Hudaco Industries Limited · JSE:HDC
Hudaco Industries — FY2011 Earnings Presentation
45 slides from Hudaco Industries's earnings presentation, Nov 30, 2011
Slide 1: Audited Group Results
Audited Group Results For the year ended 30 November 2011
Slide 2: Agenda
Agenda Introduction to Hudaco The Hudaco business model Operating segments and recent acquisitions Financial statements Outlook 22
Slide 3: 2011 Highlights
2011 Highlights Sales up 29% to R3.2bn Operating profit up 42% to R426m HEPS up 28% to 1024c Dividends up 26% to R4.40 ROE 23.8%, up from 18.9% Acquisitions add significantly to earnings Strong balance sheet Good prospects 33
Slide 4: Market information
Market information Market capitalisation R 3bn @ R95 Free Float 100%, no control P:E ratio @ R95 9.3x Dividend yield @ R95 4.6% Annual Trade (to Nov) 2008 R 974m 2009 R 791m 2010 R 822m 2011 R 757m 4
Slide 5: Value added for shareholders
Value added for shareholders Heps 5-yr CAGR: 14.0% 2011 Sunday Times Top 100 No. 20 over 10 years No. 42 over 5 years IAS reporting award – market cap under R5bn 55th in 2011 Financial Mail Top 200 Cash generative and attractive dividend yield Offers organic and acquisitive growth 5
Slide 6: Major shareholders/ fund managers
Major shareholders/ fund managers At 25 November 2011 Old Mutual 32% Foord 11 Nedgroup Investments 9 Investec 7 Govt Employees Pension Fund 7 Abax 7 Sanlam 5 Momentum 4 82% probably some double counting 6
Slide 7: The Hudaco business model
The Hudaco business model
Slide 8: The Hudaco business model
The Hudaco business model Hudaco’s business is the importation and distribution of branded industrial consumable products generally used in the repair and maintenance of machines The concept of “value added distribution” is core to our business model Agency agreements generally restricted to A
Slide 9: Features of value added distribution
Features of value added distribution Value add is: Instant availability Inventory R813m in 21 warehouses: Application advice 4 to 6 month supplier lead times Technical specification 600 international suppliers Training 225 000 line items Credit provision Receivables R616m: Technicall
Slide 10: Progress on strategic objectives
Progress on strategic objectives Objective Progress 4 businesses acquired in last 15 More aggressive on acquisitions months Increase exports into Africa Up 48% in 2011 2 black members on Exco Increase black representation in 2 businesses headed by black management people 2 new FDs are black women 10
Slide 11: Operating segments and acquisitions
Operating segments and acquisitions
Slide 12: 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 12
Slide 13: Operating segments
Operating segments Engineering consumables Bearings Power transmission products Diesel engines and spares Consumer related products Power tools Security equipment Professional communication equipment Automotive aftermarket products 13
Slide 14: 2011 segment sales by market sector
2011 segment sales by market sector Engineering consumables Consumer related products (%) Manufacturing 35 8 Mining 33 5 Security 0 68 31 Wholesale/retail 9 16 Automotive 6 12 Exports 5 12 Construction 5 6 Agriculture 4 2 Public sector 1 8 Other 2 0 14
Slide 15: Segment contributions
Segment contributions Contribution to 2011 operating profit (before shared services and head office) 15
Slide 16: Engineering consumables
Engineering consumables Principal Businesses Principal Brands Competitors: Used for: Repairs BMG Maintenance SKF Expansion Altron Resale Siemens New capex Hytec Underground Zest equipment Caterpillar Gen sets Cummins Big customers: Sandvik Main markets: Toyota Esk
Slide 17: Engineering consumables
Engineering consumables BI and Bosworth both had strong H2 Sales to neighbouring countries strong FHS and DDP performed particularly well 17
Slide 18: Consumer related products
Consumer related products Used for: Competitors: Principal Businesses Principal Brands Woodworking Bosch Grinding Hitachi Renovations Metabo Boating Yamaha Intruder detection ADI Access control Inhep Video monitoring Texacom Communication Luk Motorolla Big customers: Main markets:
Slide 19: Consumer related products
Consumer related products Industrial power tool sales up strongly Analogue to digital migration drives profits at Global Sales of security products still muted Automotive aftermarket showing signs of life 19
Slide 20: 2011 acquisitions
2011 acquisitions Global Communications Distributor of professional mobile radio communication equipment and radio systems integrator Brands: Kenwood, JVC Pentagon Distribution of electronic security products, specialising in video IP Brands: Bosch, Arecont, Dell Midrand Special Steels Dis
Slide 21: Segment results – Engineering consumables
Segment results – Engineering consumables Turnover Op Margin(%) Operating Profit 2011 % ch 2010 2011 2010 2011 % ch 2010 Rm Ongoing 1 852 10% 1 685 11.3% 11.4% 210 9% 192 operations New businesses 335 65 19.1% 21.5% 64 14 Segment total 2 187 25% 1 750 12.5% 11.8% 274 33% 206 21
Slide 22: Segment results – Consumer related products
Segment results – Consumer related products Turnover Op Margin(%) Operating Profit 2011 % ch 2010 2011 2010 2011 % ch 2010 Rm Ongoing 760 6% 716 15.9% 16.3% 121 3% 117 operations New businesses 246 17.1% 42 Segment total 1 006 41% 716 15% 16.3% 163 39% 117 22
Slide 23: Segment results 2011
Segment results 2011 Turnover Op Margin(%) Operating Profit 2011 % ch 2010 2011 2010 2011 % ch 2010 Rm Engineering 2 187 25% 1 750 12.5% 11.8% 274 33% 206 consumables Consumer 1 006 41% 716 16.2% 16.3% 163 39% 117 related products Head office, shared services -11 -8 -11 -23 & eliminations Total Grou
Slide 24: Results highlights
Results highlights Weak H1 but stronger H2 HEPS up 12% without acquisitions 2 under performers in H1 recovered well in H2 Acquisitions add R1.28 to HEPS in 2011 Positive impact of weaker rand felt from November 2011 Operating profit to sales – 13.4% RONTA – 46% Cash on hand – R169m (
Slide 25: Financial statements: Income, financial position and cash flow
Financial statements: Income, financial position and cash flow
Slide 26: Profit for the year
Profit for the year Rm 2011 % Ch 2010 Turnover 3 182 29 2 458 - Ongoing operations 2 601 9 2 393 - New businesses 581 65 Gross profit 1 272 28 994 Operating expenses 846 22 694 Operating profit 426 42 300 - Ongoing operations 320 12 286 - New businesses 106 14 Margin (%) Turnover 100.0 100.0 Gross p
Slide 27: Profit for the year
Profit for the year Rm 2011 % Ch 2010 Operating profit 426 42 300 Impairment of goodwill & (22) intangibles Net interest on working capital 4 17 Interest paid to vendors (imputed) (14) (2) Interest paid on sub. debentures (233) (233) Preference dividend received 201 201 Profit before taxation 384 47
Slide 28: Earnings per share and dividends
Earnings per share and dividends 2011 % Ch 2010 Earnings per share Basic eps 1 026c 38 745c Headline earnings per share 1 024c 28 800c Dividends per share Interim 130c 115c Final 310c 235c Total 440c 26 350c Dividend policy: annual dividends = approximately 40% of HEPS 28
Slide 29: Statement of financial position
Statement of financial position Rm Nov 11 Oper Div Acq Nov 10 Working capital 841 127 48 666 Property plant equipment 182 41 10 131 Goodwill and intangibles 565 -11 211 365 Tax 3 -1 -13 17 Net operating assets 1 591 156 256 1 179 Cash 169 180 -125 -148 262 Investment in pref shares 2 181 2 181 Net a
Slide 30: Working capital – at normal levels
Working capital – at normal levels One month of sales: H2 2011 = R 296m; H2 2010 = R 224m (assumes all acquisitions in for full 6 months) Working capital traditionally peaks end of H1 to cope with anticipated increased seasonal demand in H2 - sales are generally split 45:55 between H1 and H2 (2011
Slide 31: Working capital – elements in months sales
Working capital – elements in months sales One month of sales in H2 ’11= R296m H2 ’10= R224m 31
Slide 32: Capacity for growth
Capacity for growth Debt comfort levels: 50% of equity Net interest 5 times covered Capacity R500m – without issuing shares Cash of R169m Generate R100m -R150m cash per annum Earn-out payments over 3 years – R262m Acquisition pipeline includes some interesting prospects 32
Slide 33: Exchange rate environment
Exchange rate environment We import directly 75% of US Dollar Euro Index group cost of sales (as do our 150 competitors) 140 On average these cost 8% 130 120 more in H2 2011 than H1 Index 110 2011 100 We do not take a house view 90 on exchange rates 80 2004 2005 2006 2007 2008 2009 2010 2011
Slide 34: 10 year operating margin performance
10 year operating margin performance 20 15.4 15 14.3 12.7 13.4 12.7 12.2 11.0 11.2 11.8 9.8 10 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Operating margin (%) 34
Slide 35: Summary
Summary Earnings are strong Working capital in line Healthy financial position Cash has been deployed successfully into new businesses Capacity remains for more acquisitions Rand weakness positive for Hudaco in 2012 earnings to increase inventory to increase Taxation of preference
Slide 36: Outlook
Outlook
Slide 37: 2011 sales by market sector
2011 sales by market sector % Manufacturing 27 Mining 24 Wholesale & retail 11 Security 10 Automotive 8 Exports 7 Construction 5 Other 8 37
Slide 38: Outlook - reminders
Outlook - reminders Hudaco sales are predominantly driven by GDP activity GDFI adds capacity for future GDP activity Rand exchange rate has a big impact on pricing Hudaco has immediate balance sheet investment capacity of about R500m 38
Slide 39: Outlook by segment
Outlook by segment Engineering consumables Shortage of electricity and rail capacity in South Africa still constrains expansion (nationalisation threats don’t help either) Mining investment in neighbouring countries picking up in response to more friendly investment environment Manufacturing a
Slide 40: Outlook by segment
Outlook by segment Consumer related products Market for industrial power tool market remains strong – Makita gaining market share Analogue to digital migration gathering pace Automotive parts aftermarket responding to recent rise in consumer spending Security equipment market to remain muted
Slide 41: General outlook for 2012
General outlook for 2012 Rand weakness typically leads to increased activity in mining and manufacturing markets Mining and manufacturing project work to pick up in anticipation of power and rail capacity improving Outlook in neighbouring countries currently more positive Sales of power tool
Slide 42: Business outlook for 2012
Business outlook for 2012 Volume sales up Prices up Margins up Earnings up 42
Slide 43: Contact details
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 www.hudaco.co.za 43
Slide 44: 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
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