Hudaco Industries Limited · JSE:HDC
Hudaco Industries — H1 2014 Earnings Presentation
33 slides from Hudaco Industries's earnings presentation, July 2014
Slide 1: Interim results
Interim results For the six months to 31 May 2014
Slide 2: Hudaco closing share price vs CEPS
Hudaco closing share price vs CEPS 120 1200 Closing share price (Rand) Comparable EPS (cents) 100 1000 80 800 60 600 40 400 20 200 0 0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Price CEPS 2 Hudaco Interim results
Slide 3: Agenda
Agenda General business environment Results summary and operating segments Financial review and taxation Outlook 3 Hudaco interim results
Slide 4: General business environment
General business environment
Slide 5: General business environment
General business environment In RSA there is little good news around Socio/economic tensions continue to play themselves out Economy weakening in response to strikes, ratings downgrades, lack of infrastructure (electricity) & policy vacillation Rustenburg platinum belt strikes have battered
Slide 6: Hudaco results: short term
Hudaco results Short term Mining and manufacturing sectors account for 50% of Hudaco’s sales So Hudaco has nowhere to hide Performance from existing businesses was disappointing but resilient in one of the most challenging trading environments we have experienced Acquisitions are performing
Slide 7: Hudaco results: long term
Hudaco results Long term Hudaco is a GDP linked business – gives earnings stability Business model – distribution of spare parts/consumables with value added component - has stood the test of time Financial characteristics High margin and high IRR Cash generative Well judged acquisitions
Slide 8: Results summary and operating segments
Results summary and operating segments
Slide 9: The Hudaco business model
The Hudaco business model Hudaco’s main business is the importation and distribution of branded industrial and electronic 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 gener
Slide 10: Results summary
Results summary Turnover 16% to R2 111 m Operating profit 3% to R200 m Headline earnings 2% to R144 m Comparable earnings per share 5% to 416 cps HEPS 2% to 456 cps Dividends per share maintained at 155 cps Net borrowings to R564 m 10 Hudaco Interim results
Slide 11: Operating segments
Operating segments Largest segment imports and distributes branded engineering consumables generally used in the repair and maintenance of machines Bearings Power transmission products Diesel engines and spares About 40% of our business is distribution of consumer-related products generall
Slide 12: 2013 segment sales by market sector
2013 segment sales by market sector Engineering consumables Consumer-related products (%) Manufacturing 33 14 Mining 33 7 Security 0 66 25 Wholesale/retail 11 13 Automotive 5 17 Exports 7 13 Construction 4 5 Agriculture 3 1 1 5 Public sector 3 0 Other 12 Hudaco Interim results
Slide 13: Recent acquisitions: Dosco, GPM & Joseph Grieveson
Recent acquisitions Dosco, GPM & Joseph Grieveson – R154m Manufacturer and distributor of specialised castings & own brand gear pumps Customers: sugar mills, mines & general industry. Large export component 13 Hudaco Interim results
Slide 14: Recent acquisitions: SBS Batteries
Recent acquisitions SBS Batteries – R40m Distributor of maintenance free batteries Used in stand-by & solar applications 14 Hudaco Interim results
Slide 15: Segment results – Engineering consumables
Segment results – Engineering consumables Rm 2014 % Ch 2013 Turnover 1 293 14 1 133 - Ongoing businesses 1 132 1 1 120 - Acquisitions in 2013 and 2014 161 13 Operating profit 124 4 119 - Ongoing businesses 99 (16) 118 - Acquisitions in 2013 and 2014 25 1 Operating profit margin 9.6% 10.5% - Ongoing
Slide 16: Segment results – Consumer related products
Segment results – Consumer related products Rm 2014 % Ch 2013 Turnover 819 20 684 - Ongoing businesses 728 6 684 - Acquisitions in 2013 and 2014 91 Operating profit 86 1 85 - Ongoing businesses 72 (15) 85 - Acquisitions in 2013 and 2014 14 Operating profit margin 10.5% 12.4% - Ongoing businesses 9.9
Slide 17: Segment results
Segment results Turnover Op Margin(%) Operating Profit 2014 % ch 2013 2014 2013 2014 % ch 2013 Rm Engineering 1 293 14% 1 133 9.6% 10.5% 124 4% 119 consumables Consumer - related 819 20% 684 10.5% 12.4% 86 1% 85 products Head office, shared services -1 -4 -10 -9 & eliminations Total Group 2 111 16%
Slide 18: Profit for the period
Profit for the period Rm 2014 % Ch 2013 Turnover 2 111 16 1 813 - Ongoing businesses 1 859 3 1 800 - Acquisitions in 2013 and 2014 252 13 Gross profit 753 13 665 Operating expenses (553) 18 (470) Operating profit 200 3 195 - Ongoing businesses 161 (17) 194 - Acquisitions in 2013 and 2014 39 1 Margin
Slide 19: Financial review and taxation
Financial review and taxation
Slide 20: Profit for the period
Profit for the period Rm 2014 % Ch 2013 Operating profit 200 3% 195 FV adjustment to vendor liability 15 Net operating interest paid (17) (6) Interest paid on sub. debentures (58) Preference dividend received 50 Profit before taxation 198 9% 181 Taxation (Rate 2014:26% 2013:21%) (51) (38) Profit aft
Slide 21: Comparable earnings for the period
Comparable earnings for the period Rm 2014 % Ch 2013 Operating profit 200 3% 195 FV adjustment to vendor liability - - Net operating interest paid (17) (6) Interest paid on sub. debentures - - Preference dividend received - - Profit before taxation 183 -3% 189 Taxation (Rate 2014:28% 2013:26%) (51)
Slide 22: Comparable earnings by half year
Comparable earnings by half year 200 180 160 140 120 100 80 60 40 20 91 128 103 188 124 176 139 172 131 0 2010 2011 2012 2013 2014 1st half 2nd half 22 Hudaco Interim results
Slide 23: Earnings per share and dividends
Earnings per share and dividends 2014 % Ch 2013 Earnings per share Basic earnings per share 456c 1.8% 448c Headline earnings per share 456c 1.8% 448c Comparable earnings per share 416c -5% 440c Dividends per share Interim 155c - 155c Final 310c Total 465c Dividend policy: annual dividends = approxim
Slide 24: Statement of financial position
Statement of financial position Rm May 14 Oper Div Vendors Acq Nov 13 Working capital 1 355 117 27 1 211 Property, plant equipment 240 8 18 214 Goodwill and intangibles 777 (10) 129 658 Tax 17 25 (15) 7 Net operating assets 2 389 140 - - 159 2 090 Tax paid in advance 80 40 40 Net assets 2 469 180 -
Slide 25: Working capital in months of sales
Working capital 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 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 H1 14 One month of sales: H1 2014 = R 352m; H1 2013 = R 340m Working capital traditionally peaks end of H1 to cope with anticipated increased seasonal demand in H2 Sales are
Slide 26: Cash flow – for the six months
Cash flow – for the six months Rm May 14 May 13 Cash from trading 231 221 Increase in working capital (118) (114) Cash from operating activities 113 107 Net finance costs (15) (11) Tax paid (116) (5) Cash flow from operations (18) 91 Dividends paid (100) (108) Invested in new businesses and property
Slide 27: Tax challenge
Tax challenge SARS have uncovered complex arrangements connected to our 2007 structure and allege Hudaco was party to them Hudaco had no knowledge or suspicion of these and is confident of refuting the assessments As expected, our objections have been rejected but penalties reduced to 150% for
Slide 28: Outlook
Outlook
Slide 29: Outlook - Engineering consumables
Outlook - Engineering consumables RSA mining and manufacturing sectors are very important to this segment What impact the Rustenburg mining strikes will have on other mines and sectors? Unlikely to be benign Back to work is good news but steady state production only envisaged by October 2014
Slide 30: Outlook – Consumer-related products
Outlook – Consumer-related products Consumer spending slowing Volume sales remain steady but growth is elusive Heavy duty clutch assembly starts in H2 Sales of communication equipment down in H1 but project orders expected in H2 30 Hudaco Interim results
Slide 31: General outlook
General outlook 2014 earnings will be affected by strikes but will be resilient as they were in H1 Acquisitions are strengthening and diversifying the earnings base Sales into Africa are growing strongly Exports of own brands receiving high priority Experienced management team, clear on ar
Slide 32: 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
Slide 33: Contact details
Contact details Graham Dunford Clifford Amoils Chief executive Financial director Tel +27 (11) 657 5003 Tel +27 (11) 657 5002 grahamd@hudaco.co.za camoils@hudaco.co.za www.hudaco.co.za 33 Hudaco Interim results