Howden Africa Final Results Presentation 31 st March 2015

Transcription

1 Howden Africa 2014 Final Results Presentation 31 st March 2015 Howden Group 2014

2 Housekeeping In case of an emergency - Do not run - Proceed to the nearest exit - Wait for instructions at assembly points Refreshments are available after the meeting We expect the presentation to last for approximately 1 hour. Please hold your questions for the end of the presentation. We ask that you please turn off your mobile telephones. Howden Group

3 Forward-Looking Statements The material in this presentation is general background information about Howden s activities as at the date of this presentation. This information is given in summary form and does not purport to be complete and has been prepared solely for informational purposes. Information in this presentation should not be considered as advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling securities. This presentation or statements made during the presentation may contain forward looking information including statements regarding our intent, belief or current expectations with respect to Howden s businesses and operations, market conditions, results of operation and financial condition, capital adequacy, specific provisions and risk management practices. Investors/shareholders are cautioned not to place undue reliance on these forward looking statements. Forward-looking statements are based on Howden's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. These statements are based on a number of assumptions that are subject to change. The slides speak only as of this date. Howden disclaims any duty to update the information herein. The term Howden" in reference to the activities described in these slides may mean one or more of Howden's South African operating subsidiaries and/or their internal business divisions. Howden Group

4 2014 Results Highlights Thomas Barwald - CEO Howden Group

5 2014 Howden Africa Highlights Howden Group

6 2014 Howden Africa Highlights Howden Group

7 Howden Africa 2014 Financial Performance R R R R R Revenue ORDERS in Africa will continue, and should opportunities in the future. Revenue (Aftermarket vs. New Build) 32% Aftermarket 68% New Build R R R R R 0 FY 2013 FY 2014 Revenue of R million for 2014 is 5.6% behind Order Book remains in line with 2013 at R882.7m (2013: R883.4m). Generally the market environment for spares and service supply (aftermarket) remains stable (approximately 68% of our business). We saw growth of circa 12% in Our customers appetite across all industries for major original equipment manufacturing capital investment remains subdued, due to persistent slow economic activities and funding shortages. Power Generation work as a percentage of our business dropped 10% to 60%. Revenue by Industry 2% 1% 3% 16% 3% 60% 15% Steel/Cement Transport HVAC Mining Petrochemical Industrial Power Howden Group

8 Environmental Control Division Howden Group

9 Environmental Control Division ORDERS ORDERS R R R R R R R R R R H H FY 2013 FY 2014 The division continues to see high levels of tender activity, but the award of orders from customers is slow. The expectation remains that large-scale environmental control legislation and general environmental pressure and awareness in Africa will continue, and should improve opportunities in the future. Howden Group

10 Environmental Control Division SALES SALES R R R R R R R R 0 H H FY 2013 FY 2014 The Environmental Control division delivered a significant performance with revenue rising by 57.9% as it successfully executed orders awarded in 2013 and the first half of Howden Group

11 Fan and Heat Exchanger Division Howden Group

12 Fan and Heat Exchanger Division ORDERS ORDERS R R R R R R R R R 0 H H FY 2013 FY 2014 Orders received during 2014 increased 4.4%. A good order intake was experienced, especially for spares and service within power generation and mining, but less so for new build, which has experienced a slowdown when compared with the corresponding period in Howden Group

13 Fan and Heat Exchanger Division SALES SALES R R R R R R R R R 0 H H FY 2013 FY 2014 The Fan and Heat Exchangers division saw a decrease in revenue of 13.5% to R million. This is largely the result of the division not benefiting from the one-off projects on which revenue was reported in 2013 (R255.8 million). Howden Group

14 Financial Overview Kevin Johnson - CFO Howden Group

15 Financial Overview Financial Performance 2014 Operating profit reduced by 27.2% largely due to the impact of the one-off profit reported in 2013 (R109m). EPS was down 13.7% mitigated by improved net finance income (R23.9 million). Howden Group

16 Financial Overview Financial Performance 2014 Assets employed in the Group increased by 9.4%. The business s cash and cash equivalents balance increased by R282m. Liabilities decreased to R607.7 million. The major change during 2014 was the reduction in construction contract liabilities due to a reduction in new-build order awards. Howden Group

17 Financial Overview Financial Performance 2014 Cash generated from operations for the year is up on the prior year by 4.11%. Capital expenditure was R19.8 million (2013: R27.8 million). Mainly associated with replacement rather than expansionary type CAPEX. The business remains focused on managing its working capital. Howden Group

18 Financial Overview Conclusion The performance for 2014 has some highlights, including; further growth in aftermarket Improved cash generation the speed of recovery from the month-long Numsa strike. The overall profit performance is, however, down on 2013, largely due to a subdued new build market and the one-off operating profit gain in 2013 (R109 million). Howden Group

19 Trading Outlook Thomas Barwald Howden Group

20 Trading Outlook The Fans and Heat Exchangers division continues to identify new opportunities for the supply of services and spares in key industries, while capital project spend within the mining industry is expected to remain subdued. The Environmental Control division continues to see a high level of enquiries from customers. Howden Group

21 Questions? Howden Group

22 Shareholder Q&A s Q. Why did Howden Africa not declare a dividend? In light of the potential BEE transaction the board has determined to not declare a dividend. The cash generated remains within the business Q. Considering that your cash represents a quarter of your market capitalisation, could you not pay a dividend now? When will dividend payments recommence? A decision would be taken only after the BEE deal was concluded. Q. When will the BEE transaction be completed? We estimate that it will be completed sometime during Q2. We are in final negotiation with parties regarding the transaction Q. Is the Board in talks with one or more BEE entities? Yes Howden Group

23 Shareholder Q&A s Q. What are the barriers to entry to this industry? Would you assess the barriers as low, medium or high? Q. Does Howden have a distinctive competitive advantage over its competitors (IP, proprietary technology or knowledge, customer captivity, economies of scale, etc). Please elaborate. Main barrier and competitive advantage is our in-house application engineering knowledge and IP on our products. We believe the barrier is high. Q. Please elaborate on the growth prospects of the company over the next 5 years. Major areas of growth are; 1) Environmental Control as companies comply with the clean air regulations 2) Further growth in Aftermarket 3) Recovery in New Build mining Howden Group

24 Shareholder Q&A s Q. What is the company's market share in its respective focus areas / business units? Howden Africa has a good market share across our focus areas in Heavy Industrial, Power and Mining. There is a lower market share in environmental control and light industrial products were there is more international and local competition. Q. Who is the company's largest competitor per business unit and what is their market share? There is no one competitor for each business unit. We compete against a wide number of both international and local companies across our product mix. In the last few years we have moved up the value chain to compete with EPC s. Howden Group

25 Shareholder Q&A s Q. What % of revenue is currently generated outside RSA? What is the expectation in 5 years from now? Approximately 5% of revenue. We expect modest growth in the next 5 years for mainly aftermarket. Beyond 5 years and as more mines go underground in the rest of Africa we believe we are well placed to increase the size of this business. Q. What procedure was followed to approve the Howden Group Management Charges? It was fully considered and approved by the board, ratified by shareholders and professional 3rd party advice was received. Howden Group

26 Shareholder Q&A s Q. How much was the management charge in 2014? Details on the management charge can be found within the notes of the financial statements within the integrated report. (Note; the Howden Group Limited UK management Fee reduced from R20.06m in 2013 to R17.97m in 2014). Q. Would executives be happy with the management services agreement and fees if they were shareholders? Yes, the business would be unable to operate without services provided by Howden Global including branding, website, software selection programs, global insurances, technical support on our products etc. Howden Group

27 Q. In relation to the software license agreement, why did the board approve the agreement after the effective date of the agreement which is 1 January 2013? The board considered the need for and value of the software prior to the effective date. The agreements were signed after the effective date as this was when the actual draft agreement was finalised. Q. In relation to the succession of the CEO and CFO it was previously understood that there would be a year between the departure of the CEO and CFO. What are the company s plans in this regard? The CEO s contract has been extended until the end of 2015 and the CFO s contract has been extended until mid Howden Group

28 Q. When will the 28% tax rate normalise? We expect going forward that it will be around 28%, however this is not a definitive answer. We do however use 28% in our own internal forecasting. Q. In relation to the clean air legislation do we believe that the compliance deadlines will be pushed out? We are uncertain but estimate that compliance enforcement will only be fully enforced in the longer term. Q. If environmental orders remain subdued how will the company deal with this? The company has implemented a flexible model that should allow it to mitigate overheads and other costs to ensure the business remains profitable. Howden Group

29 Thank You Howden Group 2014