comparable 1 198 (4,2) 1 251 Basic 1 202 (4,1) 1 254 Headline 1 289 2,6 1 256 Dividends per share -‐ Interim 190 5,6 180 -‐ Final 380 0,0 380 Total 570 1,8 560 Dividend cover (emes) 2,1 2,2 45
Slide 46: Statement of Financial Position
STATEMENT OF FINANCIAL POSITION Rm Nov 18 Nov 17 Working capital 2 111 1 751 Property, plant and equipment 277 270 Goodwill and intangibles 1 554 1 550 Investment in joint venture 9 9 Tax 39 16 Net assets 3 990 3 596 Equity 2 579 2 376 Bank borrowings 1 163 860 Due to vendors 214 331 Tax 34 29 Total
Slide 47: Working Capital
WORKING CAPITAL In months of sales 4.5 § Working capital 4.0 tradi?onally 3.5 peaks end of 3.0 H1 to cope with 2.5 an?cipated 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 H1 H2 split 45/55 2011 2012 2013 2014 2015 2016 2017 2018 be
Slide 48: Cash Flow for the Year
CASH FLOW FOR THE YEAR Rm 2018 2017 Cash from trading 760 772 Increase in working capital (292) (61) Cash from operaeons 468 711 Finance costs (91) (81) Tax paid (164) (131) Cash generated aier tax 213 499 Share-‐based payments (18) (16) Dividends paid (211) (177) Dividends received 4 Invested in n
Slide 49: 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 H2 18 -‐1 -‐2 -‐3 Inventory Payables Receivables Net W Cap One month of sales (H2): 2015 = R447m 2016 = R505m 2017 = R539m 2018 = R571m 49
Slide 50: Exchange Rate Environment
EXCHANGE RATE ENVIRONMENT § We import directly 65% of group Import currencies: cost of sales § USD* 69% § On average these cost 5% more in § Euro 24% H2 2018 than H2 2017 § Yen 6% § The average cost for the full year § GBP 1% was the same as 2017 § We do not take a house view on *Imports fro
Slide 51: Summary
SUMMARY § Inventories are up but in fast moving saleable items § Working capital should normalise quickly § Exchange rate impacts working capital requirements § Currency vola?lity makes gross margin difficult to manage § We are well within our banking covenants § Bank facili?es are available §
Slide 52: Outlook
Hudaco OUTLOOK — 52
Slide 53: Outlook – Reminders
OUTLOOK -‐ REMINDERS § Hudaco sales are predominantly driven by GDP ac?vity § Any GDFI adds capacity for future GDP ac?vity § Rand exchange rate has a big impact on pricing and profitability § Hudaco is a decentralised group that is made up of 35 separate businesses • 21 in engineering consumabl
Slide 54: Outlook 2019
OUTLOOK 2019 § We don’t see much change in the economy before elec?ons in May § We s?ll expect the posi?ve impact of President Ramaphosa’s “growth ini?a?ves” to come through, but only towards the end of the year § Hudaco is resilient and our businesses are well placed to benefit immediately from a
Slide 55: Contact Details
CONTACT DETAILS Graham Dunford Clifford Amoils Chief execu?ve Financial director Tel +27 11 657 5004 Tel +27 11 657 5002 grahamd@hudaco.co.za camoils@hudaco.co.za www.hudaco.co.za 55
Slide 56: Disclaimer
DISCLAIMER The preceding presenta?on contains forward looking statements about the Hudaco Group’s opera?ons and financial posi?on. They are prepared in good faith and are based on Hudaco’s best es?mates and informa?on at the ?me of preparing the presenta?on. They are nonetheless subject to significant