Slide 1: Presentation to the Investment Analyst Society
PRESENTATION TO THE INVESTMENT ANALYST SOCIETY
Slide 2: Overview
OVERVIEW ! Expected economic turnaround following the appointment of President Ramaphosa has not yet materialised ! The “expropria;on without compensa;on” decision has had a nega;ve effect on investor confidence ! Zuma era hangover contributed to the worst quarter for GDP in 9 years: • mining down 9,9
Slide 3: Agenda
AGENDA ! Results summary ! General business environment and results drivers ! Business model and opera;ng segments ! Financial review ! Outlook 2
Slide 4: Results Summary – H1 2018
RESULTS SUMMARY – H1 2018 Turnover 11% to R3bn Opera;ng profit 8% to R290m Basic and headline earnings 9% to 528 cps Comparable earnings 7% to 517 cps Dividends per share 6% to 190 cps 3
Slide 5: General Business Environment and Results Drivers
GENERAL BUSINESS ENVIRONMENT AND RESULTS DRIVERS 4
Slide 6: 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 disr
Slide 7: Results Drivers – H1 2018
RESULTS DRIVERS – H1 2018 ! Consumer-related segment performed well ! Engineering consumables segment under pressure ! Africa business remains moribund ! The recent acquisi;ons targe;ng markets with stronger growth poten;al performed well ! This diversifica;on strategy con;nues to pay off 6
Slide 8: Operating Segments and Acquisitions Update
OPERATING SEGMENTS AND ACQUISITIONS UPDATE 7
Slide 9: 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 Africa
Slide 10: 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 9
Slide 11: Operating Segments
OPERATING SEGMENTS Consumer-related products (11 businesses) ! Automo;ve aZermarket products ! Power tools ! Ba[eries ! Professional communica;on equipment ! Security equipment ! Data networking equipment Engineering consumables (21 businesses) ! Mechanical power transmission ! Electrical power tran
Slide 12: Contribution by Segment
CONTRIBUTION BY SEGMENT ContribuUon to H1 2018 operaUng profit 39% (before shared services and head office) 61% Full year 2017 68% 32% Consumer-related products Engineering consumables 11
Slide 13: 2017 Sales by Market Sector (%)
2017 SALES BY MARKET SECTOR (%) Wholesale and retail 25 AutomoUve 20 Manufacturing 16 Mining 13 Exports 9 Security 8 AlternaUve energy 3 ConstrucUon 3 Agriculture 2 Public sector 1 12
Slide 14: 2017 Sales by Market Sector (%)
2017 SALES BY MARKET SECTOR (%) Consumer-related products Engineering consumables Manufacturing 3 30 AutomoUve 32 6 Wholesale and retail 33 17 Mining 2 25 Exports 8 10 Security 15 0 AlternaUve energy 6 0 ConstrucUon 0 6 Public sector 1 1 Agriculture 0 4 Other 0 1 13
Slide 15: 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 2017 (a^er Dec 2016) ! Eternity Technologies ! The Dished End Company ! Gear Pump Distributors – UK 14
Slide 16: 2018 Acquisition
2018 ACQUISITION Boltworld ! One of the largest stockists of a wide and comprehensive range of high-quality industrial fasteners " ! Merging into FTS division of Rutherford ! Maximum price R111m, including R24m excess inventory ! Effec;ve date 1 June 2018 15
Slide 17: 2017 Acquisition
2017 ACQUISITION Eternity Technologies ! Supplier of ba[eries, high frequency chargers and related ba[ery equipment to the trac;on ba[ery market " ! They also design, build and manage ba[ery bays for warehouse and distribu;on centres ! Es;mated price R200m ! 3 year earn-out 16
Slide 18: Segment Results – Consumer-Related Products
SEGMENT RESULTS – CONSUMER-RELATED PRODUCTS Turnover Op Margin OperaUng Profit Rm 2018 % ch 2017 2018 2017 2018 % ch 2017 Ongoing 1 476 9,9 1 343 13,4% 13,2% 197 11,8 177 opera;ons New 127 11,0% 14 businesses Segment total 1 603 19,3 1 343 13,2% 13,2% 211 19,6 177 ! The automo;ve, power tool, data ne
Slide 19: Segment Results – Engineering Consumables
SEGMENT RESULTS – ENGINEERING CONSUMABLES Turnover Op Margin OperaUng Profit Rm 2018 % ch 2017 2018 2017 2018 % ch 2017 Ongoing 1 334 0,5 1 327 7,0% 8,0% 93 (13,1) 106 opera;ons New 21 3 28,6% 27,7% 6 1 businesses Segment total 1 355 1,8 1 330 7,3% 8,0% 99 (7,8) 107 ! Our electrical, hydraulics & pne
Slide 20: Segment Results for the Six Months
SEGMENT RESULTS FOR THE SIX MONTHS Turnover Op Margin OperaUng Profit Rm 2018 % ch 2017 2018 2017 2018 % ch 2017 Consumer- related 1 603 19,3 1 343 13,2% 13,2% 211 19,6 177 products Engineering 1 355 1,8 1 330 7,3% 8,0% 99 (7,8) 107 consumables Head office, shared services (3) (2) (20) (15) & elimina;o
Slide 21: Financial Review
Hudaco FINANCIAL REVIEW 0 —[Em
Slide 22: Profit for the Six Months
PROFIT FOR THE SIX MONTHS Rm 2018 % ch 2017 Turnover 2 955 10,6 2 671 - Ongoing opera;ons 2 807 5,2 2 668 - New businesses 148 3 Gross profit 1 076 9,0 987 Opera;ng expenses 786 9,4 718 - Ongoing opera;ons 749 4,3 717 - New businesses 34 1 - Learnership programme (Maharishi) 3 OperaUng profit 290 7,7
Slide 23: Profit for the Six Months
PROFIT FOR THE SIX MONTHS Rm 2018 % ch 2017 OperaUng profit 290 7,7 269 Fair value adjustment to amounts due 4 to vendors (realised) Net interest on funding (43) (42) Interest paid to vendors (imputed) (13) (10) Profit before taxaUon 238 9,7 217 Taxa;on 64 62 (Rate 2018:26,9% 2017:28,4%) Profit a^er ta
Slide 24: Comparable Earnings for the Six Months
COMPARABLE EARNINGS FOR THE SIX MONTHS Rm 2018 % ch 2017 Acributable and headline earnings 167 9,3 153 Fair value adjustment of vendor liability (4) Non-controlling interest 1 Comparable earnings 164 7,0 153 23
Slide 25: Comparable Earnings for the Six Months
COMPARABLE EARNINGS FOR THE SIX MONTHS 275 250 243 225 231 200 197 175 181 175 172 173 150 164 153 125 139 139 131 123 100 75 50 25 0 2012 2013 2014 2015 2016 2017 2018 1st half 2nd half 24
Slide 26: Earnings per Share and Dividends
EARNINGS PER SHARE AND DIVIDENDS Cents 2018 % ch 2017 Earnings per share Comparable 517 7,0 483 Basic 528 9,3 483 Headline 528 9,3 483 Dividends per share - Interim 190 180 - Final 380 Total 560 Dividend cover (Umes) at mid-year 2,72 2,68 25
Slide 27: Statement of Financial Position
STATEMENT OF FINANCIAL POSITION Rm May 18 May 17 Working capital 2 008 1 735 Property, plant and equipment 277 260 Goodwill and intangibles 1 536 1 413 Investment in joint venture 11 8 Tax 12 Net assets 3 832 3 428 Equity 2 422 2 186 Bank borrowings 1 045 973 Due to vendors 319 269 Tax 46 Total equi
Slide 28: 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 split 45/55 2011 2012 2013 2014 2015 2016 2017 2018 between
Slide 29: Cash Flow for the Six Months
CASH FLOW FOR THE SIX MONTHS Rm 2018 2017 Cash from trading 338 329 Increase in working capital (238) (67) Cash from operaUons 100 262 Finance costs (43) (42) Tax paid (30) (52) Cash generated a^er tax 27 168 Share-based payments (17) (12) Dividends paid (144) (116) Invested in new businesses and pr
Slide 30: Operating Margin for the Six Months
OPERATING MARGIN FOR THE SIX MONTHS % 16 14 13,6 12,9 13,0 12 12,4 12,5 11,4 11,4 11,7 10 10,8 9,8 10,1 9,8 9,5 8 6 4 2 0 2012 2013 2014 2015 2016 2017 2018 H1 H2 29
Slide 31: Turnover for the Six Months
TURNOVER FOR THE SIX MONTHS R billion 3,5 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 30
Slide 32: Summary
SUMMARY ! Inventories are up in an;cipa;on of busy second half ! Exis;ng businesses should generate strong cash flows in H2 ! Exchange rate impacts working capital requirements ! We are well within our banking covenants ! Bank facili;es are available ! Capacity remains for acquisi;ons 31
Slide 33: Outlook
Hudaco OUTLOOK
Slide 34: 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 32 separate businesses • 21 in engineering consumables • 1
Slide 35: Outlook H2 2018
OUTLOOK H2 2018 ! The economic turnaround has been slower than expected ! Hudaco is resilient in tough ;mes • Decentralised structure provides agility • Focus on balance between margin, expenses and stock ! We s;ll expect the posi;ve impact of President Ramaphosa’s growth ini;a;ves to come through !
Slide 36: 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 35
Slide 37: 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