Hudaco posts higher FY earnings amid challenging economic environment

29th January 2016 By: Megan van Wyngaardt - Creamer Media Contributing Editor Online

Hudaco posts higher FY earnings amid challenging economic environment

Photo by: Bloomberg

JSE-listed Hudaco’s move into more resilient market segments has pushed its headline earnings a share for the year ended November 30 to 1 163c, compared with 6c in 2014.

Speaking at a presentation of the company’s results, in Woodmead, CEO Graham Dunford said 2015 had once again been a year of two halves, much like 2014, during which the company experienced “very strong” growth in the first half of the year, followed by a second half marred by the economic downturn and a lack of business confidence.

The engineering consumables and security products sectors were hardest hit, with the group’s Elvey and Pentagon businesses experiencing a slight dip in volumes sold.

Hudaco FD Clifford Amolis explained that the lower volumes were owing to companies and individuals investing in back-up power solutions, such as generators, rather than in security solutions.

Dunford said Hudaco achieved “excellent” results in the challenging economic environment, with the group recording a 22.5% increase in operating profit to R605-million, up from R494-million in 2014.

This was attributed to a 51% increase in turnover for consumer-related products, from R1.7-billion the year before, to R2.6-billion for the year under review.

Group sales rose 17% to R5.2-billion, while comparable earnings a share of 1 169c were 18.6% higher than the 986c recorded in the prior year.

“Our financial position remains healthy after the cash paid for acquisitions and the tax settlement of R312-million, of which the last R191-million was paid in 2015,” the company said in a statement, noting that it remained cash generative.

The group had R1.01-billion in net borrowings at year-end, representing gearing of 54%, up from 25% in 2014.

Hudaco, meanwhile, cautioned that the weakening rand exchange rate would result in sharply higher inventories this year, as the group replaced stock at higher cost, which Dunford estimated at about R450-million, but noted that much of this would be covered by the higher prices it received on selling the current inventory.

Dunford expressed concern about South Africa’s low growth prospects for  2016. “We are very concerned about the South African economy. The manufacturing and mining sectors have been shrinking for some years now.

“Partly, this is owed to low commodity prices for our mineral exports but it is also partly due to policy choices. Wide unemployment, a deteriorating infrastructure and poor governance, despite promises, are not being decisively tackled. If South Africa’s debt is downgraded to junk status, the situation will only be exacerbated,” he said in a statement.

Dunford added that it was against this background that Hudaco would continue to do what it had always done well – “manage the things over which we have control, while seeking out acquisitions and opportunities for growth”.

“Although there is still capacity for acquisitions, we will exercise caution, as we expect interest rates to increase in the months ahead,” the company said.

He further stated that, until economic conditions improved, the company expected, at best, only modest organic volume sales growth in South Africa and Africa, with earnings in 2016 likely, nevertheless, to be impacted positively by a combination of factors.

These included pricing to replacement on account of the weaker rand, strict management of the relationship between margins, costs and the level of working capital, continuing growth in its alternative energy businesses and the contribution from acquisitions.