Wrap Text
Abridged audited results for the year ended 30 November 2015
Hudaco Industries Limited
Incorporated in the Republic of South Africa
Registration number: 1985/004617/06
JSE share code: HDC
ISIN code: ZAE000003273
Abridged audited results
For the year ended 30 November 2015
Comparable earnings up 19%
Turnover up 17% to over R5 billion
Operating profit up 23%
Dividends up 13%
Return on average equity up from 18% to 22%
Consumer-related products becomes largest segment
Group statement of financial position
R million 30 Nov 30 Nov
2015 2014
Assets
Non-current assets 1 367 1 024
Property, plant and equipment 261 257
Investment in joint venture 7
Goodwill 1 001 730
Intangible assets 69 36
Deferred taxation 29 1
Current assets 2 407 2 045
Inventories 1 369 1 141
Trade and other receivables 990 856
Taxation 9 6
Bank deposits and balances 39 42
Total assets 3 774 3 069
Equity and liabilities
Equity 1 895 1 682
Interest of shareholders of the group 1 844 1 649
Non-controlling interest 51 33
Non-current liabilities 831 209
Amounts due to bankers 800 197
Amounts due to vendors of businesses acquired 17 12
Deferred taxation 14
Current liabilities 1 048 1 178
Trade and other payables 764 711
Bank overdraft 255 258
Amounts due to vendors of businesses acquired 22 17
Taxation 7 192
Total equity and liabilities 3 774 3 069
Group statement of comprehensive income
R million 30 Nov % 30 Nov
2015 change 2014
Turnover 5 230 17 4 480
Ongoing operations 4 548 2 4 480
Operations acquired in 2015 682
Cost of sales 3 313 2 845
Gross profit 1 917 17 1 635
Operating expenses 1 312 1 141
Operating profit 605 23 494
Ongoing operations 482 (2) 494
Operations acquired in 2015 123
Adjustment to fair value of amounts due to vendors of businesses acquired (2) 3
Profit before interest 603 21 497
Finance costs 76 39
Profit before taxation 527 15 458
Taxation excluding tax settlement 141 128
Profit before tax settlement 386 17 330
Settlement of tax dispute 312
Profit after taxation 386 18
Income from joint venture 3
Profit for the year 389 18
Other comprehensive income
Movement on fair value of cash flow hedges 4 (1)
Total comprehensive income for the year 393 17
Profit attributable to:
– Shareholders of the group 369 3
– Non-controlling shareholders 20 15
389 18
Total comprehensive income attributable to:
– Shareholders of the group 372 2
– Non-controlling shareholders 21 15
393 17
Earnings per share (cents)
– Basic 1 164 8
– Headline 1 163 6
– Comparable 1 169 19 986
Diluted earnings per share (cents)
– Basic 1 163 8
– Headline 1 161 6
– Comparable 1 167 19 984
Calculation of headline earnings
Profit attributable to shareholders of the group 369 3
Adjusted for:
Profit on disposal of property, plant and equipment (1) (1)
Headline earnings 368 2
Calculation of comparable earnings
Headline earnings 368 2
Adjusted for:
Settlement of tax dispute 312
Adjustment to fair value of amounts due to vendors of businesses acquired 2 (3)
Non-controlling interest 1
Comparable earnings 370 19 312
Dividends
– Per share (cents) 525 13 465
– Amount (Rm) 166 147
Share 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
– Total (000) 31 646 31 646
– Diluted (000) 31 696 31 691
Group statement of cash flows
R million 30 Nov 30 Nov
2015 2014
Cash generated from trading 653 525
Increase in working capital (157) (44)
Cash generated from operations 496 481
Fair value adjustment of cash flow hedges 4 (1)
Taxation paid excluding tax settlement (186) (141)
Net cash from operations before tax settlement 314 339
Settlement of tax dispute (192) (80)
Net cash from operating activities 122 259
Net investment in new operations (463) (224)
Net investment in property, plant and equipment (31) (58)
Net cash from investing activities (494) (282)
Increase in non-current amounts due to bankers 603 197
Finance costs paid (73) (38)
Dividends paid (158) (148)
Net cash from financing activities 372 11
Increase in net bank overdraft 0 (12)
Net bank overdraft at beginning of the year (216) (204)
Net bank overdraft at end of the year (216) (216)
Group statement of changes in equity
R million Share Non- Retained Interest of Non- Equity
capital distribut- income share- control-
and able holders ling
premium reserves of the interest
group
Balance at 30 November 2013 55 70 1 710 1 835 19 1 854
Comprehensive income for the year 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 55 66 1 528 1 649 33 1 682
30 November 2014
Balance at 30 November 2014 55 66 1 547 1 668 33 1 701
Comprehensive income for the year 4 368 372 21 393
Movement in equity compensation reserve 5 (27) (22) (22)
Dividends (155) (155) (3) (158)
Balance at 30 November 2015 55 75 1 733 1 863 51 1 914
Less: Shares held by subsidiary company (19) (19) (19)
Net balance at 55 75 1 714 1 844 51 1 895
30 November 2015
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 2015 as were applied in the preparation of the group’s annual financial statements for the
year ended 30 November 2014. 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.
R million 30 Nov 30 Nov
2015 2014
Average net operating assets (NOA) (Rm) 2 708 2 383
Operating profit margin (%) 11,6 11,0
Average NOA turn (times) 1,9 1,9
Return on average NOA (%) 22,4 20,7
Average net tangible operating assets (NTOA) (Rm) 1 650 1 616
PBITA margin (%) 12,1 11,5
Average NTOA turn (times) 3,2 2,8
Return on average NTOA (%) 38,5 31,8
Net asset value per share (cents) 5 827 5 210
Return on average equity (%) 21,8 1,0
Comparable return on average equity (%) 21,9 17,9
Operating profit has been determined after taking into account
the following charges (Rm)
– Depreciation 40 33
– Amortisation 29 20
Capital expenditure (Rm)
– Incurred during the year 37 64
– Authorised but not contracted for 58 56
Commitments
– Operating lease commitments on properties (Rm) 245 237
– Commitment to purchase businesses: Hydraulic Engineering Repair Services (HERS) and All-Trade Distributors, for a maximum consideration of R133
million payable over three years.
Acquisition of businesses
On 1 December 2014 the group acquired 100% of the shares in Partquip Group Pty Ltd for R531 million and 100% of the business of Berntel for a total consideration
based on future profits and which is estimated to be R15 million and on 1 September 2015 100% of the business of Sanderson Special Steels for a total consideration
based on future profits and which is estimated to be R38 million.
Plant and equipment of R12 million, investment in joint venture of R6 million, inventories of R142 million, trade and other receivables of R128 million, trade and
other payables of R118 million, cash of R110 million, taxation of R32 million, intangible assets of R62 million and goodwill of R271 million were recognised at
date of acquisition. These values approximate the fair values determined under IFRS 3.
Turnover of R682 million and profit after tax of R89 million were included in the group results since the acquisition date. Had these acquisition all been made
at the beginning of the year the turnover and profit after tax for the group would have been R5 270 million and R392 million, respectively.
Events after reporting date
On 1 December 2015 the group acquired 100% of the business of HERS and on 1 January 2016 100% of the business of All-Trade Distributors for a total consideration
based on future profits and which is estimated to be a maximum of R133 million.
Plant and equipment of R4 million, inventories of R28 million, trade and other receivables of R23 million, trade and other payables of R12 million, cash of R7 million,
taxation of R2 million, intangible assets of R7 million and goodwill of R34 million will be recognised at date of acquisition. These values approximate the fair
values as provisionally determined under IFRS 3.
Had these acquisition been made at the beginning of the year turnover of R140 million and profit after tax of R8 million would have been included in the group results
and the turnover and profit after tax for the group would have been R5 370 million and R394 million, respectively.
Segment information
Turnover
30 Nov % 30 Nov
R million 2015 change 2014
Consumer-related products 2 603 52 1 718
– Ongoing operations 1 947 13 1 718
– Operations acquired in 2015 656
Engineering consumables 2 635 (5) 2 767
– Ongoing operations 2 609 (6) 2 767
– Operations acquired in 2015 26
Total operating segments 5 238 4 485
Head office, shared services and eliminations (8) (5)
Total group 5 230 17 4 480
Operating profit
30 Nov % 30 Nov
R million 2015 change 2014
Consumer-related products 380 77 215
– Ongoing operations 261 21 215
– Operations acquired in 2015 119
Engineering consumables 260 (14) 302
– Ongoing operations 256 (15) 302
– Operations acquired in 2015 4
Total operating segments 640 517
Head office, shared services and eliminations (35) (23)
Total group 605 22 494
Average net operating assets
30 Nov % 30 Nov
R million 2015 change 2014
Consumer-related products 1 072 59 673
– Ongoing operations 928 38 673
– Operations acquired in 2015 144
Engineering consumables 1 658 3 1 605
– Ongoing operations 1 639 2 1 605
– Operations acquired in 2015 19
Total operating segments 2 730 2 278
Head office, shared services and eliminations (22) 105
Total group 2 708 14 2 383
Hudaco Industries is a South African group specialising in the importation and distribution of high-quality branded
automotive, industrial and electrical consumable products, mainly in the southern African region. Hudaco businesses
serve markets that fall into two primary categories. The automotive after-market, power tool and security businesses
supply products into markets with a bias towards consumer spending whilst the bearings, power transmission and diesel
engine businesses supply engineering consumables mainly to mining and manufacturing customers. The value-added includes
product specification, technical advice, application and installation training and troubleshooting, combined with ready
availability at a fair price.
Results
The results, which we consider excellent, were achieved under the most challenging circumstances. 2015 has been another
particularly difficult year for the mining, manufacturing and agricultural sectors in South Africa.
Fundamental to our success in 2015 was a focused move into more resilient market segments through successful
acquisitions that supplemented the performance of Hudaco’s traditional businesses. The first half results were very good
with CEPS up 32% over the prior period but we cautioned that this was measured against a period of protracted mining
strikes in 2014 and included profits from a large project which we knew would not be repeated in the second half. In
line with the economic malaise, sales in the months of August, September and October 2015 were most disappointing as
business confidence in the country reached an all-time low.
Annual sales were up 17% to R5,2 billion whilst operating profit rose 23% to R605 million, reflecting disciplined cost
and margin management. Headline earnings per share were 1 163 cents whilst comparable earnings per share (which we
regard as a more reliable indicator of ongoing earnings) were up 18,6% to 1 169 cents, compared with last year’s 986
cents. The return on equity was a highly respectable 22%.
Consumer-related products
Consumer-related products made up 50% of Hudaco’s sales and 59% of operating profit. Partquip, our biggest business in
this segment, has bedded down well and had an excellent first year in the group. Partquip distributes three product
ranges; wheels (A-Line), specialised branded automotive after-market products (Partquip) and hardy offroad suspension
and related automotive products (Ironman 4X4). Rutherford, the second biggest business in this segment also had a good
year in an environment where construction activity and disposable income have been under considerable pressure. The
primary brand distributed by Rutherford is Makita (power tools and garden equipment), a market leader in lithium ion
battery technology. The alternative energy businesses had a rewarding year with Specialised Battery Systems and Deltec
growing sales considerably. Global Communications secured and delivered a major project in the first half of the year,
which contributed to them being well up on last year. The disappointment in this segment came from our security
businesses. Elvey Security Technologies had a difficult year but the main decrease was in the project business,
Pentagon. The segment increased sales by 52% to R2,6 billion and operating profit by 77% to R380 million.
Engineering consumables
Engineering consumables made up the other 50% of sales but its contribution to the operating profit was down to 41%. The
alternative energy side of this business – Deutz Dieselpower – which supplies alternators and engines for stand-by and
continuous use electricity generators performed well. However, the bearings and power transmission businesses, which
serve the mining and manufacturing sectors, had a challenging year with low commodity prices, policy uncertainty, labour
tribulations and a business unfriendly policy environment making it extremely difficult to do business. Ambro Sales,
Bearings International, Bosworth, Ernest Lowe and Powermite were the most heavily impacted by the depressed conditions.
All businesses in this segment performed adequately considering the economic circumstances with no business reporting a
loss. We recognise that trading in this segment will remain depressed for the time being and that it will be near
impossible to get meaningful organic growth in a segment of the economy that is clearly in decline. We have taken steps
over the last 18 months to right size certain businesses to carry us through to the time when mining and manufacturing
turn, and they will turn. We believe if we can continue to deliver a 10% return on sales in this segment as we have this
year, we will have managed the business well in the meantime.
Financial position
Our financial position remains healthy after the cash paid for acquisitions and the tax settlement of R312 million, of
which the last R192 million was paid in 2015. Hudaco’s operations remain cash generative. The group had R1 016 million
in net borrowings at year end representing gearing of 54%, up from 25% in 2014. More importantly, interest payments were
covered eight times by operating profits against our internal covenant of at least five times. The decline in the Rand
exchange rate this year will result in sharply higher inventories as we replace stock at higher cost but much of this
should be covered by the higher prices we receive on selling the current inventory. Although there is still capacity for
acquisitions we will exercise caution as we expect interest rates to increase in the months ahead.
Initiation of legal proceedings
The Hudaco group has instituted legal proceedings against Bravura Equity Services Proprietary Limited (“BES”) (part of
the Bravura group in South Africa), Cadiz Specialised Asset Management Proprietary Limited and certain other entities,
executives and certain former executives of the Bravura and Cadiz groups. These legal proceedings are aimed at
recovering alleged secret profits of R180 million and the payment made by Hudaco to SARS in the amount of R312 million,
in settlement of a challenge under the general anti-avoidance rule, and pertaining to the financing arrangements for
Hudaco’s empowerment transaction.
Prospects
We are very concerned about the South African economy. The manufacturing and mining sectors have been shrinking for some
years now. Partly this is due to low commodity prices for our mineral exports but it is also partly due to policy
choices. Wide unemployment, a deteriorating infrastructure and poor governance, despite promises, are not being
decisively tackled. If South Africa’s debt is downgraded to junk status the situation will only be exacerbated.
Against this background Hudaco remains a well-managed business and will continue to do what it has always done well,
which is to manage the things over which it has control, whilst seeking out acquisitions and opportunities for growth.
Until economic circumstances improve we foresee at best only modest organic volume sales growth in South Africa and
Africa (although volume sales to mining and manufacturing customers may decline further). Earnings in 2016 should
nevertheless be impacted positively by a combination of factors: pricing to replacement on account of the weaker Rand,
strict management of the relationship between margins, costs and the level of working capital, continuing growth in our
alternative energy businesses, and the contribution from acquisitions. We continue to explore opportunities to acquire
good businesses in our chosen markets.
Changes in directors’ roles
The following changes in the roles of non-executive directors will be effective after the forthcoming annual general
meeting on 9 March 2016: Stuart Morris will step down as chairman of the audit and risk management committee but will
remain a member of the committee and chairman of the remuneration committee; Daisy Naidoo will become chairman of the
audit and risk management committee and will step down as chairman of the social an ethics committee but will continue
to serve as a member; and Nyami Mandindi will assume the chairmanship of the social and ethics committee.
Declaration of interim dividend number 58
Final dividend number 58 of 345 cents per share (2014: 310 cents per share) is declared payable on Monday, 7 March 2016
to ordinary shareholders recorded in the register at the close of business on Friday, 4 March 2016.
The timetable for the payment of the dividend is as follows:
Last day to trade cum dividend Friday,26 February 2016
Trading ex dividend commences Monday,29 February 2016
Record date Friday,4 March 2016
Payment date Monday,7 March 2016
Share certificates may not be dematerialised or rematerialised between Monday, 29 February 2016 and Friday, 4 March
2016, 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 from income reserves;
* the dividend withholding tax rate is 15%;
* the net local dividend amount is 293,25 cents per share for shareholders liable to pay the Dividends Tax and 345
cents per share for shareholders exempt from 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.
Results presentation
Hudaco will host presentations on the financial results in Johannesburg and Cape Town on Friday, 29 January 2016 and
Monday, 1 February 2016, respectively. Anyone wishing to attend should contact Janine Yon at +27 11 657 5000.
The slides which form part of the presentation will be available on the company’s website from Tuesday, 2 February 2016.
Approval of financial statements
The financial statements have been approved by the board and abridged for the purposes of this report. Grant Thornton
Johannesburg Partnership has signed an unqualified audit opinion on the annual financial statements. Both the financial
statements and the auditor’s report are available for inspection at the company’s registered office.
This abridged report is extracted from audited information. The auditor’s 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 auditor’s 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
Nedbank Corporate and Investment Banking
Sponsor
These results are available on the internet: www.hudaco.co.za
COMPANY INFORMATION
Hudaco Industries Limited
Incorporated in the Republic of South Africa
Registration number: 1985/004617/06
JSE share code: HDC
ISIN code: ZAE000003273
Transfer secretaries
Computershare Investor Services Proprietary Limited
PO Box 61051
Marshalltown, 2107
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
Sponsor
Nedbank Corporate and Investment Banking
Date: 29/01/2016 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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