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HUDACO INDUSTRIES LIMITED - Abridged audited results for the year ended 30 November 2016

Release Date: 03/02/2017 08:00
Code(s): HDC     PDF:  
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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
Date: 03/02/2017 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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