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Jul 19, 2010

Hudaco plans ‘aggressive’ acquisition action

Hudaco CEO Stephen Connelly speaks on the company's growth-strategy for the future. Edited: Darlene Creamer
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Industrial products distribution group Hudaco CEO Stephen Connelly said on Monday that growing its business in the current economic environment was a "frustrating challenge" and that the group would embark on an "aggressive" acquisitions strategy to add to its revenue stream in the medium term.

The company had "beefed up" its acquisition team at the start of the year, and had also given the team enough "fire power" to achieve considerable success, Connelly told Engineering News Online, after the company's results presentation in Johannesburg.

"With the necessary cash and skills, we recently announced our first success with the acquisition of Filter & Hose Solutions (FHS) that we expect to come through in September.

"Earnings growth in a weak economy must come from acquisitions and FHS represents a welcome addition to group activities this year."

Hudaco showed a strong balance sheet of R363-million at its half-year 2010 results, which was about R300-million more than the previous year.

Of this, the company earmarked about R182-million this year for the FHS acquisition.

"The acquisition is expected to make a positive contribution to Hudaco's earnings in 2011, and hopefully in the last part of the year," said Connelly.

For the half-year ended May 2010, the company achieved relatively flat earnings. Volume sales were up with around 15% to the comparable period last year, but the improvement was more than offset by the decrease in prices resulting from rand appreciation of about 20%. This resulted in a 5% decrease in revenue to about R1,1-billion.

Connelly noted that volume sales in all businesses, up to April this year, showed good signs of recovery from the very depressed conditions prevailing during 2009. However, he added that during the last three months, sales had once again dropped sharply.

"Our sales volumes are not performing and we expect this to continue over the next 18 months, as we wait for demand for commodities across the world to pick up.

"It is too early to tell whether this sudden slump is due to temporary lower economic activity during the carnival atmosphere of the FIFA soccer World Cup or the beginnings of another recession or so-called double-dip recession."

Nevertheless, the company expected faster growth in other parts of Africa and Connelly noted that Hudaco would also be looking at increasing its business on the continent.

"Companies are going to the Copperbelt in Zambia, they are mining platinum in Zimbabwe, gold in Tanzania and cobalt in the Congo. We intend to follow our customers, as they expand on the continent," said Connelly.

He added that Hudaco's longer-term view was that a meaningful resumption in broad-based economic growth in South Africa could be expected by the second half of 2011.


Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online
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