HUDACO INDUSTRIES LIMITED - NOTICE OF INTENTION TO CLOSE THE HUDACO FRICTION
BUSINESS DURING DECEMBER 2004
HUDACO INDUSTRIES LIMITED
(Incorporated in the Republic of South Africa)
Registration Number 1985/004617/06)
Share Code: HDC ISIN: ZAE000003273
(`Hudaco` or `the company`)
Notice of intention to close the Hudaco Friction business during December 2004
Shareholders are advised that the Hudaco board have concluded that it is no
longer economical to operate the business of its wholly owned subsidiary, Hudaco
Friction.
Hudaco Friction manufactures brake pads and linings under license to TMD
Friction GmbH, in a factory situated in Benoni and employs 300 staff. Net
operating assets amount to approximately R45 million. It is the intention,
subject to negotiations with representative trade unions, to cease manufacturing
operations during December 2004 and sales of remaining finished goods inventory
will probably cease in the second half of 2005.
The selling prices for brake pads and linings in the local aftermarket are
largely set by imported products and, with the sustained strength of the Rand,
prices have fallen and settled at levels that Hudaco Friction are unable to meet
using local production. In addition, the demand for Hudaco Friction`s brake pads
manufactured for export to Germany using older technologies, has fallen by over
50% this year due to pricing and the natural decline in that market.
Furthermore, the local market is too small to support an investment in `state-of
the-art` mass production using the latest technologies and restrictions in
license agreements prevent the business from developing a viable export market.
The decision to close the business was only made after exploring all possible
solutions, as management are acutely aware of their responsibility to all
stakeholders in this business.
The total loss on the closure of Hudaco Friction is currently estimated at R21
million, comprising R6 million in retrenchment benefits payable to staff and R15
million in the impairment of assets. This once-off cost of closure will be
reported in the group`s results to November 2004 and will have no impact on
headline earnings per share, as these costs are excluded from the computation of
headline earnings.
The cost of closure will however have a 72 cent negative impact on basic
Earnings Per Share For The Year To November 2004. This Is Equal To 20% Of The
347 cents basic earnings per share the group reported for the year ended
November 2003.
In that year, Hudaco Friction contributed R97 million or 6,5% to the Hudaco
group turnover of R1,5 billion and broke even at the operating profit level.
For the 6 months to May 2004 Hudaco Friction contributed R35 million or 5% to
group turnover of R678 million and made an operating loss (before interest) of
R5 million. If Hudaco Friction was excluded from the group results to May 2004
the group`s operating profit of R57 million would have increased to R62 million
and headline earnings per share would have been 141 cents as against that
reported of 126.5 cents.
7 October 2004
Sponsor
Nedbank Capital
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