South Africa-based investment holding and management group Invicta Holdings has posted a dampened operating profit of R1.01-billion for the year ended March 31, blaming the 3% slump on a global slowdown in mining, industrial, agricultural and construction markets, as well as locally emerging drags on growth, including “debilitating” labour unrest, a lack of infrastructure
spend, drought, power constraints and currency weakness.

Noting that revenue had remained flat at R10.46-billion for the year, the company outlined in a results statement on Monday that the revenue growth in the engineering consumables segment and building supplies segment both showed growth in revenue and operating profit, which was offset by a decline in its capital equipment business.

“All businesses showed good growth in African countries outside of South Africa, which helped to offset the difficulties and weakness experienced in the South
African economy,” it held.

Invicta’s operating margin decreased to 9.7% from 10% in the prior period, while a 9% reduction in net finance costs, including dividends received, as well as a 34% reduction in outside shareholders’ interests, were offset by a 7% increase in tax and a 7% list in preference shareholders’ dividends for the year.

Outside shareholders’ dividends were reduced by the acquisition of the remaining 25% effective interest in Invicta Asian Holdings – the holding company of Kian Ann Engineering, in Singapore – and the acquisition of the remaining 40% interest in Bearing Man Group’s (BMG’s) largest agency.

The profit attributable to ordinary shareholders of R579-million was level with that of the prior period – a “considerable” improvement from the first half, where the group reported a 17% slump in attributable profit.

Earnings a share and headline earnings a share decreased by 6% and 5% respectively, owing to the 6% increase in the weighted average number of shares in issue, it added.

“Excellent management of working capital resulted in the cash generated by the group’s operations increasing by 37% to R979-million.

“R240-million was spent on capital expenditure and R483-million on acquiring business interests,” it stated.

Meanwhile, after announcing a significant restructuring and capital-raising in November, the group had since simplified its legal structure and declared a special dividend of R20 a share, which amounted to about R1.5-billion.

It further held a rights issue to raise R2.25-billion at a price of R69 a share, which
resulted in the issue of an additional 33-million shares and increased the shares in issue by 44% to 108.5-million.

“The net proceeds of the restructuring have been used to retire debt in the short term with the net-debt-to-equity ratio for the group reducing from 37% to 30%.

“This positions the group very favourably to take advantage of acquisition opportunities in future,” said the company.

BUSINESS DIVISIONS
Meanwhile, “excellent” performances from BMG and industrial tools group Man-Dirk prompted a 6% growth in revenue to R4.2-billion and a 6% rise in the  operating profit of the engineering consumables business to R499-million.

According to Invicta, this business would have seen growth in operating profit were it not for provisions taken on the news that BMG customer Evraz Highveld Steel and Vanadium had gone into business rescue.

The segment operating margin declined marginally to 11.9% from 12% in the prior period.

“This performance, against the backdrop of extremely challenging conditions in their primary markets of mining and heavy industry, shows the resilience of the business achieved through the breadth of its product offering and
the strength of its branch networks,” said the group.

Good progress was, meanwhile, made with the R350-million expansion programme at BMG’s central facilities, which was expected to unlock “significant” supply chain efficiencies and should be complete by the third quarter of 2016.

Revenue from the group’s capital equipment segment narrowed 10% to R4.6-billion for the year, while operating profit reduced by 6% to R457-million over the period.

The businesses in this segment increased their operating margin to 9.9% from 9.4% in the prior period, owing to the higher mix of parts as equipment sales reduced.

The operating profit of this segment was also boosted by a one-off profit of R69-million, which was realised upon the acquisition of the remaining share of engineering company Kian Ann.

“The agricultural businesses were adversely affected by the significant drop in the maize price in the first half of the year, followed by the serious drought that started in the second half of the financial year.

“Moreover, agricultural equipment supply around the world is in oversupply with resultant pressure on selling prices,” it outlined.

The construction equipment businesses did “well” to maintain their position in a “very competitive market” over the year.

The building supplies segment, meanwhile, grew revenue by 18% to R1.6-billion and operating profit by 31% to R87-million.

“Excellent performances from MacNeil’s wholesale business and Brands 4 Africa were offset by challenges experienced at MacNeil’s plastics factory as strikes and load-shedding affected operations.

“Management is committed to improving the operating margin to 6% in the short term and 8% in the medium term,” noted Invicta.

PROSPECTS
Looking ahead, the group expected trading conditions to remain “very challenging” in the year ahead, with the markets driving the group’s performance – mining, industry, agriculture, building and construction – not expected to grow.

As such, the group would seek growth through market share gains, growth into Africa and select acquisitions.

“Management will continue to focus on margin and expense management, working capital control and cash flow in existing operations, while
continuing to look for acquisition opportunities that fit the group’s target profile,” it said.

Invicta continued to evaluate several acquisition opportunities, both locally and internationally, while consideration for a secondary listing abroad remained on the board's agenda.