Hudaco Industries Limited · JSE:HDC

Hudaco Industries — FY2016 Earnings Presentation

50 slides from Hudaco Industries's earnings presentation, November 2016

  1. Slide 1: Results Presentation for the Year Ended 30 November 2016

    RESULTS PRESENTATION FOR THE YEAR ENDED 30 NOVEMBER 2016

  2. Slide 2: Agenda

    AGENDA § Overview and highlights of the year § The Hudaco business model § OperaIng segments and acquisiIons update § Financial review § Outlook 2

  3. Slide 3: Overview and Highlights of the Year

    OVERVIEW AND HIGHLIGHTS OF THE YEAR 3

  4. Slide 4: Overview and Highlights of the Year

    OVERVIEW AND HIGHLIGHTS OF THE YEAR § A year of two halves • First half well down on an outstanding 2015 • Excellent second half performance § Growth in the manufacturing sector from acquisiIons § Growth from businesses supplying to the automoIve sector § Successful acquisiIons in stronger econo

  5. Slide 5: Results Summary

    RESULTS SUMMARY Turnover Up 6% to R 5.5bn OperaIng profit Up 6% to R 639m Cash generated from operaIons Up 51% to R749m Basic and headline earnings Up 5% Comparable earnings Marginally up to 1 171 cps Dividends per share Maintained at 525 cps Net borrowings Down R111m Return on average equity 21% 5

  6. Slide 6: Market Information

    MARKET INFORMATION Market capitalisaIon @ R114 per share R 3.6bn Free Float 100% -­‐ no control P:E raIo @ R114 (ceps) 9.7x Dividend yield @ R114 4.6% Annual Trade (to Nov) 2011 R 757m 2012 R 1 062m 2013 R 1 496m 2014 R 1 354m 2015 R 2 007m 2016 R 1 341m 6

  7. Slide 7: Major Shareholders / Fund Managers

    MAJOR SHAREHOLDERS / FUND MANAGERS § PSG Group 13% § PIC/Govt Employees Pension Fund 10% § Old Mutual 10% § PrudenIal 7% § Sanlam Group 7% § 36ONE 4% § Foord 4% § Nedgroup Investments 4% § Dunford Holdings 3% 62% Possibly some double counWng 7

  8. Slide 8: Cumulative Operating Profit

    CUMULATIVE OPERATING PROFIT Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 2016 2015 2014 8

  9. Slide 9: The Hudaco Business Model

    Hudaco THE HUDACO BUSINESS MODEL

  10. Slide 10: The Hudaco Business Model

    THE HUDACO BUSINESS MODEL § Hudaco’s main business is the importaIon and distribuIon of high quality branded automoIve, industrial and electrical consumable products § The concept of “value added distribuIon” is core to our business model § Agency agreements generally restrict our acIviIes to Afr

  11. Slide 11: Features of Value Added Distribution

    FEATURES OF VALUE ADDED DISTRIBUTION Value add is: Inventory R 1 508m in 35 warehouses: § Instant availability § 4 to 6 month supplier lead Imes § ApplicaIon advice § 800 internaIonal suppliers § Technical specificaIon § over 230 000 line items § Training § Credit provision Receivables R 1 04

  12. Slide 12: Operating Segments and Acquisitions Update

    OPERATING SEGMENTS AND ACQUISITIONS UPDATE 12

  13. Slide 13: Operating Segments

    OPERATING SEGMENTS § Consumer-­‐related products distributes products driven by consumer spending and generally sold to installers § Engineering consumables imports and distributes branded engineering consumables generally used in the repair and maintenance of machines 13

  14. Slide 14: Operating Segments

    OPERATING SEGMENTS Consumer-­‐related products (10 businesses) § AutomoIve acermarket products § Power tools § Baderies § Professional communicaIon equipment § Security equipment § Data networking equipment Engineering consumables (20 businesses) § Mechanical power transmissions § Electrical

  15. Slide 15: 2016 Sales by Market Sector (%)

    2016 SALES BY MARKET SECTOR (%) Wholesale and retail 22 AutomoWve 19 Manufacturing 16 Mining 13 Exports 10 Security 9 AlternaWve energy 4 ConstrucWon 3 Agriculture 2 Public sector 1 Other 1 15

  16. Slide 16: 2016 Sales by Market Sector (%)

    2016 SALES BY MARKET SECTOR (%) Consumer-­‐related products Engineering consumables Manufacturing 2 30 AutomoWve 31 6 Wholesale and retail 26 17 Mining 2 25 Exports 11 10 Security 18 0 AlternaWve energy 7 1 ConstrucWon 1 5 Public sector 2 0 Agriculture 0 5 Other 0 1 16

  17. Slide 17: Segment by Contribution

    SEGMENT BY CONTRIBUTION 2010 ContribuWon to 2016 operaWng profit 64% (before shared services and head office) 36% 39% 61% Consumer-­‐related products Engineering consumables 17

  18. Slide 18: Consumer-Related Products

    CONSUMER-­‐RELATED PRODUCTS Principal Businesses Principal Brands Main markets: Used for: CompeWtors: § Armed response providers § Access control § ADI § AutomoIve acermarket § BoaIng § Bosch § CommunicaIon § Hitachi § Building addiIons § Data networking § Inhep § Building finishing § Gr

  19. Slide 19: Engineering Consumables

    ENGINEERING CONSUMABLES Principal Businesses Principal Brands Main markets: Used for: CompeWtors: § AutomoIve § Expansion § Altron / Altech § Exports § Gensets § BMG § Manufacturing § Maintenance § Caterpillar § Mining § Mining § Cummins § Wholesale and Retail § Repairs § Hytec § Res

  20. Slide 20: Acquisitions

    AQUISITIONS Successful acquisiIons in stronger economic sectors are conInuing to diversify our revenue base 2016 § HERS § All-­‐Trade § MiRO § Brewtech Engineering 2017 § SS Telecoms § Commercial ICT 20

  21. Slide 21: Impact of Acquisitions

    IMPACT OF ACQUISITIONS MiRO Turnover (Rm) Brewtech HERS SS Telecoms 6 000 All-­‐Trade Sanderson 5 500 Berntel Donsteel Partquip 5 000 Three-­‐D S.B.S Dosco Group 4 500 Keymak Proof Deltec 4 000 M.S.S. Pentagon 3 500 FHS Global 3 000 2 500 2 000 2009 2010 2011 2012 2013 2014 2015 2016 21

  22. Slide 22: 2016 Acquisitions: MiRO

    2016 ACQUISITIONS MiRO § Distributor of data networking equipment including: " • Broadband wireless products • Surveillance products • Wi-­‐Fi and Hotspot equipment § EsImated price R254m § 3 year earn-­‐out § CompeItors : Duxbury, Westcon, Nology and Sensor 22

  23. Slide 23: 2016 Acquisitions: Brewtech Engineering

    2016 ACQUISITIONS Brewtech Engineering § Distributor of: " • PlasIc and steel products for conveyors • Customer base is in the food and beverage market, especially bodling industry § EsImated price R47m § 3 year earn-­‐out § CompeItors : iwis, IRP, Engineering PlasIcs, Nusaf and BMG 23

  24. Slide 24: 2017 Acquisitions: SS Telecoms

    2017 ACQUISITIONS SS Telecoms § Supplier of: " • Voice and data soluIons, specialising in PBX, communicaIon management socware and telephone management § EsImated price R60m § 3 year earn-­‐out § CompeItors : Mia Telecoms, Arbalest 24

  25. Slide 25: Segment Results – Consumer-Related Products

    SEGMENT RESULTS – CONSUMER-­‐RELATED PRODUCTS Turnover Op Margin OperaWng Profit Rm 2016 % ch 2015 2016 2015 2016 % ch 2015 Ongoing 2 553 (1.9) 2 603 14.6% 14.6% 372 (2.1) 380 operaIons New 249 13.3% 33 businesses Segment total 2 802 7.6 2 603 14.5% 14.6% 405 6.6 380 § Rutherford power tool sales do

  26. Slide 26: Segment Results – Engineering Consumables

    SEGMENT RESULTS – ENGINEERING CONSUMABLES Turnover Op Margin OperaWng Profit Rm 2016 % ch 2015 2016 2015 2016 % ch 2015 Ongoing 2 531 (3.4) 2 621 8.8% 9.9% 222 (14.3) 259 operaIons New 208 14 15.9% 7.1% 33 1 businesses Segment total 2 739 4.0 2 635 9.3% 9.9% 255 (1.9) 260 § Strong H2 § AcquisiIons

  27. Slide 27: Segments Results 2016

    SEGMENTS RESULTS 2016 Turnover Op Margin OperaWng Profit Rm 2016 % ch 2015 2016 2015 2016 % ch 2015 Consumer-­‐ related 2 802 7.6 2 603 14.5% 14.6% 405 6.6 380 products Engineering 2 739 4.0 2 635 9.3% 9.9% 255 (1.9) 260 consumables Head office, shared services (7) (8) (21) (35) & eliminaIons Total Gro

  28. Slide 28: Financial Review

    Hudaco FINANCIAL REVIEW

  29. Slide 29: Profit for the Year

    PROFIT FOR THE YEAR Rm 2016 % ch 2015 Turnover 5 534 5.8 5 230 -­‐ Ongoing operaIons 5 077 (2.7) 5 216 -­‐ New businesses 457 14 Gross profit 1 998 4.2 1 917 OperaWng expenses 1 359 3.6 1 312 OperaWng profit 639 5.6 605 -­‐ Ongoing operaIons 573 (5.2) 604 -­‐ New businesses 66 1 Margin (%) Turnover 10

  30. Slide 30: Long Term Operating Margin Performance

    LONG TERM OPERATING MARGIN PERFORMANCE 18 16 15.4 14 14.3 13.4 12 12.7 12.7 12.5 12.2 11.9 11.6 11.6 10 11.0 8 6 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 OperaWng margin (%) 30

  31. Slide 31: Operating Margin per Half Year

    OPERATING MARGIN PER HALF YEAR % 18 16 14 12 10 8 6 2011 2012 2013 2014 2015 2016 H1 H2 Full year 31

  32. Slide 32: Operating Margin per Half Year

    OPERATING MARGIN PER HALF YEAR % 18 16 15.6 14 13.6 12 12.9 13.0 12.4 11.4 11.4 11.7 10 10.6 10.8 9.5 9.8 8 6 4 2 0 2011 2012 2013 2014 2015 2016 H1 H2 32

  33. Slide 33: Turnover by Half Year

    TURNOVER BY HALF YEAR R Billion 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2011 2012 2013 2014 2015 2016 H1 H2 33

  34. Slide 34: Turnover by Half Year

    TURNOVER BY HALF YEAR R Billion 3.5 3.0 3.0 2.5 2.7 2.6 2.5 2.4 2.0 2.1 2.1 1.9 1.8 1.8 1.5 1.6 1.4 1.0 0.5 0.0 2011 2012 2013 2014 2015 2016 H1 H2 34

  35. Slide 35: Profit for the Year

    PROFIT FOR THE YEAR Rm 2016 % ch 2015 OperaWng Profit 639 5.6 605 Fair value adjustment to amounts due 19 (2) to vendors Net interest on funding (87) (73) Interest paid to vendors (imputed) (13) (3) Profit before taxaWon 558 5.7 527 TaxaIon 148 141 (Rate 2016 : 27% 2015: 27%) Profit aher tax 410 6.3 38

  36. Slide 36: Comparable Earnings for the Year

    COMPARABLE EARNINGS FOR THE YEAR Rm 2016 2015 Aiributable earnings 388 369 Profit on PPE (1) (1) Headline earnings 387 368 Fair value adjustment of vendor liability (19) 2 Non-­‐controlling interest 2 Comparable earnings 370 370 36

  37. Slide 37: Comparable Earnings by Half Year

    COMPARABLE EARNINGS BY HALF YEAR 250 225 231 200 197 175 188 181 175 172 173 150 125 139 139 131 123 100 103 75 50 25 0 2011 2012 2013 2014 2015 2016 1st half 2nd half 37

  38. Slide 38: Earnings per Share and Dividends

    EARNINGS PER SHARE AND DIVIDENDS Cents 2016 % 2015 Earnings per share Comparable eps 1 171 0.2 1 169 Basic eps 1 226 5.3 1 164 Headline eps 1 222 5.1 1 163 Dividends per share -­‐ Interim 170 180 -­‐ Final 355 345 Total 525 525 Dividend cover (Wmes) 2.23 2.23 38

  39. Slide 39: Cash Flow for the Year

    CASH FLOW FOR THE YEAR Rm 2016 % 2015 Cash from trading 708 8.4 653 Decrease (increase) in working capital 41 (157) Cash from operaWons 749 51.0 496 Fair value adjustment of cash flow hedges & (9) 4 translaIon Finance costs (87) (73) Tax paid excluding tax sedlement (174) (186) Cash generated before

  40. Slide 40: Statement of Financial Position

    STATEMENT OF FINANCIAL POSITION Rm Nov 16 Nov 15 Working capital 1 656 1 595 Property, plant equipment 256 261 Goodwill and intangibles 1 311 1 070 Investment in joint venture 7 7 Tax 29 17 Net assets 3 259 2 950 Equity 2 130 1 895 Bank borrowings 905 1 016 Due to vendors 224 39 Total equity and lia

  41. Slide 41: Working Capital

    WORKING CAPITAL In months of sales 4.5 § Working capital 4.0 tradiIonally 3.5 peaks end of H1 to cope with 3.0 anIcipated 2.5 increased 2.0 seasonal 1.5 demand in H2 1.0 0.5 § Sales generally 0.0 split 45/55 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 between H1 and H2 (2016 : 2011 2012 2013 2014 2015 201

  42. Slide 42: 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 -­‐1 -­‐2 -­‐3 Inventory Payables Receivables Net W Cap One month of sales: H2 2016 = R505m H2 2015 = R447m 42

  43. Slide 43: Exchange Rate Environment

    EXCHANGE RATE ENVIRONMENT 180 US Dollar Euro Index § We import directly 65% of 170 160 group cost of sales 150 § On average these cost 19% 140 more in 2016 than 2015 130 120 § We do not take a house view 110 on exchange rates 100 § We hedge all liabiliIes and 90 80 20% -­‐ 30% of orders 70 2009

  44. Slide 44: Summary

    SUMMARY § Businesses generate strong cash flows § We conInue to invest successfully in new businesses § Using surplus cash to repay borrowings § Exchange rate impacts working capital requirements § Bank faciliIes are available § Capacity remains for acquisiIons § Hudaco is resilient and the re

  45. Slide 45: Outlook

    Hudaco OUTLOOK 5 —

  46. Slide 46: Outlook - Reminders

    OUTLOOK -­‐ REMINDERS § Hudaco sales are predominantly driven by GDP acIvity § GDFI adds capacity for future GDP acIvity § Rand exchange rate has a big impact on pricing and profitability § Hudaco is a decentralised group that is made up of 30 separate businesses § There are 20 businesses in our

  47. Slide 47: Outlook 2017

    OUTLOOK 2017 Ceteris paribus, factors that should impact posiIvely on 2017: § We ended the year strongly and several businesses have come into the new year with much healthier order books; § There are signs of improvement in certain sectors in which we operate; § Mining and manufacturing are bene

  48. Slide 48: Contact Details

    CONTACT DETAILS Graham Dunford Clifford Amoils Chief execuIve Financial director Tel +27 11 657 5004 Tel +27 11 657 5002 grahamd@hudaco.co.za camoils@hudaco.co.za www.hudaco.co.za 48

  49. Slide 49: Disclaimer

    DISCLAIMER The preceding presentaIon contains forward looking statements about the Hudaco Group’s operaIons and financial posiIon. They are prepared in good faith and are based on Hudaco’s best esImates and informaIon at the Ime of preparing the presentaIon. They are nonetheless subject to significant

  50. Slide 50: Results Presentation for the Year Ended 30 November 2016

    RESULTS PRESENTATION FOR THE YEAR ENDED 30 NOVEMBER 2016

Hudaco Industries — FY2016 Earnings Presentation on 6ix