Automotive aftermarket, industrial and electronic consumables distributor Hudaco Industries has decided to not declare an interim dividend, to preserve liquidity, as a result of the overwhelming effect Covid-19 has had on its business.

The group on June 26 reported headline earnings of R62-million for the six months ended May 31, compared with headline earnings of R169-million reported for the six months ended May 31, 2019.

Covid-19 had such a severe effect on Hudaco’s financials that the company says it even overshadowed the significant impact of the load-shedding experienced in December 2019, which at one point reached Stage 6.

Trading generated cash of R189-million, of which R21-million was reinvested in working capital. This resulted in cash generated from operations of R168-million, down from R301-million in the prior comparable period.

During the six months under review, Hudaco paid finance costs of R43-million, taxation of R59-million and dividends of R139-million out of 2019 profits.

At 195c, Hudaco’s headline earnings a share were down 63%, while comparable earnings a share were down 87% at 69c.

The group was slightly cash positive over the critical two-month period of April and May, while bank borrowings increased by R158-million since November 2019 to R1.17-billion.

The group reported that its borrowings are still comfortably within its covenants and its available banking facilities, while it has successfully moved more of its facilities to committed rather than uncommitted facilities.

However, Hudaco states that its second half cash generation is usually strong, thereby resulting in borrowings being reduced by year-end.

The group’s inventory levels were higher than it had projected because of the reduced sales in March, April and May. Ordering has been reduced to better align with the projected sales levels, but some products have long lead times so the full benefit will only come through in the second half of 2020 and into 2021.

Working capital is a key focus for Hudaco’s management and the group expects an improvement in this regard by the end of the financial year.

REVENUE IMPACTS

Hudaco’s financial year typically starts off slowly with the holiday months of December and January. December’s load-shedding caused a lot of its customers to close for the Christmas break, a week earlier than normal, and many opened a week later than usual in January, Hudaco said.

In February, trading was back on track and Hudaco reported an “excellent month”.

March trading was also “very encouraging”, the group noted, right up until the President’s announcement on March 23 that there would be a full lockdown in the face of the pandemic.

During the initial five weeks of the lockdown, which were at Alert Level 5 restrictions, Hudaco noted that a few of its consumer-related businesses (particularly those supplying batteries, data networking and security equipment) were classified as essential services in terms of government regulations.

Further, many of Hudaco’s engineering consumables businesses are suppliers to essential service businesses such as power stations and coal mines and were also able to operate to a limited extent.

However, the majority of Hudaco’s customers were not classified as essential services, resulting in its businesses operating at a significantly lower level than usual during the Alert Level 5 period.

“April was a very difficult month indeed and the group posted a loss,” Hudaco noted in a statement.