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Abridged audited results for the year ended 30 November 2016
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 2016
Highlights
* Turnover up 5,8% to R5,5 billion
* Operating profit up 5,6% to R639 million
* Attributable profit up 5,3% to R388 million
* Annual dividend maintained at 525 cents per share
* Basic and headline earnings per share up 5%
* Comparable earnings per share marginally up to 1 171 cents
* Return on equity 21%
* Net cash generated from operations up 51% to R749 million
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 aftermarket, power tool, security and communication
equipment businesses supply products into markets with a bias
towards consumer spending.
* The mechanical and electrical power transmission, diesel engine,
hydraulics and pneumatics, steel, thermoplastic fittings and
bearings businesses supply engineering consumables mainly to
mining and manufacturing customers.
Value added includes product specification, technical advice, application
and installation training and troubleshooting, combined with availability
at a fair price.
2016 Overview
A strong close to the year enabled us to finish with comparable earnings
slightly up on 2015, which had been a record year for Hudaco. This is a
pleasing result given a decline of almost 20% at mid-year and the fact
that there was neither a large communication contract nor a load-shedding
boost in 2016. We consider these results to be excellent, considering
the challenging conditions under which they were achieved.
CEPS at half year were down 19,7%, with 2015’s good first half results
having been boosted by approximately R45 million in profits from the
sales of alternative energy products due to load shedding and a large
contract for communication equipment. We mentioned at the time that
“we would be hard pressed to catch up the deficit and match last year’s
results” so we are very pleased to have been able to achieve that.
Annual sales were up 6% to R5,5 billion whilst operating profit rose 6%
to R639 million. Headline earnings per share were up 5% to 1 222 cents with
comparable earnings per share marginally up from 1 169 to 1 171 cents.
The return on equity was a very respectable 20,5%.
The final dividend has been increased by 10 cents per share to 355 cents
to bring the total dividend for the year to 525 cents, the same as in 2015.
Consumer-related products
The consumer-related products segment comprises ten businesses. In 2016 it
made up 51% of Hudaco’s sales and 61% of operating profit. The automotive
businesses of Partquip and Abes had a very good year. There was good
growth from our security businesses. Elvey Security Technologies had a
significantly better year but the main increase was in the project business
through Pentagon. MiRo, a distributor of wireless connectivity products,
had a very good first seven months in the group and we look forward to
its contribution in the years ahead as it has significant potential for
growth. Rutherford, the second largest business in this segment which
distributes Makita power tools and garden equipment had a difficult year,
partly attributable to delays at the National Regulator for Compulsory
Specifications in issuing authority letters to launch new products. The
segment increased sales by 7,6% to R2,8 billion and operating profit by
6,6% to R405 million.
Engineering consumables
The 20 businesses that constitute engineering consumables made up the
other 49% of sales and 39% of operating profit. This was yet another
difficult year for the businesses in this segment serving the depressed
mining and manufacturing industries. The severe drought that gripped the
southern African region also had a negative effect on our sales.
Nevertheless, most of the businesses in this segment performed
satisfactorily considering the economic conditions. The second half
results were very promising with a 12% increase in operating profit
over the second half of 2015. We were particularly encouraged by the
growth in operating profit from Bearings International, Astore Keymak,
Bosworth and our specialised steel businesses. There were three companies
in this segment with significant declines in sales and operating profit.
Our filter business, FHS, whilst still yielding an excellent return on sales,
saw a significant decline in revenue due to depressed opencast mining and
construction sectors. In the gear pump business, GPM, where we opened a
USA located warehouse to take advantage of growing demand for our product,
sales plummeted as customers reduced their own inventories because we could
deliver on much shorter lead times. This is a once-off issue and customer
take-up has already started to normalise. Deutz Dieselpower, our diesel
engine business, did not have the benefit of the sales of genset engines
that it enjoyed in the previous year due to load shedding. The segment
increased sales by 4,0% to R2,7 billion whilst operating profit declined
slightly to R255 million.
We have taken steps over the last two years to right size certain businesses
to the lower levels of activity being experienced. They will be better placed
when mining and manufacturing activity improves. The second half of 2016 has
shown signs that lead us to believe that prospects are turning.
Financial position
Our financial position remains healthy and Hudaco’s operations remain strongly
cash generative. The group had R905 million in net borrowings at year-end,
down from R1 016 million, notwithstanding R168 million spent on acquisitions,
representing gearing of 42%. More importantly, interest payments were covered
eight times by EBITDA against our internal covenant of at least five times.
Inventories have been well managed considering the volatility of the Rand
against our basket of currencies. At R1 508 million, they are up only 4,5%,
excluding take-on inventory of acquisitions.
Prospects
Notwithstanding the challenges that are bound to arise from the economic and
political environment both nationally and internationally, we are optimistic
that earnings in 2017 will be impacted positively by a combination of factors:
* we ended the year strongly and several businesses have come into the year
with much healthier order books;
* there are signs of improvement in certain of the sectors in which we operate;
strengthening in commodity prices since June last year should positively affect
mining and manufacturing activity;
* the strengthening Rand should allow us to release cash from inventories;
* we are seeing relief from the crippling drought of the past two years; and
* we have made high potential growth acquisitions in recent months.
Lawsuit against Bravura and certain associates
The legal case against Bravura and certain of its associates for up to
R490 million is continuing slowly. Hudaco has brought the action to recover,
inter alia, secret profits made on the financing arrangements around the
Hudaco BEE transaction that ran from August 2007 to February 2013.
Declaration of final dividend no 60
Final dividend number 60 of 355 cents per share (2015: 345 cents per share)
is declared payable on Monday, 6 March 2017 to ordinary shareholders recorded
in the register at the close of business on Friday 3 March 2017.
The timetable for the payment of the dividend is as follows:
Last day to trade cum dividend Tuesday, 28 February 2017
Trading ex dividend commences Wednesday, 1 March 2017
Record date Friday, 3 March 2017
Payment date Monday, 6 March 2017
Share certificates may not be dematerialised or rematerialised between
Wednesday, 1 March 2017 and Friday, 3 March 2017, 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 301,75 cents per share for shareholders
liable to pay the Dividend Tax and 355 cents per share for shareholders
exempt from the Dividend 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 and annual general meeting
Hudaco will host presentations on the financial results in Johannesburg
and Cape Town on Friday, 3 February 2017 and Monday, 6 February 2017,
respectively. Anyone wishing to attend should contact Rika Wessels-Bouwer
at +2711 657 5000.
The slides which form part of the presentation will be available on the
company’s website from Friday, 3 February 2017.
The company’s 32nd annual general meeting will be held at Building 9,
Greenstone Hill Office Park, Emerald Boulevard, Greenstone Hill, Edenvale
at 15:00 on Wednesday, 29 March 2017. The notice and proxy form for the
company’s annual general meeting will be posted to the shareholders
by 17 February 2017 and will be included in the integrated report that
will be published on Hudaco’s website during February 2017.
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
2 February 2017
Nedbank Corporate and Investment Banking
Sponsor
These results are available on the internet: www.hudaco.co.za
Group statement of financial position
30 Nov 30 Nov
R million 2016 2015
Assets
Non-current assets 1 611 1 367
Property, plant and equipment 256 261
Investment in joint venture 7 7
Goodwill 1 243 1 001
Intangible assets 68 69
Deferred taxation 37 29
Current assets 2 619 2 407
Inventories 1 508 1 369
Trade and other receivables 1 046 990
Taxation 18 9
Bank deposits and balances 47 39
Total assets 4 230 3 774
Equity and liabilities
Equity 2 130 1 895
Equity holders of the parent 2 065 1 844
Non-controlling interest 65 51
Non-current liabilities 869 831
Amounts due to bankers 710 800
Amounts due to vendors of businesses acquired 148 17
Deferred taxation 11 14
Current liabilities 1 231 1 048
Trade and other payables 898 764
Bank overdraft 242 255
Amounts due to vendors of businesses acquired 76 22
Taxation 15 7
Total equity and liabilities 4 230 3 774
Group statement of comprehensive income
30 Nov % 30 Nov
R million 2016 change 2015
Turnover 5 534 5,8 5 230
– Ongoing operations 5 077 (2,7) 5 216
– Operations acquired after December 2014 457 14
Cost of sales 3 536 3 313
Gross profit 1 998 1 917
Operating expenses 1 359 1 312
Operating profit 639 5,6 605
– Ongoing operations 573 (5,2) 604
– Operations acquired after December 2014 66 1
Adjustment to fair value of amounts due to
vendors of businesses acquired 19 (2)
Profit before interest 658 9,1 603
Finance costs 100 76
Profit before taxation 558 5,7 527
Taxation 148 141
Profit after taxation 410 6,3 386
Income from joint venture 3 3
Profit for the year 413 6,1 389
Other comprehensive (loss) income
Movement on fair value of cash flow hedges (8) 4
Total comprehensive income for the year 405 3,1 393
Profit attributable to:
– Equity holders of the parent 388 5,3 369
– Non-controlling shareholders 25 20
413 6,1 389
Total comprehensive income attributable to:
– Equity holders of the parent 381 2,6 372
– Non-controlling shareholders 24 21
405 3,1 393
Earnings per share (cents)
– Basic 1 226 5,3 1 164
– Headline 1 222 5,1 1 163
– Comparable 1 171 0,2 1 169
Diluted earnings per share (cents)
– Basic 1 222 5,1 1 163
– Headline 1 219 5,0 1 161
– Comparable 1 168 0,1 1 167
Calculation of headline earnings
Profit attributable to equity holders of the
parent 388 5,3 369
Adjusted for:
Profit on disposal of plant and equipment (1) (1)
Headline earnings 387 5,1 368
Calculation of comparable earnings
Headline earnings 387 5,1 368
Adjusted for:
Adjustment to fair value of amounts due to
vendors of businesses acquired (19) 2
Non-controlling interest 2
Comparable earnings 370 370
Dividends
– Per share (cents) 525 525
– Amount (Rm) 166 166
Shares in issue (000) 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) 31 732 31 696
Group statement of cash flows
30 Nov 30 Nov
R million 2016 2015
Cash generated from trading 708 653
Decrease (increase) in working capital 41 (157)
Cash generated from operations 749 496
Fair value adjustment of cash flow hedges (8) 4
Taxation paid excluding tax settlement (174) (186)
Net cash from operations before tax settlement 567 314
Settlement of tax dispute (192)
Net cash from operating activities 567 122
Net investment in new operations (165) (463)
Net investment in property, plant and equipment (30) (31)
Net cash from investing activities (195) (494)
(Decrease) increase in non-current amounts due to
bankers (90) 603
Finance costs paid (87) (73)
Dividends paid (173) (158)
Net cash from financing activities (350) 372
Decrease in net bank overdraft 22 0
Foreign exchange translation loss (1)
Net bank overdraft at beginning of the year (216) (216)
Net bank overdraft at end of the year (195) (216)
Group statement of changes in equity
Share Non-
capital distribut-
and able
R million premium reserves
Balance at 1 December 2014 55 66
Comprehensive income for the year 4
Movement in equity compensation reserve 5
Dividends
Balance at 30 November 2015 55 75
Less: Shares held by subsidiary company
Net balance at 30 November 2015 55 75
Balance at 1 December 2015 55 75
Comprehensive income for the year (7)
Movement in equity compensation reserve (4)
Dividends
Balance at 30 November 2016 55 64
Less: Shares held by subsidiary company
Net balance at 30 November 2016 55 64
Equity
holders
Retained of the
R million income parent
Balance at 1 December 2014 1 547 1 668
Comprehensive income for the year 368 372
Movement in equity compensation reserve (27) (22)
Dividends (155) (155)
Balance at 30 November 2015 1 733 1 863
Less: Shares held by subsidiary company (19) (19)
Net balance at 30 November 2015 1 714 1 844
Balance at 1 December 2015 1 733 1 863
Comprehensive income for the year 388 381
Movement in equity compensation reserve 7 3
Dividends (163) (163)
Balance at 30 November 2016 1 965 2 084
Less: Shares held by subsidiary company (19) (19)
Net balance at 30 November 2016 1 946 2 065
Non-
controlling
R million interest Equity
Balance at 1 December 2014 33 1 701
Comprehensive income for the year 21 393
Movement in equity compensation reserve (22)
Dividends (3) (158)
Balance at 30 November 2015 51 1 914
Less: Shares held by subsidiary company (19)
Net balance at 30 November 2015 51 1 895
Balance at 1 December 2015 51 1 914
Comprehensive income for the year 24 405
Movement in equity compensation reserve 3
Dividends (10) (173)
Balance at 30 November 2016 65 2 149
Less: Shares held by subsidiary company (19)
Net balance at 30 November 2016 65 2 130
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 this abridged report as were applied in the preparation of the group’s
annual financial statements for the year ended 30 November 2015. 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 financial
statements.
30 Nov 30 Nov
2016 2015
Average net operating assets (NOA) (Rm) 3 141 2 708
Operating profit margin (%) 11,6 11,6
Average NOA turn (times) 1,8 1,9
Return on average NOA (%) 20,4 22,4
Average net tangible operating assets (NTOA) (Rm) 1 910 1 650
PBITA margin (%) 12,0 12,1
Average NTOA turn (times) 2,9 3,2
Return on average NTOA (%) 34,7 38,5
Net asset value per share (cents) 6 525 5 827
Return on average equity (%) 20,5 21,8
Operating profit has been determined after taking
into account the following charges (Rm)
– Depreciation 44 40
– Amortisation 24 29
Capital expenditure (Rm)
– Incurred during the period 36 37
– Authorised but not yet contracted for 60 58
Commitments
– Operating lease commitments on properties (Rm) 210 245
– Commitment to purchase businesses: SS Telecoms and
Commercial ICT for a maximum consideration of
R111 million payable over a period of three years.
Acquisition of businesses
On 1 December 2015 the group acquired 100% of the business of HERS, on
1 January 2016 100% of the business of All-Trade Distributors, on 1 May 2016
100% of the business of MiRo and on 1 June 2016 100% of the business of
Brewtech Engineering, each for a consideration based on future profits and
which are subject to a combined maximum of R525 million.
Plant and equipment of R7 million, inventories of R79 million, trade and
other receivables of R57 million, trade and other payables of R32 million,
cash of R4 million, taxation of R17 million, intangible assets of R23 million
and goodwill of R242 million were recognised at dates of acquisition. These
values approximate the fair values as determined under IFRS 3.
Had these acquisitions been made at the beginning of the year, additional
turnover of R152 million and profit after interest and tax of R6 million would
have been included in the group results and the turnover and profit after
interest and tax for the group would have been R5 686 million and R416 million,
respectively.
Events after reporting date
On 1 December 2016 the group acquired 100% of the businesses of SS Telecoms and
Commercial ICT for a combined consideration based on future profits and which
is subject to a maximum of R111 million.
Plant and equipment of R1 million, inventories of R7 million, trade and other
receivables of R6 million, trade and other payables of R7 million, cash of
R1 million, taxation of R4 million, intangible assets of R7 million and goodwill
of R50 million will be recognised at date of acquisition. These values
approximate the fair values as provisionally determined under IFRS 3.
Had these acquisitions been made at the beginning of the year, turnover of
R53 million and loss after amortisation of intangible assets, interest and
tax of R3 million would have been included in the group results and the
turnover and profit after interest and tax for the group would have been
R5 587 million and R407 million, respectively.
Segment information
Turnover
30 Nov % 30 Nov
R million 2016 change 2015
Consumer-related products 2 802 7,6 2 603
– Ongoing operations 2 553 (1,9) 2 603
– Operations acquired after December 2014 249
Engineering consumables 2 739 4,0 2 635
– Ongoing operations 2 531 (3,4) 2 621
– Operations acquired after December 2014 208 14
Total operating segments 5 541 5,8 5 238
Head office, shared services and eliminations (7) (8)
Total group 5 534 5,8 5 230
Operating profit
30 Nov % 30 Nov
R million 2016 change 2015
Consumer-related products 405 6,6 380
– Ongoing operations 372 (2,1) 380
– Operations acquired after December 2014 33
Engineering consumables 255 (1,9) 260
– Ongoing operations 222 (14,3) 259
– Operations acquired after December 2014 33 1
Total operating segments 660 3,1 640
Head office, shared services and eliminations (21) (35)
Total group 639 5,6 605
Average net
operating assets
30 Nov % 30 Nov
R million 2016 change 2015
Consumer-related products 1 337 24,7 1 072
– Ongoing operations 1 185 10,5 1 072
– Operations acquired after December 2014 152
Engineering consumables 1 732 4,5 1 658
– Ongoing operations 1 634 (1,1) 1 652
– Operations acquired after December 2014 98 6
Total operating segments 3 069 12,4 2 730
Head office, shared services and
eliminations 72 (22)
Total group 3 141 16,0 2 708
Company information
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 van Zyl
Sponsor
Nedbank Corporate and Investment Banking
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