Hudaco’s acquisitions strategy is paying off

HUDACO Industries, the distributor of branded industrial and electronics products in southern Africa, is picking up on its growth trajectory after implementing an acquisition strategy where it is minimising reliance on the mining and manufacturing industries for its bulk sales.

The components distributor reduced its exposure to South African mining and manufacturing markets which now accounted for only 30 percent of sales – down from 50 percent five years ago, chief executive Graham Dunford said during the interim results announcement on Friday.

More emphasis is planned on the consumer-related markets ranging from wholesale and retail, to communication equipment and batteries, which now accounted for a much larger portion of the business.

The JSE listed group paid R550 million in December last year for 100 percent ownership of Partquip, one of the region’s top importers and distributors of car parts. It is also acquiring 100 percent of Berntel which focuses on pneumatic, electric and hydraulic automation systems.

Dunford said despite shifting exposure from mining and manufacturing over the past few years, they remained important sectors for Hudaco and their fortunes still have a significant impact on Hudaco’s trading results.

“Businesses exposed to these markets will have to grind it out until economic conditions improve,” he said.

The firm’s operating profit for the six months to May grew by 46 percent to R292m, while basic and headline earnings a share were up 20 percent a share and 548 cents per share, respectively.

An interim dividend of 180 cents per share was paid. Group sales grew 21 percent to R2.5 billion last year with over two thirds of the increase coming from acquisitions made in the last year.

Weak markets

“These markets are weak as rising administered input costs, increased regulatory demands, weak international demand for mining commodities coupled with low prices, strikes and power outages weigh heavily on these sectors,” Dunford said.

The engineering division was hammered by weakness in the mining and manufacturing sectors which account for two thirds of the segment. Sales to the South African mining sector contracted 10 percent while the manufacturing sector saw a 1 percent increase off an already depressed base due to the prolonged strike in the platinum mines.

In the last financial year, Hudaco’s earnings were negatively affected following the R312m settlement of its tax dispute with SA Revenue Service over a 2007 empowerment transaction.

Platinum mining companies are still recovering from the effects of last year’s Association of Mineworkers and Construction Union strike, which called for a R12 500 minimum wage.