THE share price of Hudaco Industries, a specialist importer and distributor of branded industrial goods, fell 5.25% to R110 by 3.38pm on Friday after the group reported a 5% increase in headline earnings per share to R10.71 for the year ended November 30.
Hudaco said it had delivered "a reasonable set of results" considering that the trading environment in the final quarter — normally Hudaco’s most profitable, "proved very difficult", partly due to strike action in the mining industry.
The group would increase its efforts to penetrate markets in neighbouring countries as it became clear that strong growth in these markets would probably be sustained, it said.
Hudaco declared a 6% rise in ordinary dividends to R4.65 per share.
Sales grew 10% to R3.5bn while profit after tax was up 3.8% to R351m.
Hudaco said mining strikes had adversely affected its results for the second half of the year.
"Demand for our product offering was reasonably strong until September," when mining strikes closed many mines, it said.
For the interim period ended May last year, Hudaco had reported an increase in headline earnings per share of 17%, although it said at the time that mining strikes and low business confidence were leading to a decline in demand.
Hudaco said rand volatility made price increases "hard to achieve and sustain".
The group’s engineering consumables segment, its largest contributor of profits, saw a 4% increase in sales to R2.3bn, while operating profits increased only 2%, with demand "severely affected" by strikes.
However, demand from mining customers in neighbouring countries "was noticeably higher than previous years".
Sales in the consumer related products segment were healthy, although price increases were "difficult to achieve".
As a result, under pressure margins saw a sales increase of 22% translating to a 4% increase in operating profits for the segment.
Hudaco said its financial position was "healthy".
However, it recently received a notice from the South African Revenue Service (SARS) which said SARS believed Hudaco’s black economic empowerment structure was a scheme designed to avoid tax.
"We strongly disagree with the SARS interpretation of our motivation.
"If SARS assess us, we will contest the assessment vigorously as we remain confident of our position. The tax involved, including interest, amounts to approximately R500m. SARS may also seek to impose penalties," Hudaco said.
The group expected trading conditions to remain muted this year.
"The rapid growth in consumer spending over the past few years has fuelled growth in public sector employment, followed by above inflation wage increases and the expansion of the social grant programme."
However, economic growth in neighbouring countries was expected to remain strong, "and we are well positioned to take advantage of this".