HGL Ltd
Annual General Meeting
3 February 2016
Chairman’s address
This morning I will cover the strategic direction of the Group and the key points related to the financial performance in 2014-2015. Our Chief Executive Henrik Thorup will provide an update on the strategy implementation, operational highlights and our priorities for financial year 2016.
HGL has delivered a solid improvement in its operational performance for 2014-2015.
Despite the broader economy not providing any great benefit, particularly with the ongoing weakness of the Australian Dollar, our primary goal to increase sales revenue was achieved.
We are generating strong revenue growth in our expanding markets in architectural lighting, school wear and cosmetics. Combined JSB Lighting, Mountcastle and BLC Cosmetics achieved a 17.9% sales uplift in 2014-2015.
Including Mountcastle, the businesses recorded revenue of $65.1 million and achieved an overall sales growth of 3.8% over the prior year.
The business units undergoing transformational change, being SPOS, Leutenegger and Biante, had a combined revenue decline of 12.8% in 2014-2015. With managed expenses these businesses improved their EBIT contribution over the previous year.
Other financial results for 2015 are summarised as
Underlying profit of $2.6 million was up from $0.5 million in the previous year.
Statutory profit increased to $3.7 million after the inclusion of $1.1 million of non-underlying items, a significant improvement on 2014’s $21.4 million statutory loss.
Net cash at balance date was $4.7 million, up $2.5 million from 30 September 2014 after the repayment of bank borrowings. The current ANZ facility remains with a limit of $2.8 million.
These results enabled the board to consider and declare a fully franked final dividend of 1.5 cents per share, which was paid on 18 December.
For
per
sona
l use
onl
y
2
Each of the HGL business units increased its underlying earnings before interest and tax compared to the previous year, with the exception of Biante.
GPS Strategy Plan and Future Growth Aspirations
The uplift in operating performance was underpinned by the Growth, Profit and
Sustainability (GPS) Strategy Plan over the past 12 months. The Board remains confident in
both the strategic direction and management’s capacity to execute it.
Phase One was to rebuild foundations. Phase Two is to reposition the industry platform and
Phase Three is to leverage the rebuilt company portfolio and industry platform.
Phase one is now complete and we progress to Phase Two, directing priorities from
rebuilding foundations towards profitable revenue growth.
With the ongoing execution of the GPS strategy, our core businesses are capable of doubling
revenue within 5 years.
Overall growth will be further assisted by acquisitions in targeted businesses. These will be
considered by the board as opportunities arise.
We continue to develop high performing teams across the businesses with our HGL
Leadership Development Program by investing in talent development and staff training
programs. We acknowledge that our employees are our most important resource and I take
this opportunity on behalf of the board to formally thank them all for their effort and
contribution throughout the year.
In May 2015 the HGL head office team was restructured and relocated to our facility in
Macquarie Park in Sydney. The restructure and relocation is delivering continued cost
savings.
The Board will consider and implement a new long term executive incentive plan for HGL
management, aligned with the strategic objectives and designed to reward shareholder
value creation.
Business Unit Review
JSB Lighting improved revenue by 29.4% to $19.8 million. The addition of the premium
Hubbell and Meyer outdoor lighting brands contributed positively. With record sales
growth, solid gross margins and managed expenditure JSB delivered 127% growth in
Underlying EBIT.
For
per
sona
l use
onl
y
3
Leutenegger returned to profit despite a revenue decline of 10.3%. The traditional arts and
craft market is in structural decline with independent stores continually closing.
Leutenegger continues its transformation from its traditional products to concentrate on
new revenue opportunities in contemporary craft, fabric, and kids craft toys in new channels
with its Leutenegger and Make-it brands.
BLC Cosmetics delivered revenue growth of 6%, aided by the launch of the Lightstim and M-Ceutic brands. With the positive sales result and cost effective operations, BLC returned to profit, improving from a break-even prior year. The leadership team is targeting further revenue growth in 2016, having secured the exclusive distribution rights to additional new brands.
SPOS Group demonstrated its potential to compete profitably selling standard shelving solutions to brand owners and national retailers. Whilst full year sales declined, encouragingly second half sales were stronger than the first half. The business improved gross margin and reduced operating expenses, securing improved profit performance for the year.
Biante sales were in line with the previous year, despite manufacturing delays from overseas suppliers on several planned models. Adverse USD foreign exchange movements impacted gross margin, which affected the overall profitability of the business.
Mountcastle, in which we have 50% ownership, had another solid year and increased
revenue by 9.8% and EBIT by 6.6% in 2015. The company increased its market share in the
school uniform and corporate wear markets and entered into a new partnership to
manufacture public school wear for the School Locker Retail Chain owned by Harvey
Norman.
In October we expanded the company portfolio with the establishment of a new joint
venture company, Nido Interiors. Over the next four years, our JV partners can earn up to a
maximum of 30% equity in Nido based on ongoing performance. The company is a new
entrant in the homewares market, operating a new innovative and cost effective business
model, selling home décor and soft furnishing product ranges under the One-Duck-Two and
private label brands. Previously, One-Duck-Two had been sold through the Leutenegger
business.
Outlook
The key strategic priority in 2016 is to ensure our business units increase revenues in a
profitable and sustainable manner. The board recognises that local economic conditions
remain difficult and global markets are in a state of turmoil, with recent additional
deterioration of the Australian dollar.
For
per
sona
l use
onl
y
4
Under the leadership of Henrik Thorup and his management team, the company has made
solid progress on the continued transformation of HGL, delivering increased earnings and
improved cash flows.
Our performance over the first quarter of financial year 2016 is consistent with our
expectation for revenue growth, supporting future earnings.
JSB Lighting, SPOS, Mountcastle, BLC Cosmetics and Biante achieved combined revenue
growth of around 9% in the first quarter of 2016.
Sales in Leutenegger declined as a result of its active exit from unprofitable product lines.
With plans to discontinue further stock items throughout 2016, revenue and gross margin is
expected to be below last year, however company expenditure will be reduced accordingly,
minimising the impact on profitability.
As HGL embarks on a higher growth path, management will appropriately manage risk and
speed of change, ensuring the Group delivers sustainable results.
With our positive operating cash flows, we are in a position to invest in organic growth and
suitable acquisitions.
For shareholders, the board’s aim is to have future dividend payments at around 75% of
underlying profit, subject to cash flow generation and ongoing capital requirements for
growth or acquisitions. Our strengthened banking relationship will also assist going forward.
With the completion of Phase one of the GPS plan the Board believes that it is appropriate
to now appoint an additional independent Director with marketing experience. We have
resolved to appoint an independent advisor to assist with the selection and review of
potential candidates shortly.
Finally, I want to thank Henrik Thorup and his management team for their hard work and
dedication. I thank my fellow directors for their contribution throughout the year.
For
per
sona
l use
onl
y
2/02/2016
1
HGL Limited Annual General Meeting 3 February 2016 Computershare Offices, Level 4, 60 Carrington Street, Sydney
Annual General Meeting CEO Presentation Henrik Thorup, Chief Executive Officer ASX Code: HNG
www.hgl.com.au For
per
sona
l use
onl
y
2/02/2016
2
Agenda for Presentation
Page 3 HGL Limited (ASX: HNG)
Corporate Highlights
FY15 Operational Review
GPS Strategy Update
- Growth and development actions
FY16 Priorities and Outlook
Corporate Highlights
Page 4 HGL Limited (ASX: HNG)
HGL is a product marketing and supply chain business of market leading brands in
diversified specialist markets.
We deploy an active management philosophy driving our portfolio development activities.
Experienced board and management team aligned to the Growth, Profit and
Sustainability Strategy Plan (GPS).
Improved performance underpinned by the implementation of the GPS Strategy.
Balance sheet position to pursue growth opportunities and strategic acquisition.
Shareholder returns will be driven by future earnings growth. F
or p
erso
nal u
se o
nly
2/02/2016
3
Operational Review 2015
Page 5 HGL Limited (ASX: HNG)
FY15 Group financials (Including 100% Mountcastle)
Change since FY14
Revenue $65.1m 3.8 %
Gross Margin $29.1m 0.9 %
Expenses $24.9m 5.8 %
Underlying EBIT $4.2m 72.8 %
Note: Group financial figures include 100% of Mountcastle results
FY15 highlights A key strategic priority in 2015 was to achieve organic sales
growth and reverse the declining sales trend.
Gross margin remained strong at 44.7% despite cost inflation from foreign currency movements.
Operating expenses reduced by $1.5 million from continuous improvement programs.
Underlying EBIT of $4.2 million, increased by $1.8 million in the prior corresponding period.
Improved earnings in all business units, except Biante in FY15
Progress on GPS Strategy Implementation
Page 6 HGL Limited (ASX: HNG)
2013 2015 2016 2017 2018
Portfolio Development Strategy
Industry Platform Development Strategy
Phase One Phase Two Phase Three We are
here now.
REBUILD FOUNDATIONS GROW AND DEVELOP EXPAND & SUSTAIN
RESTRUCTURE PORTFOLIO REPOSITION INDUSTRY PLATFORM
Growth from existing and new product sales in core markets and expansion into new markets;
Profitability through continuous improvement of processes and working capital management; Sustainability through investment in leadership, talent management programs and staff engagement.
For
per
sona
l use
onl
y
2/02/2016
4
Growth and Development Phase (Operational Priorities)
Page 7 HGL Limited (ASX: HNG)
Expand Product Portfolio Secure organic growth
Reduce Operational Complexity Lower expense ratio
Develop Intellectual Property Balance brand mix
Integrate Technology / Build Online Presence Automate transactions
Increase Employee Engagement High staff retention
HGL has defined core focus areas and related objectives:
1
2
3
4
5
Page 8 HGL Limited (ASX: HNG)
Outdoor Architectural Lighting
JSB Lighting
Outdoor Rail Light Systems
1. Expand Product Portfolio
For
per
sona
l use
onl
y
2/02/2016
5
Page 9 HGL Limited (ASX: HNG)
BLC Cosmetics
Professional Tanning
LED Light Therapy Devices
Mesotherapy serums and devices
1. Expand Product Portfolio
Page 10 HGL Limited (ASX: HNG)
SPOS Group
Traffic Management System
1. Expand Product Portfolio
For
per
sona
l use
onl
y
2/02/2016
6
Page 11 HGL Limited (ASX: HNG)
SPOS Group
Global Barbershop Store Fit-out Concept
1. Expand Product Portfolio
Page 12 HGL Limited (ASX: HNG)
Leutenegger (Nido Interiors)
GREG NATALE collection for One-Duck-Two
1. Expand Product Portfolio
For
per
sona
l use
onl
y
2/02/2016
7
Page 13 HGL Limited (ASX: HNG)
Mountcastle
TRUTEX uniforms for public and private schools
1. Expand Product Portfolio
Page 14 HGL Limited (ASX: HNG)
Biante
Star Wars Model (Scale 1:18)
1. Expand Product Portfolio
For
per
sona
l use
onl
y
2/02/2016
8
Page 15 HGL Limited (ASX: HNG)
Product design and development capabilities in SPOS, Leutenegger, Nido, Biante, Mountcastle & JSB
Own Design Manufacturing (ODM) and sourcing experience (controlled IP)
Redsquare by JSB Lighting
Make It by Leutenegger
Flexroller by SPOS
Biante by Biante
ODT by Nido
2. Develop Intellectual Property
Trutex shirts by Mountcastle
Page 16 HGL Limited (ASX: HNG)
Shared service warehouse in Macquarie Park for JSB Lighting, Leutenegger and SPOS. Consolidated finance and accounts department for Nido Interiors, Leutenegger and Biante
3. Reduce Operational Complexity
For
per
sona
l use
onl
y
2/02/2016
9
Page 17 HGL Limited (ASX: HNG)
13 active e-commerce sites Facebook & Linked-in pages Netsuite ERP systems in businesses Customer transaction portals Chatter communication application
4. Integrate Technology and Build Online Presence
Page 18 HGL Limited (ASX: HNG)
Personal development and training programs Annual Engagement Survey
Employee induction, recognition and rewards programs
5. Increase Employee Engagement
For
per
sona
l use
onl
y
2/02/2016
10
FY16 Outlook and Priorities
Page 19 HGL Limited (ASX: HNG)
Trading conditions expected to remain uncertain and challenging
JSB Lighting, Mountcastle, SPOS, BLC Cosmetics and Biante expected to achieve revenue growth in FY16
Leutenegger will continue to reduce revenue discontinuing sales of unprofitable product ranges.
Nido Interiors expected to contribute revenue growth in 2H-FY16
Gross margin levels under pressure from adverse foreign currency movements
Stringent management control of expenditure and working capital levels
Maintain stable operating cash flow in spite of growth initiative investments
Increased focus on pursuing strategic acquisitions
Disclaimer This presentation is provided for information purposes only. The information contained in this presentation is not intended to be relied upon as advice to investors and does not take into account investment objectives, financial situation or needs of any particular investor. Statements contained in this presentation, particularly those regarding possible or assumed future performance and outcomes, projected growth of the company, industry growth or other trend projections are or may be forward looking statements. Such statements relate to future events and expectations and therefore involve risks and uncertainties. Actual results may differ materially from those expressed or implied by these forward looking statements.
For
per
sona
l use
onl
y
2/02/2016
11
Thank You
QUESTIONS?
For
per
sona
l use
onl
y