Weak rand hits Hudaco’s profit margin

HUDACO Industries saw turnover fall a marginal 1.6% to R2.5bn in the six months to May amid “exceedingly difficult economic circumstances”.

But operating profit plunged 15.8% to R246m, as headline earnings per share slid 13.9% to 472c a share from the period previously. The interim dividend was down 5.6% to 170c per share. However, Hudaco said on Friday it had delivered a “satisfactory” first half.

The group specialises in the importation and distribution of high-quality branded automotive, industrial, and electrical consumable products — mainly in the Southern African region.

“The group’s deft positioning over the past few years to reduce dependence on the mining and manufacturing sectors has proved successful, with welcome increases in revenues and earnings over time from sectors of the economy that have better prospects,” it said on Friday.

Its products serve two primary markets: the automotive aftermarket, power tool, security, and communication equipment, with a bias towards consumer spending and also mechanical and electrical power transmission; and engineering consumables, mainly to mining and manufacturing customers.

Hudaco said acquisitions had added R122m to turnover. It said its operating margin was still “a very respectable 9.8%”.

“Operating expenses were very well controlled, increasing only 4% even with the acquisitions,” Hudaco said.

It also said the 2015 first-half results had been boosted by profits from two sources that had not been repeated in this period — sales of alternative energy products due to load shedding and a large contract for communication equipment.

Hudaco also said the financial position of the company was in good shape, and that bank borrowings normally peaked at the half-year as it stocked up for what is usually a busier secondhalf of the year.

“(But) with the depreciation of the rand, our inventory is costing us considerably more than last year,” it said. “Notwithstanding this … net borrowings increased only R137m in the halfyear to R1.15bn,” it said.

In its results for the year ended-November 2015, the firm said it was “very concerned” about the South African economy, blaming low prices for minerals, commodities exports, and poor government policy choices.

Percy Takunda, an analyst at Momentum SP Reid, said the group’s share price was “fully valued”. He said Momentum expected revenue and earnings to decline further “reflecting the challenging environment”.

The share price had gained more than 30% since its November year-end results announcement in late January.

The group had taken legal action against its advisers — Bravura Equity Services, Cadiz Specialised Asset Management, and “certain other entities” — on an empowerment transaction to recover hundreds of millions of rand it claims to have lost through intentional misrepresentation.

Hudaco did not respond on Friday to requests about the status of such action.