Hudaco Industries Limited · JSE:HDC
Hudaco Industries — H1 2020 Earnings Presentation
44 slides from Hudaco Industries's earnings presentation, May 2020
Slide 1: Results Presentation: Six Months Ended 31 May 2020
RESULTS PRESENTATION SIX MONTHS ENDED 31 MAY 2020
Slide 2: Agenda
AGENDA § Results summary § General business environment and Covid-19 § Business model and operating segments § Financial review § Outlook 2
Slide 3: Results Summary H1 2020
RESULTS SUMMARY H1 2020 Turnover 17,0% to R2,6bn Operating profit 73,5% to R79m Headline earnings per share 63,4% to 195 cps Comparable earnings per share 86,8% to 69 cps Basic earnings per share 238,4% to (738) cps Cash generated from operations 44,5% to R168m No interim dividend 3
Slide 4: General Business Environment and Covid-19
GENERAL BUSINESS ENVIRONMENT AND COVID-19 4
Slide 5: General Business Environment
GENERAL BUSINESS ENVIRONMENT § December’s stage 6 load shedding § Covid-19 impacted China in January § 23 March lockdown announcement, last 6 days trading slowed § Moody’s downgrade 27 March § Level 5 lockdown for the month April § Level 4 lockdown for the month May § Extremely volatile exchange rat
Slide 6: Actions Taken to Mitigate Impact of Covid-19
ACTIONS TAKEN TO MITIGATE IMPACT OF COVID-19 § Health and safety • Established Covid-19 committee • Health and safety measures put in place • Installed Hudaco secure video conferencing facility from MiRO • Facilitation of work from home where possible § Social responsibility • Promised no job cuts A
Slide 7: Actions Taken to Mitigate Impact of Covid-19 Continued
ACTIONS TAKEN TO MITIGATE IMPACT OF COVID-19 CONTINUED § Austerity • Senior executives and non-executive directors took 33% pay cut for three months • Other personnel pay cuts between 7% and 20% for three months • Retirement fund contribution holiday • Capex cancelled or postponed • Non-critical and
Slide 8: Likely Impact of Prevailing Economic Conditions
LIKELY IMPACT OF PREVAILING ECONOMIC CONDITIONS § Rationalisation of branches and some businesses, especially back-office § Retrenchments inevitable § Increase in bad debts § Net realisable value of certain inventory lines to decrease § Goodwill to be impaired in some businesses 8
Slide 9: Business Model and Operating Segments
BUSINESS MODEL AND OPERATING SEGMENTS 9
Slide 10: 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 11: 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 11
Slide 12: Operating Segments
OPERATING SEGMENTS Consumer-related products (14 businesses) § Automotive aftermarket products § Power tools and fasteners § Data networking equipment § Batteries § Security and communication equipment Engineering consumables (21 businesses) § Bearings and belting § Diesel engines and spares § Elect
Slide 13: 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 13
Slide 14: 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 14
Slide 15: Segment Results: Consumer-Related Products
SEGMENT RESULTS: CONSUMER-RELATED PRODUCTS Turnover Op Margin Operating Profit Rm 2020 % ch 2019 2020 2019 2020 % ch 2019 Ongoing 1 441 (16,1) 1 717 7,9% 12,0% 114 (44,4) 205 operations New businesses Segment total 1 441 (16,1) 1 717 7,9% 12,0% 114 (44,4) 205 § Miro, Elvey and Eternity open during l
Slide 16: Segment Results: Engineering Consumables
SEGMENT RESULTS: ENGINEERING CONSUMABLES Turnover Op Margin Operating Profit Rm 2020 % ch 2019 2020 2019 2020 % ch 2019 Ongoing 1 196 (18,5) 1 467 (1,5%) 7,4% (19) (117,1) 109 operations New businesses Segment total 1 196 (18,5) 1 467 (1,5%) 7,4% (19) (117,1) 109 § Minimal turnover during lockdown l
Slide 17: Segment Results for H1 2020
SEGMENT RESULTS FOR H1 2020 Turnover Op Margin Operating Profit Rm 2020 % ch 2019 2020 2019 2020 % ch 2019 Consumer- related 1 441 (16,1) 1 717 7,9% 12,0% 114 (44,4) 205 products Engineering 1 196 (18,5) 1 467 (1,5%) 7,4% (19) (17,1) 109 consumables Head office, shared (1) (9) (16) (17) services, an
Slide 18: Financial Review
Hudaco FINANCIAL REVIEW
Slide 19: Financial Review Agenda
FINANCIAL REVIEW AGENDA § Impact of Covid-19 and consequential economic conditions § Goodwill impairment § IFRS financial statements § Profit if ECL, Inventory impairment, goodwill etc had been frozen § Impact of IFRS 16: Leases § Summary 19
Slide 20: Impact of Covid-19 and Consequential Economic Conditions
IMPACT OF COVID-19 AND CONSEQUENTIAL ECONOMIC CONDITIONS § Turnover decimated during level 5 lockdown § Expected credit loss increased R15m § Inventory net realisable value allowance up 2,7% on gross inventory § Goodwill impaired by R345m (22,8%) § Intangible assets impaired by R3m § Foreign deferre
Slide 21: Goodwill Impairment
GOODWILL IMPAIRMENT § Normally only assess annually § Covid-19 warranted an assessment for interim reporting § Risk premium for Covid-19 included in discount rate (WACC range 17,1% - 20,7%) § Expected future cash flows adjusted downwards since November 2019 § Normally expect project business from ti
Slide 22: Profit for H1 2020
PROFIT FOR H1 2020 Rm 2020 % ch 2019 Turnover 2 636 (17,0) 3 175 Gross profit 854 (25,3) 1 144 Operating expenses 775 (8,4) 847 Operating profit 79 (73,5) 297 Margin (%) Turnover 100,0 100,0 Gross profit 32,4 36,0 Operating expenses 29,4 26,7 Operating profit 3,0 9,3 § Gross margin affected by inven
Slide 23: Operating Margin for H1 2020
OPERATING MARGIN FOR H1 2020 % 14 12 13,0 12,4 12,5 11,411,7 11,4 10 10,7 9,8 10,1 9,8 9,5 9,3 8 6 4 2 3,0 0 2014 2015 2016 2017 2018 2019 2020 H1 H2 23
Slide 24: Turnover for H1 2020
TURNOVER FOR H1 2020 R billion 4,0 3,5 3,4 3,5 3,0 3,2 3,2 3,0 3,0 2,5 2,7 2,7 2,6 2,6 2,5 2,4 2,0 2,1 1,5 1,0 0,5 0,0 2014 2015 2016 2017 2018 2019 2020 H1 H2 24
Slide 25: Profit for H1 2020
PROFIT FOR H1 2020 Rm 2020 % ch 2019 Operating profit 79 (73,5) 297 Net interest on funding (43) (55) Imputed interest on leases (IFRS 16) (19) Fair value adjustment to amounts due to 44 (3) vendors - Adjustment for time-value of (3) (8) money (imputed interest) - Adjustment to estimated capital val
Slide 26: Headline and Comparable Earnings
HEADLINE AND COMPARABLE EARNINGS Rm 2020 % ch 2019 Attributable (loss) earnings (233) (238,4) 169 Impairment of goodwill and intangibles 348 Non-controlling interest and tax (53) Headline earnings 62 (63,4) 169 FV adjustment on vendor liabilities (47) (5) Non-controlling interest 7 1 Comparable earn
Slide 27: Comparable Earnings for H1 2020
COMPARABLE EARNINGS FOR H1 2020 R million 250 225 243 231 227 200 215 197 175 181 173 150 164 165 153 125 139 131 100 75 50 25 22 0 2014 2015 2016 2017 2018 2019 2020 H1 H2 27
Slide 28: Earnings per Share
EARNINGS PER SHARE Cents 2020 % ch 2019 Earnings per share Comparable 69 (86,8) 520 Basic (738) (238,4) 533 Headline 195 (63,4) 533 § If 2019 had been adjusted for IFRS 16: Leases, its comparable earnings would have been 485 cents and the decrease 85,8% 28
Slide 29: Statement of Financial Position
STATEMENT OF FINANCIAL POSITION Rm May 20 May 19 Working capital 2 052 2 164 Property, plant and equipment 295 297 Right-of-use asset – leased premises 395 Goodwill and intangibles 1 178 1 548 Investment in joint venture 12 10 Tax 96 51 Net assets 4 028 4 070 Equity 2 424 2 637 Bank borrowings 1 166
Slide 30: Working Capital Elements
WORKING CAPITAL ELEMENTS In months of sales 6 5 4 3 2 1 0 -1 H2 15 H2 16 H2 17 H2 18 H1 19 H2 19 H2 20 -2 -3 Inventory Payables Receivables Net W Cap One month of sales (in H2) 2015 = R447m 2017 = R539m 2019 = R559m 2016 = R505m 2018 = R571m 2020 (H1) =R439m 30
Slide 31: Inventory
INVENTORY In months of sales 4,4 4 3,9 3,4 3,5 3,5 3,4 3 3,3 3,2 3,1 3,2 3,3 3,1 3,1 3,0 2,9 2,9 2,9 2 1 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 H1 H2 31
Slide 32: Cash Flow for H1 2020
CASH FLOW FOR H1 2020 Rm 2020 2019 Cash from trading 189 348 Increase in working capital (21) (47) Cash from operations 168 301 Finance costs (43) (55) Tax paid (59) (68) Cash generated after tax 66 178 Share-based payments (1) (18) Dividends paid (139) (123) Invested in new businesses (5) (8) Inves
Slide 33: Profit if ECL, Inventory Impairment, Goodwill and Vendor Liability All Frozen
PROFIT IF ECL, INVENTORY IMPAIRMENT, GOODWILL AND VENDOR LIABILITY ALL FROZEN Rm 2020 % ch 2019 2020 IFRS Operating profit 171 (42,4) 297 79 Net interest on funding (43) (55) (43) Imputed interest on leases (IFRS 16) (19) (19) Fair value adjustment to amounts due (3) (3) 44 to vendors - Adjustment f
Slide 34: Impact of IFRS 16: Leases
IMPACT OF IFRS 16: LEASES § Statement of financial position at 31 May 2020 • Lease liabilities R422m • Right-of-use assets R395m § Statement of comprehensive income • Depreciation on right-of-use assets of R59m • Imputed interest R19m • Operating profit down R2m • Profit before tax down R21m § Furth
Slide 35: Summary
SUMMARY § Covid-19 and lockdown played havoc with turnover and gross profit § Working capital down R112m from May 2019, up R31m from November 2019 § Borrowings slightly lower than May 2019 and, excluding February dividend, only R21m up since November 2019 § Exchange rate impacts working capital requ
Slide 36: Outlook
Hudaco OUTLOOK
Slide 37: 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 38: Outlook 2020
OUTLOOK 2020 § Very difficult for us to accurately predict what second half trading will be § Planning is based on no regression to level 4 or 5 lockdown § Achieve long-term savings and synergies through rationalisation in security and communication cluster § Consolidation and restructure of enginee
Slide 39: IFRS 16: Leases
Hudaco IFRS 16: LEASES 39
Slide 40: Impact of IFRS 16: Leases
IMPACT OF IFRS 16: LEASES § Initial date of application – 1 December 2019 § At Hudaco, affects only property leases § Incremental borrowing rate at initial date – 8,13% § At 1 December 2019 • Recognised lease liabilities of R466m and • Right-of-use assets R454m § For six months • Repaid R63m on leas
Slide 41: Profit if IFRS16: Leases Was Not Adopted
PROFIT IF IFRS16: LEASES WAS NOT ADOPTED IFRS16 Effect of No IFRS16 Rm 2020 IFRS16 2020 % ch 2019 Operating profit 79 (2) 81 (72,7) 297 Net interest on funding (43) (43) (55) Imputed interest on leases (IFRS 16) (19) (19) Fair value adjustment to amounts 44 44 (3) due to vendors - Adjustment for tim
Slide 42: Financial Position if IFRS16 Was Not Adopted
FINANCIAL POSITION IF IFRS16 WAS NOT ADOPTED IFRS16 Effect of No IFRS16 Rm May 20 IFRS16 May 20 May 19 Working capital 2 052 6 2 046 2 164 Property, plant and equipment 295 295 297 Right-of-use asset – leased premises 395 395 Goodwill and intangibles 1 178 1 178 1 548 Investment in joint venture 12
Slide 43: 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 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