Hudaco sees better second half

Johannesburg - Hudaco Industries [JSE:HDC] on Friday reported diluted headline earnings per share of 785c for the year ended November 2009, from 940c a year ago. Normalised HEPS were down 19% to 801c from 995c a year earlier.

The company, which imports and distributes engineered consumable products for the southern African manufacturing, mining, construction, automotive aftermarket and security industries, reported total sales of R2.4bn for the year - down 12% on 2008.

Group operating profit fell by 28% to R307m.

The group's dividend policy is to pay approximately 40% of normalised earnings annually. In view of the strong cash generation this year, a final dividend of 235 cents per share brings total dividends declared in respect of the 2009 financial year to 350c, 42% of normalised earnings, it said.

The company said in October 2008, when it became clear that South Africa was going to follow the world into recession, a number of precautionary operational measures were put in place. These included a moratorium on acquisitions, a hiring freeze and a stock reduction programme.

"The effect of these measures means that Hudaco has weathered the worst of the recession and emerged in good shape," it said.

Sales in the Bearings and power transmission division were down 8%, and sales in the Powered products division were down 17%. In the Security equipment division they were down 22%.

The rand strengthened steadily throughout the first half of 2009, resulting in prices decreasing across the product range, particularly in the second half, when new cheaper stock started arriving. This added to the pressure on the group's sales line. There were signs towards year end that sales had stabilised somewhat but there are no signs of an upturn yet, it said.

Looking ahead, Hudaco said the recession is not yet over. Although some economic indicators are showing an upturn, many others reflect only a slowdown in the rate of decline.

"In our businesses, volume demand declined steadily throughout the year and there were no indications that it had turned upwards by yearend. Our view is that it will take until mid 2010 before the recession in South Africa is over and economic growth resumes across a broad front.

"It is difficult to tell how strong this growth will be. There will be restocking throughout the economy which will give early impetus to growth and government infrastructure investment will gather pace, particularly power station building," it said.

"We are expecting trading in the first half of the year to continue to be difficult. However, an expected resumption of economic growth in the second half makes us optimistic that the group will post an earnings increase for the full year," it concluded.

- I-Net Bridge