Wrap Text
Audited abridged report
HUDACO INDUSTRIES LIMITED
Incorporated in the Republic of South Africa
Registration number: 1985/004617/06
JSE code: HDC ISIN: ZAE000003273
Audited abridged report
for the year ended 30 November 2014
Partquip
Tax dispute acquisition Sales up
settled concluded 14%
at R312 million at R550 million to R4,5 billion
Comparable
earnings per Final
Sales into share up dividend
Africa grew to 986 cents maintained
by 39% from 983 cents at 310 cents per share
Hudaco Industries is a South African group whose principal activity is the distribution of high quality branded
industrial and electronic 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 etc is a key part of
Hudaco's business model.
Results
This has been a very difficult year for the mining and manufacturing sectors in South Africa. Hudaco, which
normally has a 50% exposure to those sectors, has been particularly affected. The mining sector has borne
the brunt with its proportion of the Hudaco group's turnover decreasing from 23% in 2013 to 17% in 2014.
In the first half of the year there was a five-month strike in the platinum mining sector and we reported at
half year that we were 5% down in comparable earnings per share ("CEPS"). In the beginning of the second
half we had to contend with the far more pervasive NUMSA strike, which affected us and our customers and
where we had to close five of our businesses completely due to intimidation and violence. In addition, the
end of the platinum sector strike has had a long tail, with several mines still not back to full production. With
four months then left in the financial year, CEPS was 13,4% down on 2013.
In spite of the prolonged labour unrest Hudaco recovered well in the remaining months of the financial year,
which are generally Hudaco's busiest months, to close the gap and deliver comparable earnings in line with
last year. This result, under the most challenging circumstances, was achieved thanks to the contribution
from successful acquisitions that supplemented the performance of existing businesses.
Sales were up 13,6% to R4,5 billion whilst operating profit rose 5,3% to R494 million. Headline earnings per
share were wiped out by the tax settlement but it is encouraging that, despite the business loss to strikes,
comparable earnings per share at 986 cents ended above last year's 983 cents.
Engineering consumables
Engineering consumables, our biggest segment at 62% of sales, was the most severely affected by the
strikes. Several businesses were heavily impacted by the depressed conditions while others performed
reasonably well under the circumstances. But it was our acquisitions that helped produce a 12% increase in
sales to R2,8 billion and a 3,4% increase in operating profit to R302 million. Bearings International delivered
a disappointing performance so we have bolstered the management team and have taken steps to right-size
that business. Deutz Dieselpower was heavily affected by the platinum mining strikes but it has responded
by increasing its footprint in other markets. Filter and Hose Solutions continued to deliver sterling results but
growth was constrained.
Consumer-related products
Consumer-related products make up the other 38% of Hudaco's sales. Rutherford, our biggest business in
this segment, had a remarkable year in an environment where construction activity and disposable income
have been under tremendous pressure. The primary brand distributed by Rutherford is Makita, the market
leader in lithium ion technology for power tools. Our security businesses had a good year, despite paying
relocation costs and a much higher rental charge in sophisticated new premises. The move positions the
business for strong growth as a clear market leader. Bolstered by Specialised Battery Systems, acquired late
in the 2013 financial year, the segment increased sales by 17% to R1,7 billion and operating profit by 8% to
R215 million.
The disappointment in this segment came from the lack of millitary contracts in our communication
equipment business, Global Communications. By all accounts, this should just be a matter of timing as the
issuing of these contracts has been delayed and Global is confident that it will still secure the business.
Notwithstanding this setback, Global managed to produce a very healthy return on sales of 11,5%.
Dividends
The businesses are profitable and cash flows are strong so, notwithstanding the tax settlement, the total
dividend for 2014 has been maintained at 465 cents, covered 2,1 times by comparable earnings. Our policy
is to pay a dividend of around 40% of comparable earnings but in the past two years we have been paying a
slightly higher percentage until our earnings increase enough to compensate for the increase in the effective
tax rate resulting from the unwinding of the financial arrangements around the group's BEE arrangements.
Financial position
The financial position is sound. Gearing levels have increased over the past few years, in line with the
group’s strategic intent. While we are comfortable with the level of debt, the Partquip acquisition has
increased borrowings to the upper limits we set for ourselves on certain metrics, so gearing will be managed
cautiously. However, there is still capacity for smaller acquisitions. The group had R413 million net borrowings
at year end (last year: R204 million) with a further R450 million (net) borrowed early in the new financial year
for the acquisition of Partquip, which was effective from 1 December 2014. Inventories have been well managed
considering the 13% decline in the value of the Rand against our basket of currencies. They are up only 3% to
R1 141 million and this includes the acquisition of the Dosco group. The return on net tangible operating assets
(RONTA) in 2014 is 31%, down on the 37% of last year but still well above our pre-tax cost of capital, which is
approximately 14%.
Tax settlement
As announced on 23 January 2015, the dispute with SARS over the financing arrangements pertaining to the
Hudaco BEE transaction entered into in 2007 has been settled for an amount of R312 million. At May 2014
the dispute was reflected as a contingent liablity at a worst case scenario of R1,4 billion.
The board recognises that the settlement represents a large sum of money but is of the view that, given the
benefit Hudaco received, the negative impact of protracted litigation on Hudaco and the risks involved, it is
an appropriate solution. With this cloud lifted, Hudaco management can focus fully on growing the business
in the current difficult trading environment.
Most importantly, the BEE shareholders are not affected and the group's BEE credentials remain in place.
Readers are referred to the full announcement, which is available on the company's website.
Prospects
Notwithstanding the considerable challenges arising from the economic and political environment within
which our businesses operated in the past financial year, Hudaco is a well-managed business and will
continue to do what it has always done well, which is to manage the matters over which it has control, whilst
seeking out acquisitions and opportunities for growth.
Until economic circumstances improve we foresee only modest organic volume sales growth in South Africa
although exports into Africa should grow faster. Earnings in 2015 will nevertheless be impacted positively
by a combination of factors: the weaker Rand (assuming the recent turmoil in currency markets settles
down and we do not experience significant volatility), cost reductions effected in 2014 and the contribution
from the acquisition of Partquip. We are also confident that the focus on exports of proprietary brands
(GPM, Ampco and Bosworth) to other parts of the world will continue to bear fruit. Our businesses are well
positioned to benefit from any improvement in local market conditions and we will continue to explore
opportunities for acquisitions in all markets.
Declaration of final dividend number 56
Final dividend number 56 of 310 cents per share (gross) for the period ended 30 November 2014 is declared
payable on Monday, 9 March 2015 to ordinary shareholders recorded in the register at the close of business
on Friday, 6 March 2015.
Last day to trade cum dividend Friday, 27 February 2015
Trading ex dividend commences Monday, 2 March 2015
Record date Friday, 6 March 2015
Payment date Monday, 9 March 2015
Share certificates may not be dematerialised or rematerialised between Monday, 2 March 2015 and
Friday, 6 March 2015, 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 out of income reserves;
– Secondary Tax on Companies (STC) credits of 233 cents per share will be utilised;
– therefore 77 cents per share will be subject to a Dividends Tax rate of 15% being 11,55 cents per
share, unless the shareholder is exempt from paying Dividends Tax or is entitled to a reduced rate in
terms of an applicable double-tax agreement;
– the gross local dividend amount is 310 cents per ordinary share for shareholders exempt from the
Dividends Tax;
– the net local dividend amount is 298,45 cents per ordinary share for shareholders liable to pay 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.
Directorships
Mr SJ Connelly retired as chief executive on 30 June 2014. He remains on the board as a non-executive
director. Mr GR Dunford was appointed chief executive on 1 July 2014.
Results presentation and annual general meeting
Hudaco will host presentations on the financial results in Johannesburg and Cape Town on Friday,
30 January 2015 and Monday, 2 February 2015, respectively. Anyone wishing to attend should
contact Janine Yon at +27 11 657 5007.
The slides which form part of the presentation will be available on the company's website from Tuesday,
3 February 2015.
The company's 30th annual general meeting will be held at Hudaco's corporate office situated at
Building 9, Greenstone Hill Office Park, Emerald Boulevard, Greenstone Hill, Edenvale at 11:00 on Friday,
27 March 2015. The notice and proxy form for the company's annual general meeting will be posted to
the shareholders during the second week of February 2015 and will be included in the integrated report
that will be published on Hudaco's website during February 2015.
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. Both the
financial statements and the auditors' report are available for inspection at the company's registered
office.
This abridged report is extracted from audited information, but is not itself audited.
The auditors' report does not necessarily cover all of the information contained in this announcement.
Shareholders are therefore advised that in order to obtain a full understanding of the nature of the
auditors' work they should obtain a copy of the report together with the accompanying financial
information from the registered office of the company.
For and on behalf of the board
RT Vice GR Dunford
Independent non-executive chairman Chief executive
29 January 2015
Nedbank Capital
Sponsor
Group statement of financial position
30 Nov 30 Nov
R million 2014 2013
ASSETS
Non-current assets 1 024 922
Property, plant and equipment 257 214
Goodwill 730 619
Intangible assets 36 39
Taxation 40
Deferred taxation 1 10
Current assets 2 045 1 902
Inventories 1 141 1 104
Trade and other receivables 856 780
Taxation 6 2
Bank deposits and balances 42 16
Total assets 3 069 2 824
EQUITY AND LIABILITIES
Equity 1 682 1 835
Interest of shareholders of the group 1 649 1 816
Non-controlling interest 33 19
Non-current liabilities 209 30
Amounts due to bankers 197
Amounts due to vendors of businesses acquired 12 30
Current liabilities 1 178 959
Trade and other payables 711 673
Bank overdraft 258 220
Amounts due to vendors of businesses acquired 17 61
Taxation 192 5
Total equity and liabilities 3 069 2 824
Group statement of comprehensive income
Year Year
ended ended
30 Nov % 30 Nov
R million 2014 change 2013
Turnover 4 480 14 3 942
– Ongoing operations 3 954 3 3 846
– Acquired in 2013 and 2014 526 96
Cost of sales 2 845 2 463
Gross profit 1 635 11 1 479
Operating expenses 1 141 1 010
Operating profit 494 5 469
– Ongoing operations 414 (9) 458
– Acquired in 2013 and 2014 80 11
Fair value adjustment to amounts due to vendors 3 (23)
Profit before interest 497 446
Dividends received on preference shares 50
Finance costs (39) (71)
Profit before taxation 458 8 425
Taxation excluding tax settlement 128 120
Profit before tax settlement 330 305
Settlement of tax dispute 312
Profit for the year 18 305
Other comprehensive income
Movement on fair value of cash flow hedges (1)
Total comprehensive income for the year 17 305
Profit attributable to:
– shareholders of the group 3 294
– non-controlling shareholders 15 11
18 305
Total comprehensive income attributable to:
– shareholders of the group 2 294
– non-controlling shareholders 15 11
17 305
Basic earnings per share (cents) 8 930
Headline earnings per share (cents) 6 928
Comparable earnings per share (cents) 986 983
Diluted basic earnings per share (cents) 8 918
Diluted headline earnings per share (cents) 6 917
Diluted comparable earnings per share (cents) 984 970
Calculation of headline earnings
Profit attributable to shareholders of the group 3 294
Adjusted for:
Reversal of impairment and profit on disposal of
property, plant and equipment (1) (1)
Tax effect 1
Headline earnings 2 294
Calculation of comparable earnings
Headline earnings 2 294
Adjusted for:
Preference dividend received (50)
Interest on debenture 59
Tax effect (16)
STT on redemption of preference shares 5
Settlement tax dispute 312
Fair value adjustments on amounts due to vendors (2) 23
Non-controlling interest (4)
Comparable earnings 312 311
Dividends
– Per share (cents) 465 465
– Amount (Rm) 147 147
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 31 646
– Diluted (000) 31 691 32 054
Group statement of cash flows
Year Year
ended ended
30 Nov 30 Nov
R million 2014 2013
Cash generated from trading 525 513
Increase in working capital (44) (138)
Cash generated from operations 481 375
Taxation paid (222) (169)
Net cash from operating activities 259 206
Net investment in new operations (224) (181)
Net investment in property, plant and equipment (58) (32)
Disposal of preference shares 2 181
Dividends and interest received 50
Net cash from investing activities (282) 2 018
Debenture repurchased (2 181)
Increase in long-term borrowings 197
Finance costs paid (38) (66)
Dividends paid (148) (164)
Net cash from financing activities 11 (2 411)
Net decrease in cash and cash equivalents (12) (187)
Group statement of changes in equity
Year Year
ended ended
30 Nov 30 Nov
R million 2014 2013
Equity at beginning of the year 1 835 1 696
Comprehensive income for the year 17 305
Decrease in equity compensation reserve (22) (1)
Non-controlling interest acquired (1)
Dividends (148) (164)
Equity at end of the year 1 682 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
Committee, 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 abridged report for the year ended 30 November 2014 as were applied in the
preparation of the group's annual financial statements for the year ended 30 November 2013, apart
from the adoption of IFRS 10: Consolidated Financial Statements, IFRS 12: Disclosure of Interest in
Other Entities and IFRS 13: Fair Value Measurement. 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 abridged report and ensuring that the financial information has been
correctly extracted from the underlying annual financial statements.
30 Nov 30 Nov
2014 2013
Average net operating assets (NOA) (Rm) 2 383 2 119
Operating profit margin (%) 11,0 11,9
Average NOA turn (times) 1,9 1,9
Return on average NOA (%) 20,7 22,1
Average net tangible operating assets (NTOA) (Rm) 1 616 1 315
PBITA margin (%) 11,5 12,3
Average NTOA turn (times) 2,8 3,0
Return on average NTOA (%) 31,8 36,9
Net asset value per share (cents) 5 210 5 737
Return on average equity (%) 1,0 17,3
Comparable return on average equity (%) 17,9 18,4
Operating profit has been determined after taking into account
the following charges (Rm):
– Depreciation 33 29
– Amortisation 20 16
Capital expenditure (Rm)
– Incurred during the year 64 38
– Authorised but not contracted for 56 59
Commitments
– Operating lease commitments on properties 237 202
– Commitment to purchase businesses: Partquip and Berntel, for a maximum
consideration of R569 million.
Acquisition of businesses
On 12 December 2013, Hudaco Trading acquired Dosco, GPM and
Joseph Grieveson from a company controlled by Graham Dunford, a director
of Hudaco, for a consideration of R154 million.
Plant and equipment of R18 million, inventories of R32 million, trade and
other receivables of R41 million, trade and other payables of R43 million,
net borrowings of R8 million, taxation of R15 million, intangible assets
of R17 million and goodwill of R112 million have been recognised at date
of acquisition. These values approximate the fair values as provisionally
determined under IFRS 3.
The acquisitions were concluded at the beginning of the financial year and
the consolidated results for the group include:
– Turnover (Rm) 240
– Profit after tax (Rm) 32
Events after reporting date
On 1 December 2014, the group acquired 100% of the shares In Partquip
Group Pty Ltd for R550 million and 100% of the business of Berntel for a
total consideration based on future profits and which is estimated to be
R15 million.
Plant and equipment of R10 million, inventories of R150 million, trade and
other receivables of R114 million, trade and other payables of R94 million,
cash R107 million, taxation of R27 million, intangible assets of R58 million and
goodwill of R247 million will be recognised at date of acquisition. These values
approximate the fair values as provisionally determined under IFRS 3.
Had these businesses been acquired at the beginning of the year, the
following amounts would have been included in these results:
– Turnover (Rm) 628
– Profit after tax (Rm) 80
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) 5 108
– Profit before tax settlement (Rm) 409
In December 2014 the group entered into an agreement for an evergreen,
R600 million revolving credit facility arrangement with Rand Merchant Bank
and Standard Bank.
Segment information
Turnover Operating profit Average net operating assets
Year Year Year Year Year Year
ended ended ended ended ended ended
30 Nov % 30 Nov 30 Nov % 30 Nov 30 Nov % 30 Nov
R million 2014 change 2013 2014 change 2013 2014 change 2013
Engineering consumables 2 767 12 2 478 302 3 292 1 605 15 1 394
– Ongoing operations 2 423 2 412 248 (13) 286 1 495 9 1 374
– Acquired in 2013 and 2014 344 66 54 6 110 20
Consumer-related products 1 718 17 1 470 215 8 199 673 12 601
– Ongoing operations 1 536 7 1 440 189 (3) 194 611 3 596
– Acquired in 2013 and 2014 182 30 26 5 62 5
Total operating segments 4 485 3 948 517 491 2 278 1 995
Head office, shared services and eliminations (5) (6) (23) (22) 105 124
Total group 4 480 14 3 942 494 5 469 2 383 12 2 119
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 (Chief executive), CV Amoils (Financial director),
PC Baloyi*, SJ Connelly*, SG Morris*, D Naidoo* *Non-executive
Group secretary: R Wolmarans
Sponsor: Nedbank Capital
"Value-added distribution – our core competency"
www.hudaco.co.za
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