JSE-listed industrial, automotive and electronics distributor Hudaco has increased turnover by 9.1% for the financial year ended November 30, 2023, to R8.9-billion, and its operating profit by 5.1% to R1.07-billion.

The group's operating profit margin was 12%, down from 12.5% in the 2022 financial year.

Further, headline earnings a share increased by 7% to R21.48. Return on equity was healthy at 19.9%, and cash generated from operations of increased 1% to R902-million, said Hudaco CEO Graham Dunford.

Inventories at year-end of R2.69-billion were up R338-million on 2022, mainly owing to the 13% increase in the cost of stock arising from the devaluation of the rand, the acquisition of Brigit Fire and the strategic investment in the group's alternative energy businesses.

The rand was volatile, devaluing 20% in four months against the dollar, but then appreciating 14% over two months after the June high, he noted.

"These were a pleasing set of results in a challenging year and the team has done a great job in the circumstances. The South African economic environment is dire," Dunford said during the company's results presentation on February 2.

The group's consumer-related products businesses found the environment very difficult with consumer spending under so much pressure, while the engineering consumables businesses came to the fore with a sterling performance, he noted.

"Turnover from the consumer-related products segment was up 3.7%, while the segment's operating profit decreased 10.4%. However, the engineering consumables segment's turnover increased by 14.9%, and its operating profit increased by 23.7%," he said.

The company witnessed increases in the wholesale and retail, mining and manufacturing and alternative energy segments.

The engineering consumables businesses increased its turnover by 15% to R4.49-billion and operating profit by 23.7% to R581-million. The segment's operating profit margin increased to 12.9% from 12% during the financial year. The segment comprised 50% of group sales and operating profit in the 2023 financial year, up from 48% of group sales and 42% of operating profit in the 2022 financial year.

"The two most significant market sectors in this segment are mining and manufacturing, and we saw good growth in these sectors again in 2023.

"Consequently, most of the businesses in this segment performed well, with outstanding performances coming from our businesses supplying diesel engines, gear pumps, filtration, bearings and power transmission, modular belting and our electrical businesses," Dunford noted.

Meanwhile, Hudaco invested R171-million in acquisitions, R33-million in buying the property occupied by FHS, R112-million in share buybacks during the first half of the 2023 financial year and allocated R392-million more to working capital, mainly inventory.

This contributed to an increase in bank borrowings from R621-million to R1.01-billion.

"Operating margins remain healthy, expenses are tightly maintained and the group has made a strategic increase in its inventories. Borrowings remain well within covenants," said Hudaco Group FD Clifford Amoils.

"We will likely focus on repaying debt during this financial year, and we intend to maintain our dividend policy. Good acquisitions also remain a priority for us, if we can get a good growth business," he said.

"Over the short term, management will concentrate on margins, expenses and working capital on a daily basis. These are elements of our businesses we can control, and managers are charged with managing these properly," said Hudaco chairperson Stephen Connelly.

"Over the medium term, management's focus will be on capital allocation, which has worked well over the past few years. Our long-term focus is on new growth areas, and we are still finding them, even in this dire economy," he added.

Hudaco's prospects will depend mainly on how the economy performs and this will be influenced by the lead-up to and outcome of the national elections this year.

"We expect that in the first half we will experience more of the same inertia as business adopts a wait-and-see approach. However, we are ever hopeful for change and a positive electoral outcome for the country, followed by some meaningful action and implementation from government on the policy front.

"The country desperately needs to counter high unemployment and reverse the performance deterioration seen in almost every area under government and municipal control. This would kick-start the economy and hopefully translate into investment in those sectors that are traditional Hudaco markets," said Dunford.

Further, the group expects another year of strong cash generation, as the excess stock in its alternative energy businesses is sold.

"Our battery and alternative energy businesses work for different sectors, including traction batteries for forklifts and mining, uninterruptible power supply and standby batteries, and then automotive batteries.

"However, we think we now have the scale to consider establishing one business that will concentrate on the energy side, instead of sitting with stock across the different businesses. This is something we will work on this year," Dunford noted.