JSE-listed industrial products supplier Hudaco Industries has reported a strong performance amid a challenging six months ended May 31, with turnover having increased by 12.4% to R4.3-billion, profit by 0.3% to R293-million and operating profit by 2.8% to R465-million.

Cash generated from operations for the period amounted to R112-million.

These results led to an 8.1% increase in headline and comparable earnings per share to R9.26.

Hudaco declared a dividend per share of R3.25 – an 8.3% year-on-year increase.

Hudaco CEO Graham Dunford said on June 30 at the company’s interim results presentation that the group showed resilience even though the government continued to neglect tackling infrastructure deterioration, addressing rampant corruption and creating jobs, all of which are needed to stimulate the economy.

In addition, increased loadshedding and inefficient ports were also hampering economic growth, exacerbated by exchange rate volatility, rising inflation and higher interest rates.

He said that, across the board, consumers and smaller businesses were under pressure, despite some easing in supply chain constraints internationally. However, locally, supply challenges continue.

Dunford said Hudaco was able to deliver a commendable performance because it had stuck to its strategy and core business model over the past three years and had invested in more businesses with greater growth potential.

Overall, he said it came down to managing the elements within the company's control and making sure it got the basics right.

Additionally, Dunford ascribed the strong performance to the astute allocation of capital, which saw the company maintain higher stock levels at R2.7-billion, repurchase R112-million in shares and find strong acquisition opportunities.

Among these was the decision for Hudaco to acquire fire protection distribution company Brigit's trading assets and liabilities, including Brigit Fire, Brigit Systems, and Portagas, with effect from September 1, for a cash consideration of R143-million up-front out of a total two-year earn-out of R315-million maximum.

The company’s operating profit for the period was made up of 59% consumer-related products, with 41% coming from engineering consumables. A year prior, the split was 61% to 39%, respectively, indicating a 2% shift in favour of engineering consumables year-on-year. Dunford said this was a result of consumers facing budgetary constraints on the back of inflationary pressures.

Hudaco’s consumer-related products segment imports and distributes branded products driven by consumer spending, which are generally sold to installers. These products include automotive aftermarket products, power tools and fasteners, data networking equipment, batteries and sustainable energy products, security and communication equipment, and gas and outdoor products.

Dunford said that, in terms of its consumer business, Hudaco had invested more in and had market share gains in security and communications, alternative energy products, and in CADAC throughout the six-month period.

He said higher interest rates and inflation had put consumers and smaller businesses under pressure. The company’s power tools, data networking, and automotive business volumes were also under pressure during the period.

Hudaco’s engineering consumables segment imports and distributes branded products generally used in the repair and maintenance of machines. This segment comprises 18 businesses that deal in bearings, belting and power transmission, diesel engines and spares, electrical power transmission, filtration, hydraulics and pneumatics, specialized steel, and thermoplastic pipes and fittings.

Dunford said this segment continued to show resilience, with increased sales in the mining and manufacturing sectors in particular.

Overall, he noted that inventories were currently costing more but would turn into higher sales levels, which is why the company chose to keep stock levels up for an expected busier second half of the year.

Dunford noted that the operating margin remained healthy, with the expense ratio down despite inflationary pressures. However, interest rates were higher, which meant that Hudaco would have to work on reducing its debt.

However, the group’s various businesses remained cash generative, with borrowings well within capacity and covenants, Dunford pointed out.

Looking ahead to the second half of the financial year, Dunford said, "Inevitably, there will be more loadshedding and the usual challenges of doing business in South Africa, including the government’s ineptitude. I think there's no will to fix this economy and grow employment. It's a lot of talk but not much else. I think they get a five star for talking."

However, he said he was optimistic that the strong performance of the last three years was sustainable.

Moreover, the alternative energy, CADAC, security and communications, mining and manufacturing sectors' good performance was expected to continue.

He said the company expected the usual strong cash generation in the second half.

Capital would be allocated strategically to invest in Hudaco’s higher-growth businesses, fund the acquisition of Brigit, and reduce borrowings.

Overall, Dunford said the group was looking forward to a busier second half.