| Mon 19 Jul 2010, 8:00 | | HDC - Hudaco Industries Limited - Unaudited interim group results for the six |
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HDC
HDC
HDC - Hudaco Industries Limited - Unaudited interim group results for the six
months ended 31 May 2010
HUDACO INDUSTRIES LIMITED
Incorporated in the Republic of South Africa
Registration number 1985/004617/06
JSE Code: HDC
ISIN: ZAE000003273
UNAUDITED INTERIM GROUP RESULTS FOR THE SIX MONTHS ENDED 31 MAY 2010
- Headline earnings flat at R107m
- Interim dividend maintained at R1,15 per share
- Acquisition of Filter and Hose Solutions announced
Results
Hudaco is a South African group that imports and distributes mechanical and
electrical consumable products. Its customers are mainly within the southern
African manufacturing, mining, construction, automotive aftermarket and security
industries.
Achieving flat earnings in the first half of 2010 is considered a satisfactory
result.
During the six months under review, volume sales were higher than 2009 but this
improvement was more than offset by the decrease in prices resulting from Rand
appreciation of about 20%.
Rand sales in Hudaco are influenced by two variables: changes in volumes of
product sold and changes in prices charged. The latter is closely linked to the
Rand exchange rate because Hudaco is predominantly an importer.
From the beginning of the 2010 financial year until April 2010 volume sales in
all businesses showed pleasing signs of recovery from the very depressed
conditions prevailing during 2009. However in May 2010 (and continuing into June
and July) sales declined sharply.
Hudaco businesses serve markets that fall into two primary categories. The
bearings and power transmission and diesel engine businesses supply engineering
consumables mainly to mining and manufacturing customers whilst the security,
power tool, marine engine and automotive aftermarket businesses supply products
into markets reliant on consumer spending. In implementing IFRS 8: Segment
Reporting, the new segment report now differentiates between the Engineering
Consumables and Consumer Related Products segments of Hudaco`s business. We
expect that these new groupings will prove to be meaningful for shareholders and
analysts. Sales in the Engineering Consumables segment were R785 million whilst
sales in the Consumer Related Products segment were R335 million.
The group gross profit margin at 40% is up 1,7% on last year, a deliberate
strategy to counter the operating margin squeeze caused by the combination of
falling Rand sales resulting from currency appreciation and increasing costs
driven by local inflation. Operating expenses are up only 3,3% on 2009.
Group operating profit declined by 9,1% to R120 million with an operating margin
to sales of 10,8% (last year 11,2%). Headline and basic earnings per share of
341 cents are almost the same as last year.
The interim dividend has been maintained at last year`s R1,15 per share.
The balance sheet is healthy. Working capital (inventories, receivables and
payables) at R625 million is at the same level as November 2009. Total
inventories are also the same as at 2009 year-end and are in line with current
trading levels. The group had R363 million cash on hand at May 2010.
Acquisition of Filter and Hose Solutions (Pty) Limited (FHS)
On 22 June 2010 Hudaco announced the acquisition of FHS subject to certain
suspensive conditions, including a due diligence which is underway. FHS imports,
purchases and distributes quality branded filter products used in open cast
mining and other earthmoving equipment in South and southern Africa. Main brands
include Donaldson filtration products and Malcorp industrial hose. Based in
Boksburg, in Gauteng, the business employs 110 people and generates sales of
R220 million per annum. The final purchase consideration will be a multiple of
the average profit after tax (but before interest received) of FHS for the three
years ending 31 August 2013, subject to a maximum consideration of R350 million,
to be settled out of Hudaco`s available cash resources. For example if the
business grows profits at 12% per annum, which is possible but not assured, the
total consideration will be R272 million.
The acquisition, effective 1 September 2010, is expected to make a positive
contribution to Hudaco`s earnings in 2011.
Prospects
Growing our business in the current economic environment is a frustrating
challenge. A lack of growth in our main customer base, mining and manufacturing,
makes it difficult, if not impossible, to grow our existing businesses. Changes
in market shares in our product range happen very slowly given customer loyalty
to brands, so growth from effort in that direction is often not immediately
apparent. Earnings growth in a weak economy must come from acquisitions and FHS
represents a welcome addition to group activities this year.
The unexpected sharp sales decline in May 2010 which has continued into June and
July, makes it difficult to predict the group`s earnings performance for the
full financial year. It is too early to tell whether this sudden slump is due to
temporary lower economic activity during the carnival atmosphere of the World
Cup or the beginnings of another recession (a so-called double dip). If the
current weakness in sales persists it will be hard to achieve earnings growth
this year.
However, just as the group`s reliance on GDP spending shielded it from the full
impact of the recession in 2009, so the group will remain strong through the
current second round of uncertainty in world and local markets. Our longer-term
view is that a meaningful resumption in broad based economic growth in South
Africa is unlikely before the second half of 2011.
Directorate
The board is pleased to announce that Graham Dunford, who served as alternate
director to Graham Gardiner on the Hudaco Industries board since January 2009,
has been appointed as executive director with effect from 15 July 2010. Graham
Dunford is chief executive of the bearings and power transmission businesses
within the Engineering Consumables segment.
Declaration of interim dividend number 47
Interim dividend number 47 of 115 cents per share is declared payable on Monday,
23 August 2010 to ordinary shareholders recorded in the register at the close of
business on Friday, 20 August 2010. The timetable for the payment of the
dividend is as follows:
Last day to trade cum dividend Friday, 13 August 2010
Trading ex dividend commences Monday, 16 August 2010
Record date Friday, 20 August 2010
Payment date Monday, 23 August 2010
Share certificates may not be dematerialised or rematerialised between Monday,
16 August 2010 and Friday, 20 August 2010, both days inclusive. The certificated
register will be closed for this period.
Results presentation
Hudaco will host presentations on the financial results in Johannesburg and Cape
Town on Monday, 19 July 2010 and Tuesday, 20 July 2010 respectively. Anyone
wishing to attend should contact Robin Benson at 011 345 8214.
The slides which form part of the presentation will be available on the
company`s website from Wednesday, 21 July 2010.
For and on behalf of the board
RT Vice SJ Connelly
Independent non-executive chairman Chief executive
19 July 2010
Elandsfontein
Group statement of financial position
31 May 31 May 30 Nov
R million 2010 2009 2009*
ASSETS
Non-current assets 2 428 2 430 2 418
Property, plant and equipment 89 93 91
Investment in preference shares 2 181 2 181 2 181
Goodwill 117 131 117
Intangible assets 16 25 18
Deferred taxation 25 11
Current assets 1 286 1 207 1 288
Inventories 601 758 597
Trade and other receivables 321 340 356
Taxation 1 5
Cash and cash equivalents 363 104 335
TOTAL ASSETS 3 714 3 637 3 706
EQUITY AND LIABILITIES
Equity 1 223 1 078 1 184
Interest of the shareholders of the 1 194 1 042 1 150
group
Non-controlling interest 29 36 34
Non-current liabilities 2 181 2 186 2 186
Subordinated debenture 2 181 2 181 2 181
Deferred taxation 5
Due to vendors - interest bearing 5
Current liabilities 310 373 336
Trade and other payables 297 310 326
Due to bankers 44
Due to vendors - interest bearing 5 19
Taxation 8 10
TOTAL EQUITY AND LIABILITIES 3 714 3 637 3 706
* Audited
Group statement of comprehensive income
Six months Six months Year
ended ended ended
31 May % 31 May 30 Nov
R million 2010 change 2009 2009*
Turnover 1 116 (5) 1 176 2 420
Cost of sales 669 726 1 469
Gross profit 447 450 951
Operating expenses 327 318 644
Operating profit 120 (9) 132 307
Capital items 1 (7)
Profit before dividends 120 (10) 133 300
received, interest received
and finance costs
Dividends received on 99 100 202
preference shares
Interest received 9 1 5
Finance costs (115) (120) (235)
Profit before taxation 113 114 272
Taxation 7 6 24
PROFIT FOR THE PERIOD 106 108 248
Other comprehensive income 4 3 2
Increase in equity 3 4 3
compensation reserve
Movement on fair value of 1 (1) (1)
cash flow hedges
TOTAL COMPREHENSIVE INCOME 110 (1) 111 250
FOR THE PERIOD
Profit attributable to:
Shareholders of the group 107 107 243
Non-controlling (1) 1 5
shareholders
106 108 248
Total comprehensive income
attributable to:
Shareholders of the group 111 110 245
Non-controlling (1) 1 5
shareholders
110 111 250
Headline earnings per share 341 346 801
(cents)
Basic earnings per share 341 346 784
(cents)
Diluted headline earnings 336 338 785
per share (cents)
Diluted basic earnings per 336 338 769
share (cents)
Reconciliation to headline
earnings
Profit attributable to 107 107 243
shareholders of the group
Adjusted for:
- Impairment of goodwill 9
and intangible assets
- Surplus on disposal of (1)
assets
- Tax effect (1)
- Non-controlling interest (1)
Headline earnings 107 107 249
Dividends
- per share (cents) 115 115 350
- amount (Rm) 36 36 109
Shares in issue 31 532 30 966 31 240
- total (000) 34 040 33 474 33 748
- held by subsidiary (2 508) (2 508) (2 508)
company (000)
Weighted average shares in
issue
- basic (000) 31 395 30 928 31 023
- diluted (000) 31 909 31 734 31 644
* Audited
Group statement of cash flows
Six months Six months Year
ended ended ended
31 May 31 May 30 Nov
R million 2010 2009 2009*
Cash generated from trading 134 143 333
Decrease in working capital 2 19 166
Cash generated from operations 136 162 499
Finance costs (115) (119) (235)
Taxation paid (24) (44) (63)
Net cash from operating activities (3) (1) 201
Net investment in new operations (4) (7)
Net investment in property,plant (6) (8) (17)
and equipment
Discontinuation of businesses 7
Dividends and interest received 108 100 203
Net cash from investing activities 102 88 186
Proceeds from issue of shares 8 1 8
Dividends paid (79) (97) (129)
Net cash from financing activities (71) (96) (121)
Net increase (decrease) in cash and 28 (9) 266
cash equivalents
* Audited
Group statement of changes in equity
Six months Six months Year
ended ended ended
31 May 31 May 30 Nov
R million 2010 2009 2009*
Equity at the beginning of the 1 184 1 055 1 055
period
Comprehensive income for the period 110 111 250
Issue of shares 8 1 8
Dividends (79) (89) (129)
Equity at the end of the period 1 223 1 078 1 184
* Audited
Supplementary information
The consolidated financial statements have been prepared in accordance with IAS
34: Interim Financial Reporting, International Financial Reporting Standards,
the JSE Listings Requirements and in the manner required by the Companies Act of
South Africa. IAS 1 (Revised) and IFRS 8 have been adopted for the first time.
The comparative figures in the segment analysis have been restated as a result
of the adoption of IFRS 8 in the current period. The principal accounting
policies set out in the group`s 2009 annual report have been consistently
applied throughout the period ended 31 May 2010. Except for information at 30
November 2009, no information set out in this announcement has been audited or
reviewed by the company`s auditors.
31 May 31 May 30 Nov
2010 2009 2009*
Average net operating assets (NOA) 872 1 058 1 015
(Rm)
Operating profit margin (%) 10,8 11,2 12,7
Average NOA turn (times) 2,5 2,2 2,4
Return on average NOA (%) 27,5 25,0 30,2
Net asset value per share (cents) 3 787 3 365 3 681
Operating profit has been
determined after taking into
account the following charges (Rm):
- Depreciation 8 8 18
- Amortisation of intangible 2 1 4
assets
Capital expenditure
- Incurred during the period 6 10 20
- Authorised but not contracted 18 21 71
for
- Already contracted for 64 22
Commitments and contingencies
- Operating lease commitments on 109 104 103
properties
* Audited
The contingent liability in respect of an employer contribution holiday in a
retirement fund no longer exists, as the appeal board ruled in favour of the
group.
Segment analysis
Turnover
31 May % 31 May 30 Nov
R million 2010 change 2009 2009*
Engineering consumables 785 (7) 846 1 711
Consumer related products 335 0 334 720
Total operating segments 1 120 (5) 1 180 2 431
Intragroup sales (4) (4) (11)
Total group 1 116 (5) 1 176 2 420
* Audited
Operating profit
31 May % 31 May 30 Nov
R million 2010 change 2009 2009*
Engineering consumables 81 (18) 99 225
Consumer related products 48 9 44 108
Total operating segments 129 (10) 143 333
Head office and shared services (9) (11) (26)
Total group 120 (9) 132 307
* Audited
Average net operating assets
31 May % 31 May 30 Nov
R million 2010 change 2009 2009*
Engineering consumables 653 (19) 804 764
Consumer related products 192 (22) 246 233
Total operating segments 845 (20) 1 050 997
Head office and shared services 27 8 18
Total group 872 (18) 1 058 1 015
* Audited
Transfer secretaries:
Computershare Investor Services (Pty) Limited
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:
RT Vice (Chairman)+
SJ Connelly (Chief Executive)
CV Amoils (Financial Director)
GR Dunford
GE Gardiner
JB Gibbon+
YKN Molefi+
CWN Molope+
SG Morris+
+ Independent non-executive
Group secretary:
R Wolmarans
Sponsor:
Nedbank Capital
"Value-added distribution - our core competency"
www.hudaco.co.za
Date: 19/07/2010 08:00:01 Produced by the JSE SENS Department.
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