PRESENTATION TO INVESTORS FOR THE YEAR ENDED 30 SEPTEMBER 2015

Transcription

1 PRESENTATION TO INVESTORS FOR THE YEAR ENDED 30 SEPTEMBER 2015

2 AGENDA GROUP OVERVIEW Alan Dickson, CEO FINANCIAL OVERVIEW Nick Thomson, CFO SEGMENTAL DISCUSSIONS ICT Mark Taylor Applied electronics Peter van der Bijl Electrical engineering Alan Dickson GROUP STRATEGY AND PROSPECTS Alan Dickson 2

3 GROUP OVERVIEW Alan Dickson

4 OVERVIEW Positive operational performance, despite a tough macro-economic environment The expected economic growth rates have slowed materially No indication of a significant improvement in the medium term Reunert has delivered on its 2014 commitments No material once-off costs All loss-making business units have been restored to profitability Growth achieved in all segments ICT: underpinned by stabilising office automation business model and excellent performance from voice and finance businesses Applied electronics: boosted by hard currency export orders and securing the multi-year Radiate contract Electrical engineering: driven by volume growth, efficiency enhancements and the award of several long-term frame contracts Steady progress has been made on the execution of the group strategy that was approved in April

5 OVERVIEW CONTINUED Revenue up 7% from R7,8 billion to R8,3 billion Operating profit up 15% from R1 017 million to R1 167 million Strong free cash flow of R1 146 million, excluding the Nashua Mobile sale proceeds NHEPS (continuing operations) up 29% to 568 cents per share Final dividend of 302 cents per share has been declared Total dividend per share up 10% to 407 cents per share 5

6 SHARE PRICE PERFORMANCE 20% 10% 0% (10%) (20%) Sep 2014 Sep 2015 (30%) REUNERT LTD ELECTRONIC AND ELECTRICAL EQUIPMENT INDEX - J273 6

7 FINANCIAL OVERVIEW Nick Thomson

8 NASHUA MOBILE SUBSCRIBER BASE SALE R1,4 billion profit on disposal accounted for in 2014 All base sale proceeds have been received (R1,8 billion net of tax) R42 million profit from discontinued operations in 2015 EPS effect: 26 cents (2014: 966 cents) Back office support will continue until 2019 Customer support (operation of call centre) Computer processing costs Maintenance of mainframe IT hardware and software Maintenance of records (no permanent staff) Potential future tax queries and audits Sufficient residual provisions to cover expected costs 8

9 FINANCIAL RESULTS GROUP INCOME STATEMENT ALL OPERATIONS % change Revenue Rm EBITDA Rm Depreciation & amortisation Rm (117) (108) Operating profit Rm Net interest income/(expense) Rm 135 (10) Profit before abnormal items and tax Rm Abnormal items Rm - (327) Tax Rm (360) (278) Share of JV profit/(loss) Rm 17 (12) Profit from continuing operations Rm Profit from discontinued operation Rm Profit for the year Rm (49) HEPS Cents NHEPS Cents

10 FINANCIAL RESULTS SALIENT FEATURES CONTINUING OPERATIONS % change Revenue Rm EBITDA Rm Operating profit Rm Earnings per share Cents HEPS Cents NHEPS Cents EBITDA % 15,5 14,5 7 Operating profit margin % 14,1 13,1 8 Final dividend per share Cents Dividend per share Cents Dividend yield % 6,7 6,2 8 10

11 FINANCIAL RESULTS REVENUE MOVEMENT IN GROUP REVENUE (Rm) Electrical engineering 8 ICT 81 6 Applied electronics Other 2015 The cable businesses increased market share, renewed long-term contracts with good draw downs in the current year and returned to normal sales levels to the mining industry after 2014 strikes Product sales in the circuit breaker business performed well while contribution from the solutions business was disappointing Nashua OA repositioned its market offering with a negative impact on pricing but a positive impact on market share Excellent voice minute growth in ECN at lower connection rates Significant export orders secured by Reutech and delivered in H2 11

12 FINANCIAL RESULTS REVENUE % REVENUE CONTRIBUTION * % REVENUE BY REGION 40% 43% % 48% 12% Electrical engineering ICT Applied electronics Other 83% % % 4% 1% 7% 1% 3% 2% 1% 8% South Africa Africa Asia Australia Europe North America South America 45% 1% <1% *Continuing operations 12

13 FINANCIAL RESULTS OPERATING PROFIT MOVEMENT IN OPERATING PROFIT (Rm) Margin 13,1% Margin 14,1% Improved volumes resulting in improved fixed cost recoveries at African Cables augmented by cost control Nashua optimised supply chain and realised savings in distribution and general overhead costs 2014 Electrical engineering ICT Applied electronics Other 2015 ECN increased customer base and both outgoing and incoming minutes OPERATING PROFIT CONTRIBUTION* (%) Significant cost savings in Nashua 15% 14% Communications Electrical engineering Reutech delivered a good result 47% % ICT Applied electronics 53% % despite slow down in the radar and communications divisions * Excludes Other segment of (4%) in FY2015 and (3%) in FY

14 FINANCIAL RESULTS CASH FLOW AND WORKING CAPITAL MOVEMENT IN CASH FLOW (Rm) Cash generated from operations* Working capital Net interest Tax paid Capex replacement Free cash flow Capex expansion Dividends paid Nashua Mobile Other Increase in cash resources WORKING CAPITAL MOVEMENT (Rm) Inventory and contracts in progress Accounts receivable and derivative assets (84) 85 Trade and other payables, provisions and derivative liabilities (243) (180) Advance payments 365 (77) 62 (44) * Before working capital movement 14

15 FINANCIAL RESULTS BALANCE SHEET SUMMARISED FY15 FY14 PP&E and intangible assets Goodwill Non current investments and loans Net assets of discontinued operation (excl cash) Rental and finance lease receivables Net working capital Long and short-term liabilities (440) (434) Deferred tax (6) (70) Cash and cash equivalents of continuing operations Net assets Equity

16 FINANCIAL RESULTS EFFICIENCY INDICATORS CONTINUING OPERATIONS FY15 FY14 Inventory turnover Times 5,5 5,5 Trade receivables Days Trade payables Days Net worth (NAV) per share R 40,5 38,2 Gross profit margin (%) % 34,7 33,8 Net profit margin % 11,6 9,2 * Bad debt as % revenue % 0,3 0,3 Overhead and related costs as % of revenue % 21,1 21,6 Cash generated by operations vs operating profit % 121,4 98,1 * 5,0% including prior year abnormal items 16

17 ICT Mark Taylor

18 Millions Thousands Millions ICT SALIENT FEATURES TDV vs MFP and printer MIF ECN number of minutes per call type Total Clicks Multi-functional printers Printers Inbound Outbound CONTINUING OPERATIONS (Rm) % change Revenue % Operating profit % Profit margin 16% 13% 18

19 ICT OVERVIEW Good progress was made on stabilising OA business Initial focus was on repositioning the office automation business Strengthened leadership with the deployment of key team from Nashua Mobile Excellent performance from voice businesses ECN s voice business was launched through Nashua franchises Driving efficiency and synergies throughout the segment Go-to-market distribution and service framework enhanced 19

20 ICT OVERVIEW Office automation Financial performance largely flat Overall MFP volume sales improved by 35%, total market share improved from 15% to 16% Focus on improving the Basic Print Services (BPS) value offering 23% revenue growth in SADC countries, albeit off a low base Prodoc improved SEK revenues by 13%, while costs reduced by 1% Voice business Excellent performance from ECN breaking through one billion voice minutes per year Increased volumes had a positive impact on fixed-cost base and scalable business model Largest independent VoIP solution provider in South Africa Cloud (virtual) PBX offering developed and launched Load-shedding contributed to estimated 2,5 million voice minutes being lost 20

21 ICT OVERVIEW Enterprise telecommunications Now managed separately from ECN business Nashua Communications focused efforts on Unify business contributed a R22 million improvement in operating profit Asset finance business Quince Capital delivered another solid performance growing book by 8% to R2,1 billion Bad debt ratio remains less than 1% of the book Retained A+(ZA) long-term and A1(ZA) short-term national credit rating for 2016 Focus on service automation to drive efficiencies, customer service and sales 21

22 ICT 2016 FOCUS AREAS Add complementary technologies in ICT to evolve the business to a holistic document management and managed office provider Offer more services through same channels while integrating back-end operations Office Automation and MPS/MDS opportunities being developed in new African countries Continue to leverage the Nashua franchise model Seek appropriate new products and services for delivery through the channel Expand the franchise model into other African territories Enhance collaboration with key OEMs Improve operational efficiencies to enhance margins ECN network optimisation project Segment logistics consolidation (Warehouse, distribution and customer service) Improved customer centricity Build on a culture of customer service through continued measurement of all engagements 22

23 APPLIED ELECTRONICS Peter van der Bijl

24 APPLIED ELECTRONICS SALIENT FEATURES MARKET SECTOR REVENUE DISTRIBUTION 24% 30% % % 50% 51% % 49% 56% 43% Commercial Defence SOEs Exports Local Rm % change Revenue % Operating profit % Profit margin 17% 17% 24

25 APPLIED ELECTRONICS RESEARCH AND DEVELOPMENT R&D AS A % OF REVENUE R&D FUNDING (Rm) 9% 80 6% % 20 0% Funded Self-funded Total R&D spend R86 million (2014: R74 million) 25

26 APPLIED ELECTRONICS OVERVIEW An improved performance in H2 on back of orders received and weaker rand Performance from communications and radar business units slowed down Did not secure sufficient new projects to compensate for non-recurring projects in FY2014 Mining surveillance radar flat year-on-year Despite depressed commodity cycle, demand for MSRs continued as safety and efficiencies are critical drivers worldwide Increased competition resulted in pricing pressure Communications has secured phase 1 of SANDF new generation radio contract Contractual pre-payment had a positive impact on working capital requirements First production radios from an additional facility in Durban will be delivered early next year Fuze export order Received in H1 Production and deliveries were at full capacity in H2 Solutions Fierce local price competition led to some loss of traditional logistical support business Strong export orders received for Rogue stabilisation platforms due to price and performance advantage 26

27 APPLIED ELECTRONICS OVERVIEW Expanding of direct product sales into the African, Middle East and Asian markets Security radars in SADC and Central Africa Rogue, radar and fuze systems to Middle East Radios and radars to Asia Innovation Client-funded R&D will yield a new generation technology radar for the SA Navy Newly developed mining radar sensor has been successfully tested in Canada to detect underground rock faults. Final phase of client development funding received First successful flight trials concluded on the new generation airborne radio (ACR510) Acquisition Vertical integration acquisition undertaken to gain control of critical IP 27

28 APPLIED ELECTRONICS 2016 FOCUS AREAS Build and strengthen partnerships with OEMs and other distributors to gain access to new export markets and long-term contracts Continue to develop commercial applications using in-house technologies, thereby broadening our customer base Continue to drive improvement in transformation to ensure that we are aligned with South Africa s national goals 28

29 ELECTRICAL ENGINEERING Alan Dickson

30 R000 per tonne ELECTRICAL ENGINEERING SALIENT FEATURES % FACTORY CAPACITY UTILISATION COPPER PRICE Sep Mar Sep Mar Sep Low voltage Energy cables Copper telecom cables Fibre telecom cables Total price FY14 average FY13 average FY15 average (Rm, includes portion of JV) % change Revenue % Operating profit % Profit margin 13% 12% 30

31 ELECTRICAL ENGINEERING OVERVIEW Diversification Two new circuit breaker product range developments were completed Commercial product range launched in Australia Rail rolling product range launched worldwide Improved energy cable market leadership with the completion of high and extra-high voltage project capability at 275kV and 400kV Efficiency improvements Manufacturing efficiencies improved, partly due to increased production volumes Operating cost increases were contained to below CPI levels Strong operating cash flows of R505 million (2014: R375 million) Despite adverse trading conditions, operating profit margin improved from 12% to 13% 31

32 ELECTRICAL ENGINEERING 2016 FOCUS AREAS Local market conditions are expected to soften resulting in continued focus on margin controls and efficiencies Geographic expansions Cables into Africa New circuit breaker ranges Market alignment with expectations of key long-term customers Investment is expected to result in market leading ratings on the amended B-BBEE codes Expand project-based offerings to meet the evolving requirements of our customers 32

33 GROUP STRATEGY Alan Dickson

34 STRATEGIC REVIEW MATERIAL MATTERS Concentration risk Mainly South African based revenue streams Mature business life-cycle products Slow growth rates Reunert s core competitive advantages Well-known and respected brands Diverse and loyal customer base Number one or two in the majority of the market sectors we participate in Strong operational performance culture with a credible track record Healthy cash flows 34

35 STRATEGIC PILLARS Implementation of the Reunert group strategy will provide Opportunities for further growth A more balanced group with additional products and services Diversified geographical revenues Strategic review completed and received board approval at end April

36 STRATEGIC EXECUTION PROGRESS Acquisitions are a key element of Reunert s growth strategy A board approved acquisition methodology is followed Targets are aligned to the current three segments of Reunert The internal M&A capability has been strengthened Small acquisition in applied electronics awaiting Competition Commission approval Dividend growth is aligned to support the strategy execution 36

37 PROSPECTS Alan Dickson

38 PROSPECTS Reunert s future growth prospects are Likely to have a correlation to the South African macro-economic trends Augmented by recently secured long-term contracts in the applied electronics segment Execution of Reunert strategy Continued focus on acquisitions that deliver enhanced shareholder value will continue Dividends Reunert s cash flows are expected to support both the execution of the Reunert strategy and the distribution of sustainable dividends 38