JSE-listed Invicta Holdings had an exceptionally challenging financial year to March 31, as a result of load-shedding, water restrictions owing to drought in many parts of South Africa, massive currency volatility and hardly any growth across the sectors in which the group trades, CEO Steven Joffe said on July 27.

This was despite Covid-19 having had a limited impact on Invicta’s performance for the period, with the group having only lost three trading days.

Invicta is the investment holding and management company of Engineering Solutions Group (ESG), Capital Equipment Group (CEG) and Kian Ann Group, based in Singapore.

Revenue for the financial year under review was down 4% to R10-billion, owing to a significant drop in the demand for capital equipment in all sectors, various economic and infrastructure challenges faced by ESG and highly competitive trading conditions in South East Asia.

With the outbreak of Covid-19, the group took a decision to review its balance sheet, specifically goodwill, property values, inventory, debtors and deferred tax and to impair and make the appropriate adjustments taking into consideration the current market conditions.

As a result, a total of R1.1-billion in impairments and one-off items were made, including a goodwill impairment of R639-million, a stock obsolescence write-off of R196-million, a property impairment of R196-million and deferred tax assets written off of R71-million.

Speaking to Engineering News, Joffe said it was notable that, despite the challenges, and excluding the above impairments and one-off items, sustainable operating profit was 3% higher year-on-year at R707-million.

ESG’s revenue would have been flat year-on-year if it were not for the introduction of the countrywide lockdown because of Covid-19. Revenue, therefore, decreased by 1.1% to R5.18-billion owing to various economic and infrastructure challenges that had resulted in lower demand across all ESG’s trading sectors.

The drop in the South African market was countered by increased revenue in the African entities and the contribution by the European acquisitions late in the previous financial year.

The cost-cutting initiatives and savings programme reduced expenses, which resulted in a decrease of only 3.6% in sustainable operating profit to R323-million before a goodwill impairment of R543-million, a super stock provision of R135-million, an IFRS 9 increase owing to Covid-19 of R15-million, an IFRS 16 positive impact of R32-million and a property lease provision of nearly R5-million.

CEG, meanwhile, performed above expectations.

Revenue declined by 2.6% to R3.12-billion largely owing to a significant drop in demand, which led to a decline in market volume unit sales across all sectors owing to the lack of government spending on infrastructure; large construction companies going into liquidation or business rescue; reduced demand for hard commodities from the international markets; as well as the drought that had a major impact on the farmers in the western part of the country.

Sustainable operating profit decreased by 10.8% to R223-million, before a goodwill impairment of R75-million and an IFRS adjustment of R3-million.

On July 20, subsequent to year-end, the group announced that it had entered into an agreement whereby CEG would dispose of four businesses, namely Northmec, CSE, NHSA and Landboupart, to CNH Industrial.

Subject to certain conditions precedent, the transaction will be effective on or about January 1, 2021, and the consideration will be equal to the unaudited tangible net asset value (NAV) excluding interest-bearing debt of the operations, being about R507-million as at period end, plus an additional $6-million for goodwill.

The NAV consideration will be payable over a period of 90 days and the goodwill of $6-million will be payable over three years.

The Kian Ann Group (KAG) continues to find trading conditions in South East Asia highly competitive, particularly in Malaysia, Indonesia and Singapore.

This has been the primary reason for the revenue decrease of 19.8% year-on-year.

KAG’s strategy of diversifying its sales into other geographical locations has helped mitigate this decline. Sales to non-Asian regions now make up 27% of KAG’s revenue.

“We are pleased to announce that we have been able to reduce our net interest-bearing debt by 11%, or R261-million, to R2-billion, excluding the impact of IFRS 16, and paid R100-million towards the South Africa Revenue Services (SARS) settlement.

The outstanding SARS settlement balance of R200-million will be repaid over the next two years,” said Joffe.

“To simplify the group’s balance sheet, we redeemed the preference shares to the value of R450-million. In addition, we have confirmed our trading facilities and extended our term-facilities falling due in the short-term with our existing bankers and entered into a new banking relationship in a meaningful way.

"The board has resolved not to declare an ordinary dividend. It is anticipated that the normal dividend policy will be resumed once cash flow and gearing permit,” he added.

Joffe said that, for the next financial year, the group’s strategic objectives would include a focus on finalising the disposal to CNH Industrial, BMG’s e-commerce platform, the oxygen helmet and ventilator project and rightsizing the business.

“We will also work on increasing the return on equity and lowering the group’s gearing by concentrating on cash generation, reducing inventories and selling noncore properties. While the impact of Covid-19 on the health of the nation as well as the economy is of grave concern, I hope we will emerge at the end of the storm with a more robust business,” he indicated.