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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