Invicta produces another solid rise in earnings despite volatile markets

Invicta says it will continue to be on debt reduction.

Invicta says it will continue to be on debt reduction.

Published Nov 28, 2023


Invicta Holdings’ management kept a tight grip on operations, which, with a solid operational performance, resulted in earnings a share increasing by 12% to 304 cents in the six months to September 30, CEO Steven Joffe said yesterday.

“We are a replacement parts business, and we expect and aim to report steady growth each year, even through the tough times… our geographic and diversification strategy also aims to ensure this,” Joffe said in an interview yesterday.

The board intends to pay a dividend at year-end at a cover ratio of between 2.75 and 3.25 times on sustainable earnings. Interim operating profit increased 8% to R359 million. Cash from operations was up 11% to R322m.

Proceeds from the disposal of some non-core properties was used to buy back ordinary and preference shares. Net profit increased 8% to R356m. Revenue was up 12% to R4.3 billion.

The R461m revenue increase comprised R178m from South African operations, the rest of Africa contributed R89m, and Europe and America contributed R194m..

A 100% shareholding was acquired in UK-based Imexpart (Imex), in July, for £4.7m (about R113m). Imex distributes truck and bus parts for DAF, Mercedes, Volvo, MAN, Iveco, Renault, Scania, and Cummins engines and carries a range of replacement parts.

The acquisition also provided an opportunity to distribute RPA-Auto Agri products through Imex.

Invicta’s Replacement Parts Services and Solutions: Industrial (RPI) division, importer and local manufacturer of industrial consumable products, services, and solutions in southern Africa, increased revenue 8% to R2.5bn, while operating profit increased 2% to R175m.

The increase was despite higher estimated credit loss provisions raised in the African subsidiaries of R17m.

The Replacement Parts Services and Solutions: Auto Agri (RPA) division, which operates in South Africa and certain European countries and which imports, assembles and distributes automotive aftermarket parts and Original Equipment Manufacturer kits, as well as driveshaft parts and other parts for the agricultural industry, grew revenue 27% to R356m.

Its operating profit fell by 28% to R47m due to higher operational costs, with the inclusion of Imex and the reversal of provisions in the prior year of impairments relating to the war in Ukraine. Imex contributed only 5% of operating profit, as it was still being integrated.

The Capital Equipment and related parts and services (CE) division, which sells capital equipment, spare parts and provides related services to the earthmoving and logistics industries in South Africa, lifted revenue 9% to R633m, with operating profit increasing by 34% to R66m.

The strong performance was largely due to cost controls and a resurgence in capital equipment sales through the CE finance book towards the end of the period. Joffe said there was also had a “remarkable” order book.

The Replacement Parts Services and Solutions: Earthmoving equipment (RPE) division, which supplies aftermarket replacement spare parts, ground engaging tools and undercarriage parts for capital equipment, with operations in South Africa, the UK and the US, increased revenue 26% to R594m, while operating profit increased 29% to R77m.

Kian Ann (KA), which supplies and manufactures replacement parts for heavy machinery and the automotive industry with operations in China, Indonesia, Malaysia, India and the UK, and distribution businesses in the US and Canada, contributed R108m to group earnings compared to R90m the prior period, bolstered by a R33m gain on disposal of a property-owning subsidiary in Shanghai. Invicta owns 48.8% of Kian Ann.

“The operations and inventory from the Shanghai premises that Kian Ann sold, have been relocated and absorbed into their KKB production and warehouse facility in Khunshan.”

Joffe said he expected that prevailing market conditions, notably the high interest rates and tough trading conditions worldwide, as well as rand volatility and load shedding and logistics infrastructure issues locally, to remain challenges, but they were well positioned to provide returns to shareholders in this context.

The focus will continue to be on debt reduction, as higher interest rates have meant an increase in net finance costs of R23m, which were mainly offset by the R18m improved contribution in equity-accounted earnings from Kian Ann.

The strong results came against the background of volatile currencies and an uncertain world macroeconomic and political environment. The weakening of the rand boosted revenue on translation of the group’s foreign operations.

The gross profit margin of 32.6% held steady from 32.5% . “Sustainable selling, administration and distribution costs, adjusted for once off items, increased by 7% when compared to the prior period, which we believe is a commendable outcome.”

Equity-accounted earnings from investments in joint ventures increased by R20.6 million or 23%, to R110m, of which Kian Ann contributed 21% of this increase, through the sale of a property, which resulted in a R33m gain on the sale. KMP Far East contributed the remaining increase in equity-accounted earnings of joint ventures. Net profit for the period thus increased by 8% to R356m.

The group repurchased about 1% of its ordinary and 3% of its preference shares in issue, to the value of R49m, resulting in earnings a share rising by 32c to 304c per share.

Headline earnings a share increased slightly from 268c to 269c per share.

Cash generated from operations before working capital changes increased by 9% from R469m to R513m, with working capital absorbing R190m, resulting in cash generated from operations increasing from R290m to R322m.