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Audited preliminary report for the year ended 30 November 2012
HUDACO INDUSTRIES LIMITED
Incorporated in the Republic of South Africa
Registration number 1985/004617/06
JSE code: HDC ISIN: ZAE000003273
AUDITED PRELIMINARY REPORT
for the year ended 30 November 2012
Mining strikes adversely impact H2 results
Sales up 10% to R3,5 billion
Headline earnings per share up 5% to R10,71
Ordinary dividends declared up 6% to R4,65 per share
Group statement of financial position
30 Nov 30 Nov
R million 2012 2011
ASSETS
Non-current assets 3 040 2 939
Property, plant and equipment 205 182
Investment in preference shares 2 181 2 181
Goodwill 594 516
Intangible assets 49 49
Deferred taxation 11 11
Current assets 1 679 1 598
Inventories 919 813
Trade and other receivables 684 616
Bank deposits and balances 76 169
TOTAL ASSETS 4 719 4 537
EQUITY AND LIABILITIES
Equity 1 696 1 525
Interest of shareholders of the group 1 670 1 494
Non-controlling interest 26 31
Non-current liabilities 2 244 2 306
Subordinated debenture 2 181 2 181
Finance leases 2
Amounts due to vendors of businesses acquired 63 123
Current liabilities 779 706
Trade and other payables 592 586
Bank overdraft 93
Finance leases 1
Amounts due to vendors of businesses acquired 88 111
Taxation 6 8
TOTAL EQUITY AND LIABILITIES 4 719 4 537
Group statement of comprehensive income
Year Year
ended % ended
30 Nov change 30 Nov
R million 2012 2011
Turnover 3 492 10 3 182
Ongoing operations 2 981 4 2 860
Acquired in 2011 and 2012 511 322
Cost of sales 2 137 1 910
Gross profit 1 355 7 1 272
Operating expenses 918 846
Operating profit 437 3 426
Ongoing operations 373 377
Acquired in 2011 and 2012 64 49
Reversal of impairment on property 1
Fair value adjustment to amounts
due to vendors 8
Profit before interest 446 426
Dividends received on preference shares 202 201
Interest received 4
Finance costs (250) (247)
Profit before taxation 398 384
Taxation 47 46
PROFIT FOR THE YEAR 351 338
Other comprehensive income
Movement on fair value of
cash flow hedges 2 (1)
TOTAL COMPREHENSIVE INCOME
FOR THE YEAR 353 5 337
Profit attributable to:
Shareholders of the group 340 325
Non-controlling shareholders 11 13
351 338
Total comprehensive income
attributable to:
Shareholders of the group 342 324
Non-controlling shareholders 11 13
353 337
Headline earnings per share (cents) 1 071 5 1 024
Basic earnings per share (cents) 1 074 5 1 026
Diluted headline earnings
per share (cents) 1 055 1 010
Diluted basic earnings per share (cents) 1 058 1 012
Reconciliation to headline earnings
Profit attributable to shareholders
of the group 340 325
Adjusted for:
Reversal of impairment and profit
on disposal of property, plant
and equipment (1) (1)
Headline earnings 339 5 324
Dividends
Per share (cents) 465 440
Amount (Rm) 147 139
Shares in issue 31 646 31 646
Total (000) 34 154 34 154
Held by subsidiary (000) (2 508) (2 508)
Weighted average shares in issue
Basic (000) 31 646 31 617
Diluted (000) 32 124 32 058
Group statement of cash flows
Year Year
ended ended
30 Nov 30 Nov
R million 2012 2011
Cash generated from trading 458 458
Increase in working capital (121) (129)
Cash generated from operations 337 329
Taxation paid (54) (46)
Net cash from operating activities 283 283
Net investment in new operations (229) (164)
Net investment in property, plant and equipment (39) (64)
Dividends and interest received 202 205
Net cash from investing activities (66) (23)
Proceeds from issue of shares 2
(Decrease) increase in finance leases (3) 3
Finance costs paid (237) (234)
Dividends paid (163) (124)
Net cash from financing activities (403) (353)
Net decrease in cash and cash equivalents (186) (93)
Group statement of changes in equity
Year Year
ended ended
30 Nov 30 Nov
R million 2012 2011
Equity at beginning of the year 1 525 1 314
Comprehensive income for the year 353 337
Decrease in equity compensation reserve (19) (3)
Issue of shares 2
Dividends (163) (125)
Equity at end of the year 1 696 1 525
Segment information
Turnover Operating profit Average net operating assets
Year Year Year Year Year Year
ended % ended ended % ended ended % ended
30 Nov change 30 Nov 30 Nov change 30 Nov 30 Nov change 30 Nov
R million 2012 2011 2012 2011 2012 2011
Engineering consumables 2 280 4 2 187 280 2 274 1 169 7 1 093
Ongoing operations 2 157 2 2 112 266 267 903 (4) 940
Acquired in 2011 and 2012 123 75 14 7 266 153
Consumer-related products 1 223 22 1 006 169 4 163 487 33 366
Ongoing operations 835 10 759 119 (2) 121 411 25 328
Acquired in 2011 and 2012 388 247 50 42 76 38
Total operating segments 3 503 10 3 193 449 3 437 1 656 14 1 459
Head office, shared services
and eliminations (11) (11) (12) (11) 117 10
Total group 3 492 10 3 182 437 3 426 1 773 21 1 469
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 (formerly AC 500 Standards)
as issued by the Accounting Practices Board, the requirements of the South African Companies Act
and the JSE Listings Requirements. The principal accounting policies set out in the group's 2011
integrated report have been consistently applied throughout the current year. These results have
been compiled under the supervision of the financial director, CV Amoils, CA(SA).
30 Nov 30 Nov
2012 2011
Average net operating assets (NOA) (Rm) 1 773 1 469
Operating profit margin (%) 12,5 13,4
Average NOA turn (times) 2,0 2,2
Return on average NOA (%) 24,6 29,0
Average net tangible operating assets (NTOA) (Rm) 1 172 951
PBITA margin (%) 13,0 13,8
Average NTOA turn (times) 3,0 3,3
Return on average NTOA (%) 38,7 46,1
Net asset value per share (cents) 5 277 4 721
Return on average equity (%) 21,8 23,8
Operating profit has been determined after
taking into account the following charges (Rm):
Depreciation 25 24
Amortisation 16 13
Capital expenditure (Rm)
Incurred during the year 43 69
Authorised but not contracted for 50 38
Commitments and contingencies (Rm)
Operating lease commitments on properties 168 123
Tax on BEE structure, including interest 500
Acquisition of businesses
The group acquired 100% of the businesses of Keymak,
Deltec and Proof Engineering for a total consideration
based on future profits and which is estimated to be
R142 million. The results since acquisition date included
in consolidated results for the year are as follows:
Turnover (Rm) 132
Profit after tax (Rm) 12
If the acquisitions had been concluded at the
beginning of the financial year, consolidated results
for the group would have been as follows:
Turnover (Rm) 3 615
Profit after tax (Rm) 358
Results
Hudaco is a South African group that imports and distributes branded industrial consumable
products. Its main product offering includes bearings, filters, power transmission equipment,
power tools and communication, automotive and security equipment. Its customer base is mainly
within the southern African manufacturing, mining, construction, automotive aftermarket and
security and communication industries. Adding value to the product sold by offering prompt
availability, technical support and training is a key part of Hudaco's business model.
Hudaco has delivered a reasonable set of results this year considering that the trading
environment in the final quarter, which is normally our most profitable, proved very difficult.
Demand for our product offering was reasonably strong until September 2012 when the
mining strikes closed the platinum mines for the rest of the year and closed some gold and
coal mines for shorter periods. The group made three acquisitions this year. Acquisitions made
in the previous years continued to perform well. This year the group decided to increase its
efforts to penetrate markets in neighbouring countries as it became clear that their strong
growth is probably going to be sustained. Although the Rand exchange rate on average was
weaker than 2011, volatility made price increases hard to achieve and sustain.
The Engineering Consumables segment is the largest contributor of profits for the Hudaco
group delivering 62% of operating profit this year. Sales, at R2,3 billion, were 4% up, while
operating profits increased only 2%. Demand from the two key markets for this segment,
South African-based mining and manufacturing, was severely affected by strikes in the final,
usually busiest, quarter of the year. However demand from mining customers in neighbouring
countries was noticeably higher than previous years. The Consumer Related Products
segment had a good year sales wise with continued strong demand for power tools and
professional digital radio communication equipment. However price increases, which are
usually linked to a weakening in the Rand, were difficult to achieve. As a result margins came
under pressure on a sales increase of 22% the segment could only manage to increase
operating profits by 4%.
The group gross margin of 39% decreased from last year's 40%, evidence of the pricing
difficulty we experienced in a volatile exchange rate environment. Expenses as a percentage
of sales improved to 26,3% from 26,6% last year but this was not enough to prevent a
decline in the operating profit margin from 13,4% last year to 12,5% this year.
Headline earnings per share of 1 071 cents are up 5% on last year. The group's dividend
policy remains unchanged and is to pay about 40% of normalised earnings annually. The
final dividend of 310 cents per share brings total dividends declared in respect of the 2012
financial year to 465 cents which is 6% up on last year.
The financial position is healthy. Working capital (inventories, accounts receivable and
accounts payable) is up on last year but due to the lost sales in the final quarter of the year
the group is carrying an additional R45 million in inventories which would, in a normal year,
be split between cash and debtors. It will take about six months to bring working capital
back into line. In the past year Hudaco has acquired three small businesses, two of
them bolting onto existing businesses, at an estimated cost of R142 million of which
R103 million has already been paid. The balance is still to be paid over the next three years
and is dependent on earn-out performances. The group has net borrowings of R17 million
(last year: R169 million net cash on hand) at year end.
In 2007 we put in place a leveraged BEE structure to enable our BEE partners to obtain a
stake at minimal cost. We have received a notice from SARS indicating that they believe
that our BEE structure was a scheme designed to avoid tax and that they intend imputing
taxable interest on Hudaco and disallowing STC credits arising on the preference dividends
received. We strongly disagree with the SARS interpretation of our motivation. When the
structure was put in place, we obtained advice from senior counsel that our case would
stand up to scrutiny. This has been reconfirmed since receiving the notice. If SARS assess us,
we will contest the assessment vigorously as we remain confident of our position. The tax
involved, including interest, amounts to approximately R500 million. SARS may also seek
to impose penalties.
Prospects
Trading conditions are expected to remain muted in 2013. The rapid growth in consumer
spending over the past few years has fuelled growth in public sector employment followed
by above inflation wage increases and the expansion of the social grant programme.
Mining expansion waits for a recovery in the major economies of the world and the higher
commodity prices that it will bring. Hopefully the infrastructure electricity and rail required
to allow the country to capitalise on any recovery will be in place by then. We also hope that
the strike action of the last few months will be resolved soon. Pricing is mainly driven by the
Rand exchange rate and, given the volatility this year, we make no attempt to guess how it
will perform in 2013.
Economic growth in neighbouring countries, however, is expected to remain strong and we
are well positioned to take advantage of this. The group is also committed to continuing its
successful acquisition strategy. Notwithstanding economic uncertainties the group is in good
shape and is well placed for the future.
Declaration of final dividend no 52
Final dividend number 52 of R3,10 per share is declared payable on Monday, 11 March 2013 to
ordinary shareholders recorded in the register at the close of business on Friday, 8 March 2013.
The timetable for the payment of the dividend is as follows:
Last day to trade cum dividend Friday, 1 March 2013
Trading ex dividend commences Monday, 4 March 2013
Record date Friday, 8 March 2013
Payment date Monday, 11 March 2013
Share certificates may not be dematerialised or rematerialised between Monday, 4 March 2013
and Friday, 8 March 2013, both days inclusive. The certificated register will be closed for
this period.
In terms of the Listings Requirements of the JSE Limited regarding the new Dividends Tax
effective 1 April 2012, the following additional information is provided:
- The dividend has been declared out of income reserves;
- The local dividend rate is 15%;
- Secondary Tax on Company (STC) credits of R3,10 per share will be utilised;
- The gross local dividend amount is R3,10 per ordinary share for shareholders exempt from
the Dividends Tax;
- The net local dividend amount is R3,10 per ordinary share for shareholders liable to pay
the new 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 and annual general meeting
Hudaco will host presentations on the financial results in Johannesburg and Cape Town on
Friday, 1 February 2013 and Monday, 4 February 2013, 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 Tuesday, 5 February 2013.
The company's 28th annual general meeting will be held at Hudaco's corporate offices
situated at Building 9, Greenstone Hill Office Park, Emerald Boulevard, Greenstone Hill,
Edenvale at 11:00 on Thursday, 28 March 2013. The record date for attending and voting at
the annual general meeting is Friday, 22 March 2013. Further details on the company's annual
general meeting will be included in the integrated report that will be published in
February 2013 and will be posted to the shareholders on or about 26 February 2013.
Approval of financial statements
The financial statements have been approved by the board and abridged for purposes of
this report. Grant Thornton has signed an unqualified audit opinion on the annual financial
statements. The auditors' report does not necessarily cover all the information contained in
this announcement. Both the financial statements and the auditor's report are available for
inspection at the company's registered office.
For and on behalf of the board
RT Vice SJ Connelly
Independent non-executive chairman Chief executive
31 January 2013
Transfer secretaries:
Computershare Investor Services Pty Limited, PO Box 61051, Marshalltown, 2107
Registered office:
Building 9, Greenstone Hill Office Park, Emerald Boulevard, Greenstone Hill, Edenvale, 1609
Tel +27 11 657 5000
E-mail info@hudaco.co.za
Directors:
RT Vice (Chairman)*, SJ Connelly (Chief executive), CV Amoils (Financial director),
GR Dunford, DD Mokgatle*, SG Morris*, D Naidoo*.
* Independent non-executive
Group secretary:
R Wolmarans
Sponsor:
Nedbank Capital
www.hudaco.co.za
Date: 01/02/2013 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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