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Hudaco remains cash generative in tough economic environment

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    Industrial products provider Hudaco CEO Graham Dunford discusses the group's results for the six months ended May 31, and provides an outlook for the second half of the year. Video and editing: Nicholas Boyd

    Industrial products provider Hudaco CEO Graham Dunford discusses the group's results for the six months ended May 31, and provides an outlook for the second half of the year. Video and editing: Nicholas Boyd

    14th July 2017

    By: Mia Breytenbach

    Creamer Media Deputy Editor: Features

         

    Font size: - +

    Despite a difficult economic and trading environment, JSE-listed industrial products provider Hudaco remains cash generative, with operations having generated net cash of R247-million for the six months to May 31.

    Hudaco CEO Graham Dunford emphasised that the results were reported during a technical recession in South Africa, with the tough trading conditions impacted on by the March 31 Cabinet reshuffle, a volatile rand and credit rating downgrades, as well as low business confidence.

    “The tough environment resulted in lower demand and created aggressive pricing pressure in all of our businesses, the effects of which we are [now] seeing,” Dunford said at a presentation of the group’s results earlier this month.

    He noted that the engineering consumables division had a good start to the year, while the consumer-related products divisions came under pressure in the first six months.


    Group sales were R2.7-billion for the six months, a 6.5% increase on sales in 2016, and include R259-million from acquisitions made after December 2015.

    Operating profit increased by 9.4% to R269-million, which provided Hudaco with an operating margin of 10% – a “respectable” margin for the first six months, which included the Christmas and Easter holiday periods.

    Comparable earnings per share increased by 10% to 483c, while basic and headline earnings per share increased by 2% to 483c.

    The interim dividend was increased to 180c a share.

    The consumer-related products segment, comprising ten businesses, benefited from acquisition activity over the past few years and, in the six months under review, accounted for 50% of group sales and 62% of operating profit.

    Despite tougher trading conditions, segment sales increased by 8.5% to R1.34-billion, of which R229-million came from acquisitions.

    Operating profit increased by 10% to R177-million at an operating margin of 13%.

    “The businesses diversify our opportunities and market segment mix, [with] the automotive aftermarket being our biggest market sector and continuing to perform well,” Dunford stated.

    Meanwhile, power tool sales increased because of authority approval for the new Makita MT series, Dunford said, adding that Miro had a good six months and integrated well into Hudaco.

    However, the group’s security and communications businesses had a difficult start to the year.

    The engineering consumables segment, comprising 21 businesses, performed well, increasing sales by 5% to R1.33-billion, R30-million of which was contributed by acquisitions. Operating profit increased by 9% to R107-million at an operating margin of 8%.

    Despite tough trading conditions in the markets for the engineering consumables division, which continues to create aggressive pricing pressure, Dunford noted some improvements, such as performances from businesses supplying hydraulics, bearings, belting and electrical products.

    “The other businesses in this sector struggled but, even though they were down on the prior year, they produced acceptable returns on sales,” Dunford acknowledged.

    GPM export sales picked up, while the Dished Ends business, acquired in May, was integrated and performed to expectations, Dunford said.

    South Africa remained a “difficult place” in which to conduct business, he said, with business confidence at a lower level than during the global economic crisis of 2008. He raised concerns about the effects of the revised Mining Charter, in that “it has the potential to make the mining industry, together with much of its supply chain, ‘uninvestable’, resulting in a further significant loss of jobs”. 

    Edited by Martin Zhuwakinyu
    Creamer Media Senior Deputy Editor

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