Wrap Text
Unaudited Interim Results
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 2014
- Sales up 16% to R2.1 billion
- Operating profit up 3%
- Headline earnings per share up 2% to 456 cents
- Comparable earnings per share down 5% to 416 cents
- Interim dividend maintained at 155 cents per share
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, communication equipment 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 etc. is a key part of Hudaco's business model.
Results
The group has delivered disappointing but resilient results for the first half of the year,
in one of the most challenging trading environments we have experienced.
In the first quarter of 2014 mining GDP contracted 25% whilst manufacturing GDP
contracted 6%. There is no doubt that these depressed conditions continued into the
second quarter of 2014. These two sectors of the economy account for about half of
Hudaco's sales. As a result the engineering consumables segment faced very tough trading
conditions particularly felt in those businesses serving the mines in the Rustenburg platinum
belt. Although it looks like the strike has ended, its aftermath will continue to
impact demand in the first months of our second half.
Activity in open cast mining was not as badly affected as in deep level mining by strikes
so sales volumes held up reasonably well. There were also reasonable performances from
businesses serving other markets; for example sales into neighbouring countries grew
33% in the first half.
Sales at R2,1 billion were up 16% of which only 3% was from ongoing operations
and 13% was from acquisitions. Price increases implemented over the past year due
to Rand weakness amount to about 20% which means that volume sales are down
between 15% and 20% in ongoing businesses, a stark indication of the impact of the
strikes. Operating profit increased 3% to R200 million but without the contribution from
acquisitions it would have fallen 17%. The operating margin to sales is 9.5% – well down
on last year's 10.8%. Comparable earnings held up well against last year until the end of
March 2014 but in April and May they fell behind, which is an indication that conditions
are still deteriorating.
Headline and basic earnings per share of 456 cents are up slightly on last year but
comparable earnings per share are down 5%. Comparable earnings have been calculated
as if the restructuring of the financing of the BEE transaction (which happened on
28 February 2013) had taken place before the start of the 2013 financial year and also
excludes the gain (2013: charge) arising from adjustments to estimated earn-out payments
on acquisitions.
The interim dividend has been maintained at 155 cents per share. Our dividend policy, to
pay about 40% of CEPS annually, remains unchanged.
As would be expected given poorer than expected sales levels and long lead times from
suppliers, the group is overstocked. As a result working capital (inventories, accounts
receivable less accounts payable) is about R100 million higher than would be ideal
given current activity levels. Steps have been taken to bring stock back into line and this
goal should be realised over the next six to nine months. The group has net borrowings
of R564 million at May 2014, higher than we would have liked but still within our self-
imposed conservative guidelines.
Engineering Consumables Segment
This segment is the biggest profit contributor to the group with the South African mining
and manufacturing sectors accounting for two thirds of its activity. It experienced tough
trading conditions this half. December, January and April are traditionally difficult because
of holidays but April and May were particularly hard hit by the strike activity in the platinum
mining sector. Demand for diesel engines and spares, electrical equipment, bearings
and power transmission equipment and chemical piping was well down on last year.
Acquisitions over the past few years have significantly strengthened the sales base and
market spread of this segment and businesses with less exposure to the platinum mining
sector performed reasonably well under the circumstances. Businesses acquired in the last
year are performing in line with expectations.
Segment sales of R1 293 million are up 14% on last year – all of the increase came from
acquisitions. Operating profit was up 4% to R124 million.
Consumer-Related Products Segment
Sales of power tools, security equipment and automotive parts held steady in the first half.
Sales of digital communication equipment were down on last year but this reflects contract
timing and there should be a catch up in the second half.
Segment sales were up 20% to R819 million of which 14% was from acquisitions.
Operating profit increased 1% to R86 million.
Tax challenge
The tax challenge is progressing slowly. As expected, SARS has rejected our objections
to the assessments but we will appeal that decision in the Tax Court. It will take some
time to get a court date.
Prospects
There has been a slew of bad news about the South African economy and its prospects.
Strikes, ratings downgrades and policy vacillation have undermined business confidence.
Hudaco's fortunes are closely tied to the local economy and therefore it must expect a
difficult ride as these developments play themselves out.
We believe the main economic sectors served by Hudaco, the South African mining
industry and the manufacturing and service sectors supporting that industry, will find a
new lower level of activity over the next months. Once we have certainty about the size
of the new playing field we will assess the appropriate steps required to right size those of
our businesses serving those sectors.
The South African economy seems set for a period of no or low growth. As a
response, increased emphasis will be placed on sales into markets outside South Africa –
neighbouring territories for our complete basket of imported products and overseas
markets for our own brand locally manufactured gear pumps and electrical plugs
and sockets.
Fortunately Hudaco's business model – principally, the sale of replacement parts; and its
financial characteristics – high margin and strong cash flows with limited investment in
fixed assets; allows it to weather this economic storm and adapt reasonably quickly to changing
circumstances.
Directorate
SJ Connelly is stepping down as chief executive effective 30 June 2014 but will remain on
the board of Hudaco Industries as a non-executive director thereafter. GR Dunford takes
over as chief executive with effect from 1 July 2014.
Declaration of interim dividend number 55
Interim dividend number 55 of 155 cents per share is declared payable on Monday,
18 August 2014 to ordinary shareholders recorded in the register at the close of business
on Friday, 15 August 2014.
The timetable for the payment of the dividend is as follows:
Last day to trade cum dividend Friday, 8 August 2014
Trading ex dividend commences Monday, 11 August 2014
Record date Friday, 15 August 2014
Payment date Monday, 18 August 2014
Share certificates may not be dematerialised or rematerialised between Monday,
11 August 2014 and Friday, 15 August 2014, both days inclusive. The certificated
register will be closed for this period.
In terms of the Listings Requirements of the JSE Limited regarding Dividends Tax,
the following additional information is disclosed:
- The dividend has been declared out of income reserves;
- The local dividend tax rate is 15%;
- Secondary Tax on Companies (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 Dividends Tax;
- The net local dividend amount is 155 cents per ordinary share for shareholders liable to
pay 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, 27 June 2014 and Monday, 30 June 2014, 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, 1 July 2014.
For and on behalf of the board
RT Vice SJ Connelly
Independent non-executive chairman Chief executive
26 June 2014
Nedbank Capital
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 2014 2013 2013
ASSETS
Non-current assets 1 102 869 922
Property, plant and equipment 240 210 214
Goodwill 731 603 619
Intangible assets 46 40 39
Taxation 80 40
Deferred taxation 5 16 10
Current assets 1 910 1 742 1 902
Inventories 1 221 998 1 104
Trade and other receivables 675 744 780
Taxation 12 2
Bank deposits and balances 2 16
TOTAL ASSETS 3 012 2 611 2 824
EQUITY AND LIABILITIES
Equity 1 883 1 739 1 835
Interest of shareholders of the group 1 863 1 722 1 816
Non-controlling interest 20 17 19
Non-current liabilities 301 30
Bank borrowings 300
Amounts due to vendors of businesses acquired 1 30
Current liabilities 828 872 959
Trade and other payables 541 588 673
Bank overdraft 266 148 220
Amounts due to vendors of businesses acquired 21 91 61
Taxation 45 5
TOTAL EQUITY AND LIABILITIES 3 012 2 611 2 824
Group statement of comprehensive income
Six Six
months months Year
ended % ended ended
31 May change 31 May 30 Nov*
R million 2014 2013 2013
Turnover 2 111 16 1 813 3 942
– Ongoing operations 1 859 3 1 800 3 846
– Acquired in 2013 and 2014 252 13 96
Cost of sales 1 358 1 148 2 463
Gross profit 753 13 665 1 479
Operating expenses 553 470 1 010
Operating profit 200 3 195 469
– Ongoing operations 161 (17) 194 458
– Acquired in 2013 and 2014 39 1 11
Fair value adjustment to amounts
due to vendors 15 (23)
Profit before interest 215 10 195 446
Dividends received on preference shares 50 50
Finance costs (17) (64) (71)
Profit before taxation 198 9 181 425
Taxation 51 38 120
Profit for the period 147 3 143 305
Other comprehensive income
to be recycled to profit and loss
Movement on fair value of cash flow
hedges (2) 5
Total comprehensive income
for the period 145 (2) 148 305
Profit attributable to:
– shareholders of the group 144 142 294
– non-controlling shareholders 3 1 11
147 143 305
Total comprehensive income
attributable to:
– shareholders of the group 142 147 294
– non-controlling shareholders 3 1 11
145 148 305
Basic earnings per share (cents) 456 2 448 930
Headline earnings per share (cents) 456 2 448 928
Comparable earnings per share (cents) 416 (5) 440 983
Diluted basic earnings per share (cents) 448 446 918
Diluted headline earnings
per share (cents) 448 446 917
Diluted comparable earnings
per share (cents) 408 436 970
Calculation of headline earnings
Profit attributable to shareholders
of the group 144 2 142 294
Adjusted for:
Reversal of impairment and profit
on disposal of property, plant and
equipment (1)
Tax effect 1
Headline earnings 144 2 142 294
Calculation of comparable earnings
Headline earnings 144 2 142 294
Adjusted for:
Preference dividend received (50) (50)
Interest on debenture 58 59
Tax effect (16) (16)
STT on redemption of preference shares 5 5
Fair value adjustment on amounts
due to vendors (15) 23
Non-controlling interest 2 (4)
Comparable earnings 131 (5) 139 311
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 (000) (2 508) (2 508) (2 508)
Weighted average shares in issue
– basic (000) 31 646 31 646 31 646
– diluted (000) 32 133 31 873 32 054
Group statement of cash flows
Six Six
months months Year
ended ended ended
31 May 31 May 30 Nov*
R million 2014 2013 2013
Cash generated from trading 231 221 513
Increase in working capital (118) (114) (138)
Cash generated from operations 113 107 375
Taxation paid (116) (5) (169)
Net cash from operating activities (3) 102 206
Net investment in new operations (217) (98) (181)
Net investment in plant and equipment (25) (16) (32)
Disposal of preference shares 2 181 2 181
Dividends and interest received 50 50
Net cash from investing activities (242) 2 117 2 018
Debenture repurchased (2 181) (2 181)
Non-current bank borrowings 300
Finance costs paid (15) (61) (66)
Dividends paid (100) (108) (164)
Net cash from financing activities 185 (2 350) (2 411)
Net decrease in cash and cash equivalents (60) (131) (187)
Cash and cash equivalents at beginning of period (204) (17) (17)
Cash and cash equivalents at end of period (264) (148) (204)
Group statement of changes in equity
Interest
Share Non- of share- Non-
capital distribut- holders control-
and able Retained of the ling
premium reserves income group interest Equity
R million
Balance at 1 December 2013 55 70 1 710 1 835 19 1 854
Comprehensive income for the period 142 142 3 145
Movement in equity compensation
reserve 3 3 3
Dividends (98) (98) (2) (100)
Balance at 31 May 2014 55 73 1 754 1 882 20 1 902
Less: Shares held by subsidiary company (19) (19) (19)
Net balance at 31 May 2014 55 73 1 735 1 863 20 1 883
Balance at 1 December 2012 55 67 1 567 1 689 26 1 715
Comprehensive income for the period 147 147 1 148
Movement in equity compensation
reserve 3 3 3
Dividends (98) (98) (10) (108)
Balance at 31 May 2013 55 70 1 616 1 741 17 1 758
Less: Shares held by subsidiary company (19) (19) (19)
Net balance at 31 May 2013 55 70 1 597 1 722 17 1 739
Balance at 1 December 2012 55 67 1 567 1 689 26 1 715
Comprehensive income for the year 294 294 11 305
Movement in equity compensation
reserve 3 (4) (1) (1)
Non-controlling interest acquired (1) (1)
Dividends (147) (147) (17) (164)
Balance at 30 November 2013 55 70 1 710 1 835 19 1 854
Less: Shares held by subsidiary company (19) (19) (19)
Net balance at 30 November 2013* 55 70 1 691 1 816 19 1 835
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 2013 integrated report have
been consistently applied throughout the period ended 31 May 2014, except for the adoption of the
following new standards; IFRS 10, Consolidated Financial Statements, IFRS 12, Disclosure of Interests
in Other Entities, IFRS 13, Fair Value Measurement, and the various amendments and revisions to
existing standards, none of which had a material impact on the group's financial statements based
on management's assessment of these standards. These results have been compiled under the
supervision of the financial director, CV Amoils CA(SA).
31 May 31 May 30 Nov*
2014 2013 2013
Average net operating assets (NOA) (Rm) 2 357 1 908 2 119
Operating profit margin (%) 9,5 10,8 11,9
Average NOA turn (times) 1,8 1,9 1,9
Return on average NOA (%) 17,0 20,5 22,1
Average net tangible operating assets (NTOA) (Rm) 1 594 1 268 1 315
PBITA margin (%) 10,0 11,3 12,3
Average NTOA turn (times) 2,6 2,9 3,0
Return on average NTOA (%) 26,5 32,2 36,9
Net asset value per share (cents) 5 887 5 441 5 737
Return on average equity (%) 15,8 16,6 17,3
Comparable return on average equity (%) 14,3 16,2 18,4
Operating profit has been determined
after taking into account the following
charges:
– Depreciation 17 14 29
– Amortisation 11 9 16
Capital expenditure (Rm)
– Incurred during the period 27 17 38
– Authorised but not yet contracted for 32 25 59
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 R1,4 billion
but the prospects of having to pay such an amount
are considered remote.
Commitments
– Operating lease commitments on properties (Rm) 195 142 202
– Tax payments in advance of legal process.
R20 million per quarter until matter is resolved.
Acquisition of new businesses
The group acquired 100% of the share capital of
Dosco, GPM and Joseph Grieveson from a company
controlled by Graham Dunford, a director of Hudaco
for a consideration of R154,2 million.
Plant and equipment of R17,7 million, inventories
of R31,5 million, trade and other receivables of
R40,6 million, trade and other payables of
R42,5 million, borrowings of R7,2 million, taxation
of R8,1 million, intangible assets of R16,9 million,
deferred taxation of R7,2 million and goodwill of
R112,5 million were recognised on date of acquisition.
These values approximate the fair value as determined
under IFRS 3.
The results since acquisition date (1 December 2013)
included in the consolidated results for the period are
as follows:
– Turnover (Rm) 114
– Profit after tax (Rm) 15
Segment information
Turnover Operating profit Average net operating assets
Six Six Six Six Six Six
months months Year months months Year months months Year
ended % ended ended ended % ended ended ended % ended ended
31 May change 31 May 30 Nov* 31 May change 31 May 30 Nov* 31 May change 31 May 30 Nov*
R million 2014 2013 2013 2014 2013 2013 2014 2013 2013
Engineering consumables 1 293 14 1 133 2 478 124 4 119 292 1 566 24 1 258 1 394
– Ongoing operations 1 132 1 1 120 2 412 99 (16) 118 286 1 405 12 1 251 1 374
– Acquired in 2013 and 2014 161 13 66 25 1 6 161 7 20
Consumer-related products 819 20 684 1 470 86 1 85 199 662 21 547 601
– Ongoing operations 728 6 684 1 440 72 (15) 85 194 601 10 547 596
– Acquired in 2013 and 2014 91 30 14 5 61 5
Total operating segments 2 112 16 1 817 3 948 210 3 204 491 2 228 23 1 805 1 995
Head office, shared services and eliminations (1) (4) (6) (10) (9) (22) 129 103 124
Total group 2 111 16 1 813 3 942 200 3 195 469 2 357 24 1 908 2 119
* Audited
Company information
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 Ltd
PO Box 61051
Marshalltown, 2107
Registered office
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
SJ Connelly (Chief executive) SG Morris*
CV Amoils (Financial director) D Naidoo*
PC Baloyi* *Independent non-executive
Group secretary
R Wolmarans
Sponsor
Nedbank Capital
www.hudaco.co.za
Date: 27/06/2014 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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