Howden Africa
2016 Interim Results Presentation
26th August 2016
© Howden Group 2014
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© Howden Group 2014
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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
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2016 Interim Results Highlights
Willie Thomson - CEO
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Howden Africa Interim Results Highlights
Challenging trading conditions in the first six months.
Weak demand for environmental and mining capital projects across all
the served market segments.
Highlight was the sales and margin for aftermarket (spares and service
supply) within the Fans and Heat Exchangers division.
Balance sheet is healthy and the company remains debt free.
© Howden Group 2014
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Howden Africa 2016 Interim Results ‘Dash Board’
Revenue (ZAR’000)
ORDERS
ORDERS
ORDERS
Revenue (Aftermarket vs. New Build)
R 800,000
677,469
R 700,000
702,823
in Africa will continue, and should
opportunities in the future.
R 600,000
Aftermarket
31%
R 500,000
69%
R 400,000
New Build
R 300,000
R 200,000
R 100,000
Revenue by Industry
R0
H1 2015
H1 2016
Revenue of R702.8m to June 2016 is 3.7% ahead H1 2015.
POWER
Our customers’ appetite across all industries for major original
equipment capital investment remains subdued, due to persistent
slow economic activities and funding shortages.
The market environment for spares and service supply
(aftermarket) was robust with aftermarket growing from 59% to 69% of
the businesses total revenue.
22%
16%
3%
OIL & GAS
59%
MINING
OTHER
INDUSTRIAL
Major changes in revenue by industry was a drop in Mining to 16%
(2015: 19%) and a increase in Power to 59% (2015: 55%).
© Howden Group 2014
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Fans and Heat Exchangers Division
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Fans and Heat Exchangers Division
ORDERS & REVENUE
ORDERS (ZAR’000)
REVENUE (ZAR’000)
R 700,000
R 600,000
592,339
587,595
R 700,000
R 600,000
518,905
R 500,000
589,814
588,213
H2 2015
H1 2016
527,488
R 500,000
R 400,000
R 400,000
R 300,000
R 300,000
R 200,000
R 200,000
H1 2015
H2 2015
H1 2016
H1 2015
Orders received during 2016 have increased 0.8% compared to H1 2015
and 14.2% compared to H2 2015.
Revenue increased by 11.5% to R588.2m compared to H1 2015 and was flat
compared to H2 2015.
A strong performance in Aftermarket (spares and service supply) has
mitigated a slow down in Capital Equipment spend.
© Howden Group 2014
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Environmental Control Division
© Howden Group 2014
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Environmental Control Division
ORDERS & REVENUE
ORDERS (ZAR’000)
REVENUE (ZAR’000)
R 300,000
R 250,000
215,993
243,895
R 250,000
R 200,000
R 200,000
R 150,000
149,981
R 150,000
R 100,000
R 100,000
79,952
67,305
42 804
R 50,000
R0
R 50,000
R0
H1 2015
H2 2015
H1 2016
H1 2015
H2 2015
H1 2016
The division experienced a low order intake in the first six months of 2016 with
revenue declining by 46.7% compared to H1 2015.
Customers are delaying decisions on environmental control projects due to
economic conditions.
Large-scale environmental control legislation and general environmental
pressures is expected to result in growth in this division in the longer term.
© Howden Group 2014
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Fabrication Technology Division
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Fabrication Technology Division
ORDERS & REVENUE
REVENUE (ZAR’000)
ORDERS (ZAR’000)
R 45,000
R 40,000
R 35,000
R 30,000
R 25,000
R 20,000
R 15,000
R 10,000
R 5,000
R0
38,719
R 40,000
34,658
R 35,000
R 30,000
R 25,000
R 20,000
R 15,000
R 10,000
0
0
H1 2015
H2 2015
R 5,000
0
0
H1 2015
H2 2015
R0
H1 2016
H1 2016
The new Fabrication Technology division commenced trading during H1 2016.
Logistics and Sales operations have been established in Johannesburg,
Durban, Port Elizabeth and Cape town.
As this business is a start-up this was a solid performance in its first months
of trading.
© Howden Group 2014
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Financial Overview
Kevin Johnson - CFO
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Financial Performance
Interim Result 2016 – Condensed Statement of Comprehensive Income
Compared to the corresponding six
months in 2015;
Revenue up 3.7%. Drop in
Environmental Control revenue
compensated by improvements from
the other divisions.
Operating profit of R102.4 million is a
decrease of 7.1% due to the
performance from the Environmental
Control and Fabrication Technology
Divisions.
Investment income increased by
50.8% to R25.9m on increased cash
balance.
Earnings per share increased by
1.2%.
© Howden Group 2014
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Financial Performance
Interim Results – Condensed Statement of Financial Position
Key changes when compared to the
corresponding six months in 2015 are;
Pension fund asset (R19.7m). The
defined benefit fund is in the process of
being closed with financial approval being
sought from the Financial Services Board.
Inventories have increased R134.6m due
to a combination of increased work in
progress due to timing of a few large
projects completion and also new
inventory required for the Fabrication
Technology division.
Cash and cash equivalents increased by
R159.6m.
Payables has increased due to the
establishment of the Fabrication
Technology Division.
© Howden Group 2014
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Trading Outlook
Willie Thomson
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Trading Outlook
Capital spend within power generation, mining and general
industry is expected to remain subdued.
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.
Fabrication Technology division is expected to grow.
© Howden Group 2014
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Questions?
© Howden Group 2014
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Shareholder Q & A’s
Q: Can you provide more detail in respect of the environmental
division pipeline?
The environmental division centres around gas cleaning and water treatment. Our
customer contact starts well in advance of contract awards with Howden providing
technical advice. Hence we are managing the pipeline proactively.
Q: Can you provide more detail in respect of the sustainability of the
aftermarket business?
There is a strong installed base and our products operate in arduous conditions which
will always require replacement parts.
Q: When do you expect profitability from the new fabrication
business?
There is great opportunity with the business as we have a low market share. As a start
up, we have incurred start up costs, including costs around recruitment of appropriate
skills. The business has made profit in the last few months. As a new business we are
currently better understanding our routes to market via distributors and end-users.
However, we are conscious not to take on sales that impact profitability.
© Howden Group 2014
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Shareholder Q & A’s
Q: What is you thoughts on the working capital outlook in H2 and how
will the new fabrication division influence that?
The Company has historically been a good cash generator and over a 3 year average
target cash conversion of circa 100% Operating Profit to Operating Cash. The company
will strive for a good working capital performance in H2. We have however seen
customers put additional focus on their own working capital through reduced supplier
payment terms in these difficult economic times. The new fabrication division will have
an impact on working capital as we are required to keep some form of inventory. As this
is a new business we are still better understanding the business working capital
requirements.
Q: What do you think the impact of new fabrication division will be on
group margins?
The new fabrication division is a start-up and is unlikely to be material for some time to
the overall Howden business. it is still too early to determine the impact and we should
have a better feel after another 6 months of trading.
Q: Do you envisage a consistent revenue stream from the new
fabrication business?
We do expect the business to generate a consistent revenue stream going forward.
© Howden Group 2014
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Shareholder Q & A’s
Q: Is there any update in respect of the BEE deal?
The is nothing new to add at this time.
Q: Are the working capital requirements still around R150 million and
of the approximate R750 million cash in hand. If so, what do we intend
to do with the remainder of the cash?
The working capital requirements remain around R150 million. The board is actively
investigating option to utilise the cash.
Q: What is the group’s management fee and is the company intending
to hedge this fee?
We have provided for 50% of the 2015 full year fee plus a 7% uplift. We did a scenario
analysis on potential exchange rate movement and made a decision not to hedge the
fee.
© Howden Group 2014
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Thank You
© Howden Group 2014