Invicta’s strategy paying off, says CEO

30th November 2020 By: Simone Liedtke - Writer

Investment holding and management company Invicta Holdings is starting to see its strategy, which focuses on lowering debt levels, optimising return on equity, simplifying structures and focusing on key operational areas, pay off.

This is despite the negative impact of Covid-19 and related uncertainties, CEO Steven Joffe said in a statement on November 30.

Speaking to Engineering News, Joffe noted that his priority had been to bring down gearing to a manageable level, as “it wasn’t really worthwhile thinking about other strategic initiatives while the [company's] debt was unmanageable”.

Being the primary focus, he enthused that Invicta's interim results shows that the company is “in a really good place”.

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

Joffe added that the group believes that this strategy “is resolute”, with the cash balance at the end of the six months to September 30 at R1.5-billion, with a marked decrease in Invicta’s net debt to equity ratio from 55% as at March 31, to 34% as at September 30.

He reiterated that previous statements around trading conditions in South Africa were still challenging, and while this remains true with global trade uncertainties weighing on the foreign operations, for the current period, there were “added handicaps” of the effects of Covid-19.

Referring to the Covid-19 period, specifically, Joffe lamented that it was “challenging in every regard”, especially when the start of South Africa’s initial nationwide lockdown, in response to the pandemic, came into effect from the end of March to early May.

While Invicta was regarded as a strategic supplier, most of the company’s customers were still closed, meaning that “the level of activity was incredibly low”. While this picked up in subsequent months, as government regulations were relaxed, Joffe said Invicta was now operating at about 90% of its pre-Covid level of turnover.

“Until there’s a vaccination in South Africa [for Covid-19], that’s probably the level that we will operate at and that’s how we’re thinking about next year,” he commented.

Looking ahead, Invicta will likely consider making acquisitions, buying back shares and a variety of other opportunities that could not be considered previously.

As a result, the group reported revenue from continuing operations of R3.6-billion, down 18% from R4.3-billion in the same six-month period of 2019, and gross profit down 21% to R1.1-billion, compared with R1.4-billion in 2019.

Profit for the period, including discontinued operations, increased by 8% from R208-million in the prior comparable period, to R224-million.

Included in these results are one-off retrenchment costs of R33-million.

Excluding these costs, earnings a share for continuing operations increased to 129c.

“Our focus for this reporting period has been on cost containment, working capital management and close monitoring of cash flows,” said Joffe, adding that attention had also been given to implementing the sale of certain of the CEG businesses and the disposal of the Samrand property.

The shareholder and South African Competition Commission approvals required as part of the disposal of the CEG operating divisions to CNH were received after the reporting date and the transaction is targeted to be effective on January 1, 2021.

An agreement, subject to a number of conditions precedent being met, was concluded during November to dispose of the Samrand property, which has been classified as an asset held-for-sale as at March 31.

The selling price is R140-million, before transaction costs. 

Other initiatives included BMG’s digital and e-commerce platform, the oxygen helmet and ventilator project within ESG, as well as the restructuring of certain businesses and reviewing the KAG business model.

ESG, meanwhile, has adapted swiftly and effectively during the financial year, which began with Covid-19 and a nationwide lockdown, by “taking the tough decisions required to review and reset the levels of working capital, overheads, and capital expenditure”.

Revenue was 24% lower at R2.1-billion, while the gross profit margin has been maintained at 35%. Operating profit before net finance income on financing transactions and foreign exchange movements fell by 35% to R143-million, resulting in an operating profit margin of 6.8% compared with 8% in the prior period.

BMG acquired the Melnic Technical Services business, including the intellectual property and proprietary information during the period under review.

The CEG Group reported an “excellent performance”, which Invicta said “reflects the recovery in the agricultural markets as well as the strict cost containment measures implemented”.

The agricultural sector has performed extremely well post-period end, Joffe mentioned to Engineering News, adding that this “phenomenal” performance was likely to continue as South Africa continues to experience good rains.

The food and beverage sector, for Invicta, has also had a strong performance, he added, as have the automotive, renewable energy and biogas sectors.

Improved infrastructure spending and mining activity have increased the demand for earthmoving equipment. Rental demand in the logistics (forklift) market is also increasing.

Overall, CEG performed well under the circumstances, with revenue having declined by only 10% to R600-million and with gross profit on the continuing businesses having increased by 1%.

A 46% increase in operating profit of R85-million was achieved.

Despite the continued US and China trade wars and Covid-19 lockdown in South East Asia, the Kian Ann Group managed to limit its revenue decline to only 5% to R709-million during the period.

Gross profit and operating profit declined by 18% and 17%, respectively, underpinning the tough trading conditions and the battle for whatever business was available.

The investment in the KKB roller manufacturer, in China, and the distribution operations, primarily in the US, performed strongly in the period under review, growing by 45%, and this resulted in an increase in profit before tax of 25% over the prior period for the Kian Ann Group.

The agreements reached with bankers to establish new covenants that accommodate Covid-19 trading conditions have been revised to reflect the results of the six-month period and which have exceeded expectations, Invicta said, adding that all covenants were met for the period ending September 30.

“The businesses that make up the group have significant competitive advantages and have demonstrated the ability to deliver strong results despite the operational challenges,” Joffe concluded, noting that the group’s management “will continue to consolidate the strengths of the current businesses that make Invicta one of the leading suppliers of industrial consumable products, capital equipment and spare parts in Southern Africa and South East Asia”.