Santova Ltd. Investor presentation 17 May 2018

Transcription

1 Santova Ltd Investor presentation 17 May 2018

2 Agenda Vision & purpose Geographical footprint Group profile Business model Clients Overview 2018 A changed world Future strategy An investment case Financial analysis

3 Providing, managing and controlling a global network of interconnected activities for multinational organisations from origin to point-ofconsumption Vision To be a recognised brand in global trade solutions through strategic international offices and leading intellectual capital Driving our clients to achieve a competitive advantage through innovative international trade solutions Listening to the market. Staying relevant through self-induced change, adaptation and innovation. Differentiating from the industry through people, intellectual capital, and effective application.

4 International offices 7 Countries Total 19 Offices South Africa 6 Holland 2 Germany 2 Australia 1 Hong Kong 1 Mauritius 1 United Kingdom 6 Total number of staff 329

5 Group profile International Trade Solutions Strong Culture Entrepreneurial dynamic leadership. Quality people. Unwavering values and philosophies. 7 Business Units Advanced supply chain solutions. Business intelligence. Logistics services. Client sourcing and procurement management services. Global project management. Express or time sensitive courier services. Financial services. Information Technology Differentiation through systems driven business intelligence. Big data predictive analytics to artificial intelligence and robotics. Scalability, converting non-profitable services into profitable ones. Blockchain technology, a shared economy, collaboration. Intellectual capital Needs analysis, solution design, and application. Business optimisation through sophisticated services, workflow processes and unique software packages. Global knowledge and expertise ( know-how ). D r i v e r s

6 Client Industry Region % of Group revenue Client distribution Total number of clients 4,934 1 Clothing/Textiles South Africa 4,95% 2 Clothing Exports United Kingdom 1,22% 3 Air-conditioning South Africa 1,13% 4 Motor vehicle South Africa 1,00% 5 Biometrics/Security South Africa 0,98% 6 Pharmaceuticals Australia 0,91% 7 Promotions Netherlands 0,89% 8 Paper South Africa 0,87% 9 Technology Distributor South Africa 0,85% 10 Pet food & animal nutrition Netherlands 0,84% 11 Wholesale South Africa 0,78% 12 Chemicals Germany 0,77% 13 Food South Africa 0,77% 14 Agent Netherlands 0,64% 15 Fresh Produce Australia 0,58% 16 Luxury Goods Germany 0,58% 17 Clothing United Kingdom 0,53% 18 Seed South Africa 0,52% 19 Pharmaceuticals Australia 0,48% 20 Technology South Africa 0,44% 21 Wind Energy South Africa 0,43% 22 Clothing South Africa 0,43% 23 Pharmaceuticals Australia 0,43% 24 Chemicals South Africa 0,43% 25 Gaming Netherlands 0,42% 26 Coins United Kingdom 0,40% Top 26 Total 22,27% Region Net Revenue % of Top 26 % Return vs SA South Africa R % - Europe R % 676% United Kingdom R % 194% Asia Paciifc R % 631% Total Top 26 R ,00%

7 Overview 2018 Resilient Performance

8 Exciting times, 8th year of successive growth, despite the strengthening Rand and struggling South African economy. Performance of the Group has been organic. Good progress despite strong headwinds Remained focused and disciplined in deploying strategic growth initiatives. Unprecedented change, driven by technology and changed consumer buying patterns. Exciting opportunities, Santova founded in and thrives on a climate of disruption.

9 USD to ZAR Currency Headwinds RAND vs USD / GBP GBP vs USD GBP to ZAR GBP to USD

10 Our Economic Moat Sustainable Earnings Growth + Resilience Currency hedge. Geographical diversity. Diverse industries. Global client spread. Multiple revenue streams. Multiple complementary business units. A complex, sophisticated business model. Leveraging of next generation technology. Highly relevant, founded on future needs. Globalisation, unlimited growing market. Most importantly, a strong entrepreneurial culture underpinned by sound values and strong leadership.

11 Global operations South Africa Strengthening Rand and state of the SA economy. Industry, commoditised pricing, lower margins. Assisting clients in differentiating, innovative service levels, has enhanced Santova s brand. United Kingdom OFFSHORE 60% GROUP CONTRIBUTION AFRICA 41% EUROPE 26% UNITED KINGDOM 19% ASIA PACIFIC 14% Merged- WM Shipping Limited and Santova Logistics. Eliminated duplication of administrative structures. A consolidation of the capabilities and know - how or core competencies of both businesses. Shared buy rates and networks worldwide. Sophisticated business model now rolled-out. Europe High rate of new client sign-on. The European economy has improved significantly. Asia Pacific Strong growth being achieved. Upturn in manufacturing, and global trade. Improved buy rates and higher freight rates 2017.

12 Achievements 2017 Effective Leadership Quality of our People Our culture and values. Santova Graduate Program Next layer of skills, abilities and leadership Innovation Willingness to embrace the future, through revolutionary or evolutionary practices TradeNav /Cargowise Completed and being deployed, transforming into the cloud-age Management of Client Sourcing & Procurement Offering real value to client Santova Express Leveraging of digitalisation and the movement of smaller packages Leveraging of Agents & Associations Transferability of intellectual capital Stabilised UK Operations WM Shipping Group Purchasing Power Generally improved buyrates

13

14 Customer Expectations New Business Models Application of Intelligent Technology Competitive New Entrants

15 Customer expectations New shopping patterns, digital consumer. Devices (laptop 34%, desktop 30%, smartphone 24%), data and social networks Customised products, consumer centric structures. Consumers are shipper-agnostic : they don t care who delivers their goods, as long as they get them reliably, quickly and at low or no delivery cost. Pay a premium for value add services, such as faster delivery for high-value items. Growing interest in the sharing economy, collaboration and crowd sharing solutions. Intelligent Application of Technology Cloud technology is enabling platform solutions, facilitating the virtual movement of goods. Blockchain technology fosters automation and efficiency between supply chain partners. Provides scalability, as well as standardised and harmonised processes. 3-D printing, manufacture close to point of consumption. Converting low margin shipments into more profitable shipments. Instantaneous, agile pricing providing a fast and simple booking process.

16 New Business Models Looking to carve out the more lucrative elements of the value chain. Exploiting digital technology or new sharing business models. Asset light and no cumbersome traditional systems weighing them down. Interactive benchmarking of freight rates, including immediate, agile pricing. Supplier s bid for loads, and/or matching shippers with available capacity. Linking via interface (API) directly to a large number of carriers. Individual apps in the freight, parcel or last-mile space. Not all smooth sailing!. Each company has its own labelling system, may not reflect its own brand.. Accountability, and a lack of consistency make collaboration more difficult.. Circumvention ( partner integrity ).. Inconsistencies in processes and IT systems, lagging industry IT DNA.. Cybersecurity an issue as we shift to new data standards and greater data sharing. Increased M&A, joint ventures, and alliances as a way to achieve collaboration.

17 Competitive New Entrants Online retailers expand their own logistics offerings, reduce their dependence on LSPs. Suppliers (shipping lines, transporters, banks) are also entering the logistics business. Technology and software suppliers also now offering logistics services. Manufacturing, introducing 3-D printing. All the above are driving for:. Transparent fee structures.. Digitised trade documents.. Event-based dashboards and 24/7 track and trace tools.

18 Future strategy Application and leveraging off technology. Santova Express: Small parcels business. Strategic acquisitions.

19 Much improved international trading environment The cost to transport a container in the benchmark Asia-to-Europe route rose to $965 in May, up 55% from a year earlier. At the port of Singapore, which the industry uses to gauge trade flows, container volume rose 5% in the first quarter from a year earlier. The % of idle ships is was 3.5% in the first three months of 2017, compared with 6.5% in the previous quarter. The top 20 operators by capacity posted combined net losses in 2016 of $5 billion. Since then, the big players have merged or formed alliances and most are expected to swing to a profit this year. 55% 80%

20 Application and leveraging off digital technology Cloud technology is offering platform solutions, allowing the virtual flow of goods. Blockchain technology, greater automation between supply chain partners. Scalability, standardised and harmonised processes, competitive pricing and higher margins, greater efficiencies and effectiveness. New services or product offerings, including small parcels and e-commerce. Enabling shared business models, collaboration throughout the supply chain.

21 The opportunity Small packages/parcels Digitisation has changed how people communicate, smartphones and billions of devices are now interconnected. Global parcel volumes have increased 48% from 44 billion parcels in 2014 to 65 billion in 2016, estimated to continue to rise at a rate of % each year until Of the 13 countries analysed: United States remains the largest market in terms of spend. China grew 52 % in one year. Germany, B2C represented 58 % of all parcels in Germany (largest in Europe). In the United Kingdom, parcel volume increased by 12 % to 2.5 billion. Australia experienced double-digit growth in parcel volume.

22 Parcels and express was by far the key growth driver in 2016, with revenue up 5.6bn. GLOBAL POSTAL INDUSTRY 2016 Europe, North & South America and the Asia-Pacific region 48 postal operations and 28,892 consumers participated in survey * 56% - Alibaba, Amazon or ebay. * 62% - Free delivery. * 34% - Purchased from China. * 82% - Under 2kg. * 40% - Fit into mail box. * 70% - Full delivery cost upfront Knowing landed cost and live tracking of parcel is important.

23 Strategic Acquisitions Scale matters, expanding global representation and building niched capabilities. Target zones: South East Asia, United Kingdom, Europe and The United States. Acquiring clients, networks, markets and niche specific intellectual capital. Transforming 3PL s into a sophisticated end-to-end SCM business model. Expanding current service offering to include a broader range of Group services. Industry remains averse to change, a reluctance to embrace automation due to:. financial constraints.. the rate at which technology is changing.. the acute shortage of specialised skills or know-how.

24 Evolving capability Business model Level 4 Target companies Level 3 BUSINESS ENGINEERING Level 2 LEAD LOGISTICS PROVIDER (4PL) ADVANCED SCM SERVICES Level 1 CUSTOMS CLEARING or, WAREHOUSING or TRANSPORT BASIC SERVICES One dimensional Commoditised Transaction based CUSTOMS CLEARING, FORWARDING & LOGISTICS (3PL) CUSTOMS CLEARING, FORWARDING & LOGISTICS Contractual Not independent Price driven Own services and outsourced LEAD LOGISTICS PROVIDER Contractual Management of suppliers Contract management Integrator of services Risk sharing Independent facilitator Workflow processes Fleet mix optimisation Demand driven Strategic global partnerships New organisational structures Knowledge information based Next generation technology and software packages Adaptable, flexible and collaborative engagement Shared risk and reward, gain share models Demand driven material requirements planning (DDRP) Automated engagement Transactional products (Call centre clients) Increasingly complex engagement Consultative engagement Integrated solutions (High personal engagement) Domestic structured, predictable engagement Protect profit margins / Diverse global earnings / Barriers to entry / Strong client retention Global entrepreneurial innovative engagement

25 The industry An investment case Consistent growing market Innovation abound Growing demand

26 INVESTING IN THE LOGISTICS SECTOR A good time to invest in logistic companies. Consistent Market, yet growing. Ever-growing e-commerce and small parcel trade.. Changing consumer landscape, fast, reliable, low cost yet flexible services.. Technological disruption, demand for new products and services Innovative Opportunities. New entrants can innovate and differentiate, generating even greater profitability.. The industry is old fashioned, has a very low degree of digital DNA.. Industry is fragmented and has limited capital and know-how.. Industry is open to a totally new perspective. Increasing Demand. Globalisation, continued growth in cross border trade.. Customised product and variable sourcing and distribution nodes are leading to a boom in logistics investment.

27 Global Venture Capital Investments Global venture capital investment in logistic technologies has exponentially risen since $ 5.3 bn allocated in 2016, 315 venture deals, 70% in early-stage investment.

28 Financial Analysis

29 External Factors Income Statement - Average exchange rates - below 2017 Balance Sheet 2018 Operating Context - Closing exchange rates limited impact UK Economy Brexit positive/negative impacts SA Economy some improvement post Dec 2017 Recovery in Shipping Rates impact on margins Internal Factors No acquisitions current or preceding year Declining corporate income tax rates internationally Accelerated long term debt repayment Acquisition of 25% minority stake in Australia Ongoing investments in infrastructure and talent Improved buy rates impact on margins

30 Operating Context FOREX AVERAGE EXCHANGE RATES Movement R'000 R'000 % Primary Reporting Currencies - GBP/ZAR (9.4)% - EUR/ZAR (3.9)% - AUD/ZAR (5.7)% - HKD/ZAR (8.8)% Direct impact on translation of foreign profits Primary Transactional Currencies - USD/ZAR (8.3)% Indirect impact on South African revenues CLOSING EXCHANGE RATES AVERAGE DECREASE (7.2)% Primary Investment Currencies - GBP/ZAR % Direct impact on OCI and Equity - EUR/ZAR %

31 2018 Income Statement - Analysis Movement R'000 R'000 % BILLINGS % Currency Adjusted 4.1% Leverage Points REVENUE % Other income (37)% Depreciation and amortisation (3 355) (5 921) (43)% Administrative expenses ( ) ( ) 2% Operating profit % 8.6% (34)% (42)% 6% 8% 1 Organic revenue growth - outstripping inflationary increases in costs 1 Organic revenue growth - outstripping inflationary increases in costs Interest received (35)% Finance costs (5 998) (9 187) (35)% (31)% (35)% 2 Ongoing repayment of acquisition financing Profit before taxation % Income tax (23 670) (23 403) 1% Currency 12% Impact 4% 3 Benefits of lower international tax rates Profit for the year % (5)% 15% Attributable to: Equity holders % Non-controlling interests (99)% (99)% 4 Purchase of 25% minority interest in Australia Other comprehensive income Exchange differences on translation (3 933) (78 840) (95)% Key ratios: - Billings/revenue margin 8.0% 7.7% 0.3% - Operating margin 30.6% 30.7% -0.1% - Effective tax rate 24.9% 26.6% -1.7% - Headline earnings per share (cents) % Net sum = 12.4% Growth in HEPS

32 2018 Source of Profitability - Analysis REVENUE LOGISTICS SERVICES AFRICA ASIA PACIFIC UK EUROPE FIN SERV SOUTH AFRICA HO SOUTH AFRICA TOTAL R'000 R'000 R'000 R'000 R'000 R'000 R' (1 108) (762) % 0% 5% 8% 4% 45% 4% LOCAL CURRENCY 4% 7% 16% 12% PROFIT FOR THE PERIOD (5 962) (2 456) % 3% 7% -2% 0% 143% 28% LOCAL CURRENCY 46% 11% 18% 2% HIGHLIGHTS - Significant investment in improved infrastructure in Tradeway Leeds office and Australia - Significant investment in talent in BV and Aus primarily Sales, Supply Chain and Graduates - Turnaround in WM Shipping UK - return to profitability - Very strong performances in local currency from: - Hong Kong 95% increase in profit - Tradeway UK 33% increase in profit - South Africa 33% increase in profit - Germany 2061% increase in profit

33 2018 Balance Sheet - Analysis ASSETS Source Move of Funding R'000 R'000 % SA R'000 Foreign R'000 Trade & other receivables % 25% Increase in Feb Billings in SA R51.2 mil. Intangible assets % Further TradeNav development costs Cash and cash equivalents % Property, plant and equipment % Investment in infrastructure in UK and Aus Taxation (20)% Financial assets (31)% % % 22% EQUITY AND LIABILITIES Capital and reserves 43% % Liabilities Trade and other payables 21% (2)% ST Borrowings and overdrafts 27% % Primary funding mechanism in SA - ID Facility LT Interest-bearing borrowings (36)% R39 mil 2013 MT Loan now fully repaid Financial liabilities % Final Tradeway warranty payment in Mar 18 Short-term provisions % Taxation % Long-term provisions (10)% % % KEY RATIOS: - Debtor days (3) Impact 25% increase in Feb Billings in SA - Creditor days (1) - Debt to equity ratio 46.5% 53.0% 7% R39 mil 2013 MT Loan now fully repaid - NAV per share %

34 Trade Receivables - Credit Quality Analysis Movement R'000 % R'000 % % Trade receivables % % 7.5% - South Africa % % 10.6% Credit insured for 85% - 90% - Offshore % % (4.4)% Key ratios: Debtor days Impact 25% increase in Feb Billings in SA Impairment provisions - Total amount (46.4)% - Percentage of Trade receivables 0.99% 1.98% (50.1)% Impairments written off - Total amount (net of recoveries) % - Percentage of Trade receivables 0.17% 0.04% 311.4% Ageing of Trade Receivables - Total amount >60 days past terms % - Percentage >60 days past terms 1.63% 1.48% 10.3%

35 2018 Cash Flow & Funding Analysis Movement R'000 R'000 % OPERATING ACTIVITIES Net cash flows from operating activities % INVESTING ACTIVITIES CAPEX (7 974) (3 999) 99% Investment in infrastructure & TradeNav development Acquisition of subsidiaries - (24 077) (100)% Tradeway warranty payments Acquisition of minority interest (11 271) - 100% 25% Santova Australia FINANCING ACTIVITIES LT Borrowings repaid (20 771) (18 885) 10% Accelerated repayment of two 5 yr. Medium Term Loans Share issued & purchased (1 077) (360) 199% Dividends paid (6 035) (8 654) (30)% Lower amount due to Scrip Dividend in 2017 TRANSLATION FOREX Impact (4 033) (31 619) (87)% CASH AT YEAR END %. Total cash on hand: South Africa % % - Offshore % % FUNDING FACILITIES Total available facilities Reduction due to repayment of 5yr. MT Loans Total unutilised facilities Additional R56 million in facilities not taken up

36 Thank you Questions and discussion? A specialist provider of innovative global trade solutions Santova s diversification in terms of geographies, currencies, industries, products and services enables it to manage a global network of interconnected activities for multinational organisations from origin to point-ofconsumption.