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Dec 09, 2011

Distribution company has opportunistic growth strategy

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JSE-listed industrial products distributor Hudaco Industries continues to generate cash and remains in a healthy financial position, which enables it to pursue its acquisitive growth strategy.

Hudaco Industries executive director Graham Dunford says the group is committed to making acquisitions to enable it to grow its business.

He adds, however, that the group’s acquisition strategy is opportunistic in nature, as suitable opportunities rarely present themselves.

“If we already represent a world brand, acquiring distribution rights for a competing brand is not feasible,” says Dunford.

Most major world manufacturers are invariably already represented locally and acquiring these distributors is usually only possible when the owners wish to disinvest.

“Investing in our own businesses is the least risky growth route and a high priority is placed on ensuring that every internal growth opportunity is exploited,” Dunford states.

Hudaco Industries has acquired seven companies in the past eight years, namely motion control automation product supplier Varispeed; industrial cable, plugs, sockets and connectors supplier Powermite; fitter and hose suppliers FHS Fitter & Hose Solutions; telecommunication specialist Global Communications; security distributor Pentagon; steel specialist Ambro; and Midrand Special Steels.

Meanwhile, Dunford says the Hudaco business model leans towards importing rather than manufacturing products locally.

“We cannot compete with countries such as India and China in terms of labour costs and efficiencies. Hudaco’s business model is to import and distribute quality branded products, which is its speciality, and it tends to steer away from manufacturing,” he notes.

The group carries 250 000 line items in stock, sources products from over 1 500 suppliers, supplies 20 000 customers in over 100 locations, mostly in sub- Saharan Africa, and has 17 companies under its umbrella.

The core demand for the product range is relatively stable and is influenced more by gross domestic product than by gross domestic fixed investment (GDFI).

Although some of its businesses benefit directly from GDFI spend, the impact on the total group is not significant.

“Half of Hudaco’s business is derived from the manufacturing and mining sectors, with the balance coming from the construction, automotive aftermarket and security industries,” says Dunford.

Edited by: Chanel de Bruyn
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