Invicta's offshore operations boost its full-year revenue, earnings

26th June 2023

By: Schalk Burger

Creamer Media Senior Deputy Editor


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JSE-listed industrial products and services company Invicta's revenue increased by 8% to R7.8-billion, its sustainable headline earnings a share by 33% to 464c and its net asset value per ordinary share by 23% to R46.34 for the financial year ended March 31.

“We were able to grow basic earnings a share from continuing operations by 18%, from 408c to 481c, despite the challenges faced in the financial year. A notable achievement for the year was our Singapore-based Kian Ann business, which had a standout performance, increasing sustainable headline earnings by 58%,” says Invicta CEO Steven Joffe.

Kian Ann's replacement parts business has expanded regionally and globally, with subsidiary and related companies in China, Indonesia, Malaysia, India and the UK, with distribution businesses in the US and Canada.

Invicta owns 48.8% of Kian Ann. Revenue increased to S$291-million, with a sustainable operating profit of S$36-million and net cash on hand of S$40-million.

“Work over the past few years in building our offshore businesses resulted in a foreign exchange gain of R439-million, contributing towards the increase of our net asset value per ordinary share for the year by 23% to R46.34. We also repurchased about 5% of both our ordinary shares and preference shares,” he said.

Meanwhile, the group's gross profit margin increased from 30.7% to 32.5%. This was a significant focus for the group, with management teams working hard to restore the margin, he noted.

Additionally, sustainable operating profit before net finance income on financing transactions and forex improved by 7% to R647-million. With net cash on hand of R730-million, net interest-bearing debt to equity remains a healthy 18%.

“We were pleased to generate R639-million in cash from operations after investing R247-million in working capital. We have also paid R164-million in dividends to shareholders,” said Joffe.

In terms of operating conditions, with the lifting of the restrictions related to the zero Covid-19 policy in China in February, all countries in which the group operates have substantially lifted all Covid-19-imposed restrictions.

“Unfortunately, the war in Ukraine continues, which has contributed to the resultant worldwide inflation we are currently experiencing. Many central banks have substantially hiked interest rates to curb inflation.

“In South Africa, we experienced severe flooding in KwaZulu-Natal in April 2022, increased loadshedding and water supply disruptions. We have experienced upward pressure in supplier pricing, volatility in currencies as well as supply chain challenges, including shipping and logistics disruptions,” he said.

“Despite the challenging environment, we are proud of how our businesses performed during the year. The resilient character of our management teams and the robust nature of our consumable parts businesses shone through.

“With the lifting of Covid-19 restrictions, we focused on visiting our clients and suppliers and attending trade shows. We also managed to relocate our Ukrainian warehouse from Chernihiv to Lviv, from where we have continued trading profitably,” Joffe said.

Further, throughout the year, the group assessed many acquisition opportunities but was not able to find appropriate targets and, therefore, preferred to buy back shares.

The group bought 4.9-million ordinary shares for R131-million and 375 000 preference shares for R36-million on the open market. The group also repurchased an additional 1.2-million ordinary shares for R34-million, now reflected as treasury shares.

Additionally, post the year-end, in May, Invicta opened an odd lot offer to its shareholders holding less than 100 shares each.

The war in Ukraine and its associated impacts on commodity and food prices would continue to be felt worldwide, said Joffe.

“Rising inflation globally has increased borrowing costs, thus creating more pressure on the consumer. The way forward will require a disciplined capital allocation approach and the ability to adapt as the markets evolve. We believe that our businesses are well placed in their respective markets and, we can meet the challenges that lie ahead.

“With so much uncertainty in the world, we will continue working hard to reduce our net debt position. When we think of net debt, we include the listed preference shares. Having a relatively debt-free business gives time to respond to difficult situations and at the same time provides the capacity for us to implement our acquisition strategy, should the opportunities arise,” he said.

“Our replacement parts businesses are resilient and generate good cash with many of the sectors that we service performing well. As a result of our relative financial strength, we can hold appropriate inventory levels to ensure that we can continue to service our clients without stockouts and delays. Accordingly, we remain cautiously optimistic about the year ahead.”

With Invicta's R45-million investment in BMG China, it hopes to create a strong online presence in the Chinese market, distributing the industrial consumable products that Invicta distributes here in South Africa, through a digital channel to the Chinese market.

“We are also developing a technology for a sustainable and environmentally friendly solution to convert agricultural waste into energy, in China. This business will support our industrial consumables businesses through the sale of components,” he highlighted.

“Management continues to evaluate potential acquisition opportunities and we are well placed to take advantage of opportunities as they arise,” he said.

The Replacement Parts Services and Solutions: Industrial (RPI) division's revenue was 8% higher than the prior year at R4.8-billion, with sustainable operating profit 29% higher at R317-million. This increase was partly owing to improved gross profits and a well-controlled overhead base.

“Mining continues to be our biggest single industry served by RPI, and we supply all types of mines, including gold, coal, platinum, chrome, copper, manganese, and diamonds. Other than mining we continue to serve a diverse range of customers,” said Joffe.

“We are seeing a very healthy order book, especially in engineered items. We are seeing good opportunities in Africa and are excited with our prospects in China. Maintaining our traditional margins and strong working capital management will continue to be an area of focus for the year ahead,” he added.

Meanwhile, the Replacement Parts Services and Solutions: Earthmoving equipment (RPE) division increased revenue by 80% to R986-million, and achieve a sustainable operating profit of R108-million.

RPE worked hard on bringing the working capital to the appropriate levels in the UK and, in the US, has identified that obtaining a bonded status for its warehouses will support strong growth in the region and create a hub to be able to leverage off, Joffe said.

“As the process evolves, we will have a clearer picture of what the correct level of working capital in the US will be,” he highlighted.

All revenue in this segment is from replacement parts. Earthmoving, which includes mining and construction, contributed 85% to revenue, while the 15% balance is derived from agricultural and forestry markets.

“We are seeing good demand for our parts in all the markets we service and, are increasing our inventory levels to take advantage of these growth opportunities and to ensure that through the logistical challenges our businesses face, we remain able to meet our customers’ requirements,” he added.

Meanwhile, the group's Replacement Parts Services and Solutions: Auto Agri (RPA) segment increased revenue by 6% at R551-million, with sustainable operating profit 22% higher than the previous year at R111-million.

“With the withdrawal of the Russian troops from Chernihiv, in Ukraine, we moved our business to Lviv on the Polish border. Considering that our Ukrainian business only operated for eight months, the growth in turnover of this small business was a good achievement. RPA’s sustainable operating profit was 22% higher than the previous year,” said Joffe.

“We have further consolidated our automotive and agricultural businesses in South Africa and the cross-selling opportunities are already bearing fruit. We continue to experience good growth in our agricultural brand APG (Agriparts Global). As a result of the challenging logistical environment, we have elected to increase our inventory levels to ensure service to our customers. With our good inventory holdings, we are well positioned to support our customers,” he added.

Additionally, revenue for Capital Equipment and related parts and services was slightly lower than the prior year at R1.1-billion, with sustainable operating profit reducing by 28% to R81-million.

Earthmoving, which includes construction and mining, accounted for 77% of revenue and material handling accounted for 23%.

“With parts, service, and rental accounting for 34% of revenue, we can cover the cost of these operations based on these revenue streams.”

Further, as customers extend the working life of their equipment, the replacement parts business continues to do well.

“Good mining activity continued this year, with good demand for larger capital equipment. We are hopeful that the anticipated infrastructure spend will further assist our construction-facing businesses. Demand for electric forklifts is encouraging,” Joffe said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online



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