Hudaco Industries Limited · JSE:HDC
Hudaco Industries — FY2019 Earnings Presentation
52 slides from Hudaco Industries's earnings presentation, November 2019
Slide 1: Results Presentation for the Year Ended 30 November 2019
RESULTS PRESENTATION FOR THE YEAR ENDED 30 NOVEMBER 2019
Slide 2: Overview
OVERVIEW § A poorly performing economy has become the “new norm” for South Africa § Difficult trading conditions in 2019 • Load shedding, delays at the ports, policy uncertainty, inaction from the government, rising government debt and rising unemployment • Rand volatility throughout the year • In t
Slide 3: Hudaco
Hudaco
Slide 4: Agenda
AGENDA § Results summary and market information § General business environment § Business model and operating segments § Financial review § Outlook 4
Slide 5: Results Summary 2019
RESULTS SUMMARY 2019 Turnover 5,1% to R6,7bn Operating profit 6,9% to R701m Basic earnings 12,7% to 1 355 cps Headline earnings 5,1% to 1 355 cps Comparable earnings 3,5% to 1 240 cps Final dividend per share 7,9% to 410cps Cash generated from operations 82% to R853m 5
Slide 6: Market Information
MARKET INFORMATION Market capitalisation @ R100 per share R 3,2 bn Free Float 100% - no control P:E ratio @ R100 (ceps) 8x Dividend yield @ R100 6,0% Annual trade (to Nov) 2015 54% (% of shares on market) 2016 41% 2017 31% 2018 27% 2019 22% 6
Slide 7: Major Shareholders / Fund Managers
MAJOR SHAREHOLDERS / FUND MANAGERS § PSG Asset Management 15% § Public Investment Corporation 10% § Old Mutual Investment Group 8% § Investec Asset Management 4% § Prudential Portfolio Managers 3% § Bateleur Capital 3% § Dimensional Fund Advisors 3% § Foord Asset Management 3% § Dunford Group 3% § V
Slide 8: General Business Environment
GENERAL BUSINESS ENVIRONMENT 8
Slide 9: General Business Environment
GENERAL BUSINESS ENVIRONMENT § South Africa is an extremely challenging place to do business § Business confidence at an all time low § This tough environment resulted in lower demand and created aggressive pricing pressure § Consumer spending under pressure § Encouraging growth in exports, mainly p
Slide 10: Exchange Rate Volatility ZAR to US$
EXCHANGE RATE VOLATILITY ZAR TO US＄ R15.5 R15.0 R14.5 R14.0 R13.5 R13.0 2018-11-30 2019-02-28 2019-05-30 2019-08-30 2019-11-29 10
Slide 11: Business Model and Operating Segments
BUSINESS MODEL AND OPERATING SEGMENTS 11
Slide 12: The Hudaco Business Model
THE HUDACO BUSINESS MODEL § Hudaco’s main business is the importation and distribution of high-quality branded automotive, industrial and electronic consumable products § The concept of “value added distribution” is core to our business model § Agency agreements generally restrict our activities to
Slide 13: Operating Segments
OPERATING SEGMENTS § Consumer-related products segment imports and distributes branded 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 13
Slide 14: Features of Value-Added Distribution
FEATURES OF VALUE-ADDED DISTRIBUTION Inventory R1 720m in 36 warehouses: Value add is: § 4 to 6-month supplier lead times § Instant availability § 800 international suppliers § Application advice § over 230 000 line items § Technical specification § Training § over 140 branches § Credit provision Re
Slide 15: Operating Segments
OPERATING SEGMENTS Consumer-related products (14 businesses) § Automotive aftermarket products § Power tools and fasteners § Data and communication equipment § Batteries § Security equipment Engineering consumables (21 businesses) § Bearings and belting § Diesel engines and spares § Electrical power
Slide 16: Decentralised Structure
DECENTRALISED STRUCTURE § Many businesses across many sectors § Many products in many industries § Diversification reduces risk § Decentralised focused management - specialists § Quick decision making, control and accountability 16
Slide 17: Contribution by Segment
CONTRIBUTION BY SEGMENT Contribution 2019 operating profit 35% (before shared services and head office) 65% 2018 40% 60% Consumer-related products Engineering consumables 17
Slide 18: 2019 Sales by Market Sector
2019 SALES BY MARKET SECTOR (%) Wholesale and retail 26 Automotive 19 Manufacturing 15 Mining 13 Exports 11 Security 7 Alternative energy 4 Construction 2 Agriculture 2 Public sector 1 18
Slide 19: 2019 Sales by Market Sector
2019 SALES BY MARKET SECTOR (%) Consumer-related products Engineering consumables Manufacturing 4 27 Automotive 30 6 Wholesale and retail 35 15 Mining 2 25 Exports 7 16 Security 13 0 Alternative energy 7 1 Construction 0 5 Public sector 1 1 Agriculture 1 4 19
Slide 20: Consumer-Related Products: Automotive Aftermarket
CONSUMER-RELATED PRODUCTS AUTOMOTIVE AFTERMARKET Principal Businesses Principal Brands Main markets Used for § Automotive aftermarket § Light duty clutch kits § Automotive parts and accessories § Ignition leads § Construction machinery § Truck clutch components § Spares shops § Automotive oil seals
Slide 21: Consumer-Related Products: Power Tools and Fasteners
CONSUMER-RELATED PRODUCTS POWER TOOLS AND FASTENERS Principal Businesses Principal Brands Main markets Used for § Construction § Building § Mining § Installations § D.I.Y § D.I.Y. § Agriculture § Propulsion of boats § Recreational boating § Fastening in all industries § Commercial marine § Surveying
Slide 22: Consumer-Related Products: Data and Communication Equipment
CONSUMER-RELATED PRODUCTS DATA AND COMMUNICATION EQUIPMENT Principal Businesses Principal Brands Main markets Used for § Military and police § Mobile communication § Mining § Control centres § Municipal § Personal communication § Security § Residential/commercial telephony § Transport § Data solutio
Slide 23: Consumer-Related Products: Batteries
CONSUMER-RELATED PRODUCTS BATTERIES Principal Businesses Principal Brands Main markets Used for § UPS / standby batteries § Back-up power (UPS, inverters, alarms) § Solar system § Solar systems § Security § Generator starting § Motor industry § Motor vehicles § Mining § Underground locomotive tracti
Slide 24: Consumer-Related Products: Security Equipment
CONSUMER-RELATED PRODUCTS SECURITY EQUIPMENT Principal Businesses Principal Brands Main markets Used for § Residential security § Intrusion detection § Commercial security § Video surveillance § Project consultants § Access control § Systems integrators § Perimeter detection § Fire detection § Data
Slide 25: Segment Results – Consumer-Related Products
SEGMENT RESULTS – CONSUMER-RELATED PRODUCTS Turnover Op Margin Operating Profit Rm 2019 % ch 2018 2019 2018 2019 % ch 2018 Ongoing 3 389 (0,1) 3 392 11,5% 13,3% 391 (13,3) 451 operations New 200 99 14,7% 11,1% 30 11 businesses Segment total 3 589 2,8 3 491 11,7% 13,2% 421 (9,0) 462 § The back-up pow
Slide 26: Engineering Consumables: Bearings and Belting
ENGINEERING CONSUMABLES BEARINGS AND BELTING Principal Businesses Principal Brands Main markets Used for § Mining § Mining equipment § Construction § Process control and measurement § Power generation § General machinery and equipment § General industry § Maintenance § Automotive OEM’s § Automotive
Slide 27: Engineering Consumables: Electrical Power Transmission
ENGINEERING CONSUMABLES ELECTRICAL POWER TRANSMISSION Principal Businesses Principal Brands Main markets Used for § Mining § Electrification of mobile machinery § Wholesale and retail § Connection of electrical power in industry § Materials handling § Maintenance and repairs § Ports § Electrical pan
Slide 28: Engineering Consumables: Hydraulics and Pneumatics
ENGINEERING CONSUMABLES HYDRAULICS AND PNEUMATICS Principal Businesses Principal Brands Main markets Used for § Industrial § Industrial automation § Manufacturing § Process automation § Food processing plants § Breweries § Mining § Mining equipment § Fluid conveyance & control 28
Slide 29: Engineering Consumables: Specialised Steel
ENGINEERING CONSUMABLES SPECIALISED STEEL Principal Businesses Principal Brands Main markets Used for § Mining § Mining equipment § Manufacturing § Sugar processing § Pressure vessels § General steel applications § Road tankers § Pressure vessel ends § Sugar industry § Petro-chemical plants § Genera
Slide 30: Engineering Consumables: Other
ENGINEERING CONSUMABLES OTHER Principal Businesses Principal Brands Main markets Used for § Mining § Materials handling § Earthmoving equipment § Oil, air, fuel and hydraulic filtration § Opencast mining § Industrial air filtration § Construction § Condensate drain management § On and off-road truck
Slide 31: Segment Results – Engineering Consumables
SEGMENT RESULTS – ENGINEERING CONSUMABLES Turnover Op Margin Operating Profit Rm 2019 % ch 2018 2019 2018 2019 % ch 2018 Ongoing 3 097 6,4 2 910 9,1% 8,4% 282 14,6 246 operations New 23 9,8% 2 businesses Segment total 3 120 7,2 2 910 9,1% 8,4% 284 15,5 246 § Deutz Dieselpower and Bosworth had a very
Slide 32: Segment Results 2019
SEGMENT RESULTS 2019 Turnover Op Margin Operating Profit Rm 2019 % ch 2018 2019 2018 2019 % ch 2018 Consumer- related 3 589 2,8 3 491 11,7% 13,2% 421 (9,0) 462 products Engineering 3 120 7,2 2 910 9,1% 8,4% 284 15,5 246 consumables Head office, shared services (5) (20) (4) (53) & eliminations Total
Slide 33: Financial Review
Hudaco FINANCIAL REVIEW
Slide 34: Profit for the Year
PROFIT FOR THE YEAR Rm 2019 % ch 2018 Turnover 6 704 5,1 6 381 - Ongoing operations 6 481 3,2 6 282 - New businesses 223 99 Gross profit 2 441 5,1 2 321 Operating expenses 1 740 4,4 1 666 - Ongoing operations 1 659 1,3 1 638 - New businesses 81 28 Operating profit 701 6,9 655 - Ongoing operations 66
Slide 35: Long-Term Operating Margin Performance
LONG-TERM OPERATING MARGIN PERFORMANCE % 14 12 11.6 11.6 11.5 11.0 10 10.3 10.4 8 6 4 2 0 2014 2015 2016 2017 2018 2019 Operating margin (%) 35
Slide 36: Operating Margin for the Year
OPERATING MARGIN FOR THE YEAR % 14 13.0 12 12.4 12.5 11.7 11.4 11.4 10 10.7 9.8 10.1 9.8 9.5 9.3 8 6 4 2 0 2014 2015 2016 2017 2018 2019 H1 H2 36
Slide 37: Turnover for the Year
TURNOVER FOR THE YEAR R billion 4.0 3.5 3.5 3.4 3.0 3.2 3.2 3.0 3.0 2.5 2.7 2.7 2.6 2.5 2.4 2.0 2.1 1.5 1.0 0.5 0.0 2014 2015 2016 2017 2018 2019 H1 H2 37
Slide 38: Profit for the Year
PROFIT FOR THE YEAR Rm 2019 % ch 2018 Operating profit 701 6,9 655 Net interest on funding (103) (91) Fair value adjustment to amounts due 30 11 to vendors -Adjustment for time-value of money (12) (23) (imputed interest) -Adjustment to estimated capital value 42 34 Impairment of goodwill and intangi
Slide 39: Comparable Earnings for the Year
COMPARABLE EARNINGS FOR THE YEAR Rm 2019 % ch 2018 Attributable earnings 429 12,7 381 Impairment of goodwill and intangibles 34 Non-controlling interest (5) Profit on disposal of PPE (2) Headline earnings 429 5,1 408 Fair value adjustment to estimated (42) (34) capital value of vendor liabilities No
Slide 40: Comparable Earnings for the Year
COMPARABLE EARNINGS FOR THE YEAR R million 250 243 225 231 227 200 215 197 175 181 173 150 164 165 153 125 139 131 100 75 50 25 0 2014 2015 2016 2017 2018 2019 H1 H2 40
Slide 41: Earnings per Share and Dividends
EARNINGS PER SHARE AND DIVIDENDS Cents 2019 % ch 2018 Earnings per share Comparable 1 240 3,5 1 198 Basic 1 355 12,7 1 202 Headline 1 355 5,1 1 289 Dividends per share - Interim 190 190 - Final 410 7,9 380 Total 600 5,3 570 Dividend cover (times) 2,1 2,1 41
Slide 42: Statement of Financial Position
STATEMENT OF FINANCIAL POSITION Rm Nov 19 Nov 18 Working capital 2 021 2 111 Property, plant and equipment 302 277 Goodwill and intangibles 1 535 1 554 Investment in joint venture 12 9 Tax 48 39 Net assets 3 918 3 990 Equity 2 843 2 579 Bank borrowings 1 008 1 163 Due to vendors 65 214 Tax 2 34 Tota
Slide 43: Working Capital
WORKING CAPITAL In months of sales 4.5 § Working 4.0 capital 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 split 45/55 2014 2015 2016 2017 2018 2019 between H1 and H2 (2019:
Slide 44: Cash Flow for the Year
CASH FLOW FOR THE YEAR Rm 2019 2018 Cash from trading 794 760 Decrease (increase) in working capital 59 (292) Cash from operations 853 468 Finance costs (103) (91) Tax paid (196) (164) Cash generated after tax 554 213 Share-based payments (22) (18) Dividends paid (189) (211) Dividends received 4 Inv
Slide 45: Working Capital Elements
WORKING CAPITAL ELEMENTS In months of sales 4 3 2 1 0 H2 15 H2 16 H2 17 H2 18 H2 19 -1 -2 -3 Inventory Payables Receivables Net W Cap One month of sales (in H2) 2015 = R447m 2017 = R539m 2019 = R588m 2016 = R505m 2018 = R571m 45
Slide 46: Exchange Rate Environment
EXCHANGE RATE ENVIRONMENT § We import directly 65% of group Import currencies: cost of sales § USD* 68% § On average these cost 4% more in § Euro 25% H2 2019 than H2 2018 § Yen 6% § The average cost for the full year § GBP 1% was 8% up on 2018 § We do not take a house view on *Imports from China, Ko
Slide 47: Summary
SUMMARY § Inventories are down R102m § Working capital has normalised as targeted § Focus on working capital management will be sustained § Exchange rate impacts working capital requirements § Currency volatility makes gross margin difficult to manage § Expenses have been tightly managed § Debt (ban
Slide 48: Outlook
Hudaco OUTLOOK 48
Slide 49: 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 diversified group that is made up of 35 separate decentralised businesses • 21 in engineering
Slide 50: Outlook 2020
OUTLOOK 2020 § We don’t see much change in the economy in the year ahead § We urge the President to lead the meaningful action needed from the government on the economic front to kick-start the economy § Consumer-related products face another tough year § Improvement in our fastener business § Batte
Slide 51: 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 51
Slide 52: 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