Interim results ‘disappointing but resilient’ as company says increased emphasis will be placed on sales into markets outside South Africa.
Hudaco Industries has delivered disappointing yet resilient results for the first half of the year reported the group in its interim results report for H1 2014 ending 31 May.
The company stated that it has experienced one of the most challenging trading environments in recent time, mostly owing to the recently ended five-month long platinum strike.
The results were released just prior to NUMSA’s strike in the metals and engineering sector which would also hit the company. The mining and engineering sectors currently made up about 50% of Hudaco’s sales, which meant that the company had “nowhere to hide” during strike periods in these sectors.
As part of JSE-listed Hudaco Industries’ key strategy to pursue the acquisition of new businesses in similar fields of activity, the company signed an agreement to acquire the Dunford Group of businesses, which comprised Dosco Precision Hydraulics, Gear Pump Manufacturers (an in-house foundry in Cape Town), Joseph Grieveson Foundry and Engineering Technology Services, for R154.3 million last year.
The South African group, which supplies engineering consumables mainly to the mining and manufacturing industries, reports that Q1 2014 mining GDP contracted 25%, while the manufacturing sector contracted 6%.
“There is no doubt that these depressed conditions continued into the Q2 2014. These two sectors of the economy account for about half of Hudaco’s sales. As a result, the engineering consumables segment faced very tough trading conditions particularly felt in those businesses serving the mines in the Rustenburg platinum belt,” stated the company.
Hudaco said that while the platinum strike may have ended, its aftermath will continue to impact demand in the first months of the company’s second half in 2014. Sales at R2,1 billion were up 16% of which only 3% was from ongoing operations and 13% was from acquisitions.
“Activity in open cast mining was not as badly affected as in deep level mining by strikes. So, sales volumes held up reasonably well. There were also reasonable performances from businesses serving other markets; for example sales into neighbouring countries grew 33% in the first half,” reports Hudaco.
The company says that comparable earnings held up well against last year, until the end of March 2014, however they fell behind in April and May, ‘which is an indication that conditions are still deteriorating’.
Hudaco reports that December, January and April are traditionally difficult periods for the company owing to the holiday season. However, April and May were particularly hard hit by the strike activity in the platinum mining sector, reports the company.
Demand for diesel engines and spares, electrical equipment, bearings and power transmission equipment and chemical piping was well down on last year, noted Hudaco in its interim results report.
“Acquisitions over the past few years have significantly strengthened the sales base and market spread of this segment, and businesses with less exposure to the platinum mining sector performed reasonably well under the circumstances,” stated the company.
Opportunities outside of South Africa
According to Hudaco, the South African economy seems set for a period of no or low growth. As a response, the company will place an increased emphasis on sales into markets outside South Africa.
Hudaco will look at neighbouring territories as a market for its complete basket of imported products and overseas markets for the company’s own brand locally manufactured gear pumps and electrical plugs and sockets.
Meanwhile, Hudaco chief executive, Stephen Connelly, was due to step down from his post effective 30 June 2014. Connelly will remain on the board of Hudaco Industries as a non-executive director. Graham Dunford will take over as chief executive with effect from 1 July 2014.