Hudaco Industries Limited · JSE:HDC
Hudaco Industries — H1 2013 Earnings Presentation
30 slides from Hudaco Industries's earnings presentation, July 2013
Slide 1: Interim results for the six months ended 31 May 2013
._. Hudaco a) Interim results —, For the six months ended 31 May 2013
Slide 2: Agenda
Agenda General business environment Results summary and operating segments Financial review and taxation Outlook
Slide 3: General business environment
General business environment « Global economic environment still weak but there are signs that it is starting on road to normality =» SAeconomy has weakened in the last year = Turmoil in the mining industry has particularly affected Hudaco * Rand volatility makes pricing challenging * Taking tax iss
Slide 4: Results summary and operating segments
Results summary and operating segments
Slide 5: Results summary
Results summary Turnover 14% to R1813m Operating profit 8% to R195m 1.5% to R142m —> | |—p> | | > Headline earnings Comparable earnings per share 4 13% to 440 cps HEPS ft 1.5% to 448 cps Dividends per share => maintained at 155 cps Net borrowings 4 toR148m
Slide 6: Operating background to the results
Operating background to the results * Mining industry under pressure — commodity prices, strikes, infrastructure = Up to 50% of Hudaco’s sales are directly or indirectly into the mining industry » Underground mining (gold and platinum) particularly affected = Opencast mining (mainly iron ore and coa
Slide 7: 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 generally sold to installers = Concept of “value added distribution” is
Slide 8: Operating segments
Operating segments » Engineering consumables co Bearings «o Power transmission products o Diesel engines and spares = Consumer related products a Power tools a Security equipment « Automotive aftermarket products a Professional communication equipment
Slide 9: Acquisitions: Three-D Agencies, a fit with Powermite's cabling business
2013 Three-D Agencies Distributor of specialised cable accessories, test equipment and tools Brands: Betaflex, Uni-T, Stanley Part of strategy to expand electrical transmission range A fit with Powermite’s cabling business Effective date 1 May 2013 Initial payment R21.5m 3 year earn-ou
Slide 10: Engineering consumables and consumer-related products by market
Engineering consumables Consumer-related products (%) Manufacturing 33 13 Mining 34 5 Security 0 67 27 Wholesale/retail 9 19 Automotive 5 11 Exports 6 10 Construction 6 5 Agriculture 4 1 Public sector 1 8 Other 2 1
Slide 11: Contribution to Operating Profit – 6 months to May 2013
Contribution to Operating Profit – 6 months to May 2013 (before shared services and head office)
Slide 12: Turnover and operating profit by segment
Turnover Op Margin(%) Operating Profit 2013 % ch 2012 2013 2012 2013 % ch 2012 Rm Engineering 1 133 6% 1 064 10.5% 11.5% 119 -2% 122 consumables Consumer 684 28% 533 12.4% 12.9% 85 23% 69 related products Head office, shared services -4 -4 -9 -10 & eliminations Total Group 1 813 14% 1 593 10.8% 11.3
Slide 13: Operating profit and margins
Rm 2013 % Ch 2012 Turnover 1 813 14 1 593 - Ongoing businesses 1 664 5 1 586 - Acquisitions in 2012 and 2013 149 7 Gross profit 665 8 613 Operating expenses (470) 9 (432) Operating profit 195 8 181 - Ongoing businesses 180 - 179 - Acquisitions in 2012 and 2013 15 2 Margin (%) Turnover 100.0 100.0 Gr
Slide 14: Financial review and taxation
Financial review and taxation 14
Slide 15: BEE restructuring and tax law changes
In response to the BEE imperative, Hudaco restructured in 2007 Tax law changes meant preference dividend would become fully taxable but had a solution Notice from SARS in Nov 2012 outlined a structure behind our BEE transaction – complete surprise to Hudaco In light of the new information we
Slide 16: SARS assessments and contingent liability
SARS have uncovered complex arrangements connected to our 2007 structure and believe Hudaco was party to them Hudaco had no knowledge or suspicion of these and is confident of refuting the assessments Assessments 2007- 2011 total R1.9bn, including interest and penalties Contingent liability
Slide 17: Income statement down to attributable earnings
Rm 2013 % Ch 2012 Operating profit 195 8% 181 Net interest on working capital (3) (2) Interest paid to vendors (imputed) (3) (5) Interest paid on sub. debentures (58) (117) Preference dividend received 50 101 Profit before taxation 181 15% 158 Taxation (Rate 2013:21% 2012:10%) (38) (16) Profit after
Slide 18: Income statement excluding BEE structure effects
Rm 2013 % Ch 2012 Operating profit 195 8% 181 Net interest on working capital (3) (2) Interest paid to vendors (imputed) (3) (5) Interest paid on sub. debentures - - Preference dividend received - - Profit before taxation 189 9% 174 Taxation (Rate 2013:26% 2012:28%) (49) (49) Profit after taxation 1
Slide 19: Earnings and dividends per share
2013 % Ch 2012 Earnings per share Basic EPS 448c 1.5% 441c Headline earnings per share 448c 1.5% 441c Comparable earnings per share 440c 13% 390c Dividends per share Interim 155c - 155c Final 310c Total 465c Dividend policy: annual dividends = approximately 40% of heps
Slide 20: Balance sheet movements
Rm May 13 Oper Restru Div Acq Nov 12 Working capital 1 154 125 18 1 011 Property, plant equipment 210 4 1 205 Goodwill and intangibles 643 (9) 9 643 Tax (29) (34) 5 Net operating assets 1 978 86 28 1 864 Cash (148) (23) (108) (17) Investment in pref shares - (2 181) 2 181 Net assets 1 830 63 (2 181)
Slide 21: Working capital in months of sales
4.5 4.0 3.5 3.0 In months of sales 2.5 2.0 1.5 1.0 0.5 0.0 H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 One month of sales: H1 2013 = R 305m; H1 2012 = R 269m assumes all acquisitions in for full 6 months Working capital traditionally peaks end of H1 to cope with anticipated increased sea
Slide 22: Cash flow
Rm May 13 May 12 Cash from trading 221 203 Increase in working capital (114) (162) Cash from operating activities 107 41 Net finance costs (12) (23) Tax paid (5) (25) Cash flow from operations 90 (7) Dividends paid (108) (114) Invested in new businesses and property, plant and (114) (62) equipment N
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Slide 24: Hudaco sales driven by GDP activity
Hudaco sales are predominantly driven by GDP activity GDFI adds cream (and adds capacity for future GDP activity) Rand exchange rate has a big impact on pricing
Slide 25: Outlook: engineering consumables
Engineering consumables Low commodity prices have led to contraction of gold and platinum mining in South Africa Shortage of electricity and rail capacity constrains expansion of coal and iron ore mining Lack of common objectives for the mining industry by government, capital and labour also c
Slide 26: Outlook: consumer-related products
Consumer-related products Growth in consumer spending slowing as employment stagnates and social grants reach saturation Industrial power tool sales remains strong but rapid growth is probably behind us Analogue to digital migration gathering pace Security equipment sales up as competitors s
Slide 27: Outlook: group
Tax challenge will take time to resolve but operational management are firmly focused on growing the business Rand weakness is typically good for Hudaco and our customers A pickup in mining and manufacturing activity in response is unlikely in current climate A sustained pickup in commodity
Slide 28: Forward-looking statements
28 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 significan
Slide 29: Contact details
Stephen Connelly Clifford Amoils Chief executive Financial director Tel +27 (11) 657 5001 Tel +27 (11) 657 5002 Fax +27 (86) 532 9524 Fax +27 (86) 681 7862 sjc@hudaco.co.za camoils@hudaco.co.za
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