| Fri 28 Jan 2011, 8:00 | | HDC - Hudaco Industries Limited - Audited preliminary report for the year ended |
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HDC
HDC
HDC - Hudaco Industries Limited - Audited preliminary report for the year ended
30 November 2010
HUDACO INDUSTRIES LIMITED
Incorporated in the Republic of South Africa
Registration number 1985/004617/06
JSE Code: HDC
ISIN: ZAE000003273
AUDITED PRELIMINARY REPORT
FOR THE YEAR ENDED 30 NOVEMBER 2010
Hudaco is a South African group engaged in the business of importing and
distributing high quality branded industrial consumable products. Its customers
are mainly within the southern African manufacturing, mining, construction,
automotive aftermarket and security industries.
- Headline earnings per share maintained at R8,00
- Ordinary dividends maintained at R3,50 per share
- Acquisition strategy gains momentum
- Well positioned for economic upturn
Results
We are pleased to have been able to maintain performance substantially at the
2009 level. Sales of R2,5 billion for the year are marginally up on 2009.
Sales in Hudaco are influenced by two variables: changes in volumes of product
sold and changes in prices charged, which are closely linked to the Rand
exchange rate because Hudaco is predominately an importer. This year volume
sales recovered from the very sharp decline experienced in the 2009 financial
year but the recovery was not smooth. There were one or two occasions, notably
during the World Cup soccer tournament, when we thought there was a danger of
our markets sliding back into recession. The volume sales recovery was largely
offset by the decrease in prices resulting from Rand appreciation of about 15%
this year. The strong Rand also adversely affected revenues of our customers in
the mining industry and we saw little in the way of expansionary activity from
that sector.
This year we implemented IFRS 8: Segment Reporting for the first time. In
response, Hudaco`s businesses have been divided into two primary segments
serving distinct markets. Our 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
businesses supply products into markets influenced to a great degree by consumer
spending. As a result, Hudaco`s new segment information now differentiates
between the Engineering Consumables and Consumer Related Products reportable
segments. We expect that these new groupings will prove to be more meaningful
for shareholders and analysts. Before taking into account acquisitions, sales in
the Engineering Consumables segment were R1 685 million, down 1,5% on last year
whilst sales in the Consumer Related Products segment were R716 million, down
0,6% on last year.
The acquisition of Filter & Hose Solutions (FHS), a distributor of quality
branded filter products used in open cast mining and other earthmoving equipment
in South and southern Africa, was effective on 1 September 2010. The final
purchase consideration, subject to a maximum of R350 million, will be determined
based on the average profit after tax for the three years ending 31 August 2013
and will be settled out of Hudaco`s available cash resources. The initial outlay
was R182 million.
The group gross margin increased slightly to 40,4% whilst expenses, held to a
zero increase in 2009, rose 5,6% on a like for like basis. FHS, consolidated for
the last three months of our financial year, made a useful contribution to
operating profit. Interest income on the group`s substantial cash balances
(derived from working capital reductions last year) added R12 million more than
last year to profit before tax.
Headline earnings per share of 800 cents are essentially the same as last year.
The group`s dividend policy is to pay about 40% of headline earnings annually.
The final dividend of 235 cents per share brings total dividends declared in
respect of the 2010 financial year to 350 cents, the same as last year and
slightly higher than 40% of earnings.
The financial position is healthy. Working capital (inventories, receivables and
payables) at R666 million is R39 million above last year`s level, nearly all of
which is due to FHS. The group had R262 million (last year: R335 million) net
cash on hand at year end, notwithstanding the initial cash outlay of R182
million on FHS.
Acquisitions
The renewed focus on acquisitions has proved successful. In addition to the FHS
acquisition during the year, Midrand Special Steels and Pentagon Distribution
have been acquired since year end.
The Global Communications acquisition, which was announced on 19 November 2010,
remains subject to suspensive conditions.
Prospects
Most South African economic indicators have now turned upwards and it appears
that a weak recovery from the international economic crisis is underway. World
economies, upon which South Africa depends as markets for exports, are split
into two camps. The old established economies of Europe, Japan and the USA are
recovering thanks only to government intervention. The road to a full economic
recovery in these areas is unlikely to be smooth and there will be inevitable
economic shocks. How they are dealt with will determine whether those economies
continue to recover or slip back into recession. Newer, emerging economies are
already growing strongly and underpinning the demand for commodities. Hopefully,
South African miners will be able to take advantage of the increased demand and
higher prices this time round.
Rand strength deprives our exporters of much of the benefit of higher commodity
prices. For Hudaco, it has meant that higher volume sales this year were offset
by lower prices and therefore did not translate into higher sales and earnings.
2011 may see more of the same - hopefully not to the same extent.
Firmer trading conditions as the 2010 financial year came to a close and signs
that the mining industry is starting to invest once more gives us confidence
that volume sales will increase again in 2011. This will be supplemented by
contributions from newly acquired businesses, particularly FHS, which will be
consolidated for the full twelve months of 2011. As long as the Rand does not
strengthen further this should translate into an increase in earnings in 2011.
Declaration of final dividend number 48
Ordinary dividend number 48 of R2,35 per share is declared payable on Monday, 14
March 2011 to ordinary shareholders recorded in the register at the close of
business on Friday, 11 March 2011. The timetable for the payment of the dividend
is as follows:
Last day to trade cum dividend Friday, 4 March 2011
Trading ex dividend commences Monday, 7 March 2011
Record date Friday, 11 March 2011
Payment date Monday, 14 March 2011
Share certificates may not be dematerialised or rematerialised between Monday, 7
March 2011 and Friday, 11 March 2011, both days inclusive. The certificated
register will be closed for this period.
Results presentation and annual general meeting
Hudaco will host presentations on the financial results in Johannesburg and Cape
Town on Friday, 28 January and Monday, 31 January 2011 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 on Tuesday, 1 February 2011.
The company`s 26th annual general meeting will be held in the boardroom, at
Hudaco`s new corporate offices situated at Greenstone Hill Office Park, Building
9, Emerald Boulevard, Greenstone Hill, Edenvale at 11:00 on Thursday, 24 March
2011. Further details on the company`s annual general meeting will be included
in the annual report that will be published on www.hudaco.co.za during the first
week of February 2011 and will be posted to shareholders during February 2011.
Approval of financial statements
The financial statements have been approved by the board and abridged for
purposes of this report. Grant Thornton has signed an unqualified audit opinion
on the annual financial statements. Both the financial statements and the
auditors` opinion are available for inspection at the company`s registered
office.
For and on behalf of the board
RT Vice SJ Connelly
Independent non-executive chairman Chief executive
27 January 2011
Group statement of financial position
30 Nov 30 Nov
R million 2010 2009
ASSETS
Non-current assets 2 700 2 418
Property, plant and equipment 131 91
Investment in preference shares 2 181 2 181
Goodwill 331 117
Intangible assets 34 18
Deferred taxation 23 11
Current assets 1 348 1 288
Inventories 663 597
Trade and other receivables 423 356
Cash and cash equivalents 262 335
TOTAL ASSETS 4 048 3 706
EQUITY AND LIABILITIES
Equity 1 314 1 184
Interest of the shareholders of the group 1 287 1 150
Non-controlling interest 27 34
Non-current liabilities 2 280 2 186
Subordinated debenture 2 181 2 181
Due to vendors - interest bearing 99 5
Current liabilities 454 336
Trade and other payables 420 326
Due to vendors - interest bearing 28
Taxation 6 10
TOTAL EQUITY AND LIABILITIES 4 048 3 706
Group statement of comprehensive income
Year ended Year ended
30 Nov % 30 Nov
R million 2010 change 2009
Turnover 2 458 2 2 420
- Ongoing operations 2 393 (1) 2 420
- Operations acquired in 2010 65
Cost of sales 1 464 1 469
Gross profit 994 5 951
Operating expenses 694 644
Operating profit 300 (2) 307
- Ongoing operations 286 307
- Operations acquired in 2010 14
Impairment of goodwill and (22) (8)
intangible assets
Net surplus on sale of business 1
Profit before dividends received, 278 300
interest received and finance costs
Dividends received on preference 201 202
shares
Interest received 17 5
Finance costs (235) (235)
Profit before taxation 261 272
Taxation 24 24
PROFIT FOR THE YEAR 237 248
Other comprehensive income
Movement on fair value of cash flow (1)
hedges
TOTAL COMPREHENSIVE INCOME FOR THE 237 (4) 247
YEAR
Profit attributable to:
Shareholders of the group 234 243
Non-controlling shareholders 3 5
237 248
Total comprehensive income
attributable to:
Shareholders of the group 234 242
Non-controlling shareholders 3 5
237 247
Headline earnings per share (cents) 800 801
Basic earnings per share (cents) 745 784
Diluted headline earnings per share 784 785
(cents)
Diluted basic earnings per share 730 769
(cents)
Reconciliation to headline earnings
Profit attributable to shareholders 234 243
of the group
Adjusted for:
- Impairment of goodwill and 22 9
intangible assets
- Surplus on disposal of business (1)
- Tax effect (2) (1)
- Non-controlling interest (2) (1)
Headline earnings 252 249
Dividends
- per share (cents) 350 350
- amount (Rm) 110 109
Shares in issue 31 540 31 240
- total (000) 34 048 33 748
- held by subsidiary company (000) (2 508) (2 508)
Weighted average shares in issue
- basic (000) 31 466 31 023
- diluted (000) 32 109 31 644
Group statement of cash flows
Year ended Year ended
30 Nov 30 Nov
R million 2010 2009
Cash generated from trading 327 333
Decrease in working capital 12 166
Cash generated from operations 339 499
Finance costs (234) (235)
Taxation paid (49) (63)
Net cash from operating activities 56 201
Net investment in new operations (184) (7)
Net investment in property, plant and equipment (50) (17)
Discontinuation of business 7
Dividends and interest received 218 203
Net cash from investing activities (16) 186
Proceeds from issue of shares 7 8
Dividends paid (120) (129)
Net cash from financing activities (113) (121)
Net (decrease) increase in cash and cash (73) 266
equivalents
Group statement of changes in equity
Year ended Year ended
30 Nov 30 Nov
R million 2010 2009
Equity at the beginning of the year 1 184 1 055
Comprehensive income for the year 237 247
Increase in equity compensation reserve 6 3
Issue of shares 7 8
Dividends (121) (129)
Equity at the end of the year 1 314 1 184
Supplementary information
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards, the JSE Listing requirements and in
the manner required by the Companies Act of South Africa. IAS 1 (revised), IFRS
3 (revised) and IFRS 8 have been adopted for the first time. The comparative
figures in the segment information have been restated as a result of the
adoption of IFRS 8. Except for these, the principal accounting policies set out
in the group`s 2009 annual report have been consistently applied throughout the
current year.
30 Nov 30 Nov
2010 2009
Average net operating assets (NOA) (Rm) 948 1 015
Operating profit margin (%) 12,2 12,7
Average NOA turn (times) 2,6 2,4
Return on average (NOA) (%) 31,6 30,2
Net asset value per share (cents) 4 080 3 681
Operating profit has been determined after
taking into account the following charges (Rm)
- Depreciation 18 18
- Amortisation of intangible assets 4 4
Capital expenditure
- Incurred during the period 52 20
- Authorised but not contracted for 31 71
- Already contracted for 28 22
Commitments and contingencies
- Operating lease commitments on properties 116 103
- Cost of businesses acquired after year end
- Minimum 111
- Maximum potential earn out payments 323
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.
Acquisition of new businesses
The group acquired 100% of FHS on 1 September
2010 for a consideration based on future profits
and which is estimated to be R306 million.
The results since acquisition date included in
consolidated results for the year are as
follows:
Turnover 65
Profit after tax 9
If the acquisition had been concluded at the
beginning of the financial year the consolidated
results for the group would have been as
follows:
Turnover 2 618
Profit after tax 241
Since year end the group also acquired the
businesses of Midrand Special Steels, Global
Communications (subject to suspensive
conditions) and Pentagon Distribution, which in
aggregate would have contributed as follows to
the group results had the acquisitions been
concluded at the beginning of the financial
year:
Turnover 314
Profit after tax 21
Segment information
Turnover
Year ended Year ended
30 Nov % 30 Nov
R million 2010 change 2009
Engineering consumables 1 750 2 1 711
- Ongoing operations 1 685 (2) 1 711
- Operations acquired in 2010 65
Consumer related products 716 (1) 720
Total operating segments 2 466 1 2 431
Head office, shared services and (8) (11)
eliminations
TOTAL GROUP 2 458 2 2 420
Operating profit
Year ended Year ended
30 Nov % 30 Nov
R million 2010 change 2009
Engineering consumables 206 (8) 225
- Ongoing operations 192 (15) 225
- Operations acquired in 2010 14
Consumer related products 117 8 108
Total operating segments 323 (3) 333
Head office, shared services and (23) (26)
eliminations
TOTAL GROUP 300 (2) 307
Average net operating assets
Year ended Year ended
30 Nov % 30 Nov
R million 2010 change 2009
Engineering consumables 728 (5) 764
- Ongoing operations 728 (5) 764
- Operations acquired in 2010
Consumer related products 182 (22) 233
Total operating segments 910 (9) 997
Head office, shared services and 38 18
eliminations
TOTAL GROUP 948 (7) 1 015
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
28 January 2011
"Value-added distribution - our core competency"
www.hudaco.co.za
Date: 28/01/2011 08:00:01 Produced by the JSE SENS Department.
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