Wrap Text
Unaudited Interim Results for the six months ended 31 May 2013
HUDACO INDUSTRIES LIMITED
Incorporated in the Republic of South Africa
Registration number 1985/004617/06
JSE code: HDC ISIN: ZAE000003273
UNAUDITED INTERIM RESULTS
for the six months ended 31 May 2013
HIGHLIGHTS
- Turnover up 14% to R1,8 billion
- Operating profit up 8% to R195 million
- Headline earnings per share up 2% to 448 cents
- Comparable earnings per share up 13%
- Interim dividend maintained at 155 cents per share
- BEE financing arrangements restructured
Hudaco Industries is a South African group whose principal activity is the distribution of high quality
branded industrial products in the southern African region. Hudaco businesses serve markets that
fall into two primary categories. The bearings, power transmission and diesel engine businesses
supply engineering consumables mainly to mining and manufacturing customers whilst the security,
power tool and automotive aftermarket businesses supply products into markets with a bias towards
consumer spending. Adding value to the product sold by offering instant availability, advice and
training is a key part of Hudaco's business model.
Results
The group continues to deliver satisfactory results in an uncertain and difficult economic environment.
In particular, mining activity continues to be beset by work stoppages and exchange rate volatility
makes pricing difficult.
Businesses serving underground mining, specifically platinum and gold, have been particularly hard
hit by work stoppages since August last year and it has been only towards the end of the first half
that sales volumes have started to recover. Activity in open cast mining, mainly coal and iron ore,
was not as badly affected by the stoppages so sales volumes have been closer to normal levels. Good
performances from other businesses, especially those in the Consumer related products segment,
have more than offset weak performances in the Engineering consumables segment.
Sales at R1,8 billion were up 14% whilst operating profit grew 8% to R195 million with an operating
margin to sales of 10,8% down on last year's 11,3%.
Headline and basic earnings per share of 448 cents are up slightly on last year but comparable
earnings (calculated as if the restructuring of the financing of the BEE transaction had taken place
before the start of the 2012 financial year) are up 13%. The interim dividend has been maintained
at 155 cents per share. Our dividend policy, to pay about 40% of HEPS annually, remains in place.
The financial position is healthy. Working capital (inventories, accounts receivable and accounts
payable) have increased sharply as replacement stock has been bought at higher Rand prices but this
cash outlay will be recouped through price increases over the next year if the Rand remains at current
levels. The group has net borrowings of R148 million at 31 May 2013.
Engineering consumables segment
This segment is the biggest profit contributor to the group and acquisitions over the past few
years have significantly strengthened the sales base and spread. It has been experiencing tough
trading conditions since about August last year due to strike activity in the mining and transport
sectors. Platinum and gold mining have been particularly badly impacted and operating profit in
our diesel engine business, which is largely dependent on underground mining activity, was well
down on last year. However it is pleasing to report that all other businesses performed well under
the circumstances and new businesses are still performing in line with, or ahead of, expectations.
Three-D Agencies, a distributor of specialised cable accessories, was acquired with effect from
1 May 2013 for a maximum consideration of R28 million.
Sales of R1 133 million are up 6% on last year whilst operating profit was flat at R119 million.
Consumer-related products segment
This segment accounted for 38% of sales and 42% of operating profit in the first half of 2013.
Sales of power tools and security equipment showed satisfactory growth but instrumentation sales
were well down. Global Communications delivered another excellent performance as did Deltec in
its second year in the group.
Segment sales were up 28% to R684 million whilst operating profit increased 23% to R85 million.
BEE financing arrangements restructured
As detailed in a SENS announcement on 28 February 2013, the financing arrangements pertaining
to the group's BEE structure have been restructured. Cadiz redeemed the preference share
investment of R2 181 million and as a result Morgan Stanley exercised its option to put to the group
the debenture issued by Hudaco Trading. Consequently, the BEE funding arrangements that were
intended to be financed externally until August 2017 have been financed internally by the Hudaco
group since 28 February 2013.
As a result of the restructuring:
- the group statement of financial position no longer reflects a preference share investment of
R2 181 million or a subordinated debenture liability of R2 181 million;
- the group statement of comprehensive income will no longer reflect preference dividends received
of R201 million per annum or debenture interest paid of R234 million per annum;
- basic earnings and headline earnings will be negatively affected by approximately R33 million or
103 cents per share per annum;
- for the financial year ending 30 November 2013, the effect of the abovementioned items on
basic and headline earnings per share is expected to be 77 cents, plus there has been a further
charge of 17 cents because of a one-off Securities Transfer Tax (STT) payment of R5,5 million on
the redemption of the preference shares; and
- basic and headline earnings per share in these interim results have been affected to the extent of
43 cents in total.
The BEE shareholders will continue to hold their shares in Hudaco Trading and the BEE credentials of
all entities in the Hudaco group will remain intact.
Tax challenge
In a SENS announcement on 12 February 2013, stakeholders were advised that assessments had
been received from SARS for the financial years 2007 to 2011 relating to certain aspects flowing
from the implementation of the BEE structure. SARS has set out detailed descriptions of other
complex arrangements connected to the structure and entered into by third parties without
Hudaco's knowledge or suspicion, and which presumably resulted in tax leakage to the fiscus.
The amounts assessed by SARS comprise R1,3 billion under the general and anti-avoidance regulations
(GAAR) and R0,6 billion under alternative grounds of Hudaco having allegedly become entitled to an
amount because of the security arrangements. The amounts are broken down as follows:
Tax on re-categorised interest imputed on Hudaco R279 million, tax imputed on Hudaco as it
allegedly became entitled to an amount because of the security arrangements R143 million,
impact of STC credits disallowed R72 million, interest R446 million, penalties R987 million. It is
assumed that SARS will take a similar approach in respect of the year ended 30 November 2012 and
the three months to the redemption of the preference shares on 28 February 2013.
The maximum potential exposure reflected as a contingent liability is considered to be the assessment
under GAAR of R1,3 billion plus a further R0,3 billion assumed for 2012 and 2013, including interest
and penalties.
Based on advice from senior counsel, Hudaco remains confident of refuting the assessments. Hudaco
has lodged objections to the assessments and will continue to pursue all appropriate legal remedies.
In respect of the requirement to "pay now, argue later", agreement has recently been reached with
SARS, the practical implication of which is that Hudaco will pay on account an amount of R20 million
per quarter commencing in July 2013 and the remainder will be deferred until the legal process has
run its course, which Hudaco estimates is likely to take two to three years. Any overpayment will be
reimbursed with interest.
Prospects
As much as 50% of Hudaco's sales are derived from the South and southern African mining
industry and the manufacturing and service sectors supporting that industry. Unfortunately these
sectors are experiencing challenging times at the moment. Low commodity prices and insufficient
infrastructure, particularly electricity and rail capacity, weigh heavily on the industry. The lack of
common objectives for the industry by government, capital and labour is the cause of the current
acrimony and, until resolved, acts as a further brake on the sector and a disincentive to investment.
Prospects in neighbouring countries are better and it is one of our strategies to grow our presence
in these markets.
A weak Rand is usually good for Hudaco and our mining customers as they receive more Rands for
the commodities they mine so it also usually results in an increase in mining production but this is
unlikely at present, given the industry's current travails.
Although growth in consumer spending appears to be weakening, our businesses are positioned in
niche areas which we believe will continue to perform satisfactorily.
Organic earnings growth in the group will continue to be modest under current economic
circumstances with any out-performance coming from acquisitions.
Directorate
Due to other commitments, DD Mokgatle has tendered her resignation from the board with effect
from 25 October 2013. The board thanks her for her contribution and a replacement will be
appointed in due course.
Declaration of interim dividend no 53
Interim dividend number 53 of 155 cents per share is declared payable on Monday, 19 August 2013
to ordinary shareholders recorded in the register at the close of business on Friday, 16 August 2013.
The timetable for the payment of the dividend is as follows:
Last day to trade cum dividend Thursday, 8 August 2013
Trading ex dividend commences Monday, 12 August 2013
Record date Friday, 16 August 2013
Payment date Monday, 19 August 2013
Share certificates may not be dematerialised or rematerialised between Monday, 12 August 2013 and
Friday, 16 August 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 disclosed:
- The dividend has been declared out of income reserves;
- The local dividend rate is 15%;
- Secondary tax on Company (STC) credits of 155 cents per share will be utilised;
- The gross local dividend amount is 155 cents per ordinary share for shareholders exempt from the
Dividends Tax;
- The net local dividend amount is 155 cents 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
Hudaco will host presentations on the financial results in Johannesburg and Cape Town on Friday,
28 June 2013 and Monday, 1 July 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, 2 July 2013.
For and on behalf of the board
RT Vice SJ Connelly
Independent non-executive chairman Chief executive
27 June 2013
Group statement of financial position
31 May 31 May 30 Nov
R million 2013 2012 2012*
Assets
Non-current assets 869 3 011 3 040
Property, plant and equipment 210 183 205
Investment in preference shares 2 181 2 181
Goodwill 603 575 594
Intangible assets 40 56 49
Deferred taxation 16 16 11
Current assets 1 742 1 486 1 679
Inventories 998 913 919
Trade and other receivables 744 551 684
Bank deposits and balances 22 76
Total assets 2 611 4 497 4 719
Equity and liabilities
Equity 1 739 1 558 1 696
Interest of shareholders of the group 1 722 1 541 1 670
Non-controlling interest 17 17 26
Non-current liabilities 2 335 2 244
Subordinated debenture 2 181 2 181
Amounts due to vendors of businesses acquired 154 63
Current liabilities 872 604 779
Trade and other payables 588 452 592
Bank overdraft 148 39 93
Amounts due to vendors of businesses acquired 91 104 88
Taxation 45 9 6
Total equity and liabilities 2 611 4 497 4 719
Group statement of comprehensive income
Six months Six months Year
ended ended ended
31 May % 31 May 30 Nov
R million 2013 change 2012 2012*
Turnover 1 813 14 1 593 3 492
ongoing operations 1 664 5 1 586 3 360
acquired in 2012 and 2013 149 7 132
Cost of sales 1 148 980 2 137
Gross profit 665 8 613 1 355
Operating expenses 470 432 918
Operating profit 195 8 181 437
ongoing operations 180 1 179 418
acquired in 2012 and 2013 15 2 19
Reversal of impairment of property 1
Fair value adjustment on amounts
due to vendors 8
Profit before interest 195 8 181 446
Dividends received on investment
in preference shares 50 101 202
Finance costs (64) (124) (250)
Profit before taxation 181 15 158 398
Taxation 38 16 47
PROFIT FOR THE PERIOD 143 1 142 351
Other comprehensive income
Movement on fair value of
cash flow hedges 5 3 2
TOTAL COMPREHENSIVE INCOME
FOR THE PERIOD 148 2 145 353
Profit attributable to:
shareholders of the group 142 140 340
non-controlling shareholders 1 2 11
143 142 351
Total comprehensive income
attributable to:
shareholders of the group 147 143 342
non-controlling shareholders 1 2 11
148 145 353
Comparable earnings
per share+ (cents) 440 13 390 942
Headline earnings per share (cents) 448 2 441 1 071
Basic earnings per share (cents) 448 441 1 074
Diluted comparable earnings
per share+ (cents) 436 383 928
Diluted headline earnings
per share (cents) 446 434 1 055
Diluted basic earnings
per share (cents) 446 434 1 058
Reconciliation to headline and
comparable earnings+
Profit attributable to shareholders
of the group 142 140 340
Adjusted for:
Reversal of impairment on property (1)
Headline earnings 142 140 339
Adjusted for:
Preference dividend received (50) (101) (202)
Interest on debenture 58 117 234
Income tax effect of the above (16) (33) (65)
STT on redemption of preference shares 5
Fair value adjustments on amounts
due to vendors (8)
Comparable earnings(+) 139 13 123 298
Dividends
per share (cents) 155 155 465
amount (Rm) 49 49 147
Shares in issue 31 646 31 646 31 646
total (000) 34 154 34 154 34 154
held by subsidiary company (000) (2 508) (2 508) (2 508)
Weighted average shares in issue
basic (000) 31 646 31 646 31 646
diluted (000) 31 873 32 131 32 124
Segment information
Turnover Operating profit Average net operating assets
Six months Six months Year Six months Six months Year Six months Six months Year
ended ended ended ended ended ended ended ended ended
31 May % 31 May 30 Nov 31 May % 31 May 30 Nov 31 May % 31 May 30 Nov
R million 2013 change 2012 2012* 2013 change 2012 2012* 2013 change 2012 2012*
Engineering consumables 1 133 6 1 064 2 280 119 (2) 122 280 1 258 4 1 210 1 169
ongoing operations 1 069 1 1 057 2 217 111 (8) 120 268 1 161 (3) 1 200 1 127
acquired in 2012 and 2013 64 7 63 8 2 12 97 10 42
Consumer-related products 684 28 533 1 223 85 23 69 169 547 20 457 487
ongoing operations 599 12 533 1 154 78 13 69 162 495 8 457 469
acquired in 2012 and 2013 85 69 7 7 52 18
Total operating segments 1 817 14 1 597 3 503 204 7 191 449 1 805 8 1 667 1 656
Head office, shared services
and eliminations (4) (4) (11) (9) (10) (12) 103 43 117
Total group 1 813 14 1 593 3 492 195 8 181 437 1 908 12 1 710 1 773
+ Calculated as if the restructuring of the financing of the BEE transaction had taken place before the start of the 2012 financial year
* Audited
Group statement of cash flows
Six months Six months Year
ended ended ended
31 May 31 May 30 Nov
R million 2013 2012 2012*
Cash generated from trading 221 203 458
Increase in working capital (114) (162) (121)
Cash generated from operations 107 41 337
Taxation paid (5) (25) (54)
Net cash from operating activities 102 16 283
Net investment in new operations (98) (49) (229)
Net investment in property, plant and equipment (16) (13) (39)
Redemption of preference shares 2 181
Dividends and interest received 50 101 202
Net cash from investing activities 2 117 39 (66)
Decrease in finance leases (2) (3)
Repurchase of debenture (2 181)
Finance costs paid (61) (124) (237)
Dividends paid (108) (114) (163)
Net cash from financing activities (2 350) (240) (403)
Net decrease in cash and cash equivalents (131) (185) (186)
Group statement of changes in equity
Six months Six months Year
ended ended ended
31 May 31 May 30 Nov
R million 2013 2012 2012*
Equity at the beginning of the period 1 696 1 525 1 525
Comprehensive income for the period 148 145 353
Change in equity compensation reserve 3 2 (19)
Dividends (108) (114) (163)
Equity at the end of the period 1 739 1 558 1 696
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 Board, the JSE Listings Requirements and in the manner required by the Companies Act of
South Africa. The principal accounting policies set out in the group's 2012 integrated report have
been consistently applied throughout the period ended 31 May 2013. These results have been
compiled under the supervision of the financial director, CV Amoils CA(SA).
31 May 31 May 30 Nov
2013 2012 2012*
Average net operating assets (NOA) (Rm) 1 908 1 710 1 773
Operating profit margin (%) 10,8 11,3 12,5
Average NOA turn (times) 1,9 2,1 2,0
Return on average NOA (%) 20,5 21,1 24,6
Average net tangible operating assets
(NTOA) (Rm) 1 268 1 137 1 172
PBITA margin (%) 11,3 11,8 13,0
Average NTOA turn (times) 2,9 2,8 3,0
Return on average NTOA (%) 32,2 33,0 38,7
Net asset value per share (cents) 5 441 4 869 5 277
Return on average equity (%) 16,6 18,4 21,8
Operating profit has been determined after
taking into account the following charges (Rm):
Depreciation 14 13 25
Amortisation 9 7 16
Capital expenditure (Rm)
Incurred during the period 17 16 43
Authorised but not contracted for 25 31 50
Commitments (Rm)
Operating lease commitments on properties 142 139 168
Tax payments in advance of legal process:
R20 milllion per quarter until case is resolved.
Contingent liability
The group has received and is strongly refuting
tax assessments relating to the financing of the
BEE transaction. The maximum exposure for tax,
interest and penalties is considered to be
R1,6 billion but the prospects of having to pay
such an amount are considered remote.
Acquisition of new business
The group acquired 100% of the business
of Three-D Agencies for a total consideration
based on future profits and which is
estimated to be R27 million.
Property, plant and equipment of R1 million,
inventories of R12 million, trade and other
receivables of R9 million, trade and other payables
of R3 million and goodwill of R9 million were
recognised at date of acquisition. These values
approximate the fair values as determined under
IFRS 3.
The results since acquisition date included in the
consolidated results for the period are as follows:
Turnover (Rm) 5
Profit after tax (Rm) 1
If the acquisition had been concluded at the
beginning of the period the consolidated results
for the group would have been as follows:
Turnover (Rm) 1 833
Profit after tax (Rm) 144
* Audited
HUDACO INDUSTRIES LIMITED
Incorporated in the Republic of South Africa
Registration number 1985/004617/06
JSE code: HDC ISIN: ZAE000003273
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
"Value-added distribution our core competency"
Date: 28/06/2013 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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