| Fri 30 Jan 2009, 8:00 | | HDC - Hudaco - Audited Group Results For The Year Ended 30 November 2008 and |
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HDC
HDC
HDC - Hudaco - Audited Group Results For The Year Ended 30 November 2008 and
dividend declaration
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 2008
- Normalised headline earnings per share up 33% to R9,95
- Ordinary dividends increase 54% to R4,00 per share
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.
The group concluded two acquisitions this year at a cost of R152 million.
Astore Africa, an importer and distributor of specialised piping to South
Africa`s mining and manufacturing sectors was purchased effective 1 February
2008, whilst Ambro Sales, a specialised distributor of solid and hollow round
steel, was acquired on 1 March 2008.
Results
Total sales of R2,8 billion for the year are up 24% on 2007, of which 10% is
attributable to the aforementioned acquisitions.
Most businesses in the Bearings and Power Transmission Products division
achieved an increase in volume sales. In the Powered Products division, volume
sales of diesel engines and spares increased whilst power tools and outboard
motors were down. Volume sales in the Security Equipment division were flat.
Rand weakness towards the end of the financial year resulted in general price
increases of imported products which accelerated buying from some businesses
before the increases came into effect. More frequent supplier price increases
continued in 2008 due to increases in the prices of raw materials and
particularly strong current worldwide demand. However, towards the end of the
year, it became apparent that this trend is slowing and may even reverse in
2009.
In the Bearings and Power Transmission Products division, sales increased 36%
to R1,7 billion, of which 17% came from newly acquired businesses, Astore and
Ambro. Operating profit climbed 45% to R251 million. Trading conditions in the
division were robust with mines and manufacturers enjoying excellent
conditions and volume sales were well up. Encouragingly, there was also
sustained quoting on capital project work for mines, civil engineering
projects and manufacturers during the year although there were signs towards
year end that some projects may be cancelled or postponed.
In the Powered Products division sales increased 14% and operating profit
increased 17%. Deutz Diesel Power had another excellent year with strong
demand for diesel engines, mainly for platinum mining applications. In
Rutherford, unit sales of power tools declined as building activity slowed and
outboard motor sales declined again in response to the interest rate increases
of the past few years and the National Credit Act making credit harder to
obtain.
In the Security Equipment division sales in the South African operations were
up 17% on slightly improved volumes leading to a solid 20% increase in
operating profit. The UK security business was closed in the second half of
2008.
Group operating profit is up 34% to R427 million. The net finance expense was
R40 million (2007: finance revenue R1 million) as net interest paid was R240
million (2007: R66 million) and preference dividend income was R200 million
(2007: R67 million). These significant changes are the result of the group`s
BEE transaction being in place for the full 2008 year compared with only four
months in 2007. The tax rate decreased from 31% to 14% as dividends received
are not taxed. Both headline and basic earnings per share were up over 60% as
2007 included a non-recurring charge of 130 cents per share arising on the
introduction of BEE shareholders. Normalised headline earnings per share,
which excludes the closure costs of Elvey UK, increased 33% to 995 cents.
A policy decision was made this year to increase the dividend payout from 33%
to 40% of normalised earnings. In line with this new policy, the final
dividend has been increased by 38% to 270 cents (2007: 195 cents). With an
interim dividend of 130 cents the total dividends are 400 cents per share.
This is an increase of 54% over last year`s 260 cents and a pay out of 40% of
normalised earnings per share.
The balance sheet is healthy. Working capital (inventories, accounts
receivable and accounts payable) at R799 million is R291 million or 57% above
2007 levels. The increase in inventories of 43% is a little higher than we
would have liked, but is understandable given the lengthening lead times from
suppliers over the past few years. Now, in response to declining world demand,
lead times are dropping and a corresponding reduction in inventories can be
expected. The group has R69 million net cash on hand at year end (2007: R317
million). The return on net operating assets (RONA) in 2008 is 46%, similar to
last year and well above our internal target of 30% and our pre-tax cost of
capital which is approximately 20%.
Board appointments
Stuart Morris and Nosipho Molope were appointed independent non-executive
directors and Graham Dunford joined the board as an alternate executive
director with effect from 12 January 2009.
Prospects
The South African economy will not escape the backwash from the turmoil
affecting most world markets and, with the sharp decline in commodity prices,
there have already been announcements cancelling or postponing investments in
mining projects. The group`s reliance on GDP spending shields it to a degree
from such events but trading conditions are expected to be more difficult for
Hudaco in 2009. Appropriate measures to deal with a mild business correction
were put in place in October 2008, including deferring decisions on expansion
and acquisitions, until we can evaluate the impact of the financial crisis on
our markets. Orders on suppliers have not yet been adjusted downwards since
demand through to year-end was reasonably strong. If demand does decline in
2009 it may be that the group will be overstocked for a period of time,
something that can easily be coped with given the strong balance sheet.
Medium term, that is to say beyond the current financial crisis, prospects are
sound. Spending on South Africa`s infrastructure is underway and demand
fundamentals support some investment in mining projects, particularly coal. We
believe that overall economic growth, driven by investment spending, will
resume once this crisis has passed and will continue for some years.
It is difficult, if not impossible, to predict the group`s earnings
performance in 2009. The business is strong and will survive this crisis.
Although margins could come under pressure we believe the group`s exposure to
predominantly GDP spending and the weaker Rand will allow it to continue to
achieve attractive returns for shareholders.
Dividend
Notice is hereby given that final dividend No.44 of 270 cents per share has
been declared in respect of the year ended 30 November 2008.
The last day to trade in order to participate in the dividend ("cum" the
dividend) will be Friday, 6 March 2009. The share will commence trading "ex"
the dividend from the commencement of business on Monday, 9 March 2009 and the
record date will be Friday, 13 March 2009. The dividend will be paid on
Monday, 16 March 2009. Share certificates may not be dematerialised between
Monday, 9 March 2009 and Friday,
13 March 2009, both days inclusive.
Audit opinion
Grant Thorton has 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.
The annual report will be published on www.hudaco.co.za by no later than noon
on Monday 2 February 2009.
For and on behalf of the Board
RT Vice (Chairman)
SJ Connelly (Chief executive)
29 January 2009
Income statement
30 Nov % 30 Nov
R million 2008 change 2007
Turnover 2 766 24 2 227
- Ongoing operations 2 521 2 156
- Operations acquired in 2008 221
- Operation discontinued in 2008 24 71
Cost of sales 1 684 1 383
Gross profit 1 082 844
Operating expenses 655 526
Operating profit 427 34 318
- Ongoing operations 402 320
- Operations acquired in 2008 31
- Operation discontinued in 2008 (6) (2)
Cost to introduce BEE
shareholders 44
Net loss on operation
discontinued in 2008 * * 2
Profit before dividends received,
interest received and finance
costs 425 274
Dividends received on preference
shares 200 67
Interest received 12 15
Finance costs (252) (81)
Profit before taxation 385 275
Taxation 55 86
Profit after taxation 330 75 189
Attributable to shareholders of
the group 307 183
Attributable to minorities * * 23 6
330 189
* * see supplementary information
Normalised headline earnings
per share (cents) 995 33 750
Headline earnings per share
(cents) 964 605
Basic earnings per share (cents) 995 606
Diluted normalised headline
earnings per share (cents) 970 726
Diluted headline earnings per
share (cents) 940 585
Diluted basic earnings per share
(cents) 970 586
Reconciliation to normalised
headline earnings
Profit attributable to
shareholders of the group 307 183
Adjusted to eliminate the effect
of the following
items in attributable earnings:
- Surplus on disposal of
property, plant and equipment (1) (1)
- Foreign currency translation
reserve realised (9)
Headline earnings 297 182
Adjusted to eliminate the effect
of the following
items in headline earnings:
- Impairment of assets in
operation discontinued in 2008 10
- Cost to introduce BEE
shareholders 44
- Debt raising fees 3
- STC on special dividend 5
- Taxation effect of adjustments (1)
- Minority effect of adjustments (7)
Normalised headline earnings 307 35 226
Normal dividends
- Per share (cents) 400 54 260
-?Amount (Rm) 124 80
Special dividend
-?Per share (cents) 330
-?Amount (Rm) 102
Shares in issue 30 923 30 754
-?Total (000) 33 431 33 262
-?Held by subsidiary company
(000) (2 508) (2 508)
Weighted average shares in issue
-?Basic (000) 30 836 30 178
-?Diluted (000) 31 632 31 182
Cash flow statement
30 Nov % 30 Nov
R million 2008 change 2007
Cash generated from trading 450 334
Applied to working capital (235) (71)
Cash generated from operating
activities 215 263
Preference dividends and interest
received 212 82
Finance costs (249) (80)
Taxation paid (56) (81)
Cash flow from operations 122 184
Special dividends paid (102)
Dividends paid (112) (67)
NET CASH APPLIED (92) 117
Investment in new operations -
net (140) (35)
Investment in plant and equipment
- net (20) (17)
Investment in preference shares (2 181)
Net cash invested (160) (2 233)
Cash utilised (252) (2 116)
Issue of shares 4 14
Issue of subordinated debenture 2 181
DECREASE IN NET CASH (248) 79
Statement of changes in equity
30 Nov 30 Nov
R million 2008 2007
Equity at the beginning of the year 835 750
Attributable profit for the year 330 189
Increase in equity compensation reserve 6 5
Movement on fair value of cash flow hedges (2) 2
Gain on translation of foreign entities 2
Foreign currency translation reserve
realised (8)
Arising on the introduction of BEE
shareholders 44
Shares issued 4 14
Dividends (112) (169)
Equity at the end of the year 1 055 835
Balance sheet
30 Nov 30 Nov
R million 2008 2007
ASSETS
Non-current assets 2 429 2 333
Property, plant and equipment 92 74
Investments 2 181 2 181
Goodwill 131 76
Intangible assets 25
Deferred taxation 2
Current assets 1 422 1 260
Inventories 780 544
Accounts receivable 507 399
Bank deposits and balances 135 317
TOTAL ASSETS 3 851 3 593
EQUITY AND LIABILITIES
Equity 1 055 835
Shareholders` equity 1 015 806
Minority interest 40 29
Non-current liabilities 2 204 2 181
Subordinated debenture 2 181 2 181
Deferred taxation 5
Due to vendors - interest bearing 18
Current liabilities 592 577
Accounts payable 488 434
Amounts due to bankers 66
Due to vendors - interest bearing 5 11
Shareholders for special dividend 102
Taxation 33 30
TOTAL EQUITY AND LIABILITIES 3 851 3 593
Supplementary information
These results were prepared applying accounting policies
which conform with International Financial Reporting
Standards and are consistent with those applied in the
previous financial year. These results also comply with the
requirements of IAS 34 on interim reporting.
30 Nov 30 Nov
2008 2007
Average net operating assets (Rm) 923 612
Operating profit margin (%) 15,4 14,3
Average NOA turn (times) 3,0 3,6
Return on average NOA (%) 46,2 51,9
Net asset value per share (cents) 3 282 2 623
Net loss on operations discontinued in
2008 (Rm) 2
Impairments of assets of operation
discontinued 10
Foreign currency translation reserve
realised (8)
Profit after tax attributable to
minorities (Rm) 23 6
-?Share of normalised earnings 23 13
-?Share of cost to introduce BEE
shareholders (7)
Operating profit has been determined after
taking into account the following charges:
- Depreciation 15 12
- Amortisation of intangible assets
acquired in acquisitions 3
Capital expenditure
-?Spent during the period (Rm) 25 21
-?Budgeted for 2009 (Rm) 31
Commitments and contingencies
-?Operating leases on property (Rm) 99 76
- Break fee on debenture (Rm) 21 50
- A contingent liability still exists in
respect of an ongoing dispute on whether
an employer contribution holiday in one of
the group`s defined contribution
retirement funds, was authorised by its
rules.
Net cash comprises (Rm) 69 317
-?Bank deposits and balances 135 317
-?Amounts due to bankers (66)
Acquisitions
Hudaco Trading acquired 100% of the businesses of Astore Africa Group and
Ambro Sales on 1 February 2008 and 1 March 2008 respectively for an aggregate
purchase consideration of R152 million. Property, plant and equipment of R11
million, working capital (inventories, accounts receivable and accounts
payable) of R69 million, goodwill and other intangible assets (brand name and
customer relations) of R82 million, and deferred tax liabilities of R10
million were recognised at date of acquisition. These values approximate the
fair value as determined under IFRS 3. The accounting for the acquisitions has
been finalised as the valuations of intangible assets were completed by the
end of this financial year. These acquisitions increased the reported
attributable earnings of the group for the year by R7 million and if both
these acquisitions had been effective on 1 December 2007 the turnover and
attributable earnings of the group would have been approximately R2,800
million and R305 million respectively.
Segment analysis
Turnover
30 Nov % 30 Nov
R million 2007 change 2006
Bearings and Power Transmission
Products 1 727 36 1 273
-Ongoing operations 1 506 1 273
-Operations acquired in 2008 221
Powered Products 673 14 589
Security Equipment 367 1 365
-Ongoing operations 343 294
-Operation discontinued in 2008 24 71
Internal/head office (1)
Total Group 2 766 24 2 227
Operating profit
30 Nov % 30 Nov
R million 2007 change 2006
Bearings and Power Transmission
Products 251 45 173
-Ongoing operations 220 173
-Operations acquired in 2008 31
Powered Products 145 17 124
Security Equipment 49 11 44
-Ongoing operations 55 46
-Operation discontinued in 2008 (6) (2)
Internal/head office (18) (23)
Total Group 427 34 318
Average net operating
assets
30 Nov % 30 Nov
R million 2007 change 2006
Bearings and Power Transmission
Products 696 56 446
-Ongoing operations 513 446
-Operations acquired in 2008 183
Powered Products 138 38 100
Security Equipment 80 0 80
-Ongoing operations 67 67
-Operation discontinued in 2008 13 13
Internal/head office 9 (14)
Total Group 923 51 612
Johannesburg
30 January 2009
Sponsor
Nedbank Capital
Date: 30/01/2009 08:00:02 Produced by the JSE SENS Department.
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