Half Year Results Presentation December 2014 Creating long-term - - PowerPoint PPT Presentation

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)

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Building Products Company Owned Property

Building Materials Division Property Division Automotive Leather Division

Delta Syndicated Investment Property Howe (83% Owned)

SCHAFFER CORPORATION LIMITED

• UrbanStone Factory (paving) - Jandakot, WA
• Archistone Masonry Block Plant (walling and

paving) - Jandakot, WA

• Archistone Reconstituted Landscaping Limestone

Blocks - Gin Gin, WA

• Limestone Resources
• Reconstituted Retaining Wall Blocks -

Carabooda, WA

• Natural Quarry Cut Blocks (landscaping and

building) - Moore River and Swan Lease, WA

• Natural Granite and Stone - Australian sourced
• Natural Granite and Stone - Imported
• UrbanStone Central - national network of ideas

and design centres for retail and trade

• Precast Concrete – Herne Hill, WA
• Finishing
• Thomastown, Victoria, Australia
• Kosicé– Slovakia (facility under

construction

• Tannery – Rosedale, Victoria
• Cutting
• Shanghai – China
• Kosicé– Slovakia
• Sales Offices
• Australia
• China
• Slovakia
• Japan
• Germany

Gosh Capital

Investment Company (83% Owned)

• Owned Property
• Property Unit Trusts
• Other

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.

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Financial Performance

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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.

Half-Year Dec-2014 (current) Jun-2014 Dec-2013 1 (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

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

Cash Flow

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Half-Year Ending ($m) Dec-2014 (current) Jun-2014 Dec-2013 (pcp) EBIT 4.5 4.0 15.3 Add depreciation 2.6 2.3 2.7 Less profit on disposal of assets

• (1.4)

Net interest paid (1.8) (1.7) (1.7) Tax paid (3.6) (1.1) (1.8) Change in Howe trade working capital and FX movements (4.7) (0.7) (0.7) Other changes in working capital (0.9) 3.3 (1.3) Total operating cash generated (3.9) 6.1 11.1 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)

Larger tax payments relating to FY14 Includes $5.6m for higher stock levels to supply increased leather volumes expected in the second half of FY15

Group Net Debt

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All amounts in $m’s Building Materials & Corporate Syndicated Investment Properties Automotive Leather Gosh Capital Total 31 Dec 2014 Total 30 Jun 2014 Total 31 Dec 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 Govt loans - non-recourse

• 17.5
• 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)

• (9.5)

(14.6) (14.7) 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 increase in stock levels for expected second half volumes $1.5m increase since June 14 for expansion of Dixon Road property

Assets

Market value of Group Net Tangible Assets $7.40/share (pcp $7.09/share)

Building Materials & Corporate Syndicated Investment Properties Automotive Leather1 Gosh Capital1 Total 31 Dec 2014

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

• Estimated $52.6 million of unrealised property value before tax ($36.8 million after tax) after minority

interests included in Market Value.

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1. SFC’s 83% share of division’s assets.

Automotive Leather

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Automotive Leather Results

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Half-Year Ending ($m’s) Dec-2014 (current) Jun-2014 Dec-2013 (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.

Automotive Leather Outlook

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

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.

Automotive Leather Outlook

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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.

Automotive Leather Currency Impacts

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

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.

Schaffer Building Materials

Building Products

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Building Materials Results

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

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.

Half-Year Ending ($m’s) Dec-2014 (current) Jun-2014 Dec-2013 (pcp) Revenue 25.1 22.2 29.7 EBIT 0.6 (0.8) 2.5 Margin 2.4% (3.6%) 8.6%

Building Materials Outlook

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

The order banks are at the similar reasonable levels they were at the start of FY15.



Cost reductions will continue to be reviewed and adjusted to maximise profitability within the current industry conditions.



We are cautious with our outlook due to the expected timing of order delivery, the current business conditions resulting from the decline in the resources sector related work, and prevailing tough conditions for Building Products.



We expect similar revenue and EBIT for the second half of FY15 as the first half, which will be an improvement on pcp.

Investment Property

616 St Kilda Rd, Melbourne, VIC IBM Building, Hay St, West Perth, WA Hometown Cannington, WA

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Parks Centre, Bunbury, WA

Property Portfolio

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Property % SFC Interest Syndicated Investment Properties IBM Building, 1060 Hay St, West Perth, WA 22% Océ House, 616 St Kilda Rd, Melbourne, VIC 20% Hometown, 1480 Albany Hwy, Cannington, WA 25% Parks Centre, Bunbury, WA 17% Syndicated Subdivisions Neerabup, WA 20%

Syndicated Investments Estimated $30.2 million of unrealised property value before tax above book value. Estimated total market value $44.4 million. Current share of debt $23.4 million.

Owned/Operated 1305 Hay St, West Perth, WA 100% 218 Campersic Rd, Herne Hill, WA 100% Lot 101, 103, 104 Jandakot Rd, Jandakot, WA 100% 50 Cutler Rd, Carabooda, WA 100%

Company Owned/Operated Property Estimated $12.1 million of unrealised property value before tax above book value. Estimated market value $27.5 million. $3.2 million net debt.

Investment Property (Syndicates) Results & Outlook

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

Occupancy reduced to 94% from 100%.



For the second half we expect a similar result to the first half.



No property sales are expected.

Half-Year Ending ($m’s) Dec-2014 (current) Jun-2014 Dec-2013 (pcp) Revenue 3.1 2.8 3.3 EBIT (excluding Property Sales) 1.2 1.2 1.4 Margin 41% 43% 43% Property Sales Revenue

• 1.6
• Property Sales EBIT
• 0.5
• Total Segment EBIT

1.2 1.7 1.4

Gosh Capital

39 Dixon Road, Rockingham, WA

Bulky goods retail with 3 tenancies

10 Bennett Avenue, North Coogee, WA

Land Area: 2.1 hectares Zoned high density residential from industrial Site can accommodate approximately 175 units 20 19

Gosh Capital Portfolio

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Property Book Value1 ($m) Market Value ($m) Debt ($m) Owned Property 10 Bennett Ave, North Coogee, WA (Land holding) $1.8 $13.6

• 39 Dixon Rd, Rockingham, WA (Bulky Goods Retail)

$9.5 $10.1 $6.1 Property Unit Trusts Space 207 and Harbour Park, NSW (Offices) $1.0 $1.0

• 265 Parramatta Rd, NSW (Bulky Goods Retail)

$0.5 $0.5

• Paris Rd, Australind, WA (Commercial Development Site)

$0.5 $0.5

• Inghams Burton Property Trust, SA (Industrial)

$1.0 $1.0 Total $14.3 $26.7 $6.1

SFC is an 83% owner of the Gosh Capital investment portfolio.

1. Book value represents depreciated cost.

Gosh Capital Results & Outlook

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

Profits excluding insurance proceeds have increased as a result of the purchase of the bulky goods retail centre at 39 Dixon Road, Rockingham in November 2014 to replace the lost rent at 10 Bennett Avenue, North Coogee.



Profits will continue to grow in the second half resulting from the recent completion of an additional tenancy at 39 Dixon Road, and a recent additional unit trust investment.



As an investment company, Gosh Capital actively evaluates further investment opportunities to maximise the value of its assets and grow the profits of this division.

Half-Year Ending ($m’s) Dec-2014 (current) Jun-2014 Dec-2013 (pcp) Revenue 0.5 0.3 0.2 Segment EBIT excluding insurance proceeds 0.2 0.1 0.1 Margin 41% 40% 55% Insurance proceeds less associated costs

• 1.21

Segment EBIT 0.2 0.1 1.3

• 1. Relates to completed fire damage claim for 10 Bennett Avenue, North Coogee, WA.

Outlook – H2 FY15 Summary

• For H2 FY15, compared to previous corresponding period, we estimate:
• an increase in Automotive Leather EBIT due to increasing volumes for new model programs;
• an improved EBIT for Building Materials from satisfactory order banks and reduced cost

structures;

• a similar EBIT for Investment Property (excluding property sales);
• a higher EBIT for Gosh Capital albeit off a low base.
• Overall, an increase in revenue and net profit for H2 FY15 compared to pcp.
• However, for the full year FY15 we still expect a decrease in net profit because of the decrease in

first half profits for Automotive Leather resulting from currency impacts.

• Profit expectations for future financial years are positive based on the increased volume forecast for

Automotive Leather – at least 50% over the next 3 years.

Dividends

• The Board has declared a final dividend of 12¢ per share fully franked, equal to prior corresponding

period, payable on 20 March 2015.

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Non-IFRS Financial Information

Schaffer Corporation Limited results are reported under International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The Company discloses certain non-IFRS financial measures. The non- IFRS measures should only be considered in addition to, and not as a substitute for, other measures of financial performance prepared in accordance with IFRS. EBIT is a non-IFRS earnings measure which does not have any standardised meaning prescribed by IFRS and therefore may not be comparable to EBIT presented by other companies. EBIT represents earnings before interest and income

• taxes. This measure is important to management when used as an additional means to evaluate the Company’s

performance.

Half-Year Ending EBIT Reconciliation ($000’s) Dec 2014 Jun 2014 Dec 2013 Profit before income tax 2,730 2,248 9,900 Impairment of goodwill

• 3,696

Finance income (74) (70) (132) Finance costs 1,883 1,843 1,789 EBIT 4,539 4,021 15,253 23

Disclaimer

This presentation has been prepared by Schaffer Corporation Limited ACN 008 675 689 for information purposes only. The presentation may contain forward looking statements or statements of opinion. No representation or warranty is made regarding the accuracy, completeness or reliability of the forward looking statements or opinion, or the assumptions

• n which either is based. All such information is, by its nature, subject to significant

uncertainties outside of the control of the Company. To the maximum extent permitted by law, the Company and its officers do not accept any liability for any loss arising from the use of the information contained in this presentation. The information included in this presentation is not investment or financial product advice. Before making any investment decision, you should seek appropriate financial advice, which may take into account your particular investment needs, objectives and financial circumstances. Past performance is no guarantee of future performance.

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