Hudaco Industries Limited · JSE:HDC
Hudaco Industries — H1 2019 Earnings Presentation
39 slides from Hudaco Industries's earnings presentation, May 2019
Slide 1: Presentation to the Investment Analyst Society May 2019
PRESENTATION TO THE INVESTMENT ANALYST SOCIETY MAY 2019
Slide 2: Agenda
AGENDA § Results summary § General business environment and overview § Business model and operating segments § Financial review § Outlook 1
Slide 3: Results Summary H1 2019
RESULTS SUMMARY H1 2019 Turnover 7,5% to R3,2bn Operating profit 2,4% to R297m Basic and headline earnings 0,9% to 533 cps Comparable earnings 0,5% to 520 cps Interim dividend per share 190 cps Cash generated from operations 200% to R301m 2
Slide 4: General Business Environment and Overview
GENERAL BUSINESS ENVIRONMENT AND OVERVIEW 3
Slide 5: General Business Environment
GENERAL BUSINESS ENVIRONMENT § South Africa is an extremely challenging place to do business • Difficult economic conditions in H1 2019 • First quarter - economy contracted 3,2% • Manufacturing down 8,8% • Mining down 10,8% • Agriculture down 13,2% • Load shedding § This tough environment created lo
Slide 6: Overview
OVERVIEW § Against this backdrop the group performed well • Engineering consumables ongoing operations increased turnover while holding operating margin • Consumer-related products gave up margin in order to hold turnover § Engineering consumables segment performed well § Africa business remains a c
Slide 7: Inventory
INVENTORY In months of sales 4 3,9 3,5 3,5 3,4 3,4 3,3 3,3 3 3,2 3,2 3,1 3,1 3,0 2,9 2,9 2,9 2 1 0 2012 2013 2014 2015 2016 2017 2018 2019 H1 H2 6
Slide 8: Business Model and Operating Segments
BUSINESS MODEL AND OPERATING SEGMENTS 7
Slide 9: 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 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 (14 businesses) § Automotive aftermarket products § Power tools and fasteners § Batteries § Professional communication equipment § Security equipment § Data networking equipment Engineering consumables (21 businesses) § Mechanical power transmission § Ele
Slide 12: 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 § Different KPI’s for each business 11
Slide 13: Contribution by Segment
CONTRIBUTION BY SEGMENT Contribution to H1 2019 operating profit 35% (before shared services and head office) 65% Nov 2018 35% 65% Consumer-related products Engineering consumables 12
Slide 14: 2018 Sales by Market Sector (%)
2018 SALES BY MARKET SECTOR (%) Wholesale and retail 27 Automotive 19 Manufacturing 16 Mining 14 Exports 8 Security 7 Alternative energy 3 Construction 3 Agriculture 2 Public sector 1 13
Slide 15: 2018 Sales by Market Sector (%)
2018 SALES BY MARKET SECTOR (%) Consumer-related products Engineering consumables Manufacturing 6 28 Automotive 29 6 Wholesale and retail 36 17 Mining 3 27 Exports 6 11 Security 12 0 Alternative energy 6 1 Construction 0 5 Public sector 1 0 Agriculture 1 4 Other 0 1 14
Slide 16: New Businesses
NEW BUSINESSES Successful bolt-ons and acquisitions in stronger economic sectors continue to diversify our revenue base H2 2018 § Boltworld § TPA Security Distributors 15
Slide 17: 2018 Acquisition: Boltworld
2018 ACQUISITION Boltworld § One of the largest stockists of a wide and comprehensive range of high- quality industrial fasteners § Merged with FTS division of Rutherford § Price R105m, including R24m excess inventory § Effective date 1 June 2018 16
Slide 18: 2018 Acquisition: TPA Security Distributors
2018 ACQUISITION TPA Security Distributors § Distributors of electronic security equipment, including the Texecom range of intruder detection solutions as well as related consumables § Synergies and efficiencies with security division § Price R31m § Effective date 1 September 2018 17
Slide 19: 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 1 609 0,4 1 603 11,8 13,2 190 (10,1) 211 operations New 108 14,1 15 businesses Segment total 1 717 7,2 1 603 12,0 13,2 205 (2,9) 211 § The three battery businesses all h
Slide 20: Segment Results – Engineering Consumables
SEGMENT RESULTS – ENGINEERING CONSUMABLES Turnover Op Margin Operating Profit Rm 2019 % ch 2018 2019 2018 2019 % ch 2018 Ongoing 1 467 8,2 1 355 7,4 7,3 109 10,0 99 operations New businesses Segment total 1 467 8,2 1 355 7,4 7,3 109 10,0 99 § Benefits from strengthening and restructuring of this seg
Slide 21: Segment Results for the Six Months
SEGMENT RESULTS FOR THE SIX MONTHS Turnover Op Margin Operating Profit Rm 2019 % ch 2018 2019 2018 2019 % ch 2018 Consumer- related 1 717 7,2 1 603 12,0 13,2 205 (2,9) 211 products Engineering 1 467 8,2 1 355 7,4 7,3 109 10,0 99 consumables Head office, shared services (9) (3) (17) (20) & eliminatio
Slide 22: Financial Review
Hudaco FINANCIAL REVIEW 21
Slide 23: Profit for the Six Months
PROFIT FOR THE SIX MONTHS Rm 2019 % ch 2018 Turnover 3 175 7,5 2 955 - Ongoing operations 3 067 3,8 2 955 - New businesses 108 Gross profit 1 144 6,3 1 076 Operating expenses 847 7,7 786 - Ongoing operations 815 3,6 786 - New businesses 32 Operating profit 297 2,4 290 - Ongoing operations 282 (2,9)
Slide 24: Operating Margin for the Six Months
OPERATING MARGIN FOR THE SIX MONTHS % 16 14 13,6 12 12,9 13,0 12,4 12,5 11,3 11,5 11,7 10 10,8 10,7 9,8 10,1 9,8 9,5 9,3 8 6 4 2 0 2012 2013 2014 2015 2016 2017 2018 2019 H1 H2 23
Slide 25: Turnover for the Six Months
TURNOVER FOR THE SIX MONTHS R billion 4,0 3,5 3,4 3,0 3,2 3,2 3,0 3,0 2,5 2,7 2,7 2,5 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 2019 H1 H2 24
Slide 26: Profit for the Six Months
PROFIT FOR THE SIX MONTHS Rm 2019 % ch 2018 Operating profit 297 2,4 290 Net interest on funding (55) (43) Fair value adjustment to amounts due (3) (9) to vendors - Adjustment for time-value of money (8) (13) (imputed interest) - Adjustment to estimated capital value 5 4 Profit before taxation 239 0
Slide 27: Comparable Earnings for the Six Months
COMPARABLE EARNINGS FOR THE SIX MONTHS Attributable and headline earnings 169 0,9 167 Fair value adjustment to estimated (5) (4) capital value of vendor liabilities Non-controlling interest 1 1 Comparable earnings 165 0,5 164 26
Slide 28: Comparable Earnings for the Six Months
COMPARABLE EARNINGS FOR THE SIX MONTHS R million 275 250 225 243 231 200 215 197 175 175 181 172 173 150 164 165 153 125 139 139 131 123 100 75 50 25 0 2012 2013 2014 2015 2016 2017 2018 2019 H1 H2 27
Slide 29: Earnings per Share and Dividends
EARNINGS PER SHARE AND DIVIDENDS Cents 2019 % ch 2018 Earnings per share Comparable 520 0,5 517 Basic 533 0,9 528 Headline 533 0,9 528 Dividends per share - Interim 190 190 - Final 380 Total 570 Dividend cover (times) 2,7x 2,7x 28
Slide 30: Statement of Financial Position
STATEMENT OF FINANCIAL POSITION Rm May 19 May 18 Working capital 2 164 2 008 Property, plant and equipment 297 277 Goodwill and intangibles 1 548 1 536 Investment in joint venture 10 11 Tax 51 25 Net assets 4 070 3 857 Equity 2 637 2 422 Bank borrowings 1 177 1 045 Due to vendors 221 319 Tax 35 71 T
Slide 31: Working Capital
WORKING CAPITAL In months of sales 4 § Working capital traditionally 3 peaks end of H1 to cope with 2 anticipated increased seasonal 1 demand in H2 § Sales generally 0 split 45/55 2012 2013 2014 2015 2016 2017 2018 2019 between H1 H1 H2 and H2 (2018: One month of sales: 46/54) H1 2018 = R493 H1 2019
Slide 32: Cash Flow for the Six Months
CASH FLOW FOR THE SIX MONTHS Rm 2019 2018 Cash from trading 348 338 Increase in working capital (47) (238) Cash from operations 301 100 Finance costs paid (55) (43) Tax paid (68) (30) Cash generated after tax 178 27 Share-based payments (18) (17) Dividends paid (123) (144) Invested in new businesses
Slide 33: Summary
SUMMARY § Working capital is normalising as promised § Cash generation has been strong § Exchange rate impacts working capital requirements § Currency volatility makes gross margin difficult to manage § We are well within our banking covenants § Bank facilities are available § We continue to look fo
Slide 34: Outlook
Hudaco OUTLOOK 33
Slide 35: 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 decentralised group that is made up of 35 separate businesses • 21 in engineering consumables
Slide 36: Outlook - H2 2019
OUTLOOK - H2 2019 § We don’t see much change in the economy for the rest of 2019 § We expect consumer-related products businesses to continue having a tough year § We expect continued growth in engineering consumables • strengthening of senior team • focus on extracting synergies and efficiencies (v
Slide 37: 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 36
Slide 38: 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 39: Hudaco
Hudaco