| Fri 1 Feb 2008, 10:00 | | HDC - Hudaco Industries - Audited Group Results for the year ended |
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HDC
HDC
HDC - Hudaco Industries - Audited Group Results for the year ended
30 November 2007
HUDACO INDUSTRIES LIMITED
(Incorporated in the Republic of South Africa)
Registration Number 1985/004617/06)
Share Code: HDC & ISIN: ZAE000003273
Audited Group Results for the year ended 30 November 2007
* Normalised headline earnings per share up 41% to R7,50
* Dividends for 2007 total R5,90 per share - normal R2,60 plus special dividend
of R3,30
* Introduction of BEE shareholders
Results
Hudaco is a South African group engaged in the business of importing and
distributing industrial consumable products. Its customers are mainly within the
southern African manufacturing, mining, construction, automotive aftermarket and
security industries.
Total sales of R2,23 billion for the year are up 21% on 2006.
It is estimated that half of this increase was volume and the other half price.
All businesses achieved an increase in volume sales.
In the Bearings and Transmission division, sales increased 21% and operating
profit showed an excellent increase of 49%, with Powermite, Bearings
International and Bosworth the stand-out performers. Trading conditions in the
division were better than last year with volume sales well up. There was
sustained quoting on capital projects to mines and manufacturers during the year
and Hudaco businesses that have an order book saw further backorder growth,
which bodes well for sales in 2008.
In the Powered Products division sales increased 24% and operating profit
increased 26%. DDPower had an excellent year, with strong demand for diesel
engines for underground mining and power generation applications. In Rutherford
sales of power tools increased but outboard motor sales declined in response to
interest rate increases of the past few years and the new National Credit Act
making credit harder to obtain.
In the Security Equipment division sales increased 17% and operating profit 23%.
The South African business produced increased profits on good volume sales
growth but the UK operation was disappointing and two loss-making branches were
closed during the year.
The group gross profit margin, at 37,9%, was the same as 2006. Although expenses
as a percentage of sales reduced from 25,2% to 23,6%, above-inflationary
pressure is again being felt on rental costs as leases are renewed because of
the increase in commercial property values and on salaries, particularly of
technically skilled personnel as their scarcity grows. Group operating profit
rose by 36% or R84 million to R318 million, with an operating margin to sales of
14,3% (last year 12,7%).
Net finance revenue was R1 million (last year R7 million). However, net interest
paid was R65 million (last year R7 million interest received) and preference
dividend income was R66 million (last year: nil), whilst the tax rate decreased
from 32,9% to 31,4%. These significant changes from last year are mainly due to
the BEE transaction discussed below. Capital items of R44 million were incurred,
the main item being the IFRS 2 charge representing the value of the 15%
shareholding issued to Hudaco Trading`s new BEE shareholders at nominal cost.
Headline earnings per share of 604 cents are up 14% on last year. However,
normalised headline earnings per share, which excludes the cost to introduce BEE
shareholders and STC on the special dividend, was 750 cents, up 41% on the 533
cents headline earnings per share of last year. The final dividend has been
increased 39% to 195 cents (last year: 140 cents), which, with the interim
dividend of 65 cents, brings total dividends this year to 260 cents per share,
an increase of 37% over last year`s 190 cents and covered 2,9 times by
normalised earnings per share. A special dividend of 330 cents or R100 million
was declared during the year and paid in December 2007.
The balance sheet now has a different shape following the BEE transaction.
Working capital (inventories, accounts receivable and accounts payable), at R508
million, is R84 million or 20% above 2006 levels. The increase is the result of
normal business demands as volume sales increased. Cash on hand at year-end is
R317 million. Of this R100 million was committed to the special dividend and R95
million to the acquisition of Astore Africa, acquired subsequent to the year
end. Astore Africa is an importer and distributor of specialised piping to South
Africa`s mining, construction and manufacturing sectors. The business generates
sales of R150 million per annum.
Introduction of BEE shareholders
During the year the group`s shareholders approved a transaction to introduce a
direct 15% BEE shareholding to the group`s main operating subsidiary. Through
this transaction, Hudaco Trading, which now owns all the group`s South African
businesses except DDPower (the group`s diesel engine business in which we have a
70% stake) has achieved direct and indirect BEE ownership of 25%.
External funding of R2,2 billion was raised by Hudaco Trading on a 10-year
subordinated debenture at 10,7% pa to facilitate the transaction. The 15%
shareholding that was then issued to the three BEE partners at a nominal amount
has been valued for accounting purposes at R44 million (in terms of IFRS 2) and
expensed in this financial year. The group also invested R2,2 billion in
preference shares yielding 9,2% pa which have been pledged as security to the
debenture holder.
Prospects
The group has good medium term prospects. Spending on South Africa`s
infrastructure is now underway and high commodity prices support continued
investment in mining projects. Although the effect of electricity supply
interruptions on economic growth is not known and will not be known for some
time, investment spending looks set to continue for some years into the future.
This will benefit local manufacturers and construction companies, key customers
for Hudaco`s product offering. Growth in the consumer side of the economy
appears to be weakening but with fixed investment comes job creation which will
ultimately support activity in this sector.
Using normalised 2007 earnings per share of R7,50 as the base, earnings growth
in 2008 is unlikely to match the 41% growth enjoyed this year. Weaker consumer
spending will impact on our outboard motor and security product businesses.
However, unless electricity supply problems materially disrupt business
activities, expected strong volume sales growth in our bearings and transmission
and diesel engine businesses will result in another successful year.
Dividend
Notice is hereby given that final dividend No.42 of 195 cents per share has been
declared in respect of the year ended 30 November 2007.
The last day to trade in order to participate in the dividend ("cum" the
dividend), will be Friday, 7 March 2008. The share will commence trading "ex"
the dividend from the commencement of business on Monday, 10 March 2008 and the
record date will be Friday, 14 March 2008. The dividend will be paid on Monday,
17 March 2008. Share certificates may not be dematerialised between Monday, 10
March 2008 and Friday, 14 March 2008, both days inclusive.
Audit opinion
Grant Thornton have signed an unqualified audit opinion on the financial
statements for the year. These have been approved by the board and abridged for
purposes of this report. Both the auditors` opinion and the financial statements
are available for inspection at the company`s registered office.
For and on behalf of the Board
PL Campbell (Chairman) SJ Connelly (Chief executive)
31 January 2008
Income statement
30 Nov 30 Nov
R million 2007 change 2006
Turnover 2 226,9 +21% 1 837,8
Cost of sales 1 382,6 1 140,8
Gross profit 844,3 697,0
Operating expenses 526,3 462,5
Operating profit 318,0 +36% 234,5
Cost to introduce BEE shareholders 43,9
Impairment of goodwill 9,6
Profit before dividends received,interest
received and finance costs 274,1 224,9
Dividends received on preference shares 66,6
Interest received 15,4 12,8
Finance costs (80,7) (5,7)
Profit before taxation 275,4 232,0
Taxation 86,5 76,3
Profit after taxation 188,9 +21% 155,7
Attributable to shareholders of the group 182,8 149,9
Attributable to minorities 6,1 5,8
see supplementary information)
188,9 155,7
Normalised headline earnings per share 750 +41% 533
(cents)
Headline earnings per share (cents) 604 533
Basic earnings per share (cents) 606 502
Diluted normalised headline earnings 726 519
per share (cents)
Diluted headline earnings per share 585 519
(cents)
Diluted basic earnings per share (cents) 586 489
Reconciliation to normalised headline
earnings
Profit attributable to shareholders of 182,8 149,9
the group
Adjusted to eliminate the effect of the
following items in attributable earnings:
Surplus on disposal of plant and (0,4) (0,4)
equipment
Impairment of goodwill 9,6
Headline earnings 182,4 159,1
Adjusted to eliminate the effect of the
following
items in headline earnings:
Cost to introduce BEE shareholders 43,9
Debt raising fees 3,3
STC on special dividend 4,6
Taxation effect of adjustments (1,0)
Minority effect of adjustment (6,9)
Normalised headline earnings 226,3 +42% 159,1
Normal dividends
- Interim (cents) 65,0 50,0
- Final (cents) 195,0 140,0
- Total per share (cents) 260,0 +37% 190,0
- Amount (Rm) 79,6 56,9
Special dividend
- Per share (cents) 330,0
- Amount (Rm) 101,5
Shares in issue 30 754 29 993
- Total (000) 33 262 32 501
- Held by subsidiary company (000) (2 508) (2 508)
Weighted average shares in issue
- Basic (000) 30 178 29 870
- Diluted (000) 31 182 30 652
Balance sheet
30 Nov 30 Nov
R million 2007 2006
ASSETS
Non-current assets 2 332,8 125,3
Property, plant and equipment 73,7 66,9
Investments in preference shares 2 181,0
Goodwill 76,6 57,2
Deferred taxation 1,5 1,2
Current assets 1 260,1 1 095,0
Inventories 544,1 451,9
Accounts receivable 398,7 354,7
Bank deposits and balances 317,3 288,4
TOTAL ASSETS 3 592,9 1 220,3
EQUITY AND LIABILITIES
Equity 835,4 749,9
Shareholders` equity 806,8 728,4
Minority interest 28,6 21,5
Non-current liabilities 2 181,0 6,3
Due to vendors - interest bearing 6,3
Subordinated debenture 2 181,0
Current liabilities 576,5 464,1
Accounts payable 434,4 381,7
Interest bearing debt 50,0
Due to vendors - interest bearing 10,5 8,0
Shareholders for dividend 101,5
Taxation 30,1 24,4
TOTAL EQUITY AND LIABILITIES 3 592,9 1 220,3
Cash flow statement
30 Nov 30 Nov
R million 2007 2006
Cash generated from trading 334,6 248,5
Applied to working capital (71,2) (62,6)
Cash generated from operating activities 263,4 185,9
Preference dividends and interest received 82,0 12,8
Finance costs (80,1) (4,7)
Taxation paid (81,1) (64,9)
Cash flow from operations 184,2 129,1
Dividends paid (67,3) (54,2)
Net cash GENERATED 116,9 74,9
Investment in new operations - net (35,4) (11,3)
Investment in plant and equipment - net (17,0) (15,8)
Investment in preference shares (2 181,0)
Net cash invested (2 233,4) (27,1)
Cash utilised (2 116,5) 47,8
Issue of shares 14,4 2,9
Issue of subordinated debentures 2 181,0
INCREASE IN NET CASH 78,9 50,7
Statement of changes in equity
30 Nov 30 Nov
R million 2007 2006
Equity at beginning of the year 728,4 611,9
Attributable profit for the year 182,8 149,9
Increase in equity compensation reserve 4,7 3,0
Movement on fair value of cash flow hedges 0,2 0,2
Gain on translation of foreign operations 2,5 5,9
Arising on the introduction of BEE shareholders 37,3
Shares issued 14,4 2,9
Dividends declared (163,5) (45,4)
Equity at the end of the year 806,8 728,4
Supplementary information
These results were prepared applying accounting policies that conform
with International Financial Reporting Standards (IFRS) and are
consistent with those applied in the previous financial year.
30 Nov 30 Nov
2007 2006
Average net operating assets (Rm) 612,2 545,4
Operating profit margin (%) 14,3 12,7
Average NOA turn (times) 3,6 3,4
Return on average NOA (%) 51,9 42,9
Net asset value per share (cents) 2 623 2 429
Capital expenditure
- Spent during the period (Rm) 20,6 18,1
- Budgeted for 2008 (Rm) 32,2
Net cash comprises (Rm) 317,3 238,4
- Bank deposits and balances 317,3 288,4
- Interest-bearing debt (50,0)
Profit after tax attributable to minorities 6,1 5,8
- Share of normalised earnings 13,0 5,8
- Share of cost to introduce BEE shareholders (6,9)
Commitments and contingencies
- Operating leases on property (Rm) 75,9 36,9
- Break fee on debenture (Rm) 49,6
- A contingent liability exists in respect of an unresolved dispute
with the Financial Services Board on whether the rules of one of
the group`s defined contribution retirement funds correctly
authorized an employer contribution holiday of approximately
R1,7 million per annum from 1992 to 2001.
Segment analysis
Turnover
30 Nov 30 Nov
R million 2007 change 2006
Bearings and Power Transmission 1 272,5 +21% 1 049,2
products
Powered products 589,1 24% 477,0
Security equipment 365,4 17% 312,6
Internal/head office (0,1) (1,0)
Total group 2 226,9 +21% 1 837,8
Operating profit
30 Nov 30 Nov
R million 2007 change 2006
Bearings and Power Transmission 173,3 +49% 116,4
products
Powered products 124,0 26% 98,5
Security equipment 44,0 23% 35,8
Internal/head office (23,3) (16,2)
Total group 318,0 +36% 234,5
Average net operating assets
30 Nov 30 Nov
R million 2007 change 2006
Bearings and Power Transmission 445,9 +15% 387,2
products
Powered products 100,3 26% 79,4
Security equipment 79,6 3% 77,1
Internal/head office (13,6) 1,7
Total group 612,2 +12% 545,4
Bearings and Power Transmission products
ABES Technoseal - Distributor of oil and hydraulic seals, clutch kits and
automotive ignition leads.
Bearings International - Distributor of bearings, seals and transmission
products.
Belting Supply Services - Distributor of power transmission and conveyor belting
products and industrial hose.
Bosworth - Manufacturer of conveyor drive pulleys, forgings and rollings.
Ernest Lowe ELCO - Manufacturer and distributor of hydraulic and pneumatic
equipment.
Bauer - Distributor of geared motors, frequency inverters and electric motors.
Powermite - Distributor of electrical cabling, plugs, sockets, electric feeder
systems and crane materials.
Varispeed - Distributor of controllers, monitors and regulators of the speed of
standard AC motors.
Powered products
Deutz Dieselpower - Distributor of Deutz diesel engines and provider of
aftermarket services.
Rutherford - Distributor of power tools, outboard motors, survey equipment and
rivets.
Security equipment
Elvey Security Technologies - Distributor of intruder detection,
closed-circuit television, access control and fibre-optic equipment.
Transfer secretaries
Computershare Investor Services 2004 (Pty) Ltd PO?Box 61051 Marshalltown 2107
Registered office
Hudaco Park 190 Barbara Road Elandsfontein 1406 Tel +27 11 345 8200 Fax +27
11 392 2740 E-mail info@hudaco.co.za
Directors
PL Campbell# (Chairman) SJ Connelly (Chief executive) GE?Gardiner
JB Gibbon# YKN Molefi* PM?Poole RT Vice# # Independent non-executive
*non-executive
Secretary
MMM Nkumanda
Hudaco Industries Limited Reg no 1985/004617/06
Share code HDC & ISIN ZAE000003273
These results are available on the Internet at www.hudaco.co.za
value-added distribution - our core competency
Date: 01/02/2008 10:00:01 Produced by the JSE SENS Department.
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