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PRESENTATION TO THE
INVESTMENT ANALYST SOCIETY
1
OVERVIEW
! ExpectedeconomicturnaroundfollowingtheappointmentofPresidentRamaphosahasnotyetmaterialised
! The“expropria;onwithoutcompensa;on”decisionhashadanega;veeffectoninvestorconfidence
! ZumaerahangovercontributedtotheworstquarterforGDPin9years:
• miningdown9,9%
• manufacturingdown6,9%
• agriculturedown24%
! Resultscommendableinprevailingcondi;ons
! Capacityformoreacquisi;ons
! Dividend190centsup6%
2
AGENDA
! Resultssummary
! Generalbusinessenvironmentandresultsdrivers
! Businessmodelandopera;ngsegments
! Financialreview
! Outlook
3
RESULTSSUMMARY–H12018
Turnover 11%toR3bn
Opera;ngprofit 8%toR290m
Basicandheadlineearnings 9%to528cps
Comparableearnings 7%to517cps
Dividendspershare 6%to190cps
4
GENERALBUSINESSENVIRONMENTANDRESULTSDRIVERS
5
! SouthAfricaisanextremelychallengingplacetodobusiness
! Theop;mismaroundRamaphoriaisbeingstrangledbyZumahangover
! Thistoughenvironmentinsomesectorsresultedinlowerdemandandcreatedaggressivepricingpressure
! Exchangeratevola;lityisdisrup;ve
! Consumerspendingunderpressure
GENERALBUSINESSENVIRONMENT
6
! Consumer-relatedsegmentperformedwell
! Engineeringconsumablessegmentunderpressure
! Africabusinessremainsmoribund
! The recent acquisi;ons targe;ng markets with stronger growth poten;alperformedwell
! Thisdiversifica;onstrategycon;nuestopayoff
RESULTSDRIVERS–H12018
7
OPERATINGSEGMENTSANDACQUISITIONSUPDATE
8
THEHUDACOBUSINESSMODEL
! Hudaco’smainbusinessistheimporta;onanddistribu;onofhigh-qualitybrandedautomo;ve,industrialandelectronicconsumableproducts
! Theconceptof“valueaddeddistribu;on”iscoretoourbusinessmodel
! Agencyagreementsgenerallyrestrictourac;vi;estoAfricasouthoftheequator
! Hudacohastwomaineconomicdrivers
• SouthAfrica’sGDPgrowthrate(disappoin;ng)
• Randexchangerate(vola;le)
! Thedecentralisedstructureprovidesagilitytorespondtomarketcondi;ons
! Eachbusinessisledbyanexperiencedmanagementteam
9
OPERATINGSEGMENTS
! Consumer-relatedproductssegmentimportsanddistributesproductsdrivenbyconsumerspendingandgenerallysoldtoinstallers
! Engineeringconsumablessegmentimportsanddistributesbrandedproductsgenerallyusedintherepairandmaintenanceofmachines
10
OPERATINGSEGMENTS
Consumer-relatedproducts(11businesses)! Automo;veaZermarketproducts! Powertools! Ba[eries! Professionalcommunica;onequipment! Securityequipment! Datanetworkingequipment
Engineeringconsumables(21businesses)! Mechanicalpowertransmission! Electricalpowertransmission! Dieselenginesandspares! Hydraulicsandpneuma;cs! Thermoplas;cpipesandfi]ngs! Bearings! Specialisedsteel
11
ContribuUontoH12018operaUngprofit(beforesharedservicesandheadoffice)
68%
32%
Consumer-relatedproducts Engineeringconsumables
CONTRIBUTIONBYSEGMENT
61%39%
Fullyear2017
12
2017SALESBYMARKETSECTOR(%)
1
2
3
3
8
9
13
16
20
25
Publicsector
Agriculture
ConstrucUon
AlternaUveenergy
Security
Exports
Mining
Manufacturing
AutomoUve
Wholesaleandretail
13
2017SALESBYMARKETSECTOR(%)
0
0
1
0
6
15
8
2
33
32
3
Other
Agriculture
Publicsector
ConstrucUon
AlternaUveenergy
Security
Exports
Mining
Wholesaleandretail
AutomoUve
Manufacturing
Consumer-relatedproducts
1
4
1
6
0
0
10
25
17
6
30
Engineeringconsumables
14
Successfulbolt-onsandacquisi;onsinstrongereconomicsectorscon;nuetodiversifyourrevenuebase
2018
! Boltworld–H2only
2017(a^erDec2016)
! EternityTechnologies
! TheDishedEndCompany
! GearPumpDistributors–UK
NEWBUSINESSES
15
"
Boltworld
! Oneofthelargeststockistsofawideandcomprehensiverangeofhigh-qualityindustrialfasteners
! MergingintoFTSdivisionofRutherford
! MaximumpriceR111m,includingR24mexcessinventory
! Effec;vedate1June2018
2018ACQUISITION
16
"
EternityTechnologies
! Supplierofba[eries,highfrequencychargersandrelatedba[eryequipmenttothetrac;onba[erymarket
! Theyalsodesign,buildandmanageba[erybaysforwarehouseanddistribu;oncentres
! Es;matedpriceR200m
! 3yearearn-out
2017ACQUISITION
17
SEGMENTRESULTS–CONSUMER-RELATEDPRODUCTS
Turnover OpMargin OperaUngProfit
Rm 2018 %ch 2017 2018 2017 2018 %ch 2017
Ongoingopera;ons 1476 9,9 1343 13,4% 13,2% 197 11,8 177
Newbusinesses 127 11,0% 14
Segmenttotal 1603 19,3 1343 13,2% 13,2% 211 19,6 177
! Theautomo;ve,powertool,datanetworking,communica;onandba[erybusinessesallhadagoodstarttotheyear
! Whilstourprojectssideofoursecuritybusinesseshadagoodfirsthalf,thedistribu;onsidewaswelldown
! Eternityhasintegratedwellandhadagreatfirstsixmonths
18
SEGMENTRESULTS–ENGINEERINGCONSUMABLES
Turnover OpMargin OperaUngProfit
Rm 2018 %ch 2017 2018 2017 2018 %ch 2017
Ongoingopera;ons 1334 0,5 1327 7,0% 8,0% 93 (13,1) 106
Newbusinesses 21 3 28,6% 27,7% 6 1
Segmenttotal 1355 1,8 1330 7,3% 8,0% 99 (7,8) 107
! Ourelectrical,hydraulics&pneuma;csandthermoplas;cpipeandfi]ngsbusinessesmainlydependantonmining,manufacturingandagriculturereallystruggledinthefirsthalf
! Theywereresoluteindefendingmarginsandholdingmarketshare
! DishedEndsbusinessintegratedandperformingtoexpecta;ons
19
SEGMENTRESULTSFORTHESIXMONTHS
Turnover OpMargin OperaUngProfit
Rm 2018 %ch 2017 2018 2017 2018 %ch 2017
Consumer-relatedproducts
1603 19,3 1343 13,2% 13,2% 211 19,6 177
Engineeringconsumables 1355 1,8 1330 7,3% 8,0% 99 (7,8) 107
Headoffice,sharedservices&elimina;ons
(3) (2) (20) (15)
TotalGroup 2955 10,6 2671 9,8% 10,1% 290 7,7 269
20
FINANCIALREVIEW
21
PROFITFORTHESIXMONTHSRm 2018 %ch 2017Turnover 2955 10,6 2671-Ongoingopera;ons 2807 5,2 2668-Newbusinesses 148 3Grossprofit 1076 9,0 987Opera;ngexpenses 786 9,4 718-Ongoingopera;ons 749 4,3 717-Newbusinesses 34 1-Learnershipprogramme(Maharishi) 3OperaUngprofit 290 7,7 269-Ongoingopera;ons 270 0,5 268-Newbusinesses 20 1Margin(%)Turnover 100,0 100,0Grossprofit 36,4 37,0OperaUngexpenses 26,6 26,9OperaUngprofit 9,8 10,1
22
PROFITFORTHESIXMONTHS
Rm 2018 %ch 2017OperaUngprofit 290 7,7 269Fairvalueadjustmenttoamountsduetovendors(realised) 4
Netinterestonfunding (43) (42)Interestpaidtovendors(imputed) (13) (10)ProfitbeforetaxaUon 238 9,7 217Taxa;on(Rate2018:26,9%2017:28,4%) 64 62
Profita^ertax 174 12,0 155Incomefromjointventure 1 2Profitfortheperiod 175 11,6 157Non-controllinginterest (8) (4)Acributableearnings 167 9,3 153
23
COMPARABLEEARNINGSFORTHESIXMONTHS
Rm 2018 %ch 2017Acributableandheadlineearnings 167 9,3 153Fairvalueadjustmentofvendorliability (4)Non-controllinginterest 1Comparableearnings 164 7,0 153
24
COMPARABLEEARNINGSFORTHESIXMONTHS
123139 131
173
139153
164175 172
181197
231243
0
25
50
75
100
125
150
175
200
225
250
275
2012 2013 2014 2015 2016 2017 2018
1sthalf 2ndhalf
25
EARNINGSPERSHAREANDDIVIDENDS
Cents 2018 %ch 2017EarningspershareComparable 517 7,0 483Basic 528 9,3 483Headline 528 9,3 483
Dividendspershare-Interim 190 180-Final 380Total 560
Dividendcover(Umes)atmid-year 2,72 2,68
26
STATEMENTOFFINANCIALPOSITION
Rm May18 May17Workingcapital 2008 1735Property,plantandequipment 277 260Goodwillandintangibles 1536 1413Investmentinjointventure 11 8Tax 12Netassets 3832 3428
Equity 2422 2186Bankborrowings 1045 973Duetovendors 319 269Tax 46TotalequityandliabiliUes 3832 3428
27
WORKINGCAPITAL
! Workingcapitaltradi;onallypeaksendofH1tocopewithan;cipatedincreasedseasonaldemandinH2
! Salesgenerallysplit45/55betweenH1andH2(2017:45/55)
0,00,51,01,52,02,53,03,54,04,5
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1
2011 2012 2013 2014 2015 2016 2017 2018
Inmonthsofsales
Onemonthofsales:H12018=R493mH12017=R445m
28
Rm 2018 2017Cashfromtrading 338 329Increaseinworkingcapital (238) (67)CashfromoperaUons 100 262Financecosts (43) (42)Taxpaid (30) (52)Cashgenerateda^ertax 27 168Share-basedpayments (17) (12)Dividendspaid (144) (116)Investedinnewbusinessesandproperty,plantandequipment (51) (108)
Netmovement (185) (68)Openingborrowings (860) (905)Closingborrowings (1045) (973)
CASHFLOWFORTHESIXMONTHS
29
OPERATINGMARGINFORTHESIXMONTHS
11,410,8
9,5
11,4
9,8 10,1 9,8
13,612,9
12,411,7
13,012,5
0
2
4
6
8
10
12
14
16
2012 2013 2014 2015 2016 2017 2018
H1 H2
%
30
TURNOVERFORTHESIXMONTHS
1,61,8
2,1
2,6 2,52,7
3,0
1,92,1
2,4
2,7
3,03,2
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
2012 2013 2014 2015 2016 2017 2018
H1 H2
Rbillion
31
SUMMARY
! Inventoriesareupinan;cipa;onofbusysecondhalf
! Exis;ngbusinessesshouldgeneratestrongcashflowsinH2
! Exchangerateimpactsworkingcapitalrequirements
! Wearewellwithinourbankingcovenants
! Bankfacili;esareavailable
! Capacityremainsforacquisi;ons
32
OUTLOOK
33
OUTLOOK-REMINDERS
! HudacosalesarepredominantlydrivenbyGDPac;vity
! AnyGDFIaddscapacityforfutureGDPac;vity
! Randexchangeratehasabigimpactonpricingandprofitability
! Hudacoisadecentralisedgroupthatismadeupof32separatebusinesses
• 21inengineeringconsumables
• 11inconsumer-relatedproducts
34
OUTLOOKH22018
! Theeconomicturnaroundhasbeenslowerthanexpected
! Hudacoisresilientintough;mes
• Decentralisedstructureprovidesagility
• Focusonbalancebetweenmargin,expensesandstock
! Wes;llexpecttheposi;veimpactofPresidentRamaphosa’sgrowthini;a;vestocomethrough
! Ourbusinessesaresizedop;mallyforcurrentmarketcondi;onsandarewellplacedtobenefitimmediatelyfromanyimprovementintheeconomy
! Weexpectconsumer-relatedproductsbusinessestocon;nuetodowell
! Engineeringconsumableswillprobablyhavetogrinditoutbutthesecondhalfisgenerallystrongerthanthefirsthalf
35
GrahamDunfordChiefexecu;veTel+27116575004grahamd@hudaco.co.za
CliffordAmoilsFinancialdirectorTel+27116575002camoils@hudaco.co.za
www.hudaco.co.za
CONTACTDETAILS
36
Theprecedingpresenta;on contains forward looking statements about theHudacoGroup’sopera;onsandfinancialposi;on.TheyarepreparedingoodfaithandarebasedonHudaco’sbest es;matesandinforma;onatthe;meof preparing the presenta;on. They are nonetheless subject to significantuncertain;es and con;ngenciesmanyofwhich areunderstandably beyondHudaco’s control. Unan;cipated eventswill occur and actual future eventsmaydiffermaterially fromcurrentexpecta;ons formany reasons includingnew business opportuni;es, as well as many other internal and externalfactors.AnyofthesefactorsmaymateriallyaffectHudaco's futurebusinessac;vi;esandfinancial results.Noneof the forward looking statementshasbeenreportedonbyHudaco’sauditors.
DISCLAIMER
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