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Abridged audited results for the year ended 30 November 2017 and changes to the board of directors
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 2017
and changes to the board of directors
Highlights
* Turnover up 7% to R5,9 billion
* Operating profit up 6% to R676 million
* Comparable earnings per share up 7% to 1 251 cents
* Annual dividend up 7% to 560 cents per share
* Return on equity 19%
* Net cash generated from operations R711 million
Commentary
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.
2017 Overview
Hudaco is an agency distribution business, the financial performance
of which is heavily dependent on South Africa's GDP growth rate and
the Rand exchange rate. In the 2017 financial year the resilience of
our strategy for tough market conditions was proven yet again. We had
to cope with a South African economy in recession coupled with an
extremely volatile Rand exchange rate resulting in economic conditions
that were challenging to say the least. The relatively strong Rand
between October 2016 and March 2017 placed our businesses under
pressure to reduce prices. Thereafter we had to contend with a
disastrous cabinet reshuffle in which the highly respected finance
minister was removed and the release of an unworkable new mining
charter. The ensuing inevitable ratings downgrades caused the Rand
to weaken substantially, which relieved the downward pressure on
pricing but, coupled with regular negative news throughout the year,
including the revelations around State capture, increasingly
ineffective government, corruption and high risk populist rhetoric,
it sapped any remaining business confidence from the economy and
business suffered. The largest impact on Hudaco of the negative
sentiment was felt in those businesses heavily reliant on projects
because so many customers either cancelled planned projects or put
them on hold until such time as the turmoil abated.
Against this negative backdrop we are pleased with the results
achieved. Annual sales were up 7% to R5,9 billion whilst operating
profit rose 6% to R676 million. Comparable earnings per share were
up 7% to 1 251 cents while headline earnings per share rose only
3% to 1 256 cents because of a positive fair value adjustment on
the vendor liability in the previous year. The return on equity
was a very respectable 19%, well above our cost of capital.
Ongoing operations' operating profit was down 1% with both segments
having to grind it out. Their results give a good indication of how
difficult trading conditions were. Ongoing operations in the
consumer-related products segment was down 4% with the bulk of this
decline coming from the projects side of both the communications and
security businesses. Encouragingly, engineering consumables' operating
profit from ongoing operations was up 4,5% even with the mining and
manufacturing sectors firmly in recession for part of the year. It
is only through the deployment of cash generated by the existing
businesses in the acquisition of successful new businesses with better
growth potential that we were able to increase profits.
The final dividend has been increased by 25 cents giving a total
dividend for 2017 of 560 cents, up almost 7% year on year. Comparable
earnings cover the full dividend 2,23 times, which falls within our
long-term dividend policy range of paying between 40% and 50% of
comparable earnings.
Financial position
The financial position remains healthy with consistently strong
cash generation. The group had R860 million in net bank borrowings
at year-end, representing gearing of 36%, down from R905 million in
2016, notwithstanding R210 million spent on acquisitions. More
importantly, interest payments (excluding imputed interest) were
covered eight times by operating profits against our internal
benchmark of at least five times. We have significant additional bank
borrowing facilities available so there is still capacity for
acquisitions and we continue to look for businesses in growth areas
to further diversify and strengthen our portfolio.
Inventories have been well managed considering the volatility of the
Rand against our basket of currencies. At R1 538 million, they are
down 2%, excluding take-on inventory of acquisitions. The return on
net operating assets including goodwill (RONA) in 2017 is 19,8%,
compared with 20,4% last year, still well above our cost of capital,
which is approximately 15%.
Consumer-related products
The consumer-related products segment comprises 11 businesses. In
2017, it made up 52% of Hudaco's sales and 61% of operating profit.
The demand for automotive spares and accessories in the year from
Partquip and Abes Technoseal was strong, which was to be expected.
As new car sales slumped, repairs took preference over replacement and
consequently both these businesses had a good year. Rutherford, the
second largest business in this segment which distributes Makita power
tools and garden equipment had an excellent year, as all the authority
letters for new products were issued by the National Regulator for
Compulsory Specifications. Miro, a distributor of wireless connectivity
products in its second year with Hudaco, achieved strong growth as it
continued to add to its impressive basket of wireless technology
products. The Elvey Security Technologies group had a difficult year
with both sales and profit well down, particularly in Pentagon, the
high end project side of the business. Our communications business
struggled again for the second year with no significant projects
awarded. We will right size this business this year for current
turnover levels.
Rutherford had recently moved to a larger, more effective distribution
centre at City Deep and we look forward to the benefits.
The segment increased sales by 9% to R3 billion and operating profit
by 6% to R428 million. Operating profit margin was 14,0%.
Engineering consumables
The 21 businesses that constitute engineering consumables made up the
other 48% of sales and 39% of operating profit.
The majority of businesses in this segment distribute mature industrial
products to mature economic segments (mainly mining and manufacturing).
These market sectors have been in decline for the last approximately ten
years partly due to natural boom and bust cyclicality of resources but
also recently due to new regulations scaring off investment. Hudaco
businesses in this segment are sized correctly for current market
conditions and, whilst profits are not growing, returns are good and
they generate the cash we use to diversify and expand our portfolio
of businesses.
We are happy to report that two of the three businesses in this segment
which suffered significant declines in sales and operating profit in 2016
delivered significantly improved performances this financial year. Our
filter business, FHS, has benefitted from an increase in activity, mainly
in open cast mining but also in the construction sector. In the gear
pump business, GPM, sales have picked up locally and from the USA and UK.
Sales in our diesel engine business, Deutz Dieselpower, normalised albeit
at a lower level than in the load shedding era. Encouragingly, late in
the year we saw an increase in activity in the mining side of this business,
which bodes well for 2018.
The segment increased sales by 4,5% to R2,9 billion whilst operating
profit increased 7% to R272 million. Operating profit margin increased
to a very respectable 9,5%.
Prospects
Prospects for Hudaco in 2018 will depend on how the economy performs and
that in turn depends largely on Government policy and its implementation.
The year has started off in a much more positive vein with consumer and
business confidence increasing after the election of Cyril Ramaphosa as
president of the ANC. There is a great deal of optimism that he will
deliver good governance, eradicate much of the corruption, put in place
policies that support economic growth and assign responsibility to
competent people. Withdrawal of the controversial Mining Charter would be
a case in point. If that perception becomes a reality then the optimism
is likely to translate into investment in those sectors of the economy
that are traditional Hudaco markets. That will enable those of our
businesses that have been in austerity mode for the past few years to
thrive once again. Many of our businesses are well placed to benefit
immediately from such a scenario, while others will need to wait for
the positive cycle to mature first. If industry is active, we will
supply the replacement parts it requires. We also believe that these
positive developments, if they eventuate, will be enough to counter
the pressure on pricing resulting from a strong Rand. On the other
hand, if the government just delivers more of the same, we will again
have to fall back on strategic acquisitions to deliver growth. We are
optimistic.
Lawsuit against Bravura and certain associates
The legal case against Bravura, Cadiz and certain of their associates for
up to R490 million continues slowly. We are preparing for court, although
a date for the matter to be heard has not yet been set. 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 62
Final dividend number 62 of 380 cents per share (2016: 355 cents per
share) is declared payable on Monday, 5 March 2018 to ordinary
shareholders recorded in the register at the close of business on Friday,
2 March 2018.
The timetable for the payment of the dividend is as follows:
Last day to trade cum dividend Tuesday, 27 February 2018
Trading ex dividend commences Wednesday, 28 February 2018
Record date Friday, 2 March 2018
Payment date Monday, 5 March 2018
Share certificates may not be dematerialised or rematerialised between
Wednesday, 28 February 2018 and Friday, 2 March 2018, 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 20%;
* The net local dividend amount is 304 cents per share for shareholders
liable to pay the Dividend Tax and 380 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.
Directorate
We thank Stuart Morris who retired from the board on 30 June 2017 for the
significant contribution that he made to the group over the years and wish
him well in his retirement. We welcome Mark Thompson as a member of the
board, the nomination committee and the audit and risk management
committee and as chairman of the remuneration committee.
Royden Vice, who has been an independent non-executive director since June
2007 and has served as chairman of the board since March 2008, has indicated
that he will retire from the board after the annual general meeting in April
2018. He has been a great asset to the group and his contribution will be
missed both personally and professionally. We are pleased to advise that
Stephen Connelly, a non-executive director and former chief executive of
Hudaco who knows the group intimately, will assume the chairmanship when
Royden steps down. He will also chair the nomination committee. Daisy Naidoo
will assume the role of lead independent non-executive director and will join
the nomination committee. Nyami Mandindi will join the remuneration committee.
All these appointments will take effect immediately after the annual
general meeting.
Results presentation and annual general meeting
Hudaco will host presentations on the financial results in Johannesburg
and Cape Town on Friday, 2 February 2018 and Monday, 5 February 2018,
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 Friday, 2 February 2018.
The company's 33rd annual general meeting will be held at Building 9,
Greenstone Hill Office Park, Emerald Boulevard, Greenstone Hill,
Edenvale at 11:00 on Thursday 5 April 2018. The notice and proxy form
for the company's annual general meeting will be posted to the shareholders
during the last week of February 2018 and will be included in the
integrated report that will be published on Hudaco's website during
February 2018.
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 auditor's 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 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.
For and on behalf of the board
RT Vice GR Dunford
Independent non-executive chairman Chief executive
1 February 2018
Nedbank Corporate and Investment Banking
Sponsor
These results are available on the internet: http://www.hudaco.co.za
Group statement of financial position
30 Nov 30 Nov
R million 2017 2016
Assets
Non-current assets 1 843 1 611
Property, plant and equipment 270 256
Investment in joint venture 9 7
Goodwill 1 480 1 243
Intangible assets 70 68
Deferred taxation 14 37
Current assets 2 777 2 619
Inventories 1 538 1 508
Trade and other receivables 1 156 1 046
Taxation 2 18
Bank deposits and balances 81 47
Total assets 4 620 4 230
Equity and liabilities
Equity 2 376 2 130
Equity holders of the parent 2 295 2 065
Non-controlling interest 81 65
Non-current liabilities 891 869
Amounts due to bankers 675 710
Amounts due to vendors of businesses acquired 215 148
Deferred taxation 1 11
Current liabilities 1 353 1 231
Trade and other payables 943 898
Bank overdraft 266 242
Amounts due to vendors of businesses acquired 116 76
Taxation 28 15
Total equity and liabilities 4 620 4 230
Group statement of comprehensive income
30 Nov % 30 Nov
R million 2017 change 2016
Turnover 5 902 6,6 5 534
- Ongoing operations 5 204 5 252
- Operations acquired after December 2015 698 282
Cost of sales 3 704 3 536
Gross profit 2 198 1 998
Operating expenses 1 522 1 359
Operating profit 676 5,7 639
- Ongoing operations 591 (1,2) 598
- Operations acquired after December 2015 85 41
Adjustment to fair value of amounts due to
vendors of businesses acquired 2 19
Profit before interest 678 3,0 658
Finance costs 103 100
Profit before taxation 575 3,0 558
Taxation 156 148
Profit after taxation 419 2,0 410
Income from joint venture 3 3
Profit for the year 422 2,2 413
Other comprehensive loss (2) (8)
Movement on fair value of cash flow hedges 2 (7)
Exchange loss on translation of foreign
operations (4) (1)
Total comprehensive income for the year 420 3,6 405
Profit attributable to:
- Equity holders of the parent 397 2,3 388
- Non-controlling shareholders 25 25
422 2,2 413
Total comprehensive income attributable to:
- Equity holders of the parent 396 3,6 381
- Non-controlling shareholders 24 24
420 3,6 405
Earnings per share (cents)
- Basic 1 254 2,3 1 226
- Headline 1 256 2,8 1 222
- Comparable 1 251 6,8 1 171
Diluted earnings per share (cents)
- Basic 1 241 1,6 1 222
- Headline 1 243 2,0 1 219
- Comparable 1 237 5,9 1 168
Calculation of headline earnings
Profit attributable to equity holders of the
parent 397 2,3 388
Adjusted for:
Loss (profit) on disposal of plant and
equipment 1 (1)
Headline earnings 398 2,8 387
Calculation of comparable earnings
Headline earnings 398 2,8 387
Adjusted for:
Adjustment to fair value of amounts due to
vendors of businesses acquired (2) (19)
Non-controlling interest 2
Comparable earnings 396 370
Dividends
- Per share (cents) 560 525
- Amount (Rm) 177 166
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) 31 981 31 732
Group statement of cash flows
30 Nov 30 Nov
R million 2017 2016
Cash generated from trading 772 712
(Increase) decrease in working capital (61) 34
Cash generated from operations 711 746
Taxation paid (131) (174)
Net cash from operating activities 580 572
Net investment in new operations (210) (165)
Net investment in property, plant and equipment (47) (30)
Net cash from investing activities (257) (195)
Decrease in non-current amounts due to bankers (35) (90)
Share-based payments (16) (5)
Finance costs paid (81) (87)
Dividends paid (177) (173)
Net cash from financing activities (309) (355)
Decrease in net bank overdraft 14 22
Foreign exchange translation loss (4) (1)
Net bank overdraft at beginning of the year (195) (216)
Net bank overdraft at end of the year (185) (195)
Group statement of changes in equity
Share Non-
capital distribu-
and table Retained
R million premium reserves income
Balance at 1 December 2015 55 75 1 733
Comprehensive income for the year (7) 388
Movement in equity compensation reserve (4) 7
Dividends (163)
Balance at 30 November 2016 55 64 1 965
Less: Shares held by subsidiary company (19)
Net balance at 30 November 2016 55 64 1 946
Balance at 1 December 2016 55 64 1 965
Comprehensive income for the year (2) 398
Movement in equity compensation reserve 16 (13)
Dividends (169)
Balance at 30 November 2017 55 78 2 181
Less: Shares held by subsidiary company (19)
Net balance at 30 November 2017 55 78 2 162
Equity Non-
holders control-
of the ling
R million parent interest Equity
Balance at 1 December 2015 1 863 51 1 914
Comprehensive income for the year 381 24 405
Movement in equity compensation reserve 3 3
Dividends (163) (10) (173)
Balance at 30 November 2016 2 084 65 2 149
Less: Shares held by subsidiary company (19) (19)
Net balance at 30 November 2016 2 065 65 2 130
Balance at 1 December 2016 2 084 65 2 149
Comprehensive income for the year 396 24 420
Movement in equity compensation reserve 3 3
Dividends (169) (8) (177)
Balance at 30 November 2017 2 314 81 2 395
Less: Shares held by subsidiary company (19) (19)
Net balance at 30 November 2017 2 295 81 2 376
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. Except for the reclassification of the
settlement of share-based payments from cash flows from operating activities
to cash flows from financing activities, 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 2016. 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
2017 2016
Average net operating assets (NOA) (Rm) 3 411 3 141
Operating profit margin (%) 11,5 11,6
Average NOA turn (times) 1,7 1,8
Return on average NOA (%) 19,8 20,4
Average net tangible operating assets (NTOA) (Rm) 1 970 1 910
PBITA margin (%) 11,9 12,0
Average NTOA turn (times) 3,0 2,9
Return on average NTOA (%) 35,7 34,7
Net asset value per share (cents) 7 252 6 525
Return on average equity (%) 18,7 20,5
Operating profit has been determined after taking
into account the following charges (Rm)
- Depreciation 46 44
- Amortisation 28 24
Capital expenditure (Rm)
- Incurred during the period 52 36
- Authorised but not yet contracted for 66 60
Commitments
- Operating lease commitments on properties (Rm) 301 210
Acquisition of businesses
On 1 December 2016 the group acquired 100% of the businesses of SS Telecoms
and Commercial ICT, on 1 May 2017 100% of the business of The Dished End
Company and on 1 August 2017 100% of the business of Eternity Technologies,
each for a consideration based on future profits and on 1 June 2017 100%
of the issued share capital of Gear Pump Distributors UK. The total
consideration is subject to a combined maximum of R448 million.
Plant and equipment of R14 million, inventories of R62 million, trade and
other receivables of R49 million, trade and other payables of R78 million,
cash of R13 million, taxation of R17 million, intangible assets of R31 million
and goodwill of R237 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 R139 million and profit after interest and tax of R11 million
would have been included in the group results and the turnover and profit
after interest and tax for the group would have been R6 041 million and
R430 million, respectively.
Segment information
Turnover
30 Nov % 30 Nov
R million 2017 change 2016
Consumer-related products 3 051 8,9 2 802
- Ongoing operations 2 434 (4,6) 2 553
- Operations acquired after December 2015 617 249
Engineering consumables 2 861 4,5 2 739
- Ongoing operations 2 780 2,7 2 706
- Operations acquired after December 2015 81 33
Total operating segments 5 912 6,7 5 541
Head office, shared services and eliminations (10) (7)
Total group 5 902 6,6 5 534
Operating profit
30 Nov % 30 Nov
R million 2017 change 2016
Consumer-related products 428 5,7 405
- Ongoing operations 357 (4,0) 372
- Operations acquired after December 2015 71 33
Engineering consumables 272 6,8 255
- Ongoing operations 258 4,5 247
- Operations acquired after December 2015 14 8
Total operating segments 700 6,1 660
Head office, shared services and eliminations (24) (21)
Total group 676 5,7 639
Average net operating assets
30 Nov % 30 Nov
R million 2017 change 2016
Consumer-related products 1 592 19 1 337
- Ongoing operations 1 469 24 1 185
- Operations acquired after December 2015 123 152
Engineering consumables 1 710 (1,3) 1 732
- Ongoing operations 1 676 (1,0) 1 693
- Operations acquired after December 2015 34 39
Total operating segments 3 302 7,6 3 069
Head office, shared services and eliminations 109 72
Total group 3 411 8,6 3 141
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*
MR Thompson*
D Naidoo*
* Non-executive
Group secretary
R van Zyl
Sponsor
Nedbank Corporate and Investment Banking
Date: 02/02/2018 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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