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').
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