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Unaudited interim results of the six months ended 31 May 2015
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 2015
Turnover
up 21% to R2,5 billion
Operating profit
up 46% to R292 million
Comparable
earnings per share
up 32% to 548 cps
Headline earnings
per share
up 20% to 548 cps
Interim dividend
increased
16% to 180 cps
Cash from
operations
up 190% to R328 million
GROUP STATEMENT OF FINANCIAL POSITION
31 May 31 May 30 Nov*
R million 2015 2014 2014
ASSETS
Non-current assets 1 341 1 102 1 024
Property, plant and equipment 264 240 257
Investment in joint venture 2
Goodwill 996 731 730
Intangible assets 79 46 36
Taxation 80
Deferred taxation 5 1
Current assets 2 240 1 910 2 045
Inventories 1 356 1 221 1 141
Trade and other receivables 834 675 856
Taxation 3 12 6
Bank deposits and balances 47 2 42
TOTAL ASSETS 3 581 3 012 3 069
EQUITY AND LIABILITIES
Equity 1 774 1 883 1 682
Interest of shareholders of the group 1 731 1 863 1 649
Non-controlling interest 43 20 33
Non-current liabilities 805 301 209
Amounts due to bankers 792 300 197
Amounts due to vendors of businesses acquired 1 12
Deferred taxation 13
Current liabilities 1 002 828 1 178
Trade and other payables 761 541 711
Bank overdraft 220 266 258
Amounts due to vendors of businesses acquired 21 21 17
Taxation 192
TOTAL EQUITY AND LIABILITIES 3 581 3 012 3 069
GROUP STATEMENT OF COMPREHENSIVE INCOME
Six Six
months months Year
ended ended ended
31 May % 31 May 30 Nov*
R million 2015 change 2014 2014
Turnover 2 549 21 2 111 4 480
– Ongoing operations 2 231 6 2 111 4 480
– Operations acquired in 2015 318
Cost of sales 1 625 1 358 2 845
Gross profit 924 23 753 1 635
Operating expenses 632 553 1 141
Operating profit 292 46 200 494
– Ongoing operations 237 19 200 494
– Operations acquired in 2015 55
Adjustment to fair value of amounts
due to vendors of businesses acquired 15 3
Profit before interest 292 215 497
Finance costs 39 17 39
Profit before taxation 253 28 198 458
Taxation excluding tax settlement 71 51 128
Profit before tax settlement 182 147 330
Settlement of tax dispute 312
Profit after taxation 182 24 147 18
Income from joint venture 1
Profit for the period 183 147 18
Other comprehensive income
Movement on fair value of
cash flow hedges 1 (2) (1)
Total comprehensive income
for the period 184 145 17
Profit attributable to:
– Shareholders of the group 173 144 3
– Non-controlling shareholders 10 3 15
183 147 18
Total comprehensive income
attributable to:
– Shareholders of the group 174 142 2
– Non-controlling shareholders 10 3 15
184 145 17
Earnings per share (cents)
– Basic 548 20 456 8
– Headline 548 20 456 6
– Comparable 548 32 416 986
Diluted earnings per share (cents)
– Basic 537 20 448 8
– Headline 537 20 448 6
– Comparable 537 32 408 984
Calculation of headline earnings
Profit attributable to shareholders
of the group 173 144 3
Adjusted for:
Profit on disposal of property,
plant and equipment (1)
Headline earnings 173 144 2
Calculation of comparable earnings
Headline earnings 173 144 2
Adjusted for:
Settlement of tax dispute 312
Adjustment to fair value of
amounts due to vendors of
businesses acquired (15) (3)
Non-controlling interest 2 1
Comparable earnings 173 131 312
Dividends
– Per share (cents) 180 16 155 465
– Amount (Rm) 57 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) 32 267 32 133 31 691
GROUP STATEMENT OF CASH FLOWS
Six Six
months months Year
ended ended ended
31 May 31 May 30 Nov*
R million 2015 2014 2014
Cash generated from trading 331 231 525
Increase in working capital (3) (118) (44)
Cash generated from operations 328 113 481
Settlement of tax dispute (192) (40) (80)
Taxation paid (73) (76) (142)
Net cash from operating activities 63 (3) 259
Net investment in new operations (466) (217) (224)
Net investment in property, plant and equipment (13) (25) (58)
Net cash from investing activities (479) (242) (282)
Increase in non-current amounts due to bankers 595 300 197
Finance costs paid (38) (15) (38)
Dividends paid (98) (100) (148)
Net cash from financing activities 459 185 11
Decrease (increase) in net short-term borrowings 43 (60) (12)
Net short-term borrowings at beginning of period (216) (204) (204)
Net short-term borrowings at end of period (173) (264) (216)
GROUP STATEMENT OF CHANGES IN EQUITY
Interest
Share Non- of share- Non-
capital distribut- holders control-
and able Retained of the ling
R million premium reserves income group interest Equity
Balance at 1 December 2014 55 66 1 547 1 668 33 1 701
Comprehensive income for
the period 174 174 10 184
Movement in equity
compensation reserve 6 6 6
Dividends (98) (98) (98)
Balance at 31 May 2015 55 72 1 623 1 750 43 1 793
Less: Shares held by subsidiary
company (19) (19) (19)
Net balance at 31 May 2015 55 72 1 604 1 731 43 1 774
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 2013 55 70 1 710 1 835 19 1 854
Comprehensive income for
the period 2 2 15 17
Movement in equity
compensation reserve (4) (18) (22) (22)
Dividends (147) (147) (1) (148)
Balance at 30 November 2014 55 66 1 547 1 668 33 1 701
Less: Shares held by subsidiary
company (19) (19) (19)
Net balance at
30 November 2014* 55 66 1 528 1 649 33 1 682
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 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 2014 integrated report have been
consistently applied throughout the period ended 31 May 2015. These results have been compiled
under the supervision of the financial director, CV Amoils CA(SA).
31 May 31 May 30 Nov*
2015 2014 2014
Average net operating assets (NOA) (Rm) 2 615 2 357 2 383
Operating profit margin (%) 11.5 9.5 11.0
Average NOA turn (times) 1.9 1.8 1.9
Return on average NOA (%) 22.3 17.0 20.7
Average net tangible operating assets (NTOA) (Rm) 1 577 1 594 1 616
PBITA margin (%) 12.0 10.0 11.5
Average NTOA turn (times) 3.2 2.6 2.8
Return on average NTOA (%) 38.9 26.5 31.8
Net asset value per share (cents) 5 472 5 887 5 210
Return on average equity (%) 21.2 15.8 1.0
Comparable return on average equity (%) 21.2 14.3 17.9
Operating profit has been determined after
taking into account the following charges (Rm):
– Depreciation 19 17 33
– Amortisation 15 11 20
Capital expenditure (Rm)
– Incurred during the period 15 27 64
– Authorised but not yet contracted for 27 32 56
Commitments (Rm)
– Operating lease commitments on properties 232 195 237
Acquisition of businesses
On 1 December 2014, the group acquired 100% of the shares of Partquip Group Pty Ltd for a gross
consideration of R550 million and 100% of the business of Berntel. The total consideration for Berntel
is based on future profits and is estimated to be R15 million.
Plant and equipment of R12 million, investment in joint venture of R1 million, goodwill of R266 million,
intangible assets of R58 million, inventories of R132 million, trade and other receivables of R114 million,
cash of R108 million, deferred taxation liabilities of R16 million, trade and other payables of R107
million and taxation of R3 million were recognised on date of acquisition. These values approximate
the fair value as determined under IFRS 3.
Turnover of R318 million and profit after tax of R30 million were included in the group results since the
acquisition date, which was the beginning of the reporting period.
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 % 31 May 30 Nov* 31 May % 31 May 30 Nov* 31 May % 31 May 30 Nov*
R million 2015 change 2014 2014 2015 change 2014 2014 2015 change 2014 2014
Engineering consumables 1 265 (2) 1 293 2 767 120 (3) 124 302 1 625 4 1 566 1 605
– Ongoing operations 1 259 (3) 1 293 2 767 118 (5) 124 302 1 611 3 1 566 1 605
– Operations acquired in 2015 6 2 14
Consumer-related products 1 285 57 819 1 718 194 126 86 215 1 087 64 662 673
– Ongoing operations 973 19 819 1 718 141 64 86 215 631 (5) 662 673
– Operations acquired in 2015 312 53 456
Total operating segments 2 550 21 2 112 4 485 314 50 210 517 2 712 22 2 228 2 278
Head office, shared services and eliminations (1) (1) (5) (22) (10) (23) (97) 129 105
Total group 2 549 21 2 111 4 480 292 46 200 494 2 615 11 2 357 2 383
* Audited
Hudaco Industries is a South African group whose principal activity is the distribution of high quality
branded industrial and electronic products mainly 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 automotive aftermarket, power tool, security and communication equipment businesses
supply products into markets with a bias towards consumer spending. Adding value by offering instant
availability, advice and training etc is an integral part of Hudaco's business model.
Results
The group has delivered commendable first half results under difficult economic
circumstances. The group's acquisition strategy over the past few years to reduce dependence on the
South African mining and manufacturing sectors and increase exposure to other sectors is paying off.
The South African mining and manufacturing markets now account for only 30% of sales – down from
50% five years ago.
Group sales at R2,5 billion are up 21% on last year with over two thirds of the increase coming from
acquisitions made in the last year. Sales from ongoing operations grew 6% overall. Volume sales of
engineering consumables are down but of consumer-related products they are well up. Operating
profit increased 46% to R292 million with an operating margin to sales of 11,5% - well up on last
year's 9,5%.
Comparable earnings per share (CEPS) of 548 cents are up 32% on last year whilst headline and basic
earnings per share (also 548 cents) are up 20% on last year. The interim dividend has been increased
by 16% to 180 cents per share. Our dividend policy, to be covered about 2.5 times by CEPS annually,
remains unchanged.
The financial position is sound. Bank borrowings normally peak at the half year as we stock up for
what is usually a busier second half. Notwithstanding this, and the substantial outflows in the first
half including R98 million for the final dividend, R440 million (net) for the Partquip acquisition and
R192 million for the tax settlement, net borrowings increased only R552 million since November
2014, to R965 million. This is still well within our self-imposed conservative guidelines and our available
banking facilities. Unless we make further acquisitions, our usual strong second half cash generation
should reduce borrowings further by year end.
Engineering consumables segment
The South African mining and manufacturing markets account for two thirds of the activity of this
segment. These markets are weak as rising administered input costs, increased regulatory demands,
weak international demand for mining commodities coupled with low prices, strikes and power
outages weigh heavily on these sectors. In the first half of 2015 Hudaco's sales to the South African
mining sector contracted 10% while to the manufacturing sector they increased 1% – this off an
already depressed 2014 due to the prolonged strike in the platinum mines. However, there were good
performances from businesses supplying alternative energy solutions (for example diesel engines for
power generation applications) and exports continued to grow. Segment sales of R1 265 million are
down 2% on last year. Operating profit was down 3% at R120 million.
Consumer-related products segment
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, compared with 39% last year.
Fortunately consumer spending is holding up reasonably well and most businesses in the segment
performed well. Sales of power tools held steady in the first half whilst sales of communication
equipment were boosted by a large contract of the type that would typically have been secured in
the second half of the year in the past and which did not materialise at all in 2014. Partquip, acquired
with effect from 1 December 2014, has settled in well and is performing to expectations. Our security
business was the only underperformer in this segment with lower sales in the projects side of the
business.
Segment sales were up 57% to R1 285 million of which 38% was from acquisitions. Operating profit
increased 126% to R194 million.
Prospects
South Africa seems to be de - industrialising at an alarming rate with the mining industry also shrinking
rapidly. Notwithstanding the substantial shift in Hudaco's exposure away from these markets over the
past few years, they remain important sectors for Hudaco and their fortunes still have a significant
impact on Hudaco's trading results. Businesses exposed to these markets will have to grind it out until
economic conditions improve.
The consumer-related markets (wholesale and retail, automotive aftermarket, communication
equipment and batteries), which now account for a much larger portion of our business are performing
well and increased 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; allow us to continue to deliver resilient results in this
difficult economic environment. Full year 2015 earnings are expected to be well up on 2014 but, given
that the first half includes a large communication equipment contract that will not be repeated in the
second half, we will be hard pressed to match the level of increase achieved in these interim results.
Declaration of interim dividend number 57
Interim dividend number 57 of 180 cents per share is declared payable on Monday, 17 August 2015 to
ordinary shareholders recorded in the register at the close of business on Friday, 14 August 2015.
The timetable for the payment of the dividend is as follows:
Last day to trade cum dividend Thursday, 6 August 2015
Trading ex dividend commences Friday, 7 August 2015
Record date Friday, 14 August 2015
Payment date Monday, 17 August 2015
Share certificates may not be dematerialised or rematerialised between Friday, 7 August 2015 and
Friday, 14 August 2015, 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 dividend withholding tax rate is 15%;
- the net local dividend amount is 153 cents per share for shareholders liable to pay Dividends Tax
and 180 cents per share for shareholders exempt from 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.
Directorate
As reported on SENS, Mr Paul Baloyi resigned as a director on 19 March 2015 due to a conflict of
interest and Ms Nyami Mandindi was appointed to the board with effect from 1 June 2015.
Results presentation
Hudaco will host presentations on the financial results in Johannesburg and Cape Town on Friday,
26 June 2015 and Monday, 29 June 2015, 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, 30 June 2015.
For and on behalf of the board
RT Vice GR Dunford
Independent non-executive chairman Chief executive
25 June 2015
Nedbank
Sponsor
These results are available on the internet: www.hudaco.co.za
COMPANY INFORMATION
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*
* Non-executive
Group secretary
R Wolmarans
Transfer secretaries
Computershare Investor Services
Proprietary Limited
PO Box 61051
Marshalltown, 2107
www.hudaco.co.za
Date: 26/06/2015 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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