Half Year Results Presentation December 2014 Creating long-term shareholder value through the efficient operation and growth of our core businesses and investments
Organisation Chart (Core Businesses) SCHAFFER CORPORATION LIMITED Building Materials Division Property Division Automotive Leather Division Delta Syndicated Investment Property Howe (83% Owned) • Precast Concrete – Herne Hill, WA • Finishing • Thomastown, Victoria, Australia • Kosicé– Slovakia (facility under Company Owned Property Building Products construction • Tannery – Rosedale, Victoria • UrbanStone Factory (paving) - Jandakot, WA • Cutting • Archistone Masonry Block Plant (walling and paving) - Jandakot, WA • Shanghai – China Gosh Capital • Kosicé– Slovakia • Archistone Reconstituted Landscaping Limestone Blocks - Gin Gin, WA • Sales Offices • Australia • Limestone Resources • China • Reconstituted Retaining Wall Blocks - Investment Company (83% Owned) Carabooda, WA • Slovakia • Natural Quarry Cut Blocks (landscaping and • Japan • Owned Property building) - Moore River and Swan Lease, WA • Germany • Property Unit Trusts • Natural Granite and Stone - Australian sourced • Other • Natural Granite and Stone - Imported • UrbanStone Central - national network of ideas and design centres for retail and trade 2
Overview Reduced first half results compared to previous corresponding period (pcp) • FX movements had a negative impact on Automotive Leather results – AUD:USD down, AUD:EUR up. • Building Material’s profit was less compared to pcp due to a reduced market and increasing competition resulting from less available work. • FX movements created abnormally high Automotive Leather stock profits of over $4 million in the previous year. Key focus is on the growth of the Automotive Leather division • New model programs, including awarded supply to Mercedes, will increase leather volumes into FY16. • This has required the expansion of leather finishing and cutting facilities in Kosicé, Slovakia. • The growth in volumes and the set up of new facilities will require additional working capital support whilst the new facility is commissioned. The second half is expected to be better than the first half • Automotive Leather volumes should increase for new model programs commencing in the second half. • Building Materials has reasonable order banks and reduced cost structures. 3
Financial Performance First half results are lower than pcp, but an improvement on the immediately prior period. • Reduced volumes and negative FX movements for the current period. • The previous year contained over $4 million of abnormal stock profits for Automotive Leather due to currency fluctuations. • Dividend maintained Dec-2014 Jun-2014 Dec-2013 1 Half-Year (current) (pcp) Revenue ($m) $75.7 $77.2 $86.2 EBIT ($m) 2 $4.5 $4.0 $15.3 NPAT ($m) 3 $2.1 $1.2 $4.9 EPS $0.15 $0.09 $0.35 Ordinary dividend (fully franked) $0.12 $0.13 $0.12 1. Dec-2013 includes $3.7m impairment of Building Products goodwill and $0.7m profit after tax relating to an insurance claim for the loss of the building at 10 Bennett Avenue, North Coogee. 2. Refer to slide 23 for EBIT reconciliation. 3. Net profit after tax and minority interests. 4
Cash Flow Dec-2014 Jun-2014 Dec-2013 Half-Year Ending ($m) (current) (pcp) EBIT 4.5 4.0 15.3 Add depreciation 2.6 2.3 2.7 Less profit on disposal of assets - - (1.4) Larger tax payments Net interest paid (1.8) (1.7) (1.7) relating to FY14 Tax paid (3.6) (1.1) (1.8) Change in Howe trade working capital and FX (4.7) (0.7) (0.7) Includes $5.6m for movements higher stock levels to Other changes in working capital (0.9) 3.3 (1.3) supply increased leather volumes expected in the Total operating cash generated (3.9) 6.1 11.1 second half of FY15 Gosh Capital investments (1.7) (2.4) (8.7) Capital expenditure (2.6) (3.2) (2.5) Proceeds from insurance/divestments - - 1.3 Dividends paid (1.8) (1.7) (1.9) Share buy back - - (0.2) Net debt reduction/(increase) (10.0) (1.2) (0.9) 5
Group Net Debt Building Syndicated Total Total Total Automotive Gosh All amounts in $m’s Materials & Investment 31 Dec 30 Jun 31 Dec Leather Capital Corporate Properties 2014 2014 2013 Type of Debt: Bank debt - recourse 5.5 3.7 - - 9.2 6.7 5.7 Bank debt - non-recourse - 19.7 2.5 6.1 28.3 24.3 24.3 - 17.5 Govt loans - non-recourse - - 17.5 20.0 20.0 Equipment finance 1.5 - 0.5 - 2.0 1.1 1.1 7.0 23.4 20.5 6.1 57.0 52.1 51.1 Maturity Profile: - FY14 - - - - 6.8 - - FY15 0.4 11.5 2.6 - 14.5 21.3 16.3 - FY16 0.5 1.0 2.7 - 11.3 3.8 10.8 - FY17 0.4 7.1 2.7 - 3.1 9.8 2.5 - FY18 and beyond 5.7 3.8 12.5 6.1 28.1 17.2 14.7 7.0 23.4 20.5 6.1 57.0 52.1 51.1 Net Debt Position: Gross debt 7.0 23.4 20.5 6.1 57.0 52.1 51.1 Cash and term deposits (3.8) (0.7) (5.0) - (14.6) (14.7) (9.5) Net Debt/(Cash) 3.2 22.7 15.5 6.1 47.5 37.5 36.4 % debt recourse to SFC 100% 16% 0% 0% Increase since June 14 to fund $5.6m $1.5m increase since June increase in stock levels for expected 14 for expansion of Dixon second half volumes Road property 6
Assets Market value of Group Net Tangible Assets $7.40/share (pcp $7.09/share) Building Syndicated Automotive Gosh Total Materials & Investment Leather 1 Capital 1 31 Dec 2014 Corporate Properties Net assets (Book) ($m) 37.0 (8.4) 33.2 6.2 68.0 Net assets (Market Value) ($m) 45.5 12.7 33.2 13.4 104.8 Asset backing (NTA - Book) ($/share) 2.64 (0.60) 2.29 0.44 4.77 Asset backing (NTA - Market Value) ($/share) 3.24 0.91 2.29 0.96 7.40 1. SFC’s 83% share of division’s assets . • Estimated $52.6 million of unrealised property value before tax ($36.8 million after tax) after minority interests included in Market Value. 7
Automotive Leather 8
Automotive Leather Results Dec-2014 Jun-2014 Dec-2013 Half-Year Ending ($m’s) (current) (pcp) Revenue 47.2 50.4 53.0 Segment EBIT 3.5 4.1 11.1 Margin 8% 8% 21% USD strengthened 3.5% and EUR weakened 2.3% against the USD on a 6 month average basis– both negative impacts for Howe as we buy our raw material is USD (net importer in USD) and over 70% of sales are denominated in EUR (net exporter in EUR). Volumes decreased 7% on immediately prior period. Over $4 million of abnormal stock profit included in pcp due to foreign currency fluctuations and the delayed impact of increased cost of hides on profits due to FIFO accounting. 9
Automotive Leather Outlook Volumes are trending upwards • H2 FY15 volumes are expected to be higher than pcp as supplies to new model programs commence. • The trend should continue in to FY16 when new supply to Mercedes will commence. • At least 50% increase in volumes over the next 3 years. Second half hide margins are expected to be lower than pcp, but similar to H1 FY15, as increased hide stock costs continue to have an impact on the FY15 results. EBIT for H2 FY15 is expected to be higher than pcp. 10
Automotive Leather Outlook New Leather Finishing and Cutting Facility • Construction has commenced for a new 15,000 sqm facility in Kosicé, Slovakia, due to be operational towards the end of calendar 2015 to accommodate the increasing volumes from H1 FY16. • Gives Howe an increased European presence. • Raw material sent direct from South America to Europe will reduce several months stock holding, plus deliver duty and freight savings. • Working capital and asset financing debt facilities have been approved to support the growth and transition. 11
Automotive Leather Currency Impacts Foreign exchange exposures are a risk to Automotive Leather’s results and forecasts. An increase (or decrease) of 1¢ for the AUD:EUR reduces (increases) cash and EBIT by approximately $1 million per annum. A 1¢ decrease (or increase) in the AUD:USD reduces (increases) cash by approximately $500k per annum, but reduces (increases) EBIT for the immediately following 12 months by approximately $200k due to the delayed impact on profits of the “First In, First Out” (FIFO) accounting of hide stocks. Prior to the completion of the first half, the Automotive Leather division entered into Forward Exchange Contracts (FECs) to hedge against future currency movements. 40% of annual exposure has been hedged. Increasing to 50% by the end of the financial year. The aim is to smooth out the volatility caused by currency movements. • The recent accelerated decline in the AUD:USD will cause stock values to increase further but the effect on profits will be delayed to FY16 once we sell through current inventories. 12
Schaffer Building Materials Building Products 13
Building Materials Results Dec-2014 Jun-2014 Dec-2013 Half-Year Ending ($m’s) (current) (pcp) Revenue 25.1 22.2 29.7 EBIT 0.6 (0.8) 2.5 Margin 2.4% (3.6%) 8.6% The decrease in the resource sector related civil infrastructure developments in Western Australia has reduced the market and intensified competition, resulting in decreased revenue and margin, particularly for Delta. Delta (precast concrete) division achieved a reduced result compared to pcp, but improved performance compared to H2 FY14. Schaffer Building Products (paving and walling products) division achieved an improved result compared to pcp due to cost reductions. 14
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