Investor Presentation 16 May 2019 Agenda Group profile Overview - - PowerPoint PPT Presentation
INNOVATIVE SOLUTIONS. ENDLESS POSSIBILITIES Investor Presentation 16 May 2019 Agenda Group profile Overview of the industry The year under review Achievements of 2019 Industry benchmarking Group financial review Future
INNOVATIVE SOLUTIONS. ENDLESS POSSIBILITIES
Investor Presentation 16 May 2019
Agenda
Group profile Overview of the industry The year under review Achievements of 2019 Industry benchmarking Group financial review Future strategy Conclusion
20 Offices in 8 countries on 4 continents Staff Compliment 328
Africa 191 United Kingdom 74 Europe 38 Asia-Pacific 25
Shareholders 4 611
3 REPRESENTATIVE OFFICES (SOUTHEAST ASIA)
International Trade Solutions
End-to-end (E2E) Supply Chain Solutions: people, systems, software, workflow processes,
metrics, KPIs, statistical analysis, information flow, quality control, supplier management
Business Intelligence: market intelligence, data analytics, software delivering actionable information Logistics Services: customs & excise, forwarding, warehousing, distribution Global Project Management: diverse projects, multiple teams, multiple countries, diverse skill sets Client Sourcing and Procurement Management Services Express or Time-Sensitive Courier Services Financial Services
Service offerings
Client Risk Profile
Client Distribution
Top 10 clients No Region Industry % of Total Industry 1 SA/Asia Textiles / apparel / accessories 3,80% 2 SA/Asia Technology 1,40% 3 SA Wholesale 1,01% 4 SA Food and beverages 0,92% 5 SA Biometrics / security 0,86% 6 SA Armoured vehicles 0,80% 7 UK Textile recycling 0,68% 8 AUS Pharma 0,66% 9 UK Textile sorting 0,64% 10 UK Ceramics manufacturing 0,62% Total net revenue from top 10 clients 11,39%
Trends in Global Trade and Value Chains
McKinsey Global Institute February 2019
Price Waterhouse Coopers: Future of World Trade 2018. PwC Future of World Trade conducted 1,239 interviews with CEOs in 85 countries - all were in the logistics industry.
Forces Transforming the Logistics Industry
Disruptors and Trends Facing the Industry
Corporate Expectations Going Forward
Are confident about their company’s prospects for revenue growth
months Are concerned about digital skills in both their workforce and their industry Anticipate that changes in core technologies of service provision will disrupt their business in the next five years Expect changes in distribution channels to disrupt their business in the next five years Believe global economic growth will improve
months
CEO survey 2018. PWC. n = 1,239 CEOs in 85 countries
65% 60% 85% 78% 68% Companies Are Changing Their Global Strategies
75% will change strategy due to trade tensions and uncertainty 33% consider trade uncertainty to be a top concern 49% will change the geography of their operations 24% invest more in local supply chains
Global Executive Survey 2018. McKinsey Global Institute. n = 1,021
Trade is Becoming More Regional as Opposed to Long Haul
Share of intra-regional trade in 2017
Percent of trade (imports/exports)
Closer relationship to suppliers - Speed to market - Proximity to customers
McKinsey & Company Globalization in Transition January 2019
Advanced economies: innovation, intellectual capital and skills allows them to be in a strong strategic position (good connectivity) Developing economies: As production moves closer to consumers, those countries that are strategically located can benefit However, for the low income developing countries using labour intensive exports as a development strategy, time is running out (limited or no connectivity)
Latin America and Caribbean Exceptional growth driven by China
2019
The Challenges of 2019
South Africa
Struggling economy - in recession for the first two quarters of 2019 financial year Reduced volumes traded: electrical equipment, textiles, clothing, wood, paper, petroleum and chemical products Sluggish transition to a new technological platform
United Kingdom
Brexit, resulting in a weaker pound against the US dollar, affecting pound translated revenue and profit margins Extraordinary costs, including share incentive scheme, bad debt, investment in staff and recruitment fees Impact of reduced trade volumes between South Africa and the United Kingdom
Europe
The loss of a few top end clients in the Netherlands - largest through M&A activity The introduction of a pension scheme in the Netherlands Impact of reduced volumes traded between South Africa and the Netherlands/Germany
Roll-out of cloud based technologies and software, effective March 2019
United Kingdom: Express courier services and Tradeway Shipping logistics services
South Africa logistics services and Singapore logistics services Successful completion of three acquisitions
Singapore (August 2018), United Kingdom (October 2018) and Germany (March 2019)
High Level Overview of Group Performance
Group Financial Ratios
The challenge
% Change South African growth rate 2018 2017 0,80% 1,30%
GDP per capita of South Africa 2018 2008 $6 182 $6 124 0,9% Global trade wars: economic protectionism Brexit: weakening pound against the US$
Revenue growth slower than expected Administrative expenses higher due to acquisitions Debt and finance costs reduced in spite of acquisitions Admin expenses and cashflow - not a true indicator of ‘financial health’
Positive 'supportive' rationale
Feb 19 Feb 18 % Change Administrative Expenses 263 317 239 628 9,9% Operating margin 25,20% 30,60%
Cash and cash equivalents on hand 89,80 108,40
Net cash generated from operations 20,20 67,80
High Level Observations
Logistics Regional Analysis
General Europe United Kingdom Growth in Net Revenue across all regions Impact of South African economy Extraordinary once off costs Operating margin still well above industry norm Loss of few large clients (M&A activity) Weak pound to the US$ South Africa impacted all regions Introduction of a pension fund Reduced margins (imports) Investment in key resources
Global Trade Volumes
The above are approximate numbers. Until such time that all offices globally are on the same system some discrepancy may exist
South Africa most affected by economic trading conditions, however, courier still showed growth Asia Pacific showing a significant growth in volumes traded Europe showing significant growth, in spite of the loss of clients (M&A activity) Santova Express has been held back due to slower than expected rate of implementation Overall - transaction count is still good United Kingdom repriced (‘lost’) a large number of smaller clients who were considered ‘not profitable’
Achievements of 2019
Acquisitions
SAI Logistics Ltd (United Kingdom) R52m, effective 1st October 2018
A niche trade route from India to the United Kingdom
An opportunity to leverage off shipments from India to own offices globally
ASM Logistics (S) Pte. Ltd (Singapore) R13,5m, effective 1st August 2018
A strategic pivotal point or platform to share in the growth of Southeast Asia
Asia-Pacific region is projected to make up 8 of the top 25 trade pairs in 2030
MLG Maritime Cargo Logistics GMBH (Germany) R30m, effective 1st March 2019
Specialists in the movement of dangerous goods
Expands the Group’s presence and service in Hamburg (Germany's largest port and Europe's third-largest container port) and acts as the gateway to northern Europe
Technology
Roll-out of cloud based technologies and software
South Africa, Tradeway (UK) and Singapore have been transferred onto a new platform
Future operational cost structures will be significantly reduced going forward
Santova Express is now ‘live’ (UK) - a fully automated small parcel express service
Continued Focus on 10 Key Differentiators
Global diversification: currency, geographical, multiple industries, client spread
Multiple revenue streams
Complementary, diverse business activities
Asset-light business model
Relationship driven focus on small to medium enterprises
A complex, sophisticated business model - founded on ‘disruptive market forces’
Proven track record of strategic and highly accretive M&A transactions
Continuously leveraging off next generation technology
Globalisation - unlimited growth in opportunities and target markets
Strong client base with low exposure to bad debt write-offs
A strong entrepreneurial culture, underpinned by sound values and sound hands-on leadership
Includes Feb 2019 results
Includes Feb 2019 results
Santova Trading Well Below Fair Value
Company Country Countries Employees Year founded Market Cap ($mm) P/E TTM EBIT margin ID Logistics Group SA France 17 19 000 2001 797 33 3% Aramex PJSC United Arab Emirates 1982 1706 12 13% CTS International Logistics Corporation Limited China 5 2 033 1984 888 19 4% Echo Global Logistics, Inc. United States 1 2 500 2005 615 17 2% Tegma Gestão Logistics S.A. Brazil 1969 440 13 13% Radiant Logistics, Inc. United States 700 2006 238 24 2% YTO Express China 22 700 2000 136 9 3% Dimerco Express Corporation Taiwan 17 2 070 1971 81 11 2% Orian Sh.M. Ltd. Israel 830 1953 77 28 2% Xpediator Plc United Kingdom 9 900 1988 69 17 4% World-Link Logistics (Asia) Holding Limited Hong Kong 200 1990 53 21 16% QEX Logistics Limited New Zealand 3 44 2010 42 29 6% Santova Limited South Africa 9 342 2002 33 7 25% Tiger Logistics (India) Limited India 300 2000 20 13 6%
8 328
Introduction - 2019 In Perspective
“the Group encountered one of the most challenging trading environments since
the global financial crises of 2007-2008”
“the strategy of diversification across geographical regions has historically
provided a buffer against the impact of unforeseen economic conditions in individual regions”
“however in the current year the difficult economic environments experienced
across key regions simultaneously was unprecedented”
2019 Key Events - Acquisitions
Acquired 100% - effective date 1 August 2018 Total purchase price - R13.6 million Total Goodwill - R10.0 million Funded in cash 2 year warranty period Warranted profit before tax - SG$220k pa SAI Logistics – Milton Keynes, United Kingdom Acquired 100% - effective date 1 October 2018 Total purchase price - R52.1 million Total Goodwill - R42.1 million Funded via 6 year Medium Term Loan - R23.8 million 3 year warranty period Warranted profit before tax - £595k pa
Operating Context – FOREX
2019 2018 Movement R'000 R'000 %
AVERAGE EXCHANGE RATES
Primary Reporting Currencies
17.82 17.15 3.9%
15.76 15.11 4.3%
9.92 10.10 (1.7)%
1.73 1.68 3.0% Primary Transactional Currencies
13.53 13.07 3.5% Indirect impact on South African revenues
2.6%
RESULT = LIMTED IMPACT ON PROFITABLITY IN 2019 Direct impact on translation of foreign profits
AVERAGE INCREASE CLOSING EXCHANGE RATES
Primary Investment Currencies
18.59 16.26 14.3%
15.93 14.35 11.0%
12.7%
RESULT = MATERIAL IMPACT ON FINANCIAL POSITION IN 2019 Direct impact on OCI, Asset Values and Equity
AVERAGE INCREASE
2019 Income Statement - Analysis
2019 2018
Move
R'000 R'000
%
BILLINGS
4 220 581 4 123 540
2.4%
REVENUE
342 234 329 277
3.9%
Other income 11 418 14 362
(20.5)%
Depreciation and amortisation (4 191) (3 355)
24.9%
Administrative expenses (263 317) (239 628)
9.9%
Operating profit
86 144 100 656
(14.4)%
Interest received 202 279
(27.6)%
Finance costs (5 726) (5 998)
(4.5)%
Profit before taxation
80 620 94 937
(15.1)%
Income tax (19 506) (23 670)
(17.6)%
Profit for the year
61 114 71 267
(14.2)%
Other comprehensive income Exchange differences on translation 33 975 (3 933)
963.8%
Key ratios:
8.1% 8.0%
0.1%
25.2% 30.6%
24.2% 24.9%
38.21 44.84
Excluding Acquistions 1.1% (1.4)% (28.3)% 8.7% 3.9% (18.3)% (28.5)% (35.4)% (17.3)% (19.1)% (16.6)% 963.8% 7.8% 25.3% 24.4% 37.14
1
Impact of lower trade volumes in South Africa
2
Margin pressure across the offshore regions
3
Once-off extraordinary credit underwriter rebates in 2018
4 5
Ongoing repayment of acquisition financing
6
Benefits of lower international tax rates
7
Average inflationary growth rate across SA and
Translation gains due to weakening in closing exchange rates
Segmental Analysis – Key Regions
AFRICA R'000
BILLINGS
2019 ACTUAL 2 509 488 MOVEMENT (3%) SA economic impact File volumes (10.6%) Sea freight TEU's (10.8%)
MARGINS
2019 ACTUAL 5.6% MOVEMENT 0.2% SA improved buy rates Higher margin projects
REVENUE
2019 ACTUAL 141 445 MOVEMENT 2%
ADMIN EXPENSES
2019 ACTUAL 109 180 MOVEMENT 6% Consistent with SA Inflation
PROFIT
2019 ACTUAL 26 438 MOVEMENT (11%) UK R'000 791 517 13% 5.9% - exclu SAI acquisition 10.4% (0.6%) (1.8%)% - exclu SAI acquisition Impact of weaker GBP on freight costs Building import business - funding duties 82 016 7% (8.2%)% - exclu SAI acquisition 69 001 13% (0.3%)% - exclu SAI acquisition Rationalisation offset by R1.8 mil bad debts and additional recruitment/staff costs 10 201 (25%) EUROPE R'000 654 757 6% Netherlands strong new client growth 11.3% (0.6%) 74 187 1% (1.3%) - Netherlands in Euro 54 119 12% Netherlands - once off Pension costs Investment in new staff 14 533 (25%)
2019 Balance Sheet - Analysis
2019 2018 Move R'000 R'000 %
ASSETS
Trade & other receivables 651 598 641 518 2% Consistent with the 2.4% growth in Billings Intangible assets 253 344 181 411 40% R52.1 mil. Goodwill on ASM & SAI acquisitions plus R18.2 mil. FOREX Cash and cash equivalents 89 801 108 371 (17)% Combined impact of acquisitions & debt repayments Property, plant and equipment 27 638 20 379 36% Acquisition of SAI and FOREX revaluation of 2 x UK properties Financial assets 7 637 4 366 75% Taxation 6 959 8 331 (16)% 1 036 977 964 376 8%
EQUITY AND LIABILITIES
Capital and reserves 502 257 416 172 21% Ongoing profitability and increase in FCTR Liabilities ST Borrowings and overdrafts 245 559 265 097 (7)% Invoice Discounting facility in SA - decline due to reduction in Billings in SA Trade and other payables 188 111 202 540 (7)% LT Interest-bearing borrowings 48 940 36 600 34% Additional R23.8 mil 6 yr Medium Term Loan for acquisition of SAI Financial liabilities 35 182 17 350 103% Profit warranties for SAI & ASM acquisitions Short-term provisions 11 965 18 087 (34)% Lower level of Bonus Provisions Taxation 3 805 7 246 (47)% Long-term provisions 1 158 1 284 (10)% 1 036 977 964 376 8%
KEY RATIOS:
52.6 51.3 (1.3)
40.8% 46.5% 5.7%
3.13 2.61 20%
Trade Receivables - Credit Quality Analysis
2019 2018 Movement R'000 % R'000 % %
Trade receivables
607 663 100% 579 376 100% 4.9%
457 518 75% 469 016 81% (2.5)% SA Debtors book credit insured for 85% - 90% of value
150 145 25% 110 360 19% 36.1%
Key ratios:
Debtor days
52.6 51.3 1.3 SA Book ageing reduced by 0.1 days - Group ratio impacted by ASM & SAI
Impairment provisions
2 800 5 714 (51.0)%
0.46% 0.99% (53.3)%
Impairments written off
2 156 990 117.7% 3 UK clients R1.8 million - SA only R336k on a book of R458 million
0.35% 0.17% 107.6%
Ageing of Trade Receivables
8 605 9 445 (8.9)%
1.42% 1.63% (13.1)%
Santova’s Business Model
SANTOVA Comparative Group Company R'000 R'000
Contracts with clients on an -
Agency basis Principal basis
Billings
4 220 581 324 130
Revenue
324 130 324 130
Trade receivables
607 663 46 710
Comparative Trade Receivables - substantially lower
52.6 52.6 No requirement to fund Customs VAT & Duties on behalf of clients
Profit before Taxation
80 620 80 620
30 383 2 336
Percentage reduction in cash generated from
(38%) (3%)
Example of impact of Working Capital on Cash generated from operations:
2019 Cash Flow Analysis
2019 R'mil CASH GENERATED FROM OPERATING ACTIVITIES (47.6)
20.2
67.8 ANALYSIS OF MAJOR MOVEMENTS: (48.1) Working capital changes: (24.4) Santova Germany (16.1) Santova Netherlands (10.2) Santova Australia (4.8) Profit before taxation (14.3) 15.1% decrease in profit before taxation Movement in fair value of financial assets and liabilities (6.7) Taxation paid (2.7) 2018 Taxation paid in 2019 on increased 2018 profitability versus 2017 Timing differences on 1 significant client due to high value of import duties on Luxury Watches Feb 2019 - 21.7% increase in YOY Billings and resultant increased closing Trade Receivables Significance increase in Jan 19 Billings on a large longstanding 60 day NZ client and extended ageing on 2 longstanding ZIM clients Revaluation of investment in Cell Captive in 2019 versus a R3.5 mil. dividend received in cash 2018
Cash on Hand – February 2019
2019 R'mil CASH ON HAND
(18.6)
89.8
108.4 ANALYSIS OF MAJOR MOVEMENTS:
(57.8)
Payment of financial liabilities (17.4) Final Tradeway (Shipping) warranty payment Acquisitions (8.3) Payment of cash purchase price ASM Logistics Movement in fair value of financial assets and liabilities (15.4) Ongoing quarterly repayment of R60 million medium term loan Capital expenditure (5.5) R3 mill. computer hardware and software Annual Group dividend (11.2) Paid June 2018 - 7 cents per share UNUTILISED AVAILABLE BANKING FACILITIES
185.9
127.6
Following global trade patterns
Bilateral Trade Pairs: Growth in Top 25 Sea and Air Freight
2030 2009 Participating countries Southeast Asia. China. India. United States. Germany. United Kingdom. Japan. Korea
PricewaterhouseCoopers: Future of World Trade
USA-CHINA
Key Opportunity Trends by 2030
China will overtake the US and dominate global trade in 2030 - being in 17 of the top 25 bilateral routes Asia-Pacific region will make up 8 of the top 25 trade pairs in 2030 Trade within the Asia-Pacific region (Indonesia and Thailand) 5 times as high in 2030 Manufacturing - China becomes richer, starts importing and labour becomes expensive Manufacturing moves to Southeast Asia (Indonesia, Vietnam, Malaysia, Thailand and Bangladesh) Trade between developed and emerging economies – China and Germany China and Germany become the 5th biggest trading partners in the world by 2030 China will consume more than 20% of global demand for luxuries by 2025. Germany - high end manufacturing, pharmaceuticals, designer clothing, green technologies, fashion
brands
Trade between emerging economies - Asia and Latin America, Saudi Arabia, Brazil, Nigeria Trade between Intra-Asia-Pacific economies – China, India, Japan, Southeast Asia Trade between China and Africa - Nigeria fastest growth - 8 times bigger in 2030
The Four Priorities for The Group
Grow organically and through acquisition on strategic trade lanes Southeast Asia, United Kingdom, Europe and the United States With the global growth in the parcel industry exceeding expectations, we will continue rolling
internationally China a dominant driver of global trade Southeast Asian economies are fuelling the growth of Intra- Asia trade, including Trans-Pacific, Europe- Asia and Intra-Asia Vietnam is the latest success story - partly due to shifting of some production out of China Automate our workflow processes and procedures to continuously improve
Group will ‘reinstate’ its traditional growth curve going forward. Whilst confident of the performance of our offshore
Strategic Acquisitions Santova Express Intra-Asia Technology and Sophisticated Software Packages
The Game Changer
______________Building Earnings Through Technology and Sophisticated Software_____________________
Automation: Digitisation and digitalisation - transforming business processes, including paperless work
stations
Cloud technology: ‘Virtual supply chain’ - flexibility, global connectivity from one portal to multiple
devices and everyday objects
Scalability: Rapid growth without a corresponding increase in operational costs, converting low margin
business into more profitable business, improving operating margins and increasing ‘reach’ to market
Control tower: Central hub - enabling trade route specialists, facilitating interactive benchmarking of
rates and resulting in greater profit margins
“Talking 2050. Brain-computer interfaces, we won't need a physical screen or microphone. It will be a technologically assisted form of telepathy. The transmission of information from one person to another without using any known human sensory channels or physical interaction.”
ACKNOWLEDGEMENT AND APPRECIATION To our colleagues, clients, shareholders, suppliers and business associates, thank you for your loyalty and continued support without which we would not have been able to manage and leverage off both the
support taking Santova to its next level of success.