Industrial distributor Hudaco Industries was “in good shape” to continue its good performance in 2013, as exports from South Africa to neighbouring countries grew and the global economy showed signs of improvement, CEO Stephen Connelly said at the group’s recent results presentation.

“The global economy is probably through the bottom, which could result in commodity prices rising. We saw some signs of this in 2012 and hope it will continue into 2013.”

Connelly’s statement came on the back of a 10% rise in the company’s turnover for the year ended November 30, 2012, to about R3.5-billion, up from R3.1-billion the previous year. Nevertheless, gross profit slipped some 7% to R1.35-billion owing to the weakening rand.

Headline earnings per share of R10.71 were up 5% on the previous financial year.
The company expected trading conditions to remain muted into 2013, but planned to take advantage of expected strong growth on the continent.

Adding to Connelly’s optimism was growth in opencast mining, which was beneficial to the company’s subsidiary, Filter & Hose Solutions, which distributes filter products. Sales of digital communication equipment were also expected to continue growing.

However, he noted that the company’s engineering consumables segment was expected to face some tough conditions in the next year, as the local mining industry was plagued with challenges that included lower prices than during the ‘boom’ five years ago, labour unrest, regulations and a lack of infrastructure and power.

“On top of that, we find that we are moving, in a ten-year period, from a low-cost electricity country to a high-cost electricity country. The mines are having to cope with that as well,” Connelly said.

Mining in South Africa’s neighbouring countries was growing, but problems were emerging in the form of poor- quality coal and regulatory challenges in relation to transporting coal to the coast and constructing railway lines to execute this.

However, construction activity seemed to have started to turn the corner. “We do not think it is going to be a hockey stick . . . straight upwards, but we are hoping that the recent [expected] improvement [in earnings] reported by Group Five will be followed by others,” he noted.

The company’s consumer-related products segment was expected to continue to be impacted on by the slowing growth in the power tools market, while South Africa’s migration from analogue to digital terres- trial television faced possible delays. However, the automotive parts aftermarket had steadied.

The security equipment market was also expected to improve later in the year.

Meanwhile, Connelly said he was confident in Hudaco’s position in the South Africa Revenue Service’s (Sars’) dispute of the company’s black economic-empowerment (BEE) structure, which was implemented in 2007.

Hudaco was issued with a notice by Sars in December, wherein it communicated concern that Hudaco’s BEE structure was possibly a scheme to avoid taxes.

Sars intended to assess the situation and Hudaco’s potential exposure between 2007 and 2012 to an estimated R65-million in interest, and R92-million in secondary tax credits, besides others.