HUDACO INDUSTRIES LIMITED - Unaudited interim results for the six months ended 31 May 2018

Release Date: 28/06/2018 17:45
Code(s): HDC
 
Wrap Text
Unaudited interim results for the six months ended 31 May 2018

Hudaco Industries Limited
Incorporated in the Republic of South Africa
Registration number: 1985/004617/06
JSE share code: HDC
ISIN code: ZAE000003273

Unaudited Interim Results
for the six months ended 31 May 2018

Highlights

Turnover up 10,6% to almost R3 billion 
Operating profit up 7,7% to R290 million 
Comparable earnings per share up 7% to 517 cps
Basic and headline earnings per share up 9,3% to 528 cps
Net cash generated from operating activities R100 million
Interim dividend up 5,6% to 190 cps

Hudaco Industries is a South African group specialising in the importation 
and distribution of high-quality branded automotive, industrial and electronic 
consumable products, mainly in the southern African region. Hudaco businesses 
serve markets that fall into two primary categories:

* The automotive aftermarket, power tool, battery, 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.

Results
The group continues to deliver sound results despite extremely difficult 
trading conditions. The positive sentiment and economic growth expectations 
stemming from the political changes post the 2017 ANC conference and 
subsequent �Ramaphoria� has not, as yet, translated to increased economic 
activity. On the contrary, the �expropriation without compensation� issue 
and the Zuma hangover have restrained the economy in the first half with 
statistics from the first quarter showing that the economy shrank the most 
of any quarter in the past nine years. Mining production contracted 9,9%. 
The new mining charter is not investor friendly and is unlikely to 
revitalise this sector. Manufacturing shrank 6,4% and agriculture shrank 
24% in the first quarter. The strengthening in the Rand in the first four 
months of our financial year put further pressure on prices.

Group sales at almost R3 billion for the half year are up 10,6% on 2017 
and include R148 million (5%) from recent acquisitions. Operating profit 
increased 7,7% to R290 million, which gave us an operating margin of 
9,8%, very respectable for the first six months, which include all the 
major holiday periods.

Comparable earnings per share increased 7% to 517 cents while basic and 
headline earnings per share are up 9,3% to 528 cents. The interim dividend 
has been increased by 5,6% to 190 cents per share. Our dividend policy, to 
be covered between 2,5 and 2,0 times by comparable earnings annually, 
remains unchanged.

The financial position is strong. Bank borrowings are R1 045 million, 
up R185 million since November 2017. Trading generated cash of R338 
million, of which R238 million was reinvested in working capital, 
including R144 million in inventories, which normally peak at the half 
year, as we stock up for our busier second half and, this year, for an 
expected upturn in the economy. During the six months we also paid finance 
costs of R43 million, taxation of R30 million and dividends of R144 million. 
Borrowings are still well within our self-imposed conservative guidelines 
and our available banking facilities and, unless we make further 
acquisitions, our usual strong second half cash generation should 
reduce them by year end.

Consumer-related products segment
Trading conditions were difficult in the first half and although consumer 
confidence improved initially, disposable income came under pressure. 
This segment�s contribution to group sales continues to benefit from 
strategic acquisition activity over the past few years and it accounted 
for 54% of group sales and 68% of operating profit. There are 11 businesses 
in this segment and they serve to diversify our opportunities, risks and 
market segment mix. All businesses in this sector, bar our security 
business, performed well in the first half. Segment sales increased 
19,3% to R1 603 million, of which R127 million (9,4%) was from 
acquisitions. Operating profit increased 19,6% to R211 million at 
an operating margin of 13,2%.

Engineering consumables segment
This segment comprises 21 businesses. Trading conditions were extremely 
tough in most of the markets served by this sector as shown by the first 
quarter economic indicators which reflect significant declines in mining, 
manufacturing, construction and agriculture. These gruelling trading 
conditions continued in the second quarter, creating aggressive pricing 
pressure. We were, however, resolute in protecting market share and gross 
margin. The segment increased sales by 1,8% to R1 355 million, of which 
acquisitions contributed R21 million (1,6%). Operating profit decreased 
7,8% to R99 million at an operating margin of 7,3%. All businesses in 
this sector struggled and results reflect the tough economy.

Prospects
Hudaco�s prospects largely depend on general economic activity and that 
in turn depends largely on government policy and its implementation. We 
still hope that the Zuma hangover witnessed so far in 2018 will fade and 
that the optimism around President Ramaphosa will translate into growth 
in the economy and into investment in those sectors of the economy that 
are traditional Hudaco markets. As we explained in our 2017 results 
announcement in January, this 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 will also continue to seek out strategic 
acquisitions as a further source of growth.

Hudaco�s business model, which is principally the sale of consumable 
products including replacement parts with a high value added component; 
and its financial characteristics � high margin and strong cash flows 
with a limited requirement for investment in fixed assets, makes Hudaco 
resilient and this set of results bears testament to that characteristic.

Lawsuit against Bravura and certain associates
Hudaco�s legal action against Bravura, Cadiz and certain associates for 
up to R490 million continues. One of the defendants lodged an exception 
to our particulars of claim. This was heard in the High Court in February 
and judgement was handed down in our favour with costs in June. We can 
now focus on getting the primary action to court. 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.

We note with interest the judgement in SARS�s favour enabling it to 
institute an inquiry in terms of s50 of the Tax Administration Act into 
the tax affairs of Bravura, with particular reference to BEE structures. 
We further note the announcement by another listed company that was also 
advised by Bravura on its BEE structure, indicating a willingness to 
settle with SARS.

Declaration of interim dividend number 63
Interim dividend number 63 of 190 cents per share is declared payable 
on Monday,13 August 2018 to ordinary shareholders recorded in the register 
at the close of business on Friday, 10 August 2018.

The timetable for the payment of the dividend is as follows:


Last day to trade cum dividend                      Monday, 6 August 2018
Trading ex dividend commences                      Tuesday, 7 August 2018
Record date                                        Friday, 10 August 2018
Payment date                                       Monday, 13 August 2018

Share certificates may not be dematerialised or rematerialised between 
Tuesday, 7 August 2018 and Friday, 10 August 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 dividends tax rate is 20%;
* The dividend has been declared from income reserves;
* The net local dividend amount is 152 cents per share for shareholders 
  liable to pay the Dividends Tax and 190 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. 

Directorate
As reported on SENS, Royden Vice retired and Stephen Connelly became chairman 
of Hudaco�s board with effect from 5 April 2018. Daisy Naidoo assumed the 
role of lead independent director and joined the nomination committee. Nyami 
Mandindi joined the remuneration committee.

Results presentation
Hudaco will host presentations on the financial results in Johannesburg and 
Cape Town on Friday, 29 June 2018 and Monday, 2 July 2018, respectively. 
Anyone wishing to attend should contact the company at 011 657 5000.

The slides, which form part of the presentation, will be available on the 
company�s website from Friday 29 June 2018.

For and on behalf of the board

SJ Connelly                    GR Dunford
Non-executive chairman         Chief executive

28 June 2018

Nedbank Corporate and Investment Banking
Sponsor

These results are available on the internet: http://www.hudaco.co.za

Group statement of financial position

                                           31 May     31 May     30 Nov*
R million                                    2018       2017       2017
Assets
Non-current assets                          1 845      1 726      1 843
Property, plant and equipment                 277        260        270
Investment in joint venture                    11          8          9
Goodwill                                    1 480      1 344      1 480
Intangible assets                              56         69         70
Deferred taxation                              21         45         14
Current assets                              2 792      2 537      2 777
Inventories                                 1 682      1 552      1 538
Trade and other receivables                 1 068        902      1 156
Taxation                                        4         19          2
Bank deposits and balances                     38         64         81
Total assets                                4 637      4 263      4 620
Equity and liabilities
Equity                                      2 422      2 186      2 376
Equity holders of the parent                2 356      2 120      2 295
Non-controlling interest                       66         66         81
Non-current liabilities                     1 096      1 003        891
Amounts due to bankers                        875        775        675
Amounts due to vendors of businesses
acquired                                      220        209        215
Deferred taxation                               1         19          1
Current liabilities                         1 119      1 074      1 353
Trade and other payables                      742        719        943
Bank overdraft                                208        262        266
Amounts due to vendors of businesses
acquired                                       99         60        116
Taxation                                       70         33         28
Total equity and liabilities                4 637      4 263      4 620

Group statement of comprehensive income

                               Six months           Six months     Year*
                                    ended                ended    ended
                                   31 May       %       31 May   30 Nov
R million                            2018  change         2017     2017

Turnover                            2 955    10,6        2 671    5 902
- Ongoing operations                2 807     5,2        2 668    5 784
- Operations acquired after
December 2016                         148                    3      118
Cost of sales                       1 879                1 684    3 704
Gross profit                        1 076                  987    2 198
Operating expenses                    786                  718    1 522
Operating profit                      290     7,7          269      676
- Ongoing operations                  270     0,5          268      659
- Operations acquired after
December 2016                          20                    1       17
Adjustment to fair value of 
amounts due to vendors of
businesses acquired                     4                             2
Profit before interest                294     9,2          269      678
Finance costs                          56                   52      103
Profit before taxation                238     9,7          217      575
Taxation                               64                   62      156
Profit after taxation                 174    12,0          155      419
Income from joint venture               1                    2        3
Profit for the period                 175    11,6          157      422
Other comprehensive income
(loss)                                  4                    3       (2)
Movement on fair value of
cash flow hedges                        4                    3        2
Exchange loss on translation of
foreign operations                                                   (4)
Total comprehensive income
for the period                        179                  160      420
Profit attributable to:
- Equity holders of the
parent                                167     9,3          153      397
- Non-controlling
shareholders                            8                    4       25
                                      175    11,6          157      422
Total comprehensive income 
attributable to:
- Equity holders of the
parent                                170                  155      396
- Non-controlling
shareholders                            9                    5       24
                                      179                  160      420
Earnings per share (cents)
- Basic                               528     9,3          483    1 254
- Headline                            528     9,3          483    1 256
- Comparable                          517     7,0          483    1 251
Diluted earnings per share
(cents)
- Basic                               511     8,0          473    1 241
- Headline                            511     8,0          473    1 243
- Comparable                          501     5,9          473    1 237
Calculation of headline earnings
Profit attributable to equity 
holders of the parent                 167     9,3          153      397
Adjusted for:
Loss on disposal of plant
and equipment                                                         1
Headline earnings                     167     9,3          153      398
Calculation of comparable earnings
Headline earnings                     167     9,3          153      398
Adjusted for:
Adjustment to fair value of amounts 
due to vendors of
businesses acquired                    (4)                           (2)
Non-controlling interest                1
Comparable earnings                   164     7,0          153      396
Dividends
- Per share (cents)                   190     5,6          180      560
- Amount (Rm)                          60                   57      177
Shares in issue (000)              31 646               31 646   31 646
- Total (000)                      34 154               34 154   34 154
- Held by subsidiary (000)         (2 508)              (2 508)  (2 508) 
Weighted average shares in
issue
- Total (000)                      31 646               31 646   31 646
- Diluted (000)                    32 671               32 287   31 981


Group statement of cash flows

                                       Six months   Six months     Year*
                                            ended        ended    ended
                                           31 May       31 May   30 Nov
R million                                    2018         2017     2017
Cash generated from trading                   338          329      772
Increase in working capital                  (238)         (67)     (61) 
Cash generated from operations                100          262      711
Taxation paid                                 (30)         (52)    (131) 
Net cash from operating activities             70          210      580
Net investment in new operations              (22)         (90)    (210)
Net investment in property, plant and
equipment                                     (29)         (18)     (47) 
Net cash from investing activities            (51)        (108)    (257)
Increase (decrease) in non-current
amounts due to bankers                        200           65      (35)
Share-based payments**                        (17)         (12)     (16) 
Finance costs paid                            (43)         (42)     (81) 
Dividends paid                               (144)        (116)    (177) 
Net cash from financing activities             (4)        (105)    (309)
Decrease (increase) in net bank
overdraft                                      15           (3)      14
Foreign exchange translation loss                                    (4) 
Net bank overdraft at beginning of
the period                                   (185)        (195)    (195)
Net bank overdraft at end of the
period                                       (170)        (198)    (185)
**  Reclassified from operating 
activities in May 2017.

Group statement of changes in equity

                     Share       Non-           Equity     Non- 
                   capital distribut-          holders control- 
                       and       able Retained  of the    ling
R million          premium   reserves  income  parent interest Equity

Balance at 
1 December 2017          55        78    2 181   2 314       81  2 395
Comprehensive 
income for the
period                                     170     170        9    179
Movement in 
equity 
compensation
reserve                            11               11              11
Dividends                                 (120)   (120)     (24)  (144) 
Balance at 
31 May 2018              55         89   2 231   2 375       66  2 441
Less: Shares 
held by 
subsidiary
company                                    (19)    (19)            (19)
Net balance at 
31 May 2018              55         89   2 212   2 356       66  2 422
Balance at 
1 December 2016          55         64   1 965   2 084       65  2 149
Comprehensive 
income for the
period                                     155     155        5    160
Movement in 
equity 
compensation
reserve                             12              12              12
Dividends                                 (112)   (112)      (4)  (116) 
Balance at 
31 May 2017              55         76   2 008   2 139       66  2 205
Less: Shares held 
by subsidiary
company                                    (19)    (19)            (19)
Net balance at 
31 May 2017              55         76   1 989   2 120       66  2 186
Balance at 
1 December 2016          55         64   1 965   2 084       65  2 149
Comprehensive 
income for the
year                                (2)    398     396       24    420
Movement in 
equity 
compensation
reserve                             16     (13)      3               3
Dividends                                 (169)   (169)      (8)  (177) 
Balance at 
30 November 2017         55         78   2 181   2 314       81  2 395
Less: Shares 
held by 
subsidiary
company                                    (19)    (19)            (19)
Net balance at 
30 November 2017*        55         78   2 162   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. The same 
accounting policies, presentation and measurement principles have been 
followed in the preparation of the interim report for the period ended
31 May 2018 as were applied in the preparation of the group�s annual 
financial statements for the year ended 30 November 2017. 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 interim report and ensuring that the financial 
information has been correctly extracted from the underlying financial 
statements. This interim report has not been audited or reviewed by 
Hudaco�s auditors.

                                               31 May  31 May   30 Nov*
                                                 2018    2017     2017
Average net operating assets (NOA) (Rm)         3 691   3 344    3 411
Operating profit margin (%)                       9,8    10,1     11,5
Average NOA turn (times)                          1,6     1,6      1,7
Return on average NOA (%)                        15,7    16,1     19,8
Average net tangible operating assets 
(NTOA)(Rm)                                      2 138   1 975    1 970
PBITA margin (%)                                 10,3    10,6     11,9
Average NTOA turn (times)                         2,8     2,7      3,0
Return on average NTOA (%)                       28,5    28,6     35,7
Net asset value per share (cents)               7 445   6 699    7 252
Return on average equity (%)                     14,6    14,6     18,7
Operating profit has been determined 
after taking into account the following 
charges (Rm)
- Depreciation                                     22      23       46
- Amortisation                                     15      13       28
Capital expenditure (Rm)
- Incurred during the period                       33      20       52
- Authorised but not yet contracted for            38      52       66
Commitments
- Operating lease commitments on properties
(Rm)                                              296     217      301
Fair value disclosure

Only forward exchange contracts are recognised at fair value. The fair 
value is indirectly derived from prices in active markets for similar 
liabilities, which means it is classified as a level 2 fair value 
measurement.

Acquisition of business
On 1 June 2018, the group acquired 100% of the business of Boltworld 
for a maximum consideration of R111 million based on future profits, 
with an initial payment of R80 million. These figures include an amount 
of R24 million for inventory which Hudaco regards as being in excess 
of normal requirements. The consideration paid for this inventory is 
discounted from original cost taking into account the period over 
which it is likely to be sold, based on historical sales patterns.

Elements that are expected to be recognised on acquisition include 
inventories of R43 million, trade and other receivables of R16 million, 
trade and other payables of R12 million, intangible assets of R7 million 
and goodwill of R40 million. These values approximate the fair values 
as provisionally determined under IFRS 3.

Had this acquisition been made at the beginning of the year, turnover 
of R53 million and profit after interest and tax of R2 million would 
have been included in the group results and the turnover and profit 
after interest and tax for the group would have been R3 008 million 
and R176 million, respectively.

Segment information

                                                    Turnover
                                          Six              Six
                                       months           months     Year*
                                        ended            ended    ended
                                       31 May       %   31 May   30 Nov
R million                                2018  change     2017     2017
Consumer-related products               1 603    19,3    1 343    3 051
- Ongoing operations                    1 476     9,9    1 343    2 958
- Operations acquired after
December 2016                             127                        93
Engineering consumables                 1 355     1,8    1 330    2 861
- Ongoing operations                    1 334     0,5    1 327    2 836
- Operations acquired after
December 2016                              21                3       25
Total operating segments                2 958    10,6    2 673    5 912
Head office, shared services and
eliminations                               (3)              (2)     (10)
Total group                             2 955    10,6    2 671    5 902

                                               Operating profit
                                          Six              Six
                                       months           months     Year*
                                        ended            ended    ended
                                       31 May       %   31 May   30 Nov
R million                                2018  change     2017     2017
Consumer-related products                 211    19,6      177      428
- Ongoing operations                      197    11,8      177      418
- Operations acquired after
December 2016                              14                        10
Engineering consumables                    99    (7,8)     107      272
- Ongoing operations                       93   (13,1)     106      265
- Operations acquired after
December 2016                               6                1        7
Total operating segments                  310     9,3      284      700
Head office, shared services and
eliminations                              (20)             (15)     (24)
Total group                               290     7,7      269      676

                                         Average net operating assets
                                          Six              Six
                                       months           months     Year*
                                        ended            ended    ended
                                       31 May       %   31 May   30 Nov
R million                                2018  change     2017     2017
Consumer-related products               1 881    24,6    1 510    1 592
- Ongoing operations                    1 659     9,9    1 510    1 528
- Operations acquired after
December 2016                             222                        64
Engineering consumables                 1 778     4,0    1 709    1 710
- Ongoing operations                    1 704     0,2    1 700    1 671
- Operations acquired after
December 2016                              74                9       39
Total operating segments                3 659    13,7    3 219    3 302
Head office, shared services and
eliminations                               32              125      109
Total group                             3 691    10,4    3 344    3 411

*  Audited

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
SJ Connelly (Chairman)*
GR Dunford (Chief executive)
CV Amoils (Financial director) 
N Mandindi*
D Naidoo*
MR Thompson*
* Non-executive

Group secretary
R van Zyl

Sponsor
Nedbank Corporate and Investment Banking 

http://www.hudaco.co.za

Date: 28/06/2018 05:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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