Howden Africa 2016 Final Results Presentation 13 th April 2017 Howden Group 2014
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 30mins. Please hold your questions for the end of the presentation. We ask that you please turn off your mobile telephones. Howden Group 2014 2
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 2014 3
Howden Vision & Values Howden Group 2014 4
Howden & Colfax Update on Global Product offerings New/Improved Products New Applications UMAF for Mining 580 Screw EMTEC 3-Screw Pump VA/VE MR/MRX 400 2-S Recips for LNG HS Enameled Elements ALLFUEL 3- Screw Pump IVT ATEX Oil Mist Generator Ti Turboblower for MVR SimSmart SmartExec IN-1000 Smart Control SolySmart Howden Group 2014 5
Howden Africa Strategies The Company focus is on our key strategies of : Maintaining an high level of customer service across industries Expanding export sales into the Rest of Africa Investing in our people Develop and maintaining flexibility of technical skills across the business Identifying opportunities to grow our aftermarket both organically and through acquisition Howden Group 2014 6
2016 Results Highlights William Thomson - CEO Howden Group 2014 7
2016 Howden Africa Highlights Howden Group 2014 8
Fan and Heat Exchanger Division Howden Group 2014 9
Fan and Heat Exchanger Division ORDERS ORDERS R 1 400 000 R 1 200 000 1 106 500 1 238 348 R 1 000 000 R 800 000 R 600 000 518 905 646 009 R 400 000 R 200 000 R 0 H2 2015 H2 2016 FY 2015 FY 2016 Fans and Heat Exchangers division orders received during 2016 increased by 11.9% to R1 238.3 million compared to the corresponding period (2015: R1 106.5 million). Order intake was in line with the strategy of growing aftermarket revenue, with increase in order intake in Aftermarket and Retrofit business in our key market segments. Howden Group 2014 10
Fan and Heat Exchanger Division SALES SALES R 1 600 000 R 1 400 000 1 338 783 R 1 200 000 1 117 302 R 1 000 000 R 800 000 750 570 R 600 000 589 814 R 400 000 R 200 000 R 0 H2 2015 H2 2016 FY 2015 FY 2016 The Fans and Heat Exchangers division saw a increase in revenue of 19.8% to R1 338.8 million (2015: R1 117.3 million). The increase is a result of expanding our offerings into the Rest of Africa and, although customers delayed new capital projects, there was an improvement in aftermarket and retrofit activity. Howden Group 2014 11
Environmental Control Division Howden Group 2014 12
Environmental Control Division ORDERS ORDERS R 350 000 311 200 R 300 000 R 250 000 239 949 R 200 000 197 145 R 150 000 R 100 000 67 305 R 50 000 R 0 H2 2015 H2 2016 FY 2015 FY 2016 Environmental Control division order intake was R239.9 million compared to R311.2 million in 2015. The business received some large orders in the second half of 2016. The division continues to have a large opportunity list, but due to economic conditions the award of orders has been slow. Howden Group 2014 13
Environmental Control Division SALES SALES R 400 000 365 974 R 350 000 R 300 000 R 250 000 215 993 R 200 000 178 610 R 150 000 R 100 000 98 658 R 50 000 R 0 H2 2015 H2 2016 FY 2015 FY 2016 The Environmental Control Division revenue dropped to R178.6m reflecting the drop in bookings in H1 2016, with economics conditions and no strong legislative driver resulting in delays in order placement. Howden Group 2014 14
Fabrication Technology Division (ESAB) Howden Group 2014 15
Fabrication Division / ESAB PEFORMANCE ORDERS SALES R 100 000 R 90 000 R 80 000 R 70 000 R 60 000 R 50 000 R 40 000 R 30 000 R 20 000 R 10 000 R 0 94 380 55 661 38 719 H1 2016 H2 2016 FY 2016 R 100 000 R 90 000 R 80 000 R 70 000 R 60 000 R 50 000 R 40 000 R 30 000 R 20 000 R 10 000 R 0 87 143 52 485 34 658 H1 2016 H2 2016 FY 2016 The new Fabrication Technology Division commenced trading during H1 2016. As this business is a start-up this was a solid performance for it first year of trading. This Division presents a new revenue stream with growth opportunities for the business which has a relatively low market share in the region. Howden Group 2014 16
Howden Africa 2016 Financial Performance Revenue Revenue (Aftermarket vs. New Build) R 1 800 000 R 1 600 000 R 1 400 000 R 1 200 000 R 1 000 000 R 800 000 R 600 000 R 400 000 1 483 276 1 604 535 30% 70% Aftermarket New Build R 200 000 R 0 FY 2015 FY 2016 Revenue of R1 604.5 million for 2016 is 8.2% up on 2015. Aftermarket growth and a drop in new build projects during the year increased our ratio of Aftermarket v New Build. (2015 was approximately 66% Aftermarket). Our customers appetite across all industries for major new build or upgrades requiring new capital investment remained subdued but picked up in H2. Power business increased by 5% to 59% of our total revenue mainly as a result in the drop in revenue from large value Environmental projects. Revenue by Industry 2% 4% 2% 20% 59% 3% 10% Steel/Cement Transport HVAC Mining Petrochemical Industrial Power Howden Group 2014 17
Financial Overview Marinella Vigouroux - CFO Howden Group 2014 18
Financial Overview Financial Performance 2016 Segment analysis by operating division Operating profit of R247.6.0 million is a 5.5% decline. The Fans and Heat Exchangers division saw operating profit % increase from 19.1% to 21.2% on the back of product mix of projects executed in the period. The Environmental Control division s operating profit decreased from a profit in 2015 to a loss in 2016. Pricing pressure from customers together with warranty issues on plant installed has resulted in this significant decline for the period. Central operations costs have increased largely due to the recognition of the one-off gain in 2015 within the defined benefit scheme (R19.8 million). The Fabrication Technology division contributed with the growth in revenue with a profit in the first year of trade of R1.3million. Howden Group 2014 19
Financial Overview Financial Position 2016 Assets increased to R1861 million. The major changes during 2016 have been a further increase in the business s cash and cash equivalents balance which has increased to R909.3 million and increase in Inventory required for the new fabrication division together with work-in-progress on large projects. Liabilities increased to R606.1 million. The major change during 2016 has been in trade and other payables to ESAB Middle East for the new Fabrication Division Purchases. Howden Group 2014 20
Financial Overview Conclusion 2016 has been challenging for the Howden Africa business especially in the Environmental Control division which experienced a squeeze on project margins and significant warranty issue on installed plant. The Company remains focused on its strategies of expanding export sales into the rest of Africa investing in our people identifying opportunities to grow our aftermarket both organically and through acquisition maintaining flexibility Howden Africa has established itself as the distributor for ESAB welding and consumable products in South Africa and has had a solid peformance in 2016. The expectation is to grow this division and capture greater market share in the future. The Company remains debt-free with significant cash reserves and is well placed to take advantage of any opportunities that present themselves in the future. Howden Group 2014 21
Trading Outlook William Thomson Howden Group 2014 22
Trading Outlook Capital spend within power generation and general industry is expected to remain subdued but with some positive movement within Rest of Africa mining. Fans and Heat Exchangers division continues to focus on the supply of spares and service to key industries. Market conditions within the Environmental Control division are expected to remain challenging although the positive signs from H2 are indicating more activity in this market. Fabrication Technology division is expected to grow. Howden Group 2014 23
Questions? Howden Group 2014 24
Shareholder Q&A s Q1. Has the Company any plans to declare a special dividend? There are no plans for a dividend payment. Q2. Provide an update on B-BBEE status and update on a B-BBEE deal We achieved Level 4 rating under the amended codes with focus on supplier development and training. We have nothing new to report on a BBE deal. Q3. What are the plans for the cash? The Board are actively investigating options to utilise the cash. Board options are share buy-backs, acquisitions or investment in a transformation arrangement. Q4. Provide update on the current business relationship with ESKOM. ESKOM remain one of our key customers. We continue to focus on providing excellent service and support to the Power Plants. We are also addressing increasing demands to support supplier development and CSI spending in communities local to the Power Plants. Howden Group 2014 25
Shareholder Q&A s Q5. How active is your acquisition pipeline? We continue to seek attractive acquisition opportunities. In 2016 we were working on a potential bolt-on deal, however the seller s Parent Company decided to withdraw from the selling process. Q6. Please explain the Shared Service Centre referenced in the Related Party Transactions This is a clerical finance support team, based in Central Europe, servicing multiple Howden businesses. This provides a more resilient and efficient service than previous use of local resource. For Howden Africa this is a like for like cost compared to previous arrangements. Note the shared service charges for 2016 cover a nine month period. Q7. Will the Company consider hedging the management charge to reduce risk of currency exposure? As reported at the 2016 Interim Results presentation, the Board made the decision not to hedge the management fees. Management charges are payable in GBP. Howden Group 2014 26
Shareholder Q&A s Q8. Why are salaries & wages increasing 16% y/y whereas number of employees only increased by 3.1% over the same period.? Salaries & Wages include the costs of employing temporary labour whereas the employee numbers stated are only our own permanent employees. We utilise a significant number of temporary labour for on site activities. Q9. What is the expectation from the Fabrication Technology Division and what margin is expected from this part of the business? Our expectations are to grow market share and return double digit margins. Q10. Explain the large increase in distribution costs (+56%). The increase relates to the new Fabrication Technology Division. Howden Group 2014 27
Shareholder (supplementary Q&A s) Q11. What type of acquisition is of interest to the Company Acquisitions which can offer synergies, require similar professional skills and offer growth and double digit margins. Q12. Is there an ability to increase prices with your major customers Some service agreements have index linked formulae incorporated. Other project pricing is dependant on the competitive nature of individual projects. For smaller aftermarket business we Q13. Have you seen any changes in Plant maintenance requirements compared to prior years? We have seen better planning from customers but no major change in volume. Q14. Are there any major debtor issues in the business? There are no major issues, we have a robust cash collection process and utilise key account management. Howden Group 2014 28
Thank You Howden Group 2014