Investment holding and management company Invicta Holdings has reported a strong set of results for the six months ended September 30, with headline earnings a share up 43% year-on-year to 268c.

CEO Steven Joffe comments that Invicta again produced a robust performance in light of prevailing market conditions.

“The Ukraine war has resulted in a volatile world economic environment, causing both logistical issues and higher energy prices, effecting all aspects of business. The group strategically increased its inventory levels to deal with these factors, as well as Covid-19 restrictions and, was able to keep on supplying its customers at a high level, a mantra we have consistently followed,” he notes.

Headline earnings increased by 35% year-on-year to R278-million, with Joffe adding that the strong performance, particularly from Invicta’s offshore operations, which was further enhanced by the weaker rand, meant that these operations contributed more than 40% to the group’s profits.

“The cost reduction measures enforced by the Covid-19 pandemic also remain embedded in the operations and have further contributed to the performance of the group, assisting in offsetting inflationary pressures,” outlines Joffe.

Gross profit margin was 1.9% higher at 32.5%. A net foreign exchange gain of R33-million and equity accounted earnings from Kian Ann Group (KAG) of R90-million boosted operating results, producing a profit from continuing operations for the period of R330-million.

Cash generated from operations before working capital changes amounted to R469-million, compared with R456-million in the comparative period of the prior financial year. Higher working capital requirements given the weaker Rand, strategic increases in inventory holdings and supply chain issues absorbed R178-million.

The group repurchased about 4.7% of its ordinary and 5% of its preference shares in issue in the period to the value of R167-million.

While the net interest-bearing debt-to-equity ratio is noted to remain a healthy 23%, the Invicta board intends paying dividends on a yearly basis by applying a cover ratio of between 2.75 and 3.25 times on sustainable earnings.

“Due to the share repurchase undertaken during the period, the board has recommended that no dividend be declared at the interim period,” Joffe informs.

OPERATIONAL PERFORMANCE

Replacement Parts Services and Solutions: Earthmoving equipment revenue increased by 137.7% to R470-million from R198-million, well above previous revenue levels.

The revenue increase is mainly owing to the acquisition of KMP on January 1.

KAG contributed R90-million to group earnings for the current period compared with R35-million – excluding the re-measurement gain on fair value of investment of R372-million – in the comparative period, successfully overcoming difficult conditions in China where Covid-19 lockdowns of over five weeks disrupted operations.

Replacement Parts Services and Solutions: Industrial revenue increased by 3.4% from R2.2-billion to R2.3-billion, tempered by the floods in KwaZulu-Natal, that affected certain customers and branches.

Replacement Parts Services and Solutions: Auto Agri revenue increased by 9.5% from R255-million to R280-million.

Capital Equipment and Related Parts and Services revenue increased by 4% from R559-million to R581-million, while operating profit before interest on financing transactions and foreign exchange movements decreased by 4.6% from R50-million to R49.6-million. This was largely owing to higher freight costs and  dealer commissions, Joffe says.

OUTLOOK

Joffe advises that while the group remains committed to developing a diversified and sustainable replacement parts group, it is vigilant of monitoring prevailing economic conditions to secure above-market returns for its stakeholders.

“Our ambition of building a group that is geographically diverse – with 50% of earnings outside South Africa – and diverse across sectors by 2026 will be tempered by the careful evaluation of opportunities.

“We are constantly reviewing and restructuring existing businesses to ensure they achieve the desired returns. Further, group services will be leveraged to optimise delivery and structure,” he says.

In line with this, post the results period, Invicta announced to investors earlier this month that it is in the process of restructuring to simplify the group’s structure.