Investment holding and equipment distribution company Invicta on Monday reported a 1 046% year-on-year increase in basic earnings a share to 149c for the six months ended September 30.

Headline earnings a share increased by 2 029% to 149c apiece.

Invicta pointed out that a one-off tax provision accounted for in the six months ended September 30, 2018, had not been repeated, contributing to profit for the period under review increasing by 228% year-on-year to R208-million.

While Invicta’s operating profit for period under review declined by 6% year-on-year to R383-million, reflecting tough trading conditions, the company managed to maintain group revenue at R5.3-billion and gross profit at R1.6-billion.

“A pleasing feature of the period had been the major improvement in cash generated from operations, which increased by 426% year-on-year to R518-million, compared with R99-million in the prior reporting period,” noted CEO Arnold Goldstone.

Invicta’s strategic focus was based on optimising current operations and cash flows to rightsizing the level of debt that resulted from the 2018 tax settlement of R750-million.

As a result, the board had resolved not to declare an interim dividend, given the higher gearing levels, and would resume a normal dividend policy once cash flow and debt levels permit.

BUSINESS PERFORMANCE
Invicta’s Engineering Solutions Group (ESG) held its own against the background of uncertainty in the industrial and mining sectors, as well as the impact of load-shedding, with revenue up 7% to R2.7-billion.

Of this amount, R216-million had come from two acquisitions made during the period under review, namely the acquisition of Forge Industrial Group in September 2018, and the Propshaft Rebuilders Group acquisition in December 2018.

Gross margins declined by 1% owing to an increase in the sales of tools and belting, which were lower-margin products. Operating profit before interest on capital equipment financing transactions and foreign exchange movements grew by 8% year-on-year to R225-million, of which the acquisitions contributed R29-million.

“Without the acquisitions, ESG’s operating profit before interest on capital equipment financing transactions and foreign exchange movements would have declined by 6%, which was testimony to the impact of the difficult trading conditions the group is facing,” Goldstone explained.

To counter the decline in performance, overheads had been reduced commensurately, the full effect of which would only be realised in the second half of the current financial year.

Meanwhile, Invicta’s Capital Equipment Group’s performance had been influenced by a lack of investment in infrastructure development in South Africa, the demise of numerous large local construction companies, a downturn in the Asian markets and drought in the South African agricultural sector.

These factors had resulted in revenue declining by 8% year-on-year to R2.3-billion.

“Lack of liquidity and uncertainty in the agricultural sector resulted in a decline in demand for combine harvesters and higher-kilowatt tractors. Despite the decline in volumes in every construction equipment sector, there was still activity in higher-value, large equipment used in the mining sector,” Goldstone said.

Operating profit before interest on capital equipment financing transactions and foreign exchange movements had decreased by 21% year-on-year to R148-million.

Goldstone noted that overheads had been well contained in response to the revenue and margin pressures.

At Kian Ann, Invicta’s South East Asian business, trading in the period under review had been negatively influenced by escalating US–China trade tensions and a material decline in global demand for construction equipment.

“Management will continue to consolidate the strengths of the current businesses and pursue complementary acquisitions to ensure Invicta remains one of the leading suppliers of industrial consumable products, capital equipment and spare parts in Southern Africa and South East Asia,” Goldstone affirmed.