Please find attached Presenters Notes for the Presentation of Results for the financial half year ended 31 December 2013.

Transcription

1 27 February 2014 Company Announcements Office Australian Securities Exchange Limited Level 6, 20 Bridge Street SYDNEY NSW 2000 By Electronic Lodgment Total pages: 10 (including cover letter) Dear Sir / Madam HALF YEAR END RESULTS PRESENTERS NOTES Please find attached Presenters Notes for the Presentation of Results for the financial half year ended 31 December Yours faithfully Warren Coatsworth Company Secretary Seven Group Holdings Limited ABN Pirrama Road Pyrmont NSW 2009 Australia Postal Address: PO Box 777 Pyrmont NSW 2009 Australia Telephone Facsimile

2 Results Presentation Half-Year Ended 31 December 2013 Slide 1 Opening Slide Don Voelte Good morning. Thank you for joining us today for the release of the Seven Group Holdings 1H FY14 Results. On stage with me is Ryan Stokes our COO and Richard Richards our new CFO who joined us in early October. Richard has brought a new focus to the business and in his short time with the Group, has quickly grasped the challenges and opportunities that lie ahead. I am very pleased. Before I begin the presentation, I would like to thank our team for their commitment to the business. Our SGH team is small but strong Ryan, Richard, Bill Forbes, James Scott, the Hon Martin Ferguson, Bruce McWilliam, Melanie Allibon, Bridget Fair, Gavin Armstrong, Alistair McComas, Michael Singh, Jeremy Eugenio and Chris Burke. That is it that is Seven Group Holdings. The business environment has been challenging but through significant restructuring and the effort of our team, I am confident that we are well placed to take advantage of an upturn and opportunities of interest. Slide 2 Disclaimer Don Voelte Our standard disclaimer is on slide 2. Slide 3 Don Voelte Agenda Ryan, Richard and I will talk to the operating and financial results of each of our businesses. Slide 4 Don Voelte Group Highlights Moving to slide 4. SGH s underlying results were impacted by the severe downturn in demand from the mining sector particularly in relation to new equipment sales and demand for rental equipment. Importantly, the cost reduction initiatives that commenced in FY13 were completed in November/December 2013 resulting in more than 1,750 positions leaving the Group. WesTrac China, which was one of the first business units to undergo this program, has provided a positive turnaround in the period and they have achieved their budget every month for the past seven months. During the period under review our listed investment and property portfolio continued to perform well under Ryan s watchful eye. Seven Group Holdings Limited ABN Pirrama Road Pyrmont NSW 2009 Australia Postal Address: PO Box 777 Pyrmont NSW 2009 Australia Telephone Facsimile

3 Our results were positively impacted by significant items which amounted to $133m after tax predominantly relating to the reversal of prior impairments against our investment in Seven West Media ( SWM ) Net debt has reduced by $106 million to $608 million at 31 December 2013 and the Group has significant funding capacity available to fund future growth and investment opportunities as they arise from our surplus cash, undrawn facilities and the listed portfolio. We are also pleased to announce that despite the challenging business environment the interim dividend will be 20 cents per share fully franked, which is unchanged from the prior comparative period and will be payable in April. Slide 5 Don Voelte Key Financial Numbers You will see on slide 5 that the Group s financial results are in line with previous guidance provided for the half year with trading revenue of $1.58 billion and underlying NPAT reducing by 44% to $132 million. The result reflects the strong performance of WesTrac Australia in the prior comparative period where record revenue was achieved and the drop off in demand particularly in the mining sector which started in the second half of FY13 and continued into this half. The key thematic is the overhang that the mining boom period demand of FY12-13 created on new capital equipment and product support revenue as customers seek to take advantage of the new equipment to defer maintenance activity. While we do not expect new equipment orders to revert back in the short term, we are seeing some positive developments in demand for parts and service in WesTrac as fleets start to age. During the year there were some significant items which contributed positively to statutory NPAT by a further $133 million resulting in a reported NPAT of $265 million which was 3% up on the prior comparative period. Underlying earnings per share is down 46% to 38 cents per ordinary share. Slide 6 Don Voelte Capital Management Onto slide 6, As custodians of your funds, we are conscious of the need to maintain a balance between preserving funding capacity and providing shareholders with returns on their investment. The interim dividend of 20 cents represents an annualised 5.8% cash yield on the opening share price and a payout ratio of 53% of underlying EPS. Our aim is to maintain and grow the ordinary dividend over time as circumstances allow. We also recently announced an on market share buyback of up to ~3.86% of our outstanding shares. The buyback will commence in March. 2

4 Slide 7 Don Voelte Transformation in Progress Onto slide 7. We are making good progress across a range of initiatives ranging from customer service, cost discipline and capital management. We have a renewed focus on safety, planning strategies and streamlining processes to enhance service delivery to our customers. Slide 8 Don Voelte The S3 Program As an example of the transformation we are undertaking, we have established our S3 program focused on (Standardisation, Simplification and Scalability) of our systems and controls. This Program is a process-led business transformation which commenced in January 2014 following a Control Pilot. It includes process templates, financial and business controls, data management, KPIs and systems (and interfaces to our customer facing applications such as MineStar) through simplified data sharing. Slide 9 Don Voelte Outlook As documented in the FY13 full year results, FY12 and FY13 were record years, driven by a significant number of large fleet deliveries for WesTrac in the second half of FY12 and the first half of FY13. The well documented downturn in the mining sector has impacted all of our industrial services businesses and we continue to remain cautious regarding trading conditions in the next six months. As can be seen from the historical revenue chart, the WesTrac Australia business in particular has gone through a significant recent expansion and we can now see this normalising to a level closer to the historic trend. For the next six months, Seven West Media has forecast TV to have low to mid single digit growth, Magazines rate of decline is expected to lessen and Newspapers to remain on current trend. Taking into account all of our businesses, we expect the FY14 result will be in line with previous guidance with the full year result below that achieved in the last two financial years, but approximating FY11 levels. As such, we reiterate previous guidance that underlying FY14 EBIT will be down towards the low end of the 30% to 40% range off FY13. I would now like to hand over to Richard Richards to take us through the Group s financial results. 3

5 Slide 10 Richard Richards Consolidated Profit & Loss Thanks Don and good morning. On slide 10 you will find a summary of the consolidated profit and loss statement for the 1H FY14 and I refer you to the Appendix 4D for the detailed statutory presentation. This result reflects the challenging conditions faced by the Group s industrial services businesses in Australia, as mining related capital sales and services contracted in response to significant cost cutting across the industry. Consolidated revenue decreased by 42% to $1.6 billion, principally driven by a $1.1 billion reduction in product sales in WesTrac Australia against prior comparative period. Product support revenue however, was only down 5% due to deferral of non-critical maintenance and reduced fleet utilisation. Expenses, excluding depreciation and amortisation similarly decreased by $1 billion or 39% resulting in underlying EBIT decreasing by 50% to $189 million. On a statutory basis, the result was positively impacted by Significant Items after tax of $133 million coupled with 45% reductions in financing costs due to lower net debt and a reduced effective tax rate of 14%. This underlying effective tax rate reflects the benefit of the receipt of fully-franked dividends on our listed portfolio and the reversal of a prior period over provision. Slide 11 Richard Richards Significant Items Significant items reflect potentially non-recurrent items that arose during the period and include SGH s gain on the sale of part of its listed portfolio (including a $15 million gain on sale of part of our stake in ABC together with $6 million gain being realised on other listed securities), mark to market of cash settled equity derivatives of $11m, the reversal of $128 million of a prior impairment of SGH s investment in Seven West Media and our proportionate share of profit realised by Coates Hire on the sale of its UK operation. Significant items also include costs associated with the Group s restructuring activities which resulted in the reduction of 1,117 FTE positions across the Group during the 1H FY14. Net financing costs also benefited from the unwind of $8.6 million of deferred proceeds from the Vividwireless sale coupled with guarantee fee received of $4 million. The tax expense of $45 million within Significant Items is slightly below the prevailing corporate tax rate of 30%, due to the exempt tax treatment of both the ABC realised profit and Coates UK sale. Slide 12 provides some additional analysis of the significant items which, on an after-tax basis, represented a profit of $133 million. Slide 12 Richard Richards Earnings Summary Slide 12 shows the breakdown of the Underlying EBIT outlined in Slide 11 and allocates these amounts across each operating segment providing the reconciliation back to Statutory EBIT. Underlying EBIT for the period declined from $380 million in the prior comparative period to $189 million in 1H FY14, driven by a 65% decrease in WesTrac Australia s result. Coates Hire also recorded a 49% decline against prior comparative period reflecting lower fleet utilisation and margin compression. Pleasingly, WesTrac China recorded EBIT of $9 million in the six months against a small loss in the prior comparative period benefitting from a 19% increase in revenue and importantly a streamlined cost base as a result of the initiatives taken in the previous financial year. 4

6 Media s contribution of $63 million, was 5% down in the six month period. However after adjusting for the impact of the sale of Consolidated Media in the prior comparative, the segment was up 6%. $12 million of the $15 million share of equity accounted investees significant items relates to our share of the Coates UK sale and the balance relates to SGH s share the profit realised by Flagship on its interest in the Australian Technology Park in Redfern. Slide 13 Richard Richards Consolidated Balance Sheet A summary consolidated balance sheet is shown on slide 13. The $229 million reduction in trade receivables is driven by the reduction in product sales and improvement in the debtor days from 46 in June to 38 days in December. Offsetting this is the $68 million increase in collateralised swap deposits. Inventory levels have reduced substantially from 30 June 2013 as a result of the slow-down in demand. Trade payables have also reduced as inventory levels have been managed down. The 13% increase in investments relates to the increase in the carrying value of SWM of $168 million, Coates Hire $32 million and the listed portfolio of $98 million. The reduction in the derivative financial instruments principally relates to the impact of the currency movement since June on our US$570 million of USPP notes. Importantly our net debt has further reduced by $106 million or 15% to $608 million. I comment on this in more detail later. Slide 14 Richard Richards Consolidated Investment Listing Turning to the consolidated investment listing on slide 14, we present the book carrying values of our major investment holdings at 31 December 2013 and 30 June The value of our investments has increased by $284 million principally driven by increases in SWM and our listed portfolio. Our equity accounted interest in Coates Hire increased by $32 million offset by a reduction in other investments due to a $21 million return of capital undertaken by Flagship. Our other investments are made up of a $29 million equity accounted investment in power systems businesses and $30 million equity accounted investment in indirect property such as Flagship and Revy. It is noted that a further $37 million of direct property is reflected in property, plant and equipment at historical cost. The explanatory notes below the table set out the different accounting treatments of each investment. Slide 15 Richard Richards Balance Sheet Metrics This slide highlights the credit strength of the Group s balance sheet with gearing currently being 16%. On a Group basis, the leverage ratios are in line with the prior period despite the reduction in EBITDA with coverage ratios being approximately double investment grade benchmarks. 5

7 Slide 16 Richard Richards Operating Cash Flow On slide 16 we demonstrate the strong cash conversion that continues to be achieved by the Group. Adjusting the operating cash for cash interest and taxes paid and restructuring costs, gives us an underlying operating cash of $406 million. This represents EBITDA cash conversion of 190% for the period, as working capital has been released as trading conditions softened. This strong cash conversion facilitated the reduction in net debt of $229 million over the last twelve months. Slide 17 Richard Richards Total Cash Flow Slide 17 shows that the primary drivers of the $106 million decrease in net debt during the six months was generated from operating cash flows. Investing cash flows effectively netted out with reinvestment effectively offsetting the receipt of the deferred proceeds relating to the Vividwireless sale. In addition to repaying debt, operating cash was utilised to pay $62 million in ordinary and $13 million in TELYS4 dividends during the period. Slide 18 Richard Richards Consolidated Debt Maturity Profile Slide 18 is analysis of our debt maturity profile. At 31 December 2013 we had $1.08 billion of undrawn borrowing lines and $525 million in cash. As you can see from the chart, our weighted average debt duration is 4.4 years with a spread of maturities reducing future refinancing risk. In Australia, we only have fixed term debt while in China the debt is short term, mostly uncommitted working capital lines with a tenor of less than one year. It is also noted that both Coates Hire and Seven West Media have recently refinanced their respective syndicated bank facilities, achieving extended tenor and improved pricing. Slide 19 Richard Richards Debt Facilities In addition to tenor, diversity of funding is critical to SGH s treasury risk management. SGH has maintained continued access to syndicated bank, capital markets and OEM financing across various jurisdictions. This has provided SGH with $2.2 billion in total facilities with $1.1 billion currently being available to be drawn. This available capacity, when coupled with our current cash and listed investment portfolio, provides the Group with $2.4 billion of total liquidity. I will now pass to Ryan to provide some more detail on the Investments and Property portfolios of the Group. 6

8 Slide 20 Ryan Stokes SGH Investment Portfolio Moving to slide 20, our listed investment portfolio provides the Group with an added source of liquidity and an ability to create shareholder value through selective investment opportunities. The portfolio also provides the Group with dividends and franking credits. During the six month period our listed investment portfolio performed well, providing the Group with $15.6 million in dividend income, a $137 million increase in market value and a realised gain on sale of $20 million which is not included in the underlying result for the period. Further investments were made during the period at a cost of $58 million. At 31 December 2013, the portfolio had a market value of $857 million which included unrealised gains of $277 million. These gains do not form part of the Group s profit result and are included within our reserve balances and will be released to the Group s profit and loss when the investments are sold. Slide 21 Ryan Stokes SGH Property Portfolio Slide 21 provides an overview of our strategic direct and indirect property holdings that will deliver value to the Group over time. During the six month period, SGH received a $21 million return of capital from Flagship Property Holdings. In addition, a gain on the part sale of Flagship s interest in Australian Technology Park of $6 million, resulted in SGH including its share of the gain being $3m as a Significant Item in the six month period. Construction continues on the four Kings Square sites and we continue to work on the remaining three sites of Kings Square 5-7 with the aim of maximising our return on these properties. Slide 22 Ryan Stokes Investments and Property Result Slide 22. The contribution to segment EBIT was driven by dividends on the listed investment portfolio. Gains on sale of investments have been excluded from this result and treated as Significant. We also recorded $3.4 million being our share of Flagships profit during the period. I will pass back to Don to complete the presentation. Slide 23 Don Voelte WesTrac Australia Moving to slide 23, as you can see from the graph, WesTrac s revenue has reverted back to the levels approximating the historical trend after the record demand, particularly in new equipment deliveries in FY12 and FY13. The good news is the decade long trend is to the north east. As flagged earlier, we have taken decisive action to right size the business for the new trading conditions. Consequently equivalent headcount has been reduced by 863 positions in the FY14 year, which will deliver annualised savings of approximately $84 million. As the bulk of these redundancies were made towards the end of the half, we anticipate that the FY14 results will only benefit from half the annualised savings. 7

9 Slide 24 Don Voelte WesTrac Australia Results Slide 24. WesTrac Australia delivered total revenue and other income of $1.29 billion, down 46% on the prior comparative period. Segment EBIT of $97 million was down 65%. Importantly the ~25% headcount reduction reflects the right sizing of the business I spoke about previously. Slide 25 Don Voelte WesTrac China Financials Slide 25. WesTrac China s revenue and other income was up 2% to US$244 million for the six month period. As a result of the restructuring undertaken over the last 18 months resulting in a 35% headcount reduction, WesTrac China produced US$8.4 million of EBIT as against a small loss in the prior comparative period. During the period we also signed a binding agreement with Caterpillar to buy the Bucyrus/EMP business for our provinces in China, which would add additional product lines and opportunities to our existing WesTrac China business. We are targeting to complete the transaction towards the end of FY14. The headline purchase price is US$130 million, subject to working capital adjustments. We are eager to transition the underground mining products of Bucyrus/EMP, as approximately 80% of coal mining in our provinces is underground. Slide 26 Don Voelte AllightSykes Slide 26. AllightSykes was also impacted by the continued challenging mining, infrastructure and construction markets which resulted in the business unit making a small loss for the half year. Slide 27 Don Voelte Coates Hire Moving to slide 27, SGH has a 45% economic interest in the Coates Hire Group, Australia s largest diversified equipment rental company. SGH recognises Coates Hire as an equity accounted investment. Coates Hire continued to be impacted by soft mining, infrastructure and constructions markets which resulted in a 10% decline in revenue and other income. Despite reducing headcount by 364 in FY13 and 1H FY14, EBIT reduced by 29% to $113 million in the period. In December, Coates Hire sold its UK operations realising $119 million with an NPAT benefit in excess of $26 million. Our share of this gain, $12 million, has been treated as a Significant Item. The proceeds of the sale was used to repay debt which decreased by $227 million in the six months to $1.4 billion. 8

10 Slide 28 Don Voelte Media Investments The contribution to SGH Group EBIT from Media was $62.6 million, as shown on slide 28. The main source of income from our Media Investments is now from the 35% shareholding and the RCPS interest in Seven West Media. On the slide we have shown the results in two ways. The upper table shows the results as they appear in our financial accounts, the lower table shows the results by entity. Slide 29 Don Voelte Seven West Media Overview Slide 29 Seven West Media issued their results to the market last week. They again delivered a strong result achieving metro advertising revenue share of 40.1% for the 2013 calendar year. SWM continues to focus on cost, quality and revenue initiatives. This focus has helped the company deliver an underlying NPAT of $150 million up 5.5% ahead of the prior comparative period. On to the Key Takeaways on slide 30. Slide 30 Don Voelte Key Takeaways and Questions We have completed the initial cost reduction initiatives to right size the industrial services businesses for the current market conditions and focus is now on revenue generating initiatives while maintaining our cost discipline. In line with previous guidance, we reiterate our FY14 EBIT to be at the low end of the 30% to 40% range off FY13. We have a strong balance sheet with access to a large pool of liquidity to fund growth and investment opportunities. We have also introduced new management that I am confident will bring a new perspective to the Group. Things have already changed and they will change even more. As we continue to generate cash, we are determined to keep debt at a prudent level, pay appropriate dividends and we are looking at the right opportunity to develop new operating platforms. But the opportunity has to be in the right industry, at the right price and with the right expertise. We are looking! In short, while the next six months will still present its challenges, I am confident that the company is ideally positioned to deliver value for its shareholders. Thank you. We would be pleased to take your questions at this time. 9