Hudaco unlikely to pay dividend as Covid-19 impacts businesses

Branded automotive, industrial and electronic consumables product importer and distributor Hudaco reports, that despite business disruptions as a result of the Covid-19 pandemic, its business remains in a sound financial position, with payments still being made to its creditors on negotiated terms.

On the current Alert Level 4 lockdown, Hudaco says the group business will be conducted to the maximum extent allowed by the regulations, limited only by the activity levels of its customers.

However, it adds that its financial results for the six months ended May 31 have been severely impacted on by Covid-19, and particularly by the fact that most of the company’s businesses were closed for five weeks in March and April, while May’s trading has been restricted.

Accordingly, Hudaco’s board is reasonably certain that its earnings, headline earnings and comparable earnings a share for the six months will be more than 20% lower year-on-year.

Therefore, given the need to preserve cash, Hudaco says it is highly unlikely that an interim dividend will be paid this year.

To address the economically stressful scenario, Hudaco notes in a statement that a ramp up to the recovery of the economy is needed urgently, to avoid a scenario where the cure for Covid-19 is worse than the disease itself.

“In the interests of all South Africans, we urge the government to ease the regulations by permitting all businesses that can implement the necessary health and safety requirements to return to work immediately.”

MARKETS CONSTRAINED

Hudaco’s businesses serve markets that fall into two primary categories.

The automotive aftermarket, power tool, security and communication equipment businesses supply products into markets with a bias towards consumer spending and account for about 65% of sales.

The mechanical and electrical power transmission, diesel engine, hydraulics and pneumatics, steel, thermoplastic and fittings and bearings businesses supply engineering consumables mainly to mining and manufacturing customers and account for about 35% of sales.

The company explains that during the initial five weeks of the lockdown, which were at Alert Level 5 restrictions, a few of Hudaco’s consumer-related businesses (particularly those supplying batteries, data communication and security equipment) were classified as essential services in terms of government regulations, and therefore translated into limited volumes of business taking place.

In addition, many of its engineering consumables businesses, suppliers to essential service businesses such as power stations and coal mines, were also able to operate to a limited extent.

However, the majority of Hudaco’s customers were not classified as essential services, thereby resulting in significantly reduced business during the Alert Level 5 period.

Meanwhile, with Alert Level 4 restrictions now in place, Hudaco reports that almost all of its businesses are open for business, albeit with the requisite reduced staff complements and other health and safety requirements in terms of the regulations.

However, the company notes that it is still early in Alert Level 4 and therefore remains to be seen how many of its customers will be operating and what levels of activity will be achieved.

Hudaco notes that as news of the virus spreading widely through the world reached the company, its first concern had been the potential impact on Hudaco's supply chain, specifically on products sourced from China, Japan and South East Asia.

Fortunately, the company states, many of its businesses had stocked up, as they normally do, in anticipation of the Chinese New Year. Hudaco notes that the uncertainty at that stage was whether adequate supply would be restored before Hudaco’s local inventories were exhausted.

International supply chains have, however, recovered remarkably quickly and this is no longer a significant concern for Hudaco. “The biggest question now facing the group is how quickly demand recovers from the lockdown,” Hudaco reports.

STAFF SAFETY

The health and safety of Hudaco’s 4 000 employees is of “paramount importance”, the company notes, adding that prior to the lockdown its businesses arranged for as many employees as possible to work from home.

Subsequently, the company installed its own Miro-supplied IpVideo conferencing server for full safe, secure communication among all its businesses and implemented a number of virus-related safety measures for those who had to be on site.

Those measures were enhanced during the initial lockdown period and have now been upgraded further to comply with the Alert Level 4 requirements set out in government regulations.

Further, the heads of each Hudaco business are required to sign an extensive declaration confirming that the business complies with all the prescribed requirements.