To view the PDF file, sign up for a MySharenet subscription.

HUDACO INDUSTRIES LIMITED - Unaudited interim results for the six months ended 31 May 2019

Release Date: 28/06/2019 08:00
Code(s): HDC     PDF:  
Wrap Text
Unaudited interim results for the six months ended 31 May 2019

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 2019

Highlights
* Turnover up 7,5% to R3,2 billion
* Operating profit up 2,4% to R297 million
* Comparable earnings per share marginally up 0,5% to 520 cps
* Interim dividend unchanged at 190 cps
* Net cash generated from operations R301 million
* Basic and headline earnings per share up 0,9% to 533 cps

Group statement of financial position

                                                 31 May  31 May  30 Nov*
R million                                          2019    2018    2018
Assets
Non-current assets                                1 902   1 845   1 875
Property, plant and equipment                       297     277     277
Investment in joint venture                          10      11       9
Goodwill                                          1 512   1 480   1 505
Intangible assets                                    36      56      49
Deferred taxation                                    47      21      35
Current assets                                    2 977   2 792   3 167
Inventories                                       1 768   1 682   1 822
Trade and other receivables                       1 162   1 068   1 278
Taxation                                              4       4       4
Bank deposits and balances                           43      38      63
Total assets                                      4 879   4 637   5 042
Equity and liabilities
Equity                                            2 637   2 422   2 579
Equity holders of the parent                      2 563   2 356   2 509
Non-controlling interest                             74      66      70
Non-current liabilities                           1 067   1 096   1 124
Amounts due to bankers                              964     875   1 014
Amounts due to vendors of businesses acquired       102     220     109
Deferred taxation                                     1       1       1
Current liabilities                               1 175   1 119   1 339
Trade and other payables                            766     742     989
Bank overdraft                                      256     208     212
Amounts due to vendors of businesses acquired       119      99     105
Taxation                                             34      70      33
Total equity and liabilities                      4 879   4 637   5 042

Group statement of comprehensive income
                                             Six            Six
                                          months         months    Year*
                                           ended          ended   ended
                                          31 May      %  31 May  30 Nov
R million                                   2019 change    2018    2018
Turnover                                   3 175    7,5   2 955   6 381
- Ongoing operations                       3 067    3,8   2 955   6 282
- Operations acquired after December
2017                                         108                     99
Cost of sales                              2 031          1 879   4 060
Gross profit                               1 144          1 076   2 321
Operating expenses                           847    7,7     786   1 666
- Ongoing operations                         815    3,6     786   1 638
- Operations acquired after December
2017                                          32                     28
Operating profit                             297    2,4     290     655
- Ongoing operations                         282  (2,9)     290     644
- Operations acquired after December
2017                                          15                     11
Impairment of goodwill and intangible
assets                                                              (34)
Adjustment to fair value of amounts due
to vendors of businesses acquired            (3)             (9)     11
- Adjustment to estimated capital
amounts due                                    5              4      34
- Adjustment for time-value of money         (8)            (13)    (23)
Profit before interest                       294    4,5     281     632
Finance costs                                 55             43      91
Profit before taxation                       239    0,3     238     541
Taxation                                      63             64     144
Profit after taxation                        176    0,8     174     397
Income from joint venture                      1              1       3
Profit for the period                        177    0,6     175     400
Other comprehensive income                     5              4       3
Movement on fair value of cash flow
hedges                                         4              4
Exchange gain on translation of foreign
operations                                     1                      3
Total comprehensive income for
the period                                   182    1,8     179     403

Profit attributable to:
- Equity holders of the parent               169    0,9     167     381
- Non-controlling shareholders                 8              8      19
                                             177            175     400

Total comprehensive income attributable to:
- Equity holders of the parent               173    1,8     170     383
- Non-controlling shareholders                 9              9      20
                                             182            179     403
Earnings per share (cents)
- Basic                                      533    0,9     528   1 202
- Headline                                   533    0,9     528   1 289
- Comparable                                 520    0,5     517   1 198
Diluted earnings per share (cents)
- Basic                                      526    2,9     511   1 173
- Headline                                   526    2,9     511   1 258
- Comparable                                 513    2,4     501   1 168
Calculation of headline earnings

Profit attributable to equity holders
of the parent                                169    0,9     167     381
Adjusted for:

Impairment of goodwill and intangible
assets                                                               34
Profit on disposal of plant and
equipment                                                            (2) 
Non-controlling interest and tax                                     (5) 
Headline earnings                            169    0,9     167     408
Calculation of comparable earnings
Headline earnings                            169    0,9     167     408
Adjusted for:
Fair value adjustment on capital 
amounts due to vendors of businesses
acquired                                      (5)            (4)    (34) 
Non-controlling interest                       1              1       5
Comparable earnings                          165    0,5     164     379
Dividends
- Per share (cents)                          190            190     570
- Amount (Rm)                                 60             60     180
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)                           32 074         32 671  32 435

Group statement of cash flows
                                                    Six     Six
                                                 months  months    Year*
                                                  ended   ended   ended
                                                 31 May  31 May  30 Nov
R million                                          2019    2018    2018
Cash generated from trading                         348     338     760
Increase in working capital                         (47)   (238)   (292) 
Cash generated from operations                      301     100     468
Taxation paid                                       (68)    (30)   (164)
Net cash from operating activities                  233      70     304
Net investment in new operations                     (8)    (22)   (242)
Net investment in property, plant and
equipment                                           (44)    (29)    (51) 
Dividend received                                                     4
Net cash from investing activities                  (52)    (51)   (289) 
(Decrease) increase in non-current amounts
due to bankers                                      (50)    200     339
Share-based payments                                (18)    (17)    (18) 
Finance costs paid                                  (55)    (43)    (91) 
Dividends paid                                     (123)   (144)   (211) 
Net cash from financing activities                 (246)     (4)     19 
(Increase) decrease in net bank overdraft           (65)     15      34
Foreign exchange translation gain                     1               2
Net bank overdraft at beginning of the period      (149)   (185)   (185) 
Net bank overdraft at end of the period            (213)   (170)   (149)

Group statement of changes in equity
                                             Share       Non- 
                                           capital distribut-
                                               and       able  Retained
R million                                  premium   reserves    income
Balance at 1 December 2018                      55         99     2 374
Effect of adoption of IFRS 9                                        (12) 
Comprehensive income for the period                         4       169
Movement in equity compensation reserve                    13
Dividends                                                          (120) 
Balance at 31 May 2019                          55        116     2 411
Less: Shares held by subsidiary company                             (19) 
Net balance at 31 May 2019                      55        116     2 392
Balance at 1 December 2017                      55         78     2 181
Comprehensive income for the period                                 170
Movement in equity compensation reserve                    11
Dividends                                                          (120) 
Balance at 31 May 2018                          55         89     2 231
Less: Shares held by subsidiary company                             (19)
Net balance at 31 May 2018                      55         89     2 212
Balance at 1 December 2017                      55         78     2 181
Comprehensive income for the year                           3       380
Movement in equity compensation reserve                    18        (7) 
Dividends                                                          (180) 
Balance at 30 November 2018                     55         99     2 374
Less: Shares held by subsidiary company                             (19) 
Net balance at 30 November 2018*                55         99     2 355

                                               Equity      Non- 
                                              holders  control- 
                                               of the      ling
R million                                      parent  interest  Equity
Balance at 1 December 2018                      2 528        70   2 598
Effect of adoption of IFRS 9                      (12)       (2)    (14) 
Comprehensive income for the period               173         9     182
Movement in equity compensation reserve            13                13
Dividends                                        (120)       (3)   (123) 
Balance at 31 May 2019                          2 582        74   2 656
Less: Shares held by subsidiary company           (19)              (19) 
Net balance at 31 May 2019                      2 563        74   2 637
Balance at 1 December 2017                      2 314        81   2 395
Comprehensive income for the period               170         9     179
Movement in equity compensation reserve            11                11
Dividends                                        (120)      (24)   (144) 
Balance at 31 May 2018                          2 375        66   2 441
Less: Shares held by subsidiary company           (19)              (19)
Net balance at 31 May 2018                      2 356        66   2 422
Balance at 1 December 2017                      2 314        81   2 395
Comprehensive income for the year                 383        20     403
Movement in equity compensation reserve            11                11
Dividends                                       (180)       (31)   (211) 
Balance at 30 November 2018                     2 528        70   2 598
Less: Shares held by subsidiary company           (19)              (19) 
Net balance at 30 November 2018*                2 509        70   2 579

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 adoption 
of IFRS 9: Financial Instruments and IFRS 15: Revenue from Contracts with
Customers, the same accounting policies, presentation and measurement 
principles have been followed in the preparation of the interim report 
for the period ended 31 May 2019 as were applied in the preparation of the 
group's annual financial statements for the year ended 30 November 2018.

Impact of adopting IFRS 9 at 1 December 2018 (R million)
Applying the expected credit loss model using the simplified approach 
instead of the incurred loss model affected the statement of financial 
position of the group as follows:
Decrease in Trade and other receivables                                19
Increase in Deferred taxation                                           5
Decrease in Equity                                                     14
Decrease in Non-controlling interest                                    2
Decrease in Equity holders of the parent                               12

Impact of adopting IFRS 15
The adoption of IFRS 15 had no material impact on the financial statements 
of the group. The circumstances pertaining to the group's contracts with 
customers are such that the disaggregation of revenue from contracts with 
customers into the categories reflected in the segment report adequately 
depicts to any material extent how the nature, amount and uncertainty of 
revenue and cash flows are affected by economic factors.

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*
                                                     2019   2018    2018
Average net operating assets (NOA) (Rm)             3 993  3 691   3 781
Operating profit margin (%)                           9,3    9,8    10,3
Average NOA turn (times)                              1,6    1,6     1,7
Return on average NOA (%)                            14,9   15,7    17,3
Average net tangible operating assets (NTOA) (Rm)   2 433  2 138   2 211
PBITA margin (%)                                      9,8   10,3    10,7
Average NTOA turn (times)                             2,6    2,8     2,9
Return on average NTOA (%)                           25,6   28,5    31,0
Net asset value per share (cents)                   8 099  7 445   7 927
Return on average equity (%)                         13,6   14,6    16,3
Operating profit has been determined after taking 
into account the following charges (Rm)
- Depreciation                                         25     22      49
- Amortisation                                         14     15      30
Capital expenditure (Rm)
- Incurred during the period                           47     33      56
- Authorised but not yet contracted for                49     38      76
Commitments
- Operating lease commitments on properties (Rm)      301    296     300

Fair value disclosure

All financial instruments are carried at amounts that approximate their 
fair value. The fair value of foreign exchange contracts is indirectly 
derived from prices in active markets for similar liabilities, which 
means it is classified as a level 2 fair value measurement. The fair 
value for amounts due to vendors of businesses acquired are estimated by 
using a present value technique based on unobservable inputs regarding 
the future profitability of businesses acquired, which means it is 
classified as a level 3 fair value measurement. Inputs and sensitivities 
are unchanged from November 2018.

Segment information
                                                     Turnover
                                              Six           Six
                                           months        months    Year*
                                            ended         ended   ended
                                           31 May      % 31 May  30 Nov
R million                                    2019 change   2018    2018
Consumer-related products                   1 717    7,2  1 603   3 491
- Ongoing operations                        1 609    0,4  1 603   3 392
- Operations acquired after December 2017     108                    99
Engineering consumables
- Ongoing operations                        1 467    8,2  1 355   2 910
Total operating segments                    3 184    7,6  2 958   6 401
Head office, shared services and
eliminations                                   (9)           (3)    (20) 
Total group                                 3 175    7,5  2 955   6 381

                                                 Operating profit
                                              Six           Six
                                           months        months    Year*
                                            ended         ended   ended
                                           31 May      % 31 May  30 Nov
R million                                    2019 change   2018    2018
Consumer-related products                     205  (2,9)    211     462
- Ongoing operations                          190 (10,1)    211     451
- Operations acquired after December 2017      15                    11
Engineering consumables
- Ongoing operations                          109   10,0     99     246
Total operating segments                      314    1,2    310     708
Head office, shared services and
eliminations                                  (17)          (20)    (53)
Total group                                   297    2,4    290     655

                                           Average net operating assets
                                              Six           Six
                                           months        months    Year*
                                            ended         ended   ended
                                           31 May      % 31 May  30 Nov
R million                                    2019 change   2018    2018
Consumer-related products                   2 135   13,5  1 881   1 935
- Ongoing operations                        2 058    9,4  1 881   1 880
- Operations acquired after December 2017      77                    55
Engineering consumables
- Ongoing operations                        1 816    2,2  1 778   1 821
Total operating segments                    3 951    8,0  3 659   3 756
Head office, shared services and
eliminations                                   42            32      25
Total group                                 3 993    8,2  3 691   3 781
* Audited

Commentary

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:
* Consumer-related products: The automotive aftermarket, power tool, 
  battery, security and communication equipment businesses supply 
  products into markets with a bias towards consumer spending.
* Engineering consumables: 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 has delivered satisfactory results against a backdrop of 
extremely difficult trading conditions in the six months to May 2019. 
Economic data shows that nearly every economic sector in which Hudaco 
operates contracted in the first quarter. Manufacturing fell by 8,8%, 
mining was down 10,8%, agriculture down 13,2% and electricity generation 
shrunk by 6,9%. Transport fell by 4,4%, trade was down 3,6% and 
construction declined by 2,2%. The power outages which contributed to a 
3,2% decline in GDP in the first quarter further dampened business 
confidence. It is encouraging that under these severe trading conditions, 
ongoing operations in the engineering consumables segment managed to 
increase turnover while holding operating margin. The pressure felt by 
consumers has, on the other hand, clearly impacted our consumer-related 
products segment, which had to give up margin in order to hold turnover.

Group sales at R3,2 billion for the half year are up 7,5% on 2018 
including R108 million from acquisitions. Operating profit increased 2,4% 
to R297 million, with an operating margin of 9,3%, still very respectable 
for the first six months, which include all the major holiday periods.

Comparable earnings per share were only slightly up by 0,5% to 520 cents 
and basic and headline earnings per share were up by 0,9% to 533 cents. 
The interim dividend has been kept the same as in 2018 at 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 remains in good shape. Bank borrowings are 
R1 177 million, up just a marginal R14 million since November 2018. 
Trading generated cash of R348 million of which R47 million was reinvested 
in working capital as we manage stock in anticipation of the busier second 
half trading. This resulted in cash generated from operations of 
R301 million up from R100 million in the first half of 2018. During the 
six months we also paid finance costs of R55 million, taxation of 
R68 million and dividends of R123 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.

We had indicated that our inventory levels at November 2018 were higher 
than we had anticipated because some of our businesses had been over 
ambitious in stocking up for the last quarter. Substantial progress has 
been made in getting inventories back in line and, allowing for 
R66 million of inventory in acquisitions made in the second half of 2018, 
the overall inventory is only 1% higher than in May 2018 against an 
increase in sales of 7,5%. Ordering was curtailed to better align with 
sales levels, but some products have long lead times so the full benefit 
will only come through in the second half of 2019. Working capital is a 
key focus of management and we expect further improvement by the end of 
the financial year. We continue to look for suitable acquisitions and 
although we have a pipeline, nothing suitable crystallised during the 
period.

Consumer-related products

There are 14 businesses in this segment and they serve to diversify our 
opportunities, risks and market segment mix. Trading conditions were 
difficult in the first half as consumer spending remained 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 65% of operating profit. The profits of all 
businesses in this segment, apart from our battery business (due to 
load shedding), experienced declines in the first half. Segment sales 
increased 7,2% to R1 717 million, of which R108 million (6,3%) was from 
acquisitions made in the second half of 2018. Operating profit decreased 
2,9% to R205 million at an operating margin of 12,0%.

Engineering consumables segment

There are 21 businesses which make up this segment. Trading conditions 
were extremely tough in almost all markets served 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 are starting to see the benefit from the strengthening of 
our senior team and the synergies being achieved in the restructuring 
of the portfolios within this segment. Sales grew by 8,2% to 
R1 467 million even though there were no acquisitions. Operating profit 
increased 10,0% to R109 million at an operating margin of 7,4%. All 
businesses found the market tough and the results were encouraging 
considering the poor economy.

Prospects

Hudaco's prospects depend largely on how the economy performs and that in 
turn depends largely on government policy and its implementation. Tough 
decisions together with action plans, time frames and measurables have to 
be made by government. We had hoped that these would be in place by now. 
Unless they are soon, we believe that the outlook for the economy for the 
rest of the year and 2020 will be no different from what we have experienced 
in the past 18 months.

We will continue to manage what is under our control and we look forward to 
the further contribution from the senior management brought on board and the 
synergies to be gained from the ongoing restructure of the engineering 
consumables portfolio as well as the bolt-on acquisitions in the 
consumer-related products segment. As always, we continue to seek out 
strategic acquisitions as a further source of growth and diversification.

Hudaco's business model, which is principally the sale of 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 in difficult times. 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 
continues. A court date has been set for the last quarter of 2019. Hudaco 
has brought the action to recover damages and secret profits made on the 
financing arrangements around the Hudaco BEE transaction that ran from 
August 2007 to February 2013.

Declaration of interim dividend no 65
Interim dividend number 65 of 190 cents per share is declared payable on 
Monday, 12 August 2019 to ordinary shareholders recorded in the register 
at the close of business on Thursday, 8 August 2019.

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

Last day to trade cum dividend                      Monday, 5 August 2019
Trading ex dividend commences                      Tuesday, 6 August 2019
Record date                                       Thursday, 8 August 2019
Payment date                                       Monday, 12 August 2019

Share certificates may not be dematerialised or rematerialised between 
Tuesday, 6 August 2019 and Thursday, 8 August 2019, 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 Dividends Tax rate is 20%;
* 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.

Results presentation

Hudaco will host presentations on the financial results in Johannesburg and 
Cape Town on Friday, 28 June 2019 and Monday, 1 July 2019, respectively. 
Anyone wishing to attend should contact Sebolla Masekwameng at 011 657 5000.

The slides, which form part of the presentation will be available on the 
company's website from Friday, 28 June 2019.

For and on behalf of the board

SJ Connelly                             GR Dunford
Non-executive chairman                  Chief executive

27 June 2019

Nedbank Corporate and Investment Banking Sponsor

These results are also available at http://www.hudaco.co.za. 

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, 1609
Tel +27 11 657 5000
Email: info@hudaco.co.za

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

Group secretary
R van Zyl

Sponsor
Nedbank Corporate and Investment Banking

Date: 28/06/2019 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story