Wrap Text
Unaudited interim results for the six months ended 31 May 2017
Hudaco Industries Limited
Incorporated in the Republic of South Africa
Registration number: 1985/004617/06
JSE share code: HDC
ISIN code: ZAE000003273
Unaudited interim results
for the six months ended 31 May 2017
Turnover up 7% to R2,7 billion
Operating profit up 9% to R269 million
Comparable earnings per share up 10% to 483 cents
Basic and headline earnings per share up 2% to 483 cents
Net cash generated from operations R247 million
Interim dividend up 6% to 180 cents per share
Hudaco Industries is a South African group specialising in the importation
and distribution of high quality branded automotive after-market, industrial
and electrical consumable products mainly in the southern African region.
Hudaco businesses serve markets that fall into two primary categories:
* The automotive aftermarket, power tool, security and communication equipment
businesses supply products into markets with a bias towards consumer spending.
* The mechanical and electrical power transmission, diesel engine, hydraulics
and pneumatics, steel, thermoplastic fittings and bearings businesses supply
engineering consumables mainly to mining and manufacturing customers.
Adding value by offering instant availability, advice and training etc. is an
integral part of Hudaco’s business model.
Results
The group has delivered pleasing first half results under extremely difficult
trading conditions in an economy that is under enormous pressure, with stagnant
markets, ratings downgrades, the country falling into recession and the Rand
being the most volatile currency in the world this year. We fortunately carried
a healthy order book into the new year and this, together with improvement in
certain sectors of the economy, gave us a strong start to the year. April,
however, was a particularly poor month for us with the limited number of trading
days and the announcement of the ratings downgrades, so we gave up a lot of the
gains we had worked so hard to achieve. In May, trading was better and we matched
our strong 2016 result.
Group sales at R2,7 billion for the half year are up 6,5% on 2016 and include
R259 million from acquisitions made after December 2015. Operating profit
increased 9,4% to R269 million, which gave us an operating margin of 10%, very
respectable for the first six months, which include the holiday periods.
Comparable earnings per share increased 10% to 483 cents while basic and headline
earnings per share are up 2% to 483 cents. In 2016 basic and headline
earnings were boosted by a downward adjustment to the fair value of the vendor
liability, which was not the case this year, hence the lower increase. The interim
dividend has been increased to 180 cents per share. Our dividend policy, to be
covered between 2,5 and 2,0 times by comparable earnings annually, remains
unchanged.
The financial position is in good shape. Bank borrowings normally peak at the half
year as we stock up for what is usually a busier second half. Notwithstanding this,
and the fact that we paid dividends of R116 million and R90 million for acquisitions,
net borrowings increased only R68 million in the half year to R973 million. Operations
generated net cash of R247 million for the six months. Borrowings are still well
within our self-imposed conservative guidelines and our available banking facilities
and, unless we make further acquisitions, our usual strong second half cash generation
should reduce debt by year end.
Consumer-related products segment
Trading conditions are getting tougher as consumer confidence and disposable income
come under pressure. This segment’s contribution to group sales has benefitted from
acquisition activity over the past few years and in this half it accounted for 50% of
group sales and 62% of operating profit. There are now ten businesses in this segment
and they diversify our opportunities and market segment mix. The automotive after-
market is our biggest market sector and continues to perform well. Power tool sales
were up thanks to letters of authority finally being approved for our new Makita MT
series. Miro had a good six months and has integrated well into Hudaco. Our security
and communications businesses have had a difficult start to the year.
Segment sales increased 8,5% to R1 343 million, of which R229 million was from
acquisitions. Operating profit increased 10% to R177 million at an operating margin
of 13%.
Engineering consumables segment
There are 21 businesses which make up this segment. Although trading conditions were
extremely tough in most of the markets we serve, there were some improvements. This
tough environment continues to create aggressive pricing pressure. There were improved
performances from businesses supplying hydraulics, bearings, belting and electrical
products. The other businesses in this sector struggled but even though they were
down on the prior year, they produced acceptable returns on sales. The segment did
very well to increase sales by 5% to R1 330 million, of which acquisitions contributed
R30 million. Operating profit increased 9% to R107 million at an operating margin of 8%.
Prospects
South Africa is still an extremely difficult place to do business and, in all
likelihood, it will become even more difficult. Business confidence is lower now
than it has been since the global economic crisis of 2008. We are concerned about
the effect of the revised mining charter in that it has the potential to make the
mining industry, together with much of its supply chain, “uninvestable”, resulting
in a further significant loss of jobs. The group’s strategy over the past few years
of reducing its exposure to the mining industry has proven to have been appropriate.
Unless business confidence improves, we believe that trading conditions in the
second half of 2017 will also be challenging.
Most of the businesses in the engineering consumables segment will struggle to get
organic growth but they generally have a high market share and remain our “cash cows”.
We continue to manage the relationship between their sales, gross margins and expenses
very closely. The cash they generate is used to fund acquisitions. The sectors in
which they operate remain important for the group and their fortunes still have a
significant impact on Hudaco’s trading results.
There has been an important strategic shift in Hudaco’s exposure into more resilient
and/or growth markets over the past few years, so we believe the consumer-related
segment will continue to perform relatively well even though we are seeing the
pressure on the consumer as the country slides into recession. The acquisition of
Miro in May 2016 is an example of this highly successful initiative and emphasis will
continue to be placed on growing this segment.
Hudaco’s business model, which is principally the sale of replacement parts with a
high value added component; and its financial characteristics – high margin and strong
cash flows with a limited requirement for investment in fixed assets, makes Hudaco
resilient. It has delivered commendable results in tough times before and we expect
that it will do so again now.
Lawsuit against Bravura and certain associates
The legal case against Bravura and certain of its associates for up to R490 million
is still continuing slowly. Hudaco has brought the action to recover, inter alia,
secret profits made on the financing arrangements around the Hudaco BEE transaction
that ran from August 2007 to February 2013.
Directorate
As reported on SENS, Mark Thompson was appointed to the board as a non- executive
director with effect from 20 June 2017 and Stuart Morris will retire on 30 June 2017.
Declaration of interim dividend no 61
Interim dividend number 61 of 180 cents per share is declared payable on Monday,
14 August 2017 to ordinary shareholders recorded in the register at the close of
business on Friday, 11 August 2017.
The timetable for the payment of the dividend is as follows:
Last day to trade cum dividend Monday, 7 August 2017
Trading ex dividend commences Tuesday, 8 August 2017
Record date Friday, 11 August 2017
Payment date Monday, 14 August 2017
Share certificates may not be dematerialised or rematerialised between
Tuesday, 8 August 2017 and Friday, 11 August 2017, both days inclusive.
The certificated register will be closed for this period.
In terms of the Listings Requirements of the JSE Limited regarding the
Dividends Tax the following additional information is disclosed:
* The dividend has been declared from income reserves;
* The dividend withholding tax rate is 20%;
* The net local dividend amount is 144 cents per share for shareholders
liable to pay the Dividends Tax and 180 cents per share for shareholders
exempt from the Dividends Tax;
* Hudaco Industries Limited has 34 153 531 shares in issue (which includes
2 507 828 treasury shares); and
* Hudaco Industries Limited’s income tax reference number is 9400/159/71/2.
Results presentation
Hudaco will host presentations on the financial results in Johannesburg
and Cape Town on Friday, 30 June 2017 and Monday, 3 July 2017, respectively.
Anyone wishing to attend should contact Janine Yon at 011 657 5007.
The slides, which form part of the presentation, will be available on the
company’s website from Friday, 30 June 2017.
For and on behalf of the board
RT Vice GR Dunford
Independent non-executive chairman Chief executive
29 June 2017
Nedbank Corporate and Investment Banking
Sponsor
These results are available on the internet: www.hudaco.co.za
Group statement of financial position
31 May 31 May 30 Nov*
R million 2017 2016 2016
Assets
Non-current assets 1 726 1 611 1 611
Property, plant and equipment 260 262 256
Investment in joint venture 8 5 7
Goodwill 1 344 1 240 1 243
Intangible assets 69 75 68
Deferred taxation 45 29 37
Current assets 2 537 2 562 2 619
Inventories 1 552 1 612 1 508
Trade and other receivables 902 858 1 046
Taxation 19 38 18
Bank deposits and balances 64 54 47
Total assets 4 263 4 173 4 230
Equity and liabilities
Equity 2 186 1 941 2 130
Equity holders of the parent 2 120 1 890 2 065
Non-controlling interest 66 51 65
Non-current liabilities 1 003 1 119 869
Amounts due to bankers 775 900 710
Amounts due to vendors of businesses acquired 209 197 148
Deferred taxation 19 22 11
Current liabilities 1 074 1 113 1 231
Trade and other payables 719 760 898
Bank overdraft 262 307 242
Amounts due to vendors of businesses acquired 60 34 76
Taxation 33 12 15
Total equity and liabilities 4 263 4 173 4 230
Group statement of comprehensive income
Six Six
months months Year*
ended ended ended
31 May % 31 May 30 Nov
R million 2017 change 2016 2016
Turnover 2 671 6,5 2 507 5 534
– Ongoing operations 2 412 (2,3) 2 469 5 252
– Operations acquired after December 2015 259 38 282
Cost of sales 1 684 1 605 3 536
Gross profit 987 902 1 998
Operating expenses 718 656 1 359
Operating profit 269 9,4 246 639
– Ongoing operations 240 (0,8) 242 598
– Operations acquired after December 2015 29 4 41
Adjustment to fair value of amounts due
to vendors of businesses acquired 12 19
Profit before interest 269 4,3 258 658
Finance costs 52 48 100
Profit before taxation 217 3,4 210 558
Taxation 62 57 148
Profit after taxation 155 1,3 153 410
Income from joint venture 2 1 3
Profit for the period 157 1,7 154 413
Other comprehensive income 3 (1) (8)
Movement on fair value of cash flow
hedges 3 (3) (8)
Exchange gain on translation of foreign
operations 2
Total comprehensive income for the period 160 4,9 153 405
Profit attributable to:
– Equity holders of the parent 153 2,3 149 388
– Non-controlling shareholders 4 5 25
157 1,7 154 413
Total comprehensive income attributable to:
– Equity holders of the parent 155 5,1 148 381
– Non-controlling shareholders 5 5 24
160 4,9 153 405
Earnings per share (cents)
– Basic 483 2,3 472 1 226
– Headline 483 2,3 472 1 222
– Comparable 483 9,8 440 1 171
Diluted earnings per share (cents)
– Basic 473 0,4 471 1 222
– Headline 473 0,4 471 1 219
– Comparable 473 7,7 439 1 168
Calculation of headline earnings
Profit attributable to equity holders of
the parent 153 2,3 149 388
Adjusted for:
Profit on disposal of plant and equipment (1)
Headline earnings 153 2,3 149 387
Calculation of comparable earnings
Headline earnings 153 2,3 149 387
Adjusted for:
Adjustment to fair value of amounts due
to vendors of businesses acquired (12) (19)
Non-controlling interest 2 2
Comparable earnings 153 9,8 139 370
Dividends
– Per share (cents) 180 170 525
– Amount (Rm) 57 54 166
Shares in issue (000) 31 646 31 646 31 646
– Total (000) 34 154 34 154 34 154
– Held by subsidiary (000) (2 508) (2 508) (2 508)
Weighted average shares in issue
– Total (000) 31 646 31 646 31 646
– Diluted (000) 32 287 31 708 31 732
Group statement of cash flows
Six Six
months months Year*
ended ended ended
31 May 31 May 30 Nov
R million 2017 2016 2016
Cash generated from trading 317 287 708
(Increase) decrease in working capital (70) (29) 41
Cash generated from operations 247 258 749
Fair value adjustment of cash flow hedges 3 (3) (8)
Taxation paid (52) (83) (174)
Net cash from operating activities 198 172 567
Net investment in new operations (90) (135) (165)
Net investment in property, plant and equipment (18) (16) (30)
Net cash from investing activities (108) (151) (195)
Increase (decrease) in non-current amounts due to
bankers 65 100 (90)
Finance costs paid (42) (44) (87)
Dividends paid (116) (115) (173)
Net cash from financing activities (93) (59) (350)
(Increase) decrease in net bank overdraft (3) (38) 22
Foreign exchange translation gain 1 (1)
Net bank overdraft at beginning of the period (195) (216) (216)
Net bank overdraft at end of the period (198) (253) (195)
Group statement of changes in equity
Share Non-
capital distribut-
and able Retained
R million premium reserves income
Balance at 1 December 2016 55 64 1 965
Comprehensive income for the period 155
Movement in equity compensation reserve 12
Dividends (112)
Balance at 31 May 2017 55 76 2 008
Less: Shares held by subsidiary company (19)
Net balance at 31 May 2017 55 76 1 989
Balance at 1 December 2015 55 75 1 733
Comprehensive income for the period 148
Movement in equity compensation reserve 8
Dividends (110)
Balance at 31 May 2016 55 83 1 771
Less: Shares held by subsidiary company (19)
Net balance at 31 May 2016 55 83 1 752
Balance at 1 December 2015 55 75 1 733
Comprehensive income for the year (7) 388
Movement in equity compensation reserve (4) 7
Dividends (163)
Balance at 30 November 2016 55 64 1 965
Less: Shares held by subsidiary company (19)
Net balance at 30 November 2016* 55 64 1 946
Equity Non-
holders control-
of the ling
R million parent interest Equity
Balance at 1 December 2016 2 084 65 2 149
Comprehensive income for the period 155 5 160
Movement in equity compensation reserve 12 12
Dividends (112) (4) (116)
Balance at 31 May 2017 2 139 66 2 205
Less: Shares held by subsidiary company (19) (19)
Net balance at 31 May 2017 2 120 66 2 186
Balance at 1 December 2015 1 863 51 1 914
Comprehensive income for the period 148 5 153
Movement in equity compensation reserve 8 8
Dividends (110) (5) (115)
Balance at 31 May 2016 1 909 51 1 960
Less: Shares held by subsidiary company (19) (19)
Net balance at 31 May 2016 1 890 51 1 941
Balance at 1 December 2015 1 863 51 1 914
Comprehensive income for the year 381 24 405
Movement in equity compensation reserve 3 3
Dividends (163) (10) (173)
Balance at 30 November 2016 2 084 65 2 149
Less: Shares held by subsidiary company (19) (19)
Net balance at 30 November 2016* 2 065 65 2 130
Supplementary information
The consolidated financial statements have been prepared in accordance with
IAS 34: Interim Financial Reporting, International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board
(IASB), SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee, financial pronouncements as issued by the Financial Reporting
Standards Council, the requirements of the South African Companies Act and
the JSE Listings Requirements. The same accounting policies, presentation and
measurement principles have been followed in the preparation of the interim
report for the period ended 31 May 2017 as were applied in the preparation
of the group’s annual financial statements for the year ended 30 November 2016.
These results have been compiled under the supervision of the financial
director, CV Amoils, CA (SA). The directors of Hudaco take full responsibility
for the preparation of the interim report and ensuring that the financial
information has been correctly extracted from the underlying financial
statements. This interim report has not been audited or reviewed by
Hudaco’s auditors.
31 May 31 May 30 Nov*
2017 2016 2016
Average net operating assets (NOA) (Rm) 3 344 3 032 3 141
Operating profit margin (%) 10,1 9,8 11,6
Average NOA turn (times) 1,6 1,7 1,8
Return on average NOA (%) 16,1 16,2 20,4
Average net tangible operating assets (NTOA)
(Rm) 1 975 1 900 1 910
PBITA margin (%) 10,6 10,3 12,0
Average NTOA turn (times) 2,7 2,6 2,9
Return on average NTOA (%) 28,6 27,1 34,7
Net asset value per share (cents) 6 699 5 972 6 525
Return on average equity (%) 14,6 16,1 20,5
Operating profit has been determined after
taking into account the following charges (Rm)
– Depreciation 23 21 44
– Amortisation 13 12 24
Capital expenditure (Rm)
– Incurred during the period 20 19 36
– Authorised but not yet contracted for 52 32 60
Commitments
– Operating lease commitments on properties (Rm) 217 224 210
Fair value disclosure
Only forward exchange contracts are recognised at fair value. The fair value
is indirectly derived from prices in active markets for similar liabilities,
which means it is classified as a level 2 fair value measurement.
Acquisition of businesses
On 1 December 2016 the group acquired 100% of the business of SS Telecoms, on
1 January 2017 100% of the business of Commercial ICT and on 1 May 2017
100% of the business of The Dished End Company, each for a consideration
based on future profits and which are subject to a combined maximum of
R190 million.
Plant and equipment of R8 million, inventories of R9 million, trade and other
receivables of R9 million, trade and other payables of R8 million, cash of
R2 million, taxation of R7 million, intangible assets of R14 million and
goodwill of R101 million were recognised at dates of acquisition. These
values approximate the fair values as provisionally determined under IFRS 3.
Had these acquisitions been made at the beginning of the year, additional
turnover of R12 million and profit after interest and tax of R3 million
would have been included in the group results and the turnover and profit
after interest and tax for the group would have been R2 683 million and
R158 million, respectively.
Segment information
Turnover
Six Six
months months Year*
ended ended ended
31 May % 31 May 30 Nov
R million 2017 change 2016 2016
Consumer-related products 1 343 8,5 1 238 2 802
– Ongoing operations 1 114 (7,2) 1 200 2 553
– Operations acquired after December
2015 229 38 249
Engineering consumables 1 330 4,6 1 271 2 739
– Ongoing operations 1 300 2,3 1 271 2 706
– Operations acquired after December
2015 30 33
Total operating segments 2 673 6,5 2 509 5 541
Head office, shared services and
eliminations (2) (2) (7)
Total group 2 671 6,5 2 507 5 534
* Audited
Operating profit
Six Six
months months Year*
ended ended ended
31 May % 31 May 30 Nov
R million 2017 change 2016 2016
Consumer-related products 177 10,0 160 405
– Ongoing operations 154 (1,5) 156 372
– Operations acquired after December 2015 23 4 33
Engineering consumables 107 9,3 98 255
– Ongoing operations 101 2,9 98 247
– Operations acquired after December 2015 6 8
Total operating segments 284 9,7 258 660
Head office, shared services and
eliminations (15) (12) (21)
Total group 269 9,4 246 639
* Audited
Average net operating assets
Six Six
months months Year*
ended ended ended
31 May % 31 May 30 Nov
R million 2017 change 2016 2016
Consumer-related products 1 510 18,9 1 270 1 337
– Ongoing operations 1 154 (5,3) 1 219 1 185
– Operations acquired after December 356 51 152
2015
Engineering consumables 1 709 (2,8) 1 759 1 732
– Ongoing operations 1 649 (6,3) 1 759 1 711
– Operations acquired after December
2015 60 21
Total operating segments 3 219 6,3 3 029 3 069
Head office, shared services and
eliminations 125 3 72
Total group 3 344 10,3 3 032 3 141
* Audited
Company information
Transfer secretaries
Computershare Investor Services Proprietary Limited
PO Box 61051
Marshalltown, 2107
Registered office
1st Floor, Building 9
Greenstone Hill Office Park
Emerald Boulevard, Greenstone Hill, Edenvale
Tel +27 11 657 5000
Email: info@hudaco.co.za
Directors
RT Vice (Chairman)*
GR Dunford (Chief executive)
CV Amoils (Financial director) SJ Connelly*
N Mandindi* SG Morris*
D Naidoo*
MR Thompson*
* Non-executive
Group secretary
R van Zyl
Sponsor
Nedbank Corporate and Investment Banking
www.hudaco.co.za
Date: 30/06/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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