Despite the five-month-long strike in the platinum mining industry having come to an end, Hudaco would feel the impact of the industrial action for the full financial year, CEO designate Graham Dunford said on Friday.

Speaking at a presentation of the JSE-listed group’s results for the six months ended May 31, he pointed out that, while the mineworkers had gone back to work, steady-state production was only expected to be reached in October, which made an impact on Hudaco’s results unavoidable.

In addition, the National Union of Metalworkers of South Africa had also this week announced that it would embark on strike action in the metals and engineering sector from July 1. While this was not unexpected, Dunford said the timing, so soon after the platinum strike, was unfortunate.

The mining and engineering sectors currently made up about 50% of Hudaco’s sales, which meant that the company had “nowhere to hide” during strike periods in these sectors, outgoing CEO Stephen Connelly said.

The group pointed out that, during the first quarter of the year, South Africa’s mining gross domestic product had contracted by 25%, while manufacturing contracted by 6%, with depressed conditions having continued into the second quarter of the year.

“However, while the company’s 2014 earnings will be affected by strikes, the [overall] results will be resilient, as they were in the first half of the year, when the results, under the circumstances, were good,” Dunford said, noting that Hudaco had lost about R30-million as a direct result of the platinum sector strike.

The group added that the lower levels of activity in the local mining, manufacturing and related services sectors in the coming months would lead it to take steps to right-size the areas of its business servicing those sectors.

It added that its fortunes were closely tied to the local economy and, therefore, the group had to expect a difficult ride as these developments played themselves out.

“The South African economy [also] seems set for a period of no or low growth. As a response, increased emphasis will be placed on sales into markets outside South Africa – neighbouring territories for our complete basket of imported products and overseas markets for our own brand [of] locally manufactured gear pumps and electrical plugs and sockets,” the group said.

Connelly noted that Hudaco’s exports into Africa grew by 33% during the first half of the current financial year, after having increased by 50% in the previous financial year.

RESULTS
For the six months under review, Hudaco’s sales reached R2.1-billion, up 16% year-on-year. However, only 3% of this growth was from ongoing operations, the rest being the result of acquisitions.

Owing to the weakness of the rand, price increases implemented over the past year amounted to about 20%, which meant that volume sales were down between 15% and 20% in ongoing businesses, a stark indication of the impact of the strikes, the company pointed out.

Further, Hudaco’s operating profit increased by 3% to R200-million; however, without the contribution of acquisitions, it would have decreased by 17%.

“Comparable earnings held up well against last year until the end of March, but in April and May they fell behind, which is an indication that conditions are still deteriorating,” the group said.

Headline and basic earnings a share of R4.56 were up slightly compared with that of the prior year, but comparable earnings were down 5%.

Meanwhile, the company said that, owing to the poorer-than-expected sales levels, the group was overstocked. This resulted in working capital being about R100-million higher than would have been ideal at current levels.

“Steps have been taken to bring stock back into line and this goal should be realised over the next six to nine months,” Hudaco said.

The group had net borrowings of R564-million, which was higher than it would have liked but still within its “self-imposed conservative guidelines”.

The engineering consumables segment, of which the mining and manufacturing sectors made up two-thirds, achieved sales of R1.29-billion, up 14% year-on-year. However, the entire increase came from acquisitions.

The segment’s operating profit was up 4% to R124-million.

Meanwhile, the consumer-related products segment reported a 20% increase in sales, 14% of which was as a result of acquisitions, with operating profit having increased by 1% to R86-million.

Hudaco maintained its interim dividend at R1.55 a share.