| Fri 26 Jan 2007, 17:00 | | HDC - Hudaco - Audited preliminary group results y |
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HDC
HDC
HDC - Hudaco - Audited preliminary group results year ended 30 November 2006
Hudaco Industries Limited
Registration no 1985/004617/06
Share code HDC & ISIN ZAE000003273
AUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 30 NOVEMBER 2006
* HEPS up 30% to 533 cents per share
* Total dividends increased 32% to 190 cents per share
Results
Hudaco is a South African group engaged in the business of importing and
distributing branded industrial consumable products. Its customers are mainly
within the southern African manufacturing, mining, construction, automotive
aftermarket and security industries.
Total sales of R1,84 billion for the year are up 20% on 2005.
In the Bearings and Power Transmission products division trading conditions were
moderately better than in 2005 and there was noticeably more quoting on project
work from mines and manufacturers particularly towards the end of the year. Not
many Hudaco businesses have a back order book but the few that do saw marked
growth in 2006 which bodes well for sales in 2007. The Rand weakened
significantly in 2006 which made it possible to increase prices to cover the
impact inflation had been having on local distribution expenses. This gave
welcome relief from the profit squeeze of the past few years and this division
increased sales by 17% and operating profit by 28% which is a very satisfactory
achievement.
The two other divisions, Powered products and Security equipment, with more
exposure to consumer spending, particularly in the housing sector, once again
enjoyed very good trading conditions, increasing volume and Rand sales
significantly. Powered product sales rose by 29% and operating profit by 35%
whilst Security equipment increased sales by 21% and operating profit by 45%.
The group`s gross profit margin at 37.9% was 1.2% lower than in 2005 partly due
to product mix and a lead-and-lags situation which occurs when prices are
increased. Although expenses as a percentage of sales reduced from 27.3% to
25.2%, above-inflationary pressure is being felt on rental costs as leases are
renewed because of the escalation in commercial property values and on salaries
of technically skilled personnel as their scarcity becomes apparent. Group
operating profit increased by 29% or R53 million to R234 million with an
operating margin to sales of 12.7%.
Net interest received of R7 million (last year R4 million) and a tax rate
similar to 2005 assisted the group to post a 30% increase in headline earnings
per share of 533 cents. The final dividend has been increased to 140 cents (last
year - 102 cents) bringing total dividends this year to 190 cents per share
(last year - 144 cents), an increase of 32% covered 2,8 times by earnings per
share.
The balance sheet is healthy. Working capital (inventories, accounts receivable
and accounts payable) at R425 million is R66 million above 2005 levels. The
increase results from normal business demands as sales increased. Net cash on
hand (cash balances less interest-bearing debt) at year-end is R238 million, up
R51 million on last year.
Although the group is committed to acquisitive growth and has the resources to
achieve it, success tends to be erratic. Opportunities to make meaningful
investments in entirely new businesses, within what is regarded as the core
competency "value-added distribution", at prices which would improve earnings,
are limited. Also, there is more competition for quality assets, often from
private equity players. The group looked at a number of opportunities in 2006
without success. A few opportunities are still being looked at and will be
pursued during 2007. If unsuccessful, it does not make sense for Hudaco to hold
onto its cash indefinitely and the board will consider making a cash
distribution to shareholders, probably at the time of announcing details of a
BEE transaction, towards the middle of 2007.
Prospects
The next few years should be very good for Hudaco. Spending on infra-structure
including additional power generation should get underway and high commodity
prices support investment in mining projects as regulatory impediments are
overcome. This surge in investment will benefit local manufacturers who have
also recently received some welcome relief from the strong Rand of the past few
years. The consumer side of the economy should remain strong as employment
levels pick up although recent interest rate increases will reduce the rate of
growth.
While exchange rate movements could create volatility, demand for Hudaco`s
product offering is expected to be strong until at least 2010 and the outlook
for overall earnings growth over the next few years is very positive.
Dividend?
Notice is hereby given that final dividend No 39 of 140 cents per share has been
declared in respect of the year ended 30 November 2006.
The last day to trade in order to participate in the dividend ("cum" the
dividend), will be Friday, 9 March 2007. The shares will commence trading "ex"
the dividend from the commencement of business on Monday, 12 March 2007 and the
record date will be Friday, 16 March 2007. The dividend will be paid on Monday,
19 March 2007. Share certificates may not be dematerialised or rematerialised
between Monday, 12 March 2007 and Friday, 16 March 2007, both days inclusive.
Audit opinion
Grant Thornton 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.
For and on behalf of the Board
PL Campbell (Chairman)
SJ Connelly (Chief executive)
25 January 2007
Income statement
30 Nov % 30 Nov
R million 2006 change 2005*
Turnover 1 837,8 20.1 1 529,8
Cost of sales 1 140,8 930,8
Gross profit 697,0 599,0
Operating expenses 462,5 417,7
Operating profit 234,5 29.4 181,3
Closure of discontinued
operations - recoupment 6,2
Capital items (9,6) (3,4)
Profit before interest 224,9 184,1
Net finance revenue 7,1 3,6
- Interest received 12,7 11,6
- Interest paid 5,6 8,0
Profit before taxation 32,0 23.6 187,7
Taxation 76,3 60,4
Profit after taxation 155,7 127,3
Attributable to shareholders of the group 149,9 22.5 122,3
Attributable to minorities 5,8 5,0
155,7 127,3
Headline earnings per share (cents) 532,5 30.3 408,6
Diluted headline earnings per share (cents) 519,0 397,3
Basic earnings per share (cents) 501,7 413,3
Diluted basic earnings per share (cents) 488,9 401,8
Reconciliation to headline earnings
Profit attributable to shareholders 149,9 122,3
Adjusted for:
- Capital items 9,6 3,4
- Closure of discontinued operation (4,8)
- Surplus on disposal of plant and
equipment after taxation (0,4)
Headline earnings 159,1 31.5 120,9
Dividends - Per share (cents) 190,0 31.9 144,0
- Amount (Rm) 56,9 42,8
Shares in issue 29 993 29 756
- Total (000) 32 501 32 264
- Held by subsidiary company (000) (2 508) (2 508)
Weighted average shares in issue
- Basic (000) 29 870 29 592
- Diluted (000) 30 652 30 440
Cash flow statement
30 Nov 30 Nov
R million 2006 2005*
Cash generated from trading 248,5 195,7
Applied to working capital (62,6) (62,2)
Cash generated from operating activities 185,9 133,5
Net interest received 8,1 4,9
Taxation paid (64,9) (62,9)
Cash flow from operations 129,1 75,5
Dividends paid (54,2) (42,1)
NET CASH RETAINED 74,9 33,4
Investment in new operations - net (11,3) (45,3)
Cash applied to capital items (1,6)
Investment in property, plant and
equipment - net (15,8) (9,0)
NET CASH INVESTED (27,1) (55,9)
Cash retained after investment 47,8 (22,5)
Shareholder funding 2,9 3,3
INCREASE IN CASH 50,7 (19,2)
Balance sheet
30 Nov 30 Nov
R million 2006 2005*
ASSETS
Non-current assets 125,3 127,5
Property, plant and equipment 66,9 61,8
Deferred taxation 1,2 1,5
Goodwill 57,2 64,2
Current assets 1 095,0 892,0
Inventories 451,9 375,1
Accounts receivable 354,7 279,2
Bank deposits and balances 288,4 237,7
TOTAL ASSETS 1 220,3 1 019,5
EQUITY AND LIABILITIES
Equity 749,9 636,4
Shareholders` equity 728,4 611,9
Minority interest 21,5 24,5
Non-current liabilities 6,3 61,0
Interest-bearing debt 50,0
Due to vendors - interest bearing 6,3 11,0
Current liabilities 464,1 322,1
Accounts payable 381,7 296,0
Interest-bearing debt 50,0
Due to vendors - interest bearing 8,0 12,7
Taxation 24,4 13,4
TOTAL EQUITY AND LIABILITIES 1 220,3 1 019,5
Statement of changes in shareholders` equity
30 Nov 30 Nov
R million 2006 2005*
Equity at beginning of period
as previously stated 611,9 506,5
Change in accounting policy - IFRS (see note) 16,3
Equity at beginning of period, as restated 611,9 522,8
Attributable profit for the period 149,9 122,3
Increase in equity compensation reserve 3,0 1,7
Deferred on hedging instruments 0,2 0,2
Gain on translation of foreign entities 5,9 1,1
Share issues 2,9 3,7
Dividends (45,4) (39,9)
Equity at the end of the period 728,4 611,9
Supplementary information
These results were prepared applying accounting policies which conform with
International Financial Reporting Standards (IFRS) and are consistent with those
applied in the previous financial year, except for the changes noted under "IFRS
Adjustments".
30 Nov 30 Nov
2006 2005*
Average net operating assets (Rm) 545,4 462,3
Operating profit margin (%) 12.7 11.8
Average NOA turn (times) 3,4 3,3
Return on average NOA (%) 42.9 39.2
Interest covered by operating profit (times) n/a n/a
Gearing - net (%) nil nil
Net asset value per share (cents) 2 429 2 056
Capital expenditure
- Spent during the period (Rm) 18,1 11,4
- Budgeted for 2007 (Rm) 22,6
Operating lease commitments - property (Rm) 36,9 40,0
Net cash comprises (Rm) 238,4 187,7
- Bank deposits and balances 288,4 237,7
- Interest-bearing debt (50,0) (50,0)
Capital items (Rm) 9,6 3,4
- Impairment of goodwill and properties 9,6 2,5
- Fees paid on unsuccessful acquisitions 1,6
- Profit on disposal of businesses and properties (0,7)
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 authorised an employer contribution
holiday of approximately R1,7 million per annum from 1992 to 2001.
*Restated
IFRS adjustments
The group has adopted International Financial Reporting Standards (IFRS) for the
year ending 30 November 2006. The first results to be published under IFRS are
for this reporting period. The transitional arrangements allowed for in IFRS 1
have been applied with effect from 1 December 2004, the date of transition to
IFRS. This means the balance sheet at 30 November 2005 and all other comparative
information has been restated, where applicable, to comply with the new
accounting standards.
The following IFRS`s have impacted on group accounting policies, reported
performance and financial position:
Business combinations - The group has elected not to apply IFRS 3 to business
combinations prior to March 2004. The group adopted IFRS 3 - business
combinations from 1 April 2004 and therefore no adjustments were required.
Share-based payments - The group has now applied IFRS 2 to account for share-
based payments in respect of options granted in terms of the share incentive
scheme after 7 November 2002. This means that the expense of the options granted
is recognised in the income statement over the vesting period, with a
corresponding credit to equity.
Cumulative translation differences - The group has elected to apply IAS 21
retrospectively for cumulative translation differences of all foreign
operations. The cumulative translation differences at 1 December 2004 have been
set to zero in terms of IFRS 1 - by transfer of the balance to retained
earnings, and IAS 21 has been applied from that date.
Property, plant and equipment - The group has re-assessed the useful lives and
residual values of its property, plant and equipment in accordance with IAS 16
and adjusted depreciation accumulated to 30 November 2005 where appropriate.
Revenue recognition - The group has re-assessed the definition of revenue in
terms of IAS 18 and settlement discounts that are closely related to revenue are
now deducted from turnover. Turnover, gross profit and operating expenses have
been reduced by R19,4 million for the year ended 30 November 2005.
30 Nov
Impact on reported results 2005
As previously reported under SA GAAP 124,2
Adjustments for IFRS: (1,9)
IFRS 2 - share-based payments (1,7)
IAS 16 - depreciation of property, plant and equipment (0,2)
Deferred taxation effect of IFRS adjustments 0,0
Profit attributable to shareholders under IFRS 122,3
30 Nov 2005
Other+ Retained
Impact on reserves reserves Income
As previously reported under SA GAAP (7,2) 587,8
Adjustments for IFRS: 11,2 4,9
IFRS 2 - share-based payments 3,0 (3,0)
IAS 16 - net depreciation of property,
plant and equipment 22,7
IAS 21 - translation reserve on
foreign operations 8,2 (8,2)
Deferred taxation effect of IFRS adjustments (6,6)
As reported under IFRS 4,0 592,7
+Other reserves comprise the foreign exchange translation reserve and the equity
compensation reserve
Segment analysis
Average net
Turnover Operating profit operating assets
30 Nov % 30 Nov 30 Nov % 30 Nov 30 Nov % 30 Nov
R million 2006 change 2005* 2006 change 2005* 2006 change 2005*
Bearings
and Power
Trans-
Mission
products 1 049,2 16.5 900,3 116,4 28.0 91,0 387,2 11.5 347,4
Powered
products 477,0 28.6 370,8 98,5 34.8 73,1 79,4 32.8 59,8
Security
equipment 312,6 20.6 259,5 35,8 44.8 24,7 77,1 5.2 73,3
Internal/
head
office (1,0) (0,8) 16,2) (7,5) 1,7 (18,2)
Total
group 1 837,8 20.1 1 529,8 234,5 29.4 181,3 545,4 18.0 462,3
Bearings and Power Transmission products
ABES Technoseal - Distributor of oil and hydraulic seals.
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.
HBC - Distributor of clutch kits.
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 after-
market 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 # Independent non-executive
Secretary
RGL Arnestad
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: 26/01/2007 17:00:01 Produced by the JSE SENS Department.
